1 EXHIBIT 10.21 ASSET PURCHASE AGREEMENT

1
EXHIBIT 10.21

ASSET PURCHASE AGREEMENT

AMONG

XXXXXXXXX ENERGY, INC.

XXXXXXXXX DRILLING COMPANY

AND

RIG I GROUP, INC.

PHOENIX DRILLING, INC.

XXXXX & XXXXXX DRILLING, INC.

AND

IMPERIAL EQUIPMENT CO.
2
TABLE OF CONTENTS

Page
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ARTICLE I

THE ASSET PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1 The Asset Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2 Purchase Consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.3 Sales Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.4 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF PEC AND PDC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.1 Organization, Standing and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.2 PEC Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.3 Authority; Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3.1 Representations and Warranties of Rig I, Phoenix and Xxxxx & Xxxxxx. . . . . . . . . . 3
SECTION 3.2 Representations and Warranties of Rig I . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3.3 Representations and Warranties of Phoenix . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 3.4 Representations and Warranties of Xxxxx & Xxxxxx . . . . . . . . . . . . . . . . . . . 6
SECTION 3.5 Representations and Warranties of Imperial . . . . . . . . . . . . . . . . . . . . . . 7

ARTICLE IV

ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.1 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.2 Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.3 Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.5 Sellers' Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE V

CONDITIONS PRECEDENT TO THE ASSET PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

SECTION 5.1 Conditions to Each Party's Obligation to Effect the Stock Purchase . . . . . . . . . 10
SECTION 5.2 Conditions to Obligation of the Sellers to Effect the Asset Purchase . . . . . . . . 10
SECTION 5.3 Conditions to Obligations of PEC and PDC to Effect the Asset Purchase . . . . . . . 11

ARTICLE VI

GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 6.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 6.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6.4 Entire Agreement; No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . 14
SECTION 6.5 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.8 Enforcement of This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.9 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.10 Facsimile Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

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ASSET PURCHASE AGREEMENT

ASSET PURCHASE AGREEMENT, dated as of December ___, 1996 (this
"Agreement"), among Xxxxxxxxx Energy, Inc. ("PEC"), a Delaware corporation,
Xxxxxxxxx Drilling Company ("PDC"), a Delaware corporation and a wholly-owned
subsidiary of PEC, and Rig I Group, Inc. ("Rig I"), a California corporation,
Phoenix Drilling, Inc. ("Phoenix"), a California corporation, Xxxxx & Xxxxxx
Drilling, Inc. ("Xxxxx & Xxxxxx"), a California corporation and Imperial
Equipment Co. ("Imperial"), a California general partnership (Rig I, Phoenix,
Xxxxx & Xxxxxx, and Imperial are collectively referred to herein as the
"Sellers").

WITNESSETH:

WHEREAS, Rig I, Phoenix and Xxxxx & Xxxxxx as a group own
three drilling rigs, known respectively, as Rig 2, Rig 4, and Rig 11 (Rig 2,
Rig 4 and Rig 11, together with the related drilling equipment, are
collectively referred to herein as the "Drilling Rigs") and Imperial owns
certain cranes, trucks and miscellaneous equipment (collectively referred to
herein as "Equipment"), all as more particularly described on Annex 1 in the
case of the Drilling Rigs and Annex 2 in the case of the Equipment;

WHEREAS, PDC desires to purchase, and the respective Sellers
desire to sell, all of the right, title and interest of Rig I, Phoenix and
Xxxxx & Xxxxxx in the Drilling Rigs and of Imperial in the Equipment (the
"Asset Purchase") for the consideration set forth and provided for herein; and

WHEREAS, PEC and PDC, on the one hand, and the Sellers, on the
other, desire to make certain representations, warranties and agreements in
connection with the Asset Purchase.

NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows:

I
THE ASSET PURCHASE

.1 The Asset Purchase. Upon the terms and subject to the conditions of
this Agreement, at the Closing (as defined in Section 1.3 below) provided
herein, PDC shall purchase from the Sellers and the Sellers shall sell to PDC,
all of their respective rights, title and interests in and to the Drilling Rigs
and the Equipment "as is, where is," which interests shall total 100%.

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.2 Purchase Consideration. PEC and PDC agree to pay the following
consideration to the Sellers at the Closing for all of the rights, title and
interests of the Sellers in and to the Drilling Rigs and the Equipment: (a)
$100,000 cash; (b) $400,000 aggregate principal amount promissory notes of PDC
in the form attached hereto as Exhibit A (the "Notes"); and (c) 52,000 shares
of PEC Common Stock (the cash, Notes and PEC Common Stock are collectively
referred to herein as the "Purchase Consideration"). The Purchase Consideration
shall be issued or paid to the respective Sellers in the amounts and for their
respective interests in the Drilling Rigs and the Equipment as set forth in the
following table:

AMOUNT OF PURCHASE PRICE
---------------------------------------

PRINCIPAL NUMBER OF
INTERESTS IN AMOUNT OF SHARES OF PEC
NAME OF SELLER DRILLING RIGS/EQUIPMENT CASH NOTE COMMON STOCK
-------------- ----------------------- ---- -------- ------------

Rig I . . . . . . . . . . Drilling Rigs(1) $ - $ - 4,250

Phoenix . . . . . . . . . Drilling Rigs(1) $ - $ - 28,000

Xxxxx & Xxxxxx . . . . . Drilling Rigs(1) $ - $ 400,000 -

Imperial . . . . . . . . Equipment(2) $ 100,000 $ - 19,750

__________
(1) 100% interest.
(2) 100% interest.

.3 Sales Tax. Sellers agree to pay any and all sales tax due with
respect to the Asset Purchase.

.4 Closing. The closing of the Asset Purchase (the "Closing") shall take
place at 9:00 a.m., local time, on December 5, 1996, at the offices of PEC, in
Snyder, Texas or at such other time and place as PDC and the Sellers shall
agree.

II
REPRESENTATIONS AND WARRANTIES OF PEC AND PDC

PEC and PDC represent and warrant to the Sellers as follows:

.1 Organization, Standing and Power. Each of PEC and PDC is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to carry on its business as now being conducted.

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.2 PEC Capital Structure. The authorized capital stock of PEC consists
of 9,000,000 shares of Common Stock ("PEC Common Stock") and 1,000,000 shares
of Preferred Stock ("PEC Preferred Stock"). At the close of business on
November 15, 1996, (i) 4,828,449 shares of PEC Common Stock were validly issued
and outstanding, fully paid and nonassessable and free of preemptive rights,
(ii) 383,910 shares of PEC Common Stock were reserved for issuance upon
exercise of then outstanding options and warrants, and (iii) no shares of PEC
Preferred Stock were issued or outstanding. All shares of PEC Common Stock to
be issued in the Asset Purchase as provided in Section 1.2 above will be, when
so issued, duly authorized, validly issued, fully paid and nonassessable and
free of preemptive rights.

.3 Authority; Non-Contravention. Each of PEC and PDC has all requisite
power and authority to enter into this Agreement and to consummate the Asset
Purchase. The execution and delivery by PEC and PDC of this Agreement and the
consummation by PEC and PDC of the Asset Purchase have been duly authorized by
all necessary corporate action on the part of PEC and PDC. This Agreement has
been duly executed and delivered by PEC and PDC and (assuming the valid
authorization, execution and delivery of this Agreement by the Sellers)
constitutes a valid and binding obligation of PEC and PDC enforceable against
PEC and PDC in accordance with its terms, except to the extent enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws of general applicability relating to
or affecting the enforcement of creditors' rights and by the effect of general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law). No filing or registration with, or
authorization, consent or approval of, any domestic (federal and state),
foreign or supranational court, commission, governmental body, regulatory
agency, authority or tribunal (a "Governmental Agency") is required by or with
respect to PEC or PDC in connection with the execution and delivery of this
Agreement by PEC and PDC or is necessary for the consummation by PEC and PDC of
the Asset Purchase and the other transactions contemplated by this Agreement.

III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS

.1 Representations and Warranties of Rig I, Phoenix and Xxxxx & Xxxxxx.

(a) Title. Set forth in Annex 1 is a description of each
of the Drilling Rigs. Rig I, Phoenix and Xxxxx & Xxxxxx, as a group, have good
and indefeasible title to a 100% interest in each of the Drilling Rigs subject
to no Liens except for (i) Liens for taxes not yet delinquent or the validity
of which is being contested in good faith, and (ii) any Liens arising by
operation of law securing obligations not yet overdue.

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.2 Representations and Warranties of Rig I. Rig I represents and
warrants to PEC and PDC as follows:

(a) Organization, Standing and Power. Rig I is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California and has the requisite corporate power and
authority to carry on its business as now being conducted.

(b) Capital Structure; Ownership of Rig I Stock. The
authorized capital stock of Rig I consists of 1,000,000 shares of Common Stock,
of which 220,000 shares are issued and outstanding, fully paid and
nonassessable and free of preemptive rights. Annex 3.2 to this Agreement sets
forth a true and correct list of the ownership of the capital stock of Rig I by
the stockholders of Rig I.

(c) Authority; Non-Contravention. Rig I has all requisite
power and authority to enter into this Agreement and to consummate the Asset
Purchase. This Agreement has been duly executed and delivered by Rig I and
(assuming the valid authorization, execution and delivery of this Agreement by
PEC and PDC) constitutes a valid and binding obligation of Rig I enforceable
against it in accordance with its terms, except to the extent enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws of general applicability relating to
or affecting the enforcement of creditors' rights and by the effect of general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law). The execution and delivery of this Agreement
do not, and the consummation of the Asset Purchase and compliance with the
provisions hereof will not, conflict with, or result in any violation of, or
default (with or without notice of lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any lien,
security interest, charges or encumbrances upon any of the properties or assets
of Rig I under, any provision of (i) the Articles of Incorporation or Bylaws of
Rig I, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
applicable to Rig I or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Rig I or any of its properties or
assets. No filing or registration with, or authorization, consent or approval
of, any Governmental Entity is required by or with respect to Rig I in
connection with the execution and delivery of this Agreement by Rig I or is
necessary for the consummation by Rig I of the Asset Purchase.

(d) Litigation. There is no suit, action, investigation
or proceeding pending or, to the knowledge of Rig I, threatened against Rig I
at law or in equity before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or before any arbitrator of any kind.

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(e) Brokers. Except as set forth in Schedule 3.2(e), no
broker, investment banker or other person is entitled to any broker's, finder's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Rig I.

.3 Representations and Warranties of Phoenix. Phoenix represents and
warrants to PEC and PDC as follows:

(a) Organization, Standing and Power. Phoenix is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California and has the requisite corporate power and
authority to carry on its business as now being conducted.

