Document:

ex10-4.htm

    Exhibit 10.4

      COMMON STOCK PURCHASE
WARRANT

       

      THIS
WARRANT AND ANY SHARES OF COMMON STOCK ISSUED UPON ANY EXERCISE HEREOF (THE
“WARRANT SHARES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (“THE SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS (1)
EITHER (A) A REGISTRATION STATEMENT WITH RESPECT THERETO SHALL BE EFFECTIVE
UNDER THE SECURITIES ACT, OR (B) AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT IS AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL
APPLICABLE STATE SECURITIES OR “BLUE SKY” LAWS.

       

      THE
SALE, TRANSFER, ASSIGNMENT, PLEDGE, ENCUMBRANCE OR OTHER DISPOSITION
(COLLECTIVELY, A “TRANSFER”) OF THIS WARRANT AND ANY WARRANT SHARES IS SUBJECT
TO CERTAIN RESTRICTIONS SET FORTH SECTION 10 OF THIS WARRANT.  BY
ACCEPTING ANY INTEREST IN THIS WARRANT, THE RECIPIENT OF SUCH WARRANT SHALL BE
DEEMED TO HAVE AGREED TO, AND SHALL BECOME BOUND BY, ALL OF THE TRANSFER
RESTRICTIONS CONTAINED HEREIN.  THE COMPANY WILL NOT REGISTER THE
TRANSFER OF THIS WARRANT OR ANY WARRANT SHARES ON THE BOOKS OF THE COMPANY
UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE TERMS OF THIS
WARRANT.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Warrant
No. 2

      Dated as
of February 11, 2009

      

      COMMON
STOCK PURCHASE WARRANT

       

      TO
PURCHASE SHARES OF COMMON STOCK OF

       

      PARTICLE
DRILLING TECHNOLOGIES, INC.

       

      PARTICLE
DRILLING TECHNOLOGIES, INC., a Nevada corporation (the “Company”),
for value received, hereby certifies that DON A. SANDERS (the “Purchaser”)
or successors or registered assigns is entitled to purchase from the Company
534,765 duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock, par value $0.001 per share (the “Common
Stock”) of the Company at a purchase price per share of $0.105 (the
“Purchase
Price”), at any time or from time to time beginning on the date hereof
(the “Issue
Date”), and prior to 5:00 P.M., New York City, New York, time, on
February 11, 2012, provided that in the
event the Company does not have a registration statement in effect covering a
resale of the shares of Common Stock issuable on exercise of this Warrant on
February 11, 2012, this Warrant will remain exercisable until such a
registration statement has been effective for a three-month period after such
date (such date, as adjusted, the “Expiration
Date”), all subject to the terms, conditions and adjustments set forth
below in this Warrant.

       

      This
Warrant (the “Warrant”,
such term to include any such warrants issued in substitution therefor) was one
of the warrants issued in connection with the Purchase Agreement dated as of
February 11, 2009 by and among the Company, Particle Drilling Technologies,
Inc., a Delaware corporation and a subsidiary of the Company, the Purchasers
named therein and LC Capital Master Fund, Ltd., as Agent (the “Purchase
Agreement”).  The Warrant evidences rights to purchase an
aggregate of up to 1.495% of the total issued and outstanding Common Stock of
the Company on the Issue Date, shares of Common Stock being subject to
adjustment as provided herein.  Certain capitalized terms used in this
Warrant are defined in Section 1;
references to an “Exhibit” are, unless otherwise specified, to one of the
Exhibits attached to this Warrant and references to a “Section” are, unless
otherwise specified, to one of the sections of this Warrant.

       

      1. Definitions.  For
the purposes of this Warrant, the following terms shall have the meanings
indicated:

       

       “Business
Day” shall mean any day other than a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
or executive order to close.

       

      “Charter
Documents” shall
have the meaning ascribed to such term in Section
8.

       

      “Closing
Price” shall mean, with respect to each share of Common Stock for any
day, (a) the last reported sale price or, in case no such sale takes place on
such day, the average of the closing bid and asked prices, in either case as
reported on the principal national securities exchange on which the Common Stock
is listed or admitted for trading or (b) if the Common

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Stock is
not listed or admitted for trading on any national securities exchange, the last
reported sale price or, in case no such sale takes place on such day, the
average of the highest reported bid and the lowest reported asked quotation for
the Common Stock, in either case as reported on the NASDAQ or a similar service
if NASDAQ is no longer reporting such information.

       

      “Commission”
shall mean the Securities and Exchange Commission or any other federal agency at
the time administering the Securities Act.

       

      “Common
Stock” shall have the meaning ascribed to such term in the first
paragraph of this Warrant.

       

      “Company”
shall have the meaning ascribed to such term in the first paragraph of this
Warrant.

       

       “Equity
Securities” shall mean (i) all shares of Common Stock and of any other
class of capital stock of the Company, (ii) all warrants and options of the
Company, including, without limitation, this Warrant and the Warrant Shares, and
any securities issued or issuable upon the exercise of such options or warrants,
(iii) all other securities of the Company directly or indirectly convertible
into or exchangeable for shares of Common Stock and (iv) any securities issued
or issuable by the Company in respect of the forgoing upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar
event.

       

      “Election
to Purchase Shares” shall have the meaning ascribed to such term in Section 2(a).

       

      “Exchange
Act” shall have the meaning ascribed to it in Section 10(c).

       

      “Exempt
Securities” shall mean (i) shares of Common Stock issued upon the
exercise of the Warrants, (ii) shares of capital stock issued by the Company on
or prior to the date hereof (and shares of capital stock issued upon the direct
or indirect conversion or exercise of any securities issued by the Company on or
prior to the date hereof, in accordance with their respective terms), (iii)
shares of Common Stock issued pursuant to a public offering, (iv) shares of
Common Stock (including shares issuable upon the exercise or exchange of
warrants or options to acquire shares of Common Stock) issued solely to the
employees, directors or consultants of the Company or any of its subsidiaries
pursuant to a stock option or ownership plan or program or any stock issuance
arrangement in existence as of the Issue Date or adopted by the Board of
Directors of the Company and approved by a majority of the Company’s Common
Stock holders after the Issue Date, representing not more than 7% of the total
common equity of the Company determined on a fully-diluted basis as of the Issue
Date, and (v) shares of Company capital stock issued upon the direct or indirect
conversion or exercise of any of the forgoing securities, in accordance with
their terms.

       

       “Exercise
Date” shall have the meaning ascribed to such term in Section 2(e).

       

      “Expiration
Date” shall have the meaning ascribed to such term in the first paragraph
of this Warrant.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      “Fair
Market Value” shall be determined in accordance with Section 3(e).

       

      “Holder” shall mean the registered
holder of this Warrant.

