Exhibit 10.1
Execution Copy
ALLIS-CHALMERS ENERGY INC.
as Lender
- and -
BCH LTD.
as Borrower
- and -
BCH ENERGY DO BRASIL SERVICOS DE PETROLEO LTDA.
as Guarantor
CREDIT AGREEMENT
January 31, 2008
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.

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i
TABLE OF CONTENTS

             
Page
 
 
       
ARTICLE I — INTERPRETATION
    1  
1.1 Definitions
    1  
1.2 Interest Calculations and Maximum Interest Rate
    8  
1.3 Accounting Principles
    8  
1.4 Currency References
    9  
1.5 References to Statutes
    9  
1.6 Extended Meanings
    9  
1.7 Schedules
    9  
ARTICLE II — LOAN
    9  
2.1 Agreement to Advance Loan
    9  
2.2 Purpose
    10  
2.3 Non-Revolving Nature
    10  
2.4 Drawdown Procedure
    10  
2.5 Payment of Interest
    10  
2.6 Payment of Principal
    10  
2.7 Conversion of Debenture and Exercise of Option
    11  
ARTICLE III — GENERAL PAYMENT PROVISIONS
    11  
3.1 Interest Calculations
    11  
3.2 Place and Time of Payments
    12  
3.3 No Deduction for Taxes
    12  
3.4 Free Cash Flow
    12  
ARTICLE IV — REPRESENTATIONS AND WARRANTIES
    12  
4.1 Representations and Warranties — Borrower
    12  
4.2 Representations and Warranties — Guarantor
    14  
4.3 Representations and Warranties — Lender
    16  
4.4 Survival of Representations and Warranties
    16  
ARTICLE V — COVENANTS
    16  
5.1 Positive Covenants — Borrower
    16  
5.2 Positive Covenants — Guarantor
    18  
5.3 Negative Covenants — Borrower
    19  
5.4 Negative Covenants — Guarantor
    19  
5.5 Reporting Requirements
    20  
ARTICLE VI — SECURITY
    20  
6.1 Security to be Provided by the Borrower
    20  
6.2 Security to be Provided by Guarantor
    21  
6.3 Form of Security and Registration
    21  
ARTICLE VII — CONDITIONS FOR ADVANCES
    21  
7.1 Conditions for Advance on Financial Closing
    21  
ARTICLE VIII — DEFAULT AND REMEDIES
    22  
8.1 Events of Default
    22  
8.2 Acceleration upon Event of Default and Additional Interest
    23  
8.3 Appropriation of Moneys
    23  

 

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Page
 
 
       
8.4 Judgment Currency
    23  
8.5 Remedies Cumulative
    24  
8.6 Insolvency Proceedings
    24  
ARTICLE IX — GENERAL
    24  
9.1 Waivers to be in Writing
    24  
9.2 Governing Law
    24  
9.3 Costs and Expenses
    25  
9.4 General Indemnity
    25  
9.5 Notice
    25  
9.6 Severability
    26  
9.7 Further Assurances
    26  
9.8 Time of the Essence
    26  
9.9 Assignment and Participation
    26  
9.10 Entire Agreement
    27  
9.11 Binding Effect
    27  
ARTICLE X — EXECUTION
    28  
10.1 Execution
    28  

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CREDIT AGREEMENT
This Credit Agreement is dated as of the 31st day of January, 2008 and is made
among Allis-Chalmers Energy Inc., as lender, and BCH Ltd., as borrower, and BCH
Energy do Brasil Servicos de Petroleo Ltda., as guarantor.
WHEREAS the Lender has agreed to advance the Loan to the Borrower in accordance
with the terms and conditions set out in this Agreement;
AND WHEREAS the Guarantor will benefit from the advance of the Loan by the
Lender to the Borrower;
NOW THEREFORE for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by each Party, the Parties agree as follows:
ARTICLE I — INTERPRETATION

1.1  
Definitions

In this Agreement, the following words and phrases shall have the meanings set
forth below:
“ABCA” means the Business Corporations Act (Alberta);
“Acceleration Date” means the earlier of: (a) the occurrence of an Insolvency
Event; and (b) the delivery by the Lender to the Borrower of written notice of
the occurrence of an Event of Default following the occurrence and during the
continuance of an Event of Default (other than an Insolvency Event);
“Affiliate” has the meaning ascribed thereto in the ABCA;
“Agreement” means this credit agreement, as it may be amended, supplemented,
restated or replaced from time to time;
“Applicable Canadian Securities Laws” means, collectively, and as the context
may require, the securities legislation of each of the Provinces of Canada, and
the rules, regulations and policies published and/or promulgated thereunder, as
such may be amended from time to time;
“BIA” means the Bankruptcy and Insolvency Act (Canada);
“Borrower” means BCH Ltd., a corporation incorporated under the laws of Alberta;
“Business Day” means a day on which the main branch of Royal Bank of Canada in
Calgary, Alberta, is open for normal banking business but not including
Saturdays and Sundays;

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“Canadian Dollars” or “Cdn. $” means the lawful money of Canada;
“Common Shares” means the common shares in the capital of the Borrower, as they
may be amended, redesignated, reclassified or otherwise changed from time to
time;
“Conditional Approval Letter” means the conditional approval letter from the
TSX-V evidencing the approval of the TSX-V of: (a) the Loan (including the
convertibility feature of the Debenture); and (b) the option to purchase the
Optioned Shares in accordance with the Option and Governance Agreement, subject
to satisfying certain conditions within the prescribed time limit as set forth
in such conditional approval letter;
“Conversion Closing Date” means the date on which the Debenture is converted
into Common Shares in accordance with the Debenture (being the Date of
Conversion as defined in the Debenture);
“Conversion Deadline” means the later of (a) December 31, 2009, and (b) the 30th
day following receipt of the Valuation by the Lender in accordance with the
Option and Governance Agreement;
“Conversion Notice” means the written notice to be given by the Lender to the
Borrower on or before the Conversion Deadline (being the Conversion Notice as
defined in the Debenture) whereby the Lender elects to convert the Debenture
into Common Shares;
“Debenture” means the convertible subordinated secured debenture, substantially
in the form attached as Schedule “E” hereto, whereby the Borrower grants in
favour of the Lender a mortgage, charge and security interest in and over the
undertaking and all present and after-acquired real and personal property of the
Borrower;
“Equivalent Amount” means, in relation to an amount in one currency, the amount
in another currency that could be purchased by the amount in the first currency
determined by reference to the applicable Exchange Rate;
“Event of Default” is defined in section 8.1 hereof;
“Exchange Rate” means, in connection with any amount of U.S. Dollars to be
converted into Canadian Dollars pursuant to this Agreement for any reason, or
vice-versa, the spot rate of exchange for converting U.S. Dollars into Canadian
Dollars or vice-versa, as the case may be, quoted as the offering rate for
wholesale transactions by the Bank of Canada at approximately 12:00 noon
(Toronto time) on the effective date of such conversion;
“Financial Closing” means January 31, 2008 or such other date as the Lender and
the Borrower may agree upon;
“Financial Information” means the financial statements and other financial
information applicable to the Borrower and the Guarantor, particulars of which
are described in Schedule “I” hereto;

 

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“Fiscal Quarter” means a fiscal quarter of the Borrower ending on September 30,
December 31, March 31 and June 30 in any calendar year;
“Fiscal Year” means a fiscal year of the Borrower ending on June 30 in any
calendar year;
“Free Cash Flow” has the meaning attributed to such term in the Option and
Governance Agreement;
“Funded Debt” means indebtedness of the Borrower for borrowed money (whether or
not interest-bearing), interest-bearing liabilities, capital lease obligations,
contingent obligations (including, without limitation, obligations to indemnify
the issuer of letters of credit issued at the request of the Borrower) and the
redemption price of redeemable shares (if any) issued by the Borrower and, for
greater certainty, “Funded Debt” shall include the Obligations;
“GAAP” means generally accepted accounting principles in Canada or Brazil (as
applicable) in effect from time to time as recognized by the Canadian Institute
of Chartered Accountants or the Brazilian Independent Accountants Institute (as
applicable) or, in each case, any generally recognized successor thereto;
“Governmental Authority” means: (a) any federal, provincial, state, municipal,
local or other governmental or public department, central bank, court,
commission, board, bureau, agency or instrumentality, domestic or foreign;
(b) any subdivision or authority of any of the foregoing; and (c) any
quasi-governmental or private body exercising any regulatory, expropriation or
taxing authority under or for the account of any of the foregoing;
“Guarantee” means any agreement by which any Person assumes, guarantees,
endorses, contingently agrees to purchase or provide funds for the payment of,
or otherwise becomes liable upon, the obligation of any other Person, or agrees
to maintain the net worth or working capital or other financial condition of any
other Person or otherwise assures any creditor of such Person against loss
including, without limitation, any contingent liability under any letter of
credit or similar document or instrument;
“Guarantor” means BCH Energy do Brasil Servicos de Petroleo Ltda., a corporation
incorporated under the laws of Brazil;
“Indemnitees” is defined in section 9.4 hereof;
“Insolvency Event” means, in respect of any Person, the occurrence of any of the
following events in respect of such Person: (a) it ceases to carry on its
undertaking; (b) it commits an act of bankruptcy or becomes insolvent (such
terms having the respective meanings ascribed thereto in the BIA or the
comparable Laws of any other applicable jurisdiction); (c) it makes an
assignment for the benefit of creditors; (d) it files a petition in bankruptcy
or makes a proposal under the BIA; (e) it is adjudicated insolvent or bankrupt;
(f) it petitions or applies to any tribunal for, or consents to, the appointment
of any receiver, trustee or similar liquidation in respect of all or a
substantial part of its properties or assets; (g) any proceeding is commenced
relating to it or to all or a

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substantial part of its properties or assets or it seeks to take advantage under
any law relating to reorganization, arrangement, compromise or re-adjustment of
debt, dissolution, winding-up or similar law; (h) any receiver, insolvency
trustee, insolvency manager, insolvency consultant, insolvency monitor,
liquidator or similar party is appointed in respect of it or any of its
properties or assets; (i) it admits the material allegations of a petition or
application filed with respect to it in any bankruptcy, reorganization or
insolvency proceeding; (j) it takes any corporate action for the purpose of
effecting any of the foregoing; or (k) any proceedings are commenced by or in
respect of it pursuant to the Companies Creditors Arrangement Act (Canada) or
the Winding-Up and Restructuring Act (Canada) or the comparable Laws of any
other applicable jurisdiction;
“Judgment Currency” is defined in section 8.4 hereof;
“Laws” means all statutes, codes, ordinances, decrees, rules, regulations,
municipal by-laws, judicial or arbitral or administrative or ministerial or
departmental or regulatory judgments, orders, decisions, rulings or awards,
policies, voluntary restraints, guidelines or any provisions of such laws,
including general principles of common and civil law and equity, binding on or
affecting the Person referred to in the context in which such word is used; and
“Law” means any one of foregoing;
“Lender” means Allis-Chalmers Energy Inc., a corporation incorporated under the
laws of Delaware;
“Lien” means any trust deed, mortgage, pledge, hypothecation, assignment,
security interest, lien, charge or encumbrance, or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, the lien of an attachment, judgment or
execution, or any conditional sale or other title retention agreement, any
capitalized lease, and the filing of, or agreement to give, any financing
statement under the Personal Property Security Act (Alberta) or the comparable
Laws of any other applicable jurisdiction);
“Loan” mean the loan in the principal amount of $40,000,000 to be advanced by
the Lender to the Borrower in accordance with Article 2 hereof;
“Loan Documents” means this Agreement, the Debenture, the Subsidiary Guarantee,
the Option and Governance Agreement and the Subordination Agreement, as they may
be amended, supplemented, restated or replaced from time to time;
“Material Agreements” means those drilling rig and service rig lease and service
agreements between the Borrower and/or the Guarantor and another Person which
are material to the business of the Borrower and/or the Guarantor;
“Material Change” means any change or event which in the reasonable opinion of
the Lender constitutes a material adverse change in the business, operations,
condition (financial or otherwise) or assets and properties of the Borrower
and/or the Guarantor or which could materially impair the Borrower’s ability to
timely and fully perform its obligations under the Loan Documents or any of
them, or materially impair the ability of the Lender to enforce its rights and
remedies under the Loan Documents or any of them.

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“Material Personal Property” means each and every drilling rig and service rig,
together with related equipment, having either a book or market value in excess
of $1,000,000 owned by the Borrower and/or the Guarantor, it being acknowledged
that Schedule “C” hereto sets out a complete and accurate list of the
description (including serial number, if applicable) and the location of each of
such rigs owned by the Borrower and/or the Guarantor as at the date of the
Financial Closing;
“Maturity Date” means (a) the second anniversary of the Financial Closing, or
(b) if the Conversion Notice is not given by the Lender to the Borrower on or
prior to the Conversion Deadline, then the 90th day following the Conversion
Deadline, or (c) such other date as the Lender and the Borrower may agree upon
in writing, as the case may be;
“Obligations” means, at any time, the unpaid principal balance of the Loan at
such time, plus all accrued and unpaid interest, fees, expenses and other
amounts payable in connection therewith pursuant to this Agreement and the
Security;
“Option and Governance Agreement” means the option to purchase and governance
agreement dated as of January 31, 2008 made among the Parent, the Borrower and
the Lender, substantially in the form attached as Schedule “H” hereto, as it may
be amended, supplemented, restated or replaced from time to time;
“Optioned Shares” means the Common Shares in respect of which the Lender has an
option to purchase pursuant to the Option and Governance Agreement;
“Parent” means BrazAlta Resources Corp., a corporation incorporated under the
laws of Alberta;
“Parent Indebtedness” means the indebtedness in the sum of $27,775,000 owing by
the Borrower to the Parent as at the date of the Financial Closing;
“Parties” means the parties to this Agreement and “Party” means any one of them;
“Permitted Liens” means:

  (a)  
Liens for taxes, duties and assessments and Liens securing workers’
compensation, unemployment insurance or other social security obligations not at
the time overdue;
    (b)  
Liens for taxes, duties and assessments which may be overdue but the validity of
which is being contested in good faith and in respect of which reserves
satisfactory to the Lender in its reasonable opinion have been established;
    (c)  
Liens or rights of distress reserved in or exercisable under any lease for rent
or for compliance with the terms of such lease;

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  (d)  
any obligations or duties affecting any real property owned by the Borrower or
the Guarantor due to any public utility or to any municipality or government, or
to any statutory or public authority, with respect to any franchise, grant,
licence or permit and any defects in title to structures or other facilities
arising solely from the fact that such structures or facilities are constructed
or installed on any real property owned by the Borrower or the Guarantor under
government permits, leases or other grants and which obligations, duties and
defects in the aggregate do not materially impair the use of such property,
structures or facilities for the purpose for which they are held;
    (e)  
Liens incurred or deposits made in connection with contracts, bids, tenders or
expropriation proceedings, or to secure workers’ compensation, unemployment
insurance or other social security obligations, surety or appeal bonds, costs of
litigation when required by Law, public and statutory obligations,
warehousemen’s, carriers’ and other similar Liens and deposits;
    (f)  
security given to a public utility or any municipality or government or to any
statutory or public authority to secure obligations incurred to such utility,
municipality, government or other authority in the ordinary course of business;
    (g)  
Liens and privileges arising out of judgments or awards in respect of which an
appeal or proceeding for review has been commenced, a stay of execution pending
such appeal or proceedings for review has been obtained and reserves
satisfactory to the Lender in its reasonable opinion have been established;
    (h)  
any mechanic’s, labourer’s, materialman’s statutory or other similar Lien
arising in the ordinary course of business or out of the construction or
improvement of any real property owned by the Borrower or the Guarantor or
arising out of the furnishing of materials or supplies therefor, the action to
enforce which has not proceeded to a final judgment;
    (i)  
Minor Title Defects;
    (j)  
Purchase-Money Security Interests incurred or assumed in connection with the
purchase, leasing or acquisition of capital equipment in the ordinary course of
business, provided that the aggregate amount of indebtedness of the Borrower
thereunder is not in excess of $400,000 individually or $2,000,000 in the
aggregate;
    (k)  
any Liens which secure the Senior Indebtedness;
    (l)  
any Liens which are approved in writing by the Lender from time to time; and
    (m)  
any extension, renewal or replacement (or successive extensions, renewals or
replacements) in whole or in part of any Liens referred to above, inclusively
provided that the principal amount of indebtedness secured thereby shall not
exceed the principal amount of indebtedness so secured at the time of the
incurrence or guarantee thereof and that such extension, renewal or replacement
shall be limited to all or a part of the property which secured the Lien so
extended, renewed or replaced (plus improvements on such property);

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provided that the use of the definition “Permitted Liens” to describe such
interests and Liens shall mean that they are permitted to exist (whether in
priority to or subsequent in priority to the Security, as determined by
applicable Law), and shall not be interpreted as meaning that such interests and
Liens are entitled to priority over the Security;
“Person” includes an individual, corporation, partnership, trust, unincorporated
association or any Governmental Authority or any combination of the above;
“Purchase-Money Security Interest” means a Lien on any property or asset
created, issued or assumed to secure the unpaid purchase price in respect of
such property or asset provided that such Lien is restricted to such property or
asset acquired and secures an amount not in excess of the purchase price
thereof;
“Security” means all promissory notes, debentures, mortgages, security
agreements, guarantees and other documents and agreements previously given or
hereafter provided by the Borrower and the Guarantor and, if applicable, any of
their Subsidiaries to the Lender from time to time as security for the payment
and performance of all present and future, direct and indirect obligations of
the Borrower to the Lender including, without limitation, the security required
to be provided by the Borrower, the Guarantor and any of their Subsidiaries (if
applicable) pursuant to Article 6 hereof;
“Senior Credit Agreement” means the credit agreement dated as of August 1, 2007
made among the Parent, as parent/guarantor, and the Borrower and the Guarantor,
as borrowers, and the lenders which are parties thereto, and Standard Bank plc,
as arranger and administrative agent, as it may be amended, supplemented,
restated, renewed, extended or replaced from time to time;
“Senior Indebtedness” means the indebtedness in the sum of $28,233,775 owing by
the Borrower and/or the Guarantor to the Senior Lenders as at the date of the
Financial Closing in accordance with the Senior Credit Agreement, as such
indebtedness may be amended, modified, renewed or extended from time to time;
“Senior Lenders” means Standard Bank Plc and any other lender which becomes a
lender under the Senior Credit Agreement;
“Senior Security” means the security documents granted by the Borrower and/or
the Guarantor in favour or for the benefit of the Senior Lenders as security for
the Senior Indebtedness in accordance with the Senior Credit Agreement;
“Subordination Agreement” means the subordination agreement to be executed by
the Lender, the Senior Lenders, the Borrower, the Guarantor and the Parent,
substantially in the form attached as Schedule “G” hereto;
“Subsidiary” has the meaning ascribed thereto in the ABCA;

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“Subsidiary Guarantee” means the unlimited guarantee to be executed by the
Guarantor in favour of the Lender, substantially in the form of Schedule “F”
hereto, whereby the Guarantor guarantees the payment and performance of the
liabilities and obligations of the Borrower to the Lender;
“TSX-V” means the TSX Venture Exchange Inc. or any successor thereto;
“U.S. Dollars” or “$” means the lawful money of the United States of America;
“Valuation” means the valuation of the Borrower to be obtained by the Parent and
delivered to the Lender in accordance with the Option and Governance Agreement;
and
“Yearend Financial Statements” means the financial statements of the Borrower,
including the notes thereto, in respect of its most recently completed Fiscal
Year, which shall be audited as herein provided.
1.2 Interest Calculations and Maximum Interest Rate
(a) Unless otherwise stated, in this Agreement, if reference is made to a rate
of interest or other amount “per annum” or a similar expression is used, then
such interest or other amount shall be calculated on the basis of a year of 365
or 366 days, as the case may be. If the amount of any interest or other amount
is determined or expressed on the basis of a period of less than one year of 365
or 366 days, as the case may be, then the equivalent yearly rate is equal to the
rate so determined or expressed, divided by the number of days in such period,
and multiplied by the actual number of days in such calendar year.
(b) Notwithstanding any other provisions of this Agreement, if the amount of any
interest, premium or other monies or any rate of interest stipulated for, taken,
reserved or extracted by the Lender under this Agreement or the Security would
otherwise contravene the provisions of section 347 of the Criminal Code
(Canada), section 8 of the Interest Act (Canada) or any successor or similar
legislation, or would exceed the amounts which the Lender is legally entitled to
charge and receive under any Law to which such compensation is subject, then
such amount or rate of interest shall be reduced to such maximum amount as would
not contravene such provision and, to the extent that any excess has been
charged or received, the Lender shall at its option, but subject to the
Subordination Agreement, apply such excess against the Obligations or refund
such excess to the Borrower.
1.3 Accounting Principles
Unless otherwise provided herein, all financial terms used in this Agreement
shall be determined in accordance with GAAP. Where the character or amount of
any asset or liability or item of revenue or expense is required to be
determined, or any consolidation or other computation is required to be made for
the purpose of this Agreement, such determination or calculation shall be made
in accordance with GAAP applied on a consistent basis, unless otherwise
indicated.

 

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1.4 Currency References
All monetary amounts referred to in this Agreement are in U.S. Dollars unless
otherwise noted.
1.5 References to Statutes
Whenever in this Agreement reference is made to a statute or regulations made
pursuant to a statute, such reference shall be deemed to include all amendments
to such statute or regulations from time to time and all statutes or regulations
which may come into effect from time to time substantially in replacement for
such statute or regulations.
1.6 Extended Meanings
Words importing the singular number include the plural and vice-versa. Unless
otherwise expressly stated herein, if reference is made to any action or matter
which requires the consent of the Lender or which is required to be completed to
the satisfaction of the Lender, then the discretion of the Lender to give such
consent or to confirm its satisfaction with such action or matter shall be in
the sole, absolute and unfettered discretion of the Lender.
1.7 Schedules
The following schedules are attached to this Agreement and incorporated herein
by reference:
Schedule “A” Corporate Information
Schedule “B” Material Agreements
Schedule “C” Material Personal Property
Schedule “D” Exceptions Schedule
Schedule “E” Debenture
Schedule “F” Subsidiary Guarantee
Schedule “G” Subordination Agreement
Schedule “H” Option and Governance Agreement
Schedule “I” Financial Information
ARTICLE II — LOAN
2.1 Agreement to Advance Loan
Subject to the terms and conditions set out in this Agreement, the Lender hereby
agrees to advance the Loan to the Borrower.

 

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2.2 Purpose
Subject to compliance with the terms and conditions set out in this Agreement,
the Loan may be used by the Borrower to:
(a) allow the Borrower to repay the Parent Indebtedness in full;
(b) allow the Borrower to repay a portion of the Senior Indebtedness in an
amount to be determined by the Borrower; and
(c) provide working capital for the Borrower’s and the Guarantor’s business
operations in Brazil.
2.3 Non-Revolving Nature
The Loan shall be a non-revolving loan.
2.4 Drawdown Procedure
The advance of the Loan shall occur in one draw on the Financial Closing or on
such other date as may be approved by the Lender and the Borrower.
2.5 Payment of Interest
Subject to section 2.7 hereof, the Borrower agrees to pay to the Lender interest
on the outstanding principal balance of the Loan at the rate of 15% per annum
payable annually in arrears on the first anniversary of the Financial Closing
and on the Maturity Date provided that:
(a) if, no later than 30 days prior to the first anniversary of the Financial
Closing, the Borrower requests in writing a deferral of the first payment of
accrued interest due on such first anniversary date, then the Lender may, at its
option and in its sole, absolute and unfettered discretion, agree to defer such
interest payment until the Maturity Date; and
(b) in connection with the payment or distribution of any Free Cash Flow in
accordance with Article IV of the Option and Governance Agreement, the Borrower
may pay to the Lender all or any portion of the interest which has accrued on
the principal balance of the Loan and which is not yet due and owing as at the
date of the proposed payment or distribution.
2.6 Payment of Principal
Subject to section 2.7 hereof, the Borrower agrees to pay to the Lender the
outstanding principal balance of the Loan on the earlier of:

  (a)  
the Maturity Date; or
    (b)  
the Acceleration Date.

 

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Notwithstanding anything to the contrary contained in this Agreement or in any
of the other Loan Documents, the Borrower acknowledges and agrees that no
repayment or prepayment of the outstanding principal balance of the Loan by or
on behalf of the Borrower will be permitted (in part or in full) without the
prior written consent of the Lender or, in the case of the occurrence of an
Event of Default, the prior written demand or notice by the Lender.
2.7 Conversion of Debenture and Exercise of Option
Notwithstanding sections 2.5 and 2.6 hereof, at the option of the Lender and in
its sole, absolute and unfettered discretion, the Lender may give to the
Borrower, on or before the Conversion Deadline, pursuant to the Conversion
Notice, written notice that the Lender has elected to convert the Debenture into
Common Shares in accordance with the terms of the Debenture. If the Lender
elects to convert the Debenture into Common Shares, then, on the Conversion
Closing Date:
(a) all accrued and unpaid interest payable by the Borrower in accordance with
section 2.5 hereof shall be (i) applied against the purchase price payable by
the Lender for the Optioned Shares in accordance with the Option and Governance
Agreement (if the Lender has elected to exercise its option to purchase the
Optioned Shares), or (ii) paid to the Lender on the Conversion Closing Date (if
the Lender has not elected to exercise its option to purchase the Optioned
Shares); and
(b) the outstanding principal balance of the Loan payable by the Borrower in
accordance with section 2.6 hereof shall be applied against the conversion price
payable by the Lender in accordance with the Debenture upon the conversion of
the Debenture into Common Shares;
and thereupon, all amounts in respect of interest and principal in respect of
the Loan shall be deemed to be paid in full and all obligations in respect
thereof and hereunder extinguished. Notwithstanding anything to the contrary
contained in this Agreement or in any of the other Loan Documents, the Borrower
acknowledges and agrees that no conversion, redemption or retirement of the
Debenture in part or in full will be permitted without the prior written consent
of the Lender or the prior written demand or notice of conversion by the Lender.
ARTICLE III — GENERAL PAYMENT PROVISIONS
3.1 Interest Calculations
Unless otherwise indicated herein, interest shall be calculated daily and shall
be payable annually in arrears on the first anniversary of the Financial Closing
and on the Maturity Date provided that if such date is not a Business Day, then
such payment of accrued interest shall be made on the next Business Day and
interest shall continue to accrue and be payable until the date of such payment
of accrued interest. Interest shall accrue from and including the Financial
Closing.

 

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3.2 Place and Time of Payments
All payments of principal, interest and other amounts to be made by the Borrower
pursuant to this Agreement shall be made at the Lender’s office as noted in
section 9.5 hereof. All payments received by the Lender on a Business Day before
5:00 p.m. (Calgary time) shall be treated as having been received by the Lender
on that day. Payments made after such time on a Business Day shall be treated as
having been received by the Lender on the next Business Day. Whenever a payment
shall be due on a day which is not a Business Day, the date for payment thereof
shall be extended to the next succeeding Business Day. All payments made by or
on behalf of the Borrower to the Lender shall be made free and clear of any
present or future taxes, withholdings or other deductions.
3.3 No Deduction for Taxes
All principal, interest, costs and other amounts due hereunder shall be made
without withholding or deduction for, or on account of, any present or future
taxes, duties, assessments or governmental charges of whatever nature (other
than taxes in respect of the net income or capital of the Lender) imposed or
levied by or on behalf of any Governmental Authority having the power to tax.
3.4 Free Cash Flow
With respect to any Free Cash Flow paid or distributed by the Borrower to the
Parent and the Lender in accordance with Article IX of the Option and Governance
Agreement (after the payment of any accrued interest or prepaid interest payable
or paid on the Loan in accordance with section 2.5 hereof), the Parties
acknowledge and agree as follows:
(a) the portion of the Free Cash Flow paid or distributed to the Lender shall be
construed and characterized as payments of principal or payments of additional
interest or a combination of each, as determined by the Lender in its sole
discretion, but subject to the Subordination Agreement; and
(b) if section 1.2(b) hereof prohibits or restricts the construction or
characterization described in section 3.4(a) hereof and if the Lender does not,
at its option, apply the restricted or prohibited portion of the Free Cash Flow
against the Obligations in accordance with section 1.2(b) hereof, then each of
the Parent and the Lender shall refund to the Borrower an amount equal to such
restricted or prohibited portion of the Free Cash Flow.
ARTICLE IV — REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties — Borrower
The Borrower hereby represents and warrants to the Lender that, except as set
out in Schedule “D” hereto:
(a) The Borrower has been duly incorporated and organized and is validly
subsisting under the laws of its jurisdiction of incorporation and is in good
standing with respect to the filing of annual returns with the Alberta Corporate
Registry.

 

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(b) The Borrower has the power to own or lease its property and to carry on its
business as now being conducted and is conducting its business in material
compliance with all applicable Laws of each jurisdiction in which it carries on
business and is duly licensed, registered and qualified to do business and is in
good standing in each jurisdiction in which the nature of the business conducted
by it or the properties and assets owned or leased by it make such qualification
necessary and all such licenses, registrations and qualifications are valid and
subsisting and in good standing.
(c) The Borrower has full corporate power, authority and capacity to enter into
and to perform its obligations under and in accordance with by the Loan
Documents to which it is a party.
(d) Neither the consummation of the transactions contemplated by the Loan
Documents to which it is a party, nor compliance with the terms, provisions and
conditions thereof, will conflict with, result in a breach of, or constitute a
default under the Borrower’s charter documents, by-laws or any agreement among
its shareholders, or result in a breach of, default under or the creation of any
Lien on its properties or assets under any agreement or instrument to which it
is a party or by which its properties and assets may be bound or affected, and
does not require the consent or approval of any Person including, without
limitation, the consent of the shareholders of the Parent.
(e) The Borrower has taken or caused to be taken all necessary action to
authorize, and has duly executed and delivered, the Loan Documents to which it
is a party, and there are no provisions in the charter documents or bylaws of
the Borrower or any shareholder agreement which restrict or limit its powers to
borrow money or grant the Security contemplated to be provided by it hereunder
or execute and perform its obligations under the Loan Documents to which it is a
party.
(f) Each of the Loan Documents to which it is a party constitute legal, valid
and binding obligations of the Borrower enforceable against it in accordance
with the terms and provisions thereof, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
rights and remedies of creditors and to the general principles of equity;
(g) The Borrower owns, possesses and has good, valid and marketable title to its
undertaking, properties and assets free and clear of any and all Liens, actions,
claims or demands of any nature whatsoever or howsoever arising, except for
Permitted Liens.
(h) No Person has any agreement or option or any right or privilege (whether by
Law, pre-emptive or contractual) capable of becoming an agreement, including
convertible securities, warrants or convertible obligations of any nature, for
the purchase of the properties or assets of the Borrower out of the ordinary
course of business, or for the purchase, subscription, allotment or issuance of
any debt or equity of the Borrower.
(i) All properties and assets of the Borrower are insured in appropriate amounts
and for appropriate risks as would be considered prudent for similar businesses.

 

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(j) The list of agreements set out in Schedule “B” hereto is a complete and
accurate list of the Material Agreements of the Borrower as at the date of the
Financial Closing.
(k) No Event of Default has occurred and is continuing.
(l) Schedule “A” hereto contains true and accurate information with respect to
the Borrower and each of its Subsidiaries and Affiliates including, without
limitation, its authorized and issued share capital, its registered and
beneficial shareholders, its issued and outstanding options, warrants and other
convertible securities, its jurisdiction of incorporation, the location of its
chief executive office and principal place of business, and all locations at
which it has places of business or owns properties or assets.
(m) The issued and outstanding shares in the capital of the Borrower are owned
by the Parent, free and clear of all Liens, other than the Permitted Liens.
(n) The Borrower is not a reporting issuer in any jurisdiction.
(o) The Borrower is a “private issuer” as such term is defined in section 2.4(1)
of National Instrument 45-106 — Prospectus and Registration Exemption.
(p) From and after the date on which the Security is delivered, the Lender will
have legal, valid and enforceable security upon the properties and assets
secured thereby, subject only to the Permitted Liens, the availability of
equitable remedies and the effect of bankruptcy, insolvency and similar laws
affecting the rights of creditors generally.
(q) The Financial Information relating to the Borrower attached as Schedule “I”
hereto is complete and accurate in all material respects.
(r) except as publicly disclosed by the Parent, there has been no Material
Change to the Borrower since the date of the Financial Information.
(s) The Borrower has duly and timely filed all tax returns required to be filed
by it and has paid all taxes which are due and payable and has paid all
assessments and re-assessments and all other taxes, charges, penalties and
interest due and payable by it on or before the date hereof, except to the
extent that it is diligently contesting any such taxes, assessments, charges or
levies in good faith and has established satisfactory reserves and there are no
actions, suits, proceedings, investigations or claims now threatened or pending
against it in respect of taxes, governmental charges or assessments or any
matters under discussion with any Governmental Authority relating to taxes,
governmental charges or assessments asserted by any such Governmental Authority.
4.2 Representations and Warranties — Guarantor
The Borrower and the Guarantor hereby jointly and severally represent and
warrant to the Lender that, except as set out in the Schedule “D” hereto:

 

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(a) The Guarantor has been duly incorporated and organized and is validly
subsisting under the laws of its jurisdiction of incorporation and is in good
standing with respect to the filing of annual returns with the Alberta Corporate
Registry.
(b) The Guarantor has the power to own or lease its property and to carry on its
business as now being conducted and is conducting its business in material
compliance with all applicable Laws of each jurisdiction in which it carries on
business and is duly licensed, registered and qualified to do business and is in
good standing in each jurisdiction in which the nature of the business conducted
by it or the properties and assets owned or leased by it make such qualification
necessary and all such licenses, registrations and qualifications are valid and
subsisting and in good standing.
(c) The Guarantor has full corporate power, authority and capacity to guarantee
payment to the Lender of all present and future, direct and indirect obligations
of the Borrower to the Lender in accordance with the Subsidiary Guarantee.
(d) Neither the consummation of the transactions contemplated by the Loan
Documents to which it is a party, nor compliance with the terms, provisions and
conditions thereof, will conflict with, result in a breach of, or constitute a
default under the Guarantor’s charter documents, by-laws or any agreement among
its shareholders, or result in a breach of, default under or the creation of any
Lien on its properties or assets under any agreement or instrument to which it
is a party or by which its properties and assets may be bound or affected, and
does not require the consent or approval of any Person.
(e) The Guarantor has taken or caused to be taken all necessary action to
authorize, and has duly executed and delivered, the Loan Documents to which it
is a party and there are no provisions in the charter documents or by-laws of
the Guarantor or any shareholder agreement which restrict or limit its powers to
execute and perform its obligations under the Loan Documents to which it is a
party.
(f) Each of the Loan Documents to which it is a party constitutes a legal, valid
and binding obligation of the Guarantor enforceable against it in accordance
with the terms and provisions thereof, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
rights and remedies of creditors and to the general principles of equity.
(g) The Guarantor owns, possesses and has good, valid and marketable title to
its undertaking, properties and assets, free and clear of any and all Liens,
actions, claims or demands of any nature whatsoever or howsoever arising, except
for Permitted Liens.
(h) All properties and assets of the Guarantor are insured in appropriate
amounts and for appropriate risks as would be considered prudent for similar
businesses.
(i) The list of agreements set out in Schedule “B” hereto is a complete and
accurate list of the Material Agreements of the Guarantor as at the date of the
Financial Closing.
(j) No Event of Default has occurred and is continuing.

 

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(k) The issued and outstanding shares in the capital of the Guarantor are owned
by the Borrower, free and clear of all Liens, other than the Permitted Liens.
(l) The Guarantor has duly and timely filed all tax returns required to be filed
by it and has paid all taxes which are due and payable and has paid all
assessments and re-assessments and all other taxes, charges, penalties and
interest due and payable by it on or before the date hereof, except to the
extent that it is diligently contesting any such taxes, assessments, charges or
levies in good faith and has established satisfactory reserves and there are no
actions, suits, proceedings, investigations or claims now threatened or pending
against it in respect of taxes, governmental charges or assessments or any
matters under discussion with any Governmental Authority relating to taxes,
governmental charges or assessments asserted by any such Governmental Authority.
4.3 Representations and Warranties — Lender
The Lender hereby represents and warrants to the Borrower as follows:
(a) The Lender has been duly incorporated and organized and is validly
subsisting under the laws of its jurisdiction of incorporation and is up-to-date
in respect of all required corporate filings.
(b) The Lender is an “accredited investor”, as such term is defined in National
Instrument 45-106 in that it is a Person, other than an individual or investment
fund, that has net assets of at least Cdn. $5,000,000 as shown on its most
recently prepared financial statements.
4.4 Survival of Representations and Warranties
The Parties hereby acknowledge and agree that each of the Parties is relying
upon the other Parties’ foregoing representations and warranties in connection
with the advance of the Loan. Such representations and warranties shall survive
the execution and delivery of this Agreement and the advance of the Loan
hereunder, notwithstanding any investigations which may be made by any of the
Parties.
ARTICLE V — COVENANTS
5.1 Positive Covenants — Borrower
The Borrower hereby covenants and agrees with the Lender that the Borrower will:
(a) pay all principal, interest and other amounts payable by it to the Lender
pursuant to this Agreement and the Security promptly when due;
(b) keep and maintain full and accurate accounts and records of its operations
according to GAAP and permit the Lender and its designated officers, employees,
agents and representatives to have access thereto and to make examination
thereof at all reasonable times, to make audits, and to inspect and otherwise
check its assets and properties;

 

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(c) perform and satisfy all covenants and obligations to be performed by it
under the Loan Documents to which it is a party and under any other agreement or
undertaking now or hereafter made between it and the Lender;
(d) give prompt written notice to the Lender of: (i) the occurrence of any Event
of Default; (ii) any material contravention of or material non-compliance by it
with any terms and conditions of the Loan Documents to which it is a party;
(iii) any Material Change affecting it; (iv) any material legal proceeding
commenced or threatened against it; and (v) any event or occurrence which could,
in the reasonable opinion of the Borrower, with the giving of notice, lapse of
time or both result in a Material Change affecting it;
(e) maintain its corporate existence, preserve its rights, powers, licences,
privileges, franchises and goodwill, and exercise any rights of renewal or
extensions of any leases, licences, concessions, franchises or any other rights
whatsoever which are necessary or material to the conduct of its business and
carry on and conduct its business in a proper and efficient manner so as to
protect its assets and properties and the earnings, income, rents and profits of
its business; and not materially change the nature of its business;
(f) pay and discharge promptly when due: (i) all taxes, assessments and
governmental charges or levies lawfully imposed upon it or upon its assets and
properties, except to the extent that it is diligently contesting any such
taxes, assessments, charges or levies in good faith and has established reserves
satisfactory to the Lender (acting reasonably); and (ii) all claims which, if
unpaid, might by law become a Lien upon or deemed trust affecting its assets and
properties, except for Permitted Liens;
(g) obtain and maintain insurance in respect of its property and business with
financially sound and reputable insurance companies (not being Affiliates of the
Borrower), in such amounts, with such deductibles, and covering such risks as
are customarily maintained by Persons engaged in a similar business, owing
similar properties and operating in similar localities to the Borrower and/or
the Guarantor and, without limiting the generality of the foregoing, all such
insurance policies shall name the Lender as a loss payee (in the case of
property insurance) or as an additional insured (in the case of liability
insurance) and provide that no cancellation or modification of such policies
will be made without 30 days’ prior written notice to the Lender;
(h) comply in all material respects with all applicable Laws, rules,
governmental restrictions and regulations (specifically including all
Requirements of Environmental Laws) and obtain and maintain in good standing all
material leases, licences, permits and approvals from any and all Governmental
Authorities required in respect of its operations;
(i) maintain and preserve all of its assets and properties which are used in the
conduct of its business in good working order and condition, ordinary wear and
tear excepted;
(j) maintain all of its properties, assets and undertaking free of Liens
whatsoever except for Permitted Liens; and
(k) continue to carry on all material portions of the business being carried on
by it as at the date of the Financial Closing.

