Exhibit 10.3
EXECUTION
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (as amended, restated or otherwise modified from
time to time, this “Agreement”) is entered into as of January 31, 2008 by and
among (1) ALLIS-CHALMERS ENERGY INC., a Delaware corporation (the “Subordinated
Creditor”), and (2) STANDARD BANK PLC, as administrative agent for the Senior
Creditors (as defined below) (in such capacity, the “Senior Agent”), and
acknowledged and agreed to by (3) BCH LTD., a corporation organized and existing
under the laws of the Province of Alberta, Canada (“BCH”), (4) BCH ENERGY DO
BRASIL SERVIÇOS DE PETRÓLEO LTDA., a company organized and existing under the
laws of Brazil (“BCH Brazil”, and together with BCH, collectively, the
“Obligors” and each an “Obligor”) and (5) BRAZALTA RESOURCES CORP., a public
corporation organized and existing under the laws of the Province of Alberta,
Canada (“BRX”).
WITNESSETH:
WHEREAS, the Obligors, as borrowers thereunder, the financial institutions and
other entities from time to time party thereto (collectively, the “Senior
Lenders” and each a “Senior Lender”) and the Senior Agent have entered into that
certain Credit Agreement dated as of June 26, 2007 (as the same may be amended,
supplemented, restated or otherwise modified from time to time in accordance
with this Agreement, the “Senior Credit Agreement”), pursuant to which, among
other things, the Senior Lenders have agreed, subject to the terms and
conditions set forth in the Senior Credit Agreement, to make certain loans and
financial accommodations to the Obligors;
WHEREAS, all of the Senior Obligations owing by the Obligors to the Senior
Lenders and the other Senior Creditors under the Senior Debt Documents (i) are
secured by liens on and security interests in substantially all of the now
existing and hereafter acquired real and personal property of the Obligors (the
“Obligor Collateral”) and (ii) are guaranteed by BRX and each Subsidiary of the
Obligors, which guaranties are secured by liens on and security interests in
substantially all of the now existing and hereafter acquired real and personal
property of such Subsidiaries and the Equity Interests in BCH held by BRX (the
“Guarantor Collateral” and, together with the Obligor Collateral, collectively,
the “Collateral”);
WHEREAS, the Obligors have entered into a credit agreement dated as of the date
hereof, among BCH, as borrower, BCH Brazil, as guarantor, and the Subordinated
Creditor, as lender (as the same may be amended, supplemented, restated or
otherwise modified from time to time in accordance with this Agreement, the
“Subordinated Credit Agreement”), pursuant to which (i) the Subordinated
Creditor will provide a US$40,000,000 convertible credit facility in favor of
BCH on the terms and subject to the conditions set forth therein and (ii) BCH
will grant a debenture as of the date hereof convertible into common shares of
BCH in accordance with the terms thereof (as the same may be amended,
supplemented, restated or otherwise modified from time to time in accordance
with this Agreement, the “Subordinated Debenture”) and
WHEREAS, (i) the Obligors have requested the Senior Agent and the Senior Lenders
to waive compliance with certain provisions of the Senior Credit Agreement and
related documents thereunder in connection with the issuance of the Subordinated
Debenture and (ii) the Senior Agent and the Senior Lenders are willing to agree
to the requested waivers but only if the Subordinated Creditor, the Obligors and
BRX enter into this Subordination Agreement in order, among other things, to set
forth the relative rights and priorities of the Senior Creditors and the
Subordinated Creditor under the Senior Debt Documents and the Subordinated Debt
Documents;

 

 

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NOW, THEREFORE, in consideration of the premises contained herein and for good
and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto hereby agree as follows:
Section 1. Definitions and Interpretation.(a) Definitions. The following terms
shall have the following meanings in this Agreement: “Agreement” is defined in
the first paragraph of this Agreement.
“Bankruptcy Code” shall mean Title 11 of the United States Code entitled
“Bankruptcy,” as now and hereafter in effect, or any successor statute.
“Bankruptcy Law” shall mean the Bankruptcy Code and any similar federal, state
or foreign law for the relief of debtors.
“Business Day” means a day other than a Saturday, Sunday or other day on which
commercial banks in Calgary, Alberta, in Sao Paulo, Brazil, in New York, New
York and in London, England are authorized or required by law to close.
“Collateral” is defined in the second recital to this Agreement.
“Discharge of Senior Obligations” or Paid-In-Full” and “Payment-In-Full” means,
with respect to all of the Senior Obligations, that all of such Senior
Obligations have been indefeasibly paid in full in cash and all commitments to
extend credit under the Senior Debt Documents have been terminated.
“Distribution” means, with respect to any indebtedness, ownership interest or
other obligations, (a) any payment or distribution by any Obligor of cash,
securities or other property, by set-off or otherwise, on account of such
indebtedness, ownership interest or obligation, (b) any redemption, purchase or
other acquisition of such indebtedness, ownership interest or obligation by any
Obligor (other than sales or other transfers of Subordinated Debt to third
parties pursuant to Section 2(g)), or (c) the granting of any lien or security
interest to or for the benefit of the holders of such indebtedness, ownership
interest or obligation in or upon any property of any Obligor.
“Enforcement Action” means (a) to take from or for the account of any Obligor or
any guarantor of the Subordinated Debt, by set-off or in any other manner, the
whole or any part of any moneys which may now or hereafter be owing by any
Obligor or any such guarantor with respect to the Subordinated Debt, (b) to sue
for payment of, or to initiate or participate with others in any suit, action or
proceeding (including any Proceeding) against any Obligor or any such guarantor
to (i) enforce payment of or to collect the whole or any part of the
Subordinated Debt or (ii) commence judicial enforcement of any of the rights and
remedies under the Subordinated Debt Documents or applicable law with respect to
the Subordinated Debt, (c) to accelerate the Subordinated Debt, (d) to cause any
Obligor or any such guarantor to honor any redemption or mandatory prepayment
obligation under any Subordinated Debt Document or (e) take any action under the
provisions of any state or federal or other applicable law, including, without
limitation, the Uniform Commercial Code, or under any contract or agreement, to
enforce, foreclose upon, take possession of or sell any property or assets of
any Obligor or any such guarantor. For avoidance of doubt, “Enforcement Action
excludes the Permitted Subordinated Debt Conversion.

 

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“Equity Interests” means, as to any Person, (a) any and all shares, interests,
participations, rights or other equivalents (however designated, whether voting
or non voting) of or interests in corporate or capital stock, including shares
of preferred or preference stock of such Person, (b) all partnership interests
(whether general or limited) of such Person, (c) all membership interests or
limited liability company interests in such Person, (d) all beneficial interests
in a trust or similar entity, (e) all other equity or ownership interests in
such Person of any other type, and (f) all warrants, rights or options to
purchase or otherwise acquire any of the foregoing.
“Guarantor Collateral” is defined in the second recital to this Agreement.
“Insolvency or Liquidation Proceeding” or “Proceeding” means any voluntary or
involuntary insolvency, bankruptcy (including any case or proceeding under the
Bankruptcy Code), receivership, custodianship, liquidation, dissolution,
reorganization, assignment for the benefit of creditors or any other marshalling
of assets or liabilities, appointment of a custodian, receiver, trustee or other
officer with similar powers or any other case proceeding for the liquidation,
dissolution or other winding up of a Person or with respect to a Person or a
material portion of any Person’s assets or any other similar case or proceeding.
“Lien” means any lien, mortgage, pledge, assignment, security interest, charge
or encumbrance of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, and any
lease in the nature thereof) and any option, trust or other preferential
arrangement having the practical effect of any of the foregoing.
“Lien Enforcement Action” is defined in Section 4(a)(i)(A).
“Obligor Collateral” is defined in the second recital to this Agreement.
“Option and Governance Agreement” is defined in the Subordinated Credit
Agreement in effect as of the date hereof.
“Permitted Senior Debt Refinancing Documents” means any financing documentation
which replaces the Senior Credit Agreement and the other Senior Debt Documents
and pursuant to which the Senior Obligations are Refinanced, as such financing
documentation may be amended, supplemented or otherwise modified from time to
time in accordance with this Agreement, but specifically excluding any such
financing documentation to the extent that it contains, either initially or by
amendment or other modification, any terms, conditions, covenants or defaults
other than those (a) then existing in the Senior Debt Documents or (b) which
could be included in the Senior Debt Documents by an amendment or other
modification that would not be prohibited by the terms of this Agreement.
“Permitted Senior Debt Refinancing” means any Refinancing of the Senior
Obligations entered into pursuant to the Permitted Senior Debt Refinancing
Documents.

