Table of Contents

Delaware		1389		39-0126090
(State or other jurisdiction of		(Primary Standard Industrial		(I.R.S. Employer
incorporation or organization)		Classification Code Number)		Identification No.)

5075 Westheimer, Suite 890 Houston, Texas 77056 (713) 369-0550 (Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)		Victor M. Perez Chief Financial Officer 5075 Westheimer, Suite 890 Houston, Texas 77056 (713) 369-0550 (Name, address, including zip code, and telephone number, including area code, of agent for service)

						Proposed Maximum			Proposed Maximum
Title of Each Class of			Amount to be			Offering Price Per			Aggregate Offering			Amount of
Securities to be Registered			Registered			Unit(1)			Price(1)			Registration Fee(1)
9.0% Senior Notes due 2014			$255,000,000			100%			$255,000,000			$27,285(2)
Guarantees of 9.0% Senior Notes due 2014(3)			—			—			—			—
Total			$255,000,000			100%			$255,000,000			$27,285(2)

(1)	The registration fee was calculated pursuant to Rule 457(f) under the Securities Act of 1933. For purposes of this calculation, the offering price per note was assumed to be the stated principal amount of each original note that may be received by the registrant in the exchange transaction in which the notes will be offered.
(2)	Such amount was previously paid. Of such amount, $4,471 was previously paid in connection with unsold securities registered under Registration No. 333-133874 initially filed on May 8, 2006 by the registrant hereunder (which such amount was offset against the total filing fee paid for this registration statement pursuant to Rule 457(p) of the General Rules and Regulations under the Securities Act of 1933, as amended).
(3)	No separate consideration will be received for the Guarantees, and, therefore, no additional registration fee is required.

---

Table of Contents

State or Other

Primary Standard

I.R.S.

Jurisdiction of

Industrial

Employer

Exact Name of Co-Registrant as

Incorporation or

Classification

Identification

Specified in its Charter

Organization

Code Number

Number

AirComp L.L.C.

Delaware

1389

01-0784140

Allis-Chalmers GP, LLC

Delaware

1389

20-4002547

Allis-Chalmers LP, LLC

Delaware

1389

20-4002534

Allis-Chalmers Management, LP

Texas

1389

20-4002561

Allis-Chalmers Production Services, Inc.

Texas

1389

75-2956148

Allis-Chalmers Rental Tools, Inc.

Texas

1389

74-2005637

Allis-Chalmers Tubular Services, Inc.

Texas

1389

74-2212869

Mountain Compressed Air, Inc.

Texas

1389

84-1574665

OilQuip Rentals, Inc.

Delaware

1389

76-0632145

Rogers Oil Tool Services, Inc.

Louisiana

1389

72-0849723

Strata Directional Technology, Inc.

Texas

1389

76-0490913

Target Energy, Inc.

Delaware

1389

52-2259046

---

Table of Contents

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

	•	The terms of the new notes will be substantially identical to the old notes, except that the new notes will not be subject to transfer restrictions or registration rights relating to the old notes. The new notes will represent the same debt as the old notes, and will be issued under the same indenture.
	•	The old notes are, and the new notes will be, guaranteed on a senior unsecured basis by all of our current and future domestic restricted subsidiaries, other than certain immaterial subsidiaries. The old notes are not, and the new notes will not be, guaranteed by our current or future foreign subsidiaries.
	•	Interest on the new notes will accrue from July 15, 2006 at the rate of 9.0% per annum, payable on January 15 and July 15 of each year, beginning on January 15, 2007.
	•	We will exchange an equal principal amount of all old notes for new notes that you validly tender and do not validly withdraw before the exchange offer expires. We do not currently intend to extend the exchange offer.
	•	You may withdraw tenders of the old notes at any time prior to the expiration of the exchange offer.
	•	The exchange of old notes for new notes will not be a taxable event for United States federal income tax purposes.
	•	We will not receive any proceeds from this exchange offer.
	•	There is no existing market for the new notes to be issued, and we do not intend to apply for their listing on any securities exchange or arrange for them to be quoted on any quotation system.

---

 

About This Prospectus			i
Special Note Regarding Forward-Looking Statements			ii
Non-GAAP Financial Measures			ii
Industry and Market Data			iii
Definitions			iii
Where You Can Find More Information			iv
Prospectus Summary			1
Risk Factors			14
Use of Proceeds			32
Unaudited Pro Forma As Adjusted Consolidated Financial Information			33
Selected Historical Consolidated Financial Information			43
Management’s Discussion and Analysis of Financial Condition and Results of Operations			45
Our Business			67
Our Management			83
Certain Relationships and Related Transactions			92
Security Ownership of Certain Beneficial Owners and Management			93
Description of Other Indebtedness			95
The Exchange Offer			97
Description of Notes			106
Material U.S. Federal Income Tax Considerations			156
Plan of Distribution			161
Legal Matters			162
Experts			162
Index to Financial Statements			F-1
Consent of UHY Mann Frankfort Stein & Lipp CPAs, LLP
Consent of Gordon, Hughes and Banks, LLP
Consent of Wright, Moore, Dehart, Dupuis & Hutchinson, LLC
Consent of Curtis Blakely & Co., PC
Consent of Accounting & Consulting Group, LLP
Consent of UHY Mann Frankfort Stein & Lipp CPAs, LLP
Consent of Sibille

i

---

Table of Contents

	•	does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
	•	does not reflect changes in, or cash requirements for, our working capital needs;
	•	does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and
	•	does not reflect the effect of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations.

ii

---

Table of Contents

“air drilling”		A technique in which oil, natural gas, or geothermal wells are drilled by creating a pressure within the well that is lower than the reservoir pressure. The result is increased rate of penetration, reduced formation damage, and reduced drilling costs.
“blow-out preventors”		A large safety device placed on the surface of an oil or natural gas well to control high pressure well bores.
“booster”		A machine that increases the pressure and/or volume of air when used in conjunction with a compressor or a group of compressors.
“capillary tubing”		A small diameter tubing installed in producing wells and through which chemicals are injected to enhance production and reduce corrosion and other problems.
“casing”		A pipe placed in a drilled well to secure the well bore and formation.
“choke manifolds”		An arrangement of pipes, valves and special valves on the rig floor that controls pressure during drilling by diverting pressure away from the blow-out preventors and the annulus of the well.
“coiled tubing”		A small diameter tubing used to service producing and problematic wells and to work in high pressure applications during drilling, production and workover operations.
“directional drilling”		The technique of drilling a well while varying the angle of direction of a well and changing the direction of a well to hit a specific target.
“double studded adapter”		A device that joins two dissimilar connections on certain equipment, including valves, piping, and blow out preventors.
“drill pipe”		A pipe that attaches to the drill bit to drill a well.
“heavy weight spiral drill pipe”		A heavy drill pipe used for special applications primarily in directional drilling. The ‘spiral’ design increases flexibility and penetration of the pipe.

iii

---

Table of Contents

“horizontal drilling”		The technique of drilling wells at a 90-degree angle.
“laydown machines”		A truck mounted machine used to move drill pipe, casing and tubing onto a pipe rack (from which a derrick crane lifts the drill pipe, casing and tubing and inserts it into the well).
“mist pump”		A drilling pump that uses mist as the circulation medium for injecting small amounts of foaming agent, corrosion agent and other chemical solutions into the well.
“spacer spools”		High pressure connections which are stacked to elevate the blow-out preventors to the drilling rig floor.
“straight hole drilling”		The technique of drilling that allows very little or no vertical deviation.
“test plugs”		A device used to test the connections of well heads and blow-out preventors.
“torque turn service” or “torque turn equipment”		A monitoring device to insure proper makeup of the casing.
“tubing”		A pipe placed inside the casing to allow the well to produce.
“tubing work strings”		The tubing used on workover rigs through which high pressure liquids, gases or mixtures are pumped into a well to perform production operations.
“wear bushings”		A device placed inside a wellhead to protect the wellhead from wear.

iv

---

Table of Contents

1

---

Table of Contents

2

---

Table of Contents

3

---

Table of Contents

4

---

Table of Contents

5

---

Table of Contents

6

---

Table of Contents

7

---

Table of Contents

8

---

Table of Contents

9

---

Table of Contents

10

---

Table of Contents

11

---

Table of Contents

12

---

Table of Contents

13

---

Table of Contents

	We may fail to acquire additional businesses, which will restrict our growth and may have a material adverse effect on our ability to meet our obligations under the notes.

	•	our ability to obtain financing;
	•	the competitive environment for acquisitions; and
	•	the integration and synergy issues described in the next risk factor.

	Difficulties in integrating acquired businesses may result in reduced revenues and income.

14

---

Table of Contents

	We anticipate that our recent acquisition of DLS will substantially change the nature of our operations and business.

	Failure to maintain effective disclosure controls and procedures and/or internal controls over financial reporting could have a material adverse effect on our operations.

15

---

Table of Contents

	•	we are not successful in improving our financial reporting process, our disclosure controls and procedures and/or our internal controls over financial reporting;
	•	we identify deficiencies and/or one or more material weaknesses in our internal controls over financial reporting; or
	•	we are not successful in integrating acquired businesses (such as DLS) into our consolidated company’s system of disclosure controls and procedures and internal controls over financial reporting,

16

---

Table of Contents

	The loss of key executives would adversely affect our ability to effectively finance and manage our business, acquire new businesses, and obtain and retain customers.

	•	Chairman of the Board and Chief Executive Officer Munawar H. Hidayatallah; and
	•	President and Chief Operating Officer David Wilde.

	Historically, we have been dependent on a few customers operating in a single industry; the loss of one or more customers could adversely affect our financial condition and results of operations.

	Our international operations may expose us to political and other uncertainties, including risks of:

	•	terrorist acts, war and civil disturbances;
	•	changes in laws or policies regarding the award of contracts; and
	•	the inability to collect or repatriate currency, income, capital or assets.

17

---

Table of Contents

	Environmental liabilities could result in substantial losses.

	Products liability claims relating to discontinued operations could result in substantial losses.

	We may be subject to claims for personal injury and property damage, which could materially adversely affect our financial condition and results of operations.

	Cyclical declines in oil and natural gas prices may result in reduced use of our services, affecting our business, financial condition and results of operation and our ability to meet our capital expenditure obligations and financial commitments.

18

---

Table of Contents

	•	economic conditions in the United States and elsewhere;
	•	changes in global supply and demand for oil and natural gas;
	•	the level of production of the Organization of Petroleum Exporting Countries, commonly called OPEC;
	•	the level of production of non-OPEC countries;
	•	the price and quantity of imports of foreign oil and natural gas;
	•	political conditions, including embargoes, in or affecting other oil and natural gas producing activities;
	•	the level of global oil and natural gas inventories; and
	•	advances in exploration, development and production technologies.

	Our industry is highly competitive, with intense price competition.

	We may experience increased labor costs or the unavailability of skilled workers and the failure to retain key personnel could hurt our operations.

19

---

Table of Contents

	Severe weather could have a material adverse impact on our business.

	•	curtailment of services;
	•	weather-related damage to facilities and equipment resulting in suspension of operations;
	•	inability to deliver materials to job sites in accordance with contract schedules; and
	•	loss of productivity.

	Our business may be affected by terrorist activity and by security measures taken in response to terrorism.

	We are subject to government regulations.

	We are a holding company, and as a result we are dependent on dividends from our subsidiaries to meet our obligations, including with respect to the notes.

20

---

Table of Contents

	We have a substantial amount of debt, which could adversely affect our financial health and prevent us from making principal and interest payments on the notes.

	•	make it more difficult for us to satisfy our obligations with respect to the notes and our other debt;
	•	increase our vulnerability to general adverse economic and industry conditions, including declines in oil and natural gas prices and declines in drilling activities;
	•	limit our ability to obtain additional financing for future working capital, capital expenditures, mergers and other general corporate purposes;
	•	require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow for operations and other purposes;
	•	limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
	•	make us more vulnerable to increases in interest rates;
	•	place us at a competitive disadvantage compared to our competitors that have less debt; and
	•	have a material adverse effect on us if we fail to comply with the covenants in the indenture relating to the notes or in the instruments governing our other debt.

21

---

Table of Contents

	If we fail to obtain additional financing, we may be unable to refinance our existing debt, expand our current operations or acquire new businesses, which could result in a failure to grow or result in defaults in our obligations under our credit agreement or the notes.

	The indenture governing the notes and our credit agreement impose restrictions on us that may limit the discretion of management in operating our business and that, in turn, could impair our ability to meet our obligations under the notes.

	•	incur additional debt;
	•	make certain investments or pay dividends or distributions on our capital stock or purchase or redeem or retire capital stock;
	•	sell assets, including capital stock of our restricted subsidiaries;
	•	restrict dividends or other payments by restricted subsidiaries;
	•	create liens;
	•	enter into transactions with affiliates; and
	•	merge or consolidate with another company.

22

---

Table of Contents

	The notes and the related guarantees are unsecured and effectively subordinated to our and the subsidiary guarantors’ secured indebtedness.

	Federal and state statutes allow courts, under specific circumstances, to void guarantees and require note holders to return payments received from guarantors.

	•	received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee; and
	•	was insolvent or rendered insolvent by reason of such incurrence; or
	•	was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; or
	•	intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.

	•	the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets; or

23

---

Table of Contents

	•	if the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
	•	it could not pay its debts as they become due.

	Your right to receive payments on the notes will be effectively subordinated to the rights of creditors of our subsidiaries that do not guarantee the notes (such as DLS and its subsidiaries) or whose guarantees are invalidated.

	We may not be able to finance a change of control offer required by the indenture governing the notes.

	A financial failure by any subsidiary may hinder payment on the notes, as well as the enforcement of remedies under any subsidiary guarantees.

24

---

Table of Contents

	If an active trading market does not develop for these notes you may not be able to resell them.

	A material or extended decline in expenditures by oil and gas companies due to a decline or volatility in oil and gas prices, a decrease in demand for oil and gas or other factors may reduce demand for DLS’ services and substantially reduce DLS’ revenues, profitability, cash flows and/or liquidity.

	•	oil and gas prices and expectations about future prices;
	•	the demand for oil and gas, both in Latin America and globally;
	•	the cost of producing and delivering oil and gas;
	•	advances in exploration, development and production technology;
	•	government regulations, including governmental imposed commodity price controls, export controls and renationalization of a country’s oil and gas industry;
	•	local and international political and economic conditions;
	•	the ability of OPEC to set and maintain production levels and prices;
	•	the level of production by non-OPEC countries; and
	•	the policies of various governments regarding exploration and development of their oil and gas reserves.

	A majority of DLS’ revenues are derived from two customers. The termination of the contracts with these two customers could have a significant negative effect on the revenues, results of operations and financial condition of DLS.

25

---

Table of Contents

	DLS’ operations and financial condition could be affected by union activity and general labor unrest. Additionally, DLS’ labor expenses could increase as a result of governmental regulation of payments to employees.

	Rig upgrade, refurbishment and construction projects are subject to risks, including delays and cost overruns, which could have an adverse effect on DLS’ results of operations and cash flows.

	•	shortages of material or skilled labor;
	•	unforeseen engineering problems;
	•	unanticipated change orders;
	•	work stoppages;

26

---

Table of Contents

	•	adverse weather conditions;
	•	long lead times for manufactured rig components;
	•	unanticipated cost increases; and
	•	inability to obtain the required permits or approvals.

	An oversupply of comparable rigs in the geographic markets in which DLS competes could depress the utilization rates and dayrates for DLS’ rigs and materially reduce DLS’ revenues and profitability.

	Worldwide political and economic developments may hurt DLS’ operations materially.

	•	expropriation of assets;
	•	nationalization of components of the energy industry in the geographic areas where DLS operates;
	•	foreign currency fluctuations and devaluation;
	•	new economic and tax policies;
	•	restrictions on currency, income, capital or asset repatriation;
	•	political instability, war and civil disturbances;
	•	uncertainty or instability resulting from armed hostilities or other crises in the Middle East or the geographic areas in which DLS operates; and
	•	acts of terrorism.

27

---

Table of Contents

	Devaluation of the Argentine peso will adversely affect DLS’ results of operations.

28

---

Table of Contents

	Argentina continues to face considerable political and economic uncertainty.

	An increase in inflation could have a material adverse effect on DLS’ results of operations.

	DLS’ customers may seek to cancel or renegotiate some of DLS’ drilling contracts during periods of depressed market conditions or if DLS experiences operational difficulties.

	DLS is subject to numerous governmental laws and regulations, including those that may impose significant liability on DLS for environmental and natural resource damages.

29

---

Table of Contents

	DLS is subject to hazards customary for drilling operations, which could adversely affect its financial performance if DLS is not adequately indemnified or insured.

	In connection with our acquisition of DLS, the DLS sellers have the right to designate two nominees for election to our board of directors, and their interests may be different from yours.

30

---

Table of Contents

	We may have a contingent liability arising out of a possible violation of Section 5 of the Securities Act in connection with electronic communications sent to potential investors in our common stock.

31

---

Table of Contents

32

---

Table of Contents

	•	Our recent acquisition of DLS, which closed on August 14, 2006, for the consideration described below under “DLS’ Business,” including the assumption of $8.6 million of DLS’ currently existing indebtedness and the issuance of 2.5 million shares of our common stock to the sellers, as adjusted for our recent offering of $95.0 million of 9.0% Senior Notes due 2014 and the sale of an additional 3.5 million shares of our common stock to fund a portion of the cash component of the purchase price for this acquisition. The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed as if the acquisition occurred on June 30, 2006 (in thousands):

Current assets			$	52,651
Property and equipment				150,851
Other long-term assets				2
	Total assets acquired			203,504
Current liabilities				31,968
Long-term debt				8,614
Other long term liabilities				27,000
	Total liabilities assumed			67,582
	Net assets acquired		$	135,922

	We incurred approximately $4.6 million of acquisition costs in connection with this acquisition. DLS historical property and equipment values are expected to be increased by approximately $42.3 million based on third-party valuations. We do not expect any material differences from the preliminary allocation of the purchase price and actual purchase price allocation.

	•	Our acquisition of Rogers, which closed on April 3, 2006. The following table summarizes the allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Current assets			$	4,520
Property and equipment				9,886
Intangible assets				1,131
	Total assets acquired			15,517
Current liabilities				1,717
Other long term liabilities				100
	Total liabilities assumed			1,817
	Net assets acquired		$	13,700

	We paid the purchase price with $11.3 million in cash (of which we borrowed $5.0 million under our line of credit), a $750,000 seller financed note and 125,285 newly issued shares of our common stock, which had a value of $1.7 million. We incurred approximately $341,000 of acquisition costs in connection with the Rogers acquisition. Rogers’ historical property and

33

---

Table of Contents

	equipment book values were increased by approximately $8.4 million based on third-party valuations. Intangible assets include $981,000 assigned to patents and $150,000 assigned to a non-compete agreement, based on third-party valuations and an employment contract. The intangibles have a weighted-average useful life of 11 years.

	•	Our recent acquisition of DLS, which closed on August 14, 2006, for the consideration described below under “DLS’ Business,” including the assumption of $8.6 million of DLS’ indebtedness and the issuance of 2.5 million shares of our common stock to the sellers;
	•	The sale of $95.0 million aggregate principal amount of 9.0% senior notes; and
	•	Our issuance of an additional 3.5 million shares of our common stock in order to fund a portion of the cash component of the purchase price for the pending DLS acquisition. The pro forma treats the shares as having been issued at a price of $14.50 per share.

	•	Our acquisition of Delta Rental Service, Inc., or Delta, which closed on April 1, 2005. The following table summarizes the allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Current assets			$	1,327
Property and equipment				5,529
Intangible assets				150
	Total assets acquired			7,006
Current liabilities				633
Long-term debt				523
	Total liabilities assumed			1,156
	Net assets acquired		$	5,850

We paid the purchase price with approximately $4.5 million in cash, newly issued shares of our common stock valued at approximately $1.0 million and two promissory notes totaling $350,000 in principal amount. We incurred approximately $28,000 of acquisition costs in connection with the Delta acquisition. Delta’s historical property and equipment book values were increased by approximately $4.2 million based on third-party valuations. The fair value of the $150,000 non-compete intangible asset was based on a non-compete agreement and the related employment contract and has a useful life of 3 years.

34

---

Table of Contents

	•	Our acquisition of Capcoil Tubing Services, Inc., or Capcoil, which closed on May 2, 2005. The following table summarizes the allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Current assets			$	1,706
Property and equipment				2,908
Other long-term assets				11
Intangible assets				1,389
Goodwill				184
	Total assets acquired			6,198
Current liabilities				847
Long-term debt				1,851
	Total liabilities assumed			2,698
	Net assets acquired		$	3,500

We paid the purchase price with approximately $2.7 million in cash and newly issued shares of our common stock valued at approximately $750,000. We incurred approximately $26,000 of acquisition costs in connection with the Capcoil acquisition. Capcoil’s historical property and equipment book values were increased by approximately $1.0 million based on third-party valuations. Intangible assets include $1.0 million assigned to non-compete agreements included in employment contracts and $364,000 assigned to customer lists based on third-party valuations. The intangibles have a weighted-average useful life of 5 years.

	•	Our acquisition of the assets of W.T. Enterprises, Inc., or W.T., which closed on July 11, 2005. The following table summarizes the allocation of the purchase price to the estimated fair value of the assets acquired at the date of acquisition (in thousands):

Property and equipment			$	4,500
Intangible assets				1,481
Goodwill				82
	Total assets acquired		$	6,063

We paid the purchase price with borrowings under our line of credit. We incurred approximately $63,000 of acquisition costs in connection with the W.T. acquisition. W.T.’s historical property and equipment book values were increased by approximately $3.0 million based on third-party valuations. Intangible assets include $600,000 assigned to non-compete agreements and $881,000 assigned to customer lists based on third-party valuations. The intangibles have a weighted-average useful life of 8 years.

	•	Our acquisition of the minority interest in AirComp LLC, or AirComp, from M-I LLC, or M-I, and a subordinated note in the principal amount of $4.8 million, which closed on July 11, 2005. We paid the purchase price with $7.1 million in cash from borrowings under our line of credit and the issuance of a new $4.0 million 5% subordinated note.

35

---

Table of Contents

	•	Our acquisition of Specialty, which closed on January 18, 2006. The following table summarizes the allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Accounts receivable			$	7,167
Other current assets				425
Property and equipment				90,540
	Total assets acquired			98,132
Current liabilities				2,058
Long-term debt				74
	Total liabilities assumed			2,132
	Net assets acquired		$	96,000

	We paid the purchase price with net proceeds from our issuance of 9% senior notes in January 2006. We incurred approximately $453,000 of acquisition costs in connection with the Specialty acquisition. Specialty’s historical property and equipment book values were increased by approximately $71.5 million based on third-party valuations.

	•	Our issuance of $160.0 million aggregate principal amount of 9% senior notes in January 2006;
	•	Our acquisition of Rogers, which closed on April 3, 2006, for $11.3 million in cash (of which we borrowed $5.0 million under our debt facility), the issuance of a $750,000 three year promissory note and the issuance of 125,285 shares of our common stock;
	•	Our acquisition of DLS for the consideration described below under “DLS’ Business,” including the assumption of $8.6 million of DLS’ indebtedness and the issuance of 2.5 million shares of our common stock to the sellers;
	•	Our sale of an additional $95.0 million aggregate principal amount of notes in this offering; and
	•	Our issuance of an additional 3.5 million shares of our common stock in order to fund a portion of the cash component of the purchase price for the DLS acquisition. The pro forma treats the shares as having been issued at a price of $14.50 per share.

36

---

Table of Contents

			As of June 30, 2006
			(Unaudited)
															Financing/
			Allis-Chalmers				DLS				Pro Forma				Offering				Pro Forma
			Historical				Historical				Adjustments(1)				Adjustments(2)				As Adjusted
			(In thousands)
ASSETS
Cash and cash equivalents			$	6,208			$	492			$	(97,772	)AA		$	135,236	AB		$	44,164
Trade receivables, net				49,114				29,244				—				—				78,358
Inventories				9,897				16,608				—				—				26,505
Prepaids and other				2,655				6,307				—				—				8,962
	Total current assets			67,874				52,651				(97,772	)			135,236				157,989
Property and equipment, net				185,750				108,593				42,258	AC			—				336,601
Goodwill				12,417				—				—				—				12,417
Other intangibles, net				7,131				—				—				—				7,131
Debt issuance costs, net				6,187				—				—				2,538	AD			8,725
Other assets				1,327				2				—				—				1,329
	Total assets		$	280,686			$	161,246			$	(55,514	)		$	137,774			$	524,192
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current maturities of long-term debt			$	4,059			$	8,861			$	(6,361	)AE		$	—			$	6,559
Trade accounts payable				9,616				17,270				—				—				26,886
Accrued employee benefits				2,270				12,593				—				—				14,863
Accrued interest				6,654				—				—				—				6,654
Accrued expenses				7,781				2,105				—				—				9,886
	Total current liabilities			30,380				40,829				(6,361	)			—				64,848
Accrued postretirement benefit obligations				319				—				—				—				319
Long-term debt, net of current maturities				165,957				17,453				(11,339	)AE			91,000	AF			263,071
Other long-term liabilities				749				749				26,251	AG			—				27,749
	Total liabilities			197,405				59,031				8,551				91,000				355,987
STOCKHOLDERS’ EQUITY
Common stock				185				42,963				(42,938	)AH			35	AI			245
Capital in excess of par value				67,261				31,606				6,519	AH			46,739	AI			152,125
Retained earnings				15,835				27,646				(27,646	)AH			—				15,835
	Total stockholders’ equity			83,281				102,215				(64,065	)			46,774				168,205
	Total liabilities and stockholders’ equity		$	280,686			$	161,246			$	(55,514	)		$	137,774			$	524,192

(1)	Reflects adjustments for the acquisition of Rogers and the acquisition of DLS.
(2)	Reflects adjustments for the August 2006 offering of $95.0 million principal amount of notes and the August 2006 offering and sale of 3,450,000 shares of our common stock to fund a portion of the cash component of the purchase price for the acquisition of DLS.

37

---

Table of Contents

			For the Six Months Ended June 30, 2006
			(Unaudited)
			Allis-Chalmers				DLS				Rogers				Pro Forma				Pro Forma				Offering				Pro Forma
			Historical				Historical				Historical				Adjustments(1)				Combined				Adjustments(2)				As Adjusted
			(In thousands, except per share amounts)
Revenues			$	107,498			$	82,019			$	2,085			$	—			$	191,602			$	—			$	191,602
Cost of revenues				66,239				68,490				1,105				(341	)A			135,493				—				135,493
Gross profit				41,259				13,529				980				341				56,109				—				56,109
General and administrative expense				16,755				2,205				820				33	B			19,813				158	C			19,971
Income (loss) from operations				24,504				11,324				160				308				36,296				(158	)			36,138
Other income
	Interest income			—				—				2				—				2				—				2
	Interest expense			(7,425	)			(2,748	)			—				804	D			(9,369	)			(3,976	)E			(13,345	)
	Other			20				(784	)			(7	)			—				(771	)			—				(771	)
Income (loss) before taxes				17,099				7,792				155				1,112				26,158				(4,134	)			22,024
Taxes				(3,081	)			(3,512	)			—				303	F			(6,290	)			—	F			(6,290	)
Income (loss) from continuing operations				14,018				4,280				155				1,415				19,868				(4,134	)			15,734
Discontinued operations				—				2,375				—				—				2,375				—				2,375
Net income/(loss)			$	14,018			$	6,655			$	155			$	1,415			$	22,243			$	(4,134	)		$	18,109
Pro forma net income per common share
Basic
	Continuing operations		$	0.80															$	0.98							$	0.67
	Discontinued operations			—																0.12								0.10
			$	0.80															$	1.10							$	0.77
Diluted
	Continuing operations		$	0.74															$	0.92							$	0.63
	Discontinued operations			—																0.11								0.09
			$	0.74															$	1.03							$	0.72
Weighted average shares outstanding
Basic				17,578												2,563	G			20,141				3,450	H			23,591
Diluted				19,000												2,563	G			21,563				3,450	H			25,013

(1)	Reflects adjustments for the acquisition of Rogers and the acquisition of DLS, including the assumption of $8.6 of DLS’ indebtedness and the issuance of 2.5 million shares of our common stock to the sellers as the stock component of the purchase price for the DLS acquisition.
(2)	Reflects adjustments for our $95.0 million notes offering in August 2006 and the August 2006 offering and sale of an additional 3,450,000 shares of our common stock to fund a portion of the cash component of the purchase price for the acquisition of DLS.

38

---

Table of Contents

			Year Ended December 31, 2005
															Other
			Allis-Chalmers				Specialty				DLS				Acquisitions(1)				Pro Forma				Pro Forma				Offering				Pro Forma
			Historical				Historical				Historical				Historical				Adjustments(2)				Combined				Adjustments(3)				As Adjusted
			(In thousands, except per share amounts)
Revenues			$	105,344			$	32,709			$	129,849			$	13,415			$	—			$	281,317			$	—			$	281,317
Cost of revenues				74,763				8,550				113,351				7,420				7,101	I			211,185				—				211, 185
Gross profit				30,581				24,159				16,498				5,995				(7,101	)			70,132				—				70,132
General and administrative expense				17,363				7,232				3,933				4,275				(145	)J			32,658				1,017	K			33,675
Income (loss) from operations				13,218				16,927				12,565				1,720				(6,956	)			37,474				(1,017	)			36,457
Other income
	Interest income			—				136				—				56				—				192								192
	Interest expense			(4,397	)			(185	)			(5,394	)			(54	)			(6,879	)L			(16,909	)			(9,313	)M			(26,222	)
	Other			186				72				7,127				353				—				7,738				—				7,738
Income (loss) before taxes				9,007				16,950				14,298				2,075				(13,835	)			28,495				(10,330	)			18,165
Minority interest				(488	)			—				—				—				488	N			—				—				—
Taxes				(1,344	)			—				(3,547	)			(340	)			(1,657	)F			(6,888	)			—	F			(6,888	)
Income (loss) from continuing operations				7,175				16,950				10,751				1,735				(15,004	)			21,607				(10,330	)			11,277
Discontinued operations				—				—				(4,138	)			—				—				(4,138	)			—				(4,138	)
Net income (loss)			$	7,175			$	16,950			$	6,613			$	1,735			$	(15,004	)		$	17,469			$	(10,330	)		$	7,139
Pro forma net income (loss) per common share
	Basic
	Continuing operations		$	0.48																			$	1.23							$	0.54
	Discontinued operations			—																				(0.24	)							(0.20	)
			$	0.48																			$	0.99							$	0.34
	Diluted
	Continuing operations		$	0.44																			$	1.14							$	0.50
	Discontinued operations			—																				(0.22	)							(0.18	)
			$	0.44																			$	0.92							$	0.32
Weighted average shares outstanding
	Basic			14,832																2,742	O			17,574				3,450	H			21,024
	Diluted			16,238																2,742	O			18,980				3,450	H			22,430

(1)	Acquisitions of Capcoil, Delta, the minority interest of M-I in AirComp, W.T. and Rogers.
(2)	Reflects adjustments for the acquisitions described in footnote (1) and the acquisition of Specialty and the acquisition of DLS, including the assumption of $8.6 million of DLS’ indebtedness and the issuance of 2.5 million shares of our common stock to the sellers as the stock component of the purchase price for the DLS acquisition.
(3)	Reflects adjustments for our $160.0 million notes offering in January 2006, our $95.0 million notes offering in August 2006 and the August 2006 offering and sale of an additional 3,450,000 shares of our common stock to fund a portion of the cash component of the purchase price for the acquisition of DLS.

39

---

Table of Contents

	AA) Reflects the cash payment of $93.2 million to purchase DLS and fees to acquire DLS, which includes approximately $4.6 million in transaction costs.
	AB) Reflects the net proceeds from the August 2006 debt and equity offerings and sale of 3.5 million shares of our common stock and the repayment of existing debt.
	AC) Reflects the step-up in the basis of the fixed assets as a result of the acquisition of DLS to the lower of fair market value or actual cost.
	AD) Fees and expenses related to the sale of $95.0 million of notes in the August 2006 offering.
	AE) Reflects the repayment of debt of DLS prior to the acquisition.
	AF) Reflects the proceeds from the sale of $95.0 million of notes after repaying $4.0 million of existing debt.
	Maturities of pro forma debt obligations at June 30, 2006 are as follows (in thousands):

Period Ending:
June 30, 2007		$	6,559
June 30, 2008			3,427
June 30, 2009			1,418
June 30, 2010			2,156
June 30, 2011			1,070
Thereafter			255,000
Total		$	269,630

	AG) Reflects deferred taxes on the DLS acquisition.
	AH) Reflects the elimination of DLS’s stockholders’ equity and the issuance of 2.5 million shares in the DLS acquisition.
	AI) Reflects the additional stock issued in connection with the offering, issuance and sale of 3.5 million shares of our common stock to fund a portion of the cash component of the purchase price for the DLS acquisition, net of expenses.

40

---

Table of Contents

	A) Reflects the impact on depreciation expense as a result of the step-up in basis of fixed assets and a longer estimated life on DLS assets.
	B) Reflects the increase in amortization due to the increase in other intangible assets in connection with the acquisition of Rogers.
	C) Reflects the amortization on the financing fees related to the sale of an additional $95.0 million of notes in August 2006.
	D) Reflects the net increase in interest expense after taking into account debt of acquired companies that was repaid and additional borrowings needed to complete the acquisitions. Approximately $8.6 million of existing debt for DLS will remain outstanding after the acquisition. The interest rate assumed on the $8.6 million of DLS debt was 6.21%, which was the actual average interest rate on this debt as of June 30, 2006. Each 0.125% change in this interest rate would affect interest expense by $10,770 per annum. The interest expense category for DLS’ historical financials also includes other bank fees and other financial expenses of approximately $1.6 million. In conjunction with the Rogers acquisition, we issued a $750,000 note to the seller bearing interest at a fixed rate of 5%, and we borrowed $5.0 million under our line of credit. We assumed an 8% interest rate for this $5.0 million borrowing, which is our current borrowing rate under our committed line of credit. Each 0.125% change in this interest rate would affect interest expense by $6,250 per annum.
	E) Reflects the additional interest expense related to the sale of $95.0 million of notes bearing interest at 9.0%. We repaid our $4.0 million, 5% subordinated note with a portion of the net proceeds of the offering of such notes. The proforma also reflects our repayment in June 2006 of the $5.0 million borrowed under our revolving line of credit to fund a portion of the Rogers acquisition.
	F) A statutory tax rate of 35% was applied to the adjustments, but since Allis-Chalmers has a net operating loss carryforward no tax expense was recorded. In addition, the Allis-Chalmers net operating loss position offsets the historical tax liabilities for operations in the United States of acquired companies. Income taxes for DLS were computed at the Argentinian statutory rate of 35% as we have no net operating losses in Argentina to offset the tax liability. The net operating loss carryforward, after the historical results for Allis-Chalmers for the year ended December 31, 2005, is approximately $15.4 million.
	G) Reflects the issuance of shares of our common stock as part of the acquisition price for Rogers and DLS. We issued 125,285 shares in the Rogers acquisition, and the consideration for our recent DLS acquisition included 2.5 million shares of our common stock.
	H) Reflects the issuance of shares of our common stock as a result of the offering, issuance and sale of an additional 3.5 million shares of our common stock to fund a portion of the cash component of the purchase price for the DLS acquisition. The pro forma statement of operations treats the shares as having been issued at a price of $14.50 per share.
	I) Reflects the increase in depreciation expense as a result of the step-up in basis of fixed assets and a longer estimated life on DLS assets.
	J) Reflects the increase in amortization due to the increase in other intangible assets in connection with the acquisitions of Capcoil, W.T. and Rogers. Also reflects the decreased rent expense of $386,000 that will result from the acquisition of Specialty. We entered into a new lease for the Specialty yard with the seller. Entering into this lease was required by the purchase agreement and was a condition to the closing of the Specialty acquisition.

41

---

Table of Contents

	K) Reflects the amortization on the financing fees related to our $160.0 million notes offering in January 2006 and the sale of $95.0 million of notes in August 2006.
	L) Reflects the net increase in interest expense after taking into account debt of acquired companies that was repaid and additional borrowings needed to complete the acquisitions. We applied $96.0 million of the net proceeds from our $160.0 million notes offering in January 2006 to fund the acquisition of Specialty. The notes bear interest at a fixed rate of 9%. Approximately $8.6 million of DLS’ pre-acquisition debt remained outstanding immediately following the acquisition. The interest rate assumed on the $8.6 million of DLS debt was 6.21% which was the actual average interest rate on this debt as of June 30, 2006. Each 0.125% change in this interest rate would affect interest expense by $10,770 per annum. The interest expense category for DLS’ historical financials also includes other bank fees and other financial expenses of approximately $2.7 million. In conjunction with the Rogers acquisition, we issued a $750,000 note to the seller bearing interest at 5% fixed and we borrowed $5.0 million under our line of credit. We assumed an 8% interest rate for this $5.0 million borrowing which is our current borrowing rate under our committed line of credit. Each 0.125% change in this interest rate would affect interest expense by $6,250 per annum. To acquire M-I’s 45% interest in AirComp we issued a new note for $4.0 million to replace a note for $4.8 million, both notes bore interest at 5.0%.
	M) Reflects the increased interest expense related to additional borrowings as a result of the January 2006 notes offering, and the sale of $95.0 million of notes in August 2006. We repaid our $4.0 million 5% subordinated note with a portion of the net proceeds of the offering of senior notes in August 2006. The proforma also reflects the repayment of the $5.0 million borrowed under our revolving line of credit to fund a portion of the Rogers acquisition. Interest on the proceeds of the January 2006 notes in excess of the Specialty acquisition and net of debt repayments and the interest on the August 2006 notes are computed at the contractual rate of 9%.
	N) Reflects the elimination of the 45% minority interest position of M-I in AirComp.
	O) Reflects the issuance of shares of our common stock as part of the acquisition price for Delta, Capcoil, Rogers and DLS. The Delta acquisition included consideration of $1.0 million in stock, the Capcoil acquisition included consideration of $765,000 in stock and the Rogers acquisition included consideration of $1,650,000 in stock. The stock component of the consideration for the recent DLS acquisition is comprised of 2.5 million shares.