       

       “NASDAQ”
shall mean the Automatic Quotation System of the National Association of
Securities Dealers, Inc.

       

      “Notes” shall mean the $1,200,000
Senior Secured PIK Notes Due 2010 issued and sold by the Company pursuant to the
Purchase Agreement to the Purchasers named therein.

       

       “Person”
shall mean any individual, firm, corporation, limited liability company,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or an agency or political subdivision thereof)
or other entity of any kind, and shall include any successor (by merger or
otherwise) of such entity.

       

       “Purchase
Price” shall have the meaning ascribed to such term in the first
paragraph of this Warrant.

       

      “Purchaser”
shall have the meaning ascribed to such term in the first paragraph of this
Warrant.

       

       “Registrable
Securities” shall mean (a) any shares of Common Stock or other securities
issued or issuable upon exercise of this Warrant and any other warrants issued
pursuant to the terms of the Purchase Agreement and (b) any securities issued or
issuable with respect to any securities referred to in the foregoing subdivision
by way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization or
otherwise.  As to any particular Registrable Securities, once issued
such securities shall cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) they shall be eligible
for sale to the public pursuant to Rule 144 (or any successor provision) under
the Securities Act without any restrictions on volume or manner of sale, (c)
they shall have been otherwise transferred, new certificates for them not
bearing a legend restricting further transfer shall have been delivered by the
Company and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force, or (d) they shall have ceased to be outstanding.

       

      “Registration
Expenses” shall mean all expenses incidental to the Company’s performance
of or compliance with Section 11,
including, without limitation, all registration, filing and NASD fees, all fees
and expenses of complying with securities or blue sky laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits or “cold comfort”
letters required by or incident to such performance and compliance, the fees and
disbursements of any counsel and accountants retained by the holder or holders
of the Registrable Securities being registered, premiums and other costs of
policies of insurance against liabilities arising out of the public offering of
the Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      commissions
and transfer taxes, if any; provided, that, in
any case where Registration Expenses are not to be borne by the Company, such
expenses shall not include salaries of Company personnel or general overhead
expenses of the Company, auditing fees, premiums or other expenses relating to
liability insurance required by underwriters of the Company or other expenses
for the preparation of financial statements or other data normally prepared by
the Company in the ordinary course of its business or which the Company would
have incurred in any event.

       

       “Required
Holders” shall mean, as of any date of determination, Holders holding in
the aggregate more than 50% of all of the warrants issued pursuant to the
Purchase Agreement  and outstanding.

       

       “Sale of
the Company” shall have the meaning ascribed to such term in Section
3(i).

       

       “Securities
Act” shall mean the Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.

       

       “Purchase
Agreement” shall have the meaning ascribed to such term in the second
paragraph of this Warrant.

       

      “Transfer”
shall mean any sale, transfer, assignment, conveyance or other disposition,
including without limitation by merger, operation of law, bequest or pursuant to
any domestic relations order, whether voluntarily or involuntarily, other than a
sale, transfer, assignment, conveyance or other disposition by or to the
Company; provided, that a
pledge or the creation of a lien on the Common Stock shall not constitute a
Transfer if the instrument creating such pledge or lien specifically references
this Warrant and the pledgee or holder of the lien specifically agrees to be
bound by the provisions hereof; provided further, that any
foreclosure (including the retention of the collateral in satisfaction of any
obligations) shall constitute a Transfer.

       

      “Warrant”
shall mean this Warrant and any subsequent Warrant issued pursuant to the terms
of this Warrant.

       

      “Warrant
Shares” shall mean the shares of Common Stock deliverable upon proper
exercise of this Warrant and/or other Warrants, as the case may be.

       

       “Warrant
Register” shall have the meaning ascribed to such term in Section 10(a).

       

      2. Exercise of
Warrant.

       

      (a) Exercise.  This
Warrant may be exercised, in whole or in part, at any time or from time to time
during the period beginning on the Issue Date and ending on the Expiration Date,
by surrendering to the Company at its principal office this Warrant, with the
form of Election to Purchase Shares (the “Election
to Purchase Shares”) attached hereto as Exhibit A duly
executed by the Holder and accompanied by payment of the aggregate Purchase
Price

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (b) (rounded
to the nearest whole cent) for the number of shares of Common Stock specified in
the Election to Purchase Shares.

       

      (c) Delivery of Shares; Payment
of Purchase Price.  As soon as practicable after each exercise
of this Warrant, in whole or in part, and in any event within five Business Days
thereafter, the Company at its expense (including the payment by it of any
applicable issue taxes) will cause to be issued and delivered to the Holder a
certificate or certificates for the number of shares of Common Stock set forth
in the Election to Purchase Shares, in such name or names as may be designated
by such Holder (subject to Section 10
hereof), and, as set forth in Section 6, a
check for the amount of cash to be paid in lieu of issuance of fractional
shares, if any.  Payment of the Purchase Price may be
made:  (i) in United States currency by cash or delivery of a
certified check, bank draft or postal or express money order payable to the
order of the Company or by wire transfer to such account as specified by the
Company in writing to the Holder, (ii) by surrender of a number of shares of
Common Stock held by the Holder equal to the quotient obtained by dividing (A)
the aggregate Purchase Price payable with respect to the portion of this Warrant
then being exercised by (B) the Fair Market Value per share of Common Stock
on the Exercise Date, or (iii) by any combination of clauses (i) and
(ii).

       

      (d) Partial
Exercise.  If this Warrant is exercised for less than all of
the shares of Common Stock purchasable upon exercise of this Warrant, the
Company shall cancel this Warrant upon surrender hereof and shall execute and
deliver to the Holder a new Warrant of like tenor for the balance of the shares
of Common Stock purchasable hereunder.

       

      (e) Alternative Cashless
Exercise.  Notwithstanding any provision herein to the
contrary, in lieu of exercising this Warrant as set forth above, the Holder may
exercise this Warrant by electing to receive that number of shares of Common
Stock as determined below by surrendering to the Company at its principal office
this Warrant, with the applicable Election to Purchase Shares duly executed by
the Holder, in which event the Company shall issue to the Holder the number of
shares of Common Stock computed using the following formula:

       

      CS =
WCS x (MP –
PP)

       

              MP

       

      where:

       

      CS
equals the number of shares of Common Stock to be issued to the
Holder

       

      WCS
equals the number of Warrant Shares represented by this Warrant to be
exercised

       

      MP
equals the Common Stock Fair Market Value per share (on the date of such
calculation)

       

      PP
equals the Purchase Price

       

      Following
the surrender of this Warrant pursuant to this Section 2(d),
the Company shall promptly issue and deliver to the Holder a certificate or
certificates for that number of shares of

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      Common
Stock, as calculated above in such name or names as may be designated by such
Holder (subject to Section 10
hereof).

