Document:

exv10w3

 

Exhibit 10.3

AMENDED AND RESTATED

CREDIT AGREEMENT

Originally dated as of July 11, 2005

among

ALLIS-CHALMERS ENERGY INC.,

as the Borrower,

ROYAL BANK OF CANADA,

as Administrative Agent

and

as Collateral Agent

and

The Lenders Party Hereto

$25,000,000

SENIOR CREDIT FACILITY

RBC CAPITAL MARKETS

As Lead Arranger and Sole Bookrunner

Dated as of January 18, 2006

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	 	 	 	 	 	 
	ARTICLE I.

	 	     DEFINITIONS AND ACOUNTING TERMS
	 	 	1	 
	          1.01

	 	Defined Terms
	 	 	1	 
	          1.02

	 	Other Interpretive Provisions
	 	 	23	 
	          1.03

	 	Accounting Terms
	 	 	23	 
	          1.04

	 	Rounding
	 	 	23	 
	          1.05

	 	References to Agreements and Laws
	 	 	23	 
	 
	 	 	 	 	 	 
	ARTICLE II.

	 	     THE COMMITMENT AND BORROWINGS
	 	 	24	 
	          2.01

	 	Loans
	 	 	24	 
	          2.02

	 	Intentionally Omitted
	 	 	24	 
	          2.03

	 	Borrowings, Conversions and Continuations of Revolving Loans
	 	 	24	 
	          2.04

	 	Prepayments
	 	 	25	 
	          2.05

	 	Reduction or Termination of Commitments
	 	 	27	 
	          2.06

	 	Repayment of Revolving Loans
	 	 	28	 
	          2.07

	 	Interest
	 	 	28	 
	          2.08

	 	Fees
	 	 	28	 
	          2.09

	 	Computation of Interest and Fees
	 	 	29	 
	          2.10

	 	Evidence of Debt
	 	 	29	 
	          2.11

	 	Payments Generally
	 	 	29	 
	          2.12

	 	Sharing of Payments
	 	 	31	 
	          2.13

	 	Priority of Hedging Obligations
	 	 	32	 
	          2.14

	 	Letters of Credit
	 	 	32	 
	 
	 	 	 	 	 	 
	ARTICLE III

	 	     TAXES, YIELD PROTECTION AND ILLEGALITY
	 	 	38	 
	          3.01

	 	Taxes
	 	 	38	 
	          3.02

	 	Illegality
	 	 	39	 
	          3.03

	 	Inability to Determine Rates
	 	 	39	 
	          3.04

	 	Increased Cost and Reduced Return; Capital Adequacy; Reserves on
Eurodollar Rate Loans
	 	 	40	 
	          3.05

	 	Funding Losses
	 	 	40	 
	          3.06

	 	Matters Applicable to all Requests for Compensation
	 	 	41	 
	          3.07

	 	Survival
	 	 	41	 
	 
	 	 	 	 	 	 
	ARTICLE IV.

	 	     CONDITIONS PRECEDENT
	 	 	41	 
	          4.01

	 	Conditions Precedent
	 	 	41	 
	          4.02

	 	Deadline for First Amendment Closing Date
	 	 	44	 
	          4.03

	 	Conditions to all Revolving Loans and L/C Credit Extension
	 	 	44	 
	          4.04

	 	Conditions to all Revolving Loans to Fund Permitted Acquisitions
	 	 	45	 
	 
	 	 	 	 	 	 
	ARTICLE V

	 	     REPRESENTATIONS AND WARRANTIES
	 	 	45	 
	          5.01

	 	Existence; Qualification and Power; Compliance with Laws
	 	 	45	 

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	 	 	 	 	Page
	 
	 	 	 	 	 	 
	          5.02

	 	Authorization; No Contravention
	 	 	46	 
	          5.03

	 	Governmental Authorization
	 	 	46	 
	          5.04

	 	Binding Effect
	 	 	46	 
	          5.05

	 	Financial Statements; No Material Adverse Effect
	 	 	46	 
	          5.06

	 	Litigation
	 	 	46	 
	          5.07

	 	No Default
	 	 	47	 
	          5.08

	 	Ownership of Property; Liens
	 	 	47	 
	          5.09

	 	Environmental Compliance
	 	 	47	 
	          5.10

	 	Insurance
	 	 	47	 
	          5.11

	 	Taxes
	 	 	47	 
	          5.12

	 	ERISA Compliance
	 	 	47	 
	          5.13

	 	Subsidiaries and other Investments
	 	 	48	 
	          5.14

	 	Margin Regulations; Investment Company Act; Use of Proceeds
	 	 	48	 
	          5.15

	 	Disclosure
	 	 	48	 
	          5.16

	 	Labor Matters
	 	 	49	 
	          5.17

	 	Compliance with Laws
	 	 	49	 
	          5.18

	 	Third Party Approvals
	 	 	49	 
	          5.19

	 	Solvency
	 	 	49	 
	          5.20

	 	Collateral
	 	 	49	 
	          5.21

	 	Intellecutal Property; Licenses, Etc.
	 	 	49	 
	          5.22

	 	Leased Locations
	 	 	50	 
	          5.23

	 	Material Agreements
	 	 	50	 
	 
	 	 	 	 	 	 
	ARTICLE VI.

	 	     AFFIRMATIVE COVENANTS
	 	 	50	 
	          6.01

	 	Financial Statements
	 	 	50	 
	          6.02

	 	Certificates; Other Information
	 	 	51	 
	          6.03

	 	Notices
	 	 	52	 
	          6.04

	 	Payment of Obligations
	 	 	52	 
	          6.05

	 	Preservation of Existence, Etc.
	 	 	52	 
	          6.06

	 	Maintenance of Assets and Business; Movement of Collateral
	 	 	52	 
	          6.07

	 	Maintenance of Insurance
	 	 	53	 
	          6.08

	 	Compliance with Laws and Contractual Obligations
	 	 	53	 
	          6.09

	 	Books and Records
	 	 	53	 
	          6.10

	 	Inspection Rights
	 	 	53	 
	          6.11

	 	Compliance with ERISA
	 	 	53	 
	          6.12

	 	Use of Proceeds
	 	 	54	 
	          6.13

	 	Guaranties
	 	 	54	 
	          6.14

	 	Further Assurances; Additional Collateral
	 	 	54	 
	          6.15

	 	Approval of Certain Acquisitions
	 	 	55	 
	 
	 	 	 	 	 	 
	ARTICLE VII

	 	     NEGATIVE COVENANTS
	 	 	55	 
	          7.01

	 	Liens
	 	 	55	 
	          7.02

	 	Investments
	 	 	56	 
	          7.03

	 	Swap Contracts
	 	 	57	 

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	 	 	 	 	Page
	 
	 	 	 	 	 	 
	          7.04

	 	Indebtedness
	 	 	57	 
	          7.05

	 	Lease Obligations
	 	 	58	 
	          7.06

	 	Fundamental Changes
	 	 	58	 
	          7.07

	 	Dispositions
	 	 	58	 
	          7.08

	 	Restricted Payments; Distributions and Redemptions
	 	 	59	 
	          7.09

	 	ERISA
	 	 	59	 
	          7.10

	 	Change in Nature of Business
	 	 	59	 
	          7.11

	 	Transactions with Affiliates
	 	 	59	 
	          7.12

	 	Burdensome Agreements
	 	 	59	 
	          7.13

	 	Use of Proceeds
	 	 	60	 
	          7.14

	 	Capital Expenditures
	 	 	60	 
	          7.15

	 	Prepayments
	 	 	60	 
	          7.16

	 	Subordinated Indebtedness
	 	 	60	 
	          7.17

	 	Amendments of Constitutive Documents
	 	 	60	 
	          7.18

	 	Accounting Changes
	 	 	60	 
	          7.19

	 	Financial Covenants
	 	 	60	 
	 
	 	 	 	 	 	 
	ARTICLE VIII.

	 	     EVENTS OF DEFAULT AND REMEDIES
	 	 	61	 
	          8.01

	 	Events of Default
	 	 	61	 
	          8.02

	 	Remedies Upon Event of Default
	 	 	64	 
	 
	 	 	 	 	 	 
	ARTICLE IX.

	 	     ADMINISTRATIVE AGENT
	 	 	64	 
	          9.01

	 	Appointment and Authorization of Agents; Lender Hedging Agreements
	 	 	64	 
	          9.02

	 	Delegation of Duties
	 	 	65	 
	          9.03

	 	Default; Collateral
	 	 	65	 
	          9.04

	 	Liability of Agents
	 	 	67	 
	          9.05

	 	Reliance by Administrative Agent
	 	 	67	 
	          9.06

	 	Notice of Default
	 	 	68	 
	          9.07

	 	Credit Decision; Disclosure of Information by Administrative Agent
	 	 	68	 
	          9.08

	 	Indemnification of Agents
	 	 	68	 
	          9.09

	 	Administrative Agent in its Individual Capacity
	 	 	69	 
	          9.10

	 	Successor Administrative Agent
	 	 	69	 
	          9.11

	 	Other Agents; Arranger
	 	 	70	 
	 
	 	 	 	 	 	 
	ARTICLE X

	 	     MISCELLANEOUS
	 	 	70	 
	          10.01

	 	Amendments, Release of Collateral,
Etc
	 	 	70	 
	          10.02

	 	Notices and Other Communications; Facsimile Copies
	 	 	72	 
	          10.03

	 	No Waiver; Cumulative Remedies
	 	 	73	 
	          10.04

	 	Attorney Costs; Expenses and Taxes
	 	 	73	 
	          10.05

	 	Indemnification
	 	 	73	 
	          10.06

	 	Payments Set Aside
	 	 	74	 
	          10.07

	 	Successors and Assigns
	 	 	75	 
	          10.08

	 	Confidentiality
	 	 	77	 
	          10.09

	 	Set-off
	 	 	77	 
	          10.10

	 	Interest Rate Limitation
	 	 	78	 

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	 	 	 	 	Page
	 
	 	 	 	 	 	 
	          10.11

	 	Counterparts
	 	 	78	 
	          10.12

	 	Integration
	 	 	78	 
	          10.13

	 	Survival of Representations and Warranties
	 	 	79	 
	          10.14

	 	Severability
	 	 	79	 
	          10.15

	 	Foreign Lenders
	 	 	79	 
	          10.16

	 	Governing Law
	 	 	80	 
	          10.17

	 	Waiver of Right to Trial by Jury,
Etc
	 	 	80	 
	          10.18

	 	Termination of Commitments Under Original Credit Agreement
	 	 	81	 
	          10.19

	 	No Novations, Etc
	 	 	81	 
	          10.20

	 	ENTIRE AGREEMENT
	 	 	81	 

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SCHEDULES

	 	 	 
	2.01

	 	Commitments
	5.05

	 	Existing Indebtedness
	5.13

	 	Subsidiaries and other Equity Investments
	5.22

	 	Leased Locations
	5.23

	 	Material Agreements
	7.01

	 	Existing Liens
	7.12

	 	Agreements Restricting Liens on Leasehold Interests
	10.02

	 	Addresses for Notices to Borrower, Guarantors and Administrative Agent

EXHIBITS

	 	 	 
	Exhibit:	 	Form of:
	A-1

	 	Borrowing Notice
	A-2

	 	Conversion/Continuation Notice
	A-3

	 	Payment/Prepayment Notice
	B

	 	Revolver Note
	C

	 	Compliance Certificate pursuant to Section 6.02(a)
	D

	 	Assignment and Assumption

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AMENDED AND RESTATED CREDIT AGREEMENT

     THIS AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of January 18, 2006, among
ALLIS-CHALMERS ENERGY INC., a Delaware corporation (the “Borrower”), each lender from time to time
party hereto (collectively, the “Lenders” and individually, a “Lender”), and ROYAL BANK OF CANADA,
as Administrative Agent and L/C Issuer.

     (1) The Borrower, Royal Bank of Canada, individually and as administrative agent (“Royal
Bank”), Caterpillar Financial Services Corporation (“CFSC”), and Commercebank, N.A. (“Commerce”;
Royal Bank, CFSC and Commerce collectively called the “Original Lenders”) entered into a Credit
Agreement originally dated July 11, 2005, as amended by a First Amendment to Credit Agreement among
the Borrower and the Original Lenders dated December 9, 2005 (as amended, the “Original Credit
Agreement”).

     (2) The Borrower, Royal Bank, CSFC and Commerce have agreed to amend and restate in its
entirety the Original Credit Agreement on the terms and conditions set forth herein.

          NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the
parties hereto hereby agree that the Original Credit Agreement is amended in its entirety to read
as follows:

ARTICLE I.

DEFINITIONS AND ACCOUNTING TERMS

     1.01 Defined Terms.

     As used in this Agreement, the terms defined in the introductory paragraph hereof shall have
the meanings therein indicated and the following terms shall have the meanings set forth below:

     Acquisition means any transaction or series of related transactions for the purpose of, or
resulting in, directly or indirectly: (a) the acquisition by the Borrower or any Subsidiary of all
or substantially all of the assets located in the United States of a Person or of any business or
division of a Person; (b) the acquisition by the Borrower or any Subsidiary of more than 50% of any
class of Voting Stock (or similar Equity Interests) of any Domestic Person; or (c) a merger,
consolidation or other combination by the Borrower or any Subsidiary with another Person if the
Borrower or any Subsidiary is the surviving entity; provided that, (i) in any merger involving the
Borrower, the Borrower must be the surviving entity; and (ii) in any merger involving a Subsidiary
which is a Loan Party and another Subsidiary which is not a Loan Party, the Subsidiary which is a
Loan Party shall be the survivor.

     AC Tubular means Allis-Chalmers Tubular Services, Inc., a Texas corporation.

     Administrative Agent means Royal Bank of Canada in its capacity as administrative agent under
any of the Loan Documents, or any successor administrative agent.

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Amended & Restated Credit Agreement

 

     Administrative Agent’s Office means the Administrative Agent’s address and, as appropriate,
account as set forth on Schedule 10.02, or such other address or account as the Administrative
Agent may from time to time notify to the Borrower and the Lenders.

     Administrative Details Form means the Administrative Details Reply Form furnished by a Lender
to the Administrative Agent in connection with this Agreement.

     Affiliate means, as to any Person, any other Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, such Person. A Person shall be
deemed to be controlled by any other Person if such other Person possesses, directly or indirectly,
power (a) to vote 10% or more of the Voting Stock (on a fully diluted basis) having ordinary voting
power for the election of directors, managing members, or managing general partner; or (b) to
direct or cause the direction of the management and policies of such Person whether by contract or
otherwise.

     Agent/Arranger Fee Letter has the meaning specified in Section 2.08(b).

     Agent-Related Persons means the Administrative Agent (including any successor administrative
agent) and its respective Affiliates (including the officers, directors, employees, agents and
attorneys-in-fact of such Person).

     Aggregate Revolving Commitment has the meaning specified in the definition of Revolving
Commitment.

     Agreement means this Credit Agreement.

     AirComp means AirComp, LLC, a Delaware limited liability company and Wholly-Owned Subsidiary.

     AirComp Related Subordinated Indebtedness means Indebtedness of the Borrower owing to M-I,
L.L.C. in connection with that certain promissory note dated July 11, 2005 in the original
principal amount of $4,000,000.00, which Indebtedness has been subordinated to the Obligations
pursuant to the AirComp Subordination Agreement.

     AirComp Subordination Agreement means that certain subordination agreement of even date
herewith among Borrower, M-I, L.L.C., and Administrative Agent for the benefit of the Lenders, in
form and substance satisfactory to the Administrative Agent, and all supplements, assignments,
amendments, and restatements thereto (or any agreement in substitution therefor).

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Amended & Restated Credit Agreement

 

     Applicable
Rate means the following percentages per annum set forth in the table below,
on any date of determination, with respect to the Type of Credit Extension or commitment fee that
corresponds to the Leverage Ratio at such date of determination, as calculated based on the
quarterly Compliance Certificate most recently delivered pursuant to Section 6.02(a):

	 	 	 	 	 	 	 	 	 
	 	 	 	 	Commitment	 	Letter of Credit	 	 
	Pricing	 	 	 	Fee	 	and Eurodollar Rate	 	Base Rate
	Level	 	Leverage Ratio	 	+ (basis points)	 	+ (basis points)	 	+ (basis points)
	1	 	Less than 2.50:1.00
	 	50.0	 	200.0	 	100.0
	2	 	Less than
3.00:1.00 but greater than or
equal to 2.50:1.00
	 	50.0	 	225.0	 	125.0
	3	 	Less than
3.50:1.00 but greater than or
equal to 3.00:1.00
	 	50.0	 	250.0	 	150.0
	4	 	Less than
4.00:1.00 but greater than or
equal to 3.50:1.00
	 	50.0	 	275.0	 	175.0
	5	 	Greater than
or equal to 4.00:1.00
	 	50.0	 	300.0	 	200.0

     Any increase or decrease in the Applicable Rate resulting from a change in the Leverage Ratio
shall become effective as of the first day of the fiscal quarter of the Borrower immediately
following the date of a Compliance Certificate delivered pursuant to Section 6.02; provided,
however, that if no Compliance Certificate is delivered during a fiscal quarter when due in
accordance with such Section, Pricing Level 5 shall apply as of the first day of such following
fiscal quarter. The Applicable Rate in effect from the First Amendment Closing Date through March
31, 2006 shall be based Pricing Level 5.

     Approved Fund means any Fund that is administered or managed by a Lender, an Affiliate of a
Lender, or an entity or an Affiliate of an entity that administers or manages a Lender.

     Arranger means RBC Capital Markets in its capacity as lead arranger and sole bookrunner.

     Assignment and Assumption means an Assignment and Assumption substantially in the form of
Exhibit D.

     Attorney Costs means and includes the reasonable fees and disbursements of any law firm or
other external counsel and the allocated cost of internal legal services and all disbursements of
internal counsel.

     Attributable Indebtedness means, on any date, (a) in respect of any Capital Lease of any
Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared
as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation, the
capitalized amount of the remaining lease payments under the relevant lease that would appear on a
balance sheet of

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such Person prepared as of such date in accordance with GAAP if such lease were accounted for
as a capital lease.

     Authorizations means all filings, recordings, and registrations with, and all validations or
exemptions, approvals, orders, authorizations, consents, franchises, licenses, certificates, and
permits from, any Governmental Authority.

     Base Rate means for any day a fluctuating rate per annum equal to the higher of (a) the
Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly
announced from time to time by the Administrative Agent as its “prime rate.” Such rate is a rate
set by the Administrative Agent based upon various factors including the Administrative Agent’s
costs and desired return, general economic conditions and other factors, and is used as a reference
point for pricing some loans, which may be priced at, above, or below such announced rate. Any
change in such rate announced by the Administrative Agent shall take effect at the opening of
business on the day specified in the public announcement of such change.

     Base Rate Loan means a Revolving Loan that bears interest based on the Base Rate.

     Board means the Board of Governors of the Federal Reserve System of the United States.

     Borrower has the meaning specified in the introductory paragraph hereof.

     Borrower Affiliate means the Borrower’s Subsidiaries.

     Borrowing means a borrowing consisting of simultaneous Revolving Loans of one or more Types,
which are either Base Rate Loans or Eurodollar Rate Loans, and if Eurodollar Rate Loans have the
same Interest Period, made by each of the Lenders pursuant to Section 2.01.

     Borrowing Notice means a notice of (a) a Borrowing, (b) a conversion of Revolving Loans from
one Type to the other, or (c) a continuation of Revolving Loans as the same Type, pursuant to
Section 2.03(a), which, if in writing, shall be substantially in the form of Exhibit A-1 or A-2, as
applicable.

     Business Day means any day other than a Saturday, Sunday, or other day on which commercial
banks are authorized to close under the Laws of Texas, or are in fact closed and, if such day
relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are
conducted by and between banks in the applicable offshore Dollar interbank market.

     Capital Expenditure by a Person means an expenditure (determined in accordance with GAAP) for
any fixed asset owned by such Person for use in the operations of such Person having a useful life
of more than one year, or any improvements or additions thereto.

     Capital Lease means any capital lease or sublease which should be capitalized on a balance
sheet in accordance with GAAP.

     Cash Collateralize means to pledge and deposit with or deliver to the Administrative Agent,
for the benefit of the L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash and
deposit account balances pursuant to documentation in form and substance satisfactory to the
Administrative Agent and the L/C Issuer (which documents hereby are consented to by the Lenders).

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Amended & Restated Credit Agreement

 

Cash Equivalents means:

     (a) United States Dollars;

     (b) direct general obligations, or obligations of, or obligations fully and
unconditionally guaranteed as to the timely payment of principal and interest by, the United
States or any agency or instrumentality thereof having remaining maturities of not more than
13 months, but excluding any such securities whose terms do not provide for payment of a
fixed dollar amount upon maturity or call for redemptions;

     (c) certificates of deposit and eurodollar-time deposits with maturities of thirteen
(13) months or less, bankers acceptances with maturities not exceeding 180 days, overnight
bank deposits and other similar short term instruments, in each case with any domestic
commercial bank having capital and surplus in excess of $250,000,000 and having a rating of
at least “A2” by Moody’s and at least “A” by S&P;

     (d) repurchase obligations with a term of not more than 13 months for underlying
securities of the types described in (b) and (c) above entered into with any financial
institution meeting the qualifications in (c) above;

     (e) commercial paper (having original maturities of not more than 270 days) of any
Person rated “P-1” or better by Moody’s or “A-1” or the equivalent by S&P; and

     (f) money market mutual or similar funds having assets in excess of $100,000,000, at
least 95% of the assets of which are comprised of assets specified in clause (a) through (e)
above.

     CERCLA has the meaning specified in the definition of Environmental Law.

     Change of Control means an event or series of events by which:

     (a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or
its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other
fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or
group shall be deemed to have “beneficial ownership” of all securities that such person or
group has the right to acquire (such right, an “option right”), whether such right is
exercisable immediately or only after the passage of time), directly or indirectly, of 25%
or more of the Voting Stock of the Borrower entitled to vote for members of the board of
directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking
into account all such securities that such person or group has the right to acquire pursuant
to any option right);

     (b) during any period of 12 consecutive months, a majority of the members of the board
of directors or other equivalent governing body of the Borrower cease to be composed of
individuals (i) who were members of that board or equivalent governing body on the first day
of such period, (ii) whose election or nomination to that board or equivalent governing body
was approved by individuals referred to in clause (i) above constituting at the time of such
election or

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Amended & Restated Credit Agreement

 

nomination at least a majority of that board or equivalent governing body or (iii)
whose election or nomination to that board or other equivalent governing body was approved
by individuals referred to in clauses (i) and (ii) above constituting at the time of such
election or nomination at least a majority of that board or equivalent governing body
(excluding, in the case of both clause (ii) and clause (iii), any individual whose initial
nomination for, or assumption of office as, a member of that board or equivalent governing
body occurs as a result of an actual or threatened solicitation of proxies or consents for
the election or removal of one or more directors by any person or group other than a
solicitation for the election of one or more directors by or on behalf of the board of
directors); or

(c) any Person or two or more Persons acting in concert shall have acquired by contract
or otherwise, or shall have entered into a contract or arrangement that, upon consummation
thereof, will result in its or their acquisition of the power to exercise, directly or
indirectly, a controlling influence over the management or policies of the Borrower, or
control over the Voting Stock of the Borrower entitled to vote for members of the board of
directors or equivalent governing body of the Borrower on a fully-diluted basis (and taking
into account all such securities that such Person or group has the right to acquire pursuant
to any option right) representing 25% or more of the combined voting power of such
securities; or

(d) the Borrower ceases to own 100% of the Equity Interests of each Subsidiary which is
a Loan Party.

     Change in Law means (a) the adoption of any Law after the date of this Agreement, (b) any
change in any Law or in the interpretation or application thereof by any Governmental Authority
after the date of this Agreement or (c) compliance by any Lender or the L/C Issuer (or, for
purposes of Section 3.04(b), by any Lending Office of such Lender or by such Lender’s or the L/C
Issuer’s holding company, if any) with any request, guideline or directive (whether or not having
the force of law) of any Governmental Authority made or issued after the date of this Agreement.

     Code means the Internal Revenue Code of 1986 as amended from time to time, and the regulations
promulgated and rulings issued thereunder.

     Collateral means all property and interests in property and proceeds thereof now owned or
hereafter acquired by the Borrower, and its Subsidiaries in or upon which a Lien now or hereafter
exists in favor of the Lenders, or the Administrative Agent on behalf of the Lenders, whether under
this Agreement, the Collateral Documents, or under any other document executed by any Borrower
Affiliate and delivered to the Administrative Agent or the Lenders.

     Collateral Agent means Royal Bank of Canada in its capacity as collateral agent under any of
the Loan Documents, or any successor collateral agent.

     Collateral Documents means (a) each Guaranty, Security Agreement, each pledge agreement,
assignment, and all other security agreements, deeds of trust, mortgages, chattel mortgages,
assignments, pledges, guaranties, financing statements, continuation statements, extension
agreements and other similar agreements or instruments executed by the Borrower or any Subsidiary
which is a Loan Party for the benefit of the Lenders now or hereafter delivered to the Lenders or
the Administrative Agent pursuant to or in connection with the transactions contemplated hereby,
and all financing statements (or comparable documents now or hereafter filed in accordance with the
UCC or comparable Law) against the Borrower

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or any Subsidiary which is a Loan Party, as debtor, in favor of the Lenders or the
Administrative Agent for the benefit of the Lenders, as secured party, to secure or guarantee the
payment of any part of the Obligations or the performance of any other duties and obligations of
Borrower under the Loan Documents, whenever made or delivered, and (b) any amendments, supplements,
modifications, renewals, replacements, consolidations, substitutions, restatements, and extensions
of any of the foregoing.

     Compensation Period has the meaning set forth in Section 2.11(e)(ii).

     Compliance Certificate means a certificate substantially in the form of Exhibit C-1.

     Consolidated Cash Flow From Operations means, for a given period the sum of (i) Consolidated
Net Income, (ii) the amount of depreciation and amortization expense deducted in determining such
Consolidated Net Income, (iii) deferred income taxes, and (iv) other non-cash items, each as
determined for such period in accordance with GAAP.

     Consolidated Current Assets means at any time, all assets that should be, in accordance with
GAAP, classified as current assets on a consolidated balance sheet of the Borrower and its
Subsidiaries.

     Consolidated Current Liabilities means at any time, all liabilities that should be, in
accordance with GAAP, classified as current liabilities on a consolidated balance sheet of the
Borrower and its Subsidiaries (excluding that portion of the principal balance of any Revolving
Loans outstanding hereunder which would be classified as current liabilities in accordance with
GAAP).

     Consolidated EBITDA means, for any period, for the Borrower and its Subsidiaries on a
consolidated basis, an amount equal to the sum of (a) Consolidated Net Income, (b) Consolidated
Interest Charges, (c) the amount of taxes, based on or measured by income, used or included in the
determination of such Consolidated Net Income, (d) the amount of depreciation, depletion, and
amortization expense deducted in determining such Consolidated Net Income, and (e) other non-cash
charges and expenses, including, without limitation, non-cash charges and expenses relating to Swap
Contracts or resulting from accounting convention changes, of the Borrower and its Subsidiaries on
a consolidated basis, all determined in accordance with GAAP.

     Consolidated Interest Charges means, for any period, for the Borrower and its Subsidiaries on
a consolidated basis, the sum of (a) all interest, premium payments, fees, charges and related
expenses of the Borrower and its Subsidiaries in connection with Indebtedness (including
capitalized interest), in each case to the extent treated as interest in accordance with GAAP, and
(b) the portion of rent expense of the Borrower and its Subsidiaries with respect to such period
under Capital Leases that is treated as interest in accordance with GAAP.

     Consolidated Funded Debt means, as of any date of determination, for the Borrower and its
Subsidiaries on a consolidated basis, the sum of (a) the outstanding principal amount of all
obligations and liabilities, whether current or long-term, for borrowed money (including
Obligations hereunder and Indebtedness associated with the Senior Unsecured Notes), (b) all
reimbursement obligations relating to letters of credit, (c) Capital Leases, (d) Synthetic Lease
Obligations, and (e) without duplication, all Guaranty Obligations with respect to Indebtedness of
the type specified in subsections (a) through (d) above.

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     Consolidated Net Income means, for any period, for the Borrower and its Subsidiaries on a
consolidated basis, the net income or net loss of the Borrower and its Subsidiaries from continuing
operations; provided that there shall be excluded from such net income (to the extent otherwise
included therein): (a) the income (or loss) of any entity other than a Subsidiary in which the
Borrower or any Subsidiary has an ownership interest, except to the extent that any such income has
been actually received by the Borrower or such Subsidiary in the form of cash dividends or similar
cash distributions; (b) net extraordinary gains and losses, (c) any gains or losses attributable to
non-cash write-ups or write-downs of assets, (d) proceeds of any Insurance Payment other than
business interruption insurance, (e) any gain or loss, net of taxes, on the sale, retirement or
other disposition of assets (including Equity Interests of any other Person, but excluding the sale
of inventories in the ordinary course of business), and (f) the cumulative effect of a change in
accounting principles.

     Consolidated Senior Debt means, as of any date of determination, for the Borrower and its
Subsidiaries on a consolidated basis, without duplication, the sum of (a) the Outstanding Amount of
all Revolving Loans and L/C Obligations, (b) all secured Indebtedness permitted under Section 7.04,
and (c) the Outstanding Amount of all obligations owed to Lenders under Lender Hedging Agreements.

     Consolidated Tangible Net Worth means the consolidated net worth of the Borrower and its
Subsidiaries after subtracting therefrom the aggregate amount of any Intangible Assets of the
Borrower and its Subsidiaries.

     Contractual Obligation means, as to any Person, any provision of any security issued by such
Person or of any agreement, instrument or other undertaking to which such Person is a party or by
which it or any of its property is bound.

     Credit Extension means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.

     Current Maturities of Long Term Indebtedness means, in respect of the Borrower and as of any
applicable date of determination thereof, all Indebtedness which should be classified as “funded
indebtedness” or “long term indebtedness” on a balance sheet of such Person as of such date in
accordance with GAAP.

     Current Ratio means the ratio derived from dividing Consolidated Current Assets by
Consolidated Current Liabilities.

     Debt Issuance means the issuance by the Borrower or any Subsidiary of any unsecured
Indebtedness other than Indebtedness permitted under Section 7.04.

     Debtor Relief Laws means the Bankruptcy Code of the United States, and all other liquidation,
conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement,
receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or
other applicable jurisdictions from time to time in effect and affecting the rights of creditors
generally.

     Default means any event that, with the giving of any notice, the passage of time, or both,
would be an Event of Default.

     Default Rate means an interest rate equal to (a) the Base Rate plus (b) the Applicable Rate,
if any, applicable to Base Rate Loans plus (c) 2% per annum; provided, however, that with respect
to a

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Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate
(including any Applicable Rate) otherwise applicable to such Revolving Loan plus 2% per annum, in
each case to the fullest extent permitted by applicable Laws.

     Deposit Account Pledge Agreement means collectively the agreements, however styled, among one
or more Loan Parties, the Administrative Agent and Wells Fargo Bank, N.A. relating to the pledge of
deposit and similar accounts held in such financial institution by one or more Loan Parties to the
Administrative Agent, for the benefit of the Lenders, as Collateral.

     Disposition or Dispose means the sale, transfer, license or other disposition (including any
sale and leaseback transaction) of any property by any Person of property owned by such Person,
including any sale, assignment, transfer or other disposal, with or without recourse, of any notes
or accounts receivable or any rights and claims associated therewith. The terms Disposition and
Dispose shall not include any Equity Issuance.

     Dollar and $ means lawful money of the United States.

     Domestic means, with respect to an entity, that such entity is incorporated, organized or
formed under the Laws of the United States, a state in the United States or any subdivision thereof
or the District of Columbia.

     Downhole Injection means Downhole Injection Systems, LLC, a Texas limited liability company
and Wholly-Owned Subsidiary.

     Eligible Assignee means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund, (d)
any institutional investor and (e) any other Person (other than a natural Person) approved in each
of the foregoing instances by the Administrative Agent, the L/C Issuer and, unless a Default has
occurred and is continuing or in connection with the settlement of a credit derivative transaction,
the Borrower (each such approval not to be unreasonably withheld, conditioned or delayed); provided
that notwithstanding the foregoing, “Eligible Assignee” shall not include the Borrower or any of
its respective Affiliates or Subsidiaries.

     Employee Equity Sales means the sale of Equity Interests in the Borrower to directors,
officers, employees and consultants to the Loan Parties (whether or not under a plan).

     Environmental Law means any applicable Law that relates to (a) the condition or protection of
air, groundwater, surface water, soil, or other environmental media, (b) the environment, including
natural resources or any activity which affects the environment, (c) the regulation of any
pollutants, contaminants, wastes, substances, and Hazardous Substances, including, without
limitation, the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
§9601 et seq.) (“CERCLA”), the Clean Air Act (42 U.S.C. § 7401 et seq.), the Federal Water
Pollution Control Act, as amended by the Clean Water Act (33 U.S.C. §1251 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. §136 et seq.), the Emergency Planning and
Community Right to Know Act of 1986 (42 U.S.C. §1100 1 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. §1801 et seq.), the National Environmental Policy Act of 1969 (42
U.S.C. §4321 et seq.), the Oil Pollution Act (33 U.S.C. §2701 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. §6901 et seq.), the Rivers and Harbors Act (33 U.S.C. §401 et seq.),
the Safe Drinking Water Act (42 U.S.C. §201 and §300f et seq.), the Solid Waste Disposal Act, as
amended by the Resource Conservation and Recovery Act of 1976

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and the Hazardous and Solid Waste Amendments of 1984 (42 U.S.C. §6901 et seq.), the Toxic
Substances Control Act (15 U.S.C. §2601 et seq.), and analogous state and local Laws, as any of the
foregoing may have been and may be amended or supplemented from time to time, and any analogous
enacted or adopted Law, or (d) the Release or threatened Release of Hazardous Substances.

     Equity Interests means, with respect to any Person, all of the shares of capital stock of (or
other ownership or profit interests in) such Person, all of the warrants, options or other rights
for the purchase or acquisition from such Person of shares of capital stock of (or other ownership
or profit interests in) such Person, all of the securities convertible into or exchangeable for
shares of capital stock of (or other ownership or profit interests in) such Person or warrants,
rights or options for the purchase or acquisition from such Person of such shares (or such other
interests), and all of the other ownership or profit interests in such Person (including
partnership, member or trust interests therein), whether voting or nonvoting, and whether or not
such shares, warrants, options, rights or other interests are outstanding on any date of
determination.

     Equity Issuance means any issuance by the Borrower to any Person of its Equity Interests,
other than (a) any issuance of its Equity Interests pursuant to the exercise of options or
warrants, (b) any issuance of its Equity Interests pursuant to the conversion of any debt
securities to equity or the conversion of any class of equity securities to any other class of
equity securities, (c) any issuance of options or warrants relating to its Equity Interests, (d)
any issuance of its Equity Interests as consideration for all or a portion of the purchase price
for any acquisition, and (e) Employee Equity Sales.

     ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time,
and any regulations issued pursuant thereto.

     ERISA Affiliate means any trade or business (whether or not incorporated) under common control
with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and
(o) of the Code for purposes of provisions of this Agreement relating to obligations imposed under
Section 412 of the Code).

     ERISA Event means: (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by
the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a
plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a
complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or
notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent
to terminate, the treatment of a Pension Plan amendment as a termination under Sections 4041 or
4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under
Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA,
upon the Borrower or any ERISA Affiliate.

     Eurodollar Rate means for any Interest Period with respect to any Eurodollar Rate Loan:

     (a) the rate per annum equal to the rate determined by the Administrative Agent to be
the offered rate that appears on the page of the LIBOR I screen (or any successor thereto)
that

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displays an average British Bankers Association Interest Settlement Rate for deposits
in Dollars (for delivery on the first day of such Interest Period) with a term equivalent to
such Interest Period, determined as of approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period, or

     (b) if the rate referenced in the preceding subsection (a) does not appear on such page
or service or such page or service shall cease to be available, the rate per annum equal to
the rate determined by the Administrative Agent to be the offered rate on such other page or
other service that displays an average British Bankers Association Interest Settlement Rate
for deposits in Dollars (for delivery on the first day of such Interest Period) with a term
equivalent to such Interest Period, determined as of approximately 11:00 a.m. (London time)
two Business Days prior to the first day of such Interest Period, or

     (c) if the rates referenced in the preceding subsections (a) and (b) are not available,
the rate per annum determined by the Administrative Agent as the rate of interest (rounded
upward to the next 1/100th of 1%) at which deposits in Dollars for delivery on the first day
of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate
Loan being made, continued or converted by the Administrative Agent and with a term
equivalent to such Interest Period would be offered by the Administrative Agent’s London
Branch to major banks in the offshore Dollar market at their request at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest Period.

     Eurodollar Rate Loan means a Revolving Loan that bears interest at a rate based on the
Eurodollar Rate.

     Event of Default means any of the events or circumstances specified in Article VIII.

     Evergreen Letter of Credit has the meaning specified in Section 2.14(b)(iii).

     Federal Funds Rate means, for any day, the rate per annum (rounded upwards to the nearest
1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank on the Business Day next succeeding such day; provided that
(a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Business Day as so published on the next succeeding
Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the
Federal Funds Rate for such day shall be the average rate charged to the Administrative Agent on
such day on such transactions as determined by the Administrative Agent.

     First Amendment Closing Date means the date upon which this Agreement has been executed by the
Borrower, the Lenders and the Administrative Agent and by its terms has become effective.

     Fiscal Year means each year beginning January 1st and ending the following December
31st.

     Fixed Asset Coverage Ratio means as of any determination date, the ratio derived by dividing
the orderly liquidation value of the Borrower’s and its Subsidiaries’ domestic fixed assets (as
determined by the most recently delivered asset appraisals delivered to the Administrative Agent
pursuant to Section

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6.02(e)) on which the Administrative Agent, for the benefit of the Lenders, holds a perfected,
first priority Lien divided by the sum of the Outstanding Amount on such date of the Revolver
Principal Debt.

     Foreign Lender has the meaning specified in Section 10.15.

     Fund means any Person (other than a natural person) that is (or will be) engaged in making,
purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in
the ordinary course of its business.

     GAAP means generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting Standards Board or such
other principles as may be approved by a significant segment of the accounting profession, that are
applicable to the circumstances as of the date of determination, consistently applied. If at any
time any change in GAAP would affect the computation of any financial ratio or requirement set
forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the
Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such
ratio or requirement to preserve the original intent thereof in light of such change in GAAP
(subject to the approval of the Required Lenders); provided that, until so amended, (a) such ratio
or requirement shall continue to be computed in accordance with GAAP prior to such change therein
and (b) the Borrower shall provide to the Administrative Agent and the Lenders financial statements
and other documents required under this Agreement or as reasonably requested hereunder setting
forth a reconciliation between calculations of such ratio or requirement made before and after
giving effect to such change in GAAP.

     Governmental Authority means any nation or government, any state or other political
subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative
tribunal, central bank or other legal entity exercising executive, legislative, judicial, taxing,
regulatory or administrative powers or functions of or pertaining to government.

     Guarantors means any Person and every present and future Subsidiary of Borrower which
undertakes to be liable for all or any part of the Obligations by execution of a Guaranty, or
otherwise.

     Guaranty means collectively a guaranty in form and substance satisfactory to the
Administrative Agent now or hereafter executed by any Guarantor in favor of the Administrative
Agent on behalf of the Lenders guaranteeing the Obligations.

     Guaranty Obligation means, as to any Person, (a) any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other
payment obligation of another Person (the “primary obligor”) in any manner, whether directly or
indirectly, and including, without limitation, any obligation of such Person, direct or indirect,
(i) to purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other payment obligation, (ii) to purchase or lease property, securities or
services for the purpose of assuring the obligee in respect of such Indebtedness or other payment
obligation of the payment of such Indebtedness or other payment obligation, (iii) to maintain
working capital, equity capital or any other financial statement condition or liquidity of the
primary obligor so as to enable the primary obligor to pay such Indebtedness or other payment
obligation, or (iv) entered into for the purpose of assuring in any other manner the obligees in
respect of such Indebtedness or other payment obligation of the payment thereof or to protect such
obligees against loss in respect thereof (in whole or in part), or (b) any Lien on any

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assets of such Person securing any Indebtedness or other payment obligation of any other
Person, whether or not such Indebtedness or other payment obligation is assumed by such Person;
provided, however, that the term “Guaranty Obligation” shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The amount of any
Guaranty Obligation shall be deemed to be the lesser of (a) an amount equal to the stated or
determinable outstanding amount of the related primary obligation and (b) the maximum amount for
which such guaranteeing Person may be liable pursuant to the terms of the instrument embodying such
Guaranty Obligation, unless the outstanding amount of such primary obligation and the maximum
amount for which such guaranteeing Person may be liable are not stated or determinable, in which
case the amount of such Guaranty Obligation shall be the maximum reasonably anticipated liability
in respect thereof as determined by the guaranteeing Person in good faith.

     Hazardous Substance means any substance that poses a threat to, or is regulated to protect,
human health, safety, public welfare, or the environment, including without limitation (a) any
“hazardous substance,” “pollutant” or “contaminant,” and any “petroleum” or “natural gas liquids”
as those terms are defined or used under Section 101 of CERCLA, (b) “solid waste” as defined by the
federal Solid Waste Disposal Act (42 U. S.C. §§ 6901 et seq.), (c) asbestos or a material
containing asbestos, (d) any material that contains lead or lead-based paint, (e) any item or
equipment that contains or is contaminated by polychlorinated biphenyls, (f) any radioactive
material, (g) urea formaldehyde, (h) putrescible materials, (i) infectious materials, (j) toxic
microorganisms, including mold, or (k) any substance the presence or Release of which requires
reporting, investigation or remediation under any Environmental Law.

     Honor Date has the meaning set forth in Section 2.14(c)(i).

     Indebtedness means, as to any Person at a particular time, all of the following:

     (a) all obligations of such Person for borrowed money and all obligations of such
Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

     (b) the face amount of all letters of credit (including standby and commercial),
banker’s acceptances, surety bonds, and similar instruments issued for the account of such
Person and, without duplication, all drafts drawn and unpaid thereunder;

     (c) net obligations under any Swap Contract in an amount equal to (i) if such Swap
Contract has been closed out, the termination value thereof, or (ii) if such Swap Contract
has not been closed out, the mark-to-market value thereof determined on the basis of
readily available quotations provided by any recognized dealer in such Swap Contract;

     (d) whether or not so included as liabilities in accordance with GAAP, all obligations
of such Person to pay the deferred purchase price of property or services, other than trade
accounts payable in the ordinary course of business not overdue by more than 90 days, and
indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or
being purchased by such Person (including indebtedness arising under conditional sales or
other title retention agreements), whether or not such indebtedness shall have been assumed
by such Person or is limited in recourse;

     (e) Capital Leases and Synthetic Lease Obligations;

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     (f) all obligations of such Person to purchase, redeem, retire, defease or otherwise
make any payment in respect of any Equity Interests in such Person or any other Person or
any warrants, rights or options to acquire such Equity Interests, valued, in the case of
any redeemable preferred Equity Interests, at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends; and

     (g) all Guaranty Obligations of such Person in respect of any of the foregoing.

     For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any
partnership or joint venture in which such Person is a general partner, unless such Indebtedness is
expressly made non-recourse to such Person except for customary exceptions acceptable to the
Required Lenders. The amount of any Capital Lease or Synthetic Lease Obligation as of any date
shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date.
In addition, the determination of Indebtedness of the Borrower and/or its Subsidiaries shall be
made on a consolidated basis without taking into account any Indebtedness owed by any such Person
to any other such Person.

     Indemnified Liabilities has the meaning set forth in Section 10.05.

     Indemnitees has the meaning set forth in Section 10.05.

     Insurance Payment means any payment by an insurance company or other surety on account of
property damage or casualty loss to any property of the Borrower or any of its Subsidiaries.

     Intangible Assets means the amount (to the extent reflected in determining consolidated net
worth) of all unamortized debt discount and expense (to the extent, if any, recorded as an
unamortized deferred charge), unamortized deferred charges, goodwill, franchises, licenses,
patents, trademarks, trade names, copyrights, service marks and brand names; provided, that for
purposes of this definition, consolidated net worth shall be adjusted to exclude non-cash items,
including foreign currency translation adjustments, unrealized gains and losses, and mark-to-market
adjustments relating to Swap Contracts, pursuant to GAAP.

     Interest Coverage Ratio means, as of any date of determination, the ratio of (a) Consolidated
EBITDA for the period of the four prior fiscal quarters ending on such date to (b) the sum of (i)
Consolidated Interest Charges during such period and (ii) imputed interest charges on Synthetic
Leases, of the Borrower and its Subsidiaries during such period, if any.

     Interest Payment Date means, (a) as to any Revolving Loan other than a Base Rate Loan, the
last day of each Interest Period applicable to such Revolving Loan; provided, however, that if any
Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall
every three months after the beginning of such Interest Period shall also be Interest Payment
Dates; and (b) as to any Base Rate Loan, the last Business Day of each March, June, September and
December and the Maturity Date.

     Interest Period means, as to each Eurodollar Rate Loan, the period commencing on the date such
Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending
on the date one, two, three or six months thereafter, as selected by the Borrower in its Borrowing
Notice; provided that:

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     (i) any Interest Period that would otherwise end on a day that is not a Business Day
shall be extended to the next succeeding Business Day unless, in the case of a Eurodollar
Rate Loan, such Business Day falls in another calendar month, in which case such Interest
Period shall end on the next preceding Business Day;

     (ii) any Interest Period pertaining to a Eurodollar Rate Loan that begins on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period) shall end on
the last Business Day of the calendar month at the end of such Interest Period; and

     (iii) no Interest Period shall extend beyond the Maturity Date.

     Investment means, as to any Person, any acquisition or investment by such Person, whether by
means of (a) the purchase or other acquisition of Equity Interest of another Person, (b) a loan,
advance or capital contribution to, guaranty of debt of, or purchase or other acquisition of any
other debt or Equity Interest in, another Person, including any partnership or joint venture
interest in such other Person, or (c) the purchase or other acquisition (in one transaction or a
series of transactions) of assets of another Person that constitute a business unit. For purposes
of covenant compliance, the amount of any Investment shall be the amount actually invested, without
adjustment for subsequent increases or decreases in the value of such Investment, less all returns
of principal or equity thereon, and shall, if made by the transfer or exchange of property other
than cash be deemed to have been made in an amount equal to the fair market value of such property.

     Involuntary Disposition means any loss of, damage to or destruction of, or any condemnation or
other taking for public use of, any property of the Borrower or any Subsidiary.

     IRS means the United States Internal Revenue Service.

     Laws means, collectively, all applicable international, foreign, federal, state and local
statutes, treaties, rules, regulations, ordinances, codes and administrative or judicial precedents
or authorities, including the interpretation or administration thereof by any Governmental
Authority charged with the enforcement, interpretation or administration thereof, and all
applicable administrative orders, licenses, authorizations and permits of, any Governmental
Authority.

     L/C Advance means, with respect to each Lender, such Lender’s participation in any L/C
Borrowing in accordance with its Pro Rata Share.

     L/C Borrowing means an extension of credit resulting from a drawing under any Letter of Credit
which has not been reimbursed on the date when made or refinanced as a Borrowing.

     L/C Credit Extension means, with respect to any Letter of Credit, the issuance thereof or
extension of the expiry date thereof, or the renewal or increase of the amount thereof.

     L/C Issuer means Royal Bank of Canada in its capacity as issuer of Letters of Credit
hereunder, or any successor issuer of Letters of Credit hereunder.

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     L/C Obligations means, as at any date of determination, the aggregate undrawn face amount of
all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C
Borrowings.

     Lender has the meaning specified in the introductory paragraph hereto and, as the context
requires, includes the L/C Issuer.

     Lender Hedging Agreement means a Swap Contract between the Borrower and a Lender or an
Affiliate of a Lender.

     Lending Office means, as to any Lender, the office or offices of such Lender set forth on its
Administrative Details Form, or such other office or offices as a Lender may from time to time
notify the Borrower and the Administrative Agent.

     Letter of Credit means any standby letter of credit issued hereunder.

     Letter of Credit Application means an application and agreement for the issuance or amendment
of a letter of credit in the form from time to time in use by the L/C Issuer.

     Letter of Credit Expiration Date means the day that is five days prior to the Maturity Date
(or, if such day is not a Business Day, the next preceding Business Day).

     Letter of Credit Sublimit means an amount equal to the lesser of (i) the Aggregate Revolving
Commitment and (ii) $5,000,000.

     Leverage Ratio means, for the Borrower and its Subsidiaries on a consolidated basis, the ratio
of (a) Consolidated Funded Debt as of the determination date to (b) Consolidated EBITDA for the
period of the four fiscal quarters ending on such date, or if such date is not the last day of a
fiscal quarter, ending on the last day of the fiscal quarter most recently ended.

     Lien means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or other), charge, or preference, priority or other security interest or
preferential arrangement of any kind or nature whatsoever to secure or provide for payment of any
obligation of any Person (including any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the foregoing, and the
filing of any financing statement under the UCC or comparable Laws of any jurisdiction), including
the interest of a purchaser of accounts receivable.

     Loan Documents means this Agreement, each Revolver Note, each of the Collateral Documents, the
Agent/Arranger Fee Letter, each Borrowing Notice, each Compliance Certificate, each Subordination
Agreement, each Letter of Credit Application, and each other agreement, document or instrument
delivered by the Borrower or any of its Subsidiaries from time to time in connection with this
Agreement and the Revolver Notes.

     Loan Party means each of the Borrower, each Guarantor, and each other entity that is an
Affiliate of the Borrower that executes one or more Loan Documents.

     Master Agreement has the meaning specified in the definition of Swap Contract.

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     Material Adverse Effect means: (a) a material adverse change in, or a material adverse effect
upon, the operations, business, properties or condition (financial or otherwise) or prospects of
the Borrower or any of its Subsidiaries; (b) a material impairment of the ability of the Borrower,
or any other Loan Party to perform their obligations under the Loan Documents to which it is a
party; or (c) a material adverse effect upon the legality, validity, binding effect or
enforceability against the Borrower or any other Loan Party of any Loan Documents or the rights and
remedies of Agent or any Lender thereunder.

     Material Agreement means each agreement set forth in Schedule 5.23.

     Maturity Date means the earlier of (a) January 18, 2010, or (b) such earlier effective date of
any other termination, cancellation, or acceleration of the Aggregate Revolving Commitment under
this Agreement.

     Maximum Amount and Maximum Rate respectively mean, for each Lender, the maximum non-usurious
amount and the maximum non-usurious rate of interest which, under applicable Law, such Lender is
permitted to contract for, charge, take, reserve, or receive on the Obligations.

     Mexican CapEx means capital expenditures by any Loan Party for the purchase of equipment or
fixed or capital assets intended for use in, or actually used in, Mexico.

     Moody’s means Moody’s Investors Service, Inc.

     Multiemployer Plan means any employee benefit plan of the type described in Section 4001(a)(3)
of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions,
or during the preceding three calendar years, has made or been obligated to make contributions.

     Net Cash Proceeds means (i) cash received in connection with any Equity Issuance, (ii) cash
received in connection with any Debt Issuance, (iii) any Insurance Payment and (iv) cash received
in connection with any Disposition (including any cash received by way of deferred payment as and
when received), in each case received by the Borrower or any of its Subsidiaries in connection with
and as consideration therefor, on or after the date of consummation of such transaction, after (i)
deduction of Taxes payable in connection with or as a result of such transaction, and (ii) payment
of all usual and customary brokerage commissions and all other reasonable fees and expenses related
to such transaction (including, without limitation, reasonable attorneys’ fees and closing costs
incurred in connection with such transaction).

     Nonrenewal Notice Date has the meaning specified in Section 2.14(b)(iii).

     Obligations means all advances to, and debts, liabilities, obligations, covenants and duties
of, any Loan Party arising under any Loan Document, whether direct or indirect (including those
acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter
arising and including interest that accrues after the commencement by or against any Loan Party of
any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding. In
addition, all references to the “Obligations” in the Collateral Documents and in Sections 2.13 and
10.09 of this Agreement shall, in addition to the foregoing, also include all present and future
indebtedness, liabilities, and obligations (and all renewals and extensions thereof or any part
thereof now or hereafter owed to any Lender or any Affiliate of a Lender arising pursuant to any
Lender Hedging Agreement.

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     Obligor means the Borrower or any other Person (other than the Administrative Agent or any
Lender) obligated under any Loan Document.

     Organization Documents means, (a) with respect to any corporation, the certificate or articles
of incorporation and the bylaws, (b) with respect to any limited liability company, the certificate
of formation and operating agreement or limited liability company agreement; and (c) with respect
to any partnership, joint venture, trust or other form of business entity, the partnership, joint
venture or other applicable agreement of formation and any agreement, instrument, filing or notice
with respect thereto filed in connection with its formation with the secretary of state or other
department in the state of its formation, in each case as amended from time to time.

     Other Taxes has the meaning specified in Section 3. 01(b).

     Outstanding Amount on any date (i) with respect to Revolving Loans, means the aggregate
principal amount thereof after giving effect to any Borrowings and prepayments or repayments
occurring on such date, (ii) with respect to any L/C Obligations, the amount of such L/C
Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and
any other changes in the aggregate amount of the L/C Obligations as of such date, including as a
result of any reimbursements of outstanding unpaid drawings under any Letters of Credit or any
reductions in the maximum amount available for drawing under Letters of Credit taking effect on
such date, and (iii) for purposes of Section 2.11(d) with respect to Obligations under a Lender
Hedging Agreement, means the amount then due and payable under such Lender Hedging Agreement.

     Participant has the meaning specified in Section 10.07(d).

     PBGC means the Pension Benefit Guaranty Corporation.

     Pension Plan means any “employee pension benefit plan” (as such term is defined in Section
3(2)(A) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is
sponsored or maintained by the Borrower or any ERISA Affiliate or to which the Borrower or any
ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple
employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during
the immediately preceding five plan years.

     Permitted Acquisitions means any Acquisition by the Borrower or a Subsidiary of the Borrower
resulting in ownership of assets inside the United States, or of equity interests in a Domestic
Person; provided, however, that the following requirements have been satisfied:

     (i) if such Acquisition results in the Borrower’s ownership of a Subsidiary, the
Borrower shall have complied with the requirements of Sections 6.13 and 6.14 as of the date
of such Acquisition;

     (ii) with respect to Acquisitions involving acquisitions of an equity interest, such
Acquisition shall have been approved or consented to by the board of directors or similar
governing entity of the Person being acquired; and

     (iii) as of the closing of such Acquisition no Default or Event of Default shall exist
or occur as a result of, and after giving effect to, such Acquisition.

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     Permitted Liens means Liens permitted under Section 7.01 as described in such Section.

     Person means any individual, trustee, corporation, general partnership, limited partnership,
limited liability company, joint stock company, trust, unincorporated organization, bank, business
association, firm, joint venture or Governmental Authority.

     Plan means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA)
established by the Borrower or any ERISA Affiliate.

     Pro Rata Share means, at any date of determination, for any Lender, the percentage (carried
out to the ninth decimal place) that its Revolving Commitment bears to the Aggregate Revolving
Commitment.

     Reduction Amount has the meaning set forth in the definition of “Triggering Sale”.

     Register has the meaning set forth in Section 10.07(c).

     Reinvested means used (or committed by the Borrower for use) for Capital Expenditures or
Acquisitions in connection with the oil field services business of the Borrower or any of its
domestic Subsidiaries.

     Reinvestment Certificate means with respect to any Triggering Sale, a certificate of a
Responsible Officer of the Borrower delivered pursuant to Section 6.02(d) detailing how the
Reduction Amount corresponding to such Triggering Sale has been Reinvested and the portion of such
Reduction Amount which has not been Reinvested.

     Related Parties means, with respect to any specified Person, such Person’s Affiliates and the
respective directors, officers, employees, agents and advisors of such Person and such Person’s
Affiliate.

     Release means any spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, disposal, deposit, dispersal, migrating, or other movement
into the air, ground, or surface water, or soil.

     Reportable Event means any of the events set forth in Section 4043(c) of ERISA, other than
events for which the 30 day notice period has been waived.

     Request for Credit Extension means (a) with respect to a Borrowing, conversion or continuation
of Revolving Loans, a Borrowing Notice, and (b) with respect to an L/C Extension, a Letter of
Credit Application.

     Required Lenders means (a) on any date of determination on and after the First Amendment
Closing Date and prior to the date of the initial Borrowing under this Agreement, those Lenders
holding more than 66-2/3% of the Aggregate Revolving Commitment, (b) on any date of determination
on and after the date of the initial Borrowing under this Agreement and prior to the Maturity Date,
those Lenders holding more than 66- 2/3% of the Outstanding Amount of Revolving Loans.

     Responsible Officer means the president, chief executive officer, executive vice president,
senior vice president, vice president, chief financial officer, controller, treasurer, assistant
treasurer, secretary or

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general counsel of a Person. Any document delivered hereunder that is
signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been
authorized by all necessary corporate, partnership, limited liability company, and/or other action
on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have
acted on behalf of such Loan Party.

     Restricted Payment by a Person means any dividend or other distribution (whether in cash,
securities or other property) with respect to any Equity Interest in such Person, or any payment
(whether in cash, securities or other property), including any sinking fund or similar deposit on
account of the purchase, redemption, retirement, acquisition, cancellation or termination of any
such Equity Interest or of any option, warrant or other right to acquire any such Equity Interest.

     Revolver Facility means the revolving credit facility as described in and subject to the
limitations set forth in Section 2.01(a).

     Revolver Facility Committed Sum means for any Lender with respect to the Revolver Facility, at
any date of determination occurring prior to the Maturity Date, the amount stated beside such
Lender’s name under the heading for the Revolver Facility Commitment on the most-recently amended
Schedule 2.01 to this Agreement (which amount is subject to increase, reduction, or cancellation in
accordance with the Loan Documents).

     Revolver Note means a promissory note of Borrower in substantially the form of Exhibit B-1,
evidencing the obligation of Borrower to repay the Revolving Loans and all renewals and extensions
of all or any part thereof and “Revolver Notes” refers to all such promissory notes.

     Revolver Principal Debt means, on any date of determination, the aggregate unpaid principal
balance of all Revolving Loans under the Revolver Facility.

     Revolving Commitment means as to each Lender, its obligation to make Revolving Loans to the
Borrower pursuant to Section 2.01(a) and to purchase participations in L/C Obligations pursuant to
Section 2.14, in an aggregate principal amount at any one time outstanding not to exceed, when
aggregated with the Revolving Loans made pursuant to Section 2.01(a), its Revolver Facility
Committed Sum, in each case as such amount may be reduced or adjusted from time to time in
accordance with this Agreement (collectively, the “Aggregate Revolving Commitment”).

     Revolving Loan means an extension of credit by a Lender to the Borrower pursuant to Section
2.01(a).