42

---

Table of Contents

																							Six Months Ended
			Year Ended December 31,																				June 30,
			2001(1)				2002				2003				2004				2005				2005				2006
																							(Unaudited)
			(In thousands, except per share amounts and ratios)
Statement of Operations Data:
Revenues			$	4,796			$	17,990			$	32,724			$	47,726			$	105,344			$	42,922			$	107,498
Cost of revenues				3,331				14,640				24,029				35,300				74,763				30,482				66,239
Gross profit				1,465				3,350				8,695				12,426				30,581				12,440				41,259
General and administrative expense				2,898				3,792				6,169				8,011				17,715				6,459				15,482
Personnel restructuring costs				—				495				—				—				—				—				—
Abandoned acquisition/private placement costs				—				233				—				—				—				—				—
Post-retirement medical costs				—				(98	)			(99	)			188				(352	)			—				—
Total operating expenses				2,898				4,422				6,070				8,199				17,363				6,459				15,482
Income (loss) from operations				(1,433	)			(1,072	)			2,625				4,227				13,218				5,161				24,504
Other income (expense):
	Interest expense, net			(828	)			(2,207	)			(2,464	)			(2,776	)			(4,397	)			(1,166	)			(7,425	)
	Factoring costs on note receivable			—				(191	)			—				—				—				—				—
	Settlement on lawsuit			—				—				1,034				—				—				—				—
	Gain on sale of interest in AirComp			—				—				2,433				—				—				—				—
	Other			(12	)			(40	)			12				272				186				158				20
Total other income (expense)				(840	)			(2,438	)			1,015				(2,504	)			(4,211	)			(1,008	)			(7,405	)
Net income (loss) before income taxes and minority interest				(2,273	)			(3,510	)			3,640				1,723				9,007				4,153				17,099
Minority interests in income of subsidiaries				—				(189	)			(343	)			(321	)			(488	)			(488	)			—
Income tax				—				(270	)			(370	)			(514	)			(1,344	)			(329	)			(3,081	)
Net income (loss) from continuing operations				(2,273	)			(3,969	)			2,927				888				7,175				3,336				14,018
(Loss) from discontinued operations				(291	)			—				—				—				—				—				—
(Loss) from sales of discontinued operations				(2,013	)			—				—				—				—				—				—
Net (loss) from discontinued operations				(2,304	)			—				—				—				—				—				—
Net income (loss)				(4,577	)			(3,969	)			2,927				888				7,175				3,336				14,018
Preferred stock dividend				—				(321	)			(656	)			(124	)			—				—				—
Net income (loss) attributed to common stockholders			$	(4,577	)		$	(4,290	)		$	2,271			$	764			$	7,175			$	3,336			$	14,018
Other Financial Data (unaudited):
Ratio of earnings to fixed charges(2)				(1.6	)x			(0.4	)x			2.2	x			1.5	x			2.6	x			3.9	x			3.1	x

43

---

Table of Contents

		As of December 31,
																						As of
		2001				2002				2003				2004				2005				June 30, 2006
																						(Unaudited)
		(In thousands)
Balance Sheet Data:
Cash and cash equivalents		$	152			$	146			$	1,299			$	7,344			$	1,920			$	6,208
Total assets			12,465				34,778				53,662				80,192				137,355				280,686
Long-term debt (including current portion)			7,856				21,221				32,233				30,473				60,569				170,016
Stockholders’ equity			1,250				1,009				4,541				35,109				60,875				83,281

(1)	We entered the oilfield services business in 2001. We sold our last non-oilfield services business in December 2001, which is reflected in our financial statements for 2001 as a discontinued operation.

(2)

For purposes of determining the ratio of earnings to fixed charges, earnings are defined as net income before income taxes, extraordinary items, amortization of capitalized interest and fixed charges, less capitalized interest. Fixed charges consist of interest (whether expensed or capitalized), amortization of debt expenses and discount or premium relating to any indebtedness and dividends on preferred stock and the interest component of leases represents the portion of rental expense which we estimate as an interest component. For the years ended December 31, 2001 and December 31, 2002, earnings were inadequate to cover fixed charges due to a deficiency of approximately $2.3 million and $3.7 million, respectively.

44

---

Table of Contents

45

---

Table of Contents

	•	The addition of experienced accounting personnel with appropriate experience and qualifications to perform quality review procedures and to satisfy our financial reporting obligations. During August 2004, we hired a new chief financial officer and in October 2004 we hired a full-time in-house general counsel. In March 2005, we hired a certified public accountant as our financial reporting manager and in July 2005 we hired as chief accounting officer, a certified public accountant who has significant prior experience as a chief accounting officer of a publicly traded company. In 2006, we have added three additional certified public accountants in connection with the growth of our business and to implement and monitor compliance with internal control processes.

46

---

Table of Contents

	•	In the fourth quarter of 2004, we engaged an independent internal controls consulting firm which is in the process of documenting, analyzing, identifying and correcting deficiencies and testing our internal controls and procedures, including our controls over internal financial reporting.
	•	We are in the final stages of completing the implementation of a new accounting software to facilitate timely and accurate reporting.

	Comparison of Three Months Ended June 30, 2006 and 2005

47

---

Table of Contents

48

---

Table of Contents

		Revenues												Income (Loss) from Operations
						Three Months												Three Months
						Ended												Ended
						June 30,												June 30,
		2006				2005				Change				2006				2005				Change
		(in thousands)
Directional drilling services		$	18,315			$	10,934			$	7,381			$	4,367			$	1,495			$	2,872
Rental tools			12,707				1,566				11,141				7,308				405				6,903
Casing and tubing services			14,569				3,933				10,636				4,314				1,354				2,960
Compressed air drilling services			10,949				4,866				6,083				3,204				1,002				2,202
Production services			3,930				2,289				1,641				341				36				305
General corporate			—				—				—				(3,663	)			(1,378	)			(2,285	)
Total		$	60,470			$	23,588			$	36,882			$	15,871			$	2,914			$	12,957

49

---

Table of Contents

50

---

Table of Contents

	Comparison of Six Months Ended June 30, 2006 and 2005

51

---

Table of Contents

		Revenues												Income (Loss) from Operations
						Six Months												Six Months
						Ended												Ended
						June 30,												June 30,
		2006				2005				Change				2006				2005				Change
		(in thousands)
Directional drilling services		$	33,369			$	20,835			$	12,534			$	6,972			$	3,373			$	3,599
Rental tools			23,128				1,940				21,188				12,306				326				11,980
Casing and tubing services			24,028				7,493				16,535				6,165				2,679				3,486
Compressed air drilling services			20,048				9,047				11,001				5,441				1,529				3,912
Production services			6,925				3,607				3,318				618				(2	)			620
General corporate			—				—				—				(6,998	)			(2,744	)			(4,254	)
Total		$	107,498			$	42,922			$	64,576			$	24,504			$	5,161			$	19,343

52

---

Table of Contents

53

---

Table of Contents

	Comparison of Years Ended December 31, 2005 and December 31, 2004

54

---

Table of Contents

		Revenues												Income (Loss) from Operations
		2005				2004				Change				2005				2004				Change
		(In thousands)
Directional drilling services		$	43,901			$	24,787			$	19,114			$	7,389			$	3,061			$	4,328
Compressed air drilling services			25,662				11,561				14,101				5,612				1,169				4,443
Casing and tubing services			20,932				10,391				10,541				4,994				3,217				1,777
Rental tools			5,059				611				4,448				1,300				(71	)			1,371
Production services			9,790				376				9,414				(99	)			4				(103	)
General corporate			—				—				—				(5,978	)			(3,153	)			(2,825	)
Total		$	105,344			$	47,726			$	57,618			$	13,218			$	4,227			$	8,991

55

---

Table of Contents

	Comparison of Years Ended December 31, 2004 and December 31, 2003

56

---

Table of Contents

57

---

Table of Contents

														Income (Loss)
		Revenues												from Operations
		2004				2003				Change				2004				2003				Change
		(In thousands)
Directional drilling services		$	24,787			$	16,008			$	8,779			$	3,061			$	1,103			$	1,958
Compressed air drilling services			11,561				6,679				4,882				1,169				17				1,152
Casing and tubing services			10,391				10,037				354				3,217				3,628				(411	)
Other services			987				—				987				(67	)			—				(67	)
General corporate			—				—				—				(3,153	)			(2,123	)			(1,030	)
Total		$	47,726			$	32,724			$	15,002			$	4,227			$	2,625			$	1,602

58

---

Table of Contents

	Operating Activities

59

---

Table of Contents

	Investing Activities

	Financing Activities

	•	A $13.0 million revolving line of credit. Borrowings were limited to 85% of eligible accounts receivable plus 50% of eligible inventory (up to a maximum of $2.0 million of borrowings based on inventory). This line of credit was to be used to finance working capital requirements and other general corporate purposes, including the issuance of standby letters of credit. Outstanding borrowings under this line of credit were $6.4 million at a margin above prime and LIBOR rates plus margin averaging approximately 8.1% as of December 31, 2005.
	•	Two term loans totaling $42.0 million. Outstanding borrowings under these term loans were $42.0 million as of December 31, 2005. These loans were at LIBOR rates plus a margin which averages approximately 7.8% at December 31, 2005.

60

---

Table of Contents

61

---

Table of Contents

		Payments by Period
						Less Than
		Total				1 Year				2-3 Years				4-5 Years				After 5 Years
		(In thousands)
Contractual Obligations
Notes payable(a)		$	59,652			$	5,158			$	53,887			$	607			$	—
Capital leases(b)			917				474				443				—				—
Interest payments on notes payable			7,076				4,186				2,839				51				—
Operating lease			2,878				926				1,462				490				—
Employment contracts			4,016				2,512				1,504				—				—
Total contractual cash obligations		$	74,539			$	13,256			$	60,135			$	1,148			$	—

(a)	In January of 2006 we issued $160.0 million of senior notes due 2014 and repaid $48.5 million of debt due in 2-3 years and $3.1 million due in less than one year.

(b)	These amounts represent our minimum capital lease payments, net of interest payments totaling $69,000.

62

---

Table of Contents

63

---

Table of Contents

64

---

Table of Contents

65

---

Table of Contents

66

---

Table of Contents

	•	We were incorporated in 1913 under Delaware law.
	•	We reorganized in bankruptcy in 1988 and sold all of our major businesses. From 1988 to May 2001 we had only one operating company in the equipment repair business.
	•	In May 2001, under new management we consummated a merger in which we acquired OilQuip Rentals, Inc., or OilQuip, and its wholly-owned subsidiary, Mountain Compressed Air, Inc., or Mountain Air.

67

---

Table of Contents

	•	In December 2001, we sold Houston Dynamic Services, Inc., our last pre-bankruptcy business.
	•	In February 2002, we acquired approximately 81% of the capital stock of Allis-Chalmers Tubular Services Inc., or Tubular, formerly known as Jens’ Oilfield Service, Inc. and substantially all of the capital stock of Strata Directional Technology, Inc., or Strata.
	•	In July 2003, we entered into a limited liability company operating agreement with M-I LLC, or M-I, a joint venture between Smith International and Schlumberger N.V., to form a Delaware limited liability company named AirComp LLC, or AirComp. Pursuant to this agreement, we owned 55% and M-I owned 45% of AirComp.
	•	In September 2004, we acquired the remaining 19% of the capital stock of Tubular.
	•	In September 2004, we acquired all of the outstanding stock of Safco-Oil Field Products, Inc., or Safco.
	•	In November 2004, AirComp acquired substantially all of the assets of Diamond Air Drilling Services, Inc. and Marquis Bit Co., LLC, which we refer to collectively as Diamond Air.
	•	In December 2004, we acquired Downhole Injection Services, LLC, or Downhole.
	•	In January 2005, we changed our name from Allis-Chalmers Corporation to Allis-Chalmers Energy Inc.
	•	In April 2005, we acquired Delta Rental Service, Inc., or Delta, and, in May 2005, we acquired Capcoil Tubing Services, Inc. or Capcoil.
	•	In July 2005, we acquired M-I’s interest in AirComp, and acquired the compressed air drilling assets of W.T. Enterprises, Inc., or W.T.
	•	Effective August 2005, we acquired all of the outstanding stock of Target Energy Inc., or Target.
	•	In September 2005, we acquired the casing and tubing assets of IHS/Spindletop, a division of Patterson Services, Inc., or Patterson a subsidiary of RPC, Inc.
	•	In January 2006, we acquired all of the outstanding stock of Specialty.
	•	In April 2006, we acquired all of the outstanding capital stock of Rogers.
	•	On August 14, 2006, we acquired all of the outstanding capital stock of DLS.

68

---

Table of Contents

69

---

Table of Contents

70

---

Table of Contents

	•	improvement of total cumulative recoverable reserves;
	•	improved reservoir production performance beyond conventional vertical wells; and
	•	reduction of the number of field development wells.

71

---

Table of Contents

72

---

Table of Contents

73

---

Table of Contents

74

---

Table of Contents

Business Segment		Location
Directional Drilling Services		Houston, Texas
		Corpus Christi, Texas
		Oklahoma City, Oklahoma
		Lafayette, Louisiana

75

---

Table of Contents

Business Segment		Location
Compressed Air Drilling Services		Houston, Texas
		San Angelo, Texas
		Fort Stockton, Texas
		Farmington, New Mexico
		Grand Junction, Colorado
		Wilburton, Oklahoma
		Sonora, Texas
		Grandbury, Texas
		Denver, Colorado
		Carlsbad, New Mexico
Casing and Tubing Services		Edinburg, Texas
		Pearsall, Texas
		Corpus Christi, Texas
		Kilgore, Texas
		Broussard, Louisiana
		Houma, Louisiana
		Buffalo, Texas
Rental Tools		Houston, Texas
		Broussard, Louisiana
		Lafayette, Louisiana
Production Services		Midland, Texas
		Corpus Christi, Texas
		Kilgore, Texas
		Carthage, Texas
		Cordell, Oklahoma
General Corporate		Houston, Texas

76

---

Table of Contents

77

---

Table of Contents

	Contract Drilling Rigs

78

---

Table of Contents

	Workover Rigs

	Pulling Rigs

	Other Oilfield Services

79

---

Table of Contents

	Types of Contracts

80

---

Table of Contents

	Raw Materials

	Customers

	Government and Environmental Regulations

	Legal Proceedings

	Insurance

81

---

Table of Contents

	Employees

82

---

Table of Contents

Name		Age				Position
Munawar H. Hidayatallah..			62			Chairman and Chief Executive Officer
David Wilde			51			President and Chief Operating Officer
Victor M. Perez			53			Chief Financial Officer
Theodore F. Pound III			52			General Counsel and Secretary
Bruce Sauers			42			Vice President and Corporate Controller
David K. Bryan			49			President and Chief Operating Officer of Strata Directional Technology, Inc.
Steven Collins			54			President of Allis-Chalmers Production Services, Inc.
James Davey			52			President of Allis-Chalmers Rental Tools Inc.
Gary Edwards			54			President of Allis-Chalmers Tubular Services Inc.
Terrence P. Keane			54			President and Chief Executive Officer of AirComp L.L.C
Alejandro P. Bulgheroni			62			Director
Carlos A. Bulgheroni			61			Director
John E. McConnaughy, Jr.			77			Director(1)
Victor F. Germack			66			Director(1)
Robert E. Nederlander			73			Director(1)
Jeffrey R. Freedman			59			Director
Leonard Toboroff			73			Vice Chairman

(1)	Member of Audit Committee.

83

---

Table of Contents

84

---

Table of Contents

85

---

Table of Contents

	Audit Committee

86

---

Table of Contents

	Compensation Committee

	Nominating Committee

87

---

Table of Contents

																			Long Term
																			Compensation
			Annual Compensation																Awards
							Salary				Bonus				Other Annual				Securities Underlying
Name and Principal Position			Year				($)				($)				Compensation(1)				Options/SARs (#)
Munawar H. Hidayatallah,				2005				395,833				200,000				3,000				725,000
	Chairman & Chief Executive Officer			2004				337,500				580,000	(2)(3)			3,375				—
				2003				300,000	(4)			81,775	(3)			3,000				400,000
David Wilde,				2005				299,004				100,000				2,340				290,000
	President and Chief Operating			2004				209,964				275,000	(6)			1,672				110,000
	Officer(5)			2003				137,500				75,445	(7)			1,876				100,000
Victor M. Perez,				2005				240,000				60,000				600				45,000
	Chief Financial Officer(8)			2004				105,000				5,500				2,500				55,000
Terrence P. Keane,				2005				164,000				82,000	(10)			1,640				50,000
	Divisional President and Chief			2004				146,308				51,650	(11)			—				—
	Executive Officer of AirComp(9)			2003				68,440				—				—				—
David Bryan,				2005				176,917				150,000	(13)			1,849				40,000
	President and Chief Operating Officer			2004				156,050				100,000	(14)			1,800				—
	of Strata(12)			2003				140,000				14,000	(15)			4,050				30,000

(1)	Represents contributions to 401(k) plans. We match contributions made by all employees up to a maximum 1% of each employee’s salary.
(2)	Of this amount $175,000 was paid in 2005.
(3)	The bonus awarded to Mr. Hidayatallah for fiscal year 2003 was determined pursuant to his 2001 employment agreement, based on acquisitions completed for fiscal year 2003, and the bonus for fiscal year 2004 was based on Mr. Hidayatallah’s attaining certain strategic objectives set forth in his 2004 employment agreement (see “— Employment Agreements with Management” below).
(4)	Of this amount, $60,000 was deferred and paid during 2004.
(5)	Mr. Wilde was President and Chief Executive Officer of Strata, one of our subsidiaries, until February 2005, when he was named as our President and Chief Operating Officer.
(6)	Of this amount, $62,500 was paid in 2005.
(7)	Of this amount, $30,000 was paid in 2004.
(8)	Mr. Perez became our Chief Financial Officer in August 2004.
(9)	Mr. Keane serves as the President and Chief Executive Officer of AirComp, one of our subsidiaries and, as such, is considered an executive officer.

(10)	Of this amount, $82,000 was paid in 2006.
(11)	Of this amount, $16,150 was paid in 2005.
(12)	Mr. Bryan serves as the President and Chief Operating Officer of Strata and, as such, is considered an executive officer.
(13)	Of this amount, $20,794 was paid in 2006.

88

---

Table of Contents

(14)	Of this amount, $31,250 was paid in 2005.
(15)	Of this amount, $14,000 was paid in 2004.

	Option Grants In Last Fiscal Year

			Individual Grants																Potential Realized
																			Value at Assumed Annual
			Number of				% of Total												Rates of Stock Price
			Securities				Options/SARs				Exercise								Appreciation for Option
			Underlying				Granted to				Price								Terms(3)
			Options/SARs				Employees				per Share				Expiration
Name			Granted(1)				in 2005				($/Sh)(2)				Date				5% ($)				10% ($)
Munawar H. Hidayatallah				125,000				7.47	%		$	10.85				12/16/2015			$	852,938			$	2,161,513
				600,000				35.86	%		$	3.86				2/02/2015			$	1,456,520			$	3,691,108
David Wilde				90,000				5.38	%		$	10.85				12/16/2015			$	614,116			$	1,556,290
				200,000				11.95	%		$	3.86				2/02/2015			$	485,507			$	1,230,369
Victor M. Perez				45,000				2.69	%		$	10.85				12/16/2015			$	307,058			$	778,145
Terrence P. Keane				25,000				1.49	%		$	4.87				5/25/2015			$	76,568			$	194,038
				25,000				1.49	%		$	10.85				12/16/2015			$	170,588			$	432,303
David Bryan				20,000				1.20	%		$	3.86				2/02/2015			$	48,551			$	123,037
				20,000				1.20	%		$	4.87				5/25/2015			$	61,254			$	155,231

(1)	All options were granted under our 2003 Incentive Stock Plan. All options granted by us to date vest and become exercisable in three equal installments, one of which vested upon the grant of the options and one of which will vest upon each of the first and second anniversaries of the date of grant of option, provided that all options will become fully exercisable upon the occurrence of a change of control (as defined in the 2003 Incentive Stock Plan).
(2)	The exercise price for these options is equal to the fair market value of the common stock on the date of grant. The exercise price may be paid in cash or in shares of common stock valued at the fair market value on the exercise date.
(3)	The 5% and 10% assumed rates of appreciation are prescribed by the rules and regulations of the SEC and do not represent our estimate or projection of the future trading prices of our common stock. The calculations assume annual compounding and continued retention of the options or the underlying common stock by the optionee for the full option term of ten years. Unless the market price of the common stock actually appreciates over the option term, no value will be realized by the optionee from these option grants. Actual gains, if any, on stock option exercises are dependent on numerous factors, including, without limitation, our future performance, overall business and market conditions, and the optionee’s continued employment with us throughout the entire vesting period and option term, which factors are not reflected in this table.

	Option Exercises and Year-End Option Values

89

---

Table of Contents

										Number of Securities								Value of Unexercised
										Underlying Unexercised								In-the-Money
										Options/SARs								Options/SARs
										at Fiscal Year-End (#)								at Fiscal Year-End ($)(1)
		Shares				Value Realized
		Acquired (#)				($)				Exercisable				Unexercisable				Exercisable				Unexercisable
Munawar H. Hidayatallah			—				—				841,667				283,333				7,399,501				1,856,995
David Wilde			—				—				336,666				163,334				2,727,395				950,605
Victor M. Perez			—				—				51,667				48,333				303,703				188,297
Terrence P. Keane			—				—				16,666				33,334				76,830				153,620
David Bryan			—				—				50,000				20,000				457,066				158,734

(1)	Based on a value of $12.47 per share, the closing price per share on the American Stock Exchange on December 31, 2005, less the exercise price.

	Employment Agreements With Management

90

---

Table of Contents

91

---

Table of Contents

	•	granted the DLS sellers the right to designate two nominees for election to our board of directors,
	•	agreed to support the nominations of the persons designated by the DLS sellers, and
	•	agreed to use our best efforts to cause the board (and our nominating committee) to recommend the inclusion of such persons in the slate of nominees recommended to stockholders for election as directors at each annual meeting of our stockholders.

92

---

Table of Contents

	•	our chief executive officer and each of our four other most highly compensated executive officers as of December 31, 2005;
	•	each of our directors;
	•	all of our directors and executive officers as a group; and
	•	each other person known by us to be a beneficial owner of more than 5.0% of our outstanding common stock.

			Number of				Percentage of
			Shares				Common Stock
			Beneficially				Beneficially
Name and Address			Owned				Owned(1)
Named executive officers:
	Munawar H. Hidayatallah(2)			1,686,666				6.9
	David Wilde(3)			286,633				1.2
	Victor M. Perez(4)			70,000				*
	Terence P. Keane(5)			25,000				*
	David Bryan(6)			68,666				*
Directors:
	Alejandro P. Bulgheroni(7)			1,500,000				6.1
	Carlos A. Bulgheroni(8)			1,000,000				4.1
	John E. McConnaughy, Jr.(9)			100,000				*
	Victor F. Germack(10)			—				—
	Robert E. Nederlander(11)			715,594				2.9
	Jeffrey R. Freedman(12)			119,000				*
	Leonard Toboroff(13)			695,594				2.8
All directors and executive officers as a group (17 persons)				6,402,152				25.6
Other 5% holders:
	Palo Alto Investors(14)			2,208,767				9.0
	Jens H. Mortensen, Jr.(15)			1,600,591				6.5

93

---

Table of Contents

	*	Less than one percent.

(1)	Based upon an aggregate of 24,464,260 shares outstanding as of August 15, 2006.

(2)	Mr. Hidayatallah is the trustee of the Hidayatallah Family Trust, which is the record owner of 1,686,666 shares of our common stock, and Mr. Hidayatallah holds options to purchase 283,333 shares of common stock, none of which options are exercisable within 60 days. Mr. Hidayatallah’s address is 5075 Westheimer, Suite 890, Houston, TX 77056.
(3)	Mr. Wilde holds options to purchase 408,300 shares of common stock, of which 281,633 are exercisable within 60 days. Mr. Wilde’s address is 5075 Westheimer, Suite 890, Houston, TX 77056.
(4)	Mr. Perez holds options to purchase 100,000 shares of common stock, of which 70,000 are exercisable within 60 days. Mr. Perez’s address is 5075 Westheimer, Suite 890, Houston, TX 77056.
(5)	Mr. Keane holds options to purchase 50,000 shares of common stock, of which 25,000 are exercisable within 60 days. Mr. Keane’s address is 5075 Westheimer, Suite 890, Houston, TX 77056.
(6)	Mr. Bryan holds options to purchase 70,000 shares of common stock, of which 56,666 are exercisable within 60 days. Mr. Bryan’s address is 5075 Westheimer, Suite 890, Houston, TX 77056.
(7)	Includes (i) 1,000,000 shares held of record by Bridas International Holdings Limited, a British Virgin Islands international business company, and (ii) 500,000 shares held of record by Associated Petroleum Investors Ltd., a British Virgin Islands international business company. Each such entity is indirectly beneficially owned by Mr. Bulgheroni. Mr. Bulgheroni’s address is 5075 Westheimer, Suite 890, Houston, TX 77056.
(8)	Includes 1,000,000 shares held of record by Bridas Central Company Ltd., a British Virgin Islands international business company, which is indirectly beneficially owned by Mr. Bulgheroni. Mr. Bulgheroni’s address is 5075 Westheimer, Suite 890, Houston, TX 77056.
(9)	Mr. McConnaughy’s address is 2 Parklands Drive, Darien, CT 06820.
(10)	Mr. Germack’s address is 845 3rd Avenue, Suite 1410, New York, NY 10022.
(11)	Includes 715,594 shares of common stock owned directly by Mr. Nederlander or by RER Corp. or QEN Corp., corporations controlled by Mr. Nederlander. Mr. Nederlander’s address is 1450 Broadway, Suite 2001, New York, NY 10018.
(12)	Mr. Freedman’s address is 123 Via Verde Way, Palm Beach, FL 33418.
(13)	Mr. Toboroff’s address is 1450 Broadway, Suite 2001, New York, NY 10018.
(14)	Owned collectively by Micro Cap Partners, L.P., UBTI Free, L.P. and Palo Alto Global Energy Fund, L.P. Palo Alto Investors, LLC acts as the general partner of Micro Cap Partners, L.P., UBTI Free, L.P. and Palo Alto Global Energy Fund, L.P. Palo Alto Investors, Inc. is the manager of Palo Alto Investors, LLC, and William L. Edwards is the President of Palo Alto Investors, Inc. Palo Alto Investors, LLC, Palo Alto Investors, Inc. and William L. Edwards each have investment and voting authority with respect to the shares owned by this stockholder. The business address for each of these persons is 470 University Avenue, Palo Alto, CA 94301.

(15)	Mr. Mortensen’s address is 5075 Westheimer, Suite 890, Houston, TX 77056.

94

---

Table of Contents

	General

	Guarantees and Security

	Interest and Fees

	Covenants and Events of Default

95

---

Table of Contents

	Letters of Credit

	Recent Amendments

96

---

Table of Contents

	•	any new notes that you receive will be acquired in the ordinary course of your business;
	•	you are not participating, and have no arrangement or understanding with any person or entity to participate, in the distribution of the new notes;
	•	you are not our “affiliate,” as defined in Rule 405 under the Securities Act, or a broker-dealer tendering old notes acquired directly from us for resale pursuant to Rule 144A or any other available exemption under the Securities Act; and
	•	if you are not a broker-dealer, that you are not engaged in and do not intend to engage in the distribution of the new notes.

97

---

Table of Contents

	•	to delay our acceptance of old notes for exchange;
	•	to terminate the exchange offer if any of the conditions set forth under “— Conditions of the Exchange Offer” exist;
	•	to waive any condition to the exchange offer;
	•	to amend any of the terms of the exchange offer; and
	•	to extend the expiration date and retain all old notes tendered in the exchange offer, subject to your right to withdraw your tendered old notes as described under “— Withdrawal of Tenders.”

	•	you are acquiring new notes in the ordinary course of your business;
	•	you are not participating, and have no arrangement or understanding with any person to participate, in the distribution of the new notes;
	•	you are not our “affiliate” within the meaning of Rule 405 under the Securities Act; and
	•	you are not a broker-dealer who purchased old notes directly from us for resale pursuant to Rule 144A or any other available exemption under the Securities Act.

	•	you cannot rely on those interpretations by the SEC staff, and
	•	you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction and that such a secondary resale transaction

98

---

Table of Contents

		must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K.

	•	delay acceptance for exchange of old notes tendered under the exchange offer, subject to Rule 14e-1 under the Exchange Act, which requires that an offeror pay the consideration offered or return the securities deposited by or on behalf of the holders promptly after the termination or withdrawal of a tender offer, or
	•	terminate the exchange offer and not accept for exchange any old notes not theretofore accepted for exchange, if any of the conditions set forth below under “— Conditions of the Exchange Offer” have not been satisfied or waived by us or in order to comply in whole or in part with any applicable law.

99

---

Table of Contents

	Tender of Old Notes Held Through Depository Trust Company

	Tender of Old Notes Held in Certificated Form

	•	the exchange agent must receive at its address set forth in this prospectus a properly completed and validly executed letter of transmittal, or a manually signed facsimile thereof, together with any signature guarantees and any other documents required by the instructions to the letter of transmittal, and
	•	the exchange agent must receive certificates for tendered old notes at such address, or such old notes must be transferred pursuant to the procedures for book-entry transfer described below.

100

---

Table of Contents

	Signature Guarantee

	•	the letter of transmittal is signed by the registered holder of the old notes tendered therewith, or by a participant in one of the book-entry transfer facilities whose name appears on a security position listing it as the owner of those old notes and the new notes are to be issued directly to such registered holder(s), or, if tendered by a participant in one of the book-entry transfer facilities, any old notes for principal amounts not tendered or not accepted for exchange are to be credited to the participant’s account at the book-entry transfer facility, and neither the “Special Issuance Instructions” nor the “Special Delivery Instructions” box on the letter of transmittal has been completed, or
	•	the old notes are tendered for the account of an eligible institution.

	Book-Entry Transfer

101

---

Table of Contents

	Guaranteed Delivery

	(1) certificates representing your old notes are not lost but are not immediately available,
	(2) time will not permit your letter of transmittal, certificates representing your old notes and all other required documents to reach the exchange agent on or prior to the expiration date of the exchange offer, or
	(3) the procedures for book-entry transfer cannot be completed on or prior to the expiration date of the exchange offer,

	•	your tender is made by or through an eligible institution; and
	•	on or prior to the expiration date of the exchange offer, the exchange agent has received from the eligible institution a properly completed and validly executed notice of guaranteed delivery, by manually signed facsimile transmission, overnight courier, registered or certified mail or hand delivery, in substantially the form provided with this prospectus. The notice of guaranteed delivery must:

	(a) set forth your name and address, the registered number(s) of your old notes and the principal amount of old notes tendered;
	(b) state that the tender is being made thereby;
	(c) guarantee that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal or facsimile thereof properly completed and validly executed, together with certificates representing the old notes, or a book-entry confirmation, and any other documents required by the letter of transmittal and the instructions thereto, will be deposited by the eligible institution with the exchange agent; and
	(d) the exchange agent receives the properly completed and validly executed letter of transmittal or facsimile thereof with any required signature guarantees, together with certificates for all old notes in proper form for transfer, or a book-entry confirmation, and any other required documents, within three New York Stock Exchange trading days after the expiration date.

	Other Matters

	•	certificates for (or a timely book-entry confirmation with respect to) your old notes,
	•	a properly completed and duly executed letter of transmittal or facsimile thereof with any required signature guarantees, or, in the case of a book-entry transfer, an agent’s message, and
	•	any other documents required by the letter of transmittal.

102

---

Table of Contents

	•	the exchange agent must receive a written notice of withdrawal at one of the addresses set forth below under “— Exchange Agent,” or
	•	you must comply with the appropriate procedures of DTC’s automated tender offer program system.

	•	specify the name of the person who tendered the old notes to be withdrawn, and
	•	identify the old notes to be withdrawn, including the principal amount of the old notes.

103

---

Table of Contents

	•	new notes or old notes for principal amounts not exchanged, are to be delivered to or registered or issued in the name of, any person other than the registered holder of the old notes tendered;
	•	tendered certificates for old notes are registered in the name of any person other than the person signing any letter of transmittal; or
	•	a transfer tax is imposed for any reason other than the transfer and exchange of old notes to us or our order pursuant to the exchange offer,

	•	as set forth in the legend printed on the old notes as a consequence of the issuance of the old notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws; and
	•	otherwise set forth in the offering memoranda distributed in connection with the private offerings of the old notes.

104

---

Table of Contents

105

---

Table of Contents

	•	are our general unsecured obligations;
	•	are effectively subordinated to all our existing and any future secured Indebtedness, including our Indebtedness under the Credit Agreement, to the extent of the assets securing such Indebtedness, and to all existing and any future liabilities of our subsidiaries that are not Guarantors, to the extent of the assets of such subsidiaries;
	•	are pari passu in right of payment with all our existing and any future unsecured, unsubordinated Indebtedness;
	•	are senior in right of payment to all our existing and any future subordinated Indebtedness; and
	•	are guaranteed by the Guarantors on a senior unsecured basis.

106

---

Table of Contents

107

---

Table of Contents

	•	is a general unsecured obligation of the Guarantor;
	•	is effectively subordinated to all existing and any future secured Indebtedness of the Guarantor, including the guarantee of the Guarantor under the Credit Agreement;
	•	is pari passu in right of payment with all existing and any future unsecured, unsubordinated Indebtedness of the Guarantor; and
	•	is senior in right of payment to all existing and any future subordinated Indebtedness of the Guarantor.

	(1) the sum of the outstanding principal amount and Make-Whole Amount of such note; and
	(2) the redemption price of such note on January 15, 2010, determined pursuant to the indenture (104.500% of the principal amount).

	(1) the present value of the remaining interest, premium, if any, and principal payments due on such note as if such note were redeemed on January 15, 2010 computed using a discount rate equal to the Treasury Rate plus 50 basis points, over
	(2) the outstanding principal amount of such note.

108

---

Table of Contents

Year		Percentage
2010			104.500	%
2011			102.250	%
2012 and thereafter			100.000	%

	(1)	notes in an aggregate principal amount equal to at least 65% of the aggregate principal amount of notes issued under the indenture on the Issue Date remain outstanding immediately after the occurrence of such redemption (excluding notes held by us or our Affiliates); and
	(2)	the redemption must occur within 180 days of the date of the closing of such Equity Offering.

	(1)	if the notes are listed on any national securities exchange, in compliance with the requirements of such principal national securities exchange; or
	(2)	if the notes are not so listed, on a pro rata basis, by lot or by such method as the trustee will deem fair and appropriate.

109

---

Table of Contents

	Change of Control

	(1)	accept for payment all notes or portions thereof properly tendered pursuant to the Change of Control Offer;

110

---

Table of Contents

	(2)	deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions thereof properly tendered; and
	(3)	deliver or cause to be delivered to the trustee, the notes so accepted together with an Officers’ Certificate stating the aggregate principal amount of notes or portions thereof being purchased by Allis-Chalmers.

111

---

Table of Contents

	Asset Sales

	(1)	Allis-Chalmers (or the Restricted Subsidiary, as the case may be) receives consideration in respect of such Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and
	(2)	either (x) at least 75% of the consideration therefor received by Allis-Chalmers or such Restricted Subsidiary is in the form of cash, Cash Equivalents or Replacement Assets or a combination thereof or (y) the Fair Market Value of the aggregate of all consideration other than cash, Cash Equivalents or Replacement Assets for all Asset Sales since the Issue Date would not exceed 10% of Consolidated Tangible Assets of Allis-Chalmers after giving effect to such Asset Sales. For purposes of this provision, each of the following will be deemed to be cash:

	(a)	any liabilities, as shown on Allis-Chalmers’ or such Restricted Subsidiary’s most recent consolidated balance sheet (or as would be shown on Allis-Chalmers’ consolidated balance sheet as of the date of such Asset Sale) of Allis-Chalmers or any Restricted Subsidiary (other than contingent liabilities, Indebtedness that is by its terms subordinated to the notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets or Equity Interests pursuant to (1) a written novation agreement that releases Allis-Chalmers or such Restricted Subsidiary from further liability therefor or (2) an assignment agreement that includes, in lieu of such a release, the agreement of the transferee or its parent company to indemnify and hold harmless Allis-Chalmers or such Restricted Subsidiary from and against any loss, liability or cost in respect of such assumed liability;

	(b)	any securities, notes or other obligations received by Allis-Chalmers or any such Restricted Subsidiary from such transferee that are converted by Allis-Chalmers or such Restricted Subsidiary into cash within 270 days after such Asset Sale, to the extent of the cash received in that conversion; and

	(c)	accounts receivables of a business retained by Allis-Chalmers or any of its Restricted Subsidiaries following the sale of such business; provided that (i) such accounts receivables are not more than 60 days past due and (ii) do not have a payment date greater than 90 days from the date of the invoice creating such accounts receivable.

112

---

Table of Contents

	(1)	to repay Indebtedness for borrowed money (other than Subordinated Indebtedness); or
	(2)	to make any capital expenditure or to purchase Replacement Assets (or enter into a binding agreement to make such capital expenditure or to purchase such Replacement Assets; provided that (a) such capital expenditure or purchase is consummated within the later of (x) 360 days after the receipt of the Net Proceeds from the related Asset Sale and (y) 180 days after the date of such binding agreement and (b) if such capital expenditure or purchase is not consummated within the period set forth in subclause (a), the amount not so applied will be deemed to be Excess Proceeds (as defined below)).