       

      (f) When Exercise
Effective.  The exercise of this Warrant shall be deemed to
have been effective immediately prior to the close of business on the Business
Day on which this Warrant is surrendered to and the Purchase Price is received
by the Company as provided in this Section 2 (the
“Exercise
Date”) and the Person in whose name any certificate for shares of Common
Stock shall be issuable upon such exercise, as provided in Section 2(b),
shall be deemed to be the record holder of such shares of Common Stock for all
purposes on the Exercise Date.

       

      (g) Warrant Shares Fully Paid,
Nonassessable.  The Company shall take all actions necessary to
ensure that following exercise of this Warrant in accordance with the provisions
of this Section 2, the
Warrant Shares issued hereunder shall, without further action by the Holder, be
fully paid and nonassessable, free from all taxes (excluding any taxes on income
realized or recognized by the Holder), liens, charges and security interests
with respect to the issue thereof.  The Warrant Shares shall be issued
with restrictive legends.

       

      (h) Continued
Validity.  A Holder of shares of Common Stock issued upon the
exercise of this Warrant, in whole or in part, shall continue to be entitled to
all of the rights and subject to all of the obligations set forth in Section 10
hereof.

       

      (i) Company to Reaffirm
Obligations.  The Company will, at the time of each exercise of
this Warrant, upon the request of the Holder hereof, acknowledge in writing its
continuing obligation to afford to such Holder all rights (including, without
limitation, any rights to registration) to which such Holder shall continue to
be entitled after such exercise in accordance with the terms of this Warrant,
provided that
if the Holder of this Warrant shall fail to make any such request, such failure
shall not affect the continuing obligation of the Company to afford such rights
to such holder.

       

      3. Adjustment of Purchase Price
and Number of Shares.  The Purchase Price and the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
from time to time upon the occurrence of the events described in this Section 3.

       

      (a) Dividend, Subdivision or
Combination of Common Stock.  If the Company shall, at any time
or from time to time, (i) declare a dividend on the Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock into a
larger number of shares of Common Stock or (iii) combine the outstanding Common
Stock into a smaller number of shares of its Common Stock, then in each such
case, the number of shares of Common Stock issuable on such date and the
Purchase Price shall be proportionately adjusted so that the Holder of any
Warrant exercised after such date shall be entitled to receive, upon payment of
the same aggregate amount as would have been payable before such date, the
aggregate number of shares of Common Stock which, if such Warrant had been
exercised immediately prior to such date, such Holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision or
combination.  Any such adjustment shall become effective immediately
after the record date of such dividend or the effective date of such subdivision
or combination.  Such adjustment shall be made successively whenever
any

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (b) event
listed above shall occur.  If a dividend is declared and such dividend
is not paid, the number of shares of Common Stock issuable pursuant to this
Warrant on such date and the Purchase Price shall again be adjusted to be such
number and Purchase Price, as applicable, in effect immediately prior to such
record date (giving effect to all adjustments that otherwise would be required
to be made pursuant to this Section 3 from
and after such record date).

       

      (c) Issuance of Rights to
Purchase Common Stock Below Fair Market Value.

       

      (i)           Except
to the extent any of the following constitute Exempt Securities, if the Company
shall, at any time or from time to time, fix a record date for the issuance of
rights, options or warrants to holders of Common Stock entitling them to
subscribe for or purchase Common Stock, or securities convertible into Common
Stock (including any adjustments thereof pursuant to such securities’
anti-dilution provisions), or issue any of the foregoing, at a price per share
of Common Stock or having a conversion price per share of Common Stock if a
security is convertible into Common Stock (determined in either such case by
dividing (x) the total consideration received or receivable by the Company in
consideration of the sale or issuance of such rights, options, warrants or
convertible or exchangeable securities, plus the total consideration payable to
the Company upon exercise or conversion or exchange thereof, by (y) the total
number of shares of Common Stock covered by such rights, options, warrants or
other securities convertible into Common Stock) which is lower than the Fair
Market Value per share of Common Stock on such record date, then, the Purchase
Price shall be reduced to the price determined by multiplying the Purchase Price
in effect immediately prior to such record date by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock outstanding on
such record date plus the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so to be
offered (or the aggregate initial conversion price of the convertible securities
so to be offered) would purchase at the Fair Market Value per share of Common
Stock and the denominator of which shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible).  In case such
price for subscription or purchase may be paid in a consideration part or all of
which shall be in a form other than cash, the value of such consideration shall
be determined in good faith by the Board of Directors of the
Company.  Any such adjustment shall become effective immediately after
the record date for such rights or warrants.  Such adjustment shall be
made successively whenever such a record date is fixed.  If such
rights, options or warrants are not so issued, the Purchase Price shall be
adjusted to the Purchase Price that otherwise would be in effect but for the
fact such record date was fixed (giving effect to all adjustments that otherwise
would be required to be made pursuant to this Section 3 from
and after such record date).

       

      (ii)           Notwithstanding
any provision in Section 3 to the
contrary and without limitation to any other provision contained in Section 3, in
the event that (A) the purchase price payable for any rights, options, warrants
or convertible securities referred to in Section 3(b)(i),
(B) the additional consideration, if any, payable upon the exercise of such
rights, options or warrants or the conversion of such convertible securities
referred to in Section 3(b)(i)
or (C) the rate at which any such convertible securities referred to in Section 3(b)(i)
are convertible into additional shares of Common Stock shall change, the
Purchase Price in effect at

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      the time
of such event shall forthwith be readjusted to the Purchase Price that would
have been in effect at such time had such rights, options, warrants or
convertible securities provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold.  On the expiration of any such rights,
options or warrants not exercised or of any such right to convert under any such
convertible securities not exercised, the Purchase Price then in effect
hereunder shall forthwith be increased to the Purchase Price that would have
been in effect at the time of such expiration or termination had such rights,
options, warrants or convertible securities never been issued.  No
readjustment pursuant to this Section 3(b)(ii)
shall have the effect of increasing the Purchase Price by an amount in excess of
the adjustment originally made to the Purchase Price in respect of the grant,
issue or sale of the applicable rights, options, warrants or convertible
securities.