 

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“Permitted Subordinated Debt Conversion” means a conversion of the Subordinated
Debt and the Subordinated Debenture into common shares in the capital of BCH in
accordance with the terms of the Subordinated Debenture as in effect on the date
hereof.
“Permitted Subordinated Debt Payments” means (a) any Permitted Subordinated Debt
Refinancing, (b) following the Discharge of Senior Obligations, any repayment of
principal under the Subordinated Credit Agreement or the Subordinated Debenture,
(c) the Permitted Subordinated Debt Conversion, or (d) any payment or
Distribution in respect of the Subordinated Debt which consists solely of
(i) payments of interest on the Subordinated Debt which are regularly scheduled
payments of interest on the Subordinated Debt due and payable on a
non-accelerated basis in accordance with the terms of the Subordinated Debt
Documents (including payments of interest on the Subordinated Debt in accordance
with Section 9.1(a) of the Option and Governance Agreement), or (ii) payments of
fees and reasonable out-of-pocket expenses which are payable according to the
terms of the Subordinated Debt Documents, in each case pursuant to the
Subordinated Debt Documents as in effect on the date hereof or as modified in
accordance with this Agreement.
“Permitted Subordinated Debt Refinancing” means any Refinancing of the
Subordinated Debt entered into pursuant to the Permitted Subordinated Debt
Refinancing Documents.
“Permitted Subordinated Debt Refinancing Documents” means any financing
documentation which replaces the Subordinated Credit Agreement, the Subordinated
Debenture and the other Subordinated Debt Documents and pursuant to which all or
any portion of the Subordinated Debt is Refinanced, as such financing
documentation may be amended, supplemented or otherwise modified from time to
time in accordance with this Agreement, but specifically excluding any such
financing documentation to the extent that it contains, either initially or by
amendment or other modification, any terms, conditions, covenants or defaults
other than those (a) then existing in the Subordinated Debt Documents or
(b) which could be included in the Subordinated Debt Documents by an amendment
or other modification that would not be prohibited by the terms of this
Agreement.
“Person” means any natural person, corporation, general or limited partnership,
limited liability company, firm, trust, association, government, governmental
agency or other entity, whether acting in an individual, fiduciary or other
capacity.
“Post-Petition Interest” means interest accruing in respect of Senior
Obligations after the commencement of any Proceeding by or against any Obligor
or any other Senior Obligor, at the rate applicable to such Senior Obligations
pursuant to the Senior Debt Documents, and any other interest that would have
accrued but for commencement of such proceedings.
“Refinance” shall mean, in respect of any Senior Obligations or Subordinated
Debt, to refinance, extend, renew, defease, amend, modify, supplement,
restructure, replace, refund or repay, or to issue other indebtedness, in
exchange or replacement for, such Senior Obligations or Subordinated Debt in
whole or in part, whether with the same or different lenders, agents or
arrangers. “Refinanced” and “Refinancing” shall have correlative meanings.

 

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“Reorganization Subordinated Securities” means any debt or equity securities of
any Obligor or any other Person that are distributed to a Subordinated Creditor
in respect of the Subordinated Debt pursuant to a confirmed plan of
reorganization or adjustment and that (a) are subordinated in right of payment
to the Senior Obligations (or any debt or equity securities issued in
substitution of all or any portion of the Senior Obligations) to at least the
same extent as the Subordinated Debt is subordinated to the Senior Obligations,
(b) do not have the benefit of any obligation of any Person (whether as issuer,
guarantor or otherwise) unless the Senior Obligations has at least the same
benefit of the obligation of such Person and (c) do not have any terms, and are
not subject to or entitled to the benefit of any agreement or instrument that
has terms, that are more burdensome to the issuer of or other obligor on such
debt or equity securities than are the terms of the Senior Obligations. For the
avoidance of doubt, Equity Interests consisting of common shares in the capital
of BCH issued to the Subordinated Creditor pursuant to the Permitted
Subordinated Debt Conversion shall not constitute Reorganization Subordinated
Securities.
“Senior Agent” is defined in the first paragraph to this Agreement and includes
any successor or replacement administrative agent appointed pursuant to the
Senior Debt Documents.
“Senior Credit Agreement” is defined in the first recital to this Agreement.
“Senior Creditor” means (a) the Senior Agent and (b) each Senior Lender, and
includes, in the case of each of the foregoing, each of its respective
successors and assigns.
“Senior Obligor” means BRX, any Obligor or any other Subsidiary of an Obligor
that is or becomes a party to a Senior Debt Document.
“Senior Debt Default” means any Senior Payment Default or Senior Non-Payment
Default.
“Senior Debt Default Notice” means a written notice from the Senior Agent to the
Subordinated Creditor, pursuant to which the Subordinated Creditor is notified
of the occurrence of a Senior Debt Default, which notice shall specify in
reasonable detail such Senior Debt Default.
“Senior Debt Documents” means (a) prior to the consummation of any Permitted
Senior Debt Refinancing, the Senior Credit Agreement and all security
agreements, mortgages, guaranties and other agreements, documents and
instruments executed from time to time in connection therewith, as the same may
be amended, supplemented or otherwise modified from time to time in accordance
with this Agreement, and (b) on and after the consummation of any Permitted
Senior Debt Refinancing, the Permitted Senior Debt Refinancing Documents.

 

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“Senior Lender” is defined in the first paragraph to this Agreement and includes
their respective successors and assigns.
“Senior Non-Payment Default” means any “Default” or “Event of Default” under the
Senior Credit Agreement (other than a Senior Payment Default), or any condition
or event that, after notice or lapse of time or both, would constitute such an
Event of Default (other than a Senior Payment Default) if that condition or
event were not cured or removed within any applicable grace or cure period set
forth therein.
“Senior Obligations” means, collectively, all obligations, liabilities and
indebtedness of every nature of the Obligors or any other Senior Obligor from
time to time owed to any Senior Creditor pursuant to the Senior Debt Documents,
including, without limitation, the principal amount of all debts, claims and
indebtedness, accrued and unpaid interest and all fees, costs and expenses,
whether primary, secondary, direct, contingent, fixed or otherwise, heretofore,
now and from time to time hereafter owing, due or payable, whether before or
after the commencement of a Proceeding, together with (i) any amendments,
modifications, renewals or extensions thereof to the extent not prohibited by
the terms of this Agreement and (ii) any Post-Petition Interest. For purposes of
this definition, Senior Obligations under the Senior Debt Documents shall be
considered to be outstanding whenever any loan commitment under the Senior Debt
Documents is outstanding or otherwise in effect and has not been terminated,
whether or not any sums are outstanding in respect of such commitment.
“Senior Payment Default” means any “Default” or “Event of Default” under the
Senior Credit Agreement resulting from the failure of any Senior Obligor to pay,
on a timely basis, any principal or interest, or any fees or other amounts under
the Senior Debt Documents, including, without limitation, any default in payment
of Senior Obligations after acceleration thereof, or any condition or event
that, after notice or lapse of time or both, would constitute such a payment
Event of Default if that condition or event were not cured or removed within any
applicable grace or cure period set forth therein.
“Subordinated Debenture” is defined in the third recital to this Agreement.
“Subordinated Debt” means all of the indebtedness and other obligations of the
Obligors, their respective subsidiaries and any other guarantor to the
Subordinated Creditor evidenced by or incurred pursuant to the Subordinated
Credit Agreement or the Subordinated Debenture, including, without limitation,
the principal amount of all debts, claims and indebtedness, accrued and unpaid
interest and all fees, costs and expenses, whether primary, secondary, direct,
contingent, fixed or otherwise, heretofore, now and from time to time hereafter
owing, due or payable, whether before or after the commencement of a Proceeding.
“Subordinated Debt Default” means a default in the payment of the Subordinated
Debt or in the performance of any term, covenant or condition contained in the
Subordinated Debt Documents or any other occurrence permitting any Subordinated
Creditor to accelerate the payment of all or any portion of the Subordinated
Debt.

 

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“Subordinated Debt Default Notice” means a written notice from any Obligor or
any Subordinated Creditor to the Senior Agent, pursuant to which the Senior
Agent is notified of the occurrence of a Subordinated Debt Default, which notice
shall specify in reasonable detail such Subordinated Debt Default.
“Subordinated Debt Documents” means (a) prior to the consummation of any
Permitted Subordinated Debt Refinancing, the Subordinated Credit Agreement, the
Subordinated Debenture, the Option and Governance Agreement, any guaranty with
respect to the Subordinated Debt, and all security agreements, mortgages,
guaranties and other agreements, documents and instruments executed from time to
time in connection therewith, as the same may be amended, supplemented or
otherwise modified from time to time in accordance with this Agreement, and
(b) on and after the consummation of any Permitted Subordinated Debt
Refinancing, the Permitted Subordinated Debt Refinancing Documents.
“Subsidiary” mean any corporate entity of which more than 50% of the outstanding
Equity Interests having ordinary voting power to elect or appoint a majority of
the board of directors or similar governing body of such corporate entity is at
the time directly or indirectly owned or controlled by such Person, by such
Person and one or more other Subsidiaries of such Person, or by one or more
other Subsidiaries of such Person. For the purpose of this definition, “control”
of a Person means the power, directly or indirectly, either to (a) vote 10% or
more of the Equity Interests having ordinary voting power for the election of
directors, managing directors, managing general partners or any equivalent body,
or (b) veto, direct or cause the direction of the management and policies of
such Person.
“UCC” shall mean the Uniform Commercial Code (or any similar or equivalent
legislation) as in effect in any applicable jurisdiction.
(b) Terms Generally. The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words “include”, “includes” and “including” shall be deemed to
be followed by the phrase “without limitation.” The word “will” shall be
construed to have the same meaning and effect as the word “shall”. Unless the
context requires otherwise (i) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended, restated,
supplemented or otherwise modified, subject to any restriction on modifying such
agreement, document or instrument as set forth in this Agreement, (ii) any
reference herein (A) to any person shall be construed to include such person’s
successors and assigns and (B) to any Obligor or any other Senior Obligor shall
be construed to include such Obligor or such Senior Obligor as debtor and
debtor-in-possession and any receiver or trustee for any Obligor or any other
Senior Obligor, as the case may be, in any Proceeding, (iii) the words “herein”,
“hereof” and “hereunder”, and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof, (iv) all references herein to Sections shall be construed to refer to
Sections of this Agreement and (v) the words “asset” and “property” shall be
construed to have the same meaning and effect and to refer to any and all
tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.
Section 2. Subordination.
(a) Subordination of Subordinated Debt to Senior Obligations. Except as
otherwise provided in this Agreement, each Senior Obligor covenants and agrees,
and the Subordinated Creditor likewise covenants and agrees, notwithstanding
anything to the contrary contained in any of the Subordinated Debt Documents,
that the payment of any and all of the Subordinated Debt shall be subordinate
and subject in right and time of payment, to the extent and in the manner
hereinafter set forth, to the prior Payment-In-Full of all Senior Obligations.
Each Senior Creditor and any other holder of any Senior Obligations, whether now
outstanding or hereafter created, incurred, assumed or guaranteed, shall be
deemed to have acquired and held such Senior Obligations in reliance upon the
provisions contained in this Agreement.