113

---

Table of Contents

	Restricted Payments

	(1)	declare or pay (without duplication) any dividend or make any other payment or distribution on account of Allis-Chalmers’ or any of its Restricted Subsidiaries’ Equity Interests or to the direct or indirect holders of Allis-Chalmers’ or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than dividends, payments or distributions (x) payable in Equity Interests (other than Disqualified Stock) of Allis-Chalmers or (y) to Allis-Chalmers or a Restricted Subsidiary of Allis-Chalmers);
	(2)	purchase, redeem or otherwise acquire or retire for value any Equity Interests of Allis-Chalmers or any Restricted Subsidiary thereof held by Persons other than Allis-Chalmers or any of its Restricted Subsidiaries;
	(3)	make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness (other than intercompany Indebtedness between Allis-Chalmers and any of its Restricted Subsidiaries), except (a) a payment of interest or principal at the Stated Maturity thereof or (b) the purchase, repurchase or other acquisition of any such Indebtedness in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such purchase, repurchase or other acquisition; or
	(4)	make any Restricted Investment

	(1)	no Default or Event of Default will have occurred and be continuing or would occur as a consequence thereof; and
	(2)	Allis-Chalmers would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption “— Incurrence of Indebtedness;” and

114

---

Table of Contents

	(3)	such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Allis-Chalmers and its Restricted Subsidiaries after the Issue Date (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), (8), (10) and (12) of the next succeeding paragraph (B)), is less than the sum, without duplication, of:

	(a)	50% of the Consolidated Net Income of Allis-Chalmers for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the Issue Date to the end of Allis-Chalmers’ most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus

	(b)	100% of (A) (i) the aggregate net cash proceeds and (ii) the Fair Market Value of (x) marketable securities (other than marketable securities of Allis-Chalmers), (y) Capital Stock of a Person (other than Allis-Chalmers or an Affiliate of Allis-Chalmers) engaged in a Permitted Business and (z) other assets used in any Permitted Business, in the case of clauses (i) and (ii), received by Allis-Chalmers since the Issue Date as a contribution to its common equity capital or from the issue or sale of Equity Interests of Allis-Chalmers (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of Allis-Chalmers that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of Allis-Chalmers), (B) the amount by which Indebtedness of Allis-Chalmers or any Restricted Subsidiary is reduced on Allis-Chalmers’ consolidated balance sheet upon the conversion or exchange after the Issue Date of any such Indebtedness into or for Equity Interests (other than Disqualified Stock) of Allis-Chalmers, and (C) the aggregate net cash proceeds, if any, received by Allis-Chalmers or any of its Restricted Subsidiaries upon any conversion or exchange described in clause (A) or (B) above, plus

	(c)	with respect to Restricted Investments made by Allis-Chalmers and its Restricted Subsidiaries after the Issue Date, an amount equal to the sum of (A) the net reduction in such Restricted Investments in any Person resulting from (i) repayments of loans or advances, or other transfers of assets, in each case to Allis-Chalmers or any Restricted Subsidiary, (ii) other repurchases, repayments or redemptions of such Restricted Investments, (iii) the sale of any such Restricted Investment or (iv) the release of any Guarantee (except to the extent any amounts are paid under such Guarantee) plus (B) all amounts representing the return of capital (excluding dividends and distributions) to Allis-Chalmers or any Restricted Subsidiary in respect of such Restricted Investment plus (C) with respect to any Unrestricted Subsidiary that the Board of Directors of Allis-Chalmers redesignates as a Restricted Subsidiary, the Fair Market Value of the Investment in such Subsidiary held by Allis-Chalmers or any of its Restricted Subsidiaries at the time of such redesignation.

	(1)	the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the indenture;

115

---

Table of Contents

	(2)	the payment of any dividend or similar distribution by a Restricted Subsidiary of Allis-Chalmers to the holders of its Equity Interests on a pro rata basis;
	(3)	the making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of Allis-Chalmers) of, Equity Interests of Allis-Chalmers (other than Disqualified Stock) or from the substantially concurrent contribution (other than by a Subsidiary of Allis-Chalmers) of capital to Allis-Chalmers in respect of its Equity Interests (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will be excluded from clause (3)(b) of the preceding paragraph (A);
	(4)	the defeasance, redemption, repurchase, retirement or other acquisition of Subordinated Indebtedness with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness; provided that the amount of any such net cash proceeds that are utilized for any such defeasance, redemption, repurchase, retirement or other acquisition of Indebtedness will be excluded from clause (3)(b) of the preceding paragraph (A);
	(5)	Investments acquired as a capital contribution to, or in exchange for, or out of the net cash proceeds of a substantially concurrent sale (other than to a Subsidiary of Allis-Chalmers) of, Equity Interests (other than Disqualified Stock) of Allis-Chalmers; provided that the amount of any such net cash proceeds that are utilized for any such acquisition or exchange will be excluded from clause (3)(b) of the preceding paragraph (A);
	(6)	the repurchase, redemption or other acquisition or retirement of Equity Interests deemed to occur upon the exercise or exchange of stock options, warrants or other similar rights to the extent such Equity Interests represent a portion of the exercise or exchange price of those stock options, and the repurchase, redemption or other acquisition or retirement of Equity Interests made in lieu of withholding taxes resulting from the exercise or exchange of stock options, warrants or other similar rights;
	(7)	the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Parent, Allis-Chalmers or any Restricted Subsidiary of Allis-Chalmers held by any current or former officer, director or employee (or any of their respective heirs or estates or permitted transferees) of Parent, Allis-Chalmers or any Restricted Subsidiary of Allis-Chalmers pursuant to any equity subscription agreement, stock option agreement, stockholders’ agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests in any calendar year will not exceed $2.0 million (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the following proviso) of $6.0 million in any calendar year); provided further that such amount in any calendar year may be increased by an amount not to exceed (A) the cash proceeds received by Allis-Chalmers from the sale of Equity Interests of Allis-Chalmers to members of management or directors of Allis-Chalmers and its Restricted Subsidiaries that occurs after the Issue Date (to the extent the cash proceeds from the sale of such Equity Interests have not otherwise been applied to the payment of Restricted Payments by virtue of clause 3(b) of the preceding paragraph (A)), plus (B) the cash proceeds of key man life insurance policies received by Allis-Chalmers and

116

---

Table of Contents

		its Restricted Subsidiaries after the Issue Date, less (C) the amount of any Restricted Payments made pursuant to clauses (A) and (B) of this clause (7);
	(8)	dividends on Preferred Stock or Disqualified Stock issued in compliance with the covenant “— Incurrence of Indebtedness” to the extent such dividends are included in the definition of Fixed Charges;
	(9)	the payment of cash in lieu of fractional Equity Interests;

	(10)	Permitted Payments to Parent;
	(11)	payments or distributions to dissenting stockholders pursuant to applicable law in connection with a merger, consolidation or transfer of assets that complies with the provisions described under the caption “— Covenants — Merger, Consolidation or Sales of Assets;” and
	(12)	other Restricted Payments in an aggregate amount at any one time outstanding not to exceed $15.0 million.

	Incurrence of Indebtedness

	(1)	the Incurrence by Allis-Chalmers or any Guarantor of additional Indebtedness under Credit Facilities (including, without limitation, the Incurrence by Allis-Chalmers and the Guarantors of Guarantees thereof) in an aggregate amount at any one time outstanding pursuant to this clause (1) not to exceed a maximum amount equal to the greater of (a) $25.0 million or (b) 10.0% of the Consolidated Tangible Assets of Allis-Chalmers; provided, however, that the maximum amount permitted to be outstanding under this

117

---

Table of Contents

		clause (1) shall not be deemed to limit additional Indebtedness under the Credit Facilities to the extent the Incurrence of such additional Indebtedness is permitted pursuant to any of the other provisions of this covenant;
	(2)	the Incurrence of Existing Indebtedness;
	(3)	the Incurrence by Allis-Chalmers and the Guarantors of Indebtedness represented by the notes and the related Subsidiary Guarantees to be issued on the Issue Date and the exchange notes and the related Subsidiary Guarantees to be issued pursuant to the Registration Rights Agreement;
	(4)	the Incurrence by Allis-Chalmers or any Restricted Subsidiary of Allis-Chalmers of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, Incurred for the purpose of financing all or any part of the purchase price or cost of construction, installation, improvement, deployment, refurbishment, modification or lease of property, plant or equipment or furniture, fixtures and equipment, in each case used in the business of Allis-Chalmers or such Restricted Subsidiary, in an aggregate amount, including all Permitted Refinancing Indebtedness Incurred to refund, refinance or replace any Indebtedness Incurred pursuant to this clause (4), not to exceed the greater of (a) $10.0 million at any time outstanding or (b) 5.0% of Consolidated Tangible Assets of Allis-Chalmers;
	(5)	the Incurrence by Allis-Chalmers or any Restricted Subsidiary of Allis-Chalmers of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance, replace, defease or discharge Indebtedness (other than intercompany Indebtedness) that was permitted by the indenture to be Incurred under the first paragraph of this covenant or clauses (2), (3), (4), (5), (9) or (13) of this paragraph;
	(6)	the Incurrence by Allis-Chalmers or any of its Restricted Subsidiaries of intercompany Indebtedness owing to and held by Allis-Chalmers or any of its Restricted Subsidiaries; provided, however, that (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than Allis-Chalmers or a Restricted Subsidiary thereof and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either Allis-Chalmers or a Restricted Subsidiary thereof, will be deemed, in each case, to constitute an Incurrence of such Indebtedness by Allis-Chalmers or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6);
	(7)	the Guarantee by Allis-Chalmers or any of the Guarantors of Indebtedness of Allis-Chalmers or a Restricted Subsidiary of Allis-Chalmers that was permitted to be Incurred by another provision of this covenant;
	(8)	the Incurrence by Allis-Chalmers or any of its Restricted Subsidiaries of Hedging Obligations that are Incurred for the purpose of fixing, hedging or swapping interest rate, commodity price or foreign currency exchange rate risk (or to reverse or amend any such agreements previously made for such purposes), and not for speculative purposes, and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in interest rates, commodity prices or foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder;
	(9)	the Incurrence by Allis-Chalmers or any of its Restricted Subsidiaries of Indebtedness in respect of workers’ compensation claims, self-insurance obligations, bankers’ acceptances, performance bonds, completion bonds, bid bonds, appeal bonds and surety bonds or other

118

---

Table of Contents

		similar bonds or obligations, and any Guarantees or letters of credit functioning as or supporting any of the foregoing;

	(10)	the Incurrence by Allis-Chalmers or any of its Restricted Subsidiaries of Indebtedness constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business; provided that, upon the drawing of such letters of credit or the Incurrence of such Indebtedness, such obligations are reimbursed within one year following such drawing or Incurrence;
	(11)	the Incurrence by Allis-Chalmers of Indebtedness to the extent that the net proceeds thereof are promptly deposited to defease or to satisfy and discharge the notes;
	(12)	the Incurrence by Foreign Subsidiaries of Indebtedness in an aggregate amount outstanding at any one time not to exceed 15% of such Foreign Subsidiaries’ Consolidated Tangible Assets; or
	(13)	the Incurrence by Allis-Chalmers or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate amount at any time outstanding, including all Permitted Refinancing Indebtedness Incurred to refund, refinance, defease, discharge or replace any Indebtedness Incurred pursuant to this clause (13), not to exceed $10.0 million.

	Liens

119

---

Table of Contents

	Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries

	(1)	pay dividends or make any other distributions on its Capital Stock (or with respect to any other interest or participation in, or measured by, its profits) to Allis-Chalmers or any of its Restricted Subsidiaries or pay any liabilities owed to Allis-Chalmers or any of its Restricted Subsidiaries;
	(2)	make loans or advances to Allis-Chalmers or any of its Restricted Subsidiaries; or
	(3)	transfer any of its properties or assets to Allis-Chalmers or any of its Restricted Subsidiaries.

	(1)	existing under, by reason of or with respect to any Credit Facility, Existing Indebtedness, Capital Stock or any other agreements or instruments in effect on the Issue Date and any amendments, modifications, restatements, renewals, extensions, supplements, refundings, replacements or refinancings thereof, provided that the encumbrances and restrictions in any such amendments, modifications, restatements, renewals, increases, extensions, supplements, refundings, replacement or refinancings are, in the reasonable good faith judgment of the Chief Executive Officer and the Chief Financial Officer of Allis-Chalmers, no more restrictive, taken as a whole, than those contained in the Credit Agreement, Existing Indebtedness, Capital Stock or such other agreements or instruments, as the case may be, as in effect on the Issue Date;
	(2)	set forth in the indenture, the notes and the Subsidiary Guarantees or contained in any other instrument relating to any other Indebtedness so long as the Board of Directors determines that such encumbrances or restrictions are no more restrictive in the aggregate than those contained in the indenture;
	(3)	existing under, by reason of or with respect to applicable law, rule, regulation or order;
	(4)	with respect to any Person or the property or assets of a Person acquired by Allis-Chalmers or any of its Restricted Subsidiaries existing at the time of such acquisition, which encumbrance or restriction is not applicable to any Person or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired and any amendments, modifications, restatements, renewals, increases, extensions, supplements, refundings, replacements or refinancings thereof, provided that the encumbrances and restrictions in any such amendments, modifications, restatements, renewals, increases, extensions, supplements, refundings, replacement or refinancings are, in the reasonable good faith judgment of the Chief Executive Officer and the Chief Financial Officer of Allis-Chalmers, no more restrictive, taken as a whole, than those in effect on the date of the acquisition;
	(5)	Indebtedness Incurred or Capital Stock issued by any Restricted Subsidiary, provided that the restrictions contained in the agreements or instruments governing such Indebtedness

120

---

Table of Contents

		or Capital Stock (a) either (i) apply only in the event of a payment default or a default with respect to a financial covenant in such agreement or instrument or (ii) will not materially affect Allis-Chalmers’ ability to pay all principal, interest and premium and Liquidated Damages, if any, on the notes, as determined in good faith by the Chief Executive Officer and the Chief Financial Officer of Allis-Chalmers, whose determination shall be conclusive; and (b) are not materially more disadvantageous to the Holders of the notes than is customary in comparable financings (as determined by the Chief Financial Officer of Allis-Chalmers, whose determination shall be conclusive);
	(6)	in the case of clause (3) of the first paragraph of this covenant:

	(A)	that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset;

	(B)	existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of Allis-Chalmers or any Restricted Subsidiary thereof not otherwise prohibited by the indenture;
	(C)	purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations;

	(D)	provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of Allis-Chalmers’ Board of Directors or in the ordinary course of business, which limitation is applicable only to the assets that are the subject of such agreements;

	(E)	any instrument governing secured Indebtedness; and

	(F)	arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of Allis-Chalmers or any Restricted Subsidiary thereof in any manner material to Allis-Chalmers or any Restricted Subsidiary thereof;

	(7)	existing under, by reason of or with respect to any agreement for the sale or other disposition of all or substantially all of the Capital Stock of, or property and assets of, a Restricted Subsidiary that restrict distributions by that Restricted Subsidiary pending such sale or other disposition;
	(8)	Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;
	(9)	Liens permitted to be incurred under the provisions of the covenant described above under the caption “— Liens” that limit the right of the debtor to dispose of the assets subject to such Liens;

	(10)	encumbrances or restrictions contained in agreements entered into in connection with Hedging Obligations permitted from time to time under the indenture; and
	(11)	existing under restrictions on cash or other deposits or net worth imposed by customers or required by insurance, surety or bonding companies, in each case, under contracts entered into in the ordinary course of business.

121

---

Table of Contents

	Merger, Consolidation or Sale of Assets

	(1)	either: (a) Allis-Chalmers is the surviving corporation; or (b) the Person formed by or surviving any such consolidation or merger (if other than Allis-Chalmers) or to which such sale, assignment, transfer, conveyance or other disposition will have been made (i) is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia and (ii) assumes all the obligations of Allis-Chalmers under the notes, the indenture and the Registration Rights Agreement pursuant to agreements reasonably satisfactory to the trustee;
	(2)	immediately after giving effect to such transaction, no Default or Event of Default exists;
	(3)	either (A) immediately after giving effect to such transaction on a pro forma basis, Allis-Chalmers or the Person formed by or surviving any such consolidation or merger (if other than Allis-Chalmers), or to which such sale, assignment, transfer, conveyance or other disposition will have been made will be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption “— Incurrence of Indebtedness;” or (B) immediately after giving effect to such transaction on a pro forma basis and any related financing transactions as if the same had occurred at the beginning of the applicable four quarter period, the Fixed Charge Coverage Ratio of Allis-Chalmers is equal to or greater than its Fixed Charge Coverage Ratio immediately before such transaction; and
	(4)	Allis-Chalmers delivers to the trustee an Officers’ Certificate (attaching the arithmetic computation to demonstrate compliance with clause (3) above) and Opinion of Counsel, in each case stating that such transaction and such agreement complies with this covenant and that all conditions precedent provided for herein relating to such transaction have been complied with.

122

---

Table of Contents

	(1)	a merger of Allis-Chalmers with an Affiliate solely for the purpose of reincorporating Allis-Chalmers in another jurisdiction; or
	(2)	any merger or consolidation, or any sale, transfer, assignment, conveyance, lease or other disposition of assets between or among Allis-Chalmers and its Restricted Subsidiaries that are Guarantors.

	Transactions with Affiliates

	(1)	such Affiliate Transaction is on terms that are no less favorable to Allis-Chalmers or the relevant Restricted Subsidiary than those that would have been obtained in a comparable arm’s-length transaction by Allis-Chalmers or such Restricted Subsidiary with a Person that is not an Affiliate of Allis-Chalmers; and
	(2)	Allis-Chalmers delivers to the trustee:

	(a)	with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, a Board Resolution set forth in an Officers’ Certificate certifying that such Affiliate Transaction or series of related Affiliate Transactions complies with this covenant and that such Affiliate Transaction or series of related Affiliate Transactions has been approved by a majority of the disinterested members of the Board of Directors of Allis-Chalmers; and

	(b)	with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $15.0 million, an opinion as to the fairness to Allis-Chalmers or such Restricted Subsidiary of such Affiliate Transaction or series of related Affiliate Transactions from a financial point of view issued by an Independent Financial Advisor.

	(1)	transactions between or among Allis-Chalmers and/or its Restricted Subsidiaries;
	(2)	payment of reasonable and customary fees to, and reasonable and customary indemnification and similar payments on behalf of, directors of Allis-Chalmers and its Subsidiaries;
	(3)	any Permitted Investments or Restricted Payments that are permitted by the provisions of the indenture described above under the caption “— Restricted Payments”;
	(4)	any issuance of Equity Interests (other than Disqualified Stock) of Allis-Chalmers, or receipt of any capital contribution from any Affiliate of Allis-Chalmers;
	(5)	transactions with a Person that is an Affiliate of Allis-Chalmers solely because Allis-Chalmers owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person;

123

---

Table of Contents

	(6)	transactions pursuant to agreements or arrangements in effect on the Issue Date and described in the offering memorandum dated January 12, 2006 relating to the initial offering of the old notes, or any amendment, modification, or supplement thereto or replacement thereof, as long as such agreement or arrangement, as so amended, modified, supplemented or replaced, taken as a whole, is not more disadvantageous to Allis-Chalmers and its Restricted Subsidiaries than the original agreement or arrangement in existence on the Issue Date;
	(7)	loans or advances to employees in the ordinary course of business not to exceed $2.0 million in the aggregate at any one time outstanding; and
	(8)	any employment, consulting, service or termination agreement, employee benefit plan or arrangement, reasonable and customary indemnification arrangements or any similar agreement, plan or arrangement, entered into by Allis-Chalmers or any of its Restricted Subsidiaries with officers, directors, consultants or employees of Allis-Chalmers or any of its Subsidiaries and the payment of compensation to officers, directors, consultants and employees of Allis-Chalmers or any of its Subsidiaries (including amounts paid pursuant to employee benefit plans, employee stock option or similar plans), and any payments, indemnities or other transactions permitted or required by bylaw, statutory provisions or any of the foregoing agreements, plans or arrangements; so long as such agreement or payment has been approved by a majority of the disinterested members of the Board of Directors of Allis-Chalmers.

	Designation of Restricted and Unrestricted Subsidiaries

	(1)	any Guarantee by Allis-Chalmers or any Restricted Subsidiary thereof of any Indebtedness of the Subsidiary being so designated will be deemed to be an Incurrence of Indebtedness by Allis-Chalmers or such Restricted Subsidiary (or both, if applicable) at the time of such designation, and such Incurrence of Indebtedness would be permitted under the covenant described above under the caption “— Incurrence of Indebtedness”;
	(2)	the aggregate Fair Market Value of all outstanding Investments owned by Allis-Chalmers and its Restricted Subsidiaries in the Subsidiary being so designated (including any Guarantee by Allis-Chalmers or any Restricted Subsidiary thereof of any Indebtedness of such Subsidiary) will be deemed to be a Restricted Investment made as of the time of such designation and that such Investment would be permitted under the covenant described above under the caption “— Restricted Payments”;
	(3)	such Subsidiary does not hold any Liens on any property of Allis-Chalmers or any Restricted Subsidiary thereof;
	(4)	the Subsidiary being so designated:

	(a)	is a Person with respect to which neither Allis-Chalmers nor any of its Restricted Subsidiaries has any direct or indirect obligation (i) to subscribe for additional Equity Interests or (ii) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results;

124

---

Table of Contents

	(b)	has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of Allis-Chalmers or any of its Restricted Subsidiaries, except to the extent such Guarantee or credit support would be released upon such designation; and

	(c)	has at least one director on its Board of Directors that is not a director or officer of Allis-Chalmers or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or officer of Allis-Chalmers or any of its Restricted Subsidiaries; and

	(5)	no Default or Event of Default would be in existence following such designation.

	(1)	such designation will be deemed to be an Incurrence of Indebtedness by a Restricted Subsidiary of Allis-Chalmers of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if such Indebtedness is permitted under the covenant described under the caption “— Incurrence of Indebtedness”; and
	(2)	no Default or Event of Default would be in existence following such designation.

	Subsidiary Guarantees

125

---

Table of Contents

	(1)	immediately after giving effect to that transaction, no Default or Event of Default exists; and

	(a)	the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger (if other than the Guarantor) is organized or existing under the laws of the United States, any state thereof or the District of Columbia and assumes all the obligations of that Guarantor under the indenture, its Subsidiary Guarantee and the Registration Rights Agreement pursuant to a supplemental indenture satisfactory to the trustee; or

	(b)	such sale or other disposition or consolidation or merger complies with the covenant described above under the caption “— Repurchase at the Option of Holders — Asset Sales.”

	(1)	in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) Allis-Chalmers or a Restricted Subsidiary of Allis-Chalmers, if the sale or other disposition does not violate the “Asset Sale” provisions of the indenture;
	(2)	in connection with any sale or other disposition of all of the Capital Stock of a Guarantor to a Person that is not (either before or after giving effect to such transaction) a Restricted Subsidiary of Allis-Chalmers, if the sale of all such Capital Stock of that Guarantor complies with the covenant described above under the caption “— Repurchase at the Option of Holders — Asset Sales”;
	(3)	if Allis-Chalmers properly designates any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary under the indenture; or
	(4)	upon legal defeasance or satisfaction and discharge of the indenture as provided below under the captions “— Legal Defeasance and Covenant Defeasance” and “— Satisfaction and Discharge.”

	Payments for Consent

126

---

Table of Contents

	Reports

	(1)	all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if Allis-Chalmers were required to file such Forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by our certified independent accountants; and
	(2)	all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file such reports.

	(1)	default for 30 days in the payment when due of interest on, or Liquidated Damages, if any, with respect to, the notes;
	(2)	default in payment when due of the principal of, or premium, if any, on the notes;
	(3)	failure by Allis-Chalmers to comply with its obligations described under the caption “— Covenants — Merger, Consolidation or Sale of Assets” or to consummate a purchase of notes when required pursuant to the covenants described under the captions “— Repurchase at the Option of Holders — Change of Control” or “— Repurchase at the Option of Holders — Asset Sales;”
	(4)	failure by Allis-Chalmers or any of its Restricted Subsidiaries for 30 days to comply with the provisions described under the captions “— Covenants — Restricted Payments” or “— Covenants — Incurrence of Indebtedness” or to comply with the provisions described under the captions “— Repurchase at the Option of Holders — Change of Control” or

127

---

Table of Contents

		“— Repurchase at the Option of Holders — Asset Sales” to the extent not described in clause (3) above;
	(5)	failure by Allis-Chalmers or any of its Restricted Subsidiaries for 60 days after written notice by the trustee or Holders representing 25% or more of the aggregate principal amount of notes outstanding to comply with any of the other agreements in the indenture;
	(6)	default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Allis-Chalmers or any of its Restricted Subsidiaries (or the payment of which is Guaranteed by Allis-Chalmers or any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the Issue Date, if that default:

	(a)	is caused by a failure to make any payment when due at the final maturity of such Indebtedness (a “Payment Default”); or

	(b)	results in the acceleration of such Indebtedness prior to its express maturity,

		and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $15.0 million or more;

	(7)	failure by Allis-Chalmers or any of its Restricted Subsidiaries to pay final judgments (to the extent such judgments are not paid or covered by insurance provided by a reputable carrier that has the ability to perform and has acknowledged coverage in writing) aggregating in excess of $15.0 million, which judgments are not paid, discharged or stayed for a period of 60 days;
	(8)	except as permitted by the indenture, any Subsidiary Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, denies or disaffirms its obligations under its Subsidiary Guarantee; and
	(9)	certain events of bankruptcy or insolvency with respect to Allis-Chalmers, any Guarantor or any Significant Subsidiary of Allis-Chalmers (or any Restricted Subsidiaries that together would constitute a Significant Subsidiary).

128

---

Table of Contents

	(1)	the Holder gives the trustee written notice of a continuing Event of Default;
	(2)	the Holder or Holders of at least 25% in aggregate principal amount of outstanding notes make a written request to the trustee to pursue the remedy;
	(3)	such Holder or Holders offer the trustee indemnity satisfactory to the trustee against any costs, liability or expense;
	(4)	the trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and
	(5)	during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding notes do not give the trustee a direction that is inconsistent with the request.

129

---

Table of Contents

	(1)	the rights of Holders of outstanding notes to receive payments in respect of the principal of, or interest or premium and Liquidated Damages, if any, on such notes when such payments are due from the trust referred to below;
	(2)	Allis-Chalmers’ obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust;
	(3)	the rights, powers, trusts, duties and immunities of the trustee, and Allis-Chalmers’ and the Guarantors’ obligations in connection therewith; and
	(4)	the Legal Defeasance provisions of the indenture.

	(1)	Allis-Chalmers must irrevocably deposit with the trustee, in trust, for the benefit of the Holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest and premium and Liquidated Damages, if any, on the outstanding notes on the Stated Maturity or on the applicable redemption date, as the case may be, and Allis-Chalmers must specify whether the notes are being defeased to maturity or to a particular redemption date;
	(2)	in the case of Legal Defeasance, Allis-Chalmers will have delivered to the trustee an Opinion of Counsel reasonably acceptable to the trustee confirming that (a) Allis-Chalmers has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel will confirm that, the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

130

---

Table of Contents

	(3)	in the case of Covenant Defeasance, Allis-Chalmers will have delivered to the trustee an Opinion of Counsel reasonably acceptable to the trustee confirming that the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
	(4)	no Default or Event of Default will have occurred and be continuing (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) either: (a) on the date of such deposit; or (b) insofar as Events of Default from bankruptcy or insolvency events are concerned, at any time in the period ending on the 123rd day after the date of deposit;
	(5)	such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the indenture) to which Allis-Chalmers or any of its Subsidiaries is a party or by which Allis-Chalmers or any of its Subsidiaries is bound;
	(6)	in the case of legal defeasance, Allis-Chalmers must have delivered to the trustee an Opinion of Counsel to the effect that, (1) assuming no intervening bankruptcy of Allis-Chalmers or any Guarantor between the date of deposit and the 123rd day following the deposit and assuming that no Holder is an “insider” of Allis-Chalmers under applicable bankruptcy law, after the 123rd day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally, including Section 547 of the United States Bankruptcy Code and Section 15 of the New York Debtor and Creditor Law and (2) the creation of the defeasance trust does not violate the Investment Company Act of 1940;
	(7)	Allis-Chalmers must deliver to the trustee an Officers’ Certificate stating that the deposit was not made by Allis-Chalmers with the intent of preferring the Holders over the other creditors of Allis-Chalmers with the intent of defeating, hindering, delaying or defrauding creditors of Allis-Chalmers or others;
	(8)	Allis-Chalmers must deliver to the trustee an Officers’ Certificate, stating that all conditions precedent set forth in clauses (1) through (7) of this paragraph have been complied with; and
	(9)	Allis-Chalmers must deliver to the trustee an Opinion of Counsel (which Opinion of Counsel may be subject to customary assumptions, qualifications and exclusions), stating that all conditions precedent set forth in clauses (2) and (3) of this paragraph have been complied with.

131

---

Table of Contents

	(1)	reduce the principal amount of notes whose Holders must consent to an amendment, supplement or waiver;
	(2)	reduce the principal of or change the fixed maturity of any note or alter the provisions, or waive any payment with respect to the redemption of the notes; provided, however, that solely for the avoidance of doubt, and without any other implication, any purchase or repurchase of notes, including pursuant to the covenants described above under the caption “— Repurchase at the Option of Holders,” shall not be deemed a redemption of the notes;
	(3)	reduce the rate of or change the time for payment of interest on any note;
	(4)	waive a Default or Event of Default in the payment of principal of, or interest, or premium or Liquidated Damages, if any, on, the notes (except a rescission of acceleration of the notes by the Holders of at least a majority in aggregate principal amount of the then outstanding notes and a waiver of the payment default that resulted from such acceleration);
	(5)	make any note payable in money other than U.S. dollars;
	(6)	make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of Holders of notes to receive payments of principal of, or interest or premium or Liquidated Damages, if any, on, the notes;
	(7)	release any Guarantor from any of its obligations under its Subsidiary Guarantee or the indenture, except in accordance with the terms of the indenture;
	(8)	impair the right to institute suit for the enforcement of any payment on or with respect to the notes or the Subsidiary Guarantees;
	(9)	amend or modify any of the provisions of the indenture or the related definitions affecting the ranking of the notes or any Subsidiary Guarantee in any manner adverse to the Holders of the notes or any Subsidiary Guarantee; or

	(10)	make any change in the preceding amendment and waiver provisions.

	(1)	to cure any ambiguity, defect or inconsistency;
	(2)	to provide for uncertificated notes in addition to or in place of certificated notes;
	(3)	to provide for the assumption of Allis-Chalmers’ or any Guarantor’s obligations to Holders of notes in the case of a merger or consolidation or sale of all or substantially all of Allis-Chalmers’ or such Guarantor’s assets;
	(4)	to make any change that would provide any additional rights or benefits to the Holders of notes or that does not materially adversely affect the legal rights under the indenture of any such Holder;
	(5)	to comply with requirements of the SEC in order to effect or maintain the qualification of the indenture under the Trust Indenture Act;

132

---

Table of Contents

	(6)	to add any Subsidiary Guarantee or to effect the release of a Guarantor from its Subsidiary Guarantee and the termination of such Subsidiary Guarantee, all in accordance with the provisions of the indenture governing such release and termination or to otherwise comply with the provisions described under “— Covenants — Guarantees”;
	(7)	to secure the notes or any Subsidiary Guarantees or any other obligation under the indenture;
	(8)	to evidence and provide for the acceptance of appointment by a successor trustee;
	(9)	to conform the text of the indenture or the notes to any provision of this Description of notes to the extent that such provision in this Description of notes was intended to be a verbatim recitation of a provision of the indenture, the Subsidiary Guarantees or the notes; or

	(10)	to provide for the issuance of additional notes in accordance with the indenture.

	(1) either:

	(a)	all notes that have been authenticated (except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has theretofore been deposited in trust and thereafter repaid to Allis-Chalmers) have been delivered to the trustee for cancellation; or

	(b)	all notes that have not been delivered to the trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and Allis-Chalmers or any Guarantor has irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the notes not delivered to the trustee for cancellation for principal, premium and Liquidated Damages, if any, and accrued interest to the date of maturity or redemption;

	(2)	no Default or Event of Default has occurred and is continuing on the date of the deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit);
	(3)	such deposit will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than the indenture) to which Allis-Chalmers or any Guarantor is a party or by which Allis-Chalmers or any Guarantor is bound;
	(4)	Allis-Chalmers or any Guarantor has paid or caused to be paid all sums payable by it under the indenture; and

133

---

Table of Contents

	(5)	Allis-Chalmers has delivered irrevocable instructions to the trustee under the indenture to apply the deposited money toward the payment of the notes at maturity or the redemption date, as the case may be.

134

---

Table of Contents

	(1)	upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the Initial Purchasers with portions of the principal amount of the Global Notes; and
	(2)	ownership of these interests in the Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Notes).

135

---

Table of Contents

	(1)	any aspect of DTC’s records or any Participant’s or Indirect Participant’s records relating to or payments made on account of beneficial ownership interest in the Global Notes or for maintaining, supervising or reviewing any of DTC’s records or any Participant’s or Indirect Participant’s records relating to the beneficial ownership interests in the Global Notes; or
	(2)	any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants.

136

---

Table of Contents

	(1)	DTC (a) notifies Allis-Chalmers that it is unwilling or unable to continue as depositary for the Global Notes or (b) has ceased to be a clearing agency registered under the Exchange Act, and in each case Allis-Chalmers fails to appoint a successor depositary;
	(2)	Allis-Chalmers, at its option, notifies the trustee in writing that it elects to cause the issuance of Certificated notes (DTC has advised Allis-Chalmers that, in such event, under its current practices, DTC would notify its participants of Allis-Chalmers’ request, but will only withdraw beneficial interests from a Global Note at the request of each DTC participant); or
	(3)	there will have occurred and be continuing a Default or Event of Default with respect to the notes.

137

---

Table of Contents

	(1)	the sale, lease, conveyance or other disposition of any assets, other than a transaction governed by the provisions of the indenture described above under the caption “— Repurchase at the Option of Holders — Change of Control” and/or the provisions described above under the caption “— Covenants — Merger, Consolidation or Sale of Assets”; and
	(2)	the issuance of Equity Interests by any of Allis-Chalmers’ Restricted Subsidiaries or the sale by Allis-Chalmers or any Restricted Subsidiary thereof of Equity Interests in any of its Subsidiaries (other than directors’ qualifying shares and shares issued to foreign nationals to the extent required by applicable law).

	(1)	any single transaction or series of related transactions that involves assets or other Equity Interests having a Fair Market Value of less than $3.0 million or for Net Proceeds of less than such amount;
	(2)	any issuance or transfer of assets or Equity Interests between or among two or more of the Persons that are among Allis-Chalmers and its Restricted Subsidiaries;
	(3)	the sale, lease or other disposition of products, services, equipment, inventory, accounts receivable or other assets in the ordinary course of business;
	(4)	the sale or other disposition of cash or Cash Equivalents;
	(5)	dispositions (including without limitation surrenders and waivers) of accounts receivable or other contract rights in connection with the compromise, settlement or collection thereof;
	(6)	the issuance or sale of Equity Interests or the sale, lease or other disposition of products, services, equipment, inventory, accounts receivable or other assets pursuant to any

138

---

Table of Contents

		Restricted Payment that is permitted by the covenant described above under the caption “— Covenants — Restricted Payments” or any Permitted Investment;
	(7)	the trade or exchange by Allis-Chalmers or any Restricted Subsidiary of any asset for any other asset or assets, including any cash or Cash Equivalents necessary in order to achieve an exchange of equivalent value; provided, however, that the Fair Market Value of the asset or assets received by Allis-Chalmers or any Restricted Subsidiary in such trade or exchange (including any such cash or Cash Equivalents) is at least equal to the Fair Market Value (as determined in good faith by the Board of Directors or an executive officer of Allis-Chalmers or of such Restricted Subsidiary with responsibility for such transaction, which determination shall be conclusive evidence of compliance with this provision) of the asset or assets disposed of by Allis-Chalmers or any Restricted Subsidiary pursuant to such trade or exchange;
	(8)	any sale, lease, conveyance or other disposition of any assets or any sale or issuance of Equity Interests in each case, made pursuant to a Permitted Joint Venture Investment or a Joint Marketing Arrangement;
	(9)	any sale or disposition of any property or equipment that has become damaged, worn out or obsolete or pursuant to a program for the maintenance or upgrading of such property or equipment; and

	(10)	the creation of a Lien not prohibited by the indenture and any disposition of assets resulting from the enforcement or foreclosure of any such Lien.

	(1)	with respect to a corporation, the board of directors of the corporation or, except in the context of the definitions of “Change of Control” and “Continuing Directors,” a duly authorized committee thereof;
	(2)	with respect to a partnership, the Board of Directors of the general partner of the partnership; and
	(3)	with respect to any other Person, the board or committee of such Person serving a similar function.

139

---

Table of Contents

	(1)	in the case of a corporation, corporate stock;
	(2)	in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
	(3)	in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
	(4)	any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, regardless of whether such debt securities include any right of participation with Capital Stock.

	(1)	United States dollars;
	(2)	securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support of such securities), maturing, unless such securities are deposited to defease any Indebtedness, not more than one year from the date of acquisition;
	(3)	certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances with maturities not exceeding one year and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500.0 million and a rating at the time of acquisition thereof and a Thomson Bank Watch Rating of “B” or higher;
	(4)	repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;
	(5)	commercial paper having the highest rating obtainable from either (i) Moody’s Investors Service, Inc. or (ii) Standard & Poor’s Rating Services and in each case maturing within one year after the date of acquisition; and
	(6)	securities issued and fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, rated at least “A” by Moody’s Investors Service, Inc. or Standard & Poor’s Rating Services and having maturities of not more than one year from the date of acquisition; and
	(7)	money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (6) of this definition.

	(1)	the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of Allis-Chalmers and its Restricted Subsidiaries, taken as a

140

---

Table of Contents

		whole, to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act) other than a Permitted Holder;
	(2)	the adoption of a plan relating to the liquidation or dissolution of Allis-Chalmers;
	(3)	any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) other than Parent or a Permitted Holder becomes the Beneficial Owner, directly or indirectly, of more than 50% of the voting power of the Voting Stock of Allis-Chalmers; or
	(4)	the first day on which a majority of the members of the Board of Directors of Allis-Chalmers are not Continuing Directors.

	(1)	any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus
	(2)	all extraordinary, unusual or non-recurring items of loss or expense to the extent deducted in computing such Consolidated Net Income; plus
	(3)	provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
	(4)	Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that any such Fixed Charges were deducted in computing such Consolidated Net Income; plus
	(5)	depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; plus
	(6)	all expenses related to restricted stock and redeemable stock interests granted to officers, directors and employees, to the extent such expenses were deducted in computing such Consolidated Net Income; minus
	(7)	non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business;

141

---

Table of Contents

	(1)	the Net Income or loss of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary thereof;
	(2)	the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its equityholders (without regard to any restrictions existing by reason of, or any governmental approvals necessary pursuant to, any law, rule, regulation, order or decree that is generally applicable to all Persons operating in any jurisdiction in which Allis-Chalmers or any of its Restricted Subsidiaries are conducting business so long as there is in effect no specific order, decree or other prohibition pursuant to any such law, rule or regulation in such jurisdiction limiting the payment of a dividend or similar distribution by such Restricted Subsidiary);
	(3)	the cumulative effect of a change in accounting principles will be excluded; and
	(4)	to the extent deducted in the calculation of Net Income, any non-recurring charges associated with any premium or penalty paid, write-offs of deferred financing costs or other financial recapitalization charges in connection with redeeming or retiring any Indebtedness prior to its Stated Maturity will be added back to arrive at Consolidated Net income.