(b) Capital Structure; Ownership of Phoenix Stock. The
authorized capital stock of Phoenix consists of 5,000,000 shares of Common
Stock, of which 535,000 shares are issued and outstanding, fully paid and
nonassessable and free of preemptive rights. Annex 3.3 to this Agreement sets
forth a true and correct list of the ownership of the capital stock of Phoenix
by the stockholders of Phoenix.

(c) Authority; Non-Contravention. Phoenix has all
requisite power and authority to enter into this Agreement and to consummate
the Asset Purchase. This Agreement has been duly executed and delivered by
Phoenix and (assuming the valid authorization, execution and delivery of this
Agreement by PEC and PDC) constitutes a valid and binding obligation of Phoenix
enforceable against it in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws of general applicability
relating to or affecting the enforcement of creditors' rights and by the effect
of general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law). The execution and delivery of
this Agreement do not, and the consummation of the Asset Purchase and
compliance with the provisions hereof will not, conflict with, or result in any
violation of, or default (with or without notice of lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to the loss of a material benefit under, or result in the
creation of any lien, security interest, charges or encumbrances upon any of
the properties or assets of Phoenix under, any provision of (i) the Articles of
Incorporation or Bylaws of Phoenix, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Phoenix or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
Phoenix or any of its properties or assets. No filing or registration with, or
authorization, consent or approval of, any Governmental Entity is required by
or with respect to Phoenix in connection with the execution and delivery of
this Agreement by Phoenix or is necessary for the consummation by Phoenix of
the Asset Purchase.

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(d) Litigation. There is no suit, action, investigation
or proceeding pending or, to the knowledge of Phoenix, threatened against
Phoenix at law or in equity before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or before any arbitrator of any kind.

(e) Brokers. Except as set forth in Schedule 3.2(e), no
broker, investment banker or other person is entitled to any broker's, finder's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
Phoenix.

.4 Representations and Warranties of Xxxxx & Xxxxxx. Xxxxx & Xxxxxx
represents and warrants to PEC and PDC as
follows:

(a) Organization, Standing and Power. Xxxxx & Xxxxxx is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California and has the requisite corporate power and
authority to carry on its business as now being conducted.

(b) Capital Structure; Ownership of Xxxxx & Xxxxxx Stock.
The authorized capital stock of Xxxxx & Xxxxxx consists of 1,000,000 shares of
Common Stock, of which 1,500 shares are issued and outstanding, fully paid and
nonassessable and free of preemptive rights. Annex 3.4 to this Agreement sets
forth a true and correct list of the ownership of the capital stock of Xxxxx &
Xxxxxx by the stockholders of Xxxxx & Xxxxxx.

(c) Authority; Non-Contravention. Xxxxx & Xxxxxx has all
requisite power and authority to enter into this Agreement and to consummate
the Asset Purchase. This Agreement has been duly executed and delivered by
Xxxxx & Xxxxxx and (assuming the valid authorization, execution and delivery of
this Agreement by PEC and PDC) constitutes a valid and binding obligation of
Xxxxx & Xxxxxx enforceable against it in accordance with its terms, except to
the extent enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws of
general applicability relating to or affecting the enforcement of creditors'
rights and by the effect of general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law). The
execution and delivery of this Agreement do not, and the consummation of the
Asset Purchase and compliance with the provisions hereof will not, conflict
with, or result in any violation of, or default (with or without notice of
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a material
benefit under, or result in the creation of any lien, security interest,
charges or encumbrances upon any of the properties or assets of Xxxxx & Xxxxxx
under, any provision of (i) the Articles of Incorporation or Bylaws of Xxxxx &
Xxxxxx, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
applicable to Xxxxx & Xxxxxx, or (iii) any judgment, order, decree, statute,
law,

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ordinance, rule or regulation applicable to Xxxxx & Xxxxxx or any of its
respective properties or assets. No filing or registration with, or
authorization, consent or approval of, any Governmental Entity is required by
or with respect to Xxxxx & Xxxxxx in connection with the execution and delivery
of this Agreement by Xxxxx & Xxxxxx or is necessary for the consummation by
Xxxxx & Xxxxxx of the Asset Purchase.

(d) Litigation. Except as set forth in Schedule 3.4(d),
there is no suit, action, investigation or proceeding pending or, to the
knowledge of Xxxxx & Xxxxxx, threatened against Xxxxx & Xxxxxx at law or in
equity before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind.

.5 Representations and Warranties of Imperial. Imperial represents and
warrants to PEC and PDC as follows:

(a) Organization and Ownership. Imperial is a general
partnership under the laws of the State of California and has the requisite
power and authority to carry on its business as now being conducted. Annex 3.5
to this Agreement sets forth a true and correct list of the ownership of
Imperial.

(b) Authority; Non-Contravention. Imperial and its
partners have all requisite power and authority to enter into this Agreement
and to consummate the Asset Purchase. This Agreement has been duly executed and
delivered by Imperial and its partners and (assuming the valid authorization,
execution and delivery of this Agreement by PEC and PDC) constitutes a valid
and binding obligation of Imperial and its partners enforceable against them in
accordance with its terms, except to the extent enforceability may be limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other similar laws of general applicability relating to or affecting the
enforcement of creditors' rights and by the effect of general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law). The execution and delivery of this Agreement do not, and the
consummation of the Asset Purchase and compliance with the provisions hereof
will not, conflict with, or result in any violation of, or default (with or
without notice of lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to the loss of a
material benefit under, or result in the creation of any lien, security
interest, charges or encumbrances upon any of the properties or assets of
Imperial under, any provision of (i) the Partnership Agreement of Imperial,
(ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license
applicable to Imperial or

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either of its partners or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Imperial or either of its partners
or any of their respective properties or assets. No filing or registration
with, or authorization, consent or approval of, any Governmental Entity is
required by or with respect to Imperial or either of its partners in connection
with the execution and delivery of this Agreement by Imperial or either of its
partners or is necessary for the consummation by Imperial or either of its
partners of the Asset Purchase.

(c) Title. Set forth in Annex 2 is a description of the
Equipment, complete in all material respects. Imperial has good and
indefeasible title to a 100% interest in the Equipment, subject to no Liens
except for (i) Liens for taxes not yet delinquent or the validity of which is
being contested in good faith, and (ii) any Liens arising by operation of law
securing obligations not yet overdue.

(d) Litigation. There is no suit, action, investigation
or proceeding pending or, to the knowledge of Imperial or either of its
partners, threatened against Imperial or either of its partners at law or in
equity before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind.

IV
ADDITIONAL AGREEMENTS

.1 Fees and Expenses. All costs and expenses incurred by PEC and PDC in
connection with this Agreement and the transactions contemplated hereby shall
be paid by PEC and PDC; such costs and expenses incurred by the respective
Sellers shall be paid by the Sellers.

.2 Reasonable Efforts. Upon the terms and subject to the conditions set
forth in this Agreement, each of the parties agrees to use all reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Asset Purchase and the other transactions
contemplated by this Agreement and the prompt satisfaction of the conditions
hereto.

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.3 Public Announcements. None of the Sellers shall issue any press
release or make any public statement with
respect to the Asset Purchase without the prior written consent of PDC.

SECTION 4.4 Taxable Transaction; No Liquidation or Dissolution of Rig
I or Phoenix. The Sellers acknowledge and agree that PEC and PDC intend that
the Asset Purchase constitute a taxable purchase of assets for income tax
purposes and that the Asset Purchase not qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"). As a result, none of the Sellers shall take any action inconsistent
with such intent and neither Rig I nor Phoenix shall: (a) adopt a plan of
reorganization within the meaning of Sections 361 and 368 of the Code or
Section 1.368-2(g) of the Treasury Regulations; (b) dissolve, liquidate, or
distribute all of its properties (or treat the undistributed assets as if they
had been distributed and then contributed to the capital of a new corporation)
during the 12-month period following the Closing or such longer period as may
be necessary to cause Rig I and Phoenix to violate the distribution requirement
of Code Section 368(a)(2)(G)(i); (c) request, under Code Section
368(a)(2)(G)(ii), a waiver of such distribution requirement; or (d) otherwise
take any action to cause the Asset Purchase to qualify (or be treated) as a
reorganization within the meaning of Code Section 368(a).

SECTION 4.5 Sellers' Indemnification.

(a) After the Closing, Rig I and Phoenix shall severally,
and Xxxxxxx X. Xxxxx ("Xxxxx") and Xxxxxxx X. Xxxxx ("Xxxxx") shall jointly and
severally, indemnify and hold PEC and PDC harmless against and in respect of
all actions, suits, demands, judgments, losses, costs and expenses, attorneys'
fees of PEC or PDC relating to: (i) any misrepresentation, breach of any
representation or warranty or breach or non-fulfillment of any agreement on the
part of Rig I or Phoenix under this Agreement; or (ii) the failure of the Asset
Purchase to be a taxable transaction for income tax purposes rather than a
reorganization within the meaning of Code Section 368(a) as a result of
misrepresentations, breach of any representation or warranty or breach or
non-fulfillment of any agreement on the part of Rig I or Phoenix under this
Agreement. Without limiting the generality of the foregoing, a "loss" resulting
from a breach by Rig I or Phoenix of the agreement contained in Section 4.4 and
a "loss" resulting from the failure of the Asset Purchase to be a taxable
transaction as described in Section 4.5(a)(ii) hereof would include any loss
incurred by PEC or PDC as a result of the inability to claim a cost basis in
the Drilling Rigs and Equipment equal to the Purchase Consideration (rather
than a carryover basis) for federal and state income tax purposes. The
indemnification provided for in Section 4.5(a)(i) hereof shall terminate and be
of no further force and effect two years from the Closing and the
indemnification provided for in Section 4.5(a)(ii) hereof shall be of no
further force or effect upon expiration of the applicable statutes of
limitations on assessment of any federal or state income taxes resulting from
the disallowance of a cost basis in Drilling Rigs and Equipment (as described
above in this paragraph), except as to any claim for indemnification for a
written notice of such claim has been given to Rig I or Phoenix and Xxxxx and
Xxxxx prior to the

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expiration of such two-year period or the expiration of such statutes of
limitations (as the case may be).

(b) After the Closing, Xxxxx & Xxxxxx and Imperial shall
severally, and Xxxxx X. Xxxxxx ("X Xxxxxx") and Xxxxx X. Xxxxx ("F Xxxxx")
shall jointly and severally, indemnify and hold PEC and PDC harmless against
and in respect of all actions, suits, demands, judgments, losses, costs and
expenses, attorneys' fees of PEC or PDC, relating to any misrepresentation,
breach of any representation or warranty or breach or non-fulfillment of any
agreement on the part of Xxxxx & Xxxxxx or Imperial under this Agreement. This
indemnification provided for in this Section 4.5(b) shall terminate and be of
no further force and effect two years from the Closing, except as to any
representation or warranty as to which a written notice of claim for
indemnification has been given to X Xxxxxx and F Xxxxx prior to the expiration
of such two-year period.

