Exhibit 10.5


 


EXECUTION COPY


 


EMPLOYMENT
AGREEMENT


 


THIS EMPLOYMENT AGREEMENT (“Agreement”) is made by and between
Particle Drilling Technologies, Inc., a Nevada corporation (“Company”), and Thomas E. Hardisty (“Executive”).


 


W I T N E S S E T H:


 


WHEREAS, Executive is currently
employed by Company; and


 


WHEREAS, Executive and Company previously entered
into an Employment Agreement effective as of June 1, 2003, as amended (the “Prior
Agreement”); and


 


WHEREAS, Executive and Company desire to replace the
Prior Agreement with this Agreement in order to make certain changes in the
terms and conditions of the employment relationship set forth in the Prior
Agreement; and


 


WHEREAS, Company is desirous of
continuing to employ Executive in an executive capacity on the terms and
conditions, and for the consideration, hereinafter set forth and Executive is
desirous of continuing to be employed by Company on such terms and conditions
and for such consideration;


 


NOW, THEREFORE, for and in
consideration of the mutual promises, covenants and obligations contained
herein, Company and Executive agree as follows:


 


ARTICLE
1:  DEFINITIONS AND INTERPRETATIONS


 


1.1                               Definitions.


 


(a)                                  “Annual Base Salary” shall mean, as of a
specified date, Executive’s annual base salary as of such date determined
pursuant to Section 4.1.


 


(b)                                 “Annual Bonus” shall mean the annual bonus
most recently paid by Company to Executive pursuant to Company’s annual
incentive plan prior to the date of his Involuntary Termination; provided,
however, that if Executive was employed by Company for only a portion of the
year with respect to which any such annual bonus was paid, then the annual
bonus for such year shall equal an amount determined by annualizing the bonus
received by Executive based on the ratio of the number of days Executive was
employed by Company during such year to 365 days.


 


(c)                                  “Annual Compensation” shall mean an amount
equal to Executive’s Annual Base Salary at the annual rate in effect at the
date of his Involuntary Termination. 
Notwithstanding the foregoing, if Executive’s employment shall be
subject to an Involuntary Termination during a Change of Control Period, then
the amount determined pursuant to the preceding sentence shall be increased by
the amount that is, as of the date of Executive’s Involuntary Termination, the
average of the Annual Bonuses, if any, earned by Executive with respect to the
immediately preceding two fiscal years (or, if


 





















 


Executive has not been employed with Company for the two preceding
fiscal years, the Annual Bonus, if any, earned by Executive with respect to the
immediately preceding fiscal year).  In
the event that any such Annual Bonus included in the computation of Executive’s
Annual Compensation at the time of his Involuntary Termination was paid to
Executive in a form other than cash, the amount of Executive’s Annual Bonus for
purposes of determining his Annual Compensation shall be determined in the
discretion of the Board; provided, however, that if such Annual Bonus was paid
to Executive in shares of Company’s common stock, the value of such Annual
Bonus used to calculate Executive’s Annual Compensation shall be the fair
market value of such Annual Bonus on the date of payment, determined in
accordance with the terms of the Company’s stock incentive plan approved by the
Board.


 


(d)                                 “Board” means the Board of Directors of
Company.


 


(e)                                  “Cause” shall mean Executive (i) has
engaged in gross negligence, gross incompetence or willful misconduct in the
performance of his duties, (ii) has refused, without proper reason, to perform
his duties, (iii) has willfully engaged in conduct which is materially
injurious to Company or its subsidiaries (monetarily or otherwise),
(iv) has committed an act of fraud, embezzlement or willful breach of a
fiduciary duty to Company or an affiliate of the Company (including the
unauthorized disclosure of confidential or proprietary material information of
Company or an affiliate), or (v) has been convicted of (or pleaded no contest
to) a crime involving fraud, dishonesty or moral turpitude or any felony.


 


(f)                                    “Change in Duties” shall mean:


 


(i)                                                             The
occurrence, prior to the date that a Change of Control Period begins or after
the expiration of a Change of Control Period, of any one or more of the
following:


 


(1)                                  a
material reduction in the nature or scope of Executive’s authorities or duties
from those previously applicable to him;


 


(2)                                  a
reduction in Executive’s Annual Base Salary not in accordance with Section 4.1;
or


 


(3)                                  a
material diminution in employee benefits (including but not limited to medical,
dental, life insurance and long-term disability plans) and perquisites
applicable to Executive from those substantially similar to the employee
benefits and perquisites provided by Company (including its subsidiaries) to
executives with comparable duties; or


 


(ii)                                                          The
occurrence, within a Change of Control Period, of any one or more of the
following:


 


(1)                                  a
material reduction in the nature or scope of Executive’s authorities or duties
from those applicable to him immediately prior to the date on which a Change of
Control Period begins;


 


2





















 


(2)                                  a
reduction in Executive’s Annual Base Salary, not in accordance with Section
4.1, from that provided to him immediately prior to the date on which a Change
of Control Period begins;


 


(3)                                  a
diminution in Executive’s eligibility to participate in bonus, stock option,
incentive award and other compensation plans which provide opportunities to
receive compensation which are the greater of (A) the opportunities
provided by Company (including its subsidiaries) for executives with comparable
duties or (B) the opportunities under any such plans under which he was
participating immediately prior to the date on which a Change of Control Period
begins; or


 


(4)                                  a
material diminution in employee benefits (including but not limited to medical,
dental, life insurance and long-term disability plans) and perquisites
applicable to Executive from the greater of (A) the employee benefits and
perquisites provided by Company (including its subsidiaries) to executives with
comparable duties or (B) the employee benefits and perquisites to which he was
entitled immediately prior to the date on which a Change of Control Period
begins.


