Document:

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EXHIBIT 10.4

Allis-Chalmers Energy Inc.

EMPLOYEE INCENTIVE STOCK OPTION AGREEMENT

Pursuant to the terms of the Allis-Chalmers Energy Inc. 2006 Incentive Plan

     1. Grant of Incentive Stock Option. Allis-Chalmers Energy Inc., a Delaware corporation
(“Company”), hereby grants to                                          (“Optionee”) the right, privilege and option
as herein set forth (the “Incentive Stock Option”) to purchase up to                                 shares (the
“Shares”) of common stock, $0.01 par value per share, of the Company (“Common Stock”), subject to
and in accordance with the terms and conditions of this document. This Employee Incentive Stock
Option Agreement (the “Agreement”) is dated as of                     . The Shares, when issued to
Optionee upon exercise of the Incentive Stock Option, shall be fully paid and nonassessable and the
Optionee (or the person permitted to exercise the Incentive Stock Option in the event of Optionee’s
death) shall be and have all the rights and privileges of a stockholder of record of the Company
with respect to the Shares acquired upon exercise of the Incentive Stock Option, effective upon
such exercise. The Incentive Stock Option is granted pursuant to and to implement in part the
Allis-Chalmers Energy Inc. 2006 Incentive Plan (as amended and in effect from time to time, the
“Plan”) and is subject to the provisions of the Plan, which is hereby incorporated herein and is
made a part hereof, as well as the provisions of this Agreement. By execution of this Agreement,
Optionee agrees to be bound by all of the terms, provisions, conditions and limitations of the Plan
as implemented by the Incentive Stock Option and this Agreement, together with all rules and
determinations from time to time issued by the Committee pursuant to the Plan. All capitalized
terms have the meanings set forth in the Plan unless otherwise specifically provided. All
references to specified paragraphs pertain to paragraphs of this Incentive Stock Option unless
otherwise provided. The Incentive Stock Option is intended to qualify as an “incentive stock
option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
“Code”).

     2. Option Terms. Subject to earlier termination as provided herein, the Incentive Stock
Option shall expire on the 10th anniversary of the date of grant of Incentive
Stock Option, which anniversary shall be                     . The period during which the Incentive Stock
Option is in effect is referred to as the “Option Period”.

     3. Option Exercise Price. The exercise price (the “Exercise Price”) of the Shares subject to
the Incentive Stock Option shall be $                     per Share which has been determined to be no less
than the Fair Market Value Per Share of the Common Stock on the date of grant of the Incentive
Stock Option or if the Optionee, at the date if grant, owned more than ten percent (10%) of the
total combined voting power of the Company’s voting securities, the Exercise Price has been
determined to be no less than one hundred ten percent (110%) of the Fair Market Value Per Share of
the Common Stock on that date of grant of the Incentive Stock Option.

     4. Vesting. Subject to the provisions of this Agreement including, without limitation, the
following provisions of this Paragraph 4, the total number of Shares subject to this Incentive
Stock Option shall vest and be exercisable only in accordance with the following schedule:

[schedule to be specified]

     The vested Shares that may be acquired under the Incentive Stock Option may be purchased, in whole
or in part, at any time after they become vested during the Option Period. In addition, upon the
occurrence of a Change in Control, to the extent provided in with Paragraph 8 below, the Incentive
Stock Option shall become immediately vested and fully exercisable.

 

 

     5. Method of Exercise. To exercise the Incentive Stock Option, Optionee shall deliver notice
to the Company at its principal executive office, directed to the Plan Administrator, such exercise
to be effective at the time of receipt of such notice at the Company’s principal executive office
during normal business hours, stating the number of Shares with respect to which the Incentive
Stock Option is being exercised together with payment for such Shares plus any required withholding
taxes, unless other arrangements for withholding tax liability have been made with the Committee.
The exercise notice shall be delivered in person, by certified or regular mail, or by such other
method (including electronic transmission) as determined from time to time by the Committee or the
Plan Administrator. Any exercise of the Incentive Stock Option must be for a minimum of one
hundred (100) Shares or, if less, for all remaining Shares subject to the Incentive Stock Option.

     6. Payment of Exercise Price and Required Withholding. In order to exercise the Incentive
Stock Option, the Optionee or other person or persons entitled to exercise such Incentive Stock
Option shall deliver to Company payment in full for (i) the Shares being purchased and (ii) unless
other arrangements have been made with the Committee, any required withholding taxes.

