e424b3
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-140302
PROSPECTUS
$250,000,000
Allis-Chalmers Energy Inc.
Offer to Exchange
All Outstanding 8.5% Senior Notes due 2017
for
8.5% Senior Notes due 2017
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON MARCH 19, 2007, UNLESS
EXTENDED
The Notes
We are offering to exchange all of our outstanding
8.5% Senior Notes due 2017, which we refer to as the old
notes, for our new 8.5% Senior Notes due 2017, which we
refer to as the new notes. We refer to the old notes and new
notes collectively as the notes.
Terms of The Exchange Offer:
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The terms of the new notes will be substantially identical to
the old notes, except that the new notes will not be subject to
transfer restrictions or registration rights relating to the old
notes. The new notes will represent the same debt as the old
notes, and will be issued under the same indenture. |
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The old notes are, and the new notes will be, guaranteed on a
senior unsecured basis by all of our current and future domestic
restricted subsidiaries, other than certain immaterial
subsidiaries. The old notes are not, and the new notes will not
be, guaranteed by our current or future foreign subsidiaries. |
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Interest on the new notes will accrue from January 29, 2007
at the rate of 8.5% per annum, payable on March 1 and
September 1 of each year, beginning on September 1,
2007. |
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We will exchange an equal principal amount of all old notes for
new notes that you validly tender and do not validly withdraw
before the exchange offer expires. We do not currently intend to
extend the exchange offer. |
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You may withdraw tenders of the old notes at any time prior to
the expiration of the exchange offer. |
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The exchange of old notes for new notes will not be a taxable
event for United States federal income tax purposes. |
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We will not receive any proceeds from this exchange offer. |
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There is no existing market for the new notes to be issued, and
we do not intend to apply for their listing on any securities
exchange or arrange for them to be quoted on any quotation
system. |
See the section entitled Description of Notes that
begins on page 42 for more information about the notes.
This investment involves risks. See the section entitled
Risk Factors that begins on page 13 for a
discussion of the risks that you should consider in connection
with your investment in the notes.
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.
Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of such new
notes. The letter of transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an underwriter within the
meaning of the Securities Act. This prospectus, as it may be
amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of new notes received
in exchange for old notes where such old notes were acquired by
such broker-dealer as a result of market-making activities or
other trading activities. See Plan of Distribution.
The date of this prospectus is February 12, 2007.
TABLE OF CONTENTS
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13 |
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30 |
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33 |
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42 |
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95 |
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ABOUT THIS PROSPECTUS
The information in this prospectus is not complete and may be
changed. You should rely only on the information contained or
incorporated by reference in this prospectus or any other
documents to which we have referred you. We have not authorized
anyone to provide you with information that is different. If
anyone provides you with different or inconsistent information,
you should not rely on it. We are not making an offer to sell
these securities in any jurisdiction where the offer or sale is
not permitted. You should not assume that the information in
this prospectus or any document incorporated by reference is
accurate as of any date other than the date of the document in
which such information is contained or such other date referred
to in such document, regardless of the time of any sale or
issuance of a security.
This prospectus is part of a registration statement that we have
filed with the Securities and Exchange Commission, or SEC. You
should read this prospectus together with the registration
statement, the exhibits thereto and the additional information
described under the headings Where You Can Find More
Information.
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in
this prospectus contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, or 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 or
incorporated by reference 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 13. 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 or in the case of a
document incorporated by reference, the date of such document.
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.
NON-GAAP FINANCIAL MEASURES
The SEC has adopted rules to regulate the use of non-GAAP
financial measures such as EBITDA, that are derived on the
basis of methodologies other than in accordance with generally
accepted accounting principles, or GAAP. EBITDA is a non-GAAP
financial measure that complies with Securities Act regulations
when it is defined as net income (the most directly comparable
GAAP financial measure) before interest, taxes, depreciation and
amortization. We define EBITDA in this prospectus accordingly.
EBITDA has limitations as an analytical tool, and you should not
consider it in isolation, or as a substitute for analysis of our
results as reported under GAAP. For example, EBITDA:
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does not reflect our cash expenditures, or future requirements
for capital expenditures or contractual commitments; |
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does not reflect changes in, or cash requirements for, our
working capital needs; |
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does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal
payments, on our debts; and |
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does not reflect the effect of earnings or charges resulting
from matters we consider not to be indicative of our ongoing
operations. |
In addition, although depreciation and amortization are non-cash
charges, the assets being depreciated and amortized will often
have to be replaced in the future, and EBITDA does not reflect
any cash requirements for such replacements. Other companies in
our industry and in other industries may calculate EBITDA
differently from the way that we do, limiting its usefulness as
a comparative measure. Because of these limitations, EBITDA
should not be considered as a measure of discretionary cash
available to us to invest in the growth of our business. We
compensate for these limitations by relying primarily on our
GAAP results and using EBITDA only supplementally.
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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 prospects 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 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
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. |
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under 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. 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. However, information on our website
and our other SEC filings mentioned above are not incorporated
into this prospectus and are not a part of this prospectus.
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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, as amended by Amendment No. 1 to such
report, as filed with the SEC on December 29, 2006, which
we refer to collectively 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, December 1,
2006, December 14, 2006, December 19, 2006,
December 26, 2006, December 29, 2006, January 4,
2007, January 24, 2007, January 25, 2007 and
January 29, 2007 (two reports); and |
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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. |
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 offering is 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.
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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
To obtain timely delivery of documents incorporated by
reference in this prospectus, you must request such documents no
later than five business days prior to the expiration date of
the exchange offer.
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PROSPECTUS SUMMARY
This summary is not complete. It highlights selected
information contained elsewhere or incorporated by reference in
this prospectus. You should read this entire prospectus
(including the information incorporated by reference) carefully,
including the information under the heading Risk
Factors, our financial statements and the notes to those
financial statements. Unless the context requires otherwise,
references in this prospectus to Allis-Chalmers,
we, us, our or
ours refer to Allis-Chalmers Energy Inc., together
with its subsidiaries. In this prospectus, when we refer to
Oil & Gas Rental, we mean Oil & Gas Rental
Services, Inc., when we refer to Petro Rentals, we mean
Petro-Rentals, Incorporated, when we refer to DLS, we mean DLS
Drilling, Logistics & Services Corporation, and when we
refer to Specialty, we mean Specialty Rental Tools, Inc.
Our Company
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,
Arkansas, offshore in the Gulf of Mexico, and internationally in
Argentina and Mexico.
Business Segments
Our six business segments are:
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 in August 2006, we entered into the contract drilling and
workover services business. DLS provides drilling, completion,
workover and related services for oil and natural gas wells in
Argentina. DLS also offers a wide variety of other oilfield
services such as drilling fluids and completion fluids and
engineering and logistics to complement its customers
field organization.
Directional Drilling Services. We employ approximately 79
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.
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 a variety of quality
production-related rental tools and equipment and services,
including wire line services, land and offshore pumping services
and coil tubing. We also provide specialized equipment and
trained operators to install and retrieve capillary tubing,
through
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which chemicals are injected into producing wells to increase
production and reduce corrosion, and workover services with
coiled tubing units.
Competitive Strengths
Our competitive strengths are:
Strategic position in high growth markets. We focus on
markets we believe are growing faster than the overall oilfield
services industry. We are a significant provider of products and
services in directional drilling, air drilling and in
production-related services employing coiled tubing and
capillary tubing.
Strong relationships with diversified customer base. We
have strong relationships with many of the major and independent
oil and natural gas producers and service companies in Texas,
Louisiana, New Mexico, Colorado, Oklahoma, Mississippi,
Utah, Wyoming, Arkansas, offshore in the Gulf of Mexico,
Argentina and Mexico. Our largest customers include Anadarko
Petroleum, Apache Corporation, BHP-Billiton, BP, Chevron,
ConocoPhilips, Dominion Resources, El Paso Corporation,
Materiales y Equipo Petroleo S.A. de C.V., or Matyep, McMoran
Oil & Gas, Murphy Oil, Newfield Exploration, Occidental
Petroleum Corporation, Pan American Energy, Petrohawk Energy,
Remington Oil and Gas, Repsol-YPF and Total Austral.
Successful execution of growth strategy. Over the past
five years, we have grown both organically and through
successful acquisitions of competing businesses. Since 2001, we
have completed 19 acquisitions. We strive to improve the
operating performance of our acquired businesses by increasing
their asset utilization and operating efficiency.
Diversified and increased cash flow sources. We operate
as a diversified oilfield service company through our six
business segments. We believe that our product and service
offerings and geographical presence through our six business
segments provide us with diverse sources of cash flow. Our
acquisition of DLS provides greater international presence
coupled with relatively stable long-term drilling contracts. Our
acquisition of Petro Rentals significantly enhances our
production-related services and equipment, and our recent
acquisition of substantially all the assets of Oil & Gas
Rental further expands our rental tools segment significantly
and increases our offshore and international operations.
Experienced management team. Our executive management
team has extensive experience in the energy sector, and
consequently has developed strong and longstanding relationships
with many of the major and independent exploration and
production companies.
Business Strategy
Mitigate cyclical risk through balanced operations. We
strive to mitigate cyclical risk in the oilfield service sector
by balancing our operations between onshore versus offshore;
drilling versus production; rental tools versus service;
domestic versus international; and natural gas versus crude oil.
We will continue to shape our organic and acquisition growth
efforts to provide further balance across these five categories.
Expand geographically to provide greater access and service
to key customer segments. We have locations in Texas, New
Mexico, Colorado, Oklahoma and Louisiana in order to enhance our
proximity to customers and more efficiently serve their needs.
Our recent acquisition of DLS expanded our geographic footprint
into Argentina. We plan to continue to establish new locations
in the United States and internationally.
Prudently pursue strategic acquisitions. To complement
our organic growth, we seek to opportunistically complete, at
attractive valuations, strategic acquisitions that will be
accretive to
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earnings, complement our products and services, expand our
geographic footprint and market presence, and further diversify
our customer base.
Expand products and services provided in existing operating
locations. Since the beginning of 2003, we have made
approximately $53.5 million in capital expenditures to grow our
business organically by expanding our product and service
offerings.
Increase utilization of assets. We seek to grow revenues
and enhance margins by continuing to increase the utilization of
our rental assets with new and existing customers.
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 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.
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Summary of the Terms of the Exchange Offer
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Initial Offering of Notes |
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On January 29, 2007, we completed a private offering of
$250,000,000 principal amount of our 8.5% senior
notes 2017. In this prospectus, we refer to the notes that
we issued in the January 2007 offering as our old notes. We
entered into a registration rights agreement with the initial
purchasers in the private offering in which we agreed, among
other things, to use our commercially reasonable efforts to
complete this exchange offer. The following summary highlights
selected information from this prospectus concerning the
exchange offer and may not contain all of the information that
is important to you. We encourage you to read the entire
prospectus carefully. |
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Registration Rights Agreement |
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Pursuant to the registration rights agreement among us, the
Guarantor parties thereto and the initial purchasers entered
into in connection with the private placement of the old notes,
we have agreed to exchange the old notes for up to $250,000,000
principal amount of 8.5% Senior Notes due 2017 that are
being offered hereby. We refer to the notes issued for the old
notes in this exchange offer as the new notes. We have filed the
registration statement of which this prospectus forms a part to
meet our obligations under the registration rights agreement. If
we fail to satisfy these obligations, we will be required to pay
liquidated damages to holders of the old notes under specified
circumstances. |
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The Exchange Offer |
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We are offering to exchange all old notes for the same aggregate
principal amount of new notes, the offers and sales of which
have been registered under the Securities Act. The old notes may
be tendered only in minimum denominations of $2,000 and integral
multiples of $1,000 in excess thereof. We will exchange all old
notes for new notes that are validly tendered and not withdrawn
prior to the expiration of the exchange offer. We will cause the
exchange to be effected promptly after the expiration date of
the exchange offer. |
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The new notes will evidence the same debt as the old notes and
will be issued under and entitled to the benefits of the same
indenture that governs the old notes. Because we have registered
the offers and sales of the new notes, the new notes will not be
subject to transfer restrictions, and holders of old notes that
have tendered and had their outstanding notes accepted in the
exchange offer will have no registration rights. |
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If You Fail to Exchange Your Old Notes |
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If you do not exchange your old notes for new notes in the
exchange offer, you will continue to be subject to the
restrictions on transfer provided in the old notes and the
indenture governing those notes. In general, you may not offer
or sell your old notes without registration under the federal
securities laws or an exemption from the registration
requirements of the federal securities laws and applicable state
securities laws. |
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Procedures for Tendering Your Old Notes |
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If you wish to tender your old notes for new notes, you must: |
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complete and sign the enclosed letter of transmittal
by following the related instructions, and |
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send the letter of transmittal, as directed in the
instructions, together with any other required documents, to the
exchange agent either (1) with the old notes to be
tendered, or (2) in compliance with the specified
procedures for guaranteed delivery of the old notes. |
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Brokers, dealers, commercial banks, trust companies and other
nominees may also effect tenders by book-entry transfer. |
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By executing the letter of transmittal or by transmitting an
agents message in lieu thereof, you will represent to us
that, among other things: |
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the new notes you receive will be acquired in the
ordinary course of your business; |
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you are not participating, and you have no
arrangement with any person or entity to participate, in the
distribution of the new notes; |
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you are not our affiliate, as defined in
Rule 405 under the Securities Act, or a broker-dealer
tendering old notes acquired directly from us for resale
pursuant to Rule 144A or any other available exemption
under the Securities Act; and |
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if you are not a broker-dealer, that you are not
engaged in and do not intend to engage in the distribution of
the new notes. |
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If your old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee, we urge
you to contact that person promptly if you wish to tender your
old notes pursuant to this exchange offer. See The
Exchange Offer Procedures for Tendering Old
Notes. Please do not send your letter of transmittal or
certificates representing your old notes to us. Those documents
should be sent only to the exchange agent. Questions regarding
how to tender and requests for information should be directed to
the exchange agent. See The Exchange Offer
Exchange Agent. |
|
Resale of the New Notes |
|
Except as provided below, we believe that the new notes may be
offered for resale, resold and otherwise transferred by you
without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that: |
|
|
|
the new notes are being acquired in the ordinary
course of business, |
|
|
|
you are not participating, do not intend to
participate, and have no arrangement or understanding with any
person to participate in the distribution of the new notes
issued to you in the exchange offer, |
|
|
|
you are not our affiliate, and |
5
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|
you are not a broker-dealer tendering old notes
acquired directly from us for your account. |
|
|
|
Our belief is based on interpretations by the staff of the SEC,
as set forth in no-action letters issued to third parties that
are not related to us. The SEC has not considered this exchange
offer in the context of a no-action letter, and we cannot assure
you that the SEC would make similar determinations with respect
to this exchange offer. If any of these conditions are not
satisfied, or if our belief is not accurate, and you transfer
any new notes issued to you in the exchange offer without
delivering a resale prospectus meeting the requirements of the
Securities Act or without an exemption from registration of your
new notes from those requirements, you may incur liability under
the Securities Act. We will not assume, nor will we indemnify
you against, any such liability. Each broker-dealer that
receives new notes for its own account in exchange for old
notes, where the old notes were acquired by such broker-dealer
as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with
any resale of such new notes. See Plan of
Distribution. |
|
Expiration Date |
|
The exchange offer will expire at 5:00 p.m., New York City
time, on March 19, 2007, unless we decide to extend the
expiration date. We do not currently intend to extend the
exchange offer. |
|
Conditions to the Exchange Offer |
|
The exchange offer is not subject to any conditions other than
that it does not violate applicable law or any applicable
interpretation of the staff of the SEC. |
|
Exchange Agent |
|
We have appointed Wells Fargo Bank, N.A. as exchange agent for
the exchange offer. You can reach the exchange agent at the
address set forth on the back cover of this prospectus. For more
information with respect to the exchange offer, you may call the
exchange agent at
800-344-5128; the fax
number for the exchange agent is
612-667-4927. |
|
Withdrawal Rights |
|
You may withdraw the tender of your old notes at any time before
the expiration date of the exchange offer. You must follow the
withdrawal procedures as described under the heading The
Exchange Offer Withdrawal of Tenders. |
|
Federal Income Tax Consequences |
|
The exchange of old notes for new notes in the exchange offer
will not be a taxable transaction for U.S. federal income
tax purposes. See Material U.S. Federal Income Tax
Considerations. |
|
Acceptance of Old Notes and Delivery of New Notes |
|
We will accept for exchange any and all old notes that are
properly tendered in the exchange offer prior to the expiration
date. See The Exchange Offer Procedures for
Tendering Old Notes. The new notes issued pursuant to the
exchange offer will be delivered promptly following the
expiration date. |
6
Summary of the Terms of the New Notes
Set forth below is a brief summary of some of the principal
terms of the new notes. You should also read the information
under the caption Description of Notes later in this
prospectus for a more detailed description and understanding of
the terms of the new notes. In describing the terms of the
notes, references to Allis-Chalmers, we,
us and our mean Allis-Chalmers Energy
Inc., and not any of its subsidiaries.
