exv10w3



 





Exhibit 10.3




EXECUTIVE EMPLOYMENT AGREEMENT




     This Executive Employment Agreement dated as of April 1, 2007 (the “Effective Date”), is
between Allis-Chalmers Energy Inc. and Munawar H. Hidayatallah. Certain capitalized terms used
herein are defined in Section 1 below.



R E C I T A L S:




     A. Executive is employed by Company pursuant to an Employment Agreement (the “2004 Employment
Agreement”) dated April 1, 2004, which terminated March 31, 2007;



     B. Company wishes to continue to employ Executive, and Executive desires to continue
employment with Company by entering into a written agreement to specify the terms and conditions of
Executive’s continued employment with Company;



     C. Executive is to be employed as Chairman and Chief Executive Officer of Company, and as an
integral member of its management team;



     D. Company considers the maintenance of a sound management team, including Executive,
essential to protecting and enhancing its best interests and those of its stockholders;



     E. Company recognizes that the possibility of a change in control of Company may result in the
departure or distraction of management to the detriment of Company and its stockholders; and



     F. Company has determined that appropriate steps should be taken to obtain and retain the
continued attention and dedication of selected members of Company’s management team to their
assigned duties without the distraction arising from the possibility of a change in control of
Company.



     NOW, THEREFORE, in consideration of Executive’s past and future employment with Company and
other good and valuable consideration, the parties agree as follows:



     Section 1. Definitions. As used in this Agreement, the following terms will have the following
meanings:




     (a) Agreement refers to the Executive Employment Agreement represented by this
document.




     (b) Cause has the meaning ascribed to it in Section 7(a)(ii).




     (c) Change In Control:




     (i) The acquisition by any individual, entity or group, or a Person (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) other than an Excluded
Person, of ownership of more than 50% of either; (A) the then outstanding
shares of Common Stock (“Outstanding Common Stock”); or (B) the combined



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voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (“Outstanding Voting Securities”);




     (ii) Individuals who, as of the date hereof, constitute the Board of Directors
of the Company (“Incumbent Board”) cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company’s stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, as a member of the
Incumbent Board, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act of 1934)
or other actual or threatened solicitation of proxies or consents by or on behalf of
a Person other than the Board; or




     (iii) Approval by the stockholders of the company of a reorganization, merger
or consolidation, in each case, unless, following such reorganization, merger or
consolidation, more than 50% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or consolidation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Common Stock and Outstanding Voting Securities immediately prior to such
reorganization, merger or consolidation, in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger or consolidation
of the Outstanding Common Stock and Outstanding Voting Securities, as the case may
be, or at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation were members
of the Incumbent Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or




     (iv) Approval by the stockholders of the Company of (A) a complete liquidation
or dissolution of the Company or (B) the sale or other disposition of all or
substantially all of the assets of the Company, other than to a corporation, with
respect to which following such sale or other disposition, (1) more than 50% of,
respectively, the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in th election for directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Common Stock and Outstanding Voting Securities immediately prior to such
sale or other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be; or (2) a least a majority of
the members of the board of
directors of such corporation were members of the Incumbent Board at the time
of the execution of the initial agreement or action of the Board providing for such
sale



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or to the disposition of assets of the Company.




     (d) Code means the Internal Revenue Code of 1986, as amended.




     (e) Company means Allis-Chalmers Energy Inc.




     (f) Confidential Information has the meaning ascribed to it in Section 9(b).




     (g) Constructively Terminated with respect to an Executive’s employment with Company
will be deemed to have occurred if Executive terminates his employment within six months
following the date on which Company:




     (i) demotes Executive to a materially lesser position, either in title or
responsibility, than the highest position held by Executive with Company at any time
during Executive’s employment with Company after the date hereof;




     (ii) decreases Executive’s salary materially below the highest level in effect
at any time during Executive’s employment with Company or reduces Executive’s
benefits and perquisites materially below the highest levels in effect at any time
during Executive’s employment with Company (other than as a result of any amendment
or termination of any Executive or group or other executive benefit plan, which
amendment or termination is applicable to all executives of Company or any
inadvertent reduction in benefits that Company cures within 30 days after receiving
written notice of such reduction)




     (iii) requires Executive to relocate to a principal place of business more than
50 miles from the principal place of business occupied by Company on April 1, 2007;




     (iv) is subject to a Change In Control, unless Executive accepts employment
with a successor to Company on terms not materially less favorable than those
provided in this Agreement; or




     (v) breaches any other material term of this Agreement which is not cured by
Company within 30 days after receiving notice of such breach.




