Document:

Unassociated Document

     

    WARRANT AGREEMENT (“Agreement”), dated
as of April 23, 2010, by and between Tuffnell Ltd., a Nevada corporation (the “
Company ”),
and                  (“
Warrant holder ”).  Certain capitalized terms used herein are defined
in Section 14 hereof.

     

    In consideration of the mutual terms,
conditions, representations, warranties and agreements herein set forth, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as
follows:

     

    
      	
              Section
      1.  

            	
              Issuance of
      Warrants.

            

    

     

    The Company hereby issues and grants to
Warrant holder 500,000 Warrants (“Warrants”) to purchase 500,000 shares of
common stock of the Company (the “ Common Stock ”).  Commencing on
April 26, 2010  (the “ Warrant Commencement Date ”), and
terminating  2years thereafter (the “ Warrant Expiration Date ”), the
holder shall have the right, subject to the satisfaction of the conditions to
exercise set forth in Section 7 of this Agreement, to purchase 500,000 shares of
Common Stock (the shares of Common Stock issuable upon exercise of the Warrants
being collectively referred to herein as the “ Warrant Shares ”) at an exercise
price of $1.50  per Warrant Share (the “ Exercise Price
”).  The number of Warrant Shares issuable on exercise of each Warrant
and the Exercise Price are all subject to adjustment pursuant to Section 8 of
this Agreement. Notwithstanding, the Company may, in its sole and absolute
discretion, reduce the Exercise Price.

     

    
      	
              Section
      2.  

            	
              Form of Warrant
      Certificates.

            

    

     

    Promptly after the execution and
delivery of this Agreement by the parties hereto, the Company shall cause to be
executed and delivered to Warrant holder one or more certificates evidencing the
Warrants (the “ Warrant Certificates ”).  Each Warrant Certificate
delivered hereunder shall be substantially in the form set forth
in  Exhibit A attached hereto and may have such letters, numbers or
other identification marks and legends, summaries or endorsements printed
thereon as the Company may deem appropriate and that are not inconsistent with
the terms of this Agreement or as may be required by applicable law, rule or
regulation.  Each Warrant Certificate shall be dated the date of
execution by the Company.

     

    
      	
              Section
      3.  

            	
              Execution of Warrant
      Certificates.

            

    

     

    Each Warrant Certificate delivered
hereunder shall be signed on behalf of the Company by its Chairman of the Board,
Chief Executive Officer, President or a Vice President, Secretary or an
Assistant Secretary.  Each such signature may be in the form of a
facsimile thereof and may be imprinted or otherwise reproduced on the Warrant
Certificates.

     

    If any officer of the Company who signed
any Warrant Certificate ceases to be an officer of the Company before the
Warrant Certificate so signed shall have been delivered by the Company, such
Warrant Certificate nevertheless may be delivered as though such person had not
ceased to be such officer of the Company.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    
      	
              Section
      4.  

            	
              Registration.

            

    

     

    Warrant Certificates shall be issued in
registered form only.  The Company will keep or cause to be kept books
for registration of ownership and transfer of each Warrant Certificate issued
pursuant to this Agreement.  Each Warrant Certificate issued pursuant
to this Agreement shall be numbered by the Company and shall be registered by
the Company in the name of the holder thereof (initially the Warrant
holder).  The Company may deem and treat the registered holder of any
Warrant Certificate as the absolute owner thereof (notwithstanding any notation
of ownership or other writing thereon made by anyone) for the purpose of any
exercise thereof and for all other purposes, and the Company shall not be
affected by any notice to the contrary.

     

    
      	
              Section 5.  
      

            	
              No
    Transfers.

            

    

     

    A. Restrictions on
Transfer.  No Warrant may be sold, pledged, hypothecated, assigned,
conveyed, transferred or otherwise disposed of (each a “ transfer ”) unless (i)
the transfer complies with all applicable United States securities laws and (ii)
the transferee agrees in writing to be bound by the terms of this
Agreement.

     

    B. Cancellation.  Warrant
Certificates surrendered for transfer or exchange shall be canceled by the
Company.

     

    
      	
              Section
      6.  

            	
              Mutilated or Missing Warrant
      Certificates.

            

    

     

    If any Warrant Certificate is mutilated,
lost, stolen or destroyed, the Company shall issue, upon surrender and
cancellation of any mutilated Warrant Certificate, or in lieu of and
substitution for any lost, stolen or destroyed Warrant Certificate, a new
Warrant Certificate of like tenor and representing an equal number of
Warrants.  In the case of a lost, stolen or destroyed Warrant
Certificate, a new Warrant Certificate shall be issued by the Company only upon
the Company’s receipt of reasonably satisfactory evidence of such loss, theft or
destruction and, if requested, an indemnity or bond reasonably satisfactory to
the Company.

     

    
      	
              Section
      7.  

            	
              Exercise of
      Warrants.

            

    

     

    A. Exercise.  Subject to
the terms and conditions set forth in this Section 7, Warrants may be exercised,
in whole or in part (but not as to any fractional part of a Warrant), at any
time or from time to time on and after the Warrant Commencement Date and on or
prior to 5:00 p.m. on the Warrant Expiration Date.

     

    The Warrant shall be exercisable only on
and after the Warrant Commencement Date. If the Company determines in its sole
and absolute discretion to accelerate the date that this Warrant first becomes
exercisable to a date which is earlier than the first anniversary date of the
date hereof, the Company shall send notice to the Warrant holder prior to the
date thereof.

     

    In order to exercise any Warrant,
Warrant holder shall deliver to the Company at its office referred to in
Section 15 the following: (i) a written notice in the form of the
Election to Purchase appearing at the end of the form of Warrant Certificate
attached as  Exhibit A  hereto of such Warrant holder’s
election to exercise the Warrants, which notice shall specify the number of such
Warrant holder’s Warrants being exercised; (ii) the Warrant Certificate or
Warrant Certificates evidencing the Warrants being exercised; and (iii) payment
of the aggregate Exercise Price.

     

    
      
         

      

      
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    All rights of Warrant holder with
respect to any Warrant that has not been exercised, on or prior to 5:00 p.m. on
the Warrant Expiration Date shall immediately cease and such Warrants shall be
automatically cancelled and void.

     

    B. Payment of Exercise
Price.  Payment of the Exercise Price with respect to Warrants being
exercised hereunder may, at the election of Warrant holder, be made as
follows:  (i) by the payment to the Company, in cash, by check or wire
transfer, of an amount equal to the Exercise Price multiplied by the number of
Warrants then being exercised; or (ii) by surrendering to the Company for
cancellation Warrant Certificates evidencing Warrants to acquire a number of
Warrant Shares equal to (x) the aggregate Exercise Price divided by (y) the fair
market value of one Warrant Share (a “ cashless exercise ”).

