Document:

Unassociated Document

THIS
AGREEMENT made as of the _____ day of _____________, 2004 and effective as of
the _______ day of ______________, 2004.

 

BETWEEN:

Zi
CORPORATION OF
AMERICA, INC. a body
corporate, incorporated under the laws of the State of Nevada (hereinafter
called the “Corporation”)

 

Glen
Morgan, an
individual residing in the city of Plano, in the State of Texas (hereinafter
called “Employee”);

EMPLOYMENT
AGREEMENT

 

WHEREAS:

	A.  	
      the
      Corporation is desirous of engaging the management services and expertise
      of 

the
Employee upon the terms, conditions and for the considerations as hereinafter
set forth; and

	B.  	
      the
      parties desire to enter into this Agreement to set forth their respective
      rights 

and
obligations.

NOW
THEREFORE THIS AGREEMENT WITNESSETH that in
consideration of the premises, the mutual covenants and agreements herein
contained and other good and valuable consideration, the parties hereto mutually
covenant and agree as set forth herein.

ARTICLE
1.

CONTRACT
FOR SERVICES

1.01  Subject
to the earlier termination of this Agreement as hereinafter provided, the
Corporation hereby agrees to the services of the Employee on a full-time basis
to provide services to the Corporation and its affiliates in accordance with the
terms and provisions hereof.

 

1.02  Except as
hereinafter provided, the Employee shall be responsible for and shall have such
authority as is ordinarily consistent with the position of Senior Vice
President, Global Sales and Marketing, with full power and authority to
supervise and manage the business and affairs of the Corporation and such other
matters as the President & Chief Executive Officer may authorize from time
to time except such matters and duties as by law must be transacted or performed
by the board of directors and/or the shareholders of the Corporation. All such
authority of the Employee shall be subject to the power, direction and control
of the board of directors of the Corporation.

1.03              
Without
limiting the generality of section 1.02 hereof, the Employee’s services
hereunder shall be provided on the basis of the following terms and
conditions:

 

 

	 	
      (a)
	
      the
      Employee’s title shall be Senior Vice President, Global Sales and
      Marketing reporting to the President & Chief Executive
      Officer.

	 	
      (b)
	
      the
      Employee shall faithfully, honestly and diligently serve the Corporation
      and cooperate with the Corporation and utilize maximum professional skill
      and care to ensure that all services rendered hereunder are to the
      satisfaction of the Corporation, acting reasonably, and shall provide any
      other services not specifically mentioned herein, but which by reason of
      his capability he knows or ought to know to be necessary to ensure that
      the best interests of the Corporation are
maintained;

	 	
      (c)
	
      the
      Employee shall assume, obey, implement and execute such duties, directions
      responsibilities, procedures, policies and lawful orders as may be
      determined or given by the Chief Executive Officer of the
      Corporation;

	 	
      (d)
	
      the
      Employee shall perform such duties and may exercise such powers as may
      from time to time be assigned to or vested in him by the by-laws of the
      Corporation; and

	 	
      (e)
	
      the
      Employee will, when it is deemed by the Corporation to be beneficial, join
      in or participate with organizations, clubs, associations or groups that
      may provide good business contacts and learning facilities for the benefit
      of the Corporation provided, however, that the Corporation shall reimburse
      the Employee for all reasonable expenses incurred in connection
      therewith.

1.04  Subject
to the terms of the Confidentiality and Non-Competition Agreement appended
hereto as Schedule A the Employee agrees to devote his full time and attention
and use his best efforts to further the business and interests of the
Corporation and Affiliates during the period of this Agreement to the exclusion
of all other employment, business opportunities, consulting, investment or
contracting.

1.05  It is
acknowledged and agreed between the parties hereto that the services to be
provided by the Employee hereunder are of such a nature that regular business
hours may be impossible and that the Employee be required to perform services in
excess of eight hours per day or five days per week. It is also anticipated that
there will be certain evenings, Sundays and holidays during which the Employee
may be required to provide services and that the services to be provided by the
Employee are, inter
alia, of a
supervisory nature. The Employee therefore agrees that the consideration herein
set forth shall be in full and complete satisfaction for his work and services
to be provided hereunder, no matter when and how performed and the Employee
releases the Corporation from any additional pay or compensation, whatsoever
which he might have by reason of any existing or future legislation or
otherwise.

1.06  The
services to be carried out and performed by the Employee shall be carried out
and performed in the city of Plano, in the State of Texas or such other places
as may be mutually agreed between the Employee and the Corporation. In view of
the fact that the Corporation is the U.S. affiliate of the parent, Zi
Corporation, an Alberta company, Employee shall attend in the corporate head
office, currently located in Calgary, Alberta, from time to time as required for
the purposes of attending internal meetings. Employee shall be required to
comply with all applicable immigration requirements and Corporation shall
provide reasonable assistance as necessary.

 

 

1.07  The
Corporation acknowledges that it has reviewed the qualifications and experience
of the Employee herein and formed the opinion that the Employee is capable of
carrying out the duties as set forth herein.

ARTICLE
2.

TERM
OF CONTRACT

2.01  The term
of this Agreement shall commence effective as of May 31, 2004 and shall continue
to and including May 31, 2006 unless sooner terminated pursuant to Article 9
herein.

ARTICLE
3.

COMPENSATION

3.01  In
consideration of the services to be provided by the Employee to the Corporation
pursuant to Article 1 hereof, but subject to regulatory approval, the
Corporation shall pay to the Employee an amount equal to ONE HUNDRED AND EIGHTY
THOUSAND (US$180,000.00) dollars per annum (the “Annual Cash Remuneration”),
payable in bi-monthly instalments on the 15th and last
working day of each calendar month together with such increments as the board of
directors of the Corporation, in their sole discretion, may from time to time
determine.

3.02  The
Employee shall, subject to the Corporation obtaining necessary regulatory
approval, be granted five (5) year term stock options of the Corporation as
follows:

	a)  	
      An
      option to purchase one hundred thousand (100,000) shares in the
      Corporation to be granted as of May 31, 2004 (the effective date of
      Employment), of which one third shall vest after six months of employment,
      one third shall vest after twelve months of employment and one third shall
      vest after twenty four months of employment;

3.03  The
Employee shall be reimbursed for all reasonable expenses incurred by him in or
about the execution of his services hereunder, including living expenses while
absent from his city of residence, travel and meeting/entertainment expenses.
All such expenses shall be verified by statements, receipts or other reasonable
evidence satisfactory to the Corporation.

