Exhibit 10.6


 


INCENTIVE
STOCK OPTION AGREEMENT


 


AGREEMENT made as of the     th
day of                ,
200  , between PARTICLE DRILLING TECHNOLOGIES, INC.,
a Nevada corporation (the “Company”), and                        (“Employee”).


 


To carry out the purposes of the PARTICLE DRILLING, INC. 2004 STOCK
INCENTIVE  PLAN (the “Plan”), by affording Employee the opportunity to
purchase shares of the common stock of the Company, par value $0.001 per share
(“Stock”), and in consideration of the mutual agreements and other matters set
forth herein and in the Plan, the Company and Employee hereby agree as follows:


 


1.                                       Grant of Option.  The Company hereby irrevocably grants to
Employee the right and option (“Option”) to purchase all or any part of an
aggregate of            shares
of Stock on the terms and conditions set forth herein and in the Plan, which
Plan is incorporated herein by reference as a part of this Agreement.  In the event of any conflict between the
terms of this Agreement and the Plan, the Plan shall control.  Capitalized terms used but not defined in
this Agreement shall have the meaning attributed to such terms under the Plan,
unless the context requires otherwise.  This Option is intended to constitute an
incentive stock option, within the meaning of section 422(b) of the Code,
to the maximum extent permitted under the Code. 
Employee acknowledges that only a portion of this Option may qualify as
such an incentive stock option due to the limitation set forth in section 422(d)
of the Code.


 


2.                                       Purchase Price.  The purchase price of Stock purchased
pursuant to the exercise of this Option shall be $        per
share, which has been determined to be not less than the Fair Market Value of
the Stock at the date of grant of this Option. 
For all purposes of this Agreement, Fair Market Value of Stock shall be
determined in accordance with the provisions of the Plan.


 


3.                                       Exercise of
Option.  Subject to the
earlier expiration of this Option as herein provided, this Option may be
exercised, by written notice to the Company at its principal executive office
addressed to the attention of its Corporate Secretary (or such other officer or
employee of the Company as the Company may designate from time to time), at any
time and from time to time after the date of grant hereof, but, except as
otherwise provided below, this Option shall not be exercisable for more than a
percentage of the aggregate number of shares offered by this Option determined
by the number of full years from the date of grant hereof to the date of such
exercise, in accordance with the following schedule:


 





















 




	
  Number of Full Years

  	
   

  	
  Percentage of Shares

  That May Be Purchased

  	
   

  
	
  Less than 1 year

  	
   

  	
  0

  	
  %

  
	
  1 year

  	
   

  	
  25

  	
  %

  
	
  2 years

  	
   

  	
  50

  	
  %

  
	
  3 years

  	
   

  	
  75

  	
  %

  
	
  4 years or more

  	
   

  	
  100

  	
  %

  






 


Notwithstanding the exercise schedule above or any provision in
the Plan to the contrary, if Employee is employed by the Company immediately
prior to the consummation of any Corporate Change (as defined below), this
Option shall be exercisable for the entire number of shares set forth in Paragraph
1 hereof upon the consummation of such Corporate Change.  For purposes of the preceding sentence, the
term “Corporate Change” shall have the same meaning as is assigned to such term
in the Plan; provided, however, that the term “Corporate Change” shall not
include any reorganization, merger, consolidation, or similar transaction or
series of transactions pursuant to which the record holders of the outstanding
shares of the Company’s stock immediately prior to such transaction or series
of transactions continue to hold immediately following such transaction or
series of transactions 50% or more of the outstanding voting securities (based
upon voting power) of (a) any entity which owns (directly or indirectly) the
stock of the Company, (b) any entity with which the Company has merged, or (c)
any entity that owns an entity with which the Company has merged.  In addition, in no event shall a
recapitalization of the Company, a reclassification of the Company’s capital
stock, or other change in the Company’s capital structure (a “recapitalization”),
or an underwritten initial public offering of stock made by the Company
pursuant to an effective registration statement filed under the Securities Act
of 1933, as amended (the “Securities Act”), constitute a Corporate Change, and
the exercise of this Option shall not be accelerated upon the occurrence of any
such recapitalization or initial public offering.


 


This Option may be exercised only while Employee remains an employee of
the Company and will terminate and cease to be exercisable upon Employee’s
termination of employment with the Company, except that:


 


(a)                                  If Employee’s
employment with the Company terminates by reason of disability (within the
meaning of section 22(e)(3) of the Code), this Option may be exercised by
Employee (or Employee’s estate or the person who acquires this Option by will
or the laws of descent and distribution or otherwise by reason of the death of
Employee) at any time during the period of one year following such termination,
but only as to the number of shares Employee was entitled to purchase hereunder
as of the date Employee’s employment so terminates.