 

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(b) Liquidation, Dissolution, Bankruptcy. In the event of any Proceeding
involving any Obligor:
(i) All Senior Obligations shall first be Paid-In-Full before any Distribution,
whether in cash, securities or other property, shall be made to the Subordinated
Creditor on account of any Subordinated Debt (other than a distribution of
Reorganization Subordinated Securities if the Subordinated Creditor and the
Senior Agent shall have entered into such supplements to or modifications to
this Agreement as the Senior Agent may request to reflect the continued
subordination of the Reorganization Subordinated Securities to the Senior
Obligations (or notes or other securities issued in substitution of all or a
portion thereof) to the same extent as provided herein).
(ii) Any Distribution, whether in cash, securities or other property which would
otherwise, but for the terms hereof, be payable or deliverable in respect of the
Subordinated Debt (other than a distribution of Reorganization Subordinated
Securities if the Subordinated Creditor and the Senior Agent shall have entered
into such supplements to or modifications to this Agreement as the Senior Agent
may request to reflect the continued subordination of the Reorganization
Subordinated Securities to the Senior Obligations (or notes or other securities
issued in substitution of all or a portion thereof) to the same extent as
provided herein) shall be paid or delivered directly to the Senior Agent (to be
held and/or applied by the Senior Agent in accordance with the terms of the
Senior Debt Documents) until all of the Senior Obligations have been
Paid-In-Full. The Subordinated Creditor irrevocably authorizes, empowers and
directs any debtor, debtor-in-possession, receiver, trustee, liquidator,
custodian, conservator or other Person having authority, to pay or otherwise
deliver all such Distributions to the Senior Agent. The Subordinated Creditor
also irrevocably authorizes and empowers the Senior Agent, in the name of such
Subordinated Creditor, to demand, sue for, collect and receive any and all such
Distributions.
(iii) The Subordinated Creditor agrees not to initiate, prosecute or participate
in any claim, action or other proceeding challenging the enforceability,
validity, perfection or priority of the Senior Obligations, the Senior Debt
Documents, or any liens and security interests or guaranties securing any of the
Senior Obligations.
(iv) The Subordinated Creditor shall be entitled to vote its claims in any
Insolvency or Liquidation Proceeding so long as the Subordinated Creditor does
not (A) challenge any Liens of the Senior Creditors or (ii) challenge or dispute
the validity of this Agreement. The Subordinated Creditor agrees to execute,
verify, deliver and file any proofs of claim in respect of the Subordinated Debt
requested by the Senior Agent in connection with any such Proceeding and hereby
irrevocably authorizes, empowers and appoints the Senior Agent its agent and
attorney-in-fact to (i) execute, verify, deliver and file such proofs of claim
upon the failure of such Subordinated Creditor promptly to do so prior to ten
(10) days before the expiration of the time to file any such proof of claim (if
such Subordinated Creditor has failed to file such proof of claim prior to such
date) and (ii) vote such claim in any such Proceeding upon the failure of such
Subordinated Creditor to do so prior to 15 days before the expiration of the
time to vote any such claim (it being agreed that any such Subordinated Creditor
may thereafter vote such claim (or change or amend the Senior Agent’s vote));
provided, that the Senior Agent shall have no obligation to execute, verify,
deliver, file and/or vote in respect of any such proof of claim; provided,
further, that the Senior Agent shall provide to the Subordinated Creditors a
copy of any such proof of claim filed by it promptly after making such filing.

 

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(v) This Agreement shall continue in full force and effect after the
commencement of any Insolvency or Liquidation Proceeding (in the event of any
Insolvency or Liquidation Proceeding involving a particular Obligor, all
references herein to such Obligor shall be deemed to apply to such Obligor as
debtor-in-possession and to a trustee for such Obligor’s estate in an Insolvency
or Liquidation Proceeding) and shall apply with full force and effect with
respect to all collateral acquired by such Obligor and to all Senior Obligations
or Subordinated Debt incurred by such Obligor, subsequent to such commencement,
if any.
(vi) The Senior Obligations shall continue to be treated as Senior Obligations
and the provisions of this Agreement shall continue to govern the relative
rights and priorities of Senior Lenders and the Subordinated Creditor even if
all or part of the Senior Obligations or the security interests or liens
securing the Senior Obligations are subordinated, set aside, avoided,
invalidated or disallowed in connection with any such Proceeding, and this
Agreement shall be reinstated if at any time any payment of any of the Senior
Obligations is rescinded or must otherwise be returned by any holder of Senior
Obligations or any representative of such holder.
(vii) Nothing contained herein shall prohibit or in any way limit the Senior
Agent or the Senior Creditors from objecting in any Insolvency or Liquidation
Proceeding or otherwise to any action taken by the Subordinated Creditor or any
Person acting on behalf thereof.
(c) Subordinated Debt Payment Restrictions.
(i) Notwithstanding the terms of the Subordinated Debt Documents, each Obligor
hereby agrees that it may not make, and the Subordinated Creditor hereby agrees
that it will not accept, any Distribution with respect to the Subordinated Debt
until the Senior Obligations are Paid-In-Full, other than Permitted Subordinated
Debt Payments subject, with respect to any payment made while a Proceeding is
pending in respect of any Obligor, to the terms of Section 2(b) of this
Agreement; provided that each Obligor and each Subordinated Creditor further
agrees that no Permitted Subordinated Debt Payment (other than a Permitted
Subordinated Debt Conversion) may be made by any Obligor or accepted by such
Subordinated Creditor if, at the time of such payment:
(A) such Subordinated Creditor shall have received a Senior Debt Default Notice
stating that a Senior Payment Default exists and such Senior Payment Default
shall not have been cured or waived; or
(B) (1) such Subordinated Creditor shall have received a Senior Debt Default
Notice stating that a Senior Non-Payment Default exists or would be created by
the making of such payment, (2) such Senior Non-Payment Default shall not have
been cured or waived and (3) 180 days shall not have elapsed since the date such
Senior Debt Default Notice was received.
(ii) The Obligors may resume making Permitted Subordinated Debt Payments (and
may make any Permitted Subordinated Debt Payments missed due to the application
of Section 2(c)(i)) in respect of the Subordinated Debt or any judgment with
respect thereto:

 

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(A) in the case of a Senior Payment Default referred to in Section 2(c)(i)(A),
upon the earlier to occur of (1) a cure or waiver thereof or (2) the expiration
of such period of 180 days from the date such Senior Debt Default Notice was
received provided that no Senior Creditor shall have initiated an Enforcement
Action or Lien Enforcement Action on or before the expiration of such 180-day
period; or
(B) in the case of a Senior Non-Payment Default referred to in Section
2(c)(i)(B), upon the earlier to occur of (1) the cure or waiver of such Senior
Non-Payment Default or (2) the expiration of such period of 180 days from the
date such Senior Debt Default Notice was received provided that no Senior
Creditor shall have initiated an Enforcement Action or Lien Enforcement Action
on or before the expiration of such 180-day period.
(iii) For the purposes of this Section 2(c), no Senior Debt Default shall be
deemed to have been waived unless and until the Obligors shall have received
written confirmation thereof from the Senior Agent.
(iv) In the event the Subordinated Creditor shall not have exercised the
Permitted Subordinated Debt Conversion on or before the maturity date of the
Subordinated Debt and the Subordinated Debt shall remain outstanding on such
maturity date, so long as no Senior Debt Default shall have occurred or be
continuing (other than a Senior Debt Default resulting from the failure to pay
the Subordinated Debt on such maturity date) (A) the Obligors may pay interest
(including default interest, if any) to the Subordinated Creditor and (B) the
Senior Creditors shall use their commercially reasonable efforts, acting in good
faith, to reach an agreement with the Subordinated Creditor and the Senior
Obligors to an amortization schedule in respect of the principal portion of the
Subordinated Debt.
(d) Subordinated Debt Standstill Provisions.
(i) Until the Senior Obligations are Paid-In-Full, the Subordinated Creditor
shall not take any Enforcement Action with respect to the Subordinated Debt.
Notwithstanding the foregoing, the Subordinated Creditor may file proofs of
claim against any Obligor and vote such claims in any Proceeding involving such
Obligor. Any Distributions or other proceeds of any Enforcement Action obtained
by the Subordinated Creditor shall in any event be held in trust by it for the
benefit of the Senior Agent and the other Senior Creditors and promptly paid or
delivered to the Senior Agent for the benefit of the Senior Creditors in the
form received until all Senior Obligations are Paid-In-Full.
(ii) Notwithstanding anything contained herein to the contrary, if following the
acceleration of the Senior Obligations by the Senior Creditors such acceleration
is rescinded (whether or not any existing Senior Debt Default has been cured or
waived), then all Enforcement Actions taken by the Subordinated Creditor shall
likewise be rescinded if such Enforcement Actions are based solely on the
acceleration of the Senior Obligations.
(iii) Notwithstanding anything herein to the contrary, no provision herein shall
prevent the Subordinated Creditor from (i) taking any action described in clause
(b) of the definition of “Enforcement Action” strictly to the extent necessary
to prevent any claim becoming time-barred as a result of any applicable statute
of limitation or similar restriction on claims or (ii) seeking specific
performance to compel the Obligors to comply with an obligation under the
Subordinated Debt Documents, so long as it is not accompanied by a claim for
monetary damages.