     Rights means rights, remedies, powers, privileges, and benefits.

     S&P means Standard & Poor’s.

     Security Agreements means, collectively, the security agreements, or similar instruments,
executed by any of the Loan Parties in favor of the Administrative Agent for the benefit of the
Lenders, in form and substance satisfactory to the Administrative Agent and all supplements,
assignments, amendments, and restatements thereto (or any agreement in substitution therefor), and
“Security Agreement” means each of such Security Agreements.

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     Senior Leverage Ratio means, for the Borrower and its Subsidiaries on a consolidated basis,
the ratio of (a) Consolidated Senior Debt as of the determination date to (b) Consolidated EBITDA
for the period of the four fiscal quarters ending on such date, or if such date is not the last day
of a fiscal quarter, ending on the last day of the fiscal quarter most recently ended.

     Senior Unsecured Notes means the senior notes due 2014 of the Borrower in an original
principal amount no greater than $165,000,000 issued pursuant to that certain Indenture among the
Borrower, its Subsidiaries party thereto and Wells Fargo Bank, N.A., as trustee, which senior notes
are described in Borrower’s Preliminary Offering Memorandum dated December 28, 2005.

     Subordinated Indebtedness means collectively (i) the AirComp Related Subordinated
Indebtedness, and (ii) any other Indebtedness of Borrower or any of its Subsidiaries subordinated
to the Obligations pursuant to a Subordination Agreement in form and substance satisfactory to the
Administrative Agent.

     Subordination Agreements means collectively (i) the AirComp Related Subordination Agreement,
and (ii) any other subordination agreement with Borrower or any of its Subsidiaries subordinating
any Indebtedness to the Obligations pursuant to a subordination agreement in form and substance
satisfactory to the Administrative Agent and Subordination Agreement refers to any one of the
foregoing.

     Subsidiary of a Person means a corporation, partnership, joint venture, limited liability
company or other business entity of which more than 50% of the Voting Stock at the time
beneficially owned, or the management of which is otherwise controlled, directly, or indirectly
through one or more intermediaries, or both, by such Person. Unless otherwise specified, all
references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or
Subsidiaries of the Borrower.

     Swap Contract means (a) any and all rate swap transactions, basis swaps, credit derivative
transactions, forward rate transactions, commodity swaps, commodity options, forward commodity
contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or
options or forward bond or forward bond price or forward bond index transactions, interest rate
options, forward foreign exchange transactions, cap transactions, floor transactions, collar
transactions, currency swap transactions, cross-currency rate swap transactions, currency options,
spot contracts, or any other similar transactions or any combination of any of the foregoing
(including any options to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (b) any and all transactions of any kind, and
the related confirmations, which are subject to the terms and conditions of, or governed by, any
form of master agreement published by the International Swaps and Derivatives Association, Inc.,
any International Foreign Exchange Master Agreement, or any other master agreement (any such master
agreement, together with any related schedules, a “Master Agreement”), including any such
obligations or liabilities under any Master Agreement.

     Swap Termination Value means, in respect of any one or more Swap Contracts, after taking into
account the effect of any legally enforceable netting agreement relating to such Swap Contracts,
(a) for any date on or after the date such Swap Contracts have been closed out and termination
value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior
to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for
such Swap Contracts, as determined based upon one or more mid-market or other readily available
quotations provided by any recognized dealer in such Swap Contracts (which may include any Lender).

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     Synthetic Lease Obligation means the monetary obligation of a Person under (a) a so-called
synthetic or tax retention lease, or (b) an agreement for the use or possession of property
creating obligations that do not appear on the balance sheet of such Person but which are
depreciated for tax purposes by such Person. The amount of any Synthetic Lease Obligation as of
any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of
such date.

     Taxes has the meaning set forth in Section 3.01.

     Threshold Amount at any time means an amount equal to five (5%) of the Borrower’s consolidated
assets measured as of the close of the then most recent fiscal quarter end.

     Triggering Sale means receipt of any Insurance Payment and any Disposition (including sales of
stock or other equity interests of Subsidiaries) (other than a Disposition permitted by Section
7.07(a), (b) or (c)) by the Borrower or any Subsidiary to any other Person (other than to the
Borrower or to a Wholly-Owned Subsidiary of the Borrower) with respect to which the Net Cash
Proceeds realized by Borrower or any Subsidiary for such Disposition and from any Insurance
Payments, when aggregated with the Net Cash Proceeds from all such other Dispositions by the
Borrower and its Subsidiaries occurring since the First Amendment Closing Date and all Insurance
Payments received by the Borrower and its Subsidiaries since the First Amendment Closing Date,
equals or exceeds the Threshold Amount. The portion of the Net Cash Proceeds in excess of the
Threshold Amount is herein called the “Reduction Amount.”

     Triggering Sale Certificate means with respect to any Triggering Sale, a certificate of a
Responsible Officer of the Borrower delivered pursuant to Section 6.02(c) identifying such
Triggering Sale and specifying the date of receipt by Borrower or any Subsidiary of Net Cash
Proceeds realized from a Disposition or from any Insurance Payment and specifying the amount
thereof and the Reduction Amount, if any.

     Type means, with respect to a Revolving Loan, its character as a Base Rate Loan or a
Eurodollar Rate Loan.

     UCC means the Uniform Commercial Code as in effect in the State of Texas or other applicable
jurisdiction.

     Unfunded Pension Liability means the excess of a Pension Plan’s benefit liabilities under
Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in
accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the
Code for the applicable plan year.

     United States or U.S. means the United States of America, its fifty states and the District of
Columbia.

     Unreimbursed Amount has the meaning set forth in Section 2.14(c)(i).

     Voting Stock means the capital stock (or equivalent thereof) of any class or kind, of a
Person, the holders of which are entitled to vote for the election of directors, managers, or other
voting members of the governing body of such Person.

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     Wholly-Owned when used in connection with a Person means any Subsidiary of such Person of
which all of the issued and outstanding Equity Interests (except shares required as directors’
qualifying shares) are owned by such Person or one or more of its Wholly-Owned Subsidiaries.

1.02 Other Interpretive Provisions.

     (a) The meanings of defined terms are equally applicable to the singular and plural forms of
the defined terms.

     (b) (i) The words “herein” and “hereunder” and words of similar import when used in any Loan
Document shall refer to such Loan Document as a whole and not to any particular provision thereof.

     (ii) Unless otherwise specified herein, Article, Section, Exhibit and Schedule
references are to this Agreement.

     (iii) The term “including” is by way of example and not limitation.

     (iv) The term “documents” includes any and all instruments, documents, agreements,
certificates, notices, reports, financial statements and other writings, however evidenced.

     (c) In the computation of periods of time from a specified date to a later specified date, the
word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;”
and the word “through” means “to and including.”

     (d) Section headings herein and in the other Loan Documents are included for convenience of
reference only and shall not affect the interpretation of this Agreement or any other Loan
Document.

     1.03 Accounting Terms. All accounting terms not specifically or completely defined herein shall be
construed in conformity with, and all financial data required to be submitted pursuant to this
Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect
from time to time, applied in a manner consistent with that used in preparing the audited financial
statements, except as otherwise specifically prescribed herein.

     1.04 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this
Agreement shall be calculated by dividing the appropriate component by the other component,
carrying the result to one place more than the number of places by which such ratio is expressed
herein and rounding the result up or down to the nearest number (with a rounding-up if there is no
nearest number).

     1.05 References to Agreements and Laws. Unless otherwise expressly provided herein, (a) references
to agreements (including the Loan Documents) and other contractual instruments shall be deemed to
include all subsequent amendments, restatements, extensions, supplements and other modifications
thereto, but only to the extent that such amendments, restatements, extensions, supplements and
other modifications are not prohibited by any Loan Document; and (b) references to any Law shall
include all statutory and regulatory provisions consolidating, amending, replacing, supplementing
or interpreting such Law.

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ARTICLE II.

THE REVOLVING COMMITMENT AND BORROWINGS

     2.01 Revolving Loans. Subject to and in reliance upon the terms, conditions, representations, and
warranties in the Loan Documents, each Lender severally, but not jointly, agrees to make revolving
loans (each such loan a “Revolving Loan”) to Borrower from time to time on any Business Day during
the period from the First Amendment Closing Date to the Maturity Date, in an aggregate amount not
to exceed at any time outstanding the amount of such Lender’s Pro Rata Share of one or more
Revolving Loan Borrowings not to exceed, when aggregated with the Outstanding Amount of the L/C
Obligations, such Lender’s Revolving Commitment. Revolving Loan Borrowings may be repaid and
reborrowed from time to time in accordance with the terms and provisions of the Loan Documents;
provided that, each such Revolving Loan Borrowing must occur on a Business Day and no later than
the Business Day immediately preceding the Maturity Date. Revolving Loans may be Base Rate Loans
or Eurodollar Rate Loans, as further provided herein; provided, however, all Revolving Loan
Borrowings made on the First Amendment Closing Date shall be made as Base Rate Loans.

     2.02 Intentionally Omitted.

     2.03 Borrowings, Conversions and Continuations of Revolving Loans.

     (a) Each Borrowing, each conversion of Revolving Loans from one interest rate Type to the
other, and each continuation of Revolving Loans as the same interest rate Type shall be made upon
the Borrower’s irrevocable notice to the Administrative Agent, which may be given by telephone.
Each such notice must be received by the Administrative Agent not later than 11:00 a.m., New York
time, three Business Days prior to the requested date of any Borrowing of, conversion to or
continuation of Eurodollar Rate Loans, and one Business Day prior to the requested date of any
Borrowing of, conversion to or continuation of Base Rate Loans. Each such telephonic notice must
be confirmed promptly by delivery to the Administrative Agent of a written Borrowing Notice,
appropriately completed and signed by an authorized officer of the Borrower. Each Borrowing of,
conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $500,000
or a whole multiple of $500,000 in excess thereof. Each Borrowing of or conversion to Base Rate
Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof.
Each Borrowing Notice (whether telephonic or written) shall specify (i) whether the Borrower is
requesting a Borrowing, a conversion of Revolving Loans from one interest rate Type to the other,
or a continuation of Revolving Loans as the same interest rate Type, (ii) the requested date of the
Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii)
the principal amount of Revolving Loans to be borrowed, converted or continued, (v) the interest
rate Type of Revolving Loans to be borrowed or to which existing Revolving Loans are to be
converted, and (vi) if applicable, the duration of the Interest Period with respect thereto. If
the Borrower fails to specify the interest rate Type for a Revolving Loan in a Borrowing Notice or
if the Borrower fails to give a timely notice requesting a conversion or continuation, then the
applicable Revolving Loans shall be made or continued as, or converted to, Base Rate Loans. Any
such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest
Period then in effect with respect to the applicable Eurodollar Rate Loans. If the Borrower
requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such
Borrowing Notice, but fails to specify an Interest Period, it will be deemed to have specified an
Interest Period of one month.

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     (b) Following receipt of a Borrowing Notice, the Administrative Agent shall promptly notify
each Lender of its Pro Rata Share of the applicable Revolving Loans, and if no timely notice of a
conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each
Lender of the details of any automatic conversion to Base Rate Loans described in the preceding
subsection. In the case of a Borrowing, each Lender shall make the amount of its Revolving Loan
available to the Administrative Agent in immediately available funds at the Administrative Agent’s
Office not later than 11:00 a.m., New York time, on the Business Day specified in the applicable
Borrowing Notice. Upon satisfaction of the applicable conditions set forth in Section 4.01 and
Section 4.03 (and in the case of a Revolving Loan to fund a Permitted Acquisition, Section 4.04),
the Administrative Agent shall make all funds so received available to the Borrower in like funds
as received by the Administrative Agent either by (i) crediting the account of the Borrower on the
books of the Administrative Agent with the amount of such funds or (ii) wire transfer of such
funds, in each case in accordance with instructions provided to the Administrative Agent by the
Borrower; provided, however, that if, on the date of the Borrowing there are L/C Borrowings
outstanding, then the proceeds of such Borrowing shall be applied, first, to the payment in full of
any such L/C Borrowings, and second, to the Borrower as provided above.

     (c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted
only on the last day of the Interest Period for such Eurodollar Rate Loan. During the existence of
a Default or Event of Default, no Revolving Loans may be requested as, converted to or continued as
Eurodollar Rate Loans without the consent of the Required Lenders, and the Required Lenders may
demand that any or all of the then outstanding Eurodollar Rate Loans be converted immediately to
Base Rate Loans.

     (d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the
interest rate applicable to any Eurodollar Rate Loan upon determination of such interest rate. The
determination of the Eurodollar Rate by the Administrative Agent shall be conclusive in the absence
of manifest error.

     (e) After giving effect to all Borrowings, all conversions of Revolving Loans from one
interest rate Type to the other, and all continuations of Revolving Loans as the same interest rate
Type, there shall not be more than six (6) Interest Periods in effect at any given time with
respect to Revolving Loans.

     2.04 Prepayments.

     (a) Optional Prepayments. The Borrower may, upon notice to the Administrative Agent,
at any time or from time to time voluntarily prepay in whole or in part Revolving Loans outstanding
under the Revolver Facility without premium or penalty; provided that (i) such notice must be
received by the Administrative Agent not later than 11:00 a.m., New York time, (A) three Business
Days prior to any date of prepayment of Eurodollar Rate Loans, and (B) one Business Day prior to
any date of prepayment of Base Rate Loans; (ii) any prepayment of Eurodollar Rate Loans shall be in
a principal amount of $500,000 or a whole multiple of $500,000 in excess thereof; and (iii) any
prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of
$100,000 in excess thereof. Each such notice shall specify the date and amount of such prepayment
and the Type(s) of Revolving Loans and the interest rate Type(s) to be prepaid. The Administrative
Agent will promptly notify each Lender of its receipt of each such notice, and of such Lender’s Pro
Rata Share of such prepayment. If such notice is given by the Borrower, the Borrower shall make
such prepayment and the payment amount specified in such notice shall be due and payable on the
date specified therein. Any prepayment of a Eurodollar Rate

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Loan shall be accompanied by all
accrued interest thereon, together with any additional amounts required pursuant to Section 3.05.
Each such prepayment shall be applied to the Revolving Loans of the Lenders in accordance with
their respective Pro Rata Shares.

     Unless a Default or Event of Default has occurred and is continuing or would arise as a result
thereof, any payment or prepayment of the Revolving Loans (including prepayments pursuant to
Section 2.04(b)) may be reborrowed by Borrower, subject to the terms and conditions hereof.

     (b) Mandatory Prepayments from Net Cash Proceeds.

     (i) If any portion of the Reduction Amount from any Triggering Sale (including any
deferred purchase price therefor) has not been Reinvested within one hundred eighty (180)
days from the receipt by Borrower or any Subsidiary of such Reduction Amount (including
receipt of any deferred payments for any such Triggering Sale or portion thereof, if and
when received), then on the Business Day following such one hundred eightieth (180th) day
the Revolving Loans shall be prepaid, in an amount equal to the portion of the Reduction
Amount that is not so Reinvested, as provided in Section 2.04(b)(v). Net Cash Proceeds
from Insurance Payments and Dispositions that equal, when aggregated with Net Cash Proceeds
from all Insurance Payments and Dispositions since the First Amendment Closing Date, an
amount less than the Threshold Amount shall not be required to be used for mandatory
prepayments reductions pursuant to this Section 2.04(b).

     (ii) Upon receipt by Borrower or any Subsidiary of any Reduction Amount, the Borrower
shall deliver a Triggering Sale Certificate to the Administrative Agent and each Lender
pursuant to Section 6.02(c). The Borrower shall apply such Reduction Amount as a
prepayment of the Revolving Loans but shall have the right to reborrow such Reduction
Amount from time to time in accordance with the terms and provisions of this Agreement
until the one hundred eightieth (180th) day following the receipt of such
Reduction Amount. If such Reduction Amount has been Reinvested within such one hundred
eighty (180) day period as reflected on the Reinvestment Certificate delivered to the
Administrative Agent pursuant to Section 6.02(d), then there shall be no prepayment of the
Revolving Loans. However, if the Reduction Amount has not been Reinvested within one
hundred eighty (180) days following its receipt by Borrower or any Subsidiary, on the
Business Day following such one hundred eightieth (180th) day, the Borrower
shall (i) prepay the Revolving Loans or Cash Collateralize the L/C Obligations if required
by Section 2.04(c) and (ii) deliver to the Administrative Agent a certificate from a
Responsible Officer of the Borrower demonstrating pro forma compliance with the Fixed Asset
Coverage Ratio covenant set forth in Section 7.19(d) after giving effect to all Triggering
Sales.

     (iii) Debt Issuances. Immediately upon receipt by the Borrower or any
Subsidiary of the Net Cash Proceeds of any Debt Issuance, the Borrower shall prepay the
Revolving Loans and/or Cash Collateralize the L/C Obligations as hereafter provided in an
aggregate amount equal to 100% of such Net Cash Proceeds (such prepayment to be applied as
set forth in clause (v) below).

     (iv) Equity Issuances. Immediately upon the receipt by the Borrower of the
Net Cash Proceeds of any Equity Issuance, the proceeds of which are not used to finance a
Permitted Acquisition, the Borrower shall prepay the Revolving Loans and/or Cash
Collateralize the L/C Obligations in an aggregate amount equal to 100% of such Net Cash
Proceeds (such prepayment to be applied as set forth in clause (v) below). Net Cash
Proceeds of any Equity Issuance, the proceeds

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of which are used to finance a Permitted
Acquisition, shall not be required to be used to prepay the Revolving Loans and/or Cash
Collateralize the L/C Obligations. Whether Net Cash Proceeds of any Equity Issuance are
used for a Permitted Acquisition or another type of acquisition, if such acquisition would
be subject to Section 6.15, the Borrower shall comply with the requirements of Section
6.15.

     (v) Application of Mandatory Prepayments. All amounts required to be paid
pursuant to this Section 2.04(b)(i), (iii) and (iv) shall be applied as follows:

     First, to the payment of any L/C Borrowing;

     Second, to the payment of any unpaid fees or expenses of the Administrative
Agent;

     Third, to the Revolving Loan (without a corresponding reduction in the
Aggregate Revolving Commitment); and

     Fourth, after all Revolving Loans have been repaid, to Cash Collateralize L/C
Obligations.

     Within the parameters of the applications set forth above, prepayments shall be applied first
to Base Rate Loans and then to Eurodollar Rate Loans in direct order of Interest Period maturities.

     (c) Prepayments by Reason of Aggregate Revolving Commitment Exceeded. If on any
date the Outstanding Amount of all Revolving Loans and L/C Obligations shall exceed the Aggregate
Revolving Commitment, then the Borrower shall immediately make mandatory prepayments of Revolving
Loans equal to such excess, and if any such excess remains after such prepayments, to the extent of
such excess the Borrower shall immediately Cash Collateralize the L/C Obligations.

     (d) Prepayments: Interest/Funding Loss. All prepayments under this Section 2.04
shall be subject to Section 3.05, but otherwise without premium or penalty, and shall be
accompanied by interest on the principal amount prepaid through the date of prepayment.

     2.05 Reduction or Termination of Commitments. The Borrower may, upon notice to the Administrative
Agent terminate the Revolving Commitment prior to the Maturity Date to an amount not less than the
sum of the Outstanding Amount of the then existing (a) Revolver Principal Debt and (b) L/C
Obligations; provided that (i) any such notice shall be received by the Administrative Agent not
later than 11:00 a.m., five Business Days prior to the date of termination or reduction, and (ii)
any such partial reduction shall be in an aggregate amount of $1,000,000 or any whole multiple of
$500,000 in excess thereof. The Administrative Agent shall promptly notify the Lenders of any
such notice of reduction or termination. Once reduced in accordance with this Section, the
Revolving Commitment may not be increased. Any reduction of the Revolving Commitment shall be
applied to the corresponding Revolving Commitment of each Lender according to its Pro Rata Share.
All commitment fees on the portion of the Revolving Commitment so terminated which have accrued to
the effective date of any termination of the Revolving Commitment shall be paid on the effective
date of such termination.

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     2.06 Repayment of Revolving Loans. The Borrower shall repay to the Lenders on the Maturity Date
the aggregate Revolver Principal Debt outstanding on such date.

     2.07 Interest.

     (a) Subject to the provisions of subsection (b) below, (i) each Eurodollar Rate Loan shall
bear interest on the outstanding principal amount thereof for each Interest Period at a rate per
annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate and (ii) each
Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable
borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate.

     (b) While any Event of Default exists or after acceleration (i) the Borrower shall pay
interest on the principal amount of all outstanding Obligations at a fluctuating interest rate per
annum at all times equal to the Default Rate to the fullest extent permitted by applicable Law, and
(ii) accrued and unpaid interest on past due amounts (including interest on past due interest)
shall be due and payable upon demand.

     (c) Interest on each Revolving Loan shall be due and payable in arrears on each Interest
Payment Date applicable thereto and at such other times as may be specified herein. Interest
hereunder shall be due and payable in accordance with the terms hereof before and after judgment,
and before and after the commencement of any proceeding under any Debtor Relief Law.

     (d) If the designated rate applicable to any Borrowing exceeds the Maximum Rate, the rate of
interest on such Borrowing shall be limited to the Maximum Rate, but any subsequent reductions in
such designated rate shall not reduce the rate of interest thereon below the Maximum Rate until the
total amount of interest accrued thereon equals the amount of interest which would have accrued
thereon if such designated rate had at all times been in effect. In the event that at maturity
(stated or by acceleration), or at final payment of the Outstanding Amount of any Revolving Loans
or L/C Obligations, the total amount of interest paid or accrued is less than the amount of
interest which would have accrued if such designated rates had at all times been in effect, then,
at such time and to the extent permitted by Law, the Borrower shall pay an amount equal to the
difference between (a) the lesser of the amount of interest which would have accrued if such
designated rates had at all times been in effect and the amount of interest which would have
accrued if the Maximum Rate had at all times been in effect, and (b) the amount of interest
actually paid or accrued on such Outstanding Amount.

     2.08 Fees.

     (a) Commitment Fees. The Borrower shall pay to the Administrative Agent for the
account of each Lender in accordance with its Pro Rata Share (based on its Revolving Commitment as
a percentage of the Aggregate Revolving Commitment) a Revolver Facility commitment fee equal to one
half percent (0.5%) per annum times the actual daily amount by which the Aggregate Revolving
Commitment (subject to reduction pursuant to Section 2.05) exceeds the sum of (i) the Outstanding
Amount of Revolving Loans plus (ii) the Outstanding Amount of L/C Obligations. The Revolver
Facility commitment fee shall accrue at all times from the First Amendment Closing Date until the
Maturity Date, shall be calculated quarterly in arrears and shall be due and payable quarterly in
arrears on the last Business Day of each March, June, September and December, commencing with the
first such date to occur after the First Amendment Closing Date, and on the Maturity Date. The
Revolver Facility

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commitment fee shall accrue at all times, including at any time during which one
or more of the conditions in Article IV is not met; and

     (b) Arranger’s and Administrative Agent’s Fees. On the First Amendment Closing Date,
the Borrower shall pay certain fees to the Arranger and Administrative Agent to be shared between
them and the Borrower shall pay certain fees to the Administrative Agent for the Administrative
Agent’s own account as an administrative agency fee, in the amounts and at the times specified in
the letter agreement dated December 2, 2005 (the “Agent/Arranger Fee Letter”), between the
Borrower, the Arranger and the Administrative Agent. Such fees shall be fully earned when paid and
shall be nonrefundable for any reason whatsoever. Additionally, Borrower shall pay to the
Administrative Agent for the Administrative Agent’s own account the fees in the amounts and on the
dates specified in the Agent/Arranger Fee Letter.

     2.09 Computation of Interest and Fees. Computation of interest on Base Rate Loans shall be
calculated on the basis of a year of 365 or 366 days, as the case may be, and the actual number of
days elapsed. Computation of all other types of interest and all fees shall be calculated on the
basis of a year of 360 days and the actual number of days elapsed. Interest shall accrue on each
Revolving Loan for the day on which the Revolving Loan is made, and shall not accrue on a Revolving
Loan, or any portion thereof, for the day on which the Revolving Loan or such portion is paid;
provided that any Revolving Loan that is repaid on the same day on which it is made shall bear
interest for one day.

     2.10 Evidence of Debt.

     (a) The Revolving Loans made by each Lender shall be evidenced by one or more accounts or
records maintained by such Lender and by the Administrative Agent in the ordinary course of
business. The accounts or records maintained by the Administrative Agent and each Lender shall be
conclusive, absent manifest error, of the amount of the Revolving Loans made by the Lenders to the
Borrower and the interest and payments thereon. Any failure so to record or any error in doing so
shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any
amount owing with respect to the Revolving Loans or the L/C Obligations. In the event of any
conflict between the accounts and records maintained by any Lender and the accounts and records of
the Administrative Agent in respect of such matters, the accounts and records of such Lender shall
control. Upon the request of any Lender made through the Administrative Agent, such Lender’s
Revolving Loans may be evidenced by one or more Revolver Notes. Each Lender may attach schedules
to its Revolver Note(s) and endorse thereon the date, Type (if applicable), amount and maturity of
the applicable Revolving Loans and payments with respect thereto.

     (b) In addition to the accounts and records referred to in subsection (a), each Lender and the
Administrative Agent shall maintain in accordance with its usual practice accounts or records
evidencing the purchases and sales by such Lender of participations in Letters of Credit. In the
event of any conflict between the accounts and records maintained by the Administrative Agent and
the accounts and records of any Lender in respect of such matters, the accounts and records of the
Administrative Agent shall control.

     2.11 Payments Generally.

     (a) All payments to be made by the Borrower shall be made without condition or deduction for
any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein,
all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account
of the

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respective Lenders to which such payment is owed, at the Administrative Agent’s Office in
Dollars and in immediately available funds not later than 11:00 a.m., New York time, on the date
specified herein. The Administrative Agent will promptly distribute to each Lender its Pro Rata
Share (or other applicable share as provided herein) of such payment in like funds as received by
wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent
after 11:00 a.m., New York time, shall be deemed received on the next succeeding Business Day and
any applicable interest or fee shall continue to accrue.

     (b) Subject to the definition of “Interest Period,” if any payment to be made by the Borrower
shall come due on a day other than a Business Day, payment shall be made on the next following
Business Day, and such extension of time shall be reflected in computing interest or fees, as the
case may be.

     (c) If no Default or Event of Default exists and if no order of application is otherwise
specified in the Loan Documents, payments and prepayments of the Obligations shall be applied first
to fees, second to accrued interest then due and payable on the Outstanding Amount of Revolving
Loans and L/C Obligations, and then to the remaining Obligations in the order and manner as
Borrower may direct.

     (d) If at any time insufficient funds are received by and available to the Administrative
Agent to pay fully the Obligations, or if a Default or Event of Default exists (and Section 8.03 is
not by its terms applicable), any payment or prepayment shall be applied in the following order:
(i) to the payment of enforcement expenses incurred by the Administrative Agent, including Attorney
Costs; (ii) to the ratable payment of all other fees, expenses, and indemnities for which the
Administrative Agent or Lenders have not been paid or reimbursed in accordance with the Loan
Documents (as used in this Section 2.11(d)(ii), a “ratable payment” for any Lender or the
Administrative Agent shall be, on any date of determination, that proportion which the portion of
the total fees, expenses, and indemnities owed to such Lender or the Administrative Agent bears to
the total aggregate fees and indemnities owed to all Lenders and the Administrative Agent on such
date of determination); (iii) to the ratable payment of accrued and unpaid interest on the
Outstanding Amount of Revolving Loans, Outstanding L/C Obligations and the Outstanding Amount of
Obligations under Lender Hedging Agreements; and (iv) to the payment of the remaining Obligations,
if any, in the order and manner the Required Lenders deem appropriate.

     (e) Unless the Borrower or any Lender has notified the Administrative Agent prior to the date
any payment is required to be made by it to the Administrative Agent hereunder, that the Borrower
or such Lender, as the case may be, will not make such payment, the Administrative Agent may assume
that the Borrower or such Lender, as the case may be, has timely made such payment and may (but
shall not be so required to), in reliance thereon, make available a corresponding amount to the
Person entitled thereto. If and to the extent that such payment was not in fact made to the
Administrative Agent in immediately available funds, then:

     (i) if the Borrower failed to make such payment, each Lender shall forthwith on demand
repay to the Administrative Agent the portion of such assumed payment that was made
available to such Lender in immediately available funds, together with interest thereon in
respect of each day from and including the date such amount was made available by the
Administrative Agent to such Lender to the date such amount is repaid to the Administrative
Agent in immediately available funds, at the Federal Funds Rate from time to time in
effect; and

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     (ii) if any Lender failed to make such payment, such Lender shall forthwith on demand
pay to the Administrative Agent the amount thereof in immediately available funds, together
with interest thereon for the period from the date such amount was made available by the
Administrative Agent to the Borrower to the date such amount is recovered by the
Administrative Agent (the “Compensation Period”) at a rate per annum equal to the Federal
Funds Rate from time to time in effect. If such Lender pays such amount to the
Administrative Agent, then such amount shall constitute such Lender’s Revolving Loan,
included in the applicable Borrowing. If such Lender does not pay such amount forthwith
upon the Administrative Agent’s demand therefor, the Administrative Agent may make a demand
therefor upon the Borrower, and the Borrower shall pay such amount to the Administrative
Agent, together with interest thereon for the Compensation Period at a rate per annum equal
to the rate of interest applicable to the applicable Borrowing. Nothing herein shall be
deemed to relieve any Lender from its obligation to fulfill its Revolving Commitment or to
prejudice any rights which the Administrative Agent or the Borrower may have against any
Lender as a result of any default by such Lender hereunder.

     A notice of the Administrative Agent to any Lender with respect to any amount owing under this
subsection (e) shall be conclusive, absent manifest error.

     (f) If any Lender makes available to the Administrative Agent funds for any Revolving Loan to
be made by such Lender as provided in the foregoing provisions of this Article II, and the
conditions to the applicable Borrowing set forth in Article IV are not satisfied or waived in
accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds
as received from such Lender) to such Lender, without interest.

     (g) The obligations of the Lenders hereunder to make Revolving Loans are several and not
joint. The failure of any Lender to make any Revolving Loan on any date required hereunder shall
not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender
shall be responsible for the failure of any other Lender to so make its Revolving Loan or purchase
its participation.

     (h) Nothing herein shall be deemed to obligate any Lender to obtain the funds for any
Revolving Loan in any particular place or manner or to constitute a representation by any Lender
that it has obtained or will obtain the funds for any Revolving Loan in any particular place or
manner.

     2.12 Sharing of Payments. If, other than as expressly provided elsewhere herein, any Lender shall
obtain on account of the Revolving Loans made by it, or the participations in the L/C Obligations,
any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) in excess of its ratable share (or other share contemplated hereunder) thereof, such
Lender shall immediately (a) notify the Administrative Agent, of such fact, and (b) purchase from
the other Lenders such participations in the Revolving Loans made by them, and/or such
subparticipations in the participations in L/C Obligations held by them, as shall be necessary to
cause such purchasing Lender to share the excess payment in respect of such Revolving Loan or such
participations, as the case may be, pro rata with each of them; provided, however, that if all or
any portion of such excess payment is thereafter recovered from the purchasing Lender, such
purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing
Lender the purchase price paid therefor, together with an amount equal to such paying Lender’s
ratable share (according to the proportion of (i) the amount of such paying Lender’s required
repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or
other amount paid or payable by the purchasing Lender in respect of the total amount so recovered.
The

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Borrower agrees that any Lender so purchasing a participation from another Lender may, to the
fullest extent permitted by Law, exercise all its rights of payment (including the right of
set-off, but subject to Section 10.09) with respect to such participation as fully as if such
Lender were the direct creditor of the Borrower in the amount of such participation. The
Administrative Agent will keep records (which shall be conclusive and binding in the absence of
manifest error) of participations purchased under this Section and will in each case notify the
Lenders following any such purchases or repayments. Each Lender that purchases a participation
pursuant to this Section shall from and after such purchase have the right to give all notices,
requests, demands, directions and other communications under this Agreement with respect to the
portion of the Obligations purchased to the same extent as though the purchasing Lender were the
original owner of the Obligations purchased.

     2.13 Priority of Hedging Obligations. Any amounts received in satisfaction of any Obligations
arising under the Loan Documents, including, without limitation, Obligations under this Agreement
and Obligations under any Lender Hedging Agreement shall rank pari passu in right of payment and
shall be used to repay such Obligations on a pro rata basis, unless specified otherwise in Section
2.11(d).

     2.14 Letters of Credit.

     (a) The Letter of Credit Commitment.

     (i) Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees,
in reliance upon the agreements of the other Lenders set forth in this Section 2.14, (1)
from time to time on any Business Day during the period from the First Amendment Closing
Date until the Letter of Credit Expiration Date, to issue Letters of Credit for the account
of the Borrower or any of its Subsidiaries, and to amend or renew Letters of Credit
previously issued by it, in accordance with subsection (b) below, and (2) to honor drafts
under the Letters of Credit; and (B) the Lenders severally agree to participate in Letters
of Credit issued for the account of the Borrower and its Subsidiaries; provided that the
L/C Issuer shall not be obligated to make any L/C Credit Extension with respect to any
Letter of Credit, and no Lender shall be obligated to participate in any Letter of Credit,
if as of the date of such L/C Credit Extension, (w) the Outstanding Amount of all L/C
Obligations and all Revolving Loans would exceed the Aggregate Revolving Commitment, (y)
the aggregate Outstanding Amount of the Revolving Loans of any Lender, plus such Lender’s
Pro Rata Share of the Outstanding Amount of all L/C Obligations would exceed such Lender’s
Revolving Commitment, or (z) the Outstanding Amount of the L/C Obligations would exceed the
Letter of Credit Sublimit. Within the foregoing limits, and subject to the terms and
conditions hereof, the Borrower’s ability to obtain Letters of Credit shall be fully
revolving, and accordingly the Borrower may, during the foregoing period, obtain Letters of
Credit to replace Letters of Credit that have expired or that have been drawn upon and
reimbursed.

     (ii) The L/C Issuer shall be under no obligation to issue any Letter of Credit if:

     (A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms
purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law
applicable to the L/C Issuer or any request or directive (whether or not having the force of law)
from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request
that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of
Credit in particular or shall

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impose upon the L/C Issuer with respect to such Letter of Credit any
restriction, reserve or capital requirement (for which the L/C Issuer is not
otherwise compensated hereunder) not in effect on the First Amendment Closing Date,
or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was
not applicable on the First Amendment Closing Date and which the L/C Issuer in good
faith deems material to it;

     (B) subject to Section 2.14(b)(iii), the expiry date of such requested Letter
of Credit would occur more than twelve months after the date of issuance or last
renewal, unless the Required Lenders have approved such expiry date;

     (C) the expiry date of such requested Letter of Credit would occur after the
Letter of Credit Expiration Date, unless all the Lenders have approved such expiry
date;

     (D) the issuance of such Letter of Credit would violate one or more policies of
the L/C Issuer generally applicable to all borrowers; or

     (E) such Letter of Credit is in a face amount less than $100,000, or is to be
used for a purpose other than as described in Section 6.12 or is denominated in a
currency other than Dollars.

      (iii) The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A)
the L/C Issuer would have no obligation at such time to issue such Letter of Credit in its
amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does
not accept the proposed amendment to such Letter of Credit.

     (b) Procedures for Issuance and Amendment of Letters of Credit; Evergreen Letters of Credit.

      (i) Each Letter of Credit shall be issued or amended, as the case may be, upon the
request of the Borrower delivered to the L/C Issuer (with a copy to the Administrative
Agent) in the form of a Letter of Credit Application, appropriately completed and signed by
a Responsible Officer of the Borrower. Such Letter of Credit Application must be received
by the L/C Issuer and the Administrative Agent not later than 11:00 a.m., New York time, at
least two Business Days (or such later date and time as the L/C Issuer may agree in a
particular instance in its sole discretion) prior to the proposed issuance date or date of
amendment, as the case may be. In the case of a request for an initial issuance of a Letter
of Credit, such Letter of Credit Application shall specify in form and detail satisfactory
to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which
shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name
and address of the beneficiary thereof; (E) the documents to be presented by such
beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be
presented by such beneficiary in case of any drawing thereunder; and (G) such other matters
as the L/C Issuer may require. In the case of a request for an amendment of any outstanding
Letter of Credit, such Letter of Credit Application shall specify in form and detail
satisfactory to the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date
of amendment thereof (which shall be a Business Day); (C) the nature of the proposed
amendment; and (D) such other matters as the L/C Issuer may require.

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      (ii) Promptly after receipt of any Letter of Credit Application, the L/C Issuer will
confirm with the Administrative Agent (by telephone or in writing) that the Administrative
Agent has received a copy of such Letter of Credit Application from the Borrower and, if
not, the L/C Issuer will provide the Administrative Agent with a copy thereof. Upon receipt
by the L/C Issuer of confirmation from the Administrative Agent that the requested issuance
or amendment is permitted in accordance with the terms hereof, then, subject to the terms
and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit
for the account of the Borrower or enter into the applicable amendment, as the case may be,
in each case in accordance with the L/C Issuer’s usual and customary business practices.
Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and
hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer a
participation in such Letter of Credit in an amount equal to the product of such Lender’s
Pro Rata Share times the amount of such Letter of Credit.

      (iii) If the Borrower so requests in any applicable Letter of Credit Application, the
L/C Issuer may, in it sole and absolute discretion, agree to issue a Letter of Credit that
has automatic renewal provisions (each, an “Evergreen Letter of Credit”); provided that any
such Evergreen Letter of Credit must permit the L/C Issuer to prevent any such renewal at
least once in each twelve-month period (commencing with the date of issuance of such Letter
of Credit) by giving prior notice to the beneficiary thereof not later than a day (the
“Nonrenewal Notice Date”) in each such twelve-month period to be agreed upon at the time
such Letter of Credit is issued. Unless otherwise directed by the L/C Issuer, the Borrower
shall not be required to make a specific request to the L/C Issuer for any such renewal.
Once an Evergreen Letter of Credit has been issued, the Lenders shall be deemed to have
authorized (but may not require) the L/C Issuer to permit the renewal of such Letter of
Credit at any time to a date not later than the Letter of Credit Expiration Date; provided,
however, that the L/C Issuer shall not permit any such renewal if it has received notice at
least five Business Days immediately preceding the Nonrenewal Notice Date (1) from the
Administrative Agent that the Required Lenders have elected not to permit such renewal or
(2) from any Lender stating that one or more of the applicable conditions specified in
Section 4.03 is not then satisfied and directing the L/C Issuer not to permit such renewal.
Notwithstanding anything to the contrary contained herein, the L/C Issuer shall have no
obligation to permit the renewal of any Evergreen Letter of Credit at any time.

      (iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter
of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C
Issuer will also deliver to the Borrower and the Administrative Agent a true and complete
copy of such Letter of Credit or amendment.

     (c) Drawings and Reimbursements; Funding of Participations.

      (i) Upon any drawing under any Letter of Credit, the L/C Issuer shall notify the
Borrower and the Administrative Agent thereof. Not later than 11:00 a.m., New York time,
on the date of any payment by the L/C Issuer under a Letter of Credit (each such date, an
“Honor Date”), the Borrower shall reimburse the L/C Issuer through the Administrative Agent
in an amount equal to the amount of such drawing. If the Borrower fails to so reimburse the
L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the
Honor Date, the amount of the unreimbursed drawing (the “Unreimbursed Amount”), and such
Lender’s Pro Rata Share thereof. In such event, the Borrower shall be deemed to have
requested a Borrowing under

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the Revolver Facility of Base Rate Loans to be disbursed on the Honor Date in an amount
equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in
Section 2.03 for the principal amount of Base Rate Loans, but subject to the amount of the
unutilized portion of the Aggregate Revolving Commitment and the conditions set forth in
Section 4.03 (other than the delivery of a Borrowing Notice). Any notice given by the L/C
Issuer or the Administrative Agent pursuant to this Section 2.14(c)(i) may be given by
telephone if immediately confirmed in writing; provided that the lack of such an immediate
confirmation shall not affect the conclusiveness or binding effect of such notice.

      (ii) Each Lender (including the Lender acting as L/C Issuer) shall upon any notice
pursuant to Section 2.14(c)(i) make funds available to the Administrative Agent for the
account of the L/C Issuer at the Administrative Agent’s Office in an amount equal to its Pro
Rata Share of the Unreimbursed Amount not later than 11:00 a.m., New York time, on the
Business Day specified in such notice by the Administrative Agent, whereupon, subject to the
provisions of Section 2.14(c)(iii), each Lender that so makes funds available shall be
deemed to have made a Base Rate Revolving Loan to the Borrower in such amount. The
Administrative Agent shall remit the funds so received to the L/C Issuer.

      (iii) With respect to any Unreimbursed Amount that is not fully refinanced by a
Borrowing of Base Rate Revolving Loans because the conditions set forth in Section 4.03
cannot be satisfied or for any other reason, the Borrower shall be deemed to have incurred
from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so
refinanced, which L/C Borrowing shall be due and payable on demand (together with interest)
and shall bear interest at the Default Rate. In such event, each Lender’s payment to the
Administrative Agent for the account of the L/C Issuer pursuant to Section 2.14(c) (ii)
shall be deemed payment in respect of its participation in such L/C Borrowing and shall
constitute an L/C Advance from such Lender in satisfaction of its participation obligation
under this Section 2.14.

      (iv) Until each Lender funds its Revolving Loan or L/C Advance pursuant to this Section
2.14(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit,
interest in respect of such Lender’s Pro Rata Share of such amount shall be solely for the
account of the L/C Issuer.

      (v) Each Lender’s obligation to make Revolving Loans or L/C Advances to reimburse the
L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section
2.14(c), shall be absolute and unconditional and shall not be affected by any circumstance,
including (A) any set-off, counterclaim, recoupment, defense or other right which such
Lender may have against the L/C Issuer, the Borrower or any other Person for any reason
whatsoever, (B) the occurrence or continuance of a Default or Event of Default, or (C) any
other occurrence, event or condition, whether or not similar to any of the foregoing. Any
such reimbursement shall not relieve or otherwise impair the obligation of the Borrower to
reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any
Letter of Credit, together with interest as provided herein.

      (vi) If any Lender fails to make available to the Administrative Agent for the account
of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing
provisions of this Section 2.14(c) by the time specified in Section 2.14(c)(ii), the L/C
Issuer shall be entitled to recover from such Lender (acting through the Administrative
Agent), on demand,

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such amount with interest thereon for the period from the date such payment is required
to the date on which such payment is immediately available to the L/C Issuer at a rate per
annum equal to the Federal Funds Rate from time to time in effect. A certificate of the L/C
Issuer submitted to any Lender (through the Administrative Agent) with respect to any
amounts owing under this clause (vi) shall be conclusive absent manifest error.

     (d) Repayment of Participations.

      (i) At any time after the L/C Issuer has made a payment under any Letter of Credit and
has received from any Lender such Lender’s L/C Advance in respect of such payment in
accordance with Section 2.14(c), if the Administrative Agent receives for the account of the
L/C Issuer any payment related to such Letter of Credit (whether directly from the Borrower
or otherwise, including proceeds of cash Collateral applied thereto by the Administrative
Agent), or any payment of interest thereon, the Administrative Agent will distribute to such
Lender its Pro Rata Share thereof in the same funds as those received by the Administrative
Agent.

      (ii) If any payment received by the Administrative Agent for the account of the L/C
Issuer pursuant to Section 2.14(c)(i) is required to be returned, each Lender shall pay to
the Administrative Agent for the account of the L/C Issuer its Pro Rata Share thereof on
demand of the Administrative Agent, plus interest thereon from the date of such demand to
the date such amount is returned by such Lender, at a rate per annum equal to the Federal
Funds Rate from time to time in effect.

     (e) Obligations Absolute. The obligation of the Borrower to reimburse the L/C Issuer
for each drawing under each Letter of Credit, and to repay each L/C Borrowing and each drawing
under a Letter of Credit that is refinanced by a Borrowing of Revolving Loans, shall be absolute,
unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including the following:

      (i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or
any other agreement or instrument relating thereto;

      (ii) the existence of any claim, counterclaim, set-off, defense or other right that the
Borrower may have at any time against any beneficiary or any transferee of such Letter of
Credit (or any Person for whom any such beneficiary or any such transferee may be acting),
the L/C Issuer or any other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by such Letter of Credit or any agreement or instrument
relating thereto, or any unrelated transaction;

      (iii) any draft, demand, certificate or other document presented under such Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; or any loss or delay in the
transmission or otherwise of any document required in order to make a drawing under such
Letter of Credit;

      (iv) any payment by the L/C Issuer under such Letter of Credit against presentation of
a draft or certificate that does not strictly comply with the terms of such Letter of
Credit; or any payment made by the L/C Issuer under such Letter of Credit to any Person
purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of
creditors, liquidator,

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receiver or other representative of or successor to any beneficiary or any transferee
of such Letter of Credit, including any arising in connection with any proceeding under any
Debtor Relief Law; or

      (v) any other circumstance or happening whatsoever, whether or not similar to any of
the foregoing, that might otherwise constitute a defense available to, or a discharge of,
the Borrower.

     The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto
that is delivered to it and, in the event of any claim of noncompliance with the Borrower’s
instructions or other irregularity, the Borrower will immediately notify the L/C Issuer. The
Borrower shall be conclusively deemed to have waived any such claim against the L/C Issuer and its
correspondents unless such notice is given as aforesaid.

     The Borrower shall also promptly examine any documents sent to the L/C Issuer in connection
with a drawing under a Letter of Credit after the L/C Issuer provides copies of such documents to
the Borrower and the Borrower shall immediately notify the L/C Issuer of any objection or claim of
noncompliance of such documents with the requirements of the Letter of Credit.

     (f) Role of L/C Issuer. Each Lender and the Borrower agree that, in paying any
drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any
document (other than any sight draft, certificates and documents expressly required by the Letter
of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the
authority of the Person executing or delivering any such document. No Agent-Related Person nor any
of the respective correspondents, participants or assignees of the L/C Issuer shall be liable to
any Lender for (i) any action taken or omitted in connection herewith at the request or with the
approval of the Lenders or the Required Lenders, as applicable, (ii) any action taken or omitted in
the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness,
validity or enforceability of any document or instrument related to any Letter of Credit or Letter
of Credit Application. The Borrower hereby assumes all risks of the acts or omissions of any
beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that
this assumption is not intended to, and shall not, preclude the Borrower’s pursuing such rights and
remedies as it may have against the beneficiary or transferee at law or under any other agreement.
No Agent-Related Person, nor any of the respective correspondents, participants or assignees of the
L/C Issuer, shall be liable or responsible for any of the matters described in clauses (i) through
(v) of Section 2.14(e); provided, however, that anything in such clauses to the contrary
notwithstanding, the Borrower may have a claim against the L/C Issuer, and the L/C Issuer may be
liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to
consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused
by the L/C Issuer’s willful misconduct or gross negligence or the L/C Issuer’s willful failure to
pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and
certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In
furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that appear
on their face to be in order, without responsibility for further investigation, regardless of any
notice or information to the contrary, and the L/C Issuer shall not be responsible for the validity
or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a
Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason.

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     (g) Cash Collateral. Upon the request of the Administrative Agent, (i) if the L/C
Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing
has resulted in an L/C Borrowing, or (ii) if, as of the Letter of Credit Expiration Date, any
Letter of Credit may for any reason remain outstanding and partially or wholly undrawn, the
Borrower shall immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations
(in an amount equal to such Outstanding Amount). The Borrower hereby grants the Administrative
Agent, for the benefit of the L/C Issuer and the Lenders, a Lien on all such cash and deposit
accounts at any Lender.

     (h) Applicability of ISP98. Unless otherwise expressly agreed by the L/C Issuer and
the Borrower when a Letter of Credit is issued, the rules of the “International Standby Practices
1998” published by the Institute of International Banking Law & Practice (or such later version
thereof as may be in effect at the time of issuance) shall apply to each Letter of Credit.

     (i) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent for the
account of each Lender in accordance with its Pro Rata Share a letter of credit fee for each Letter
of Credit issued equal to the Applicable Rate times the actual daily undrawn amount under each
Letter of Credit. Such fee for each Letter of Credit shall be due and payable on the last Business
Day of each March, June, September and December, commencing with the first such date to occur after
the issuance of such Letter of Credit, and on the Letter of Credit Expiration Date.

     (j) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer. The
Borrower shall pay directly to the L/C Issuer for its own account a fronting fee in an amount with
respect to each Letter of Credit issued equal to the greater of (i) $500 and (ii) 1/4 of 1%
calculated on the face amount thereof. In addition, the Borrower shall pay directly to the L/C
Issuer for its own account the customary issuance, presentation, amendment and other processing
fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from
time to time in effect. Such fees and charges are due and payable on demand and are nonrefundable.

     (k) Conflict with Letter of Credit Application. In the event of any conflict between
the terms hereof and the terms of any Letter of Credit Application, the terms hereof shall control.

ARTICLE III.

TAXES, YIELD PROTECTION AND ILLEGALITY

     3.01 Taxes.

     (a) Any and all payments by the Borrower to or for the account of the Administrative Agent or
any Lender under any Loan Document shall be made free and clear of and without deduction for any
and all present or future taxes, duties, levies, imposts, deductions, assessments, fees,
withholdings or similar charges, and all liabilities with respect thereto; excluding, in the case
of the Administrative Agent and each Lender, taxes imposed on or measured by its net income, and
franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political
subdivision thereof) under the Laws of which the Administrative Agent or such Lender, as the case
may be, is organized or maintains its Lending Office (all such non-excluded taxes, duties, levies,
imposts, deductions, assessments, fees, withholdings or similar charges, and liabilities being
hereinafter referred to as “Taxes”). If the Borrower shall be required by any Laws to deduct any
Taxes from or in respect of any sum payable under any Loan Document to the Administrative Agent or
any Lender, (i) the sum payable shall be increased as necessary

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so that after making all required deductions (including deductions applicable to additional
sums payable under this Section), each of the Administrative Agent and such Lender receives an
amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable Laws, and (iv) within 30 days
after the date of such payment, the Borrower shall furnish to the Administrative Agent (which shall
forward the same to such Lender) the original or a certified copy of a receipt evidencing payment
thereof.

     (b) In addition, the Borrower agrees to pay any and all present or future stamp, court or
documentary taxes and any other excise or property taxes or charges or similar levies which arise
from any payment made under any Loan Document or from the execution, delivery, performance,
enforcement or registration of, or otherwise with respect to, any Loan Document (hereinafter
referred to as “Other Taxes”).

     (c) If the Borrower shall be required to deduct or pay any Taxes or Other Taxes from or in
respect of any sum payable under any Loan Document to the Administrative Agent or any Lender, the
Borrower shall also pay to the Administrative Agent (for the account of such Lender) or to such
Lender, at the time interest is paid, such additional amount that such Lender specifies as
necessary to preserve the after-tax yield (after factoring in all taxes, including taxes imposed on
or measured by net income) such Lender would have received if such Taxes or Other Taxes had not
been imposed.

     (d) The Borrower agrees to indemnify the Administrative Agent and each Lender for (i) the full
amount of Taxes and Other Taxes (including any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section) paid by the Administrative Agent and such
Lender, (ii) amounts payable under Section 3.01(c) and (iii) any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto. Payment under this subsection
(d) shall be made within 30 days after the date the Lender or the Administrative Agent makes a
demand therefor.

     3.02 Illegality. If any Lender determines that any Law has made it unlawful, or that any
Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending
Office to make, maintain or fund Eurodollar Rate Loans, or materially restricts the authority of
such Lender to purchase or sell, or to take deposits of, Dollars in the applicable offshore Dollar
market, or to determine or charge interest rates based upon the Eurodollar Rate, then, on notice
thereof by such Lender to the Borrower through the Administrative Agent, any obligation of such
Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate
Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower that
the circumstances giving rise to such determination no longer exist. Upon receipt of such notice,
the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay
or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on
the last day of the Interest Period thereof, if such Lender may lawfully continue to maintain such
Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to
maintain such Eurodollar Rate Loans. Upon any such prepayment or conversion, the Borrower shall
also pay interest on the amount so prepaid or converted. Each Lender agrees to designate a
different Lending Office if such designation will avoid the need for such notice and will not, in
the reasonable judgment of such Lender, otherwise be materially disadvantageous to such Lender.

     3.03 Inability to Determine Rates. If the Administrative Agent determines in connection with any
request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) Dollar

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deposits are not being offered to banks in the applicable offshore Dollar market for the applicable
amount and Interest Period of such Eurodollar Rate Loan, or adequate and reasonable means do not
exist for determining the Eurodollar Rate for such Eurodollar Rate Loan, or (b) if the Required
Lenders determine and notify the Administrative Agent that the Eurodollar Rate for such Eurodollar
Rate Loan does not adequately and fairly reflect the cost to the Lenders of funding such Eurodollar
Rate Loan, then the Administrative Agent will promptly notify the Borrower and all Lenders.
Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be
suspended until the Administrative Agent revokes such notice. Upon receipt of such notice, the
Borrower may revoke any pending request for a Borrowing, conversion or continuation of Eurodollar
Rate Loans or, failing that, will be deemed to have converted such request into a request for a
Borrowing of Base Rate Loans in the amount specified therein.

     3.04 Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurodollar Rate Loans.

     (a) If any Lender determines that as a result of a Change in Law, or such Lender’s compliance
therewith, there shall be any increase in the cost to such Lender of agreeing to make or making,
funding or maintaining Eurodollar Rate Loans, or a reduction in the amount received or receivable
by such Lender in connection with any of the foregoing (excluding for purposes of this subsection
(a) any such increased costs or reduction in amount resulting from (i) Taxes or Other Taxes (as to
which Section 3.01 shall govern), (ii) changes in the basis of taxation of overall net income or
overall gross income by the United States or any foreign jurisdiction or any political subdivision
of either thereof under the Laws of which such Lender is organized or has its Lending Office, and
(iii) reserve requirements contemplated by Section 3.04(c) utilized, as to Eurodollar Rate Loans,
in the determination of the Eurodollar Rate), then from time to time upon demand of such Lender
(with a copy of such demand to the Administrative Agent), the Borrower shall pay to such Lender
such additional amounts as will compensate such Lender for such increased cost or reduction.

     (b) If any Lender determines a Change in Law has the effect of reducing the rate of return on
the capital of such Lender or any corporation controlling such Lender as a consequence of such
Lender’s obligations hereunder (taking into consideration its policies with respect to capital
adequacy and such Lender’s desired return on capital, then from time to time upon demand of such
Lender (with a copy of such demand to the Administrative Agent), the Borrower shall pay to such
Lender such additional amounts as will compensate such Lender for such reduction.

     (c) The Borrower shall pay to each Lender, as long as such Lender shall be required under
regulations of the Board to maintain reserves with respect to liabilities or assets consisting of
or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”),
additional costs on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual
costs of such reserves allocated to such Revolving Loan by such Lender (as determined by such
Lender in good faith, which determination shall be conclusive), which shall be due and payable on
each date on which interest is payable on such Revolving Loan; provided the Borrower shall have
received at least 10 days’ prior notice (with a copy to the Administrative Agent) of such
additional interest from such Lender. If a Lender fails to give notice 10 days prior to the
relevant Interest Payment Date, such additional interest shall be due and payable 10 days from
receipt of such notice.

     3.05 Funding Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time
to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from
any loss, cost or expense incurred by it as a result of:

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     (a) any continuation, conversion, payment or prepayment of any Revolving Loan other than a
Base Rate Loan on a day other than the last day of the Interest Period for such Revolving Loan
(whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise); or

     (b) any failure by the Borrower (for a reason other than the failure of such Lender to make a
Revolving Loan) to prepay, borrow, continue or convert any Revolving Loan other than a Base Rate
Loan on the date or in the amount notified by the Borrower; including any loss of anticipated
profits and any loss or expense arising from the liquidation or reemployment of funds obtained by
it to maintain such Revolving Loan or from fees payable to terminate the deposits from which such
funds were obtained. The Borrower shall also pay any customary administrative fees charged by
such Lender in connection with the foregoing.

     For purposes of calculating amounts payable by the Borrower to the Lenders under this Section
3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the
Eurodollar Rate for such Revolving Loan by a matching deposit or other borrowing in the applicable
offshore Dollar interbank market for a comparable amount and for a comparable period, whether or
not such Eurodollar Rate Loan was in fact so funded.

     3.06 Matters Applicable to all Requests for Compensation. A certificate of the Administrative
Agent or any Lender claiming compensation under this Article III and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error.
In determining such amount, the Administrative Agent or such Lender may use any reasonable
averaging and attribution methods.

     3.07 Survival. All of the Borrower’s obligations under this Article III shall survive termination
of the Aggregate Revolving Commitment and payment in full of all the other Obligations.

ARTICLE IV.

CONDITIONS PRECEDENT

     4.01 Conditions Precedent. This Agreement shall be effective on the First Amendment Closing Date
subject to satisfaction of the following conditions precedent on or prior to such date:

     (a) Evidence satisfactory to the Administrative Agent that a minimum of $150,000,000 of Senior
Unsecured Notes have been (or contemporaneously with the initial funding under this Agreement, will
be) issued by the Borrower on terms and conditions reasonably satisfactory to the Administrative
Agent.

     (b) Evidence satisfactory to the Administrative Agent that contemporaneously with the funding
of the initial Revolving Loan under this Agreement, Borrower will have acquired 100% of the Equity
Interest of Specialty Rental Tools, Inc. for an aggregate purchase price not exceeding $96,000,000
(including acquired working capital and fees and expenses associated with such acquisition) and
consistent with the material terms of the acquisition agreement satisfactory to the Administrative
Agent.