3.04  The
Employee shall be entitled to participate in all medical, dental and other
health care, life insurance, group accident, long term disability benefits, as
well as savings, profit sharing, share option, share purchase and any other
benefit plans of whatsoever nature which the Corporation may provide from time
to time.

3.05  The
Employee may be granted a bonus based on a target of $50,000, as shall be
determined in the sole discretion of the board of directors, which can be earned
based upon performance goals set by the board of directors, payable in cash,
Restricted Share Units or options mutually agreed to. 

 

 

3.06  The
Corporation shall be entitled to withhold and remit from such amounts payable
hereunder as is required by law from time to time.

ARTICLE
4.

REVIEW
OF COMPENSATION

4.01  The
remuneration payable pursuant to section 3.01 hereof may be reviewed annually by
the board of directors of the Corporation on or before the anniversary date
hereof, at which time the board of directors shall consider such matters as it
may consider relevant and shall determine, in its absolute discretion, whether
to increase the annual remuneration payable by the Corporation to the Employee
hereunder, provided always however, that the remuneration payable to the
Employee pursuant to Article 3 hereof shall not, as a result of such review, be
reduced.

ARTICLE
5.

INCAPACITY

5.01  The
Employee shall be entitled to reasonable time from his services, without loss of
compensation, due to sickness or illness or other incapacity.

5.02  In the
event the Employee is insured either personally or through the Corporation or
through a group plan provided by the Corporation for loss of income as a result
of disability and the Employee receives compensation or disability income
pursuant thereto, then the amount of remuneration which the Employee is
otherwise entitled to receive hereunder during the period of illness or
incapacity shall be reduced by the amount of compensation or disability income
paid by such insurer to the Employee and the Employee covenants and agrees that
he shall immediately advise the Corporation from time to time of the receipt of
any such disability income paid by such insurer to the Employee.

ARTICLE
6.

CONFIDENTIALITY
AND NON-COMPETITION

6.01  The
Employee covenants and agrees to enter into a Confidentiality and
Non-Competition Agreement substantially in the form appended hereto as Schedule
A.

ARTICLE
7.

VACATION

7.01  During
the term hereof, the Employee shall be entitled to three (3) weeks paid vacation
in each calendar year hereof or such other period as shall be determined by the
board of directors with no more than two weeks of vacation being taken at one
time.

ARTICLE
8. 

NON-ASSIGNABILITY

8.01  This
Agreement and all other rights, benefits, and privileges herein conferred are
strictly applicable to the Employee, and accordingly may not be assigned by the
Employee.

 

 

ARTICLE
9.

TERMINATION

9.01  This
Agreement shall be terminated prior to the end of the term specified in section
2.01 hereof upon the occurrence of any one of the following events:

	 	
      (a)
	
      the
      death of the Employee, at which time the Corporation shall have no further
      obligation to the Employee under this
Agreement;

	 	
      (b)
	
      90
      days written notice by the Employee of his intention to terminate this
      Agreement, at which time the Corporation shall have no further obligation
      to the Employee under this Agreement.

	 	
      (c)
	
      incapacity
      due to illness, disability or injury to the Employee that renders the
      Employee unable to perform his duties for a period of longer than six
      consecutive months and, as of such date of termination, the Corporation
      shall have no further obligation to the Employee under this
      Agreement;

	 	 	 

	 	(d) 	termination
      of this Agreement without notice by the Corporation for cause, and as of
      such date of termination, the Corporation shall have no further obligation
      to the Employee under this Agreement (“cause” shall mean any of the
      following and without limiting its meaning at common law, breach by the
      Employee of any of the covenants or terms of this Agreement and Schedule A
      hereto; the Employee’s failure to perform adequately his employment
      duties; violation by the Employee of any Corporation policy that may be
      issued from time to time, including but not limited to policies concerning
      harassment and other workplace conduct; the criminal conviction of the
      Employee, a breach by the Employee of any provisions of securities
      legislation or regulations of stock exchanges on which the Corporation’s
      shares are listed and which have application to the
  Corporation);

	 	 	 

	 	(e)	
      the
      Corporation may terminate this Agreement for reasons other than those
      specified in Article 9.01(d) herein, including a change of control as
      defined in paragraph 9.02, by providing written notice of termination to
      the Employee, in which event the Corporation shall forthwith, and in any
      event within ten (10) days of providing the written notice, pay to the
      Employee the following Termination Payment (less any statutory deductions
      required by law):

 

(i) if
written notice is provided during the first eighteen months of this Agreement,
an amount equivalent to three (3) months base salary; or

(ii) if
written notice is provided after the first eighteen months of this Agreement, an
amount equivalent to six (6) months base salary.

The
Termination Payment payable under this Article 9.01 (e) shall not be reduced in
any respect in the event that the Employee shall secure or shall not reasonably
pursue alternative employment or consulting work for other remuneration
following the termination of the Employee’s employment.

 

 

9.02  If as a
result of a merger, takeover, amalgamation, sale of all or substantially all of
the assets, there is a change of control of the Corporation then the Employee
shall be given notice of such event or events and shall within 30 days after
receipt of such notice, advise the Corporation in writing as to one of the
following:

	 	
      (a)
	
      the
      Employee may advise the Corporation in writing to the effect that he shall
      continue to remain in the services of the Corporation and the terms of
      this agreement shall remain in full force and effect;
or

	 	 	 

	 	(b) 	
      the
      Employee shall advise the Corporation that he desires to terminate this
      agreement, in accordance with the provisions of paragraph 9.01(b)
      hereof. 

9.03  If as a
result of a merger, takeover, amalgamation, sale of all or substantially all of
the assets, there is a change of control of the Corporation, all unvested share
options shall become fully vested.

ARTICLE
10.

NOTICES

10.01  All
notice required or allowed to be given under this agreement shall be made either
personally or by mailing same by prepaid registered post, addressed as
hereinafter set forth or to such other address as may be designated from time to
time by such party in writing, and any notice mailed as aforesaid shall be
deemed to have been received by the addressees thereof on the fifth business day
following the day of mailing:

 

 

	 	Zi CORPORATION OF AMERICA, INC.	Glen Morgan 	 
	 	2121 N California Blvd., Suite 290	2513
      Mitchell Drive 	 
	 	Walnut Creek, CA 94596 	Plano, TX 75025	 

 

Any party
may from time to time change its address for service hereunder by written notice
to the other parties. Any notice may be served by hand delivery or by mailing
same by prepaid, registered post, in a properly addressed envelope, addressed to
the party to whom the notice is to be given at its address for service
hereunder.

ARTICLE
11.

