Document:

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

    

    No.
_____

    Issue
Date: _____, 2010

     

    STW
RESOURCES HOLDING CORP.

    

    FORM
OF 12% CONVERTIBLE NOTE

    

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

    

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

    

    ARTICLE
I

    GENERAL
PROVISIONS

    

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

    

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

     

    
      
         

      

      
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    1.2           Default
Interest.   Upon the occurrence of an Event of Default (as
defined below), the unpaid Principal on this Note shall bear interest at the
rate of fifteen percent (15%) per annum (the “Default Rate”) until
such amount is paid in full. Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law.

    

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

    

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

    

    ARTICLE
II

    CONVERSION
RIGHTS

    

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

    

    2.1           Conversion into the
Company’s Common Stock.

    

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

     

    
      
         

      

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

    

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

    

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

    

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

    

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

     

    
      
         

      

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

     

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

    

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

     

    
      
         

      

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

    

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

    

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

    

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

    

    ARTICLE
III

    EVENTS OF
DEFAULT

    

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

     

    
      
         

      

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

    

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

    

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

    

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

    

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

    

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

     

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

     

    ARTICLE
IV

    MISCELLANEOUS

    

    4.1           Failure or Indulgence Not
Waiver.  No failure or delay on the part of Holder hereof in
the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.  All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.

    

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

     

    
      
         

      

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

    

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

    

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

    

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

    

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

    

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

    

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

     

    
      
         

      

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

     

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

    

    
      
        
          
            	 
      	
                    STW
      RESOURCES HOLDING CORP.

                  
	 
      	 
      
	 
      	
                    By:

                  	 
      
	 
      	 
      	
                    Name:

                  
	 
      	 
      	
                    Title:

                  

          

        

      

    

     

    
      
         

      

      
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    NOTICE
OF CONVERSION

    

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

    

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

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                	
                                        Date
      of Conversion:

                                      	
                                          

                                      	 
      	 
	 
      	 
      	 
      	 
	
                                        Conversion
      Price:

                                      	 
      	 
      	 
	 
      	 
      	 
      	 
	
                                        Common
      Stock To Be Delivered:

                                      	 
      	 
      	 
	 
      	 
      	 
      	 
	
                                        Signature:

                                      	 
      	 
      	 
	 
      	 
      	 
      	 
	
                                        Print
      Name:

                                      	 
      	 
      	 
	 
      	 
      	 
      	 
	
                                        Address:

                                      	 
      	 
      	 
	 	 	 	 
	 	 	 	 

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    
      
         

      

      
        10NEITHER
THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS
EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE
SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

    

    COMMON
STOCK PURCHASE WARRANT

    

    STW
RESOURCES HOLDING CORP.

     

    
      	
              Warrant
      Shares: _______

            	
              Initial
      Exercise Date: __________,
      2010             
         

            

    

     

    THIS
COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies
that, for value received, _____________ (the “Holder”) is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise
Date”) and on or prior to the close of business on the five year
anniversary of the Initial Exercise Date (the “Termination Date”)
but not thereafter, to subscribe for and purchase from STW RESOURCES HOLDING
CORP., a Nevada corporation (the “Company”), up to
______ shares (the “Warrant Shares”) of
Common Stock.  The purchase price of one share of Common Stock under
this Warrant shall be equal to the Exercise Price, as defined in Section
2(b).

     

    Section
1.            Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain Subscription Agreement (the “Subscription
Agreement”), dated ________, 2010, among the Company and the purchasers
signatory thereto.

    
      
         

      

      
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    Section
2.            Exercise.

     

    a)           Exercise of
Warrant.  Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by delivery to the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of the Holder
appearing on the books of the Company) of a duly executed facsimile copy of the
Notice of Exercise Form annexed hereto; and, within 3 Trading Days of the date
said Notice of Exercise is delivered to the Company, the Company shall have
received  payment of the aggregate Exercise Price of the shares
thereby purchased by wire transfer or cashier’s check drawn on a United States
bank.  Notwithstanding anything herein to the contrary, the Holder
shall not be required to physically surrender this Warrant to the Company until
the Holder has purchased all of the Warrant Shares available hereunder and the
Warrant has been exercised in full, in which case, the Holder shall surrender
this Warrant to the Company for cancellation within 3 Trading Days of the date
the final Notice of Exercise is delivered to the Company.  Partial
exercises of this Warrant resulting in purchases of a portion of the total
number of Warrant Shares available hereunder shall have the effect of lowering
the outstanding number of Warrant Shares purchasable hereunder in an amount
equal to the applicable number of Warrant Shares purchased.  The
Holder and the Company shall maintain records showing the number of Warrant
Shares purchased and the date of such purchases.  The Company shall
deliver any objection to any Notice of Exercise Form within 1 Business Day of
receipt of such notice.  In the event of any dispute or discrepancy,
the records of the Holder shall be controlling and determinative in the absence
of manifest error. The Holder
and any assignee, by acceptance of this Warrant, acknowledge and agree that, by
reason of the provisions of this paragraph, following the purchase of a portion
of the Warrant Shares hereunder, the number of Warrant Shares available for
purchase hereunder at any given time may be less than the amount stated on the
face hereof.

