NEITHER
THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”).  NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS
NOTE OR THE UNDERLYING SHARES OF COMMON STOCK UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE BORROWER THAT SUCH REGISTRATION IS NOT
REQUIRED.

    


    No.
_____

    Issue
Date: _____, 2010

     

    STW
RESOURCES HOLDING CORP.

    


    FORM
OF 12% CONVERTIBLE NOTE

    


    FOR VALUE
RECEIVED, STW RESOURCES HOLDING CORP., a Nevada corporation (the “Company”), hereby
promises to pay to the order of _______________________, or its assigns (the
“Holder”),
without demand, the sum of ______________ Dollars ($_________), with interest
accruing at the rate described below.

    


    This Note
has been entered into pursuant to the terms of a Subscription Agreement among
the Company and the holders of the Company Notes (as defined below), dated _____ __, 2010 (the “Agreement”), and
shall be governed by the terms of such Agreement.  Unless otherwise
separately defined herein, all capitalized terms used in this Note shall have
the same meaning as is set forth in the Agreement which together with the Note,
will be referred to as the “Transaction
Documents”).

    


    ARTICLE
I

    GENERAL
PROVISIONS

    


    1.1           Payments.  Interest
payable on this Note shall accrue from the Issue Date indicated above at a rate
per annum (the “Interest Rate”) equal
to twelve percent (12%), subject to adjustment pursuant to Section 1.2 (the
“Interest”).  Interest
shall be computed for actual days elapsed on the basis of a 360 day year
consisting of twelve 30-day months. The principal of this Note (the “Principal”) and
accrued but unpaid Interest thereon shall, unless earlier converted, be payable
in full on the date that shall be twelve (12) months after the Issue Date (the
“Maturity
Date”).

    


    Upon any conversion in part by the
Holder in accordance with Article II, the Holder and the Company shall in good
faith recalculate the outstanding Principal and the accrued but unpaid Interest
payable with respect to the converted portion.  Upon any full
conversion by the Holder in accordance with Article II, all of the payments of
Principal due hereunder shall terminate and no further due but unpaid Interest
shall accrue. All payments shall be applied first to Interest that has become
due pursuant to this Note and remains unpaid and then to the outstanding
Principal of this Note.

     

    
      
         

      

      
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    1.2           Default
Interest.   Upon the occurrence of an Event of Default (as
defined below), the unpaid Principal on this Note shall bear interest at the
rate of fifteen percent (15%) per annum (the “Default Rate”) until
such amount is paid in full. Nothing contained herein or in any document
referred to herein or delivered in connection herewith 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.

    


    1.3           Conversion
Rights.  The conversion rights set forth in Article II shall
remain in full force and effect immediately from the date hereof and until the
Note is paid in full regardless of the occurrence of an Event of
Default.  The Note shall be payable in full on the Maturity Date,
except to the extent previously converted into Common Stock of the Company (the
“Common Stock”)
in accordance with Article II hereof.

    


    1.4           Prepayment
Option.  The Company may prepay in cash all or any portion of
the outstanding principal amount of this Note, without penalty, on the 30th day
following written notice to the Holder (the “Redemption Date”). The Holder shall
have the right to convert any outstanding principal or interest in accordance
with Article II hereof up until the Redemption Date.  If the Company
elects to redeem the Notes and the Notes are not converted prior to the
Redemption Date, the Company will be required to pay all remaining interest
payable on the Notes had the Notes remained outstanding until the Maturity
Date.

    


    ARTICLE
II

    CONVERSION
RIGHTS

    


    The
Holder shall have the right to convert the Principal and accrued and unpaid
Interest due under this Note into shares of the Company’s Common Stock, as set
forth below.

