Document:

Filed by Bowne Pure Compliance

 

Exhibit
10.3

EXECUTION

SUBORDINATION AGREEMENT

THIS SUBORDINATION AGREEMENT (as amended, restated or otherwise modified from time to time,
this “Agreement”) is entered into as of January 31, 2008 by and among (1) ALLIS-CHALMERS
ENERGY INC., a Delaware corporation (the “Subordinated Creditor”), and (2) STANDARD BANK
PLC, as administrative agent for the Senior Creditors (as defined below) (in such capacity, the
“Senior Agent”), and acknowledged and agreed to by (3) BCH LTD., a corporation organized
and existing under the laws of the Province of Alberta, Canada (“BCH”), (4) BCH ENERGY DO
BRASIL SERVIÇOS DE PETRÓLEO LTDA., a company organized and existing under the laws of Brazil
(“BCH Brazil”, and together with BCH, collectively, the “Obligors” and each an
“Obligor”) and (5) BRAZALTA RESOURCES CORP., a public corporation organized and existing
under the laws of the Province of Alberta, Canada (“BRX”).

WITNESSETH:

WHEREAS, the Obligors, as borrowers thereunder, the financial institutions and other entities
from time to time party thereto (collectively, the “Senior Lenders” and each a “Senior
Lender”) and the Senior Agent have entered into that certain Credit Agreement dated as of June
26, 2007 (as the same may be amended, supplemented, restated or otherwise modified from time to
time in accordance with this Agreement, the “Senior Credit Agreement”), pursuant to which,
among other things, the Senior Lenders have agreed, subject to the terms and conditions set forth
in the Senior Credit Agreement, to make certain loans and financial accommodations to the Obligors;

WHEREAS, all of the Senior Obligations owing by the Obligors to the Senior Lenders and the
other Senior Creditors under the Senior Debt Documents (i) are secured by liens on and security
interests in substantially all of the now existing and hereafter acquired real and personal
property of the Obligors (the “Obligor Collateral”) and (ii) are guaranteed by BRX and each
Subsidiary of the Obligors, which guaranties are secured by liens on and security interests in
substantially all of the now existing and hereafter acquired real and personal property of such
Subsidiaries and the Equity Interests in BCH held by BRX (the “Guarantor Collateral” and,
together with the Obligor Collateral, collectively, the “Collateral”);

WHEREAS, the Obligors have entered into a credit agreement dated as of the date hereof, among
BCH, as borrower, BCH Brazil, as guarantor, and the Subordinated Creditor, as lender (as the same
may be amended, supplemented, restated or otherwise modified from time to time in accordance with
this Agreement, the “Subordinated Credit Agreement”), pursuant to which (i) the
Subordinated Creditor will provide a US$40,000,000 convertible credit facility in favor of BCH on
the terms and subject to the conditions set forth therein and (ii) BCH will grant a debenture as of
the date hereof convertible into common shares of BCH in accordance with the terms thereof (as the
same may be amended, supplemented, restated or otherwise modified from time to time in accordance
with this Agreement, the “Subordinated Debenture”) and

WHEREAS, (i) the Obligors have requested the Senior Agent and the Senior Lenders to waive
compliance with certain provisions of the Senior Credit Agreement and related documents thereunder
in connection with the issuance of the Subordinated Debenture and (ii) the Senior Agent and the
Senior Lenders are willing to agree to the requested waivers but only if the Subordinated Creditor,
the Obligors and BRX enter into this Subordination Agreement in order, among other things, to set
forth the relative rights and priorities of the Senior Creditors and the Subordinated Creditor
under the Senior Debt Documents and the Subordinated Debt Documents;

 

 

 

NOW, THEREFORE, in consideration of the premises contained herein and for good and valuable
consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto
hereby agree as follows:

Section 1. Definitions and Interpretation.(a) Definitions. The
following terms shall have the following meanings in this Agreement:
“Agreement” is defined in the first paragraph of this Agreement.

“Bankruptcy Code” shall mean Title 11 of the United States Code
entitled “Bankruptcy,” as now and hereafter in effect, or any successor
statute.

“Bankruptcy Law” shall mean the Bankruptcy Code and any similar
federal, state or foreign law for the relief of debtors.

“Business Day” means a day other than a Saturday, Sunday or
other day on which commercial banks in Calgary, Alberta, in Sao Paulo,
Brazil, in New York, New York and in London, England are authorized or
required by law to close.

“Collateral” is defined in the second recital to this Agreement.

“Discharge of Senior Obligations” or Paid-In-Full” and
“Payment-In-Full” means, with respect to all of the Senior
Obligations, that all of such Senior Obligations have been indefeasibly paid
in full in cash and all commitments to extend credit under the Senior Debt
Documents have been terminated.

“Distribution” means, with respect to any indebtedness,
ownership interest or other obligations, (a) any payment or distribution by
any Obligor of cash, securities or other property, by set-off or otherwise,
on account of such indebtedness, ownership interest or obligation, (b) any
redemption, purchase or other acquisition of such indebtedness, ownership
interest or obligation by any Obligor (other than sales or other transfers of
Subordinated Debt to third parties pursuant to Section 2(g)), or (c)
the granting of any lien or security interest to or for the benefit of the
holders of such indebtedness, ownership interest or obligation in or upon any
property of any Obligor.

“Enforcement Action” means (a) to take from or for the account
of any Obligor or any guarantor of the Subordinated Debt, by set-off or in
any other manner, the whole or any part of any moneys which may now or
hereafter be owing by any Obligor or any such guarantor with respect to the
Subordinated Debt, (b) to sue for payment of, or to initiate or participate
with others in any suit, action or proceeding (including any Proceeding)
against any Obligor or any such guarantor to (i) enforce payment of or to
collect the whole or any part of the Subordinated Debt or (ii) commence
judicial enforcement of any of the rights and remedies under the Subordinated
Debt Documents or applicable law with respect to the Subordinated Debt, (c)
to accelerate the Subordinated Debt, (d) to cause any Obligor or any such
guarantor to honor any redemption or mandatory prepayment obligation under
any Subordinated Debt Document or (e) take any action under the provisions of
any state or federal or other applicable law, including, without
limitation, the Uniform Commercial Code, or under any contract or
agreement, to enforce, foreclose upon, take possession of or sell any
property or assets of any Obligor or any such guarantor. For avoidance of
doubt, “Enforcement Action excludes the Permitted Subordinated Debt
Conversion.

 

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“Equity Interests” means, as to any Person, (a) any and all
 shares, interests, participations, rights or other equivalents (however
designated, whether voting or non voting) of or interests in corporate or
capital stock, including shares of preferred or preference stock of such
Person, (b) all partnership interests (whether general or limited) of such
Person, (c) all membership interests or limited liability company interests
in such Person, (d) all beneficial interests in a trust or similar entity,
(e) all other equity or ownership interests in such Person of any other type,
and (f) all warrants, rights or options to purchase or otherwise acquire any
of the foregoing.

“Guarantor Collateral” is defined in the second recital to this
Agreement.

“Insolvency or Liquidation Proceeding” or “Proceeding” means any
voluntary or involuntary insolvency, bankruptcy (including any case or
proceeding under the Bankruptcy Code), receivership, custodianship,
liquidation, dissolution, reorganization, assignment for the benefit of
creditors or any other marshalling of assets or liabilities, appointment of a
custodian, receiver, trustee or other officer with similar powers or any
other case proceeding for the liquidation, dissolution or other winding up of
a Person or with respect to a Person or a material portion of any Person’s
assets or any other similar case or proceeding.

“Lien” means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any agreement to give
any of the foregoing, any conditional sale or other title retention
agreement, and any lease in the nature thereof) and any option, trust or
other preferential arrangement having the practical effect of any of the
foregoing.

“Lien Enforcement Action” is defined in Section 4(a)(i)(A).

“Obligor Collateral” is defined in the second recital to this
Agreement.

“Option and Governance Agreement” is defined in the Subordinated
Credit Agreement in effect as of the date hereof.

“Permitted Senior Debt Refinancing Documents” means any
financing documentation which replaces the Senior Credit Agreement and the
other Senior Debt Documents and pursuant to which the Senior Obligations are
Refinanced, as such financing documentation may be amended, supplemented or
otherwise modified from time to time in accordance with this Agreement, but
specifically excluding any such financing documentation to the extent that it
contains, either initially or by amendment or other modification, any terms,
conditions, covenants or defaults other than those (a) then existing in the
Senior Debt Documents or (b) which could be included in the Senior Debt
Documents by an amendment or other modification that would not be prohibited
by the terms of this Agreement.

“Permitted Senior Debt Refinancing” means any Refinancing of the
Senior Obligations entered into pursuant to the Permitted Senior Debt
Refinancing Documents.

 

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“Permitted Subordinated Debt Conversion” means a conversion of
the Subordinated Debt and the Subordinated Debenture into common shares in
the capital of BCH in accordance with the terms of the Subordinated Debenture
as in effect on the date hereof.

“Permitted Subordinated Debt Payments” means (a) any Permitted
Subordinated Debt Refinancing, (b) following the Discharge of Senior
Obligations, any repayment of principal under the Subordinated Credit
Agreement or the Subordinated Debenture, (c) the Permitted Subordinated Debt
Conversion, or (d) any payment or Distribution in respect of the Subordinated
Debt which consists solely of (i) payments of interest on the Subordinated
Debt which are regularly scheduled payments of interest on the Subordinated
Debt due and payable on a non-accelerated basis in accordance with the terms
of the Subordinated Debt Documents (including payments of interest on the
Subordinated Debt in accordance with Section 9.1(a) of the Option and
Governance Agreement), or (ii) payments of fees and reasonable out-of-pocket
expenses which are payable according to the terms of the Subordinated Debt
Documents, in each case pursuant to the Subordinated Debt Documents as in
effect on the date hereof or as modified in accordance with this Agreement.

“Permitted Subordinated Debt Refinancing” means any Refinancing
of the Subordinated Debt entered into pursuant to the Permitted Subordinated
Debt Refinancing Documents.

“Permitted Subordinated Debt Refinancing Documents” means any
financing documentation which replaces the Subordinated Credit Agreement, the
Subordinated Debenture and the other Subordinated Debt Documents and
pursuant to which all or any portion of the Subordinated Debt is Refinanced,
as such financing documentation may be amended, supplemented or otherwise
modified from time to time in accordance with this Agreement, but
specifically excluding any such financing documentation to the extent that it
contains, either initially or by amendment or other modification, any terms,
conditions, covenants or defaults other than those (a) then existing in the
Subordinated Debt Documents or (b) which could be included in the
Subordinated Debt Documents by an amendment or other modification that would
not be prohibited by the terms of this Agreement.

“Person” means any natural person, corporation, general or
limited partnership, limited liability company, firm, trust, association,
government, governmental agency or other entity, whether acting in an
individual, fiduciary or other capacity.

“Post-Petition Interest” means interest accruing in respect of
Senior Obligations after the commencement of any Proceeding by or against any
Obligor or any other Senior Obligor, at the rate applicable to such Senior
Obligations pursuant to the Senior Debt Documents, and any other interest
that would have accrued but for commencement of such proceedings.

“Refinance” shall mean, in respect of any Senior Obligations or
Subordinated Debt, to refinance, extend, renew, defease, amend, modify,
supplement, restructure, replace, refund or repay, or to issue other
indebtedness, in exchange or replacement for, such Senior Obligations or
Subordinated Debt in whole or in part, whether with the same or different
lenders, agents or arrangers. “Refinanced” and “Refinancing” shall have
correlative meanings.