 


(b)                                 If Employee dies while
in the employ of the Company, Employee’s estate, or the person who acquires
this Option by will or the laws of descent and distribution or otherwise by
reason of the death of Employee, may exercise this Option at any time during
the period of one year following the date of Employee’s death, but only as to
the number of shares Employee was entitled to purchase hereunder as of the date
of Employee’s death.


 


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(c)                                  If Employee’s
employment with the Company terminates for any reason other than as described
in (a) or (b) above, unless such employment is terminated for cause, this
Option may be exercised by Employee at any time during the period of three
months following such termination, or by Employee’s estate (or the person who
acquires this Option by will or the laws of descent and distribution or
otherwise by reason of the death of Employee) during a period of one year
following Employee’s death if Employee dies during such three month period, but
in each case only as to the number of shares Employee was entitled to purchase
hereunder as of the date Employee’s employment so terminates.  As used in this paragraph, the term “cause”
shall mean Employee (i) has been convicted of a misdemeanor involving moral
turpitude or of a felony, (ii) has engaged in gross negligence or willful
misconduct in the performance of the duties of Employee’s employment, or (iii)
has materially breached any material provision of any written agreement between
Employee and the Company or any of its Affiliates.


 


This Option shall not be exercisable in any
event after the expiration of 10 years from the date of grant hereof.  Except as provided in Paragraph 4, the
purchase price of shares as to which this Option is exercised shall be paid in
full at the time of exercise (a) in cash (including check, bank draft or money
order payable to the order of the Company), (b) by delivering or constructively
tendering to the Company shares of Stock having a Fair Market Value equal to
the purchase price (provided such shares used for this purpose must have been
held by Employee for such minimum period of time as may be established from
time to time by the Committee), (c) if the Stock is readily tradable on a
national securities market, through a “cashless exercise” in accordance with a
Company established policy or program for the same, or (d) any combination of
the foregoing.  No fraction of a share of
Stock shall be issued by the Company upon exercise of an Option or accepted by
the Company in payment of the exercise price thereof; rather, Employee shall
provide a cash payment for such amount as is necessary to effect
the issuance and acceptance of only whole shares of Stock.  Unless and until a certificate or
certificates representing such shares shall have been issued by the Company to
Employee, Employee (or the person permitted to exercise this Option in the event
of Employee’s death) shall not be or have any of the rights or privileges of a
shareholder of the Company with respect to shares acquirable upon an exercise
of this Option.


 


4.                                       Stock
Appreciation Right.  Upon
an exercise of this Option, Employee (or the person exercising this Option in
the event of Employee’s death) may request the Company to compute an amount
(the “Appreciation Amount”) equal to the excess of the aggregate Fair Market
Value of any number of the shares of Stock with respect to which this Option is
exercised over the aggregate purchase price of such number of shares.  Moreover, Employee (or such person) may elect
(subject to the consent or disapproval of the Committee of any election to
receive cash) to have the Company distribute to Employee (or such person), in
lieu of Employee’s purchasing such number of shares, an amount of cash and/or a
whole number of shares of Stock (in any combination thereof as Employee or such
person may elect) in Fair Market Value equal to the Appreciation Amount.
Notwithstanding anything to the contrary herein, if Employee is then an
officer, director or affiliate of the Company who is subject to section 16
of the Securities Exchange Act of 1934, as amended (the “Securities Exchange
Act”), this Option may not be exercised prior to the expiration of six months
from the date of grant hereof (except in the event of the death or disability
of Employee prior to the expiration of such six month period); thereafter, any
exercise of this Option or election pursuant to this Paragraph 4


 


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wherein
Employee would receive any portion of the Appreciation Amount in cash (other
than cash in lieu of a fractional share) may be made only during a period
beginning on the third business day and ending on the twelfth business day
following the date of release by the Company for publication of quarterly and
annual summary statements of sales and earnings.  Should Employee elect pursuant to this Paragraph
4 to receive the Appreciation Amount solely in shares of Stock, the number of
shares of Stock distributable to Employee shall be the highest whole number of
shares whose value does not exceed the Appreciation Amount, and any fractional
share shall be paid in cash.


