Document:

EXHIBIT
10.4

 

STOCK PURCHASE
AGREEMENT

 

THIS STOCK PURCHASE
AGREEMENT, dated as of February 8, 2005 (this “Agreement”),
is by and between Particle Drilling Technologies, Inc., a Nevada
corporation (the “Company”), and
Prentis B. Tomlinson, Jr. (“Tomlinson”).  Subject to the provisions of Section 5.01,
this Agreement shall be binding on the parties hereto and effective as of the
date first written above.

 

WHEREAS, Tomlinson is the
record and beneficial owner of 6,109,915 shares of the Company’s common stock,
par value $0.001 per share (“Common Stock”);
and

 

WHEREAS, the Company
desires to purchase, and Tomlinson desire to sell, 3,000,000 shares of Common
Stock subject to and immediately following the consummation of a private
placement offering of Common Stock by the Company.

 

NOW, THEREFORE, in
consideration of the foregoing and the respective representations, warranties,
covenants and agreements set forth in this Agreement and other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

ARTICLE I

SALE AND PURCHASE

 

Section 1.01                                Sale and Purchase of Purchased Shares.  Upon the terms and conditions set forth in
this Agreement, immediately following the satisfaction (or waiver in writing by
the Company) of the conditions set forth in Article V of this Agreement
without any further action on the part of the Company or Tomlinson, Tomlinson
hereby sells, transfers and delivers to the Company, and the Company hereby
purchases from Tomlinson and accepts delivery of, 3,000,000 shares of Common
Stock owned beneficially and of record by Tomlinson (the “Purchased Shares”).

 

Section 1.02                                Purchase Price.  The aggregate purchase price for the
Purchased Shares owned beneficially and of record by Tomlinson and sold to the
Company pursuant to this Agreement shall equal $1,500,000.00 in cash, or $0.50
per Purchased Share.  Tomlinson
acknowledges that the Company is currently offering to issue and sell shares of
Common Stock pursuant to the Securities Purchase Agreement (as defined below)
to certain investors at a price per share of $2.00.  Tomlinson further acknowledges that the last
reported sales price of the Common Stock on the OTC Bulletin Board on February 4,
2005 was $6.35.  The purchase price for
the Purchased Shares shall be paid to Tomlinson at the Effective Time or as
soon as commercially practicable thereafter by wire transfer of immediately
available funds to the following account:

 

JPMorgan Chase Bank

ABA 

 

For further credit to:

Prentis B. Tomlinson,
Jr., Trustee

 

 

Section 1.03                                Transfer of Shares.  Tomlinson hereby irrevocably authorizes and
instructs the Company to enter the assignment and transfer of the Purchased
Shares to treasury stock of the Company on the stock transfer records of the
Company at any time on or after the Effective Time.  As used in this Agreement, the “Effective Time” shall mean the time at which
the condition set forth in Section 5.01(b) below shall have been
satisfied.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES RELATING TO TOMLINSON

 

Tomlinson represents and
warrants to the Company as of the date hereof and as of the Effective Time as
follows.  Tomlinson hereby acknowledges
that the Company is relying on the following representations and warranties in
entering into this Agreement.

 

Section 2.01                                Authority; Enforceability.  Tomlinson has all requisite power, capacity
and authority to execute and deliver this Agreement and to perform his
obligations hereunder and to consummate the transactions contemplated hereby.  Tomlinson has duly executed and delivered
this Agreement and, assuming the due authorization, execution and delivery
hereof by the Company, this Agreement constitutes a legal, valid and binding
obligation of Tomlinson, enforceable against Tomlinson in accordance with its
terms, subject to applicable bankruptcy, insolvency or other similar laws
relating to or affecting the enforcement of creditors’ rights generally and to
general principles of equity.  All other
documents required hereunder to be executed and delivered by Tomlinson at the
Effective Time have been duly authorized, executed and delivered by Tomlinson
and, assuming the due authorization, execution and delivery of such documents
by the Company, if applicable, constitute the legal, valid and binding
obligations of Tomlinson, enforceable against Tomlinson in accordance with
their terms, subject to applicable bankruptcy, insolvency or other similar laws
relating to or affecting the enforcement of creditors’ rights generally and to
general principles of equity.  Tomlinson
has caused his spouse to duly execute and deliver a Spousal Consent in the form
of Exhibit A hereto (a “Spousal Consent”) and such Spousal Consent is
valid and binding on such spouse.

 

Section 2.02                                Consents; Absence of Conflicts.  Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (a)
violate or breach the terms of, cause a default under, conflict with, result in
the loss by Tomlinson of any rights or benefits under, impose on Tomlinson any
additional or greater burdens or obligations under, create in any party
additional or greater rights or benefits under, create in any party the right
to accelerate, terminate, modify or cancel, require any notice or consent or
give rise to any preferential purchase or similar right under (i) any
applicable law or (ii) any contract to which Tomlinson is a party or by which
Tomlinson, or any of his properties, is bound; (b) result in the creation or
imposition of any lien on any of the Purchased Shares; or (c) with the passage
of time or the giving of notice or the taking of any action of any third party
have any of the effects set forth in clause (a) or (b) of this Section 2.02.  Tomlinson is not required to obtain or
provide any consent or notice in connection with the consummation of the
transactions contemplated by this Agreement other than as may be required
pursuant to Section 13 or Section 16 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”).

 

Section 2.03                                Ownership. 
As of the date hereof, Tomlinson is the beneficial and record owner of
and has good and valid title to 6,109,915 shares of Common Stock free and clear
of any 

 

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lien, mortgage, pledge, charge, interest,
encumbrance, right of first refusal or other purchase right or other adverse
claim.  Other than the 6,109,915 shares
of Common Stock referenced in the preceding sentence and options to purchase
600,000 shares of Common Stock, Tomlinson does not own, beneficially or of
record, any shares of Common Stock or any other securities that are exercisable
for or convertible into or other rights to acquire securities of the Company or
any of its subsidiaries.  Upon consummation
of the transaction contemplated by this Agreement, the Company will acquire
good and valid title to the Purchased Shares purchased by the Company from
Tomlinson free and clear of any lien, mortgage, pledge, charge, interest,
encumbrance, right of first refusal or other purchase right, community property
interest or other adverse claim.

 

Section 2.04                                Brokers’ Fees.  Neither Tomlinson nor any of Tomlinson’s
affiliates has any liability or obligation to pay any fees or commissions to
any broker, finder, or agent with respect to the transactions contemplated by
this Agreement for which the Company or its affiliates could become liable or
obligated.