SEVERABILITY

11.01  Each
provision of this Agreement is declared to constitute a separate and distinct
covenant and to be severable from all other such separate and distinct
covenants. Without limiting the foregoing, each provision contained in Schedule
A hereof are declared to constitute a separate and distinct covenant in respect
of each capacity and each activity specified in Schedule A, and to be severable
from all other such separate and distinct covenants. If any of the capacities,
activities, or periods specified in Schedule A, are considered by a court of
competent jurisdiction as being unreasonable, the parties hereto agree that the
said court will have authority to limit such capacities, activities, periods or
areas to such capacities, activities, periods or areas as the court deems proper
in the circumstances.

 

 

 

11.02  If any
covenant or provision herein is determined to be void or unenforceable in whole
or in part, it will not be deemed to affect or impair the enforceability or
validity of any other covenant or provision of this agreement or any part
thereof.

ARTICLE
12.

RELIEF

12.01  The
parties to this Agreement recognize that a breach by the Employee of any of the
covenants herein contained would result in damages to the Corporation and that
the Corporation could not adequately be compensated for such damages by monetary
award. Accordingly, the Employee agrees that in the event of any such breach, in
addition to all other remedies available to the Corporation at law or in equity,
the Corporation will be entitled as a matter of right to apply to a court of
competent equitable jurisdiction for relief by way of restraining order,
injunction decree or otherwise, as may be appropriate to ensure compliance with
the provisions of this agreement.

ARTICLE
13.

WAIVER

13.01  The
parties agree that all restrictions in this agreement are necessary and
fundamental to the protection of the Corporation and are reasonable and valid,
and all defences to the strict enforcement thereof by the Corporation are hereby
waived by the Employee.

ARTICLE
14.

GENERAL

14.01  This
Agreement constitutes the entire understanding between the parties hereto
relating to the subject matter hereof, superseding all negotiations, prior
discussions, preliminary agreements and agreements relating to the subject
matter hereof made prior to the date hereof.

14.02  The
provisions of this agreement will enure to the benefit of and be binding upon
the heirs, executors, administrators and legal personal representatives of the
Employee and the successors and assigns of the Corporation
respectively.

14.03  Wherever
the singular or masculine or neuter is used in this agreement, the same shall be
construed as meaning the plural or feminine or body politic or corporate and
vice versa where the context of the parties hereto so require.

 

14.04  Time is
of the essence hereof.

14.05  This
Agreement shall be construed and interpreted in accordance with the laws of the
Province of Alberta and each of the parties hereto hereby irrevocably attorns to
the jurisdiction of the Courts of such Province.

 

 

 

14.06  The
Employee acknowledges that he has had the opportunity to have his legal counsel
review and participate in settling the terms of this Agreement.

ARTICLE
15.

SPECIAL

15.01  The
Employee shall be entitled to participate in the Corporation’s benefits plan
immediately.

IN
WITNESS WHEREOF the parties hereto have executed this Agreement effective
as of the date and year first above written.

 

	 	 	 	 
	 	 	Zi
      CORPORATION OF AMERICA, INC.
	 
 	 	 
 	 
 
		 	per:  	
	 	 	
      

      Mike Donnell
	 	 	President & Chief Executive
      Officer
	 	 	 
	SIGNED, SEALED AND
      DELIVERED in 	 	 
	the presence of:	 	 
	 	 	                                                                                                                                                                                          
      
	Witness to the
      signature of the Employee	 	GLEN
      MORGAN
	 	 	 
	 	 	 

 

 

AFFIDAVIT
OF EXECUTION

UNITED
STATES   ) I,
_________________ of the City of 

STATE
OF COLORADO  ) _______________,
in the Province of  

MAKE OATH
AND SAY:

 

1.  I WAS
PERSONALLY present and did see GLEN MORGAN, is the Employee named in the within
instrument, who is personally known to me to be the person named therein, duly
sign and execute the same for the purposes named therein.

2.  THAT THE
SAME was executed at the City of _______________, in the State/Province of
_______________, and that
I am the subscribing witness thereto.

3.  THAT I
KNOW the said Employee, and he/she is, in my belief, of the full age of eighteen
years.

 

	
      SWORN
      BEFORE ME at _______________________,
	
      )
	 	 	 
	
      in
      the Province of _______________, this 
	
      )
	 	 	 
	
      this
      _____ day of ______________, 2003.
	
      )
	 	 	 
	 	
      )
	 	 	 
	 	
      )
	 	 	 
	 	
      )
	 	 	 
	
      _______________________________________
	 	 	
      _______________________________________
	 
	
      A
      Commissioner for Oaths / Notary Public in and 
	 	 	 	 
	
      For
      the Province of ____________________
	 	 	
      Print
      Name of Witness Below:
	 

[Note: If
outside of Alberta, Notary Public 

required
and Notary stamp required]Exhibit 4.1

WARRANT NO.: __________________

                                [FORM OF WARRANT]

THE SECURITIES  REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT"), OR APPLICABLE STATE SECURITIES
LAWS.  THESE  SECURITIES MAY NOT BE SOLD,  TRANSFERRED OR OTHERWISE  DISPOSED OF
EXCEPT  PURSUANT TO  REGISTRATION  UNDER THE SECURITIES ACT AND  REGISTRATION OR
QUALIFICATION  UNDER  APPLICABLE  STATE  SECURITIES  LAWS,  OR  PURSUANT  TO  AN
AVAILABLE EXEMPTION THEREFROM.  NO TRANSFER OF THE SECURITIES REPRESENTED HEREBY
MAY BE MADE IN THE ABSENCE OF SUCH  REGISTRATION OR  QUALIFICATION  UNLESS THERE
SHALL  HAVE BEEN  DELIVERED  TO THE ISSUER A WRITTEN  OPINION  OF UNITED  STATES
COUNSEL  OF  RECOGNIZED  STANDING,  IN FORM AND  SUBSTANCE  SATISFACTORY  TO THE
ISSUER,  TO THE EFFECT THAT SUCH  TRANSFER MAY BE MADE WITHOUT  REGISTRATION  OF
SUCH SECURITIES UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER
APPLICABLE STATE SECURITIES LAWS.

                               WARRANT TO PURCHASE
                                 COMMON STOCK OF
                         TOUCHSTONE RESOURCES USA, INC.