     (c) The Administrative Agent’s receipt of the following, each of which shall be originals or
facsimiles (followed promptly by originals) and unless otherwise specified, each properly executed
by an authorized officer of the signing Loan Party or other Person party thereto, each dated the
First Amendment Closing Date (or, in the case of certificates of governmental officials, a recent
date before the

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First Amendment Closing Date), and each in form and substance satisfactory to the Arranger,
the Administrative Agent, the Lenders and their legal counsel:

      (i) executed counterparts of this Agreement, the Guaranty, all other Collateral
Documents as deemed advisable by the Administrative Agent or its counsel, each dated as of
the First Amendment Closing Date;

      (ii) Revolver Notes executed by the Borrower in favor of each Lender requesting such
Revolver Notes, each Revolver Note in a principal amount equal to such Lender’s Revolving
Commitment and each Revolver Note dated as of the First Amendment Closing Date;

      (iii) such certificates of resolutions or other action, incumbency certificates and/or
other certificates of officers of each Loan Party as the Administrative Agent may require to
establish the identities of and verify the authority and capacity of each officer thereof
authorized to act in connection with this Agreement and the other Loan Documents to which
such Loan Party is a party;

      (iv) such evidence as the Administrative Agent may reasonably require to verify that
each Loan Party is duly organized or formed, validly existing, and in good standing in the
jurisdiction of its organization;

      (v) a certificate signed by a Responsible Officer of the Borrower certifying (A) that
all amounts under the Original Credit Agreement have been, or concurrently with the initial
funding under this Agreement will be refinanced in full and all commitments of the lenders
thereunder have been or, concurrently with the initial funding under this Agreement, will be
terminated and that all Liens securing any Indebtedness under the Original Credit Agreement
have been carried forward and secure the Obligations under this Agreement, (B) that the
representations and warranties contained in Article V are true and correct in all respects
on and as of the First Amendment Closing Date, (C) that no default or event of default under
the Original Credit Agreement has occurred and is continuing as of the day preceding the
First Amendment Closing Date, (D) that no Default or Event of Default has occurred and is
continuing under this Agreement as of the First Amendment Closing Date after the initial
funding under this Agreement, (E) since December 31, 2004 there has occurred no material
adverse change in the business, assets, liabilities (actual or contingent), operations, or
condition (financial or otherwise) or prospects of the Borrower and its Subsidiaries, taken
as a whole, or in the facts and information regarding the Borrower and its Subsidiaries
previously delivered to the Administrative Agent or the Lenders, (F) that as of the First
Amendment Closing Date there are no material environmental or material legal issues
affecting any Loan Party or any of the Collateral, (G) all governmental and third party
approvals necessary or, in the discretion of the Administrative Agent, advisable in
connection with any Loan Party (i) entering into this Agreement or any of the Loan Documents
or (ii) continuing its business operations have been obtained and are in full force and
effect, (H) there is no litigation, investigation or proceeding known to and affecting the
Borrower or any of its Subsidiaries for which the Borrower is required to give notice
pursuant to Section 6.03(b) (or, if there is any such litigation, investigation or
proceeding, then a notice containing the information required by Section 6.03(b) shall be
given concurrently with the delivery of the certificate given pursuant to this clause (v)),
(I) no action, suit, investigation or proceeding is pending or, to the Borrower’s knowledge,
threatened in any court or before any arbitrator or Governmental Authority by or against the
Borrower, or any of its

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Subsidiaries or any of their respective properties, that (y) could reasonably be
expected to materially and adversely affect the Borrower or any Subsidiary, or (z) seeks to
affect or pertains to any transaction contemplated hereby or the ability of the Borrower or
any Loan Party to perform its obligations under the Loan Documents,

      (vi) a certificate of a Responsible Officer of the Borrower (a) demonstrating pro forma
compliance with all financial covenants herein for the quarter ended September 30, 2005,
including a Leverage Ratio of no greater than 4.0:1.0 and pro forma EBITDA of no less than
$41,000,000, (b) as to the satisfaction of all conditions specified in this Section 4.01 and
Section 4.03, (c) attaching a four-year financial forecast for the Borrower and its
Subsidiaries on a consolidated basis, (d) attaching audited historical financial statements
for the prior two complete fiscal years for Specialty Rental Tools, Inc., and (e) attaching
audited 9-month financial statements ending September 30, 2005 for Specialty Rental Tools,
Inc.;

      (vii) a certificate of Borrower’s chief financial officer, in form and substance
satisfactory to the Administrative Agent, certifying that neither the Borrower nor any of
its Subsidiaries is “insolvent” as such term is used and defined in (i) the United States
Bankruptcy Code or (ii) the Texas Uniform Fraudulent Transfer Act, Tex. Bus. & Com. Code
Ann. §24.003;

      (viii) an opinion from counsel to each Loan Party, in form and substance satisfactory
to the Administrative Agent and its counsel;

      (ix) updated asset appraisals of the Borrower’s and its Subsidiaries’ assets from a
recognized independent third party appraiser, paid for by the Borrower, in form and
substance satisfactory to the Administrative Agent; and

      (x) such other assurances, certificates, documents, consents or opinions as the
Administrative Agent reasonably may require.

     (d) Any fees due and payable at the First Amendment Closing Date shall have been paid
including, without limitation, payment of fees and expenses pursuant to the Agent/Arranger Fee
Letter.

     (e) The Borrower shall have paid Attorney Costs of the Administrative Agent to the extent
invoiced prior to the First Amendment Closing Date.

     (f) Loan Documents, executed by each Loan Party that has assets or conducts business, in
appropriate form for recording, where necessary, together with:

      (i) such Lien searches as the Administrative Agent shall have reasonably requested, and
such termination statements or other documents as may be necessary to confirm that the
Collateral is subject to no other Liens (other than Permitted Liens) in favor of any
Persons;

      (ii) funds sufficient to pay any filing or recording tax or fee in connection with any
and all UCC-1 financing statements or fees associated with the filing of any mortgages;

      (iii) evidence that the Administrative Agent has been named as loss payee under all
policies of casualty insurance pertaining to the Collateral;

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      (iv) certificates evidencing all of the issued and outstanding shares of capital stock,
partnership interests, or membership interests pledged pursuant to any Collateral Document
(including Specialty Rental Tools, Inc.) , which certificates shall in each case be
accompanied by undated stock powers duly executed in blank, or, if any securities pledged
pursuant thereto are uncertificated securities, confirmation and evidence satisfactory to
the Administrative Agent that the security interest in such uncertificated securities has
been transferred to and perfected by the Administrative Agent for the benefit of the Lenders
in accordance with the UCC; and

      (v) evidence that all other actions necessary or, in the opinion of the Administrative
Agent or the Lenders, desirable to perfect and protect the first priority Lien created by
the Collateral Documents (except to the extent otherwise permitted hereunder), and to
enhance the Administrative Agent’s ability to preserve and protect its interests in and
access to the Collateral, have been taken.

     (g) The Administrative Agent’s receipt (with sufficient copies for all Lenders) of the
certificate of incorporation of the Borrower, together with all amendments, certified by an
appropriate governmental officer in its jurisdiction of organization, as well as any other
information required by Section 326 of the USA Patriot Act or necessary for the Administrative
Agent or any Lender to verify the identity of Borrower as required by Section 326 of the USA
Patriot Act.

     The Administrative Agent shall notify the Borrower and the Lenders of the First Amendment
Closing Date, and such notice shall be conclusive and binding.

     4.02 Deadline for First Amendment Closing Date. If for any reason the First Amendment Closing Date
has not occurred by January 31, 2006, then, unless otherwise agreed by all Lenders, the Aggregate
Revolving Commitment shall terminate at noon, Central time, on such date.

     4.03 Conditions to all Revolving Loans and L/C Credit Extension. The obligation of each Lender to
honor any Borrowing Notice and the obligation of the L/C Issuer to issue any Letter of Credit is
subject to the following conditions precedent:

     (a) The representations and warranties of the Loan Parties contained in Article V, including
without limitation, Section 5.05(b) and Section 5.06, or which are contained in any document
furnished at any time under or in connection herewith, including, but not limited to the Collateral
Documents, shall be true and correct in all material respects on and as of the date such Revolving
Loan is made, continued or converted, as applicable, or such Letter of Credit is issued except to
the extent that such representations and warranties specifically refer to an earlier date, in which
case they shall be true and correct as of such earlier date.

     (b) No Default or Event of Default shall exist or would result from such proposed Revolving
Loan, continuation or conversion, or L/C Credit Extension.

     (c) The Administrative Agent and, if applicable, the L/C Issuer, shall have received a Request
for Credit Extension and, if applicable, a Letter of Credit Application in accordance with the
requirements hereof.

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     (d) The Administrative Agent shall have received, in form and substance reasonably
satisfactory to it, such other assurances, certificates, documents or consents related to the
foregoing as the Administrative Agent reasonably may require.

     Each Request for Credit Extension submitted by the Borrower shall be deemed to be a
representation and warranty that the conditions specified in Sections 4.03(a) and (b) have been
satisfied on and as of the date of the applicable Credit Extension.

     4.04 Conditions to all Revolving Loans to Fund Permitted Acquisitions. The obligation of each
Lender to honor any Borrowing Notice requesting a Revolving Loan in connection with a Permitted
Acquisition is subject to the following conditions precedent in addition to those set forth in
Section 4.03:

     (a) the Administrative Agent shall have received written notice of Borrower’s intent to make
such Acquisition at least five (5) Business Days prior to the requested funding date; provided,
however, the foregoing shall not be applicable in the case of Borrower’s acquisition of Specialty
Rental Tools, Inc.

     (b) the Administrative Agent shall have received, in form and substance reasonably
satisfactory to it, if available, historical audited financial statements of the target company’s
operations for a minimum of one year (and for up to three years if available) or if audited
historical financial statements are unavailable, then unaudited historical financial statements of
the target company’s operations for a minimum of one year (and for up to three years if available);

     (c) an asset appraisal of the target company or target line of business from a recognized
independent third party appraiser, paid for by Borrower, in form and substance satisfactory to the
Administrative Agent; and

     (d) a Compliance Certificate for the most recent quarter end demonstrating compliance with all
financial covenants on a pro forma basis giving effect to the proposed Permitted Acquisition for
which a Revolving Loan is being requested.

ARTICLE V.

REPRESENTATIONS AND WARRANTIES

     The Borrower and each Loan Party by its execution of this Agreement represents and warrants to
the Administrative Agent and the Lenders that:

     5.01 Existence; Qualification and Power; Compliance with Laws. Borrower and each Loan Party (a) is
a corporation, partnership or limited liability company duly organized or formed, validly existing
and in good standing under the Laws of the jurisdiction of its incorporation or organization, (b)
has all requisite power and authority and all governmental licenses, authorizations, consents and
approvals to own its assets, carry on its business and to execute, deliver, and perform its
obligations under the Loan Documents to which it is a party, (c) is duly qualified and is licensed
and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of
properties or the conduct of its business requires such qualification or license, and (d) is in
compliance with all Laws, except in each case referred to in clause (c) or this clause (d), to the
extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

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     5.02 Authorization; No Contravention. The execution, delivery and performance by each Loan Party
of each Loan Document to which such Person is party and the consummation of the transactions
described herein, have been duly authorized by all necessary corporate or other organizational
action, and do not and will not: (a) contravene the terms of any of such Person’s Organization
Documents; (b) conflict with or result in any breach or contravention of, or the creation of any
Lien under, any material Contractual Obligation to which such Person is a party or any order,
injunction, writ or decree of any Governmental Authority to which such Person or its property is
subject; or (c) violate any Law.

     5.03 Governmental Authorization. No approval, consent, exemption, authorization, or other action
by, or notice to, or filing with, any Governmental Authority, except for the filings in connection
with the granting of security interests pursuant to the Collateral Documents, is necessary or
required in connection with the execution, delivery or performance by, or enforcement against, any
Loan Party of this Agreement or any other Loan Document.

     5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered
hereunder, will have been duly executed and delivered by each Loan Party that is party thereto.
This Agreement constitutes, and each other Loan Document when so delivered will constitute, a
legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is
party thereto in accordance with its terms.

     5.05 Financial Statements; No Material Adverse Effect.

     (a) The audited financial statements delivered to the Lenders were prepared in accordance with
GAAP consistently applied throughout the period covered thereby, except as otherwise expressly
noted therein. Such financial statements: (i) fairly present the financial condition of the
Borrower and its Subsidiaries (and to the knowledge of the Borrower in the case of financial
statements of target company delivered to pursuant to Section 4.04(b), the entities covered
thereby) on a consolidated basis as of the date thereof and their results of operations for the
period covered thereby in accordance with GAAP consistently applied throughout the period covered
thereby, except as otherwise expressly noted therein; and (ii) fairly present the financial
condition of the Borrower and its Subsidiaries (and to the knowledge of the Borrower in the case of
financial statements of target company delivered to pursuant to Section 4.04(b), the entities
covered thereby) on a consolidated basis as of the date thereof and their results of operations for
the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of
footnotes and to normal year-end audit adjustments. Schedule 5.05 sets forth all material
indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries on a
consolidated basis as of the date of such financial statements, including liabilities for taxes,
material commitments and Indebtedness.

     (b) Since December 31, 2004, there has been no event or circumstance that has or could
reasonably be expected to have a Material Adverse Effect.

     5.06 Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the
knowledge of the Borrower threatened or contemplated in writing, at law, in equity, in arbitration
or before any Governmental Authority, by or against the Borrower or any Loan Party or against any
of their properties or revenues which (a) seek to affect or pertain to this Agreement or any other
Loan Document, the borrowing of Revolving Loans, the use of the proceeds thereof, or the issuance
of Letters of Credit

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hereunder, or (b) if determined adversely, could reasonably be expected to have a Material Adverse
Effect.

     5.07 No Default. Neither the Borrower nor any Loan Party is in default under or with respect to
any Contractual Obligation which could be reasonably expected to have a Material Adverse Effect.
No Default or Event of Default has occurred and is continuing or would result from the consummation
of the transactions contemplated by this Agreement or any other Loan Document.

     5.08 Ownership of Property; Liens. From and after the First Amendment Closing Date, (a) each Loan
Party has good record and marketable title in fee simple to, or valid leasehold interests in, all
its real and personal property necessary or used in the ordinary conduct of its business, except
for such defects in title as would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, and (b) the property of the Borrower and Loan Parties is subject to
no Liens, other than Permitted Liens. At the First Amendment Closing Date, the only Loan Party
which owns real property is AC Tubular which owns an approximately 8 acre equipment yard in
Edinburg, Texas.

     5.09 Environmental Compliance. The Borrower has reasonably concluded that (a) there are no claims
alleging potential liability under or responsibility for violation of any Environmental Law except
any such claims that could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, (b) there is no environmental condition or circumstance, such as the
presence or Release of any Hazardous Substance, on any property owned, operated or used the
Borrower or any Borrower Affiliate that could reasonably be expected to have a Material Adverse
Effect, and (c) there is no violation of or by the Borrower or any Borrower Affiliate of any
Environmental Law, except for such violations as could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

     5.10 Insurance. The properties of the Borrower and the Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of the Borrower, in such amounts, with such
deductibles and covering such risks as are customarily carried by companies engaged in similar
businesses and owning similar properties in localities where the Borrower or the Subsidiaries
operate.

     5.11 Taxes. The Borrower and the Subsidiaries have filed all federal, state and other material tax
returns and reports required to be filed for tax years ending prior to 2004, and have paid all
federal, state and other material taxes, assessments, fees and other governmental charges levied or
imposed upon them or their properties, income or assets otherwise due and payable, except those
which are being contested in good faith by appropriate proceedings and for which adequate reserves
have been provided in accordance with GAAP. There is no proposed tax assessment against Borrower
or any of its Subsidiaries that would, if made, have a Material Adverse Effect. Neither any Loan
Party nor any Subsidiary thereof is party to any tax sharing agreement.

     5.12 ERISA Compliance.

     (a) Each Plan is in compliance in all material respects with the applicable provisions of
ERISA, the Code and other federal or state Laws except to the extent that noncompliance could not
reasonably be expected to have a Material Adverse Effect. Each Plan that is intended to qualify
under Section 401(a) of the Code has received a favorable determination letter from the IRS or an
application for such a letter is currently being processed by the IRS with respect thereto and, to
the best knowledge of the Borrower, nothing has occurred which would prevent, or cause the loss of,
such qualification. The

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Borrower and each ERISA Affiliate have made all required contributions to each Plan subject to
Section 412 of the Code, and no application for a funding waiver or an extension of any
amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.

     (b) There are no pending or, to the best knowledge of the Borrower, threatened claims, actions
or lawsuits, or action by any Governmental Authority, with respect to any Plan that could
reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction
or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or
could reasonably be expected to result in a Material Adverse Effect.

     (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan
has any Unfunded Pension Liability; (iii) neither the Borrower nor any ERISA Affiliate has
incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any
Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither
the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability
(and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would
result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could
be subject to Sections 4069 or 4212(c) of ERISA.

     5.13 Subsidiaries and other Investments. As of the First Amendment Closing Date the Borrower (i)
will have no Subsidiaries other than those specifically disclosed in Schedule 5.13, and all of the
outstanding equity interests in such Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by a Loan Party in the amounts specified in Schedule 5.13 free and
clear of all Liens, (ii) will have no equity investment in any other corporation or other entity
other than those specifically disclosed in Schedule 5.13, and (iii) will have no other Investments
except as disclosed in Schedule 5.13.

     5.14 Margin Regulations; Investment Company Act; Use of Proceeds.

     (a) Neither the Borrower nor any of its Subsidiaries is engaged nor will it engage,
principally or as one of its important activities, in the business of purchasing or carrying margin
stock (within the meaning of Regulation U issued by the Board), or extending credit for the purpose
of purchasing or carrying margin stock. Margin stock constitutes less than 25% of those assets of
each Loan Party which are subject to any limitation on a sale, pledge, or other restrictions
hereunder.

     (b) The Borrower will use all proceeds of Credit Extension in the manner set forth in Section
6.12.

     5.15 Disclosure. The Borrower has disclosed to the Administrative Agent and the Lenders all
agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries
is subject, and all other matters known to it, that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. No report, financial statement,
certificate or other information furnished (whether in writing or orally) by or on behalf of any
Loan Party to the Administrative Agent or any Lender in connection with the transactions
contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other
Loan Document (in each case, as modified or supplemented by other information so furnished)
contains any material misstatement of fact or omits to state any material fact necessary to make
the statements therein, in the light of the circumstances under

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which they were made, not misleading; provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared in good faith based
upon assumptions believed to be reasonable at the time.

     5.16 Labor Matters. There are no actual or threatened strikes, labor disputes, slowdowns,
walkouts, or other concerted interruptions of operations that could reasonably be expected to have
a Material Adverse Effect.

     5.17 Compliance with Laws. Each of the Borrower and each Subsidiary is in compliance in all
material respects with the requirements of all Laws and all orders, writs, injunctions and decrees
applicable to it or to its properties, except in such instances in which (a) such requirement of
Law or order, writ, injunction or decree is being contested in good faith by appropriate
proceedings diligently conducted or (b) the failure to comply therewith, either individually or in
the aggregate, could not reasonably be expected to have a Material Adverse Effect.

     5.18 Third Party Approvals. No approval, consent, exemption, authorization, or other action by, or
notice to, or filing with, any party that is not a party to this Agreement is necessary or required
in connection with the execution, delivery or performance by, or enforcement against, any Loan
Party of this Agreement or any other Loan Document except where obtained or where the failure to
receive such approval, consent, exemption, authorization, or the failure to do such other action
by, or provide such notice could not reasonably be expected to have a Material Adverse Effect.

     5.19 Solvency. Neither the Borrower nor any of its Subsidiaries is “insolvent” as such term
is used and defined in (i) the United States Bankruptcy Code or (ii) the Texas Uniform Fraudulent
Transfer Act, Tex. Bus. & Com. Code Ann. §24.003.

     5.20 Collateral.

     (a) The provisions of each of the Collateral Documents are effective to create in favor of the
Administrative Agent for the benefit of the Lenders, a legal, valid and enforceable first priority
security interest in all Rights, titles and interests of each Loan Party in the Collateral
described therein, except as otherwise permitted hereunder; and financing statements have been
filed in the offices in all of the jurisdictions listed in the schedule to all Security Agreements.

     (b) All representations and warranties of each Loan Party thereto contained in the Collateral
Documents are true and correct in all material respects.

     (c) None of the terms or provisions of any indenture, mortgage, deed of trust, agreement or
other instrument to which the Borrower or any Loan Party is a party or by which the Borrower or any
Loan Party or the property of the Borrower or any Loan Party is bound prohibit the filing or
recordation of any of the Loan Documents or any other action which is necessary or appropriate in
connection with the perfection of the Liens on material assets evidenced and created by any of the
Loan Documents.

     5.21 Intellectual Property: Licenses, Etc. The Borrower and its Subsidiaries own, or possess
the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent
rights, franchises, licenses and other intellectual property rights that are reasonably necessary
for the operation of their respective businesses, without conflict with the rights of any other
Person. To the best knowledge of the Borrower, no slogan or other advertising device, product,
process, method, substance,

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part or other material now employed, or now contemplated to be employed, by the Borrower or any
Subsidiary infringes upon any rights held by any other Person. No claim or litigation regarding
any of the foregoing is pending or, to the best knowledge of the Borrower, threatened, which,
either individually or in the aggregate, could reasonably be expected to have a Material Adverse
Effect.

     5.22 Leased Locations. Schedule 5.22 lists all locations where any Collateral is located.

     5.23 Material Agreements. Set forth on Schedule 5.23 are all material agreements of any Loan
Party, which for purposes of this representation are agreements (whether written or oral) relating
to Indebtedness of any Loan Party in excess of $1,000,000 or pertaining to sales or provision of
services accounting for more than 10% of any Loan Party’s aggregate Consolidated EBITDA. The
Borrower has delivered, or caused to be delivered, to the Administrative Agent and each Lender
prior to the First Amendment Closing Date a copy of each Material Agreement.

ARTICLE VI.

AFFIRMATIVE COVENANTS

     So long as any Lender shall have any Revolving Commitment hereunder, or any Revolving Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain
outstanding, the Borrower shall, and shall cause each Subsidiary to:

     6.01 Financial Statements. Deliver to the Administrative Agent and each Lender, in form and detail
reasonably satisfactory to the Administrative Agent and the Required Lenders:

     (a) as soon as available, but in any event within 90 days after the end of each Fiscal Year of
the Borrower, a consolidated balance sheet of the Borrower and its Subsidiaries as at the end of
such Fiscal Year, and the related consolidated statements of income or operations, shareholders’
equity and cash flows for such Fiscal Year, setting forth in each case in comparative form the
figures for the previous Fiscal Year, all in reasonable detail and prepared in accordance with
GAAP, audited and accompanied by (i) a report and opinion of a firm of independent certified public
accountants of nationally recognized standing reasonably acceptable to the Required Lenders, which
report and opinion shall be prepared in accordance with generally accepted auditing standards and
applicable state and federal securities laws and shall not be subject to any “going concern” or
like qualification or exception or any qualification or exception as to the scope of such audit and
(ii) if applicable, an attestation report of such independent certified public accountants as to
the Borrower’s internal controls pursuant to Section 404 of Sarbanes-Oxley expressing a conclusion
to which the Required Lenders do not object;

     (b) as soon as available, but in any event within 45 days after the end of each of the first
three fiscal quarters of each Fiscal Year of the Borrower, a consolidated balance sheet of the
Borrower and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated
statements of income or operations, shareholders’ equity and cash flows for such fiscal quarter and
for the portion of the Borrower’s Fiscal Year then ended, setting forth in each case in comparative
form the figures for the corresponding fiscal quarter of the previous Fiscal Year and the
corresponding portion of the previous Fiscal Year, all in reasonable detail, certified by a
Responsible Officer of the Borrower as fairly presenting the financial condition, results of
operations, shareholders’ equity and cash flows of the Borrower and its Subsidiaries in accordance
with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes;

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     (c) within 45 days after the end of each Fiscal Year, the Borrower shall deliver a one year
projection/budget for the Borrower and its Subsidiaries on a consolidated basis for the then
current Fiscal Year.

     6.02 Certificates; Other Information. Deliver to the Administrative Agent and each Lender, in form
and detail satisfactory to the Administrative Agent and the Required Lenders:

     (a) concurrently with the delivery of the financial statements referred to in Sections 6.01(a)
and (b), a duly completed Compliance Certificate in the form of Exhibit C signed by a Responsible
Officer of the Borrower;

     (b) promptly after the same are available, copies of each annual report, proxy or financial
statement or other report or written communication sent to the equity owners of the Borrower, and
copies of all annual, regular, periodic and special reports and registration statements which the
Borrower may file or be required to file with the Securities and Exchange Commission under Section
13 or 15(d) of the Securities Exchange Act of 1934, and not otherwise required to be delivered to
the Administrative Agent pursuant hereto;

     (c) no later than ten (10) days after Borrower’s or any Subsidiary’s receipt of any Net Cash
Proceeds resulting from a Triggering Sale, a Triggering Sale Certificate relating to such
Triggering Sale;

     (d) no later than ten (10) days after Borrower or any Subsidiary has Reinvested any Reduction
Amount, a Reinvestment Certificate describing the amount, date and particulars relating to the
Reduction Amount so Reinvested;

     (e) within fifteen (15) days after the first anniversary of the First Amendment Closing Date
and annually thereafter, or more frequently if requested by the Required Lenders (but no more
frequently than once every six (6) months so long as no Event of Default exists), an independent
third party asset appraisal of the Borrower’s and its Subsidiaries’ domestic fixed assets;

     (f) promptly upon receipt thereof, copies of all material notices, requests and other
documents received by any Loan Party under or pursuant to any Contractual Obligation governing
Indebtedness that is outstanding in a principal amount of at least $1,000,000 and, from time to
time upon the reasonable request by the Administrative Agent, such information and reports
regarding the such Contractual Obligation as the Administrative Agent may reasonably request;

     (g) promptly after thereof, copies of all Revenue Agent Reports (IRS Form 886), or other
written proposals of the IRS, that propose, determine or otherwise set forth positive adjustments
to the Federal income tax liability of the affiliated group (within the meaning of Section
1504(a)(1) of the Code) of which the Borrower is a member aggregating $1,000,000 or more; and

     (h) promptly, such additional information regarding the business, financial or corporate
affairs of Borrower or any of its Subsidiaries as the Administrative Agent, at the request of any
Lender, may from time to time reasonably request, which information may include copies of any
detailed audit reports, if any, management letters or recommendations submitted to the board of
directors (or the audit committee of the board of directors) of the Borrower by independent
accountants in connection with the accounts or books of the Borrower or any Subsidiary, or any
audit of any of them.

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     6.03 Notices. Promptly notify the Administrative Agent and each Lender:

     (a) of the occurrence of any Default;

     (b) of any matter that has resulted or could reasonably be expected to result in a Material
Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual
Obligation of the Borrower or any Subsidiary; (ii) any dispute, litigation, investigation,
proceeding or suspension of licenses or permits between the Borrower or any Subsidiary and any
Governmental Authority; or (iii) the commencement of, or any material development in, any
litigation or proceeding affecting the Borrower or any Subsidiary, including pursuant to any
applicable Environmental Laws;

     (c) of the occurrence of any ERISA Event; and

     (d) of any material change in accounting policies or financial reporting practices by the
Borrower.

     Each notice pursuant to this Section shall be accompanied by a statement of a Responsible
Officer of the Borrower setting forth details of the occurrence referred to therein and stating
what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant
to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement or
other Loan Document that have been breached.

     6.04 Payment of Obligations. Pay and discharge as the same shall become due and payable, all its
obligations and liabilities, including (a) the Obligations, (b) all tax liabilities, assessments
and governmental charges or levies upon it or its properties or assets and (c) all lawful claims
which, if unpaid, would by Law become a Lien upon its property; except in the case of clause (b) or
(c), where (i) the validity thereof are being contested in good faith by appropriate proceedings
and (ii) adequate reserves in accordance with GAAP are being maintained by the Borrower or a
Subsidiary; unless and until any Lien resulting therefrom attaches to its property and becomes
enforceable against its other creditors.

     6.05 Preservation of Existence, Etc. Preserve, renew and maintain in full force and effect
its legal existence and good standing under the Laws of the jurisdiction of its organization except
in a transaction permitted by Sections 7.06 and 7.07; and (b) take all reasonable action to
maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the
normal conduct of its business, except to the extent that failure to do so could not reasonably be
expected to have a Material Adverse Effect.

     6.06 Maintenance of Assets and Business; Movement of Collateral.

     (a) Maintain all material properties, equipment, licenses, permits, and franchises necessary
for its normal business; (b) keep all of its assets which are useful in and necessary to its
business in good working order and condition (ordinary wear and tear excepted) and make all
necessary repairs thereto and replacements thereof; (c) do all things necessary to obtain, renew,
extend, and continue in effect all Authorizations which may at any time and from time to time be
necessary for the operation of its business in compliance with applicable Law, except where the
failure to so maintain, renew, extend, or continue in effect could not reasonably be expected to
have a Material Adverse Effect; (d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could

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reasonably be expected to have a Material Adverse Effect; and (e) use the standard of care
typical in the industry in the operation and maintenance of its facilities.

     (b) Keep all Collateral other than Collateral located outside the United States on the First
Amendment Closing Date within the United States unless prior written notice is given to the
Administrative Agent of the intent to move such Collateral outside the United States and the
Administrative Agent consents in writing to the movement of such Collateral outside the United
States.

     6.07 Maintenance of Insurance. Maintain insurance with financially sound and reputable
insurance companies not Affiliates of Borrower with respect to its properties and business
(including business interruption insurance) against such casualties and contingencies and of such
types and in such amounts as is customary in the case of similar businesses and which is
satisfactory to the Administrative Agent and the Required Lenders and will (i) furnish to the
Administrative Agent on each anniversary of the First Amendment Closing Date a certificate or
certificates of insurance from the applicable insurance company evidencing the existence of
insurance required to be maintained by this Agreement and the other Loan Documents and evidencing
that Administrative Agent is listed as sole loss payee on property insurance and the Administrative
Agent and Lenders are additional insureds on liability insurance, and (ii) upon request of the
Administrative Agent, furnish to each Lender at reasonable intervals a certificate of an Authorized
Officer of the Borrower setting forth the nature and extent of all insurance maintained in
accordance with this Section.

     6.08 Compliance with Laws and Contractual Obligations.

     (a) Comply in all material respects with the requirements of all Laws (including Environmental
Laws and ERISA Laws) applicable to it or to its business or property, except in such instances in
which (i) such requirement of Law is being contested in good faith or a bona fide dispute exists
with respect thereto, or (ii) the failure to comply therewith could not be reasonably expected to
have a Material Adverse Effect; and (b) comply with all Contractual Obligations, except the failure
to comply therewith could not be reasonably expected to have a Material Adverse Effect.

     6.09 Books and Records. Maintain proper books of record and account, in which full, true and
correct entries in conformity with GAAP consistently applied shall be made of all financial
transactions and matters involving the assets and business of the Borrower or such Subsidiary, as
the case may be.

     6.10 Inspection Rights. Permit representatives and independent contractors of the Administrative
Agent and each Lender to visit and inspect any of its properties, to examine its corporate,
financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its
affairs, finances and accounts with its directors, officers, and independent public accountants,
all at the expense of the Borrower and at such reasonable times during normal business hours and as
often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided,
however, that when an Event of Default exists the Administrative Agent or any Lender (or any of
their respective representatives or independent contractors) may do any of the foregoing at the
expense of the Borrower at any time during normal business hours and without advance notice.

     6.11 Compliance with ERISA. With respect to each Plan maintained by Borrower, do each of the
following: (a) maintain each Plan in compliance in all material respects with the applicable
provisions of ERISA, the Code and other federal or state Laws; (b) cause each Plan which is
qualified

					
	 	 	 	 	 
	 
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under Section 401(a) of the Code to maintain such qualification; and (c) make all
required contributions to any Plan subject to Section 412 of the Code, except to the extent that
noncompliance, with respect to each event listed above, could not be reasonably expected to have a
Material Adverse Effect

     6.12 Use of Proceeds. Use proceeds of the Revolver Facility to (i) refinance the Indebtedness
outstanding under the Original Credit Agreement, (ii) refinance other Indebtedness, (iii) finance
working capital requirements and other general corporate purposes of the Borrower and its
Subsidiaries, including Permitted Acquisitions, (iv) issue Letters of Credit, (v) pay transaction
fees and expenses.

     6.13 Guaranties. As an inducement to the Administrative Agent and Lenders to enter into this
Agreement, each Subsidiary of Borrower shall execute a Guaranty in connection with this Agreement.
In addition, at the time of the formation or acquisition of any Subsidiary of the Borrower, the
Borrower shall cause such Subsidiary to execute and deliver to the Administrative Agent (a) a
Guaranty providing for the guaranty of payment and performance of the Obligations, (b) Collateral
Documents in form and substance satisfactory to the Administrative Agent creating liens and
security interests in the Equity Interests in such Subsidiary (such Subsidiary not being required
to create a lien or security interest in its assets to secure the Obligations), and (c) certified
copies of such Subsidiary’s Organization Documents and opinions of counsel with respect to such
Subsidiary and such Guaranty, and (d) such other documents and instruments as may be required with
respect to such Subsidiary pursuant to Section 6.14.

     6.14 Further Assurances; Additional Collateral.

     (a) The Borrower shall and shall cause each of its Subsidiaries to take such actions and to
execute and deliver such documents and instruments as the Administrative Agent shall require to
ensure that the Administrative Agent on behalf of the Lenders shall, at all times, have received
currently effective duly executed Loan Documents granting Liens and security interests in
substantially all of the assets of the Borrower and each of its Subsidiaries located in the United
States, including all fixed assets, real property, accounts receivable, inventory, Equity
Interests, equipment, general intangibles, and deposit accounts. Without limiting the forgoing, on
or before February 17, 2006 the Borrower and such of its Subsidiaries having a deposit or similar
account with Wells Fargo Bank, N.A. will execute and deliver to the Administrative Agent, and cause
Wells Fargo Bank, N.A. to execute and deliver to the Administrative Agent the Deposit Account
Pledge Agreement.

     (b) In connection with the actions required pursuant to the foregoing subsection (a), the
Borrower shall and shall cause each Subsidiary to execute and deliver such stock certificates,
blank stock powers, evidence of corporate authorization, opinions of counsel, current valuations,
evidence of title, title insurance and other documents, and shall use commercially reasonable
efforts to obtain landlord and mortgagee waivers and third party consents, as shall be requested by
the Administrative Agent, in each case in form and substance satisfactory to the Administrative
Agent.

     (c) The Liens required by this Section 6.14 shall be first priority perfected Liens in favor
of the Administrative Agent for the benefit of the Lenders, subject to no other Liens except
Permitted Liens of the type described in Section 7.01. If the Administrative Agent shall determine
that, as of any date, the Borrower shall have failed to comply with this Section 6.14, the
Administrative Agent may (and at the direction of the Required Lenders, shall) notify the Borrower
in writing of such failure and, within 30
days from and after receipt of such written notice by the Borrower, the Borrower shall execute
and deliver to the Administrative Agent supplemental or additional Loan Documents, in form and
substance

					
	 	 	 	 	 
	 
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satisfactory to the Administrative Agent and its counsel, securing payment of the
Revolver Notes and the other Obligations and covering additional assets and properties of the
Borrower or its Subsidiaries not then encumbered by any Loan Documents (together with such other
information, as may be requested by the Administrative Agent, each of which shall be in form and
substance reasonably satisfactory to the Administrative Agent) such that the Administrative Agent
shall have received currently effective duly executed and perfected Collateral Documents
encumbering substantially all of the assets of the Borrower and its Subsidiaries as required by
Section 6.14(a).

     6.15 Approval of Certain Acquisitions. If the Borrower has made cumulative acquisitions
(whether Permitted Acquisitions or otherwise) in excess of $5,000,000 over the preceding 12 months
commencing with the First Amendment Closing Date, any subsequent acquisition (whether domestic or
foreign) must be approved by the Required Lenders in writing in response to a written request for
approval delivered by the Borrower to the Administrative Agent. Such written request for approval
must be delivered by the Borrower to the Administrative Agent at least five (5) Business Days prior
to the requested funding date, if such acquisition is a Permitted Acquisition for which funding
under this Agreement will be utilized, or at least five (5) Business Days prior to the date such
acquisition is scheduled to close.

ARTICLE VII.

NEGATIVE COVENANTS

     So long as any Lender shall have any Revolving Commitment hereunder, or any Revolving Loan or
other Obligations shall remain unpaid or unsatisfied, or any Letter of Credit shall remain
outstanding, the Borrower agrees that it shall not, nor shall it permit any Subsidiary to, directly
or indirectly:

     7.01 Liens. Create, incur, assume or suffer to exist, any Lien upon any of its property, assets or
revenues, whether now owned or hereafter acquired, other than the following:

     (a) Liens pursuant to any Loan Document;

     (b) Liens existing on the First Amendment Closing Date and listed on Schedule 7.01 to this
Agreement and any renewals or extensions thereof; provided that the property covered thereby is not
changed, (ii) the amount secured or benefited thereby is not increased, (iii) the direct or any
contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the
obligations secured or benefited thereby is permitted by Section 7.04(b);

     (c) Liens for taxes not yet due or which are being contested in good faith and by appropriate
proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the
books of the applicable Person in accordance with GAAP;

     (d) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens
arising in the ordinary course of business which are not overdue for a period of more than 60 days
or which are being contested in good faith and by appropriate proceedings, if adequate reserves
with respect thereto are maintained on the books of the applicable Person;

					
	 	 	 	 	 
	 
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     (e) pledges or deposits in the ordinary course of business in connection with workers’
compensation, unemployment insurance and other social security legislation, other than any Lien
imposed by ERISA;

     (f) deposits to secure the performance of bids, trade contracts and leases (other than
Indebtedness), statutory obligations, surety bonds (other than bonds related to judgments or
litigation), performance bonds and other obligations of a like nature, in each case incurred in the
ordinary course of business;

     (g) easements, rights-of-way, restrictions and other encumbrances affecting real property
which, in the aggregate, are not substantial in amount and which do not, in any case, materially
detract from the value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the applicable Person;

     (h) any Lien existing on any asset (other than stock of a Subsidiary) prior to acquisition
thereof by the Borrower or a Loan Party, and not created in contemplation of such acquisition;
provided that (i) no such Lien shall be extended to cover property other than the asset being
acquired, (ii) such Lien was not created in contemplation of or in connection with such
acquisition, and (iii) the Indebtedness thereby secured is permitted by Section 7.04(f);

     (i) Liens securing Capital Lease obligations permitted under Section 7.04(g); provided that no
such Lien shall extend to or cover any Collateral or assets other than the assets subject to such
Capitalized Lease obligations and Liens securing obligations to make equipment financing lease or
rental payments permitted under Section 7.04(g);

     (j) Purchase money Liens upon or in any property acquired by Borrower or any Loan Party to
secure the deferred portion of the purchase price of such property or to secure Indebtedness
incurred to finance the acquisition of such property; provided that (i) no such Lien shall be
extended to cover property other than the property being acquired, and (ii) the Indebtedness
thereby secured is permitted by Section 7.04(e);

     (k) Liens reserved in or exercisable under any lease or sublease to which the Borrower or a
Loan Party is a lessee which secure the payment of rent or compliance with the terms of such lease
or sublease; provided, that the rent under such lease or sublease is not then overdue and the
Borrower or Loan Party is in material compliance with the terms and conditions thereof; and

     (l) any interest or title of a lessor under any lease entered into by the Borrower or any Loan
Party in the ordinary course of its business and covering only the assets so leased.

     7.02 Investments. Make or own any Investments (including any Investment in any foreign
Subsidiary), except:

     (a) Investments existing on the First Amendment Closing Date and listed on Schedule 5.13;

     (b) Cash Equivalents;

					
	 	 	 	 	 
	 
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     (c) advances to officers, directors and employees of the Borrower and Subsidiaries in an
aggregate amount not to exceed $50,000 at any time outstanding, for travel, entertainment,
relocation and analogous ordinary business purposes;

     (d) Investments of the Borrower in any Domestic Subsidiary which is a Guarantor and
Investments of any Guarantor in another Guarantor;

     (e) Investments consisting of extensions of credit in the nature of accounts receivable or
notes receivable arising from the grant of trade credit in the ordinary course of business, and
Investments received in satisfaction or partial satisfaction thereof from financially troubled
account debtors to the extent reasonably necessary in order to prevent or limit loss;

     (f) Permitted Acquisitions;

     (g) Investments consisting of (i) the acquisition of 100% of the capital stock of Specialty
Rental Tools, Inc. and (ii) other Investments made by issuance of Borrower’s Equity Interest;
provided any Investment described in clause (ii) has been approved in writing by the Administrative
Agent.

     (h) other Investments not exceeding $100,000 in the aggregate in any Fiscal Year of the
Borrower.

     7.03 Swap Contracts. Enter into any Swap Contracts other than in the ordinary course of business
for the purpose of protecting against fluctuations in interest rates or foreign exchange rates and
not for purposes of speculation; provided that the Swap Contract shall not contain any provision
exonerating the non-defaulting party from its obligation to make payments on outstanding
transactions to the defaulting party.

     7.04 Indebtedness. Create, incur, or assume any Indebtedness except:

     (a) Indebtedness under the Loan Documents;

     (b) the Senior Unsecured Notes and any Indebtedness (including Subordinated Indebtedness)
outstanding on the date hereof and listed on Schedule 5.05 and any refinancings, refundings,
renewals or extensions thereof; provided that the amount of such Indebtedness is not increased at
the time of such refinancing, refunding, renewal or extension except by an amount equal to a
reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in
connection with such refinancing and by an amount equal to any existing commitments unutilized
thereunder;

     (c) Guaranty Obligations of the Borrower and/or any of its Subsidiaries in respect of
Indebtedness otherwise permitted hereunder of the Borrower;

     (d) Obligations (contingent or otherwise) of the Borrower or any Subsidiary existing or
arising under any Swap Contract to the extent permitted by Section 7.03;

     (e) Indebtedness of the Borrower and its Subsidiaries in respect of purchase money obligations
for fixed or capital assets within the limitations set forth in Section 7.01(j); provided,
however, that the aggregate annual amount of such Indebtedness at any one time outstanding
shall not exceed $2,000,000;

					
	 	 	 	 	 
	 
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     (f) Indebtedness associated with Liens on assets acquired by the Borrower or any Loan Party or
Indebtedness assumed by the Borrower or any Loan Party, in either instance in connection with a
Permitted Acquisition; provided, however, such Indebtedness at any one time outstanding shall not
exceed $2,000,000; and

     (g) Indebtedness of the Borrower and its Subsidiaries in connection with Capital Leases and
obligations to make equipment financing lease or rental payments; provided, however, such
indebtedness at any one time outstanding shall not exceed $7,000,000.

Provided, that if any Indebtedness is incurred pursuant to this Section 7.04, both before and after
such Indebtedness is created, incurred or assumed, no Default or Event of Default shall exist.

     7.05 Lease Obligations. Create or suffer to exist any obligations for the payment of rent for any
property under lease or agreement to lease, except for operating leases (other than those
constituting Synthetic Lease Obligations) entered into or assumed by the Borrower or any Subsidiary
in the ordinary course of business prior to the First Amendment Closing Date; provided that, such
operating leases will not require the payment of an aggregate amount of payments in excess of
(excluding escalations resulting from a rise in the consumer price or similar index) $500,000
during the full remaining term of such leases, exclusive of expenses for maintenance, repairs,
insurance taxes, assessments and similar changes.

     7.06 Fundamental Changes. Merge, dissolve, liquidate, consolidate with or into another
Person, or Dispose of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any
Person, except that, so long as no Default exists or would result therefrom:

     (a) any Subsidiary may merge with (i) the Borrower; provided that the Borrower shall be the
continuing or surviving Person, or (ii) any one or more other Subsidiaries; provided that when any
Guarantor is merging with another Subsidiary that is not a Guarantor, a Guarantor shall be the
continuing or surviving Person; and

     (b) any Subsidiary may Dispose of all or substantially all of its assets (upon voluntary
liquidation or otherwise) to the Borrower or to another Subsidiary; provided that if the transferor
in such a transaction is a Guarantor, then the transferee must either be the Borrower or a
Guarantor.

     7.07 Dispositions.

     Make any Disposition or enter into any agreement to make any Disposition, except:

     (a) Dispositions of obsolete or worn out property, whether now owned or hereafter acquired, in
the ordinary course of business;

     (b) Dispositions of inventory in the ordinary course of business;

     (c) Dispositions of property by any Subsidiary to the Borrower, or by any Subsidiary or by the
Borrower, to a Wholly-Owned Subsidiary that is a Guarantor;

					
	 	 	 	 	 
	 
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     (d) Dispositions of equipment or real property to the extent that (i) such property is
exchanged for credit against the purchase price of similar replacement property or (ii) the
proceeds of such Disposition are reasonably promptly applied to the purchase price of such
replacement property; or

     (e) Dispositions permitted by Section 7.06.

     7.08 Restricted Payments; Distributions and Redemptions. Declare or make, directly or indirectly,
any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except that:

     (a) each Subsidiary may make Restricted Payments to the Borrower and to Wholly-Owned
Subsidiaries of the Borrower;

     (b) the Borrower and each Subsidiary may declare and make dividend payments or other
distributions payable solely in the common stock or other common Equity Interests of such Person;

     (c) the Borrower and each Subsidiary may purchase, redeem or otherwise acquire Equity
Interests issued by it with the proceeds received from the substantially concurrent issue of new
shares of its common stock or other common Equity Interests; and

     (d) the Borrower may engage in any Equity Issuance, so long as the Net Cash Proceeds thereof
are applied to the prepayment of the Revolving Loans pursuant to Section 2.04(b)(iv).

     7.09 ERISA. At any time engage in a transaction which could be subject to Section 4069 or 4212(c)
of ERISA, or permit any Plan maintained by Borrower or an ERISA Affiliate to: (a) engage in any
non-exempt “prohibited transaction” (as defined in Section 4975 of the Code); (b) fail to comply
with ERISA or any other applicable Laws; or (c) incur any material “accumulated funding deficiency”
(as defined in Section 302 of ERISA), which, with respect to each event listed above, could be
reasonably expected to have a Material Adverse Effect.

     7.10 Change in Nature of Business. Engage in any material line of business substantially different
from (a) those lines of business conducted by the Borrower and its Subsidiaries on the First
Amendment Closing Date, or (b) other businesses reasonably related to the business described in
clause (a).

     7.11 Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of
the Borrower, whether or not in the ordinary course of business, other than on fair and reasonable
terms substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the
Borrower or such Subsidiary at the time in a comparable arm’s length transaction with a Person
other than an Affiliate.

     7.12 Burdensome Agreements. Enter into any Contractual Obligation (other than this Agreement, any
other Loan Document or the indenture governing the Senior Unsecured Notes) that (a) limits the
ability (i) of any Subsidiary to make Restricted Payments to the Borrower or any Guarantor or to
otherwise transfer property to the Borrower or any Guarantor, (ii) of any Subsidiary to Guarantee
the Indebtedness of the Borrower or (iii) of the Borrower or any Subsidiary to create, incur,
assume or suffer
to exist Liens on property of such Person; provided, however, that this clause (iii) shall not
prohibit any negative pledge incurred or provided in favor of any holder of Indebtedness permitted
under Section 7.05 solely to the extent any such negative pledge relates to the property financed
by or the subject of such

					
	 	 	 	 	 
	 
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Indebtedness; or (b) requires the grant of a Lien to secure an obligation
of such Person if a Lien is granted to secure another obligation of such Person.

     7.13 Use of Proceeds . Use the proceeds of any Revolving Loan or Letter of Credit for
purposes other than those permitted by Section 6.12, or use the proceeds of any Revolving Loan,
whether directly or indirectly, and whether immediately, incidentally or ultimately, to (i)
purchase or carry margin stock (within the meaning of Regulation U of the Board) or to extend
credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness
originally incurred for such purpose or (ii) to finance the acquisition of 100% of the capital
stock of Casing Services and Equipment, Inc.

     7.14 Capital Expenditures. During Borrower’s Fiscal Year 2006 make capital expenditures in excess
of $15,000,000 in the aggregate (of which Mexican CapEx shall not exceed $3,000,000 for the
Borrower’s Fiscal Year 2006) or during any Fiscal Year thereafter make capital expenditures in
excess of $12,000,000 in the aggregate during any such subsequent Fiscal Year (of which Mexican
CapEx shall not exceed $3,000,000 for any such subsequent Fiscal Year); provided, however, it is
agreed and understood that capital expenditures excludes acquisitions made prior to the First
Amendment Closing Date, Permitted Acquisitions and those Investments allowed under Section 7.02(g).

     7.15 Prepayments. Except for Indebtedness incurred pursuant to the Loan Documents or except as may
be required under the indenture governing the Senior Unsecured Notes, neither Borrower nor any
Subsidiary shall prepay any Indebtedness.

     7.16 Subordinated Indebtedness. The Borrower will not amend documents governing Subordinated
Indebtedness unless approved in writing by the Required Lenders (other than ministerial amendments
and amendments to extend the time or times for payment). The Borrower shall not make any payments
of interest or any other amounts in respect of the Subordinated Indebtedness if a Default or Event
of Default shall have occurred and be continuing or would result from such payment. The Borrower
will not repay any principal, interest or other indebtedness in respect of the Subordinated
Indebtedness, or make any redemption or acquisition for value or defeasance, refinancing or
exchange thereof or therefore, or make any payments in contravention of the applicable
Subordination Agreement; provided, however, with respect to all Subordinated Indebtedness up to
$1,000,000 principal may be repaid or prepaid so long as no Default or Event of Default shall have
occurred and be continuing or would result from such payment and Borrower shall so certify to
Administrative Agent in writing prior to any such payment.

     7.17 Amendments of Constitutive Documents. Borrower shall not amend, or permit any of its
Subsidiaries to amend, its certificate of incorporation or bylaws or other constitutive documents
other than amendments that could not be reasonably expected to have a Material Adverse Effect.

     7.18 Accounting Changes. Borrower shall not make or permit, or permit any of its Subsidiaries
to make or permit, any change in (i) accounting policies or reporting practices, except as required
or permitted by GAAP, or (ii) in its Fiscal Year.

     7.19 Financial Covenants.

     (a) Minimum Tangible Net Worth. Permit the Consolidated Tangible Net Worth of the Borrower
and its Subsidiaries on a consolidated basis as of the end of any calendar quarter to be less than
the sum of (i) eighty-five percent (85%) of Borrower’s Consolidated Tangible Net Worth as of
September

					
	 	 	 	 	 
	 
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30, 2005 plus (ii) 50% of Consolidated Net Income (if positive) after September 30, 2005,
plus (c) 100% of the Net Cash Proceeds of any Equity Interest issued by Borrower or any of its
Subsidiaries after the First Amendment Closing Date. For purposes of calculating Consolidated
Tangible Net Worth, the write-off of unamortized financing costs shall not be considered.

     (b) Interest Coverage Ratio. Permit the Interest Coverage Ratio as of the end of any fiscal
quarter to be less than 2.5 to 1.0.

     (c) Current Ratio. Permit the Current Ratio as of the end of any fiscal quarter to be less
than 1.25 to 1.0.

     (d) Fixed Asset Coverage Ratio. Permit the Fixed Asset Coverage Ratio as of the end of any
fiscal quarter to be less than 1.33 to 1.0.

     (e) Leverage Ratio. Permit the Leverage Ratio as of the end of any fiscal quarter to be
greater than 4.50 to 1.0.

     (f) Senior Leverage Ratio. Permit the Senior Leverage Ratio as of the end of any fiscal
quarter to be greater than 2.50 to 1.0.

     (g) Adjustments for Permitted Acquisitions. For purposes of determining compliance with
Section 7.19(b), (e) and (f):

          (i) Consolidated EBITDA shall be calculated after giving effect, on a pro forma basis
for the four consecutive fiscal quarters most recently completed, to any Permitted
Acquisition or any acquisition pursuant to Section 7.02(g) occurring during such period, as
if such acquisition occurred on the first day of such period.

          (ii) If, in connection with a Permitted Acquisition or any acquisition pursuant to
Section 7.02(g), any Indebtedness is incurred or assumed by the Borrower or any of its
Subsidiaries, then Consolidated Interest Charges shall be calculated, on a pro forma basis
for the four quarters most recently completed, as if such Indebtedness had been incurred on
the first day of such period.

ARTICLE VIII.

EVENTS OF DEFAULT AND REMEDIES

     8.01 Events of Default. Any of the following shall constitute an Event of Default:

     (a) Non-Payment. The Borrower or any other Loan Party fails to pay (i) any amount due
under the Agent/Arranger Fee Letter when and as required to be paid therein, (ii) when and as
required to be paid herein, any amount of principal of any Revolving Loan or any L/C Obligation or
(iii) within three
Business Days after the same becomes due, any interest on any Revolving Loan, any L/C
Obligation, any commitment or other fee due hereunder (other than a fee specified in the
Agent/Arranger Fee Letter), or any other amount payable hereunder or under any other Loan Document;
or

					
	 	 	 	 	 
	 
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     (b) Specific Covenants. The Borrower fails to perform or observe any term, covenant
or agreement contained in any of Section 6.02, 6.03(a), 6.05 (with respect to any Loan Party’s
existence), 6.06, 6.10, 6.12, 6.13, 6.14, or Article VII; or

     (c) Other Defaults. Any Loan Party fails to perform or observe any other covenant or
agreement (not specified in subsection (a) or (b) above) contained in any Loan Document on its part
to be performed or observed and such failure continues for 30 days after the earlier of (i) the
date notice has been given to the Borrower by the Administrative Agent or a Lender or (ii) the date
a Responsible Officer knew or reasonably should have known of such Default; or

     (d) Representations and Warranties. Any representation or warranty made or deemed
made by the Borrower or any other Loan Party herein, in any other Loan Document, or in any document
delivered in connection herewith or therewith proves to have been incorrect in any material respect
when made or deemed made; or

     (e) Cross-Default. (i) The Borrower or any Subsidiary (A) fails to make any payment
when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise)
in respect of any Indebtedness or Guaranty Obligation (other than Indebtedness hereunder or under
Swap Contracts) having an aggregate principal amount (or, in the case of a Capital Lease or a
Synthetic Lease Obligation, Attributable Indebtedness) (including undrawn or available amounts and
including amounts owing to all creditors under any combined or syndicated credit arrangement) of
more than (individually or collectively) $1,000,000, or (B) fails to observe or perform any other
agreement or condition relating to any such Indebtedness or Guaranty Obligation or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the
effect of which default or other event is to cause, or to permit the holder or holders of such
Indebtedness, the lessor under such Synthetic Lease Obligation or the beneficiary or beneficiaries
of such Guaranty Obligation (or a trustee or agent on behalf of such holder or holders or
beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to
be demanded or to become due or to be repurchased or redeemed (automatically or otherwise) prior to
its stated maturity, or such Guaranty Obligation to become payable or cash collateral in respect
thereof to be demanded; or (ii) (A) there occurs under any Swap Contract an Early Termination Date
(as defined in such Swap Contract) resulting from any event of default under such Swap Contract as
to which the Borrower or any Subsidiary is the Defaulting Party (as defined in such Swap Contract)
or any Termination Event (as so defined) under such Swap Contract to which the Borrower or any
Subsidiary is an Affected Party (as so defined) and, in either event, the Swap Termination Value
owed by the Borrower or such Subsidiary as a result thereof is greater than $1,000,000; or

     (f) Insolvency Proceedings, Etc. (i) Any Loan Party or any of its Subsidiaries
institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes
an assignment for the benefit of creditors; or applies for or consents to the appointment of any
receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or
for all or any material part of its property or takes any action to effect any of the foregoing; or
(ii) any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is
appointed without the application or consent of such Person and the appointment continues
undischarged or unstayed for 30 calendar days; or (iii) any proceeding
under any Debtor Relief Law relating to any such Person or to all or any part of its property
is instituted without the consent of such Person and continues undismissed or unstayed for 30
calendar days, or an order for relief is entered in any such proceeding; or

					
	 	 	 	 	 
	 
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     (g) Inability to Pay Debts; Attachment. (i) The Borrower or any Subsidiary becomes
unable or admits in writing its inability or fails generally to pay its debts as they become due,
or (ii) any writ or warrant of attachment or execution or similar process is issued or levied
against property which is a material part of the property of such Person and is not released,
vacated or fully bonded within 30 days after its issue or levy; or

     (h) Judgments. There is entered against the Borrower or any Subsidiary (i) a final
judgment or order for the payment of money in an aggregate amount exceeding (individually or
collectively) $1,000,000 (to the extent not covered by third-party insurance as to which the
insurer does not dispute coverage), or (ii) any non-monetary final judgment that has or could
reasonably be expected to have a Material Adverse Effect and, in either case, (A) enforcement
proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of
30 consecutive days during which a stay of enforcement of such judgment, by reason of a pending
appeal or otherwise, is not in effect; or

     (i) ERISA. (i) If the Borrower, any Borrower Affiliate or any of their ERISA
Affiliates maintains any Pension Plan or any Multiemployer Plan, an ERISA Event occurs with respect
to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to
result in liability of the Borrower or any Borrower Affiliate under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $1,000,000, or
(ii) if there is any Multiemployer Plan, the Borrower, any Borrower Affiliate or any ERISA
Affiliate thereof fails to pay when due, after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a
Multiemployer Plan in an aggregate amount in excess of $1,000,000; or

     (j) Invalidity of Loan Documents. Any Loan Document, at any time after its execution
and delivery and for any reason other than the agreement of all the Lenders or termination of all
Revolving Commitments and satisfaction in full of all the Obligations, ceases to be in full force
and effect, or is declared by a court of competent jurisdiction to be null and void, invalid or
unenforceable in any material respect; or any Loan Party denies that it has any or further
liability or obligation under any Loan Document, or purports to revoke, terminate or rescind any
Loan Document; or

     (k) Change of Control. There occurs any Change of Control; or

     (l) Dissolution. The Borrower or any Loan Party shall dissolve, liquidate, or
otherwise terminate its existence, except as permitted in Section 7.06; or

     (m) Material Agreements. (i) Termination of any Material Agreement, or any material
provision of any of the foregoing if such termination could reasonably be expected to have a
Material Adverse Effect and such agreement or provision is not replaced (prior to such cessation)
in a manner satisfactory to the Administrative Agent; (ii) default by any Person in the performance
or observance of any material term of any Material Agreement which is not cured within the
applicable cure period specified in such Material Agreement, if such default could reasonably be
expected to have a Material Adverse Effect; or (iii) any event or condition occurs or exists which
in the opinion of the Administrative
Agent is reasonably likely to (x) have a material adverse effect on the ability of Borrower or
any of its Subsidiaries to perform its obligations under a Material Agreement and (y) result in a
Material Adverse Effect hereunder; or

					
	 	 	 	 	 
	 
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     (n) Collateral; Impairment of Security, etc. (i) Any provision of any Loan Document
shall for any reason cease to be valid and binding on or enforceable against a Loan Party or any
Loan Party shall so state in writing or bring an action to limit its obligations or liabilities
thereunder; or (ii) any Collateral Document shall for any reason (other than pursuant to the terms
thereof) cease to create a valid security interest in the Collateral purported to be covered
thereby or such security interest shall for any reason cease to be a perfected and first priority
security interest subject to Permitted Liens; or

     (o) Proceedings by Secured Creditors. Any secured creditor of any Loan Party which is
owed $1,000,000 or more takes any action to foreclose any Lien securing the Indebtedness owed to
such secured creditor.

     8.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the
Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders,
take any or all of the following actions:

     (a) declare the Revolving Commitment of each Lender to make Revolving Loans and any obligation
of the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such Revolving
Commitments and obligations shall be terminated;

     (b) declare the unpaid principal amount of all outstanding Revolving Loans, all interest
accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other
Loan Document to be immediately due and payable, without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby
expressly waived by the Borrower;

     (c) require that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to
the then Outstanding Amount thereof); and

     (d) exercise on behalf of itself and the Lenders all rights and remedies available to it and
the Lenders under the Loan Documents or applicable Law;

provided, however, that upon the occurrence of any event specified in subsection (f) of Section
8.01, the obligation of each Lender to make Revolving Loans and any obligation of the L/C Issuer to
make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all
outstanding Revolving Loans and all interest and other amounts as aforesaid shall automatically
become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C
Obligations as aforesaid shall automatically become effective, in each case without further act of
the Administrative Agent or any Lender.

