Document:

Exhibit 10.1

 

Execution Version

 

AMENDMENT NO. 7 

TO

AMENDED AND RESTATED CREDIT AGREEMENT

 

THIS AMENDMENT NO. 7 TO AMENDED AND RESTATED
CREDIT AGREEMENT (this “Amendment”) dated as of May 23, 2008, is
entered into among GLADSTONE BUSINESS LOAN, LLC, (the “Borrower”), TAHOE
FUNDING CORP., as CP Lender, RELATIONSHIP FUNDING COMPANY, LLC, as CP
Lender, DEUTSCHE BANK AG, NEW YORK BRANCH (“Deutsche Bank”), KEYBANK,
NATIONAL ASSOCIATION (“KeyBank”) and BRANCH BANKING AND TRUST COMPANY (“BB&T”),
as Committed Lenders (collectively, the “Committed Lenders”), Deutsche
Bank, KeyBank and BB&T as Managing Agents (in such capacity, collectively
the “Managing Agents”) and Deutsche Bank as Administrative Agent (in
such capacity, the “Administrative Agent”).  Capitalized terms used herein without
definition shall have the meanings ascribed thereto in the “Credit Agreement”
referred to below.

 

PRELIMINARY STATEMENTS

 

                A.                                   Reference is
made to that certain Amended and Restated Credit Agreement, dated as of May 26,
2006, among the Borrower, Gladstone Management Corporation, as Servicer, the CP
Lenders, the Committed Lenders, the Managing Agents and the Administrative
Agent (as amended, modified or supplemented from time to time, the “Credit
Agreement”).

 

                B.                                     The parties
hereto have agreed to amend certain provisions of the Credit Agreement upon the
terms and conditions set forth herein.

 

SECTION 1.  Amendment.  Subject to the satisfaction of the condition
set forth in Section 3 hereof, the parties hereto hereby agree:

 

(a)                                  to delete the definition of “Amortization
Period” in Section 1.1 of the Credit Agreement and substitute
the following therefor:

 

Amortization Period:
means the period beginning on the Termination Date and ending on the Maturity
Date.

 

(b)                                 to delete the definition of “Borrowing
Base” in Section 1.1 of the Credit Agreement and substitute the
following therefor:

 

Borrowing Base: 
On any date of determination, the lesser of (a) (i) the
Aggregate Purchased Loan Balance minus (ii) the Required Equity
Investment or (b) an amount equal to 40% of the Aggregate Purchased Loan
Balance.

 

(c)           to delete the definition of “Commitment
Termination Date” in Section 1.1 of the Credit Agreement and
substitute the following therefor:

 

 

 

 

 

 

Commitment Termination Date:  June 6,
2008, or such later date to which the Commitment Termination Date may be
extended (if extended) in the sole discretion of the Lenders in accordance with
the terms of Section 2.1(b).

 

(d)                                 to insert the following clause (c) in
the definition of “Interest Rate” in Section 1.1 of the
Credit Agreement.

 

(c)  notwithstanding anything in clause (a) or (b) to
the contrary, following the occurrence and during the continuation of an Early
Termination Event, a rate equal to the Default Rate.

 

(e)                                  to insert the following defined terms in Section 1.1
of the Credit Agreement in appropriate alphabetical order:

 

“Default Rate” is
defined in each Fee Letter.

 

“Maturity Date”
means the date that is one year after the Termination Date.  The Advances Outstanding will be due and payable
in full on the Maturity Date.

 

(f)                                    to delete Section 2.4(a) of
the Credit Agreement and substitute the following therefor:

 

(a) The Advances Outstanding shall be due and payable in
accordance with Section 2.8 on the Maturity Date.  In addition, Advances Outstanding shall be
repaid as and when necessary to cause the Borrowing Base Test to be met, in
accordance with Section 2.8 (each such payment, a “Mandatory
Prepayment”), and any amount so repaid may, subject to the terms and
conditions hereof, be reborrowed hereunder during the Revolving Period;

 

(g)                                 to delete Section 8.1(a) of
the Credit Agreement and substitute the following therefor:

 

(a)  the Borrower shall fail to (i) make payment of any
amount required to be made under the terms of this Agreement and such failure
shall continue for more than two (2) Business Days; or (ii) repay all
Advances Outstanding on or prior to the Maturity Date; or

 

(h)                                 to insert the following Section 8.2
in the Credit Agreement in appropriate numeric order:

 

 

 

 

2

 

 

SECTION 8.2 Remedies.

 

(a)           Upon any such declaration or
automatic occurrence of the Termination Date as specified under Section 8.1,
no further Advances will be made, and the Administrative Agent and the other
Secured Parties shall have, in addition to all other rights and remedies under
this Agreement or otherwise, all rights and remedies provided under the UCC of
each applicable jurisdiction and other Applicable Laws, including the right to
sell the Collateral, which rights and remedies shall be cumulative.  The Administrative Agent and the other
Secured Parties agree that the sale of the Collateral shall be conducted in
good faith and in accordance with commercially reasonable practices.

 

(b)           At any time on and after the
Termination Date, the Borrower and the Servicer hereby agree that they will, at
the expense of Borrower or, if such Termination Date occurred as a result of a
Servicer Termination Event, at the expense of the initial Servicer or any
Affiliate of the initial Servicer if appointed as Successor Servicer hereunder,
and upon request of the Administrative Agent, forthwith, (i) assemble all
or any part of the Collateral as directed by the Administrative Agent, and make
the same available to the Administrative Agent, at a place to be designated by
the Administrative Agent, and (ii) without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels at a
public sale in accordance with commercially reasonable practices.  If there is no recognizable public market for
sale of any portion of Collateral, then a private sale of that Collateral may
be conducted only on an arm’s length basis and in accordance with commercially
reasonable practices.  The Borrower
agrees that, to the extent notice of sale shall be required by law, at least
ten days’ notice to the Borrower of the time and place of any public sale or
the time after which any private sale is to be made shall constitute reasonable
notification.  The Administrative Agent shall
not be obligated to make any sale of Collateral regardless of notice of sale
having been given.  The Administrative
Agent, may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned.  All cash Proceeds received by the
Administrative Agent in respect of any sale of, collection from, or other
realization upon, all 

 

 

 

3

 

 

or any part of the Collateral (after payment of any
amounts incurred by the Administrative Agent or any of the Secured Parties in
connection with such sale) shall be deposited into the Collection Account and
to be applied against all or any part of the Obligations pursuant to Section 2.8.

 

                (c)           If
the Administrative Agent proposes to sell the Collateral or any part thereof in
one or more parcels at a public or private sale, the Borrower shall have the
right of first refusal to repurchase the Collateral, in whole but not in part,
prior to such sale at a price not less than the Obligations as of the date of
such proposed repurchase.  The
aforementioned rights and remedies shall be without limitation, and shall be in
addition to all other rights and remedies of the Administrative Agent and the
Secured Parties otherwise available under any provision of this Agreement by
operation of law, at equity or otherwise, each of which are expressly
preserved.

 

SECTION 2. 
Representations and Warranties. 
The Borrower hereby represents and warrants to each of the other parties
hereto, that:

 

(a)                                  this Amendment
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms; and

 

(b)                                 on the date hereof, before and after
giving effect to this Amendment, other than as amended or waived pursuant to
this Amendment, no Early Termination Event or Unmatured Termination Event has
occurred and is continuing.

 

SECTION 3.  Condition.

 

(a)                                  This Amendment shall become effective on the
first Business Day (the “Effective Date”) on which the Administrative
Agent or its counsel has received counterpart signature pages of this
Amendment, executed by each of the parties hereto.

 

SECTION 4. 
Reference to and Effect on the Transaction Documents.

 

(a)                                  Upon the
Effective Date, (i) each reference in the Credit Agreement to “this Credit
Agreement”, “this Agreement”, “hereunder”, “hereof”, “herein” or words of like
import shall mean and be a reference to the Credit Agreement as amended or
otherwise modified hereby, and (ii) each reference to the Credit Agreement
in any other Transaction Document or any other document, instrument or
agreement executed and/or delivered in connection therewith, shall mean and be
a reference to the Credit Agreement as amended or otherwise modified hereby.

 

(b)                                 Except as
specifically amended, terminated or otherwise modified above, the terms and
conditions of the Credit Agreement (including all other amendments thereto), of
all other Transaction Documents and any other documents, instruments and 

 

 

 

 

4

 

 

agreements
executed and/or delivered in connection therewith, shall remain in full force
and effect and are hereby ratified and confirmed.

 

(c)           The execution,
delivery and effectiveness of this Amendment shall not operate as a waiver of
any right, power or remedy of the Administrative Agent, any Managing Agent or
any Lender under the Credit Agreement or any other Transaction Document or any
other document, instrument or agreement executed in connection therewith, nor
constitute a waiver of any provision contained therein, in each case except as
specifically set forth herein.

 

SECTION 5.  Execution in Counterparts.  This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same
instrument.  Delivery of an executed
counterpart of a signature page to this Amendment by telecopier or
electronic delivery shall be effective as delivery of a manually executed
counterpart of this Amendment.

 

SECTION 6.  Governing Law.  This Amendment shall be governed by and
construed in accordance with the laws of the State of New York, with reference
to Sections 5-1401 and 5-1402 of the New York General Obligations Law but
otherwise without regard to conflict of law provisions.

 

SECTION 7.  Headings.  Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.

 

SECTION 8.  Fees and Expenses.  The Borrower further hereby confirms its
agreement to pay on demand all reasonable costs and expenses of the Administrative
Agent, Managing Agents or Lenders in connection with the preparation, execution
and delivery of this Amendment and any of the other instruments, documents and
agreements to be executed and/or delivered in connection herewith, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel
to the Administrative Agent, Managing Agents or Lenders with respect thereto.

 

[Remainder of Page Deliberately
Left Blank]

 

 

 

 

 

 

5

 

 

                IN WITNESS WHEREOF, the parties
hereto have caused this Amendment to be duly executed by their respective
officers as of the date first above written.

 

	
   

  	
  GLADSTONE BUSINESS LOAN, LLC, as Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

 

 

 

 

 

 

 

	
   

  	
  DEUTSCHE BANK AG, NEW YORK BRANCH, 

  as a Committed Lender, Managing Agent and 

  Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TAHOE FUNDING CORP., as CP Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

 

 

 

 

 

 

 

	
   

  	
  KEYBANK NATIONAL ASSOCIATION, 

  as a Committed Lender and Managing 

  Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Andrew G. Mesches

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  

 

 

 

 

 

 

 

 

 

	
   

  	
  RELATIONSHIP FUNDING COMPANY, LLC, 

  as CP Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 

 

 

 

 

 

 

 

	
   

  	
  BRANCH BANKING AND TRUST 

  COMPANY, as Committed Lender and 

  Managing Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Gregory Drabik

  
	
   

  	
   

  	
  Title:

  	
  Vice PresidentExhibit 4.1

 

PARTICLE DRILLING TECHNOLOGIES,
INC.

 

AND

 

COMPUTERSHARE TRUST COMPANY,
N.A.,

as Rights Agent

 

 

RIGHTS AGREEMENT

 

 

dated as of

May 23, 2008

 

 

TABLE OF CONTENTS

 

	
  Section 1.

  	
  Certain Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 2.

  	
  Appointment of Rights
  Agent

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 3.

  	
  Issue of Right
  Certificates.

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 4.

  	
  Form of Right
  Certificates

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 5.

  	
  Countersignature and
  Registration

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 6.

  	
  Transfer, Split Up,
  Combination and Exchange of Right Certificates; Mutilated, Destroyed, Lost or
  Stolen Right Certificates

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 7.

  	
  Exercise of Rights:
  Purchase Price; Final Expiration Date of Rights

  	
  12

  
	
   

  	
   

  	
   

  
	
  Section 8.

  	
  Cancellation and
  Destruction of Right Certificates

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 9.

  	
  Reservation and
  Availability of Shares of Preferred Stock

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 10.

  	
  Preferred Stock Record
  Date

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 11.

  	
  Adjustment of Purchase
  Price, Number of Shares or Number of Rights

  	
  14

  
	
   

  	
   

  	
   

  
	
  Section 12.

  	
  Certificate of Adjusted
  Purchase Price or Number of Shares

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 13.

  	
  Consolidation, Merger
  or Sale or Transfer of Assets or Earning Power

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 14.

  	
  Fractional Rights and
  Fractional Shares

  	
  24

  
	
   

  	
   

  	
   

  
	
  Section 15.

  	
  Rights of Action

  	
  25

  
	
   

  	
   

  	
   

  
	
  Section 16.

  	
  Agreement of Right
  Holders

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 17.

  	
  Right Certificate
  Holder Not Deemed a Stockholder

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 18.

  	
  Concerning the Rights
  Agent

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 19.

  	
  Merger or Consolidation
  or Change of Name of Rights Agent

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 20.

  	
  Duties of Rights Agent

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 21.

  	
  Change of Rights Agent

  	
  30

  
	
   

  	
   

  	
   

  
	
  Section 22.

  	
  Issuance of New Right
  Certificates

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 23.

  	
  Redemption; Exception

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 24.

  	
  Exchange

  	
  33

  
	
   

  	
   

  	
   

  
	
  Section 25.

  	
  Notice of Certain
  Events

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 26.

  	
  Notices

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 27.

  	
  Supplements and
  Amendments

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 28.

  	
  Successors

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 29.

  	
  Benefits of this
  Agreement

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 30.

  	
  Determinations and
  Actions by the Board of Directors of the Company

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 31.

  	
  Annual Review by
  Independent Directors

  	
  36

  

 

 

	
  Section 32.

  	
  Severability

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 33.

  	
  Governing Law

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 34.

  	
  Descriptive Headings;
  References

  	
  37

  
	
   

  	
   

  	
   

  
	
  Section 35.

  	
  Counterparts

  	
  37

  
	
   

  	
   

  	
   

  
	
  Section 36.

  	
  Force Majeure

  	
  37

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  Form of Certificate of
  Designations for Series A Junior Participating Preferred Stock

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit B

  	
  Form of Right Certificate

  	
   

  
	
   

  	
  Form of Assignment

  	
   

  
	
   

  	
  Form of Election to
  Purchase

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit C

  	
  Summary of Rights to
  Purchase Preferred Stock

  	
   

  

 

 

RIGHTS AGREEMENT

 

This Rights Agreement, dated
as of May 23, 2008 (this “Agreement”), is between PARTICLE DRILLING
TECHNOLOGIES, INC., a Nevada corporation (the “Company”), and
COMPUTERSHARE TRUST COMPANY, N.A., a federally chartered trust company, as
rights agent (the “Rights Agent”).

 

WITNESSETH:

 

WHEREAS, the Board of
Directors of the Company has authorized and declared a dividend distribution of
one preferred share purchase right (a “Right”) for each outstanding
share of Common Stock (as defined below) outstanding as of the close of
business on June 3, 2008 (the “Record Date”) and has authorized the
issuance of one Right (subject to adjustment) in respect of each share of
Common Stock issued between the Record Date and the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date (as such
terms are hereinafter defined) and under certain other circumstances, each
Right representing the right to purchase one one-thousandth (1/1,000th) of one
share of Series A Junior Participating Preferred Stock of the Company
having the rights and preferences set forth in the form of Certificate of
Designations attached hereto as Exhibit A upon the terms and subject to
the conditions hereinafter set forth;

 

NOW, THEREFORE, in
consideration of the premises and the mutual agreements herein set forth, the
parties hereby agree as follows:

 

Section 1.                                          Certain Definitions. 
For purposes of this Agreement, the following terms have the meanings
indicated:

 

(a)                                  “Acquiring
Person” shall mean any Person who or that, together with all Affiliates and
Associates of such Person, shall be or become the Beneficial Owner of 20% or
more of the shares of Common Stock then outstanding, but shall not include the
Company or any subsidiary of the Company, any employee benefit plan of the
Company or of any subsidiary of the Company, or any entity organized, appointed
or established pursuant to the terms of any such plan.  Notwithstanding the foregoing, no Person
shall become an “Acquiring Person” as the result of an acquisition of Common
Stock by the Company or any subsidiary of the Company that, by reducing the
number of shares outstanding, increases the proportionate number of shares
Beneficially Owned by a Person to 20% or more of the Common Stock then
outstanding; provided, however, that if such Person becomes the Beneficial
Owner of 20% or more of the Common Stock then outstanding by reason of share
acquisitions by the Company and its subsidiaries and shall, after such share
acquisitions by the Company and its subsidiaries, become the Beneficial Owner
of any additional Common Stock (other than by reason of a stock dividend, stock
split or other corporate action effected by the Company), then such Person
shall be deemed to be an “Acquiring Person,” subject to the following
sentence of this Section 1(a), unless upon consummation of the acquisition
of such additional Common Stock such Person does not beneficially own 20% or
more of the Common Stock then outstanding.