      Void after 5:00 p.m. Eastern Standard Time on [________________]

      This  warrant   ("Warrant")  is  to  verify  that,  FOR  VALUE   RECEIVED,
[______________________________________]  ("Holder")  is entitled  to  purchase,
subject to the terms and conditions hereof, from TOUCHSTONE RESOURCES USA, INC.,
a Delaware  corporation (the "Company"),  [__________________]  shares of common
stock,  $.001 par value per share, of the Company (the "Common  Stock"),  at any
time during the period commencing on the date hereof (the  "Commencement  Date")
and ending at 5:00 p.m.  Eastern  Standard Time on the third  anniversary of the
Commencement Date (the "Termination  Date"), at an exercise price (the "Exercise
Price") of $1.50 per share of Common Stock. The number of shares of Common Stock
purchasable upon exercise of this Warrant and the Exercise Price per share shall
be subject to adjustment from time to time upon the occurrence of certain events
as set forth below.

      This  Warrant has been  issued in  connection  with the  offering of units
comprised  of  convertible  preferred  stock and warrants  being  offered by the
Company  pursuant to the Company's  Confidential  Private  Placement  Memorandum
dated February 22, 2005 (the "PPM").

      The shares of Common  Stock or any other shares or other units of stock or
other securities or property,  or any combination thereof,  then receivable upon
exercise of this Warrant,  as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise  Shares".  The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price".

<PAGE>

      1.    Exercise of Warrant; Issuance of Exercise Shares.

            (a)   Exercise of Warrant. Subject to the terms hereof, the purchase
rights  represented by this Warrant are exercisable by the Holder in whole or in
part,  at any time,  or from time to time,  by the surrender of this Warrant and
the Notice of Exercise  annexed  hereto duly completed and executed on behalf of
the Holder,  at the office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company)  accompanied by payment of the
Exercise Price in full either: (i) in cash or by bank or certified check for the
Exercise  Shares  with  respect to which  this  Warrant  is  exercised;  (ii) by
delivery to the Company of shares of the  Company's  Common  Stock having a Fair
Market Value (as defined  below) equal to the  aggregate  Exercise  Price of the
Exercise Shares being  purchased that Holder is the record and beneficial  owner
of and that have  been held by the  Holder  for at least six (6)  months;  (iii)
provided  that the sale of the  Exercise  Shares  are  covered  by an  effective
registration  statement,  by  delivering  to the  Company a Notice  of  Exercise
together with an irrevocable  direction to a broker-dealer  registered under the
Securities  Exchange Act of 1934,  as amended (the  "Exchange  Act"),  to sell a
sufficient  portion  of the  Exercise  Shares  and  deliver  the sales  proceeds
directly to the Company to pay the Exercise Price; or (iv) by any combination of
the  procedures  set forth in  subsections  (i),  (ii) and (iii) of this Section
1(a).  For the purposes of this Section  1(a),  "Fair Market  Value" shall be an
amount equal to the average of the Current  Market Value (as defined  below) for
the ten (10) days preceding the Company's receipt of the duly executed Notice of
Exercise form attached hereto as Appendix A.

      In the event that this  Warrant  shall be duly  exercised in part prior to
the Termination  Date, the Company shall issue a new Warrant or Warrants of like
tenor evidencing the rights of the Holder thereof to purchase the balance of the
Exercise Shares purchasable under the Warrant so surrendered that shall not have
been purchased.

            (b)   Issuance of Exercise Shares:  Delivery of Warrant Certificate.
The Company  shall,  within ten (10) business  days or as soon  thereafter as is
practicable  of the exercise of this Warrant,  issue in the name of and cause to
be delivered to the Holder one or more  certificates  representing  the Exercise
Shares to which the Holder shall be entitled upon such exercise  under the terms
hereof. Such certificate or certificates shall be deemed to have been issued and
the Holder  shall be deemed to have  become the  record  holder of the  Exercise
Shares as of the date of the due exercise of this Warrant.

             (c)  Exercise  Shares  Fully Paid and  Non-Assessable.  The Company
agrees and covenants that all Exercise  Shares issuable upon the due exercise of
the Warrant  represented  by this Warrant  certificate  ("Warrant  Certificate")
will, upon issuance and payment therefor in accordance with the terms hereof, be
duly  authorized,  validly issued,  fully paid and  non-assessable  and free and
clear of all taxes  (other than taxes which,  pursuant to Section 2 hereof,  the
Company shall not be obligated to pay) or liens, charges, and security interests
created by the Company with respect to the issuance thereof.

                                       2
<PAGE>

            (d)   Reservation  of Exercise  Shares.  The Company  covenants that
during the term this Warrant is  exercisable,  the Company will reserve from its
authorized  and unissued  Common Stock a sufficient  number of shares to provide
for the issuance of the Exercise  Shares upon the exercise of this Warrant,  and
from  time to time  will  take all steps  necessary  to amend  its  Articles  of
Incorporation to provide sufficient  reserves of shares of Common Stock issuable
upon the exercise of the Warrant.

            (e)   Fractional  Shares. The Company shall not be required to issue
fractional  shares of capital  stock  upon the  exercise  of this  Warrant or to
deliver Warrant  Certificates that evidence  fractional shares of capital stock.
In the event  that any  fraction  of an  Exercise  Share  would,  except for the
provisions  of this  subsection  (e),  be  issuable  upon the  exercise  of this
Warrant, the Company shall pay to the Holder exercising the Warrant an amount in
cash  equal to such  fraction  multiplied  by the  Current  Market  Value of the
Exercise  Share on the last business day prior to the date on which this Warrant
is exercised.  For purposes of this  subsection  (e), the "Current Market Value"
for any day shall be determined as follows:

                  (i)   If the Common  Stock is  admitted  to  quotation  on the
National   Association  of  Securities   Dealers   Automated   Quotation  System
("NASDAQ"),  the Fair Market Value on any given date shall be the average of the
highest bid and lowest  asked  prices of the Common  Stock as reported  for such
date or, if no bid and asked prices were  reported  for such date,  for the last
day preceding such date for which such prices were reported;

                  (ii)  If the Common  Stock is  admitted to trading on a United
States securities exchange or the NASDAQ National Market System, the Fair Market
Value on any date shall be the closing  price  reported  for the Common Stock on
such  exchange  or system for such date or, if no sales were  reported  for such
date, for the last day preceding such date for which a sale was reported;

                  (iii) If the  Common  Stock is traded in the  over-the-counter
market and not on NASDAQ,  the NASDAQ  National  Market  System or any  national
securities  exchange,  the Fair  Market  Value  shall be the average of the mean
between  the last bid and ask  prices  per  share as  reported  by the  National
Quotation Bureau, Inc. or an equivalent generally accepted reporting service, or
if not so  reported,  the  average of the  closing  bid and asked  prices of the
Common  Stock  as  furnished  to the  Company  by  any  member  of the  National
Association  of  Securities  Dealers,  Inc.,  selected  by the  Company for that
purpose; or

                  (iv)  If the Fair Market  Value of the Common  Stock cannot be
determined on the basis previously set forth in this definition on the date that
the Fair Market Value is to be determined, the Board of Directors of the Company
shall in good faith  determine the Fair Market Value of the Common Stock on such
date.

