Document:

<PAGE>

                                                                   Exhibit 10.25

                              FIRST AMENDMENT TO
                            ESI EXCESS SAVINGS PLAN

      This First Amendment to ESI Excess Savings Plan is hereby adopted by ITT
Educational Services, Inc. effective as of October 1, 2000.

                                   Recitals
                                   --------

      A. ITT Educational Services, Inc. ("ESI") adopted the ESI Excess Savings
         Plan (the "Plan") in June of 1998.

      B. ESI now wishes to amend the Plan.

                                   Amendment
                                   ---------

      Effective October 1, 2000, Subsection 3.02(a) of the Plan is amended to
read as follows:

      (a)  Any Eligible Employee who has met the eligibility requirements of
      Section 2.01 as of the beginning of a calendar year and who wishes to have
      Salary Deferrals credited to his Deferral Account in that calendar year
      must, prior to the beginning of that calendar year, execute an irrevocable
      Salary Reduction Agreement for the Plan year, authorizing Salary Deferrals
      under this Plan in accordance with the provisions of this Section. If an
      individual first becomes an Eligible Employee after the beginning of a
      calendar year, that Eligible Employee may, within 30 days of the later of
      the date on which he first becomes an Eligible Employee or October 1,
      2000, execute an irrevocable Salary Reduction Agreement for the remainder
      of the calendar year, authorizing Salary Deferrals under this Plan in
      accordance with the provisions of this Section. A Salary Reduction
      Agreement made pursuant to the preceding sentence shall apply only to the
      Eligible Employee's compensation earned after the date on which he
      executes the Salary Reduction Agreement. Notwithstanding any other
      provision of the Section, Salary Deferrals will not be credited on behalf
      of a Participant with respect to a particular calendar year until the
      Participant's Basic Savings under the Savings Plan for the calendar year
      have been suspended due to the Statutory Limitations. Salary Deferrals
      shall be credited to the Participant's Account at the same time they would
      have been credited to his Account under the Savings Plan if not for the
      application of the Statutory Limitations.
<PAGE>

          This First Amendment to the ESI Excess Savings Plan is executed on
behalf of ITT Educational Services, Inc. by its duly authorized officer on this
25th day of September, 2000.

                                  By  /s/ Joseph B. Rainier
                                      ---------------------------------
                                      Signature

                                         Joseph B. Rainier
                                      ---------------------------------
                                      Printed Name

                                         VP Dir. HR
                                      ---------------------------------
                                      Title<PAGE>   1

                                                                    EXHIBIT 10.1

                            STOCK PURCHASE AGREEMENT

                                  BY AND AMONG

                    SOUTH TEXAS DRILLING & EXPLORATION, INC.

                                      AND

                              THE SHAREHOLDERS OF

                           PIONEER DRILLING CO., INC.

                                 JULY 21, 2000

<PAGE>   2

                               TABLES OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
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<C>       <S>                                                               <C>

ARTICLE 1 Sale and Purchase of Stock .....................................     1
   1.1    Sale and Purchase of Stock .....................................     1
   1.2    Purchase Price .................................................     1
   1.3    Adjustment to Purchase Price ...................................     1
   1.4    Payment of Purchase Price ......................................     2

ARTICLE 2 Closing ........................................................     2
  2.1     Closing ........................................................     2
  2.2     Purchaser's Obligations at Closing .............................     3
  2.3     Sellers' Obligations at Closing; Further Assurances ............     3
  2.4     Escrow .........................................................     3

ARTICLE 3 Representations and Warranties of Sellers and the Company ......     3
  3.1     Organization, Good Standing, Power, Etc. .......................     4
  3.2     Affiliates .....................................................     4
  3.3     Effect of Agreement ............................................     4
  3.4     Capitalization .................................................     5
  3.5     Financial Statements ...........................................     5
  3.6     Books and Records ..............................................     6
  3.7     Accounts Receivable ............................................     6
  3.8     Inventory ......................................................     6
  3.9     Absence of Certain Changes or Events ...........................     7
  3.10    Insurance ......................................................     8
  3.11    Taxes ..........................................................     9
  3.12    Title to and Condition of the Assets ...........................    11
  3.13    Condition and Sufficiency of Assets ............................    11
  3.14    Real Property ..................................................    11
  3.15    Personal Property ..............................................    12
  3.16    Contracts ......................................................    12
  3.17    Legal Proceedings ..............................................    13
  3.18    Employee Benefit Plans .........................................    14
  3.19    Employees ......................................................    16
  3.20    Labor Matters ..................................................    17
  3.21    Intellectual Property ..........................................    17
  3.22    Absence of Sensitive Payments ..................................    18
  3.23    Transactions With Related Parties ..............................    19
  3.24    Banks and Powers of Attorney ...................................    19
  3.25    Compliance With Laws ...........................................    19
  3.26    Brokerage ......................................................    19
  3.27    Environmental Matters ..........................................    19
  3.28    Capital Improvements ...........................................    20
  3.29    Assets Sufficient for Conduct of Business ......................    20
  3.30    Solvency .......................................................    20
  3.31    Full Disclosure ................................................    20
  3.32    Investment Representations .....................................    21
</TABLE>

                                      -i-

<PAGE>   3
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER........................ 21
     4.1    Organization, Good Standing, Power, etc. ........................ 21
     4.2    Effect of Agreement.............................................. 22
     4.3    Investment Intent................................................ 22
     4.4    Brokerage........................................................ 22
     4.5    Size of Purchaser................................................ 22

ARTICLE 5 COVENANTS OF SELLERS AND THE COMPANY............................... 23
     5.1    Access to Properties and Records................................. 23
     5.2    Conduct of the Company Prior to Closing Date..................... 23
     5.3    Advice of Developments........................................... 23
     5.4    Drilling Rig Lease............................................... 23
     5.5    Closing Conditions............................................... 23
     5.6    Escrow Agreement................................................. 24
     5.7    Approvals of Governmental Bodies................................. 24
     5.8    Amendments....................................................... 24
     5.9    Capital Expenditures............................................. 24
     5.10   Property and Assets.............................................. 24
     5.11   Books of Account................................................. 24
     5.12   Loans by the Company............................................. 24
     5.13   Changes in Existing Agreements................................... 24
     5.14   Agreements....................................................... 24
     5.15   Good Faith Efforts............................................... 25
     5.16   Notification of Certain Matters.................................. 25

ARTICLE 6 COVENANTS OF PURCHASER............................................. 25
     6.1    Audit............................................................ 25
     6.2    Closing Conditions............................................... 25
     6.3    Advice of Developments........................................... 25
     6.4    Notice of Material Matter........................................ 25
     6.5    Escrow Agreement................................................. 25

ARTICLE 7 CONFIDENTIALITY.................................................... 26
     7.1    Confidentiality.................................................. 26
     7.2    Public Announcements............................................. 26

ARTICLE 8 CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER................... 26
     8.1    Board of Director Approval....................................... 26
     8.2    Representations and Warranties True at Closing................... 27
     8.3    Performance...................................................... 27
     8.4    No Material Adverse Change....................................... 27
     8.5    Delivery of Certain Documents.................................... 27
     8.6    No Action To Prevent Completion.................................. 27
     8.7    Opinion of Counsel for Sellers and Company....................... 27
     8.8    Release of Claims................................................ 28
     8.9    No Litigation.................................................... 29
     8.10   Resignations/Employment Agreement................................ 29
     8.11   Performance...................................................... 29
     8.12   Purchaser's Due Diligence Review................................. 29
     8.13   Financing........................................................ 29

                                      -ii-
<PAGE>   4
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS..........   29
     9.1   Representations and Warranties True at the Closing.....   29
     9.2   Performance............................................   30
     9.3   No Action To Prevent Completion........................   30
     9.4   Approvals and Consents.................................   30
     9.5   Opinion of Counsel for Purchaser.......................   30
     9.6   No Litigation..........................................   31

ARTICLE 10 TERMINATION............................................   31
     10.1  Termination Events.....................................   31
     10.2  Effect of Termination..................................   31

ARTICLE 11 INDEMNIFICATION........................................   32
     11.1  Post-Closing Indemnification be Sellers and Purchaser..   32
     11.2  Taxes..................................................   34
     11.3  Limitation on Indemnity Liability......................   35

ARTICLE 12 GENERAL................................................   35
     12.1  Amendment..............................................   35
     12.2  Entire Understanding...................................   35
     12.3  Counterparts...........................................   35
     12.4  Headings...............................................   35
     12.5  Applicable Law; Severability...........................   36
     12.6  Parties in Interest; Assignment........................   36
     12.7  Further Acts...........................................   36
     12.8  Notices................................................   36
     12.9  Expenses...............................................   37
     12.10 Arbitration............................................   37

LIST OF EXHIBITS

Exhibit A      List of Shareholders
Exhibit B      Form of Escrow Agreement
Exhibit C      Disclosure Schedules

                                     -iii-

<PAGE>   5
                            STOCK PURCHASE AGREEMENT

THIS AGREEMENT is made as of July 21, 2000, by and among South Texas Drilling &
Exploration, Inc., a Texas corporation ("Purchaser"), the shareholders (listed
in Exhibit A attached hereto and collectively referred to as "Sellers") of
Pioneer Drilling Co., Inc., a Texas corporation (the "Company"), and the
Company.

                                    RECITALS

     A.   Sellers and the Company own and operate an onshore contract drilling
business (the "Business").

     B.   Sellers own, or have rights to acquire, 15,300 shares of common
stock, ten (10) cent par value per share, of the Company, which constitute all
of the issued and outstanding shares of capital stock of the Company (the
"Stock").

     C.   Sellers desire to sell to Purchaser, and Purchaser desires to
purchase, on the terms and subject to the conditions of this Agreement, the
Stock.

     Now, therefore, in consideration of the mutual covenants, agreements,
representations, and warranties contained in this Agreement, the parties hereto
agree as follows:

                                   ARTICLE 1

                           SALE AND PURCHASE OF STOCK

     1.1  Sale and Purchase of Stock. Subject to the terms and conditions of
this Agreement, at the Closing  (as hereinafter defined), Sellers hereby agree
to sell, transfer and deliver to Purchaser and Purchaser hereby agrees to
purchase from Sellers, the Stock (the "Acquisition").

     1.2  Purchase Price. The purchase price for the Stock will be Twelve
Million Dollars ($12,000,000.00) (the "Unadjusted Purchase Price") adjusted as
provided in Section 1.3 hereof (as finally adjusted, the "Purchase Price").

     1.3  Adjustment to Purchase Price. The parties will jointly determine the
Working Capital Amount (hereinafter defined), on an unaudited basis, as of July
31, 2000. The parties agree that the accounting firm engaged to audit the
financial records of the Company (the "Accounting Firm") in accordance with
Section 5.1 hereof will in addition prepare a balance sheet as of the close of
business on July 31, 2000 (the "Purchase Balance Sheet"). From and after the
date hereof, Sellers shall provide the Accounting Firm with reasonable access
to the financial information, all work papers, schedules, memoranda, and other
documents and information used or prepared in connection with the preparation
of the Purchase Balance Sheet. The preparation of the Purchase Balance Sheet
and computation of the Working Capital Amount by the Accounting Firm shall be
conclusive and binding on Sellers and Purchaser, provided that Sellers will
have full

                                       1

<PAGE>   6
access to the Accounting Firm's workpapers, schedules, etc. If the Working
Capital Amount as of the close of business on July 31, 2000 is determined to be
less than $1,000.00, the cash portion of the Unadjusted-Purchase Price will be
reduced by an amount equal to the difference between the actual Working Capital
Amount and $1,000.00 (the "Adjustment Amount"); provided, however, such
Adjustment Amount shall be rounded to the nearest One Thousand Dollars ($1,000).
For purposes of this Agreement, "Working Capital Amount" shall mean the book
value of (a) current assets of the Company (cash, accounts receivable, notes
receivable certificates of deposit and cash equivalents), (b) all lands,
buildings and improvements of the Company and (c) the increase in the Company's
inventory levels, if any, since December 31, 1999 and (d) all capital
expenditures by the Company directly related to its drilling rigs since December
31, 1999 LESS the book value of (y) current liabilities of the Company (accounts
payable, trade payables, short term notes, and accrued wages and benefits and
estimated income tax liabilities for fiscal year 1999-2000) and (z) long term
liabilities of the Company. If the Working Capital Amount as of the close of
business on July 31, 2000, is determined to be greater than $1,000.00, up to the
first $700,000.00 of such excess will be distributed to key employees of the
Company as bonus payments for prior years of service in proportions determined
by the Company's officers, with the remainder, if any, distributed to Sellers in
respect of their stock ownership, all such distributions to be made immediately
prior to Closing, or within a reasonable time thereafter.

     1.4 Payment of Purchase Price. Purchaser shall pay the Purchase Price to
Sellers on the Closing Date as follows:

     (a) Ten Million Eight Hundred Thousand Dollars ($10,800,000.00) cash; and

     (b) Five hundred thirty three thousand, three hundred thirty three
         (533,333) shares of common stock of Purchaser (the "Shares"). The
         number of shares has been set based upon a per share price of $2.25,
         resulting in an aggregate value of $1,200,000.00. Provided, however,
         each Seller will have a one time election exercisable on or before five
         (5) days prior to Closing to require the Section 1.4(b) component of
         the Purchase Price to be satisfied by payment to such electing Seller a
         pro-rata share of $1,200,000.00 cash, subject to Section 11.1(f). The
         cash or shares elected under this Section 1.4(b) is the "Escrow Amount"
         for all purposes of this Agreement. The common stock of Purchaser
         issued as part of the Purchase Price, if any, will be issued to Sellers
         without registration under the federal Securities Act of 1933 (the
         "Act") in reliance upon the private offering exemption from the
         registration requirements of the Act.

                                   ARTICLE 2

                                    CLOSING

     2.1 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Matthews and
Branscomb, P.C., 802 N. Carancahua, Suite 1900, Corpus Christi, Texas 78470, at
10:00 a.m. on July 31, 2000, or as soon thereafter at such other time and place
as Purchaser and Sellers shall reasonably determine. The time of the Closing on
the Closing Date shall be referred to herein as the "Closing Time."

                                       2
<PAGE>   7
     2.2  Purchaser's Obligations at Closing. At Closing, Purchaser will
deliver:

     (a)  To Sellers, the cash portion of the Purchase Price, by wire transfer
to accounts designated by Sellers five (5) days prior to Closing.

     (b)  To the Escrow Agent, the Escrow Amount.

     (c)  To Sellers, all other documents and certificates required to be
delivered to Sellers pursuant to this Agreement.

     2.3  Sellers' Obligations at Closing; Further Assurances. At Closing,
Sellers will deliver to Purchaser:

     (a)  Certificates representing the Stock; plus executed stock powers
separate from certificate with respect thereto, in favor of Purchaser.

     (b)  The written approvals, consents and certificates referred to in
Section 3.3.

     (c)  All other documents and certificates required to be delivered to
Purchaser pursuant to this Agreement.

     From time to time following Closing, Sellers will execute and deliver such
instruments and take such action as Purchaser may reasonably request in order
to more effectively transfer, convey, assign and deliver to Purchaser the Stock.

     2.4  Escrow. At Closing, Sellers, Purchaser and the Escrow Agent will
execute the Escrow Agreement, substantially in the form set forth on Exhibit B.

                                   ARTICLE 3

           REPRESENTATIONS AND WARRANTIES OF SELLERS AND THE COMPANY

     To induce Purchaser to enter into and perform this Agreement, Sellers, and
the Company represent and warrant to Purchaser as follows.  Provided, however,
the representations and warranties of individual Sellers other than Lars Potter
and Wayne Squires are all made to the extent of such Seller's actual knowledge
only. The representations and warranties of the Company, Lars Potter and Wayne
Squires are made jointly and without limitation, except as otherwise qualified
below by a Knowledge standard. For purposes of this Agreement, an individual
will be deemed to have "Knowledge" of a particular fact or other matter if (i)
such individual is actually aware of such fact or other matter, or (ii) a
prudent individual under a commercially reasonable duty of inquiry could be
expected to discover or otherwise become aware of such fact or other matter in
the course of conducting a reasonably comprehensive investigation concerning the
existence of such fact or other matter. A corporation, partnership, trust or
other entity will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who is serving, or who has at any time served, as a
director, officer, partner, executor or trustee of such entity (or in any
similar capacity) has, or at any time had, Knowledge of such fact or other
matter, other than former Company employees Tom Kilburn and Mike Cassidy.

                                       3
<PAGE>   8
     3.1  Organization, Good Standing, Power, Etc.

     (a)  The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, and has full corporate
power and authority to carry on the business of the Company as it is now being
conducted, to own or hold under lease the properties and assets which it owns
or holds under lease and perform all its obligations under the agreements and
instruments to which it is a party or by which it is bound. Except as set forth
in Section 3.1 of the Disclosure Schedule, the Company is duly qualified to do
business as a foreign corporation and is in good standing under the laws of
each state or other jurisdiction in which the ownership or leasing of the
properties owned by it or the nature of the activities of the business of the
Company requires such qualification. The jurisdictions in which the Company is
qualified to do business are as follows: Texas.

     (b)  Sellers and Company have all requisite corporate or other power and
authority to execute, deliver and perform this Agreement. This Agreement has
been duly authorized by all necessary corporate action on the part of Sellers
and Company, has been duly executed and delivered by Company and Sellers and is
the legal, valid and binding obligation of Sellers and Company enforceable in
accordance with its terms. Except to the extent (if any) described in Section
3.3 of the Disclosure Schedule, as of the Closing Date, the Company and Sellers
have the absolute and unrestricted right, power, authority and capacity to
execute and deliver this Agreement and to perform their obligations hereunder.