 

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“Reorganization Subordinated Securities” means any debt or
equity securities of any Obligor or any other Person that are distributed to
a Subordinated Creditor in respect of the Subordinated Debt pursuant to a
confirmed plan of reorganization or adjustment and that (a) are subordinated
in right of payment to the Senior Obligations (or any debt or equity
securities issued in substitution of all or any portion of the Senior
Obligations) to at least the same extent as the Subordinated Debt is
subordinated to the Senior Obligations, (b) do not have the benefit of any
obligation of any Person (whether as issuer, guarantor or otherwise) unless
the Senior Obligations has at least the same benefit of the obligation of
such Person and (c) do not have any terms, and are not subject to or entitled
to the benefit of any agreement or instrument that has terms, that are more
burdensome to the issuer of or other obligor on such debt or equity
securities than are the terms of the Senior Obligations. For the avoidance
of doubt, Equity Interests consisting of common shares in the capital of BCH
issued to the Subordinated Creditor pursuant to the Permitted Subordinated
Debt Conversion shall not constitute Reorganization Subordinated Securities.

“Senior Agent” is defined in the first paragraph to this
Agreement and includes any successor or replacement administrative agent
appointed pursuant to the Senior Debt Documents.

“Senior Credit Agreement” is defined in the first recital to
this Agreement.

“Senior Creditor” means (a) the Senior Agent and (b) each Senior
Lender, and includes, in the case of each of the foregoing, each of its
respective successors and assigns.

“Senior Obligor” means BRX, any Obligor or any other Subsidiary
of an Obligor that is or becomes a party to a Senior Debt Document.

“Senior Debt Default” means any Senior Payment Default or Senior
Non-Payment Default.

“Senior Debt Default Notice” means a written notice from the
Senior Agent to the Subordinated Creditor, pursuant to which the Subordinated
Creditor is notified of the occurrence of a Senior Debt Default, which notice
shall specify in reasonable detail such Senior Debt Default.

“Senior Debt Documents” means (a) prior to the consummation of
any Permitted Senior Debt Refinancing, the Senior Credit Agreement and all
security agreements, mortgages, guaranties and other agreements, documents
and instruments executed from time to time in connection therewith, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance
with this Agreement, and (b) on and after the consummation of any
Permitted Senior Debt Refinancing, the Permitted Senior Debt Refinancing
Documents.

 

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“Senior Lender” is defined in the first paragraph to this
Agreement and includes their respective successors and assigns.

“Senior Non-Payment Default” means any “Default” or “Event of
Default” under the Senior Credit Agreement (other than a Senior Payment
Default), or any condition or event that, after notice or lapse of time or
both, would constitute such an Event of Default (other than a Senior Payment
Default) if that condition or event were not cured or removed within any
applicable grace or cure period set forth therein.

“Senior Obligations” means, collectively, all obligations,
liabilities and indebtedness of every nature of the Obligors or any other
Senior Obligor from time to time owed to any Senior Creditor pursuant to the
Senior Debt Documents, including, without limitation, the principal amount of
all debts, claims and indebtedness, accrued and unpaid interest and all fees,
costs and expenses, whether primary, secondary, direct, contingent, fixed or
otherwise, heretofore, now and from time to time hereafter owing, due or
payable, whether before or after the commencement of a Proceeding, together
with (i) any amendments, modifications, renewals or extensions thereof to the
extent not prohibited by the terms of this Agreement and (ii) any
Post-Petition Interest. For purposes of this definition, Senior Obligations
under the Senior Debt Documents shall be considered to be outstanding
whenever any loan commitment under the Senior Debt Documents is outstanding
or otherwise in effect and has not been terminated, whether or not any sums
are outstanding in respect of such commitment.

“Senior Payment Default” means any “Default” or “Event of
Default” under the Senior Credit Agreement resulting from the failure of any
Senior Obligor to pay, on a timely basis, any principal or interest, or any
fees or other amounts under the Senior Debt Documents, including, without
limitation, any default in payment of Senior Obligations after acceleration
thereof, or any condition or event that, after notice or lapse of time or
both, would constitute such a payment Event of Default if that condition or
event were not cured or removed within any applicable grace or cure period
set forth therein.

“Subordinated Debenture” is defined in the third recital to this
Agreement.

“Subordinated Debt” means all of the indebtedness and other
obligations of the Obligors, their respective subsidiaries and any other
guarantor to the Subordinated Creditor evidenced by or incurred pursuant to
the Subordinated Credit Agreement or the Subordinated Debenture, including,
without limitation, the principal amount of all debts, claims and
indebtedness, accrued and unpaid interest and all fees, costs and expenses,
whether primary, secondary, direct, contingent, fixed or otherwise,
heretofore, now and from time to time hereafter owing, due or payable,
whether before or after the commencement of a Proceeding.

“Subordinated Debt Default” means a default in the payment of
the Subordinated Debt or in the performance of any term, covenant or
condition
contained in the Subordinated Debt Documents or any other occurrence
permitting any Subordinated Creditor to accelerate the payment of all or any
portion of the Subordinated Debt.

 

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“Subordinated Debt Default Notice” means a written notice from
any Obligor or any Subordinated Creditor to the Senior Agent, pursuant to
which the Senior Agent is notified of the occurrence of a Subordinated Debt
Default, which notice shall specify in reasonable detail such Subordinated
Debt Default.

“Subordinated Debt Documents” means (a) prior to the
consummation of any Permitted Subordinated Debt Refinancing, the Subordinated
Credit Agreement, the Subordinated Debenture, the Option and Governance
Agreement, any guaranty with respect to the Subordinated Debt, and all
security agreements, mortgages, guaranties and other agreements, documents
and instruments executed from time to time in connection therewith, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance with this Agreement, and (b) on and after the consummation of any
Permitted Subordinated Debt Refinancing, the Permitted Subordinated Debt
Refinancing Documents.

“Subsidiary” mean any corporate entity of which more than 50% of
the outstanding Equity Interests having ordinary voting power to elect or
appoint a majority of the board of directors or similar governing body of
such corporate entity is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more other Subsidiaries
of such Person, or by one or more other Subsidiaries of such Person. For the
purpose of this definition, “control” of a Person means the power,
directly or indirectly, either to (a) vote 10% or more of the Equity
Interests having ordinary voting power for the election of directors,
managing directors, managing general partners or any equivalent body, or (b)
veto, direct or cause the direction of the management and policies of such
Person.

“UCC” shall mean the Uniform Commercial Code (or any similar or
equivalent legislation) as in effect in any applicable jurisdiction.

(b) Terms Generally. The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words “include”,
“includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The
word “will” shall be construed to have the same meaning and effect as the word “shall”. Unless the
context requires otherwise (i) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or other document as
from time to time amended, restated, supplemented or otherwise modified, subject to any restriction
on modifying such agreement, document or instrument as set forth in this Agreement, (ii) any
reference herein (A) to any person shall be construed to include such person’s successors and
assigns and (B) to any Obligor or any other Senior Obligor shall be construed to include such
Obligor or such Senior Obligor as debtor and debtor-in-possession and any receiver or trustee for
any Obligor or any other Senior Obligor, as the case may be, in any Proceeding, (iii) the words
“herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (iv) all references
herein to Sections shall be construed to refer to Sections of this Agreement and (v) the words
“asset” and “property” shall be construed to have the same meaning and effect and to refer to any
and all tangible and intangible assets and properties, including cash, securities, accounts and
contract rights.

Section 2. Subordination.

(a) Subordination of Subordinated Debt to Senior Obligations. Except as otherwise
provided in this Agreement, each Senior Obligor covenants and agrees, and the Subordinated Creditor
likewise covenants and agrees, notwithstanding anything to the contrary contained in any of the
Subordinated Debt Documents, that the payment of any and all of the Subordinated Debt shall be
subordinate and subject in right and time of payment, to the extent and in the manner hereinafter
set forth, to the prior Payment-In-Full of all Senior Obligations. Each Senior Creditor and any
other holder of any Senior Obligations, whether now outstanding or hereafter created, incurred,
assumed or guaranteed, shall be deemed to have acquired and held such Senior Obligations in
reliance upon the provisions contained in this Agreement.

 

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(b) Liquidation, Dissolution, Bankruptcy. In the event of any Proceeding involving
any Obligor:

(i) All Senior Obligations shall first be Paid-In-Full before any Distribution, whether
in cash, securities or other property, shall be made to the Subordinated Creditor on account
of any Subordinated Debt (other than a distribution of Reorganization Subordinated
Securities if the Subordinated Creditor and the Senior Agent shall have entered into such
supplements to or modifications to this Agreement as the Senior Agent may request to reflect
the continued subordination of the Reorganization Subordinated Securities to the Senior
Obligations (or notes or other securities issued in substitution of all or a portion
thereof) to the same extent as provided herein).

(ii) Any Distribution, whether in cash, securities or other property which would
otherwise, but for the terms hereof, be payable or deliverable in respect of the
Subordinated Debt (other than a distribution of Reorganization Subordinated Securities if
the Subordinated Creditor and the Senior Agent shall have entered into such supplements to
or modifications to this Agreement as the Senior Agent may request to reflect the continued
subordination of the Reorganization Subordinated Securities to the Senior Obligations (or
notes or other securities issued in substitution of all or a portion thereof) to the same
extent as provided herein) shall be paid or delivered directly to the Senior Agent (to be
held and/or applied by the Senior Agent in accordance with the terms of the Senior Debt
Documents) until all of the Senior Obligations have been Paid-In-Full. The Subordinated
Creditor irrevocably authorizes, empowers and directs any debtor, debtor-in-possession,
receiver, trustee, liquidator, custodian, conservator or other Person having authority, to
pay or otherwise deliver all such Distributions to the Senior Agent. The Subordinated
Creditor also irrevocably authorizes and empowers the Senior Agent, in the name of such
Subordinated Creditor, to demand, sue for, collect and receive any and all such
Distributions.

(iii) The Subordinated Creditor agrees not to initiate, prosecute or participate in any
claim, action or other proceeding challenging the enforceability, validity, perfection or
priority of the Senior Obligations, the Senior Debt Documents, or any liens and security
interests or guaranties securing any of the Senior Obligations.

(iv) The Subordinated Creditor shall be entitled to vote its claims in any Insolvency
or Liquidation Proceeding so long as the Subordinated Creditor does not (A) challenge any
Liens of the Senior Creditors or (ii) challenge or dispute the validity of this Agreement.
The Subordinated Creditor agrees to execute, verify, deliver and file any proofs of claim in
respect of the Subordinated Debt requested by the Senior Agent in connection with any such
Proceeding and hereby irrevocably authorizes, empowers and appoints the Senior Agent its
agent and attorney-in-fact to (i) execute, verify, deliver and file such proofs of claim
upon the failure of such
Subordinated Creditor promptly to do so prior to ten (10) days before the expiration of
the time to file any such proof of claim (if such Subordinated Creditor has failed to file
such proof of claim prior to such date) and (ii) vote such claim in any such Proceeding upon
the failure of such Subordinated Creditor to do so prior to 15 days before the expiration of
the time to vote any such claim (it being agreed that any such Subordinated Creditor may
thereafter vote such claim (or change or amend the Senior Agent’s vote)); provided, that the
Senior Agent shall have no obligation to execute, verify, deliver, file and/or vote in
respect of any such proof of claim; provided, further, that the Senior Agent shall provide
to the Subordinated Creditors a copy of any such proof of claim filed by it promptly after
making such filing.

