Document:

EXHIBIT 10.2

 

PARTICLE DRILLING TECHNOLOGIES, INC.

 

REGISTRATION RIGHTS AGREEMENT

 

This
REGISTRATION RIGHTS AGREEMENT (this “AGREEMENT”) is made as of February 9,
2005 by and among PARTICLE DRILLING TECHNOLOGIES, INC., a Nevada
corporation (formerly known as MedXLink Corp.) (the “COMPANY”), and each
investor listed on Schedule I hereto (each such investor,
individually, an “INVESTOR” and, collectively, the “INVESTORS”).

 

WHEREAS, the Company has
agreed to issue and sell to the Investors, and the Investors have agreed to
purchase from the Company, an aggregate of up to 9,000,000 shares (the “SHARES”)
of the Company’s common stock, $0.001 par value per share (including any
securities into which or for which such shares may be exchanged for, or
converted into, pursuant to any stock dividend, stock split, stock combination,
recapitalization, reclassification, reorganization or other similar event, the “COMMON
STOCK”), at a per share price and upon the terms and conditions set forth
in the Securities Purchase Agreement, dated as of the date hereof, between the
Company and the Investors (the “SECURITIES PURCHASE AGREEMENT”); and

 

WHEREAS, the terms of the
Securities Purchase Agreement provide that it shall be a condition precedent to
the closing of the transactions thereunder, for the Company and the Investors
to execute and deliver this Agreement.

 

NOW, THEREFORE, in
consideration of the premises and mutual covenants contained herein, the
parties hereto hereby agree as follows:

 

1.                                       DEFINITIONS.  The following terms shall have the meanings
provided therefor below or elsewhere in this Agreement as described below:

 

“AFFILIATE” means any Person
that, directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, a Person, as such terms are
used and construed under Rule 144, and in all cases including, without
limitation, any Person that serves as a general partner and/or investment
adviser or in a similar capacity of a Person.

 

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

 

“BUSINESS DAY” means any day
except Saturday, Sunday and any day which shall be a federal legal holiday or a
day on which banking institutions in the State of New York or the State of
Texas are authorized or required by law or other governmental action to close.

 

“CLOSING DATE” has the
meaning set forth in the Securities Purchase Agreement.

 

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

 

“PERSON” (whether or not
capitalized) means an individual, partnership, limited liability company,
corporation, association, trust, joint venture, unincorporated organization,
and any government, governmental department or agency or political subdivision
thereof.

 

“PROSPECTUS” means the
prospectus included in any Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from
a prospectus filed

 

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as
part of an effective Registration Statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Shares covered by such Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference in such Prospectus.

 

“REGISTRABLE SHARES” means,
at the relevant time of reference thereto, the Shares and the Warrant
Shares  (including any shares of capital
stock that may be issued in respect thereof pursuant to a stock split, stock
dividend, recombination, reclassification or the like), PROVIDED, HOWEVER, that
the term “Registrable Shares” shall not include any of the Shares or Warrant
Shares that are actually sold pursuant to a registration statement that has
been declared effective under the Securities Act by the SEC or that may be sold
pursuant to Rule 144(k) under the Securities Act.

 

“REGISTRATION STATEMENT”
means the Mandatory Registration Statement and any additional registration
statements contemplated by this Agreement, including (in each case) the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto,
and all material incorporated by reference in such registration statement or
Prospectus.

 

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

 

“SEC” means the Securities
and Exchange Commission.

 

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

 

“WARRANTS” means the warrants
to purchase Common Stock, dated as of the date hereof, issued by the Company to
the Investors pursuant to the Securities Purchase Agreement, a form of which is
attached thereto as Exhibit A.

 

“WARRANT SHARES” means the
shares of Common Stock issued or issuable upon the exercise of the Warrants.

 

2.                                       MANDATORY
REGISTRATION STATEMENT.

 

(a)                                  As promptly as
possible after the Closing Date, and in any event prior to the date that is
sixty (60) days following the Closing Date (the “MANDATORY FILING DATE”),
the Company shall prepare and file with the SEC a Registration Statement on
Form S-1, Form SB-2 or, if eligible, on Form S-3 for the purpose of registering
under the Securities Act all of the Registrable Shares for resale by, and for
the account of, each Investor as an initial selling stockholder thereunder (the
“MANDATORY REGISTRATION STATEMENT”), which the Investors acknowledge may
also register 3,381,538 shares of Common Stock issuable upon conversion of the
outstanding shares of Series A Convertible Preferred Stock previously issued by
the Company’s subsidiary, Particle Drilling Technologies, Inc., a Delaware
corporation.  The Mandatory Registration
Statement shall permit the Investors to offer and sell, on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act, any or all of the
Registrable Shares.  The Company agrees
to use its commercially reasonable efforts to cause the Mandatory Registration
Statement to be declared effective as soon as possible but in no event later
than the date that is one hundred eighty (180) days following the Closing Date
(the “MANDATORY EFFECTIVE DATE”) (including filing with the SEC, within
three (3) Business Days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the SEC that the Mandatory Registration
Statement will not

 

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be “reviewed” or will not be subject to further review, a request for
acceleration of effectiveness in accordance with Rule 461 promulgated under the
Securities Act (an “ACCELERATION REQUEST”), which request shall request
an effective date that is within three (3) Business Days of the date of such
request); provided that the Company agrees to use its commercially reasonable
efforts to cause the Mandatory Registration Statement to be declared effective
no later than the date that is seventy five (75) days after the Closing Date in
the event the Mandatory Registration Statement will not be “reviewed”.  The Company shall notify each Investor in
writing promptly (and in any event within one (1) Business Day) after the
Company’s submission of an Acceleration Request to the SEC.  The Company shall be required to keep the
Mandatory Registration Statement continuously effective (including through the filing of any required
post-effective amendments) until the earliest to occur of (i) the date after
which all of the Registrable Shares registered thereunder shall have been sold,
(ii) the second (2nd) anniversary of the effective date of the Mandatory
Registration Statement and (iii) the
date on which the Investor may sell all Registrable Shares then held by the
Investor without restriction under Rule 144(k) of the Securities Act; provided,
that in any case such date shall be extended by the amount of time of any
Suspension Period (as defined below) (the “EFFECTIVENESS PERIOD”).  Thereafter, the Company shall be entitled to
withdraw the Mandatory Registration Statement and, upon such withdrawal, the
Investors shall have no further right to offer or sell any of the Registrable
Shares pursuant to the Mandatory Registration Statement (or any prospectus
relating thereto).

 

(b)                                 Notwithstanding
anything in this Section 2 to the contrary, if the Company shall furnish
to the Investors a certificate signed by the President or Chief Executive
Officer of the Company stating that the Board has made the good faith
determination upon the advice of counsel (i) that the continued use by the
Investors of a Registration Statement for purposes of effecting offers or sales
of Registrable Shares pursuant thereto would require, under the Securities Act
and the rules and regulations promulgated thereunder, premature disclosure in a
Registration Statement (or the Prospectus relating thereto) of material,
nonpublic information concerning the Company, its business or prospects or any
proposed material transaction involving the Company, (ii) that such premature
disclosure would be materially adverse to the Company, its business or
prospects or any such proposed material transaction and (iii) that it is
therefore necessary to suspend the use by the Investors of, or the filing of, a
Registration Statement (and the Prospectus relating thereto), then the right of
the Investors to use a Registration Statement (and the Prospectus relating
thereto) for purposes of effecting offers or sales of Registrable Shares
pursuant thereto or the filing of any Registration Statement shall be suspended
for a period (the “SUSPENSION PERIOD”) not greater than forty-five (45)
consecutive Business Days and not more than ninety (90) Business Days during
any consecutive twelve (12) month period. 
During the Suspension Period, the Investors shall not offer or sell any
Registrable Shares pursuant to or in reliance upon a Registration Statement (or
the Prospectus relating thereto).  The
Company agrees that, as promptly as possible, but in no event later than one
(1) Business Day, after the consummation, abandonment or public disclosure of
the event or transaction that caused the Company to suspend the use of or delay
the filing of a Registration Statement (and the Prospectus relating thereto)
pursuant to this Section 2(b), the Company will as promptly as possible
lift any suspension, provide the Investors with revised Prospectuses, if
required, and will notify the Investors of their ability to effect offers or
sales of Registrable Shares pursuant to or in reliance upon the Registration
Statement.

 

(c)                                  It shall be a
condition precedent to the obligations of the Company to register Registrable
Shares for the account of an Investor pursuant to this Section 2, Section 2A
or Section 3 that such Investor furnish to the Company such information
regarding itself, the Registrable Shares held by it, and the method of
disposition of such securities as shall be reasonably required to effect the
registration of such Investor’s Registrable Shares.

 

(d)                                 Notwithstanding
anything in this Agreement to the contrary, the Investors’ sole remedy at law
(but without limiting the availability of equitable remedies) for the failure
of the Company

 

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to file the Mandatory Registration Statement as promptly as possible
after the date hereof, and in any event on or prior to the Mandatory Filing
Date, or for the failure of the Company to make effective the Mandatory
Registration Statement on or prior to the Mandatory Effective Date, shall be
the vesting of the Warrants as provided for therein.

 

2A.                             MANDATORY
REGISTRATION RIGHTS.

 

If,
at any time during the Effectiveness Period, (i) any Registrable Shares are not
able to be resold pursuant to an effective Registration Statement and (ii) the
Company shall receive from any one or more Investors (including for this
purpose its or their Affiliates) who holds (or who together hold) at least
twenty-five percent (25%) of the then outstanding Registrable Shares a written
request or requests (a “DEMAND NOTICE”) that the Company effect a registration
(a “DEMAND REGISTRATION “), with respect to all or a part of the Registrable
Shares owned by such Investor(s), then the Company will promptly (and in any
event within three (3) Business Days) give written notice of the proposed
registration and the Investor’s or Investors’ request therefor to all other
Investors, and use commercially reasonable efforts to effect such registration,
as soon as practicable and in any event within thirty (30) days, of all or such
portion of such Investors’ Registrable Shares as are specified in such request,
together with all or such portion of the Registrable Shares of any other
Investor or Investors joining in such request as are specified in a written
request given by such other Investor or Investors within ten (10) Business Days
after receipt of such written notice from the Company; provided, however, that
the Company may temporarily suspend the use of such registration statement for
the same reasons and on the same terms as described in Section 2(b) above.
The Company shall not be required to effect more than three (3) registrations
pursuant to this Section 2A(a) during any consecutive twelve (12) month
period.

