Exhibit 10.3

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT OR (II) UNLESS 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 WARRANT SHOULD
CAREFULLY REVIEW THE TERMS OF THIS WARRANT, INCLUDING SECTION 7(d) HEREOF.

APOLLO RESOURCES INTERNATIONAL, INC.

WARRANT TO PURCHASE COMMON STOCK

Warrant No.: 01
Number of Shares of Common Stock:  16,447,369
Date of Issuance: July 26, 2006 (“Issuance Date”)

Apollo Resources International, Inc., a Utah corporation (the “Company”), hereby
certifies that, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, CASTLERIGG MASTER INVESTMENTS LTD., the
registered holder hereof or its permitted assigns (the “Holder”), is entitled,
subject to the terms set forth below, to purchase from the Company, at the
Exercise Price (as defined below) then in effect, upon surrender of this Warrant
to Purchase Common Stock (including any Warrants to Purchase Common Stock issued
in exchange, transfer or replacement hereof, the “Warrant”), at any time or
times on or after the date hereof, but not after 11:59 p.m., New York time, on
the Expiration Date (as defined below), Sixteen Million, Four Hundred and Forty
Seven Thousand, Three Hundred and Sixty Nine (16,447,369) fully paid
nonassessable shares of Common Stock (as defined below) (the “Warrant Shares”). 
Except as otherwise defined herein, capitalized terms in this Warrant shall have
the meanings set forth in Section 15.  This Warrant is one of the Warrants to
purchase Common Stock (the “SPA Warrants”) issued pursuant to Section 1 of that
certain Securities Purchase Agreement, dated as of July 25, 2006 (the
“Subscription Date”), by and among the Company and the investors (the “Buyers”)
referred to therein (the “Securities Purchase Agreement”).

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1.     EXERCISE OF WARRANT.

(A).  MECHANICS OF EXERCISE.  SUBJECT TO THE TERMS AND CONDITIONS HEREOF
(INCLUDING, WITHOUT LIMITATION, THE LIMITATIONS SET FORTH IN SECTION 1(F)), THIS
WARRANT MAY BE EXERCISED BY THE HOLDER ON ANY DAY ON OR AFTER THE DATE HEREOF,
IN WHOLE OR IN PART, BY (I) DELIVERY OF A WRITTEN NOTICE, IN THE FORM ATTACHED
HERETO AS EXHIBIT A (THE “EXERCISE NOTICE”), OF THE HOLDER’S ELECTION TO
EXERCISE THIS WARRANT (ACCOMPANIED BY THE ATTACHED WARRANT SHARES EXERCISE LOG)
TO THE COMPANY (WITH A COPY TO ITS LEGAL COUNSEL) AND (II) (A) PAYMENT TO THE
COMPANY OF AN AMOUNT EQUAL TO THE APPLICABLE EXERCISE PRICE MULTIPLIED BY THE
NUMBER OF WARRANT SHARES AS TO WHICH THIS WARRANT IS BEING EXERCISED (THE
“AGGREGATE EXERCISE PRICE”) IN CASH OR BY WIRE TRANSFER OF IMMEDIATELY AVAILABLE
FUNDS OR (B) BY NOTIFYING THE COMPANY THAT THIS WARRANT IS BEING EXERCISED
PURSUANT TO A CASHLESS EXERCISE (AS DEFINED IN SECTION 1(D)).  THE HOLDER SHALL
NOT BE REQUIRED TO DELIVER THE ORIGINAL WARRANT IN ORDER TO EFFECT AN EXERCISE
HEREUNDER.  EXECUTION AND DELIVERY OF THE EXERCISE NOTICE WITH RESPECT TO LESS
THAN ALL OF THE WARRANT SHARES SHALL HAVE THE SAME EFFECT AS CANCELLATION OF THE
ORIGINAL WARRANT AND ISSUANCE OF A NEW WARRANT EVIDENCING THE RIGHT TO PURCHASE
THE REMAINING NUMBER OF WARRANT SHARES.  ON OR BEFORE THE FIRST (1ST) BUSINESS
DAY FOLLOWING THE DATE ON WHICH THE COMPANY HAS RECEIVED EACH OF THE EXERCISE
NOTICE AND THE AGGREGATE EXERCISE PRICE (OR NOTICE OF A CASHLESS EXERCISE) (THE
“EXERCISE DELIVERY DOCUMENTS”), THE COMPANY SHALL TRANSMIT BY FACSIMILE AN
ACKNOWLEDGMENT OF CONFIRMATION OF RECEIPT OF THE EXERCISE DELIVERY DOCUMENTS TO
THE HOLDER AND THE COMPANY’S TRANSFER AGENT (THE “TRANSFER AGENT”).  FOR
PURPOSES HEREOF, ANY EXERCISE DELIVERY DOCUMENTS DELIVERED ON OR AFTER 5:00
P.M., NEW YORK CITY TIME SHALL BE DEEMED TO HAVE BEEN DELIVERED ON THE NEXT
BUSINESS DAY.  ON OR BEFORE THE THIRD (3RD) BUSINESS DAY FOLLOWING THE DATE ON
WHICH THE COMPANY HAS RECEIVED ALL OF THE EXERCISE DELIVERY DOCUMENTS (THE
“SHARE DELIVERY DATE”), THE COMPANY SHALL (X) IF LEGENDS ARE NOT REQUIRED TO BE
PLACED ON CERTIFICATES OF COMMON STOCK PURSUANT TO THE SECURITIES PURCHASE
AGREEMENT, PROVIDED THAT THE TRANSFER AGENT IS PARTICIPATING IN THE DEPOSITORY
TRUST COMPANY (“DTC”) FAST AUTOMATED SECURITIES TRANSFER PROGRAM, UPON THE
REQUEST OF THE HOLDER, CREDIT SUCH AGGREGATE NUMBER OF WARRANT SHARES TO WHICH
THE HOLDER IS ENTITLED PURSUANT TO SUCH EXERCISE TO THE HOLDER’S OR ITS
DESIGNEE’S BALANCE ACCOUNT WITH DTC THROUGH ITS DEPOSIT WITHDRAWAL AGENT
COMMISSION SYSTEM, OR (Y) IF THE TRANSFER AGENT IS NOT PARTICIPATING IN THE DTC
FAST AUTOMATED SECURITIES TRANSFER PROGRAM, ISSUE AND DISPATCH BY OVERNIGHT
COURIER TO THE ADDRESS AS SPECIFIED IN THE EXERCISE NOTICE, A CERTIFICATE,
REGISTERED IN THE COMPANY’S SHARE REGISTER IN THE NAME OF THE HOLDER OR ITS
DESIGNEE, FOR THE NUMBER OF SHARES OF COMMON STOCK TO WHICH THE HOLDER IS
ENTITLED PURSUANT TO SUCH EXERCISE WHICH CERTIFICATES SHALL NOT BEAR ANY
RESTRICTIVE LEGENDS UNLESS REQUIRED PURSUANT TO SECTION 2(G) OF THE SECURITIES
PURCHASE AGREEMENT.  UPON DELIVERY OF THE EXERCISE DELIVERY DOCUMENTS, THE
HOLDER SHALL BE DEEMED FOR ALL CORPORATE PURPOSES TO HAVE BECOME THE HOLDER OF
RECORD OF THE WARRANT SHARES WITH RESPECT TO WHICH THIS WARRANT HAS BEEN
EXERCISED, IRRESPECTIVE OF THE DATE SUCH WARRANT SHARES ARE CREDITED TO THE
HOLDER’S DTC ACCOUNT OR THE DATE OF DELIVERY OF THE CERTIFICATES EVIDENCING SUCH
WARRANT SHARES AS THE CASE MAY BE.  IF THIS WARRANT IS SUBMITTED IN CONNECTION
WITH ANY EXERCISE PURSUANT TO THIS SECTION 1(A) AND THE NUMBER OF WARRANT SHARES
REPRESENTED BY THIS WARRANT SUBMITTED FOR EXERCISE IS GREATER THAN THE NUMBER OF
WARRANT SHARES BEING ACQUIRED UPON AN EXERCISE, THEN THE COMPANY SHALL AS SOON
AS PRACTICABLE AND IN NO EVENT LATER THAN THREE BUSINESS DAYS AFTER ANY EXERCISE
AND AT ITS OWN EXPENSE, ISSUE SUBJECT TO SUCH PRIOR EXERCISE A NEW WARRANT (IN
ACCORDANCE WITH SECTION 7(D)) REPRESENTING THE RIGHT TO PURCHASE THE NUMBER OF
WARRANT SHARES PURCHASABLE IMMEDIATELY PRIOR TO SUCH EXERCISE UNDER THIS
WARRANT, LESS THE NUMBER OF WARRANT SHARES WITH RESPECT TO WHICH THIS WARRANT IS
EXERCISED. NO FRACTIONAL SHARES

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OF COMMON STOCK ARE TO BE ISSUED UPON THE EXERCISE OF THIS WARRANT, BUT RATHER
THE NUMBER OF SHARES OF COMMON STOCK TO BE ISSUED SHALL BE ROUNDED UP TO THE
NEAREST WHOLE NUMBER.  THE COMPANY SHALL PAY ANY AND ALL TAXES WHICH MAY BE
PAYABLE WITH RESPECT TO THE ISSUANCE AND DELIVERY OF WARRANT SHARES UPON
EXERCISE OF THIS WARRANT

(B)   EXERCISE PRICE.  FOR PURPOSES OF THIS WARRANT, “EXERCISE PRICE” MEANS
$0.38, SUBJECT TO ADJUSTMENT AS PROVIDED HEREIN.