     3.2  Affiliates. The Company does not own, directly or indirectly, any
interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business or other entity affecting the Company,
except as shown on Section 3.2 of the Disclosure Schedule.

     3.3  Effect of Agreement. The execution, delivery and performance of this
Agreement by Sellers and the Company and the consummation by them of the
transactions contemplated hereby will not require prior notice to, nor the
consent, approval or authorization of any person or to Seller's knowledge any
governmental authority, except as set forth in Section 3.3 of the Disclosure
Schedule. Upon receipt of each such consent, approval and authorization set
forth by Sellers and the Company in Section 3.3 of the Disclosure Schedule,
neither the execution and delivery of this Agreement by the Company nor the
consummation of the transactions contemplated by it will:

     (a)  violate or conflict with any provision of the Articles of
Incorporation or Bylaws or any other charter document of the Company (copies of
which have been delivered to Purchaser);

     (b)  to Seller's knowledge, violate or conflict with any provision of any
law, rule, regulation, order, permit, certificate, writ, judgment, injunction,
decree, determination, award or other decision of any court, government,
governmental agency or instrumentality, domestic or foreign, or arbitrator,
binding upon Sellers or the Company;

     (c)  result in a breach of, or constitute a default under (or with notice
or lapse of time, or both, result in a breach of or constitute a default under)
or otherwise give any person the right

                                       4
<PAGE>   9
to terminate, any material lease, license, contract or other material agreement
or instrument to which the Company is a party or by which it is bound;

     (d)  result in, or require, the creation or imposition of, any mortgage,
deed of trust, pledge, lien, security interest or other charge or Encumbrance
of any nature upon or with respect to any of the properties now owned or used
by the Company. "Encumbrance" means any security interest, mortgage, lien,
charge, adverse claim or restriction of any kind, including, but not limited to
any restriction on the use, voting, transfer, receipt of income or other
exercise of any attributes of ownership.

     3.4  Capitalization. The authorized capital stock of the Company consists
of 1,000,000 shares of Common Stock, Sellers are and will be on the Closing
Date the record and beneficial owners and holders of, and have good title to,
the Stock, free and clear of any Encumbrance. All of the issued and outstanding
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and there are no preemptive
rights. Except as set forth in Section 3.4 of the Disclosure Schedule, there
are no existing agreements, options, warrants, rights, calls or commitments of
any character to which Sellers or the Company is a party or by which any of
them is bound providing for the issuance of any additional shares, the sale of
treasury shares or the repurchase or redemption of shares of the Company's
capital stock and there are no outstanding securities or other instruments
convertible into or exchangeable for shares of such capital stock and no
commitments to issue such securities or instruments.

     3.5 Financial Statements.

     (a)  The Company will deliver to Purchaser unaudited balance sheets of the
Company as of June 30, 1999, December 31, 1999 and June 30, 2000, and related
statements of income, changes in shareholders' equity, and cash flow for the
fiscal years or periods then ended. Such financial statements and notes are
hereinafter collectively referred to as the "Financial Statements".

     (b)  The Financial Statements (i) are in accordance with the books and
records of the Company; (ii) except as set forth therein (including the notes
thereto), have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods indicated (subject to
customary year-end adjustments); and (iii) fairly present both the financial
condition of the Company on a consolidated basis and the results of operations
with respect to the Company on a consolidated basis as of the dates and for the
periods therein specified.

     (c)  The Company has no debt, liability or obligation of any nature,
whether accrued, absolute, contingent or otherwise, and whether due or to
become due, that is not reflected or reserved against in the most recent
Financial Statements, except as set forth in Section 3.5 of the Disclosure
Schedule. Except as set forth in Section 3.5 of the Disclosure Schedule, all
debts, liabilities and obligations of the Company incurred after the date of
the most recent Financial Statements were incurred in the Ordinary Course of
Business, and are usual and normal in amount both individually and in the
aggregate. The Company is not directly or indirectly liable to or obligated to
provide funds in respect of or to guaranty or assume any obligation of any
person except to the extent reflected and fully reserved against in the
Financial Statements. Except as set

                                       5
<PAGE>   10
forth in the Financial Statements or Section 3.5(c) of the Disclosure Schedule,
all liabilities of the Company can be prepaid without penalty at any time.

     (d)  The loans, notes and accounts receivable reflected in the Financial
Statements and all such loans, notes and accounts receivable arising after the
applicable dates of the Financial Statements arose, and have arisen, from bona
fide transactions, and the bad debt reserves established in connection with
such loans, notes, and accounts receivable are in conformity with generally
accepted accounting principles. Accounts payable reflected in the Financial
Statements and all accounts payable arising after the applicable dates of the
Financial Statements arose, and have arisen, from bona fide transactions.

     (e)  For purposes of this Agreement, Ordinary Course of Business means an
action taken by a person, if such action is consistent with the past practices
of such person and is taken in the ordinary course of the normal historic day
to day operations of such person.

     3.6  Books and Records. The books of account, minute books, stock record
books and other records of the Company, all of which will be made available to
Purchaser, will be complete and correct in all material respects as of the
Closing Date and have been maintained in accordance with sound business
practices, including, but not limited to, the maintenance of an adequate system
of internal controls in the Company's Ordinary Course of Business. On the
Closing Date, all of those books and records will be in the possession of the
Company.

     3.7  Accounts Receivable. The Company will have delivered to Purchaser a
complete and accurate schedule of the accounts receivable (including notes
receivable) of the Business as of June 30, 2000, together with an accurate
aging of such accounts receivable. Except for the reserves applicable thereto
as set forth in the Financial Statements, such accounts receivable will, as of
the Closing Date, constitute valid receivables not in dispute by a customer of
the Company, except as disclosed in Section 3.7 of the Disclosure Schedule. As
to the accounts receivable arising between June 30, 2000, and the Closing Date,
such accounts receivable will, as of the Closing Date, constitute valid
receivables not in dispute by a customer of the Company, except as disclosed in
Section 3.7 of the Disclosure Schedule except for the reserves applicable
thereto as set forth on the Financial Statements. Any invoiced account
receivable as of the Closing Date which is not collected in full prior to
ninety (90) days thereafter shall be deemed to be uncollectible and Purchaser
shall have the right to withdraw the amount of all uncollectible accounts
receivable in excess of the reserve, as set forth in the Purchase Balance
Sheet, from the Escrow Amount pursuant to the Escrow Agreement. In determining
whether an account has been paid, any payments received on the account shall be
applied to the oldest unpaid entry in the account, unless such account is in
dispute or unless any payments made so designate specific invoice numbers,
specific invoice amounts or date of delivery. Purchaser will use its
commercially reasonable efforts to timely collect all such accounts receivables
within such ninety (90) day period after Closing.

     3.8  Inventory. The inventory of the Company as reflected by the Financial
Statements and as described in Section 3.8 of the Disclosure Schedule consisted
and consists of items substantially all of which were and will be of the usual
quality and quantity necessary for the normal conduct of the Business and
reasonably expected to be usable or salable within a reasonable period of time
in the ordinary course of business of the Company, except items of

                                       6

<PAGE>   11
inventory which have been written down to realizable market value or written
off completely, and damaged or broken items in an amount which does not
materially affect the value of the inventory as reflected on the Financial
Statements. With respect to inventory in the hands of suppliers for which
Company is committed as of the date hereof, such inventory is reasonably
expected to be usable in the ordinary course of business of the Company as
presently being conducted. The quantities of each type of inventory are not
excessive, but are reasonable and warranted in the present circumstances of the
Company.

     3.9  Absence of Certain Changes or Events. Except as disclosed in Section
3.9 of the Disclosure Schedule, since March 31, 2000, there has not been any
Material Adverse Change in the condition (financial or otherwise), results of
operations, revenues, expenses, gross operating profits, businesses, prospects,
assets or liabilities (contingent or otherwise) of the Company and the Company
has not:

     (a)  made any declaration, setting aside or payment of a dividend (whether
in cash, stock or property) in respect of the capital stock of the Company or
any Company Subsidiary;

     (b)  incurred any borrowing or lending of money or guarantee of any
obligation by the Company or any Company Subsidiary in excess of five thousand
dollars ($5,000) (contingent or otherwise), except in the Ordinary Course of
Business;

     (c)  made any disposition, including leasing, of any material properties
or assets used in the Business, except sales made in the Ordinary Course of
Business;

     (d)  engaged in any activities outside the Ordinary Course of Business as
conducted on the date hereof;

     (e)  issued or repurchased its stock;

     (f)  discharged or satisfied any lien or encumbrance or paid any
obligation or liability (contingent or otherwise) in excess of five thousand
dollars ($5,000), except current liabilities outstanding on the date set forth
above and current liabilities incurred since such date in the Ordinary Course
of Business;

     (g)  mortgaged, pledged or subjected to lien, charge, security interest or
other encumbrance any of the material properties or assets of the Company,
except in the Ordinary Course of Business;

     (h)  canceled or compromised any debt owed to it except in the Ordinary
Course of Business;

     (i)  knowingly and expressly waived or released any rights (including,
without limitation, discounting any account receivable) except in the Ordinary
Course of Business;

     (j)  sold, assigned, transferred or granted any rights under any licenses,
patents, inventions, trademarks, service marks, trade names, or copyrights or
rights with respect to any

                                       7

<PAGE>   12
know-how or other intangible assets, which sale, assignment, transfer or grant
would have a Material Adverse Effect on the Company or its material properties
and assets;

     (k)  amended or terminated any contract, agreement or license to which the
Company is a party, which amendment or termination would have a Material
Adverse Effect on the Company or its material properties or assets;

     (l)  knowingly disposed of or knowingly permitted to lapse any rights for
the use of any patent, trademark, service mark, trade name or copyright or
knowingly disposed of or disclosed to any person not an employee, supplier,
broker, distributor or customer any trade secret, process or know-how not
theretofore  a matter of public knowledge, which dispositions or disclosures
would have a Material Adverse Effect on the Company or its material properties
or assets;

     (m)  terminated the employment of any employee or entered into any
employment agreement outside the Ordinary Course of Business;

     (n)  increased the rate of compensation or bonus payments payable or to
become payable to any of the employees or directors of the Company other than
in the Ordinary Course of Business;

     (o)  declared any dividend or made any payment (other than normal
reimbursement payments) or distribution to the shareholders of Company, in
their capacity as such, that would have an adverse effect on the Company or its
material properties or assets;

     (p)  entered into any other transaction, contract or commitment other
than in the Ordinary Course of Business which would have an adverse effect on
the Company or its material properties or assets; or

     (q)  agreed to do any of the things described in the preceding clauses (a)
through (p).

     For purposes of this Agreement,

     (i)  "MATERIAL ADVERSE EFFECT" means the cumulative effect of facts,
          actions or events relating to the Company which, taken as a whole,
          would deprive Purchaser of the right to receive the benefit of the
          bargain contemplated by this Agreement; and

     (ii) "MATERIAL" means such facts, actions or events which would deprive
          Purchaser of the right to receive the benefit of the bargain
          contemplated by this Agreement.

     3.10 INSURANCE.  Section 3.10 of the Disclosure Schedule accurately lists
all policies of insurance covering the material properties and operations of
the Company as of the date hereof.

     (a)  All policies of property, fire and casualty, product liability,
workers' compensation and other forms of insurance owned or held by the
Company (i) are issued by insurance companies reasonably believed by the
Company to be financially sound and reputable, (ii) to Seller's knowledge are
sufficient for material compliance with all requirements of law and of all

                                       8

<PAGE>   13
applicable agreements to which the Company or any Company Subsidiary is a party
or by which it is bound, (iii) to Seller's knowledge are valid, outstanding and
enforceable policies, and (iv) to Seller's knowledge will not in any way be
affected by, terminate or lapse by reason of, the transactions contemplated by
this Agreement.

     (b)  Neither Sellers, nor the Company has received, any notice that such
policies are no longer in full force or effect or that the issuer of any such
policy is no longer willing or able to perform its obligations thereunder.

     3.11 Taxes.

     (a)  Except as disclosed in Section 3.11 of the Disclosure Schedule, the
Company has timely filed or caused to be timely filed (including allowable
extensions) all federal, state and local tax returns ("Tax Returns") for income
taxes, sales taxes, withholding taxes, employment taxes, property taxes,
franchise taxes and all other taxes of every kind whatsoever which are required
by law to have been filed by the Company.

     (b)  The Company has paid all taxes, assessments, penalties and other
governmental charges which have become due pursuant to such Tax Returns and all
other taxes, assessments, penalties and other governmental charges which have
become due and payable with respect to the properties of the Company or with
respect to the Company or employees thereof.

     (c)  The Company has not filed or entered into any election, consent or
extension agreement with respect to the properties of the Company or with
respect to the Company that extends the applicable statute of limitations with
respect to its liability for taxes owing with respect to any such properties.

     (d)  The Company has made full and adequate provision for all accrued and
unpaid taxes, assessments, penalties and other governmental charges, whether or
not disputed, and the Company has made and will continue to make adequate
provision for such taxes on its books and records for the Company, until the
Closing Date. All of said taxes, assessments, penalties and other governmental
charges that are due will have been actually paid to the appropriate
governmental party on or before the Closing Date.

     (e)  Except as set forth in Schedule 3.11 of the Disclosure Schedule, the
Company is not a party to any action or proceeding pending or, to the Company's
or Sellers' Knowledge, threatened by any governmental authority for assessment
or collection of taxes, to the Company's or Sellers' Knowledge no unresolved
claim for assessment or collection of such taxes has been asserted against the
Company, and to the Company's or Sellers' Knowledge no audit or investigation by
state or local government authorities is under way with respect to the Company
or its properties.

     (f)  Except for liabilities asserted, or which may be asserted, in actions
or proceedings or as a result of audits or investigations listed in Section 3.11
of the Disclosure Schedule, there is and will be no further liability for any
taxes then due as of the Closing Date, whether by future deficiency assessments
or otherwise, and no interest or penalties accrued or accruing with respect
thereto.

                                       9
<PAGE>   14
     (g) Section 3.11 of the Disclosure Schedule hereto lists those states
where the Company has been or is required to file a Tax Return. No claim has
ever been made by a taxing authority in a jurisdiction where the Company does
not file a Tax Return that the Company is or may be subject to taxation by that
jurisdiction due to its activities or business.

     (h) Sellers are not a "foreign person" within the meaning of section 1445
of the Code.

     (i) Sellers have not filed any consent under Code section 341(f) with
respect to the Company or with respect to its property. The Company has not
made any payments, is not obligated to make any payments, and is not a party to
any agreement that under certain circumstances could obligate it to make any
payments (including, without limitation, any payments that have been or will be
made in connections with the transactions contemplated by this Agreement) that
will not be deductible by virtue of Code section 280G. The Company has
adequately disclosed on its federal Tax Returns all positions taken therein
which otherwise could give rise to a substantial understatement of federal
taxes within the meaning of Code section 6662.

     (j) Except as previously disclosed to Purchaser in writing, the Company
has neither agreed nor been required to make an adjustment under section 481 of
the Code by reason of a change in accounting method or otherwise. Except as
previously disclosed to Purchaser in writing, no taxable income economically
attributable to transactions occurring on or before the Closing Date will be
required to be recognized by the Company after the Closing Date, whether by
reason of any of them reporting income on the cash method of accounting, the
completed contract method, the percentage of completion-capitalized cost
method, the installment method of accounting or by reason of Treasury
Regulations section 1.1502-13 (deferred intercompany transactions) or 1.1502-19
(excess losses) or otherwise.

     (k) Section 3.11 of the Disclosure Schedule sets forth the following
information with respect to the Company as of the date set out therein: (i) the
adjusted basis of each of the Company its assets: (ii) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the Company; and
(iii) the amount of any deferred gain or loss allocable to the Company arising
out of any deferred intercompany transaction (within the meaning of section
1.1502-13(a)(2) of the Income Tax Regulations).

     (l) The Company is not a party to any allocation or sharing arrangement or
agreement (whether written or unwritten) with respect to taxes which will not
be terminated by the Closing Date.

     Nothing in this Section 3.11 or elsewhere in this Agreement will be deemed
a representation or warranty with respect to employee benefit plans. Such
matters are covered exclusively by Section 3.18 hereof.

                                       10
<PAGE>   15
     3.12 Title to and Condition of the Assets.

     (a)  Title. The Company has good and indefeasible title to its respective
assets, whether real, personal or mixed, tangible or intangible. Except for
leased assets, the assets of the Company listed in the Financial Statements
constitute all of the operating assets used in the Business. All of the assets
of the Company are free and clear of restrictions on or conditions to transfer
or assignment, and free and clear of mortgages, liens, pledges, charges,
security interests, conditional sales agreements, encumbrances, equities,
claims, easements, rights of way, covenants, conditions, restrictions or other
adverse claims or interests of any nature whatsoever except for those disclosed
in the Financial Statements or in Sections 3.3, 3.14 and 3.15 of the Disclosure
Schedule. Except as set forth in Sections 3.14 and 3.15 of the Disclosure
Schedule, there is no real property or personal property used in the business of
the Company that is not owned by the Company or possessed by the Company
pursuant to a binding written agreement therefor permitting the use of the
property in the manner used by the Company on the date hereof. Any such
agreement is set forth in Sections 3.14 and 3.15 of the Disclosure Schedule.

