e424b3
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-139058
PROSPECTUS
$1,500,000,000
ALLIS-CHALMERS ENERGY
INC.
COMMON STOCK
PREFERRED STOCK
SENIOR DEBT
SECURITIES
SUBORDINATED DEBT
SECURITIES
GUARANTEES
WARRANTS
UNITS
By this prospectus, we may from time to time offer and sell in
one or more offerings up to an aggregate of $1,500,000,000 of
the following securities:
(1) shares of common stock;
(2) shares of preferred stock, in one or more series, which
may be convertible into or exchangeable for debt securities or
common stock;
(3) senior debt securities, which may be convertible into
or exchangeable for common stock or preferred stock;
(4) subordinated debt securities, which may be convertible
into or exchangeable for common stock or preferred stock;
(5) guarantees of debt securities issued by Allis-Chalmers
Energy Inc.;
(6) warrants to purchase common stock, preferred stock,
debt securities (which may or may not be guaranteed pursuant to
guarantees) or units; and/or
(7) units consisting of any combination of common stock,
preferred stock, debt securities (which may or may not be
guaranteed pursuant to guarantees) or warrants.
This prospectus provides a general description of the securities
we may offer. Supplements to this prospectus will provide the
specific terms of the securities that we actually offer,
including the offering prices. You should carefully read this
prospectus, any applicable prospectus supplement and any
information under the headings Where You Can Find More
Information and Incorporation by Reference
before you invest in any of these securities. This prospectus
may not be used to sell securities unless it is accompanied by a
prospectus supplement that describes those securities.
We may sell these securities to or through underwriters, to
other purchasers
and/or
through agents. Supplements to this prospectus will specify the
names of any underwriters or agents.
Our common stock is listed for trading on the American Stock
Exchange under the symbol ALY.
Investing in our securities involves risks. Please read
Risk Factors beginning on page 2 of this
prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is December 8, 2006.
TABLE OF
CONTENTS
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ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, or SEC,
utilizing a shelf registration process. Under this
shelf registration process, we may sell any combination of the
securities described in this prospectus in one or more offerings
up to a total offering price of $1,500,000,000. This prospectus
provides you with a general description of the securities we may
offer. Each time we offer to sell securities, we will provide a
prospectus supplement that will contain specific information
about the terms of that offering and the securities offered by
us in that offering. The prospectus supplement may also add,
update or change information contained in this prospectus. If
there is any inconsistency between the information in this
prospectus and any prospectus supplement, you should rely on the
information provided in the prospectus supplement. This
prospectus does not contain all of the information included in
the registration statement. The registration statement filed
with the SEC includes exhibits that provide more details about
the matters discussed in this prospectus. You should carefully
read this prospectus, the related exhibits filed with the SEC
and any prospectus supplement, together with the additional
information described below under the headings Where You
Can Find More Information and Incorporation by
Reference.
You should rely only on the information contained or
incorporated by reference in this prospectus and in any
accompanying prospectus supplement. We have not authorized any
other person to provide you with different information. If
anyone provides you with different or inconsistent information,
you should not rely on it. We are not making an offer of the
securities covered by this prospectus in any state where the
offer is not permitted. You should assume that the information
appearing in this prospectus, any prospectus supplement and any
other document incorporated by reference is accurate only as of
the date on the front cover of those documents. Our business,
financial condition, results of operations and prospects may
have changed since those dates.
Under no circumstances should the delivery to you of this
prospectus or any offer or sale made pursuant to this prospectus
create any implication that the information contained in this
prospectus is correct as of any time after the date of this
prospectus.
This prospectus may not be used to sell securities unless it is
accompanied by a prospectus supplement that describes those
securities.
i
Unless otherwise indicated or unless the context otherwise
requires, all references in this prospectus to
Allis-Chalmers, we, us, and
our mean Allis-Chalmers Energy Inc. and its wholly
owned subsidiaries. In this prospectus, we sometimes refer to
the debt securities, common stock, preferred stock, warrants,
units and guarantees collectively as the securities.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the
Securities Act of 1933, as amended, which we refer to as the
Securities Act, that registers the issuance and sale of the
securities offered by this prospectus. The registration
statement, including the attached exhibits, contains additional
relevant information about us. The rules and regulations of the
SEC allow us to omit some information included in the
registration statement from this prospectus.
We file annual, quarterly, and other reports, proxy statements
and other information with the SEC under the Securities Exchange
Act of 1934, as amended, which we refer to as the Exchange Act.
You may read and copy any materials we file with the SEC at the
SECs public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the public reference room. Our SEC
filings are also available to the public through the SECs
website at
http://www.sec.gov.
General information about us, including our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
as well as any amendments and exhibits to those reports, are
available free of charge through our website at
http://www.alchenergy.com as soon as reasonably
practicable after we file them with, or furnish them to, the
SEC. Information on our website is not incorporated into this
prospectus or our other securities filings and is not a part of
this prospectus.
INCORPORATION
BY REFERENCE
The SEC allows us to incorporate by reference
information into this document. This means that we can disclose
important information to you by referring you to another
document filed separately with the SEC. The information
incorporated by reference is considered to be part of this
prospectus. We incorporate by reference the documents listed
below, other than any portions of the respective filings that
were furnished (pursuant to Item 2.02 or Item 7.01 of
current reports on
Form 8-K
or other applicable SEC rules) rather than filed:
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our annual report on
Form 10-K
for the year ended December 31, 2005, as filed with the SEC
on March 22, 2006, as amended by Amendment No. 1 to
such report, as filed with the SEC on May 1, 2006, and
Amendment No. 2 to such report, as filed with the SEC on
July 24, 2006, which we refer to collectively as our 2005
Form 10-K;
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our quarterly report on
Form 10-Q
for the quarter ended March 31, 2006, as filed with the SEC
on May 10, 2006, as amended by Amendment No. 1 to such
report, as filed with the SEC on July 24, 2006, which we
refer to collectively as our First Quarter 2006 Form
10-Q;
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our quarterly report on
Form 10-Q
for the quarter ended June 30, 2006, as filed with the SEC
on August 14, 2006, which we refer to as our Second Quarter
2006
Form 10-Q;
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our quarterly report on
Form 10-Q
for the quarter ended September 30, 2006, as filed with the
SEC on November 8, 2006, which we refer to as our Third
Quarter 2006
Form 10-Q;
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our current reports on
Form 8-K
and 8-K/A,
as filed with the SEC on January 24, 2006, February 1,
2006 (three reports), February 3, 2006, February 24,
2006, April 3, 2006, April 6, 2006, April 25,
2006, April 28, 2006, May 9, 2006, June 16, 2006,
July 17, 2006, July 27, 2006, August 9, 2006,
August 14, 2006 (two reports), August 23, 2006,
September 18, 2006, September 29, 2006,
October 19, 2006, October 26, 2006 and
December 1, 2006;
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our current reports on
Form 8-K
and 8-K/A
containing additional information required by
Rule 3-05
and Article 11 of
Regulation S-X,
as filed with the SEC on April 5, 2005, May 6, 2005,
June 10, 2005, July 15, 2005 and September 2,
2005; and
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the description of our capital stock contained in our
Registration Statement on
Form 8-A
(File No. 001-02199) under Section 12(b) of the
Exchange Act.
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All documents that we file pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and until our offerings hereunder are completed, or
after the date of the registration statement of which this
prospectus forms a part and prior to effectiveness of the
registration statement, will be deemed to be incorporated by
reference into this prospectus and will be a part of this
prospectus from the date of the filing of the document. Any
statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus will be deemed to
be modified or superseded for purposes of this prospectus to the
extent that a statement contained in this prospectus or in any
other subsequently filed document that also is or is deemed to
be incorporated by reference in this prospectus modifies or
supersedes that statement. Any statement that is modified or
superseded will not constitute a part of this prospectus, except
as modified or superseded.
We will provide to each person, including any beneficial owner
to whom a prospectus is delivered, a copy of these filings,
other than an exhibit to these filings unless we have
specifically incorporated that exhibit by reference into the
filing, upon written or oral request and at no cost. Requests
should be made by writing or telephoning us at the following
address:
Allis-Chalmers Energy Inc.
5075 Westheimer, Suite 890
Houston, Texas 77056
(713) 369-0550
Attn: Investor Relations
CAUTIONARY
STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act regarding our
business, financial condition, results of operations and
prospects. Words such as expects, anticipates, intends, plans,
believes, seeks, estimates and similar expressions or variations
of such words are intended to identify forward-looking
statements. However, these are not the exclusive means of
identifying forward-looking statements. Although forward-looking
statements contained in this prospectus reflect our good faith
judgment, such statements can only be based on facts and factors
currently known to us. Consequently, forward-looking statements
are inherently subject to risks and uncertainties, and actual
outcomes may differ materially from the results and outcomes
discussed in the forward-looking statements. Further information
about the risks and uncertainties that may impact us are
described in Risk Factors beginning on page 2.
You should read that section carefully. You should not place
undue reliance on forward-looking statements, which speak only
as of the date of this prospectus. We undertake no obligation to
update publicly any forward-looking statements in order to
reflect any event or circumstance occurring after the date of
this prospectus or currently unknown facts or conditions or the
occurrence of unanticipated events.
INDUSTRY
AND MARKET DATA
We have obtained some industry and market share data from
third-party sources that we believe are reliable. In many cases,
however, we have made statements in this prospectus (or in
documents incorporated by reference in this prospectus)
regarding our industry and our position in the industry based on
estimates made based on our experience in the industry and our
own investigation of market conditions. We believe these
estimates to be accurate as of the date of this prospectus.
However, this information may prove to be inaccurate because of
the method by which we obtained some of the data for our
estimates or because this
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information cannot always be verified with complete certainty
due to the limits on the availability and reliability of raw
data, the voluntary nature of the data gathering process and
other limitations and uncertainties. As a result, you should be
aware that the industry and market data included or incorporated
by reference in this prospectus, and estimates and beliefs based
on that data, may not be reliable. We cannot, and the
underwriters cannot, guarantee the accuracy or completeness of
any such information.
DEFINITIONS
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air drilling |
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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. |
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blow out preventors |
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A large safety device placed on the surface of an oil or natural
gas well to control high pressure well bores. |
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booster |
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A machine that increases the pressure
and/or
volume of air when used in conjunction with a compressor or a
group of compressors. |
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capillary tubing |
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A small diameter tubing installed in producing wells and through
which chemicals are injected to enhance production and reduce
corrosion and other problems. |
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casing |
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A pipe placed in a drilled well to secure the well bore and
formation. |
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choke manifolds |
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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. |
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coiled tubing |
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A small diameter tubing used to service producing and
problematic wells and to work in high pressure applications
during drilling, production and workover operations. |
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directional drilling |
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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. |
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double studded adapter |
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A device that joins two dissimilar connections on certain
equipment, including valves, piping, and blow out preventors. |
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drill pipe |
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A pipe that attaches to the drill bit to drill a well. |
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heavy weight spiral drill pipe |
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A heavy drill pipe used for special applications primarily in
directional drilling. The spiral design increases
flexibility and penetration of the pipe. |
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horizontal drilling |
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The technique of drilling wells at a
90-degree
angle. |
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laydown machines |
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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). |
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mist pump |
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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. |
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spacer spools |
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High pressure connections which are stacked to elevate the
blow-out preventors to the drilling rig floor. |
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straight hole drilling |
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The technique of drilling that allows very little or no vertical
deviation. |
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test plugs |
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A device used to test the connections of well heads and blow out
preventors. |
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torque turn service or
torque turn equipment |
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A monitoring device to insure proper makeup of the casing. |
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tubing |
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A pipe placed inside the casing to allow the well to produce. |
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tubing work strings |
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The tubing used on workover rigs through which high pressure
liquids, gases or mixtures are pumped into a well to perform
production operations. |
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wear bushings |
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A device placed inside a wellhead to protect the wellhead from
wear. |
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ALLIS-CHALMERS
ENERGY INC.