    

    If a Warrant holder elects a cashless
exercise, the number of Warrant Shares to be issued to Warrant holder upon such
exercise shall be computed using the following formula:

     

    
      	
            	
              X =  

            	
              Y(A-B)

            

    

    A

     

    
      	
            	
              X = 

            	
              the number of Warrant Shares to be
      issued to Warrant holder

            

    

     

    
      	
            	
              Y =  

            	
              the number of Warrant Shares
      underlying the Warrants being
exercised

            

    

     

    
      	
            	
              A = 

            	
              the fair market value of one
      Warrant Share

            

    

     

    
      	
            	
              B = 

            	
              the Exercise
      Price

            

    

     

    (a) As used herein, the “fair
market value of one Warrant Share” means an amount equal to the number of shares
of Common Stock into which a Warrant Share is convertible times the average,
over the 5 trading-day period ending on the trading day which is two trading
days prior to the date of surrender, of the closing sales prices (or, if on any
day there is no closing sales price, the average of the highest bid and lowest
asked price) in the United States Over-the -Counter Bulletin Board as reported by the
National Quotation Bureau, Incorporated, or any similar successor
organization.

     

    (b) For the purpose of this section, the
“closing” shall mean 4:00 p.m., New York City time.

     

    C. Payment of Taxes.  The
Company shall be responsible for paying any and all issue, documentary, stamp or
other taxes that may be payable in respect of any issuance or delivery of
Warrant Shares on exercise of a Warrant.

     

    
      
         

      

      
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    D. Delivery of Warrant
Shares.  Upon receipt of the items referred to in Section 7A, the
Company shall, as promptly as practicable, and in any event within five (5)
Business Days thereafter, execute and deliver or cause to be executed and
delivered, to or upon the written order of Warrant holder, and in the name of
Warrant holder or Warrant holder’s designee, a stock certificate or stock
certificates representing the number of Warrant Shares to be issued on exercise
of the Warrant(s).  If the Warrant Shares shall in accordance with the
terms thereof have become automatically convertible into shares of the Company’s
Common Stock prior to the time a Warrant is exercised, the Company shall in lieu
of issuing shares of Common Stock, issue to the Warrant holder or its designee
on exercise of such Warrant, a stock certificate or stock certificates
representing the number of shares of Common Stock into which the Warrant Shares
issuable on exercise of such Warrant are convertible.  The
certificates issued to Warrant holder or its designee shall bear any restrictive
legend required under applicable law, rule or regulation.  The stock
certificate or certificates so delivered shall be registered in the name of
Warrant holder or such other name as shall be designated in said
notice.  A Warrant shall be deemed to have been exercised and such
stock certificate or stock certificates shall be deemed to have been issued, and
such holder or any other Person so designated to be named therein shall be
deemed to have become a holder of record of such shares for all purposes, as of
the date that such notice, together with payment of the aggregate Exercise Price
and the Warrant Certificate or Warrant Certificates evidencing the Warrants to
be exercised, is received by the Company as aforesaid.  If the
Warrants evidenced by any Warrant Certificate are exercised in part, the Company
shall, at the time of delivery of the stock certificates, deliver to the holder
thereof a new Warrant Certificate evidencing the Warrants that were not
exercised or surrendered, which shall in all respects (other than as to the
number of Warrants evidenced thereby) be identical to the Warrant Certificate
being exercised.  Any Warrant Certificates surrendered upon exercise
of Warrants shall be canceled by the Company.

     

    
      	
              Section
      8.  

            	
              Adjustment of Number of Warrant
      Shares Issuable Upon Exercise of a Warrant and Adjustment of Exercise
      Price.

            

    

     

    A. Adjustment for Stock Splits,
Stock Dividends, Recapitalizations.  The number of Warrant Shares
issuable upon exercise of each Warrant and the Exercise Price shall each be
proportionately adjusted to reflect any stock dividend, stock split, reverse
stock split, recapitalization or the like affecting the number of outstanding
shares of Common Stock that occurs after the date hereof.

     

    B. Adjustments for Reorganization,
Consolidation, Merger.  If after the date hereof, the Company (or any
other entity, the stock or other securities of which are at the time receivable
on the exercise of the Warrants), consolidates with or merges into another
entity or conveys all or substantially all of its assets to another entity,
then, in each such case, Warrant holder, upon any permitted exercise of a
Warrant (as provided in Section 7), at any time after the consummation of such
reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the stock or other securities and property receivable upon
the exercise of the Warrant prior to such consummation, the stock or other
securities or property to which such Warrant holder would have been entitled
upon the consummation of such reorganization, consolidation, merger or
conveyance if such Warrant holder had exercised the Warrant immediately prior
thereto, all subject to further adjustment as provided in this Section
8.  The successor or purchasing entity in any such reorganization,
consolidation, merger or conveyance (if other than the Company) shall duly
execute and deliver to Warrant holder a written acknowledgment of such entity’s
obligations under the Warrants and this Agreement.

     

    
      
         

      

      
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    C. Notice of Certain
Events.

     

    Upon the occurrence of any event
resulting in an adjustment in the number of Warrant Shares (or other stock or
securities or property) receivable upon the exercise of the Warrants or the
Exercise Price, the Company shall promptly thereafter (i) compute such
adjustment in accordance with the terms of the Warrants, (ii) prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, and (iii) mail copies of such certificate to
Warrant holder.

     

    D. Adjustment to the Exercise
Price.

     

    The Company has the right, in its sole
and absolute discretion, to reduce the Exercise Price. Upon any such
determination, the Company shall notice to the Warrant holder
thereof.

     

    
      	
              Section
      9.  

            	
              Reservation of
      Shares.

            

    

     

    The Company shall at all times reserve
and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock, or its authorized and issued Common Stock
held in its treasury, the aggregate number of the Warrant Shares deliverable
upon the exercise of all outstanding Warrants, for the purpose of enabling it to
satisfy any obligation to issue the Warrant Shares upon the due and punctual
exercise of the Warrants, through 5:00 p.m. on the Warrant Expiration
Date.

     

    
      	
              Section
      10.  

            	
              No
    Impairment.

            

    

     

    The Company shall not, by amendment of
its certificate of incorporation or bylaws, or through reorganization,
consolidation, merger, dissolution, issuance or sale of securities, sale of
assets or any other voluntary action, willfully avoid or seek to avoid the
observance or performance of any of the terms of the Warrants or this Agreement,
and shall at all times in good faith assist in the carrying out of all such
terms and in the taking of all such actions as may be necessary or appropriate
in order to protect the rights of Warrant holder under the Warrants and this
Agreement against wrongful impairment.  Without limiting the
generality of the foregoing, the Company:  (i) shall not set or
increase the par value of any Warrant Shares above the amount payable therefor
upon exercise, and (ii) shall take all actions that are necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares upon the exercise of the
Warrants.

     

    
      	
              Section
      11.  

            	
              Representations and Warranties of
      Warrant holder.

            

    

     

    Warrant holder represents and warrants
to the Company that, on the date hereof and on the date the Warrant holder
exercises the Warrant pursuant to the terms of this
Agreement:

     

    (i) Warrant holder is an
“accredited investor”, as such term is defined in Rule 501(a) of Regulation D
promulgated under the Securities Act.

     

    (ii) Warrant holder understands
that the Warrants and the Warrant Shares have not been registered under the
Securities Act and acknowledges that the Warrants and the Warrant Shares must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration becomes
available.

     

    (iii) Warrant holder is acquiring
the Warrants for Warrant holder’s own account for investment and not with a view
to, or for sale in connection with, any distribution
thereof.