     3.13 Condition and Sufficiency of Assets. Except as set forth in Sections
3.14 and 3.15 of the Disclosure Schedule, substantially all physical assets of
the Company are structurally sound and are in good operating condition and
repair and are adequate for the uses to which they are being put, and none of
such assets is in need of maintenance or repairs except for ordinary, routine
maintenance and repairs that are not material in nature or cost. All assets of
the Company are sufficient for the continued conduct of the Business after the
Closing in substantially the same manner as conducted prior to the Closing.

     3.14 Real Property.

     (a)  Section 3.14 of the Disclosure Schedule contains (i) a complete and
accurate (in all material respects) legal description of each parcel of real
property owned by, leased to or used by the Company (the "Real Property") and
(ii) a complete and accurate list of all current leases, lease amendments,
subleases, assignments, licenses and other agreements to which the Real Property
is subject (the "Leases"). The Company has delivered to Purchaser true and
complete copies of the Leases.

     (b)  Except as disclosed in Section 3.16 of the Disclosure Schedule, (i)
each such Lease is in full force and effect as a valid and subsisting lease of
the premises covered thereby enforceable in accordance with its terms and has
not been amended or modified; (ii) each such real property lease constitutes the
sole and entire agreement between the Company as lessee and the lessor
respecting the premises subject to such real property lease; (iii) there is no
existing material default under any such Lease on the part of the Company, or,
to the Company's or Sellers' Knowledge, any other party to such real property
lease; (iv) the Company has not received any notice that any party to any Lease
intends to cancel, terminate or refuse to renew the same or to exercise or
decline to exercise any option or other right thereunder; (v) the Company has
not received any notice of any outstanding adverse claims in respect of the
rights and remedies held by it under any such real property lease; (vi) the
rights of the Company under each such real property lease will not be affected
by the consummation of the transactions contemplated by this Agreement; (vii)
the Company has not received any notice that any of the buildings, structures or
fixtures leased under such real property lease contravenes any zoning

                                       11
<PAGE>   16
ordinance or other administrative regulation or violates any restrictive
covenant or other agreement to which the Company is bound, or any provision of
law, the effect of which in any material respect would interfere with or prevent
the continued use of the property leased for the purposes for which it is now
being used by the Company; and (viii) no rental under the Leases has been paid
more than one month in advance.

     (c)  Except as disclosed in Section 3.14 of the Disclosure Schedule, (i)
there are no tanks on or below the surface of the Real Property, (ii) there is
no hazardous or toxic waste, substance or material or other contaminant or
pollutant (as determined under federal, state or local law) present on or below
the surface of the Real Property including, without limitation, in the soil,
subsoil, groundwater or surface water, which constitutes a violation of any law,
ordinance, rule or regulation of any governmental entity having jurisdiction
thereof or subjects or could subject Purchaser to any liability to third
parties, and (iii) the Real Property has never been used by the Company or, to
the Company's or Seller's Knowledge, by any previous owners or operators to
generate, manufacture, refine, produce, store, handle, transfer, process or
transport any hazardous or toxic waste, substance or material or other
contaminant or pollutant.

     (d)  To Seller's knowledge, the zoning of each parcel of the Real Property
permits the improvements located thereon and the continuation of business
presently being conducted thereon. The Real Property is served by utilities and
services necessary for the normal and continued operation of the business
presently conducted thereon.

     3.15 Personal Property.

     (a)  To Seller's knowledge, Section 3.15 of the Disclosure Schedule is a
complete and accurate schedule as of June 30, 2000 describing, and specifying
the location of, all inventory, drilling rigs, pipe, motor vehicles, machinery,
fixtures, equipment, furniture, supplies, tools and all other tangible or
intangible personal property (other than the rights arising under the contracts
of the Company and the accounts receivable) owned by, in the possession of, or
used by the Company (the "Personal Property").

     (b)  Each lease, license, rental agreement, contract of sale, or other
agreement applicable to any Personal Property is listed in Section 3.16 of the
Disclosure Schedule and is in full force and effect; neither the Company, nor,
to the Company's or Seller's Knowledge, any other party thereto is in default
thereunder, nor is there any event which with notice or lapse of time, or both,
would constitute a default thereunder. Neither the Company nor any Seller has
received notice that any party to any such lease, license, rental agreement,
contract of sale or other agreement intends to cancel, terminate or refuse to
renew the same or to exercise or decline to exercise any option or other right
thereunder.

     3.16 Contracts. Section 3.16 of the Disclosure Schedule contains a complete
and accurate list of all presently effective contracts to which the Company or
any Company Subsidiary is a party (the "Contracts") and which affect or are
applicable to the assets of the Company or any Company Subsidiary, the Company
or any Company Subsidiary, true and complete copies (or summaries in the case of
oral contracts) of each of which have been delivered to Purchaser by the Company
and Sellers, including, without limitation, any:

                                       12
<PAGE>   17
         (a)      onshore drilling contracts for any third party which have not
                  been performed in whole or in part, as of the Closing Date;

         (b)      mortgage, security agreement, financing statement or
                  conditional sales agreement or any similar instrument or
                  agreement;

         (c)      agreement, commitment, note, indenture or other instrument
                  relating to the borrowing of money, or the guaranty of any
                  such obligation for the borrowing of money;

         (d)      joint venture or other agreement with any person, firm,
                  corporation or unincorporated association doing business
                  either within or outside the United States relating to
                  sharing of present or future commissions, fees or other income
                  or profits;

         (e)      participation, sharing, joint operating or other agreement
                  relating to co-ownership of mineral or leasehold interests;

         (f)      lease, license, rental agreement, contract of sale or other
                  agreement applicable to the Personal Property;

         (g)      franchise agreement;

         (h)      warranty;

         (i)      noncompetition agreement;

         (j)      broker or distributorship contract; or

         (i)      advertising, marketing and promotional agreement (including,
                  but not limited to, any agreements providing for discounts
                  and/or rebates).

         Except as disclosed in Section 3.16 of the Disclosure Schedule, to
Seller's knowledge, each of the Contracts is in full force and effect and has
not been amended or modified and neither the Company, nor, to the Company's or
Sellers' Knowledge, any other party thereto, is in default thereunder, nor, to
the Company's or Sellers' Knowledge, is there any event which with notice or
lapse of time, or both, would constitute a default thereunder. Neither the
Company nor any Seller has received notice that any party intends to cancel,
terminate or refuse to renew any such Contract or to exercise or decline to
exercise any option or other right thereunder.

         3.17     Legal Proceedings. Except as set forth in Section 3.17 of the
Disclosure Schedule, there are no claims, actions, suits, arbitrations,
grievances, or proceedings pending or, to the Knowledge of the Company or
Sellers, threatened against the Company, at law, in equity, or before any
federal, state, municipal or other governmental or nongovernmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, and
there are no outstanding or unsatisfied judgments, orders, decrees or
stipulations to which the Company is a party, which involve the transactions
contemplated herein or which would have an adverse effect upon the Business,
business prospects, assets or financial condition of the Company. Except as set

                                       13
<PAGE>   18
forth in Section 3.17 of the Disclosure Schedule, neither the Company nor any
Seller is presently engaged in or contemplating any legal action to recover
moneys due to the Company or damages sustained by the Company. Neither the
Company nor any Seller is in violation of or in default with respect to any
applicable judgment, order, writ, injunction or decree. Neither the Company nor
any Seller has been advised or given notice of any default or claim of default
on the part of either of the foregoing parties under any of the Contracts.

         3.18     Employee Benefit Plans.

         (a)      As used in this Section 3.18, the following terms have the
meanings set forth below:

         "Company Controlled Group Member" means a member of a group of
entities or trades or businesses that is aggregated with and includes the
Company or any Company Subsidiary under Code Section 414(b), (c), (m) or (a)
and Section 4001 of ERISA.

         "Company Controlled Group Plan" means a Plan (including without
limitation a Company Plan) maintained by or contributed to, at any time within
six years prior to the Closing Date, by the Company, Sellers, any Company
Subsidiary or any Company Controlled Group Member.

         "Company Plans" means all Plans (other than the Company's or any
Company Subsidiary's foreign employee benefit Plans) maintained by or
contributed to by the Company or Sellers or any Company Subsidiary with respect
to employees, former employees or retirees of the Company or Sellers or any
Company Subsidiary.

         "Plan" means all bonus, deferred compensation, incentive compensation,
stock purchase, stock option, severance, hospitalization or other medical,
life, accident, disability or other insurance, employee welfare, supplemental
unemployment benefit, profit-sharing, pension, retirement or post-retirement
plan, program, agreement or arrangement or any other employee benefit plan,
program, agreement, or arrangement, including any such plan, program, agreement
or arrangement covering retirees or former employees, any vacation plan and
employees' loan and banking privileges, and including without limitation any
"employee pension benefit plan" and any "employee welfare benefit plan" as
those terms are defined in Section 3 of ERISA.

         (b)      Except as set forth in Section 3.18 of the Disclosure
Schedule, each of the Company Plans is, and has been, adopted and operated in
material compliance with its terms and all applicable Laws (including, where
applicable, ERISA and the Code). General notification to employees of their
rights under Code Section 4980B in the case of each Company Plan that is a
"group health plan" as defined in Code Section 5000(b)(1) has been given in
accordance with all applicable provisions of ERISA and the Code.

         (c)      To the extent applicable, the Company and Sellers have
heretofore delivered to Purchaser true, correct and complete copies of (i) each
Company Plan, each of the Company's and the Company Subsidiaries' foreign
employee benefit Plans (including any amendments to any such plans, any related
trusts, summary plan descriptions, any insurance policies, investment
management agreements or annuity contracts, and any rules or regulations
created for use with

                                       14
<PAGE>   19
any such plans); (ii) the most recent IRS determination letter, if any, with
respect to each of the Company Plans; (iii) the Form 5500 (including all
schedules and attachments), if any, filed with respect to each of the Company
Plans for the most recent two (2) years; (iv) the most recent actuarial
reports, if any, filed with respect to each of the Company Plans; (v) each
collective bargaining agreement or other contract relating to each Company
Plan; and (vi) the standard form of general notification to employees of their
rights under Code Section 4980B.

     (d)  Except as set forth on Section 3.18 of the Disclosure Schedule, none
of the Company Plans or any trusts relating thereto have engaged in any
transaction in connection with which the Company or any fiduciaries of any
Company Plans or related trusts is or could be subject either to a civil
penalty or other liability under Section 502(i), Section 406 or Section 409 of
ERISA or a tax imposed by Section 4975 of the Code, and no event has occurred
and no condition exists with respect to the Company Plans that would subject
the Company to any other tax or penalty under the Code or civil penalty or
other liability under ERISA or other laws.

     (e)  Except as set forth on Section 3.18 of the Disclosure Schedule, no
litigation or administrative or other proceeding (other than routine claims for
benefits) is pending or overtly threatened involving any Company Plan.

     (f)  Except as set forth on Section 3.18 of the Disclosure Schedule, as of
the Closing Date, all payments and/or contributions required to have been made
under the provisions of the Company Plans or under Section 302 of ERISA or
Section 412 of the Code with respect to any period prior to such date shall
have been made, determined by using the applicable actuarial and funding
assumptions, if any.

     (g)  To the extent applicable, each Company Plan which is intended to meet
the requirements of Section 401(a) of the Code meets such requirements. With
respect to each such Company Plan, a favorable determination letter has been
received from the IRS as to its qualification under Section 401(a) of the Code
(including the amendments to the Code made by the Tax Reform Act of 1986) and
amendments have been timely adopted for all subsequent legislation as to which
the remedial amendment period has expired.

     (h)  No Company Plan is a multiemployer plan within the meaning of
Section 3(37) of ERISA. Except as otherwise set forth on Section 3.18 of the
Disclosure Schedule, no Company Plan is subject to Title IV of ERISA or is a
defined benefit plan.

     (i)  Except as set forth on Section 3.18 of the Disclosure Schedule, and
except as provided by Section 4980B of the Code or Part 6 of Title I of ERISA,
there are no benefits or insurance under the Company Plans for current or
future retirees or other former employees.

     (j)  There is no matter pending with respect to any of the Company Plans
before the IRS, the Department of Labor or the Pension Benefit Guaranty
Corporation (the "PBGC").

     (k)  Neither the Company nor any Company Subsidiary maintains, or will
maintain as of the Closing Date, a voluntary employees' beneficiary association
intended to be exempt from federal income taxation pursuant to Section
501(c)(9) of the Code.

                                       15
<PAGE>   20
     (l)  With respect to each Company Controlled Group Plan, (i) no withdrawal
liability, within the meaning of Section 4201 of ERISA, has been incurred by any
Company Controlled Group Member, which withdrawal liability has not been
satisfied; (ii) no liability under Title IV of ERISA has been incurred by any
Company Controlled Group Member, which liability has not been satisfied; (iii)
no accumulated funding deficiency, whether or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the Code, has been incurred; and (iv) all
contributions (including installments) to each said Company Plan required by
Section 302 of ERISA and Section 412 of the Code have been timely made. Neither
the Company nor any Company Subsidiary has any current or future liability with
respect to any Company Controlled Group Plan (other than the Company Plans).
Except as disclosed on Section 3.18 of the Disclosure Schedule, no Company
Controlled Group Plan is a multiemployer plan within the meaning of Section
3(37) of ERISA. With respect to each multiemployer Company Controlled Group Plan
disclosed on Section 3.18 of the Disclosure Schedule, no liability has been or
will be incurred by Company or any Company Subsidiary for a withdrawal which
occurs on or prior to the Closing Date. No event has occurred that presents a
material risk of a "complete withdrawal" or a "partial withdrawal" with respect
to a Company Controlled Group Plan under Sections 4203 and 4205 of ERISA,
respectively.

     (m)  Except as set forth on Section 3.18 of the Disclosure Schedule, the
assets of the Company Plans do not include any "employer securities" or
"employer real property" as such terms are defined in Section 407 of ERISA. No
debt is outstanding with respect to any of the Company Plans, other than
liabilities for the payment of benefits or insurance premiums.

     (n)  Except as set forth on Section 3.18 of the Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement will not (i)
entitle any current or former employee or officer of the Company to severance
pay, unemployment compensation or any other payment; (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such employee
or officer; (iii) result in any prohibited transaction described in Section 406
of ERISA or Section 4975 of the Code for which an exemption is not available; or
(iv) in any way result in any liability with respect to liabilities or
obligations incurred under or in respect of any Company Plan.

     (o)  Section 3.18 of the Disclosure Schedule contains an accurate and
complete list of (i) all Company Plans, including a complete and accurate
description of all Company Plans that are not in writing and (ii) all Company
Controlled Group Plans that are subject to Code Section 412 or Title IV or
Section 302 of ERISA. Neither the Company or any of the Company Subsidiaries has
any commitment, whether formal or informal, and whether legally binding or not,
to create or have liability under any additional Plan, policy or arrangement
relating to the provision of benefits to employees, or to modify any existing
Company Plan.

     3.19 Employees

     (a)  Section 3.19 of the Disclosure Schedule contains a complete and
accurate list of the name, base compensation, bonus and position(s) of each
person employed by the Company ("Employee"), together with a description of all
bonus formulas used by the Company to produce the bonus amounts set forth.

                                       16
<PAGE>   21
     (b)  Except as disclosed in Section 3.19 of the Disclosure Schedule, the
Company is not a party to any of the following:

          (i)   management, employment or other contract providing for the
     employment or rendition of executive services;

          (ii)  contract for the employment of any employee which is not
     terminable by the Company on thirty (30) days' notice;

          (iii) collective bargaining agreement or other agreement with any
     labor union or other employee organization (and no such agreement is
     currently being requested by, or is under discussion by management with,
     any group of employees or others); or

          (iv)  any other employment contract or other compensation agreement or
     arrangement (including, without limitation, any contract, agreement or
     arrangement dealing with vacation pay or other benefits) affecting or
     relating to current or former employees of the Company.

     (c)  Section 3.19 of the Disclosure Schedule contains a complete and
accurate list of all obligations owed to those Employees who are on workers'
compensation or a similar leave of absence from the Company.

     3.20 Labor Matters. During the period preceding the date hereof and
presently, the Company has not been or is a party to, or is subject to or
affected by, any collective bargaining agreement or other labor contract.
During the period preceding the date hereof, there has not been, and there is
not presently pending or existing, any strike, slowdown, picketing, work
stoppage, labor arbitration or proceeding in respect of the grievance of any
employee, an application or complaint filed by an employee or union with the
National Labor Relations Board or any comparable state or local agency,
organizational activity or other labor dispute against or affecting the Company
or its premises, or to the Company's or Sellers' Knowledge threatened, and no
application for certification of a collective bargaining agent is pending, or
to the Company's or Sellers' Knowledge threatened. To the Company's and Sellers'
Knowledge, no facts or circumstances exist which could provide the basis for
any work stoppage or other labor dispute. There is no lockout of any employees
by the Company, nor is any such action contemplated by it. The Company has
complied in all respects with all laws, rules and regulations relating to
employment, equal employment opportunity, nondiscrimination, immigration,
wages, hours, benefits, collective bargaining, the payment of social security
and similar taxes, occupational safety and health and plant closing
("Employment Laws"). The Company is not liable for the payment of taxes, fines,
penalties or other amounts, however designated, for failure to comply with any
of the foregoing Employment Laws.