 

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(v) This Agreement shall continue in full force and effect after the commencement of
any Insolvency or Liquidation Proceeding (in the event of any Insolvency or Liquidation
Proceeding involving a particular Obligor, all references herein to such Obligor shall be
deemed to apply to such Obligor as debtor-in-possession and to a trustee for such Obligor’s
estate in an Insolvency or Liquidation Proceeding) and shall apply with full force and
effect with respect to all collateral acquired by such Obligor and to all Senior Obligations
or Subordinated Debt incurred by such Obligor, subsequent to such commencement, if any.

(vi) The Senior Obligations shall continue to be treated as Senior Obligations and the
provisions of this Agreement shall continue to govern the relative rights and priorities of
Senior Lenders and the Subordinated Creditor even if all or part of the Senior Obligations
or the security interests or liens securing the Senior Obligations are subordinated, set
aside, avoided, invalidated or disallowed in connection with any such Proceeding, and this
Agreement shall be reinstated if at any time any payment of any of the Senior Obligations is
rescinded or must otherwise be returned by any holder of Senior Obligations or any
representative of such holder.

(vii) Nothing contained herein shall prohibit or in any way limit the Senior Agent or
the Senior Creditors from objecting in any Insolvency or Liquidation Proceeding or otherwise
to any action taken by the Subordinated Creditor or any Person acting on behalf thereof.

(c) Subordinated Debt Payment Restrictions.

(i) Notwithstanding the terms of the Subordinated Debt Documents, each Obligor hereby
agrees that it may not make, and the Subordinated Creditor hereby agrees that it will not
accept, any Distribution with respect to the Subordinated Debt until the Senior Obligations
are Paid-In-Full, other than Permitted Subordinated Debt Payments subject, with respect to
any payment made while a Proceeding is pending in respect of any Obligor, to the terms of
Section 2(b) of this Agreement; provided that each Obligor and each Subordinated
Creditor further agrees that no Permitted Subordinated Debt Payment (other than a Permitted
Subordinated Debt Conversion) may be made by any Obligor or accepted by such Subordinated
Creditor if, at the time of such payment:

(A) such Subordinated Creditor shall have received a Senior Debt Default Notice
stating that a Senior Payment Default exists and such Senior Payment Default shall
not have been cured or waived; or

(B) (1) such Subordinated Creditor shall have received a Senior Debt Default
Notice stating that a Senior Non-Payment Default exists or would be created by the
making of such payment, (2) such Senior Non-Payment Default shall not have been
cured or waived and (3) 180 days shall not have elapsed since the date such Senior
Debt Default Notice was received.

(ii) The Obligors may resume making Permitted Subordinated Debt Payments (and may make
any Permitted Subordinated Debt Payments missed due to the application of Section 2(c)(i))
in respect of the Subordinated Debt or any judgment with respect thereto:

 

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(A) in the case of a Senior Payment Default referred to in Section
2(c)(i)(A), upon the earlier to occur of (1) a cure or waiver thereof or (2) the
expiration of such period of 180 days from the date such Senior Debt Default Notice
was received provided that no Senior Creditor shall have initiated an
Enforcement Action or Lien Enforcement Action on or before the expiration of such
180-day period; or

(B) in the case of a Senior Non-Payment Default referred to in Section
2(c)(i)(B), upon the earlier to occur of (1) the cure or waiver of such Senior
Non-Payment Default or (2) the expiration of such period of 180 days from the date
such Senior Debt Default Notice was received provided that no Senior
Creditor shall have initiated an Enforcement Action or Lien Enforcement Action on or
before the expiration of such 180-day period.

(iii) For the purposes of this Section 2(c), no Senior Debt Default shall be deemed to
have been waived unless and until the Obligors shall have received written confirmation
thereof from the Senior Agent.

(iv) In the event the Subordinated Creditor shall not have exercised the Permitted
Subordinated Debt Conversion on or before the maturity date of the Subordinated Debt and the
Subordinated Debt shall remain outstanding on such maturity date, so long as no Senior Debt
Default shall have occurred or be continuing (other than a Senior Debt Default resulting
from the failure to pay the Subordinated Debt on such maturity date) (A) the Obligors may
pay interest (including default interest, if any) to the Subordinated Creditor and (B) the
Senior Creditors shall use their commercially reasonable efforts, acting in good faith, to
reach an agreement with the Subordinated Creditor and the Senior Obligors to an amortization
schedule in respect of the principal portion of the Subordinated Debt.

(d) Subordinated Debt Standstill Provisions.

(i) Until the Senior Obligations are Paid-In-Full, the Subordinated Creditor shall not
take any Enforcement Action with respect to the Subordinated Debt.

Notwithstanding the foregoing, the Subordinated Creditor may file proofs
of claim against any Obligor and vote such claims in any Proceeding involving
such Obligor. Any Distributions or other proceeds of any Enforcement Action
obtained by the Subordinated Creditor shall in any event be held in trust by
it for the benefit of the Senior Agent and the other Senior Creditors and
promptly paid or delivered to the Senior Agent for the benefit of the Senior
Creditors in the form received until all Senior Obligations are Paid-In-Full.

(ii) Notwithstanding anything contained herein to the contrary, if following the
acceleration of the Senior Obligations by the Senior Creditors such acceleration is
rescinded (whether or not any existing Senior Debt Default has been cured or waived), then
all Enforcement Actions taken by the Subordinated Creditor shall likewise be rescinded if
such Enforcement Actions are based solely on the acceleration of the Senior Obligations.

(iii) Notwithstanding anything herein to the contrary, no provision herein shall
prevent the Subordinated Creditor from (i) taking any action described in clause (b) of the
definition of “Enforcement Action” strictly to the extent necessary to prevent any claim
becoming time-barred as a result of any applicable statute of limitation or similar
restriction on claims or (ii) seeking specific performance to compel the Obligors to comply
with an obligation under the Subordinated Debt Documents, so long as it is not accompanied
by a claim for monetary damages.

 

10

 

(e) Incorrect Payments. If any Distribution on account of the Subordinated Debt not
permitted to be made by any Obligor or accepted by the Subordinated Creditor under this Agreement
is made and received by the Subordinated Creditor, such Distribution shall be held in trust by such
Subordinated Creditor for the benefit of the Senior Agent and the other Senior Creditors and shall
be promptly paid over to the Senior Agent for application (in accordance with the Senior Debt
Documents) to the payment of the Senior Obligations then remaining unpaid, until all of the Senior
Obligations are Paid-In-Full.

(f) Subordination of Liens and Security Interests; Agreement Not to Contest. Until
the Senior Obligations have been Paid-In Full, any liens and security interests of the Subordinated
Creditor in the Obligor Collateral or that may exist in breach of such Subordinated Creditor’s
agreement pursuant to Section 3 or Section 4 of this Agreement or otherwise shall
be and hereby are subordinated for all purposes and in all respects to the liens and security
interests of the Senior Agent and the other Senior Creditors in the Obligor Collateral, regardless
of the time, manner or order of perfection of any such liens and security interests. The
Subordinated Creditor agrees that it will not at any time contest the validity, perfection,
priority or enforceability of the Senior Obligations, the Senior Debt Documents, or the liens and
security interests of the Senior Agent or any other Senior Creditor in the Collateral.

(g) Sale, Transfer or other Disposition of Subordinated Debt.

(i) The Subordinated Creditor shall not sell, assign, pledge, dispose of or otherwise
transfer all or any portion of the Subordinated Debt or any Subordinated Debt Document, or
any interest therein (provided that the Subordinated Creditor may pledge and create a
security interest its rights, title and interest in, to and under the Subordinated Debt and
one or more of Subordinated Debt Documents in favor Royal Bank of Canada, as administrative
agent (or any successor administrative agent) (“RBC”) in accordance with the $90
million senior credit agreement, dated as of April 26, 2007, as amended (the “RBC Credit
Facility”), by and among the Subordinated Creditor, the lenders party thereto and RBC)
(A) without giving prior written notice of such action to the Senior Agent, and (B) unless,
prior to the consummation of any such action, the transferee thereof (including, without
limitation, RBC in the event ownership of the Subordinated Creditor’s rights, title and
interest in, to and under such collateral is transferred to RBC in connection with the
exercise of RBC’s rights and remedies in respect of the RBC Credit Facility) shall execute
and deliver to the Senior Agent an agreement substantially identical to this Agreement,
providing for the continued subordination of the Subordinated Debt to the Senior Obligations
as provided herein and for the continued effectiveness of all of the rights of the Senior
Agent and the other Senior Creditors arising under this Agreement.

(ii) Notwithstanding the failure of any transferee to execute or deliver an agreement
substantially identical to this Agreement, the Subordinated Creditor shall ensure that the
subordination effected hereby survives any such prohibited sale, assignment, pledge,
disposition or other transfer of all or any portion of the Subordinated Debt, and the terms
of this Agreement shall be binding upon the successors and assigns of such Subordinated
Creditor, as provided in Section 16 hereof.

 

11

 

(h) Legends. Until the termination of this Agreement in accordance with Section 23
hereof, the Subordinated Creditor will cause to be clearly, conspicuously and prominently inserted
on the face of the Subordinated Credit Agreement, the Subordinated Debenture and each other
Subordinated Debt Document, the following legend:

“This document and the rights and obligations evidenced hereby are
subordinate in the manner and to the extent set forth in that certain
Subordination Agreement (the “Subordination Agreement”) dated as of
January 31, 2008 among ALLIS-CHALMERS ENERGY INC. (the “Subordinated
Creditor”), STANDARD BANK PLC, as the Senior Agent for the Senior
Creditors identified therein (the “Senior Agent”) and acknowledged by
BCH LTD, a corporation organized and existing under the laws of the Province
of Alberta, Canada (“BCH”) and BCH ENERGY DO BRASIL SERVIÇOS DE
PETRÓLEO LTDA., a company organized and existing under the laws of Brazil
(“BCH Brazil”, and together with BCH, collectively, the
“Obligors”), and BRAZALTA RESOURCES CORP., to all amounts (including
principal, interest and fees) owed by the Obligors pursuant to that certain
Credit Agreement dated as of June 26, 2007, among the Obligors, the Senior
Agent and the Senior Creditors, as such Credit Agreement (subject to the
terms of the Subordination Agreement) has been and hereafter may be amended,
supplemented, restated or otherwise modified from time to time; and each
holder of this document, by its acceptance hereof, irrevocably agrees to be
bound by the provisions of the Subordination Agreement. Notwithstanding
anything herein to the contrary, the lien and security interest, if any,
granted pursuant to this document and the exercise of any right or remedy by
the grantee hereunder are subject to the provisions of the Subordination
Agreement. In the event of any conflict between the terms of the
Subordination Agreement and this document, the terms of the Subordination
Agreement shall govern and control”

(i) Reliance. Other than any reliance on the terms of this Agreement, the Senior
Agent, on behalf of itself and the Senior Creditors under the Senior Debt Documents, acknowledges
that it and such Senior Creditors have, independently and without reliance on the Subordinated
Creditor, and based on documents and information deemed by them appropriate, made their own credit
analysis and decision to enter into such Senior Debt Documents and be bound by the terms of this
Agreement and they will continue to make their own credit decision in taking or not taking any
action under the Senior Debt Documents or this Agreement. The Subordinated Creditor acknowledges
that it has, independently and without reliance on the Senior Creditors, and based on documents and
information deemed by it appropriate, made its own credit analysis and decision to enter into each
of the Subordinated Debt Documents and be bound by the terms of this Agreement and it will continue
to make its own credit decision in taking or not taking any action under the Subordinated Debt
Documents or this Agreement