     

    
      
         

      

      
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    (iv) All the representations made by the
Warrant holder on the date hereof in the Subscription Agreement between the
Company and the Warrant holder shall be true and correct as of the date the
Warrant holder exercises the Warrant.

     

    
      	
              Section
      12.  

            	
              No Rights or Liabilities as
      Stockholder.

            

    

     

    No holder, as such, of any Warrant
Certificate shall be entitled to vote, receive dividends or be deemed the holder
of Common Stock which may at any time be issuable on the exercise of the
Warrants represented thereby for any purpose whatever, nor shall anything
contained herein or in any Warrant Certificate be construed to confer upon the
holder of any Warrant Certificate, as such, any of the rights of a stockholder
of the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issuance of
stock, reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger, conveyance or otherwise), or to receive notice
of meetings or other actions affecting stockholders or to receive dividend or
subscription rights, or otherwise, until such Warrant Certificate shall have
been exercised in accordance with the provisions hereof and the receipt and
collection of the Exercise Price and any other amounts payable upon such
exercise by the Company.  No provision hereof, in the absence of
affirmative action by Warrant holder to purchase Warrant Shares shall give rise
to any liability of such holder for the Exercise Price or as a stockholder of
the Company, whether such liability is asserted by the Company or by creditors
of the Company.

     

    
      	
              Section
      13.  

            	
              Fractional
      Interests.

            

    

     

    The Company shall not be required to
issue fractional shares of Common Stock upon exercise of the Warrants or to
distribute certificates that evidence fractional shares of Common
Stock.  If any fraction of a Warrant Share would, except for the
provisions of this Section 13, be issuable on the exercise of a Warrant, the
number of Warrant Shares to be issued by the Company shall be rounded to the
nearest whole number, with one-half or greater being rounded
up.

     

    
      	
              Section
      14.  

            	
              Definitions.

            

    

     

    Unless the context otherwise requires,
the terms defined in this Section 14, whenever used in this Agreement shall
have the respective meanings hereinafter specified and words in the singular or
in the plural shall each include the singular and the plural and the use of any
gender shall include all genders.

     

     “Business Day” shall mean any day
on which banking institutions are generally open for business in
Nevada.

     

    “Common Stock” means the common stock of
the Company.

     

    “Exercise Price” shall be the price per
Warrant Share at which Warrant holder is entitled to purchase Warrant Shares
upon exercise of any Warrant determined in accordance with Section 7
and  subject to adjustment as provided in Sections 8 and 16
hereof.

     

    “Person” shall mean any corporation,
association, partnership, joint venture, trust, organization, business,
individual, government or political subdivision thereof or governmental
body.

     

    
      
         

      

      
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    “Securities Act” shall mean the
Securities Act of 1933, as amended, or any similar federal statute as at the
time in effect, and any reference to a particular section of such Act shall
include a reference to the comparable section, if any, of such successor federal
statute.

     

    
      	
              Section
      15.  

            	
              Notices.

            

    

     

    All notices, consents, requests, waivers
or other communications required or permitted under this Agreement (each a “
Notice ”) shall be in writing and shall be sufficiently given (a) if hand
delivered, (b) if sent by nationally recognized overnight courier, or
(c) if sent by registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:

     

    if to the Company:

    

    Tuffnell Ltd.

    81 Oxford Street

    London UK

    W1D 2EU

    

    if to Warrant holder, to its address in
the Subscription Agreement.

     

    or such other address as shall be
furnished by any of the parties hereto in a Notice.  Any Notice shall
be deemed given upon receipt.

     

    
      	
              Section
      16.  

            	
              Supplements, Amendments and
      Waivers; Unilateral Changes by the
  Company.

            

    

     

    This Agreement may be supplemented or
amended only by a subsequent writing signed by each of the parties hereto (or
their successors or permitted assigns), and any provision hereof may be waived
only by a written instrument signed by the party charged
therewith.

     

    The Company shall have the right, in its
sole and absolute discretion, to (i) accelerate the exercise date of this
Warrant to a date which is prior to the first anniversary of the date hereof
and/or (ii) reduce the Exercise Price. If the Company exercises its right
hereunder, it shall provide notice thereof to the Warrant
holder.

     

    
      	
              Section
      17.  

            	
              Successors and
      Assigns.

            

    

     

    Except as otherwise provided herein, the
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the successors and permitted assigns of the parties
hereto.  Warrants issued under this Agreement may be assigned by
Warrant holder only to the extent such assignment satisfies the restrictions on
transfer set forth in this Agreement; any attempted assignment of Warrants in
violation of the terms hereof shall be void  ab
initio
..

     

    
      	
              Section
      18.  

            	
              Termination.

            

    

     

    This Agreement (other than
Sections 7C, 11, and Sections 15 through 26, inclusive, and all related
definitions, all of which shall survive such termination) shall terminate on the
earlier of (i) the Warrant Expiration Date and (ii) the date on which all
Warrants have been exercised.

     

    
      
         

      

      
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              Section
      19.  

            	
              Governing Law;
      Jurisdiction.

            

    

     

    A. Governing Law. This Agreement
and each Warrant Certificate issued hereunder shall be governed by and construed
in accordance with the laws of the State of Nevada and the federal laws of the
United States applicable herein.

     

    B. Submission to
Jurisdiction.  Each party to this Agreement hereby irrevocably and
unconditionally submits, for itself and its property, to the jurisdiction of the
State of Nevada, and any appellate court from any thereof, as determined by the
Company in its sole and absolute discretion, in respect of actions brought
against it as a defendant, in any action, suit or proceeding arising out of or
relating to this Agreement or the Warrant Certificates and Warrants to be issued
pursuant hereto, or for recognition or enforcement of any judgment, and each of
the parties hereto hereby irrevocably and unconditionally agrees that all claims
in respect of any such action, suit or proceeding may be heard and determined in
such courts.  Each of the parties hereto agrees that a final judgment
in any such action, suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other manner provided
by law.

     

    C. Venue.  Each party
hereto irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection which it may now or hereafter have
to the laying of venue of any action, suit or proceeding arising out of or
relating to this Agreement, or the Warrant Certificates and Warrants to be
issued pursuant hereto, in any court referred to in this Subsection
B.  Each of the parties hereby irrevocably waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action, suit proceeding in any such court and waives any other right to
which it may be entitled on account of its place of residence or
domicile.

     

    
      	
              Section
      20.  

            	
              Third Party
      Beneficiaries.

            

    

     

    Each party intends that this Agreement
shall not benefit or create any right or cause of action in or on behalf of any
Person other than the parties hereto and their successors and permitted
assigns.

     

    
      	
              Section
      21.  

            	
              Headings.

            

    

     

    The headings in this Agreement are for
convenience only and shall not affect the construction or interpretation of this
Agreement.

     

    
      	
              Section
      22.  

            	
              Entire
      Agreement.

            

    

     

    This Agreement, together with the
Warrant Certificates and Exhibits, constitutes the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and shall supersede any prior agreements and understandings between the
parties hereto with respect to such subject matter.

     

    
      	
              Section
      23.  

            	
              Expenses.

            

    

     

    Each of the parties hereto shall pay its
own expenses and costs incurred or to be incurred in negotiating, closing and
carrying out this Agreement and in consummating the transactions contemplated
herein, except as otherwise expressly provided for herein.