	(1)	was a member of such Board of Directors on the Issue Date; or
	(2)	was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election.

142

---

Table of Contents

143

---

Table of Contents

	(1)	the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus
	(2)	the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus
	(3)	any interest expense on Indebtedness of another Person that is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
	(4)	all dividends, whether paid or accrued and whether or not in cash, on any series of Disqualified Stock of such Person or any of its Restricted Subsidiaries or Preferred Stock of such Person’s Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests (other than Disqualified Stock) of Allis-Chalmers or to Allis-Chalmers or a Restricted Subsidiary of Allis-Chalmers,

	(1)	acquisitions and dispositions of business entities or property and assets constituting a division or line of business of any Person that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred on the first day of the four-quarter reference period, and Consolidated Cash Flow for such reference period

144

---

Table of Contents

		will be calculated on a pro forma basis in good faith on a reasonable basis by a responsible financial or accounting Officer of Allis-Chalmers; provided, that such Officer may in his discretion include any pro forma changes to Consolidated Cash Flow, including any pro forma reductions of expenses and costs, that have occurred or are reasonably expected by such Officer to occur (regardless of whether such expense or cost savings or any other operating improvements could then be reflected properly in pro forma financial statements prepared in accordance with Regulation S-X under the Securities Act or any other regulation or policy of the SEC);
	(2)	the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, will be excluded;
	(3)	the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; and
	(4)	Fixed Charges attributable to interest on any Indebtedness (whether existing or being Incurred) computed on a pro forma basis and bearing a floating interest rate will be computed as if the rate in effect on the Calculation Date (taking into account any interest rate option, swap, cap or similar agreement applicable to such Indebtedness if such agreement has a remaining term in excess of 12 months or, if shorter, at least equal to the remaining term of such Indebtedness) had been the applicable rate for the entire period.

	(1)	the Initial Guarantors; and
	(2)	any other subsidiary that executes a Subsidiary Guarantee in accordance with the provisions of the indenture;

145

---

Table of Contents

	(1)	interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and other agreements or arrangements with respect to interest rates;
	(2)	commodity swap agreements, commodity option agreements, forward contracts and other agreements or arrangements with respect to commodity prices;
	(3)	foreign exchange contracts, currency swap agreements and other agreements or arrangements with respect to foreign currency exchange rates;
	(4)	other agreements or arrangements designed to protect such Person or any Restricted Subsidiaries against fluctuations in interest rates, commodity prices or currency exchange rates; and
	(5)	letters of credit and reimbursement obligations with respect to letters of credit, in each case supporting obligations of the types described in the preceding clauses of this definition.

	(1)	in respect of borrowed money;
	(2)	evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);
	(3)	in respect of banker’s acceptances;
	(4)	in respect of Capital Lease Obligations;
	(5)	in respect of the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed, except any such balance that constitutes an accrued expense or a trade payable;
	(6)	representing Hedging Obligations; or
	(7)	representing Disqualified Stock valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued dividends,

146

---

Table of Contents

	(1)	accrued expenses and trade accounts payable arising in the ordinary course of business;
	(2)	any indebtedness that has been defeased in accordance with GAAP or defeased pursuant to the deposit of cash or Cash Equivalents (in an amount sufficient to satisfy all obligations relating thereto at maturity or redemption, as applicable, including all payments of interest and premium, if any) in a trust or account created or pledged for the sole benefit of the holders of such indebtedness, and subject to no other Liens, and in accordance with the other applicable terms of the instrument governing such indebtedness;
	(3)	any obligation arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, however, that such obligation is extinguished within five business days of its incurrence; and
	(4)	any obligation arising from any agreement providing for indemnities, Guarantees, purchase price adjustments, holdbacks, contingency payment obligations based on the performance of the acquired or disposed assets or similar obligations (other than Guarantees of Indebtedness) incurred by any Person in connection with the acquisition or disposition of any assets, including Capital Stock.

	(1)	the accreted value thereof, in the case of any Indebtedness issued with original issue discount; and
	(2)	the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness.

147

---

Table of Contents

	(1)	any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and
	(2)	any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss.

148

---

Table of Contents

149

---

Table of Contents

	(1)	any Officer or member of the Board of Directors of Allis-Chalmers or any Beneficial Owner of at least 5% of Allis-Chalmers’ Equity Interests as of the Issue Date;
	(2)	any controlling stockholder, 80% (or more) owned Subsidiary or immediate family member (in the case of an individual) of any Person referred to in clause (1); or
	(3)	any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons Beneficially Owning an 80% or more controlling interest of which consist of any one or more Persons referred to in clause (1) or (2).

	(1)	any Investment in Allis-Chalmers or in a Restricted Subsidiary of Allis-Chalmers;
	(2)	any Investment in cash or Cash Equivalents;
	(3)	any Investment by Allis-Chalmers or any Restricted Subsidiary of Allis-Chalmers in a Person, if as a result of such Investment:

	(a)	such Person becomes a Restricted Subsidiary of Allis-Chalmers; or

	(b)	such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, Allis-Chalmers or a Restricted Subsidiary of Allis-Chalmers;

	(4)	any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption “— Repurchase at the Option of Holders — Asset Sales”;
	(5)	Hedging Obligations that are Incurred for the purpose of fixing, hedging or swapping interest rate, commodity price or foreign currency exchange rate risk (or to reverse or amend any such agreements previously made for such purposes), and not for speculative purposes, and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in interest rates, commodity prices or foreign currency exchange rates or by reason of fees, indemnities and compensation payable thereunder;
	(6)	stock, obligations or securities received in satisfaction of judgments;
	(7)	advances to customers or suppliers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable, prepaid expenses or deposits on the balance sheet of Allis-Chalmers or its Restricted Subsidiaries and endorsements for collection or deposit arising in the ordinary course of business;
	(8)	any Investment in any Person solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of Allis-Chalmers or any of its Subsidiaries;
	(9)	any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that were incurred in the ordinary course of business of Allis-Chalmers or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (B) litigation, arbitration or other disputes with Persons who are not Affiliates;
	(10)	loans to officers and employees of Allis-Chalmers or any of its Subsidiaries made in the ordinary course of business;

150

---

Table of Contents

	(11)	commission, payroll, travel, entertainment and similar advances to officers and employees of Allis-Chalmers or any of its Restricted Subsidiaries that are expected at the time of such advance ultimately to be recorded as an expense in conformity with GAAP;
	(12)	Permitted Joint Venture Investments made by Allis-Chalmers or any of its Restricted Subsidiaries and Investments made pursuant to any Joint Marketing Arrangement, in an aggregate amount (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (12), that does not exceed $10.0 million;
	(13)	Investments existing on the Issue Date;
	(14)	repurchases of, or other Investments in, the notes;
	(15)	advances, deposits and prepayments for purchases of any assets, including any Equity Interests; and
	(16)	other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (16) since the Issue Date, not to exceed the greater of (a) $15.0 million or (b) 5.0% of Consolidated Tangible Assets.

	(1)	Liens on the assets of Allis-Chalmers and any Restricted Subsidiary securing Indebtedness Incurred under clause (1) of the second paragraph of the covenant described under the caption “— Covenants — Incurrence of Indebtedness”;
	(2)	Liens in favor of Allis-Chalmers or any Restricted Subsidiary;
	(3)	Liens on property of a Person (i) existing at the time of acquisition thereof or (ii) existing at the time such Person is merged with or into or consolidated with Allis-Chalmers or any Restricted Subsidiary of Allis-Chalmers; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person acquired or merged into or consolidated with Allis-Chalmers or the Restricted Subsidiary;
	(4)	Liens on property existing at the time of acquisition thereof by Allis-Chalmers or any Restricted Subsidiary of Allis-Chalmers, provided that such Liens were in existence prior to, and not in contemplation of, such acquisition and do not extend to any property other than the property so acquired by Allis-Chalmers or the Restricted Subsidiary;

151

---

Table of Contents

	(5)	Liens securing the notes and the Subsidiary Guarantees;
	(6)	Liens existing on the Issue Date (other than any Liens securing Indebtedness Incurred under clause (1) of the covenant described under the caption “— Covenants — Incurrence of Indebtedness”);
	(7)	Liens securing Permitted Refinancing Indebtedness; provided that such Liens do not extend to any property or assets other than the property or assets that secure the Indebtedness being refinanced;
	(8)	Liens on property or assets used to defease or to satisfy and discharge Indebtedness; provided that (a) the Incurrence of such Indebtedness was not prohibited by the indenture and (b) such defeasance or satisfaction and discharge is not prohibited by the indenture;
	(9)	Liens securing obligations that do not exceed $10.0 million at any one time outstanding;
	(10)	Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant described under the caption “— Covenants — Incurrence of Indebtedness”; provided that any such Lien (i) covers only the assets acquired, constructed, refurbished, installed, improved, deployed, refurbished, modified or leased with such Indebtedness and (ii) is created within 180 days of such acquisition, construction, refurbishment, installation, improvement, deployment, refurbishment, modification or lease;
	(11)	Liens to secure Indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of construction, development, expansion or improvement of the equipment or other property subject to such Liens; provided, however, that (a) the principal amount of any Indebtedness secured by such a Lien does not exceed 100% of such purchase price or cost, (b) such Lien does not extend to or cover any property other than such item of property or any improvements on such item of property and (c) the incurrence of such Indebtedness is otherwise not prohibited by the indenture;
	(12)	Liens securing Indebtedness of any Foreign Subsidiary which Indebtedness is permitted by the indenture;
	(13)	Liens securing Hedging Obligations of Allis-Chalmers or any of its Restricted Subsidiaries;
	(14)	Liens incurred or deposits made in the ordinary course of business in connection with worker’s compensation, unemployment insurance or other social security obligations;
	(15)	Liens, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of Indebtedness), leases, or other similar obligations arising in the ordinary course of business;
	(16)	survey exceptions, encumbrances, easements or reservations of, or rights of others for, rights of way, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of properties, and defects in title which, in the case of any of the foregoing, were not incurred or created to secure the payment of Indebtedness, and which in the aggregate do not materially adversely affect the value of such properties or materially impair the use for the purposes of which such properties are held by Allis-Chalmers or any of its Restricted Subsidiaries;

152

---

Table of Contents

	(17)	judgment and attachment Liens not giving rise to an Event of Default, notices of lis pendens and associated rights related to litigation being contested in good faith by appropriate proceedings and for which adequate reserves have been made and any Liens that are required to protect or enforce any rights in any administrative, arbitration, litigation or other court proceeding in the ordinary course of business;
	(18)	Liens, deposits or pledges to secure public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds or obligations; and Liens, deposits or pledges in lieu of such bonds or obligations, or to secure such bonds or obligations, or to secure letters of credit in lieu of or supporting the payment of such bonds or obligations;
	(19)	Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of Allis-Chalmers or any Subsidiary thereof on deposit with or in possession of such bank;
	(20)	any interest or title of a lessor, licensor or sublicensor in the property subject to any lease, license or sublicense;
	(21)	Liens for taxes, assessments and governmental charges not yet delinquent or being contested in good faith and for which adequate reserves have been established to the extent required by GAAP;
	(22)	Liens arising from precautionary UCC financing statements regarding operating leases or consignments;
	(23)	Liens of franchisors in the ordinary course of business not securing Indebtedness;
	(24)	Liens imposed by law, such as carriers’, warehousemen’s, repairmen’s, landlord’s and mechanics’ Liens or other similar Liens, in each case, incurred in the ordinary course of business;
	(25)	Liens contained in purchase and sale agreements limiting the transfer of assets pending the closing of the transactions contemplated thereby;
	(26)	Liens that may be deemed to exist by virtue of contractual provisions that restrict the ability of Allis-Chalmers or any of its Subsidiaries from granting or permitting to exist Liens on their respective assets; and
	(27)	Liens in favor of the trustee as provided for in the indenture on money or property held or collected by the trustee in its capacity as trustee.

153

---

Table of Contents

	(1)	the amount of such Permitted Refinancing Indebtedness does not exceed the amount of the Indebtedness so Refinanced (plus all accrued and unpaid interest thereon and the amount of any reasonably determined premium necessary to accomplish such refinancing and such reasonable expenses incurred in connection therewith);
	(2)	such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being Refinanced;
	(3)	if the Indebtedness being Refinanced is subordinated in right of payment to the notes or the Subsidiary Guarantees, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of the notes and is subordinated in right of payment to the notes or the Subsidiary Guarantees, as applicable, on terms at least as favorable, taken as a whole, to the Holders of notes as those contained in the documentation governing the Indebtedness being Refinanced; and
	(4)	such Indebtedness is Incurred by either (a) the Restricted Subsidiary that is the obligor on the Indebtedness being Refinanced or (b) Allis-Chalmers.

154

---

Table of Contents

	(1)	any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and
	(2)	any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof).

	(1)	the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
	(2)	the then outstanding principal amount of such Indebtedness.

155

---

Table of Contents

	•	dealers in securities or currencies;
	•	traders in securities;
	•	U.S. holders whose functional currency is not the U.S. dollar;
	•	persons holding notes as part of a hedge, straddle, conversion or other “synthetic security” or integrated transaction;
	•	certain U.S. expatriates; financial institutions; insurance companies;
	•	entities that are tax-exempt for U.S. federal income tax purposes; and
	•	partnerships and other pass-through entities.

156

---

Table of Contents

	•	a citizen or resident of the United States,
	•	a corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia,
	•	an estate, the income of which is subject to U.S. federal income taxation regardless of the source of that income, or
	•	a trust, if, in general, a U.S. court is able to exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust.

	Payments of Interest

	Discount and Premium

	Sale or Other Disposition of Notes

157

---

Table of Contents

	Information Reporting and Backup Withholding

	Taxation of Interest

	•	you do not, directly or indirectly, actually or constructively, own 10% or more of the total combined voting power of all classes of our shares;
	•	you are not a controlled foreign corporation that is related to us within the meaning of the Code; and
	•	the U.S. payor does not have actual knowledge or reason to know that you are a U.S. person and either (1) you certify to the applicable payor or its agent, under penalties of perjury, that you are not a U.S. holder and provide your name and address on IRS Form W-8BEN (or a suitable substitute form) or (2) a securities clearing organization, bank or other financial institution, that holds customers’ securities in the ordinary course of its trade or business (a “financial institution”) and holds the note, certifies under penalties of perjury that a IRS Form W-8BEN (or a suitable substitute form) has been received from you by it or by a financial institution between it and you and furnishes the payor with a copy of the form or the U.S. payor otherwise possesses documentation upon which it may rely to treat the payment as made to a non-U.S. person in accordance with applicable U.S. Treasury regulations.

158

---

Table of Contents

	Gain on Disposition of Notes

	•	you are an individual present in the United States for 183 days or more in the year of such sale, exchange, redemption or other taxable disposition and specific other conditions are present, or
	•	the gain is effectively connected with your conduct of a U.S. trade or business, or, if a U.S. income tax treaty applies, is generally attributable to a U.S. “permanent establishment” you maintain. Please read “— Non-U.S. Holders — Income Effectively Connected with a U.S. Trade or Business.”

	Income Effectively Connected with a U.S. Trade or Business

	Information Reporting and Backup Withholding

159

---

Table of Contents

	•	is a United States person as defined in the Code;
	•	derives 50% or more of its gross income in specific periods from the conduct of a trade or business in the United States;
	•	is a “controlled foreign corporation” for U.S. federal income tax purposes; or
	•	is a foreign partnership that, at any time during its taxable year, has more than 50% of its income or capital interests owned by U.S. persons or is engaged in the conduct of a U.S. trade or business, unless the broker has documentary evidence in its files that you are a non-U.S. person and specific other conditions are met or you otherwise establish an exemption.

160

---

Table of Contents

	•	our “affiliate” within the meaning of Rule 405 under the Securities Act;
	•	a broker-dealer that acquired old notes directly from us; or
	•	a broker-dealer that acquired old notes as a result of market-making or other trading activities without compliance with the registration and prospectus delivery provisions of the Securities Act;

161

---

Table of Contents

162

---

Table of Contents

163

---

Table of Contents

ALLIS-CHALMERS ENERGY INC.
Reports of Independent Registered Public Accounting Firms		F-4
Consolidated Balance Sheets as of December 31, 2005 and 2004		F-6
Consolidated Statements of Operations for the Years Ended December 31, 2005, December 31, 2004 and December 31, 2003		F-7
Consolidated Statement of Stockholders’ Equity for the Years Ended December 31, 2005, December 31, 2004 and December 31, 2003		F-8
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, December 31, 2004 and December 31, 2003		F-9
Notes to Consolidated Financial Statements		F-10
Consolidated Condensed Balance Sheets as of June 30, 2006 and December 31, 2005		F-50
Consolidated Condensed Income Statements for the Three and Six Months ended June 30, 2006 and 2005		F-51
Consolidated Condensed Statements of Cash Flows for the Six Months ended June 30, 2006 and 2005		F-52
Notes to Consolidated Condensed Financial Statements		F-53
DELTA RENTAL SERVICE, INC.
Independent Auditors’ Report		F-67
Balance Sheets as of December 31, 2004 and 2003		F-68
Statements of Operations for the Years Ended December 31, 2004 and 2003		F-70
Statements of Retained Earnings for the Years Ended December 31, 2004 and 2003		F-71
Statements of Cash Flows for the Years Ended December 31, 2004 and 2003		F-72
Notes to Financial Statements		F-73
Unaudited Balance Sheet as of March 31, 2005		F-77
Unaudited Statements of Operations for the Three Months Ended March 31, 2005 and 2004		F-78
Unaudited Statement of Retained Earnings for the Three Months Ended March 31, 2005 and 2004		F-79
Unaudited Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004		F-80
CAPCOIL TUBING SERVICES, INC.
Independent Auditors’ Report		F-81
Balance Sheets as of December 31, 2004 and 2003		F-82
Statements of Operations and Retained Earnings for the Years Ended December 31, 2004 and 2003		F-84
Statements of Cash Flows for the Years Ended December 31, 2004 and 2003		F-85
Notes to Financial Statements		F-86
Independent Auditors’ Report on Additional Information		F-93
Statements of Operations with Additional Information		F-94

F-1

---

Table of Contents

Unaudited Balance Sheet as of March 31, 2005		F-96
Unaudited Statement of Income and Retained Earnings for the Three Months Ended March 31, 2005 and 2004		F-97
Unaudited Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2004		F-98
W. T. ENTERPRISES, INC.
Independent Auditor’s Report		F-99
Balance Sheets as of March 31, 2005, December 31, 2004 and 2003		F-100
Statements of Income for the Three Months Ended March 31, 2005, and Years Ended December 31, 2004 and 2003		F-101
Statements of Stockholders’ Equity for the Three Months Ended March 31, 2005, and Years Ended December 31, 2004 and 2003		F-102
Statements of Cash Flows for the Three Months Ended March 31, 2005, and Years Ended December 31, 2004 and 2003		F-103
Notes to Financial Statements		F-104
Unaudited Balance Sheet as of June 30, 2005		F-109
Unaudited Statements of Income and Retained Earnings for the Six Months ended June 30, 2005 and June 30, 2004		F-110
Unaudited Schedule of Cost of Revenue and Operating Expenses for the Six Months ended June 30, 2005 and June 30, 2004		F-111
Unaudited Statements of Cash Flows for the Six Months ended June 30, 2005 and June 30, 2004		F-112
SPECIALTY RENTAL TOOLS, INC.
Independent Auditors’ Report		F-113
Balance Sheets as of December 31, 2005, 2004 and 2003		F-114
Statements of Income for the Years Ended December 31, 2005, 2004 and 2003		F-115
Statements of Shareholder’s Equity for the Years Ended December 31, 2005, 2004 and 2003		F-116
Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003		F-117
Notes to Financial Statements		F-118
Supplemental Information
Schedule I — Schedule of General and Administrative Expenses		F-126
DLS DRILLING, LOGISTICS & SERVICES CORPORATION
Independent Auditors’ Report		F-127
Consolidated Balance Sheets as of December 31, 2005 and 2004		F-128
Consolidated Statements of Income for the Years Ended December 31, 2005, 2004 and 2003		F-129
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2005, 2004 and 2003		F-130
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003		F-131
Notes to Financial Statements		F-132

F-2

---

Table of Contents

Unaudited Interim Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005		F-148
Unaudited Interim Consolidated Statements of Income for the periods ended June 30, 2006 and 2005		F-149
Unaudited Interim Consolidated Statements of Stockholders’ Equity for the periods ended June 30, 2006 and 2005		F-150
Unaudited Interim Consolidated Statements of Cash Flows for the periods ended June 30, 2006 and 2005		F-151
Notes to the Unaudited Interim Consolidated Financial Statements		F-152
PRO FORMA FINANCIAL INFORMATION		F-169
Unaudited Pro Forma Consolidated Condensed Statement of Financial Position as of June 30, 2006		F-173
Unaudited Pro Forma Consolidated Condensed Statement of Operations for the Three and Six Months Ended June 30, 2006		F-174
Unaudited Pro Forma Consolidated Condensed Statement of Operations for the Year Ended December 31, 2005		F-175
Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements		F-177

F-3

---

Table of Contents

	/s/ UHY Mann Frankfort Stein & Lipp CPAs, LLP

F-4

---

Table of Contents

	/s/ GORDON, HUGHES & BANKS, LLP

F-5

---

Table of Contents

				December 31,
				2005				2004
				(In thousands, except
				for share amounts)
ASSETS
Cash and cash equivalents				$	1,920			$	7,344
Trade receivables, net of allowance for doubtful accounts of $383 and $265 at December 31, 2005 and 2004, respectively					26,964				12,986
Inventory					5,945				2,373
Lease receivable, current					—				180
Prepaid expenses and other					823				1,495
	Total current assets				35,652				24,378
Property and equipment, at costs net of accumulated depreciation of $9,996 and $5,251 at December 31, 2005 and 2004, respectively					80,574				37,679
Goodwill					12,417				11,776
Other intangible assets, net of accumulated amortization of $3,163 and $2,036 at December 31, 2005 and 2004, respectively					6,783				5,057
Debt issuance costs, net of accumulated amortization of $299 and $828 at December 31, 2005 and 2004, respectively					1,298				685
Lease receivable, less current portion					—				558
Other assets					631				59
	Total assets			$	137,355			$	80,192
		LIABILITIES AND STOCKHOLDERS’ EQUITY
Current maturities of long-term debt				$	5,632			$	5,541
Trade accounts payable					9,018				5,694
Accrued salaries, benefits and payroll taxes					1,271				615
Accrued interest					289				470
Accrued expenses					4,350				1,852
Accounts payable, related parties					60				740
	Total current liabilities				20,620				14,912
Accrued postretirement benefit obligations					335				687
Long-term debt, net of current maturities					54,937				24,932
Other long-term liabilities					588				129
	Total liabilities				76,480				40,660
Commitments and Contingencies Minority interest					—				4,423
Stockholders’ Equity
Preferred stock, $0.01 par value (25,000,000 shares authorized, none issued)					—				—
Common stock, $0.01 par value (100,000,000 shares authorized;16,859,988 issued and outstanding at December 31, 2005 and 20,000,000 shares authorized and 13,611,525 issued and outstanding at December 31, 2004)					169				136
Capital in excess of par value					58,889				40,331
Retained earnings (deficit)					1,817				(5,358	)
	Total stockholders’ equity				60,875				35,109
	Total liabilities and stockholders’ equity			$	137,355			$	80,192

F-6

---

Table of Contents

				Years Ended December 31,
				2005				2004				2003
								(Restated)				(Restated)
				(In thousands, except
				per share amounts)
Revenues				$	105,344			$	47,726			$	32,724
Cost of revenues
	Direct costs				69,889				32,598				21,977
	Depreciation				4,874				2,702				2,052
Gross margin					30,581				12,426				8,695
General and administrative expense					15,928				7,135				5,285
Amortization					1,787				876				884
Post-retirement medical costs					(352	)			188				(99	)
Income from operations					13,218				4,227				2,625
Other income (expense):
Interest expense					(4,397	)			(2,808	)			(2,467	)
Settlement on lawsuit					—				—				1,034
Gain on sale of interest in AirComp					—				—				2,433
Other					186				304				15
Total other income (expense)					(4,211	)			(2,504	)			1,015
Income before minority interest and income taxes					9,007				1,723				3,640
Minority interest in income of subsidiaries					(488	)			(321	)			(343	)
Provision for income taxes					(1,344	)			(514	)			(370	)
Net income					7,175				888				2,927
Preferred stock dividend					—				(124	)			(656	)
Net income attributed to common stockholders				$	7,175			$	764			$	2,271
Income per common share — basic				$	0.48			$	0.10			$	0.58
Income per common share — diluted				$	0.44			$	0.09			$	0.50
Weighted average number of common shares outstanding:
		Basic			14,832				7,930				3,927
		Diluted			16,238				9,510				5,850

F-7

---

Table of Contents

			Common Stock								Capital in				Retained
											Excess of				Earnings
			Shares				Amount				Par Value				(Deficit)				Total
			(In thousands, except share amounts)
Balances, December 31, 2002				3,926,668			$	39			$	10,143			$	(9,173	)		$	1,009
Net income (restated)				—				—				—				2,927				2,927
Effect of consolidation of AirComp				—				—				955				—				955
Accrual of preferred dividends				—				—				(350	)			—				(350	)
Balances, December 31, 2003, as restated				3,926,668				39				10,748				(6,246	)			4,541
Net income				—				—				—				888				888
Issuance of common stock:
	Acquisitions			1,868,466				19				8,592				—				8,611
	Private placement			6,081,301				61				15,600				—				15,661
	Services			17,000				—				99				—				99
Conversion of preferred stock				1,718,090				17				4,278				—				4,295
Issuance of stock purchase warrants				—				—				1,138				—				1,138
Accrual of preferred dividends				—				—				(124	)			—				(124	)
Balances, December 31, 2004				13,611,525				136				40,331				(5,358	)			35,109
Net income				—				—				—				7,175				7,175
Issuance of common stock:
	Acquisitions			411,275				4				1,746				—				1,750
	Secondary public offering			1,761,034				18				15,441				—				15,459
	Stock options and warrants exercised			1,076,154				11				1,371				—				1,382
Balances, December 31, 2005				16,859,988			$	169			$	58,889			$	1,817			$	60,875

F-8

---

Table of Contents

				Years Ended December 31,
				2005				2004				2003
												(Restated)
				(In thousands)
Cash Flows from Operating Activities:
Net income				$	7,175			$	888			$	2,927
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation				4,874				2,702				2,052
	Amortization				1,787				876				884
	Write-off of deferred financing fees due to refinancing				653				—				—
	Issuance of stock options for services				—				14				—
	Amortization of discount on debt				9				350				516
	(Gain) on change in PBO liability				(352	)			—				(125	)
	(Gain) on settlement of lawsuit				—				—				(1,034	)
	(Gain) on sale of interest in AirComp				—				—				(2,433	)
	Minority interest in income of subsidiaries				488				321				343
	(Gain) loss on sale of property				(669	)			—				82
Changes in working capital:
	(Increase) in accounts receivable				(10,437	)			(2,292	)			(4,414	)
	(Increase) in due from related party				—				(7	)			—
	(Increase) in other current assets				(2,143	)			(612	)			(1,260	)
	Decrease (increase) in other assets				(936	)			(19	)			1
	Decrease in lease deposit				—				—				525
	Increase in accounts payable				2,373				1,140				2,251
	(Decrease) increase in accrued interest				324				299				(126	)
	(Decrease) increase in accrued expenses				(97	)			(276	)			397
	(Decrease) increase in other long-term liabilities				86				(141	)			—
	Increase in accrued salaries,benefits and payroll taxes				443				19				1,293
		Net cash provided by operating activities			3,578				3,262				1,879
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired					(36,888	)			(4,459	)			—
Purchase of property and equipment					(17,767	)			(4,603	)			(5,354	)
Proceeds from sale of property and equipment					1,579				—				843
		Net cash used in investing activities			(53,076	)			(9,062	)			(4,511	)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt					56,251				8,169				14,127
Payments on long-term debt					(28,202	)			(13,259	)			(10,826	)
Payments on related party debt					(1,522	)			(246	)			(246	)
Net borrowings on lines of credit					2,527				689				1,138
Proceeds from issuance of common stock					15,459				16,883				—
Proceeds from exercise of options and warrants					1,382				—				—
Debt issuance costs					(1,821	)			(391	)			(408	)
		Net cash provided by financing activities			44,074				11,845				3,785
Net increase (decrease) in cash and cash equivalents					(5,424	)			6,045				1,153
Cash and cash equivalents at beginning of year					7,344				1,299				146
Cash and cash equivalents at end of year				$	1,920			$	7,344			$	1,299

F-9

---

Table of Contents

	Organization of Business

F-10

---

Table of Contents

	Vulnerabilities and Concentrations

F-11

---

Table of Contents

	Use of Estimates

	Principles of Consolidation

	Revenue Recognition

	Allowance for Doubtful Accounts

F-12

---

Table of Contents

	Cash Equivalents

	Inventories

	Property and Equipment

	Goodwill, Intangible Assets and Amortization

F-13

---

Table of Contents

	Impairment of Long-Lived Assets

	Financial Instruments

	Concentration of Credit and Customer Risk

	Debt Issuance Costs

	Income Taxes

F-14

---

Table of Contents

	Stock-Based Compensation

					For0the Years2Ended December031,
									(Restated)				(Restated)
Net income attributed to common stockholders as reported:					$	7,175			$	764			$	2,271
Less total stock based employee compensation expense determined under fair value based method for all awards net of tax related effects						(4,284	)			(1,072	)			(2,314	)
Pro-forma net income (loss) attributed to common stockholders					$	2,891			$	(308	)		$	(43	)
Net income/(loss) per common share:
	Basic		As reported		$	0.48			$	0.10			$	0.58
			Pro forma		$	0.19			$	(0.04	)		$	(0.01	)
	Diluted		As reported		$	0.44			$	0.09			$	0.50
			Pro forma		$	0.18			$	(0.04	)		$	(0.01	)

F-15

---

Table of Contents

		For the Years Ended December 31,
		2005				2004				2003
Expected dividend yield			—				—				—
Expected price volatility			84.28	%			89.76	%			265.08	%
Risk-free interest rate			5.6	%			7.00	%			6.25	%
Expected life of options			7 years				7 years				7 years
Weighted average fair value of options granted at market value		$	5.02			$	3.19			$	2.78

	Segments of an Enterprise and Related Information

	Pension and Other Post Retirement Benefits

	Income Per Common Share

F-16

---

Table of Contents

			For the Years Ended December 31,
			2005				2004				2003
							(Restated)				(Restated)
Numerator:
Net income available for common stockholders			$	7,175			$	764			$	2,271
Plus income impact of assumed conversions:
	Preferred stock dividends/interest			—				124				656
Net income applicable to common stockholders plus assumed conversions			$	7,175			$	888			$	2,927
Denominator:
Denominator for basic earnings per share — weighted average shares outstanding				14,832				7,930				3,927
Effect of potentially dilutive common shares:
	Convertible preferred stock and employee and director stock options			1,406				1,580				1,923
Weighted average shares outstanding and assumed conversions				16,238				9,510				5,850
Basic earnings per share			$	0.48			$	0.10			$	0.58
Diluted earnings per share			$	0.44			$	0.09			$	0.50

	Reclassification

	New Accounting Pronouncements

F-17

---

Table of Contents

	Earnings Per Share

F-18

---

Table of Contents

			Three Months Ended March 31, 2005
			As
			Previously								As
			Reported				Adjustments				Restated
Income per common share — diluted			$	0.09			$	0.02			$	0.11
Weighted average number of common shares outstanding:
	Diluted			17,789				(3,094	)			14,695

			Year Ended December 31, 2004
			As
			Previously								As
			Reported				Adjustments				Restated
Income per common share — diluted			$	0.07			$	0.02			$	0.09
Weighted average number of common shares outstanding:
	Diluted			11,959				(2,449	)			9,510

			Three Months Ended September 30,
			2004
			As
			Previously								As
			Reported				Adjustments				Restated
Income per common share — basic			$	0.04			$	0.02			$	0.06
Income per common share — diluted			$	0.04			$	0.01			$	0.05
Weighted average number of common shares outstanding:
	Basic			11,599				(3,301	)			8,298
	Diluted			14,407				(4,579	)			9,828

			Three Months Ended June 30, 2004
			As
			Previously								As
			Reported				Adjustments				Restated
Income per common share — diluted			$	0.04			$	0.01			$	0.05
Weighted average number of common shares outstanding:
	Diluted			10,237				(2,618	)			7,619

F-19

---

Table of Contents

			Three Months Ended March 31, 2004
			As
			Previously								As
			Reported				Adjustments				Restated
Income per common share — diluted			$	0.05			$	0.03			$	0.08
Weighted average number of common shares outstanding:
	Diluted			5,762				478				6,240

			Year Ended December 31, 2003
			As
			Previously								As
			Reported				Adjustments				Restated
Income per common share — diluted			$	0.39			$	0.11			$	0.50
Weighted average number of common shares outstanding:
	Diluted			5,761				89				5,850

			Three Months Ended September 30,
			2003
			As
			Previously								As
			Reported				Adjustments				Restated
Income per common share — diluted			$	0.60			$	(0.01	)		$	0.59
Weighted average number of common shares outstanding:
	Diluted			5,761				208				5,969

	AirComp Acquisition

	Increase in Book Value of Fixed Assets.

F-20

---

Table of Contents

	Increase in Minority Interest and Capital in Excess of Par Value.

			At December 31, 2003
			As
			Previously				Restatement				As
			Reported				Adjustments				Restated
Assets
Cash and cash equivalents			$	1,299			$	—			$	1,299
Trade receivables, net				8,823				—				8,823
Lease receivable, current				180				—				180
Prepaid expenses and other				887				—				887
	Total current assets			11,189				—				11,189
Property and equipment, net				26,339				4,789				31,128
Goodwill				7,661				—				7,661
Other intangible assets, net				2,290				—				2,290
Debt issuance costs, net				567				—				567
Lease receivable, less current portion				787				—				787
Other				40				—				40
	Total Assets		$	48,873			$	4,789			$	53,662
Liabilities and Stockholders’ Equity
Current maturities of long-term debt			$	3,992			$	—			$	3,992
Trade accounts payable				3,133				—				3,133
Accrued salaries, benefits and payroll taxes				591				—				591
Accrued interest				152				—				152
Accrued expenses				1,761				—				1,761
Accounts payable, related parties				787				—				787
	Total current liabilities			10,416				—				10,416
Accrued postretirement benefit obligations				545				—				545
Long-term debt, net of current maturities				28,241				—				28,241
Other long-term liabilities				270				—				270
Redeemable warrants				1,500				—				1,500
Redeemable convertible preferred stock and dividends				4,171				—				4,171
	Total Liabilities			45,143				—				45,143
Commitments and contingencies Minority interests				2,523				1,455				3,978

F-21

---

Table of Contents

			At December 31, 2003
			As
			Previously				Restatement				As
			Reported				Adjustments				Restated
Stockholders’ Equity
Common stock				39				—				39
Capital in excess of par value				9,793				955				10,748
Accumulated (deficit)				(8,625	)			2,379				(6,246	)
	Total Stockholders’ Equity			1,207				3,334				4,541
	Total Liabilities and Stockholders’ Equity		$	48,873			$	4,789			$	53,662

	Increase in Net Income.