 


(g)                                 “Change of Control” shall mean:


 


(i)                                                             a
merger of Company with another entity, a consolidation involving Company, or
the sale of all or substantially all of the assets of Company to another entity
if, in any such case, (A) the holders of equity securities of Company
immediately prior to such transaction or event do not beneficially own
immediately after such transaction or event equity securities of the resulting
entity entitled to 50% or more of the votes then eligible to be cast in the
election of directors generally (or comparable governing body) of the resulting
entity in substantially the same proportions that they owned the equity
securities of Company immediately prior to such transaction or event or (B) the
persons who were members of the Board immediately prior to such transaction or event
shall not constitute at least a majority of the board of directors of the
resulting entity immediately after such transaction or event;


 


(ii)                                                          the
dissolution or liquidation of Company;


 


(iii)                                                       when
any person or entity, including a “group” as contemplated by Section 13(d)(3)
of the Securities Exchange Act of 1934, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the combined
voting power of the outstanding securities of Company; or


 


(iv)                                                      as
a result of or in connection with a contested election of directors, the
persons who were members of the Board immediately before such election shall
cease to constitute a majority of the Board.


 


3





















 


For purposes
of the preceding sentence, (1) “resulting entity” in the context of a
transaction or event that is a merger, consolidation or sale of all or
substantially all assets shall mean the surviving entity (or acquiring entity
in the case of an asset sale) unless the surviving entity (or acquiring entity
in the case of an asset sale) is a subsidiary of another entity and the holders
of common stock of Company receive capital stock of such other entity in such
transaction or event, in which event the resulting entity shall be such other
entity, and (2) subsequent to the consummation of a merger or consolidation
that does not constitute a Change of Control, the term “Company” shall refer to
the resulting entity and the term “Board” shall refer to the board of directors
(or comparable governing body) of the resulting entity.


 


(h)                                 “Change of Control Period” means, with
respect to a Change of Control, the period beginning 60 days prior to the date
that a definitive agreement concerning such Change of Control is executed and ending
on the date that is one year following the date upon which such Change of
Control occurs.


 


(i)                                     “Code” shall mean the Internal Revenue Code
of 1986, as amended.


 


(j)                                     “Compensation Committee” shall mean the
Compensation Committee of the Board.


 


(k)                                  “Disability” shall mean that, as a result
of Executive’s incapacity due to physical or mental illness, he shall have been
absent from the full-time performance of his duties for six consecutive months
and he shall not have returned to full-time performance of his duties within 30
days after written notice of termination is given to Executive by Company
(provided, however, that such notice may not be given prior to 30 days before
the expiration of such six-month period).


 


(l)                                     “Effective Date” shall mean February 1,
2006.


 


(m)                               “Involuntary Termination” shall mean any
termination of Executive’s employment with Company which:


 


(i)                                                             does
not result from a resignation by Executive (other than a resignation pursuant
to clause (ii) of this Section 1.1(m)); or


 


(ii)                                                          results
from a resignation by Executive on or before the date which is 60 days after
the date upon which Executive receives notice of a Change in Duties;


 


provided,
however, the term “Involuntary Termination”
shall  not include a termination for
Cause or any termination as a result of death or Disability.


 


(n)                                 “Severance Amount” shall mean an amount
equal to two times Executive’s Annual Compensation.


 


4





















 


(o)                                 “Severance Period” shall mean a period
commencing on the date of Executive’s Involuntary Termination and continuing
for 24 months.


 


1.2                               Interpretations.  In this Agreement, unless a clear contrary
intention appears, (a) the words “herein,” “hereof” and “hereunder” and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision, (b) reference to any Article
or Section, means such Article or Section hereof, (c) the words “including”
(and with correlative meaning “include”) means including, without limiting the
generality of any description preceding such term, and (d) where any provision
of this Agreement refers to action to be taken by either party, or which such
party is prohibited from taking, such provision shall be applicable whether
such action is taken directly or indirectly by such party.


 


ARTICLE
2:  EMPLOYMENT AND DUTIES


 


2.1                               Employment.  Effective as of the Effective Date and
continuing for the period of time set forth in Section 3.1 of this
Agreement, Executive’s employment by Company shall be subject to the terms and
conditions of this Agreement.


 


2.2                               Positions.  From and after the Effective Date, Company
shall employ Executive in the position of Senior Vice President of Company, or
in such other positions as the parties mutually may agree.