(C)   COMPANY’S FAILURE TO TIMELY DELIVER SECURITIES.  IF WITHIN THREE (3)
TRADING DAYS AFTER THE COMPANY’S RECEIPT OF THE FACSIMILE COPY OF A EXERCISE
NOTICE THE COMPANY SHALL FAIL TO ISSUE AND DELIVER A CERTIFICATE TO THE HOLDER
AND REGISTER SUCH SHARES OF COMMON STOCK ON THE COMPANY’S SHARE REGISTER OR
CREDIT THE HOLDER’S BALANCE ACCOUNT WITH DTC FOR THE NUMBER OF SHARES OF COMMON
STOCK TO WHICH THE HOLDER IS ENTITLED UPON THE HOLDER’S EXERCISE HEREUNDER, AND
IF ON OR AFTER SUCH TRADING DAY THE HOLDER PURCHASES (IN AN OPEN MARKET
TRANSACTION OR OTHERWISE) SHARES OF COMMON STOCK TO DELIVER IN SATISFACTION OF A
SALE BY THE HOLDER OF SHARES OF COMMON STOCK ISSUABLE UPON SUCH EXERCISE THAT
THE HOLDER ANTICIPATED RECEIVING FROM THE COMPANY (A “BUY-IN”), THEN THE COMPANY
SHALL, WITHIN THREE (3) TRADING DAYS AFTER THE HOLDER’S REQUEST AND IN THE
HOLDER’S DISCRETION, EITHER (I) PAY CASH TO THE HOLDER IN AN AMOUNT EQUAL TO THE
HOLDER’S TOTAL PURCHASE PRICE (INCLUDING BROKERAGE COMMISSIONS, IF ANY) FOR THE
SHARES OF COMMON STOCK SO PURCHASED (THE “BUY-IN PRICE”), AT WHICH POINT THE
COMPANY’S OBLIGATION TO DELIVER SUCH CERTIFICATE (AND TO ISSUE SUCH WARRANT
SHARES) SHALL TERMINATE, OR (II) PROMPTLY HONOR ITS OBLIGATION TO DELIVER TO THE
HOLDER A CERTIFICATE OR CERTIFICATES OR IF LEGENDS ARE NOT REQUIRED TO BE PLACED
ON CERTIFICATES OF COMMON STOCK PURSUANT TO THE SECURITIES PURCHASE AGREEMENT,
PROVIDED THAT THE TRANSFER AGENT IS PARTICIPATING IN DTC FAST AUTOMATED
SECURITIES TRANSFER PROGRAM, UPON THE REQUEST OF THE HOLDER, CREDIT SUCH
AGGREGATE NUMBER OF WARRANT SHARES TO WHICH THE HOLDER IS ENTITLED PURSUANT TO
SUCH EXERCISE TO THE HOLDER’S OR ITS DESIGNEE’S BALANCE ACCOUNT WITH DTC THROUGH
ITS DEPOSIT WITHDRAWAL AGENT COMMISSION SYSTEM AND PAY CASH TO THE HOLDER IN AN
AMOUNT EQUAL TO THE EXCESS (IF ANY) OF THE BUY-IN PRICE OVER THE PRODUCT OF (A)
SUCH NUMBER OF SHARES OF COMMON STOCK, TIMES (B) THE CLOSING BID PRICE ON THE
DATE OF EXERCISE.

(D)   CASHLESS EXERCISE.  NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE
CONTRARY, IF A REGISTRATION STATEMENT (AS DEFINED IN THE REGISTRATION RIGHTS
AGREEMENT) COVERING THE WARRANT SHARES THAT ARE THE SUBJECT OF THE EXERCISE
NOTICE (THE “UNAVAILABLE WARRANT SHARES”) IS NOT AVAILABLE FOR THE RESALE OF
SUCH UNAVAILABLE WARRANT SHARES AT ANY TIME DURING WHICH SUCH REGISTRATION
STATEMENT IS REQUIRED IN ACCORDANCE WITH THE REGISTRATION RIGHTS AGREEMENT, THE
HOLDER MAY, IN ITS SOLE DISCRETION DURING SUCH TIME, EXERCISE THIS WARRANT IN
WHOLE OR IN PART AND, IN LIEU OF MAKING THE CASH PAYMENT OTHERWISE CONTEMPLATED
TO BE MADE TO THE COMPANY UPON SUCH EXERCISE IN PAYMENT OF THE AGGREGATE
EXERCISE PRICE, ELECT INSTEAD TO RECEIVE UPON SUCH EXERCISE THE “NET NUMBER” OF
SHARES OF COMMON STOCK DETERMINED ACCORDING TO THE FOLLOWING FORMULA (A
“CASHLESS EXERCISE”):

                                              NET NUMBER = (A X B) - (A X C)

3

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                                         B

                                              For purposes of the foregoing
formula:

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

B= the Closing Sale Price of the shares of Common Stock (as reported by
Bloomberg) on the date immediately preceding the date of the Exercise Notice.

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

(E)   DISPUTES.  IN THE CASE OF A DISPUTE AS TO THE DETERMINATION OF THE
EXERCISE PRICE OR THE ARITHMETIC CALCULATION OF THE WARRANT SHARES, THE COMPANY
SHALL PROMPTLY ISSUE TO THE HOLDER THE NUMBER OF WARRANT SHARES THAT ARE NOT
DISPUTED AND RESOLVE SUCH DISPUTE IN ACCORDANCE WITH SECTION 12.

(F)    LIMITATIONS ON EXERCISES.

(1)        BENEFICIAL OWNERSHIP.  THE COMPANY SHALL NOT EFFECT THE EXERCISE OF
THIS WARRANT, AND THE HOLDER SHALL NOT HAVE THE RIGHT TO EXERCISE THIS WARRANT,
TO THE EXTENT THAT AFTER GIVING EFFECT TO SUCH EXERCISE, SUCH PERSON (TOGETHER
WITH SUCH PERSON’S AFFILIATES) WOULD BENEFICIALLY OWN IN EXCESS OF 4.99% OF THE
SHARES OF COMMON STOCK OUTSTANDING IMMEDIATELY AFTER GIVING EFFECT TO SUCH
EXERCISE.  FOR PURPOSES OF THE FOREGOING SENTENCE, THE AGGREGATE NUMBER OF
SHARES OF COMMON STOCK BENEFICIALLY OWNED BY SUCH PERSON AND ITS AFFILIATES
SHALL INCLUDE THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT WITH RESPECT TO WHICH THE DETERMINATION OF SUCH SENTENCE IS BEING
MADE, BUT SHALL EXCLUDE SHARES OF COMMON STOCK WHICH WOULD BE ISSUABLE UPON (I)
EXERCISE OF THE REMAINING, UNEXERCISED PORTION OF THIS WARRANT BENEFICIALLY
OWNED BY SUCH PERSON AND ITS AFFILIATES AND (II) EXERCISE OR CONVERSION OF THE
UNEXERCISED OR UNCONVERTED PORTION OF ANY OTHER SECURITIES OF THE COMPANY
BENEFICIALLY OWNED BY SUCH PERSON AND ITS AFFILIATES (INCLUDING, WITHOUT
LIMITATION, ANY CONVERTIBLE NOTES OR CONVERTIBLE PREFERRED STOCK OR WARRANTS)
SUBJECT TO A LIMITATION ON CONVERSION OR EXERCISE ANALOGOUS TO THE LIMITATION
CONTAINED HEREIN.  EXCEPT AS SET FORTH IN THE PRECEDING SENTENCE, FOR PURPOSES
OF THIS PARAGRAPH, BENEFICIAL OWNERSHIP SHALL BE CALCULATED IN ACCORDANCE WITH
SECTION 13(D) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.  FOR PURPOSES
OF THIS WARRANT, IN DETERMINING THE NUMBER OF OUTSTANDING SHARES OF COMMON
STOCK, THE HOLDER MAY RELY ON THE NUMBER OF OUTSTANDING SHARES OF COMMON STOCK
AS REFLECTED IN (1) THE COMPANY’S MOST RECENT FORM 10-KSB, FORM 10-QSB, CURRENT
REPORT ON FORM 8-K OR OTHER PUBLIC FILING WITH THE SECURITIES AND EXCHANGE
COMMISSION, AS THE CASE MAY BE, (2) A MORE RECENT PUBLIC ANNOUNCEMENT BY THE
COMPANY OR (3) ANY OTHER NOTICE BY THE COMPANY OR THE TRANSFER AGENT SETTING
FORTH THE

4

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NUMBER OF SHARES OF COMMON STOCK OUTSTANDING.  FOR ANY REASON AT ANY TIME, UPON
THE WRITTEN REQUEST OF THE HOLDER, THE COMPANY SHALL WITHIN ONE BUSINESS DAY
CONFIRM IN WRITING TO THE HOLDER THE NUMBER OF SHARES OF COMMON STOCK THEN
OUTSTANDING.  IN ANY CASE, THE NUMBER OF OUTSTANDING SHARES OF COMMON STOCK
SHALL BE DETERMINED AFTER GIVING EFFECT TO THE CONVERSION OR EXERCISE OF
SECURITIES OF THE COMPANY, INCLUDING THE SPA WARRANTS, BY THE HOLDER AND ITS
AFFILIATES SINCE THE DATE AS OF WHICH SUCH NUMBER OF OUTSTANDING SHARES OF
COMMON STOCK WAS REPORTED.  BY WRITTEN NOTICE TO THE COMPANY, THE HOLDER MAY
FROM TIME TO TIME INCREASE OR DECREASE THE MAXIMUM PERCENTAGE TO ANY OTHER
PERCENTAGE NOT IN EXCESS OF 9.99% SPECIFIED IN SUCH NOTICE; PROVIDED THAT (I)
ANY SUCH INCREASE WILL NOT BE EFFECTIVE UNTIL THE SIXTY-FIRST (61ST) DAY AFTER
SUCH NOTICE IS DELIVERED TO THE COMPANY, AND (II) ANY SUCH INCREASE OR DECREASE
WILL APPLY ONLY TO THE HOLDER AND NOT TO ANY OTHER HOLDER OF SPA WARRANTS.