V
CONDITIONS PRECEDENT TO THE ASSET PURCHASE

.1 Conditions to Each Party's Obligation to Effect the Stock Purchase.
The respective obligations of each party to effect the Asset Purchase shall be
subject to the fulfillment or waiver (where permissible) at or prior to the
Closing of each of the following conditions:

(a) No Order. No Governmental Entity or court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent) which is then in effect and
has the effect of prohibiting the Asset Purchase; provided that, in the case of
any such decree, injunction or other order, each of the parties shall have used
reasonable best efforts to prevent the entry of any such injunction or other
order and to appeal as promptly as practicable any decree, injunction or other
order that may be entered.

.2 Conditions to Obligation of the Sellers to Effect the Asset Purchase.
The obligation of the Sellers to effect the Asset Purchase shall be subject to
the fulfillment at or prior to the Closing of the following additional
conditions; provided that the Sellers may waive any of such conditions in their
sole discretion:

(a) Performance of Obligations; Representations and
Warranties. PEC and PDC shall have performed in all material respects each of
their respective agreements contained in this Agreement required to be
performed on or prior to the Closing, each of the representations and
warranties of PEC and PDC contained in this Agreement shall be true and correct
on and as of the Closing.

-10-
14
(b) Officers' Certificate. PEC and PDC shall have
furnished to the Sellers a certificate, dated the Closing, signed by the
appropriate officers of PEC and PDC, certifying to the effect that to the best
of the knowledge and belief of PEC and PDC, the conditions set forth in Section
5.1 and this Section 5.2(a) have been satisfied in full.

(c) Payment and Issuance of Purchase Consideration. PEC
and PDC shall have made delivery of the Purchase Consideration as provided in
Section 1.2 of this Agreement.

(d) Registration Rights Agreement. PEC shall have
executed and delivered the Registration Rights Agreement in the form attached
hereto as Exhibit B.

.3 Conditions to Obligations of PEC and PDC to Effect the Asset
Purchase. The obligations of PEC and PDC to effect the Asset Purchase shall be
subject to the fulfillment at or prior to the Closing of the following
additional conditions, provided that PEC and PDC may waive any such conditions
in their sole discretion:

(a) Performance of Obligations; Representations and
Warranties. The Sellers shall have performed in all material respects each of
their agreements contained in this Agreement required to be performed on or
prior to the Closing, each of the respective representations and warranties of
the Sellers contained in this Agreement shall be true and correct on and as of
the Closing.

(b) Officers' or Partners' Certificate. Each of the
Sellers shall have furnished to PEC and PDC a certificate, dated the Closing,
certifying to the effect that to the best of its knowledge and belief, the
conditions set forth in Section 5.1 and this Section 5.3(a) have been
satisfied.

(c) Opinion of Counsel. PEC and PDC shall have received
an opinion of counsel from Xxxxxx Xxxxx & Xxxxx LLP, Santa Barbara, California,
counsel to the respective Sellers, dated the Closing, substantially to the
effect that:

(i) The incorporation, existence, good standing and
capitalization of the respective corporate Sellers are as stated in
this Agreement.

(ii) This Agreement has been duly authorized, executed and
delivered by each of the Sellers, and (assuming the due and valid
authorization, execution and delivery by PEC and PDC) constitutes the
legal, valid and binding agreement of such Seller enforceable against
such Seller in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws
of general applicability relating to or affecting

-11-
15
the enforcement of creditors' rights and by the effect of general
principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).

(iii) The execution and performance by the Sellers of this
Agreement will not violate the Articles of Incorporation or Bylaws of
the respective corporate Sellers or the Partnership Agreement in the
case of Imperial and will not violate, result in a breach of, or
constitute a default under, any material lease, mortgage, contract,
agreement, instrument, law, rule, regulation, judgment, order or
decree known to such counsel to which any of the Sellers is a party or
to which they or any of their properties or assets may be bound.

(iv) To the knowledge of such counsel, other than as set
forth in Schedule 3.4(d), there are no actions, suits or proceedings,
pending or threatened against or affecting any of Sellers by any
Governmental Entity which seek to restrain, prohibit or invalidate the
transactions contemplated by this Agreement.

(v) To the knowledge of such counsel, no consent,
approval, authorization or order of any court or governmental agency
or body which has not been obtained is required on behalf of any of
the Sellers for consummation of the transactions contemplated by this
Agreement.

In rendering such opinion, counsel for the Sellers may rely as to matters of
fact upon the representations of officers or partners of the Sellers contained
in any certificate delivered to such counsel and certificates of public
officials.

Such opinion shall be limited to the laws of the United States of
America and the State of California.

(d) Xxxx of Sale. The respective Sellers shall have
executed and delivered the respective Xxxx of Sale and Assignments in the form
attached hereto as Exhibits C-1 and C-2, as the case may be.

(e) Investment Representation Letters. Each of the
Sellers and the stockholders or partners of the Sellers shall have executed and
delivered an investment representation letter substantially in the form
attached hereto as Exhibits D-1 and D-2.

VI
GENERAL PROVISIONS

-12-
16

.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, sent by overnight
courier or telecopied (with a confirmatory copy sent by overnight courier) to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):

(a) if to PEC or PDC, to

Xxxxxxxxx Energy, Inc.
0000 Xxxxxx Xxxxxxx
X.X. Xxxxxx 0000
Xxxxxx, Xxxxx 00000

Attention: Xxxxxx X. Xxxxxxx
Chairman and Chief Executive Officer

with copies to:

Xxxxxx X. Xxxxxxxx, Esq.
Xxxxx & Xxxxxxxxx
000 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000-0000

(b) if to Xxxxx & Xxxxxx or Imperial, to

Xxxxx X. Xxxxxx
Xxxxx X. Xxxxx
c/x Xxxxx & Xxxxxx Drilling, Inc.
X.X. Xxx 0000
Xx Xxxxxx, Xxxxxxxxxx 00000

with copies to:

Xxxxxx X. Xxxxxx, Xx., Esq.
Xxxxxx Xxxxx & Xxxxx LLP
000 Xxxxxxxx Xxxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000

Xxxxxxx X. Xxxxx

-13-
17
c/o Nasif, Hicks, Xxxxxx & Co.
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000

with copies to:

Xxxxxx X. Xxxxxx, Xx., Esq.
Xxxxxx Xxxxx & Xxxxx LLP
000 Xxxxxxxx Xxxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000

(d) if to Rig I, to:

Xxxxxxx X. Xxxxx
c/o Gilford Securities Incorporated
000 X. Xxxxxxx Xxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000

with copies to:

Xxxxxx X. Xxxxxx, Xx., Esq.
Xxxxxx Xxxxx & Xxxxx LLP
000 Xxxxxxxx Xxxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxx 00000

.2 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless
otherwise indicated, and the words "hereof', "herein" and "hereunder" and
similar terms refer to this Agreement as a whole and not to any particular
provision of this Agreement, unless the context otherwise requires. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."

.3 Counterparts. This Agreement may be executed in counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other parties.

-14-
18
.4 Entire Agreement; No Third-Party Beneficiaries. This Agreement,
including the documents and instruments referred to herein, (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (b) is not intended to confer upon any person other than the parties any
rights or remedies hereunder; provided, however, that legal counsel for the
Sellers hereto may rely upon the representations and warranties of the
respective Sellers contained herein and in the certificates delivered pursuant
to Sections 5.3(b) and (c).

.5 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.

.6 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.

.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the transactions be consummated as originally
contemplated to the fullest extent possible.

.8 Enforcement of This Agreement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.

.9 Attorneys' Fees. Should any action or proceeding be necessary to
construe or enforce the terms or conditions of this Agreement, or the
application or validity thereof, then the party prevailing in such action shall
be entitled to recover its reasonable attorneys' fees and other court costs,
together with any costs and attorneys' fees incurred in enforcing any judgment
entered therein.

-15-
19
.10 Facsimile Signatures. Signatures of the parties to this Agreement or
on any document or instrument delivered pursuant to this Agreement shall be
deemed to be original signatures and shall be sufficient to bind the parties.
Each party covenants to deposit the original, manually signed document for
delivery by courier or by registered or certified mail to the party to whom
such facsimile signature was transmitted within two business days after the
date of any such facsimile transmission.

IN WITNESS WHEREOF, PEC, PDC and each of the Sellers have
executed this Agreement as of the date first written above.

PEC:

XXXXXXXXX ENERGY, INC.

By: /s/ XXXXXX X. XXXXXXX
------------------------
Xxxxxx X. Xxxxxxx
Chief Executive Officer
Attest:

/s/ XXXXX X. XXXXX
-------------------------
Xxxxx X. Xxxxx, Secretary

PDC:

XXXXXXXXX DRILLING COMPANY

By: /s/ XXXXXX X. XXXXXXX
------------------------
Xxxxxx X. Xxxxxxx
Chief Executive Officer
Attest:

/s/ XXXXX X. XXXXX
-------------------------
Xxxxx X. Xxxxx, Secretary

SELLERS:

RIG I GROUP, INC.

-16-
20

By: /s/ XXXXXXX X. XXXXX
--------------------------
Xxxxxxx X. Xxxxx
President

PHOENIX DRILLING, INC.

By: /s/ XXXXXXX X. XXXXX
--------------------------
Xxxxxxx X. Xxxxx
President

XXXXX & XXXXXX DRILLING, INC.

By: /s/ XXXXX X. XXXXXX
--------------------------
Xxxxx X. Xxxxxx
President

IMPERIAL EQUIPMENT CO.

By: /s/ XXXXX X. XXXXXX
--------------------------
Xxxxx X. Xxxxxx, Partner

By: /s/ XXXXX X. XXXXX
--------------------------
Xxxxx X. Xxxxx, Partner

THE UNDERSIGNED, BEING OFFICERS, DIRECTORS AND STOCKHOLDERS OF RIG I
GROUP, INC. AND PHOENIX DRILLING, INC. AGREE TO BE BOUND BY THE
INDEMNIFICATION PROVISIONS OF SECTION 4.5(a) OF THIS AGREEMENT.