 


2.3                               Duties
and Services.  Executive agrees to
serve in the positions referred to in Section 2.2 and to perform diligently and
to the best of his abilities the duties and services appertaining to such
offices, as well as such additional duties and services appropriate to such
offices which the parties mutually may agree upon from time to time.  Executive’s employment shall also be subject
to the policies maintained and established by Company that are of general
applicability to Company’s executive employees, as such policies may be amended
from time to time.


 


2.4                               Other
Interests.  Executive agrees, during
the period of his employment by Company, to devote substantially all of his
business time, energy and best efforts to the business and affairs of Company
and its affiliates and not to engage, directly or indirectly, in any other
business or businesses, whether or not similar to that of Company, except with
the consent of the Board.  The foregoing
notwithstanding, the parties recognize and agree that Executive may engage in
passive personal investment and charitable activities that do not conflict with
the business and affairs of Company or interfere with Executive’s performance
of his duties hereunder, which shall be at the sole determination of the Board.


 


2.5                               Duty
of Loyalty.  Executive acknowledges
and agrees that Executive owes a fiduciary duty of loyalty to act at all times
in the best interests of Company.  In
keeping with such duty, Executive shall make full disclosure to Company of all
business opportunities pertaining to Company’s business and shall not
appropriate for Executive’s own benefit business opportunities concerning
Company’s business.


 


5





















 


ARTICLE
3:  TERM AND TERMINATION OF EMPLOYMENT


 


3.1                               Term.  Unless sooner terminated pursuant to other
provisions hereof, Company agrees to employ Executive for the period beginning
on the Effective Date and ending on the third anniversary of the Effective Date
(the “Initial Expiration Date”);
provided, however, that beginning on the Initial Expiration Date, and on each
anniversary of the Initial Expiration Date thereafter, if this Agreement has
not been terminated pursuant to Section 3.2 or 3.3, then said term of
employment shall automatically be extended for an additional one-year period
unless on or before the date that is 90 days prior to the first day of any such
extension period either party shall give written notice to the other that no
such automatic extension shall occur.


 


3.2                               Company’s
Right to Terminate.  Notwithstanding
the provisions of Section 3.1, Company shall have the right to terminate
Executive’s employment under this Agreement at any time for any of the
following reasons:


 


(a)                                  upon Executive’s
death;


 


(b)                                 upon Executive’s
Disability;


 


(c)                                  for Cause; or


 


(d)                                 at any time, for any
other reason whatsoever, in the sole discretion of the Board.


 


3.3                               Executive’s
Right to Terminate.  Notwithstanding
the provisions of Section 3.1 Executive shall have the right to terminate
his employment under this Agreement for any of the following reasons:


 


(a)                                  as a result of a
Change in Duties; provided, however, that prior to Executive’s termination as a
result of a Change of Duties, Executive must give written notice to Company of
the specific occurrence that resulted in the Change in Duties and such
occurrence must remain uncorrected for 10 days following delivery of such
written notice; or


 


(b)                                 at any time for any
other reason whatsoever, in the sole discretion of Executive.


 


3.4                               Notice
of Termination.  If Company desires
to terminate Executive’s employment hereunder at any time prior to expiration
of the term of employment as provided in Section 3.1, it shall do so by giving
written notice to Executive that it has elected to terminate Executive’s
employment hereunder and stating the effective date and reason for such
termination, provided that no such action shall alter or amend any other
provisions hereof or rights arising hereunder. 
If Executive desires to terminate his employment hereunder at any time
prior to expiration of the term of employment as provided in Section 3.1, he
shall do so by giving a 30-day written notice to Company that he has elected to
terminate his employment hereunder and stating the effective date and reason
for such termination, provided that no such action shall alter or amend any
other provisions hereof or rights arising hereunder.


 


6





















 


3.5                               Deemed
Resignations.  Any termination of
Executive’s employment shall constitute an automatic resignation of Executive
as an officer of Company and each affiliate of Company, and an automatic
resignation of Executive from the Board (if applicable) and from the board of
directors of any affiliate of Company and from the board of directors or
similar governing body of any corporation, limited liability company or other
entity in which Company or any affiliate holds an equity interest and with
respect to which board or similar governing body Executive serves as Company’s
or such affiliate’s designee or other representative.


 


ARTICLE
4:  COMPENSATION AND BENEFITS


 


4.1                               Base
Salary.  During the period of this
Agreement, Executive shall receive a minimum Annual Base Salary of
$180,000.  Executive’s Annual Base Salary
shall be reviewed by the Compensation Committee on an annual basis, and, in the
sole discretion of the Compensation Committee, such Annual Base Salary may be
increased, but not decreased (except with the prior written consent of
Executive), effective as of any date determined by the Compensation Committee.  Executive’s Annual Base Salary shall be paid
in equal installments in accordance with Company’s standard policy regarding
payment of compensation to executives but no less frequently than monthly.


 


4.2                               Bonuses and
Long-Term Incentive


 


(a)                                  Annual Bonus - Executive shall be eligible
to participate in Company’s annual incentive plan as approved from time to time
by the Board or the Compensation Committee in amounts to be determined by the
Compensation Committee based upon criteria established by the Compensation
Committee.