     The payment of the Exercise Price for the Incentive Stock Option shall either be:

     (i) in cash, or by check payable and acceptable to the Company;

     (ii) with the consent of the Committee, by tendering to Company Shares of Common Stock
owned by the person exercising the Incentive Stock Option for more than six (6) months
having an aggregate Fair Market Value as of the date of exercise that is not greater than
the full exercise price for the Shares with respect to which the Incentive Stock Option is
being exercised and by paying any remaining amount of the Exercise Price (and any required
withholding taxes) as provided in (i) above; or

     (iii) with the consent of the Committee and compliance with such instructions as the
Committee may specify, by delivering to the Company and to a broker a properly executed
exercise notice and irrevocable instructions to such broker to deliver to the Company cash
or a check payable and acceptable to the Company to pay the exercise price and any
applicable withholding taxes.

     Upon receipt of the cash or check from the broker, the Company will deliver to the
broker the Shares for which the Incentive Stock Option is exercised. In the event that the
person elects to make payment as allowed under clause (ii) of the immediately preceding
sentence, the Committee may, upon confirming that the Optionee owns the number of additional
Shares being tendered, authorize the issuance of a new certificate for the number of Shares
being acquired pursuant to the exercise of the Incentive Stock Option less that number of
Shares being tendered upon the exercise and return to the person (or not require surrender
of) the certificate for the Shares being tendered upon the exercise. The date of sale of the
Shares by the broker pursuant to a cashless exercise under (iii) above shall be the date of exercise of the Incentive Stock Option. If the Committee so
requires, such person or persons shall also deliver a written representation that all Shares
being purchased are being acquired for investment and not with a view to, or for resale in
connection with, any distribution of such Shares.

     7. Termination of Employment. Termination of Employment (defined below), Retirement (defined
below), death or Disability (defined below) of Optionee, shall affect Optionee’s rights under the
Incentive Stock Option as follows:

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     (a) Termination of Employment. If Employment (defined below) of Optionee is terminated
for any reason whatsoever other than death, Disability or Retirement, subject to the
provisions of this Section 7, any nonvested portion of the Incentive Stock Option
outstanding at the time of such termination and all rights thereunder shall wholly and
completely terminate and no further vesting shall occur, and Optionee shall be entitled to
exercise his or her rights with respect to the portion of the Incentive Stock Option vested
as of the date of termination for a period that shall end on the earlier of (i) the
expiration date set forth in the Incentive Stock Option with respect to the vested portion
of the Incentive Stock Option or (ii) the date that occurs three (3) months after such
termination date. For all purposes of this Agreement, “employment” means any period in
which a Participant is an Employee of the Company or an Affiliate.

     (b) Retirement. Upon the Retirement (defined below) of Optionee:

     (i) any nonvested portion of the Incentive Stock Option shall immediately
terminate and no further vesting shall occur; and

     (ii) any vested portion of the Incentive Stock Option shall expire on the
earlier of (A) the expiration of the Option Period; or (B) the expiration of three
(3) months after the date of Retirement.

For all purposes of this Agreement, “retirement” means termination of Employment of an
Employee under such circumstances as shall constitute retirement, as determined by the
Committee.

     (c) Disability or Death. Upon termination of Employment as a result of Disability or
death of Optionee or if Optionee retires and dies during the period described in Section
7(b)(ii) above (hereinafter the “Applicable Retirement Period”), or if the Optionee’s
Employment was terminated as a result of Disability and the Optionee dies during the period
that expires on the earlier of the expiration of the Option Period or the first anniversary
of the Optionee’s termination of Employment due to Disability (hereinafter the “Applicable
Disability Period”),

     (i) any nonvested portion of the Incentive Stock Option that has not already
terminated shall immediately terminate and no further vesting shall occur; and

     (ii) any vested portion of the Incentive Stock Option shall expire upon the
earlier of (A) the expiration of the Option Period or (B) the later of (1) the first
anniversary of such termination of Employment as a result of Disability or death, or
(2) the first anniversary of Optionee’s death during the Applicable Retirement
Period or the Applicable Disability Period.

For all purposes of this Agreement, “disability” means the Participant (i) is unable to
engage in any substantial gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to result in death or can be expected to last for
a continuous period of not less than twelve (12) months, or (ii) is, by reason of any
medically determinable physical or mental impairment which can be expected to result in
death or can be expected to last for a continuous period of not less than twelve (12)
months, receiving income replacement benefits for a period of not less than three (3) months
under an accident and health plan maintained by the Company or an Affiliate.