     

    b)           Exercise
Price.  The exercise price per share of the Common Stock under
this Warrant shall be $3.00, subject to adjustment
hereunder (the “Exercise
Price”).

     

    c)           Mechanics of
Exercise.

     

    i.      Delivery of Certificates
Upon Exercise.  Certificates for shares purchased hereunder
shall be transmitted by the Transfer Agent to the Holder by physical delivery to
the address specified by the Holder in the Notice of Exercise within 3 Trading
Days from the delivery to the Company of the Notice of Exercise Form, surrender
of this Warrant (if required) and payment of the aggregate Exercise Price as set
forth above (the “Warrant Share Delivery
Date”).  This Warrant shall be deemed to have been exercised on
the date the Exercise Price is received by the Company.  The Warrant
Shares shall be deemed to have been issued, and Holder or any other person so
designated to be named therein shall be deemed to have become a holder of record
of such shares for all purposes, as of the date the Warrant has been exercised
by payment to the Company of the Exercise Price and all taxes required to be
paid by the Holder, if any, pursuant to Section 2(e)(vi) prior to the issuance
of such shares, have been paid.

     

    ii.     Delivery of New Warrants
Upon Exercise.  If this Warrant shall have been exercised in
part, the Company shall, at the request of a Holder and upon surrender of this
Warrant certificate, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    iii.    Rescission
Rights.  If the Company fails to cause the Transfer Agent to
transmit to the Holder a certificate or the certificates representing the
Warrant Shares pursuant to Section 2(e)(i) by the Warrant Share Delivery Date,
then, the Holder will have the right to rescind such exercise.

     

    iv.    No Fractional Shares or
Scrip.  No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant.  As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall, at its election, either pay a cash adjustment
in respect of such final fraction in an amount equal to such fraction multiplied
by the Exercise Price or round up to the next whole share.

     

    v.     Charges, Taxes and
Expenses.  Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the
event certificates for Warrant Shares are to be issued in a name other than the
name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.

     

    vi.    Closing of
Books.  The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

     

    Section
3.             Certain
Adjustments.

     

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

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

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

    

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

    

    c)           Continuation of
Terms. Upon any Fundamental Change or transfer (and any dissolution
following any transfer) referred to in this Article, this Note shall continue in
full force and effect and the terms hereof shall be applicable to any other
securities and property receivable on the conversion of this Note after the
consummation of such Fundamental Change or transfer or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any other securities, including, in the case of any
such transfer, the person acquiring all or substantially all of the properties
or assets of the Company, whether or not such person shall have expressly
assumed the terms of this Note as provided in Section 3(c). In the event this
Note does not continue in full force and effect after the consummation of the
transaction described in this Section 3, then only in such event will the
Company’s securities and property (including cash, where applicable) receivable
by the Holder of the Notes be delivered to the Trustee as contemplated by
Section 3(b).

    

    d)           Extraordinary Events
Regarding Common Stock. In the event that the Company shall (a) issue
additional shares of Common Stock as a dividend or other distribution on
outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock,
or (c) combine its outstanding shares of the Common Stock into a smaller number
of shares of the Common Stock, then, in each such event, the Exercise Price
shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Exercise Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event, and the product so obtained shall
thereafter be the Exercise Price then in effect. The Exercise Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event or events described in this Section 3(d). The number of Warrant
Shares that the Holder of this Warrant shall thereafter, on the exercise hereof
as provided herein, be entitled to receive shall be adjusted to a number
determined by multiplying the number of Warrant Shares that would otherwise (but
for the provisions of this Section 3(d)) be issuable on such exercise by a
fraction of which (a) the numerator is the Exercise Price that would otherwise
(but for the provisions of this Section 3(d) be in effect, and (b) the
denominator is the Exercise Price in effect on the date of such
exercise.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

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

    

    f)           
Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

    Section
4.             Transfer of
Warrant.

     

    a)           Transferability.  Subject
to compliance with any applicable securities laws and the conditions set forth
in Section 4(d) hereof and to the provisions of Section 4.1 of the Subscription
Agreement, this Warrant and all rights hereunder (including, without limitation,
any registration rights) are transferable, in whole or in part, upon surrender
of this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer.  Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees, as applicable, and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled.  The Warrant, if properly
assigned, may be exercised by a new holder for the purchase of Warrant Shares
without having a new Warrant issued.