 


(b)                                 Long-Term Incentive Plan - Subject to the
sole discretion of the Compensation Committee, Executive shall be eligible for
participation in any long-term incentive arrangement of Company as may from
time to time be made available to other executive officers (and such other
executives as may be selected for participation by the Compensation Committee)
of Company.


 


4.3                               Other
Perquisites.  During his employment
hereunder, Executive shall be afforded the following benefits as incidences of
his employment:


 


(a)                                  Business and Entertainment Expenses -
Subject to Company’s standard policies and procedures with respect to expense
reimbursement as applied to its executive employees generally, Company shall
reimburse Executive for, or pay on behalf of Executive, reasonable and
appropriate expenses incurred by Executive for business related purposes,
including dues and fees to industry and professional organizations and costs of
entertainment and business development.


 


(b)                                 Vacation - During his employment hereunder,
Executive shall be entitled to four weeks of paid vacation each calendar year
and to all holidays provided to executives of Company generally.


 


(c)                                  Other Company Benefits - Executive and, to
the extent applicable, Executive’s spouse, dependents and beneficiaries, shall
be allowed to participate in all


 


7





















 


benefits, plans and programs, including improvements or modifications
of the same, which are now, or may hereafter be, available to other executive
employees of Company.  Such benefits,
plans and programs shall include, without limitation, any profit sharing plan,
thrift plan, health insurance or health care plan, life insurance, disability
insurance, pension plan, supplemental retirement plan, vacation and sick leave
plan, and the like which may be maintained by Company. Company shall not,
however, by reason of this paragraph be obligated to institute, maintain, or
refrain from changing, amending, or discontinuing, any such benefit plan or program,
so long as such changes are similarly applicable to executive employees
generally.  In addition to any other
benefits provided under this Section 4.3(c), consistent with its current
practices, Company shall use reasonable efforts to obtain life insurance for
Executive in the amount of $500,000, if and to the extent such insurance is
available on reasonably commercial terms, as determined by the Compensation
Committee; provided, however, that Executive shall be responsible for any
income tax accrued due to Company’s payment of any premiums for such life
insurance.


 


ARTICLE
5:  EFFECT OF TERMINATION ON
COMPENSATION; ADDITIONAL PAYMENTS


 


5.1                               Termination
Other Than an Involuntary Termination. 
If Executive’s employment hereunder shall terminate upon expiration of
the term provided in Section 3.1 hereof because either party has provided the
notice contemplated in such paragraph, or if Executive’s employment hereunder
shall terminate for any other reason except those described in Section 5.2,
then all compensation and all benefits to Executive hereunder shall continue to
be provided until the date of such termination of employment, and such
compensation and benefits shall terminate contemporaneously with such
termination of employment.


 


5.2                               Involuntary
Termination.  Subject to the
provisions of Sections 5.5 and 5.6 hereof, if Executive’s employment by
Company or any subsidiary thereof or successor thereto shall be subject to an
Involuntary Termination, then Company shall, as additional compensation for
services rendered to Company (including its subsidiaries), pay to Executive the
following amounts and take the following actions after the last day of
Executive’s employment with Company:


 


(a)                                  Pay Executive, on or
before the 30th day after the last day of Executive’s employment with Company,
a lump sum cash payment in an amount equal to the greater of:


 


(i)                                                             the
Severance Amount, or


 


(ii)                                                          $450,000;
provided, however, that the amount provided for in this clause (ii) of Section
5.2(a) shall be increased to $ 650,000 if Executive’s employment is subject to
an Involuntary Termination during a Change of Control Period and Executive is
not provided with an opportunity to sell the shares of Company’s common stock
then held by Executive at a purchase price of $4.00 or more per share in
connection with the Change of Control that occurs within such Change of Control
Period.


 


8





















 


(b)                                 If Executive’s
employment with Company is subject to an Involuntary Termination during a
Change of Control Period or to a termination due to Executive’s death or
Disability, cause any and all outstanding options to purchase common stock of
Company held by Executive to become immediately exercisable in full, cause any
and all restricted shares of the Company’s common stock held by Executive to
become immediately nonforfeitable, and cause Executive’s accrued benefits under
any and all nonqualified deferred compensation plans sponsored by Company to
become immediately nonforfeitable.


 


(c)                                  During the Severance
Period, Executive will be eligible to continue coverage for himself and his
eligible dependents under Company’s group health plans to the extent provided
under, and in accordance with, the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, and Sections 601 through 608 of the Employee
Retirement Income Security Act of 1974, as amended.


 


5.3                               Interest
on Late Payments.  If any payment
provided for in Section 5.2 hereof is not made when due (applying the
deferred payment date provided for in Section 5.6 as the due date, if
applicable), then Company shall pay to Executive interest on the amount payable
from the date that such payment should have been made under such Section until
such payment is made, which interest shall be calculated at the prime or base
rate of interest announced by JPMorgan Chase Bank (or any successor thereto) at
its principal office in New York, and shall change when and as any such change
in such prime or base rate shall be announced by such bank.


