Document:

Filed by Automated Filing Services Inc. (604) 609-0244 - Texada Ventures Inc. - Exhibit 10.2

LOAN AGREEMENT 

THIS AGREEMENT dated as of the 18th day of
October, 2006 

BETWEEN: 

TEXADA VENTURES INC.

of Suite 720 - 990 W. Broadway Vancouver, British Columbia, Canada
V5Z 1K5 

(hereinafter called the "Borrower")

OF THE FIRST PART 

AND: 

DR. JOHN VELTHEER, 

  of 2957 West 21st Avenue Vancouver, British
Columbia, Canada V6L 1K7 

(hereinafter called the "Lender") 

OF THE SECOND PART 

WHEREAS: 

A.       
               
The Borrower has requested that the Lender lend $50,000 USD to the Borrower;

B.          
             The
Lender has agreed to lend such sum to the Borrower subject to the terms and upon
the conditions hereinafter set forth. 

NOW THEREFORE THIS AGREEMENT WITNESSES THAT in
consideration of the sum of US $10.00 paid by each party to the other (the
receipt of which is hereby acknowledged) the parties hereto mutually covenant
and agree as follows: 

1.                       
INTERPRETATION 

1.1                     
Definitions. Where used herein or in any amendment hereto each of the
following words and phrases shall have the meanings set forth as follows: 

	 	(a) 	
      "Agreement" means this Loan Agreement including the
      Schedules hereto together with any amendments hereof;

	 	 	 
	 	(b) 	
      "Closing Date" means October 18, 2006;

	 	 	 
	 	(c) 	
      Event of Default" means any event set forth in paragraph
      6.1;

	 	 	 
	 	(d) 	
      "Loan" means the loan of $50,000 USD to be made by the
      Lender to the Borrower in accordance with this Agreement;

	 	 	 
	 	(e) 	
      “Maturity” means October 18, 2007; and

	 	 	 
	 	(f) 	
      "Principal Sum" means the sum of $50,000
  USD.

1.2                      
Number and Gender. Wherever the singular or the masculine are used herein
the same shall be deemed to include the plural or the feminine or the body
politic or corporate where the context or the parties so require. 

2

1.3                      
Headings. The headings to the articles, paragraphs, subparagraphs or
clauses of this Agreement are inserted for convenience only and shall not affect
the construction hereof. 

1.4                      
References. Unless otherwise stated a reference herein to a numbered or
lettered article, paragraph, subparagraph or clause refers to the article,
paragraph, subparagraph or clause bearing that number or letter in this
Agreement. A reference to this Agreement or herein means this Loan Agreement,
including the Schedule hereto, together with any amendments thereof. 

1.5                      
Currency. All dollar amounts expressed herein refer to United States
funds. 

2.                        
TERMS OF LOAN 

2.1                      
Loan and Repayment. The Lender hereby agrees to lend to the Borrower the
Principal Sum of $50,000 USD. The Loan shall be made in United States currency
and shall be repaid by the Borrower on or before October 18, 2007. 

2.2                      
Interest. The Borrower shall pay on the amount of the Principal Sum,
interest at a rate of 12% per annum, payable on Maturity. The Borrower shall pay
interest at the aforesaid rate on all overdue interest. 

2.3                      
Advances. The Principal Sum shall be advanced by the lender on execution
of this Agreement, in the form of certified check, bank draft or wire transfer.

2.4                      
Pre-Payment. The Borrower may pre-pay all or any portion of the loan at
any time. 

3.                        
PROMISSORY NOTE, EXTENSIONS & WAIVER 

3.1                      
Loan. To evidence the Loan, the Borrower agrees to enter into a
promissory note in the form attached hereto as Schedule “A”. 

3.2                      
Extensions. The Lender may grant extensions as the Lender may see fit
without prejudice to the liability of the Borrower or to the Lender's rights
under this Agreement or under the Promissory Note. 

3.3                      
Waiver. The Lender may waive any breach by the Borrower of this Agreement
or of any default by the Borrower in the observance or performance of any
covenant or condition required to be observed or performed by the Borrower
hereunder or under the Promissory Note. No failure or delay on the part of the
Lender to exercise any right, power or remedy given herein or by statute or at
law or in equity or otherwise shall operate as a waiver thereof, nor shall any
single or partial exercise of any right preclude any other exercise thereof or
the exercise of any other right, power or remedy, nor shall any waiver by the
Lender be deemed to be a waiver of any subsequent similar or other event. 

4.                        
REPRESENTATIONS AND WARRANTIES 

4.1                      
Representations. The Borrower represents and warrants to the Lender, and
acknowledges that the Lender is relying upon such representations and warranties
in entering into this Agreement, as follows: 

(a)           
the Borrower has the capacity to enter into this Agreement, and the execution of
this Agreement and the completion of the transactions contemplated hereby shall
not be in violation any agreement to which the Borrower is a party; and 

(b)           
the Promissory Note has been duly executed by the Borrower and is enforceable
against the Borrower in accordance with its terms. 

3

5.                        
CLOSING ARRANGEMENTS 

5.1                      
Conditions Precedent. The Lender's obligation to advance the Principal
Sum to the Borrower shall be subject to the satisfaction of the following
conditions: 

	 	(a) 	
      the representations and warranties of the Borrower shall
      be true as of the date hereof and as of the Closing Date; and

	 	 	 
	 	(b) 	
      the Borrower shall have complied with all of its
      obligations hereunder; and

The foregoing conditions precedent are inserted for the benefit
of the Lender and may be waived in whole or in part by the Lender at any time
prior to closing by delivering to the Borrower written notice to that effect.

5.2                      
Time of Closing. The closing of the Loan shall take place on execution of
this Loan Agreement. 

5.3                      
Deliveries by the Lender. On the Closing Date the Lender shall deliver or
cause to be delivered to the Borrower a certified check, bank draft or wire
transfer for the Principal Sum. 

6.                       
 EVENTS OF DEFAULT AND REMEDIES 

6.1                      
Events of Default. Any one or more of the following events, whether or
not any such event shall be voluntary or involuntary or be effected by operation
of law or pursuant to or in compliance with any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body, shall constitute an Event of Default: 

(a)           
if the Borrower defaults in the payment of any monies due hereunder as and when
the same is due; 

(b)           
if the Borrower defaults in the observance or performance of any other provision
hereof; 

(c)           
if the Borrower commits an act of bankruptcy or makes a general assignment for
the benefit of its creditors or otherwise acknowledges its insolvency; or 

(d)           
if the Borrower makes default in the due payment, performance or observance, in
whole or in part, of any debt, liability or obligation of the Borrower to the
Lender, whether secured hereby or otherwise. 

6.2                      
Remedies Upon Default. Upon the occurrence of any Event of Default and at
any time thereafter, provided that the Borrower has not by then remedied such
Event of Default, the Lender may, in its discretion, by notice to the Borrower,
declare this Agreement to be in default. At any time thereafter, while the
Borrower shall not have remedied such Event of Default, the Lender, in its
discretion, may: 

	 	(a) 	
      declare the Loan and other monies owing by the Borrower
      to the Lender to be immediately due and payable;

	 	 	 
	 	(b) 	
      demand payment from the Borrower and exercise all
      remedies available to the Lender.

7.                        
MISCELLANEOUS 

7.1                      
Notices. Any notice required or permitted to be given under this
Agreement or the Promissory Note shall be in writing and may be given by
delivering same or mailing same by registered 

4

mail or sending same by telegram, telex, telecopier or other
similar form of communication to the following addresses: 

	 	The Borrower: 	Suite 720 - 990 W. Broadway Vancouver, British
      Columbia, 
	 	  	Canada V5Z 1K5 
	 	  	  
	 	The Lender: 	2957 West 21st Avenue 
	 	  	Vancouver, British Columbia, Canada V6L 1K7
  

Any notice so given shall: 

	 	(a) 	
      if delivered, be deemed to have been given at the time of
      delivery;

	 	 	 
	 	(b) 	
      if mailed by registered mail, be deemed to have been
      given on the fourth business day after and excluding the day on which it
      was so mailed, but should there be, at the time of mailing or between the
      time of mailing and the deemed receipt of the notice, a mail strike,
      slowdown or other labour dispute which might affect the delivery of such
      notice by the mails, then such notice shall be only effective if actually
      delivered; and

	 	 	 
	 	(c) 	
      if sent by telegraph, telex, telecopier or other similar
      form of communication, be deemed to have been given or made on the first
      business day following the day on which it was
sent.

Any party may give written notice of a change of address in the
aforesaid manner, in which event such notice shall thereafter be given to such
party as above provided at such changed address. 

7.2                      
Amendments. Neither this Agreement nor any provision hereof may be
amended, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the amendment, waiver,
discharge or termination is sought. 

7.3                      
Entire Agreement. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersedes all prior agreements and
undertakings, whether oral or written, pertaining to the subject matter hereof.

7.4                      
Action on Business Day. If the date upon which any act or payment
hereunder is required to be done or made falls on a day which is not a business
day, then such act or payment shall be performed or made on the first business
day next following. 

7.5                      
No Merger of Judgment. The taking of a judgment on any covenant contained
herein or on any covenant set forth in any other security for payment of any
indebtedness hereunder or performance of the obligations hereby secured shall
not operate as a merger of any such covenant or affect the Lender's right to
interest at the rate and times provided in this Agreement on any money owing to
the Lender under any covenant herein or therein set forth and such judgment
shall provide that interest thereon shall be calculated at the same rate and in
the same manner as herein provided until such judgment is fully paid and
satisfied. 

7.6                      
Severability. If any one or more of the provisions of this Agreement
should be invalid, illegal or unenforceable in any respect in any jurisdiction,
the validity, legality or enforceability of such provision shall not in any way
be affected or impaired thereby in any other jurisdiction and the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby. 

7.7                      
Successors and Assigns. This Agreement shall enure to the benefit of and
be binding upon all parties hereto and their respective heirs, personal
representatives, successors and assigns, as the case may be. 

5

7.8                      
Governing Law. This Agreement shall be governed by and be construed in
accordance with the laws of the State of Nevada and the parties hereto agree to
submit to the jurisdiction of the courts of Nevada with respect to any legal
proceedings arising herefrom. 

7.9                      
Independent Legal Advice. This Agreement has been prepared by O’Neill Law
Group PLLC acting solely on behalf of the Borrower and the Lender acknowledges
that it has been advised to obtain independent legal advice. 

7.10                      Time.
Time is of the essence of this Agreement. 

7.11                    
Headings. The headings of the paragraphs of this Agreement are inserted
for convenience only and do not define, limit, enlarge or alter the meanings of
any paragraph or clause herein. 

7.12                     Counterparts.
This agreement may be executed in one or more counterparts, each of which so
executed shall constitute an original and all of which together shall constitute
one and the same agreement. 

IN WITNESS WHEREOF the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first written
above. 

THE BORROWER:

	TEXADA VENTURES INC. 	 	  
	by its authorized signatory 	 	  
	 	 	 
	/s/ John
      Veltheer 	 	  
	President 	 	  
	 	 	 
	THE LENDER: 	 	  
	 	 	 
	SIGNED, SEALED AND DELIVERED 	 	  
	BY DR. JOHN VELTHEER 	 	  
	in the presence of: 	 	  
	 	 	 
	/s/ Conrad Y.
      Nest 	 	/s/
      John Veltheer 
	Signature 	 	DR. JOHN VELTHEER 
	 	 	 
	1800-1055 W.
      Georgia St. 	 	  
	Name 	 	  
	 	 	 
	Vancouver, BC 	 	  
	Address 	 	  
	 	 	 
	 	 	 

SCHEDULE “A” 

PROMISSORY NOTE 

	EXECUTED BY: 	TEXADA VENTURES INC. 
	  	(the "Borrower") 
	 	 
	IN FAVOUR OF: 	JOHN VELTHEER 
	  	(the "Lender") 
	 	 
	PRINCIPAL AMOUNT: 	$50,000 USD 
	 	 
	DATE OF EXECUTION: 	October 18, 2006 
	 	 
	PLACE OF EXECUTION: 	Vancouver, British Columbia
  

FOR VALUE RECEIVED the Borrower hereby promises to pay
to or to the order of the Lender on demand, the principal sum of $50,000 USD,
together with interest thereon at the rate of 12% per annum, calculated and
compounded annually, both before and after maturity from the date hereof. 