 

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5.2 Positive Covenants — Guarantor
The Guarantor hereby covenants and agrees with the Lender that it will, and the
Borrower hereby covenants and agrees with the Lender that it will take all
corporate steps and proceedings within its authority to cause the Guarantor to:
(a) keep and maintain full and accurate accounts and records of its operations
according to GAAP (or the foreign equivalent thereof, if applicable) and permit
the Lender and its designated officers, employees, agents and representatives to
have access thereto and to make examination thereof at all reasonable times, to
make audits, and to inspect and otherwise check its assets and properties;
(b) perform and satisfy all covenants and obligations to be performed by it
under the Loan Documents to which it is a party and under any other agreement or
undertaking now or hereafter made between it and the Lender;
(c) give prompt written notice to the Lender of: (i) the occurrence of any Event
of Default; (ii) any material contravention of or material non-compliance by it
with any terms and conditions of the Loan Documents to which it is a party;
(iii) any Material Change affecting it; (iv) any material legal proceeding
commenced or threatened against it; and (v) any event or occurrence which could,
in the reasonable opinion of the Guarantor, with the giving of notice, lapse of
time or both result in a Material Change affecting it;
(d) maintain its corporate existence, preserve its rights, powers, licences,
privileges, franchises and goodwill, and exercise any rights of renewal or
extensions of any leases, licences, concessions, franchises or any other rights
whatsoever which are necessary or material to the conduct of its business and
carry on and conduct its business in a proper and efficient manner so as to
protect its assets and properties and the earnings, income, rents and profits of
its business; and not materially change the nature of its business;
(e) pay and discharge promptly when due: (i) all taxes, assessments and
governmental charges or levies lawfully imposed upon it or upon its assets and
properties, except to the extent that it is diligently contesting any such
taxes, assessments, charges or levies in good faith and has established reserves
satisfactory to the Lender (acting reasonably); and (ii) all claims which, if
unpaid, might by law become a Lien upon or deemed trust affecting its assets and
properties, except for Permitted Liens;
(f) obtain and maintain insurance in respect of its property and business with
financially sound and reputable insurance companies (not being Affiliates of the
Guarantor), in such amounts, with such deductibles, and covering such risks as
are customarily maintained by Persons engaged in a similar business, owing
similar properties and operating in similar localities to the Borrower and/or
the Guarantor and, without limiting the generality of the foregoing, all such
insurance policies shall name the Lender as a loss payee (in the case of
property insurance) or as an additional insured (in the case of liability
insurance) and provide that no cancellation or modification of such policies
will be made without 30 days’ prior written notice to the Lender; and

 

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(g) comply in all material respects with all applicable Laws, rules,
governmental restrictions and regulations and obtain and maintain in good
standing all material leases, licences, permits and approvals from any and all
Governmental Authorities required in respect of its operations.
5.3 Negative Covenants — Borrower
The Borrower hereby covenants and agrees with the Lender that the Borrower will
not, without the prior written consent of the Lender:
(a) create or incur any indebtedness, liabilities or obligations except for:
(i) indebtedness, liabilities or obligations created or incurred in the ordinary
course of its business; (ii) the Senior Indebtedness up to the maximum aggregate
amount of $40,000,000; (iii) indebtedness, liabilities or obligations due to the
Lender under the Loan Documents; or (iv) indebtedness secured by Permitted
Liens;
(b) create or permit to exist any Liens in respect of any of its properties,
assets or undertaking, except for Permitted Liens; or
(c) (i) liquidate or dissolve or enter into any amalgamation, consolidation,
merger, partnership, joint venture or other combination; or (ii) enter into any
transaction whereby all or substantially all of its undertaking, property and
assets would become the property of any other corporation or Person, whether by
way of reconstruction, reorganization, recapitalization, consolidation,
amalgamation, merger, transfer, sale or otherwise; or (iii) materially change
the nature of its business.
5.4 Negative Covenants — Guarantor
The Guarantor hereby covenants and agrees with the Lender that it will not, and
the Borrower hereby covenants and agrees with the Lender that it will take all
corporate steps and proceedings within its authority to cause the Guarantor not
to, without the prior written consent of the Lender:
(a) create or incur any indebtedness, liabilities or obligations except for:
(i) indebtedness, liabilities or obligations created or incurred in the ordinary
course of its business; (ii) indebtedness, liabilities or obligations due to the
Lender under the Loan Documents; or (iii) indebtedness secured by Permitted
Liens;
(b) create or permit to exist any Liens in respect of any of its properties,
assets or undertaking, except for Permitted Liens; or
(a) (i) liquidate or dissolve or enter into any amalgamation, consolidation,
merger, partnership, joint venture or other combination; or (ii) enter into any
transaction whereby all or substantially all of its undertaking, property and
assets would become the property of any other corporation or Person, whether by
way of reconstruction, reorganization, recapitalization, consolidation,
amalgamation, merger, transfer, sale or otherwise; or (iii) materially change
the nature of its business.

 

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5.5 Reporting Requirements
The Borrower hereby covenants and agrees with the Lender that the Borrower shall
deliver or cause to be delivered to the Lender the following financial and other
information:
(a) as soon as available, but in any event not later than 60 days after the end
of each of the first three Fiscal Quarters of each Fiscal Year, commencing with
the Fiscal Quarter ending March 31, 2008, the unaudited consolidated and
consolidating balance sheet of the Borrower and its Subsidiaries as at the end
of such Fiscal Quarter and the related unaudited consolidated and consolidating
statements of income and of cash flows for such Fiscal Quarter and the portion
of the Fiscal Year through to the end of such Fiscal Quarter, setting forth in
each case in comparative form, if available, the figures for the previous Fiscal
Quarter, certified by a responsible officer of the Borrower as being fairly
stated in all material respects (subject to normal year end audit adjustments
and the absence of footnotes);
(b) commencing with the Fiscal Year ending June 30, 2008, as soon as available,
but in any event within 120 days after the end of each Fiscal Year, a copy of
the audited consolidated and consolidating balance sheet of the Borrower and its
Subsidiaries as at the end of such Fiscal Year and the related audited
consolidated and consolidating statements of income and of cash flows for such
Fiscal Year, setting forth in comparative form the figures for the previous
Fiscal Year, reported on without a going concern or like qualification or
exception, or qualification arising out of the scope of the audit, by a firm of
independent chartered accountants;
(c) the Borrower’s consolidated annual business plan, which shall include
revenue, expense and cash flow projections, on a monthly basis, and balance
sheet, income statement, cash flow statement, detailed capital expenditure
budget and planned acquisitions, complete with assumptions, commentary and
similar matters, and which shall be provided not later than 90 days before the
end of each Fiscal Year of the Borrower; and
(d) such additional information and documents as the Lender may reasonably
require from time to time.
All financial statements required to be delivered pursuant to Sections 5.5(a)
and 5.5(b) shall be complete and correct in all material respects and shall be
prepared in reasonable detail and in accordance with GAAP applied consistently
throughout the periods reflected therein.
ARTICLE VI — SECURITY
6.1 Security to be Provided by the Borrower
The Borrower agrees to provide the security listed below, as continuing security
for the payment and performance of all obligations of the Borrower to the Lender
arising under or in connection with this Agreement:
(a) the Debenture; and
(b) an assignment of the Borrower’s interest in all policies of insurance held
by it, and all such insurance policies shall name the Lender as a loss payee (in
the case of property insurance) or as an additional insured (in the case of
liability insurance).

 

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6.2 Security to be Provided by Guarantor
The Guarantor agrees to provide the security listed below, as continuing
security for the payment and performance of all obligations of the Borrower to
the Lender arising under or in connection with this Agreement:
(a) the Subsidiary Guarantee; and
(b) an assignment of the Guarantor’s interest in all policies of insurance held
by it, and all such insurance policies shall name the Lender as loss payee (in
the case of property insurance) or as an additional insured (in the case of
liability insurance).
6.3 Form of Security and Registration
The Security shall be in form and substance satisfactory to the Lender and its
counsel and shall be registered where necessary or desirable in the reasonable
opinion of the Lender and its counsel to record and perfect the charges and
security interests contained therein.
ARTICLE VII — CONDITIONS FOR ADVANCES
7.1 Conditions for Advance on Financial Closing
The Lender shall have no obligation to advance the Loan to the Borrower until
the following conditions shall have been performed and satisfied:
(a) the representations and warranties of the Borrower and the Guarantor set
forth in Article 4 hereof shall be true and correct as at the date of the
Financial Closing;
(b) all Security shall have been executed and delivered (or, in the case of the
assignments of insurance, such assignments are in the process of being obtained)
and all registrations necessary or desirable in connection the Security shall
have been made (or, in the case of the registration of the Security in Brazil,
such registration is in the process of being made);
(c) the Lender shall have received a subsearch report from its solicitors
confirming that no Liens (other than Permitted Liens) have been registered
against the Material Personal Property charged by the Security which could
affect the priority of the Security or otherwise materially adversely affect the
Security;
(d) the Lender shall have received executed copies of the Option and Governance
Agreement and the Subordination Agreement;
(e) with respect to each of the Borrower, the Guarantor and the Parent, the
Lender shall have received an officer’s or manager’s certificate and a certified
copy of a directors’ resolution or authorization concerning the due
authorization, execution and delivery of the Loan Documents to which it is a
party and such related matters as the Lender may reasonably require;

 

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(f) with respect to each of the Borrower and the Parent, the Lender shall have
received an opinion of the solicitors for the Borrower and the Parent, in form
and substance satisfactory to the Lender and its counsel, (i) in the case of the
Borrower, with respect to the corporate status of the Borrower and the due
authorization, execution, delivery and enforceability of the Loan Documents to
which it is a party, and (ii) in the case of the Parent, with respect to the due
authorization, execution and delivery of the Loan Documents to which it is a
party;
(g) the Lender shall have received a certificate of status or existence in
respect of the Borrower, the Guarantor and the Parent issued by the governing
jurisdiction or an authorized officer applicable to it;
(h) any governmental, regulatory and third party approvals necessary or
desirable in connection with the Loan Documents and the transactions
contemplated herein or therein including, without limitation, the Conditional
Approval Letter shall have been given unconditionally and without containing any
onerous terms;
(i) no event shall have occurred which constitutes a Material Change or Event of
Default, nor shall the advance of the Loan result in the occurrence of any such
event;
(j) the Lender shall not have received any garnishment notice or other notice of
similar effect in respect of the Borrower or the Guarantor (such as but not
limited to a demand for payment issued pursuant to the Income Tax Act (Canada)
or the Excise Tax Act (Canada) or any similar notice under applicable federal,
provincial or foreign legislation); and
(k) the Lender shall have received such additional evidence, documents or
undertakings as it may reasonably require to complete the transactions
contemplated hereby in accordance with the terms and conditions contained
herein.
ARTICLE VIII — DEFAULT AND REMEDIES
8.1 Events of Default
The occurrence of any one or more of the following events, after the expiry of
any applicable cure period (if any) set out below, shall constitute an event of
default (an “Event of Default”) under this Agreement:
(a) the Borrower fails to pay any principal, interest or other amount when due;
(b) any representation or warranty provided by the Borrower or the Guarantor to
the Lender is incorrect on the date on which such representation or warranty was
made;
(c) the Borrower or the Guarantor fails to perform or comply with any of its
covenants or obligations contained in the Loan Documents to which it is a party
(other than those set out in sections 8.1(a) and (b) hereof) after receipt of
notice of such non-compliance from the Lender provided that if such
non-compliance is capable of remedy within 30 days and the Borrower or the
Guarantor, as the case may be, diligently attempts to remedy such non-compliance
and continually informs the Lender of its efforts in this regard, and such
non-compliance is remedied within such period, then such non-compliance shall be
deemed not to constitute an Event of Default;

 

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- 23 -

(d) the Borrower or the Guarantor is in default in the payment or performance of
any of its indebtedness, liabilities or obligations including, without
limitation, under the Senior Credit Agreement or any agreement relating to
Funded Debt (after the expiry of any grace or cure periods relating thereto); or
(e) an Insolvency Event occurs in respect of the Borrower or the Guarantor.
8.2 Acceleration upon Event of Default and Additional Interest
Upon the occurrence of an Insolvency Event, all Obligations shall become
immediately due and payable, without the necessity of any demand upon or notice
to the Borrower by the Lender. Upon the occurrence and during the continuance of
any other Event of Default, the Lender may by written notice delivered to the
Borrower declare all Obligations to be immediately due and payable. From and
after the occurrence of an Event of Default, the Obligations shall bear interest
at the rate otherwise applicable thereto plus 2% per annum, in order to
compensate the Lender for the additional risk.
8.3 Appropriation of Moneys
The Lender may from time to time upon demand or after an Event of Default, but
subject to the Subordination Agreement, appropriate any proceeds of realization
of the Security against such portion of the Obligations as the Lender may
determine in its sole discretion, and the Borrower may not require any different
appropriation. The taking of a judgment or any other action or dealing
whatsoever by the Lender in respect of the Security shall not operate as a
merger of any of the Obligations or in any way affect or prejudice the rights,
remedies and powers which the Lender may have, and the foreclosure, surrender,
cancellation or any other dealing with any Security or any portion of the
Obligations shall not release or affect the liability of the Borrower in respect
of the remaining portion of the Obligations.
8.4 Judgment Currency
If for the purposes of obtaining judgment in any court in any jurisdiction with
respect to this Agreement it becomes necessary for the Lender to convert into
the currency of such jurisdiction (in this section called the “Judgment
Currency”) any amount due to the Lender hereunder in any currency other than the
Judgment Currency, then conversion shall be made at the Exchange Rate prevailing
on Business Day before the day on which judgment is given. In the event that
there is a change in the Exchange Rate prevailing between the Business Day
before the day on which the judgment is given and the date of payment of the
amount due, the Borrower or the Guarantor, as the case may be, will, on the date
of payment, pay such additional amounts (if any) or be entitled to receive
reimbursement of such amount, if any, as may be necessary to ensure that the
amount paid on such date is the amount in the Judgment Currency which when
converted at the Exchange Rate prevailing on the date of payment is the amount
then due under this Agreement in such other currency. Any additional amount due
by the Borrower or the Guarantor, as the case may be, under this section 8.4
will be due as a separate debt and shall not be affected by judgment being
obtained for any other sums due under or in respect of this Agreement.

 

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- 24 -

8.5 Remedies Cumulative
All of the rights and remedies granted to the Lender in this Agreement and the
Security, and any other documents or instruments in existence between the
Parties or any of them or contemplated hereby, and any other rights and remedies
available to the Lender at law or in equity, shall be cumulative. The exercise
or failure to exercise any of such remedies shall not constitute a waiver or
release thereof or of any other right or remedy, and shall be non-exclusive.
8.6 Insolvency Proceedings
If the Borrower or the Guarantor intends to take the benefit of any statute
affecting creditors’ rights generally including, without limitation, making an
assignment for the general benefit of creditors, making a proposal or filing a
notice of intention to make a proposal under the BIA or bringing proceedings
under the Companies Creditors Arrangement Act (Canada) or the Winding-Up and
Restructuring Act (Canada), then the Borrower or the Guarantor, as the case may
be, covenants and agrees to provide the Lender with five Business Days’ prior
written notice before any of the aforementioned proceedings are commenced. As
soon as possible prior to the commencement of any such proceedings, the Borrower
or the Guarantor, as the case may be, shall provide to the Lender copies of all
relevant filing materials including, without limitation, copies of draft court
orders, plans of compromise, proposals and notices of intention. During this
notice period the Lender may, in its sole discretion, elect to exercise any and
all rights and remedies as set out in this Agreement or the Security.
ARTICLE IX — GENERAL
9.1 Waivers to be in Writing
Any failure or delay by the Lender in exercising any right or privilege with
respect to the non-compliance with any provisions of the Loan Documents and any
course of action on the part of the Lender, shall not operate as a waiver of any
rights of the Lender unless made in writing by the Lender. Any such waiver shall
be effective only in the specific instance and for the purpose for which it is
given and shall not constitute a waiver of any other rights and remedies of the
Lender with respect to any other or future non-compliance.
9.2 Governing Law
This Agreement shall be interpreted in accordance with the laws of the Province
of Alberta and the federal laws of Canada applicable therein. Without prejudice
to the right of the Lender to commence any proceedings with respect to this
Agreement in any other proper jurisdiction, the Parties hereby attorn and submit
to the jurisdiction of the courts of the Province of Alberta.

 

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- 25 -

9.3 Costs and Expenses
Each of the Parties will pay its own fees and other costs, charges and expenses
(including due diligence expenses) applicable to the preparation, execution and
delivery of the Loan Documents to which it is a party. The Borrower and the
Guarantor hereby jointly and severally agree to pay on demand by the Lender all
reasonable expenses incurred by the Lender, including reasonable legal expenses
on a solicitor and his own client basis, in connection with the enforcement of
the rights and remedies of the Lender provided for thereby, together with
interest after demand at the highest rate then applicable to the Loan.
9.4 General Indemnity
In this section 9.4, “Indemnitees” means the Lender and its agents (specifically
including a receiver or receiver-manager) and their respective officers,
directors and employees, and the respective successors and assignees of the
foregoing. In addition to any other liability hereunder, the Borrower and the
Guarantor jointly and severally agree to indemnify and save harmless the
Indemnitees from and against all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
(including reasonable legal fees on a solicitor and his own client basis) of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Indemnitees which relate or arise out of or result from any failure
by the Borrower or the Guarantor to pay and satisfy its obligations hereunder.
The obligations under this section 9.4 shall survive the termination of this
Agreement.
9.5 Notice
Without prejudice to any other method of giving notice, all communications
provided for or permitted hereunder shall be in writing and delivered to the
addressee by prepaid private courier or sent by telecopy or other direct written
electronic means, to the applicable address and to the attention of the officer
of the addressee as follows:

  (a)  
to the Borrower or the Guarantor at:
       
BCH Ltd.
Suite 500, 816 — 7th Avenue S.W.
Calgary, Alberta T2P 1A1
Attention: Craig F. Nieboer, Chief Financial Officer
Telecopier no.: (403) 265-4160
E-mail: cnieboer@brazalta.com
       
with a copy to:
       
Davis llp
Barristers and Solicitors
Suite 1000, 250 — 2nd Street SW
Calgary, Alberta T2P 0C1
Attention: Trevor Wong-Chor
Telecopier no.: (403) 296-4474
E-mail: twong-chor@davis.ca

 

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- 26 -

  (b)  
to the Lender, at:
       
Allis-Chalmers Energy Inc.
5075 Westheimer, Suite 890
Houston, Texas 77056
Attention: Theodore F. Pound III
Telecopier no.: (281) 768-3891
E-mail: tpound@alchenergy.com

Any communication transmitted by prepaid private courier shall be deemed to have
been validly and effectively given or delivered on the Business Day after which
it is submitted for delivery. Any communication transmitted by telecopy or other
direct written electronic means shall be deemed to have been validly and
effectively given or delivered on the day on which it is transmitted, if
transmitted on a Business Day on or before 5:00 p.m. (local time of the intended
recipient), and otherwise on the next following Business Day. Any party may
change its address for service by notice given in the foregoing manner.
9.6 Severability
Any provision of this Agreement which is illegal, prohibited or unenforceable in
any jurisdiction, in whole or in part, shall not invalidate the remaining
provisions hereof and any such illegality, prohibition or unenforceability in
any such jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
9.7 Further Assurances
The Borrower shall, at its expense, promptly execute and deliver or cause to be
executed and delivered to the Lender upon request from time to time all such
other and further documents, agreements, opinions, certificates and instruments
in material compliance with this Agreement, or if necessary or desirable to more
fully record or evidence the obligations intended to be entered into herein, or
to make any recording, file any notice or obtain any consent.
9.8 Time of the Essence
Time shall be of the essence of this Agreement.
9.9 Assignment and Participation
The following provisions govern the extent to which the rights and obligations
of the Parties may be assigned or participated:
(a) neither the Borrower nor the Guarantor may assign any of its rights or
obligations under this Agreement without the prior written consent of the
Lender;
(b) subject to sections 9.9(c) and (d) hereof, the Lender may not assign any of
its rights or obligations under this Agreement without the prior written consent
of the Borrower and the Guarantor;

 

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- 27 -

(c) the Lender may, from time to time, assign its rights and obligations under
this Agreement in whole or in part to any Subsidiary or Affiliate of the Lender
upon written notice to, but without the prior written consent of, the Borrower
or the Guarantor and, upon such assignment, the Lender shall be relieved of its
obligations hereunder to the extent that the assignee agrees in writing to
assume such obligations; and
(d) the Lender may, from time to time, without the prior written consent of the
Borrower or the Guarantor but subject to the Subordination Agreement, pledge or
assign (by way of security only) its rights under this Agreement in whole or in
part to Royal Bank of Canada, as agent for the lenders of the Lender, or to any
successor agent for such lenders provided that such successor agent and a
majority of such lenders are nationally recognized financial or banking
institutions,
9.10 Entire Agreement
This Agreement and any other documents or instruments contemplated hereby shall
constitute the entire agreement and understanding among the Parties relating to
the subject matter hereof. No provision of this Agreement or any other document
or instrument in existence among the Parties may be modified, waived or
terminated except by an instrument in writing executed by the Party against whom
such modification, waiver or termination is sought to be enforced.
9.11 Binding Effect
This Agreement shall be binding upon and shall enure to the benefit of the
Parties and their respective successors and permitted assigns, it being
acknowledged that “successors” includes any corporation resulting from the
amalgamation of any Party with any other corporation.

 

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- 28 -

ARTICLE X — EXECUTION
10.1 Execution
This Agreement has been executed and delivered by the Parties as of the 31st day
of January, 2008.

              ALLIS-CHALMERS ENERGY INC.
 
       
 
  By:   /s/ Theodore F. Pound III
 
       
 
       
 
  Name:   Theodore F. Pound III
 
       
 
       
 
  Title:   General Counsel and Secretary
 
       
 
            BCH LTD.
 
       
 
  By:   /s/  Craig Nieboer
 
       
 
       
 
  Name:   Craig Nieboer
 
       
 
       
 
  Title:   Chief Financial Officer
 
       
 
            BCH ENERGY DO BRASIL SERVICOS DE
PETROLEO LTDA.
 
       
 
  By:   /s/ Luiz Azevedo
 
       
 
       
 
  Name:   Luiz Azevedo
 
       
 
       
 
  Title:   Managing Director
 
       
 
       

 

 

--------------------------------------------------------------------------------

 

SCHEDULE “A”
CORPORATE INFORMATION
1. BCH LTD.
Authorized capital: Unlimited number of common shares and an unlimited number of
preferred shares issuable in series.
Issued capital: 10,000,000 common shares, nil preferred shares.
Registered and beneficial shareholders: BrazAlta Resources Corp. — 10,000,000
common shares.
Issued and outstanding options: Options to acquire 800,000 common shares with an
exercise price of USD$4.163 per common share.
Issued and outstanding warrants: Warrants to acquire 250,000 common shares with
an exercise price of USD$10.00 per common share.
Other convertible securities: Nil
Jurisdiction of incorporation: Alberta
Location of Chief Executive officer: Calgary, Alberta
Principal place of business: Alberta, Brazil
Locations at which is has places of business or owns properties or assets:
Alberta, Brazil
2. BCH ENERGY DO BRASIL SERVICOS DE PETROLEO LTDA.
Authorized capital: 10,500,000 quotas duly subscribed. Please note that this
amount of capital stock should be paid-in until November 22, 2009. (This term,
however, can be extended by the shareholders.)
Issued capital: 8,836,337 quotas duly paid-in. Please note that this is the
amount registered before the Central Bank of Brazil reflecting the latest
remittances of capital. The current capital stock is expected to be updated
before the Board of Trade in the next amendment to the company’s articles of
incorporation.
Registered and beneficial shareholders: BCH Ltd. — 10,499,999 common shares
subscribed, from which 8,836,336 shares are duly paid-in.
Luiz Eliel Nunes de Azevedo — 1 common share subscribed and duly paid-in.

 

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- 2 -

Issued and outstanding options: None
Issued and outstanding warrants: None
Other convertible securities: None
Jurisdiction of incorporation: City of Rio de Janeiro, State of Rio de Janeiro,
Brazil
Location of Chief Executive officer: City of Rio de Janeiro, State of Rio de
Janeiro, Brazil (in accordance with the articles of incorporation currently in
effect.)
Principal place of business: Av. Rio Branco, n° 01, Sala 804, City of Rio de
Janeiro, State of Rio de Janeiro, Brazil
Locations at which is has places of business or owns properties or assets:
Principal place of business: Av. Rio Branco, n° 01, Sala 804, City of Rio de
Janeiro, State of Rio de Janeiro, Brazil
Branches: (i) City of Catu, State of Bahia, Rua dos Jasmins, n° 01, Planalto II,
CEP: 48110-000;

  (ii)  
City of Mossoró, State of Rio Grande do Norte, Av. Industrial Dehuel Vieira
Diniz, S/N, Fazenda Santa Júlia, CEP: 59.600-000;
    (iii)  
City Japaratuba, State of Sergipe, Rua Domiciano Correia, n° 129, CEP:
49.960-000; and
    (iv)  
City of São Mateus, State of Espírito Santo, Rodovia BR — 101, Km 67, Bairro Boa
Vista, CEP: 29.930-000

3. OTHER SUBSIDIARIES AND AFFILIATES OF BORROWER
None

 

 

--------------------------------------------------------------------------------

 

SCHEDULE “B”
MATERIAL AGREEMENTS

                  Drilling Rig which Services Contract   Client       Contract #
 
BCH-01
  Petrobras   Service:     2300.0031788.07.2  
 
      Lease:     2300.0031786.07.2  
BCH-02
  Petrobras   Service:     2500.0031792.07.2  
 
      Lease:     2500.0031791.07.2  
BCH-04
  Petrobras   Service:     2700.0031827.07.2  
 
      Lease:     2700.0031824.07.2  
BCH-05
  Petrobras   Service:     2500.0031794.07.2  
 
      Lease:     2500.0031793.07.2  
BCH-03
  Petrobras   Service:     2600.0037264.07.2  
 
      Lease:     2600.0037263.07.2  

Service Contracts are between Petrobras and BCH Energy do Brasil Servicos de
Petroleo Ltda.
Lease Contracts are between Petrobras and BCH Ltd.

 

 

--------------------------------------------------------------------------------

 

SCHEDULE “C”
MATERIAL PERSONAL PROPERTY
Current Rig Fleet:
BCH-01 — Kremco Superior 400 Trailer Mounted Rig Drilling Rig and all ancillary
equipment
BCH-02 — IRI Cabot 2550 Drilling Rig and all ancillary equipment
SR101 — Cooper 500 — 5 Axle-Trailer Mounted Service Rig and all ancillary
equipment
BCH-03 — Rostel Model 300 Single Drilling Rig and all ancillary equipment
BCH-04 — IRI 750 model 2042/160 750 hp, trailer mounted — Double Drilling Rig
and all ancillary equipment
BCH-05 — Xtreme Diesel Electric Double Drilling Rig and all ancillary equipment
BCH-06 — Grandbow Industries Model JJ1351D 105’ telescopic Double Drilling Rig
and all ancillary equipment

 

 

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(BCH LOGO) [c72237c7223701.gif]
DRILLING RIG JR MACMILLAN (BCH-01)
Former: RIG-26
MANUFACTURER: KREMCO CANADA
MODEL: SUPERIOR 400 TRAILER MOUNTED RIG

         
DEPTH RATING
       
 
       
101.6 (mm), 4 (in.) drill pipe
  :   1500 (m), 4921 (ft)
 
       
DRAWWORKS
       
 
       
Make
  :   Superior
Model
  :   400
Drilling line
  :   25.4 (mm), 1 (in.) (EIPS)
Main brake
  :   Band
Auxiliary brake
  :   Parmac Hydromatic
Power
  :   Caterpillar 3412 (630 hp)
Drive
  :   Alison Torque Converter
Crown saver
  :   Hitec Cathead
 
       
MAST
       
 
       
Type
  :   Box telescope (free standing) (cable raise)
Height
  :   34.14 (m) 112 (ft)
Make
  :   Kremco
Gross nominal Capacity
  :   146,780, (daN), 330 000 (lbs)
Static hook load rating
  :   88,960 (daN), 200 000 (lbs)
Racking capacity (doubles)
  :   153 x 101 mm, (4")pipe (doubles)
 
       
SUBSTRUCTURE
       
 
       
Make
  :   Kremco
Type
  :   One piece box
Casing capacity
  :   88,960 (daN), 200 000 (lbs)
Set back capacity
  :   66,720 (daN), 150 000 (lbs)
 
       
TRAVELLING EQUIPMENT
       
 
       
Block (ton)
  :   BJ 150
Hook (ton)
  :   BJ Unimatic 150
Block and hook model
  :   BJ 6150
Swivel (ton)
  :   National 200
Model
  :   P200

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – sala 11/12
  Rua dos Jasmins n° 01, Bairro Planalto II
Rio de Janeiro – RJ
  Catu, Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
   
Fax: 21 - 2588-8116
   

 

 

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(BCH LOGO) [c72237c7223701.gif]

         
ROTARY TABLE
       
 
       
Make
  :   National
Model
  :   C-175
Opening size
  :   444.5 (mm), 17-1/2 (in.)
Static load rating
  :   226,796 (kg), 250 (ton)
Drive
  :   Caterpillar 3406 (420 hp)
 
       
MUD PUMP NO. 1
       
 
       
Make
  :   BPMMP - Baoji, China (to Continental Emsco design)
Model
  :   F500
Type
  :   Triplex
Displacement
  :   0.5 - 2.2 (m3/min) (gpm)135-575 @ 165 SPM
Pressures
  :   9.2 - 26.3 (mPa), 1340 to 3820 (psi)
Charge pump
  :   Mission Magnum 5 in x 6 in centrifugal
Power
  :   Caterpillar 3412 (600 hp)
Transmission
  :   5-speed Allison 5960
 
       
MUD PUMP NO. 2
       
 
       
Make
  :   BPMMP - Baoji, China (to Continental Emsco design)
Model
  :   F500
Type
  :   Triplex
Displacement
  :   0.5 - 2.2 (m3/min), 135 - 575 (gpm) @ 165 spm
Pressures
  :   9.2 - 26.3 (mPa), 1340 to 3820 (psi) spm
Charge pump
  :   Demco 5 in x 4 in centrifugal
Power
  :   Caterpillar 3412 (600 hp)
Transmission
  :   5-speed Allison 5960
 
       
GENERATORS
       
 
       
Engines
  :   Caterpillar D3406 DIT
Number
  :   Three
Generators
  :   210 KW (2x) / 300 KW (1x) - 460/220 V 60 Hz
 
       
MUD SYSTEM
       
 
       
Tank volume
  :   64 (m3), 370 (bbl), (two tanks)
Shakers
  :   Sweco LM 3
Degasser
  :   Poorboy

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – sala 11/12
  Rua dos Jasmins n° 01, Bairro Planalto II
Rio de Janeiro – RJ
  Catu, Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
   
Fax: 21 - 2588-8116
   

 

 

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(BCH LOGO) [c72237c7223701.gif]

         
BOP SYSTEM
       
 
       
BOP stack
  :   11 in Hydril GK 3M annular
 
      11 in Shaffer 3M double gate
Accumulator
  :   Hydril K8 454 (ltr), 120 (gal)
Choke manifold
  :   Oilmaster 3M
Adjustable choke
  :   Willis
Test pump
  :   Hydratron
 
       
INSTRUMENTATION
       
 
       
Drilling recorder
  :   3-pen Totco
Driller console
  :   Hitec Cathead mini console
Inclinometer
  :   Totco
Weight Indicator
  :   MD Totco
 
       
HANDLING EQUIPMENT
       
 
       
Winch
  :   Gearmatic hydraulic 2720 (kg), 3 (ton)
Manriding winch
  :   IR46RJ Pneumatic
Kelly spinner
  :   Foster hydraulic
Wireline winch
  :   Gearmatic
Hydraulic Power Tongs
  :   White Bear - 25,000 foot - pounds (3" - 5" in.)
 
       
FUEL TANK
       
 
       
Capacity
  :   21 800 (ltr), 5760 (gal)
 
       
WATER TANK
       
 
       
Capacity
  :   400 (ltr), 105 (gal)
 
       
BUILDINGS:
       
 
       
Change shack
  :   20 ft container (modified)
Doghouse a/c (large)
  :   20 ft container
Trailers
  :   2x 40ft (offices, mess room)
 
      2x 20ft (living quarters)
Geologist Lab
  :   20 ft container
 
       
TUBULARS
       
 
       
Drill pipe
  :   300 ea - 101.6 (mm), 4" (in.)
 
      Grade E (H90 tool joints)
 
       
Drill collars
  :   20 ea - 171.5 (mm), 6-3/4" (in.) spiral
 
      20 ea - 120.6 (mm), 4-3/4" (in.)
 
      03 ea - 196.9 (mm), 7.3/4" (in.)
 
      07 ea - 171.5 (mm), 6.3/4"(in.)
 
       
Heavy Weight Drill pipe
  :   14 ea - 127 (mm) - 5" (in.)

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – sala 11/12
  Rua dos Jasmins n° 01, Bairro Planalto II
Rio de Janeiro – RJ
  Catu, Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
   
Fax: 21 - 2588-8116
   

 

 

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(BCH LOGO) [c72237c7223701.gif]
DRILLING RIG BCH-JM2
Former: RIG-15

      ITEM   DESCRIPTION
 
   
DRAWWORKS:
  - IRI Cabot 2550
Horsepower Rating:
  - 1200 H.P.
Maximum Hoisting Capacity:
  - 337.5 T with 10 lines of 1-1/4"
Auxiliary Brake:
  - Parmac V-80 Hydromatic
Crown Block Protection:
  - Stewart - Stevenson
 
   
PRIME MOVER (DRAWWORKS):
  - 2 Cat 3412 DITA
Output Horsepower rating:
  - 600 H.P. each
Emergency Shut-down:
  - Barber Type
(Pumps):
  - 2 Cat D-399 TA
Output Horsepower:
  - 1150 H.P. with Barber Type Shutdown
 
   
AIR COMPRESSORS:
   
Type:
  - 1 - Quincy 350-21 (E) - Electric Powered
 
  - 1 - Quincy 350-22 (E) - Electric Powered
Automatic:
  - Yes -1 - Primary / 1 - Backup
 
   
ROTARY TABLE:
  - Gardner Denver RT 27-1/2
Maximum Table Opening:
  - 700 mm
Maximum Static Load:
  - (222,500 daN)
Torque Gauge:
  - Totco
RPM Gauge:
  - Totco
 
   
DERRICK:
  - IRI Telescoping
Static Hook Load w/ Lines of:
  - 322 T with 10 lines (318,000 daN)
Racking Capacity:
  - 145 STD with 5"
Clear Working Height:
  - 38.7m (127 feet)
Wind Capacity (Bare Mast):
  - 106 MPH
Wind Capacity (Full Set-back):
  - 80 MPH
 
   
SUBSTRUCTURE:
  - IRI Telescoping
Casing Load:
  - 460 Ton (409,400 daN)
Minimum Clear Working Height:
  - 4.15m (13.8 ft)
Set Back Capacity:
  - 162 Ton (360,000 lbs) (162,200 daN)
 
   
TRAVELLING EQUIPMENT:
   
Crown Block:
  - IRI 6 - 42" Sheaves
Hook Block:
  - Emsco 350 T / 5 Sheaves (311,500 daN)
Links:
  - BJ 350 T / 96" (311,500 daN, 2743 mm)
Swivel:
  - Emsco LB 400 (Static Ratio mg 800,000 lb) (356,000 daN)
 
   
TOP DRIVE:
   
Manufacturer:
  - TESCO
Model:
  - 250 HMIS
Capacity:
  - 250 Tons
Specs:
  - Hydraulic Power Pack (475 HP)

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – salas 11/12
  Rua dos Jasmins, 01 - Bairro Planalto II
Rio de Janeiro – RJ
  Catu – Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
  Tel.: 71 - 3641-9909
Fax: 21 - 2588-8116
  Fax: 71 - 3641-9459

 

 

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(BCH LOGO) [c72237c7223701.gif]

      ITEM   DESCRIPTION
 
   
DRILLING LINE:
   
Drilling Line Diameter:
  - 31.5 mm (1-1/4")
Type:
  - IWRC - IPS
Strength Capacity:
  - 71,000 daN (79.9T)
 
   
DEAD LINE ANCHOR:
   
Weight Indicator:
  - Martin Decker
Hydraulic Sensor:
  - Martin Decker
Line Scale Weight Indicator
  - Cameron C
 
   
HYDRAULIC WINCH:
   
Type:
  - Pull master PL8 (Hydraulic)
Load:
  - 7000 Lbs: 3115 daN
No:
  - Two
 
   
MUD PUMP:
   
No/Make/Model/Type — Pumps:
  - 2 - Gardner Denver PZ9 Triplex
Power Rating:
  - Pump- 750 kw (1000 H.P.) Each Engine Rating Caterpillar D-399c/w torque
converter (1150 H.P.)
Maximum Strokes / Minute:
  - 120
Maximum Working Pressure:
  - Lesser of 80% of Liner Rating or Published Pressure
Liner Size Available:
  - 6", 6-1/2"
Suction Pulsation Dampener:
  - No
Discharge Pulsation Dampener:
  - Continental Emsco 10 Gallon Lower Case 5000 psi on each Pump
Charge Pump (Centrifugal):
  - Mission 5 x 6
 
   
MUD TANKS:
   
Active Tank Volume:
  - 180 m3 (1110 bbl)
Premix Tank:
  - 48 m3 (400 bbl)
Trip Tank:
  - 3.5 m3 (22 bbl)
Agitators:
  - 5 - Norgear Model 800SW- 20 H.P.
Mud Guns:
  - Low Pressure for each Compartment
 
   
Desilter:
  - Swaco 12- 4" Cones
Degasser:
  - Roll'n Atmospheric 20" (500 mm Dia.)
Centrifuge Machine:
  - Swaco Model 1828
Shale Shakers:
  - 3 - Swaco Linear
Centrifugal Pumps:
  - Mission Style
Type:
  - 6" x 8" and 2"x3"
Capacity:
  - Various as per application
Number:
  - Seven

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – salas 11/12
  Rua dos Jasmins, 01 - Bairro Planalto II
Rio de Janeiro – RJ
  Catu – Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
  Tel.: 71 - 3641-9909
Fax: 21 - 2588-8116
  Fax: 71 - 3641-9459

 

 

--------------------------------------------------------------------------------

 

(BCH LOGO) [c72237c7223701.gif]

      ITEM   DESCRIPTION
 
   
LIGHT PLANTS:
   
Generators Available, (Rating-KW)
  - 2-CAT-3412 DITA 680 KW
Lighting available for:
  - Location Lighting and Wellsite Module
Both for rig:
  - For Rig and Wellsite Accommodation
Voltage:
  - 480 Volts w/ Transformer to 220v / 110v
 
   
TUBULARS:
   
 
   
Drill Pipe:
   
 
  - 288 Joints of 5 inch 19.5 Ib per ft Grade S135 c/w 4 1/2 inch IF tool joints
 
   
 
  - 144 Joints of 5 inch 19.5 Ib. per ft Grade E c/w 4 1/2 inch IF tool joints
 
   
 
  - 360 Joints of 3 1/2 inch 13.3 Ib per ft. Grade G105 c/w 3 1/2 inch IF tool
joints
 
   
 
  - 8-5 inch pup Joints of assorted lengths c/w 4 1/2 inch IF tool joints
 
   
 
  - 15 Joints of 5 inch HEVI- WATE drill pipe c/w 4 1/2 inch IF connections
 
   
Drill Collars:
   
 
   
 
  - 3-9 inch Spiral drill collars with 7 5/8 REG connections
 
   
 
  - 9-8 inch Spiral drill collars with 6 5/8 inch REG connections
 
   
 
  - 11-7 inch Spiral drill collars with 4 1/2 inch IF connections
 
   
 
  - 12-6 1/2 inch Spiral drill collars with 4 1/2 inch IF connections
 
   
 
  - 30-6 1/4 inch Spiral drill collars with 4 1/2 inch IF connections
 
   
 
  - 21-4 3/4 inch Spiral drill collars with 3 1/2 inch IF Connections
 
   
Drilling Subs:
   
 
   
 
  - 70 subs
 
   
Fishing Tools:
   
 
   
 
  - Tool inventory (inventory on request)

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – salas 11/12
  Rua dos Jasmins, 01 - Bairro Planalto II
Rio de Janeiro – RJ
  Catu – Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
  Tel.: 71 - 3641-9909
Fax: 21 - 2588-8116
  Fax: 71 - 3641-9459

 

 

--------------------------------------------------------------------------------

 

(BCH LOGO) [c72237c7223701.gif]

      ITEM   DESCRIPTION
 
   
BLOW OUT PREVENTION EQUIPMENT:
   
 
   
Annular Preventer:
  - 1-11 inch 5000 psi Hydril Annular Preventer
Ram Preventers:
  - 1-11 inch 5000 psi Shaffer double Ram Preventer
 
  - 1-11 inch 5000 psi Shaffer single Ram Preventer:
Drilling Spool:
  - 1-11 inch 5000 psi drilling spool c/w 2- 4 1/16 5000 psi outlets
Choke Manifold:
  - 1-5000 psi choke manifold c/w one manual and one auto choke with console

Accumulator:
  - Valvcon 130 Gallon 6 station
 
   
AUXILIARY TOOLS & INSTRUMENTS:
   
1. Automatic Drill Recorder
  - Martin Decker 5 Pen
2. Single shot Drift Recorder
  - Totco 7°
3. Wire-line Unit (Hydraulic):
  - 0.092 Line Rated for4570m / (15,000 ft)
4. High Pressure Wash Gun (Pump):
  - CAT w/ 3 H.P. Electric Motor
5. Sump Pump:
  - FLYGT 4" (Electric)
6. Kelly Spinner:
  - Foster 77 (Mckinney)
Kelly Bushing:
  - Varco HDP Hex
7. Drill Pipe Spinner:
  - Varco SSW 10
8. Rotary Hose:
  - Goodall 55' x 3' ID x min 5000PSI Working Pressure
9. Portable Rig Matting
  - Yes - 6" Thick, 8 ft wide, various lengths
10. Kelly:
  - 5-1/4" Hex - 40 ft long
Kelly Drive Bushing:
  - Pin Drive
11. Fuel Tanks, One tank at rig
  - 40,000 liter / Tank
12. Fuel Pumps:
  - 2- Electric Powered
13. Water Tanks, (Drilling Water Rig Storage):
  - 1 Hydormatic Tank
 
  - 2-Water Storage Tanks
 
  - 1-Rig Water Tank
Water Pumps:
  - 2-3" Jacuzzi (Electric Powered)
 
  - 2-120 Barrel water transport tanks skid mounted
14. Hand Tools:
  - Complete set for rig, mechanic and electrician
15. One (1) Derrick Bunk 16. One wellsite unit for Rig Manager
   
 
   
SPARE EQUIPMENT ITEMS:
         
Engines:
  - 2-398 Caterpillar engines c/w Radiators
Transmissions:
  - 1-6061 Allison Automatic transmission complete
Right Angle Drive:
  - 1- complete right angle drive for the drawworks
Hook:
  - 1-250 ton Web Wilson
BOP:
  - 1-11 inch 5000 psi Hydril Annular complete
 
  - 1-11 inch 5000 psi Shaffer double gate
Swivel:
  - 1-LB400 Emsco swivel complete
Tongs:
  - 1 complete set of AAX tongs with jaws
Rotary Table (New)
  - 1 Spare 27 1/2 inch rotary table complete with drive bushing

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – salas 11/12
  Rua dos Jasmins, 01 - Bairro Planalto II
Rio de Janeiro – RJ
  Catu – Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
  Tel.: 71 - 3641-9909
Fax: 21 - 2588-8116
  Fax: 71 - 3641-9459

 

 

--------------------------------------------------------------------------------

 

(BCH ENERGY DO BRASIL LOGO) [c72237c7223702.gif]
Equipamentos e Materiais Fornecidos pela BCH-101

                  ITEM   ESPECIFICAÇÃO   QUANT.        
 
