Exhibit 10.4

 

ACQUISITION AGREEMENT

 

THIS ACQUISITION AGREEMENT, dated as of January 20, 2004 (the “Agreement”), is
by and among Particle Drilling, Inc., a Texas corporation (“Newco”), ProDril
Partners L.L.C., a Texas limited liability company (“Parent”), ProDril Services
International Limited, a Texas limited partnership (“PSIL”), Mr. Harry B.
Curlett (“Principal”), an individual, CCORE Technology and Licensing, Ltd, a
Texas limited partnership (“CCORE”) and Curlett Family Limited Partnership,
Ltd., a Wyoming limited partnership (“CFLP”).

 

W I T N E S S E T H:

 

WHEREAS, the parties hereto have previously entered into that certain
Acquisition Agreement dated September 10, 2003 (the “Original Acquisition
Agreement”);

 

WHEREAS, pursuant to the Original Acquisition Agreement, it was contemplated
that Newco would acquire substantially all of the assets of PSIL for the
consideration set forth therein;

 

WHEREAS, the Original Acquisition Agreement was terminated pursuant to its
terms;

 

WHEREAS, the parties hereto desire to enter into this Agreement in order to
consummate the transactions contemplated pursuant to the Original Acquisition
Agreement;

 

WHEREAS, CFLP has licensed certain technology (the “CFLP Technology”) to CCORE
pursuant to that certain Patent and Technology License Agreement dated March 1,
2000;

 

WHEREAS, CCORE has licensed to PSIL certain of its technology, and has
sublicensed to PSIL the CFLP Technology, pursuant to that certain Patent and
Technology License Agreement dated November 17, 1998 (as amended, the “CCORE
License”);

 

WHEREAS, it has been proposed that the CCORE License be terminated and that a
new license be entered into with Newco;

 

WHEREAS, Parent owns 100% of the stock of Newco;

 

WHEREAS, the Principal owns a partnership interest in PSIL, and thus would
derive a substantial benefit from the consummation of the transactions
contemplated herein;

 

WHEREAS, it has been proposed that Parent and other investors capitalize Newco
as set forth herein;

 

NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, agree as follows:

 

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ARTICLE I

THE TRANSACTIONS

 

Section 1.1.  Sale by PSIL.  Upon the terms and subject to the conditions set
forth herein, at the Closing (as hereinafter defined) PSIL will sell, transfer,
assign, and convey to Newco good title in and to (a) the assets listed on
Exhibit A (the “Assets”), free and clear of any lien, lease, or encumbrance, and
(b) the tradename “ProDril Services” and any derivatives thereof, free and clear
of any lien, lease, or encumbrance, pursuant to an assignment and assumption
agreement in the form reasonably required by Newco.

 

Section 1.2.  The Licenses.  At or prior to the Closing, PSIL and CCORE shall
terminate the CCORE License pursuant to a termination agreement in the form
reasonably required by Newco (the “Termination Agreement”) and CCORE, CFLP,
PSIL, ProDril Services Incorporated, and the Principal shall enter into (i) a
license agreement with Newco in the form of Exhibit B (the “New License
Agreement”), and (ii) an Assignment and Assumption Agreement in the form of
Exhibit C (the “Assignment”).

 

Section 1.3.  The Sales Price.  At the Closing, as consideration for the sale
and transfer of the Assets and the execution of the Termination Agreement, Newco
will (a) execute and deliver to PSIL the royalty agreement set forth as Exhibit
D (the “Royalty Agreement”), and (b) assume the payables and other liabilities
of PSIL specifically listed on Exhibit E (the “Assumed Liabilities”), pursuant
to an assignment and assumption agreement in the form reasonably required by
Newco.  Except for the assumption of the Assumed Liabilities at the Closing as
provided pursuant to this Section, neither Newco nor Parent shall assume or be
deemed to have assumed any debts or obligations of PSIL.

 

Section 1.4.  Agreement Not To Compete.  At the Closing, the Principal and PSIL
shall execute and deliver to Newco an Agreement Not To Compete in the form of
Exhibit F.

 

Section 1.5.  Closing.  The closing (the “Closing”) of the transactions
contemplated by this Agreement shall take place at the offices of Newco in
Houston, Texas as promptly as practicable (but in any event within two business
days) following the date on which the last of the conditions set forth in
Article VII is fulfilled or waived, or at such other time and place as Newco and
PSIL shall agree. The date on which the Closing occurs is referred to in this
Agreement as the “Closing Date.”  At the Closing, each of the parties hereto
shall take such actions required to be taken by it pursuant to the terms hereof
at or before Closing.  The Transactions will be effective as of 12:01 am on the
Closing Date (the “Effective Time”).

 

Section 1.6.  Taking of Necessary Action; Further Action.  Each of Parent, PSIL
and the Principal will take all such reasonable and lawful action as may be
necessary or appropriate either before, at, or after the Closing in order to
effectuate the transactions described in this Article (the “Transactions”) in
accordance with this Agreement and as necessary or desirable to carry out the
purposes of this Agreement and to vest Newco with full right, title and
possession to the Assets and all rights intended to be conveyed by the New
License Agreement or the

 

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Assignment.  Specifically, but not by way of limitation, PSIL shall deliver to
Newco all files, data, records and other information set forth in tangible form
(whether written or electronic) which relates to the technology subject to the
New License Agreement or the Assignment.

 

Section 1.7.  The Original Acquisition Agreement.  The parties acknowledge and
ratify the termination of the Original Acquisition Agreement, and hereby release
each other from any liability or obligation pursuant to or relating to the
Original Acquisition Agreement, including but not limited to the circumstances
surrounding the termination thereof.

 

ARTICLE II

REPRESENTATIONS AND

WARRANTIES OF PARENT AND NEWCO

 

Parent and Newco each represent and warrant to PSIL as follows:

 

Section 2.1.  Organization and Qualification.  Parent is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Texas and Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of Texas and each of them has
the requisite power and authority to own, lease and operate its respective
assets and properties and to carry on its respective businesses as they are now
being conducted.

 

Section 2.2.  Authority; Non-Contravention; Approvals.

 

(a)           Parent and Newco each have full limited liability company and
corporate (as the case may be) power and authority to execute and deliver this
Agreement, to consummate the transactions contemplated hereby. This Agreement
has been approved by the Managers of Parent and the Board of Director of Newco,
and no other limited liability company or corporate proceedings on the part of
Parent or Newco are necessary to authorize the execution and delivery of this
Agreement or the consummation by Parent and Newco of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by each
of Parent and Newco, and, assuming the due authorization, execution and delivery
hereof by Principal, PSIL, CCORE, and CFLP, constitutes a valid and legally
binding agreement of each of Parent and Newco enforceable against each of them
in accordance with its terms, except that such enforcement may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors’ rights generally and (ii)
general equitable principles.

 

(b)           The execution and delivery of this Agreement by each of Parent and
Newco and the consummation by each of Parent and Newco of the transactions
contemplated hereby do not and will not violate or result in a breach of any
provision of, or constitute a default (or an event which, with

 

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notice or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Parent or the Newco under any of the terms, conditions or provisions
of (i) the respective charters or bylaws of Parent or the Newco, (ii) any
statute, law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority applicable to
Parent or the Newco or any of their respective properties or assets, or (iii)
any note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which Parent or Newco is now a party or by which Parent or Newco or any
of their respective properties or assets may be bound or affected.

 

(c)           No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by
Parent or Newco or the consummation by Parent or Newco of the transactions
contemplated hereby.

 

Section 2.3.  Brokers and Finders.  Parent or Newco have not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of Parent or Newco to pay any finder’s fees, brokerage or
agent commissions or other like payments in connection with the transactions
contemplated hereby. There is no claim for payment by Parent or Newco of any
investment banking fees, finder’s fees, brokerage or agent commissions or other
like payments in connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby.