|
|
|
Issuer |
|
Allis-Chalmers Energy Inc. |
|
New Notes |
|
$250.0 million aggregate principal amount of 8.5% senior
notes due 2017. |
|
Maturity Date |
|
March 1, 2017. |
|
Interest Rate |
|
8.5% per year. |
|
Interest Payment Dates |
|
Each March 1 and September 1, beginning on
September 1, 2007. Interest will accrue from
January 29, 2007. |
|
Guarantees |
|
The new notes will be fully and unconditionally guaranteed,
jointly and severally, by all of our current and future domestic
restricted subsidiaries, subject to certain materiality
exceptions. Our current and future foreign subsidiaries (such as
DLS and its subsidiaries) will not guarantee the new notes. |
|
Ranking |
|
The new notes will be senior unsecured obligations of
Allis-Chalmers, ranking equally with all of our existing and
future senior unsecured indebtedness and senior to any existing
and future subordinated indebtedness. The new notes will be
effectively subordinated to any existing or future secured
indebtedness, including under our credit agreement, to the
extent of the assets securing such indebtedness. |
|
|
|
The guarantees will be senior unsecured obligations of the
subsidiary guarantors. The guarantees will rank equally with all
existing and future senior unsecured indebtedness of the
subsidiary guarantors and senior to any existing and future
subordinated indebtedness of the subsidiary guarantors. The
guarantees will be effectively subordinated to any existing or
future secured indebtedness of the subsidiary guarantors to the
extent of the assets securing such indebtedness. |
|
Optional Redemption |
|
We may, at our option, redeem all or part of the notes, at any
time prior to March 1, 2012 at a make-whole price, and on
or after March 1, 2012 at a fixed redemption price, plus
accrued and unpaid interest, if any, to the date of redemption,
as described under Description of Notes
Optional Redemption. |
|
Optional Redemption After Equity Offerings |
|
At any time, which may be more than once, before March 1,
2010, we may redeem up to 35% of the outstanding notes with
money that we raise in one or more equity offerings at a
redemption price of 108.5% of the par value of the notes
redeemed, plus accrued and unpaid interest, as long as: |
7
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|
|
we redeem the notes within 180 days of
completing the equity offering; and |
|
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|
at least 65% of the aggregate principal amount of
notes issued in the January 2007 notes offering remains
outstanding after the redemption. |
|
Change of Control Offer |
|
If we experience certain kinds of changes of control, we must
give holders of the notes the opportunity to sell us their notes
at 101% of their principal amount, plus accrued and unpaid
interest. |
|
|
|
However, we might not be able to pay you the required price for
the notes you present to us at the time of a change of control,
because: |
|
|
|
we might not have enough funds at that time; or |
|
|
|
the terms of our bank credit agreement may prevent
us from applying funds to repurchase the notes. |
|
Covenants |
|
The old notes were issued under an indenture among
Allis-Chalmers, the subsidiary guarantors and Wells Fargo Bank,
N.A., as trustee. The indenture will also govern the new notes.
The indenture contains covenants that, among other things, limit
our ability and the ability of our restricted subsidiaries to: |
|
|
|
incur additional debt; |
|
|
|
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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|
These covenants are subject to a number of important limitations
and exceptions that are described later in this prospectus under
the caption Description of Notes
Covenants. |
|
Use of Proceeds |
|
We will not receive any proceeds from the exchange of the
outstanding old notes for the new notes. See Use of
Proceeds. |
|
Transfer Restrictions; Absence of a Public Market for the Notes |
|
The new notes generally will be freely transferable, but will
also be new securities for which there is no established public
trading market. We cannot assure you that: |
|
|
|
an active public market for the new notes will
develop; |
8
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|
|
any market that may develop for the new notes will
be liquid; or |
|
|
|
holders will be able to sell the new notes at all or
at favorable prices. |
|
|
|
Future trading prices of the new notes will depend on many
factors, including among other things, prevailing interest
rates, our operating results, our credit rating and the market
for similar securities. We do not intend to apply for a listing
of the old notes or the new notes on any securities exchange or
for inclusion of the old notes or the new notes in any automated
dealer quotation system. |
|
Risk Factors |
|
Investing in the new notes involves risks. See Risk
Factors beginning on page 13 of this prospectus for a
description of risks you should consider before exchanging
outstanding old notes for new notes. |
9
Summary Historical Consolidated Financial Information
The following summary historical consolidated financial
information for each of the years in the three-year period ended
December 31, 2005 has been derived from our audited
consolidated financial statements. The following summary
historical consolidated financial information for the nine
months ended September 30, 2006 and 2005 has been derived
from our unaudited consolidated financial statements and, in the
opinion of our management, includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair
presentation. This information is only a summary and you should
read it in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of
Operations, as set forth in our 2005
Form 10-K and our
Third Quarter 2006
Form 10-Q, which
discuss factors affecting the comparability of the information
presented, and in conjunction with our consolidated financial
statements and related notes incorporated by reference in this
prospectus. Our historical consolidated financial statements
have been restated for the period from July 1, 2003 through
March 31, 2005, as described in the notes to our
consolidated financial statements incorporated by reference
herein. Results for interim periods may not be indicative of
results for full fiscal years.
|
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|
Nine Months | |
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|
Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(Unaudited) | |
|
|
(In thousands, except per share amounts) | |
Statement of Operations Information:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
32,724 |
|
|
$ |
47,726 |
|
|
$ |
105,344 |
|
|
$ |
71,830 |
|
|
$ |
193,236 |
|
Cost of revenues
|
|
|
24,029 |
|
|
|
35,300 |
|
|
|
74,763 |
|
|
|
51,153 |
|
|
|
123,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
8,695 |
|
|
|
12,426 |
|
|
|
30,581 |
|
|
|
20,677 |
|
|
|
70,052 |
|
Income from operations
|
|
|
2,625 |
|
|
|
4,227 |
|
|
|
13,218 |
|
|
|
8,685 |
|
|
|
43,558 |
|
Interest expense, net
|
|
|
(2,464 |
) |
|
|
(2,776 |
) |
|
|
(4,397 |
) |
|
|
(3,230 |
) |
|
|
(12,085 |
) |
Income from continuing operations
|
|
|
2,927 |
|
|
|
888 |
|
|
|
7,175 |
|
|
|
4,629 |
|
|
|
25,270 |
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
2,927 |
|
|
|
888 |
|
|
|
7,175 |
|
|
|
4,629 |
|
|
|
25,270 |
|
Preferred stock dividend
|
|
|
(656 |
) |
|
|
(124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributed to common stockholders
|
|
$ |
2,271 |
|
|
$ |
764 |
|
|
$ |
7,175 |
|
|
$ |
4,629 |
|
|
$ |
25,270 |
|
|
|
|
|
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|
|
|
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|
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|
Nine Months | |
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|
Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
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|
| |
|
| |
|
| |
|
| |
|
| |
|
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|
(Unaudited) | |
|
|
(In thousands, except ratios) | |
Other Financial Information (unaudited):
|
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|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
EBITDA(1)(2)
|
|
$ |
8,697 |
|
|
$ |
7,756 |
|
|
$ |
19,577 |
|
|
$ |
13,087 |
|
|
$ |
58,112 |
|
Capital expenditures
|
|
|
5,354 |
|
|
|
4,603 |
|
|
|
17,767 |
|
|
|
9,585 |
|
|
|
25,811 |
|
Ratio of earnings to fixed charges(3)
|
|
|
2.2 |
x |
|
|
1.5 |
x |
|
|
2.9 |
x |
|
|
2.6 |
x |
|
|
3.4 |
x |
10
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As of | |
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|
September 30, | |
|
|
2006 | |
|
|
| |
|
|
(Unaudited) | |
|
|
(In thousands) | |
Balance Sheet Information:
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
50,311 |
|
Total assets
|
|
|
537,096 |
|
Long-term debt (including current portion)
|
|
|
270,959 |
|
Stockholders equity
|
|
|
180,468 |
|
|
|
(1) |
EBITDA is a non-GAAP financial measure that we
define as net income before interest, taxes, depreciation and
amortization. |
|
(2) |
EBITDA, as used and defined by us, may not be
comparable to similarly titled measures employed by other
companies and is not a measure of performance calculated in
accordance with GAAP. EBITDA should not be considered in
isolation or as a substitute for operating income, net income or
loss, cash flows provided by operating, investing and financing
activities, or other income or cash flow statement data prepared
in accordance with GAAP. However, our management believes EBITDA
is useful to an investor in evaluating our operating performance
because this measure: |
|
|
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|
|
is widely used by investors in the energy industry to measure a
companys operating performance without regard to items
excluded from the calculation of such term, which can vary
substantially from company to company depending upon accounting
methods and book value of assets, capital structure and the
method by which assets were acquired, among other factors; |
|
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|
helps investors to more meaningfully evaluate and compare the
results of our operations from period to period by removing the
effect of our capital structure and asset base from our
operating structure; and |
|
|
|
is used by our management for various purposes, including as a
measure of operating performance, in presentations to our board
of directors, as a basis for strategic planning and forecasting,
and as a component for setting incentive compensation. |
|
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|
There are significant limitations to using EBITDA as a measure
of performance, including the inability to analyze the effect of
certain recurring and non-recurring items that materially affect
our net income or loss, and the lack of comparability of results
of operations of different companies. The following table
reconciles our net income, the most directly comparable GAAP
financial measure, to EBITDA: |
11
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months | |
|
|
|
|
Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(Unaudited) | |
|
|
(In thousands) | |
Net income
|
|
$ |
2,927 |
|
|
$ |
888 |
|
|
$ |
7,175 |
|
|
$ |
4,629 |
|
|
$ |
25,270 |
|
Interest expense, net
|
|
|
2,464 |
|
|
|
2,776 |
|
|
|
4,397 |
|
|
|
3,230 |
|
|
|
12,085 |
|
Income taxes
|
|
|
370 |
|
|
|
514 |
|
|
|
1,344 |
|
|
|
559 |
|
|
|
6,197 |
|
Depreciation and amortization
|
|
|
2,936 |
|
|
|
3,578 |
|
|
|
6,661 |
|
|
|
4,669 |
|
|
|
14,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$ |
8,697 |
|
|
$ |
7,756 |
|
|
$ |
19,577 |
|
|
$ |
13,087 |
|
|
$ |
58,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) |
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. |
12
RISK FACTORS
An investment in the notes is subject to numerous risks,
including those listed below. You should carefully consider the
following risks, along with the information contained elsewhere
or incorporated by reference in this prospectus. These risks
could materially affect our ability to meet our obligations
under the notes. You could lose all or part of your investment
in and fail to achieve the expected return on the notes.