(2)           MARKET REGULATION.  THE COMPANY SHALL NOT BE OBLIGATED TO ISSUE
ANY SHARES OF COMMON STOCK UPON EXERCISE OF THIS WARRANT, AND THE HOLDER OF THIS
WARRANT SHALL NOT HAVE THE RIGHT TO RECEIVE UPON EXERCISE OF THIS WARRANT ANY
SHARES OF COMMON STOCK, IF THE ISSUANCE OF SUCH SHARES OF COMMON STOCK WOULD
EXCEED THAT NUMBER OF SHARES OF COMMON STOCK WHICH THE COMPANY MAY ISSUE UPON
EXERCISE, REDEMPTION OR CONVERSION, AS APPLICABLE, OF THE SPA WARRANTS OR
OTHERWISE WITHOUT BREACHING THE COMPANY’S OBLIGATIONS UNDER THE RULES OR
REGULATIONS OF THE APPLICABLE ELIGIBLE MARKET (THE NUMBER OF SHARES WHICH MAY BE
ISSUED WITHOUT VIOLATING SUCH RULES AND REGULATIONS, THE “EXCHANGE CAP”), EXCEPT
THAT SUCH LIMITATION SHALL NOT APPLY IN THE EVENT THAT THE COMPANY (A) OBTAINS
THE APPROVAL OF ITS STOCKHOLDERS AS REQUIRED BY THE APPLICABLE RULES OF THE
APPLICABLE ELIGIBLE MARKET FOR ISSUANCES OF SHARES OF COMMON STOCK IN EXCESS OF
SUCH AMOUNT OR (B) OBTAINS A WRITTEN OPINION FROM OUTSIDE COUNSEL TO THE COMPANY
THAT SUCH APPROVAL IS NOT REQUIRED, WHICH OPINION SHALL BE REASONABLY
SATISFACTORY TO THE REQUIRED HOLDERS.  UNLESS AND UNTIL SUCH APPROVAL OR WRITTEN
OPINION IS OBTAINED, NO BUYER SHALL BE ISSUED IN THE AGGREGATE, UPON EXERCISE OR
CONVERSION, AS APPLICABLE, OF ANY SPA WARRANTS, SHARES OF COMMON STOCK IN AN
AMOUNT GREATER THAN THE PRODUCT OF THE EXCHANGE CAP MULTIPLIED BY A FRACTION,
THE NUMERATOR OF WHICH IS THE TOTAL NUMBER OF SHARES OF COMMON STOCK UNDERLYING
THE SPA WARRANTS ISSUED TO SUCH BUYER PURSUANT TO THE SECURITIES PURCHASE
AGREEMENT ON THE ISSUANCE DATE AND THE DENOMINATOR OF WHICH IS THE AGGREGATE
NUMBER OF SHARES OF COMMON STOCK UNDERLYING THE SPA WARRANTS ISSUED TO THE
BUYERS PURSUANT TO THE SECURITIES PURCHASE AGREEMENT ON THE ISSUANCE DATE (WITH
RESPECT TO EACH BUYER, THE “EXCHANGE CAP ALLOCATION”).  IN THE EVENT THAT ANY
BUYER SHALL SELL OR OTHERWISE TRANSFER ANY OF SUCH BUYER’S SPA WARRANTS, THE
TRANSFEREE SHALL BE ALLOCATED A PRO RATA PORTION OF SUCH BUYER’S EXCHANGE CAP
ALLOCATION, AND THE RESTRICTIONS OF THE PRIOR SENTENCE SHALL APPLY TO SUCH
TRANSFEREE WITH RESPECT TO THE PORTION OF THE EXCHANGE CAP ALLOCATION ALLOCATED
TO SUCH TRANSFEREE.  IN THE EVENT THAT ANY HOLDER OF SPA WARRANTS SHALL EXERCISE
ALL

5

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OF SUCH HOLDER’S SPA WARRANTS INTO A NUMBER OF SHARES OF COMMON STOCK WHICH, IN
THE AGGREGATE, IS LESS THAN SUCH HOLDER’S EXCHANGE CAP ALLOCATION, THEN THE
DIFFERENCE BETWEEN SUCH HOLDER’S EXCHANGE CAP ALLOCATION AND THE NUMBER OF
SHARES OF COMMON STOCK ACTUALLY ISSUED TO SUCH HOLDER SHALL BE ALLOCATED TO THE
RESPECTIVE EXCHANGE CAP ALLOCATIONS OF THE REMAINING HOLDERS OF SPA WARRANTS ON
A PRO RATA BASIS IN PROPORTION TO THE SHARES OF COMMON STOCK UNDERLYING THE SPA
WARRANTS THEN HELD BY EACH SUCH HOLDER.

(G)   INSUFFICIENT AUTHORIZED SHARES.  IF AT ANY TIME WHILE ANY OF THE WARRANTS
REMAIN OUTSTANDING THE COMPANY DOES NOT HAVE A SUFFICIENT NUMBER OF AUTHORIZED
AND UNRESERVED SHARES OF COMMON STOCK TO SATISFY ITS OBLIGATION TO RESERVE FOR
ISSUANCE UPON EXERCISE OF THE WARRANTS AT LEAST A NUMBER OF SHARES OF COMMON
STOCK EQUAL TO 130% OF THE NUMBER OF SHARES OF COMMON STOCK AS SHALL FROM TIME
TO TIME BE NECESSARY TO EFFECT THE EXERCISE OF ALL OF THE WARRANTS THEN
OUTSTANDING  (THE “REQUIRED RESERVE AMOUNT”) (AN “AUTHORIZED SHARE FAILURE”),
THEN THE COMPANY SHALL IMMEDIATELY TAKE ALL ACTION NECESSARY TO INCREASE THE
COMPANY’S AUTHORIZED SHARES OF COMMON STOCK TO AN AMOUNT SUFFICIENT TO ALLOW THE
COMPANY TO RESERVE THE REQUIRED RESERVE AMOUNT FOR THE WARRANTS THEN
OUTSTANDING.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING SENTENCE, AS SOON
AS PRACTICABLE AFTER THE DATE OF THE OCCURRENCE OF AN AUTHORIZED SHARE FAILURE,
BUT IN NO EVENT LATER THAN NINETY (90) DAYS AFTER THE OCCURRENCE OF SUCH
AUTHORIZED SHARE FAILURE, THE COMPANY SHALL HOLD A MEETING OF ITS STOCKHOLDERS
FOR THE APPROVAL OF AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK.  IN CONNECTION WITH SUCH MEETING, THE COMPANY SHALL PROVIDE EACH
STOCKHOLDER WITH A PROXY STATEMENT AND SHALL USE ITS BEST EFFORTS TO SOLICIT ITS
STOCKHOLDERS’ APPROVAL OF SUCH INCREASE IN AUTHORIZED SHARES OF COMMON STOCK AND
TO CAUSE ITS BOARD OF DIRECTORS TO RECOMMEND TO THE STOCKHOLDERS THAT THEY
APPROVE SUCH PROPOSAL.

2.     ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES.  THE EXERCISE
PRICE AND THE NUMBER OF WARRANT SHARES SHALL BE ADJUSTED FROM TIME TO TIME AS
FOLLOWS:

(A)   ADJUSTMENT UPON ISSUANCE OF SHARES OF COMMON STOCK.  IF AND WHENEVER ON OR
AFTER THE SUBSCRIPTION DATE THE COMPANY ISSUES OR SELLS, OR IN ACCORDANCE WITH
THIS SECTION 2 IS DEEMED TO HAVE ISSUED OR SOLD, ANY SHARES OF COMMON STOCK
(INCLUDING THE ISSUANCE OR SALE OF SHARES OF COMMON STOCK OWNED OR HELD BY OR
FOR THE ACCOUNT OF THE COMPANY, BUT EXCLUDING SHARES OF COMMON STOCK DEEMED TO
HAVE BEEN ISSUED BY THE COMPANY IN CONNECTION WITH ANY EXCLUDED SECURITIES FOR A
CONSIDERATION PER SHARE (THE “NEW ISSUANCE PRICE”) LESS THAN A PRICE EQUAL TO
THE EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH ISSUE OR SALE OR DEEMED
ISSUANCE OR SALE (THE “APPLICABLE PRICE” AND THE FOREGOING A “DILUTIVE
ISSUANCE”), THEN IMMEDIATELY AFTER SUCH DILUTIVE ISSUANCE, THE EXERCISE PRICE
THEN IN EFFECT SHALL BE REDUCED TO AN AMOUNT EQUAL TO THE NEW ISSUANCE PRICE. 
UPON EACH SUCH ADJUSTMENT OF THE EXERCISE PRICE HEREUNDER, THE NUMBER OF WARRANT
SHARES SHALL BE ADJUSTED TO THE NUMBER OF SHARES OF COMMON STOCK DETERMINED BY
MULTIPLYING THE EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH ADJUSTMENT BY
THE NUMBER OF WARRANT SHARES ACQUIRABLE UPON EXERCISE OF THIS WARRANT
IMMEDIATELY PRIOR TO SUCH ADJUSTMENT AND DIVIDING THE PRODUCT THEREOF BY THE
EXERCISE PRICE RESULTING FROM SUCH ADJUSTMENT.  FOR PURPOSES OF DETERMINING THE
ADJUSTED EXERCISE PRICE UNDER THIS SECTION 2(A), THE FOLLOWING SHALL BE
APPLICABLE:

6

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(I)   ISSUANCE OF OPTIONS.  IF THE COMPANY IN ANY MANNER GRANTS ANY OPTIONS AND
THE LOWEST PRICE PER SHARE FOR WHICH ONE SHARE OF COMMON STOCK IS ISSUABLE UPON
THE EXERCISE OF ANY SUCH OPTION OR UPON CONVERSION, EXERCISE OR EXCHANGE OF ANY
CONVERTIBLE SECURITIES ISSUABLE UPON EXERCISE OF ANY SUCH OPTION IS LESS THAN
THE APPLICABLE PRICE, THEN SUCH SHARE OF COMMON STOCK SHALL BE DEEMED TO BE
OUTSTANDING AND TO HAVE BEEN ISSUED AND SOLD BY THE COMPANY AT THE TIME OF THE
GRANTING OR SALE OF SUCH OPTION FOR SUCH PRICE PER SHARE.  FOR PURPOSES OF THIS
SECTION 2(A)(I), THE “LOWEST PRICE PER SHARE FOR WHICH ONE SHARE OF COMMON STOCK
IS ISSUABLE UPON EXERCISE OF ANY SUCH OPTIONS OR UPON CONVERSION, EXERCISE OR
EXCHANGE OF ANY CONVERTIBLE SECURITIES ISSUABLE UPON EXERCISE OF SUCH OPTION”
SHALL BE EQUAL TO THE SUM OF THE LOWEST AMOUNTS OF CONSIDERATION (IF ANY)
RECEIVED OR RECEIVABLE BY THE COMPANY WITH RESPECT TO ANY ONE SHARE OF COMMON
STOCK UPON THE GRANTING OR SALE OF THE OPTION, UPON EXERCISE OF THE OPTION AND
UPON CONVERSION, EXERCISE OR EXCHANGE OF ANY CONVERTIBLE SECURITY ISSUABLE UPON
EXERCISE OF SUCH OPTION.  NO FURTHER ADJUSTMENT OF THE EXERCISE PRICE OR NUMBER
OF WARRANT SHARES SHALL BE MADE UPON THE ACTUAL ISSUANCE OF SUCH SHARES OF
COMMON STOCK OR OF SUCH CONVERTIBLE SECURITIES UPON THE EXERCISE OF SUCH OPTIONS
OR UPON THE ACTUAL ISSUANCE OF SUCH SHARES OF COMMON STOCK UPON CONVERSION,
EXERCISE OR EXCHANGE OF SUCH CONVERTIBLE SECURITIES.