 

Section 2.4.  Financials of Newco.  The pro forma balance sheet as of June 30,
2003 of Newco has been prepared in accordance with generally accepted accounting
principles, consistently applied (except for the absence of footnote disclosures
and for the absence of normal year-end audit adjustments which are not material
in the aggregate) and fairly present the financial condition and result of
operations of Newco.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES

OF PSIL AND THE SHAREHOLDER

 

PSIL and the Principal jointly and severally represent and warrant to Parent and
Newco that:

 

Section 3.1.  Organization and Qualification.  PSIL is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of Texas and has the requisite partnership power and authority to own,
lease and operate its assets and properties and

 

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to carry on its business as it is now being conducted.  PSIL is duly qualified
to do business as a foreign entity and is in good standing in each jurisdiction
in which the properties owned, leased, or operated by it or the nature of the
business conducted by it makes such qualification necessary. True, accurate and
complete copies of PSIL’s partnership agreement, as amended, as in effect on the
date hereof, including all amendments thereto, have heretofore been delivered to
Newco.

 

Section 3.2.  Subsidiaries.  PSIL does not own, any stock or other ownership
interests in any other entity.

 

Section 3.3.  Authority; Non-Contravention; Approvals.

 

(a)           PSIL has full partnership power and authority to execute and
deliver this Agreement and, to consummate the transactions contemplated hereby. 
This Agreement has been approved by the general partner of PSIL, and other than
the approval of the partners of PSIL no other partnership proceedings on the
part of PSIL are necessary to authorize the execution and delivery of this
Agreement or the consummation by PSIL of the transactions contemplated hereby. 
This Agreement has been duly executed and delivered by PSIL and the Principal,
and, assuming the due authorization, execution and delivery hereof by Parent and
Newco, constitutes a valid and legally binding agreement of PSIL and Principal,
enforceable against PSIL and Principal in accordance with its terms, except that
such enforcement may be subject to (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors’ rights generally and (b) general equitable principles.  PSIL
stipulates that it has not been subject to undue pressure or coercion in
connection with the negotiation or execution of this Agreement.

 

(b)           Except as set forth in the Disclosure Schedule, the execution and
delivery of this Agreement by PSIL and the Principal and the consummation by
PSIL and the Principal of the transactions contemplated hereby do not and will
not violate or result in a breach of any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of PSIL under any of the terms, conditions
or provisions of (i) the partnership agreement of PSIL, (ii) to the Knowledge of
PSIL, any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to any of PSIL or any of its properties or assets, or (iii) any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, or any Operating Agreement (as

 

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defined in Section 5.23) to which PSIL is now a party or by which PSIL or its
properties or assets may be bound or affected.

 

(c)           No declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body or
authority is necessary for the execution and delivery of this Agreement by PSIL
or the consummation by PSIL of the transactions contemplated hereby.

 

Section 3.4.  Financial Statements.  PSIL has furnished Parent and Newco with a
balance sheet, income statement and statement of cash flow of PSIL as of August
31, 2003, (collectively, the “Financial Statements”).  The Financial Statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, and are accurate and complete (except for the absence of
footnote disclosures and for the absence of normal year-end audit adjustments
which are not material in the aggregate) and fairly present the financial
condition and result of operations of PSIL.  The fiscal 2003 budget and capital
budget with respect to PSIL previously furnished by PSIL to Parent (a) are true
and complete copies of PSIL’s most recent internal budgets for fiscal 2003 and
(b) were prepared by management of PSIL in good faith and on a reasonable
basis.  The Disclosure Schedule lists all intercompany transactions between or
among PSIL, CFLP, CCORE and/or the Principal since January 1, 2003.

 

Section 3.5.  Absence of Undisclosed Liabilities.  Except as disclosed in the
disclosure schedule delivered by PSIL to Newco (the “Disclosure Schedule”), PSIL
has not incurred any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except liabilities or obligations (a)
which are provided for in the Financial Statements or reflected in the notes
thereto, or (b) liabilities or obligations under this Agreement.

 

Section 3.6.  Absence of Certain Changes or Events.  Except as disclosed in the
Disclosure Schedule, since December 31, 2002, to the Knowledge of PSIL, the
business of PSIL has been conducted in the ordinary course of business
consistent with past practices, and there has not been any event, occurrence,
development or state of circumstances or facts which has had, or could
reasonably be anticipated to have, individually or in the aggregate, a Material
Adverse Effect.  Specifically, but not by way of limitation, since December 31,
2002 PSIL has not engaged in any of the actions described in Section 5.1. 
“Material Adverse Effect” means any event, occurrence, fact, condition, change,
development or effect that is or could reasonably be anticipated to be
materially adverse to the business, assets (including intangible assets),
liabilities, financial condition, results of operations, properties (including
intangible properties) or business prospects of PSIL, as applicable, taken as a
whole, which is not reflected in the August 31, 2003 Financial Statements of
PSIL.  “Knowledge” means the actual knowledge of PSIL after reasonable inquiry
of officers of PSIL.

 

Section 3.7.  Tangible Assets.  PSIL does not own any real property.  PSIL
leases the real property described in the Disclosure Schedule.  The Disclosure
Schedule sets forth a list describing all trucks, automobiles, trailers, other
titled vehicles, machinery, equipment, furniture, supplies, tools, and other
tangible personal property (“Personal Property”) owned by PSIL (the “Owned
Assets”).  The Disclosure Schedule also sets forth a description of all real
property or

 

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personal property leased by PSIL or which is otherwise used by PSIL but which is
not owned by PSIL (the “Leased Assets”).  Except as indicated in the Disclosure
Schedule, the Owned Assets and the Leased Assets constitute all of the tangible
property necessary for the conduct by PSIL of its business as now conducted.
 PSIL has good and indefeasible title to all of the Owned Assets free and clear
of all mortgages, liens, pledges, charges, or encumbrance of any nature
whatsoever, except as indicated on the Disclosure Schedule.  All of the Owned
Assets and the Leased Assets are in good, serviceable condition and fit for the
particular purposes for which they are used in the business of PSIL, subject
only to normal maintenance requirements and wear and tear reasonably expected in
the ordinary course of business.

 

Section 3.8.  Intellectual Property.  Subject to the terms of the CCORE License:

 

(a)           The Disclosure Schedule sets forth all of the following that are
owned, licensed, or used by PSIL (collectively, the “Intellectual Property
Rights”): (i) patents, patent applications, and inventions and discoveries that
may be patentable (collectively, “Patents”), (ii) all know-how, trade secrets,
confidential and proprietary information, technical information, data, process
technology, plans, drawings, and blue prints (collectively, “Trade Secrets”),
and (iii) trademarks, service marks, and trade names, and copyrights.

 

(b)           PSIL has the right to freely use the Intellectual Property Rights
and, except as indicated on the Disclosure Schedule, owns the Intellectual
Property Rights, free of any lien or encumbrance.  The Disclosure Schedule
describes any obligation of PSIL to pay royalties or other compensation to third
parties in exchange for the right to use any of the Intellectual Property
Rights.  Other than as provided in the Loan Technology Assignment, PSIL has not
assigned, hypothecated or otherwise encumbered any of the Intellectual Property
Rights.

 

(c)           PSIL may freely assign or transfer all licenses that it has with
third parties with respect to the Intellectual Property Rights.