     3.21 Intellectual Property.

     (a)  For the purposes hereof "Intellectual Property" means all of the
following proprietary rights owned by, issued to or licensed to the Company
which are used in the Business, along with all income, royalties, damages and
payments due or payable at Closing or thereafter (including, without
limitation, damages and payments for past or future infringements or

                                       17

<PAGE>   22
misappropriations thereof), the right to sue and recover for past infringements
or misappropriations thereof and any and all corresponding rights that, now or
hereafter, may be secured throughout the world: patents, patent applications,
patent disclosures and inventions (whether or not patentable and whether or not
reduced to practice) and any reissues, continuations, continuations-in-part,
revisions, extensions or reexaminations thereof; trademarks, service marks,
trade dress, logos, trade names and corporate names together with all goodwill
associated therewith (including without limitation, the use of the Company's
current corporate names and trade names and all translations, adaptations,
derivations and combinations of the foregoing); copyrights and copyrightable
works; mask works; and all registrations, applications and renewals for any of
the foregoing; trade secrets and confidential information (including, without
limitation, ideas, formulae, compositions, know-how, manufacturing and
production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data, financial,
business and marketing plans, and customer and supplier lists and related
information); computer software (including, without limitation, data, data
bases, systems and related documentation); other proprietary fights; and all
copies and tangible embodiments of the foregoing (in whatever form or medium),
in each case including, without limitation, the items set forth on Section 3.21
of the Disclosure Schedule.

     (b)  Section 3.21 of the Disclosure Schedule is an accurate and complete
list of that portion of the Intellectual Property consisting of patents, patent
applications, trademarks, trademark applications and trademark registrations and
separately designates that portion attributable to the Company. All of the
Intellectual Property is owned by the Company free and clear of all Encumbrances
or has been duly licensed for use by the Company except as set forth in Section
3.21 of the Disclosure Schedule. Except as set forth on Section 3.21 of the
Disclosure Schedule, none of the Intellectual Property has been or is the
subject of any pending adverse claim, or to the Knowledge of the Company or
Sellers, any threatened litigation or claim of infringement. Except as set forth
on Section 3.21 of the Disclosure Schedule, no license or royalty agreement to
which the Company is a party is in default or the subject of any notice of
termination given, nor does the Company have reason to anticipate any such
default or notice or that the transactions herein contemplated will result in
termination or in any reduction hereafter (except by reason of reduced sales
volume) in royalties payable under any such agreement. The products the Company
manufactures at or which are produced by or in connection with the operation of
the Business, or which the Business sells, do not, and any process, method,
part, design or material it employs, or the marketing and use by the Business of
any such product or any service does not, infringe any trademark, trade name,
copyright or patent of another, and the Company has not received any notice
contesting its right to use and trademark, trade name, product, process, design,
computer program or written work now used by it in connection with the Business
or the operation thereof, except as set forth on Section 3.21 of the Disclosure
Schedule. Except as set forth on Section 3.21 of the Disclosure Schedule, the
Company has not granted any license in respect of any Intellectual Property. The
Company owns or possesses adequate rights in and to all Intellectual Property
necessary to conduct the business of the Business as presently conducted and to
convey the entirety of its respective interests in and to the Intellectual
Property.

     3.22 Absence of Sensitive Payments. To the Knowledge of the Company and
Sellers, the Company has not made or maintained (i) any contributions, payments
or gifts of its funds or property to any governmental official, employee or
agent where either the payment or the purpose of such contribution, payment or
gift was or is illegal under the laws of the United States or any

                                       18
<PAGE>   23
state thereof, or any other jurisdiction (foreign or domestic); or (ii) any
contribution, or reimbursement of any political gift or contribution made by any
other person, to candidates for public office, whether federal, state, local or
foreign, where such contributions by the Company were or would be a violation of
applicable law.

     3.23 Transactions With Related Parties. Except for transactions disclosed
in Section 3.23 of the Disclosure Schedule, neither Sellers nor any Affiliate of
Sellers have any interest in any property, real or personal, tangible or
intangible, used in or pertaining to the business of the Company. During the
periods prior to this Agreement and including the date hereof, neither Sellers
nor any Affiliate of Sellers or the Company, individually or collectively, owns
or has owned of record or as a beneficial owner, an equity interest or any other
financial or profit interest in any firm, corporation or any other entity or
person which (a) has had business dealings or a material financial interest in
any transaction with the Company other than business dealings or transactions
which are conducted in the Ordinary Course of Business with the Company at
prevailing market prices and on prevailing market terms, or (b) which is in
competition with the Company with respect to any line of the products or
services of the Company (a "Competing Business") in any market presently served
by the Company, except for less than one percent (1%) of the outstanding capital
stock of any Competing Business which is publicly traded on any recognized
exchange or in the over-the-counter market. During the four years preceding the
Closing, there have been no loans or other transactions between the Company and
any officer, director, shareholder or partner of the Company which affect the
Company or any of their respective assets. Except as disclosed in Section 3.23
of the Disclosure Schedule no officer, director or partner of the Company, nor
any spouse or child of any such person, owns or has any interest in, directly or
indirectly, any of the assets of the Company. Prior to the Closing, all loans
and inter-company accounts among the Company and its affiliates, shareholders,
directors and officers shall have been paid.

     3.24 Banks and Powers of Attorney. Section 3.24 of the Disclosure Schedule
lists (i) the name and address of each bank in which the Company has an account
or safety deposit box and the names of the persons authorized to draw thereon or
having access thereto; (ii) the balance in each such account as of July 31,
1997; and (iii) the name of each person holding a power of attorney on behalf of
the Company and the extent of such power.

     3.25 Compliance With Laws. To Seller's knowledge, the Company has complied
with, and is not in violation of, applicable federal, state or local statutes,
laws, ordinances and regulations (including, without limitation, any applicable
building, zoning or other law, ordinance or regulation). The Company holds all
permits, licenses, certificates, franchises and rights necessary for the lawful
operation of its Business. Nothing in this Section 3.25 or elsewhere in this
Agreement shall be deemed a representation or warranty with respect to employee
benefit plans. Such matters are covered exclusively by Section 3.18 hereof.

     3.26 Brokerage. Neither Sellers nor the Company has retained any broker or
finder in connection with the transactions contemplated by this Agreement.

     3.27 Environment Matters. To Seller's knowledge, the Company has complied
in all material respects with all laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments

                                       19

<PAGE>   24
(and all agencies thereof) which have jurisdiction over the Company concerning
pollution or protection of the environment, public health and safety, or
employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient air, surface
water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to comply. Without
limiting the generality of the preceding sentence, the Company has obtained and
been in material compliance with all of the terms and conditions of all
permits, licenses, and other authorizations which are required under, and have
complied, in all material respects, with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in such laws.

     3.28 Capital Improvements. Section 3.28 of the Disclosure Schedule
describes all of the capital improvements or purchases or other capital
expenditures which the Company has committed to or contracted for which have
not been completed prior to the date hereof and the cost and expense reasonably
estimated to complete such work and purchases.

     3.29 Assets Sufficient for Conduct of Business. The assets of the Company,
and the assets leased by the Company and the assets owned by Affiliate Buffalo
Equipment Co., Inc. and used by the Company constitute all of the assets and
properties required for the operation of the Business as presently operated.

     3.30 Solvency. Upon giving effect to the consummation of the transactions
contemplated hereby, to the Knowledge of the Company and Sellers, the following
are true and correct:

     (a) The Purchase Price of the Stock is at least equal to the amount that
will be required to be paid on or in respect of the liabilities (including a
reasonable estimate of contingent liabilities) of the Company.

     (b) Company (i) is not insolvent (within the meaning contemplated by
Section 548 of Title 11 of the United States Code and any similar state statute
which may be applicable), and (ii) has assets having a fair value in excess of
the amount required to pay its probable liabilities on its existing debts as
they become due.

     3.31 Full Disclosure. No representation or warranty of Sellers contained
in this Agreement or statement in the Disclosure Schedule omits to state a
material fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading. No
information furnished by Sellers or the Company to Purchaser in connection with
this Agreement (including, without limitation, the Financial Statements and all
information in the Schedules and Exhibits) is false or misleading and such
information includes all facts required to be stated therein or necessary to
make the statements therein not misleading. All copies of original documents
delivered to Purchaser are true and correct copies of such original documents.

                                       20
<PAGE>   25
     3.32  Investment Representations.  As to the Shares, if any, comprising a
portion of the Purchase Price:

     (a)   Each of the Sellers is purchasing the Shares for his own account, for
           investment, and not with a view to, or for resale in connection with,
           any distribution thereof within the meaning of the Securities Act of
           1933 (the "Securities Act").

     (b)   The Sellers understand that the offering and sale of Shares under
           this Agreement have not been registered under the Securities Act or
           any Blue Sky Law.

     (c)   The Sellers understand that the offering and sale of the Shares under
           this Agreement has not been reviewed or approved by the Securities
           and Exchange Commission or any other governmental agency or
           department.

     (d)   Each of the Sellers acknowledges that he has been provided copies of
           the filings of the Purchaser with the Securities and Exchange
           Commission under the Securities Exchange Act of 1934 for the last 24
           month period, the opportunity to thoroughly review such filings, and
           the opportunity to ask questions and receive answers from the
           executive officers and directors of Purchaser regarding the property,
           business and prospects of Purchaser.

     (e)   Each of the Sellers understands that it cannot offer for sale, sell,
           or otherwise dispose of its Shares until they have been registered
           under the Securities Act and any applicable Blue Sky Laws or unless
           an exemption from such registration is available with respect to any
           such proposed offer, sale, or disposition.

     (f)   Each of the Sellers has such knowledge and experience in financial
           and business matters that he is capable of evaluating the merits and
           risks of an investment in the Shares.

     (g)   Each of the Sellers is able to bear the economic risk of its
           investment in the Shares to hold the Shares for an indefinite period
           of time, and to afford a complete loss of its investment.

     (h)   Each of the Sellers in an "accredited investor" as defined in Rule
           501 under the Securities Act.

                                   ARTICLE 4

                  REPRESENTATIONS AND WARRANTIES OF PURCHASER

     To induce Sellers and the Company to enter into this Agreement, Purchaser
represents and warrants to Sellers and the Company as follows:

     4.1   Organization, Good Standing, Power, etc.  Purchaser is a
corporation duly organized and validly existing under the laws of the State of
Texas, has all requisite power and authority to own or lease and to operate its
properties and to carry on its business as presently

                                       21

<PAGE>   26
conducted and is duly qualified to do business and is in good standing in each
jurisdiction where the failure to be so qualified would have a material adverse
effect on Purchaser. Purchaser has all requisite power and authority to execute,
deliver and perform this Agreement. This Agreement has been duly authorized,
executed and delivered by the Board of Directors of Purchaser and is the legal,
valid and binding obligation of Purchaser enforceable in accordance with its
terms.

     4.2  Effect of Agreement. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby will not require the consent, approval or authorization of
any person or to Purchaser's knowledge governmental authority. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) to Purchaser's knowledge violate any
statute, regulation, judicial or administrative order, writ, judgment,
injunction or decree involving Purchaser; (ii) conflict with the terms,
conditions or provisions of the organizational documents of Purchaser; (iii)
conflict with, require a consent, approval or authorization under, result in a
breach of or constitute a default under any agreement by which Purchaser is
bound; or (iv) terminate or give any party the right to terminate or accelerate
any obligation under such agreements.

     4.3  Investment Intent. Purchaser acknowledges that the Stock has not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and that Sellers and the Company have disclosed to Purchaser that the Stock may
not be resold absent such registration or unless an exemption from registration
is available. Purchaser is acquiring the Stock for its own account and not with
a view to its distribution within the meaning of section 2(11) of the Securities
Act. Purchaser is not a party to any written agreement in which it agrees
therein or is given authority therein to act as agent of the Company, any of
Company's officers, employees or representatives or any Seller as to any of the
Stock or any of the assets of the Company. Neither Purchaser nor any of its
affiliates have, or will, represent or hold itself out as an agent of the
Company or any of the Company's officers, employees or representatives or any
Seller as to any of the Stock or any of the Assets of the Company; provided
however, that it is understood by the Company and Sellers that upon Closing
affiliates or other representatives of Purchaser will be elected to Company's
Board of Directors and will be appointed officers of the Company and thereupon
be empowered to act on behalf of the Company. Purchaser will not be deemed or
construed to be in breach or violation of this Section on account of actions
which Purchaser may take or omit to take through its representation on the
Company Board of Directors or through officers appointed by the Company's Board
of Directors after the Closing so long as in taking or omitting to take such
actions, Purchaser is not purporting to act on behalf of any Seller.

     4.4  Brokerage. Purchaser represents that it has not retained any broker or
finder in connection with the transactions contemplated by this Agreement.

     4.5  Size of Purchaser. Purchaser does not have total assets or annual net
sales (as such terms are defined in the Hart-Scott-Rodino Antitrust Improvements
Act of 1976) of $100,000,000 or more.

                                       22
<PAGE>   27
                                   ARTICLE 5

                      Covenants of Sellers and the Company

     5.1  Access to Properties and Records. Between the date of this Agreement
and the Closing Date, Sellers shall give to Purchaser and its authorized
representatives (including, without limitation, environmental consultants,
attorneys, accountants, bankers, investors and their respective
representatives) full access to all aspects of the Company. Sellers shall
furnish to Purchaser any and all information pertaining to the Company, the
Financial Statements and the Business as Purchaser shall from time to time
reasonably require, including, without limitation, books, records, financial
statements and schedules thereto. Provided, however, such persons, at Seller's
option, must execute and deliver a confidentiality agreement as to such Company
provided information satisfactory to Company as to content, scope and
restrictions. Further, the Company will provide, at Company's cost, a Phase I
environmental audit for each parcel of real property comprising a part of the
Company's assets.

     5.2  Conduct of the Company Prior to Closing Date. Prior to the Closing
Date, and except as specifically required by this Agreement, or as otherwise
consented to or approved by Purchaser in writing, neither the Company nor any
Seller shall take any action or permit any action to be taken which would have
required disclosure under Section 3.9 if it had occurred between March 31, 2000
and the date of this Agreement. The Company will continue the Business as
customarily conducted until the Closing Date and shall operate the Business in
the Ordinary Course and continue normal capital expenditures and maintenance in
connection with the Business during the period from the date hereof until the
Closing Date.

     5.3  Advice of Developments. Sellers shall have a continuing obligation
from the date of this Agreement until the Closing Date to advise Purchaser, as
promptly as practicable, of all violations of or exceptions to the
representations and warranties contained in Article 3. Subject to the proviso
in Section 11.1(b), any such notification will not, however, be deemed to be an
amendment to the Schedules to this Agreement and shall be noted in the
certificate required under Section 8.1.

     5.4  Drilling Rig Lease. The Company currently leases its Drilling Rig No.
4, pursuant to the terms and conditions of the Lease described in Section 3.16
of the Disclosure Schedule. Sellers and the Company agree to use commercially
reasonable efforts to cause the Lease to be amended to extend the term thereof
to four (4) years after Closing, or alternatively, to enter into a purchase
option agreement with the Lessor for Drilling Rig No. 4, all on or before
Closing. The Lease amendment or purchase option agreement terms must be
approved by Purchaser. Purchaser will have a continuing right to terminate this
Agreement before Closing if a satisfactory Lease amendment or purchase option
agreement has not been obtained by Sellers and the Company by such date.

     5.5  Closing Conditions. Sellers will (i) take all steps necessary to
ensure that the conditions set forth in Article 8 hereof are satisfied, to the
extent such matters are within Sellers' control and (ii) use Sellers'
commercially reasonable efforts to ensure that such conditions are satisfied to
the extent such matters are not with Sellers' control.

                                       23
<PAGE>   28
     5.6  Escrow Agreement. At Closing, Sellers and the Company shall execute
and deliver to Purchaser the Escrow Agreement.

     5.7  Approvals of Governmental Bodies. Between the date of this Agreement
and the Closing Date, Sellers and the Company will use their reasonable
efforts, and will cooperate with Purchaser in taking all steps necessary,
promptly to (a) make any filing and (b) obtain any consent, approval or
authorization of any governmental body, in each case required by law to allow
the consummation of this Agreement and the transactions contemplated hereby,
provided that nothing herein shall require the Company to dispose of, or make
any change in, any portion of its business in order to obtain any consent,
approval or authorization.

     5.8  Amendments. Pending the Closing Date, no change or amendment shall be
made in the Articles of Incorporation or Bylaws of the Company, and the Company
shall not merge or consolidate with or into any other corporation and no other
corporation shall be merged into the Company and the Company shall not enter
into any agreements, options, warrants, rights, calls or commitments of any
character with respect to the issuance of shares of capital stock.

     5.9  Capital Expenditures. Pending the Closing Date, without the prior
approval of Purchaser, the Company shall not make any capital expenditures, or
commitments with respect thereto outside the Ordinary Course of Business.

     5.10 Property and Assets. Pending the Closing Date, the Business and the
assets, property and rights now owned by the Company will be used, preserved
and maintained, so far as practicable, in the Ordinary Course of Business, to
the same extent and in the same condition as said assets, property and rights
are on the date of this Agreement (normal wear and tear excepted), and no
unusual or novel methods of manufacture, purchase, sale, management or
operation of said properties or business will be made or instituted.

     5.11 Books of Account. Pending the Closing Date, the Company shall keep
its books of account and records in the usual, regular and ordinary manner, in
accordance with generally accepted accounting principles, practices and
standards applied on a consistent basis, and shall make no changes in
accounting principles.

     5.12 Loans by the Company. Pending the Closing Date, except as set forth
in Section 5.12 of the Disclosure Schedule, the Company nor any Company
Subsidiary shall make any loan or advance to, or assume, guarantee, endorse or
otherwise become responsible for, the obligations of any other individual, firm
or corporation other than in the Ordinary Course of Business and consistent
with past practice.

     5.13 Changes in Existing Agreements. Pending the Closing Date, neither the
Company nor any Seller shall waive any rights other than in the Ordinary Course
of Business or make any payment, direct or indirect, of any material liability
of the Company or before the same comes due in accordance with its terms.