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 the notes. |
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; |
|
|
|
the competitive environment for acquisitions; and |
|
|
|
the integration and synergy issues described in the next risk
factor. |
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. Our financial
condition, results of operations and ability to meet our
obligations under the notes may be materially adversely affected
if we fail to acquire additional businesses.
|
|
|
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.
In particular, the Specialty, DLS and Oil & Gas Rental
acquisitions are our largest acquisitions to date and,
consequently, the inherent integration risks may have a greater
effect on us than the risks posed by our previous acquisitions.
We will be conducting parts of the integration of these
companies simultaneously, and as a result we could strain our
current resources. Furthermore, we will depend on these
entities continued performance as a source of cash flow to
service our debt obligations.
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.
13
|
|
|
Our acquisition of DLS has
substantially changed the nature of our operations and
business. |
Our acquisition of DLS has substantially changed the nature and
geographic location of our operations and business as a result
of the character and location of DLS businesses, which
have substantially different operating characteristics and are
in different geographic locations from our other businesses.
Prior to our acquisition of DLS, we had operated as an oilfield
services company domestically in Texas, Louisiana, New Mexico,
Colorado, Oklahoma, Mississippi, Utah, Wyoming, offshore in the
Gulf of Mexico, and internationally in Mexico. DLS
business is located primarily in Argentina, and we have no
significant operations in South America other than through DLS.
Accordingly, this acquisition has subjected and will continue to
subject us to risks inherent in operating in a foreign country
where we do not have significant prior experience. DLS
business consists of employing drilling and workover rigs for
drilling, completion and repair services for oil and gas wells.
We do not own any drilling rigs or workover rigs other than
through DLS, and have not historically provided such services
prior to our acquisition of DLS. Consequently, we may not be
able to realize the economic benefits of this acquisition as
efficiently as in our prior acquisitions, if at all.
|
|
|
Failure to maintain effective
disclosure controls and procedures and/or internal controls over
financial reporting could have a material adverse effect on our
operations. |
As disclosed in the notes to our consolidated financial
statements incorporated by reference to our 2005 Form 10-K, we
understated diluted earnings per share due to an incorrect
calculation of our weighted shares outstanding for the third
quarter of 2003, for each of the first three quarters of 2004,
for the years ended December 31, 2003 and 2004 and for the
quarter ended March 31, 2005. In addition, we understated
basic earnings per share due to an incorrect calculation of our
weighted average basic shares outstanding for the quarter ended
September 30, 2004. Consequently, we have restated our
financial statements for each of those periods. The incorrect
calculation resulted from a mathematical error and an improper
application of Statement of Financial Accounting Standards, or
SFAS, No. 128, Earnings Per Share.
Management has concluded that the need to restate our financial
statements resulted, in part, from the lack of sufficient
experienced accounting personnel, which in turn resulted in a
lack of effective control over the financial reporting process.
In addition, as part of our growth strategy, we have recently
completed several acquisitions of privately-held businesses,
including closely-held entities, and in the future, we may make
additional strategic acquisitions of privately-held businesses.
Prior to becoming part of our consolidated company, these
acquired businesses have not been required to implement or
maintain the disclosure controls and procedures or internal
controls over financial reporting that federal law requires of
publicly-held companies such as ours. Similarly, it is likely
that our future acquired businesses will not have been required
to maintain such disclosure controls and procedures or internal
controls prior to their acquisition. We are in the process of
creating and implementing appropriate disclosure controls and
procedures and internal controls over financial reporting at
each of our recently acquired businesses. However, we have not
yet completed this process and cannot assure you as to when the
process will be complete. Likewise, upon the completion of any
future acquisition, we will be required to integrate the
acquired business into our consolidated companys system of
disclosure controls and procedures and internal controls over
financial reporting, but we cannot assure you as to how long the
integration process may take for any business that we may
acquire. Furthermore, during the integration process, we may not
be able to fully implement our consolidated disclosure controls
and internal controls over financial reporting. With respect to
our recent acquisition of DLS, this risk is exacerbated by
DLS relative size, when compared to the rest of our
consolidated company.
Also, during the fourth quarter of 2005, we failed to timely
file a Current Report on
Form 8-K relating
to the issuance of shares of our common stock in connection with
recent stock option and
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warrant exercises. The current report, which was due to be filed
in November 2005, was filed in February 2006.
As a result of the issues described above, our management has
concluded that, as of the end of the periods covered by the
restatements and as of December 31, 2005, our disclosure
controls and procedures were not effective to enable us to
record, process, summarize and report information required to be
included in our SEC filings within the required time periods,
and to ensure that such information is accumulated and reported
to our management, including our chief executive officer and
chief financial accounting officer, to allow timely decisions
regarding required disclosure.
As more fully described in our 2005 form 10-K under the caption
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Restatement, we have implemented a number of actions that
we believe address the existing deficiencies in our financial
reporting process and will improve our disclosure controls and
procedures and our internal controls over financial reporting.
However, we cannot yet assert that the remediation is or will be
effective as we have not yet had sufficient time to test the
newly implemented actions. We are in the process of documenting
and testing our internal control procedures in order to satisfy
the requirements of Section 404 of the Sarbanes-Oxley Act,
which requires annual management assessments of the
effectiveness of our internal controls over financial reporting
and a report by our independent auditors addressing these
assessments. We have also retained the services of an
independent consultant to assist us with the documenting and
testing process. During the course of our testing we may
identify deficiencies and/or one or more material weaknesses in
our internal controls over financial reporting, which we may not
be able to remediate in time to meet the deadline imposed by SEC
rules under the Sarbanes-Oxley Act for compliance with the
requirements of Section 404.
Likewise, during the course of our integration of any acquired
business (including DLS), we may identify needed improvements to
our or such acquired business internal controls and may be
required to design enhanced processes and controls in order to
make such improvements. This could result in significant delays
and costs to us and could require us to divert substantial
resources, including management time, from other activities.
If we fail to achieve and maintain the adequacy of our
disclosure controls and procedures and/or our internal controls,
as such standards are modified, supplemented or amended from
time to time, we may not be able to conclude that we have
effective disclosure controls and procedures and/or effective
internal controls over financial reporting in accordance with
Section 404 of the Sarbanes-Oxley Act. If:
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we are not successful in improving our financial reporting
process, our disclosure controls and procedures and/or our
internal controls over financial reporting; |
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we identify deficiencies and/or one or more material weaknesses
in our internal controls over financial reporting; or |
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we are not successful in integrating acquired businesses (such
as DLS) into our consolidated companys system of
disclosure controls and procedures and internal controls over
financial reporting, |
then our independent registered public accounting firm may be
unable to attest that our managements assessment of our
internal controls over financial reporting is fairly stated, or
they may be unable to express an opinion on our
managements evaluation of, or on the effectiveness of, our
internal controls.
If it is determined that our disclosure controls and procedures
and/or our internal controls over financial reporting are not
effective and/or we fail to satisfy the requirements of
Section 404 of the Sarbanes-Oxley Act on a timely basis, we
may not be able to provide reliable financial and other reports
or prevent fraud, which, in turn, could harm our business and
operating results, cause investors to lose confidence in the
accuracy and completeness of our financial reports, have a
material adverse effect on
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the trading price of our common stock and/or adversely affect
our ability to timely file our periodic reports with the SEC.
Any failure to timely file our periodic reports with the SEC may
give rise to a default under the indenture governing the notes
and, ultimately, an acceleration of amounts due under the notes.
In addition, a default under the indenture generally will also
give rise to a default under our credit agreement and could
cause the acceleration of amounts due under the credit
agreement. If an acceleration of the notes or our other debt
were to occur, we cannot assure you that we would have
sufficient funds to repay such obligations.
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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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Vice Chairman of the Board, President and Chief Operating
Officer Burt A. Adams. |
Recently, our former President and Chief Operating Officer,
David Wilde, resigned. In light of Mr. Wildes
significant contributions to our recent growth, his resignation
could have a material adverse effect on our future financial
performance. 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. Also, 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.
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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 revenue. 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 one customer for a
majority of its revenue. In 2005, Pan American Energy LLC
Sucursal Argentina, or Pan American Energy, represented 55% 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.
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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.
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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 operation.
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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 operation. We have not
manufactured products containing asbestos since our
reorganization in 1988.
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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 operation.
Risks Associated With Our Industry
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Cyclical declines in oil and
natural gas prices may result in reduced use of our services,
affecting our business, financial condition and results of
operation and our ability to meet our capital expenditure
obligations and financial commitments. |
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
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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. |
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.
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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.
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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.
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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. |
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.
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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.
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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.
Risks Associated with the Notes and Our Indebtedness
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We are a holding company, and
as a result we are dependent on dividends from our subsidiaries
to meet our obligations, including with respect to the
notes. |
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 indenture governing the notes. For example,
the corporate laws of
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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.
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We have a substantial amount
of debt, which could adversely affect our financial health and
prevent us from making principal and interest payments on the
notes. |
Our substantial debt could have important consequences to you.
For example, it could:
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make it more difficult for us to satisfy our obligations with
respect to the notes 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 indenture relating to the notes or in the
instruments governing our other debt. |
In addition, we may incur substantial additional debt in the
future. The indenture governing the notes permits 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.
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.
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If we fail to obtain
additional financing, we may be unable to refinance our existing
debt, expand our current operations or acquire new businesses,
which could result in a failure to grow or result in defaults in
our obligations under our credit agreement or the
notes. |
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 or the notes.
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The indenture governing the
notes and our credit agreement impose restrictions on us that
may limit the discretion of management in operating our business
and that, in turn, could impair our ability to meet our
obligations under the notes. |
The indenture governing the notes and our credit agreement
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. |
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 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 indenture
governing the notes and/or the credit agreement. If there were
an event of default under the indenture governing the notes
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.
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The notes and the related
guarantees are unsecured and effectively subordinated to our and
the subsidiary guarantors secured indebtedness. |
The notes and the related guarantees are not secured. Our
obligations under the credit agreement are secured by
substantially all of our assets. If we become insolvent or are
liquidated, or if payment under the credit agreement or any of
our other future secured debt obligations is accelerated, the
lenders under our credit agreement would be entitled to exercise
the remedies available to a secured lender under applicable law
and the terms of our credit agreement and will have a claim on
the assets secured thereby before the holders of the notes. The
notes are therefore effectively subordinated to our existing and
future secured indebtedness and the guarantees are effectively
subordinated to the existing and future secured indebtedness of
the subsidiary guarantors, in each case to the extent of the
value of the assets securing that indebtedness. As a result, the
holders of the notes may recover ratably less than the lenders
of our or the subsidiary guarantors secured debt in the
event of a bankruptcy or liquidation.
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Federal and state statutes
allow courts, under specific circumstances, to void guarantees
and require note holders to return payments received from
guarantors. |
Under U.S. federal bankruptcy law and comparable provisions
of state fraudulent transfer laws, a guarantee could be voided,
or claims in respect of a guarantee could be subordinated to all
other debts of that guarantor if, among other things, the
guarantor, at the time it incurred the indebtedness evidenced by
its guarantee:
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received less than reasonably equivalent value or fair
consideration for the incurrence of such guarantee; and |
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was insolvent or rendered insolvent by reason of such
incurrence; or |
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was engaged in a business or transaction for which the
guarantors remaining assets constituted unreasonably small
capital; or |
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intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they mature. |
In addition, any payment by that guarantor pursuant to its
guarantee could be voided and required to be returned to the
guarantor, or to a fund for the benefit of the creditors of the
guarantor. In any such case, your right to receive payments in
respect of the notes from any such guarantor would be
effectively subordinated to all indebtedness and other
liabilities of that guarantor.
The measures of insolvency for purposes of these fraudulent
transfer laws will vary depending upon the law applied in any
proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a guarantor would be considered
insolvent if:
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the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all of its assets; or |
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if the present fair saleable value of its assets was less than
the amount that would be required to pay its probable liability
on its existing debts, including contingent liabilities, as they
become absolute and mature; or |
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it could not pay its debts as they become due. |
On the basis of historical financial information, recent
operating history and other factors, we believe that each
guarantor, after giving effect to its guarantee of these notes,
will not be insolvent, will not have unreasonably small capital
for the business in which it is engaged and will not have
incurred debts beyond its ability to pay such debts as they
mature. We cannot assure you, however, as to what
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standard a court would apply in making these determinations or
that a court would agree with our conclusions in this regard.
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Your right to receive
payments on the notes will be effectively subordinated to the
rights of creditors of our subsidiaries that do not guarantee
the notes (such as DLS and its subsidiaries) or whose guarantees
are invalidated. |
All of our current domestic subsidiaries will guarantee the
notes. However, creditors of foreign subsidiaries (such as DLS
and its subsidiaries) or other subsidiaries that do not
guarantee the notes will have claims, with respect to the assets
of those subsidiaries, that rank effectively senior to the
notes. In the event of any distribution or payment of assets of
such subsidiaries in any dissolution, winding up, liquidation,
reorganization or other bankruptcy proceeding, the claims of
those creditors must be satisfied prior to making any such
distribution or payment to Allis-Chalmers in respect of its
direct or indirect equity interests in such subsidiaries.
Accordingly, after satisfaction of the claims of such creditors,
there may be little or no amounts left available to make
payments in respect of the notes. Also, as described above,
there are federal and state laws that could invalidate the
guarantees of our subsidiaries that guarantee the notes. If that
were to occur, the claims of creditors of those subsidiaries
would also rank effectively senior to the notes, to the extent
of the assets of those subsidiaries.