       

      (d) Certain
Distributions.  If the Company shall, at any time or from time
to time, fix a record date for the distribution to all holders of Common Stock
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation) of capital stock or
other securities, evidences of indebtedness, assets or other property (other
than regularly scheduled cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends payable in capital stock
for which adjustment is made under Section 3(a)) or
subscription rights, options or warrants (excluding those referred to in Section 3(b)),
then, the
Purchase Price shall be reduced to the price determined by multiplying the
Purchase Price in effect immediately prior to such record date by a fraction
(which shall in no event be less than zero), the numerator of which shall be the
Fair Market Value per share of Common Stock on such record date, less the fair
market value (as determined in good faith by the Board of Directors of the
Company) of the portion of the assets, evidences of indebtedness, other
property, subscription rights or warrants so to be distributed applicable to one
share of Common Stock and the denominator of which shall be such Fair Market
Value per share of Common Stock.  Any such adjustment shall become
effective immediately after the record date for such
distribution.  Such adjustments shall be made successively whenever
such a record date is fixed.  In the event that such distribution is
not so made, the Purchase Price shall be adjusted to the Purchase Price in
effect immediately prior to such record date (giving effect to all adjustments
that otherwise would be required to be made pursuant to this Section 3 from
and after such record date).

       

      (e) Issuance of Common Stock
Below Fair Market Value.

       

      (i)           If
the Company shall, at any time and from time to time, after the date hereof,
directly or indirectly, sell or issue shares of Common Stock (other than Exempt
Securities) (regardless of whether originally issued or from the Company’s
treasury) at a price per share of Common Stock which is lower than the Fair
Market Value per share of Common Stock, then, subject to
clause (ii) of this Section 3(d),
the Purchase Price shall be reduced to a price determined by multiplying the
Purchase Price in effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to such sale or issuance plus the number of shares of Common
Stock which the aggregate consideration received (determined as provided below)
for such sale or issuance would purchase at the Fair Market Value per share of
Common Stock and the denominator of which shall be the total number of shares of
Common Stock outstanding immediately after such sale or
issuance.  Such adjustment shall be made successively
whenever

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      such sale
or issuance is made.  If the Company shall sell or issue shares of
Common Stock for a consideration consisting, in whole or in part, of property
other than cash or its equivalent, then in determining the “price per share of
Common Stock” and the “consideration” received or receivable by or payable to
the Company for purposes of the first sentence and the immediately preceding
sentence of this Section 3(d),
the fair value of such property shall be determined in good faith by the Board
of Directors of the Company.

       

      (ii)           No
adjustment shall be made to the Purchase Price pursuant to clause (i) of
this Section
3(d) in connection with the issuance of (A) shares issued in any of the
transactions described in Section 3(a),
(b) and (c) hereof, including
upon the exercise of any right, option, warrant or convertible or exchangeable
security and (B) shares issued upon exercise of this Warrant.

       

      (f) Determination of Fair Market
Value.  For the purpose of any computation under Section (b), (c)
or (d) of this
Section 3
or any other provision of this Warrant, the Fair Market Value per share of
Common Stock on any date shall be deemed to be the average of the daily Closing
Prices per share of Common Stock for the 10 consecutive trading days commencing
15 trading days before such date.  If on any such date the shares of
Common Stock are not listed or admitted for trading on any national securities
exchange or quoted by NASDAQ or a similar service, then the Fair Market Value
per share of Common Stock shall be determined by mutual agreement of the Board
of Directors of the Company and a majority of the Holders of the
Warrants.

       

      (g) Adjustments to Other
Shares.  In the event that at any time, as a result of an
adjustment made pursuant to Section 3(h),
the Holder shall become entitled to receive, upon exercise of this Warrant, any
shares of capital stock of the Company other than shares of Common Stock, the
number of such other shares so receivable upon exercise of this Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the shares of Common
Stock contained in Sections 3(a), (b),
(c), (d), (g) and (h), inclusive, and
the provisions of Sections 2, 6, 7
and 8 with
respect to the shares of Common Stock shall apply on like terms to any such
other shares.

       

      (h) Adjustment of Number of
Shares Issuable Upon Exercise.  Upon each adjustment of the
Purchase Price as a result of the calculations made in Section 3(a), (b),
(c) or (d), this Warrant
shall thereafter evidence the right to receive, at the adjusted Purchase Price,
that number of shares of Common Stock (calculated to the nearest one-hundredth)
obtained by dividing (x) the product of the aggregate number of shares of Common
Stock covered by this Warrant immediately prior to such adjustment and the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price by (y) the Purchase Price in effect immediately after such adjustment of
the Purchase Price.

       

      (i) Reorganization,
Reclassification, Merger and Sale of Assets.

       

      (i) Other
than in the cases referred to in Sections 3(a), (b),
(c) and (d), if there occurs
any capital reorganization or any reclassification of the Common Stock of the
Company, the consolidation or merger of the Company with or into another Person
or the sale or conveyance of all or substantially all of the properties or
assets of the Company to another

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (ii) Person,
then, the Holder will thereafter be entitled to receive, upon the exercise of
this Warrant in accordance with the terms hereof, the same kind and amounts of
securities (including shares of stock) or other assets, or both, which were
issuable or distributable to the holders of outstanding Common Stock of the
Company upon such reorganization, reclassification, consolidation, merger, sale
or conveyance, in respect of that number of shares of Common Stock then
deliverable upon the exercise of this Warrant if this Warrant had been exercised
immediately prior to such reorganization, reclassification, consolidation,
merger, sale or conveyance; and, in any such case, appropriate adjustments (as
determined in good faith by the Board of Directors of the Company) shall be made
to assure that the provisions hereof (including provisions with respect to
changes in, and other adjustments of, the Purchase Price) shall thereafter be
applicable, as nearly as reasonably may be practicable, in relation to any
securities or other assets thereafter deliverable upon exercise of this
Warrant.

       

      (iii) Notwithstanding
anything contained in this Warrant or in the Purchase Agreement to the contrary,
the Company will not effect any of the transactions described in clauses (i) of
this Section 3(h)
unless, prior to the consummation thereof, each Person (other than the Company)
which may be required to deliver any stock, securities, cash or property upon
the exercise of this Warrant as provided herein shall assume, by written
instrument delivered to, and reasonably satisfactory to, the Holder of this
Warrant, (a) the obligations of the Company under this Warrant (and if the
Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Warrant) and (b) the obligation to deliver
to such Holder such shares of stock, securities, cash or property as, in
accordance with the foregoing provisions of this Section 3, such
Holder may be entitled to receive, and such Person shall have similarly
delivered to such Holder an opinion of counsel for such Person, which counsel
shall be reasonably satisfactory to such Holder, stating that this Warrant shall
thereafter continue in full force and effect and the terms hereof (including,
without limitation, all of the provisions of this Section 3) shall
be applicable to the stock, securities, cash or property which such Person may
be required to deliver upon any exercise of this Warrant or the exercise of any
rights pursuant hereto.  Nothing in this Section 3 shall
be deemed to authorize the Company to enter into any transaction not otherwise
permitted by the Purchase Agreement.