 

3.                                       “PIGGYBACK
REGISTRATION”.

 

(a)                                  If at any time
during the Effectiveness Period any Registrable Shares are not able to be
resold pursuant to an effective Registration Statement, and the Company
proposes to register any of its Common Stock under the Securities Act, whether
as a result of an offering for its own account or the account of others (but
excluding any registrations to be effected on Forms S-4 or S-8 or other
applicable successor Forms), on a Registration Statement that is to be filed
prior to the expiration of the Effectiveness Period, the Company shall, each
such time, give to the Investors twenty (20) days’ prior written notice of its
intent to do so, and such notice shall describe the proposed registration and
shall offer such Investors the opportunity to include in such Registration
Statement such number of Registrable Shares as each such Investor may
request.  Upon the written request of any
Investor given to the Company within fifteen (15) days after the receipt of any
such notice by the Company, the Company shall include in such Registration
Statement all or part of the Registrable Shares of such Investor, to the extent
requested to be registered, subject to Section 3(b).

 

(b)                                 If a
registration pursuant to Section 3 hereof involves an underwritten
offering and the managing underwriter shall advise the Company in writing that,
in its opinion, the number of shares of Common Stock requested by the Investors
to be included in such registration is likely to affect materially and
adversely the success of the offering or the price that would be received for
any shares of Common Stock offered in such offering, then, notwithstanding
anything in this Section 3 to the contrary, the Company shall only be
required to include in such registration, to the extent of the number of shares
of Common Stock which the Company is so advised can be sold in such offering,
(i) first, the number of shares of Common Stock requested to be included in
such registration for the account of any stockholder that has registration
rights pursuant to the Registration Rights Agreement between Particle Drilling
Technologies, Inc., a Delaware corporation, and the stockholders listed on Schedule II
hereto (the “PREVIOUS REGISTRATION RIGHTS AGREEMENT”), (ii) second, the
number of shares of Common Stock requested to be included in such registration
for the account of the Investors, pro rata

 

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among the Investors on the basis of the number of shares of Common
Stock (including Warrant Shares) that each of them has requested to be included
in such registration, (iii) third, the number of shares of Common Stock
requested to be included in such registration for the account of any other
stockholders of the Company, pro rata among such stockholders on the basis of
the number of shares of Common Stock that each of them has requested to be
included in such registration and (iv) fourth, any shares of Common Stock
proposed to be included in such registration for the account of the Company.

 

(c)                                  In connection
with any offering involving an underwriting of shares, the Company shall not be
required under this Section 3 or otherwise to include the Registrable
Shares of any Investor therein unless such Investor accepts and agrees to the
terms of the underwriting, which shall be reasonable and customary, as agreed
upon between the Company and the underwriters selected by the Company (which
underwriters shall be reasonably acceptable to holders of a majority of the
then outstanding Registrable Shares).

 

4.                                       OBLIGATIONS OF
THE COMPANY.  In connection with the
Company’s registration obligations hereunder, the Company shall:

 

(a)                                  as
expeditiously as practicable (i) furnish to each Investor copies of all
documents filed with the SEC in connection with such registration at least two
business days prior to their being filed with the SEC (and provide the
Investors with a reasonable opportunity to review and comment on such
documents), (ii) use its best efforts to cause its officers and directors,
counsel and certified public accountants to respond to such inquiries as shall
be necessary, in the reasonable opinion of such Investor, to conduct a
reasonable investigation within the meaning of the Securities Act, and (iii)
notify the Investors of any stop order issued or threatened by the SEC and use
best efforts to prevent the entry of such stop order or to remove it if
entered.

 

(b)                                 as
expeditiously as practicable (i) prepare and file with the SEC such amendments
and supplements, including post-effective amendments, to each Registration
Statement and the Prospectus used in connection therewith as may be necessary
to comply with the Securities Act and to keep the Registration Statement
continuously effective as required herein, and prepare and file with the SEC
such additional Registration Statements or amendments or supplements, including
post-effective amendments, as necessary to register for resale under the
Securities Act all of the Registrable Shares (including naming any permitted
transferees of Registrable Shares as selling stockholders in such Registration
Statement); (ii) cause any related Prospectus to be amended or supplemented by
any required Prospectus supplement, and as so supplemented or amended to be
filed pursuant to Rule 424; (iii) respond as promptly as possible to any
comments received from the SEC with respect to each Registration Statement or
any amendment thereto, or any document filed with the SEC that would suspend
the effectiveness of the Registration Statement, and, if requested by an
Investor, as promptly as reasonably possible provide such Investor with true
and complete copies of all correspondence from and to the SEC relating to the
Registration Statement (other than those portions of any correspondence
containing material nonpublic information); and (iv) comply with the provisions
of the Securities Act and the Exchange Act with respect to the disposition of
all Registrable Shares covered by such Registration Statement as so amended or
in such Prospectus as so supplemented.

 

(c)                                  Notify the
Investors and Investors’ counsel as promptly as reasonably possible:

 

(i)                                 when
the SEC notifies the Company whether there will be a “review” of a Registration
Statement and whenever the SEC comments in writing on such Registration
Statement; and

 

(ii)                              when
a Registration Statement, or any post-effective amendment or supplement
thereto, has become effective, and after the effectiveness thereof: (A) of any
request by the

 

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SEC or any other federal or state governmental authority for amendments
or supplements to the Registration Statement or Prospectus or for additional
information; (B) of the issuance by the SEC or any state securities commission
of any stop order suspending the effectiveness of the Registration Statement
covering any or all of the Registrable Shares or the initiation of any
proceedings for that purpose; and (C) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Shares for sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose.  Without limitation of any
remedies to which the Investors may be entitled under this Agreement, the
Warrants or otherwise, if any of the events described in Section 4(c)(ii)(A),
4(c)(ii)(B), and 4(c)(ii)(C) occur, the Company shall use its best efforts to
respond to and correct the event.

 

(d)                                 Immediately
notify the Investors and their counsel of the happening of any event as a
result of which the Prospectus included in or relating to a Registration
Statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein not misleading or the occurrence of
any facts or events arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set forth in
the Registration Statement; and, thereafter, the Company will as promptly as
possible prepare (and, when completed, promptly give written notice to each
Investor) a supplement or amendment to such Prospectus so that, as thereafter
delivered to the purchasers of such Registrable Shares, such Prospectus will
not contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading; provided that upon
receipt of such notification from the Company, the Investors will not offer or
sell Registrable Shares pursuant to such Prospectus until the Company has
notified the Investors that it has prepared a supplement or amendment to such
Prospectus and delivered copies of such supplement or amendment to the
Investors (it being understood and agreed by the Company that the foregoing
proviso shall in no way diminish or otherwise impair the Company’s obligation
to as promptly as possible prepare a Prospectus amendment or supplement as
above provided in this Section 4(d) and deliver copies of same as provided
in Section 4(h) hereof), and it being further understood that, in the case
of the Mandatory Registration Statement, any such period during which the
Investors are restricted from offering or selling Registrable Shares shall
constitute a Suspension Period.

 

(e)                                  Upon the
occurrence of any event described in Section 4(d) hereof, as promptly as
possible, prepare a supplement or amendment, including a post-effective
amendment, to the Registration Statement or a supplement to the related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference, and file any other required document so that, as thereafter
delivered, neither the Registration Statement nor such Prospectus will contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading.

 

(f)                                    Use its best
efforts to avoid the issuance of or, if issued, obtain the withdrawal of, (i)
any order suspending the effectiveness of any Registration Statement or (ii)
any suspension of the qualification (or exemption from qualification) of any of
the Registrable Shares for sale in any jurisdiction, as promptly as possible
(it being understood that, in the case of the Mandatory Registration Statement,
any period during which the effectiveness of the Mandatory Registration
Statement or the qualification of any Registrable Shares is suspended shall
constitute a Suspension Period).

 

(g)                                 Furnish to the
Investors and their counsel, without charge, at least one conformed copy of
each Registration Statement and each amendment thereto, and all exhibits to the
extent requested by such Investor or their counsel (including those previously
furnished or incorporated by reference) as promptly as possible after the
filing of such documents with the SEC.

 

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(h)                                 As promptly as
possible furnish to each selling Investor, without charge, such number of
copies of a Prospectus, including a preliminary Prospectus, in conformity with
the requirements of the Securities Act, and such other documents (including,
without limitation, Prospectus amendments and supplements) as each such selling
Investor may reasonably request in order to facilitate the disposition of the
Registrable Shares covered by such Prospectus and any amendment or supplement
thereto.  The Company hereby consents to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling Investors in connection with the offering and sale of the
Registrable Shares covered by such Prospectus and any amendment or supplement
thereto to the extent permitted by federal and state securities laws and
regulations.

 

(i)                                     Use its best
efforts to register and qualify (or obtain an exemption from such registration
and qualification) the Registrable Shares under such other securities or blue
sky laws of the states of residence of each Investor and such other U.S.
jurisdictions as each Investor shall reasonably request, to keep such
registration or qualification (or exemption therefrom) effective during the
periods each Registration Statement is effective, and do any and all other acts
or things which may be reasonably necessary or advisable to enable each
Investor to consummate the public sale or other disposition of Registrable
Shares in such jurisdictions, provided that the Company shall not be required
in connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdictions where it is not then qualified or subject to process.