We are a multi-faceted oilfield services company that provides
services and equipment to oil and natural gas exploration and
production companies, domestically in Texas, Louisiana, New
Mexico, Colorado, Oklahoma, Mississippi, Utah, Wyoming, offshore
in the Gulf of Mexico, and internationally in Argentina and
Mexico.
Our existing business segments are:
Directional Drilling Services. We employ
approximately 75 full-time directional drillers utilizing
state-of-the-art
equipment for well planning and engineering services,
directional drilling packages, downhole motor technology, well
site directional supervision, exploratory and development
re-entry drilling, downhole guidance services and other drilling
services, including, logging-while-drilling and
measurement-while-drilling services.
Rental Tools. We provide specialized rental
equipment, including premium drill pipe, heavy weight spiral
drill pipe, tubing work strings, blow out preventors, choke
manifolds and various valves and handling tools, for both
onshore and offshore well drilling, completion and workover
operations.
International Drilling. With our recent
acquisition of DLS Drilling, Logistics & Services
Corporation, or DLS, in August 2006, we entered into the
contract drilling and repair services business. DLS provides
drilling, completion, repair and related services for oil and
gas wells in Argentina. DLS also offers a wide variety of other
oilfield services such as drilling fluids and completion fluids,
engineering, field maintenance and logistics to complement its
customers field organization.
Casing and Tubing Services. We provide
specialized equipment and trained operators for a variety of
pipe handling services, including installing casing and tubing,
changing out drill pipe and retrieving production tubing for
both onshore and offshore drilling and workover operations.
Compressed Air Drilling Services. We provide
compressed air equipment, drilling bits, hammers, drilling
chemicals and other specialized drilling products for
underbalanced drilling applications. With a combined fleet of
over 130 compressors and boosters, we believe we are one of the
largest providers of compressed air or underbalanced drilling
services in the United States.
Production Services. We provide specialized
equipment and trained operators to install and retrieve
capillary tubing, through which chemicals are injected into
producing wells to increase production and reduce corrosion, and
workover services with coiled tubing units.
Our principal executive offices are located at
5075 Westheimer, Suite 890, Houston, Texas 77056, and
our telephone number at that address is
(800) 997-9534.
Our website address is
http://www.alchenergy.com. However,
information contained on our website is not incorporated by
reference into this prospectus, and you should not consider the
information contained on our website to be part of this
prospectus.
RISK
FACTORS
The securities to be offered by this prospectus may involve a
high degree of risk. When considering an investment in any of
the securities, you should consider carefully all of the risk
factors described below and any similar information contained in
any annual report on
Form 10-K
or other document filed by us with the SEC after the date of
this prospectus. If applicable, we will include in any
prospectus supplement a description of those significant factors
that could make the offering described in the prospectus
supplement speculative or risky.
Risks
Associated With Our Company
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 (and the price of) the
securities.
Our business strategy is to acquire companies operating in the
oilfield services industry. However, there can be no assurance
that we will be successful in acquiring any additional
companies. Successful acquisition of new companies will depend
on various factors, including but not limited to:
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our ability to obtain financing;
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the competitive environment for acquisitions; and
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the integration and synergy issues described in the next risk
factor.
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There can be no assurance that we will be able to acquire and
successfully operate any particular business or that we will be
able to expand into areas that we have targeted. If we fail to
acquire additional businesses, our financial condition, our
results of operations and our ability to meet our obligations
under (and the price of) the securities may be materially
adversely affected.
Difficulties
in integrating acquired businesses may result in reduced
revenues and income.
We may not be able to successfully integrate the businesses of
our operating subsidiaries or any business we may acquire in the
future. The integration of the businesses will be complex and
time consuming, will place a significant strain on management
and our information systems, and this strain could disrupt our
businesses. Furthermore, if our combined businesses continue to
grow rapidly, we may be required to replace our current
information and accounting systems with systems designed for
companies that are larger than ours. We may be adversely
impacted by unknown liabilities of acquired businesses. We may
encounter substantial difficulties, costs and delays involved in
integrating common accounting, information and communication
systems, operating procedures, internal controls and human
resources practices, including incompatibility of business
cultures and the loss of key employees and customers. These
difficulties may reduce our ability to gain customers or retain
existing customers, and may increase operating expenses,
resulting in reduced revenues and income and a failure to
realize the anticipated benefits of acquisitions.
We have made numerous acquisitions during the past five years.
As a result of these transactions, our past performance is not
indicative of future performance, and investors should not base
their expectations as to our future performance on our
historical results.
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.
We are dependent upon the efforts and skills of our executives
to finance and manage our business, identify and consummate
additional acquisitions and obtain and retain customers. These
executives include:
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Chairman of the Board and Chief Executive Officer Munawar H.
Hidayatallah; and
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President and Chief Operating Officer David Wilde.
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In addition, our development and expansion will require
additional experienced management and operations personnel. No
assurance can be given that we will be able to identify and
retain these employees.
2
The loss of the services of one or more of our key executives
could increase our exposure to the other risks described in this
Risk Factors section. We do not maintain key man
insurance on any of our personnel.
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 customers are engaged in the oil and natural gas drilling
business in the United States, Mexico and elsewhere.
Historically, we have been dependent upon a few customers for a
significant portion of our revenues. In 2005, no single customer
generated over 10% of our revenues. In 2004, Matyep represented
10.8% of our revenues, and Burlington Resources represented
10.1% of our revenues. In 2003, Matyep represented 10.2% of our
revenues, Burlington represented 11.1% of our revenues and
El Paso Corporation represented 14.1% of our revenues.
Additionally, DLS currently relies on two customers for a
majority of its revenue. In 2005, Pan American Energy LLC
Sucursal Argentina, or Pan American Energy, represented 55% of
DLS revenues and Repsol-YPF represented 15% of DLS
revenues. This concentration of customers may increase our
overall exposure to credit risk, and customers will likely be
similarly affected by changes in economic and industry
conditions. Our financial condition and results of operations
will be materially adversely affected if one or more of our
significant customers fails to pay us or ceases to contract with
us for our services on terms that are favorable to us or at all.
Our
international operations may expose us to political and other
uncertainties, including risks of:
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terrorist acts, war and civil disturbances;
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changes in laws or policies regarding the award of
contracts; and
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the inability to collect or repatriate currency, income, capital
or assets.
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Part of our strategy is to prudently and opportunistically
acquire businesses and assets that complement our existing
products and services, and to expand our geographic footprint.
If we make acquisitions in other countries, we may increase our
exposure to the risks discussed above.
Environmental
liabilities could result in substantial losses.
Since our reorganization under the U.S. federal bankruptcy
laws in 1988, a number of parties, including the Environmental
Protection Agency, have asserted that we are responsible for the
cleanup of hazardous waste sites with respect to our
pre-bankruptcy activities. We believe that such claims are
barred by applicable bankruptcy law, and we have not experienced
any material expense in relation to any such claims. However, if
we do not prevail with respect to these claims in the future, or
if additional environmental claims are asserted against us
relating to our current or future activities in the oil and
natural gas industry, we could become subject to material
environmental liabilities that could have a material adverse
effect on our financial condition and results of operations.
Products
liability claims relating to discontinued operations could
result in substantial losses.
Since our reorganization under the U.S. federal bankruptcy
laws in 1988, we have been regularly named in products liability
lawsuits primarily resulting from the manufacture of products
containing asbestos. In connection with our bankruptcy, a
special products liability trust was established to address
products liability claims. We believe that claims against us are
barred by applicable bankruptcy law, and that the products
liability trust will continue to be responsible for products
liability claims. Since 1988, no court has ruled that we are
responsible for products liability claims. However, if we are
held responsible for product liability claims, we could suffer
substantial losses that could have a material adverse effect on
our financial condition and results of operations. We have not
manufactured products containing asbestos since our
reorganization in 1988.
3
We may
be subject to claims for personal injury and property damage,
which could materially adversely affect our financial condition
and results of operations.
Our products and services are used for the exploration and
production of oil and natural gas. These operations are subject
to inherent hazards that can cause personal injury or loss of
life, damage to or destruction of property, equipment, the
environment and marine life, and suspension of operations.
Litigation arising from an accident at a location where our
products or services are used or provided may cause us to be
named as a defendant in lawsuits asserting potentially large
claims. We maintain customary insurance to protect our business
against these potential losses. Our insurance has deductibles or
self-insured retentions and contains certain coverage
exclusions. However, we could become subject to material
uninsured liabilities that could have a material adverse effect
on our financial condition and results of operations.
Risks
Associated With Our Industry
Cyclical
declines in oil and natural gas prices may result in reduced use
of our services, affecting our business, financial condition and
results of operations and our ability to meet our capital
expenditure obligations and financial commitments.
The oil and natural gas exploration and drilling business is
highly cyclical. Generally, as oil and natural gas prices
decrease, exploration and drilling activity declines as
marginally profitable projects become uneconomic and are either
delayed or eliminated. Declines in the number of operating
drilling rigs result in reduced use of and prices for our
services. Accordingly, when oil and natural gas prices are
relatively low, our revenues and income will suffer. Oil and
natural gas prices depend on many factors beyond our control,
including the following:
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economic conditions in the United States and elsewhere;
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changes in global supply and demand for oil and natural gas;
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the level of production of the Organization of Petroleum
Exporting Countries, commonly called OPEC;
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the level of production of non-OPEC countries;
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the price and quantity of imports of foreign oil and natural gas;
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political conditions, including embargoes, in or affecting other
oil and natural gas producing activities;
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the level of global oil and natural gas inventories; and
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advances in exploration, development and production technologies.
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Depending on the market prices of oil and natural gas, companies
exploring for oil and natural gas may cancel or curtail their
drilling programs, thereby reducing demand for drilling
services. Our contracts are generally short-term, and oil and
natural gas companies tend to respond quickly to upward or
downward changes in prices. Any reduction in the demand for
drilling services may materially erode both pricing and
utilization rates for our services and adversely affect our
financial results. As a result, we may suffer losses, be unable
to make necessary capital expenditures and be unable to meet our
financial obligations.
Our
industry is highly competitive, with intense price
competition.
The markets in which we operate are highly competitive.
Contracts are traditionally awarded on a competitive bid basis.
Pricing is often the primary factor in determining which
qualified contractor is awarded a job. The competitive
environment has intensified as recent mergers among oil and
natural gas companies have reduced the number of available
customers. Many other oilfield services companies are larger
than we are and have resources that are significantly greater
than our resources. These competitors are better able to
withstand industry downturns, compete on the basis of price and
acquire new equipment and technologies, all of which could
affect our revenues and profitability. These competitors compete
with us both for customers and for acquisitions of other
businesses. This competition may cause our business to suffer.
We believe that competition for contracts will continue to be
intense in the foreseeable future.
4
We may
experience increased labor costs or the unavailability of
skilled workers and the failure to retain key personnel could
hurt our operations.
Companies in our industry, including us, are dependent upon the
available labor pool of skilled employees. We compete with other
oilfield services businesses and other employers to attract and
retain qualified personnel with the technical skills and
experience required to provide our customers with the highest
quality service. We are also subject to the Fair Labor Standards
Act, which governs such matters as minimum wage, overtime and
other working conditions. A shortage in the labor pool of
skilled workers or other general inflationary pressures or
changes in applicable laws and regulations could make it more
difficult for us to attract and retain personnel and could
require us to enhance our wage and benefits packages. There can
be no assurance that labor costs will not increase. Any increase
in our operating costs could cause our business to suffer.