          1    
Sonda de Produção e Acessórios.
               
 
          1.1    
Sonda de produção com capacidade igual ou superior a ( 150.000 ) libras, que
manobre com seção de ( 2 ) tubos na vertical, dotada de sistema de partida
elétrica e descarga, possuindo mastro com altura de ( 30 ) m.
    1          
 
          1.2    
Plataforma de trabalho com altura ajustável.
    1          
 
          1.3    
Conjunto gancho-catarina com capacidade (150.000lbs).
    1          
 
          1.4    
Par de links com capacidade ( 220.000lbs ) e comprimento ( 2.20m ).
    1          
 
          1.5    
Power-Sub tipo ( warning ) com Swivel, acionado por ( Sistema hidráulico ).
    1          
 
          1.6    
Cat line com velocidade de ( 6 ) metros por minuto.
    1          
 
          1.7    
Cat head com controle de torque e curso mínimo de ( 3,77 ) pés.
    1          
 
          1.8    
Guincho auxiliar.
               
 
          1.9    
Catarina com cabo de aço de ( 1 ) “.
               
 
          2    
Sistema de Circulação, Amortecimento e Teste
               
 
          2.1    
Bomba de lama modelo (National), com filtro e acionada, com potência de
(JWS-400) HP, dotado de sistema de partida, ou Bomba de lama Dowel Schlumberger
triplex capacidade 8.5 galões por minunos, motor Detroit 420 HP 8V71 díesel
(back-up/bomba reserva).
    1          
 
          2.2    
Conjunto de mangueiras de aço, tipo ( 2”lp ) .
    1          
 
          2.3    
Conjunto de mangueiras para sucção com ( 4) “ de diâmetro x ( 32 ) pés.
    1          
 
          2.4    
Tanque retangular para armazenamento de fluido, com capacidade de ( 114 ) bbl,
equipado com câmara de espuma, dotado de divisão com comporta para retenção de
detritos e com sucção na extremidade oposta ao retorno.
    2          
 
          2.5    
Pistola de lama.
    1          
 
          2.6    
Manifold de ataque e estrangulamento de ( 5000 ) psi WP.
    1          
 
          2.7    
Manifold de sucção de ( 6 ) “.
    1          
 
          2.8    
Balança n° ( 1 ) com ( 0 a 27 lbs/pé ) escalas, incluindo lb/pé3.
    1  

 

1

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(BCH ENERGY DO BRASIL LOGO) [c72237c7223702.gif]

                  ITEM   ESPECIFICAÇÃO   QUANT.        
 
          3    
Equipamentos de Prevenção de Erupções
               
 
          3.1    
BOP hidráulico, modelo ( DR-25 ), 7 1/6” x 5.000 psi WP de gaveta dupla com
acionador, acumulador e comandos hidráulico e mecânico. Sistema de acionamento
utilizando mangueiras de aço ou de borracha, tipo ( 1 1/2 ). Gavetas para
tubulações de ( 2.3/8x 3.1/2 “ OD ) e cega. Adaptador para 5000 psi, com tomada
lateral de 2 “ abaixo da gaveta inferior e acima da gaveta superior.
    2          
 
          3.2    
BOP para trabalhar coluna de hastes de ( 5/8 ) “ a ( 1.1/8 ) “, que utilize um
único par de gavetas para todos os diâmetros, tipo ( Doble E ), com pressão de
trabalho igual a ( 3000 ) psi, rosca inferior ( 3 ) “ LP Pino e rosca superior
igual a ( 3 ) “ LP Caixa.
    1          
 
          3.3    
Saída de lama de ( 5 )” OD.
    1          
 
          4    
Equipamentos Componentes de Coluna
               
 
          4.1    
Raspador para operar em revestimentos de ( 5.1/2 ) até ( 7 ) lb/pé.
    2          
 
          4.2    
Conjunto de equipamentos para pistoneio em tubulações de ( 2.3/8 a 3.1/2 ) “ OD,
tipos EUE e NU, com oil saver com release e swab com esfera móvel, sinker bar e
percursor.
    3          
 
          4.3    
Conjunto de equipamentos cortadores de parafina para tubulações de ( 2.3/8 a
3.1/2 ) “ NU, com sinker-bar e percursor.
    3          
 
          4.4    
Conjunto de calibradores internos para tubulações de ( 2.3/8 a 3.1/2 ) “ OD
tipos EUE e NU, conforme norma API 5A.
    3          
 
          4.5    
Conjunto de reduções, como segue:
               
 
               
a) das brocas de ( 4.3/4 ) “, para comandos de ( 2.3/8 IF ) “ OD x 3 1/2” IF,
com os respectivos protetores de rosca.
    1          
 
               
b) dos referidos comandos para colunas de tubos de ( 2.3/8 a 3.1/2 ) “ Conexões
IF e 3 1/2” EU e NU.
    1          
 
               
c) das brocas de ( 4.3/4 ) “ para raspador de colunas ( 2.3/8 a 3.1/2 EU ) “.
    1          
 
               
d) dos raspadores de ( 5.1/2 ) “ para as colunas ( 2.3/8 a 3.1/2 EU ) “.
    1          
 
          4.6    
Conjuntos de Adaptadores
               
 
               
(A) A.3 7.1/16” x 5000 x 3000 x 2000 PSI
    2          
(B) A.3 7.1/16” x 3000 x 2000 x 1000 PSI
    1          
 
          4.7    
Válvula para circulação de areia tipo 2LP x 5000 PSI
    1  

 

2

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(BCH ENERGY DO BRASIL LOGO) [c72237c7223702.gif]

                  ITEM   ESPECIFICAÇÃO   QUANT.        
 
          5    
Equipamentos de Manuseio
               
 
          5.1    
Conjunto de elevadores para tubulações de (2.3/8 a 3.1/2 ) “ OD, tipos EUE e NU.
    2          
 
          5.2    
Conjunto (par) de elevadores para hastes de bombeio de ( 5/8 a 1 ) “.
    6          
 
          5.3    
Conjunto constituído de mesa e cunha com acionamento pneumático e mecânico, para
tubulações de ( 2.3/8 a 3.1/2 ) “ OD, e comandos de ( 3.1/2 ) “ OD.
    3          
 
          5.4    
Colar de segurança para comandos de ( 2.3/8) “ OD a ( 7 ) “ OD.
    1          
 
          5.5    
Chave hidráulica ( Carter Tooco ), modelo ( BJ ), ou similar, equipada com
medidor de torque, e sistema hidráulico para permitir o seu posicionamento, para
operar tubulações de ( 2.3/8” a 3.1/2” ) “ OD.
    1          
 
          5.6    
Conjunto de chaves para hastes de bombeio de ( 5/8 a 1 ) “.
    6          
 
          5.7    
Gancho com mola e trava (catarina de hastes) para manobra de coluna de hastes
com capacidade de ( 80.000 ) lbs, tipo ( BJ ) ou similar.
    1          
 
          5.8    
Conjunto de chaves manuais tipo grifo, tamanhos ( 24 x 36, 48,60) “.
    4          
 
          5.9    
Conjunto de chaves de marreta para parafusos dos flanges de ( 1 a 5 )” para
pressões de ( 1.000 a 6.000 ) psi.
    8          
 
          5.10    
Conjunto de materiais para conexão com as instalações fixas, constituído de
nipples curvas, tês, uniões e válvulas para ( 2 )” LP.
    15          
 
          5.11    
Conjunto de ferramentas manuais e outras utilidades, constituído de: bomba de
graxa, nível, clips galvanizado para cabos de ( 1/2 )” até ( 1 )”, esticadores,
cortadores de cabo, corda de sisal de diversas bitolas, chaves de brocas, lima,
alicate, chaves de fenda, chaves ajustáveis, martelo de bola, marretas de bronze
de ( 2 ) e ( 5 )kg, serrote, enxada, enxadela, pá redonda, pá quadrada, rodo,
carrinho de mão, tesoura tipo aviação corte à esquerda modelo ( reto ), e
paquímetro com escala em fração de polegada tamanho ( 0 ) a ( 11.13/16 ), com
medidor de profundidade marca (Tubasa) ou similar.
    1          
 
          5.12    
Conjunto com ( 8 ) cavaletes para estaleirar hastes de bombeio na horizontal,
confeccionado de acordo com padrões estabelecidos pela API.
    1          
 
          5.13    
Tubig stripper para colunas de ( 2.3/8” x 3.1/2” )” OD.
    1          
 
          5.14    
Tubing wipper para limpar tubos de (2.3/8” x 3.1/2” )”.
    1          
 
          5.15    
Válvula de segurança 2” LPx5000 PSI
    1          
 
          5.16    
Válvula Teste 2” LPx 5000 PSI
    1          
 
          5.17    
Pap. Rap.
    1          
 
          5.18    
Grupo gerador
    1  

 

3

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(BCH ENERGY DO BRASIL LOGO) [c72237c7223702.gif]

                  ITEM   ESPECIFICAÇÃO   QUANT.        
 
          6    
Instrumentos Medidores e Registradores
               
 
          6.1    
Indicador de peso tipo MARTIN DECKER ou similar, com capacidade para
(280.000)lbs e ponteiro indicador de sensibilidade, escala em libra para guincho
principal.
    1          
 
          6.2    
Indicador de profundidade (3.500m) para guincho auxiliar.
    1          
 
          6.3    
Manômetros com ranges de pressões: ( 0,1000 )psi
    1          
 
          6.4    
Manômetros com ranges de pressões: ( 0,1500; 0,5000; 0 até 6.000 )psi
    2          
 
          6.5    
Indicador de pressão da bomba de lama. (0 a 6.000)PSI
    1          
 
          6.6    
Escala indicadora de volumes em bbl nos tanques, por tanque de lama.
    1          
 
          7    
Equipamentos de Segurança
               
 
          7.1    
Extintor de incêndio de espuma química.
  NA        
 
          7.2    
Extintor de incêndio de dióxido de carbono de ( 6 )kg.
    2          
 
          7.3    
Extintor de incêndio de pó químico de (12) kg.
    2          
 
          7.4    
Mangueira de (2.1/2” )” x ( 1.1/2 )m com uniões ( storz).
    2          
 
          7.5    
Esguicho regulável de ( 2.1/2” x 1.1/2)”, tipo ( storzz ) com uniões ( 2.1/2 )
para ( 1.1/2 ) GPM.
    1          
 
          7.6    
Chave para mangueira de incêndio de ( 2.1/2, 1.1/2 )”. (conjugada)
    2          
 
          7.7    
Proporcionador de espuma mecânica de ( 2.1/2 )”.
    1          
 
          7.8    
Jogos de equipamentos de proteção contra vapores de ácido e gás, constituído de:
óculos, máscaras semi-facial com filtro, avental plástico, mangois plásticos.
  NA        
 
          7.9    
Gerônimo com cabo de fuga para torrista.
    1  

 

4

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(BCH ENERGY DO BRASIL LOGO) [c72237c7223702.gif]

                  ITEM   ESPECIFICAÇÃO   QUANT.        
 
          7.10    
Esguicho lançador de espuma.
    1          
 
          7.11    
Derivante em ( 3 )” com entrada de ( 2.1/2 )” e duas saídas de ( 1.1/2 )”.
    1          
 
          7.12    
Mangueira de ( 2.1/2 – 1.1/2 )”, de ( 12 ) metros.
    2          
 
          7.13    
Esguichos de ( 2.1/2 – 1.1/2 )”.
    1          
 
          7.14    
Bombonas de LGE (Líquido Gerador de Espuma) de ( 20 ) litros.
    1          
 
          7.15    
Conjunto Moto-bomba diesel, para Combate a Incêndio, motor MWM 4 cil – bomba 80
metros cúbicos/hora pressão até 11 kg.
    1          
 
          8    
Outros Equipamentos
               
 
          8.1    
Tanque para armazenamento de água doce com capacidade mínima para ( 70 ) bbl com
bomba centrífuga para combate a incêndio.
    1          
 
          8.2    
Sistema de iluminação com lâmpadas de vapor de sódio.
    1          
 
          8.3    
Conjunto gerador de energia, com potência compatível com as cargas da sonda,
equipamentos auxiliares e os trailers para operações de ( 24 ) h por dia.
    1          
 
          8.4    
Casa de aço para sondador.
    1          
 
          8.5    
Trailer para encarregado de sonda.
    1          
 
          8.6    
Veículo utilitário para uso de encarregado.
    1          
 
          8.7    
Guia Cabo
    1  

 

5

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(BCH ENERGY SERVICES INC LOGO) [c72237c7223701.gif]
Suite 500, 816 -7th Ave SW Calgary, AB, Canada T2P 1A1
Schedule A

     
Rig Name & Number
  BCH #3
Depth Rating
  1400 m with 102 mm drill pipe
KB to Ground
  3.5 m
Bottom of table beam to ground
  2.8 m
Approximate Loads  
  Rig — 9 loads, DP & DC — 1 load

Equipment

         
Drawworks
  Make   Rostel 300
 
  Auxiliary Brake   Eaton 124 WCB
 
       
Rig Power & Distribution
      Detroit Series 60
 
       
Mast
  Make   Rostel Stiff Mast
 
  Height   20.4 m
 
  Maximum Hook Load   88,900 daN w/6 lines
 
  Certified   Dec. 2003
 
       
Substructure
  Length   Hydraulic High Back
 
  Height   3 m
 
  Casing Capacity   66,700 daN setback
 
       
Crown Block
  Make   Rostel
 
  Maximum Load   88,900 daN with 3 sheaves
 
  Certified   Yes
 
       
Travelling Block / Hook
  Make   Ideco UTB 110
 
  Maximum Load   97,000 daN
 
  Certified   Jan. 2004
 
       
Swivel
  Make   Oilwell PC-100
 
  Maximum Load   88,900 daN
 
  Certified   Nov. 2005

 

 

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Equipment Cont’d

                 
Drilling Line
  Size           25 mm
 
               
Rotary Table
  Make           Ideco 175
 
  Opening Size           444 mm
 
  Maximum Load           66,700 daN
 
               
Pump #1
  Input Power           Series 60 Detroit
F500
               
 
               

                                      Max. Allowable     Operating Limits      
    SPM   Max. Allowable Operating Press
Linear Size
  140 mm     165     14,000 kPa
 
  152 mm     165     12,000 kPa

                 
Mud System
  # of Tanks           1
 
  # of Compartments           4
 
  Total Active Volume           34 m3
 
  Trip Tank Volume           3.46 m3
 
  Pill Tank Volume           5.4 m3
 
  Pre-Mix Tank Volume           30 m3
 
  Transfer Pumps - Make           5 x 6 - 50 HP
 
  Desilter - Make           Swaco
 
  Cone Size           10 Cones
 
  Shaker - Make           Swaco ALS
 
  Screen Sizes Available           Up to 170 Mesh
 
               
Pump #2
  Input Power           Series 60 Detroit
F500
               
 
               

                                      Max. Allowable     Operating Limits      
    SPM   Max. Allowable Operating Press
Linear Size
  140 mm     165     14,000 kPa
 
  152 mm     165     12,000 kPa

                 
Well Control System
               
Accumulator
  Type           Valvcon 4 Station
 
  Capacity           80 Gal.
 
  Pressure           21,000 kPa
 
  Remote Control Stn. -           4
 
  # of functions            
 
  Master Controls at Accumulator           Yes
Choke Manifold
  Installed in Heated Enclosure           Yes
 
  Max. Working Pressure           21,000 kPa
 
  Gut Line   Size   76 mm #2
 
      Wing Lines   52 mm
 
  Manual Choke   Make   National
 
      Size   72 mm
 
  HCR Valve   Make   National
 
      Rating   21,000 kPa
 
  Lower Kelly Cock   Make   API
 
      Rating   21,000 kPa

 

 

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Equipment Cont’d

                 
 
  Stabbing Valve   Make   API
 
      Rating   21,000 kPa
Mud Gas Separator
      Size   762 mm
 
      Height   2.14 m
 
  Inlet Line   Size   76 mm
 
      Outlet   152 mm
B.O.Ps
  Annular   Make   Townsend
 
      Size   228 mm
 
      Rating   21,000 kPa
 
      Last Inspection   Mar. 2006
 
  Pipe Ram   Make   Townsend
 
      Size   228 mm
 
      Rating   21,000 kPa
 
      Last Inspection   Mar. 2006
 
  Blind Ram   Make   Townsend
 
      Size   228 mm
 
      Rating   21,000 kPa
 
      Last Inspection   Mar. 2006
 
               
Instrumentation
               
Weight Indicator
      Make   Martin Decker
Crown-o-matic
      Make   Control Drilling
Recorder
      Make   Pason Electronic
 
          Drilling Recorder
Survey Instrument
      Make   Totco
 
      Model   Degree 21
 
               
Drill Pipe
              API Grade
 
      Length   150 joints
 
      Size   102 mm
 
      Classification   Premium
 
               
Drill Collars
      O.D   14 – 121 mm (4 3/4)
 
      Length   128 m
 
      O.D.   6 – 159 mm (6 1/4)
 
               
Tankage
      Fuel   11,000 ltrs
 
               
Light Plant
              Series 60
 
      Type   Detroit

 

 

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Equipment Cont’d

                 
 
      Output   350 kw
 
      Voltage   480
 
               
Miscellaneous Equipment
              Hydraulic Pipe Tub
 
               
Rig Managers Shack
      Size   8’ x 20’
 
      Type   Fabricated in Brazil
 
      Manufactured   2007
 
      Serial #   R#3

 

 

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(BCH ENERGY SERVICES INC. LOGO) [c72237c7223701.gif]
Drilling Rig BCH-04 (IRI 750)
General Specification

      ITEM   DESCRIPTION
 
   
MODEL:
  IRI 750 TRAILER MOUNTED DRILLING RIG
 
   
DRAWWORKS:
  IRI 750 model 2042/160 750 hp, 1 1/8” grooving, trailer mounted
 
   
MAST:
  117’ 350,000# IRI double 10 line 365,000#
 
   
RIG MOTOR:
  series 60 Detroit, model #6063HK33, 750 hp
 
   
TRANSMISSION:
  Allison CTL-6061-4
 
   
AUXILIARY BRAKE:
  Eaton 24” x 3” disc
 
   
SUBSTRUCTURE:
  IRI hydraulic box scoping 350,000# set back, 22’
 
   
BLOCK:
  Ideco 160 ton shorty
 
   
SWIVEL:
  TSM 150
 
   
KELLY:
  5 1/2” square
 
   
KELLY BUSHING:
  Varco
 
   
ROTARY TABLE:
  Ideco 20-1/2”
 
   
BAILS:
  Joy 350 ton
 
   
MUD PUMP UNIT #1:
  Gardner Denver PZ-8 stroke 8”, P/B Cat. 3508, (705 hp), in house.
 
   
MUD PUMP UNIT #2:
  Gardner Denver PZ-8 stroke 8”, p/b cat. 3508, (705 hp), in house.
 
   
COMBINATION HOUSE:
  Koomey 6 station 5 bottle w/30 hp union triplex pump, (1) generator marathon
350 kw, p/b Detroit series 60, (1) generator magnamax 200kw, p/b cat. 3306
 
   
BLOWOUT PREVENTION EQUIPMENT:
  13 5/8” X 5000 Hydril Annular Preventer, 5/8” X 5000 Shaffer Double Ram
Preventer.
 
   
CHOKE MANIFOLD:
  5000 PSI Choke manifold c/w one manual and one auto choke complete with
console. (located at end of catwalk).

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – salas 11/12
  Rua dos Jasmins, 01 - Bairro Planalto II
Rio de Janeiro – RJ
  Catu – Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
   
Fax: 21 - 2588-8116
   

 

 

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(BCH ENERGY SERVICES INC. LOGO) [c72237c7223701.gif]

      ITEM   DESCRIPTION
 
   
MUD SYSTEM:
  (2) tank 600 bbl. w/(2) shale shakers linear motion dfts, percharge and mixing
pumps mission magnums, 8 x 6 w/12” impellers, (5) sew-eurodrive type RF87 c/w 5
hp motor and 1 1/8” shaft, (1) pill tank agitator sew-eurodrive type KF47 c/w 5
hp motor and 1 1/8” shaft, degasser
 
   
DOGHOUSE WATER TANK:
  Drillers controls and brake handle in glass dome inside of doghouse
cantilevers down
 
   
TOOL PUSHER HOUSE:
  40” Office / Living quarters
 
   
MISC. TOOLS:
  Foster Kelly spinner, auto driller, folley type “B” tongs, catwalk, katch kan
recovery system for oil based drilling fluids. Pipe racks, 45 foot catwalk
w/manifold.
 
   
TUBULARS:
  - 250 Joints of 5” 19.5 S-135 Drill pipe c/w 4 1/2” IF connections
- 15 Joints of 5” Hevi-Wate drill pipe c/w 4 1/2” IF connections
 
   
DRILL COLLARS:
  - 20 x 6 1/2” Spiral drill collars
- 4 x 8” Spiral drill collars

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – salas 11/12
  Rua dos Jasmins, 01 - Bairro Planalto II
Rio de Janeiro – RJ
  Catu – Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
   
Fax: 21 - 2588-8116
   

 

 

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BCH ENERGY RIG # 5E
105’ Mast

  •  
400,000 lbs telescopic double
    •  
4 x 36” 1 x 42” sheave crown complete
    •  
Racking board
    •  
Derrick egress system
    •  
Fall Arrester Posts
    •  
Drillers console
    •  
2 x PL-8 Tugger winches
    •  
1 x PL-5 Boom line
    •  
Complete electrical package
    •  
Complete Plumbing Package with Hydraulics and Air
    •  
Blast and paint with Endura products

Substructure

  •  
400,000 lbs casing load
    •  
350,000 lbs set back
    •  
14’4” wide x 17’ total height
    •  
48” high x 24” wide pony subs
    •  
Off trailer sub height 13’
    •  
Hydraulic leveling rams
    •  
Hydraulic power package
    •  
27.5” Rotary table
    •  
BOP handling system for 13 5/8”
    •  
Complete electrical package
    •  
Plumbing package with hydraulic, air, steam and water
    •  
Blast and Paint with Endura products and Pro-coat

Draw Works Skid

  •  
Fabricate unitized draw works skid
    •  
Supply & mount TSM-850 draw works
    •  
Supply & mount GE 752 DC electric floor motor
    •  
Supply and install mast raising cylinders
    •  
Supply and mount DW cooler
    •  
Supply and mount 1.25” x 5000’ drill line
    •  
Plumbing package with hydraulic, air, steam and water
    •  
Complete electrical package
    •  
Blast and Paint with Endura products and Pro-coat

Power Catwalk with Manifold Building

  •  
Fabricate power catwalk with skate and manifold building
    •  
Fabricate V-door
    •  
Complete plumbing package

 

 

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  •  
Complete electrical package
    •  
Blast and Paint with Endura products and Nonslip

Combination Building

  •  
Fabricate 55’ x 12’4” combination building
    •  
Wash room and shower facility
    •  
3 cubic meter fresh water tank
    •  
3.5 meter disposal water tank
    •  
Change shack facility
    •  
Supply and install 120 gal x 5 station accumulator
    •  
Blast and Paint with Endura products

Mud Tank 1

  •  
Fabricate 83m3 3 compartment mud tank
    •  
3 each 7.5 HP agitators
    •  
6 each 3” mud guns
    •  
2 each Derrick Super G Shakers
    •  
Side Winder style mix hopper
    •  
2 each 50 HP 5 x 6 x 11 mix pumps
    •  
Complete suction / discharge manifold
    •  
Complete electrical package
    •  
Complete plumbing package
    •  
Blast and Paint with Endura products

Mud Tank 2

  •  
Fabricate 65 m3 2 compartment mix tank
    •  
2 each 7.5 HP agitators
    •  
4 each 3” mud guns
    •  
Side winder style mix hopper
    •  
1 each 50 hp 5 x 6 x 11 mix pumps
    •  
Complete suction / discharge manifold
    •  
Complete electrical package
    •  
Complete plumbing package
    •  
Blast and Paint with Endura products

Mud Pump 1

  •  
Fabricate 40 x 12’4” pump house with cabinets & racks
    •  
Supply and install off shore F-1000 pump
    •  
Supply and install GE 752 electric motor and drive system
    •  
Precharge pump — 50 HP, 5 x 6 x 14 centrifugal pump
    •  
Supply and install complete drive system
    •  
Supply and install wash gun
    •  
Supply and install 7.5HP air compressor
    •  
Supply and install all guarding

 

 

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  •  
Supply and install all suction / discharge plumbing
    •  
Complete electrical package
    •  
Complete plumbing package
    •  
Blast and Paint with Endura products

Mud Pump 2

  •  
Fabricate 40’ x 12’4” pump house with cabinets & racks
    •  
Supply and install off shore F-1000 pump
    •  
Supply and install GE 752 electric motor and drive system
    •  
Precharge pump — 50 HP, 5 x 6 x 14 centrifugal pump
    •  
Supply and install complete drive system
    •  
Supply and install all guarding
    •  
Supply and install all suction / discharge plumbing
    •  
Complete electrical package
    •  
Complete plumbing package
    •  
Blast and Paint with Endura products

Water Tank / Doghouse

  •  
Fabricate 65 m3 water tank / doghouse
    •  
Slide out system on doghouse
    •  
Hydraulic doghouse raising system
    •  
Storage room & tool board on doghouse
    •  
Tool room with benches & oil storage
    •  
2 each Jacuzzi water pumps
    •  
Wash pump and soap tank
    •  
15 HP air compressor
    •  
Complete electrical package
    •  
Complete plumbing package
    •  
Blast and paint with Endura products

Generator Skid #1

  •  
40’ x 12.5’ generator skid with roof
    •  
2 x Detroit Diesel 12V Series 2000 1000HP generators
    •  
Electrical panels and plug boards

Generator Skid #2

  •  
40’ x 12.5’ generator skid with roof
    •  
1 x Detroit Diesel 12V Series 2000 1000HP generator
    •  
1 x Detroit Diesel Series 60 685HP generator
    •  
Electrical panels and plug boards

 

 

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SCR building complete.
Choke Manifold

  •  
2” x 3” x 5000 psi double gut manifold
    •  
All Plumbing for flare and degasser lines
    •  
Blast and Paint

Flare Tank and Pipe Suitcase Skid

  •  
Piping for flare & degasser line
    •  
Auto igniter for flare stack
    •  
Stackable onto manifold skid
    •  
Blast and paint with Endura products

Hydraulic Pipe Tubs x 6

  •  
Range II pipe tubs
    •  
Complete hydraulic / plumbing package
    •  
Blast and paint with Endura products

Rig Matting

  •  
7 — 8’ x 48’ x 6” 4 runner mats 2 with jacking pads
    •  
3 — 8’ x 36’
    •  
6 — 8’ x 24’
    •  
1 — 8’ x 22’3” with well center
    •  
2 — 4’ x 20’

Pipe Racks

  •  
40’ tumble racks x 3 sets

Pipe / Collar Handling Tools

  •  
Kelly Spinner
    •  
Pipe Spinner
    •  
Web Wilson AAX Tongs
    •  
BJ Style 250 ton DP Elevators
    •  
5” Drill Pipe Slips
    •  
DCS-R Drill Collar Slips
    •  
Square Roller Kelly Bushing
    •  
Safety Collar
    •  
10’ x 250 ton Bails
    •  
250 ton Swivel
    •  
250 ton Block and Hook

Blowout Preventers

  •  
2 — 13 5/8” x 5000 psi singles
    •  
1 — 13 5/8” x 5000 psi annular
    •  
All stack valves including HCR
    •  
Drilling spool with turns

Rig Manager’s Shack

  •  
Complete w/ electrical village panel

 

 

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Tubulars
340 Joints of 4 1/2” Drill pipe 16.60 G- 105 NC46
12 each 6 3/4” Drill collars
8 each 8” Drill Collars
3 each 9 1/2” Drill Collars

 

 

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(BCH LOGO) [c72237c7223701.gif]
Drilling Rig — BCH-06 (telescopic double)
General Specification

     
DEPTH RATING:
  2800m with 4” in drill pipe
APPROXIMATE LOADS:
  14 loads

      ITEM   DESCRIPTION
 
   
DERRICK:
   
 
  Model JJ1351D 105’ telescopic double
 
  Effective height 31m
 
  Max hook load 1350 KN
 
  Hyd lift mechanical telescope
 
  Racking board height above floor 17.4m (57’)
 
  Set back capacity 4 1/2” DP (2800m) (9200’)
 
                               + 6 1/4 DC (20 jts)
 
  Crown block model TC 135C
 
  Rated 1350 KN (297,500 lbs.)
 
  5 x 760 mm (30”) 11/8” grooved sheaves
 
  Fold up racking board
 
  Easy rider assembly
 
  Escape buggy with deadline anchor weight
 
  Derrick will be Painted White with a Red Crown.
 
  Hydraulic Rams for Make up and Breakout.
 
  One crown mounted fall arrest
 
  One monkeyboard mounted fall arrest on slope line
 
  4” standpipe with Kelly hose and valves and fig 602 fittings
 
  2” casing standpipe with valve, fittings and hose
 
   
SUBSTRUCTURE:
   
 
  Model DZ 160/ 4.5
 
  Max set back 1350 kN (348,000 lbs)
 
  Floor height 4.5m (14.7’)
 
  Ground to bottom of rotary beam 3.52m ( 11.5
 
  Pipe bottom bird baths
 
  BOP hydraulic lift system
 
  BOP tie down
 
  Folding handrails on top area
 
  ZP175 17 1/2 Rotary table rated 1600 KN (352,640 lbs.)
 
   
BOPs:
   
 
  9” 3000 psi 21 mpa
 
  Annular FH23-21 9” 3000 (Annular Shaffer Element.)
 
  2-9” 3000 ram block c/w Pipe Rams and Blind Rams.
 
  FZ23-21
 
  9” 3000 x 9” 3000 working spool with 3” 3000 outlets
 
  HCR & Manual valves
 
  2-Kill line valves
 
  3 1/8 1-HCR Hydraulic, 1- Manual
 
  9 Valve Manifold c/w 2 Chokes.

     
Sede:
  Escritório Brasil:
 
   
Suite 500, 816 – 7th Avenue SW
  Av. Rio Branco, 01 – 8° andar – sala 804
Calgary, AB, Canada
  Rio de Janeiro – RJ
T2P 1A1
  20090–003
Tel.: +1(403) 539-9488
  Tel.: 21 - 3213-8050
Fax +1(403) 265-4160
  Fax: 21 - 3213-8051

 

 

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(BCH LOGO) [c72237c7223701.gif]

      ITEM   DESCRIPTION
 
   
DRAWWORKS:
   
 
  Model JC20 rated 550hp
 
  15 L Cummins 600hp engine
 
  Allison 6061 transmission
 
  JFD 130 right angle drive box
 
  Drum 450mm x 912mm (17.7“x36”) 11/8 “lebus grooved
 
                      Circulating drum with closed loop glycol
 
                      310mm x 1070mm (12“x42”) break hubs
 
  224 ETN auxiliary brakes with closed loop glycol system shared with
circulating drum
 
  Rotary table brake
 
  50 hp electric two stage hydraulic system
 
  PTO hyd system
 
  3 T (6600lb) boom line winch on mud tank side
 
  5 T (11000lb) tugger winch on doghouse side
 
  Survey Winch
 
   
PIPE SYSTEM:
   
 
  Catwalk with manifold shack with two 3” lines and one 8” de-gasser lin
 
  YJG 21 21 mpa (3000 psi) rated choke manifold line
 
  V door installed on catwalk
 
  Folding pipe rack arms installed on shack side
 
  Three of forklift accessible pipetubs
 
  240 Jts. 4” FH X95 drill pipe hardbanded and internal coated
 
  15 Jts. 6 1/4 4 1/2 X H drill collars (zipped for slips and hardbanded on pin
end) 20 each 4 1/2” HWDP
 
   
MUD TANKS:
   
 
  60m3 usable 5 compartments including trip tank, shaker tank, settling tank,
suction tank and pil tank
 
            Sand trap
 
            4- 7.5 hp agitators in tank
 
            2 - 50 HP 5x6 Victory mud mixers (or 6 x 8)
 
            2 - Winch poles
 
            De-gasser unit
 
            Mixing hopper
 
   
PUMP HOUSE:
   
 
  12’ 6” wide Building
 
  F1000 mud pump
 
  23 L Cummins with Icona clutch conventional mount with belt drive
 
  Allison 6061 transmission
 
  Electric 5 x 6 precharge or mechanical (please advise if electric or mech
preferred and if mechanical whether conventional belt driven or R/A with
polychain drive preferred)

     
Sede:
  Escritório Brasil:
 
   
Suite 500, 816 – 7th Avenue SW
  Av. Rio Branco, 01 – 8° andar – sala 804
Calgary, AB, Canada
  Rio de Janeiro – RJ
T2P 1A1
  20090–003
Tel.: +1(403) 539-9488
  Tel.: 21 - 3213-8050
Fax +1(403) 265-4160
  Fax: 21 - 3213-8051

 

 

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(BCH LOGO) [c72237c7223701.gif]

      ITEM   DESCRIPTION
 
   
LIGHT PLANT:
   
 
  2x 450 KW generators
 
  Powered by 15 L Cummins
 
  Louvered panels for both generators
 
  1 accumulator with air back up
 
  Plumbing for nitrogen ( nitrogen bottles not included)
 
  Koomey cord and remote (doghouse installed)
 
  Please advised if PLC needed approximately 30000.00 extra
 
  Tool room with work bench, storage shelves and storage cupboard
 
  Electric air compressor
 
  Change shack with 12 lockers and bench
 
  Electric heater in change shack
 
   
DOGHOUSE & WATER TANK:
   
 
  65m3 water storage

 
  Two water supply pumps
 
                      18,000L fuel tank
 
                      Two fuel pumps
 
                      3 oil storage bins
 
  Doghouse with junk room
 
  Knowledge box
 
  Storage cupboards
 
  Winch trolley bar in junk room
 
   
TRAVELLING EQUIPMENT:
   
 
  Swivel SL135
 
  Hydraulic Kelly spinner
 
  Travelling blocks YG135C 1350 KN
 
  41/4 square Kelly bar/ c/w Drive Bushing or 3 1/2 bar and bushings
 
  Slips (Drill Pipe and Drill Collar)
 
  Elevators DH 150
 
                      1000m spool 1 1/8 drill line

 
                      108” x 250 Ton Bale Links
 
                      Choke Hose, 2’ Kill Hose ,Shock Hose

Note:
Mast and sub will be Canadian certified as will all other overhead equipment.

     
Sede:
  Escritório Brasil:  
Suite 500, 816 – 7th Avenue SW
  Av. Rio Branco, 01 – 8° andar – sala 804
Calgary, AB, Canada
  Rio de Janeiro – RJ
T2P 1A1
  20090–003
Tel.: +1(403) 539-9488
  Tel.: 21 - 3213-8050
Fax +1(403) 265-4160
  Fax: 21 - 3213-8051

 

 

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SCHEDULE “D”
EXCEPTIONS SCHEDULE
1. Sections 4.1(d), (g) and (m) and Sections 4.2(b) and (d)

  •  
Senior Credit Agreement (and related security)

2. Section 4.1(h)

  •  
Warrants granted to Standard Bank
    •  
Options to directors, officers and consultants under ESOP

 

 

--------------------------------------------------------------------------------

 

Execution Copy
SCHEDULE “E”
DEBENTURE
BCH LTD.
as Corporation
- and -
ALLIS-CHALMERS ENERGY INC.
as Holder
$40,000,000 CONVERTIBLE SUBORDINATED SECURED DEBENTURE
Due on January 31, 2010
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.