(j) Obligations Hereunder Not Affected. All rights and interest of the Senior
Creditors and the Senior Agent hereunder, and all agreements and obligations of the Subordinated
Creditor, and each Obligor and each other Senior Obligor, shall (subject in any case to
Sections 3(a) and 3(b)) remain in full force and effect irrespective of:

(i) any lack of validity or enforceability of any Senior Debt Documents or any
Subordinated Debt Documents, or any lack of perfection of any Lien held by the Senior Agent
or the Subordinated Creditor;

(ii) Except as otherwise expressly set forth in this Agreement, any change in the time,
manner or place of payment of, or any other term of, all or any of the Senior Obligations or
Subordinated Debt, or any other amendment or waiver or modification of the terms of any
Senior Debt Document or Subordinated Debt Document;

 

12

 

(iii) except as otherwise expressly set forth in this Agreement, any exchange of any
security interest in any Collateral or any other collateral, or any amendment, waiver or
other modification, whether in writing or by course of conduct or otherwise, of all or any
of the Senior Obligations or Subordinated Debt or any guarantee thereof;

(iv) any failure of any Senior Creditor or the Senior Agent to assert any claim or to
enforce any right or remedy against any other party hereto under the provisions of this
Agreement, the Senior Credit Agreement or any other Senior Debt Document;

(v) any reduction, limitation, impairment or termination of the Senior Obligations for
any reason (other than the defense of payment in full of the Senior Obligations), including
any claim of waiver, release, surrender, alteration or compromise, and shall not be subject
to (and each Obligor and Senior Obligor and each Subordinated Creditor hereby waive any
right to or claim of) any defense (other than the defense of payment in full of the Senior
Obligations) or setoff, counterclaim, recoupment or termination whatsoever by reason of
invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or
any other event or occurrence affecting, any Senior Obligations;

(vi) the commencement of any Insolvency or Liquidation Proceeding in respect of any
Obligor or Senior Obligor; and

(vii) any other circumstance which might otherwise constitute a defense (other than the
defense of payment in full of the Senior Obligations) available to, or a discharge of, any
Obligor or Senior Obligor or the Subordinated Creditor in respect of this Agreement.

This Agreement shall continue to be effective or be reinstated, as the case may be, if at any
time any payment of any of the Senior Obligations is rescinded or must otherwise be returned by any
Senior Creditor or the Senior Agent upon the insolvency, bankruptcy or reorganization of any
Obligor or Senior Obligor or otherwise, all as though such payment had not been made. The
Subordinated Creditor acknowledges and agrees that the Senior Creditors and the Senior Agent may in
accordance with the terms of the Senior Credit Agreement, without notice or demand and without
affecting or impairing the Subordinated Creditors’ obligations hereunder, but subject to
Sections 3(a) and 3(b), from time to time (i) renew, compromise, extend, increase,
accelerate or otherwise change the time for payment of, or otherwise change the terms of the Senior
Obligations or any part thereof, including, without limitation, to increase or decrease the rate of
interest thereon or the principal amount thereof; (ii) take or hold security for the payment of the
Senior Obligations and exchange, enforce, foreclose upon, waive and release any such security;
(iii) subject to compliance with applicable laws, apply such security and direct the order or
manner of sale thereof as the Senior Agent and the Senior Creditors in their sole discretion, may
determine; (iv) release and substitute one or more endorsers, warrantors, borrowers or other
obligors; and (v) exercise or refrain from exercising any rights against any Obligor or Senior
Obligor or any other Person.

(k) Permitted Subordinated Debt Conversion. Nothing in this Agreement shall prohibit
or restrict the Permitted Subordinated Debt Conversion by the Subordinated Creditor at any time.

 

13

 

Section 3. Lien Priorities.

(a) Relative Priorities. Notwithstanding the date, time, method, manner or order of
grant, attachment or perfection of any Liens securing the Subordinated Debt granted on the Obligor
Collateral or of any Liens securing the Senior Obligations granted on the Obligor Collateral and
notwithstanding any provision of the UCC, or any other applicable law or the Subordinated Debt
Documents or any defect or deficiencies in, or failure to perfect, the Liens securing the Senior
Obligations or any other circumstance whatsoever, the Subordinated Creditor hereby agrees that:

(i) any Lien on the Obligor Collateral securing any Senior Obligations now or hereafter
held by or on behalf of any Senior Creditor or any agent or trustee therefor, regardless of
how acquired, whether by grant, possession, statute, operation of law, subrogation or
otherwise, shall be senior in all respects and prior to any Lien on the Obligor Collateral
securing any Subordinated Debt;

(ii) any Lien on the Obligor Collateral securing any Subordinated Debt now or hereafter
held by or on behalf of the Subordinated Creditor or any agent or trustee therefor
regardless of how acquired, whether by grant, possession, statute, operation of law,
subrogation or otherwise, shall be junior and subordinate in all respects to all Liens on
the Obligor Collateral securing any Senior Obligations; and

(iii) all Liens on the Obligor Collateral securing any Senior Obligations shall be and
remain senior in all respects and prior to all Liens on the Obligor Collateral securing any
Subordinated Debt for all purposes, whether or not such Liens securing any Senior
Obligations are subordinated to any Lien securing any other obligation of the Obligors, any
other Senior Obligor or any other person.

(b) Prohibition on Contesting Liens. Each of the Subordinated Creditor, and the
Senior Agent, for itself and on behalf of each Senior Creditor, agrees that it will not (and hereby
waives any right to) contest or support any other person in contesting, in any proceeding
(including any Insolvency or Liquidation Proceeding), the priority, perfection, validity or
enforceability of a Lien held by or on behalf of any of the Senior Creditors in the Collateral or
by or on behalf of the Subordinated Creditor in the Obligor Collateral, as the case may be, or the
provisions of this Agreement; provided that nothing in this Agreement shall be construed to
prevent or impair the rights of the Senior Creditors to enforce this Agreement, including the
provisions of this Agreement relating to the priority of the Liens securing the Senior Obligations
as provided in Sections 3(a) and 4(a).

(c) No New Liens. So long as the Discharge of Senior Obligations has not occurred,
whether or not any Insolvency or Liquidation Proceeding has been commenced by or against any
Obligor or any Senior Obligor, the parties hereto and the Obligors and Senior Obligors agree that
the Obligors and Senior Obligors shall not grant or permit any additional Liens on any asset or
property to secure any Subordinated Debt unless it has granted or concurrently grants a Lien on
such asset or property to secure the Senior Obligations which shall be senior to the Lien securing
the Subordinated Debt as provided in Section 3(a).

To the extent that the foregoing provisions are not complied with for any reason, without
limiting any other rights and remedies available to the Senior Agent and/or the Senior Lenders, the
Subordinated Creditor agrees that any amounts received by or distributed to any of them pursuant to
or as a result of Liens granted in contravention of this Section 3(c) shall be subject to Section
5(b).

 

14

 

(d) Similar Liens and Agreements. The parties hereto agree that it is their intention
that the Obligor Collateral securing the Senior Obligations and the Subordinated Debt be identical
to the extent that the Obligor Collateral constitutes a Lien on (i) all right, title and interest
of BCH in, to and under
present and after-acquired real and personal property of BCH and (ii) all right, title and
interest of BCH Brazil in all insurance policies assigned to the Subordinated Creditor in
accordance with the Subordinated Debt Documents (it being understood and agreed that, other than
specifically identified in these clauses (i) and (ii), there shall exist no other Liens on the
Collateral in favor of the Subordinated Creditor for so long as this Agreement is in effect). In
furtherance of the foregoing and of Section 13(a), the parties hereto agree, subject to the other
provisions of this Agreement:

(i) upon request by the Senior Agent or the Subordinated Creditor, to cooperate in good
faith (and to direct their counsel to cooperate in good faith) from time to time in order to
determine the specific items included in the Obligor Collateral and the steps taken to
perfect their respective Liens thereon and the identity of the respective parties obligated
under the Senior Debt Documents and the Subordinated Debt Documents; and

(ii) that the documents and agreements creating or evidencing the Obligor Collateral,
subject to the final sentence of Section 7(a), shall be in all material respects the same
forms of documents other than with respect to the first lien and the second lien nature of
the Obligations thereunder.

Section 4. Enforcement

(a) Exercise of Remedies.

(i) Until the Discharge of Senior Obligations has occurred, whether or not any
Insolvency or Liquidation Proceeding has been commenced by or against any Obligor or Senior
Obligor, the Subordinated Creditor:

(A) will not exercise or seek to exercise any rights or remedies with respect
to any Obligor Collateral or take possession of, sell or otherwise realize
(judicially or non judicially) upon any of the Obligor Collateral (including,
without limitation, through the notification of account debtors or the exercise of
any right of setoff or any right under any lockbox agreement, account control
agreement, landlord waiver or bailee’s letter or similar agreement or arrangement to
which the Subordinated Creditor is a party) or institute any action or proceeding
with respect to such rights or remedies (including any action of foreclosure) (any
such action, a “Lien Enforcement Action);

(B) will not contest, protest or object to any foreclosure proceeding or action
brought by the Senior Agent or any Senior Creditor or any other exercise by the
Senior Agent or any Senior Creditor of any rights and remedies relating to the
Obligor Collateral under the Senior Debt Documents or otherwise; and

will not object to the forbearance by the Senior Agent or the Senior Creditors from bringing or
pursuing any foreclosure proceeding or action or any other exercise of any rights or remedies
relating to the Obligor Collateral.

(ii) Until the Discharge of Senior Obligations has occurred, whether or not any
Insolvency or Liquidation Proceeding has been commenced by or against any Obligor or Senior
Obligor, the Senior Agent and the Senior Creditors shall have the exclusive right to enforce
rights, exercise remedies (including set-off and the right to credit bid their debt) and
make determinations regarding the release, disposition, or restrictions with respect to the
Obligor Collateral without any consultation with or the consent of the Subordinated
Creditor. The Senior Agent shall provide at least five (5) days notice to the Subordinated
Creditor of its intent to

 

15

 

exercise and enforce its rights or remedies with respect to the Obligor Collateral. In
exercising rights and remedies with respect to the Obligor Collateral, the Senior Agent and
Senior Creditors may enforce the provisions of the Senior Debt Documents and exercise
remedies thereunder, all in such order and in such manner as they may determine in the
exercise of their sole discretion. Such exercise and enforcement shall include the rights
of an agent appointed by the Senior Agent or the Senior Creditors to sell or otherwise
dispose of Obligor Collateral upon foreclosure, to incur expenses in connection with such
sale or disposition, and to exercise all the rights and remedies of a secured creditor under
the UCC and of a secured creditor under Bankruptcy Laws of any applicable jurisdiction.