     For Executive to be considered to be “Constructively Terminated,” Executive
must provide notice to Company of the existence of one of the conditions listed in
this Section 1(g) within a period not to exceed 60 days following the initial
existence of the condition, following receipt of the notice the Company must be
provided a period of at least 30 days during which it may remedy the condition.




     (h) Designated Industry has the meaning ascribed to it in Section 10(a)(i)(1).




     (i) Disability with respect to Executive shall be deemed to exist if he meets the
definition of disability under the terms of the Company’s current long-term disability
policy (or any replacement long-term disability policy). Any refusal by Executive to submit
to a



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reasonable medical examination to determine whether Executive is so disabled shall be
deemed conclusively to constitute evidence of Executive’s disability.




     (j) Executive refers to Munawar H. Hidayatallah.




     (k) Excluded Person means any Person who beneficially owns more that 10% of the
outstanding shares of the corporation at any time prior to the date hereof.




     (l) Company refers collectively to the Company and its subsidiaries and other
affiliates. In Section 10, the term “Company” shall be deemed to refer to the Company, and
for purposes of Section 10, Executive shall be deemed to be employed by the Company and all
compensation and benefits paid or provided to Executive by any Company under this Agreement
at any time shall be deemed to have been paid or provided to Executive by the Company.




     (m) Incentive Plan means the Allis-Chalmers Corporation 2006 Incentive Plan, as amended
from time to time.




     (n) Inventions has the meaning ascribed to it in Section 8(a).




     (o) Salary has the meaning ascribed to it in Section 5(a).




     (p) Separation Payments has the meaning ascribed to it in Section 7(b)(ii).



     Section 2. Employment. Company hereby employs Executive, and Executive hereby accepts
employment by Company, upon the terms and subject to the conditions hereinafter set forth. The 2004
Employment Agreement is hereby terminated and superceded by this Agreement, effective the date
hereof.



     Section 3. Duties. Executive shall be employed as Chief Executive Officer of Company and shall
serve as Chairman of the Board of Directors of Company. Executive agrees to devote such times as in
necessary to perform his duties attendant to his executive position with Company, in a manner
consistent with Executive’s employment prior to the date hereof. Company shall use its best efforts
(including by nominating Executive to be a director at each meeting of the stockholders of the
company at which directors are elected, and including in any proxy statement relating to such a
meeting information comparable to that included with respect to other nominees) to cause Executive
to be maintained as a director of the Company and while a director Executive shall serve as
Chairman of the Board of Directors. Executive shall be allowed to engage in other activities as an
investor as well as participate in activities of charitable organizations of his choice so long as
they do not materially interfere with his duties for Company. Company acknowledges and agrees that
Executive shall have the right to maintain his current residence in Santa Monica, California and
that Company shall pay Executive’s travel and other expenses in a manner consistent with past
practices pursuant to Section 6 hereof.



     Section 4. Term. The term of employment of Executive hereunder shall commence on the Effective
Date and terminate three years thereafter, provided that if Executive at the end of such three year
period remains liable for any guarantees of obligations of the Company, then the term



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hereof shall
extend for such period as Executive remains liable for such guarantees.



     Section 5. Compensation and Benefits. In consideration for the services of Executive
hereunder, Company shall compensate Executive as follows (except as set forth herein, Executive
acknowledges payments in full of all amounts due to him for services rendered prior to the date
hereof):