(II)  ISSUANCE OF CONVERTIBLE SECURITIES.  IF THE COMPANY IN ANY MANNER ISSUES
OR SELLS ANY CONVERTIBLE SECURITIES AND THE LOWEST PRICE PER SHARE FOR WHICH ONE
SHARE OF COMMON STOCK IS ISSUABLE UPON THE CONVERSION, EXERCISE OR EXCHANGE
THEREOF IS LESS THAN THE APPLICABLE PRICE, THEN SUCH SHARE OF COMMON STOCK SHALL
BE DEEMED TO BE OUTSTANDING AND TO HAVE BEEN ISSUED AND SOLD BY THE COMPANY AT
THE TIME OF THE ISSUANCE OR SALE OF SUCH CONVERTIBLE SECURITIES FOR SUCH PRICE
PER SHARE.  FOR THE PURPOSES OF THIS SECTION 2(A)(II), THE “LOWEST PRICE PER
SHARE FOR WHICH ONE SHARE OF COMMON STOCK IS ISSUABLE UPON THE CONVERSION,
EXERCISE OR EXCHANGE” SHALL BE EQUAL TO THE SUM OF THE LOWEST AMOUNTS OF
CONSIDERATION (IF ANY) RECEIVED OR RECEIVABLE BY THE COMPANY WITH RESPECT TO ONE
SHARE OF COMMON STOCK UPON THE ISSUANCE OR SALE OF THE CONVERTIBLE SECURITY AND
UPON CONVERSION, EXERCISE OR EXCHANGE OF SUCH CONVERTIBLE SECURITY.  NO FURTHER
ADJUSTMENT OF THE EXERCISE PRICE OR NUMBER OF WARRANT SHARES SHALL BE MADE UPON
THE ACTUAL ISSUANCE OF SUCH SHARES OF COMMON STOCK UPON CONVERSION, EXERCISE OR
EXCHANGE OF SUCH CONVERTIBLE SECURITIES, AND IF ANY SUCH ISSUE OR SALE OF SUCH
CONVERTIBLE SECURITIES IS MADE UPON EXERCISE OF ANY OPTIONS FOR WHICH ADJUSTMENT
OF THIS WARRANT HAS BEEN OR IS TO BE MADE PURSUANT TO OTHER PROVISIONS OF THIS
SECTION 2(A), NO FURTHER ADJUSTMENT OF THE EXERCISE PRICE OR NUMBER OF WARRANT
SHARES SHALL BE MADE BY REASON OF SUCH ISSUE OR SALE.

(III) CHANGE IN OPTION PRICE OR RATE OF CONVERSION.  IF THE PURCHASE PRICE
PROVIDED FOR IN ANY OPTIONS, THE ADDITIONAL CONSIDERATION, IF ANY,

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PAYABLE UPON THE ISSUE, CONVERSION, EXERCISE OR EXCHANGE OF ANY CONVERTIBLE
SECURITIES, OR THE RATE AT WHICH ANY CONVERTIBLE SECURITIES ARE CONVERTIBLE INTO
OR EXERCISABLE OR EXCHANGEABLE FOR SHARES OF COMMON STOCK INCREASES OR DECREASES
AT ANY TIME, THE EXERCISE PRICE AND THE NUMBER OF WARRANT SHARES IN EFFECT AT
THE TIME OF SUCH INCREASE OR DECREASE SHALL BE ADJUSTED TO THE EXERCISE PRICE
AND THE NUMBER OF WARRANT SHARES WHICH WOULD HAVE BEEN IN EFFECT AT SUCH TIME
HAD SUCH OPTIONS OR CONVERTIBLE SECURITIES PROVIDED FOR SUCH INCREASED OR
DECREASED PURCHASE PRICE, ADDITIONAL CONSIDERATION OR INCREASED OR DECREASED
CONVERSION RATE, AS THE CASE MAY BE, AT THE TIME INITIALLY GRANTED, ISSUED OR
SOLD.  FOR PURPOSES OF THIS SECTION 2(A)(III), IF THE TERMS OF ANY OPTION OR
CONVERTIBLE SECURITY THAT WAS OUTSTANDING AS OF THE DATE OF ISSUANCE OF THIS
WARRANT ARE INCREASED OR DECREASED IN THE MANNER DESCRIBED IN THE IMMEDIATELY
PRECEDING SENTENCE, THEN SUCH OPTION OR CONVERTIBLE SECURITY AND THE SHARES OF
COMMON STOCK DEEMED ISSUABLE UPON EXERCISE, CONVERSION OR EXCHANGE THEREOF SHALL
BE DEEMED TO HAVE BEEN ISSUED AS OF THE DATE OF SUCH INCREASE OR DECREASE.  NO
ADJUSTMENT PURSUANT TO THIS SECTION 2(A) SHALL BE MADE IF SUCH ADJUSTMENT WOULD
RESULT IN AN INCREASE OF THE EXERCISE PRICE THEN IN EFFECT OR A DECREASE IN THE
NUMBER OF WARRANT SHARES.

(IV) CALCULATION OF CONSIDERATION RECEIVED.  IN CASE ANY OPTION IS ISSUED IN
CONNECTION WITH THE ISSUE OR SALE OF OTHER SECURITIES OF THE COMPANY, TOGETHER
COMPRISING ONE INTEGRATED TRANSACTION IN WHICH NO SPECIFIC CONSIDERATION IS
ALLOCATED TO SUCH OPTIONS BY THE PARTIES THERETO, THE OPTIONS WILL BE DEEMED TO
HAVE BEEN ISSUED THE DIFFERENCE OF (X) THE AGGREGATE FAIR MARKET VALUE OF SUCH
OPTIONS AND OTHER SECURITIES ISSUED OR SOLD IN SUCH INTEGRATED TRANSACTION, LESS
(Y) THE FAIR MARKET VALUE OF THE SECURITIES OTHER THAN SUCH OPTION, ISSUED OR
SOLD IN SUCH TRANSACTION AND THE OTHER SECURITIES ISSUED OR SOLD IN SUCH
INTEGRATED TRANSACTION WILL BE DEEMED TO HAVE BEEN ISSUED OR SOLD FOR THE
BALANCE OF THE CONSIDERATION RECEIVED BY THE COMPANY.  IF ANY 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 GROSS AMOUNT RAISED BY THE COMPANY; PROVIDED, HOWEVER, THAT SUCH GROSS
AMOUNT IS NOT GREATER THAN 110% OF 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 SECURITIES, IN WHICH
CASE THE AMOUNT OF CONSIDERATION RECEIVED BY THE COMPANY WILL BE THE CLOSING
SALE PRICE OF SUCH SECURITY ON 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

8

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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
SECURITIES WILL BE DETERMINED JOINTLY BY THE COMPANY AND THE REQUIRED HOLDERS. 
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) BUSINESS DAYS
AFTER THE TENTH DAY FOLLOWING THE VALUATION EVENT BY AN INDEPENDENT, REPUTABLE
APPRAISER JOINTLY SELECTED BY THE COMPANY AND THE REQUIRED HOLDERS.  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.

(V)  RECORD DATE.  IF THE COMPANY TAKES A RECORD OF THE HOLDERS OF SHARES OF
COMMON STOCK FOR THE PURPOSE OF ENTITLING THEM (A) TO RECEIVE A DIVIDEND OR
OTHER DISTRIBUTION PAYABLE IN SHARES OF COMMON STOCK, OPTIONS OR IN CONVERTIBLE
SECURITIES OR (B) TO SUBSCRIBE FOR OR PURCHASE SHARES OF COMMON STOCK, OPTIONS
OR CONVERTIBLE SECURITIES, THEN SUCH RECORD DATE WILL BE DEEMED TO BE THE DATE
OF THE ISSUE OR SALE OF THE SHARES OF COMMON STOCK DEEMED TO HAVE BEEN ISSUED OR
SOLD UPON THE DECLARATION OF SUCH DIVIDEND OR THE MAKING OF SUCH OTHER
DISTRIBUTION OR THE DATE OF THE GRANTING OF SUCH RIGHT OF SUBSCRIPTION OR
PURCHASE, AS THE CASE MAY BE.

(B)   ADJUSTMENT 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 EXERCISE
PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH SUBDIVISION WILL BE PROPORTIONATELY
REDUCED AND THE NUMBER OF WARRANT SHARES WILL BE PROPORTIONATELY INCREASED.  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 EXERCISE
PRICE IN EFFECT IMMEDIATELY PRIOR TO SUCH COMBINATION WILL BE PROPORTIONATELY
INCREASED AND THE NUMBER OF WARRANT SHARES WILL BE PROPORTIONATELY DECREASED. 
ANY ADJUSTMENT UNDER THIS SECTION 2(B) SHALL BECOME EFFECTIVE AT THE CLOSE OF
BUSINESS ON THE DATE THE SUBDIVISION OR COMBINATION BECOMES EFFECTIVE.

(C)   OTHER EVENTS.  IF ANY EVENT OCCURS OF THE TYPE CONTEMPLATED BY THE
PROVISIONS OF THIS SECTION 2 BUT NOT EXPRESSLY PROVIDED FOR BY SUCH PROVISIONS
(INCLUDING, WITHOUT LIMITATION, THE GRANTING OF STOCK APPRECIATION RIGHTS,
PHANTOM STOCK RIGHTS OR OTHER RIGHTS WITH EQUITY FEATURES), THEN THE COMPANY’S
BOARD OF DIRECTORS WILL MAKE AN APPROPRIATE ADJUSTMENT IN THE EXERCISE PRICE AND
THE NUMBER OF WARRANT SHARES SO AS TO PROTECT THE RIGHTS OF THE HOLDER; PROVIDED
THAT NO SUCH ADJUSTMENT PURSUANT TO THIS SECTION 2(C) WILL INCREASE THE EXERCISE
PRICE OR DECREASE THE NUMBER OF WARRANT SHARES AS OTHERWISE DETERMINED PURSUANT
TO THIS SECTION 2.