 

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(e) Incorrect Payments. If any Distribution on account of the Subordinated Debt
not permitted to be made by any Obligor or accepted by the Subordinated Creditor
under this Agreement is made and received by the Subordinated Creditor, such
Distribution shall be held in trust by such Subordinated Creditor for the
benefit of the Senior Agent and the other Senior Creditors and shall be promptly
paid over to the Senior Agent for application (in accordance with the Senior
Debt Documents) to the payment of the Senior Obligations then remaining unpaid,
until all of the Senior Obligations are Paid-In-Full.
(f) Subordination of Liens and Security Interests; Agreement Not to Contest.
Until the Senior Obligations have been Paid-In Full, any liens and security
interests of the Subordinated Creditor in the Obligor Collateral or that may
exist in breach of such Subordinated Creditor’s agreement pursuant to Section 3
or Section 4 of this Agreement or otherwise shall be and hereby are subordinated
for all purposes and in all respects to the liens and security interests of the
Senior Agent and the other Senior Creditors in the Obligor Collateral,
regardless of the time, manner or order of perfection of any such liens and
security interests. The Subordinated Creditor agrees that it will not at any
time contest the validity, perfection, priority or enforceability of the Senior
Obligations, the Senior Debt Documents, or the liens and security interests of
the Senior Agent or any other Senior Creditor in the Collateral.
(g) Sale, Transfer or other Disposition of Subordinated Debt.
(i) The Subordinated Creditor shall not sell, assign, pledge, dispose of or
otherwise transfer all or any portion of the Subordinated Debt or any
Subordinated Debt Document, or any interest therein (provided that the
Subordinated Creditor may pledge and create a security interest its rights,
title and interest in, to and under the Subordinated Debt and one or more of
Subordinated Debt Documents in favor Royal Bank of Canada, as administrative
agent (or any successor administrative agent) (“RBC”) in accordance with the $90
million senior credit agreement, dated as of April 26, 2007, as amended (the
“RBC Credit Facility”), by and among the Subordinated Creditor, the lenders
party thereto and RBC) (A) without giving prior written notice of such action to
the Senior Agent, and (B) unless, prior to the consummation of any such action,
the transferee thereof (including, without limitation, RBC in the event
ownership of the Subordinated Creditor’s rights, title and interest in, to and
under such collateral is transferred to RBC in connection with the exercise of
RBC’s rights and remedies in respect of the RBC Credit Facility) shall execute
and deliver to the Senior Agent an agreement substantially identical to this
Agreement, providing for the continued subordination of the Subordinated Debt to
the Senior Obligations as provided herein and for the continued effectiveness of
all of the rights of the Senior Agent and the other Senior Creditors arising
under this Agreement.
(ii) Notwithstanding the failure of any transferee to execute or deliver an
agreement substantially identical to this Agreement, the Subordinated Creditor
shall ensure that the subordination effected hereby survives any such prohibited
sale, assignment, pledge, disposition or other transfer of all or any portion of
the Subordinated Debt, and the terms of this Agreement shall be binding upon the
successors and assigns of such Subordinated Creditor, as provided in Section 16
hereof.

 

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(h) Legends. Until the termination of this Agreement in accordance with
Section 23 hereof, the Subordinated Creditor will cause to be clearly,
conspicuously and prominently inserted on the face of the Subordinated Credit
Agreement, the Subordinated Debenture and each other Subordinated Debt Document,
the following legend:
“This document and the rights and obligations evidenced hereby are subordinate
in the manner and to the extent set forth in that certain Subordination
Agreement (the “Subordination Agreement”) dated as of January 31, 2008 among
ALLIS-CHALMERS ENERGY INC. (the “Subordinated Creditor”), STANDARD BANK PLC, as
the Senior Agent for the Senior Creditors identified therein (the “Senior
Agent”) and acknowledged by BCH LTD, a corporation organized and existing under
the laws of the Province of Alberta, Canada (“BCH”) and BCH ENERGY DO BRASIL
SERVIÇOS DE PETRÓLEO LTDA., a company organized and existing under the laws of
Brazil (“BCH Brazil”, and together with BCH, collectively, the “Obligors”), and
BRAZALTA RESOURCES CORP., to all amounts (including principal, interest and
fees) owed by the Obligors pursuant to that certain Credit Agreement dated as of
June 26, 2007, among the Obligors, the Senior Agent and the Senior Creditors, as
such Credit Agreement (subject to the terms of the Subordination Agreement) has
been and hereafter may be amended, supplemented, restated or otherwise modified
from time to time; and each holder of this document, by its acceptance hereof,
irrevocably agrees to be bound by the provisions of the Subordination Agreement.
Notwithstanding anything herein to the contrary, the lien and security interest,
if any, granted pursuant to this document and the exercise of any right or
remedy by the grantee hereunder are subject to the provisions of the
Subordination Agreement. In the event of any conflict between the terms of the
Subordination Agreement and this document, the terms of the Subordination
Agreement shall govern and control”
(i) Reliance. Other than any reliance on the terms of this Agreement, the Senior
Agent, on behalf of itself and the Senior Creditors under the Senior Debt
Documents, acknowledges that it and such Senior Creditors have, independently
and without reliance on the Subordinated Creditor, and based on documents and
information deemed by them appropriate, made their own credit analysis and
decision to enter into such Senior Debt Documents and be bound by the terms of
this Agreement and they will continue to make their own credit decision in
taking or not taking any action under the Senior Debt Documents or this
Agreement. The Subordinated Creditor acknowledges that it has, independently and
without reliance on the Senior Creditors, and based on documents and information
deemed by it appropriate, made its own credit analysis and decision to enter
into each of the Subordinated Debt Documents and be bound by the terms of this
Agreement and it will continue to make its own credit decision in taking or not
taking any action under the Subordinated Debt Documents or this Agreement
(j) Obligations Hereunder Not Affected. All rights and interest of the Senior
Creditors and the Senior Agent hereunder, and all agreements and obligations of
the Subordinated Creditor, and each Obligor and each other Senior Obligor, shall
(subject in any case to Sections 3(a) and 3(b)) remain in full force and effect
irrespective of:
(i) any lack of validity or enforceability of any Senior Debt Documents or any
Subordinated Debt Documents, or any lack of perfection of any Lien held by the
Senior Agent or the Subordinated Creditor;
(ii) Except as otherwise expressly set forth in this Agreement, any change in
the time, manner or place of payment of, or any other term of, all or any of the
Senior Obligations or Subordinated Debt, or any other amendment or waiver or
modification of the terms of any Senior Debt Document or Subordinated Debt
Document;

 

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(iii) except as otherwise expressly set forth in this Agreement, any exchange of
any security interest in any Collateral or any other collateral, or any
amendment, waiver or other modification, whether in writing or by course of
conduct or otherwise, of all or any of the Senior Obligations or Subordinated
Debt or any guarantee thereof;
(iv) any failure of any Senior Creditor or the Senior Agent to assert any claim
or to enforce any right or remedy against any other party hereto under the
provisions of this Agreement, the Senior Credit Agreement or any other Senior
Debt Document;
(v) any reduction, limitation, impairment or termination of the Senior
Obligations for any reason (other than the defense of payment in full of the
Senior Obligations), including any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to (and each Obligor and
Senior Obligor and each Subordinated Creditor hereby waive any right to or claim
of) any defense (other than the defense of payment in full of the Senior
Obligations) or setoff, counterclaim, recoupment or termination whatsoever by
reason of invalidity, illegality, nongenuineness, irregularity, compromise,
unenforceability of, or any other event or occurrence affecting, any Senior
Obligations;
(vi) the commencement of any Insolvency or Liquidation Proceeding in respect of
any Obligor or Senior Obligor; and
(vii) any other circumstance which might otherwise constitute a defense (other
than the defense of payment in full of the Senior Obligations) available to, or
a discharge of, any Obligor or Senior Obligor or the Subordinated Creditor in
respect of this Agreement.
This Agreement shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Senior Obligations is rescinded or
must otherwise be returned by any Senior Creditor or the Senior Agent upon the
insolvency, bankruptcy or reorganization of any Obligor or Senior Obligor or
otherwise, all as though such payment had not been made. The Subordinated
Creditor acknowledges and agrees that the Senior Creditors and the Senior Agent
may in accordance with the terms of the Senior Credit Agreement, without notice
or demand and without affecting or impairing the Subordinated Creditors’
obligations hereunder, but subject to Sections 3(a) and 3(b), from time to time
(i) renew, compromise, extend, increase, accelerate or otherwise change the time
for payment of, or otherwise change the terms of the Senior Obligations or any
part thereof, including, without limitation, to increase or decrease the rate of
interest thereon or the principal amount thereof; (ii) take or hold security for
the payment of the Senior Obligations and exchange, enforce, foreclose upon,
waive and release any such security; (iii) subject to compliance with applicable
laws, apply such security and direct the order or manner of sale thereof as the
Senior Agent and the Senior Creditors in their sole discretion, may determine;
(iv) release and substitute one or more endorsers, warrantors, borrowers or
other obligors; and (v) exercise or refrain from exercising any rights against
any Obligor or Senior Obligor or any other Person.
(k) Permitted Subordinated Debt Conversion. Nothing in this Agreement shall
prohibit or restrict the Permitted Subordinated Debt Conversion by the
Subordinated Creditor at any time.