(iii) Notwithstanding the foregoing, the Subordinated Creditor may:

(A) file a claim or statement of interest with respect to the Subordinated
Debt; provided that an Insolvency or Liquidation Proceeding has been
commenced by or against any Obligor;

(B) take any action (not adverse to the priority status of the Liens on the
Obligor Collateral securing the Senior Obligations, or the rights of any Senior
Creditor to exercise remedies in respect thereof) in order to create, perfect,
preserve or protect its Lien on the Obligor Collateral;

(C) file any necessary responsive or defensive pleadings in opposition to any
motion, claim, adversary proceeding or other pleading made by any person objecting
to or otherwise seeking the disallowance of the claims of the Subordinated Creditor,
including any claims secured by the Obligor Collateral, if any, in each case in
accordance with the terms of this Agreement;

(D) vote on any plan of reorganization, file any proof of claim, make other
filings and make any arguments and motions that are, in each case, otherwise in
accordance with the terms of this Agreement, with respect to the Subordinated Debt;
and

(E) exercise any Lien Enforcement Action with respect to the Collateral after
the Discharge of the Senior Obligations.

The Subordinated Creditor agrees that it will not take or receive any Obligor Collateral or
any proceeds of Obligor Collateral in connection with the exercise of any Lien Enforcement Action
in its capacity as a creditor, unless and until the Discharge of Senior Obligations has occurred.
Without limiting the generality of the foregoing, unless and until the Discharge of Senior
Obligations has occurred, except as expressly provided in Section 4(a) and this Section 4(a)(iii),
the sole right of the Subordinated Creditor with respect to the Obligor Collateral is to hold a
Lien on the Obligor Collateral pursuant to the Subordinated Debenture for the period and to the
extent granted therein and to receive a share of the proceeds thereof, if any, after the Discharge
of Senior Obligations has occurred.

(iv) Subject to Sections 4(a)(i) and (iii):

(A) the Subordinated Creditor agrees that it will not take any action that
would hinder any exercise of remedies under the Senior Debt Documents or is
otherwise prohibited hereunder, including any sale, lease, exchange, transfer or
other disposition of the Obligor Collateral, whether by foreclosure or otherwise;

 

16

 

(B) the Subordinated Creditor hereby waives any and all rights it may have as a
junior lien creditor or otherwise to object to the manner in which the Senior Agent
or Senior Creditors seek to enforce or collect the Senior Obligations or the Liens
securing the Senior Obligations granted in any of the Senior Collateral undertaken
in accordance with this Agreement, regardless of whether any action or failure to
act by or on behalf of the Senior Agent or Senior Creditors is adverse to the
interest of the Subordinated Creditor; and

(C) the Subordinated Creditor hereby acknowledges and agrees that no covenant,
agreement or restriction contained in the Subordinated Debt Documents other than
this Agreement) shall be effective to restrict or deemed to restrict in any way the
rights and remedies of the senior Agent or the Senior Creditors with respect to the
Obligor Collateral as set forth in this Agreement and the Senior Debt Documents.

(v) Except as specifically set forth in Sections 4(a)(i) and (iv), the Subordinated
Creditor may exercise rights and remedies as unsecured creditors against the Obligors in
accordance with the terms of the Subordinated Debt Documents and applicable law; provided
that in the event that the subordinated Creditor becomes a judgment Lien creditor in respect
of Obligor Collateral as a result of its enforcement of its rights as an unsecured creditor
with respect to the Subordinated Debt, such judgment Lien shall be subject to the terms of
this Agreement for all purposes (including in relation to the Senior Obligations) as the
other Liens securing the Subordinated Debt are subject to this Agreement.

(vi) Except as specifically set forth in Sections 2, 4(a)(i) and (iv), nothing in this
Agreement shall prohibit the receipt by the Subordinated Creditor of the required payments
of interest, principal and other amounts owed in respect of the Subordinated Debt so long as
such receipt is not the direct or indirect result of the exercise by the Subordinated
Creditor of rights or remedies as a secured creditor (including set-off) or enforcement in
contravention of this Agreement of any Lien held by any of them. Nothing in this Agreement
impairs or otherwise adversely affects any rights or remedies the Senior Agent or the Senior
Creditors may have with respect to the Obligor Collateral.

Section 5. Payments.

(a) Application of Proceeds. So long as the Discharge of Senior Obligations has not
occurred, whether or not any Insolvency or Liquidation Proceeding has been commenced by or against
any Obligor or Senior Obligor, all Obligor Collateral or proceeds thereof received in connection
with the sale or other disposition of, or collection or realization on, such Obligor Collateral
upon the exercise of any rights or remedies by the Senior Agent or Senior Creditors, shall be
applied by the Senior Agent first to the Senior Obligations in such order as specified in the
relevant Senior Debt Documents. Upon the Discharge of Senior Obligations, any remaining Obligor
Collateral or proceeds thereof shall be delivered to the Subordinated Creditor in the same form as
received, with any necessary endorsements or as a court of competent jurisdiction may otherwise
direct to be applied by the Subordinated Creditor to the Subordinated Debt in such order as
specified in the Subordinated Debt Documents.

(b) Payments Over. So long as the Discharge of Senior Obligations has not occurred,
whether or not any Insolvency or Liquidation Proceeding has been commenced by or against the
Obligors or Senior Obligors, any Obligor Collateral or proceeds thereof received by the
Subordinated Creditor in connection with the exercise of any right or remedy (including set-off)
relating to the Obligor Collateral in contravention of this Agreement shall be segregated and held
in trust and forthwith paid over to the Senior Agent for the benefit of the Senior Creditors in the
same form as received, with any necessary
endorsements or as a court of competent jurisdiction may otherwise direct. The Senior Agent
is hereby authorized to make any such endorsements as agent for the Subordinated Creditor. This
authorization is coupled with an interest and is irrevocable until the Discharge of Senior
Obligations.

 

17

 

Section 6. Other Agreements.

(a) Releases.

(i) If in connection with the exercise of the Senior Agent’s rights and remedies in
respect of the Obligor Collateral provided for in Section 4(a)(ii), the Senior Agent, for
itself or on behalf of any of the Senior Creditors, releases any of its Liens on any part of
the Obligor Collateral or releases any guarantor from its obligations under its guarantee of
the Senior Obligations, then the Liens, if any, of the Subordinated Creditor on such Obligor
Collateral, and the obligations of such guarantor under its guarantee of the Subordinated
Debt, shall be automatically, unconditionally and simultaneously released without any action
on the part of the Subordinated Creditor . The Subordinated Creditor promptly shall execute
and deliver to the Senior Agent or such guarantor such termination statements, releases and
other documents as the Senior Agent or such guarantor may request to effectively confirm
such release.

(ii) If in connection with any sale, lease, exchange, transfer or other disposition of
any Obligor Collateral (collectively, a “Disposition”) permitted under the terms of
the Senior Debt Documents and the Subordinated Debt Documents (other than in connection with
the exercise of the Senior Agent’s rights and remedies in respect of the Obligor Collateral
provided for in Section 4(a)(ii)), the Senior Agent, for itself or on behalf of any of the
Senior Creditors, releases any of its Liens on any part of the Obligor Collateral, or
releases any guarantor from its obligations under its guarantee of the Senior Obligations,
in each case other than in connection with the Discharge of Senior Obligations, then the
Liens, if any, of the Subordinated Creditor , on such Obligor Collateral, and the
obligations of such guarantor under its guarantee of the Subordinated Debt, shall be
automatically, unconditionally and simultaneously released without any action on the part of
the Subordinated Creditor. The Subordinated Creditor promptly shall execute and deliver to
the Senior Agent or such guarantor such termination statements, releases and other documents
as the Senior Agent or such guarantor may request to effectively confirm such release.

(iii) Until the Discharge of Senior Obligations occurs, the Subordinated Creditor
hereby irrevocably constitutes and appoints the Senior Agent and any officer or agent of the
Senior Agent, with full power of substitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of the Subordinated Creditor in
the Senior Agent’s own name, from time to time in the Senior Agent’s discretion, for the
purpose of carrying out the terms of this Section 6, to take any and all appropriate action
and to execute any and all documents and instruments which may be necessary to accomplish
the purposes of this Section 6, including any endorsements or other instruments of transfer
or release.

(b) Insurance. Unless and until the Discharge of Senior Obligations has occurred, the
Senior Agent and the Senior Creditors shall have the sole and exclusive right, subject to the
rights of the Obligors under the Senior Debt Documents, to adjust settlement for any property or
casualty insurance policy covering the Obligor Collateral in the event of any loss thereunder and
to approve any award granted in any condemnation or similar proceeding (or any deed in lieu of
condemnation) affecting the Obligor Collateral. Unless and until the Discharge of Senior
Obligations has occurred, and subject to the rights of the Obligors under the Senior Debt
Documents, all proceeds of any such policy and any such award (or any payments with respect to a
deed in lieu of condemnation) if in respect to the Obligor

 

18

 

Collateral shall be paid to the Senior Agent for the benefit of the Senior Creditors pursuant
to the terms of the Senior Debt Documents and thereafter, to the extent no Senior Obligations are
outstanding, and subject to the rights of the Obligors under the Subordinated Debt Documents, to
the Subordinated Creditor to the extent required under the Subordinated Debt Documents and then, to
the extent no Subordinated Debt is outstanding, to the owner of the subject property, such other
person as may be entitled thereto or as a court of competent jurisdiction may otherwise direct.
Until the Discharge of Senior Obligations has occurred, if the Subordinated Creditor shall, at any
time, receive any proceeds of any such insurance policy or any such award or payment in
contravention of this Agreement, it shall segregate and hold in trust and promptly pay such
proceeds over to the Senior Agent in accordance with the terms of Section 6(b).

(c) No Waiver of Lien Priorities. No right of the Senior Agent, the Senior Creditors
or any of them to enforce any provision of this Agreement or any Senior Debt Document shall at any
time in any way be prejudiced or impaired by any act or failure to act on the part of any Obligor
or Senior Obligor or by any act or failure to act by any Senior Creditor or Senior Agent, or by any
noncompliance by any person with the terms, provisions and covenants of this Agreement, any of the
Senior Debt Documents or any of the Subordinated Debt Documents, regardless of any knowledge
thereof which the Senior Agent or the Senior Creditors, or any of them, may have or be otherwise
charged with.

(d) Purchase Rights. Without prejudice to the enforcement of the Senior Creditors’
remedies, the Senior Creditors agree that, within 30 days following receipt by the Subordinated
Creditor of a Senior Debt Default Notice in respect of a payment or bankruptcy default under the
Senior Credit Agreement or an acceleration of the Senior Obligations in accordance with the terms
of the Senior Credit Agreement, the Subordinated Creditor will have the option to purchase the
entire aggregate amount of outstanding Senior Obligations (including unfunded commitments under the
Senior Credit Agreement) at par plus any applicable prepayment premium, without warranty or
representation or recourse, on a pro rata basis across the Senior Creditors; provided that written
notice of the exercise of such purchase right shall have been provided to the Senior Agent and all
amounts payable in connection with such purchase shall have been paid in full within such 30-day
period. If the Subordinated Creditor elects to exercise such right, it shall be exercised pursuant
to documentation mutually acceptable to each of the Senior Agent and the Subordinated Creditor,
acting reasonably.

Section 7. Modifications.

