ex10-1.htm


    Exhibit 10.1

      


       

      DELAYED DRAW
NOTE

       

      THE
PARTIES IN INTEREST HERETO HAVE AGREED THAT THIS NOTE SHALL BE TREATED AS A
CONTINGENT PAYMENT UNDER TREASURY REGULATION 1.1275-4(c)(4) PROMULGATED UNDER
THE INTERNAL REVENUE CODE OF 1986, AS AMENDED.

       

      THE
INTEREST THAT ACCRUES ON THIS NOTE IS PAYABLE IN-KIND AND WILL EFFECTIVELY
INCREASE THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE.  ACCORDINGLY,
THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE GREATER THAN
THE AMOUNT SHOWN ON THE FACE HEREOF.

       

      THIS NOTE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR (2) PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS, IN WHICH
CASE THE ISSUER HAS RECEIVED, IF REQUESTED, AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO IT TO THE EFFECT THAT SUCH EXEMPTION IS APPLICABLE.

       

      


       

      PARTICLE
DRILLING TECHNOLOGIES, INC.

       

      10% SENIOR SECURED PIK NOTES DUE
2010

       

      $340,000NEW YORK, NEW
YORK

       

                    March
3, 2009

       

      


      PARTICLE DRILLING TECHNOLOGIES, INC.
(the “Issuer”),
a Nevada corporation, hereby promises to pay in full to the order of LC CAPITAL
MASTER FUND, LTD. (the “Holder”) the principal sum of THREE HUNDRED AND FORTY
THOUSAND DOLLARS ($340,000) (which amount shall be subject to adjustment as
herein provided), together with Interest (as defined below) thereon as herein
provided, in lawful money of the United States on the terms and subject to the
conditions set forth in this promissory note (this “Note”).

       

      This Note is one of a duly authorized
issue of notes of the Issuer designated as its 10% Senior Secured PIK Notes Due
2010 (herein called  the “Notes” and each,
individually, a “Note”), issued in an
aggregate principal amount limited to $1,200,000 plus Interest thereon pursuant
to that certain Purchase Agreement (the “Purchase Agreement”),
dated as of February 11, 2009, entered into by and among the Issuer, Particle
Drilling Technologies, Inc., a Delaware corporation and a subsidiary of the
Issuer, the Purchasers named therein and LC Capital Master Fund, Ltd., as Agent
of the holders of securities issued thereunder. Capitalized terms used herein
but not defined herein have the meanings ascribed to them in the Purchase
Agreement.

       

      1. Payments of
Principal.  Except as otherwise provided in Section 3, all unpaid
principal, fees and accrued and unpaid Interest on this Note shall be due and
payable in full in cash on the earlier of (a) March 3, 2010 or (b) the
termination or abandonment of that certain agreement, dated as of December 2,
2008 entered into by and between the Issuer and Shell Exploration &
Production Co. (such date, the “Maturity
Date”).

       

      2. Interest.

       

      (a) The
Issuer promises to pay interest (“Interest”) on the
unpaid principal amount of this Note to the Holder, in the manner hereinafter
provided, computed on the basis of a 365- or 366-day year, as appropriate in
light of the actual number of days in any applicable calendar year, at the rate
of TEN PERCENT (10.0%) per annum (as adjusted from time to time as provided in
this Section 2(a), the “Interest
Rate”).  Notwithstanding the foregoing, if the Interest Rate
payable under this Note is limited by applicable Law, then the Interest Rate
shall be the lesser of (i) the rate provided for in this Note and (ii) the
maximum rate permitted by applicable Law.  Interest shall be payable
quarterly in arrears on the Maturity Date, on any other date that all principal
amounts of the Notes shall be due and payable, and on the last Business Day of
each March, June, September and December of each year, commencing
on  March 31, 2009 (each date upon which interest shall be so payable,
an “Interest Payment
Date”). Interest shall accrue from the most recent Interest Payment Date
or, if no Interest Payment Date has yet occurred, from the date on which this
Note was issued.

       

      (b) On each
Interest Payment Date, the outstanding principal amount of this Note shall be
automatically increased by the amount of Interest to be paid on such Interest
Payment Date, which Interest shall be payable in arrears.  If the
payment of Interest by addition to the principal amount of this Note in the
manner set forth in the immediately preceding sentence shall for any reason be
prohibited by applicable Law on any Interest Payment Date, the Issuer shall
instead deliver to the Holder an additional promissory note (a “PIK Note”),
containing substantially the same terms and conditions as are set forth herein,
in an aggregate principal amount equal to the Interest due on this Note as of
such Interest Payment Date.