The Borrower waives presentment, demand, notice, protest and
notice of dishonour and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Promissory
Note. 

The Borrower agrees this Promissory Note may be negotiated,
assigned, discounted, or pledged by the Lender and in every case payment will be
made to the holder of this Promissory Note instead of the Lender upon notice
being given by the holder to the undersigned, and no holder of this Promissory
Note will be affected by the state of accounts between the undersigned and the
Lender or by any equities existing between the undersigned and the Lender and
will be deemed to be a holder in due course and for the value of the Promissory
Note held by him. 

DATED at Vancouver, BC this 18th day of October, 2006. 

TEXADA VENTURES INC. 
by its authorized signatory:

  /s/ John Veltheer 

  John Veltheer, PresidentExhibit
10.1

EXECUTION COPY

PARTICLE
DRILLING TECHNOLOGIES, INC.

SECURITIES PURCHASE AGREEMENT

This SECURITIES
PURCHASE AGREEMENT (this “Agreement”), dated as of October 19, 2006,
is by and among PARTICLE DRILLING
TECHNOLOGIES, INC., a Nevada corporation (the “Company”), and
each of the investors signatory hereto and listed for convenience on Schedule
I hereto (each of the persons or entities listed on Schedule I,
individually, a “Purchaser” and, collectively, the “Purchasers”).

WHEREAS, the
Company desires to issue and sell to the Purchasers, and the Purchasers desire
to purchase from the Company, severally and not jointly, an aggregate of (i)
5,000,000 shares (the “Shares”) of the authorized but unissued shares of
the Company’s common stock, $0.001 par value per share (including any
securities into which or for which such shares may be exchanged for, or
converted into, pursuant to any stock dividend, stock split, stock combination,
recapitalization, reclassification, reorganization or other similar event, the “Common
Stock”) and (ii) warrants to purchase 1,500,000 shares of Common Stock (the
“Warrants”), at an aggregate purchase price of $11,750,000, all upon the
terms and subject to the conditions set forth in this Agreement; and

WHEREAS,
simultaneously with entering into this Agreement, the Company and the
Purchasers are entering into that certain Registration Rights Agreement, dated
as of the date hereof (the “Registration Rights Agreement”), pursuant to
which the Company will assume obligations with respect to the registration of
the Shares and Warrant Shares on the terms set forth therein.

NOW THEREFORE, in
consideration of the mutual agreements, representations, warranties and
covenants herein contained, the parties hereto agree as follows:

1.             Definitions; Certain Rules of
Construction.  As used in this
Agreement, the following terms shall have the following respective meanings:

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

“Board”
means the board of directors of the Company.

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

 1

 

“Closing
Date” means the date hereof.

“Code”
means the Internal Revenue Code of 1986.

“Effective
Date” shall mean the date either (i) the Mandatory Registration Statement
or (ii) another registration statement that registers the resale by, and for
the account of, each Purchaser as an initial selling stockholder (or any
transferee thereof) of the Shares and the Warrant Shares under the Securities
Act, is first declared effective by the SEC.

“Environmental
Protection Laws” means any law, statute or regulation enacted by any
jurisdiction in connection with or relating to the protection or regulation of
the environment, including, without limitation, those laws, statutes and
regulations regulating the disposal, removal, production, storing, refining,
handling, transferring, processing or transporting of hazardous or toxic
substances, and any orders, decrees or judgments issued by any court of
competent jurisdiction in connection with any of the foregoing.

“ERISA”
means the Employee Retirement Income Security Act of 1974.

“ERISA
Affiliate” means any Person required to be aggregated with the Company or
any Subsidiary of the Company under Sections 414(b), (c), (m) or (o) of the
Code.

“Exchange
Act” means the Securities Exchange Act of 1934, as amended, and all of the
rules and regulations promulgated thereunder.

“Exchange
Act Reports” means the Company’s reports filed with the SEC pursuant to
Section 13 of the Exchange Act at any time on or after October 15, 2004.

“Governmental
Authority” means any nation or government, any state or other political
subdivision thereof and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.

“Indebtedness”
means, as applied to any Person, all
indebtedness for borrowed money, whether current or funded, or secured or
unsecured.

“Lien”
means, with respect to any property or asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such property
or asset, whether or not filed, recorded or otherwise perfected under
applicable law, other than (a) those resulting from taxes which have not yet
become delinquent, (b) minor liens and encumbrances that do not materially
detract from the value of the property or materially impair the operations of
the Company or materially interfere with the use of such property or asset or
(c) those relating to Indebtedness incurred prior to the date hereof and any
replacement thereof.

“Majority
Purchasers” means Purchasers holding, at any time, a majority of the
outstanding Shares purchased hereunder on such date.

 2
 

 

 

“Mandatory
Effective Date” shall have the meaning assigned to such term in the
Registration Rights Agreement.

“Mandatory
Registration Statement” shall have the meaning assigned to such term in the
Registration Rights Agreement.

“Material
Adverse Effect” means a material adverse effect on the business, assets,
liabilities (contingent or otherwise), properties, operations, prospects or
condition (financial or otherwise) of the Company and its Subsidiaries taken as
a whole or a material adverse effect on the Company’s ability to perform in any
material respect on a timely basis its obligations under this Agreement, the
Warrants or the Registration Rights Agreement.

“Offering Memorandum” means the Private Placement Memorandum of
the Company, dated as of October 17, 2006.

“PBGC”
means the Pension Benefit Guaranty Corporation.

“PDTI”
means Particle Drilling Technologies, Inc., a Delaware corporation and
Subsidiary of the Company.

“Person”
(whether or not capitalized) means an individual, entity, partnership, limited
liability company, corporation, association, trust, joint venture,
unincorporated organization, and any Governmental Authority.

“Plan”
means any employee benefit plan, program or arrangement, whether oral or
written, maintained or contributed to by the Company, any Subsidiary of the
Company or any ERISA Affiliate, or with respect to which the Company, any Subsidiary
of the Company or any ERISA Affiliate may incur liability.

“Registration
Statements” means the Company’s registration statements filed with the SEC
pursuant to the Securities Act at any time on or after October 15, 2004.

“Rule
144” means Rule 144 promulgated under the Securities Act and any successor
or substitute rule, law or provision.

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

“SEC
Reports” means the Exchange Act Reports and the Registration Statements.

“Securities
Act” means the Securities Act of 1933, as amended, and all of the rules and
regulations promulgated thereunder.

“Short Sales” shall
include all “short sales” as defined in Rule 200 of Regulation SHO under the
Exchange Act.

“Subsidiary” means
with respect to any Person at any time, (a) any other Person the accounts of
which would be consolidated with those of such first Person in its consolidated

 3
 

 

 

financial statements as of
such time, and (b) any other Person (i) which is, at such time, controlled by,
or (ii) capital securities of which having ordinary voting power to elect a
majority of the board of directors (or other persons having similar functions),
or other ownership interest of which ordinarily constituting a majority voting
interest, are at such time, directly or indirectly, owned or controlled by, in
the case of each of clauses (i) and (ii), such first Person or one or more of
its Subsidiaries or by such first Person and one or more of its
Subsidiaries.  Unless otherwise expressly
provided, all references herein to “Subsidiary” means a Subsidiary of the Company.

“Transfer
Agent Instruction Letter” means the letter, dated as of the Closing Date,
from the Company to its transfer agent in the form attached hereto as Exhibit
E.

“Warrant
Shares” means the shares of Common Stock issuable upon exercise of the Warrants
in accordance with their terms.

“in writing” means any form of written communication or a
communication by means of facsimile transmission.

The
following table sets forth certain other defined terms and the section of this
Agreement in which the meaning of each such term appears:

	
  

  	
   

  	
  Section(s)

  
	
  “Aggregate
  Purchase Price”

  	
   

  	
  2.1

  
	
  “Agreement”

  	
   

  	
  Preamble

  
	
  “Closing”

  	
   

  	
  2.2

  
	
  “Common Stock”

  	
   

  	
  Preamble

  
	
  “Company”

  	
   

  	
  Preamble

  
	
  “Disclosure
  Schedules”

  	
   

  	
  3

  
	
  “Intellectual
  Property”

  	
   

  	
  3.27

  
	
  “Losses”

  	
   

  	
  7.1

  
	
  “Permits”

  	
   

  	
  3.20

  
	
  “Purchase
  Price Per Share”

  	
   

  	
  2.1

  
	
  “Purchaser”

  	
   

  	
  Preamble

  
	
  “Purchaser
  Indemnitee”

  	
   

  	
  7.1

  
	
  “Registration
  Rights Agreement”

  	
   

  	
  Preamble

  
	
  “Sarbanes-Oxley
  Act”

  	
   

  	
  3.21

  
	
  “Securities
  Laws Exemption”

  	
   

  	
  3.32

  
	
  “Shares”

  	
   

  	
  Preamble

  
	
  “8-K Filing”

  	
   

  	
  6.3

  

 

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2.             Purchase and Sale of Shares.

2.1           Purchase and Sale. Subject to
and upon the terms and conditions set forth in this Agreement, the Company
agrees to issue and sell to each Purchaser, and each Purchaser hereby agrees,
severally and not jointly, to purchase from the Company, at the Closing, the
number of Shares set forth on the Purchaser’s signature page hereto, and
repeated for convenience only opposite such Purchaser’s name on Schedule I
hereto, at a purchase price equal to $2.35 per Share (the “Purchase Price
Per Share”).  In addition, in
connection with the purchase of the Shares pursuant to this Agreement, the
Company shall issue to such Purchaser a Warrant to purchase such number of
Warrant Shares as is equal to (x) the number of Shares purchased by such
Purchaser multiplied by (y) 0.3, which Warrant shall entitle the holder thereof
to purchase Warrant Shares at an exercise price equal to $3.25 per Warrant
Share pursuant to the terms of the Warrant. 
The aggregate purchase price payable by the Purchasers to the Company
for all of the Shares and Warrants shall be $11,750,000 (the “Aggregate
Purchase Price”).

2.2           Closing. The closing of the
transactions contemplated under this Agreement (the “Closing”) shall
take place at 5:30 pm (Eastern Time) at the offices of Vinson & Elkins
L.L.P., Houston, Texas, on the Closing Date, or on such other date and at such
time as may be agreed upon between the Purchasers, on the one hand, and the
Company, on the other hand.  Promptly
following the Closing, the Company shall deliver to each Purchaser a single
stock certificate and a single Warrant certificate, in each case registered in
the name of such Purchaser, representing the number of Shares and Warrants purchased
by such Purchaser, against payment by such Purchaser at the Closing of its
respective aggregate Purchase Price Per Share by wire transfer of immediately
available funds to such account as the Company shall designate in advance in
writing, which stock and Warrant certificates shall bear the legend set forth
in Section 6.2(a).  The stock and Warrant
certificates delivered to the Purchasers and representing the Shares and
Warrants will be registered in the names and addresses of the Purchasers set
forth on the signature page hereto.

3.             Representations and Warranties
of the Company. In order to induce the Purchasers to enter into this
Agreement and to purchase the Shares, except as set forth in the corresponding
sections of the Disclosure Schedules delivered concurrently herewith (the “Disclosure
Schedules”), the Company hereby makes the following representations and
warranties as of the Closing Date, all of which shall survive the execution and
delivery of this Agreement and the purchase of the Shares and Warrants:

3.1           Corporate
Status.  Each of the Company and its
Subsidiaries (a) is duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its organization and has the corporate
power and authority to own its property and assets and to transact the business
in which it is engaged and presently proposes to engage and (b) has been duly
qualified to do business and is in good standing in each jurisdiction where it
is required to be so qualified and where the failure to be so qualified would
reasonably be expected to have a Material Adverse Effect.  Neither the Company nor any of its
Subsidiaries is currently in violation of any of the provisions of its certificate
of incorporation (or other charter document) or by-laws, each as amended to
date.