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We may not be able to finance
a change of control offer required by the indenture governing
the notes. |
If we were to experience a change of control, the indenture
governing the notes will require us to offer to purchase all the
notes then outstanding at 101% of their principal amount, plus
unpaid accrued interest to the date of repurchase. If a change
of control were to occur, we cannot assure you that we would
have sufficient funds to purchase the notes. In addition, our
credit agreement restricts our ability to repurchase the notes,
even when we are required to do so by the indenture in
connection with a change of control. A change in control could
therefore result in a default under the credit agreement and
could cause the acceleration of our debt. The inability to repay
such debt, if accelerated, and to purchase all of the tendered
notes following a change of control, would constitute an event
of default under the indenture.
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A financial failure by any
subsidiary may hinder payment on the notes, as well as the
enforcement of remedies under any subsidiary
guarantees. |
An investment in the notes, as in any type of security, involves
insolvency and bankruptcy considerations that investors should
carefully consider. If any of the subsidiary guarantors
subsequently becomes a debtor subject to insolvency proceedings
under the bankruptcy code, it is likely to result in delays in
the payment of the notes and in the exercise of enforcement
remedies under the notes or any subsidiary guarantees.
Provisions under the bankruptcy code or general principles of
equity that could result in the impairment of your rights
include the automatic stay, avoidance of preferential transfers
by a trustee or a debtor-in-possession, limitations of
collectability of unmatured interest or attorneys fees and
forced restructuring of the notes.
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If an active trading market
does not develop for these notes you may not be able to resell
them. |
Although the issuance of the new notes will be registered under
the Securities Act, the new notes will constitute a new issue of
securities with no established trading market. We cannot assure
you that an active trading market will develop. If no active
trading market develops, you may not be able to resell your new
notes at their fair market value or at all. Future trading
prices of the new notes will depend on many factors, including,
among other things, prevailing interest rates, our operating
results
23
and the market for similar securities. We do not intend to apply
to list the new notes on any securities exchange or arrange for
quotation on any automated dealer quotation system.
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:
|
|
|
|
|
oil and gas prices and expectations about future prices; |
|
|
|
the demand for oil and gas, both in Latin America and globally; |
|
|
|
the cost of producing and delivering oil and gas; |
|
|
|
advances in exploration, development and production technology; |
|
|
|
government regulations, including governmental imposed commodity
price controls, export controls and renationalization of a
countrys oil and gas industry; |
|
|
|
local and international political and economic conditions; |
|
|
|
the ability of OPEC to set and maintain production levels and
prices; |
|
|
|
the level of production by non-OPEC countries; and |
|
|
|
the policies of various governments regarding exploration and
development of their oil and gas reserves. |
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.
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.
24
|
|
|
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:
|
|
|
|
|
shortages of material or skilled labor; |
|
|
|
unforeseen engineering problems; |
|
|
|
unanticipated change orders; |
|
|
|
work stoppages; |
|
|
|
adverse weather conditions; |
|
|
|
long lead times for manufactured rig components; |
|
|
|
unanticipated cost increases; and |
|
|
|
inability to obtain the required permits or approvals. |
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.
25
|
|
|
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:
|
|
|
|
|
expropriation of assets; |
|
|
|
nationalization of components of the energy industry in the
geographic areas where DLS operates; |
|
|
|
foreign currency fluctuations and devaluation; |
|
|
|
new economic and tax policies; |
|
|
|
restrictions on currency, income, capital or asset repatriation; |
|
|
|
political instability, war and civil disturbances; |
|
|
|
uncertainty or instability resulting from armed hostilities or
other crises in the Middle East or the geographic areas in which
DLS operates; and |
|
|
|
acts of terrorism. |
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
26
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 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.
27
|
|
|
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.
|
|
|
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
28
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.
Risks Associated With Our August 2006 Common Stock
Offering
|
|
|
We may have a contingent
liability arising out of a possible violation of Section 5
of the Securities Act in connection with electronic
communications sent to potential investors in our common
stock. |
On or about July 20, 2006, one of the proposed underwriters
of our common stock offering that closed on August 14, 2006
sent e-mails and/or instant messages to approximately 20
potential investors in our common stock. Although we did not
authorize these communications, and we believe they were not
made or intended to be made on our behalf, these communications
may have constituted violations of Section 5 of the
Securities Act. Accordingly, if the recipients of these emails
purchased shares in our August 2006 common stock offering, they
might have the right, under certain circumstances, to require us
to repurchase those shares. Consequently, we could have a
contingent liability arising out of these possible violations of
the Securities Act. The magnitude of this liability is presently
impossible to quantify, and would depend upon the number of
shares purchased by the recipients of such communications and
the trading price of our common stock. However, the proposed
underwriter who sent these electronic communications did not act
as an underwriter in the August 2006 common stock offering, and
we and the underwriters that did participate in the August 2006
common stock offering took measures designed to ensure that the
recipients of the communications did not have the opportunity to
purchase shares in that offering. Furthermore, if any investors
in our common stock do assert any such liability, we intend to
contest the matter vigorously, and in light of the remedial
measures and our belief that the communications were not made or
intended to be made on our behalf, we do not believe that any
such liability would be material to our financial condition.
29
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under
the registration rights agreement. We will not receive any
proceeds from the issuance of the new notes and have agreed to
pay all expenses of the exchange offer. In exchange for issuing
the new notes, we will receive a like principal amount of old
notes. The old notes surrendered in exchange for the new notes
will be retired and cancelled and will not be reissued.
Accordingly, issuing the new notes will not result in any
increase or decrease in our outstanding debt.
30
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following selected historical consolidated financial
information for each of the years in the five-year period ended
December 31, 2005 has been derived from our audited
consolidated financial statements, and the financial information
for the nine months ended September 30, 2005 and 2006 was
derived from our unaudited interim financial statements
incorporated by reference in this prospectus. This information
is only a summary and you should read it in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations, as set forth in our
2005 Form 10-K and our Third Quarter 2006 Form 10-Q, which
discuss factors affecting the comparability of the information
presented, and in conjunction with our consolidated financial
statements and related notes incorporated by reference in this
prospectus. Our historical consolidated financial statements
have been restated for the period from July 1, 2003 through
March 31, 2005, as described in the notes to our
consolidated financial statements incorporated by reference
herein. Results for interim periods may not be indicative of
results for full fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended | |
|
|
Year Ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2001(1) | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) | |
|
|
(In thousands, except per share amounts and ratios) | |
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
4,796 |
|
|
$ |
17,990 |
|
|
$ |
32,724 |
|
|
$ |
47,726 |
|
|
$ |
105,344 |
|
|
$ |
71,830 |
|
|
$ |
193,236 |
|
Cost of revenues
|
|
|
3,331 |
|
|
|
14,640 |
|
|
|
24,029 |
|
|
|
35,300 |
|
|
|
74,763 |
|
|
|
51,153 |
|
|
|
123,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,465 |
|
|
|
3,350 |
|
|
|
8,695 |
|
|
|
12,426 |
|
|
|
30,581 |
|
|
|
20,677 |
|
|
|
70,052 |
|
General and administrative expense
|
|
|
2,898 |
|
|
|
3,792 |
|
|
|
6,169 |
|
|
|
8,011 |
|
|
|
17,715 |
|
|
|
11,992 |
|
|
|
26,494 |
|
Personnel restructuring costs
|
|
|
|
|
|
|
495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Abandoned acquisition/private placement costs
|
|
|
|
|
|
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement medical costs
|
|
|
|
|
|
|
(98 |
) |
|
|
(99 |
) |
|
|
188 |
|
|
|
(352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,898 |
|
|
|
4,422 |
|
|
|
6,070 |
|
|
|
8,199 |
|
|
|
17,363 |
|
|
|
11,992 |
|
|
|
26,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(1,433 |
) |
|
|
(1,072 |
) |
|
|
2,625 |
|
|
|
4,227 |
|
|
|
13,218 |
|
|
|
8,685 |
|
|
|
43,558 |
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(828 |
) |
|
|
(2,207 |
) |
|
|
(2,464 |
) |
|
|
(2,776 |
) |
|
|
(4,397 |
) |
|
|
(3,230 |
) |
|
|
(12,085 |
) |
|
Factoring costs on note receivable
|
|
|
|
|
|
|
(191 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement on lawsuit
|
|
|
|
|
|
|
|
|
|
|
1,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of interest in AirComp
|
|
|
|
|
|
|
|
|
|
|
2,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(12 |
) |
|
|
(40 |
) |
|
|
12 |
|
|
|
272 |
|
|
|
186 |
|
|
|
221 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(840 |
) |
|
|
(2,438 |
) |
|
|
1,015 |
|
|
|
(2,504 |
) |
|
|
(4,211 |
) |
|
|
(3,009 |
) |
|
|
(12,091 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before income taxes and minority interest
|
|
|
(2,273 |
) |
|
|
(3,510 |
) |
|
|
3,640 |
|
|
|
1,723 |
|
|
|
9,007 |
|
|
|
5,676 |
|
|
|
31,467 |
|
Minority interests in income of subsidiaries
|
|
|
|
|
|
|
(189 |
) |
|
|
(343 |
) |
|
|
(321 |
) |
|
|
(488 |
) |
|
|
(488 |
) |
|
|
|
|
Income tax
|
|
|
|
|
|
|
(270 |
) |
|
|
(370 |
) |
|
|
(514 |
) |
|
|
(1,344 |
) |
|
|
(559 |
) |
|
|
(6,197 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations
|
|
|
(2,273 |
) |
|
|
(3,969 |
) |
|
|
2,927 |
|
|
|
888 |
|
|
|
7,175 |
|
|
|
4,629 |
|
|
|
25,270 |
|
(Loss) from discontinued operations
|
|
|
(291 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from sales of discontinued operations
|
|
|
(2,013 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) from discontinued operations
|
|
|
(2,304 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(4,577 |
) |
|
|
(3,969 |
) |
|
|
2,927 |
|
|
|
888 |
|
|
|
7,175 |
|
|
|
4,629 |
|
|
|
25,270 |
|
Preferred stock dividend
|
|
|
|
|
|
|
(321 |
) |
|
|
(656 |
) |
|
|
(124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributed to common stockholders
|
|
$ |
(4,577 |
) |
|
$ |
(4,290 |
) |
|
$ |
2,271 |
|
|
$ |
764 |
|
|
$ |
7,175 |
|
|
$ |
4,629 |
|
|
$ |
25,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges(2)
|
|
|
(1.6 |
)x |
|
|
(0.4 |
)x |
|
|
2.2 |
x |
|
|
1.5 |
x |
|
|
2.9 |
x |
|
|
2.6 |
x |
|
|
3.4 |
x |
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
As of | |
|
|
| |
|
September 30, | |
|
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) | |
|
|
(In thousands) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
152 |
|
|
$ |
146 |
|
|
$ |
1,299 |
|
|
$ |
7,344 |
|
|
$ |
1,920 |
|
|
$ |
50,311 |
|
Total assets
|
|
|
12,465 |
|
|
|
34,778 |
|
|
|
53,662 |
|
|
|
80,192 |
|
|
|
137,355 |
|
|
|
537,096 |
|
Long-term debt (including current portion)
|
|
|
7,856 |
|
|
|
21,221 |
|
|
|
32,233 |
|
|
|
30,473 |
|
|
|
60,569 |
|
|
|
270,959 |
|
Stockholders equity
|
|
|
1,250 |
|
|
|
1,009 |
|
|
|
4,541 |
|
|
|
35,109 |
|
|
|
60,875 |
|
|
|
180,468 |
|
|
|
(1) |
We entered the oilfield services business in 2001. We sold our
last non-oilfield services business in December 2001, which is
reflected in our financial statements for 2001 as a discontinued
operation. |
|
|
(2) |
For purposes of determining the ratio of earnings to fixed
charges, earnings are defined as net income before income taxes,
extraordinary items, amortization of capitalized interest and
fixed charges, less capitalized interest. Fixed charges consist
of interest (whether expensed or capitalized), amortization of
debt expenses and discount or premium relating to any
indebtedness and dividends on preferred stock and the interest
component of leases represents the portion of rental expense
which we estimate as an interest component. For the years ended
December 31, 2001 and December 31, 2002, earnings were
inadequate to cover fixed charges due to a deficiency of
approximately $2.3 million and $3.7 million,
respectively. |
32
THE EXCHANGE OFFER
Exchange Terms
Old notes in an aggregate principal amount of $250,000,000 are
currently issued and outstanding. The maximum aggregate
principal amount of new notes that will be issued in exchange
for old notes is $250,000,000. The terms of the new notes and
the old notes are substantially the same in all material
respects, except that the new notes will not contain terms with
respect to transfer restrictions, registration rights and
payments of liquidated damages.
The new notes will bear interest at a rate of 8.5% per
year, payable semi-annually on March 1 and September 1
of each year, beginning on September 1, 2007. Holders of
new notes will receive interest from January 29, 2007, the
date of the last payment of interest on the old notes. Holders
of new notes will not receive any interest on old notes tendered
and accepted for exchange. In order to exchange your old notes
for transferable new notes in the exchange offer, you will be
required to make the following representations, which are
included in the letter of transmittal:
|
|
|
|
|
any new notes that you receive will be acquired in the ordinary
course of your business; |
|
|
|
you are not participating, and have no arrangement or
understanding with any person or entity to participate, in the
distribution of the new notes; |
|
|
|
you are not our affiliate, as defined in
Rule 405 under the Securities Act, or a broker-dealer
tendering old notes acquired directly from us for resale
pursuant to Rule 144A or any other available exemption
under the Securities Act; and |
|
|
|
if you are not a broker-dealer, that you are not engaged in and
do not intend to engage in the distribution of the new notes. |
Upon the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal, we will accept for
exchange any old notes properly tendered in the exchange offer,
and the exchange agent will deliver the new notes promptly after
the expiration date of the exchange offer.