/s/ XXXXXXX X. XXXXX
-----------------------------
Xxxxxxx X. Xxxxx

-17-
21

/s/ XXXXXXX X. XXXXX
---------------------------
Xxxxxxx X. Xxxxx

THE UNDERSIGNED PERSONS, BEING THE SOLE STOCKHOLDERS OF XXXXX & XXXXXX
DRILLING, INC. AND THE SOLE PARTNERS OF IMPERIAL EQUIPMENT CO. HEREBY AGREE TO
BE BOUND BY THE INDEMNIFICATION PROVISIONS OF SECTION 4.5(b) OF THIS AGREEMENT.

/s/ XXXXX X. XXXXXX
---------------------------
Xxxxx X. Xxxxxx

/s/ XXXXX X. XXXXX
---------------------------
Xxxxx X. Xxxxx

-18-
22
ANNEX 1
TO
ASSET PURCHASE AGREEMENT
23
ANNEX 2
TO
ASSET PURCHASE AGREEMENT

DESCRIPTION OF EQUIPMENT

LICENSE VIN

CRANES

82 ton 71 Linkbelt 1LRE853 18H A335

50 ton Hydro 81 Linkbelt 2EMX372 36H 1774

MISC EQUIPMENT

Superior 700 drawworks w/ (2) 3412 Cat engines

Xxxxxxx Denver 37 1/2" rotary table

TRUCKS

93 Freightliner 9C15047 1FUYDXYB9PP47 9258

91 Freightliner 4E61203 1FUYDXYB4MP50 2813

91 Freightliner 4E61204 1FUYDXYB6MP50 2814

91 Freightliner 4E61202 1FUYDXYB2MP50 2815

81 AutoCar 3DAP300 1WBRCCJEXBU09 3469

80 International 3Y21653 AA185KHA1 6222

TRAILERS

48' lowboy '81 Xxxxxxx 1UC8168 OTCN07 9085

48' lowboy '81 Xxxxxxx 1UC8216 OTCN21 1790

48' lowboy '81 Hercules 1US3548 1HZL48308B100 2855

40' float '81 Nuttal XU5070 NMC5 0218

40' float '81 Nuttal XU5071 NMC5 0215

40' float '81 Nuttal XU5072 NMC5 0216

LICENSE VIN

40' float '81 Nuttal XU5073 NMC5 0217

40' float '81 Nuttal XU5074 NMC5 0214

40' flatbed '81 Lufkin UX7133 1Lo1B4027B105 8113

40' flatbed '66 Fruehauf XC8460 VVG35 1904

40' flatbed '78 Aztec XM8419 HT1 9991

40' flatbed '82 Aztec XP5901 1AZBG1A12B101 2516

40' flatbed '82 Aztec XP5902 1AZBG1A14B101 2517

40' flatbed '82 Aztec XP5903 1AZBG1A16B101 2518

35' lowboy '75 Fruehauf XT4283 FWS66 8107

25
ANNEX 3.2
TO
ASSET PURCHASE AGREEMENT

RIG I STOCKHOLDER LIST

SHARES STOCKHOLDER SHARES STOCKHOLDER
------ ----------- ------ -----------

20,000 C. Xxxxxxx Xxxxxxx 12,500 Xxxxx Xxxxxxxxxxx XX
0 Xxxxxxxx Xxxxxx, #0 One E. 60th Street
Marina del Rey, CA 90291 Xxx Xxxx, XX 00000
TIN: ###-##-#### TIN: ###-##-####

12,500 H. Xxxxxx Xxxxxx 48,500 Xxxxxx X. Xxxxxxx
000 X. XxXxxxx Xxxxxx, Xxxxx 000 Sole and Separate Property
Xxxxxxx, XX 00000 c/o Xxxxxx Xxxx
TIN: ###-##-#### 0000 Xxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
TIN: ###-##-####

40,000 Xxxxxx X. Xxxxxx 28,500 Xxxxxxx X. Xxxxxxx
0000 Xxxxxx Xxxxx Xxxx Xxxxxx Xxxxx
Xxxxx Xxxxxxx, XX 00000 00000 Xxxxxxx Xx Xx
XXX: ###-##-#### Herradura
Xxxxxxx Xxxxxxxxx, XX 00000
TIN: ###-##-####

25,000 Xxxxxxx X. Xxxxx 10,000 Xxxxxxx X. Xxxxx
0000 Xxx Xxxxx Xxxx 0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxx, XX 00000 Xxxxx Xxxxxxx, XX 00000
TIN: ###-##-#### TIN: ###-##-####

25,000 Xxxx X. Xxxxxxx
000 Xxxxx Xxxxxxxx Xxxx
Xxxxxxxx, XX 00000
TIN: ###-##-####

Page 1 of 1
26
SCHEDULE 3.2(e)
TO
ASSET PURCHASE AGREEMENT

Sellers may compensate selected representative(s) of Sellers for their
services in arranging the transaction contemplated by the Agreement. Sellers
are solely responsible for such compensation and shall indemnify and hold PDC
and PEC harmless from any liability for such obligation.

Page 1 of 1
27
ANNEX 3.3
TO
ASSET PURCHASE AGREEMENT

PHOENIX STOCKHOLDER LIST

SHARES STOCKHOLDER SHARES STOCKHOLDER
------ ----------- ------ -----------

10,000 Xxxx X. & Xxxxx X. Xxxxxx 50,000 Xxxxxx X. Xxxxxxx
Husband and Wife as Sole and Separate Property
Community Property c/o Xxxxxx Xxxx
000 Xxxxx Xxxxxx, Xxxxx 000 0000 Xxxxxxxx Xxxxxx
Xxxxxxxx Xxxx, XX 00000 Xxxxx Xxxxxx, XX 00000
TIN: ###-##-#### TIN: ###-##-####

50,000 Xxxxx Xxxxxx Xxxxxx 25,000 Xxxxxxx X. Xxxxxxx
Sole and Separate Property Single Woman
The Athena #814 00000 Xxxxxxx Xx Xx
0000 Xxxx X.X. Xxxxxxx Xxxxxxxxx
Xxxxxx, Xxxxx 00000 Xxxxxxx Xxxxxxxxx, XX 00000
TIN: ###-##-#### TIN: ###-##-####

110,000 Xxxxxx X. & Gailina K. Zannon 42,000 Xxxxx X. & Xxxxx X. Xxxxxx
Husband and Wife as Husband and Wife as
Community Property Community Property
1387 School House Road 0000 Xxxxxxxxxx Xxxxxx Xxxx
Xxxxx Xxxxxxx, XX 00000 Xxx Xxxxxxx, XX 00000
TIN: ###-##-####

25,000 Xxxxxx X. Xxxxx, Trustee 42,000 Xxxxx X. & Xxxxxx X. Xxxxx
Trust U/D/T DTD 11/24/80 Husband and Wife as
000 Xxxxxx Xxxxxx Community Property
Xxx Xxxxxxxxx, XX 00000 1723 Lotus
TIN: 00-0000000 Xx Xxxxxx, XX 00000
TIN: ###-##-####
75,000 Estate of Xxxx X. Xxxxxxxx 56,000 Xxxxxxx X. & Xxxxxx X. Xxxxx
Xxx Xxxxxxxx, III, Executor Husband and Wife as
Sole and Separate Property Community Property
0000 Xxxxxx Xxxxx 0000 Xxxxxx Xxxxxx, Xxx. 000
Xxx Xxxxxxx, XX 00000 Xxxxx Xxxxxxx, XX 00000
(000) 000-0000 TIN: ###-##-####
TIN: 00-0000000

50,000 Xxx Xxxxxxxx, III
00000 Xxxxxxx Xxxxx Xxx, #00
Xxxxxx, XX 00000
TIN: ###-##-####

Page 1 of 1
28
ANNEX 3.4
TO
ASSET PURCHASE AGREEMENT

XXXXX & XXXXXX STOCKHOLDER LIST

SHARES STOCKHOLDER
------ -----------

750 Xxxxx X. Xxxxxx
0000 Xxxxxxxxxx Xxxxxx Xxxx
Xxx Xxxxxxx, XX 00000
TIN: ###-##-####

750 Xxxxx X. Xxxxx
0000 Xxxxx
Xx Xxxxxx, XX 00000
TIN: ###-##-####

Page 1 of 1
29
SCHEDULE 3.4(d)
TO
ASSET PURCHASE AGREEMENT

1. Winans, et al. v. Xxxxx Xxxxx & Rigging, et al., San Diego
county Superior Court Case No. 687281; filed June 7, 1995.

Xxxxx & Xxxxxx was originally named in this action but was voluntarily
removed as a defendant because plaintiff was precluded from recovery against it
by virtue of the worker's compensation exclusive remedy doctrine. However,
California Energy Operating Company ("CEOC"), the operator on the site where
plaintiff was injured, tendered its defense to Xxxxx & Xxxxxx under the
applicable drilling contract. A defense is being provided to CEOC by Lloyds of
London under Xxxxx & Xxxxxx'x general liability policy.

2. Xxxxxxx, et al. v. Xxxxxx Xxxxxx, et al.; Xxx Xxxxxxx Xxxxxx
Xxxxxxxx Xxxxx Xxxx Xx. XX000000; filed February 2, 1996.

Xxxxx & Xxxxxx is a named defendant in this action and is vigorously
defending each of the pending claims. Xxxxx & Xxxxxx has tendered its defense
to Geo East Mesa Limited Partners, the operator on the site where plaintiff was
injured, under eh applicable drilling contract. A defense and indemnification
is being provided by Lloyds of London.

Page 1 of 1
30
ANNEX 3.5
TO
ASSET PURCHASE AGREEMENT

IMPERIAL PARTNER LIST

% OF
PARTNERSHIP PARTNER
----------- -------

50% Xxxxx X. Xxxxxx
0000 Xxxxxxxxxx Xxxxxx Xxxx
Xxx Xxxxxxx, XX 00000
TIN: ###-##-####

50% Xxxxx X. Xxxxx
0000 Xxxxx
Xx Xxxxxx, XX 00000
TIN: ###-##-####

Page 1 of 1
31
EXHIBIT A

FORM OF PROMISSORY NOTE

Snyder, Texas
US $400,000
December ___, 1996

FOR VALUE RECEIVED, XXXXXXXXX DRILLING COMPANY, a Delaware corporation
("PDC"), promises to pay to the order of Xxxxx & Xxxxxx Drilling, Inc., a
California corporation (the "Noteholder"), the principal sum of Four Hundred
Thousand Dollars ($400,000). Principal shall be paid in six (6) equal monthly
installments of Sixty-Six Thousand Six Hundred and Sixty-Six Dollars ($66,666)
each, beginning January 1, 1997, and ending on June 1, 1997, at which time the
entire principal amount outstanding, if not sooner paid, shall be due and
payable. Principal shall be payable at X.X. Xxx 0000, Xx Xxxxxx, Xxxxxxxxxx
00000, or such other place as the Noteholder may designate.