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     (d) Notwithstanding any other provision of the Incentive Stock Option, the Committee,
in its discretion, may provide for the continuation of the Incentive Stock Option for such
period and upon such terms and conditions as are determined by the Committee in the event
that the Optionee ceases to be an Employee.

     8. Change in Control.

     (a) Change in Control. In the event of a Change in Control described in clauses (a),
(b) or (c) of the definition of Change in Control under Section 2 of the Plan, if the
Company does not survive as an independent corporation (excluding as a subsidiary) and if
any surviving or successor corporation and its affiliates refuse to assume or continue the
Incentive Stock Option, then, effective immediately prior to such Change in Control, the
Incentive Stock Option shall be immediately vested and exercisable in full for its then
remaining term.

     (b) Right of Cash-Out. If approved by the Board prior to or within thirty (30) days
after such time as a Change in Control shall be deemed to have occurred, the Board shall
have the right for a forty-five (45) day period immediately following the date that the
Change in Control is deemed to have occurred to require Optionee to transfer and deliver to
Company the Incentive Stock Option in exchange for an amount equal to the “cash value”
(defined below) of the Incentive Stock Option. Such right shall be exercised by written
notice to Optionee. The cash value of the Incentive Stock Option shall equal the excess of
the “market value” (defined below) per Share over the Exercise Price, if any, multiplied by
the number of Shares subject to the Incentive Stock Option. For purposes of the preceding
sentence, “market value” per Share shall mean the higher of (i) the average of the Fair
Market Value per Share of Common Stock on each of the five (5) trading days immediately
following the date a Change in Control is deemed to have occurred or (ii) the highest price,
if any, offered in connection with the Change in Control. The amount payable to Optionee by
Company pursuant to this Paragraph 8(b) shall be in cash or by certified check and shall be
reduced by any taxes required to be withheld.

     9. Reorganization of Company and Subsidiaries. The existence of the Incentive Stock Option
shall not affect in any way the right or power of Company or its stockholders to make or authorize
any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s
capital structure or its business, or any merger or consolidation of Company or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Shares or the rights
thereof, or the dissolution or liquidation of Company, or any sale or transfer of all or any part
of its assets or business, or any other corporate act or proceeding, whether of a similar character
or otherwise.

     10. Adjustment of Shares. In the event of stock dividends, spin-offs of assets or other
extraordinary dividends, stock splits, combinations of shares, recapitalizations, mergers,
consolidations, reorganizations, liquidations, issuances of rights or warrants and similar
transactions or events involving Company, the Committee shall, in such manner as it may deem
equitable, make adjustments to the terms and provisions of this Incentive Stock Option.

     11. No Rights in Shares. Optionee shall have no rights as a stockholder in respect of Shares
until such Optionee becomes the holder of record of such Shares.

     12. Certain Restrictions. The certificate issued for the Shares subject to the restrictions
described in this Paragraph 12 may, in the Committee’s discretion, be issued with an appropriate
legend describing such restrictions, and the Committee may establish an escrow or

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other custodial arrangement for holding of the certificate by a person (other than Optionee)
selected by the Committee.

     By exercising the Incentive Stock Option, Optionee agrees that if at the time of such exercise
the sale of Shares issued hereunder is not covered by an effective registration statement filed
under the Securities Act of 1933 (“Act”), Optionee will acquire the Shares for Optionee’s own
account and without a view to resale or distribution in violation of the Act or any other
securities law, and upon any such acquisition Optionee will enter into such written
representations, warranties and agreements as Company may reasonably request in order to comply
with the Act or any other securities law or with this Agreement. Optionee agrees that Company shall
not be obligated to take any affirmative action in order to cause the issuance or transfer of
Shares hereunder to comply with any law, rule or regulation that applies to the Shares subject to
the Incentive Stock Option.

     13. Shares Reserved. Company shall at all times during the Option Period reserve and keep
available such number of Shares as will be sufficient to satisfy the requirements of this Incentive
Stock Option.

     14. Nontransferability of Option. The Incentive Stock Option evidenced by this Agreement is
not transferable other than by will, and the laws of descent and distribution. The Incentive Stock
Option will be exercisable during Optionee’s lifetime only by Optionee or by Optionee’s guardian or
legal representative. No right or benefit hereunder shall in any manner be liable for or subject to
any debts, contracts, liabilities, or torts of Optionee.

     15. Amendment and Termination. The Incentive Stock Option may not be terminated by the Board
or the Committee at any time without the written consent of Optionee. This Agreement may be
amended in writing by the Company and Optionee, provided the Company may amend this Agreement
unilaterally (i) if the amendment does not adversely affect the Optionee’s rights hereunder in any
material respect, (ii) if the Company determines that an amendment is necessary to comply with Rule
16b-3 under the Exchange Act or other applicable law, or (iii) if the Company determines that an
amendment is necessary to meet the requirements of the Code or to prevent adverse tax consequences
to the Optionee.