If you tender your old notes, you will not be required to pay
brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the
exchange of the old notes in connection with the exchange offer.
We will pay all charges, expenses and transfer taxes in
connection with the exchange offer, other than the taxes
described below under Transfer Taxes.
We make no recommendation to you as to whether you should
tender or refrain from tendering all or any portion of your
existing old notes into this exchange offer. In addition, no one
has been authorized to make this recommendation. You must make
your own decision whether to tender into this exchange offer
and, if so, the aggregate amount of old notes to tender after
reading this prospectus and the letter of transmittal and
consulting with your advisors, if any, based on your financial
position and requirements.
Expiration Date; Extensions; Termination; Amendments
The exchange offer expires at 5:00 p.m., New York City
time, on March 19, 2007, unless we extend the exchange
offer, in which case the expiration date will be the latest date
and time to which we extend the exchange offer.
33
We expressly reserve the right, so long as applicable law allows:
|
|
|
|
|
to delay our acceptance of old notes for exchange; |
|
|
|
to terminate the exchange offer if any of the conditions set
forth under Conditions of the Exchange
Offer exist; |
|
|
|
to waive any condition to the exchange offer; |
|
|
|
to amend any of the terms of the exchange offer; and |
|
|
|
to extend the expiration date and retain all old notes tendered
in the exchange offer, subject to your right to withdraw your
tendered old notes as described under
Withdrawal of Tenders. |
Any waiver or amendment to the exchange offer will apply to all
old notes tendered, regardless of when or in what order the old
notes were tendered. If the exchange offer is amended in a
manner that we think constitutes a material change, or if we
waive a material condition of the exchange offer, we will
promptly disclose the amendment or waiver by means of a
prospectus supplement that will be distributed to the registered
holders of the old notes, and we will extend the exchange offer
to the extent required by
Rule 14e-1 under
the Exchange Act.
We will promptly follow any delay in acceptance, termination,
extension or amendment by oral or written notice of the event to
the exchange agent, followed promptly by oral or written notice
to the registered holders. Should we choose to delay, extend,
amend or terminate the exchange offer, we will have no
obligation to publish, advertise or otherwise communicate this
announcement, other than by making a timely release to an
appropriate news agency.
In the event we terminate the exchange offer, all old notes
previously tendered and not accepted for payment will be
returned promptly to the tendering holders.
In the event that the exchange offer is withdrawn or otherwise
not completed, new notes will not be given to holders of old
notes who have validly tendered their old notes.
Resale of New Notes
Based on interpretations of the SEC staff set forth in no action
letters issued to third parties, we believe that new notes
issued under the exchange offer in exchange for old notes may be
offered for resale, resold and otherwise transferred by you
without compliance with the registration and prospectus delivery
requirements of the Securities Act, if:
|
|
|
|
|
you are acquiring new notes in the ordinary course of your
business; |
|
|
|
you are not participating, and have no arrangement or
understanding with any person to participate, in the
distribution of the new notes; |
|
|
|
you are not our affiliate within the meaning of
Rule 405 under the Securities Act; and |
|
|
|
you are not a broker-dealer who purchased old notes directly
from us for resale pursuant to Rule 144A or any other
available exemption under the Securities Act. |
If you tender old notes in the exchange offer with the intention
of participating in any manner in a distribution of the new
notes:
|
|
|
|
|
you cannot rely on those interpretations by the SEC
staff, and |
|
|
|
you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a
secondary resale transaction and that such a secondary resale
transaction |
34
|
|
|
|
|
must be covered by an effective
registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of
Regulation S-K. |
Only broker-dealers that acquired the old notes as a result of
market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that
receives new notes for its own account in exchange for old
notes, where such old notes were acquired by such broker-dealer
as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus
in connection with any resale of the new notes. Please read the
section captioned Plan of Distribution for more
details regarding the transfer of new notes.
Acceptance of Old Notes for Exchange
We will accept for exchange old notes validly tendered pursuant
to the exchange offer, or defectively tendered, if such defect
has been waived by us. We will not accept old notes for exchange
subsequent to the expiration date of the exchange offer. Tenders
of old notes will be accepted only in minimum denominations of
$2,000 and integral multiples of $1,000 in excess thereof.
We expressly reserve the right, in our sole discretion, to:
|
|
|
|
|
delay acceptance for exchange of old notes tendered under the
exchange offer, subject to
Rule 14e-1 under
the Exchange Act, which requires that an offeror pay the
consideration offered or return the securities deposited by or
on behalf of the holders promptly after the termination or
withdrawal of a tender offer, or |
|
|
|
terminate the exchange offer and not accept for exchange any old
notes not theretofore accepted for exchange, if any of the
conditions set forth below under Conditions of
the Exchange Offer have not been satisfied or waived by us
or in order to comply in whole or in part with any applicable
law. |
In all cases, new notes will be issued only after timely receipt
by the exchange agent of certificates representing old notes, or
confirmation of book-entry transfer, a properly completed and
duly executed letter of transmittal, or a manually signed
facsimile thereof, and any other required documents. For
purposes of the exchange offer, we will be deemed to have
accepted for exchange validly tendered old notes, or defectively
tendered old notes with respect to which we have waived such
defect, if, as and when we give oral, confirmed in writing, or
written notice to the exchange agent. Promptly after the
expiration date, we will deposit the new notes with the exchange
agent, who will act as agent for the tendering holders for the
purpose of receiving the new notes and transmitting them to the
holders. The exchange agent will deliver the new notes to
holders of old notes accepted for exchange after the exchange
agent receives the new notes.
If, for any reason, we delay acceptance for exchange of validly
tendered old notes or we are unable to accept for exchange
validly tendered old notes, then the exchange agent may,
nevertheless, on our behalf, retain tendered old notes, without
prejudice to our rights described under
Expiration Date; Extensions; Termination;
Amendments, Withdrawal of Tenders
and Conditions of the Exchange Offer,
subject to
Rule 14e-1 under
the Exchange Act, which requires that an offeror pay the
consideration offered or return the securities deposited by or
on behalf of the holders thereof promptly after the termination
or withdrawal of a tender offer.
If any tendered old notes are not accepted for exchange for any
reason, or if certificates are submitted evidencing more old
notes than those that are tendered, certificates evidencing old
notes that are not exchanged will be returned, without expense,
to the tendering holder, or, in the case of old notes tendered
by book-entry transfer into the exchange agents account at
a book-entry transfer facility under the procedure set forth
under Procedures for Tendering Old
Notes Book-Entry Transfer, such
35
old notes will be credited to the account maintained at such
book-entry transfer facility from which such old notes were
delivered, unless otherwise requested by such holder under
Special Delivery Instructions in the letter of
transmittal, promptly following the expiration date or the
termination of the exchange offer.
Tendering holders of old notes exchanged in the exchange offer
will not be obligated to pay brokerage commissions or transfer
taxes with respect to the exchange of their old notes other than
as described in Transfer Taxes or in
Instruction 7 to the letter of transmittal. We will pay all
other charges and expenses in connection with the exchange offer.
Procedures for Tendering Old Notes
Any beneficial owner whose old notes are registered in the name
of a broker, dealer, commercial bank, trust company or other
nominee or held through a book-entry transfer facility and who
wishes to tender old notes should contact such registered holder
promptly and instruct such registered holder to tender old notes
on such beneficial owners behalf.
|
|
|
Tender of Old
Notes Held Through Depository Trust Company |
The exchange agent and Depository Trust Company, or DTC, have
confirmed that the exchange offer is eligible for the DTCs
automated tender offer program. Accordingly, DTC participants
may electronically transmit their acceptance of the exchange
offer by causing DTC to transfer old notes to the exchange agent
in accordance with DTCs automated tender offer program
procedures for transfer. DTC will then send an agents
message to the exchange agent.
The term agents message means a message
transmitted by DTC, received by the exchange agent and forming
part of the book-entry confirmation, which states that DTC has
received an express acknowledgment from the participant in DTC
tendering old notes that are the subject of that book-entry
confirmation that the participant has received and agrees to be
bound by the terms of the letter of transmittal, and that we may
enforce such agreement against such participant. In the case of
an agents message relating to guaranteed delivery, the
term means a message transmitted by DTC and received by the
exchange agent which states that DTC has received an express
acknowledgment from the participant in DTC tendering old notes
that they have received and agree to be bound by the notice of
guaranteed delivery.
|
|
|
Tender of Old
Notes Held in Certificated Form |
For a holder to validly tender old notes held in certificated
form:
|
|
|
|
|
the exchange agent must receive at its address set forth in this
prospectus a properly completed and validly executed letter of
transmittal, or a manually signed facsimile thereof, together
with any signature guarantees and any other documents required
by the instructions to the letter of transmittal, and |
|
|
|
the exchange agent must receive certificates for tendered old
notes at such address, or such old notes must be transferred
pursuant to the procedures for book-entry transfer described
below. |
A confirmation of such book-entry transfer must be received by
the exchange agent prior to the expiration date of the exchange
offer. A holder who desires to tender old notes and who cannot
comply with the procedures set forth herein for tender on a
timely basis or whose old notes are not immediately available
must comply with the procedures for guaranteed delivery set
forth below.
36
Letters of transmittal and old notes should be sent only to
the exchange agent, and not to us or to DTC.
The method of delivery of old notes, letters of transmittal
and all other required documents to the exchange agent is at the
election and risk of the holder tendering old notes. Delivery of
such documents will be deemed made only when actually received
by the exchange agent. If such delivery is by mail, we suggest
that the holder use properly insured, registered mail with
return receipt requested, and that the mailing be made
sufficiently in advance of the expiration date of the exchange
offer to permit delivery to the exchange agent prior to such
date. No alternative, conditional or contingent tenders of old
notes will be accepted.
Signatures on the letter of transmittal must be guaranteed by an
eligible institution unless:
|
|
|
|
|
the letter of transmittal is signed by the registered holder of
the old notes tendered therewith, or by a participant in one of
the book-entry transfer facilities whose name appears on a
security position listing it as the owner of those old notes and
the new notes are to be issued directly to such registered
holder(s), or, if tendered by a participant in one of the
book-entry transfer facilities, any old notes for principal
amounts not tendered or not accepted for exchange are to be
credited to the participants account at the book-entry
transfer facility, and neither the Special Issuance
Instructions nor the Special Delivery
Instructions box on the letter of transmittal has been
completed, or |
|
|
|
the old notes are tendered for the account of an eligible
institution. |
An eligible institution is a firm that is a member of a
registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or a
trust company having an office or correspondent in the United
States or an eligible guarantor institution within
the meaning of Rule 17Ad-15 under the Exchange Act.
The exchange agent will seek to establish a new account or
utilize an existing account with respect to the old notes at DTC
promptly after the date of this prospectus. Any financial
institution that is a participant in the DTC system and whose
name appears on a security position listing as the owner of the
old notes may make book-entry delivery of old notes by causing
DTC to transfer such old notes into the exchange agents
account. However, although delivery of old notes may be
effected through book-entry transfer into the exchange
agents account at DTC, a properly completed and validly
executed letter of transmittal, or a manually signed facsimile
thereof, must be received by the exchange agent at one of its
addresses set forth in this prospectus on or prior to the
expiration date of the exchange offer, or else the guaranteed
delivery procedures described below must be complied with.
The confirmation of a book-entry transfer of old notes into the
exchange agents account at DTC is referred to in this
prospectus as a book-entry confirmation. Delivery of
documents to DTC in accordance with DTCs procedures does
not constitute delivery to the exchange agent.
37
If you wish to tender your old notes and:
|
|
|
(1) certificates representing your old notes are not lost
but are not immediately available, |
|
|
(2) time will not permit your letter of transmittal,
certificates representing your old notes and all other required
documents to reach the exchange agent on or prior to the
expiration date of the exchange offer, or |
|
|
(3) the procedures for book-entry transfer cannot be
completed on or prior to the expiration date of the exchange
offer, |
you may nevertheless tender if all of the following conditions
are complied with:
|
|
|
|
|
your tender is made by or through an eligible
institution; and |
|
|
|
on or prior to the expiration date of the exchange offer, the
exchange agent has received from the eligible institution a
properly completed and validly executed notice of guaranteed
delivery, by manually signed facsimile transmission, overnight
courier, registered or certified mail or hand delivery, in
substantially the form provided with this prospectus. The notice
of guaranteed delivery must: |
|
|
|
(a) set forth your name and address, the registered
number(s) of your old notes and the principal amount of old
notes tendered; |
|
|
(b) state that the tender is being made thereby; |
|
|
(c) guarantee that, within three New York Stock Exchange
trading days after the expiration date, the letter of
transmittal or facsimile thereof properly completed and validly
executed, together with certificates representing the old notes,
or a book-entry confirmation, and any other documents required
by the letter of transmittal and the instructions thereto, will
be deposited by the eligible institution with the exchange
agent; and |
|
|
(d) the exchange agent receives the properly completed and
validly executed letter of transmittal or facsimile thereof with
any required signature guarantees, together with certificates
for all old notes in proper form for transfer, or a book-entry
confirmation, and any other required documents, within three New
York Stock Exchange trading days after the expiration date. |
New notes will be issued in exchange for old notes accepted for
exchange only after timely receipt by the exchange agent of:
|
|
|
|
|
certificates for (or a timely book-entry confirmation with
respect to) your old notes, |
|
|
|
a properly completed and duly executed letter of transmittal or
facsimile thereof with any required signature guarantees, or, in
the case of a book-entry transfer, an agents
message, and |
|
|
|
any other documents required by the letter of transmittal. |
We will determine, in our sole discretion, all questions as to
the form of all documents and the validity, eligibility,
including time of receipt, acceptance and withdrawal of all
tenders of old notes. Our determination will be final and
binding on all parties. Alternative, conditional or
contingent tenders of old notes will not be considered valid. We
reserve the absolute right to reject any or all tenders of old
notes not properly tendered or the acceptance of which, in our
opinion, would be unlawful. We
38
also reserve the right to waive any defects, irregularities
or conditions of tender as to particular old notes.