 

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Section 3. Lien Priorities.
(a) Relative Priorities. Notwithstanding the date, time, method, manner or order
of grant, attachment or perfection of any Liens securing the Subordinated Debt
granted on the Obligor Collateral or of any Liens securing the Senior
Obligations granted on the Obligor Collateral and notwithstanding any provision
of the UCC, or any other applicable law or the Subordinated Debt Documents or
any defect or deficiencies in, or failure to perfect, the Liens securing the
Senior Obligations or any other circumstance whatsoever, the Subordinated
Creditor hereby agrees that:
(i) any Lien on the Obligor Collateral securing any Senior Obligations now or
hereafter held by or on behalf of any Senior Creditor or any agent or trustee
therefor, regardless of how acquired, whether by grant, possession, statute,
operation of law, subrogation or otherwise, shall be senior in all respects and
prior to any Lien on the Obligor Collateral securing any Subordinated Debt;
(ii) any Lien on the Obligor Collateral securing any Subordinated Debt now or
hereafter held by or on behalf of the Subordinated Creditor or any agent or
trustee therefor regardless of how acquired, whether by grant, possession,
statute, operation of law, subrogation or otherwise, shall be junior and
subordinate in all respects to all Liens on the Obligor Collateral securing any
Senior Obligations; and
(iii) all Liens on the Obligor Collateral securing any Senior Obligations shall
be and remain senior in all respects and prior to all Liens on the Obligor
Collateral securing any Subordinated Debt for all purposes, whether or not such
Liens securing any Senior Obligations are subordinated to any Lien securing any
other obligation of the Obligors, any other Senior Obligor or any other person.
(b) Prohibition on Contesting Liens. Each of the Subordinated Creditor, and the
Senior Agent, for itself and on behalf of each Senior Creditor, agrees that it
will not (and hereby waives any right to) contest or support any other person in
contesting, in any proceeding (including any Insolvency or Liquidation
Proceeding), the priority, perfection, validity or enforceability of a Lien held
by or on behalf of any of the Senior Creditors in the Collateral or by or on
behalf of the Subordinated Creditor in the Obligor Collateral, as the case may
be, or the provisions of this Agreement; provided that nothing in this Agreement
shall be construed to prevent or impair the rights of the Senior Creditors to
enforce this Agreement, including the provisions of this Agreement relating to
the priority of the Liens securing the Senior Obligations as provided in
Sections 3(a) and 4(a).
(c) No New Liens. So long as the Discharge of Senior Obligations has not
occurred, whether or not any Insolvency or Liquidation Proceeding has been
commenced by or against any Obligor or any Senior Obligor, the parties hereto
and the Obligors and Senior Obligors agree that the Obligors and Senior Obligors
shall not grant or permit any additional Liens on any asset or property to
secure any Subordinated Debt unless it has granted or concurrently grants a Lien
on such asset or property to secure the Senior Obligations which shall be senior
to the Lien securing the Subordinated Debt as provided in Section 3(a).
To the extent that the foregoing provisions are not complied with for any
reason, without limiting any other rights and remedies available to the Senior
Agent and/or the Senior Lenders, the Subordinated Creditor agrees that any
amounts received by or distributed to any of them pursuant to or as a result of
Liens granted in contravention of this Section 3(c) shall be subject to Section
5(b).

 

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(d) Similar Liens and Agreements. The parties hereto agree that it is their
intention that the Obligor Collateral securing the Senior Obligations and the
Subordinated Debt be identical to the extent that the Obligor Collateral
constitutes a Lien on (i) all right, title and interest of BCH in, to and under
present and after-acquired real and personal property of BCH and (ii) all right,
title and interest of BCH Brazil in all insurance policies assigned to the
Subordinated Creditor in accordance with the Subordinated Debt Documents (it
being understood and agreed that, other than specifically identified in these
clauses (i) and (ii), there shall exist no other Liens on the Collateral in
favor of the Subordinated Creditor for so long as this Agreement is in effect).
In furtherance of the foregoing and of Section 13(a), the parties hereto agree,
subject to the other provisions of this Agreement:
(i) upon request by the Senior Agent or the Subordinated Creditor, to cooperate
in good faith (and to direct their counsel to cooperate in good faith) from time
to time in order to determine the specific items included in the Obligor
Collateral and the steps taken to perfect their respective Liens thereon and the
identity of the respective parties obligated under the Senior Debt Documents and
the Subordinated Debt Documents; and
(ii) that the documents and agreements creating or evidencing the Obligor
Collateral, subject to the final sentence of Section 7(a), shall be in all
material respects the same forms of documents other than with respect to the
first lien and the second lien nature of the Obligations thereunder.
Section 4. Enforcement
(a) Exercise of Remedies.
(i) Until the Discharge of Senior Obligations has occurred, whether or not any
Insolvency or Liquidation Proceeding has been commenced by or against any
Obligor or Senior Obligor, the Subordinated Creditor:
(A) will not exercise or seek to exercise any rights or remedies with respect to
any Obligor Collateral or take possession of, sell or otherwise realize
(judicially or non judicially) upon any of the Obligor Collateral (including,
without limitation, through the notification of account debtors or the exercise
of any right of setoff or any right under any lockbox agreement, account control
agreement, landlord waiver or bailee’s letter or similar agreement or
arrangement to which the Subordinated Creditor is a party) or institute any
action or proceeding with respect to such rights or remedies (including any
action of foreclosure) (any such action, a “Lien Enforcement Action);
(B) will not contest, protest or object to any foreclosure proceeding or action
brought by the Senior Agent or any Senior Creditor or any other exercise by the
Senior Agent or any Senior Creditor of any rights and remedies relating to the
Obligor Collateral under the Senior Debt Documents or otherwise; and
will not object to the forbearance by the Senior Agent or the Senior Creditors
from bringing or pursuing any foreclosure proceeding or action or any other
exercise of any rights or remedies relating to the Obligor Collateral.
(ii) Until the Discharge of Senior Obligations has occurred, whether or not any
Insolvency or Liquidation Proceeding has been commenced by or against any
Obligor or Senior Obligor, the Senior Agent and the Senior Creditors shall have
the exclusive right to enforce rights, exercise remedies (including set-off and
the right to credit bid their debt) and make determinations regarding the
release, disposition, or restrictions with respect to the Obligor Collateral
without any consultation with or the consent of the Subordinated Creditor. The
Senior Agent shall provide at least five (5) days notice to the Subordinated
Creditor of its intent to

 

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exercise and enforce its rights or remedies with respect to the Obligor
Collateral. In exercising rights and remedies with respect to the Obligor
Collateral, the Senior Agent and Senior Creditors may enforce the provisions of
the Senior Debt Documents and exercise remedies thereunder, all in such order
and in such manner as they may determine in the exercise of their sole
discretion. Such exercise and enforcement shall include the rights of an agent
appointed by the Senior Agent or the Senior Creditors to sell or otherwise
dispose of Obligor Collateral upon foreclosure, to incur expenses in connection
with such sale or disposition, and to exercise all the rights and remedies of a
secured creditor under the UCC and of a secured creditor under Bankruptcy Laws
of any applicable jurisdiction.
(iii) Notwithstanding the foregoing, the Subordinated Creditor may:
(A) file a claim or statement of interest with respect to the Subordinated Debt;
provided that an Insolvency or Liquidation Proceeding has been commenced by or
against any Obligor;
(B) take any action (not adverse to the priority status of the Liens on the
Obligor Collateral securing the Senior Obligations, or the rights of any Senior
Creditor to exercise remedies in respect thereof) in order to create, perfect,
preserve or protect its Lien on the Obligor Collateral;
(C) file any necessary responsive or defensive pleadings in opposition to any
motion, claim, adversary proceeding or other pleading made by any person
objecting to or otherwise seeking the disallowance of the claims of the
Subordinated Creditor, including any claims secured by the Obligor Collateral,
if any, in each case in accordance with the terms of this Agreement;
(D) vote on any plan of reorganization, file any proof of claim, make other
filings and make any arguments and motions that are, in each case, otherwise in
accordance with the terms of this Agreement, with respect to the Subordinated
Debt; and
(E) exercise any Lien Enforcement Action with respect to the Collateral after
the Discharge of the Senior Obligations.
The Subordinated Creditor agrees that it will not take or receive any Obligor
Collateral or any proceeds of Obligor Collateral in connection with the exercise
of any Lien Enforcement Action in its capacity as a creditor, unless and until
the Discharge of Senior Obligations has occurred. Without limiting the
generality of the foregoing, unless and until the Discharge of Senior
Obligations has occurred, except as expressly provided in Section 4(a) and this
Section 4(a)(iii), the sole right of the Subordinated Creditor with respect to
the Obligor Collateral is to hold a Lien on the Obligor Collateral pursuant to
the Subordinated Debenture for the period and to the extent granted therein and
to receive a share of the proceeds thereof, if any, after the Discharge of
Senior Obligations has occurred.
(iv) Subject to Sections 4(a)(i) and (iii):
(A) the Subordinated Creditor agrees that it will not take any action that would
hinder any exercise of remedies under the Senior Debt Documents or is otherwise
prohibited hereunder, including any sale, lease, exchange, transfer or other
disposition of the Obligor Collateral, whether by foreclosure or otherwise;

 