 

Notwithstanding the
foregoing, if (i) the Board of Directors of the Company determines in good
faith that a Person who otherwise would be an “Acquiring Person,” as
defined pursuant to the foregoing provisions of this Section 1(a), became
the Beneficial Owner of a number of 

 

 

shares
of Common Stock such that such Person would otherwise be an Acquiring Person
inadvertently (including, without limitation, because (A) such Person was
unaware that it Beneficially Owned a percentage of Common Stock that would
cause such Person to be an “Acquiring Person” or (B) such Person was aware
of the extent of its Beneficial Ownership of Common Stock but had no actual
knowledge of the consequences of such Beneficial Ownership under this
Agreement) and without any intention of changing or influencing control of the
Company, then such Person shall not be deemed to be an “Acquiring Person” or to
have become an “Acquiring Person,” for all purposes of this Agreement
(such that, for the avoidance of doubt, under such circumstances no
Distribution Date shall be deemed to have occurred and no adjustment pursuant
to Section 11(a)(ii) or Section 13 shall be made in respect
thereof) unless such Person fails to divest itself as soon as practicable if
the Company so requests (as determined in good faith by the Board of Directors
of the Company) of a sufficient number of shares of Common Stock so that such
Person would no longer qualify as an Acquiring Person; provided, however, that
if such Person, after such determination and divestment, becomes the Beneficial
Owner of 20% or more of the shares of Common Stock then outstanding by reason
of becoming the Beneficial Owner of any additional shares of Common Stock, then
such Person shall be deemed to be an “Acquiring Person” unless a subsequent
determination and divestment is made; or (ii) as of the date of the first
public announcement of the adoption of this Agreement, any Person is the
Beneficial Owner of 20% or more of the Common Stock outstanding, such Person
shall not be deemed to be or become an Acquiring Person unless and until such
Person shall, after the first public announcement of the adoption of this
Agreement, become the Beneficial Owner of additional shares of Common Stock
(other than by reason of a stock dividend, stock split or other corporate
action effected by the Company) unless, upon becoming the Beneficial Owner of
such additional shares of Common Stock, such Person is not the Beneficial Owner
of 20% or more of the shares of Common Stock.

 

(b)                                 “Affiliate”
shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement.

 

(c)                                  “Agreement”
shall have the meaning set forth in the preamble hereto.

 

(d)                                 “Associate,”
shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement.

 

(e)                                  A Person shall
be deemed the “Beneficial Owner” of and shall be deemed to “beneficially
own” any securities:

 

(i)                                     that such
Person, or any of such Person’s Affiliates or Associates, beneficially owns,
directly or indirectly, within the meaning of Rule 13d-3 of the General Rules and
Regulations under the Exchange Act as in effect on the date of this Agreement;

 

(ii)                                  that such
Person, or any of such Person’s Affiliates or Associates, has (A) the
right to acquire (whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement, arrangement or understanding
(other than customary agreements with and between underwriters and selling
group members with respect to a bona 

 

2

 

fide public offering of
securities), written or otherwise, or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the “Beneficial
Owner” of, or to “beneficially own,” securities tendered pursuant to
a tender or exchange offer made by such Person or any of such Person’s
Affiliates or Associates until such tendered securities are accepted for
purchase or exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding, written or otherwise; provided, however, that a
Person shall not be deemed the “Beneficial Owner” of, or to “beneficially
own,” any security under this clause (B) if the agreement, arrangement
or understanding to vote such security (1) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules and
regulations of the Exchange Act and (2) is not then reportable on Schedule
13D under the Exchange Act (or any comparable or successor report); or

 

(iii)                               that are
beneficially owned, directly or indirectly, by any other Person with which such
Person, or any of such Person’s Affiliates or Associates, has any agreement,
arrangement or understanding, whether or not in writing, for the purpose of
acquiring, holding, voting (except pursuant to a revocable proxy as described
in the proviso to Section 1(e)(ii)(B) ) or disposing of any
securities of the Company; provided, however, that nothing in this Section 1(e) shall
cause a Person engaged in business as an underwriter of securities to be the “Beneficial
Owner” of, or to “beneficially own,” any securities acquired through
such Person’s participation in good faith in a firm commitment underwriting
until the expiration of forty days after the date of such acquisition, and then
only if such securities continue to be owned by such Person at the expiration
of such forty-day period.  Notwithstanding
anything in this definition of Beneficial Ownership to the contrary, the phrase
“then outstanding,” when used with reference to a Person’s Beneficial
Ownership of securities of the Company, shall mean the number of such
securities then issued and outstanding together with the number of such
securities not then actually issued and outstanding that such Person would be
deemed to own beneficially hereunder.

 

(f)                                    “Business
Day” shall mean any day other than a Saturday, Sunday, or a day on which
banking institutions in the State of Texas or the State of New York are
authorized or obligated by law or executive order to close.

 

(g)                                 “close of
business” on any given date shall mean 5:00 p.m., Houston, Texas time,
on such date; provided, however, that if such date is not a Business Day it
shall mean 5:00 p.m., Houston, Texas time, on the next succeeding Business
Day.

 

(h)                                 “Common
Stock” shall mean the common stock, $0.001 par value (or as such par value
may be changed from time to time), of the Company.

 

(i)                                     “Common
Stock Equivalents” shall have the meaning set forth in Section 11(a)(iii).

 

(j)                                     “Company”
shall have the meaning set forth in the preamble hereto.

 

(k)                                  “current
market price per share” shall have the meaning set forth in Section 11(d).

 

(l)                                     “Current
Value” shall have the meaning set forth in Section 11(a)(iii).

 

3

 

(m)                               “Definitive
Acquisition Agreement” shall mean any agreement entered into by the Company
that is conditioned on the approval by the holders of not less than a majority
of the outstanding shares of Common Shock at a meeting of stockholders with
respect to (i) a merger, consolidation, recapitalization, reorganization,
share exchange, business combination or similar transaction involving the
Company or (ii) the acquisition in any manner, directly or indirectly, of
more than 50% of the consolidated total assets (including, without limitation,
equity securities of its subsidiaries) of the Company.

 

(n)                                 “Distribution
Date” shall have the meaning set forth in Section 3(a).

 

(o)                                 “equivalent
preferred stock” shall have the meaning set forth in Section 11(b).

 

(p)                                 “Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended.

 

(q)                                 “Exchange
Ratio” shall have the meaning set forth in Section 24(a).

 

(r)                                    “Final
Expiration Date” shall have the meaning set forth in Section 7(a).

 

(s)                                  “Independent
Directors” shall mean members of the Board of Directors of the Company who
are not officers or employees of the Company or any of its subsidiaries.

 

(t)                                    “invalidation
time” shall have the meaning set forth in Section 11(a)(ii).

 

(u)                                 “NASDAQ”
shall mean the NASDAQ Global Select Market, the NASDAQ Global Market or the
NASDAQ Capital Market, as applicable.

 

(v)                                 “Outside
Meeting Date” shall have the meaning set forth in Section 23(b).

 

(w)                               “Person”
shall mean any individual, firm, corporation, limited liability company,
partnership, trust or other entity, and shall include any successor (by merger
or otherwise) of such entity.

 

(x)                                   “Preferred
Stock” shall mean the Series A Junior Participating Preferred Stock of
the Company having the rights and preferences set forth in the form of
Certificate of Designations attached hereto as Exhibit A .

 

(y)                                 “Principal
Party” shall have the meaning set forth in Section 13(b).

 

(z)                                   “Purchase
Price” shall have the meaning set forth in Section 4.

 

(aa)                            “Qualified
Offer” shall mean an offer determined by a majority of the Independent
Directors to have each of the following characteristics:

 

(i)                                     a
fully-financed, all-cash tender offer, or an exchange offer offering shares of
common stock of the offeror, or a combination thereof, in each such case for
all of the outstanding shares of Common Stock at the same per-share
consideration;

 

(ii)                                  an offer that
has commenced within the meaning of Rule 14d-2(a) under the Exchange
Act and is made by an offeror (including Affiliates and/or Associates of such 

 

4

 

offeror) that beneficially
owns no more than 5% of the outstanding Common Stock as of the date of such
commencement;

 

(iii)                               an offer whose
per-share offer price is greater than the highest reported market price for the
Common Stock in the immediately preceding 24 months, with, in the case of an
offer that includes shares of common stock of the offeror, such per-share offer
price being determined using the lowest reported market price for common stock
of the offeror during the five trading days immediately preceding and the five
trading days immediately following the commencement of such offer within the
meaning of Rule 14d-2(a) under the Exchange Act;

 

(iv)                              an offer that,
within twenty Business Days after the commencement date of the offer (or within
ten Business Days after any increase in the offer consideration), does not
result in a nationally recognized investment banking firm retained by the Board
of Directors of the Company rendering an opinion to the Board of Directors of
the Company that the consideration being offered to the stockholders of the
Company is either unfair or inadequate;

 

(v)                                 if the offer
includes shares of common stock of the offeror, an offer pursuant to which (A) the
offeror shall permit representatives of the Company (including a
nationally-recognized investment banking firm retained by the Board of
Directors of the Company and legal counsel and an accounting firm designated by
the Company) to have access to such offeror’s books, records, management,
accountants and other appropriate outside advisors for the purposes of
permitting such representatives to conduct a due diligence review of the
offeror in order to permit the Board of Directors of the Company to evaluate
the offer and make an informed decision and, if requested by the Board of
Directors of the Company, to permit such investment banking firm (relying as
appropriate on the advice of such legal counsel) to be able to render an
opinion to the Board of Directors of the Company with respect to whether the
consideration being offered to the stockholders of the Company is fair from a
financial point of view and (B) within ten Business Days after such representatives
of the Company (including a nationally-recognized investment banking firm
retained by the Board of Directors of the Company and legal counsel and an
accounting firm designated by the Company) shall have notified the Company and
the offeror that it had completed such due diligence review to its satisfaction
(or, following completion of such due diligence review, within ten Business
Days after any increase in the consideration being offered), such investment
banking firm does not render an opinion to the Board of Directors of the
Company that the consideration being offered to the stockholders of the Company
is either unfair or inadequate and such investment banking firm does not, after
the expiration of such ten Business Day period, render an opinion to the Board
of Directors of the Company that the consideration being offered to the
stockholders of the Company has become either unfair or inadequate based on a
subsequent disclosure or discovery of a development or developments that have
had or are reasonably likely to have a material adverse effect on the value of
the common stock of the offeror;

 

(vi)                              an offer that
is subject to only the minimum tender condition described below in Section 1(aa)(ix) and
other customary terms and conditions, which conditions shall not include any
financing, funding or similar conditions or any requirements with respect to
the offeror or its agents being permitted any due diligence with respect to the
books, records, management, accountants or other outside advisors of the
Company;

 

5

 

(vii)                           an offer
pursuant to which the Company has received an irrevocable written commitment of
the offeror that the offer will remain open for at least 120 Business Days and,
if a Special Meeting is duly requested in accordance with Section 23(b),
for at least ten Business Days after the date of the Special Meeting or, if no
Special Meeting is held within ninety Business Days following receipt of the
Special Meeting Notice in accordance with Section 23(b), for at least ten
Business Days following such ninety Business Day period;

 

(viii)                        an offer
pursuant to which the Company has received an irrevocable written commitment of
the offeror that, in addition to the minimum time periods specified above in Section 1(aa)(vii),
the offer, if it is otherwise to expire prior thereto, will be extended for at
least twenty Business Days after any increase in the consideration being
offered or after any bona fide alternative offer is commenced within the meaning
of Rule 14d-2(a) under the Exchange Act; provided, however, that such
offer need not remain open, as a result of Section 1(aa)(vii) and
this Section 1(aa)(viii), beyond (A) the time that any other offer
satisfying the criteria for a Qualified Offer is then required to be kept open
under such Section 1(aa)(vii) and this Section 1(aa)(viii) or
(B) the expiration date, as such date may be extended by public
announcement (with prompt written notice to the Rights Agent) in compliance
with Rule 14e-1 under the Exchange Act, of any other tender offer for the
Common Stock with respect to which the Board of Directors of the Company has
agreed to redeem the Rights immediately prior to acceptance for payment of
Common Stock thereunder (unless such other offer is terminated prior to its
expiration without any Common Stock having been purchased thereunder) or (C) one
Business Day after the stockholder vote with respect to approval of any
Definitive Acquisition Agreement has been officially determined and certified
by the inspectors of elections;

 

(ix)                                an offer that
is conditioned on a minimum of at least two-thirds of the outstanding shares of
the Common Stock not held by the Person making such offer (and such Person’s
Affiliates and Associates) being tendered and not withdrawn as of the offer’s
expiration date, which condition shall not be waivable;

 

(x)                                   an offer
pursuant to which the Company has received an irrevocable written commitment of
the offeror to consummate, as promptly as practicable upon successful completion
of the offer, a second step transaction whereby all shares of the Common Stock
not tendered into the offer will be acquired at the same consideration per
share actually paid pursuant to the offer, subject to stockholders’ statutory
appraisal rights, if any;

 

(xi)                                an offer
pursuant to which the Company and its stockholders have received an irrevocable
written commitment of the offeror that no amendments will be made to the offer
to reduce the consideration being offered or to otherwise change the terms of the
offer in a way that is adverse to a tendering stockholder;

 

(xii)                             an offer (other
than an offer consisting solely of cash consideration) pursuant to which the
Company has received the written representation and certification of the
offeror and, in their individual capacities, the written representations and
certifications of the offeror’s Chief Executive Officer and Chief Financial
Officer, that (A) all facts about the offeror that would be material to
making an investor’s decision to accept the offer have been fully and
accurately disclosed as of the date of the commencement of the offer within the
meaning of Rule 14d-2(a) under the Exchange Act, (B) all such
new facts will be fully and accurately disclosed on 

 

6

 

a prompt basis during the
entire period during which the offer remains open, and (C) all required
Exchange Act reports will be filed by the offeror in a timely manner during
such period; and

 

(xiii)                          if the offer
includes non-cash consideration, (A) the non-cash portion of the
consideration offered must consist solely of common stock of a Person that is a
publicly-owned United States corporation, (B) such common stock must be
freely tradable and listed or admitted to trading on either the New York Stock
Exchange or NASDAQ, (C) no stockholder approval of the issuer of such
common stock is required to issue such common stock, or, if such approval
required, such approval has already been obtained, (D) no Person
(including such Person’s Affiliates and Associates) beneficially owns more than
20% of the voting stock of the issuer of such common stock at the time of
commencement of the offer or at any time during the term of the offer, (E) no
other class of voting stock of the issuer of such common stock is outstanding
and (F) the issuer of such common stock meets the registrant eligibility
requirements for use of Form S-3 for registering securities under the
Securities Act, including the filing of all required Exchange Act reports in a
timely manner during the twelve calendar months prior to the date of
commencement of such offer.

 

For the purposes of this
definition of “Qualified Offer,” “fully financed” shall mean that
the offeror has sufficient funds for the offer and related expenses which shall
be evidenced by (1) firm, unqualified, written commitments from
responsible financial institutions having the necessary financial capacity,
accepted by the offeror, to provide funds for such offer subject only to
customary terms and conditions, (2) cash or cash equivalents then
available to the offeror, set apart and maintained solely for the purpose of
funding the offer with an irrevocable written commitment being provided by the
offeror to the Board of Directors of the Company to maintain such availability
until the offer is consummated or withdrawn or (3) a combination of the
foregoing; which evidence has been provided to the Company prior to, or upon,
commencement of the offer.  If an offer
becomes a Qualified Offer in accordance with this definition, but subsequently
ceases to be a Qualified Offer as a result of the failure at a later date to
continue to satisfy any of the requirements of this definition, such offer
shall cease to be a Qualified Offer and the provisions of Section 23(b) shall
no longer be applicable to such offer, provided that the actual redemption of
the Rights pursuant to Section 23(b) shall not have already occurred.

 

(bb)                          “Record Date”
shall have the meaning set forth in the recitals hereof.

 

(cc)                            “Redemption
Date” shall have the meaning set forth in Section 7(a).

 

(dd)                          “Redemption
Price” shall have the meaning set forth in Section 23(a).

 

(ee)                            “Qualified
Offer Resolution” shall have the meaning set forth in Section 23(b).

 

(ff)                                “Right”
shall have the meaning set forth in the recitals hereof.

 

(gg)                          “Right
Certificate” shall have the meaning set forth in Section 3(a).

 

(hh)                          “Rights
Agent” shall have the meaning set forth in the preamble hereto.

 

(ii)                                  “Section 11(a)(ii) Trigger
Date” shall have the meaning set forth in Section 11(a)(iii).

 

7

 

(jj)           “Securities Act”
shall mean the Securities Act of 1933, as amended.

 

(kk)         “Security” shall have
the meaning set forth in Section 11(d).

 

(ll)           “Senior Voting Stock”
shall have the meaning set forth in Section 13(b).

 

(mm)       “Shares Acquisition Date”
shall mean the first date of public announcement by the Company or an Acquiring
Person that an Acquiring Person has become an “Acquiring Person” for purposes
of this Agreement or such earlier date as a majority of the Board of Directors
shall become aware of the existence of an Acquiring Person.