 

 

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TABLE OF CONTENTS

         
ARTICLE I — INTERPRETATION
    1  
ARTICLE II — COVENANT TO PAY INDEBTEDNESS
    4  
ARTICLE III — SECURITY FOR INDEBTEDNESS
    4  
ARTICLE IV — FURTHER SECURITIES
    6  
ARTICLE V — CONVERSION OF DEBENTURE
    7  
ARTICLE VI — SUBORDINATION OF DEBENTURE
    10  
ARTICLE VII — GENERAL REPRESENTATIONS AND WARRANTIES
    11  
ARTICLE VIII — GENERAL COVENANTS
    12  
ARTICLE IX — ENFORCEABILITY OF SECURITY
    13  
ARTICLE X — REMEDIES OF HOLDER
    13  
ARTICLE XI — APPOINTMENT OF RECEIVER
    16  
ARTICLE XII — DISCHARGE OF DEBENTURE
    17  
ARTICLE XIII — MISCELLANEOUS PROVISIONS
    17  
ARTICLE XIV — EXECUTION
    20  

 

 

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THIS DEBENTURE AND THE SECURITIES TO BE ISSUED UPON THE CONVERSION OF THIS
DEBENTURE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE “U.S. SECURITIES ACT”) OR ANY STATE SECURITIES LAWS AND
THE CONVERSION OF THIS DEBENTURE MAY NOT BE EXERCISED IN THE UNITED STATES OR BY
OR FOR THE ACCOUNT OR BENEFIT OF A PERSON IN THE UNITED STATES OR A U.S. PERSON
(AS DEFINED IN REGULATION S UNDER THE U.S. SECURITIES ACT) WITHOUT REGISTRATION
OF THE SECURITIES UNDER ALL APPLICABLE UNITED STATES FEDERAL AND STATE
SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM AND BCH
LTD. (“THE CORPORATION”) SHALL HAVE RECEIVED AN OPINION OF COUNSEL TO SUCH
EFFECT SATISFACTORY TO IT.
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS DEBENTURE MUST
NOT TRADE THE SECURITIES REPRESENTED HEREBY BEFORE THAT DATE THAT IS FOUR MONTHS
AND A DAY AFTER THE LATER OF: (I) THE DATE OF ISSUANCE, AND (II) DATE THAT THE
CORPORATION BECOMES A REPORTING ISSUER IN CANADA.
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT AND MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
CORPORATION, (B) OUTSIDE OF THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF
REGULATION S UNDER THE U.S. SECURITIES ACT, (C) IN COMPLIANCE WITH THE EXEMPTION
FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 OR 144A
THEREUNDER, IF AVAILABLE, AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES
LAWS, OR (D) WITH THE PRIOR WRITTEN CONSENT OF THE CORPORATION (WHICH WILL BE
DELIVERED PROMPTLY AND NOT BE UNREASONABLY WITHHELD, BUT WHICH MAY BE
CONDITIONED ON DELIVERY OF A LEGAL OPINION IN FORM AND SUBSTANCE SATISFACTORY TO
THE CORPORATION) PURSUANT TO ANOTHER EXEMPTION FROM REGISTRATION UNDER THE U.S.
SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
A CERTIFICATE WITHOUT A LEGEND MAY BE OBTAINED FROM THE REGISTRAR AND TRANSFER
AGENT OF THE CORPORATION IN CONNECTION WITH A SALE OF THE SECURITIES REPRESENTED
HEREBY AT A TIME WHEN THE CORPORATION IS A “FOREIGN ISSUER” AS DEFINED IN
REGULATION S UNDER THE U.S. SECURITIES ACT UPON DELIVERY OF THIS CERTIFICATE AND
A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE REGISTRAR AND
TRANSFER AGENT AND THE CORPORATION, TO THE EFFECT THAT SUCH SALE OF THE
SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF
REGULATION S UNDER THE U.S. SECURITIES ACT.
THE CORPORATION DOES NOT HAVE ANY SECURITIES LISTED ON ANY STOCK EXCHANGE AND NO
REPRESENTATION IS MADE AS TO LISTING OF THE COMMON SHARES OF THE CORPORATION ON
ANY STOCK EXCHANGE. THERE IS NO MARKET FOR THE COMMON SHARES OF THE CORPORATION.

 

 

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U.S. $40,000,000 CONVERTIBLE SUBORDINATED SECURED DEBENTURE
This Debenture is dated as of the 31st day of January, 2008 and is granted by
BCH Ltd., as Corporation, in favour of Allis-Chalmers Energy Inc., as Holder.
ARTICLE I — INTERPRETATION
1.1 In this Debenture, unless otherwise provided, the following terms shall have
the following meanings:
(a) “Affiliate” means, as applied to any Person, any other Person directly or
indirectly Controlling, Controlled by, or under common Control with, that
Person;
(b) “Business Day” means a day on which the main branch of Royal Bank of Canada
in Calgary, Alberta is open for normal banking business but not including
Saturdays and Sundays;
(c) “Common Shares” means the common shares in the capital of the Corporation,
as such common shares existed as at the date of this Debenture and as such
common shares may be amended , redesigned, reclassified or otherwise changed
after the date of this Debenture;
(d) “Control” means, when applied to the relationship between a Person or group
of Persons and a corporation or other entity, the beneficial ownership by such
Person(s), at the relevant time, of shares of such corporation or equity
interests of such other entity carrying more than the greater of (a) 50% of the
voting rights ordinarily exercisable at meetings of shareholders of such
corporation or equity holders of such other entity; and (b) the percentage of
voting rights ordinarily exercisable at meetings of shareholders of such
corporation or equity holders of such other entity that are sufficient to elect
a majority of the directors of such corporation or managers of such other
entity, and the words “Controlled by”, “Controlling” and similar words have
corresponding meanings; provided that a Person or group of Persons who Control a
corporation or other entity shall be deemed to Control a corporation or other
entity which is Controlled by such corporation or such other entity and so on;
(e) “Conversion Notice” means the notice substantially in the form attached as
Schedule “C” hereto whereby the Holder gives notice to the Corporation that the
Holder wishes to exercise its right to convert this Debenture into Common Shares
in accordance with Article 5 of this Debenture;
(f) “Conversion Price” means $4.163 per Common Share;
(g) “Conversion Right” means the right of the Holder to convert this Debenture
into Common Shares in accordance with Article 5 of this Debenture;
(h) “Corporation” means BCH Ltd., a corporation having an office at Suite 500,
816 — 7th Avenue SW, Calgary, Alberta, T2P 1A1;

 

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2

(i) “Credit Agreement” means the credit agreement dated as of January 31, 2008
made among the Holder, as lender, and the Corporation, as borrower, and BCH
Energy Brasil Servicos de Petroleo Ltda., as guarantor, together with any
amendments to, or replacements of or substitutions for such credit agreement;
(j) “Credit Documents” means the Credit Agreement, together with any and all
promissory notes, loan agreements, credit agreements, evidences of indebtedness
and other credit documents evidencing or securing the Indebtedness, and,
together with any amendments to, substitutions for, additions to, replacements
of, extensions or renewals of such promissory notes, loan agreements, credit
agreements, evidences of indebtedness and other credit documents;
(k) “Date of Conversion” means, at the time upon which the Holder exercises the
Conversion Right, the date of conversion specified in the Conversion Notice
delivered by the Holder to the Corporation;
(l) “Debenture” means this debenture, together with any supplements to,
amendments to, substitutions for, additions to, replacements of or renewals of
this debenture;
(m) “Event of Default” shall have the meaning attributed to such term in the
Credit Agreement;
(n) “Expenses” means any and all costs and expenses incurred by or on behalf of
the Holder in recovering all or any portion of the Indebtedness, in enforcing
the security constituted by this Debenture or in exercising or pursuing any of
the rights or remedies of the Holder under this Debenture including, without
limitation, the costs and expenses incurred by any consultants appointed
pursuant to this Debenture and the costs and expenses incurred in connection
with the repossession, holding, repairing, processing, preparing for disposition
and disposing of any of the Secured Property (including, without limitation,
legal costs as between a solicitor and his own client) together with interest
thereon calculated at the rate and in the manner described in the Credit
Agreement;
(o) “Holder” means Allis-Chalmers Energy Inc., a corporation having an office at
5075 Westheimer, Suite 890, Houston, Texas, 77056;
(p) “Indebtedness” means all and every indebtedness, liability and obligation
(present and future, direct or indirect, absolute or contingent, joint or
several, matured or not) of the Corporation to the Holder arising under the
Credit Agreement and/or this Debenture including, without limitation, the
Principal Sum, together with interest thereon calculated at the rate and in the
manner described in the Credit Agreement, and together with the Expenses and
including, without limitation, the indebtedness, liabilities and obligations
arising under, out of or in connection with any of the Credit Documents or this
Debenture;
(q) “Material Contracts” means the drilling rig and service rig lease and
service contracts described in Schedule “B” to this Debenture, together with any
amendment thereto, substitutions for, additions thereto, replacements of,
extensions or renewals of such drilling rig and service rig lease and service
contracts;

 

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3

(r) “Officer’s Certificate” means a certificate signed by the President, the
Chief Executive Officer, the Chief Financial Officer, the Secretary, the
Treasurer or any Vice President of the Corporation;
(s) “Permitted Liens” shall have the meaning attributed to such term in the
Credit Agreement;
(t) “Person” means and includes any natural person, corporation, limited
partnership, general partnership, joint stock company, association, company,
limited liability company, trust, bank, trust company, land trust, business
trust or other organization, whether or not a legal entity, any governmental
authority and the heirs, executors, administrators or other legal
representatives of a natural person, as the case may be;
(u) “Pledged Rigs” means the drilling rigs, the service rigs and the related
equipment described in Schedule “A” to this Debenture together with any drilling
rigs, service rigs and related equipment which the Corporation may acquire on or
after the date of this Debenture;
(v) “Principal Sum” means the sum of $40,000,000;
(w) “Secured Property” means, collectively, the present and after-acquired real
and personal property of the Corporation, the Pledged Rigs and the other assets,
rights and undertaking described in Section 3.1 of this Debenture;
(x) “Senior Indebtedness” shall have the meaning attributed to such term in the
Credit Agreement;
(y) “Subordination Agreement” shall have the meaning attributed to such term in
the Credit Agreement; and
(z) “Time of Expiry” means the later of: (i) December 31, 2009, and (ii) the
30th day following receipt of the Valuation (as defined in the Credit Agreement)
by the Holder in accordance with Option and Governance Agreement (as defined in
the Credit Agreement).
1.2 Words importing the singular number only in this Debenture shall include the
plural number and vice versa and words importing one gender only in this
Debenture shall include all genders and words importing persons in this
Debenture shall include individuals, partnerships, corporations, government
bodies and any other entities, legal or otherwise.
1.3 The headings used in this Debenture are for ease of reference only and shall
not affect the meaning or the interpretation of this Debenture.
1.4 The following Schedules are attached to this Debentures and incorporated
herein by reference:

         
 
  Schedule “A”   Pledged Rigs
 
       
 
  Schedule “B”   Material Contracts
 
       
 
  Schedule “C”   Conversion Notice

 

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4

ARTICLE II — COVENANT TO PAY INDEBTEDNESS
2.1 For good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the Corporation, the Corporation hereby covenants to pay
the Indebtedness to the Holder in accordance with the terms and conditions set
out in the Credit Agreement and this Debenture.
2.2 All of the moneys payable by the Corporation to the Holder in accordance
with Section 2.1 of this Debenture shall be paid without any deductions,
set-offs, defences or counterclaims, in lawful money of the United States of
America, at the Holder’s office described in Section 1.1(o) of this Debenture or
at such other place as the Holder may designate in writing.
2.3 Notwithstanding anything to the contrary contained in this Debenture, the
Corporation acknowledges and agrees that no repayment or prepayment of the
Indebtedness (in part or in full) by or on behalf of the Corporation will be
permitted without the prior written consent of the Holder or, in the case of the
occurrence of an Event of Default, the prior written demand or notice by the
Holder.
ARTICLE III — SECURITY FOR INDEBTEDNESS
3.1 As security for the payment of the Indebtedness and the performance of the
covenants and agreements of the Corporation contained in the Credit Documents
and this Debenture, subject to the Permitted Liens, the Corporation hereby
grants, assigns, transfers, mortgages and charges in favour of the Holder, as
and by way of a fixed and specific mortgage and charge, and the Corporation
hereby grants in favour of the Holder a security interest in, all of the
Corporation’s right, title and interest in and to the Corporation’s present and
after-acquired real and personal property including, without limitation, the
Pledged Rigs and all assets, rights and undertaking of every nature and kind,
now owned or subsequently acquired and at any time and from time to time
existing or in which the Corporation has or acquires rights or the power to
transfer rights, wherever situate.
3.2 The Corporation hereby agrees with and acknowledges to the Holder that:
(a) the Corporation intends the security interests described in Section 3.1 of
this Debenture to attach to the Corporation’s existing property immediately upon
the execution and delivery of this Debenture;
(b) the Corporation intends the security interests described in Section 3.1 of
this Debenture to attach to the Corporation’s after-acquired property
immediately upon the Corporation acquiring an interest or rights in such
after-acquired property; and
(c) value has been given for the security interests described in Section 3.1 of
this Debenture.
3.3 The Corporation hereby agrees with and acknowledges to the Holder that:

 

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5

(a) nothing contained in this Debenture shall render or constitute the Holder
liable or obligated to perform any of the liabilities, obligations or covenants
of the Corporation under or in respect of any of the contracts or agreements
forming part of the Secured Property (including, without limitation, the
Material Contracts) and the Corporation hereby agrees to indemnify the Holder
against and hold the Holder harmless from any and all claims, losses, damages or
costs, including legal costs as between a solicitor and his own client, incurred
or suffered by the Holder arising out of or in connection with such contracts
and agreements (including, without limitation, the Material Contracts);
(b) the mortgages, charges and security interests described in Section 3.1 of
this Debenture shall not extend or apply to the last day of the term or the
renewal term of any lease, whether oral or written, now held or hereafter
acquired by the Corporation provided that whenever the security constituted by
this Debenture becomes enforceable, the Corporation shall thereafter stand
possessed of such last day and shall hold such last day in trust for any person
who may acquire all or any part of the term or the renewal term of such lease in
the course of any enforcement of the security constituted by this Debenture or
any realization of the Secured Property;
(c) at any time after the occurrence and during the continuance of an Event of
Default, the Holder shall be entitled to deliver to any third party debtors of
the Corporation a notice of the assignment of moneys and other accounts set out
in Section 3.1 of this Debenture; and
(d) until the security constituted by this Debenture becomes enforceable, the
Corporation shall be entitled to possess, operate, manage, use, enjoy and deal
with the Secured Property in the ordinary course of business of the Corporation
and to enforce all of the benefits, advantages and powers under the Secured
Property subject to the terms and conditions of this Debenture.
3.4 Subject to Article 6 of this Debenture, all moneys collected or received by
the Holder pursuant to or in the exercise of any right it possesses with respect
to the Secured Property shall be applied on account of the Indebtedness in such
manner as the Holder deems best or, at the option of the Holder, may be held
unappropriated in a collateral account or released to the Corporation, all
without prejudice to the liability of the Corporation or the rights of the
Holder and any such surplus shall be accounted for as required by law.
3.5 The Corporation hereby acknowledges and agrees that in the event it
amalgamates with any other corporation or corporations it is the intention of
the Corporation and the Holder that the term “Corporation” when used herein
shall apply to the amalgamated corporation, such that this Debenture shall
secure the indebtedness of the Corporation to the Holder at the time of
amalgamation and any indebtedness of the amalgamated corporation to the Holder
thereafter arising. The security constituted by this Debenture shall attach to
all of the “Secured Property” owned by the Corporation at the time of
amalgamation, and shall attach to any “Secured Property” thereafter owned or
acquired by the amalgamated corporation when such becomes owned or is acquired.

 

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6

3.6 Subject to the provisions of this Debenture and except as required by law,
the Holder shall have no liability, obligation or responsibility of any kind
whatsoever to the Corporation with respect to the Secured Property. Without
restricting the generality of the foregoing, the Holder shall not be obligated
to the Corporation to inspect the Secured Property and the Holder shall not be
liable or responsible to the Corporation for the performance of any obligation
of or default by the Corporation or any other person whatsoever, any failure to
construct, complete, protect or insure the Secured Property or any part thereof,
or the payment of costs of labour, materials or services supplied for the
construction or operation of the Secured Property.
3.7 The Holder shall have and hold the Secured Property subject to the terms,
conditions, covenants and agreements set forth in this Debenture.
ARTICLE IV — FURTHER SECURITIES
4.1 The Corporation shall at all times do, execute, acknowledge and deliver or
cause to be done, executed, acknowledged and delivered all such further acts,
deeds, mortgages, transfers and assurances in law as the Holder shall reasonably
require for better mortgaging, charging, assigning, encumbering and securing in
favour of the Holder all of the property and assets of the Corporation which are
mortgaged or charged by this Debenture, which are intended to be mortgaged or
charged by this Debenture or which the Corporation may hereafter become bound to
mortgage or charge in favour of the Holder.
4.2 In order to give effect to the intentions expressed in Section 3.1 of this
Debenture and without restricting the generality of Section 4.1 of this
Debenture, the Corporation hereby covenants and agrees that the Corporation
shall, from time to time when required by the Holder, execute and deliver to the
Holder:
(a) supplemental or collateral security documents or security agreements
creating valid and enforceable mortgages, charges or security interests in the
Secured Property, in a form registerable in Brazil and substantially similar to
the form of documents or agreements which were granted by the Corporation for
the benefit of the Senior Lenders as security for the Senior Indebtedness and
which were registered in Brazil; and
(b) supplemental or collateral security documents or security agreements, in
such form as the Holder may require, whereby the Corporation mortgages, charges
and assigns in favour of the Holder, and grants to and in favour of the Holder a
security interest in, any portion of the Secured Property which the Holder
wishes to identify in greater detail from time to time.
4.3 The Corporation shall not, except with the prior written consent of the
Holder or unless otherwise permitted under the Credit Documents, grant, create,
assume or permit to exist any mortgage, pledge, charge, assignment, security
interest, lien or other security, whether fixed or floating, on any portion of
the Secured Property, other than the Permitted Liens. Any such mortgage, pledge,
charge, assignment, security interest, lien or other security, other than the
Permitted Liens, granted by the Corporation to any person with the prior written
consent of the Holder shall contain a provision stating that the rights of such
person under such mortgage, pledge, charge, assignment, security interest, lien
or other security are postponed to the rights of the Holder under this Debenture
and under any other security held by the Holder in respect of all or any portion
of the Indebtedness. Such postponement shall apply notwithstanding the dates
upon which any moneys are advanced by the Holder to or for the benefit of the
Corporation.

 

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7

ARTICLE V — CONVERSION OF DEBENTURE
5.1 Subject to this Article 5, the Holder shall have the right, at the Holder’s
option, at any time until the Time of Expiry, to convert the whole (but not a
part) of the Principal Sum into fully paid up and non-assessable Common Shares
at the Conversion Price in effect on the Date of Conversion. Notwithstanding
anything to the contrary contained in this Debenture, the Corporation
acknowledges and agrees that no conversion, redemption or retirement of this
Debenture (in part or in full) by or on behalf of the Corporation will be
permitted without the prior written consent of the Holder or the giving of the
Conversion Notice in accordance with this Debenture.
5.2 The number of Common Shares to be issued to the Holder upon the conversation
of this Debenture shall be equal to the maximum number of Common Shares into
which the Principal Sum may be converted in accordance with this Article 5.
Fractional interests in Common Shares shall be dealt in the manner set out in
Section 5.5 of this Debenture.
5.3 If the Holder wishes to convert this Debenture into Common Shares, then the
Holder shall surrender this Debenture to the Corporation at its registered
office together with the Conversion Notice attached as Schedule “C” hereto duly
executed by the Holder or its attorney duly appointed by an instrument in
writing and executed in a manner satisfactory to the Corporation (acting
reasonably). Upon the Holder exercising the Conversion Right in such manner, the
Holder or its nominee shall be entitled to be entered in the books of the
Corporation as at the Date of Conversion (or such later date as is specified in
this Section 5.3) as the holder of the number of Common Shares into which this
Debenture is convertible in accordance with the provisions of this Article 5
and, as soon as is practicable thereafter, the Corporation shall deliver to the
Holder or its nominee a certificate or certificates for such Common Shares. For
the purposes of this Article 5, if this Debenture is surrendered for conversion,
then this Debenture shall be deemed to have been surrendered on the Date of
Conversion. If this Debenture is surrendered for conversion on a day on which
the register of Common Shares is closed, then the Holder or its nominee shall
become the holder of record of such Common Shares as at the date on which such
register is next reopened.
5.4 The Conversion Price in effect on any given date shall be subject to
adjustment from time to time as follows:
(a) If, at any time prior to the Time of Expiry, the Corporation shall:
(i) subdivide or redivide the outstanding Common Shares into a greater number of
Common Shares; (ii) reduce, combine or consolidate the outstanding Common Shares
into a smaller number of Common Shares; or (iii) issue Common Shares to the
holders of all or substantially all of the outstanding Common Shares by way of a
stock dividend, then the Conversion Price in effect on the effective date of
such subdivision, redivision, reduction, combination or consolidation or on the
record date for such issue of Common Shares by way of a stock dividend, as the
case may be, shall, in the case of the events referred to in Sections 5.4(a)(i)
and (iii) of this Debenture, be decreased in proportion to the number of
outstanding Common Shares resulting from such subdivision,

 

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8

redivision or dividend or shall, in the case of the events referred to in
Section 5.4(a)(ii) of this Debenture, be increased in proportion to the number
of outstanding Common Shares resulting from such reduction, combination or
consolidation. Such adjustment shall be made successively whenever any event
referred to in this Section 5.4(a) shall occur and any such issue of Common
Shares by way of a stock dividend shall be deemed to have been made on the
record date for the stock dividend for the purpose of calculating the number of
outstanding Common Shares under this Article 5.
(b) If, at any time prior to the Time of Expiry, the Corporation issues Common
Shares (or securities convertible into or exchangeable for Common Shares) at an
issue price less than 100% of the Conversion Price in effect on the date of such
issuance, then the Conversion Price shall be adjusted immediately after such
date of issuance so that the Conversion Price equals such issue price. Such
adjustment shall be made successively whenever such event occurs.
(c) If, at any time prior to the Time of Expiry, the Corporation fixes a record
date for the issuance of rights or warrants (whether to holders of Common Shares
or third parties) to subscribe for or purchase Common Shares (or securities
convertible into or exchangeable for Common Shares) at an exercise price less
than 100% of the Conversion Price in effect on such record date, then the
Conversion Price shall be adjusted immediately after such record date so that
the Conversion Price equals such exercise price. Such adjustment shall be made
successively whenever such record date is fixed. To the extent that all such
rights or warrants are not issued or all such rights or warrants are not
exercised prior to the expiration thereof and to the extent that this Debenture
has not been converted, then the Conversion Price shall be readjusted to the
Conversion Price which would then be in effect if such record date had not been
fixed.
(d) If, at any time prior to the Time of Expiry, there is a reclassification of
the Common Shares or a capital reorganization of the Corporation or a
consolidation, amalgamation or merger of the Corporation with or into any other
corporation, trust, partnership or other entity, or a sale or conveyance of the
property and assets of the Corporation as an entirety or substantially as an
entirety to any other corporation, trust, partnership or other entity, then the
Holder shall be entitled to receive and shall accept, in lieu of the number of
Common Shares to which the Holder is entitled to acquire hereunder, the number
of shares or other securities or property of the Corporation or of the
corporation, trust, partnership or other entity resulting from such merger,
amalgamation or consolidation, or to which such sale or conveyance may be made,
as the case may be, that the Holder would have been entitled to receive on such
reclassification, reorganization, consolidation, amalgamation, merger, sale or
conveyance if, on the record date or the effective date thereof, as the case may
be, the Holder had been the registered holder of the number of Common Shares
into which this Debenture is convertible.
(e) In circumstances where this Section 5.4 requires that an adjustment shall
become effective immediately after a record date for an event referred to
herein, the Corporation may defer, until the occurrence of such event, issuing
to the Holder the additional Common Shares issuable upon such conversion by
reason of the adjustment required by such event provided that the Corporation
shall deliver to the Holder an appropriate instrument evidencing the Holder’s
right to receive such additional Common Shares upon the occurrence of such event
and the right to receive distributions made on such additional Common Shares
declared in favour of holders of record of Common Shares on and after the Date
of Conversion or such later date as the Holder would, but for the provisions of
this Section 5.4(e), have become the holder of record of such additional Common
Shares.

 

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(f) The adjustments described in this Section 5.4 are cumulative and shall apply
to successive subdivisions, redivisions, reductions, combinations,
consolidations, distributions, issues or other events resulting in any
adjustment under this Section 5.4 provided that, notwithstanding this
Section 5.4, no adjustment of the Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Conversion Price then in effect and provided that any adjustments which by
reason of this Section 5.4(f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment.
(g) In the event of any question arising with respect to an adjustment described
in this Section 5.4, such question shall be conclusively determined by a
nationally recognized firm of chartered accountants appointed by the Corporation
(who may be the auditors of the Corporation) and such accountants shall have
access to all necessary records of the Corporation and such determination shall
be binding upon the Corporation and the Holder.
For greater certainty, the aggregate Conversion Price applicable to all Common
Shares to be issued to the Holder upon the conversion of this Debenture shall
not exceed the Principal Sum.
5.5 The Corporation shall not be required to issue fractional Common Shares upon
the exercise of the Conversion Right. If any fractional interest in a Common
Share would, except for the provisions of this Section 5.5, be deliverable upon
the exercise of the Conversion Right, then such fractional interest shall be
eliminated by rounding such fractional interest up or down, as the case may be,
to the nearest whole Common Share. A fractional interest equal to 0.50 shall be
rounded up.
5.6 The Corporation shall at all times reserve and keep available out of its
authorized Common Shares, solely for the purpose of issuance upon the exercise
of the Conversion Right, such number of Common Shares as shall then be issuable
upon the exercise of the Conversion Right. The Corporation covenants that all
Common Shares issued upon the exercise of the Conversion Right shall be duly and
validly issued as fully paid and non-assessable shares.
5.7 The Corporation shall from time to time promptly pay or make provision for
the payment of any and all taxes and charges which may be imposed by the laws of
Canada or any province thereof (except income tax or security transfer tax, if
any) which shall be payable by the Corporation with respect to the issuance
and/or delivery of Common Shares to the Holder upon the exercise of the
Conversion Right.
5.8 The Corporation shall, from time to time, immediately after the occurrence
of any event which requires an adjustment to the Conversion Price as provided in
Section 5.4 of this Debenture, deliver an Officers’ Certificate to the Holder
specifying the nature of the event requiring such adjustment and the amount of
such adjustment necessitated thereby and setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based, which
certificate and the amount of such adjustment specified therein shall, subject
to Section 5.4(g) of this Debenture, be conclusive and binding on the Holder and
the Corporation.

 

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10

5.9 So long as this Debenture or any portion of the Indebtedness remains
outstanding, the Corporation shall give to the Holder, in the manner provided in
Section 13.7 of this Debenture, written notice of the Corporation’s intention to
fix a record date for any event described in Sections 5.4(a), (b), (c) or (d) of
this Debenture (other than the subdivision, redivision, reduction, combination
or consolidation of its Common Shares) which may give rise to an adjustment to
the Conversion Price and, in each case, such notice shall specify the
particulars of such event and the record date and the effective date for such
event provided that the Corporation shall only be required to specify in such
notice such particulars of such event as shall have been fixed and determined on
the date on which such notice is given. Such notice shall be given, in each
case, not less than 10 Business Days prior to such applicable record date.
ARTICLE VI — SUBORDINATION OF DEBENTURE
6.1 To the extent and in the manner set forth in this Article 6 and the
Subordination Agreement, the Indebtedness shall be subordinate to the prior
payment in full of all Senior Indebtedness, whether now outstanding or hereafter
incurred. The Holder shall be bound by the subordination provisions set out in
this Article 6 and the Subordination Agreement.
6.2 Subject to the payment in full of the Senior Indebtedness, to the extent
that the Corporation has made payment or distribution of assets to holders of
the Senior Indebtedness, the Holder shall be subrogated to the rights of the
holders of the Senior Indebtedness to receive payments or distributions of
assets of the Corporation made on the Senior Indebtedness, until the
Indebtedness owing under this Debenture has been paid in full and no such
payments or distributions to the Holder of cash, property or securities which
otherwise would be payable or distributable to the holders of the Senior
Indebtedness shall, as between the Corporation, its creditors, the holders of
the Senior Indebtedness and the Holder, be deemed to be a payment by the
Corporation to or on account of the Senior Indebtedness, it being understood
that the provisions of this Article 6 are and are intended solely for the
purpose of defining the relative rights of the Holder on the one hand, and the
holders of the Senior Indebtedness, on the other hand.
6.3 Nothing contained in this Article 6 or elsewhere in this Debenture or in the
Subordination Agreement is intended to or shall impair, as between the
Corporation and the Holder, the obligation of the Corporation, which is absolute
and unconditional, to pay the Indebtedness to the Holder as and when the
Indebtedness shall become due and payable in accordance with this Debenture, nor
shall anything herein prevent the Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Debenture, subject to the
rights of the holders of the Senior Indebtedness under the Subordination
Agreement. Nothing contained in this Article 6 or elsewhere in this Debenture or
in the Subordination Agreement, shall affect the obligation of the Corporation
to make, or prevent the Corporation from making, at any time, payment of the
Indebtedness except:
(a) during the pendency of any dissolution, winding-up or liquidation of the
Corporation or reorganization proceedings affecting the affairs of the
Corporation; and
(b) if the Corporation is in default with respect to the Senior Indebtedness or
if such payment would result in a default under the Senior Indebtedness.

 

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6.4 No right of any present or future holder of the Senior Indebtedness to
enforce subordination as provided in this Article 6 and the Subordination
Agreement shall at any time or in any way be prejudiced or impaired by any act
or failure to act on the part of the Corporation or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the
Corporation with the terms, provisions and covenants of this Debenture,
regardless of any knowledge thereof which any such holder may have or be
otherwise charged with.
6.5 For purposes of this Article 6, the words “cash, property or securities”
shall be deemed not to include securities of the Corporation issued pursuant to
Article 5 of this Debenture upon the exercise of the Conversion Right.
ARTICLE VII — GENERAL REPRESENTATIONS AND WARRANTIES
7.1 The Corporation hereby represents and warrants to the Holder as follows:
(a) the Corporation has been duly incorporated and organized and is validly
existing under the laws of the Province of Alberta;
(b) the Corporation has full power and authority to enter into and perform all
of its obligations under this Debenture;
(c) the execution, delivery and performance by the Corporation of this Debenture
have been duly and validly authorized by all necessary corporate action of the
Corporation and this Debenture, when executed and delivered to the Holder, shall
be a valid and binding obligation of the Corporation enforceable in accordance
with its terms;
(d) the execution of this Debenture and the performance of the obligations under
this Debenture by the Corporation shall not violate or constitute a default
under any provision of law, any order of any court or other agency of
government, the constituting documents of the Corporation, any shareholders’
agreement applicable to the Corporation, or any agreement or instrument to which
the Corporation is a party or by which the Corporation or its properties or
assets are bound;
(e) the Corporation is not a reporting issuer in any jurisdiction;
(f) the Corporation is a “private issuer” as such term is defined in
Section 2.1(1) of National Instrument 45-106 — Prospectus and Registration
Exemption; and
(g) with respect to the Material Contracts;

  (i)  
each of the Material Contracts is valid, subsisting and in good standing;
    (ii)  
the copies of each of the Material Contracts provided by the Corporation to the
Holder are true and complete copies of each of the Material Contracts;

 

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  (iii)  
there are no subsisting or unremedied breaches of default of a material nature
under or in respect of any of the Material Contracts; and
    (iv)  
other than in favour of the holders of the Senior Indebtedness, the Corporation
has not assigned, mortgaged or encumbered in favour of any party any of the
Material Contracts, nor any of the rights or benefits of the Corporation under
any of the Material Contracts.

7.2 The Corporation hereby agrees to indemnify the Holder against and hold the
Holder harmless from any and all claims, losses, damages or costs, including
legal costs as between a solicitor and his own client, incurred or suffered by
the Holder arising out of or in connection with any representation or warranty
set forth in Section 7.1 of this Debenture being incorrect or breached.
ARTICLE VIII — GENERAL COVENANTS
8.1 The Corporation hereby covenants and agrees with the Holder that, so long as
the Principal Sum or any other portion of the Indebtedness is outstanding, the
Corporation shall:
(a) repay the Principal Sum, together with interest, in accordance with the
Credit Agreement;
(b) pay to the Holder immediately upon demand any and all charges, expenses and
costs, including legal costs as between a solicitor and his own client, incurred
by the Holder in preparing, registering or enforcing this Debenture, in
connection with the collection of moneys under this Debenture and in connection
with any other matter or thing related to this Debenture;
(c) promptly deliver to the Holder copies of any notices that are delivered or
otherwise provided to the Corporation under the Material Contracts or any of
them;
(d) execute all documents and do all things which, in the opinion of the Holder
or its legal counsel, are necessary or advisable to make this Debenture valid
and enforceable in accordance with its terms; and
(e) observe and perform all covenants, agreements, terms and conditions of the
Credit Documents, this Debenture and the Material Contracts.
8.2 The Corporation hereby covenants and agrees with the Holder that, so long as
the Principal Sum or any other portion of the Indebtedness is outstanding, the
Corporation shall not, except with the prior written consent of the Holder or
unless otherwise permitted under this Debenture or the Credit Documents:
(a) grant, create, assume or permit to exist any mortgage, pledge, charge,
assignment, security interest, lien, lease or other security, whether fixed or
floating, upon any of the Secured Property, other than the Permitted Liens;
(b) sell, transfer, assign or otherwise dispose of all or any portion of the
Pledged Rigs or any legal or beneficial interest therein;

 

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(c) give effect to or approve any actions or events which are described in
Sections 5.3 (a), (b), (c) or (d) of this Debenture; or
(d) declare, give effect to or approve any dividends or distributions of assets
of the Corporation to all or any holders of Common Shares.
8.3 Subject to the rights of the holders of the Permitted Liens, the Holder
shall be entitled, at its option, to apply any insurance proceeds paid under the
insurance policies applicable to the Secured Property in order to rebuild or
repair the Secured Property or in order to reduce the Indebtedness or partly in
order to rebuild or repair the Secured Property and partly in order to reduce
the Indebtedness.
8.4 Subject to the Subordination Agreement, the Holder shall have the right to
determine, at its sole discretion, whether moneys paid by or on behalf of the
Corporation to the Holder pursuant to this Debenture are applied against the
unpaid principal portion of the Indebtedness, against the unpaid interest
portion of the Indebtedness, against other unpaid portions of the Indebtedness
or against any combination of such unpaid portions.
8.5 If the Corporation fails to perform or comply with any of the agreements or
covenants set forth this Debenture or in any of the Permitted Liens, then the
Holder may, but shall not be obligated to, perform or comply with such
agreements or covenants on behalf of the Corporation and any costs incurred by
the Holder in order to perform or comply with such agreements or covenants shall
form part of the Indebtedness and shall be payable to the Holder immediately
upon demand.
ARTICLE IX — ENFORCEABILITY OF SECURITY
9.1 The Indebtedness shall become immediately due and payable and the security
constituted by this Debenture shall become immediately enforceable upon:
(a) the occurrence and during the continuance of an Event of Default; or
(b) the occurrence and during the continuance of an event of default or a breach
or failure to perform by the Corporation under any of the Material Contracts or
any of the Permitted Liens and such event of default, breach or failure to
perform, prejudices or, in the reasonable opinion of the Holder, would prejudice
the rights of the Holder hereunder.
ARTICLE X — REMEDIES OF HOLDER
10.1 At any time after the security constituted by this Debenture becomes
enforceable, the Holder shall be entitled to do one or more of the following
(subject to the Subordination Agreement):
(a) enter upon any premises forming part of or at which the Secured Property may
be located and take possession of the Secured Property pursuant to a seizure or
self help or in such other manner as the Holder may determine;

 

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(b) sell, lease or otherwise dispose of all or any part of the Secured Property
by public auction, public tender, private sale or by any other manner at such
times and on such terms and conditions as the Holder may determine and it shall
be lawful for the Holder to make such sale, either for cash or upon credit or
partly for cash and partly upon credit, and with or without advertisement, and
upon such reasonable conditions as to upset, reserve bid or price and as to
terms of payment as the Holder may deem proper, and the Holder may also rescind
or vary any contract of sale that may have been entered into and resell with or
under any of the powers conferred hereunder and adjourn any such sale from time
to time;
(c) with respect to all or any portion of the Secured Property:

  (i)  
carry on and manage the business and operations of the Corporation in respect of
the Secured Property and any agreements forming part of the Secured Property
(including, without limitation, the Material Contracts or any of them);
    (ii)  
receive the rents, incomes and profits of the Secured Property and, to the
extent applicable, any agreements forming part of the Secured Property
(including, without limitation, the Material Contracts or any of them);
    (iii)  
pay therefrom all expenses with respect to so completing the construction and
development of the Secured Property and with respect to the maintenance, repair,
protection and preservation of the Secured Property; and
    (iv)  
preserve, maintain, use and operate the Secured Property;

(d) as attorney or agent of the Corporation and in the name of the Corporation,
exercise any of the rights, powers and discretions which under the terms of any
of the agreements forming part of the Secured Property (including, without
limitation, the Material Contracts or any of them) could be exercised by the
Corporation with respect to such agreements;
(e) disburse any such moneys and incur any such expenses as the Holder
reasonably deems necessary for the inspection, completion or repair of the
Secured Property and for the payment of any costs and expenses related to
environmental cleanup of the Secured Property or any part thereof or ensuring
that the Secured Property is in compliance with any laws, regulations,
ordinances, rules, codes, standards, directions, permits, licenses and
authorizations establishing quality criteria or standards for air, water or
land;
(f) commence and pursue proceedings in any court of competent jurisdiction for
the sale or foreclosure of all or any part of the Secured Property;
(g) appoint, by written instrument, a receiver of all or any part of the Secured
Property;
(h) commence and pursue proceedings in any court of competent jurisdiction for
the appointment of a receiver of all or any part of the Secured Property;

 

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(i) commence and pursue proceedings in any court of competent jurisdiction for
payment and judgment in the sum of the Indebtedness including, without
limitation, payment of any portion of the Indebtedness remaining unpaid after
the Secured Property has been sold by the Holder and the proceeds of such sale
have been applied against the Indebtedness;
(j) commence and pursue proceedings in any court of competent jurisdiction for a
specific performance by the Corporation of any terms, covenants or conditions
under this Debenture which the Corporation has failed to observe or perform;
(k) purchase the Secured Property or any part thereof from any receiver of the
Secured Property provided that the purchase price payable for any portion of the
Secured Property purchased by the Holder shall be reasonable under the
circumstances and provided that the Corporation shall remain liable to the
Holder for the balance of the Indebtedness after applying the net sale proceeds
paid by the Holder in respect of the purchase of any portion of the Secured
Property; and
(l) exercise any other rights, powers or remedies authorized or permitted under
this Debenture or available to the Holder in law or in equity.
10.2 The Corporation hereby irrevocably appoints the Holder or any
representative of the Holder designated in writing by the Holder to be the
attorney of the Corporation in order to execute any deeds, transfers,
conveyances, assignments or documents in the name and on behalf of the
Corporation which the Corporation should have executed under this Debenture, in
order to take any actions in the name and on behalf of the Corporation which the
Corporation should have taken under this Debenture and in order to enforce or
realize upon the security constituted by this Debenture. This power of attorney
shall be deemed to be a power coupled with an interest.
10.3 Without restricting the generality of Section 10.2 of this Debenture, the
Corporation hereby irrevocably appoints the Holder or any representative of the
Holder designated in writing by the Holder to be the attorney of the Corporation
in order to sell all or any part of the Secured Property and to deliver good and
sufficient title to the Secured Property and any such sale shall be a perpetual
bar in law and in equity against the Corporation and all persons claiming all or
any part of the Secured Property from, through or under the Corporation provided
that, in the case of real property, such sale shall be completed pursuant to an
order of a court of competent jurisdiction in the Province of Alberta and
provided that, in the case of personal property, such sale shall be completed
pursuant to an order of a court of competent jurisdiction in the Province of
Alberta or pursuant to the Personal Property Security Act (Alberta). This power
of attorney shall be deemed to be a power coupled with an interest.
10.4 The remedies, rights and powers of the Holder pursuant to this Debenture
and any other security held by the Holder in respect of the Indebtedness are
cumulative and not alternative and are not in substitution for any other
remedies, rights or powers of the Holder. No exercise of or failure to exercise
any remedies, rights or powers of the Holder and no delay or omission in such
exercise shall exhaust such remedies, rights or powers or be construed as a
waiver of any of them.