Our interpretation of the terms and conditions of the exchange
offer, including the instructions in the letter of transmittal,
will be final and binding.
Any defect or irregularity in connection with tenders of old
notes must be cured within the time we determine, unless waived
by us. We will not consider the tender of old notes to have been
validly made until all defects and irregularities have been
waived by us or cured. Neither we, the exchange agent, or any
other person will be under any duty to give notice of any
defects or irregularities in tenders of old notes, or will incur
any liability to holders for failure to give any such notice.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may
withdraw your tender of old notes at any time prior to the
expiration date.
For a withdrawal to be effective:
|
|
|
|
|
the exchange agent must receive a written notice of withdrawal
at one of the addresses set forth below under
Exchange Agent, or |
|
|
|
you must comply with the appropriate procedures of DTCs
automated tender offer program system. |
Any notice of withdrawal must:
|
|
|
|
|
specify the name of the person who tendered the old notes to be
withdrawn, and |
|
|
|
identify the old notes to be withdrawn, including the principal
amount of the old notes. |
If old notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at DTC to be
credited with the withdrawn old notes and otherwise comply with
the procedures of DTC.
We will determine all questions as to validity, form,
eligibility and time of receipt of any withdrawal notices. Our
determination will be final and binding on all parties. We will
deem any old notes so withdrawn not to have been validly
tendered for exchange for purposes of the exchange offer.
Any old notes that have been tendered for exchange but that are
not exchanged for any reason will be returned to their holder
without cost to the holder or, in the case of old notes tendered
by book-entry transfer into the exchange agents account at
DTC according to the procedures described above, such old notes
will be credited to an account maintained with DTC for the old
notes. This return or crediting will take place as soon as
practicable after withdrawal, rejection of tender or termination
of the exchange offer. You may retender properly withdrawn old
notes by following one of the procedures described under
Procedures for Tendering Old Notes at
any time on or prior to the expiration date.
Conditions of the Exchange Offer
Notwithstanding any other provisions of the exchange offer, if,
on or prior to the expiration date, we determine, in our
reasonable judgment, that the exchange offer, or the making of
an exchange by a holder of old notes, would violate applicable
law or any applicable interpretation of the staff of the SEC, we
will not be required to accept for exchange, or to exchange, any
tendered old notes. We may also terminate, waive any conditions
to or amend the exchange offer. In addition, we may postpone the
acceptance for exchange of tendered old notes, subject to
Rule 14e-1 under
the Exchange Act, which
39
requires that an offeror pay the consideration offered or return
the securities deposited by or on behalf of the holders thereof
promptly after the termination or withdrawal of the exchange
offer.
Transfer Taxes
We will pay all transfer taxes applicable to the transfer and
exchange of old notes pursuant to the exchange offer. If,
however:
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new notes or old notes for principal amounts not exchanged, are
to be delivered to or registered or issued in the name of, any
person other than the registered holder of the old notes
tendered; |
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tendered certificates for old notes are registered in the name
of any person other than the person signing any letter of
transmittal; or |
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a transfer tax is imposed for any reason other than the transfer
and exchange of old notes to us or our order pursuant to the
exchange offer, |
the amount of any such transfer taxes, whether imposed on the
registered holder or any other person, will be payable by the
tendering holder prior to the issuance of the new notes or
delivery or registering of the old notes.
Consequences of Failing to Exchange
If you do not exchange your old notes for new notes in the
exchange offer, you will remain subject to the restrictions on
transfer of the old notes:
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as set forth in the legend printed on the old notes as a
consequence of the issuance of the old notes pursuant to the
exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable
state securities laws; and |
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otherwise set forth in the offering memoranda distributed in
connection with the private offering of the old notes. |
In general, you may not offer or sell the old notes unless they
are registered under the Securities Act, or if the offer or sale
is exempt from registration under the Securities Act and
applicable state securities laws. Except as required by the
registration rights agreement, we do not intend to register
resales of the old notes under the Securities Act.
Accounting Treatment
The new notes will be recorded at the same carrying value as the
old notes, as reflected in our accounting records on the date of
the exchange. Accordingly, we will not recognize any gain or
loss for accounting purposes upon the consummation of the
exchange offer. We will amortize the expenses of the exchange
offer over the term of the new notes.
Exchange Agent
Wells Fargo Bank, N.A. has been appointed as exchange agent for
the exchange offer. You should direct questions and requests for
assistance, requests for additional copies of this prospectus,
the letter of transmittal or any other documents to the exchange
agent. You should send certificates for old notes, letters of
transmittal and any other required documents to the exchange
agent addressed as follows:
40
The exchange agent for the exchange offer is:
Wells Fargo Bank, N.A.
By Registered or Certified Mail:
Wells Fargo Bank, N.A.
MAC N9303-121
P.O. Box 1517
Minneapolis, MN 55480-1517
Attn: Corporate Trust Operations
By Regular Mail/ Hand/ Overnight Delivery:
Wells Fargo Bank, N.A.
Sixth and Marquette
MAC N9303-121
Minneapolis, MN 55479
Attn: Corporate Trust Operations
For Assistance Call:
800-344-5128
Fax Number (for eligible institutions only):
612-667-4927
41
DESCRIPTION OF NOTES
Allis-Chalmers will issue the new notes under an indenture among
itself, the Guarantors and Wells Fargo Bank, N.A., as trustee.
The terms of the notes include those stated in the indenture and
those made part of the indenture by reference to the Trust
Indenture Act of 1939, as amended (the Trust Indenture
Act).
On January 29, 2007, we issued $250.0 million in
aggregate principal amount of old notes under the indenture.
The following description is a summary of select provisions of
the indenture. It does not restate such agreement in its
entirety. We urge you to read the indenture because it, and not
this description, defines your rights as Holders of the notes.
Anyone who receives this prospectus may obtain a copy of the
indenture without charge by writing to Allis-Chalmers
Energy Inc., 5075 Westheimer, Suite 890, Houston,
TX 77056, Attention: General Counsel.
You can find the definitions of certain terms used in this
description below under the caption
Definitions. Some defined terms used in
this description but not defined below under the caption
Definitions have the meanings assigned
to them in the indenture. In this description, the words
we, us and our and the term
Allis-Chalmers refer only to Allis-Chalmers Energy
Inc. and not to any of its subsidiaries. This description
assumes that all outstanding old notes will be exchanged for new
notes in the exchange offer. Therefore, except where the context
requires otherwise, all references to the notes in this
description are to the new notes.
The registered Holder of a note will be treated as the owner of
it for all purposes. Only registered Holders will have rights
under the indenture.
Brief Description of the Notes
The notes:
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are our general unsecured obligations; |
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are effectively subordinated to all our existing and any future
secured Indebtedness, including our Indebtedness under the
Credit Agreement, to the extent of the assets securing such
Indebtedness, and to all existing and any future liabilities of
our subsidiaries that are not Guarantors, to the extent of the
assets of such subsidiaries; |
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are pari passu in right of payment with all our existing
and any future unsecured, unsubordinated Indebtedness; |
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are senior in right of payment to all our existing and any
future subordinated Indebtedness; and |
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are guaranteed by the Guarantors on a senior unsecured basis. |
As of the date of the indenture, all of our subsidiaries were
Restricted Subsidiaries, and all of them had
guaranteed the notes. However, under the circumstances described
below under the caption Covenants
Designation of Restricted and Unrestricted Subsidiaries,
we will be permitted to designate certain of our subsidiaries as
Unrestricted Subsidiaries. Any Unrestricted
Subsidiaries will not be subject to any of the restrictive
covenants in the indenture and will not guarantee the notes.
Furthermore, our current and future Foreign Subsidiaries (such
as DLS and its subsidiaries) will not guarantee the notes.
42
Principal, Maturity and Interest
We will issue up to $250.0 million in aggregate principal
amount of notes in the exchange offer. The indenture provides
for our issuance of notes with an unlimited principal amount,
and we may issue additional notes from time to time after this
offering. Any offering of additional notes is subject to the
covenant described below under the caption
Covenants Incurrence of
Indebtedness. The notes and any additional notes
subsequently issued under the indenture would be treated as a
single class for all purposes under the indenture, including,
without limitation, waivers, amendments, redemptions and offers
to purchase. Unless otherwise provided or the context otherwise
requires, for all purposes of the indenture and this
Description of Notes, references to the notes
include the notes and any further additional notes actually
issued.
We will issue notes in minimum denominations of $2,000 and
integral multiples of $1,000 in excess thereof. The notes will
mature on March 1, 2017.
Interest on the notes will accrue at the rate of 8.5% per
annum and will be payable semi-annually in arrears on
March 1 and September 1, commencing on
September 1, 2007. Interest on overdue principal and
interest and Liquidated Damages, if any, will accrue at the
applicable interest rate on the notes. We will make each
interest payment to the Holders of record on the immediately
preceding February 15 and August 15. Any Liquidated
Damages due will be paid on the same dates as interest on the
notes.
Interest on the notes will accrue from January 29, 2007.
Interest will be computed on the basis of a
360-day year comprised
of twelve 30-day
months. If an interest payment date falls on a day that is not a
business day, the interest payment to be made on such interest
payment date will be made on the next succeeding business day
with the same force and effect as if made on such interest
payment date, and no additional interest will accrue as a result
of such delayed payment.
Methods of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to us, we will
pay all principal, interest and premium and Liquidated Damages,
if any, on that Holders notes in accordance with those
instructions. All other payments on notes will be made at the
office or agency of the paying agent and registrar within the
City and State of New York unless we elect to make interest
payments by check mailed to the Holders at their addresses set
forth in the register of Holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar. We
may change the paying agent or registrar without prior notice to
the Holders, and we or any of our Subsidiaries may act as paying
agent or registrar.
Transfer and Exchange
A Holder may transfer or exchange notes in accordance with the
indenture. The registrar and the trustee may require a Holder,
among other things, to furnish appropriate endorsements and
transfer documents and we may require a Holder to pay any taxes
and fees required by law or permitted by the indenture. We are
not required to transfer or exchange any note selected for
redemption. Also, we are not required to transfer or exchange
any note for a period of 15 days before a selection of
notes to be redeemed.
The registered Holder of a note will be treated as the owner of
it for all purposes.
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Subsidiary Guarantees
The notes will be guaranteed, jointly and severally, by all of
our current Domestic Subsidiaries and, except under certain
circumstances described under the caption
Covenants Subsidiary
Guarantees, by all of our Domestic Subsidiaries that we
create or acquire in the future. Our current and future Foreign
Subsidiaries (such as DLS and its subsidiaries) will not
guarantee the notes.
Each Subsidiary Guarantee:
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is a general unsecured obligation of the Guarantor; |
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is effectively subordinated to all existing and any future
secured Indebtedness of the Guarantor, including the Guarantee
of the Guarantor under the Credit Agreement; |
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is pari passu in right of payment with all existing and
any future unsecured, unsubordinated Indebtedness of the
Guarantor; and |
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is senior in right of payment to all existing and any future
subordinated Indebtedness of the Guarantor. |
The obligations of each Guarantor under its Subsidiary Guarantee
will be limited as necessary to prevent that Subsidiary
Guarantee from constituting a fraudulent conveyance under
applicable law. See Risk Factors Federal and
state statutes allow courts, under specific circumstances, to
void guarantees and require note holders to return payments
received from guarantors. Assuming the offering of the
notes had been completed as of September 30, 2006 and that
the net proceeds had been applied as intended, the Guarantors
would have had approximately $518.8 million of indebtedness
outstanding (approximately $11.8 million of which would
have been secured indebtedness).
Subsidiary Guarantees may be released in certain circumstances.
See Covenants Subsidiary
Guarantees.
Optional Redemption
At any time prior to March 1, 2012, we may redeem the
notes, in whole or in part, at the Make-Whole Price, plus
accrued and unpaid interest and Liquidated Damages, if any,
to the redemption date. Make-Whole Price with
respect to a note means the greater of:
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(1) the sum of the outstanding principal amount and
Make-Whole Amount of such note; and |
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(2) the redemption price of such note on March 1,
2012, determined pursuant to the indenture (104.250% of the
principal amount). |
Make-Whole Amount with respect to a note
means an amount equal to the excess, if any, of:
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(1) the present value of the remaining interest, premium,
if any, and principal payments due on such note as if such note
were redeemed on March 1, 2012 computed using a discount
rate equal to the Treasury Rate plus 50 basis
points, over |
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(2) the outstanding principal amount of such note. |
Treasury Rate is defined as the yield to
maturity at the time of the computation of United States
Treasury securities with a constant maturity (as compiled by and
published in the most recent Federal Reserve Statistical Release
H.15(519), which has become publicly available at least two
business days prior to the date of the redemption notice or, if
such Statistical Release is no longer published, any publicly
available source of similar market date) most nearly equal to
the then remaining maturity of the notes assuming redemption of
the notes on March 1, 2012; provided,
however, that if the Make-Whole
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Average Life of such note is not equal to the constant maturity
of the United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by
linear interpolation (calculated to the nearest one-twelfth of a
year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the
Make-Whole Average Life of such notes is less than one year, the
weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year shall be
used. Make-Whole Average Life means the
number of years (calculated to the nearest one-twelfth) between
the date of redemption and March 1, 2012.