 

(nn)         “Special Meeting”
shall have the meaning set forth in Section 23(b).

 

(oo)         “Special Meeting Notice”
shall have the meaning set forth in Section 23(b).

 

(pp)         “Special Meeting Period”
shall have the meaning set forth in Section 23(b).

 

(qq)         “Spread” shall have
the meaning set forth in Section 11(a)(iii).

 

(rr)           “subsidiary” of a
Person shall mean any corporation or other entity of which a majority of the
voting power of the voting equity securities or equity interest is owned,
directly or indirectly, by such Person.

 

(ss)         “Substitution Period”
shall have the meaning set forth in Section 11(a)(iii).

 

(tt)           “Summary of Rights”
shall have the meaning set forth in Section 3(b).

 

(uu)         “Trading Day” shall
have the meaning set forth in Section 11(d).

 

Section 2.              Appointment of Rights Agent. 
The Company hereby appoints the Rights Agent to act as agent for the
Company in accordance with the terms and conditions hereof, and the Rights
Agent hereby accepts such appointment. 
The Company may from time to time appoint such co-rights agents as it
may deem necessary or desirable, upon ten days’ prior written notice to the
Rights Agent.  The Rights Agent shall
have no duty to supervise, and shall in no event be liable for, the acts or omissions
of any such co-rights agents.

 

Section 3.              Issue of Right Certificates.

 

(a)           Until the earlier of the
close of business on (i) the tenth day after the Shares Acquisition Date
or (ii) the tenth Business Day (or such later date as may be determined by
action of the Board of Directors of the Company prior to such time as any
Person becomes an Acquiring Person) after the date of the commencement by any
Person (other than the Company, any subsidiary of the Company, any employee
benefit plan of the Company or of any subsidiary of the Company or any Person
holding Common Stock of the Company for or pursuant to the terms of any such
plan) of a tender or exchange offer the consummation of which would result in
any Person becoming an Acquiring Person, (the earlier of such dates being
referred to as the “Distribution Date”), (x) the Rights will be
evidenced (subject to the provisions of Section 3(b)) by the certificates
for the Common Stock registered in the names of the holders thereof (which 

 

8

 

certificates shall be deemed
also to be Right Certificates) and not by separate Right Certificates, and (y) the
right to receive Right Certificates will be transferable only in connection
with the transfer of the Common Stock. 
As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if so requested by written
notice and provided with a stockholder list and all other relevant information
that the Rights Agent may reasonably request, send), by first class,
postage-prepaid mail, to each record holder of Common Stock as of the close of
business on the Distribution Date (other than an Acquiring Person or any
Affiliate or Associate of an Acquiring Person), at the address of such holder
shown on the records of the Company, a Right Certificate, in substantially the
form of Exhibit B hereto (a “Right Certificate”), evidencing one
Right for each share of Common Stock so held. 
As of and after the Distribution Date, the Rights will be evidenced
solely by such Right Certificates.  The
Company shall promptly notify the Rights Agent in writing upon the occurrence
of the Distribution Date.  Until such
notice is received by the Rights Agent, the Rights Agent may presume
conclusively for all purposes that the Distribution Date has not occurred.

 

(b)           On the Record Date or as
soon as practicable thereafter, the Company will send a copy of a Summary of
Rights to Purchase Preferred Stock, in substantially the form attached hereto
as Exhibit C (the “Summary of Rights”), by first class,
postage-prepaid mail or other means used by the Company to deliver proxy
statements to its stockholders, to each record holder of Common Stock as of the
close of business on the Record Date at the address of such holder shown on the
records of the Company.  With respect to
certificates for the Common Stock outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates registered
in the names of the holders thereof together with a copy of the Summary of
Rights.  Until the Distribution Date (or
the earlier of the Redemption Date or the Final Expiration Date), the surrender
for transfer of any certificate for Common Stock outstanding on the Record
Date, with or without a copy of the Summary of Rights, shall also constitute
the transfer of the Rights associated with the Common Stock represented
thereby.

 

(c)           Rights shall be issued in
respect of all shares of Common Stock issued or disposed of (including, without
limitation, upon disposition of Common Stock out of treasury stock or issuance
or reissuance of Common Stock out of authorized but unissued shares) after the
Record Date but prior to the earliest of the Distribution Date, the Redemption
Date and the Final Expiration Date, or in certain circumstances provided in Section 22,
after the Distribution Date. 
Certificates issued for Common Stock (including, without limitation,
upon transfer of outstanding Common Stock, disposition of Common Stock out of
treasury stock or issuance or reissuance of Common Stock out of authorized but
unissued shares) after the Record Date but prior to the earliest of the
Distribution Date, the Redemption Date and the Final Expiration Date shall have
impressed on, printed on, written on or otherwise affixed to them a legend in
substantially the following form:

 

This certificate also
evidences and entitles the holder hereof to certain Rights as set forth in the
Rights Agreement between Particle Drilling Technologies, Inc. and
Computershare Trust Company, N.A., as Rights Agent, dated as of May 23,
2008, as the same may be supplemented or amended from time to time (the “Rights
Agreement”), the terms of which are hereby incorporated herein by reference
and a copy of which is on file at the principal executive offices of Particle
Drilling 

 

9

 

Technologies, Inc.  Under certain circumstances, as set forth in
the Rights Agreement, such Rights will be evidenced by separate certificates
and will no longer be evidenced by this certificate.  Particle Drilling Technologies, Inc.
will mail to the holder of this certificate a copy of the Rights Agreement
without charge after receipt of a written request therefor.  Under certain circumstances, as set forth in
the Rights Agreement, Rights acquired or beneficially owned by any Person who
becomes an Acquiring Person or any Affiliate or Associate of an Acquiring
Person (as such terms are defined in the Rights Agreement) and their
transferees will become null and void and will no longer be transferable.

 

With respect to such
certificates containing substantially the foregoing legend, until the
Distribution Date, the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any of such certificates shall also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificates.

 

In the event that the
Company purchases or acquires any shares of Common Stock after the Record Date
but prior to the Distribution Date, any Rights associated with such shares of
Common Stock shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the shares of Common
Stock that are no longer outstanding.

 

Notwithstanding this Section 3(c),
the omission of a legend shall not affect the enforceability of any part of
this Agreement or the rights of any holder of the Rights.

 

Section 4.              Form of Right Certificates. 
The Right Certificates (and the forms of election to purchase shares and
of assignment to be printed on the reverse thereof) shall be substantially the
same as Exhibit B hereto and may have such marks of identification or
designation and such legends, summaries or endorsements printed thereon as the
Company may deem appropriate (but that do not affect the rights, duties or
obligations of the Rights Agent as set forth in this Agreement) and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange or
automated quotation system on which the Rights may from time to time be listed,
or to conform to usage.  Subject to the
provisions of Section 22, the Right Certificates, in each case, on their
face shall entitle the holders thereof to purchase such number of shares of the
Preferred Stock as shall be set forth therein at the price per share set forth
therein (the “Purchase Price”), but the number of such shares and the
Purchase Price shall be subject to adjustment as provided herein.

 

Section 5.              Countersignature and Registration. 
The Right Certificates shall be executed on behalf of the Company in the
manner provided in the By-Laws of the Company for Common Stock
certificates.  The Right Certificates shall
be countersigned by the Rights Agent, either manually or by facsimile
signature, and shall not be valid for any purpose unless so countersigned.

 

In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and 

 

10

 

issuance
and delivery by the Company, such Right Certificates, nevertheless, may be
countersigned by the Rights Agent and issued and delivered with the same force
and effect as though the person who signed such Right Certificates had not
ceased to be such officer of the Company; and any Right Certificate may be
signed on behalf of the Company by any person who, at the actual date of the
execution of such Right Certificate, shall be a proper officer of the Company
to sign such Right Certificate, although at the date of the execution of this
Agreement any such person was not such an officer.

 

Following the Distribution
Date, and receipt by the Rights Agent of (i) written notice of the Distribution
Date pursuant to Section 3(a), and (ii) a stockholder list and all
relevant information reasonably requested by the Rights Agent pursuant to Section 3(a),
the Rights Agent will keep or cause to be kept, at its office designated for
such purposes, books for registration and transfer of the Right Certificates
issued hereunder.  Such books shall show
the names and addresses of the respective holders of the Right Certificates,
the number of Rights evidenced on its face by each of the Right Certificates and
the date of each of the Right Certificates.

 

Section 6.              Transfer, Split Up, Combination and
Exchange of Right Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates.  Subject to the provisions of Section 7(e) and
Section 14, at any time after the close of business on the Distribution
Date, and prior to the close of business on the earlier of the Redemption Date
and the Final Expiration Date, any Right Certificate or Right Certificates
(other than Right Certificates representing Rights that have become null and
void pursuant to Section 11(a)(ii) or that have been exchanged
pursuant to Section 24 ) may be transferred, split up, combined or
exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of shares of the Preferred Stock as
the Right Certificate or Right Certificates surrendered then entitled such
holder to purchase.  Any registered
holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the office
of the Rights Agent designated for such purposes.  Thereupon the Rights Agent shall countersign
and deliver to the Person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested.  As a condition to such transfer, division,
combination or exchange, the Company may require payment by the surrendering
holder of a sum sufficient to cover any tax or charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates.  The Rights Agent shall
have no duty or obligation to take any action under any section of this
Agreement that requires the payment by a Rights holder of applicable taxes
and/or charges unless and until it is satisfied that all such taxes and/or
charges have been paid.

 

Upon receipt by the Company
and the Rights Agent of evidence satisfactory to them of the loss, theft,
destruction or mutilation of a Right Certificate, and, in the case of loss,
theft or destruction, of indemnity or security satisfactory to them, and, at
the Company’s request, reimbursement to the Company and the Rights Agent of all
reasonable expenses incidental thereto, and upon surrender to the Rights Agent
and cancellation of the Right Certificate if mutilated, the Company will make
and deliver a new Right Certificate of like tenor to the Rights Agent for
delivery to the registered owner in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.

 

11

 

Section 7.              Exercise of Rights: Purchase Price; Final
Expiration Date of Rights.

 

(a)           The registered holder of any
Right Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein) in whole or in part at any time after the
Distribution Date upon surrender of the Right Certificate, with the form of
election to purchase on the reverse side thereof properly completed and duly
executed, to the Rights Agent at the office of the Rights Agent designated for
such purposes together with payment of the Purchase Price for each one
one-thousandth of one share of the Preferred Stock as to which the Rights are
exercised, at or prior to the earliest of (i) the close of business on May 23,
2011 (the “Final Expiration Date”), or (ii) the time at which the
Rights are redeemed as provided in Section 23 (“Redemption Date”),
or (iii) the time at which such Rights are exchanged as provided for in Section 24.

 

(b)           The Purchase Price for each
one one-thousandth of one share of the Preferred Stock pursuant to the exercise
of a Right shall initially be $20.00, shall be subject to adjustment from time
to time as provided in Section 11 and Section 13, and shall be
payable in lawful money of the United States of America in accordance with Section 7(c) .

 

(c)           Upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase properly completed and duly executed, accompanied by payment of the
Purchase Price for shares to be purchased and an amount equal to any applicable
tax or charge required to be paid by the holder of such Right Certificate in
accordance with Section 6 in cash, or by certified check or cashier’s
check payable to the order of the Company, the Rights Agent shall thereupon (i) (A) promptly
requisition from any transfer agent of the Preferred Stock of the Company, or
make available if the Rights Agent is the transfer agent of the Preferred
Stock, certificates for the number of shares of the Preferred Stock to be
purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) promptly requisition from the
depositary agent depositary receipts representing such number of one
one-thousandths of a share of Preferred Stock as are to be purchased (in which
case certificates for the shares of Preferred Stock represented by such
receipts shall be deposited by the transfer agent with the depositary agent)
and the Company hereby directs the depositary agent to comply with such
request, (ii) when necessary, promptly requisition from the Company the
amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14, (iii) after receipt of such certificates
or depositary receipts, promptly cause the same to be delivered to or upon the
order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder, and (iv) when
necessary, after receipt, promptly deliver such cash to or upon the order of
the registered holder of such Right Certificate.

 

(d)           In case the registered
holder of any Right Certificate shall exercise less than all the Rights
evidenced thereby, a new Right Certificate evidencing Rights equivalent to the
Rights remaining unexercised shall be issued by the Rights Agent to the
registered holder of such Right Certificate or to such holder’s duly authorized
assigns, subject to the provisions of Section 14 .

 

(e)           Notwithstanding anything in
this Agreement to the contrary, neither the Rights Agent nor the Company shall
be obligated to take any action whatsoever with respect to the purported
transfer or exercise of Rights pursuant to Section 6 or this Section 7
unless the registered holder shall have properly completed and duly executed
the form of assignment or 

 

12

 

election to purchase on the
reverse side of the Right Certificate surrendered for such transfer or exercise
and shall have provided such additional evidence of the identity of the
Beneficial Owner (or such former or proposed Beneficial Owner) thereof or such
Beneficial Owner’s Affiliates or Associates as the Company or the Rights Agent
shall reasonably request.

 

Section 8.              Cancellation and Destruction of Right
Certificates.  All Right Certificates surrendered for the
purpose of exercise, transfer, split up, combination, redemption or exchange
shall, if surrendered to the Company or to any of its agents, be delivered to
the Rights Agent for cancellation or in cancelled form, or, if surrendered to
the Rights Agent, shall be cancelled by it, and no Right Certificates shall be
issued in lieu thereof except as expressly permitted by any of the provisions
of this Agreement.  The Company shall
deliver to the Rights Agent for cancellation and retirement, and the Rights
Agent shall so cancel and retire, any other Right Certificate purchased or
acquired by the Company otherwise than upon the exercise thereof.  The Rights Agent shall deliver all cancelled
Right Certificates to the Company, or shall, at the written request of the
Company, destroy such cancelled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.

 

Section 9.              Reservation and Availability of Shares of
Preferred Stock.  The Company covenants and agrees that it will
cause to be reserved and kept available out of its authorized and unissued
Preferred Stock, or its authorized and issued Preferred Stock held in its
treasury, the number of shares of the Preferred Stock that will be sufficient
to permit the exercise in full of all outstanding Rights in accordance with
this Agreement.

 

So long as the Preferred
Stock (and, following the time that a Person becomes an Acquiring Person,
shares of Common Stock) issuable upon the exercise of Rights may be listed or
admitted to trading on any national securities exchange or automated quotation
system, the Company shall use its reasonable best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed or admitted for trading on such exchange or automated
quotation system upon official notice of issuance upon such exercise.

 

The Company covenants and
agrees that it will take all such action as may be necessary to ensure that all
shares of the Preferred Stock (and, following the time that a Person becomes an
Acquiring Person, shares of Common Stock) delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such (subject to payment
of the Purchase Price), be duly and validly authorized and issued and fully
paid and nonassessable shares.

 

The Company further
covenants and agrees that it will pay when due and payable any and all federal
and state transfer taxes and charges that may be payable in respect of the
issuance or delivery of the Right Certificates or of any shares of the
Preferred Stock upon the exercise of Rights. 
The Company shall not, however, be required (a) to pay any tax or
charge that may be payable in respect of any transfer involved in the transfer
or delivery of Right Certificates or the issuance or delivery of certificates
for the Preferred Stock in a name other than that of the registered holder of
the Right Certificate evidencing Rights surrendered for exercise or (b) to
issue or deliver any certificates for shares of the Preferred Stock upon the
exercise of any Rights until any such tax or charge shall have been paid (any
such tax or charge being payable by the 

 

13

 

holder
of such Right Certificate at the time of surrender) or until it has been
established to the Company’s satisfaction that no such tax or charge is due.

 

The Company shall, if
legally required, (i) prepare and file, as soon as reasonably possible
following the Distribution Date, a registration statement under the Securities
Act with respect to the securities purchasable upon exercise of or exchangeable
for the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as reasonably possible after such filing,
and (iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act) until
no longer required to do so under the Securities Act with respect to securities
purchasable upon exercise of or exchangeable for the Rights.  The Company also shall take all such action
as may be required or as is appropriate under the securities or blue sky laws
of such jurisdictions as may be necessary or appropriate with respect to the
securities purchasable upon the exercise of or exchangeable for the
Rights.  The Company may temporarily
suspend, for a period not to exceed 120 days following the Distribution Date,
the exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. 
Upon any such suspension of exercisability of Rights referred to in this
paragraph, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect.

 

Section 10.            Preferred Stock Record Date. 
Each Person in whose name any certificate for shares of the Preferred
Stock is issued upon the exercise of Rights shall for all purposes be deemed to
have become the holder of record of the Preferred Stock represented thereby on,
and such certificate shall be dated, the date upon which the Right Certificate
evidencing such Rights, together with the form of election to purchase duly
completed and executed, was duly surrendered and payment of the Purchase Price
(and any applicable taxes or charges) was made; provided, however, that if the
date of such surrender and payment is a date upon which the Preferred Stock
transfer books of the Company are closed, such Person shall be deemed to have
become the record holder of such shares on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock transfer
books of the Company are open.  Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a stockholder of the Company with
respect to shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or
to exercise any preemptive rights, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided herein.