 

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10.5 The Corporation hereby acknowledges that if a stay of proceedings is issued
against the Corporation pursuant to the Bankruptcy and Insolvency Act (Canada),
the Companies’ Creditors Arrangements Act (Canada) or otherwise, the Holder
would be irreparably harmed and materially prejudiced if any proceeds of the
Secured Property were used for any purpose other than the repayment of the
Indebtedness and the Corporation hereby acknowledges and agrees that any
proceeds of the Secured Property received by the Corporation while such stay is
in effect shall be received by and held by the Corporation in trust for the
Holder.
ARTICLE XI — APPOINTMENT OF RECEIVER
11.1 Unless otherwise provided in the instrument or court order appointing a
receiver in accordance with Section 10.1 of this Debenture, such receiver shall
have the following powers:
(a) the power to carry on and operate or concur in carrying on and operating the
business and undertaking of the Corporation and the Secured Property;
(b) the power to borrow or raise money for such purposes and in such manner as
the Holder may determine;
(c) the power to deal with creditors and debtors of the Corporation including,
without limitation, the power to commence and discontinue legal proceedings and
the power to enter into or approve settlements and arrangements; and
(d) the power to exercise any of the remedies, rights and powers of the Holder
described in this Debenture.
11.2 Without restricting the generality of Section 11.1 of this Debenture:
(a) the Holder may from time to time fix the reasonable remuneration of every
such receiver and may direct the payment thereof (in priority to the Holder),
out of the Secured Property and the rents, profits, revenues and income
therefrom or the proceeds thereof;
(b) the Holder may from time to time require any receiver to give security for
the performance of his duties as such receiver and may fix the nature and amount
thereof, but the Holder shall not be bound to require any such security from the
receiver;
(c) every such receiver may, with the consent in writing of the Holder, borrow
money for the purpose of maintaining, protecting or preserving the Secured
Property or any part thereof, or for the purpose of carrying on the business of
the Corporation, and any receiver may issue certificates (in this
Section 11.2(c) called “Receiver’s Certificates”) for such sums as will, in the
opinion of the Holder, be sufficient for obtaining security upon the Secured
Property or any part thereof for the amounts from time to time so required by
the receiver, and such Receiver’s Certificates may be payable either to order or
to bearer and may be payable at such time or times, and shall bear such interest
as the Holder may approve and the receiver may sell, pledge or otherwise dispose
of such Receiver’s Certificates in such manner and may pay such commission on
the sale thereof, as the Holder may consider reasonable, and the amounts from
time to time payable by virtue of such Receiver’s Certificates shall form a
charge upon the Secured Property in priority to the amounts secured under this
Debenture;

 

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(d) except as may be otherwise directed in writing by the Holder, all moneys
from time to time received by the receiver shall be paid over to the Holder to
be held by it as part of the Secured Property; and
(e) the Holder may pay over to any receiver any moneys constituting part of the
Secured Property to the extent that the same may be applied for the purposes
hereof by such receiver, and the Holder may from time to time determine what
funds the receiver shall be at liberty to keep on hand with a view to the
performance of his duties hereunder as such receiver.
11.3 Any receiver appointed in accordance with Section 10.1 of this Debenture
shall, in respect of any responsibility for his acts, be deemed to be the agent
of the Corporation and the Holder shall not in any way be responsible for any
acts or omissions of such receiver including negligence, misconduct or
misfeasance.
11.4 Any receiver appointed by the Holder by instrument may be removed by the
Holder and replaced by another receiver.
11.5 Nothing contained in this Debenture and nothing done by the Holder or any
receiver shall render the Holder a mortgagee in possession or responsible as
such.
11.6 The term “receiver” as used in this Debenture shall be construed as
including a receiver manager, receivers and receiver managers.
ARTICLE XII — DISCHARGE OF DEBENTURE
12.1 Upon the payment by the Corporation to the Holder of the full amount of the
Indebtedness (provided that the Holder is satisfied such payment does not
constitute a fraudulent preference) or upon the conversion of this Debenture
into Common Shares, the Holder shall, upon the written request and at the
expense of the Corporation, deliver this Debenture to the Corporation and
execute and deliver to the Corporation such deeds or other documents as shall be
required to release and discharge this Debenture.
ARTICLE XIII — MISCELLANEOUS PROVISIONS
13.1 Neither the execution nor the registration of this Debenture shall obligate
the Holder to advance the Principal Sum or any unadvanced portion of the
Principal Sum.
13.2 Time shall be of the essence of this Debenture.
13.3 The Corporation shall, at the request of the Holder and at the expense of
the Corporation, execute and deliver any further documents and do all acts and
things as the Holder may reasonably require to carry out the true intent and
meaning of this Debenture.
13.4 This Debenture shall enure to the benefit of the Holder and its successors
and assigns and shall be binding upon the Corporation and its successors and
permitted assigns.
13.5 Neither the Corporation nor the Holder shall be entitled to assign its
rights or obligations under this Debenture to any Person without the prior
written consent of the other party hereto.

 

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The Corporation hereby consents to (a) the assignment of the Holder’s rights and
obligations under this Debenture to an Affiliate of the Holder, and (b) subject
to the Subordination Agreement, the pledge or assignment (by way of security
only) of the Holder’s rights under this Debenture to Royal Bank of Canada, as
agent for the lenders of the Holder, or to any successor agent for such lenders
provided that such successor agent and a majority of such lenders are nationally
recognized financial or banking institutions.
13.6 This Debenture shall be governed by the laws of the Province of Alberta and
the parties to this Debenture agree to irrevocably attorn to the jurisdiction of
the courts of Alberta and agree that any proceedings taken in respect of this
Debenture may be taken in such courts.
13.7 Any notice required to be given by the Holder under the terms of this
Debenture (including, without limitation, the Conversion Notice) may effectively
be given by the Holder by prepaid private courier or sent by telecopy or direct
written electronic means to the Corporation at:
BCH Ltd.
Suite 500, 816 — 7th Avenue S.W.
Calgary, Alberta T2P 1A1
Attention: Craig F. Nieboer, CFO
Telecopy no.: (403) 213-9254
E-mail: cnieboer@brazalta.com
with a copy to:
Davis llp
Suite 1000, 250 — 2nd Street S.W.
Calgary, Alberta T2P 0C1
Attention: Trevor Wong-Chor
Telecopy no.: (403) 296-4474
E-mail: twong-chor@davis.ca
or at such other address, telecopier number or e-mail address as the Corporation
may provide in writing to the Holder in lieu thereof.
13.8 Any provision of this Debenture which is prohibited or unenforceable in any
jurisdiction shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Debenture
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
13.9 No term or provision of this Debenture may be amended except by an
instrument in writing signed by the Corporation and the Holder.
13.10 The Holder may waive any breach by the Corporation of any of the
provisions contained in this Debenture or any default by the Corporation in the
observance or performance of any covenant, agreement or condition required to be
kept, observed or performed by the Corporation under this Debenture provided
that such waiver shall not be effective unless expressed in writing and provided
that no act or omission by the Holder in respect of such breach or default shall
extend to or be taken in any manner whatsoever to affect any subsequent breach
or default or to affect the rights of the Holder resulting from such subsequent
breach or default.

 

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13.11 Unless otherwise provided in this Debenture, any reference in this
Debenture to dollars shall be to United States of America dollars.
13.12 Unless otherwise provided in this Debenture, all representations,
warranties, indemnities, agreements and covenants set forth in this Debenture
shall survive the execution of this Debenture.
13.13 No postponement or partial release or discharge of the mortgage, lien,
charge or security interest created under and secured by this Debenture in
respect of all or any portion of the Secured Property shall in any way operate
or be construed as a release or discharge of the security constituted by this
Debenture or as a release or discharge of the Corporation from its liability to
the Holder to pay the Indebtedness due or remaining unpaid by the Corporation to
the Holder.
13.14 The security constituted by this Debenture is in addition to, and not in
substitution for, any other security now or hereafter held by the Holder.
13.15 The taking of any actions or proceedings or refraining from so doing, or
any other dealing with any other security for the Indebtedness shall not release
or affect the security constituted by this Debenture and shall not operate as a
merger of the Indebtedness or any other security held by the Holder.
13.16 The security constituted by this Debenture shall not merge with or effect
a merger of any other guarantees, indemnities or securities held by the Holder
and the Holder shall be under no obligation to marshal in favour of the
Corporation any securities, moneys or assets which the Holder may be entitled to
receive.
13.17 In the event of any inconsistency between the provisions of this Debenture
and the provisions of the Credit Documents, the provisions of the Credit
Documents shall govern to the extent necessary to resolve such inconsistency.
13.18 The Corporation hereby authorizes the Holder to file such financing
statements, financing change statements and other documents as the Holder may
deem appropriate to perfect on an ongoing basis and continue the mortgage,
charge and security interest created by this Debenture, and to protect and
preserve the Secured Property and the Corporation hereby irrevocably constitutes
and appoints the manager or acting manager from time to time of the herein
mentioned branch of the Holder the true and lawful attorney of the Corporation,
with full power of substitution, to do any of the foregoing in the name of the
Corporation whenever and wherever it may be deemed necessary or expedient.

 

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13.19 If, for the purposes of obtaining judgment in any court, it is necessary
to convert any portion of the Indebtedness due hereunder from one currency into
another currency, then the Corporation agrees that the rate of exchange used
shall be that at which in accordance with normal banking procedures the Holder
could purchase such original currency with such other currency on the banking
day preceding that on which final judgment is given or, if permitted by
applicable law, on the date on which such judgment is paid or satisfied. The
obligation of the Corporation in respect of any sum due in such original
currency from it to the Holder under this Debenture shall, notwithstanding any
judgment in any other currency, be discharged only to the extent that, on the
banking day following receipt by the Holder, the Holder may in accordance with
normal banking procedures purchase such original currency with such other
currency. If the amount of such original currency so purchased is less than the
sum originally due to the Holder in such original currency, then the Corporation
hereby agrees, as a separate obligation and notwithstanding any such judgment,
to indemnify the Holder against such loss and, if the amount of such original
currency so purchased exceeds the sum originally due to the Holder in such
original currency, then the Holder agrees to remit such excess to the
Corporation.
13.20 The Corporation hereby acknowledges receipt of a copy of this Debenture,
and waives its right to receive a copy of any financing statement or financing
change statement registered by the Holder.
ARTICLE XIV — EXECUTION
14.1 This Debenture has been executed and issued by the Corporation in favour of
the Holder as of the 31st day of January, 2008.

              BCH LTD.
 
       
 
  By:    
 
       
 
       
 
  Name:    
 
       
 
       
 
  Title:    
 
       
 
      (affix corporate seal)

 

 

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SCHEDULE “A” TO DEBENTURE
Pledged Rigs
MATERIAL AGREEMENTS

                  Drilling Rig which Services Contract   Client       Contract #
 
BCH-01
  Petrobras   Service:     2300.0031788.07.2  
 
      Lease:     2300.0031786.07.2  
BCH-02
  Petrobras   Service:     2500.0031792.07.2  
 
      Lease:     2500.0031791.07.2  
BCH-04
  Petrobras   Service:     2700.0031827.07.2  
 
      Lease:     2700.0031824.07.2  
BCH-05
  Petrobras   Service:     2500.0031794.07.2  
 
      Lease:     2500.0031793.07.2  
BCH-03
  Petrobras   Service:     2600.0037264.07.2  
 
      Lease:     2600.0037263.07.2  

Service Contracts are between Petrobras and BCH Energy do Brasil Servicos de
Petroleo Ltda.
Lease Contracts are between Petrobras and BCH Ltd.

 

 

--------------------------------------------------------------------------------

 

SCHEDULE “B” TO DEBENTURE
Description of Material Contacts
Current Rig Fleet:
BCH-01 — Kremco Superior 400 Trailer Mounted Rig Drilling Rig and all ancillary
equipment
BCH-02 — IRI Cabot 2550 Drilling Rig and all ancillary equipment
SR101 — Cooper 500 — 5 Axle-Trailer Mounted Service Rig and all ancillary
equipment
BCH-03 — Rostel Model 300 Single Drilling Rig and all ancillary equipment
BCH-04 — IRI 750 model 2042/160 750 hp, trailer mounted — Double Drilling Rig
and all ancillary equipment
BCH-05 — Xtreme Diesel Electric Double Drilling Rig and all ancillary equipment
BCH-06 — Grandbow Industries Model JJ1351D 105’ telescopic Double Drilling Rig
and all ancillary equipment

 

 

--------------------------------------------------------------------------------

 

(BCH LOGO) [c72237c7223701.gif]
DRILLING RIG JR MACMILLAN (BCH-01)
Former: RIG-26
MANUFACTURER: KREMCO CANADA
MODEL: SUPERIOR 400 TRAILER MOUNTED RIG

         
DEPTH RATING
       
 
       
101.6 (mm), 4 (in.) drill pipe
  :   1500 (m), 4921 (ft)
 
       
DRAWWORKS
       
 
       
Make
  :   Superior
Model
  :   400
Drilling line
  :   25.4 (mm), 1 (in.) (EIPS)
Main brake
  :   Band
Auxiliary brake
  :   Parmac Hydromatic
Power
  :   Caterpillar 3412 (630 hp)
Drive
  :   Alison Torque Converter
Crown saver
  :   Hitec Cathead
 
       
MAST
       
 
       
Type
  :   Box telescope (free standing) (cable raise)
Height
  :   34.14 (m) 112 (ft)
Make
  :   Kremco
Gross nominal Capacity
  :   146,780, (daN), 330 000 (lbs)
Static hook load rating
  :   88,960 (daN), 200 000 (lbs)
Racking capacity (doubles)
  :   153 x 101 mm, (4")pipe (doubles)
 
       
SUBSTRUCTURE
       
 
       
Make
  :   Kremco
Type
  :   One piece box
Casing capacity
  :   88,960 (daN), 200 000 (lbs)
Set back capacity
  :   66,720 (daN), 150 000 (lbs)
 
       
TRAVELLING EQUIPMENT
       
 
       
Block (ton)
  :   BJ 150
Hook (ton)
  :   BJ Unimatic 150
Block and hook model
  :   BJ 6150
Swivel (ton)
  :   National 200
Model
  :   P200

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – sala 11/12
  Rua dos Jasmins n° 01, Bairro Planalto II
Rio de Janeiro – RJ
  Catu, Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
   
Fax: 21 - 2588-8116
   

 

 

--------------------------------------------------------------------------------

 

(BCH LOGO) [c72237c7223701.gif]

         
ROTARY TABLE
       
 
       
Make
  :   National
Model
  :   C-175
Opening size
  :   444.5 (mm), 17-1/2 (in.)
Static load rating
  :   226,796 (kg), 250 (ton)
Drive
  :   Caterpillar 3406 (420 hp)
 
       
MUD PUMP NO. 1
       
 
       
Make
  :   BPMMP - Baoji, China (to Continental Emsco design)
Model
  :   F500
Type
  :   Triplex
Displacement
  :   0.5 - 2.2 (m3/min) (gpm)135-575 @ 165 SPM
Pressures
  :   9.2 - 26.3 (mPa), 1340 to 3820 (psi)
Charge pump
  :   Mission Magnum 5 in x 6 in centrifugal
Power
  :   Caterpillar 3412 (600 hp)
Transmission
  :   5-speed Allison 5960
 
       
MUD PUMP NO. 2
       
 
       
Make
  :   BPMMP - Baoji, China (to Continental Emsco design)
Model
  :   F500
Type
  :   Triplex
Displacement
  :   0.5 - 2.2 (m3/min), 135 - 575 (gpm) @ 165 spm
Pressures
  :   9.2 - 26.3 (mPa), 1340 to 3820 (psi) spm
Charge pump
  :   Demco 5 in x 4 in centrifugal
Power
  :   Caterpillar 3412 (600 hp)
Transmission
  :   5-speed Allison 5960
 
       
GENERATORS
       
 
       
Engines
  :   Caterpillar D3406 DIT
Number
  :   Three
Generators
  :   210 KW (2x) / 300 KW (1x) - 460/220 V 60 Hz
 
       
MUD SYSTEM
       
 
       
Tank volume
  :   64 (m3), 370 (bbl), (two tanks)
Shakers
  :   Sweco LM 3
Degasser
  :   Poorboy

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – sala 11/12
  Rua dos Jasmins n° 01, Bairro Planalto II
Rio de Janeiro – RJ
  Catu, Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
   
Fax: 21 - 2588-8116
   

 

 

--------------------------------------------------------------------------------

 

(BCH LOGO) [c72237c7223701.gif]

         
BOP SYSTEM
       
 
       
BOP stack
  :   11 in Hydril GK 3M annular
 
      11 in Shaffer 3M double gate
Accumulator
  :   Hydril K8 454 (ltr), 120 (gal)
Choke manifold
  :   Oilmaster 3M
Adjustable choke
  :   Willis
Test pump
  :   Hydratron
 
       
INSTRUMENTATION
       
 
       
Drilling recorder
  :   3-pen Totco
Driller console
  :   Hitec Cathead mini console
Inclinometer
  :   Totco
Weight Indicator
  :   MD Totco
 
       
HANDLING EQUIPMENT
       
 
       
Winch
  :   Gearmatic hydraulic 2720 (kg), 3 (ton)
Manriding winch
  :   IR46RJ Pneumatic
Kelly spinner
  :   Foster hydraulic
Wireline winch
  :   Gearmatic
Hydraulic Power Tongs
  :   White Bear - 25,000 foot - pounds (3" - 5" in.)
 
       
FUEL TANK
       
 
       
Capacity
  :   21 800 (ltr), 5760 (gal)
 
       
WATER TANK
       
 
       
Capacity
  :   400 (ltr), 105 (gal)
 
       
BUILDINGS:
       
 
       
Change shack
  :   20 ft container (modified)
Doghouse a/c (large)
  :   20 ft container
Trailers
  :   2x 40ft (offices, mess room)
 
      2x 20ft (living quarters)
Geologist Lab
  :   20 ft container
 
       
TUBULARS
       
 
       
Drill pipe
  :   300 ea - 101.6 (mm), 4" (in.)
 
      Grade E (H90 tool joints)
 
       
Drill collars
  :   20 ea - 171.5 (mm), 6-3/4" (in.) spiral
 
      20 ea - 120.6 (mm), 4-3/4" (in.)
 
      03 ea - 196.9 (mm), 7.3/4" (in.)
 
      07 ea - 171.5 (mm), 6.3/4"(in.)
 
       
Heavy Weight Drill pipe
  :   14 ea - 127 (mm) - 5" (in.)

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – sala 11/12
  Rua dos Jasmins n° 01, Bairro Planalto II
Rio de Janeiro – RJ
  Catu, Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
   
Fax: 21 - 2588-8116
   

 

 

--------------------------------------------------------------------------------

 

(BCH LOGO) [c72237c7223701.gif]
DRILLING RIG BCH-JM2
Former: RIG-15

      ITEM   DESCRIPTION
 
   
DRAWWORKS:
  - IRI Cabot 2550
Horsepower Rating:
  - 1200 H.P.
Maximum Hoisting Capacity:
  - 337.5 T with 10 lines of 1-1/4"
Auxiliary Brake:
  - Parmac V-80 Hydromatic
Crown Block Protection:
  - Stewart - Stevenson
 
   
PRIME MOVER (DRAWWORKS):
  - 2 Cat 3412 DITA
Output Horsepower rating:
  - 600 H.P. each
Emergency Shut-down:
  - Barber Type
(Pumps):
  - 2 Cat D-399 TA
Output Horsepower:
  - 1150 H.P. with Barber Type Shutdown
 
   
AIR COMPRESSORS:
   
Type:
  - 1 - Quincy 350-21 (E) - Electric Powered
 
  - 1 - Quincy 350-22 (E) - Electric Powered
Automatic:
  - Yes -1 - Primary / 1 - Backup
 
   
ROTARY TABLE:
  - Gardner Denver RT 27-1/2
Maximum Table Opening:
  - 700 mm
Maximum Static Load:
  - (222,500 daN)
Torque Gauge:
  - Totco
RPM Gauge:
  - Totco
 
   
DERRICK:
  - IRI Telescoping
Static Hook Load w/ Lines of:
  - 322 T with 10 lines (318,000 daN)
Racking Capacity:
  - 145 STD with 5"
Clear Working Height:
  - 38.7m (127 feet)
Wind Capacity (Bare Mast):
  - 106 MPH
Wind Capacity (Full Set-back):
  - 80 MPH
 
   
SUBSTRUCTURE:
  - IRI Telescoping
Casing Load:
  - 460 Ton (409,400 daN)
Minimum Clear Working Height:
  - 4.15m (13.8 ft)
Set Back Capacity:
  - 162 Ton (360,000 lbs) (162,200 daN)
 
   
TRAVELLING EQUIPMENT:
   
Crown Block:
  - IRI 6 - 42" Sheaves
Hook Block:
  - Emsco 350 T / 5 Sheaves (311,500 daN)
Links:
  - BJ 350 T / 96" (311,500 daN, 2743 mm)
Swivel:
  - Emsco LB 400 (Static Ratio mg 800,000 lb) (356,000 daN)
 
   
TOP DRIVE:
   
Manufacturer:
  - TESCO
Model:
  - 250 HMIS
Capacity:
  - 250 Tons
Specs:
  - Hydraulic Power Pack (475 HP)

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – salas 11/12
  Rua dos Jasmins, 01 - Bairro Planalto II
Rio de Janeiro – RJ
  Catu – Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
  Tel.: 71 - 3641-9909
Fax: 21 - 2588-8116
  Fax: 71 - 3641-9459

 

 

--------------------------------------------------------------------------------

 

(BCH LOGO) [c72237c7223701.gif]

      ITEM   DESCRIPTION
 
   
DRILLING LINE:
   
Drilling Line Diameter:
  - 31.5 mm (1-1/4")
Type:
  - IWRC - IPS
Strength Capacity:
  - 71,000 daN (79.9T)
 
   
DEAD LINE ANCHOR:
   
Weight Indicator:
  - Martin Decker
Hydraulic Sensor:
  - Martin Decker
Line Scale Weight Indicator
  - Cameron C
 
   
HYDRAULIC WINCH:
   
Type:
  - Pull master PL8 (Hydraulic)
Load:
  - 7000 Lbs: 3115 daN
No:
  - Two
 
   
MUD PUMP:
   
No/Make/Model/Type — Pumps:
  - 2 - Gardner Denver PZ9 Triplex
Power Rating:
  - Pump- 750 kw (1000 H.P.) Each Engine Rating Caterpillar D-399c/w torque
converter (1150 H.P.)
Maximum Strokes / Minute:
  - 120
Maximum Working Pressure:
  - Lesser of 80% of Liner Rating or Published Pressure
Liner Size Available:
  - 6", 6-1/2"
Suction Pulsation Dampener:
  - No
Discharge Pulsation Dampener:
  - Continental Emsco 10 Gallon Lower Case 5000 psi on each Pump
Charge Pump (Centrifugal):
  - Mission 5 x 6
 
   
MUD TANKS:
   
Active Tank Volume:
  - 180 m3 (1110 bbl)
Premix Tank:
  - 48 m3 (400 bbl)
Trip Tank:
  - 3.5 m3 (22 bbl)
Agitators:
  - 5 - Norgear Model 800SW- 20 H.P.
Mud Guns:
  - Low Pressure for each Compartment
 
   
Desilter:
  - Swaco 12- 4" Cones
Degasser:
  - Roll'n Atmospheric 20" (500 mm Dia.)
Centrifuge Machine:
  - Swaco Model 1828
Shale Shakers:
  - 3 - Swaco Linear
Centrifugal Pumps:
  - Mission Style
Type:
  - 6" x 8" and 2"x3"
Capacity:
  - Various as per application
Number:
  - Seven

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – salas 11/12
  Rua dos Jasmins, 01 - Bairro Planalto II
Rio de Janeiro – RJ
  Catu – Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
  Tel.: 71 - 3641-9909
Fax: 21 - 2588-8116
  Fax: 71 - 3641-9459

 

 

--------------------------------------------------------------------------------

 

(BCH LOGO) [c72237c7223701.gif]

      ITEM   DESCRIPTION
 
   
LIGHT PLANTS:
   
Generators Available, (Rating-KW)
  - 2-CAT-3412 DITA 680 KW
Lighting available for:
  - Location Lighting and Wellsite Module
Both for rig:
  - For Rig and Wellsite Accommodation
Voltage:
  - 480 Volts w/ Transformer to 220v / 110v
 
   
TUBULARS:
   
 
   
Drill Pipe:
   
 
  - 288 Joints of 5 inch 19.5 Ib per ft Grade S135 c/w 4 1/2 inch IF tool joints
 
   
 
  - 144 Joints of 5 inch 19.5 Ib. per ft Grade E c/w 4 1/2 inch IF tool joints
 
   
 
  - 360 Joints of 3 1/2 inch 13.3 Ib per ft. Grade G105 c/w 3 1/2 inch IF tool
joints
 
   
 
  - 8-5 inch pup Joints of assorted lengths c/w 4 1/2 inch IF tool joints
 
   
 
  - 15 Joints of 5 inch HEVI- WATE drill pipe c/w 4 1/2 inch IF connections
 
   
Drill Collars:
   
 
   
 
  - 3-9 inch Spiral drill collars with 7 5/8 REG connections
 
   
 
  - 9-8 inch Spiral drill collars with 6 5/8 inch REG connections
 
   
 
  - 11-7 inch Spiral drill collars with 4 1/2 inch IF connections
 
   
 
  - 12-6 1/2 inch Spiral drill collars with 4 1/2 inch IF connections
 
   
 
  - 30-6 1/4 inch Spiral drill collars with 4 1/2 inch IF connections
 
   
 
  - 21-4 3/4 inch Spiral drill collars with 3 1/2 inch IF Connections
 
   
Drilling Subs:
   
 
   
 
  - 70 subs
 
   
Fishing Tools:
   
 
   
 
  - Tool inventory (inventory on request)

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – salas 11/12
  Rua dos Jasmins, 01 - Bairro Planalto II
Rio de Janeiro – RJ
  Catu – Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
  Tel.: 71 - 3641-9909
Fax: 21 - 2588-8116
  Fax: 71 - 3641-9459

 

 

--------------------------------------------------------------------------------

 

(BCH LOGO) [c72237c7223701.gif]

      ITEM   DESCRIPTION
 
   
BLOW OUT PREVENTION EQUIPMENT:
   
 
   
Annular Preventer:
  - 1-11 inch 5000 psi Hydril Annular Preventer
Ram Preventers:
  - 1-11 inch 5000 psi Shaffer double Ram Preventer
 
  - 1-11 inch 5000 psi Shaffer single Ram Preventer:
Drilling Spool:
  - 1-11 inch 5000 psi drilling spool c/w 2- 4 1/16 5000 psi outlets
Choke Manifold:
  - 1-5000 psi choke manifold c/w one manual and one auto choke with console

Accumulator:
  - Valvcon 130 Gallon 6 station
 
   
AUXILIARY TOOLS & INSTRUMENTS:
   
1. Automatic Drill Recorder
  - Martin Decker 5 Pen
2. Single shot Drift Recorder
  - Totco 7°
3. Wire-line Unit (Hydraulic):
  - 0.092 Line Rated for4570m / (15,000 ft)
4. High Pressure Wash Gun (Pump):
  - CAT w/ 3 H.P. Electric Motor
5. Sump Pump:
  - FLYGT 4" (Electric)
6. Kelly Spinner:
  - Foster 77 (Mckinney)
Kelly Bushing:
  - Varco HDP Hex
7. Drill Pipe Spinner:
  - Varco SSW 10
8. Rotary Hose:
  - Goodall 55' x 3' ID x min 5000PSI Working Pressure
9. Portable Rig Matting
  - Yes - 6" Thick, 8 ft wide, various lengths
10. Kelly:
  - 5-1/4" Hex - 40 ft long
Kelly Drive Bushing:
  - Pin Drive
11. Fuel Tanks, One tank at rig
  - 40,000 liter / Tank
12. Fuel Pumps:
  - 2- Electric Powered
13. Water Tanks, (Drilling Water Rig Storage):
  - 1 Hydormatic Tank
 
  - 2-Water Storage Tanks
 
  - 1-Rig Water Tank
Water Pumps:
  - 2-3" Jacuzzi (Electric Powered)
 
  - 2-120 Barrel water transport tanks skid mounted
14. Hand Tools:
  - Complete set for rig, mechanic and electrician
15. One (1) Derrick Bunk 16. One wellsite unit for Rig Manager
   
 
   
SPARE EQUIPMENT ITEMS:
         
Engines:
  - 2-398 Caterpillar engines c/w Radiators
Transmissions:
  - 1-6061 Allison Automatic transmission complete
Right Angle Drive:
  - 1- complete right angle drive for the drawworks
Hook:
  - 1-250 ton Web Wilson
BOP:
  - 1-11 inch 5000 psi Hydril Annular complete
 
  - 1-11 inch 5000 psi Shaffer double gate
Swivel:
  - 1-LB400 Emsco swivel complete
Tongs:
  - 1 complete set of AAX tongs with jaws
Rotary Table (New)
  - 1 Spare 27 1/2 inch rotary table complete with drive bushing

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – salas 11/12
  Rua dos Jasmins, 01 - Bairro Planalto II
Rio de Janeiro – RJ
  Catu – Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
  Tel.: 71 - 3641-9909
Fax: 21 - 2588-8116
  Fax: 71 - 3641-9459

 

 

--------------------------------------------------------------------------------

 

(BCH ENERGY DO BRASIL LOGO) [c72237c7223702.gif]
Equipamentos e Materiais Fornecidos pela BCH-101

                  ITEM   ESPECIFICAÇÃO   QUANT.        
 
          1    
Sonda de Produção e Acessórios.
               
 
          1.1    
Sonda de produção com capacidade igual ou superior a ( 150.000 ) libras, que
manobre com seção de ( 2 ) tubos na vertical, dotada de sistema de partida
elétrica e descarga, possuindo mastro com altura de ( 30 ) m.
    1          
 
          1.2    
Plataforma de trabalho com altura ajustável.
    1          
 
          1.3    
Conjunto gancho-catarina com capacidade (150.000lbs).
    1          
 
          1.4    
Par de links com capacidade ( 220.000lbs ) e comprimento ( 2.20m ).
    1          
 
          1.5    
Power-Sub tipo ( warning ) com Swivel, acionado por ( Sistema hidráulico ).
    1          
 
          1.6    
Cat line com velocidade de ( 6 ) metros por minuto.
    1          
 
          1.7    
Cat head com controle de torque e curso mínimo de ( 3,77 ) pés.
    1          
 
          1.8    
Guincho auxiliar.
               
 
          1.9    
Catarina com cabo de aço de ( 1 ) “.
               
 
          2    
Sistema de Circulação, Amortecimento e Teste
               
 
          2.1    
Bomba de lama modelo (National), com filtro e acionada, com potência de
(JWS-400) HP, dotado de sistema de partida, ou Bomba de lama Dowel Schlumberger
triplex capacidade 8.5 galões por minunos, motor Detroit 420 HP 8V71 díesel
(back-up/bomba reserva).
    1          
 
          2.2    
Conjunto de mangueiras de aço, tipo ( 2”lp ) .
    1          
 
          2.3    
Conjunto de mangueiras para sucção com ( 4) “ de diâmetro x ( 32 ) pés.
    1          
 
          2.4    
Tanque retangular para armazenamento de fluido, com capacidade de ( 114 ) bbl,
equipado com câmara de espuma, dotado de divisão com comporta para retenção de
detritos e com sucção na extremidade oposta ao retorno.
    2          
 
          2.5    
Pistola de lama.
    1          
 
          2.6    
Manifold de ataque e estrangulamento de ( 5000 ) psi WP.
    1          
 
          2.7    
Manifold de sucção de ( 6 ) “.
    1          
 
          2.8    
Balança n° ( 1 ) com ( 0 a 27 lbs/pé ) escalas, incluindo lb/pé3.
    1  

 

1

--------------------------------------------------------------------------------

 

(BCH ENERGY DO BRASIL LOGO) [c72237c7223702.gif]

                  ITEM   ESPECIFICAÇÃO   QUANT.        
 
          3    
Equipamentos de Prevenção de Erupções
               
 
          3.1    
BOP hidráulico, modelo ( DR-25 ), 7 1/6” x 5.000 psi WP de gaveta dupla com
acionador, acumulador e comandos hidráulico e mecânico. Sistema de acionamento
utilizando mangueiras de aço ou de borracha, tipo ( 1 1/2 ). Gavetas para
tubulações de ( 2.3/8x 3.1/2 “ OD ) e cega. Adaptador para 5000 psi, com tomada
lateral de 2 “ abaixo da gaveta inferior e acima da gaveta superior.
    2          
 
          3.2    
BOP para trabalhar coluna de hastes de ( 5/8 ) “ a ( 1.1/8 ) “, que utilize um
único par de gavetas para todos os diâmetros, tipo ( Doble E ), com pressão de
trabalho igual a ( 3000 ) psi, rosca inferior ( 3 ) “ LP Pino e rosca superior
igual a ( 3 ) “ LP Caixa.
    1          
 
          3.3    
Saída de lama de ( 5 )” OD.
    1          
 
          4    
Equipamentos Componentes de Coluna
               
 
          4.1    
Raspador para operar em revestimentos de ( 5.1/2 ) até ( 7 ) lb/pé.
    2          
 
          4.2    
Conjunto de equipamentos para pistoneio em tubulações de ( 2.3/8 a 3.1/2 ) “ OD,
tipos EUE e NU, com oil saver com release e swab com esfera móvel, sinker bar e
percursor.
    3          
 
          4.3    
Conjunto de equipamentos cortadores de parafina para tubulações de ( 2.3/8 a
3.1/2 ) “ NU, com sinker-bar e percursor.
    3          
 
          4.4    
Conjunto de calibradores internos para tubulações de ( 2.3/8 a 3.1/2 ) “ OD
tipos EUE e NU, conforme norma API 5A.
    3          
 
          4.5    
Conjunto de reduções, como segue:
               
 
               
a) das brocas de ( 4.3/4 ) “, para comandos de ( 2.3/8 IF ) “ OD x 3 1/2” IF,
com os respectivos protetores de rosca.
    1          
 
               
b) dos referidos comandos para colunas de tubos de ( 2.3/8 a 3.1/2 ) “ Conexões
IF e 3 1/2” EU e NU.
    1          
 
               
c) das brocas de ( 4.3/4 ) “ para raspador de colunas ( 2.3/8 a 3.1/2 EU ) “.
    1          
 
               
d) dos raspadores de ( 5.1/2 ) “ para as colunas ( 2.3/8 a 3.1/2 EU ) “.
    1          
 
          4.6    
Conjuntos de Adaptadores
               
 
               
(A) A.3 7.1/16” x 5000 x 3000 x 2000 PSI
    2          
(B) A.3 7.1/16” x 3000 x 2000 x 1000 PSI
    1          
 
          4.7    
Válvula para circulação de areia tipo 2LP x 5000 PSI
    1  

 

2

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(BCH ENERGY DO BRASIL LOGO) [c72237c7223702.gif]

                  ITEM   ESPECIFICAÇÃO   QUANT.        
 
          5    
Equipamentos de Manuseio
               
 
          5.1    
Conjunto de elevadores para tubulações de (2.3/8 a 3.1/2 ) “ OD, tipos EUE e NU.
    2          
 
          5.2    
Conjunto (par) de elevadores para hastes de bombeio de ( 5/8 a 1 ) “.
    6          
 
          5.3    
Conjunto constituído de mesa e cunha com acionamento pneumático e mecânico, para
tubulações de ( 2.3/8 a 3.1/2 ) “ OD, e comandos de ( 3.1/2 ) “ OD.
    3          
 
          5.4    
Colar de segurança para comandos de ( 2.3/8) “ OD a ( 7 ) “ OD.
    1          
 
          5.5    
Chave hidráulica ( Carter Tooco ), modelo ( BJ ), ou similar, equipada com
medidor de torque, e sistema hidráulico para permitir o seu posicionamento, para
operar tubulações de ( 2.3/8” a 3.1/2” ) “ OD.
    1          
 
          5.6    
Conjunto de chaves para hastes de bombeio de ( 5/8 a 1 ) “.
    6          
 
          5.7    
Gancho com mola e trava (catarina de hastes) para manobra de coluna de hastes
com capacidade de ( 80.000 ) lbs, tipo ( BJ ) ou similar.
    1          
 
          5.8    
Conjunto de chaves manuais tipo grifo, tamanhos ( 24 x 36, 48,60) “.
    4          
 
          5.9    
Conjunto de chaves de marreta para parafusos dos flanges de ( 1 a 5 )” para
pressões de ( 1.000 a 6.000 ) psi.
    8          
 
          5.10    
Conjunto de materiais para conexão com as instalações fixas, constituído de
nipples curvas, tês, uniões e válvulas para ( 2 )” LP.
    15          
 
          5.11    
Conjunto de ferramentas manuais e outras utilidades, constituído de: bomba de
graxa, nível, clips galvanizado para cabos de ( 1/2 )” até ( 1 )”, esticadores,
cortadores de cabo, corda de sisal de diversas bitolas, chaves de brocas, lima,
alicate, chaves de fenda, chaves ajustáveis, martelo de bola, marretas de bronze
de ( 2 ) e ( 5 )kg, serrote, enxada, enxadela, pá redonda, pá quadrada, rodo,
carrinho de mão, tesoura tipo aviação corte à esquerda modelo ( reto ), e
paquímetro com escala em fração de polegada tamanho ( 0 ) a ( 11.13/16 ), com
medidor de profundidade marca (Tubasa) ou similar.
    1          
 
          5.12    
Conjunto com ( 8 ) cavaletes para estaleirar hastes de bombeio na horizontal,
confeccionado de acordo com padrões estabelecidos pela API.
    1          
 
          5.13    
Tubig stripper para colunas de ( 2.3/8” x 3.1/2” )” OD.
    1          
 
          5.14    
Tubing wipper para limpar tubos de (2.3/8” x 3.1/2” )”.
    1          
 
          5.15    
Válvula de segurança 2” LPx5000 PSI
    1          
 
          5.16    
Válvula Teste 2” LPx 5000 PSI
    1          
 
          5.17    
Pap. Rap.
    1          
 
          5.18    
Grupo gerador
    1  

 

3

--------------------------------------------------------------------------------

 

(BCH ENERGY DO BRASIL LOGO) [c72237c7223702.gif]

                  ITEM   ESPECIFICAÇÃO   QUANT.        
 
          6    
Instrumentos Medidores e Registradores
               
 
          6.1    
Indicador de peso tipo MARTIN DECKER ou similar, com capacidade para
(280.000)lbs e ponteiro indicador de sensibilidade, escala em libra para guincho
principal.
    1          
 
          6.2    
Indicador de profundidade (3.500m) para guincho auxiliar.
    1          
 
          6.3    
Manômetros com ranges de pressões: ( 0,1000 )psi
    1          
 
          6.4    
Manômetros com ranges de pressões: ( 0,1500; 0,5000; 0 até 6.000 )psi
    2          
 
          6.5    
Indicador de pressão da bomba de lama. (0 a 6.000)PSI
    1          
 
          6.6    
Escala indicadora de volumes em bbl nos tanques, por tanque de lama.
    1          
 
          7    
Equipamentos de Segurança
               
 
          7.1    
Extintor de incêndio de espuma química.
  NA        
 
          7.2    
Extintor de incêndio de dióxido de carbono de ( 6 )kg.
    2          
 
          7.3    
Extintor de incêndio de pó químico de (12) kg.
    2          
 
          7.4    
Mangueira de (2.1/2” )” x ( 1.1/2 )m com uniões ( storz).
    2          
 
          7.5    
Esguicho regulável de ( 2.1/2” x 1.1/2)”, tipo ( storzz ) com uniões ( 2.1/2 )
para ( 1.1/2 ) GPM.
    1          
 
          7.6    
Chave para mangueira de incêndio de ( 2.1/2, 1.1/2 )”. (conjugada)
    2          
 
          7.7    
Proporcionador de espuma mecânica de ( 2.1/2 )”.
    1          
 
          7.8    
Jogos de equipamentos de proteção contra vapores de ácido e gás, constituído de:
óculos, máscaras semi-facial com filtro, avental plástico, mangois plásticos.
  NA        
 
          7.9    
Gerônimo com cabo de fuga para torrista.
    1  

 

4

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(BCH ENERGY DO BRASIL LOGO) [c72237c7223702.gif]

                  ITEM   ESPECIFICAÇÃO   QUANT.        
 