       

      (j) Notice of Company
Sale.  The Company shall provide the Holders written notice of
any issuance by the Company of more than 20% of the issued and outstanding
Common Stock of the Company to another Person, the consolidation or merger of
the Company with or into another Person or the sale or conveyance of all or
substantially all of the properties or assets of the Company to another Person
(a “Sale of
the Company”) as promptly as practicable upon the consummation of such
sale, and in any event within two Business Days after such
consummation.

       

      (k) Purchase Price Below Par
Value.  Notwithstanding anything contained herein, in the event
that and only to the extent that the Purchase Price as adjusted hereunder is
less than the par value per share of the Common Stock issuable pursuant to the
exercise of this Warrant, such adjusted Purchase Price shall be used only for
the purposes of adjusting the number of shares issuable upon exercise of this
Warrant.  In no event shall the Purchase Price paid upon the exercise
of this Warrant be less than the par value per share of the Common Stock
issuable pursuant to the exercise of this Warrant.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (l) De Minimis
Adjustments.  Unless stated otherwise herein, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 0.1% in the Purchase Price; provided, however, that any
adjustments not required to be made by virtue of this sentence shall be carried
forward and taken into account in any subsequent adjustment.  All
calculations under this Section 3 shall
be made to the nearest one hundredth (1/100) of a cent or the nearest one tenth
(1/10) of a share of Common Stock (or other securities issued or issuable upon
exercise of this Warrant), as the case may be.

       

      (m) Computations.  The
computations of all amounts under this Section 3 shall
be made assuming all other antidilution or similar adjustments to be made to the
terms of all other securities resulting from the transaction causing an
adjustment pursuant to this Section 3 have
previously been made so as to maintain the relative economic interest of this
Warrants vis à vis all other securities issued by the Company.

       

      4. Other Dilutive
Events.  In case any event shall occur as to which the
provisions of Section 3 are
not strictly applicable but the failure to make any adjustment would not fairly
protect the purchase rights represented by this Warrant in accordance with the
essential intent and principles of such sections’, then, in each such case, upon
the request of the Required Holders, the Company shall appoint a firm of
independent certified public accountants of recognized national standing (which
may be the regular auditors of the Company or such other independent certified
public accountants selected by the Company), which shall give their opinion upon
the adjustment, if any, on a basis consistent with the essential intent and
principles established in Section 3,
necessary to preserve, without dilution, the purchase rights represented by this
Warrant.  Upon receipt of such opinion, the Company will promptly mail
a copy thereof to such Holder and shall make the adjustments described
therein.

       

      5. Statement of
Adjustments.  Whenever the Purchase Price and the number of
shares of Common Stock issuable, or the securities or other property
deliverable, upon the exercise of this Warrant shall be adjusted pursuant to the
provisions hereof, the Company shall make available for inspection during
regular business hours, at its principal executive offices or at such other
place as may be designated by the Company, a statement, signed by its chief
executive officer, showing in detail the facts requiring such adjustment and the
Purchase Price and number of shares of Common Stock issuable, or the securities
or other property deliverable, upon the exercise of this Warrant, that shall be
in effect after such adjustment.  The Company shall also cause a copy
of such statement to be sent by first class certified mail, return receipt
requested and postage prepaid, to the Holder at such Holder’s address appearing
on the Company’s records as promptly as practicable and in any event within 20
days of the occurrence of such event.

       

      6. Fractional
Shares.  Notwithstanding an adjustment pursuant to Section 3(g) in
the number of shares of Common Stock covered by this Warrant or any other
provision of this Warrant, the Company shall not be required to issue fractions
of shares upon exercise of this Warrant and to distribute certificates which
evidence fractional shares.  In lieu of fractional shares, the Company
shall notify the Holder in writing of the amount to be paid in lieu of the
fraction of a share of the Common Stock and concurrently pay to the Holder, at
the time of exercise of this Warrant as herein provided, an amount in cash equal
to such fraction multiplied

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      7. by the
Fair Market Value of a share of Common Stock on the Exercise Date rounded to the
nearest whole cent.

       

      8. Notice of Proposed
Actions.  In case the Company shall propose at any time or from
time to time (a) to declare or pay any dividend payable in stock of any class to
the holders of Common Stock or to make any other distribution to the holders of
Common Stock (other than a regularly scheduled cash dividend), (b) to offer to
the holders of Common Stock rights or warrants to subscribe for or to purchase
any additional shares of Common Stock or shares of stock of any class or any
other securities, rights or options, other than Exempt Securities, (c) to effect
any reclassification of its Common Stock, (d) to effect any consolidation,
merger or sale, transfer or other disposition of all or substantially all of the
property, assets or business of the Company which would, if consummated, adjust
the Purchase Price or the securities issuable upon exercise of this Warrants or
(e) to effect the liquidation, dissolution or winding up of the Company, then,
in each such case, the Company shall give to the Holder, in accordance with
Section 17, a
written notice of such proposed action, which shall specify (i) the record date
for the purposes of such stock dividend, distribution of rights or warrants, or
if a record is not to be taken, the date as of which the holders of shares of
Common Stock of record to be entitled to such dividend, distribution of rights
or warrants is to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer, disposition,
liquidation, dissolution or winding up is expected to become effective, and such
notice shall be so given as promptly as possible but in any event at least 10
Business Days prior to the applicable record, determination or effective date
specified in such notice.

       

      9. No Dilution or
Impairment.  The Company will not, by amendment of its articles
of incorporation, bylaws or such other constitutive documents (collectively, the
“Charter
Documents”) or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of this Warrant against
dilution or other impairment.  Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any shares of
stock receivable on the exercise of this Warrant above the amount payable
therefor on such exercise, (b) will at all times reserve and keep available the
maximum number of its authorized shares of Common Stock, free from all
preemptive rights therein, which will be sufficient to permit the full exercise
of this Warrant and (c) will take all such action as may be necessary or
appropriate in order that all shares of Common Stock as may be issued pursuant
to the exercise of this Warrant will, upon issuance, be duly and validly issued,
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issuance thereof.

       

      10. Replacement of
Warrants.  On receipt by the Company of an affidavit of an
authorized representative of the Holder stating the circumstances of the loss,
theft, destruction or mutilation of this Warrant, the Company at its expense
will promptly execute and deliver, in lieu thereof, a new Warrant of like tenor
which shall be exercisable for a like number of shares of Common
Stock.  If required by the Company, in the case of any such loss,
theft or destruction of any Warrant held by a Person other than the Purchaser or
any institutional investor, such holder must provide an indemnity bond or other
indemnity sufficient in the judgment of the Company to

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      11. protect
the Company from any loss which it may suffer if a lost, stolen or destroyed
Warrant is replaced, or in the case of any such mutilation, such holder must
surrender such Warrant for  cancellation.