Severe
weather could have a material adverse impact on our
business.
Our business could be materially and adversely affected by
severe weather. Repercussions of severe weather conditions may
include:
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curtailment of services;
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weather-related damage to facilities and equipment resulting in
suspension of operations;
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inability to deliver materials to job sites in accordance with
contract schedules; and
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loss of productivity.
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In addition, oil and natural gas operations of our customers
located offshore and onshore in the Gulf of Mexico and in Mexico
may be adversely affected by hurricanes and tropical storms,
resulting in reduced demand for our services. Further, our
customers operations in the Mid-Continent and Rocky
Mountain regions of the United States are also adversely
affected by seasonal weather conditions. This limits our access
to these job sites and our ability to service wells in these
areas. These constraints decrease drilling activity and the
resulting shortages or high costs could delay our operations and
materially increase our operating and capital costs.
Our
business may be affected by terrorist activity and by security
measures taken in response to terrorism.
We may experience loss of business or delays or defaults in
payments from payers that have been affected by actual or
potential terrorist activities. Some oil and natural gas
drilling companies have implemented security measures in
response to potential terrorist activities, including access
restrictions, that could adversely affect our ability to market
our services to new and existing customers and could increase
our costs. Terrorist activities and potential terrorist
activities and any resulting economic downturn could adversely
impact our results of operations, impair our ability to raise
capital or otherwise adversely affect our ability to grow our
business.
We are
subject to government regulations.
We are subject to various federal, state, local and foreign laws
and regulations relating to the energy industry in general and
the environment in particular. Environmental laws have in recent
years become more stringent and have generally sought to impose
greater liability on a larger number of potentially responsible
parties. Although we are not aware of any proposed material
changes in any federal, state, local or foreign statutes, rules
or regulations, any changes could materially affect our
financial condition and results of operations.
5
Risks
Associated With Our Indebtedness
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 debt securities.
We are a holding company and do not conduct any business
operations of our own. Our principal assets are the equity
interests we own in our operating subsidiaries, either directly
or indirectly. As a result, we are dependent upon cash
dividends, distributions or other transfers we receive from our
subsidiaries in order to make dividend payments to our
stockholders, to repay any debt we may incur, and to meet our
other obligations. The ability of our subsidiaries to pay
dividends and make payments to us will depend on their operating
results and may be restricted by, among other things, applicable
corporate, tax and other laws and regulations and agreements of
those subsidiaries, as well as by the terms of our credit
agreement and the indentures governing our 9.0% senior
notes due 2014, which we refer to as our existing
9.0% senior notes, and any other debt securities we may
offer. For example, the corporate laws of some jurisdictions
prohibit the payment of dividends by any subsidiary unless the
subsidiary has a capital surplus or net profits in the current
or immediately preceding fiscal year. Payments or distributions
from our subsidiaries also could be subject to restrictions on
dividends or repatriation of earnings under applicable local
law, and monetary transfer restrictions in the jurisdictions in
which our subsidiaries operate. Our subsidiaries are separate
and distinct legal entities. Any right that we have to receive
any assets of or distributions from any subsidiary upon its
bankruptcy, dissolution, liquidation or reorganization, or to
realize proceeds from the sale of the assets of any subsidiary,
will be junior to the claims of that subsidiarys
creditors, including trade creditors.
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 debt securities and our other
debt.
As of September 30, 2006, we had approximately
$271.0 million of consolidated total indebtedness
outstanding and approximately $11.7 million of additional
secured borrowing capacity available under our credit agreement
as of September 30, 2006.
Our substantial debt could have important consequences for you.
For example, it could:
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make it more difficult for us to satisfy our obligations with
respect to our existing 9.0% senior notes, any other debt
securities we may offer and our other debt;
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increase our vulnerability to general adverse economic and
industry conditions, including declines in oil and natural gas
prices and declines in drilling activities;
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limit our ability to obtain additional financing for future
working capital, capital expenditures, mergers and other general
corporate purposes;
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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;
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limit our flexibility in planning for, or reacting to, changes
in our business and the industry in which we operate;
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make us more vulnerable to increases in interest rates;
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place us at a competitive disadvantage compared to our
competitors that have less debt; and
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have a material adverse effect on us if we fail to comply with
the covenants in the indentures relating to our existing 9.0%
senior notes and any other debt securities we may offer or in
the instruments governing our other debt.
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In addition, we may incur substantial additional debt in the
future. The indenture governing our existing 9.0% senior
notes permits (and we anticipate that the indentures governing
any other debt securities we may offer will also permit) us to
incur additional debt, and our credit agreement permits
additional borrowings. If new debt is added to our current debt
levels, these related risks could increase.
6
We may not maintain sufficient revenues to sustain profitability
or to meet our capital expenditure requirements and our
financial obligations. Also, we may not be able to generate a
sufficient amount of cash flow to meet our debt service
obligations.
Our ability to make scheduled payments or to refinance our
obligations with respect to our debt will depend on our
financial and operating performance, which, in turn, is subject
to prevailing economic conditions and to certain financial,
business, and other factors beyond our control. If our cash flow
and capital resources are insufficient to fund our debt service
obligations, we may be forced to reduce or delay scheduled
expansion and capital expenditures, sell material assets or
operations, obtain additional capital or restructure our debt.
We cannot assure you that our operating performance, cash flow
and capital resources will be sufficient for payment of our debt
in the future. In the event that we are required to dispose of
material assets or operations or restructure our debt to meet
our debt service and other obligations, we cannot assure you
that the terms of any such transaction would be satisfactory to
us or if or how soon any such transaction could be completed.
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, our existing 9.0% senior notes or our other debt
securities.
In order to refinance indebtedness, expand existing operations
and acquire additional businesses, we will require substantial
amounts of capital. There can be no assurance that financing,
whether from equity or debt financings or other sources, will be
available or, if available, will be on terms satisfactory to us.
If we are unable to obtain such financing, we will be unable to
acquire additional businesses and may be unable to meet our
obligations under our credit agreement, our existing
9.0% senior notes or any other debt securities we may offer.
The
indenture governing our existing 9.0% senior notes and our
credit agreement impose (and we anticipate that the indentures
governing any other debt securities we may offer will also
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.
The indenture governing our existing 9.0% senior notes and
our credit agreement contain (and we anticipate that the
indentures governing any other debt securities we may offer will
also contain) various restrictive covenants that limit
managements discretion in operating our business. In
particular, these covenants limit our ability to, among other
things:
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incur additional debt;
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make certain investments or pay dividends or distributions on
our capital stock or purchase or redeem or retire capital stock;
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sell assets, including capital stock of our restricted
subsidiaries;
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restrict dividends or other payments by restricted subsidiaries;
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create liens;
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enter into transactions with affiliates; and
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merge or consolidate with another company.
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The credit agreement also requires us to maintain specified
financial ratios and satisfy certain financial tests. Our
ability to maintain or meet such financial ratios and tests may
be affected by events beyond our control, including changes in
general economic and business conditions, and we cannot assure
you that we will maintain or meet such ratios and tests or that
the lenders under the credit agreement will waive any failure to
meet such ratios or tests.
These covenants could materially and adversely affect our
ability to finance our future operations or capital needs.
Furthermore, they may restrict our ability to expand, to pursue
our business strategies and
7
otherwise to conduct our business. Our ability to comply with
these covenants may be affected by circumstances and events
beyond our control, such as prevailing economic conditions and
changes in regulations, and we cannot assure you that we will be
able to comply with them. A breach of these covenants could
result in a default under the indentures governing our existing
9.0% senior notes and any other debt securities we may
offer and/or
the credit agreement. If there were an event of default under
any of the indentures
and/or the
credit agreement, the affected creditors could cause all amounts
borrowed under these instruments to be due and payable
immediately. Additionally, if we fail to repay indebtedness
under our credit agreement when it becomes due, the lenders
under the credit agreement could proceed against the assets
which we have pledged to them as security. Our assets and cash
flow might not be sufficient to repay our outstanding debt in
the event of a default.
Risks
Associated With DLS Business and Industry
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.
The profitability of DLS operations depends upon
conditions in the oil and gas industry and, specifically, the
level of exploration and production expenditures of oil and gas
company customers. The oil and gas industry is cyclical and
subject to governmental price controls. The demand for contract
drilling and related services is directly influenced by many
factors beyond DLS control, including:
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oil and gas prices and expectations about future prices;
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the demand for oil and gas, both in Latin America and globally;
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the cost of producing and delivering oil and gas;
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advances in exploration, development and production technology;
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government regulations, including governmental imposed commodity
price controls, export controls and renationalization of a
countrys oil and gas industry;
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local and international political and economic conditions;
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the ability of OPEC to set and maintain production levels and
prices;
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the level of production by non-OPEC countries; and
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the policies of various governments regarding exploration and
development of their oil and gas reserves.
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Depending on the factors outlined above, companies exploring for
oil and gas may cancel or curtail their drilling programs,
thereby reducing demand for drilling services. Such a reduction
in demand may erode daily rates and utilization of DLS
rigs. Any significant decrease in daily rates or utilization of
DLS rigs could materially reduce DLS revenues,
profitability, cash flows
and/or
liquidity.
A
majority of DLS revenues are derived from one customer.
The termination of the contract with this customer could have a
significant negative effect on the revenues, results of
operations and financial condition of DLS.
A majority of DLS revenues are currently received pursuant
to a strategic agreement with Pan American Energy. Pan American
Energy is a joint venture that is owned 60% by British Petroleum
and 40% by Bridas Corporation, an affiliate of the former DLS
stockholders from which we acquired DLS, and which we refer to
collectively as the DLS sellers. This agreement terminates on
June 30, 2008. However, Pan American Energy may terminate
the agreement (i) without cause at any time with
60 days notice, or (ii) in the event of a breach
of the agreement by DLS if such breach is not cured within
20 days of notice of the breach. DLS is currently in
negotiations to extend this agreement to December 2010.
8
Because a majority of DLS revenues are currently generated
under this agreement, DLS revenues and earnings will be
materially adversely affected if this agreement is terminated
unless DLS is able to enter into a satisfactory substitute
arrangement. We cannot assure you that in the event of such a
termination DLS would be able to enter into a substitute
arrangement on terms similar to those contained in the current
agreement with Pan American Energy.
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.
In Argentina, labor organizations have substantial support and
have considerable political influence. The demands of labor
organizations have increased in recent years as a result of the
general labor unrest and dissatisfaction resulting from the
disparity between the cost of living and salaries in Argentina
as a result of the devaluation of the Argentine peso. There can
be no assurance that DLS will not face labor disruptions in the
future or that any such disruptions will not have a material
adverse effect on DLS financial condition or results of
operations.
The Argentine government has in the past and may in the future
promulgate laws, regulations and decrees requiring companies in
the private sector to maintain minimum wage levels and provide
specified benefits to employees, including significant mandatory
severance payments. In the aftermath of the Argentine economic
crisis of 2001 and 2002, both the government and private sector
companies have experienced significant pressure from employees
and labor organizations relating to wage levels and employee
benefits. In early 2005, the Argentine government promised not
to order salary increases by decree. However, there has been no
abatement of pressure to mandate salary increases, and it is
possible the government will adopt measures that will increase
salaries or require DLS to provide additional benefits, which
would increase DLS costs and potentially reduce DLS
profitability, cash flow
and/or
liquidity.
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.
DLS often has to make upgrade and refurbishment expenditures for
its rig fleet to comply with DLS quality management and
preventive maintenance system or contractual requirements or
when repairs are required in response to an inspection by a
governmental authority. DLS may also make significant
expenditures when it moves rigs from one location to another.