 

Section 2.05                                Advice of Counsel.  Tomlinson has been given the opportunity to
seek the advice of and to consult with counsel of his choosing in connection
with the execution and delivery of this Agreement.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES RELATING TO THE COMPANY

 

The Company hereby
represents and warrants to Tomlinson as of the date hereof that the Company has
all requisite corporate power and authority to execute and deliver this
Agreement and to perform the Company’s obligations hereunder.  The execution and delivery of this Agreement
and the performance of the Company’s obligations contemplated hereby have been
duly and validly approved by all action necessary on behalf of the
Company.  The Company has duly executed
and delivered this Agreement and, assuming the due authorization, execution and
delivery hereof by the Tomlinson, this Agreement constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to applicable bankruptcy, insolvency or
other similar laws relating to or affecting the enforcement of creditors’
rights generally and to general principles of equity.  All other documents required hereunder to be
executed and delivered by the Company at the Effective Time have been duly
authorized, executed and delivered by the Company and, assuming the due
authorization, execution and delivery of such documents by Tomlinson, if
applicable, constitute the legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, subject to
applicable bankruptcy, insolvency or other similar laws relating to or
affecting the enforcement of creditors’ rights generally and to general
principles of equity.  The Company hereby
acknowledges that Tomlinson is relying on this representation and warranty in
entering into this Agreement.

 

ARTICLE IV

ADDITIONAL AGREEMENTS

 

Section 4.01                                Appropriate Action.  Tomlinson and the Company will cooperate with
each other and use commercially reasonable efforts to take, or to cause to be
taken, all actions, and to do, or cause to be done, all things necessary,
proper or advisable under the Agreement, 

 

3

 

applicable law or otherwise to consummate and make effective the
transactions contemplated by this Agreement.

 

Section 4.02                                Covenant
Not to Sue by Tomlinson.  TOMLINSON,
ON BEHALF OF HIMSELF AND EACH OF HIS AFFILIATES, EXECUTORS AND ASSIGNS, HEREBY
IRREVOCABLY COVENANTS TO REFRAIN FROM, DIRECTLY OR INDIRECTLY, (I) ASSERTING,
INITIATING OR CAUSING TO BE ASSERTED OR INITIATED, ANY CLAIM OR DEMAND OR (II)
COMMENCING, INSTITUTING OR CAUSING TO BE COMMENCED OR INSTITUTED OR OTHERWISE
PARTICIPATING IN OR SUPPORTING, ANY PROCEEDING OF ANY KIND AGAINST ANY OF THE
COMPANY, ITS SUBSIDIARIES AND/OR ANY OF THEIR OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, STOCKHOLDERS AND/OR AFFILIATES, BASED UPON ANY RIGHTS, CLAIMS, INTERESTS,
DEMANDS, PROCEEDINGS OR CAUSES OF ACTION (WHETHER KNOWN OR UNKNOWN, CONTINGENT
OR OTHERWISE) TOMLINSON HAS OR MAY HAVE IN THE FUTURE (OTHER THAN ANY RIGHTS,
CLAIMS, INTERESTS, DEMANDS, PROCEEDINGS OR CAUSES OF ACTION THAT ARE EXPRESSLY
PROVIDED FOR IN THIS AGREEMENT) ARISING FROM, AS A RESULT OF OR RELATING TO:
(1) TOMLINSON’S DIRECT OR INDIRECT OWNERSHIP PRIOR TO THE DATE HEREOF OF ANY
EQUITY SECURITIES OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, ANY OPTIONS,
WARRANTS OR OTHER RIGHTS TO PURCHASE OR OTHERWISE ACQUIRE ANY EQUITY SECURITIES
OF THE COMPANY OR ANY OF ITS SUBSIDIARIES, (2) TOMLINSON’S EMPLOYMENT BY THE
COMPANY OR ANY OF ITS SUBSIDIARIES, (3) TOMLINSON’S SERVICE AS A DIRECTOR OR
OFFICER OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR (4) THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. 
NOTWITHSTANDING THE FOREGOING, THE COVENANT NOT TO SUE BY TOMLINSON IN
THIS SECTION 4.02 SHALL NOT APPLY TO ANY CLAIM OR DEMAND TOMLINSON HAS OR
MAY HAVE IN THE FUTURE THAT ARISES OUT OF A BREACH BY THE COMPANY OF ITS
OBLIGATIONS UNDER TOMLINSON’S LETTER OF RESIGNATION DATED DECEMBER 2,
2004.

 

Section 4.03                                Covenant Not to Sue by Company.  THE COMPANY, ON BEHALF OF ITSELF, AND ITS
SUCCESSORS AND ASSIGNS, HEREBY IRREVOCABLY COVENANTS TO REFRAIN FROM, DIRECTLY
OR INDIRECTLY, (I) ASSERTING, INITIATING OR CAUSING TO BE ASSERTED OR
INITIATED, ANY CLAIM OR DEMAND OR (II) COMMENCING, INSTITUTING OR CAUSING TO BE
COMMENCED OR INSTITUTED OR OTHERWISE PARTICIPATING IN OR SUPPORTING, ANY
PROCEEDING OF ANY KIND AGAINST TOMLINSON, HIS EXECUTORS OR ASSIGNS, BASED UPON
ANY RIGHTS, CLAIMS, INTERESTS, DEMANDS, PROCEEDINGS OR CAUSES OF ACTION
(WHETHER KNOWN OR UNKNOWN, CONTINGENT OR OTHERWISE) THE COMPANY HAS OR MAY HAVE
IN THE FUTURE (OTHER THAN ANY RIGHTS, CLAIMS, INTERESTS, DEMANDS, PROCEEDINGS
OR CAUSES OF ACTION THAT ARE EXPRESSLY PROVIDED FOR IN THIS AGREEMENT) ARISING
SOLELY FROM TOMLINSON’S FAILURE TO TIMELY DISCLOSE TO THE COMPANY THE
EXISTENCE, DEVELOPMENTS OR FACTS RELATING TO THE LAWSUIT ENTITLED “PARTICLE DRILLING
TECHNOLOGIES, INC. VS. PSI DISTRIBUTION INCORPORATED, HARRY B. CURLETT, CURLETT
FAMILY LIMITED PARTNERSHIP, LTD., CCORE TECHNOLOGY AND LICENSING, LTD., DEEP
HEAT ENERGY 

 

4

 

CORPORATION, AND ENERGEO, LP” AND THE ENGAGEMENT
BY TOMLINSON ON BEHALF OF THE COMPANY OF CAMPBELL HARRISON & DAGLEY L.L.P.
IN CONNECTION WITH THE AFOREMENTIONED LAWSUIT.

 

Section 4.04                                Further Assurances.  In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties hereto will take such further action (including
the execution and delivery of such further instruments and documents) as any
other party reasonably may request, all at the sole cost and expense of the
requesting party.  The Company and
Tomlinson agree to execute and deliver a Cross Receipt in substantially the
form attached hereto as Exhibit B
promptly following the Effective Time.

 

Section 4.05                                Standstill. 
Tomlinson agrees that until the Effective Time, he will not sell,
transfer, encumber, pledge or otherwise dispose of the Purchased Shares.