 

Section 11.            Adjustment of Purchase Price, Number of
Shares or Number of Rights.  The Purchase Price, the number and kind or
class of shares of stock of the Company covered by each Right and the number of
Rights outstanding are subject to adjustment from time to time as provided in
this Section 11.

 

(a)           (i) In the event the
Company shall at any time after the date of this Agreement (A) declare a
dividend on the Preferred Stock payable in Preferred Stock, (B) subdivide
the outstanding Preferred Stock, (C) combine the outstanding Preferred
Stock into a smaller number of shares of Preferred Stock or (D) issue any
shares of its capital stock in a reclassification of the Preferred Stock
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided 

 

14

 

in this Section 11(a),
the Purchase Price in effect at the time of the record date for such dividend
or of the effective date of such subdivision, combination or reclassification,
and the number and kind of shares of capital stock issuable on such date, shall
be proportionately adjusted so that the holder of any Right exercised after
such time shall be entitled to receive the aggregate number and kind of shares
of capital stock that, if such Right had been exercised immediately prior to
such date and at a time when the Preferred Stock transfer books of the Company
were open, the holder would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration
to be paid upon the exercise of one Right be less than the aggregate par value
of the shares of Preferred Stock issuable upon exercise of one Right.  If an event occurs that would require an
adjustment under both Section 11(a)(i) and Section 11(a)(ii),
the adjustment provided for in this Section 11(a)(i) shall be in
addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) .

 

(ii)           Subject to Section 24,
in the event any Person becomes an Acquiring Person, each holder of a Right shall
thereafter have a right to receive, upon exercise thereof at a price equal to
the Purchase Price in effect immediately prior to such Person becoming an
Acquiring Person multiplied by the number of one one-thousandths of a share of
Preferred Stock for which a Right is then exercisable, in accordance with the
terms of this Agreement and in lieu of shares of Preferred Stock, such number
of shares of Common Stock as shall equal the result obtained by (A) multiplying
such Purchase Price by the number of one one-thousandths of a share of
Preferred Stock for which a Right is then exercisable and dividing that product
by (B) 50% of the current market price per share of the Common Stock
(determined pursuant to Section 11(d)) on the date of the occurrence of
such event; provided, however, that if the transaction that would otherwise
give rise to the adjustment is also subject to the provisions of Section 13,
then only the provisions of Section 13 shall apply and no adjustment shall
be made pursuant to this Section 11(a)(ii) .  In the event that any Person shall become an
Acquiring Person and the Rights shall then be outstanding, the Company shall
not take any action that would eliminate or diminish the benefits intended to
be afforded by the Rights.  Notwithstanding
anything in this Agreement to the contrary, however, from and after the time
(the “invalidation time”) when any Person first becomes an Acquiring
Person, any Rights that are or were acquired or beneficially owned by any
Acquiring Person (or any Affiliate or Associate of any Acquiring Person),
including, without limitation, any such Rights when held by (1) a
transferee of any Acquiring Person (or any such Affiliate or Associate) who
becomes a transferee after the invalidation time, (2) a transferee of any
Acquiring Person (or any such Affiliate or Associate) who became a transferee
prior to or concurrently with the invalidation time pursuant to either (x) a
transfer from the Acquiring Person to holders of its equity securities or to
any Person with whom it has any continuing agreement, arrangement or
understanding, written or otherwise, regarding the transferred Rights or (y) a
transfer that the Board of Directors of the Company determines is part of a
plan, arrangement or understanding, written or otherwise, that has the purpose
or effect of avoiding the provisions of this Section 11(a)(ii), or (3) a
subsequent transferee of any Person described in the foregoing clauses (1) or
(2), shall be null and void without any further action and any holder of such
Rights shall thereafter have no right to exercise such Rights under any
provision of this Agreement.  The Company
shall use all reasonable efforts to ensure that the provisions of this Section 11(a)(ii) are
complied with, but shall have no liability to any holder of Rights or other
Person as a result of its failure to make any determinations with respect to an
Acquiring Person or its Affiliates, Associates or transferees hereunder.  No Right Certificate 

 

15

 

shall be issued pursuant to Section 3,
Section 6 or Section 7(d) that represents Rights beneficially
owned by an Acquiring Person whose Rights would be null and void pursuant to
the preceding sentence or any Associate or Affiliate thereof; no Right
Certificate shall be issued at any time upon the transfer of any Rights to an
Acquiring Person whose Rights would be null and void pursuant to the preceding
sentence or any Associate or Affiliate thereof or to any nominee of such
Acquiring Person, Associate or Affiliate; and any Right Certificate delivered
to the Rights Agent for transfer to an Acquiring Person or any Associate or
Affiliate whose Rights would be null and void pursuant to the provisions of
this paragraph shall be cancelled.

 

(iii)          The Company may, at its
option, substitute for a share of Common Stock issuable upon the exercise of
Rights in accordance with Section 11(a)(ii) a number of shares of
Preferred Stock or fraction thereof such that the current market price per
share of one share of Preferred Stock multiplied by such number or fraction is
equal to the current market price per share of one share of Common Stock.  In the event that there shall not be
sufficient shares of Common Stock issued but not outstanding or authorized but
unissued to permit the exercise in full of the Rights in accordance with Section 11(a)(ii),
the Board of Directors of the Company shall, with respect to such deficiency,
to the extent permitted by applicable law and any material agreements then in
effect to which the Company is a party, (A) determine the excess (such
excess, the “Spread”) of (1) the value of the shares of Common
Stock issuable upon the exercise of a Right in accordance with Section 11(a)(ii) (the
“Current Value”) over (2) the Purchase Price in effect immediately
prior to such Person becoming an Acquiring Person and (B) with respect to
each Right (other than Rights that have become null and void pursuant to Section 11(a)(ii)),
make adequate provision to substitute for the shares of Common Stock issuable
in accordance with Section 11(a)(ii) upon exercise of the Right and
payment of the applicable Purchase Price, (1) cash, (2) a reduction
in such Purchase Price, (3) shares of Preferred Stock or other equity
securities of the Company (including, without limitation, shares or fractions
of shares of preferred stock that, by virtue of having dividend, voting and
liquidation rights substantially comparable to those of the shares of Common
Stock, are deemed in good faith by the Board of Directors of the Company to
have substantially the same value as the shares of Common Stock (such shares of
Preferred Stock and shares or fractions of shares of preferred stock are
hereinafter referred to as “Common Stock Equivalents”)), (4) debt
securities of the Company, (5) other assets or (6) any combination of
the foregoing, having a value that, when added to the value of the shares of
Common Stock issued upon exercise of such Right, shall have an aggregate value
equal to the Current Value (less the amount of any reduction in such Purchase
Price), where such aggregate value has been determined by the Board of
Directors of the Company upon the advice of a nationally recognized investment
banking firm selected in good faith by the Board of Directors of the Company;
provided, however, that if the Company shall not make adequate provision to
deliver value pursuant to clause (B) above within thirty (30) days
following the date on which any Person becomes an Acquiring Person (the date on
which any Person becomes an Acquiring Person being the “Section 11(a)(ii) Trigger
Date”), then the Company shall be obligated to deliver, to the extent
permitted by applicable law and any material agreements then in effect to which
the Company is a party, upon the surrender for exercise of a Right and without
requiring payment of such Purchase Price, shares of Common Stock (to the extent
available), and then, if necessary, such number or fractions of shares of
Preferred Stock (to the extent available) and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the Spread.  If, upon any Person becoming an Acquiring
Person, the Board of Directors of the Company shall determine in good faith
that it is likely that sufficient additional 

 

16

 

shares of Common Stock could
be authorized for issuance upon exercise in full of the Rights, then, if the
Board of Directors of the Company so elects, the thirty (30) day period set
forth above may be extended to the extent necessary, but not more than ninety
(90) days after the Section 11(a)(ii) Trigger Date, in order that the
Company may seek stockholder approval for the authorization of such additional
shares (such thirty (30) day period, as it may be extended, is herein called
the “Substitution Period”).  To
the extent that the Company determines that some action need be taken pursuant
to the second and/or third sentence of this Section 11(a)(iii), the
Company (x) shall provide, subject to Section 11(a)(ii) and the
last sentence of this Section 11(a)(iii), that such action shall apply
uniformly to all outstanding Rights and (y) may suspend the exercisability
of the Rights until the expiration of the Substitution Period in order to seek
any authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such second sentence and to determine the
value thereof.  In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect. For
purposes of this Section 11(a)(iii), the value of the shares of Common
Stock shall be the current market price per share (as determined pursuant to Section 11(d))
on the Section 11(a)(ii) Trigger Date and the per share or fractional
value of any Common Stock Equivalent shall be deemed to equal the current
market price per share of the Common Stock. 
The Board of Directors of the Company may, but shall not be required to,
establish procedures to allocate the right to receive shares of Common Stock
upon the exercise of the Rights among holders of Rights pursuant to this Section 11(a)(iii).

 

(b)           In case the Company shall
fix a record date for the issuance of rights, options or warrants to all
holders of Preferred Stock entitling them (for a period expiring within 45
calendar days after such record date) to subscribe for or purchase Preferred
Stock (or shares having the same rights, privileges and preferences as the
Preferred Stock (“equivalent preferred stock”)) or securities
convertible into Preferred Stock or equivalent preferred stock at a price per
share of Preferred Stock or equivalent preferred stock (or having a conversion
price per share, if a security convertible into Preferred Stock or equivalent
preferred stock) less than the current market price per share of the Preferred
Stock (as defined in Section 11(d)) on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of shares of Preferred
Stock outstanding on such record date plus the number of shares of Preferred
Stock that the aggregate offering price of the total number of shares of
Preferred Stock and/or equivalent preferred stock so to be offered (and/or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of shares of Preferred Stock outstanding on such
record date plus the number of additional shares of Preferred Stock and/or
equivalent preferred stock to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible);
provided, however, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
Preferred Stock issuable upon exercise of one Right.  In case such subscription price may be paid
in consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board
of Directors of the Company, whose determination shall be described in a
written statement filed with the Rights Agent. 
Shares of Preferred Stock owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such
computation.  Such 

 

17

 

adjustment shall be made
successively whenever such a record date is fixed; and in the event that such
rights or warrants are not so issued, the Purchase Price shall be adjusted to
be the Purchase Price that would then be in effect if such record date had not
been fixed.

 

(c)           In case the Company shall
fix a record date for the making of a distribution to all holders of Preferred
Stock (including any such distribution made in connection with a consolidation
or merger in which the Company is the continuing corporation) of evidences of
indebtedness or assets (other than (i) a regular periodic cash dividend,
the record date for which occurs at a time when there is no Acquiring Person,
or (ii) a regular periodic cash dividend, the record date for which occurs
at a time when there is an Acquiring Person, at a rate not in excess of 125% of
the rate of the last cash dividend theretofore paid or (iii) a dividend
payable in Preferred Stock) or subscription rights or warrants (excluding those
referred to in Section 11(b)), the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the current market price per share of the Preferred Stock (as
defined in Section 11(d)) on such record date, less the fair market value
(as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a written statement filed with the Rights
Agent) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one share
of Preferred Stock and the denominator of which shall be such current market
price per share of the Preferred Stock; provided, however, that in no event
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of Preferred Stock issuable upon exercise
of one Right.  Such adjustments shall be
made successively whenever such a record date is fixed; and in the event that
such distribution is not so made, the Purchase Price shall again be adjusted to
be the Purchase Price that would then be in effect if such record date had not
been fixed.

 

(d)           (i)            For the purpose of any
computation hereunder, the “current market price per share” of any
security (a “Security”) on any date shall be deemed to be the average of
the daily closing prices per share of such Security for the 30 consecutive
Trading Days (as such term is hereinafter defined) immediately prior to but not
including such date; provided, however, that in the event that the current
market price per share of the Security is determined during the period following
the announcement by the issuer of such Security of (A) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into shares of such Security, or (B) any subdivision,
combination or reclassification of such Security, and prior to but not
including the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the current market price per
share shall be appropriately adjusted to take into account ex-dividend
trading.  The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and ask prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low ask prices in the over-the-counter market, as reported by NASDAQ or
such 

 

18

 

other system then in use,
or, if on any such date the Security is not quoted by such organization, the
average of the closing bid and ask prices as furnished by a professional market
maker making a market in the Security selected by the Board of Directors of the
Company.  The term “Trading Day”
shall mean a day on which the principal national securities exchange on which
the Security is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.

 

(ii)           For the purpose of any
computation hereunder, the “current market price per share” of Preferred
Stock shall be determined in the same manner as set forth above for Common
Stock in Section 11(d)(i).  If the
Preferred Stock is not publicly traded or if the current market price per share
of Preferred Stock cannot be determined in the manner provided above, the “current
market price per share” of Preferred Stock shall be conclusively deemed to
be the current market price per share of Common Stock (appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof), multiplied by one thousand.  If neither the Common Stock nor the Preferred
Stock is publicly held or so listed or traded, the “current market price per
share” of Preferred Stock shall mean the fair value per share as determined
in good faith by the Board of Directors of the Company, whose determination
shall be described in a written statement filed with the Rights Agent.

 

(e)           No adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least 1% in the Purchase Price; provided, however,
that any adjustments that by reason of this Section 11(e) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment.  All calculations
under this Section 11 shall be made to the nearest cent or to the nearest
ten-thousandth of a share of Common Stock or other share (other than Preferred
Stock) or ten-millionth of a share of Preferred Stock, as the case may be.  Notwithstanding the first sentence of this Section 11(e),
any adjustment required by this Section 11 shall be made no later than the
earlier of (A) three years from the date of the transaction that mandates
such adjustment or (B) the date of the expiration of the right to exercise
any Rights.

 

(f)            If as a result of an
adjustment made pursuant to Section 11(a), the holder of any Right
thereafter exercised shall become entitled to receive any shares of capital
stock of the Company or of any Principal Party other than shares of the
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the shares contained in Section 11(a), Section 11(b), Section 11(c),
Section 11(e), Section 11(h), Section 11(i) and Section 11(m),
and the provisions of Section 7, Section 9, Section 10, Section 13
and Section 14 with respect to the shares of the Preferred Stock shall
apply on like terms to any such other shares.

 

(g)           All Rights originally issued
by the Company subsequent to any adjustment made to the Purchase Price
hereunder shall evidence the right to purchase, at the adjusted Purchase Price,
the number of one one-thousandths of a share of the Preferred Stock purchasable
from time to time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.

 

19

 

(h)           Unless the Company shall
have exercised its election as provided in Section 11(i), upon each
adjustment of the Purchase Price as a result of the calculations made in Section 11(b) and
Section 11(c), each Right outstanding immediately prior to the making of
such adjustment shall thereafter evidence the right to purchase, at the
adjusted Purchase Price per one one-thousandth of a share of Preferred Stock,
that number of one one-thousandths of a share of Preferred Stock (calculated to
the nearest ten-millionth) obtained by (i) multiplying (x) the number
of one one-thousandths of a share of Preferred Stock covered by a Right
immediately prior to this adjustment by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.

 

(i)            The Company may elect on or
after the date of any adjustment of the Purchase Price to adjust the number of
Rights, in substitution for any adjustment in the number of one one-thousandths
of a share of the Preferred Stock purchasable upon the exercise of a
Right.  Each of the Rights outstanding
after such adjustment of the number of Rights shall be exercisable for the
number of one one-thousandths of a share of Preferred Stock for which a Right
was exercisable immediately prior to such adjustment.  Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest ten-millionth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after the adjustment of the Purchase
Price.  The Company shall make a public
announcement of its election to adjust the number of Rights (with prompt
written notice thereof to the Rights Agent), indicating the record date for the
adjustment to be made and, if known at the time, the amount of the adjustment
to be made.  This record date may be the
date on which the Purchase Price is adjusted or any day thereafter, but, if the
Right Certificates have been issued, shall be at least ten days later than the
date of the public announcement.  If
Right Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this Section 11(i), the Company shall, as promptly as
practicable, cause to be distributed to holders of record of Right Certificates
on such record date Right Certificates evidencing, subject to Section 14,
the additional Rights to which such holders shall be entitled as a result of
such adjustment, or, at the option of the Company, shall cause to be
distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment.  Right Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public announcement.

 

(j)            Irrespective of any
adjustment or change in the Purchase Price or the number of one one-thousandths
of a share of the Preferred Stock issuable upon the exercise of the Rights, the
Right Certificates theretofore and thereafter issued may continue to express
the Purchase Price per one one-thousandth of a share of Preferred Stock and the
number of one one-thousandths of a share that were expressed in the initial
Right Certificates issued hereunder.