          7.10    
Esguicho lançador de espuma.
    1          
 
          7.11    
Derivante em ( 3 )” com entrada de ( 2.1/2 )” e duas saídas de ( 1.1/2 )”.
    1          
 
          7.12    
Mangueira de ( 2.1/2 – 1.1/2 )”, de ( 12 ) metros.
    2          
 
          7.13    
Esguichos de ( 2.1/2 – 1.1/2 )”.
    1          
 
          7.14    
Bombonas de LGE (Líquido Gerador de Espuma) de ( 20 ) litros.
    1          
 
          7.15    
Conjunto Moto-bomba diesel, para Combate a Incêndio, motor MWM 4 cil – bomba 80
metros cúbicos/hora pressão até 11 kg.
    1          
 
          8    
Outros Equipamentos
               
 
          8.1    
Tanque para armazenamento de água doce com capacidade mínima para ( 70 ) bbl com
bomba centrífuga para combate a incêndio.
    1          
 
          8.2    
Sistema de iluminação com lâmpadas de vapor de sódio.
    1          
 
          8.3    
Conjunto gerador de energia, com potência compatível com as cargas da sonda,
equipamentos auxiliares e os trailers para operações de ( 24 ) h por dia.
    1          
 
          8.4    
Casa de aço para sondador.
    1          
 
          8.5    
Trailer para encarregado de sonda.
    1          
 
          8.6    
Veículo utilitário para uso de encarregado.
    1          
 
          8.7    
Guia Cabo
    1  

 

5

--------------------------------------------------------------------------------

 

(BCH ENERGY SERVICES INC LOGO) [c72237c7223701.gif]
Suite 500, 816 -7th Ave SW Calgary, AB, Canada T2P 1A1
Schedule A

     
Rig Name & Number
  BCH #3
Depth Rating
  1400 m with 102 mm drill pipe
KB to Ground
  3.5 m
Bottom of table beam to ground
  2.8 m
Approximate Loads  
  Rig — 9 loads, DP & DC — 1 load

Equipment

         
Drawworks
  Make   Rostel 300
 
  Auxiliary Brake   Eaton 124 WCB
 
       
Rig Power & Distribution
      Detroit Series 60
 
       
Mast
  Make   Rostel Stiff Mast
 
  Height   20.4 m
 
  Maximum Hook Load   88,900 daN w/6 lines
 
  Certified   Dec. 2003
 
       
Substructure
  Length   Hydraulic High Back
 
  Height   3 m
 
  Casing Capacity   66,700 daN setback
 
       
Crown Block
  Make   Rostel
 
  Maximum Load   88,900 daN with 3 sheaves
 
  Certified   Yes
 
       
Travelling Block / Hook
  Make   Ideco UTB 110
 
  Maximum Load   97,000 daN
 
  Certified   Jan. 2004
 
       
Swivel
  Make   Oilwell PC-100
 
  Maximum Load   88,900 daN
 
  Certified   Nov. 2005

 

 

--------------------------------------------------------------------------------

 

Equipment Cont’d

                 
Drilling Line
  Size           25 mm
 
               
Rotary Table
  Make           Ideco 175
 
  Opening Size           444 mm
 
  Maximum Load           66,700 daN
 
               
Pump #1
  Input Power           Series 60 Detroit
F500
               
 
               

                                      Max. Allowable     Operating Limits      
    SPM   Max. Allowable Operating Press
Linear Size
  140 mm     165     14,000 kPa
 
  152 mm     165     12,000 kPa

                 
Mud System
  # of Tanks           1
 
  # of Compartments           4
 
  Total Active Volume           34 m3
 
  Trip Tank Volume           3.46 m3
 
  Pill Tank Volume           5.4 m3
 
  Pre-Mix Tank Volume           30 m3
 
  Transfer Pumps - Make           5 x 6 - 50 HP
 
  Desilter - Make           Swaco
 
  Cone Size           10 Cones
 
  Shaker - Make           Swaco ALS
 
  Screen Sizes Available           Up to 170 Mesh
 
               
Pump #2
  Input Power           Series 60 Detroit
F500
               
 
               

                                      Max. Allowable     Operating Limits      
    SPM   Max. Allowable Operating Press
Linear Size
  140 mm     165     14,000 kPa
 
  152 mm     165     12,000 kPa

                 
Well Control System
               
Accumulator
  Type           Valvcon 4 Station
 
  Capacity           80 Gal.
 
  Pressure           21,000 kPa
 
  Remote Control Stn. -           4
 
  # of functions            
 
  Master Controls at Accumulator           Yes
Choke Manifold
  Installed in Heated Enclosure           Yes
 
  Max. Working Pressure           21,000 kPa
 
  Gut Line   Size   76 mm #2
 
      Wing Lines   52 mm
 
  Manual Choke   Make   National
 
      Size   72 mm
 
  HCR Valve   Make   National
 
      Rating   21,000 kPa
 
  Lower Kelly Cock   Make   API
 
      Rating   21,000 kPa

 

 

--------------------------------------------------------------------------------

 

Equipment Cont’d

                 
 
  Stabbing Valve   Make   API
 
      Rating   21,000 kPa
Mud Gas Separator
      Size   762 mm
 
      Height   2.14 m
 
  Inlet Line   Size   76 mm
 
      Outlet   152 mm
B.O.Ps
  Annular   Make   Townsend
 
      Size   228 mm
 
      Rating   21,000 kPa
 
      Last Inspection   Mar. 2006
 
  Pipe Ram   Make   Townsend
 
      Size   228 mm
 
      Rating   21,000 kPa
 
      Last Inspection   Mar. 2006
 
  Blind Ram   Make   Townsend
 
      Size   228 mm
 
      Rating   21,000 kPa
 
      Last Inspection   Mar. 2006
 
               
Instrumentation
               
Weight Indicator
      Make   Martin Decker
Crown-o-matic
      Make   Control Drilling
Recorder
      Make   Pason Electronic
 
          Drilling Recorder
Survey Instrument
      Make   Totco
 
      Model   Degree 21
 
               
Drill Pipe
              API Grade
 
      Length   150 joints
 
      Size   102 mm
 
      Classification   Premium
 
               
Drill Collars
      O.D   14 – 121 mm (4 3/4)
 
      Length   128 m
 
      O.D.   6 – 159 mm (6 1/4)
 
               
Tankage
      Fuel   11,000 ltrs
 
               
Light Plant
              Series 60
 
      Type   Detroit

 

 

--------------------------------------------------------------------------------

 

Equipment Cont’d

                 
 
      Output   350 kw
 
      Voltage   480
 
               
Miscellaneous Equipment
              Hydraulic Pipe Tub
 
               
Rig Managers Shack
      Size   8’ x 20’
 
      Type   Fabricated in Brazil
 
      Manufactured   2007
 
      Serial #   R#3

 

 

--------------------------------------------------------------------------------

 

(BCH ENERGY SERVICES INC. LOGO) [c72237c7223701.gif]
Drilling Rig BCH-04 (IRI 750)
General Specification

      ITEM   DESCRIPTION
 
   
MODEL:
  IRI 750 TRAILER MOUNTED DRILLING RIG
 
   
DRAWWORKS:
  IRI 750 model 2042/160 750 hp, 1 1/8” grooving, trailer mounted
 
   
MAST:
  117’ 350,000# IRI double 10 line 365,000#
 
   
RIG MOTOR:
  series 60 Detroit, model #6063HK33, 750 hp
 
   
TRANSMISSION:
  Allison CTL-6061-4
 
   
AUXILIARY BRAKE:
  Eaton 24” x 3” disc
 
   
SUBSTRUCTURE:
  IRI hydraulic box scoping 350,000# set back, 22’
 
   
BLOCK:
  Ideco 160 ton shorty
 
   
SWIVEL:
  TSM 150
 
   
KELLY:
  5 1/2” square
 
   
KELLY BUSHING:
  Varco
 
   
ROTARY TABLE:
  Ideco 20-1/2”
 
   
BAILS:
  Joy 350 ton
 
   
MUD PUMP UNIT #1:
  Gardner Denver PZ-8 stroke 8”, P/B Cat. 3508, (705 hp), in house.
 
   
MUD PUMP UNIT #2:
  Gardner Denver PZ-8 stroke 8”, p/b cat. 3508, (705 hp), in house.
 
   
COMBINATION HOUSE:
  Koomey 6 station 5 bottle w/30 hp union triplex pump, (1) generator marathon
350 kw, p/b Detroit series 60, (1) generator magnamax 200kw, p/b cat. 3306
 
   
BLOWOUT PREVENTION EQUIPMENT:
  13 5/8” X 5000 Hydril Annular Preventer, 5/8” X 5000 Shaffer Double Ram
Preventer.
 
   
CHOKE MANIFOLD:
  5000 PSI Choke manifold c/w one manual and one auto choke complete with
console. (located at end of catwalk).

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – salas 11/12
  Rua dos Jasmins, 01 - Bairro Planalto II
Rio de Janeiro – RJ
  Catu – Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
   
Fax: 21 - 2588-8116
   

 

 

--------------------------------------------------------------------------------

 

(BCH ENERGY SERVICES INC. LOGO) [c72237c7223701.gif]

      ITEM   DESCRIPTION
 
   
MUD SYSTEM:
  (2) tank 600 bbl. w/(2) shale shakers linear motion dfts, percharge and mixing
pumps mission magnums, 8 x 6 w/12” impellers, (5) sew-eurodrive type RF87 c/w 5
hp motor and 1 1/8” shaft, (1) pill tank agitator sew-eurodrive type KF47 c/w 5
hp motor and 1 1/8” shaft, degasser
 
   
DOGHOUSE WATER TANK:
  Drillers controls and brake handle in glass dome inside of doghouse
cantilevers down
 
   
TOOL PUSHER HOUSE:
  40” Office / Living quarters
 
   
MISC. TOOLS:
  Foster Kelly spinner, auto driller, folley type “B” tongs, catwalk, katch kan
recovery system for oil based drilling fluids. Pipe racks, 45 foot catwalk
w/manifold.
 
   
TUBULARS:
  - 250 Joints of 5” 19.5 S-135 Drill pipe c/w 4 1/2” IF connections
- 15 Joints of 5” Hevi-Wate drill pipe c/w 4 1/2” IF connections
 
   
DRILL COLLARS:
  - 20 x 6 1/2” Spiral drill collars
- 4 x 8” Spiral drill collars

     
Escritório Central:
  Base de Operações:
 
   
Av. Rio Branco, 01 – 12° andar – salas 11/12
  Rua dos Jasmins, 01 - Bairro Planalto II
Rio de Janeiro – RJ
  Catu – Bahia
20090-003
  48110-000
Tel.: 21 - 2588-8011 / 2588-8012
   
Fax: 21 - 2588-8116
   

 

 

--------------------------------------------------------------------------------

 

BCH ENERGY RIG # 5E
105’ Mast

  •  
400,000 lbs telescopic double
    •  
4 x 36” 1 x 42” sheave crown complete
    •  
Racking board
    •  
Derrick egress system
    •  
Fall Arrester Posts
    •  
Drillers console
    •  
2 x PL-8 Tugger winches
    •  
1 x PL-5 Boom line
    •  
Complete electrical package
    •  
Complete Plumbing Package with Hydraulics and Air
    •  
Blast and paint with Endura products

Substructure

  •  
400,000 lbs casing load
    •  
350,000 lbs set back
    •  
14’4” wide x 17’ total height
    •  
48” high x 24” wide pony subs
    •  
Off trailer sub height 13’
    •  
Hydraulic leveling rams
    •  
Hydraulic power package
    •  
27.5” Rotary table
    •  
BOP handling system for 13 5/8”
    •  
Complete electrical package
    •  
Plumbing package with hydraulic, air, steam and water
    •  
Blast and Paint with Endura products and Pro-coat

Draw Works Skid

  •  
Fabricate unitized draw works skid
    •  
Supply & mount TSM-850 draw works
    •  
Supply & mount GE 752 DC electric floor motor
    •  
Supply and install mast raising cylinders
    •  
Supply and mount DW cooler
    •  
Supply and mount 1.25” x 5000’ drill line
    •  
Plumbing package with hydraulic, air, steam and water
    •  
Complete electrical package
    •  
Blast and Paint with Endura products and Pro-coat

Power Catwalk with Manifold Building

  •  
Fabricate power catwalk with skate and manifold building
    •  
Fabricate V-door
    •  
Complete plumbing package

 

 

--------------------------------------------------------------------------------

 

  •  
Complete electrical package
    •  
Blast and Paint with Endura products and Nonslip

Combination Building

  •  
Fabricate 55’ x 12’4” combination building
    •  
Wash room and shower facility
    •  
3 cubic meter fresh water tank
    •  
3.5 meter disposal water tank
    •  
Change shack facility
    •  
Supply and install 120 gal x 5 station accumulator
    •  
Blast and Paint with Endura products

Mud Tank 1

  •  
Fabricate 83m3 3 compartment mud tank
    •  
3 each 7.5 HP agitators
    •  
6 each 3” mud guns
    •  
2 each Derrick Super G Shakers
    •  
Side Winder style mix hopper
    •  
2 each 50 HP 5 x 6 x 11 mix pumps
    •  
Complete suction / discharge manifold
    •  
Complete electrical package
    •  
Complete plumbing package
    •  
Blast and Paint with Endura products

Mud Tank 2

  •  
Fabricate 65 m3 2 compartment mix tank
    •  
2 each 7.5 HP agitators
    •  
4 each 3” mud guns
    •  
Side winder style mix hopper
    •  
1 each 50 hp 5 x 6 x 11 mix pumps
    •  
Complete suction / discharge manifold
    •  
Complete electrical package
    •  
Complete plumbing package
    •  
Blast and Paint with Endura products

Mud Pump 1

  •  
Fabricate 40 x 12’4” pump house with cabinets & racks
    •  
Supply and install off shore F-1000 pump
    •  
Supply and install GE 752 electric motor and drive system
    •  
Precharge pump — 50 HP, 5 x 6 x 14 centrifugal pump
    •  
Supply and install complete drive system
    •  
Supply and install wash gun
    •  
Supply and install 7.5HP air compressor
    •  
Supply and install all guarding

 

 

--------------------------------------------------------------------------------

 

  •  
Supply and install all suction / discharge plumbing
    •  
Complete electrical package
    •  
Complete plumbing package
    •  
Blast and Paint with Endura products

Mud Pump 2

  •  
Fabricate 40’ x 12’4” pump house with cabinets & racks
    •  
Supply and install off shore F-1000 pump
    •  
Supply and install GE 752 electric motor and drive system
    •  
Precharge pump — 50 HP, 5 x 6 x 14 centrifugal pump
    •  
Supply and install complete drive system
    •  
Supply and install all guarding
    •  
Supply and install all suction / discharge plumbing
    •  
Complete electrical package
    •  
Complete plumbing package
    •  
Blast and Paint with Endura products

Water Tank / Doghouse

  •  
Fabricate 65 m3 water tank / doghouse
    •  
Slide out system on doghouse
    •  
Hydraulic doghouse raising system
    •  
Storage room & tool board on doghouse
    •  
Tool room with benches & oil storage
    •  
2 each Jacuzzi water pumps
    •  
Wash pump and soap tank
    •  
15 HP air compressor
    •  
Complete electrical package
    •  
Complete plumbing package
    •  
Blast and paint with Endura products

Generator Skid #1

  •  
40’ x 12.5’ generator skid with roof
    •  
2 x Detroit Diesel 12V Series 2000 1000HP generators
    •  
Electrical panels and plug boards

Generator Skid #2

  •  
40’ x 12.5’ generator skid with roof
    •  
1 x Detroit Diesel 12V Series 2000 1000HP generator
    •  
1 x Detroit Diesel Series 60 685HP generator
    •  
Electrical panels and plug boards

 

 

--------------------------------------------------------------------------------

 

SCR building complete.
Choke Manifold

  •  
2” x 3” x 5000 psi double gut manifold
    •  
All Plumbing for flare and degasser lines
    •  
Blast and Paint

Flare Tank and Pipe Suitcase Skid

  •  
Piping for flare & degasser line
    •  
Auto igniter for flare stack
    •  
Stackable onto manifold skid
    •  
Blast and paint with Endura products

Hydraulic Pipe Tubs x 6

  •  
Range II pipe tubs
    •  
Complete hydraulic / plumbing package
    •  
Blast and paint with Endura products

Rig Matting

  •  
7 — 8’ x 48’ x 6” 4 runner mats 2 with jacking pads
    •  
3 — 8’ x 36’
    •  
6 — 8’ x 24’
    •  
1 — 8’ x 22’3” with well center
    •  
2 — 4’ x 20’

Pipe Racks

  •  
40’ tumble racks x 3 sets

Pipe / Collar Handling Tools

  •  
Kelly Spinner
    •  
Pipe Spinner
    •  
Web Wilson AAX Tongs
    •  
BJ Style 250 ton DP Elevators
    •  
5” Drill Pipe Slips
    •  
DCS-R Drill Collar Slips
    •  
Square Roller Kelly Bushing
    •  
Safety Collar
    •  
10’ x 250 ton Bails
    •  
250 ton Swivel
    •  
250 ton Block and Hook

Blowout Preventers

  •  
2 — 13 5/8” x 5000 psi singles
    •  
1 — 13 5/8” x 5000 psi annular
    •  
All stack valves including HCR
    •  
Drilling spool with turns

Rig Manager’s Shack

  •  
Complete w/ electrical village panel

 

 

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Tubulars
340 Joints of 4 1/2” Drill pipe 16.60 G- 105 NC46
12 each 6 3/4” Drill collars
8 each 8” Drill Collars
3 each 9 1/2” Drill Collars

 

 

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(BCH LOGO) [c72237c7223701.gif]
Drilling Rig — BCH-06 (telescopic double)
General Specification

     
DEPTH RATING:
  2800m with 4” in drill pipe
APPROXIMATE LOADS:
  14 loads

      ITEM   DESCRIPTION
 
   
DERRICK:
   
 
  Model JJ1351D 105’ telescopic double
 
  Effective height 31m
 
  Max hook load 1350 KN
 
  Hyd lift mechanical telescope
 
  Racking board height above floor 17.4m (57’)
 
  Set back capacity 4 1/2” DP (2800m) (9200’)
 
                               + 6 1/4 DC (20 jts)
 
  Crown block model TC 135C
 
  Rated 1350 KN (297,500 lbs.)
 
  5 x 760 mm (30”) 11/8” grooved sheaves
 
  Fold up racking board
 
  Easy rider assembly
 
  Escape buggy with deadline anchor weight
 
  Derrick will be Painted White with a Red Crown.
 
  Hydraulic Rams for Make up and Breakout.
 
  One crown mounted fall arrest
 
  One monkeyboard mounted fall arrest on slope line
 
  4” standpipe with Kelly hose and valves and fig 602 fittings
 
  2” casing standpipe with valve, fittings and hose
 
   
SUBSTRUCTURE:
   
 
  Model DZ 160/ 4.5
 
  Max set back 1350 kN (348,000 lbs)
 
  Floor height 4.5m (14.7’)
 
  Ground to bottom of rotary beam 3.52m ( 11.5
 
  Pipe bottom bird baths
 
  BOP hydraulic lift system
 
  BOP tie down
 
  Folding handrails on top area
 
  ZP175 17 1/2 Rotary table rated 1600 KN (352,640 lbs.)
 
   
BOPs:
   
 
  9” 3000 psi 21 mpa
 
  Annular FH23-21 9” 3000 (Annular Shaffer Element.)
 
  2-9” 3000 ram block c/w Pipe Rams and Blind Rams.
 
  FZ23-21
 
  9” 3000 x 9” 3000 working spool with 3” 3000 outlets
 
  HCR & Manual valves
 
  2-Kill line valves
 
  3 1/8 1-HCR Hydraulic, 1- Manual
 
  9 Valve Manifold c/w 2 Chokes.

     
Sede:
  Escritório Brasil:
 
   
Suite 500, 816 – 7th Avenue SW
  Av. Rio Branco, 01 – 8° andar – sala 804
Calgary, AB, Canada
  Rio de Janeiro – RJ
T2P 1A1
  20090–003
Tel.: +1(403) 539-9488
  Tel.: 21 - 3213-8050
Fax +1(403) 265-4160
  Fax: 21 - 3213-8051

 

 

--------------------------------------------------------------------------------

 

(BCH LOGO) [c72237c7223701.gif]

      ITEM   DESCRIPTION
 
   
DRAWWORKS:
   
 
  Model JC20 rated 550hp
 
  15 L Cummins 600hp engine
 
  Allison 6061 transmission
 
  JFD 130 right angle drive box
 
  Drum 450mm x 912mm (17.7“x36”) 11/8 “lebus grooved
 
                      Circulating drum with closed loop glycol
 
                      310mm x 1070mm (12“x42”) break hubs
 
  224 ETN auxiliary brakes with closed loop glycol system shared with
circulating drum
 
  Rotary table brake
 
  50 hp electric two stage hydraulic system
 
  PTO hyd system
 
  3 T (6600lb) boom line winch on mud tank side
 
  5 T (11000lb) tugger winch on doghouse side
 
  Survey Winch
 
   
PIPE SYSTEM:
   
 
  Catwalk with manifold shack with two 3” lines and one 8” de-gasser lin
 
  YJG 21 21 mpa (3000 psi) rated choke manifold line
 
  V door installed on catwalk
 
  Folding pipe rack arms installed on shack side
 
  Three of forklift accessible pipetubs
 
  240 Jts. 4” FH X95 drill pipe hardbanded and internal coated
 
  15 Jts. 6 1/4 4 1/2 X H drill collars (zipped for slips and hardbanded on pin
end) 20 each 4 1/2” HWDP
 
   
MUD TANKS:
   
 
  60m3 usable 5 compartments including trip tank, shaker tank, settling tank,
suction tank and pil tank
 
            Sand trap
 
            4- 7.5 hp agitators in tank
 
            2 - 50 HP 5x6 Victory mud mixers (or 6 x 8)
 
            2 - Winch poles
 
            De-gasser unit
 
            Mixing hopper
 
   
PUMP HOUSE:
   
 
  12’ 6” wide Building
 
  F1000 mud pump
 
  23 L Cummins with Icona clutch conventional mount with belt drive
 
  Allison 6061 transmission
 
  Electric 5 x 6 precharge or mechanical (please advise if electric or mech
preferred and if mechanical whether conventional belt driven or R/A with
polychain drive preferred)

     
Sede:
  Escritório Brasil:
 
   
Suite 500, 816 – 7th Avenue SW
  Av. Rio Branco, 01 – 8° andar – sala 804
Calgary, AB, Canada
  Rio de Janeiro – RJ
T2P 1A1
  20090–003
Tel.: +1(403) 539-9488
  Tel.: 21 - 3213-8050
Fax +1(403) 265-4160
  Fax: 21 - 3213-8051

 

 

--------------------------------------------------------------------------------

 

(BCH LOGO) [c72237c7223701.gif]

      ITEM   DESCRIPTION
 
   
LIGHT PLANT:
   
 
  2x 450 KW generators
 
  Powered by 15 L Cummins
 
  Louvered panels for both generators
 
  1 accumulator with air back up
 
  Plumbing for nitrogen ( nitrogen bottles not included)
 
  Koomey cord and remote (doghouse installed)
 
  Please advised if PLC needed approximately 30000.00 extra
 
  Tool room with work bench, storage shelves and storage cupboard
 
  Electric air compressor
 
  Change shack with 12 lockers and bench
 
  Electric heater in change shack
 
   
DOGHOUSE & WATER TANK:
   
 
  65m3 water storage

 
  Two water supply pumps
 
                      18,000L fuel tank
 
                      Two fuel pumps
 
                      3 oil storage bins
 
  Doghouse with junk room
 
  Knowledge box
 
  Storage cupboards
 
  Winch trolley bar in junk room
 
   
TRAVELLING EQUIPMENT:
   
 
  Swivel SL135
 
  Hydraulic Kelly spinner
 
  Travelling blocks YG135C 1350 KN
 
  41/4 square Kelly bar/ c/w Drive Bushing or 3 1/2 bar and bushings
 
  Slips (Drill Pipe and Drill Collar)
 
  Elevators DH 150
 
                      1000m spool 1 1/8 drill line

 
                      108” x 250 Ton Bale Links
 
                      Choke Hose, 2’ Kill Hose ,Shock Hose

Note:
Mast and sub will be Canadian certified as will all other overhead equipment.

     
Sede:
  Escritório Brasil:  
Suite 500, 816 – 7th Avenue SW
  Av. Rio Branco, 01 – 8° andar – sala 804
Calgary, AB, Canada
  Rio de Janeiro – RJ
T2P 1A1
  20090–003
Tel.: +1(403) 539-9488
  Tel.: 21 - 3213-8050
Fax +1(403) 265-4160
  Fax: 21 - 3213-8051

 

 

--------------------------------------------------------------------------------

 

SCHEDULE “C” TO DEBENTURE
Conversion Notice
To: BCH Ltd.
Allis-Chalmers Energy Inc. hereby irrevocably elects to convert the attached
Debenture (the “Debenture”) into Common Shares in the capital of BCH Ltd. in
accordance with the terms of the Debenture and Allis-Chalmers Energy Inc. hereby
directs BCH Ltd. to issue such Common Shares in the name of Allis-Chalmers
Energy Inc. or its nominee,                                         .
Dated as of the  _____  day of                     , 20  _____.

              ALLIS-CHALMERS ENERGY INC.
 
       
 
  By:    
 
       
 
       
 
  Name:    
 
       
 
       
 
  Title:    
 
       
 
       

Instructions
1. This Conversion Notice must be competed and signed by Allis-Chalmers Energy
Inc. and this Conversion Notice, together with an executed copy of the
Debenture, must be surrendered to BCH Ltd. at its office at Calgary, Alberta
prior to the “Time of Expiry” defined in the Debenture.
2. If Common Shares are to be issued to a nominee of Allis-Chalmers Energy Inc.,
then the name of such nominee must be inserted in the space provided above.

 

 

--------------------------------------------------------------------------------

 

SCHEDULE “F”
SUBSIDIARY GUARANTEE
January 31, 2008
SUBSIDIARY GUARANTEE
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.

     
Guarantor:
  BCH Energy do Brasil Serviços de Petróleo Ltda.
 
   
Beneficiary:
  Allis-Chalmers Energy Inc.
 
   
Guaranteed Party:
  BCH Ltd.
 
   
Effective Date:
  January 31, 2008
 
   
Final Term of Subsidiary Guarantee:
  January 31, 2013

 

 

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- 2 -

     
Expiry Date:
  This SUBSIDIARY GUARANTEE shall expire on the earlier of January 31, 2013, or
the date on which the MAXIMUM AMOUNT under this SUBSIDIARY GUARANTEE is reduced
to zero.
 
   
Maximum Amount:
  The MAXIMUM AMOUNT shall be, in respect of any date, an amount equal to the
unpaid principal balance of the Loan, plus all accrued and unpaid interest,
fees, expenses and other amounts payable in connection therewith pursuant to the
Credit Agreement.

THIS SUBSIDIARY GUARANTEE is made as of January 31, 2008 by BCH Energy do Brasil
Serviços de Petróleo Ltda. in favour of Allis-Chalmers Energy Inc.
WHEREAS on January 31, 2008, Allis-Chalmers Energy Inc., BCH Ltd. and BCH Energy
do Brasil Serviços de Petróleo Ltda. executed a Credit Agreement by which
Allis-Chalmers Energy Inc. has agreed to advance a loan to BCH Ltd. (the “Loan”)
in the principal amount of US$ 40,000,000 (forty million United States Dollars)
(the “CREDIT AGREEMENT” or “GUARANTEED AGREEMENT”), to which this SUBSIDIARY
GUARANTEE is an Annex;
AND WHEREAS BCH Energy do Brasil Serviços de Petróleo Ltda. will benefit from
the advance of the loan under the CREDIT AGREEMENT and has therefore signed the
CREDIT AGREEMENT as a GUARANTOR;
NOW THEREFORE, for good and valuable consideration (the receipt and sufficiency
of which are acknowledged by the GUARANTOR), the GUARANTOR agrees to and in
favour of the BENEFICIARY as follows:
1. In accordance herewith, BCH Energy do Brasil Serviços de Petroleo Ltda. a
limited liability partnership organized and existing under the laws of the
Federative Republic of Brazil, with its headquarters at [ ], enrolled with the
taxpayers’ registry under No. 07.989.725/0001-01 (“GUARANTOR”), hereby
guarantees as principal payor and primary obligor any amounts due by the
GUARANTEED PARTY in respect of payments payable under the GUARANTEED AGREEMENT.
2. For the avoidance of doubt, this SUBSIDIARY GUARANTEE solely and exclusively
guarantees the reimbursement of any amounts owed by the GUARANTEED PARTY to the
BENEFICIARY in respect of payments payable under the GUARANTEED AGREEMENT as a
result of a default of the GUARANTEED PARTY under the GUARANTEED AGREEMENT. This
SUBSIDIARY GUARANTEE does not guarantee any other payment made or owed by the
GUARANTEED PARTY to the BENEFICIARY.

 

--------------------------------------------------------------------------------

 

- 3 -

3. The GUARANTOR undertakes to pay all amounts due in accordance with the
instructions of the BENEFICIARY and within 4 (four) business days of the date of
receipt of a written demand from the BENEFICIARY, together with an exhibit in
the form of Schedule 1 hereto (“PAYMENT DEMAND”), except in the event of an
express order, judicial or from an arbitration court, determining the suspension
of the payments by the GUARANTOR in connection with this SUBSIDIARY GUARANTEE.
It is expressly agreed that the delivery of the PAYMENT DEMAND shall be the only
condition to the making of any payment by the GUARANTOR hereunder. Subject to
the terms hereof, GUARANTOR’s obligation to pay hereunder shall be absolute and
unconditional.
4. This SUBSIDIARY GUARANTEE shall be valid until the EXPIRY DATE, on which date
the GUARANTOR shall be automatically released and discharged from any and all
liabilities arising out of this SUBSIDIARY GUARANTEE, notwithstanding the
delivery of the original counterpart of this SUBSIDIARY GUARANTEE, except only
for any liabilities specified under any PAYMENT DEMAND delivered prior to the
EXPIRY DATE and outstanding on the EXPIRY DATE.
5. The obligations of the GUARANTOR contained in this SUBSIDIARY GUARANTEE shall
be continuing obligations notwithstanding any partial settlement or other matter
or thing whatsoever and shall not be considered satisfied by any intermediate or
partial payment by GUARANTOR hereunder. Notwithstanding the foregoing, it is
agreed that any payment made by the GUARANTOR to the BENEFICIARY hereunder shall
imply an equivalent reduction of the MAXIMUM AMOUNT applicable on the date of
such payment.
6. Should the GUARANTOR pay any of the obligations herein guaranteed, upon the
BENEFICIARY receiving payment in full of the indebtedness owing under the CREDIT
AGREEMENT, GUARANTOR shall be automatically subrogated, within the limits of the
payments made in connection with this SUBSIDIARY GUARANTEE, in all rights,
privileges and actions which the BENEFICIARY may have before the GUARANTEED
PARTY, provided, however, that the GUARANTOR agrees that any and all rights it
shall have against the GUARANTEED PARTY hereunder shall be entirely and
unconditionally subject to the terms and conditions of the CREDIT AGREEMENT, to
which it is a party.
7. Any claims for payment hereunder shall be made for a specified amount, by
means of the delivery of a PAYMENT DEMAND no later than the EXPIRY DATE, after
which date the BENEFICIARY shall lose its rights (decadência de direitos) in
connection with this SUBSIDIARY GUARANTEE regardless of any notice or delivery
of the original counterpart of this SUBSIDIARY GUARANTEE, and exempted from any
further claims in connection herewith, except only for any claims for
liabilities specified under any PAYMENT DEMAND delivered prior to the EXPIRY
DATE and outstanding on the EXPIRY DATE, in any case up to the MAXIMUM AMOUNT.
Such release shall also take place should the GUARANTOR receive the original
counterpart of this SUBSIDIARY GUARANTEE together with a confirmation of release
signed by the BENEFICIARY.

 

--------------------------------------------------------------------------------

 

- 4 -

8. Any payment due by the GUARANTOR to the BENEFICIARY hereunder shall be made
to such eligible account as the BENEFICIARY shall specify in writing and shall
be made in United States Dollars. Nonetheless, if a Currency Constraint (as
defined below) shall have occurred, the GUARANTOR shall give the BENEFICIARY
notice thereof within two business days of the date it receives a PAYMENT
DEMAND. In such event, the BENEFICIARY may, upon written notice to the GUARANTOR
elect to receive in the lawful currency of Brazil all payments due under the
SUBSIDIARY GUARANTEE and shall elect an account held by the BENEFICIARY, or a
third party appointed by the BENEFICIARY, in Brazil to which such payment shall
be made, and in the event the BENEFICIARY shall have elected such payment in
Brazil and such payment shall have been made, GUARANTOR shall be automatically
discharged and released with respect to such amount paid in Brazil. In the event
no such election have been made by the BENEFICIARY, the GUARANTOR shall take
such steps as are legal under the laws of the Federative Republic of Brazil to
effect the applicable payment in United States Dollars, promptly as such laws
and regulations permit. For the purposes hereof, “CURRENCY CONSTRAINT” is a
reference to any law, regulation, directive or communication imposed or issued
by the Government or Brazil or the Central Bank of Brazil or any other competent
authority in Brazil imposing foreign exchange controls or other restrictions, or
any refusal to act or delay in acting by any such party, which has the effect of
prohibiting, preventing or delaying the remittance of United States Dollars by
the GUARANTOR when due under this guarantee letter.
9. All payments to be made by the GUARANTOR to the BENEFICIARY hereunder shall
be made free and clear of and without deduction for or on account of any tax
unless the GUARANTOR is required to make such a payment subject to the deduction
or withholding of tax, in which case the sum payable by the GUARANTOR (in
respect of which such deduction or withholding is required to be made) shall, to
the fullest extent then permitted by applicable law, be increased to the extent
necessary to ensure the BENEFICIARY receives a sum net of any deduction or
withholding equal to the sum which it would have had no such deduction or
withholding been made or required to be made.
10. The GUARANTOR waives the benefits provided by Articles 827, 834 and 839 of
the Brazilian Civil Code (Código Civil Brasileiro) and Article 595 of the
Brazillian Code of Civil Procedure (Código de Processo Civil).
11. This SUBSIDIARY GUARANTEE shall be governed by the laws of the Federative
Republic of Brazil. The courts of the City of Rio de Janeiro shall be competent
to process and decide upon any issues arising out of this guarantee letter.
12. ALL COMUNICATIONS TO THE GUARANTOR, including any PAYMENT DEMAND, SHALL BE
SENT TO BCH ENERGY DO BRASIL SERVIÇOS DE PETRÓLEO LTDA, AV. RIO BRANCO, 01-80.
ANAR-SALA, RIO DE JANEIRO – RJ, 20090-003, BRAZIL TO THE ATTENTION OF LUIZ ELIEL
NUNES DE AZEVEDO.

 

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- 5 -

THE ACCEPTANCE OF THIS SUBSIDIARY GUARANTEE BY THE BENEFICIARY IMPLIES THE
AUTOMATIC ACCEPTANCE OF ITS TERMS AND CONDITIONS
This SUBSIDIARY GUARANTEE is executed in one (01) original and (01) counterpart.
Rio de Janeiro, January 31, 2008

                BCH Energy do Brasil Serviços de Petróleo Ltda.
   
By:
       
 
        Witnesses:    
 
       
1.
       
 
       
 
  ID No.    
 
  Tax Id No.    
2.
       
 
       
 
  ID No.    
 
  Tax Id No.    

 

--------------------------------------------------------------------------------

 

EXECUTION
SCHEDULE “G”
SUBORDINATION AGREEMENT
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;

 

 

--------------------------------------------------------------------------------

 

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.

 

20

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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.

 

21

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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

 

22

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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

 

23

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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.

 

24

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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.

 

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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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:           Name:           Title:        

            ALLIS-CHALMERS ENERGY INC.,
as Subordinated Creditor
      By:           Name:           Title:        

[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:           Name:           Title:           BCH ENERGY DO BRASIL
SERVIÇOS DE PETRÓLEO LTDA.
      By:           Name:           Title:           BRAZALTA RESOURCES CORP.
      By:           Name:           Title:        

 

 

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Execution Copy
SCHEDULE “H”
OPTION AND GOVERNANCE AGREEMENT
BRAZALTA RESOURCES CORP.
(“BrazAlta”)

- and -
BCH LTD.
(the “Corporation”)

- and -
ALLIS-CHALMERS ENERGY INC.
(“Allis-Chalmers”)
OPTION TO PURCHASE AND GOVERNANCE AGREEMENT
January 31, 2008
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.

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TABLE OF CONTENTS

              Page
 
       
Article I — Interpretation
    4  
1.1 Definitions
    4  
1.2 General Interpretation Provisions
    9  
1.3 Headings
    10  
1.4 Schedules
    10  
 
       
Article II — Option to Purchase
    10  
2.1 Option to Purchase
    10  
2.2 Purchase of ESOP Options and ESOP Shares
    11  
2.3 Purchase of Standard Bank Warrant and Standard Bank Shares
    11  
 
       
Article III — Due Diligence
    12  
3.1 Due Diligence Right
    12  
3.2 Conduct of Due Diligence
    12  
3.3 Disclosure
    12  
 
       
Article IV — Closing
    12  
4.1 Closing Date
    12  
4.2 Closing Documents
    12  
4.3 Closing Conditions
    13  
 
       
Article V — Board of Directors
    14  
5.1 Board of Directors
    14  
5.2 Directors’ Meetings
    15  
 
       
Article VI — Fundamental Changes
    15  
6.1 No Action
    15  
 
       
Article VII — Restrictions On Transfer
    16  
7.1 Restrictions on Transfer by BrazAlta
    16  
7.2 Restrictions on Transfer by the holders of ESOP Options and ESOP Shares
    16  
 
       
Article VIII — Third Party Offers
    16  
8.1 Third Party Offer
    16  
8.2 Issuance of Purchase Notice Upon Receipt of Third Party Offer Notice
    17  
8.3 Tag Along
    17  
8.4 Timing
    17  
8.5 No Sale by Allis-Chalmers
    17  
 
       
Article IX — Distributions
    18  
9.1 Cash Distributions
    18  
9.2 Statements
    18  
9.3 Form of Distributions
    18  
9.4 Limitations on Distributions
    18  

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ii

              Page  
Article X — Additional Equity
    19  
10.1 Additional Equity Issuances
    19  
10.2 Third-Party Equity Financings
    19  
 
       
Article XI — Non-Competition and Non-Solicitation
    19  
11.1 Non-Competition and Non-Solicitation
    19  
11.2 Territorial Limits
    20  
11.3 Injunction
    20  
11.4 Co-Operation and Exceptions
    20  
 
       
Article XII — Confidentiality
    21  
12.1 Confidentiality
    21  
12.2 Survival
    22  
12.3 Injunctive Relief
    22  
 
       
Article XIII — Areas Of Interest Of The Parties
    23  
13.1 Corporation’s Area of Interest
    23  
13.2 Allis-Chalmers Area of Interest
    23  
 
       
Article XIV — Representations, Warranties and Covenants
    23  
14.1 Representations and Warranties
    23  
14.2 Indemnity
    24  
 
       
Article XV — covenants of brazalta
    24  
15.1 BrazAlta Covenants
    24  
 
       
Article XVI — INDEMNITY FROM brazalta
    25  
16.1 BrazAlta Indemnity
    25  
 
       
Article XVII — Notices
    25  
17.1 Requirements for Notices
    25  
17.2 Addresses
    26  
17.3 Notice Takes Effect
    26  
17.4 Change of Address
    27  
 
       
Article XVIII — Term
    27  
18.1 Termination
    27  
18.2 Sections to Continue in Force
    27  
 
       
Article XIX — General
    27  
19.1 Exercise of Rights
    27  
19.2 Non-Waiver
    27  
19.3 Extent of Waiver
    28  
19.4 Rights to be Cumulative
    28  
19.5 No Merger
    28  
19.6 Enurement
    28  

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iii

              Page  
19.7 Time is of the Essence
    28  
19.8 Further Assurances
    28  
19.9 Supervening Legislation
    28  
19.10 Entire Agreement
    28  
19.11 No Other Representations or Warranties
    28  
19.12 Counterparts
    29  
19.13 Governing Law
    29  
19.14 Submission to Jurisdiction
    29  
19.15 Service of Process
    29  
19.16 Fees and Commissions
    29  
19.17 Amendments
    29  
19.18 Assignment
    30  
19.19 Continuing Nature of Obligations
    30  
 
       
SCHEDULES
       
 
       
Schedule “A” — Valuation Procedure
       
Schedule “B” — By-laws of the Corporation
       
 
       

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OPTION TO PURCHASE AND GOVERNANCE AGREEMENT
This Option to Purchase and Governance Agreement is dated as of the 31st day of
January, 2008 and is made among BrazAlta Resources Corp., an Alberta corporation
having an office at Suite 500, 816 — 7th Avenue SW, Calgary, Alberta, T2P 1A1
(“BrazAlta”), and BCH Ltd., an Alberta corporation having an office at
Suite 500, 816 — 7th Avenue SW, Calgary, Alberta, T2P 1A1 (the “Corporation”),
and Allis-Chalmers Energy Inc., a Delaware corporation having an office at 5075
Westheimer, Suite 890, Houston, Texas, 77056 (“Allis-Chalmers”).
WHEREAS BrazAlta is the sole shareholder of the Corporation;
AND WHEREAS BrazAlta has agreed to grant to Allis-Chalmers the Option to
Purchase (as defined below) with respect to the Purchased Shares (as defined
below) at and for the Purchased Share Price (as defined below) and subject to
the terms and conditions set forth in this Agreement;
AND WHEREAS the Corporation has agreed to cause the holders of the ESOP Options
(as defined below) and the ESOP Shares (as defined below) to sell the ESOP
Options and the ESOP Shares to the Corporation for the ESOP Option Price (as
defined below) and the ESOP Share Price (as defined below) in the event of
certain events;
AND WHEREAS, concurrently with the execution of this Agreement, Allis-Chalmers
has agreed to advance the Loan (as defined below) to the Corporation in
accordance with the Credit Agreement (as defined below);
AND WHEREAS the Parties wish to enter into this Agreement to: (a) provide for
the Option to Purchase; (b) provide for the conversion of the Debenture (as
defined below) and the sale of the other securities in the capital of the
Corporation if the Option to Purchase is exercised; (c) provide for the conduct
of the business and affairs of the Corporation; (d) provide for restrictions on
transfer and ownership of the securities in the capital of the Corporation; (e)
govern the relationship among the Parties; (f) provide for a non-competition
covenant given by BrazAlta and its Affiliates; and (g) provide for areas of
interest for the Corporation and Allis-Chalmers.
NOW THEREFORE, in consideration of the above matters, the mutual covenants and
agreements contained herein, and for other valuable consideration, the receipt
and sufficiency of which are hereby irrevocably acknowledged, the Parties hereby
agree to the following:

          ARTICLE I — INTERPRETATION

1.1 Definitions
In this Agreement, including the recitals and Schedules hereto unless something
in the subject matter or context is inconsistent therewith, the following words
and phrases shall have the meanings set forth below:
“Accrued Interest Payable” has the meaning given to such term in Section 9.1.