 

(j)                                     Cooperate with
the Investors to facilitate the timely preparation and delivery of certificates
representing the Registrable Shares to be delivered to a transferee pursuant to
a Registration Statement, which certificates shall be free, to the extent
permitted by the Securities Purchase Agreement and applicable law, of all
restrictive legends, and to enable such Registrable Shares to be in such
denominations and registered in such names as such Investors may request.

 

(k)                                  Cooperate with
any reasonable due diligence investigation undertaken by the Investors, any
managing underwriter participating in any disposition pursuant to a
Registration Statement, Investors’ counsel and any attorney, accountant or
other agent retained by Investors or any managing underwriter, in connection
with the sale of the Registrable Shares, including, without limitation, making
available any documents and information; provided, however, that the Company
will not deliver or make available to any Investor material, nonpublic
information unless such Investor specifically requests and consents in advance
in writing to receive such material, nonpublic information and, if requested by
the Company, such Investor agrees in writing to treat such information as
confidential.

 

(l)                                     At the request
of a permitted transferee of an Investor to include such transferee as a
selling stockholder, the Company shall amend any Registration Statement to
include such transferee as a selling stockholder in such Registration
Statement.

 

(m)                               Comply with all
applicable rules and regulations of the SEC in all material respects.

 

(n)                                 Make available for
inspection by each Investor, any underwriter participating in any disposition
pursuant to any registration hereunder, and any attorney, accountant or other
agent retained by such Investor or any such underwriter (collectively, the “INSPECTORS”),
all financial and other records, pertinent corporate documents and properties
of the Company and any of its subsidiaries (collectively, the “RECORDS”)
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the officers, directors and employees of the Company
to supply all information reasonably requested by any such Inspector in
connection with any registration hereunder, provided, however, that (i) in
connection with any such inspection, any such Inspectors shall cooperate to the
extent reasonably practicable to minimize any disruption to the operation by
the Company of its 

 

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business and shall comply with all Company site safety rules,
(ii) Records and information obtained hereunder shall be used by such
Inspectors only to exercise their due diligence responsibility and (iii)
Records or information furnished or made available hereunder shall be kept
confidential and shall not be disclosed by such Investor, underwriter or
Inspectors unless (A) the disclosing party advises the other party that
the disclosure of such Records or information is necessary to avoid or correct
a misstatement or omission in a Registration Statement or is otherwise required
by law, (B) the release of such Records or information is ordered pursuant
to a subpoena or other order from a court or governmental authority of
competent jurisdiction, or (C) such Records or information otherwise become
generally available to the public other than through disclosure by such
Investor, underwriter or Inspector in breach hereof or by any Person in breach
of any other confidentiality arrangement.

 

(o)                                 Use all reasonable
efforts to furnish to each Investor and to the managing underwriter, if any, a
signed counterpart, addressed to such Investor and the managing underwriter, if
any, of (i) an opinion or opinions of counsel to the Company and (ii) a comfort
letter or comfort letters from the Company’s independent public accountants
pursuant to Statement on Auditing Standards No. 72, each in customary form and
covering such matters of the type customarily covered by opinions or comfort
letters, as the case may be, as each such Investor and the managing
underwriter, if any, reasonably requests.

 

(p)                                 In connection with any
registration hereunder, provide officers’ certificates and other customary
closing documents.

 

(q)                                 Cooperate with each
seller of Registrable Shares, Investor and any underwriter in the disposition
of such Registrable Shares and cooperate with underwriters’ counsel, if any, in
connection with any filings required to be made with the National Association
of Securities Dealers, Inc.

 

(r)                                    With respect to an
underwritten offering of Registrable Shares, use its reasonable best efforts to
cause all such Registrable Shares to be listed on each securities exchange on
which similar securities issued by the Company are then listed.

 

5.                                       EXPENSES OF
REGISTRATION.  The Company shall pay for
all expenses incurred in connection with a registration pursuant to this
Agreement and compliance with Section 4 of this Agreement, including
without limitation (i) all registration, filing and qualification fees and
expenses (including without limitation those related to filings with the SEC or
any national securities exchange upon which the Company’s securities are listed
and in connection with applicable state securities or blue sky laws), (ii) all
printing expenses, (iii) all messenger, telephone and delivery expenses
incurred by the Company, (iv) all reasonable fees and disbursements of counsel
for the Company and one (1) Investors’ counsel, and (v) all reasonable fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement.

 

6.                                       DELAY OF
REGISTRATION.  Subject to Section 11(d)
hereof, the Investors and the Company (other than with respect to Section 4(d)
hereof) shall not take any action to restrain, enjoin or otherwise delay any
registration as the result of any controversy which might arise with respect to
the interpretation or implementation of this Agreement.

 

7.                                       INDEMNIFICATION.  In the event that any Registrable Shares of
the Investors are included in a Registration Statement pursuant to this
Agreement:

 

(a)                                  To the fullest
extent permitted by law, the Company will indemnify and hold harmless each
Investor and each officer, director, fiduciary, employee, member, agent,
investment advisor, (or other equity holder), general partner and limited
partner (and affiliates thereof) of such

 

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Investor, each broker, underwriter or other Person acting on behalf of
such Investor and each Person, if any, who controls such Investor within the
meaning of the Securities Act, against any expenses, losses, claims, damages,
actions or liabilities, joint or several (the “LOSSES”), to which they
may become subject under the Securities Act or otherwise, insofar as such
Losses (or actions in respect thereof) arise out of or relate to any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement, or arise out of or relate to the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or any violation by the Company of
the Securities Act or state securities or blue sky laws applicable to the
Company; and, subject to the provisions of Section 7(c) hereof, the
Company will reimburse on demand such Investor, such broker or other Person
acting on behalf of such Investor and such officer, director, fiduciary, agent,
investment advisor, employee, member (or other equity holder), general partner,
limited partner, affiliate or controlling Person for any legal or other
expenses reasonably incurred by any of them in connection with investigating or
defending any such Loss; provided, however, that the indemnity agreement
contained in this Section 7(a) shall not apply to amounts paid in
settlement of any such Losses if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable in any such case for any such Loss to the extent
that it solely arises out of or is based upon an untrue statement of any
material fact contained in the Registration Statement or omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, in reliance upon and in conformity with written
information furnished by such Investor expressly for use in connection with
such Registration Statement.

 

(b)                                 To the fullest
extent permitted by law, each Investor, severally (as to itself) and not
jointly, will indemnify and hold harmless the Company, each of its directors,
each of its officers who have signed the Registration Statement, each Person,
if any, who controls the Company within the meaning of the Securities Act, and
all other Investors against any Losses to which the Company or any such
director, officer or controlling Person or other Investor may become subject
to, under the Securities Act or otherwise, insofar as such Losses (or actions
in respect thereto) solely arise out of or are based upon any untrue statement
of any material fact contained in the Registration Statement, or solely arise
out of or relate to the omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
in each case to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement in reliance upon and in conformity with written information furnished
by such Investor expressly for use in connection with such Registration
Statement; and, subject to the provisions of Section 7(c) hereof, such
Investor will reimburse on demand any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling Person, or
other Investor in connection with investigating or defending any such Losses,
provided, however, that the maximum aggregate amount of liability of such
Investor under this Section 7 shall be limited to the proceeds (net of
underwriting discounts and commissions, if any) actually received by such
Investor from the sale of Registrable Shares covered by such Registration
Statement; and provided, further, however, that the indemnity agreement
contained in this Section 7(b) or 7(e) shall not apply to amounts paid in
settlement of any such Losses if such settlement is effected without the
consent of such Investor against which the request for indemnity is being made
(which consent shall not be unreasonably withheld).

 

(c)                                  As promptly as
possible after receipt by an indemnified party under this Section 7 of
notice of the threat, assertion or commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7, notify the indemnifying party in
writing of the commencement thereof and the indemnifying party shall have the
right to participate in and, to the extent the indemnifying party desires,
jointly with any other indemnifying party similarly noticed, to assume at its
expense the defense thereof with counsel mutually

 

9

 

satisfactory to the parties; provided, however, that, the failure to
notify an indemnifying party promptly of the threat, assertion or commencement
of any such action shall not relieve such indemnifying party of any liability
to the indemnified party under this Section 7 except (and only) to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have proximately and materially adversely prejudiced the
indemnifying party.

 

(d)                                 If any
indemnified party shall have reasonably concluded that there may be one or more
legal defenses available to such indemnified party which are different from or
additional to those available to the indemnifying party, or that such claim or
litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this Section 7, the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, and such indemnifying party shall
reimburse such indemnified party and any Person controlling such indemnified
party for the fees and expenses of counsel retained by the indemnified party
which are reasonably related to the matters covered by the indemnity agreement
provided in this Section 7.  Subject
to the foregoing, an indemnified party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof but the
fees and expenses of such counsel shall not be at the expense of the
Company.  The indemnifying party shall
not be liable for any settlement of any proceeding effected without its written
consent, which consent shall not be unreasonably withheld. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending proceeding in respect of which any indemnified
party is a party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding

 

(e)                                  If the
indemnification provided for in this Section 7 from the indemnifying party
is applicable by its terms but unavailable to an indemnified party hereunder in
respect of any Losses, then the indemnifying party, in lieu of indemnifying
such indemnified party, shall, subject to the maximum aggregate liability of
any Investor as set forth in Section 7(b), contribute to the amount paid or
payable by such indemnified party as a result of such Losses in such proportion
as is appropriate to reflect the relative fault of the indemnifying party and
indemnified party in connection with the actions which resulted in such Losses,
as well as any other relevant equitable considerations.  The relative faults of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action.  The amount paid or payable by a
party as a result of the Losses referred to above shall be deemed to include,
subject to the limitations set forth in Sections 7(a), 7(b), 7(c) and 7(d), any
legal or other fees, charges or expenses reasonably incurred by such party in
connection with any investigation or proceeding.