 

(k)           Before taking any action
that would cause an adjustment reducing the Purchase Price below one one-thousandth
of the then par value, if any, of the shares of the Preferred Stock issuable
upon exercise of the Rights, the Company shall take any corporate action that
may, in 

 

20

 

the opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully paid
and nonassessable shares of such Preferred Stock at such adjusted Purchase
Price.

 

(l)            In any case in which this Section 11
shall require that an adjustment in the Purchase Price be made effective as of
a record date for a specified event, the Company may elect (with prompt written
notice of such election to the Rights Agent) to defer until the occurrence of
such event the issuing to the holder of any Right exercised after such record
date the shares of Preferred Stock and other capital stock or securities of the
Company, if any, issuable upon such exercise over and above the shares of the
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder’s
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.

 

(m)          Anything in this Section 11
to the contrary notwithstanding, the Company shall be entitled to make such
reductions in the Purchase Price, in addition to those adjustments expressly
required by this Section 11, as and to the extent that it, in its sole
discretion, shall determine to be advisable in order that any consolidation or
subdivision of the Preferred Stock, issuance wholly for cash of any shares of
the Preferred Stock at less than the current market price, issuance wholly for
cash of any shares of the Preferred Stock or securities that by their terms are
convertible into or exchangeable for Preferred Stock, dividends on the
Preferred Stock payable in Preferred Stock or issuance of rights, options or
warrants referred to hereinabove in this Section 11, hereafter made by the
Company to holders of its Preferred Stock shall not be taxable to such
stockholders.

 

(n)           In the event that at any
time after the date of this Agreement and prior to the Distribution Date, the
Company shall (i) declare or pay any dividend on the Common Stock payable
in Common Stock or (ii) effect a subdivision, combination or consolidation
of the Common Stock (by reclassification or otherwise than by payment of
dividends in Common Stock) into a greater or lesser number of shares of Common
Stock, then in any such case (A) the number of one one-thousandths of a
share of Preferred Stock purchasable after such event upon proper exercise of
each Right shall be determined by multiplying the number of one one-
thousandths of a share of Preferred Stock so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately before such event and the denominator of
which is the number of shares of Common Stock outstanding immediately after
such event, and (B) each share of Common Stock outstanding immediately
after such event shall have issued with respect to it that number of Rights
that each share of Common Stock outstanding immediately prior to such event had
issued with respect to it.  The
adjustments provided for in this Section 11(n) shall be made
successively whenever such a dividend is declared or paid or such a
subdivision, combination or consolidation is effected.  If an event occurs that would require an
adjustment under Section 11(a)(ii) and this Section 11(n), the
adjustments provided for in this Section 11(n) shall be in addition
and prior to any adjustment required pursuant to Section 11(a)(ii) .

 

(o)           The Company agrees that,
after the Shares Acquisition Date, it will not, except as permitted by Section 23,
Section 24 or Section 27, take (or permit any subsidiary to take) any

 

21

 

action if, at the time such
action is taken, it is reasonably foreseeable that such action will diminish
substantially or eliminate the benefits intended to be afforded by the Rights.

 

Section 12.            Certificate of Adjusted Purchase Price or
Number of Shares.  Whenever an adjustment is made as provided in
Section 11 and Section 13, the Company shall (a) promptly
prepare a certificate setting forth such adjustment and a brief written
statement of the facts accounting for such adjustment, (b) promptly file
with the Rights Agent and with each transfer agent for the Common Stock and the
Preferred Stock a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25.  The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment or statement contained
therein and shall have no duty or liability with respect to and shall not be
deemed to have knowledge of such adjustment or event unless and until it shall
have received such certificate.

 

Section 13.            Consolidation, Merger or Sale or Transfer
of Assets or Earning Power.

 

(a)           In the event that, following
the time at which any Person becomes an Acquiring Person, (i) the Company
shall consolidate with, or merge with and into, any other Person, (ii) any
Person shall consolidate with or merge with and into the Company and the
Company shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Stock shall be changed
into or exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property, or (iii) the Company shall sell or
otherwise transfer (or one or more of its subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating
more than 50% of the assets or earning power of the Company and its
subsidiaries (taken as a whole) to any other Person (other than the Company or
one or more of its wholly-owned subsidiaries), then, and in each such case,
proper provision shall be made so that (A) each holder of a Right (except
as otherwise provided herein) shall thereafter have the right to receive, upon
the exercise thereof at the Purchase Price in effect immediately prior to such
Person becoming an Acquiring Person multiplied by the number of one
one-thousandths of a share of Preferred Stock for which a Right is then
exercisable, in accordance with the terms of this Agreement and in lieu of
shares of Preferred Stock, such number of shares of validly issued, fully paid,
non-assessable and freely tradable Senior Voting Stock (as hereinafter defined)
of the Principal Party (as hereinafter defined) (including the Company as
successor thereto or as the surviving corporation), unencumbered and not subject
to any liens, encumbrances, rights of call or first refusal or other adverse
claims, as shall be equal to the result obtained by (1) multiplying such
Purchase Price by the then number of one one-thousandths of share of Preferred
Stock for which a Right is then exercisable and dividing that product by (2) 50%
of the current market price per share of the Senior Voting Stock of such
Principal Party (determined in the manner described in Section 11(d)) on
the date of consummation of such consolidation, merger, sale or transfer; (B) the
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such consolidation, merger, sale or transfer, all the obligations and duties of
the Company pursuant to this Agreement; (C) the term “Company” shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 shall apply to such Principal
Party following the occurrence of such consolidation, merger, sale or transfer;
and (D) such Principal Party shall take such steps (including, but not
limited to, the reservation of a sufficient number of shares of its Senior
Voting Stock in accordance with Section 9, with each reference to
Preferred Stock in 

 

22

 

Section 9 being deemed
to be a reference to the shares of its Senior Voting Stock) in connection with
such consummation as may be necessary to assure that the provisions hereof
shall thereafter be applicable, as nearly as reasonably may be, in relation to
the shares of its Senior Voting Stock thereafter deliverable upon the exercise
of the Rights.

 

(b)           “Principal Party”
shall mean (i) in the case of any transaction described in Section 13(a)(i) or
Section 13(a)(ii), the Person that is the issuer of any securities into
which shares of Common Stock are converted in such merger or consolidation, and
if no securities are so issued, the Person that is the other party to the
merger or consolidation; and (ii) in the case of any transaction described
in Section 13(a)(iii), the Person that is the other party to such
transaction or, if more than one, the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction; provided, however, that in any such case, if the Senior Voting
Stock of such Person is not at such time and has not been continuously over the
preceding 12-month period registered under Section 12 of the Exchange Act,
then (A) if such Person is a direct or indirect subsidiary of another Person
the Senior Voting Stock of which is and has been so registered, the term “Principal
Party” shall refer to such other Person; or (B) if such Person is a
subsidiary, directly or indirectly, of more than one Person and the Senior
Voting Stock of any two or more of such Persons is and has been so registered,
the term “Principal Party” shall refer to whichever of such Persons is
the issuer of the Senior Voting Stock having the greatest aggregate market
value of shares outstanding; or (C) if such Person is owned, directly or
indirectly, by a joint venture formed by two or more Persons that are not
owned, directly or indirectly, by the same Person, the rules set forth in
clauses (A) and (B) above shall apply to each of the owners having an
interest in such joint venture as if such joint venture were a subsidiary of
both or all of such joint venturers and the Principal Party in each such chain
shall bear the obligations set forth in this Section 13 in the same ratio
as their direct or indirect interests in such joint venture bear to the total
of such interests.  “Senior Voting
Stock” shall mean the capital stock (or equity interest) of the Principal
Party with the greatest voting power.

 

(c)           The Company shall not
consummate any such consolidation, merger, sale or transfer unless prior
thereto the Company and such Principal Party or Parties shall have executed and
delivered to the Rights Agent a supplemental agreement providing for the terms
set forth in Section 13(a) and Section 13(b) and further
providing that, as soon as practicable after the date of any consolidation,
merger or sale or transfer of assets mentioned in Section 13(a), the
Principal Party or Parties will (i) prepare and file a registration
statement under the Securities Act with respect to the Rights and the
securities purchasable upon exercise of the Rights on an appropriate form, will
use its best efforts (A) to cause such registration statement to become
effective as soon as practicable after such filing, (B) to cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the date of expiration of
the Rights, and (C) to similarly comply with applicable state securities
laws, and use its best efforts to list (or continue the listing of) the Rights
and the securities purchasable upon exercise of the Rights on a national
securities exchange; and (ii) will deliver to holders of the Rights
historical financial statements for the Principal Party or Parties and each of
its Affiliates that comply in all respects with the requirements for
registration on Form 10 (or any successor form) under the Exchange Act.

 

(d)           If the Principal Party has a
provision in any of its authorized securities or in its certificate of
incorporation or by-laws or other instrument governing its affairs, which
provision 

 

23

 

would have the effect of (i) causing
such Principal Party to issue (other than to holders of Rights pursuant to this
Section 13), in connection with, or as a consequence of, the consummation
of a transaction referred to in this Section 13, shares of Senior Voting
Stock or Senior Voting Stock equivalents of such Principal Party at less than
the then-current market price per share thereof (determined pursuant to Section 11(d))
or securities exercisable for, or convertible into, Senior Voting Stock or
Senior Voting Stock equivalents of such Principal Party at less than such
then-current market price or (ii) providing for any special payment, tax
or similar provision in connection with the issuance of the Senior Voting Stock
of such Principal Party pursuant to the provisions of this Section 13,
then, in such event, the Company hereby covenants and agrees with each holder
of Rights that it shall not consummate any such transaction unless prior
thereto the Company and such Principal Party shall have executed and delivered
to the Rights Agent a supplemental agreement providing that the provision in
question of such Principal Party shall have been canceled, waived or amended,
or that the authorized securities shall be redeemed, so that the applicable
provision will have no effect in connection with, or as a consequence of, the
consummation of the proposed transaction.

 

(e)           The Company covenants and agrees
that it shall not, at any time after a Person first becomes an Acquiring
Person, enter into any transaction of the kind referred to in this Section 13
if (x) at the time of such transaction there are any rights, warrants,
instruments or securities outstanding or any agreements or arrangements that,
as a result of the consummation of such transaction, would eliminate or
substantially diminish the benefits intended to be afforded by the Rights, (y) prior
to, simultaneously with or immediately after such transaction, the stockholders
of the Person who constitutes, or would constitute, the Principal Party for
purposes of Section 13(b) shall have received a distribution of
Rights previously owned by such Person or any of its Affiliates or Associates
or (z) the form or nature of organization of the Principal Party would
preclude or limit the exercisability of the Rights.  The provisions of this Section 13 shall
similarly apply to successive mergers or consolidations or sales or other
transfers.

 

Section 14.            Fractional Rights and Fractional Shares.

 

(a)           The Company shall not be
required to issue fractions of Rights or to distribute Right Certificates that
evidence fractional Rights.  In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Right Certificates, with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right.  For the purposes
of this Section 14(a), the current market value of a whole Right shall be
the closing price of the Rights for the Trading Day immediately prior to the
date on which such fractional Rights would have been otherwise issuable.  The closing price for any day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and ask prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading or,
if the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low ask prices in the over-the-counter market, as reported by NASDAQ or
such 

 

24

 

other system then in use or,
if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and ask prices as furnished by a professional market
maker making a market in the Rights, selected by the Board of Directors of the
Company.  If on any such date, no such
market maker is making a market in the Rights, the fair market value of the
Rights on such date as determined in good faith by the Board of Directors of
the Company shall be used.

 

(b)           The Company shall not be
required to issue fractions of shares of Preferred Stock (other than fractions
that are integral multiples of one one-thousandth of a share of Preferred
Stock) upon exercise or exchange of the Rights or to distribute certificates
that evidence fractional shares of Preferred Stock (other than fractions that
are integral multiples of one one-thousandth of a share of Preferred Stock).  Fractions of shares of Preferred Stock in
integral multiples of one one-thousandth of a share of Preferred Stock may, at
the election of the Company, be evidenced by depositary receipts, pursuant to
an appropriate agreement between the Company and a depositary selected by it,
provided that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they
are entitled as beneficial owners of shares of Preferred Stock.  In lieu of fractional shares that are not
integral multiples of one one-thousandth of a share of Preferred Stock, the
Company shall pay to the registered holders of Right Certificates with regard
to which such fractional shares would otherwise be issuable an amount in cash
equal to the same fraction of the current market value of a whole share of
Preferred Stock.  For purposes of this Section 14(b),
the current market value of a whole share of Preferred Stock shall be the
closing price of a share of Preferred Stock (as determined pursuant to the
second sentence of Section 11(d)(i)) for the Trading Day immediately prior
to the date of such exercise or exchange).

 

(c)           The Company shall not be
required to issue fractions of shares of Common Stock upon exercise or exchange
of the Rights or to distribute certificates that evidence fractional shares of
Common Stock.  In lieu of such fractional
shares, the Company shall pay to the registered holders of Right Certificates
with regard to which such fractional shares would otherwise be issuable an amount
in cash equal to the same fraction of the current market value of a whole share
of Common Stock.  For purposes of this Section 14(c),
the current market value of a whole share of Common Stock shall be the closing
price of a share of Common Stock (as determined pursuant to the second sentence
of Section 11(d)(i)) for the Trading Day immediately prior to the date of
such exercise or exchange).

 

(d)           The holder of a Right by the
acceptance of the Right expressly waives such holder’s right to receive any fractional
Rights or any fractional shares upon exercise of a Right (except as above
provided).

 

Section 15.            Rights of Action. 
All rights of action in respect of this Agreement (other than those
granted to the Rights Agent herein) are vested in the respective registered
holders of the Right Certificates (and, prior to the Distribution Date, the
registered holders of the Common Stock); and any registered holder of any Right
Certificate (or, prior to the Distribution Date, of the Common Stock), without
the consent of the Rights Agent or of the holder of any other Right Certificate
(or, prior to the Distribution Date, of the Common Stock), may, in such holder’s
own behalf and for such holder’s own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce this
Agreement, or otherwise act in respect of 

 

25

 

such holder’s right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement.  Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.

 

Notwithstanding anything in
this Agreement to the contrary, neither the Company nor the Rights Agent shall
have any liability to any holder of a Right or other Person as a result of the
Company’s or the Rights Agent’s inability to perform any of their respective
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, judgment, decree or ruling (whether interlocutory or
final) issued by a court or by a governmental, regulatory, self-regulatory or
administrative agency or commission, or any statute, rule, regulation or executive
order promulgated or enacted by any governmental authority, prohibiting or
otherwise restraining performance of such obligation.

 

Section 16.            Agreement of Right Holders. 
Every holder of a Right, by accepting the same, consents and agrees with
the Company and the Rights Agent and with every other holder of a Right that:

 

(a)           prior to the Distribution
Date, the Rights will be transferable only in connection with the transfer of
the Common Stock;

 

(b)           after the Distribution Date,
the Right Certificates are transferable only on the registry books of the
Rights Agent if surrendered at the office of the Rights Agent designated for
such purposes, duly endorsed or accompanied by a proper instrument of transfer;
and

 

(c)           the Company and the Rights
Agent may deem and treat the Person in whose name the Right Certificate (or,
prior to the Distribution Date, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Right
Certificates or the associated Common Stock certificates made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent shall be affected by any notice to the
contrary.

 

Section 17.            Right Certificate Holder Not Deemed a
Stockholder.  No holder, as such, of any Right Certificate
shall be entitled to vote, receive dividends or be deemed for any purpose the
holder of the Preferred Stock or any other securities of the Company that may
at any time be issuable on the exercise of the Rights represented thereby, nor
shall anything contained herein or in any Right Certificate be construed to
confer upon the holder of any Right Certificate, as such, any of the rights of
a stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings
or other actions affecting stockholders (except as provided in Section 23,
Section 24 or Section 25 ), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by such Right
Certificate shall have been exercised in accordance with the provisions hereof.

 

26

 

Section 18.            Concerning the Rights Agent. 
The Company agrees to pay to the Rights Agent reasonable compensation
for all services rendered by it hereunder and, from time to time, on demand of
the Rights Agent, its reasonable expenses and counsel fees and other
disbursements incurred in the preparation, delivery, amendment, administration
and execution of this Agreement and the exercise and performance of its duties
hereunder.  The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or
expense (including, without limitation, the reasonable fees and expenses of
legal counsel), incurred without gross negligence, bad faith or willful misconduct
on the part of the Rights Agent, for any action taken, suffered or omitted by
the Rights Agent in connection with the acceptance, administration, exercise
and performance of its duties under this Agreement.  The costs and expenses of defending against any
claim of liability in the premises and the enforcement of this indemnification
shall be paid by the Company.  This
indemnification and Section 20 below shall survive the termination of this
Agreement, the exercise of or expiration of the Rights and the resignation,
replacement or removal of the Rights Agent.