     

    
      
         

      

      
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              Section
      24.  

            	
              Neutral
      Construction.

            

    

     

    The parties to this Agreement agree that
this Agreement was negotiated fairly between them at arm’s length and that the
final terms of this Agreement are the product of the parties’
negotiations.  Each party represents and warrants that it has sought
and received legal counsel of its own choosing with regard to the contents of
this Agreement and the rights and obligations affected hereby.  The
parties agree that this Agreement shall be deemed to have been jointly and
equally drafting by them, and that the provisions of this Agreement therefore
should not be construed against a party or parties on the grounds that such
party or parties drafted or was more responsible for the drafting of any such
provision(s).

     

    
      	
              Section
      25.  

            	
              Representations and
      Warranties.

            

    

     

    The Company hereby represents and
warrants to the Warrant holder that:

     

    (a) the Company has all requisite
corporate power and authority to (i) execute and deliver this Agreement and (ii)
issue and sell the Common Stock upon the conversion thereof and carry out
provisions of this Agreement.  All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder, and the authorization (or reservation for
issuance), sale and issuance of the Common Stock to be sold hereunder has been
taken or will be taken prior to the date hereof;

     

    (b) this Agreement constitutes a
valid and legally binding obligation of the Company, enforceable in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws relating to application affecting
enforcement of creditor’s rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief of other
equitable remedies;

     

    (c) the Common Stock issuable upon
the conversion thereof that is being purchased hereunder, when issued, sold and
delivered in accordance with the terms of this Agreement for the consideration
expressed herein, will be duly and validly issued, fully paid and non assessable
and will be free of restrictions on transfer, other than restrictions on
transfer under applicable state and federal securities laws;

     

    (d) subject in part to the truth
and accuracy of Warrant holder’s representations set forth in Section 11 of this
Agreement, the offer, sale and issuance of the Common Stock issuable upon the
conversion thereof as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act and the qualification or
registration requirements of any state securities or other applicable blue sky
laws; and

     

    (e) the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any such violation, or be in conflict
with or constitute, with or without the passage of time and giving of notice,
either a default under any such provision or an event that results in creation
of any lien, charge or encumbrance upon any assets of the Company or the
suspension, revocation, impairment, forfeiture or non removal of any material
permit, license, authorization or approval applicable to the Company, its
business or operations or any of its assets or properties.

     

    
      
         

      

      
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              Section
      26.  

            	
              Counterparts.

            

    

     

    This Agreement may be executed in
counterparts and by facsimile and each such counterpart shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.

     

    IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be duly executed as of the day and year first
above written.

     

    
      	 
      	
              TUFFNELL
    LTD.

            

    

     

    
      	 
      	
              By:

            	
               /s/ George
      Dory

            	 
      

    

    

    
      	 
      	
              Name: George
      Dory

            

    

    

    
      	 
      	
              Title: Chief Executive Officer,
      President, Secretary, and
Treasurer

            

    

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    EXHIBIT A

     

    THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE.  THE SECURITIES HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH ACT AND
LAWS.  THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF, AND MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH, A
WARRANT AGREEMENT BETWEEN TUFFNELL LTD. AND THE HOLDER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE.  COPIES OF SUCH AGREEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE COMPANY.

     

    NO.     500,000
WARRANTS

     

    FORM OF

     

    Warrant Certificate

     

    TUFFNELL LTD.

     

    This Warrant Certificate certifies that
________       , a Non Us Resident, is the
registered holder of 500,000  Warrants (the “ Warrant holder ”) to
purchase shares (the “ Warrant Shares”) of Common Stock of Tuffnell Ltd. (the “
Company ”).  Each Warrant entitles the holder, subject to the
satisfaction of the conditions to exercise set forth in Section 7 of the Warrant
Agreement referred to below, to purchase from the Company at any time or from
time to time on and after April 26 2010, (the “ Warrant Commencement Date
”) and terminate on or prior to 5:00 p.m. 2 years thereafter (the “ Warrant
Expiration Date ”) one fully paid and non assessable Warrant Share at the
Exercise Price set forth in the Warrant Agreement.  The number of
Warrant Shares for which each Warrant is exercisable and the Exercise Price are
subject to adjustment as provided in the Warrant Agreement.

     

    The Warrants evidenced by this Warrant
Certificate are part of a duly authorized issue of Warrants to purchase
Warrant Shares and are issued pursuant to a Warrant Agreement, dated as of April
23, 2010 (the “ Warrant Agreement ”), between the Company and
____________     , which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and Warrant
holder.

     

    Warrant holder may exercise vested
Warrants by surrendering this Warrant Certificate, with the Election to Purchase
attached hereto properly completed and executed, together with payment of the
aggregate Exercise Price, at the offices of the Company specified in Section 15
of the Warrant Agreement.  If upon any exercise of Warrants evidenced
hereby the number of Warrants exercised shall be less than the total number of
Warrants evidenced hereby, there shall be issued to the holder hereof
or its assignee a new Warrant Certificate evidencing the number of Warrants
not exercised.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    This Warrant Certificate, when
surrendered at the offices of the Company specified in Section 15 of the Warrant
Agreement, by the registered holder thereof in person, by legal representative
or by attorney duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, for one or more
other Warrant Certificates of like tenor evidencing in the aggregate a like
number of Warrants.

     

    The Company may deem and treat the
registered holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone), for the purpose of any exercise hereof and for all other purposes, and
the Company shall not be affected by any notice to the
contrary.

     

    

     

    WITNESS the signatures of the duly
authorized officers of the Company.

     

    Dated: April 23 ,
2010

     

    
       

      
        	 
      	
                TUFFNELL
    LTD.

              

      

       

      
        	 
      	
                By:

              	
                 /s/ George
      Dory

              	 
      

      

      

      
        	 
      	
                Name: George
      Dory

              

      

      

      
        	 
      	
                Title: Chief Executive Officer,
      President, Secretary, and
Treasurer

              

      

       

      
        
           

        

        
          12

          
            

          

        

        
           

FORM OF

      

    

     

    Election to Purchase

     

    The undersigned hereby irrevocably
elects to exercise _________ of the Warrants evidenced by the attached Warrant
Certificate to purchase Warrant Shares, and herewith tenders (or is concurrently
tendering) payment for such Warrant Shares in an amount determined in accordance
with the terms of the Warrant Agreement.  The undersigned requests
that a certificate representing such Warrant Shares be registered in the name of
, whose address is    and that such certificate be delivered to ,
whose address is .  If said number of Warrants is less than the number
of Warrants evidenced by the Warrant Certificate (as calculated pursuant to the
Warrant Agreement), the undersigned requests that a new Warrant Certificate
evidencing the number of Warrants evidenced by this Warrant Certificate that are
not being exercised be registered in the name of , whose address
is  and that such Warrant Certificate be delivered to , whose address
is .