3.     RIGHTS UPON DISTRIBUTION OF ASSETS.  IF THE COMPANY SHALL DECLARE OR MAKE
ANY DIVIDEND OR OTHER DISTRIBUTION OF ITS ASSETS (OR RIGHTS TO ACQUIRE ITS
ASSETS) TO

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HOLDERS OF SHARES OF COMMON STOCK, BY WAY OF RETURN OF CAPITAL OR OTHERWISE
(INCLUDING, WITHOUT LIMITATION, ANY DISTRIBUTION OF CASH, STOCK OR OTHER
SECURITIES, PROPERTY OR OPTIONS BY WAY OF A DIVIDEND, SPIN OFF,
RECLASSIFICATION, CORPORATE REARRANGEMENT, SCHEME OF ARRANGEMENT OR OTHER
SIMILAR TRANSACTION) (A “DISTRIBUTION”), AT ANY TIME AFTER THE ISSUANCE OF THIS
WARRANT, THEN, IN EACH SUCH CASE:

(A)   ANY EXERCISE PRICE IN EFFECT IMMEDIATELY PRIOR TO THE CLOSE OF BUSINESS ON
THE RECORD DATE FIXED FOR THE DETERMINATION OF HOLDERS OF SHARES OF COMMON STOCK
ENTITLED TO RECEIVE THE DISTRIBUTION SHALL BE REDUCED, EFFECTIVE AS OF THE CLOSE
OF BUSINESS ON SUCH RECORD DATE, TO A PRICE DETERMINED BY MULTIPLYING SUCH
EXERCISE PRICE BY A FRACTION OF WHICH (I) THE NUMERATOR SHALL BE THE CLOSING BID
PRICE OF THE SHARES OF COMMON STOCK ON THE TRADING DAY IMMEDIATELY PRECEDING
SUCH RECORD DATE MINUS THE VALUE OF THE DISTRIBUTION (AS DETERMINED IN GOOD
FAITH BY THE COMPANY’S BOARD OF DIRECTORS) APPLICABLE TO ONE SHARE OF SHARES OF
COMMON STOCK, AND (II) THE DENOMINATOR SHALL BE THE CLOSING BID PRICE OF THE
SHARES OF COMMON STOCK ON THE TRADING DAY IMMEDIATELY PRECEDING SUCH RECORD
DATE; AND

(B)   THE NUMBER OF WARRANT SHARES SHALL BE INCREASED TO A NUMBER OF SHARES
EQUAL TO THE NUMBER OF SHARES OF COMMON STOCK OBTAINABLE IMMEDIATELY PRIOR TO
THE CLOSE OF BUSINESS ON THE RECORD DATE FIXED FOR THE DETERMINATION OF HOLDERS
OF SHARES OF COMMON STOCK ENTITLED TO RECEIVE THE DISTRIBUTION MULTIPLIED BY THE
RECIPROCAL OF THE FRACTION SET FORTH IN THE IMMEDIATELY PRECEDING PARAGRAPH (A);
PROVIDED THAT IN THE EVENT THAT THE DISTRIBUTION IS OF SHARES OF COMMON STOCK
(OR COMMON STOCK) (“OTHER SHARES OF COMMON STOCK”) OF A COMPANY WHOSE COMMON
SHARES ARE TRADED ON A NATIONAL SECURITIES EXCHANGE OR A NATIONAL AUTOMATED
QUOTATION SYSTEM, THEN THE HOLDER MAY ELECT TO RECEIVE A WARRANT TO PURCHASE
OTHER SHARES OF COMMON STOCK IN LIEU OF AN INCREASE IN THE NUMBER OF WARRANT
SHARES, THE TERMS OF WHICH SHALL BE IDENTICAL TO THOSE OF THIS WARRANT, EXCEPT
THAT SUCH WARRANT SHALL BE EXERCISABLE INTO THE NUMBER OF SHARES OF OTHER SHARES
OF COMMON STOCK THAT WOULD HAVE BEEN PAYABLE TO THE HOLDER PURSUANT TO THE
DISTRIBUTION HAD THE HOLDER EXERCISED THIS WARRANT IMMEDIATELY PRIOR TO SUCH
RECORD DATE AND WITH AN AGGREGATE EXERCISE PRICE EQUAL TO THE PRODUCT OF THE
AMOUNT BY WHICH THE EXERCISE PRICE OF THIS WARRANT WAS DECREASED WITH RESPECT TO
THE DISTRIBUTION PURSUANT TO THE TERMS OF THE IMMEDIATELY PRECEDING PARAGRAPH
(A) AND THE NUMBER OF WARRANT SHARES CALCULATED IN ACCORDANCE WITH THE FIRST
PART OF THIS PARAGRAPH (B).

4.     PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.

(A)   PURCHASE RIGHTS.  IN ADDITION TO ANY ADJUSTMENTS PURSUANT TO SECTION 2
ABOVE, IF AT ANY TIME THE COMPANY GRANTS, ISSUES OR SELLS ANY OPTIONS,
CONVERTIBLE SECURITIES OR RIGHTS TO PURCHASE STOCK, WARRANTS, SECURITIES OR
OTHER PROPERTY PRO RATA TO THE RECORD HOLDERS OF ANY CLASS OF SHARES OF COMMON
STOCK (THE “PURCHASE RIGHTS”), THEN THE HOLDER WILL BE ENTITLED TO ACQUIRE, UPON
THE TERMS APPLICABLE TO SUCH PURCHASE RIGHTS, THE AGGREGATE PURCHASE RIGHTS
WHICH THE HOLDER COULD HAVE ACQUIRED IF THE HOLDER HAD HELD THE NUMBER OF SHARES
OF COMMON STOCK ACQUIRABLE UPON COMPLETE EXERCISE OF THIS WARRANT (WITHOUT
REGARD TO ANY LIMITATIONS ON THE EXERCISE OF THIS WARRANT) IMMEDIATELY BEFORE
THE DATE ON WHICH A RECORD IS TAKEN FOR THE GRANT, ISSUANCE OR SALE OF SUCH
PURCHASE RIGHTS, OR, IF NO SUCH RECORD IS TAKEN, THE DATE AS OF WHICH THE RECORD
HOLDERS OF SHARES OF COMMON STOCK ARE TO BE DETERMINED FOR THE GRANT, ISSUE OR
SALE OF SUCH PURCHASE RIGHTS.

 

10

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(B)   FUNDAMENTAL TRANSACTIONS.  THE COMPANY SHALL NOT ENTER INTO OR BE PARTY TO
A FUNDAMENTAL TRANSACTION UNLESS (I)  THE SUCCESSOR ENTITY ASSUMES IN WRITING
ALL OF THE OBLIGATIONS OF THE COMPANY UNDER THIS WARRANT AND THE OTHER
TRANSACTION DOCUMENTS IN ACCORDANCE WITH THE PROVISIONS OF THIS SECTION (4)(B)
PURSUANT TO WRITTEN AGREEMENTS IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
THE REQUIRED HOLDERS AND APPROVED BY THE REQUIRED HOLDERS PRIOR TO SUCH
FUNDAMENTAL TRANSACTION, INCLUDING AGREEMENTS TO DELIVER TO EACH HOLDER OF
WARRANTS IN EXCHANGE FOR SUCH WARRANTS A SECURITY OF THE SUCCESSOR ENTITY
EVIDENCED BY A WRITTEN INSTRUMENT SUBSTANTIALLY SIMILAR IN FORM AND SUBSTANCE TO
THIS WARRANT, INCLUDING, WITHOUT LIMITATION, AN ADJUSTED EXERCISE PRICE EQUAL TO
THE VALUE FOR THE SHARES OF COMMON STOCK REFLECTED BY THE TERMS OF SUCH
FUNDAMENTAL TRANSACTION, AND EXERCISABLE FOR A CORRESPONDING NUMBER OF SHARES OF
CAPITAL STOCK EQUIVALENT TO THE SHARES OF COMMON STOCK ACQUIRABLE AND RECEIVABLE
UPON EXERCISE OF THIS WARRANT (WITHOUT REGARD TO ANY LIMITATIONS ON THE EXERCISE
OF THIS WARRANT) PRIOR TO SUCH FUNDAMENTAL TRANSACTION, AND REASONABLY
SATISFACTORY TO THE REQUIRED HOLDERS 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 WARRANT REFERRING TO THE “COMPANY” SHALL
REFER INSTEAD TO THE SUCCESSOR ENTITY), AND MAY EXERCISE EVERY RIGHT AND POWER
OF THE COMPANY AND SHALL ASSUME ALL OF THE OBLIGATIONS OF THE COMPANY UNDER THIS
WARRANT WITH THE SAME EFFECT AS IF SUCH SUCCESSOR ENTITY HAD BEEN NAMED AS THE
COMPANY HEREIN.  UPON CONSUMMATION OF THE FUNDAMENTAL TRANSACTION, THE SUCCESSOR
ENTITY SHALL DELIVER TO THE HOLDER CONFIRMATION THAT THERE SHALL BE ISSUED UPON
EXERCISE OF THIS WARRANT AT ANY TIME AFTER THE CONSUMMATION OF THE FUNDAMENTAL
TRANSACTION, IN LIEU OF THE SHARES OF THE COMMON STOCK (OR OTHER SECURITIES,
CASH, ASSETS OR OTHER PROPERTY) ISSUABLE UPON THE EXERCISE OF THE WARRANT PRIOR
TO SUCH FUNDAMENTAL TRANSACTION, SUCH SHARES OF THE PUBLICLY TRADED COMMON STOCK
(OR ITS EQUIVALENT) OF THE SUCCESSOR ENTITY (INCLUDING ITS PARENT ENTITY) WHICH
THE HOLDER WOULD HAVE BEEN ENTITLED TO RECEIVE UPON THE HAPPENING OF SUCH
FUNDAMENTAL TRANSACTION HAD THIS WARRANT BEEN CONVERTED IMMEDIATELY PRIOR TO
SUCH FUNDAMENTAL TRANSACTION, AS ADJUSTED IN ACCORDANCE WITH THE PROVISIONS OF
THIS WARRANT.  IN ADDITION TO AND NOT IN SUBSTITUTION FOR ANY OTHER RIGHTS
HEREUNDER, PRIOR TO THE CONSUMMATION OF 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 AN EXERCISE OF THIS
WARRANT AT ANY TIME AFTER THE CONSUMMATION OF THE FUNDAMENTAL TRANSACTION BUT
PRIOR TO THE EXPIRATION DATE, IN LIEU OF THE SHARES OF THE COMMON STOCK (OR
OTHER SECURITIES, CASH, ASSETS OR OTHER PROPERTY) ISSUABLE UPON THE EXERCISE OF
THE WARRANT PRIOR TO SUCH FUNDAMENTAL TRANSACTION, SUCH SHARES OF STOCK,
SECURITIES, CASH, ASSETS OR ANY OTHER PROPERTY WHATSOEVER (INCLUDING WARRANTS OR
OTHER PURCHASE OR SUBSCRIPTION RIGHTS) WHICH THE HOLDER WOULD HAVE BEEN ENTITLED
TO RECEIVE UPON THE HAPPENING OF SUCH FUNDAMENTAL TRANSACTION HAD THE WARRANT
BEEN EXERCISED IMMEDIATELY PRIOR TO SUCH FUNDAMENTAL TRANSACTION.  THE
PROVISIONS OF THIS SECTION SHALL APPLY SIMILARLY AND EQUALLY TO SUCCESSIVE
FUNDAMENTAL TRANSACTIONS AND CORPORATE EVENTS AND SHALL BE APPLIED WITHOUT
REGARD TO ANY LIMITATIONS ON THE EXERCISE OF THIS WARRANT.