      2. Payment of Taxes.

            (a)   The Company  will pay all  documentary  stamp  taxes,  if any,
attributable  to the initial  issuance of Exercise  Shares upon the  exercise of
this Warrant;  provided,  however, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant  Certificates or any  certificates for Exercise Shares in a

                                       3
<PAGE>

name other than that of the Holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or deliver
such certificates  unless or until the person or persons requesting the issuance
thereof  shall  have paid to the  Company  the  amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.

            (b)   Upon  exercise of this  Warrant,  the  Company  shall have the
right (but only to the extent  that the  Company is  required by law to withhold
any  federal,  state and  local  taxes) to  require  the  Holder to remit to the
Company an amount sufficient to satisfy federal, state and local tax withholding
requirements  prior to the  delivery  of any  certificate  for  Exercise  Shares
issuable pursuant to the exercise of such Warrant.

            (c)   A  Holder  who is  obligated  to pay  the  Company  an  amount
required to be withheld under  applicable tax withholding  requirements  may pay
such  amount:  (i) in  cash;  (ii)  in the  discretion  of the  Company's  Chief
Executive  Officer,  through the  delivery  to the  Company of  previously-owned
shares of common stock of the Company  having an aggregate  current market value
equal to the tax obligation, provided that the previously owned shares delivered
in satisfaction of the withholding obligations must have been held by the Holder
for at least six (6) months;  (iii) in the  discretion  of the  Company's  Chief
Executive  Officer,  through the  withholding  of shares of common  stock of the
Company  otherwise  issuable to the Holder in connection  with the exercise of a
Warrant;  or (iv) in the discretion of the Company's  Chief  Executive  Officer,
through a combination of the procedures set forth in clauses (i), (ii) and (iii)
of this Section 2(c).

      3.    Mutilated or Missing Warrant Certificates. In case any Warrant shall
be  mutilated,  lost,  stolen or  destroyed,  the Company may in its  discretion
issue, in exchange and substitution  for and upon  cancellation of the mutilated
Warrant,  or in lieu of and in  substitution  for the  Warrant  lost,  stolen or
destroyed,  a new Warrant or  Warrants  of like tenor and in the same  aggregate
denomination,  but only:  (i) in the case of loss,  theft or  destruction,  upon
receipt  of  evidence  satisfactory  to the  Company  of  such  loss,  theft  or
destruction  of  such  Warrant  and  indemnity  or  bond,  if  requested,   also
satisfactory to the Company, and (ii) in the case of mutilation,  upon surrender
of the mutilated  Warrant.  Applicants for such  substitute  Warrants shall also
comply  with such other  reasonable  regulations  and pay such other  reasonable
charges as the Company or its counsel may prescribe.

      4.    Rights of  Holder.  The  Holder  shall  not,  by virtue of  anything
contained in this  Warrant or  otherwise,  be entitled to any right  whatsoever,
either in law or equity,  of a  stockholder  of the Company,  including  without
limitation,  the  right to  receive  dividends  or to vote or to  consent  or to
receive  notice as a shareholder in respect of the meetings of  shareholders  or
the election of directors of the Company or any other matter.

      5.    Registration  of  Transfers  and  Exchanges.  The  Warrant  shall be
transferable, subject to the provisions of Section 7 hereof, only upon the books
of the Company, if any, to be maintained by it for that purpose,  upon surrender
of the Warrant  Certificate to the Company at its principal  office  accompanied
(if so  required by the  Company)  by a written  instrument  or  instruments  of
transfer in form  satisfactory  to the  Company and duly  executed by the Holder
thereof  or by the duly  appointed  legal  representative  thereof  or by a duly

                                       4
<PAGE>

authorized  attorney  and upon  payment of any  necessary  transfer tax or other
governmental  charge imposed upon such transfer.  In all cases of transfer by an
attorney,  the original letter of attorney,  duly approved,  or an official copy
thereof, duly certified, shall be deposited and remain with the Company. In case
of   transfer   by   executors,   administrators,   guardians   or  other  legal
representatives,  duly  authenticated  evidence  of  their  authority  shall  be
produced, and may be required to be deposited and remain with the Company in its
discretion.  Upon any such  registration  of  transfer,  a new Warrant  shall be
issued  to the  transferee  named  in  such  instrument  of  transfer,  and  the
surrendered Warrant shall be canceled by the Company.

      Any  Warrant  may be  exchanged,  at the option of the Holder  thereof and
without charge,  when surrendered to the Company at its principal  office, or at
the office of its transfer  agent, if any, for another Warrant or other Warrants
of like tenor and  representing  in the aggregate the right to purchase from the
Company a like number and kind of Exercise Shares as the Warrant surrendered for
exchange or transfer,  and the Warrant so  surrendered  shall be canceled by the
Company or transfer agent, as the case may be.

      6.    Adjustment of Exercise Price and Number of Shares. The number of and
kind of  securities  purchasable  upon exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time as follows:

            (a)   Subdivisions, Combinations and Other Issuances. If the Company
shall at any time prior to the  expiration of this Warrant  subdivide its Common
Stock,  by  split-up  or  otherwise,  or  combine  its  Common  Stock,  or issue
additional  shares of its Common Stock or any preferred stock as a dividend with
respect to any shares of its Common  Stock,  then the number of Exercise  Shares
issuable on the exercise of this  Warrant  shall  forthwith  be  proportionately
increased in the case of a subdivision  or stock  dividend,  or  proportionately
decreased in the case of a combination.  Appropriate  adjustments  shall also be
made to the Exercise  Price,  but the aggregate  purchase  price payable for the
total number of Exercise  Shares  purchasable  under this Warrant (as  adjusted)
shall remain the same.  Any  adjustment  under this Section  6.2(a) shall become
effective at the close of business on the date the  subdivision  or  combination
becomes  effective,  or as of the record date of such dividend,  or in the event
that no record date is fixed, upon the making of such dividend.