Additionally, DLS may make substantial expenditures for the
construction of new rigs. Rig upgrade, refurbishment and
construction projects are subject to the risks of delay or cost
overruns inherent in any large construction project, including
the following:
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shortages of material or skilled labor;
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unforeseen engineering problems;
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unanticipated change orders;
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work stoppages;
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adverse weather conditions;
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long lead times for manufactured rig components;
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unanticipated cost increases; and
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inability to obtain the required permits or approvals.
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Significant cost overruns or delays could adversely affect
DLS financial condition and results of operations.
Additionally, capital expenditures for rig upgrade,
refurbishment or construction projects could exceed DLS
planned capital expenditures, impairing DLS ability to
service its debt obligations.
9
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.
Utilization rates, which are the number of days a rig actually
works divided by the number of days the rig is available for
work, and dayrates, which are the contract prices customers pay
for rigs per day, are also affected by the total supply of
comparable rigs available for service in the geographic markets
in which DLS competes. Improvements in demand in a geographic
market may cause DLS competitors to respond by moving
competing rigs into the market, thus intensifying price
competition. Significant new rig construction could also
intensify price competition. In the past, there have been
prolonged periods of rig oversupply with correspondingly
depressed utilization rates and dayrates largely due to earlier,
speculative construction of new rigs. Improvements in dayrates
and expectations of longer-term, sustained improvements in
utilization rates and dayrates for drilling rigs may lead to
construction of new rigs. These increases in the supply of rigs
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.
Currently, DLS derives substantially all of its revenues from
operations in Argentina and a small portion from operations in
Bolivia. DLS operations are subject to the following
risks, among others:
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expropriation of assets;
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nationalization of components of the energy industry in the
geographic areas where DLS operates;
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foreign currency fluctuations and devaluation;
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new economic and tax policies;
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restrictions on currency, income, capital or asset repatriation;
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political instability, war and civil disturbances;
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uncertainty or instability resulting from armed hostilities or
other crises in the Middle East or the geographic areas in which
DLS operates; and
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acts of terrorism.
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DLS attempts to limit the risks of currency fluctuation and
restrictions on currency repatriation where possible by
obtaining contracts providing for payment of a percentage of the
contract in U.S. dollars or freely convertible foreign
currency. To the extent possible, DLS seeks to limit its
exposure to local currencies by matching the acceptance of local
currencies to DLS expense requirements in those
currencies. Although DLS has done this in the past, DLS may not
be able to take these actions in the future, thereby exposing
DLS to foreign currency fluctuations that could cause its
results of operations, financial condition and cash flows to
deteriorate materially.
Over the past several years, Argentina and Bolivia have
experienced political and economic instability that resulted in
significant changes in their general economic policies and
regulations.
DLS derives a small portion of its revenues from operating one
drilling rig in Bolivia. Recently, Bolivian President Evo
Morales announced the nationalization of Bolivias natural
gas industry and ordered the Bolivian military to occupy
Bolivias natural gas fields. This measure will likely
adversely affect the Bolivian operations of foreign oil and gas
companies operating in Bolivia, including DLS customers
and potential future customers, and accordingly, DLS
prospects for future business in Bolivia may be harmed. In
addition, in light of these recent political developments in
Bolivia, DLS assets in Bolivia may be subject to an
increased risk of expropriation or government imposed
restrictions on movement to a new location.
In light of the early stage and uncertainty of political
developments affecting the energy industry in Bolivia, we are
unable to predict the effect that recent events may have on
DLS operations, financial results or business plans. There
is a risk that the changes resulting from the recent events in
Bolivia will adversely affect DLS financial position or
results of operations, and DLS operations may be further
adversely affected by continuing economic and political
instability in Bolivia. Furthermore, if nationalistic measures
similar to
10
those developing in Bolivia were to be adopted in other
countries where DLS may in the future seek drilling contracts,
DLS prospects in such countries may be adversely affected.
DLS operations are also subject to other risks, including
foreign monetary and tax policies, expropriation,
nationalization and nullification or modification of contracts.
Additionally, DLS ability to compete may be limited by
foreign governmental regulations that favor or require the
awarding of contracts to local contractors or by regulations
requiring foreign contractors to employ citizens of, or purchase
supplies from, a particular jurisdiction. Furthermore, DLS may
face governmentally imposed restrictions from time to time on
its ability to transfer funds.
Devaluation
of the Argentine peso will adversely affect DLS results of
operations.
The Argentine peso has been subject to significant devaluation
in the past and may be subject to significant fluctuations in
the future. Given the economic and political uncertainties in
Argentina, it is impossible to predict whether, and to what
extent, the value of the Argentine peso may depreciate or
appreciate against the U.S. dollar. We cannot predict how
these uncertainties will affect DLS financial results, but
there is a risk that DLS financial performance could be
adversely affected. Moreover, we cannot predict whether the
Argentine government will further modify its monetary policy
and, if so, what effect any of these changes could have on the
value of the Argentine peso. Such changes could have an adverse
effect on DLS financial condition and results of
operations.
Argentina
continues to face considerable political and economic
uncertainty.
Although general economic conditions have shown improvement and
political protests and social disturbances have diminished
considerably since the economic crisis of 2001 and 2002, the
rapid and radical nature of the changes in the Argentine social,
political, economic and legal environment over the past several
years and the absence of a clear political consensus in favor of
any particular set of economic policies have given rise to
significant uncertainties about the countrys economic and
political future. It is currently unclear whether the economic
and political instability experienced over the past several
years will continue and it is possible that, despite recent
economic growth, Argentina may return to a deeper recession,
higher inflation and unemployment and greater social unrest. If
instability persists, there could be a material adverse effect
on DLS results of operations and financial condition.
In the event of further social or political crisis, companies in
Argentina may also face the risk of further civil and social
unrest, strikes, expropriation, nationalization, forced
renegotiation or modification of existing contracts and changes
in taxation policies, including royalty and tax increases and
retroactive tax claims.
In addition, investments in Argentine companies may be further
affected by changes in laws and policies of the United States
affecting foreign trade, taxation and investment.
An
increase in inflation could have a material adverse effect on
DLS results of operations.
The devaluation of the Argentine peso created pressures on the
domestic price system that generated high rates of inflation in
2002 before substantially stabilizing in 2003 and remaining
stable in 2004. In 2005, however, inflation rates began to
increase. In addition, in response to the economic crisis in
2002, the federal government granted the Central Bank greater
control over monetary policy than was available to it under the
previous monetary regime, known as the
Convertibility regime, including the ability to
print currency, to make advances to the federal government to
cover its anticipated budget deficit and to provide financial
assistance to financial institutions with liquidity problems. We
cannot assure you that inflation rates will remain stable in the
future. Significant inflation could have a material adverse
effect on DLS results of operations and financial
condition.
11
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.
Substantially all of DLS contracts with major customers
are dayrate contracts, where DLS charges a fixed charge per day
regardless of the number of days needed to drill the well.
During depressed market conditions, a customer may no longer
need a rig that is currently under contract or may be able to
obtain a comparable rig at a lower daily rate. As a result,
customers may seek to renegotiate the terms of their existing
drilling contracts or avoid their obligations under those
contracts. In addition, DLS customers may have the right
to terminate existing contracts if DLS experiences operational
problems. The likelihood that a customer may seek to terminate a
contract for operational difficulties is increased during
periods of market weakness. The cancellation of a number of
DLS drilling contracts could materially reduce DLS
revenues and profitability.
DLS is
subject to numerous governmental laws and regulations, including
those that may impose significant liability on DLS for
environmental and natural resource damages.
Many aspects of DLS operations are subject to laws and
regulations that may relate directly or indirectly to the
contract drilling and well servicing industries, including those
requiring DLS to control the discharge of oil and other
contaminants into the environment or otherwise relating to
environmental protection. The countries where DLS operates have
environmental laws and regulations covering the discharge of oil
and other contaminants and protection of the environment in
connection with operations. Failure to comply with these laws
and regulations may result in the assessment of administrative,
civil and even criminal penalties, the imposition of remedial
obligations, and the issuance of injunctions that may limit or
prohibit DLS operations. Laws and regulations protecting
the environment have become more stringent in recent years and
may in certain circumstances impose strict liability, rendering
DLS liable for environmental and natural resource damages
without regard to negligence or fault on DLS part. These
laws and regulations may expose DLS to liability for the conduct
of, or conditions caused by, others or for acts that were in
compliance with all applicable laws at the time the acts were
performed. The application of these requirements, the
modification of existing laws or regulations or the adoption of
new laws or regulations curtailing exploratory or development
drilling for oil and gas could materially limit future contract
drilling opportunities or materially increase DLS costs or
both.
DLS is
subject to hazards customary for drilling operations, which
could adversely affect its financial performance if DLS is not
adequately indemnified or insured.
Substantially all of DLS operations are subject to hazards
that are customary for oil and gas drilling operations,
including blowouts, reservoir damage, loss of well control,
cratering, oil and gas well fires and explosions, natural
disasters, pollution and mechanical failure. Any of these risks
could result in damage to or destruction of drilling equipment,
personal injury and property damage, suspension of operations or
environmental damage. Generally, drilling contracts provide for
the division of responsibilities between a drilling company and
its customer, and DLS generally obtains indemnification from its
customers by contract for some of these risks. However, there
may be limitations on the enforceability of indemnification
provisions that allow a contractor to be indemnified for damages
resulting from the contractors fault. To the extent that
DLS is unable to transfer such risks to customers by contract or
indemnification agreements, DLS generally seeks protection
through insurance. However, DLS has a significant amount of
self-insured retention or deductible for certain losses relating
to workers compensation, employers liability,
general liability and property damage. There is no assurance
that such insurance or indemnification agreements will
adequately protect DLS against liability from all of the
consequences of the hazards and risks described above. The
occurrence of an event not fully insured or for which DLS is not
indemnified against, or the failure of a customer or insurer to
meet its indemnification or insurance obligations, could result
in substantial losses. In addition, there can be no assurance
that insurance will continue to be available to cover any or all
of these risks, or, even if available, that insurance premiums
or other costs will not rise significantly in the future, so as
to make the cost of such insurance prohibitive.
12
USE OF
PROCEEDS
Unless otherwise specified in an accompanying prospectus
supplement, we expect to use the net proceeds from the sale of
the securities offered by this prospectus to fund:
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working capital needs; and
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expenditures related to general corporate purposes.
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The actual application of proceeds from the sale of any
particular tranche of securities issued hereunder will be
described in the applicable prospectus supplement relating to
such tranche of securities. We may invest funds not required
immediately for these purposes in marketable securities and
short-term investments. The precise amount and timing of the
application of these proceeds will depend upon our funding
requirements and the availability and cost of other funds.
RATIOS OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratios of earnings to fixed
charges on a consolidated basis for the periods shown. You
should read these ratios of earnings to fixed charges in
connection with our consolidated financial statements, including
the notes to those statements, incorporated by reference into
this prospectus.
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Nine Months
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Ended
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Years Ended December 31,
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September 30,
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2001
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2002
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2003
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2004
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2005
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2006
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Ratio of earnings to fixed
charges(1)
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(1.6
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)x
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(0.4
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)x
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2.2
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x
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1.5
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x
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2.9
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x
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2.3x
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(1) |
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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. |
13
DESCRIPTION
OF CAPITAL STOCK
Our authorized capital stock consists of 100,000,000 shares
of common stock, $0.01 par value per share and
25,000,000 shares of preferred stock, $0.01 par value
per share.
The following summary of the rights, preferences and privileges
of our capital stock and certificate of incorporation and
by-laws does not purport to be complete and is qualified in its
entirety by reference to the provisions of applicable law and to
our certificate of incorporation and by-laws.