If any installment of principal under this Note is not paid within ten
(10) days of the date the Noteholder provides PDC written notice of a default
in the payment of such installment, the entire principal amount outstanding
thereon shall at once become due and payable without additional notice to PDC
at the option of the Noteholder. The Noteholder may exercise this option to
accelerate during any default by PDC regardless of any prior forbearance. If
suit is brought to collect this Note, the Noteholder shall be entitled to
collect all reasonable costs and expenses of suit, including, but not limited
to, reasonable attorney fees.

Presentment, notice of dishonor, and protest are hereby waived by PDC.

Any notice to PDC provided for in this Note shall be given by
delivering such notice by certified mail addressed to PDC at 0000 Xxxxxx
Xxxxxxx, Xxxxxx, Xxxxx 00000, or to such other address as PDC may designate by
notice to the Noteholder. Any notice to the Noteholder shall be given by
mailing such notice by certified mail, return receipt requested, to the
Noteholder at the address stated in the first paragraph of this Note, or at
such other address as may have been designated by notice to PDC.

Neither this Note nor any right or interest of the Noteholder
hereunder may be transferred or assigned by the Noteholder to any other party
without the prior written consent of PDC.

A-1
32
The Note is made in the State of Texas and shall be governed by and
interpreted in accordance with the internal laws of the State of Texas without
regard to its conflicts of law provisions or interpretations.

PDC:

XXXXXXXXX DRILLING COMPANY

By: _________________________________
Xxxxxx X. Xxxxxxx
Chief Executive Officer

A-2
33
EXHIBIT B

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement ("Agreement") is made and entered
into this _ day of December, 1996, by and between XXXXXXXXX ENERGY, INC., a
Delaware corporation ("PEC"), and RIG I GROUP, INC., a California corporation
("Rig I"), PHOENIX DRILLING, INC., a California corporation ("Phoenix"), and
IMPERIAL EQUIPMENT CO., a California general partnership ("Imperial") (Rig I,
Phoenix and Imperial are collectively referred to herein as the "Sellers").

A. Pursuant to that certain Asset Purchase Agreement dated of even date
herewith ("Asset Purchase Agreement"), by and between PEC, Xxxxxxxxx Drilling
Company, a wholly-owned subsidiary of PEC ("PDC"), and the Sellers and Xxxxx &
Xxxxxx Drilling, Inc., a California corporation, PEC has agreed to issue 52,000
shares ("Restricted Shares") of PEC's Common Stock, $0.01 par value (the
"Common Stock"), as partial consideration for the drilling rigs and equipment
being purchased by PDC from the Sellers.

B. This Agreement is being entered into in connection with and as a
condition to the parties closing the transactions contemplated under the Asset
Purchase Agreement.

NOW, THEREFORE, the parties hereto agree as follows:

VII Certain Definitions. As used in this Agreement the following
terms shall have the following respective meanings:

"Commission" shall mean the United States Securities and Exchange
Commission and any successor federal agency having similar powers.

"Holder" shall mean each of the Sellers and its successors and assigns
(including stockholders or partners thereof, as the case may be), and any
subsequent successors and assigns, of the Registrable Securities or any
portion thereof.

"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.

The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.

B-1
34
"Registrable Securities" shall mean (i) the Restricted Shares, (ii)
Common Stock issued or issuable with respect to the securities referred to
in clause (i) by way of a stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or
other reorganization. As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when they have been
distributed to the public pursuant to an offering registered under the
Securities Act or sold to the public through a broker, dealer or market
maker in compliance with Rule 144 under the Securities Act (or any similar
rule then in force).

"Registration Expenses" shall mean all expenses incident to PEC's
performance of or compliance with this Agreement, including without
limitation all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws and all reasonable printing expenses,
messenger and delivery expenses, and fees and disbursements of counsel for
PEC and all independent certified public accountants, underwriters
(excluding discounts and commissions) and other Person retained by PEC (all
such expenses being herein called "Registration Expenses"), will be borne as
provided in this Agreement, except that PEC will, in any event, pay its
internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any annual audit or quarterly review, the expense of any
liability insurance and the expenses and fees for listing the securities to
be registered on each securities exchange on which similar securities issued
by PEC are then listed or on the NASD automated quotation system.

"Requesting Holder" shall mean any Holder of Registrable Securities
who shall request registration of Registrable Securities pursuant hereto.

"Securities Act" shall mean the Securities Act of 1933, or any
successor thereto, as the same shall be amended from time to time.

VIII Restrictions on Transfer. The Restricted Shares were acquired
by each of the Sellers from PEC for investment for its own account and not as a
nominee or agent and not with a present view to the resale or distribution of
any part thereof, except in compliance with the Securities Act. Each of the
Sellers acknowledges that the Restricted Shares are "restricted securities"
within the meaning of the Securities Act.

IX Registration Under Securities Act, etc.

.1 Registration Upon Demand

(a) Demand Rights. At any time after April 1, 1997, but
prior to December 1, 1998 ("Demand Registration Period"), but subject to the
provisions of Section 3.1(c),

B-2
35
below, at the written demand of Requesting Holders and on one (1) occasion
only, PEC shall prepare, file with the Commission and use its best efforts to
have declared effective a registration statement with respect to the
distribution of up to all of the Registrable Securities. Such demand shall be
made by written notice to PEC by Requesting Holders, which notice shall (i)
request the preparation of the registration statement pursuant to the terms of
this Section 3.1, (ii) include the number of Registrable Securities to be
offered by Holders of Registrable Securities pursuant to such registration
statement and (iii) be sent to all other Holders. PEC may include in such
registration any securities of PEC for sale by PEC or persons other than PEC,
and such registration shall be deemed to be an incidental registration pursuant
to Section 3.2 hereof with Holders having the priority with respect to the
Registrable Securities.

(b) Expenses. PEC shall pay all Registration Expenses in
connection with the registration of Registrable Securities demanded pursuant to
this Section 3.1.

(c) Restrictions on Demand Registrations. PEC will not be
obligated to effect any registration under Section 3.1(a) within three months
after the effective date of (i) a registration initiated by PEC; or (ii) a
registration in which the Holders of Registrable Securities were given
incidental registration rights pursuant to Section 3.2 hereof and in which
there was no reduction in the number of Registrable Securities requested to be
included (the "Other Registrations"); provided that in either case (i) or (ii)
the three-month period can be extended to four months if required by the then
managing underwriter. PEC may postpone filing or the effectiveness of a
registration statement demanded by Holders under Section 3.1(a) for up to four
months following receipt of such demand if PEC has executed in good faith (x) a
letter of intent or a commitment letter with an underwriter for a public
offering or (y) an agreement in principle relating to an acquisition of assets
(other than in the ordinary course of business) or any merger, consolidation or
similar transaction, or (z) has made a filing with the Commission under the
Securities Exchange Act of 1934 in connection with a tender offer.
Notwithstanding anything in this Section 3.1(c) to the contrary, if the Demand
Registration Period expires without effectuation of a demand for registration
under Section 3.1(a) because of the occurrence of an event specified above in
this Section 3.1(c), the Demand Registration Period shall be extended for such
additional period as is necessary to effect such registration, provided that
such demand is given to PEC prior to the expiration of the Demand Registration
Period.

.2 Incidental Registration.

(a) Right to Include Registrable Securities. Subject to
the further provisions of this Section 3.2(a), if PEC, at any time commencing
on the date of this Agreement and expiring on the third anniversary date
hereof, proposes to register any of its equity securities

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36
under the Securities Act, for its own account or the account of other holders
of PEC's securities, on a form and in a manner which would permit registration
of Registrable Securities for sale to the public under the Securities Act, it
will each such time give prompt written notice to all Holders of its intention
to do so, describing such securities and specifying the form and manner and the
other relevant facts involved in such proposed registration and upon the
written request of any such Holder delivered to PEC within twenty (20) business
days after the giving of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such Holder and the
intended method or methods of disposition thereof), PEC will use its best
efforts to effect the registration under the Securities Act of all Registrable
Securities which PEC has been so requested to register by Holders to the extent
requisite to permit the disposition (in accordance with the intended methods
thereof as aforesaid) of the Registrable Securities so to be registered
provided that (i) if, at any time after giving such written notice of its
intention to register any of its securities and prior to the effective date of
the registration statement filed in connection with such registration, PEC
shall determine for any reason not to register such securities, PEC may, at its
election give written notice of such determination to each Holder and thereupon
shall be relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith as provided herein); and (ii) if
(A) the registration so proposed by PEC involves an underwritten primary
registration on behalf of PEC to be distributed (on a firm commitment basis) by
or through one or more underwriters of recognized standing under underwriting
terms appropriate for such a transaction, and (B) the managing underwriter of
such underwritten offering shall advise PEC in writing that, in its good faith
judgment, all the shares to be offered by PEC and other parties are greater
than can be accommodated without interfering with the successful marketing of
all the securities to be then offered publicly for the account of PEC, then the
managing underwriter or underwriters shall include in such registration (1)
first, the securities PEC proposes to register for sale, and (2) second, any

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37
securities requested and permitted to be included in such registration pursuant
to incidental or piggyback rights granted to the holders thereof prior to the
date of this Agreement, (3) third, the Registrable Securities requested to be
included in such registration by the Requesting Holders, pro rata, if
necessary, and (4) fourth, any other securities requested to be included in
such registration, if any, pro rata; (iii) if (A) the registration so proposed
by PEC is an underwritten secondary registration on behalf of holders of PEC's
securities, to be distributed (on a firm commitment basis) by or through one or
more underwriters of recognized standing under underwriting terms appropriate
for such a transaction, and (B) the managing underwriter of such underwritten
offering shall advise PEC in writing that, in its good faith judgment, all the
shares to be offered by such requesting holder, PEC and other parties are
greater than can be accommodated without interfering with the successful
marketing of all of the securities to be then offered publicly for the account
of PEC, then the managing underwriter shall include in such registration (1)
first, the securities requested to be included therein by the holders
requesting such registration, (2) second, any securities requested and
permitted to be included in such registration statement pursuant to incidental
or piggyback rights granted to the holders thereof prior to the date of this
Agreement, (3) third, the securities which are requested to be included in such
registration by the Holders of Registrable Securities, pro rata, if necessary,
(4) fourth, any securities to be included in such registration on behalf of
PEC, and (5) fifth, any other securities requested to be included in such
registration, if any, pro rata.

(b) Expenses. PEC will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to Section 3.2.