     5.14 Agreements. Pending the Closing Date, neither the Company nor any
Seller shall enter into an agreement to do any of the things prohibited in this
Article 5.

                                       24
<PAGE>   29
     5.15 Good Faith Efforts. Sellers and the Company shall use their good
faith efforts to prevent their representations and warranties hereunder from
becoming untrue, to cure any such untrue representations and warranties, to
fulfill their covenants and agreements hereunder, and to cause the conditions
specified in Article 8 hereof to be satisfied.

     5.16 Notification of Certain Matters. Sellers and the Company shall give
prompt notice to Purchaser (a) the occurrence, or failure to occur, of any
event which occurrence or failure to occur would be likely to cause any
representation or warranty contained in Article 3 of this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof
to the Closing Date; and (b) any material failure on their part to comply with
or satisfy any covenant, condition or agreement to be complied with or
satisfied by Sellers and the Company hereunder; provided however, that, subject
to the proviso in Section 11.1(b) the delivery of any notice pursuant to this
Section 5.15 shall not limit or otherwise affect the remedies available
hereunder to Purchaser.

                                   ARTICLE 6

                             COVENANTS OF PURCHASER

     6.1 Audit. Purchaser, at Purchaser's cost, will commence a financial audit
of the Company's operations and condition by KPMG or an auditor acceptable to
KPMG for financial statement consolidation purposes sufficient in scope,
periods covered and form of opinion to allow Purchaser to satisfy all of its
reporting or disclosure requirements as a reporting registrant under the
Securities Exchange Act of 1934 or other applicable securities law or
regulations commencing immediately upon consummation of the Acquisition.

     6.2  Closing Conditions. Purchaser shall (i) take all steps necessary to
ensure that the conditions set forth in Article 9 hereof are satisfied, to the
extent such matters are reasonably within its control, and (ii) shall use its
reasonable efforts to ensure that such conditions are satisfied, to the extent
such matters are not within its control.

     6.3  Advice of Developments. Purchaser shall have a continuing obligation
from the date hereof through the Closing Date to advise the Company if it
obtains Knowledge that any of the representations and warranties in Article 3
of this Agreement have been breached or violated.

     6.4  Notice of Material Matters. Purchaser shall have a continuing
obligation from the date hereof to the Closing Date to give notice to the
Company of any event, transaction, or circumstance about which Purchaser has
Knowledge with could reasonably be deemed to have a Material Adverse Effect
on the Business or assets of Purchaser.

     6.5  Escrow Agreement. At Closing, Purchaser shall execute and deliver to
Sellers and the Company the Escrow Agreement.

                                       25
<PAGE>   30
                                   ARTICLE 7

                                CONFIDENTIALITY

     7.1  Confidentiality. Each of the parties hereto shall keep strictly
confidential any and all information furnished to it or its affiliates, agents
or representatives, in the course of negotiations relating to this Agreement or
any transaction contemplated by this Agreement, and the business and financial
reviews and investigation conducted by the parties hereto in connection with
this Agreement, and such parties have instructed their respective officers,
employees and other representatives having access to such information of such
obligation of confidentiality. In the event of the termination of this
Agreement, each of the parties hereto shall promptly deliver to the appropriate
party or certify as to the destruction of all originals and copies (including
all notes, extracts and computer tapes) of documents, work papers and other
written material or tangible media of expression concerning such party and
obtained from such party or its agents, employees or representatives in
connection with such negotiations and business and financial reviews and
investigations, whether so obtained before or after the execution hereof, and
the parties hereto covenant and agree that they will not use any information so
obtained except in connection with the transactions contemplated by this
Agreement, will not disclose or divulge such information to any other person
and will keep confidential any information so obtained for a period of five (5)
years from date of execution of this Agreement; provided, however that any
disclosure of such information may be made after consultation with the other
party to the extent required by applicable law and that such information may be
used as evidence in or in connection with any pending or threatened litigation
related to this Agreement or any transaction contemplated hereby. The
obligations of confidentiality set forth herein shall not apply to information
generally available to the public or in the possession of the receiving party
prior to its disclosure under this Agreement or that is given to the receiving
party by another person other than in breach of obligations of confidentiality
owed by such person to the disclosing party under this Agreement.

     7.2  Public Announcements. Neither Sellers nor the Company will, except as
required by law, issue or file any public reports, statements or releases
pertaining to this Agreement or any transaction contemplated by this Agreement
without the prior written consent of Purchaser.

                                   ARTICLE 8

                CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER

     The obligations of Purchaser under this Agreement are subject to the
satisfaction of the following conditions. Purchaser may waive any or all of
these conditions in whole or in part without prior notice; provided, however,
that no such waiver of a condition shall constitute a waiver by Purchaser of
any of its rights or remedies, at law or in equity, if Sellers or the Company
shall be in default of any of Sellers' or the Company's representations,
warranties, or covenants under this Agreement.

     8.1  Board of Director Approval. This Agreement shall have been approved
by Purchaser's Board of Directors.

                                       26
<PAGE>   31
     8.2  Representations and Warranties True at Closing. The representations
and warranties of Sellers and the Company contained in this Agreement shall be
true and correct on the Closing Date with respect to the state of facts then
existing, and Sellers shall deliver to Purchaser a certificate satisfactory to
Purchaser to such effect.

     8.3  Performance. Each of the covenants and obligations of Sellers and
the Company to be performed on or before the Closing Date pursuant to the terms
of this Agreement shall have been duly performed, including, without
limitation, the deliveries required under Section 2.3.

     8.4  No Material Adverse Change.  There shall have been no material
adverse change since the date of the most recent Financial Statement in the
business, condition (financial or otherwise) or operations of the Company,
taken as a whole, or their assets.

     8.5  Delivery of Certain Documents. Sellers, Lars Potter and Wayne Squires,
shall each have delivered to Purchaser on the Closing Date an agreement that for
a period of five (5) years after Closing, neither they nor their affiliates
shall directly or indirectly own, manage, operate, join, control, be employed
by, or participate in ownership, management, operation, or control of or be
connected in any manner with any person, partnership, association, corporation,
or other organization engaged in a business that competes with the Business, nor
directly or indirectly utilize the trade name "Pioneer" or any derivation
thereof, without the prior written consent of Purchaser.

     8.6  No Action to Prevent Completion. On or before the Closing Date, there
shall not have been instituted and be continuing or, to the Knowledge of
Sellers, threatened against the Company any claim, action, suit, arbitration,
grievance, proceeding or investigation before any federal, state, municipal,
governmental or nongovernmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and there shall not be any outstanding or
unsatisfied judgments, orders, decrees or stipulations to which any Seller or
the Company or any Company Subsidiary is a party, which involve this Agreement
or the transactions contemplated hereby or which if adversely resolved would
have a material adverse effect on the value or condition of the assets of the
Company or any Company Subsidiary, or the Company or any Company Subsidiary.

     8.7  Opinion of Counsel for Sellers and Company. Purchaser shall have
received an opinion of Porter, Rogers, Dahlman and Gordon (or other counsel
reasonably acceptable to Purchaser) dated as of the Closing Date, in form and
substance satisfactory to Purchaser and Purchaser's counsel (it being understood
that such counsel may assume that the law of any jurisdiction other than Texas
is equivalent to Texas law), subject to reasonable qualifications and
exceptions, to the effect that:

     (a)  The Company is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation and has all
requisite corporate power and authority to own or lease and to operate its
properties and to carry on its business as presently conducted.

     (b)  The execution, delivery, and performance of this Agreement and all
instruments and agreements delivered by or on behalf of the Company pursuant to
the terms of this Agreement

                                       27
<PAGE>   32
(the "Documents") have been duly authorized by all necessary corporate action
on the part of Sellers and the Company and have been duly executed and
delivered by Sellers and Company and constitute the valid and binding
obligations of all parties thereto other than Purchaser, enforceable against
such parties in accordance with their respective terms.

     (c)  The authorized capital stock of the Company consists exclusively of
1,000,000 shares of Common Stock of which 15,300 shares of Common Stock are
issued and outstanding. All outstanding shares of Company are owned of record
by Sellers. All outstanding shares of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. To the best of such
counsel's knowledge and belief, there are no (i) outstanding subscriptions,
options, warrants or rights to acquire any shares of the capital stock or other
securities of the Company, (ii) outstanding securities or obligations which are
convertible into or exchangeable for any shares of the capital stock or other
securities of the Company, or (iii) agreements or arrangements under which the
Company is or may become bound to assign or transfer or to sell or otherwise
issue any shares of its capital stock or any other securities.

     (d)  Assuming the consents, approvals and authorizations set forth by the
Company in Section 3.3 of the Disclosure Schedule have been obtained, the
execution, delivery and performance of the Documents by the Company and the
consummation by the Company of the transactions contemplated hereby will not to
counsel's knowledge violate any statute, regulation, judicial or administrative
order, writ, judgment, injunction or decree involving the Company and will not
(i) conflict with the terms, conditions or provisions of the articles of
incorporation or by-laws of the Company; (ii) to counsel's knowledge conflict
with, require a consent, approval or authorization under, result in a breach of
or constitute a default under any material agreement by which the Company, or
any of its respective assets are bound; (iii) to counsel's knowledge terminate
or give any party the right to terminate or accelerate any obligation under
such material agreements; (iv) to counsel's knowledge result in a creation of
any lien, charge or encumbrance on any of its assets; or (v) to counsel's
knowledge violate, void or require the transfer of any material qualification,
registration, filing, privileges, franchise immunity, license, permit, order,
authorization or approval of the Company.

     (e)  To counsel's knowledge, the execution, delivery and performance of
this Agreement by Sellers and the consummation by Sellers of the transactions
contemplated hereby will not require any consent, approval or authorization of
any federal or state governmental authority or, to counsel's knowledge, any
other person, except for those consents, approvals or authorizations listed in
Section 3.3 of the Disclosure Schedule. The execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby will not require any other consent, approval
or authorization of any federal or state governmental authority or, to
counsel's knowledge, any other person, except for those consents, approvals or
authorizations listed in Section 3.3 of the Disclosure Schedule.

     (f)  To counsel's knowledge, no claim, action, suit, proceeding or Federal,
state or local investigation is pending or threatened against the Company,
except as disclosed in Section 3.17 of the Disclosure Schedule.

     8.8  Release of Claims. At the Closing, Sellers shall have delivered to
the Company a release dated the Closing Date ("Release") of all claims or
rights of Sellers or any Affiliate of

                                       28
<PAGE>   33
Sellers against the Company, including, without limitation, any right to the
repayment of loans from Sellers to the Company, except for claims or rights
which are set forth expressly in such release, which shall be in a form
reasonably acceptable to Purchaser.

     8.9  No Litigation.  There shall be no pending or threatened governmental
or third party action, suit, proceeding or investigation seeking to restrain or
questioning the validity or legality of any of the transactions described in
this Agreement.

     8.10  Resignations/Employment Agreement.  Sellers and the Company shall
have caused to be delivered to Purchaser the written resignation of all officers
and directors of the Company and Purchaser shall have received a certificate
signed by the Company's President stating that this condition has been
satisfied. Seller Wayne Squires ("Squires") and Purchaser shall have entered
into an employment agreement (the "Employment Agreement") under which Squires
would manage Purchaser's business operations associated with the business of the
Company for a term of at least two (2) years commencing upon Closing. The
Employment Agreement would include such other terms and conditions as mutually
agreed between Squires and Purchaser, including a covenant that Squires will
continue, during the employment period, to devote a similar level of time and
energy to the Company's business as in recent years.

     8.11  Performance.  Sellers and the Company shall have delivered or caused
to be delivered to Purchaser any other matters required by this Agreement to be
delivered at the Closing by or for Sellers and the Company.

     8.12  Purchaser's Due Diligence Review.  Purchaser shall have completed
its due diligence review of the Company confirming Sellers' compliance with the
representations and warranties set forth in Article 3 hereof.

     8.13  Financing.  Purchaser shall have obtained financing satisfactory to
it sufficient to purchase the Stock and operate the Business, after using good
faith efforts to obtain such financing.

                                   ARTICLE 9

                 CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS

     The obligations of Sellers under this Agreement are subject to the
satisfaction of the following conditions. Sellers may waive any and all of
these conditions in whole or in part without prior notice; provided, however,
that no such waiver of a condition shall constitute a waiver by Sellers of any
of Sellers' rights or remedies, at law or in equity, if Purchaser should be in
default of any of its representations, warranties, or covenants under this
Agreement.

     9.1  Representations and Warranties True at the Closing.  The
representations and warranties of Purchaser contained in this Agreement shall
be true and correct on the Closing Date with respect to the state of facts then
existing, and Purchaser shall deliver to Seller a certificate to such effect.

                                       29
<PAGE>   34
     9.2  Performance.  Each of the covenants and obligations of Purchaser to
be performed on or before the Closing Date pursuant to the terms of this
Agreement shall have been duly performed, including, without limitation, the
deliveries required under Section 2.2 of this Agreement.

     9.3  No Action To Prevent Completion. On or before the Closing Date, there
shall not have been instituted and be continuing any action or proceeding by or
before any court or governmental body to restrain, prohibit or invalidate, or to
obtain damages in respect of, the transactions contemplated by this Agreement
(nor shall any such action or proceeding have been threatened), and there shall
not have been issued a preliminary or permanent injunction or other order,
decree or ruling by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission nor promulgated any statues,
rule, regulation or executive order by any governmental authority which would
restrain, prohibit or invalidate the transactions contemplated by this
Agreement.

     9.4  Approvals and Consents.  All approvals and consents listed in Section
3.3 of the Disclosure Schedule shall have been obtained and the waiting
periods, if any, relating thereto shall have passed.

     9.5  Opinion of Counsel for Purchaser.  Purchaser shall deliver an opinion
of Matthews and Branscomb dated as of the Closing Date, in form and substance
satisfactory to Seller and Sellers' counsel, subject to reasonable
qualifications and exceptions, to the effect that:

     (a)  Purchaser is a corporation duly settled and validly existing under
the laws of the State of Texas and has the power and authority to execute,
deliver and perform this Agreement.

     (b)  This Agreement and all instruments and agreements executed and
delivered by or on behalf of Purchaser pursuant to this Agreement have been
duly authorized by all necessary action on the part of Purchaser and have been
duly executed and delivered by Purchaser and constitute the valid and binding
obligations of Purchaser enforceable against it in accordance with their terms.

     (c)  The consummation of the transactions contemplated by this Agreement
will not conflict with the terms, conditions or provisions of the trust
agreement under which Purchaser is organized and will not, to the knowledge of
such counsel, (i) violate any statute, regulation, judicial or administrative
order, writ, judgment, Injunction or decree involving Purchaser; (ii) conflict
with, require a consent, approval or authorization under, result in a breach of
or constitute a default under any agreement by which Purchaser is bound; or
(iii) terminate or give any party the right to terminate or accelerate any
obligation under such agreements.

     (d)  The execution, delivery and performance of this Agreement by
Purchaser and the consummation by Purchaser of the transactions contemplated
hereby will not require any consent, approval or authorization of any federal
or state governmental authority or, to counsel's knowledge, any other person.

                                       30

<PAGE>   35
         9.6      No Litigation. There shall be no pending or threatened
governmental or third party action, suit, proceeding or investigation seeking
to restrain or questioning the validity or legality of any of the transactions
described in this Agreement.

                                   ARTICLE 10

                                  TERMINATION

         10.1     Termination Events. This Agreement may, by notice given prior
to or at the Closing, be terminated:

         (a)      by either party if a material breach of any provision of this
Agreement has been committed by the other party and such breach has not been
waived or cured to the reasonable satisfaction of the non-breaching party;

         (b)      (i) by Purchaser if elected under Section 5.4; or (ii) by
Purchaser if any of the conditions in Article 8 has not been satisfied as of
the Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the willful and intentional failure of Purchaser
to comply with its obligations under this Agreement) and Purchaser has not
waived such condition on or before the Closing Date; or (iii) by Sellers, if
any of the conditions in Article 9 has not been satisfied of the Closing Date
or if satisfaction of such a condition is or becomes impossible (other than
through the willful and intentional failure of Sellers to comply with its
obligations under this Agreement) and Sellers have not waived such condition on
or before the Closing Date;

         (c)      by mutual consent of Purchaser and Sellers; or

         (d)      by either Purchaser or Sellers if the Closing has not
occurred (other than through the willful and intentional failure of any party
seeking to terminate this Agreement to comply fully with its obligations under
this Agreement) on or before August 31, 2000, or such later date as the
parties may agree upon.

         10.2     Effect of Termination. Each party's right of termination
under Section 10.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
10.1, all further obligations of the parties under this Agreement will
terminate save and except confidentiality obligations under Section 7.1;
provided, however, that if this Agreement is terminated by a party pursuant to
Section 10.1 because of the willful and intentional breach of the Agreement by
the other party or because one or more of the conditions to the terminating
party's obligations under this Agreement is not satisfied as a result of the
other party's willful and intentional failure to comply with its obligations
under this Agreement, the terminating party's right to pursue all legal
remedies will survive such termination unimpaired.

                                       31
<PAGE>   36
                                   ARTICLE 11

                                INDEMNIFICATION

     11.1 Post-Closing Indemnification by Sellers and Purchaser.

     (a)  The representations and warranties made herein by Sellers and
Purchaser shall survive the Closing for a period of three (3) years thereafter.