(C)   NOTWITHSTANDING THE FOREGOING AND THE PROVISIONS OF SECTION 4(B) ABOVE, IN
THE EVENT OF A CHANGE OF CONTROL, IF THE HOLDER HAS NOT EXERCISED THE WARRANT IN
FULL PRIOR TO THE CONSUMMATION OF THE CHANGE OF CONTROL, THEN THE HOLDER SHALL
HAVE THE RIGHT TO

11

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REQUIRE SUCH SUCCESSOR ENTITY TO PURCHASE THIS WARRANT FROM THE HOLDER BY PAYING
TO THE HOLDER, SIMULTANEOUSLY WITH THE CONSUMMATION OF THE CHANGE OF CONTROL AND
IN LIEU OF THE WARRANT REFERRED TO IN SECTION 4(B) CASH IN THE AMOUNT EQUAL TO
THE VALUE OF THE REMAINING UNEXERCISED PORTION OF THIS WARRANT ON THE DATE OF
SUCH CONSUMMATION, WHICH VALUE SHALL BE DETERMINED BY USE OF THE BLACK-SCHOLES
OPTION PRICING MODEL REFLECTING (I) A RISK-FREE INTEREST RATE CORRESPONDING TO
THE U.S. TREASURY RATE FOR A PERIOD EQUAL TO THE REMAINING TERM OF THIS WARRANT
AS OF SUCH DATE OF REQUEST AND (II) AN EXPECTED VOLATILITY EQUAL TO THE 100 DAY
VOLATILITY OBTAINED FROM THE HVT FUNCTION ON BLOOMBERG; PROVIDED THAT IF SUCH
FUNCTION YIELDS A VOLATILITY (X) LESS THAN 50%, THE EXPECTED VOLATILITY SHALL BE
EQUAL TO 50% AND (Y) GREATER THAN 80%, THE EXPECTED VOLATILITY SHALL BE EQUAL TO
80%.

5.     NONCIRCUMVENTION.  THE COMPANY HEREBY COVENANTS AND AGREES THAT THE
COMPANY WILL NOT, BY AMENDMENT OF ITS CERTIFICATE OF INCORPORATION, BYLAWS OR
THROUGH ANY REORGANIZATION, TRANSFER OF ASSETS, CONSOLIDATION, MERGER, SCHEME OF
ARRANGEMENT, DISSOLUTION, ISSUE OR SALE OF SECURITIES, OR ANY OTHER VOLUNTARY
ACTION, AVOID OR SEEK TO AVOID THE OBSERVANCE OR PERFORMANCE OF ANY OF THE TERMS
OF THIS WARRANT, AND WILL AT ALL TIMES IN GOOD FAITH CARRY OUT ALL THE
PROVISIONS OF THIS WARRANT AND TAKE ALL ACTION AS MAY BE REQUIRED TO PROTECT THE
RIGHTS OF THE HOLDER.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE
COMPANY (I) SHALL NOT INCREASE THE PAR VALUE OF ANY SHARES OF COMMON STOCK
RECEIVABLE UPON THE EXERCISE OF THIS WARRANT ABOVE THE EXERCISE PRICE THEN IN
EFFECT, (II) SHALL TAKE ALL SUCH ACTIONS AS MAY BE NECESSARY OR APPROPRIATE IN
ORDER THAT THE COMPANY MAY VALIDLY AND LEGALLY ISSUE FULLY PAID AND
NONASSESSABLE SHARES OF COMMON STOCK UPON THE EXERCISE OF THIS WARRANT, AND
(III) SHALL, SO LONG AS ANY OF THE SPA WARRANTS ARE OUTSTANDING, TAKE ALL ACTION
NECESSARY TO RESERVE AND KEEP AVAILABLE OUT OF ITS AUTHORIZED AND UNISSUED
SHARES OF COMMON STOCK, SOLELY FOR THE PURPOSE OF EFFECTING THE EXERCISE OF THE
SPA WARRANTS, 130% OF THE NUMBER OF SHARES OF COMMON STOCK AS SHALL FROM TIME TO
TIME BE NECESSARY TO EFFECT THE EXERCISE OF THE SPA WARRANTS THEN OUTSTANDING
(WITHOUT REGARD TO ANY LIMITATIONS ON EXERCISE).

6.     WARRANT HOLDER NOT DEEMED A STOCKHOLDER.  EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED HEREIN, THE HOLDER, SOLELY IN SUCH PERSON’S CAPACITY AS A
HOLDER OF THIS WARRANT, SHALL NOT BE ENTITLED TO VOTE OR RECEIVE DIVIDENDS OR BE
DEEMED THE HOLDER OF SHARE CAPITAL OF THE COMPANY FOR ANY PURPOSE, NOR SHALL
ANYTHING CONTAINED IN THIS WARRANT BE CONSTRUED TO CONFER UPON THE HOLDER,
SOLELY IN SUCH PERSON’S CAPACITY AS THE HOLDER OF THIS WARRANT, ANY OF THE
RIGHTS OF A SHAREHOLDER OF THE COMPANY OR ANY RIGHT TO VOTE, GIVE OR WITHHOLD
CONSENT TO ANY CORPORATE ACTION (WHETHER ANY REORGANIZATION, ISSUE OF STOCK,
RECLASSIFICATION OF STOCK, CONSOLIDATION, MERGER, CONVEYANCE OR OTHERWISE),
RECEIVE NOTICE OF MEETINGS, RECEIVE DIVIDENDS OR SUBSCRIPTION RIGHTS, OR
OTHERWISE, PRIOR TO THE ISSUANCE TO THE HOLDER OF THE WARRANT SHARES WHICH SUCH
PERSON IS THEN ENTITLED TO RECEIVE UPON THE DUE EXERCISE OF THIS WARRANT.  IN
ADDITION, NOTHING CONTAINED IN THIS WARRANT SHALL BE CONSTRUED AS IMPOSING ANY
LIABILITIES ON THE HOLDER TO PURCHASE ANY SECURITIES (UPON EXERCISE OF THIS
WARRANT OR OTHERWISE) OR AS A SHAREHOLDER OF THE COMPANY, WHETHER SUCH
LIABILITIES ARE ASSERTED BY THE COMPANY OR BY CREDITORS OF THE COMPANY. 
NOTWITHSTANDING THIS SECTION 6, THE COMPANY SHALL PROVIDE THE HOLDER WITH COPIES
OF THE SAME NOTICES AND OTHER INFORMATION GIVEN TO THE SHAREHOLDERS OF THE
COMPANY GENERALLY, CONTEMPORANEOUSLY WITH THE GIVING THEREOF TO THE
SHAREHOLDERS.

12

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7.     REISSUANCE OF WARRANTS.

(A)   TRANSFER OF WARRANT.  IF THIS WARRANT IS TO BE TRANSFERRED, THE HOLDER
SHALL SURRENDER THIS WARRANT TO THE COMPANY, WHEREUPON THE COMPANY WILL SUBJECT
TO THE SATISFACTION OF THE TRANSFER PROVISIONS OF THE SECURITIES PURCHASE
AGREEMENT FORTHWITH ISSUE AND DELIVER UPON THE ORDER OF THE HOLDER A NEW WARRANT
(IN ACCORDANCE WITH SECTION 7(D)), REGISTERED IN THE NAME OF THE REGISTERED
TRANSFEREE OR ASSIGNEE, REPRESENTING THE RIGHT TO PURCHASE THE NUMBER OF WARRANT
SHARES BEING TRANSFERRED BY THE HOLDER AND, IF LESS THEN THE TOTAL NUMBER OF
WARRANT SHARES THEN UNDERLYING THIS WARRANT IS BEING TRANSFERRED, A NEW WARRANT
(IN ACCORDANCE WITH SECTION 7(D)) TO THE HOLDER REPRESENTING THE RIGHT TO
PURCHASE THE NUMBER OF WARRANT SHARES NOT BEING TRANSFERRED.

(B)   LOST, STOLEN OR MUTILATED WARRANT.  UPON RECEIPT BY THE COMPANY OF
EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY OF THE LOSS, THEFT, DESTRUCTION
OR MUTILATION OF THIS WARRANT, AND, IN THE CASE OF LOSS, THEFT OR DESTRUCTION,
OF ANY INDEMNIFICATION UNDERTAKING BY THE HOLDER TO THE COMPANY IN CUSTOMARY
FORM AND, IN THE CASE OF MUTILATION, UPON SURRENDER AND CANCELLATION OF THIS
WARRANT, THE COMPANY SHALL EXECUTE AND DELIVER TO THE HOLDER A NEW WARRANT (IN
ACCORDANCE WITH SECTION 7(D)) REPRESENTING THE RIGHT TO PURCHASE THE WARRANT
SHARES THEN UNDERLYING THIS WARRANT.

(C)   EXCHANGEABLE FOR MULTIPLE WARRANTS.  THIS WARRANT IS EXCHANGEABLE, UPON
THE SURRENDER HEREOF BY THE HOLDER AT THE PRINCIPAL OFFICE OF THE COMPANY, FOR A
NEW WARRANT OR WARRANTS (IN ACCORDANCE WITH SECTION 7(D)) REPRESENTING IN THE
AGGREGATE THE RIGHT TO PURCHASE THE NUMBER OF WARRANT SHARES THEN UNDERLYING
THIS WARRANT, AND EACH SUCH NEW WARRANT WILL REPRESENT THE RIGHT TO PURCHASE
SUCH PORTION OF SUCH WARRANT SHARES AS IS DESIGNATED BY THE HOLDER AT THE TIME
OF SUCH SURRENDER; PROVIDED, HOWEVER, THAT NO WARRANTS FOR FRACTIONAL SHARES OF
COMMON STOCK SHALL BE GIVEN.

(D)   ISSUANCE OF NEW WARRANTS.  WHENEVER THE COMPANY IS REQUIRED TO ISSUE A NEW
WARRANT PURSUANT TO THE TERMS OF THIS WARRANT, SUCH NEW WARRANT (I) SHALL BE OF
LIKE TENOR WITH THIS WARRANT, (II) SHALL REPRESENT, AS INDICATED ON THE FACE OF
SUCH NEW WARRANT, THE RIGHT TO PURCHASE THE WARRANT SHARES THEN UNDERLYING THIS
WARRANT (OR IN THE CASE OF A NEW WARRANT BEING ISSUED PURSUANT TO SECTION 7(A)
OR SECTION 7(C), THE WARRANT SHARES DESIGNATED BY THE HOLDER WHICH, WHEN ADDED
TO THE NUMBER OF SHARES OF COMMON STOCK UNDERLYING THE OTHER NEW WARRANTS ISSUED
IN CONNECTION WITH SUCH ISSUANCE, DOES NOT EXCEED THE NUMBER OF WARRANT SHARES
THEN UNDERLYING THIS WARRANT), (III) SHALL HAVE AN ISSUANCE DATE, AS INDICATED
ON THE FACE OF SUCH NEW WARRANT WHICH IS THE SAME AS THE ISSUANCE DATE, AND (IV)
SHALL HAVE THE SAME RIGHTS AND CONDITIONS AS THIS WARRANT.