     (a) Salary. Company shall pay Executive, semi-monthly in arrears with its normal
payroll procedures, a salary which is equivalent to an annual rate of $500,000 (the
“Salary”). The Salary shall increase annually, effective as of each anniversary of the
Effective Date by the same percentage as the percentage of increase, if any, shown by the
All Items Consumer Price Index for Urban Wage Earners and Clerical Workers published by the
U.S. Department of Labor, Bureau of Labor Statistics, for the Los Angeles-Long Beach-Anaheim
area for the month of March immediately preceding the previous anniversary of the Effective
Date,, as compared with the most recently published Index at the applicable date. If the
Bureau of Labor Statistics ceases to use the 1967 average of 100 as the basis for
calculation for the Consumer Price Index or if a substantial change is made in the items or
number of items contained in the Consumer Price Index, then the Consumer Price Index shall
be adjusted to that figure that would have been arrived at if the change in the manner of
computing the Consumer Price Index in effect at the applicable date had not been altered. If
the Consumer Price Index described above is no longer published at the time of such fee
calculation, the Company shall select and use a similar reliable governmental or other
non-partisan publication evaluating the kind of information theretofore used in determining
such Consumer Price Index. Any additional increase in the Salary shall be in the sole
discretion of the Compensation Committee of the Board of Directors of the Company.




     (b) Management Incentive Bonus; Stock Options; Performance Awards.




     (i) Executive shall be eligible to receive an annual bonus equal to 100% of
Executive’s salary if the Company’s Compensation Committee determines that the
Company has met the performance goals established by the Compensation Committee.
Such performance goals shall be established no later than ninety days after the
first day of the performance year (provided that the outcome is substantially
uncertain at the time the criteria are established). The annual bonus (other than a
bonus for the final year of the term of this Agreement) shall be subject to
Executive’s continued employment on the date of payment (other than by reason of
death or Disability), and shall be paid as soon as practicable after the
Compensation Committee determines that the performance goals were satisfied but in
no event later than two-and-one-half months following the applicable performance
year. Such bonus shall be paid in cash or, at the option of Executive, made by
written election filed by Executive with the Company Secretary by the last day of
the performance year in shares of the Company’s Common Stock (for such purpose the
shares shall be valued at “Fair Market Value” (as defined in the Incentive Plan) at
the payment date).




     (ii) In addition, Executive shall be entitled to receive such other incentive
bonuses as may be provided in management incentive bonus plans adopted from time to
time by Company.



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     (iii) In addition, Executive shall receive an option to acquire 200,000 shares
of Common Stock of the Company pursuant to the Incentive Plan, which option was
granted on August 3, 2007 at the then current market value of the Common Stock;
provided that such option shall vest no less rapidly than twenty percent (20%) one
year after the date of grant; an additional twenty percent (20%) two years after the
date of grant; and the remaining sixty percent (60%) three years after the date of
grant or, if sooner, one hundred percent (100%) upon the earlier of (A) a Change In
Control, as defined in the Incentive Plan, or if not so defined therein, as defined
in Section 1(c), or (B) termination of Executive’s employment without Cause, as
defined in Section 7(a)(iii). Such option shall be a nonqualified stock option
granted pursuant to the Company’s form of the Employee NonQualified Stock Option
Agreement




     (iv) In addition, Executive has been granted a Performance Award of 685,000
shares of Common Stock in the form of restricted stock (the “Restricted Shares”),
which Restricted Shares shall vest and be forfeitable and nontransferable in
accordance with the Company’s form of Employee Performance Award Agreement.




     (c) Vacation. Executive shall be entitled to four (4) weeks paid vacation per year. Any
accrued but unused vacation may be used at any time during the term of this Agreement. Upon
termination of Executive’s employment, Executive shall be paid for any accrued but unused
vacation based on his then-current Salary. Executive shall schedule his paid vacation to be
taken at times which are reasonably and mutually convenient to both Company and Executive.




     (d) Insurance Benefits. Company shall provide accident, health, dental, disability and
life insurance for Executive under the group accident, health, dental, disability and life
insurance plans as may be maintained by Company for its full-time, salaried executives.




     (e) Office Space and Expenses. Company shall provide and pay the expenses of
maintaining an office for Executive during the term of this Agreement comparable to his
office as of the Effective Date. Additional office space for the staff of Executive shall be
obtained at the expense of the Company.




     (f) Assistant Expenses. Company shall assume and pay all salary and benefits of an
assistant to Executive, which salary and benefits shall be no less than those provided to
Executive’s assistant as of the Effective Date.