 

ARTICLE V

CONDITIONS

 

Section 5.01                                Conditions to the Occurrence of the Effective Time.  This Agreement shall be voidable by the
Company, by written notice to Tomlinson following a thirty (30) day opportunity
to cure, if each of the following conditions are not satisfied:

 

(a)                                  No Order.  No governmental authority of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law (whether temporary, preliminary or permanent) that is in effect and has the
effect of making the transactions contemplated hereby illegal or otherwise
prohibiting consummation of the transactions contemplated hereby.

 

(b)                                 Closing under
Securities Purchase Agreement. 
The closing of the purchase and sale of shares of Common Stock of the
Company pursuant to the Securities Purchase Agreement among the Company and the
investors listed on Schedule I (the “Securities
Purchase Agreement”) thereto shall have occurred.

 

(c)                                  Representations and
Warranties.  Each of the
representations and warranties contained in Article II of this Agreement
shall be true and correct as of the date of this Agreement and as of the
Effective Time with the same force and effect as if made as of the Effective
Time.  The Company shall have received a
certificate from Tomlinson as of the Effective Time that the representations
and warranties contained in Article II are true and correct as of the
Effective Time with the same force and effect as if made as of the Effective
Time.

 

(d)                                 Pending Actions.  There shall not be pending any action,
proceeding or investigation before any governmental authority or arbitrator,
mediator or other alternative dispute referee challenging, or seeking material damages
in connection with, the transactions contemplated by this Agreement.

 

(e)                                  Spousal Consent.  Tomlinson’s spouse shall have delivered a
Spousal Consent.

 

5

 

ARTICLE VI

GENERAL PROVISIONS

 

Section 6.01                                Notices. 
All notices and other communications given or made pursuant to the terms
and provisions of this Agreement shall be in writing and shall be deemed to
have been duly given when sent, if delivered personally or sent via a reputable
overnight courier service or by electronic transmission to the telecopier
number specified below or on the third (3rd) day after sent if sent by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like changes of address):

 

(a)                                  If
to the Company, to:

 

Particle Drilling
Technologies, Inc.

808 Travis,
Suite 850

Houston, Texas
77002

Attention:  Chief Financial Officer

Telecopier
No.:  (713) 224-6361

 

(b)                                 If
to Tomlinson, to:

 

Mr. Prentis B.
Tomlinson

P.O. Box 1954

Middleburg,
Virginia  20118

Telecopier
No.:  (540) 687-4761

 

Section 6.02                                Headings. 
The headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement.  Section references
herein are, unless the context otherwise requires, references to sections of
this Agreement.

 

Section 6.03                                Severability. 
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party.  Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.

 

Section 6.04                                Entire Agreement.  This Agreement constitutes the entire
agreement of the parties and supersedes all prior agreements and undertakings,
both written and oral, among the parties or between any of them, with respect
to the subject matter hereof.

 

6

 

Section 6.05                                Assignment. 
This Agreement shall not be transferred or assigned by Tomlinson without
the consent of the Company or by the Company without the consent of Tomlinson.

 

Section 6.06                                Parties in Interest.  This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.

 

Section 6.07                                Specific Performance.  The parties hereby acknowledge and agree that
the failure of any party to perform its agreements and covenants hereunder,
including its failure to take all actions as are necessary on its part to the
consummation of the transactions contemplated by this Agreement, will cause
irreparable injury to the other parties for which damages, even if available,
will not be an adequate remedy. 
Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party’s obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.

 

Section 6.08                                Beneficial
Ownership.  As used in this
Agreement, the terms “beneficial owner” and “owned beneficially” with respect
to shares of Common Stock shall mean having “beneficial ownership” of such
Common Stock as determined pursuant to Rule 13d-3 under the Exchange Act.

 

Section 6.09                                Failure or Indulgence Not Waiver;  Remedies Cumulative.  No failure or delay on the part of any party
hereto in the exercise of any right hereunder shall impair such right or be
construed to be a waiver of, or acquiescence in, any breach of any
representation, warranty or agreement herein, nor shall any single or partial
exercise of any such right preclude other or further exercise thereof or of any
other right.  All rights and remedies
existing under this Agreement are cumulative to, and not exclusive to, and not
exclusive of, any rights or remedies otherwise available.

 

Section 6.10                                Governing Law.  This Agreement shall be governed by, and
construed in accordance with, the law of the State of Texas regardless of the
laws that might otherwise govern under applicable principles of conflicts of
law.

 

Section 6.11                                Counterparts. 
This Agreement may be executed by facsimile signature and in multiple
counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.

 

Section 6.12                                Survival of Representations and Warranties.  All representations, warranties, covenants
and agreements of the Company and Tomlinson in this Agreement or any
certificate or document delivered pursuant hereto shall survive the Effective
Time and any investigation thereof.

 

7

 

IN WITNESS WHEREOF, each of the parties
hereto has caused this Agreement to be executed as of the date first written
above.

 

	
   

  	
  PARTICLE DRILLING TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John D. Schiller

  	
   

  
	
   

  	
  Name: 

  	
  John D. Schiller

  
	
   

  	
  Title:

  	
  President & CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PRENTIS B. TOMLINSON, JR.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Prentis B. Tomlinson, Jr.

  	
   

  
	
   

  	
  Name:

  	
  Prentis B. Tomlinson, Jr.

  
					

 

8

 

Exhibit A

 

SPOUSAL
CONSENT

 

The undersigned hereby
consents to the transfer and sale by the undersigned’s spouse, Prentis B.
Tomlinson, Jr., of 3,000,000 shares (the “Purchased
Shares”) of common stock, par value $0.001 per share, of Particle Drilling
Technologies, Inc., a Nevada corporation (the “Company”),
as contemplated by and in accordance with the terms of that certain Stock
Purchase Agreement dated February 7, 2005 between the Company and Prentis
B. Tomlinson, Jr. (the “Agreement”).  In connection with such consent, effective
from and after the Effective Time (as defined in the Agreement), the
undersigned hereby waives, on behalf of herself, her executors and her assigns,
any and all claims to an ownership interest in the Purchased Shares that she
may have, whether pursuant to community property laws or otherwise and whether
such Purchased Shares are considered community property or separate property of
Prentis B. Tomlinson, Jr.  Such Spousal
Consent, as required as a condition to closing by the Company under the
Agreement, shall not change or alter in any way any material agreements between
the undersigned and Prentis B. Tomlinson, Jr.

 

The undersigned
acknowledges and agrees that this consent and waiver is irrevocable without the
consent of the Company.

 

IN WITNESS WHEREOF, the
undersigned has executed this Spousal Consent as of the 8th day of February,
2005.

 

	
   

  	
  Signature:

  	
  /s/ Heather Tomlinson

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Printed Name:

  	
  Heather
  TomlinsonExhibit 10.5

 

THIS WARRANT
CERTIFICATE AND THE UNDERLYING SHARES OF COMMON STOCK REPRESENTED BY THIS
WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, REGISTRATION UNDER SAID ACT.