    


    2.1           Conversion into the
Company’s Common Stock.

    


    (a)           The
Holder shall have the right from and after the date of the issuance of this Note
and then at any time until this Note is fully paid, to convert any outstanding
and unpaid Principal portion of this Note, and accrued Interest on such portion,
at the election of the Holder (the date of such conversion being a “Conversion Date”)
into fully paid and non-assessable shares of Common Stock, as such stock exists
on the date of this Note (such shares, the “Conversion Shares”),
or any shares of capital stock of the Company into which such Common Stock shall
hereafter be changed or reclassified, at the conversion price as defined in
Section 2.1(b) hereof (the “Conversion Price”), determined as provided
herein. Upon delivery to the Company of a completed Notice of Conversion, a form
of which is annexed hereto, Company shall issue and deliver to the Holder within
three (3) business days from the Conversion Date (such third day being the
“Delivery
Date”) that number of Conversion Shares for the portion of the Principal,
along with accrued but unpaid Interest, converted in accordance with the
foregoing.  The number of shares of Common Stock to be issued upon
each conversion of this Note shall be determined by dividing that portion of the
Principal of the Note and accrued Interest to be converted, by the Conversion
Price. No fractional shares shall be issued for any payment of Interest due
under this Note.  As to any fraction of a share which Holder would
otherwise be entitled to upon such payment of Interest, the Company shall round
up to the next whole share.  Each conversion hereof shall constitute
the re-affirmation by the Holder that the representations and warranties
contained in the Subscription Agreement are true and correct in all material
respects with respect to the Holder as of the time of such conversion. Upon
partial conversion of this Note, a new Note containing the same date and
provisions of this Note shall, at the request of the Holder, be issued by the
Company to the Holder for the remaining Principal balance of this Note and
Interest which shall not have been paid.

     

    
      
         

      

      
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    (b)           Subject
to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per
share shall be equal to $0.25.

    


    (c)           The
Conversion Price and number and kind of shares of Common Stock or other
securities to be issued upon conversion as determined pursuant to Section
2.1(a), shall be subject to adjustment from time to time upon the happening of
certain events while this Note remains outstanding, as follows:

    


    (i)           Reorganization,
Consolidation, Merger, etc.; Reclassification.  In case at any
time or from time to time, the Company shall effect any merger, reorganization,
restructuring, reverse stock split, consolidation, sale of all or substantially
all of the Company’s assets or any similar transaction or related transactions
(each such transaction, a “Fundamental Change”),
then, in each such case, as a condition to the consummation of such a
transaction, proper and adequate provision shall be made by the Company whereby
the Holder of this Note, on the conversion hereof, at any time after the
consummation of such Fundamental Change, shall receive, in lieu of the
Conversion Shares issuable on such conversion prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such Holder would have been entitled upon such consummation of a
Fundamental Change if such Holder had so converted this Note, immediately prior
thereto, all subject to further adjustment thereafter as provided in Section
2.1(c)(iv).

    


    If the Company at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes that may be issued or
outstanding, this Note, as to the unpaid principal portion thereof and accrued
interest thereon, shall thereafter be deemed to evidence the right to purchase
an adjusted number of such securities and kind of securities as would have been
issuable as the result of such change with respect to the Common Stock
immediately prior to such reclassification or other change.

    


    (ii)           Dissolution.  In
the event of any dissolution of the Company following the transfer of all or
substantially all of its properties or assets, the Company, prior to such
dissolution, shall at its expense deliver or cause to be delivered the stock and
other securities and property (including cash, where applicable) receivable by
the Holder of this Note after the effective date of such dissolution pursuant to
this Article to a bank or trust company (a “Trustee”) as trustee
for the Holder of this Note.