 

No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. 
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(e) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding
paragraph.

 

(f)                                    The indemnity
and contribution agreements contained in this Section 7 are in addition to
any liability that any indemnifying party may have to any indemnified party.

 

10

 

8.                                       REPORTS UNDER
THE EXCHANGE ACT.  With a view to making
available to the Investors the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit the Investors to sell the
Registrable Shares to the public without registration, the Company agrees to
use its best efforts to: (i) make and keep public information available, as
those terms are understood and defined in Rule 144, (ii) file with the SEC in a
timely manner all reports and other documents required to be filed by an issuer
of securities registered under the Securities Act or the Exchange Act; (iii) as
long as any Investor owns any Shares or Warrant Shares, to furnish in writing
upon an Investor’s request in writing to the Company a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and of
the Securities Act and the Exchange Act, and to furnish to such Investor a copy
of the most recent annual and quarterly reports of the Company, and such other
reports and documents so filed by the Company as may be reasonably requested in
writing to the Company by the Investor in availing such Investor of any rule or
regulation of the SEC permitting the selling of any such Shares and Warrant
Shares without registration, and (iv) undertake any additional actions
reasonably necessary to maintain the availability of a Registration Statement,
including any successor or substitute forms, or the use of Rule 144.

 

9.                                       TRANSFER OF
REGISTRATION RIGHTS.  Each Investor may
assign or transfer any or all of its rights under this Agreement to any Person
to the extent a transfer of the Shares, Warrant Shares or Warrant, as
applicable, is permitted under the Securities Purchase Agreement with respect
to the Shares, Warrant Shares or the Warrant, provided such assignee or
transferee agrees in writing to be bound by the provisions hereof that apply to
such assigning or transferring Investor. 
Upon any such, and each successive, assignment or transfer to any
permitted assignee or transferee in accordance with the terms of this Section 9,
such permitted assignee or transferee shall be deemed to be an “Investor” for
all purposes of this Agreement.

 

10.                                 ENTIRE
AGREEMENT.  This Agreement constitutes
and contains the entire agreement and understanding of the parties with respect
to the subject matter hereof, and it also supersedes any and all prior
negotiations, correspondence, agreements or understandings with respect to the
subject matter hereof.

 

11.                                 MISCELLANEOUS.

 

(a)                                  This Agreement,
and any right, term or provision contained herein, may not be amended, modified
or terminated, and no right, term or provision may be waived, except with the
written consent of (i) the holders of a majority of the then outstanding
Registrable Shares and (ii) the Company; provided that any amendment or
modification that is materially and disproportionately adverse to any
particular Investor (as compared to all Investors as a group) shall require the
consent of such Investor.

 

(b)                                 This Agreement
shall be governed by and construed and enforced in accordance with the laws of
the State of New York without regard to any conflicts of laws concepts which
would apply the substantive law of some other jurisdiction.  This Agreement shall be binding upon the
parties hereto and their respective heirs, personal representatives, successors
and permitted assigns and transferees, provided that the terms and conditions
of Section 9 hereof are satisfied. 
Notwithstanding anything in this Agreement to the contrary, if at any
time any Investor (including any successors or assigns) shall cease to own any
Registrable Shares, all of such Investor’s rights under this Agreement shall
immediately terminate.

 

(c)                                  Any notices,
reports or other correspondence (hereinafter collectively referred to as “correspondence”)
required or permitted to be given hereunder shall be sent by postage prepaid
first class mail, overnight courier or facsimile transmission, or delivered by
hand to the party to whom such

 

11

 

correspondence is required or permitted to be given hereunder. The date
of giving any notice shall be the date of its actual receipt.

 

All correspondence to the Company shall be
addressed as follows:

 

Particle Drilling Technologies, Inc.

808 Travis, Suite 850

Houston, Texas 77002

Attn: 
Chief Financial Officer

Facsimile: (713) 224-6361

 

with a copy to:

 

Vinson & Elkins LLP

First City Tower

1001 Fannin Street, Suite 2300

Houston, Texas 77002-676

Attn:  Keith Fullenweider

Facsimile:
(713) 758-2346

 

All correspondence to the Investors shall be
addressed pursuant to the contact information set forth on Schedule I attached hereto.

 

Any entity may change the address to which
correspondence to it is to be addressed by notification as provided for herein.

 

(d)                                 The parties
acknowledge and agree that in the event of any breach of this Agreement,
remedies at law will be inadequate, and each of the parties hereto shall be
entitled to specific performance of the obligations of the other parties hereto
and to such appropriate injunctive relief as may be granted by a court of
competent jurisdiction.  All remedies,
either under this Agreement or by law or otherwise afforded to any of the
parties, shall be cumulative and not alternative.

 

(e)                                  This Agreement
may be executed in a number of counterparts. 
All such counterparts together shall constitute one Agreement, and shall
be binding on all the parties hereto notwithstanding that all such parties have
not signed the same counterpart.  The
parties hereto confirm that any facsimile copy of another party’s executed
counterpart of this Agreement (or its signature page thereof) will be deemed to
be an executed original thereof.

 

(f)                                    Except as
contemplated in Section 7 hereof, this Agreement is intended solely for
the benefit of the parties hereto and is not intended to confer any benefits
upon, or create any rights in favor of, any Person (including, without
limitation, any stockholder or debt holder of the Company) other than the
parties hereto.

 

(g)                                 If any
provision of this Agreement is invalid, illegal or unenforceable, such
provision shall be ineffective to the extent, but only to the extent of, such
invalidity, illegality or unenforceability, without invalidating the remainder
of such provision or the remaining provisions of this Agreement, unless such a
construction would be unreasonable.

 

(h)                                 This Agreement
shall be binding upon, and inure to the benefit of, the parties hereto and
their permitted successors and assigns. 
The Company may not assign this Agreement or its

 

12

 

rights and obligations hereunder without the consent of holders of a
majority of the then outstanding Registrable Shares.

 

 

[Signature Pages Follow]

 

13

 

IN WITNESS WHEREOF, the
parties hereto have executed this Registration Rights Agreement as of the date
and year first above written.

 

 

	
   

  	
  PARTICLE DRILLING TECHNOLOGIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  J. Chris Boswell

  	
   

  
	
   

  	
  Name: J. Chris Boswell

  
	
   

  	
  Title: Senior Vice President and Chief Financial

  Officer

  

 

14

 

 

	
   

  	
  Investor

  
	
   

  	
   

  
	
   

  	
  NISKAYUNA
  DEVELOPMENT LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jared E. Abbruzzese, Sr.

  	
   

  
	
   

  	
  Name:

  	
  Jared E.
  Abbruzzese, Sr.

  
	
   

  	
  Title:

  	
  An
  Authorized Signatory

  
	
   

  	
   

  	
   

  

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  
	
   

  	
   

  
	
   

  	
  MILFAM I,
  L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lloyd I. Miller

  	
   

  
	
   

  	
  Name:

  	
  Lloyd I.
  Miller

  	
   

  
	
   

  	
  Title:

  	
  General
  Partner

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MILLENNIUM
  PARTNERS, L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  MILLENNIUM
  MANAGEMENT, L.L.C.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Terry Freeney

  	
   

  
	
   

  	
  Name:

  	
  Terry
  Freeney

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Operating Officere

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PHAETON
  INTERNATIONAL (BVI) LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joann McNiff

  	
   

  
	
   

  	
  Name:

  	
  Joann McNiff

  	
   

  
	
   

  	
  Title:

  	
  Authorized
  Agent

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PHOENIX
  PARTNERS, II, L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joann McNiff

  	
   

  
	
   

  	
  Name:

  	
  Joann McNiff

  	
   

  
	
   

  	
  Title:

  	
  Authorized
  Agent

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  PHOENIX PARTNERS,
  L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joann McNiff

  	
   

  
	
   

  	
  Name:

  	
  Joann McNiff

  	
   

  
	
   

  	
  Title:

  	
  Authorized
  Agent

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  THE IBS
  TURNAROUND FUND (QP), L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Taft

  	
   

  
	
   

  	
  Name:

  	
  David Taft

  	
   

  
	
   

  	
  Title:

  	
  President,
  IBS Capital Corp.,

  	
   

  
	
   

  	
   

  	
  it General
  Partner

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  THE IBS
  TURNAROUND FUND, L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Taft

  	
   

  
	
   

  	
  Name:

  	
  David Taft

  	
   

  
	
   

  	
  Title:

  	
  President,
  IBS Capital Corp.,

  	
   

  
	
   

  	
   

  	
  it General
  Partner

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  THE IBS
  OPPORTUNITY FUND LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David Taft

  	
   

  
	
   

  	
  Name:

  	
  David Taft

  	
   

  
	
   

  	
  Title:

  	
  Manager

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ORE HILL HUB
  FUND, LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  ORE HILL
  PARTNERS, LLC,

  	
   

  
	
   

  	
   

  	
  its
  Investment Advisor

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Frederick J. Wahl

  	
   

  
	
   

  	
  Name:

  	
  Frederick J.
  Wahl

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Member

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  GREYWOLF
  CAPITAL PARTNERS II LP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William Troy

  	
   

  
	
   

  	
  Name:

  	
  William Troy

  	
   

  
	
   

  	
  Title:

  	
  COO

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  GREYWOLF
  CAPITAL OVERSEAS FUND

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William Troy

  	
   

  
	
   

  	
  Name:

  	
  William Troy

  	
   

  
	
   

  	
  Title:

  	
  COO

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SOUTHPORT
  ENERGY PLUS PARTNERS, L.P.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Anthony Grammalva

  	
   

  
	
   

  	
  Name:

  	
  Anthony
  Grammalva

  	
   

  
	
   

  	
  Title:

  	
  CEO, Sound Energy
  Partners, Inc.,

  	
   

  
	
   

  	
   

  	
  its
  Investment Manager

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SOUTHPORT
  ENERGY PLUS

  	
   

  
	
   