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“Additional Equity Issuance” has the meaning given to such term in Section 10.1.
“Affiliate” means, as applied to any Person, any other Person directly or
indirectly Controlling, Controlled by, or under common Control with, that
Person.
“Agreement” means this option to purchase and governance agreement including all
Schedules attached to and forming part of this Agreement.
“Allis-Chalmers Shares” has the meaning given to such term in Schedule “A”.
“Allis-Chalmers Share Price” has the meaning given to such term in Schedule “A”.
“Applicable Laws” means all federal, provincial, local and municipal statutes,
laws, by-laws, rules, orders (including court orders), regulations, guidelines
or directions in effect from time to time and made or issued by any governmental
authority.
“Arm’s Length” has the meaning ascribed to it in the Income Tax Act (Canada).
“Business Day” means a day other than a Saturday, a Sunday or any other day on
which chartered banks are not open for business in Calgary, Alberta.
“By-Laws” has the meaning given to such term in Section 5.2.
“Closing” has the meaning given to such term in Section 4.1.
“Closing Date” has the meaning given to such term in Section 4.1.
“Competitive Business” has the meaning given to such term in Section 11.1(a)(i).
“Confidential Information” has the meaning given to such term in
Section 12.1(a).
“Control” means, when applied to the relationship between a Person or group of
Persons and a corporation or other entity, the beneficial ownership by such
Person(s), at the relevant time, of shares of such corporation or equity
interests of such other entity carrying more than the greater of (a) 50% of the
voting rights ordinarily exercisable at meetings of shareholders of such
corporation or equity holders of such other entity; and (b) the percentage of
voting rights ordinarily exercisable at meetings of shareholders of such
corporation or equity holders of such other entity that are sufficient to elect
a majority of the directors of such corporation or managers of such other
entity, and the words “Controlled by”, “Controlling” and similar words have
corresponding meanings; provided that a Person or group of Persons who Control a
corporation or other entity shall be deemed to Control a corporation or other
entity which is Controlled by such corporation or such other entity and so on;
“Credit Agreement” means the credit agreement dated as of January 31, 2008 made
among Allis-Chalmers, the Corporation, and BCH Energy do Brasil Servicos de
Petroleo Ltda., whereby, among other things, Allis-Chalmers agreed to advance to
the Corporation a loan in the amount of $40,000,000.

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“Damages” means costs, claims, damages, losses, actions, demands, liabilities,
fines, penalties, property damage, personal injuries (including death), expenses
(including legal fees on a solicitor and own client basis) of any kind or nature
and amounts paid in settlement of any of the foregoing, but do not include loss
of profit or consequential damages or amounts paid in relation thereto.
“Debenture” means the convertible subordinated secured debenture in the amount
of $40,000,000 issued by the Corporation to Allis-Chalmers in accordance with
the Credit Agreement.
“Directors” mean the individuals who are elected or appointed as directors of
the Corporation in accordance with this Agreement.
“EBITDA” means, for the applicable period, the sum of net income and interest
expense of the Corporation, net of interest income, depreciation and
amortization and all other non-charges, all in accordance with Canadian
generally accepted accounting principles, it being acknowledged that net income
shall exclude any gain or loss attributable to non-cash write-ups or write-downs
of assets and the gain or loss, net of taxes, on the sale, disposition, or
retirement of assets.
“ESOP” means the employee share option plan of the Corporation dated January 1,
2008, pursuant to which up to 10% of the issued and outstanding common shares in
the capital of the Corporation, on a non-diluted basis, may be reserved for
acquisition by the directors, officers, employees, consultants and other
personnel of the Corporation or a Subsidiary of the Corporation upon the
exercise of options granted by the Corporation to such Persons and pursuant to
which 800,000 common shares have been reserved as at the date hereof.
“ESOP Options” means the options to purchase common shares in the capital of the
Corporation outstanding, on a fully vested basis, under the ESOP from time to
time.
“ESOP Option Price” has the meaning given to such term in Schedule “A”.
“ESOP Share Price” has the meaning given to such term in Schedule “A”.
“ESOP Shares” means the common shares in the capital of the Corporation issued
under the terms of the ESOP from time to time.
“Financial Closing” has the meaning given to such term in the Credit Agreement.
“Fiscal Quarter” means a fiscal quarter of the Corporation ending on June 30,
September 30, December 31 or March 31 in any calendar year.
“Free Cash Flow” means EBITDA less (a) interest expense paid to the Senior
Lenders with respect to the Senior Indebtedness, (b) required principal payments
paid to the Senior Lenders with respect to the Senior Indebtedness, and
(c) capital expenditures made and approved by the Directors, all for the
applicable period.

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“Loan” has the meaning given to such term in the Credit Agreement.
“Maturity Date” has the meaning given to such term in the Credit Agreement.
“Non-Compete Period” has the meaning given to such term in Section 11.1(a).
“Offer Period” has the meaning given to such term in Section 8.2.
“Option Expiry Date” has the meaning given to such term in Section 2.1(a).
“Option Notice” has the meaning given to that term in Section 2.1(d).
“Option to Purchase” has the meaning given to such term in Section 2.1(a).
“Other Party” has the meaning given to such term in Section 8.1.
“Outstanding Securities” has the meaning given to such term in Section 8.1.
“Parent Indebtedness” has the meaning given to such term in the Credit
Agreement.
“Parties” means each of BrazAlta, the Corporation and Allis-Chalmers and their
successors and permitted assigns and any other Person that becomes a party to
this Agreement but, for clarity, in Article VIII, “Party” means BrazAlta or
Allis-Chalmers.
“Person” means and includes any natural person, corporation, limited
partnership, general partnership, joint stock company, association, company,
limited liability company, trust, bank, trust company, land trust, business
trust or other organization, whether or not a legal entity, any governmental
authority and the heirs, executors, administrators or other legal
representatives of a natural person, as the case may be.
“Purchase Notice” has the meaning given to such term in Section 8.2.
“Purchase Price” has the meaning given to such term in Schedule “A”.
“Purchased Share Price” has the meaning given to such term in Schedule “A”.
“Purchased Shares” means any and all common shares in the capital of the
Corporation owned by BrazAlta from time to time.
“Receiving Party” has the meaning given to such term in Section 8.1.
“Senior Indebtedness” has the meaning given to such term in the Credit
Agreement.
“Senior Lenders” has the meaning given to such term in the Credit Agreement.
“Standard Bank Excess” has the meaning given to such term in Section 2.3(b).
“Standard Bank Holdback” has the meaning given to such term in Section 2.3(a).

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“Standard Bank Share Price” has the meaning given to such term in Schedule “A”.
“Standard Bank Shares” means any common shares or other securities in the
capital of the Corporation that are issued pursuant to the Standard Bank
Warrant.
“Standard Bank Warrant” means collectively (a) the warrant initially issued in
the name of Standard Bank Plc dated July 31, 2007 to acquire 250,000 common
shares in the capital of the Corporation at an exercise price of $10.00 per
common share, and (b) any replacement warrant issued by the Corporation, whether
a replacement in whole or in part.
“Standard Bank Warrant Price” has the meaning given to such term in Schedule
“A”.
“Statement” has the meaning given to such term in Schedule “A”.
“Subsidiary” means any corporation or entity that is Controlled by the
Corporation, it being acknowledged that, as at the date of this Agreement, BCH
Energy do Brasil Servicos de Petroleo Ltda is the only Subsidiary of the
Corporation.
“Tag Along Notice” shall have the meaning given to such term in Section 8.3.
“Third Party” has the meaning given to such term in Section 8.1.
“Third Party Offer” has the meaning given to such term in Section 8.1.
“Third Party Offer Notice” has the meaning given to such term in Section 8.1.
“Third Party Shares” has the meaning given to such term in Schedule “A”.
“Third Party Share Price” has the meaning given to such term in Schedule “A”.
“Transfer” means (a) any transfer, sale, assignment, exchange, gift, donation or
other disposition of securities where possession, legal title, beneficial
ownership or the economic risk or return associated with such securities passes
directly or indirectly from one Person to another Person or to the same Person
in a different legal capacity, whether or not for value, whether or not
voluntary and however occurring, or (b) any agreement, undertaking or commitment
to effect any of the foregoing.
“Valuation” has the meaning given to such term in Section 2.1(b).
“Valuator” has the meaning given to such term in Section 2.1(b).
“Warranties” means the representations and warranties made and given in
Section 14.1.
“Warrantor” has the meaning given to such term in Section 14.1.

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1.2 General Interpretation Provisions

   
In this Agreement:
  (a)  
the words “herein”, “hereunder” and “hereof” refer to the provisions of this
Agreement and a reference to a recital, Article, Section, paragraph or
attachment is a reference to a recital, Article, Section, paragraph of or
attachment to this Agreement unless otherwise stated and references to this
Agreement include any recital, schedule, annex or other attachment;
  (b)  
a reference to a paragraph also refers to the subsection in which it is
contained and a reference to subsection refers to the Section in which it is
contained;
  (c)  
a reference to this Agreement, any other agreement or an instrument or any
provision of any of them includes any amendment, variation, restatement or
replacement of this Agreement or that agreement, instrument or provision, as the
case may be;
  (d)  
a reference to a statute or other law or a provision of any of them includes
regulations and other instruments under any of them as in effect from time to
time and consolidations, amendments, re-enactments, extensions or replacements
of that statute, law or provision;
  (e)  
the singular includes the plural and vice versa;
  (f)  
a reference to a Person includes a reference to the Person’s executors and
administrators (in the case of a natural person) and successors, substitutes
(including Persons taking by novation) and permitted assigns;
  (g)  
words of any gender shall include the corresponding words of the other genders;
  (h)  
“including” means “including, but not limited to” and other forms of the verb
“to include” are to be interpreted similarly;
  (i)  
where a period of time is specified to run from or after a given day or the day
of an act or event, it is to be calculated exclusive of that day; and where a
period of time is specified as commencing on a given day or the day of an act or
event, it is to be calculated inclusive of that day;
  (j)  
a reference to a day is a reference to a period of time commencing at midnight
and ending the following midnight;
  (k)  
if the time for performing an obligation under this Agreement expires on a day
that is not a Business Day, the time shall be extended until that time on the
next Business Day;
  (l)  
a reference to a month is a reference to a calendar month;
  (m)  
where a word or phrase is specifically defined, other grammatical forms of that
word or phrase have corresponding meanings;

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(n)  
if a payment prescribed under this Agreement to be made by a Party to this
Agreement on or by a given Business Day is made after 12:00 noon (Calgary time)
on that Business Day, it is taken to be made on the next Business Day; and
  (o)  
unless otherwise stated, any reference to dollars means United States of America
dollars.

1.3 Headings
Headings are inserted for convenience and do not affect the interpretation of
this Agreement. The table of contents included with this Agreement does not form
part of this Agreement.
1.4 Schedules
The following schedules (the “Schedules”) are attached hereto and forms a part
of this Agreement:
Schedule “A”- Valuation Procedure
Schedule “B”- By-laws of the Corporation
If any term or condition, express or implied, of any Schedule conflicts or is at
variance with any term or condition in the body of this Agreement, the term or
condition in the body of this Agreement shall prevail. Except as otherwise
provided in any Schedule, the Parties may substitute revised Schedules to this
Agreement at any time by agreeing to, signing and attaching a dated copy of the
revised Schedule to this Agreement, which revised Schedule shall from that date
be the applicable Schedule.
ARTICLE II — OPTION TO PURCHASE
2.1 Option to Purchase

(a)  
BrazAlta hereby grants to Allis-Chalmers an irrevocable option to purchase (the
“Option to Purchase”) the Purchased Shares for the Purchased Share Price. The
Option to Purchase may be exercised by Allis-Chalmers on and subject to the
terms and conditions of this Agreement up to and including the Conversion
Deadline (as defined in the Credit Agreement) (the “Option Expiry Date”).
  (b)  
On or about September 30, 2009, the Corporation shall retain, at the cost of the
Corporation, RBC Capital Markets, or with the written consent of Allis-Chalmers,
an alternate investment bank, (the “Valuator”) to prepare a valuation of the
Corporation in accordance with the valuation procedure attached as Schedule “A”
(the “Valuation”) and the Statement.
  (c)  
Upon receipt of the Valuation and the Statement, Allis-Chalmers shall have until
the Option Expiry Date to determine whether it will exercise the Option to
Purchase.
  (d)  
The Option to Purchase may be exercised by Allis-Chalmers giving notice (the
“Option Notice”) in writing to BrazAlta of the exercise of the Option to
Purchase.

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(e)  
Upon Allis-Chalmers exercising the Option to Purchase in accordance with this
Agreement, the Parties shall be deemed to have entered into a binding agreement
of purchase and sale with respect to the Purchased Shares at and for the
Purchased Share Price on and subject to the terms and conditions set forth
herein including, without limitation, Section 2.3.
  (f)  
The decision regarding whether to exercise the Option to Purchase shall be
solely within the discretion of Allis-Chalmers and no penalty, cost or expense
of any kind shall be incurred by Allis-Chalmers to the Corporation or BrazAlta
as a result of it deciding not to exercise the Option to Purchase (or being
deemed not to have issued, the Option Notice).

2.2 Purchase of ESOP Options and ESOP Shares
Upon the delivery of the Option Notice, the Corporation shall notify the holders
of each of the ESOP Options and the ESOP Shares of the Option Notice and their
requirement to sell to the Corporation, as of the Closing Date, the ESOP Options
and the ESOP Shares for, respectively, the ESOP Option Price and the ESOP Share
Price.
2.3 Purchase of Standard Bank Warrant and Standard Bank Shares

(a)  
Upon delivery of the Option Notice, Allis-Chalmers may offer to purchase from
the holder or holders thereof the Standard Bank Warrant and the Standard Bank
Shares, respectively, for the Standard Bank Warrant Price and the Standard Bank
Share Price and upon such additional terms as Allis-Chalmers in its sole
discretion, shall determine. Until a definitive purchase agreement is executed
and both the Standard Bank Warrant and the Standard Bank Shares are delivered to
Allis-Chalmers pursuant to the closing of such transaction or transactions,
Allis-Chalmers shall be entitled to withhold from the Purchased Share Price an
amount equal to 10% of the aggregate amount assigned by the Valuator to the
Standard Bank Warrant Price and the Standard Bank Share Price (such 10% amount
being the “Standard Bank Holdback”).
  (b)  
Upon the closing of the purchase transaction referred in Section 2.3(a),
Allis-Chalmers shall pay to BrazAlta the amount, equal to the Standard Bank
Holdback less the “Standard Bank Excess”, where the Standard Bank Excess is
calculated as the aggregate amount paid to the holder or holders of the Standard
Bank Warrant and the Standard Bank Shares less the aggregate of the Standard
Bank Warrant Price and the Standard Bank Share Price. Allis-Chalmers will have
no recourse to BrazAlta in respect of any deficiency in the event the aggregate
of the Standard Bank Holdback, the Standard Bank Warrant Price and the Standard
Bank Share Price is less than the amount paid to the holder or holders of the
Standard Bank Warrant and the Standard Bank Shares.
  (c)  
The Corporation shall use its commercially reasonable best efforts to provide
any requested assistance to Allis-Chalmers in the negotiation of the purchase of
the Standard Bank Warrant and the Standard Bank Shares by Allis-Chalmers.
  (d)  
In the event that Allis-Chalmers does not offer to purchase the Standard Bank
Warrant and the Standard Bank Shares, the Standard Bank Holdback shall be nil.
In the event that Allis-Chalmers offers to purchase the Standard Bank Warrant
and the Standard Bank Shares, the Standard Bank Holdback shall be dealt with in
accordance Section 2.3(b) whether or not such offer is accepted.

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ARTICLE III — DUE DILIGENCE
3.1 Due Diligence Right
At any time prior to the Option Expiry Date, Allis-Chalmers shall have the right
to conduct due diligence in respect of the Corporation for a single period not
exceeding 45 consecutive days in order to assist Allis-Chalmers in making the
decision as to whether or not to exercise the Option to Purchase.
3.2 Conduct of Due Diligence
With respect to the due diligence described in Section 3.1, Allis-Chalmers shall
be entitled (a) to conduct an in-depth review and analysis of the Corporation,
(b) to be satisfied with all of the aspects of the Corporation and its business,
including agreements, economic, commercial, legal, information systems, human
resources, insurance, bonding and regulatory aspects (including the availability
and terms of all required permits and licenses) associated with the business of
the Corporation, and (c) to have reasonable access to the Corporation’s sites
and to inspect the sites and facilities.
3.3 Disclosure
Subject to any applicable confidentiality restrictions, BrazAlta agrees to
provide to Allis-Chalmers all requested information pertaining to the
Corporation. Allis-Chalmers acknowledges and agrees that all confidential
information provided to it in the course of its due diligence review shall be
subject to Article XII .
ARTICLE IV — CLOSING
4.1 Closing Date
After the issuance of the Option Notice, the closing (the “Closing”) of the
purchase and sale of the Purchased Shares shall take place on January 31, 2010
or on such other date as the Parties may agree upon (the “Closing Date”), at the
offices of the solicitors for BrazAlta or at such other location and time as may
be agreed upon by the Parties.
4.2 Closing Documents

(a)  
At the Closing, Allis-Chalmers shall pay by way of cash payment to BrazAlta the
Purchased Share Price less the Standard Bank Holdback.
  (b)  
At the Closing, each of BrazAlta and the Corporation shall deliver to
Allis-Chalmers such closing documents as are customary including, but not
limited to the following:

  (i)  
all certificates representing the Purchased Shares, all duly endorsed in favor
of Allis-Chalmers or together with stock transfer powers of attorney completed
in blank, as directed by and to the satisfaction of Allis-Chalmers;

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  (ii)  
confirmation from the Corporation evidencing the cancellation or purchase of the
ESOP Options and the ESOP Shares by the Corporation;
    (iii)  
confirmation from the Corporation evidencing the termination of the ESOP;
    (iv)  
confirmation from Standard Bank Plc (as agent for the Senior Lenders) evidencing
that it no longer has any interest in or charge over the Purchased Shares;
    (v)  
copies of all required consents, waivers and releases by any Person in
connection with the transactions contemplated by this Agreement, including, but
not limited to, consents from the TSX Venture Exchange and the shareholders of
BrazAlta, as may be required;
    (vi)  
resignations of each of the Directors nominated by BrazAlta and each of the
directors of the Subsidiaries of the Corporation, together with a mutual release
and discharge executed by each of them in favour of the Corporation and its
Subsidiaries; and
    (vii)  
all original minute books, corporate records, corporate seals and all other
books and records of, or documents relating to the Corporation and its
Subsidiaries including, without limitation, all accounting and tax records,
forms and elections and relevant working papers and files and data in the
possession of BrazAlta and which were not previously delivered to
Allis-Chalmers.

4.3 Closing Conditions

(a)  
The obligation of Allis-Chalmers to complete the Closing is subject to the
satisfaction at or prior to the Closing Date of all of the following conditions
precedent, any one or more of which may be waived, in whole or in part, by
Allis-Chalmers:

  (i)  
the representations and warranties of BrazAlta and the Corporation contained in
this Agreement shall be true in all material respects at and as of the Closing
Date and BrazAlta and the Corporation shall have performed and satisfied all
covenants and agreements required by this Agreement to be performed and
satisfied by BrazAlta and the Corporation on or prior to the Closing Date;
    (ii)  
Allis-Chalmers shall have completed all due diligence investigations as it may
deem necessary and the results thereof shall be satisfactory to Allis-Chalmers
as it in its sole discretion may determine;
    (iii)  
Allis-Chalmers shall have received copies of all required consents, waivers and
releases by any Person in connection with the transactions contemplated by this
Agreement including, but not limited to, consents from the TSX Venture Exchange
and the shareholders of BrazAlta, as may be required;

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  (iv)  
the Corporation shall have caused the holders of each of the ESOP Options and
the ESOP Shares to sell the ESOP Options and the ESOP Shares to the Corporation
for, respectively, the ESOP Option Price and the ESOP Share Price, as at the
Closing Date; and
    (v)  
Standard Bank Plc (as agent for the Senior Lenders) shall have released its
security in and charge over the Purchased Shares.

(b)  
The obligation of BrazAlta to complete the Closing is subject to the
satisfaction at or prior to the Closing Date of the following conditions
precedent, any one or more of which may be waived, in whole or in part, by
BrazAlta:

  (i)  
the representations and warranties of Allis-Chalmers contained in this Agreement
shall be true in all material respects at and as of the Closing Date and
Allis-Chalmers shall have performed and satisfied all covenants and agreements
required by this Agreement to be performed and satisfied by Allis-Chalmers on or
prior to the Closing Date;
    (ii)  
Allis-Chalmers shall have converted, or given notice to the Corporation that
Allis-Chalmers has decided to convert, the Debenture in accordance with its
terms;
    (iii)  
the security granted by BrazAlta for the benefit of the Corporation in
connection with the Senior Indebtedness shall have been released and terminated;
and
    (iv)  
any declared and unpaid dividends outstanding as at the Closing shall be paid by
the Corporation to BrazAlta in accordance with Section 9.1.

ARTICLE V — BOARD OF DIRECTORS
5.1 Board of Directors

(a)  
Subject to this Article V, the Corporation shall have six Directors.
  (b)  
The Directors shall consist of (i) three nominees of BrazAlta, and (ii) three
nominees of Allis-Chalmers. The chair of the board of Directors shall be a
nominee of BrazAlta. The chair of the board of Directors shall be entitled to a
second or casting vote.
  (c)  
If a nominee Director of either BrazAlta or Allis-Chalmers resigns or is
removed, for any reason, then the vacancy created thereby will be filled by the
election or appointment of a Director nominated by BrazAlta or Allis-Chalmers,
as applicable. The Directors will not transact any business or exercise any of
their powers or functions until such vacancy has been filled, except to elect or
appoint the new Director and preserve the business and assets of the
Corporation. If a replacement Director is not elected or appointed within
10 days for any reason including the fact that BrazAlta or Allis-Chalmers, as
applicable, has failed to nominate a replacement Director, then the Directors
shall be entitled to transact business and exercise all of the powers and
functions of the Directors provided that the transaction of such business and
the exercise of such powers and functions has been approved by not less than a
majority of the Directors then in office.

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5.2 Directors’ Meetings

(a)  
Directors’ meetings will be held in accordance with the provisions of the
By-laws of the Corporation, attached hereto as Schedule “B” (the “By-Laws”).
  (b)  
Notice of any Directors’ meeting shall be given in accordance with the By-laws.
A Director is not considered present at a meeting where that Director attends
the meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called. Any notice of a
Directors’ meeting must specify in reasonable detail the purpose of, or the
business to be transacted at, the meeting. No business may be put to the
Directors at a meeting unless such business is specified in the notice or all of
the Directors are present at such meeting and do not object to the business
being put to the meeting.
  (c)  
The quorum for a meeting of the Directors shall be as set forth in the By-laws.
Despite the prior sentence, if proper notice of a Directors’ meeting is given,
specifying the purpose of or the business to be transacted at the meeting and a
quorum of Directors is not present, then a second Directors’ meeting may be held
on not less than 48 hours’ written notice to transact the business specified in
the original notice. Subject to the Business Corporations Act (Alberta), any
Directors present at the second meeting constitute a quorum and the business
specified in the original notice may be transacted by those Directors in
attendance at the second meeting.

ARTICLE VI — FUNDAMENTAL CHANGES
6.1 No Action
Notwithstanding any approval of the Directors, no decisions shall be made and no
action shall be taken by or on behalf of the Corporation with respect to any of
the following matters without the prior written consent of Allis-Chalmers and
BrazAlta:

(a)  
any amendments to the Corporation’s articles or the By-laws;
  (b)  
any change in the number of Directors;
  (c)  
any sale, lease, transfer or other disposal of all or substantially all of the
assets or the business of the Corporation, including by way of a sale of a
Subsidiary;
  (d)  
other than in accordance with Article X, any issuance of common shares in the
capital of the Corporation or any obligations, charges, debts or other
instruments convertible into common shares in the capital of the Corporation or
involving rights to vote;
  (e)  
any amalgamation, reorganization, merger, continuation, winding up, dissolution
or termination of the Corporation;

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(f)  
any material change in the business of the Corporation, any transaction out of
the ordinary course of business of the Corporation, any transaction to acquire
or establish any additional business or any material change in, or termination
or suspension of any material part of, the core business of the Corporation
(being the onshore provision of both drilling and service rigs or oil field
services in Brazil);
  (g)  
other than the purchase of the ESOP Options and the ESOP Shares in accordance
with Section 4.2(b)(ii) and other than the distribution of Free Cash Flow in
accordance with Article IX, any declaration or payment of any dividends on any
shares in the capital of the Corporation, any redemption or repurchase of any
outstanding shares or securities in the capital of the Corporation or any
distribution (including bonuses) to any shareholders of the Corporation or
Directors which, for certainty, does not include payment of employment income;
  (h)  
adopting, approving, amending, altering, varying or rescinding the terms of the
ESOP or any option agreements issued thereunder;
  (i)  
adopting, approving, amending, altering, varying or rescinding the terms of the
Standard Bank Warrant;
  (j)  
creating any new Subsidiary or permitting any Subsidiary of the Corporation to
do any of the matters contemplated in this Section 6.1; or
  (k)  
causing the appointment of any committee of the Directors or the delegation of
any authority of the Directors to any such committee or to any Person.

ARTICLE VII — RESTRICTIONS ON TRANSFER
7.1 Restrictions on Transfer by BrazAlta
BrazAlta covenants and agrees that it shall not Transfer any of the Purchased
Shares except as expressly permitted by this Agreement.
7.2 Restrictions on Transfer by the holders of ESOP Options and ESOP Shares
The Corporation covenants and agrees that it shall take all actions necessary to
ensure that no holder of the ESOP Options or the ESOP Shares shall Transfer any
of the ESOP Options or the ESOP Shares without the prior written consent of
Allis-Chalmers.
ARTICLE VIII — THIRD PARTY OFFERS
8.1 Third Party Offer
If, at any time, a Party (the “Receiving Party”) receives an unsolicited bona
fide offer (a “Third Party Offer”) from a Person who is at Arm’s Length to each
of the Parties (a “Third Party”) to purchase all of the outstanding shares
and/or securities in the capital of the Corporation (the “Outstanding
Securities”) and if the Receiving Party wishes to accept the Third Party Offer,
then the Receiving Party shall give written notice thereof (the “Third Party

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Offer Notice”) to the other Party (the “Other Party”). For greater certainty,
the Third Party Offer shall include, if outstanding, each of the ESOP Options,
the ESOP Shares, the Standard Bank Warrant, the Standard Bank Shares, the
Purchased Shares, the Allis-Chalmers Shares and the Third Party Shares (if any)
on a fully-diluted basis (as if all options and warrants have been exercised and
all convertible securities have been converted) and the Third Party Offer Notice
shall include a copy of the Third Party Offer.
8.2 Issuance of Purchase Notice Upon Receipt of Third Party Offer Notice
Upon delivery of the Third Party Offer Notice to the Other Party, the Other
Party shall have the right, exercisable by written notice (the “Purchase
Notice”) to the Receiving Party, within 30 days after receipt of Third Party
Offer Notice (the “Offer Period”), to agree to purchase all of the Outstanding
Securities at the same price per security as set out in the Third Party Offer.
If the Purchase Notice is given, then the closing of the Outstanding Securities
shall occur in accordance with Article IV (after making any necessary changes to
the closing procedure) within 30 days following delivery of the Purchase Notice.
8.3 Tag Along
Upon delivery of the Third Party Offer Notice to the Other Party, the Other
Party shall have the right, exercisable by written notice (the “Tag Along
Notice”) to the Receiving Party, to require the Third Party to purchase from the
Other Party that portion of the Outstanding Securities that it holds for
equivalent consideration and in proportional amounts between the Parties using
the ratio of the number of Common Shares that each Party may have on a fully
diluted basis. If the Tag Along Notice is given, then the closing of the sale
and purchase of the Outstanding Securities shall occur in accordance with the
Third Party Offer (after making any necessary changes to the closing procedure)
but subject to Section 8.4.
8.4 Timing
The closing of any Third Party Offer shall occur within 90 days following
delivery of the Third Party Offer Notice. In the event that the Third Party
Offer does not close within 90 days following delivery of the Third Party Offer
Notice, a new Third Party Notice shall be provided to the other Party and the
procedure described in Article VIII shall be followed with respect to such new
Third Party Notice.
8.5 No Sale by Allis-Chalmers
If Allis-Chalmers chooses not to sell the Allis-Chalmers Shares to the Third
Party pursuant to Section 8.3, then concurrently with the closing of the sale of
the applicable portion of the Outstanding Securities to the Third Party,
Allis-Chalmers and the Third Party shall enter into a new governance agreement
in a form satisfactory to Allis-Chalmers and the Third Party (acting reasonably)
and, for clarity, the Outstanding Securities purchased by the Third Party shall
not be subject to the Option to Purchase.

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ARTICLE IX — DISTRIBUTIONS
9.1 Cash Distributions
From time to time, the Directors may determine the availability of any Free Cash
Flow for distribution to BrazAlta and Allis-Chalmers and if such Free Cash Flow
is available, then the Corporation may distribute such Free Cash Flow as
follows: (a) firstly, to Allis-Chalmers in an amount equal to the aggregate of
(i) any interest on the Loan due and owing at such time, and (ii) any interest
accrued on the Loan (whether or not such accrued interest is due and owing at
such time) (“Accrued Interest Payable”); and (b) secondly, to BrazAlta in an
amount up to but not exceeding the amount paid cumulatively to Allis-Chalmers
pursuant to Section 9.1(a) (after deducting any amount previously paid to
BrazAlta under this Section 9.1(b)) and in any event only if at the time of
payment, all of the Accrued Interest Payable has been paid to Allis-Chalmers;
and (c) thirdly, to each of Allis-Chalmers and BrazAlta equally, in the event
that the amount to be distributed is in excess of cumulative amounts owed or
paid in Section 9.1(a) and Section 9.1(b) but, in the case of Section 9.1(b) and
Section 9.1(c), subject to the consent of the Senior Lenders. If any portion of
the Free Cash Flow is distributed to Allis-Chalmers in accordance with
Section 9.1(a), then the Directors shall declare a dividend on the Purchased
Shares in the amount required under Section 9.1(b) and, to the extent that the
Senior Lenders do not consent to the payment of all or any portion of such
dividend to BrazAlta, then the amount of such declared and unpaid dividend shall
be construed as indebtedness which is a liability owed to BrazAlta by the
Corporation and which is payable by the Corporation to BrazAlta at the Closing
described in Section 4.3(b). This Section 9.1 shall be interpreted with
consideration of the principle that, until the Maturity Date, Allis-Chalmers and
BrazAlta shall be entitled to receive equal amounts of the Free Cash Flow in the
manner described in this Section 9.1.
9.2 Statements
The Corporation shall prepare and distribute to each of BrazAlta and
Allis-Chalmers, within 45 days after the end of each Fiscal Quarter, a statement
setting forth the calculations (in reasonable detail) used by the Corporation
for purposes of distributions of any Free Cash Flow pursuant to Section 9.1 with
respect to such Fiscal Quarter.
9.3 Form of Distributions
Unless otherwise determined by the Directors, any Free Cash Flow distributed to
BrazAlta or Allis-Chalmers shall be paid in cash or in any other form which may
be agreed upon in writing by the Parties.
9.4 Limitations on Distributions
Notwithstanding any provision to the contrary contained in this Agreement,
(a) the Corporation and the Directors, on behalf of the Corporation, shall not
make a distribution of any Free Cash Flow if such distribution would violate the
Business Corporations Act (Alberta) or any provision of any other Applicable
Law, and (b) subject to the consent of the Senior Lenders, (i) upon the
occurrence and during the subsistence of an Event of Default (as defined in the
Credit Agreement) or (ii) from and after the Maturity Date until the Loan
(including all outstanding principal, interest and other indebtedness) has been
paid in full to Allis-Chalmers, as the case may be, that portion of the Free
Cash Flow described in Sections 9.1(b) and 9.1(c) shall be paid to
Allis-Chalmers only and, for clarity, none of such portion of the Free Cash Flow
shall be declared as a dividend on the Purchased Shares or otherwise paid to
BrazAlta.

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ARTICLE X — ADDITIONAL EQUITY
10.1 Additional Equity Issuances
If the Directors determine that it is appropriate to raise additional capital
for the Corporation by way of the issuance of common shares in the capital of
the Corporation (an “Additional Equity Issuance”), then such common shares shall
be offered, in the first instance, to each of BrazAlta and Allis-Chalmers to the
extent of a proportion of 51% to BrazAlta and 49% to Allis-Chalmers and at a
price per common share which is not less than $4.163 unless otherwise agreed by
both BrazAlta and Allis-Chalmers (which agreement may not be unreasonably
withheld).
10.2 Third-Party Equity Financings
If either or both of BrazAlta and Allis-Chalmers do not fully participate in any
given Additional Equity Issuance, then the Corporation may offer the unpurchased
balance of such common shares to one or more third party purchasers, provided
that:

(a)  
the price per common share offered to such third party purchasers shall not be
less than $4.163 unless otherwise agreed by both BrazAlta and Allis-Chalmers;
and

(b)  
concurrently with entering into a binding obligation to issue any of such common
shares to such third party purchasers, such third party purchasers may also
enter into a new governance agreement in a form satisfactory to BrazAlta,
Allis-Chalmers, the Corporation and such third party purchasers (acting
reasonably) and, for clarity, any common shares purchased by such third party
purchasers shall not be subject to the Option to Purchase.

ARTICLE XI — NON-COMPETITION AND NON-SOLICITATION
11.1 Non-Competition and Non-Solicitation

(a)  
BrazAlta covenants and agrees that, for the time period beginning on the Closing
Date or on the closing of the transaction contemplated under Section 8.2 or
Section 8.4 and ending two years thereafter (the “Non-Compete Period”), BrazAlta
will not, directly or indirectly, as owner, partner, joint venturer,
stockholder, broker, agent, principal, trustee, licensor, consultant, or in any
capacity whatsoever:

  (i)  
subject to Section 11.4, carry on, engage in order to compete in, become
financially interested in, render any consultation or business advice with
respect to, or have any connection with, or permit its name or any part thereof
to be used by any business in any area within Brazil that is the same as or
substantially similar to or directly competing with or would directly compete
with the business conducted by the Corporation as at the Closing Date or such
closing (a “Competitive Business”), other than as agreed upon in writing by
Allis-Chalmers;

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  (ii)  
solicit any present or former customer, client or supplier of the business of
the Corporation to remove its business from, or reduce its business with, the
Corporation or otherwise solicit or gain the business of any such customer or
supplier for the benefit of a Competitive Business;
    (iii)  
take any action that will impair relations between the Corporation and the
customers, clients or suppliers of the business of the Corporation or exploit
for its own benefit or the benefit of others, its knowledge, influence or
relationships with any such customers or suppliers; and
    (iv)  
solicit any present or former employee or consultant of the Corporation or any
of its Subsidiaries, to terminate his/her/its employment or consulting
arrangement with the Corporation or its Subsidiaries.

11.2 Territorial Limits
BrazAlta acknowledges that the business scope and the territorial and time
limitations set forth in this Agreement are reasonable and properly required for
the adequate protection of the business of the Corporation. In the event any
such territorial limitation or time is deemed to be unreasonable by a court of
competent jurisdiction, BrazAlta agrees to the reduction of the territorial or
time limitation to the area or time period which such court shall deem
reasonable.
11.3 Injunction
BrazAlta understands, acknowledges and agrees that Allis-Chalmers and the
Corporation may suffer irreparable harm in the event that BrazAlta breaches any
of BrazAlta’s obligations and covenants under Section 11.1 and that monetary
damages shall be inadequate to compensate Allis-Chalmers and the Corporation for
such breach. Accordingly, BrazAlta agrees that, in the event of a breach or
threatened breach by BrazAlta of any of the provisions of Section 11.1,
Allis-Chalmers and the Corporation, in addition to and not in limitation of any
other rights, remedies or damages available to Allis-Chalmers and the
Corporation at law or in equity, shall be entitled to an interim injunction,
interlocutory injunction and permanent injunction in order to prevent or to
restrain any such breach by BrazAlta, or by any or all of BrazAlta’s partners,
co-venturers, employees, servants, agents, representatives and any and all
persons directly or indirectly acting for, on behalf of or with BrazAlta.
11.4 Co-Operation and Exceptions

(a)  
During the Non-Compete Period, the Corporation shall use its reasonable
commercial efforts to provide drilling and service rigs to BrazAlta in Brazil on
market terms and rates then applicable in Brazil. In the event that the
Corporation cannot provide rigs with the appropriate specifications, on a timely
basis and on reasonable commercial terms with reference to other rig providers
in Brazil, then BrazAlta and its Affiliates shall be entitled to own and operate
their own drilling or service rigs in Brazil for their use and on any lands in
which they have an interest provided that the right for BrazAlta and its
Affiliates to own and operate their own drilling and service rigs shall be
limited to those contracts for which the Corporation was not able to provide
rigs with the appropriate specifications, on a timely basis and on reasonable
commercial terms with reference to other rig providers in Brazil.

(b)  
For clarity, nothing in this Article XI shall be construed as a restriction on
BrazAlta to conduct exploration and production activities in Brazil.

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ARTICLE XII — CONFIDENTIALITY
12.1 Confidentiality

(a)  
Any and all information and knowledge relating to the terms of this Agreement
and the business affairs of a Party that may be acquired under the terms of this
Agreement, or by virtue of the relationship between the Parties created by this
Agreement (collectively, “Confidential Information”), shall be considered
confidential and, except as permitted elsewhere in this Section 12.1, shall not
be disclosed to others Persons, or published in any manner whatsoever, without
first obtaining the written consent of the other Parties.

(b)  
The confidentiality obligations in Section 12.1(a) shall not apply:

  (i)  
to Confidential Information that is (A) already known to the receiving Party
prior to the time of disclosure by the disclosing Party, (B) already in the
public domain or becomes, after having been disclosed to the receiving Party,
generally available to the public through publication or otherwise (unless the
publication or other disclosure was made directly or indirectly by the
disclosing Party or its Affiliate or by its officer, director, employee, agent
or other representative of the disclosing Party or its Affiliate in breach of
this Agreement), or (C) independently developed by the receiving Party without
any breach of this Agreement;
    (ii)  
subject to Applicable Laws, to prevent a Party from disclosing Confidential
Information in confidence to its Affiliates and to its and their officers,
directors, employees, agents or other representatives to the extent reasonably
necessary to allow that Party and its Affiliates to perform its obligations
under this Agreement, provided that the disclosing Party shall be responsible
for compliance with this Article XII by each Person to whom it has made
disclosure under this Section 12.1(b)(ii);
    (iii)  
to prevent a Party from disclosing Confidential Information in confidence to
potential third parties purchasers in order to facilitate an Additional Equity
Issuance to such potential third party purchasers provided that such disclosure
is made on a “need to know basis” provided that such potential third party
purchasers are subject to a confidentiality obligation in favour of the other
Parties;
    (iv)  
to prevent a Party from disclosing Confidential Information in confidence to
another Party;

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  (v)  
to prevent a Party from disclosing Confidential Information as required by
Applicable Laws or stock exchange requirements;
    (vi)  
to prevent a Party from disclosing Confidential Information as necessary in
connection with any litigation commenced in respect of this Agreement; and
    (vii)  
to prevent a Party from disclosing in confidence, to the extent necessary,
Confidential Information to any financial institution, underwriter or
institutional investor which will or may provide financing to, or make an
investment in, that Party or its Affiliates provided that the financial
institution, underwriter or institutional investor is subject to a
confidentiality obligation in favour of the other Parties.