(a) Modifications to Senior Debt Documents. The Senior Creditors may at any time and
from time to time without the consent of or notice to any Subordinated Creditor, without incurring
liability to the Subordinated Creditor and without impairing or releasing the obligations of the
Subordinated Creditor under this Agreement, change the manner or place of payment or extend the
time of payment of or renew or alter any of the terms of the Senior Obligations, or amend in any
manner any agreement, note, guaranty or other instrument evidencing or securing or otherwise
relating to the Senior Obligations. The Senior Debt Documents may be amended, supplemented or
otherwise modified in accordance with their terms and the Senior Credit Agreement may be
Refinanced, in each case, without notice to, or the consent of the Subordinated Creditor, all
without affecting the lien subordination or other provisions of this Agreement; provided, however,
that the holders of such Refinancing debt (or a duly authorized agent on their behalf) bind
themselves in a writing addressed to the Subordinated Creditor to the terms of this Agreement and
any such amendment, supplement, modification or Refinancing shall not, without the consent of the
Subordinated Creditor contravene the provisions of this Agreement. In the event any Senior
Creditor and the relevant Obligor enter into any amendment, waiver or consent in respect of any of
the Senior Debt Documents for the purpose of adding to, or deleting from, or waiving or consenting
to any departures from any provisions of, any Senior Debt Document relating to the Obligor
Collateral or changing in any manner the rights of the Senior Agent, the Senior Creditors, the
Obligors or
any other Senior Obligor thereunder, then such amendment, waiver or consent shall apply
automatically to any comparable provision of the comparable Subordinated Debt Document without the
consent of the Subordinated Creditor or any Obligor provided that no such amendment, waiver
or consent shall have the effect of removing assets subject to the Lien of the Subordinated Debt
Documents, except to the extent that a release of such Lien is permitted or required by Section
6(a) above.

 

19

 

(b) Modifications to Subordinated Debt Documents. Until the Senior Obligations have
been Paid-In-Full, and notwithstanding anything to the contrary contained in the Subordinated Debt
Documents, the Subordinated Creditor shall not, without the prior written consent of the Senior
Agent, agree to any amendment, modification or supplement to the Subordinated Debt Documents the
effect of which is to (i) increase the maximum principal amount of the Subordinated Debt or rate of
interest on any of the Subordinated Debt, (ii) change the dates upon which payments of principal or
interest on the Subordinated Debt are due, (iii) add any event of default or any covenant with
respect to the Subordinated Debt or make any change to any event of default or covenant which would
have the effect of making such event of default or covenant more restrictive, (iv) change any
redemption or prepayment provisions of the Subordinated Debt, (v) alter (or purport or attempt to
alter) the subordination provisions with respect to the Subordinated Debt, including, without
limitation, subordinating the Subordinated Debt to any other indebtedness, (vi) change any
collateral therefor (other than to release collateral), (vii) contravene the provisions of this
Agreement) or (viii) change or amend any other term of the Subordinated Debt Documents if such
change or amendment would result in a Senior Debt Default, increase the obligations of any Obligor
or confer additional material rights on such Subordinated Creditor or any other holder of the
Subordinated Debt in a manner adverse to any Obligor or Senior Obligor or the Senior Creditors.

Section 8. Representations and Warranties.

(a) Representations and Warranties of Subordinated Creditor. The Subordinated
Creditor hereby represents and warrants to the Senior Agent and the other Senior Creditors, as to
itself, that as of the date hereof: (i) the Subordinated Creditor has the power and authority to
enter into, execute, deliver and carry out the terms of this Agreement, all of which have been duly
authorized by all proper and necessary action; (ii) the execution of this Agreement by such
Subordinated Creditor will not violate or conflict with the organizational documents of such
Subordinated Creditor, any material agreement binding upon such Subordinated Creditor or any law,
regulation or order or require any consent or approval which has not been obtained; (iii) this
Agreement is the legal, valid and binding obligation of such Subordinated Creditor, enforceable
against such Subordinated Creditor in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors’ rights generally and by equitable principles; (iv) such
Subordinated Creditor is the sole owner, beneficially and of record, of the Subordinated Debt held
by it.

(b) Representations and Warranties of the Senior Agent. The Senior Agent hereby
represents and warrants to the Subordinated Creditor that as of the date hereof: (i) the Senior
Agent has the power and authority on its own behalf and on behalf of each Senior Creditor to enter
into, execute, deliver and carry out the terms of this Agreement, all of which have been duly
authorized by all proper and necessary action; (ii) the execution of this Agreement by the Senior
Agent will not violate or conflict with the organizational documents of the Senior Agent, any
material agreement binding upon the Senior Agent or any law, regulation or order or require any
consent or approval which has not been obtained; and (iii) this Agreement is the legal, valid and
binding obligation of the Senior Agent, enforceable against the Senior Agent in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally
or by equitable principles.

 

20

 

(c) No Warranties or Liability. The Senior Agent, on behalf of itself and the Senior
Creditors under the Senior Debt Documents, acknowledges and agrees that the Subordinated Creditor
has made no express or implied representation or warranty, including with respect to the execution,
validity, legality, completeness, collectibility or enforceability of any of the Subordinated Debt
Documents, the ownership of any Obligor Collateral or the perfection or priority of any Liens
thereon. Except as otherwise provided herein, the Subordinated Creditor will be entitled to manage
and supervise its respective loans and extensions of credit under the Subordinated Debt Documents
in accordance with law and as it may otherwise deem appropriate. Except as otherwise provided
herein, the Subordinated Creditor acknowledges and agrees that the Senior Agent and the Senior
Creditors have made no express or implied representation or warranty, including with respect to the
execution, validity, legality, completeness, collectibility or enforceability of any of the Senior
Debt Documents, the ownership of any Obligor Collateral or the perfection or priority of any Liens
thereon. Except as otherwise provided herein, the Senior Creditors will be entitled to manage and
supervise their respective loans and extensions of credit under their respective Senior Debt
Documents in accordance with law and as they may otherwise, in their sole discretion, deem
appropriate. The Subordinated Creditor shall have no duty to the Senior Agent and Senior
Creditors, and the Senior Agent and the Senior Creditors shall have no duty to the Subordinated
Creditor, to act or refrain from acting in a manner which allows, or results in, the occurrence or
continuance of an event of default or default under any agreements with the Obligors or Senior
Obligor or any other grantor or guarantor (including the Senior Debt Documents and the Subordinated
Debt Documents), regardless of any knowledge thereof which they may have or be charged with.

Section 9. Subrogation. Until all Senior Obligations have been Paid-In-Full, the
Subordinated Creditor shall be subrogated to the rights of the Senior Agent and the Senior
Creditors to receive Distributions with respect to the Senior Obligations until the Subordinated
Debt is paid in full. The Subordinated Creditor agrees that in the event that all or any part of a
payment made with respect to the Senior Obligations is recovered from the holders of the Senior
Obligations in a Proceeding or otherwise, any Distribution received by such Subordinated Creditor
with respect to the Subordinated Debt at any time after the date of the payment that is so
recovered, whether pursuant to the right of subrogation provided for in this Agreement or
otherwise, shall be deemed to have been received by such Subordinated Creditor in trust as property
of the holders of the Senior Obligations and such Subordinated Creditor shall forthwith deliver the
same to the Senior Agent for the benefit of the Senior Creditors for application to the Senior
Obligations until the Senior Obligations are Paid-In-Full. A Distribution made pursuant to this
Agreement to the Senior Agent or the Senior Creditors which otherwise would have been made to such
Subordinated Creditor is not, as between the Obligors and such Subordinated Creditor, a payment by
the Obligors to or on account of the Senior Obligations for purposes of determining whether a right
of subrogation exists hereunder. The Subordinated Creditor hereby agrees not to assert or enforce
all such rights of subrogation it may acquire as a result of any payment hereunder until the
Discharge of Senior Obligations has occurred. The Obligors and Senior Obligor acknowledge and
agree that the value of any payments or distributions in cash, property or other assets received by
the Subordinated Creditor that are paid over to the Senior Agent or Senior Creditors pursuant to
this Agreement shall not reduce any of the Subordinated Debt.

Section 10. Application of Payments. All payments received by the Senior Agent or the
Senior Creditors may be applied, in whole or in part, to such part of the Senior Obligations
provided for in the Senior Debt Documents. The Subordinated Creditor assents to any extension or
postponement of the time of payment of the Senior Obligations or any part thereof and to any other
indulgence with respect thereto, to any substitution, exchange or release of any security which may
at any time secure any part of the Senior Debt Obligations and to the addition or release of any
other person primarily or secondarily liable therefor.

 

21

 

Section 11. Specific Performance. The Senior Agent and each Senior Creditor may
demand specific performance of this Agreement. The Subordinated Creditor hereby irrevocably waives
any defense based on the adequacy of a remedy at law and any other defense which might be asserted
to bar the remedy of specific performance in any action which may be brought by the Senior Agent or
the Senior Creditors.

Section 12. Modification. Any modification or waiver of any provision of this
Agreement, or any consent to any departure by any party from the terms hereof, shall not be
effective in any event unless the same is in writing and signed by the Senior Agent and the
Subordinated Creditor, and then such modification, waiver or consent shall be effective only in the
specific instance and for the specific purpose given. Notwithstanding the foregoing, none of the
Senior Obligors shall have any right to consent to or approve any amendment, modification or waiver
of any provision of this Agreement except to the extent its rights are adversely affected. Any
notice to or demand on any party hereto in any event not specifically required hereunder shall not
entitle the party receiving such notice or demand to any other or further notice or demand in the
same, similar or other circumstances unless specifically required hereunder.

Section 13. Conditions Subsequent; Further Assurances.

(a) Each party to this Agreement promptly will execute and deliver such further instruments
and agreements and do such further acts and things as may be reasonably requested in writing by any
other party hereto that may be necessary or desirable in order to effect fully the purposes of this
Agreement.

(b) The continuing effectiveness of this Agreement is subject to the following conditions:

(i) Within 30 days of the date hereof, the parties hereto shall enter into a
subordination agreement to be governed by the laws of the Republic of Brazil, on
substantially the same terms as this Agreement and otherwise reasonably satisfactory to the
Senior Agent; and

(ii) Within 30 days of the date hereof, the parties hereto shall enter into a
subordination agreement to be governed by the laws of the Province of Alberta, Canada, on
substantially the same terms as this Agreement and otherwise reasonably satisfactory to the
Senior Agent.

Section 14. Notices. Unless otherwise specifically provided herein, any notice
delivered under this Agreement shall be in writing addressed to the respective party as set forth
below and may be personally served, telecopied or sent by overnight courier service or certified or
registered United States mail and shall be deemed to have been given (a) if delivered in person,
when delivered; (b) if delivered by telecopy, on the date of transmission (receipt electronically
confirmed) if transmitted on a Business Day before 12 p.m. Noon (New York City time) or, if not, on
the next succeeding business day; or (c) if delivered by overnight courier, one (1) business day
after delivery to such courier properly addressed.

Notices shall be addressed as follows:

If to the Senior Agent / Senior Lenders:

Standard Bank PLC, as Senior Agent

320 Park Avenue, 19th Floor

New York, NY 10022

 

22

 

USA

Attention: Malena Funegra

Tel: +1 (212) 407-5125

Fax: +1 (212) 407-5178

Email: malena.funegra@standardbank.com

With a copy to: Martin Revoredo

Tel:+1 (212) 407-5031

Fax: +1 (212) 407-5178

If to Allis-Chalmers Energy Inc.

Allis-Chalmers Energy Inc.

5075 Westheimer, Suite 890

Houston, Texas 77056

Attention: Theodore F. Pound III

Fax: 281.768.3891

Email: tpound@alchenergy.com

If to the Obligors or BRX:

c/o BrazAlta Resources Corp.