 

The Rights Agent shall be
authorized and protected and shall incur no liability for or in respect of any
action taken, suffered or omitted by it in connection with its acceptance and
administration of this Agreement and the exercise and performance of its duties
hereunder, in reliance upon any Right Certificate or certificate for the
Preferred Stock or for other securities of the Company, instrument of
assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement or other paper or document
believed by it to be genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper person or persons or otherwise upon the
advice of counsel as set forth in Section 20.

 

Section 19.            Merger or Consolidation or Change of Name
of Rights Agent.  Any Person into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any Person resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any Person succeeding to the
appropriate business of the Rights Agent or any successor Rights Agent shall be
the successor to the Rights Agent under this Agreement without the execution or
filing of any paper or any further act on the part of any of the parties
hereto, provided that such Person would be eligible for appointment as a
successor Rights Agent under the provisions of Section 21.  In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such
successor Rights Agent may adopt the countersignature of the predecessor Rights
Agent and deliver such Right Certificates so countersigned; and in case at that
time any of the Right Certificates shall not have been countersigned, any
successor Rights Agent may countersign such Right Certificates either in the name
of the predecessor Rights Agent or in the name of the successor Rights Agent;
and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.

 

In case at any time the name
of the Rights Agent shall be changed and at such time any of the Right
Certificates shall have been countersigned but not delivered, the Rights Agent
may adopt the countersignature under its prior name and deliver Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, the Rights Agent may
countersign such Right Certificates either in its prior name or in its changed 

 

27

 

name;
and in all such cases such Right Certificates shall have the full force
provided in the Right Certificates and in this Agreement.

 

Section 20.            Duties of Rights Agent. 
The Rights Agent undertakes the duties and obligations expressly imposed
by this Agreement upon the following terms and conditions, by all of which the
Company and the holders of Right Certificates, by their acceptance thereof,
shall be bound:

 

(a)           The Rights Agent may consult
with legal counsel (who may be legal counsel for the Company), and the advice
or opinion of such counsel shall be full and complete authorization and
protection to the Rights Agent as to any action taken, suffered or omitted by
it in accordance with such advice or opinion.

 

(b)           Whenever in the performance
of its duties under this Agreement the Rights Agent shall deem it necessary or
desirable that any fact or matter be proved or established by the Company prior
to taking, suffering, omitting to take any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, the President, any
Vice President, the Treasurer or the Secretary of the Company and delivered to
the Rights Agent; and such certificate shall be full and complete authorization
and protection to the Rights Agent for any action taken, suffered or omitted by
it under the provisions of this Agreement in reliance upon such certificate.

 

(c)           The Rights Agent shall be liable
hereunder for only its own gross negligence, bad faith or willful
misconduct.  Anything to the contrary
notwithstanding, in no event shall the Rights Agent be liable for special,
punitive, indirect, consequential or incidental loss or damage of any kind
whatsoever (including but not limited to lost profits), even if the Rights
Agent has been advised of the likelihood of such loss or damage.  Any liability of the Rights Agent under this
Agreement will be limited to the aggregate amount of fees paid by the Company
to the Rights Agent.

 

(d)           The Rights Agent shall not
be liable for or by reason of any of the statements of fact or recitals
contained in this Agreement or in the Right Certificates (except its
countersignature thereof) or be required to verify the same, but all such
statements and recitals are and shall be deemed to have been made by the
Company only.

 

(e)           The Rights Agent shall not
be under any responsibility in respect of the validity of this Agreement or the
execution and delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the validity or execution of any Right Certificate
(except its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this Agreement
or in any Right Certificate; nor shall it be responsible for any change in the
exercisability of Rights (including any Rights becoming null and void pursuant
to Section 11(a)(ii) ) or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Section 3,
Section 11, Section 13, Section 23 or Section 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after actual notice that such change or adjustment is required);
nor shall it by any act hereunder be 

 

28

 

deemed to make any
representation or warranty as to the authorization or reservation of any shares
of the Preferred Stock to be issued pursuant to this Agreement or any Right
Certificate or as to whether any shares of the Preferred Stock will, when
issued, be validly authorized and issued, fully paid and nonassessable.

 

(f)            The Company agrees that it
will perform, execute, acknowledge and deliver or cause to be performed,
executed, acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the Rights Agent
for the carrying out or performing by the Rights Agent of the provisions of
this Agreement.

 

(g)           The Rights Agent is hereby
authorized and directed to accept instructions with respect to the performance
of its duties hereunder from the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President, the Secretary or the Treasurer of
the Company, and such instructions shall be full authorization and protection
to the Rights Agent and the Rights Agent shall not be liable for or in respect
of any action taken, suffered or omitted by it in accordance with instructions
of any such officer or for any delay in acting while waiting for those
instructions.  The Rights Agent shall be
fully authorized and protected in relying upon the instructions received by any
such officer.  Any application by the
Rights Agent for written instructions from the Company may, at the option of
the Rights Agent, set forth in writing any action proposed to be taken,
suffered or omitted by the Rights Agent under this Agreement and the date on
and/or after which such action shall be taken or suffered or such omission
shall be effective.  The Rights Agent
shall not be liable for any action taken or suffered by, or omission of, the
Rights Agent in accordance with a proposal included in any such application on
or after the date specified in such application (which date shall not be less
than five Business Days after the date any officer of the Company actually
receives such application, unless any such officer shall have consented in
writing to an earlier date) unless, prior to taking, suffering or omitting to
take  any such action (or the effective
date in the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken,
suffered or omitted.

 

(h)           The Rights Agent and any
stockholder, affiliate, director, officer or employee of the Rights Agent may
buy, sell or deal in any of the Rights or other securities of the Company or
become pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not Rights Agent under this Agreement.  Nothing herein shall preclude the Rights
Agent or any such stockholder, affiliate, director, officer or employee from
acting in any other capacity for the Company or for any other Person.

 

(i)            The Rights Agent may execute
and exercise any of the rights or powers hereby vested in it or perform any
duty hereunder either itself or by or through its attorneys or agents, and the
Rights Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss to the
Company or any other Person resulting from any such act, default, neglect or
misconduct, absent gross negligence, bad faith or willful misconduct in the
selection and continued employment thereof.

 

(j)            If, with respect to any
Right Certificate surrendered to the Rights Agent for exercise or transfer, the
certificate attached to the form of assignment or form of election to 

 

29

 

purchase, as the case may
be, has either not been completed or indicates that the Rights are beneficially
owned by an Acquiring Person or an Affiliate or Associate thereof, the Rights
Agent shall not take any further action with respect to such requested exercise
or transfer without first consulting with the Company.

 

(k)           The Rights Agent shall have
no responsibility to the Company, any holders of Rights or any holders of
shares of Preferred Stock or other securities for interest or earnings on any
monies held by the Rights Agent pursuant to this Agreement, except as otherwise
specifically agreed in a separate writing by the Company and the Rights Agent.

 

(l)            The Rights Agent shall not
be required to take notice or be deemed to have notice of any event or
condition hereunder, including, but not limited to, a Distribution Date, a
Redemption Date, any adjustment of the Purchase Price, the existence of an
Acquiring Person or any other event or condition that may require action by the
Rights Agent, unless the Rights Agent shall be specifically notified in writing
of such event or condition by the Company, and all notices or other instruments
required by this Agreement to be delivered to the Rights Agent must, in order
to be effective, be received by the Rights Agent as specified in Section 26,
and in the absence of such notice so delivered, the Rights Agent may
conclusively assume no such event or condition exists.

 

Section 21.            Change of Rights Agent. 
The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon 30 days’ notice in writing
mailed to the Company and to each transfer agent of the Common Stock and the
Preferred Stock by registered or certified mail, and to the holders of the
Right Certificates by first class mail. 
In the event the transfer agency relationship in effect between the
Company and the Rights Agent terminates, the Rights Agent will be deemed to
have resigned automatically and be discharged from its duties under this
Agreement as of the effective date of such termination, and the Company shall
be responsible for sending any required notice. 
The Company may remove the Rights Agent or any successor Rights Agent
upon 30 days’ notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Stock and
the Preferred Stock by registered or certified mail, and to the holders of the
Right Certificates by first class mail. 
If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights
Agent.  If the Company shall fail to make
such appointment within a period of 30 days after giving notice of such removal
or after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Rights Agent or by the holder of a Right
Certificate (who shall, with such notice, submit such holder’s Right
Certificate for inspection by the Company), then the registered holder of any
Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent.  Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a Person (or an Affiliate of such a Person) organized and doing
business under the laws of the United States or any state of the United States,
in good standing, that is authorized under such laws to exercise corporate
trust powers or stock transfer powers and is subject to supervision or
examination by federal or state authority and that has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $50
million.  After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall 

 

30

 

deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder,
and execute and deliver any further assurance, conveyance, act or deed
necessary for the purpose.  Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock or Preferred Stock, and mail a notice thereof in writing to
the registered holders of the Right Certificates.  Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Rights Agent or the
appointment of the successor Rights Agent, as the case may be.

 

Section 22.            Issuance of New Right Certificates. 
Notwithstanding any of the provisions of this Agreement or of the Rights
to the contrary, the Company, at its option, may issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind
or class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.  In addition, in connection with the issuance
or sale of Common Stock following the Distribution Date and prior to the
Expiration Date, the Company may, with respect to shares of Common Stock so
issued or sold pursuant to (a) the exercise of stock options, (b) under
any employee plan or arrangement, (c) the exercise, conversion or exchange
of securities, notes or debentures issued by the Company or (d) a
contractual obligation of the Company, in each case existing prior to the Distribution
Date, issue Right Certificates representing the appropriate number of Rights in
connection with such issuance or sale.

 

Section 23.            Redemption; Exception

 

(a)           The Board of Directors of
the Company may, at its option, at any time prior to 5:00 p.m., Houston,
Texas time, on the earlier of (i) the Shares Acquisition Date or (ii) the
Final Expiration Date, redeem all but not less than all of the then outstanding
Rights at a redemption price of $0.001 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such redemption price being hereinafter referred to as the “Redemption
Price”).  The redemption of the
Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors of the Company in its sole discretion may
establish.  The Company may, at its
option, pay the Redemption Price in cash, shares of Common Stock (based on the
current market price of the Common Stock at the time of redemption as
determined pursuant to Section 11(d)(i)) or any other form of
consideration deemed appropriate by the Board of Directors of the Company, or
any combination thereof.

 

(b)           If the Company receives a
Qualified Offer and the Board of Directors of the Company has not redeemed the
outstanding Rights or exempted such offer from the terms of this Agreement or
called a special meeting of stockholders for the purpose of voting on whether
or not to exempt such Qualified Offer from the terms of this Agreement, in each
case by the end of the ninety Business Days following the commencement of such
Qualified Offer, and if the Company receives, not earlier than ninety Business
Days nor later than 120 Business Days following the commencement of such
Qualified Offer, a written notice complying with the terms of this Section 23(b) (the
“Special Meeting Notice”), properly executed by the holders of record
(or their duly authorized proxy) of ten percent (10%) or more of the shares of
Common Stock 

 

31

 

then outstanding (excluding
shares of Common Stock beneficially owned by the Person making the Qualified
Offer and such Person’s Affiliates and Associates), requesting the Board of
Directors of the Company to submit to a vote of stockholders at a special
meeting of the stockholders of the Company (a “Special Meeting”) a
resolution exempting such Qualified Offer from the provisions of this Agreement
(the “Qualified Offer Resolution”), then the Board of Directors of the
Company may, in its discretion, take such actions as are necessary or desirable
to cause the Qualified Offer Resolution to be submitted to a vote of
stockholders within ninety Business Days following receipt by the Company of
the Special Meeting Notice (the “Special Meeting Period”); provided,
however, that if the Company, at any time during the Special Meeting Period and
prior to a vote on the Qualified Offer Resolution, enters into a Definitive
Acquisition Agreement, the Special Meeting Period may be extended (and any
Special Meeting called in connection therewith may be cancelled or delayed) if
the Qualified Offer Resolution will be separately submitted to a vote at the
same meeting as the Definitive Acquisition Agreement.  For purposes of a Special Meeting Notice, the
record date for determining eligible holders of record of the Common Stock
shall be set by the Company so that such record date is not more than sixty
days before the Special Meeting.  Any
Special Meeting Notice must be delivered to the Secretary of the Company at the
principal executive offices of the Company and must set forth, as to the
stockholders of record executing such Special Meeting Notice, (i) the name
and address of such stockholders, as they appear on the Company’s books and
records, (ii) the number of shares of Common Stock that are owned of
record by each of such stockholders and (iii) in the case of Common Stock
that is owned beneficially by another Person, an executed certification by the
holder of record that such holder has executed such Special Meeting Notice only
after obtaining instructions to do so from such beneficial owner.  Subject to the requirements of applicable
law, the Board of Directors of the Company may take a position in favor of or
opposed to the adoption of the Qualified Offer Resolution, or no position with
respect to the Qualified Offer Resolution, as it determines to be appropriate
in the exercise of its fiduciary duties. 
In the event that (A) no Person has become an Acquiring Person
prior to the effective date of the exemption referred to below in this
sentence, (B) the Qualified Offer continues to be a Qualified Offer prior
to the last day of the Special Meeting Period (the “Outside Meeting Date”)
and (C) either (1) the Special Meeting is not held on or prior to the
Outside Meeting Date or (2) at the Special Meeting at which a quorum is
present, the holders of a majority of the shares of Common Stock outstanding as
of the record date for the Special Meeting selected by the Board of Directors
of the Company (excluding shares of Common Stock beneficially owned by the
Person making the Qualified Offer and such Person’s Affiliates and Associates),
shall vote in favor of the Qualified Offer Resolution, then the Qualified Offer
shall be exempt from the application of this Agreement to such Qualified Offer
so long as it remains a Qualified Offer, such exemption to be effective, as the
case may be, (x) as of the close of business on the tenth Business Day
after the Outside Meeting Date if a Special Meeting is not held on or prior to
such date or (y) if a Special Meeting is held on or prior to the Outside
Meeting Date, as of the date on which the results of the vote adopting the
Qualified Offer Resolution at the Special Meeting are certified as official by
the appointed inspectors of election for the Special Meeting (the “Exemption
Date”).  Immediately upon the close
of business on the Exemption Date, without any further action and without any
notice, the right to exercise the Rights with respect to the Qualified Offer
will terminate.

 

(c)           Immediately upon the action
of the Board of Directors of the Company electing to redeem the Rights pursuant
to Section 23(a) (or, if the resolution of the Board of Directors 

 

32

 

electing to redeem the
Rights states that the redemption will not be effective until the occurrence of
a specified future time or event, upon the occurrence of such future time or
event), without any further action and without any notice, the right to
exercise the Rights will terminate and each Right will thereafter represent
only the right to receive the Redemption Price. 
The Company shall promptly give public notice of any such redemption
and, within ten days after such action causing a redemption of the Rights, the
Company shall mail a notice of redemption to all the holders of the then
outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Stock.  Any notice that is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice.  Each such notice of redemption will
state the method by which the payment of the Redemption Price will be made.  Notwithstanding the foregoing, the failure to
give, or any defect in, any notice required to be made or given pursuant to
this Section 23(c) shall not affect the validity of the redemption of
the Rights.

 

(d)           Neither the Company nor any
of its Affiliates or Associates may redeem, acquire or purchase for value any
Rights at any time in any manner other than that specifically set forth in this
Section 23 or in Section 24, and other than in connection with the
repurchase of Common Stock prior to the Distribution Date.

 

Section 24.            Exchange.

 

(a)           The Board of Directors of
the Company may, at its option, at any time after any Person becomes an
Acquiring Person, exchange all or part of the then outstanding and exercisable
Rights (which shall not include Rights that have become null and void pursuant
to the provisions of Section 11(a)(ii)) for shares of Common Stock at an
exchange ratio of one share of Common Stock per Right, appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date hereof (such exchange ratio being hereinafter referred to as the
“Exchange Ratio”). 
Notwithstanding the foregoing, the Board of Directors of the Company
shall not be empowered to effect such exchange at any time after any Acquiring
Person, together with all Affiliates and Associates of such Acquiring Person,
becomes the Beneficial Owner of 50% or more of the voting power of the shares
of Common Stock then outstanding.  From
and after the occurrence of an event specified in Section 13(a), any
Rights that theretofore have not been exchanged pursuant to this Section 24(a) shall
thereafter be only exercisable in accordance with Section 13 and may not
be exchanged pursuant to this Section 24(a).  The exchange of the Rights by the Board of
Directors of the Company may be made effective at such time, on such basis and
with such conditions as the Board of Directors of the Company in its sole
discretion may establish.