 

(d)           Except as indicated in the Disclosure Schedule, PSIL has no
knowledge of any infringement by any other person of any of the Intellectual
Property Rights, and PSIL has not entered into any agreement to indemnify any
other party against any charge of infringement of any of the Intellectual
Property Rights.  To the Knowledge of PSIL, PSIL has not and does not violate or
infringe any intellectual property right of any other person, and PSIL has not
received any communication alleging that it violates or infringes the
intellectual property rights of any other person.  PSIL has not been sued for
infringing any intellectual property right of another person.

 

(e)           All of the issued Patents relating to the dualjet technology are
currently in compliance with formal legal requirements (including payment of
filing,

 

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examination, and maintenance fees and proofs of working or use), are valid and
enforceable, and are not subject to any maintenance fees or taxes or actions
falling due within ninety days after the Closing Date.  No such Patent has been
or is now involved in any interference, reissue, reexamination, or opposition
Proceeding.  To the Knowledge of PSIL, there is no patent or patent application
of any Third Party which potentially interferes with any such Patent.  To the
Knowledge of PSIL, no such Patent is infringed or has been challenged or
threatened in any way.

 

(f)            With respect to each Trade Secret, the documentation, if any,
relating to such Trade Secret is current and accurate.  PSIL has taken all
reasonable precautions to protect the secrecy, confidentiality, and value of all
Trade Secret (including the enforcement by PSIL of a policy requiring each
employee or contractor to execute proprietary information and confidentiality
agreements substantially in the standard form of PSIL and all current and former
employees and contractors of PSIL have executed such an agreement).  To PSIL’s
Knowledge, PSIL has good title and an absolute right to use the Trade Secrets.
The Trade Secrets are not part of the public knowledge or literature, and, to
the Knowledge of PSIL, have not been used, divulged, or appropriated either for
the benefit of any person (other than PSIL) or to the detriment of PSIL.  To the
Knowledge of PSIL, no Trade Secret is subject to any adverse claim or has been
challenged or threatened in any way or infringes any intellectual property right
of any other person.

 

Section 3.9.  Employee Benefits.  The Disclosure Schedule contains a complete
list of “employee welfare plans” (as that term is defined in Section 3(1) of the
Employee Retirement Income Security Act of 1974 (“ERISA”)) currently maintained
by PSIL or any person or trade or business under common control with PSIL, or in
which active or former employees of PSIL (collectively, the “Affected
Employees”) currently participate (which plans are hereinafter referred to as
“Welfare Plans”).  The Disclosure Schedule also contains a complete list of
“employee pension benefit plans” as that term is defined in Section 3(2) of
ERISA maintained by PSIL or any person or trade or business under common control
with PSIL, or in which any such entity currently contributes or is required to
contribute or in which Affected Employees currently participate (which plans are
hereinafter referred to as “Pension Plans”).  Neither PSIL nor any of the
Affected Employees participate or have ever participated in any “multiemployer
plan” (as that term is defined in Section 3(37) of ERISA).  The Welfare Plans
and Pension Plans, and any other plans of the type described in the first two
sentences of this Section previously applicable at any time to PSIL, are
collectively referred to as “Company Plans”.  PSIL Plan is or was in compliance
with the provisions of all applicable laws, rules and regulations, including,
without limitation, ERISA and the Code.  None of the Pension Plans has incurred
any “accumulated funding deficiency” (as defined in Section 412(a) of the
Code).  PSIL has not incurred any liability to the Pension Benefit Guaranty
Corporation under Section 4062, 4063 or 4064 of ERISA, or any withdrawal
liability under Title IV of ERISA with respect to any multiemployer plan.  The
Disclosure Schedule describes all bonuses and other compensation

 

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which will be payable to any of the employees of PSIL as a result of the
consummation of the Transactions, and any obligation to pay severance payments.

 

Section 3.10.  Litigation.  Except as described in the Disclosure Schedule,
there are no claims, suits, actions, or proceedings (a “Proceeding”) pending or,
to the Knowledge of PSIL, threatened against or relating to PSIL, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator, including but not limited to any Proceeding
relating to a claim or allegation that there has been any violation of
applicable federal or state securities laws (“Securities Law”). Except as
described in the Disclosure Schedule, PSIL is not subject to any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator.  The
Disclosure Schedule sets forth a complete description of any prior Proceeding
relating to PSIL that has been settled, dismissed, or otherwise terminated.

 

Section 3.11.  No Violation of Law.  Except as indicated in the Disclosure
Schedule, PSIL is not in violation of and has not been given notice or been
charged with any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable Securities
Law or Environmental Law) of any governmental or regulatory body or authority. 
Except as disclosed in the Disclosure Schedule, as of the date of this
Agreement, no investigation or review by any governmental or regulatory body or
authority with respect to PSIL is pending or to the Knowledge of PSIL
contemplated or threatened, nor has any governmental or regulatory body or
authority indicated an intention to conduct the same. PSIL has all permits
(including without limitation Environmental Permits (as defined in Section
3.15)), licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted (collectively, the “Company Permits”). PSIL is
not in violation of the terms of any Company Permit.

 

Section 3.12.  Insurance Policies.  The Disclosure Schedule sets forth a true
and accurate list and summary of current insurance coverage or information
concerning any self insurance program with respect to PSIL.  Except as indicated
in the Disclosure Schedule, insurance policies providing such coverage will be
outstanding and in full force and effect through the Closing Date.  Except as
indicated in the Disclosure Schedule, PSIL has not received notice from any
current insurance carrier of the intention of such carrier (a) to discontinue
any material insurance coverage afforded to PSIL; or (b) to materially increase
the premium costs of such insurance.  The types of insurance policies maintained
by PSIL and the coverage afforded by such policies with respect to the
operations of PSIL are, in the opinion of PSIL, reasonable in light of the
nature of the businesses conducted and the risks associated with such
businesses.  No application by PSIL for insurance or any bond has been denied
for any reason.

 

Section 3.13.  Taxes.  All returns and reports, including, without limitation,
information and withholding returns and reports (“Tax Returns”), of or relating
to any foreign, federal, state or local tax, assessment or other governmental
charge (“Taxes”) that are required to be filed on or before the Closing by or
with respect to PSIL has been or will be duly and timely filed.  All such tax
returns were correct and complete in all respects and all Taxes, including
interest and penalties, owed by PSIL (as shown on such Tax Returns) have been
paid.  PSIL has not agreed

 

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to extend the statute of limitations for the collection of any Taxes.  There is
no unpaid pending claim against PSIL with respect to any Taxes, and no
assessment, deficiency or adjustment has been asserted or proposed with respect
to any Tax Return of or with respect to PSIL.  The total amounts set up as
liabilities for current and deferred Taxes in the Financial Statements have been
prepared in accordance with generally accepted accounting principles and are
sufficient to cover the payment of all Taxes, including any penalties or
interest thereon and whether or not assessed or disputed, that are, or are
hereafter found to be, or to have been, due with respect to the operations of
PSIL through the periods covered thereby or the current life or use of their
respective assets.  PSIL has (and as of the Closing Date will have) made all
deposits (including estimated tax payments for taxable years for which the
consolidated federal income tax return is not yet due) required with respect to
Taxes.  No waiver or extension of any statute of limitation as to any federal,
local or foreign Tax matter has been given by or requested from PSIL.

 

Section 3.14.  Labor Matters.  The Disclosure Schedule sets forth a list of the
employees of PSIL, or the employees of affiliated entities whose services are
utilized by PSIL, and indicates the compensation paid or payable to such
employees with respect to the calendar year of 2003.  Except as set forth in the
Disclosure Schedule, (a) there are no material controversies pending or, to the
Knowledge of PSIL, threatened between PSIL or any of its affiliates on the one
hand and any of its employees on the other, and (b) neither PSIL nor any of its
affiliates is a party to a collective bargaining agreement of other labor union
contract applicable to any such employees, nor does PSIL have any Knowledge of
any activities or proceedings of any labor union to organize any such employees.