On or after March 1, 2012, we may redeem all or a part of
the notes upon not less than 30 nor more than 60 days
notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid
interest and Liquidated Damages, if any, to the applicable
redemption date, if redeemed during the twelve-month period
beginning on March 1, of the years indicated below, subject
to the rights of Holders on the relevant record date to receive
interest on the relevant interest payment date:
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2012
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104.250 |
% |
2013
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102.833 |
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2014
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101.417 |
% |
2015 and thereafter
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100.00 |
% |
At any time prior to March 1, 2010, we may, on one or more
occasions, redeem up to 35% of the aggregate principal amount of
notes issued under the indenture (including any additional
notes) at a redemption price of 108.5% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the redemption date, with the net cash
proceeds of one or more Equity Offerings; provided that:
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(1) notes in an aggregate principal amount equal to at
least 65% of the aggregate principal amount of notes issued
under the indenture on the Issue Date remain outstanding
immediately after the occurrence of such redemption (excluding
notes held by us or our Affiliates); and |
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(2) the redemption must occur within 180 days of the
date of the closing of such Equity Offering. |
Unless we default in the payment of the redemption price,
interest will cease to accrue on the notes or portions thereof
called for redemption on the applicable redemption date.
Selection and Notice
If less than all of the notes are to be redeemed at any time,
the trustee will select notes for redemption as follows:
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(1) if the notes are listed on any national securities
exchange, in compliance with the requirements of such principal
national securities exchange; or |
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(2) if the notes are not so listed, on a pro rata basis, by
lot or by such method as the trustee will deem fair and
appropriate. |
No notes of $1,000 or less will be redeemed in part. Notices of
redemption will be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each
Holder of notes to be redeemed at its registered address, except
that redemption notices may be mailed more than 60 days
prior to a redemption date if the notice is issued in connection
with a defeasance of the notes or a
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satisfaction and discharge of the indenture. Notices of
redemption may be conditional and our obligation to redeem notes
may be subject to any one or more conditions that we, in our
sole discretion, include in such a notice.
If any note is to be redeemed in part only, the notice of
redemption that relates to that note will state the portion of
the principal amount thereof to be redeemed. A new note in
principal amount equal to the unredeemed portion of the original
note will be issued in the name of the Holder thereof upon
cancellation of the original note. Notes called for redemption
become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on notes or portions
of them called for redemption.
Open Market Purchases; No Mandatory Redemption or Sinking
Fund
We may at any time and from time to time purchase notes in the
open market or otherwise, in each case without any restriction
under the indenture. We are not required to make mandatory
redemption or sinking fund payments with respect to the notes.
Repurchase at the Option of Holders
If a Change of Control occurs, each Holder of notes will have
the right to require
Allis-Chalmers to
repurchase all or any part (equal to $1,000 and integral
multiples of $1,000 in excess thereof) of that Holders
notes pursuant to an offer (a Change of Control
Offer) on the terms set forth in the indenture. In the
Change of Control Offer,
Allis-Chalmers will
offer payment (a Change of Control Payment)
in cash equal to not less than 101% of the aggregate principal
amount of notes repurchased plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of
repurchase (the Change of Control Payment
Date, which date will be no earlier than the date of
such Change of Control). No later than 30 days following
any Change of Control,
Allis-Chalmers will
mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering
to repurchase notes on the Change of Control Payment Date
specified in such notice, which date will be no earlier than
30 days and no later than 60 days from the date such
notice is mailed, pursuant to the procedures required by the
indenture and described in such notice.
Allis-Chalmers will
comply with the requirements of
Rule 14e-1 under
the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the notes as a
result of a Change of Control. To the extent that the provisions
of any securities laws or regulations conflict with the Change
of Control provisions of the indenture, or compliance with the
Change of Control provisions of the indenture would constitute a
violation of any such laws or regulations,
Allis-Chalmers will
comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the
Change of Control provisions of the indenture by virtue of such
compliance.
On or before the Change of Control Payment Date,
Allis-Chalmers will, to
the extent lawful:
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(1) accept for payment all notes or portions thereof
properly tendered pursuant to the Change of Control Offer; |
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(2) deposit with the paying agent an amount equal to the
Change of Control Payment in respect of all notes or portions
thereof properly tendered; and |
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(3) deliver or cause to be delivered to the trustee, the
notes so accepted together with an Officers Certificate
stating the aggregate principal amount of notes or portions
thereof being purchased by
Allis-Chalmers. |
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The paying agent will promptly mail or wire transfer to each
Holder of notes properly tendered the Change of Control Payment
for such notes, and the trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a
new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each such
new note will be in a principal amount of $2,000 or an integral
multiple of $1,000 in excess thereof.
Allis-Chalmers will
publicly announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment
Date.
If Holders of not less than 95% in aggregate principal amount of
the outstanding notes validly tender and do not withdraw such
notes in a Change of Control Offer and
Allis-Chalmers, or any
third party making a Change of Control Offer in lieu of
Allis-Chalmers as
described above, purchases all of the notes validly tendered and
not withdrawn by such Holders,
Allis-Chalmers will
have the right, upon not less than 30 nor more than
60 days prior notice, given not more than
30 days following such purchase pursuant to the Change of
Control Offer described above, to redeem all notes that remain
outstanding following such purchase at a redemption price in
cash equal to the applicable Change of Control Payment plus, to
the extent not included in the Change of Control Payment,
accrued and unpaid interest, if any, and Liquidated Damages, if
any thereon, to the date of redemption.
The Credit Agreement prohibits us from purchasing any notes and
provides that certain change of control events with respect to
us constitute a default under the Credit Agreement. Any future
credit agreements or other similar agreements to which we become
a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when we are
prohibited from purchasing notes, we could seek the consent of
our lenders to the purchase of notes or could attempt to
refinance the borrowings that contain such prohibition. If we do
not obtain such a consent or repay such borrowings, we will
remain prohibited from purchasing notes. In such case, our
failure to purchase tendered notes would constitute an Event of
Default under the indenture which would, in turn, constitute a
default under such other agreements.
The provisions described above that require us to make a Change
of Control Offer following a Change of Control will be
applicable regardless of whether any other provisions of the
indenture are applicable. Except as described above with respect
to a Change of Control, the indenture does not contain
provisions that permit the Holders of the notes to require that
we repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
We will not be required to make a Change of Control Offer upon a
Change of Control if (1) a third party makes the Change of
Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the indenture
applicable to a Change of Control Offer made by us and purchases
all notes properly tendered and not withdrawn under the Change
of Control Offer or (2) notice of redemption has been given
pursuant to the indenture as described above under the caption
Optional Redemption, unless and until
there is a default in payment of the applicable redemption price.
The definition of Change of Control includes a phrase relating
to the direct or indirect sale, transfer, conveyance or other
disposition of all or substantially all of the
properties or assets of
Allis-Chalmers and our
Restricted Subsidiaries taken as a whole. Although there is a
limited body of case law interpreting the phrase
substantially all, there is no precise established
definition of the phrase under applicable law. Accordingly, the
ability of a Holder of notes to require us to repurchase such
notes as a result of a sale, transfer, conveyance or other
disposition of less than all of the assets of
Allis-Chalmers and our
Restricted Subsidiaries taken as a whole to another Person or
group may be uncertain.
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Allis-Chalmers will
not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
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(1) Allis-Chalmers
(or the Restricted Subsidiary, as the case may be) receives
consideration in respect of such Asset Sale at least equal to
the Fair Market Value of the assets or Equity Interests issued
or sold or otherwise disposed of; and |
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(2) either (x) at least 75% of the consideration
therefor received by
Allis-Chalmers or such
Restricted Subsidiary is in the form of cash, Cash Equivalents
or Replacement Assets or a combination thereof or (y) the
Fair Market Value of the aggregate of all consideration other
than cash, Cash Equivalents or Replacement Assets for all Asset
Sales since the Issue Date would not exceed 10% of the
Consolidated Tangible Assets of
Allis-Chalmers after
giving effect to such Asset Sales. For purposes of this
provision, each of the following will be deemed to be cash: |
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(a) any liabilities, as shown on
Allis-Chalmers or
such Restricted Subsidiarys most recent consolidated
balance sheet (or as would be shown on
Allis-Chalmers
consolidated balance sheet as of the date of such Asset Sale) of
Allis-Chalmers or any
Restricted Subsidiary (other than contingent liabilities,
Indebtedness that is by its terms subordinated to the notes or
any Subsidiary Guarantee) that are assumed by the transferee of
any such assets or Equity Interests pursuant to (1) a
written novation agreement that releases
Allis-Chalmers or such
Restricted Subsidiary from further liability therefor or
(2) an assignment agreement that includes, in lieu of such
a release, the agreement of the transferee or its parent company
to indemnify and hold harmless
Allis-Chalmers or such
Restricted Subsidiary from and against any loss, liability or
cost in respect of such assumed liability; |
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(b) any securities, notes or other obligations received by
Allis-Chalmers or any
such Restricted Subsidiary from such transferee that are
converted by
Allis-Chalmers or such
Restricted Subsidiary into cash within 270 days after such
Asset Sale, to the extent of the cash received in that
conversion; and |
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(c) accounts receivable of a business retained by
Allis-Chalmers or any
of its Restricted Subsidiaries following the sale of such
business; provided that (i) such accounts receivable
are not more than 60 days past due and (ii) do not
have a payment date greater than 90 days from the date of
the invoice creating such accounts receivable. |
Any Asset Sale pursuant to a condemnation, appropriation or
other similar taking, including by deed in lieu of condemnation,
or pursuant to the foreclosure or other enforcement of a
Permitted Lien or exercise by the related lienholder of rights
with respect thereto, including by deed or assignment in lieu of
foreclosure shall not be required to satisfy the conditions set
forth in clauses (1) and (2) of the first paragraph of
this covenant.
Notwithstanding the foregoing, the 75% limitation referred to
above shall be deemed satisfied with respect to any Asset Sale
in which the cash or Cash Equivalents portion of the
consideration received therefrom, determined in accordance with
the foregoing provision on an after-tax basis, is equal to or
greater than what the after-tax proceeds would have been had
such Asset Sale complied with the aforementioned 75% limitation.
Within 360 days after the receipt of any Net Proceeds from
an Asset Sale,
Allis-Chalmers or its
Restricted Subsidiaries may apply an amount equal to such Net
Proceeds at its option:
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(1) to repay Indebtedness for borrowed money (other than
Subordinated Indebtedness); or |
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(2) to make any capital expenditure or to purchase
Replacement Assets (or enter into a binding agreement to make
such capital expenditure or to purchase such Replacement Assets;
provided that (a) such capital expenditure or
purchase is consummated within the later of
(x) 360 days after the receipt of the Net Proceeds
from the related Asset Sale and (y) 180 days after the
date of such binding agreement and (b) if such capital
expenditure or purchase is not consummated within the period set
forth in subclause (a), the amount not so applied will be
deemed to be Excess Proceeds (as defined below)). |
Pending the final application of any such Net Proceeds,
Allis-Chalmers may
temporarily reduce revolving credit borrowings or otherwise
invest such Net Proceeds in any manner that is not prohibited by
the indenture.
An amount equal to any Net Proceeds from Asset Sales that are
not applied or invested as provided in the preceding paragraphs
will constitute Excess Proceeds. If on any
date, the aggregate amount of Excess Proceeds exceeds
$10.0 million, then within ten business days after such
date, Allis-Chalmers
will make an offer (an Asset Sale Offer) to
all Holders of notes and all holders of other Indebtedness that
is pari passu with the notes containing provisions
similar to those set forth in the indenture with respect to
offers to purchase or redeem with the proceeds of sales of
assets, to purchase the maximum principal amount of notes and
such other pari passu Indebtedness that may be purchased
out of the Excess Proceeds. The offer price in any Asset Sale
Offer will be equal to 100% of principal amount plus
accrued and unpaid interest and Liquidated Damages, if any,
to the date of purchase, and will be payable in cash. If any
Excess Proceeds remain unapplied after consummation of an Asset
Sale Offer,
Allis-Chalmers and its
Restricted Subsidiaries may use those Excess Proceeds for any
purpose not otherwise prohibited by the indenture. If the
aggregate principal amount of notes and other pari passu
Indebtedness tendered into such Asset Sale Offer exceeds the
amount of Excess Proceeds, the trustee will select the notes and
such other pari passu Indebtedness to be purchased on a
pro rata basis. Upon completion of each Asset Sale Offer, the
amount of Excess Proceeds will be reset at zero.
Notwithstanding the foregoing, the sale, conveyance or other
disposition of all or substantially all of the assets of
Allis-Chalmers and its
Restricted Subsidiaries, taken as a whole, will be governed by
the provisions of the indenture described under the caption
Repurchase at the Option of Holders
Change of Control and/or the provisions described under
the caption Covenants Merger,
Consolidation or Sale of Assets and not by the provisions
of the Asset Sale covenant.
Allis-Chalmers will
comply with the requirements of
Rule 14e-1 under
the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are
applicable in connection with each repurchase of notes pursuant
to an Asset Sale Offer. To the extent that the provisions of any
securities laws or regulations conflict with the Asset Sales
provisions of the indenture, or compliance with the Asset Sale
provisions of the indenture would constitute a violation of any
such laws or regulations,
Allis-Chalmers will
comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the
Asset Sale provisions of the indenture by virtue of such
compliance.