  	
    OFFSHORE
  FUND, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Anthony Grammalva

  	
   

  
	
   

  	
  Name:

  	
  Anthony
  Grammalva

  	
   

  
	
   

  	
  Title:

  	
  CEO, Sound
  Energy Partners, Inc.,

  
	
   

  	
   

  	
  its
  Investment Advisor

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SOUND ENERGY
  CAPITAL

  	
   

  
	
   

  	
    OFFSHORE
  FUND, LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Anthony Grammalva

  	
   

  
	
   

  	
  Name:

  	
  Anthony
  Grammalva

  	
   

  
	
   

  	
  Title:

  	
  GP, Sound
  Energy Capital Management,

  
	
   

  	
   

  	
  L.P., its
  Investment Advisor

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ Rita Barr

  	
   

  
	
   

  	
  RITA BARR

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CADENCE
  OFFSHORE LTD.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Philip R. Broenniman

  	
   

  
	
   

  	
  Name:

  	
  Philip R.
  Broenniman

  	
   

  
	
   

  	
  Title:

  	
  Authorized
  Signatory

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  IVY MA
  HOLDINGS CAYMAN 8, LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Philip R. Broenniman

  	
   

  
	
   

  	
  Name:

  	
  Philip R.
  Broenniman

  	
   

  
	
   

  	
  Title:

  	
  Authorized
  Signatory

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  CADENCE
  ONSHORE, LP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Philip R. Broenniman

  	
   

  
	
   

  	
  Name:

  	
  Philip R.
  Broenniman

  	
   

  
	
   

  	
  Title:

  	
  Authorized
  Signatory

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SF CAPITAL
  PARTNERS LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian H. Davidson

  	
   

  
	
   

  	
  Name:

  	
  Brian H.
  Davidson

  	
   

  
	
   

  	
  Title:

  	
  Authorized
  Signatory

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  XERION
  PARTNERS II

  	
   

  
	
   

  	
    MASTER
  FUND LIMITED

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael J. Bemer

  	
   

  
	
   

  	
  Name:

  	
  Michael J.
  Bemer

  	
   

  
	
   

  	
  Title:

  	
  Attorney-in-Fact

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  XERION PARTNERS
  I L.L.C.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael J. Bemer

  	
   

  
	
   

  	
  Name:

  	
  Michael J.
  Bemer

  	
   

  
	
   

  	
  Title:

  	
  Vice
  President, Paloma GP LLC,

  	
   

  
	
   

  	
   

  	
  Manager

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  STROME
  HEDGECAP LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeffery Lambert

  	
   

  
	
   

  	
  Name:

  	
  Jeffery
  Lambert

  	
   

  
	
   

  	
  Title:

  	
  Director

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ William C. Montgomery

  	
   

  
	
   

  	
  WILLIAM C.
  MONTGOMERY

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SCHOTTENFELD
  QUALIFIED

  	
   

  
	
   

  	
    ASSOCIATES,
  LP

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard Schottenfeld

  	
   

  
	
   

  	
  Name:

  	
  Richard
  Schottenfeld

  	
   

  
	
   

  	
  Title:

  	
  Managing
  Member

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  LC CAPITAL
  MASTER FUND, LTD.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Richard F. Conway

  	
   

  
	
   

  	
  Name:

  	
  Richard F.
  Conway

  	
   

  
	
   

  	
  Title:

  	
  Director

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]

 

 

	
   

  	
  Investor

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ Karen Singer

  	
   

  
	
   

  	
  KAREN SINGER

  	
   

  

 

 

[Signature Page to Registration
Rights Agreement]EXHIBIT 10.3

 

 

THIS WARRANT CERTIFICATE AND THE UNDERLYING SHARES OF
COMMON STOCK REPRESENTED BY THIS WARRANT CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
REGISTRATION UNDER SAID ACT.

 

 

 

PARTICLE
DRILLING TECHNOLOGIES, INC.

 

COMMON
STOCK PURCHASE WARRANT

 

Void after February 9, 2015, and subject to
earlier termination upon the terms and conditions set forth herein

 

                This Warrant (the “Warrant”) entitles Rita
Barr (including any successors or assigns, the “Holder”),
for value received, to purchase from PARTICLE DRILLING TECHNOLOGIES, INC.,
a Nevada corporation (formerly known as MedXLink Corp.) (the “Company”), at any time and from time to time,
subject to the terms and conditions set forth herein, during the period
starting from 5:00 a.m. on the Initial Exercise Date (as defined in Section 1
below) to 5:00 p.m., Eastern time, on the Expiration Date (as defined in
Section 1 below), immediately following which time this Warrant shall expire
and become void, all or any portion of the then vested Warrant Shares (as
defined in Section 1 below) at the Exercise Price (as defined in Section 1
below). This Warrant shall not be exercisable (and this Warrant shall
terminate) if the Initial Exercise Date (as defined below) never occurs. This
Warrant is issued subject to the following terms and conditions:

 

1.             Definitions  As used in
this Warrant, the following terms shall have the respective meanings set forth
below or elsewhere in this Warrant as referred to below:

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

 

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

 

                “Closing
Date” shall have the meaning given to it in the Securities Purchase
Agreement.

 

                “Common Stock” means the common stock, $0.001
par value per share, of the Company (including any securities into which or for
which such shares may be exchanged for, or converted into, pursuant to any
stock dividend, stock split, stock combination, recapitalization,
reclassification, reorganization or other similar event).

 

 

                “Company” has the meaning set forth in the
preamble hereof.

 

                “Exercise Price” means initially the Initial Exercise Price, as
such amount may be adjusted from time to time pursuant to Section 3 hereof.

 

                “Expiration Date” means February 9, 2015.

 

                “Fair Market Value” shall mean on any date (i)
if the Common Stock is quoted on Nasdaq or listed on a national securities
exchange, then the last reported sale price per share of Common Stock on Nasdaq
or any national securities exchange in which such Common Stock is quoted or
listed, as the case may be, on such date or, if no such sale price is reported
on such date, such price on the next preceding business day in which such price
was reported, (ii) if the Common Stock is actively traded
over-the-counter, then the last sales price quoted, if determinable, or, if not
determinable, the average of the closing bid and asked prices quoted on the
OTCBB (or similar system) on such date or (iii) if such
Common Stock is not traded, quoted or listed on Nasdaq or any national
securities exchange or the over-the-counter market, then the fair market value
of a share of Common Stock, as determined in good faith by the Board of
Directors of the Company.

 

                “Holder” has the meaning set forth in the
preamble of hereof.

 

                “Initial Exercise Date” means the date on which
all or any part of this Warrant first vests in accordance with the terms
hereof.

 

                “Initial Exercise Price” means $2.00 per share
of Common Stock.

 

                “OTCBB”
means the OTC Bulletin Board.

 

                “Ownership Limit” has the meaning set forth in
Section 2.2 hereof.

 

                “Person” (whether or not capitalized) means an
individual, entity, partnership, limited liability company, corporation,
association, trust, joint venture, unincorporated organization, and any
government, governmental department or agency or political subdivision thereof.

 

                “Registration
Rights Agreement” means that certain Registration Rights Agreement, dated
as of the date hereof, as it may be amended from time to time, by and among the
Company and the Investors (as such term is defined therein).

 

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

 

                “Securities Purchase Agreement” means that
certain Securities Purchase Agreement, dated as of the date hereof, as it may
be amended from time to time, by and among the Company and the Purchasers (as
such term is defined therein).

 

“Shares” means the aggregate of 9,000,000 shares of Common Stock
issued pursuant to the Securities Purchase Agreement.

 

                “Warrants” means this Warrant and any other
warrants to purchase Common Stock issued by the Company to the Investors
pursuant to the Securities Purchase Agreement, a form of which is attached
hereto as Exhibit A.

 

2

                “Warrant Shares” means 15,000 shares of Common
Stock, subject to adjustment in accordance with Section 3 below.

 

2.             Exercise of Warrant.

2.1           Method of
Exercise; Payment.

(a)           Cash Exercise.
Subject to all of the terms and conditions hereof (including the vesting
provisions set forth below), this Warrant may be exercised, in whole or in
part, with respect to any then vested Warrant Shares, at any time and from time
to time during the period commencing on the Initial Exercise Date and ending at
5:00 p.m., Eastern Time, on the Expiration Date, by surrender of this Warrant
to the Company at its principal office, accompanied by a subscription
substantially in the form attached hereto, executed by the Holder and
accompanied by (a) wire transfer of immediately available funds or (b)
certified or official bank check payable to the order of the Company, in each
case in the amount obtained by multiplying (i) the number of Warrant Shares for
which the Warrant is being exercised, as designated in such subscription, by
(ii) the Exercise Price. Thereupon, the Holder shall be entitled to receive the
number of duly authorized, validly issued, fully paid and nonassessable Warrant
Shares determined as provided for herein.

(b)           Cashless
Exercise/Conversion. Subject to all of the terms and conditions hereof
(including the vesting provisions set forth below), the Holder shall have the
right to convert this Warrant, in whole or in part, with respect to any then
vested Warrant Shares, at any time and from time to time during the period
commencing on the Initial Exercise Date and ending at 5:00 p.m., Eastern Time,
on the Expiration Date, by surrender of this Warrant to the Company at its
principal office, accompanied by a conversion notice substantially in the form
attached hereto, executed by the Holder. Thereupon, the Holder shall be
entitled to receive a number of duly authorized, validly issued, fully paid and
nonassessable Warrant Shares equal to:

(i)            (A) (x) the number of Warrant Shares (subject to
adjustment as provided in Section 3 hereof) which such Holder would be entitled
to receive upon exercise of such Warrant for the number of Warrant Shares
designated in such conversion notice (without giving effect to any adjustment
thereof pursuant to this subsection), multiplied by
(y) the Fair Market Value of each such Warrant Share so receivable upon such
exercise

 

minus

 

                (B) (x) the number of Warrant Shares (subject to
adjustment as provided in Section 3 hereof) which such Holder would be entitled
to receive upon exercise of such Warrant for the number of Warrant Shares
designated in such conversion notice (without giving effect to any adjustment
thereof pursuant to this subsection), multiplied by
(y) the Exercise Price

 

divided by

 

(ii)           the Fair Market
Value per Warrant Share.