ARTICLE IX.

ADMINISTRATIVE AGENT

     9.01 Appointment and Authorization of Agents; Lender Hedging Agreements. (a) Each Lender and the
L/C Issuer hereby irrevocably (subject to Section 9.10) appoints, designates and
authorizes the Administrative Agent to take such action on its behalf under the provisions of this
Agreement and each other Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Loan Document, together with
such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere herein or in any other Loan Document, the Administrative Agent shall not have
any duties or

					
	 	 	 	 	 
	 
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responsibilities, except those expressly set forth herein, nor shall the
Administrative Agent have or be deemed to have any fiduciary relationship with any Lender or
participant, and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against
the Administrative Agent. Without limiting the generality of the foregoing sentence, the use of
the term “agent” herein and in the other Loan Documents with reference to the Administrative Agent
is not intended to connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable Law. Instead, such term is used merely as a matter of market
custom, and is intended to create or reflect only an administrative relationship between
independent contracting parties.

     (b) The L/C Issuer shall act on behalf of the Lenders with respect to any Letters of Credit
issued by it and the documents associated therewith until such time (and except for so long) as the
Administrative Agent may agree at the request of the Required Lenders to act for the L/C Issuer
with respect thereto; provided, however, that the L/C Issuer shall have all of the benefits and
immunities (i) provided to the Administrative Agent in this Article IX with respect to any acts
taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or
proposed to be issued by it and the application and agreements for letters of credit pertaining to
the Letters of Credit as fully as if the term “Administrative Agent” as used in this Article IX
included the L/C Issuer with respect to such acts or omissions, and (ii) as additionally provided
herein with respect to the L/C Issuer.

     (c) To the extent any Lender or any Affiliate of a Lender is a party to a Lender Hedging
Agreement and accepts the benefits of the Liens in the Collateral arising pursuant to the
Collateral Documents, such Lender (for itself and on behalf of any such Affiliates) shall be deemed
(i) to appoint the Administrative Agent, as its nominee and agent, to act for and on behalf of such
Lender or Affiliate thereof in connection with the Collateral Documents and (ii) to be bound by the
terms of this Article IX.

     9.02 Delegation of Duties. The Administrative Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall
be entitled to advice of counsel and other consultants or experts concerning all matters pertaining
to such duties. Administrative Agent shall not be responsible for the negligence or misconduct of
any agent or attorney-in-fact that it selects in the absence of gross negligence or willful
misconduct.

     9.03 Default; Collateral. (a) Upon the occurrence and continuance of a Default or Event of
Default, the Lenders agree to promptly confer in order that Required Lenders or the Lenders, as the
case may be, may agree upon a course of action for the enforcement of the rights of the Lenders;
and the Administrative Agent shall be entitled to refrain from taking any action (without incurring
any liability to any Person for so refraining) unless and until the Administrative Agent shall have
received instructions from Required Lenders. All rights of action under the Loan Documents and all
right to the Collateral, if any, hereunder may be enforced by the Administrative Agent and any suit
or proceeding instituted by the Administrative Agent in furtherance of such enforcement shall be
brought in its name as the Administrative Agent without the necessity of joining as plaintiffs or
defendants any other Lender, and the recovery of any judgment shall be for the benefit of the
Lenders (and, with respect to Lender Hedging
Agreements, Affiliates, if applicable) subject to the expenses of the Administrative Agent. In
actions with respect to any property of the Borrower or any other Obligor, the Administrative Agent
is acting for the ratable benefit of each Lender (and, with respect to Lender Hedging Agreement,
Affiliates, if applicable). Any and all agreements to subordinate (whether made heretofore or
hereafter) other indebtedness or obligations of Borrower to the Obligations shall be construed as
being for the ratable benefit of each Lender (and, with respect to Lender Hedging Agreement,
Affiliates, if applicable).

					
	 	 	 	 	 
	 
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     (b) Each Lender authorizes and directs the Administrative Agent to enter into the Collateral
Documents on behalf of and for the benefit of the Lenders (and, with respect to Lender Hedging
Agreements, Affiliates, if applicable)(or if previously entered into, hereby ratifies the
Administrative Agent’s previously entering into such agreements and Collateral Documents).

     (c) Except to the extent unanimity (or other percentage set forth in Section 10.1) is required
hereunder, each Lender agrees that any action taken by the Required Lenders in accordance with the
provisions of the Loan Documents, and the exercise by the Required Lenders of the power set forth
herein or therein, together with such other powers as are reasonably incidental thereto, shall be
authorized and binding upon all of the Lenders.

     (d) The Administrative Agent is hereby authorized on behalf of the Lenders, without the
necessity of any notice to or further consent from any Lender, from time to time to take any action
with respect to any Collateral or Collateral Documents which may be necessary to perfect and
maintain perfected the Liens upon the Collateral granted pursuant to the Collateral Documents.

     (e) The Administrative Agent shall have no obligation whatsoever to any Lender or to any other
Person to assure that the Collateral exists or is owned by any Obligor or is cared for, protected,
or insured or has been encumbered or that the Liens granted to the Administrative Agent herein or
pursuant thereto have been properly or sufficiently or lawfully created, perfected, protected, or
enforced, or are entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure, or fidelity, or to continue exercising, any of the
Rights granted or available to the Administrative Agent in this Section 9.03 or in any of the
Collateral Documents; it being understood and agreed that in respect of the Collateral, or any act,
omission, or event related thereto, the Administrative Agent may act in any manner it may deem
appropriate, in its sole discretion, given the Administrative Agent’s own interest in the
Collateral as one of the Lenders and that the Administrative Agent shall have no duty or liability
whatsoever to any Lender, other than to act without gross negligence or willful misconduct.

     (f) The Lenders hereby irrevocably authorize the Administrative Agent, at its option and in
its discretion, to release any Lien granted to or held by the Administrative Agent upon any
Collateral: (i) constituting property in which no Obligor owned an interest at the time the Lien
was granted or at any time thereafter; (ii) constituting property leased to an Obligor under a
lease which has expired or been terminated in a transaction permitted under the Loan Document or is
about to expire and which has not been, and is not intended by such Obligor to be, renewed; and
(iii) consisting of an instrument evidencing Indebtedness pledged to the Administrative Agent (for
the benefit of the Lenders), if the Indebtedness evidenced thereby has been paid in full. In
addition, the Lenders irrevocably authorize the Administrative Agent to release Liens upon
Collateral as contemplated in Section 10.01(c) or (d), or if approved, authorized, or ratified in
writing by the requisite Lenders. Upon request by the Administrative Agent at
any time, the Lenders will confirm in writing the Administrative Agent’s authority to release
particular types or items of Collateral pursuant to this Section 9.03.

     (g) In furtherance of the authorizations set forth in this Section 9.03, each Lender hereby
irrevocably appoints the Administrative Agent its attorney-in-fact, with full power of
substitution, for and on behalf of and in the name of each such Lender (i) to enter into Collateral
Documents (including, without limitation, any appointments of substitute trustees under any
Collateral Documents), (ii) to take action with respect to the Collateral and Collateral Documents
to perfect, maintain, and preserve Lenders’ Liens, and (iii) to execute instruments of release or
to take other action necessary to release Liens upon

					
	 	 	 	 	 
	 
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any Collateral to the extent authorized in
paragraph (f) hereof. This power of attorney shall be liberally, not restrictively, construed so
as to give the greatest latitude to the Administrative Agent’s power, as attorney, relative to the
Collateral matters described in this Section 9.03. The powers and authorities herein conferred on
the Administrative Agent may be exercised by the Administrative Agent through any Person who, at
the time of the execution of a particular instrument, is an officer of the Administrative Agent (or
any Person acting on behalf of the Administrative Agent pursuant to a valid power of attorney).
The power of attorney conferred by this Section 9.03(g) to the Administrative Agent is granted for
valuable consideration and is coupled with an interest and is irrevocable so long as the
Obligations, or any part thereof, shall remain unpaid or the Lenders are obligated to make any
Borrowings under the Loan Documents.

     9.04 Liability of Agents. No Agent-Related Person shall (a) be liable for any action taken or
omitted to be taken by any of them under or in connection with this Agreement or any other Loan
Document or the transactions contemplated hereby (except for its own gross negligence or willful
misconduct in connection with its duties expressly set forth herein), or (b) be responsible in any
manner to any Lender or participant for any recital, statement, representation or warranty made by
any Loan Party or any officer thereof, contained herein or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in, or received by
Administrative Agent under or in connection with, this Agreement or any other Loan Document, or the
validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other
Loan Document, or for the creation, perfection or priority of any Liens purported to be created by
any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or
sufficiency of any collateral security, or to make any inquiry respecting the performance by the
Borrower of its obligations hereunder or under any other Loan Document, or for any failure of any
Loan Party or any other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Lender or participant to
ascertain or to inquire as to the observance or performance of any of the agreements contained in,
or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or
records of any Loan Party or any Affiliate thereof.

     9.05 Reliance by Administrative Agent. (a) The Administrative Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, communication, signature, resolution,
representation, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or
telephone message, statement or other document or conversation reasonably believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon
advice and statements of legal counsel (including counsel to any Loan Party), independent
accountants and other experts selected by the Administrative Agent. The Administrative Agent shall
be fully justified in failing or refusing to take any action under any Loan Document unless it
shall first receive such advice or concurrence of the Required Lenders as it deems appropriate and,
if it so requests, it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action. The Administrative Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this Agreement or any other
Loan Document in accordance with a request or consent of the Required Lenders or all the Lenders,
if required hereunder, and such request and any action taken or failure to act pursuant thereto
shall be binding upon all the Lenders and participants. Where this Agreement expressly permits or
prohibits an action unless the Required Lenders otherwise determine, the Administrative Agent
shall, and in all other instances, the Administrative Agent may, but shall not be required to,
initiate any solicitation for the consent or a vote of the Lenders.

					
	 	 	 	 	 
	 
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     (b) For purposes of determining compliance with the conditions specified in Section 4.01, each
Lender that has funded its Pro Rata Share of the Borrowing(s) on the First Amendment Closing Date
(or, if there is no Borrowing made on such date, each Lender other than Lenders who gave written
objection to the Administrative Agent prior to such date) shall be deemed to have consented to,
approved or accepted or to be satisfied with, each document or other matter either sent by the
Administrative Agent to such Lender for consent, approval, acceptance or satisfaction, or required
hereunder to be consented to or approved by or acceptable or satisfactory to a Lender.

     9.06 Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice
of the occurrence of any Default or Event of Default, except with respect to defaults in the
payment of principal, interest and fees required to be paid to the Administrative Agent for the
account of the Lenders, unless the Administrative Agent shall have received written notice from a
Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a “notice of default.” The Administrative Agent will notify the Lenders
of its receipt of any such notice. The Administrative Agent shall take such action with respect to
such Default or Event of Default as may be directed by the Required Lenders in accordance with
Article VIII; provided, however, that unless and until the Administrative Agent has received any
such direction, the Administrative Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of Default as it shall deem
advisable or in the best interest of the Lenders.

     9.07 Credit Decision; Disclosure of Information by Administrative Agent. Each Lender acknowledges
that no Agent-Related Person has made any representation or warranty to it, and that no act by the
Administrative Agent hereinafter taken, including any consent to and acceptance of any assignment
or review of the affairs of any Loan Party or any Affiliate thereof, shall be deemed to constitute
any representation or warranty by any Agent-Related Person to any Lender as to any matter,
including whether Agent-Related Persons have disclosed material information in their possession.
Each Lender represents to the Administrative Agent that it has, independently and without reliance
upon any Agent-Related Person and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of the Loan Parties and their
respective Subsidiaries, and all applicable bank or other regulatory Laws relating to the
transactions contemplated hereby, and made its own decision to enter into this Agreement and to
extend credit to the Borrower hereunder. Each Lender also represents that it will, independently
and without reliance upon any Agent-Related Person and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and
decisions in taking or not taking action under this Agreement and the other Loan Documents, and to
make such investigations as it deems necessary to inform itself as to the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Borrower and the other Loan Parties. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the Administrative Agent herein, the Administrative
Agent shall not have any duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property, financial and other condition
or creditworthiness of any of the Loan Parties or any of their respective Affiliates which may come
into the possession of any Agent Related Person.

     9.08 Indemnification of Agents. Whether or not the transactions contemplated hereby are
consummated, the Lenders shall indemnify upon demand each Agent-Related Person (to the extent not
reimbursed by or on behalf of any Loan Party and without limiting the obligation of any Loan Party
to do so), pro rata, and hold harmless each Agent-Related Person from and against any and all
Indemnified

					
	 	 	 	 	 
	 
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Liabilities incurred by it; provided, however, that no Lender shall be liable for the
payment to any Agent-Related Person of any portion of such Indemnified Liabilities resulting from
such Person’s gross negligence or willful misconduct; provided, however, that no action taken in
accordance with the directions of the Required Lenders shall be deemed to constitute gross
negligence or willful misconduct for purposes of this Section. Without limitation of the
foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share
of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Administrative
Agent in connection with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or
legal advice in respect of rights or responsibilities under, this Agreement, any other Loan
Document, or any document contemplated by or referred to herein, to the extent that the
Administrative Agent is not reimbursed for such expenses by or on behalf of the Borrower. The
undertaking in this Section shall survive termination of the Revolving Commitments, the payment of
all Obligations hereunder and the resignation or replacement of the Administrative Agent.

     9.09 Administrative Agent in its Individual Capacity. Royal Bank of Canada and its Affiliates may
make loans to, accept deposits from, acquire equity interests in and generally engage in any kind
of banking, trust, financial advisory, underwriting or other business with each of the Loan Parties
and their respective Affiliates as though Royal Bank of Canada were not the Administrative Agent or
the L/C Issuer hereunder and without notice to or consent of the Lenders. The Lenders acknowledge
that, pursuant to such activities, Royal Bank of Canada or its Affiliates may receive information
regarding any Loan Party or its Affiliates (including information that may be subject to
confidentiality obligations in favor of such Loan Party or such Affiliate) and acknowledge that the
Administrative Agent shall be under no obligation to provide such information to them. With
respect to its Revolving Loans, Royal Bank of Canada shall have the same rights and powers under
this Agreement as any other Lender and may exercise such rights and powers as though it were not
the Administrative Agent or the L/C Issuer, and the terms “Lender” and “Lenders” include Royal Bank
of Canada in its individual capacity.

     9.10 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent
upon 30 days’ notice to the Lenders with a copy of such notice to the Borrower and may be removed
by the Required Lenders at any time with or without cause. If the Administrative Agent resigns or
is removed under this Agreement, the Required Lenders shall appoint from among the Lenders a
successor administrative agent for the Lenders which successor administrative agent shall be
consented to by the Borrower at all times other than during the existence of an Event of Default
(which consent of the Borrower shall not be unreasonably withheld or delayed). If no successor
administrative agent is appointed prior to the effective date of the resignation of the
Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders and
the Borrower, a successor administrative agent
from among the Lenders. Upon the acceptance of its appointment as successor administrative agent
hereunder, such successor administrative agent shall succeed to all the rights, powers and duties
of the retiring Administrative Agent and the term “Administrative Agent” shall mean such successor
administrative agent and the retiring Administrative Agent’s appointment, powers and duties as
Administrative Agent shall be terminated. After any retiring Administrative Agent’s resignation
hereunder as Administrative Agent, the provisions of this Article IX and Sections 10.04 and 10.13
shall inure to its benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement. If no successor administrative agent has accepted
appointment as Administrative Agent by the date which is 30 days following a retiring
Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the duties of the
Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor
agent as provided for above.

					
	 	 	 	 	 
	 
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     9.11 Other Agents; Arranger. None of the Lenders or other Persons identified on the facing page or
signature pages of this Agreement as any other type of agent (other than the Administrative Agent),
“arranger,” or “bookrunner” shall have any right, power, obligation, liability, responsibility or
duty under this Agreement other than those applicable to all Lenders as such. Without limiting the
foregoing, none of the Lenders so identified shall have or be deemed to have any fiduciary
relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely,
on any of the Lenders so identified in deciding to enter into this Agreement or in taking or not
taking action hereunder.

ARTICLE X.

MISCELLANEOUS

     10.01 Amendments, Release of Collateral, Etc.

     (a) No amendment or waiver of any provision of this Agreement or any other Loan Document, and
no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective
unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as
the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose for which given;
provided, however, that no such amendment, waiver or consent shall, unless in writing and signed by
each of the Lenders directly affected thereby and by the Borrower, and acknowledged by the
Administrative Agent, do any of the following:

          (i) extend or increase the Revolving Commitment of any Lender (or reinstate any
Revolving Commitment terminated pursuant to Section 8.02);

          (ii) postpone or delay any date fixed by this Agreement or any other Loan Document for
any payment of principal, interest, fees or other amounts due to the Lenders (or any of
them) hereunder or under any other Loan Document;

          (iii) reduce the principal of, or the rate of interest specified herein on, any
Revolving Loan or L/C Borrowing or (subject to clause (ii) of the proviso below) any fees or
other amounts payable hereunder or under any other Loan Document; provided, however, that
only the consent of the Required Lenders shall be necessary to amend the definition of
“Default Rate” or to waive any obligation of the Borrower to pay interest at the Default
Rate;

          (iv) change the percentage of the Aggregate Revolving Commitment or of the aggregate
unpaid principal amount of the Revolving Loans and L/C Obligations which is required for the
Lenders or any of them to take any action hereunder;

          (v) change the Pro Rata Share of any Lender;

          (vi) release more than $1,000,000 worth of Collateral or release any Guarantor from a
Guaranty (except in connection with a Disposition permitted under Section 7.07 or as
otherwise permitted under this Section 10.01); or

          (vii) amend this Section, or Section 2.12, or any provision herein providing for
unanimous consent or other action by all the Lenders;

					
	 	 	 	 	 
	 
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and, provided further: (i) no amendment, waiver or consent shall, unless in writing and signed by
the L/C Issuer in addition to the Required Lenders or all the Lenders, as the case may be, affect
the rights or duties of the L/C Issuer under this Agreement or any Letter of Credit Application
relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent
shall, unless in writing and signed by the Administrative Agent in addition to the Required Lenders
or all the Lenders, as the case may be, affect the rights or duties of the Administrative Agent
under this Agreement or any other Loan Document; and (iii) the Agent/Arranger Fee Letter may be
amended, or rights or privileges thereunder waived, in a writing executed only by the parties
thereto. Notwithstanding anything to the contrary herein, any Lender that has failed to fund any
portion of the Revolving Loans or participation in L/C Obligations required to be funded by it
hereunder shall not have any right to approve or disapprove any amendment, waiver or consent
hereunder, except that the Pro Rata Share of such Lender may not be increased without the consent
of such Lender.

     (b) Any amendment to any Loan Document which purports to (i) decrease the amount of any
mandatory prepayment or commitment reduction required by Section 2.04 or (ii) change this Section
10.01(b), must be by an instrument in writing executed by Borrower, the Administrative Agent, and
the Required Lenders.

     (c) Upon any Disposition of Collateral which is permitted pursuant to the Loan Documents, and
upon 10 Business Days’ prior written request by the Borrower (which request must be accompanied by
(i) true and correct copies of all material documents of transfer or disposition, including any
contract of sale, (ii) a preliminary closing statement and instructions to the title company, if
any, (iii) all requested release instruments in form and substance satisfactory to the
Administrative Agent and (iv) if required, written consent of the requisite Lenders), the
Administrative Agent shall (and is hereby irrevocably authorized by the Lenders to) execute such
documents as may be necessary to evidence the release of Liens granted to the Administrative Agent
for the benefit of the Lenders pursuant hereto in such Collateral. The Administrative Agent shall
not be required to execute any release instruments on terms which, in the Administrative Agent’s
opinion, would expose the Administrative Agent to liability or create any obligation or entail any
consequence other than the release of Liens without recourse or warranty. No such release shall
impair the Administrative Agent’s Lien on the proceeds of sale of such Collateral.

     (d) If all outstanding Revolving Loans and other Obligations have been indefeasibly paid in
full and the Revolving Commitments have terminated or have been reduced to zero, and, subject to
Section 10.01(e) all Lender Hedging Agreement have terminated, the Administrative Agent agrees
to, and the Lenders hereby instruct the Administrative Agent to, at the Borrower’s expense, execute
and authorize such releases of the Collateral Documents as the Borrower shall reasonably request
and this Agreement shall be deemed terminated except that such termination shall not relieve the
Borrower of any obligation to make any payments to the Administrative Agent or any Lender required
by any Loan Document to the extent accruing, or relating to an event occurring, prior to such
termination.

     (e) Notwithstanding any provision herein to the contrary, if the Revolving Commitments have
been terminated, and the only outstanding Obligations are amounts owed pursuant to one or more
Lender Hedging Agreements, the Administrative Agent will, and is hereby authorized to, (A) release
the Liens created under the Loan Documents and (B) release all Guaranties of the Borrower;
provided, that contemporaneously with such release, (i) the Borrower (and, if applicable, the
Subsidiary that is a party to such Lender Hedging Agreements) (A) executes a margin agreement in
form and substance acceptable to such Lender(s) (or its Affiliates) that are parties to such Lender
Hedging Agreements (the “Lender

					
	 	 	 	 	 
	 
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Counterparties”) and (B), if required, provides collateral in the
form of cash or a letter of credit having an aggregate value acceptable to such Lender
Counterparties, and (ii) if such Lender Hedging Agreement is executed by a Subsidiary of the
Borrower and the Borrower is not a party thereto, the Borrower executes a guaranty covering such
Subsidiary’s obligations thereunder, such guaranty to be in form and substance satisfactory to the
Lender Counterparties. Any release under this Section 10.01(e) must be in writing and signed by
the Administrative Agent.

     10.02 Notices and Other Communications; Facsimile Copies.

     (a) General. Unless otherwise expressly provided herein, all notices and other
communications provided for hereunder and under the other Loan Documents shall be in writing
(including by facsimile transmission) and mailed, faxed or delivered, to the address, facsimile
number or (subject to subsection (c) below) electronic mail address specified for notices on
Schedule 10.02 (for the Borrower, any Guarantor and the Administrative Agent) or on the
Administrative Details Form (for the other Lenders); or, in the case of the Borrower, the
Guarantors, the Administrative Agent, or the L/C Issuer, to such other address as shall be
designated by such party in a notice to the other parties, and in the case of any other party, to
such other address as shall be designated by such party in a notice to the Borrower, the
Administrative Agent and the L/C Issuer. All such notices and other communications shall be deemed
to be given or made upon the earlier to occur of (i) actual receipt by the intended recipient and
(ii) (A) if delivered by hand or by courier, when signed for by the intended recipient; (B) if
delivered by mail, five (5) Business Days after deposit in the mails, postage prepaid; (C) if
delivered by facsimile, when sent and receipt has been confirmed by telephone; and (D) if delivered
by electronic mail (which form of delivery is subject to the provisions of subsection (c) below),
when delivered; provided, however, that notices and other communications to the Administrative
Agent or the L/C Issuer pursuant to Article II shall not be effective until actually received by
such Person. Any notice or other communication permitted to be given, made or confirmed by
telephone hereunder shall be given, made or confirmed by means of a telephone call to the intended
recipient at the number specified in accordance with this Section, it being understood and agreed
that a voicemail message shall in no event be effective as a notice, communication or confirmation
hereunder.

     (b) Effectiveness of Facsimile Documents and Signatures. Loan Documents may be
transmitted and/or signed by facsimile. The effectiveness of any such documents and signatures
shall, subject to applicable Law, have the same force and effect as manually-signed originals and
shall be binding on all Loan Parties, the Administrative Agent and the Lenders. The Administrative
Agent may also require that any such documents and signatures be confirmed by a manually-signed
original thereof; provided, however, that the failure to request or deliver the same shall not
limit the effectiveness of any facsimile document or signature.

     (c) Limited Use of Electronic Mail. Electronic mail and internet and intranet
websites may be used only to distribute routine communications, such as financial statements and
other information, and to distribute Loan Documents for execution by the parties thereto, and shall
not be recognized hereunder for any other purpose.

     (d) Reliance by Administrative Agent, L/C Issuer and Lenders. The Administrative
Agent, L/C Issuer and the Lenders shall be entitled to rely and act upon any notices (including
telephonic Borrowing Notices) purportedly given by or on behalf of the Borrower even if (i) such
notices were not made in a manner specified herein, were incomplete or were not preceded or
followed by any other form

					
	 	 	 	 	 
	 
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of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied
from any confirmation thereof. The Borrower shall indemnify each Agent-Related Person and each
Lender from all losses, costs, expenses and liabilities resulting from the reliance by such Person
on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and
other communications with the Administrative Agent may be recorded by the Administrative Agent, and
each of the parties hereto hereby consents to such recording.

     10.03 No Waiver; Cumulative Remedies. No failure by any Lender or the Administrative Agent to
exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right,
remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise
of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein
or therein provided are cumulative and not exclusive of any rights, remedies, powers and privileges
provided by Law.

     10.04 Attorney Costs; Expenses and Taxes. The Borrower agrees (a) to pay or reimburse the
Administrative Agent for all costs and expenses associated with the due diligence and background
investigation undertaken in connection with this Agreement and incurred in connection with the
development, preparation, negotiation, syndication, administration and execution of this Agreement
and the other Loan Documents, including the filing, recording, refiling or rerecording of any
pledge agreement and any Security Agreement and/or any UCC financing statements relating thereto
and all amendments, supplements and modifications to any thereof and any and all other documents or
instruments of further assurance required to be filed or recorded or refiled or rerecorded by the
terms hereof or of any mortgage, any pledge agreement or any security agreement, and any amendment,
waiver, consent or other modification of the provisions hereof and thereof (whether or not the
transactions contemplated hereby or thereby are consummated), and the consummation and
administration of the transactions contemplated hereby and thereby, including all Attorney Costs,
and (b) to pay or reimburse the Administrative Agent and each Lender for all costs and expenses
incurred in connection with the enforcement, attempted enforcement, or preservation of any rights
or remedies under this Agreement or the other Loan Documents (including all such costs and expenses
incurred during any workout or restructuring in respect of the Obligations and during any legal
proceeding, including any proceeding under any Debtor Relief Law), including all Attorney Costs.
The foregoing costs and expenses shall include all search, filing, recording, title insurance and
appraisal charges and fees and taxes related thereto, and other out-of-pocket expenses incurred by
the Administrative Agent and the cost of independent public accountants and other outside experts
retained by the Administrative Agent or any Lender. The agreements in this Section shall survive
the termination of the Revolving Commitments and repayment of all the other Obligations.

     10.05 Indemnification. Whether or not the transactions contemplated hereby are consummated, the
Borrower and each Guarantor (by execution of a Guaranty), jointly and severally, agrees to
indemnify, save and hold harmless each Agent-Related Person, the Administrative Agent, the
Arranger, each Lender, the L/C Issuer and their respective Affiliates, directors, officers,
employees, counsel, agents and attorneys-in-fact (collectively the “Indemnitees”) from and against:
(a) any and all claims, demands, actions or causes of action that are asserted against any
Indemnitee by any Person (other than the Administrative Agent or any Lender) relating directly or
indirectly to a claim, demand, action or cause of action that such Person asserts or may assert
against any Loan Party, any Affiliate of any Loan Party or any of their respective officers or
directors, arising out of or relating to, the Loan Documents, the Revolving Commitments, the use or
contemplated use of the proceeds of any Revolving Loans, or the relationship of any Loan Party, the
Administrative Agent, the Lenders and the L/C Issuer under this

					
	 	 	 	 	 
	 
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Agreement or any other Loan Document; (b) any and all claims, demands, actions or causes of action
that may at any time (including at any time following repayment of the Obligations and the
resignation of the Administrative Agent or the replacement of any Lender) be asserted or imposed
against any Indemnitee by any Person or by the Borrower or any other Loan Party, arising out of or
relating to, the Loan Documents, the Revolving Commitments, the use or contemplated use of the
proceeds of any Revolving Loans, or the relationship of any Loan Party, the Administrative Agent,
the Lenders and the L/C Issuer under this Agreement or any other Loan Document; (c) without
limiting the foregoing, any and all claims, demands, actions or causes of action, judgments and
orders, penalties and fines that are asserted or imposed against any Indemnitee, (i) under the
application of any Environmental Law applicable to the Borrower or any of its Subsidiaries or any
of their properties or assets, including the treatment or disposal of Hazardous Substances on any
of their properties or assets, (ii) as a result of the breach or non-compliance by the Borrower or
any Subsidiary with any Environmental Law applicable to the Borrower or any Subsidiary, (iii) due
to past ownership by the Borrower or any Subsidiary of any of their properties or assets or past
activity on any of their properties or assets which, though lawful and fully permissible at the
time, could result in present liability, (iv) due to the presence, use, storage, treatment or
disposal of Hazardous Substances on or under, or the escape, seepage, leakage, spillage, discharge,
emission or Release from, any of the properties owned or operated by the Borrower or any Subsidiary
(including any liability asserted or arising under any Environmental Law), regardless of whether
caused by, or within the control of, the Borrower or such Subsidiary, or (v) due to any other
environmental, health or safety condition in connection with the Loan Documents; (d) any
administrative or investigative proceeding by any Governmental Authority arising out of or related
to a claim, demand, action or cause of action described in subsection (a), (b) or (c) above; and
(e) any and all liabilities (including liabilities under indemnities), losses, costs, damages or
expenses (including Attorney Costs and settlement costs) that any Indemnitee suffers or incurs as a
result of the assertion of any foregoing claim, demand, action, cause of action or proceeding, or
as a result of the preparation of any defense in connection with any foregoing claim, demand,
action, cause of action or proceeding, in all cases, WHETHER OR NOT ARISING OUT OF THE STRICT
LIABILITY OR NEGLIGENCE OF AN INDEMNITEE, and whether or not an Indemnitee is a party to such
claim, demand, action, cause of action or proceeding (all the foregoing, collectively, the
"Indemnified Liabilities”); provided that no Indemnitee shall be entitled to indemnification for
any claim to the extent caused by its own gross negligence or willful misconduct. The agreements
in this Section shall survive and continue for the benefit of the Indemnitees at all times after
the Borrower’s acceptance of the Lenders’ Revolving Commitments under this Agreement, whether or
not the First Amendment Closing Date shall occur and shall survive the termination of the Revolving
Commitments and repayment of all the other Obligations.

     10.06 Payments Set Aside. To the extent that the Borrower makes a payment to the Administrative
Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and
such payment or the proceeds of such set-off or any part thereof is subsequently invalidated,
declared to be fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid
to a trustee, receiver or any other party, in connection with any proceeding under any Debtor
Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof
originally intended to be satisfied shall be revived and continued in full force and effect as if
such payment had not been made or such setoff had not occurred, and (b) each Lender severally
agrees to pay to the Administrative Agent upon demand its applicable share of any amount so
recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such
demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from
time to time in effect.

					
	 	 	 	 	 
	 
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     10.07 Successors and Assigns.

     (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns permitted hereby, except that the
Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without
the prior written consent of each Lender and no Lender may assign or otherwise transfer any of its
rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the
provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the
provisions of paragraph (d) of this Section or (iii) by way of pledge or assignment of a security
interest subject to the restrictions of paragraph (f) of this Section (and any other attempted
assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than the parties hereto,
their respective successors and assigns permitted hereby, Participants to the extent provided in
paragraph (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties
of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim
under or by reason of this Agreement.

     (b) Any Lender may at any time assign to one or more Eligible Assignees all or a portion of
its rights and obligations under this Agreement (including all or a portion of its Revolving
Commitment and the Revolving Loans (including for purposes of this subsection (b), participations
in L/C Obligations) at the time owing to it); provided that: (i) except in the case of an
assignment of the entire remaining amount of the assigning Lender’s Revolving Commitment and the
Revolving Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate
of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Revolving
Commitment (which for this purpose includes Revolving Loans outstanding thereunder) or, if the
applicable Revolving Commitment is not then in effect, the outstanding principal balance of the
Revolving Loans of the assigning Lender subject to each such assignment (determined as of the date
the Assignment and Assumption with respect to such assignment is delivered to the Administrative
Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date)
shall not be less than $1,000,000, unless each of the Administrative Agent, L/C Issuer and, so long
as no Default has occurred and is continuing, the Borrower otherwise consent (Borrower’s consent
not to be unreasonably withheld, conditioned or delayed); (ii) each partial assignment shall be
made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations
under this Agreement with respect to the Revolving Loans and/or the Revolving Commitment assigned;
and (iii) the parties to each assignment shall execute and deliver to the Administrative Agent an
Assignment and Assumption, together with a processing and recordation fee of $3,500, and the
Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an
Administrative Details Form. Subject to acceptance and recording thereof by the Administrative
Agent pursuant to paragraph (c) of this Section, from and after the effective date specified in
each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement
and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Assumption, be released from its obligations
under this Agreement (and, in the case of an Assignment and Assumption covering all of the
assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a
party hereto) but shall continue to be entitled to the benefits of Sections 3.07, 10.04 and 10.05
with respect to facts and circumstances occurring prior to the effective date of such assignment.
Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not
comply with this paragraph shall be treated for purposes of this Agreement as a

					
	 	 	 	 	 
	 
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sale by such Lender of a participation in such rights and obligations in accordance with
paragraph (d) of this Section.

     (c) The Administrative Agent, acting solely for this purpose as an agent of the Borrower,
shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a
register for the recordation of the names and addresses of the Lenders, and the Revolving
Commitments of, and principal amounts of the Revolving Loans and L/C Obligations owing to, each
Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the
Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent and
the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrower and any Lender, at any
reasonable time and from time to time upon reasonable prior notice.

     (d) Any Lender may at any time, without the consent of, or notice to, the Borrower, the
Administrative Agent or the L/C Issuer, sell participations to any Person (other than a natural
person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”)
in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all
or a portion of its Revolving Commitment and/or the Revolving Loans (including such Lender’s
participation in L/C Obligations) owing to it); provided that (i) such Lender’s obligations under
this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations and (iii) the Borrower, the
Administrative Agent and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement
or instrument pursuant to which a Lender sells such a participation shall provide that such Lender
shall retain the sole right to enforce this Agreement and to approve any amendment, modification or
waiver of any provision of this Agreement; provided that such agreement or instrument may provide
that such Lender will not, without the consent of the Participant, agree to any amendment,
modification or waiver that would (i) postpone any date upon which any payment of money is
scheduled to be paid to such Participant, (ii) reduce the principal, interest, fees or other
amounts payable to such Participant, or (iii) extend the Maturity Date. Subject to subsection (e)
of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of
Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its
interest by assignment pursuant to subsection (b) of this Section. To the extent permitted by Law,
each Participant also shall be entitled to the benefits of Section 10.09 as though it were a
Lender; provided such Participant agrees to be subject to Section 2.12 as though it were a Lender.

     (e) A Participant shall not be entitled to receive any greater payment under Section 3.01 or
3.04 than the applicable Lender would have been entitled to receive with respect to the
participation sold to such Participant, unless the sale of the participation to such Participant is
made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it
were a Lender shall not be entitled to the benefits of Section 3.01 unless the Borrower is notified
of the participation sold to such Participant and such Participant agrees, for the benefit of the
Borrower, to comply with Section 10.15 as though it were a Lender.

     (f) Any Lender may at any time pledge or assign a security interest in all or any portion of
its rights under this Agreement (including under its Revolver Note, if any) to secure obligations
of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank;
provided that no such pledge or assignment shall release a Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

					
	 	 	 	 	 
	 
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     (g) If the consent of the Borrower to an assignment or to an Eligible Assignee is required
hereunder (including a consent to an assignment which does not meet the minimum assignment
threshold specified in clause (i) of the proviso to the first sentence of Section 10.07(b)), the
Borrower shall be deemed to have given its consent five Business Days after the date notice thereof
has been delivered by the assigning Lender (through the Administrative Agent) unless such consent
is expressly refused by the Borrower prior to such fifth Business Day.

     (h) Notwithstanding anything to the contrary contained herein, if at any time Royal Bank of
Canada assigns all of its Revolving Commitment and Revolving Loans pursuant to subsection (b)
above, Royal Bank of Canada may, (i) upon 30 days’ notice to the Borrower and the Lenders, resign
as L/C Issuer. In the event of any such resignation as L/C Issuer, the Borrower shall be entitled
to appoint from among the Lenders a successor L/C Issuer hereunder; provided, however, that no
failure by the Borrower to appoint any such successor shall affect the resignation of Royal Bank of
Canada as L/C Issuer. Royal Bank of Canada shall retain all the rights and obligations of the L/C
Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its
resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to
require the Lenders to make Base Rate Loans or fund participations in Unreimbursed Amounts pursuant
to Section 2.14(c)).

     10.08 Confidentiality. Each Lender agrees that it will not disclose without the prior consent of
the Borrower (other than to directors, officers, employees, auditors, accountants, counsel or other
professional advisors of the Administrative Agent or any Lender) any information with respect to
the Borrower or its Subsidiaries, which is furnished pursuant to this Agreement and which (i) the
Borrower in good faith considers to be confidential and (ii) is either clearly marked confidential
or is designated by the Borrower to the Administrative Agent or the Lenders in writing as
confidential; provided that any Lender may disclose any such information (a) as has become
generally available to the public, (b) as may be required or appropriate in any report, statement
or testimony submitted to or required by any municipal, state or federal regulatory body having or
claiming to have jurisdiction over such Lender or submitted to or required by the Board or the
Federal Deposit Insurance Corporation or similar organizations (whether in the United States or
elsewhere) or their successors, (c) as may be required or appropriate in response to any summons or
subpoena in connection with any litigation, (d) in order to comply with any Law, order, regulation
or ruling applicable to such Lender, (e) to any Eligible Assignee of or Participant in, or any
prospective Eligible Assignee of or Participant in, any of its rights or obligations under this
Agreement; provided that such Eligible Assignee or Participant or prospective Eligible Assignee or
Participant executes an agreement containing provisions substantially similar to those contained in
this Section 10.08, (f) in connection with the exercise of any remedy by such Lender following an
Event of Default pertaining to the Loan Documents, (g) in connection with any litigation involving
such Lender pertaining to the Loan Documents, (h) to any Lender or the Administrative Agent, or (i)
to any Affiliate of any Lender (it being understood that the Persons to whom such disclosure is
made will be informed of the confidential nature of such information and obligated to keep such
information confidential); provided further, that notwithstanding anything in this Agreement to the
contrary, the Borrower, the Administrative Agent, the L/C Issuer, each Lender and each Related
Party may disclose to any and all Persons, without limitation of any kind, the tax treatment and
tax structure of the transactions contemplated hereby and all materials of any kind (including
opinions or other tax analysis) that are provided to it relating to such tax treatment and tax
structure; and nothing in the foregoing authorization shall apply to any disclosure that would
constitute a violation of applicable federal or state securities Laws.

     10.09 Set-off. In addition to any rights and remedies of the Lenders provided by Law, upon the
occurrence and during the continuance of any Event of Default, each Lender is authorized at any
time and

					
	 	 	 	 	 
	 
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from time to time, without prior notice to the Borrower or any other Loan Party, any such notice
being waived by the Borrower (on its own behalf and on behalf of each Loan Party) to the fullest
extent permitted by Law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held by, and other indebtedness at any time owing by,
such Lender to or for the credit or the account of the respective Loan Parties against any and all
Obligations owing to the Administrative Agent and the Lenders, now or hereafter existing,
irrespective of whether or not the Administrative Agent or such Lender shall have made demand under
this Agreement or any other Loan Document and although such Obligations may be contingent or
unmatured. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after
any such set-off and application made by such Lender; provided, however, that the failure to give
such notice shall not affect the validity of such set-off and application.

     10.10 Interest Rate Limitation. Regardless of any provision contained in any Loan Document,
neither the Administrative Agent nor any Lender shall ever be entitled to contract for, charge,
take, reserve, receive, or apply, as interest on all or any part of the Obligations, any amount in
excess of the Maximum Rate, and, if any Lender ever does so, then such excess shall be deemed a
partial prepayment of principal and treated hereunder as such and any remaining excess shall be
refunded to the Borrower. In determining if the interest paid or payable exceeds the Maximum Rate,
the Borrower and the Lenders shall, to the maximum extent permitted under applicable Law, (a) treat
all Borrowings as but a single extension of credit (and the Lenders and the Borrower agree that
such is the case and that provision herein for multiple Borrowings is for convenience only), (b)
characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (c)
exclude voluntary prepayments and the effects thereof, and (d) amortize, prorate, allocate, and
spread the total amount of interest throughout the entire contemplated term of the Obligations.
However, if the Obligations are paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period of existence thereof
exceeds the Maximum Amount, the Lenders shall refund such excess, and, in such event, the Lenders
shall not, to the extent permitted by Law, be subject to any penalties provided by any Laws for
contracting for, charging, taking, reserving or receiving interest in excess of the Maximum Amount.
To the extent the Laws of the State of Texas are applicable for purposes of determining the
"Maximum Rate” or the “Maximum Amount,” then those terms mean the “weekly ceiling” from time to
time in effect under Texas Finance Code § 303.001, as limited by Texas Finance Code § 303.009. The
Borrower agrees that Chapter 346 of the Texas Finance Code, as amended (which regulates certain
revolving credit loan accounts and revolving tri-party accounts), does not apply to the
Obligations.

     10.11 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.

     10.12 Integration. This Agreement, together with the other Loan Documents, comprises the complete
and integrated agreement of the parties on the subject matter hereof and thereof and supersedes all
prior agreements, written or oral, on such subject matter. In the event of any conflict between
the provisions of this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control; provided that the inclusion of supplemental rights or remedies in favor of
the Administrative Agent or the Lenders in any other Loan Document shall not be deemed a conflict
with this Agreement. Each Loan Document was drafted with the joint participation of the respective
parties thereto and shall be construed neither against nor in favor of any party, but rather in
accordance with the fair meaning thereof.

					
	 	 	 	 	 
	 
	 	78
	 	Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

     10.13 Survival of Representations and Warranties. All representations and warranties made
hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or
in connection herewith or therewith shall survive the execution and delivery hereof and thereof.
Such representations and warranties have been or will be relied upon by the Administrative Agent
and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or
on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice
or knowledge of any Default or Event of Default at the time of any Borrowing, and shall continue in
full force and effect as long as any Revolving Loan or any other Obligation shall remain unpaid or
unsatisfied.

     10.14 Severability. Any provision of this Agreement and the other Loan Documents to which the
Borrower is a party that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions thereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

     10.15 Foreign Lenders. Each Lender that is a “foreign corporation, partnership or trust”
within the meaning of the Code (a “Foreign Lender”) shall deliver to the Administrative Agent,
prior to receipt of any payment subject to withholding under the Code (or after accepting an
assignment of an interest herein), two duly signed completed copies of either IRS Form W-8BEN or
any successor thereto (relating to such Person and entitling it to an exemption from, or reduction
of, withholding tax on all payments to be made to such Person by the Borrower pursuant to this
Agreement) or IRS Form W-8ECI or any successor thereto (relating to all payments to be made to such
Person by the Borrower pursuant to this Agreement) or such other evidence satisfactory to the
Borrower and the Administrative Agent that such Person is entitled to an exemption from, or
reduction of, U.S. withholding tax. Thereafter and from time to time, each such Person shall (a)
promptly submit to the Administrative Agent such additional duly completed and signed copies of one
of such forms (or such successor forms as shall be adopted from time to time by the relevant United
States taxing authorities) as may then be available under then current United States Laws and
regulations to avoid, or such evidence as is satisfactory to the Borrower and the Administrative
Agent of any available exemption from or reduction of, United States withholding taxes in respect
of all payments to be made to such Person by the Borrower pursuant to this Agreement, (b) promptly
notify the Administrative Agent of any change in circumstances which would modify or render invalid
any claimed exemption or reduction, and (c) take such steps as shall not be materially
disadvantageous to it, in the reasonable judgment of such Lender, and as may be reasonably
necessary (including the re-designation of its Lending Office) to avoid any requirement of
applicable Laws that the Borrower make any deduction or withholding for taxes from amounts payable
to such Person. If such Person fails to deliver the above forms or other documentation, then the
Administrative Agent may withhold from any interest payment to such Person an amount equivalent to
the applicable withholding tax imposed by Sections 1441 and 1442 of the Code, without reduction.
If any Governmental Authority asserts that the Administrative Agent did not properly withhold any
tax or other amount from payments made in respect of such Person, such Person shall indemnify the
Administrative Agent therefor, including all penalties and interest, any taxes imposed by any
jurisdiction on the amounts payable to the Agent under this Section, and costs and expenses
(including Attorney Costs) of the Administrative Agent. The obligation of the Lenders under this
Section shall survive the payment of all Obligations and the resignation or replacement of the
Administrative Agent.

					
	 	 	 	 	 
	 
	 	79
	 	Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

     10.16 Governing Law.

     (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF TEXAS APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE;
PROVIDED THAT THE ADMINISTRATIVE AGENT AND EACH LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER UNITED
STATES FEDERAL LAW.

     (b) EACH LOAN PARTY AND OTHER PARTY HERETO, AND EACH GUARANTOR, BY EXECUTION OF A GUARANTY,
AGREES AS TO THIS SECTION 10.16(b). ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS SITTING IN HARRIS
COUNTY OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF SUCH STATE, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH LENDER CONSENTS, AND BY
EXECUTION OF A GUARANTY, EACH GUARANTOR CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. THE BORROWER, EACH GUARANTOR, THE ADMINISTRATIVE AGENT
AND EACH LENDER (1) IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF ANY LOAN DOCUMENT OR OTHER
DOCUMENT RELATED THERETO, AND (2) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, AT ITS ADDRESS FOR NOTICES DESIGNATED
HEREIN. THE BORROWER, EACH GUARANTOR, THE ADMINISTRATIVE AGENT AND EACH LENDER WAIVES PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED
BY THE LAW OF SUCH STATE.

     10.17 Waiver of Right to Trial by Jury, Etc. EACH PARTY TO THIS AGREEMENT AND EACH GUARANTOR, BY
EXECUTION OF A GUARANTY, HEREBY (a) EXPRESSLY AND IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES TO THE LOAN DOCUMENTS OR ANY
OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR OTHERWISE;
AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
THE LOAN PARTIES TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY; AND (b) EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN
ANY SUCH ACTION ANY

					
	 	 	 	 	 
	 
	 	80
	 	Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES; PROVIDED THAT THE WAIVER CONTAINED IN THIS SECTION 10.17(b) SHALL NOT APPLY TO THE
EXTENT THAT THE PARTY AGAINST WHOM DAMAGES ARE SOUGHT HAS ENGAGED IN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.

     10.18 Termination of Commitments Under Original Credit Agreement. As of the First Amendment
Closing Date, the aggregate commitments under the Original Credit Agreement are terminated and the
Administrative Agent and the Lenders hereby waive any right to receive prior notice of such
termination. Each Lender agrees upon the First Amendment Closing Date to return to Borrower with
reasonable promptness all “Notes” as defined under the Original Credit Agreement which were
delivered by the Borrower in exchange for new Revolver Notes to be issued pursuant to this
Agreement.

     10.19 No Novations, Etc. To the extent of the aggregate commitment outstanding under the
Original Credit Agreement ($55,000,000), nothing contained herein shall be deemed a novation of or
a repayment or new advance of any obligation of the Borrower hereunder. Only to the extent of an
increase in the Aggregate Revolving Commitments over that amount shall there be deemed to be a new
advance by the Lenders to the Borrower under this Agreement. The Indebtedness owing under the
Original Credit Agreement is renewed, rearranged, extended and carried forward by this Agreement
and all of the liens and security interests securing the “Obligations” as defined in the Original
Credit Agreement are carried forward and secure, without interruption or loss or priority, the
Obligations under this Agreement.

     10.20 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.

[REMAINDER OF PAGE INTENTIONALLY BLANK;

SIGNATURES BEGIN ON NEXT PAGE]

					
	 	 	 	 	 
	 
	 	81
	 	Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the
date first above written.

	 	 	 	 	 
	 	ALLIS-CHALMERS ENERGY INC.,

a Delaware corporation, as Borrower

 	 
	 	By:  	/s/ Victor M. Perez
 	 
	 	 	Victor M. Perez 	 
	 	 	Chief Financial Officer 	 
	 

Signature Page 1

					
	 	 	 	 	 
	 
	 	 
	 	Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

	 	 	 	 	 
	 	ROYAL BANK OF CANADA,

as Administrative Agent

 	 
	 	By:  	/s/ David Wheatley
 	 
	 	 	David Wheatley 	 
	 	 	Manager, Agency 	 
	 
	 	ROYAL BANK OF CANADA,

as Collateral Agent

 	 
	 	By:  	/s/ David Wheatley
 	 
	 	 	David Wheatley 	 
	 	 	Manager, Agency 	 
	 

Signature Page 2

					
	 	 	 	 	 
	 
	 	 
	 	Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

	 	 	 	 	 
	 	ROYAL BANK OF CANADA, as Lender

and L/C Issuer

 	 
	 	By:  	/s/ Jason York
 	 
	 	 	Jason York 	 
	 	 	Authorized Signatory 	 
	 

Signature Page 3

					
	 	 	 	 	 
	 
	 	 
	 	Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

	 	 	 	 	 
	 	CATERPILLAR FINANCIAL

SERVICES CORPORATION, as Lender

 	 
	 	By:  	/s/ Jennifer Coyle
 	 
	 	 	Jennifer Coyle 	 
	 	 	Manager Capital Markets 	 
	 

Signature Page 4

					
	 	 	 	 	 
	 
	 	 
	 	Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

	 	 	 	 	 
	 	COMMERCEBANK, N.A., as Lender

 	 
	 	By:  	/s/ Mark M. Isensee
 	 
	 	 	Mark M. Isensee 	 
	 	 	Vice President-Oil & Gas Manager 	 
	 
	 	 	 
	 	By:  	                                              /s/ Francisco Rivero
 	 
	 	 	Francisco Rivero 	 
	 	 	Senior Vice President & Manager 	 
	 

Signature Page 5

					
	 	 	 	 	 
	 
	 	 
	 	Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

SCHEDULE 2.01

REVOLVING COMMITMENTS

	 	 	 	 	 
	Lender	 	Revolving Commitment	 
	Royal Bank of Canada
	 	$	9,000,000.00	 
	Caterpillar Financial Services Corporation
	 	$	8,000,000.00	 
	Commercebank, N.A.
	 	$	8,000,000.00	 
	Total:
	 	$	25,000,000.00	 

SCHEDULE 2.01

Allis-Chalmers

 

 

SCHEDULE 5.05

EXISTING INDEBTEDNESS

($ in 000’s)

	 	 	 	 	 
	9.0% Senior Notes
	 	 	160,000	 
	 
	 	 	 	 
	Other
Indebtedness
	 	 	 	 
	M-I Subordinated Note
	 	 	4,000	 
	Capcoil/Downhole Equipment Notes
	 	 	0	 
	Capcoil Non-Compete
	 	 	330	 
	Delta Rental Seller Note
	 	 	350	 
	Jens’ Non-Compete
	 	 	267	 
	Mountain Air Seller Note
	 	 	500	 
	N/P to Former A-C Directors
	 	 	96	 
	Safco Non-Compete
	 	 	125	 
	Caterpillar Financial Notes
	 	 	1,402	 
	Total
	 	 	7,070	 
	Total
	 	$	167,070	 

Schedule 5.05

Allis-Chalmers

Amended & Restated Credit Agreement

 

 

SCHEDULE 5.13

SUBSIDIARIES

AND OTHER EQUITY INVESTMENTS

	(a)	 	Subsidiaries as of the First Amendment Closing Date:

	 	 	 	 	 
	Name	 	Jurisdiction of Organization	 	Ownership
	OilQuip Rentals, Inc.

	 	Delaware
	 	100% owned by the
Borrower
	 
	 	 	 	 
	Allis-Chalmers Tubular Services, Inc.

	 	Texas
	 	100% owned by the
Borrower
	 
	 	 	 	 
	Strata Directional Technology, Inc.

	 	Texas
	 	100% owned by the Borrower
	 
	 	 	 	 
	Downhole Injection Systems, LLC

	 	Texas
	 	100% owned by the Borrower
	 
	 	 	 	 
	AirComp, LLC

	 	Delaware
	 	100% owned by the Borrower
	 
	 	 	 	 
	Mountain Compressed Air, Inc.

	 	Texas
	 	100% owned by OilQuip Rentals, Inc.
	 
	 	 	 	 
	Delta Rental Service, Inc.

	 	Louisiana
	 	100% owned by the
Borrower
	 
	 	 	 	 
	Safco-Oil Field Products, Inc.

	 	Texas
	 	100% owned by the
Borrower
	 
	 	 	 	 
	Capcoil Tubing Services, Inc.

	 	Texas
	 	100% owned by the
Borrower
	 
	 	 	 	 
	Target Energy, Inc.

	 	Delaware
	 	100% owned by the
Borrower
	 
	 	 	 	 
	Specialty Rental Tools, Inc.

	 	Louisiana
	 	100% owned by the Borrower

	(b)	 	Other Equity Investments as of the First Amendment Closing Date:
	 
	(c)	 	Other Investments as of the First Amendment Closing Date:

Schedule 5.13

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

SCHEDULE 5.22

LEASED LOCATIONS

Borrower

1. Leased office space in Houston, Texas

AirComp

1. Leased site in Grand Junction, Colorado

2. Leased site in Farmington, New Mexico

3. Leased site in Fort Stockton, Texas

4. Leased site in San Angelo, Texas

5. Leased site in Carlsbad, New Mexico

6. Leased site in Denver, Colorado

7. Leased site in Houston, Texas

8. Leased site in Wilburton, Oklahoma

9. Leased site in Grandbury, Texas

10. Leased site in Sonora, Texas

AC Tubular

1. Leased site in Victoria, Texas

2. Leased site in Pearsall, Texas

3. Leased site in Edinburg, Texas

4. Leased site in Lafayette, Louisiana

5. Leased site in Houma, Louisiana

6. Leased site in Corpus Christi, Texas

Strata

1. Leased site in Houston, Texas

2. Leased site in Midland, Texas

3. Leased site in Corpus Christi, Texas

4. Leased site in Oklahoma City, Oklahoma

Safco

1. Leased site in Houston, Texas

Delta

1. Leased site in Lafayette, Louisiana

Downhole

1. Leased site in Midland, Texas

2. Leased site in Corpus Christi, Texas

3. Leased site in Carthage, Texas

Schedule 5.22

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

Capcoil

1. Leased site in Kilgore, Texas

Target Energy, Inc.

1. Leased site in Houston, Texas

Specialty Rental Tools, Inc.

1. Leased site in Broussard, Louisiana

Schedule 5.22

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

SCHEDULE 5.23

MATERIAL AGREEMENTS

	1	 	Lease Agreement between Materiales y Equipo Petroleo, S.A. de C.V. (Matyep) and Jens’ Oil Field
Service, now known as Allis-Chalmers Tubular Services, Inc. dated August 4, 1997.
	 
	2.	 	Indenture for Senior Unsecured Notes between Wells Fargo Bank, N.A., as trustee, and Borrower
and its Subsidiaries named therein.

Schedule 5.23

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

SCHEDULE 7.01

EXISTING LIENS

	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	Debtor	 	Creditor	 	Asset Secured	 	Filing Jurisdiction
	AC Tubular

	 	PACCAR
	 	4 Trucks
	 	Hidalgo

County, Texas
	AC Tubular

	 	Texas State Bank
	 	Yard in Edinburg,
Texas
	 	Hidalgo

County, Texas
	AC Tubular

	 	Jens H. Mortensen, Jr.
	 	Tools, machinery
and equipment
	 	Hidalgo

County, Texas
	AC Tubular

	 	Jens H. Mortensen, Jr.
	 	Equipment in
Mexico
	 	Mexico
	 
	AC Tubular

	 	Texas State Bank
	 	3 Forklifts
9 Vehicles
	 	Hidalgo
County, Texas
	 
	Downhole Injection Systems

	 	Ford Motor Credit
	 	Ford vehicle
	 	Midland County,
Texas
	 
	Capcoil Tubing Services

	 	Navistar
	 	3 Trucks
	 	Gregg County, Texas
	 
	Capcoil Tubing Services

	 	Ford Motor Credit
	 	7 Vehicles
	 	Gregg County, Texas
	 
	Borrower and AirComp

	 	Caterpillar
	 	Air compressors
	 	Delaware and Texas

Schedule 7.01

 

Allis-Chalmers
Energy
Amended & Restated Credit Agreement

 

SCHEDULE 7.12

AGREEMENTS RESTRICTING LIENS ON LEASEHOLD INTERESTS

NONE.

Schedule 7.12

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

SCHEDULE 10.02

ADDRESSES FOR NOTICES TO BORROWER,

GUARANTORS AND ADMINISTRATIVE AGENT

ADDRESS FOR NOTICES TO BORROWER

ALLIS-CHALMERS ENERGY INC.

5075 Westheimer

Suite 890

Houston, Texas 77056

Attn: General Counsel

Telephone: (713) 369-0550

Facsimile: (713)

ADDRESS FOR NOTICES TO GUARANTORS

[Name of Guarantor]

5075 Westheimer

Suite 890

Houston, Texas 77056

Attn: General Counsel

Telephone: (713) 369-0550

Facsimile: (713)

ADDRESSES FOR ROYAL BANK OF CANADA

Royal Bank of Canada’s Lending Office:

Royal Bank of Canada

New York Branch

One Liberty Plaza, 3rd Floor

New York, New York 10006-1404

Attention: Manager, Loans Administration

Telephone: (212) 428-6332

Facsimile: (212) 428-2372

For matters related to letters of credit:

Attention: Manager, Trade Products

Telephone: (212) 428-6235

Facsimile: (212) 428-3015

Schedule 10.2 — Page 1

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

in each case with a copy to:

Royal Bank of Canada

2800 Post Oak Boulevard

3900 Williams Tower

Houston, Texas 77056

Attention: Jason York

Telephone: (713) 403-5679

Facsimile: (713) 403-5624

Electronic Mail: Jason.York@rbccm.com

Administrative Agent’s Office:

Royal Bank of Canada

Agency Services Group

Royal Bank Plaza

P. O. Box 50, 200 Bay Street

12th Floor, South Tower

Toronto, Ontario M5J 2W7

Attention: Manager Agency

Telephone: (416) 842-3901

Facsimile: (416) 842-4023

Wiring Instructions:

JPMorgan Chase Bank, New York, New York

ABA 021-000021

For account Royal Bank of Canada, New York

Swift Code: ROYCUS3X

A/C 920-1033363

For further credit to A/C 293-746-4, Transit 1269

Ref: Allis-Chalmers Energy

Attn: Agency Services

Schedule 10.2 — Page 2

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

EXHIBIT A-1

FORM OF BORROWING NOTICE

Date:                                         ,                    

Royal Bank of Canada,

as Administrative Agent

Global Banking Agency

Royal Bank Plaza, 200 Bay Street

12th Floor, South Tower

Toronto ON M5J 2W7

Ladies and Gentlemen:

     Reference is made to that certain Amended and Restated Credit Agreement, dated as of January
18, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time
to time, the “Agreement;” the terms defined therein being used herein as therein defined), among
Allis-Chalmers Energy Inc., a Delaware corporation (the “Borrower”), Royal Bank of Canada, as
Administrative Agent, and the Lenders from time to time party thereto.