     (g) Certain Additional Payments. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or distribution by
Company or its successor to or for the benefit of Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or otherwise (a
“Payment”), would be subject to the excise tax imposed by Section 4999 of the Code
(such excise tax, together with any interest thereon, any penalties, additions to tax, or
additional amounts with respect to such excise tax, and any interest in respect of such
penalties, additions to tax or additional amounts, being collectively referred herein to as
the “Excise



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Tax”), then Company shall pay to Executive one or more additional payments (each
a “Gross-Up Payment”) in an amount such that after payment by Executive of all taxes,
interest, penalties, additions to tax, or additional amounts with respect to such Gross-Up
Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payment. The applicable Gross-Up Payment shall be made to Executive as soon as
practicable after written request for payment is submitted by Executive to Company or its
successor, but in no event later than the end of the calendar year next following the year
in which Executive remits the applicable Excise Tax.. All determinations made under this
Section 5(g), including whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall
be made by Company’s registered independent public accounting firm (the “Accounting Firm”).
The Accounting Firm shall provide detailed supporting calculations both to Company and
Executive. All fees and expenses of the Accounting Firm shall be borne solely by Company.
The Company shall indemnify and hold harmless Executive, on an after-tax basis, for any
Excise Tax or income or other tax (including interest, penalties, additions to tax, or
additional amounts with respect thereto) imposed on Executive as a result of such payment of
fees and expenses. In addition, the Company shall indemnify and hold harmless Executive, on
an after-tax basis, for any fees or costs incurred in connection with any contest of
liability for Excise Taxes as well as any Excise Tax or income or other tax (including
interest, penalties, additions to tax, or additional amounts with respect thereto) imposed
on Executive as a result of such payments of fees and expenses.




     (h) Guarantee Fee. Company agrees to pay to Executive an annual guarantee fee equal to
0.25% of the total of all loans guaranteed by Executive from time to time. The fee shall be
paid quarterly, in arrears, commencing March 31, 2007, based upon the average amount of
guaranteed debt outstanding during the prior quarter.




     (i) Life insurance. Company shall permit Executive to assume ownership of the current
term life insurance policy on the life of Executive owned by Company.




     (j) Indemnification for Guarantees. In addition to all other indemnification rights
available to Executive under the Company’s charter documents, contractual obligations or by
law, Company agrees to indemnify, defend and hold harmless the Executive, Executive’s spouse
and their successors (the “Indemnified Parties”) from and against any and all claims,
losses, liabilities, costs, penalties, fines and expenses (including reasonable expenses for
attorneys, accountants, consultants and experts), damages, obligations to third parties,
expenditures, proceedings, taxes, judgments, awards or demands, whether or not arising from
claims of third parties (collectively, “Losses”), which any of them may suffer, incur or
sustain arising out of, attributable to, or resulting from any guarantee executed by
executive or his spouse with respect to obligations of Company or its subsidiaries.




     (k) Legal Fees. Within ten days after execution of this Agreement, Company shall
reimburse Executive for all legal fees and costs incurred in connection with
negotiation of this Agreement (up to the sum of $50,000).



     Section 6. Expenses. The parties anticipate that in connection with the services to be
performed by Executive pursuant to the terms of this Agreement, Executive will be required to make



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payments for travel, entertainment of business associates and similar expenses. Company shall
reimburse Executive for all reasonable and customary expenses of types authorized by Company and
incurred by Executive in the performance of his duties hereunder , including travel from
Executive’s residence to Company’s principal place of business consistent with past practices.
Executive shall comply with such reporting requirements with respect to expenses as Company may
establish from time to time. Executive must submit evidence of reimbursable expenses to Company
within 90 days of incurring such expenses, and Company will pay the reimbursement within 30 days of
Company’s receipt of such evidence.



     Section 7. Termination.




     (a) General. Executive’s employment hereunder shall continue until the end of the term
specified in Section 4, except that the employment of Executive hereunder shall terminate
prior to such time in accordance with the following:




     (i) Death or Disability. Upon the death of Executive during the term of his
employment hereunder or, at the option of Company, in the event of Executive’s
Disability, upon 30 days’ notice to Executive.




     (ii) For Cause. For “Cause” immediately upon written notice by Company to
Executive. A termination shall be for Cause if: (1) Executive is convicted of a
criminal act involving dishonesty or moral turpitude that has a material adverse
effect on the Company or its reputation’ or (2) Executive commits a material breach
of any of the covenants, terms or provisions hereof or fails to obey written
directions delivered to Executive by the Company’s Board of Directors which are not
inconsistent with Executive’s rights under this Agreement.