     

    
      
        	 	
                Dated:                                     
      ,
                   

              
	 	 
      
	 	
                Name of holder of Warrant
      Certificate:

              
	 	 
      
	 	
                  

              
	 	
                (Please
    Print)

              
	 	 
      
	 	
                Address:                                                              

              
	 	 
      
	 	 
      
	 	
                Signature:                                                              

              

      

    

    

    
      	 
      	
              Note:

            	
              The above signature must
      correspond with the name as written in the first sentence of the attached
      Warrant Certificate in every particular, without alteration or enlargement
      or any change whatever, and if the certificate evidencing the Warrant
      Shares or any Warrant Certificate representing Warrants not exercised is
      to be registered in a name other than that in which this Warrant
      Certificate is registered, the signature above must be
      guaranteed.

            

    

     

    Signature
Guaranteed:  _________________________

    

    Dated:                           ,
               

     

    
      
         

      

      
        13NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO
THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE
COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR
ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF
THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 18(a) HEREOF.  THE
PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES
ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE
FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

       

      NACEL
Energy Corporation

       

      Senior
Secured Convertible Note

       

      
        
          	
                  Original
      Issuance Date:  November 24, 2009

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

                	
                  Original
      Principal Amount: U.S.
$935,000

                

        

      

      

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

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

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

       

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

       

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

       

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

       

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

       

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

       

      (ii)           “Conversion Price” means, as of
any Conversion Date or other date of determination, $0.30, subject to adjustment
as provided herein.

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

       

      (c)          Mechanics of
Conversion.

       

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

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

      (ii)          Company’s Failure to Timely
Convert. If the Company shall fail, for any reason or for no reason, to
issue to the Holder within five (5) Trading Days after the Company’s receipt of
a Conversion Notice (whether via facsimile or otherwise), a certificate for the
number of shares of Common Stock to which the Holder is entitled and register
such shares of Common Stock on the Company’s share register or to credit the
Holder’s or its designee’s balance account with DTC for such number of shares of
Common Stock to which the Holder is entitled upon the Holder’s conversion of any
Conversion Amount (as the case may be) (a “Conversion Failure”), then, in
addition to all other remedies available to the Holder, (1) the Company shall
pay in cash to the Holder on each day after such fifth (5th)
Trading Day that the issuance of such shares of Common Stock is not timely
effected an amount equal to 2% of the product of (A) the sum of the number of
shares of Common Stock not issued to the Holder on a timely basis and to which
the Holder is entitled multiplied by (B) the Closing Sale Price of the Common
Stock on the Trading Day immediately preceding the last possible date which the
Company could have issued such shares of Common Stock to the Holder without
violating Section 3(c)(i) and (2) the Holder, upon written notice to the
Company, may void its Conversion Notice with respect to, and retain or have
returned (as the case may be) any portion of this Note that has not been
converted pursuant to such Conversion Notice, provided that the voiding of a
Conversion Notice shall not affect the Company’s obligations to make any
payments which have accrued prior to the date of such notice pursuant to this
Section 3(c)(ii) or otherwise. In addition to the foregoing, if within three (3)
Trading Days after the Company’s receipt of a Conversion Notice (whether via
facsimile or otherwise), the Company shall fail to issue and deliver a
certificate to the Holder and register such shares of Common Stock on the
Company’s share register or credit the Holder’s or its designee’s balance
account with DTC for the number of shares of Common Stock to which the Holder is
entitled upon the Holder’s conversion hereunder (as the case may be), and if on
or after such third (3rd)
Trading Day the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of
shares of Common Stock issuable upon such conversion that the Holder anticipated
receiving from the Company, then, in addition to all other remedies available to
the Holder, the Company shall, within three (3) Business Days after the Holder’s
request and in the Holder’s discretion, either (i) pay cash to the Holder in an
amount equal to the Holder’s total purchase price (including brokerage
commissions and other out-of-pocket expenses, if any) for the shares of Common
Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to deliver such
certificate (and to issue such shares of Common Stock) shall terminate, or (ii)
promptly honor its obligation to deliver to the Holder a certificate or
certificates representing such shares of Common Stock or credit the Holder’s
balance account with DTC for the number of shares of Common Stock to which the
Holder is entitled upon the Holder’s conversion hereunder (as the case may be)
and pay cash to the Holder in an amount equal to the excess (if any) of the
Buy-In Price over the product of (A) such number of shares of Common Stock
multiplied by (B) the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the Conversion Date.

       

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

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

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

       

      (d)          Limitations on
Conversions. Notwithstanding anything to the contrary contained in this
Note, this Note shall not be convertible by the Holder hereof, and the Company
shall not effect any conversion of this Note or otherwise issue any shares of
Common Stock pursuant to Section 8 hereof, to the extent (but only to the
extent) that the Holder or any of its affiliates would beneficially own in
excess of 4.9% (the “Maximum
Percentage”) of the Common Stock. To the extent the above limitation
applies, the determination of whether this Note shall be convertible (vis-à-vis
other convertible, exercisable or exchangeable 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 convert this
Note, or to issue shares of Common Stock, pursuant to this paragraph shall have
any effect on the applicability of the provisions of this paragraph with
respect to any subsequent determination of convertibility. For purposes of this
paragraph, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(d) of the 1934 Act
(as defined in the Securities Purchase Agreement) and the rules and regulations
promulgated thereunder. The provisions of this paragraph shall be implemented in
a manner otherwise than in strict conformity with the terms of this paragraph to
correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this paragraph shall apply to a successor Holder of
this Note. The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not waive this paragraph without the consent
of holders of a majority of its Common Stock. For any reason at any time, upon
the written or oral request of the Holder, the Company shall within one (1)
Business Day confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding, including by virtue of any prior conversion or
exercise of convertible or exercisable securities into Common Stock, including,
without limitation, pursuant to this Note or securities issued pursuant to the
Securities Purchase Agreement.

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      4.           RIGHTS UPON EVENT OF
DEFAULT.

       

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

       

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

       

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

       

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

       

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

       

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

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

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

       

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

       

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

       

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

       

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

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

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

       

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

       

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

      
        
           

        

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

       

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

       

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

       

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

       

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

       

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

       

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

      
        
           

        

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

       

      5.           RIGHTS UPON FUNDAMENTAL
TRANSACTION.

       

      (a)          Assumption. The
Company shall not enter into or be party to a Fundamental Transaction unless
(i) the Successor Entity assumes in writing all of the obligations of the
Company under this Note and the other Transaction Documents in accordance with
the provisions of this Section 5(a) pursuant to written agreements in form and
substance satisfactory to the Holder and approved by the Holder prior to such
Fundamental Transaction, including agreements to deliver to each holder of Notes
in exchange for such Notes a security of the Successor Entity evidenced by a
written instrument substantially similar in form and substance to the Notes,
including, without limitation, having a principal amount and interest rate equal
to the principal amounts then outstanding and the interest rates of the Notes
held by such holder, having similar conversion rights as the Notes and having
similar ranking to the Notes, and satisfactory to the Holder and (ii) the
Successor Entity (including its Parent Entity) is a publicly traded corporation
whose common stock is quoted on or listed for trading on an Eligible Market.
Upon the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Note and the other Transaction
Documents referring to the “Company” shall refer instead to the Successor
Entity), and may exercise every right and power of the Company and shall assume
all of the obligations of the Company under this Note and the other Transaction
Documents with the same effect as if such Successor Entity had been named as the
Company herein. Upon consummation of a Fundamental Transaction, the Successor
Entity shall deliver to the Holder confirmation that there shall be issued upon
conversion or redemption of this Note at any time after the consummation of such
Fundamental Transaction, in lieu of the shares of the Company’s Common Stock (or
other securities, cash, assets or other property (except such items still
issuable under Sections 6 and 15, which shall continue to be receivable
thereafter) issuable upon the conversion or redemption of the Notes prior to
such Fundamental Transaction, such shares of the publicly traded common stock
(or their equivalent) of the Successor Entity (including its Parent Entity)
which the Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Note been converted immediately prior to such
Fundamental Transaction (without regard to any limitations on the conversion of
this Note), as adjusted in accordance with the provisions of this Note. The
provisions of this Section 5 shall apply similarly and equally to successive
Fundamental Transactions and shall be applied without regard to any limitations
on the conversion of this Note.