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3.2           Corporate Power and Authority.  All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization,
execution, delivery and performance of this Agreement, the Warrants and the Registration
Rights Agreement and the consummation of the transactions contemplated herein
and therein has been taken. When executed and delivered by the Company, each of
this Agreement, the Warrants and the Registration Rights Agreement shall
constitute the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such may be limited
by bankruptcy, insolvency, reorganization or other laws affecting creditors’
rights generally and by general equitable principles. The Company has all
requisite corporate power and authority to enter into this Agreement, the
Warrants and the Registration Rights Agreement and to carry out and perform its
obligations under the terms hereof and thereof.

3.3           No Violation. 
Neither the execution, delivery and performance by the Company of this
Agreement, the Warrants and the Registration Rights Agreement nor compliance
with the terms and provisions hereof and thereof (a) will contravene any
applicable provision of any law, statute, rule, regulation, order, writ,
injunction or decree of any court or Governmental Authority, except as would
not have a Material Adverse Effect, (b) will conflict with or result in any
breach of, any of the material terms, covenants, conditions or provisions of,
or constitute a default under, or result in the creation or imposition of (or
the obligation to create or impose) any Lien upon any of the property or assets
of the Company or any of its Subsidiaries pursuant to the terms of, any
indenture, mortgage, deed of trust, agreement or other instrument to which the
Company or any of its Subsidiaries is a party or by which it or any of its or
their property or assets are bound or to which it may be subject or result in
the acceleration of any material obligation of the Company or any of its
Subsidiaries, except as would not have a Material Adverse Effect or (c) will
violate any provision of the certificate of incorporation (or other charter
documents) or by-laws of the Company or any of its Subsidiaries, each as
amended to date.

3.4           Capitalization.

(a)           As of the date hereof, the authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock, of which 25,018,950
shares are issued and outstanding.  As of
the date hereof, 5,559,891 shares of Common Stock were reserved for future
issuance pursuant to outstanding options and warrants issued by the Company.

(b)           As of the date hereof, the authorized capital stock of PDTI,
the only Subsidiary of the Company, consists of 50,000,000 shares of common
stock and 20,000,000 shares of preferred stock, of which 50,000,000 shares of
common stock and no shares of preferred stock are issued and outstanding, and
all of the issued and outstanding shares of common stock of PDTI are owned by
the Company, free and clear of any Liens. As of the date hereof, no shares of
capital stock of any of the Subsidiaries of the Company were reserved for
future issuance pursuant to outstanding options, warrants or other rights to
acquire shares of capital stock of any of the Subsidiaries of the Company
issued by any of the Subsidiaries of the Company.

(c)           As of the date hereof, except as set forth above in (a)
and (b), and for the exercise rights of the Warrants, there are no other
outstanding options, warrants, rights (including

 6
 

 

 

conversion or preemptive
rights) or any agreement for the purchase or acquisition from the Company or any
of its Subsidiaries of any shares of the Company’s or any of its Subsidiaries’
capital stock or voting agreements with respect to equity of the Company or any
of its Subsidiaries. All shares of the capital stock of the Company and its
Subsidiaries subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall, to the knowledge of the Company after due inquiry, be duly authorized,
validly issued, fully paid and nonassessable. Except as disclosed in Section
3.4(c) of the Disclosure Schedules or in the SEC Reports or as set forth above
in (a) and (b), there are no obligations, contingent or otherwise, of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of Common Stock or other equity securities of the Company or any of
its Subsidiaries or to provide funds to or make any investment (in the form of
a loan, capital contribution, guaranty or otherwise) in any other entity.  The sale of the Shares and the issuance of
the Warrants under this Agreement, and the issuance of any Warrant Shares upon
exercise of the Warrants in their current form, will not result in the Company
or any of its Subsidiaries being obligated to issue, sell or purchase, pursuant
to any existing preemptive, anti-dilution, redemption or other right of third
parties, shares of Common Stock or other securities to or from any Person
(other than the Purchasers), and will not result in a right of any holder of
convertible or contingent securities issued by the Company or any of its
Subsidiaries to adjust the exercise, conversion, exchange or reset price under
such securities, including, in any such case, pursuant to any “poison pill” or
shareholders rights plan.  To the
knowledge of the Company after due inquiry, none of the outstanding shares of
capital stock of the Company or any of its Subsidiaries were issued in
violation of the Securities Act or any state securities laws.

3.5           Valid Issuance of
the Shares. The Shares, the Warrants and the Warrant Shares have been duly
authorized, and the Shares and Warrant Shares, upon issuance pursuant to the
terms hereof and of the Warrants as to the Warrant Shares, (a) will be validly
issued, fully paid and nonassessable, (b) will not be subject to any
encumbrances, preemptive rights or any other similar contractual rights of the
stockholders of the Company or any other Person, and (c) the applicable
Purchaser (with respect to the Shares) and the applicable Holder (as defined in
the Warrant) will obtain sole record and beneficial ownership of such Shares
and Warrant Shares (as applicable) and take good marketable title thereto, free
and clear of any Liens (defined for purposes hereof without regard to the
carve-outs set forth in clauses (a) through (c) of the definition of Lien),
claims, charges, taxes, options or transfer restrictions of any kind, other
than those transfer restrictions explicitly set forth in this Agreement and in
the Warrants. The Company has reserved from its duly authorized capital stock
the number of shares of Common Stock issuable upon execution of this Agreement
and upon exercise in full of the Warrants (assuming the Warrants vest in full).

3.6           Litigation.  Except as disclosed in the
SEC Reports, no actions, suits, claims, investigations or proceedings are
pending or, to the Company’s knowledge, threatened that could reasonably be
expected to have, individually or in the aggregate (a) a Material Adverse Effect
or (b) an adverse effect on the rights or remedies of the Purchasers or on the
ability of the Company or its Subsidiaries to perform when due to be performed
their respective obligations under this Agreement, the Warrants or the Registration
Rights Agreement.  Except as disclosed in
Section 3.6 of the Disclosure Schedules or the SEC Reports, neither the Company
nor any of its Subsidiaries is a party to or named in or subject to any order,
writ, injunction, judgment or decree of any court or Governmental Authority.
Except as disclosed in Section 3.6

 7
 

 

 

of the Disclosure Schedules
or the SEC Reports, there is no action, suit, claim, proceeding or
investigation by the Company or any of its Subsidiaries currently pending or
that the Company or any of its Subsidiaries currently intends to initiate.

3.7           Approvals.  Assuming the accuracy of the
Purchasers’ representations and warranties set forth in Section 4 below and in
the Investor Questionnaire executed and delivered by each Purchaser to the
Company, such Investor Questionnaire in the form attached hereto as Exhibit A,
except for (a) any required filings and recordings which have been made and are
in full force and effect, (b) the filing of a registration statement with the
SEC pursuant to the Registration Rights Agreement and (c) applicable blue sky
notice filings or a Form D to be timely filed with the SEC, no order, consent,
approval, license, authorization or validation of, or filing, recording or
registration with, or exemption by, any Person or Governmental Authority, is
required to authorize or is required for or as a condition to (i) the
execution, delivery and performance of this Agreement, the Warrants or the Registration
Rights Agreement or (ii) the legality, validity, binding effect or
enforceability of this Agreement, the Warrants or the Registration Rights
Agreement.  The execution and delivery by
the Company of this Agreement, the Warrants and the Registration Rights
Agreement, the consummation of the transactions contemplated herein and
therein, and the issuance of the Shares, the Warrants, and upon exercise of the
Warrants, the Warrant Shares, does not require the consent or approval of the
stockholders of the Company or any other Person.

3.8           Contracts.  All material agreements to which the Company or
any of its Subsidiaries is a party or to which the property or assets of the
Company or any of its Subsidiaries are subject are included as part of or
specifically identified in the SEC Reports to the extent required by the rules
and regulations of the SEC as in effect at the time of filing of such SEC
Reports.  Except as disclosed in Section
3.8 of the Disclosure Schedules or in the SEC Reports, all such material
agreements required to be filed as exhibits to the SEC Reports are legal, valid
and binding obligations of the Company in accordance with their respective
terms and, to the knowledge of the Company, the other parties thereto, except
in any case as may be limited by bankruptcy, insolvency, reorganization or
other laws affecting creditors’ rights generally and by general equitable
principles.  The Company and its
Subsidiaries are not, nor to their knowledge is any counterparty, in violation
of or default under, any agreement to which any of them is a party, except as
would not reasonably be expected to have a Material Adverse Effect.

3.9           Conformity to
Securities Act and Exchange Act; No Misstatement or Omission.  To the knowledge of the Company after due
inquiry, each of the SEC Reports as of the date it was filed with the SEC in
the case of filings under the Exchange Act or declared effective in the case of
the Registration Statements, complied in all material respects with the
applicable requirements of the Securities Act or the Exchange Act (as
applicable) and the respective rules and regulations of the SEC thereunder and
did not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading.  To the
knowledge of the Company after due inquiry, the Company has filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the Exchange Act at any
time on or after October 15, 2004.

 8
 

 

 

3.10         Financial Statements; Indebtedness.

(a)           The consolidated
financial statements of the Company for the year ended September 30, 2005, and
the most recent consolidated financial statements for the quarter ended June 30,
2006, are complete and correct and present fairly in all material respects the
consolidated financial position of the Company as of the dates specified and
the consolidated results of their operations and cash flows for the periods
specified, in each case, in conformity with generally accepted accounting
principles applied on a consistent basis during the periods involved, except as
indicated therein or in the notes thereto.

(b)           Except as set forth
in Section 3.10(b) of the Disclosure Schedules or in the financial statements
included in the SEC Reports, the Company and its Subsidiaries have no
Indebtedness outstanding at the date hereof. 
Except as set forth in Section 3.10(b) of the Disclosure Schedules, none
of the Company or its Subsidiaries is in default with respect to any
outstanding Indebtedness or any instrument relating thereto, and no event has
occurred, or facts and circumstances exist, which, after passage of time, would
result in such a default.

3.11         Margin Regulations. 
Neither the sale of the Shares and Warrants, nor the use of the proceeds
thereof, will violate Regulation T, U or X of the Board of Governors of the
Federal Reserve System.

3.12         Investment Company Act.  The Company is not an “investment company” or
a company “controlled” by an “investment company,” within the meaning of the
Investment Company Act of 1940.

3.13         No Material
Adverse Changes.  Since September 30,
2005, except as described in the SEC Reports or otherwise set forth in Section
3.13 of the Disclosure Schedules, (a) no event has occurred which has had, or
could reasonably be expected to have, a Material Adverse Effect; (b) except as
contemplated by this Agreement, there has been no transaction entered into by
the Company or any of its Subsidiaries other than transactions in the ordinary
course of business or transactions which would not, individually or in the
aggregate, be material to the Company; (c) there have not been any changes in
the Company’s or any of its Subsidiaries’ authorized capital or any increases
in the Indebtedness of the Company and its Subsidiaries taken as a whole; (d)
there has been no actual or, to the knowledge of the Company, threatened
revocation of, or default under, any contract to which the Company or any of
its Subsidiaries is a party, except as would not have a Material Adverse
Effect; (e) there have not been any amendments or changes in the charter
documents or by-laws of the Company or any of its Subsidiaries; (f) there have
not been any entry into, amendment of, relinquishment, termination or
non-renewal by the Company or any of its Subsidiaries of any material contract,
license, lease, transaction, commitment or other right or obligation, other
than in the ordinary course of business, consistent with past practice; (g) the
Company has not declared or paid any dividend on any class of its capital
stock; and (h) there has not been any transfer or grant of a right with respect
to the Intellectual Property owned or licensed by the Company or any of its
Subsidiaries, except as among the Company and its Subsidiaries.