 


5.4                               Parachute
Payments.  Notwithstanding anything
to the contrary in this Agreement, in the event that any payment or
distribution by Company to or for the benefit of Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise (a “Payment”), would
be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties with respect to such excise tax (such excise tax,
together with any such interest or penalties, are hereinafter collectively
referred to as the “Excise Tax”),
Company shall pay to Executive an additional payment (a “Gross-up Payment”) in an amount such that
after payment by Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including any Excise Tax imposed on any
Gross-up Payment, Executive retains an amount of the Gross-up Payment equal to
the Excise Tax imposed upon the Payments. 
Company and Executive shall make an initial determination as to whether
a Gross-up Payment is required and the amount of any such Gross-up
Payment.  Executive shall notify Company
in writing of any claim by the Internal Revenue Service which, if successful,
would require Company to make a Gross-up Payment (or a Gross-up Payment in
excess of that, if any, initially determined by Company and Executive) within
ten days of the receipt of such claim. 
Company shall notify Executive in writing at least ten days prior to the
due date of any response required with respect to such claim if it plans to
contest the claim.  If Company decides to
contest such claim, Executive shall cooperate fully with Company in such
action; provided, however, Company shall bear and pay directly or indirectly
all costs and expenses (including additional interest and penalties) incurred
in connection with such action and shall indemnify and hold Executive harmless,
on an after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of Company’s action.  If, as a result of Company’s action with
respect to a claim, Executive receives a refund of any amount


 


9





















 


paid by
Company with respect to such claim, Executive shall promptly pay such refund to
Company.  If Company fails to timely notify
Executive whether it will contest such claim or Company determines not to
contest such claim, then Company shall immediately pay to Executive the portion
of such claim, if any, which it has not previously paid to Executive.


 


5.5                               Release
and Full Settlement.  As
a condition to the receipt of any severance compensation and benefits under
this Agreement, Executive must first execute a release and agreement, in a form
reasonably satisfactory to Company, which shall release and discharge Company
and its affiliates, and their officers, directors, employees and agents from
any and all claims or causes of action of any kind or character, including but
not limited to all claims or causes of action arising out of Executive’s
employment with Company or its affiliates or the termination of such
employment.  If Executive is entitled to
and receives the benefits provided hereunder, performance of the obligations of
Company hereunder will constitute full settlement of all claims that Executive
might otherwise assert against Company on account of his termination of
employment.


 


5.6                               Payments
Subject to Section 409A of the Code.  Notwithstanding the
foregoing provisions of this Article 5, if the payment of any severance
compensation or severance benefits under this Agreement would be subject to
additional taxes and interest under Section 409A of the Code, then any such
payments that Executive would otherwise be entitled to during the first six
months following the date of Executive’s termination shall be accumulated and
paid on the first day of the seventh month following the date of Executive’s
termination (or if such payment date does not fall on a business day of the
Company, the next following business day of the Company), or such earlier date
upon which such amount can be paid under Section 409A of the Code without being
subject to such additional taxes and interest.


 


5.7                               Liquidated
Damages.  In light of the
difficulties in estimating the damages for an early termination of Executive’s
employment under this Agreement, Company and Executive hereby agree that the
payments, if any, to be received by Executive pursuant to this Article 5 shall
be received by Executive as liquidated damages.


 


5.8                               Other
Benefits.  This Agreement governs the
rights and obligations of Executive and Company with respect to Executive’s
base salary and certain perquisites of employment.  Except as expressly provided herein,
Executive’s rights and obligations both during the term of his employment and
thereafter with respect to stock options, restricted stock, incentive and
deferred compensation, life insurance policies insuring the life of Executive,
and other benefits under the plans and programs maintained by Company shall be
governed by the separate agreements, plans and other documents and instruments
governing such matters.


 


ARTICLE
6:  PROTECTION OF CONFIDENTIAL
INFORMATION


 


6.1                               Disclosure
to and Property of Company.  All
information, designs, ideas, concepts, improvements, product developments,
discoveries and inventions, whether patentable or not, that are conceived,
made, developed or acquired by Executive, individually or in conjunction with
others, during the period of Executive’s employment by Company (whether during
business hours or otherwise and whether on Company’s premises or otherwise) that
relate to Company’s (or any of its affiliates’) business, trade secrets,
products or services (including,


 


10





















 


without
limitation, all such information relating to corporate opportunities, product
specification, compositions, manufacturing and distribution methods and
processes, research, financial and sales data, pricing terms, evaluations,
opinions, interpretations, acquisitions prospects, the identity of customers or
their requirements, the identity of key contacts within the customer’s
organizations or within the organization of acquisition prospects, marketing
and merchandising techniques, business plans, computer software or programs,
computer software and database technologies, prospective names and marks)
(collectively, “Confidential Information”)
shall be disclosed to Company and are and shall be the sole and exclusive
property of Company (or its affiliates). 
Moreover, all documents, videotapes, written presentations, brochures,
drawings, memoranda, notes, records, files, correspondence, manuals, models,
specifications, computer programs, E-mail, voice mail, electronic databases,
maps, drawings, architectural renditions, models and all other writings or
materials of any type embodying any of such information, ideas, concepts,
improvements, discoveries, inventions and other similar forms of expression
(collectively, “Work Product”) are
and shall be the sole and exclusive property of Company (or its
affiliates).  Upon Executive’s
termination of employment with Company, for any reason, Executive promptly
shall deliver such Confidential Information and Work Product, and all copies
thereof, to Company.