F-22

---

Table of Contents

				Year Ended December 31, 2003
				As
				Previously				Restatement				As
				Reported				Adjustments				Restated
Revenue				$	32,724			$	—			$	32,724
Cost of revenues
	Direct costs				21,977				—				21,977
	Depreciation				1,954				98				2,052
		Gross margin			8,793				(98	)			8,695
General and administrative expense					5,285				—				5,285
Amortization					884				—				884
		Income (loss) from operations			2,624				(98	)			2,526
Other income (expense):
	Interest, net				(2,464	)			—				(2,464	)
	Settlement on lawsuit				1,034				—				1,034
	Gain on sale of stock in a subsidiary				—				2,433				2,433
	Other				111				—				111
		Total other income (expense)			(1,319	)			2,433				1,114
		Net income before minority interest and income taxes			1,305				2,335				3,640
Minority interest in income of subsidiaries					(387	)			44				(343	)
Provision for foreign income tax					(370	)			—				(370	)
		Net income			548				2,379				2,927
Preferred stock dividend					(656	)			—				(656	)
		Net income (loss) attributed to common stockholders		$	(108	)		$	2,379			$	2,271
Net income per common share — basic				$	(0.03	)						$	0.58
Net income per common share — diluted				$	(0.03	)						$	0.39
Weighted average number of common shares outstanding:
		Basic			3,927								3,927
		Diluted			5,761								5,761

F-23

---

Table of Contents

					Year Ended December 31, 2003
					As
					Previously				Restatement				As
					Reported				Adjustments				Restated
Cash Flows From Operating Activities:
Net income					$	548			$	2,379			$	2,927
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization expense					2,838				98				2,936
	Amortization of discount on debt					516				—				516
	(Gain) on change PBO liability					(125	)			—				(125	)
	(Gain) on settlement of lawsuit					(1,034	)			—				(1,034	)
	(Gain) on sale of interest in AirComp					—				(2,433	)			(2,433	)
	Minority interest in income of subsidiaries					387				(44	)			343
	Loss on sale of property					82				—				82
	Changes in operating assets and liabilities:
		(Increase) in accounts receivable				(4,414	)			—				(4,414	)
		(Increase) in other current assets				(1,260	)			—				(1,260	)
		Decrease in other assets				1				—				1
		Decrease in lease deposit				525				—				525
		Increase in accounts payable				2,251				—				2,251
		(Decrease) in accrued interest				(126	)			—				(126	)
		Increase in accrued expenses				397				—				397
		Increase in accrued employee benefits and payroll taxes				1,293				—				1,293
			Net cash provided by operating activities			1,879				—				1,879
Cash Flows From Investing Activities:
Purchase of equipment						(5,354	)			—				(5,354	)
Proceeds from sale of equipment						843				—				843
			Net cash used by investing activities			(4,511	)			—				(4,511	)

F-24

---

Table of Contents

				Year Ended December 31, 2003
				As
				Previously				Restatement				As
				Reported				Adjustments				Restated
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt					14,127				—				14,127
Repayments of long-term debt					(10,826	)			—				(10,826	)
Repayments on related party debt					(246	)			—				(246	)
Borrowing on lines of credit					30,537				—				30,537
Repayments on lines of credit					(29,399	)			—				(29,399	)
Debt issuance costs					(408	)			—				(408	)
		Net cash provided by financing activities			3,785				—				3,785
		Net decrease in cash and cash equivalents			1,153				—				1,153
Cash and cash equivalents at beginning of the year					146				—				146
Cash and cash equivalents at end of the period				$	1,299			$	—			$	1,299
Supplemental information:
	Interest paid			$	2,341			$	—			$	2,341

			Three Months				Three Months				Three Months
			Ended				Ended				Ended
			March 31,				June 30,				September 30,
			2004				2004				2004
Net income (loss) attributed to common stockholders
	Previously reported		$	501			$	434			$	576
	Adjustment — depreciation expense			(139	)			(79	)			(79	)
	Adjustment — minority interest expense			22				22				22
	Restated		$	384			$	377			$	519
Net income (loss) per share, basic
	Previously reported		$	0.13			$	0.07			$	0.05
	Total adjustments			(0.03	)			(0.01	)			(0.01	)
	Restated		$	0.10			$	0.06			$	0.04

F-25

---

Table of Contents

			Three Months				Three Months				Three Months
			Ended				Ended				Ended
			March 31,				June 30,				September 30,
			2003				2003				2003
Net income (loss) attributed to common stockholders
	Previously reported		$	(183	)		$	(330	)		$	1,136
	Adjustment — gain on sale of stock in a subsidiary			—				—				2,433
	Adjustment — depreciation expense			—				—				(49	)
	Adjustment — minority interest expense			—				—				22
	Adjustment — foreign tax expense			(158	)			(92	)			(93	)
	Restated		$	(341	)		$	(422	)		$	3,449
Net income (loss) per share, basic and diluted
	Previously reported		$	(0.05	)		$	(0.08	)		$	0.29
	Total adjustments			(0.04	)			(0.03	)			0.58
	Restated		$	(0.09	)		$	(0.11	)		$	0.87

	Medical And Life

	401(k) Savings Plan

F-26

---

Table of Contents

F-27

---

Table of Contents

F-28

---

Table of Contents

			Years Ended December 31,
			2005				2004				2003
Revenues			$	110,383			$	70,988			$	52,588
Operating income			$	14,143			$	8,233			$	4,276
Net income			$	8,180			$	4,000			$	2,459
Net income per common share
	Basic		$	0.55			$	0.46			$	0.53
	Diluted		$	0.50			$	0.48			$	0.48

			December 31,				December 31,
			2005				2004
Hammer bits
	Finished goods		$	1,402			$	857
	Work in process			787				385
	Raw materials			233				151
	Total hammer bits			2,422				1,393
Hammers				584				417
Drive pipe				666				—
Rental supplies				64				—
Chemicals				201				254
Coiled tubing and related inventory				1,145				309
Shop supplies and related inventory				863				—
Total inventory			$	5,945			$	2,373

		Depreciation
		Period				2005				2004
Land			—			$	27			$	27
Building and improvements			15-20 years				637				633
Transportation equipment			3-7 years				7,772				4,854
Machinery and equipment			3-20 years				77,002				36,411
Furniture, computers, software and leasehold improvements			3-7 years				2,073				1,005
Construction in progress — equipment			N/A				3,059				—
Total							90,570				42,930
Less: accumulated depreciation							(9,996	)			(5,251	)
Property and equipment, net						$	80,574			$	37,679

F-29

---

Table of Contents

		Amortization
		Period				2005				2004
Intellectual property			20 years			$	1,009			$	1,009
Non-compete agreements			3-5 years				4,630				2,856
Patent			15 years				496				496
Other intangible assets			3-10 years				3,811				2,732
Total						$	9,946			$	7,093
Less: accumulated amortization							(3,163	)			(2,036	)
Intangibles assets, net						$	6,783			$	5,057

		2005												2004
		Gross				Accumulated				Current Year				Gross				Accumulated				Current Year
		Value				Amortization				Amortization				Value				Amortization				Amortization
Intellectual property		$	1,009			$	293			$	54			$	1,009			$	239			$	56
Non-compete agreements			4,630				1,916				884				2,856				1,032				300
Patent			496				39				33				496				6				6
Other intangible assets			3,811				915				277				2,732				759				420
Total		$	9,946			$	3,163			$	1,248			$	7,093			$	2,036			$	782

		Intangible Amortization by Period
		Years Ended December 31,
																		2010 and
		2006				2007				2008				2009				Thereafter
Intellectual property		$	55			$	55			$	55			$	55			$	496
Non-compete agreements			1,043				804				480				327				60
Patent			33				33				33				33				325
Other intangible assets			395				370				359				359				1,413
Total Intangible Amortization		$	1,526			$	1,262			$	927			$	774			$	2,294

F-30

---

Table of Contents

		Years Ended December 31,
		2005				2004				2003
Current Provision
Federal		$	123			$	—			$	—
State			595				—				—
Foreign			626				514				370
		$	1,344			$	514			$	370

		Years Ended December 31,
		2005				2004				2003
Income tax expense based on the U.S. statutory tax rate			34.0	%			34.0	%			34.0	%
State taxes, net of federal benefit			6.1				—				—
Foreign income at other than U.S. rate			7.3				36.6				11.2
Valuation allowances			(98.7	)			(209.4	)			28.6
Nondeductible items, permanent differences and other			67.1				175.4				(62.6	)
Effective tax rate			15.8	%			36.6	%			11.2	%

F-31

---

Table of Contents

		2005				2004
Deferred non-current income tax assets:
Net future (taxable) deductible items		$	384			$	533
Net operating loss carry forwards			5,656				4,894
A-C Reorganization Trust claims			29,098				30,112
Total deferred non-current income tax assets			35,138				35,539
Valuation allowance			(27,131	)			(30,367	)
Net deferred non-current income taxes		$	8,007			$	5,172
Deferred non-current income tax liabilities Depreciation		$	(8,007	)		$	(5,172	)
Net deferred income tax assets		$	—			$	—

F-32

---

Table of Contents

		December 31,
		2005				2004
Bank term loans		$	42,090			$	13,373
Revolving line of credit			6,400				3,873
Subordinated note payable to M-I LLC			4,000				4,818
Subordinated seller note			3,031				4,000
Seller note			850				1,600
Notes payable under non-compete agreements			698				664
Notes payable to former directors			96				402
Notes payable to former shareholders			—				49
Real estate loan			548				—
Vendor financing			—				1,164
Equipment & vehicle installment notes			1,939				530
Capital lease obligations			917				—
Total debt			60,569				30,473
Less: short-term debt and current maturities			5,632				5,541
Long-term debt obligations		$	54,937			$	24,932

		Debt				Capital Leases				Total
Year Ending:
December 31, 2006		$	5,158			$	474			$	5,632
December 31, 2007			49,620				443				50,063
December 31, 2008			4,267				—				4,267
December 31, 2009			69				—				69
December 31, 2010			538				—				538
Thereafter			—				—				—
Total		$	59,652			$	917			$	60,569

	Bank loans and line of credit agreements

	•	A $13.0 million revolving line of credit. Borrowings were limited to 85% of eligible accounts receivable plus 50% of eligible inventory (up to a maximum of $2.0 million of borrowings based

F-33

---

Table of Contents

		on inventory). This line of credit was used to finance working capital requirements and other general corporate purposes, including the issuance of standby letters of credit. Outstanding borrowings under this line of credit were $6.4 million at a margin above prime and LIBOR rates plus margin averaging approximately 8.1% as of December 31, 2005.
	•	Two term loans totaling $42.0 million. Outstanding borrowings under these term loans were $42.0 million as of December 31, 2005. These loans were at LIBOR rates plus a margin which averages approximately 7.8%.

	•	A $10.0 million revolving line of credit. Borrowings were limited to 85% of eligible accounts receivables, as defined. Outstanding borrowings under this line of credit were $2.4 million as of December 31, 2004.
	•	A term loan in the amount of $6.3 million to be repaid in monthly payments of principal of $105,583 per month. We were also required to prepay this term loan by an amount equal to 20% of receipts from our largest customer in Mexico. Proceeds of the term loan were used to prepay the term loan owed by Tubular Services and to prepay the 12% $2.4 million subordinated note and retire its related warrants. The outstanding balance was $6.3 million as of December 31, 2004.
	•	A $6.0 million capital expenditure and acquisition line of credit. Borrowings under this facility were payable monthly over four years beginning in January 2006. Availability of this capital

F-34

---

Table of Contents

		expenditure term loan facility was subject to security acceptable to the lender in the form of equipment or other acquired collateral. There were no outstanding borrowings as of December 31, 2004.

	•	A $3.5 million bank line of credit. Interest accrued at an adjustable rate based on the prime rate. We paid a 0.5% per annum fee on the undrawn portion. Borrowings under the line of credit were subject to a borrowing base consisting of 80% of eligible accounts receivable. The balance at December 31, 2004 was $1.5 million.
	•	A $7.1 million term loan that accrued interest at an adjustable rate based on either LIBOR or the prime rate. Principal payments of $286,000 plus interest were due quarterly, with a final maturity date of June 27, 2007. The balance at December 31, 2004 was $6.8 million.
	•	A “delayed draw” term loan facility in the amount of $1.5 million to be used for capital expenditures. Interest accrued at an adjustable rate based on either the LIBOR or the prime rate. Quarterly principal payments were to commence on March 31, 2006 in an amount equal to 5.0% of the outstanding balance as of December 31, 2005, with a final maturity of June 27, 2007. There were no borrowings outstanding under this facility as of December 31, 2004.

F-35

---

Table of Contents

	Notes payable and real estate loan

F-36

---

Table of Contents

	Other debt

F-37

---

Table of Contents

Years Ending:
December 31, 2006		$	926
December 31, 2007			833
December 31, 2008			629
December 31, 2009			446
December 31, 2010			44
Thereafter			—
Total		$	2,878

	•	In exchange for an investment of $2.0 million, we issued 620,000 shares of our common stock for a purchase price equal to $2.50 per share, and issued warrants to purchase 800,000 shares of our common stock at an exercise price of $2.50 per share, expiring on April 1, 2006, to an investor group (the “Investor Group”) consisting of entities affiliated with Donald and

F-38

---

Table of Contents

		Christopher Engel and directors Robert Nederlander and Leonard Toboroff. The aggregate purchase price for the common stock was $1.55 million and the fair value for the warrants was $450,000.
	•	Energy Spectrum converted its 3,500,000 shares of Series A 10% Cumulative Convertible Preferred Stock, including accrued dividend rights, into 1,718,090 shares of common stock. Energy Spectrum was granted the preferred stock in connection with the Strata acquisition.

F-39

---

Table of Contents

F-40

---

Table of Contents

		December 31, 2005								December 31, 2004								December 31, 2003
		Shares				Weighted				Shares								Shares
		Under				Avg. Exercise				Under				Weighted Avg.				Under				Weighted Avg.
		Option				Price				Option				Exercise Price				Option				Exercise Price
Beginning balance			1,215,000			$	3.20				973,300			$	2.78				104,800			$	3.00
Granted			1,695,000				6.44				248,000				4.85				868,500				2.75
Canceled			(15,300	)			3.33				(6,300	)			2.78				—				—
Exercised			(33,833	)			2.80				—				—				—				—
Ending balance			2,860,867			$	5.10				1,215,000			$	3.20				973,300			$	2.78

						Weighted Average
		Shares Under				Remaining				Options
Exercise Price		Option				Contractual Life				Exercisable				Exercise Price
$ 2.50			100,000				5.79 years				100,000			$	2.50
$ 2.75			829,067				7.96 years				829,067			$	2.75
$ 3.86			920,000				9.09 years				306,667			$	3.86
$ 4.85			259,000				8.73 years				172,667			$	4.85
$ 4.87			154,000				9.40 years				51,333			$	4.87
$10.85			594,000				9.96 years				198,000			$	10.85
$13.75			4,800				4.24 years				4,800			$	13.75
$ 5.11			2,860,867				8.82 years				1,662,534			$	4.22

F-41

---

Table of Contents

F-42

---

Table of Contents

F-43

---

Table of Contents

F-44

---

Table of Contents

		Years Ended December 31,
		2005				2004				2003
										(Restated)
Revenues:
Directional drilling services		$	43,901			$	24,787			$	16,008
Compressed air drilling services			25,662				11,561				6,679
Casing and tubing services			20,932				10,391				10,037
Rental tools			5,059				611				—
Production services			9,790				376				—
Total revenues		$	105,344			$	47,726			$	32,724
Operating Income (Loss):
Directional drilling services		$	7,389			$	3,061			$	1,103
Compressed air drilling services			5,612				1,169				17
Casing and tubing services			4,994				3,217				3,628
Rental tools			1,300				(71	)			—
Production services			(99	)			4				—
General corporate			(5,978	)			(3,153	)			(2,123	)
Total income from operations		$	13,218			$	4,227			$	2,625
Depreciation and Amortization Expense:
Directional drilling services		$	887			$	466			$	275
Compressed air drilling services			1,946				1,329				1,139
Casing and tubing services			2,006				1,597				1,413
Rental tools			492				40				—
Production services			912				26				—
General corporate			418				120				109
Total depreciation and amortization expense		$	6,661			$	3,578			$	2,936
Capital Expenditures:
Directional drilling services		$	2,922			$	1,552			$	1,066
Compressed air drilling services			7,008				1,399				2,093
Casing and tubing services			5,207				1,285				2,176
Rental tools			435				232				—
Production services			1,514				106				—
General corporate			681				29				19
Total capital expenditures		$	17,767			$	4,603			$	5,354

F-45

---

Table of Contents

		Years Ended December 31,
		2005				2004				2003
										(Restated)
Goodwill:
Directional drilling services		$	4,168			$	4,168			$	4,168
Compressed air drilling services			3,950				3,510				3,493
Casing and tubing services			3,673				3,673				—
Rental tools			—				—				—
Production services			626				425				—
General corporate			—				—				—
Total goodwill		$	12,417			$	11,776			$	7,661

		As of December 31,
		2005				2004				2003
Assets:
Directional drilling services		$	20,960			$	14,166			$	11,529
Compressed air drilling services			46,045				29,147				22,735
Casing and tubing services			45,351				21,197				18,191
Rental tools			8,034				1,291				—
Production services			12,282				5,806				—
General corporate			4,683				8,585				1,207
Total assets		$	137,355			$	80,192			$	53,662

		Years Ended December 31,
		2005				2004				2003
Revenues:
United States		$	98,583			$	42,466			$	28,995
International			6,761				5,260				3,729
Total		$	105,344			$	47,726			$	32,724

F-46

---

Table of Contents

		Years Ended December 31,
		2005				2004				2003
		(Restated)
Interest paid		$	3,924			$	2,159			$	2,341
Income taxes paid		$	676			$	514			$	370
Other non-cash investing and financing transactions:
Sale of property & equipment in connection with direct financing lease (Note 14)
(Gain) on settlement of debt		$	—			$	—			$	(1,034	)
Amortization of discount on debt			—				—				442
Purchase of equipment financed through assumption of debt or accounts payable			592				—				906
		$	592			$	—			$	314
AirComp formation:
Issuance of debt to joint venture by M-I		$	—			$	—			$	(4,818	)
Contribution of property, plant and equipment by M-I to joint venture			—				—				10,268
Increase in minority interest			—				—				(2,063
(Gain) on sale of stock in a subsidiary			—				—				(2,433	)
Difference of our investment cost basis in AirComp and their share of underlying equity of net assets of AirComp			—				—				(954	)
Net cash paid in connection with the joint venture		$	—			$	—			$	—
Non-cash investing and financing transactions in connection with acquisitions:
Fair value of net assets acquired		$	—			$	(4,867	)		$	—
Goodwill and other intangibles			—				(3,839	)			—
Value of common stock, issued			1,750				2,177				—
Value of minority interest contribution			—				2,070				—
		$	1,750			$	(4,459	)		$	—
Acquisition of the remaining 19% of Jens:
Fair value of net assets acquired		$	—			$	(813	)		$	—
Goodwill and other intangibles			—				(3,676	)			—
Value of common stock issued			—				6,434				—
Value of minority interest retirement			—				(1,945	)			—
		$	—			$	—			$	—

F-47

---

Table of Contents

			First				Second				Third				Fourth
			Quarter				Quarter				Quarter				Quarter
			(Restated)
Year 2005
Revenues			$	19,334			$	23,588			$	28,908			$	33,514
Operating income				2,247				2,914				3,524				4,533
Net income				1,567				1,769				1,293				2,546
Preferred stock dividend				—				—				—				—
Net income attributed to common shares			$	1,567			$	1,769			$	1,293			$	2,546
Income per common share:
	Basic		$	0.12			$	0.13			$	0.09			$	0.15
	Diluted		$	0.11			$	0.12			$	0.08			$	0.14

			First				Second				Third				Fourth
			Quarter				Quarter				Quarter				Quarter
			(Restated)
Year 2004
Revenues			$	9,661			$	11,422			$	11,906			$	14,737
Operating income				1,030				1,150				1,237				810
Net income (loss)				472				413				515				(512	)
Preferred stock dividend				(88	)			(36	)			—				—
Net income (loss) attributed to common shares			$	384			$	377			$	515			$	(512	)
Income (loss) per common share:
	Basic		$	0.10			$	0.06			$	0.06			$	(0.04	)
	Diluted		$	0.08			$	0.05			$	0.05			$	(0.04	)

F-48

---

Table of Contents

F-49

---

Table of Contents

			June 30,				December 31,
			2006				2005
			(Unaudited)
ASSETS
Cash and cash equivalents			$	6,208			$	1,920
Trade receivables, net				49,114				26,964
Inventory				9,897				5,945
Prepaid expenses and other				2,655				823
	Total current assets			67,874				35,652
Property and equipment, net				185,750				80,574
Goodwill				12,417				12,417
Other intangible assets, net				7,131				6,783
Debt issuance costs, net				6,187				1,298
Other assets				1,327				631
	Total assets		$	280,686			$	137,355
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current maturities of long-term debt			$	4,059			$	5,632
Trade accounts payable				9,616				9,018
Accrued salaries, benefits and payroll taxes				2,270				1,271
Accrued interest				6,654				289
Accrued income taxes				1,686				668
Accrued expenses				6,095				3,682
Accounts payable, related parties				—				60
	Total current liabilities			30,380				20,620
Accrued postretirement benefit obligations				319				335
Long-term debt, net of current maturities				165,957				54,937
Other long-term liabilities				749				588
	Total liabilities			197,405				76,480
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value (25,000,000 shares authorized, no shares issued)				—				—
Common stock, $0.01 par value (100,000,000 shares authorized; 18,516,714 issued and outstanding at June 30, 2006 and 16,859,988 issued and outstanding at December 31, 2005)				185				169
Capital in excess of par value				67,261				58,889
Retained earnings				15,835				1,817
	Total stockholders’ equity			83,281				60,875
	Total liabilities and stockholders’ equity		$	280,686			$	137,355

F-50

---

Table of Contents

				For the Three Months								For the Six Months
				Ended June 30,								Ended June 30,
				2006				2005				2006				2005
Revenues				$	60,470			$	23,588			$	107,498			$	42,922
Cost of revenues
	Direct costs				31,966				15,691				59,081				28,476
	Depreciation				3,828				1,092				7,158				2,006
		Total cost of revenues			35,794				16,783				66,239				30,482
		Gross margin			24,676				6,805				41,259				12,440
General and administrative					8,139				3,465				15,482				6,459
Amortization					666				426				1,273				820
		Income from operations			15,871				2,914				24,504				5,161
Other income (expense):
	Interest				(3,797	)			(645	)			(7,425	)			(1,166	)
	Other				(6	)			10				20				158
		Total other income (expense)			(3,803	)			(635	)			(7,405	)			(1,008	)
		Net income before minority interest and income taxes			12,068				2,279				17,099				4,153
Minority interest in income of subsidiaries					—				(344	)			—				(488	)
Provision for income taxes					(2,474	)			(166	)			(3,081	)			(329	)
Net income				$	9,594			$	1,769			$	14,018			$	3,336
Net income per common share:
		Basic		$	0.53			$	0.13			$	0.80			$	0.24
		Diluted		$	0.50			$	0.12			$	0.74			$	0.22
Weighted average shares outstanding:
		Basic			18,050				13,967				17,578				13,800
		Diluted			19,140				15,103				19,000				14,900

F-51

---

Table of Contents

						For the Six Months
						Ended June 30,
						2006				2005
Cash Flows from Operating Activities:
	Net income					$	14,018			$	3,336
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation					7,158				2,006
		Amortization					1,273				820
		Imputed interest					355				—
		Stock option expense					1,778				—
		Provision for bad debts					279				—
		Minority interest in income of subsidiaries					—				488
		Loss on sale of property and equipment					119				—
		Changes in operating assets and liabilities, net of acquisitions:
			(Increase) in trade receivable				(13,581	)			(3,024	)
			(Increase) in inventory				(1,499	)			(1,090	)
			Decrease in other current assets				278				201
			(Increase) in other assets				(663	)			(375	)
			(Decrease) increase in accounts payable				(1,517	)			610
			Increase in accrued interest				6,365				35
			Increase (decrease) in accrued expenses				1,818				(296	)
			Increase in accrued salaries, benefits and payroll taxes				657				172
			Increase in other long-term liabilities				145				6
				Net Cash Provided By Operating Activities			16,983				2,889
Cash Flows from Investing Activities:
	Acquisition of businesses, net of cash received						(106,564	)			(7,088	)
	Proceeds from sale of property and equipment						1,814				—
	Purchase of property and equipment						(14,246	)			(5,463	)
				Net Cash Used In Investing Activities			(118,996	)			(12,551	)
Cash Flows from Financing Activities:
	Proceeds from exercises of options and warrants						4,960				—
	Proceeds from long-term debt						161,412				5,210
	Proceeds from line of credit						5,000				—
	Repayments on long-term debt						(45,291	)			—
	Repayments on related party debt						(3,031	)			—
	Repayments on line of credit						(11,400	)			—
	Debt issuance costs						(5,349	)			(199	)
				Net Cash Provided By Financing Activities			106,301				5,011
Net change in cash and cash equivalents							4,288				(4,651	)
Cash and cash equivalents at beginning of year							1,920				7,344
Cash and cash equivalents at end of period						$	6,208			$	2,693

F-52

---

Table of Contents

F-53

---

Table of Contents

Current assets			$	4,520
Property and equipment				9,866
Intangible assets				1,131
	Total assets acquired			15,517
Current liabilities				1,717
Other long-term liabilities				100
	Total liabilities assumed			1,817
	Net assets acquired		$	13,700

F-54

---

Table of Contents

Accounts receivable			$	7,167
Other current assets				425
Property and equipment				90,540
	Total assets acquired			98,132
Current liabilities				2,058
Long-term debt				74
	Total liabilities assumed			2,132
	Net assets acquired		$	96,000

F-55

---

Table of Contents

			For the Three								For the Six
			Months Ended								Months Ended
			June 30,								June 30,
			2006				2005				2006				2005
Revenues			$	60,470			$	35,572			$	109,583			$	65,567
Operating income				15,871				7,369				24,510				10,834
Net income				9,594				4,307				13,910				5,322
Net income per common share:
	Basic		$	0.53			$	0.31			$	0.79			$	0.37
	Diluted		$	0.50			$	0.28			$	0.73			$	0.35

F-56

---

Table of Contents

						Weighted				Weighted-
		Shares				Average				Average				Aggregate
		Under				Exercise				Contractual				Intrinsic Value
		Option				Price				Life (Years)				(millions)
Balance at beginning of period			2,860,867			$	5.10
Granted			—				—
Canceled			(38,333	)			4.52
Exercised			(1,217,999	)			3.43
Outstanding at end of period			1,604,535				6.39				8.74			$	11.6
Exercisable at end of period			782,702				5.34				8.46			$	6.5

F-57

---

Table of Contents

		For the Three				For the Six
		Months Ended				Months Ended
		June 30, 2005				June 30, 2005
Expected dividend yield			—				—
Expected price volatility			89.91	%			98.65	%
Risk-free interest rate			6.25	%			6.63	%
Expected life of options			7 years				7 years
Weighted average fair value of options
granted at market value		$	4.01			$	3.12

							Three Months				Six Months
							Ended June 30,
							2005				2005
Net income: As reported							$	1,769			$	3,336
Less total stock based employee compensation expense determined under fair value based method for all awards net of tax related effects								(836	)			(1,505	)
Pro forma net income							$	933			$	1,831
Net income per share:
	Basic			As reported			$	0.13			$	0.24
				Pro forma			$	0.07			$	0.13
	Diluted			As reported			$	0.12			$	0.22
				Pro forma			$	0.06			$	0.12

F-58

---

Table of Contents

			For the Three								For the Six
			Months Ended								Months Ended
			June 30,								June 30,
			2006				2005				2006				2005
Numerator:
Net income			$	9,594			$	1,769			$	14,018			$	3,336
Denominator:
Basic earnings per share — weighted average shares outstanding				18,050				13,967				17,578				13,800
Effect of potentially dilutive common shares:
	Warrants and employee and director stock options			1,090				1,136				1,422				1,100
Diluted earnings per share — weighted average shares
	Outstanding and assumed conversions			19,140				15,103				19,000				14,900
Net income per share — basic			$	0.53			$	0.13			$	0.80			$	0.24
Net income per share — diluted			$	0.50			$	0.12			$	0.74			$	0.22

F-59

---

Table of Contents

				June 30,				December 31,
				2006				2005
Hammer bits
	Finished goods			$	1,507			$	1,402
	Work in process				1,616				787
	Raw materials				2,429				233
		Total hammer bits			5,552				2,422
Hammers					801				584
Drive pipe					572				666
Rental supplies					355				64
Chemicals					132				201
Coiled tubing and related inventory					1,278				1,145
Shop supplies and related inventory					1,207				863
		Total inventory		$	9,897			$	5,945

		June 30,				December 31,
		2006				2005
Senior notes		$	160,000			$	—
Bank term loans			—				42,090
Revolving line of credit			—				6,400
Subordinated note payable to M-1 LLC			4,000				4,000
Subordinated seller note			—				3,031
Seller notes			900				850
Notes payable under non-compete agreements			443				698
Notes payable to former directors			32				96
Real estate loan			—				548
Equipment and vehicle installment notes			2,417				1,939
Insurance premium financing			1,553				—
Capital lease obligations			671				917
Total debt			170,016				60,569
Less: short-term debt and current maturities			4,059				5,632
Long-term debt obligations		$	165,957			$	54,937

F-60

---

Table of Contents

	•	A $13.0 million revolving line of credit. Borrowings were limited to 85% of eligible accounts receivable plus 50% of eligible inventory (up to a maximum of $2.0 million of borrowings based on inventory). This line of credit was to be used to finance working capital requirements and other general corporate purposes, including the issuance of standby letters of credit. Outstanding borrowings under this line of credit were $6.4 million at a margin above prime and LIBOR rates plus margin averaging approximately 8.1% as of December 31, 2005.
	•	Two term loans totaling $42.0 million. Outstanding borrowings under these term loans were $42.0 million as of December 31, 2005. These loans were at LIBOR rates plus a margin which averages approximately 7.8% at December 31, 2005.

F-61

---

Table of Contents

F-62

---

Table of Contents

			For the Six
			Months Ended
			June 30,
			2006				2005
Cash paid for interest and income taxes:
	Interest		$	832			$	1,166
	Income taxes		$	2,063			$	329
Noncash activities:
	Insurance premium financed		$	1,933			$	—
	Common stock issued for acquisition of
	business		$	1,650			$	—
	Note payable issued for acquisition of
	business		$	750			$	—
	Non-compete payable in the future		$	150			$	—

F-63

---

Table of Contents

			For the Three								For the Six
			Months Ended								Months Ended
			June 30,								June 30,
			2006				2005				2006				2005
Revenues
	Directional drilling services		$	18,315			$	10,934			$	33,369			$	20,835
	Rental tools			12,707				1,566				23,128				1,940
	Casing and tubing services			14,569				3,933				24,028				7,493
	Compressed air drilling services			10,949				4,866				20,048				9,047
	Production services			3,930				2,289				6,925				3,607
			$	60,470			$	23,588			$	107,498			$	42,922

			For the Three								For the Six
			Months Ended								Months Ended
			June 30,								June 30,
			2006				2005				2006				2005
Operating Income (Loss):
	Directional drilling services		$	4,367			$	1,495			$	6,972			$	3,373
	Rental tools			7,308				405				12,306				326
	Casing and tubing services			4,314				1,354				6,165				2,679
	Compressed air drilling services			3,204				1,002				5,441				1,529
	Production services			341				36				618				(2	)
	General corporate			(3,663	)			(1,378	)			(6,998	)			(2,744	)
			$	15,871			$	2,914			$	24,504			$	5,161
Depreciation and Amortization:
	Directional drilling services		$	359			$	207			$	648			$	357
	Rental tools			1,715				176				3,386				265
	Casing and tubing services			1,069				468				1,768				908
	Compressed air drilling services			731				422				1,415				870
	Production services			299				189				592				325
	General corporate			321				56				622				101
			$	4,494			$	1,518			$	8,431			$	2,826
Capital Expenditures:
	Directional drilling services		$	707			$	937			$	3,405			$	1,200
	Rental tools			417				7				1,101				7
	Casing and tubing services			4,373				217				5,500				1,857
	Compressed air drilling services			792				1,147				3,016				1,926
	Production services			365				253				1,046				290
	General corporate			6				174				178				183
			$	6,660			$	2,735			$	14,246			$	5,463

F-64

---

Table of Contents

			As of
			June 30,				December 31,
			2006				2005
Goodwill:
	Directional drilling services		$	4,168			$	4,168
	Rental tools			—				—
	Casing and tubing services			3,673				3,673
	Compressed air drilling services			3,950				3,950
	Production services			626				626
	General corporate			—				—
			$	12,417			$	12,417
Assets:
	Directional drilling services		$	28,496			$	20,960
	Rental tools			105,994				8,034
	Casing and tubing services			67,984				45,351
	Compressed air drilling services			49,502				46,045
	Production services			13,853				12,282
	General corporate			14,857				4,683
			$	280,686			$	137,355

			For the								For the
			Three Months								Six Months
			Ended June 30,								Ended June 30,
			2006				2005				2006				2005
Revenues:
	United States		$	58,572			$	21,832			$	103,662			$	39,393
	International			1,898				1,756				3,836				3,529
			$	60,470			$	23,588			$	107,498			$	42,922

F-65

---

Table of Contents

F-66

---

Table of Contents

	/s/	WRIGHT, MOORE, DEHART,

	DUPUIS & HUTCHINSON, L.L.C.

	Certified Public Accountants

F-67

---

Table of Contents

					December 31,
					2004				2003
ASSETS
CURRENT ASSETS
	Cash				$	891,338			$	705,553
	Accounts Receivable					1,095,587				713,929
	Prepaid Insurance					13,838				14,067
	Prepaid Income Taxes					—				51,411
	Current Deferred Tax Asset					—				77,595
	Employee Advances
		Total Current Assets				2,000,763				1,562,555
PROPERTY AND EQUIPMENT
	Office Equipment					33,624				32,407
	Rental Equipment					3,699,987				3,341,816
	Transportation Equipment					144,260				144,260
	Yard Equipment					77,211				77,211
		Total				3,955,082				3,595,694
	Less: Accumulated Depreciation					(2,610,143	)			(2,307,864	)
			Net Property and Equipment			1,344,939				1,287,830
OTHER ASSETS
	Cash Surrender Value of Life Insurance					38,261				35,446
		Total Other Assets				38,261				35,446
			TOTAL ASSETS		$	3,383,963			$	2,885,831

F-68

---

Table of Contents

					December 31,
					2004				2003
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
	Accounts Payable				$	53,949			$	40,829
	Payroll Liabilities Payable					17,157				16,063
	Sales Tax Payable					12,308				3,487
	Accrued Interest Expense					3,734				4,244
	Income Taxes Payable					92,448				—
	Current Portion of Stockholder Loan					93,994				87,674
		Total Current Liabilities				273,590				152,297
LONG-TERM LIABILITIES
	Stockholder Loan (Less Current Portion)					547,784				641,775
	Long-Term Deferred Tax Liability					353,147				311,762
	Stockholder Loan
		Total Long-Term Liabilities				900,931				953,537
		Total Liabilities				1,174,521				1,105,834
STOCKHOLDERS’ EQUITY
	Common Stock (No Par Value, 300,000 Shares Authorized, 27,083 Shares Issued and 8,333 Outstanding)					27,083				27,083
	Additional Paid-In Capital					64,574				64,574
	Retained Earnings					3,117,785				2,688,340
	Less: Treasury Stock (18,750 Shares at Cost)					(1,000,000	)			(1,000,000	)
		Total Stockholders’ Equity				2,209,442				1,779,997
			TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	3,383,963			$	2,885,831

F-69

---

Table of Contents

				Twelve Months Ended
				December 31,
				2004				2003
REVENUES				$	3,249,338			$	2,662,091
COST OF REVENUES
	Direct				796,194				766,196
GROSS PROFIT					2,453,144				1,895,895
ADMINISTRATIVE EXPENSES
	General and Administrative				1,798,414				1,926,173
	Depreciation				30,061				31,678
		Total Administrative Expenses			1,828,475				1,957,851
INCOME (LOSS) FROM OPERATIONS					624,669				(61,956	)
OTHER INCOME (EXPENSES)
	Interest Expense				(48,503	)			(61,177	)
	Interest Income				4,064				2,234
	Life Insurance Dividends				930				930
	Gain on Sale of Assets				113,435				354,382
		Total Other Income (Expenses)			69,926				296,369
INCOME BEFORE PROVISION FOR INCOME TAXES					694,595				234,413
PROVISION FOR INCOME TAXES
	Current				146,170				—
	Deferred				118,980				134,274
		Total Income Tax Provision			265,150				134,274
NET INCOME				$	429,445			$	100,139

F-70

---

Table of Contents

		Twelve Months Ended
		December 31,
		2004				2003
BEGINNING BALANCE		$	2,688,340			$	2,588,201
NET INCOME			429,445				100,139
ENDING BALANCE		$	3,117,785			$	2,688,340

F-71

---

Table of Contents

						Twelve Months Ended
						December 31,
						2004				2003
CASH FLOWS FROM OPERATING ACTIVITIES
	Net Income					$	429,445			$	100,139
	Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
			Depreciation and Amortization				346,615				308,587
			Gain on Sale of Assets				(113,435	)			(354,382	)
Change in Assets and Liabilities:
		Accounts Receivable					(381,658	)			(7,963	)
		Prepaid Expenses					51,640				62,610
		Accounts Payable and Accrued Expenses					114,973				(29,129	)
		Deferred Taxes					118,980				134,274
				Total Adjustments			137,115				113,997
Net Cash Provided By Operating Activities							566,560				214,136
CASH FLOWS FROM INVESTING ACTIVITIES
	Purchase of Equipment						(480,371	)			(781,152	)
	Proceeds from Sale of Assets						190,082				522,911
	Cash Surrender Value — Life Insurance						(2,815	)			(2,816	)
Net Cash Used In Investing Activities							(293,104	)			(261,057	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Principal Payments on Treasury Stock Note						—				(506,036	)
	Proceeds From Long-Term Debt						—				—
	Proceeds From Stockholder Note Payable						—				450,000
	Principal Payments Stockholder Note Payable						(87,671	)			(20,550	)
Net Cash Used in Financing Activities							(87,671	)			(76,586	)
NET INCREASE (DECREASE) IN CASH							185,785				(123,507	)
CASH AT BEGINNING OF YEAR							705,553				829,060
CASH AT END OF YEAR						$	891,338			$	705,553
SUPPLEMENTAL DISCLOSURES:
	Interest Paid					$	49,013			$	84,650
	Income Taxes Paid					$	2,311			$	37,460

F-72

---

Table of Contents

F-73

---

Table of Contents

		2004				2003
Billed Accounts Receivable		$	699,442			$	407,556
Accrued Unbilled Revenue			396,145				306,373
Total		$	1,095,587			$	713,929

					2004				2003
Current
	Federal				$	128,548			$	—
	States					17,622				—
		Total Current Income Tax Expense				146,170				—
Deferred						118,980				134,274
			Total Income Tax Expense		$	265,150			$	134,274

			2004				2003
Depreciation Timing Difference			$	882,867			$	779,405
Net Operating Loss Carry-Forward				—				(163,311	)
Charitable Contribution Carryover				—				(30,678	)
				882,867				585,416
Blended Federal and State Rates				40	%			40	%
	Deferred Income Tax Liability (Net)		$	353,147			$	234,167

F-74

---

Table of Contents

		2004				2003
Current Deferred Tax Asset		$	—			$	(77,595	)
Long-Term Deferred Tax Liability			353,147				311,762
Total		$	353,147			$	234,167

Twelve Months Ending December 31,
	2005			$	93,994
	2006				100,772
	2007				108,038
	2008				115,827
	2009				124,178
	Later				98,969
		Total		$	641,778

F-75

---

Table of Contents

Twelve Months Ending December 31,
	2005			$36,000
		Total		$36,000

										Percentage of
		Sales				Percentage of				Total Accounts
		Amount				Total Revenue				Receivable
Customer A		$	488,589				18.35	%			14.39	%
Customer B		$	401,265				15.07	%			9.85	%
Customer C		$	296,570				11.14	%			11.71	%
Customer D		$	269,963				10.14	%			9.61	%

										Percentage of
		Sales				Percentage of				Total Accounts
		Amount				Total Revenue				Receivable
Customer A		$	549,678				16.92	%			14.31	%
Customer B		$	528,474				16.26	%			22.51	%
Customer C		$	329,160				10.13	%			6.40	%
Customer D		$	308,133				9.48	%			13.15	%