Common
Stock
Holders of our common stock are entitled to one vote for each
share held on all matters submitted to a vote of stockholders
and do not have cumulative voting rights. Accordingly, holders
of a majority of the shares of our common stock entitled to vote
in any election of directors may elect all of the directors
standing for election. Holders of our common stock are entitled
to receive proportionately any dividends if and when such
dividends are declared by our board of directors, subject to any
preferential dividend rights of outstanding preferred stock.
Upon the liquidation, dissolution or winding up of our company,
the holders of our common stock are entitled to receive ratably
our net assets available after the payment of all debts and
other liabilities and subject to the prior rights of any
outstanding preferred stock. Holders of our common stock have no
preemptive, subscription, redemption or conversion rights. The
rights, preferences and privileges of holders of our common
stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock
that we may designate and issue in the future.
Preferred
Stock
Under the terms of our certificate of incorporation, our board
of directors is authorized to designate and issue shares of
preferred stock in one or more series without stockholder
approval. Our board of directors has discretion to determine the
rights, preferences, privileges and restrictions, including
voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, of each series of
preferred stock. It is not possible to state the actual effect
of the issuance of any shares of preferred stock upon the rights
of holders of our common stock until the board of directors
determines the specific rights of the holders of the preferred
stock. However, these effects might include:
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restricting dividends on the common stock;
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diluting the voting power of the common stock;
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impairing the liquidation rights of the common stock; and
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delaying or preventing a change in control of our company.
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We have no present plans to issue any shares of preferred stock.
Shares Eligible
for Future Sale
Sales of substantial amounts of shares of common stock in the
public market could have an adverse effect on the market value
of our common stock. With the exception of certain shares issued
in connection with acquisitions consummated during the past
year, substantially all outstanding shares of our common stock
are either freely tradable or tradable pursuant to Rule 144
or pursuant to the registration statement described below.
14
We have reserved an additional 1,843,633 shares of common
stock for issuance under our equity compensation plans, of which
1,600,534 shares are currently issuable upon the exercise
of outstanding options with a weighted average exercise price of
$6.40 per share. In addition, we have reserved
71,000 shares of common stock for issuance upon the
exercise of outstanding warrants (with a weighted average
exercise price of $4.98 per share) and 4,000 shares
for issuance upon the exercise of outstanding options (with an
exercise price of $13.75 per share) granted to former and
continuing board members in 1999 and 2000.
We have an effective registration statement with the SEC
registering the resale of approximately 9.4 million shares
of our currently outstanding common stock. Also, pursuant to
Rule 144, shares of our common stock that have been held
for at least one year may generally be sold in brokers
transactions, provided that the amount of shares sold by any
stockholder (and the stockholders transferees under
certain circumstances) in any three-month period does not exceed
the greater of 1% of the outstanding stock (currently
approximately 180,000 shares) or the four-week average
weekly trading volume of the common stock. Such sales may be
effected provided the requirements of Rule 144 are met,
including the requirement that at the time of the sale we have
filed all reports required to be filed under the Exchange Act.
Pursuant to Rule 144, shares of our common stock that have
been held by persons who are not our affiliates for at least two
years may generally be sold without restriction under
Rule 144.
Delaware
Anti-Takeover Law and Charter and By-Law Provisions
We are subject to the provisions of Section 203 of the
Delaware General Corporation Law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in
a business combination with an interested
stockholder for a period of three years after the date of
the transaction in which the person became an interested
stockholder, unless the business combination or the transaction
by which the person became an interested stockholder is approved
by the corporations board of directors
and/or
stockholders in a prescribed manner or the person owns at least
85% of the corporations outstanding voting stock after
giving effect to the transaction in which the person became an
interested stockholder. The term business
combination includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an interested
stockholder is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of
the corporations voting stock. A Delaware corporation may
opt out from the application of Section 203
through a provision in its certificate of incorporation or
by-laws. We have not opted out from the application
of Section 203.
Under our certificate of incorporation and by-laws, our board of
directors is not divided into classes, and each director serves
for a term of one year. Any vacancies on the board of directors
shall be filled by vote of the board of directors until the next
meeting of stockholders when the election of directors is in the
regular course of business, and until a successor has been duly
elected and qualified. Our certificate of incorporation and
by-laws also provide that any director may be removed from
office, with or without cause, by the affirmative vote of the
holders of a majority of the voting power of our then
outstanding capital stock entitled to vote generally in the
election of directors.
Our by-laws provide that meetings of stockholders may be called
only by a majority of our board of directors.
The foregoing provisions of our certificate of incorporation and
by-laws and the provisions of Section 203 of the Delaware
General Corporation Law could have the effect of delaying,
deferring or preventing a change of control of our company.
Liability
and Indemnification of Officers and Directors
Our certificate of incorporation provides that our directors
will not be personally liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director,
except for liability (1) for any breach of a
directors duty of loyalty to us or our stockholders,
(2) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law,
(3) under Section 174 of the Delaware General
Corporation Law, or (4) for any transaction from which the
director derives an improper personal benefit. If the Delaware
General Corporation Law is amended to authorize the further
elimination or limitation
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of directors liability, then the liability of our
directors will automatically be limited to the fullest extent
provided by law. Our certificate of incorporation and by-laws
also contain provisions to indemnify our directors and officers
to the fullest extent permitted by the Delaware General
Corporation Law. We also maintain indemnification insurance on
behalf of our directors. In addition, our board of directors has
approved and we are in the process of entering into
indemnification agreements with all of our directors and
executive officers. These provisions and agreements may have the
practical effect in certain cases of eliminating the ability of
stockholders to collect monetary damages from our directors and
officers. We believe that these contractual agreements and the
provisions in our certificate of incorporation and by-laws are
necessary to attract and retain qualified persons as directors
and officers.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is
Continental Stock Transfer and Trust Company, 17 Battery
Place, New York, New York
10004-1123,
(212) 509-4000.
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DESCRIPTION
OF DEBT SECURITIES
Any debt securities that we offer under a prospectus supplement
will be direct, unsecured general obligations. The debt
securities will be either senior debt securities or subordinated
debt securities. The debt securities will be issued under one or
more separate indentures between us and a banking or financial
institution, as trustee. Senior debt securities will be issued
under a senior indenture and subordinated debt securities will
be issued under a subordinated indenture. Together, the senior
indenture and the subordinated indenture are called
indentures. The indentures will be supplemented by
supplemental indentures, the material provisions of which will
be described in a prospectus supplement.
As used in this description, the words
Allis-Chalmers, we, us and
our refer to Allis-Chalmers Energy Inc., and not to
any of its subsidiaries or affiliates.
We have summarized some of the material provisions of the
indentures below. This summary does not restate those agreements
in their entirety. A form of senior indenture and a form of
subordinated indenture have been filed as exhibits to the
registration statement of which this prospectus is a part. We
urge you to read each of the indentures because each one, and
not this description, defines the rights of holders of debt
securities.
Capitalized terms defined in the indentures have the same
meanings when used in this prospectus.
General
The debt securities issued under the indentures will be our
direct, unsecured general obligations. The senior debt
securities will rank equally with all of our other senior and
unsubordinated debt. The subordinated debt securities will have
a junior position to all of our senior debt.
A substantial portion of our assets are held by our operating
subsidiaries. With respect to these assets, holders of senior
debt securities that are not guaranteed by our operating
subsidiaries and holders of subordinated debt securities will
have a position junior to the prior claims of creditors of these
subsidiaries, including trade creditors, debtholders, secured
creditors, taxing authorities and guarantee holders, and any
preferred stockholders, except to the extent that we may ourself
be a creditor with recognized claims against any subsidiary. Our
ability to pay the principal, premium, if any, and interest on
any debt securities is, to a large extent, dependent upon the
payment to us by our subsidiaries of dividends, debt principal
and interest or other charges.
The following description sets forth the general terms and
provisions that could apply to debt securities that we may offer
to sell. A prospectus supplement and an indenture relating to
any series of debt securities being offered will include
specific terms relating to the offering. These terms will
include some or all of the following:
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the title and type of the debt securities;
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the total principal amount of the debt securities;
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the percentage of the principal amount at which the debt
securities will be issued and any payments due if the maturity
of the debt securities is accelerated;
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the dates on which the principal of the debt securities will be
payable;
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the interest rate which the debt securities will bear and the
interest payment dates for the debt securities;
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any conversion or exchange features;
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any optional redemption periods;
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any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem some or all of the debt
securities;
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any provisions granting special rights to holders when a
specified event occurs;
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any changes to or additional events of default or covenants;
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any special tax implications of the debt securities, including
provisions for original issue discount securities, if
offered; and
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any other terms of the debt securities.
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None of the indentures will limit the amount of debt securities
that may be issued. Each indenture will allow debt securities to
be issued up to the principal amount that may be authorized by
us and may be in any currency or currency unit designated by us.
Debt securities of a series may be issued in registered, coupon
or global form.
Subsidiary
Guarantees
If the applicable prospectus supplement relating to a series of
our senior debt securities provides that those senior debt
securities will have the benefit of a guarantee by any or all of
our operating subsidiaries, payment of the principal, premium,
if any, and interest on those senior debt securities will be
unconditionally guaranteed on an unsecured, unsubordinated basis
by such subsidiary or subsidiaries. The guarantee of senior debt
securities will rank equally in right of payment with all of the
unsecured and unsubordinated indebtedness of such subsidiary or
subsidiaries.
If the applicable prospectus supplement relating to a series of
our subordinated debt securities provides that those
subordinated debt securities will have the benefit of a
guarantee by any or all of our operating subsidiaries, payment
of the principal, premium, if any, and interest on those
subordinated debt securities will be unconditionally guaranteed
on an unsecured, subordinated basis by such subsidiary or
subsidiaries. The guarantee of the subordinated debt securities
will be subordinated in right of payment to all of such
subsidiarys or subsidiaries existing and future
senior indebtedness (as defined in the related prospectus
supplement), including any guarantee of the senior debt
securities, to the same extent and in the same manner as the
subordinated debt securities are subordinated to our senior
indebtedness (as defined in the related prospectus supplement).
See Subordination below.
The obligations of our operating subsidiaries under any such
guarantee will be limited as necessary to prevent the guarantee
from constituting a fraudulent conveyance or fraudulent transfer
under applicable law.
Covenants
Under the indentures, we:
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will pay the principal of, interest and any premium on, the debt
securities when due;
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will maintain a place of payment;
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will deliver a certificate to the trustee at the end of each
fiscal year reviewing our obligations under the indentures;
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will preserve our corporate existence; and
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will deposit sufficient funds with any paying agent on or before
the due date for any principal, interest or premium.
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Mergers
and Sale of Assets
Each of the indentures will provide that we may not consolidate
with or merge into any other person or sell, convey, transfer or
lease all or substantially all of our properties and assets (on
a consolidated basis) to another person, unless:
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either: (a) Allis-Chalmers is the surviving corporation; or
(b) the person or entity formed by or surviving any such
consolidation, amalgamation or merger or resulting from such
conversion (if other than Allis-Chalmers) or to which such sale,
assignment, transfer, conveyance or other disposition has
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been made is a corporation, limited liability company or limited
partnership organized or existing under the laws of the United
States, any state of the United States or the District of
Columbia;
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the person or entity formed by or surviving any such conversion,
consolidation, amalgamation or merger (if other than
Allis-Chalmers) or the person or entity to which such sale,
assignment, transfer, conveyance or other disposition has been
made assumes all of the obligations of Allis-Chalmers under such
indenture and the debt securities governed thereby pursuant to
agreements reasonably satisfactory to the trustee; provided
that, unless such person or entity is a corporation, a
corporate co-issuer of such debt securities will be added to the
applicable indenture by agreements reasonably satisfactory to
the trustee;
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we or the successor will not immediately be in default under
such indenture; and
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we deliver an officers certificate and opinion of counsel
to the trustee stating that such consolidation or merger
complies with such indenture and that all conditions precedent
set forth in such indenture have been complied with.