     The undersigned hereby requests a revolving loan:

I. REVOLVER FACILITY

	 	1.	 	Status Information for the Revolver Facility

	 	(a)	 	Amount of Revolver Facility: $25,000,000
	 
	 	(b)	 	Revolving Loans outstanding prior to the
Borrowing requested herein: $                    
	 
	 	(c)	 	Letters of Credit outstanding prior to the
Borrowing requested herein: $                    
	 
	 	(d)	 	Principal amount of Revolving Loans available
to be borrowed (1(a) minus the sum of 1(b) and 1(c)): $                    

	 	2.	 	Amount of Borrowing: $                    
	 
	 	3.	 	Requested date of Borrowing:                                         , 200_; must be
prior to Maturity Date.
	 
	 	4.	 	Requested interest rate Type of Revolving Loan and applicable Dollar amount:

	 	(a)	 	Base Rate Revolving Loan for $                    
	 
	 	(b)	 	Eurodollar Rate Revolving Loan with Interest
Period of:

	 	(i)	 	one month for $                    

Exhibit A — 1 — Page 1

Form of Borrowing Notice

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

	 	 	 	 	 	 	 
	 

	 	(ii)
	 	two months for
	 	$                                        
	 

	 	(iii)
	 	three months for
	 	$                                        
	 

	 	(iv)
	 	six months for
	 	$                                        

     The undersigned hereby certifies that the following statements will be true on the date of the
proposed Borrowing(s) after giving effect thereto and to the application of the proceeds therefrom:

     (a) the representations and warranties of the Borrower contained in Article V of the Agreement
are true and correct as though made on and as of such date (except such representations and
warranties which expressly refer to an earlier date, which are true and correct as of such earlier
date);

     (b) with respect to a Borrowing of Revolving Loans, if any, the amount of the requested
Borrowing, when added to Revolving Loans outstanding prior to the Borrowing and Letters of Credit
outstanding prior to the Borrowing will not exceed the Aggregate Revolving Commitment; and

     (c) no Default or Event of Default has occurred and is continuing, or would result from such
proposed Borrowing(s).

     The Borrowing requested herein complies with Sections 2.01, 2.03, 4.01, 4.02 and 4.04 of the
Agreement, as applicable.

	 	 	 	 	 
	 	 	ALLIS-CHALMERS ENERGY INC.,

	 	 	a Delaware corporation, as Borrower
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

Exhibit A-1 — Page 2

Form of Borrowing Notice

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

EXHIBIT A-2

FORM OF CONVERSION/CONTINUATION NOTICE

Date:                                         ,                     

Royal Bank of Canada,

as Administrative Agent

Global Banking Agency

Royal Bank Plaza, 200 Bay Street

12th Floor, South Tower

Toronto ON M5J 2W7

Ladies and Gentlemen:

     Reference is made to that certain Amended and Restated Credit Agreement, dated as of January
18, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time
to time, the “Agreement;” the terms defined therein being used herein as therein defined), among
Allis-Chalmers Energy Inc., a Delaware corporation (the “Borrower”), Royal Bank of Canada, as
Administrative Agent, and the Lenders from time to time party thereto.

     The undersigned hereby requests:

I. REVOLVER FACILITY

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	1.	 	 	Amount of [conversion] [continuation]:	 	$                                        
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	2.	 	 	Existing rate:	 	Check applicable blank
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(a)	 	Base Rate	 	                                          
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	(b)	 	Eurodollar Rate Loan with	 	 
	 	 	 	 	 	 	 	 	Interest Period of:	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	(i)
	 	one month	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	(ii)
	 	two months	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	(iii)
	 	three months	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	(iv)
	 	six months	 	 
	 

	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	3.	 	 	If a Eurodollar Rate Loan, date of the last day of the Interest
	 	 	 	 	 	 	Period for such Loan:                                         , 200                    .

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	The Revolving Loan described above is to be [converted] [continued] as follows:	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	   4.	  Requested date of [conversion] [continuation]:                     , 200                    .
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	   5.	  Requested Type of Loan and applicable Dollar amount:

Exhibit A-2 — Page 1

 Form of Conversion Continuation Notice

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	(a)	 	Base Rate Loan for $                                        
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	(b)	 	Eurodollar Rate Loan with Interest Period of:
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	(i)
	 	one month for
	 	$                                        
	 

	 	 	 	 	 	(ii)
	 	two months for
	 	$                                        
	 

	 	 	 	 	 	(iii)
	 	three months for
	 	$                                        
	 

	 	 	 	 	 	(iv)
	 	six months for
	 	$                                        

       The [conversion] [continuation] requested herein complies with Sections 2.01 and 2.03 of the
Agreement, as applicable.

	 	 	 	 	 
	 	 	ALLIS-CHALMERS ENERGY INC.,

	 	 	a Delaware corporation, as Borrower
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

Exhibit A-2 Page 2

Form of Conversion Continuation Notice

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

EXHIBIT A-3

NOTICE IN RESPECT OF REPAYMENTS, PREPAYMENTS

AND REDUCTIONS OF REVOLVING COMMITMENT

                                        [Date]

Royal Bank of Canada,

as Administrative Agent

Global Banking Agency

Royal Bank Plaza, 200 Bay Street

12th Floor, South Tower

Toronto ON M5J 2W7

Dear Sirs:

     The undersigned, Allis-Chalmers Energy Inc. (the “Borrower”), refers to the Amended and
Restated Credit Agreement dated as of January 18, 2006 (as may be amended, restated, replaced or
supplemented from time to time, the “Credit Agreement”, the terms defined therein being used herein
as therein defined) among the Borrower, the financial institutions that are named on the signature
pages thereto, as Lenders, RBC Capital Markets as Lead Arranger and Sole Bookrunner, and Royal Bank
of Canada, as Administrative Agent, and hereby gives you notice pursuant to [Section 2.04/Section
2.05] of the Credit Agreement that on [insert proposed date of repayment, prepayment or reduction
of the Revolving Commitment], the Borrower shall [make a repayment of $                                        
under and such repayment shall apply to                                          (specify Type of Revolving Loan to be
repaid)]/[make a prepayment of/ permanently reduce the Revolving Commitment by an aggregate
principal amount of $                                         [the repayment, prepayment or reduction shall be for no
less than the minimums specified in the Credit Agreement.

	 	 	 	 	 
	 

	 	 	 	Yours truly,
	 
	 	 	 	 
	 

	 	 	 	Allis-Chalmers Energy Inc.
	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 
	 

	 	Title:	 	 
	 

	 	 	 	 

Exhibit A-3 Page 1

Form of Repayment/Prepayment Notice

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

EXHIBIT B-1

FORM OF REVOLVER NOTE

			
	$                                        
	 	January                     , 2006

     FOR VALUE RECEIVED, the undersigned (the “Borrower”), hereby promises to pay to the order of
                                                             (the “Lender”), on the Maturity Date (as defined in the Credit Agreement
referred to below) the principal amount of                                          Dollars ($                    ), or such lesser
principal amount of Revolving Loans made by Lender under that certain Credit Agreement dated of
even date herewith (as amended, restated, extended, supplemented or otherwise modified in writing
from time to time, the “Credit Agreement”; the terms defined therein being used herein as therein
defined), among the Borrower, the Lenders from time to time party thereto, and Royal Bank of
Canada, as Administrative Agent.

     The Borrower promises to pay interest on the unpaid principal amount of each Revolving Loan
from the date of such Revolving Loan until such principal amount is paid in full, at such interest
rates, and at such times as are specified in the Credit Agreement. All payments of principal and
interest shall be made to the Administrative Agent for the account of the Lender in Dollars in
immediately available funds to the account designated by the Administrative Agent in the Credit
Agreement. If any amount is not paid in full when due hereunder, such unpaid amount shall bear
interest, to be paid upon demand, from the due date thereof until the date of actual payment (and
before as well as after judgment) computed at the per annum rate set forth in the Credit Agreement.

     This Note is one of the Revolver Notes referred to in the Credit Agreement, is entitled to the
benefits thereof and is subject to optional and mandatory prepayment in whole or in part as
provided therein. This Note is also entitled to the benefits of each Guaranty. Upon the
occurrence of one or more of the Events of Default specified in the Credit Agreement, all amounts
then remaining unpaid on this Note shall become, or may be declared to be, immediately due and
payable all as provided in the Credit Agreement. Revolving Loans made by the Lender shall be
evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course
of business. The Lender may also attach schedules to this Note and endorse thereon the date,
amount and maturity of its Revolving Loans and payments with respect thereto.

     This Note is a Loan Document and is subject to Section 10.10 of the Credit Agreement, which is
incorporated herein by reference the same as if set forth herein verbatim.

     The Borrower, for itself, its successors and assigns, hereby waives diligence, presentment,
protest and demand and notice of protest, notice of intent to accelerate, notice of acceleration,
demand, dishonor and non-payment of this Note.

     THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS.

	 	 	 	 	 
	 	ALLIS-CHALMERS ENERGY INC.,

a Delaware corporation, as Borrower

 	 
	 	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 

Exhibit B Page 1

Form of Revolving Note

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

EXHIBIT C-1

FORM OF COMPLIANCE CERTIFICATE

(Pursuant to Section 6.02 of the Agreement)

Financial Statement Date:                                         , 200                    

Royal Bank of Canada,

as Administrative Agent

Global Banking Agency

Royal Bank Plaza, 200 Bay Street

12th Floor, South Tower

Toronto ON M5J 2W7

Ladies and Gentlemen:

     Reference is made to that certain Amended and Restated Credit Agreement, dated as of January
18, 2006 (as amended, restated, extended, supplemented or otherwise modified in writing from time
to time, the “Agreement;” the terms defined therein being used herein as therein defined), among
Allis-Chalmers Energy Inc., a Delaware corporation (the “Borrower”), the Lenders from time to time
party thereto, and Royal Bank of Canada, as Administrative Agent. Capitalized terms used herein but
not defined herein shall have the meaning set forth in the Agreement.

     The undersigned Responsible Officer hereby certifies as of the date hereof that he/she is the
                                                             of the Borrower, and that, as such, he/she is authorized to execute and
deliver this Certificate to the Administrative Agent on the behalf of the Borrower, and that:

     [Use the following for Fiscal Year-end financial statements]

     Attached hereto as Schedule 1 are the year-end audited consolidated financial statements of
the Borrower and its Subsidiaries required by Section 6.01(a) of the Agreement for the Fiscal Year
of the Borrower ended as of the above date, together with the report and opinion of an independent
certified public accountant required by such section; and

     [Use the following for fiscal quarter-end financial statements]

     Attached hereto as Schedule 1 are the unaudited consolidated financial statements of the
Borrower and its Subsidiaries required by Section 6.01(b) of the Agreement for the first three
fiscal quarters of the Borrower ended as of the above date, together with a certificate of a
Responsible Officer of the Borrower stating that such financial statements fairly present the
financial condition, results of operations and cash flows of the Borrower and its Subsidiaries for
such fiscal quarter in accordance with GAAP as at such date and for such period, subject only to
normal year-end audit adjustments and the absence of footnotes.

     [Use the following for both Fiscal Year-end and quarter-end financial statements]

     1. The undersigned has reviewed and is familiar with the terms of the Agreement and has made,
or has caused to be made under his/her supervision, a detailed review
of the transactions and condition (financial or otherwise) of the Borrower during the accounting period covered by the
attached financial statements.

Exhibit C — Page 1

Form of Compliance Certificate

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

     2. A review of the activities of the Borrower during such fiscal period has been made under
the supervision of the undersigned with a view to determining whether during such fiscal period the
Borrower performed and observed all its Obligations under the Loan Documents, and no Default or
Event of Default has occurred and is continuing except as follows (list of each such Default or
Event of Default and include the information required by Section 6.03 of the Agreement):

     3. During such fiscal period no casualty losses have occurred, except as described below:

     4. The covenant analyses and information set forth on Schedule 3 attached hereto are true and
accurate on and as of the date of this Certificate.

     IN WITNESS WHEREOF, the undersigned has executed this Certificate as of                                         , 200                    .

	 	 	 	 	 
	 	 	ALLIS-CHALMERS ENERGY INC.
	 	 	a Delaware corporation, as Borrower
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 

Exhibit C — Page 2

Form of Compliance Certificate

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

For the Quarter/Year ended
                                                            (“Statement
Date”)

SCHEDULE 3

to the Compliance Certificate

($ in 000’s)

I. Section 7.04 — Indebtedness

	 	 	 	 	 	 	 	 	 
	A.

	 	Indebtedness outstanding on First Amendment Closing Date
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	and listed on Schedule 5.05 and any refinancings, etc.	 	 	 	 	 	 
	 

	 	permitted by Section 7.04(b)	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	B.

	 	Indebtedness in connection with Swap Contracts permitted
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	by Section 7.04(d)	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	C.

	 	Outstanding Principal Amount of Purchase Money
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Indebtedness for fixed or capital assets permitted by Section
7.04(e) (may not exceed $2,000,000)	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	D.

	 	Outstanding Principal Amount of Indebtedness associated
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	with Liens on acquired assets permitted by Section 7.04(f)
(may not exceed $2,000,000)	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	E.

	 	Outstanding Principal Amount of Indebtedness associated
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	with Capital Leases and obligations to make equipment
financing lease or rental payments permitted by Section
7.04(g) (may not exceed $7,000,000)	 	 	 	 	 	 

II. Section 7.19(a) – Minimum Consolidated Tangible Net Worth

	 	 	 	 	 	 	 	 	 
	A.

	 	Consolidated Tangible Net Worth at most recent Financial
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Statement Date:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	B.

	 	50% of Consolidated Net Income (if positive) after
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	September 30, 2005:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	C.

	 	100% of Net Cash Proceeds of all Equity Interests issued
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	by Borrower or any Subsidiary after First Amendment Closing

Date:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	D.

	 	Minimum Net Worth (85% of Consolidated Tangible Net Worth
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	as of September 30, 2005 + Lines II.B and C):	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	E.

	 	Is Line II.A greater than or equal to Line II.D?
	 	 	Yes/No
	 	 

Exhibit C
- Page 3

Form of Compliance Certificate

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

III. Section 7.19(b) – Interest Coverage Ratio

	 	 	 	 	 	 	 	 	 
	A.

	 	Consolidated EBITDA (subject to proforma adjustments, if
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	any, permitted by Section 7.19(g) of the Agreement) for four
consecutive fiscal quarters ending on the Financial Statement
Date (“Subject Period")(see Credit Agreement definition of
“Consolidated EBITDA”):	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	B.

	 	Sum of (i) Consolidated Interest Charges (subject to
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	proforma adjustments, if any, permitted by Section 7.19(g) of
the Agreement) during Subject Period plus (ii) imputed
interest charges on Synthetic Leases during Subject Period:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	C.

	 	Is ratio of III.A. to III.B. at least 2.5 to 1.0?
	 	 	Yes/No
	 	 
	 
	 	 	 	 	 	 	 	 
	IV. Section 7.19(c) – Current Ratio	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	A.

	 	Consolidated Current Assets as at most recent Financial
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Statement Date:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	B.

	 	Consolidated Current Liabilities as at most recent
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Financial Statement Date:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	C.

	 	Is ratio of IV.A. to IV.B. at least 1.25 to 1.0?	 	 	 Yes/No	 	 
	 
	 	 	 	 	 	 	 	 
	V. Section 7.19(d) – Fixed Asset Coverage Ratio	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	A.

	 	Orderly liquidation value of Borrower’s and its
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Subsidiaries’ domestic fixed assets (determined as of most
recently delivered annual asset appraisal delivered pursuant
to Section 6.02(e) of the Credit Agreement) on which
Administrative Agent holds first priority perfected Lien:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	B.

	 	Outstanding Amount of Revolver Principal Debt on most
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	recent Financial Statement Date:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	C.

	 	Is ratio of V.A. to V.B. at least 1.33 to 1.0?	 	 	 Yes/No	 	 
	 
	 	 	 	 	 	 	 	 
	VI. Section 7.19(e) – Leverage Ratio	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	A.

	 	Consolidated Funded Debt for Subject Period (see Credit
Agreement definition of “Consolidated Funded Debt”)	 	 	$		 	 
	 
	 	 	 	 	 	 	 	 
	B.

	 	Consolidated EBITDA (subject to proforma adjustments, if
any, permitted by Section 7.19(g) of the Agreement) for
Subject Period:	 	 	$	 	 	 

Exhibit C — Page 4

Form of Compliance Certificate

Allis-Chalmers Energy

Amended & Restated Credit Agreement

-

 

 

	 	 	 	 	 	 	 	 	 
	C.

	 	Is ratio of VI.A. to VI. B. no more than 4.50 to 1.0?
	 	Yes/No
	 
	 
	 	 	 	 	 	 	 	 
	VII. Section 7.19(f) – Senior Leverage Ratio	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	A.

	 	Consolidated Senior Debt for Subject Period (see Credit
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	Agreement definition of “Consolidated Senior Debt"):	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	B.

	 	Consolidated EBITDA (subject to proforma adjustments, if
	 	 	$	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	any, permitted by Section 7.19(g) of the Agreement) for
Subject Period:	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	C.

	 	Is ratio of VII.A. to VII. B. no more than 2.50 to 1.0?
	 	Yes/No
	 

Exhibit C — Page 5

Form of Compliance Certificate

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

EXHIBIT D

FORM OF ASSIGNMENT AND ASSUMPTION

     This Assignment and Assumption (the “Assignment and Assumption”) is dated as of the Effective
Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”)
and [Insert name of Assignee] (the “Assignee”). Capitalized terms used but not defined herein
shall have the meanings given to them in the Credit Agreement identified below (as may be amended,
the “Credit Agreement”), receipt of a copy of which is hereby acknowledged by the Assignee. The
Standard Terms and Conditions set forth in Annex I attached hereto are hereby agreed to and
incorporated herein by reference and made a part of this Assignment and Assumption as if set forth
herein in full.

     For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the
Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to
and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the
Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor’s
rights and obligations in its capacity as a Lender under the Credit Agreement and any other
documents or instruments delivered pursuant thereto to the extent related to the amount and
percentage interest identified below of all of such outstanding rights and obligations of the
Assignor under the respective facilities identified below and (ii) to the extent permitted to be
assigned under applicable law, all claims, suits, causes of action and any other right of the
Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under
or in connection with the Credit Agreement, any other documents or instruments delivered pursuant
thereto or the loan transactions governed thereby or in any way based on or related to any of the
foregoing, including, but not limited to, contract claims, tort claims, malpractice claims,
statutory claims and all other claims at law or in equity related to the rights and obligations
sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned
pursuant to clauses (i) and (ii) above being referred to herein collectively as, the “Assigned
Interest”). Such sale and assignment is without recourse to the Assignor and, except as expressly
provided in this Assignment and Assumption, without representation or warranty by the Assignor.

	 	 	 	 	 	 	 	 	 
	 

	 	 	1.	 	 	Assignor:	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	2.	 	 	Assignee:	 	 
	 

	 	 	 	 	 	 	 	[and is an Affiliate/Approved Fund of [identify Lender]
	 
	 	 	 	 	 	 	 	 
	 

	 	 	3.	 	 	Borrower(s):
	 	Allis-Chalmers Energy Inc.
	 
	 	 	 	 	 	 	 	 
	 

	 	 	4.	 	 	Administrative Agent:
	 	Royal Bank of Canada, as the administrative agent under
the Credit Agreement
	 
	 	 	 	 	 	 	 	 
	 

	 	 	5.	 	 	Credit Agreement:
	 	The $25,000,000 Amended and Restated Credit Agreement dated
as of January 18, 2006 among Allis-Chalmers Energy Inc., the Lenders parties thereto,
and Royal Bank of Canada, as Administrative Agent.

Exhibit D — Page 1

Form of Assignment and Assumption

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

          6. Assigned Interest:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Aggregate Amount of	 	 	Amount of	 	 		 
	 	 	Commitment/Loans for	 	 	Commitment/Loans	 	 	Percentage Assigned of	 
	 	 	all Lenders*	 	 	Assigned*	 	 	Commitment/Loans	 
	Revolving Loans:
	 	$	 	 	 	$	 	 	 	 	%	 
	Total:
	 	$	 	 	 	$	 	 	 	 	%	 

[7. Trade Date: ________________ ]

Effective Date:                                         , 20                     [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE
THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

	 	 	 	 	 
	 	ASSIGNOR

[NAME OF ASSIGNOR]

 	 
	 	By:  	 	 
	 	 	Title: 	 
	 	 	 	 
	 
	 	ASSIGNEE

[NAME OF ASSIGNEE]

 	 
	 	By:  	 	 
	 	 	Title: 	 
	 	 	 	 
	 

 

*Amount to be adjusted by the counterparties to take into account any payments or prepayments made
between the Trade Date and the Effective Date.

Consented to and Accepted:

[NAME OF ADMINISTRATIVE AGENT], as

Administrative Agent

By                                                            

     Title:

Exhibit D — Page 2

Form of Assignment and Assumption

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

[Consented to:]

ALLIS-CHALMERS ENERGY INC.

a Delaware corporation

By                                                            

Name:

Title:

Exhibit D — Page 3

Form of Assignment and Assumption

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

ANNEX 1

TO ASSIGNMENT AND ASSUMPTION

STANDARD TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

     1. Representations and Warranties.

     1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and
beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any
lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken
all action necessary, to execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any
statements, warranties or representations made in or in connection with the Credit Agreement or any
other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial
condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in
respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its
Subsidiaries or Affiliates or any other Person of any of their respective obligations under any
Loan Document.

     1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and
authority, and has taken all action necessary, to execute and deliver this Assignment and
Assumption and to consummate the transactions contemplated hereby and to become a Lender under the
Credit Agreement, (ii) it meets all requirements of an Eligible Assignee under the Credit Agreement
(subject to receipt of such consents as may be required under the Credit Agreement), (iii) from and
after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender
thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender
thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most
recent financial statements delivered pursuant to Section 6.01 thereof, as applicable, and such
other documents and information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the
basis of which it has made such analysis and decision independently and without reliance on the
Administrative Agent or any other Lender, and (v) if it is a Foreign Lender, attached to the
Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms
of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it
will, independently and without reliance on the Administrative Agent, the Assignor or any other
Lender, and based on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under the Loan Documents,
and (ii) it will perform in accordance with their terms all of the obligations which by the terms
of the Loan Documents are required to be performed by it as a Lender.

     2. Payments. From and after the Effective Date, the Administrative Agent shall make
all payments in respect of the Assigned Interest (including payments of principal, interest, fees
and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective
Date and to the Assignee for amounts which have accrued from and after the Effective Date.

     3. General Provisions. This Assignment and Assumption shall be binding upon, and inure
to the benefit of, the parties hereto and their respective successors and assigns. This Assignment
and

Exhibit D — Page 4

Form of Assignment and Assumption

Allis-Chalmers Energy

Amended & Restated Credit Agreement

 

 

Assumption may be executed in any number of counterparts, which together shall constitute
one instrument. Delivery of an executed counterpart of a signature page of this Assignment and
Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this
Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in
accordance with, the law of the State of Texas.

Exhibit D
— Page 5

Form of Assignment and Assumption

Allis-Chalmers Energy

Amended & Restated Credit Agreementexv10w1

 

Exhibit 10.1

ASSET PURCHASE AND SALE AGREEMENT

BY AND AMONG

JPI CDI (HK) LIMITED,

JPI/VII ACQUISITION CORP.,

JAKKS PACIFIC, INC.,

CREATIVE DESIGNS INTERNATIONAL, LTD.,

ARBOR TOYS COMPANY LIMITED,

GEOFFREY GREENBERG,

AND

STEPHANIE COE

Dated as of January 18, 2006

 

 

TABLE OF CONTENTS

Page

	 	 	 	 	 	 	 	 	 
	1.
	 	Definitions	 	 	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	 
	 	1.1	 	"2006 Review Period"	 	 	1	 
	 
	 	1.2	 	"2007 Review Period"	 	 	1	 
	 
	 	1.3	 	"2008 Review Period"	 	 	1	 
	 
	 	1.4	 	"Action"	 	 	1	 
	 
	 	1.5	 	"Adjusted Gross Profit"	 	 	2	 
	 
	 	1.6	 	"Affiliate"	 	 	2	 
	 
	 	1.7	 	"Affiliated Group"	 	 	2	 
	 
	 	1.8	 	"Agreement"	 	 	2	 
	 
	 	1.9	 	"Arbitrating Accountants"	 	 	2	 
	 
	 	1.10	 	"Assets"	 	 	2	 
	 
	 	1.11	 	"Assumed Obligations"	 	 	2	 
	 
	 	1.12	 	"Base"	 	 	2	 
	 
	 	1.13	 	"Blue Sky Laws"	 	 	2	 
	 
	 	1.14	 	"Cash Component"	 	 	2	 
	 
	 	1.15	 	"CDI 2006 Adjusted Gross Profit"	 	 	3	 
	 
	 	1.16	 	"CDI 2006 Net Sales"	 	 	3	 
	 
	 	1.17	 	"CDI Business"	 	 	3	 
	 
	 	1.18	 	"CDI Hong Kong"	 	 	3	 
	 
	 	1.19	 	"CDI Products"	 	 	3	 
	 
	 	1.20	 	"Closing"	 	 	3	 
	 
	 	1.21	 	"Closing Date"	 	 	3	 
	 
	 	1.22	 	"Closing Net Working Capital"	 	 	4	 
	 
	 	1.23	 	"Closing Payment"	 	 	4	 
	 
	 	1.24	 	"Closing Purchase Price"	 	 	4	 
	 
	 	1.25	 	"COBRA"	 	 	4	 
	 
	 	1.26	 	"Code"	 	 	4	 
	 
	 	1.27	 	"Combined 2006 Adjusted Gross Profit"	 	 	4	 
	 
	 	1.28	 	"Company"	 	 	4	 
	 
	 	1.29	 	"Confidentiality Agreement"	 	 	4	 
	 
	 	1.30	 	"Consulting Agreement"	 	 	4	 
	 
	 	1.31	 	"Contracts"	 	 	4	 
	 
	 	1.32	 	"dollars" and "$"	 	 	4	 
	 
	 	1.33	 	"Domain Names"	 	 	4	 
	 
	 	1.34	 	"Earn-out Adjustment Fraction"	 	 	4	 
	 
	 	1.35	 	"Earn-out Objection Notice"	 	 	4	 
	 
	 	1.36	 	"Earn-out Period"	 	 	4	 
	 
	 	1.37	 	"Effective Time"	 	 	4	 
	 
	 	1.38	 	"Eligible Inventory"	 	 	4	 
	 
	 	1.39	 	"Employee Plan"	 	 	5	 
	 
	 	1.40	 	"Employment Agreements"	 	 	5	 
	 
	 	1.41	 	"Encumbrances"	 	 	5	 
	 
	 	1.42	 	"Environmental Laws"	 	 	5	 

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	 	1.43	 	"ERISA"	 	 	5	 
	 
	 	1.44	 	"ERISA Affiliate"	 	 	5	 
	 
	 	1.45	 	"Exchange Act"	 	 	5	 
	 
	 	1.46	 	"Excluded Assets"	 	 	5	 
	 
	 	1.47	 	"Excluded Liabilities"	 	 	5	 
	 
	 	1.48	 	"Execution Date"	 	 	5	 
	 
	 	1.49	 	"Family Member"	 	 	5	 
	 
	 	1.50	 	"Financial Statements"	 	 	5	 
	 
	 	1.51	 	"Fiscal Year 2005 Adjusted Gross Profit"	 	 	5	 
	 
	 	1.52	 	"Fiscal Year 2005 Net Sales"	 	 	6	 
	 
	 	1.53	 	"FTC"	 	 	6	 
	 
	 	1.54	 	"GAAP"	 	 	6	 
	 
	 	1.55	 	"Government Entity"	 	 	6	 
	 
	 	1.56	 	"Hazardous Materials"	 	 	6	 
	 
	 	1.57	 	"HK Assets"	 	 	6	 
	 
	 	1.58	 	"HK Assumed Obligations"	 	 	6	 
	 
	 	1.59	 	"HK Business"	 	 	6	 
	 
	 	1.60	 	"HK Effective Date of Employment"	 	 	6	 
	 
	 	1.61	 	"HK Financial Statements"	 	 	6	 
	 
	 	1.62	 	"HK GAAP"	 	 	6	 
	 
	 	1.63	 	"HK Hired Employees"	 	 	6	 
	 
	 	1.64	 	"HK Included Contracts"	 	 	6	 
	 
	 	1.65	 	"HK Offer Employee"	 	 	7	 
	 
	 	1.66	 	"HK Prorations"	 	 	7	 
	 
	 	1.67	 	"HK Purchase Price"	 	 	7	 
	 
	 	1.68	 	"HSR Act"	 	 	7	 
	 
	 	1.69	 	"Included Contracts"	 	 	7	 
	 
	 	1.70	 	"Indemnified Party"	 	 	7	 
	 
	 	1.71	 	"Indemnifying Party"	 	 	7	 
	 
	 	1.72	 	"IRS"	 	 	7	 
	 
	 	1.73	 	"JAKKS"	 	 	7	 
	 
	 	1.74	 	"JAKKS Guaranty"	 	 	7	 
	 
	 	1.75	 	"JAKKS HK"	 	 	7	 
	 
	 	1.76	 	"JAKKS SEC Reports"	 	 	7	 
	 
	 	1.77	 	"JAKKS Shares"	 	 	7	 
	 
	 	1.78	 	"JAKKS US"	 	 	7	 
	 
	 	1.79	 	"Justice Department"	 	 	7	 
	 
	 	1.80	 	"Landed Cost"	 	 	7	 
	 
	 	1.81	 	"Law"	 	 	7	 
	 
	 	1.82	 	"Lease"	 	 	7	 
	 
	 	1.83	 	"Loss"	 	 	7	 
	 
	 	1.84	 	"Material Adverse Change" or "Material Adverse Effect"	 	 	7	 
	 
	 	1.85	 	"Material Contracts"	 	 	8	 
	 
	 	1.86	 	[Intentionally Omitted]	 	 	8	 
	 
	 	1.87	 	"Net Sales"	 	 	8	 

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	 	1.88	 	"Net Working Capital"	 	 	8	 
	 
	 	1.89	 	"Net Working Capital Adjustment"	 	 	8	 
	 
	 	1.90	 	"Non-competition Agreements"	 	 	8	 
	 
	 	1.91	 	"Non-Transferable Contracts"	 	 	8	 
	 
	 	1.92	 	"Notice of Claim"	 	 	8	 
	 
	 	1.93	 	"OSHA"	 	 	8	 
	 
	 	1.94	 	"Other Closing Date Indebtedness"	 	 	8	 
	 
	 	1.95	 	"Permits"	 	 	8	 
	 
	 	1.96	 	"Permitted Liens"	 	 	9	 
	 
	 	1.97	 	"Person"	 	 	9	 
	 
	 	1.98	 	"Post-Closing Payment"	 	 	9	 
	 
	 	1.99	 	"Post-Closing Statement"	 	 	9	 
	 
	 	1.100	 	"Preliminary Post-Closing Payment"	 	 	9	 
	 
	 	1.101	 	"Prime Rate"	 	 	9	 
	 
	 	1.102	 	"Product Liability"	 	 	9	 
	 
	 	1.103	 	"Prorations"	 	 	9	 
	 
	 	1.104	 	"Purchaser"	 	 	9	 
	 
	 	1.105	 	"Real Property"	 	 	9	 
	 
	 	1.106	 	"Related Documents"	 	 	9	 
	 
	 	1.107	 	"Review Period"	 	 	9	 
	 
	 	1.108	 	"SEC"	 	 	9	 
	 
	 	1.109	 	"Secured Debt"	 	 	9	 
	 
	 	1.110	 	"Securities Act"	 	 	10	 
	 
	 	1.111	 	"Seller"	 	 	10	 
	 
	 	1.112	 	"Sellers' Review Period"	 	 	10	 
	 
	 	1.113	 	"Stockholder"	 	 	10	 
	 
	 	1.114	 	"Stockholders' Representative"	 	 	10	 
	 
	 	1.115	 	"Target Net Working Capital"	 	 	10	 
	 
	 	1.116	 	"Taxes"	 	 	10	 
	 
	 	1.117	 	"Tax Return"	 	 	10	 
	 
	 	1.118	 	"Third Party Claim"	 	 	10	 
	 
	 	1.119	 	"Trade Debt"	 	 	10	 
	 
	 	1.120	 	"Trade Right"	 	 	10	 
	 
	 	1.121	 	"US Assumed Obligations"	 	 	10	 
	 
	 	1.122	 	"US Assets"	 	 	10	 
	 
	 	1.123	 	"US Business"	 	 	11	 
	 
	 	1.124	 	"US Effective Date of Employment"	 	 	11	 
	 
	 	1.125	 	"US Financial Statements"	 	 	11	 
	 
	 	1.126	 	"US Hired Employees"	 	 	11	 
	 
	 	1.127	 	"US Included Contracts"	 	 	11	 
	 
	 	1.128	 	"US Offer Employee"	 	 	11	 
	 
	 	1.129	 	"US Prorations"	 	 	11	 
	 
	 	1.130	 	"US Purchase Price"	 	 	11	 
	 
	 	1.131	 	"Utilities"	 	 	11	 
	 
	 	1.132	 	"WARN Act"	 	 	11	 

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	2.	 	Sale and Purchase of Assets	 	 	11	 
	 
	 	 	 	 	 	 	 	 
	 
	 	2.1	 	Transfer of Assets	 	 	11	 
	 
	 	2.2	 	Closing Payments	 	 	16	 
	 
	 	2.3	 	Proration	 	 	16	 
	 
	 	2.4	 	Net Working Capital Adjustment	 	 	17	 
	 
	 	2.5	 	Earn-out	 	 	19	 
	 
	 	 	 	 	 	 	 	 
	3.	 	Representations and Warranties of the Stockholders	 	 	22	 
	 
	 	 	 	 	 	 	 	 
	 
	 	3.1	 	Ownership	 	 	22	 
	 
	 	3.2	 	Stockholders' Authority	 	 	22	 
	 
	 	3.3	 	Consents and Approvals	 	 	22	 
	 
	 	3.4	 	No Conflict or Violation	 	 	22	 
	 
	 	3.5	 	Litigation	 	 	23	 
	 
	 	3.6	 	Investment Representation	 	 	23	 
	 
	 	 	 	 	 	 	 	 
	4.	 	Representations and Warranties of the Stockholders and
Sellers concerning Sellers and the CDI
Business	 	 	23	 
	 
	 	 	 	 	 	 	 	 
	 
	 	4.1	 	Organization, Existence and Corporate Authority	 	 	23	 
	 
	 	4.2	 	Capitalization; Ownership of Other Entities	 	 	24	 
	 
	 	4.3	 	Consents and Approvals	 	 	24	 
	 
	 	4.4	 	No Conflict	 	 	24	 
	 
	 	4.5	 	Extent of Assets	 	 	24	 
	 
	 	4.6	 	Personal Property	 	 	25	 
	 
	 	4.7	 	Real Property	 	 	25	 
	 
	 	4.8	 	Financial Statements	 	 	26	 
	 
	 	4.9	 	Indebtedness; Undisclosed Liabilities; Adverse Factors	 	 	27	 
	 
	 	4.10	 	Absence of Material Changes	 	 	27	 
	 
	 	4.11	 	Tax Matters	 	 	29	 
	 
	 	4.12	 	Accounts Receivable and Inventory	 	 	31	 
	 
	 	4.13	 	Material Contracts	 	 	31	 
	 
	 	4.14	 	Environmental Matters	 	 	32	 
	 
	 	4.15	 	Intellectual Property	 	 	32	 
	 
	 	4.16	 	Compliance with Laws	 	 	34	 
	 
	 	4.17	 	Litigation	 	 	34	 
	 
	 	4.18	 	Employment	 	 	34	 
	 
	 	4.19	 	Insurance	 	 	37	 
	 
	 	4.20	 	Brokers	 	 	38	 
	 
	 	4.21	 	[Intentionally Omitted]	 	 	38	 
	 
	 	4.22	 	Product Liability	 	 	38	 
	 
	 	4.23	 	Fair Trading	 	 	38	 
	 
	 	4.24	 	Permits	 	 	38	 
	 
	 	4.25	 	Customers and Suppliers	 	 	38	 
	 
	 	4.26	 	OSHA Matters	 	 	39	 
	 
	 	4.27	 	Bank Accounts	 	 	39	 

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	 	4.28	 	Investment Representation	 	 	39	 
	 
	 	4.29	 	Disclosure	 	 	39	 
	 
	 	 	 	 	 	 	 	 
	5.	 	Representations and Warranties of Purchasers and JAKKS	 	 	40	 
	 
	 	 	 	 	 	 	 	 
	 
	 	5.1	 	Authority Relative to Agreement	 	 	40	 
	 
	 	5.2	 	No Conflict	 	 	40	 
	 
	 	5.3	 	Litigation	 	 	40	 
	 
	 	5.4	 	Consents and Approvals	 	 	40	 
	 
	 	5.5	 	Availability of Funds	 	 	41	 
	 
	 	5.6	 	SEC Filings	 	 	41	 
	 
	 	5.7	 	Absence of Certain Changes or Events	 	 	41	 
	 
	 	5.8	 	JAKKS Shares	 	 	41	 
	 
	 	5.9	 	Brokers	 	 	41	 
	 
	 	5.10	 	Disclosure	 	 	41	 
	 
	 	 	 	 	 	 	 	 
	6.	 	Certain Covenants of Stockholders and Sellers	 	 	41	 
	 
	 	 	 	 	 	 	 	 
	 
	 	6.1	 	Information	 	 	41	 
	 
	 	6.2	 	Operations	 	 	42	 
	 
	 	6.3	 	Negative Covenants	 	 	42	 
	 
	 	6.4	 	Governmental and Other Approvals	 	 	43	 
	 
	 	6.5	 	HSR Notification	 	 	44	 
	 
	 	6.6	 	Closing Conditions	 	 	44	 
	 
	 	6.7	 	No-Shop Clause	 	 	44	 
	 
	 	6.8	 	Risk of Loss	 	 	44	 
	 
	 	6.9	 	Authority of CDI Hong Kong	 	 	45	 
	 
	 	 	 	 	 	 	 	 
	7.	 	Certain Covenants of Purchasers and JAKKS	 	 	45	 
	 
	 	 	 	 	 	 	 	 
	 
	 	7.1	 	Governmental Approvals	 	 	45	 
	 
	 	7.2	 	HSR Notification	 	 	45	 
	 
	 	7.3	 	Closing Conditions	 	 	45	 
	 
	 	7.4	 	Maintenance of Certain Sources of Supply	 	 	45	 
	 
	 	7.5	 	Capital Contribution by JAKKS	 	 	45	 
	 
	 	 	 	 	 	 	 	 
	8.	 	Conditions Precedent to Obligations of Purchasers and JAKKS	 	 	46	 
	 
	 	 	 	 	 	 	 	 
	 
	 	8.1	 	Representations/Warranties/Covenants	 	 	46	 
	 
	 	8.2	 	Litigation or Proceedings	 	 	46	 
	 
	 	8.3	 	HSR Act; Governmental and Other Approvals	 	 	46	 
	 
	 	8.4	 	No Material Adverse Change	 	 	46	 
	 
	 	8.5	 	Related Party Loans	 	 	46	 
	 
	 	8.6	 	Closing Deliveries	 	 	46	 
	 
	 	8.7	 	Employees	 	 	46	 
	 
	 	 	 	 	 	 	 	 
	9.	 	Conditions Precedent to Obligations of Stockholders and Sellers	 	 	47	 
	 
	 	 	 	 	 	 	 	 
	 
	 	9.1	 	Representations/Warranties/Covenants	 	 	47	 
	 
	 	9.2	 	Litigation or Proceedings	 	 	47	 

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	 	9.3	 	HSR Act; Governmental Approvals	 	 	47	 
	 
	 	9.4	 	Closing Deliveries	 	 	47	 
	 
	 	 	 	 	 	 	 	 
	10.	 	Closing	 	 	47	 
	 
	 	 	 	 	 	 	 	 
	 
	 	10.1	 	Closing and Effective Time	 	 	47	 
	 
	 	10.2	 	Actions of Stockholders and Sellers at Closing	 	 	48	 
	 
	 	10.3	 	Actions by Purchasers and JAKKS at Closing	 	 	50	 
	 
	 	 	 	 	 	 	 	 
	11.	 	Certain Additional Covenants	 	 	52	 
	 
	 	 	 	 	 	 	 	 
	 
	 	11.1	 	Post-Closing Access to Information	 	 	52	 
	 
	 	11.2	 	Preservation and Access to Records Pertaining to the	 	 	 	 
	 
	 	 	 	Assets After the Closing	 	 	52	 
	 
	 	11.3	 	Litigation Cooperation	 	 	53	 
	 
	 	11.4	 	Allocation of Closing Purchase Price	 	 	53	 
	 
	 	11.5	 	Additional Covenants Relating to Employees and Employee Benefits	 	 	53	 
	 
	 	11.6	 	Delivery of Property Received by Sellers or Purchasers After Closing	 	 	56	 
	 
	 	11.7	 	JAKKS Appointed Attorney for Sellers	 	 	56	 
	 
	 	11.8	 	Payment of Liabilities	 	 	57	 
	 
	 	11.9	 	Taxes	 	 	57	 
	 
	 	11.10	 	Third Party Consents	 	 	58	 
	 
	 	11.11	 	Intellectual Property Matters	 	 	59	 
	 
	 	11.12	 	Post-Closing Management of CDI Business	 	 	59	 
	 
	 	11.13	 	Securities Law Filings	 	 	61	 
	 
	 	11.14	 	Transfer of Domain Names	 	 	61	 
	 
	 	11.15	 	[Intentionally Omitted]	 	 	61	 
	 
	 	11.16	 	Company Name	 	 	61	 
	 
	 	11.17	 	Access Codes and Combinations	 	 	62	 
	 
	 	11.18	 	Guaranty	 	 	62	 
	 
	 	11.19	 	Transfer Restrictions for JAKKS Shares	 	 	62	 
	 
	 	11.20	 	Certain Events Affecting JAKKS Shares	 	 	62	 
	 
	 	11.21	 	Rule 144	 	 	63	 
	 
	 	11.22	 	Publication of Legal Notice in Hong Kong	 	 	63	 
	 
	 	11.23	 	Bulk Sales Laws	 	 	63	 
	 
	 	 	 	 	 	 	 	 
	12.	 	Termination	 	 	63	 
	 
	 	 	 	 	 	 	 	 
	 
	 	12.1	 	Right to Terminate	 	 	63	 
	 
	 	12.2	 	Effect of Termination	 	 	64	 
	 
	 	 	 	 	 	 	 	 
	13.	 	Indemnification	 	 	64	 
	 
	 	 	 	 	 	 	 	 
	 
	 	13.1	 	By Sellers and Stockholders	 	 	64	 
	 
	 	13.2	 	By Purchasers and JAKKS	 	 	64	 
	 
	 	13.3	 	Limitations	 	 	65	 
	 
	 	13.4	 	Procedural Matters	 	 	66	 
	 
	 	 	 	 	 	 	 	 
	14.	 	Additional Provisions	 	 	68	 
	 
	 	 	 	 	 	 	 	 
	 
	 	14.1	 	Successors and Assigns, Assignability, Beneficiaries	 	 	68	 
	 
	 	14.2	 	Notices	 	 	68	 

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	 	14.3	 	Amendments and Waivers	 	 	69	 
	 
	 	14.4	 	Severability	 	 	70	 
	 
	 	14.5	 	Exhibits	 	 	70	 
	 
	 	14.6	 	Integration and Entire Agreement	 	 	70	 
	 
	 	14.7	 	Counterparts and Headings	 	 	70	 
	 
	 	14.8	 	Survival	 	 	70	 
	 
	 	14.9	 	Expenses	 	 	70	 
	 
	 	14.10	 	Interpretations	 	 	71	 
	 
	 	14.11	 	Further Assurances	 	 	71	 
	 
	 	14.12	 	Confidentiality	 	 	71	 
	 
	 	14.13	 	Public Announcements	 	 	72	 
	 
	 	14.14	 	Remedies Cumulative; Specific Performance	 	 	72	 
	 
	 	14.15	 	Drafting	 	 	72	 
	 
	 	14.16	 	Governing Law	 	 	72	 
	 
	 	14.17	 	JURISDICTION; WAIVER OF JURY TRIAL	 	 	72	 

	 	 	 	 	 
	Exhibits	 	 	 	Page
	Exhibit A-1

	 	Form of Non-competition Agreement
	 	A-1 1
	 
	 	 	 	 
	Exhibit A-2

	 	Form of Non-competition Agreement (Peter Coe)
	 	A-2 1
	 
	 	 	 	 
	Exhibit B

	 	Form of Employment Agreement
	 	B 1
	 
	 	 	 	 
	Exhibit C

	 	Form of Consulting Agreement
	 	C 1
	 
	 	 	 	 
	Exhibit D-1

	 	Form of Legal Opinion of Ballard Spahr Andrews & Ingersoll, LLP
	 	D-1 1
	 
	 	 	 	 
	Exhibit D-2

	 	Form of Legal Opinion of Morrison & Foerster
	 	D-2 1
	 
	 	 	 	 
	Exhibit E

	 	Form of Lease
	 	E 1
	 
	 	 	 	 
	Exhibit F-1

	 	Form of Legal Opinion of Feder, Kaszovitz, Isaacson, Weber,
Skala, Bass & Rhine LLP
	 	F-1 1
	 
	 	 	 	 
	Exhibit F-2

	 	Form of Legal Opinion of Eccles & Lee
	 	F-2 1

 vii 

 

 

ASSET PURCHASE AND SALE AGREEMENT

     THIS ASSET PURCHASE AND SALE AGREEMENT (this “Agreement”), dated as of January 18, 2006 (the
“Execution Date”), is by and among JPI CDI (HK) LIMITED, a Hong Kong corporation (“JAKKS HK”),
JPI/VII ACQUISITION CORP., a Delaware corporation (“JAKKS US” and, together with JAKKS HK, the
“Purchasers”), both of which are wholly-owned subsidiaries of JAKKS Pacific, Inc., a Delaware
corporation (“JAKKS”), JAKKS, CREATIVE DESIGNS INTERNATIONAL, LTD., a Pennsylvania corporation (the
“Company”), ARBOR TOYS COMPANY LIMITED, a Hong Kong corporation (“CDI Hong Kong” and, together with
the Company, the “Sellers”), GEOFFREY GREENBERG, an individual residing at 5 Casey Court, Newtown,
Pennsylvania 18940 (hereafter referred to as “Geoffrey”), and STEPHANIE COE, an individual residing
at 450 Scott Court, Yardley, Pennsylvania 19067 (hereafter referred to as “Stephanie” and, together
with Geoffrey, the “Stockholders”).

W I T N E S S E T H :

     WHEREAS, Sellers own and operate the CDI Business; and

     WHEREAS, Purchasers desire to purchase and Sellers desire to sell the CDI Business and
substantially all of the assets with respect to the CDI Business, upon the terms and subject to the
conditions set forth in this Agreement; and

     WHEREAS, Sellers and the Stockholders have determined in good faith that it is in the best
interests and to the benefit of Sellers, and in furtherance of their respective purposes, that
Sellers sell the CDI Business and substantially all of the assets with respect to the CDI Business
to Purchasers.

     NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto
agree as follows:

          1. Definitions. Capitalized terms used herein shall have the meanings ascribed to
them in this Article 1 unless such terms are defined elsewhere in this Agreement.

          1.1 “2006 Review Period” means the period of twelve consecutive months ending on
December 31, 2006.

          1.2 “2007 Review Period” means the period of twelve consecutive months ending on
December 31, 2007.

          1.3 “2008 Review Period” means the period of twelve consecutive months ending on
December 31, 2008.

          1.4 “Action” means any action, suit, bankruptcy proceeding, arbitration, mediation,
inquiry, demand, claim, complaint, proceeding, dispute, investigation, whether in law or in equity.

 

 

          1.5 “Adjusted Gross Profit” for any period means the Net Sales for such period less
(without duplication and on a consolidated basis) cost of goods sold, direct selling costs
(consisting of warehouse costs, commissions and out-bound freight costs) attributable to products
sold in such period, and advertising expenses, including co-op and promotional allowances, and
license royalties payable in respect of product sales, including royalty guarantees and advances,
all when applied in accordance with GAAP to an accounting period, but excluding any license
transfer fees paid in connection with the assignment of the Included Contracts to Purchasers.

          1.6 “Affiliate” means, as to the Person in question, any Person that controls, is
controlled by, or is under common control with, the Person in question; and the term “control”
means possession of the power to direct or cause the direction of the management and policies of a
Person whether through ownership of voting securities, by contract, or otherwise.

          1.7 “Affiliated Group” means any affiliated, consolidated or unitary group of which
either Seller is or was a member.

          1.8 “Agreement” shall have the meaning set forth in the introductory paragraph.

          1.9 “Arbitrating Accountants” means any of the accounting firms of national reputation
that are commonly referred to as the “big four” accounting firms with respect to which none of the
parties hereto has previously engaged to perform professional services.

          1.10 “Assets” shall have the meaning set forth in Section 2.1(a).

          1.11 “Assumed Obligations” means the HK Assumed Obligations and the US Assumed
Obligations.

          1.12 “Base” means (i) for the 2006 Review Period, an amount equal to 89% of the Fiscal
Year 2005 Adjusted Gross Profit; (ii) for the 2007 Review Period, an amount equal to the lower of
Combined 2006 Adjusted Gross Profit for the fiscal year ending on December 31, 2006 and 108% of the
Base for the 2006 Review Period, but in no event shall the Base for the 2007 Review Period be less
than 101% of the Base for the 2006 Review Period; and (iii) for the 2008 Review Period, an amount
equal to the lower of Adjusted Gross Profit for the fiscal year ending on December 31, 2007 and
108% of the Base for the 2007 Review Period, but in no event shall the Base for the 2008 Review
Period be less than 101% of the Base for the 2007 Review Period. The amount of the Base for each
Review Period shall be subject to adjustment in accordance with Sections 2.5(k) and 11.10(b).

          1.13 “Blue Sky Laws” means the laws of any state, the District of Columbia, or any
territory or other jurisdiction in the United States governing the offer and/or sale of securities
in such jurisdiction.

          1.14 “Cash Component” means $83,500,000 plus an amount equal to the aggregate license
transfer fees paid or to be paid by Sellers in connection with the assignment of the Included
Contracts to the Purchasers on or prior to Closing.

2

 

          1.15 “CDI 2006 Adjusted Gross Profit” means CDI 2006 Net Sales during the period from
and including January 1, 2006 to the Effective Time less (without duplication and on a consolidated
basis) cost of goods sold, direct selling costs (consisting of warehouse costs, commissions and
out-bound freight costs) attributable to products sold in such period, and advertising expenses,
including co-op and promotional allowances, and license royalties payable in respect of product
sales, including royalty guarantees and advances, all when applied in accordance with GAAP to an
accounting period, but excluding any license transfer fees paid in connection with the assignment
of the Included Contracts to Purchasers; provided that in the event that the Purchasers are
unable to receive the benefits described in Section 11.10 with respect to any Included Contract as
to which consent, approval or waiver has not been obtained, CDI 2006 Adjusted Gross Profit shall be
reduced by the portion thereof attributable to the products sold under such Included Contract
during the period from and including January 1, 2006 to the Effective Time.

          1.16 “CDI 2006 Net Sales” means the invoiced amount of CDI Products sold by the
Sellers during the period from and including January 1, 2006 to the Effective Time, less the sum of
all freight invoiced to customers, sales taxes, credits for returns, shortages and trade discounts
and allowances, including defective and markdown allowances but specifically excluding co-op and
promotional allowances, all with respect to such CDI Products.

          1.17 “CDI Business” means the business of designing, producing, marketing, selling and
distributing CDI Products as conducted by the Sellers, consisting of the HK Business and the US
Business.

          1.18 “CDI Hong Kong” shall have the meaning set forth in the introductory paragraph.

          1.19 “CDI Products” means (i) Sellers’ products as of the Execution Date, together
with any products that have been sold or marketed by Sellers at any time prior to the Execution
Date (unless such products are among the Excluded Assets); (ii) any other products sold by
Purchasers or an Affiliate of Purchasers during the Earn-out Period that are improvements to or
modifications of such products; (iii) new products developed, acquired or licensed by Purchasers
during the Earn-out Period (unless such products have been developed or acquired by JAKKS and/or
its Affiliates (other than Purchasers) or licensed from JAKKS and/or its Affiliates (other than
Purchasers) (collectively, “JAKKS Products”); provided, that JAKKS and Purchasers (acting
reasonably and in good faith) may agree to increase Adjusted Gross Profit by including a percentage
of sales and corresponding expenses applicable to JAKKS Products in calculating Adjusted Gross
Profit for purposes of computing Adjusted Gross Profit in any Review Period; and (iv) any products
sold by JAKKS and/or any of its Affiliates pursuant to licenses that are Included Contracts or
improvements or modifications to such products or which are new products of Purchasers as described
in clause (iii) above or improvements or modifications to such new products.

          1.20 “Closing” shall have the meaning set forth in Section 10.1.

          1.21 “Closing Date” shall have the meaning set forth in Section 10.1.

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          1.22 “Closing Net Working Capital” shall have the meaning set forth in Section 2.4(a).

          1.23 “Closing Payment” means the Cash Component payable at Closing and the JAKKS
Shares to be delivered at Closing.

          1.24 “Closing Purchase Price” means the Closing Payment as adjusted by the Net Working
Capital Adjustment.

          1.25 “COBRA” means the Consolidated Omnibus Reconciliation Act of 1985, as amended.

          1.26 “Code” means the Internal Revenue Code of 1986, as amended.

          1.27 “Combined 2006 Adjusted Gross Profit” means the aggregate of (i) the CDI 2006
Adjusted Gross Profit and (ii) the Adjusted Gross Profit earned by the Purchasers during the period
commencing at the Effective Time and ending on December 31, 2006.

          1.28 “Company” shall have the meaning set forth in the preamble to this Agreement.

          1.29 “Confidentiality Agreement” shall have the meaning set forth in Section 14.12.

          1.30 “Consulting Agreement” has the meaning set forth in Section 10.2(o).

          1.31 “Contracts” means written or oral contracts, leases, licenses, agreements,
arrangements, commitments, instruments or understandings.

          1.32 “dollars” and “$” shall mean currency of the United States of America.

          1.33 “Domain Names” means the domain names “cditoys.com” and “arbortoys.com”.

          1.34 “Earn-out Adjustment Fraction” shall have the meaning set forth in Section
2.5(a).

          1.35 “Earn-out Objection Notice” shall have the meaning set forth in Section 2.5(f).

          1.36 “Earn-out Period” means, collectively, the period from the Closing Date to
December 31, 2008.

          1.37 “Effective Time” has the meaning set forth in Section 10.1.

          1.38 “Eligible Inventory” means inventories of consumable items reflected in the
Financial Statements, but excluding any items in any material amount that are below standard

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quality, damaged, obsolete or of a quantity or quality not usable or suitable in the ordinary
course of business.

          1.39 “Employee Plan” shall have the meaning set forth in Section 4.18(b).

          1.40 “Employment Agreements” has the meaning set forth in Section 10.2(g).

          1.41 “Encumbrances” means any and all mortgages, pledges, security interests,
encumbrances, community property interests, conditions, equitable interests, options, warrants,
attachments, rights of first refusal, preemptive, conversion, put, call or other claim or rights,
restrictions on use, voting, receipt of income, transfer (other than restrictions imposed by
federal and state securities laws) or exercise of any other attribute of ownership or liens or
charges of any kind or nature whatsoever.

          1.42 “Environmental Laws” means all Laws related to the environment, natural
resources, or the handling, use, recycling, generation, treatment, storage, transportation or
disposal of Hazardous Materials and health and safety, and any common law cause of action relating
to the environment, natural resources, safety, health or the management of or exposure to Hazardous
Materials.

          1.43 “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

          1.44 “ERISA Affiliate” means any Person which, by reason of its relationship with
Sellers, is required to be aggregated with Sellers under Sections 414(b), 414(c) or 414(m) of the
Code, or which, together with Sellers, is a member of a controlled group within the meaning of
Section 4001(a) of ERISA.

          1.45 “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

          1.46 “Excluded Assets” shall have the meaning set forth in Section 2.1(b).

          1.47 “Excluded Liabilities” shall have the meaning set forth in Section 2.1(d).

          1.48 “Execution Date” shall have the meaning set forth in the introductory paragraph.

          1.49 “Family Member” means an individual’s spouse, parents, children and siblings,
whether by blood, marriage or adoption.

          1.50 “Financial Statements” shall have the meaning set forth in Section 4.8(b).

          1.51 “Fiscal Year 2005 Adjusted Gross Profit” means Fiscal Year 2005 Net Sales less
(without duplication and on a consolidated basis) cost of goods sold and direct selling costs
(consisting of warehouse costs, commissions and out-bound freight costs) attributable to products
sold by the Sellers during the fiscal year ending December 31, 2005, and advertising expenses,
including co-op and promotional allowances, and license royalties payable in respect

5

 

of product sales, including royalty guarantees and advances, all when applied in accordance
with GAAP to an accounting period.

          1.52 “Fiscal Year 2005 Net Sales” means the invoiced amount of CDI Products sold by
the Sellers during the period from and including January 1, 2005 and to and including December 31,
2005, less the sum of all freight invoiced to customers, sales taxes, credits for returns,
shortages and trade discounts and allowances, including defective and markdown allowances but
specifically excluding co-op and promotional allowances, all with respect to the CDI Products.

          1.53 “FTC” means the Federal Trade Commission.

          1.54 “GAAP” means generally accepted accounting principles in effect on the date
hereof as set forth in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or as may be accepted generally by the accounting profession
of the United States.

          1.55 “Government Entity” means any United States or foreign, federal, state or local
court or tribunal or administrative, governmental or regulatory body, agency, commission, division,
department, board, bureau, public body, instrumentality or other authority.

          1.56 “Hazardous Materials” shall have the meaning set forth in Section 4.14(b).

          1.57 “HK Assets” shall have the meaning set forth in Section 2.1(a). For the
avoidance of doubt, HK Assets shall not include any assets that are Excluded Assets.

          1.58 “HK Assumed Obligations” shall have the meaning set forth in Section 2.1(c)(i).

          1.59 “HK Business” means the CDI Business as conducted by and through CDI Hong Kong.