 


5.                                       Withholding of Tax.  To the extent that the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this
Option results in compensation income or wages to Employee for federal, state
or local tax purposes, Employee shall deliver to the Company at the time of
such exercise or disposition such amount of money as the Company may require to
meet its minimum obligation under applicable tax laws or regulations.  Employee may elect with respect to this
Option to surrender or authorize the Company to withhold shares of Stock
(valued at their Fair Market Value on the date of surrender or withholding of
such shares) to satisfy any tax required to be withheld upon exercise of this
Option.  An election pursuant to the preceding
sentence shall be referred to herein as a “Stock Withholding Election.”  All Stock Withholding Elections shall be made
by written notice to the Company’s Corporate Secretary (or such other officer
or employee of the Company as the Company may designate from time to
time).  If Employee is not a Section 16
Person (as hereinafter defined), Employee may revoke such election by
delivering to the Company’s Corporate Secretary (or such other designated
officer or employee) written notice of such revocation prior to the date such
election is implemented through actual surrender or withholding of shares of
Stock (the “Withholding Date”).  If
Employee is a Section 16 Person, the Stock Withholding Election must:


 


(a)                                  be irrevocable and made six months prior to the Withholding
Date; or


 


(b)                                 (i)
be approved by the Committee either before or after such election is made, (ii)
be made, and the Withholding Date occur, during a period beginning on the third
business day following the date of release by the Company for publication of
quarterly and annual summary statements of sales and earnings and ending on the
twelfth business day following such date, and (iii) be made more than six
months after the date of the grant of this Option to Employee; or


 


(c)                                  be
made in connection with (i) a delivery to the Company of shares of Stock owned
by Employee prior to the exercise of this Option to satisfy the portion of the
tax required to be withheld with respect to those shares of Stock received by
Employee upon exercise of this Option for which payment of the purchase price
was made to the Company in shares of Stock owned by Employee prior to the
exercise of this Option pursuant to Paragraph 3 hereof and (ii) the exercise of
this Option more than six months after the date of grant hereof.


 


If Employee fails to pay the required amount
to the Company or fails to make a Stock Withholding Election, the Company is
authorized to withhold from any cash remuneration (or, if Employee is not a Section 16
Person, Stock remuneration, including withholding any shares of Stock distributable
to Employee upon exercise of this Option) then or thereafter payable to
Employee any tax required to be withheld by reason of the exercise of this
Option or the disposition of shares of Stock acquired by exercise of this
Option.  For purposes of this


 


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Agreement, the term “Section 16 Person”
means an officer, director or affiliate of the Company or a former officer,
director or affiliate of the Company who is subject to Section 16 of the
Securities Exchange Act.


 


6.                                       Certain
Restrictions.  Shares of
Stock purchased pursuant to the exercise of this Option shall be subject to the
following restrictions (until such time as such restrictions terminate as
provided below):


 


(a)                                  such
shares of Stock may not be sold, assigned, pledged, exchanged, hypothecated or
otherwise transferred, encumbered or disposed of by Employee; and


 


(b)                                 if
Employee’s employment with the Company is terminated for any reason other than
his death, normal or early retirement in accordance with his employer’s
established retirement policies and practices, or disability (within the
meaning of section 22(e)(3) of the Code), the Company (or any subsidiary
of the Company designated by it) shall have the option for 60 days after such
termination of employment to purchase for cash all or any part of such shares
of Stock at the lesser of (i) the purchase price paid therefor upon exercise of
this Option, or (ii) the Fair Market Value of such shares of Stock on the date
of such termination of employment.


 


The restrictions imposed on
such shares of Stock under this Paragraph shall terminate on the earliest to
occur of the following:


 


(a)                                  the
90th day after the date on which shares of Stock are first listed or admitted
to unlisted trading privileges on a national stock exchange or on the National
Market System of NASDAQ or have sales or bid and offer quotations reported in
the automated quotation system operated by the National Association of
Securities Dealers, Inc.;


 


(b)                                 the 10th anniversary of the date of grant of this Option;


 


(c)                                  as
to any shares of Stock for which the Company’s (or a subsidiary’s) 60 day
option to purchase upon termination of Employee’s employment with the Company
shall have become exercisable but shall have expired without having been
exercised, on the first business day of the calendar month next following the
expiration of such 60 day option period;


 


(d)                                 the
first business day of the calendar month next following the termination of
Employee’s employment with the Company because of Employee’s death, normal or
early retirement in accordance with his employer’s established employment
policies or practices, or disability (within the meaning of section 22(e)(3)
of the Code); or


 


(e)                                  the date of the termination of this Option due to an adjustment
being made to this Option pursuant to Paragraph IX of the Plan.


 


7.                                       Lock-up Provision. 
Employee hereby agrees that in the event of any underwritten
public offering of stock, including an initial public offering of stock, made
by the Company pursuant to an effective registration statement filed under the
Securities Act, Employee shall not offer, sell, contract to sell, pledge,
hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to


 


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acquire stock of the Company for such
period of time from and after the effective date of such registration statement
as may be established by the underwriter for such public offering; provided,
however, that such period of time shall not exceed 180 days from the
effective date of the registration statement to be filed in connection with
such public offering.  The foregoing
limitation shall not apply to shares registered in the public offering under
the Securities Act.  Employee shall be
subject to this Paragraph provided and only if the officers and directors of
the Company are also subject to similar arrangements.