 

 

3

2.2           Vesting. This
Warrant shall become exercisable with respect to Warrant Shares (“vest”) as follows: (i)
with respect to 3,750 Warrant Shares, on the 60th day following the
Closing Date if a registration statement on Form S-1, Form SB-2 or Form S-3 for
the resale of the Shares (a “Registration Statement”) shall not have been filed
with the SEC by such date, (ii) with respect to an additional 3,750 Warrant
Shares, on the 90th day following the Closing Date, if a
Registration Statement shall not have been filed with the SEC by such date,
(iii) with respect to an additional 3,750 Warrant Shares, on the 150th
day following the Closing Date, if a Registration Statement shall not have been
declared effective by the SEC by such date, and (iv) with respect to the
remaining 3,750 Warrant Shares, on the 180th day following the
Closing Date, if a Registration Statement shall not have been declared
effective by the SEC by such date; provided, however, that
notwithstanding the foregoing, the Warrant Shares shall vest in accordance with
clauses (i)-(iv) above only to the extent that, after giving effect to such
vesting, such vesting will not result in the Holder (together with its
Affiliates) owning, holding or beneficially owning more than 9.99% of the
Common Stock (the “Ownership  Limit”), and at any time, and from time to time, if the
Holder (together with its Affiliates) owns, holds or beneficially owns a
percentage less than the Ownership Limit, then this Warrant shall thereafter
continue to vest, first with respect to any Warrant Shares that would have
vested in accordance with clauses (i)-(iv) above but for the Ownership Limit
and second, otherwise in accordance with clauses (i)-(iv) above, but in each
case, again, only to the extent that, after giving effect to such vesting, such
vesting will not result in the Holder (together with its Affiliates) owning,
holding or beneficially owning more than the Ownership Limit. The amount of
Warrant Shares subject to vesting on any given occurrence pursuant to this
Section 2.2 will be proportionately adjusted to reflect any previous
adjustments to the aggregate number of Warrant Shares pursuant to Section 3.

2.3           Delivery of Stock
Certificates on Exercise. As
soon as practicable after the exercise of this Warrant, and in any event within
three (3) business days thereafter, the Company, at its expense, and in
accordance with applicable securities laws, will cause to be issued in the name
of and delivered to the Holder, or as the Holder may direct (subject in all
cases, to the provisions of Section 8 hereof), a certificate or certificates
for the number of Warrant Shares purchased by the Holder on such exercise, plus, in lieu of any fractional share to which the
Holder would otherwise be entitled, cash equal to such fraction multiplied by
the Fair Market Value.

2.4           Shares To Be
Fully Paid and Nonassessable. All Warrant Shares issued upon the exercise
of this Warrant shall be duly authorized, validly issued, fully paid and
nonassessable, free of all liens, taxes, charges and other encumbrances or
restrictions on sale (other than those set forth herein).

2.5           Issuance of New
Warrants; Company Acknowledgment. Upon any partial exercise of this
Warrant, the Company, at its expense, will forthwith and, in any event within
three (3) business days, issue and deliver to the Holder a new warrant or
warrants of like tenor, registered in the name of the Holder, exercisable, in
the aggregate, for the balance of the Warrant Shares. Moreover, the Company
shall, at the time of any exercise of this Warrant, upon the request of the
Holder, acknowledge in writing its continuing obligation to afford to the
Holder any rights to which the Holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant; provided, however,
that if the Holder shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to the Holder any
such rights.

2.6           Payment of Taxes
and Expenses. The Company shall pay any recording, filing, stamp or similar
tax which may be payable in respect of any transfer involved in the issuance
of, and the preparation and delivery of certificates (if applicable)
representing, (i) any Warrant Shares purchased upon exercise of this Warrant
and/or (ii) new or replacement warrants in the Holder’s name or the name of any
transferee of all or any portion of this Warrant.

4

2.7           Cooperation with
Filings. The Company shall assist and cooperate with any Holder required to
make any governmental or regulatory filings or obtain any governmental or
regulatory approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).

2.8           Conditions. Notwithstanding
any other provision of this Warrant, if the exercise of all or any portion of
this Warrant is to be made in connection with a registered public offering, a
sale of the Company or any other transaction or event, such exercise may, at
the election of the Holder, be conditioned upon consummation of such
transaction or event in which case such exercise shall not be deemed effective
until the consummation of such transaction or event.

3.             Adjustment of Exercise Price and Warrant Shares. The Exercise Price and the number of
Warrant Shares shall be subject to adjustment from time to time upon the
happening of certain events as described in this Section 3.

3.1           Subdivision or Combination of Stock. If at any time or from time to time
after the date hereof, the Company shall subdivide (by way of stock dividend,
stock split or otherwise) its outstanding shares of Common Stock, the Exercise
Price in effect immediately prior to such subdivision shall be reduced
proportionately and the number of Warrant Shares (calculated to the nearest
whole share) shall be increased proportionately, and conversely, in the event
the outstanding shares of Common Stock shall be combined (whether by stock
combination, reverse stock split or otherwise) into a smaller number of shares,
the Exercise Price in effect immediately prior to such combination shall be
increased proportionately and the number of Warrant Shares (calculated to the
nearest whole share) shall be decreased proportionately. The Exercise Price and
the number of Warrant Shares, as so adjusted, shall be readjusted in the same
manner upon the happening of any successive event or events described in this
Section 3.1.

3.2           Adjustments

(a)           Adjustment for
Stock Dividends. If at any time after the date hereof, the Company shall
declare a dividend or make any other distribution upon any class or series of
stock of the Company payable in shares of Common Stock, the Exercise Price in
effect immediately prior to such declaration or distribution shall be reduced
proportionately and the number of Warrant Shares (calculated to the nearest
whole share) shall be increased proportionately, to reflect the issuance of any
shares of Common Stock, issuable in payment of such dividend or distribution. The
Exercise Price and the number of Warrant Shares, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described in this Section 3.2.

(b)           Adjustments for
Other Dividends and Distributions. In the event the Company at any time or
from time to time after the date hereof shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Company (other than
shares of Common Stock) or in cash or other property, then and in each such
event provision shall be made so that the Holder shall receive upon exercise
hereof, in addition to the number of shares of Common Stock issuable hereunder,
the kind and amount of securities of the Company and/or cash and other property
which the Holder would have been entitled to receive had this Warrant been
exercised into Common Stock on the date of such event and had the Holder
thereafter, during the period from the date of such event to and including the
exercise date, retained any such securities receivable, giving application to
all adjustments called for during such period under this Section 3 with
respect to the rights of the Holder.

5

3.3           Adjustments for
Reclassifications. If the Common Stock issuable upon the conversion of this
Warrant shall be changed into the same or a different number of shares of any
class(es) or series of stock and/or the right to receive property, whether by
reclassification or otherwise (other than an adjustment under Sections 3.1 and
3.2 or a merger, consolidation, or sale of assets provided for under
Section 3.4), then and in each such event, the Holder hereof shall have
the right thereafter to convert each Warrant Share into the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, or other change by holders of the number of shares of Common
Stock into which such Warrant Shares would have been convertible immediately
prior to such reclassification or change, all subject to successive adjustments
thereafter from time to time pursuant to and in accordance with, the provisions
of this Section 3.

3.4           Adjustments for Merger or Consolidation. In the event
that, at any time or from time to time after the date hereof, the Company shall
(a) effect a reorganization, (b) consolidate with or merge into any other
Person, or (c) sell or transfer all or substantially all of its properties or
assets or more than 50% of the voting capital stock of the Company (whether
issued and outstanding, newly issued, from treasury, or any combination
thereof) to any other person under any plan or arrangement contemplating the
consolidation or merger, sale or transfer, or dissolution of the Company (each,
a “Merger Transaction”), then, in each such case, the Holder, upon the
exercise of this Warrant as provided in Section 2.1 or the conversion of this
warrant as provided in Section 2.2 hereof at any time or from time to time
after the consummation of such reorganization, consolidation, merger or sale or
the effective date of such dissolution, as the case may be, shall receive, in
lieu of the Warrant Shares issuable on such exercise immediately prior to such
consummation or such effective date, as the case may be, the stock and property
(including cash) to which the Holder would have been entitled upon the
consummation of such consolidation or merger, or sale or transfer, or in
connection with such dissolution, as the case may be, if the Holder had so
exercised this Warrant immediately prior thereto (assuming the payment by the
Holder of the Exercise Price therefor as required hereby in a form permitted
hereby, which payment shall be included in the assets of the Company for the
purposes of determining the amount available for distribution), all subject to
successive adjustments thereafter from time to time pursuant to, and in
accordance with, the provisions of this Section 3. The Company shall not effect
any such reorganization, consolidation, merger, sale or transfer unless, prior
to the consummation thereof, the successor entity (if other than the Company)
resulting from the consolidation or merger or the entity purchasing such assets
assumes by written instrument the obligation to deliver to each holder of
Warrants such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire; provided, that
any assumption shall not relieve the Company of its obligations hereunder.

3.5           Continuation of Terms. Upon any reorganization, consolidation, merger
or transfer (and any dissolution following any such transfer) referred to in
this Section 3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of Common Stock and other
securities and property receivable upon the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such Common Stock or other securities,
including, in the case of any such transfer, the Person acquiring all or
substantially all of the properties or assets or more than 50% of the voting
capital stock of the Company (whether issued and outstanding, newly issued or
from treasury or any combination thereof), whether or not such Person shall
have expressly assumed the terms of this Warrant.

