Document:

Exhibit
10.1

 

EXCLUSIVE
LICENSE AGREEMENT

 

This Agreement is entered into this 30th day of June, 2004,
by and between AXCESS, Inc., having a principal place of business at 3208
Commander Drive, Carrollton, TX 75006 (“Licensor”), and TechSearch, LLC
(“TS”), having a principal place of business at 500 Skokie Boulevard,
Suite 585, Northbrook, IL 60062 (collectively referred to herein as the “Parties”).

 

WITNESSETH:

 

Whereas, Licensor is the owner of the U.S. Patents listed on the
Schedule hereto and all corresponding patent applications, foreign patents
and foreign patent applications, and all continuations, continuations in part,
divisions, extensions, renewals, reissues and re-examinations of any of the
foregoing (the “Patents”);

 

Whereas,
Licensor is willing to grant worldwide exclusive license rights in the Patents
to TS and TS in turn, desires to exploit and enforce the Patents and to provide
Licensor a certain percentage of the net profits, royalties, revenues and other
proceeds arising from such exploitation and enforcement as provided herein.

 

NOW, THEREFORE, in
consideration of the promises and mutual covenants contained herein and for
other good and valuable consideration, Licensor and TS agree as follows:

 

ARTICLE 1  — TITLE; CERTAIN REPRESENTATIONS

 

1.1  Licensor represents that it
is the sole owner of the Patents and has all right, title, claims, interest and
privileges arising from such ownership, free and clear of liens, encumbrances,
rights or restrictions. Licensor has not assigned, licensed, transferred or
otherwise conveyed to any other person or entity any of its rights, title,
claims, interest or privileges with respect to the Patents. Licensor has not
granted any covenant not to sue with respect to the Patents. Licensor further
represents and warrants that all maintenance fees that have become due with
respect to the Patents have been paid in full; the Patents are not subject
to any action or proceeding concerning their validity or enforceability;
Licensor has no knowledge of any basis for any claim that the Patents are
invalid or unenforceable; and, to the best of Licensor’s knowledge, Licensor
has not engaged in any conduct, or omitted to perform any necessary act, the
result of which would invalidate the Patents or preclude their enforceability.
The parties understand and agree that Licensor has manufactured certain
products which it has sold to third party customers and such use of the Patents
by Licensor’s customers in the past shall not be subject to this Agreement, as
such use shall be considered a permissible use in the same manner as the
Licensor’s future customers as described in Section 2.2 below.

 

ARTICLE 2
— GRANT

 

2.1  Subject to Section 2.2
below, Licensor grants TS the worldwide, exclusive right and license under the
Patents to make, have made, use, offer or sell products or services covered by
the Patents, including the exclusive right to grant sublicenses, to sue for and
collect past and future damages and to seek and obtain injunctive or any other
relief for infringement of the Patents. 
The exclusive right and license granted herein shall exist for the life
of the Patents, or as otherwise provided in Article 6, below.

 

 

2.2  Immediately after execution
of this Agreement, TS shall grant to Licensor a royalty-free, world-wide, non-exclusive
and non-transferable sublicense to make, use and sell its own products using
the patented inventions (the “Sublicense”); provided, the
Sublicense shall automatically terminate in the event of any change in Control
of Licensor if the company obtaining Control is a company that TS had
previously notified in writing is or may be infringing the Patents.  For this purpose, the terms “Affiliate”
and  “Control” shall have the
meanings assigned to them in Rule 12b-2 under the Securities Exchange Act of
1934.

 

ARTICLE 3 — ROYALTIES AND OTHER PAYMENTS

 

3.1  TS shall pay Licensor a continuing royalty equal to fifty
percent (50%) of the Net Proceeds, as defined below. For purposes
hereof, the following terms
shall have the following meanings:

 

“Net
Proceeds” shall mean Total Recoveries less the TechSearch Costs.

 

“Total Recoveries” shall
mean the total recoveries actually received by TS from the
exploitation of the Patents including all recoveries from lawsuits or
settlements, including without limitation, recoveries in the form of cash,
stock, personal property, credits or benefits.

 

“TechSearch Costs” shall mean all costs and expenses incurred
with third parties in connection with prosecuting, licensing, enforcing or
defending the Patents, of a kind that are reasonably necessary in connection
with such matters, including without limitation (A) attorneys’ and paralegal
fees (whether on an hourly or contingent basis and whether for general or local
counsel), costs and disbursements, (B) the fees and costs of consultants,
experts or technical advisors (other than principals of TS or its affiliates);
(C) travel and lodging expenses; (D) duplicating, secretarial, stenographer,
postage, courier and similar expenses; (E) filing fees and other Patent Office
fees or costs; (F) court costs; (G) legal and other costs related to any
re-examination or reissue proceeding or in prosecuting any foreign
application;  (H) legal and other costs
incurred in defending any action or counterclaim in respect of the Patents and
(I) legal and other costs in prosecuting or processing any application,
continuing application or continuation in part (collectively, the “TechSearch
Costs”).

 

3.2  Total Recoveries shall be applied in the following order of
priority: first to TS in an amount equal to the TechSearch Costs, then to TS
and Licensor in proportion to their respective shares of the Net Proceeds.

 

3.3  All amounts payable to
Licensor shall be due within thirty (30) days after the end of each calendar
quarter with respect to Total Recoveries received by TS in such quarter. TS will provide Licensor with a
report of Total Recoveries and TechSearch Costs in connection with each
recovery.  Licensor will have the right,
at its expense, to audit TS’ records as they pertain to the Patents.

 

3.4  For purposes of confirming
the payments to which it is entitled under this Agreement, Licensor shall have
the right to receive copies of any license or sublicense agreement(s) and any
settlement documents, subject to the execution by Licensor of any necessary
confidentiality agreement. TS shall disclose to Licensor any relationship or
arrangement between TS or any of its principals and any proposed licensee or
sublicensee.  Licensor’s consent shall
be required before TS may grant a license or sublicense to, or enter into any
other agreement or arrangement relating to the Patents with, any related party.
TS shall not solicit or receive any “kick back” or similar improper form of
payment from any prospective sublicensee.

 

 

3.5  Licensor will be available from time to time
to consult with TS or its attorneys on matters relating to the Patents.  In the event the testimony of Licensor is
taken in any action relating to the Patents, TS’ attorneys will represent it
without charge, and it will cooperate in preparing for such testimony.  Licensor will grant access to TS and allow TS to make copies of all
files in Licensor’s possession or control relating to the Patents, including
access to such documents as may be necessary to conduct enforcement and
licensing efforts. TS will pay for Licensor’s reasonable out of pocket travel
expenses incurred at the request of TS.

 

ARTICLE 4 – RECORDS; FEES

 

4.1  TS shall keep complete and
proper records of the Total Recoveries and TechSearch Costs.

 

4.2  Licensor shall have the right,
during reasonable business hours, to have the correctness of any report by TS
audited, at Licensor’s expense, by an independent public accountant chosen by
Licensor who may examine TS’ records pertinent to this Agreement. Licensor and its representatives shall hold
in confidence any such information and shall not use the information for any
purposes other than in connection with this Agreement.

 

4.3  For so long as this
Agreement is in effect, Licensor shall pay all maintenance fees with respect to
the Patents on or before their due dates, at the appropriate small or large
entity rate.  In the event Licensor
fails to make any maintenance fee payment when due, TS may make such payment
and such payment shall be considered a TechSearch Cost.

 

ARTICLE 5 — ENFORCEMENT OF LICENSED
PATENT RIGHTS

 

5.1  Subject to the terms of this Agreement, TS
will pursue licensing and enforcement of the Patents at its expense. TS will
attempt to negotiate licenses with companies that TS believes may be infringing
the Patents. If, in TS’s judgment, it is necessary and appropriate taking into
account all the circumstances, TS will institute enforcement action against
certain or all of the companies that TS believes are infringing the Patents. TS
hereby agrees to notify Licensor at least fifteen (15) days prior to TS filing
legal action against any third parties. The purpose of such notice to
Licensor is to allow Licensor to provide any information it may have to TS
regarding the potential defendant and to confirm that TS is not asserting
claims against a customer’s use of Licensor’s products.

 

5.2  TS shall have the exclusive
right to bring suit to enforce the Patents. Licensor may join as a plaintiff in
such suit at its election, provided TS’ counsel determines that Licensor has
standing.  Licensor shall join as a
plaintiff at TS’ request in the event TS’ counsel determines that Licensor is a
necessary party to the action; and TS may bring an action in Licensor’s name if
Licensor refuses to join as a party. In the event Licensor joins in the suit,
either before or after it is initiated, Licensor shall have the right to be
represented by counsel of its choice, provided that if Licensor chooses to have
representation separate from TS, Licensor shall be responsible for paying all its
own fees and costs related to such representation and TS shall be solely
responsible for the fees and costs incurred by its own counsel.  In the event Licensor joins as a plaintiff
at TS’ request or TS brings an action in Licensor’s name, or Licensor is named
as a party by another party to such action, TS shall defend and indemnify
Licensor against all liabilities, costs and expenses related to such action,
except that, as provided above, Licensor shall be responsible for its own
counsel’s fees and costs if it elects to retain separate counsel. The parties
agree to fully cooperate with each other in any litigation that is
brought.  Whether or not Licensor is
named as a party to any enforcement action, TS

 

 

reserves the sole right to direct the litigation and to negotiate and
determine the terms of any settlement or other disposition of such action; and
Licensor will cooperate with TS as relates thereto.

 

ARTICLE 6
— TERMINATION

 

6.1 All grants, obligations
and provisions recited in this Agreement and relating to the Patents shall
continue in full force and effect, unless sooner terminated as provided herein,
until the expiration date of the Patents or until a final decree of invalidity
thereof from which no appeal can be, or is, taken.

 

6.2  Licensor may terminate this
Exclusive License in the event that TS files for bankruptcy protection under
any state or federal bankruptcy law or a petition for bankruptcy is filed
against TS and not dismissed within 90 days. 
Licensor
may also terminate this Exclusive License unless, within five years from
the date hereof, TS has paid Licensor an aggregate of at least $10,000 in
royalties pursuant to this Exclusive License; provided, however, that,
Licensor shall provide TS with 90 days written notice of its intention to exercise
its right to terminate and during such 90 day period, TS may cure the failure
giving rise to the right of termination by paying such amount to Licensor.