 

February 9,
2005

 

PARTICLE DRILLING TECHNOLOGIES, INC.

 

FORM OF COMMON STOCK PURCHASE
WARRANT

 

Number of Shares: 1,500,000

(subject to adjustment)

 

This Warrant (the “Warrant”) issued by Particle Drilling
Technologies, Inc., a Nevada corporation (formerly known as MedXLink Corp.)
(the “Company”) is the warrant referred to in, and is issued pursuant to, that
certain Amended and Restated Master Private Placement Engagement Letter (the “Letter
Agreement”), dated February 8, 2005 between the Company and Tejas
Securities Group, Inc.

 

This Warrant certifies that, for cash in the
amount of $100, which shall constitute good and valuable consideration, the
Company grants to Tejas Securities Group, Inc. (including any successors or
assigns, the “Holder”), the right to subscribe for and purchase from the
Company, at any time on or prior to the Expiration Date (as defined herein),
1,500,000 shares of Common Stock (such shares and/or any other securities that
may be deliverable on exercise hereof, the “Warrant Shares”), at the Exercise
Price (as defined herein), all subject to the terms, conditions and adjustments
herein set forth.  The number of Warrant
Shares and the Exercise Price are subject to adjustment as provided in Section 3.  This Warrant is issued subject to the
following terms and conditions:

 

1.                                       Definitions  As used in this Warrant, the following terms shall have the
respective meanings set forth below or elsewhere in this Warrant as referred to
below:

 

“Affiliate” means, with respect to any
Person, any other Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified Person.  For the purposes of this Warrant, “control,”
when used with respect to any specified Person means the power to direct or
cause the direction of the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms “controlling” and “controlled” have meanings
correlative to the foregoing.

 

1

 

“business day” (whether such term
is capitalized or not) means any day except Saturday, Sunday and any day which
shall be a federal legal holiday or a day on which banking institutions in the
State of New York or the State of Texas are authorized or required by law or
other governmental action to close.

 

“Common Stock”
means the common stock, $0.001 par value per share, of the Company (including
any securities into which or for which such shares may be exchanged for, or
converted into, pursuant to any stock dividend, stock split, stock combination,
recapitalization, reclassification, reorganization or other similar event).

 

“Company”
has the meaning set forth in the preamble hereof.

 

“Exercise
Price” means $2.00 per share of Common Stock, as such amount may be
adjusted from time to time pursuant to Section 3 hereof.

 

“Expiration
Date” means February 9, 2015.

 

“Fair Market
Value” shall mean on any date (i) if the Common Stock is quoted on Nasdaq
or listed on a national securities exchange, then the last reported sale price
per share of Common Stock on Nasdaq or any national securities exchange in
which such Common Stock is quoted or listed, as the case may be, on such date
or, if no such sale price is reported on such date, such price on the next
preceding business day in which such price was reported, (ii) if the Common
Stock is actively traded over-the-counter, then the last sales price quoted, if
determinable, or, if not determinable, the average of the closing bid and asked
prices quoted on the OTCBB (or similar system) on such date or (iii) if such
Common Stock is not traded, quoted or listed on Nasdaq or any national
securities exchange or the over-the-counter market, then the fair market value
of a share of Common Stock, as determined in good faith by the Board of
Directors of the Company.

 

“Holder”
has the meaning set forth in the preamble of hereof.

 

“Majority Holders” means the holders
of more than 50% of the aggregate number of Warrant Shares issuable upon the
exercise of (a) this Warrant and (b) any warrants issued upon the transfer of
portions of this Warrant by the Holder to other holders.

 

“OTCBB” means the OTC Bulletin Board.

 

“Person”
(whether or not capitalized) means an individual, entity, partnership, limited
liability company, corporation, association, trust, joint venture,
unincorporated organization, and any government, governmental department or
agency or political subdivision thereof.

 

“SEC”
means the United States Securities and Exchange Commission.

 

“Securities
Purchase Agreement” means that certain Securities Purchase Agreement, dated
as of the date hereof, as it may be amended from time to time, by and among the
Company and the Purchasers (as such term is defined therein).

 

2

 

2.                                       Exercise of Warrant.

 

2.1                                 Exercise Period.   On
the terms and subject to the conditions contained herein, the Holder may
exercise this Warrant at any time and from time to time on any Business Day
starting on the date hereof and ending at 5:00 p.m., Eastern Time, on the
Expiration Date.  The Expiration Date
shall be extended for any period that the registration statement contemplated
in Section 4 fails to remain effective.

 

2.2                                 Method of Exercise; Payment.

 

(a)                                  Cash Exercise. 
Subject to all of the terms and conditions hereof, this Warrant may be
exercised, in whole or in part, at any time and from time to time during the
period commencing on the date hereof and ending at 5:00 p.m., Eastern Time, on
the Expiration Date, by surrender of this Warrant to the Company at its
principal office, accompanied by a subscription substantially in the form
attached hereto, executed by the Holder and accompanied by (a) wire transfer of
immediately available funds or (b) certified or official bank check payable to
the order of the Company, in each case in the amount obtained by multiplying (i)
the number of Warrant Shares for which the Warrant is being exercised, as
designated in such subscription, by (ii) the Exercise Price.  Thereupon, the Holder shall be entitled to
receive the number of duly authorized, validly issued, fully paid and nonassessable
Warrant Shares determined as provided for herein.

 

(b)                                 Cashless Exercise/Conversion. 
Subject to all of the terms and conditions hereof, the Holder shall have
the right to convert this Warrant, in whole or in part, at any time and from
time to time during the period commencing on the date hereof and ending at 5:00
p.m., Eastern Time, on the Expiration Date, by surrender of this Warrant to the
Company at its principal office, accompanied by a conversion notice
substantially in the form attached hereto, executed by the Holder.  Thereupon, the Holder shall be entitled to
receive a number of duly authorized, validly issued, fully paid and
nonassessable Warrant Shares equal to:

 

(i)                                     (A)(x) the number of Warrant Shares (subject
to adjustment as provided in Section 3 hereof) which such Holder would be
entitled to receive upon exercise of such Warrant for the number of Warrant
Shares designated in such conversion notice (without giving effect to any
adjustment thereof pursuant to this subsection), multiplied by
(y) the Fair Market Value of each such Warrant Share so receivable upon such
exercise

 

minus

 

(B)(x) the number of Warrant Shares subject to
adjustment as provided in Section 3 hereof which such Holder would be
entitled to receive upon exercise of such Warrant for the number of Warrant
Shares designated in such conversion notice (without giving effect to any
adjustment thereof pursuant to this subsection), multiplied by (y) the Exercise
Price

 

divided by

 

(ii)                                  the Fair Market Value per Warrant Share.