3.14         Tax Returns and
Payments.  Except as set
forth in Section 3.14 of the Disclosure Schedules, each of the Company and each
of its Subsidiaries has filed all federal

 9
 

 

 

income tax returns and all
other domestic and foreign tax returns and reports required to be filed by it
and has paid all taxes and assessments payable by it which have become due,
except for those contested in good faith and adequately reserved against (in
the good faith determination of the Company), all of which, to the extent
outstanding on the Closing Date, have been disclosed by the Company in the SEC
Reports.  All such returns and reports
are true and correct in all material respects. Each of the Company and each of
its Subsidiaries has paid, or has provided adequate reserves (in the good faith
judgment of the Company) for the payment of, all material federal, state and
foreign taxes that are not yet due and payable for all fiscal years, including
the current fiscal year, to date.  No
action, suit, proceeding, investigation, audit or claim is now pending or, to
the knowledge of the Company or its Subsidiaries, threatened by any authority
regarding any taxes relating to the Company or any of its Subsidiaries which
could reasonably be expected to have a Material Adverse Effect.  As of the Closing Date, neither the Company
nor any of its Subsidiaries has entered into an agreement or waiver or been
requested to enter into an agreement or waiver extending any statute of
limitations relating to the payment or collection of taxes of the Company or
any of its Subsidiaries.  No tax return
of the Company or any of its Subsidiaries is or has been the subject of an
audit or examination by any taxing authority, other than any such audit or
examination which has been completed or closed. 
Each of the Company and its Subsidiaries has withheld from each payment
made to any of its past or present employees, officers and directors, and any
other Person, the amount of all material taxes and other deductions required to
be withheld therefrom and paid the same to the proper taxing authority within
the time required by law.

3.15         Subsidiaries.  As of the Closing Date, the Company has no
directly or indirectly held Subsidiary other than PDTI.  All such shares of PDTI have been duly
authorized, validly issued and are fully paid and nonassessable.  As of the Closing Date, the Company is not
party to any joint venture or similar arrangement.

3.16         Properties.  The Company and each of its Subsidiaries owns
its properties and assets free and clear of all Liens.  With respect to leased property and assets,
the Company and its Subsidiaries are in compliance with such leases and hold a
valid leasehold interest, free and clear of any Liens.

3.17         Labor Relations. 
The Company and its Subsidiaries are not engaging in any unfair labor
practice.  No unfair labor practice
complaint is pending against the Company or any of its Subsidiaries or, to the
best of its knowledge, threatened against it or any of its Subsidiaries, before
the National Labor Relations Board or similar foreign labor relations
authority, and no grievance or arbitration proceeding arising out of or under
any collective bargaining agreement is so pending against the Company or any of
its Subsidiaries, or, to the best of its knowledge, threatened against it or
any of its Subsidiaries.  No strike,
labor dispute, slowdown or stoppage is pending against the Company or any of
its Subsidiaries or, to the best of its knowledge, threatened against the
Company or any of it Subsidiaries.  No
union representation question exists with respect to the employees of the
Company or any of its Subsidiaries and no union organizing activities are
taking place.  The Company
and its Subsidiaries have complied in all material respects with all applicable
state and federal equal opportunity and other laws related to employment. To
the Company’s knowledge, no employee of the Company or any of its Subsidiaries
is or will be in violation of any judgment, decree, or order, or any term of
any employment contract, patent disclosure agreement, or other contract or
agreement relating to the

 10
 

 

 

relationship of any such employee with the Company or any of its
Subsidiaries, or any other party because of the nature of the business
presently conducted or presently proposed to be conducted by the Company and
its Subsidiaries. The Company is not aware that any officer or key employee, or
that any group of key employees, intends to terminate their employment with the
Company or any of its Subsidiaries, nor does the Company or any of its
Subsidiaries have a present intention to terminate the employment of any of the
foregoing. Subject to general principles related to wrongful termination of
employees, the employment of each officer and employee of the Company and its
Subsidiaries is terminable at the will of the Company or the applicable
Subsidiary.

3.18         Compliance with Law. 
The conduct of the Company’s business complies with all applicable U.S.,
state, local and foreign laws, ordinances, rules, regulations, and orders,
except where the failure to so comply would not reasonably be expected to have
a Material Adverse Effect.

3.19         Permits. The Company and its
Subsidiaries have all franchises, permits, licenses, certificates,
registrations and any similar authority (the “Permits”) necessary or
material for the conduct of their business as described in the SEC Reports, the
lack of which could, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.  As of
the date hereof, no suspension or cancellation of any of the Permits is pending
or, to the knowledge of the Company, threatened which could, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.  The Company believes it can obtain, without
undue burden or expense, any similar authority for the conduct of its business
as presently proposed to be conducted. The Company and its Subsidiaries are not
in default under any of such franchises, permits, licenses or other similar
authorities.

3.20         ERISA.  Neither the Company, any of its Subsidiaries
nor any ERISA Affiliate maintains or contributes to any Plan other than those
listed in Section 3.20 of the Disclosure Schedules.

(a)           Compliance with ERISA.  The Company and each ERISA Affiliate is in
compliance with ERISA, except for such failures to comply that, in the
aggregate for all such failures, would not reasonably be expected to have a
Material Adverse Effect, and no 
contributions required to be made by the Company or any ERISA Affiliate
to any pension plan are overdue.

(b)           PBGC. No liability
to the PBGC has been or is expected to be incurred by the Company or any ERISA Affiliate
with respect to any pension plan that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.  No circumstance exists that constitutes
grounds under section 4042 of ERISA entitling the PBGC to institute proceedings
to terminate, or appoint a trustee to administer, any pension plan or trust
created thereunder, nor has the PBGC instituted any such proceeding.

(c)           Multiemployer
Plans.  Neither the Company nor any
ERISA Affiliate has incurred or presently expects to incur any withdrawal
liability under Title IV of ERISA with respect to any multiemployer plan except
for such withdrawal liability that, in the aggregate of all such liabilities,
would not reasonably be expected to have a Material Adverse Effect.  There

 11
 

 

 

have been no “reportable
events” (as such term is defined in section 4043 of ERISA) with respect to any
multiemployer plan that could result in the termination of such multiemployer
plan and give rise to a liability of the Company or any ERISA Affiliate in
respect thereof except for such “reportable events” that, in the aggregate for
all such “reportable events,” would not reasonably be expected to have a
Material Adverse Effect.  Neither the
Company nor any of its Subsidiaries has incurred or expects to incur liability
under Sections 412 or 4971 of the Code, including the regulations and published
interpretations thereunder; and each “pension plan” for which the Company would
have any liability that is intended to be qualified under Section 401(a) of the
Code has been determined by the Internal Revenue Service to be so qualified and
nothing has occurred, whether by action or by failure to act, which could
reasonably be expected to cause the loss of such qualification.

3.21         No Undisclosed
Liabilities.  There are no
material liabilities of the Company or any of its Subsidiaries, other than
liabilities incurred in the ordinary course of business consistent with past practice
since September 30, 2005, or which in the aggregate would not reasonably be
expected to result in a Material Adverse Effect.

3.22         Insurance.  The Company maintains insurance of the types
and in the amounts and covering such risks as is prudent and adequate for its
business as currently conducted and for the value of its properties as is
customary for companies engaged in similar lines of business in similar
industries, all of which insurance is in full force and effect.  The Company has directors and officers
insurance with the carrier and in the amount set forth on Section 3.22 of the
Disclosure Schedules. Neither the Company nor any of its
Subsidiaries has (i) received notice from any insurer or agent of such insurer
that capital improvements or other expenditures are required or necessary to be
made in order to continue such insurance or (ii) any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage at reasonable cost from similar
insurers as may be necessary to continue its business.

3.23         Accounts Receivable.  The accounts and notes receivable of the
Company reflected on its balance sheet as of June 30, 2006, and all accounts
and notes receivable of the Company arising subsequent to June 30, 2006, (i)
arose from bona fide sales transactions in the ordinary course of business
consistent with past practice and are payable on ordinary trade terms, (ii) to
the knowledge of the Company and each  of
its Subsidiaries, are legal, valid and binding obligations of the respective
debtors enforceable in accordance with their respective terms, (iii) to the
knowledge of the Company and each of its Subsidiaries, are not subject to any
valid set-off or counterclaim, and (iv) are not the subject of any actions or
proceedings brought by or on behalf of the Company or any of its Subsidiaries.

3.24         Brokers.  Except for Tejas Securities Group Inc. and
RBC Capital Markets Corporation (collectively, the “Placement Agents”), neither
the Company nor any of its Subsidiaries has any liability to pay any fees,
commissions or other similar compensation to any broker, finder, investment
banker, financial advisor or other similar Person in connection with the
transactions contemplated by this Agreement.

3.25         Leases.  Each of the Company and its Subsidiaries has
complied with all material obligations under all leases for real property to
which it is a party as a lessee.  All
leases

 12
 

 

 

relating to the leasehold
estates of each of the Company and its Subsidiaries necessary for the conduct
of the business of such Person are, with respect to the Company and its
Subsidiaries, valid and enforceable, and, to the knowledge of the Company, are,
valid and enforceable with respect to the lessor, and each of the Company and
its Subsidiaries that is the lessee in respect thereof currently enjoys
peaceful and undisturbed possession of the premises subject thereto. 

3.26         Intellectual Property.  To the knowledge of the Company, each of the
Company and its Subsidiaries owns, possesses or has the right to use all of the
patents, trademarks, service marks, trade names, copyrights, franchises and
licenses, and rights with respect thereto (collectively, “Intellectual
Property”), necessary for the conduct of its business as described in the
SEC Reports and as such business is proposed to be conducted as described in
the SEC Reports, without any infringement of the rights of others.  None of the Company’s Intellectual Property
has expired or terminated, or is expected to expire or terminate within three (3)
years from the date of this Agreement. 
There are no outstanding options, licenses, or agreements of any kind
relating to the Company’s and/or its Subsidiaries’ Intellectual Property with
the exception of agreements for the sale or license of the Company’s products
or services in the ordinary course of business. Except as disclosed in the SEC
Reports, the Company has not received any communications alleging that the
Company or any of its Subsidiaries has violated or infringed or, by conducting
its business as presently proposed, would violate or infringe any of the
Intellectual Property of any other Person. 
Except as disclosed in the SEC Reports, there is no claim, action or
proceeding being made or brought, or to the knowledge of the Company, being
threatened, against the Company or its Subsidiaries regarding its Intellectual
Property.  Except as disclosed in the SEC
Reports, the Company is unaware of any facts or circumstances which might give
rise to any of the foregoing infringements or claims, actions or
proceedings.  To date the only patents
which have issued and are now owned in all right, title and interest by the
Company and/or its Subsidiaries are United States Patents Nos. 6,386,300 and
6,581,700, which United States patents are valid under United States
patent laws, and United Kingdom Patent No. GB 2,385,346 issued September 8,
2004.

3.27         Environmental Compliance.

(a)           Compliance.  Each of the Company and its Subsidiaries is
in compliance with all Environmental Protection Laws in effect in each
jurisdiction where it is currently doing business and no material expenditures
will be required in order to comply with any Environmental Protection Law.

(b)           Liability.  Neither the Company nor any of its
Subsidiaries is subject to any liability under any Environmental Protection Law
that, in the aggregate for all such liabilities, would reasonably be expected
to have a Material Adverse Effect.

(c)           Notices.  Neither the Company nor any of its
Subsidiaries has received any

(i)  notice from any Governmental Authority by
which any of its currently or previously owned or leased properties has been
identified in any manner by any Governmental Authority as a hazardous substance
disposal or removal site, “Super Fund” clean-up site, or candidate for removal
or closure pursuant to any Environmental Protection Law,

 13
 

 

 

(ii)  notice of any Lien arising under or in
connection with any Environmental Protection Law that has attached to any
revenues of, or to, any of its currently or previously owned or leased
properties, or

(iii)
communication, written or oral, from any Governmental Authority concerning any
action or omission in connection with its currently or previously owned or
leased properties resulting in the release of any hazardous substance resulting
in any violation of any Environmental Protection Law,

in
each case where the effect of which, in the aggregate for all such notices and
communications, would reasonably be expected to have a Material Adverse Effect.