 

6.3  Either party may terminate
this Agreement upon written notice to the other if the other party breaches any
material representation, warranty or agreement in this Agreement and fails to
cure such breach within 90 days of receipt of such written notice detailing the
alleged breach.

 

6.4  TS may terminate this
Agreement, upon 90 days notice to Licensor, if it determines, in its judgment,
that licensing or enforcement of the Patents on commercially reasonable terms
is not possible or practicable.

 

6.5  In the event of any dispute
as to whether a party has breached this Agreement pursuant to Section 6.3
above or whether a cure has been effected, the matter shall be submitted to
arbitration pursuant to Article 8 hereof, and there shall be no
termination of the license under this Agreement unless and until there is a
final ruling by the arbitration panel that there has been a breach as provided
herein that has not been cured.

 

6.6  Any termination of this
Agreement shall not relieve TS of liability for any payments due to Licensor
accrued prior to the effective date of such termination.

 

6.7  In the event of any
termination of this Agreement, regardless of the cause, after payment of any
monies due Licensor, TS shall be entitled to retain or receive the portion of
Total Recoveries that it would be entitled to retain or receive if this
Agreement were in effect, which (i) accrued or was received prior to the
termination date,  (ii) accrues or is
received after the termination date as a result of any settlement, license
agreement or other agreement or transaction that was negotiated, made or
occurred prior to the termination date or (iii) resulted from any lawsuit or
negotiations that were pending at or prior to the occurrence of such
termination.

 

6.8  Licensor expressly retains
no right in itself to sue for infringement of the Patents prior to any termination
of this Agreement and specifically grants TS all such rights prior to any
termination.

 

6.9  The parties acknowledge and agree that this
Agreement is a contract under which TS is a licensee of intellectual property
as provided in Section 365(n) of title 11, United States Code (the
“Bankruptcy Code”).  Licensor
acknowledges that if Licensor, as a debtor in possession or a trustee in
bankruptcy in a case under the Bankruptcy Code (the “Bankruptcy Trustee”),
rejects this Agreement, TS may elect to retain all of its rights under this
Agreement as provided in Section 365(n) of the Bankruptcy Code.  Upon written request of TS to Licensor or

 

 

the Bankruptcy Trustee, Licensor will not interfere with any of the
rights of TS as provided in this Agreement.

 

ARTICLE 7 — ASSIGNMENT

 

7.1  This Agreement shall inure
to the benefit of, and be binding upon the respective successors, assigns,
heirs, beneficiaries and personal representatives of Licensor and TS, subject
to Section 7.2, below.

 

7.2  This Agreement is personal
and non-assignable, except it may be assigned by TS to an affiliate of TS,
provided such affiliate agrees to be bound by all the terms and conditions of
this Agreement including the obligation to make payments hereunder. Licensor
may transfer or assign all or any part of its interest in this Agreement or
sell or transfer all or some of the Patents, provided that the transferee or
assignee agrees to be bound by the terms of this Agreement and Licensor shall
continue to be bound by the terms of this Agreement.

 

ARTICLE 8 — ARBITRATION

 

8.1  Any dispute or controversy
arising out of, relating to, or in connection with this Agreement or the
interpretation, validity, construction, performance, breach, or termination
thereof, shall be settled by binding arbitration to be held in Chicago,
Illinois in accordance with the arbitration rules, as they pertain to
commercial disputes, of the American Arbitration Association.  The decision of the arbitrator(s) shall be
final, conclusive and binding on the parties to the arbitration.  The costs and expenses of such arbitration
(including the reasonable fees and expenses of one counsel for each of the
parties) shall be paid by the non-prevailing party in such arbitration, as
determined by the arbitrator(s).

 

8.2  Neither TS nor Licensor
shall be liable for any consequence or damage arising out of or resulting from
the manufacture, use or sale of products under the Patents.  In no event shall any party be entitled to
special, indirect, consequential damages, including lost profits, or punitive
damages for breach of this Agreement.

 

ARTICLE 9 — MISCELLANEOUS

 

9.1  All notices or communications which either
party may desire, or be required, to give or make to the other shall be in
writing and shall be deemed to have been duly given or made if and when
forwarded by registered or certified mail to the address set forth above in
this Agreement or to such other address as a party shall give to the other in
writing delivered at the last address specified in the manner prescribed by
this Agreement.

 

9.2  The failure to act upon any
default hereunder shall not be deemed to constitute a waiver of such default.

 

9.3  This Agreement constitutes
the entire understanding of the parties with respect to its subject matter and
may not be modified or amended, except in writing by the parties.

 

9.4  If for any reason in any
jurisdiction in which any provision of this Agreement is sought to be enforced,
any one or more of the provisions of this Agreement shall be held invalid,
illegal or unenforceable in any respect, such holding shall not affect any
other provision of this Agreement and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
therein.

 

9.5  This Agreement shall be
governed by and construed in accordance with the internal law of the State of
Illinois applicable to contracts made and to be performed wholly in that state,
without regard to the law of conflicts.

 

 

9.6  This Agreement may be
executed in several counterparts, each of which shall constitute an original,
but all of which together shall constitute one and the same instrument.  A faxed copy of a signature page shall be
considered an original for purposes of this Agreement.

 

9.7  The headings contained in
this Agreement have been inserted for convenient reference only and shall not
modify, define, expand or limit any of the provisions of this Agreement.

 

9.8  The parties agree to keep
in confidence and not to disclose to any third party the terms and conditions
of this Agreement (although they may disclose the existence of the Agreement),
except to the extent required by statute or regulation, subpoena or order of a
court of competent jurisdiction and except to their respective agents,
employees, principals or representatives; and provided that any third party to
which disclosure is made as provided in this Section 9.8 shall agree to
hold the information confidential except as otherwise required by any subpoena
or court order.

 

IN WITNESS WHEREOF,
the Parties have executed this Exclusive License Agreement on the date first
written above.

 

 

	
  TECHSEARCH, LLC

  
	
   

  
	
   

  
	
  By:

  	
      /s/ ANTHONY BROWN

  	
   

  
	
  Its: 

  	
      President

  	
   

  

 

 

STATE OF ILLINOIS)

COUNTY OF COOK)

 

On this 8th day of July, 2004, before me, Brian Spencer, a
Notary Public in and for said state, personally appeared Anthony O. Brown, who,
being by me duly sworn did say that it is the President of TechSearch, LLC, an
Illinois limited liability company, known to me to be the company described in
the foregoing Agreement, and acknowledged that said instrument was signed on
behalf of said company and said person acknowledged said instrument to be its
free act and deed and the free act and deed of said company.

 

IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official
seal in the County and State aforesaid, the day and year first above written.

 

 

	
   

  	
  /s/ Brian Spencer

  	
   

  
	
   

  	
  Notary Public

  

 

 

My Commission
Expires:  11/2/07

 

 

	
  AXCESS INC.

  
	
   

  
	
   

  
	
  By:

  	
    /S/ Allan Frank

  	
   

  
	
  Its: 

  	
     Vice President and CFO

  	
   

  

 

 

STATE OF TEXAS           )

COUNTY OF DALLAS    )

 

On this 1st day of July, 2004, before me, Jason Lay, a
Notary Public in and for said state, personally appeared Allan Frank, who,
being by me duly sworn did say that it is the VP and CFO of Axcess Inc., a
Delaware corporation, known to me to be the company described in the foregoing
Agreement, and acknowledged that said instrument was signed on behalf of said
company and said person acknowledged said instrument to be its free act and
deed and the free act and deed of said company.

 

IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal in the County and State aforesaid, the day and year first above
written.

 

	
   

  	
  /S/ Jason Lay

  	
   

  
	
   

  	
  Notary Public

  

 

 

My Commission Expires:  09/04/05

 

 

SCHEDULE TO EXCLUSIVE LICENSE AGREEMENT

 

	
  6,061,475

  
	
  6,005,638

  
	
  5,838,266

  
	
  5,140,412

  
	
  4,914,508

  
	
  4,857,993

  
	
  4,849,807

  
	
  4,847,677

  
	
  4,843,466

  
	
  4,816,901Warrant Agreement

                            Dated as of July 8, 2004

                      Warrants Exercisable for Common Stock

<PAGE>

                                TABLE OF CONTENTS
                                -----------------
<TABLE>
<CAPTION>

<S>     <C>                                                                                                      <C>
Section 1. Issuance of Warrants; Execution and Delivery of Warrant Certificates...................................1
   1.1      Issuance of Warrants..................................................................................1
   1.2      Execution and Delivery of Warrant Certificates........................................................1
Section 2. Warrant Price, Manner of Exercise......................................................................2
   2.1      Warrant Price, Term, Expiration and Notice............................................................2
   2.2      Manner of Exercise....................................................................................2
   2.3      Cashless Exercise.....................................................................................2
   2.4      When Exercise Deemed Effected.........................................................................2
   2.5      Delivery of Stock Certificates, etc...................................................................3
Section 3. Adjustment of Shares of Common Stock Purchasable and Warrant Price.....................................3
   3.1      Antidilution Provision................................................................................3
   3.2      Consolidation, Merger, Sale of Assets, Reorganization, etc............................................5
   3.3      Warrant Price Adjustment..............................................................................5
   3.4      Statements on Warrant Certificates....................................................................6
   3.5      Accountants' Report as to Adjustments.................................................................6
Section 4. Notices of Corporate Action............................................................................6
Section 5. Legend on Warrant Stock................................................................................7
Section 6. Reservation of Stock...................................................................................7
   6.1      Reservation of Stock..................................................................................7
Section 7. Other Provisions Relating to Rights and Obligations of Holders of Warrant Certificates.................7
   7.1      No Rights as Stockholder Conferred by Warrants or Warrant Certificates................................7
   7.2      Lost, Stolen, Mutilated or Destroyed Warrant Certificates.............................................7
   7.3      Warrantholder May Enforce Rights......................................................................8
Section 8. Registration Rights....................................................................................8
   8.1      Requested Registration................................................................................8
   8.2      Company Registration.................................................................................10
   8.3      Expenses of Registration.............................................................................11
   8.4      Registration Procedures..............................................................................12
   8.5      Related Registration Matters.........................................................................13
   8.6      Indemnification and Contribution.....................................................................13
   8.7      Information by Stockholders..........................................................................15
   8.8      Sales Without Registration...........................................................................15
   8.9      Rule 144.............................................................................................15
   8.10     Transfer of Registration Rights......................................................................15
   8.11     Post-Effective Amendments............................................................................16
   8.12     Cessation of Sale Activities.........................................................................16
   8.13     Supplements..........................................................................................16
Section 9. Exchange and Transfer of Warrant Certificates.........................................................16
   9.1      Exchange and Transfer of Warrant Certificates........................................................16
   9.2      Treatment of Holders of Warrant Certificates.........................................................17
   9.3      Cancellation of Warrant Certificates.................................................................17
Section 10. Notices..............................................................................................17
</TABLE>