     16. No Guarantee of Employment. The Incentive Stock Option shall not confer upon Optionee any
right with respect to continuance of employment or other service with the Company or any Affiliate,
nor shall it interfere in any way with any right Company or any Affiliate would otherwise have to
terminate such Optionee’s employment or other service at any time.

     17. Notice of Disqualifying Disposition. If the Optionee sells or otherwise disposes of any
of the Shares acquired pursuant to the exercise of the Incentive Stock Option on or before the
later of (i) the date that is two (2) years after the date of grant of the Incentive Stock Option,
and (ii) the date that is one (1) year after the transfer of the Shares to the Optionee upon
exercise of the Incentive Stock Option, the Optionee shall make the information regarding such
disposition available to the Company upon the Company’s request.

     18. Withholding of Taxes. Any issuance of Common Stock pursuant to the exercise of the
Incentive Stock Option shall not be made until appropriate arrangements satisfactory to the Company
have been made for the payment of any tax amounts (federal, state, local or other) that may be
required to be withheld or paid by the Company with respect thereto at the minimum statutory rate.
Company shall have the right to take such action as may be necessary or appropriate to satisfy any
such tax withholding obligations.

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     19. No Guarantee of Tax Consequences. Neither Company nor any Affiliate nor the Board or
Committee makes any commitment or guarantee that any federal or state tax treatment will apply or
be available to any person eligible for the benefits under the Incentive Stock Option.

     20. Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in
paper format, Optionee agrees, to the fullest extent permitted by law, to accept electronic
delivery of any documents that the Company may be required to deliver
(including, but not limited to, prospectuses, prospectus supplements, grant or award notifications and
agreements, account statements, annual and quarterly reports, and all other forms of
communications) in connection with this and any other award made or offered by the Company.
Electronic delivery may be via a Company electronic mail system or by reference to a location on a
Company intranet to which Optionee has access. Optionee hereby consents to any and all procedures
the Company has established or may establish for an electronic signature system for delivery and
acceptance of any such documents that the Company may be required to deliver, and agrees that his
or her electronic signature is the same as, and shall have the same force and effect as, his or her
manual signature.

     21. Severability. In the event that any provision of the Incentive Stock Option shall be held
illegal, invalid, or unenforceable for any reason, such provision shall be fully severable, but
shall not affect the remaining provisions of the Incentive Stock Option, and the Incentive Stock
Option shall be construed and enforced as if the illegal, invalid, or unenforceable provision had
never been included herein.

     22. Governing Law. The Incentive Stock Option and this Agreement shall be construed in
accordance with the laws of the State of Delaware to the extent federal law does not supersede and
preempt Delaware law.

	 	 	 	 	 
	 	 	COMPANY:
	 
	 	 	 	 
	 	 	Allis-Chalmers Energy Inc.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 	 	Printed Name:
	 

	 	 	 	 

	 	 	Title:
	 

	 	 	 	 

	 
	 	 	 	 
	 	 	OPTIONEE:
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	(Signature)

Page 6exv10w5

 

EXHIBIT 10.5

Allis-Chalmers Energy Inc.

NON-EMPLOYEE DIRECTOR RESTRICTED STOCK AGREEMENT

Pursuant to the terms of the Allis-Chalmers Energy Inc. 2006 Incentive Plan

     1. Grant of Restricted Stock. Allis-Chalmers Energy Inc., a Delaware corporation
(“Company”), hereby awards to                                          (“Participant”) all rights, title and
interest in the record and beneficial ownership of                                 shares (the “Restricted Stock”) of
common stock, $0.01 par value per share, of the Company (“Common Stock”), subject to and in
accordance with the terms and conditions of this document. This Non-Employee Director Restricted
Stock Agreement (“Restricted Stock Agreement”) is dated as of                     . The Restricted Stock
is awarded pursuant to and to implement in part the Allis-Chalmers Energy Inc. 2006 Incentive Plan
(as amended and in effect from time to time, the “Plan”) and is subject to the restrictions,
forfeiture provisions and other terms and conditions of the Plan, which is hereby incorporated
herein and is made a part hereof, and this Restricted Stock Agreement. By execution of this
Restricted Stock Agreement, Participant agrees to be bound by all of the terms, provisions,
conditions and limitations of the Plan as implemented by this Restricted Stock Agreement, together
with all rules and determinations from time to time issued by the Committee pursuant to the Plan.
All capitalized terms have the meanings set forth in the Plan unless otherwise specifically
provided. All references to specified paragraphs pertain to paragraphs of this Restricted Stock
Agreement unless otherwise provided.