.3 Registration Procedures. If and whenever PEC is required to
effect the registration of any Registrable Securities under the Securities Act
as provided in Section 3.1 or Section 3.2, PEC will promptly:

(a) prepare and (in any event within sixty (60) days)
file with the Commission a registration statement with respect to such
Registrable Securities and use its best efforts to cause such registration
statement to become effective, such registration statement to comply as to form
and content in all material respects with the Commission's forms, rules and
regulations;

(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities and other securities covered
by such registration statement until the earlier of (i) such time as all of
such Registrable Securities and other securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement or (ii) the expiration of (A)
nine (9) months in the case of a registration of Registrable Securities
pursuant to Section 3.1 hereof, or (B) six (6) months in the case of a
registration of Registrable Securities pursuant to Section 3.2 hereof, after
such registration statement becomes effective, and will furnish to each such
seller prior to the filing thereof a copy of any amendment or supplement to
such registration statement or prospectus and shall not file any such amendment
or supplement to which any such seller shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Securities Act or of the rules or
regulations thereunder;

(c) furnish to each seller of Registrable Securities one
originally executed registration statement, with all amendments, supplements
and additional documentation; such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits) as such seller may reasonably request;

B-5
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such number of copies of the prospectus included in such registration statement
(including each preliminary prospectus and any summary prospectus) as required
by the Securities Act as such Seller may reasonably request; such documents, if
any, incorporated by reference in such registration statement or prospectus;
and such other documents as such seller may reasonably request;

(d) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or blue sky laws of such jurisdictions as
each seller shall reasonably request, to keep such registration or
qualification in effect for so long as such registration statement remains in
effect, and do any and all other acts and things which may be necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of his Registrable Securities covered by such registration
statement, except that PEC shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this subdivision (d) be
obligated to be so qualified, or to subject itself to taxation in any such
jurisdiction, or to consent to general service of process in any such
jurisdiction;

(e) immediately notify each seller of Registrable
Securities covered by such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, upon discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing, or if it is
necessary to amend or supplement such prospectus or registration statement to
comply with law, and at the request of any such seller, prepare and furnish to
such seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statement therein not misleading
in light of the circumstances then existing and shall otherwise comply in all
material respects with the law and so that such prospectus or registration
statement, as amended or supplemented, will comply with law;

(f) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
securities holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months beginning with the first
month of the first fiscal quarter after the effective date of such registration
statement, if such earnings statement is necessary to satisfy the provisions of
Section 11(a) of the Securities Act;

B-6
39
(g) provide and cause to be maintained a transfer agent
and registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement; and

(h) use its best efforts to list all Common Stock covered
by such registration statement on each securities exchange on which any
Common Stock is then listed or quote all such Common Stock on NASDAQ if
PEC's Common Stock is quoted on NASDAQ, or, if PEC's Common Stock is not
then quoted on NASDAQ or listed on any national securities exchange, use its
best efforts to have such Common Stock covered by such registration
statement quoted on NASDAQ or, at the option of PEC, listed on a national
securities exchange.

PEC may require each seller of Registrable Securities as to which any
registration is being effected to furnish PEC such information regarding such
seller and the distribution of such securities as PEC may from time to time
reasonably request in writing and as shall be required by law or by the
Commission in connection therewith.

.4 Underwritten Offerings.

(a) Underwriting Agreement. If requested by the
underwriters for any underwritten offering of Registrable Securities on
behalf of a Holder or Holders pursuant to the registration demanded under
Section 3.1, PEC will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such
representations and warranties by PEC and such other terms and provisions as
are customarily contained in underwriting agreements with respect to
secondary distributions, including, without limitation, indemnities to the
effect and to the extent provided in Section 3.6. Holders on whose behalf
Registrable Securities are to be distributed by such underwriters shall be
parties to any such underwriting agreement and the representations and
warranties by, and the other agreements on the part of, PEC to and for the
benefit of such underwriters, shall also be made to and for the benefit of
such Holders. No such Holder shall be required by PEC to make any
representations or warranties to or agreements with PEC or the underwriters
other than reasonable representations, warranties or agreement regarding
such Holder, such Holder's Registrable Securities and such Holder's intended
method or methods of disposition and any other representation required by
law and as provided in Section 3.4(d).

(b) Inclusion of Registrable Securities. If PEC at any
time proposes to register any of its securities for its own account under
the Securities Act as contemplated by Section 3.2 and such securities are to
be distributed by or through one or more underwriters,

B-7
40
PEC will use its best efforts, if requested by any Holder who is entitled to
request incidental registration of Registrable Securities in connection
therewith pursuant to Section 3.2, to arrange for such underwriters to
include the Registrable Securities to be offered and sold by such Holder
among the securities to be distributed by or through such underwriters;
provided that, for purposes of this sentence, best efforts shall not require
PEC to reduce the amount of sales price of such securities proposed to be
distributed by or through such underwriters. Holders of Registrable
Securities to be distributed by such underwriters shall be parties to the
underwriting agreement between PEC and such underwriters and the
representations and warranties by, and the other agreements on the part of,
PEC to and for the benefit of such underwriters, shall also be made to and
for the benefit of such Holders of Registrable Securities. PEC will
cooperate with such Holders to the end that the conditions precedent to the
obligations of such Holders under such underwriting agreement shall not
include conditions that are not customary in underwriting agreements with
respect to combined primary and secondary distributions and shall be
otherwise satisfactory to such Holders. No such Holder shall be required by
PEC to make any representations or warranties other than reasonable
representations, warranties or agreements regarding such Holder, such
Holder's Registrable Securities and such Holder's intended method or methods
of distribution and any other representation required by law and as provided
in Section 3.4(d).

(c) Selection of Underwriters. Whenever a registration
demand pursuant to Section 3.1 is for an underwritten offering, the Holders
of Registrable Securities making such demand shall have the right to select
the managing underwriter(s) (which shall be an underwriter of national
standing) to administer the offering, subject to the approval of PEC, such
approval not to be unreasonable withheld. If PEC at any time proposes to
register any of its securities under the Securities Act for sale of its own
account or for the accounts of any other sellers, including Holder, and such
securities are to be distributed by or through one or more underwriters, the
selection of the managing underwriter(s) (which shall be an underwriter of
national standing) shall be made by PEC and notice of the selection thereof
delivered to Holders eligible to participate in such registration.

(d) Holdback Agreements.

(i) If any registration pursuant to Section 3.1 or 3.2
shall be in connection with any underwritten public offering, each Holder of
Registrable Securities agrees by acquisition of such Registrable Securities,
if so required by the managing underwriter, not to effect any public sale or
distribution of Registrable Securities (other than as part of such
underwritten public offering) within seven (7) days prior to the effective
date of such registration statement or one hundred twenty (120) days after
the effective date of such registration statement, unless the underwriters
managing the offering otherwise agree.

B-8
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(ii) PEC agrees (A) not to effect any public sale or
distribution prohibited by Rule 10b-6 under the Securities Act after the
demand or decision to make such registration and (i) prior to the effective
date of the registration statement, except as a part of such registration
statement or pursuant to any registration statements on Forms S-8 or S-4 or
any successor form, unless the managing underwriters of such registration
otherwise agree; or (ii) prior to the ninetieth (90th) day after the
effective date of such registration statement, and (B) to use its best
efforts to cause each holder of at least 10% of its Common Stock or any
securities convertible into or exchangeable or exercisable for any of its
Common Stock, in each case purchased from PEC at any time after the date of
this Agreement (other than in a public offering), to agree not to effect any
such public sale or distribution of such securities during such period.

.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, PEC will give Holders on whose behalf such
Registrable Securities are to be so registered and their underwriters, if any,
and each Requesting Holder and not more than one counsel for all Holders and
their respective accountants, the opportunity to participate in the preparation
of such registration statement, each prospectus included therein or filed with
the Commission and each amendment thereof or supplement thereto, and will give
each of them such access to its books and records and such opportunities to
discuss the business of PEC with its officers and the independent public
accountants who have certified its financial statements as shall be necessary
in the opinion of such Holders and such underwriters or their respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.

.6 Indemnification.

(a) Indemnification by PEC. In the event of any
registration of any securities of PEC under the Securities Act, PEC will,
and hereby does, indemnify and hold harmless Holder, its partners and each
other person, if any, who controls Holder within the meaning of the
Securities Act, in each case, against any losses, claims, damages,
liabilities or expenses, joint or several (including, without limitation,
the costs and expenses of investigating, preparing for and defending any
legal proceeding, including reasonable attorney's fees), to which such
Holder or any such director, trustee, officer, employee or controlling
person may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered
under the Securities Act, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement
thereto, or any document incorporated by reference therein, or (ii) any
omission or alleged omission to state therein a material fact required to be
stated therein

B-9
42
or necessary to make the statements therein not misleading, and PEC will
reimburse Holder and each such partner and controlling person for any legal
or any other expenses incurred by them in connection with investigating or
defending or settling any such loss, claim, liability, action or proceeding;
provided that PEC shall not be liable in any such case to the extent that
any loss, claim, damage, liability or expense (or action or proceeding in
respect thereof) arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to PEC through an instrument
duly executed by Holder or any such partner or controlling person
specifically stating that it is for use in preparation thereof. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of Holder or any such partner or
controlling person and shall survive the transfer of such securities by
Holder. PEC will make provision for contribution in lieu of any such
indemnity that may be disallowed as shall be reasonably requested by Holder.

(b) Indemnification by Holder. In the event of any
registration of any securities of PEC under the Securities Act (pursuant to
which Holder sells Registrable Securities covered by such registration
statement), Holder will, and hereby does, indemnify and hold harmless PEC,
each director of PEC, each officer of PEC who shall sign such registration
statement and each other person, if any, who controls PEC within the meaning
of the Securities Act from and against losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of
material fact contained in such registration statement, any preliminary
prospectus, final prospectus or summary prospectus included therein, or any
amendment or supplement thereto, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such statement
or omission was made in reliance upon and in conformity with written
information furnished to PEC through an instrument duly executed by Holder
specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of PEC
or any such director, officer or controlling person and shall survive the
transfer of such securities by Holder.

(c) Notice of Claims, etc. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to this Section
3.6, such person (hereinafter called the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (hereinafter
called the "indemnifying party") in writing and the indemnifying party, upon
request of the indemnified party, shall retain counsel reasonably
satisfactory to the

B-10
43
indemnified party to represent the indemnified party and any other party the
indemnifying party may designate in such proceeding and shall pay the fees
and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for the settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there is a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.

(d) Indemnification Unavailable. If the indemnification
provided for in this Section 3.6 is unavailable as a matter of law to an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under any such paragraph,
in lieu of indemnifying such indemnified party thereunder, shall contribute
to the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by such indemnified
party on the one hand and the indemnifying parties on the other or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of such
indemnified party on the one hand and the indemnifying parties on the other
in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative fault of such indemnified party and
the indemnifying parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission to state a material fact relates to information supplied by
such parties and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omissions. The parties agree that it would not be just and equitable if
contribution pursuant to this Section 3.6(d) were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to above shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating, defending or
settling any such action or claim.