                                       i
<PAGE>
<TABLE>
<CAPTION>
<S>     <C>                                                                                                     <C>
Section 11. Representations and Warranties.......................................................................18
   11.1     Capitalization.......................................................................................18
   11.2     Authorization; Enforceability........................................................................18
   11.3     Issuance of Shares...................................................................................18
Section 12. Miscellaneous........................................................................................18
   12.1     Amendment............................................................................................18
   12.2     Parties in Interest..................................................................................18
   12.3     Applicable Law.......................................................................................19
   12.4     Consent to Jurisdiction..............................................................................19
   12.5     Waiver of Jury Trial.................................................................................19
   12.6     Counterparts.........................................................................................19
   12.7     Inspection of Agreement..............................................................................19
   12.8     Headings.............................................................................................19

</TABLE>

                                       ii
<PAGE>

                                WARRANT AGREEMENT

         THIS WARRANT AGREEMENT ("Agreement"), dated as of July 8, 2004, is made
by and between GEXA CORP., a Texas corporation (the "Company") and
Highbridge/Zwirn Special Opportunities Fund, L.P., a Delaware limited
partnership ("Grantee" and, together with any transferee of Warrants or Warrant
Stock, the "Warrantholder").

                              W I T N E S S E T H:

Recitals:

         A. Reference is made to that certain Credit Agreement, dated as of July
8, 2004, by and among the Company, the lenders signatory thereto (the
"Lenders"), and Highbridge/Zwirn Special Opportunities Fund, L.P., as
Administrative Agent (the "Credit Agreement").

         B. As a consequence of the contractual relationship among the Company,
Lenders and the Administrative Agent under the Credit Agreement, the Company has
and will continue to receive substantial benefits from the Lenders and the
Administrative Agent.

         C. The Company proposes to issue to Grantee as partial consideration
for the Lenders and the Administrative Agent's entering into the Credit
Agreement, 150,000 common stock purchase warrants (the "Warrants") to purchase
shares (the "Warrant Shares") of the Company's common stock, par value $.01 per
share (the "Common Stock"), each Warrant entitling the holder thereof to
purchase one share of Common Stock.

         NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:

     Section  1.  Issuance  of  Warrants;  Execution  and  Delivery  of  Warrant
Certificates.

     1.1 Issuance of  Warrants.  The Company will issue and deliver the Warrants
to  Grantee on the  Effective  Date as  defined  in the  Credit  Agreement  (the
"Closing  Date").  The  aggregate  number of Warrants to be issued and delivered
shall be 150,000.  The  Warrants  shall be  exercisable  on or after the Closing
Date.  Such  Warrants  shall  be  evidenced  by  a  certificate   (the  "Warrant
Certificate") which the Company will issue and deliver to Grantee on the Closing
Date.

     1.2 Execution and Delivery of Warrant  Certificates.  Each original Warrant
Certificate  issued shall be in  substantially  the form set forth in Appendix A
hereto and may have such letters,  numbers,  or other marks of identification or
designation and such legends or endorsements  printed thereon as the officers of
the Company executing the same may approve  (execution  thereof to be conclusive
evidence of such approval) and as are not inconsistent  with this Agreement,  or
as may be required to comply  with any law or with any rule or  regulation  made
pursuant thereto.  The Warrant  Certificates  shall be executed on behalf of the
Company  by its  Chief  Executive  Officer,  its  President  or one of its  Vice
Presidents and by its Treasurer or its Secretary.

                                       1
<PAGE>

         In case any officer of the Company who shall have signed any Warrant
Certificate shall cease to be an officer before the Warrant Certificate so
signed shall have been delivered by the Company, such Warrant Certificate may be
delivered notwithstanding that such person ceased to be an officer of the
Company, and any Warrant Certificate may be signed on behalf of the Company by
such person as, at the actual date of the execution of the Warrant Certificate,
shall be the proper officer of the Company, even if at the date of the execution
of this Agreement such person was no such officer.

     Section 2. Warrant Price, Manner of Exercise.

     2.1 Warrant Price, Term,  Expiration and Notice.  Each Warrant  Certificate
shall entitle the  Warrantholder,  subject to the provisions thereof and of this
Agreement,  to purchase  from the Company one share of Common  Stock for each of
the  Warrants  evidenced  thereby at a price per share equal to $4.00 per share,
subject  to  adjustment  as  provided   herein  (the   "Warrant   Price").   The
Warrantholder may exercise any Warrants issued pursuant to this Agreement at any
time or from time to time, from the date hereof and prior to 5:00 p.m., Houston,
Texas time, on July 9, 2009 (the "Expiration  Date").  If the Expiration Date is
not a Business  Day,  then this Warrant may be exercised on the next  succeeding
Business Day. For purposes  hereof,  the term  "Business Day" shall mean any day
other  than  a  Saturday  or a  Sunday  or a day  on  which  commercial  banking
institutions  in the  Cities  of New  York,  New  York  or  Houston,  Texas  are
authorized  or required by law to be closed,  and provided that any reference to
"days" (unless Business Days are specified) shall mean calendar days.

     2.2 Manner of Exercise. The Warrants may be exercised by the Warrantholder,
in  whole or in part,  during  normal  business  hours  on any  Business  Day by
surrender  of a  Warrant  Certificate,  together  with the form of  Election  to
Exercise included as Appendix B hereto (or a reasonable  facsimile thereof) duly
executed  by  such  Warrantholder,  to  the  Company  at its  principal  office,
accompanied by the required  payment of the Warrant Price as then in effect,  in
cash or other immediately  available funds, or as provided in Section 2.3 below,
or a combination thereof.

     2.3 Cashless Exercise. The Warrantholder shall have the right to pay all or
a portion of the Warrant Price by making a "Cashless  Exercise" pursuant to this
Section 2.3, in which case the Warrantholder  shall not pay the Warrant Price in
cash and the number of shares of Common Stock otherwise issuable pursuant to the
Election  to Exercise  shall be reduced by the total  number of shares of Common
Stock otherwise  issuable to the  Warrantholder  multiplied by the Warrant Price
and divided by the  Current  Market  Price per share of the Common  Stock on the
date of the Election to Exercise,  determined as provided in Section  3.1(d)(ii)
of this Agreement.

     2.4 When Exercise Deemed  Effected.  Each exercise of Warrants  pursuant to
this Agreement shall be deemed to have been effected  immediately upon surrender
of such  Warrants to the Company as provided in Section  2.2,  and at such time,
the person or persons in whose name or names any certificate or certificates for
shares of Common  Stock  shall be  issuable  upon such  exercise  as provided in
Section 2.5 shall be deemed to have become the holder of record thereof.

                                       2
<PAGE>

     2.5 Delivery of Stock  Certificates,  etc. As soon as practicable after the
exercise  of  Warrants  pursuant  to this  Agreement,  in whole or in part,  the
Company at its expense will cause

     (a) a  certificate  or  certificates  for the  number  of duly  authorized,
validly issued, fully paid and nonassessable shares of Common Stock to which the
Warrantholder shall be entitled upon such exercise,  to be issued in the name of
and delivered to such Warrantholder or such other name as shall be designated by
the Warrantholder in the Election of Exercise; and

     (b) in case less than all the Warrants represented by a Warrant Certificate
are exercised, a new Warrant Certificate of the same tenor and for the number of
Warrants not exercised to be registered in such name or names as may be directed
in writing by the  Warrantholder  and to be delivered to the person  entitled to
receive such new Warrant Certificate.

     Section 3.  Adjustment  of Shares of Common Stock  Purchasable  and Warrant
Price.

     3.1  Antidilution  Provision.  So long as any Warrants are  outstanding and
unexercised, in whole or in part:

     (a) if the Company  shall pay a dividend in Common  Stock or make any other
distribution in Common Stock on or with respect to its Common Stock,  the number
of shares of Common Stock purchasable upon exercise of each Warrant  outstanding
and  unexercised at such time shall be increased by  multiplying  such number of
shares by a fraction,  the denominator of which shall be the number of shares of
Common  Stock  outstanding  at the  close  of  business  on the day  immediately
preceding the date of such dividend or other  distribution  and the numerator of
which shall be the sum of such  number of shares and the total  number of shares
of Common Stock constituting such dividend or other distribution,  such increase
to become effective  immediately after the record date of such dividend or other
distribution;

     (b) in the event  outstanding  shares of Common  Stock shall be  subdivided
into a greater number of shares of Common Stock,  the number of shares of Common
Stock  purchasable  upon  exercise  of each  Warrant  shall  be  proportionately
increased,  and conversely,  in case outstanding shares of Common Stock shall be
combined into a smaller  number of shares of Common Stock,  the number of shares
of  Common  Stock   purchasable   upon   exercise  of  each  Warrant   shall  be
proportionately  decreased,  such  increase or decrease,  as the case may be, to
become  effective  immediately  after the effective date of such  subdivision or
combination;

     (c) if the Company issues or distributes to all holders of Common Stock (i)
rights or warrants  entitling  them to subscribe  for or purchase  shares of any
class of capital  stock of the Company or (ii)  evidences  of its  indebtedness,
cash or other assets  (including  cash dividends but excluding  stock  dividends
referred to in subsection  (a) above),  the Company shall issue or distribute to
each Warrantholder  such rights,  warrants,  evidences of indebtedness,  cash or
other assets that such  Warrantholder  would have been  entitled to receive as a
stockholder if such Warrantholder had exercised all of its Warrants  immediately
prior thereto; and

                                       3
<PAGE>

(d)