 

3

 

2.3                                 Delivery of Stock Certificates on Exercise.  As
soon as practicable after the exercise of this Warrant, and in any event within
three (3) business days thereafter, the Company, at its expense, and in accordance
with applicable securities laws, will cause to be issued in the name of and
delivered to the Holder, or as the Holder may direct (subject in all cases, to
the provisions of Section 8 hereof), a certificate or certificates for the
number of Warrant Shares purchased by the Holder on such exercise, plus, in lieu of any fractional share to which the
Holder would otherwise be entitled, cash equal to such fraction multiplied by
the Fair Market Value.

 

2.4                                 Warrant Shares To Be Fully Paid and
Nonassessable.  All Warrant Shares issued upon the exercise
of this Warrant shall be duly authorized, validly issued, fully paid and
nonassessable, free of all liens, taxes, charges and other encumbrances or
restrictions on sale (other than those set forth herein).

 

2.5                                 Issuance of New Warrants; Company
Acknowledgment.  Upon any partial exercise of this Warrant,
the Company, at its expense, will forthwith and, in any event within three (3)
business days, issue and deliver to the Holder a new warrant or warrants of
like tenor, registered in the name of the Holder, exercisable, in the
aggregate, for the balance of the Warrant Shares.  Moreover, the Company shall, at the time of
any exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to the Holder any rights to which
the Holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant; provided, however, that if the
Holder shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to the Holder any such rights.

 

2.6                                 Payment of Taxes and Expenses.  The
Company shall pay any recording, filing, stamp or similar tax which may be
payable in respect of any transfer involved in the issuance of, and the
preparation and delivery of certificates (if applicable) representing, (i) any
Warrant Shares purchased upon exercise of this Warrant and/or (ii) new or
replacement warrants in the Holder’s name or the name of any transferee of all
or any portion of this Warrant.

 

2.7                                 Cooperation with Filings.  The
Company shall assist and cooperate with any Holder required to make any
governmental or regulatory filings or obtain any governmental or regulatory
approvals prior to or in connection with any exercise of this Warrant
(including, without limitation, making any filings required to be made by the
Company).

 

2.8                                 Conditions.  Notwithstanding any other
provision of this Warrant, if the exercise of all or any portion of this
Warrant is to be made in connection with a registered public offering, a sale
of the Company or any other transaction or event, such exercise may, at the
election of the Holder, be conditioned upon consummation of such transaction or
event in which case such exercise shall not be deemed effective until the
consummation of such transaction or event.

 

3.                                       Adjustment of
Exercise Price and Warrant Shares.  The Exercise Price and the number of Warrant
Shares shall be subject to adjustment from time to time upon the happening of
certain events as described in this Section 3.

 

4

 

3.1                                 Subdivision or
Combination of Stock.  If at any time or from time to time after the
date hereof, the Company shall subdivide (by way of stock dividend, stock split
or otherwise) its outstanding shares of Common Stock, the Exercise Price in
effect immediately prior to such subdivision shall be reduced proportionately
and the number of Warrant Shares (calculated to the nearest whole share) shall
be increased proportionately, and conversely, in the event the outstanding
shares of Common Stock shall be combined (whether by stock combination, reverse
stock split or otherwise) into a smaller number of shares, the Exercise Price
in effect immediately prior to such combination shall be increased
proportionately and the number of Warrant Shares (calculated to the nearest
whole share) shall be decreased proportionately.  The Exercise Price and the number of Warrant
Shares, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described in this Section 3.1.

 

3.2                                 Adjustments

 

(a)                                  Adjustment for Stock
Dividends. If at any time after the date hereof, the Company
shall declare a dividend or make any other distribution upon any class or
series of stock of the Company payable in shares of Common Stock, the Exercise
Price in effect immediately prior to such declaration or distribution shall be
reduced proportionately and the number of Warrant Shares (calculated to the nearest
whole share) shall be increased proportionately, to reflect the issuance of any
shares of Common Stock, issuable in payment of such dividend or
distribution.  The Exercise Price and the
number of Warrant Shares, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described in this Section 3.2.

 

(b)                                 Adjustments for Other
Dividends and Distributions.  In the event the Company at any time or from
time to time after the date hereof shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Company (other than
shares of Common Stock) or in cash or other property, then and in each such event
provision shall be made so that the Holder shall receive upon exercise hereof,
in addition to the number of shares of Common Stock issuable hereunder, the
kind and amount of securities of the Company and/or cash and other property
which the Holder would have been entitled to receive had this Warrant been
exercised into Common Stock on the date of such event and had the Holder
thereafter, during the period from the date of such event to and including the
exercise date, retained any such securities receivable, giving application to
all adjustments called for during such period under this Section 3 with
respect to the rights of the Holder.

 

3.3                                 Adjustments for Reclassifications.  If
the Common Stock issuable upon the conversion of this Warrant shall be changed
into the same or a different number of shares of any class(es) or series of
stock and/or the right to receive property, whether by reclassification or
otherwise (other than an adjustment under Sections 3.1 and 3.2 or a merger,
consolidation, or sale of assets provided for under Section 3.4), then and
in each such event, the Holder hereof shall have the right thereafter to
convert each Warrant Share into the kind and amount of shares of stock and
other securities and property receivable upon such reclassification, or other
change by holders of the number of shares of Common Stock into which such
Warrant Shares would have been convertible immediately prior to such
reclassification or change, all subject to

 

5

 

successive adjustments thereafter from time to time
pursuant to and in accordance with, the provisions of this Section 3.

 

3.4                                 Adjustments for
Merger or Consolidation. In the event that, at any
time or from time to time after the date hereof, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other Person, or (c)
sell or transfer all or substantially all of its properties or assets or more
than 50% of the voting capital stock of the Company (whether issued and
outstanding, newly issued, from treasury, or any combination thereof) to any
other person under any plan or arrangement contemplating the consolidation or
merger, sale or transfer, or dissolution of the Company (each, a “Merger
Transaction”), then, in each such case, the Holder, upon the exercise of
this Warrant as provided in Section 2.2(a) or the conversion of this
warrant as provided in Section 2.2(b) hereof at any time or from time to
time after the consummation of such reorganization, consolidation, merger or
sale or the effective date of such dissolution, as the case may be, shall
receive, in lieu of the Warrant Shares issuable on such exercise immediately
prior to such consummation or such effective date, as the case may be, the
stock and property (including cash) to which the Holder would have been
entitled upon the consummation of such consolidation or merger, or sale or
transfer, or in connection with such dissolution, as the case may be, if the
Holder had so exercised this Warrant immediately prior thereto (assuming the
payment by the Holder of the Exercise Price therefor as required hereby in a
form permitted hereby, which payment shall be included in the assets of the
Company for the purposes of determining the amount available for distribution),
all subject to successive adjustments thereafter from time to time pursuant to,
and in accordance with, the provisions of this Section 3. The Company
shall not effect any such reorganization, consolidation, merger, sale or
transfer unless, prior to the consummation thereof, the successor entity (if
other than the Company) resulting from the consolidation or merger or the
entity purchasing such assets assumes by written instrument the obligation to
deliver to each holder of Warrants such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
acquire; provided, that any assumption shall not relieve the Company of its
obligations hereunder.