       

      3. Redemption.  This
Note is subject to prepayment at the option of the Issuer at the times and on
the terms specified in Section 4 of the Purchase Agreement, but not
otherwise.

       

      4. Payment
Terms.

       

      (a) All
payments of principal of, and cash Interest upon, this Note shall be made by the
Issuer to the Holder in immediately available lawful money of the United States
by wire transfer to the account or accounts designated by the Holder from time
to time.  All payments under this Note shall be made without
withholding, defense, set-off, counterclaim or other deduction.

       

      (b) Payments,
redemptions and prepayments made to the Holder by the Issuer hereunder shall be
applied first to expenses recoverable under Section 14.01 of the Purchase
Agreement, then to accrued Interest and then to principal.

       

      5. Events of
Default.  Upon the occurrence of any Event of Default specified
in Section 11.05 of the Purchase Agreement, the principal amount of this Note,
together with any Interest thereon, shall automatically become immediately due
and payable, without presentment, demand, notice, protest or other requirements
of any kind (all of which are hereby expressly waived by the
Issuer).  Upon the occurrence and during the continuance of any other
Event of Default specified in Section 11 of the Purchase Agreement, the Holder
may, by written notice to the Issuer, declare the principal amount of this Note
together with any Interest thereon to be due and payable, and the principal
amount of this Note together with any such Interest shall thereupon immediately
become due and payable without presentment, further notice, protest or other
requirements of any kind (all of which are hereby expressly waived by the
Issuer).  Following any such demand, the Issuer shall immediately pay
to the Holder all amounts due and payable with respect to this
Note.

       

      6. Security; Ranking;
Relationship to Operative Agreements.

       

      (a) This Note
is a senior secured obligation of the Issuer, secured by a first lien perfected
security interest in all of the assets and property of the Issuer as provided in
the Security Documents.

       

      (b) This Note
shall in all respects rank pari passu with all other Notes issued
pursuant to the Purchase Agreement and all Notes issued upon transfer of or
exchange for this Note and such other Notes and shall rank senior in
right of payment to all other Indebtedness of the Issuer.

       

      (c) This Note
is entitled to the benefits provided by the Purchase Agreement and the Security
Documents.

       

      7. Amendments;
Waivers.  This Note may not be changed, modified or terminated
orally, but only by an agreement in writing signed by the Issuer and the Holder
or any subsequent holder
hereof.              

       

      8. Transfer; Registration of
Transfer and Exchange; Transfer Notes.  The Holder may sell,
assign, transfer or otherwise dispose of this Note (or any portion thereof),
subject to compliance by the Holder of applicable law.

       

      9. Governing
Law.

       

      (a) THIS NOTE
AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW
YORK.  ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS NOTE MAY BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS NOTE, THE
ISSUER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE
ISSUER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE ISSUER AT ITS
ADDRESS SET FORTH BELOW ITS SIGNATURE BELOW, SUCH SERVICE TO BECOME EFFECTIVE 30
DAYS AFTER SUCH MAILING.  NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
AGENT UNDER THIS AGREEMENT, THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST THE COMPANY OR ANY OF ITS SUBSIDIARIES IN ANY OTHER
JURISDICTION.

       

      (b) THE
ISSUER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS
ARISING OUT OF OR IN CONNECTION WITH THIS NOTE BROUGHT IN THE COURTS REFERRED TO
IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

       

      (c) THE
ISSUER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS NOTE OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

       

      [Remainder
of page intentionally left blank - Signature pages follow]

       


      
        
          
             

          

           


        

        
           


          
            

          

        

        
           


        

      


      IN WITNESS WHEREOF, the Issuer
has caused this Note to be executed and delivered by its duly authorized
officers as of the date and year and at the place first above
written.

       

      


      


      PARTICLE
DRILLING TECHNOLOGIES, INC.

      


      


      


      
        	
                 
      

              	
                By:

              	
                /s/ Jim B.
      Terry______________

              


      

      
        	
                 
      

              	
                Name:

              	
                Jim
      B. Terry

              


      

      
        	
                 
      

              	
                Title:

              	
                Chief
      Executive Officer