3.6           Minimum
Adjustment of Exercise Price. If the amount of any adjustment of the
Exercise Price required pursuant to this Section 3 would be less than
one-tenth (1/10) of one percent (1%) of the Exercise Price in effect at the
time such adjustment is otherwise so required to be made, such amount shall be
carried forward and adjustment with respect thereto made at the time of and
together with any subsequent adjustment which, together with

6

such amount and any other amount or amounts so carried
forward, shall aggregate at least one tenth (1/10) of one percent (1%) of such
Exercise Price.

3.7           Certificate
as to Adjustments. Upon the occurrence of each adjustment or readjustment
of the Exercise Price and number of Warrant Shares pursuant to this Section 3,
this Warrant shall, without any action on the part of the Holder, be adjusted
in accordance with this Section 3, and the Company, at its expense, promptly
shall compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to the Holder a certificate setting forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based. The Company will forthwith send a copy of
each such certificate to the Holder in accordance with Section 9.4 below.

4.             Registration Rights. The holders of the Warrant
Shares shall be entitled to the registration rights and other rights applicable
to such shares provided by the Registration Rights Agreement.

5.             Notices of
Record Date. Upon
(a) any establishment by the Company of a record date of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or right or option
to acquire securities of the Company, or any other right, or (b) any
capital reorganization, reclassification, recapitalization, merger or consolidation
of the Company with or into any other Person, any transfer of all or
substantially all the assets of the Company, or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, or the sale, in a single
transaction, of a majority of the Company’s voting stock (whether newly issued,
or from treasury, or previously issued and then outstanding, or any combination
thereof), the Company shall mail to the Holder at least ten (10) business days,
or such longer period as may be required by law, prior to the record date
specified therein and at least ten (10) business days prior to the date
specified in clause (ii) or (iii) hereof, a notice specifying (i) the date
established as the record date for the purpose of such dividend, distribution,
option or right and a description of such dividend, distribution, option or
right, (ii) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up, or
sale is expected to become effective and (iii) the date, if any, fixed as to
when the holders of record of Common Stock shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up. Nothing herein shall prohibit the Holder from
exercising this Warrant during the ten (10) business day period commencing on
the date of such notice.

6.             Exchange of
Warrant. Subject to the provisions
of Section 7 hereof (if and to the extent applicable), this Warrant shall be
exchangeable, upon the surrender hereof by the Holder at the principal office
of the Company, for new warrants of like tenor, each registered in the name of
the Holder or, subject to compliance with applicable federal and state
securities laws, in the name of such other Persons as the Holder may direct
(upon payment by the Holder of any applicable transfer taxes). Each of such new
warrants shall be exercisable for such number of Warrant Shares as the Holder
shall direct, provided that all of such new warrants shall represent, in
the aggregate, the right to purchase the same number of Warrant Shares and
cash, securities or other property, if any, which may be purchased by the Holder
upon exercise of this Warrant at the time of its surrender.

7.             Transfer Provisions, etc.

7.1           Legends. Subject to the provisions of Section 6.2 of the Securities
Purchase Agreement, each certificate representing any Warrant Shares issued
upon exercise of this Warrant, and of any shares of Common Stock into which
such Warrant Shares may be converted, shall bear the following legend:

7

“THE SHARES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, REGISTRATION UNDER SAID
ACT.”

7.2           Mechanics of Transfer.

(a)           Any transfer of all or any portion of this Warrant (and
the Warrant Shares), or of any interest herein or therein, that is otherwise in
compliance with applicable law and Sections 6.1 and 6.2 of the Securities
Purchase Agreement shall be effected by surrendering this Warrant to the
Company at its principal office, together with a duly executed form of
assignment, in the form attached hereto. In the event of any such transfer of
this Warrant, subject to compliance with applicable federal and state
securities laws and Sections 6.1 and 6.2 of the Securities Purchase Agreement,
the Company shall issue a new warrant or warrants of like tenor to the
transferee(s), representing, in the aggregate, the right to purchase the same
number of Warrant Shares and cash, securities or other property, if any, which
may be purchased by the Holder upon exercise of this Warrant at the time of its
surrender, in accordance with Section 2 hereof.

(b)           In
the event of any transfer of all or any portion of this Warrant in accordance
with Section 7.2(a) above, the Company shall issue (i) a new warrant of like
tenor to the transferee, representing the right to purchase the number of
Warrant Shares, and cash, securities or other property, if any, which were
purchasable by the Holder of the transferred portion of this Warrant at the
time of said transfer, and (ii) a new warrant of like tenor to the Holder,
representing the right to purchase the number of Warrant Shares, if any, and
cash, securities or other property, if any, purchasable by the Holder of the un-transferred
portion of this Warrant. Until this Warrant or any portion thereof is
transferred on the books of the Company, the Company may treat the Holder as
the absolute holder of this Warrant and all right, title and interest therein
for all purposes, notwithstanding any notice to the contrary.

7.3           No
Restrictions on Transfer. Subject to compliance with applicable federal and
state securities laws and Sections 6.1 and 6.2 of the Securities Purchase
Agreement, this Warrant and any portion hereof, the Warrant Shares and the
rights hereunder may be transferred by the Holder in its sole discretion at any
time and to any Person or Persons, including without limitation Affiliates and
affiliated groups of such Holder, without the consent of the Company.

7.4           Warrant Register.
The Company shall keep at its principal office a register for the registration,
and registration of transfers, of the Warrants. The name and address of each
Holder of one or more of the Warrants, each transfer thereof and the name and
address of each transferee of one or more of the Warrants shall be registered
in such register. The Company shall give to any Holder of a Warrant promptly
upon request therefor, a complete and correct copy of the names and addresses
of all registered Holders of the Warrants.

8

8.             Lost, Stolen or Destroyed
Warrant. Upon receipt by the Company of evidence satisfactory to it of
loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, on delivery of a customary affidavit of the Holder
and customary unsecured indemnity agreement, or, in the case of mutilation,
upon surrender of this Warrant, the Company at its expense will execute and
deliver, or will instruct its transfer agent to execute and deliver, a new
Warrant of like tenor and date and representing the same rights represented by
such lost, stolen, destroyed or mutilated warrant and any such lost, stolen,
mutilated or destroyed Warrant thereupon shall become void.

9.             General.

9.1           Authorized Shares, Reservation of Shares for
Issuance. At all
times while this Warrant is outstanding, the Company shall maintain its
corporate authority to issue, and shall have authorized and reserved for
issuance upon exercise of this Warrant, such number of shares of Common Stock,
and any other capital stock or other securities as shall be sufficient to
perform its obligations under this Warrant (after giving effect to any and all
adjustments to the number and kind of Warrant Shares purchasable upon exercise
of this Warrant).

9.2           No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities, sale or
other transfer of any of its assets or properties, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder hereunder
against impairment. Without limiting the generality of the foregoing, the
Company (a) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
on such exercise, and (b) will take all action that may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant.

9.3           No Rights as Stockholder. Except as
provided herein (including Sections 3 and 5), the Holder shall not be entitled
to vote or to receive dividends or to be deemed the holder of Common Stock that
may at any time be issuable upon exercise of this Warrant for any purpose
whatsoever, nor shall anything contained herein be construed to confer upon the
Holder 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
(whether upon any recapitalization, issuance or reclassification of stock,
change of par value or change of stock to no par value, consolidation, merger
or conveyance or otherwise), or to receive notice of meetings (except to the
extent otherwise provided in this Warrant), or to receive dividends or
subscription rights, until the Holder shall have exercised this Warrant and
been issued Warrant Shares in accordance with the provisions hereof and
continues to hold Warrant Shares.

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

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

Particle
Drilling Technologies, Inc.

 

9

808
Travis, Suite 850

Houston, Texas 77002

Attn:
Chief Financial Officer

Facsimile:
(713) 224-6361

 

with a copy to:

 

Vinson
& Elkins LLP

First City Tower

1001 Fannin Street, Suite
2300

Houston, Texas 77002-676

Attn: Keith Fullenweider

Facsimile: (713) 758-2346

 

(b)           All correspondence
to the Holder shall be addressed to the Holder at its address appearing in the
books maintained by the Company.

10.           Amendment and Waiver. No failure or delay of the Holder in exercising
any power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The
rights and remedies of the Holder are cumulative and not exclusive of any
rights or remedies which it would otherwise have. This Warrant is one of
a series of Warrants issued by the Company, all dated the date hereof and of
like tenor, except as to the number of shares of Common Stock subject thereto
(collectively, the “Company Warrants”). Any term of this Warrant may be
amended or waived upon the written consent of the Company and the holders of
Company Warrants representing at least a majority of the number of shares of
Common Stock then subject to outstanding Company Warrants; provided that
(i) any such amendment or waiver must apply to all Company Warrants then
outstanding; (ii) the number of Warrant Shares subject to this Warrant, the
Exercise Price or Expiration Date of this Warrant and the number of shares or
class of stock obtainable upon exercise of this Warrant may not be amended,
(iii) the right to exercise this Warrant may not be waived, without the written
consent of the Holder of this Warrant (it being agreed that an amendment to or
waiver under any of the provisions of Section 3 of this Warrant shall not
be considered an amendment of the number of Warrant Shares or the Exercise
Price) and (iv) any amendment that adversely affects any particular Holder
without a corresponding affect upon all Holders must be approved by the
particular Holder so affected. The Company shall promptly give notice to all
holders of the Company Warrants of any amendments effected in accordance with
this Section 10. No special consideration may be given to any holder as
inducement to waive or amend this Warrant unless such consideration is given
equally and ratably to all holders of Company Warrants.

11.           Governing Law. This
Warrant shall be governed by and construed in accordance with the laws of the
State of New York, as such laws are applied to contracts entered into and
wholly to be performed within the State of New York and without giving effect
to any principles of conflicts or choice of law that would result in the
application of the laws of any other jurisdiction.