F-76

---

Table of Contents

						March 31,
						2005
ASSETS
CURRENT ASSETS
	Cash					$	169,154
	Accounts Receivable						936,156
	Prepaid Insurance						—
	Prepaid Income Taxes						—
	Current Deferred Tax Asset						160,349
	Employee Advances
			Total Current Assets				1,265,659
PROPERTY AND EQUIPMENT
	Office Equipment						33,624
	Rental Equipment						3,739,342
	Transportation Equipment						144,180
	Yard Equipment						77,211
		Total					3,994,357
	Less: Accumulated Depreciation						(2,652,825	)
			Net Property and Equipment				1,341,532
OTHER ASSETS
	Cash Surrender Value of Life Insurance						—
			Total Other Assets				—
				TOTAL ASSETS		$	2,607,191
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
	Accounts Payable					$	31,630
	Payroll Liabilities Payable						398
	Sales Tax Payable						7,433
	Accrued Insurance Payable						19,447
	Accrued Interest Expense						—
	Accrued Profit Sharing Payable						—
	Income Taxes Payable						374,492
	Note Payable — Insurance						—
	Current Portion of Stockholder Loan						—
			Total Current Liabilities				433,400
LONG-TERM LIABILITIES
	Stockholder Loan (Less Current Portion)						—
	Long-Term Deferred Tax Liability						373,153
			Total Long-Term Liabilities				373,153
			Total Liabilities				806,553
STOCKHOLDERS’ EQUITY
	Common Stock (No Par Value, 300,000 Shares Authorized, 27,083 Shares Issued and 8,333 Outstanding)						27,083
	Additional Paid-In Capital						64,574
	Retained Earnings						2,708,981
	Less: Treasury Stock (18,750 Shares at Cost)						(1,000,000	)
			Total Stockholders’ Equity				1,800,638
				TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	2,607,191

F-77

---

Table of Contents

				Three Months Ended
				March 31,
				2005				2004
REVENUES				$	820,769			$	744,811
COST OF REVENUES
	Direct				203,271				265,230
GROSS PROFIT					617,498				479,581
ADMINISTRATIVE EXPENSES
	General and Administrative				984,505				1,106,656
	Depreciation				7,578				7,465
		Total Administrative Expenses			992,083				1,114,121
LOSS FROM OPERATIONS					(374,585	)			(634,540	)
OTHER INCOME (EXPENSES)
	Interest Expense				(10,937	)			(13,166	)
	Interest Income				2,896				364
	Gain on Sale of Assets				115,519				36,850
		Total Other Income (Expenses)			107,478				24,048
LOSS BEFORE PROVISION FOR INCOME TAXES					(267,107	)			(610,492	)
PROVISION (BENEFIT) FOR INCOME TAXES
	Current				—				—
	Deferred				141,697				(221,825	)
		Total Income Tax Provision (Benefit)			141,697				(221,825	)
NET LOSS				$	(408,804	)		$	(388,667	)

F-78

---

Table of Contents

		Three Months Ended
		March 31,
		2005				2004
BEGINNING BALANCE		$	3,117,785			$	2,688,340
NET LOSS			(408,804	)			(388,667	)
ENDING BALANCE		$	2,708,981			$	2,299,673

F-79

---

Table of Contents

						Three Months Ended
						March 31,
						2005				2004
CASH FLOWS FROM OPERATING ACTIVITIES
	Net Loss					$	(408,804	)		$	(388,667	)
	Adjustments to Reconcile Net Income to Net Cash Provided By Operating Activities:
			Depreciation and Amortization				94,220				83,854
			Gain on Sale of Assets				(115,519	)			(36,850	)
Change in Assets and Liabilities:
		Accounts Receivable					159,431				(97,326	)
		Prepaid Expenses					13,838				(10,933	)
		Accounts Payable and Accrued Expenses					253,804				256,078
		Deferred Taxes					(140,343	)			(221,825	)
				Total Adjustments			265,431				(27,002	)
Net Cash Used In Operating Activities							(143,373	)			(415,669	)
CASH FLOWS FROM INVESTING ACTIVITIES
	Purchase of Equipment						(151,956	)			(40,557	)
	Proceeds from Sale of Assets						176,662				44,440
	Cash Surrender Value — Life Insurance						38,261				(473	)
Net Cash Used In Investing Activities							62,967				3,410
CASH FLOWS FROM FINANCING ACTIVITIES
	Principal Payments Stockholder Note Payable						(641,778	)			(21,349	)
Net Cash Used in Financing Activities							(641,778	)			(21,349	)
NET DECREASE IN CASH							(722,184	)			(433,608	)
CASH AT BEGINNING OF PERIOD							891,338				705,553
CASH AT END OF PERIOD						$	169,154			$	271,945
SUPPLEMENTAL DISCLOSURES:
	Interest Paid					$	7,203			$	13,166
	Income Taxes Paid					$	—			$	—
	Non-Cash Financing of Insurance Premiums					$	—			$	30,351

F-80

---

Table of Contents

	/s/ CURTIS BLAKELY & CO., PC

F-81

---

Table of Contents

				December 31,
				2004				2003
ASSETS
CURRENT ASSETS:
	Cash and Cash Equivalents			$	348,674			$	45,857
	Accounts Receivable				538,658				818,736
	Inventory				386,685				384,431
	Prepaid Expenses				107,703				92,306
		TOTAL CURRENT ASSETS			1,381,720				1,341,330
PROPERTY AND EQUIPMENT:
	Furniture, Fixtures and Equipment				11,343				5,870
	Software				3,127				3,127
	Production Equipment				2,078,897				1,709,196
	Vehicles				172,720				107,442
	Production Equipment Under Construction				94,332				-0-
		TOTAL PROPERTY AND EQUIPMENT			2,360,419				1,825,635
	Less: Accumulated Depreciation				(433,800	)			(221,451	)
		NET PROPERTY AND EQUIPMENT			1,926,619				1,604,184
OTHER ASSETS:
	Organizational Costs				12,057				18,085
		TOTAL ASSETS		$	3,320,396			$	2,963,599

F-82

---

Table of Contents

				December 31,
				2004				2003
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Current Portion of Long-term Debt			$	445,924			$	431,452
	Current Portion of Obligation Under Capital Lease				447				-0-
	Current Portion of Long-term Debt — Related Party				22,824				-0-
	Accounts Payable — Trade				383,762				891,508
	Accrued Interest Payable				4,018				-0-
	Accrued Wages				6,400				-0-
	Short-term Borrowings				430,314				422,321
	Short-term Borrowings — Related Party				130,000				-0-
		TOTAL CURRENT LIABILITIES			1,423,689				1,745,281
LONG-TERM DEBT, LESS CURRENT MATURITIES:
	Long-term Debt				471,451				451,262
	Long-term Debt — Related Party				31,213				-0-
	Obligation Under Capital Lease				2,880				-0-
		TOTAL LONG-TERM DEBT			505,544				451,262
		TOTAL LIABILITIES			1,929,233				2,196,543
STOCKHOLDERS’ EQUITY:
	Common Stock — $1 Par Value
		100,000 Shares Authorized
		1,000 Shares Issued and Outstanding			600,000				600,000
	Additional Paid-in Capital				50,000				50,000
	Retained Earnings				741,163				117,056
		TOTAL STOCKHOLDERS’ EQUITY			1,391,163				767,056
		TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	3,320,396			$	2,963,599

F-83

---

Table of Contents

				Years Ended December 31,
				2004				2003
REVENUE				$	5,774,442			$	5,478,666
Cost of Sales and Services					4,371,316				4,523,702
Gross Profit					1,403,126				954,964
OPERATING EXPENSES:
	General and Administrative				159,677				131,254
	Depreciation				35,456				24,648
	Insurance				228,112				186,125
	Lease Expense				29,250				27,000
	Salaries — Administration				126,520				89,287
	Taxes				126,222				68,838
	Interest				73,782				51,380
		TOTAL OPERATING EXPENSES			779,019				578,532
		NET INCOME			624,107				376,432
		RETAINED EARNINGS (DEFICIT) — BEGINNING OF PERIOD			117,056				(259,376	)
		RETAINED EARNINGS — END OF PERIOD		$	741,163			$	117,056

F-84

---

Table of Contents

						Years Ended
						December 31,
						2004				2003
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net Income					$	624,107			$	376,432
	Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
			Depreciation and Amortization				218,375				170,317
	Change in Assets and Liabilities:
		Accounts Receivable					280,078				(595,486	)
		Inventory					(428,090	)			298,810
		Prepaids					(15,395	)			(32,465	)
		Accounts Payable and Accruals					(42,242	)			95,417
				TOTAL ADJUSTMENTS			12,726				(63,407	)
NET CASH PROVIDED BY OPERATING ACTIVITIES							636,833				313,025
CASH FLOWS FROM INVESTING ACTIVITIES:
	Additions to Plant and Equipment						(462,998	)			(541,551	)
NET CASH USED IN INVESTING ACTIVITIES							(462,998	)			(541,551	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Payments of Short-term Borrowings						(101,736	)			(124,513	)
	Payments of Long-term Debt						(519,383	)			(377,668	)
	Payments of Capital Lease Obligation						(89	)			-0-
	Proceeds From Short-term Debt Borrowing						239,729				223,578
	Proceeds From Long-term Debt Borrowing						510,461				441,265
	Proceeds From Additional Paid-in Capital						-0-				50,000
NET CASH PROVIDED BY FINANCING ACTIVITIES							128,982				212,662
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS							302,817				(15,864	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR							45,857				61,721
CASH AND CASH EQUIVALENTS AT END OF YEAR						$	348,674			$	45,857

F-85

---

Table of Contents

Note 1 —	Summary of Significant Accounting Policies:

F-86

---

Table of Contents

Note 2 —	Organizational Costs:

F-87

---

Table of Contents

Note 3 —	Property and Equipment:

			Depreciation
			Rate (%)				2004				2003
Furniture, fixtures, and equipment				20%			$	11,343			$	5,870
Software				33%				3,127				3,127
Production equipment				10% – 20%				2,078,897				1,709,196
Vehicles				20%				172,720				107,442
Production equipment under construction				N/A				94,332				-0-
	Total Property and Equipment							2,360,419				1,825,635
	Less: Accumulated Depreciation							(433,800	)			(221,451	)
	Net Property and Equipment						$	1,926,619			$	1,604,184

Note 4 —	Capital Lease Obligations:

				2004
Total				$	3,327
Less:		Current portion			(447	)
		Long-Term Portion		$	2,880

F-88

---

Table of Contents

		2004
2005		$	1,072
2006			1,072
2007			1,072
2008			1,072
2009			894
			5,182
Less: Amount representing interest			(1,855	)
Present Value of Future Minimum Lease payments		$	3,327

Creditor		Terms		Collateral				2004		2003
Texas Bank & Trust		$350,000 line-of-credit expiring December 2005 bearing interest at prime (5.25 percent at December 31, 2004).			Equipment			$349,923		$350,000
Texas Bank & Trust		$375,000 line of credit expiring December 2004 bearing interest at prime.			Equipment			-0-		3,029
AICCO, Inc.		Due $11,760 per month through July 2005 including interest at 7.15 percent.			None			80,391		-0-
AICCO, Inc.		Due $10,114 per month through July 2004 including interest at 6.50 percent.			None			-0-		69,292
Total Short-Term Borrowings								$430,314		$422,321

Creditor		Terms		Collateral				2004		2003
M Bar Ranch, L.P.		$130,000 promissory note, interest of 8 percent and principal due at maturity date — August 2005.			None			$130,000		$-0-

F-89

---

Table of Contents

Creditor				Terms		Collateral		2004				2003
Texas Bank & Trust				Due $6,048 per month through August 2006, including interest at prime (5.25% at December 2004).		Equipment - Accounts		$	117,138			$	183,232
Texas Bank & Trust				Due $7,037 per month through March 2007, including interest at prime (5.25% at December 2004).		Equipment - Accounts			176,501				251,566
Texas Bank & Trust				Due $7,000 per month through March 2006, including interest at prime (5.25% at December 2004).		Equipment - Accounts			101,957				179,620
Texas Bank & Trust				Due $30,000 per month through June 2004, including interest at prime (Pd in full at December 2004).		Equipment - Accounts			-0-				171,541
Texas Bank & Trust				Due $7,407 per month through March 2007, including interest at prime (5.25% at December 2004).		Equipment - Accounts			191,125				-0-
Texas Bank & Trust				Due $6,100 per month through October 2007, including interest at prime (5.25% at December 2004).		Equipment - Accounts			195,082				-0-
Navistar				Due $1,055 per month through November 2005, including interest at 9.95 percent.		Equipment			11,046				22,004
Navistar				Due $1,055 per month through November 2005, including interest at 9.95 percent.		Equipment			11,046				21,075
Navistar				Due $998 per month through June 2007, including interest at 11.50 percent.		Equipment			24,405				-0-
Ford Motor Credit				Due $738 per month through May 2006, including interest at 2.90 percent.		Vehicle			12,275				20,641
Ford Motor Credit				Due $1,112 per month through August 2006, including interest at 5.50 percent.		Vehicle			21,211				33,035
Ford Motor Credit				Due $1,173 per month through July 2007, including interest at 2.90 percent.		Vehicle			35,007				-0-
Ford Motor Credit				Due $730 per month through August 2007, including interest at 7.25 percent.		Vehicle			20,582				-0-
	Total Long-Term Notes Payable								917,375				882,714
	Current Maturities								(445,924	)			(431,452	)
	Long-Term Notes Payable,
		Net of Current Maturities						$	471,451			$	451,262

F-90

---

Table of Contents

2005			$	445,924
2006				349,064
2007				122,387
	Total		$	917,375

Creditor			Terms		Collateral				2004				2003
M Bar Ranch, L.P.			Due $2,194 per month through March 2007, including interest at 8.00 percent.			Vehicle			$	54,037			$-0-
	Current Maturities									(22,824	)		-0-
	Long-Term Note Payables — Related Party, Net of Current Maturities								$	31,213			$-0-

2005			$	22,824
2006				24,719
2007				6,494
	Total		$	54,037

2005		$	27,000
2006			27,000
2007			5,625

F-91

---

Table of Contents

			2004				2003
Cash paid during the year:
	Interest		$	69,764			$	51,380

F-92

---

Table of Contents

	/s/     CURTIS BLAKELY & CO., PC

F-93

---

Table of Contents

				Year Ended December 31,
				2004				2003
REVENUE				$	5,774,442			$	5,478,666
COST OF SALES AND SERVICES:
	Inventory Purchases				2,684,319				3,400,025
	Wages				854,041				546,858
	Contract Services				153,192				152,432
	Location Expenses				84,709				58,027
	Repairs and Maintenance				132,846				70,024
	Depreciation				182,919				145,669
	Fuel and Oil				114,112				74,836
	Freight				14,432				11,646
	Sales Commissions				15,352				323
	Sales Expense				13,307				10,827
	Supplies				61,494				28,165
	Other Expenses				12,082				6,676
	Equipment Leases and Rentals				48,511				18,194
		TOTAL COST OF GOODS SOLD			4,371,316				4,523,702
GROSS PROFIT					1,403,126				954,964
GENERAL AND ADMINISTRATIVE:
	Accounting				41,794				22,456
	Telephone				26,939				19,842
	Auto				17,955				15,203
	Consulting				15,100				15,012
	Advertising and Promotional				12,715				6,847
	License and Fees				10,719				7,110
	Office Supplies				7,818				7,644
	Utilities				7,582				6,397
	Janitorial				5,542				2,953
	Office Expense				4,248				3,332
	Postage				4,084				4,556
	Other General and Administrative				1,643				829
	Meals				1,393				1,899
	Contract Service — Office				1,145				16,779
	Contributions				1,000				395
		TOTAL GENERAL AND ADMINISTRATIVE			159,677				131,254

F-94

---

Table of Contents

				Year Ended
				December 31,
				2004				2003
DEPRECIATION AND AMORTIZATION:
	Depreciation Expense				29,428				18,620
	Amortization Expense				6,028				6,028
		TOTAL DEPRECIATION AND AMORTIZATION			35,456				24,648
INSURANCE EXPENSE:
	Insurance — General				119,039				118,023
	Insurance — Health				65,583				40,792
	Insurance — Workmen’s Compensation				41,445				25,265
	Insurance — Keyman Life				2,045				2,045
		TOTAL INSURANCE			228,112				186,125
LEASE OF BUILDINGS AND STORAGE FACILITIES					29,250				27,000
SALARIES — ADMINISTRATIVE
	Salaries — Officers				89,115				77,769
	Salaries — Office Employees				37,405				11,518
		TOTAL SALARIES — ADMINISTRATIVE			126,520				89,287
TAX EXPENSE:
	Taxes — Payroll				78,536				52,205
	Taxes — Property				43,495				13,926
	Taxes — Other				2,501				1,832
	Taxes — State Franchise				1,690				875
		TOTAL TAX EXPENSE			126,222				68,838
INTEREST					73,782				51,380
		TOTAL OPERATING EXPENSES			779,019				578,532
		NET INCOME		$	624,107			$	376,432

F-95

---

Table of Contents

ASSETS
Current Assets
	Cash in Bank — TB&T					183,614.45
	Accounts Receivable					1,021,133.53
	Inventory					334,309.46
	Prepaid Expenses					79,136.57
		Total Current Assets				1,618,194.01
Property and Equipment Equipment						2,474,765.35
	Accumulated Depreciation					(492,780.50	)
	Net Property and Equipment					1,981,984.85
	Other Assets Organization Costs					2,242.25
	Startup Costs					27,898.75
	Accumulated Amortization					(19,590.00	)
	Deposits					10,875.00
		Total Other Assets				21,426.00
			Total Assets			3,621,604.86
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
	Accounts Payable					449,217.60
	Payroll Taxes Payable					3,448.71
	Sales Tax Payable					44,997.92
	Accrued Interest Payable					4,017.53
	Salaries Payable					16,143.77
	Current Income Taxes Payable					94,000.00
	N/ P — Insurance					46,139.99
	N/ P — M-BAR Ranch					130,000.00
	N/ P TB&T LOC					349,923.29
	Current Maturities of L-T					467,915.64
		Total Current Liabilities				1,605,804.45
Long-Term Liabilities N/ P — FMC						135,292.77
N/ P — Navistar						39,147.38
N/ P — TB&T						686,059.55
N/ P — M-BAR						48,500.43
N/ P — IKON RICOH						3,258.52
Current Maturities of L-T						(467,915.64	)
		Total Long-Term Liabilities				444,343.01
			Total Liabilities			2,050,147.46
Deferred Income Taxes						6,898.00
Stockholders’ Equity Capital Stock						600,000.00
	Contribution to Capital					50,000.00
	Retained Earnings					914,559.40
		Total Stockholders’ Equity				1,564,559.40
			Total Liabilities and Stockholders’ Equity			3,621,604.86

F-96

---

Table of Contents

				Three Months Ended
				March 31,
				2005				2004
Revenue
	Sales — Service				622,283.61				355,661.68
	Sales — Materials				911,615.67				1,190,200.66
		Total Revenue			1,533,899.28				1,545,862.34
Cost of Goods Sold					950,535.70				1,131,968.64
		Gross Profit			583,363.58				413,893.70
Operating Expenses Contract Services					3,007.50				8,548.13
	Insurance				61,206.10				57,193.97
	Lease				59,372.36				24,618.30
	Supplies				28,500.98				14,705.44
	Taxes				26,077.65				16,749.81
	Accounting & Legal				28,478.91				13,481.21
	Advertising & Promotional				844.43				882.50
	Amortization				1,506.00				1,506.00
	Bank Charges				128.60				129.20
	Commission — Salesman				4,000.00				0.00
	Consulting				4,200.00				3,300.00
	Depreciation				9,240.66				5,926.17
	Dues & Subscriptions				1,189.39				0.00
	Employee — Medical				978.22				436.06
	Freight				8,259.61				340.00
	Interest				20,360.28				18,007.80
	License & Fees				150.46				1,364.98
	Maint & Repairs — General				98.51				815.40
	Meals & Entertainment				0.00				101.85
	Office Expense				3,326.71				964.16
	Postage				1,117.54				999.49
	Janitorial				1,300.00				1,340.75
	Salaries — Officers				21,000.00				21,000.00
	Salaries — Office				8,830.06				5,805.94
	Sales Expense				3,679.23				2,649.54
	Telephone				8,483.66				4,296.17
	Uniforms				824.89				0.00
	Utilities				1,610.44				1,828.06
	Waste Water				714.00				475.00
	Travel				0.00				246.75
	Truck Expense				583.27				218.00
		Total Operating Expenses			309,069.46				207,930.68
		Income/(Loss) Before Income Taxes			274,294.12				205,963.02
Income Taxes					(100,898.00	)			0.00
Other Income					0.00				1,000.00
		Net Income (Loss)			173,396.12				206,963.02
Retained Earnings at Beginning of Period					741,163.28				117,056.14
		Retained Earnings at End of Period			914,559.40				324,019.16

F-97

---

Table of Contents

			Three Months Ended
			March 31,
			2005				2004
Cash flows from operating activities:
Net income (loss)			$	173,396			$	206,963
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation and amortization expense				51,247				44,236
Changes in working capital:
	Decrease (increase) in accounts receivable			(482,476	)			69,545
	Decrease (increase) in other current assets			80,942				163,895
	Decrease (increase) in other assets			(10,875	)			(375	)
	(Decrease) increase in accounts payable			65,456				(306,063	)
	(Decrease) increase in accrued expenses			138,998				21,643
	(Decrease) increase in other long-term liabilities			6,898				—
	(Decrease) increase in accrued employee benefits and payroll taxes			13,193				67
Net cash provided by operating activities				36,779				199,911
Cash flows from investing activities:
	Purchase of equipment			(105,107	)			(35,739	)
Net cash provided (used) by investing activities				(105,107	)			(35,739	)
Cash flows from financing activities:
	Repayments of long-term debt			(96,732	)			(161,241	)
	Proceeds from issuance of long-term debt			—				307,399
Net cash provided (used) by financing activities				(96,732	)			146,158
Net increase (decrease) in cash and cash equivalents				(165,060	)			310,330
Cash and cash equivalents at beginning of year				348,674				45,857
Cash and cash equivalents at end of period			$	183,614			$	356,187

F-98

---

Table of Contents

	Accounting & Consulting Group, LLP

F-99

---

Table of Contents

				March 31,				December 31,				December 31,
				2005				2004				2003
ASSETS
Current Assets:
	Cash and cash equivalents			$	123,093			$	49,695			$	39,821
	Accounts receivable				359,875				418,290				446,646
	Unbilled receivables				129,325				101,400				47,000
	Related party receivable (Note 2)				7,967				9,673				15,991
	Prepaid income taxes				—				—				3,507
	Prepaid expenses				10,497				11,593				11,697
		Total Current Assets			630,757				590,651				564,662
Property and Equipment:
	Transportation equipment				137,555				137,555				137,555
	Machinery and equipment				1,905,235				1,867,336				1,248,414
	Office furniture and equipment				7,131				7,131				7,131
	Accumulated depreciation				(748,646	)			(677,475	)			(428,031	)
		Total Property and Equipment			1,301,275				1,334,547				965,069
		Total Assets		$	1,932,032			$	1,925,198			$	1,529,731
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Current maturities of long-term debt (Note 4)			$	283,194			$	312,414			$	235,137
	Short-term notes payable (Note 3)				54,601				86,765				149,995
	Accounts payable				82,369				117,928				129,895
	Accrued expenses				131,188				62,726				63,514
	Deferred income taxes (Note 9)				68,644				72,204				33,425
		Total Current Liabilities			619,996				652,037				611,966
Long-Term Debt (Note 4)					89,959				153,675				279,349
Deferred income taxes (Note 9)					136,593				132,577				78,565
		Total Liabilities			846,548				938,289				969,880
Stockholders’ Equity:
	Common stock, par value $10 100 shares issued and outstanding				1,000				1,000				1,000
	Retained earnings				1,084,484				985,909				558,851
		Total stockholders’ equity			1,085,484				986,909				559,851
		Total liabilities and stockholders’ equity		$	1,932,032			$	1,925,198			$	1,529,731

F-100

---

Table of Contents

				March 31,				December 31,				December 31,
				2005				2004				2003
Revenue
	Service revenue			$	926,906			$	3,862,005			$	2,415,266
	Other income				—				—				2,800
		Total revenue			926,906				3,862,005				2,418,066
Expenses
	Service-related expenses				552,472				2,514,373				1,582,313
	Selling, general, and administrative expenses				150,499				514,211				459,186
	Depreciation and amortization				71,171				249,444				174,386
	Interest expense				8,656				44,344				27,604
		Total expenses			782,798				3,322,372				2,243,489
		Operating income			144,108				539,633				174,577
Other income
	Gain (loss) on sale of assets				—				—				6,723
	Interest income				93				585				905
Income before income taxes					144,201				540,218				182,205
Federal and state income taxes (Note 9)					45,626				113,160				37,121
Net income				$	98,575			$	427,058			$	145,084

F-101

---

Table of Contents

		Common				Paid-in				Retained
		Stock				Capital				Earnings				Total
Balance, January 1, 2003		$	1,000			$	—			$	413,767			$	414,767
Net Income			—				—				145,084				145,084
Dividends paid			—				—				—				—
Balance, December 31, 2003			1,000				—				558,851				559,851
Net Income			—				—				427,058				427,058
Dividends paid			—				—				—				—
Balance, December 31, 2004			1,000				—				985,909				986,909
Net Income			—				—				98,575				98,575
Dividends paid			—				—				—				—
Balance, March 31, 2005		$	1,000			$	—			$	1,084,484			$	1,085,484

F-102

---

Table of Contents

				March 31,				December 31,				December 31,
				2005				2004				2003
Cash flows from operating activities:
Net income				$	98,575			$	427,058			$	145,084
Adjustments to reconcile net income to net cash provided (used) by operating activities:
	Depreciation and amortization				71,171				249,444				174,386
	Gain (loss) on sale of property, plant, and equipment				—				—				(6,723	)
	Deferred income taxes				457				92,791				37,121
Change in operating assets and liabilities:
	Accounts receivable				30,490				(26,044	)			(309,046	)
	Prepaid expenses				1,096				104				(858	)
	Prepaid income tax				—				3,507				(3,507	)
	Accounts payable				(35,559	)			(11,967	)			81,718
	Accrued payroll and employee benefits				29,696				(14,467	)			31,379
	Income tax payable				38,764				13,679				(2,076	)
	Net Cash Provided (Used) by Operating Activities				234,690				734,105				147,478
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment					—				—				25,000
Principal payments received on shareholder loans					1,707				6,318				5,695
Capital expenditures on property, plant, and equipment					(37,899	)			(406,618	)			(220,385	)
	Net Cash Provided (Used) by Investing Activities				(36,192	)			(400,300	)			(189,690	)
Cash flows from financing activities:
Repayment of long-term debt					(92,936	)			(322,686	)			(190,748	)
Proceeds from issuance of long-term debt					—				160,000				155,105
Repayment of short-term debt					(32,164	)			(1,550,165	)			(479,550	)
Proceeds from issuance of short-term debt					—				1,388,920				561,260
	Net Cash Provided (Used) by Financing Activities				(125,100	)			(323,931	)			46,067
Net Increase (Decrease) in Cash and Cash Equivalents					73,398				9,874				3,855
Cash and Cash Equivalents at Beginning of Year					49,695				39,821				35,966
Cash and Cash Equivalents at End of Year				$	123,093			$	49,695			$	39,821
Supplemental Schedule of Noncash Investing and Financing Activities:
		Purchase of equipment financed with debt proceeds		$	—			$	212,303			$	378,396
	Cash paid for interest			$	8,954			$	44,045			$	27,022

F-103

---

Table of Contents

Note 1:	Summary of Significant Accounting Policies

F-104

---

Table of Contents

Note 2:	Related-Party Transactions

						December 31,
		March 31,
		2005				2004				2003
Note receivables from shareholders, due upon demand, bearing interest of 0%, unsecured		$	7,967			$	9,673			$	15,991

Note 3:	Pledged Assets and Short-Term Notes Payable

						December 31,
		March 31,
		2005				2004				2003
Note payable, FNB, $150,000 line of credit, 6.0 to 6.25% interest rate		$	—			$	—			$	103,850
Note payable, FNB, $53,485, 6.0 to 7.75% interest rate			—				—				24,299
Note payable, FNB, $53,485, 6.25 to 8.75% interest rate			—				—				21,846
Note payable, FNB, $46,145, 6.0 to 7.25% interest rate			13,380				21,106				—
Note payable, CAT Financial, $98,013, 6.7% interest rate			41,221				65,659				—
		$	54,601			$	86,765			$	149,995

F-105

---

Table of Contents

Note 4:	Pledged Assets and Long-Term Debt

							December 31,
			March 31,
			2005				2004				2003
Various notes payable to banks and financing companies for vehicles and equipment, due in installments through March, 2008 at fixed interest rates ranging from 0.0% to 8.75%, collateralized by vehicles, equipment and accounts receivable			$	138,594			$	160,674			$	250,893
Various notes payable to banks and financing companies for vehicles and equipment, due in installments through March, 2007 at variable interest rates ranging from 4.15% to 7.25%, collateralized by vehicles, equipment and accounts receivable				234,559				305,415				263,593
Subtotal				373,153				466,089				514,486
	Less current maturities			283,194				312,414				235,137
Total Long-term debt			$	89,959			$	153,675			$	279,349

Year Ending March 31,
2006		$	283,194
2007			79,845
2008			10,114
		$	373,153

Note 5:	Leases

Year Ending March 31,
2006		$	144,000

F-106

---

Table of Contents

Note 6:	Stockholders’ Equity

						December 31,
		March 31,
		2005				2004				2003
Common stock authorized			100				100				100
Common stock issued			100				100				100
Common stock outstanding			100				100				100
Common stock, per share par value		$	10			$	10			$	10
Cash dividends paid on common stock			—				—				—

Note 7:	Dependence on Key Customers

Note 8:	Subsequent Events

F-107

---

Table of Contents

Note 9:	Income Tax Matters

							December 31,
			March 31,
			2005				2004				2003
Deferred Tax Liabilities:
	Property and equipment		$	136,593			$	132,577			$	78,565
	Cash basis receivables			95,394				101,340				96,261
	Prepaid expenses			2,047				2,261				2,281
				234,034				236,178				177,107
Deferred Tax Assets:
	Net operating loss carryforward			—				—				31,099
	Cash basis accounts payable and accrued expenses			28,797				31,397				34,018
				28,797				31,397				65,117
Net deferred tax liabilities			$	205,237			$	204,781			$	111,990

						December 31,
		March 31,
		2005				2004				2003
Current liabilities		$	68,644			$	72,204			$	33,425
Noncurrent liabilities			136,593				132,577				78,566
		$	205,237			$	204,781			$	111,991

						December 31,
		March 31,
		2005				2004				2003
Current tax expense		$	45,169			$	51,469			$	—
Deferred tax expense			457				92,790				37,121
Benefit of operating loss carryforward			—				(31,099	)			—
		$	45,626			$	113,160			$	37,121

F-108

---

Table of Contents

ASSETS
Current Assets
	Cash				$	153,254.16
	Trade Receivables					422,900.00
	Trade Receivables-WIP					111,225.00
	Loans to Shareholder					6,242.36
	Prepaid Expense					19,120.50
		Total Current Assets							$	712,742.02
Property and Equipment
	Transportation Equipment					178,238.71
	Machinery & Equipment					2,140,792.13
	Office Furniture & Equipment					7,131.34
	Accumulated Depreciation					(829,395.00	)
		Net Property and Equipment								1,496,767.18
			Total Assets						$	2,209,509.20
LIABILITIES AND EQUITY
Current Liabilities
	Accounts Payable				$	85,265.16
	Accrued Expenses					114,569.38
	Income Tax Payable					80,329.09
	Deferred Income Taxes					71,781.00
	Notes Payable					246,301.98
	Current Portion of L.T. Debt					206,298.26
		Total Current Liabilities							$	804,544.87
Deferred Income Tax										158,816.00
Long-Term Debt, Net of Current Portion										16,014.91
Stockholders’ Equity
	Common Stock, $10 Par Value					1,000.00
	Retained Earnings					1,229,133.42
		Total Stockholders’ Equity								1,230,133.42
			Total Liabilities & Stockholders’ Equity						$	2,209,509.20

F-109

---

Table of Contents

				Six Months Ended								Six Months Ended
				Jun. 30, 2005				Pct				Jun. 30, 2004				Pct
Revenue
	Service Revenue			$	1,949,131.25				100.00			$	1,839,365.00				100.00
		Total Revenue			1,949,131.25				100.00				1,839,365.00				100.00
Cost of Revenue					1,257,348.70				64.51				1,421,254.04				77.27
		Gross Profit			691,782.55				35.49				418,110.96				22.73
Operating Expenses					328,061.99				16.83				269,719.48				14.66
		Income From Operations			363,720.56				18.66				148,391.48				8.07
Other Income (Expense)
	Interest Income				168.77				0.01				343.36				0.02
	Interest Expense				(16,139.41	)			(0.83	)			(24,819.02	)			(1.35	)
		Total Other Income (Expense)			(15,970.64	)			(0.82	)			(24,475.66	)			(1.33	)
		Income Before Taxes			347,749.92				17.84				123,915.82				6.74
Income Taxes
	Current Income Tax				78,710.75				4.04
	Deferred Income Taxes				25,816.00				1.32				23,830.00				1.30
					104,526.75				5.36				23,830.00				1.30
		Net Income			243,223.17				12.48				100,085.82				5.44
Beginning Retained Earnings					985,910.25								558,852.46
		Ending Retained Earnings		$	1,229,133.42							$	658,938.28

F-110

---

Table of Contents

				Six Months Ended								Six Months Ended
				Jun. 30, 2005				Pct				Jun. 30, 2004				Pct
Cost of Revenue
	Contract Air				191,500.00				9.83				352,300.00				19.15
	Freight & Trucking				11,529.98				0.59				13,788.47				0.75
	Auto Expense				57,800.36				2.97				57,554.74				3.13
	Depreciation				148,285.00				7.61				110,875.00				6.03
	Fuel				0.00				0.00				12,906.32				0.70
	Insurance				27,634.49				1.42				21,697.12				1.18
	Laundry/ Uniforms				1,365.96				0.07				5,223.46				0.28
	Maintenance & Repairs				95,822.66				4.92				73,610.05				4.00
	Equipment Rental				141,320.17				7.25				175,289.72				9.53
	Subcontracting — Other				2,942.50				0.15				1,800.00				0.10
	Supplies				104,745.30				5.37				139,860.66				7.60
	Taxes				34,631.08				1.78				33,779.21				1.84
	Travel				2,666.50				0.14				0.00				22.97
	Wages				437,054.70				22.42				422,569.29				22.97
		Total Cost of Revenue		$	1,257,348.70				64.51			$	1,421,254.04				77.27
Operating Expenses
	Advertising & Promotional				0.00				0.00				454.56				0.02
	Bank Charges				0.00				0.00				632.62				0.03
	Contract Labor				0.00				0.00				924.00				0.05
	Car & Truck Expense				3,400.29				0.17				0.00				0.05
	Contributions				2,250.00				0.12				1,000.00				0.05
	Depreciation				3,635.00				0.19				3,341.00				0.18
	Dues & Subscriptions				71.70				0.00				170.40				0.01
	Insurance				21,057.11				1.08				20,040.54				1.09
	Laundry & Uniforms				1,748.23				0.09				0.00				1.09
	Life Insurance				288.00				0.01				269.00				0.01
	Medical Reimbursement				0.00				0.00				3,621.06				0.20
	Meals & Entertainment				7,604.96				0.39				1,441.28				0.08
	Office Expense				936.47				0.05				1,510.61				0.08
	Professional fees				5,171.03				0.27				1,054.00				0.06
	Rent				6,026.48				0.31				6,938.15				0.38
	Repairs & Maintenance				154.20				0.01				0.00				0.38
	Supplies				497.90				0.03				40.00				0.00
	Taxes				19,904.64				1.02				11,195.41				0.61
	Travel				6,104.48				0.31				1,564.70				0.09
	Utilities & Telephone				13,329.50				0.68				8,322.15				0.45
	Wages				43,482.00				2.23				8,322.15				0.45
	Salaries-Officers				192,400.00				9.87				207,200.00				11.26
		Total Operating Expenses		$	328,061.99				16.83			$	269,719.48				14.66

F-111

---

Table of Contents

					6 Months Ended				6 Months Ended
					Jun. 30, 2005				Jun. 30, 2004
Cash Flow from Operating Activities
	Net Income (Loss)				$	242,223.17			$	100,085.82
	Adjustments to Reconcile Cash Flow
		Depreciation				151,920.00				114,216.00
		Deferred Income Tax				25,816.00				23,830.00
	Decrease (Increase) in Current Assets
		Trade Receivables				(4,610.00	)			56,721.00
		Trade Receivable WIP				(9,825.00	)			(30,025.00	)
		Loans to Shareholder				3,432.23				2,959.58
		Prepaid Expense				(7,527.57	)			(321.51	)
		Prepaid Income Taxes				0.00				894.00
	Increase (Decrease) in Current Liabilities
		Accounts Payable				(32,662.73	)			(19,411.84	)
		Accrued Expenses				65,522.20				2,781.13
		Credit Cards Payable				66,650.50				10,690.02
			Total Adjustments			258,714.63				162,333.38
			Cash Provided (Used) by Operations			501,937.80				262,419.20
Cash Flow From Investing Activities
	Sales (Purchases) of Assets
		Machinery & Equipment				(314,139.87	)			(397,016.47	)
			Cash Provided (Used) by Investing			(314,139.87	)			(397,016.47	)
Cash Flow From Financing Activities
	Cash (Used) or provided by:
		Short-Term Debt				159,537.27				42,475.87
		Long-Term Debt				(243,775.81	)			137,312.81
			Cash Provided (Used) by Financing			(84,238.54	)			179,788.68
			Net Increase (Decrease) in Cash			103,559.39				45,191.41
			Cash at Beginning of Period			49,694.77				39,821.42
			Cash at End of Period		$	153,254.16			$	85,012.83