500, 816 – 7th Ave SW

Calgary, AB

T2P 1A1

Canada

Attention: Craig Nieboer

Tel: +1 (403) 237 9925

Fax: +1(403) 265 4160

E-mail: cnieboer@brazalta.com

or in any case, to such other address as the party addressed shall have previously designated by
written notice to the serving party, given in accordance with this Section 14.

Section 15. Several Obligations. The obligations of the Senior Creditors hereunder
are several, not joint, and no Senior Creditor shall be liable, directly or indirectly, for any act
or omission of any other Senior Creditor.

Section 16. Successors and Assigns. This Agreement shall inure to the benefit of, and
shall be binding upon, the respective successors and assigns of the Senior Agent, the Senior
Creditors, the Subordinated Creditor and each Obligor and Senior Obligor. To the extent permitted
under the Senior Debt Documents, the Senior Creditors may, from time to time, without notice to the
Subordinated Creditor, assign or transfer any or all of the Senior Obligations or any interest
therein to any Person and, notwithstanding any such assignment or transfer, or any subsequent
assignment or transfer, the Senior

 

23

 

Obligations shall, subject to the terms hereof, be and remain Senior Obligations for purposes
of this Agreement, and every permitted assignee or transferee of any of the Senior Obligations or
of any interest therein shall, to the extent of the interest of such permitted assignee or
transferee in the Senior Obligations, be entitled to rely upon and be the third party beneficiary
of the subordination provided under this Agreement and shall be entitled to enforce the terms and
provisions hereof to the same extent as if such assignee or transferee were initially a party
hereto. The Senior Agent shall give written notice to the Subordinated Creditor on a timely basis
as to any appointment of a successor Senior Agent.

Section 17. Relative Rights. This Agreement shall define the relative rights of the
Senior Agent, the Senior Creditors and the Subordinated Creditor. Nothing in this Agreement shall
(a) impair, as between the Obligors, the Senior Obligors and the Senior Agent and the Senior
Creditors and as between the Obligors and the Subordinated Creditor, the obligation of the Obligors
with respect to the payment of the Senior Obligations and the Subordinated Debt, as the case may
be, in accordance with their respective terms or (b) affect the relative rights of the Senior
Agent, the Senior Creditors or the Subordinated Creditors with respect to any other creditors of
the Obligors or Senior Obligors.

Section 18. No Third Party Beneficiaries. This Agreement and the rights and benefits
hereof shall inure to the benefit of each of the parties hereto and its respective successors and
assigns and shall inure to the benefit of each of the Senior Creditors and Subordinated Creditor.
None of the Senior Obligors shall have any rights hereunder and none of the Senior Obligors may
rely on any of the terms hereof.

Section 19. Conflict. In the event of any conflict between any term, covenant or
condition of this Agreement and any term, covenant or condition of any of the Subordinated Debt
Documents, the provisions of this Agreement shall control and govern.

Section 20. Headings. The paragraph headings used in this Agreement are for
convenience only and shall not affect the interpretation of any of the provisions hereof.

Section 21. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall constitute one and the
same instrument.

Section 22. Severability. In the event that any provision of this Agreement is deemed
to be invalid, illegal or unenforceable by reason of the operation of any law or by reason of the
interpretation placed thereon by any court or governmental authority, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby, and the affected provision shall be modified to the minimum extent permitted by
law so as most fully to achieve the intention of this Agreement.

Section 23. Continuation of Subordination; Termination of Agreement. This Agreement
shall remain in full force and effect until all of the Senior Obligations have been Paid-In-Full,
after which this Agreement shall terminate without further action on the part of the parties
hereto.

Section 24. Option and Governance Agreement; Pledged BCH Shares; Distributions to BRX.

(a) Notwithstanding anything in this Agreement, the Subordinated Creditor hereby agrees that
(i) the exercise of the Subordinated Creditor’s option to purchase from BRX the Equity Interests in
BCH held by or on behalf of BRX in accordance with the terms of the Option and Governance Agreement
(including without limitation the provisions of Article VIII thereof) shall not be permitted
without the prior written consent of the Senior Creditors, (ii) the ESOP Options and ESOP Shares
(each as defined in the Option and Governance Agreement) may not be repurchased by BCH without the prior written
consent of the Senior Creditors, (iii) no Option Notice (as defined in the Option and Governance
Agreement) shall be issued without the prior written consent of the Senior Creditors and (iv) no
Change in Control (as defined in the Senior Credit Agreement) shall occur as a result of the
operation of Article VIII or Section 10.2 of the Option and Governance Agreement without the prior
written consent of the Senior Creditors.

 

24

 

(b) Notwithstanding any provision to the contrary in any Subordinated Debt Document, none of
the Subordinated Debt Documents shall impair (i) the Lien and security interest of the Senior
Agent, for the benefit of the Senior Creditors, in BRX’s right, title and interest in, to and under
the equity interests of BCH pledged to the Senior Agent or (ii) the warrants issued by BCH to the
Senior Agent.

(c) Notwithstanding anything contained in this Agreement or in any Subordinated Debt Document,
no Distributions shall be made to BRX from any Obligor (including, without limitation,
Distributions pursuant to clause (b) or clause (c) of Section 9.1 of the Option and Governance
Agreement) without the prior written consent of the Senior Creditors.

Section 25. Applicable Law; Jurisdiction; Consent to Service of Process.

(a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE
LAWS OF ANOTHER JURISDICTION.

(b) Each party hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the non exclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally
agrees that all claims in respect of any such action or proceeding may be heard and determined in
such New York State court or, to the extent permitted by law, in such Federal court. Each party
hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

(c) Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it
may legally and effectively do so, any objection which it may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New
York State court or in any such Federal court. Each party hereto hereby irrevocably waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such
action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to service of process in the manner
provided for notices in Section 14. Nothing in this Agreement will affect the right of any party
to this Agreement to serve process in any other manner permitted by law.

Section 26. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT, BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 25.

 

25

 

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

[Remainder of page left blank intentionally]

 

26

 

SIGNATURES

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

	 	 	 	 	 
	 	STANDARD BANK PLC,

as the Senior Agent on behalf of itself and each other Senior Creditor

 	 
	 	By:  	/s/
Martin Revoreao	 
	 	 	Name:  	Martin Revoreao	 
	 	 	Title:  	Senior Vice President	 
	 
	 	By:  	/s/
Maria Elena Funegra	 
	 	 	Name:  	Maria Elena Funegra	 
	 	 	Title:  	Vice President	 
	 

	 	 	 	 	 
	 	ALLIS-CHALMERS ENERGY INC.,

as Subordinated Creditor

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

[Acknowledgment of Obligors and Senior Obligor follows]

 

 

 

Acknowledgment of Obligors and Senior Obligors

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

	 	 	 	 	 
	 	BCH LTD.

 	 
	 	By:  	/s/
Craig Nieboer	 
	 	 	Name:  	Craig Nieboer	 
	 	 	Title:  	Chief Financial Officer	 
	 
	 	BCH ENERGY DO BRASIL SERVIÇOS DE PETRÓLEO LTDA.

 	 
	 	By:  	/s/
Luiz Azevedo	 
	 	 	Name:  	Luiz Azevedo	 
	 	 	Title:  	Managing Director	 
	 
	 	BRAZALTA RESOURCES CORP.

 	 
	 	By:  	/s/
Craig Nieboer	 
	 	 	Name:  	Craig Nieboer	 
	 	 	Title:  	Chief Financial OfficerFiled by Bowne Pure Compliance

 

Exhibit 4.1

AMENDMENT NO. 3 TO RIGHTS AGREEMENT

This Amendment No. 3 to Rights Agreement (this “Amendment”) is entered into as of February 2,
2008 (to become effective on the date set forth in Section 5.0 of this Amendment), between Image
Entertainment, Inc., a Delaware corporation (the “Company”), and Computershare Trust Company, N.A.,
a Delaware corporation, as Rights Agent (the “Rights Agent”), and amends the Rights Agreement dated
as of October 31, 2005, between the Company and the Rights Agent, as amended by Amendment No. 1 to
the Rights Agreement dated as of March 29, 2007 and Amendment No. 2 to the Rights Agreement dated
as of June 25, 2007 (the “Rights Agreement”).

WHEREAS, this Amendment is entered into pursuant to Section 27 of the Rights Agreement prior
to the time that any Person, to the knowledge of the Company, has become an Acquiring Person.

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth,
the parties hereto agree as follows:

1.0 Defined Terms. Terms defined in the Rights Agreement and used and not otherwise defined
herein shall have the meanings given to them in the Rights Agreement.

2.0 Definition of Acquiring Person. The definition of “Acquiring Person” in Section 1 of the
Rights Agreement is hereby amended and restated in its entirety to read in full as follows:

“Acquiring Person” shall mean (i) any Person (as such term is hereinafter defined) who or
which, together with all Affiliates and Associates (as such terms are hereinafter defined) of such
Person, shall be the Beneficial Owner (as such term is hereinafter defined) of 15% or more of the
shares of Common Stock of the Company then outstanding, but shall not include the Company, any
Subsidiary (as such term is hereinafter defined) of the Company, any employee benefit plan of the
Company or any Subsidiary of the Company, or any entity holding shares of Common Stock of the
Company for or pursuant to the terms of any such plan. Notwithstanding the foregoing:

(i) no Person shall become an “Acquiring Person” as the result of an acquisition of shares of
Common Stock by the Company which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 15% or more of the shares of
Common Stock of the Company then outstanding; provided, however, that if a Person shall become the
Beneficial Owner of 15% or more of the shares of Common Stock of the Company then outstanding as a
result of any such acquisition of shares of Common Stock by the Company and shall, after such
acquisition of shares by the Company, become the Beneficial Owner of any additional shares of
Common Stock of the Company (other than as a result of a stock dividend, stock split or similar
transaction effected by the Company in which all holders of Common Stock of the Company are treated
equally) then such Person shall be deemed to be an “Acquiring Person” hereunder;

(ii) if the board of directors of the Company determines in good faith that a Person
who would otherwise be an “Acquiring Person” as defined pursuant to the provisions of
subparagraph (i), has become such inadvertently, and such Person divests as promptly as
practicable a sufficient number of shares of Common Stock of the Company so that such Person would
no longer be an “Acquiring Person,” then such Person shall not be deemed to be an “Acquiring
Person” for any purpose of this Agreement; and

 

1

 

(iii) with respect only to Image Investors Co., together with either their Affiliates or
Associates, all references to 15% in the definition of “Acquiring Person” shall instead be replaced
by 30%.

3.0 Definition of Business Day. The definition of “Business Day” in Section 1 of the Rights
Agreement is hereby amended and restated in its entirety to read in full as follows:

“Business Day” shall mean any day other than a Saturday, a Sunday, or a day on which the New
York Stock Exchange is required, permitted or authorized, by applicable law or executive order, to
be closed.”

4.0 Definition of Close of Business. The definition of “Close of Business” in Section 1 of the
Rights Agreement is hereby amended and restated in its entirety to read in full as follows:

“Close of Business” on any given date shall mean 5:00 p.m.. Eastern Time, on such date;
provided, however, that is such date is not a Business Day it shall mean 5:00 p.m., Eastern Time,
on the next succeeding Business Day.”

5.0 Deleted Definitions. Section 1 of the Rights Agreement is hereby amended to delete the
following definitions:

“Amended and Restated Merger Agreement” shall mean the Amended and Restated Agreement and Plan
of Merger made and entered into as of June 25, 2007, by and among Parent, Merger Sub and the
Company, as amended from time to time in accordance with its terms.”