      
        
           

        

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

      
        
           

        

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

       

      (a)          Purchase Rights. In
addition to any adjustments pursuant to Section 7 below, if at any time the
Company grants, issues or sells any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of any class of Common Stock (the “Purchase Rights”), then the
Holder will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which the Holder could have acquired if
the Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note) immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase
Rights (provided, however, to the extent that the Holder’s right to participate
in any such Purchase Right would result in the Holder exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to such extent (or beneficial ownership of such shares of Common
Stock as a result of such Purchase Right to such extent) and such Purchase Right
to such extent shall be held in abeyance for the Holder until such time, if
ever, as its right thereto would not result in the Holder exceeding the Maximum
Percentage).

      
        
           

        

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

       

      7.           RIGHTS UPON ISSUANCE OF
OTHER SECURITIES.

       

      (a)          Adjustment of Conversion
Price upon Issuance of Common Stock.  If and whenever on or
after the Subscription Date the Company issues or sells, or in accordance with
this Section 7(a) is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding any Excluded Securities (as
defined in the Securities Purchase Agreement) issued or sold or deemed to have
been issued or sold) for a consideration per share (the “New Issuance Price”) less than
a price equal to the Conversion Price in effect immediately prior to such issue
or sale or deemed issuance or sale (such Conversion Price then in effect is
referred to herein as the “Applicable Price”) (the
foregoing a “Dilutive
Issuance”), then, immediately after such Dilutive Issuance, the
Conversion Price then in effect shall be reduced to an amount equal to the New
Issuance Price. For purposes of determining the adjusted Conversion Price under
this Section 7(a), the following shall be applicable:

       

      (i)           Issuance of
Options.  If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have been issued and sold by the Company at the
time of the granting or sale of such Option for such price per share. For
purposes of this Section 7(a)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such Options or upon
conversion, exercise or exchange of any Convertible Securities issuable upon
exercise of any such Option” shall be equal to (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 Conversion Price shall be made
upon the actual issuance of such share of Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual issuance of such
share of Common Stock upon conversion, exercise or exchange of such Convertible
Securities.

      
        
           

        

        
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      (ii)           Issuance of Convertible
Securities.  If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this Section 7(a)(ii), the “lowest price per share for which
one share of Common Stock is issuable upon the conversion, exercise or exchange
thereof” shall be equal to (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 Conversion Price shall be made upon the actual issuance of such share of
Common Stock upon conversion, exercise or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustment of the Conversion Price has
been or is to be made pursuant to other provisions of this Section 7(a), except
as contemplated below, no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.

       

      (iii)           Change in Option Price or
Rate of Conversion. If the purchase or exercise price provided for in any
Options, the additional consideration, if any, payable upon the issue,
conversion, exercise or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at any time, the
Conversion Price in effect at the time of such increase or decrease shall be
adjusted to the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities provided for such increased or
decreased purchase price, additional consideration or increased or decreased
conversion rate (as the case may be) at the time initially granted, issued or
sold. For purposes of this Section 7(a)(iii), if the terms of any Option or
Convertible Security that was outstanding as of the Subscription Date are
increased or decreased in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 7(a) shall be made if such adjustment would
result in an increase of the Conversion Price then in effect.

      
        
           

        

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

      
        
           

        

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

       

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

       

      (c)          Other Events. In the
event that the Company (or any direct or indirect Subsidiary thereof) shall
take any action to which the provisions hereof are not strictly applicable, or,
if applicable, would not operate to protect the Holder from dilution or if any
event occurs of the type contemplated by the provisions of this Section 7 but
not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company’s board of directors shall in good faith
determine and implement an appropriate adjustment in the Conversion Price so as
to protect the rights of the Holder, provided that no such adjustment pursuant
to this Section 7(c) will increase the Conversion Price as otherwise determined
pursuant to this Section 7, provided further that if the Holder does not accept
such adjustments as appropriately protecting its interests hereunder against
such dilution, then the Company’s board of directors and the Holder shall agree,
in good faith, upon an independent investment bank of nationally recognized
standing to make such appropriate adjustments, whose determination shall be
final and binding and whose fees and expenses shall be borne by the
Company.

      
        
           

        

        
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      8.           COMPANY INSTALLMENT
CONVERSION OR REDEMPTION.

       

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

      
        
           

        

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

      
        
           

        

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

      
        
           

        

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

       

      10.         RESERVATION OF AUTHORIZED
SHARES.

       

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

      
        
           

        

        
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      (b)          Insufficient Authorized
Shares. If, notwithstanding Section 10(a), and not in limitation thereof,
at any time while any of the Notes remain outstanding the Company does not have
a sufficient number of authorized and unreserved shares of Common Stock to
satisfy its obligation to reserve for issuance upon conversion of the Notes at
least a number of shares of Common Stock equal to the Required Reserve Amount
(an “Authorized Share
Failure”), then the Company shall immediately take all action necessary
to increase the Company’s authorized shares of Common Stock to an amount
sufficient to allow the Company to reserve the Required Reserve Amount for the
Notes then outstanding. Without limiting the generality of the foregoing
sentence, as soon as practicable after the date of the occurrence of an
Authorized Share Failure, but in no event later than sixty (60) days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of
its stockholders for the approval of an increase in the number of authorized
shares of Common Stock.  In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its best
efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

       

      11.         HOLDER’S
REDEMPTIONS.

       

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

      
        
           

        

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

       

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

       

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

       

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

       

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

      
        
           

        

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

       

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

       

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

       

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

       

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

       

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

       

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

      
        
           

        

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

       

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

       

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

       

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

       

      18.         REISSUANCE OF THIS
NOTE.

       

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

      
        
           

        

        
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      (b)          Lost, Stolen or Mutilated
Note. Upon receipt by the Company of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Note (as to
which a written certification and the indemnification contemplated below shall
suffice as such evidence), and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder to the Company in customary and
reasonable form and, in the case of mutilation, upon surrender and cancellation
of this Note, the Company shall execute and deliver to the Holder a new Note (in
accordance with Section 18(d)) representing the outstanding
Principal.

       

      (c)          Note Exchangeable for
Different Denominations. This Note is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Note or
Notes (in accordance with Section 18(d) and in principal amounts of at least
$1,000) representing in the aggregate the outstanding Principal of this Note,
and each such new Note will represent such portion of such outstanding Principal
as is designated by the Holder at the time of such surrender.