          1.60 “HK Effective Date of Employment” shall have the meaning set forth in Section
11.5(e).

          1.61 “HK Financial Statements” shall have the meaning set forth in Section 4.8(b).

          1.62 “HK GAAP” means the generally accepted accounting principles in Hong Kong,
including accounting principles set forth in applicable Statements of Standard Accounting Practice
and interpretations issued by the Hong Kong Institute of Certified Public Accountants.

          1.63 “HK Hired Employees” shall have the meaning set forth in Section 11.5(e).

          1.64 “HK Included Contracts” means the Contracts included among the HK Assets.

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          1.65 “HK Offer Employee” shall have the meaning set forth in Section 11.5(e).

          1.66 “HK Prorations” shall have the meaning set forth in Section 2.3(b).

          1.67 “HK Purchase Price” means the amount of the Closing Purchase Price allocated to
the HK Assets in accordance with Section 11.4 hereof.

          1.68 “HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.

          1.69 “Included Contracts” means the HK Included Contracts and the US Included
Contracts.

          1.70 “Indemnified Party” shall have the meaning set forth in Section 13.4(a).

          1.71 “Indemnifying Party” shall have the meaning set forth in Section 13.4(a).

          1.72 “IRS” means U.S. Internal Revenue Service.

          1.73 “JAKKS” shall have the meaning set forth in the introductory paragraph.

          1.74 “JAKKS Guaranty” shall have the meaning set forth in Section 11.18.

          1.75 “JAKKS HK” shall have the meaning set forth in the introductory paragraph.

          1.76 “JAKKS SEC Reports” shall have the meaning set forth in Section 5.6.

          1.77 “JAKKS Shares” means shares of the common stock, par value $.001 per share, of
JAKKS.

          1.78 “JAKKS US” shall have the meaning set forth in the introductory paragraph.

          1.79 “Justice Department” means the United States Department of Justice.

          1.80 “Landed Cost” means the actual cost of an item of inventory plus freight costs
and import duties and fees associated therewith.

          1.81 “Law” means any statute, rule, regulation or ordinance of any Government Entity.

          1.82 “Lease” has the meaning set forth in Section 10.2(u).

          1.83 “Loss” shall have the meaning set forth in Section 13.1.

          1.84 “Material Adverse Change” or “Material Adverse Effect” means a material
adverse effect on or a material adverse change in the business, assets, liabilities, revenues,
costs and expenses, income before provision for income taxes, operations or condition,

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financial or otherwise, of Sellers taken as a whole. In determining whether any individual
event would result in a Material Adverse Effect, notwithstanding that such event does not of itself
have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative
effect of such event and all other then existing events would result in a Material Adverse Effect.

          1.85 “Material Contracts” has the meaning set forth in Section 4.13(a).

          1.86 [Intentionally Omitted]

          1.87 “Net Sales” means the invoiced amount of CDI Products sold following the
Effective Time, less the sum of all freight charges invoiced to customers, sales taxes, credits for
returns, shortages and trade discounts and allowances, including defective and markdown allowances
but specifically excluding co-op and promotional allowances, all with respect to the CDI Products.

          1.88 “Net Working Capital” means, on a combined basis, the Sellers’ total current
assets (which shall include no inventory other than Eligible Inventory which shall be included
therein at Landed Cost; provided that for Eligible Inventory which has left the port of
Hong Kong, but has not arrived in the United States on or before the Closing Date, such inventory
shall be valued at cost only) less Sellers’ total current liabilities, determined in accordance
with GAAP (or in the case of CDI Hong Kong, in accordance with HK GAAP) on a basis consistent with
that applied in prior periods and in a manner consistent with the Financial Statements.
Notwithstanding the foregoing, for purposes of calculating Net Working Capital: (i) the Sellers’
current assets shall include the amounts paid by Sellers for molds that have not been used by
Sellers prior to the Closing Date and (ii) Net Working Capital shall exclude Excluded Assets and
Excluded Liabilities.

          1.89 “Net Working Capital Adjustment” shall have the meaning set forth in Section
2.4(a)(i).

          1.90 “Non-competition Agreements” means the non-competition agreements, substantially
in the forms attached to this Agreement as Exhibit A-1 and Exhibit A-2.

          1.91 “Non-Transferable Contracts” shall have the meaning set forth in Section 4.5.

          1.92 “Notice of Claim” shall have the meaning set forth in Section 13.4(a).

          1.93 “OSHA” means the Occupational Safety and Health Act, as amended.

          1.94 “Other Closing Date Indebtedness” shall have the meaning set forth in Section
2.2(b).

          1.95 “Permits” means all franchises, approvals, permits, authorizations, licenses,
orders, registrations, certificates, variances, and other similar permits or rights obtained by
Sellers from any Government Entity and all pending applications therefor.

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          1.96 “Permitted Liens” mean (a) statutory liens for Taxes to the extent that the
payment thereof is not past due or to the extent the taxpayer is contesting such Taxes in good
faith through appropriate proceedings, (b) statutory or common law liens to secure landlords,
lessors or renters under real or personal property leases or rental agreements to the extent that
no payment or performance under any such lease or rental agreement is in default, arrears or is
otherwise past due, (c) deposits or pledges made in connection with, or to secure payment of,
workers’ compensation, unemployment insurance or old age pension programs mandated under applicable
Laws, (d) statutory or common law liens in favor of carriers, warehousemen, mechanics and
materialmen, statutory or common law liens to secure claims for labor, materials or supplies and
other like liens, which secure obligations to the extent the payment thereof is not in arrears or
otherwise past due, (e) for any Asset with respect to which either Seller is a lessee or licensee,
any residual right, title or interest in or to such Asset held by the lessor or licensor of such
Asset, and (f) other imperfections of title and Encumbrances that do not, individually or in the
aggregate, impair the continued use and operation of the Assets.

          1.97 “Person” means and includes an individual, a partnership, a joint venture, an
association, a corporation, a trust, an unincorporated organization, a limited liability company or
partnership, and a Government Entity.

          1.98 “Post-Closing Payment” shall have the meaning set forth in Section 2.5(a).

          1.99 “Post-Closing Statement” shall have the meaning set forth in Section 2.5(e).

          1.100 “Preliminary Post-Closing Payment” shall have the meaning set forth in Section
2.5(i).

          1.101 “Prime Rate” means at the time of determination the prime rate reported in the
Wall Street Journal immediately prior to the date of calculation.

          1.102 “Product Liability” means a liability arising out of death, personal injury or
damage to property caused by a defective product or service.

          1.103 “Prorations” shall have the meaning set forth in Section 2.3(b).

          1.104 “Purchaser” means each of JAKKS HK and JAKKS US who, collectively, shall be
referred to herein as the “Purchasers.”

          1.105 “Real Property” shall have the meaning set forth in Section 4.7(a).

          1.106 “Related Documents” shall have the meaning set forth in Section 3.2.

          1.107 “Review Period” means any of the 2006 Review Period, the 2007 Review Period or
the 2008 Review Period.

          1.108 “SEC” means the U.S. Securities and Exchange Commission.

          1.109 “Secured Debt” shall have the meaning set forth in Section 2.2(a).

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          1.110 “Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

          1.111 “Seller” means each of the Company and CDI Hong Kong which, collectively, shall
be referred to herein as the “Sellers.”

          1.112 “Sellers’ Review Period” shall have the meaning set forth in Section 2.5(f).

          1.113 “Stockholder” means each of Geoffrey Greenberg and Stephanie Coe who,
collectively, shall be referred to herein as the “Stockholders.”

          1.114 “Stockholders’ Representative” means Geoffrey Greenberg.

          1.115 “Target Net Working Capital” means an amount equal to $2,500,000.

          1.116 “Taxes” means any and all taxes, levies or other like assessments, charges or
fees (including estimated taxes, charges and fees), including, without limitation, income,
corporation, capital stock, add-on minimum, ad valorem, advance corporation, gross receipts,
transfer, excise, property, real estate taxes and assessments, sales, use, value-added, license,
payroll, employment, severance, pay as you earn, withholding on amounts paid by or to the relevant
party, social security and franchise or other governmental taxes or charges, imposed by any
Governmental Entity; and such term shall include any interest, penalties or additions to tax
attributable to such taxes. Such term also shall include any interest, fines or penalties levied
as a result of failure to file a Tax Return or the delinquent filing of any Tax Return.

          1.117 “Tax Return” means any report, return, statement or other written information
required to be supplied to a taxing authority in connection with Taxes.

          1.118 “Third Party Claim” shall have the meaning set forth in Section 13.4(b).

          1.119 “Trade Debt” means all amounts owed to trade creditors for services, products,
intangibles, or other items purchased in the ordinary course of business and consistent with past
practices and included in the calculation of Closing Net Working Capital pursuant to Section 2.4.

          1.120 “Trade Right” means a patent, claim of copyright, trademark, trade name, brand
name, service mark, logo, symbol, trade dress or design, or representation or expression of any
thereof, or registration or application for registration thereof, or any other invention, trade
secret, technical information, know-how or other proprietary right or intellectual property.

          1.121 “US Assumed Obligations” shall have the meaning set forth in Section 2.1(c)(ii).

          1.122 “US Assets” shall have the meaning set forth in Section 2.1(a). For the
avoidance of doubt, US Assets shall not include any assets that are Excluded Assets.

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          1.123 “US Business” means the CDI Business as conducted by and through the Company.

          1.124 “US Effective Date of Employment” shall have the meaning set forth in Section
11.5.

          1.125 “US Financial Statements” shall have the meaning set forth in Section 4.8(a).

          1.126 “US Hired Employees” shall have the meaning set forth in Section 11.5(a).

          1.127 “US Included Contracts” means the Contracts included among the US Assets.

          1.128 “US Offer Employee” shall have the meaning set forth in Section 11.5(a).

          1.129 “US Prorations” shall have the meaning set forth in Section 2.3.

          1.130 “US Purchase Price” means the amount of the Closing Purchase Price allocated to
the US Assets in accordance with Section 11.4 hereof.

          1.131 “Utilities” shall have the meaning set forth in Section 2.1(c)(i)(C).

          1.132 “WARN Act” means the Worker Adjustment and Retraining Notification Act, as
amended.

     2. Sale and Purchase of Assets.

          2.1 Transfer of Assets. On the basis of the representations and warranties of the
parties and subject to the terms and conditions set forth in this Agreement:

               (a) Purchase and Sale of Assets. Except as otherwise provided in Section 2.1(b), (i)
CDI Hong Kong hereby agrees to, and the Stockholders hereby agree to cause CDI Hong Kong to, sell
and transfer to JAKKS HK, and JAKKS HK hereby agrees to purchase from CDI Hong Kong, all of the
assets, properties, privileges, claims and rights of every kind, nature and description, wherever
located, which are owned, leased or licensed by CDI Hong Kong or as to which CDI Hong Kong
possesses any right, title or interest or has any claim of right, whether such assets, properties
and rights are real, personal or mixed, tangible or intangible, whether or not any of such assets,
properties, privileges, claims and rights have any value for accounting purposes or are carried or
reflected on or specifically referred to in the HK Financial Statements, as such assets shall exist
on the Closing Date (the “HK Assets”), and (ii) the Company hereby agrees to, and the Stockholders
hereby agree to cause the Company to, sell and transfer to JAKKS US, and JAKKS US hereby agrees to
purchase from the Company, all of the assets, properties, privileges, claims and rights of every
kind, nature and description, wherever located, which are owned, leased or licensed by the Company
or as to which the Company possesses any right, title or interest or has any claim of right,
whether such assets, properties and rights are real, personal or mixed, tangible or intangible,
whether or not any of

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such assets, properties, privileges, claims and rights have any value for accounting purposes
or are carried or reflected on or specifically referred to in the U.S. Financial Statements, as
such assets shall exist on the Closing Date (the “US Assets” and, together with the HK Assets, the
“Assets”), in the case of all such Assets, free and clear of all Encumbrances except for Permitted
Liens, including the following:

                    (i) all tangible assets and properties owned, used or held for use by Sellers, including
machinery and equipment, tools, molds, furniture, office equipment, furnishings and fixtures and
machinery and equipment under order or construction;

                    (ii) all inventories, including finished goods, work-in-progress, raw materials, accessories,
packaging, manufacturing, administrative and other supplies on hand, goods held for sale or to be
furnished under the Included Contracts and other inventories owned, leased or licensed by the
Sellers or as to which the Sellers possess any other right, title or interest or have any claim of
right which are used in connection with the CDI Business;

                    (iii) all cash, cash equivalents, investments, investment securities and certificates of
deposit of Sellers to the extent necessary so that the Sellers’ combined Net Working Capital on the
Closing Date reasonably approximates the Target Net Working Capital;

                    (iv) all billed and unbilled accounts receivable and all notes receivable of Sellers;

                    (v) all credits, prepaid expenses, deferred charges, advance payments, security deposits and
deposits owned by either Seller or as to which either Seller possesses any other right, title or
interest or has any claim of right;

                    (vi) all Trade Rights of Sellers, including the names “Creative Designs” and “Arbor Toys”;

                    (vii) all Domain Names of Sellers;

                    (viii) all websites of Sellers and all related property technologies and other related assets
owned by Sellers;

                    (ix) any and all Contracts pertaining to the Assets to the extent transferable;

                    (x) all Permits held by either Seller to the extent transferable;

                    (xi) all of Sellers’ books, records, ledgers, files, documents (including originally executed
copies of written contracts), customer and supplier lists (past, present or future),
correspondence, memoranda, forms, lists, plats, architectural plans, drawings and specifications,
copies of documents evidencing Trade Rights, new product development materials, creative materials,
advertising and promotional materials, studies, reports, sales and purchase correspondence, books
of account and records relating to the Sellers’ respective employees, photographs, quality control
records and procedures, equipment maintenance

12

 

records, manuals and warranty information, research and development files, in each case,
whether in hard copy, electronic or magnetic format;

                    (xii) all rights or choses in action arising out of occurrences before or after the Closing
Date, including third party warranties and guarantees and all related claims, credits, rights of
recovery and set-off and other similar contractual rights, as to third Persons held by or in favor
of Sellers; and

                    (xiii) all rights to insurance and condemnation proceeds relating to the damage, destruction,
taking or other impairment of the Assets or the CDI Business.

               (b) Excluded Assets. Anything to the contrary in Section 2.1(a) notwithstanding, the
Assets shall exclude, and the Purchasers shall not purchase, the assets, properties, privileges,
claims and rights of Sellers identified on Schedule 2.1(b) (collectively, the “Excluded
Assets”).

               (c) Assumed Obligations.

                    (i) Effective as of the Effective Time, CDI Hong Kong shall and hereby agrees to assign, and
the Stockholders shall and hereby agree to cause CDI Hong Kong to assign, and JAKKS HK shall and
hereby agrees to assume and discharge as of the Effective Time, only the following liabilities and
obligations (collectively, the “HK Assumed Obligations”) in respect of the HK Assets:

                         (A) All obligations of CDI Hong Kong arising or first coming due after the Effective Time
under the HK Included Contracts;

                         (B) All unpaid state, city and county personal and real property Taxes, if any, that are
directly attributable to the HK Assets relating to periods after the Effective Time, which shall be
prorated as provided in Section 2.3 of this Agreement;

                         (C) All utilities, including water, sewer, telephone, electricity and gas service
(collectively, the “Utilities”), servicing any of the HK Assets after the Effective Time, subject
to the HK Prorations provided in Section 2.3 of this Agreement; and

                         (D) All liabilities and obligations arising after the Effective Time with respect to the HK
Hired Employees, as described in Section 11.5 hereof;

                         (E) All severance, change in control or similar liabilities or obligations payable as of the
Closing with respect to the HK Hired Employees and identified on Schedule 2.1(c)(i)(E) as a
result of the transactions contemplated hereby;

                         (F) All Trade Debt and other liabilities of CDI Hong Kong at the Effective Time included in
the calculation of Closing Net Working Capital in accordance with Section 2.4 hereof; and

13

 

                         (G) All claims for Product Liability that shall first be made after the Effective Time in
respect of any CDI Product manufactured or sold by CDI Hong Kong prior to the Effective Time; and

                         (H) All other obligations listed on Schedule 2.1(c)(i)(H).

                    (ii) Effective as of the Effective Time, the Company shall and hereby agrees to assign, and
the Stockholders shall and hereby agree to cause the Company to assign, and JAKKS US shall and
hereby agrees to assume and discharge as of the Effective Time, only the following liabilities and
obligations (collectively, the “US Assumed Obligations”) in respect of the US Assets:

                         (A) All obligations of the Company arising or first coming due after the Effective Time under
the US Included Contracts;

                         (B) All unpaid state, city and county personal and real property Taxes, if any, that are
directly attributable to the US Assets relating to periods after the Effective Time, which shall be
prorated as provided in Section 2.3 of this Agreement;

                         (C) All Utilities servicing any of the US Assets after the Effective Time, subject to the US
Prorations provided in Section 2.3 of this Agreement;

                         (D) All liabilities and obligations arising after the Effective Time with respect to the U.S.
Hired Employees, as described in Section 11.5 hereof;

                         (E) All severance, change in control or similar liabilities or obligations payable as of the
Closing with respect to the U.S Hired Employees and identified on Schedule 2.1(c)(ii)(E) as
a result of the transactions contemplated hereby;

                         (F) All Trade Debt and other liabilities of the Company at the Effective Time included in the
calculation of Closing Net Working Capital in accordance with Section 2.4 hereof;

                         (G) All claims for Product Liability that shall first be made after the Effective Time in
respect of any CDI Product manufactured or sold by the Company prior to the Effective Time; and

                         (H) All other obligations listed on Schedule 2.1(c)(ii)(H).

               (d) Excluded Liabilities. Notwithstanding anything to the contrary contained herein,
Sellers shall retain and not assign, and Purchasers shall not assume, any debts, obligations or
liabilities of Sellers not expressly assumed pursuant to Section 2.1(c) hereof (the “Excluded
Liabilities”). The Sellers shall continue to be obligated to pay, perform and discharge the
Excluded Liabilities, and the Sellers and the Stockholders shall hold Purchasers and JAKKS and
their respective Affiliates harmless from such Excluded Liabilities. Notwithstanding

14

 

anything to the contrary contained herein, the Excluded Liabilities shall include, without
limitation:

                    (i) All current and long-term debt of Sellers existing as of the Closing that is not otherwise
discharged at Closing pursuant to the closing payments described in Section 2.2 hereof;

                    (ii) All costs and expenses (other than license transfer fees) incurred by Sellers in
connection with obtaining the approval of any Person to the assignment of the Included Contracts;
provided that the Sellers shall incur no liability in connection with obtaining approvals
of the Persons listed on Schedule 8.3 except to the extent that the amount payable in such
connection is included in the Cash Component;

                    (iii) Except as is provided in Section 2.1(c)(i)(G) and (H) and Section 2.1(c)(ii)(G) and (H),
all general liability for claims arising out of actions or omissions prior to the Effective Time,
including, without limitation, any liabilities arising from or relating to audits conducted
pursuant to the terms of any Included Contract with respect to periods prior to the Closing Date;

                    (iv) All obligations or liabilities (including liabilities under ERISA or COBRA), in respect
of any employee pension or benefit plan or program (including any Employee Plan) except as such
obligations and liabilities pertain to the Included Contracts and relate to periods following the
Effective Time;

                    (v) All liability for property Taxes, Utilities, rents and other payments due in connection
with Sellers’ Real Property, in each case relating to periods prior to the Effective Time, except
to the extent allocable to JAKKS US or JAKKS HK pursuant to Section 2.3;

                    (vi) Any environmental liabilities, conditions or obligations that arise from the disposal or
release of any Hazardous Materials on, at or underlying Sellers’ Real Property prior to the
Effective Time or any other real property that any Seller or any of its Affiliates directly or
indirectly owns, leases or occupies or in respect of which such Person has any interest or
contingent interest;

                    (vii) All obligations or liabilities in respect of any employees, consultants, agents,
contractors or advisors pursuant to any oral or written consulting, employment, agency, independent
contractor, change in control, severance or similar agreement or arrangement, accrued sick leave or
paid-time off obligations, except as such obligations and liabilities pertain to the Included
Contracts and relate to periods following the Effective Time; and

                    (viii) Any liability for Taxes, whether or not accrued, assessed or currently due and payable,
of the Stockholders or Sellers, whether or not related to the ownership or use of the Assets for
the purposes of or so accruing, being asserted, or becoming due in respect of or in connection with
the CDI Business, for any Tax period (or portion thereof) ending on or prior to the Closing Date,
including any liability of the Stockholders or Sellers as members

15

 

of an Affiliated Group pursuant Treasury Regulation §1502-6(a) of the Code, except to the
extent allocable to Purchasers pursuant to Section 2.3 below.

          2.2 Closing Payments. On the Closing Date and in consideration for the Assets,
Purchasers shall distribute the Closing Payment, subject to adjustment for any Prorations
determined as of the Closing Date, by means of wire transfers of immediately available funds or, as
to the portion of the Closing Payment consisting of JAKKS Shares, delivery of stock certificates,
by 2:00 p.m., New York City time as follows:

               (a) Secured Debt. Such amount of the Closing Payment as may be required to repay in
full all of Sellers’ secured debt, including interest thereon through the Closing Date and related
fees and charges (collectively, the “Secured Debt”) to the Persons and in the amounts as set forth
in Schedule 2.2(a) and to obtain the effective release of all Encumbrances related thereto.

               (b) Other Closing Date Indebtedness Payments. Such amount of the Closing Payment as
may be required to repay in full the indebtedness of Sellers, including interest thereon through
the Closing Date and related fees and charges (collectively, the “Other Closing Date Indebtedness”)
to the Persons and in the amounts set forth in Schedule 2.2(b). Any amounts paid directly
to Sellers in respect of Other Closing Date Indebtedness shall be paid by Sellers on the Closing
Date to the Persons indicated on Schedule 2.2(b).

               (c) JAKKS Shares. JAKKS shall issue 150,000 JAKKS Shares to be allocated among the
Sellers in accordance with Schedule 2.2(c); provided that the Sellers may direct
that the JAKKS Shares be issued to the Stockholders by delivering written instructions to that
effect to JAKKS prior to the Closing. The JAKKS Shares so issued shall be held subject to Section
11.19.

               (d) Closing Payment Balance. The balance of the Closing Payment shall be paid
directly to Sellers, with each Seller receiving that portion of the balance of the Closing Payment
computed in accordance with the formula set forth on Schedule 2.2(d).

          2.3 Proration.

               (a) The Company and JAKKS US shall prorate, as of the Closing Date, any amounts relating to
the US Business (other than amounts relating to the Excluded Assets or Excluded Liabilities) which
become due and payable after the Closing Date which are attributable to the period prior to
Closing, and any amounts relating to the US Business (other than amounts relating to the Excluded
Assets or Excluded Liabilities) which are paid prior to the Closing Date which are attributable to
the period subsequent to Closing, including, without limitation: (i) amounts payable with respect
to the US Included Contracts; (ii) personal property Taxes and similar ad valorem obligations
levied with respect to the US Assets; and (iii) all Utilities servicing any of the US Assets
(collectively, the “US Prorations”); provided, however, that no US Prorations shall
be made for any amounts in respect of payments under a US Included Contract for which a default
exists or arises as a result of the transactions contemplated by this Agreement and in either case
has not been cured.

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               (b) CDI Hong Kong and JAKKS HK shall prorate, as of the Closing Date, any amounts relating to
the HK Business (other than amounts relating to the Excluded Assets or Excluded Liabilities) which
become due and payable after the Closing Date which are attributable to the period prior to
Closing, and any amounts relating to the HK Business (other than amounts relating to the Excluded
Assets or Excluded Liabilities) which are paid prior to the Closing Date which are attributable to
the period subsequent to Closing, including, without limitation, (i) amounts payable with respect
to the HK Included Contracts and (ii) all personal property Taxes and similar ad valorem
obligations levied with respect to the HK Assets (collectively, the “HK Prorations” and, together
with the US Prorations, the “Prorations”); provided, however, that no HK Prorations
shall be made for any amounts in respect of payments under a HK Included Contract for which a
default exists or arises as a result of the transactions contemplated by this Agreement and in
either case has not been cured.

               (c) In the event that Sellers and Purchasers are able to determine any of the Prorations as of
the Closing, the net amount of the Prorations so determined as of Closing shall be added to or
subtracted from, as the case may be, from the Closing Payment to be paid at the Closing in
accordance with Section 2.2 hereof. In the event that Sellers and Purchasers are not able to
determine all of the Prorations as of the Closing, Sellers and Purchasers shall cooperate to
determine all remaining Prorations as promptly as practicable after the Closing Date and shall,
promptly after such determination, pay any amounts owing under this Section 2.3 to the party to
whom such amount is owed.

          2.4 Net Working Capital Adjustment.

               (a) Calculation.

                    (i) Within forty-five (45) days after the Closing Date, Sellers shall provide to Purchasers
and JAKKS at Sellers’ expense (A) a statement of Sellers’ combined Net Working Capital (the
“Closing Net Working Capital”), prepared in accordance with GAAP and in a manner consistent with
the Financial Statements, as of the close of business on the Closing Date, adjusted, if necessary,
to reflect payments of Secured Debt and Other Closing Date Indebtedness made in accordance with
Section 2.2, but excluding cash, cash equivalents, investments, investment securities and
certificates of deposit of Sellers to the extent not included in the Assets, (B) based on the
statement of Closing Net Working Capital, a computation of the difference (such difference, if any,
the “Net Working Capital Adjustment”) between the Closing Net Working Capital and the Target Net
Working Capital, and (C) a computation of the Closing Purchase Price as determined by Sellers in
accordance with this Section 2.4(a).

                    (ii) Purchasers shall provide Sellers, their respective accountants and other personnel
preparing the statement of the Closing Net Working Capital with access at Purchasers’ principal
offices, at all times upon reasonable notice during normal business hours, to Purchasers’
personnel, properties, and books and records pertaining to the Assets for purposes of preparing the
statement of the Closing Net Working Capital. Purchasers and JAKKS shall have the right, at their
cost and expense, to audit the statement of the Closing Net Working Capital, and shall have
reasonable access to the workpapers of the accountants and other personnel of Sellers preparing the
statement of the Closing Net Working Capital. During the thirty (30) days immediately following
the receipt by Purchasers and JAKKS of the items set

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forth in Section 2.4(a)(i), Purchasers and JAKKS and their respective accountants shall be
entitled to review such items and any workpapers, trial balances and similar materials relating
thereto prepared by Sellers, their accountants or other personnel.

                    (iii) (A) If Purchasers and JAKKS do not accept Sellers’ computation of the Closing Purchase
Price and/or the Net Working Capital Adjustment (including any figures or computations on the
statement of Closing Net Working Capital and any other figures or computations used in determining
the Closing Purchase Price or the Net Working Capital Adjustment), Purchasers shall give written
notice to Sellers prior to the end of the (30) day period referred to in the last sentence of
Section 2.4(a)(ii). Such notice shall set forth in reasonable detail the basis for Purchasers’ and
JAKKS’s objections to the Closing Purchase Price and/or the Net Working Capital Adjustment.

                         (B) If Purchasers or JAKKS do not object within such thirty (30) day period, the Closing
Purchase Price and the Net Working Capital Adjustment shall be deemed accepted and approved by
Purchasers and JAKKS. If Purchasers or JAKKS shall give the notice referred to in Section
2.4(a)(iii)(A) within such thirty (30) day period, the parties shall attempt to resolve the matter
or matters in dispute. If the matters in dispute cannot be resolved by the parties within sixty
(60) days after delivery of such notice to Sellers, the specific matters in dispute shall be
submitted to the Arbitrating Accountants selected promptly by Purchasers and Sellers, which firm
shall make a final and binding determination as to such matter or matters. The Arbitrating
Accountants shall deliver to the parties their written determination regarding the matters
submitted to them within sixty (60) days, which determination shall be binding and conclusive upon
all parties with respect to the calculation of the Closing Purchase Price and/or the Net Working
Capital Adjustment. No such determination shall require Sellers to alter the Financial Statements.

                         (C) Fees and expenses of the Arbitrating Accountants shall be paid 50% by the Purchasers and
50% by Sellers. Other fees and expenses of Sellers incurred in connection with the determination
of the Closing Purchase Price and the Net Working Capital Adjustment (including the fees and
expenses of Sellers’ accountants) shall be deemed Excluded Liabilities and shall be paid by Sellers
and shall in no event be the responsibility of Purchasers or JAKKS.

                    (iv) If the Closing Net Working Capital is less than the Target Net Working Capital, then
Sellers shall pay Purchasers the excess of the Target Net Working Capital over the Closing Net
Working Capital. If the Closing Net Working Capital is greater than the Target Net Working
Capital, then Purchasers shall pay Sellers the excess of the Closing Net Working Capital over the
Target Net Working Capital.

               (b) Payment of Net Working Capital Adjustment. Any payment required to be made
pursuant to this Section 2.4 shall be made in cash within five (5) business days after acceptance
of any Net Working Capital Adjustment by the parties or, in the case of written notice of objection
by Purchasers or Sellers, as the case may be, within five (5) business days after any Net Working
Capital Adjustment is finally determined as provided above. If any party hereto is obligated to
make a payment under this Section 2.4 and fails to make such payment within the time frame
established by this paragraph, then such party shall pay interest at

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the Prime Rate on the amount of such payment for the period from the date such payment was due
through (but excluding) the actual day of such payment.

          2.5 Earn-out.

               (a) If Sellers and Purchasers shall earn Combined 2006 Adjusted Gross Profit during the 2006
Review Period in an amount equal to or greater than 101% of the Base applicable to the 2006 Review
Period, Purchasers shall pay Sellers an amount (such amount a “Post-Closing Payment” and, together
with other amounts, if any, payable under this Section 2.5, the “Post-Closing Payments”) equal to
the product of (i) the Post-Closing Payment amount that corresponds to the Combined Adjusted Gross
Profit as a percentage of the Base applicable to the 2006 Review Period earned during the 2006
Review Period as set forth on Table A of Schedule 2.5 and (ii) a fraction (such fraction,
the “Earn-out Adjustment Fraction”), the numerator of which shall be the number of calendar days in
the period commencing on the day after the Closing Date and ending on December 31, 2006, and the
denominator of which shall be 365.

               (b) If Purchasers shall earn Adjusted Gross Profit during the 2007 Review Period in an amount
equal to or greater than 101% of the Base applicable to the 2007 Review Period, Purchasers shall
pay Sellers a Post-Closing Payment equal to the Post-Closing Payment amount that corresponds to the
Adjusted Gross Profit as a percentage of the Base applicable to the 2007 Review Period earned by
Purchasers during the 2007 Review Period as set forth on Table B of Schedule 2.5.

               (c) If Purchasers shall earn Adjusted Gross Profit during the 2008 Review Period in an amount
equal to or greater than 101% of the Base applicable to the 2008 Review Period, Purchasers shall
pay Sellers a Post-Closing Payment equal to the Post-Closing Payment amount that corresponds to the
Adjusted Gross Profit as a percentage of the Base applicable to the 2008 Review Period earned by
Purchasers during the 2008 Review Period as set forth on Table C of Schedule 2.5.

               (d) Each Post-Closing Payment shall be made within seventy-five (75) days after the end of the
applicable Review Period triggering Purchasers’ obligations hereunder and allocated between the
Sellers in accordance with the formula set forth on Schedule 2.2(d). Any assignment of the
Sellers’ respective rights to receive Post-Closing Payments shall be governed by Section 14.1.
Post-Closing Payments, if any, shall be payable by wire transfer to Sellers or their permitted
assignees in accordance with the written instructions of Sellers previously given to Purchasers
pursuant to Section 2.2; provided that such instructions may be modified at any time by
Sellers or their permitted assignees by delivery of superseding written instructions delivered to
Purchasers and JAKKS in accordance with Section 14.2. In no event shall Purchasers or JAKKS be
obligated to make Post-Closing Payments aggregating in excess of Twenty Million Dollars
($20,000,000) and payment of the foregoing amount by Purchasers pursuant to the terms hereof shall
relieve Purchasers and JAKKS of any further obligations under this Section 2.5.

               (e) Within sixty (60) days following the end of each Review Period during the Earn-out Period,
Purchasers shall prepare or cause to be prepared a statement setting

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forth the Base and Adjusted Gross Profit, which shall be calculated in accordance with GAAP in
a manner consistent with the Financial Statements, for such Review Period and the Adjusted Gross
Profit as a percentage of the Base applicable to such Review Period (each a “Post-Closing
Statement”) and deliver such statement to the Stockholders.

               (f) If either Stockholder in good faith disagrees with any Post-Closing Statement, the
Stockholder Representative may deliver to Purchasers, within ten (10) calendar days after such
Stockholder’s receipt of the Post-Closing Statement (the “Sellers’ Review Period”), a written
notice (the “Earn-out Objection Notice”) setting forth in reasonable detail (i) the amounts on the
Post-Closing Statement with which such Stockholder disagrees and the basis for such disagreement
and (ii) such Stockholder’s proposed corrections to the Post-Closing Statement; provided,
however, that such disagreement must be based solely upon an alleged failure of the
Post-Closing Statement to conform to the requirements of this Section 2.5 and/or alleged
mathematical errors contained or reflected therein. The Stockholders shall be deemed to have
agreed with all amounts contained in the Post-Closing Statement to which no specific objection has
been made. If the Stockholder Representative does not deliver an Earn-out Objection Notice prior
to the expiration of Sellers’ Review Period, the Sellers shall be deemed to agree in all respects
with Purchasers’ calculation of the Base, Adjusted Gross Profit and the Adjusted Gross Profit as a
percentage of the Base for such Review Period, and those respective amounts and percentages as set
forth in the Post-Closing Statement shall be final and binding upon Sellers and Purchasers.
Purchasers shall, upon written request, make available to the Stockholder Representative and its
agents all such documents and information in the Purchasers’ or JAKKS’ possession or control that
is necessary to facilitate the Stockholders’ review of the Post-Closing Statement in a timely
manner.

               (g) If an Earn-out Objection Notice is properly and timely delivered, the Stockholders and
Purchasers shall negotiate in good faith with each other to attempt to resolve the disputed amounts
set forth in the Earn-out Objection Notice. If the parties are unable to resolve the disputed
amounts set forth in the Earn-out Objection Notice within five (5) calendar days after the
Stockholders’ delivery of the Earn-out Objection Notice to Purchasers, the parties shall cause the
Arbitrating Accountants to promptly review this Agreement and the disputed amounts in the
Post-Closing Statement for the purpose of calculating the Base, Adjusted Gross Profit and the
Adjusted Gross Profit as a percentage of the Base for such Review Period. In making any such
calculations, the Arbitrating Accountants shall consider only those amounts in the Post-Closing
Statement as to which the Stockholders have, in the Earn-out Objection Notice, disagreed.

               (h) The Arbitrating Accountants shall deliver to the Stockholder Representative and
Purchasers, as promptly as practicable, but no later than five (5) calendar days after the
Arbitrating Accountants are engaged, a written report setting forth its calculation of the disputed
amounts and percentages. Upon such delivery, such report and the calculations set forth therein
shall be final and binding upon Sellers and Purchasers. The cost of such review and report shall
be borne equally by Sellers and Purchasers.

               (i) If an Earn-out Objection Notice is properly and timely delivered by the Stockholders with
respect to any Post-Closing Statement, Purchasers shall pay the Post-Closing Payment set forth in
such Post-Closing Statement (the “Preliminary Post-Closing

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Payment”) in accordance with Section 2.5(d) of this Agreement pending resolution of the
disputed amounts. If based upon the written report of the Arbitrating Accountants Sellers are owed
an amount (a “Final Post-Closing Payment”) different from the Preliminary Post-Closing Payment, the
following provisions shall apply. If the Final Post-Closing Payment exceeds the Preliminary
Post-Closing Payment, Purchasers shall pay to Sellers within two (2) business days after the
Arbitrating Accountant’s delivery of their written report pursuant to Section 2.5(h) an amount
equal to such excess together with interest at the Prime Rate on such excess amount for the period
from the date that the Post-Closing Payment was due through (but excluding) the actual day of such
additional payment. If the Preliminary Post-Closing Payment exceeds the Final Post-Closing
Payment, Sellers shall pay to Purchasers within two (2) business days after the Arbitrating
Accountant’s delivery of their written report pursuant to Section 2.5(h) an amount equal to such
excess together with interest at the Prime Rate on such excess amount for the period from the date
that the Post-Closing Payment was due through (but excluding) the actual day of such additional
payment. If any amount payable by Purchasers pursuant to the third sentence of this Section 2.5(i)
(excluding any interest accruing with respect thereto) is more than 10% of the applicable
Preliminary Post-Closing Payment, Purchasers shall pay the costs reasonably incurred by Sellers in
connection with such dispute. If any amount payable by Sellers pursuant to the fourth sentence of
this Section 2.5(i) (excluding any interest accruing with respect thereto) is more than 10% of the
applicable Preliminary Post-Closing Payment, Sellers shall pay the costs reasonably incurred by
Purchasers in connection with such dispute.

               (j) Notwithstanding any provision in this Agreement to the contrary, if Geoffrey’s employment
with JAKKS US is terminated by JAKKS US for Cause (as such term is defined in the Employment
Agreement between Geoffrey and JAKKS US), from and after such termination no Seller shall be
entitled to any Post-Closing Payment.

               (k) If the agreements set forth on Schedule 2.5(k) are not included among the Included
Contracts acquired by Purchasers hereunder because Sellers are unable to obtain consent to an
extension and assignment of such agreements to Purchasers and Purchasers are unable to receive the
benefits described in Section 11.10 in respect of such agreements, for the purpose of calculating
the Base for each Review Period, Adjusted Gross Profit for the prior year shall be reduced
equitably by an amount agreed to by Purchasers and Sellers; provided that the amount of
such reduction shall not be less than the portion of Fiscal Year 2005 Adjusted Gross Profit of the
Company and CDI Hong Kong attributable to the products sold under such agreements during the twelve
month period ending December 31, 2005. If the agreements set forth on Schedule 2.5(k) are included
among the Included Contracts acquired by Purchasers hereunder but the term of such Included
Contracts does not extend for the entire Earn-Out Period, and Purchasers are unable to receive the
benefits described in Section 11.10 in respect of such agreements for the entire Earn-Out Period,
for the purpose of calculating the Base for each Review Period following the end of the term of
such Included Contracts acquired by Purchasers, Adjusted Gross Profit for the prior year shall be
reduced equitably by an amount agreed to by Purchasers and Sellers; provided that the amount of
such reduction shall not be less than the portion of Adjusted Gross Profit of the Company and CDI
Hong Kong attributable to the products sold under such agreements during the twelve month period
immediately preceding the end of the term of such Included Contracts.

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               (l) For the avoidance of doubt, no Post-Closing Payment or license transfer fee shall be
included in the calculation of Adjusted Gross Profit.

     3. Representations and Warranties of the Stockholders. The Stockholders, jointly and
severally, represent and warrant to Purchasers and JAKKS as follows:

          3.1 Ownership. Except as set forth on Schedule 3.1, each Stockholder holds of
record and owns beneficially that number of shares of capital stock in each Seller set forth
opposite his or her name on Schedule 3.1, free and clear of any Encumbrances. Except as
set forth on Schedule 3.1, no Stockholder is a party to any voting trust, proxy, or other
agreement, commitment or understanding with respect to the voting, dividend rights or disposition
of any shares of capital stock of any Seller.

          3.2 Stockholders’ Authority. Each Stockholder has the power and authority to execute
and deliver this Agreement and all other agreements, documents, certificates and instruments
required to be executed and delivered pursuant hereto (collectively, the “Related Documents”) by
him or her and to perform his or her respective obligations contemplated by this Agreement and the
Related Documents. This Agreement and each Related Document to which either Stockholder is a party
have been duly executed and delivered by such Stockholder, and this Agreement and those Related
Documents constitute the valid, binding and enforceable obligations of such Stockholder,
enforceable in accordance with their terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium and other laws affecting creditors’ rights generally, from time to time, in
effect and to general equitable principles.

          3.3 Consents and Approvals. Except as set forth on Schedule 3.3, no filing
with, and no permit, authorization, license, consent or approval of, any Government Entity or any
other Person, other than the FTC and Justice Department under the HSR Act, is necessary for the
execution, delivery and performance of this Agreement or the Related Documents by any Stockholder
and the consummation of the transactions contemplated by this Agreement and the Related Documents.

          3.4 No Conflict or Violation. Neither the execution, delivery or performance of this
Agreement or any Related Document by any Stockholder, nor the consummation by any Stockholder of
the transactions contemplated hereby or thereby, nor compliance by the Stockholders with any of the
provisions hereof or thereof, will (i) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any right of termination,
cancellation, vesting, payment, exercise, acceleration, suspension, revocation or modification)
under, any of the terms, conditions or provisions of any note, credit agreement, bond, mortgage,
deed of trust, security interest, indenture, lease, license, contract, agreement, plan or other
instrument or obligation to which any Stockholder is a party or by which he or she or any of his or
her properties or assets may be bound or affected, or (ii) violate any judgment, order, writ,
injunction, decree, statute, rule or regulation applicable to any Stockholder or any of his or her
properties or assets, except for such violations, breaches, defaults, or rights of termination,
cancellation, acceleration, creation, imposition, suspension, revocation or modification as to
which requisite waivers or consents have been obtained prior to Closing and copies of which have
been delivered to Purchasers.

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          3.5 Litigation. Except as set forth on Schedule 3.5, there is no Action
pending or, to the knowledge of any Stockholder, threatened against or affecting any Stockholder,
that could reasonably be expected to impair his or her ability to perform his or her obligations
hereunder or under the Related Documents or the transactions contemplated by this Agreement and the
Related Documents.

          3.6 Investment Representation. Each Stockholder is an “accredited investor” within
the definition set forth in Rule 501(a) under the Securities Act. Any JAKKS Shares acquired by the
Stockholders following the distribution of same by Sellers shall be acquired by the Stockholders
for their own account, for investment and not with a view to, or in connection with, or with any
present intention of, any resale or other disposition thereof. Any distribution(s) of the JAKKS
Shares acquired by either Stockholder shall be effected in compliance with the Securities Act and
Blue Sky Laws and in a manner so as to preserve at all times Purchasers’ and JAKKS’ exemption
therefrom pursuant to Rule 506 under the Securities Act.

     4. Representations and Warranties of the Stockholders and Sellers concerning Sellers and
the CDI Business. The Stockholders and Sellers, jointly and severally, represent and warrant
to Purchasers and JAKKS as follows:

          4.1 Organization, Existence and Corporate Authority.

               (a) Except as set forth on Schedule 4.1(a), each Seller is a corporation duly
organized, validly existing and in good standing under the laws of the jurisdiction in which it was
incorporated or organized and has the corporate power and authority and all necessary government
licenses, permits, authorizations and approvals to own, lease and operate its properties and to
carry on its business as it is now being conducted and has been conducted over the past twelve (12)
months. Except as set forth on Schedule 4.1(a), each Seller is duly qualified or licensed
to do business and is in good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification or licensing necessary, other
than in such jurisdictions where the failure to be so qualified, individually or in the aggregate,
would not have a Material Adverse Effect.

               (b) Each Seller has the power and authority to execute and deliver this Agreement and all
other Related Documents required to be executed and delivered pursuant hereto by it and to perform
its obligations contemplated by this Agreement and the Related Documents. Except as set forth on
Schedule 4.1(b), the execution, delivery and performance of this Agreement and such Related
Documents by such Seller have been duly authorized by all necessary corporate action on the part of
such Seller, and no other corporate proceedings of such Seller are necessary to authorize the
execution, delivery and performance of this Agreement and such Related Documents by such Seller.
This Agreement and each Related Document to which either Seller is a party have been duly executed
and delivered by such Seller and this Agreement and those Related Documents constitute the valid,
binding and enforceable obligations of such Seller, enforceable in accordance with their terms,
subject to applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting
creditors’ rights generally, from time to time, in effect and to general equitable principles.

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          4.2 Capitalization; Ownership of Other Entities. Schedule 4.2 sets forth the
designations and numbers of all authorized and outstanding capital stock, equity securities,
membership interests or other securities of each Seller, together with the name of the holder of
record of such capital stock, equity interests, membership interests or other securities. Except
for the securities set forth on Schedule 4.2, no Seller has any capital stock or other
equity securities outstanding. Except as set forth on Schedule 4.2, there are no
subscriptions, options, warrants, preemptive rights, or other rights of any kind to purchase or
otherwise receive (upon conversion, exchange or otherwise) any capital stock or other equity
securities of any Seller. Except as set forth on Schedule 4.2, neither Seller is a party
to any voting trust, proxy or other agreement, commitment or understanding with respect to the
voting, dividend rights or disposition of any of its respective capital stock or membership
interests. Sellers do not own, and do not have any agreements, commitments or understandings to
acquire, any capital stock or other securities or any direct or indirect equity or ownership
interest in any other Person.

          4.3 Consents and Approvals. Except as set forth on Schedule 4.3, no filing
with, and no permit, authorization, license, consent or approval of, any Government Entity or any
other Person, other than the FTC and Justice Department under the HSR Act, is necessary for the
execution, delivery and performance of this Agreement or the Related Documents by either Seller
and/or the consummation of the transactions contemplated by this Agreement and the Related
Documents.

          4.4 No Conflict. Except as set forth on Schedules 4.3 or 4.4, neither the
execution, delivery or performance of this Agreement or any Related Document, nor the consummation
of the transactions contemplated hereby or thereby, (i) conflicts with or results in any breach of
any provisions of the articles of incorporation, bylaws or other comparable governing document of
either Seller, (ii) results in a violation or breach of, or constitutes (with or without due notice
or lapse of time or both) a default (or gives rise to any right of termination, cancellation,
vesting, payment, exercise, acceleration, suspension, revocation or modification) under, any of the
terms, conditions or provisions of any note, credit agreement, bond, mortgage, deed of trust,
security interest, indenture, Contract, plan or other obligation to which any Seller is a party or
by which any of their respective properties or assets may be bound or affected, (iii) violates any
order, writ, injunction, decree or Law applicable to Sellers or any of their respective properties
or assets, (iv) results in the creation or imposition of any Encumbrance on any asset of Sellers’
or (v) causes the suspension, revocation or modification of any permit, license, governmental
authorization, consent or approval necessary for any Seller to conduct its business as currently
conducted and as conducted over the past twelve (12) months, except, in the case of clauses (ii),
(iii), (iv) and (v), for such violations, breaches, defaults or rights of termination,
cancellation, acceleration, creation, imposition, suspension, revocation or modification as to
which requisite waivers or consents have been obtained by each Seller, as applicable, on or prior
to Closing and copies of which have been delivered to Purchaser.

          4.5 Extent of Assets. The Assets include all of the real (immovable) and personal
(movable) property, intangible (incorporeal) property, rights and other assets of every kind and
nature whatsoever owned, leased, licensed or used by Sellers for the conduct of the CDI Business as
currently conducted and as conducted during the past twelve (12) months, except for the Excluded
Assets and such Included Contracts and Permits that are not transferred to

24

 

Purchasers because a consent required for such transfer has not been obtained (such Included
Contracts and Permits that are not transferred are referred to herein as the “Non-Transferable
Contracts”). The Assets, except for the Excluded Assets and the Non-Transferable Contracts with
respect to which Purchasers are unable to obtain the benefits described in Section 11.10 hereof,
constitute all the Assets necessary or desirable to design, produce, manufacture, market, sell or
distribute the CDI Products. Sellers are the legal and beneficial owners or lessees, as the case
may be, of the Assets free and clear of all Encumbrances other than the Permitted Liens, and
Sellers have the full right, power and authority to sell, transfer, assign, convey and deliver all
of the Assets to Purchasers.

          4.6 Personal Property.

               (a) Schedule 4.6(a) sets forth with respect to the Assets and the CDI Products (i) all
items of personal property owned by Sellers, except for items having an original cost of less than
$10,000, and, with respect to molds owned by Sellers, only including molds that, to the Sellers’
knowledge, were purchased by Sellers since January 1, 2004, and (ii) all leases of personal
property of Sellers, except where the aggregate annual rental value is less than $10,000. Sellers
have good and valid title to all of the personal property purported to be owned by them free and
clear of all Encumbrances, except Permitted Liens. Sellers have delivered or made available to
Purchasers and JAKKS true and complete copies of all leases and other agreements or documents
affecting the personal property leased by Sellers and pertaining to the Assets and the production
of the CDI Products, all of which are valid and binding agreements of Sellers.

               (b) Except as set forth on Schedule 4.6(b), each item of personal property owned or
leased by Sellers, including all equipment which is currently used in the CDI Business and
production of the CDI Products is in Sellers’ possession and taking into account the age of such
equipment, is in good operating condition and repair, adequate for the uses and purposes for which
it is being used or intended, and is available for immediate use in the operation of the CDI
Business, and, except as would be natural taking into account the age of such equipment, none of
such equipment requires maintenance or repairs other than ordinary, routine maintenance and
repairs.

          4.7 Real Property.

               (a) Neither Seller currently owns any real property. Set forth on Schedule 4.7(a) is
a list of leases of all real property currently leased by Sellers (the “Real Property”). True,
complete and correct copies of each lease for real property to which either Seller is a party have
been delivered to Purchasers. The Real Property is the only real property used in the operation of
the CDI Business, and, except as set forth on Schedule 4.7(a), none of the Real Property is
owned by Sellers, Stockholders or any of their respective Affiliates. Except as set forth on
Schedule 4.7(a), the sale of the Assets to Purchasers and the consummation of the
transactions contemplated by this Agreement do not require the consent of any of the landlords of
any of the Real Property.

               (b) Sellers have delivered to Purchasers true and correct copies of all leases, together with
all amendments and modifications thereof, listed in Schedule 4.7(a), all of

25

 

which are binding on the respective Seller named therein, and with respect to which Sellers
are current in their rent payments and are not otherwise in default in any material respect.

               (c) To the knowledge of Sellers, present use of the Real Property is in substantial conformity
with all applicable Laws and with all deed restrictions, and no Seller has received any notice of
violation or alleged violation thereof.

               (d) To the knowledge of Sellers, there are no material capital expenditures required to be
made by Purchasers in connection with the Real Property in order to comply with all applicable
Laws. No portion of the Real Property has suffered any damage by fire or other casualty which
heretofore has not been repaired or restored and fully paid-for.

               (e) All requisite certificates of occupancy and other licenses, permits or authorizations with
respect to the buildings, structures, facilities (including any improvements thereto) on the Real
Property and the occupancy and use thereof have been obtained and are currently in effect.

               (f) There are reasonable means of ingress and egress from public roads to each parcel of Real
Property.

               (g) The Real Property has access to such Utilities as are necessary for such property’s
occupation and use for the CDI Business.

          4.8 Financial Statements.

               (a) The Company has delivered to Purchasers copies of the Company’s audited financial
statements for the fiscal years ended December 31, 2002, December 31, 2003 and December 31, 2004 as
well as the Company’s unaudited balance sheet and related unaudited statement of profit and loss
and changes in stockholders’ equity for its most recently completed fiscal half-year (collectively,
the “US Financial Statements”). The U.S. Financial Statements are attached hereto as Schedule
4.8(a). The US Financial Statements were prepared in accordance with the books and records of
the Company, fairly present in all material respects its financial position and results of
operations at and for the periods indicated, and were prepared in accordance with GAAP applied
consistently with prior periods except as otherwise noted in footnotes to the US Financial
Statements (subject, in the case of unaudited statements, to year-end adjustments and to the
absence of footnotes).

               (b) CDI Hong Kong has delivered to Purchasers copies of CDI Hong Kong’s audited financial
statements for the fiscal years ended December 31, 2002, December 31, 2003 and December 31, 2004,
as well as CDI Hong Kong’s unaudited balance sheet and related unaudited statement of profit and
loss and changes in stockholders’ equity for its most recently completed fiscal half-year
(collectively, the “HK Financial Statements” and together with the US Financial Statements, the
“Financial Statements”). The HK Financial Statements are attached hereto as Schedule
4.8(b). The HK Financial Statements fairly present, and show a fair view of, in all material
respects the state of affairs of CDI Hong Kong as at such dates and the results of operations of
CDI Hong Kong for the time periods ended on such dates and have been prepared and audited in
accordance with HK GAAP applied consistently and audit statements have been

26

 

prepared on a basis consistent with the basis upon which all audited HK Financial Statements
have been prepared in respect of the three years ended December 31, 2004 (subject, in the case of
unaudited statements, to year-end adjustments and to the absence of footnotes).

          4.9 Indebtedness; Undisclosed Liabilities; Adverse Factors. Schedule 4.9 sets
forth all of Sellers’ outstanding indebtedness for borrowed money, whether secured or unsecured.
Except as set forth on Schedule 4.9, no Seller is a party to any loan agreement or the
maker or obligor under any promissory note or other similar undertaking, including, without
limitation, any guaranty, for the repayment of borrowed money or the performance of any other
obligation. Except as set forth on Schedule 4.9, Sellers have no liabilities of any kind
whatsoever, either accrued, absolute, contingent, determined or determinable or otherwise, except
for liabilities reflected or reserved against in the Financial Statements and current liabilities
incurred in the ordinary course of business since December 31, 2004 that are included in the
calculation of Closing Net Working Capital. Notwithstanding the liabilities and obligations
reflected in the Financial Statements and except as set forth on Schedule 4.9, as of the
date of this Agreement the Stockholders have no obligation or liability of any nature to Sellers or
any of their Affiliates. Except as set forth on Schedule 4.9, there are no Actions for
indemnification asserted by any Person against either Seller under any Law or agreement or pursuant
to the articles of incorporation or bylaws or corresponding articles of organization of either
Seller, and the Sellers have no knowledge any facts or circumstances that might give rise to the
assertion of any such Action. The Sellers have no knowledge of any event, condition, set of facts
or circumstances, which is reasonably likely to have a Material Adverse Effect that they have not
disclosed to Purchasers. Specific representations and warranties made by Sellers elsewhere in this
Agreement or in any Related Document will not in any way limit the representations and warranties
in this Section 4.9.

          4.10 Absence of Material Changes. Except as set forth on Schedule 4.10, since
December 31, 2004, Sellers have conducted the CDI Business in the ordinary course, and there has
not been and the Sellers do not have knowledge of:

               (a) any Material Adverse Change;

               (b) any damage, destruction or loss to any of the Assets that affects the CDI Business;

               (c) any obligation or liability incurred, discharged or satisfied, other than current
liabilities incurred, discharged or satisfied in the ordinary course of business;

               (d) any sale, transfer, lease, license, Encumbrance or other disposition of any Asset other
than in the ordinary course of business;

               (e) any action taken by any Seller to amend, terminate or waive any material right belonging
to that Seller other than in the ordinary course of business;

               (f) any rights transferred or granted under any concessions, leases, licenses, or other
Contracts (excluding purchase orders issued or received in the ordinary course of business) to any
Trade Rights owned or licensed by Sellers;

27

 

               (g) any wage or salary increase to any officer or employee or any amendment to or adoption of
an Employee Plan (as defined in Section 4.18(b) herein) not previously disclosed to Purchasers
other than in the ordinary course of business, except as set forth in Schedule 4.10;

               (h) any single investment, capital contribution, capital expenditure or any commitment for any
capital expenditure in excess of $25,000 outside of the ordinary course of business;

               (i) any transaction, Contract or commitment entered into by any Seller other than in the
ordinary course of business;

               (j) any loss of one or more suppliers, manufacturers, distributors or customers, which is
reasonably likely to have an adverse effect on current year production or sales, except as set
forth on Schedule 4.10;

               (k) any Action pending or threatened, which relates to any Seller or any of the Assets, the
outcome of which could reasonably be expected to have a Material Adverse Effect except as set forth
on Schedule 4.10;

               (l) (i) the incurrence of any indebtedness for borrowed money, other than borrowings under
existing credit facilities and existing indebtedness owing to Stockholders, (ii) the making of any
loans or advances to any other Person, other than routine advances to employees consistent with
past practice or (iii) the assumption, guarantee or endorsement (whether directly, contingently
otherwise) for the obligations of any other Person, other than any assumption, guarantee or
endorsement undertaken by one Seller for another Seller in the ordinary course of business;

               (m) any compromise or settlement of, or the taking of any material action with respect to, any
Action;

               (n) the entrance into or amendment of any employment, consulting, severance, or similar
agreement with any Person other than in the ordinary course of business, except with respect to new
hires or routine salary increases (consistent in amount with past practice) in the ordinary course
of business or as set forth on Schedule 4.10;

               (o) any material change in any of their respective methods of accounting or accounting
practice or policy, except as required by any changes in GAAP or applicable Law;

               (p) the entrance into any agreement the purpose of which is to restrain, limit, or impede
Purchasers’ ability to conduct the CDI Business following the Closing;

               (q) the entrance into any other agreements, commitments or contracts which create liabilities
other than in the ordinary course of business;

28

 

               (r) the authorization or commitment by any Seller to make any capital expenditures other than
those capital expenditures incurred by Sellers in the ordinary course of business;

               (s) the cancellation or termination of any insurance policy covering the Assets other than in
the ordinary course of business; or

               (t) the maintenance of Sellers’ respective books and records in a manner inconsistent with
past business practices, except to be in compliance with GAAP or HK GAAP, as the case may be, or
applicable Laws.

          4.11 Tax Matters.

               (a) Except as set forth on Schedule 4.11, (i) Sellers, and all members of Sellers’
Affiliated Group, have filed on a timely basis (taking into account any extensions received from
the relevant taxing authorities) all Tax Returns that are or were required to be filed on or prior
to the date hereof with the appropriate taxing authorities in all jurisdictions in which such Tax
Returns are or were required to be filed, and all such Tax Returns are true, correct and complete
in all material respects; (ii) all Taxes due for the periods covered by such Tax Returns have been
fully paid, deposited or adequately provided for on the Financial Statements or are being contested
in good faith by appropriate proceedings; (iii) there are no Encumbrances as a result of any unpaid
Taxes upon any of the Assets and no basis exists for the imposition of any such Encumbrances other
than liens for Taxes not yet due and payable; and (iv) no claim has ever been made by an authority
in a jurisdiction where Sellers (or members of their Affiliated Group) do not file Tax Returns that
they are or may be subject to taxation by that jurisdiction.

               (b) Neither the Sellers nor any of their Affiliates has made with respect to any US Asset any
consent under Section 341 of the Code.

               (c) The Company is not a “foreign person” within the meaning of Section 1445 of the Code.

               (d) None of the US Assets is (i) “tax exempt use property” within the meaning of Section
168(h) of the Code or (ii) a lease made pursuant to Section 168(f)(8) of the Code.

               (e) Except as set forth on Schedule 4.11, Sellers have withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid (or deemed to have been
paid) or owing by any Seller to any employee, independent contractor, creditor, or other third
party in respect of the period prior to the Closing Date.

               (f) There are no federal, state, local or foreign audits or other administrative proceedings
or court proceedings presently pending with regard to any Taxes or Tax Returns of any Seller.