“Amended and Restated Support Agreements” shall mean the Amended and Restated Support
Agreements dated as of June 25, 2007 by and between Parent and certain stockholders of the Company,
as amended from time to time in accordance with their terms.”

“Merger Sub” shall mean IEAC, Inc., a Delaware corporation and a wholly-owned subsidiary of
Parent.”

“Parent” shall mean BTP Acquisition Company, a Delaware limited liability company.”

“Securities Purchase Agreement” shall mean the Securities Purchase Agreement to be executed
and delivered by Parent and the Company immediately prior to the Effective Time (as such term is
defined in the Amended and Restated Merger Agreement), pursuant to which Parent will be entitled to
purchase from the Company, and the Company will agree to issue and sell to Parent, shares of common
stock of the Company and/or shares of series a convertible preferred stock of the Company.”

 

2

 

6.0 Amendment of Section 3. Paragraph (a) of Section 3 of the Rights Agreement is hereby
deleted in its entirety and is hereby replaced with the new Section 3(a) which reads as follows:

“Until the earlier of (i) the Close of Business on the tenth day after the Share Acquisition
Date (or such later date as may be determined by action of the board of directors of the Company)
and (ii) the Close of Business on the tenth day (or such later date as may be determined by action
of the Company’s board of directors prior to such time as any Person becomes an Acquiring Person
and of which later date the Company will give the Rights Agent prompt written notice) after the
date that a tender or exchange offer by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the Company or any Person
holding shares of Common Stock for or pursuant to the terms of any such plan) is commenced within
the meaning of Rule 14d-2(a) of the Exchange Act Regulations or of the first public announcement of
the intention of any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity holding shares of
Common Stock for or pursuant to the terms of any such plan) to commence a tender or exchange offer,
if upon consummation thereof such Person would be the Beneficial Owner of 30% or more of the shares
of Common Stock of the Company then outstanding (the earlier of the events described in (i) and
(ii) above being the “Distribution Date”), (x) the Rights will be evidenced (subject to the
provisions of Section 3(b)) by the certificates for shares of Common Stock of the Company
registered in the names of the holders thereof (which certificates shall also be deemed to be
Rights Certificates) and not by separate Rights Certificates, and (y) the right to receive Rights
Certificates will be transferable only in connection with the transfer of shares of Common Stock of
the Company. As soon as practicable after the Distribution Date, the Company will notify the
Rights Agent of the occurrence of the Distribution Date and the Company will prepare and execute,
the Rights Agent will countersign, and the Company will send or cause to be sent (and the Rights
Agent will, if requested and provided with all necessary information, send) by first-class,
insured, postage-prepaid mail, to each record holder of shares of Common Stock of the Company as of
the Close of Business on the Distribution Date, at the address of such holder shown on the records
of the Company, a Rights Certificate, in substantially the form of Exhibit B (a “Rights
Certificate”), evidencing one Right for each share of Common Stock so held. From and after the
Distribution Date, the Rights will be evidenced solely by such Rights Certificates. The Rights
Agent shall have no duty or obligation to take any action under any section of this Agreement which
requires the payment by a Rights holder of applicable taxes and governmental charges unless and
until the Rights Agent is satisfied that all such taxes and/or charges have been paid.
Notwithstanding the foregoing, with respect only to Image Investors Co., together with either their
Affiliates or Associates, all references to 15% in this Section 3(a) shall instead be replaced by
30%.”

7.0 Amendment of Section 7. Paragraph (a) of Section 7 of the Rights Agreement is hereby
deleted in its entirety and is hereby replaced with the new Section 7(a) which reads as follows:

“The registered holder of any Rights Certificate evidencing exercisable Rights may exercise
the Rights evidenced thereby (except as otherwise provided in this Agreement) in whole or in part
at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of
election to purchase and the related certification properly completed and duly executed, to the
Rights Agent at the office of the Rights Agent designated for such purpose, together with payment
of the Purchase Price for each Right being exercised (as such amount may
be reduced (including to zero) pursuant to Section 11(a)(iii)) and an amount equal to any
applicable transfer tax or charge required to be paid by the holder of such Rights Certificate in
accordance with Section 9 in cash, or by certified check, wire transfer or bank draft payable to
the order of the Company), at or prior to the earliest of (i) the Close of Business on the tenth
anniversary hereof (the “Final Expiration Date”), (ii) the time at which the Rights are redeemed as
provided in Section 23 (the “Redemption Date”), and (iii) the time at which such Rights are
exchanged as provided in Section 24 (the earliest of (i), (ii) and (iii) being the “Expiration
Date”).”

 

3

 

8.0 Amendment of Section 21. Section 21 of the Rights Agreement is hereby deleted in its
entirety and is hereby replaced with the new Section 21 which reads as follows:

“Change of Rights Agent. The Rights Agent or any successor Rights Agent may resign and
be discharged from its duties under this Agreement upon thirty days’ notice in writing mailed to
the Company and to each transfer agent of the Common Stock of the Company or Preferred Stock (as to
which the Rights Agent has received prior written notice) by registered or certified mail, and the
Company shall mail notice thereof to the holders of the Rights Certificates by first-class mail.
The Company may remove the Rights Agent or any successor Rights Agent upon thirty days’ notice in
writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each
transfer agent of the Common Stock or Preferred Stock (as to which the Rights Agent has received
prior written notice) by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. In the event the transfer agency relationship in effect between
the Company and the Rights Agent terminates, the Rights Agent will be deemed to resign
automatically on the effective date of such termination; and any required notice will be sent by
the Company. If the Rights Agent shall resign or be removed or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to
make such appointment within a period of thirty days after giving notice of such removal or after
it has been notified in writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit such
holder’s Rights Certificate for inspection by the Company), then the registered holder of any
Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new
Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United States or of any
state of the United States, in good standing, authorized under such laws to exercise corporate
trust or stock transfer powers, and subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to
the successor Rights Agent any property at the time held by it hereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for the purpose. Not later than the
effective date of any such appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock or Preferred Stock, and mail a
notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any
notice provided for in this Section 21, however, or any defect therein, shall not affect the
legality or validity of the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.”

 

4

 

9.0 Amendment of Section 24. Paragraph (a) of Section 24 of the Rights Agreement is hereby
deleted in its entirety and is hereby replaced with the new Section 24(a) which reads as follows:

The Company, at its option, upon approval by its board of directors, at any time after any
Person becomes an Acquiring Person, may exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become unexerciseable pursuant to the
provisions of Section 7(e) hereof) for Units of Preferred Stock at an exchange ratio equal to,
subject to adjustment to reflect stock splits, stock dividends and similar transactions occurring
after the date hereof, that number obtained by dividing the Purchase Price by the then Current Per
Share Market Price per Unit of Preferred Stock on the earlier of (i) the date on which any Person
becomes an Acquiring Person and (ii) the date on which a tender or exchange offer by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit plan maintained by the
Company or any of its Subsidiaries or any trustee or fiduciary with respect to such plan acting in
such capacity) is commenced within the meaning of Rule 14d-2(a) of the Exchange Act Regulations or
any successor rule, if upon consummation thereof such Person would be the Beneficial Owner of 15%
or more of the shares of Common Stock of the Company then outstanding (such exchange ratio being
hereinafter referred to as the “Section 24(a) Exchange Ratio”). Notwithstanding the foregoing,
with respect only to Image Investors Co., together with either their Affiliates or Associates, all
references to 15% in this Section 3(a) shall instead be replaced by 30%. Notwithstanding the
foregoing, the Company may not effect such exchange at any time after any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan maintained by the Company or any
of its Subsidiaries, or any trustee or fiduciary with respect to such plan acting in such
capacity), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the shares of Common Stock of the Company then outstanding.

10.0 Deletion of Section 35. Section 35 of the Rights Agreement is hereby deleted in its
entirety. amended and restated in its entirety to read as follows:

11.0 Amendment of Exhibit C.

11.1 The second paragraph of Exhibit C to the Rights Agreement is hereby amended and restated
in its entirety to read in fill as follows:

“Initially, the Rights will be attached to all common stock certificates representing shares
then outstanding and no separate Rights certificates will be distributed (the “Distribution Date”).
The Distribution Date will occur on the earlier of (i) ten days following a public announcement
that a person or group of affiliated or associated persons (an “Acquiring Person”) has (subject to
certain exceptions) acquired, or obtained the right to acquire, beneficial ownership of 15% or more
of the outstanding shares of our common stock (the “Share Acquisition Date”), other than as a
result of repurchases of stock by the Company, or (ii) ten days (or a later date that the board
shall determine) following the commencement of, or public announcement of an intention to make, a
tender offer or exchange offer that would result in a person or group beneficially owning 15% or
more of the outstanding shares of our common stock. Notwithstanding the foregoing, with respect
only to Image Investors Co., together with either their Affiliates or Associates, all references to
15% in this paragraph shall instead be replaced by 30%.”

 

5

 

11.2 The sixth paragraph of Exhibit C to the Rights Agreement is hereby amended and restated
in its entirety to read in fill as follows:

If an Acquiring Person becomes (subject to certain exceptions) the beneficial owner of 15% or
more of the then outstanding shares of common stock (other than pursuant to an offer for all the
outstanding shares of common stock that our board of directors determines to be fair to and
otherwise in the best interests of the Company and its stockholders), each holder of a Right will
thereafter have the right to receive, upon exercise, preferred stock (or, in certain circumstances,
cash, property or other securities of the company) having a value equal to two times the exercise
price of the Right. Notwithstanding the immediately preceding sentence, with respect only to Image
Investors Co., together with either their Affiliates or Associates, all references to 15% in such
sentence shall instead be replaced by 30%. If, at any time after the Stock Acquisition Date, (i) we
are acquired in a merger or other business combination transaction in which we are not the
surviving corporation, other than a merger that results from an offer for all the outstanding
shares of common stock that our board decides is fair and in the best interests of the Company and
its stockholders, or (ii) 50% or more of our assets, cash flow or earning power is sold or
transferred, each holder of a Right, except Rights which previously have been voided, will have the
right to receive, after exercise of the Right, common stock of the company that acquires us having
a value equal to two times the exercise price of the Right. The events described in this paragraph
are “Triggering Events.”

12.0 Effectiveness. Except as amended hereby, the Rights Agreement shall remain in full force and
effect and shall be otherwise unaffected hereby.

13.0 Miscellaneous. This Amendment shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in accordance with the
laws of such state. This Amendment may be executed in any number of counterparts, each of such
counterparts shall for all purposes be deemed an original and all such counterparts shall together
constitute but one and the same instrument. If any term, provision, covenant or restriction of
this Amendment is held by a court of competent jurisdiction or other authority to be invalid,
illegal, or unenforceable, the remainder of the terms, provisions, covenants and restrictions of
this Amendment shall remain in full force and effect and shall in no way be affected, impaired or
invalidated.

[signature page follows]

 

6

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to the Rights
Agreement to be duly executed as of the day and year first above written.

	 	 	 	 	 
	 	IMAGE ENTERTAINMENT, INC.

 	 
	 	By:  	/s/
Dennis Hohn Cho	 
	 	 	Name:  	Dennis Hohn Cho	 
	 	 	Title:  	Sr. Vice President & General Counsel	 
	 
	 	COMPUTERSHARE TRUST COMPANY, N.A.

 	 
	 	By:  	/s/
Kellie Gwinn	 
	 	 	Name:  	Kellie Gwinn	 
	 	 	Title:  	Vice President	 
	 

 

7

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