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Upon the assumption of our obligations under each indenture by a
successor, we will be discharged from all obligations under such
indenture.
Events of
Default
Event of default, when used in the
indentures, with respect to debt securities of any series, will
mean any of the following:
(1) default in the payment of any interest upon any debt
security of that series when it becomes due and payable, and
continuance of such default for a period of 30 days;
(2) default in the payment of the principal of (or premium,
if any, on) any debt security of that series at its maturity;
(3) default in the performance, or breach, of any covenant
set forth in Article Ten of the applicable indenture (other
than a covenant a default in whose performance or whose breach
is elsewhere specifically dealt with as an event of default or
which has expressly been included in such indenture solely for
the benefit of one or more series of debt securities other than
that series), and continuance of such default or breach for a
period of 90 days after there has been given, by registered
or certified mail, to Allis-Chalmers by the trustee or to
Allis-Chalmers and the trustee by the holders of at least 25% in
principal amount of the then-outstanding debt securities of that
series a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a
Notice of Default thereunder;
(4) default in the performance, or breach, of any covenant
in the applicable indenture (other than a covenant set forth in
Article Ten of such indenture or any other covenant a
default in whose performance or whose breach is elsewhere
specifically dealt with as an event of default or which has
expressly been included in such indenture solely for the benefit
of one or more series of debt securities other than that
series), and continuance of such default or breach for a period
of 180 days after there has been given, by registered or
certified mail, to Allis-Chalmers by the trustee or to
Allis-Chalmers and the trustee by the holders of at least 25% in
principal amount of the then-outstanding debt securities of that
series a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a
Notice of Default thereunder;
(5) Allis-Chalmers, pursuant to or within the meaning of
any bankruptcy law, (i) commences a voluntary case,
(ii) consents to the entry of any order for relief against
it in an involuntary case, (iii) consents to the
appointment of a custodian of it or for all or substantially all
of its property, or (iv) makes a general assignment for the
benefit of its creditors;
(6) a court of competent jurisdiction enters an order or
decree under any bankruptcy law that (i) is for relief
against Allis-Chalmers in an involuntary case,
(ii) appoints a custodian of Allis-Chalmers or for
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all or substantially all of its property, or (iii) orders
the liquidation of Allis-Chalmers, and the order or decree
remains unstayed and in effect for 60 consecutive days;
(7) default in the deposit of any sinking fund payment when
due; or
(8) any other event of default provided with respect to
debt securities of that series in accordance with provisions of
the indenture related to the issuance of such debt securities.
An event of default for a particular series of debt securities
does not necessarily constitute an event of default for any
other series of debt securities issued under an indenture. The
trustee may withhold notice to the holders of debt securities of
any default (except in the payment of principal, interest or any
premium) if it considers the withholding of notice to be in the
interests of the holders.
If an event of default for any series of debt securities occurs
and continues, the trustee or the holders of a specified
percentage in aggregate principal amount of the debt securities
of the series may declare the entire principal of all of the
debt securities of that series to be due and payable
immediately. If this happens, subject to certain conditions, the
holders of a specified percentage of the aggregate principal
amount of the debt securities of that series can void the
declaration.
Other than its duties in case of a default, a trustee is not
obligated to exercise any of its rights or powers under any
indenture at the request, order or direction of any holders,
unless the holders offer the trustee reasonable indemnity. If
they provide this reasonable indemnification, the holders of a
majority in principal amount outstanding of any series of debt
securities may direct the time, method and place of conducting
any proceeding or any remedy available to the trustee, or
exercising any power conferred upon the trustee, for any series
of debt securities.
Amendments
and Waivers
Subject to certain exceptions, the indentures, the debt
securities issued thereunder or the subsidiary guarantees may be
amended or supplemented with the consent of the holders of a
majority in aggregate principal amount of the then-outstanding
debt securities of each series affected by such amendment or
supplemental indenture, with each such series voting as a
separate class (including, without limitation, consents obtained
in connection with a purchase of, or tender offer or exchange
offer for, debt securities) and, subject to certain exceptions,
any past default or compliance with any provisions may be waived
with respect to each series of debt securities with the consent
of the holders of a majority in principal amount of the
then-outstanding debt securities of such series voting as a
separate class (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for, debt
securities).
Without the consent of each holder of the outstanding debt
securities affected, an amendment or waiver may not, among other
things:
(1) change the stated maturity of the principal of, or any
installment of principal of or interest on, any debt security,
or reduce the principal amount thereof or the rate of interest
thereon or any premium payable upon the redemption thereof, or
reduce the amount of the principal of an original issue discount
security that would be due and payable upon a declaration of
acceleration of the maturity thereof pursuant to the applicable
indenture, or change any place of payment where, or the coin or
currency in which, any debt security or any premium or the
interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the
stated maturity thereof (or, in the case of redemption, on or
after the redemption date therefor),
(2) reduce the percentage in principal amount of the
then-outstanding debt securities of any series, the consent of
whose holders is required for any such supplemental indenture,
or the consent of whose holders is required for any waiver (of
compliance with certain provisions of the applicable indenture
or certain defaults thereunder and their consequences) provided
for in the applicable indenture,
(3) modify any of the provisions set forth in
(i) sections related to matters addressed in items
(1) through (15) of this caption,
Amendments and Waivers, immediately
below, (ii) the provisions of the applicable indenture
related to the holders unconditional right to receive
principal, premium, if any,
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and interest on the debt securities or (iii) the provisions
of the applicable indenture related to the waiver of past
defaults under such indenture except to increase any such
percentage or to provide that certain other provisions of such
indenture cannot be modified or waived without the consent of
the holder of each then-outstanding debt security affected
thereby; provided, however, that this clause shall
not be deemed to require the consent of any holder with respect
to changes in the references to the trustee and
concomitant changes in this section of such indenture, or the
deletion of this proviso in such indenture, in accordance with
the requirements of such indenture;
(4) waive a redemption payment with respect to any debt
security; provided, however, that any purchase or
repurchase of debt securities shall not be deemed a redemption
of the debt securities;
(5) release any guarantor from any of its obligations under
its guarantee or the applicable indenture, except in accordance
with the terms of such indenture (as supplemented by any
supplemental indenture); or
(6) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder
of debt securities, Allis-Chalmers, the guarantors and the
trustee may amend each of the indentures or the debt securities
issued thereunder to:
(1) cure any ambiguity or to correct or supplement any
provision therein that may be inconsistent with any other
provision therein;
(2) evidence the succession of another person or entity to
Allis-Chalmers and the assumption by any such successor of the
covenants of Allis-Chalmers therein and, to the extent
applicable, to the debt securities;
(3) provide for uncertificated debt securities in addition
to or in place of certificated debt securities; provided
that the uncertificated debt securities are issued in
registered form for purposes of Section 163(f) of the
Internal Revenue Code of 1986, as amended (the
Code), or in the manner such that the
uncertificated debt securities are described in
Section 163(f)(2)(B) of the Code;
(4) add a guarantee and cause any person or entity to
become a guarantor,
and/or to
evidence the succession of another person or entity to a
guarantor and the assumption by any such successor of the
guarantee of such guarantor therein and, to the extent
applicable, endorsed upon any debt securities of any series;
(5) secure the debt securities of any series;
(6) add to the covenants of Allis-Chalmers such further
covenants, restrictions, conditions or provisions as
Allis-Chalmers shall consider to be appropriate for the benefit
of the holders of all or any series of debt securities (and if
such covenants, restrictions, conditions or provisions are to be
for the benefit of less than all series of debt securities,
stating that such covenants are expressly being included solely
for the benefit of such series) or to surrender any right or
power therein conferred upon Allis-Chalmers and to make the
occurrence, or the occurrence and continuance, of a default in
any such additional covenants, restrictions, conditions or
provisions an event of default permitting the enforcement of all
or any of the several remedies provided in the applicable
indenture as set forth therein; provided, that in respect
of any such additional covenant, restriction, condition or
provision, such supplemental indenture may provide for a
particular period of grace after default (which period may be
shorter or longer than that allowed in the case of other
defaults) or may provide for an immediate enforcement upon such
an event of default or may limit the remedies available to the
trustee upon such an event of default or may limit the right of
the holders of a majority in aggregate principal amount of the
debt securities of such series to waive such an event of default;
(7) make any change to any provision of the applicable
indenture that does not adversely affect the rights or interests
of any holder of debt securities issued thereunder;
(8) provide for the issuance of additional debt securities
in accordance with the provisions set forth in the applicable
indenture on the date of such indenture;
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(9) add any additional defaults or events of default in
respect of all or any series of debt securities;
(10) add to, change or eliminate any of the provisions of
the applicable indenture to such extent as shall be necessary to
permit or facilitate the issuance of debt securities in bearer
form, registrable or not registrable as to principal, and with
or without interest coupons;
(11) change or eliminate any of the provisions of the
applicable indenture; provided that any such change or
elimination shall become effective only when there is no debt
security outstanding of any series created prior to the
execution of such supplemental indenture that is entitled to the
benefit of such provision;
(12) establish the form or terms of debt securities of any
series as permitted thereunder, including to reopen any series
of any debt securities as permitted thereunder;
(13) evidence and provide for the acceptance of appointment
thereunder by a successor trustee with respect to the debt
securities of one or more series and to add to or change any of
the provisions of the applicable indenture as shall be necessary
to provide for or facilitate the administration of the trusts
thereunder by more than one trustee, pursuant to the
requirements of such indenture;
(14) conform the text of the applicable indenture (and/or
any supplemental indenture) or any debt securities issued
thereunder to any provision of a description of such debt
securities appearing in a prospectus or prospectus supplement or
an offering memorandum or offering circular to the extent that
such provision was intended to be a verbatim recreation of a
provision of such indenture (and/or any supplemental indenture)
or any debt securities issued thereunder; or
(15) modify, eliminate or add to the provisions of the
applicable indenture to such extent as shall be necessary to
effect the qualification of such indenture under the Trust
Indenture Act of 1939, as amended (the Trust Indenture
Act), or under any similar federal statute
subsequently enacted, and to add to such indenture such other
provisions as may be expressly required under the Trust
Indenture Act.
The consent of the holders is not necessary under either
indenture to approve the particular form of any proposed
amendment. It is sufficient if such consent approves the
substance of the proposed amendment. After an amendment under an
indenture becomes effective, Allis-Chalmers is required to mail
to the holders of debt securities thereunder a notice briefly
describing such amendment. However, the failure to give such
notice to all such holders, or any defect therein, will not
impair or affect the validity of the amendment.
Legal
Defeasance and Covenant Defeasance
Each indenture provides that Allis-Chalmers may, at its option
and at any time, elect to have all of its obligations discharged
with respect to the debt securities outstanding thereunder and
all obligations of any guarantors of such debt securities
discharged with respect to their guarantees (Legal
Defeasance), except for:
(1) the rights of holders of outstanding debt securities to
receive payments in respect of the principal of, or interest or
premium, if any, on such debt securities when such payments are
due from the trust referred to below;
(2) Allis-Chalmers obligations with respect to the
debt securities concerning issuing temporary debt securities,
registration of debt securities, mutilated, destroyed, lost or
stolen debt securities 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 each guarantors
obligations in connection therewith; and
(4) the Legal Defeasance and Covenant Defeasance provisions
of the applicable indenture.