       

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

       

      19.         REMEDIES, CHARACTERIZATIONS,
OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided
in this Note shall be cumulative and in addition to all other remedies available
under this Note and any of the other Transaction Documents at law or in equity
(including a decree of specific performance and/or other injunctive relief), and
nothing herein shall limit the Holder’s right to pursue actual and consequential
damages for any failure by the Company to comply with the terms of this
Note.  The Company covenants to the Holder that there shall be no
characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the Holder and shall not, except as expressly provided herein, be
subject to any other obligation of the Company (or the performance thereof). The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required. The Company shall provide all information and documentation to the
Holder that is requested by the Holder to enable the Holder to confirm the
Company’s compliance with the terms and conditions of this Note (including,
without limitation, compliance with Section 7).

      
        
           

        

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

       

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

       

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

       

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

      
        
           

        

        
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      24.         NOTICES;
PAYMENTS.

       

      (a)          Notices. Whenever
notice is required to be given under this Note, unless otherwise provided
herein, such notice shall be given in accordance with Section 9(f) of the
Securities Purchase Agreement. The Company shall provide the Holder with prompt
written notice of all actions taken pursuant to this Note, including in
reasonable detail a description of such action and the reason therefore. Without
limiting the generality of the foregoing, the Company will give written notice
to the Holder (i) immediately upon any adjustment of the Conversion Price,
setting forth in reasonable detail, and certifying, the calculation of such
adjustment and (ii) at least fifteen (15) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any grant, issuances, or
sales of any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property to holders of shares of Common Stock or
(C) for determining rights to vote with respect to any Fundamental Transaction,
dissolution or liquidation, provided in each case that such information shall be
made known to the public prior to or in conjunction with such notice being
provided to the Holder.

       

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

       

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

       

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

      
        
           

        

        
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      27.         GOVERNING LAW. This
Note shall be construed and enforced in accordance with, and all questions
concerning the construction, validity, interpretation and performance of this
Note shall be governed by, the internal laws of the State of Illinois, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Illinois or any other jurisdictions) that would cause the
application of the laws of any jurisdictions other than the State of Illinois.
The Company hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in The City of Chicago, State of Illinois, for
the adjudication of any dispute hereunder or in connection herewith or with
any  transaction contemplated hereby or discussed herein, and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is brought in an inconvenient forum
or that the venue of such suit, action or proceeding is
improper.  Nothing contained herein shall be deemed to limit in any
way any right to serve process in any manner permitted by law.  In the
event that any provision of this Note is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law.  Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of this Note.
Nothing contained herein shall be deemed or operate to preclude the Holder from
bringing suit or taking other legal action against the Company in any other
jurisdiction to collect on the Company’s obligations to the Holder, to realize
on any collateral or any other security for such obligations, or to enforce a
judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES
ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

       

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

       

      (a)          “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).

       

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

      
        
           

        

        
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      (c)          “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.

       

      (d)          “Closing Bid Price” and “Closing Sale Price” means, for
any security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price
(as the case may be) then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the “pink sheets” by Pink
Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid
Price or the Closing Sale Price cannot be calculated for a security on a
particular date on any of the foregoing bases, the Closing Bid Price or the
Closing Sale Price (as the case may be) of such security on such date shall be
the fair market value as mutually determined by the Company and the Holder. If
the Company and the Holder are unable to agree upon the fair market value of
such security, then such dispute shall be resolved in accordance with the
procedures in Section 23. All such determinations shall be appropriately
adjusted for any stock dividend, stock split, stock combination or other similar
transaction during such period.

       

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

       

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

       

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

       

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

      
        
           

        

        
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      (i)       
   “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.

       

      (j)           “Current Subsidiary” means any
Person in which the Company on the Subscription Date, directly or indirectly,
(i) owns any of the outstanding capital stock or holds any equity or similar
interest of such Person or (ii) controls or operates all or any part of the
business, operations or administration of such Person, and all of the foregoing,
collectively, “Current
Subsidiaries.”

       

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

       

      (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.

      
        
           

        

        
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      (m)         “Equity Conditions” means: (i)
on each day during the period beginning one month prior to the applicable date
of determination and ending on and including the applicable date of
determination either (x) the applicable Registration Statement filed pursuant to
the Registration Rights Agreement shall be effective and the prospectus
contained therein shall be available for the resale by the Holder of all of the
Registrable Securities (which, solely for clarification purposes, includes all
shares of Common Stock issuable upon conversion of this Note, including, without
limitation, under Sections 3 and 8) in accordance with the terms of the
Registration Rights Agreement and there shall not have been during such period
any Grace Periods (as defined in the Registration Rights Agreement) or (y)
all Registrable Securities shall be eligible for sale without restriction under
Rule 144 (as defined in the Securities Purchase Agreement) (including, without
limitation, volume restrictions) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) and
without the need for registration under any applicable federal or state
securities laws (in each case, disregarding any limitation on conversion of the
Notes and exercise of the Warrants); (ii) on each day during the period
beginning three months prior to the applicable date of determination and ending
on and including the applicable date of determination (the “Equity Conditions Measuring
Period”), the Common Stock (including all Registrable Securities) is
listed or designated for quotation (as applicable) on an Eligible Market and
shall not have been suspended from trading on an Eligible Market (other than
suspensions of not more than two (2) days and occurring prior to the applicable
date of determination due to business announcements by the Company) nor shall
delisting or suspension by an Eligible Market have been threatened (with a
reasonable prospect of delisting occurring) or pending either (A) in writing by
such Eligible Market or (B) by falling below the minimum listing maintenance
requirements of the Eligible Market on which the Common Stock is then listed or
designated for quotation (as applicable); (iii) on each day during the Equity
Conditions Measuring Period, the Company shall have delivered all shares of
Common Stock issuable upon conversion of this Note on a timely basis as set
forth in Section 3 hereof and all other shares of capital stock required to be
delivered by the Company on a timely basis as set forth in the other Transaction
Documents; (iv) any shares of Common Stock to be issued in connection with the
event requiring determination may be issued in full without violating Section
3(d) hereof; (v) any shares of Common Stock to be issued in connection with the
event requiring determination may be issued in full without violating the rules
or regulations of the Eligible Market on which the Common Stock is then listed
or designated for quotation (as applicable); (vi) on each day during the Equity
Conditions Measuring Period, no public announcement of a pending, proposed or
intended Fundamental Transaction shall have occurred which has not been
abandoned, terminated or consummated; (vii) the Company shall have no knowledge
of any fact that would reasonably be expected to cause (1) the applicable
Registration Statement required to be filed pursuant to the Registration Rights
Agreement to not be effective or the prospectus contained therein to not be
available for the resale of all of the Registrable Securities in accordance with
the terms of the Registration Rights Agreement or (2) any Registrable Securities
to not be eligible for sale without restriction pursuant to Rule 144 (including,
without limitation, volume restrictions) and without the need for current public
information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable) or any
applicable state securities laws (in each case, disregarding any limitation on
conversion of the Notes and exercise of the Warrants); (viii) the Holder shall
not be in (and no other Buyer shall be in) possession of any material,
non-public information provided to any of them by the Company, any of its
affiliates or any of their respective employees, officers, representatives,
agents or the like; (ix) on each day during the Equity Conditions Measuring
Period, the Company otherwise shall have been in compliance with and shall not
have breached any provision, covenant, representation or warranty of any
Transaction Document; and (x) on each day during the Equity Conditions Measuring
Period, there shall not have occurred an Event of Default or an event that with
the passage of time or giving of notice would constitute an Event of
Default.