 

Section 3.15.  Environmental Matters.  Except as set forth in the Disclosure
Schedule:

 

(a)                                  no notice, demand, request for information,
citation, summons or order has been received, no complaint has been served, no
penalty has been assessed, and no investigation, action, claim, suit, proceeding
or review is pending or, to the Knowledge of PSIL, is threatened by any
governmental entity or other person with respect to PSIL relating to or arising
out of any Environmental Law (as defined below);

 

(b)                                 To the Knowledge of PSIL, PSIL is and has
been in compliance with all Environmental Laws and Environmental Permits (as
defined below); and

 

(c)                                  there are no liabilities of or relating to
PSIL of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, arising under or relating to any Environmental Law
and there are no facts, conditions, situations or set of circumstances which
could reasonably be expected to result in or be the basis for any such
liability.

 

For purposes of this Section, “PSIL” shall include any entity which is, in whole
or in part, a predecessor of PSIL.  For purposes of this Agreement, (i)
“Environmental Laws” means any and all laws, statutes, ordinances, rules,
regulations, orders or determinations of any Governmental Authority (as defined
below) pertaining to health or the environment currently in effect in any

 

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and all jurisdictions in which PSIL owns property or conducts business,
including without limitation, the Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980, as amended,
the Federal Water Pollution Control Act, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Resource Conservation and Recovery Act of
1976, as amended, the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Superfund Amendments and Reauthorization Act of
1986, as amended, the Hazardous Materials Transportation Act, as amended, and
all other environmental conservation or protection laws, (ii) the term
“Governmental Authority” includes the United States of America, as well as any
other foreign jurisdiction or state, county, city and political subdivisions in
which PSIL owns property or conducts business, and any agency, department,
commission, board, bureau or instrumentality of any of them that exercises
jurisdiction over PSIL, and (iii) “Environmental Permits” means all permits,
licenses, certificates, registrations, identification numbers, applications,
consents, approvals, variances, notices of intent, and exemptions necessary for
the ownership, use and/or operation of any facility or operation of PSIL to
comply with requirements of Environmental Laws.

 

Section 3.16.  Material Contracts. The Disclosure Schedule lists all agreements,
leases, commitments, contracts, undertakings or understandings to which PSIL is
a party, including but not limited to service agreements, manufacturing
agreements, purchase or sale agreements, supply agreements, distribution or
distributor agreements, real estate leases, purchase orders, customer orders and
equipment rental agreements (the “Operating Agreements”).  Each Operating
Agreement is a valid, binding and enforceable agreement of PSIL and, to the
Knowledge of PSIL, the other parties thereto.  Except as indicated in the
Disclosure Schedule, there has not occurred any breach or default under any
Operating Agreement on the part of PSIL or, to the Knowledge of PSIL, any other
parties thereto.  Except as indicated in the Disclosure Schedule, no event has
occurred which with the giving of notice or the lapse of time, or both, would
constitute a default under any Operating Agreement on the part of PSIL, or, to
the Knowledge of PSIL, any of the other parties thereto.  There is no dispute
between the parties to any Operating Agreement as to the interpretation thereof
or as to whether any party is in breach or default thereunder, and no party to
any Operating Agreement has indicated its intention to, or suggested it may
evaluate whether to, terminate any Operating Agreement.

 

Section 3.17.  Brokers and Finders.  PSIL has not entered into any contract,
arrangement or understanding with any person or firm which may result in the
obligation of Parent, Newco, PSIL or the Principal to pay any finder’s fees,
brokerage or agent commissions or other like payments in connection with the
transactions contemplated hereby.  There is no claim for payment by PSIL of any
investment banking fees, finder’s fees, brokerage or agent commissions or other
like payments in connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby.

 

Section 3.18.  Purchase for Own Account.  The rights under the Royalty Agreement
to be acquired by PSIL pursuant to the terms hereof (the “Rights”) are being or
will be acquired by PSIL for its own account and with no intention of
distributing or reselling the Rights or any part thereof in any transaction that
would be in violation of the securities laws of the United States of America, or
any state, without prejudice, however, to the rights of PSIL at all times to
sell or

 

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otherwise dispose of all or any part of the Rights under an effective
registration statement under the Securities Act, or under an exemption from such
registration available under the Securities Act.  PSIL represents that it is
experienced in evaluating companies such as Newco and has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment and has the ability to suffer the total loss
of his investment.  PSIL further represent that they have had the opportunity to
ask questions of and receive answers from executive officers of Newco concerning
the terms and conditions of the offering of Rights and to obtain additional
information to the satisfaction of PSIL.  PSIL understands that the Rights will
not be registered at the time of their issuance under the Securities Act for the
reason that the sale provided for in this Agreement is exempt pursuant to
Section 4(2) of the Securities Act and that the reliance of Newco on such
exemption is predicated in part on the representations of PSIL set forth herein.

 

Section 3.19.  Solvency.

 

(a)           PSIL will not be insolvent immediately after the Closing.  As used
in this Section, “insolvent” means that the sum the debts and other probable
liabilities of PSIL exceed the present fair saleable value of the assets of
PSIL.

 

(b)           Immediately after giving effect to the consummation of the
Transactions, PSIL’s only significant asset will be its rights under the Royalty
Agreement and PSIL will have no Known liabilities, other than liabilities to
persons or entities that have agreed in writing to defer payment until funds are
available under the Royalty Agreement or otherwise.  Accordingly, immediately
after giving effect to the consummation of the Transactions,  (i) PSIL will be
able to pay its Known liabilities as they become due in the usual course of its
business, (ii) PSIL will not have unreasonably small capital with which to
conduct its present or proposed business (as it does not propose to engage in
active business operations after Closing), and (iii) taking into account all
pending and threatened litigation Known to PSIL, final judgments against PSIL in
actions for money damages are not reasonably anticipated to be rendered at a
time when, or in amounts such that, PSIL will be unable to satisfy any such
judgments promptly in accordance with their terms (taking into account the
maximum probable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered) as well as all Known
liabilities of PSIL.  The cash available to PSIL, after taking into account all
other anticipated uses of the cash, will be sufficient to pay promptly in
accordance with their terms all Known liabilities.  For purposes of this Section
3.19, the term “Known liabilities” shall mean debts and judgments of PSIL which
(i) are now due and payable, (ii) will become due and payable after Closing with
respect to which PSIL has incurred a contractual obligation as of Closing, or
(iii) PSIL anticipates it

 

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will incur in the near term after Closing, including but not limited to amounts
arising from pending and threatened litigation of PSIL.

 

Section 3.20.  Disclosure.  No representation or warranty of PSIL or the
Principal set forth hereunder or in the schedules attached hereto or in any
certificate delivered pursuant to Section 7.3(a) contains any untrue statement
of the material fact or omits to state a material fact necessary in order to
make the statements contained herein or therein not misleading.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

OF CFLP AND CCORE

 

CCORE and CFLP, jointly and severally, represent and warrant to Newco and Parent
as follows:

 

Section 4.1.  Organization and Qualification.  CCORE is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of Texas and has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted.  CFLP is a limited partnership duly organized, validly existing
and in good standing under the laws of Wyoming and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted.

 

Section 4.2.  Authority; Non-Contravention; Approvals.

 

(a)                                  CCORE and CFLP each has full partnership
power and authority as the case may be to execute and deliver this Agreement
and, to consummate the transactions.  This Agreement has been approved by the
sole general partner of each of CCORE and CFLP and no other partnership
proceedings on the part of CCORE and CFLP are necessary to authorize the
execution and delivery of this Agreement or the consummation by CCORE and CFLP
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by CCORE and CFLP, and, assuming the due authorization, execution
and delivery hereof by Parent, Newco, PSIL, and the Principal, constitutes a
valid and legally binding agreement of CCORE and CFLP, enforceable against CCORE
and CFLP in accordance with its terms, except that such enforcement may be
subject to (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors’ rights generally
and (b) general equitable principles.