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(B) the Subordinated Creditor hereby waives any and all rights it may have as a
junior lien creditor or otherwise to object to the manner in which the Senior
Agent or Senior Creditors seek to enforce or collect the Senior Obligations or
the Liens securing the Senior Obligations granted in any of the Senior
Collateral undertaken in accordance with this Agreement, regardless of whether
any action or failure to act by or on behalf of the Senior Agent or Senior
Creditors is adverse to the interest of the Subordinated Creditor; and
(C) the Subordinated Creditor hereby acknowledges and agrees that no covenant,
agreement or restriction contained in the Subordinated Debt Documents other than
this Agreement) shall be effective to restrict or deemed to restrict in any way
the rights and remedies of the senior Agent or the Senior Creditors with respect
to the Obligor Collateral as set forth in this Agreement and the Senior Debt
Documents.
(v) Except as specifically set forth in Sections 4(a)(i) and (iv), the
Subordinated Creditor may exercise rights and remedies as unsecured creditors
against the Obligors in accordance with the terms of the Subordinated Debt
Documents and applicable law; provided that in the event that the subordinated
Creditor becomes a judgment Lien creditor in respect of Obligor Collateral as a
result of its enforcement of its rights as an unsecured creditor with respect to
the Subordinated Debt, such judgment Lien shall be subject to the terms of this
Agreement for all purposes (including in relation to the Senior Obligations) as
the other Liens securing the Subordinated Debt are subject to this Agreement.
(vi) Except as specifically set forth in Sections 2, 4(a)(i) and (iv), nothing
in this Agreement shall prohibit the receipt by the Subordinated Creditor of the
required payments of interest, principal and other amounts owed in respect of
the Subordinated Debt so long as such receipt is not the direct or indirect
result of the exercise by the Subordinated Creditor of rights or remedies as a
secured creditor (including set-off) or enforcement in contravention of this
Agreement of any Lien held by any of them. Nothing in this Agreement impairs or
otherwise adversely affects any rights or remedies the Senior Agent or the
Senior Creditors may have with respect to the Obligor Collateral.
Section 5. Payments.
(a) Application of Proceeds. So long as the Discharge of Senior Obligations has
not occurred, whether or not any Insolvency or Liquidation Proceeding has been
commenced by or against any Obligor or Senior Obligor, all Obligor Collateral or
proceeds thereof received in connection with the sale or other disposition of,
or collection or realization on, such Obligor Collateral upon the exercise of
any rights or remedies by the Senior Agent or Senior Creditors, shall be applied
by the Senior Agent first to the Senior Obligations in such order as specified
in the relevant Senior Debt Documents. Upon the Discharge of Senior Obligations,
any remaining Obligor Collateral or proceeds thereof shall be delivered to the
Subordinated Creditor in the same form as received, with any necessary
endorsements or as a court of competent jurisdiction may otherwise direct to be
applied by the Subordinated Creditor to the Subordinated Debt in such order as
specified in the Subordinated Debt Documents.
(b) Payments Over. So long as the Discharge of Senior Obligations has not
occurred, whether or not any Insolvency or Liquidation Proceeding has been
commenced by or against the Obligors or Senior Obligors, any Obligor Collateral
or proceeds thereof received by the Subordinated Creditor in connection with the
exercise of any right or remedy (including set-off) relating to the Obligor
Collateral in contravention of this Agreement shall be segregated and held in
trust and forthwith paid over to the Senior Agent for the benefit of the Senior
Creditors in the same form as received, with any necessary endorsements or as a
court of competent jurisdiction may otherwise direct. The Senior Agent is hereby
authorized to make any such endorsements as agent for the Subordinated Creditor.
This authorization is coupled with an interest and is irrevocable until the
Discharge of Senior Obligations.

 

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Section 6. Other Agreements.
(a) Releases.
(i) If in connection with the exercise of the Senior Agent’s rights and remedies
in respect of the Obligor Collateral provided for in Section 4(a)(ii), the
Senior Agent, for itself or on behalf of any of the Senior Creditors, releases
any of its Liens on any part of the Obligor Collateral or releases any guarantor
from its obligations under its guarantee of the Senior Obligations, then the
Liens, if any, of the Subordinated Creditor on such Obligor Collateral, and the
obligations of such guarantor under its guarantee of the Subordinated Debt,
shall be automatically, unconditionally and simultaneously released without any
action on the part of the Subordinated Creditor . The Subordinated Creditor
promptly shall execute and deliver to the Senior Agent or such guarantor such
termination statements, releases and other documents as the Senior Agent or such
guarantor may request to effectively confirm such release.
(ii) If in connection with any sale, lease, exchange, transfer or other
disposition of any Obligor Collateral (collectively, a “Disposition”) permitted
under the terms of the Senior Debt Documents and the Subordinated Debt Documents
(other than in connection with the exercise of the Senior Agent’s rights and
remedies in respect of the Obligor Collateral provided for in Section 4(a)(ii)),
the Senior Agent, for itself or on behalf of any of the Senior Creditors,
releases any of its Liens on any part of the Obligor Collateral, or releases any
guarantor from its obligations under its guarantee of the Senior Obligations, in
each case other than in connection with the Discharge of Senior Obligations,
then the Liens, if any, of the Subordinated Creditor , on such Obligor
Collateral, and the obligations of such guarantor under its guarantee of the
Subordinated Debt, shall be automatically, unconditionally and simultaneously
released without any action on the part of the Subordinated Creditor. The
Subordinated Creditor promptly shall execute and deliver to the Senior Agent or
such guarantor such termination statements, releases and other documents as the
Senior Agent or such guarantor may request to effectively confirm such release.
(iii) Until the Discharge of Senior Obligations occurs, the Subordinated
Creditor hereby irrevocably constitutes and appoints the Senior Agent and any
officer or agent of the Senior Agent, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Subordinated Creditor in the Senior Agent’s own name,
from time to time in the Senior Agent’s discretion, for the purpose of carrying
out the terms of this Section 6, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary to
accomplish the purposes of this Section 6, including any endorsements or other
instruments of transfer or release.
(b) Insurance. Unless and until the Discharge of Senior Obligations has
occurred, the Senior Agent and the Senior Creditors shall have the sole and
exclusive right, subject to the rights of the Obligors under the Senior Debt
Documents, to adjust settlement for any property or casualty insurance policy
covering the Obligor Collateral in the event of any loss thereunder and to
approve any award granted in any condemnation or similar proceeding (or any deed
in lieu of condemnation) affecting the Obligor Collateral. Unless and until the
Discharge of Senior Obligations has occurred, and subject to the rights of the
Obligors under the Senior Debt Documents, all proceeds of any such policy and
any such award (or any payments with respect to a deed in lieu of condemnation)
if in respect to the Obligor

 

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Collateral shall be paid to the Senior Agent for the benefit of the Senior
Creditors pursuant to the terms of the Senior Debt Documents and thereafter, to
the extent no Senior Obligations are outstanding, and subject to the rights of
the Obligors under the Subordinated Debt Documents, to the Subordinated Creditor
to the extent required under the Subordinated Debt Documents and then, to the
extent no Subordinated Debt is outstanding, to the owner of the subject
property, such other person as may be entitled thereto or as a court of
competent jurisdiction may otherwise direct. Until the Discharge of Senior
Obligations has occurred, if the Subordinated Creditor shall, at any time,
receive any proceeds of any such insurance policy or any such award or payment
in contravention of this Agreement, it shall segregate and hold in trust and
promptly pay such proceeds over to the Senior Agent in accordance with the terms
of Section 6(b).
(c) No Waiver of Lien Priorities. No right of the Senior Agent, the Senior
Creditors or any of them to enforce any provision of this Agreement or any
Senior Debt Document shall at any time in any way be prejudiced or impaired by
any act or failure to act on the part of any Obligor or Senior Obligor or by any
act or failure to act by any Senior Creditor or Senior Agent, or by any
noncompliance by any person with the terms, provisions and covenants of this
Agreement, any of the Senior Debt Documents or any of the Subordinated Debt
Documents, regardless of any knowledge thereof which the Senior Agent or the
Senior Creditors, or any of them, may have or be otherwise charged with.
(d) Purchase Rights. Without prejudice to the enforcement of the Senior
Creditors’ remedies, the Senior Creditors agree that, within 30 days following
receipt by the Subordinated Creditor of a Senior Debt Default Notice in respect
of a payment or bankruptcy default under the Senior Credit Agreement or an
acceleration of the Senior Obligations in accordance with the terms of the
Senior Credit Agreement, the Subordinated Creditor will have the option to
purchase the entire aggregate amount of outstanding Senior Obligations
(including unfunded commitments under the Senior Credit Agreement) at par plus
any applicable prepayment premium, without warranty or representation or
recourse, on a pro rata basis across the Senior Creditors; provided that written
notice of the exercise of such purchase right shall have been provided to the
Senior Agent and all amounts payable in connection with such purchase shall have
been paid in full within such 30-day period. If the Subordinated Creditor elects
to exercise such right, it shall be exercised pursuant to documentation mutually
acceptable to each of the Senior Agent and the Subordinated Creditor, acting
reasonably.
Section 7. Modifications.
(a) Modifications to Senior Debt Documents. The Senior Creditors may at any time
and from time to time without the consent of or notice to any Subordinated
Creditor, without incurring liability to the Subordinated Creditor and without
impairing or releasing the obligations of the Subordinated Creditor under this
Agreement, change the manner or place of payment or extend the time of payment
of or renew or alter any of the terms of the Senior Obligations, or amend in any
manner any agreement, note, guaranty or other instrument evidencing or securing
or otherwise relating to the Senior Obligations. The Senior Debt Documents may
be amended, supplemented or otherwise modified in accordance with their terms
and the Senior Credit Agreement may be Refinanced, in each case, without notice
to, or the consent of the Subordinated Creditor, all without affecting the lien
subordination or other provisions of this Agreement; provided, however, that the
holders of such Refinancing debt (or a duly authorized agent on their behalf)
bind themselves in a writing addressed to the Subordinated Creditor to the terms
of this Agreement and any such amendment, supplement, modification or
Refinancing shall not, without the consent of the Subordinated Creditor
contravene the provisions of this Agreement. In the event any Senior Creditor
and the relevant Obligor enter into any amendment, waiver or consent in respect
of any of the Senior Debt Documents for the purpose of adding to, or deleting
from, or waiving or consenting to any departures from any provisions of, any
Senior Debt Document relating to the Obligor Collateral or changing in any
manner the rights of the Senior Agent, the Senior Creditors, the Obligors or any
other Senior Obligor thereunder, then such amendment, waiver or consent shall
apply automatically to any comparable provision of the comparable Subordinated
Debt Document without the consent of the Subordinated Creditor or any Obligor
provided that no such amendment, waiver or consent shall have the effect of
removing assets subject to the Lien of the Subordinated Debt Documents, except
to the extent that a release of such Lien is permitted or required by Section
6(a) above.