F-112

---

Table of Contents

F-113

---

Table of Contents

			December 31,
			2005				2004				2003
			(Restated)
ASSETS
Current Assets
Cash and cash equivalents			$	17,476,515			$	11,038,970			$	9,097,762
Trade receivables, net				7,253,603				5,437,713				3,206,942
Inventory				347,978				256,888				181,368
Prepaid expenses and other				63,266				82,256				66,910
	Total Current Assets			25,141,362				16,815,827				12,552,982
Property and Equipment, net				19,045,776				12,285,735				9,103,656
	Total Assets		$	44,187,138			$	29,101,562			$	21,656,638
LIABILITIES AND SHAREHOLDER’S EQUITY
Liabilities
Current Liabilities
Accounts payable			$	1,379,752			$	1,217,857			$	1,280,641
Accrued liabilities				608,797				291,195				260,650
Current portion of notes payable				3,084,046				1,488,466				1,021,530
	Total Current Liabilities			5,072,595				2,997,518				2,562,821
Notes Payable, less current portion				429,184				1,566,536				—
	Total Liabilities			5,501,779				4,564,054				2,562,821
Commitments and Contingencies				—				—				—
Shareholder’s Equity
Common stock				155,655				155,655				155,655
Treasury stock, at cost				(736,000	)			(736,000	)			(736,000	)
Retained earnings				39,265,704				25,117,853				19,674,162
	Total Shareholder’s Equity			38,685,359				24,537,508				19,093,817
	Total Liabilities and Shareholder’s Equity		$	44,187,138			$	29,101,562			$	21,656,638

F-114

---

Table of Contents

			Year Ended December 31,
			2005				2004				2003
			(Restated)
Revenues, Net			$	32,708,504			$	19,345,433			$	17,662,475
Expenses
Cost of sales				5,103,071				2,954,085				3,166,356
General and administrative				7,232,127				5,218,634				4,857,507
Depreciation				3,447,210				2,434,682				2,543,332
	Total Expenses			15,782,408				10,607,401				10,567,195
Income from Operations				16,926,096				8,738,032				7,095,280
Other Income (Expense)
Interest income				136,597				46,173				66,282
Interest expense				(184,856	)			(11,987	)			(58,442	)
Other, net				72,515				(76,917	)			(95,327	)
	Total Other Income (Expense)			24,256				(42,731	)			(87,487	)
	Net Income		$	16,950,352			$	8,695,301			$	7,007,793

F-115

---

Table of Contents

		Common Stock
										Treasury				Retained
		Shares				Amount				Stock				Earnings				Total
Balance, January 1, 2003			225			$	155,655			$	(736,000	)		$	25,467,954			$	24,887,609
Net income			—				—				—				7,007,793				7,007,793
Distributions			—				—				—				(12,801,585	)			(12,801,585	)
Balance, December 31, 2003			225				155,655				(736,000	)			19,674,162				19,093,817
Net income			—				—				—				8,695,301				8,695,301
Distributions			—				—				—				(3,251,610	)			(3,251,610	)
Balance, December 31, 2004			225				155,655				(736,000	)			25,117,853				24,537,508
Net income			—				—				—				16,950,352				16,950,352
Distributions			—				—				—				(2,802,501	)			(2,802,501	)
Balance, December 31, 2005 (Restated)			225			$	155,655			$	(736,000	)		$	39,265,704			$	38,685,359

F-116

---

Table of Contents

				Year Ended December 31,
				2005				2004				2003
				(Restated)
Cash Flows from Operating Activities
Net income				$	16,950,352			$	8,695,301			$	7,007,793
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation				3,447,210				2,434,682				2,543,332
	Gain on sale of assets				(1,865,949	)			(1,098,488	)			(332,431	)
Changes in operating assets and liabilities:
	Receivables				(1,815,890	)			(2,230,771	)			777,986
	Inventory				(91,090	)			(75,520	)			78,267
	Prepaid expenses and other				18,990				(15,346	)			(14,604	)
	Accounts payable				161,895				(62,784	)			43,879
	Accrued liabilities				317,602				30,545				10,519
		Net cash provided by operating activities			17,123,120				7,677,619				10,114,741
Cash Flows from Investing Activities
	Purchase of property and equipment				(11,429,761	)			(5,796,433	)			(921,949	)
	Proceeds from sale of property and equipment				3,135,857				1,334,493				1,088,038
		Net cash provided by (used in) investing activities			(8,293,904	)			(4,461,940	)			166,089
Cash Flows from Financing Activities
	Distributions to shareholder				(2,802,501	)			(3,251,610	)			(12,801,585	)
	Proceeds from notes payable				3,000,000				3,000,000				—
	Repayment of notes payable				(2,589,170	)			(1,022,861	)			(1,493,440	)
		Net cash used in financing activities			(2,391,671	)			(1,274,471	)			(14,295,025	)
Net Increase (Decrease) in Cash and Cash Equivalents					6,437,545				1,941,208				(4,014,195	)
Cash and cash equivalents — Beginning of year					11,038,970				9,097,762				13,111,957
Cash and cash equivalents — End of year				$	17,476,515			$	11,038,970			$	9,097,762
Supplemental Cash Flow Information
	Cash paid for interest			$	184,856			$	11,987			$	58,442

F-117

---

Table of Contents

F-118

---

Table of Contents

		Estimated				December 31,
		Useful
		Lives				2005				2004				2003
Rental equipment			7 - 10 years			$	37,346,425			$	27,390,801			$	23,338,565
Automobiles			5 years				508,535				410,094				330,734
Furniture and fixtures			5 - 7 years				12,369				12,369				1,835
Leasehold improvements			15 - 39 years				161,091				161,091				105,426
							38,028,420				27,974,355				23,776,560
Less: accumulated depreciation							(18,982,644	)			(15,688,620	)			(14,672,904	)
						$	19,045,776			$	12,285,735			$	9,103,656

F-119

---

Table of Contents

		December 31,
		2005				2004				2003
Note payable to bank (1)		$	—			$	—			$	1,021,530
Note payable to bank (2)			1,531,520				3,000,000				—
Note payable to bank (3)			1,907,252				—				—
Note payable to GMAC (4)			34,869				55,002				—
Note payable to Ford Credit (5)			39,589				—				—
			3,513,230				3,055,002				1,021,530
Less: current portion			3,084,046				1,488,466				1,021,530
Total notes payable — long-term		$	429,184			$	1,566,536			$	—

Year Ending December 31,
2006		$	3,084,046
2007			421,199
2008			7,985
		$	3,513,230

	(1) Note Payable to Bank

	(2) Note Payable to Bank

	(3) Note Payable to Bank

F-120

---

Table of Contents

	(4) Note Payable to GMAC

	(5) Note Payable to Ford Credit

	•	The Company acquired an automobile for $47,398, which was funded through a note payable instrument.

	•	The Company acquired an automobile for $56,333, which was funded through a note payable instrument.

F-121

---

Table of Contents

F-122

---

Table of Contents

				Year Ended December 31, 2005
				As Reported				Adjustments				As Restated
ASSETS
CURRENT ASSETS
	Cash and cash equivalents			$	17,476,515			$	—			$	17,476,515
	Trade receivables, net				7,253,603				—				7,253,603
	Inventory				347,978				—				347,978
	Prepaid expenses and other				63,266				—				63,266
		TOTAL CURRENT ASSETS			25,141,362				—				25,141,362
PROPERTY AND EQUIPMENT, net					19,045,776				—				19,045,776
TOTAL ASSETS				$	44,187,138			$	—			$	44,187,138
LIABILITIES AND SHAREHOLDER’S EQUITY
CURRENT LIABILITIES
	Accounts payable			$	1,379,752			$	—			$	1,379,752
	Accrued liabilities				13,008,797				(12,400,000	)			608,797
	Current portion of notes payable				3,084,046				—				3,084,046
		TOTAL CURRENT LIABILITIES			17,472,595				(12,400,000	)			5,072,595
NOTES PAYABLE, less current portion					429,184				—				429,184
TOTAL LIABILITIES					17,901,779				(12,400,000	)			5,501,779
COMMITMENTS AND CONTINGENCIES					—				—				—
SHAREHOLDER’S EQUITY
	Common stock				155,655				—				155,655
	Treasury stock, at cost				(736,000	)			—				(736,000	)
	Retained earnings				26,865,704				12,400,000				39,265,704
		TOTAL SHAREHOLDERS’ DEFICIT			26,285,359				12,400,000				38,685,359
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY				$	44,187,138			$	—			$	44,187,138

F-123

---

Table of Contents

				Year Ended December 31, 2005
				As Reported				Adjustments				As Restated
REVENUES, NET				$	32,708,504			$	—			$	32,708,504
EXPENSES
	Cost of sales				5,103,071				—				5,103,071
	General and administrative				19,632,127				(12,400,000	)			7,232,127
	Depreciation				3,447,210				—				3,447,210
		TOTAL EXPENSES			28,182,408				(12,400,000	)			15,782,408
INCOME FROM OPERATIONS					4,526,096				12,400,000				16,926,096
OTHER INCOME (EXPENSE)
	Interest income				136,597				—				136,597
	Interest expense				(184,856	)			—				(184,856	)
	Other, net				72,515				—				72,515
		TOTAL OTHER INCOME (EXPENSE)			24,256				—				24,256
NET INCOME				$	4,550,352			$	12,400,000			$	16,950,352

F-124

---

Table of Contents

				Year Ended December 31, 2005
				As Reported				Adjustments				As Restated
CASH FLOWS FROM OPERATING ACTIVITIES
Net income				$	4,550,352			$	12,400,000			$	16,950,352
Adjustments to reconcile net income to net cash used in operating activities:
	Depreciation				3,447,210				—				3,447,210
	Gain on sale of assets				(1,865,949	)			—				(1,865,949	)
Changes in operating assets and liabilities:
	Receivables				(1,815,890	)			—				(1,815,890	)
	Inventory				(91,090	)			—				(91,090	)
	Prepaid Expenses and other				18,990				—				18,990
	Accounts Payable				161,895				—				161,895
	Accrued liabilities				12,717,602				(12,400,000	)			317,602
		NET CASH PROVIDED BY OPERATING ACTIVITIES			17,123,120				—				17,123,120
CASH FLOWS FROM INVESTING ACTIVITIES
	Purchase of property and equipment				(11,429,761	)			—				(11,429,761	)
	Proceeds from sale of property and equipment				3,135,857				—				3,135,857
		NET CASH USED IN INVESTING ACTIVITIES			(8,293,904	)			—				(8,293,904	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Distributions to shareholder				(2,802,501	)			—				(2,802,501	)
	Proceeds from notes payable				3,000,000				—				3,000,000
	Repayment of notes payable				(2,589,170	)			—				(2,391,671	)
		NET CASH USED IN FINANCING ACTIVITIES			(2,391,671	)			—				(2,391,671	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					6,437,545				—				6,437,545
CASH AND CASH EQUIVALENTS — BEGINNING OF YEAR					11,038,970				—				11,038,970
CASH AND CASH EQUIVALENTS — END OF YEAR				$	17,476,515			$	—			$	17,476,515
SUPPLEMENTAL CASH FLOW INFORMATION
	Cash paid for interest			$	186,856			$	—			$	186,856

F-125

---

Table of Contents

		Year Ended December 31,
		2005				2004				2003
		(Restated)
Salaries and wages		$	2,808,822			$	2,449,073			$	2,340,807
Retirement plan expenses			174,863				163,261				155,409
Selling expenses			486,323				325,595				292,420
Shop supplies			774,694				500,783				571,038
Shop maintenance			321,111				43,691				46,767
Rent			648,000				288,257				180,000
Insurance			461,198				404,886				345,318
Automobile expenses			242,276				161,549				145,333
Advertising			253,624				196,037				244,695
Taxes, licenses and other			565,751				377,022				415,390
Bad debt expense, net of recoveries			103,609				81,389				(59,220	)
Office expense			57,424				49,648				26,814
Uniforms			25,555				17,971				19,800
Utilities			88,091				115,565				69,006
Dues and subscriptions			8,083				7,375				8,956
Professional fees			211,563				34,739				52,112
Other			1,140				1,793				2,862
Total		$	7,232,127			$	5,218,634			$	4,857,507

F-126

---

Table of Contents

F-127

---

Table of Contents

			December 31,				December 31,
			2005				2004
ASSETS
Current Assets
	Cash and cash equivalents (Note 4)			731				1,496
	Accounts receivable (Note 5)			26,826				19,970
	Parts and supplies (Note 6)			16,640				16,110
	Prepaid expenses and other current assets (Note 7)			4,069				4,713
	Assets of discontinued operations (Note 22)			7,276				—
Total Current Assets				55,542				42,289
Non-Current Assets
	Property, plant and equipment, net (Note 8)			110,510				97,799
	Assets of discontinued operations			—				12,659
	Investments			2				2
Total Non-Current Assets				110,512				110,460
TOTAL				166,054				152,749
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
	Trade accounts payable and accrued expenses (Note 9)			13,522				12,209
	Short-term debt (Note 10)			8,690				19,430
	Payroll and accrued taxes (Note 11)			7,976				6,948
	Other liabilities (Note 12)			9,188				1,816
Total Current Liabilities				39,376				40,403
Non-Current Liabilities
	Other liabilities (Note 12)			782				14,167
	Long-term debt (Note 13)			29,640				12,846
	Deferred income tax liability (Note 14)			696				526
Total Non-Current Liabilities				31,118				27,539
TOTAL LIABILITIES				70,494				67,942
Stockholders’ Equity
	Common stock (Note 3)			42,963				42,963
	Additional paid-in capital (Note 3)			31,606				27,466
	Retained earnings			20,991				14,378
TOTAL STOCKHOLDERS’ EQUITY				95,560				84,807
TOTAL				166,054				152,749

F-128

---

Table of Contents

		Year Ended December 31,
		2005				2004				2003
Sales and Other Operating Revenues (Note 15)			129,849				112,272				96,084
Operating Costs and Expenses (Note 16)			(113,351	)			(98,366	)			(83,727	)
Gross Profit			16,498				13,906				12,357
General and Administrative Expenses			(3,933	)			(3,430	)			(3,140	)
Operating Income			12,565				10,476				9,217
Net Financial Expenses (Note 16)			(5,394	)			(4,585	)			(4,030	)
Other Income (Expenses) (Note 16)			7,127				1,000				(166	)
Income from Continuing Operations Before Income Tax			14,298				6,891				5,021
Income Tax (Note 14)			(3,547	)			(3,030	)			(3,907	)
Income from Continuing Operations			10,751				3,861				1,114
Loss on Discounted Operations, net of Income Tax Benefit of $2,228, $705, and $0, respectively (Note 22)			(4,138	)			(1,309	)			0
Net Income			6,613				2,552				1,114

F-129

---

Table of Contents

														Accumulated
		Common Stock												other
										Paid-in				comprehensive				Retained
Description		Shares				Amount				Capital				income				Earnings				Total
2003
Opening Balance			42,963,374				42,963				27,466				—				10,712				81,141
Net income for fiscal year 2003																			1,114				1,114
Balance as of December 31, 2003			42,963,374				42,963				27,466				—				11,826				82,255
2004
Net income for fiscal year 2004																			2,552				2,552
Balance as of December 31, 2004			42,963,374				42,963				27,466				—				14,378				84,807
2005
Contribution of additional paid-in-capital			—				—				4,140				—				—				4,140
Net income for fiscal year 2005																			6,613				6,613
Balance as of December 31, 2005			42,963,374				42,963				31,606				—				20,991				95,560

F-130

---

Table of Contents

			Year Ended December 31,
			2005				2004				2003
Net Income				6,613				2,552				1,114
Adjustments to reconcile net income to net cash provided by operating activities
	Deferred income tax			524				320				3,907
	Depreciation, depletion and amortization			9,420				9,475				7,173
	Loss on discontinued operations			4,138				1,309				—
Changes in assets and liabilities
	(Increase) decrease in parts and supplies			(530	)			91				(400	)
	Increase in accounts receivable trade			(6,856	)			(2,041	)			(6,697	)
	Decrease (increase) prepaid expenses and other current assets, net of deferred income tax			290				719				(2,120	)
	Increase in trade accounts payable and accrued expenses, payroll and accrued taxes and current other liabilities			4,629				6,347				4,783
Net cash provided by operations				18,228				18,772				7,760
Investment activities
	Disposal (purchase) of investments			—				13				(10	)
	Proceeds from the sale of property, plant and equipment			64				160				—
	Additions to property, plant and equipment			(22,195	)			(12,184	)			(12,640	)
Net cash used in investment activities				(22,131	)			(12,011	)			(12,650	)
Financing
	Contribution of additional paid-in capital			4,140				—				—
	New long – term debt			14,500				5,065				5,290
	Net new short – term debt			—				2,912				—
	Financing from customers and other liabilities			(6,073	)			14,166				—
	Net decrease in short – term debt and long-term debt			(8,446	)			(12,894	)			(733	)
Net cash provided by financing activities				4,121				9,249				4,557
Cash flows from discontinued operations
	Net cash used in operations			—				—				—
	Net cash used in investments activities			(983	)			(14,673	)			—
	Net cash used in financing activities			—				—				—
Net cash used in discontinued operations				(983	)			(14,673	)			—
(Decrease) increase in cash and cash equivalents				(765	)			1,337				(333	)
Cash and cash equivalents at the beginning of the year				1,496				159				492
Cash and cash equivalents at the end of the year				731				1,496				159
Income tax paid				—				—				—
Interest paid				920				1,873				467

F-131

---

Table of Contents

	2.1. Accounting policies

	2.2. Basis of presentation

						Stock
Company		Main Activity				Ownership				Voting Rights
DLS Argentina Ltd. (1)			Oil Field Services				99.99	%			99.99	%
DLS Bolivia Branch			Oil Field Services				100.00	%

(1)	DLS Argentina Ltd. has a branch in Argentina (DLS Argentina Limited Sucursal Argentina).

F-132

---

Table of Contents

	2.3. Cash and cash equivalents

	2.4. Parts and supplies

	2.5. Property, plant and equipment

Drilling rigs			5840 working days
Rig equipment			5 years
Workover rigs			16 years
Pulling rigs			10 years
Trucks and transportation equipment			4 years
Buildings			10 years
Trailers and facilities			4 years
Other			3 to 5 years

F-133

---

Table of Contents

	2.6. Foreign currency remeasurement

	2.7. Revenue recognition

	2.8. Compensated absences and additional salaries

	2.9. Concentration of credit risk

	2.10. Conditions affecting ongoing operations

F-134

---

Table of Contents

	2.11. Income tax

		December 31
		2005				2004
Cash on hand and in banks			331				1,496
Time deposits			400				—
			731				1,496

F-135

---

Table of Contents

		December 31
		2005				2004
Trade			26,826				19,970
			26,826				19,970

Drilling fluids			1,741				1,541
Materials, supplies, spare parts and others			13,916				13,165
Goods in transit			983				1,404
			16,640				16,110

Prepaid taxes			2,073				1,857
Minimum presumed income tax			—				791
Deferred tax asset			309				663
Prepaid expenses			1,036				1,402
Deferred mobilization costs			651				—
			4,069				4,713

Drilling activities:
	Drilling rigs			91,585				81,227
	Rig equipment			17,372				15,594
	Workover rigs			15,549				11,622
	Rig held for future use(1)			10,752				10,752
	Pulling rigs			7,324				6,459
	Trucks and transportation equipment			3,559				3,456
	Buildings			2,826				2,073
	Trailers and facilities			1,359				1,258
	Other			8,599				7,241
				158,925				139,682
Accumulated depreciation				(48,415	)			(41,883	)
Net property, plant and equipment				110,510				97,799

(1)	Carried at cost, which is lower than estimated fair market value.

F-136

---

Table of Contents

		December 31
		2005				2004
Trade creditors			11,724				10,999
Accrued expenses			1,798				1,210
			13,522				12,209

Short term debt			—				1,006
Portion of long term debt maturing within one year			8,690				18,424
			8,690				19,430

		December 31
		2005				2004
Payroll			5,203				4,149
Taxes			2,773				2,799
			7,976				6,948

Current
Customer financing of rig purchases			1,850				1,715
Note payable			7,177				—
Other			161				101
Total			9,188				1,816
Non-Current
Customer financing of rig purchases			782				2,591
Note payable			—				11,576
Total			782				14,167

F-137

---

Table of Contents

		December 31
		2005				2004
3,49 % loan agreement due 2005(1)			—				2,028
4,51% loan agreement due 2005(1)			—				4,032
10,78% loan agreement due 2005(2)			—				1,128
10,78% loan agreement due 2006(2)			1,110				1,106
6,31% loan agreement due 2006(1)			2,142				1,676
6,31% loan agreement due 2008(1)			2,376				1,676
5,51% loan agreement due 2009(1)			1,500				800
6,156% loan agreement due 2010(1)			700				—
5,67% loan agreement due 2011(1)			350				—
10,78% loan agreement due 2007(2)			733				746
3,49% loan agreement due 2007(1)			2,376				1,676
6% loan agreement due 2005(1)			—				11,236
6% loan agreement due 2006(1)			5,438				5,166
6% loan agreement due 2007(1)			7,163				—
6% loan agreement due 2008(1)			7,514				—
6% loan agreement due 2009(1)			6,928				—
Subtotal			38,330				31,270
Less: Long-term debt maturing within one year			8,690				18,424
			29,640				12,846

	(1)	Denominated in US dollars
	(2)	Denominated in Argentine pesos

F-138

---

Table of Contents

2006			8,690
2007			10,272
2008			9,890
2009			8,428
2010			700
Thereafter			350
Total long term debt			38,330

		Year ended December 31
		2005				2004				2003
Current			(3,023	)			(2,710	)			—
Deferred			(524	)			(320	)			(3,907	)
Total			(3,547	)			(3,030	)			(3,907	)

						Percent of								Percent of								Percent of
						Pre-tax								Pre-tax								Pre-tax
		2005				Income				2004				Income				2003				Income
Income from continuing operations before income tax			14,298								6,891								5,021
Theoretical income tax (*)			4,941				34.6%				2,358				34.2%				1,722				34.3%
Non taxable income(**)			(2,333	)			–16.3%				(573	)			–8.3%				—
Non taxable-exempt operation			—								—								424				8.4%
Foreign exchange remeasurement			939				6.6%				1,245				18.1%				1,761				35.1%
Income tax expense			3,547				24.8%				3,030				44.0%				3,907				77.8%

(*)	The theoretical income tax rate applied represents the weighted average of 35% of Argentine income tax and 25% of Bolivian income tax.

(**)	Taxable income generated by the Company’s operations in the Province of Tierra de Fuego are exempt from Argentine income tax.

F-139

---

Table of Contents

			December 31
			2005				2004
Deferred tax asset:
	Exchange losses deferred for tax purposes			309				663
Total deferred tax asset				309				663
Deferred tax liability:
	Depreciation of property, plant and equipment			696				526
Total deferred tax liability				696				526

		Year ended December 31
		2005				2004				2003
By type of service provided
Drilling			71,617				68,805				54,779
Workover			25,848				19,592				19,059
Pulling			13,545				9,752				16,078
Mud Services			18,506				13,426				5,862
Other Revenues			333				697				306
			129,849				112,272				96,084
By location
Argentina			126,716				102,339				89,443
Bolivia			3,133				9,933				6,641
			129,849				112,272				96,084

F-140

---

Table of Contents

		Year ended December 31
		2005				2004				2003
Pan American Energy LLC (see Notes 17 and 18)			71,928				57,326				47,565
Repsol YPF S.A.			19,741				17,454				26,631
Sales to other customers			38,180				37,492				21,888
			129,849				112,272				96,084

		Year ended December 31
		2005				2004				2003
Operating costs and expenses
Payroll and related taxes			39,290				29,599				23,155
Fuel, lubricants & materials			29,708				29,256				25,234
Third party services			20,898				17,264				18,961
Depreciation			9,420				9,475				7,173
Repairs and maintenance			4,506				4,064				2,857
Fleet expenses			3,415				2,794				1,837
Insurance			1,102				1,280				1,081
Other expenses			5,012				4,634				3,429
			113,351				98,366				83,727

		Year ended December 31
		2005				2004				2003
Net Financial expenses
Interest expenses			2,713				1,836				1,462
Interest income			(78	)			(2	)			(10	)
Other financing charges			2,287				2,478				2,085
Foreign currency losses			472				273				493
			5,394				4,585				4,030
Other Income (Expenses)
Commissions earned (Note 17)			7,217				2,104				0
Other			(90	)			(1,104	)			(166	)
			7,127				1,000				(166	)

F-141

---

Table of Contents

F-142

---

Table of Contents

		Year ended December 31
		2005				2004				2003
Accounts receivable trade			5,076				9,681				8,283
Trade accounts payable and accrued expenses			1,073				2,095				888
Short term debt			5,437				11,237				5,207
Long term debt			21,605				5,166				15,566
Other liabilities — current			9,027				1,715				—
Other liabilities non — current			782				14,167				—

	18.2.     Drilling fluid contract

F-143

---

Table of Contents

	18.3.     Source of drilling fluids

	18.4.     Litigation

		Carrying				Fair
		amount				value
Cash and cash equivalents			731				731
Accounts receivable			26,826				26,826
Accounts payable			13,522				13,522
Short-term debt			8,690				8,690
Long-term debt			29,640				29,640
Other liabilities			9,970				9,970

F-144

---

Table of Contents

	•	Cash and cash equivalents, trade accounts receivable, other assets, short term debt, trade accounts payable, accrued expenses: The carrying amounts approximate fair value because of the short maturity of these instruments.
	•	Long-term debt: The fair value of the Company’s long-term debt is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Company’s bankers.

F-145

---

Table of Contents

		December 31
Assets of discontinued operations		2005				2004
Oil and gas unproved properties			6,701				11,647
Oil and gas construction work in progress			575				1,012
			7,276				12,659

F-146

---

Table of Contents

		Year Ended December 31
Loss on discontinued operations		2005				2004				2003
Dry hole expense			(1,420	)			(382	)			—
Impairment charges on unproved properties			(4,946	)			(1,632	)			—
Income tax benefits on discontinued operations			2,228				705				—
			(4,138	)			(1,309	)			—

F-147

---

Table of Contents

			June 30,				December 31,
			2006				2005
			(Unaudited)
ASSETS
Current Assets
	Cash and cash equivalents (Note 4)			492				731
	Accounts receivable (Note 5)			29,244				26,826
	Parts and supplies (Note 6)			16,608				16,640
	Prepaid and other current assets (Note 7)			6,307				4,069
	Assets of discontinued operations (Note 3)			—				7,276
Total Current Assets				52,651				55,542
Non-Current Assets
	Property, plant and equipment, net (Note 8)			108,593				110,510
	Investments			2				2
Total Non-Current Assets				108,595				110,512
TOTAL				161,246				166,054
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
	Trade accounts payable and accrued expenses (Note 9)			17,270				13,522
	Short-term debt (Note 10)			8,861				8,690
	Payroll and accrued taxes (Note 11)			12,593				7,976
	Other liabilities (Note 12)			2,105				9,188
Total Current Liabilities				40,829				39,376
Non-Current Liabilities
	Other liabilities (Note 12)			—				782
	Long-term debt (Note 13)			17,453				29,640
	Deferred income tax liability			749				696
Total Non-Current Liabilities				18,202				31,118
TOTAL LIABILITIES				59,031				70,494
Stockholders’ Equity
	Common stock (Note 22)			42,963				42,963
	Additional paid-in capital (Note 22)			31,606				31,606
	Retained earnings			27,646				20,991
TOTAL STOCKHOLDERS’ EQUITY				102,215				95,560
TOTAL				161,246				166,054

F-148

---

Table of Contents

		Six Months
		Ended June 30,
		2006				2005
Sales and Other Operating Revenues (Note 15)			82,019				61,085
Operating Costs and Expenses (Note 16)			(68,490	)			(54,970	)
Gross Profit			13,529				6,115
General and Administrative Expenses			(2,205	)			(2,009	)
Operating Income			11,324				4,106
Net Financial Expenses (Note 16)			(2,748	)			(2,155	)
Other (Expenses) Income (Note 16)			(784	)			3,299
Income from Continuing Operations Before Income Tax			7,792				5,250
Income Tax (Note 14)			(3,512	)			(2,074	)
Income from Continuing Operations			4,280				3,176
Income from Discontinued Operations, net of Income Tax Benefit of $2,375 (Note 3)			2,375				—
Net Income			6,655				3,176

F-149

---

Table of Contents

														Accumulated
		Common Stock												Other
										Paid-in				Comprehensive				Retained
Description		Shares				Amount				Capital				Income				Earnings				Total
2005
Opening balance			42,963,374				42,963				27,466				—				14,378				84,807
Net income for the six months ended June 30, 2005			—				—				—				—				3,176				3,176
Balance as of June 30, 2005			42,963,374				42,963				27,466				—				17,554				87,983
2006
Opening balance			42,963,374				42,963				31,606				—				20,991				95,560
Net income for the six months ended June 30, 2006			—				—				—				—				6,655				6,655
Balance as of June 30, 2006			42,963,374				42,963				31,606				—				27,646				102,215

F-150

---

Table of Contents

			Six Months Ended
			June 30,
			2006				2005
Net Income				6,655				3,176
Adjustments to reconcile net income to net cash provided by operating activities
	Deferred income tax			210				275
	Income from discontinued operations			(2,375	)			—
	Depreciation, depletion and amortization			5,490				4,486
	Net gain on the sale of property, plant and equipment			(34	)			24
Changes in assets and liabilities
	Decrease in parts and supplies			32				545
	Decrease (increase) in accounts receivable trade			(2,418	)			(1,695	)
	Increase in prepaid expenses and other current assets, net of deferred income tax			(22	)			(1,935	)
	Increase in trade accounts payable and accrued expenses, payroll and accrued taxes and current other liabilities			502				4,175
Net cash provided by operations				8,040				9,051
Investment activities
	Purchase of investments			—				(10	)
	Proceeds from the sale of property, plant and equipment			798				27
	Additions to property, plant and equipment			(4,337	)			(4,057	)
Net cash used in investment activities				(3,539	)			(4,040	)
Financing
	Net decrease in Short-term debt and Long-term debt			(12,016	)			(5,447	)
Net cash used in financing activities				(12,016	)			(5,447	)
Cash flow from discontinued operations
	Net cash provided by operations			—				—
	Net cash provided by investment activities			7,276				—
	Net cash provided by financing activities			—				—
Net cash provided by discontinued operations				7,276				—
Decrease in cash and cash equivalents				(239	)			(436	)
Cash and cash equivalents at the beginning of the period				731				1,496
Cash and cash equivalents at the end of the period				492				1,060
Income tax paid				—				—
Interest paid				2,648				1,155

F-151

---

Table of Contents

Note 1.	The Company

Note 2.	Significant accounting policies and presentation

	2.1. Accounting policies

	2.2. Basis of presentation

F-152

---

Table of Contents

						Stock
Company		Main Activity				Ownership				Voting Rights
DLS Argentina Ltd. (1)			Oil Field Services				99.99	%			99.99	%
DLS Bolivia Branch			Oil Field Services				100.00	%

(1)	DLS Argentina Ltd. has a branch in Argentina (DLS Argentina Limited Sucursal Argentina)

	2.3. Cash and cash equivalents

	2.4. Parts and supplies

	2.5. Property, plant and equipment

F-153

---

Table of Contents

Drilling rigs			5840 working days
Rig equipment			5 years
Workover rigs			16 years
Pulling rigs			10 years
Trucks and transportation equipment			4 years
Buildings			10 years
Trailers and facilities			4 years
Other			3 to 5 years

	2.6. Foreign currency remeasurement

	2.7. Revenue recognition

F-154

---

Table of Contents

	2.8. Compensated absences and additional salaries

	2.9. Concentration of credit risk

	2.10. Conditions affecting ongoing operations

	2.11. Income tax

F-155

---

Table of Contents

Note 3.	Discontinued operations

		Six Months
		ended June 30
		2006				2005
Pretax income from discontinued operations
Gain/ Loss on sale of discontinued operations			—				—
Income tax benefit			2,375				—
Income from discontinued operations			2,375				—

		June 30				December 31
		2006				2005
Oil and gas unproved properties			—				6,701
Oil and gas construction work in progress			—				575
			—				7,276

F-156

---

Table of Contents

Note 4.	Cash and cash equivalents

		June 30				December 31
		2006				2005
Cash on hand and in banks			492				331
Time deposits			—				400
			492				731

Note 5.	Accounts receivable

Trade			29,244				26,826
			29,244				26,826

Note 6.	Parts and supplies

Drilling fluids			1,763				1,741
Materials, supplies, spare parts and others			13,206				13,916
Goods in transit			1,639				983
			16,608				16,640

Note 7.	Prepaid expenses and other current assets

Prepaid taxes			1,537				2,073
Deferred tax asset			2,525				309
Prepaid expenses			2,245				1,036
Deferred mobilization costs			—				651
			6,307				4,069

F-157

---

Table of Contents

Note 8.	Property, plant and equipment

			June 30,				December 31,
			2006				2005
Drilling activities:
	Drilling rigs			93,515				91,585
	Rig equipment			18,593				17,372
	Workover rigs			16,056				15,549
	Rig held for future use(1)			10,752				10,752
	Pulling rigs			7,309				7,324
	Trucks and transportation equipment			3,954				3,559
	Buildings			2,073				2,826
	Trailers and facilities			1,456				1,359
	Other			8,674				8,599
				162,382				158,925
Accumulated depreciation				(53,789	)			(48,415	)
Net property, plant and equipment				108,593				110,510

(1)	Carried at cost, which is lower than estimated fair market value.

Note 9.	Trade accounts payable and accrued expenses

Trade creditors			14,819				11,724
Accrued expenses			2,451				1,798
			17,270				13,522

Note 10.	Short-term debt

Portion of long term debt maturing within one year			8,861				8,690
			8,861				8,690

Note 11.	Payroll and accrued taxes

Payroll			6,904				5,203
Taxes			5,689				2,773
			12,593				7,976

F-158

---

Table of Contents

Note 12.	Other liabilities

		June 30,				December 31,
		2006				2005
Current
Customer financing of rig purchases			1,442				1,850
Note payable			—				7,177
Other			663				161
Total			2,105				9,188
Non-Current
Customer financing of rig purchases			—				782
Total			—				782

F-159

---

Table of Contents

Note 13.	Long-term debt

		June 30,				December 31,
		2006				2005
10.78% loan agreement due 2006(2)			—				1,110
6.31% loan agreement due 2006(1)			1,313				2,142
6.31% loan agreement due 2007(1)			2,376				—
6.31% loan agreement due 2008(1)			2,376				2,376
5.51% loan agreement due 2009(1)			1,500				1,500
6.56% loan agreement due 2010(1)			700				700
6.56% loan agreement due 2011(1)			350				350
10.78% loan a agreement due 2007(2)			—				733
3.49% loan agreement due 2007(1)			—				2,376
6% loan agreement due 2006(1)			2,787				5,438
6% loan agreement due 2007(1)			4,524				7,163
6% loan agreement due 2008(1)			3,253				7,514
6% loan agreement due 2009(1)			7,135				6,928
Subtotal			26,314				38,330
Less: Long-term debt maturing within one year			8,861				8,690
			17,453				29,640

(1)	Denominated in US dollars
(2)	Denominated in Argentine pesos

2006 and 2nd quarter 2007			8,861
2007			2,139
2008			5,629
2009			8,635
2010			700
Thereafter			350
Total long term debt			26,314

F-160

---

Table of Contents

Note 14.	Income tax

		Six months ended June 30
		2006				2005
Current			(3,302	)			(1,799	)
Deferred			(210	)			(275	)
Total			(3,512	)			(2,074	)

						Percent of								Percent of
						Pre-tax								Pre-tax
		2006				income				2005				income
Income from continuing operations before income tax			7,792				100	%			5,250				100	%
Theoretical income tax(*)			2,644				33.9	%			1,799				34.3	%
Non taxable result — exempt operation-			618				7.9	%			(819	)			-15.6	%
Non taxable income(**)			(37	)			-0.5	%			(30	)			-0.6	%
Foreign exchange remeasurement			287				3.7	%			1,124				21.4	%
Income tax expense from continuing operations			3,512				45.1	%			2,074				39.5	%

(*)	The theoretical income tax rate applied represents the weighted average of 35% of Argentine income tax and 25% of Bolivian income tax for continuing operations.
(**)	Taxable income generated by the Company’s operations in the province of Tierra del Fuego are exempt from Argentine income tax for continuing operations.

F-161

---

Table of Contents

Note 15.	Sales and other operating revenues

		Period ended June 30
		2006				2005
By type of service provided
Drilling			48,270				36,040
Workover			16,468				11,870
Pulling			7,565				6,331
Mud Services			9,629				6,759
Other Revenues			87				85
			82,019				61,085
By location
Argentina			79,467				58,635
Bolivia			2,552				2,450
			82,019				61,085
Sales to significant customers were as follows:
Pan American Energy LLC (see Notes 17 and 18)			50,996				34,349
Repsol YPF S.A.			11,874				9,027
Sales to other customers			19,149				17,709
			82,019				61,085

F-162

---

Table of Contents

Note 16.	Detail of expenses

		Period ended June 30
		2006				2005
Operating costs and expenses
Payroll and related taxes			23,872				18,280
Fuel, lubricants & materials			17,800				15,607
Third party services			14,292				10,420
Depreciation			5,490				4,486
Repairs and maintenance			1,718				1,985
Fleet expenses			1,410				1,419
Insurance			749				697
Other expenses			3,159				2,076
			68,490				54,970
Net Financial Expenses
Interest expense			1,181				1,252
Interest income			(6	)			(1	)
Other financing charges			1,198				903
Foreign currency losses			375				1
			2,748				2,155
Other (Expenses) Income
Commissions earned			—				3,384
Other			(784	)			(85	)
			(784	)			3,299

Note 17.	Certain agreements and transactions with related parties

F-163

---

Table of Contents

		June 30,				December 31,
		2006				2005
Accounts receivable trade			17,715				5,076
Trade accounts payable and accrued expenses			472				1,073
Short term debt			6,361				5,437
Long term debt			17,339				21,605
Other liabilities — current			1,442				9,027
Other liabilities — non-current			—				782

F-164

---

Table of Contents

Note 18.	Commitments and contingencies

	18.1. PAE contract

	18.2. Drilling fluid contract

	18.3. Source of drilling fluids

	18.4. Litigation

F-165

---

Table of Contents

Note 19.	Leases

Note 20.	Fair value of financial instruments

		Carrying				Fair
		amount				value
Cash and cash equivalents			492				492
Accounts receivable			29,244				29,244
Accounts payable			17,270				17,270
Short-term debt			8,861				8,861
Long-term debt			17,453				17,453
Other liabilities			2,105				2,105

	•	Cash and cash equivalents, trade accounts receivable, other assets, short term debt, trade accounts payable, accrued expenses: The carrying amounts approximate fair value because of the short maturity of these instruments.
	•	Long-term debt: The fair value of the Company’s long-term debt is estimated by discounting the future cash flows of each instrument at rates currently offered to the Company for similar debt instruments of comparable maturities by the Company’s bankers.