 

(b)                                 Subject to the terms of the CCORE License,
the execution and delivery of this Agreement by CCORE and CFLP and the
consummation by CCORE and CFLP of the transactions contemplated hereby do not
and will not violate or result in a breach of any provision of, or constitute a
default (or

 

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an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or result in a right of termination or acceleration under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of CCORE and CFLP under any of the terms,
conditions or provisions of (i) the limited partnership agreements of CCORE and
CFLP, (ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order, injunction, writ, permit or license of any court or governmental
authority applicable to CCORE and CFLP or any of their respective properties or
assets, or (iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit or concession to which either CCORE and CFLP is now a party or
by which CCORE or CFLP or any of their respective properties or assets may be
bound or affected.

 

(c)                                  No declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any governmental
or regulatory body or authority is necessary for the execution and delivery of
this Agreement by CCORE or CFLP or the consummation by CCORE or CFLP of the
transactions contemplated hereby.

 

Section 4.3.  Litigation.  There are no Proceedings pending or, to the Knowledge
of CCORE or CFLP, threatened against or relating to either of CCORE and CFLP
before any court, governmental department, commission, agency, instrumentality
or authority, or any arbitrator, including but not limited to any Proceeding
relating to a claim or allegation that there has been any violation of
Securities Law.  Neither of CCORE and CFLP is subject to any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or authority, or any arbitrator.  The Disclosure
Schedule sets forth a complete description of any prior Proceeding relating to
CCORE and CFLP that has been settled, dismissed, or otherwise terminated.

 

Section 4.4.  No Violation of Law.  Neither CCORE nor CFLP is in violation of or
has been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgment (including, without limitation,
any applicable Securities Law or Environmental Law) of any governmental or
regulatory body or authority.  No investigation or review by any governmental or
regulatory body or authority with respect to CCORE or CFLP is pending or
threatened, nor has any governmental or regulatory body or authority indicated
an intention to conduct the same. CCORE and CFLP have all permits (including
without limitation Environmental Permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations, consents and approvals
necessary to conduct their businesses as presently conducted. CCORE and CFLP are
not in violation of the terms of any such permits.

 

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ARTICLE V

CONDUCT OF BUSINESS PENDING THE TRANSACTIONS

 

Section 5.1.  Conduct of Business of PSIL.  Prior to the Effective Time, PSIL
shall operate its business in, and only in, the usual, regular and ordinary
course of business in substantially the same manner as operated on the date of
this Agreement.  Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Effective Time, PSIL will not:

 

(a)                                  Amend its charter or bylaws;

 

(b)                                 Merge or consolidate with or agree to merge
or consolidate with, or purchase or agree to purchase all or substantially all
of the assets of, or otherwise acquire any corporation, partnership, association
or other business organization or division thereof;

 

(c)                                  Sell, lease or otherwise dispose of, or
agree to sell, lease or otherwise dispose of, any of its assets;

 

(d)                                 Make or declare a dividend or other
distribution to any of its partners, or redeem any of its partnership interests;

 

(e)                                  Issue any partnership interests or any
rights to acquire any partnership interests;

 

(f)                                    Enter into any contract relating to the
Intellectual Property Rights;

 

(g)                                 Adopt, amend or terminate any Company Plan;

 

(h)                                 Amend or terminate any Operating Agreement;

 

(i)                                     Enter into any transaction or agreement
with the Principal, CCORE, or CFLP, other than as contemplated pursuant to the
Transactions;

 

(j)                                     Enter into or modify any employment or
severance agreement with any director, officer, or employee, or agree to
increase the compensation of any officer, director or employee;

 

(k)                                  Make any capital expenditure; or

 

(l)                                     Incur any indebtedness other than the
Loan.  As used in the preceding sentence, the term “indebtedness” does not
include liability to vendors incurred in the ordinary course of PSIL’s business.

 

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Section 5.2.  Agreement of the Principal.  The Principal will not, prior to the
Effective Time, (a) take any action which would cause PSIL to violate the terms
of Section 5.1, or (b) transfer any partnership interests of PSIL.

 

Section 5.3.  Business Organization.  Prior to the Effective Time, PSIL and
Principal shall use their commercially reasonable best efforts to (a) preserve
intact the business organization of PSIL, (b) keep available the services of the
officers and employees of PSIL, (c) preserve the good will of PSIL, (d) maintain
and keep the properties and assets of PSIL in as good a repair and condition as
presently exists, (e) maintain the rights of PSIL with respect to the
Intellectual Property Rights, and (f) maintain in full force and effect the
insurance coverage of PSIL.  If PSIL does not have the financial resources to
take any specific action required pursuant to this Section, PSIL shall notify
Newco in writing of such fact and shall request in writing an advance pursuant
to the Loan in order to fund the taking of such action.  Newco, may, in its
absolute discretion, make or decline to make the requested advance.

 

Section 5.4.  Acquisition Transactions.

 

(a)           After the date hereof and prior to the Closing or earlier
termination of this Agreement, neither PSIL nor the Principal will initiate,
solicit, negotiate, encourage or provide confidential information to facilitate,
and PSIL or the Principal shall, and shall cause any officer, director or
employee of any of PSIL, or any attorney, accountant, investment banker,
financial advisor or other agent retained by any of them to, not initiate,
solicit, negotiate, encourage or provide non-public or confidential information
to facilitate, any proposal or offer to acquire all or any substantial part of
the business or properties of PSIL, any partnership interests of PSIL, or any
portion of the Intellectual Property Rights, whether by merger, purchase of
assets, license, tender offer or otherwise, whether for cash, securities or any
other consideration or combination thereof (an “Acquisition Transaction”).

 

(b)           Notwithstanding the provisions of paragraph (a) above, PSIL may,
in response to an unsolicited written proposal with respect to an Acquisition
Transaction (“Acquisition Proposal”), furnish (subject to the execution of a
confidentiality agreement substantially similar to the confidentiality
provisions of the Confidentiality Agreement executed by Parent in connection
herewith for the benefit of PSIL (the “Company Confidentiality Agreement”))
confidential or non-public information concerning its business, properties or
assets to any corporation, partnership, person or other entity or group (a
“Potential Acquiror”) and negotiate with such Potential Acquiror if based upon
advice of its outside legal counsel and financial advisors, the general partner
of PSIL, determines in good faith that such action to provide such confidential
or non-public information to such Potential Acquiror is necessary for the
general partner of PSIL, to act in a manner which is consistent with its
fiduciary duties to its partners; provided, however, that PSIL is prohibited
from providing to a Potential

 

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Acquiror any confidential or non-public information not previously furnished to
Parent.  It is understood and agreed that negotiations conducted in accordance
with this paragraph (b) shall not constitute a violation of Section 5.4 (a).

 

(c)           PSIL shall immediately notify Parent after receipt of any
Acquisition Proposal or any request for non-public information relating to PSIL
in connection with an Acquisition Proposal or for access to the properties,
books or records of PSIL by any person or entity that informs the general
partner of PSIL that it is considering making, or has made, an Acquisition
Proposal.  Such notice to Parent shall be made orally and in writing and shall
indicate in reasonable detail the identity of the Potential Acquiror and the
terms and conditions of such proposal, inquiry or contact.

