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:


 





















 


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


 


2





















 


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


 


3





















 


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


 


4





















 


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


 


5





















 


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


 


6





















 


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,


 


7





















 


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


 


8





















 


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


 


9





















 


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


 


11





















 


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


 


13





















 


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.


 


14





















 


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


 


16





















 


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,


 


18





















 


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.


 


20





















 


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


 


23





















 


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;


 


24





















 


(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.


 


25





















 


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.


 


26





















 


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

  	
   

  



 


27





















 


	
   

  	
  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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