     

    
      
         

      

      
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    (iii)           Continuation of
Terms. Upon any Fundamental Change or transfer (and any dissolution
following any transfer) referred to in this Article, this Note shall continue in
full force and effect and the terms hereof shall be applicable to any other
securities and property receivable on the conversion of this Note after the
consummation of such Fundamental Change or transfer or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any other securities, including, in the case of any
such transfer, the person acquiring all or substantially all of the properties
or assets of the Company, whether or not such person shall have expressly
assumed the terms of this Note as provided in Section 2.1(c)(iv). In the event
this Note does not continue in full force and effect after the consummation of
the transaction described in this Article II, then only in such event will the
Company’s securities and property (including cash, where applicable) receivable
by the Holder of the Notes be delivered to the Trustee as contemplated by
Section 2.1(c)(ii).

     

    (iv)           Extraordinary Events
Regarding Common Stock. In the event that the Company shall (a) issue
additional shares of Common Stock as a dividend or other distribution on
outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock,
or (c) combine its outstanding shares of the Common Stock into a smaller number
of shares of the Common Stock, then, in each such event, the Conversion Price
shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Conversion Price by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such event and the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such event, and the product so obtained
shall thereafter be the Conversion Price then in effect. The Conversion Price,
as so adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described in this Section 2.1(c)(iv). The number of
Conversion Shares that the Holder of this Note shall thereafter, on the
conversion hereof as provided in Article II, be entitled to receive shall be
adjusted to a number determined by multiplying the number of Conversion Shares
that would otherwise (but for the provisions of this Section 2.1(c)(iv)) be
issuable on such conversion by a fraction of which (a) the numerator is the
Conversion Price that would otherwise (but for the provisions of this Section
2.1(c)(iv)) be in effect, and (b) the denominator is the Conversion Price in
effect on the date of such conversion.

    


    (v)           Subsequent Equity
Sales. If, at any time while this Note is outstanding,  the
Company sells or grants any option to purchase or sells or grants any right to
reprice, or otherwise disposes of or issues (or announces any sale, grant or any
option to purchase or other disposition), any Common Stock or Common Stock
Equivalents entitling any Person to acquire shares of Common Stock at an
effective price per share that is lower than the then Conversion Price (such
lower price, the “Base
Conversion Price” and such issuances, collectively, a “Dilutive Issuance”)
(if the holder of the Common Stock or Common Stock Equivalents so issued shall
at any time, whether by operation of purchase price adjustments, reset
provisions, floating conversion, exercise or exchange prices or otherwise, or
due to warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Common Stock at an effective
price per share that is lower than the Conversion Price, such issuance shall be
deemed to have occurred for less than the Conversion Price on such date of the
Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base
Conversion Price.  Such adjustment shall be made whenever such Common
Stock or Common Stock Equivalents are issued.  Notwithstanding the
foregoing, no adjustment in the Conversion Price shall be made for shares of
Common Stock issued, or warrants or options to purchase shares Common Stock
granted, in connection with any of the following: (a) shares or options pursuant
to an employee benefit plan, approved by the Company’s board of directors, for
directors, officers, employees, advisors or consultants of the Company, (b) full
or partial consideration in connection with a strategic merger, consolidation or
purchase of substantially all of the securities or assets of a corporation or
other entity, (c) shares issued for commissions or other fees payable in
connection with this Offering or any future offering of the Company’s
securities, (d) securities upon the exercise or exchange of or conversion
of any Securities issued hereunder and/or other securities exercisable or
exchangeable for or convertible into shares of Common Stock issued and
outstanding on the date of this Agreement, provided that such securities have
not been amended since the date of this Agreement to increase the number of such
securities or to decrease the exercise, exchange or conversion price of such
securities or (e) securities issued in connection with a debt
financing.

     

    
      
         

      

      
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    (vi)           Effectiveness of
Adjustment. An adjustment to the Conversion Price shall become effective
immediately after the payment date in the case of each dividend or distribution
and immediately after the effective date of each other event which requires an
adjustment.

    


    (vii)           Notice of Adjustment.
Upon the happening of any event requiring an adjustment of the Conversion Price,
the Company shall promptly give written notice thereof to the Holder at the
address appearing in the records of the Company, stating the adjustments
resulting from such event and setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is
based.  Failure to give such notice to the Holder or any defect
therein shall not affect the legality or validity of the subject
adjustment.