 

3.5                                 Continuation of Terms.  Upon any reorganization, consolidation, merger
or transfer (and any dissolution following any such transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and
the terms hereof shall be applicable to the shares of Common Stock and other
securities and property receivable upon the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such Common Stock or other securities,
including, in the case of any such transfer, the Person acquiring all or
substantially all of the properties or assets or more than 50% of the voting
capital stock of the Company (whether issued and outstanding, newly issued or
from treasury or any combination thereof), whether or not such Person shall
have expressly assumed the terms of this Warrant.

 

3.6                                 Minimum Adjustment of Exercise Price.  If
the amount of any adjustment of the Exercise Price required pursuant to this Section 3
would be less than one-tenth (1/10) of one percent (1%) of the Exercise Price
in effect at the time such adjustment is otherwise so required to be made, such
amount shall be carried forward and adjustment with respect thereto made at the
time of and together with any subsequent adjustment which, together with such

 

6

 

amount and any other amount or amounts so carried
forward, shall aggregate at least one tenth (1/10) of one percent (1%) of such
Exercise Price.

 

3.7                                 Certificate as to
Adjustments.  Upon the occurrence of each
adjustment or readjustment of the Exercise Price and number of Warrant Shares
pursuant to this Section 3, this Warrant shall, without any action on the
part of the Holder, be adjusted in accordance with this Section 3, and the
Company, at its expense, promptly shall compute such adjustment or readjustment
in accordance with the terms hereof and prepare and furnish to the Holder a
certificate setting forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based.  The Company will forthwith send a copy of
each such certificate to the Holder in accordance with Section 9.4 below.

 

4.                                       Registration
Rights.  Upon the written request of the Majority
Holders, the Company shall use commercially reasonable efforts to, within 60
days, file a registration statement registering the Common Stock issuable on
exercise of this Warrant, and shall use commercially reasonable efforts to
cause such registration statement to remain effective until the earliest to
occur of (i) the date after which all of the Warrant Shares registered
thereunder shall have been sold, (ii) the second (2nd) anniversary of the
effective date of the registration statement and (iii) the date on which the
Holder may sell all Warrant Shares then held by the Holder without restriction
under Rule 144(k) of the Securities Act of 1933, as amended (the “Securities
Act”).  After the expiration of the
second anniversary of the date of this Warrant, the Company shall provide
instructions to its transfer agents that certificates representing the Warrant
Shares shall be issued without a legend if such Warrant Shares are to be issued
pursuant to a net cashless exercise/conversion pursuant to Section 2.2
hereof; provided that the Holder is not, and represents that it is not, then an
“affiliate” of the Company as such term is defined under Rule 144.

 

5.                                       Notices of
Record Date.  Upon (a) any establishment by the Company
of a record date 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 right or option to acquire securities of the Company, or
any other right, or (b) any capital reorganization, reclassification,
recapitalization, merger or consolidation of the Company with or into any other
Person, any transfer of all or substantially all the assets of the Company, or
any voluntary or involuntary dissolution, liquidation or winding up of the Company,
or the sale, in a single transaction, of a majority of the Company’s voting
stock (whether newly issued, or from treasury, or previously issued and then
outstanding, or any combination thereof), the Company shall mail to the Holder
at least ten (10) business days, or such longer period as may be required by
law, prior to the record date specified therein and at least ten (10) business
days prior to the date specified in clause (ii) or (iii) hereof, a notice
specifying (i) the date established as the record date for the purpose of such
dividend, distribution, option or right and a description of such dividend,
distribution, option or right, (ii) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution, liquidation or
winding up, or sale is expected to become effective and (iii) the date, if any,
fixed as to when the holders of record of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up.  Nothing herein shall prohibit the Holder from
exercising this Warrant during the ten (10) business day period commencing on
the date of such notice.

 

7

 

6.                                       Exchange of
Warrant.  Subject to the provisions of Section 7
hereof (if and to the extent applicable), this Warrant shall be exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for new warrants of like tenor, each registered in the name of the Holder or,
subject to compliance with applicable federal and state securities laws, in the
name of such other Persons as the Holder may direct (upon payment by the Holder
of any applicable transfer taxes). Each of such new warrants shall be
exercisable for such number of Warrant Shares as the Holder shall direct, provided that all of such new
warrants shall represent, in the aggregate, the right to purchase the same number
of Warrant Shares and cash, securities or other property, if any, which may be
purchased by the Holder upon exercise of this Warrant at the time of its
surrender.

 

7.                                       Transfer
Provisions, etc.

 

7.1                                 Restrictions on Transfer.

 

(a)                                  Restrictions.  The
Holder, by its acceptance of this Warrant, agrees to be bound by the provisions
of this Section 7.1 and acknowledges and confirms that this Warrant and
any Warrant Shares issued upon exercise of this Warrant have not been
registered under the Securities Act or any applicable state securities laws,
and may not be sold or transferred except in compliance with and subject to the
Securities Act and such state securities laws. 
Unless and until this Warrant and such Warrant Shares have been
registered under the Securities Act and such state securities laws, the Company
may require, as a condition to effecting any sale or transfer of this Warrant
or such Warrant Shares on the books of the Company, an opinion of counsel
reasonably satisfactory to the Company to the effect that an exemption from
registration under the Securities Act and such state securities laws is
available for the proposed transfer or assignment or a certification reasonably
satisfactory to the counsel of the Company in its professional determination
from the transferee that it is an “accredited investor” as defined under the
Securities Act and regulations promulgated thereunder.  Any purported sale or transfer of this
Warrant and/or such Warrant Shares shall be null and void unless made in
compliance with the conditions set forth in this Section 7.1.  Except as otherwise provided in Section 7.1(b),
(a) this Warrant and any warrant of the Company issued in exchange of or
replacement for this Warrant shall be stamped or otherwise imprinted with a
legend in substantially the form set forth on the cover of this Warrant, (b)
each certificate for Warrant Shares issued upon the exercise of this Warrant
and each certificate issued upon the transfer of any such Warrant Shares shall
be stamped or otherwise imprinted with a legend substantially to the same
effect.

 

(b) Termination of Restrictions.    The restrictions imposed by Section 7.1(a)
upon the transferability of this Warrant and the Warrant Shares shall
terminate: (a) when and so long as this Warrant or any such Warrant Shares
shall have been effectively registered under the Securities Act and transferred
in compliance therewith; or (b) when the Company shall have received an opinion
of counsel reasonably satisfactory to it that this Warrant or such Warrant
Shares may be transferred without registration thereof under the Securities
Act; provided, however, that if the Warrant or the Warrant Shares have been
held (both legally and beneficially) by the Holder for at least one (1) year
and is proposed to be sold in compliance with Rule 144 under the
Securities Act, no such opinion of counsel shall be required.  Whenever the legend requirements imposed by Section 7.1(a)
shall terminate as to this Warrant or the Warrant

 

8

 

Shares, the Holder of this Warrant or any Warrant
Shares shall be entitled to receive from the Company, upon request, at the
Company’s expense, a new warrant or a new certificate representing the Warrant
Shares, as the case may be, not bearing the restrictive legend described in Section 7.1(a).