 


8.                                       Status of Stock.  Employee understands that at the time of the
execution of this Agreement the shares of Stock to be issued upon exercise of
this Option have not been registered under the Securities Act, or any state
securities law, and that the Company does not currently intend to effect any such registration.  Until the shares of Stock acquirable upon the
exercise of the Option have been registered for issuance under the Securities
Act, the Company will not issue such shares unless the holder of the Option
provides the Company with a written opinion of legal counsel, who shall be
satisfactory to the Company, addressed to the Company and satisfactory in form
and substance to the Company’s counsel, to the effect that the proposed
issuance of such shares to such Option holder may be made without registration
under the Securities Act.  In the event
exemption from registration under the Securities Act is available upon an
exercise of this Option, Employee (or the person permitted to exercise this
Option in the event of Employee’s death or incapacity), if requested by the Company
to do so, will execute and deliver to the Company in writing an agreement
containing such provisions as the Company may require to assure compliance with
applicable securities laws.


 


Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option shall be acquired for investment without a view to
distribution, within the meaning of the Securities Act, and shall not be sold,
transferred, assigned, pledged or hypothecated in the absence of an effective
registration statement for the shares under the Securities Act and applicable
state securities laws or an applicable exemption from the registration
requirements of the Securities Act and any applicable state securities
laws.  Employee also agrees that the
shares of Stock which Employee may acquire by exercising this Option will not
be sold or otherwise disposed of in any manner which would constitute a
violation of any applicable federal or state securities laws.


 


In addition, Employee agrees that (i) the certificates representing the
shares of Stock purchased under this Option may bear such legend or legends as
the Committee deems appropriate in order to assure compliance with Paragraph 6,
Paragraph 7, and applicable securities laws, (ii) the Company may refuse to
register the transfer of the shares of Stock purchased under this Option on the
stock transfer records of the Company if such proposed transfer would in the
opinion of counsel satisfactory to the Company constitute a violation of
Paragraph 6, Paragraph 7, or any applicable securities law, and (iii) the
Company may give related instructions to its transfer agent, if any, to stop
registration of the transfer of the shares of Stock purchased under this
Option.


 


9.                                       Employment
Relationship.  For
purposes of this Agreement, Employee shall be considered to be in the
employment of the Company as long as Employee remains an employee of either the Company, an Affiliate, or a corporation or a
parent or subsidiary of such corporation assuming or substituting a new option
for this Option.  Without limiting the scope of the


 


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preceding sentence, it is expressly provided that
Employee shall be considered to have terminated employment with the Company at
the time of the termination of the “Affiliate” status under the Plan of the
entity or other organization that employs Employee.  Any question as to whether and when
there has been a termination of such employment, and the cause of such
termination, shall be determined by the Committee and its determination shall
be final.


 


10.                                 Binding Effect.  This Agreement shall be binding upon and
inure to the benefit of any successors to the Company and all persons lawfully
claiming under Employee.


 


11.                                 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
the Option granted hereby.  Without
limiting the scope of the preceding sentence, all prior understandings and
agreements, if any, among the parties hereto relating to the subject matter
hereof are hereby null and void and of no further force and effect.  Any modification of this Agreement shall be
effective only if it is in writing and signed by both Employee and an
authorized officer of the Company.


 


12.                                 Governing Law.  This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Texas, without
regard to conflicts of laws principles thereof.


 


13.                                 Jurisdiction.  Each of the Company and Employee hereby
irrevocably (i) submits and consents to the personal jurisdiction of the state
and federal courts sitting in Harris County, Texas with respect to any suit,
action, or proceeding arising out of or based upon this Agreement or the
transactions contemplated hereby and (ii) waives the right to contend in any
such action that venue is improperly laid in any such court or that it is an
improper or inconvenient forum or lacks personal jurisdiction.  If Employee now or hereafter resides outside
the State of Texas, Employee hereby irrevocably appoints the General Counsel of
the Company as Employee’s authorized agent upon whom process may be served at
such General Counsel’s Company office for notices under this Agreement in any
suit, action, or proceeding arising out of or based upon this Agreement or the
transactions contemplated hereby that may be instituted in any state or federal
court in the State of Texas by the Company, and Employee hereby agrees to so
act.  Employee agrees to take any and all
action, including the filing of any and all documents and instruments,
that may be necessary to continue such appointment in full force and
effect as aforesaid.  Service of process
upon the authorized agent of Employee and written notice of such service to
Employee shall be deemed, in every respect, effective service of process as to
Employee for purposes of any such suit, action, or proceeding instituted in any
state or federal court in the State of Texas.


 


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IN WITNESS WHEREOF, the Company has
caused this Agreement to be duly executed by its officer thereunto duly
authorized, and Employee has executed this Agreement, all as of the day and
year first above written.


 


	
   

  	
  PARTICLE DRILLING TECHNOLOGES, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Employee

  



 


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