 

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(b) Modifications to Subordinated Debt Documents. Until the Senior Obligations
have been Paid-In-Full, and notwithstanding anything to the contrary contained
in the Subordinated Debt Documents, the Subordinated Creditor shall not, without
the prior written consent of the Senior Agent, agree to any amendment,
modification or supplement to the Subordinated Debt Documents the effect of
which is to (i) increase the maximum principal amount of the Subordinated Debt
or rate of interest on any of the Subordinated Debt, (ii) change the dates upon
which payments of principal or interest on the Subordinated Debt are due,
(iii) add any event of default or any covenant with respect to the Subordinated
Debt or make any change to any event of default or covenant which would have the
effect of making such event of default or covenant more restrictive, (iv) change
any redemption or prepayment provisions of the Subordinated Debt, (v) alter (or
purport or attempt to alter) the subordination provisions with respect to the
Subordinated Debt, including, without limitation, subordinating the Subordinated
Debt to any other indebtedness, (vi) change any collateral therefor (other than
to release collateral), (vii) contravene the provisions of this Agreement) or
(viii) change or amend any other term of the Subordinated Debt Documents if such
change or amendment would result in a Senior Debt Default, increase the
obligations of any Obligor or confer additional material rights on such
Subordinated Creditor or any other holder of the Subordinated Debt in a manner
adverse to any Obligor or Senior Obligor or the Senior Creditors.
Section 8. Representations and Warranties.
(a) Representations and Warranties of Subordinated Creditor. The Subordinated
Creditor hereby represents and warrants to the Senior Agent and the other Senior
Creditors, as to itself, that as of the date hereof: (i) the Subordinated
Creditor has the power and authority to enter into, execute, deliver and carry
out the terms of this Agreement, all of which have been duly authorized by all
proper and necessary action; (ii) the execution of this Agreement by such
Subordinated Creditor will not violate or conflict with the organizational
documents of such Subordinated Creditor, any material agreement binding upon
such Subordinated Creditor or any law, regulation or order or require any
consent or approval which has not been obtained; (iii) this Agreement is the
legal, valid and binding obligation of such Subordinated Creditor, enforceable
against such Subordinated Creditor in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and by equitable principles; (iv) such Subordinated
Creditor is the sole owner, beneficially and of record, of the Subordinated Debt
held by it.
(b) Representations and Warranties of the Senior Agent. The Senior Agent hereby
represents and warrants to the Subordinated Creditor that as of the date hereof:
(i) the Senior Agent has the power and authority on its own behalf and on behalf
of each Senior Creditor to enter into, execute, deliver and carry out the terms
of this Agreement, all of which have been duly authorized by all proper and
necessary action; (ii) the execution of this Agreement by the Senior Agent will
not violate or conflict with the organizational documents of the Senior Agent,
any material agreement binding upon the Senior Agent or any law, regulation or
order or require any consent or approval which has not been obtained; and
(iii) this Agreement is the legal, valid and binding obligation of the Senior
Agent, enforceable against the Senior Agent in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally or by equitable principles.

 

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(c) No Warranties or Liability. The Senior Agent, on behalf of itself and the
Senior Creditors under the Senior Debt Documents, acknowledges and agrees that
the Subordinated Creditor has made no express or implied representation or
warranty, including with respect to the execution, validity, legality,
completeness, collectibility or enforceability of any of the Subordinated Debt
Documents, the ownership of any Obligor Collateral or the perfection or priority
of any Liens thereon. Except as otherwise provided herein, the Subordinated
Creditor will be entitled to manage and supervise its respective loans and
extensions of credit under the Subordinated Debt Documents in accordance with
law and as it may otherwise deem appropriate. Except as otherwise provided
herein, the Subordinated Creditor acknowledges and agrees that the Senior Agent
and the Senior Creditors have made no express or implied representation or
warranty, including with respect to the execution, validity, legality,
completeness, collectibility or enforceability of any of the Senior Debt
Documents, the ownership of any Obligor Collateral or the perfection or priority
of any Liens thereon. Except as otherwise provided herein, the Senior Creditors
will be entitled to manage and supervise their respective loans and extensions
of credit under their respective Senior Debt Documents in accordance with law
and as they may otherwise, in their sole discretion, deem appropriate. The
Subordinated Creditor shall have no duty to the Senior Agent and Senior
Creditors, and the Senior Agent and the Senior Creditors shall have no duty to
the Subordinated Creditor, to act or refrain from acting in a manner which
allows, or results in, the occurrence or continuance of an event of default or
default under any agreements with the Obligors or Senior Obligor or any other
grantor or guarantor (including the Senior Debt Documents and the Subordinated
Debt Documents), regardless of any knowledge thereof which they may have or be
charged with.
Section 9. Subrogation. Until all Senior Obligations have been Paid-In-Full, the
Subordinated Creditor shall be subrogated to the rights of the Senior Agent and
the Senior Creditors to receive Distributions with respect to the Senior
Obligations until the Subordinated Debt is paid in full. The Subordinated
Creditor agrees that in the event that all or any part of a payment made with
respect to the Senior Obligations is recovered from the holders of the Senior
Obligations in a Proceeding or otherwise, any Distribution received by such
Subordinated Creditor with respect to the Subordinated Debt at any time after
the date of the payment that is so recovered, whether pursuant to the right of
subrogation provided for in this Agreement or otherwise, shall be deemed to have
been received by such Subordinated Creditor in trust as property of the holders
of the Senior Obligations and such Subordinated Creditor shall forthwith deliver
the same to the Senior Agent for the benefit of the Senior Creditors for
application to the Senior Obligations until the Senior Obligations are
Paid-In-Full. A Distribution made pursuant to this Agreement to the Senior Agent
or the Senior Creditors which otherwise would have been made to such
Subordinated Creditor is not, as between the Obligors and such Subordinated
Creditor, a payment by the Obligors to or on account of the Senior Obligations
for purposes of determining whether a right of subrogation exists hereunder. The
Subordinated Creditor hereby agrees not to assert or enforce all such rights of
subrogation it may acquire as a result of any payment hereunder until the
Discharge of Senior Obligations has occurred. The Obligors and Senior Obligor
acknowledge and agree that the value of any payments or distributions in cash,
property or other assets received by the Subordinated Creditor that are paid
over to the Senior Agent or Senior Creditors pursuant to this Agreement shall
not reduce any of the Subordinated Debt.
Section 10. Application of Payments. All payments received by the Senior Agent
or the Senior Creditors may be applied, in whole or in part, to such part of the
Senior Obligations provided for in the Senior Debt Documents. The Subordinated
Creditor assents to any extension or postponement of the time of payment of the
Senior Obligations or any part thereof and to any other indulgence with respect
thereto, to any substitution, exchange or release of any security which may at
any time secure any part of the Senior Debt Obligations and to the addition or
release of any other person primarily or secondarily liable therefor.

 

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Section 11. Specific Performance. The Senior Agent and each Senior Creditor may
demand specific performance of this Agreement. The Subordinated Creditor hereby
irrevocably waives any defense based on the adequacy of a remedy at law and any
other defense which might be asserted to bar the remedy of specific performance
in any action which may be brought by the Senior Agent or the Senior Creditors.
Section 12. Modification. Any modification or waiver of any provision of this
Agreement, or any consent to any departure by any party from the terms hereof,
shall not be effective in any event unless the same is in writing and signed by
the Senior Agent and the Subordinated Creditor, and then such modification,
waiver or consent shall be effective only in the specific instance and for the
specific purpose given. Notwithstanding the foregoing, none of the Senior
Obligors shall have any right to consent to or approve any amendment,
modification or waiver of any provision of this Agreement except to the extent
its rights are adversely affected. Any notice to or demand on any party hereto
in any event not specifically required hereunder shall not entitle the party
receiving such notice or demand to any other or further notice or demand in the
same, similar or other circumstances unless specifically required hereunder.
Section 13. Conditions Subsequent; Further Assurances.
(a) Each party to this Agreement promptly will execute and deliver such further
instruments and agreements and do such further acts and things as may be
reasonably requested in writing by any other party hereto that may be necessary
or desirable in order to effect fully the purposes of this Agreement.
(b) The continuing effectiveness of this Agreement is subject to the following
conditions:
(i) Within 30 days of the date hereof, the parties hereto shall enter into a
subordination agreement to be governed by the laws of the Republic of Brazil, on
substantially the same terms as this Agreement and otherwise reasonably
satisfactory to the Senior Agent; and
(ii) Within 30 days of the date hereof, the parties hereto shall enter into a
subordination agreement to be governed by the laws of the Province of Alberta,
Canada, on substantially the same terms as this Agreement and otherwise
reasonably satisfactory to the Senior Agent.
Section 14. Notices. Unless otherwise specifically provided herein, any notice
delivered under this Agreement shall be in writing addressed to the respective
party as set forth below and may be personally served, telecopied or sent by
overnight courier service or certified or registered United States mail and
shall be deemed to have been given (a) if delivered in person, when delivered;
(b) if delivered by telecopy, on the date of transmission (receipt
electronically confirmed) if transmitted on a Business Day before 12 p.m. Noon
(New York City time) or, if not, on the next succeeding business day; or (c) if
delivered by overnight courier, one (1) business day after delivery to such
courier properly addressed.
Notices shall be addressed as follows:
If to the Senior Agent / Senior Lenders:
Standard Bank PLC, as Senior Agent
320 Park Avenue, 19th Floor
New York, NY 10022