 

ARTICLE VI

ADDITIONAL AGREEMENTS

 

Section 6.1.  Partners’ Approvals.  Subject to the fiduciary duties of the
general partner of PSIL under applicable law, PSIL shall, as promptly as
practicable, submit this Agreement and the Transactions for the approval and
adoption by the holders of a majority of its partnership interests which are not
held by the Principal or any of his affiliates (the “PSIL Partners’”), at a
meeting of its partners (the “PSIL Partners’ Approval”).  Such meeting of
partners shall be held as soon as practicable, and shall be referred to herein
as the “Partners’ Meeting.”  PSIL shall provide written notice of the Partners’
Meeting to the PSIL Partners, and conduct the Partners’ Meeting, in compliance
with all applicable partnership law and Securities Law.  All notices to be
provided to the PSIL Partners with respect to the Partners’ Meeting or related
to the Transactions shall be provided to Parent and Newco for their review at
least two (2) business days before their transmittal.

 

Section 6.2.  Cooperation.  PSIL shall afford to the Parent and Newco and their
respective accountants, counsel, financial advisors and other representatives
reasonable access during normal business hours throughout the period prior to
the Effective Time to all of its properties, books, contracts, personnel,
representatives of or contacts with governmental or regulatory authorities,
agencies or bodies, commitments, and records (including, but not limited to, Tax
Returns and any and all records or documents which are within the possession of
governmental or regulatory authorities, agencies or bodies, and the disclosure
of which PSIL can facilitate or control) and, such parties as its
representatives may reasonably request. Any investigation pursuant to this
Section shall be conducted in such manner as not to interfere unreasonably with
the conduct of the business of PSIL or with the performance of any of the
employees of PSIL.  No investigation pursuant to this Section shall affect any
representation or warranty made by any party.

 

Section 6.3.  License Agreements.  At the Closing, the Principal, CCORE and CFLP
shall execute and deliver to Newco the New License Agreement.

 

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Section 6.4.  Expenses and Fees.

 

(a)                                  All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses, unless otherwise agreed.

 

(b)                                 Notwithstanding (a) above, PSIL agrees to
pay to Parent (i) a fee equal to $100,000 plus (ii) all documentable
out-of-pocket costs and expenses reasonably incurred by Parent and Newco in
connection with this Agreement and the transactions contemplated hereby,
including without limitation, all attorney’s fees, accountant’s fee and broker’s
and investment banker’s fees incurred in connection with this Agreement and the
transactions contemplated hereby, if (A) PSIL terminates this Agreement pursuant
to clause (v) of Section 9.1(a); (B) Parent terminates this Agreement pursuant
to clause (iv) of Section 9.1(b); or (C) (1) Parent terminates this Agreement
pursuant to clause (v) of Section 9.1(b) or PSIL terminates this Agreement
pursuant to clause (vi) of Section 9.1(a), and (2) on January 21, 2004 (if a
vote has not earlier been held at the Partners’ Meeting), or at the time of such
failure to so approve the Transactions or this Agreement, there shall exist or
have been proposed an Acquisition Proposal.

 

Section 6.5.  Agreement to Cooperate.

 

(a)                                  Subject to the terms and conditions herein
provided, each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including using its reasonable efforts to obtain all necessary, proper or
advisable waivers, consents and approvals under applicable laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement, including using its reasonable efforts to obtain all necessary or
appropriate waivers, consents or approvals of third parties required in order to
preserve material contractual relationships of PSIL and to lift any injunction
or other legal bar to the Transactions (and, in such case, to proceed with the
Transactions as expeditiously as possible).

 

(b)                                 In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, whether before or after the Effective Time, the parties
hereto agree to cooperate and use their reasonable efforts to defend against and
respond thereto; provided, however, that in the event any such claim,

 

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action, suit, investigation or other proceeding is commenced against PSIL or any
other party hereto by any governmental body or other person or other legal or
administrative proceeding is commenced against PSIL or Principal, Parent shall
have the right, at its own expense, to participate therein, and PSIL or
Principal will not settle any such litigation without the consent of Parent,
which consent will not be unreasonably withheld.

 

Section 6.6.  Public Statements.  The parties shall consult with each other
prior to issuing any press release or any written public statement with respect
to this Agreement or the transactions contemplated hereby and shall not issue
any such press release or written public statement without the consent of the
other party, which consent shall not be unreasonably withheld.

 

Section 6.7.  Notification of Certain Matters.  Each of the Principal, PSIL,
Parent and Newco agrees to give prompt notice to each other of, and to use their
respective reasonable best efforts to prevent or promptly remedy, (a) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect (or in all respects in the case of
any representation or warranty containing any materiality qualification) at any
time from the date hereof to the Effective Time and (b) any material failure (or
any failure in the case of any covenant, condition or agreement containing any
materiality qualification) on its part to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 6.7
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.

 

Section 6.8.  Additional Financing.  Within a reasonable period of time
following the Closing, Newco will use its reasonable best efforts to obtain the
financing required to promptly and reasonably develop, complete, test, and
commercially exploit the Intellectual Property Rights.  It is the present
intention of Newco to obtain financing of between $10 million and $20 million in
the form of equity, debt or lease financing as soon as practicable following the
Closing.  Notwithstanding the foregoing, Newco will not be considered in breach
of this provision if after Closing it implements an alternative financing plan,
or is unsuccessful in the implementation of its financing plan.

 

Section 6.9.  Dissolution.  PSIL will not dissolve or liquidate at any time
after Closing without the consent of Newco, which consent may be given or
withheld in its absolute and sole discretion.

 

Section 6.10.  Name Change.  At or prior to Closing, PSIL will change its name
to a name that does not include the word “ProDril.”

 

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ARTICLE VII

CONDITIONS TO CLOSING

 

Section 7.1.  Conditions to Each Party’s Obligation to Effect the Transactions.
 The respective obligations of each party to effect the Transactions shall be
subject to the fulfillment or waiver, if permissible, at or prior to the
Effective Time of the following conditions:

 

(a)                                  no preliminary or permanent injunction or
other order or decree by any federal or state court which prevents the
consummation of the Transactions shall have been issued and remain in effect
(each party agreeing to use its reasonable efforts to have any such injunction,
order or decree lifted);

 

(b)                                 no action shall have been taken, and no
statute, rule or regulation shall have been enacted, by any state or federal
government or governmental agency in the United States which would prevent the
consummation of the Transactions or make the consummation of the Transactions
illegal;

 

(c)                                  the partners of CCORE shall have approved
its participation in the Transactions as required pursuant to the partnership
agreement of CCORE and in accordance with applicable partnership law; and

 

(d)                                 the PSIL Partners’ Approval shall have been
obtained.

 

Section 7.2.  Conditions to Obligation of PSIL to Effect the Transactions. 
Unless waived by PSIL, the obligation of PSIL to effect the Transactions shall
be subject to the fulfillment at or prior to the Effective Time of the following
additional conditions:

 

(a)                                  Parent and Newco shall have performed in
all material respects (or in all respects in the case of any agreement
containing any materiality qualification) their agreements contained in this
Agreement required to be performed on or prior to the Closing Date and the
representations and warranties of Parent and Newco contained in this Agreement
shall be true and correct in all material respects (or in all respects in the
case of any representation or warranty containing any materiality qualification)
on and as of the date made and on and as of the Closing Date as if made at and
as of such date, and PSIL shall have received a certificate executed on behalf
of Parent by the President or a Vice President of Parent and on behalf of Newco
by the President and Chief Executive Officer or a Vice President of Newco to
that effect.

 

(b)                                 Newco shall have issued securities in
exchange for a consideration to Newco of at least $1,000,000, less the balance
of any amounts loaned by Parent to ProDril Services Incorporated prior to the
Effective Time.