     (iii) Without Cause. Without Cause upon notice by the Board of Directors to
Executive or upon notice by Executive to the Board if Executive has been
Constructively Terminated.




     (b) Severance Pay.




     (i) Termination Upon Death or Disability or For Cause. Executive shall not be
entitled to any severance pay or other compensation upon termination of his
employment pursuant to Section 7(a)(i) or 7(a)(ii), or upon voluntary termination
unless Executive has been Constructively Terminated, except for his Salary earned
but unpaid as of the date of termination, unpaid expense reimbursements under
Section 6 for expenses incurred in accordance with the terms hereof prior to
termination, and compensation for accrued, unused vacation as of the date of
termination.




     (ii) Termination Without Cause. In the event Executive’s employment hereunder
is terminated pursuant to Section 7(a)(iii), whether prior to or following a Change
in Control, Company shall pay Executive a Separation Payment as Executive’s sole
remedy in connection with such termination. A “Separation Payment” is a payment
equal to three (3) times Executive’s then current annual Salary in effect
immediately preceding the date of termination. Company shall also



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pay Executive his
Salary earned but unpaid as of the date of termination, unpaid expense
reimbursements under Section 6 for expenses incurred in accordance with the terms
hereof prior to termination, and compensation for accrued, unused vacation as of the
date of termination as provided in Section 5(c).



     Section 8. Inventions; Assignment.




     (a) Inventions Defined. All rights to discoveries, inventions, improvements, designs
and innovations (including all data and records pertaining thereto) that relate to the
business of Company, whether or not patentable, copyrightable or reduced to writing, that
Executive may discover, invent or originate during the term of his employment hereunder, and
for a period of six months thereafter, either alone or with others and whether or not during
working hours or by the use of the facilities of Company (“Inventions”), shall be the
exclusive property of Company. Executive shall promptly disclose all Inventions to Company,
shall execute at the request of Company any assignments or other documents Company may deem
necessary to protect or perfect its rights therein, and shall assist Company, at Company’s
expense, in obtaining, defending and enforcing Company’s rights therein. Executive hereby
appoints Company as his attorney-in-fact to execute on his behalf any assignments or other
documents deemed necessary by Company to protect or perfect its rights to any Inventions.




     (b) Covenant to Assign and Cooperate. Without limiting the generality of the foregoing
, Executive hereby assigns and transfers to Company the world-wide right, title and interest
of Executive in the Inventions. Executive agrees that Company may apply for and receive
patent rights (including Letters Patent in the United States) for the Inventions in
Company’s name in such countries as may be determined solely by Company. Executive shall
communicate to Company all facts known to Executive relating to the Inventions and shall
cooperate with Company’s reasonable requests in connection with vesting title to the
Inventions and related patents exclusively in Company and in connection with obtaining,
maintaining and protecting Company’s exclusive patent rights in the Inventions.




     (c) Successors and Assigns. Executive’s obligations under this Section 8 shall inure to
the benefit of Company and its successors and assigns and shall survive the expiration of
the term of this Agreement for such time as may be necessary to protect the proprietary
right of Company in the Inventions.



     Section 9. Confidential Information.




     (a) Acknowledgment of Proprietary Interest. Executive acknowledges the proprietary
interest of Company in all Confidential Information. Executive agrees that all Confidential
Information learned by Executive during his employment with Company or
otherwise, whether developed by Executive alone or in conjunction with others or
otherwise, is and shall remain the exclusive property of Company. Executive further
acknowledges and agrees that his disclosure of any Confidential Information will result in
irreparable injury and damage to Company.




     (b) Confidential Information Defined. “Confidential Information” means all Confidential
and proprietary information of company, including without limitation (i)



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information derived
from reports, investigations, experiments, research and work in progress, (ii) methods of
operation, (iii) market data, (iv) proprietary computer programs and codes, (v) drawings,
designs, plans and proposals, (vi) marketing and sales programs, (vii) client lists, (viii)
historical financial information and financial projections, (ix) pricing formulae and
policies, (x) all other concepts, ideas, materials and information prepared or performed for
or by Company and (xi) all information related to the business, products, purchases or sales
of Company or any of its suppliers and customers, other than information that is publicly
available.