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(e) No Settlement, etc. No indemnifying party shall,
except with the written consent of the indemnified party, consent to entry
of any judgment or entry into settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim
or action.

(f) Indemnity Operative and in Full Force. The indemnity
and contribution agreements contained in this Section 3.6 shall remain
operative and in full force and effect regardless of any termination of this
Agreement.

X Rule 144.

(a) Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the Commission which may at
any time permit the sale of Registrable Securities to the public without
registration, PEC shall use its best efforts to:

(i) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at
all times after the date of this Agreement;

(ii) File with the Commission in a timely manner all
reports and other documents required of PEC under the Securities Act and the
Securities Exchange Act of 1934 ("Exchange Act"); and

(iii) So long as any Holder owns any Registrable
Securities, furnish to Holders as soon as reasonably practicable after
request a written statement by PEC as to its compliance with the reporting
requirements of the Exchange Act, a copy of the most recent annual or
quarterly report of PEC filed with the Commission, and such other reports
filed by PEC with the Commission.

(b) Further Assurances. PEC shall take such action any
Holder may reasonably request from time to time to enable such Holder to
sell shares of Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time,
or (b) any similar rule or regulation hereafter adopted by the Commission.
Upon written request of any Holder, PEC will deliver to such Holder a
written statement as to whether it has complied with such requirements.

XI Amendments and Waivers. This Agreement may be amended, and PEC
may take any action herein prohibited or omit to perform any act herein
required to be performed by it, only if PEC shall have obtained the written
consent to such amendment, action or omissions to act of the Holder or Holders
of at least 51% or more of the shares of Registrable Securities.

X-00
00
XXX Xxxxxxxx for Beneficial Owners. In the event that any
Registrable Securities are held by a nominee for the beneficial owner thereof,
the beneficial owner thereof may, at its election, be treated as the Holder of
such Registrable Securities for purposes of any request or other action by any
Holder or Holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any Holder or Holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, PEC
may require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities.

XIII Notices. Notices and other communications under this Agreement
shall be in writing and shall be sent by registered mail, postage prepaid,
addressed

(a) to any Holder at the address provided to Company in
writing by such Holder or as shown on stock transfer books of PEC unless
such Holder has advised PEC in writing of a different address as to which
notices shall be sent under this Agreement, and

(b) if to PEC at X.X. Xxxxxx 0000, Xxxxxx, Xxxxx 00000 to
the attention of its President or to such other address as PEC shall have
furnished to each Holder.

XIV Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of either of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement are for the benefit of any
Holder of Registrable Securities.

XV Miscellaneous. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and assigns
of the parties hereto, whether so expressed or not, and, in particular, but
subject to the provisions of Section 3.1 hereof, shall inure to the benefit of
and be enforceable by, any Holder or Holders of Registrable Securities. This
Agreement embodies the entire agreement and understanding between PEC and the
other parties hereto with respect to the subject matter hereof and supersedes
all prior agreements and understandings relating to the subject matter hereof.
This Agreement shall be construed and enforced in accordance with and governed
by the laws of the State of Texas. The headings in this Agreement are for the
purposes of reference only and shall not limit or otherwise affect the meaning
hereof. This Agreement may be executed in counterparts, each of which shall be
an original, but both of which together shall constitute one instrument.

IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.

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PEC:
XXXXXXXXX ENERGY, INC.

By: ______________________________
Xxxxxx X. Xxxxxxx
Chief Executive Officer

SELLERS:

RIG I GROUP, INC.

By: ______________________________
Xxxxxxx X. Xxxxx
President

PHOENIX DRILLING, INC.

By: ______________________________
Xxxxxxx X. Xxxxx
President

IMPERIAL EQUIPMENT CO.

By: ______________________________
Xxxxx X. Xxxxxx, Partner

By: ______________________________
Xxxxx X. Xxxxx, Partner

B-14
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EXHIBIT C-1

XXXX OF SALE AND ASSIGNMENT

KNOW ALL MEN BY THESE PRESENTS, that, pursuant to that certain Asset
Purchase Agreement among XXXXXXXXX ENERGY, INC. ("PEC"), a Delaware
corporation, XXXXXXXXX DRILLING COMPANY ("PDC"), a Delaware corporation
wholly-owned by PEC, and RIG I GROUP, INC. ("Rig I"), a California corporation,
PHOENIX DRILLING, INC. ("Phoenix"), a California corporation, XXXXX & XXXXXX
DRILLING, INC. ("Xxxxx & Xxxxxx"), a California corporation, and IMPERIAL
EQUIPMENT CO., a California general partnership (Rig I, Phoenix and Xxxxx &
Xxxxxx are collectively referred to herein as the "Assignors"), the Assignors,
for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, hereby grant, bargain, sell, convey and transfer unto PDC
(the "Assignee"), all of the Assignors' right, title, and interest in and to
the three drilling rigs (Rig Xx. 0, Xxx Xx. 0 xxx Xxx Xx. 00) and related
equipment set forth in Appendix A attached hereto and incorporated herein by
this reference. Appendix A is intended to describe the equipment offered for
sale in its entirety.

TO HAVE AND TO HOLD the same unto the Assignee and the Assignee's
successors and assigns forever. Each of the Assignors hereby covenants and
agrees that it has the full right, power, and authority to sell, convey, and
transfer the foregoing property to the Assignee pursuant to this Xxxx of Sale
and Assignment. This sale and transfer is made on an "as is, where is" basis.
Other than the power and authority to sell and transfer the property, Assignor
makes no warranties, express or implied, regarding the foregoing property.

IN WITNESS WHEREOF, the Assignors have caused this Xxxx of Sale and
Assignment to be duly executed by their respective duly authorized officers as
of the ____ day of December, 1996.

RIG I GROUP, INC.

By: ______________________________
Xxxxxxx X. Xxxxx
President

PHOENIX DRILLING, INC.

By: _______________________________
Xxxxxxx X. Xxxxx

XXXXX & XXXXXX DRILLING, INC.

Page 1 of 2
48

By: ______________________________
Xxxxx X. Xxxxxx
President

Page 2 of 2
49
APPENDIX A
TO
XXXX OF SALE AND ASSIGNMENT
FROM
RIG I GROUP, INC.
PHOENIX DRILLING, INC.
AND
XXXXX & XXXXXX DRILLING, INC.
TO
XXXXXXXXX DRILLING COMPANY
(LIST OF ASSETS ASSIGNED)
50
EXHIBIT C-2

XXXX OF SALE AND ASSIGNMENT

KNOW ALL MEN BY THESE PRESENTS, that, pursuant to that certain Asset
Purchase Agreement among XXXXXXXXX ENERGY, INC. ("PEC"), a Delaware
corporation, XXXXXXXXX DRILLING COMPANY ("PDC"), a Delaware corporation
wholly-owned by PEC, and RIG I GROUP, INC., a California corporation, PHOENIX
DRILLING, INC., a California corporation, XXXXX & XXXXXX DRILLING, INC., a
California corporation, and IMPERIAL EQUIPMENT CO., a California general
partnership ("Imperial") (Imperial is referred to herein as the "Assignor"),
the Assignor, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, hereby grants, bargains, sells, conveys and
transfers unto PDC (the "Assignee"), all of the Assignor's right, title, and
interest in and to the properties "as is, where is," set forth on Appendix A
attached hereto and incorporated herein by this reference:

TO HAVE AND TO HOLD the same unto the Assignee and the Assignee's
successors and assigns forever. Assignor hereby covenants and agrees that it
has the full right, power, and authority to sell, convey, and transfer the
foregoing properties to the Assignee pursuant to this Xxxx of Sale and
Assignment.

IN WITNESS WHEREOF, the Assignor has caused this Xxxx of Sale and
Assignment to be duly executed by its partners as of the ____ day of December,
1996.

IMPERIAL EQUIPMENT CO.,
a California General Partnership

By: _____________________________________
Xxxxx X. Xxxxxx
Partner

By: _____________________________________
Xxxxx X. Xxxxx
Partner

Page 1 of 3
51
APPENDIX A
TO
XXXX OF SALE AND ASSIGNMENT
FROM
IMPERIAL EQUIPMENT CO.
TO
XXXXXXXXX DRILLING COMPANY

LICENSE VIN

CRANES

82 ton 71 Linkbelt 1LRE853 18H A335

50 ton Hydro 81 Linkbelt 2EMX372 36H 1774

MISC EQUIPMENT

Superior 700 drawworks w/ (2) 3412 Cat engines

Xxxxxxx Denver 37 1/2" rotary table

TRUCKS

93 Freightliner 9C15047 1FUYDXYB9PP47 9258

91 Freightliner 4E61203 1FUYDXYB4MP50 2813

91 Freightliner 4E61204 1FUYDXYB6MP50 2814

91 Freightliner 4E61202 1FUYDXYB2MP50 2815

81 AutoCar 3DAP300 1WBRCCJEXBU09 3469

80 International 3Y21653 AA185KHA1 6222

Page 2 of 3
52

TRAILERS

48' lowboy '81 Xxxxxxx 1UC8168 OTCN07 9085

48' lowboy '81 Xxxxxxx 1UC8216 OTCN21 1790

48' lowboy '81 Hercules 1US3548 1HZL48308B100 2855

40' float '81 Nuttal XU5070 NMC5 0218

40' float '81 Nuttal XU5071 NMC5 0215

40' float '81 Nuttal XU5072 NMC5 0216

LICENSE VIN

40' float '81 Nuttal XU5073 NMC5 0217

40' float '81 Nuttal XU5074 NMC5 0214

40' flatbed '81 Lufkin UX7133 1Lo1B4027B105 8113

40' flatbed '66 Fruehauf XC8460 VVG35 1904

40' flatbed '78 Aztec XM8419 HT1 9991

40' flatbed '82 Aztec XP5901 1AZBG1A12B101 2516

40' flatbed '82 Aztec XP5902 1AZBG1A14B101 2517

40' flatbed '82 Aztec XP5903 1AZBG1A16B101 2518

35' lowboy '75 Fruehauf XT4283 FWS66 8107

Page 3 of 3
53
EXHIBIT D-1

FORM OF
INVESTMENT REPRESENTATION LETTER
FOR
XXXXX & XXXXXX AND IMPERIAL
AND
STOCKHOLDERS AND PARTNERS THEREOF

[Date]

Xxxxxxxxx Energy, Inc.
0000 Xxxxxx Xxxxxxx
Xxxxxx, Xxxxx 00000

This letter is being submitted to Xxxxxxxxx Energy, Inc. ("PEC") in
connection with and as a condition to PEC's closing of the Asset Purchase
contemplated by the Asset Purchase Agreement among PEC, Xxxxxxxxx Drilling
Company ("PDC") and Rig I Group, Inc., Phoenix Drilling, Inc., Xxxxx & Xxxxxx
Drilling, Inc. ("Xxxxx & Xxxxxx") and Imperial Equipment Co. ("Imperial").
Capitalized terms not defined herein shall have the meaning given them in the
Memorandum (as defined below).