       

      12. Restrictions on Transfer;
Registration of Transfers.

       

      (a) Restrictions on
Transfer.    Subject to any applicable laws, this
Warrant and all rights hereunder shall be transferrable to any transferee
designated by Holder upon delivery of this Warrant together with a Form of
Assignment attached hereto as Exhibit B at the principal office of the
Company.

       

      (b) Registration.  The
Company shall maintain a register (the “Warrant
Register”) in its principal office for the purpose of registering the
Warrants and any Transfer thereof, which register shall reflect and identify, at
all times, the ownership of any interest in the Warrants.  Upon the
issuance of this Warrant, the Company shall record the name of the initial
purchaser of this Warrant in the Warrant Register as the first
Holder.  The Company shall from time to time, register in the Warrant
Register a Transfer of this Warrant, upon surrender thereof together with a
properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company, subject to the compliance of such Transfer with
the Transfer restrictions set forth in this Section 10.  Upon
any such registration of Transfer, the Company shall, at its expense, execute
and deliver one or more new Warrants of like tenor which shall be exercisable
for a like aggregate number of shares of Common Stock, registered in the name of
the Holder or a transferee or transferees and the surrendered Warrant shall be
cancelled by the Company.  This Warrant, if properly assigned, may be
exercised by a new Holder without a new Warrant first having been
issued.

       

      (c) Legend.  This
Warrant and the Warrant Shares will include a restrictive legend in
substantially the form as set forth on the cover of this
Warrant.  Upon termination of such restrictions on Transfer, the
Holder shall be entitled to receive from the Company, without expense (other
than applicable transfer taxes, if any) a new Warrant or certificates evidencing
shares of Common Stock issued upon the exercise of this Warrant of like tenor
without such legend.

       

      13. Registration under the
Securities Act.

       

      (a) Filing of Registration
Statement. The Company shall file with the Commission within sixty (60)
days after the Issue Date and use its commercially reasonable efforts to cause
to become effective a resale shelf Registration Statement for an offering on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of all
of the Registrable Securities held by each Holder that has provided the Company
all information requested pursuant to Section 11(g)(iv)
within 15 business days of such request ( a “Resale
Registration Statement”).

       

      (b) Notice of Registration
Status.  Not more than fifty (50) days and not less than
forty-five (45) days after the Issue Date, the Company shall deliver to the
Holder a notice in writing confirming whether or not the Resale Registration
Statement has been declared effective by the Commission and, if not, the steps
taken by the Company in connection with the filing and

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (c) progression
of the Resale Registration Statement, the status of the filing, the extent of
comments and responses in connection with such registration and the Company’s
estimate of the date by which the Resale Registration Statement will be declared
effective.

       

      (d) Effectiveness. The
Company shall keep such Resale Registration Statement continuously effective
under the Securities Act until (i) there are no longer any Registrable
Securities saleable thereunder or (ii) such date that is one year after the
Expiration Date, whichever is earlier.  To the extent permitted by
applicable law and interpretations of the staff of the Commission, the Resale
Registration Statement may be terminated with respect to the Registrable
Securities on the date that there are no longer any Registrable Securities
saleable thereunder.

       

      (e) Expenses. The Company
shall pay all Registration Expenses in connection with any registration of
Registrable Securities pursuant to this Section 11.

       

      (f) Registration of Other
Securities.  No registration statement filed in accordance with
this Section 11
may include any securities of the Company other than Registrable
Securities.

       

      (g) Selection of
Underwriters.  If a registration pursuant to this Section 11
involves an underwritten offering, the underwriter or underwriters thereof shall
be selected by the holders of at least a majority (by number of shares) of the
Registrable Securities.

       

      (h) Additional Provisions
Concerning Registration.  The following provisions of this
Section 11(g)
are applicable to any registration statement filed pursuant to this Section 11:

       

      (i)           The
Company shall furnish to each seller of Registrable Securities covered by such
registration statement such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus contained in
such registration statement (including each preliminary prospectus and any
summary prospectus) and such other documents as such seller may reasonably
request.

       

      (ii)           The
Company shall use its reasonable best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities laws or blue sky laws of such
jurisdictions as any seller thereof shall reasonably request, to keep such
registrations and qualifications in effect for so long as such registration
statement remains in effect, and take any other action which may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdiction of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would not but
for the requirements of this clause (ii) be obligated to be so qualified or to
consent to general service of process in any such jurisdiction.

       

      (iii)           The
Company shall use its reasonable best efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      enable
the seller or sellers thereof to consummate the disposition of such Registrable
Securities.

       

      (iv)           In
connection with any registration statement in which a holder of Registrable
Securities is participating, each such seller shall furnish to the Company such
written information and affidavits as the Company reasonably requests for use in
connection with any such registration statement or prospectus to the extent
necessary to permit the disposition of the Registrable Securities so to be
registered.

       

      (v)           In
the event of any registration of any securities of the Company under the
Securities Act, the Company shall indemnify and hold harmless, to the fullest
extent permitted by applicable law, the holder of any Registrable Securities
covered by such registration statement, its directors, officers, employees,
advisors, agents, representatives, partners and members and each other Person
who participates as an underwriter (within the meaning of the Securities Act) in
the offering or sale of such securities and each other Person, if any, who
controls such holder or any such underwriter (within the meaning of the
Securities Act) from and against any and all losses, claims, damages and
liabilities (or actions or proceedings) arising out of or based upon any untrue
statement or alleged untrue statement of material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein or any amendment or supplement thereto, or any
omission or alleged omissions to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company shall reimburse such holder and each such director, officer,
employee, advisor, agent, representative, partner, member, underwriter and
control person for any legal or any other expenses (including fees and expenses
of counsel, which counsel may, if the holder or holders of Registrable
Securities request, be separate from counsel for the Company) reasonably
incurred by them in connection with investigating, preparing or defending any
such loss, claim, liability, action or proceeding; provided, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with an instrument duly executed
by such holder specifically stating that it is for use in the preparation
thereof; provided, further, that the
Company shall not be liable to any Person who participates as an underwriter, in
the offering or sale of Registrable Securities or to any other Person, if any,
who controls such underwriter (within the meaning of the Securities Act), in any
such case to the extent that any such loss, claim, damage, liability (or action
or proceeding in respect thereof) or expense arises out of such Person’s failure
to send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the Person asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such Person if such
statement or omission was corrected in such final prospectus.  Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or any such director, officer,

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      employee,
advisor, agent, representative, partner, member, underwriter and control person
and shall survive the transfers of such securities by such holder.

       

      (vi)           Neither
the giving of any notice by any holder of Registrable Securities nor the making
of any request for prospectuses imposes any upon any holder making such request
any obligation to sell any Registrable Securities or exercise this
Warrant.

       

      (vii)           The
registration rights in this Section 11 may
be assigned by any holder in connection with a permitted Transfer of this
Warrant.