8.     NOTICES.  WHENEVER NOTICE IS REQUIRED TO BE GIVEN UNDER THIS WARRANT,
UNLESS OTHERWISE PROVIDED HEREIN, SUCH NOTICE SHALL BE GIVEN IN ACCORDANCE WITH
SECTION 9(F) OF THE SECURITIES PURCHASE AGREEMENT.  THE COMPANY SHALL PROVIDE
THE HOLDER WITH PROMPT WRITTEN NOTICE OF ALL ACTIONS TAKEN PURSUANT TO THIS
WARRANT, INCLUDING IN REASONABLE DETAIL A DESCRIPTION OF SUCH ACTION AND THE
REASON THEREFORE.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE COMPANY
WILL GIVE WRITTEN NOTICE TO THE HOLDER (I) IMMEDIATELY UPON ANY ADJUSTMENT OF
THE EXERCISE PRICE, SETTING FORTH IN REASONABLE DETAIL, AND CERTIFYING, THE
CALCULATION OF SUCH ADJUSTMENT AND (II) AT LEAST FIFTEEN DAYS PRIOR TO THE DATE
ON WHICH THE COMPANY CLOSES ITS BOOKS

13

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OR TAKES A RECORD (A) WITH RESPECT TO ANY DIVIDEND OR DISTRIBUTION UPON THE
SHARES OF COMMON STOCK, (B) WITH RESPECT TO ANY GRANTS, ISSUANCES OR SALES OF
ANY OPTIONS, CONVERTIBLE SECURITIES OR RIGHTS TO PURCHASE STOCK, WARRANTS,
SECURITIES OR OTHER PROPERTY TO HOLDERS OF SHARES OF COMMON STOCK OR (C) FOR
DETERMINING RIGHTS TO VOTE WITH RESPECT TO ANY FUNDAMENTAL TRANSACTION,
DISSOLUTION OR LIQUIDATION, PROVIDED IN EACH CASE THAT SUCH INFORMATION SHALL BE
MADE KNOWN TO THE PUBLIC PRIOR TO OR IN CONJUNCTION WITH SUCH NOTICE BEING
PROVIDED TO THE HOLDER.

9.     AMENDMENT AND WAIVER.  NO TERM OF THIS WARRANT MAY BE AMENDED, MODIFIED
OR WAIVED UNLESS PURSUANT TO A WRITING SIGNED BY THE COMPANY AND THE REQUIRED
HOLDERS; PROVIDED THAT NO SUCH ACTION MAY INCREASE THE EXERCISE PRICE OF ANY SPA
WARRANTS OR DECREASE THE NUMBER OF SHARES OR CLASS OF STOCK OBTAINABLE UPON
EXERCISE OF ANY SPA WARRANTS WITHOUT THE WRITTEN CONSENT OF THE HOLDER.  NO SUCH
AMENDMENT SHALL BE EFFECTIVE TO THE EXTENT THAT IT APPLIES TO LESS THAN ALL OF
THE HOLDERS OF THE SPA WARRANTS THEN OUTSTANDING.

10.   GOVERNING LAW.  THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCOR­DANCE WITH, AND ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY, INTERPRETATION AND PERFORMANCE OF THIS WARRANT SHALL BE GOVERNED BY,
THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE
OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR
ANY OTHER JURISDICTIONS) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTIONS OTHER THAN THE STATE OF NEW YORK.

11.   CONSTRUCTION; HEADINGS.  THIS WARRANT SHALL BE DEEMED TO BE JOINTLY
DRAFTED BY THE COMPANY AND ALL THE BUYERS AND SHALL NOT BE CONSTRUED AGAINST ANY
PERSON AS THE DRAFTER HEREOF.  THE HEADINGS OF THIS WARRANT ARE FOR CONVENIENCE
OF REFERENCE AND SHALL NOT FORM PART OF, OR AFFECT THE INTERPRETATION OF, THIS
WARRANT.

12.   DISPUTE RESOLUTION.  IN THE CASE OF A DISPUTE AS TO THE DETERMINATION OF
THE EXERCISE PRICE OR THE ARITHMETIC CALCULATION OF THE WARRANT SHARES, THE
COMPANY SHALL SUBMIT THE DISPUTED DETERMINATIONS OR ARITHMETIC CALCULATIONS VIA
FACSIMILE WITHIN TWO BUSINESS DAYS OF RECEIPT OF THE EXERCISE NOTICE GIVING RISE
TO SUCH DISPUTE, AS THE CASE MAY BE, TO THE HOLDER.  IF THE HOLDER AND THE
COMPANY ARE UNABLE TO AGREE UPON SUCH DETERMINATION OR CALCULATION OF THE
EXERCISE PRICE OR THE WARRANT SHARES WITHIN THREE BUSINESS DAYS OF SUCH DISPUTED
DETERMINATION OR ARITHMETIC CALCULATION BEING SUBMITTED TO THE HOLDER, THEN THE
COMPANY SHALL, WITHIN TWO BUSINESS DAYS SUBMIT VIA FACSIMILE (A) THE DISPUTED
DETERMINATION OF THE EXERCISE PRICE TO AN INDEPENDENT, REPUTABLE INVESTMENT BANK
SELECTED BY THE COMPANY AND APPROVED BY THE HOLDER  OR (B) THE DISPUTED
ARITHMETIC CALCULATION OF THE WARRANT SHARES TO THE COMPANY’S INDEPENDENT,
OUTSIDE ACCOUNTANT.  THE COMPANY SHALL CAUSE AT ITS EXPENSE THE INVESTMENT BANK
OR THE ACCOUNTANT, AS THE CASE MAY BE, TO PERFORM THE DETERMINATIONS OR
CALCULATIONS AND NOTIFY THE COMPANY AND THE HOLDER OF THE RESULTS NO LATER THAN
TEN BUSINESS DAYS FROM THE TIME IT RECEIVES THE DISPUTED DETERMINATIONS OR
CALCULATIONS.  SUCH INVESTMENT BANK’S OR ACCOUNTANT’S DETERMINATION OR
CALCULATION, AS THE CASE MAY BE, SHALL BE BINDING UPON ALL PARTIES ABSENT
DEMONSTRABLE ERROR.

13.   REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  THE REMEDIES
PROVIDED IN THIS WARRANT SHALL BE CUMULATIVE AND IN ADDITION TO ALL OTHER
REMEDIES AVAILABLE UNDER THIS WARRANT AND THE OTHER TRANSACTION DOCUMENTS, AT
LAW OR IN EQUITY (INCLUDING A DECREE OF SPECIFIC PERFORMANCE AND/OR OTHER
INJUNCTIVE RELIEF), AND NOTHING HEREIN

14

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SHALL LIMIT THE RIGHT OF THE HOLDER RIGHT TO PURSUE ACTUAL DAMAGES FOR ANY
FAILURE BY THE COMPANY TO COMPLY WITH THE TERMS OF THIS WARRANT.  THE COMPANY
ACKNOWLEDGES THAT A BREACH BY IT OF ITS OBLIGATIONS HEREUNDER WILL CAUSE
IRREPARABLE HARM TO THE HOLDER AND THAT THE REMEDY AT LAW FOR ANY SUCH BREACH
MAY BE INADEQUATE.  THE COMPANY THEREFORE AGREES THAT, IN THE EVENT OF ANY SUCH
BREACH OR THREATENED BREACH, THE HOLDER OF THIS WARRANT SHALL BE ENTITLED, IN
ADDITION TO ALL OTHER AVAILABLE REMEDIES, TO AN INJUNCTION RESTRAINING ANY
BREACH, WITHOUT THE NECESSITY OF SHOWING ECONOMIC LOSS AND WITHOUT ANY BOND OR
OTHER SECURITY BEING REQUIRED.

14.   TRANSFER.  THIS WARRANT MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED WITHOUT THE CONSENT OF THE COMPANY, EXCEPT AS MAY OTHERWISE BE REQUIRED
BY SECTION 2(F) OF THE SECURITIES PURCHASE AGREEMENT.

15.   CERTAIN DEFINITIONS.  FOR PURPOSES OF THIS WARRANT, THE FOLLOWING TERMS
SHALL HAVE THE FOLLOWING MEANINGS:

(A)   “APPROVED STOCK PLAN” MEANS ANY EMPLOYEE BENEFIT PLAN WHICH HAS BEEN
APPROVED BY THE BOARD OF DIRECTORS OF THE COMPANY, PURSUANT TO WHICH THE
COMPANY’S SECURITIES MAY BE ISSUED TO ANY EMPLOYEE, CONSULTANT, OFFICER OR
DIRECTOR FOR SERVICES PROVIDED TO THE COMPANY.

(B)   “BLOOMBERG” MEANS BLOOMBERG FINANCIAL MARKETS.

(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)   “CHANGE OF CONTROL” MEANS ANY FUNDAMENTAL TRANSACTION OTHER THAN (I) ANY
REORGANIZATION, RECAPITALIZATION OR RECLASSIFICATION OF THE COMMON STOCK OR
BUSINESS COMBINATION IN WHICH THE COMPANY IS THE PUBLICLY TRADED SURVIVING
ENTITY IN WHICH THE HOLDERS OF THE COMPANY’S VOTING POWER IMMEDIATELY PRIOR TO
SUCH REORGANIZATION, RECAPITALIZATION OR RECLASSIFICATION OR BUSINESS
COMBINATION CONTINUE AFTER SUCH REORGANIZATION, RECAPITALIZATION OR
RECLASSIFICATION OR BUSINESS COMBINATION TO HOLD PUBLICLY TRADED SECURITIES AND,
DIRECTLY OR INDIRECTLY, THE VOTING POWER OF THE SURVIVING ENTITY OR ENTITIES
NECESSARY TO ELECT A MAJORITY OF THE MEMBERS OF THE BOARD OF DIRECTORS (OR THEIR
EQUIVALENT IF OTHER THAN A CORPORATION) OF SUCH ENTITY OR ENTITIES (EXCEPT WHERE
APOLLO RESOURCES INTERNATIONAL OR ITS AFFILIATES BECOMES THE “BENEFICIAL OWNER”
(AS DEFINED IN RULE 13D-3 UNDER THE EXCHANGE ACT), DIRECTLY OR INDIRECTLY, OF
70% OR GREATER OF THE AGGREGATE VOTING STOCK OF THE COMPANY), OR (II) PURSUANT
TO A MIGRATORY MERGER EFFECTED SOLELY FOR THE PURPOSE OF CHANGING THE
JURISDICTION OF INCORPORATION OF THE COMPANY.