     2. Custody of Restricted Stock. The stock certificate(s) evidencing the Restricted Stock
shall be issued and registered on the Company’s books and records in the name of the Participant as
soon as practicable following the date of this Restricted Stock Agreement. The Company shall
retain physical possession and custody of each stock certificate representing the Restricted Stock
until such time as the Restricted Stock becomes vested, and the restrictions imposed thereon lapse,
in accordance with Paragraph 4 below. The Participant will deliver to the Company a stock power in
substantially the form of Exhibit A attached hereto, endorsed in blank, with respect to each award
of the Restricted Stock. Each stock certificate shall bear a restrictive legend in substantially
the following form:

The shares represented by this certificate have been issued pursuant to the terms of
the Allis-Chalmers Energy Inc. 2006 Incentive Plan (as amended and restated) and may
not be sold, pledged, transferred, assigned or otherwise encumbered in any manner
except as is set forth in the terms of the Restricted Stock Agreement dated
___, 200___.

     Upon the written request of the Participant following the vesting of any portion of the shares
of the Restricted Stock and the removal of any restrictions thereon in accordance with Paragraph 4
below, the Company will promptly issue a stock certificate, without such restrictive legend, with
respect to the vested portion of the shares of the Restricted Stock registered on the Company’s
books and records in the name of the Participant. Following the expiration of the Restricted
Period, the Company will promptly issue a stock certificate, without such restrictive legend, for
any shares of the Restricted Stock that have vested and with respect to which the restrictions
imposed thereon have lapsed to the extent a stock certificate has not previously been reissued
without a restrictive legend as provided in the preceding sentence.

     3. Risk of Forfeiture. Participant shall immediately forfeit all rights to any shares of the
Restricted Stock which have not vested and with respect to which the restrictions thereon have not
lapsed in the event of the termination, resignation, or removal of Participant from service as a
Non-Employee Director on the Company’s Board under circumstances that do not cause Participant to
become fully vested, and the restrictions on such shares of Restricted Stock to lapse, under the
terms of the Plan and this Restricted Stock Agreement.

 

 

     4. Restricted Period; Vesting. Subject to the provisions of this Restricted Stock Agreement
including, without limitation, the following provisions of this Paragraph 4, the total number of
shares subject to this Restricted Stock Agreement shall vest, and the restrictions imposed thereon
shall lapse, in accordance with the following schedule:

[schedule to be specified]

The period from the date hereof until the shares of the Restricted Stock have become one hundred
percent (100%) vested and the restrictions thereon have lapsed shall be referred to as the
“Restricted Period.”

          Upon the occurrence of a Change in Control, and to the extent provided in Paragraph 8 below,
all restrictions and conditions of the Restricted Stock shall automatically be waived without any
required action by the Company, Committee or the Board with the result that the shares of
Restricted Stock shall be fully vested and the restrictions thereon shall have lapsed.

     5. Transferability. During the Restricted Period, the Participant shall not sell, assign,
transfer, pledge, exchange, hypothecate, or otherwise dispose of any shares of the Restricted Stock
prior to vesting in accordance with Paragraph 4 above. Upon receipt by the Participant of stock
certificate(s) representing the vested shares without a restrictive legend pursuant to Paragraph 2
above, the Participant may hold or dispose of the shares represented by such certificate(s),
subject to compliance with (i) the terms and conditions of the Plan and this Restricted Stock
Agreement, (ii) applicable federal or state securities laws or other applicable law, (iii)
applicable rules of any exchange on which the Company’s securities are traded or listed, and (iv)
the Company’s rules or policies as established by the Company in its sole discretion.