            (b)   Capital Reclassifications,  Reorganizations or Consolidations.
In the case of any capital reclassification, reorganization or consolidation, or
other  change,  in the Common Stock of the Company  (other than as a result of a
subdivision,  combination or stock dividend described in Section 6.2(a) above or
as a result of any "Fundamental  Transaction"  described in Section 6(c) below),
then, as a condition of such reclassification,  reorganization or change, lawful
provision  shall be made, and duly executed  documents  evidencing the same from
the Company or its  successor  shall be  delivered  to the  Holder,  so that the
Holder shall have the right at any time prior to the  expiration of this Warrant
to  purchase,  at a total price equal to that  payable upon the exercise of this
Warrant,  the kind and  amount  of shares  of stock  and  other  securities  and
property  receivable in connection with such  reclassification,  reorganization,
consolidation or change by a holder of the same number of shares of Common Stock
as were purchasable by the Holder  immediately  prior to such  reclassification,
reorganization,   consolidation  or  change.  In  any  such  case,   appropriate
provisions  shall be made with  respect to the rights and interest of the Holder
so that the provisions hereof shall thereafter be applicable with respect to any

                                       5
<PAGE>

shares of stock or other  securities  and  property  deliverable  upon  exercise
hereof, and appropriate  adjustments shall be made to the Exercise Price payable
hereunder, provided the aggregate purchase price shall remain the same.

            (c)   Corporate  Reorganizations,  Consolidations or Mergers. In the
event of: (i) any  consolidation  or merger of the Company  with or into another
entity  (other than a merger in which the Company is the  successor  entity that
does  not   result   in  any   capital   reclassification,   reorganization   or
consolidation,  or  other  change,  in the  Common  Stock of the  Company,  or a
consolidation or merger between the Company and a wholly-owned subsidiary of the
Company) (ii) any sale,  lease,  transfer or conveyance to another entity of all
or  substantially  all of the property  and assets of the Company  (other than a
transfer to a wholly-owned subsidiary of the Company), or (iii) a liquidation or
dissolution  of the  Company  (the  events in  subsections  (i),  (ii) and (iii)
collectively,  a  "Fundamental  Transaction"),   unless  provision  is  made  in
connection with such Fundamental  Transaction for the assumption of this Warrant
or for the  substitution of new like-kind  warrants by the successor entity as a
result of such Fundamental  Transaction,  with appropriate  adjustment as to the
number  and kind of shares  issuable  upon  exercise  of the  Warrant,  and,  if
appropriate, the per share exercise price, so as to enable the Holder after such
Fundamental  Transaction  to purchase the kind and amount of shares of stock and
other   securities  and  property   (including   cash)   receivable   upon  such
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common  Stock that would have been  received  upon  exercise or exchange of this
Warrant immediately prior to such Fundamental  Transaction,  this Warrant shall,
upon no less than fifteen (15) days written  notice,  terminate upon the closing
of any such Fundamental Transaction.

            (d)   Issuance of  Additional  Options or Warrants.  Notwithstanding
any other  provision of this Section 6, if, prior to June 30, 2005,  the Company
issues or sells any options or warrants that are Covered  Securities (as defined
in Section 6(f)) with an exercise  price per share less than the Exercise  Price
in effect  immediately  prior to such issuance or sale, then,  immediately after
such  issuance  or sale,  the  Exercise  Price  shall be  reduced  to such lower
exercise price per share. No further modification of the issuance terms shall be
made upon the actual  issuance  of the  underlying  shares of Common  Stock upon
exercise of such  options or  warrants.  If there is a change at any time in the
exercise price provided for in such options or warrants,  then immediately after
such  change,  the Exercise  Price shall be adjusted to the Exercise  Price that
would  have  been in  effect at such time had such  options  or  warrants  still
outstanding  provided  for such  changed  exercise  price at the time  initially
issued or sold;  provided,  however,  that if such adjustment would result in an
increase in the Exercise  Price and such  Exercise  Price,  as  adjusted,  would
exceed the initial  Exercise Price on the date hereof,  the Exercise Price shall
be  increased  to the price that is equal to the initial  Exercise  Price on the
date hereof.  In no event shall the Exercise  Price exceed the initial  Exercise
Price on the date hereof.  However,  upon the  expiration of any such options or
warrants,  the issuance of which resulted in an adjustment in the Exercise Price
pursuant to this  Section  6(d),  if all or any  portion of any such  options or
warrants  shall not have been  exercised,  the value of such options or warrants
shall be deducted  from the Offering  Proceeds (as defined in Section  6(f)) for
the  purpose of  determining  whether  such  options  or  warrants  are  Covered
Securities.

                                       6
<PAGE>

            (e)   Notice of  Adjustment.  When any  adjustment is required to be
made in the number or kind of shares  purchasable upon exercise of this Warrant,
or in the Exercise  Price,  the Company shall promptly notify the Holder of such
event  and of the  number  of shares  of  Common  Stock or other  securities  or
property thereafter purchasable upon exercise of this Warrant.

            (f)   Covered Securities. "Covered Securities" shall mean options or
warrants issued by the Company in a private  offering for the purpose of raising
capital for the Company;  provided,  however,  that the  aggregate  net proceeds
received by the Company in such offering (the "Offering Proceeds") exceeds fifty
percent  (50%) of the  aggregate  net  proceeds  received  by the Company in the
offering of units  comprised of convertible  preferred  stock and warrants being
offered by the Company pursuant to the PPM. Such term specifically  excludes any
other type of security  issued by the Company  for any purpose  whatsoever,  and
specifically  excludes  warrants not issued by the Company in a private offering
for the purpose of raising capital, including, but not limited to, warrants (and
any underlying securities issuable upon the exercise thereof) offered or issued:
(A)  to  the  public  pursuant  to a  registration  statement  filed  under  the
Securities  Act of  1933,  as  amended,  (B)  in  connection  with  a bona  fide
investment  in or by the Company,  any  acquisition  of another  corporation  or
entity by the  Company,  whether by merger,  consolidation,  purchase  of all or
substantially all of the assets of such corporation or entity, share exchange or
reorganization,  any  acquisition  of any  interests,  rights or other assets of
another  corporation or entity by the Company, or any similar  transaction,  (C)
pursuant to equipment  leases or debt financings,  (D) to employees,  directors,
consultants,  suppliers,  customers or other business or joint venture  partners
for  the  primary   purpose  of  soliciting  or  retaining   their  services  or
compensating them for their services, (E) pursuant to the exercise or conversion
of  exercisable  or  convertible  securities  that are  outstanding  on the date
hereof, or (F) in connection with any stock split or combination, stock dividend
or distribution,  reclassification or recapitalization, or similar action by the
Company.

            (g)   No  Impairment.  The  Company  and the Holder will not, by any
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or  performed  hereunder  by the Company or the Holder,
respectively,  but will at all times in good faith assist in the carrying out of
all the provisions of this Section 6 and in the taking of all such action as may
be  necessary or  appropriate  in order to protect the rights or the Company and
the Holder against impairment.