In addition, Allis-Chalmers may, at its option and at any time,
elect to have the obligations of Allis-Chalmers released with
respect to certain provisions of each indenture, including
certain provisions set forth in any supplemental indenture
thereto (such release and termination being referred to as
Covenant
22
Defeasance), and thereafter any omission to comply
with such obligations or provisions will not constitute a
default or event of default. In the event Covenant Defeasance
occurs in accordance with the applicable indenture, the events
of default described under clauses (3) and (4) under
the caption Events of Default, in each
case, will no longer constitute an event of default thereunder.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(1) Allis-Chalmers must irrevocably deposit with the
trustee, in trust, for the benefit of the holders of the debt
securities, cash in U.S. dollars, non-callable government
securities, or a combination of cash in U.S. dollars and
non-callable U.S. government securities, in 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, if
any, on the outstanding debt securities on the stated date for
payment thereof or on the applicable redemption date, as the
case may be, and Allis-Chalmers must specify whether the debt
securities are being defeased to such stated date for payment or
to a particular redemption date;
(2) in the case of Legal Defeasance, Allis-Chalmers has
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 of the debt securities, 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
debt securities 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 time as would have been the
case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Allis-Chalmers has
delivered to the trustee an opinion of counsel reasonably
acceptable to the trustee confirming that the holders of the
outstanding debt securities 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 has occurred and is
continuing on the date of such deposit (other than a default or
event of default resulting from the borrowing of funds to be
applied to such deposit);
(5) the deposit will not result in a breach or violation
of, or constitute a default under, any other instrument to which
Allis-Chalmers or any guarantor is a party or by which
Allis-Chalmers or any guarantor is bound;
(6) 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
applicable 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;
(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 of
debt securities 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), (3) and
(5) of this paragraph have been complied with; provided
that the opinion of counsel with respect to clause (5)
of this paragraph may be to the knowledge of such counsel.
23
Satisfaction
and Discharge
Each of the indentures will be discharged and will cease to be
of further effect (except as to surviving rights of registration
of transfer or exchange of debt securities, as expressly
provided for in such indenture) as to all outstanding debt
securities issued thereunder and the guarantees issued
thereunder when:
(1) either (a) all of the debt securities theretofore
authenticated and delivered under such indenture (except lost,
stolen or destroyed debt securities that have been replaced or
paid and debt securities for whose payment money or certain
United States governmental obligations have theretofore been
deposited in trust or segregated and held in trust by
Allis-Chalmers and thereafter repaid to Allis-Chalmers or
discharged from such trust) have been delivered to the trustee
for cancellation or (b) all debt securities not theretofore
delivered to the trustee for cancellation have become due and
payable or will become due and payable at their stated maturity
within one year, or are to be called for redemption within one
year under arrangements satisfactory to the trustee for the
giving of notice of redemption by the trustee in the name, and
at the expense, of Allis-Chalmers, and Allis-Chalmers or the
guarantors have irrevocably deposited or caused to be deposited
with the trustee funds or U.S. government obligations, or a
combination thereof, in an amount sufficient to pay and
discharge the entire indebtedness on the debt securities not
theretofore delivered to the trustee for cancellation, for
principal of and premium, if any, on and interest on the debt
securities to the date of deposit (in the case of debt
securities that have become due and payable) or to the stated
maturity or redemption date, as the case may be, together with
instructions from Allis-Chalmers irrevocably directing the
trustee to apply such funds to the payment thereof at maturity
or redemption, as the case may be;
(2) Allis-Chalmers or the guarantors have paid all other
sums then due and payable under such indenture by
Allis-Chalmers; and
(3) Allis-Chalmers has delivered to the trustee an
officers certificate and an opinion of counsel, which,
taken together, state that all conditions precedent under such
indenture relating to the satisfaction and discharge of such
indenture have been complied with.
No
Personal Liability of Directors, Officers, Employees, Partners
and Stockholders
No director, officer, employee, incorporator, partner or
stockholder of Allis-Chalmers or any guarantor, as such, shall
have any liability for any obligations of Allis-Chalmers or the
guarantors under the debt securities, the indentures, the
guarantees or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder, upon
Allis-Chalmers issuance of the debt securities and
execution of the indentures, waives and releases all such
liability. The waiver and release are part of the consideration
for issuance of the debt securities. Such waiver may not be
effective to waive liabilities under the federal securities laws
and it is the view of the SEC that such a waiver is against
public policy.
Denominations
Unless stated otherwise in the prospectus supplement for each
issuance of debt securities, the debt securities will be issued
in denominations of $1,000 each or integral multiples of $1,000.
Paying
Agent and Registrar
The trustee will initially act as paying agent and registrar for
the debt securities. Allis-Chalmers may change the paying agent
or registrar without prior notice to the holders of the debt
securities, and Allis-Chalmers may act as paying agent or
registrar.
Transfer
and Exchange
A holder may transfer or exchange debt securities in accordance
with the applicable indenture. The registrar and the trustee may
require a holder, among other things, to furnish appropriate
endorsements and transfer documents, and Allis-Chalmers may
require a holder to pay any taxes and fees required by law or
permitted by the applicable indenture. Allis-Chalmers is not
required to transfer or exchange any debt security
24
selected for redemption. In addition, Allis-Chalmers is not
required to transfer or exchange any debt security for a period
of 15 days before a selection of debt securities to be
redeemed.
Subordination
The payment of principal of, premium, if any, and interest on,
subordinated debt securities and any other payment obligations
of Allis-Chalmers in respect of subordinated debt securities
(including any obligation to repurchase subordinated debt
securities) is subordinated in certain circumstances in right of
payment, as set forth in the subordinated indenture, to the
prior payment in full in cash of all senior debt.
Allis-Chalmers also may not make any payment, whether by
redemption, purchase, retirement, defeasance or otherwise, upon
or in respect of subordinated debt securities, except from the
trust described under Legal Defeasance and
Covenant Defeasance, if
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a default in the payment of all or any portion of the
obligations on any senior debt (payment
default) occurs, or
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any other default occurs and is continuing with respect to
designated senior debt pursuant to which the maturity thereof
may be accelerated (non-payment default) and,
solely with respect to this clause, the trustee for the
subordinated debt securities receives a notice of the default (a
Payment Blockage Notice) from the trustee or
other representative for the holders of such designated senior
debt.
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Cash payments on subordinated debt securities will be resumed
(a) in the case of a payment default, upon the date on
which such default is cured or waived and (b) in case of a
nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is
received, unless the maturity of any designated senior debt has
been accelerated or a bankruptcy event of default has occurred
and is continuing. No new period of payment blockage may be
commenced unless and until 360 days have elapsed since the
date of commencement of the payment blockage period resulting
from the immediately prior Payment Blockage Notice. No
nonpayment default in respect of designated senior debt that
existed or was continuing on the date of delivery of any Payment
Blockage Notice to the trustee for the subordinated debt
securities will be, or be made, the basis for a subsequent
Payment Blockage Notice unless such default shall have been
cured or waived for a period of no less than 90 consecutive
days.
The subordinated indenture also requires that we promptly notify
holders of senior debt if payment of subordinated debt
securities is accelerated because of an event of default.
Upon any payment or distribution of assets or securities of
Allis-Chalmers, in connection with any dissolution or winding up
or total or partial liquidation or reorganization of
Allis-Chalmers, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings or
other marshalling of assets for the benefit of creditors, all
amounts due or to become due upon all senior debt shall first be
paid in full, in cash or cash equivalents, before the holders of
the subordinated debt securities or the trustee on their behalf
shall be entitled to receive any payment by Allis-Chalmers on
account of the subordinated debt securities, or any payment to
acquire any of the subordinated debt securities for cash,
property or securities, or any distribution with respect to the
subordinated debt securities of any cash, property or
securities. Before any payment may be made by, or on behalf of,
Allis-Chalmers on any subordinated debt security (other than
with the money, securities or proceeds held under any defeasance
trust established in accordance with the subordinated
indenture), in connection with any such dissolution, winding up,
liquidation or reorganization, any payment or distribution of
assets or securities for Allis-Chalmers, to which the holders of
subordinated debt securities or the trustee on their behalf
would be entitled shall be made by Allis-Chalmers or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or
other similar person or entity making such payment or
distribution or by the holders or the trustee if received by
them or it, directly to the holders of senior debt or their
representatives or to any trustee or trustees under any
indenture pursuant to which any such senior debt may have been
issued, as their respective interests appear, to the extent
necessary to pay all such senior debt in full, in cash or cash
equivalents, after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such
senior debt.
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As a result of these subordination provisions, in the event of
the liquidation, bankruptcy, reorganization, insolvency,
receivership or similar proceeding or an assignment for the
benefit of the creditors of Allis-Chalmers or a marshalling of
assets or liabilities of Allis-Chalmers, holders of subordinated
debt securities may receive ratably less than other creditors.
Payment
and Transfer
Principal, interest and any premium on fully registered debt
securities will be paid at designated places. Payment will be
made by check mailed to the persons in whose names the debt
securities are registered on days specified in the indentures or
any prospectus supplement. Debt securities payments in other
forms will be paid at a place designated by us and specified in
a prospectus supplement.
Fully registered debt securities may be transferred or exchanged
at the corporation trust office of the trustee or at any other
office or agency maintained by us for such purposes, without the
payment of any service charge except for any tax or governmental
charge.
Global
Securities
The debt securities of a series may be issued in whole or in
part in the form of one or more global certificates that we will
deposit with a depositary identified in the applicable
prospectus supplement. Unless and until it is exchanged in whole
or in part for the individual debt securities that it
represents, a global security may not be transferred except as a
whole:
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by the applicable depositary to a nominee of the depositary;
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by any nominee to the depositary itself or another
nominee; or
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by the depositary or any nominee to a successor depositary or
any nominee of the successor.
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We will describe the specific terms of the depositary
arrangement with respect to a series of debt securities in the
applicable prospectus supplement. We anticipate that the
following provisions will generally apply to depositary
arrangements.
When we issue a global security in registered form, the
depositary for the global security or its nominee will credit,
on its book-entry registration and transfer system, the
respective principal amounts of the individual debt securities
represented by that global security to the accounts of persons
that have accounts with the depositary
(participants). Those accounts will be
designated by the dealers, underwriters or agents with respect
to the underlying debt securities or by us if those debt
securities are offered and sold directly by us. Ownership of
beneficial interests in a global security will be limited to
participants or persons that may hold interests through
participants. For interests of participants, ownership of
beneficial interests in the global security will be shown on
records maintained by the applicable depositary or its nominee.
For interests of persons other than participants, that ownership
information will be shown on the records of participants.
Transfer of that ownership will be effected only through those
records. The laws of some states require that certain purchasers
of securities take physical delivery of securities in definitive
form. These limits and laws may impair our ability to transfer
beneficial interests in a global security.
As long as the depositary for a global security, or its nominee,
is the registered owner of that global security, the depositary
or nominee will be considered the sole owner or holder of the
debt securities represented by the global security for all
purposes under the applicable indenture. Except as provided
below, owners of beneficial interests in a global security:
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will not be entitled to have any of the underlying debt
securities registered in their names;
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will not receive or be entitled to receive physical delivery of
any of the underlying debt securities in definitive
form; and
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will not be considered the owners or holders under the indenture
relating to those debt securities.
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26
Payments of principal of, any premium on and any interest on
individual debt securities represented by a global security
registered in the name of a depositary or its nominee will be
made to the depositary or its nominee as the registered owner of
the global security representing such debt securities. Neither
we, the trustee for the debt securities, any paying agent nor
the registrar for the debt securities will be responsible for
any aspect of the records relating to or payments made by the
depositary or any participants on account of beneficial
interests in the global security.