 

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USA
Attention: Malena Funegra
Tel: +1 (212) 407-5125
Fax: +1 (212) 407-5178
Email: malena.funegra@standardbank.com
With a copy to: Martin Revoredo
Tel:+1 (212) 407-5031
Fax: +1 (212) 407-5178
If to Allis-Chalmers Energy Inc.
Allis-Chalmers Energy Inc.
5075 Westheimer, Suite 890
Houston, Texas 77056
Attention: Theodore F. Pound III
Fax: 281.768.3891
Email: tpound@alchenergy.com
If to the Obligors or BRX:
c/o BrazAlta Resources Corp.
500, 816 – 7th Ave SW
Calgary, AB
T2P 1A1
Canada
Attention: Craig Nieboer
Tel: +1 (403) 237 9925
Fax: +1(403) 265 4160
E-mail: cnieboer@brazalta.com
or in any case, to such other address as the party addressed shall have
previously designated by written notice to the serving party, given in
accordance with this Section 14.
Section 15. Several Obligations. The obligations of the Senior Creditors
hereunder are several, not joint, and no Senior Creditor shall be liable,
directly or indirectly, for any act or omission of any other Senior Creditor.
Section 16. Successors and Assigns. This Agreement shall inure to the benefit
of, and shall be binding upon, the respective successors and assigns of the
Senior Agent, the Senior Creditors, the Subordinated Creditor and each Obligor
and Senior Obligor. To the extent permitted under the Senior Debt Documents, the
Senior Creditors may, from time to time, without notice to the Subordinated
Creditor, assign or transfer any or all of the Senior Obligations or any
interest therein to any Person and, notwithstanding any such assignment or
transfer, or any subsequent assignment or transfer, the Senior

 

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Obligations shall, subject to the terms hereof, be and remain Senior Obligations
for purposes of this Agreement, and every permitted assignee or transferee of
any of the Senior Obligations or of any interest therein shall, to the extent of
the interest of such permitted assignee or transferee in the Senior Obligations,
be entitled to rely upon and be the third party beneficiary of the subordination
provided under this Agreement and shall be entitled to enforce the terms and
provisions hereof to the same extent as if such assignee or transferee were
initially a party hereto. The Senior Agent shall give written notice to the
Subordinated Creditor on a timely basis as to any appointment of a successor
Senior Agent.
Section 17. Relative Rights. This Agreement shall define the relative rights of
the Senior Agent, the Senior Creditors and the Subordinated Creditor. Nothing in
this Agreement shall (a) impair, as between the Obligors, the Senior Obligors
and the Senior Agent and the Senior Creditors and as between the Obligors and
the Subordinated Creditor, the obligation of the Obligors with respect to the
payment of the Senior Obligations and the Subordinated Debt, as the case may be,
in accordance with their respective terms or (b) affect the relative rights of
the Senior Agent, the Senior Creditors or the Subordinated Creditors with
respect to any other creditors of the Obligors or Senior Obligors.
Section 18. No Third Party Beneficiaries. This Agreement and the rights and
benefits hereof shall inure to the benefit of each of the parties hereto and its
respective successors and assigns and shall inure to the benefit of each of the
Senior Creditors and Subordinated Creditor. None of the Senior Obligors shall
have any rights hereunder and none of the Senior Obligors may rely on any of the
terms hereof.
Section 19. Conflict. In the event of any conflict between any term, covenant or
condition of this Agreement and any term, covenant or condition of any of the
Subordinated Debt Documents, the provisions of this Agreement shall control and
govern.
Section 20. Headings. The paragraph headings used in this Agreement are for
convenience only and shall not affect the interpretation of any of the
provisions hereof.
Section 21. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 22. Severability. In the event that any provision of this Agreement is
deemed to be invalid, illegal or unenforceable by reason of the operation of any
law or by reason of the interpretation placed thereon by any court or
governmental authority, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby, and the affected provision shall be modified to the minimum
extent permitted by law so as most fully to achieve the intention of this
Agreement.
Section 23. Continuation of Subordination; Termination of Agreement. This
Agreement shall remain in full force and effect until all of the Senior
Obligations have been Paid-In-Full, after which this Agreement shall terminate
without further action on the part of the parties hereto.
Section 24. Option and Governance Agreement; Pledged BCH Shares; Distributions
to BRX.
(a) Notwithstanding anything in this Agreement, the Subordinated Creditor hereby
agrees that (i) the exercise of the Subordinated Creditor’s option to purchase
from BRX the Equity Interests in BCH held by or on behalf of BRX in accordance
with the terms of the Option and Governance Agreement (including without
limitation the provisions of Article VIII thereof) shall not be permitted
without the prior written consent of the Senior Creditors, (ii) the ESOP Options
and ESOP Shares (each as defined in the Option and Governance Agreement) may not
be repurchased by BCH without the prior written consent of the Senior Creditors,
(iii) no Option Notice (as defined in the Option and Governance Agreement) shall
be issued without the prior written consent of the Senior Creditors and (iv) no
Change in Control (as defined in the Senior Credit Agreement) shall occur as a
result of the operation of Article VIII or Section 10.2 of the Option and
Governance Agreement without the prior written consent of the Senior Creditors.

 

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(b) Notwithstanding any provision to the contrary in any Subordinated Debt
Document, none of the Subordinated Debt Documents shall impair (i) the Lien and
security interest of the Senior Agent, for the benefit of the Senior Creditors,
in BRX’s right, title and interest in, to and under the equity interests of BCH
pledged to the Senior Agent or (ii) the warrants issued by BCH to the Senior
Agent.
(c) Notwithstanding anything contained in this Agreement or in any Subordinated
Debt Document, no Distributions shall be made to BRX from any Obligor
(including, without limitation, Distributions pursuant to clause (b) or clause
(c) of Section 9.1 of the Option and Governance Agreement) without the prior
written consent of the Senior Creditors.
Section 25. Applicable Law; Jurisdiction; Consent to Service of Process.
(a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THAT
WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
(b) Each party hereto hereby irrevocably and unconditionally submits, for itself
and its property, to the non exclusive jurisdiction of any New York State court
or Federal court of the United States of America sitting in New York City, and
any appellate court from any thereof, in any action or proceeding arising out of
or relating to this Agreement, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such New York State court or, to the extent permitted by law,
in such Federal court. Each party hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(c) Each party hereto hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection which it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any New York State court or in
any such Federal court. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process in
the manner provided for notices in Section 14. Nothing in this Agreement will
affect the right of any party to this Agreement to serve process in any other
manner permitted by law.
Section 26. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT, BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 25.

 

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Section 27. Judgment Currency. If for the purposes of obtaining judgment in any
court it is necessary to convert a sum due from a party (the “payor”) under this
Agreement in US Dollars (the “specified currency”) into another currency, the
parties agree that the rate of exchange used shall be that at which in
accordance with normal banking procedures the party to which such sum is due
(the “payee”)could purchase the specified currency with such other currency on
the business day preceding that on which final judgment is given. The obligation
of the payor in respect of any such sum due to the payee shall, notwithstanding
any judgment in a currency other than the specified currency, be discharged only
to the extent that on the business day following receipt by the payee of any sum
adjudged to be so due in such other currency, the payee may in accordance with
normal banking procedures purchase the specified currency with such other
currency. If the amount of the specified currency so purchased is less than the
sum originally due to the payee in the specified currency, the payor shall, as a
separate obligation and notwithstanding any such judgment, indemnify the payee
against such loss, and if the amount of the specified currency so purchased
exceeds the amount originally due to the payee in the specified currency, the
payee agrees to remit such excess (less remittance costs) to the payor.
[Remainder of page left blank intentionally]

 

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SIGNATURES
IN WITNESS WHEREOF, the Subordinated Creditor, each Obligor and Senior Obligor
and the Senior Agent have caused this Agreement to be executed (or acknowledged)
as of the date first above written.

            STANDARD BANK PLC,
as the Senior Agent on behalf of itself and each other Senior Creditor
      By:   /s/ Martin Revoreao       Name:   Martin Revoreao       Title:  
Senior Vice President       By:   /s/ Maria Elena Funegra       Name:   Maria
Elena Funegra       Title:   Vice President    

            ALLIS-CHALMERS ENERGY INC.,
as Subordinated Creditor
      By:   /s/ Victor M. Perez       Name:   Victor M. Perez       Title:  
Chief Financial Officer    

[Acknowledgment of Obligors and Senior Obligor follows]

 

 

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Acknowledgment of Obligors and Senior Obligors
Each of the undersigned accepts notice of subordination created by this
Subordination Agreement and agrees that it will take no action inconsistent with
this Subordination Agreement and that, except with the prior written approval of
the Senior Agent, no payment or Distribution shall be made by any of the
undersigned on or with respect to the Subordinated Debt (except in accordance
with the provisions of this Subordination Agreement), so long as this
Subordination Agreement remains in effect.

            BCH LTD.
      By:   /s/ Craig Nieboer       Name:   Craig Nieboer       Title:   Chief
Financial Officer       BCH ENERGY DO BRASIL SERVIÇOS DE PETRÓLEO LTDA.
      By:   /s/ Luiz Azevedo       Name:   Luiz Azevedo       Title:   Managing
Director       BRAZALTA RESOURCES CORP.
      By:   /s/ Craig Nieboer       Name:   Craig Nieboer       Title:   Chief
Financial Officer