 

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Section 7.3.  Conditions to Obligations of Parent and Newco to Effect the
Transactions.  Unless waived by Parent and Newco, the obligations of Parent and
Newco to effect the Transactions shall be subject to the fulfillment at or prior
to the Effective Time of the following additional conditions:

 

(a)                                  PSIL, Principal, CFLP, and CCORE shall have
performed in all material respects (or in all respects in the case of any
agreement containing any materiality qualification) their agreements contained
in this Agreement required to be performed on or prior to the Closing Date and
the representations and warranties of PSIL, CFLP, CCORE and Principal contained
in this Agreement shall be true and correct in all material respects (or in all
respects in the case of any representation or warranty containing any
materiality qualification) on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and Newco shall have received a
certificate executed on behalf of PSIL, CFLP, and CCORE by the chief executive
officer of the respective entity, or its general partner, and also by the
Principal individually, to that effect;

 

(b)                                 Since August 31, 2003, there shall have been
no changes that constitute, and no event or events shall have occurred which
have resulted in or constitute, a Material Adverse Effect (other than changes or
events due to the lack of funds to meet PSIL’s ongoing obligations which are
promptly disclosed with advance written notice to Newco);

 

(c)                                  Parent shall have received a legal opinion,
in form reasonably satisfactory to Parent concerning the enforceability of the
agreements executed by PSIL, CFLP, and CCORE at Closing and that this Agreement,
and that manner of its adoption and approval by the directors of PSIL and the
PSIL Partners comply with the requirements of the applicable partnership law;

 

(d)                                 The Principal shall have entered into an
employment agreement with Newco in form reasonably satisfactory to Newco;

 

(e)                                  All third party consents required to the
consummation of the Transactions described in the Disclosure Schedule relating
to any permit, license or agreement shall have been obtained; and

 

(f)                                    Newco shall have acquired substantially
all of the assets of ProDril Services Incorporated pursuant to terms and
conditions acceptable to Newco.

 

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ARTICLE VIII

INDEMNIFICATION

 

Section 8.1.  Indemnification of Newco.  PSIL, CCORE, CFLP, and the Principal
each agree to jointly and severally indemnify Parent and Newco (including their
respective officers, directors, employees and agents) against, and hold each of
them harmless from and against, any and all claims, actions, causes of action,
arbitrations, proceedings, losses, damages, liabilities, judgments and expenses
(including, without limitation, reasonable attorneys’ fees) (“Indemnified
Amounts”) incurred by the indemnified party as a result of (a) any error,
inaccuracy, breach or misrepresentation in any of the representations and
warranties made by or on behalf of CFLP, CCORE, the Principal, or PSIL in this
Agreement, (b) any violation or breach by the Principal, CFLP, CCORE, or PSIL or
default by the Principal, CFLP, CCORE or PSIL under the terms of this Agreement
or (c) any liabilities or obligations of PSIL other than the Assumed
Liabilities.  The indemnified party shall be entitled to recover its reasonable
and necessary attorneys’ fees and litigation expenses incurred in connection
with successful enforcement of its rights under this Section.

 

Section 8.2.  Indemnification of Companies.  Parent and Newco will indemnify
PSIL against, and hold it harmless from and against, any and all Indemnified
Amounts incurred by PSIL (and its officers, directors, employees, and agents) as
a result of (a) any error, inaccuracy, breach or misrepresentation in any of the
representations and warranties made by or on behalf of Parent or Newco in this
Agreement, (b) any violation or breach by Parent or Newco of or default by
Parent or Newco under the terms of this Agreement, and (c) the Assumed
Liabilities.  PSIL shall be entitled to recover their reasonable and necessary
attorney’s fees and litigation expenses incurred in connection with successful
enforcement of their rights under this Section.

 

Section 8.3.  Procedure.  The defense of any claim, action, suit, proceeding or
investigation subject to indemnification under this Article shall be conducted
by the indemnifying party.  If the indemnifying party fails to conduct such
defense, the indemnified parties may retain counsel satisfactory to them and the
indemnifying party shall pay all reasonable fees and expenses of such counsel
for the indemnified parties promptly as statements therefor are received.  The
party not conducting the defense will use reasonable efforts to assist in the
vigorous defense of any such matter, provided that such party shall not be
liable for any settlement of any claim effected without its written consent,
which consent, however, shall not be unreasonably withheld.  Any indemnified
party wishing to claim indemnification under this Article VIII, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify the
indemnifying party (but the failure so to notify a party shall not relieve such
party from any liability which it may have under this Article VIII except to the
extent such failure materially prejudices such party).  If the indemnifying
party is responsible for the attorneys’ fees of the indemnified parties, then
the indemnified parties as a group may retain only one law firm to represent
them with respect to each such matter unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more indemnified parties.

 

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Section 8.4.  Survival.  Except as set forth in the following sentence, the
representations, warranties and indemnities set forth in this Agreement and in
any certificate or instrument delivered in connection herewith shall be
continuing and shall survive (subject to any applicable statute of limitations
with respect to any claim by a third party) the Closing until the third
anniversary of the Closing Date.  The period during which the representations
and warranties survive pursuant to this section is referred to herein with
respect to such representations and warranties as the “Survival Period”.  After
the expiration of the applicable Survival Period, the representations and
warranties shall thereafter terminate and be of no further force and effect
unless a written notice asserting a claim shall have been made pursuant to this
Article VIII within the Survival Period with respect to such matter.  Any claim
for indemnification made during the Survival Period shall remain in effect for
purposes of such indemnification notwithstanding such claim may not be resolved
within the Survival Period.  The indemnification obligations under this Article
VIII shall apply regardless of whether any suit or action results solely or in
part from the active, passive or concurrent negligence of the indemnified
party.  The rights of the parties to indemnification under this Article VIII
shall not be limited due to any investigations heretofore or hereafter made by
such parties or their representatives, regardless of negligence in the conduct
of any such investigations.  The representations, warranties and covenants and
agreements made by the parties shall not be deemed merged into any instruments
or agreements delivered in connection with the Closing or otherwise in
connection with the transactions contemplated hereby.  The sole remedy of a
party hereto for any claims, actions, causes of action, arbitrations,
proceedings, losses, damages, liabilities, judgments and expenses relating to
the Transactions shall be indemnification under this Article VIII.

 

ARTICLE IX

MISCELLANEOUS

 

Section 9.1.  Termination.  This Agreement may be terminated at any time prior
to the Closing, as follows:

 

(a)           PSIL shall have the right to terminate this Agreement:

 

(i)            if the representations and warranties of Parent and Newco shall
fail to be true and correct in all material respects (or in all respects in the
case of any representation or warranty containing any materiality qualification)
on and as of the date made or, except in the case of any such representations
and warranties made as of a specified date, on and as of any subsequent date as
if made at and as of the subsequent date and such failure shall not have been
cured in all material respects (or in all respects in the case of any
representation or warranty containing any materiality qualification) within 30
days after written notice of such failure is given to Parent by PSIL;

 

(ii)           if the Transactions are not completed by January 21, 2004
(provided that the right to terminate this Agreement under this

 

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Section 9.1(a)(ii) shall not be available to PSIL if the failure of PSIL to
fulfill any obligation to Parent or Newco under or in connection with this
Agreement has been the cause of or resulted in the failure of the Transaction to
occur on or before such date);

 

(iii)          if the Transactions are enjoined by a final, unappealable court
order;

 

(iv)          if Parent or Newco (a) fail to perform in any material respects
any of their covenants (or in all respects in the case of any covenant
containing any materiality qualification) in this Agreement, and (b) do not cure
such default in all material respects (or in all respects in the case of any
covenant containing any materiality qualification) within 30 days after written
notice of such default is given to Parent and Newco by PSIL;

 

(v)           if (a) PSIL receives an offer from any third party (excluding any
affiliate of PSIL or any group of which any affiliate of PSIL is a member) with
respect to a merger, sale of substantial assets or other business combination
involving PSIL, (B) PSIL’s general partner determines in good faith that such
offer constitutes an Acquisition Proposal which, if consummated pursuant to its
terms, would result in a transaction more favorable to the PSIL Partners than
the Transactions (a “Superior Proposal”) and resolves to accept such Superior
Proposal, and (C) PSIL shall have given Parent two (2) days’ prior written
notice of its intention to terminate this Agreement pursuant to this provision,
provided that termination shall not be effective until such time as the payment
required by Section 6.4(b) shall have been received by Parent; or

 

(vi)          if the PSIL Partners’ Approval shall not have been obtained by
January 21, 2004.