Note 21.	New accounting pronouncements

F-166

---

Table of Contents

F-167

---

Table of Contents

Note 22.	Stockholders’ equity

Note 23.	Subsequent events

F-168

---

Table of Contents

	•	Our acquisition of DLS, for the consideration described above under “DLS’ Business,” including the assumption of $8.6 million of DLS’ currently existing indebtedness and the issuance of 2.5 million shares of our common stock to the sellers, as adjusted for the August 2006 offering of our 9.0% senior notes and the sale of an additional 3.5 million shares of our common stock to fund a portion of the cash component of the purchase price for this acquisition. The following table summarizes the preliminary allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed as if the acquisition occurred on June 30, 2006 (in thousands):

Current assets			$	52,651
Property and equipment				150,851
Other long-term assets				2
	Total assets acquired			203,504
Current liabilities				31,968
Long-term debt				8,614
Other long term liabilities				27,000
	Total liabilities assumed			67,582
	Net assets acquired		$	135,922

	We expect to incur approximately $4.6 million of acquisition costs in connection with this acquisition. DLS historical property and equipment values are expected to be increased by approximately $42.3 million based on third-party valuations. We do not expect any material differences from the preliminary allocation of the purchase price and actual purchase price allocation.

	•	Our acquisition of Rogers, which closed on April 3, 2006. The following table summarizes the allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Current assets			$	4,520
Property and equipment				9,886
Intangible assets				1,131
	Total assets acquired			15,517
Current liabilities				1,717
Other long term liabilities				100
	Total liabilities assumed			1,756
	Net assets acquired		$	13,700

F-169

---

Table of Contents

We paid the purchase price with $11.3 million in cash (of which we borrowed $5.0 million under our line of credit), a $750,000 seller financed note and 125,285 newly issued shares of our common stock, which had a value of $1.7 million. We incurred approximately $341,000 of acquisition costs in connection with the Rogers acquisition. Rogers’ historical property and equipment book values were increased by approximately $8.4 million based on third-party valuations. Intangible assets include $981,000 assigned to patents and $150,000 assigned to a non-compete agreement based on third-party valuations and an employment contract. The intangibles have a weighted-average useful life of 11 years.

	•	our acquisition of DLS for the consideration described above under “DLS’ Business,” including the assumption of $8.6 million of DLS’ currently existing indebtedness and the issuance of 2.5 million shares of our common stock to the sellers as the stock component of the purchase price therefor;
	•	the sale of $95.0 million aggregate principal amount of notes in August 2006; and
	•	our issuance of an additional 3.5 million shares of our common stock in order to fund a portion of the cash component of the purchase price for the pending DLS acquisition. The pro forma treats the shares as having been issued at a price of $14.50 per share.

	•	Our acquisition of Delta Rental Service, Inc., which closed on April 1, 2005. The following table summarizes the allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Current assets			$	1,327
Property and equipment				5,529
Intangible assets				150
	Total assets acquired			7,006
Current liabilities				633
Long-term debt				523
	Total liabilities assumed			1,156
	Net assets acquired		$	5,850

We paid the purchase price with approximately $4.5 million in cash, newly issued shares of our common stock valued at approximately $1.0 million and two promissory notes totaling $350,000 in principal amount. We incurred approximately $28,000 of acquisition costs in connection with the Delta acquisition. Delta’s historical property and equipment values were increased by approximately $4.2 million based on third-party valuations. The fair value of the $150,000 non-compete intangible asset was based on the related employment contract and has a useful life of 3 years.

F-170

---

Table of Contents

	•	Our acquisition of Capcoil Tubing Services, Inc., which closed on May 2, 2005. The following table summarizes the allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Current assets			$	1,706
Property and equipment				2,908
Other long-term assets				11
Intangible assets				1,389
Goodwill				184
	Total assets acquired			6,198
Current liabilities				847
Long-term debt				1,851
	Total liabilities assumed			2,698
	Net assets acquired		$	3,500

We paid the purchase price with approximately $2.7 million in cash and newly issued shares of our common stock valued at approximately $750,000. We incurred approximately $26,000 of acquisition costs in connection with the Capcoil acquisition. Capcoil’s historical property and equipment book values were increased by approximately $1.0 million based on third-party valuations. Intangible assets include $1.0 million assigned to non-compete agreements included in employment contracts and $364,000 assigned to customer lists based on third-party valuations. The intangibles have a weighted-average useful life of 5 years.

	•	Our acquisition of the assets of W.T. Enterprises, Inc., which closed on July 11, 2005. The following table summarizes the allocation of the purchase price to the estimated fair value of the assets acquired at the date of acquisition (in thousands):

Property and equipment				4,500
Intangible assets				1,481
Goodwill				82
	Total assets acquired		$	6,063

We paid the purchase price with borrowings under our line of credit. We incurred approximately $63,000 of acquisition costs in connection with the W.T. Enterprises, Inc. acquisition. W.T. Enterprises, Inc.’s historical property and equipment book values were increased by approximately $3.0 million based on third-party valuations. Intangible assets include $600,000 assigned to non-compete agreements and $881,000 assigned to customer lists based on third-party valuations. The intangibles have a weighted-average useful life of 8 years.

	•	Our acquisition of the minority interest in AirComp LLC from M-I LLC and a subordinated note in the principal amount of $4.8 million, which closed on July 11, 2005. We paid the purchase price with $7.1 million in cash from borrowings under our line of credit and the issuance of a new $4.0 million 5% subordinated note.

F-171

---

Table of Contents

	•	Our acquisition of Specialty, which closed on January 18, 2006. The following table summarizes the allocation of the purchase price to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Accounts receivable			$	7,167
Other current assets				425
Property and equipment				90,540
	Total assets acquired			98,132
Current liabilities				2,058
Long-term debt				74
	Total liabilities assumed			2,132
	Net assets acquired		$	96,000

	We paid the purchase price with net proceeds from our issuance of 9% senior notes in January 2006. We incurred approximately $453,000 of acquisition costs in connection with the Specialty acquisition. Specialty’s historical property and equipment book values were increased by approximately $71.5 million based on third-party valuations.

	•	our issuance of $160.0 million aggregate principal amount of 9% senior notes in January 2006;
	•	our acquisition of Rogers, which closed on April 3, 2006, for $11.3 million in cash (of which we borrowed $5.0 million under our debt facility), the issuance of a $750,000 three year promissory note and the issuance of 125,285 shares of our common stock;
	•	our acquisition of DLS for the consideration described above under “DLS’ Business,” including the assumption of $8.6 million of DLS’ indebtedness and the issuance of 2.5 million shares of our common stock to the sellers as the stock component of the purchase price for DLS;
	•	our sale of $95.0 million aggregate principal amount of notes in August 2006; and
	•	our issuance of an additional 3.5 million shares of our common stock in order to fund a portion of the cash component of the purchase price for the DLS acquisition. The pro forma treats the shares as having been issued at a price of $14.50 per share.

F-172

---

Table of Contents

			Allis-								DLS				Financing				Allis-
			Chalmers				DLS				Pro Forma				Pro Forma				Chalmers
			Consolidated				Historical				Adjustments				Adjustments				Consolidated
ASSETS
Cash and cash equivalents			$	6,208			$	492			$	(97,772	)AA		$	135,236	AB		$	44,164
Trade receivables, net				49,114				29,244				—				—				78,358
Inventories				9,897				16,608				—				—				26,505
Prepaids and other				2,655				6,307				—				—				8,962
	Total Current Assets			67,874				52,651				(97,772	)			135,236				157,989
Property and equipment, net				185,750				108,593				42,258	AC			—				336,601
Goodwill				12,417				—				—				—				12,417
Other intangibles, net				7,131				—				—				—				7,131
Debt issuance costs, net				6,187				—				—				2,538	AD			8,725
Other assets				1,327				2				—				—				1,329
	Total Assets		$	280,686			$	161,246			$	(55,514	)		$	137,774			$	524,192
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current maturities of long-term debt			$	4,059			$	8,861			$	(6,361	)AE		$	—			$	6,559
Trade accounts payable				9,616				17,270				—				—				26,886
Accrued employee benefits				2,270				12,593				—				—				14,863
Accrued interest				6,654				—				—				—				6,654
Accrued expenses				7,781				2,105				—				—				9,886
	Total Current Liabilities			30,380				40,829				(6,361	)			—				64,848
Accrued postretirement benefit obligations				319				—				—				—				319
Long-term debt, net of current maturities				165,957				17,453				(11,339	)AE			91,000	AF			263,071
Other long-term liabilities				749				749				26,251	AG			—				27,749
	Total liabilities			197,405				59,031				8,551				91,000				355,987
STOCKHOLDERS’ EQUITY
Common stock				185				42,963				(42,938	)AH			35	AI			245
Capital in excess of par value				67,261				31,606				6,519	AH			46,739	AI			152,125
Retained earnings				15,835				27,646				(27,646	)AH			—				15,835
	Total Stockholders’ Equity			83,281				102,215				(64,065	)			46,774				168,205
	Total Liabilities and Stockholders’ Equity		$	280,686			$	161,246			$	(55,514	)		$	137,774			$	524,192

F-173

---

Table of Contents

			Allis-								Rogers								DLS								Allis-
			Chalmers				Rogers				Purchase				DLS				Purchase				Offering				Chalmers
			Consolidated				Historical				Adjustments				Historical				Adjustments				Adjustments				Consolidated
Revenues			$	107,498			$	2,085			$	—			$	82,019				—				—			$	191,602
Cost of revenues				66,239				1,105				121	A			68,490				(462	) B			—				135,493
Gross profit				41,259				980				(121	)			13,529				462				—				56,109
General and administrative expense				16,755				820				33	C			2,205				—				158	D			19,971
Income (loss) from operations				24,504				160				(154	)			11,324				462				(158	)			36,138
Other income
	Interest income			—				2				—				—				—				—				2
	Interest expense			(7,425	)			—				(109	) E			(2,748	)			913	F			(3,976	) G			(13,345	)
	Other			20				(7	)			—				(784	)			—				—				(771	)
Income (loss) before taxes				17,099				155				(263	)			7,792				1,375				(4,134	)			22,024
Taxes				(3,081	)			—				—	H			(3,512	)			303	I			—	H			(6,290	)
Income (loss) from continuing operations				14,018				155				(263	)			4,280				1,678				(4,134	)			15,734
Discontinued operations				—				—				—				2,375				—				—				2,375
Net income (loss)			$	14,018			$	155			$	(263	)		$	6,655			$	1,678			$	(4,134	)		$	18,109
Pro forma net income per common share
Basic
	Continuing operations		$	0.80																							$	0.67
	Discontinued operations			—																								0.10
			$	0.80																							$	0.77
Diluted
	Continuing operations		$	0.74																							$	0.63
	Discontinued operations			—																							$	0.09
			$	0.74																							$	0.72
Weighted average shares outstanding
Basic				17,578								63	J							2,500	J			3,450	K			23,591
Diluted				19,000								63	J							2,500	J			3,450	K			25,013

F-174

---

Table of Contents

				Allis-								Delta								Capcoil				W.T.				W.T. ENT				MI
				Chalmers				Delta				Purchase				Capcoil				Purchase				ENT				Purchase				Purchase
				Consolidated				Historical				Adjustments				Historical				Adjustments				Historical				Adjustments				Adjustments
Revenues				$	105,344			$	821			$	—			$	2,161			$	—			$	2,057			$	—			$	—
Cost of revenues					74,763				211				82	A			1,458				132	A			1,331				187	A			—
Gross profit					30,581				610				(82	)			703				(132	)			726				(187	)			—
General and
	administrative expense				17,363				985				—				421				28	L			342				75	L			—
Income (loss) from
	operations				13,218				(375	)			(82	)			282				(160	)			384				(262	)			—
Other income
		Interest income			—				3				—				—				—				—				—				—
		Interest expense			(4,397	)			(11	)			—				(26	)			—				(17	)			—				21	O
		Other			186				116				—				—				—				—				—				—
Income (loss) before taxes					9,007				(267	)			(82	)			256				(160	)			367				(262	)			21
Minority interest					(488	)			—				—				—				—				—				—				488	R
Taxes					(1,344	)			(142	)			142	H			(87	)			87	H			(111	)			111	H			—	H
Net income (loss) from continuing operations					7,175				(409	)			60				169				(73	)			256				(151	)			509
Discontinued operations					—				—				—				—				—				—				—				—
Net income (loss) attributed to common shares				$	7,175			$	(409	)		$	60			$	169			$	(73	)		$	256			$	(151	)		$	509
Pro forma net income (loss) per common share
Basic
	Continuing operations			$	0.48
	Discontinued operations				—
				$	0.48
Diluted
	Continuing operations			$	0.44
	Discontinued operations				—
				$	0.44
Weighted average shares outstanding
Basic					14,832								55	S							62	S
Diluted					16,238								55	S							62	S

F-175

---

Table of Contents

							Specialty												Rogers								DLS								Allis-
			Specialty				Purchase				Debt				Rogers				Purchase				DLS				Purchase				Offering				Chalmers
			Historical				Adjustments				Adjustments				Historical				Adjustments				Historical				Adjustments				Adjustments				Consolidated
Revenues			$	32,709			$	—			$	—			$	8,376			$	—			$	129,849			$	—			$	—			$	281,317
Cost of revenues				8,550				5,564	A			—				4,420				499	A			113,351				637	B			—				211,185
Gross profit				24,159				(5,564	)			—				3,956				(499	)			16,498				(637	)			—				70,132
General and administrative expense				7,232				(386	)M			700	N			2,527				138	L			3,933				—				317	D			33,675
Income (loss) from operations				16,927				(5,178	)			(700	)			1,429				(637	)			12,565				(637	)			(317	)			36,457
Other income
	Interest income			136				—				—				53				—				—				—				—				192
	Interest expense			(185	)			(8,640	)P			(1,363	)Q			—				(438	)E			(5,394	)			2,178	F			(7,950	) G			(26,222	)
	Other			72				—								237				—				7,127				—				—				7,738
Income (loss) before taxes				16,950				(13,818	)			(2,063	)			1,719				(1,075	)			14,298				1,541				(8,267	)			18,165
Minority interest				—				—				—				—				—				—				—				—				—
Taxes				—				—	H			—	H			—				—	H			(3,547	)			(1,997	)I			—	H			(6,888	)
Net income (loss) from continuing operations				16,950				(13,818	)			(2,063	)			1,719				(1,075	)			10,751				(456	)			(8,267	)			11,277
Discontinued operations				—				—								—				—				(4,138	)			—				—				(4,138	)
Net income (loss)			$	16,950			$	(13,818	)		$	(2,063	)		$	1,719			$	(1,075	)		$	6,613			$	(456	)		$	(8,267	)		$	7,139
Pro forma net income (loss) per common share
Basic
Continuing operations																																			$	0.54
Discontinued operations																																				(0.20	)
																																			$	0.34
Diluted
Continuing operations																																			$	0.50
Discontinued operations																																				(0.18	)
																																			$	0.32
Weighted average shares outstanding
Basic																				125	J							2,500	J			3,450	K			21,024
Diluted																				125	J							2,500	J			3,450	K			22,430

F-176

---

Table of Contents

AA)		Reflects the cash needed to complete the acquisition.
AB)		Reflects the cash raised from the August 2006 offering of our 9.0% senior notes and the concurrent offering, issuance and sale of 3.5 million shares of our common stock.
AC)		Reflects the step-up in the basis of the fixed assets as a result of the acquisition to the lower of fair market value or actual cost.
AD)		Fees and expenses related to the offering, issuance and sale of $95.0 million of senior notes in the August 2006 offering.
AE)		Reflects the repayment of debt of the acquisitions prior to the acquisition.
AF)		Reflects the proceeds of the sale of $95.0 million of senior notes in the August 2006 offering, and the repayment of a $4.0 million subordinated note with proceeds from the August 2006 notes offering.
AG)		Reflects deferred taxes on the acquisition due to differences between the book and tax basis of acquired assets.
AH)		Reflects the elimination of DLS’ stockholders’ equity and the issuance of 2.5 million shares in the DLS acquisition, as the stock component of the purchase price.
AI)		Reflects the additional stock issued in connection with our concurrent offering of an additional 3.5 million shares of common stock to fund a portion of the cash component of the purchase price for the DLS acquisition, net of expenses.
A)		Reflects the increase in depreciation expense as a result of the step-up in basis of fixed assets.
B)		Reflects the impact on depreciation expense as a result of the step-up in basis of fixed assets and a longer estimated life on DLS assets.
C)		Reflects the increase in amortization due to the increase in other intangible assets in connection with the acquisition of Rogers.
D)		Reflects the amortization on the financing fees related to the offering, issuance and sale of $95.0 million of senior notes in the August 2006 notes offering.
E)		Reflects the interest expense related to cash borrowed to affect the acquisitions. In conjunction with the Rogers acquisition, we issued a $750,000 note to the seller bearing interest at 5% fixed and we borrowed $5.0 million under our line of credit. We assumed an 8% interest rate for this $5.0 million borrowing which is our current borrowing rate under our committed line of credit. Each 0.125% of change in this interest rate would affect interest expense by $6,250 per annum.
F)		Reflects the elimination of interest expense due to historical debt not being assumed or replaced. Approximately $8.6 million of existing debt for DLS will remain outstanding after

F-177

---

Table of Contents

		the acquisition. The interest rate assumed on the $8.6 million of DLS debt was 6.21%, which was the actual average interest rate on this debt as of June 30, 2006. Each 0.125% change in this interest rate would affect interest expense by $10,770 per annum. The interest expense category for DLS’ historical financials also includes other bank fees and other financial expenses of approximately $1.6 million at June 30, 2006 and $2.7 million at December 31, 2005.
G)		Reflects the interest expense related to the offering, issuance and sale of $95.0 million of senior notes in the August 2006 notes offering bearing interest at 9.0% offset by reduction of interest on existing debt that were repaid in conjunction with the offerings. We repaid our $4.0 million, 5% subordinated note with a portion of the net proceeds of the August 2006 notes offering. We also repaid the $5.0 million of indebtedness borrowed for the Rogers acquisition under our revolving line of credit with proceeds of the August 2006 notes offering.
H)		A statutory tax rate of 35% was applied to the adjustments, but since Allis-Chalmers has a net operating loss carryforward no tax expense was recorded. In addition, the Allis-Chalmers net operating loss position offset the historical tax liabilities of acquired companies. The net operating loss carryforward, after the historical results for Allis-Chalmers for the year ended December 31, 2005, is approximately $15.4 million.
I)		Income taxes for DLS were computed at the Argentinian statutory rate of 35%. Allis-Chalmers has no net operating losses in Argentina to offset the tax liability.
J)		Reflects the issuance of shares of our common stock as part of the acquisition price for Rogers and DLS. The Rogers acquisition, completed April 1, 2006, included consideration of $1,650,000 in stock which equated to 125,285 shares of our common stock. The stock component of the purchase price for the DLS acquisition is comprised of 2.5 million shares of our common stock.
K)		Reflects the issuance of shares of our common stock as a result of our concurrent offering of an additional 3.5 million shares of common stock to fund a portion of the cash component of the purchase price for the DLS acquisition. The pro forma treats the shares as having been issued at a price of $14.50 per share.
L)		Reflects the increase in amortization due to the increase in other intangible assets in connection with the acquisitions of Capcoil, W. T. Enterprises and Rogers.
M)		Reflects decreased rent expense of $386,000 that will result from the acquisition of Specialty. We entered into a new lease for the Specialty yard with the seller. Entering into this lease was required by the purchase agreement and was a condition to the closing of the Specialty acquisition.
N)		Reflects the amortization on the financing fees related to the $160.0 million senior notes offering in January 2006.
O)		To acquire M-I’s 45% interest in AirComp we issued a new note for $4.0 million to replace a note for $4.8 million, both notes bore interest at 5.0%.

F-178

---

Table of Contents

P)		Reflects the interest expense on the $96.0 million of the $160.0 million of senior notes issued in January 2006 used to complete the acquisition of Specialty. The senior notes have a fixed interest rate of 9%.
Q)		Reflects the interest expense related to the proceeds of the $160.0 million senior notes offering in January 2006 in excess of cash needed for the Specialty acquisition. The senior notes have a fixed interest rate of 9%.
R)		Reflects the elimination of the 45% minority interest position of M-I.
S)		Reflects the issuance of shares of our common stock as part of the acquisition price for Delta, and Capcoil. The Delta acquisition included consideration of $1.0 million in our common stock, the Capcoil acquisition included consideration of $765,000 in common stock.

F-179

---

Table of Contents

---

Table of Contents

II-1

---

Table of Contents

Item 21.	Exhibits and Financial Statement Schedules.

Item 22.	Undertakings.

II-2

---

Table of Contents

	ALLIS-CHALMERS ENERGY INC.

	By:	/s/ Victor M. Perez

	Victor M. Perez
	Chief Financial Officer

*   Munawar H. Hidayatallah Chief Executive Officer and Chairman of the Board (Principal Executive Officer)		*   David Wilde President and Chief Operating Officer
/s/ Victor M. Perez   Victor M. Perez Chief Financial Officer (Principal Financial Officer)		*   Bruce Sauers Chief Accounting Officer (Principal Accounting Officer)
Alejandro P. Bulgheroni Director		Carlos A. Bulgheroni Director
*   Jeffrey R. Freedman Director		*   Victor F. Germack Director
*   John E. McConnaughy, Jr. Director		*   Robert E. Nederlander Director
*   Leonard Toboroff Director
*By: /s/ Victor M. Perez   Victor M. Perez Attorney-in-fact

II-3

---

Table of Contents

	AIRCOMP L.L.C.
	ALLIS-CHALMERS GP, LLC
	ALLIS-CHALMERS PRODUCTION
	SERVICES, INC.
	ALLIS-CHALMERS RENTAL TOOLS, INC.
	ALLIS-CHALMERS TUBULAR SERVICES, INC.
	MOUNTAIN COMPRESSED AIR, INC.
	OILQUIP RENTALS, INC.
	ROGERS OIL TOOL SERVICES, INC.
	STRATA DIRECTIONAL TECHNOLOGY, INC.
	TARGET ENERGY, INC.

	By:	*

	Name: Theodore F. Pound III
	Title: Vice President and Secretary
	ALLIS-CHALMERS MANAGEMENT, LP
	By: Allis-Chalmers GP, LLC, its sole general partner

	By:	*

	Name: Theodore F. Pound III
	Title: Vice President and Secretary
	ALLIS-CHALMERS LP, LLC

	By:	*

	Name: Jeffrey R. Freedman
	Title: Vice President and Secretary

	*By:	/s/ Victor M. Perez

	Victor M. Perez
	Attorney-in-fact

In their collective capacity as the board of directors of: ALLIS-CHALMERS TUBULAR SERVICES, INC.
*		*
Munawar H. Hidayatallah, Director		Theodore F. Pound III, Director

II-4

---

Table of Contents

In their collective capacity as the board of directors of each of the following Guarantors: ALLIS-CHALMERS PRODUCTION SERVICES, INC. ALLIS-CHALMERS RENTAL TOOLS, INC. STRATA DIRECTIONAL TECHNOLOGY, INC. TARGET ENERGY, INC.
*		*
Munawar H. Hidayatallah, Director		Theodore F. Pound III, Director
*
David Wilde,
Director
In his capacity as the sole member of the board of directors of each of the following Guarantors: MOUNTAIN COMPRESSED AIR, INC. OILQUIP RENTALS INC.
		*
		Munawar H. Hidayatallah Director
In their collective capacity as the board of directors of: ROGERS OIL TOOL SERVICES, INC.
*		*
Munawar H. Hidayatallah, Director		Theodore F. Pound III, Director
In their collective capacity as all of the managers of each of the following Guarantors: AIRCOMP L.L.C. ALLIS-CHALMERS GP, LLC
*		*
Munawar H. Hidayatallah, Manager		Theodore F. Pound III, Manager
*
David Wilde, Manager

II-5

---

Table of Contents

In their collective capacity as all of the managers of: ALLIS-CHALMERS LP, LLC
*		*
Jeffrey R. Freedman, Manager		Leonard Toboroff, Manager
In its capacity as the sole general partner of: ALLIS-CHALMERS MANAGEMENT, LP Allis-Chalmers GP, LLC, sole general partner
By: *   Theodore F. Pound III Vice President and Secretary
*By: /s/ Victor M. Perez   Victor M. Perez Attorney-in-fact

II-6

---

Table of Contents

Exhibit				Description
	2	.1		First Amended Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code, dated September 14, 1988, which includes the First Amended and Restated Joint Plan of Reorganization dated September 14, 1988 (incorporated by reference to Registrant’s Current Report on Form 8-K dated December 1, 1988).
	2	.2		Agreement and Plan of Merger dated as of May 9, 2001 by and among Registrant, Allis-Chalmers Acquisition Corp. and OilQuip Rentals, Inc. (incorporated by reference to Registrant’s Current Report on Form 8-K filed May 15, 2001).
	2	.3		Stock Purchase Agreement dated February 1, 2002 by and between Registrant and Jens H. Mortensen, Jr. (incorporated by reference to Registrant’s Current Report on Form 8-K filed February 21, 2002).
	2	.4		Shareholders Agreement dated February 1, 2002 by and among Jens’ Oilfield Service, Inc., a Texas corporation, Jens H. Mortensen, Jr., and Registrant (incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
	2	.5		Stock Purchase Agreement dated February 1, 2002 by and among Registrant, Energy Spectrum Partners LP, and Strata Directional Technology, Inc. (incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
	2	.6		Joint Venture Agreement dated June 27, 2003 by and between Mountain Compressed Air, Inc. and M-I L.L.C. (incorporated by reference to Registrant’s Current Report on Form 8-K filed July 16, 2003).
	2	.7		Stock Purchase Agreement dated as of December 20, 2005 between the Registrant and Joe Van Matre (incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005).
	2	.8		Stock Purchase Agreement, dated as of April 27, 2006, by and among Bridas International Holdings Ltd., Bridas Central Company Ltd., Associated Petroleum Investors Limited, and the Registrant. (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006)
	3	.1		Amended and Restated Certificate of Incorporation of Registrant (incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
	3	.2		Certificate of Designation, Preferences and Rights of the Series A 10% Cumulative Convertible Preferred Stock ($.01 Par Value) of Registrant (incorporated by reference to Registrant’s Current Report on Form 8-K filed February 21, 2002).
	3	.3		Amended and Restated By-laws of Registrant (incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
	3	.4		Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on June 9, 2004 (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
	3	.5		Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on January 5, 2005 (incorporated by reference to the Registrant’s Current Report on Form 8-K filed January 11, 2005).
	4	.1		Specimen Stock Certificate of Common Stock of Registrant (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
	4	.2		Registration Rights Agreement dated as of March 31, 1999, by and between Allis-Chalmers Corporation and the Pension Benefit Guaranty Corporation (incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
	4	.3		Option Agreement dated October 15, 2001 by and between Registrant and Leonard Toboroff (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
	4	.4		Warrant Purchase Agreement dated February 1, 2002 by and between Allis-Chalmers Corporation and Wells Fargo Energy Capital, Inc., including form of warrant (incorporated by reference to the Registrant’s Current Report on Form 8-K filed February 21, 2002).

---

Table of Contents

Exhibit				Description
	4	.5†		2003 Incentive Stock Plan (incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
	4	.6†		Form of Option Certificate issued pursuant to 2003 Incentive Stock Plan (incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
	4	.7		Form of warrant issued to Investors pursuant to Stock and Warrant Purchase Agreement dated April 2, 2004 by and among Registrant and Donald Engel, Christopher Engel, Engel Defined Benefit Plan, RER Corp. and Leonard Toboroff (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
	4	.8		Registration Rights Agreement dated April 2, 2004 by and between Registrant and the Stockholder signatories thereto (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
	4	.9		Warrant dated May 19, 2004, issued to Jeffrey R. Freedman (incorporated by reference to the Registration Statement on Form S-1 (Registration No. 118916) filed on September 10, 2004).
	4	.10		Amendment to 2003 Stock Option Plan (incorporated by reference to Quarterly Report of Form 10-Q for the quarter ended September 30, 2005).
	4	.11		Indenture dated as of January 18, 2006 by and among the Registrant, the Guarantors named therein and Wells Fargo Bank, N.A., as trustee (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 24, 2006).
	4	.12		Form of 9.0% Senior Note due 2014 (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 24, 2006).
	4	.13		Registration Rights Agreement dated as of January 18, 2006, by and among Allis-Chalmers Energy Inc., the Guarantor parties thereto and the Initial Purchaser parties thereto (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 24, 2006).
	4	.14		Registration Rights Agreement dated as of August 14, 2006, by and among Allis-Chalmers Energy Inc., the Guarantor parties thereto and the Initial Purchaser party thereto (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 14, 2006).
	5	.1*		Opinion of Andrews Kurth LLP regarding the legality of the securities being registered hereby.
	8	.1*		Opinion of Andrews Kurth LLP regarding material U.S. federal income tax matters.
	9	.1		Shareholders Agreement dated February 1, 2002 by and among Registrant and the stockholder and warrant holder signatories thereto (incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
	10	.1		Amended and Restated Retiree Health Trust Agreement dated September 14, 1988 by and between Registrant and Wells Fargo Bank (incorporated by reference to Exhibit C-1 of the First Amended and Restated Joint Plan of Reorganization dated September 14, 1988 included in Registrant’s Current Report on Form 8-K dated December 1, 1988).
	10	.2		Amended and Restated Retiree Health Trust Agreement dated September 18, 1988 by and between Registrant and Firstar Trust Company (incorporated by reference to Exhibit C-2 of the First Amended and Restated Joint Plan of Reorganization dated September 14, 1988 included in Registrant’s Current Report on Form 8-K dated December 1, 1988).
	10	.3		Reorganization Trust Agreement dated September 14, 1988 by and between Registrant and John T. Grigsby, Jr., Trustee (incorporated by reference to Exhibit D of the First Amended and Restated Joint Plan of Reorganization dated September 14, 1988 included in Registrant’s Current Report on Form 8-K dated December 1, 1988).
	10	.4		Product Liability Trust Agreement dated September 14, 1988 by and between Registrant and Bruce W. Strausberg, Trustee (incorporated by reference to Exhibit E of the First Amended and Restated Joint Plan of Reorganization dated September 14, 1988 included in Registrant’s Current Report on Form 8-K dated December 1, 1988).
	10	.5†		Allis-Chalmers Savings Plan (incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1988).
	10	.6†		Allis-Chalmers Consolidated Pension Plan (incorporated by reference to Registrant’s Annual Report on Form 10-K for the year ended December 31, 1988).

---

Table of Contents

Exhibit				Description
	10	.7		Agreement dated as of March 31, 1999 by and between Registrant and the Pension Benefit Guaranty Corporation (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
	10	.8		Letter Agreement dated May 9, 2001 by and between Registrant and the Pension Benefit Guarantee Corporation (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q filed on May 15, 2002).
	10	.9		Termination Agreement dated May 9, 2001 by and among Registrant, the Pension Benefit Guarantee Corporation and others (incorporated by reference to Registrant’s Current Report on Form 8-K filed on May 15, 2002).
	10	.10†		Option Agreement dated October 15, 2001 by and between Registrant and Leonard Toboroff (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).
	10	.11†		Employment Agreement dated July 1, 2003 by and between AirComp LLC and Terry Keane (incorporated by reference to Registrant’s Current Report on Form 8-K filed July 16, 2003).
	10	.12		Letter Agreement dated February 13, 2004 by and between Registrant and Morgan Joseph & Co., Inc. (incorporated by reference to the Registration Statement on Form S-1 (Registration No. 118916) filed on September 10, 2004).
	10	.13†		Employment Agreement dated as of April 1, 2004 by and between Registrant and Munawar H. Hidayatallah (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
	10	.14†		Employment Agreement dated as of April 1, 2004 by and between Registrant and David Wilde (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
	10	.15		Fifth Amendment to Credit Agreement dated as of April 6, 2004 by and between Strata Directional Technology, Inc., and Wells Fargo Credit Inc. (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
	10	.16		Third Amendment to Credit Agreement dated as of April 6, 2004 by and between Jens’ Oilfield Service, Inc. and Wells Fargo Credit Inc. (incorporated by reference to Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
	10	.17		Letter Agreement dated June 8, 2004 by and between the Registrant and Morgan Keegan & Company, Inc. (incorporated by reference to the Registration Statement on Form S-1 (Registration No. 118916) filed on September 10, 2004).
	10	.18†		Employment Agreement dated July 26, 2004 by and between the Registrant and Victor M. Perez (incorporated by reference to the Registration Statement on Form S-1 (Registration No. 118916) filed on September 10, 2004).
	10	.19		Stock Purchase Agreement dated August 10, 2004 (incorporated by reference to the Registration Statement on Form S-1 (Registration No. 118916) filed on September 10, 2004).
	10	.20		Amendment to Stock Purchase Agreement dated August 10, 2004 (incorporated by reference to the Registration Statement on Form S-1 (Registration No. 118916) filed on September 10, 2004).
	10	.21		Letter Agreement relating to Stock Purchase Agreement dated August 5, 2004 (incorporated by reference to the Registration Statement on Form S-1 (Registration No. 118916) filed on September 10, 2004).
	10	.22		Addendum to Stock Purchase Agreement dated September 24, 2004 (incorporated by reference to Registrant’s Current Report on Form 8-K filed on September 30, 2004).
	10	.23†		Employment Agreement dated October 11, 2004, by and between the Registrant and Theodore F. Pound III (incorporated by reference to Registrant’s Current Report on Form 8-K filed on October 15, 2004).
	10	.24		Asset Purchase Agreement dated November 10, 2004 by and among AirComp LLC, a Delaware limited liability company, Diamond Air Drilling Services, Inc., a Texas corporation, Marquis Bit Co., L.L.C., a New Mexico limited liability company, Greg Hawley and Tammy Hawley, residents of Texas and Clay Wilson and Linda Wilson, residents of New Mexico (incorporated by reference to the Current Report on Form 8-K filed on November 15, 2004).

---

Table of Contents

Exhibit				Description
	10	.25		Amended and Restated Credit Agreement dated as of December 7, 2004, by and between AirComp LLC and Wells Fargo Bank, NA (incorporated by reference to Registrant’s Current Report on Form 8-K filed on December 13, 2004).
	10	.26		Purchase Agreement and related Agreements by and among Allis-Chalmers Corporation, Chevron USA, Inc., Dale Redman and others dated December 10, 2004 (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on December 16, 2004).
	10	.27		Stock Purchase Agreement dated April 1, 2005 by and among the Registrant, Thomas Whittington, Sr., Werlyn R. Bourgeois and SAM and D, LLC (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on April 5, 2005).
	10	.28		Stock Purchase Agreement effective May 1, 2005, by and among the Registrant, Wesley J. Mahone, Mike T. Wilhite, Andrew D. Mills and Tim Williams (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on May 6, 2005).
	10	.29		Purchase Agreement dated July 11, 2005 by and among the Registrant, Mountain Compressed Air, Inc. and M-I, L.L.C. (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on July 15, 2005).
	10	.30		Asset Purchase Agreement dated July 11, 2005 by and among AirComp LLC, W.T. Enterprises, Inc. and William M. Watts (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on July 15, 2005).
	10	.31		First Amendment to Stockholder Agreement by and among the Registrant and the Stockholders named therein (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 5, 2005).
	10	.32		Asset Purchase Agreement by and between Patterson Services, Inc. and Allis-Chalmers Tubular Services, Inc. (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on September 8, 2005).
	10	.33		Purchase Agreement dated as of January 12, 2006 by and among the Registrant, the Guarantors named therein and the Initial Purchasers named therein (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 24, 2006).
	10	.34		Purchase Agreement dated as of August 14, 2006 by and among the Registrant, the Guarantors named therein and the Initial Purchaser named therein (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on August 14, 2006).
	10	.35		Amended and Restated Credit Agreement dated as of January 18, 2006 by and among the Registrant, as borrower, Royal Bank of Canada, as administrative agent and collateral agent, RBC Capital Markets, as lead arranger and sole bookrunner, and the lenders party thereto (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on January 24, 2006).
	10	.36		Stock Purchase Agreement dated December 20, 2005, by and between Allis-Chalmers Energy, Inc. and Joe Van Matie (incorporated by reference to the Registrant’s Annual Report on Form 10-K filed on March 22, 2006).
	12	.1***		Statement of computation of ratio of earnings to fixed charges.
	16	.1		Letter from Gordon Hughes & Banks LLP dated October 5, 2004 to the Securities and Exchange Commission (incorporated by reference to the Registrant’s Current Report on Form 8-K filed on October 6, 2004).
	21	.1		Subsidiaries of Registrant (incorporated by reference to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2005).
	23	.1**		Consent of UHY Mann Frankfort Stein & Lipp CPAs, LLP.
	23	.2**		Consent of Gordon, Hughes and Banks, LLP.
	23	.3**		Consent of Wright, Moore, Dehart, Dupuis & Hutchinson, LLC.
	23	.4**		Consent of Curtis Blakely & Co., PC.
	23	.5**		Consent of Accounting & Consulting Group, LLP.
	23	.6**		Consent of UHY Mann Frankfort Stein & Lipp CPAs, LLP.
	23	.7**		Consent of Sibille (formerly Finsterbusch Pickenhayn Sibille).

---

Table of Contents

Exhibit				Description
	23	.8*		Consent of Andrews Kurth LLP (to be included in Exhibit 5.1).
	24	.1***		Powers of Attorney.
	25	.1***		Form T-1 Statement of Eligibility of Wells Fargo Bank, N.A.
	99	.1***		Form of Letter of Transmittal.
	99	.2***		Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
	99	.3***		Form of Notice of Guaranteed Delivery.
	99	.4***		Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
	99	.5***		Form of Letter to Clients.
	99	.6***		Form of Exchange Agent Agreement.

*	To be filed by amendment.
**	Filed herewith.
***	Previously filed.
†	Compensation plan or arrangement.