 

(b)           Immediately upon the
effectiveness of the action of the Board of Directors of the Company ordering
the exchange of any Rights pursuant to Section 24(a) and without any
further action and without any notice, the right to exercise such Rights shall
terminate and the only right thereafter of a holder of such Rights shall be to
receive that number of shares of Common Stock equal to the number of such
Rights held by such holder multiplied by the Exchange Ratio.  The Company shall promptly give public notice
of any such exchange; provided, however, that the failure to give, or any
defect in, such notice shall not affect the validity of such exchange.  The Company promptly shall mail a notice of
any such exchange by first class mail to all of the 

 

33

 

holders of such Rights at
their last addresses as they appear upon the registry books of the Rights
Agent.  Any notice that is mailed in the
manner herein provided shall be deemed given, whether or not the holder
receives the notice.  Each such notice of
exchange will state the method by which the exchange of Common Stock for Rights
will be effected and, in the event of any partial exchange, the number of
Rights that will be exchanged.  Any
partial exchange shall be effected pro rata based on the number of Rights
(other than Rights that have become null and void pursuant to the provisions of
Section 11(a)(ii) ) held by each holder of Rights.

 

(c)           The Company may, at its
option, substitute for a share of Common Stock issuable upon the exchange of
Rights in accordance with Section 24(a) a number of shares of
Preferred Stock or fraction thereof such that the current market price per
share of one share of Preferred Stock multiplied by such number or fraction is
equal to the current market price per share of one share of Common Stock.

 

Section 25.            Notice of Certain Events. 
In case the Company shall propose at any time following the Distribution
Date (a) to pay any dividend payable in stock of any class to the holders
of its Preferred Stock or to make any other distribution to the holders of its Preferred
Stock (other than a regular periodic cash dividend at a rate not in excess of
125% of the rate of the last cash dividend theretofore paid), (b) to offer
to the holders of its Preferred Stock rights or warrants to subscribe for or to
purchase any additional shares of the Preferred Stock or shares of stock of any
class or any other securities, rights or options, (c) to effect any
reclassification of its Preferred Stock (other than a reclassification
involving only the subdivision of outstanding Preferred Stock), (d) to
effect any consolidation or merger into or with, or to effect any sale or other
transfer (or to permit one or more of its subsidiaries to effect any sale or
other transfer), in one or more transactions, of more than 50% of the assets or
earning power of the Company and its subsidiaries (taken as a whole) to, any
other Person, (e) to effect the liquidation, dissolution or winding up of
the Company or (f) to declare or pay any dividend on the shares of Common
Stock payable in shares of Common Stock or to effect a subdivision, combination
or consolidation of the shares of Common Stock (by reclassification or
otherwise than by payment of dividends in shares of Common Stock), then, in
each such case, the Company shall give to each holder of a Right Certificate,
in accordance with Section 26, a notice of such proposed action, which
shall specify the record date for the purposes of such stock dividend,
distribution of rights or warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution, or winding up
is to take place and the date of participation therein by the holders of the
Common Stock and/or the Preferred Stock, if any such date is to be fixed, and
such notice shall be so given in the case of any action covered by clause (a) or
(b) above at least ten days prior to the record date for determining
holders of the Preferred Stock for purposes of such action, and in the case of
any such other action, at least ten days prior to the date of the taking of
such proposed action or the date of participation therein by the holders of the
Common Stock and/or the Preferred Stock, whichever shall be the earlier.  In case the event set forth in Section 11(a)(ii) shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Right, in accordance with Section 26, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii).

 

Section 26.            Notices.  Notices
or demands authorized by this Agreement to be given or made by the Rights Agent
or by the holder of any Right Certificate to or on the Company shall 

 

34

 

be sufficiently given
or made if sent by first class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:

 

Particle Drilling
Technologies, Inc.

5611 Baird Court

Houston, Texas  77041

Attention: Chief Financial
Officer

 

Subject to the provisions of
Section 21, any notice or demand authorized by this Agreement to be given
or made by the Company or by the holder of any Right Certificate to or on the
Rights Agent shall be sufficiently given or made if sent by first class mail,
postage prepaid, addressed (until another address is filed in writing with the
Company) as follows:

 

Computershare Trust Company,
N.A.

350 Indiana Street, Suite 800

Golden, Colorado  80401

Attention:  Client Services

 

Notices
or demands authorized by this Agreement to be given or made by the Company or
the Rights Agent to the holder of any Right Certificate shall be sufficiently
given or made if sent by first class mail, postage prepaid, addressed to such
holder at the address of such holder as shown on the registry books of the
Company.

 

Section 27.            Supplements and Amendments. 
Except as otherwise provided in this Section 27, for so long as the
Rights are then redeemable, the Company may from time to time in its sole and
absolute discretion, and the Rights Agent shall, if the Company so directs,
supplement or amend any provision of this Agreement in any respect without the
approval of any holders of the Rights. 
At any time when the Rights are no longer redeemable, except as otherwise
provided in this Section 27, the Company may, and the Rights Agent shall,
if the Company so directs, supplement or amend this Agreement without the
approval of any holders of Rights in order to (a) cure any ambiguity, (b) correct
or supplement any provision contained herein that may be defective or
inconsistent with any other provisions herein, (c) shorten or lengthen any
time period hereunder or (d) change or supplement the provisions hereunder
in any manner that the Company may deem necessary or desirable; provided,
however, that at any time when the Rights are no longer redeemable, this
Agreement shall not be supplemented or amended in any manner that would
adversely affect the interests of the holders of Right Certificates as such,
cause this Agreement to become amendable other than in accordance with this Section 27
or cause the Rights to again become redeemable. Upon the delivery of a
certificate from an appropriate officer of the Company that states that the
proposed supplement or amendment is in compliance with the terms of this Section 27,
the Rights Agent shall execute such supplement or amendment; provided that the
Rights Agent may, but shall not be obligated to, enter into any supplement or
amendment that affects the Rights Agent’s own rights, duties, obligations or
immunities under this Agreement.

 

Section 28.            Successors.  All the
covenants and provisions of this Agreement by or for the benefit of the Company
or the Rights Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.

 

35

 

Section 29.            Benefits of this Agreement. 
Nothing in this Agreement shall be construed to give to any Person other
than the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of
the Common Stock) any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of
the Company, the Rights Agent and the registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of
the Common Stock).

 

Section 30.            Determinations and Actions by the Board
of Directors of the Company.  The Board of Directors of the Company shall
have the exclusive power and authority to administer this Agreement and to
exercise the rights and powers specifically granted to the Board of Directors
of the Company or to the Company, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the right and
power to (a) interpret the provisions of this Agreement and (b) make
all determinations deemed necessary or advisable for the administration of this
Agreement (including, without limitation, a determination to redeem or not
redeem the Rights, to exchange or not exchange the Rights, or to amend this
Agreement).  All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (y) below, all omissions with respect to the foregoing) that are
done or made by the Board of Directors of the Company in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights, as such, and all other Persons and (y) not subject the Board
of Directors of the Company to any liability to the holders of the Rights or
any other Person.

 

Section 31.            Annual Review by Independent Directors. 
A committee of at least two or more Independent Directors (the “Committee”)
shall review and evaluate this Agreement at least annually in order to consider
whether the maintenance of this Agreement continues to be in the best interests
of the Company and the stockholders of the Company.  Following each such review, the Committee
shall communicate its conclusions to the full Board of Directors of the
Company, including any recommendation in light thereof as to whether this
Agreement should be modified or the Rights should be redeemed.  The Committee, when considering whether this
Agreement should be modified or the Rights should be redeemed, shall have the
power and authority (a) to set their own agenda, (b) to retain, at
the expense of the Company, its choice of legal counsel, investment bankers and
other advisors and (c) to review all information of the Company and to
consider any and all factors it deems relevant to an evaluation of whether this
Agreement should be modified or the Rights should be redeemed.

 

Section 32.            Severability. 
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid,
null and void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.

 

Section 33.            Governing Law. 
This Agreement and each Right Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of Nevada and for all
purposes shall be governed by and construed in accordance with the laws of such
state applicable to contracts to be made and performed entirely within such
state, except that the rights, duties, obligations and immunities of the Rights
Agent shall for all purposes be governed 

 

36

 

by and construed in
accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts to be made and performed entirely within such state.

 

Section 34.            Descriptive Headings; References. 
Descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof. 
Except as otherwise specifically provided, any reference to any section or
exhibit will be deemed to refer to such section of or exhibit to this
Agreement.

 

Section 35.            Counterparts. 
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.

 

Section 36.            Force Majeure. 
Notwithstanding anything to the contrary contained herein, the Rights
Agent shall not be liable for any delays or failures in performance resulting
from acts beyond its reasonable control including, without limitation, acts of
God, terrorist acts, shortage of supply, breakdowns or malfunctions,
interruptions or malfunction of computer facilities, or loss of data due to
power failures or mechanical difficulties with information storage or retrieval
systems, labor difficulties, war, or civil unrest.

 

{Remainder of Page Left Intentionally
Blank}

 

37

 

IN WITNESS WHEREOF, the
parties hereto have caused this Rights Agreement to be duly executed and their
respective seals to be hereunto affixed and attested, all as of the day and
year first above written.

 

	
  Attest:

  	
   

  	
  PARTICLE DRILLING

  TECHNOLOGIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
    /s/ Thomas E. Hardisty

  	
   

  	
  By:

  	
     /s/ J. Chris Boswell

  
	
   

  	
  Name: Thomas E. Hardisty

  	
   

  	
   

  	
     Name: J. Chris Boswell

  
	
   

  	
  Title: Senior Vice President

  	
   

  	
   

  	
     Title: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  COMPUTERSHARE TRUST

  COMPANY, N.A.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
     /s/ Kellie Gwinn

  
	
   

  	
   

  	
   

  	
     Name: Kellie Gwinn

  
	
   

  	
   

  	
   

  	
     Title: Vice President

  

 

38

 

Exhibit A

Form of Certificate of Designations for Series A Junior Participating
Preferred Stock

 

CERTIFICATE OF DESIGNATIONS

of

SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

of

PARTICLE DRILLING TECHNOLOGIES, INC.

 

Pursuant to Nevada Revised
Statute 78.1955

 

 

The undersigned, Thomas E.
Hardisty, DOES HEREBY CERTIFY that:

 

(A)          he is the duly elected
Secretary of Particle Drilling Technologies, Inc., a Nevada corporation
(the “Company”);

 

(B)           the Articles of
Incorporation of the Company authorize the Company to issue ten million
(10,000,000) shares of Preferred Stock, and authorizes the Board of Directors
of the Company to (1) provide for the issuance of the Preferred Stock from
time to time in one or more series, each of said series to be distinctly
designated and all shares of any one series to be alike in every particular and
(2) fix or alter the number of shares constituting each series and the
designation thereof, and the dividend rights, dividend rate, conversion rights,
voting rights, rights and terms of redemption (including sinking fund
provisions), the redemption price or prices and the liquidation preferences of
each such series; and

 

(C)           the Board of Directors
of the Company adopted the following resolution on May 23, 2008, at a
special meeting of the Board of Directors of the Company, and such resolution
has not been rescinded or amended and is in full force and effect as of the
date hereof:

 

RESOLVED, that pursuant to the authority
expressly granted to and vested in the Board of Directors (the “Board”)
of Particle Drilling Technologies, Inc., a Nevada corporation (the “Company”),
by the provisions of the Articles of Incorporation of the Company (as amended
from time to time, the “Articles of Incorporation”), there hereby is
created, out of the ten million (10,000,000) shares of Preferred Stock, $0.001
par value (the “Preferred Stock”), authorized in Article IV of the
Articles of Incorporation, a series of Preferred Stock of the Company
consisting of one hundred thousand (100,000) shares, having the following
designations, preferences, relative, participating, optional and other special
rights, voting powers, qualifications, limitations and restrictions:

 

SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

 

I.              Designation and
Amount.  The shares of such series
shall be designated as “Series A Junior Participating Preferred Stock”
(the “Series A Preferred Stock”) and the number of shares
constituting such series shall be one hundred thousand (100,000).  Such number of shares may be increased or
decreased by resolution of the Board of Directors, provided that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number
less than that of the shares 

 

A-1

 

then outstanding plus the
number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding
securities issued by the Company convertible into Series A Preferred
Stock.

 

II.            Dividends and
Distributions.

 

(A)          Subject to the prior and
superior rights of the holders of any shares of any series of Preferred Stock
ranking prior and superior to the shares of Series A Preferred Stock and
with respect to dividends, the holders of shares of Series A Preferred
Stock, in preference to the holders of Common Stock, par value $0.001 per share
(or as such par value may be changed from time to time), of the Company (the “Common
Stock”) and of any other junior stock, shall be entitled to receive, when,
as and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the last day of March,
June, September and December in each year (each such date being
referred to herein as a “Quarterly Dividend Payment Date”), commencing
on the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (i) $1.00 or (ii) subject
to the provision for adjustment hereinafter set forth, 1,000 times the
aggregate per share amount of all cash dividends, and 1,000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of Series A
Preferred Stock.  In the event the
Company shall at any time on or after the Distribution Date (as such term is
defined in the Rights Agreement dated as of May 23, 2008 between the
Company and Computershare Trust Company, N.A., as Rights Agent, as such
agreement may be amended from time to time) declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under clause (ii) of
the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.

 

(B)           The Company shall
declare a dividend or distribution on the Series A Preferred Stock as
provided in paragraph (A) of this Section immediately after it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1.00 per share on 

 

A-2

 

the Series A Preferred Stock shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.

 

(C)           Dividends shall begin
to accrue and be cumulative on outstanding shares of Series A Preferred
Stock from the Quarterly Dividend Payment Date next preceding the date of issue
of such shares of Series A Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall begin to accrue from
the date of issue of such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in either
of which events such dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. 
Accrued but unpaid dividends shall not bear interest.  Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such dividends at
the time accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding.  The Board of Directors may fix a record date
for the determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared thereon,
which record date shall be not more than 60 days prior to the date fixed for
the payment thereof.

 

III.           Voting Rights.  The holders of shares of Series A
Preferred Stock shall have the following voting rights:

 

(A)          Subject to the provision
for adjustment hereinafter set forth, each share of Series A Preferred
Stock shall entitle the holder thereof to 1,000 votes on all matters submitted
to a vote of the stockholders of the Company. 
In the event the Company shall at any time on or after the Distribution
Date declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the number of votes
per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

 

(B)           Except as otherwise
provided herein, in the Articles of Incorporation, in any other Certificate of
Designations creating a series of Preferred Stock, or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common
Stock and any other capital stock of the Company having general voting rights
shall vote together as one class on all matters submitted to a vote of
stockholders of the Company.

 

(C)           Except as set forth
herein, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent they are
entitled 

 

A-3

 

to vote with holders of Common Stock as set forth herein) for taking
any corporate action.

 

IV.           Certain Restrictions.

 

(A)          Whenever quarterly
dividends or other dividends or distributions payable on the Series A
Preferred Stock as provided in Section II are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Company shall not:

 

(i)            declare or pay
dividends on or make any other distributions on any shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock;

 

(ii)           declare or pay
dividends on or make any other distributions on any shares of stock ranking on
a parity (either as to dividends or upon liquidation, dissolution or winding
up) with the Series A Preferred Stock, except dividends paid ratably on
the Series A Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;

 

(iii)          redeem or purchase or
otherwise acquire for consideration shares of any stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock, provided that the Company may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for shares of any
stock of the Company ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred Stock;
or

 

(iv)          redeem or purchase or
otherwise acquire for consideration any shares of Series A Preferred
Stock, or any shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer made in writing or
by publication (as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and preferences of
the respective Series And classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or classes.

 

(B)           The Company shall not
permit any subsidiary of the Company to purchase or otherwise acquire for
consideration any shares of stock of the Company unless the Company could,
under paragraph (A) of this Section IV, purchase or otherwise acquire
such shares at such time and in such manner.

 

V.            Reacquired Shares.  Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall
be retired and cancelled promptly after the acquisition thereof.  All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock 

 

A-4

 

subject to the conditions and
restrictions on issuance set forth herein, in the Articles of Incorporation, or
in any other Certificate of Designations creating a series of Preferred Stock
or any similar stock or as otherwise required by law.

 

VI.           Liquidation,
Dissolution or Winding Up.  Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made:

 

(A)          to the holders of shares
of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall have
received $1,000.00 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, provided that the holders of shares of Series A Preferred
Stock shall be entitled to receive an aggregate amount per share, subject to
the provision for adjustment hereinafter set forth, equal to 1,000 times the
aggregate amount to be distributed per share to holders of Common Stock, or

 

(B)           to the holders of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except distributions made
ratably on the Series A Preferred Stock and all other such parity stock in
proportion to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution or winding up.

 

In the event
the Company shall at any time declare or pay any dividend on Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series A Preferred Stock
were entitled immediately prior to such event under the proviso in clause (A) of
the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.

 

VII.         Consolidation, Merger,
etc.  In case the Company shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or
exchanged.  In the event the Company
shall at any time declare or pay any dividend on Common Stock payable in shares
of Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth
in the preceding sentence with respect to the exchange or change of shares of Series A
Preferred Stock shall be adjusted by 

 

A-5

 

multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.

 

VIII.        No Redemption.  The shares of Series A Preferred Stock
shall not be redeemable.

 

IX.           Rank.  The Series A Preferred Stock shall rank,
with respect to the payment of dividends and the distribution of assets, junior
to all other series of the Preferred Stock, whether designated or issued before
or after the date of this Certificate of Designations, unless the terms of any
such series shall provide otherwise.