 

(b)           Parent or Newco shall have the right to terminate this Agreement:

 

(i)            if the representations and warranties of PSIL shall fail to be
true and correct in all material respects (or in all respects in the case of any
representation or warranty containing any materiality qualification) on and as
of the date made or, except in the case of any such representations and
warranties made as of a specified date, on and as of any subsequent date as if
made at and as of such subsequent date and such failure shall not have been
cured in all material respects (or in all respects in the case of any
representation or warranty containing any materiality qualification) within 30
days after written notice of such failure is given to PSIL by Newco;

 

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(ii)           if the Transactions are not completed by January 21, 2004
(provided that the right to terminate this Agreement under this Section
9.1(b)(ii) shall not be available to Newco if the failure of Parent or Newco to
fulfill any obligation to PSIL under or in connection with this Agreement has
been the cause of or resulted in the failure of the Transactions to occur on or
before such date);

 

(iii)          if PSIL (a) fails to perform in any material respect (or in all
respects in the case of any covenant containing any materiality qualification)
any of its covenants in this Agreement, and (b) does not cure such default in
all material respects (or in all respects in the case of any covenant containing
any materiality qualification) within 30 days after notice of such default is
given to PSIL by Newco;

 

(iv)          If the general partner of PSIL shall have (A) recommended to the
PSIL Partners to accept a Superior Proposal, or resolved to do so; or (B)
withdrawn, modified or changed the recommendation of this Agreement or the
Transactions in a manner adverse to Parent or Newco shall have resolved to do
so, other than in connection with the exercise of the rights of PSIL to
terminate this Agreement under Section 9.1(a)(i) or 9.1(a)(iv) as a result of a
material breach of a representation, warranty or covenant; or

 

(v)           If the PSIL Partners’ Approval shall not have been obtained by
January 21, 2004.

 

(c)           The general partner of PSIL, Newco, and Parent, mutually agree.

 

Section 9.2.  Effect of Termination.  In the event of termination of this
Agreement by pursuant to the provisions of Section 9.1, this Agreement shall
forthwith become void and there shall be no further obligations on the part of
PSIL, Parent, Newco, CCORE, CFLP or their respective officers or directors, or
the Principal (except as set forth in this Section 9.2 and in Sections 6.4 and
9.9, all of which shall survive the termination).  Nothing in this Section 9.2
shall relieve any party from liability for any breach of this Agreement.

 

Section 9.3.  Remedies.  If any legal action or other proceeding is brought for
the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party or parties shall be entitled to
recover reasonable attorneys’ fees and other costs incurred in that action or
proceeding in addition to any other relief to which it or he may be entitled at
law or equity.

 

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Section 9.4.  Notices.  All notices, consents, demands or other communications
required or permitted to be given pursuant to this Agreement shall be deemed
sufficiently given: (i) when delivered personally during a business day to the
appropriate location described below or telefaxed to the telefax number
indicated below, or (ii) five (5) business days after the posting thereof by
United States first class, registered or certified mail, return receipt
requested, with postage fee prepaid and addressed:

 

If to Parent or Newco:

 

808 Travis Street

 

 

Suite 850

 

 

Houston, Texas 77002

 

 

Telefax No. (713) 224-6361

 

 

 

With a copy to:

 

Casey W. Doherty

 

 

Doherty, Doherty & Adams, L.L.P.

 

 

1717 St. James Place, Suite 520

 

 

Houston, Texas 77056

 

 

Telefax No. (713) 572-1001

 

 

 

If to PSIL, CFLP, CCORE

 

 

or the Principal:

 

4239 Pat O’Hara Mountain Drive

 

 

Cody, Wyoming 82414-9205

 

 

Telefax No. (307) 587-2595

 

 

 

With a copy to:

 

Bill Stone

 

 

Scheef & Stone, L.L.P.

 

 

5956 Sherry Lane, Suite 1400

 

 

Dallas, Texas 75225

 

 

TELEFAX NO. (214) 706-4242

 

Section 9.5.  Successors.  This Agreement shall be binding upon each of the
parties upon their execution, and inure to the benefit of the parties hereto and
their successors and assigns.

 

Section 9.6.  Severability.  In the event that any one or more of the provisions
contained in this Agreement or in any other instrument referred to herein,
shall, for any reason, be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision of this Agreement or any such other instrument.

 

Section 9.7.  Section Headings.  The section headings used herein are
descriptive only and shall have no legal force or effect whatsoever.  Except to
the extent the context specifically indicates otherwise, all references to
articles and sections refer to articles and sections of this Agreement, and all
references to the exhibits and schedules refer to exhibits and schedules
attached hereto, each of which is made a part hereof for all purposes.

 

Section 9.8.  Gender.  Whenever the context so requires, the masculine shall
include the feminine and neuter, and the singular shall include the plural and
conversely.

 

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Section 9.9.  Governing Law.  This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas, U.S.A., applicable to
agreements and contracts executed and to be wholly performed there, without
giving effect to the conflicts of law principles thereof.  Exclusive venue for
any action brought hereunder shall lie in Harris County, Texas.

 

Section 9.10.  Multiple Counterparts.  This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original.

 

Section 9.11.  Waiver.  Any waiver by either party to be enforceable must be in
writing and no waiver by either party shall constitute a continuing waiver.

 

Section 9.12.  Entire Agreement.  This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof.

 

Section 9.13.  No Assumption Against Draftsman.  Each party hereto has been
represented by counsel with respect to the negotiation and drafting of this
Agreement and all related documents.  Accordingly, each party agrees that
ambiguities with respect to any language contained herein or therein shall not
be resolved against the drafting party.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and
year first set forth above.

 

 

 

 

 

 

 

PARTICLE DRILLING, INC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ Prentis Tomlinson

 

 

 

 

 

 

 

 

Prentis Tomlinson, Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PRODRIL PARTNERS LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ Prentis Tomlinson

 

 

 

 

 

 

 

 

Prentis Tomlinson, Chief Executive Officer

 

 

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PRODRIL SERVICES INTERNATIONAL

 

LIMITED, a Texas limited partnership

 

 

 

By:

LTL65429, L.P.,

 

 

a Texas limited partnership (its general

 

 

partner)

 

 

 

 

 

 

 

 

By:

/s/ Harry B. Curlett

 

 

 

 

Harry B. Curlett, General Partner

 

 

 

 

PRINCIPAL:

 

 

 

 

 

 

/s/ Harry B. Curlett

 

HARRY B. CURLETT

 

 

 

CCORE TECHNOLOGY AND LICENSING,

 

LTD., a Texas limited partnership

 

 

 

By:

/s/ Harry B. Curlett

 

 

 

Harry B. Curlett, General Partner

 

 

 

CURLETT FAMILY LIMITED

 

PARTNERSHIP, LTD.,

 

A Wyoming limited partnership

 

 

 

By:

Patriarch, LLC, a Wyoming limited liability

 

 

Company (its general partner)

 

 

 

 

 

 

 

 

By:

/s/ Harry B. Curlett

 

 

 

Harry B. Curlett, Manager

 

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