(a) Representations and Warranties.

The undersigned hereby represents and warrants to PEC that the
following statements are true:

.1 The undersigned has been furnished a copy of the Memorandum,
dated November __, 1996 (the "Memorandum") containing a copy of PEC's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995 and all other
reports filed by PEC with the Securities and Exchange Commission since January
1, 1996 (collectively, the "Reports") and has carefully reviewed the Memorandum
and the Reports, including, but not limited to, (i) the statements in the
Memorandum relating to taxation of the Asset Purchase and lack of free
transferability of the PEC Common Stock and PEC Promissory Notes to be issued
to the stockholders of Xxxxx & Xxxxxx and the partners of Imperial by PEC as
consideration for the Asset Purchase, and (ii) the section entitled "Disclosure
Concerning Forward-Looking Statements," setting forth certain Cautionary
Statements or risk factors relating to PEC and its businesses and operations.
54
Xxxxxxxxx Energy, Inc.
[Date]
Page 2

.2 The undersigned has such knowledge and experience in financial
and business matters that he/she is capable of evaluating the merits and risks
of an investment in PEC vis-a-vis the PEC Common Stock and PEC Promissory Notes
to be issued by PEC as consideration for the Asset Purchase.

.3 The undersigned has had an opportunity to ask questions of PEC
and its management concerning PEC and PDC, the businesses of PEC and PDC and
the PEC Common Stock and the PDC Promissory Notes, and, if asked, all such
questions have been answered to the full satisfaction of the undersigned.

.4 The undersigned understands that PEC has not registered the
offer or sale of the PEC Common Stock or PEC Promissory Notes under the
Securities Act of 1933, as amended (the "Act"), in reliance upon an exemption
therefrom under Section 4(2) of the Act and the provisions of Regulation D
promulgated thereunder. The undersigned therefore acknowledges that in no event
may he/she sell or otherwise transfer the PEC Common Stock or the PDC
Promissory Notes without registration under the Act (see paragraph (h) below)
or an exemption therefrom, and that he/she must therefore hold the PEC Common
Stock and the PEC Promissory Notes for an indefinite period of time.

.5 The undersigned represents that he/she will acquire the PEC
Common Stock and PEC Promissory Notes for his/her own account, with no
intention to distribute or offer to distribute the same to others, and
understands that the issuance by PEC of, the PEC Common Stock and PEC
Promissory Notes will be predicated upon the undersigned's lack of such
intention.

.6 The undersigned understands that neither the Securities and
Exchange Commission nor the securities commissioner of any state has received
or reviewed any documents relative to an investment in PEC, or has made any
finding or determination relating to the fairness of an investment in PEC.

.7 The undersigned acknowledges that stop transfer instructions
will be placed with PEC's transfer agent to restrict the resale, pledge,
hypothecation or other transfer of the PEC Common Stock and that the terms of
the PEC Promissory Notes will prohibit sale thereof without the prior written
consent of PEC.
55
Xxxxxxxxx Energy, Inc.
[Date]
Page 3

.8 The undersigned acknowledges that, except as provided in the
Registration Rights Agreement attached as Exhibit B to the Stock Purchase
Agreement, PEC is under no obligation to register the PEC Common Stock, for
sale under the Act or to assist the undersigned in complying with any exemption
from registration under the Act, or any state securities laws. The undersigned
further acknowledges that PEC's limited agreement to register the PEC Common
Stock as described in the Registration Rights Agreement will be on a
best-efforts basis only. The undersigned further acknowledges that PEC has no
obligation to register the PEC Promissory Notes for sale under the Act and
that, therefore, the Notes will not be registered.

.9 If other than a natural person, the undersigned was not
organized for the specific purpose of acquiring the PEC Common Stock or PEC
Promissory Notes.

.10 The undersigned understands and acknowledges that the
foregoing representations and warranties will be relied upon by PEC in
connection with the issuance of the PEC Common Stock and PEC Promissory Notes.

.11 The undersigned is not relying on PEC or PDC with respect to
the economic considerations of the undersigned relating to the issuance to the
undersigned of the PEC Common Stock or PEC Promissory Notes. In regard to such
considerations, the undersigned has relied upon the advice of, or has consulted
with, only his own advisors, if any.

.12 If a natural person, the undersigned ____ has or ____ does not
have (i) an individual net worth, or joint net worth with the undersigned's
spouse in excess of $1 million, and/or (ii) an individual income in excess of
$200,000 in each of the two most recent years or joint income with the
undersigned's spouse in excess of $300,000 in each of such years and has a
reasonable expectation of reaching the same income level in the current year.

(b) Indemnification.

The undersigned agrees to indemnify and hold harmless PEC and PDC, or
either of them, the officers, directors and affiliates of either of them and
each other person, if any, who controls either of them, within the meaning of
Section 15 of the Act, against any and all loss, liability, claim, damage and
expense whatsoever (including, but not limited to, any and all expenses
reasonably incurred in investigating, preparing or defending against any
litigation commenced or threatened or any claim whatsoever) arising out of or
based upon any false representation or warranty or failure by the undersigned
to comply with any covenant or agreement made by the undersigned herein.
56
Xxxxxxxxx Energy, Inc.
[Date]
Page 4

If the undersigned is a corporation, partnership, trust or estate, the
undersigned has all right and authority, in his capacity as an officer, general
partner, trustee or executor of such corporation, partnership, trust or estate,
as the case may be, to execute and deliver this letter on behalf of such
corporation, partnership, trust or estate, as the case may be, and this letter
is a valid and binding agreement of such corporation, partnership, trust or
estate, as the case may be, enforceable in accordance with its terms.

(d) Survival.

All representations, warranties and covenants contained in this letter
shall survive the closing of the Asset Purchase. The undersigned acknowledges
and agrees that this letter shall survive the death or disability of the
undersigned.

Very truly yours,

_____________________________
57
EXHIBIT D-2

FORM OF
INVESTMENT REPRESENTATION LETTER
FOR
RIG I AND PHOENIX
AND
STOCKHOLDERS THEREOF

[Date]

Xxxxxxxxx Energy, Inc.
0000 Xxxxxx Xxxxxxx
Xxxxxx, Xxxxx 00000

This letter is being submitted to Xxxxxxxxx Energy, Inc. ("PEC") in
connection with and as a condition to PEC's closing of the Asset Purchase
contemplated by the Asset Purchase Agreement among PEC, Xxxxxxxxx Drilling
Company ("PDC") and Rig I Group, Inc. ("Rig I"), Phoenix Drilling, Inc.
("Phoenix"), Xxxxx & Xxxxxx Drilling, Inc. and Imperial Equipment Co.
Capitalized terms not defined herein shall have the meaning given them in the
Memorandum (as defined below).

(e) Representations and Warranties.

The undersigned hereby represents and warrants to PEC that the
following statements are true:

.1 The undersigned has been furnished a copy of the Memorandum,
dated November __, 1996 (the "Memorandum") containing a copy of PEC's Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1995 and all other
reports filed by PEC with the Securities and Exchange Commission since January
1, 1996 (collectively, the "Reports") and has carefully reviewed the Memorandum
and the Reports, including, but not limited to, (i) the statements in the
Memorandum relating to taxation of the Asset Purchase and lack of free
transferability of the PEC Common Stock and PEC Promissory Notes to be issued
to the stockholders of Rig I and Phoenix by PEC as consideration for the Asset
Purchase, and (ii) the section entitled "Disclosure Concerning Forward-Looking
Statements," setting forth certain Cautionary Statements or risk factors
relating to PEC and its businesses and operations.
58
Xxxxxxxxx Energy, Inc.
[Date]
Page 2

.2 The undersigned has such knowledge and experience in financial
and business matters that he/she is capable of evaluating the merits and risks
of an investment in PEC vis-a-vis the PEC Common Stock to be issued by PEC as
consideration for the Asset Purchase.

.3 The undersigned has had an opportunity to ask questions of PEC
and its management concerning PEC and PDC, the businesses of PEC and PDC and
the PEC Common Stock, and, if asked, all such questions have been answered to
the full satisfaction of the undersigned.

.4 The undersigned understands that PEC has not registered the
offer or sale of the PEC Common Stock under the Securities Act of 1933, as
amended (the "Act"), in reliance upon an exemption therefrom under Section 4(2)
of the Act and the provisions of Regulation D promulgated thereunder. The
undersigned therefore acknowledges that in no event may he/she sell or
otherwise transfer the PEC Common Stock or the PDC Promissory Notes without
registration under the Act (see paragraph (h) below) or an exemption therefrom,
and that he/she must therefore hold the PEC Common Stock for an indefinite
period of time.

.5 The undersigned represents that he/she will acquire the PEC
Common Stock for his/her own account, with no intention to distribute or offer
to distribute the same to others, and understands that the issuance by PEC of,
the PEC Common Stock will be predicated upon the undersigned's lack of such
intention.

.7 The undersigned acknowledges that stop transfer instructions
will be placed with PEC's transfer agent to restrict the resale, pledge,
hypothecation or other transfer of the PEC Common Stock.

further acknowledges that PEC's limited agreement to register the PEC Common
Stock as described in the Registration Rights Agreement will be on a
best-efforts basis only.

.9 If other than a natural person, the undersigned was not
organized for the specific purpose of acquiring the PEC Common Stock or PEC
Promissory Notes.

.10 The undersigned understands and acknowledges that the
foregoing representations and warranties will be relied upon by PEC in
connection with the issuance of the PEC Common Stock.

.11 The undersigned is not relying on PEC or PDC with respect to
the economic considerations of the undersigned relating to the issuance to the
undersigned of the PEC Common Stock. In regard to such considerations, the
undersigned has relied upon the advice of, or has consulted with, only his own
advisors, if any.

(f) Indemnification.

(g) Authority.

corporation, partnership, trust or estate, as the case may be, and this letter
is a valid and binding agreement of such corporation, partnership, trust or
estate, as the case may be, enforceable in accordance with its terms.

(h) Survival.

Very truly yours,

__________________________________

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1 EXHIBIT 10.21 ASSET PURCHASE AGREEMENT

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