WARRANT AGREEMENT

This WARRANT AGREEMENT (this “Agreement” ), dated as of August, 2009, is between MDI, INC., a Delaware corporation (the “Company” ), and MDI Investments, LLC ( “Holder” ).

WHEREAS, the Company desires to grant to Holder this Warrant Agreement (this “Warrant” ) to purchase 4,000,000 shares (the “Shares” ) of Common Stock of the Company.

NOW, THEREFORE, in consideration of the premises, the agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.   Grant .  Subject to the terms and conditions hereof, Holder is hereby granted this Warrant by which Holder has the right to purchase, at any time prior to August __, 2016 (the “Expiration Date” ), at 5:00 p.m., San Antonio, Texas time on such date, the Shares.

2.   Exercise of Warrant .

2.1   This Warrant is exercisable at $0.60 per Share payable by certified or official bank check, bank draft payable to the order of the Company or any combination thereof, subject to adjustment as provided in Section 8 hereof. The purchase rights represented are exercisable at the option of the Holder thereof, in whole or part (but not as to fractional shares of the Common Stock).

2.2   In lieu of exercising this Warrant by payment of cash or check or bank draft payable to the order of the Company pursuant to Section 2.1 above, the Holder may elect to receive Shares equal to the value of this Warrant (or the portion thereof being exercised), at any time after the date hereof and before the close of business on the Expiration Date, by surrender of this Warrant at the principal executive office of the Company, together with the Notice of Conversion annexed hereto, in which event the Company will issue to the Holder, Shares in accordance with the following formula:

X           =            Y(A-B)

    A

Where,                   X      =         The number of Shares to be issued to Holder;

Y      =           The number of Shares for which the Warrant is being exercised;

A      =           The fair market value of one Share; and

B      =           The Exercise Price.

(i)   For purposes of this Section 2.2, the fair market value of a Share is defined as the average of the closing bid prices over the thirty (30) day period ending three (3) days prior to the date of the Notice of Conversion.

3.            Issuance of Certificates .  Upon the exercise of this Warrant, the issuance of certificates for shares of Common Stock (the “Warrant Certificates” ) shall be made forthwith (and in any event within fifteen (15) business days thereafter) without charge to the Holder thereof, and such certificates shall be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

3.   Restriction On Transfer of Warrant .  The Holder, by its acceptance thereof, covenants and agrees that this Warrant is being acquired as an investment and not with a view to the distribution thereof in violation of the Securities Act (as defined below).  This Agreement is binding upon any Holder(s) and their respective heirs, successors, and permitted assigns.  The Holder may assign interests granted by this Agreement, provided that the transferee agrees to be bound by the terms of this Agreement as if such transferee were a Holder and, provided further, that the assignment is made pursuant to an effective registration statement under the Securities Act or a valid exemption from registration under the Securities Act of 1933, as amended (the “Securities Act” ).  If requested by the Company, the Holder must also furnish to the Company an opinion of counsel reasonably satisfactory to the Company to such effect.

4.   Exercise Price .

4.1   Initial and Adjusted Exercise Price .  Except as otherwise provided in Section 8 hereof, the initial exercise price of each Warrant shall be $0.60 per Share.  The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 8 hereof.

4.2   Exercise Price .  The term “Exercise Price” herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context.

5.   Restrictive Legends .  Any certificates representing the Shares underlying this Warrant and any of the other securities issuable upon exercise of this Warrant shall bear substantially the following restrictive legend:

The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the “Act”), and may not be offered or sold except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel to the issuer, that an exemption from registration under such Act is available.

6.   Adjustments to Exercise Price and Number of Securities .

6.1   Adjustments for Change in Capital Stock . If at any time after the date of this Agreement, the Company:

(a)   pays a dividend or makes a distribution on its Common Stock exclusively in shares of its Common Stock;

(b)   subdivides its outstanding shares of Common Stock into a greater number of shares;

(c)   combines its outstanding shares of Common Stock into a smaller number of shares;

(d)   pays a dividend or makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or

(e)   issues by reclassification of its Common Stock any shares of its capital stock;

then the Holder of the unexercised Warrant shall thereafter be entitled to receive, upon the exercise of such Warrant, the same shares of Common Stock and other securities that they would have owned or been entitled to receive immediately after such event as if this Warrant had been exercised immediately prior to such event.  The adjustment pursuant to this Section 8.1 shall be made successively each time that any event listed in this Section 8.1 above shall occur.  Upon each adjustment in the number of shares for which a Warrant is exercisable pursuant to this Section 8.1, the Exercise Price for such Warrant shall be adjusted to equal an amount per share of Common Stock equal to the Exercise Price before such adjustment multiplied by a fraction, of which the numerator is the number of shares of Common Stock for which a Warrant is exercisable immediately before giving effect to such adjustmen