     (c) Covenant Not to Divulge Confidential Information. Company is entitled to prevent
the disclosure of Confidential Information. As a portion of the consideration for the
employment of Executive and for the compensation being paid to Executive by Company,
Executive agrees at all times during the term of his employment hereunder and thereafter to
hold in strict confidence and not to disclose or allow to be disclosed to any person, firm
or corporation, other than to his professional advisors (who have the obligation to maintain
the confidentiality of such information) and to persons engaged by Company to further the
business of Company, and not to use except in the pursuit of the business of Company, the
Confidential information ,without the prior written consent of Company.




     (d) Return of Materials at Termination. In the event of any termination or cessation of
his employment with company for any reason, Executive shall promptly deliver to Company all
documents, data and other information derived from or otherwise pertaining to Confidential
Information. Executive shall not take or retain any documents or other information, or any
reproduction or excerpt thereof, containing or pertaining to any Confidential Information.



     Section 10. Noncompetition.




     (a) During Executive’s employment hereunder and for a period of two years following
termination of employment for any reason, Executive shall not do any of the following:




     (i) without the express consent of the Board of Directors of Company, engage
directly or indirectly, alone or as a shareholder, partner, director, officer,
Executive of or consultant to any other business organization, in any business
activities that:




     (1) relate to the oil and gas drilling services industry (the
“Designated Industry”); or




     (2) were either conducted by Company prior to the termination of
Executive’s employment hereunder or proposed to be conducted by Company at
the time of such termination;




     (ii) approach any customer or supplier of Company in an attempt to divert it to
any competitor of Company in the Designated Industry; or




     (iii) solicit or encourage any employee or Executive of Company to end



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his
relationship with Company or commence any such relationship with any competitor of
Company.




     (b) Executive’s noncompetition obligations hereunder shall not preclude Executive from
owning less than five percent of the common stock of any publicly traded corporation
conducting business activities in the Designated Industry. If at any time the provisions of
this Section 10 are determined to be invalid or unenforceable by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 10 shall be considered
divisible and shall be immediately amended to only such area, duration and scope of activity
as shall be determined to be reasonable and enforceable by the court or other body having
jurisdiction over the matter, and Executive agrees that this Section 10 as so amended shall
be valid and binding as though any invalid or unenforceable provision had not been included
herein.



     Section 11. General.




     (a) Notices. All notices and other communications hereunder shall be in writing or by
written telecommunication, and shall be deemed to have been duly given upon delivery if
delivered personally or via written telecommunication, or five days after mailing if mailed
by certified mail, return receipt requested or by written telecommunication, to the relevant
address set forth below, or to such other address as the recipient of such notice or
communication shall have specified to the other party in accordance with this Section 11(a):



	 	 	 	 	 
	 

	 	If to Company, to:
	 	With a copy to:
	 
	 	 	 	 
	 

	 	Allis-Chalmers Energy Inc.	 	 
	 

	 	5075 Westheimer, Suite 890	 	 
	 

	 	Houston, Texas 77056	 	 
	 

	 	Attention: General Counsel	 	 
	 
	 	 	 	 
	 

	 	If to Executive, to:	 	 
	 
	 	 	 	 
	 

	 	Munawar H. Hidayatallah
	 	Robert C. Kopple, Esq.
	 

	 	338 Entrada Drive
	 	Kopple & Klinger, LLP
	 

	 	Santa Monica, CA 90402
	 	10866 Wilshire Blvd., Suite 1500
	 

	 	 	 	Los Angeles, CA 90024







     (b) Withholding. All payments required to be made to Executive by Company under this
agreement shall be subject to the withholding of such amounts, if any, relating to federal,
state and local taxes as may be required by law.




     (c) Equitable Remedies. Each of the parties hereto acknowledges and agrees that upon
any breach by Executive or Company of his or its obligations hereunder, Company and
Executive shall have no adequate remedy at law and accordingly shall be entitled to specific
performance and other appropriate injunctive and equitable relief.



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     (d) Severability. If any provision of this Agreement is held to be illegal, invalid or
unenforceable, such provision shall be fully severable, and this Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable provision never
comprised a part hereof, and the remaining provisions hereof shall remain in full force and
effect and shall not be affected by the illegal, invalid or unenforceable provision or by
its severance here from. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a provision as
similar in its terms to such illegal, invalid or unenforceable provision as may be possible
and be legal, valid and enforceable.