 

(c)                                  Compliance with Securities Laws.  The
Holder, by acceptance hereof, represents to the Company that this Warrant and
any Warrant Shares purchased upon exercise of this Warrant are being acquired
solely for the Holder’s own account and not as a nominee for any other party,
and for investment, and that the Holder will not offer, sell or otherwise
dispose of this Warrant or any such Warrant Shares except under circumstances
that will not result in a violation of the Securities Act or any applicable
state securities laws.  The Holder has
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment in this Warrant
and any Warrant Shares purchased on exercise or conversion hereof and has the
ability to bear the economic risks of such investment.  The Holder certifies and represents to the
Company that it is an “accredited investor” as defined in Rule 501 of
Regulation D promulgated under the Securities Act and, if not an individual,
was not organized for the purpose of acquiring the Warrants.

 

(d)                                 Mechanics of Transfer.

 

(i)                                     Subject to compliance with the other provisions of this Section 7.1,
any transfer of this Warrant, in whole or in part, shall occur upon surrender
of this Warrant at the principal executive offices of the Company, together
with a duly executed form of assignment, in the form attached hereto and funds
sufficient to pay any transfer taxes payable upon the making of such transfer
and, if required, an opinion of counsel reasonably acceptable to counsel of the
Company in its professional determination concerning the compliance of such
transfer with the Securities Act and applicable state securities laws.

 

(ii)                                  In the event of
any transfer of all or any portion of this Warrant in accordance with Section 7.1,
the Company shall issue (i) a new warrant of like tenor to the transferee,
representing the right to purchase the number of Warrant Shares, and cash,
securities or other property, if any, which were purchasable by the Holder of
the transferred portion of this Warrant at the time of said transfer, and (ii)
a new warrant of like tenor to the Holder, representing the right to purchase
the number of Warrant Shares, if any, and cash, securities or other property,
if any, purchasable by the Holder of the un-transferred portion of this
Warrant.  Until this Warrant or any
portion thereof is transferred on the books of the Company, the Company may treat
the Holder as the absolute holder of this Warrant and all right, title and
interest therein for all purposes, notwithstanding any notice to the contrary.

 

(e)                                  No
Restrictions on Transfer.  Subject to
compliance with applicable federal and
state securities laws and the foregoing provisions of this Section 7.1,
this Warrant and any portion hereof, the Warrant Shares and the rights
hereunder may be transferred by the Holder in its sole discretion at any time
and to any Person or Persons, including without limitation Affiliates and
affiliated groups of such Holder, without the consent of the Company.

 

9

 

7.2                                 Warrant Register.  The
Company shall keep at its principal office a register for the registration, and
registration of transfers, of the Warrants. 
The name and address of each Holder of one or more of the Warrants, each
transfer thereof and the name and address of each transferee of one or more of
the Warrants shall be registered in such register.  The Company shall give to any Holder of a
Warrant promptly upon request therefor, a complete and correct copy of the
names and addresses of all registered Holders of the Warrants.

 

8.                                       Lost, Stolen or
Destroyed Warrant.  Upon receipt by the Company of evidence
satisfactory to it of loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, on delivery of a customary
affidavit of the Holder and customary unsecured indemnity agreement, or, in the
case of mutilation, upon surrender of this Warrant, the Company at its expense
will execute and deliver, or will instruct its transfer agent to execute and
deliver, a new Warrant of like tenor and date and representing the same rights
represented by such lost, stolen, destroyed or mutilated warrant and any such
lost, stolen, mutilated or destroyed Warrant thereupon shall become void.

 

9.                                       General.

 

9.1                                 Authorized Shares, Reservation of Warrant Shares for Issuance.  At all times while this Warrant is
outstanding, the Company shall maintain its corporate authority to issue, and
shall have authorized and reserved for issuance upon exercise of this Warrant,
such number of shares of Common Stock, and any other capital stock or other
securities as shall be sufficient to perform its obligations under this Warrant
(after giving effect to any and all adjustments to the number and kind of
Warrant Shares purchasable upon exercise of this Warrant).

 

9.2                                 No Impairment.  The Company will
not, by amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution,
issuance or sale of securities, sale or other transfer of any of its assets or
properties, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder hereunder against impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par
value of any shares of Common Stock receivable upon the exercise of this
Warrant above the amount payable therefor on such exercise, and (b) will take
all action that may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.

 

9.3                                 No Rights as
Stockholder.  Except
as provided herein (including Sections 3 and 5), the Holder shall not be
entitled to vote or to receive dividends or to be deemed the holder of Common
Stock that may at any time be issuable upon exercise of this Warrant for any
purpose whatsoever, nor shall anything contained herein be construed to confer
upon the Holder any of the rights of a stockholder of the Company or any right
to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance or
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger or

 

10

 

conveyance or otherwise), or to receive notice of
meetings (except to the extent otherwise provided in this Warrant), or to
receive dividends or subscription rights, until the Holder shall have exercised
this Warrant and been issued Warrant Shares in accordance with the provisions
hereof and continues to hold Warrant Shares.

 

9.4                                 Notices. Any notices, reports or other correspondence
(hereinafter collectively referred to as “correspondence”) required or
permitted to be given hereunder shall be sent by postage prepaid first class
mail, overnight courier or facsimile transmission, or delivered by hand to the
party to whom such correspondence is required or permitted to be given
hereunder. The date of giving any notice shall be the date of its actual
receipt.

 

(a)                                  All correspondence to the Company shall be
addressed as follows:

 

Particle Drilling Technologies, Inc.

808 Travis, Suite 850

Houston, Texas 77002

Attn: 
Chief Financial Officer

Facsimile: (713) 224-6361

 

with a copy to:

 

Vinson & Elkins LLP

First City Tower

1001 Fannin Street, Suite 2300

Houston, Texas 77002-676

Attn:  Keith Fullenweider

 

Facsimile: (713) 758-2346

 

(b)                                 All correspondence to the Holder shall be
addressed to the Holder at its address appearing in the books maintained by the
Company.

 

10.                                 Amendment and
Waiver.  No
failure or delay of the Holder in exercising any power or right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right or power, or any abandonment or discontinuance of steps to enforce
such a right or power, preclude any other or further exercise thereof or the exercise
of any other right or power.  The rights
and remedies of the Holder are cumulative and not exclusive of any rights or
remedies which it would otherwise have. Any term of this Warrant may be
amended or waived upon the written consent of the Company and the Majority
Holders, which amendment or waiver will be effective on all holders of this
Warrant or any warrant issued on transfer hereof.