       

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

       

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

       

      (p)          “First Installment Date” means
the twenty-first (21st)
Trading Day immediately following the earlier to occur of (a) the Effective Date
(as defined in the Registration Rights Agreement) of the Registration Statement
initially filed by the Company with the SEC on January 4, 2010 (which the filing
date thereof was changed to December 31, 2009) and (b) May 24,
2010.

      
        
           

        

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

       

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

       

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

       

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

       

      (u)          “Installment Amount” means (i)
with respect to any Installment Date other than the Maturity Date, the lesser of
(A) the product of (I) $133,571.43 multiplied by (II) Holder Pro Rata Amount and
(B) the Principal amount under this Note as of such Installment Date, and (ii)
with respect to the Installment Date that is the Maturity Date, the Principal
amount under this Note as of such Installment Date, in each case, as any such
Installment Amount may be reduced pursuant to the terms of this Note, whether
upon conversion, redemption or otherwise, together with, in each case of clauses
(i) and (ii), the sum of any accrued and unpaid Interest as of such Installment
Date under this Note and accrued and unpaid Late Charges, if any, under this
Note as of such Installment Date. In the event the Holder shall sell or
otherwise transfer any portion of this Note, the transferee shall be allocated a
pro rata portion of the each unpaid Installment Amount
hereunder.

      
        
           

        

        
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      (v)          “Installment Date” means each
of the following dates: the First Installment Date; each monthly anniversary of
the First Installment Date that occurs prior to the Maturity Date; and the
Maturity Date.

       

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

       

      (x)          “Maturity Date” shall mean the six (6)
month anniversary of the First Installment Date; provided, however, the Maturity
Date may be extended at the option of the Holder (i) in the event that, and for
so long as, an Event of Default shall have occurred and be continuing or any
event shall have occurred and be continuing that with the passage of time and
the failure to cure would result in an Event of Default or (ii) through the date
that is twenty (20) Business Days after the consummation of a Fundamental
Transaction in the event that a Fundamental Transaction is publicly announced or
a Fundamental Transaction Notice is delivered prior to the Maturity Date,
provided further that if a Holder elects to convert some or all of this Note
pursuant to Section 3 hereof, and the Conversion Amount would be limited
pursuant to Section 3(d) hereunder, the Maturity Date shall automatically be
extended until such time as such provision shall not limit the conversion of
this Note.

       

      (y)          “New Subsidiary” means, as of
any date of determination, any Person in which the Company after the
Subscription Date, directly or indirectly, (i) owns or acquires any of the
outstanding capital stock or holds any equity or similar interest of such Person
or (ii) controls or operates all or any part of the business, operations or
administration of such Person, and all of the foregoing, collectively “New
Subsidiaries.”

       

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

       

      (aa)        “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.

       

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

      
        
           

        

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

       

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

       

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

       

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

       

      (gg)       “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.

       

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

       

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

      
        
           

        

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

       

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

      
        
           

        

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

       

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

       

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

       

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

       

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

       

      (zz)         “VWAP” means, for any security
as of any date, the dollar volume-weighted average price for such security on
the Principal Market (or, if the Principal Market is not the principal trading
market for such security, then on the principal securities exchange or
securities market on which such security is then traded) during the period
beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York
time, as reported by Bloomberg through its “Volume at Price” function or, if the
foregoing does not apply, the dollar volume-weighted average price of such
security in the over-the-counter market on the electronic bulletin board for
such security during the period beginning at 9:30:01 a.m., New York time, and
ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.). If the VWAP cannot be calculated for such security on such date on any of
the foregoing bases, the VWAP of such security on such date shall be the fair
market value as mutually determined by the Company and the Holder. If the
Company and the Holder are unable to agree upon the fair market value of such
security, then such dispute shall be resolved in accordance with the procedures
in Section 23. All such determinations shall be appropriately adjusted for any
stock dividend, stock split, stock combination or other similar transaction
during such period.

      
        
           

        

        
          36

          
            

          

        

        
           

        

      

       

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

       

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

       

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

       

      30.         MAXIMUM PAYMENTS.
Without limiting Section 9(d) of the Securities Purchase Agreement, nothing
contained in this Note shall, or shall be deemed to, establish or require the
payment of a rate of interest or other charges in excess of the maximum
permitted by applicable law. In the event that the rate of interest required to
be paid or other charges under this Note exceeds the maximum permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to the Holder and thus refunded to the Company.

       

      [signature page
follows]

      
        
           

        

        
          37

          
            

          

        

        
           

        

      

       

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

       

      
        	
                NACEL
      Energy
      Corporation

              	 
      
	 
      	 
      
	
                By:

              	
                /s/
      Mark Schaftlein

              	 
      
	      
                Name:

              	
                Mark
      Schaftlein

              	 
	      
                Title:

              	
                Director

                President

              	 

 

        
          
             

          

          
             

            
              

            

          

          
             

          

        

      EXHIBIT
I

       

      NACEL
ENERGY CORPORATION

      CONVERSION
NOTICE

       

      Reference
is made to the Senior Secured Convertible Note (the “Note”) issued to the
undersigned by NACEL Energy Corporation (the “Company”). In accordance with
and pursuant to the Note, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Note) of the Note indicated below into
shares of Common Stock, $0.001 par value per share (the “Common Stock”), of the
Company, as of the date specified below.

       

      
        
          	
                  Date
      of Conversion:  

                	 
      

        

      

      

      
        
          
            	
                    Aggregate
      Conversion Amount to be converted:  

                  	 
      
	 
	
                    Please
      confirm the following
information:

                  

          

        

      

      

      
        
          	
                  Conversion
      Price:  

                	 
      

        

      

      

      
        
          
            
              	
                      Number
      of shares of Common Stock to be issued:  

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

                    

            

          

        

      

      

      
        
          	
                  Issue
      to:  

                	 
      
	 
      	 
      
	 
      	 
      

        

      

      

      
        
          	
                  Facsimile
      Number:  

                	 
      

        

      

      

      
        
          	
                  Authorization:  

                	 
      

        

      

      

      
        
          
            
              
                
                  
                    
                      	
                              By:   

                            	 
      
	 	 
	 	

                              Title:   

                            	 

                    

                  

                

              

            

          

        

      

      
 

      
        
          	
                  Dated:  

                	 
      

        

      

      

      
        
          
            	
                    Account
      Number:  

                  	 
      
	
                      (if
      electronic book entry
transfer)

                  

          

        

      

      

      
        
          
            	
                    Transaction
      Code Number:  

                  	 
      
	
                      (if
      electronic book entry
transfer)

                  

          

        

      

      
        
          
            
              
                
                  	
                          Installment
      Amount(s) to be reduced (and

                        	 	 
	corresponding
      Installment Date(s)) and amount
of reduction:	 	 

                

              

            

          

        

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      ACKNOWLEDGMENT

       

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

       

      
        
          
            	
                    NACEL
      Energy Corporation

                  
	 
      	 
      
	
                    By:

                  	 
      
	 
      	
                    Name:

                  
	 
      	
                    Title:

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