 


6.2                               Disclosure
to Executive.  Company has and will
disclose to Executive, or place Executive in a position to have access to or
develop, Confidential Information and Work Product of Company (or its
affiliates); and/or has and will entrust Executive with business opportunities
of Company (or its affiliates); and/or has and will place Executive in a
position to develop business good will on behalf of Company (or its
affiliates).  Executive agrees to
preserve and protect the confidentiality of all Confidential Information or
Work Product of Company (or its affiliates).


 


6.3                               No
Unauthorized Use or Disclosure.  Executive
agrees that he will not, at any time during or after Executive’s employment by
Company, make any unauthorized disclosure of, and will prevent the removal from
Company premises of, Confidential Information or Work Product of Company (or
its affiliates), or make any use thereof, except in the carrying out of
Executive’s responsibilities during the course of Executive’s employment with
Company.  Executive shall use
commercially reasonable efforts to cause all persons or entities to whom any
Confidential Information shall be disclosed by him hereunder to observe the
terms and conditions set forth herein as though each such person or entity was
bound hereby.  Executive shall have no
obligation hereunder to keep confidential any Confidential Information if and
to the extent disclosure thereof is specifically required by law; provided,
however, that in the event disclosure is required by applicable law, Executive
shall provide Company with prompt notice of such requirement prior to making
any such disclosure, so that Company may seek an appropriate protective
order.  At the request of Company at any
time, Executive agrees to deliver to Company all Confidential Information that
he may possess or control.  Executive
agrees that all Confidential Information of Company (whether now or hereafter
existing) conceived, discovered or made by him during the period of Executive’s
employment by Company exclusively belongs to Company (and not to Executive),
and Executive will promptly disclose such Confidential Information to Company
and perform all actions reasonably requested by Company to establish and
confirm such exclusive ownership. 
Affiliates of Company shall be third party beneficiaries of Executive’s
obligations under this Article 6.  As a
result of Executive’s employment by Company, Executive may also from time to
time have access to, or knowledge of, Confidential


 


11





















 


Information or
Work Product of third parties, such as customers, suppliers, partners, joint
venturers, and the like, of Company and its affiliates.  Executive also agrees to preserve and protect
the confidentiality of such third party Confidential Information and Work
Product to the same extent, and on the same basis, as Company’s Confidential
Information and Work Product.


 


6.4                               Ownership
by Company.  If, during Executive’s
employment by Company, Executive creates any work of authorship fixed in any
tangible medium of expression that is the subject matter of copyright (such as
videotapes, written presentations, or acquisitions, computer programs, E-mail,
voice mail, electronic databases, drawings, maps, architectural renditions,
models, manuals, brochures, or the like) relating to Company’s business,
products, or services, whether such work is created solely by Executive or
jointly with others (whether during business hours or otherwise and whether on
Company’s premises or otherwise), including any Work Product, Company shall be
deemed the author of such work if the work is prepared by Executive in the
scope of Executive’s employment; or, if the work is not prepared by Executive
within the scope of Executive’s employment but is specially ordered by Company
as a contribution to a collective work, as a part of a motion picture or other
audiovisual work, as a translation, as a supplementary work, as a compilation,
or as an instructional text, then the work shall be considered to be work made
for hire and Company shall be the author of the work.  If such work is neither prepared by Executive
within the scope of Executive’s employment nor a work specially ordered that is
deemed to be a work made for hire, then Executive hereby agrees to assign, and
by these presents does assign, to Company all of Executive’s worldwide right,
title, and interest in and to such work and all rights of copyright therein.


 


6.5                               Assistance
by Executive.  During the period of
Executive’s employment by Company and thereafter, Executive shall assist
Company and its nominee, at any time, in the protection of Company’s (or its
affiliates’) worldwide right, title and interest in and to Work Product and the
execution of all formal assignment documents requested by Company or its
nominee and the execution of all lawful oaths and applications for patents and
registration of copyright in the United States and foreign countries.


 


6.6                               Remedies.  Executive acknowledges that money damages
would not be sufficient remedy for any breach of this Article 6 by
Executive, and Company or its affiliates shall be entitled to enforce the
provisions of this Article 6 by terminating payments then owing to
Executive under this Agreement or otherwise and to specific performance and
injunctive relief as remedies for such breach or any threatened breach.  Such remedies shall not be deemed the
exclusive remedies for a breach of this Article 6 but shall be in addition
to all remedies available at law or in equity, including the recovery of
damages from Executive and his agents.