     (b)  Except as specifically limited under Section 11.3, Sellers shall
indemnify and hold harmless Purchaser from and against all liability, damage,
deficiency, loss, cost or expense, including attorneys' fees and costs of
investigation (being hereafter referred to as "Losses"), incurred by Purchaser
which arise from or are attributable to (i) the inaccuracy of any representation
or warranty made by Sellers contained herein or in any document or certificate
furnished or required to be furnished to Purchaser or any of its representatives
by Sellers or any of their representatives pursuant to this Agreement; (ii) the
legal proceedings described in Section 3.17 of the Disclosure Schedule; (iii)
failure to pay sales tax or expenses pursuant to Section 12.9; or (iv) any
environmental remediation costs and expenses (unless such environmental
remediation costs and expenses were caused by Purchaser, any subsequent
purchaser of all or substantially all of the assets of the Business or any
successors or assigns thereof); provided, however, that no claim for
indemnification under clause (i) of this Section 11.1(b) shall be made with
respect to a breach or alleged breach of a representation or warranty if
Purchaser had actual knowledge based solely on the disclosures set forth in the
Disclosure Schedule of the breach or alleged breach at the Closing (it being
understood that, for purposes of Section 11.1(b)(i) only, and not for purposes
of any other provision of this Agreement, the representations and warranties of
Sellers shall be deemed to be supplemented by any supplement to the Disclosure
Schedule delivered by Sellers to Purchaser prior to Closing).

     (c)  Purchaser and Company shall indemnify and hold harmless Sellers from
and against all Losses which Sellers incur which arise from or are attributable
to (i) the inaccuracy of any representation or warranty made by Purchaser herein
or in any document or certificate furnished or required to be furnished to
Sellers or any of their representatives by Purchaser or any of its
representatives, pursuant to this Agreement; or (ii) any failure by Purchaser to
pay when due and perform the liabilities of the Company, except to the extent
Sellers are obligated to indemnify Purchaser against such Losses pursuant to
Section 11.1(b).

     (d)  If any party claiming the right to be indemnified hereunder (the
"Indemnified") is threatened with any claim, or any claim is presented to or
made by the Indemnified, or any action is commenced against the Indemnified,
which may give rise to a right of indemnification hereunder (including without
limitation, tax claims under Section 11.2), the Indemnified shall, with
reasonable promptness, give to the party it claims to be liable hereunder (the
"Indemnitor") written notice of the claim and request the Indemnitor to defend
the same, and, without prejudice to the Indemnified's right of indemnification
hereunder, shall, prior to taking any action with respect to the subject claim,
make itself available to meet with the Indemnitor and in good faith attempt to
resolve and settle the claim without further recourse to the Indemnified's
rights and remedies under this Article 11. The Indemnitor may elect, within
thirty (30) days after receipt of such notice, or five (5) days before the
return date required by any citation, claim or other statute,

                                       32
<PAGE>   37
whichever occurs earlier, to contest or defend against such claim which, as to
third party claims, will be at the joint control and defense of the Indemnified
and Indemnitor, and shall give written notice to the Indemnified of its
election. In the event of an affirmative election, the Indemnified, and the
Indemnitor, their respective subsidiaries, successors and assigns shall be
entitled to jointly participate and share the cost of defense, including
without limitation, attorney's fees, court costs, investigative and expert
fees. Neither party will be entitled in any way to release, waive, settle,
modify or pay such claim without the consent of the other party. In the event
that the Indemnitor does not elect to contest or defend the claim as provided
above, the Indemnified, its subsidiaries, successors or assigns shall have the
exclusive right to prosecute, defend, compromise, settle or pay the claim in
its sole discretion and pursue its rights under this Agreement.

     (e)  The foregoing indemnification obligations are subject to the
following:

          (i) No party hereto shall be required to indemnify the other for any
     breach of or inaccuracy in a representation or warranty or agreement
     hereunder unless the Indemnified notifies the Indemnitor of such breach and
     the basis for indemnification for any Losses resulting therefrom within a
     reasonable time after obtaining Knowledge of such breach or inaccuracy.

          (ii) The amount of any Losses recovered by an Indemnified hereunder
     shall be reduced by the amount, if any, of the recovery (net of reasonable
     expenses incurred in obtaining said recovery) the Indemnified hereunder
     shall have received with respect thereto from any other party, person or
     entity, other than an insurer of the Indemnified unless such insurer has
     expressly waived all rights of subrogation with respect to such recovery.
     In the event such a recovery is made by an Indemnified after it receives
     payment or other credit hereunder with respect to any Losses, then a refund
     equal in aggregate amount to the recovery, net of reasonable expenses
     incurred in obtaining recovery, shall be made promptly to the Indemnitor
     making such payment. Without limiting the foregoing, in the event that a
     claim or benefit, other than an insurance claim against an insurer of the
     Indemnified or an insurer of Sellers under a policy obtained on or after
     the Closing Date, is created in connection with the occurrence of any
     Losses which have not been collected by the Indemnified at the time payment
     with respect to such Losses is made by the Indemnitor, the Indemnified
     shall assign such benefit or claim to the Indemnitor as a condition to the
     payment by the Indemnitor and shall cooperate with the Indemnitor in its
     efforts to collect any such benefit or claim. If such claim or benefit is
     not assignable under applicable laws, the Indemnified shall cooperate in
     good faith with the Indemnitor's efforts to collect such claim or benefit.

          (iii) No Losses shall be deemed to have been incurred to the extent
     that a liability, expense, cost, claim or obligation is fully reflected and
     adequate reserves provided in the Financial Statements.

          (iv) No Losses shall be deemed to have been incurred except to the
     extent that the written claim therefor has been delivered pursuant to
     Section 11.1(d) within any applicable survival period provided for
     hereunder.

                                       33
<PAGE>   38
     (f)  To partially secure Sellers' indemnity obligations under this Article
11, the Section 1.4(b) component of the Purchase Price will be held by the
Escrow Agent, for the term and upon the conditions of the Escrow Agreement which
will be substantially in the form set out in Exhibit B. However, Purchaser's
right to recover its Losses under Section 11.1(b) and Section 11.2 shall not be
limited to the Escrow Amount. The indemnification provisions of this Article 11
are the sole remedy any party may have following the Closing for breach of the
representations and warranties made under this Agreement or any other instrument
or agreement executed in connection herewith, except in cases of the willful and
intentional breach of a party's obligations hereunder or fraud as to which the
foregoing indemnification provisions are in addition to, and not in derogation
of, any statutory, equitable, or common law remedy.

     11.2 Taxes

     (a)  Sellers shall be responsible for and shall indemnify and hold harmless
Purchaser on an after-tax basis from and against (i) any and all Taxes or
related costs of the Company (or any predecessor thereto) for any taxable year
or period ending at the close of business on the day before the Closing Date and
the portion of any and all Taxes or related costs for any taxable year or period
beginning before and ending after the Closing Date that is attributable to the
portion of such year or period through the close of business on the day before
the Closing Date (in each case, except to the extent that such liability is
properly reflected as a Current Liability in the Closing Balance Sheet), (ii)
any and all Taxes or related costs (for any taxable period, whether beginning
before, on or after the Closing Date) of or attributable to any person, other
than the Company, which is or has been affiliated with the Company or with which
any of them files or has filed any combined, consolidated or unitary or other
similar Tax Return. If Sellers are required to make an additional payment of
Taxes and, in connection with the receipt of such payment and the payment of
such Tax, Purchaser or the Company obtains a net tax benefit, Purchaser shall
pay to Sellers an amount equal to the actual tax savings produced by such net
tax benefit. The amount of any such tax savings for any period shall be the
amount of the reduction in Taxes reflected on any consolidated federal income
tax return or any foreign, state or local tax return (net of any resulting
increases in Taxes reflected on any other such return) for such period as
compared to the Taxes that would have been reflected on such return in the
absence of such net tax benefit. Any net tax benefit not resulting in an actual
tax savings for the taxable period to which it relates or for any earlier period
shall be carried forward to succeeding taxable years until used to the extent
permitted by law. If Purchaser makes a payment pursuant to this Section 11.2(a)
and it is later determined that Purchaser did not receive the actual tax savings
(or portion thereof) relating to such payment (including nonreceipt of such tax
benefit as the result of the absorption of other losses or tax benefits incurred
by Purchaser, the Company, the Company Subsidiaries or the affiliated group of
which any of them are members), Sellers shall promptly refund such payment (or
such allocable portion thereof) to Purchaser, together with interest calculated
at the rate specified in Section 11.2(d). Notwithstanding the foregoing,
after-tax basis shall not include the effects of any alternative minimum tax
imposed on Purchaser.

     (b)  If any Tax for which Sellers are to indemnify Purchaser pursuant to
this Section 11.2 is payable (whether as a payment of estimated Tax, in
satisfaction of a deficiency or otherwise) after the Closing Date, Sellers
shall pay or cause to be paid to Purchaser the amount of such Tax no later than
the later of (i) the thirtieth business day after Sellers receives notice from

                                       34
<PAGE>   39
Purchaser that such Tax is due and (ii) ten (10) business days before the date
such Tax is due and payable.

     (c)  The obligations of Sellers under this Section 11.2 shall be absolute
and unconditional, shall not be subject to any counterclaim, setoff, deduction,
diminution, abatement, recoupment, suspension, deferment, reduction or defense
based upon any claim that potential indemnitees or indemnitors may have against
the other, and shall remain in full force and effect without regard to, or shall
not be released, discharged or in any way affected by, any conditions or
circumstances whatsoever.

     (d)  Any amount due under this Section 11.2 but unpaid at the date set for
payment in the applicable provision shall bear interest from such date to the
date payment is made in full at the prime rate of interest charged by
International Bank of Commerce, San Antonio, Texas, plus one percent (1%).

     11.3 Limitation on Indemnity Liability.

     Irrespective of any other provision of this Article 11, no Seller will be
liable for Losses or Taxes in an amount exceeding such Seller's proportionate
part of the Purchase Price attributable to such Seller's ownership of the
Company's Stock.

                                   ARTICLE 12

                                    GENERAL

     12.1 Amendment. Except as otherwise provided herein, the parties hereto may
amend, modify or supplement this Agreement at any time, but only in writing duly
executed by all parties hereto.

     12.2 Entire Understanding. The terms set forth in this Agreement including
its Schedules and Exhibits are intended by the parties hereto as a final,
complete and exclusive expression of the terms of their agreement and may not be
contradicted, explained or supplemented by evidence of any prior agreement, any
contemporaneous oral agreement or any consistent additional terms. The Schedules
and Exhibits attached hereto are part of this Agreement. Time is of the essence
with respect to all covenants, undertakings and matters to be commenced or
performed of any party on or before a specific date, or within a specified time
period, under the Agreement.

     12.3 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

     12.4 Headings. The headings preceding the text of Sections of this
Agreement are for convenience only and shall not be deemed a part hereof.

                                       35
<PAGE>   40
     12.5 Applicable Law; Severability. This Agreement shall be governed by and
construed and enforced in accordance with the laws or the State of Texas. If any
provision of this Agreement is determined by a proper court to be invalid,
illegal or unenforceable, such invalidity, illegality or unenforceability shall
not affect the other provisions of this Agreement and this Agreement shall
remain in full force and effect without such invalid, illegal or unenforceable
provision.

     12.6 Parties in Interest; Assignment. All of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and permitted assigns of the parties
hereto, whether herein so expressed or not, but neither this Agreement nor any
of the rights, interests or obligations hereunder of any party hereto shall be
assigned without the prior written consent of the other parties; provided,
however, Purchaser shall have the unrestricted right to assign the right to
purchase all or any portion of the Assets to a wholly owned subsidiary, parent
corporation or any other affiliate. This Agreement is not intended, nor shall it
be construed, to confer any enforceable rights on any person not a party hereto
other than as set forth above.

     12.7 Further Acts. If at any time before, on or after the Closing Date any
further action by any of the parties to this Agreement is necessary or desirable
to carry out the purposes of this Agreement, such party shall take all such
necessary or desirable action or use such party's best efforts to cause such
action to be taken.

     12.8 Notices. Any notice or demand desired or required to be given
hereunder shall be in writing and personally delivered, sent by overnight
courier or deposited in the mail, postage prepaid, sent certified or registered,
and addressed as set forth below or to such other address as any party shall
have previously designated by such a notice. Any notice so delivered personally
or sent by overnight courier shall be deemed to be received on the date of
delivery and any notice so mailed shall be deemed to be received three days
after the date on which it was mailed.

If to Sellers:           As set forth on Exhibit A hereto

Copy to:                 Porter, Rogers, Dahlman & Gordon
                         One Shoreline Plaza
                         800 N. Shoreline, Suite 800
                         Corpus Christi, Texas 78401-3708
                         Attn: Dan Davis
                         Facsimile No.: (361) 880-5844

If to Purchaser:         South Texas Drilling & Exploration, Inc.
                         9310 Broadway, Building 1
                         San Antonio, Texas 78217
                         Attn: Wm. Stacy Locke
                         Facsimile No.: (210) 828-8228

                                       36
<PAGE>   41
Copy to:            Matthews and Branscomb, P.C.
                    802 N. Carancahua, Suite 1900
                    Corpus Christi, Texas 78470-0700
                    Attn: Gerald E. Thornton, Jr.
                    Facsimile No.: (361) 888-8504

          12.9   Expenses

          (a)  Subject to Section 1.3, the Company shall bear all expenses
incurred by Sellers in connection with this Agreement (including, but not
limited to, attorneys' and accountants' fees). Purchaser shall bear all
expenses incurred by it in connection with this Agreement (including, but not
limited to, attorneys' and accountants' fees).

          (b)  Any sales, use or transfer tax assessed or imposed in connection
with the transfer of the Stock hereunder shall be borne by Sellers.

          12.10  Arbitration. All disputes, controversies or claims that may
arise among the parties (including their agents and employees), including
without limitation any dispute, controversy or claim arising out of or relating
to this Agreement or any other agreement, or the breach, termination or
invalidity thereof, whether entered into or arising prior, on or subsequent to
the date hereof, shall be submitted to, and determined by, binding arbitration.
Such arbitration shall be conducted before a single arbitrator pursuant to the
Commercial Arbitration Rules then in effect of the American Arbitration
Association. Exclusive venue for such arbitration shall be in Bexar County,
Texas. The arbitrator shall apply the laws of the State of Texas (without
regard to conflict of law rules) in determining the substance of the dispute,
controversy or claim and shall decide the same in accordance with applicable
usages and terms of trade. Evidentiary questions shall be governed by the
Federal Rules of Evidence. The arbitrator's award shall be in writing and shall
set forth findings and conclusions upon which the arbitrator based the award.
The prevailing party in any such arbitration shall be entitled to recover its
reasonable attorneys' fees, costs and expenses incurred in connection with the
arbitration, as determined by the arbitrator. Any award pursuant to such
arbitration shall be final and binding upon the parties and judgment on the
award may be entered in any federal or state court sitting or located in Bexar
County, Texas, or in any other court having jurisdiction. The provisions of
this Section 12.10 shall survive the termination of this Agreement.
Notwithstanding the foregoing, this Section 12.10 shall not prevent any party
from seeking injunctive relief from a court of competent jurisdiction under
appropriate circumstances, provided, however, such action shall not constitute
a waiver of the provisions of this Section 12.10.

          IN WITNESS WHEREOF, the parties hereto have entered into and signed
this Agreement as of the date and year first above written.

                                       37
<PAGE>   42
                                        SELLERS:

                                        /s/ Lars Potter
                                        ----------------------------------------
                                        Lars Potter

                                        /s/ Wayne Squires
                                        ----------------------------------------
                                        Wayne Squires

                                        /s/ Samuel A. Plum
                                        ----------------------------------------
                                        Samuel A. Plum

                                        /s/ Hope P. Woodward
                                        ----------------------------------------
                                        Hope P. Woodward

                                        /s/ Wayne M. Squires
                                        ----------------------------------------
                                        Wayne M. Squires, Trustee
                                        Abigail S. Potter Trust

                                        /s/ Searcy F. Willis, Jr.
                                        ----------------------------------------
                                        Searcy F. Willis, Jr.

                                        /s/ Carl W. Timpson
                                        ----------------------------------------
                                        Estate of James Timpson

                                        /s/ Thomas C. Nix
                                        ----------------------------------------
                                        Thomas C. Nix

                                        /s/ Terrell W. Dahlman
                                        ----------------------------------------
                                        Terrell W. Dahlman, Trustee
                                        Williams S. Woodward Trust

                                        /s/ Ogden W. Timpson
                                        ----------------------------------------
                                        Ogden W. Timpson

                                        /s/ John T. Bradshaw
                                        ----------------------------------------
                                        John T. Bradshaw

                                        ----------------------------------------
                                        Dean Witter Reynolds, Inc.

                                        /s/ Carl W. Timpson, Jr.
                                        ----------------------------------------
                                        Carl W. Timpson, Jr.

                                        /s/ Victoria T. Kilburn
                                        ----------------------------------------
                                        Victoria T. Kilburn

                                       38
<PAGE>   43
                                        /s/ Terrell W. Dahlman
                                        ----------------------------------------
                                        Terrell W. Dahlman, Trustee
                                        Alixandra T. Potter Trust

                                        /s/ Jonathan E. Ellis
                                        ----------------------------------------
                                        Jonathan E. Ellis

                                        /s/ Edward A. Hoffmann
                                        ----------------------------------------
                                        Edward A. Hoffmann

                                        /s/ Terrell W. Dahlman
                                        ----------------------------------------
                                        Terrell W. Dahlman, Trustee
                                        Cynthia B. Woodward Trust

                                        /s/ Walter J. Wilson
                                        ----------------------------------------
                                        Walter J. Wilson, Attorney in fact

                                        /s/ Ross R. Hahn
                                        ----------------------------------------
                                        Ross R. Hahn

                                        /s/ Ruth L. Squires
                                        ----------------------------------------
                                        Ruth L. Squires

                                        COMPANY:

                                        Pioneer Drilling Co., Inc.