     

    b)           New Warrants. This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney.  Subject to compliance
with Section 4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the Initial Exercise Date and shall be identical with this Warrant except as to
the number of Warrant Shares issuable pursuant thereto.

     

    c)           Warrant Register. The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time.  The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the
contrary.

     

    d)           Transfer
Restrictions. If, at the time of the surrender of this Warrant in connection with
any transfer of this Warrant, the transfer of this Warrant shall not be
either (i) registered pursuant to an effective
registration statement under the Securities
Act and under applicable state securities
or blue sky laws or (ii) eligible for
resale without volume or manner-of-sale restrictions pursuant to Rule
144, the Company may require, as a
condition of allowing such transfer, that
the Holder or transferee of this Warrant,
as the case may be, comply with the
provisions of Section 5.7 of the Subscription Agreement.

     

    Section
5.             Miscellaneous.

     

    a)           No Rights as Stockholder
Until Exercise.  This Warrant does not entitle the Holder to
any voting rights or other rights as a stockholder of the Company prior to the
exercise hereof as set forth in Section 2(e)(i).

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    b)           Loss, Theft, Destruction or
Mutilation of Warrant. The Company covenants that upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.

     

    c)           Saturdays, Sundays,
Holidays, etc.  If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not
be a Business Day, then, such action may be taken or such right may be exercised
on the next succeeding Business Day.

     

    d)           Authorized
Shares.

     

    The
Company covenants that, during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant.  The Company further covenants
that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant.  The Company will
take all such reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed.  The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges created by the Company in respect of the
issue thereof (other than taxes in respect of any transfer occurring
contemporaneously with such issue).

     

    Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment.  Without limiting the generality of the foregoing, the
Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this
Warrant.

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

    Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

     

    e)           Jurisdiction. All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be determined in accordance with the provisions of the
Subscription Agreement.

     

    f)           Restrictions.  The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, will have restrictions upon resale imposed by state
and federal securities laws.

     

    g)           Nonwaiver and
Expenses.  No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date.  If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.

     

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

     

    i)          
 Limitation of
Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

     

    j)           
Remedies.  The
Holder, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive and not to
assert the defense in any action for specific performance that a remedy at law
would be adequate.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

    k)           Successors and
Assigns.  Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and
permitted assigns of Holder.  The provisions of this Warrant are
intended to be for the benefit of all Holders from time to time of this Warrant
and shall be enforceable by the Holder or holder of Warrant Shares.

     

    l)        
   Amendment.  This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and Holders holding Warrants at least equal to
50% of the Warrant Shares issuable upon exercise of all then outstanding
Warrants.

     

    m)           Severability.  Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.

     

    n)           Headings.  The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

    

    ********************

     

    (Signature
Pages Follow)

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    

    IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.

    

    
      
        
          	 
      	
                  STW
      RESOURCES HOLDING CORP.

                
	 
      	 
      
	 
      	
                  By:

                	 
      
	 
      	 
      	
                  Name:

                
	 
      	 
      	
                  Title:

                

        

      

    

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

    NOTICE
OF EXERCISE

    

    TO:           STW
RESOURCES HOLDING CORP.

    

    (1)  The
undersigned hereby elects to purchase ________ Warrant Shares of the Company
pursuant to the terms of the attached Warrant (only if exercised in full), and
tenders herewith payment of the exercise price in full, together with all
applicable transfer taxes, if any.

     

    (2)  Payment
shall take the form of  lawful money of the United
States.

     

    (3)  Please
issue a certificate or certificates representing said Warrant Shares in the name
of the undersigned or in such other name as is specified below:

     

    _______________________________

    

    (4)  Accredited
Investor.  The undersigned is an “accredited investor” as
defined in Regulation D promulgated under the Securities Act of 1933, as
amended.

    

    [SIGNATURE
OF HOLDER]

    

    Name of
Investing Entity:
_______________________________________________________________________________

    Signature of Authorized Signatory of
Investing Entity:
_________________________________________________________

    Name of
Authorized Signatory:
___________________________________________________________________________

    Title of
Authorized Signatory:
____________________________________________________________________________

    Date:
_______________________________________________________________________________________________

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    ASSIGNMENT
FORM

    

    (To
assign the foregoing warrant, execute

    this form
and supply required information.

    Do not
use this form to exercise the warrant.)

    

    FOR VALUE
RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all
rights evidenced thereby are hereby assigned to

    

    _______________________________________________
whose address is

    

    _______________________________________________________________.

    

    _______________________________________________________________

    

    Dated:  ______________,
_______

    

    

    Holder’s
Signature:    _____________________________

    

    Holder’s
Address:      _____________________________

    

      
_____________________________

    

    Signature
Guaranteed:  ___________________________________________

    

    NOTE:  The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Warrant, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company.  Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Warrant.

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