     (i) if the Company shall sell or issue shares of Common Stock or securities
convertible or  exchangeable  into shares of Common Stock or rights,  options or
warrants  to purchase  shares of Common  Stock,  or  securities  convertible  or
exchangeable into shares of Common Stock (collectively, the "Additional Shares")
at a price per share of Common  Stock lower than the Warrant  Price per share of
Common  Stock  immediately  prior to such sale or  issuance,  then the number of
shares of Common Stock  issuable  upon exercise of the Warrant shall be adjusted
to that number  determined by  multiplying  the number of shares of Common Stock
issuable upon exercise of the Warrant  immediately prior to such adjustment by a
fraction  (y) the  numerator  of which shall be number of shares of Common Stock
outstanding immediately prior to the issuance of such Additional Shares plus the
number of such  Additional  Shares to be issued and (z) the denominator of which
shall be the number of shares of Common Stock  outstanding  immediately prior to
the issuance of such Additional Shares plus the number of shares of Common Stock
which the aggregate consideration for the total number of such Additional Shares
to be issued would  purchase at the Current  Market Price.  Notwithstanding  the
foregoing,  the  provisions  of this  Section  3.1(d)  shall  not  apply  to any
securities  issued (A) in any of the transactions  described in Sections 3.1(a),
(b) or (c), or (B) upon exercise of this Warrant;

     (ii) For the purposes of this  Agreement,  the "Current Market Price" shall
mean the average of the closing prices per share of the Common Stock sold on all
securities  exchanges located in the United States on which the Common Stock may
at the time be  listed  or  traded  (including,  for this  purpose,  the  NASDAQ
National  Market  System  or  NASDAQ  SmallCap  System),   on  the  twenty  (20)
consecutive trading days immediately preceding the date as of which the "Current
Market Price" is to be determined,  or, if there shall have been no sales on any
such  exchange on such day,  the average of the highest bid and the lowest asked
prices per share on all such exchanges at the end of such day, or if there is no
such  exchange on which the Common Stock is so listed or traded,  the average of
the high and low bid and asked  prices per share of Common  Stock on such twenty
(20)  consecutive  trading  days  in the  domestic  over-the-counter  market  as
reported by the National Quotation Bureau Incorporated, or any similar successor
organization.  If at any time the  Common  Stock is not  listed or traded on any
United States  securities  exchange  (including,  for this  purpose,  the NASDAQ
National  Market),  or  quoted  in the  domestic  over-the-counter  market,  the
"Current  Market  Price"  shall be the fair market value per share of the Common
Stock as  determined  in good faith by the Board of  Directors  of the  Company.
Notwithstanding  the  preceding,  if the  Warrantholder  shall disagree with the
determination made by the Board of Directors of the Current Market Price, it may
so notify the Company  and a reputable  investment  bank or  appraiser  mutually
satisfactory  to the Company and the  Warrantholder  shall be  appointed to make
such  determination.  All expenses of such investment bank or appraiser shall be
paid by the  Warrantholder,  unless the determination of Current Market Price by
such  investment  bank or appraiser  is greater  than 105% of the  determination
thereof  made by the Board of  Directors,  in which  event the  expenses of such
investment bank or appraiser shall be paid by the Company.  In either event, the
determination  made by the  investment  bank or  appraiser  shall be the Current
Market Price for all purposes of this Agreement; and

                                       4
<PAGE>

     (iii)  If,  at any time  after any  adjustment  of the  number of shares of
Common Stock  purchasable upon exercise of each Warrant pursuant to this Section
3.1(d), such rights, options, warrants or convertible or exchangeable securities
shall expire or no longer be  outstanding  and shall not have been exercised for
or converted or exchanged into Common Stock,  such previous  adjustment shall be
rescinded and annulled and the  Additional  Shares which are deemed to have been
issued by virtue of the  computation  made in connection  with the adjustment so
rescinded and annulled,  shall no longer be deemed to have been issued by virtue
of such computation.  Thereupon, a recomputation shall be made to give effect to
the expiration or non-exercise of, or failure to convert, such rights,  options,
warrants or convertible or exchangeable securities.

     3.2 Consolidation, Merger, Sale of Assets, Reorganization, etc.

     (a) If the  stockholders  of  the  Company  shall  participate  in a  share
exchange  or if the  Company  shall  be a party to any  transaction  (including,
without limitation, a merger, consolidation, sale of all or substantially all of
the Company's assets,  liquidation or  recapitalization  of the Common Stock) in
which the previously outstanding Common Stock shall be changed into or exchanged
for different  securities of the Company or common stock or other  securities of
another  corporation,  or interests in a non-corporate  entity or other property
(including  cash), or any  combination of the foregoing  (each such  transaction
being herein called a  "Transaction"),  then, as a condition to the consummation
of the  Transaction,  the  Company,  in the  case  of  the  recapitalization  or
liquidation of the Common Stock,  or such other  corporation  or entity,  in the
case of a share exchange, merger,  consolidation or sale of all or substantially
all of the assets,  shall make lawful and adequate  provision so that,  upon the
exercise  thereof at any time on or after the  consummation of the  Transaction,
each  Warrantholder  shall  be  entitled  to  receive,  and such  Warrant  shall
represent the right to receive,  in lieu of the Common Stock,  the securities or
other  property  (including  cash) to which the  Warrantholder  would  have been
entitled upon the  consummation  of the  Transaction if such  Warrantholder  had
exercised such Warrant immediately prior thereto, subject to adjustment from and
after the consummation  date as nearly equivalent as possible to the adjustments
provided for in Section 3.1.

     (b) The  provisions of this Section 3 shall  similarly  apply to successive
share exchanges,  consolidations,  mergers, sales of all or substantially all of
the  assets,  or  successive  recapitalizations  and changes of shares of Common
Stock.

     3.3 Warrant Price Adjustment. Whenever the number of shares of Common Stock
purchasable  upon  exercise of a Warrant is adjusted  as  provided  herein,  the
Warrant  Price  payable  upon  exercise  of the  Warrant  shall be  adjusted  by
multiplying  such  Warrant  Price  immediately  prior  to such  adjustment  by a
fraction,  the  numerator of which shall be the number of shares of Common Stock
purchasable upon exercise of the Warrant  immediately  prior to such adjustment,
and the  denominator  of which  shall be the  number of  shares of Common  Stock
purchasable  immediately thereafter;  provided,  however, that in no event shall
the  Warrant  Price  be  adjusted  below  the  par  value  of the  Common  Stock
(currently, $.01 per share).

                                       5
<PAGE>

     3.4  Statements on Warrant  Certificates.  The form of Warrant  Certificate
need not be changed  because of any  adjustment  made pursuant to this Section 3
and Warrant Certificates issued after such adjustment may state the same Warrant
Price and the same number of shares of Common Stock as are stated in the Warrant
Certificates initially issued pursuant to this Agreement.

     3.5 Accountants'  Report as to Adjustments.  In each case of any adjustment
or  readjustment  in the shares of Common Stock (or other  securities)  issuable
upon the  exercise of the  Warrants,  the Company at its expense  will  promptly
compute such  adjustment or  readjustment  in  accordance  with the terms of the
Warrants and prepare a report setting forth such adjustment or readjustment  and
showing in  reasonable  detail the method of  calculation  thereof and the facts
upon which such adjustment or readjustment is based.  The Company will forthwith
mail a copy of each such report to each  Warrantholder.  The  Company  will also
keep copies of all such reports at its principal  office and will cause the same
to be available for  inspection at such office during normal  business  hours by
any  Warrantholder or any prospective  purchaser of a Warrant  designated by the
Warrantholder.

     Section 4. Notices of Corporate Action. In the event of:

     (a) any offer to any holders of Common Stock of rights to subscribe  for or
to purchase any Additional Shares or other securities, or

     (b) any taking by the  Company  of a record of the  holders of any class of
securities for the purpose of determining  the holders  thereof who are entitled
to receive any dividend or other  distribution,  or any right to subscribe  for,
purchase  or  otherwise  acquire  any  shares of stock of any class or any other
securities or property, or to receive any other right, or

     (c) any capital  reorganization  of the Company,  any  reclassification  or
recapitalization  of the capital  stock of the Company or any  consolidation  or
merger involving the Company and any other person or entity,  any share exchange
involving  stockholders  of the Company or any transfer of all or  substantially
all the assets of the Company to any other person or entity, or

     (d) any voluntary or involuntary dissolution,  liquidation or winding up of
the Company,

the Company will mail to each known Warrantholder a notice specifying (i) the
terms of such offer, and (ii) the date or expected date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right, and (iii) the date
or expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, share exchange, transfer, dissolution,
liquidation or winding up is to take place and the time, if any such time is to
be fixed, as of which the holders of record of Common Stock shall be entitled to
exchange their shares of Common Stock for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, share exchange, transfer, dissolution, liquidation or
winding up. Such notice shall be mailed at least 15 days prior to the date
therein specified.

                                       6
<PAGE>

     Section 5. Legend on Warrant  Stock.  Each  certificate  for Warrant Shares
initially  issued upon exercise of this Warrant,  unless at the time of exercise
such Warrant Shares are registered  under the Securities Act of 1933, as amended
from time to time (the "Securities  Act"),  shall bear the following legend (and
any additional  legend(s)  required by any  securities  exchange upon which such
Warrant Stock may, at the time of such exercise, be listed) on the face thereof:

                  "The shares represented by this certificate have not been
         registered under the Securities Act of 1933, as amended, or registered
         or qualified under applicable state securities laws. Such shares may
         not be offered, sold, transferred, pledged or hypothecated in the
         absence of an effective registration statement in effect with respect
         to the shares under such Act and registration or qualification under
         any applicable state securities laws or an opinion of counsel
         reasonably satisfactory to the Company that such registration or
         qualification is not required under applicable federal and state
         securities laws."

     Section 6. Reservation of Stock.

     6.1  Reservation  of Stock.  The Company will at all times reserve and keep
available,  solely for issuance and delivery upon exercise of the Warrants,  the
number of shares of Common Stock from time to time issuable upon exercise of all
Warrants  at the time  outstanding.  All  shares of Common  Stock  shall be duly
authorized and, when issued upon such exercise and payment of the Warrant Price,
shall be validly issued,  fully paid and nonassessable  with no liability on the
part of the holders thereof.

     Section 7. Other  Provisions  Relating to Rights and Obligations of Holders
of Warrant Certificates.

     7.1 No Rights as Stockholder Conferred by Warrants or Warrant Certificates.
No  Warrant   Certificate  or  Warrant   evidenced  thereby  shall  entitle  the
Warrantholder  to any of the  rights  of a holder of  Common  Stock,  including,
without  limitation,  any right to vote at, or to receive notice of, any meeting
of stockholders of the Company;  the consent of any  Warrantholder  shall not be
required with respect to any action or proceeding of the Company.