                                        By: /s/ Wayne M. Squires
                                           -------------------------------------

                                        Name: Wayne M. Squires
                                             -----------------------------------

                                        Title: President
                                              ----------------------------------

                                        PURCHASER:

                                        South Texas Drilling & Exploration, Inc.

                                        By: /s/ Michael E. Little
                                           -------------------------------------

                                        Name: Michael E. Little
                                             -----------------------------------

                                        Title: Chairman & CEO
                                              ----------------------------------

                                       39
<PAGE>   44
                                   EXHIBIT A

                                 No. of Shares
                                 -------------

Lars Potter                   5225    Carl W. Timpson, Jr.                  550
334 Flato Rd.                         5th Floor, 1177 George Bush Blvd.
Corpus Christi, TX 78405              Delray Beach, FL 33483

Wayne Squires                 5000    Victoria T. Kilburn                   450
P.O. Box 2963                         48 Walsh Lane
Corpus Christi, TX 78403              Greenwich, CT 06830

Samuel A. Plum                700     Terrell W. Dahlman, Trustee           450
10 Watermer Ave.                      Alixandra T. Potter Trust
Philadelphia, PA 19118                P.O. Box 2963
                                      Corpus Christi, TX 78403

Hope P. Woodward              450     Johnathan E. Ellis                    275
138 Summer St.                        5603 Bull Creek Rd.
Andover, MA 01810                     Austin, TX 78756

Wayne M. Squires, Trustee     450     Edward A. Hoffman                     163
Abigail S. Potter Trust               101 Rainbow Dr., Apt. 9750
P.O. Box 2963                         Livington, TX 77351-9330
Corpus Christi, TX 78403

Searcy F. Willis, Jr.         325     Terrell W. Dahlman, Trustee           112
4004 Hambletonian                     Cynthia B. Woodward Trust
Austin, TX 78746                      P.O. Box 2963
                                      Corpus Christi, TX 78403

Estate of James Timpson       275     Walter J. Wilson                      100
48 Habor Rd.                          P.O. Box 877
Southport, CT 06490                   Corpus Christi, TX 78403

Thomas C. Nix                 162     Ross R. Hahn                          50
3710 Sand Myrtle                      4201 Ravine Dr.
Houston, TX 77059                     Corpus Christi, TX 78410

Terrell W. Dahlman, Trustee   113     Ruth L. Squires                       50
William S. Woodward Trust             615 Theresa St.
P.O. Box 2963                         St. Marys, PA 15857
Corpus Christi, TX 78403

Ogden W. Timpson              100     Dean Witter Reynolds, Inc.            200
526 Black Pt. Rd.                     5 World Trade Center
Scarborough, ME 04074                 New York, NY 10048
                                      Attn: Randal Goding

John R. Bradshaw              100
4323 Williamsburg Rd.
Dallas, TX 75220

<PAGE>   45
                                   EXHIBIT B

                                ESCROW AGREEMENT

     THIS ESCROW AGREEMENT, dated as of July 31, 2000 (the "Closing Date"), is
entered into by and among Pioneer Drilling Co., Inc., a Texas corporation
("Company"), the shareholders of the Company (listed in Exhibit A attached
hereto and collectively referred to as "Sellers"), South Texas Drilling &
Exploration, Inc., a Texas corporation ("Purchaser"), and Frost Bank - Corpus
Christi, as escrow agent ("Escrow Agent").

     This is the Escrow Agreement referred to in the Stock Purchase Agreement
by and among Purchaser, Sellers and the Company dated July ___, 2000 (the
"Purchase Agreement"). Capitalized terms used in this Escrow Agreement without
definition will have the respective meanings given to them in the Purchase
Agreement.

     The parties, intending to be legally bound, hereby agree as follows:

     1.   ESTABLISHMENT OF ESCROW

          (a)  Purchaser and Sellers are depositing with Escrow Agent (a)
immediately available funds and (b) restricted shares of Purchaser's common
stock, in the aggregate amount of $1,200,000.00, all as set forth on Exhibit A,
as increased by any earnings thereon (such funds being the "Escrow Fund"), for
the purposes of providing partial security for Purchaser's claims under Article
11 of the Purchase Agreement. Escrow Agent acknowledges receipt thereof.

          (b)  Escrow Agent hereby agrees to act as escrow agent and to hold,
safeguard and disburse the Escrow Fund pursuit to the terms and conditions
hereof.

     2.   INVESTMENT OF FUNDS

          (a)  Except as Purchaser and Sellers may from time to time jointly
instruct Escrow Agent in writing, the cash portion of the Escrow Fund shall be
invested in the Frost Bank Money Market Fund until the last of the Escrow Funds
are disbursed. Escrow Agent is authorized to liquidate in accordance with its
customary procedures any portion of the Escrow Fund consisting of investments
to provide for payments required to be made under this Escrow Agreement. The
parties hereby acknowledge and agree that unless written instructions and
collected and available funds are delivered to Escrow Agent by 9:30 a.m.
Central Time on a Business Day (as defined in paragraph 7 hereof) the funds
will remain uninvested until the next Business Day.

          (b)  All parties acknowledge and agree that payment of the Escrow
Fund pursuant to the terms hereof is subject to the sale and final settlement
of permitted investments. Delivery of and distribution instructions, when funds
are invested in the Frost Bank Money Market Fund, must be made to Escrow Agent
by 9:30 a.m. Central Time if the Escrow Fund is to be delivered by the close of
that Business Day. Otherwise, the Escrow Fund will be delivered on the next
Business Day. With respect to the sale of any other permitted investment, if
the final settlement of that sale has not occurred by 1:00 p.m. Central Time on
the day the instructions for

<PAGE>   46
disbursement are delivered to the Escrow Agent, all parties acknowledge and
agree that the Escrow Fund will be delivered on the next Business Day.

         (c)      The portion of the Escrow Fund comprised of shares of
Purchaser's common stock will be held pursuant to the terms hereof, and Escrow
Agent will receive, account for, and hold any distributions received in respect
of such shares in accordance herewith and will exercise voting rights, if any,
with respect to the shares as directed by Sellers in writing.

         3.       LOSS CLAIMS

                  (a)      From time to time on or before July 31, 2002,
Purchaser may give notice (a "Notice of Loss") to Sellers and Escrow Agent
specifying in reasonable detail the nature and dollar amount of any claim (a
"Claim") for Losses it may have under Article 11 of the Purchase Agreement. The
term Claim will include, for these purposes, the amount of defense costs for
which Sellers are responsible under the terms of the Purchase Agreement. If
Sellers give notice to Purchaser and Escrow Agent disputing any Claim (a
"Counter Notice") within 30 days following receipt by Escrow Agent of the Notice
of Loss regarding such Claim, such Claim shall be resolved as provided in
Section 3(b) of this Escrow Agreement. If no counter Notice is received by
Escrow Agent within such 30-day period, then the dollar amount of Losses claimed
by Purchaser as set forth in its Notice of Loss shall be deemed established for
purposes of this Escrow Agreement and the Purchase Agreement and, at the end of
such 30-day period, Escrow Agent shall pay or transfer to Purchaser, or its
designee, (a) the dollar amount claimed in the Notice of Loss or (b) the number
of shares of Purchaser's common stock, at an agreed value of $2.25 per share,
necessary to satisfy the amount claimed in the Notice of Loss, from (and only to
the extent of) the Escrow Fund. Escrow Agent shall not inquire into or consider
whether a Claim complies with the requirements of the Purchase Agreement.

                  (b)      If a Counter Notice is given with respect to a Claim,
Escrow Agent will make payment with respect thereto only in accordance with (i)
joint written instructions of Purchaser and Sellers (ii) an arbitrator's award
or (iii) a final non-appealable order of a court or competent jurisdiction. Any
award or court order shall be accompanied by a legal opinion by counsel for the
presenting party satisfactory to Escrow Agent to the effect that the award or
the order is final and non-appealable. Escrow Agent shall act on such court
order and legal opinion without further question.

                  (c)      Any Notice of Loss or Counter Notice received by
Escrow Agent after 5:00 p.m. Central Time on any Business Day will be deemed
received by Escrow Agent on the next Business Day.

         4.       PAYMENTS TO PURCHASER FROM THE ESCROW FUND

                  The priority of any and all payments required to be made by
Escrow Agent to Purchaser, or its designee, from the Escrow Fund under Section 3
of this Escrow Agreement ("Payment" or "Payments") will be determined according
to the date on which Escrow Agent receives notice that each such Payment is due
(or, if a Counter Notice has been given to Escrow Agent with respect to any
Notice of Loss, the date on which Escrow Agent receives notice that any of
clauses (i), (ii) or (iii) of Section 3(b) have been satisfied), with the
earliest date receiving the

                                       42
<PAGE>   47
highest priority. Any notice received by Escrow Agent after 11:00 a.m. Central
Time on any date will be treated for purposes of this paragraph 4 as having
been received on the next Business Day. If and to the extent the amounts
payable to Purchaser, or its designee, in connection with any one Payment exceed
the entire amount then present in the Escrow Fund, Escrow Agent will pay to
Purchaser, or its designee, the entire amount then present in the Escrow Fund,
Escrow Agent will pay to Purchaser, or its designee, the entire amount then
present in the Escrow Fund, whereupon this Escrow Agreement will terminate in
accordance with the provisions of Section 5 hereof. If and to the extent the
sum of all amounts payable to Purchaser, or its designee, in connection with
one or more Payments of equal priority and all other amounts of the same
priority that Escrow Agent is obligated to pay from the Escrow Fund exceeds the
entire amount then present in the Escrow fund, Escrow Agent will pay to
Purchaser, or its designee, from the Escrow Fund, in lieu of each such Payment,
an amount equal to (a) the total amount of such Payment multiplied by (b) a
fraction equal to (i) the entire amount then present in the Escrow Fund divided
by (ii) the aggregate of all such Payments and all such other amounts Escrow
Agent is obligated to pay from the Escrow Fund, whereupon this Escrow Agreement
shall terminate in accordance with the provisions of paragraph 5 hereof.

     5.  INTERIM DISTRIBUTIONS: TERMINATION OF ESCROW

     On July 31, 2001, Escrow Agent will pay and distribute an amount computed
under the following sentence out of the Escrow Fund to Sellers. The interim
distribution will be determined by subtracting from the Escrow Fund the sum of
(a) all Claims paid by Escrow Agent to Purchaser during the period July 31, 2000
through July 30, 2001, (b) the dollar amount claimed, but not yet paid, in any
Notice of Loss during the period July 31, 2000 through July 30, 2001 and (c)
$600,000. The intent of the parties by this provision is that the Escrow Fund
for Claims asserted in the one year period commencing July 31, 2001 will be in
an amount equal to $600,000. Any portion of the Escrow Fund not paid and
distributed to Sellers on July 31, 2001 under the terms of the preceding two
sentences will be retained by Escrow Agent. On July 31, 2002, Escrow Agent will
pay and distribute the amount then present in the Escrow Fund to Sellers, unless
any Claims are then pending, in which case an amount equal to the aggregate
dollar amount of such Claims (as shown in the Notices of Loss with respect to
such Claims) will be retained by Escrow Agent in the Escrow Fund (and the
balance paid and/or distributed to Sellers) until satisfactory resolution of
such Claims in accordance with Section 3(b) above. Any and all amounts to be
paid and distributed to the Sellers from the Escrow Fund under this Section 5
will be paid and distributed among each of them on a pro rata basis in
accordance with Exhibit A attached hereto. This Escrow Agreement will terminate
upon the occurrence of the earlier of (a) agreement on the part of Purchaser and
(b) payment by the Escrow Agent of all of the Escrow Fund in accordance with
this Escrow Agreement. Notwithstanding any termination of this Escrow Agreement,
the provisions of Sections 10, 11, 12, 13, 16 and 21 will survive such
termination and remain in full force and effect.

     6.  SELLERS' OPTION

     Each Seller initially depositing shares of Purchaser's common stock into
the Escrow Fund will have the right at any time after July 31, 2001, to elect
to have such shares then held by Escrow Agent distributed to such Seller in
exchange for a deposit with Escrow Agent of immediately

                                      -43-

<PAGE>   48
available funds in an amount equal to the number of shares so distributed
multiplied by an agreed value of $2.25 per share.

     7.   ACCOUNT STATEMENTS

     Receipt of the Escrow Fund and investment and reinvestment of the Escrow
Fund will be confirmed by Escrow Agent as soon as practicable by account
statement to be delivered to Purchaser and Sellers' Representative (defined in
Section 24), and any discrepancies in any such account statement will be noted
by Purchaser and Representative to Escrow Agent within 30 calendar days after
receipt thereof. Failure to inform Escrow Agent in writing of any discrepancies
in any such account statement within such 30-day period will be conclusively
deemed confirmation of such account statement in its entirety. For purposes of
this Section 7, each account statement will be deemed to have been received by
the party to whom directed on the earlier to occur of (i) actual receipt
thereof and (ii) three "Business Days" (hereinafter defined) after the deposit
thereof in the United States mail, postage prepaid. The term "Business Day"
will mean any day of the year, excluding Saturday, Sunday and any other day on
which national banks are required or authorized to close in Corpus Christi,
Texas.

     8.   TAX MATTERS

          (a)  Purchaser and Sellers will provide Escrow Agent with their
respective taxpayer identification numbers documented by an appropriate Form W8
or Form W9 upon execution of this Escrow Agreement. Failure to so provide such
forms may prevent or delay disbursements from the Escrow Fund and may also
result in the assessment of a penalty and Escrow Agent's being required to
withhold tax on any interest or other income earned on the Escrow Fund. Any
payments of income will be subject to applicable withholding regulations then in
force in the United States or any other jurisdiction, as applicable.

          (b)  Purchaser and Sellers represent and warrant to Escrow Agent that
there are no federal, state or local tax liabilities or filing requirements
whatsoever concerning Escrow Agent's actions contemplated hereunder and
represent and warrant to Escrow Agent that Escrow Agent has no duty to withhold
or file any report or any tax liability under any federal or state income tax,
local or state property tax, local or state sales or use taxes, or any other tax
by any taxing authority, other than the filing of Forms 1099 in respect to the
interest earnings to each of the Sellers. Sellers agree jointly and severally to
indemnify Escrow Agent fully from any tax liability, penalties or interest
incurred by Escrow Agent arising hereunder and agree to pay in full any such tax
liability together with penalty and interest, if any, that is ultimately
assessed against Escrow Agent for any reason as a result of its actions
hereunder (except for Escrow Agent's individual income tax liability).

     9.   SCOPE OF UNDERTAKING

          Escrow Agent's duties and responsibilities in connection with this
Escrow Agreement will be purely ministerial and limited to those expressly set
forth in this Escrow Agreement. Escrow Agent will have no responsibility or
obligation of any kind in connection with this Escrow Agreement or the Escrow
Fund and will not be required to deliver the Escrow Fund or any part thereof or
take any action with respect to any matters that might arise in connection

                                      -44-
<PAGE>   49
therewith, other than to receive, hold, invest, reinvest and deliver the Escrow
Fund as herein provided. Without limiting the generality of the foregoing, it
is hereby expressly agreed and stipulated by the parties hereto the Escrow
Agent will not be required to exercise any discretion hereunder and will have
no investment or management responsibility and, accordingly, will have no duty
to, or liability for its failure to, provide investment recommendations or
investment advice to the Purchaser, Company, Sellers or Representative or any of
them. Escrow Agent will not be liable for any error in judgment, any act or
omission, any mistake of law or fact, or for anything it may do or refrain from
doing in connection herewith, except for, subject to Section 10 herein below,
its own willful misconduct, bad faith or gross negligence. It is the intention
of the parties hereto that Escrow Agent will never be required to use, advance
or risk its own funds or otherwise incur financial liability in the performance
of any of its duties or the exercise of any of its rights and powers hereunder.

     10. RELIANCE LIABILITY

         Escrow Agent may rely on, and will not be liable for acting or
refraining from acting in accordance with, any written notice, instruction or
request or other paper furnished to it hereunder or pursuant hereto and
believed by it to have been signed or presented by the proper party or parties.
Escrow Agent will be responsible for holding, investing, reinvesting and
disbursing the Escrow Fund pursuant to this Escrow Agreement; provided,
however, that Escrow Agent will have no liability for any loss arising from any
cause beyond its control, including, but not limited to, the following: (a) acts
of God, force majeure, including, without limitation, war (whether or not
declared or existing), revolution, insurrection, riot, civil commotion,
accident, fire, explosion, stoppage of labor, strikes and other differences
with employees; (b) the act, failure or neglect of any Purchaser, Sellers or
Representative of or any agent or correspondent of any of them contrary to the
terms of this Escrow Agreement; (c) any delay, error, omission or default of
any mail, courier, telegraph, cable or wireless agency or separator; or (d) the
acts of edicts of any government or governmental agency or other group or entity
exercising governmental powers. Escrow Agent is not responsible or liable in
any manner whatsoever for the sufficiency, correctness, genuineness or validity
of the subject matter of this Escrow Agreement of any part hereof or for the
transactions requiring or underlying the execution of this Escrow Agreement,
the form or execution hereof or for the identity or authority of any person
executing the Escrow Agreement on behalf of the Purchaser, Sellers and
Representative or depositing the Escrow Fund.