     6. Ownership Rights. Prior to any forfeiture of the shares of Restricted Stock and while such
nonvested shares are restricted, the Participant shall, subject to the terms and restrictions of
this Restricted Stock Agreement and the Plan, have all rights with respect to the shares of
Restricted Stock awarded hereunder including the right to vote the shares of Restricted Stock,
whether or not vested in accordance with Paragraph 4 above, and the right to receive all dividends,
cash or stock, paid or delivered thereon from and after the date hereof in accordance with the
following provisions. During the Restricted Period, any dividends, cash or stock, paid or
delivered on any of the nonvested shares of the Restricted Stock, shall be credited to an account
for the benefit of the Participant. In the event of the forfeiture of any nonvested shares of the
Restricted Stock, the Participant shall have no further rights with respect to such Restricted
Stock and shall forfeit any dividends, cash or stock, credited to the account for the benefit of
the Participant which are related to the forfeited shares of Restricted Stock. To the extent the
shares of Restricted Stock shall become fully vested and the restrictions imposed thereon shall
lapse pursuant to Paragraph 4 above, all dividends, cash and stock, if any, credited to the account
for the benefit of the Participant shall be distributed not later than sixty (60) days after full
vesting of the shares on which the dividends are paid to the Participant without interest. Such
distribution shall occur as soon as practicable, but in no event later than the fifteenth
(15th) day of the third (3rd) month following the date on which vesting
occurs and the restrictions lapse.

     7. Termination of Service of Non-Employee Director.

     [The following will have two alternative provisions. The first alternative is similar to the
provision as included in the Employee Restricted Stock Agreement. The second alternative allows
the restricted stock to be fully vested upon a Director’s death, disability or retirement.]

Page 2 

 

     [Alternative One]

     If the Participant’s service as a Non-Employee Director on the Board is terminated for any
reason whatsoever including, without limitation, death, disability or retirement, any nonvested
shares of the Restricted Stock outstanding at the time of such termination and all rights
thereunder shall be forfeited and no further vesting shall occur, and the Company shall have the
right to repurchase or recover such shares for the amount of any cash paid therefor.

     [Alternative Two]

     The following provisions will apply in the event the Participant’s service as a Non-Employee
Director on the Board terminates before the expiration of the Restricted Period:

     (a) Termination Generally. If Participant’s service as a Non-Employee Director on the
Board terminates on or before the expiration of the Restricted Period for any reason other
than one of the reasons described in paragraphs (b) through (d) below, any nonvested shares
outstanding at the time of such termination and all rights thereunder shall be forfeited and
no further vesting shall occur, and the Company shall have the right to repurchase or
recover such shares for the amount of any cash paid therefor.

     (b) Death or Disability. If Participant’s service as a Non-Employee Director on the
Board terminates on or before the expiration of the Restricted Period as a result of the
Participant’s death or Disability (defined below), then upon the date of such termination of
service all nonvested shares of Restricted Stock shall be fully vested with the result that
all forfeiture restrictions will lapse and the Restriction Period shall be deemed to have
expired. For all purposes of this Agreement, “disability” means the Participant is unable
to engage in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than twelve (12) months.

     (c) Retirement. If Participant’s service as a Non-Employee Director on the Board
terminates on or before the expiration of the Restricted Period and before the expiration of
the term for which the Participant was elected to the Board (the “Term”) as a result of the
Participant’s Retirement, then upon the date of such termination of service all nonvested
            shares of Restricted Stock shall be fully vested with the result that all forfeiture
restrictions will lapse and the Restriction Period shall be deemed to have expired. For
purposes of this Restricted Stock Agreement, “Retirement” means the Participant’s voluntary
termination of service as a Non-Employee Director on or after the date the Participant
completes                      (___) years of service as a member of the Board.

     (d) Completion of Term. If prior to the expiration of the Restricted Period the
Participant completes the Term and as a result thereof the Participant’s service as a
Non-Employee Director on the Board terminates, then upon the last day of the Term all
nonvested shares of Restricted Stock shall be fully vested with the result that all
forfeiture restrictions will lapse and the Restricted Period shall be deemed to have
expired.

     8. Change in Control.

     (a) Change in Control. In the event of a Change in Control described in clauses (a),
(b) or (c) of the definition of Change in Control under Section 2 of the Plan,

Page 3 

 

if the Company does not survive as an independent corporation (excluding as a
subsidiary) and if any surviving or successor corporation and its affiliates refuse to
assume or continue the Restricted Stock Agreement, then, all restrictions and conditions of
all Restricted Stock then outstanding shall automatically be waived without any action
required by the Company, Committee or the Board with the result that the shares of
Restricted Stock shall be fully vested and all restrictions shall be deemed satisfied, and
the Restricted Period shall be deemed to have expired as of the date immediately prior to
the Change in Control.