 


ARTICLE
7:  NON-COMPETITION AND
NON-SOLICITATION OBLIGATIONS


 


7.1                               General.  As part of the consideration for Company’s
employment of Executive and the compensation and benefits that may be paid to
Executive hereunder; to protect the trade secrets and Confidential Information
of Company or its affiliates that have been and will in the future be disclosed
or entrusted to Executive, the business good will of Company or its affiliates
that has been and will in the future be developed in Executive, or the business
opportunities that have been and will in the future be disclosed or entrusted
to Executive by Company or its affiliates; and as an additional incentive for
Company to enter into this Agreement, Company


 


12





















 


and Executive
agree to the provisions of this Article 7. 
Executive agrees that during his employment with Company and for a
period of two (2) years following the termination of Executive’s employment
with Company for any reason (the “Non-Compete
Period”), Executive shall not:


 


(a)                                  directly or
indirectly, either as principal, agent, independent contractor, consultant,
director, officer, employee, employer, advisor, stockholder, partner or in any
other individual or representative capacity whatsoever, either for his own
benefit or for the benefit of any other person or entity either (i) hire,
contract or solicit, or attempt any of the foregoing with respect to hiring any
employee of Company or its affiliates, or (ii) induce or otherwise counsel,
advise, or encourage any employee of Company or its affiliates to leave the
employment of Company or its affiliates; and


 


(b)                                 within any geographic
area or market where Company or any of its affiliates are conducting any
business or have, during the twelve months preceding the termination of
Executive, conducted such business, as applicable:


 


(i)                                                             directly
or indirectly participate in the ownership, management, operation or control
of, or be connected as an officer, employee, partner, director, contractor or
otherwise with, or have any financial interest in or aid or assist anyone else
in the conduct of, any business in any of the business territories in which
Company is presently or from time-to-time conducting business that either
conducts a business similar to that conducted by Company or its affiliates or
provides or sells a service or product that is the same, substantially similar
to or otherwise competitive with the products and services provided or sold by
Company or its affiliates (a “Competitive
Operation”); provided, however, that this provision shall not
preclude Executive after the termination of his employment with Company from
owning less than 2% of the equity securities of any publicly held Competitive
Operation so long as Executive does not serve as an employee, officer, director
or consultant to such business;


 


(ii)                                                          directly
or indirectly, either as principal, agent, independent contractor, consultant,
director, officer, employee, employer, advisor, stockholder, partner or in any
other individual or representative capacity whatsoever, either for his own
benefit or for the benefit of any other person or entity call upon, solicit,
divert or take away, any customer or vendor of Company or its affiliates with
whom Executive dealt, directly or indirectly, during his engagement with
Company or its affiliates, in connection with a Competitive Operation; or


 


(iii)                                                       call
upon any prospective acquisition candidate on Executive’s own behalf or on
behalf of any Competitive Operation, which candidate is a Competitive Operation
or which candidate was, to Executive’s knowledge after due inquiry, either
called upon by Company or for which Company or any of its affiliates made an
acquisition analysis, for the purpose of acquiring such entity.


 


7.2                               Non-Disparagement.  During Executive’s employment with Company
and following any termination of employment with Company, Executive agrees not
to disparage,


 


13





















 


either orally
or in writing, Company, any of its business, products, services or practices,
or any of their directors, officers, agents, representatives, stockholders,
employees or affiliates.


 


7.3                               New
Employer.  Executive agrees that
prior to accepting any new employment during the Non-Compete Period, Executive
shall advise Company of the identity of the potential new employer.  Company may serve such new employer with
notice of the non-competition restrictions set forth in this Article 7 and may
furnish such employer with a copy of this Agreement or the relevant portions
thereof.


 


7.4                               Remedies.  Executive acknowledges that money damages
would not be sufficient remedy for any breach of this Article 7 by
Executive, and Company or its affiliates shall be entitled to enforce the
provisions of this Article 7 by terminating payments then owing to
Executive under this Agreement or otherwise and to specific performance and
injunctive relief as remedies for such breach or any threatened breach.  Such remedies shall not be deemed the
exclusive remedies for a breach of this Article 7 but shall be in addition
to all remedies available at law or in equity, including the recovery of
damages from Executive and his agents.


 


7.5                               Reformation.  Company and Executive agree that the
foregoing restrictions are reasonable under the circumstances and that any
breach of the covenants contained in this Article 7 would cause
irreparable injury to Company.  Executive
understands that the foregoing restrictions may limit Executive’s ability to
engage in certain businesses anywhere in the United States, Canada, or such
other geographic areas or markets in which the Company or any of its affiliates
are conducting business or have, during the twelve months preceding the
termination of Executive, conducted such business, as applicable, during the
Non-Compete Period, but acknowledges that Executive will receive sufficiently
high remuneration and other benefits from Company to justify such
restriction.  Further, Executive
acknowledges that his skills are such that he can be gainfully employed in
non-competitive employment, and that the agreement not to compete will in no
way prevent him from earning a living. 
Nevertheless, if any of the aforesaid restrictions are found by a court
of competent jurisdiction to be unreasonable, or overly broad as to geographic
area or time, or otherwise unenforceable, the parties intend for the
restrictions therein set forth to be modified by the court making such
determination so as to be reasonable and enforceable and, as so modified, to be
fully enforced.  By agreeing to this
contractual modification prospectively at this time, Company and Executive
intend to make this provision enforceable under the law or laws of all
applicable States so that the entire agreement not to compete and this
Agreement as prospectively modified shall remain in full force and effect and
shall not be rendered void or illegal. 
Such modification shall not affect the payments made to Executive under
this Agreement.