     7.2 Lost, Stolen, Mutilated or Destroyed Warrant Certificates. Upon receipt
by the Company of evidence reasonably satisfactory to it of the ownership of and
the loss,  theft,  destruction or mutilation of any Warrant  Certificate  and of
indemnity  reasonably  satisfactory  to it and, in the case of mutilation,  upon
surrender of the Warrant  Certificate to the Company for cancellation,  then, in
the  absence of notice to the Company  that such  Warrant  Certificate  has been
acquired by a bona fide  purchaser,  the Company shall  execute and deliver,  in
exchange for or in lieu of the lost,  stolen,  destroyed  or  mutilated  Warrant
Certificate, a substitute Warrant Certificate of the same tenor and evidencing a
like number of Warrants. Upon the issuance of any substitute Warrant Certificate
under this Section 7.2, the Company may require the payment of a sum  sufficient
to cover any tax or other  governmental  charge  that may be imposed in relation
thereto and any other expenses in connection therewith. Every substitute Warrant
Certificate  executed and delivered  pursuant to this Section 7.2 in lieu of any
lost,  stolen or destroyed  Warrant  Certificate  shall  represent an additional
contractual  obligation  of the  Company,  whether  or not the  lost,  stolen or
destroyed Warrant  Certificate  shall be at any time enforceable by anyone,  and
every holder thereof shall be entitled to the benefits of this Warrant Agreement
equally and  proportionately  with any and all other Warrant  Certificates  duly
executed and delivered hereunder.

                                       7
<PAGE>

     7.3 Warrantholder May Enforce Rights. Notwithstanding any of the provisions
of this Warrant Agreement, any Warrantholder,  without the consent of the holder
of any Common Stock or the holder of any other Warrant Certificate,  may, on its
own behalf and for its own benefit,  enforce, and may institute and maintain any
suit, action or proceeding against the Company suitable to enforce, or otherwise
in respect of, such Warrantholder's  right to exercise the Warrants evidenced by
such  Warrantholder's  Warrant Certificate in the manner provided in its Warrant
Certificate and in this Agreement.

     Section 8. Registration Rights.

     8.1 Requested Registration.

     (a) Request for  Registration.  After the first  anniversary of the Closing
Date, the holders of a majority of the Registrable Securities (as defined below)
then  outstanding  shall have on one occasion the right upon written  request to
the  Company  (the  "Demand  Registration"),  to require the Company to effect a
registration of the  Registrable  Securities.  Upon receipt of such notice,  the
Company will:

     (i) promptly give written notice of the proposed  registration to all other
holders of Registrable  Securities,  which written notice shall include the name
or names of the underwriter or underwriters to be employed; and

     (ii) use its diligent good faith efforts to effect, as soon as practicable,
such registration (including,  without limitation,  the filing of post-effective
amendments,  appropriate  qualification  under the applicable  blue sky or other
state securities laws and appropriate compliance with the Securities Act and any
other  governmental  requirements  or regulations) as may be so requested by any
holder of Registrable  Securities within five days after written notice is given
by the Company and as would permit or facilitate  the sale and  distribution  of
all or such portion of the Registrable Securities so requested to be included in
such registration;

provided that the Company shall not be obligated to take any action to effect
any such registration pursuant to this Section 8.1.1: (a) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process, to register as a securities broker or dealer or to cause
any officer or employee of the Company to register as a salesman in effecting
such registration or (b) after the Company has effected one registration
pursuant to this Section 8.1.1 which has been declared or ordered effective.

         Subject to the foregoing, the Company shall prepare and file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable and within 45 days after such request is
received.

         Notwithstanding the foregoing, the Company shall not be obligated to
effect a registration, qualification or compliance under this Section 8.1.1
during any period during which the Company is in the process of negotiating or
preparing, and ending on a date 180 days following the effective date of, a
registration statement pertaining to an underwritten or "best efforts" public
offering of securities for the account of the Company, provided that the Company
is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective and such registration statement
becomes effective within three months from the date of delivery to the Company
of a written request to effect such registration, qualification or compliance.

                                       8
<PAGE>

         As used in this Agreement, the term "Registrable Securities" shall
mean, collectively, the shares of Common Stock acquired or to be acquired by the
Warrantholder upon exercise of the Warrants pursuant to this Agreement and any
shares of Common Stock or other securities issued with respect to such Common
Stock by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation, share exchange,
reorganization or otherwise; provided, however, that such Common Stock or other
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the disposition of such Common Stock or other
securities shall have become effective under the Securities Act and such
securities shall have been disposed of in accordance with the plan of
distribution set forth in such registration statement, (ii) such Common Stock or
other securities shall have been sold pursuant to Rule 144 (or any successor
provision) under the Securities Act, (iii) an opinion of counsel, reasonably
satisfactory to the Company and the holders of Common Stock or other securities
to which the opinion relates shall have been delivered to the Company and such
holders to the effect that the subsequent disposition of such Common Stock or
other securities may be made pursuant to Rule 144(k) (or any successor
provision) under the Securities Act, or (iv) such Common Stock or other
securities shall cease to be outstanding.

     (b) Selection of Underwriter. If any Demand Registration is an underwritten
offering, the holders of a majority of the Registrable Securities to be included
in such registration will select a managing underwriter or managing underwriters
of nationally  recognized  standing which shall be reasonably  acceptable to the
Company.  The Company shall  (together with the holders  proposing to distribute
their  Registrable   Securities  through  such   underwriting)   enter  into  an
underwriting  agreement in customary form with the  underwriter or  underwriters
selected for such underwriting in the manner set forth above.

         The holders of Registrable Securities participating in a registration
under this Section 8.1 shall, to the extent required by the managing
underwriter(s), execute and deliver a custody agreement and power of attorney
with respect to the Registrable Securities to be registered (a "Custody
Agreement" and "Power of Attorney," respectively). The Custody Agreement and
Power of Attorney will provide, among other things, that the holders will
deliver to and deposit in custody with the custodian named therein a certificate
or certificates representing such Registrable Securities (duly endorsed in blank
by the registered owner or owners thereof or accompanied by duly executed stock
powers in blank) and irrevocably appoint said custodian and attorney-in-fact
with full power and authority to act under the Custody Agreement and Power of
Attorney, respectively, on such holder's behalf with respect to matters
specified therein, including the execution and delivery of an underwriting
agreement.

         Notwithstanding any of the other provisions of this Section 8.1, if the
managing underwriter determines and advises the Company that marketing factors
require a limitation of the number of shares to be underwritten, then all
holders of Registrable Securities that have previously elected to participate in
such registration shall be advised of the same, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all such holders in proportion, as nearly as practical,
to the respective amounts of Registrable Securities that were proposed to be
sold by such holders. No Registrable Securities excluded from the underwriting
by reason of the underwriter's marketing limitation shall be in such
registration.

                                       9
<PAGE>

         If any holder of Registrable Securities disapproves of the terms of the
underwriting, such holder may elect to withdraw therefrom by written notice to
the Company and the managing underwriter and the other holders who have
previously elected to participate in the registration. The Registrable
Securities so withdrawn shall also be withdrawn from registration; provided that
if by the withdrawal of such Registrable Securities a greater number of
Registrable Securities held by other holders may be included in such
registration (up to a maximum of any limitation imposed by the underwriters),
then the Company shall offer to all holders who have included Registrable
Securities in the registration the right to include additional shares in the
same proportion used in effecting the limitation referred to above in this
Section 8.1.2.

     8.2 Company Registration.

     (a) Right to  Inclusion.  If at any time (or from time to time) the Company
shall determine to register any of its securities in an  underwritten  offering,
either for its own account or the account of a holder of Registrable  Securities
or any other holder of securities of the Company,  other than (i) a registration
pursuant to Section 8.1 hereof, (ii) a registration  relating solely to employee
benefit  or stock  option  plans,  (iii) a  registration  relating  solely  to a
transaction  described in Rule145 under the  Securities  Act, (iv) a transaction
relating solely to an exchange offering, (v) a transaction relating solely to an
acquisition of assets or property for securities,  or (vi) a registration on any
form  that  does not  include  substantially  the same  information  as would be
required  to be  included  in a  registration  statement  covering  the  sale of
Registrable Securities by such holders, then the Company will:

     (i) promptly give to each holder of Registrable  Securities  written notice
thereof  (which shall include a list of the  jurisdictions  in which the Company
intends to attempt to qualify  the offer and sale of such  securities  under the
applicable blue sky or other state securities laws); and

     (ii) include in such registration (and any related qualification under blue
sky laws or other compliance), and in any underwriting involved therein, all the
Registrable  Securities  specified  in any  written  request or  requests by any
holder  received  by the  Company  within 15 days after such  written  notice is
given.

     (b)  Underwriting.  The right of any holder of  Registrable  Securities  to
registration  pursuant to Section 8.2.1 shall be conditioned  upon such holder's
participation in the underwriting and the inclusion of such holder's Registrable
Securities  in the  underwriting  to the extent  provided  herein.  All  holders
proposing to distribute their Registrable  Securities  through such underwriting
shall  enter  into  an  underwriting   agreement  in  customary  form  with  the
underwriter or underwriters  selected for such underwriting by the Company. Such
holders of Registrable  Securities shall also execute and deliver, to the extent
required by the managing underwriter,  a Custody Agreement and Power of Attorney
satisfactory  to the Company with respect to the  Registrable  Securities  to be
registered.  The Custody  Agreement and Power of Attorney  will  provide,  among
other things,  that such holders of Registrable  Securities  will deliver to and
deposit  in  custody  with  the  custodian   named  therein  a  certificate   or
certificates representing such Registrable Securities (duly endorsed in blank by
the  registered  owner or owners  thereof or  accompanied by duly executed stock
powers in blank) and  irrevocably  appoint said  custodian and  attorney-in-fact
with full power and  authority to act under the Custody  Agreement  and Power of
Attorney, respectively, on the holder's behalf with respect to matters specified
therein, including the execution and delivery of an underwriting agreement.

                                       10
<PAGE>

         Notwithstanding any other provisions of this Section 8.2, if the
managing underwriter determines and advises the Company that marketing factors
require a limitation on the number of shares to be underwritten, the underwriter
and the Company may limit or exclude entirely the Registrable Securities to be
included in any registration and underwriting. In such event, the Company shall
so advise all holders of Registrable Securities that would otherwise be
registered and underwritten pursuant hereto, and the number of shares of Common
Stock (including the Registrable Securities) or other securities that may be
included in the registration and underwriting shall be allocated among all
holders of Registrable Securities and any other holders of Common Stock or other
securities requesting to be registered in proportion, as nearly as practicable,
to the respective amounts of Common Stock (including the Registrable Securities)
or other securities that were proposed to be sold by all holders of Registrable
Securities and holders of Common Stock or other securities entitled to
participate therein. No Registrable Securities excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration.