3.28         Registration Rights.  Except as set forth on Section 3.28 of the
Disclosure Schedules, the Company is not currently subject to any agreement
providing any Person any rights (including piggyback registration rights) to
have any securities of the Company or any of its Subsidiaries registered with
the SEC or registered or qualified with any other Governmental Authority.  Except as set forth in Section 3.28 of the
Disclosure Schedules, no Person has, with respect to the Company or any of its
Subsidiaries, any right to cause the Company to file any registration statement
under the Securities Act.

3.29         Transactions with Affiliates and
Employees. Except as disclosed in the SEC Reports, none of the officers,
directors or employees of the Company (or members of any such Person’s
immediate family) is presently a party to any transaction or agreement with the
Company (other than for services as employees, officers and directors entered
into in the ordinary course of business consistent with past practices)
exceeding $60,000 in value, including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner.  Except in connection with the Registration
Rights Agreement or as disclosed in the SEC Reports or the Offering Memorandum,
there are no agreements, understandings or proposed transactions between the
Company or any of its Subsidiaries, on the one hand, and any of its officers,
affiliates or directors, or any of their affiliates, on the other hand.

3.30         Sarbanes-Oxley Act; Internal
Accounting Controls. The Company is in material compliance with all
provisions of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”)
and any related rules and regulations promulgated by the SEC, which are
applicable to it as of the Closing Date. 
The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with United States generally accepted accounting
principles and to maintain asset accountability, (iii) access to assets is
permitted only in accordance with management’s general or specific
authorizations, and (iv) the recorded accountability for assets is compared
with the existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.  
The Company and its Subsidiaries have established and maintained
disclosure controls and procedures (as such term is defined in

 14
 

 

 

Rule 13a-14 and Rule l5d-14
under the Exchange Act); such disclosure controls and procedures are designed
to ensure that material information relating to the Company and its
Subsidiaries is made known to the Company’s principal executive officer and its
principal financial officer by others within those entities, and such
disclosure controls and procedures are effective to perform the functions for
which they were established; since September 30, 2005, the Company’s auditors
and the audit committee of the board of directors of the Company have been
advised of: (i) any significant deficiencies in the design or operation of
internal controls which could adversely affect the Company’s or its
Subsidiaries’ ability to record, process, summarize, and report financial data;
and (ii) any fraud, whether or not material, that involves management or other
employees who have a role in the Company’s or its Subsidiaries’ internal
controls; since September 30, 2005, any material weaknesses in internal
controls have been identified for the Company’s auditors; since the date of the
most recent evaluation of such disclosure controls and procedures, there have
been no significant changes in internal controls or in other factors that could
significantly affect internal controls, including any corrective actions with
regard to significant deficiencies and material weaknesses; since September 30,
2005, the principal executive officer and principal financial officer of the
Company have made all certifications required by the Sarbanes-Oxley Act and any
related rules and regulations promulgated by the SEC, and the statements
contained in any such certification are complete and correct; and the Company
and its Subsidiaries are otherwise in compliance with all applicable provisions
of the Sarbanes-Oxley Act that are effective.

3.31         Securities Laws. Subject to the
accuracy of the Purchasers’ representations and warranties set forth in
Section 4 below and an Investor Questionnaire executed and delivered by
each Purchaser to the Company, such Investor Questionnaire in the form attached
hereto as Exhibit A, the offer, sale and issuance of the Shares and the
Warrants, and issuance of Warrant Shares, as provided in this Agreement and the
Warrants, is and is intended to be (a) exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof and
Regulation D promulgated thereunder, and (b) exempt from registration or
qualification requirements of applicable state securities laws (together, the “Securities
Laws Exemptions”). Neither the Company or its Subsidiaries nor anyone
acting on its or their behalf has taken any action that would cause the loss of
such exemptions.

3.32         No Integrated Offering.  Neither the Company, nor any Affiliate of the
Company, nor any Person acting on its or their behalf has, directly or
indirectly, engaged in any form of general solicitation or general advertising
with respect to any security or made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would cause
the offering or issuance of the Shares, the Warrants or any Warrant Shares
pursuant to this Agreement and the Warrants to be integrated with prior
offerings by the Company for purposes of the Securities Act which would cause
the exemptions from SEC registration upon which the Company is relying for the
offering or issuance of the Shares, the Warrants or any Warrant Shares pursuant
to this Agreement to be unavailable, or would cause any applicable state
securities laws exemptions or any applicable stockholder approval provisions
exemptions, including, without limitation, under the rules and regulations of
any national securities exchange or automated quotation system on which any of
the securities of the Company are listed or designated to be unavailable, nor
will the Company take any action or steps that would cause the offering or
issuance of the Shares, the Warrants or any Warrant Shares pursuant to this
Agreement and the Warrants to be integrated with other offerings.

 15

 

 

3.33         Interested Stockholder.  To the knowledge of the Company, each
Purchaser is not an “interested stockholder” (as defined in Nevada Revised
Statute 78.423) of the Company as of the Closing Date, nor will a Purchaser be
deemed an “interested stockholder” as a result of the consummation of the
transactions contemplated herein, and the restrictions on “combinations” (as
defined in Nevada Revised Statute 78.416) set forth in Nevada Revised Statute
78.438 do not apply to the transactions contemplated hereby.  The Board of Directors of the Company has
approved the issuance to each Purchaser of the Warrant Shares issuable upon
exercise of the Warrants, and the restrictions on “combinations” set forth in
Nevada Revised Statute 78.438 will not apply to any exercise of the Warrants by
a Purchaser.

3.34         Application of Takeover Protections.  The Company and the Board have taken all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Company’s charter documents or the laws of its state of incorporation that is
or could become applicable to the Purchasers as a result of the Purchasers and
the Company fulfilling their obligations or exercising their rights under this
Agreement, the Warrants and the Registration Rights Agreement, including
without limitation the Company’s issuance of the Shares and the Purchasers’
ownership of the Shares.

3.35         Solvency. Based on the
consolidated financial condition of the Company and its Subsidiaries as of the
date hereof, (i) the fair saleable value of the Company’s assets exceeds the
amount that will be required to be paid on or in respect of the Company’s
existing debts and other liabilities (including known and contingent
liabilities) as they mature; (ii) the Company’s assets do not constitute
unreasonably small capital to carry on its business for the current fiscal year
as now conducted and as proposed to be conducted, including its capital needs
taking into account the particular capital requirements of the business
conducted by the Company, projected capital requirements and capital
availability thereof; and (iii) the current cash flow of the Company, together
with the proceeds the Company would receive were it to liquidate all of its
assets, after taking into account all anticipated uses of the cash, would be
sufficient to pay all amounts on or in respect of its debts when such amounts
are required to be paid. The Company has no present intention to incur debts
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts of cash to be payable on or in respect of its debt).

3.36         Disclosure. Neither this
Agreement, the Registration Rights Agreement, the Warrants, the Offering
Memorandum, nor any other statements or certificates made or delivered in
connection herewith or therewith, when taken as a whole, contains any untrue
statement of a material fact or omits to state a material fact necessary to
make the statements contained herein or therein not misleading in light of the
circumstances under which they were made.

 16
 

 

 

4.             Representations and Warranties
of the Purchasers. In order to induce the Company to enter into this
Agreement and to sell the Shares and the Warrants, each Purchaser represents
and warrants, severally (as to such Purchaser only) and not jointly, as of the
Closing Date, all of which shall survive the execution and delivery of this
Agreement and the purchase of the Shares:

4.1           Authorization. All corporate,
partnership or limited liability company action on the part of such Purchaser
necessary for the authorization, execution, delivery and performance of this
Agreement and the Registration Rights Agreement, and the consummation of the
transactions contemplated herein and therein, has been taken. When executed and
delivered by such Purchaser, each of this Agreement and the Registration Rights
Agreement will constitute the legal, valid and binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms, except as such
may be limited by bankruptcy, insolvency, reorganization or other laws
affecting creditors’ rights generally and by general equitable principles. Such
Purchaser has all requisite corporate, partnership or limited liability company
power and authority to enter into each of this Agreement and the Registration
Rights Agreement, and to carry out and perform its obligations under the terms
hereof and thereof.

4.2           Purchase Entirely for Own Account.
Such Purchaser is acquiring the Shares and Warrants for its own account and not
for resale or with a view to any resale, fractionalization, division, or
distribution thereof in violation of the Securities Act.  Such Purchaser has no contract, undertaking,
agreement, understanding or arrangement with any person to sell, transfer, or
pledge to any person any part or all of the Shares, Warrants or Warrant Shares
which such Purchaser is acquiring, or any interest therein, and has no present plans
to enter into the same (other than margin security agreements with a registered
broker-dealer in the ordinary course of business).  The Shares and Warrants were offered or sold
to such Purchaser by means of a direct solicitation by the Company and one or
both of the Placement Agents.

4.3           Investor Status; Etc. Such
Purchaser certifies and represents to the Company that (i) it is an “accredited
investor” as defined in Rule 501 of Regulation D promulgated under the
Securities Act and was not organized for the purpose of acquiring any of the
Shares or the Warrants and (ii) such Purchaser’s Investor Questionnaire is
complete and correct. Such Purchaser’s financial condition is such that it is
able to bear the risk of holding the Shares for an indefinite period of time
and the risk of loss of its entire investment. Such Purchaser has sufficient
knowledge and experience in investing in companies similar to the Company so as
to be able to evaluate the risks and merits of its investment in the Company.  Such Purchaser fully understands that the
Shares, Warrants and Warrant Shares are speculative investments which involve a
high degree of risk of loss of such Purchaser’s entire investment. No Person,
other than the Company, the placement agent or their authorized representatives,
has offered the Shares and Warrants to such Purchaser.

4.4           Securities Not Registered.
Such Purchaser understands that none of the Shares, the Warrants nor the
Warrant Shares have been registered under the Securities Act, by reason of
their issuance by the Company in a transaction exempt from the registration
requirements of the Securities Act, and that each of such securities must
continue to be held by such Purchaser unless a subsequent disposition thereof
is registered under the Securities Act or is exempt from such registration.
Such Purchaser understands that the exemptions from registration

 17
 

 

 

afforded by Rule 144 (the
provisions of which are known to it) promulgated under the Securities Act
depend on the satisfaction of various conditions, and that, if applicable, Rule
144 may afford the basis for sales only in limited amounts.  Such Purchaser has had an opportunity to ask
questions of and receive answers from the management and authorized representatives
of the Company, and to review any other relevant documents and records
concerning the business of the Company and the terms and conditions of this
investment, and that any such questions have been answered to such Purchaser’s
full satisfaction.  Such Purchaser
understands that no federal or state agency has passed upon or made any
recommendation or endorsement of an investment in the Shares or Warrants.

4.5           No Violation. Neither the
execution, delivery and performance by such Purchaser of this Agreement and the
Registration Rights Agreement nor compliance with the terms and provisions
hereof and thereof by such Purchaser (a) will contravene any applicable
provision of any law, statute, rule, regulation, order, writ, injunction or
decree of any court or Governmental Authority, except as would not have a
material adverse effect on such Purchaser’s ability to consummate the
transactions contemplated hereby; or (b) will violate any provision of the
organizational documents of such Purchaser, except as would not have a material
adverse effect on such Purchaser’s ability to consummate the transactions
contemplated hereby.

4.6           Brokers. Such Purchaser has
not retained, utilized or been represented by any broker or finder in
connection with the transactions contemplated by this Agreement.

4.7           Consents. All consents,
approvals, orders and authorizations required on the part of such Purchaser in
connection with the execution, delivery or performance of this Agreement and
the consummation of the transactions contemplated herein have been obtained and
are effective as of the date hereof.