 

11.                                 Governing Law.  This
Warrant shall be governed by and construed in accordance with the laws of the
State of New York, as such laws are applied to contracts entered into and
wholly to be performed within the State of New York and without giving effect
to any principles of conflicts or choice of law that would result in the
application of the laws of any other jurisdiction.

 

11

 

12.                                 Covenants To
Bind Successor and Assigns.  All covenants, stipulations, promises and
agreements in this Warrant contained by or on behalf of the Company shall bind
its successors and assigns, whether so expressed or not.

 

13.                                 Severability.  In case any one or more of the provisions
contained in this Warrant shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.  The parties shall endeavor in good faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.

 

14.                                 Construction.  The definitions of this Warrant
shall apply equally to both the singular and the plural forms of the terms
defined. Wherever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The section and
paragraph headings used herein are for convenience of reference only, are not
part of this Warrant and are not to affect the construction of or be taken into
consideration in interpreting this Warrant.

 

15.                                 Remedies. The Holder, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Warrant. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Warrant and hereby agrees to waive the defense in any action
for specific performance that a remedy at law would be adequate. In any action
or proceeding brought to enforce any provision of this Warrant or where any
provision hereof is validly asserted as a defense, the successful party to such
action or proceeding shall be entitled to recover reasonable attorneys’ fees in
addition to any other available remedy.

 

[SIGNATURE PAGE TO FOLLOW]

 

12

 

IN WITNESS WHEREOF,
the Company has executed this Common Stock Purchase Warrant as of the date
first written above.

 

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
  PARTICLE DRILLING TECHNOLOGIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
					

 

 

Exhibit A

 

NOTICE AND

SUBSCRIPTION

 

To:                              Particle Drilling
Technologies, Inc.

808 Travis, Suite 850

Houston, Texas 77002

 

The undersigned hereby irrevocably elects to
exercise the right of purchase represented by the attached Warrant for, and to
exercise thereunder,               
shares of Common Stock, of PARTICLE DRILLING TECHNOLOGIES, INC., a Nevada
corporation (the “Company”), and tenders
herewith payment of $                  ,
representing the aggregate purchase price for such shares based on the price
per share provided for in such Warrant. Such payment is being made in
accordance with Section 2.2(a) of the attached Warrant.

 

The undersigned hereby represents and
warrants as follows:

 

(a)                                  the undersigned is
acquiring such shares of Common Stock for its own account for investment and
not for resale or with a view to distribution thereof in violation of the
Securities Act of 1933, as amended, and the regulations promulgated thereunder
(the “Securities Act”); and

 

(b)                                 the undersigned is an “accredited
investor” as defined in Rule 501 of Regulation D promulgated under the
Securities Act and was not organized for the purpose of acquiring the Warrant
or such shares of Common Stock.  The
undersigned’s financial condition is such that it is able to bear the risk of
holding such securities for an indefinite period of time and the risk of loss
of its entire investment.  The
undersigned has sufficient knowledge and experience in investing in companies
similar to the Company so as to be able to evaluate the risks and merits of its
investment in the Company.

 

Please issue a certificate or certificates
for such shares of Common Stock in the following name or names and
denominations and deliver such certificate or certificates to the person or
persons listed below at their respective address set forth below:

 

	
                                                                         

  
	
                                                                         

  
	
                                                                         

  
	
                                                                         

  

 

If said number of shares of Common Stock
shall not be all the shares of Common Stock issuable upon exercise of the attached
Warrant, a new Warrant is to be issued in the name of the

 

 

undersigned for the remaining balance of such
shares of Common Stock less any fraction of a share of Common Stock paid in
cash pursuant to Section 2.2(a) of the attached warrant.

 

	
  Dated:

  	
   

  	
  , 

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Signature

  

 

The undersigned Particle Drilling
Technologies, Inc. hereby acknowledges receipt of this Notice and Subscription
and authorizes issuance of the shares of Common Stock described above.

 

Particle Drilling Technologies, Inc.

 

	
  By:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  
				

 

 

FORM OF ASSIGNMENT

 

(To be
executed upon assignment of Warrant)

 

For value
received,                                                                     
hereby sells, assigns and transfers unto                                     
the attached Warrant [    % of the attached Warrant],
together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint                                         
attorney to transfer said Warrant [said percentage of said Warrant] on the
books of PARTICLE DRILLING TECHNOLOGIES, INC., a Nevada corporation, with
full power of substitution in the premises.

 

If not all of the attached Warrant is to be
so transferred, a new Warrant is to be issued in the name of the undersigned for
the balance of said Warrant.

 

The undersigned hereby agrees that it will
not sell, assign, or transfer the right, title and interest in and to the
Warrant unless applicable federal and state securities laws have been complied
with.

 

 

	
  Dated:

  	
   

  	
  , 

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Signature

  

 

 

FORM
OF CONVERSION NOTICE

 

To Particle Drilling Technologies, Inc.:

 

The undersigned registered holder of the
attached Warrant hereby irrevocably converts such Warrants with respect to                 (1)
Warrant Shares which such holder would be entitled to receive upon the exercise
hereof, and requests that the certificates for such shares be issued in the
name of, and delivered to                                   ,
whose address is as follows:

 

	
                                                                         

  
	
                                                                         

  
	
                                                                         

  
	
                                                                         

  

 

Such conversion is being made in accordance
with Section 2.2(b) of the attached Warrant.  The undersigned hereby represents and
warrants as follows:

 

(a)                                  the undersigned is acquiring
such shares of Common Stock for its own account for investment and not for resale
or with a view to distribution thereof in violation of the Securities Act; and

 

(b)                                 the undersigned is an “accredited
investor” as defined in Rule 501 of Regulation D promulgated under the
Securities Act and was not organized for the purpose of acquiring the Warrant
or such shares of Common Stock.  The
undersigned’s financial condition is such that it is able to bear the risk of
holding such securities for an indefinite period of time and the risk of loss
of its entire investment.  The
undersigned has sufficient knowledge and experience in investing in companies
similar to the Company so as to be able to evaluate the risks and merits of its
investment in the Company.

 

	
  Dated:

  	
   

  	
   

  
	
   

  	
  (Signature must conform in all respects to
  name of

  holder as specified on the face of Warrant)

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
				

 

(1)               Insert
here the number of Warrant Shares into which the Warrant is convertible (or, in
the case of a partial conversion, the number of Warrant Shares as to which the
Warrants evidenced by this Warrant Certificate are then being converted). In
the case of a partial conversion, a new Warrant Certificate will be issued and
delivered, representing the unconverted portion of the Warrants, to the holder
surrendering this Warrant Certificate.

 

 

	
   

  	
  (Street Address)

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (City)

  	
  (State)

  	
  (Zip Code)

  

 

The undersigned Particle Drilling
Technologies, Inc. hereby
acknowledges receipt of this Conversion Notice and authorizes issuance of the
shares of Common Stock described above.

 

Particle Drilling
Technologies, Inc.

 

	
  By:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  
				

 

1.2.

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