      7.    Investment Intent and Transfer Restrictions.

            (a)   The Holder of this Warrant, by acceptance hereof, acknowledges
that this  Warrant and the  Exercise  Shares to be issued upon  exercise  hereof
(collectively, the "Securities") are being acquired for the Holder's own account
for  investment  purposes  only  and not with a view  to,  or with  any  present
intention  of,  distributing  or reselling  any of such  Securities.  The Holder
acknowledges  and agrees that the Securities have not been registered  under the
Securities Act or under any state  securities  laws, and that the Securities may
not be, directly or indirectly,  sold,  transferred,  offered for sale, pledged,
hypothecated or otherwise disposed of without  registration under the Securities
Act and  applicable  state  securities  laws,  except  pursuant to an  available
exemption from such  registration.  The Holder also acknowledges and agrees that
neither the  Securities  and  Exchange  Commission  ("SEC")  nor any  securities
commission or other governmental authority has: (i) approved the transfer of the
Securities  or  passed  upon or  endorsed  the  merits  of the  transfer  of the
Securities;  or (ii)  confirmed the accuracy of,  determined the adequacy of, or
reviewed  this  Warrant.  The  Holder  has such  knowledge,  sophistication  and
experience in financial, tax and business matters in general, and investments in

                                       7
<PAGE>

securities in particular,  that it is capable of evaluating the merits and risks
of  this   investment  in  the   Securities,   and  the  Holder  has  made  such
investigations in connection  herewith as it deemed necessary or desirable so as
to make an informed  investment  decision  without  relying upon the Company for
legal or tax advice related to this investment.

            (b)   The  certificates  evidencing any Exercise  Shares issued upon
the exercise of this Warrant shall have endorsed  thereon  (except to the extent
that the restrictions described in any such legend are no longer applicable) the
following  legend,  appropriate  notations thereof will be made in the Company's
stock  transfer  books,   and  stop  transfer   instructions   reflecting  these
restrictions  on transfer will be placed with the transfer agent of the Exercise
Shares.

      THE  SECURITIES  REPRESENTED  HEREBY  HAVE NOT BEEN  REGISTERED  UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT"), OR APPLICABLE
      STATE SECURITIES  LAWS.  THESE SECURITIES MAY NOT BE SOLD,  TRANSFERRED OR
      OTHERWISE DISPOSED OF EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES
      ACT AND  REGISTRATION OR  QUALIFICATION  UNDER APPLICABLE STATE SECURITIES
      LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM.  NO TRANSFER OF THE
      SECURITIES  REPRESENTED  HEREBY  MAY  BE  MADE  IN  THE  ABSENCE  OF  SUCH
      REGISTRATION  OR  QUALIFICATION  UNLESS THERE SHALL HAVE BEEN DELIVERED TO
      THE  ISSUER A WRITTEN  OPINION  OF UNITED  STATES  COUNSEL  OF  RECOGNIZED
      STANDING, IN FORM AND SUBSTANCE  SATISFACTORY TO THE ISSUER, TO THE EFFECT
      THAT SUCH  TRANSFER MAY BE MADE WITHOUT  REGISTRATION  OF SUCH  SECURITIES
      UNDER  THE  SECURITIES  ACT  AND  REGISTRATION  OR   QUALIFICATION   UNDER
      APPLICABLE STATE SECURITIES LAWS.

      8.    Indemnification.   Holder  agrees  to  indemnify,  defend  and  hold
harmless the Company and its  respective  affiliates and agents from and against
any  and  all  demands,   claims,  actions  or  causes  of  action,   judgments,
assessments, losses, liabilities, damages or penalties and reasonable attorneys'
fees and related  disbursements  incurred  by the  Company  that arise out of or
result from a breach of any representations, warranties, covenants or agreements
made by Holder herein,  and Holder agrees that in the event of any breach of any
representations,  warranties, covenants or agreements made by Holder herein, the
Company  may, at its option,  forthwith  rescind the issuance of this Warrant to
Holder.

      9.    Registration  Rights. The Holder shall be entitled to the rights and
subject to the obligations  set forth in the  registration  rights  contained in
Exhibit B to the PPM.

      10.   Right to Call Warrant.

            (a)   If the volume  weighted  average  Closing Price (as defined in
Section  10(b)) for the shares of Common Stock has been equal to or greater than

                                       8
<PAGE>

150% of the  Exercise  Price during 20  consecutive  Trading Days (as defined in
Section 10(c))) during the period  commencing on the first Trading Day after the
SEC declares  effective a registration  statement  filed by the Company with the
SEC  permitting  the public sale of all of the shares of Common  Stock  issuable
upon exercise of this  Warrant,  the Company may call all or any portion of this
Warrant.  In the event the  Company  exercises  its call  right  hereunder,  the
Company shall provide  Holder with written notice of its election to call all or
a portion of the Warrant to the address of Holder set forth in the  subscription
agreement  dated on or about the date  hereof  between  the  Company and Holder.
Holder  shall have 15 business  days (the  "Notice  Period")  from the date such
notice is sent by the  Company  to Holder to decide  whether  to  exercise  this
Warrant in whole or in part at the Exercise  Price in accordance  with the terms
hereof.  If this  Warrant  or any part  thereof is not so  exercised  during the
Notice  Period,  such Warrant or part  thereof  shall be forfeited by the Holder
upon the expiration of the Notice Period.  It shall be an absolute  condition to
the Company's right to call this Warrant that such registration  statement shall
be effective, with no stop-order, and with no suspensions of resales thereunder,
during the entire 20 Trading Day period described above.

            (b)   "Closing  Price"  for any day,  means:  (i) the last  reported
sales  price  regular  way of the  Common  Stock  on such  day on the  principal
securities  exchange  on which the Common  Stock is then  listed or  admitted to
trading or on Nasdaq, as applicable,  (ii) if no sale takes place on such day on
any such securities exchange or system, the average of the closing bid and asked
prices,  regular way, on such day for the Common Stock as  officially  quoted on
any such  securities  exchange  or system,  (iii) if on such day such  shares of
Common  Stock are not then  listed or  admitted  to  trading  on any  securities
exchange or system,  the last reported sale price,  regular way, on such day for
the Common  Stock in the  domestic  over-the-counter  market as  reported by the
National Quotation Bureau, Incorporated, or any other successor organization, or
(iv) if no sale  takes  place on such day,  the  average of the high and low bid
price of the Common Stock on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated,  or any other successor
organization,  or (v) if no bid and asked  prices  are  reported  for the Common
Stock by the National  Quotation  Bureau,  Incorporated  or any other  successor
organization  for such day,  the average of the high and low bid and asked price
of any of the  market  makers  for the  Common  Stock as  reported  in the "pink
sheets" by the Pink Sheets  LLC. If at any time such shares of Common  Stock are
not  listed on any  domestic  exchange  or quoted  in the  NASDAQ  System or the
domestic  over-the-counter  market or reported in the "pink sheets," the Closing
Price  shall  be the  fair  market  value  thereof  determined  by the  Board of
Directors of the Company in good faith.