       

      (viii)                      The
Company’s agreements with respect to this Warrant or the Registrable Securities
in this Section 11 shall
not be affected by the exercise and surrender of this Warrant.

       

      (i) Registration of Common
Stock; Listing Rights.  If any shares of Common Stock required
to be reserved for purposes of exercise of this Warrant require registration
with or approval of any governmental authority under any federal or state law
(other than the Securities Act) before such shares may be issued upon exercise,
the Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered or approved, as the case may
be.  At any such time as Common Stock is listed on any national
securities exchange, the Company will, at its expense, obtain promptly and
maintain the approval for listing on each such exchange, upon official notice of
issuance, the shares of Common Stock issuable upon exercise of the then
outstanding Warrants and maintain the listing of such shares after their
issuance; and the Company will also list on such national securities exchange,
will register under the Exchange Act and will maintain such listing of, any
other securities that at any time are issuable upon exercise of this Warrant, if
and at the time that any securities of the same class shall be listed on such
national securities exchange by the Company.

       

      (j) Registration Rights of Other
Securities. The Company shall not grant registration rights to any
securities of the Company other than the Registrable Securities without the
prior written consent of the Required Holders.

       

                 
   12.           Ownership of
Warrant.  The Company may deem and treat the Person in whose
name this Warrant is registered as the Holder and owner hereof (notwithstanding
any notations of ownership or writing hereon made by anyone other than the
Company) for all purposes and shall not be affected by any notice to the
contrary, until presentation of this Warrant for registration of
Transfer.

       

      13.           No Rights or Liability as a
Stockholder.  Prior to the exercise of this Warrant, the Holder
hereof shall not be entitled to any voting rights or other rights (including the
right to receive dividends) as a stockholder of the Company.  No
provisions hereof, in the absence of affirmative action by the Holder hereof to
purchase Common Stock, and no enumeration herein of the rights or privileges of
the Holder shall give rise to any liability of such Holder as a stockholder of
the Company.

       

      14.           Charges, Taxes and
Expenses.  Issuance of certificates for shares of Common Stock
upon the exercise of this Warrant shall be made without charge to the
Holder

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      hereof
for any issue or transfer tax, or other incidental expense, in respect of the
issuance or delivery of such certificates or the securities represented thereby,
all of which taxes and expenses shall be paid by the Company; provided, that the
Company shall not be required to pay any tax that may be payable in respect of
any Transfer of this Warrant or any Warrant Shares or any Transfer involved in
the issuance and delivery of the Warrant Shares in a name other than that in
which the Warrant to which such issuance relates was registered, and, if any
such tax would otherwise be payable by the Company, no such issuance or delivery
shall be made unless and until the Person requesting such issuance has paid to
the Company the amount of any such tax, or it is established to the reasonable
satisfaction of the Company that such tax has been paid.

       

      15.           Amendment or
Waiver.  This Warrant and any term hereof or thereof may be
amended, waived, discharged or terminated only by and with the written consent
of the Company and the Holder of this Warrant.

       

      16.           Notices.  Any
notice or other communication (or delivery) required or permitted hereunder
shall be made in writing and shall be by telecopier (with receipt confirmed and
followed by first class mail), courier service or personal delivery to the
Company at its principal office at 5611 Baird Court, Houston, Texas 77041, Attention: Chief Executive
Officer and to the Holder at its address as it appears in the Warrant
Register.  All such notices and communications (and deliveries) shall
be deemed to have been duly given when delivered by hand, if personally
delivered; when delivered by courier, if delivered by commercial overnight
courier service; and when receipt is acknowledged, if telecopied.

       

      17.           Certain
Remedies.  The Holder shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Warrant and to enforce
specifically the terms and provisions of this Warrant in any court of the United
States or any state thereof having jurisdiction, this being in addition to any
other remedy to which such Holder may be entitled at law or in
equity.

       

      18.           Governing
Law.  This Warrant shall be governed by, construed in
accordance with, and enforced under, the laws of the State of New York
applicable to agreements or instruments entered into and performed entirely
within such State.  The parties hereto irrevocably consent to the
jurisdiction of the state and federal courts sitting in the City of New York in
connection with any action, suit or proceeding arising out of or relating to
this Warrant Agreement.

       

      19.           Headings.  The
headings in this Warrant are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.

       

      

       

      [Remainder
of page intentionally left blank]

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      IN WITNESS WHEREOF, the parties hereto
have caused this Warrant to be signed by their duly authorized
officer.

      

      PARTICLE
DRILLING TECHNOLOGIES, INC.

      

      By                                                                           

            Name:

            Title:

      

      

      DON A. SANDERS

      

      By                                                                           

            Name:
Don A. Sanders

            Title:

      

      

      

       

      

       

      
        
          
             

          

           

        

        
           

          
            

          

        

        
           

        

      

      Exhibit A
to

       

      Common Stock Purchase
Warrant

       

      

       

      [FORM
OF]

       

      ELECTION
TO PURCHASE SHARES

       

      The
undersigned hereby irrevocably elects to exercise this Warrant to purchase
__________ shares of  Common Stock, par value $0.001 per share (“Common Stock”), of
Particle Drilling Technologies, Inc. (the “Company”) and hereby
[makes payment of $__________ therefor] [or] [makes payment therefore by
surrendering pursuant to Section 2(b)(ii) ____________ shares of Common
Stock of the Company] [or] [makes payment therefor by cancellation pursuant to
Section 2(d) of a portion of this Warrant with respect to __________ shares
of Common Stock].  The undersigned hereby requests that certificates
for such shares be issued and delivered as follows:

       

      ISSUE
TO:                                                                                                                                          

       

      (NAME)

       

      

       

      (ADDRESS,
INCLUDING ZIP CODE)

       

      

       

      (SOCIAL
SECURITY OR OTHER IDENTIFYING NUMBER)

       

      

       

      DELIVER
TO:                                                                                                                                          

       

      (NAME)

       

      

       

      (ADDRESS,
INCLUDING ZIP CODE)

       

      

       

      If the
number of shares of Common Stock purchased hereby is less than the number of
shares of Common Stock covered by this Warrant, the undersigned requests that a
new Warrant representing the number of shares of Common Stock not purchased be
issued and delivered as follows:

       

      
        
          
             

             

          

           

        

        
           

          
            

          

        

        
           

        

      

      ISSUE
TO:                                                                                                                                         

       

      (NAME)

       

      

       

      (ADDRESS,
INCLUDING ZIP CODE)

       

      

       

      (SOCIAL
SECURITY OR OTHER IDENTIFYING NUMBER)

       

      

       

      DELIVER
TO:                                                                                                                                         

       

      (NAME)

       

      

       

      (ADDRESS,
INCLUDING ZIP CODE)

       

      

       