    


    2.2           Reservation.  During
the period the conversion right exists, the Company shall reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of providing for the conversion of the Company Notes, such number of
Conversion Shares as shall from time to time equal the number of shares
sufficient to permit the conversion of the Company Notes in accordance with
their respective terms.  The Company agrees that all Conversion Shares
issued upon due conversion of the Company Notes shall be, at the time of
delivery of the certificates for such Conversion Shares, duly authorized,
validly issued, fully paid and non-assessable shares of common stock of the
Company.

    


    2.3           Fractional
Shares.  No fractional shares shall be issued upon the
conversion of this Note.  As to any fraction of a share which Holder
would otherwise be entitled to upon such conversion, the Company shall round up
to the next whole share.

    


    ARTICLE
III

    EVENTS OF
DEFAULT

    


    Each of
the following events shall constitute a default by the Company under this
Note:

     

    
      
         

      

      
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    3.1           Failure to Pay
Principal.  The Company fails to pay any installment of
Principal or other sum due under this Note.

    


    3.2           Receiver or
Trustee.  The Company shall make an assignment for the benefit
of creditors, or apply for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or business; or such a
receiver or trustee shall otherwise be appointed.

    


    3.3           Bankruptcy.  Bankruptcy,
insolvency, reorganization or liquidation proceedings or other proceedings or
relief under any bankruptcy law or any law, or the issuance of any notice in
relation to such event, for the relief of debtors shall be instituted by or
against the Company.

    


    3.4           Failure to Deliver
Conversion Shares.  The Company’s failure to deliver Conversion
Shares to the Holder pursuant to conversion of this Note.

    


    3.5           Cure
Period.  In each instance in Section 3.1 through 3.4 above, the
Company shall be given prompt notice of such default by the Holder and shall
have thirty (30) days from the date of receipt of such notice to remedy and cure
such default.  If, after such thirty (30) day period, the default has
not been remedied or cured, then such default will give rise to an “Event of
Default” under this Article III.

    


    3.7           Remedies upon an Event of
Default.  Upon the occurrence of an Event of Default described
under Section 3.1 through 3.4 above, at the option of the Holder hereof, either:
(a) the Note shall continue to accrue interest at the Default Rate until such
Event of Default has been remedied; or (b) all sums of Principal and Interest
then remaining unpaid under this Note and all other amounts payable hereunder
shall become immediately due and payable upon demand.

     

    (b)           The
Holder shall be entitled to recover from the Company all reasonable and
documented expenses, attorneys’ fees and costs incurred therein or in the
enforcement or collection of any judgment or award arising from such Event of
Default.

     

    ARTICLE
IV

    MISCELLANEOUS

    


    4.1           Failure or Indulgence Not
Waiver.  No failure or delay on the part of Holder hereof 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.  All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.

    


    4.2           Notices.  Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Subscription Agreement.

     

    
      
         

      

      
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    4.3           Amendment
Provision.  The term “Note” and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented. The
Company may from time to time supplement or amend this Note without the approval
of any Company Notes (as defined below) in order to cure any ambiguity or to be
correct or supplement any provision contained herein which may be defective or
inconsistent with any other provision, or to make any other provisions in regard
to matters or questions herein arising hereunder which the Company may deem
necessary or desirable and which shall not materially adversely affect the
interest of the Holder. This Note is one of a series of Notes of like tenor
issued by the Company pursuant to the Transaction Documents (collectively, the
“Company
Notes”).  Any term of this Note may be amended or waived upon
the written consent of the Company and the holders of Company Notes representing
over 50% of the Conversion Shares then subject to all outstanding Company Notes
(the “Majority
Holders”); provided, that (x)
any such amendment or waiver must apply to all Company Notes; and (y) the
Maturity Date may not be amended and the right to convert this Note may not be
waived in any manner adverse to the Holder, without the written consent of the
Holder.