         If any holder of Registrable Securities disapproves of the terms of the
underwriting, such holder may elect to withdraw therefrom by written notice to
the Company and the managing underwriter(s). The Registrable Securities so
withdrawn shall also be withdrawn from registration; provided that if by the
withdrawal of such Registrable Securities a greater number of Registrable
Securities held by other holders may be included in such registration (up to the
maximum of any limitation imposed by the underwriters), then the Company shall
offer to all holders who have included Registrable Securities in the
registration the right to include additional shares in the same proportion used
in effecting the limitation referred to above in this Section 8.2.2. With
respect to any registration withdrawal by the Company pursuant to this Section
8.2.2, the Company shall have the right to withdraw such registration at any
time at its sole discretion without the consent or approval of any stockholder,
including the holders of Registrable Securities, in such registration.

     8.3  Expenses  of  Registration.  All  out-of-pocket  expenses  incurred in
connection with any registration,  qualification or compliance  pursuant to this
Section  8,  including,   without  limitation,  all  registration,   filing  and
qualification  fees,  printing  expenses,   escrow  fees,  reasonable  fees  and
disbursements  of counsel for the Company and reasonable fees and  out-of-pocket
expenses of  accountants  incidental  to or required by such  registration,  the
reasonable fees and disbursements of one special counsel retained by the holders
of  Registrable   Securities  covered  by  such  registration,   (but  excluding
underwriters'  fees,  discount  and  commissions  relating  to  the  Registrable
Securities sold), shall be borne by the Company.

                                       11
<PAGE>

     8.4   Registration   Procedures.   In  the   case  of  such   registration,
qualification or compliance  effected by the Company pursuant to this Section 8,
the  Company  will keep  each  holder of  Registrable  Securities  participating
therein  advised  in  writing  as to the  initial  filing of each  registration,
qualification and compliance and as to the completion  thereof.  At its expense,
the Company will:

     (a)  keep  such  registration,  qualification  or  compliance  pursuant  to
Sections 8.1 or 8.2  effective  for a period of 180 days or until the holders of
Registrable  Securities  participating  therein have completed the  distribution
described in the  registration  statement  relating  thereto,  whichever  occurs
first;

     (b)  furnish  such  number of  prospectuses  and other  documents  incident
thereto as a holder of Registrable Securities participating therein from time to
time may reasonably request;

     (c) make available,  upon reasonable  notice and during business hours, for
inspection  by  the  managing  underwriter  all  financial  and  other  records,
pertinent corporate documents, agreements and properties of the Company as shall
be reasonably  necessary to enable such managing underwriter to exercise its due
diligence  responsibilities,  and cause the  Company's  officers,  directors and
employees  to supply  all  information  reasonably  requested  by such  managing
underwriter in connection with the registration;

     (d) during the period when the  registration  is required to be  effective,
notify  the  holders  of  the  Registrable   Securities   participating  in  the
registration  of the happening of any event as a result of which the  prospectus
included  in the  registration  statement  contains  an  untrue  statement  of a
material fact or omits to state any material fact required to be stated  therein
or necessary to make the statements therein not misleading, and the Company will
forthwith  prepare a supplement  or amendment to such  prospectus  or take other
appropriate  action so that, as thereafter  delivered to the  purchasers of such
Registrable Securities,  such prospectus will not contain an untrue statement or
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading;

     (e) cause such  Registrable  Securities  included in the registration to be
listed or authorized for trading on each  securities  exchange  (including,  for
this purpose,  the NASDAQ National  Market System or NASDAQ SmallCap  System) on
which similar  securities  issued by the Company are then traded;  provided that
the Company is eligible to do so under applicable listing requirements; and

     (f) otherwise use its best efforts to comply with all applicable  rules and
regulations of the Securities and Exchange Commission (the "Commission") and all
of the terms and provisions of this Agreement.

         Notwithstanding the foregoing, (x) the Company may delay the filing of
any registration statement covering the Registrable Securities, any amendment
thereof or any supplement to the related prospectus, and may withhold efforts to
cause any registration statement covering the Registrable Securities to become
effective, and (y) the Company may prohibit offers and sales of Registrable
Securities pursuant to a registration statement at any time if (i) (A) the
Company is in possession of material non-public information, (B) the Board of

                                       12
<PAGE>

Directors of the Company determines in good faith that such prohibition is
necessary in order to avoid an obligation to disclose such information and (C)
the Board of Directors of the Company determines in good faith that disclosure
of such information would not be in the best interest of the Company or its
shareholders or (ii) the Company is pursuing an acquisition or business
combination transaction including the Company and/or one or more of its
subsidiaries for which the Board of Directors of the Company determines in good
faith that offers and sales of Registrable Securities pursuant to a Registration
Statement prior to the consummation of such transaction would not be in the best
interest of the Company or its shareholders; provided, however, that the
duration of all such delays or periods in which shares of Registrable Securities
may not be sold pursuant to an effective registration statement shall not exceed
180 days in the aggregate.

     8.5  Related  Registration   Matters.  The  Company  shall  enter  into  an
underwriting  agreement  in  connection  with any  registration  subject  to the
provisions of Sections 8.1 and 8.2 hereof,  which  agreement  shall contain such
terms,  provisions  and  agreements as are customary  and  appropriate  for such
registration. In connection with the registration, to the extent not provided in
the underwriting agreement related to such registration, the Company also shall:

     (a) engage a bank or other  company to act as transfer  agent and registrar
for the Registrable Securities;

     (b) cause customary opinions of counsel, comfort letters of accountants and
other appropriate  documents to be delivered by  representatives of the Company,
which  documents  shall be  addressed to the holders of  Registrable  Securities
participating  in the offering in addition to the  Underwriters or other parties
designated as addressees in such documents; and

     (c) as soon as  practicable  after the effective  date of the  registration
statement,  and,  in any event,  within 16 months  thereafter,  make  "generally
available  to its  stockholders"  within  the  meaning  of Rule  158  under  the
Securities Act) an earnings statement (which need not be audited) complying with
Section  11(a)  of the  Securities  Act and  covering  a  period  of at least 12
consecutive  months  beginning  after  the  effective  date of the  registration
statement.

     8.6 Indemnification and Contribution.

     (a) In the event of registration of any of the Registrable Securities under
the Securities  Act, the Company will indemnify and hold harmless each holder of
Registrable  Securities  included in such registration and each of its directors
and officers,  each underwriter of such  Registrable  Securities and each of its
directors  and  officers,  and each other person and each of its  directors  and
officers,  if any, who controls such seller or underwriter within the meaning of
the Securities Act or the Securities  Exchange Act of 1934, as amended from time
to time (the "Exchange Act"), or otherwise,  against any losses, claims, damages
or liabilities (or actions in respect thereof),  joint or several, to which such
seller,  underwriter or controlling  person (or their  respective  directors and
officers)  may become  subject  under the  Securities  Act,  the Exchange Act or
otherwise,  insofar as such losses,  claims, damages or liabilities (and each of
its  directors and officers or actions in respect  thereof)  arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in any registration  statement under which such Registrable Securities
were registered  under the Securities  Act, any preliminary  prospectus or final
prospectus  contained  in  the  registration  statement,  or  any  amendment  or
supplement to such registration statement, or arise out of or are based upon the
omission  or alleged  omission  to state a material  fact  required to be stated
therein or  necessary to make the  statements  therein not  misleading;  and the
Company will reimburse such seller, underwriter and each such controlling person
(and  their  respective  directors  and  officers)  for any  legal or any  other

                                       13
<PAGE>

expenses reasonably  incurred by such seller,  underwriter or controlling person
(and their respective  directors and officers) in connection with  investigating
or defending any such loss, claim,  damage,  liability or action;  provided that
the Company  will not have any  liability  (and shall not be required to provide
such  indemnity and hold harmless  obligation) to the extent that any such loss,
claim,  damage or liability  arises out of or is based upon any untrue statement
or omission  made in such  registration  statement,  preliminary  prospectus  or
prospectus,  or any  such  amendment  or  supplement,  in  reliance  upon and in
conformity  with  written  information  furnished  to  the  Company  through  an
instrument  duly  executed  by  or on  behalf  of  such  holder  of  Registrable
Securities or underwriter specifically for use in preparation thereof.

     (b) In the event of any  registration of any of the Registrable  Securities
under the Securities Act, each holder of Registrable Securities included in such
registration,  severally and not jointly,  will  indemnify and hold harmless the
Company,  each of its directors and officers and each  underwriter  (if any) and
each of its directors and officers and each person and each of its directors and
officers,  if any, who controls the Company or any such  underwriter  within the
meaning of the  Securities  Act or the Exchange  Act,  against  losses,  claims,
damages or liabilities  (or actions in respect  thereof),  joint or several,  to
which the Company,  such  directors and  officers,  underwriter  or  controlling
person (or their respective directors and officers) may become subject under the
Securities  Act,  Exchange Act or  otherwise,  insofar as such  losses,  claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any  untrue  statement  or alleged  untrue  statement  of a  material  fact
contained in any registration  statement under which such Registrable Securities
were registered  under the Securities  Act, any preliminary  prospectus or final
prospectus  contained  in  the  registration  statement,  or  any  amendment  or
supplement to the registration  statement, or arise out of or are based upon any
omission  or alleged  omission  to state a material  fact  required to be stated
therein or  necessary  to make the  statements  therein not  misleading,  if the
statement  or  omission  was  made  in  reliance  upon  and in  conformity  with
information  furnished in writing to the Company by or on behalf of such holder,
specifically  for use in connection  with the  preparation of such  registration
statement,  prospectus,  amendment or supplement; provided the liability of each
holder of  Registrable  Securities  pursuant  to this  Section  8.6(b)  shall be
limited to the proceeds actually received by such holder from the disposition of
the  Registrable  Securities  disposed  of  by  such  holder  pursuant  to  such
registration.