      Dated:_____________________________                                                                                                                                          [NAME
OF HOLDER1]

       

      

       

      

       

      By                                                                

       

          Name:                                                                

       

          Title:                                                                

       

      

       

      

        

      

       

        1    Name
of Holder must conform in all respects to name of Holder as specified on the
face of the Warrant.

      

      
        
          
             

             

          

           

        

        
           

          
            

          

        

        
           

        

      

      Exhibit B
to

       

      Common Stock Purchase
Warrant

       

      

      [FORM
OF] ASSIGNMENT

       

      [To
be executed only upon transfer of Warrant]

       

      FOR
VALUED RECEIVED, the undersigned registered holder of the within Warrant hereby
sells, assigns, and transfers unto ________________ the right represented by
such Warrant to purchase __________ shares of  Common Stock, par value
$0.001 per share (“Common Stock”) of
Particle Drilling Technologies, Inc. (the “Company”) to which
such Warrant relates, and appoints ____________ Attorney to make such transfer
on the books of the Company maintained for such purpose, with full power of
substitution in the premises.

       

      

       

      Dated:____________________________                                                                                     [NAME
OF HOLDER2]

       

      By:                                                                

            Name:

            Title:

      

      ____________________________________

                 (Street
Address)

       

      ____________________________________

      (City)                  (State)                (Zip
Code)

       

      

        

      

       

        2    Name
of Holder must conform in all respects to name of Holder as specified on the
face of the Warrant.ex4-1.htm

    Exhibit 4.1

       

      AMENDMENT
NO. 1

      TO

      RIGHTS
AGREEMENT

       

      AMENDMENT
NO. 1 to RIGHTS AGREEMENT (this “Amendment”) between Particle Drilling
Technologies, Inc., a Nevada corporation (the “Company”), and Computershare
Trust Company, N.A., a federally chartered trust company, as Rights Agent (the
“Rights Agent”) is effective this 11th day of February, 2009.

       

      W I T N E
S S E T H:

       

      WHEREAS,
on May 23, 2008, the Company and the Rights Agent entered into that one
certain Rights Agreement (the “Rights Agreement”);

       

      WHEREAS,
the Company desires to amend the Rights Agreement pursuant to Section 27
thereof; and

      

      WHEREAS,
the Distribution Date (as defined in the Rights Agreement) has not yet occurred
and the Company has met all requirements for amendment of the Rights
Agreement;

       

      NOW,
THEREFORE, in consideration of the premises and of the mutual agreements herein
set forth, the parties hereto agree as follows:

       

      Section 1.                      Amendments.  The
Rights Agreement is amended as follows:

       

      (a)         The
first sentence of the first paragraph of the definition of “Acquiring Person” in
Section 1(a) is hereby amended and restated to read as follows:

      

      “‘Acquiring Person’
shall mean any Person who or that, together with all Affiliates and Associates
of such Person, shall be or become the Beneficial Owner of 20% or more of the
shares of Common Stock then outstanding, but shall not include the Company or
any subsidiary of the Company, any employee benefit plan of the Company or of
any subsidiary of the Company, any entity organized, appointed or established
pursuant to the terms of any such plan, or any Exempt Person.”

      

      (b)           The
following shall be added as Section 1(p) and the existing Sections 1(p)
through (aa) shall be re-numbered as Sections 1(q) through (bb):

       

      “‘Exempt Person’ means
at any time LC Capital; provided, however, that LC Capital shall cease to be an
Exempt Person if LC Capital makes an acquisition of Common Stock that would
cause LC Capital to be the Beneficial Owner of 37% or more of the shares of
Common Stock then outstanding.”

       

      (c)           The
following shall be added as Section 1(v) and the existing Sections 1(v)
through (bb) shall be re-numbered as Sections 1(w) through (cc)::

      

      “‘LC Capital’ means LC
Capital Master Fund, Ltd., a Cayman Islands exempted company.”

      

      Section 2.                      Effect of this
Amendment.  It is the intent of the parties that this Amendment
constitutes an amendment of the Rights Agreement as contemplated by
Section 27 thereof.  This Amendment shall be deemed effective as of
the date hereof as if executed by both parties hereto on such
date.  Except as expressly provided in this Amendment, the terms of
the Rights Agreement remain in full force and effect.

       

      Section 3.                      Counterparts. 
This Amendment may be executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute one and the same instrument.

       

      Section 4.        Governing
Law.  This Amendment shall be deemed to be a contract made
under the laws of the State of Nevada and for all purposes shall be governed by
and construed in accordance with the laws of such state applicable to contracts
to be made and performed entirely within such
state.        

      

      Section
5.                      Severability.  If
any term, provision, covenant or restriction of this Amendment is held by a
court of competent jurisdiction or other authority to be invalid, illegal or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Amendment shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.

      

      Section
6.                      Descriptive
Headings.  The captions herein are included for convenience of
reference only, do not constitute a part of this Amendment and shall be ignored
in the construction and interpretation hereof.

      
        
          
             

          

           

        

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

       

      
        	 
      	
                PARTICLE
      DRILLING TECHNOLOGIES, INC.

              
	 
      	 
      
	 
      	 
      
	
                Attest:

              	 
      
	 
      	 
      
	 
      	
                By:

              	
                /s/
      JIM B. TERRY

              	 
      
	 
      	 
      	
                Name:
      Jim B. Terry

              
	 
      	 
      	
                Title:
      President and Chief Executive

              
	 
      	
                                       Officer

              
	
                By:

              	
                /s/
      JASON D. DAVIS

              	 
      	 
      
	 
      	
                Name:
      Jason D. Davis

              	 
      
	 
      	
                Title:
      Vice President and Interim Chief

              	 
      
	 
      	
                Financial Officer

              	 
      
	 
      	 
      
	 
      	 
      
	 
      	
                COMPUTERSHARE TRUST COMPANY,
      N.A., AS RIGHTS

                AGENT

              
	 
      	 
      
	 
      	 
      
	
                Attest:

              	 
      
	 
      	 
      
	 
      	
                By:

              	
                /s/
      KELLIE GWINN

              	 
      
	 
      	 
      	
                (Signature)

              
	 
      	 
      
	
                By:

              	
                /s/
      IAN YEWER

              	 
      	 
      
	 
      	
                (Signature)

              	
                Kelli
      Gwinn

              	 
      
	 
      	 
      	
                (Typed
      or Printed Name)

              
	
                Ian
      Yewer

              	 
      	 
      
	 
      	
                (Printed
      or Typed Name)

              	
                Vice
      President

              	 
      
	 
      	 
      	
                (Title)

              
	
                Branch
      President

              	 
      	 
      
	 
      	
                (Title)

              	 
      

      

      

       

      
        
          
             

          

           

        

        
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