4.8           Disclosure of Information.
Such Purchaser has relied on its own examination of the Company, including the
merits and risks involved in making an investment decision with respect to the
Shares and Warrants.  Such Purchaser
believes it has received all the information it considers necessary or
appropriate for deciding whether to purchase the Shares and Warrants. Such
Purchaser further acknowledges that it has reviewed the Offering Memorandum and
that it has had an opportunity to ask questions and receive answers from the
Company regarding the terms and conditions of the offering of the Shares and
Warrants and the business, properties, prospects and financial condition of the
Company. The foregoing does not, however, limit or modify the representations
and warranties of the Company set forth in Article III of this Agreement or the
rights of the Purchasers to rely thereon.

4.9           Short Sales and Confidentiality
Prior to The Date Hereof.  During the
last thirty (30) days prior to the date hereof, neither such Purchaser nor any
Affiliate of such Purchaser, foreign or domestic, has, directly or indirectly,
effected or agreed to effect any Short Sale, whether or not against the box,
established any “put equivalent position” (as defined in Rule 16a-1(h) under
the Exchange Act) with respect to the Common Stock, borrowed or pre-borrowed
any shares of Common Stock, or granted any other right (including, without
limitation, any put or call option) with respect to the Common Stock or with respect
to any security that includes, relates to or derived any significant part of
its value from the Common Stock or otherwise sought to hedge its position in
the Securities (each, a “Prohibited Transaction”).

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Notwithstanding the
foregoing, (i) in the case of a Purchaser and/or its Affiliates that is,
individually or collectively, a multi-managed investment vehicle whereby
separate portfolio managers manage separate portions of such Purchaser’s or
Affiliates assets and the portfolio managers have no direct knowledge of the
investment decisions made by the portfolio managers managing other portions of
such Purchaser’s or Affiliates assets, the representation set forth above shall
only apply with respect to the portion of assets managed by the portfolio managers
that have knowledge about the financing transaction contemplated by this
Agreement and (ii) in the
case of LB I Group Inc., the representation set forth in this Section 4.9 shall
only apply with respect to the Equity Strategies Group - Opportunity Fund of
Lehman Brothers Holdings Inc. and not to any other persons, affiliates or
affiliated or associated business units thereof.  Such Purchaser has maintained the
confidentiality of all disclosures made to it in connection with this
transaction (including the existence and terms of this transaction) other than
to other Persons that are a party to this Agreement.

4.10            Affiliations
with Broker-Dealers.  Such Purchaser
is not itself, or is not otherwise an affiliate of, a broker-dealer registered
pursuant to Section 15 of the Exchange Act; provided, however, that if such
Purchaser is itself, or is otherwise an affiliate of, a broker-dealer, then
such Purchaser, at the time of purchase of the Shares, did not have any direct
or indirect agreements or understandings with any Person to distribute the
Shares.  For purposes of the preceding
sentence, an affiliate of a broker-dealer is any Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, a broker-dealer, and does not include any
individuals employed by such broker-dealer or its affiliates.

5.             Conditions Precedent. 

5.1           Conditions to the Obligation of
the Purchasers to Consummate the Closing. The obligation of each Purchaser
to consummate the Closing and to purchase and pay for the Shares and Warrants
to be purchased by it is subject to the satisfaction (or waiver by such
Purchaser) of the following conditions precedent:

(a)           The representations and warranties of
the Company contained herein shall be true and correct in all respects on and
as of the Closing Date with the same force and effect as though made on and as
of the Closing Date. The Company shall have performed all obligations and
conditions herein required to be performed or complied with by the Company on
or prior to the Closing Date.

(b)           There shall have been no event or
events which has occurred since the date hereof that taken individually or in
the aggregate could reasonably be expected to have a Material Adverse Effect.

(c)           No proceeding challenging this
Agreement, the Warrants or the Registration Rights Agreement, or the
transactions contemplated hereby or thereby, or seeking to prohibit, alter,
prevent or materially delay the Closing, shall have been instituted before any court,
arbitrator or Governmental Authority or official or shall be pending against or
involving the Company or any of its Subsidiaries.

 19
 

 

 

(d)           The sale of the Shares and Warrant
Shares and the issuance of the Warrants to the Purchasers shall not be prohibited
by any law, rule, governmental order or regulation. All necessary consents,
approvals, licenses, permits, orders and authorizations of, or registrations,
declarations and filings with, any Governmental Authority or of or with any
other Person with respect to any of the transactions contemplated hereby shall
have been duly obtained or made and shall be in full force and effect.

(e)           The Purchasers shall have received
from Vinson & Elkins LLP, outside counsel to the Company, an opinion
addressed to such Purchasers, dated the Closing Date and substantially in the
form of Exhibit B-1 hereto.

(f)            The Purchasers shall have received
from Woodburn and Wedge, outside Nevada counsel to the Company, an opinion
addressed to such Purchasers, dated the Closing Date and substantially in the
form of Exhibit B-2 hereto.

(g)           The Registration Rights Agreement
shall have been executed and delivered to the Purchasers by the Company.

(h)           The Company shall have delivered to
the Purchasers a certificate substantially in the form of Exhibit C
hereto dated the Closing Date and signed by the secretary or another officer of
the Company, certifying (i) that the copies of the certificate of incorporation
(or other charter documents), the by-laws and resolutions of the Board
approving this Agreement, the Warrants, the Registration Rights Agreement and
the transactions contemplated hereby and thereby attached thereto, are all
true, complete and correct and remain in full force and effect as of such date,
and (ii) as to the incumbency and specimen signature of each officer of the
Company executing this Agreement, the Warrants, the Registration Rights
Agreement and any other document delivered in connection herewith on behalf of
the Company.

(i)            The Company shall have delivered to
the Purchasers a certificate substantially in the form of Exhibit D
hereto dated the Closing Date and signed by the Company’s chief financial
officer, certifying that (i) the representations and warranties of the Company
contained in Section 3 hereof are true and correct in all respects on the
Closing Date and (ii) the Company has performed and complied with all of the
agreements and conditions set forth or contemplated herein that are required to
be performed or complied with by the Company on or before the Closing Date.

(j)            The Company shall have delivered to
the Purchasers a certificate of good standing for the Company and each of its
Subsidiaries issued by the Secretary of State of its applicable state of
incorporation or organization, and, with respect to the Company a certificate
of qualification to do business issued by the Secretary of State of the State
of Texas.

(k)           The Purchasers shall have received a
copy of the duly executed Transfer Agent Instruction Letter in the form of Exhibit
E hereto.

(l)            All instruments and corporate
proceedings of the Company in connection with the transactions contemplated by
this Agreement, the Warrants and the Registration Rights Agreement shall be
reasonably satisfactory in form and substance to such Purchaser, and such
Purchaser shall have received copies (executed or certified, as may be
appropriate) of all

 20
 

 

 

documents which any
Purchaser may have reasonably requested in connection with such transactions.

5.2              Conditions to the Obligation of
the Company to Consummate the Closing. The obligation of the Company to
consummate the Closing and to issue and sell the Shares and Warrants to each
Purchaser at the Closing is subject to the satisfaction of the following
conditions precedent:

(a)           The representations and warranties of
such Purchaser contained herein shall be true and correct in all respects on
and as of the Closing Date.

(b)           The Registration Rights Agreement
shall have been executed and delivered to the Company by such Purchaser.

(c)           Such Purchaser shall have performed
all obligations and conditions herein required to be performed or complied with
by such Purchaser on or prior to the Closing Date, including but not limited to
tendering its respective portion of the Aggregate Purchase Price.

(d)           No proceeding challenging this Agreement,
the Warrants or the Registration Rights Agreement, or the transactions
contemplated hereby or thereby, or seeking to prohibit, alter, prevent or
materially delay the Closing, shall have been instituted before any court,
arbitrator or Governmental Authority or official or shall be pending against or
involving such Purchaser.

(e)           The sale of the Shares and the
Warrants by the Company shall not be prohibited by any law, rule, governmental
order or regulation. All necessary consents, approvals, licenses, permits,
orders and authorizations of, or registrations, declarations and filings with,
any Governmental Authority or of any other Person with respect to any of the
transactions contemplated hereby shall have been duly obtained or made and
shall be in full force and effect.

(f)            Such Purchaser shall have delivered
to the Company a completed Investor Questionnaire in the form of Exhibit A
hereto.

6.             Certain Covenants and Agreements.

6.1           Transfer of Securities; Limitation
on Short Sales.

(a)           Each Purchaser agrees severally (as
to itself only) and not jointly that it shall not sell, assign, pledge,
transfer or otherwise dispose of or encumber any of the Shares, the Warrants or
the Warrant Shares except: (i) pursuant to an effective registration statement
under the Securities Act; (ii) to an Affiliate of such Purchaser (so long as
such Affiliate agrees to certify that it is an “accredited investor” as defined
in Rule 501(a) under the Securities Act and to be bound by the terms and
provisions of this Agreement as if, and to the fullest extent as, such
Purchaser) or to partners or members in a pro rata distribution in accordance
with such Purchaser’s existing governance documents (so long as such
distribution is not presently contemplated and such partner or member agrees in
a written instrument in form and substance reasonably satisfactory to the
Company to be bound by the terms and provisions of this Agreement as if, and to
the fullest extent as, such Purchaser); or (iii) pursuant to an available

 21
 

 

 

exemption from registration
under the Securities Act (including sales permitted pursuant to Rule 144) and
applicable state securities laws, so long as the transferee (other than in
sales permitted pursuant to Rule 144) agrees in a written instrument in form
and substance reasonably satisfactory to the Company to be bound by the terms
and provisions of this Agreement as if, and to the fullest extent as, such
Purchaser).  If the Company requests an
opinion of counsel for such transferor that the proposed transfer may be effected
without registration of such Shares, the Warrants or the Warrant Shares under
the Securities Act (including sales permitted pursuant to Rule 144), such
transferor shall not be entitled to effect such transfer unless and until the
Company receives such an opinion of counsel (which counsel and opinion shall
each be reasonably satisfactory to the Company).

(b)           Prior to the earliest to occur of (A)
the termination of this Agreement, (B) the Effective Date or (C) the Mandatory
Effective Date, such Purchaser shall not, and shall cause its Affiliates not
to, engage, directly or indirectly, in (i) a Prohibited Transaction or (ii) any
sale, assignment, pledge, hypothecation, put, call, or other transfer of any of
the shares of Common Stock, warrants or other securities of the Company
acquired hereunder (except as collateral security for a margin agreement with a
registered broker-dealer entered into in the ordinary course of business).  Notwithstanding the foregoing, (x) in the
case of a Purchaser that is a multi-managed investment vehicle whereby separate
portfolio managers manage separate portions of such Purchaser’s assets and the
portfolio managers have no direct knowledge of the investment decisions made by
the portfolio managers managing other portions of such Purchaser’s assets, the
covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio managers that have knowledge about the financing
transaction contemplated by this Agreement and (y) in the case of LB I Group
Inc., this Section 6.1(b) shall only apply with respect to the Equity
Strategies Group - Opportunity Fund of Lehman Brothers Holdings Inc. and not to
any other persons, affiliates or affiliated or associated business units
thereof.  Each Purchaser further
understands and acknowledges severally (as to itself only) and not jointly that
the Staff of the SEC has publicly stated the position in Item 65, Section A, of
the Manual of Publicly Available Telephone Interpretations, dated July 1997,
that securities underlying a short position are deemed to be sold at the time
such short position is established and, therefore, according to the SEC, the
use by a Purchaser of Shares or Warrant Shares to cover a short position is a
violation of Section 5 of the Securities Act unless such Shares or Warrant
Shares, as the case may be, are not restricted under the Securities Act at the
time such short position is established.

(c)           Any transfer or purported transfer of
the Shares in violation of this Section 6.1 or Section 6.2 shall be void. The
Company shall not register any transfer of the Shares in violation of this
Section 6.1 or Section 6.2. The Company may, and may instruct any transfer
agent for the Company, to place such stop transfer orders as may be required on
the transfer books of the Company in order to ensure compliance with the
provisions of this Section 6.1 and Section 6.2.