     (c) Each party  entitled  to  indemnification  under this  Section 8.6 (the
"Indemnified  Party")  shall  give  notice  to the  party  required  to  provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the  Indemnifying  Party to assume  the  defense of any such claim or any
litigation  resulting  therefrom,  provided  that  counsel for the  Indemnifying
Party,  who shall  conduct  the  defense of such claim or  litigation,  shall be
approved by the  Indemnified  Party (whose  approval  shall not be  unreasonably
withheld, delayed or conditioned),  and the Indemnified Party may participate in
such defense at such party's expense, and provided, further, that the failure of
any  Indemnified  Party to give notice as provided  herein shall not relieve the
Indemnifying  Party of its obligations under this Section 8.6 (except and to the

                                       14
<PAGE>

extent the rights of the Indemnifying Party are materially  prejudiced thereby).
After  notice  from  the  Indemnifying  Party  to the  Indemnified  Party of its
election to assume the  defense of such claim or  litigation,  the  Indemnifying
Party  will not be  liable  to such  Indemnified  Party  for any  legal or other
expenses  subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable  costs of  investigation so long as and to
the extent the  Indemnifying  Party continues to defend the  Indemnified  Party,
unless the  Indemnifying  Party,  in the defense of any such claim or litigation
shall,  except with the consent of each Indemnified  Party,  consent to entry of
any  judgment  or enter  into  any  settlement  which  does  not  include  as an
unconditional  term  thereof  the giving by the  claimant or  plaintiff  to such
Indemnified  Party of a release  from all  liability in respect to such claim or
litigation.

     (d) To the extent the Company  after the date hereof shall agree to provide
for contribution in any written  agreement entered into with the stockholders of
the Company if the indemnification  obligations are otherwise unavailable,  then
the Company  shall  provide such  similar  rights to the  Warrantholders  in the
registration of their shares.

     8.7  Information by  Stockholders.  Each holder of  Registrable  Securities
requesting to be included in any registration  shall furnish to the Company such
information  regarding such holder and the distribution  proposed by such holder
as the Company  may  request in writing  and as shall be required in  connection
with any registration,  qualification or compliance  referred to in this Section
8.

     8.8 Sales  Without  Registration.  If, at the time of any  transfer  of any
Registrable  Securities,  such  Registrable  Securities  shall not be registered
under the  Securities  Act, the Company may require,  as a condition of allowing
such transfer,  that the holder of Registrable  Securities or transferee furnish
to the Company an opinion of legal counsel satisfactory in form and substance to
the Company to the effect that such  transfer may be made  without  registration
under the Securities  Act;  provided that nothing  contained in this Section 8.8
shall  relieve the Company  from  complying  with any request for  registration,
qualification  or  compliance  made  pursuant  to the other  provisions  of this
Section 8.

     8.9 Rule 144. The Company  covenants that it will file the reports required
to be filed by it under  the 1933 Act and the  Exchange  Act and the  rules  and
regulations adopted by the Commission  thereunder so long as necessary to permit
sales of Registrable  Securities  under Rule 144 under the 1933 Act, and it will
take such other action as any holder of  Registrable  Securities  may reasonably
request,  all to the extent  required from time to time to enable such holder to
sell Registrable  Securities without  registration under the 1933 Act within the
limitation  of the  exemptions  provided  by (a) Rule 144 under the 1933 Act, as
such  Rule  may be  amended  from  time  to  time,  or (b) any  similar  rule or
regulation  hereafter adopted by the Commission.  Upon the request of any holder
of  Registrable  Securities,  the Company  will deliver to such holder a written
statement as to whether it has complied with such requirements.

     8.10 Transfer of  Registration  Rights.  The rights to cause the Company to
register Registrable Securities granted by the Company under Section 8.1 and the
right to participate in Company  registration  under Section 8.2 may be assigned
by any holder of  Registrable  Securities  to a  transferee  or  assignee of any
Registrable Securities (if such transfer or assignment of Registrable Securities
is permitted under Section 5), unless such transferee or assignee  acquires such

                                       15
<PAGE>

Registrable  Securities through a transaction or chain of transactions involving
a public  offering or a sale effected  pursuant to Rule 144;  provided:  (i) the
holder shall give the Company  written  notice at the time of or within ten days
after said  transfer,  setting forth the name and address of said  transferee or
assignee and identifying  the Registrable  Securities with respect to which such
registration rights are being assigned;  (ii) such transferee or assignee agrees
in  writing  to be bound by and  subject  to the  terms and  conditions  of this
Agreement  and (iii) such  assignment  shall be  effective  only if  immediately
following  such  transfer  the further  disposition  of such  securities  by the
transferee or assignee is restricted under the Securities Act.

     8.11  Post-Effective   Amendments.  In  connection  with  any  registration
statement  filed  pursuant  to this  Section  8,  the  Company  shall  file  any
post-effective  amendment or amendments to the registration  statement which may
be required under the Securities  Act during the period  reasonably  required to
effect the distribution contemplated thereby.

     8.12  Cessation  of  Sale   Activities.   The  Company  shall  notify  each
participating   holder  of   Registrable   Securities   during  the  period  any
registration  statement  filed  pursuant to this Section 8 is required to remain
effective,  or at any time when a prospectus  relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result of
which such registration  statement or the prospectus  contained therein, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated  therein or necessary to make the statements
therein not misleading.  Each participating  holder agrees, upon receipt of such
notice,  forthwith to cease making offers and sales of such securities  pursuant
to such registration statement or deliveries of the prospectus contained therein
for any purpose and to return to the Company the copies of such  prospectus  not
theretofore delivered by such holder.

     8.13 Supplements.  At a participating  holder's request,  the Company shall
prepare and furnish to such  participating  holder a reasonable number of copies
of any  supplement to or amendment of such  prospectus  that may be necessary so
that,  as  thereafter  delivered to the  purchaser of any shares of  Registrable
Securities, such prospectus shall not include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statement  therein not misleading in the light of the  circumstances
then existing.  The Company shall promptly notify each  participating  holder of
any stop order or similar  proceeding  initiated by state or Federal  regulatory
bodies and use reasonable  efforts to take all necessary steps  expeditiously to
remove such stop order or similar proceeding.

     Section 9. Exchange and Transfer of Warrant Certificates.

     9.1  Exchange and  Transfer of Warrant  Certificates.  Subject to the terms
contained  in this  Agreement,  upon  surrender at the  principal  office of the
Company,  Warrant Certificates  evidencing Warrants may be exchanged for Warrant
Certificates  in other  denominations  evidencing  such Warrants or the transfer
thereof may be registered in whole or in part;  provided that such other Warrant
Certificates  evidence  the same  aggregate  number of  Warrants  as the Warrant
Certificates  so  surrendered.  The Company  shall keep the Warrant  register in
which,  subject to such  reasonable  regulations as it may  prescribe,  it shall
register Warrant Certificates upon surrender of such Warrant Certificates to the
Company at its  principal  office for  exchange  or  registration  of  transfer,
properly  endorsed or accompanied by appropriate  instruments of registration of
transfer and written instructions for transfer,  all in form satisfactory to the
Company.  No service  charge shall be made for any exchange or  registration  of
transfer of Warrant  Certificates,  but the Company may require payment of a sum

                                       16
<PAGE>

sufficient to cover any stamp or other tax or other governmental charge that may
be imposed in  connection  with any such exchange or  registration  of transfer.
Whenever  any  Warrant   Certificates   are  so  surrendered   for  exchange  or
registration of transfer,  the authorized  officers of the Company shall execute
and deliver to the person or persons entitled  thereto a Warrant  Certificate or
Warrant  Certificates  duly  authorized  and  executed  by  the  Company,  as so
requested.  All Warrant Certificates issued upon any exchange or registration of
transfer  of the  Warrant  Certificates  shall be the valid  obligations  of the
Company,  evidencing  the same  obligations,  and entitled to the same  benefits
under this Agreement,  as the Warrant Certificate  surrendered for such exchange
or registration of transfer.

     9.2 Treatment of Holders of Warrant Certificates. Every holder of a Warrant
Certificate,  by  accepting  the same,  consents and agrees with the Company and
with every subsequent holder of such Warrant Certificate that until the transfer
of the Warrant  Certificate is registered on the Warrant  register,  before such
Warrant  Certificate is surrendered for transfer pursuant to Section 9.1 hereof,
the  Company may treat the  registered  holder of a Warrant  Certificate  as the
absolute  owner  thereof for any purpose and as the person  entitled to exercise
the rights  represented  by the Warrants  evidenced  thereby,  any notice to the
contrary notwithstanding.

     9.3  Cancellation  of  Warrant   Certificates.   Any  Warrant   Certificate
surrendered  for exchange,  registration  of transfer or transfer or exercise of
the Warrants  evidenced  thereby shall be  surrendered  to the Company,  and all
Warrant  Certificates  surrendered  and so  delivered  to the  Company  shall be
promptly  cancelled  by the  Company and shall not be  reissued  and,  except as
expressly  permitted by this Agreement,  no Warrant  Certificate shall be issued
hereunder in exchange or in lieu thereof.

     Section 10. Notices.  Any notice or other document required or permitted to
be given or  delivered  to the  Warrantholders  prior to the  transfer  or other
disposition  of any Warrant by the original  recipient of this Warrant  shall be
delivered at or sent by certified or registered mail to the following address or
such  other  address as shall have been  furnished  in writing by such  original
recipient to the Company:

         Highbridge/Zwirn Special Opportunities Fund, L.P.
         745 5th Avenue, 18th Floor
         New York, New York  10151
         Attention:  Morris Macleod
         Telefax: (646) 394-4676

Thereafter, any notice or other document required or permitted to be given or
delivered to the Warrantholders shall be delivered at, or sent by certified or
registered mail to, each such holder at the last address shown on the books of
the Company maintained at the principal office of the Company for the
registration of transfer of the Warrants or at any more recent address of which
any Warrantholder shall have notified the Company in writing. Any notice or
other document required or permitted to be given or delivered to holders of
record of outstanding Registrable Securities shall be delivered at, or sent by

                                       17
<PAGE>

certified or registered mail to, each such holder at such holder's address as
the same appears on the stock records of the Company. Any notice or other
document required or permitted to be given or delivered to the Company shall be
delivered at, or sent by certified or registered mail to, the principal office
of the Company at 20 Greenway Plaza, Suite 600, Houston, Texas 77046, Attention:
Chief Executive Officer, or such other address within the United States of
America as shall have been furnished by the Company to the Warrantholders and
the holders of record of Registrable Securities. Any notice or other document
required or permitted to be given or delivered hereunder shall be deemed to have
been given when actually delivered to the addressee at the address provided
herein.