            (c)   "Trading  Day" means a day on which the  securities  exchange,
association,  or quotation system on which shares of Common Stock are listed for
trading  shall be open for  business or, if the shares of Common Stock shall not
be listed on such exchange, association, or quotation system for such day, a day
with  respect to which  trades in the United  States  domestic  over-the-counter
market shall be reported.

      11.   Notices.  All  notices or other  communications  under this  Warrant
shall  be in  writing  and  shall be  deemed  to have  been  given on the day of
delivery if  delivered  by hand,  on the fifth day after  deposit in the mail if
mailed by certified mail, postage prepaid,  return receipt requested,  or on the
next  business day after  mailing if sent by a nationally  recognized  overnight
courier such as federal express, addressed as follows:

                                       9
<PAGE>

            If to the Company:

                  Touchstone Resources USA, Inc.
                  111 Presidential Boulevard, Suite 165
                  Bala Cynwyd, PA 19004
                  Attention:  Chief Executive Officer

            with a copy to:

                  Duane Morris LLP
                  240 Princeton Avenue, Suite 150
                  Hamilton, NJ 08619
                  Attention :  Vincent A. Vietti, Esquire

            and to the  Holder at the  address of the  Holder  appearing  on the
            books of the Company or the Company's transfer agent, if any.

      Either of the  Company  or the  Holder  may from time to time  change  the
address  to  which  notices  to it are  to be  mailed  hereunder  by  notice  in
accordance with the provisions of this Section 11.

      12.   Amendment and Waiver.  This Warrant may not be amended,  modified or
supplemented  except by an instrument or  instruments  in writing  signed by the
party against whom enforcement of any such amendment, modification or supplement
is sought.  The parties  hereto  entitled to the benefits of a term or provision
may waive  compliance  with any  obligation,  covenant,  agreement  or condition
contained herein.  Any agreement on the part of a party to any such waiver shall
be valid only if set forth in an instrument or  instruments in writing signed by
the party against whom  enforcement of any such waiver is sought.  No failure or
delay on the part of any party  hereto in the  exercise  of any right  hereunder
shall impair such right or be construed to be a waiver of, or  acquiescence  in,
any breach of any  representation,  warranty,  covenant or  agreement  contained
herein.

      13.   Headings;  Definitions.  The  Section  headings  contained  in  this
Warrant are inserted for  convenience  of reference only and will not affect the
meaning or interpretation of this Warrant.  All references to Sections contained
herein mean Sections of this Warrant unless  otherwise  stated.  All capitalized
terms  defined  herein are equally  applicable  to both the  singular and plural
forms of such terms.

      14.   Successors and Assigns. This Warrant shall be binding upon and inure
to the  benefit  of the  parties  hereto  and their  respective  successors  and
assigns,  provided,  however,  that no party  hereto  may  assign  its rights or
delegate its  obligations  under this Warrant  without the express prior written
consent of the other party hereto. Nothing in this Warrant is intended to confer
upon any person  not a party  hereto  (and their  successors  and  assigns)  any
rights, remedies, obligations or liabilities under or by reason of this Warrant

      15.   Severability.  If any  provision of this Warrant or the  application
thereof to any person or circumstance is held to be invalid or  unenforceable to
any extent,  the remainder of this Warrant shall remain in full force and effect

                                       10
<PAGE>

and shall be  reformed  to  render  the  Warrant  valid  and  enforceable  while
reflecting to the greatest extent permissible the intent of the parties.

      16.   Governing  Law.  This Warrant  shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania,  without regard to
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.

      17.   Arbitration.  If a dispute arises as to the  interpretation  of this
Warrant,  it shall be decided in an  arbitration  proceeding  conforming  to the
Rules  of  the  American  Arbitration   Association   applicable  to  commercial
arbitration  then in effect at the time of the dispute.  The  arbitration  shall
take place in the Commonwealth of Pennsylvania.  The decision of the arbitrators
shall be  conclusively  binding  upon the parties and final,  and such  decision
shall be enforceable as a judgment in any court of competent  jurisdiction.  The
parties shall share equally the costs of the arbitration.

      18.   Counterparts.   This  Warrant  may  be  executed  and  delivered  by
facsimile  in two or more  counterparts,  each of which shall be deemed to be an
original, but all of which together shall constitute one and the same agreement.

                  [Remainder of page intentionally left blank]

      IN WITNESS  WHEREOF,  the  Company  has caused  these  presents to be duly
executed as of the [____] day of [___________], 2005.

                                        TOUCHSTONE RESOURCES USA, INC.

                                        By: [________________________________]
                                              Name:
                                              Title:

                                       11
<PAGE>

                                   APPENDIX A

                               NOTICE OF EXERCISE

To:   Touchstone Resources USA, Inc.
      111 Presidential Boulevard, Suite 165
      Bala Cynwyd, PA 19004
      Attention:  Chief Executive Officer

      (1)   The  undersigned  hereby elects to purchase  ____________  shares of
Common Stock of  TOUCHSTONE  RESOURCES  USA,  INC.  pursuant to the terms of the
attached  Warrant,  and tenders  herewith payment of the Exercise Price for such
shares in full in  accordance  with the terms of the  Warrant  in the  following
manner (please check one or more of the following choices):

      [ ]   In cash;

      [ ]   Cashless exercise through a broker; or

      [ ]   Delivery of previously owned shares of Common Stock.

      (2)   In exercising  this Warrant,  the  undersigned  hereby  confirms and
acknowledges that the shares of Common Stock to be issued upon conversion hereof
are being acquired solely for the account of the  undersigned,  not as a nominee
for any other party,  and for  investment  purposes only (unless such shares are
subject to resale pursuant to an effective prospectus), and that the undersigned
will not offer,  sell or  otherwise  dispose of any such shares of Common  Stock
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any state securities laws.

      (3)   Terms not  otherwise  defined in this Notice of Exercise  shall have
the meanings ascribed to such terms in the attached Warrant.

      (4)   Please issue a certificate or certificates  representing said shares
of Common Stock in the name of the undersigned.

                                        HOLDER

--------------------------              ----------------------------------------
(Date) (Signature)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00082-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00082-of-00352.parquet"}]]