(E)   “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

15

--------------------------------------------------------------------------------

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 PURSUANT TO
SECTION 12.  ALL SUCH DETERMINATIONS TO BE APPROPRIATELY ADJUSTED FOR ANY STOCK
DIVIDEND, STOCK SPLIT, STOCK COMBINATION OR OTHER SIMILAR TRANSACTION DURING THE
APPLICABLE CALCULATION PERIOD.

(F)    “COMMON SHARES” MEANS THE COMMON SHARES ISSUED PURSUANT TO THE SECURITIES
PURCHASE AGREEMENT.

(G)   “COMMON STOCK” MEANS (I) THE COMPANY’S SHARES OF COMMON STOCK, PAR VALUE
$0.001 PER SHARE, AND (II) ANY SHARE CAPITAL INTO WHICH SUCH COMMON STOCK SHALL
HAVE BEEN CHANGED OR ANY SHARE CAPITAL RESULTING FROM A RECLASSIFICATION OF SUCH
COMMON STOCK.

(H)   “CONVERTIBLE SECURITIES” MEANS ANY STOCK OR SECURITIES (OTHER THAN
OPTIONS) DIRECTLY OR INDIRECTLY CONVERTIBLE INTO OR EXERCISABLE OR EXCHANGEABLE
FOR SHARES OF COMMON STOCK.

(I)    “ELIGIBLE MARKET” MEANS THE PRINCIPAL MARKET, THE AMERICAN STOCK
EXCHANGE, THE NEW YORK STOCK EXCHANGE, INC., THE NASDAQ NATIONAL MARKET.

(J)    “EXCLUDED SECURITIES” MEANS ANY COMMON STOCK ISSUED OR ISSUABLE: (I) IN
CONNECTION WITH ANY APPROVED STOCK PLAN; (II) UPON EXERCISE OF THE WARRANTS;
(III) PURSUANT TO A BONA FIDE FIRM COMMITMENT UNDERWRITTEN PUBLIC OFFERING WITH
A NATIONALLY RECOGNIZED UNDERWRITER WHICH GENERATES GROSS PROCEEDS TO THE
COMPANY IN EXCESS OF $50,000,000 (OTHER THAN AN “AT-THE-MARKET OFFERING” AS
DEFINED IN RULE 415(A)(4) UNDER THE 1933 ACT AND “EQUITY LINES”); (IV) IN
CONNECTION WITH ANY ACQUISITION BY THE COMPANY, WHETHER THROUGH AN ACQUISITION
OF STOCK OR A MERGER OF ANY BUSINESS, ASSETS OR TECHNOLOGIES THE PRIMARY PURPOSE
OF WHICH IS NOT TO RAISE EQUITY CAPITAL; (V) IN CONNECTION WITH ANY OTHER
STRATEGIC TRANSACTION OR ALLIANCE THE PRIMARY PURPOSE OF WHICH IS NOT TO RAISE
EQUITY CAPITAL; AND (VII) UPON CONVERSION OR EXERCISE OF ANY OPTIONS OR
CONVERTIBLE SECURITIES WHICH ARE OUTSTANDING ON THE DAY IMMEDIATELY PRECEDING
THE SUBSCRIPTION DATE, PROVIDED THAT THE CONVERSION OR EXERCISE PRICE OF SUCH
OPTIONS OR CONVERTIBLE SECURITIES IS NOT AMENDED, MODIFIED OR CHANGED ON OR
AFTER THE SUBSCRIPTION DATE.

(K)   “EXPIRATION DATE” MEANS THE DATE SIXTY MONTHS AFTER THE ISSUANCE DATE OR,
IF SUCH DATE FALLS ON A DAY OTHER THAN A BUSINESS DAY OR ON WHICH TRADING DOES
NOT TAKE PLACE ON THE PRINCIPAL MARKET (A “HOLIDAY”), THE NEXT DATE THAT IS NOT
A HOLIDAY.

16

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(L)    “FUNDAMENTAL TRANSACTION” MEANS THAT THE COMPANY SHALL, DIRECTLY OR
INDIRECTLY, IN ONE OR MORE RELATED TRANSACTIONS, (I) CONSOLIDATE OR MERGE WITH
OR INTO (WHETHER OR NOT THE COMPANY IS THE SURVIVING CORPORATION) ANOTHER PERSON
OR PERSONS, OR (II) SELL, ASSIGN, TRANSFER, CONVEY OR OTHERWISE DISPOSE OF ALL
OR SUBSTANTIALLY ALL OF THE PROPERTIES OR ASSETS OF THE COMPANY TO ANOTHER
PERSON, OR (III) ALLOW ANOTHER PERSON TO MAKE A PURCHASE, TENDER OR EXCHANGE
OFFER THAT IS ACCEPTED BY THE HOLDERS OF MORE THAN 50% OF THE OUTSTANDING SHARES
OF VOTING STOCK (NOT INCLUDING ANY SHARES OF VOTING 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 (IV) CONSUMMATE A
STOCK PURCHASE AGREEMENT OR OTHER BUSINESS COMBINATION (INCLUDING, WITHOUT
LIMITATION, A REORGANIZATION, RECAPITALIZATION, SPIN-OFF OR SCHEME OF
ARRANGEMENT) WITH ANOTHER PERSON WHEREBY SUCH OTHER PERSON ACQUIRES MORE THAN
THE 50% OF THE OUTSTANDING SHARES OF VOTING STOCK (NOT INCLUDING ANY SHARES OF
VOTING 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
PURCHASE AGREEMENT OR OTHER BUSINESS COMBINATION), OR (V) REORGANIZE,
RECAPITALIZE OR RECLASSIFY ITS COMMON STOCK OR (VI) ANY “PERSON” OR “GROUP” (AS
THESE TERMS ARE USED FOR PURPOSES OF SECTIONS 13(D) AND 14(D) OF THE EXCHANGE
ACT) IS OR SHALL BECOME THE “BENEFICIAL OWNER” (AS DEFINED IN RULE 13D-3 UNDER
THE EXCHANGE ACT), DIRECTLY OR INDIRECTLY, OF 50% OF THE AGGREGATE VOTING STOCK
OF THE COMPANY.

(M)  “OPTIONS” MEANS ANY RIGHTS, WARRANTS OR OPTIONS TO SUBSCRIBE FOR OR
PURCHASE SHARES OF COMMON STOCK OR CONVERTIBLE SECURITIES.

(N)   “PARENT ENTITY” OF A PERSON MEANS AN ENTITY THAT, DIRECTLY OR INDIRECTLY,
CONTROLS THE APPLICABLE PERSON AND WHOSE COMMON STOCK OR EQUIVALENT EQUITY
SECURITY IS QUOTED OR LISTED ON AN ELIGIBLE MARKET, OR, IF THERE IS MORE THAN
ONE SUCH PERSON OR PARENT ENTITY, THE PERSON OR PARENT ENTITY WITH THE LARGEST
PUBLIC MARKET CAPITALIZATION AS OF THE DATE OF CONSUMMATION OF THE FUNDAMENTAL
TRANSACTION.

(O)   “PERSON” MEANS AN INDIVIDUAL, A LIMITED LIABILITY COMPANY, A PARTNERSHIP,
A JOINT VENTURE, A CORPORATION, A TRUST, AN UNINCORPORATED ORGANIZATION, ANY
OTHER ENTITY AND A GOVERNMENT OR ANY DEPARTMENT OR AGENCY THEREOF.

(P)   “PRINCIPAL MARKET” MEANS OTC BULLETIN BOARD.

(Q)   “REGISTRATION RIGHTS AGREEMENT” MEANS THAT CERTAIN REGISTRATION RIGHTS
AGREEMENT BY AND AMONG THE COMPANY AND THE BUYERS.

(R)    “REQUIRED HOLDERS” MEANS THE HOLDERS OF THE SPA WARRANTS REPRESENTING AT
LEAST A MAJORITY OF SHARES OF COMMON STOCK UNDERLYING THE SPA WARRANTS THEN
OUTSTANDING.

(S)   “SUCCESSOR ENTITY” MEANS THE PERSON (OR, IF SO ELECTED BY THE REQUIRED
HOLDERS, THE PARENT ENTITY) FORMED BY, RESULTING FROM OR SURVIVING ANY
FUNDAMENTAL TRANSACTION OR THE PERSON (OR, IF SO ELECTED BY THE REQUIRED
HOLDERS, THE PARENT ENTITY) WITH WHICH SUCH FUNDAMENTAL TRANSACTION SHALL HAVE
BEEN ENTERED INTO.

[Signature Page Follows]

 

17

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

 

 

APOLLO RESOURCES INTERNATIONAL, INC.

 

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

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EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK

APOLLO RESOURCES INTERNATIONAL, INC.

The undersigned holder hereby exercises the right to purchase                   
of the shares of Common Stock (“Warrant Shares”) of Apollo Resources
International, Inc., a Utah corporation (the “Company”), evidenced by the
attached Warrant to Purchase Common Stock (the “Warrant”).  Capitalized terms
used herein and not otherwise defined shall have the respective meanings set
forth in the Warrant.

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

 

                            a “Cash Exercise” with respect to
                                       Warrant Shares;

 

 

                            and/or

 

 

 

 

 

                            a “Cashless Exercise” with respect to
                                  Warrant Shares.

 

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

3.    Delivery of Warrant Shares.  The Company shall deliver to the holder
                Warrant Shares in accordance with the terms of the Warrant.

4.    By its delivery of this Exercise Notice, the undersigned represents and
warrants to the Company that in giving effect to the exercise evidenced hereby
the Holder will not beneficially own in excess of the number of shares of Common
Stock (determined in accordance with Section 13(d) of the Securities Exchange
Act of 1934) permitted to be owned under Section 1(f)(1) of this Warrant to
which this notice relates.

Date:                ,     

 

 

 

 

Name of Registered Holder

 

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

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ACKNOWLEDGMENT

The Company hereby acknowledges this Exercise Notice and, if applicable, hereby
directs Colonial Stock Transfer to issue the above indicated number of shares of
Common Stock in accordance with the Transfer Agent Instructions dated July   ,
2006 from the Company and acknowledged and agreed to by Colonial Stock Transfer.

 

 

APOLLO RESOURCES INTERNATIONAL, INC.

 

 

 

 

 

 

 

 

 

 

  

 

By:

 

 

  

 

Name:

 

 

  

 

Title:

 

 

 

--------------------------------------------------------------------------------

Warrant Shares Exercise Log

 Date

 

Number of Warrant
Shares Available
to be Exercised

 

Number of Warrant
Shares Exercised

 

Number of Warrant
Shares Remaining
to be Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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