 

X.            Fractional Shares.  The Series A Preferred Stock may be
issued in fractions of a share that shall entitle the holder, in proportion to
such holder’s fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of
holders of the Series A Preferred Stock.

 

XI.           Amendment.  The Articles of Incorporation shall not be
amended in any manner that would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of two-thirds
of the outstanding shares of Series A Preferred Stock, voting together as
a single series.

 

{Remainder of Page Left
Intentionally Blank}

 

A-6

 

IN WITNESS
WHEREOF, Company has caused this Certificate of Designations of Series A
Junior Participating Preferred Stock of Particle Drilling Technologies, Inc.
to be signed by its Senior Vice President and Secretary on this 23rd
day of May, 2008.

 

	
  Attest:

  	
  PARTICLE DRILLING  

  
	
   

  	
  TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  	
  Name:

  
	
   

  	
  Title:

  	
   

  	
  Title:

  
						

 

A-7

 

Exhibit B

Form of Right Certificate

 

	
  Certificate
  No.  R-

  	
   

  	
  Rights

  

 

NOT
EXERCISABLE AFTER MAY 23, 2011 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS.  THE RIGHTS ARE SUBJECT, AT THE
OPTION OF THE COMPANY, TO REDEMPTION AT $0.001 PER RIGHT OR TO EXCHANGE, ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. 
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT,
RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS (AS DEFINED IN SECTION 1 OF
THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME
NULL AND VOID.

 

Right Certificate

PARTICLE DRILLING TECHNOLOGIES, INC.

 

This certifies
that or registered assigns, is the registered owner of the number of Rights set
forth above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement dated as of May 23, 2008
(the “Rights Agreement”) between Particle Drilling Technologies, Inc.,
a Nevada corporation (the “Company”), and Computershare Trust Company,
N.A., a federally chartered trust company (the “Rights Agent”), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to the close of business (as such
term is defined in the Rights Agreement) on May 23, 2011 at the office of
the Rights Agent, or its successors as Rights Agent, designated for such
purposes, one one-thousandth of one fully paid and non-assessable share of the Series A
Junior Participating Preferred Stock (the “Preferred Stock”) of the
Company, at a purchase price of $20.00 per one one-thousandth of one share (the
“Purchase Price”), upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase duly executed.  The number of Rights evidenced by this Right
Certificate (and the number of one one-thousandths of a share of Preferred
Stock that may be purchased upon exercise thereof) set forth above, and the
Purchase Price per share set forth above, are the number and Purchase Price as
of May 23, 2008, based on the shares of the Preferred Stock of the Company
as constituted at such date.

 

As provided in
the Rights Agreement, the Purchase Price, the number and kind or class of
shares of stock of the Company that may be purchased upon the exercise of the
Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.

 

This Right
Certificate is subject to all of the terms, provisions and conditions of the
Rights Agreement, which terms, provisions and conditions are hereby
incorporated herein by reference and made a part hereof and to which Rights
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates.  Copies of the Rights Agreement are on file at
the principal executive offices of the Company and the office of the Rights
Agent.

 

B-1

 

This Right
Certificate, with or without other Right Certificates, upon surrender at the
office of the Rights Agent designated for such purposes, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
shares of the Preferred Stock as the Rights evidenced by the Right Certificate
or Right Certificates surrendered shall have entitled such holder to purchase.

 

If this Right
Certificate shall be exercised in part, the holder shall be entitled to receive
upon surrender hereof another Right Certificate or Right Certificates for the
number of whole Rights not exercised.

 

Subject to the
provisions of the Rights Agreement, the Rights evidenced by this Certificate
may, but are not required to, be (i) redeemed by the Company at its option
at a redemption price of $0.001 per Right or (ii) exchanged by the Company
in whole or in part for shares of Preferred Stock or Common Stock, par value
$0.001 per share, of the Company.

 

No fractional
shares of the Preferred Stock will be issued upon the exercise of any Right or
Rights evidenced hereby (other than fractions that are integral multiples of
one one-thousandth of one share of Preferred Stock, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a
cash payment will be made as provided in the Rights Agreement.

 

No holder of
this Right Certificate shall be entitled to vote or receive dividends or be
deemed for any purpose the holder of the Preferred Stock or of any other
securities of the Company that may at any time be issuable on the exercise
hereof, nor shall anything contained in the Rights Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, or to receive notice of meetings
or other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.

 

This Right
Certificate shall not be valid or obligatory for any purpose until it shall
have been countersigned by the Rights Agent.

 

B-2

 

WITNESS the
facsimile signature of the proper officers of the Company and its corporate
seal.

 

Dated as of May 23,
2008.

 

	
  Attest:

  	
  PARTICLE DRILLING

  
	
   

  	
  TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
  Name:

  
	
   

  	
  Title:

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
  Countersigned:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  COMPUTERSHARE TRUST

  	
   

  	
   

  
	
  COMPANY, N.A.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
								

 

B-3

 

Exhibit C

PARTICLE DRILLING TECHNOLOGIES, INC.

SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK

 

On May 23,
2008, the Board of Directors of PARTICLE DRILLING TECHNOLOGIES, INC. (the “Company”)
declared a dividend distribution of one preferred stock purchase right (a “Right”)
for each outstanding share of common stock, $0.001 par value, of the Company
(the “Common Stock”).  The
distribution is payable on June 3, 2008 to the stockholders of record on
that date (the “Record Date”). 
Each Right entitles the registered holder to purchase from the Company
one one-thousandth of a share of the Company’s Series A Junior
Participating Preferred Stock (the “Preferred Stock”) at a price of
$20.00 per one one-thousandth of a share of Preferred Stock (the “Purchase
Price”), subject to adjustment.  The
description and terms of the Rights are set forth in a Rights Agreement dated May 23,
2008 (the “Rights Agreement”), between the Company and Computershare
Trust Company, N.A., as Rights Agent (the “Rights Agent”).

 

A copy of the
Rights Agreement has been filed with the Securities and Exchange Commission as
an Exhibit to a Registration Statement on Form 8-A dated May 23,
2008.  Copies of the Rights Agreement are
available free of charge from the Rights Agent, Computershare Trust Company,
N.A.  The following summary description
of the Rights does not purport to be complete and is qualified in its entirety
by reference to the Rights Agreement, which is hereby incorporated herein by
reference.

 

Until the
close of business on the Distribution Date, the Rights will be evidenced, with
respect to any of the Common Stock certificates outstanding as of the Record
Date, by such Common Stock certificate with a copy of this Summary of
Rights.  The “Distribution Date”
will be the earlier of (i) tenth day following a public announcement that
a person or group of affiliated or associated persons (an “Acquiring Person”)
has acquired beneficial ownership of 20% or more of the outstanding shares of
the Common Stock (the “Shares Acquisition Date”) and (ii) ten
business days after the date of commencement by any person or group of
affiliated or associated persons of a tender or exchange offer the result of
which would result in any person becoming an Acquiring Person.

 

The Rights
Agreement provides that, until the Distribution Date (or earlier redemption or
expiration of the Rights), the Rights will be transferable only in connection
with the transfer of the Common Stock. 
Until the Distribution Date (or earlier redemption or expiration of the
Rights), new Common Stock certificates issued after the Record Date, upon
transfer or new issuance of the Common Stock, will contain a notation
incorporating the Rights Agreement by reference.  Until the Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any of
the Common Stock certificates outstanding as of the Record Date, even without a
copy of this Summary of Rights, will also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate.  As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights (“Right
Certificates”) will be mailed to holders of record of the Common Stock as
of the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.

 

C-1

 

The Rights are
not exercisable until the Distribution Date. 
The Rights will expire on May 23, 2011 (the “Final Expiration
Date”) unless the Final Expiration Date is extended or unless earlier
redeemed or exchanged by the Company, in each case as described below.

 

Each share of
Preferred Stock purchasable upon exercise of the Rights will have a
preferential quarterly dividend rate equal to the greater of $1.00 per share or
1,000 times the dividend declared on one share of the Common Stock.  In the event of liquidation, the holders of
the Preferred Stock will receive a preferential liquidation payment of $1,000
per share, but will be entitled to receive an aggregate liquidation payment
equal to 1,000 times the payment made on one share of Common Stock.

 

Each share of
Preferred Stock will have 1,000 votes voting together with the Common
Stock.  Finally, in the event of any
merger, consolidation or other transaction in which shares of Common Stock are
exchanged, each share of Preferred Stock will be entitled to receive 1,000
times the amount received per one share of Common Stock.  The Rights are protected by customary
anti-dilution provisions.  Because of the
nature of the Preferred Stock dividend, liquidation and voting rights, the
value of the one one-thousandth interest in a share of Preferred Stock
purchasable upon exercise of each Right should approximate the value of one
share of Common Stock.

 

The Purchase
Price payable, and the number of shares of the Preferred Stock or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a
stock dividend on, or a subdivision, combination or reclassification of the
Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of
certain rights or warrants to subscribe for shares of the Preferred Stock or
convertible securities at less than the current market price of the Preferred
Stock or (iii) upon the distribution to holders of the Preferred Stock of
evidences of indebtedness or assets (excluding regular periodic cash dividends
out of earnings or retained earnings at a rate not in excess of 125% of the
rate of the last cash dividend theretofore paid or dividends payable in the
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).

 

The number of
outstanding Rights and the number of one one-thousandths of a share of
Preferred Stock issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock
dividend on the Common Stock payable in shares of Common Stock or subdivisions,
consolidations or combinations as of the Common Stock occurring, in any such
case, prior to the Distribution Date.

 

In the event
that the Company is acquired in a merger or other business combination
transaction or 50% or more of its assets or earning power are sold after a
person or group has become an Acquiring Person, proper provision will be made
so that each holder of a Right will thereafter have the right to receive, upon
the exercise thereof at the Purchase Price, that number of shares of the senior
voting stock of the acquiring company that at the time of such transaction
would have a market value of two times the Purchase Price.  In the event that any person or group of
affiliated or associated persons becomes an Acquiring Person, proper provision
will be made so that each holder of a Right, other than Rights that were or are
beneficially owned by the Acquiring Person (which will thereafter be void),
will thereafter have the right to receive upon 

 

C-2

 

exercise that number of shares of the Common Stock having a market
value of two times the Purchase Price.

 

With certain
exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in such Purchase
Price.  No fractional shares of Preferred
Stock will be issued (other than fractions that are integral multiples of one
one-thousandth of a share of Preferred Stock, which may, at the election of the
Company, be evidenced by depositary receipts) and, in lieu thereof, an adjustment
in cash will be made based on the market price of the Preferred Stock on the
last trading date prior to the date of exercise.

 

At any time
after any person or group becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the outstanding shares of
Common Stock, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group that will have become void) in
whole or in part, at an exchange ratio of one share of Common Stock (or, if
there is an insufficient number of issued but not outstanding or authorized but
unissued shares of Common Stock to permit such exchange, then one
one-thousandth of a Preferred Share) per Right (subject to adjustment).

 

At any time
prior to 5:00 p.m. Houston, Texas time on the earlier of (i) the
Shares Acquisition Date and (ii) the Final Expiration Date, the Board may
redeem the Rights in whole, but not in part, at a price of $0.001 per Right
(the “Redemption Price”). 
Immediately upon the action of the Board of Directors of the Company to
redeem or exchange the Rights, the Company shall make announcement thereof, and
upon such action, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price, or the
shares of Common Stock or Preferred Stock exchangeable for the Rights, as
applicable.

 

In addition,
if a Qualified Offer (as described below) is made and the Board of Directors of
the Company has not redeemed the outstanding Rights or exempted such offer from
the terms of the Rights Agreement or has not called a special meeting of
stockholders for the purpose of voting on whether or not to exempt such
Qualified Offer from the terms of the Rights Agreement, in each case after
ninety days from the commencement of the Qualified Offer, the record holders of
10% of the outstanding shares of Common Stock may request the Board of
Directors of the Company to submit to a vote of stockholders at a special
meeting of the stockholders of the Company (a “Special Meeting”) a
resolution exempting such Qualified Offer from the provisions of the Rights
Agreement (the “Qualified Offer Resolution”).  If a Special Meeting is not held prior to the
ninetieth day after such request or, if at the Special Meeting the holders of a
majority of the shares of Common Stock outstanding (other than shares held by
the offeror and its affiliated and associated persons) vote in favor of the
Qualified Offer Resolution, then the Board of Directors of the Company will
exempt the Qualified Offer from the provisions of the Rights Agreement or take
such other action as may be necessary to prevent the Rights from interfering
with the consummation of the Qualified Offer.

 

A “Qualified Offer” is an offer
that is determined by a majority of independent directors of the Company to
have (among others) the following characteristics:

 

C-3

 

(i) a fully-financed,
all-cash tender offer, or an exchange offer offering shares of common stock of
the offeror, or a combination thereof, in each such case for all of the
outstanding shares of Common Stock at the same per-share consideration;

 

(ii) an offer that has
commenced within the meaning of Rule 14d-2(a) under the Exchange Act
and is made by an offeror (including Affiliates and/or Associates of such
offeror) that beneficially owns no more than 5% of the outstanding Common Stock
as of the date of such commencement;

 

(iii) an offer whose
per-share offer price is greater than the highest reported market price for the
Common Stock in the immediately preceding 24 months;

 

(iv) an offer with respect
to which a nationally recognized investment banking firm retained by the Board
of Directors of the Company does not render an opinion to the Board of
Directors of the Company that the consideration being offered is either unfair
or inadequate;

 

(v) an offer that is not
subject to any financing, funding or similar conditions or any requirements
with respect to the offeror or its agents being permitted any due diligence on
the Company;

 

(vi) if the offer includes
common stock of the offeror, the offeror must allow the Company’s investment
bank, legal counsel and accountants to perform appropriate due diligence on the
offeror;

 

(vii) an offer pursuant to
which the Company has received an irrevocable written commitment of the offeror
that the offer will remain open for at least 120 business days and, if a
Special Meeting Notice is given, for at least ten business days after the
special stockholders meeting or, if no meeting is held within ninety business
days following the Special Meeting Notice, for at least ten business days
following such ninety business day period;

 

(viii) an offer pursuant
to which the Company has received an irrevocable written commitment by the
offeror that the offer, if it is otherwise to expire prior thereto, will be
extended for at least 20 business days after any increase in the consideration
offered or after any bona fide alternative offer is commenced;

 

(ix) an offer that is conditioned
on a minimum of at least two-thirds of the outstanding shares of Common Stock
not held by the person or entity making such offer (and its affiliates and
associates) being tendered and not withdrawn as of the offer’s expiration date,
which condition shall not be waivable;

 

(x) an offer pursuant to
which the Company has received an irrevocable written commitment of the offeror
to consummate, as promptly as practicable upon successful completion of the
offer, a second step transaction whereby all shares of Common Stock not
tendered into the offer will be acquired at the same consideration per share
actually paid pursuant to the offer, subject to any stockholders’ statutory
appraisal rights;

 

C-4

 

(xi) an offer pursuant to
which the Company and its stockholders have received an irrevocable written
commitment of the offeror that no amendments will be made to the offer to
reduce the consideration being offered or to otherwise change the terms of the
offer in a way that is adverse to a tendering stockholder;

 

(xii) an offer (other than
an offer consisting solely of cash consideration) pursuant to which the Company
has received the written representation and certification of the offeror and
its Chief Executive Officer and Chief Financial Officer that all material facts
about the offeror have been fully and accurately disclosed and all new facts
will be fully and accurately disclosed on a prompt basis while the offer
remains open, and all required Exchange Act reports will be filed by the
offeror in a timely manner during such period; and

 

(xiii) if the offer
includes non-cash consideration, (A) the non-cash portion of the
consideration offered must consist solely of common stock of a Person that is a
publicly-owned United States corporation, (B) such common stock must be
freely tradable and listed or admitted to trading on either the New York Stock
Exchange or NASDAQ, (C) no stockholder approval of the issuer of such
common stock is required to issue such common stock, or, if such approval
required, such approval has already been obtained, (D) no person or entity
(including its affiliates and associates) beneficially owns more than 20% of
the voting stock of the issuer of such common stock at the commencement of the
offer or at any time during the offer, (E) no other class of voting stock
of the issuer of such common stock is outstanding and (F) the issuer of
such common stock meets the registrant eligibility requirements for use of Form S-3
for registering securities under the Securities Act.

 

Until a Right
is exercised, the holder thereof, as such, will have no rights as a stockholder
of the Company, including, without limitation, the right to vote or to receive
dividends.

 

A committee of
at least two independent directors of the Company will review and evaluate the
Rights Agreement at least annually in order to consider whether the maintenance
of the Rights Agreement continues to be in the best interests of the Company
and its stockholders.  Following each
such review, the committee shall communicate its conclusions to the full Board
of Directors, including any recommendation in light thereof as to whether the
Rights Agreement should be modified or the Rights should be redeemed.

 

C-5

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