6.2           Legends.

(a)           To the extent applicable, each
certificate or other document evidencing the Shares, the Warrants or the
Warrant Shares shall be endorsed with the legend set forth below, and each
Purchaser covenants that, except to the extent such restrictions are waived by
the

 22
 

 

 

Company, it shall not
transfer the securities represented by any such certificate without complying
with the restrictions on transfer described in this Agreement and the legends
endorsed on such certificate:

[NEITHER] THIS SECURITY [NOR
THE SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANY.  IN ADDITION, THE TRANSFER
HEREOF IS SUBJECT TO VARIOUS AGREEMENTS CONTAINED IN A SECURITIES PURCHASE
AGREEMENT DATED OCTOBER 19, 2006.  A COPY
OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER UPON REQUEST.  THIS SECURITY AND THE SECURITIES ISSUABLE
UPON [EXERCISE] [CONVERSION] OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that a Purchaser may from time to
time pledge pursuant to a bona fide margin agreement with a registered
broker-dealer or grant a security interest in some or all of the securities to
a financial institution that is an “accredited investor” as defined in Rule
501(a) under the Securities Act and who agrees to be bound by the provisions of
this Agreement and the Registration Rights Agreement and, if required under the
terms of such arrangement, such Purchaser may transfer pledged or secured
securities to the pledgees or secured parties. 
Such a pledge or transfer would not be subject to approval of the
Company and no legal opinion of legal counsel of the pledgee, secured party or
pledgor shall be required in connection therewith.  Further, no notice shall be required of such
pledge.  At the appropriate Purchaser’s
expense, the Company will execute and deliver such reasonable documentation as
a pledgee or secured party of Company securities may reasonably request in
connection with a pledge or transfer of the securities, including, if the
securities are subject to registration pursuant to the Registration Rights
Agreement, the preparation and filing of any required prospectus supplement
under Rule 424(b)(3) under the Securities Act or other applicable provision of
the Securities Act to appropriately amend the list of selling stockholders
thereunder.

(b)           The
Company agrees, upon a Purchaser’s reasonable request, to reissue certificates
representing any of the Shares or Warrant Shares, without the legend set forth
in Section 6.2(a) above (i) when a registration statement (including the
Mandatory Registration Statement to be filed pursuant to the Registration
Rights Agreement) providing for the resale of such Shares and Warrant Shares is
declared effective under the Securities Act, (ii) following any sale of such
Shares or Warrant Shares pursuant to Rule 144 (assuming the transferor is not
an Affiliate of the Company), (iii) if such Shares or Warrant Shares are
eligible for sale under Rule

 23
 

 

 

144(k) (to the extent that such Purchaser provides a certification or
legal opinion to the Company to that effect), or (iv) if such legend is not
required under applicable requirements of the Securities Act (including
controlling judicial interpretations and pronouncements issued by the
SEC).  Following the Effective Date or at
such earlier time as a legend is no longer required for the Shares or the
Warrant Shares, the Company will, promptly following the delivery by a
Purchaser to the Company or the Company’s transfer agent of a legended
certificate representing such Shares or Warrant Shares, deliver or cause to be
delivered to such Purchaser a certificate representing such Shares or Warrant
Shares that is free from all restrictive legends.  The restrictions on transfer contained in
this Section 6.1 shall be in addition to, and not by way of limitation of, any
other restrictions on transfer contained in any other section of this
Agreement.  Whenever a certificate
representing the Shares or Warrant Shares is required to be issued to a
Purchaser without a legend, in lieu of delivering physical certificates
representing the Shares or Warrant Shares, provided the Company’s transfer
agent is participating in the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer program, the Company shall cause its transfer agent to
electronically transmit the Shares or Warrant Shares to a Purchaser in
accordance with any written instructions provided by such Purchaser by
crediting the account of such Purchaser’s Prime Broker with DTC through its
Deposit Withdrawal Agent Commission (“DWAC”) system (to the extent not
inconsistent with any provisions of this Agreement).

(c)           Each
Purchaser, severally and not jointly with the other Purchasers, agrees that the
removal of the restrictive legend from certificates representing securities as
set forth in this Section 6.2 is predicated upon the Company’s reliance that
the Purchaser will sell any securities pursuant to either the registration
requirements of the Securities Act, including any applicable prospectus
delivery requirements, or an exemption therefrom, and that if securities are
sold pursuant to a registration statement, they will be sold in compliance with
the plan of distribution set forth therein.

6.3           Publicity. Except to the
extent required by applicable laws, rules, regulations or stock exchange
requirements, the Company, its Subsidiaries and their Affiliates shall not,
without the written consent of the Majority Purchasers, make any public
announcement or issue any press release with respect to the transactions
contemplated by this Agreement; provided that the Company, each of its
Subsidiaries and their respective Affiliates shall not, without the prior
written consent of the Purchaser, disclose or publish the name of such
Purchaser in any such press release or public announcement.  Except to the extent required by applicable
laws, rules, regulations or stock exchange requirements, the Purchasers and
their Affiliates shall not, without the written consent of the Company make any
public announcement or issue any press release with respect to the transactions
contemplated by this Agreement.  In no
event will either (i) the Company, its Subsidiaries or any of their Affiliates
or (ii) any Purchaser or any of its Affiliates make any public announcement or
issue any press release with respect to the transactions contemplated by this
Agreement without consulting with the Company, on the one hand, and Tejas
Securities Group, Inc. and RBC Capital Markets, as co-placement agents, on the
other hand, to the extent possible, as to the content of such public
announcement or press release. 
Notwithstanding the foregoing, the parties agree that the Company shall
issue a press release in the form of Exhibit F hereto promptly following
(and in no event more than 24 hours after) the Closing and, on or before 9:00
a.m., New York time, on the first trading day following the Closing Date, the
Company shall file a Current Report on Form 8-K describing the terms of

 24
 

 

 

the transactions contemplated
by this Agreement, the Warrants and the Registration Rights Agreement in the
form required by the Exchange Act, and attaching the material transaction
documents (including, without limitation, this Agreement (and all schedules to
this Agreement) and the
Registration Rights Agreement) as exhibits to such filing (including all
attachments, the “8-K Filing”). 
From and after the filing of the 8-K Filing with the SEC, the Company
shall use commercially reasonable efforts to assure that, and shall cause each
of its Subsidiaries and each of their respective officers, directors, employees
and agents to use commercially reasonable efforts to assure that, no Purchaser
shall be in possession of any material, nonpublic information received from the
Company, any of its Subsidiaries or any of its respective officers, directors,
employees or agents, that is not disclosed in the 8-K Filing.  The Company shall not, and shall cause each
of its Subsidiaries and each of their respective officers, directors, employees
and agents, not to, provide any Purchaser with any material nonpublic
information regarding the Company or any of its Subsidiaries from and after the
filing of the 8-K Filing with the SEC without the express written consent of
such Purchaser; provided that the Company shall not be responsible for any
information obtained by any Purchaser or any Inspector (as defined in the
Registration Rights Agreement) as a result of such Purchaser’s exercise of its
inspection rights under the Registration Rights Agreement; and provided further
that in the event the Company or any of its Subsidiaries provides any
information to a Purchaser under the Registration Rights Agreement and the
Company reasonably believes that such information represents material nonpublic
information, the Company (a) shall prior to such disclosure to any Purchaser
notify such Purchaser of such belief and shall not provide such information to
any Purchaser which does not expressly consent to receive such information and
(b) to the extent any Purchaser determines not to receive such information, the
Company shall be deemed not to be in breach of the original obligation to
provide such information.  In the event
of a breach of the foregoing covenant by the Company, any of its Subsidiaries,
or any of its or their respective officers, directors, employees and agents, in
addition to any other remedy provided herein or in the Registration Rights
Agreement, a Purchaser shall have the right to make a public disclosure, in the
form of a press release, public advertisement or otherwise, of such material
non-public information without the prior approval by the Company, its
Subsidiaries, or any of its or their respective officers, directors, employees
or agents; provided that the Purchaser will provide to the Company two (2)
Business Days’ advance notice prior to such disclosure, and shall refrain from
making such disclosure if the Company makes such disclosure during such two-day
period.  No Purchaser shall have any
liability to the Company, its Subsidiaries, or any of its or their respective
officers, directors, employees, shareholders or agents for any such disclosure
made in compliance with this Section 6.3.

6.4           Use of Proceeds. The Company
covenants and agrees that the proceeds from the sale of the Shares shall be
used by the Company for the purposes described in the Offering Memorandum.

6.5           Integration. The Company shall
not sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Shares or Warrants in a
manner that would require the registration under the Securities Act of the sale
of the Shares to the Purchasers.

6.6           Reservation of Common Stock for
Issuance; Listing of Shares.  The
Company agrees to reserve from its duly authorized capital stock the total
number of shares of

 25
 

 

 

Common Stock issuable upon
execution of this Agreement and exercise of the Warrants.  The Company agrees that at any time while its
shares of Common Stock are listed on NASDAQ or any other securities exchange,
that it will use commercially reasonable efforts to promptly list and qualify
the Shares and Warrant Shares for trading on NASDAQ or such other securities
exchange.

6.7           Actions with respect to Securities
Laws Exemptions.  Neither the Company
nor anyone acting on its behalf shall take any action that would cause the loss
of any Securities Laws Exemptions.

6.8           Restrictions on Certain Stock
Issuances or Registrations.  The
Company agrees that prior to the effectiveness of the Mandatory Registration
Statement (as defined in the Registration Rights Agreement), the Company shall
not (i) issue any shares of Common Stock, or securities convertible into or
exercisable for shares of Common Stock, that could be eligible for sale without
restriction under the Securities Act prior to the effectiveness of the
Mandatory Registration Statement (as defined in the Registration Rights
Agreement), or
(ii) grant any registration rights after the date hereof to any other Person
that would entitle such Person to have the sale of securities held by such
Person registered under the Securities Act by the Company under a registration
statement that is declared effective prior to the effectiveness of the
Mandatory Registration Statement, provided, that this Section 6.8 shall not be
deemed to restrict the ability of the Company to (a) issue shares of Common
Stock upon the exercise or conversion of any options, warrants, convertible
debt instruments or other contingent securities outstanding on the date hereof
or (b) issue shares of Common Stock, options or warrants to employees,
directors or consultants of the Company.

6.9           Listing.  After the Closing Date, the Company shall use
commercially reasonable efforts to have the Shares and Warrant Shares listed on
the Nasdaq Capital Market.

6.10         Equal Treatment of Purchasers.  No consideration shall be offered or paid to
any person to amend or consent to a waiver or modification of any provision of
this Agreement, the Warrants or the Registration Rights Agreement unless the
same consideration is also offered to all of the parties to this Agreement, the
Warrants and the Registration Rights Agreement. 
For clarification purposes, this provision constitutes a separate right
granted to each Purchaser by the Company and negotiated separately by each
Purchaser, and is intended to treat the Purchasers as a class and shall not in
any way be construed as the Purchasers acting in concert or as a group with
respect to the purchase, disposition or voting of the Shares or otherwise.

7.             Indemnification.

7.1           By the Company. The Company,
without limitation as to time, agrees to indemnify, defend and hold harmless
each Purchaser and its Affiliates and their respective officers, directors,
agents, employees, subsidiaries, partners, members, investment advisers and
controlling persons (collectively, the “Purchaser Indemnitees”) to the
fullest extent permitted by law from and against any and all claims, losses,
liabilities, damages, deficiencies, judgments, assessments, fines, settlements,
costs or expenses (including interest, penalties and reasonable fees,
disbursements and other charges of counsel) (collectively, “Losses”)
based upon, arising out of or otherwise in respect of or relating to any breach
by the Company of any representation,

 26
 

 

 

warranty, covenant or
agreement of the Company contained in this Agreement, the Warrants or in the
Registration Rights Agreement.