               (g) There are no deficiencies against any Seller as a result of any IRS or other Government
Entity examination that have not been resolved in full, and no Seller has

29

 

granted any requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes for which any Seller may be liable.

               (h) No Seller has been a member of an affiliated group of corporations filing a consolidated
federal income Tax Return other than that group of which the Company is the parent. No Seller has
any liability for the Taxes of any Person under Section 1.1502-6 of the Treasury Regulations (or
any similar provision of state, local or foreign law), as a transferee or successor, by contract or
otherwise.

               (i) Except as set forth on Schedule 4.11, correct and complete copies of all (i) Tax
Returns (or in the case of Tax Returns filed for an Affiliated Group, the portion of such
consolidated or unitary Tax Returns relating to Sellers) for Sellers, for taxable periods ending
after March 31, 2001 and (ii) examination reports and statements of deficiencies assessed against
or agreed to by any Seller since January 1, 2000 have been made available to Purchasers for their
review.

               (j) No Seller has been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Code.

               (k) The Company has disclosed on its United States federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of federal income Tax within the
meaning of Section 6662 of the Code.

               (l) No Seller is a party to any tax sharing, tax indemnity or other agreement or arrangement
relating to Taxes with any Person.

               (m) No Seller is or was a member of any affiliated, consolidated or unitary group for Tax
purposes.

               (n) CDI Hong Kong has properly and punctually filed all Tax Returns and provided all
information required for Taxation purposes and none of such Tax Returns is disputed by the Hong
Kong Inland Revenue Department or any other Government Entity and CDI Hong Kong is not aware that
any dispute is likely, or any event has occurred which would or might give rise to payment of any
Taxes.

               (o) CDI Hong Kong has duly and punctually paid all Taxes that it has become liable to pay and
is under no liability to pay any penalty or interest in connection with any claim or demand for
Taxation and has not paid any Tax that it was and is not properly due to pay.

               (p) Sellers accept and confirm that full particulars and provisions relating to the Tax
liabilities of CDI Hong Kong have been disclosed to Purchasers and JAKKS.

               (q) Full and sufficient provisions or reserves have been made in the HK Financial Statements
for all Taxes liable to be assessed on CDI Hong Kong or for which CDI Hong Kong is accountable in
respect of income, profits or gains earned, accrued or received

30

 

on or before the date of the HK Financial Statements and full provision has been made in the
HK Financial Statements for deferred Taxes, if any, in accordance with accounting principles
generally accepted in Hong Kong.

          4.12 Accounts Receivable and Inventory. Except as set forth on Schedule 4.12,
the accounts receivable of Sellers reflected on the latest Financial Statements and those existing
at Closing (net of reserves reflected in the Financial Statements) are valid and genuine and arose
from bona fide transactions in the ordinary course of the CDI Business. Except as set forth on
Schedule 4.12, all inventories of consumable items reflected in the Financial Statements do
not include any items in any material amount that are below standard quality, damaged, obsolete or
of a quantity or quality not usable or suitable in the ordinary course of business of Sellers,
except for changes in such inventories occurring subsequent to June 30, 2005 in the ordinary course
of business.

          4.13 Material Contracts.

               (a) Schedule 4.13(a) contains a list of all material unexpired Contracts pertaining to
the Assets (each a “Material Contract” and collectively, the “Material Contracts”), other than (i)
Material Contracts entered into in the ordinary course of business and which may be terminated with
less than thirty (30) days’ notice without any obligations being incurred and (ii) Material
Contracts in the form of purchase orders issued in the ordinary course of business in a manner
consistent with past practices. For purposes of this Section 4.13, a Contract is material if it
involves either the remaining payment or the remaining receipt of goods, services or money with a
value in excess of $25,000. All Material Contracts are in full force and effect and are valid and
binding obligations of Sellers, enforceable in accordance with their terms except as their
enforceability may be limited by bankruptcy, insolvency, moratorium, or other Laws relating to or
affecting creditors’ rights generally, and the exercise of judicial discretion in accordance with
general equitable principles. Except as set forth in Schedule 4.13(a), the Material
Contracts are included among the Included Contracts to be assigned to Purchasers at Closing.
Except as set forth on Schedule 4.13(a), no default and no event that with the giving of
notice, the passage of time or both would constitute an event of default has occurred and is
continuing with respect to any of the Material Contracts (whether by any Seller or, to the
knowledge of the Sellers, by any other party to such Material Contracts). As of the Closing, no
Seller is a party to any loan agreement or the maker or obligor under any promissory note or other
similar undertaking, including, without limitation, any guaranty for any Person’s obligation for
borrowed money or similar arrangement for the repayment of borrowed money, other than indebtedness
to be paid at Closing in accordance with Section 2.2.

               (b) Except as set forth on Schedule 4.13(b), no Seller is a party to any Material
Contract with any Stockholder or any of their respective Affiliates. Except as set forth in
Schedule 4.13(b), no current or former officer or director (including their respective
Family Members), member, manager, employee or shareholder or any Affiliate of any Seller is
presently or, in the last three years has been, (i) a party to any transaction with any Seller
other than on an arms-length basis (including, but not limited to, any Material Contract providing
for the furnishing of services by, or rental of real or personal property from, or otherwise
requiring payments to, any such officer or director (including their respective Family Members),
employee or shareholder or Affiliate thereof), or (ii) the direct or indirect owner of an interest
in any Person

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which is a present (or potential) competitor, supplier, manufacturer, distributor or customer
of any Seller, nor does any such Person receive income from any source other than any Seller which
relates to, or should properly accrue to, such Seller. Except as set forth on Schedule
4.13(b), all loans made by any Seller to any shareholder, member, manager, employee, officer or
director (including their respective Family Members) and all loans made by any shareholder, member,
manager, employee, officer or director (including their respective Family Members) to any Seller
have been fully repaid to or by the Sellers, as the case may be, without discount and with accrued
interest at or before Closing.

          4.14 Environmental Matters.

               (a) No Seller has received any written notice or complaint from any Governmental Entity or any
other Person related to any environmental condition or claims with respect to property owned,
operated or leased by either Seller involving any violation (or claimed violation) of any
Environmental Law.

               (b) Except as disclosed on Schedule 4.14(b), to the best of Sellers’ knowledge, their
respective operations are in compliance with all applicable Environmental Laws, including laws
relating to the release, discharge, emission, storage, treatment, handling or disposal of any
hazardous, toxic, radioactive, infectious or harmful substances or materials, including asbestos
and petroleum, including crude oil or any of its fractions or any material prohibited or regulated
by any Environmental Law (collectively, “Hazardous Materials”). Except as disclosed on
Schedule 4.14(b), there has been no spill, leak, discharge, escape, leaching, dumping or
release of Hazardous Materials at the Real Property at levels that exceed any applicable regulatory
criteria prescribed by any Environmental Law.

               (c) Sellers do not have or currently use, store, treat, dispose or otherwise handle Hazardous
Materials except in compliance with all applicable Environmental Laws.

               (d) To the knowledge of Sellers, no underground storage tanks are located at the Real
Property.

               (e) To the knowledge of Sellers, there is no written Action or other written notice by any
Person alleging potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, or civil or criminal penalties) arising out of or relating
from (i) the presence or release into the environment of any Hazardous Materials on the Real
Property or (ii) circumstances forming the basis of any violation of any Environmental Law.

          4.15 Intellectual Property.

               (a) Schedule 4.15(a) sets forth, with respect to each Trade Right owned by Sellers and
registered with any Government Entity or for which an application has been filed with any
Government Entity, (i) a brief description of such Trade Right, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Except as set

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forth on Schedule 4.15(a), Sellers do not own any material unregistered trademarks.
Schedule 4.15(a) identifies and provides a brief description of each Trade Right licensed
to Sellers by any Person (except for any Trade Right that is licensed to Sellers under any third
party software license generally available to the public at a cost of less than $10,000), and
identifies the license agreement under which such Trade Right is being licensed to Sellers.
Sellers have good, valid and marketable title to all of the owned Trade Rights identified in
Schedule 4.15(a), free and clear of all Encumbrances, and have a valid right to use all of
the licensed Trade Rights identified in Schedule 4.15(a). All of the Trade Rights
identified in Schedule 4.15(a) are valid and subsisting and in full force and effect, are
free from any claim of abandonment for non-use or dedication to the public domain, and have not
been claimed or adjudged invalid or unenforceable in whole or in part. Except as set forth in
Schedule 4.15(a), Sellers are not obligated to make any payment to any Person for the use
of any Trade Rights. Except as set forth on Schedule 4.15(a), Sellers have not developed
jointly with any other Person any Trade Rights with respect to which such other Person has any
rights. Except as set forth in Schedule 4.15(a), the Company and the Sellers have not
granted and are not obligated to grant any Encumbrance or license in respect to any Trade Right to
any Person other than Purchasers. Except as set forth on Schedule 4.15(a), all documents
necessary to establish each Seller’s interests in its registered Trade Rights, or Trade Rights with
respect to which an application is pending, are in their possession and all formalities in relation
thereto have been met, except where the failure to possess such documents and to meet such
formalities are not reasonably expected to have a Material Adverse Effect.

               (b) To the Sellers’ knowledge, the confidentiality and secrecy of each Seller’s trade secrets
and confidential information (except trade secrets and confidential information whose value Sellers
reasonably believe would be unimpaired by public disclosure) have not been compromised.

               (c) Except as set forth on Schedule 4.15(a), to the Sellers’ knowledge, none of the
Trade Rights owned, used or licensed by Sellers currently infringes or conflicts with any Trade
Rights owned, used or licensed by any other Person. Except as set forth on Schedule
4.15(a), to the Sellers’ knowledge, Sellers are not infringing, misappropriating or making any
unlawful use of, and no Seller has, at any time infringed, misappropriated or made any unlawful use
of, or received any notice or other communication of any actual, alleged, possible or potential
infringement, misappropriation or unlawful use of, any Trade Rights owned, used or licensed by any
other Person. Except as set forth on Schedule 4.15(a), to the Sellers’ knowledge, no other
Person is infringing, misappropriating or making any unlawful use of, and no Trade Rights owned,
used or licensed by any other Person infringe or conflict with, any Trade Rights owned, used or
licensed by any Seller.

               (d) The Assets include all the Trade Rights (other than Trade Rights licensed to Sellers
through any Non-Transferable Contract) necessary to conduct the CDI Business in the manner in which
such business is being conducted as of the date of this Agreement and has been conducted over the
past twelve (12) months. Except as set forth on Schedule 4.15(a), (i) none of the Trade
Rights are licensed to any Person (other than Sellers) on an exclusive basis, and (ii) there is no
covenant not to compete or Contract limiting any Seller’s

33

 

ability to exploit fully any of their owned or licensed Trade Rights or to transact business
in any market or geographical area or with any Person.

          4.16 Compliance with Laws. Except as set forth on Schedule 4.16, Sellers are
in compliance with all applicable Laws, including OSHA, and all applicable judgments, orders or
decrees of any court or other Government Entity relating to or affecting the Assets or the
operation of the CDI Business, except where the failure to so comply would not have a Material
Adverse Effect.

          4.17 Litigation. Except as set forth on Schedule 4.17, there is no Action
pending or, to the knowledge of either Seller, threatened against or affecting the Assets, whether
involving or relating to Product Liability or compliance with OSHA or otherwise, or any basis in
fact therefor known to Sellers against or involving the Assets or any of the employees of any
Seller (other than any such basis in fact for any Action which is not reasonably expected to have a
Material Adverse Effect), whether involving or relating to Product Liability or compliance with
OSHA or otherwise, whether at law or in equity. Moreover, except as set forth on Schedule
4.17, to Sellers’ knowledge, there is no Action pending or threatened against or affecting
either Seller, the outcome of which could reasonably be expected to impair the ability of either
Seller to perform its obligations hereunder or under the Related Documents or the transactions
contemplated by this Agreement and the Related Documents.

          4.18 Employment.

               (a) Labor Matters.

                    (i) Each Seller is in compliance with all applicable Laws regarding employment and employment
practices, terms and conditions of employment, wages and hours and is not and has not engaged in
any unfair labor practice.

                    (ii) No Seller is a party or otherwise subject to any collective bargaining or any other
written agreements governing the wages, hours and terms of employment of its employees. There is
no (A) unfair labor practice complaint against any Seller pending before the National Labor
Relations Board or any comparable foreign labor board, including the Hong Kong Labour Tribunal, (B)
labor strike, slowdown, work-to-rules, go-slows, or work stoppage (official or unofficial) actually
occurring or, to the knowledge of the Sellers, threatened against any Seller, nor has there been
during the period of six years immediately preceding the Closing Date, (C) representation petition
respecting any Seller’s employees pending before the National Labor Relations Board or any
comparable foreign labor board, including the Hong Kong Labour Tribunal, (D) pending grievance or
arbitration proceeding arising out of or under collective bargaining agreements applicable to any
Seller or (E) union organizational campaign in progress currently with respect to any Seller’s
employees, nor has there ever been such an organizational campaign.

                    (iii) No Seller has (A) recognized or received a demand for recognition of any collective
bargaining representative with respect to any proposed collective bargaining agreement or (B)
experienced any primary work stoppage or other organized work stoppage involving its employees in
the past two years.

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                    (iv) No current employee has given or has been given notice to terminate his office or
employment or will be entitled to give notice as a result of the provisions of this Agreement.

                    (v) There is not outstanding or, to Sellers’ knowledge, threatened or intimated any Action
against any Seller on the part of any individual who has been or is an employee of any Seller (or
the dependant of any such individual) or any actual or known liability to make any payment to any
such individual, and none of the provisions of this Agreement, including the identity of Purchasers
or JAKKS, to the Sellers’ knowledge, is likely to lead to any such dispute.

                    (vi) Each Seller has in relation to its employees (and so far as relevant to its former
employees) complied with: (A) all obligations imposed on it by applicable Law and all codes of
conduct and practice relevant to the relations between it and its employees or it and any
recognized trade union and has maintained current, accurate and suitable records regarding the
service agreements and terms and conditions of employment of each of its employees (including
without limitation records kept and returns lodged in relation to statutory sick pay); (B) all
obligations to maintain adequate and suitable records regarding the service of each of its
employees; (C) all collective agreements, recognition agreements and the conditions of service of
its employees; and (D) all relevant orders and awards made under any relevant statute, regulation
or code of conduct and practice affecting the conditions of service of its employees.

                    (vii) There is no individual currently or provisionally employed by any Seller who is
currently on leave or absent from work and now has or may in the future have a right to return to
work (whether for reasons connected with maternity leave, leave for family or domestic reasons or
absence due to illness or incapacity or otherwise) or a right to be reinstated or re-engaged by any
Seller or to receive any other compensation from any Seller.

                    (viii) No employee of any Seller is subject to any disciplinary action or engaged in any
grievance procedure and there is no matter or fact giving rise to the same.

                    (ix) There are no loans outstanding from any Seller to any of the employees of either of them.

                    (x) CDI Hong Kong has in relation to its employees (and so far as relevant to its former
employees) maintained and complied with all requirements and obligations under the provisions of
the Hong Kong Mandatory Provident Fund Schemes Ordinance and the relevant codes of conduct and
practice and has subscribed to properly registered provident fund schemes for its employees. CDI
Hong Kong has maintained current, accurate and suitable records of the registered mandatory
provident fund schemes of which CDI Hong Kong is a participant and which is in its possession, and
complete and accurate copies of the schemes, rules and all other documents, records and materials
relating to the establishment and operation of the registered mandatory provident fund schemes will
be part of the records of the CDI Business transferred to Purchasers on the Closing Date.

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                    (xi) CDI Hong Kong has obtained and maintained in relation to its employees (and so far as
relevant to its former employees) valid employees’ compensation insurance required under the
provisions of the Employees’ Compensation Ordinance and has maintained current, accurate and
suitable records of the employees’ compensation insurance policies. Complete and accurate copies
of the employees’ compensation insurance policies and the Notice of Insurance will be part of the
records of the CDI Business transferred to Purchasers on the Closing Date.

                    (b) Employee Benefits. Schedule 4.18(b) contains a true and correct list of
each “employee benefit plan” as such term is defined in Section 3(3) of ERISA, whether or not
subject to the provisions of ERISA, or any other employment, consulting, collective bargaining,
equity-based compensation bonus, deferred compensation, stock option, stock purchase, golden
parachute, severance, vacation, dependent care, employee assistance, fringe benefit, death benefit
or other compensatory or employment-related plan, contract, policy, agreement or arrangement which
is not an “employee benefit plan” as defined in Section 3(3) of ERISA (each an “Employee Plan”)
under which any current or former employee or other personnel of any Seller (or their dependents)
is covered or in respect of which any Seller has or reasonably could be expected to have any
liability, directly or indirectly, which will not have been satisfied in full at the time of the
Closing.

                    (i) With respect to each Employee Plan, Sellers have delivered to Purchaser true and complete
copies of each contract, plan document, summary plan description and other written material
governing or describing the Employee Plan and/or any related funding arrangements; and, where
applicable, the last annual report (5500 series) filed with the IRS or the Department of Labor, the
most recent balance sheet and financial statements, actuarial reports and valuations, and the most
recent determination letter issued by the IRS.

                    (ii) Each Employee Plan has been maintained and administered in accordance with its terms and
in compliance with the provisions of applicable Law, including the Code and ERISA. All
contributions, insurance premiums, benefits and other payments required to be made to or under each
Employee Plan have been made or provided for before the Closing Date. With respect to each
Employee Plan, (A) no application, proceeding or other matter is pending before the IRS, the
Department of Labor or any other Government Entity; (B) no Action (other than routine claims for
benefits) is pending or, to the knowledge of Sellers, threatened; (C) to the knowledge of the
Sellers, no facts exist which could give rise to an Action which, if asserted, could result in a
material liability or expense to any Seller; and (D) to the knowledge of the Sellers, no prohibited
transaction as defined in Section 4795 of the Code has occurred with respect to any Employee Plan.

                    (iii) Sellers have no funded Employee Plans which are intended to be qualified under Section
401(a) of the Code.

                    (iv) Sellers have no Employee Plan (A) covered by Title IV of ERISA or by Section 302 of ERISA
or Section 412 of the Code or (B) that is or has been a Multiemployer Pension Plan within the
meaning of Section 3(37) of ERISA. Neither Sellers, nor any ERISA Affiliate has incurred nor could
incur any liability, direct or indirect, contingent or otherwise, under Title IV of ERISA or
Section 302 of ERISA or Sections 412 or 4980B of the

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Code. No Employee Plan provides health or death benefits (whether or not insured) to any
current or former employee or other personnel beyond the termination of their employment or other
services except as required by Section 4980B of the Code. Except as identified on Schedule
4.18(b), each Employee Plan may be unilaterally terminated and/or amended by Sellers at any
time without liability or penalty.

                    (v) The consummation of the transactions contemplated by this Agreement and the Related
Documents will not (either alone or in conjunction with another event, such as a termination of
employment or other services) entitle any employee or other Person to receive severance or other
compensation that would not otherwise be payable absent the consummation of the transactions
contemplated by this Agreement and the Related Documents or cause the acceleration of the time of
payment or vesting of any award or entitlement under any Employee Plan. No payment or benefit
which will or may be made by Sellers will be characterized as an “excess parachute payment” within
the meaning of Section 280G of the Code or will fail to be deductible by virtue of Section 280G of
the Code.

               (c) Employees. Schedule 4.18(c) contains a complete and accurate list of all
directors, officers, managers and employees of Sellers, specifying their names and job
designations, start date, the total annual amount paid or payable as compensation to each such
Person, and the basis of such compensation, whether fixed or commission, or a combination of fixed
and commission, and the accrued benefits, including accrued sick leave and paid time-off, for such
Persons as of such date. Schedule 4.18(c) contains a complete and accurate list of all
consultants of Sellers, specifying their names and the consulting services they provide. Except as
set forth on Schedule 4.18(c), none of the Persons identified on Schedule 4.18(c)
has had any breaks in service for purposes of determining years of service under the applicable
Employee Plan since the commencement of their respective employment arrangements with Sellers.
Each of Sellers’ employees in the United States is an “at-will” employee, and there are no
employment, commission or compensation Contracts of any kind between any Seller on the one hand and
any of their respective employees on the other hand except as disclosed in Schedule
4.18(c). True and complete copies of employment and supervisory manuals, employment and
supervisory policies, and written information generally provided to employees (such as applications
or notices), have been provided to Purchasers. Each of the Company’s employees is legally
permitted to work in the United States and the Commonwealth of Pennsylvania, and the Company has
verified that each employee for whom a Form I-9 was required on his or her date of hire has on file
at the Company a valid Form I-9 and a copy of each US Offer Employee’s Form I-9 will be part of the
records of the CDI Business transferred to Purchasers on the Closing Date. Each of CDI Hong Kong’s
employees is legally permitted to work in the Hong Kong Special Administrative Region (“Hong Kong
SAR”) by reason of having either a permanent right of residence in Hong Kong SAR or holding a valid
working permit issued by the Immigration Department, Government of the Hong Kong SAR.

          4.19 Insurance. The properties and operations of Sellers, including the Assets, that
are of an insurable nature and are of a character usually insured by similar businesses, have been
continuously insured by Sellers since the date of their acquisition by Sellers, under insurance
policies affording coverage with respect to insurable events that occur within the applicable
policy periods. Schedule 4.19 sets forth a complete and accurate list and brief

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description of all insurance policies currently held by Sellers with respect to the Assets and
any self-insurance trust. The description of the insurance policies provided in Schedule
4.19 shall include a statement specifying the name of the insurer, the amount of coverage, the
type of insurance, the policy numbers, and the expiration date of such policies. Except as set
forth on Schedule 4.19, such insurance policies are in full force and effect. Sellers are
not delinquent with respect to any premium payments thereon nor are Sellers in default or breach
with respect to any material provision contained in any such insurance policies. Sellers have not
received, and Sellers have no knowledge of, any notice or request, formal or informal, from any
insurance company identifying any defects in the Assets that would have a Material Adverse Effect
on the insurability of the Assets. Sellers have not been refused any insurance, nor has their
coverage been limited by an insurance carrier to which they have applied for insurance.

          4.20 Brokers. No broker, finder, or investment banker is entitled to any brokerage,
finder’s or other fee or commission in connection with the transaction contemplated by this
Agreement based upon arrangements made by or on behalf of the Stockholders, or any Seller.

          4.21 [Intentionally Omitted].

          4.22 Product Liability. Except as set forth on Schedule 4.22, there is no
claim in respect of Product Liability outstanding or, to the knowledge of Sellers, threatened
against either Seller. To the knowledge of Sellers, there are no circumstances that are likely to
give rise to any such claim that would have a Material Adverse Effect. Sellers have not
manufactured, sold or supplied any product or service which to their knowledge is, was, or will
become, faulty or defective or which does not comply with any warranty or representation, express
or implied, made by or on behalf of either Seller in respect of such product or service or with all
Laws, standards and requirements applicable to such product or service or which was sold or
supplied on such terms that either Seller accepts an obligation to service or repair or replace
such product after delivery.

          4.23 Fair Trading. No agreement, practice or arrangement carried on by either Seller
or to which either Seller is or has prior to the date of this Agreement been a party infringes, or
is or ought to have been registered in accordance with, any competition, restrictive trade
practice, anti-trust, fair trading or consumer protection law or legislation applicable in any
jurisdiction in which either Seller has assets or carries on or intends to carry on business or in
which the activities of either Seller may have an effect.

          4.24 Permits. Except as set forth on Schedule 4.24, Sellers have all
necessary Permits for the proper and effective carrying on of the CDI Business in the manner in
which the CDI Business is now carried on. All such Permits are valid and subsisting, and Sellers
know of no reason why any of them should be suspended, cancelled or revoked whether in connection
with the sale to Purchasers or otherwise.

          4.25 Customers and Suppliers.

               (a) Schedule 4.25(a) hereto sets forth a list of each customer of Sellers’ that
accounted for more than 5% of the net sales of Sellers (calculated in accordance

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with GAAP or HK GAAP, as the case may be) in any of the calendar years 2003, 2004 or 2005
(through November 30, 2005). Except as set forth on Schedule 4.25(a), Sellers have not
received written or oral notice that any of the customers listed on Schedule 4.25(a)
intends to cease purchasing or dealing with Sellers, nor do Sellers have any knowledge that leads
either of them to believe that any such customer intends to alter in any material respect the
amount of purchases or the extent of dealings with Purchasers or would alter in any material
respect its purchases or dealings in the event of the consummation of the transactions contemplated
hereby.

               (b) Schedule 4.25(b) indicates the value of goods and services (based on invoice price
and calculated in accordance with GAAP or HK GAAP, as the case may be) supplied to Sellers by the
top 10 suppliers and vendors of goods and services to Sellers during the period from January 1,
2003 to August 31, 2005. Except as set forth on Schedule 4.25(b), Sellers have not
received written or oral notice that any of the suppliers and vendors listed on Schedule
4.25(b) intends to cease selling or rendering services to, or dealing with, Sellers, nor do
Sellers have any knowledge that leads any of them to believe that any such supplier or vendor
intends to alter in any material respect the amount of sales or service or the extent of dealings
with Purchasers or would alter in any material respect its sales or service or dealings in the
event of the consummation of the transactions contemplated hereby.

          4.26 OSHA Matters. No Seller has received any citation from the Occupational Safety
and Health Administration or any comparable Government Entity or any Government Entity inspector
setting forth any respect in which the facilities or operations of Sellers are not in compliance
with OSHA, which non-compliance has not been corrected or remedied and any applicable fines and/or
penalties paid in full to the satisfaction of such Government Entity or inspector. Schedule
4.26 hereto sets forth a list of all citations heretofore issued to Sellers under OSHA and
correspondence from and to OSHA and any OSHA inspectors during the past five years.

          4.27 Bank Accounts. Schedule 4.27 contains a complete and correct list of all
deposit accounts and safe deposit boxes of Sellers, all powers of attorney in connection with such
accounts, and the names of all Persons authorized to draw thereon or to have access thereto.

          4.28 Investment Representation. Each Seller is an “accredited investor” within the
definition set forth in Rule 501(a) under the Securities Act, and no Seller was organized for the
specific purpose of acquiring the JAKKS Shares. Each Seller is acquiring the JAKKS Shares for its
own account, for investment and not with a view to, or in connection with, or with any present
intention of, any resale or other disposition thereof. Any distribution(s) of the JAKKS Shares
acquired by Sellers shall be effected in compliance with the Securities Act and Blue Sky Laws and
in a manner so as to preserve at all times Purchasers’ and JAKKS’ exemption therefrom pursuant to
Rule 506 under the Securities Act.

          4.29 Disclosure. To the knowledge of Sellers and Stockholders, no representation or
warranty by any Stockholder or Seller in this Agreement, the Related Documents or any exhibit or
schedule hereto or thereto, contains an untrue statement of material fact, or omits to state a
material fact necessary to make the statements contained herein or therein, in light of the
circumstances in which they were made, not misleading.

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     5. Representations and Warranties of Purchasers and JAKKS. Purchasers and JAKKS,
jointly and severally, represent and warrant to Sellers as follows:

          5.1 Authority Relative to Agreement. Each Purchaser and JAKKS is a corporation
validly existing and in good standing under the Laws of the jurisdiction in which it was
incorporated or organized and each Purchaser and JAKKS has the corporate power and authority to
execute and deliver this Agreement and the Related Documents to be executed and delivered by it and
to perform its obligations under this Agreement and those Related Documents. The execution,
delivery and performance of this Agreement and those Related Documents by Purchasers and JAKKS,
including, in the case of Purchasers, the purchase of the Assets from Sellers, have been duly
authorized by all necessary corporate action on the part of Purchasers and JAKKS, and no other
corporate proceedings of Purchasers and JAKKS are necessary to authorize the execution, delivery
and performance of this Agreement and those Related Documents by Purchasers and JAKKS. This
Agreement and each Related Document to which Purchasers and JAKKS are a party has been duly
executed and delivered by Purchasers and JAKKS, and this Agreement and those Related Documents
constitute the valid, binding and enforceable obligations of Purchasers and JAKKS, enforceable in
accordance with their terms, subject to applicable bankruptcy, reorganization, insolvency,
moratorium and other laws affecting creditors’ rights generally from time to time in effect and to
general equitable principles.

          5.2 No Conflict. Neither the execution and delivery of this Agreement and the Related
Documents to which any Purchaser and/or JAKKS is a party, the consummation or performance by
Purchasers and JAKKS of the transactions contemplated by this Agreement and those Related
Documents, nor the compliance by Purchasers and JAKKS with any of the provisions of this Agreement
and those Related Documents will violate or breach (i) the certificate of incorporation or bylaws
of either Purchaser or of JAKKS or (ii) any judgment, order or decree, rule or regulation of any
court or administrative agency to which either Purchaser or JAKKS is a party or by which either
Purchaser or JAKKS is bound.

          5.3 Litigation. To Purchasers’ or JAKKS’ knowledge, there is no Action pending, or to
the knowledge of Purchasers or JAKKS, threatened against Purchasers or JAKKS or any significant
subsidiary of JAKKS or their respective officers, directors or employees in their capacity as such,
or as a fiduciary with respect to any Employee Plan of JAKKS, that would be required to be
described in any JAKKS SEC Report that is not so described.

          5.4 Consents and Approvals. No filing or registration with, notification to and no
permit, authorization, consent or approval of, any Government Entity is required to be obtained by
either Purchaser or JAKKS in connection with their execution and delivery of this Agreement or
their consummation of the transactions contemplated hereby, except (i) approval of the FTC and
Justice Department under the HSR Act, (ii) such filings, registrations, notifications, permits,
authorizations, consents or approvals that result from the specific legal or regulatory status of
Sellers or as a result of any other facts that specifically relate to the CDI Business and/or the
Assets, and (iii) such other filings, registrations, notifications, permits, authorizations,
consents or approvals the failure of which to be obtained, made or given would not, individually or
in the aggregate, materially impair the ability of Purchasers and JAKKS to consummate the
transactions contemplated hereby.

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          5.5 Availability of Funds. Purchasers and JAKKS, together, have cash, or the ability
to obtain cash by means of subsisting credit facilities with financially responsible third parties,
in an amount sufficient to enable them to perform all of their respective obligations hereunder,
including, without limitation, payment of the Closing Purchase Price.

          5.6 SEC Filings. Since January 1, 2001, JAKKS has filed all forms, reports and
documents required to be filed by JAKKS with the SEC. All such required forms, reports and
documents are referred to herein as the “JAKKS SEC Reports.” As of their respective dates, the
JAKKS SEC Reports (i) are true and correct in all material respects, as of the dates filed with the
SEC, (ii) were prepared in all material respects in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and (iii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the
date of such amended or superseded filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not misleading, except to
the extent corrected prior to the date of this Agreement by a subsequently filed JAKKS SEC Report.

          5.7 Absence of Certain Changes or Events. Except as set forth in the JAKKS SEC
Reports, since September 30, 2005 there has not been, to the knowledge of JAKKS or Purchasers, any
event or occurrence that is reasonably expected to have a material adverse effect on the business,
assets, liabilities, revenues, costs and expenses, income before provision for income taxes,
operations or condition, financial or otherwise, of JAKKS and its Affiliates taken as a whole.

          5.8 JAKKS Shares. The JAKKS Shares have been duly authorized and, when delivered at
the Closing, will be validly issued, fully paid and non-assessable, will be free and clear of any
Encumbrances other than the transfer restrictions prescribed by Section 11.19 and except as the
sale, pledge or other disposition thereof is limited by the provisions of the Securities Act and
other applicable Blue Sky Laws, and will have been issued in accordance with the Securities Act and
other applicable Blue Sky Laws.

          5.9 Brokers. No broker, finder, or investment banker is entitled to any brokerage,
finder’s, or other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Purchasers or JAKKS.

          5.10 Disclosure. To the knowledge of JAKKS or Purchasers, no representation or
warranty by JAKKS or Purchasers in this Agreement, the Related Documents or any exhibit or schedule
hereto or thereto, contains an untrue statement of material fact, or omits to state a material fact
necessary to make the statements contained herein or therein, in light of the circumstances in
which they were made, not misleading.

     6. Certain Covenants of Stockholders and Sellers

          6.1 Information. Subject to the terms of the Confidentiality Agreement, from the
Execution Date until the Closing Date, Stockholders and Sellers shall afford to the officers and
authorized representatives and agents of Purchasers and JAKKS reasonable access, upon

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reasonable notice, to the properties, books, and records of Sellers, and furnish Purchasers
and JAKKS with such additional financial and operating data and other information relating to the
CDI Business as Purchasers and JAKKS may, from time to time, reasonably request, except to the
extent Stockholders and Sellers are restricted from providing such information by Law or as a
result of confidentiality agreements with third parties. Purchasers and JAKKS shall exercise their
rights under this Section 6.1 in such a manner as not to interfere unreasonably with the operation
of the CDI Business. Any environmental studies, tests or assessments shall be conducted only with
Sellers’ advance written consent, which consent shall not be unreasonably withheld or delayed, and
all costs and expenses associated therewith shall be borne by Purchasers and JAKKS.

          6.2 Operations. From the Execution Date until the Closing Date, except as otherwise
contemplated by this Agreement, the Stockholders and Sellers shall conduct the CDI Business in
substantially the same manner as they have heretofore (with the exception, however, of normal,
routine capital expenditures).

          6.3 Negative Covenants. Without limiting the generality or effect of Section 6.2,
from the Execution Date until the Closing Date, except as expressly provided in this Agreement or
as set forth on Schedule 6.3, Sellers shall not, and the Stockholders shall cause Sellers
not to, without the written consent of Purchasers:

               (a) issue, sell, grant, pledge, or otherwise Encumber any shares of their capital stock or
membership interests, any other voting securities or any securities convertible into or
exchangeable for, or any rights, warrants, or options to acquire, any such shares, interests,
voting securities, or convertible or exchangeable securities other than issuances of such
securities to Geoffrey, Stephanie and/or their Family Members; provided that no such
issuance materially interferes with the consummation of the transactions contemplated hereby;

               (b) amend their certificate of incorporation or bylaws (or comparable governing documents)
except to comply with the terms of Section 10.2(q);

               (c) acquire, make any investment in, or make any capital contributions to, any Person in an
amount in excess of $50,000, other than in the ordinary course of business consistent with past
practices;

               (d) sell, transfer or otherwise dispose of or Encumber (subject to clause (e) below) any of
the Assets, other than in the ordinary course of business consistent with past practices;

               (e) lease, license, pledge or mortgage any of the Assets;

               (f) (i) incur any indebtedness for borrowed money, other than borrowings under existing credit
facilities and existing indebtedness owing to Stockholders, (ii) make any loans or advances to any
other Person, other than routine advances to employees consistent with past practice or (iii)
assume, guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently otherwise) for the obligations of any other Person;

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               (g) enter into any compromise or settlement of, or take any material action with respect to,
any Action to be assumed by the Purchasers other than the prosecution, defense, and settlement
thereof in the ordinary course of business, except for settlement of any Action (including any
Action to be assumed by the Purchasers) if such settlement would have a Material Adverse Effect;

               (h) grant or agree to grant to any of their employees any increase in wages or bonus,
severance, profit sharing, retirement, deferred compensation, insurance, or other compensation or
benefits, or establish any new compensation, or Benefit Plans or arrangements, or amend or agree to
amend any existing Benefit Plans, except as may be required under existing agreements or by Law or
pursuant to their normal policies or practices as in effect on the date of this Agreement
(including periodic increases of salaries);

               (i) enter into or amend any employment, consulting, severance, or similar agreement with any
Person other than in the ordinary course of business consistent with past practices, except with
respect to new hires in the ordinary course of business consistent with past practices;

               (j) make any material change in any method of accounting or accounting practice or policy,
except as required by any changes in GAAP or applicable Law;

               (k) enter into any agreement that would restrain, limit, or impede Purchasers’ ability to
conduct the CDI Business following the Closing;

               (l) enter into any other agreements, commitments or contracts which create liabilities other
than in the ordinary course of business consistent with past practices, except for Contracts which
in the aggregate involve royalty guarantees or minimums or other financial commitments exceeding
$100,000;

               (m) except as otherwise disclosed in this Agreement, authorize or commit to make capital
expenditures in an amount in excess of each Seller’s current budget for capital expenditures;

               (n) permit any insurance policy covering the Assets to be canceled or terminated;

               (o) maintain Sellers’ respective books and records in a manner inconsistent with past business
practices, except to be in compliance with GAAP or applicable Laws; or

               (p) authorize any of, or commit or agree to take any of, the foregoing actions in respect of
which they are restricted by the provisions of this Section.

          6.4 Governmental and Other Approvals. Without limiting the generality or effect of
Section 6.6, from the Execution Date until the Closing Date, Stockholders and Sellers shall use
reasonable efforts to obtain all licenses, permits, consents, approvals, authorizations,

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qualifications, and orders of any Government Entities, or other Persons as are necessary for
Stockholders and Sellers to consummate the transactions contemplated hereby.

          6.5 HSR Notification. Without limiting the generality or effect of Section 6.6, from
the Execution Date until the Closing Date, Stockholders and Sellers shall, if and to the extent
required by Law, file promptly all reports or other documents required or requested by the FTC or
the Justice Department under HSR Act concerning the transactions contemplated hereby, and comply
promptly with any requests by the FTC or Justice Department for additional information concerning
such transactions, so that the waiting period specified in the HSR Act will expire as soon as
reasonably practicable after the execution and delivery of this Agreement. Stockholders and
Sellers shall furnish to Purchasers such information concerning Sellers as Purchasers need to
perform their obligations under Section 7.2.

          6.6 Closing Conditions. From the Execution Date until the Closing Date, the
Stockholders and Sellers shall use reasonable commercial efforts to take, or cause to be taken, all
actions, and do, or cause to be done, and assist and cooperate with Purchasers and JAKKS in doing,
all things necessary, proper, or advisable to consummate, in the most expeditious manner
practicable, the transactions contemplated hereby, including, without limitation, the satisfaction
of the conditions set forth in Article 8.

          6.7 No-Shop Clause. From the Execution Date until the earlier of (i) the Closing Date
or (ii) the date this Agreement is terminated pursuant to Article 12 hereof, the Stockholders and
Sellers shall not, without the prior written consent of Purchaser: (A) offer for sale or solicit
offers to buy all or any portion of the Assets, (B) hold discussions with any party (other than
Purchasers and JAKKS) looking toward such an offer or solicitation or looking toward a merger or
consolidation involving any Seller, or (C) enter into any agreement with any party (other than
Purchasers and JAKKS) with respect to the sale or other disposition of the Assets (or any portion
thereof) or with respect to any merger, consolidation, or similar transaction involving any Seller.
Each Stockholder and Seller further agrees to advise Purchaser and JAKKS of their receipt and the
terms and conditions of any inquiry, offer or proposal made after the Execution Date with respect
to any of the foregoing proposed transactions.

          6.8 Risk of Loss. The risk of loss or damage to any of the Assets subject hereto
shall remain with Sellers until the Effective Time, and Sellers shall maintain their respective
insurance policies covering the Assets through the Effective Time. All insurance proceeds (or
rights thereto) attributable to the damage, destruction or casualty loss of any of the Assets prior
to the Effective Time shall be included among the Assets assigned to Purchasers at the Closing, and
the Closing Purchase Price shall be reduced by an amount equal to the deductible amount under the
applicable insurance policy. Purchasers and JAKKS acknowledge that any damage, destruction or
casualty loss of any of the tangible Assets on or after the Execution Date shall not relieve
Purchasers of their obligations to consummate the purchase of the Assets contemplated by this
Agreement; provided, however, that if any such loss was required to be insured by
Sellers pursuant to the terms of this Agreement, Seller shall assign to Purchasers the right to
receive the insurance proceeds therefrom; provided, further, however, that
any such damage, destruction or casualty loss shall not have or constitute a Material Adverse
Effect.

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          6.9 Authority of CDI Hong Kong. Promptly after the Execution Date, but in no event
later than the Closing Date, CDI Hong Kong shall take all necessary corporate action, to the extent
not taken prior to the Execution Date, to duly authorize the execution, delivery and performance by
CDI Hong Kong of this Agreement and the Related Documents to which it is a party.

     7. Certain Covenants of Purchasers and JAKKS.

          7.1 Governmental Approvals. Without limiting the generality or effect of Section 7.3,
from the Execution Date until the Closing Date, Purchasers and JAKKS shall use reasonable
commercial efforts to obtain all licenses, permits, consents, approvals, authorizations,
qualifications, and orders of any Government Entities as are necessary for them to consummate the
transactions contemplated hereby.

          7.2 HSR Notification. Without limiting the generality or effect of Section 7.3, from
the Execution Date until the Closing Date, Purchasers and JAKKS shall, if and to the extent
required by Law, file promptly all reports or other documents required or requested by the FTC or
the Justice Department under the HSR Act, and all regulations promulgated thereunder, concerning
the transactions contemplated hereby, and comply promptly with any requests by the FTC or Justice
Department for additional information concerning such transaction, so that the waiting period
specified in the HSR Act will expire as soon as reasonably practicable after the execution and
delivery of this Agreement. Purchasers and JAKKS shall furnish to Sellers such information
concerning Purchasers and JAKKS as Sellers shall need to perform their obligations under Section
6.5.

          7.3 Closing Conditions. From the Execution Date until the Closing Date, Purchasers
and JAKKS shall use reasonable commercial efforts to take, or cause to be taken, all actions, and
do, or cause to be done, and assist and cooperate with Sellers in doing, all things necessary,
proper, or advisable to consummate, in the most expeditious manner practicable, the transaction
contemplated hereby including, without limitation, the satisfaction of the conditions set forth in
Article 9.

          7.4 Maintenance of Certain Sources of Supply. From the Effective Time through the
expiration of the Earn-out Period, Purchasers shall purchase inventory to be re-sold by Purchasers
to customers in connection with the CDI Business from the entities set forth on Schedule
7.4 (each an “Inventory Source” and collectively, the “Inventory Sources”); provided
that the terms on which such inventory is available for purchase from the Inventory Sources
(including prices, delivery dates, quantities and quality of inventory) are no less favorable to
Purchasers than the terms on which comparable inventory is available from other third party
inventory suppliers; provided further that during the time period set forth above
the Inventory Sources continue to perform in a manner reasonably satisfactory to the Purchasers.

          7.5 Capital Contribution by JAKKS. JAKKS shall make any and all necessary
contributions of capital to the Purchasers or their successors or assigns so that Purchasers or
their successors or assigns can perform their obligations under, and consummate the transactions
contemplated by, this Agreement, including, but not limited to, the payment of the Closing Payment
and the payment of any Post-Closing Payments.

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     8. Conditions Precedent to Obligations of Purchasers and JAKKS. The obligations of
Purchasers and JAKKS hereunder are subject to the satisfaction or written waiver, on or prior to
the Closing Date, of the following conditions:

          8.1 Representations/Warranties/Covenants. The representations and warranties of the
Stockholders and Sellers contained in this Agreement that are qualified by reference to materiality
or “Material Adverse Effect” shall be true in all respects, and those that are not so qualified
shall be true and correct in all respects except to the extent the failure of any such
representation or warranty to be true and correct could not reasonably be expected to have a
Material Adverse Effect, on and as of the Closing Date as though such representations and
warranties had been made on and as of the Closing Date (other than representations and warranties
made as of a specified date which shall speak as of such specific date), and each covenant
contained in this Agreement to be complied with or performed by the Stockholders and/or Sellers on
or before the Closing Date pursuant to the terms hereof shall have been complied with and performed
in all material respects.

          8.2 Litigation or Proceedings. No litigation or Action before a Government Entity
seeking to restrain or prohibit the transactions contemplated hereby shall be pending or
threatened, and no injunction, judgment, order, decree or Law that restrains or prohibits the
transactions contemplated hereby shall have been issued, enacted, or promulgated by any Government
Entity.

          8.3 HSR Act; Governmental and Other Approvals. The required waiting period under the
HSR Act applicable to the transactions contemplated hereby shall have expired or been earlier
terminated, and all notices, reports, and other filings required to be made prior to Closing by
Sellers or the Stockholders with, and all licenses, permits, consents, approvals, authorizations,
qualifications or orders required to be obtained prior to Closing by Sellers or the Stockholders
from, any Government Entity or from any other Person set forth on Schedule 8.3 in
connection with the execution and delivery of this Agreement and the Related Documents and the
consummation of the transactions contemplated hereby and thereby shall have been made or obtained.

          8.4 No Material Adverse Change. There shall have been no Material Adverse Effect
since June 30, 2005.

          8.5 Related Party Loans. All loans made by any Seller to any shareholder, member,
manager, employee, officer or director (including their respective Family Members) and all loans by
any Seller shall have been repaid in full to or by the Sellers, as the case may be, without
discount and with accrued interest.

          8.6 Closing Deliveries. The Stockholders and Sellers shall have made the deliveries
required to be made by them under Section 10.2.

          8.7 Employees. All of the individuals listed on Schedule 8.7 shall have
agreed to become employees of JAKKS US or JAKKS HK, as the case may be, on terms set forth in the
offer letter delivered to them by Purchasers, or, as applicable, in the Employment Agreements, and
shall have executed such offer letter and shall have signed JAKKS’ employees handbook in

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the standard form used by JAKKS in connection with its employees that are similarly situated
to such individuals, as applicable.

     9. Conditions Precedent to Obligations of Stockholders and Sellers. The obligations
of Stockholders and Sellers hereunder are subject to the satisfaction or waiver, on or prior to the
Closing Date, of the following conditions:

          9.1 Representations/Warranties/Covenants. The representations and warranties of
Purchasers and JAKKS contained in this Agreement that are qualified by reference to materiality or
material adverse effect shall be true in all respects and those that are not so qualified shall be
true and correct in all material respects, on and as of the Closing Date as though such
representations and warranties had been made on and as of the Closing Date (other than
representations and warranties made as of a specified date which shall speak as of such specific
date), and each covenant contained in this Agreement to be complied with or performed by Purchasers
or JAKKS on or before the Closing Date pursuant to the terms hereof shall have been complied with
and performed in all material respects.

          9.2 Litigation or Proceedings. No litigation or Action before a Governmental Entity
seeking to materially restrain or prohibit the transactions contemplated hereby shall be pending or
threatened, and no injunction, judgment, order, decree, or Law that materially restrains or
prohibits the transactions contemplated hereby shall have been issued, enacted, or promulgated by
any Government Entity.

          9.3 HSR Act; Governmental Approvals. The required waiting period under the HSR Act
applicable to the transactions contemplated hereby shall have expired or been earlier terminated,
and all notices, reports, and other filings required to be made prior to Closing by Purchasers or
JAKKS with, and all licenses, permits, consents, approvals, authorizations, qualifications, or
orders required to be obtained prior to Closing by Purchasers or JAKKS from, any Government Entity
in connection with the execution and delivery of this Agreement and the Related Documents and the
consummation of the transactions contemplated hereby and thereby shall have been made or obtained.

          9.4 Closing Deliveries. Purchasers and JAKKS shall have made the deliveries required
to be made by them under Section 10.3.

     10. Closing.

          10.1 Closing and Effective Time. Subject to the satisfaction or waiver of all the
conditions set forth in Article 8 and Article 9, the consummation of the sale and purchase of the
Assets contemplated by this Agreement (the “Closing”) shall take place at the offices of
Feder, Kaszovitz, Isaacson, Weber, Skala, Bass & Rhine LLP, 750 Lexington Avenue, New York, New
York 10022, at 10:00 a.m., local time, on the third business day following the satisfaction or
waiver of the conditions set forth in Article 8 and Article 9 (other than those conditions that are
to be fulfilled at Closing) or at such other location and/or on such other date or time as the
parties hereto may mutually designate in writing (the “Closing Date”). All acts,
deliveries and confirmations comprising the Closing, regardless of chronological sequence, shall be
deemed to occur contemporaneously and simultaneously upon the occurrence of the last act, delivery
or

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confirmation of such Closing, and none of such acts, deliveries or confirmations shall be
effective unless and until the last of the same shall have occurred. The Closing shall be
effective as of 11:59 p.m., local time, on the Closing Date (the “Effective Time”).

     10.2 Actions of Stockholders and Sellers at Closing. At the Closing, Sellers shall
deliver the following to Purchasers, each in form and substance satisfactory to Purchasers:

               (a) Bills of Sale and Assignment. Documents of transfer and assignment, duly executed
by Sellers, conveying to Purchasers good and marketable title to all of the US Assets, and
documents of assignment, duly executed by Sellers, conveying to Purchasers all of Sellers’ right,
title and interest in and to all of the HK Assets, other than those HK Assets, title to which is
transferred by delivery of possession, subject only to Permitted Liens and the Assumed Liabilities.

               (b) Delivery of Assets. Possession of those HK Assets title to which is transferable
by delivery.

               (c) Estoppel Certificate. An estoppel certificate duly executed by the third party
lessor of each real property lease included among the Assets for which Purchasers request an
estoppel certificate.

               (d) Good Standing Certificates. A certificate of existence and good standing of the
Company from its jurisdiction of incorporation or organization, dated a date reasonably proximate
to the Closing Date and a certificate of continuing registration issued by the Hong Kong Companies
Registry in respect of CDI Hong Kong, dated a date reasonably proximate to the Closing Date.

               (e) FIRPTA Affidavits. Affidavits of the Company complying in all respects with
Section 1445(b)(2) of the Code.

               (f) Required Consents. Evidence that the Stockholders and Sellers have satisfied the
condition precedent set forth in Section 8.3.

               (g) Employment Agreements. Employment agreements executed by each of Geoffrey and
Peter Coe (collectively, the “Employment Agreements”) in favor of JAKKS US in substantially the
form attached to this Agreement as Exhibit B.

               (h) Sellers’ Schedules. The Stockholders and Sellers may deliver modifications to
their schedules annexed hereto, but any such modification shall not limit Purchasers’ and JAKKS’
rights with respect to any failure of a condition set forth in Section 8 of this Agreement
disclosed by such modifications.

               (i) Secretary’s Certificate. A certificate, dated the Closing Date, signed by the
secretary of each Seller certifying (i) the certificate of incorporation and bylaws (or other
governing documents) of such Seller being true and correct as of the Closing Date, (ii) resolutions
of the stockholders and directors of each Seller, authorizing and approving all matters in
connection with this Agreement and the transactions contemplated hereby, and (iii) the

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incumbency of the executive officers of each Seller executing this Agreement and any related
documents.

               (j) Officers’ Certificates. A certificate, dated the Closing Date, signed by the
President of each Seller certifying that the conditions precedent set forth in Sections 8.1, 8.2,
8.3 and 8.4, to the extent not waived in whole or part by Purchasers, have been satisfied in
accordance with the terms of this Agreement.

               (k) Payment of Outstanding Secured Debt. Proof that all outstanding Secured Debt (if
any) of Sellers has been paid in full and that all Encumbrances relating thereto have been
terminated including, (A) deeds of release duly executed by the relevant chargee(s) unconditionally
releasing the HK Assets from all relevant charges and consenting to the sale of the HK Assets
pursuant to this Agreement and (B) certificates of non-crystallization duly executed by the
relevant chargee(s) in relation to all relevant charges pertaining to the HK Assets.

               (l) Stockholder Approval. Evidence that the requisite approval of each Seller’s
stockholders has been obtained with respect to the transactions contemplated by this Agreement and
the Related Documents.

               (m) Non-competition Agreements. Non-competition Agreements executed by each
Stockholder in the form of Exhibit A-1 attached hereto, and a Non-competition Agreement executed by
Peter Coe in the form of Exhibit A-2 attached hereto.

               (n) Receipt. A receipt signed by Sellers, evidencing Sellers’ receipt of the Closing
Payment as payment for the Assets.

               (o) Consulting Agreement. A consulting agreement executed by Marvin Greenberg (the
“Consulting Agreement”) with JAKKS US in substantially the form attached to this Agreement as
Exhibit C.

               (p) Opinions of Counsel. Purchasers and JAKKS shall have received from Ballard Spahr
Andrews & Ingersoll, LLP and Morrison & Foerster legal opinions, dated the Closing Date and
addressed to Purchasers and JAKKS, in substantially the forms attached to this Agreement as Exhibit
D-1 and Exhibit D-2, respectively.

               (q) Charter Amendments. An amendment to the certificate of incorporation or
comparable governing document of each Seller, duly executed and in suitable form for filing with
the Secretary of State of the State of Delaware or comparable Government Entity changing the name
of each Seller to one that does not include the words “Creative Designs” or “Arbor Toys” or words
similar thereto.

               (r) Domain Names. A letter executed by Sellers directing the Registrar to change the
administrative contact, billing contact, and technical contact for the Domain Names to Purchasers,
or to such other entity as is directed by Purchasers.

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               (s) Books and Records. All available original or true and correct copies of all
documents, books, records, forms and files relating to the Assets, other than the Tax Returns and
Tax-related records described on Schedule 2.1(b).

               (t) Bank Accounts. To the extent any cash is included in the Assets at the Closing,
all resolutions and other documents required in order to change the Persons authorized to draw on
or have access to the deposit accounts and safe deposit boxes identified on Schedule 4.27
only to the Persons designated by Purchasers.

               (u) Lease. A lease agreement executed by Greenberg Partners for the facilities
located in Feasterville, Pennsylvania, in substantially the form attached to this Agreement as
Exhibit E (the “Lease”).

               (v) Product Lines Certificate. A true, complete and accurate list as of September 30,
2005 of Sellers’ key product lines and the revenues attributable to each such product line for the
nine-month period ending September 30, 2005.

               (w) Such other instruments and documents as may reasonably be requested by Purchasers.

10.3 Actions by Purchasers and JAKKS at Closing. At the Closing, Purchasers and JAKKS
shall deliver the following to Sellers:

               (a) Payment. The Closing Payment, as adjusted by any necessary Prorations, as partial
payment for the Assets, which sum shall be paid as set forth in Section 2.2 hereof.

               (b) Certificates for JAKKS Shares. The certificates representing the JAKKS Shares
deliverable at the Closing, which JAKKS Shares shall be allocated among the Stockholders as set
forth on Schedule 10.3(b). Each certificate for JAKKS Shares issued at Closing shall bear
the following legend:

“Any transfer or other disposition of the shares represented by this certificate is
subject to the provisions of an Asset Purchase and Sale Agreement, dated as of January
18, 2006, by and among JPI CDI (HK) Limited, a Hong Kong corporation, JPI/VII
Acquisition Corp., a Delaware corporation, JAKKS Pacific, Inc., a Delaware corporation
(the “Corporation”), Creative Designs International, Ltd., a Pennsylvania corporation,
Arbor Toys Company Limited, a Hong Kong corporation, Geoffrey Greenberg and Stephanie
Coe. The shares of stock represented by this Certificate have not been registered
under the U.S. Securities Act of 1933, as amended (the “Act”), and may be transferred
only if (i) registered under the Act and the requirements of any state having
jurisdiction are complied with or (ii) the transfer is exempt from such registration
and state requirements and counsel reasonably acceptable to the Corporation has
delivered to the Corporation a written opinion reasonably acceptable to the
Corporation setting forth the basis for such exemption.”

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               (c) Assumption Agreement. One or more assumption agreements, in form reasonably
satisfactory to Sellers, duly executed by JAKKS US and/or JAKKS HK, as appropriate, pursuant to
which JAKKS US and/or JAKKS HK assumes the future payment and performance of the Assumed
Obligations.

               (d) Receipt. A receipt signed by Purchasers evidencing Purchasers’ receipt of the
Assets.

               (e) Good Standing Certificates. A certificate of good standing of each Purchaser and
JAKKS from their respective jurisdictions of incorporation or organization, dated a date reasonably
proximate to the Closing Date.

               (f) Purchasers’ and JAKKS’ Schedules. Purchasers and JAKKS may deliver modifications
to their schedules annexed hereto, but any such modification shall not limit the Stockholders’ and
Sellers’ rights with respect to any failure of a condition set forth in Section 9 of this Agreement
disclosed by such modifications.

               (g) Secretaries’ Certificate. A certificate, dated the Closing Date, signed by the
secretary of each Purchaser and of JAKKS certifying (i) the certificate of incorporation and bylaws
(or other governing documents) of each Purchaser and JAKKS being true and correct as of the Closing
Date, (ii) resolutions of the directors of each Purchaser and JAKKS, authorizing and approving all
matters in connection with this Agreement and the transactions contemplated hereby, and (iii) the
incumbency of the executive officers of each Purchaser and JAKKS executing this Agreement and any
related documents.

               (h) Officers’ Certificates. A certificate signed by a duly authorized officer of each
Purchaser and JAKKS certifying that the conditions precedent set forth in Sections 9.1, 9.2 and
9.3, to the extent not waived in whole or part by Sellers, have been satisfied in accordance with
the terms of this Agreement.

               (i) Employment Agreements. The Employment Agreements executed by JAKKS US with
Geoffrey and Peter Coe.

               (j) Non-competition Agreement. The Non-competition Agreements executed by JAKKS US
with the Stockholders and Peter Coe.

               (k) Consulting Agreement. The Consulting Agreement executed by JAKKS US with Marvin
Greenberg.

               (l) Opinion of Counsel. Sellers shall have received from Feder, Kaszovitz, Isaacson,
Weber, Skala, Bass & Rhine LLP and Eccles & Lee legal opinions, dated the Closing Date and
addressed to Sellers, in substantially the forms attached to this Agreement as Exhibit F-1 and
Exhibit F-2, respectively.

               (m) Lease. The Lease executed by JAKKS US.

               (n) Such other certificates, instruments and documents as may reasonably be requested by
Sellers.

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     11. Certain Additional Covenants.

          11.1 Post-Closing Access to Information. Sellers, Stockholders and Purchasers
acknowledge that subsequent to Closing any party may need access to information or documents in the
control or possession of the other party (or their Affiliates) for the purposes of, among other
reasons, concluding the transactions set forth herein, audits, compliance with governmental
requirements and regulations, the prosecution or defense of Third Party Claims and collection of
accounts receivable and payment of accounts payable. Accordingly, Sellers, Stockholders and
Purchasers agree that for a period of five (5) years after Closing (and such longer period of time
as indemnification obligations exist under Article 13), each will, without charge, upon the written
request of another party, make available during normal business hours to such other party and its
agents, independent auditors and/or Government Entities all such documents and information as may
be available relating to the Assets, the Excluded Assets, the Assumed Obligations and the Excluded
Liabilities for periods prior and subsequent to Closing to the extent necessary to facilitate the
matters described above. Such documents may be examined and, at the inspecting party’s expense,
copied. Any access to the records of another party granted in this Agreement shall be upon the
condition that any such access shall be conducted in a manner by the inspecting party so as not to
materially interfere with the business operations of such other party.