    


    4.4           Assignability.  This
Note shall be binding upon the Company and its successors and assigns, and shall
inure to the benefit of the Holder and its successors and assigns.

    


    4.5           Governing Law, Consent to
Jurisdiction.  This Note shall be governed by and construed in
accordance with the laws of the State of New York.  Any action brought
by either party against the other concerning this Note shall be brought only in
the state courts of New York or in the federal courts located in the state of
New York.  Both parties agree to submit to the jurisdiction of such
courts.  The prevailing party shall be entitled to recover from the
other party its reasonable attorney’s fees and costs.

    


    4.6           Severability.  If
any provision of this Note is invalid, illegal or unenforceable, the balance of
this Note shall remain in effect, and if any provision is inapplicable to any
Person or circumstance, it shall nevertheless remain applicable to all other
Persons and circumstances.  If it shall be found that any interest or
other amount deemed interest due hereunder violates the applicable law governing
usury, the applicable rate of interest due hereunder shall automatically be
lowered to equal the maximum rate of interest permitted under applicable
law.

    


    4.7           No Rights as
Stockholder.  Prior to the conversion of this Note, the Holder
shall not have or exercise any rights as a stockholder of the Company by virtue
of its ownership of this Note.

    


    4.8           Compliance with Securities
Laws. The Holder of this Note, by acceptance hereof, acknowledges that
this Note and the Conversion Shares to be issued upon conversion hereof are
being acquired solely for the Holder's own account and not as a nominee for any
other party, and for investment, and that the Holder will not offer, sell or
otherwise dispose this Note or any Conversion Shares to be issued upon
conversion hereof except pursuant to an effective registration statement, or an
exemption from registration, under the Securities Act and any applicable state
securities laws.

    


    4.9           Entire
Agreement.  This Note, the Warrant, the Subscription Agreement
and any other transaction documents (including all schedules and exhibits
thereto) constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof.  There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein.  This Note, the Subscription Agreement and the
Warrant supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.

     

    
      
         

      

      
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    4.10           Section
Headings.  The section headings in this Note are for the
convenience of the Company and the Holder and in no way alter, modify, amend,
limit or restrict the provisions hereof.

     

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OF PAGE INTENTIONALLY LEFT BLANK]



    
      
         


      

      
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    IN WITNESS WHEREOF, the
Company has caused this Note to be duly executed, as of the date first written
above.

    


    
      
        
          
            	 
      	
                    STW
      RESOURCES HOLDING CORP.

                  
	 
      	 
      
	 
      	
                    By:

                  	 
      
	 
      	 
      	
                    Name:

                  
	 
      	 
      	
                    Title:

                  


          

        

      

    

     

    
      
         


      

      
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    NOTICE
OF CONVERSION

    


    (To be
executed by the Registered Holder in order to convert the Note)

    


    The
undersigned hereby elects to convert $_________ of the Principal and accrued
Interest with respect to such Principal of the Note issued by STW RESOURCES
HOLDING CORP. on _________________, 20___ into shares of Common Stock of STW
RESOURCES HOLDING CORP. according to the conditions set forth in such Note, as
of the date written below.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	
                                        Date
      of Conversion:

                                      	
                                          

                                      	 
      	 
	 
      	 
      	 
      	 
	
                                        Conversion
      Price:

                                      	 
      	 
      	 
	 
      	 
      	 
      	 
	
                                        Common
      Stock To Be Delivered:

                                      	 
      	 
      	 
	 
      	 
      	 
      	 
	
                                        Signature:

                                      	 
      	 
      	 
	 
      	 
      	 
      	 
	
                                        Print
      Name:

                                      	 
      	 
      	 
	 
      	 
      	 
      	 
	
                                        Address:

                                      	 
      	 
      	 
	 	 	 	 
	 	 	 	 


                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    


    
      
         


      

      
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