(c)  
If any Party is required to disclose Confidential Information pursuant to
Section 12.1(b)(v) or (vi), then that Party shall advise the other Parties in
advance of any disclosure (where reasonable and where permitted by Applicable
Law) so that the other Parties may take any action one or both of them consider
necessary to maintain the confidentiality of that Confidential Information, and
the disclosing Party shall take reasonable steps to limit the extent of the
disclosure and to make the disclosure confidential under the Applicable Laws or
stock exchange rules, as the case may be.
  (d)  
None of the Parties shall make any press releases or other public announcements
in respect of this Agreement or any related transaction except for announcements
that are:

  (i)  
jointly authorized and approved by each of BrazAlta and Allis-Chalmers;
    (ii)  
required by Applicable Laws or stock exchange requirements (provided that the
Party required to make the press release or public announcement shall, to the
extent reasonably possible, give the other Parties a reasonable opportunity to
review and comment on the press release or public announcement prior to its
release); or
    (iii)  
required by a situation of emergency requiring immediate action by a Party.

12.2 Survival
The obligations of confidentiality in Section 12.1 shall survive the termination
of this Agreement for a period of two years following such termination and any
Party who ceases to be a Party shall continue to be bound by such obligations
for a period of two years following such cessation.
12.3 Injunctive Relief
Each Party acknowledges that all Confidential Information is proprietary and
that any breach of this Article XII by a Party is material and may result in
irreparable injury to the other Parties. Accordingly, in the event of any breach
of this Article XII, the non-defaulting Parties shall be entitled to seek and
obtain an order of specific performance, restraining order or injunctive relief,
in addition to any other legal or equitable remedies provided herein or
available or otherwise to one or both of them, and the defaulting Party hereby
waives any and all defences to those remedies and consents to the issuance of
such order and such relief.

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ARTICLE XIII — AREAS OF INTEREST OF THE PARTIES
13.1 Corporation’s Area of Interest

(a)  
In recognition of the granting of the Debenture to Allis-Chalmers by the
Corporation, for a three year period commencing upon the execution of this
Agreement Allis-Chalmers, and its Affiliates, will not discuss, solicit, pursue,
negotiate for or commit to any opportunity relating to the performance of any
services that are the same as those provided by the Corporation, as at the date
of this Agreement, within the jurisdiction of Brazil (“Brazil Opportunity”)
unless the Brazil Opportunity has first been offered to the Corporation and the
Corporation has rejected, or is deemed to have rejected, the Brazil Opportunity.
  (b)  
The Corporation shall have a 30 day period to determine whether it wishes to
participate in the Brazil Opportunity after which date the Corporation shall be
deemed to have rejected the Brazil Opportunity and Allis-Chalmers will be
entitled to pursue the Brazil Opportunity with no further participation by the
Corporation.

13.2 Allis-Chalmers Area of Interest

(a)  
In recognition of the advance of the Loan to the Corporation by Allis-Chalmers,
for a three year period commencing upon the execution of this Agreement the
Corporation, BrazAlta and its Affiliates, will not discuss, solicit, pursue,
negotiate for or commit to any opportunity relating to the performance of any
services that are the same as those provided by Allis-Chalmers or its Affiliates
as at the date of this Agreement within the jurisdictions of Argentina or
Bolivia (“Argentina and Bolivia Opportunity”) unless the Argentina and Bolivia
Opportunity has first been offered to Allis-Chalmers and Allis-Chalmers has
rejected, or is deemed to have rejected, the Argentina and Bolivia Opportunity.
  (b)  
Allis-Chalmers shall have a 30 day period to determine whether it wishes to
participate in the Argentina or Bolivia Opportunity after which date
Allis-Chalmers shall be deemed to have rejected the Brazil Opportunity and the
Corporation, BrazAlta or its Affiliates will be entitled to pursue the Argentina
or Bolivia Opportunity with no further participation by Allis-Chalmers.

ARTICLE XIV — REPRESENTATIONS, WARRANTIES AND COVENANTS
14.1 Representations and Warranties
Each Party (the “Warrantor”) represents and warrants to each other Parties that,
as of the date of this Agreement, each of the following statements are accurate:

(a)  
the Warrantor is duly incorporated and validly subsisting under the laws of its
incorporating jurisdiction;

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(b)  
the Warrantor has full corporate power and authority to enter into, perform and
observe its obligations and duties under this Agreement;
  (c)  
the Warrantor’s execution, delivery and performance of this Agreement has been
duly and validly authorized by all necessary corporate action;
  (d)  
this Agreement is a valid and binding agreement of the Warrantor and is
enforceable against it, subject to the exercise of judicial discretions inherent
in the courts in Alberta and subject to general principles of equity and laws
concerning insolvency, in accordance with its terms;
  (e)  
subject to the consent of the Senior Lenders, the entering into of this
Agreement by the Warrantor does not, and the transactions contemplated hereby
will not:

  (i)  
result in a breach of any law or any provision of the constating documents of
the Warrantor or any agreement to which it is a party; or
    (ii)  
contravene any provision of, or be an event that is (or with the passage of time
will result in) a contravention of, or result in the acceleration of or entitle
any party to accelerate (whether after the giving of notice or lapse of time or
both) any obligation of the Warrantor under any security interest, agreement,
instrument, order, arbitration award, judgment, injunction or decree to which
the Warrantor is a party or by which it is bound, or conflict with any statute,
rule or regulation applicable to the Warrantor;

(f)  
the Warrantor is not in violation of any Applicable Laws, which violations,
individually or in the aggregate, would have a material adverse effect upon the
Warrantor’s ability to perform of its obligations hereunder; and
  (g)  
the Warrantor is not a party to any legal, administrative, arbitral,
investigatorial or other proceeding or controversy pending, or, to the best of
the Warrantor’s knowledge, threatened, that would have a material adverse effect
upon the Warrantor’s ability to perform its obligations under this Agreement.

14.2 Indemnity
Each Warrantor is liable to and hereby indemnifies and holds each of the other
Parties harmless from and against all Damages directly or indirectly incurred or
suffered by the other Parties as a result of the breach of any of the Warranties
given by the Warrantor and from all actions, proceedings, claims and demands
made against that any of the other Parties as a result of that breach.
ARTICLE XV — COVENANTS OF BRAZALTA
15.1 BrazAlta Covenants
BrazAlta hereby covenants and agrees with Allis-Chalmers that BrazAlta will:

(a)  
use its reasonable commercial efforts to obtain from the TSX Venture Exchange
Inc., within 15 Business Days following the date of the Financial Closing (as
defined in the Credit Agreement), the final approval contemplated by the
conditional approval letter of the TSX Venture Exchange Inc.;

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(b)  
make all necessary filings and applications under all applicable Canadian
Securities Laws (as defined in the Credit Agreement) required to be made on the
part of BrazAlta in connection with the transactions contemplated hereby; and
  (c)  
if applicable, use its commercially reasonable efforts to obtain and, if
required, cause the Corporation to assist in obtaining any additional approval
from the TSX Venture Exchange Inc., necessary for the conversion of the
Debenture into common shares in accordance with the Debenture and the exercise
of the option to purchase the Purchased Shares in accordance with this Agreement
and, if such approval is subject to any conditions which are unacceptable to
Allis-Chalmers acting reasonably, BrazAlta agrees to use its commercially
reasonable efforts to negotiate with the TSX Venture Exchange Inc., to remove or
minimize those conditions required to be satisfied prior to receipt of the final
approval from the TSX Venture Exchange Inc., and will, if requested by
Allis-Chalmers, allow Allis-Chalmers or its counsel to participate in the
negotiation process.

ARTICLE XVI — INDEMNITY FROM BRAZALTA
16.1 BrazAlta Indemnity
BrazAlta agrees to indemnify and save harmless Allis-Chalmers from and against
all Damages, which may result from any material breach or material inaccuracy of
a representation or warranty given by the Corporation or its Subsidiary as
provided in Article IV of the Credit Agreement. Nothing in this Article XVI
shall be construed as a guarantee or commitment by BrazAlta to be obligated for
the repayment of the Loan.
ARTICLE XVII — NOTICES
17.1 Requirements for Notices
All notices given pursuant to this Agreement shall be:

(a)  
in writing;
  (b)  
marked for the attention of the relevant Person named below; and
  (c)  
delivered to the address of the addressee or sent by fax or e-mail to the fax
number or e-mail address of the addressee which is specified in Section 17.2.

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17.2 Addresses
Subject to Section 17.4, the address and facsimile number of each Party is:

          (a)   BrazAlta Resources Corp. or BCH Ltd.     Suite 500, 816 - 7th
Avenue SW     Calgary, Alberta T2P 1A1
 
       
 
  Attention:   Craig F. Nieboer
 
  Fax No:   (403) 213-9254
 
  E-mail:   cnieboer@brazalta.com
 
            with a copy to:
 
            Davis llp     Livingstone Place     1000, 250 - 2nd Street S.W.    
Calgary, Alberta T2P 0C1
 
       
 
  Attention:   Trevor Wong-Chor
 
  Fax No:   (403) 296-4474
 
  E-mail:   twong-chor@davis.ca
 
        (b)   Allis-Chalmers Energy Inc.     5075 Westheimer, Suite 890    
Houston, Texas 77056
 
       
 
  Attention:   Theodore F. Pound III
 
  Fax:   (281) 768-3891
 
  E-mail:   tpound@alchenergy.com
 
            with a copy to:
 
            Fraser Milner Casgrain llp     2900, 10180-101 Street     Edmonton,
Alberta T5J 3V5
 
       
 
  Attention:   Richard A. Miller
 
  Fax No:   (780) 423-7276
 
  E-mail:   rich.miller@fmc-law.com

17.3 Notice Takes Effect
A notice takes effect from the later of:

(a)  
the time it is actually received by the addressee (the burden of proof of
receipt being on the sender and being satisfied by courier or postal delivery
records in the case of physical delivery, a fax confirmation in the case of fax
delivery or the recipient’s e-mail records in the case of e-mail delivery); and
  (b)  
any later time specified in the notice.

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17.4 Change of Address
A Party may at any time, by notice given to the other Parties, designate a
different Person, address, facsimile number or e-mail address for the purpose of
this Section 17.4.
ARTICLE XVIII — TERM
18.1 Termination
This Agreement shall come into force and effect as of the date hereof and,
except as provided below, shall continue in force until the earlier of:

(a)  
the date on which this Agreement is terminated by written agreement of the
Parties;
  (b)  
the Closing Date;
  (c)  
the date that the Loan is repaid in full;
  (d)  
that time that any assignee of Allis-Chalmers interest in this Agreement ceases
to be an Affiliate of Allis-Chalmers; or
  (e)  
the closing of one of the purchase transactions referred to in Article VIII
(other than a purchase transaction where Allis-Chalmers does not sell the
Allis-Chalmers Shares to the Third Party).

18.2 Sections to Continue in Force
Notwithstanding Section 18.1, after the termination of this Agreement,
Article XI, Article XII and Article XIII shall continue in force in accordance
with their respective terms.
ARTICLE XIX — GENERAL
19.1 Exercise of Rights
Subject to the express provisions of this Agreement, a Party may exercise a
right, power or remedy at its discretion, and separately or concurrently with
another right, power or remedy. A single or partial exercise of a right, power
or remedy by a Party does not prevent a further exercise of that or of any other
right, power or remedy. Failure by a Party to exercise or delay in exercising a
right, power or remedy does not prevent its exercise.
19.2 Non-Waiver
No waiver by any Party of any breach of the covenants, provisos, conditions,
restrictions or stipulations contained in this Agreement shall take effect or be
binding upon that Party unless the same be expressed in writing.

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19.3 Extent of Waiver
Any waiver given shall extend only to the particular breach specifically waived
and shall not limit or affect any rights with respect to any other or future
breach.
19.4 Rights to be Cumulative
The rights, powers and remedies provided in this Agreement are cumulative with
and not exclusive of the rights, powers or remedies provided by law
independently of this Agreement.
19.5 No Merger
The warranties, undertakings and indemnities in this Agreement do not merge on
the execution of this Agreement.
19.6 Enurement
This Agreement and everything herein contained shall enure to the benefit of and
be binding upon the Parties and their respective successors and permitted
assigns.
19.7 Time is of the Essence
Time shall be of the essence of this Agreement.
19.8 Further Assurances
Each of the Parties shall, from time to time, execute and deliver all further
documents and instruments and do all things and acts as the other Parties may
reasonably require to effectively carry out or better evidence or perfect the
full intent and meaning of this Agreement.
19.9 Supervening Legislation
To the extent permitted by law, any present or future legislation which operates
to vary an obligation or right, power or remedy of a Party in connection with
this Agreement is excluded.
19.10 Entire Agreement
This Agreement constitutes the entire agreement of the Parties in connection
with the matters herein and any previous agreements, understandings and
negotiations on those subject matters have no further effect after the date of
execution of this Agreement.
19.11 No Other Representations or Warranties
Each Party acknowledges that, in entering into this Agreement, it has not relied
on any representations or warranties about its subject matter except as provided
in this Agreement.

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19.12 Counterparts
This Agreement may be executed in counterparts and the counterparts taken
together shall constitute one agreement.
19.13 Governing Law
This Agreement and the transactions contemplated by this Agreement are governed
by the laws in force in Alberta, including the federal laws of Canada applicable
therein.
19.14 Submission to Jurisdiction

(a)  
Each Party irrevocably and unconditionally submits to the non-exclusive
jurisdiction of the courts of Alberta for determining any dispute concerning
this Agreement or the transactions contemplated by this Agreement.
  (b)  
Except to the extent inconsistent with an express provision of this Agreement to
submit matters to an alternative forum for dispute resolution or mediation, each
Party waives any right it has to object to an action being brought in those
courts including claiming that the action has been brought in an inconvenient
forum or that those courts do not have jurisdiction.

19.15 Service of Process
Without preventing any other mode of service, any document in an action
(including any writ of summons or other originating process or any third or
other party notice) may be served on any Party by being delivered to or left for
that Party at its address for service of notices under Section 17.2.
19.16 Fees and Commissions
Each of the Parties shall pay its own legal and accounting costs and expenses
incurred in connection with the preparation, execution and delivery of this
Agreement and all documents and instruments executed pursuant hereto and any
other costs and expenses whatsoever and howsoever incurred and shall indemnify
and save harmless the other Parties from and against any claim for any broker’s,
finder’s or placement fee or commission alleged to have been incurred as a
result of any action by it in connection with the transactions hereunder. It is
acknowledged that the Corporation will pay a fee in the amount of $2,800,000 to
RBC Capital Markets in connection with the Loan.
19.17 Amendments
Except as provided herein, no amendment or variation of the provisions of this
Agreement shall be binding upon the Parties unless evidenced in writing and
executed by all of the Parties.

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19.18 Assignment
Neither party may assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of the other Parties. BrazAlta and
the Corporation hereby consent to the assignment of the rights of this Agreement
to an Affiliate of Allis-Chalmers.
19.19 Continuing Nature of Obligations
The expiry or termination of this Agreement shall not relieve any Party of any
liabilities or obligations that by their nature survive expiry or termination
including, without limitation, warranties, remedies and obligations of
confidentiality, or that arose prior to the expiry or termination of this
Agreement.
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IN WITNESS WHEREOF the Parties have executed this Agreement.

                  BRAZALTA RESOURCES CORP.    
 
           
 
  By:        
 
           
 
           
 
  Name:        
 
           
 
           
 
  Title:        
 
           
 
                BCH LTD.    
 
           
 
  By:        
 
           
 
           
 
  Name:        
 
           
 
           
 
  Title:        
 
           
 
                ALLIS-CHALMERS ENERGY INC.    
 
           
 
  By:        
 
           
 
           
 
  Name:        
 
           
 
           
 
  Title:        
 
           

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SCHEDULE “A”
VALUATION PROCEDURE
For the purposes of Article II of this Agreement, the Purchase Price, the
Purchased Share Price, the ESOP Option Price, the ESOP Share Price, the Standard
Bank Warrant Price, the Standard Bank Share Price, the Allis-Chalmers Share
Price and the Third Party Share Price (if applicable) shall be the determined as
follows:

  1)  
The Valuation of the Corporation shall be determined as of December 31, 2009
based on such appropriate valuation methods as may be chosen and applied by the
Valuator. For further clarity, the value of the Corporation as a whole as
determined by the Valuator shall be the “Purchase Price”.
    2)  
The Valuator shall use the Valuation referred to above to prepare a statement
(the “Statement”) containing the following information:

  a)  
the value of the Corporation as a whole;
    b)  
the value of each of the Standard Bank Warrant and the Standard Bank Shares (the
respective values referred to herein as the “Standard Bank Warrant Price” and
the “Standard Bank Share Price”);
    c)  
the value of the Purchased Shares (the “Purchased Share Price”);
    d)  
the value of each of the ESOP Options and the ESOP Shares (the respective values
referred to herein as the “ESOP Option Price” and the “ESOP Share Price”);
    e)  
the value of the common shares (if any) held by Allis-Chalmers and the common
shares issuable upon the conversion of the Debenture (such common shares are
collectively called the “Allis-Chalmers Shares”) and such value is called the
“Allis-Chalmers Share Price”; and
    f)  
the value of the common shares (if any) held by any other Person (such common
shares are collectively called the “Third Party Shares” and such value is called
the “Third Party Share Price”.

For further clarity, such values shall be determined as a percentage calculation
of the total amount of the Purchase Price based upon the percentage that the
applicable securities represent in the Corporation on a fully-diluted basis but,
for greater certainty, the dilution resulting from the ESOP Options, the ESOP
Shares, the Standard Bank Warrant and the Standard Bank Shares shall be applied
to 100% of the Corporation. In other words, the aggregate of the Purchased Share
Price, the ESOP Option Price, the ESOP Share Price, the Standard Bank Warrant
Price, the Standard Bank Share Price, the Allis-Chalmers Share Price and the
Third Party Share Price shall be equal to 100% of the Purchase Price.

  3)  
The Valuator shall deliver the Valuation and the Statement to Allis-Chalmers and
BrazAlta concurrently together with the full valuation report.

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SCHEDULE “B”
BY-LAWS OF THE CORPORATION
BY-LAW NO. 2
A by-law relating generally to
the transaction of the business
and affairs of
BCH LTD.
(hereinafter referred to as the “Corporation”)
DIRECTORS AND OFFICERS

1.  
Calling of and Notice of Meetings - Meetings of the board shall be held at such
place and time and on such day as the Chairman of the board, president, chief
executive officer or a vice-president, if any, or any two directors may
determine. Notice of meetings of the board shall be given to each director not
less than 48 hours before the time when the meeting is to be held. Each newly
elected board may without notice hold its first meeting for the purposes of
organization and the appointment of officers immediately following the meeting
of shareholders at which such board was elected.
     
Any notice of a directors’ meeting must specify in reasonable detail the purpose
of, or the business to be transacted at, the meeting. No business may be put to
the directors at a meeting unless such business is specified in the notice or
all of the directors are present at such meeting and do not object to the
business being put to the meeting.
  2.  
Quorum - Subject to the residency requirements contained in the Business
Corporations Act, the quorum for the transaction of business at any meeting of
the board shall consist of the Chairman of the board plus a minimum of four
(4) directors then elected or appointed, or such greater or lesser number of
directors as the board may from time to time determine.
     
A director is not considered present at a meeting where that director attends
the meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called. If proper
notice of a directors’ meeting is given, specifying the purpose of or the
business to be transacted at the meeting and a quorum of directors is not
present, then a second directors’ meeting may be held on 48 hours’ written
notice to transact the business specified in the original notice.
     
Subject to the Business Corporations Act, the directors present at the second
directors’ meeting constitute a quorum and the business specified in the
original notice may be transacted by those directors in attendance at the second
directors’ meeting.
  3.  
Place of Meeting - Meetings of the board may be held in or outside Canada.
  4.  
Votes to Govern - At all meetings of the board every question shall be decided
by a majority of the votes cast on the question; and in case of an equality of
votes the Chairman of the board shall be entitled to a second or casting vote.

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5.  
Audit Committee - When required by the Business Corporations Act the board
shall, and at any other time the board may, appoint annually from among its
number an Audit Committee to be composed of not fewer than three (3) directors
of whom a majority shall not be officers or employees of the Corporation or its
affiliates. The Audit Committee shall have the powers and duties provided in the
Business Corporations Act and any other powers delegated by the board.
  6.  
Interest of Directors and Officers Generally in Contracts - No director or
officer shall be disqualified by his office from contracting with the
Corporation nor shall any contract or arrangement entered into by or on behalf
of the Corporation with any director or officer or in which any director or
officer is in any way interested be liable to be voided nor shall any director
or officer so contracting or being so interested be liable to account to the
Corporation for any profit realized by any such contract or arrangement by
reason of such director or officer holding that office or of the fiduciary
relationship thereby established; provided that the director or officer shall
have complied with the provisions of the Business Corporations Act.
  7.  
Appointment of Officers - Subject to the articles, the board may from time to
time appoint a president, chief executive officer, chief financial officer, one
or more vice-presidents (to which title may be added words indicating seniority
or function), a secretary, a treasurer and such other officers as the board may
determine, including one or more assistants to any of the officers so appointed.
The board may specify the duties of and, in accordance with this by-law and
subject to the provisions of the Business Corporations Act, delegate to such
officers powers to manage the business and affairs of the Corporation. Subject
to the provisions of this by-law, an officer may but need not be a director and
one person may hold more than one office.
  8.  
Chairman of the Board - The board may from time to time may also appoint a
Chairman of the board who shall be a director. If appointed, the board may
assign to him any of the powers and duties that are by any provisions of this
by-law assigned to the managing director or to the president; and he shall,
subject to the provisions of the Business Corporations Act, have such other
powers and duties as the board may specify. During the absence or disability of
the Chairman of the board, his duties shall be performed and his powers
exercised by the managing director, if any, or by the president.
  9.  
President - If appointed, the president shall be the chief operating officer
and, subject to the authority of the board, shall have general supervision of
the business of the Corporation; and he shall have such other powers and duties
as the board may specify. During the absence or disability of the president, or
if no president has been appointed, the managing director shall also have the
powers and duties of that office.
  10.  
Vice-President - A vice-president shall have such powers and duties as the board
or the chief executive officer may specify.

 

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11.  
Secretary - The secretary shall attend and be the secretary of all meetings of
the board, shareholders and committees of the board and shall enter or cause to
be entered in records kept for that purpose minutes of all proceedings thereat;
he shall give or cause to be given, as and when instructed, all notices to
shareholders, directors, officers, auditors and members of committees of the
board; he shall be the custodian of the stamp or mechanical device generally
used for affixing the corporate seal of the Corporation and of all books,
papers, records, documents and instruments belonging to the Corporation, except
when some other officer or agent has been appointed for that purpose; and he
shall have such other powers and duties as the board or the chief executive
officer may specify.
  12.  
Chief Financial Officer - The chief financial officer shall keep proper
accounting records in compliance with the Business Corporations Act and shall be
responsible for the deposit of money, the safekeeping of securities and the
disbursement of the funds of the Corporation; he shall render to the board
whenever required an account of all his transactions as chief financial officer
and of the financial position of the Corporation; and he shall have such other
powers and duties as the board or the chief executive officer may specify.
  13.  
Agents and Attorneys - The board shall have the power from time to time to
appoint agents and attorneys for the Corporation in or outside Canada with such
powers as the board sees fit.

SHAREHOLDERS’ MEETINGS

14.  
Quorum - Subject to the requirements of the Business Corporations Act, a quorum
for the transaction of business at any meeting of shareholders, irrespective of
the number of persons actually present at the meeting, shall be one person
present in person being a shareholder entitled to vote thereat or a duly
appointed representative or proxyholder for an absent shareholder so entitled,
and holding or representing in the aggregate not less than a majority of the
outstanding shares of the Corporation entitled to vote at the meeting.
  15.  
Votes to Govern - At any meeting of shareholders every question shall, unless
otherwise required by the Business Corporations Act, be determined by the
majority of votes cast on the question. In case of an equality of votes either
upon a show of hands or upon a poll, the chairman of the meeting shall not be
entitled a second or casting vote.
  16.  
Show of Hands - Subject to the provisions of the Business Corporations Act, any
question at a meeting of shareholders shall be decided by a show of hands unless
a ballot thereon is required or demanded as hereinafter provided. Upon a show of
hands every person who is present and entitled to vote shall have one vote per
share. Whenever a vote by show of hands shall have been taken upon a question,
unless a ballot thereon is so required or demanded, a declaration by the
chairman of the meeting that the vote upon the question has been carried or
carried by a particular majority or not carried and an entry to that effect in
the minutes of the meeting shall be prima facie evidence of the fact without
proof of the number or proportion of the votes recorded in favour of or against
any resolution or other proceeding in respect of the said question, and the
result of the vote so taken shall be the decision of the shareholders upon the
said question.

 

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17.  
Ballots - On any question proposed for consideration at a meeting of
shareholders, and whether or not a show of hands has been taken thereon, any
shareholder or proxyholder entitled to vote at the meeting may require or demand
a ballot. A ballot so required or demanded shall be taken in such manner as the
chairman shall direct. A requirement or demand for a ballot may be withdrawn at
any time prior to the taking of the ballot. If a ballot is taken each person
present shall be entitled, in respect of the shares which he is entitled to vote
at the meeting upon the question, to that number of votes provided by the
Business Corporations Act or the articles, and the result of the ballot so taken
shall be the decision of the shareholders upon the said question.

MEETING BY TELEPHONE

18.  
Directors - A director may participate in a meeting of the board or of a
committee of the board by means of telephone or other communication facilities
that permit all persons participating in any such meeting to hear each other.

INDEMNIFICATION

19.  
Indemnification of Directors and Officers - The Corporation shall indemnify a
director or officer of the Corporation, a former director or officer of the
Corporation or a person who acts or acted at the Corporation’s request as a
director or officer of a body corporate of which the Corporation is or was a
shareholder or creditor, and his heirs and legal representatives to the extent
permitted by the Business Corporations Act.

20.  
Indemnity of Others - Except as otherwise required by the Business Corporations
Act and subject to paragraph 20, the Corporation may from time to time indemnify
and save harmless any person who was or is a party or is threatened to be made a
party to any threatened, pending or contemplated action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that he is or was
an employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, agent of or participant in
another body corporate, partnership, joint venture, trust or other enterprise,
against expenses (including legal fees), judgments, fines and any amount
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted honestly and in good faith with a view to the best
interests of the Corporation and, with respect to any criminal or administrative
action or proceeding that is enforced by a monetary penalty, had reasonable
grounds for believing that his conduct was lawful. The termination of any
action, suit or proceeding by judgment, order, settlement or conviction shall
not, of itself, create a presumption that the person did not act honestly and in
good faith with a view to the best interests of the Corporation and, with
respect to any criminal or administrative action or proceeding that is enforced
by a monetary penalty, had no reasonable grounds for believing that his conduct
was lawful.

21.  
Right of Indemnity Not Exclusive - The provisions for indemnification contained
in the by-laws of the Corporation shall not be deemed exclusive of any other
rights to which any person seeking indemnification may be entitled under any
agreement, vote of shareholders or directors or otherwise, both as to action in
his official capacity and as to action in another capacity, and shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs and legal representatives of such a
person.

 

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22.  
No Liability of Directors or Officers for Certain Matters - To the extent
permitted by law, no director or officer of the Corporation shall be liable for
the acts, receipts, neglects or defaults of any other director or officer or
employee or for joining in any receipt or act for conformity or for any loss,
damage or expense happening to the Corporation through the insufficiency or
deficiency of title to any property acquired by the Corporation or for or on
behalf of the Corporation or for the insufficiency or deficiency of any security
in or upon which any of the moneys of or belonging to the Corporation shall be
placed out or invested or for any loss or damage arising from the bankruptcy,
insolvency or tortious act of any person, firm or body corporate with whom or
which any moneys, securities or other assets belonging to the Corporation shall
be lodged or deposited or for any loss, conversion, misapplication or
misappropriation of or any damage resulting from any dealings with any moneys,
securities or other assets belonging to the Corporation or for any other loss,
damage or misfortune whatever which may happen in the execution of the duties of
his respective office or trust or in relation thereto unless the same shall
happen by or through his failure to act honestly and in good faith with a view
to the best interests of the Corporation and in connection therewith to exercise
the care, diligence and skill that a reasonably prudent person would exercise in
comparable circumstances. If any director or officer of the Corporation shall be
employed by or shall perform services for the Corporation otherwise than as a
director or officer or shall be a member of a firm or a shareholder, director or
officer of a body corporate which is employed by or performs services for the
Corporation, the fact of his being a director or officer of the Corporation
shall not disentitle such director or officer or such firm or body corporate, as
the case may be, from receiving proper remuneration for such services.

DIVIDENDS

23.  
Dividends - Subject to the provisions of the Business Corporations Act, the
board may from time to time declare dividends payable to the shareholders
according to their respective rights and interests in the Corporation. Dividends
may be paid in money or property or by issuing fully paid shares of the
Corporation.

24.  
Dividend Cheques - A dividend payable in cash shall be paid by cheque drawn on
the Corporation’s bankers or one of them to the order of each registered holder
of shares of the class or series in respect of which it has been declared and
mailed by prepaid ordinary mail to such registered holder at his recorded
address, unless such holder otherwise directs. In the case of joint holders the
cheque shall, unless such joint holders otherwise direct, be made payable to the
order of all such joint holders and mailed to them at their recorded address.
The mailing of such cheque as aforesaid, unless the same is not paid on due
presentation, shall satisfy and discharge the liability for the dividend to the
extent of the sum represented thereby plus the amount of any tax which the
Corporation is required to and does withhold.

 

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25.  
Non-Receipt of Cheques - In the event of non-receipt of any dividend cheque by
the person to whom it is sent as aforesaid, the Corporation shall issue to such
person a replacement cheque for a like amount on such terms as to indemnify,
reimbursement of expenses and evidence of non-receipt and of title as the board
may from time to time prescribe, whether generally or in any particular case.

26.  
Unclaimed Dividends - Any dividend unclaimed after a period of 6 years from the
date on which the same has been declared to be payable shall be forfeited and
shall revert to the Corporation.

BANKING ARRANGEMENTS, CONTRACTS, DIVISIONS ETC.

27.  
Banking Arrangements - The banking business of the Corporation, or any part
thereof, shall be transacted with such banks, trust companies or other financial
institutions as the board may designate, appoint or authorize from time to time
by resolution and all such banking business, or any part thereof, shall be
transacted on the Corporation’s behalf by such one or more officers and/or other
persons as the board may designate, direct or authorize from time to time by
resolution and to the extent therein provided.

28.  
Execution of Instruments - Contracts, documents or instruments in writing
requiring execution by the Corporation may be signed by any one officer and all
contracts, documents or instruments in writing so signed shall be binding upon
the Corporation without any further authorization or formality. The board is
authorized from time to time by resolution to appoint any officer or officers or
any other person or persons on behalf of the Corporation to sign and deliver
either contracts, documents or instruments in writing generally or to sign
either manually or by facsimile signature and/or counterpart signature and
deliver specific contracts, documents or instruments in writing. The term
“contracts, documents or instruments in writing” as used in this by-law shall
include deeds, mortgages, charges, conveyances, powers of attorney, transfers
and assignments of property of all kinds (including specifically, but without
limitation, transfers and assignments of shares, warrants, bonds, debentures or
other securities), share certificates, warrants, bonds, debentures and other
securities or security instruments of the Corporation and all paper writings.

29.  
Voting Rights in Other Bodies Corporate - The signing officers of the
Corporation may execute and deliver proxies and arrange for the issuance of
voting certificates or other evidence of the right to exercise the voting rights
attaching to any securities held by the Corporation. Such instruments shall be
in favour of such persons as may be determined by the officers executing or
arranging for the same. In addition, the board may from time to time direct the
manner in which and the persons by whom any particular voting rights or class of
voting rights may or shall be exercised.

30.  
Creation and Consolidation of Divisions - The board may cause the business and
operations of the Corporation or any part thereof to be divided or to be
segregated into one or more divisions upon such basis, including without
limitation, character or type of operation, geographical territory, product
manufactured or service rendered, as the board may consider appropriate in each
case. The board may also cause the business and operations of any such division
to be further divided into sub-units and the business and operations of any such
divisions or sub-units to be consolidated upon such basis as the board may
consider appropriate in each case.

 

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31.  
Name of Division - Any division or its sub-units may be designated by such name
as the board may from time to time determine and may transact business, enter
into contracts, sign cheques and other documents of any kind and do all acts and
things under such name. Any such contracts, cheque or document shall be binding
upon the Corporation as if it had been entered into or signed in the name of the
Corporation.

32.  
Officers of Divisions - From time to time the board or a person designated by
the board, may appoint one or more officers for any division, prescribe their
powers and duties and settle their terms of employment and remuneration. The
board or a person designated by the board, may remove at its or his pleasure any
officer so appointed, without prejudice to such officers rights under any
employment contract. Officers of divisions or their sub-units shall not, as such
be officers of the Corporation.

MISCELLANEOUS

33.  
Invalidity of Any Provisions of This By-law - The invalidity or unenforceability
of any provision of this by-law shall not affect the validity or enforceability
of the remaining provisions of this by-law.

34.  
Omissions and Errors - The accidental omission to give any notice to any
shareholder, director, officer or auditor or the non-receipt of any notice by
any shareholder, director, officer or auditor or any error in any notice not
affecting the substance thereof shall not invalidate any action taken at any
meeting held pursuant to such notice or otherwise founded thereon.

INTERPRETATION

35.  
Interpretation - In this by-law and all other by-laws of the Corporation words
importing the singular number only shall include the plural and vice versa;
words importing the masculine gender shall include the feminine and neuter
genders; words importing persons shall include an individual, partnership,
association, body corporate, executor, administrator or legal representative and
any number or aggregate of persons; “articles” include the original or restated
articles of incorporation, articles of amendment, articles of amalgamation,
articles of continuance, articles of reorganization, articles of arrangement and
articles of revival; “board” shall mean the board of directors of the
Corporation; “Business Corporations Act” shall mean the Business Corporations
Act (Alberta), R.S.A. 2000, c. B-9, as amended from time to time, or any Act
that may hereafter be substituted therefor; “meeting of shareholders” shall mean
and include an annual meeting of shareholders and a special meeting of
shareholders of the Corporation; and “signing officers” means any person
authorized to sign on behalf of the Corporation pursuant to paragraph 29.

 

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36.  
Notwithstanding anything to the contrary set out herein, this by-law shall be
subject to the option to purchase and governance agreement dated as of
January 31, 2008 made among BrazAlta Resources Corp., the Corporation and
Allis-Chalmers Energy Inc. (such agreement, as amended, is called the
“Governance Agreement”). In the event of any inconsistency or conflict between
this by-law and the Governance Agreement, the terms of the Governance Agreement
shall govern.

CONSENTED to by the directors of the Corporation.
DATED this • day of January, 2008.

 

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SCHEDULE “I”
FINANCIAL INFORMATION
BCH Ltd.
Consolidated Balance Sheet
As at
(unaudited, in $000s of US dollars)

                                                                      September
30,     June 30,       BCH Canada     BCH Brazil     CJE     2007     2007  
Assets
                                       
Current
                                       
Cash and cash equivalents
    183       861               1,044       334  
Cash — restricted
    300       —               300       —  
Accounts receivable
    117       508               625       1,286  
Prepaid expenses
    —       38               38       59  
 
                               
 
    600       1,407               2,006       1,679  
 
                                       
Due from subsidiary
    2,042       —       (2,042 )     —       —  
Investment in subsidiary
    2,035       —       (2,035 )     —       —  
Property, plant and equipment
    31,507       1,756       (225 )     33,038       13,716  
Future income tax asset
    546       —               546       361  
 
                               
 
    36,130       1,756               33,584       14,077  
 
                                       
 
    36,730       3,163               35,590       15,756  
 
                                 
Liabilities and Shareholders’ Equity
                                       
Current
                                       
Accounts payable and accrued liabilities
    2,013       1,747               3,760       986  
Interest payable
    190       —               190       —  
 
                               
 
    2,203       1,747               3,950       986  
 
                                       
Long term debt
    12,655       —               12,655       —  
Due to parent
    —       2,042       (2,042 )     —       —  
Due to BrazAlta
    21,918       1,558               23,475       17,512  
 
                               
 
    36,776       5,347               40,081       18,498  
 
                                       
Shareholders’ equity:
                                       
Share capital
    1       2,035       (2,035 )     1       1  
Contributed surplus
    112       —               112       —  
Deficit
    (160 )     (4,219 )     (225 )     (4,604 )     (2,742 )
 
                               
 
    (47 )     (2,184 )             (4,491 )     (2,741 )
 
                             
 
                                       
 
    36,730       3,163       —       35,591       15,756  
 
                             

- FOR INTERNAL MANAGEMENT PURPOSES ONLY -

 

 

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BCH Ltd.
Consolidated Statements of Loss and Comprehensive Loss and Deficit
For the three months ended September 30, 2007
(unaudited, in $000s of US dollars)

                                      BCH Canada     BCH Brazil     CJE    
F2008-Q1  
Revenues:
                               
Drilling services
    —       1,910               1,910  
Intercompany transactions, net
    791       (723 )     (69 )     —  
Interest revenue
    2       2               4  
 
                         
 
    794       1,189               1,914  
 
                               
Expenses:
                               
Operating
    471       2,035               2,507  
Depletion, depreciation and accretion
    123       24               148  
General and administrative
    307       813       (10 )     1,110  
Foreign exchange (gain) loss
    (718 )     142               (576 )
Interest expense
    218       58               276  
Interest expense — related party
    282       31               312  
 
                         
 
    683       3,104               3,776  
 
                         
 
                               
Net income (loss) and comprehensive income (loss) before income tax
    111       (1,914 )             (1,862 )
 
                               
Current and withholding income tax
    157       —               157  
Future income tax recovery
    (157 )     —               (157 )
 
                         
Income taxes
    —       —               —  
 
                               
Net income (loss) and comprehensive income (loss)
    111       (1,914 )             (1,862 )
Deficit, beginning of period
    (271 )     (2,305 )     (166 )     (2,742 )
 
                       
Deficit, end of period
    (160 )     (4,219 )     (225 )     (4,604 )
 
                       

- FOR INTERNAL MANAGEMENT PURPOSES ONLY -

 

 

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BCH Ltd.
Consolidated Statements of Cash Flows
For the three months ended September 30, 2007
(unaudited, in $000s of US dollars)

                                      BCH Canada     BCH Brazil     CJE    
F2008-Q1  
Cash provided by (used in):
                               
 
                               
Operating Activities:
                               
Net income (loss)
    111       (1,914 )             (1,862 )
Items not involving cash:
                               
Amortization of effective interest
    27       —               27  
Depletion, depreciation and accretion
    123       24               148  
Future income tax recovery
    (157 )     —               (157 )
Unrealized foreign exchange loss
    (620 )     250       (10 )     (380 )
Change in non-cash operating working capital
    105       1,330               1,435  
 
                         
 
    (411 )     (309 )             (789 )
 
                         
 
                               
Financing Activities:
                               
Issue of common shares
    —       656       (656 )     —  
Long term debt
    13,690       —               13,690  
Financing costs
    (815 )     —               (815 )
Loans from BrazAlta
    4,729       265               4,993  
 
                         
 
    17,603       921               17,868  
 
                         
 
                               
Investing Activities:
                               
Capital asset purchases
    (17,324 )     (637 )     69       (17,892 )
Cash — restricted
    (300 )     —               (300 )
Investment in BCH Energy do Brasil
    (656 )     —       656       —  
Due to/from parent/subsidiary
    (634 )     634               —  
Change in non-cash investing working capital
    1,815       —               1,815  
 
                         
 
    (17,099 )     (3 )             (16,377 )
 
                         
 
                               
Add: Foreign exchange gain on cash and cash equivalents held in foreign currency
    17       (9 )             9  
 
                         
 
                               
Net decrease in cash and cash equivalents
    111       600               710  
 
                               
Cash and cash equivalents, beginning of period
    72       261               334  
 
                         
 
                               
Cash and cash equivalents, end of period
    183       861               1,044  
 
                         

- FOR INTERNAL MANAGEMENT PURPOSES ONLY -