          11.2 Preservation and Access to Records Pertaining to the Assets After the Closing.

               (a) After the Closing, Purchasers shall, in the ordinary course of business and as required by
Law, keep and preserve all employee records and other records of the Sellers’ operations existing
as of the Closing and which constitute a part of the Assets delivered to Purchasers at Closing;
provided that Purchasers, at any time after the fifth anniversary of the Closing Date (or
such later date as shall represent the termination date of any indemnification obligations existing
under Article 13), upon not less than sixty (60) days’ prior written notice to Geoffrey dispose of
such records in its possession referred to above or those relating to the Assets, Excluded Assets,
Assumed Obligations and Excluded Liabilities, or any of the transactions contemplated herein, in
accordance with Purchasers’ record retention policies and applicable Law; provided
further that either Stockholder may, at his or her own cost and expense, upon written
notice to Purchasers given before the expiration of such sixty (60) day period, take possession of
such records. Upon reasonable notice during normal business hours at the sole cost and expense of
Sellers and upon Purchasers’ receipt of appropriate consents and authorizations, Purchasers shall
afford to the representatives of the Company, on behalf of Sellers, including its counsel and
accountants, full and complete access to, and copies of, the records transferred to Purchaser at
the Closing. Any access to the records of the Assets or Purchasers’ personnel granted to the
Company, on behalf of Sellers, in this Agreement shall be upon the condition that any such access
shall be conducted in a manner by the Company so as not to materially interfere with the business
operations of Purchasers.

               (b) After the Closing, Sellers and Stockholders shall, as required by Law, keep and preserve
all Tax Returns and Tax-related records described on Schedule 2.1(b); provided that
Sellers and Stockholders, at any time after the fifth anniversary of the Closing Date (or such
later date as shall represent the termination date of any indemnification obligations

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existing under Article 13), upon not less than sixty (60) days’ prior written notice to
Purchasers dispose of such returns and records in their possession in accordance with their record
retention policies and applicable Law; provided further that Purchasers may, at
their own cost and expense, upon written notice to Sellers and Stockholders given before the
expiration of such sixty (60) day period, take possession of such returns and records. Upon
reasonable notice during normal business hours at the sole cost and expense of Purchasers and upon
Sellers’ and Stockholders’ receipt of appropriate consents and authorizations, Sellers and
Stockholders shall afford to the representatives of JAKKS, on behalf of Purchasers, including its
counsel and accountants, full and complete access to, and copies of, the Tax Returns and
Tax-related records described on Schedule 2.1(b); provided that if the Purchasers
are required to possess or to deliver to any third party original executed copies of the Tax
Returns and Tax-related records described on Schedule 2.1(b) to comply with the
requirements of any Governmental Entity or any other legal process, Sellers and Stockholders shall
promptly deliver such original documents to Purchasers. Any access to such returns and records or
Sellers’ or Stockholders’ personnel granted to JAKKS, on behalf of Purchasers, in this Agreement
shall be upon the condition that any such access shall be conducted in a manner by JAKKS so as not
to materially interfere with the business operations of Sellers and/or Stockholders.

          11.3 Litigation Cooperation. After the Closing and subject to the provisions of
Article 13 hereof, upon prior reasonable written request and with the reimbursement of reasonable
out-of-pocket expenses paid by the party making the request, each party shall cooperate with the
other in furnishing information, testimony and other assistance in connection with any Actions, Tax
audits, or arrangements involving any of the parties hereto (other than in connection with disputes
between the parties hereto) and based upon contracts, arrangements or acts of any party or any of
their Affiliates that were in effect or occurred on or prior to Closing or that related to the
Assets, including, without limitation, arranging discussions with, and the calling as witnesses of,
officers, directors, employees, agents and representatives of the parties hereto.

          11.4 Allocation of Closing Purchase Price. The Closing Purchase Price shall be
allocated in its entirety among the Assets in a manner consistent with Schedule 2.2(d), as
required by Section 1060 of the Code and Treasury Regulations promulgated thereunder and any
applicable foreign law. Sellers and Purchasers shall file all required information and tax returns
(and any amendments thereto) in a manner consistent with this Section 11.4 and comply with the
information reporting requirements of Section 1060 of the Code and Treasury Regulations promulgated
thereunder and any applicable foreign law. If, contrary to the intent of the parties hereto as
expressed in this Section 11.4, any U.S. or foreign taxing authority makes or proposes an
allocation different from that provided for under this Section 11.4, Sellers and Purchasers shall
cooperate with each other in good faith to contest such taxing authority’s allocation (or proposed
allocation); provided, however, that after consultation with the party adversely
affected by such allocation (or proposed allocation), another party hereto may file such protective
claims or returns as may reasonably be required to protect its interests.

          11.5 Additional Covenants Relating to Employees and Employee Benefits.

               (a) Employment of U.S. Employees. At least seven (7) days prior to the Closing, but
subject to the consummation of the transactions contemplated by this

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Agreement, JAKKS US shall offer full-time or temporary employment to each of the individuals
identified on Schedule 4.18(c) hereto (each, a “US Offer Employee”), in accordance with the
following provisions: (i) the date on which the employment by JAKKS US of each US Offer Employee
who accepts such offer of employment shall become effective (the “US Effective Date of Employment”)
shall be the first business day after the Closing Date on which each such US Offer Employee reports
to work with JAKKS US for active duty (each such US Offer Employee who becomes so employed by JAKKS
US hereinafter being referred to as a “US Hired Employee” from and after the US Effective Date of
Employment), (ii) the initial salary and base wage compensation payable to each US Hired Employee
as of the US Effective Date of Employment shall be not less than the amount set forth on
Schedule 4.18(c) for such US Hired Employee, (iii) JAKKS US shall provide the US Hired
Employees with employee benefits that are, in the aggregate, comparable to those benefits provided
to similarly situated employees of JAKKS US and (iv) JAKKS US shall credit for purposes of such
employee benefits (including vacation and all other terms and conditions of employment dependent in
whole or in part on service or seniority) all applicable service of such US Hired Employee with the
Company. The provisions of this Section 11.5(a) shall not apply to those individuals who are to
become parties to the Employment Agreements or the Consulting Agreement.

               (b) The Company’s Obligations.

                    (i) Prior to Closing, the Company shall provide written notice, which notice shall be subject
to JAKKS US’s prior review and approval (such approval not to be unreasonably withheld or delayed),
to all of its employees stating that their employment by the Company shall terminate at the close
of business on the Closing Date.

                    (ii) From and after the Closing, JAKKS US shall be liable for continuation coverage (including
any penalties, excise taxes or interest resulting from the failure to provide continuation
coverage) required by Section 4980B of the Code, Sections 601 through 608 of ERISA or required by
similar provisions of applicable state law with respect to (a) qualifying events incurred by any
employee of the Company who does not become a US Hired Employee (or covered dependents or qualified
beneficiaries of such employee), and (b) any qualifying events which occur on or before the US
Effective Date of Employment incurred by any US Hired Employee (or covered dependents or qualified
beneficiaries of such US Hired Employee). JAKKS US shall be deemed to be a successor employer
(within the meaning of Treasury Regulation Section 54.4980B-2) of the Company for purposes of
applying the provisions of Section 4980B of the Code following the Closing with respect to any
current or former employee of the Company. The Company agrees to indemnify Purchasers and JAKKS
for any severance obligation or severance liability arising from or related to any employee who
elects not to be a US Hired Employee at the Closing.

                    (iii) With the exception of continuation coverage (including any penalties, excise taxes or
interest resulting from the failure to provide continuation coverage) required by Section 4980B of
the Code, Sections 601 through 608 of ERISA or required by similar provisions of applicable state
law, for which JAKKS US is liable as set forth in Section 11.5(b)(ii) above, from and after the
Closing, the Company shall remain solely responsible for all liabilities relating to or arising in
connection with claims for welfare benefits offered under the Employee Plans listed on Schedule
4.18(b) incurred by: (a) US Hired Employees and their

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beneficiaries and dependents with respect to claims incurred on or before the day prior to the
US Hired Employee’s Effective Date of Employment, and (b) employees of the Company who elect not to
become US Hired Employees and their beneficiaries and dependents. For purposes of this Agreement,
the following claims and liabilities shall be deemed to be incurred as follows: (a) hospital
provided health, dental, prescription drug or other benefits, which become payable with respect to
any hospitalization, upon the commencement of such period of hospitalization and (b) except as
provided in (a) above, health, dental or prescription drug benefits, upon provision of such
services, materials or supplies.

               (c) Purchasers’ Obligations. Purchasers shall not assume the sponsorship of or the
responsibility for contributions to any Employee Plan or have any responsibility for any liability
(direct or indirect, contingent or otherwise) which has arisen or may arise out of or in connection
with any Employee Plan, except for those Employee Plans that are Included Contracts and then only
to the extent specifically set forth in Section 2.1(c) hereof.

               (d) WARN. Because JAKKS US agrees to offer employment to all of the US Offer
Employees, the actions to be taken hereunder with respect to the Company’s employees are not
anticipated to create any liability or obligation with respect to the WARN Act, and the Company
will have no obligation to provide the US Hired Employees and appropriate state and local
government units with notice under the WARN Act. In the event that an issue arises under the WARN
Act as a result of JAKKS US’s actions following the Closing Date, JAKKS US agrees to indemnify and
hold the Company harmless from and against and hold the Company harmless with respect to any and
all liability, defense costs and reasonable attorneys’ fees, as well as backpay, that the Company
may incur in connection with claims or litigation relating to the WARN Act.

               (e) HK Employees. At least seven (7) days prior to the Closing (or such longer period
as may be required under law or under their contracts of engagement), CDI Hong Kong and JAKKS HK
shall jointly inform each of the individuals who is employed by CDI Hong Kong and identified on
Schedule 4.18(c) hereto (each, a “HK Offer Employee”) of the sale of the Assets hereby
agreed and will issue a joint letter in accordance with the following provisions: (i) giving
notice of termination of his employment with CDI Hong Kong with effect from the first day after the
Closing Date (the “HK Effective Date of Employment”), and (ii) containing an offer by JAKKS HK of
re-engagement with effect from the HK Effective Date of Employment of each HK Offer Employee on
terms contained in JAKKS HK Staff Handbook (a copy of which has been delivered by JAKKS HK to the
Sellers) that have been reviewed and confirmed by CDI Hong Kong to be no less favorable than the
existing terms of employment; provided that the initial salary and base wage compensation
payable to each HK Hired Employee as of the HK Effective Date of Employment shall be not less than
the amount set forth in Schedule 4.18(c) for such HK Hired Employee. Each such HK Offer
Employee who becomes so employed by JAKKS HK hereinafter being referred to as a “HK Hired Employee”
from and after the HK Effective Date of Employment. CDI Hong Kong agrees to indemnify and hold
harmless JAKKS HK for any liability suffered by JAKKS HK arising out of, resulting from or
otherwise relating to the termination or dismissal by CDI Hong Kong of any HK Offer Employee who
elects not to accept the offer of employment by JAKKS HK.

               (f) HK Retirement Scheme.

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                    (i) If all HK Offer Employees accept the offer of employment made by JAKKS HK and become HK
Hired Employees pursuant to Section 11.5(e) hereof, then (A) in respect of such HK Hired Employees
and subject to the agreement of the trustee of the CDI Hong Kong Scheme, CDI Hong Kong agrees to
assign to JAKKS HK, and JAKKS HK agrees to assume, all the rights, obligations and liabilities of
CDI Hong Kong under the CDI Hong Kong Scheme with effect from the HK Effective Date of Employment
(and for the purpose of this Section, the CDI Hong Kong Scheme shall be referred to as the “JAKKS
HK Scheme” after such assignment); (B) for the purpose of the participation of each HK Hired
Employee under the JAKKS HK Scheme, JAKKS HK agrees that the years of service of the HK Hired
Employee with JAKKS HK shall include the years of service of such HK Hired Employee with CDI Hong
Kong; and (C) JAKKS HK agrees to execute such documents as may be necessary to give effect to the
assignment provided herein.

                    (ii) If there is any HK Offer Employee who does not accept the offer of employment made by
JAKKS HK under Section 11.5(e) hereof, then JAKKS HK undertakes to establish its own mandatory
provident fund scheme (the “New JAKKS HK Scheme”) by participating in a Master MPF Scheme and
enroll the HK Hired Employees as members of the New JAKKS HK Scheme with effect from the HK
Effective Date of Employment. JAKKS HK further agrees and undertakes that the terms of the
retirement benefits provided to the HK Hired Employees under New JAKKS HK Scheme shall be no less
favorable than those provided under the CDI Hong Kong Scheme. For the purpose of the participation
of each HK Hired Employee under the New JAKKS HK Scheme, JAKKS HK agrees that the years of service
of the HK Hired Employee with JAKKS HK shall include the years of service of such HK Hired Employee
with CDI Hong Kong, and JAKKS HK shall procure the trustee of the New JAKKS HK Scheme to give
effect to the same.

               (g) No Rights to Employees. Notwithstanding any provision herein, no term of this
Agreement shall be deemed to create any contract between any Purchaser or JAKKS and any employee
that gives the employee the right to be retained in the employment of any Purchaser or any related
employer. The representations, warranties, covenants and agreements contained herein are for the
sole benefit of the parties hereto, and employees and former employees of Sellers (other than the
Stockholders) are not intended to be and shall not be construed as beneficiaries hereof.

          11.6 Delivery of Property Received by Sellers or Purchasers After Closing. Sellers
agree that they will transfer or deliver to Purchasers, promptly after the receipt thereof, any
cash or other property which any Seller receives after the Closing Date in respect of any Assets
transferred or intended to be transferred to Purchasers under this Agreement. In addition,
Purchasers agree that they will transfer or deliver to the Company, on behalf of Sellers, promptly
after receipt thereof, any property which Purchasers receive after the Closing Date in respect of
any Excluded Assets not transferred or intended to be transferred to Purchasers under this
Agreement.

          11.7 JAKKS Appointed Attorney for Sellers. Sellers, effective at the Closing Date,
hereby constitute and appoint JAKKS, its successors and assigns, the true and lawful attorney of
Sellers, in the name of either JAKKS or Sellers (as JAKKS shall determine in its sole discretion)
but for the benefit of JAKKS: (i) to institute and prosecute all proceedings which

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JAKKS may deem proper in order to collect, assert or enforce any claim, right or title of any
kind in or to the Assets as provided for in this Agreement; and (ii) to defend or compromise any
and all Actions, in respect of any of the Assets, and to do all such acts and things in relation
thereto as JAKKS shall deem advisable; provided, however, that the appointment
pursuant to this Section 11.7 shall not limit the rights granted to each of the Sellers under
Article 13 of this Agreement, including, without limitation, the right to undertake the defense of
a Third Party Claim as an Indemnifying Party. Sellers acknowledge that the foregoing powers are
coupled with an interest and shall be irrevocable. JAKKS shall be entitled to retain for its own
account any amounts collected pursuant to the foregoing powers, including any amounts payable as
interest in respect thereof. JAKKS agrees to act in good faith in seeking to collect, assert or
enforce any Action against any third party in accordance with this Section 11.7.

          11.8 Payment of Liabilities. Following the Closing Date, Purchasers and Sellers agree
to discharge in accordance with their terms the Assumed Obligations and the Excluded Liabilities,
respectively.

          11.9 Taxes.

               (a) Tax Returns Through Closing Date. Sellers shall prepare and file on a timely
basis all Tax Returns required to be filed by Sellers relating to the Assets and the sale of such
Assets with respect to all periods through and to the Closing Date and shall pay or cause to be
paid when due all Taxes relating to the Assets for such periods, and pay and satisfy any Tax
liability arising under any bulk sales Law with respect to the sale of the Assets, and obtain as
soon as possible after the Closing a clearance certificate from the Pennsylvania Department of
Revenue and provide a copy thereof to JAKKS promptly following the Closing, except as otherwise
assumed by Purchasers pursuant to this Agreement.

               (b) Subsequent Liability. If, subsequent to the Closing Date, any liability for Taxes
relating to the Assets or the conduct of Sellers and/or the Stockholders is imposed on Purchasers
and/or JAKKS with respect to any period prior to and including the Closing Date, Sellers and
Stockholders shall, jointly and severally, indemnify and hold Purchasers and JAKKS harmless, from
and against, and shall pay, the full amount of, such Tax liability (as well as reasonable
attorneys’, accountant’s or other fees and disbursements of Purchasers and JAKKS incurred in
determination thereof or in connection therewith), or Sellers shall, at their sole expense and in
their reasonable discretion, settle any Tax claim that may be the subject of indemnification under
this Section 11.9(b) at such time and on such terms as they shall deem appropriate or assume the
entire defense thereof; provided that Sellers shall not in any event take any position in
such settlement or defense that subjects Purchasers, JAKKS or their Affiliates to any civil fraud
or any civil or criminal penalty. Notwithstanding the foregoing, Sellers shall not consent,
without the prior written consent of Purchasers and JAKKS, to any change in the treatment of any
item which would, in any manner whatsoever, affect the tax liability of Purchasers, JAKKS or their
Affiliates for a period subsequent to the Closing Date.

               (c) All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees
(including any penalties and interest) incurred in connection with the consummation of the
transactions contemplated by this Agreement shall be paid by the party to this Agreement on whom
such Taxes or fees are imposed when due, but Sellers shall be

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responsible for the payment of income Tax payable in connection with the sale of the Assets
pursuant to this Agreement. Any party to this Agreement who is required to file a Tax Return or
other documentation with respect to all such transfer, documentary, sales, use, stamp, registration
and other Taxes and fees in connection with the consummation of the transactions contemplated by
this Agreement will, at their own expense, file such Tax Return or other documentation when such
Tax Return or other documentation is due, and, if required by applicable Law, the other parties to
this Agreement will join in the execution of any such Tax Returns and other documentation.

          11.10 Third Party Consents.

               (a) The Stockholders, Purchasers and Sellers will cooperate and use their respective
commercially reasonable efforts to obtain as promptly as practicable following Closing all
consents, approvals and waivers which have not been obtained as of the Closing Date required by
third Persons to transfer the Included Contracts in a manner that will avoid any default, conflict
or termination of rights under such Included Contracts. Notwithstanding anything to the contrary
in this Agreement, nothing in this Section 11.10(a) shall require the Stockholders, Purchasers or
Sellers to expend any material sum, make a material financial commitment or grant or agree to any
material concession to any third Person to obtain any such consent, approval or waiver. Purchasers
shall, however, pay any license transfer fees required in order to obtain the consent to assignment
to Purchasers of any license agreement included among the Included Contracts that Purchasers agree
to assume following the Closing.

               (b) In the event that any and all consents, approvals or waivers necessary for the assignment,
transfer or novation of any Included Contract, or any claim, right or benefit arising thereunder or
resulting therefrom, or consents relating to sale of substantially all of the Assets, shall not
have been obtained prior to the Closing Date, then as of the Closing, this Agreement, to the extent
permitted by Law, shall constitute full and equitable assignment by Sellers to Purchasers of all of
Sellers’ right, title and interest in and to, and all of Sellers’ obligations and liabilities as of
the Effective Time under, such Included Contract, and Purchasers shall each be deemed Sellers’
agent for purposes of completing, fulfilling and discharging the Assumed Obligations under any such
Included Contract. The parties shall take all reasonably necessary steps and actions to provide
Purchasers with the benefits of such Included Contracts, and to relieve Sellers of the performance
and other obligations thereunder arising after the Effective Time. Purchasers agree to pay,
perform and discharge, and Purchasers agree to indemnify Sellers from and against and hold Sellers
harmless with respect to, all obligations and liabilities of Sellers relating to such performance
or failure to perform under such Included Contracts arising after the Effective Time. To the
extent required in order to obtain a consent, approval or waiver to the transfer of any Included
Contract, JAKKS agrees to pay, perform and discharge all obligations and liabilities of Sellers
relating to such performance or failure to perform under any such Contract arising after the
Effective Time. In the event that the Purchasers are unable to receive the full benefits of any
Included Contract as to which consent, approval or waiver has not been obtained, for the purpose of
calculating the Base, Adjusted Gross Profit for the prior year shall be equitably reduced in the
amount of the Fiscal Year 2005 Adjusted Gross Profit attributable to the products sold under such
Included Contract, or if Purchasers receive the full benefits of any Included Contract for part but
not all of the entire

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Earn-Out Period, for the purpose of calculating the Base for each Review Period following the
end of the period during which such benefits have been obtained by Purchasers, Adjusted Gross
Profit for the prior year shall be equitably reduced by an amount equal to the Adjusted Gross
Profit attributable to the products sold under such Included Contract during the twelve month
period immediately preceding the end of the period during which Purchasers obtain the benefits of
such Included Contract.

               (c) In the event Sellers shall be unable to make the equitable assignment described in Section
11.10(b), or if such attempted assignment would give rise to any right of termination, or would
otherwise adversely affect the rights of Sellers or Purchasers under such Included Contract, or
would not assign all of Sellers’ rights thereunder at the Closing, Sellers and Purchasers shall
continue to cooperate and use reasonable commercial efforts to provide Purchasers with all such
rights. To the extent that any such consents and waivers are not obtained, or until the
impediments to such assignments are resolved, Sellers shall use reasonable commercial efforts to
(i) provide to Purchasers, at their request, the benefits of any such Included Contract, (ii)
cooperate in any lawful arrangement designed to provide such benefits to Purchasers, and (iii)
enforce, at the request of and for the account of Purchasers, any rights of Sellers arising from
any such Included Contract against any third Person, including the right to elect to terminate in
accordance with the terms thereof upon the advice of Purchasers. To the extent that Purchasers are
provided the benefits of any Included Contract referred to herein (whether from Sellers or
otherwise), Purchasers shall perform the obligations of Sellers thereunder, and Purchasers agree to
pay, perform and discharge, and Purchasers shall and hereby agree to indemnify Sellers from and
against and hold Sellers harmless with respect to, all obligations and liabilities of Sellers
relating to such performance or failure to perform (but only to the extent such obligations or
liabilities arise solely from acts of Purchaser after the Effective Time).

          11.11 Intellectual Property Matters. Sellers will, at Purchasers’ reasonable request,
promptly perform all acts and execute all documents, irrevocable powers of attorney, certificates,
affidavits, instruments and agreements, including instruments of assignment in forms suitable for
recording with the United States Patent and Trademark Office, The United States Copyright Office or
any corresponding foreign office or agency, requested by the Purchasers at any time to evidence,
maintain, record, perfect, document or enforce the Purchasers’ interest in the Trade Rights set
forth on Schedule 4.15(a) or otherwise in furtherance of the provisions of this Agreement
and the transactions contemplated hereby.

          11.12 Post-Closing Management of CDI Business.

               (a) During the Earn-out Period, provided that as of the end of the most recently completed
Review Period the Adjusted Gross Profit earned by the Purchasers during such Review Period is equal
to or greater than the Base applicable to such Review Period, JAKKS and Purchasers, acting in good
faith, shall (i) operate and permit the Stockholders as employees of JAKKS or a Purchaser to
operate the CDI Business in the manner substantially similar to the manner that the CDI Business
was operated during the twenty-four month period prior to the Execution Date (unless any actions
undertaken by the Stockholders are unreasonable and/or not consistent with prudent business
practices), subject to the other provisions of Sections 11.12(a) and (b), and (ii) make funds,
personnel and resources available on a timely basis so that

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the covenant in clause (i) above can be accomplished in a reasonable manner consistent with
the amount and nature of same as a percentage of sales that were expended or used in the operation
of the CDI Business as operated as of the Closing Date, and (iii) not take any action (other than
actions enforcing JAKKS’ or a Purchaser’s rights under any other agreement between them and Sellers
or Stockholders) that would have the reasonably foreseeable consequence of reducing the
Stockholders’ ability as employees of JAKKS or of a Purchaser to operate the CDI Business and
Sellers’ ability to receive the Post-Closing Payments, and (iv) cause Purchasers to be maintained
as separate wholly-owned subsidiaries of JAKKS, which will be operated independent of any other
subsidiary of JAKKS and shall only sell CDI Products. For the avoidance of doubt and
notwithstanding anything in this Agreement or the Related Documents to the contrary, the parties
agree that, to the extent Sellers have not obtained at Closing one or more consents to assignment
required under any Non-Transferable Contract, JAKKS and Purchasers shall be under no obligation
during the Earn-out Period to pay any consideration (whether in the form of a one-time payment,
increased royalty rate or guarantee or otherwise) or make any other concession necessary to obtain
the consent to assignment required under those Non-Transferable Contracts; provided that
the equitable reduction in the Base prescribed by Section 11.10(b) shall be made. During the
Earn-out Period, none of JAKKS or Purchasers will take any of the following actions without the
prior written approval of a majority of the Stockholders: (i) sell, lease or otherwise dispose of
all or a material portion of the consolidated assets of Purchasers other than sales of inventory in
the ordinary course of business and sales of obsolete equipment; or (ii) effect any transaction
that would be a consolidation or merger of Purchasers with or into any other corporation or
corporations or the sale, transfer or assignment of securities of Purchasers, unless the
obligations of JAKKS and Purchasers in this Section 11.12(a) are assumed by the transferee or
successor or surviving entity.

               (b) Notwithstanding the restrictions on JAKKS and Purchasers in Section 11.12(a), (i) each of
Sellers and Stockholders acknowledge that they will work with JAKKS and Purchasers to implement
reasonable operating efficiencies to the extent possible by consolidating certain general and
administrative, legal, accounting, warehousing and shipping functions and overseas operations that
are duplicated by JAKKS’ and/or its Affiliates and Seller’s staff; provided that the
implementation of any suggested change by JAKKS and/or Purchasers pursuant to this Section
11.12(b), other than a change to outside legal or accounting firms, shall be subject to the consent
of a majority of the Stockholders, which consent shall not be unreasonably withheld or delayed (the
reasonableness of the granting or denial of such consent shall be determined by whether the
requested change would interfere in a material manner with the maximization of Adjusted Gross
Profit and Net Sales during the Earn-out Period); provided further that the
foregoing consent of the Stockholders shall be required only if as of the end of the most recently
completed Review Period the Adjusted Gross Profit earned by the Purchasers during such Review
Period is equal to or greater than the Base applicable to such Review Period, and (ii) such
restrictions shall not be applied in a manner that would interfere with JAKKS’ ability to implement
such internal controls that satisfy the requirements of the legislation known as the Sarbanes-Oxley
Act of 2002, the term “internal controls” being used in the same manner as under such legislation,
or with JAKKS’ ability to fulfill its reporting requirements under the Securities Act and Exchange
Act.

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          11.13 Securities Law Filings.

               (a) Sellers and the Stockholders shall, and shall cause the accountants of Sellers to,
cooperate with JAKKS and its accountants in the provision of such information and documents as may
be reasonably required in order to complete any filings required under the Exchange Act or other
United States securities laws relating to the transactions contemplated by this Agreement. JAKKS
shall reimburse Sellers’ accountants for all reasonable fees and expenses incurred by them in
providing such cooperation.

               (b) Without limiting the generality of Section 11.13(a), within 45 days after the Closing,
Sellers shall deliver to Purchasers and JAKKS unaudited financial statements in form and substance,
and covering such periods, as may be required in order to complete any filings required under the
Exchange Act or other United States securities laws relating to the transactions contemplated by
this Agreement. Purchasers shall bear the cost of preparation of such financial statements;
provided that if under applicable Law the financial statements to be delivered by Sellers
pursuant to this Section 11.13(b) must be audited, the Purchasers shall notify the Sellers in
writing of such requirement and the Closing of the transactions contemplated by this Agreement
shall be postponed to a date to be reasonably agreed upon by Purchasers and Sellers to permit
Sellers sufficient time to have such financial statements audited. Purchasers shall bear the cost
of any such audit.

          11.14 Transfer of Domain Names. Sellers shall respond affirmatively to the request
from the Registrar for the transfer of the Domain Names within three (3) business days of its
receipt by Sellers, and provide all required documentation in accordance therewith. Sellers do
hereby covenant and agree with Purchasers to provide, execute, or send such other information,
electronic mail messages, instruments or other documents and to take such other and further actions
as may be necessary or appropriate to accomplish the transfer of the Domain Names upon Purchasers’
reasonable request. Sellers do hereby covenant and agree with Purchasers that Purchasers may take
control of the Domain Names immediately upon transfer by Registrar.

          11.15 [Intentionally Omitted]

          11.16 Company Name. Sellers expressly agree that, on and after the Closing Date, no
Seller shall have any right, title or interest in any trade names, trademarks, identifying logos or
service marks employing the words “Creative Designs” or “Arbor Toys” or any variation thereof or
any other trademarks, service marks, product line names, trade dress or other Trade Rights included
among the Assets or confusingly similar thereto. Each Seller agrees that without the prior written
consent of Purchasers, neither it nor any of its Affiliates shall make any use of the name
“Creative Designs” or “Arbor Toys” or any variation thereof from and after the Closing Date. Each
Seller shall provide to Purchasers at Closing, for that Seller and each of its subsidiaries, a
certified copy of the board and stockholder resolutions effectuating a name change. In addition,
the Company shall provide to the Purchasers at Closing an executed amendment to its articles of
incorporation effecting the name change, and CDI Hong Kong shall provide to the Purchasers at
Closing an executed copy of the relevant forms to be filed with the Hong Kong Companies Registry to
effect the name change. Purchasers shall be authorized to file such amendments on the Sellers’
behalf at any time after the Closing.

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          11.17 Access Codes and Combinations. Immediately following the Closing, Sellers and
Stockholders shall cooperate with and notify Purchasers with regard to all source and access codes
to computers and computer software that are included among the Assets and that Sellers are licensed
and authorized to divulge, combinations to safe(s) included in or containing Assets and the
location of keys to safe deposit boxes containing Assets, and vehicles included in the Assets, if
any, concerning the CDI Business.

          11.18 Guaranty. JAKKS unconditionally guarantees the full and prompt payment and
performance, when due, and at all times thereafter, of all obligations of Purchasers under this
Agreement (the “JAKKS Guaranty”). This is a guaranty of payment and performance and is not a
guaranty of collection. JAKKS’s obligations under the JAKKS Guaranty will not be limited or
abrogated by the waiver, consent, extension, forbearance or granting of any indulgence by Sellers
or Stockholders with respect to any provision or obligation under this Agreement. JAKKS hereby
waives any requirement of law that Sellers must exhaust any remedy against Purchasers before
proceeding against JAKKS.

          11.19 Transfer Restrictions for JAKKS Shares.

               (a) None of the Sellers and the Stockholders shall, at any time prior to the third anniversary
of the Closing Date, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any of the
Lock-Up Shares or (ii) enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of any of the Lock-Up Shares, whether any
such transaction described in clause (i) or (ii) above is to be settled by delivery of Lock-Up
Shares, in cash or otherwise.

               (b) For purposes of this Agreement, the term “Lock-Up Shares” shall mean (i) at any time prior
to the first anniversary of the Closing Date, all of the JAKKS Shares issued to the Sellers (or to
the Stockholders at the direction of the Sellers) pursuant to the terms of this Agreement; (ii)
during the period commencing on the day after the first anniversary of the Closing Date and ending
on the second anniversary of the Closing Date, (A) if the Sellers hold JAKKS Shares, a number of
such shares equal to 100,000 and (B) if such JAKKS Shares have been issued to the Stockholders,
70,000 of such shares held by Geoffrey and 30,000 of such shares held by Stephanie; (iii) during
the period commencing on the day after the second anniversary of the Closing Date and ending on the
third anniversary of the Closing Date, (A) if the Sellers hold such JAKKS Shares, a number of such
shares equal to 50,000 and (B) if such JAKKS Shares have been issued to the Stockholders, 35,000 of
such shares held by Geoffrey and 15,000 of such shares held by Stephanie.

          11.20 Certain Events Affecting JAKKS Shares. The number of JAKKS Shares issuable
under Section 2.2(c) on the Closing Date shall be subject to appropriate decrease or increase, as
the case may be, if JAKKS shall at any time after the date hereof and prior to the Closing Date:
(i) declare any dividend or distribution payable in JAKKS Shares and (ii) subdivide or combine
outstanding JAKKS Shares.

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          11.21 Rule 144. During the twelve month period following the first anniversary of the
Closing Date, JAKKS will use its best efforts to cause to be filed all reports required to be filed
by it under the Exchange Act within twenty-one (21) days after receipt of notice from a Seller or a
Stockholder that such Person intends to sell under the provisions of Rule 144 as promulgated under
the Securities Act any JAKKS Shares issued to such Person pursuant to this Agreement.

          11.22 Publication of Legal Notice in Hong Kong. Immediately following the Closing
Date, CDI Hong Kong and JAKKS HK agree to jointly place a legal notice with respect to the purchase
and sale of HK Assets and HK Business in accordance with the provisions of sections 4 and 5 of the
Transfer of Business (Protection of Creditors) Ordinance, Chapter 49, laws of Hong Kong. The costs
of such publications of the legal notice shall be borne by Purchasers.

          11.23 Bulk Sales Laws. Each of the parties hereto shall comply in all material
respects and in a timely manner with any and all bulk sales laws applicable to the transactions
contemplated by this Agreement that require compliance by such party.

     12. Termination.

          12.1 Right to Terminate. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to Closing as follows:

               (a) by the mutual written consent of Sellers and Purchasers;

               (b) by Sellers or Purchasers, if Closing shall not have occurred on or before March 1, 2006,
or April 15, 2006 if Purchasers or Sellers shall receive from the FTC or the Justice Department a
request for additional information in connection with the Purchasers’ and Sellers’ compliance with
the HSR Act, otherwise than as a result of any breach of any material provision of this Agreement
by any Seller or either Stockholder if Sellers are seeking to terminate this Agreement or by either
Purchaser or JAKKS if the Purchasers are seeking to terminate this Agreement;

               (c) by Sellers or Purchasers, if any Government Entity shall have permanently enjoined,
restrained, or otherwise prohibited the consummation of the transactions contemplated hereby and
such injunction, restraint, or prohibition shall have become final and nonappealable;
provided that the party seeking to terminate this Agreement shall have used its reasonable
best efforts to prevent and remove such injunction, restraint or prohibition;

               (d) by Sellers, if Purchasers and JAKKS shall have (i) materially breached any of their
representations or warranties contained in this Agreement, or (ii) breached any of their covenants
contained in this Agreement, in each case which breach cannot be or has not been cured within
thirty (30) calendar days after the giving of written notice to Purchasers and JAKKS; or

               (e) by Purchasers, if Sellers or Stockholders shall have (i) materially breached any of their
representations or warranties contained in this Agreement, or (ii) breached

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any of their covenants contained in this Agreement, in each case which breach cannot be or has
not been cured within thirty (30) calendar days after the giving of written notice to Sellers and
Stockholders.

          12.2 Effect of Termination. In the event of the termination of this Agreement and the
abandonment of the transactions contemplated hereby pursuant to Section 12.1, this Agreement and
the Related Documents shall forthwith become void and have no effect, without any liability on the
part of the parties hereto, and all rights and obligations of any party under this Agreement and
the Related Documents shall cease; provided, however, that nothing contained in
this Section shall relieve any party from liability for fraud or any intentional breach of this
Agreement.

     13. Indemnification.

          13.1 By Sellers and Stockholders. In addition to their respective indemnification
obligations set forth elsewhere in this Agreement, Sellers and Stockholders, jointly and severally,
will, subject to Sections 13.3 and 14.8, defend, indemnify and hold harmless each Purchaser, JAKKS
and their respective Affiliates, officers, directors, stockholders, employees, agents, successors
and assigns from and against any and all damages, losses, liabilities, expenses (including
reasonable fees and disbursements of counsel), Actions, Encumbrances and other obligations
whatsoever (individually a “Loss” and, collectively, “Losses”), arising out of, resulting from or
otherwise relating to (i) any inaccuracy, misrepresentation or breach of any of their respective
representations and warranties in this Agreement, the schedules or exhibits hereto or in the
Related Documents delivered by Sellers and/or Stockholders pursuant to this Agreement, with the
exception of the representations and warranties set forth in Sections 3.2, 4.1(b), 4.5 and 4.11,
(ii) any breach of any of their respective covenants and agreements in this Agreement, the
schedules or exhibits hereto or in the Related Documents delivered by Sellers and/or Stockholders
pursuant to this Agreement, (iii) any inaccuracy, misrepresentation or breach of their respective
representations and warranties in Sections 3.2, 4.1(b), 4.5 and 4.11 of this Agreement, and (iv)
the Excluded Assets and/or Excluded Liabilities.

          13.2 By Purchasers and JAKKS. In addition to their respective indemnification
obligations set forth elsewhere in this Agreement, Purchasers and JAKKS, jointly and severally,
will, subject to Sections 13.3 and 14.8, defend, indemnify and hold harmless each Seller and each
Stockholder and their respective Affiliates, officers, directors, stockholder, employees, agents,
successors and assigns from and against any and all Losses arising out of, resulting from or
otherwise relating to (i) any inaccuracy, misrepresentation or breach of any representation or
warranty made by JAKKS or Purchaser in this Agreement, the schedules or exhibits hereto or in the
Related Documents delivered by Purchasers and/or JAKKS pursuant to this Agreement, (ii) any breach
of any of their respective covenants and agreements in this Agreement, the schedules or exhibits
hereto or in the Related Documents delivered by Purchasers and/or JAKKS pursuant to this Agreement,
(iii) the Assumed Obligations and (iv) Purchasers’ use of the Assets after the Effective Time
provided that such liability does not arise out of, result from or otherwise relate to any breach
by Sellers and/or Stockholders of any of their respective representations, warranties or covenants
set forth in this Agreement, the schedules or exhibits hereto or in the Related Documents delivered
by Sellers and/or Stockholders pursuant to this Agreement.

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          13.3 Limitations.

               (a) The Sellers and Stockholders shall be obligated to indemnify for Losses (determined
without regard to any materiality qualification contained in any representation, warranty or
covenant giving rise to a claim for indemnity hereunder) arising out of, resulting from or
otherwise relating to any of the events described in clause (i) of Section 13.1 only to the extent
that the aggregate amount of such Losses exceeds One Million Dollars ($1,000,000). The Purchasers
and JAKKS shall be obligated to indemnify for Losses (determined without regard to any materiality
qualification contained in any representation, warranty or covenant giving rise to a claim for
indemnity hereunder) arising out of, resulting from or otherwise relating to any of the events
described in clause (i) of Section 13.2 only to the extent that the aggregate amount of such Losses
exceeds One Million Dollars ($1,000,000).

               (b) In no event shall the aggregate indemnification liability of Sellers and Stockholders
pursuant to Section 13.1 exceed Twenty-Five Million Dollars ($25,000,000); provided,
however, that such limitation shall not apply to (i) any inaccuracy, misrepresentation or
breach of their respective representations and warranties in Sections 3.2 and 4.1(b) of this
Agreement, (ii) any obligation to indemnify for Losses resulting from intentional misrepresentation
or fraud or (iii) Losses arising out of, resulting from or otherwise relating to the Excluded
Assets or Excluded Liabilities. In no event shall the aggregate indemnification liability of the
Purchasers and JAKKS pursuant to Section 13.2 exceed Twenty-Five Million Dollars ($25,000,000);
provided, however, that such limitation shall not apply to (i) any inaccuracy,
misrepresentation or breach of their respective representations and warranties in Section 5.1 of
this Agreement, (ii) any obligation to indemnify for Losses resulting from intentional
misrepresentation or fraud or (iii) Losses arising out of, resulting from or otherwise relating to
the Assumed Obligations.

               (c) The amount of any Losses for which indemnification is provided under this Agreement
(whether pursuant to this Article 13 or otherwise) shall be limited to the net after-tax effect of
actual damages and shall be reduced by the amount of any insurance proceeds received by the
Indemnified Party pursuant to any insurance policy as a result of the Losses giving rise to such
indemnification payment. Notwithstanding anything herein to the contrary, in the absence of
intentional misrepresentation or fraud no party shall be held liable for consequential, special or
punitive damages. In no event shall any Loss include any item arising from a liability included in
the calculation of Closing Net Working Capital in accordance with Section 2.4 hereof.

               (d) In the event of any breach of any representation, warranty, covenant or agreement
contained in this Agreement, the schedules and exhibits hereto or in the Related Documents, other
than the right to bring an action for intentional misrepresentation or fraud, the sole and
exclusive right and remedy of the parties hereto for money damages shall be a claim for
indemnification (i) pursuant to this Article 13 and/or (ii) as provided by the specific covenant or
agreement at issue.

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          13.4 Procedural Matters.

               (a) A party intending to claim indemnification under this Agreement (whether pursuant to this
Article 13 or otherwise) (“Indemnified Party”) must notify, in writing, the party from whom
indemnification is sought (“Indemnifying Party”) promptly after learning of any Loss, Action or any
other fact which, if true, would entitle the Indemnified Party to indemnification under this
Agreement (the “Notice of Claim”); provided, however, the Indemnified Party’s
failure to give prompt notice shall not constitute a defense (in whole or in part) to any claim by
the Indemnified Party against the Indemnifying Party for indemnification, except and only to the
extent that such failure shall have caused or materially increased such liability or materially and
adversely affected the ability of the Indemnifying Party to defend against or reduce its liability.

                    (i) A Notice of Claim shall set forth (A) a brief description of the nature of the potential
or actual Loss and (B) to the extent then feasible the total amount of Loss anticipated (including
any costs or expenses that have been or may be reasonably incurred in connection therewith).
Payment of the amount of actual Loss due the Indemnified Party as set forth in a Notice of Claim
shall be made by the Indemnifying Party no later than the thirtieth (30th) day after the date of
the Notice of Claim (or such later date as the Indemnifying Party receives written notice that an
actual Loss has occurred), unless the provisions of subsection 13.4(a)(ii) are applicable.

                    (ii) If the Indemnifying Party (acting reasonably) shall reject any Loss as to which a Notice
of Claim is sent by the Indemnified Party, the Indemnifying Party shall give written notice of such
rejection to the Indemnified Party within thirty (30) days after receipt of the Notice of Claim.
Upon such rejection, the parties shall attempt in good faith to resolve any disagreement, and
payment of the amount of actual Loss shall be made by the Indemnifying Party within five (5) days
of mutual resolution of any disagreement. If any such disagreement remains unresolved as of the
forty-fifth (45th) day after receipt of the Notice of Claim, the dispute shall be determined by an
independent third party selected jointly by Purchasers and Sellers, and the decision of such third
party shall, in the absence of manifest error, be final and binding on all parties. If the Notice
of Claim is determined by such third party to be proper, payment of the amount of Loss due the
Indemnified Party as set forth in the Notice of Claim shall be made by the Indemnifying Party no
later than the fifth (5th) business day after such determination is rendered.

               (b) As a condition precedent to any claim by an Indemnified Party for indemnification under
this Agreement for any Action instituted by a third party the liability or the costs or expenses of
which are Losses (a “Third Party Claim”), the Indemnified Party must tender the defense of such
Third Party Claim to the Indemnifying Party in the Notice of Claim. The Indemnifying Party may
undertake the defense of such Third Party Claim with counsel reasonably acceptable to the
Indemnified Party by notice to the Indemnified Party not later than thirty (30) days after
receiving notice of such Third Party Claim.

               (c) The Indemnifying Party’s failure to confirm to the Indemnified Party that the Indemnifying
Party will undertake such defense shall be deemed to be a waiver by the Indemnifying Party of its
right to undertake the defense of such Third Party Claim. If,

66

 

however, the Indemnifying Party undertakes the defense of such Third Party Claim, the
Indemnified Party will (i) at the Indemnifying Party’s expense, reasonably cooperate with the
Indemnifying Party and its counsel in the investigation and defense of such Third Party Claim and
(ii) at the Indemnified Party’s expense, have the right to participate in such investigation and
defense; provided that the Indemnifying Party will control (subject to the provisions of
paragraphs (d) and (e) below) the negotiation, tactics, trial, appeals and other matters and
proceedings related to such claim, except that the Indemnifying Party will not, without the prior
written consent of the Indemnified Party, require the Indemnified Party to take or refrain from
taking any action, or make any public statement, which the Indemnified Party reasonably considers
to be against its interest, or consent to any settlement that requires the Indemnified Party to
make any payment that is not fully indemnified by the Indemnifying Party under this Agreement.

               (d) If the Indemnifying Party does not undertake the defense of any Third Party Claim, the
Indemnified Party, at the expense of the Indemnifying Party, may undertake the defense of such
Third Party Claim with counsel of its choosing, and the Indemnifying Party in that event shall
reasonably cooperate with the Indemnified Party and its counsel in the investigation and defense of
such Third Party Claim, but the Indemnified Party will control such investigation and defense at
the expense of the Indemnifying Party.

               (e) Notwithstanding anything contained in this Section 13.4 to the contrary, if both the
Indemnifying Party and the Indemnified Party are named as parties or subject to any Third Party
Claim and either such party determines with advice of counsel that a material conflict of interest
between such parties may exist in respect of such Third Party Claim, the Indemnifying Party may
decline to assume the defense on behalf of the Indemnified Party or the Indemnified Party may
retain the defense on its own behalf, and, in either such case, after notice to such effect is duly
given hereunder to the other party, the Indemnifying Party shall be relieved of any obligation to
assume the defense on behalf of the Indemnified Party, but shall be required to pay the
out-of-pocket legal costs and expenses (such as reasonable attorneys’ fees and disbursements) of
such defense; provided, however, that the Indemnifying Party shall not be liable
for such expenses on account of more than one separate firm of attorneys (and, if necessary, local
counsel) at any time representing such Indemnified Party in connection with any Third Party Claim
or separate Third Party Claim in the same jurisdiction arising out of or based upon substantially
the same allegations or circumstances.

               (f) The Indemnified Party and the Indemnifying Party agree to make available to each other,
their counsel and other representatives, all information and documents available to them that
relate to any Third Party Claim, and to render to each other such assistance as may reasonably be
requested to ensure the proper and adequate defense of such Third Party Claim.

               (g) Each Indemnified Party shall take commercially reasonable actions to mitigate Losses,
including pursuing insurance claims and Third Party Claims, and shall reasonably consult and
cooperate with each Indemnifying Party with a view towards mitigating Losses, in connection with
claims for which an Indemnified Person seeks indemnification hereunder.

67

 

     14. Additional Provisions.

          14.1 Successors and Assigns, Assignability, Beneficiaries. This Agreement is binding
upon and inures to the benefit of Sellers, Stockholders, Purchasers and JAKKS and their respective
successors and permitted assigns. Neither this Agreement nor any obligation hereunder will be
assignable except with the prior written consent of Purchasers, Sellers, Stockholders and JAKKS.
Notwithstanding the preceding sentence, (a) Purchasers and JAKKS may assign all or any part of
their respective rights and obligations under this Agreement to one or more Affiliates, except that
JAKKS may not assign its obligations under Sections 7.5 or 11.18 of this Agreement without the
prior written consent of the Sellers and (b) each Seller may assign its rights to receive
Post-Closing Payments under Section 2.5 to its shareholders (including any beneficial holders of
its capital stock) and/or any trust created for the benefit of such shareholders (or such
beneficial holders) or any of their respective Family Members or to any liquidating trust
established in connection with the liquidation of such Seller. Nothing in this Agreement, express
or implied, is intended to confer on any Person (other than the parties or their respective
successors and permitted assigns) any rights, remedies, obligations or liabilities under or by
reason of this Agreement.

          14.2 Notices. All notices which are required by or may be given pursuant to the terms
of this Agreement must be in writing and must be delivered personally, sent by certified mail,
return receipt requested, postage prepaid, facsimile (with written confirmation of transmission)
provided that notice is also sent via first class mail, postage prepaid, or sent for next-day
delivery by a nationally recognized overnight delivery service as follows:

	 	 	 	 	 
	 

	 	If to Sellers:
	 	Creative Designs International, Ltd.
	 

	 	 	 	5 Casey Court
	 

	 	 	 	Newtown, PA 18940
	 

	 	 	 	Tel. No.:
	 

	 	 	 	Fax No.:
	 

	 	 	 	Attention: Mr. Geoffrey Greenberg
	 
	 	 	 	 
	 

	 	with a copy to:
	 	Ballard Spahr Andrews & Ingersoll, LLP
	 

	 	 	 	1735 Market Street, 51st Floor
	 

	 	 	 	Philadelphia, PA 19103
	 

	 	 	 	Tel. No.: (215) 864-8604
	 

	 	 	 	Fax No.: (215) 864-9961
	 

	 	 	 	Attention: Brian D. Doerner, Esq.
	 
	 	 	 	 
	 

	 	If to Stockholders:
	 	To their respective addresses as set forth in the introductory paragraph.

68

 

	 	 	 	 	 
	 

	 	If to Purchasers or
	 	JPI/VII Acquisition Corp.
	 

	 	JAKKS:
	 	22619 Pacific Coast Highway, Suite 250
	 

	 	 	 	Malibu, CA 90265
	 

	 	 	 	Tel. No.: (310) 455-6210
	 

	 	 	 	Fax No.: (310) 455-6352
	 

	 	 	 	Attention: Mr. Joel M. Bennett
	 
	 	 	 	 
	 

	 	 	 	JPI CDI (HK) Limited
	 

	 	 	 	22619 Pacific Coast Highway, Suite 250
	 

	 	 	 	Malibu, CA 90265
	 

	 	 	 	Tel. No.: (310) 455-6210
	 

	 	 	 	Fax No.: (310) 455-6352
	 

	 	 	 	Attention: Mr. Joel M. Bennett
	 
	 	 	 	 
	 

	 	 	 	JAKKS Pacific, Inc.
	 

	 	 	 	22619 Pacific Coast Highway
	 

	 	 	 	Malibu, CA 90265
	 

	 	 	 	Tel. No.: (310) 455-6210
	 

	 	 	 	Fax No.: (310) 455-6352
	 

	 	 	 	Attention: Mr. Joel M. Bennett
	 
	 	 	 	 
	 

	 	with a copy to:
	 	Feder, Kaszovitz, Isaacson, Skala, Weber,
	 

	 	 	 	Bass & Rhine LLP
	 

	 	 	 	750 Lexington Ave
	 

	 	 	 	New York, NY 10022-1200
	 

	 	 	 	Tel. No.: (212) 888-8200
	 

	 	 	 	Fax No.: (212) 888-7776
	 

	 	 	 	Attention: Murray L. Skala, Esq.

     Any of the addresses set forth above may be changed from time to time by written notice from
the party requesting the change.

     Such notices and other communications will be treated for all purposes of this Agreement as
being effective immediately if delivered personally or by facsimile (with written confirmation of
transmission), or five days after mailing by certified mail, return receipt requested, first class
postage prepaid, or one day after deposit for next business day delivery by a nationally recognized
overnight delivery service.

          14.3 Amendments and Waivers. The waiver, amendment or modification of any provision
of this Agreement or any right, power or remedy under this Agreement, whether by agreement of the
parties hereto or by custom, course of dealing or trade practice, will not be effective unless in
writing and signed by the party or parties against whom enforcement of such waiver, amendment or
modification is sought. Except as otherwise provided in this Agreement, no failure or delay by any
party in exercising any right, power or remedy with respect to any of the provisions of this
Agreement will operate as a waiver of such provisions or any other provisions.

69

 

          14.4 Severability. If any provision of this Agreement or the application of any such
provision is held to be prohibited or unenforceable in any jurisdiction, such provision will, as to
such jurisdiction, be ineffective to the extent of such prohibition or unenforceability. The
remaining provisions of this Agreement will remain in full force and effect, and any such
prohibition or unenforceability in any jurisdiction will not invalidate or render unenforceable
such provision in any other jurisdiction. The parties hereto will use their best efforts to
replace the provision that is contrary to law with a legal one approximating to the extent possible
the original intent of the parties.

          14.5 Exhibits. The schedules and exhibits that are attached to and referred to in
this Agreement are incorporated in and are an integral part of this Agreement.

          14.6 Integration and Entire Agreement. This Agreement and the Related Documents set
forth the entire understanding among the parties with respect to the subject matter hereof and
thereof, supersede all previous and contemporaneous written or oral negotiations, commitments,
understandings, and agreements relating to the subject matter of this Agreement and the Related
Documents and merge all prior and contemporaneous discussions between or among the parties or any
of their respective Affiliates.

          14.7 Counterparts and Headings. For the convenience of the parties, this Agreement
may be executed in one or more counterparts, including by facsimile, each of which will be deemed
an original, but all of which together shall constitute one and the same agreement. This Agreement
will become binding only when counterparts hereto have been executed and delivered by all parties
hereto. All headings and captions are inserted for convenience of reference only and will not
affect the meaning or interpretation of any provision in this Agreement.

          14.8 Survival. All representations and warranties of Stockholders, Sellers,
Purchasers and JAKKS made in this Agreement and the Related Documents, as well as the obligations
of the parties to be performed following Closing, will survive the Closing for a period of eighteen
(18) months following the Closing Date; provided, however, that (i) the
representations and warranties contained in Sections 3.1, 3.2, 4.1, 4.2 and 4.5 will survive
without time limit, (ii) the representations, warranties and covenants contained in Sections 4.11,
4.14, 4.18, 11.5 and 11.9 will survive until six (6) months after the expiration of the applicable
statutes of limitation relating to claims with respect thereto, (iii) the covenants contained in
Section 11.12 will survive for the duration of the Earn-out Period and (iv) the covenants set forth
in Sections 2.5 and 11.17 will survive for five months following the expiration of the Earn-out
Period. Notwithstanding anything to the contrary contained herein, any covenant, representation or
warranty in respect of which indemnity may be sought under Article 13 shall survive the time at
which it would otherwise terminate pursuant to this Section 14.8, if the Notice of Claim with
respect to the inaccuracy or breach giving rise to such right to indemnity shall have been given to
the Indemnifying Party prior to such time. This Section 14.8 shall not limit any covenant or
agreement of the parties hereto which by its terms contemplates performance after the Effective
Time.

          14.9 Expenses. Stockholders and Sellers, jointly and severally, and Purchasers and
JAKKS, jointly and severally, will each pay the fees and expenses of their respective

70

 

counsel, accountants and other experts incident to the negotiation and preparation of this
Agreement, the schedules and exhibits hereto and the Related Documents. Notwithstanding the
foregoing provisions of this Section 14.9, Sellers shall pay all recording charges, if any,
associated with the transfer of the Real Property contemplated hereby.

          14.10 Interpretations. As used herein, the words “ordinary course” or
“ordinary course of business” means the ordinary course of commercial operations
customarily engaged in by Sellers consistent with past practices and specifically does not include
(i) the incurrence of any material liability for any tort or any breach of or default under any
Contract or Law, (ii) the failure to meet obligations of Sellers as they become due or payable or
(iii) any actions or omissions by Sellers taken or not taken in contemplation of the marketing or
sale of the CDI Business or Assets or any part thereof, or of any merger, consolidation, tender
offer or other business combination involving all or any of the Sellers. The qualification or
limitation of any statement made herein to a party’s “knowledge” or to a matter
“known” to a party refers to such party’s actual knowledge after reasonable inquiry and
with respect to Sellers, knowledge shall only refer to the actual knowledge after reasonable
inquiry of Geoffrey and, with respect to matters relating to CDI Hong Kong, Geoffrey and Ho Chiu
Ming. As used herein “including” shall be deemed to be followed by “including, without
limitation,” and shall not be construed to limit any general statement that it follows to the
specific or similar items or matters immediately following it. As used herein, words such as
“herein,” “hereinafter,” “hereof,” and “hereunder” refer to this
Agreement as a whole and not merely to a subdivision in which such words appear unless the context
otherwise requires. Any reference in this Agreement to gender shall include all genders, and words
imparting the singular number only shall include the plural and vice versa, unless the context
otherwise requires.

          14.11 Further Assurances. Each party hereto shall execute and cause to be delivered
to each other party hereto such instruments, powers of attorney, and other documents, and shall
take such other actions, as such other party may reasonably request (prior to, at or after the
Closing) for the purpose of carrying out or evidencing any of the transactions contemplated by this
Agreement.

          14.12 Confidentiality. Except as required by Law, the parties hereto shall hold, and
shall cause their respective officers and authorized representatives and agents to hold, any
non-public information obtained from the other parties hereto in confidence to the extent required
by, and in accordance with the provisions of, the Non Disclosure Agreement, dated October 28, 2003,
between the Sellers and JAKKS (the “Confidentiality Agreement”). Moreover, on and at all
times after the Closing Date, the Stockholders and Sellers shall keep confidential, and shall not
use or disclose to any other Person, any non-public document or other non-public information in
their possession that relates to the CDI Business, the Assets, Purchasers or JAKKS.
Notwithstanding any other express or implied agreement to the contrary, the parties hereto agree
that each of them and each of their employees, representatives and other agents may disclose to any
and all Persons, without limitation of any kind, the tax treatment and tax structure of the
transaction and all materials of any kind (including opinions or other tax analyses) that are
provided to any of them relating to such tax treatment and tax structure, except where
confidentiality is reasonably necessary to comply with U.S. federal or state securities

71

 

laws. For purposes of this paragraph, the terms “tax treatment” and “tax structure” have the
meanings specified in Treasury Regulation section 1.6011-4(c).

          14.13 Public Announcements. No Seller shall issue, or permit any of its agents or
Affiliates to issue, any press releases or otherwise make, or permit any of their respective agents
or Affiliates to make, any public or other statements, with respect to this Agreement, the Related
Documents and the transactions contemplated hereby and thereby without the prior written consent of
Purchasers. JAKKS will afford Sellers and Stockholders a reasonable opportunity to review and
comment on any press release or other proposed disclosure intended to be made by JAKKS with respect
to this Agreement or the transactions contemplated herein, a reasonable time before such disclosure
is intended to be made.

          14.14 Remedies Cumulative; Specific Performance. Except as set forth in Article 13,
the rights and remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that, in the event of any breach or threatened breach by any party
to this Agreement of any covenant, obligation or other provision set forth in this Agreement for
the benefit of any other party to this Agreement, such other party shall be entitled (in addition
to any other remedy that may be available to it) to (i) a decree or order of specific performance
or mandamus to enforce the observance and performance of such covenant, obligation or other
provision, and (ii) an injunction restraining such breach or threatened breach.

          14.15 Drafting. Each party acknowledges that its legal counsel participated in the
preparation of this Agreement. The parties stipulate, therefore, that the rule of construction
that ambiguities are to be resolved against the drafting party will not be employed in the
interpretation of this Agreement to favor any party against the other.

          14.16 Governing Law. This Agreement will be construed, governed and enforced in
accordance with the internal laws of the State of New York without regard to the conflicts of law
principles thereof.

          14.17 JURISDICTION; WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY (I)
IRREVOCABLY CONSENTS AND SUBMITS TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH ANY PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND (II) WAIVES ANY OBJECTION TO VENUE IN THE
COUNTY OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

[Remainder of page intentionally left blank.]

72

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day
and year first above written.

	 	 	 	 	 	 	 
	 	 	JPI/VII ACQUISITION CORP.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	JPI CDI (HK) LIMITED	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	JAKKS PACIFIC, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

	 	 	 	 	 
	CREATIVE DESIGNS INTERNATIONAL, LTD.
	 
	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	Name:
	 	 	 	 
	Title:
	 	 	 	 
	 
	 	 	 	 
	ARBOR TOYS COMPANY LIMITED	 	 
	 
	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	Name:
	 	 	 	 
	Title:
	 	 	 	 

	 	 	 
	 
	 	 
	 

GEOFFREY GREENBERG

	 	 
	 
	 	 
	 
	 	 
	 

STEPHANIE COE

	 	 

F-21

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