     (b) Right of Cash-Out. If approved by the Board prior to or within thirty (30) days
after such time as a Change in Control shall be deemed to have occurred, the Board shall
have the right for a forty-five (45) day period immediately following the date that the
Change in Control is deemed to have occurred to require Participant to transfer and deliver
to Company all unvested shares of Restricted Stock hereunder with respect to which the
restrictions have not lapsed in exchange for an amount equal to the “cash value” (defined
below) of such shares of Restricted Stock. Such right shall be exercised by written notice
to Participant. The cash value of such shares of Restricted Stock shall equal the “market
value” (defined below) per share, multiplied by the number of unvested shares of Restricted
Stock hereunder with respect to which the restrictions have not lapsed. For purposes of the
preceding sentence, “market value” per share shall mean the higher of (i) the average of the
Fair Market Value per share of Common Stock on each of the five trading days immediately
following the date a Change in Control is deemed to have occurred or (ii) the highest price,
if any, offered in connection with the Change in Control. The amount payable to Participant
by Company pursuant to this Section 8(b) shall be paid in cash or by certified check and
shall be reduced by any taxes required to be withheld.

     9. Reorganization of Company and Subsidiaries. The existence of the Restricted Stock shall
not affect in any way the right or power of Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital
structure or its business, or any merger or consolidation of Company or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the shares of Restricted
Stock or the rights thereof, or the dissolution or liquidation of Company, or any sale or transfer
of all or any part of its assets or business, or any other corporate act or proceeding, whether of
a similar character or otherwise.

     10. Adjustment of Shares. In the event of stock dividends, spin-offs of assets or other
extraordinary dividends, stock splits, combinations of shares, recapitalizations, mergers,
consolidations, reorganizations, liquidations, issuances of rights or warrants and similar
transactions or events involving Company, the Committee shall, in such manner as it may deem
equitable, make adjustments to the terms and provisions of this Restricted Stock Agreement.

     11. Certain Restrictions. By executing this Restricted Stock Agreement, Participant agrees
that if at the time of delivery of certificates for the shares of Restricted Stock issued hereunder
any sale of such shares of Common Stock is not covered by an effective registration statement filed
under the Securities Act of 1933 (“Act”), the certificates so delivered may contain such legends as
the Company shall require and the Participant will acquire the shares of Restricted Stock for
Participant’s own account and without a view to resale or distribution in violation of the Act or
any other securities law, and upon any such acquisition Participant will enter into such written
representations, warranties and agreements as Company may reasonably request in order to comply
with the Act or any other securities law or with this Restricted Stock Agreement. Participant
agrees that the Company shall not be obligated to take any affirmative action in order to cause the
issuance or transfer of shares of Restricted Stock hereunder to

Page 4 

 

comply with any law, rule or regulation that applies to the shares of Restricted Stock subject
to this Restricted Stock Agreement.

     12. Amendment and Termination. This Restricted Stock Agreement may not be terminated by the
Board or the Committee at any time without the written consent of Participant. This Restricted
Stock Agreement may be amended in writing by the Company and Participant, provided the Company may
amend this Restricted Stock Agreement unilaterally (i) if the amendment does not adversely affect
the Participant’s rights hereunder in any material respect, (ii) if the Company determines that an
amendment is necessary to comply with Rule 16b-3 under the Exchange Act or other applicable law, or
(iii) if the Company determines that an amendment is necessary to meet the requirements of the Code
or to prevent adverse tax consequences to the Participant. No amendment or termination of the Plan
will adversely affect the rights and privileges of Participant under this Restricted Stock
Agreement or to the Restricted Stock granted hereunder without the written consent of Participant.

     13. No Guarantee of Board Membership. Neither this Restricted Stock Agreement nor the award
of Restricted Stock evidenced hereby shall confer upon Participant any right with respect to
continuance of Board service or other service with the Company or any Affiliate, nor shall it
interfere in any way with any right the Company or any Affiliate would otherwise have to terminate
such Participant’s Board membership or other service at any time.

     14. Tax Matters.

     (a) Company shall have the right to (i) make deductions from the number of shares of
Restricted Stock otherwise deliverable upon vesting of the Restricted Stock and satisfaction
of the conditions precedent under this Restricted Stock Agreement in an amount sufficient to
satisfy withholding of any federal, state or local taxes required by law, or (ii) take such
other action as may be necessary or appropriate to satisfy any such tax withholding
obligations.