     (e) Waivers. No delay or omission by either party in exercising any right, power or
privilege hereunder shall impair such right, power or privilege, nor shall any single or
partial exercise of any such right, power or privilege preclude any further exercise thereof
or the exercise of any other right, power or privilege.




     (f) Counterparts. This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original, and all of which together shall constitute one and the
same instrument.




     (g) Captions. The captions in this Agreement are for convenience of reference only and
shall not limit or otherwise affect any of the terms or provisions hereof.




     (h) Reference to Agreement. Use of the words “herein,” “hereof,” “hereto,”“hereunder”
and the like in this Agreement refer to this Agreement only as a whole and not to any
particular section or subsection of this Agreement, unless otherwise noted.




     (i) Binding Agreement. This Agreement shall be binding upon and inure to the benefit of
the parties and shall be enforceable by the personal representative and heirs of Executive
and the successors and assigns of Company. This Agreement may be assigned by the Company to
any company or to any successor to all or substantially all of the Company’s business as a
result of a merger, consolidation, sale of stock or assets, or similar transaction; provided
that in the event of any such assignment, the Company shall remain liable for all of its
obligations hereunder and shall be liable for all obligations of all such assignees
hereunder. If Executive dies while any amounts would still be payable to him hereunder, such
amounts shall be paid to Executive’s estate. This Agreement is not otherwise assignable by
Executive.




     (j) Entire Agreement. This Agreement contains the entire understanding of the parties,
supersedes all prior agreements and understandings relating to the subject matter
hereof and may not be amended except by a written instrument hereafter signed by each
of the parties hereto.




     (k) Governing Law. This Agreement and the performance hereof shall be construed and
governed in accordance with the laws of the State of Texas, without regard to its choice of
law principles.




     (l) Gender and Number. The masculine gender shall be deemed to denote the feminine or
neuter genders, the singular to denote the plural, and the plural to denote the singular,
where the context so permits.



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     Section 13. Section 409A.




     (a) Section 409A Compliance. Executive and Company agree that this Agreement is
intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended
(“Section 409A”) and that any ambiguous provision will be construed in a manner that will
result in treatment of the relevant portions of this Agreement as a nonqualified deferred
compensation plan that complies with or is exempt from Section 409A.




     (b) Specified Employees. If Executive is a “specified employee,” as such term is
defined in Section 409A and determined as described below in this Section 13(b), any
payments of amounts which are deferred compensation subject to the provisions of Section
409A that are payable as a result of Executive’s termination (other than death) shall not be
payable before the earliest of (i) the date that is six months after Executive’s
termination, (ii) the date of Executive’s death, or (iii) the earliest date that otherwise
complies with the requirements of Section 409A. This Section 13(b) shall be applied by
accumulating all payments that otherwise would have been paid within six months of
Executive’s termination and paying such accumulated amounts at the earliest date which
complies with or is exempt from the application of the requirements of Section 409A.
Executive shall be a “specified employee” for the twelve-month period beginning on April 1
of a year if Executive is a “key employee” as defined in Section 416(i) of the Internal
Revenue Code (without regard to Section 416(i)(5)) as of December 31 of the preceding year
or using such specified employee identification dates as designated by the Compensation
Committee in accordance with Section 409A and in a manner that is consistent with respect to
all of Company’s nonqualified deferred compensation plans. For purposes of determining the
identity of specified employees, the Compensation Committee may establish procedures as it
deems appropriate in accordance with Section 409A.



     EXECUTED as of the date and year first above written.




	 	 	 	 	 
	 	ALLIS-CHALMERS ENERGY INC.

 	 
	 	By:  	/s/ Burt A. Adams
 	 
	 	 	Burt Adams, President and Chief Operating Officer 	 
	 	 	 	 
	 
	 	EXECUTIVE

 	 
	 	/s/ Munawar H. Hidayatallah
 	 
	 	     Munawar H. Hidayatallah 	 
	 	 	 
	 




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SCHEDULE A




STOCK OPTION AGREEMENT




[form of previously filed]





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SCHEDULE B




RESTRICTED STOCK AGREEMENT




[form of previously filed]





15