     Section 11.  Representations  and  Warranties.  The Company  represents and
warrants as follows:

     11.1  Capitalization.  The authorized capital stock of the Company consists
of 75,000,000  shares of $0.01 par value Common Stock, of which 8,551,532 shares
are outstanding and 2,500,000 shares of $0.05 par value Preferred Stock of which
508,214 shares have been designated Series A Senior Convertible  Preferred Stock
and no  Preferred  Stock is  outstanding.  All of the shares of Common Stock are
duly authorized, validly issued, fully paid and nonassessable.  The only rights,
options  or  other  agreements   which  are  outstanding   which  authorize  the
acquisition  of newly  issued  shares of Common  Stock are set forth on Schedule
11.1 attached hereto.

     11.2 Authorization; Enforceability. The Company has the corporate power and
authority to enter into and perform its obligations  under this  Agreement.  The
execution  and delivery by the Company of this  Agreement  have been approved by
all requisite corporate action and no other corporate proceeding on its part are
necessary to authorize this Agreement and the transactions  contemplated hereby.
This  Agreement  constitutes  the valid and binding  obligation  of the Company,
except  as  it  may  be  affected   by   bankruptcy,   insolvency,   moratorium,
reorganization  or other laws and  judicial  decisions  affecting  the rights of
creditors generally and general principles of equity.

     11.3 Issuance of Shares. The issuance of the shares of Common Stock subject
to the Warrants has been duly  authorized  and, when issued upon exercise of the
Warrants,  such shares will have been validly  issued and will be fully paid and
nonassessable.

     Section 12. Miscellaneous.

     12.1 Amendment.  This Warrant Agreement may be amended by the Company, with
the  consent  of  the  Warrantholders   representing  a  majority  of  the  then
outstanding  Warrants,  for the purpose of curing any  ambiguity,  or of curing,
correcting or supplementing any defective  provision contained herein, or making
any other  provisions  with respect to matters or questions  arising  under this
Agreement as the Company may deem  necessary or  desirable,  provided  that such
action shall not affect  adversely  the  interests of the  Warrantholders.  This
Agreement  may otherwise be amended only with the consent of the Company and all
of the Warrantholders.

     12.2 Parties in Interest.  The agreements of the Company  contained herein,
other  than  those  applicable  solely to the  Warrants  and the  Warrantholders
thereof,  shall continue to inure to the benefit of, and be enforceable  by, any
Warrantholder(s) subsequent to the time Common Stock is issued upon the exercise
of Warrants, whether so expressed or not.

                                       18
<PAGE>

     12.3 Applicable Law. THE VALIDITY,  INTERPRETATION  AND PERFORMANCE OF THIS
AGREEMENT AND EACH WARRANT  CERTIFICATE  ISSUED  HEREUNDER AND OF THE RESPECTIVE
TERMS AND  PROVISIONS  THEREOF SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH,  THE LAWS OF THE STATE OF NEW YORK WITHOUT  REGARD TO THE CONFLICT OF LAWS
PROVISIONS  THEREOF  EXCEPT TO THE  EXTENT  TEXAS LAW  MANDATORILY  GOVERNS  THE
AUTHORIZATRION AND ISSUANCE OF THE WARRANTS AND THE WARRANT SHARES.

     12.4 Consent to Jurisdiction.  The Company hereby  irrevocably  consents to
the personal jurisdiction of the state and federal courts located in the Borough
of  Manhattan,  New  York,  New York in any  action,  claim or other  proceeding
arising  out of any dispute in  connection  with this  Agreement,  any rights or
obligations  hereunder,  or the performance of such rights and obligations.  The
Company  hereby  irrevocably  consents to the service of a summons and complaint
and  other  process  in  any  action,   claim  or  proceeding   brought  by  the
Warrantholder  in  connection  with this  Agreement,  any rights or  obligations
hereunder, or the performance of such rights and obligations.

     12.5 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE
LAW, THE COMPANY AND THE WARRANTHOLDER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL WITH  RESPECT TO ANY  ACTION,  CLAIM OR OTHER  PROCEEDING
ARISING  OUT OF ANY DISPUTE IN  CONNECTION  WITH THIS  AGREEMENT,  ANY RIGHTS OR
OBLIGATIONS HEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.

     12.6  Counterparts.  This  Agreement  may  be  executed  in any  number  of
counterparts,  each of which as so executed  shall be deemed to be an  original,
but such counterparts shall together constitute but one and the same instrument.

     12.7  Inspection of Agreement.  A copy of this Agreement shall be available
at all reasonable times at the principal office of the Company for inspection by
the holder of any Warrant  Certificate.  The Company may require  such holder to
submit his Warrant Certificate for inspection by it.

     12.8 Headings.  The section headings in this Agreement are for the purposes
of convenience only and shall not constitute a part hereof.

                                       19
<PAGE>

         IN WITNESS WHEREOF, the Company and the Warrantholder have caused their
respective duly authorized officers to sign this Agreement.

                                  GEXA CORP.

                                  By: /s/ Neil M. Leibman
                                     -----------------------------------------
                                  Name:   Neil M. Leibman
                                        ---------------------------------------
                                  Title:  Chief Executive Officer
                                        --------------------------------------

Appendices:

Appendix A        Form of Warrant Certificate
Appendix B        Election to Exercise

Schedules:

Schedule 11.1     Outstanding Options, Etc.

                            Signature Page to Warrant Agreement
                                       S-1

<PAGE>

                                                                      APPENDIX A

                          [FORM OF WARRANT CERTIFICATE]

Warrant No. ____                                                   ____ Warrants

                       WARRANT TO PURCHASE COMMON STOCK OF
                                   GEXA CORP.

                     THIS WARRANT IS SUBJECT TO RESTRICTIONS
                          ON TRANSFER SET FORTH IN THE
                           AGREEMENT REFERENCED BELOW.

         This certificate certifies that _________________ is the registered
owner of the above indicated number of Warrants, each Warrant entitling such
owner to purchase initially one share of Common Stock, $.01 par value ("Common
Stock"), of Gexa Corp., a Texas corporation, (hereinafter called the "Company"),
at the price per share (the "Warrant Price") set forth in Section 2 of the
Warrant Agreement, subject to the terms of that Warrant Agreement hereafter
referred to.

         The holder may exercise the Warrant evidenced hereby by surrender, to
the Company at its principal office in Houston, Texas, of this Warrant
Certificate and the form of Election to Exercise attached hereto, both duly
filled in and signed, along with payment in full to the Company of the Warrant
Price in cash or immediately available funds or pursuant to a Cashless Exercise,
all as provided in the Warrant Agreement and upon compliance with and subject to
the conditions set forth herein and in the Warrant Agreement. According to the
terms of the Warrant Agreement, the Warrants shall cease to be exercisable at
5:00 p.m., Houston, Texas time, on July ___, 2009.

         The Warrant Certificate is issued under and in accordance with the
Warrant Agreement dated as of July ___, 2004 (the "Warrant Agreement"), by and
between the Company and _________________, and is subject to the terms and
provisions of the Warrant Agreement, which terms and provisions are hereby
incorporated by reference herein and made a part hereof. Each holder of this
Warrant Certificate consents to all of the terms contained in the Warrant
Agreement by acceptance hereof. A copy of the Warrant Agreement is available for
inspection by the registered holder hereof at the principal office of the
Company in Houston, Texas.

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
         PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH
         SUCH ACT AND THE RULES AND REGULATIONS THEREUNDER AND IN ACCORDANCE
         WITH APPLICABLE STATE SECURITIES LAWS. THE COMPANY WILL NOT TRANSFER
         SUCH SECURITIES EXCEPT UPON RECEIPT OF A FAVORABLE OPINION OF COUNSEL
         AND/OR EVIDENCE SATISFACTORY TO THE COMPANY THAT THE REGISTRATION
         PROVISIONS OF SUCH ACT HAVE BEEN COMPLIED WITH OR THAT SUCH
         REGISTRATION IS NOT REQUIRED AND THAT SUCH TRANSFER WILL NOT VIOLATE
         ANY APPLICABLE STATE SECURITIES LAWS.

                                  Appendix A-1
<PAGE>

         The Warrant Agreement and each Warrant Certificate, including this
Warrant Certificate, shall be deemed a contract made under the laws of the State
of New York and for all purposes shall be construed in accordance with the laws
of the State of New York.

Dated:

                                GEXA CORP.

                                By:
                                   ---------------------------------------------
                                Name:
                                     -------------------------------------------
                                Title:
                                      ------------------------------------------

                                  Appendix A-2
<PAGE>

                                                                      APPENDIX B

                              ELECTION TO EXERCISE

                 (To be executed only upon exercise of warrant)

To _____________________

     The  undersigned   registered   holder  of  the  attached   warrant  hereby
irrevocably  exercises  and  surrenders  to the Company  such  warrant  for, and
purchases  thereunder,  ________*  shares of  Common  Stock of Gexa  Corp.,  and
herewith makes payment of $__________ therefor, in cash or immediately available
funds or pursuant to a Cashless  Exercise as requested  below, and requests that
the certificates for such shares (less any shares,  if any, utilized pursuant to
a   Cashless   Exercise)   be  issued  in  the  name  of,   and   delivered   to
___________________________,             whose             address            is
_______________________________________________________________.

Check one of the following boxes: |_| Payment in cash or immediately available
                                      funds
                                  |_| Cashless Exercise

Dated:  _________________

                                  ------------------------------------
                                  (Signature must conform in all respects to
                                  name of holder as specified on the face of
                                  this warrant)

                                  ------------------------------------
                                  (Street Address)

                                  ------------------------------------
                                  (City) (State)
(Zip Code)

--------
* Insert here the number of shares called for on the face of this warrant (or,
in the case of a partial exercise, the portion thereof as to which this warrant
is being exercised), in either case without making any adjustment for additional
shares of common stock or any other stock or other securities or property or
cash which, pursuant to the adjustment provisions of this warrant, may be
delivered upon exercise. In the case of a partial exercise, a new warrant or
warrants will be issued and delivered, representing the unexercised portion of
this warrant, to the holder surrendering the same. In the case of a Cashless
Exercise, the number of shares to be issued shall be reduced as set forth in
Section 2.3 of the Warrant Agreement.

                                  Appendix B-1

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