     11. RIGHT OF INTERPLEADER

         Subject to Section 22 hereof and without waiving the same, should any
controversy arise involving the parties hereto or any of them or any
other person,firm or entity and such controversy results in claims and demands
having been made by them, or any of them in connection with or for any part of
the Escrow Fund, or should a substitute escrow agent fail to be designated as
provided in Section 18 hereof, Escrow Agent will have the right, but not the
obligation, either to (a) withhold delivery of the Escrow Fund until the
controversy is resolved or the conflicting demands are withdrawn (but no more
than 180 days after Escrow Agent receives notice of the conflict) or (b)
institute a petition for interpleader in any court of competent jurisdiction to
determine the rights of the parties hereto. The parties hereto agree that to
the extent such controversy is between the Purchaser and Sellers, such
controversy will be resolved in accordance with Section 22 and the parties
hereto will take such actions as may be necessary to

                                      -45-
<PAGE>   50
cause the court in which such petition for interpleader has been filed to
recognize and enforce the arbitrator's award. In the event Escrow Agent is a
party to any dispute, Escrow Agent will have the additional right to refer such
controversy to binding arbitration. Should a petition for interpleader be
instituted, or should Escrow Agent be threatened with litigation or become
involved in litigation or binding arbitration in any manner whatsoever in
connection with this Escrow Agreement or the Escrow Fund, Purchasers and
Sellers hereby jointly and severally agree to reimburse Escrow Agent for its
reasonable attorney's fees and any and all other reasonable expenses, losses,
costs and damages incurred by Escrow Agent in connection with or resulting from
such threatened or actual litigation or arbitration except to the extent
arising out of the Escrow Agent's willful misconduct, bad faith or gross
negligence. Escrow Agent is hereby given a lien upon, and security interest in,
any portion of the Escrow Fund in Escrow Agent's actual or constructive
possession, and all investment and reinvestment of the Escrow Fund, to secure
Escrow Agent's rights to payment or reimbursement (or both) under this Escrow
Agreement.

     12.  INDEMNIFICATION

          PURCHASER AND SELLER HEREBY AGREE JOINTLY AND SEVERALLY TO PROTECT,
DEFEND AND INDEMNIFY ESCROW AGENT, ITS OFFICERS, DIRECTORS, PARTNERS, EMPLOYEES
AND AGENTS (EACH HEREIN CALLED AN "INDEMNIFIED PARTY") AGAINST, AND HOLD EACH
INDEMNIFIED PARTY HARMLESS FROM, ANY AND ALL EXPENSES, INCLUDING, WITHOUT
LIMITATION, ATTORNEY'S FEES AND COURT COSTS, LOSSES, COSTS, DAMAGES AND CLAIMS
INCLUDING, BUT NOT LIMITED TO, COSTS OF INVESTIGATION, LITIGATION AND
ARBITRATION, TAX LIABILITY AND LOSS ON INVESTMENTS SUFFERED OR INCURRED BY ANY
INDEMNIFIED PARTY IN CONNECTION WITH OR ARISING FROM OR OUT OF THIS ESCROW
AGREEMENT, EXCEPT SUCH ACTS OR OMISSIONS AS MAY RESULT FROM THE WILLFUL
MISCONDUCT, BAD FAITH OR GROSS NEGLIGENCE OF SUCH INDEMNIFIED PARTY. IN NO
EVENT WILL ANY INDEMNIFIED PARTY BE LIABLE TO PURCHASER OR SELLERS FOR SPECIAL,
INDIRECT, OR CONSEQUENTIAL DAMAGES OR LOST PROFITS OR LOSS OF BUSINESS, ARISING
UNDER OR IN CONNECTION WITH THIS ESCROW AGREEMENT.

     13.  COMPENSATION AND REIMBURSEMENT OF EXPENSES

          Purchaser and Sellers hereby agree, jointly and severally, (i) to pay
Escrow Agent for its services hereunder in accordance with the fee schedule
attached hereto as Exhibit B, which fee will be deemed fully earned
immediately, regardless of the actual length of time during which this Escrow
Agreement is effective, and (ii) to pay all reasonable expenses incurred by
Escrow Agent in connection with the performance of its duties and enforcement
of its rights hereunder and other-wise in connection with the preparation,
operation, administration and enforcement of this Escrow Agreement, including,
without limitation, reasonable attorney's fees, brokerage costs and related
expenses incurred by Escrow Agent. No increase in the rate of any fee charged
by the Escrow agent shall be valid hereunder unless previously approved in
writing by Purchaser and Representative. A fee of $     will be paid to the
Escrow Agent by Purchaser and Sellers upon execution of this Escrow Agreement.
As between Purchaser and Sellers, any such compensation and reimbursement to
which Escrow Agent is entitled will be borne 50% by Purchaser and 50% by
Sellers. Notwithstanding anything to the contrary contained in this Escrow
Agreement, Escrow

                                      -46-
<PAGE>   51
Agent will be entitled to retain from any disbursements requested hereunder any
outstanding fees and/or expenses due to it hereunder. Escrow Agent is hereby
granted a first lien on the Escrow Fund for all indebtedness that may become
owing to Escrow Agent pursuant to this Escrow Agreement or otherwise in
connection with the Escrow Fund. In the event such fees or expenses are not paid
to Escrow Agent within thirty (30) days after Escrow Agent makes demand therefor
from Purchaser and Sellers, Escrow Agent may charge such fee against the Escrow
Fund.

     14.  NOTICES

          Any notice or other communication required or permitted to be given
under this Escrow Agreement by any party hereto to any other party hereto will
be considered as properly given if in writing and (a) delivered against receipt
therefor, (b) mailed by certified mail, return receipt requested and postage
prepaid or (c) sent by facsimile, in each case to the address or facsimile
number, as the case may be, set forth below:

If to Pioneer:           Pioneer Drilling Co., Inc.
                         334 Flato Road
                         Corpus Christi, TX 78405
                         ATTN:

If to Representative:    Lars Potter
                         334 Flato Road
                         Corpus Christi, TX 78405

Copy to:                 Porter, Rogers, Dahlman, & Gordon, P.C.
                         800 N. Shoreline, Suite 800
                         Corpus Christi, Texas 78401
                         ATTN: Daniel J. Davis

If to Purchaser:         South Texas Drilling & Exploration, Inc.
                         9310 Broadway, Building 1
                         San Antonio, Texas 78217
                         ATTN: Wm. Stacy Locke

Copy to:                 Matthews & Branscomb
                         802 N. Carancahua, Suite 1900
                         Corpus Christi, Texas 78470
                         ATTN: Gerald E. Thornton, Jr.

If to Escrow Agent:      Frost National Bank - Corpus Christi
                         802 North Carancahua
                         Corpus Christi, Texas 78403

Except to the extent otherwise provided in Sections 4 or 7 herein above delivery
of any communication given in accordance herewith shall be effective only upon
actual receipt thereof by the party or parties to whom such communication is
directed. Any party to his Escrow Agreement may change the address to which
communications hereunder are to be directed by giving written

                                      -47-
<PAGE>   52
notice to the other party or parties hereto in the manner provided in this
section. Notwithstanding the foregoing, any notice hereunder delivered to
Representative with respect to a Claim shall only be given in accordance with
clauses (a) and (b) above, and notice to Representative by facsimile with
respect to a Claim shall not be deemed given for purposes of this Escrow
Agreement.

     15.  CONSULTATION WITH LEGAL COUNSEL

          Escrow Agent may consult with its counsel or other counsel
satisfactory to it concerning any question relating to its duties or
responsibilities hereunder or otherwise in connection herewith and shall not be
liable for any action taken, suffered or omitted by it in good faith upon the
advice of such counsel.

     16.  CHOICE OF LAW; CUMULATIVE RIGHTS

          This Escrow Agreement will be construed under, and governed by, the
laws of the State of Texas, excluding, however, (a) its choice of law rules and
(b) the portions of the Texas Trust Code Section 111.00 1 et. seq. Of the Texas
Property Code concerning fiduciary duties and liabilities of trustees. All of
Escrow Agent's rights hereunder are cumulative of any other rights it may have
at law, in equity or otherwise. Subject to Section 22 hereof and without
waiving the same, the parties hereto agree that the forum for resolution of any
dispute arising under this Escrow Agreement shall be Nueces County, Texas, and
each of Purchaser, Sellers and Representative hereby consents, and submits
itself, to the jurisdiction on any state or federal court sitting in Nueces
County, Texas.

     17.  RESIGNATION

          The Escrow Agent may be removed at any time with the written consent
of Purchaser and Representative, Escrow Agent may resign hereunder upon thirty
(30) days' prior notice to the Purchaser and Representative. If the Escrow Agent
shall resign or be removed, Purchaser and Representative shall appoint, as soon
as possible, a successor escrow agent. Upon the effective date of such
resignation or removal, Escrow Agent will deliver the Escrow Fund to any
substitute escrow agent designated by Purchaser and Representative in writing.
Any successor escrow agent will be deemed to have accepted the responsibilities
hereunder upon execution of this Escrow Agreement and delivery of such executed
document to Purchaser and Representative. If Purchaser and Representative fail
to designate a substitute escrow agent within thirty (30) days after the giving
of such notice, Escrow Agent may institute a petition for interpleader. Escrow
Agent's sole responsibility after such 30-day notice period expires will be to
hold the Escrow Fund (without any obligation to reinvest the same) and to
deliver the same to a designated substitute escrow agent, if any, or in
accordance with the directions of a final order or judgment of a court of
competent jurisdiction, at which time of delivery Escrow Agent's obligations
hereunder shall cease and terminate. Any removal or resignation of Escrow Agent
under this paragraph will in no way discharge the obligations of the parties
hereto under Sections 11, 12, and 13 herein above relating to the reimbursement
of expenses, indemnification and fees. Escrow Agent shall have the right to
deduct from the property to be transferred to any successor agent any unpaid
fees and expenses.

     18.  ASSIGNMENT

                                      -48-
<PAGE>   53
          This Escrow Agreement may not be assigned by Purchaser, Sellers or
Representative without the prior written consent of Escrow Agent (such assigns
of any of Purchaser, Sellers or Representative to which Escrow Agent consents,
if any, and Escrow Agent's assigns being hereinafter referred to collectively
as "Permitted Assigns").

     19.  SEVERABILITY

          If one or more of the provisions hereof shall for any reason be held
to be invalid, illegal or unenforceable in any respect under applicable law,
such invalidity, illegality or unenforceability shall not affect any other
provisions hereof, and this Escrow Agreement will be construed as if such
invalid, illegal or unenforceable provision had never been contained herein,
and the remaining provisions hereof will be given full force and effect.

     20.  GENERAL

          The section headings contained in this Escrow Agreement are for
reference purposes only and do not affect in any way the meaning or
interpretation of this Escrow Agreement. This Escrow Agreement and any
affidavit, certificate, instrument, agreement or other document required to be
provided hereunder may be executed in two or more counterparts, each of which
will be deemed an original, but all of which taken together will constitute but
one and the same instrument. Unless the context otherwise requires, the singular
includes the plural and vice versa, and each pronoun in any gender includes all
other genders. The terms and provisions of this Escrow Agreement constitute the
entire agreement among the parties hereto in respect of the subject matter
hereof, and neither Purchaser, Sellers, Representative nor Escrow Agent has
relied on any representations or agreements with the other, except as
specifically set forth in this Escrow Agreement or, with respect to the
Purchaser and Sellers, the Purchase Agreement. This Escrow Agreement or any
provision hereof may be amended, modified, waived or terminated only by written
instrument duly signed by the parties hereto. This Escrow Agreement inures to
the benefit of, and is binding upon, the parties hereof and their respective
heirs, devisees, executor, administrators, personal representatives, successors,
trustees, receivers and Permitted Assigns. This Escrow Agreement is for the sole
and exclusive benefit of Purchaser, Sellers and the Escrow Agent, and nothing in
this Escrow Agreement, express or implied, is intended to confer nor shall be
construed as conferring upon any other person any rights, remedies or any other
type or types of benefits.

     21. ARBITRATION

          All disputes hereunder between or among any of the Sellers and
Purchasers will be settled in accordance with the arbitration provisions of
section 12.10 of the Purchase Agreement.

     22.  WAIVER

          The rights and remedies of the parties to this Escrow Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Escrow Agreement or the
documents referred to in this Escrow Agreement will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such
right, power, or privilege will preclude any other or further exercise of such
right, power, or

                                      -49-
<PAGE>   54
privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Escrow Agreement or the documents referred to in this Escrow Agreement can
be discharged by any one party, in whole or in part, by a waiver or renunciation
of the claim or right unless in writing signed by the other party; (b) no waiver
that may be given by a  party will be applicable except in the specific instance
for which it is given; and (c) no notice to or demand on one party will be
deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or
demand as provided in this Escrow Agreement or the documents referred to in this
Escrow Agreement.

     23.  REPRESENTATIVE

          (a)  The Sellers will act through the Representative, who is deemed
authorized to act on behalf of Sellers in the manner set forth in this Section
23. Sellers have selected Lars Potter as the initial Representative.

          (b)  A Representative may resign at any time effective upon giving
written notice to each of the parties hereto. The Sellers may at any time remove
a Representative by giving thirty (30) days' written notice to him. If a
Representative shall resign or be removed, the Sellers may by written election
appoint any number of successor Representatives and will so appoint a successor
if the Representative in question was the only Representative in office. The
Representative will promptly notify Purchaser in writing of the resignation or
removal of any Representative and of the appointment of any successor
Representative.

          (c)  With respect to matters involving the Sellers, Purchaser and
Escrow Agent must relay conclusively upon any written instruction of a
Representative, Purchaser and Escrow Agent must rely conclusively on the
authority of a Representative designated herein or by the Sellers until
Purchaser and Escrow Agent receive a written instruction naming another person
as Representative to succeed to that position in the place of the existing
Representative, which instruction must be signed by the Sellers.

          (d)  The Representative may take any action on behalf of the Sellers
which it deems appropriate to take with respect to any Claim for Losses received
by it pursuant to Article 11 of the Purchase Agreement.

          (e)  The Representative may on behalf of the Sellers, at any time and
without regard to whether or not proceedings for the resolution determination
thereof have commenced, agree upon, resolve, settle or compromise any Claim
under Article 11 of the Purchase Agreement in the sole and absolute discretion
of the Representative.

          (f)  The Representative may on behalf of the Sellers, in its sole and
absolute discretion, pursue, elect not to pursue, or terminate the pursuit of
any Claim or issue under Article 11 of the Purchase Agreement, including the
conduct of arbitration or litigation of third-party claims, as provided herein
and in the Agreement.

          (g)  Under no circumstances will the Representative be liable to
Sellers for any act it may take in its capacity as Representative, or for the
failure to take any action, or for the

                                      -50-
<PAGE>   55
actions of Sellers, or for any damage, loss of expense suffered or incurred
resulting from the exercise of the Representative's sole and absolute
discretion in acting hereunder, except only for acts of gross negligence, bad
faith or willful misconduct.

     (h)  The Representative shall be and hereby is authorized to retain
counsel, accountants, or other professional assistants to assist in determining
the validity of claims or in otherwise acting hereunder as a Representative.
Any such expenses will be borne by the Sellers and may be taken from the
proceeds of the Escrow Fund to be delivered to such Sellers.

     (i)  The Representative will not be liable for any expense incurred on
behalf of the Sellers or any of them in protesting, analyzing, resisting,
arbitrating, litigating, negotiating with respect to, or defending any claim
made in connection with this Agreement, or for any amounts otherwise expended
in acting hereunder.

     (j)  On demand by the Representative, Sellers will contribute all sums
demanded to pay the fees and expenses incurred by the Representative on behalf
of the Sellers in acting hereunder.

     (k)  The Representative will keep the Sellers reasonably informed of
actions taken by it in acting hereunder.

     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.

                              PURCHASER:

                              SOUTH TEXAS DRILLING & EXPLORATION, INC.

                              By:
                                  ----------------------------------------------

                              Name:
                                    --------------------------------------------

                              Title:
                                     -------------------------------------------

                              COMPANY:

                              PIONEER DRILLING CO., INC.

                              By:
                                  ----------------------------------------------

                              Name:
                                    --------------------------------------------

                              Title:
                                     -------------------------------------------

                                      -51-
<PAGE>   56

                              SELLERS:

                              --------------------------------------------------
                              Lars Potter

                              --------------------------------------------------
                              Wayne Squires

                              --------------------------------------------------
                              Samuel A. Plum

                              --------------------------------------------------
                              Hope P. Woodward

                              --------------------------------------------------
                              Wayne M. Squires, Trustee
                              Abigail S. Potter Trust

                              --------------------------------------------------
                              Searcy F. Willis, Jr.

                              --------------------------------------------------
                              Estate of James Timpson

                              --------------------------------------------------
                              Thomas C. Nix

                              --------------------------------------------------
                              Terrell W. Dahlman, Trustee
                              William S. Woodward Trust

                              --------------------------------------------------
                              Ogden W. Timpson

                              --------------------------------------------------
                              John R. Bradshaw

                              --------------------------------------------------
                              Dean Witter Reynolds, Inc.

                              --------------------------------------------------
                              Carl W. Timpson, Jr.

                                      -52-

<PAGE>   57

                              --------------------------------------------------
                              Victoria T. Kilburn

                              --------------------------------------------------
                              Terrell W. Dahlman, Trustee
                              Alixandra T. Potter Trust

                              --------------------------------------------------
                              Jonathan E. Ellis

                              --------------------------------------------------
                              Edward A. Hoffmann

                              --------------------------------------------------
                              Terrell W. Dahlman, Trustee
                              Cynthia B. Woodward Trust

                              --------------------------------------------------
                              Walter J. Wilson

                              --------------------------------------------------
                              Ross R. Hahn

                              --------------------------------------------------
                              Ruth L. Squires

                                      -53-

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