 


ARTICLE
8:  MISCELLANEOUS


 


8.1                               Indemnification.  Company agrees that, in the event Executive’s
employment by Company or any subsidiary thereof or successor thereto shall be
subject to an Involuntary Termination, Company shall continue to indemnify
Executive following such Involuntary Termination to the fullest extent
permitted by applicable law consistent with the Articles of Incorporation and
By-Laws of Company in effect as of the date of the Involuntary Termination with
respect to Executive’s sole, joint or concurrent negligence and any acts of or
omissions he may have committed during the period during which he was an
officer, director and/or employee


 


14





















 


of (a)
Company, (b) any subsidiary thereof for which he served as an officer, director
or employee at the request of Company, or (c) any successor thereto.


 


8.2                               Payment Obligations Absolute.  Except as specifically provided in Sections
6.6 and 7.4, Company’s obligation to pay (or cause one of its subsidiaries to
pay) Executive the amounts and to make the arrangements provided herein shall
be absolute and unconditional and shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim, recoupment, defense
or other right which Company (including its subsidiaries) may have against him
or anyone else.  All amounts payable by
Company (including its subsidiaries hereunder) shall be paid without notice or
demand.  Executive shall not be obligated
to seek other employment in mitigation of the amounts payable or arrangements
made under any provision of this Agreement, and the obtaining of any such other
employment shall in no event effect any reduction of Company’s obligations to
make (or cause to be made) the payments and arrangements required to be made
under this Agreement.


 


8.3                               Notices.  For purposes of this Agreement, notices and
all other communications provided for herein shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:


 


	
  If to Company to:

  	
   

  	
  Particle Drilling Technologies, Inc.

  
	
   

  	
   

  	
  1021 Main Street, Suite 2650

  
	
   

  	
   

  	
  Houston, Texas 77002

  
	
   

  	
   

  	
  Attention: Chairman of the Board of Directors

  
	
   

  	
   

  	
   

  
	
  If to
  Executive to:

  	
   

  	
  Thomas E. Hardisty

  
	
   

  	
   

  	
  5707 Bermuda Dunes

  
	
   

  	
   

  	
  Houston, TX 77069

  



 


or to such other address as
either party may furnish to the other in writing in accordance herewith, except
that notices or changes of address shall be effective only upon receipt.


 


8.4                               Applicable
Law.  This Agreement is entered into
under, and shall be governed for all purposes by, the laws of the State of
Texas.


 


8.5                               No
Waiver.  No failure by either party
hereto at any time to give notice of any breach by the other party of, or to
require compliance with, any condition or provision of this Agreement shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time.


 


8.6                               Severability.  Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason of applicable law
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.


 


15





















 


8.7                               Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.


 


8.8                               Withholding
of Taxes and Other Employee Deductions. 
Company may withhold from any benefits and payments made pursuant to
this Agreement all federal, state, city and other taxes as may be required
pursuant to any law or governmental regulation or ruling and all other normal
employee deductions made with respect to Company’s employees generally.


 


8.9                               Headings.  The paragraph headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.


 


8.10                        Gender and
Plurals.  Wherever the context so requires,
the masculine gender includes the feminine or neuter, and the singular number
includes the plural and conversely.


 


8.11                        Assignment.  This Agreement shall be binding upon and
inure to the benefit of Company and any successor of Company, by merger or
otherwise.  This Agreement shall also be
binding upon and inure to the benefit of Executive and his estate.  If Executive shall die prior to full payment
of amounts due pursuant to this Agreement, such amounts shall be payable
pursuant to the terms of this Agreement to his estate.  Executive shall not have any right to pledge,
hypothecate, anticipate or assign this Agreement or the rights hereunder,
except by will or the laws of descent and distribution.


 


8.12                        Term.  This Agreement has a term co-extensive with
the term of employment provided in Section 3.1. 
Termination shall not affect any right or obligation of any party which
is accrued or vested prior to such termination.


 


8.13                        Entire
Agreement.  This Agreement
constitutes the entire agreement of the parties with regard to the subject
matter hereof, and contains all the covenants, promises, representations,
warranties and agreements between the parties with respect to such subject
matter.  Without limiting the scope of
the preceding sentence, all understandings and agreements preceding the date of
execution of this Agreement and relating to the subject matter hereof are
hereby null and void and of no further force and effect, including, without
limitation, all prior employment and severance agreements, if any, by and
between Company and Executive.  Any
modification of this Agreement will be effective only if it is in writing and
signed by the party to be charged.


 


16





















 


IN WITNESS WHEREOF, the parties hereto have
executed this Agreement on the 20th day of January, 2006, to be effective as of
the Effective Date.


 


	
   

  	
  Particle Drilling Technologies, Inc

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ KEN R. LESUER

  
	
   

  	
  Name:

  	
  Ken R. LeSuer

  
	
   

  	
  Title:

  	
  Chairman, Board of Directors

  
	
   

  	
   

  
	
   

  	
  COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Thomas E. Hardisty

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  /s/ THOMAS E. HARDISTY

  
	
   

  	
   

  
	
   

  	
  EXECUTIVE

  



 


17