     (b) Under Section 83 of the Internal Revenue Code of 1986, as amended (the “Code”), the
difference between the purchase price paid, if any, for the shares of Restricted Stock and
their fair market value on the date of vesting when any forfeiture restrictions applicable
to such shares lapse will be reportable as ordinary income at that time. For this purpose,
“forfeiture restrictions” include the Company’s rights to reacquire the shares of the
unvested Restricted Stock described above. Participant may elect to be taxed at the
effective time of this award when the shares are acquired rather than when such shares vest
and cease to be subject to such forfeiture restrictions by filing an election under Section
83(b) of the Code with the Internal Revenue Service within thirty (30) days after the date
hereof. If such an election is made, Participant will have to make a tax payment to the
extent the purchase price, if any, is less than the fair market value of the shares on the
date hereof. No tax payment will have to be made to the extent the purchase price, if any,
is at least equal to the fair market value of the shares on the date hereof. Failure to
make this filing within the thirty (30) day period will result in the recognition of
ordinary income by you as the shares of Restricted Stock vest and the forfeiture
restrictions lapse.

     PARTICIPANT ACKNOWLEDGES THAT IT IS PARTICIPANT’S SOLE RESPONSIBILITY, AND NOT THE
COMPANY’S, TO FILE A TIMELY ELECTION UNDER SECTION 83(b) IF PARTICIPANT ELECTS TO DO SO,
EVEN IF PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON
PARTICIPANT’S BEHALF. PARTICIPANT MUST AND IS RELYING SOLELY ON PARTICIPANT’S OWN ADVISORS
WITH RESPECT TO THE DECISION AS TO WHETHER OR NOT TO FILE ANY SECTION 83(b) ELECTION.

Page 5 

 

     (c) Neither Company nor the Board or Committee makes any commitment or guarantee that
any federal or state tax treatment will apply or be available to any person eligible for the
benefits under this Restricted Stock Agreement.

     15. Community Interest of Spouse. The community interest, if any, of any spouse of
Participant in any Restricted Stock shall be subject to all of the terms, conditions and
restrictions of this Restricted Stock Agreement and the Plan.

     16. Consent to Electronic Delivery; Electronic Signature. In lieu of receiving documents in
paper format, Participant agrees, to the fullest extent permitted by law, to accept electronic
delivery of any documents that the Company may be required to deliver (including, but not limited
to, prospectuses, prospectus supplements, grant or award notifications and agreements, account
statements, annual and quarterly reports, and all other forms of communications) in connection with
this and any other award made or offered by the Company. Electronic delivery may be via a Company
electronic mail system or by reference to a location on a Company intranet to which Participant has
access. Participant hereby consents to any and all procedures the Company has established or may
establish for an electronic signature system for delivery and acceptance of any such documents that
the Company may be required to deliver, and agrees that his or her electronic signature is the same
as, and shall have the same force and effect as, his or her manual signature.

     17. Severability. In the event that any provision of this Restricted Stock Agreement shall be
held illegal, invalid, or unenforceable for any reason, such provision shall be fully severable,
but shall not affect the remaining provisions of this Restricted Stock Agreement, and this
Restricted Stock Agreement shall be construed and enforced as if the illegal, invalid, or
unenforceable provision had never been included herein.

     18. Governing Law. This Restricted Stock Agreement shall be construed in accordance with the
laws of the State of Delaware to the extent federal law does not supersede and preempt Delaware
law.

	 	 	 	 	 
	 	 	COMPANY:
	 
	 	 	 	 
	 	 	Allis-Chalmers Energy Inc.
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 	 	Printed Name:
	 

	 	 	 	 

	 	 	Title:
	 

	 	 	 	 

	 
	 	 	 	 
	 	 	PARTICIPANT:
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	 	 	(Signature)

Page 6 

 

Exhibit A

Assignment Separate from Certificate

FOR VALUE RECEIVED,                                          hereby sells, assigns and transfers unto
Allis-Chalmers Energy Inc., a Delaware corporation (the “Company”),                                         
(                    ) shares of common stock of the Company represented by Certificate No.                      herewith and does hereby irrevocably constitute and appoint ___,
or his designee or successor, attorney to transfer the said stock on the books of the Company with
full power of substitution in the premises.

Dated:                                         , 20___.

	 	 	 
	 

	 	 
	 

	 	Signature

Spouse Consent (if applicable)

                     (Participant’s spouse) indicates by the execution of this Assignment his or
her consent to be bound by the terms of the Restricted Stock Agreement as to his or her interests,
whether as community property or otherwise, if any, in the shares of common stock of the Company.

	 	 	 
	 

	 	 
	 

	 	Signature

INSTRUCTIONS: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. THE PURPOSE OF THIS
ASSIGNMENT IS TO ENABLE THE COMPANY TO EXERCISE ITS “REPURCHASE OPTION” SET FORTH IN THE RESTRICTED
STOCK AGREEMENT WITHOUT REQUIRING ADDITIONAL SIGNATURES ON THE PART OF THE PARTICIPANT.

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