We expect that the depositary or its nominee, upon receipt of
any payment of principal, any premium or interest relating to a
global security representing any series of debt securities,
immediately will credit participants accounts with the
payments. Those payments will be credited in amounts
proportional to the respective beneficial interests of the
participants in the principal amount of the global security as
shown on the records of the depositary or its nominee. We also
expect that payments by participants to owners of beneficial
interests in the global security held through those participants
will be governed by standing instructions and customary
practices. This is now the case with securities held for the
accounts of customers registered in street name.
Those payments will be the sole responsibility of those
participants.
If the depositary for a series of debt securities is at any time
unwilling, unable or ineligible to continue as depositary and we
do not appoint a successor depositary within 90 days, we
will issue individual debt securities of that series in exchange
for the global security or securities representing that series.
In addition, we may at any time in our sole discretion determine
not to have any debt securities of a series represented by one
or more global securities. In that event, we will issue
individual debt securities of that series in exchange for the
global security or securities. Furthermore, if we specify, an
owner of a beneficial interest in a global security may, on
terms acceptable to us, the trustee and the applicable
depositary, receive individual debt securities of that series in
exchange for those beneficial interests. The foregoing is
subject to any limitations described in the applicable
prospectus supplement. In any such instance, the owner of the
beneficial interest will be entitled to physical delivery of
individual debt securities equal in principal amount to the
beneficial interest and to have the debt securities registered
in its name. Those individual debt securities will be issued in
any authorized denominations.
Governing
Law
Each indenture and the debt securities will be governed by and
construed in accordance with the laws of the State of New York.
Notices
Notices to holders of debt securities will be given by mail to
the addresses of such holders as they appear in the security
register for such debt securities.
No
Personal Liability of Officers, Directors, Employees or
Stockholders
No officer, director, employee or stockholder, as such, of ours
or any of our affiliates shall have any personal liability in
respect of our obligations under any indenture or the debt
securities by reason of his, her or its status as such.
Information
Concerning the Trustee
A banking or financial institution will be the trustee under the
indentures. A successor trustee may be appointed in accordance
with the terms of the indentures.
27
The indentures and the provisions of the Trust Indenture Act
incorporated by reference therein, will contain certain
limitations on the rights of the trustee, should it become a
creditor of us, to obtain payment of claims in certain cases, or
to realize on certain property received in respect of any such
claim as security or otherwise. The trustee will be permitted to
engage in other transactions; however, if it acquires any
conflicting interest (within the meaning of the Trust Indenture
Act), it must eliminate such conflicting interest or resign.
A single banking or financial institution may act as trustee
with respect to both the subordinated indenture and the senior
indenture. If this occurs, and should a default occur with
respect to either the subordinated debt securities or the senior
debt securities, such banking or financial institution would be
required to resign as trustee under one of the indentures within
90 days of such default, pursuant to the Trust Indenture
Act, unless such default were cured, duly waived or otherwise
eliminated.
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DESCRIPTION
OF WARRANTS
We may issue warrants to purchase common stock, preferred stock,
debt securities (which may or may not be guaranteed pursuant to
guarantees) or units. Warrants may be issued independently or
together with any other securities and may be attached to, or
separate from, such securities. Each series of warrants will be
issued under a separate warrant agreement to be entered into
between us and a warrant agent. The terms of any warrants to be
issued and a description of the material provisions of the
applicable warrant agreement will be set forth in the applicable
prospectus supplement.
The applicable prospectus supplement will specify the following
terms of any warrants in respect of which this prospectus is
being delivered:
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the title of such warrants;
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the aggregate number of such warrants;
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the price or prices at which such warrants will be issued;
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the securities purchasable upon exercise of such warrants;
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the price at which, and the currency or currencies in which the
securities purchasable upon exercise of, such warrants may be
purchased;
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the date on which the right to exercise such warrants shall
commence and the date on which such right shall expire;
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if applicable, the minimum or maximum amount of such warrants
which may be exercised at any one time;
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if applicable, the designation and terms of the securities with
which such warrants are issued and the number of such warrants
issued with each such security;
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if applicable, the date on and after which such warrants and the
related securities will be separately transferable;
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information with respect to book-entry procedures, if any;
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if applicable, a discussion of any material U.S. federal
income tax considerations; and
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any other terms of such warrants, including terms, procedures
and limitations relating to the exchange and exercise of such
warrants.
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As of November 30, 2006, we have issued and outstanding
warrants to purchase 4,000 shares of common stock. The
warrants do not confer upon holders thereof any voting or other
rights of stockholders.
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DESCRIPTION
OF UNITS
As specified in the applicable prospectus supplement, we may
issue units consisting of one or more debt securities (which may
or may not be guaranteed pursuant to guarantees), shares of
common stock, shares of preferred stock or warrants or any
combination of such securities.
The applicable prospectus supplement will specify the following
terms of any units in respect of which this prospectus is being
delivered:
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the terms of the units and of any of the debt securities (which
may or may not be guaranteed pursuant to guarantees), common
stock, preferred stock and warrants comprising the units,
including whether and under what circumstances the securities
comprising the units may be traded separately;
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a description of the terms of any unit agreement governing the
units; and
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a description of the provisions for the payment, settlement,
transfer or exchange of the units.
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30
PLAN OF
DISTRIBUTION
We may sell the securities through agents, underwriters or
dealers, or directly to one or more purchasers without using
underwriters or agents.
We may designate agents to solicit offers to purchase our
securities. We will name any agent involved in offering or
selling our securities, and any commissions that we will pay to
the agent, in the applicable prospectus supplement. Unless we
indicate otherwise in our prospectus supplement, our agents will
act on a best efforts basis for the period of their appointment.
If underwriters are used in the sale, the securities will be
acquired by the underwriters for their own account. The
underwriters may resell the securities in one or more
transactions (including block transactions), at negotiated
prices, at a fixed public offering price or at varying prices
determined at the time of sale. We will include the names of the
managing underwriter(s), as well as any other underwriters, and
the terms of the transaction, including the compensation the
underwriters and dealers will receive, in our prospectus
supplement. If we use an underwriter, we will execute an
underwriting agreement with the underwriter(s) at the time that
we reach an agreement for the sale of our securities. The
obligations of the underwriters to purchase the securities will
be subject to certain conditions contained in the underwriting
agreement. The underwriters will be obligated to purchase all
the securities of the series offered if any of the securities
are purchased. Any public offering price and any discounts or
concessions allowed or re-allowed or paid to dealers may be
changed from time to time. The underwriters will use a
prospectus supplement to sell our securities.
If we use a dealer, we, as principal, will sell our securities
to the dealer. The dealer will then sell our securities to the
public at varying prices that the dealer will determine at the
time it sells our securities. We will include the name of the
dealer and the terms of our transactions with the dealer in the
applicable prospectus supplement.
We may directly solicit offers to purchase our securities, and
we may directly sell our securities to institutional or other
investors. In this case, no underwriters or agents would be
involved. We will describe the terms of our direct sales in the
applicable prospectus supplement.
Underwriters, dealers and agents that participate in the
distribution of the securities may be underwriters as defined in
the Securities Act and any discounts or commissions received by
them from us and any profit on their resale of the securities
may be treated as underwriting discounts and commissions under
the Securities Act. In connection with the sale of the
securities offered by this prospectus, underwriters may receive
compensation from us or from the purchasers of the securities,
for whom they may act as agents, in the form of discounts,
concessions or commissions, which will not exceed 7% of the
proceeds from the sale of the securities. Any underwriters,
dealers or agents will be identified and their compensation
described in the applicable prospectus supplement. We may have
agreements with the underwriters, dealers and agents to
indemnify them against certain civil liabilities, including
liabilities under the Securities Act, or to contribute with
respect to payments which the underwriters, dealers or agents
may be required to make. Underwriters, dealers and agents may
engage in transactions with, or perform services for, us or our
subsidiaries in the ordinary course of their business.
Unless otherwise specified in the applicable prospectus
supplement, all securities offered under this prospectus will be
a new issue of securities with no established trading market,
other than the common stock, which is currently listed and
traded on the American Stock Exchange. We may elect to list any
other class or series of securities on a national securities
exchange or a foreign securities exchange but are not obligated
to do so. Any common stock sold by this prospectus will be
listed for trading on the American Stock Exchange subject to
official notice of issuance. We cannot give you any assurance as
to the liquidity of the trading markets for any of the
securities.
Any underwriter to whom securities are sold by us for public
offering and sale may engage in over-allotment transactions,
stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the
Exchange Act. Over-allotment transactions involve sales by the
underwriters of the securities in excess of the offering size,
which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified
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maximum. Syndicate covering transactions involve purchases of
the securities in the open market after the distribution has
been completed in order to cover syndicate short positions.
Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the securities
originally sold by the syndicate member are purchased in a
stabilizing or syndicate covering transaction to cover syndicate
short positions. These activities may cause the price of the
securities to be higher than it would otherwise be. The
underwriters will not be obligated to engage in any of the
aforementioned transactions and may discontinue such
transactions at any time without notice.
LEGAL
MATTERS
The validity of the securities will be passed upon for us by
Andrews Kurth LLP, Houston, Texas. Any underwriter will be
advised about other issues relating to any offering by its own
legal counsel.
EXPERTS
The consolidated financial statements of Allis-Chalmers Energy
Inc. as of and for the years ended December 31, 2005 and
2004 incorporated by reference in this prospectus have been
audited by UHY Mann Frankfort Stein & Lipp CPAs, LLP,
independent registered public accounting firm, as set forth in
their report thereon, and are incorporated by reference herein
in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
The consolidated financial statements of Allis-Chalmers Energy
Inc. as of and for the year ended December 31, 2003
incorporated by reference in this prospectus have been audited
by Gordon, Hughes and Banks, LLP, independent registered public
accounting firm, as set forth in their report thereon, and are
incorporated by reference in reliance upon such report given
upon the authority of said firm as experts in auditing and
accounting.
The financial statements of Delta Rental Service, Inc. and
schedules and notes thereto incorporated by reference in this
prospectus have been audited by Wright, Moore, Dehart,
Dupuis & Hutchinson, LLC, independent certified public
accountants, to the extent and for the periods set forth in
their report thereon, and are incorporated by reference herein
in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
The financial statements of Capcoil Tubing Services, Inc. and
schedules and notes thereto incorporated by reference in this
prospectus have been audited by Curtis Blakely & Co.,
PC, independent certified public accountants, to the extent and
for the periods set forth in their report thereon, and are
incorporated by reference herein in reliance upon such report
given upon the authority of said firm as experts in auditing and
accounting.
The financial statements of W.T. Enterprises, Inc. and schedules
and notes thereto incorporated by reference in this prospectus
have been audited by Accounting & Consulting Group,
LLP, independent certified public accountants, to the extent and
for the periods set forth in their report thereon, and are
incorporated by reference herein in reliance upon such report
given upon the authority of said firm as experts in auditing and
accounting.
The financial statements of Specialty Rental Tools Inc.
incorporated by reference in this prospectus have been audited
by UHY Mann Frankfort Stein & Lipp CPAs, LLP,
independent auditors, to the extent and for the periods set
forth in their report thereon, and are incorporated by reference
herein in reliance upon such report given upon the authority of
said firm as experts in auditing and accounting.
The consolidated financial statements of DLS Drilling, Logistics
and Services Corporation as of December 31, 2005 and 2004
and for each of the years in the three-year period ended
December 31, 2005, have been incorporated by reference
herein in reliance upon the report of Sibille (formerly
Finsterbusch Pickenhayn Sibille), independent public accounting
firm, and upon the authority of said firm as experts in
accounting and auditing.
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