12.           Covenants
To Bind Successor and Assigns. All covenants,
stipulations, promises and agreements in this Warrant contained by or on behalf
of the Company shall bind its successors and assigns, whether so expressed or
not.

13.           Severability. In case any one
or more of the provisions contained in this Warrant shall be invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions contained herein shall not in any way be affected or
impaired thereby. The parties shall

10

endeavor in good faith negotiations to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provisions.

14.           Construction.
The definitions of this Warrant shall apply equally to both the singular and
the plural forms of the terms defined. Wherever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
The section and paragraph headings used herein are for convenience of reference
only, are not part of this Warrant and are not to affect the construction of or
be taken into consideration in interpreting this Warrant.

15.           Remedies. The Holder, in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Warrant and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate. In any action or proceeding brought to enforce any provision of this
Warrant or where any provision hereof is validly asserted as a defense, the
successful party to such action or proceeding shall be entitled to recover
reasonable attorneys’ fees in addition to any other available remedy.

[SIGNATURE PAGE TO FOLLOW]

 

11

                IN WITNESS
WHEREOF, the
Company has executed this Common Stock Purchase Warrant as of the date first
written above.

 

	
   

  	
   

  	
   

  
	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
  PARTICLE
  DRILLING TECHNOLOGIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Chris Boswell

  
	
   

  	
  Name:

  	
  J. Chris Boswell

  
	
   

  	
  Title:

  	
  Senior Vice President and
  Chief

  Financial Officer

  
	
   

  	
   

  	
   

  

 

12

NOTICE AND

SUBSCRIPTION

 

 

To:          Particle
Drilling Technologies, Inc.

                808
Travis, Suite 850
                Houston, Texas 77002

 

 

 

                The
undersigned hereby irrevocably elects to exercise the right of purchase
represented by the attached Warrant for, and to exercise thereunder,                   
shares of Common Stock, of PARTICLE DRILLING TECHNOLOGIES, INC., a Nevada
corporation (the “Company”), and tenders
herewith payment of $                      ,
representing the aggregate purchase price for such shares based on the price
per share provided for in such Warrant. Such payment is being made in
accordance with Section 2.1(a) of the attached Warrant.

 

                The
undersigned hereby represents and warrants as follows:

 

                (a)           the undersigned is acquiring such
shares of Common Stock for its own account for investment and not for resale or
with a view to distribution thereof in violation of the Securities Act of 1933,
as amended, and the regulations promulgated thereunder (the “Securities Act”);
and

 

                (b)           the
undersigned is an “accredited investor” as defined in Rule 501 of Regulation D
promulgated under the Securities Act and was not organized for the purpose of
acquiring the Warrant or such shares of Common Stock. The undersigned’s
financial condition is such that it is able to bear the risk of holding such
securities for an indefinite period of time and the risk of loss of its entire
investment. The undersigned has sufficient knowledge and experience in
investing in companies similar to the Company so as to be able to evaluate the
risks and merits of its investment in the Company.

 

                Please
issue a certificate or certificates for such shares of Common Stock in the
following name or names and denominations and deliver such certificate or
certificates to the person or persons listed below at their respective address
set forth below:

 

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

                If
said number of shares of Common Stock shall not be all the shares of Common
Stock issuable upon exercise of the attached Warrant, a new Warrant is to be
issued in the name of the undersigned for the remaining balance of such shares
of Common Stock less any fraction of a share of Common Stock paid in cash
pursuant to Section 2.3 of the attached warrant.

 

	
  Dated:  

  	
                              ,

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Signature

  

 

13

 

                The undersigned Particle Drilling Technologies, Inc.
hereby acknowledges receipt of this Notice and Subscription and authorizes
issuance of the shares of Common Stock described above.

 

Particle
Drilling Technologies, Inc.

 

	
  By:

  	
   

  
	
  Title:

  	
   

  
	
  Date:

  	
   

  

 

14

FORM OF ASSIGNMENT

 

(To be executed upon assignment of Warrant)

 

For
value received,                                                      
hereby sells, assigns and transfers unto                                      
the attached Warrant [      % of the attached
Warrant], together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint                                       
attorney to transfer said Warrant [said percentage of said Warrant] on the
books of PARTICLE DRILLING TECHNOLOGIES, INC., a Nevada corporation, with full
power of substitution in the premises.

 

If not all of the attached Warrant is to be so
transferred, a new Warrant is to be issued in the name of the undersigned for
the balance of said Warrant.

 

                The undersigned hereby agrees that it will
not sell, assign, or transfer the right, title and interest in and to the
Warrant unless applicable federal and state securities laws have been complied
with.

 

	
  Dated:

  	
                                    ,

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Signature

  

 

15

FORM OF CONVERSION NOTICE

 

To Particle Drilling Technologies, Inc.:

 

                The
undersigned registered holder of the attached Warrant hereby irrevocably
converts such Warrants with respect to                            (1)
Warrant Shares which such holder would be entitled to receive upon the exercise
hereof, and requests that the certificates for such shares be issued in the
name of, and delivered to                                  ,
whose address is as follows:

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

                Such
conversion is being made in accordance with Section 2.1(b) of the attached
Warrant. The undersigned hereby represents and warrants as follows:

 

(a)           the undersigned is acquiring such
shares of Common Stock for its own account for investment and not for resale or
with a view to distribution thereof in violation of the Securities Act; and

(b)           the
undersigned is an “accredited investor” as defined in Rule 501 of Regulation D
promulgated under the Securities Act and was not organized for the purpose of
acquiring the Warrant or such shares of Common Stock. The undersigned’s
financial condition is such that it is able to bear the risk of holding such
securities for an indefinite period of time and the risk of loss of its entire
investment. The undersigned has sufficient knowledge and experience in
investing in companies similar to the Company so as to be able to evaluate the
risks and merits of its investment in the Company.

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Signature must conform in
  all respects to name of holder as specified on the face of Warrant)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (Street Address)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (City)

  	
  (State)

  	
  (Zip Code)

  	
   

  
						

 

 

 

(1) Insert here the number of Warrant Shares into which the Warrant is
convertible (or, in the case of a partial conversion, the number of Warrant
Shares as to which the Warrants evidenced by this Warrant Certificate are then
being converted). In the case of a partial conversion, a new Warrant
Certificate will be issued and delivered, representing the unconverted portion
of the Warrants, to the holder surrendering this Warrant Certificate.

 

16

                The undersigned Particle Drilling
Technologies, Inc. hereby acknowledges
receipt of this Conversion Notice and authorizes issuance of the shares of
Common Stock described above.

 

Particle Drilling Technologies, Inc.

	
   

  	
   

  
	
  By:

  	
   

  
	
  Title:

  	
   

  
	
  Date:

  	
   

  
	
   

  	
   

  

 

17

Schedule
of Substantially Identical Common Stock Purchase Warrants

Not
Filed with the Securities and Exchange Commission

 

Pursuant to Instruction 2 of Item 601 of Regulation
S-K, the Company has filed only one of the Common Stock Purchase Warrants
issued to the purchasers in connection with the Private Placement because each
of the Common Stock Purchase Warrants are substantially identical in all
material respects except as to the parties thereto and the number of shares of
common stock issuable thereunder. The following table sets forth the holder of
each of the other Common Stock Purchase Warrants issued by the Company and the
number of shares of common stock that may be purchased by each holder thereof.

 

	
  Investor

  	
   

  	
  Total Warrants

  	
   

  
	
  Strome Hedgecap Ltd.

  	
   

  	
  150,000

  	
   

  
	
  William C. Montgomery

  	
   

  	
  15,000

  	
   

  
	
  Sound Energy Capital Offshore Fund, Ltd.

  	
   

  	
  13,380

  	
   

  
	
  Southport Energy Plus Offshore Fund, Inc.

  	
   

  	
  36,780

  	
   

  
	
  Southport Energy Plus Partners, L.P.

  	
   

  	
  99,840

  	
   

  
	
  Niskayuna Development LLC

  	
   

  	
  37,500

  	
   

  
	
  Ivy MA Holdings Cayman 8, Ltd.

  	
   

  	
  27,000

  	
   

  
	
  Cadence Offshore, Ltd.

  	
   

  	
  31,200

  	
   

  
	
  Cadence Onshore, LP

  	
   

  	
  16,800

  	
   

  
	
  Ore Hill Hub Fund Ltd.

  	
   

  	
  300,000

  	
   

  
	
  Phoenix Partners, L.P.

  	
   

  	
  99,900

  	
   

  
	
  Phoenix Partners II, L.P.

  	
   

  	
  30,600

  	
   

  
	
  Phaeton International (BVI) Ltd.

  	
   

  	
  94,500

  	
   

  
	
  Greywolf Capital Partners II LP

  	
   

  	
  108,000

  	
   

  
	
  Greywolf Capital Overseas Fund

  	
   

  	
  192,000

  	
   

  
	
  Milfam I, L.P.

  	
   

  	
  37,500

  	
   

  
	
  Schottenfeld Qualified Associates, LP

  	
   

  	
  105,000

  	
   

  
	
  LC Capital Master Fund Ltd.

  	
   

  	
  450,000

  	
   

  
	
  Millenium Partners, L.P.

  	
   

  	
  300,000

  	
   

  
	
  Xerion Partners I LLC

  	
   

  	
  37,500

  	
   

  
	
  Xerion Partners II Master Fund Limited

  	
   

  	
  37,500

  	
   

  
	
  SF Capital Partners Ltd.

  	
   

  	
  150,000

  	
   

  
	
  The IBS Turnaround Fund, L.P.

  	
   

  	
  63,000

  	
   

  
	
  The IBS Turnaround Fund (QP), L.P.

  	
   

  	
  144,000

  	
   

  
	
  The IBS Opportunity Fund, Ltd.

  	
   

  	
  33,000

  	
   

  
	
  Karen Singer

  	
   

  	
  75,000

  	
   

  
	
  TOTAL (including Rita Barr)

  	
   

  	
  2,700,000

  	
   

  

 

18

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