7.2           Applicability. Notwithstanding
any term to the contrary in this Section 7, the indemnification and
contribution provisions of the Registration Rights Agreement shall govern any
claim made with respect to registration statements filed pursuant thereto or
sales made thereunder.

8.             Miscellaneous Provisions.

8.1           Rights Cumulative. Each and
all of the various rights, powers and remedies of the parties shall be
considered to be cumulative with and in addition to any other rights, powers
and remedies which such parties may have at law or in equity in the event of
the breach of any of the terms of this Agreement.  The exercise or partial exercise of any
right, power or remedy shall neither constitute the exclusive election thereof
nor the waiver of any other right, power or remedy available to such party.

8.2           Pronouns. All pronouns or any
variation thereof shall be deemed to refer to the masculine, feminine or
neuter, singular or plural, as the identity of the person, persons, entity or
entities may require.

8.3           Notices.

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

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

Particle Drilling Technologies, Inc.

11757 Katy Freeway, Suite 1300

Houston, Texas 77079

Attn:  Chief Financial Officer

Facsimile: (713) 224-6361

with a copy to:

Vinson & Elkins LLP

First City Tower

1001 Fannin Street, Suite 2300

Houston, Texas 77002-676

Attn: W. Matthew Strock

Facsimile: (713) 615-5650

(c)           All correspondence to the Purchasers
shall be addressed pursuant to the contact information set forth on the
signature page hereto.

 27
 

 

 

(d)           Any party may change the address to
which correspondence to it is to be addressed by notification as provided for
herein.

8.4           Captions. The captions and
paragraph headings of this Agreement are solely for the convenience of
reference and shall not affect its interpretation.

8.5           Severability. Should any part
or provision of this Agreement be held unenforceable or in conflict with the
applicable laws or regulations of any jurisdiction, the invalid or
unenforceable part or provisions shall be replaced with a provision which
accomplishes, to the extent possible, the original business purpose of such
part or provision in a valid and enforceable manner, and the remainder of this
Agreement shall remain binding upon the parties hereto.

8.6           Governing Law; Waiver of Jury
Trial. This Agreement shall be governed by and construed in accordance with
the internal and substantive laws of the State of New York without regard to
any conflicts of laws concepts which would apply the substantive law of some
other jurisdiction.  THE PARTIES HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT.

8.7           Waiver. No waiver of any term,
provision or condition of this Agreement, whether by conduct or otherwise, in
any one or more instances, shall be deemed to be, or be construed as, a further
or continuing waiver of any such term, provision or condition or as a waiver of
any other term, provision or condition of this Agreement.

8.8           Assignment. The rights and
obligations of any party hereto shall inure to the benefit of and shall be
binding upon the authorized successors and permitted assigns of such party. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Each Purchaser may assign
or transfer any or all of its rights under this Agreement to any Person
provided that such assignee or transferee complies with and agrees in writing
to be bound, with respect to the transferred Shares, by Sections 6.1 and
6.2 hereof; whereupon such assignee or transferee shall be deemed to be a “Purchaser”
for all purposes of this Agreement.

8.9           Survival. The respective representations
and warranties given by the parties hereto shall survive the Closing Date and
the consummation of the transactions contemplated herein. The respective
covenants and agreements agreed to by a party hereto shall survive the Closing
Date and the consummation of the transactions contemplated herein in accordance
with their respective terms and conditions.

8.10         Entire Agreement. This
Agreement, the Warrants and the Registration Rights Agreement constitute the
entire agreement between the parties hereto respecting the subject matter
hereof and supersede all prior agreements, negotiations, understandings,
representations and statements respecting the subject matter hereof, whether
written or oral, including but not limited to the various Term Sheets dated on
or about October 17, 2006 between the Company and the Purchasers.  The Company agrees that in the event it
enters into any agreement or understanding with any Purchaser pursuant to which
the Company grants such

 28
 

 

 

Purchaser any rights or
other terms relating to the purchase, registration, holding or disposition of
Shares, Warrants or Warrant Shares that are more favorable than those set forth
herein, in the Warrants or the Registration Rights Agreement, the Company shall
also grant each other Purchaser such more favorable rights or other terms.

8.11         Amendments. Any amendment,
supplement or modification of or to any provision of this Agreement and any
waiver of any provisions of this Agreement shall be effective only if made or
given in writing and signed by the Company and the Majority Purchasers, provided,
that any amendment, supplement, modification or waiver that is materially and
disproportionately adverse to any Purchaser(s), when compared to all other
Purchasers similarly situated, shall require the consent of such Purchaser(s).

8.12         No Third Party Rights. This
Agreement is intended solely for the benefit of the parties hereto and their
respective successors and permitted assigns and is not intended to confer any
benefits upon, or create any rights in favor of, any Person (including, without
limitation, any stockholder or debt holder of the Company) other than the
parties hereto, provided, that each of the Purchaser Indemnitees that
are not Purchasers are entitled to all rights and benefits as third party
beneficiaries of Section 7 of this Agreement.

8.13         Counterparts. This Agreement may
be executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same document.
The parties hereto confirm that any facsimile copy (including a .pdf file) of
another party’s executed counterpart of this Agreement (or its signature page
thereof) will be deemed to be an executed original thereof.

8.14         Exculpation Among Purchasers.  Each Purchaser acknowledges that it is not
relying upon any Person (including, without limitation, any other Purchaser),
other than the Company and its officers and directors (acting in their capacity
as representatives of the Company), in deciding to invest and in making its
investment in the Company.  Each
Purchaser agrees that no other Purchaser nor the respective controlling
persons, officers, directors, partners, agents or employees of any other
Purchaser shall be liable to such Purchaser for any losses incurred by such
Purchaser in connection with its investment in the Company.

8.15         Expenses.  Each party hereto will bear its own fees and
expenses in connection with the transactions contemplated by this Agreement,
the Warrants and the Registration Rights Agreement.

[Signature
pages follow.]

 29

 

 

Each of the parties hereto has caused a counterpart of
this Agreement to be duly executed and delivered as of the date first written
above.

THE
COMPANY:

	
  

  	
  PARTICLE DRILLING TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ JIM B. TERRY

  
	
   

  	
  Name:

  	
   

  	
  Jim B. Terry

  
	
   

  	
  Title:

  	
   

  	
  President and Chief Executive Officer

  
					

 

 

THE
PURCHASERS:

	
  

  	
  NAME OF PURCHASER

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (please print name exactly
  as it should appear on certificates)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
							

 

 

	
  Number of Shares Purchased

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Purchase
  Price

  	
   

  	
  $

  
	
   

  	
   

  	
   

  
	
  Number
  of Warrant Shares Subject to

  Warrant

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address
  for Notice

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Facsimile:

  	
       (  )     -

  

 

 

 

	
  LIST OF EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A:

  	
   

  	
  Form of Investor Questionnaire

  
	
  Exhibit B-1:

  	
   

  	
  Form of Legal Opinion of Vinson & Elkins LLP

  
	
  Exhibit B-2:

  	
   

  	
  Form of Legal Opinion of Woodburn and Wedge

  
	
  Exhibit C:

  	
   

  	
  Form of Secretary’s Certificate

  
	
  Exhibit D:

  	
   

  	
  Form of Officer’s Certificate

  
	
  Exhibit E:

  	
   

  	
  Form of Transfer Agent Instructions

  
	
  Exhibit F:

  	
   

  	
  Form of Company Press Release

  

 

 

	
  SCHEDULE I

  LIST
  OF PURCHASERS

  
	
   

  	
   

  	
   

  	
   

  
	
  Name
  of Shareholder

  	
  Address

  	
  Number
  of Shares

  	
  Number
  of

  Warrant

  Shares

  
	
  Cadence Master, Ltd.

  	
  Cadence Investment
  Management, LLC 

  800 3rd Ave. 

  10th Floor 

  New York, New York 10022

  	
  250,000

  	
  75,000

  
	
  Milfam I, L.P.

  	
  Lloyd I. Miller 

  4550 Gordon Drive 

  Naples, Florida 34102

  	
  100,000

  	
  30,000

  
	
  U.S.A. Fund, LLLP

  	
  233 E. Redwood Street,
  Suite 100

  Baltimore, Maryland 21202

  	
  200,000

  	
  60,000

  
	
  The IBS Turnaround Fund
  (QP) (A Limited Partnership)

  	
  One International
  Place, Suite 2401

  Boston, Massachusetts 02110

  	
  228,200

  	
  68,460

  
	
  The IBS Opportunity
  Fund (BVI), Ltd.

  	
  c/o IBS Capital Corp. 

  One International Place, Suite 2401 

  Boston, Massachusetts 02110

  	
  47,300

  	
  14,190

  
	
  The IBS Turnaround
  Fund, L.P.

  	
  One International
  Place, Suite 2401 

  Boston, Massachusetts 02110

  	
  74,500

  	
  22,350

  
	
  Greywolf Capital
  Partners II LP

  	
  4 Manhattanville Road,
  Suite 201 

  Purchase, New York 10577

  	
  155,000

  	
  46,500

  
	
  Greywolf Capital
  Overseas Fund

  	
  4 Manhattanville Road,
  Suite 201 

  Purchase, New York 10577

  	
  345,000

  	
  103,500

  
	
  Karen Singer

  	
  c/o Romulus Holdings,
  Inc. 

  2200 Fletcher Avenue 

  Fort Lee, New Jersey 07024

  	
  100,000

  	
  30,000

  
	
  SF Capital Partners
  Ltd.

  	
  c/o Stark Offshore
  Management, LLC 

  Attn: Brian H. Davidson 

  3600 South Lake Drive 

  St. Francis, Wisconsin 53235

  	
  400,000

  	
  120,000

  
	
  LB I Group Inc.

  	
  Attn: Louis Maione 

  Lehman Brothers 

  70 Hudson Street 

  Jersey City, NJ 07302 

  Ref: Account #931-17559-1-3

  	
  237,000

  	
  71,100

  
	
  Millennium Partners,
  L.P.

  	
  c/o Millennium
  Management, L.L.C. 

  666 Fifth Avenue, 8th Floor 

  New York, New York 10103 

  Attn: Terry Feeney & Ted Wachtell

  	
  625,000

  	
  187,500

  
	
  Fort Mason Partners, LP

  	
  4 Embarcadero Center 

  Suite 2050 

  San Francisco, California 94111 

  Attn: Marshall Jensen & KC Lynch

  	
  64,737

  	
  19,421

  
	
  Fort Mason Master, LP

  	
  4 Embarcadero Center 

  Suite 2050 

  San Francisco, California 94111 

  Attn: Marshall Jensen & KC Lynch

  	
  998,263

  	
  299,479

  
	
  LC Capital Master Fund,
  Ltd.

  	
  c/o Lampe Conway &
  Co. LLC 

  680 Fifth Ave., 12th Floor 

  New York, New York 10019 

  Attn: Richard F. Conway

  	
  625,000

  	
  187,500

  
	
  Schottenfeld Qualified
  Associates, LP

  	
  800 Third Avenue 

  10th Floor 

  New York, New York 10022

  	
  250,000

  	
  75,000

  
	
  Phaeton International
  (BVI) Limited

  	
  Morgan Stanley 

  1221 Avenue of the Americas 

  28th Floor 

  attn: Kevin McAvoy 

  New York, NY 10020 

  A/C# 038-30003

  	
  125,100

  	
  37,530

  
	
  Phoenix Partners II,
  L.P.

  	
  Morgan Stanley 

  1221 Avenue of the Americas 

  28th Floor 

  attn: Kevin McAvoy 

  New York, NY 10020 

  A/C# 038-51032

  	
  36,900

  	
  11,070

  
	
  Phoenix Partners L.P.

  	
  Morgan Stanley 

  1221 Avenue of the Americas 

  28th Floor 

  attn: Kevin McAvoy 

  New York, NY 10020 

  A/C# 038-30014

  	
  138,000

  	
  41,400

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