The Credit Agreement prohibits
Allis-Chalmers from
purchasing any notes and also provides that certain asset sale
events with respect to
Allis-Chalmers
constitute a default under the Credit Agreement. Any future
credit agreements or other similar agreements to which
Allis-Chalmers becomes
a party may contain similar restrictions and provisions. In the
event an Asset Sale occurs at a time when
Allis-Chalmers is
prohibited from purchasing notes,
Allis-Chalmers could
seek the consent of its lenders to the purchase of notes or
could attempt to refinance the borrowings that contain such
prohibition. If
Allis-Chalmers does not
obtain such a consent or repay such borrowings,
Allis-Chalmers will
remain prohibited from purchasing notes. In such case,
Allis-Chalmers
failure to purchase tendered notes would
49
constitute an Event of Default under the indenture which would,
in turn, constitute a default under such other agreements. Also,
Allis-Chalmers
ability to pay cash to the Holders of notes upon a repurchase
may be limited by
Allis-Chalmers
then existing financial resources. See Risk
Factors Risks Associated with the Notes
We may not be able to finance a change of control offer required
by the indenture governing the notes.
Covenants
Restricted Payments
(A) Allis-Chalmers
will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
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(1) declare or pay (without duplication) any dividend or
make any other payment or distribution on account of
Allis-Chalmers or
any of its Restricted Subsidiaries Equity Interests or to
the direct or indirect holders of
Allis-Chalmers or
any of its Restricted Subsidiaries Equity Interests in
their capacity as such (other than dividends, payments or
distributions (x) payable in Equity Interests (other than
Disqualified Stock) of
Allis-Chalmers or
(y) to
Allis-Chalmers or a
Restricted Subsidiary of
Allis-Chalmers); |
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(2) purchase, redeem or otherwise acquire or retire for
value any Equity Interests of
Allis-Chalmers or any
Restricted Subsidiary thereof held by Persons other than
Allis-Chalmers or any
of its Restricted Subsidiaries; |
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(3) make any payment on or with respect to, or purchase,
redeem, defease or otherwise acquire or retire for value any
Subordinated Indebtedness (other than intercompany Indebtedness
between Allis-Chalmers
and any of its Restricted Subsidiaries), except (a) a
payment of interest or principal at the Stated Maturity thereof
or (b) the purchase, repurchase or other acquisition of any
such Indebtedness in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each
case due within one year of the date of such purchase,
repurchase or other acquisition; or |
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(4) make any Restricted Investment |
(all such payments and other actions set forth in
clauses (1) through (4) above being collectively
referred to as Restricted Payments), unless,
at the time of and after giving effect to such Restricted
Payment:
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(1) no Default or Event of Default will have occurred and
be continuing or would occur as a consequence thereof; and |
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(2) Allis-Chalmers
would, at the time of such Restricted Payment and after giving
pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period,
have been permitted to Incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described below
under the caption Incurrence of
Indebtedness; and |
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(3) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by
Allis-Chalmers and its
Restricted Subsidiaries after January 18, 2006 (excluding
Restricted Payments permitted by clauses (2), (3), (4),
(5), (6), (8), (10) and (12) of the next succeeding
paragraph (B)), is less than the sum, without duplication,
of: |
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(a) 50% of the Consolidated Net Income of
Allis-Chalmers for the
period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing after January 18, 2006
to the end of
Allis-Chalmers
most recently ended fiscal quarter for which internal |
50
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financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit),
plus |
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(b) 100% of (A)(i) the aggregate net cash proceeds and
(ii) the Fair Market Value of (x) marketable
securities (other than marketable securities of
Allis-Chalmers),
(y) Capital Stock of a Person (other than
Allis-Chalmers or an
Affiliate of
Allis-Chalmers) engaged
in a Permitted Business and (z) other assets used in any
Permitted Business, in the case of clauses (i) and (ii),
received by
Allis-Chalmers since
January 18, 2006 as a contribution to its common equity
capital or from the issue or sale of Equity Interests of
Allis-Chalmers (other
than Disqualified Stock) or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of
Allis-Chalmers that
have been converted into or exchanged for such Equity Interests
(other than Equity Interests (or Disqualified Stock or debt
securities) sold to a Subsidiary of
Allis-Chalmers),
(B) the amount by which Indebtedness of
Allis-Chalmers or any
Restricted Subsidiary is reduced on
Allis-Chalmers
consolidated balance sheet upon the conversion or exchange after
January 18, 2006 of any such Indebtedness into or for
Equity Interests (other than Disqualified Stock) of
Allis-Chalmers, and
(C) the aggregate net cash proceeds, if any, received by
Allis-Chalmers or any
of its Restricted Subsidiaries upon any conversion or exchange
described in clause (A) or (B) above, plus |
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(c) with respect to Restricted Investments made by
Allis-Chalmers and its
Restricted Subsidiaries after January 18, 2006, an amount
equal to the sum of (A) the net reduction in such
Restricted Investments in any Person resulting from
(i) repayments of loans or advances, or other transfers of
assets, in each case to
Allis-Chalmers or any
Restricted Subsidiary, (ii) other repurchases, repayments
or redemptions of such Restricted Investments, (iii) the
sale of any such Restricted Investment or (iv) the release
of any Guarantee (except to the extent any amounts are paid
under such Guarantee) plus (B) all amounts
representing the return of capital (excluding dividends and
distributions) to
Allis-Chalmers or any
Restricted Subsidiary in respect of such Restricted Investment
plus (C) with respect to any Unrestricted Subsidiary
that the Board of Directors of
Allis-Chalmers
redesignates as a Restricted Subsidiary, the Fair Market Value
of the Investment in such Subsidiary held by
Allis-Chalmers or any
of its Restricted Subsidiaries at the time of such redesignation. |
(B) The preceding provisions will not prohibit, so long as,
in the case of clauses (7) and (8) below, no Default
has occurred and is continuing or would be caused thereby:
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(1) the payment of any dividend within 60 days after
the date of declaration thereof, if at said date of declaration
such payment would have complied with the provisions of the
indenture; |
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(2) the payment of any dividend or similar distribution by
a Restricted Subsidiary of
Allis-Chalmers to the
holders of its Equity Interests on a pro rata basis; |
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(3) the making of any Restricted Payment in exchange for,
or out of the net cash proceeds of the substantially concurrent
sale (other than to a Subsidiary of
Allis-Chalmers) of,
Equity Interests of
Allis-Chalmers (other
than Disqualified Stock) or from the substantially concurrent
contribution (other than by a Subsidiary of
Allis-Chalmers) of
capital to
Allis-Chalmers in
respect of its Equity Interests (other than Disqualified Stock);
provided that the amount of any such net cash proceeds
that are utilized for any such Restricted Payment will be
excluded from clause (3)(b) of the preceding
paragraph (A); |
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(4) the defeasance, redemption, repurchase, retirement or
other acquisition of Subordinated Indebtedness with the net cash
proceeds from a substantially concurrent incurrence of Permitted |
51
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Refinancing Indebtedness; provided that the amount of any
such net cash proceeds that are utilized for any such
defeasance, redemption, repurchase, retirement or other
acquisition of Indebtedness will be excluded from
clause (3)(b) of the preceding paragraph (A); |
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(5) Investments acquired as a capital contribution to, or
in exchange for, or out of the net cash proceeds of a
substantially concurrent sale (other than to a Subsidiary of
Allis-Chalmers) of,
Equity Interests (other than Disqualified Stock) of
Allis-Chalmers;
provided that the amount of any such net cash proceeds
that are utilized for any such acquisition or exchange will be
excluded from clause (3)(b) of the preceding
paragraph (A); |
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(6) the repurchase, redemption or other acquisition or
retirement of Equity Interests deemed to occur upon the exercise
or exchange of stock options, warrants or other similar rights
to the extent such Equity Interests represent a portion of the
exercise or exchange price of those stock options, and the
repurchase, redemption or other acquisition or retirement of
Equity Interests made in lieu of withholding taxes resulting
from the exercise or exchange of stock options, warrants or
other similar rights; |
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(7) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of Parent,
Allis-Chalmers or any
Restricted Subsidiary of
Allis-Chalmers held by
any current or former officer, director or employee (or any of
their respective heirs or estates or permitted transferees) of
Parent, Allis-Chalmers
or any Restricted Subsidiary of
Allis-Chalmers pursuant
to any equity subscription agreement, stock option agreement,
stockholders agreement or similar agreement; provided
that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests in any calendar
year will not exceed $2.0 million (with unused amounts in
any calendar year being carried over to succeeding calendar
years subject to a maximum (without giving effect to the
following proviso) of $6.0 million in any calendar year);
provided further that such amount in any calendar year
may be increased by an amount not to exceed (A) the cash
proceeds received by
Allis-Chalmers from the
sale of Equity Interests of
Allis-Chalmers to
members of management or directors of
Allis-Chalmers and its
Restricted Subsidiaries that occurs after January 18, 2006
(to the extent the cash proceeds from the sale of such Equity
Interests have not otherwise been applied to the payment of
Restricted Payments by virtue of clause 3(b) of the
preceding paragraph (A)), plus (B) the cash
proceeds of key man life insurance policies received by
Allis-Chalmers and its
Restricted Subsidiaries after January 18, 2006, less
(C) the amount of any Restricted Payments made pursuant
to clauses (A) and (B) of this clause (7); |
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(8) dividends on Preferred Stock or Disqualified Stock
issued in compliance with the covenant
Incurrence of Indebtedness to the extent
such dividends are included in the definition of Fixed Charges; |
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(9) the payment of cash in lieu of fractional Equity
Interests; |
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(10) Permitted Payments to Parent; |
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(11) payments or distributions to dissenting stockholders
pursuant to applicable law in connection with a merger,
consolidation or transfer of assets that complies with the
provisions described under the caption
Covenants Merger, Consolidation or
Sales of Assets; and |
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(12) other Restricted Payments in an aggregate amount at
any one time outstanding not to exceed $15.0 million. |
In determining whether any Restricted Payment is permitted by
the foregoing covenant,
Allis-Chalmers may
allocate or reallocate all or any portion of such Restricted
Payment among the
52
clauses of the preceding paragraph (B) or among such
clauses and the provisions of paragraph (A) of this
covenant, provided that at the time of such allocation or
reallocation, all such Restricted Payments, or allocated
portions thereof, would be permitted under the various
provisions of the foregoing covenant.
The amount of all Restricted Payments will be the Fair Market
Value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by
Allis-Chalmers or such
Restricted Subsidiary, as the case may be, pursuant to the
Restricted Payment. The Fair Market Value of any assets or
securities (other than cash or Cash Equivalents) that are
required to be valued by this covenant will be determined by the
Board of Directors of
Allis-Chalmers whose
resolution with respect thereto will be delivered to the
trustee. The Board of Directors determination must be
based upon an opinion or appraisal issued by an Independent
Financial Advisor if such Fair Market Value exceeds
$15.0 million.
Incurrence of Indebtedness
Allis-Chalmers will
not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, Incur any Indebtedness (including
Acquired Debt); provided, however, that
Allis-Chalmers or any
Guarantor may Incur Indebtedness (including Acquired Debt), if
the Fixed Charge Coverage Ratio for
Allis-Chalmers
most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the
date on which such additional Indebtedness is Incurred would
have been at least 2.0 to 1, determined on a pro forma
basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been Incurred
at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the
Incurrence of any of the following items of Indebtedness
(collectively, Permitted Debt):
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(1) the Incurrence by
Allis-Chalmers or any
Guarantor of additional Indebtedness under Credit Facilities
(including, without limitation, the Incurrence by
Allis-Chalmers and the
Guarantors of Guarantees thereof) in an aggregate amount at any
one time outstanding pursuant to this clause (1) not to
exceed a maximum amount equal to the greater of
(a) $75.0 million or (b) 10.0% of the
Consolidated Tangible Assets of
Allis-Chalmers;
provided, however, that the maximum amount
permitted to be outstanding under this clause (1) shall not
be deemed to limit additional Indebtedness under the Credit
Facilities to the extent the Incurrence of such additional
Indebtedness is permitted pursuant to any of the other
provisions of this covenant; |
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(2) the Incurrence of Existing Indebtedness; |
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(3) the Incurrence by
Allis-Chalmers and the
Guarantors of Indebtedness represented by the notes and the
related Subsidiary Guarantees to be issued on the Issue Date and
the exchange notes and the related Subsidiary Guarantees to be
issued pursuant to the Registration Rights Agreement; |
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(4) the Incurrence by
Allis-Chalmers or any
Restricted Subsidiary of
Allis-Chalmers of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, Incurred
for the purpose of financing all or any part of the purchase
price or cost of construction, installation, improvement,
deployment, refurbishment, modification or lease of property,
plant or equipment or furniture, fixtures and equipment, in each
case used in the business of
Allis-Chalmers or such
Restricted Subsidiary, in an aggregate amount, including all
Permitted Refinancing Indebtedness Incurred to refund, refinance
or replace any Indebtedness Incurred pursuant to this
clause (4), not to exceed the greater of
(a) $35.0 million at any time outstanding or
(b) 5.0% of Consolidated Tangible Assets of
Allis-Chalmers; |
53
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(5) the Incurrence by
Allis-Chalmers or any
Restricted Subsidiary of
Allis-Chalmers of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance, replace,
defease or discharge Indebtedness (other than intercompany
Indebtedness) that was permitted by the indenture to be Incurred
under the first paragraph of this covenant or clauses (2),
(3), (4), (5), (9) or (13) of this paragraph; |
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(6) the Incurrence by
Allis-Chalmers or any
of its Restricted Subsidiaries of intercompany Indebtedness
owing to and held by
Allis-Chalmers or any
of its Restricted Subsidiaries; provided, however,
that (i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a
Person other than
Allis-Chalmers or a
Restricted Subsidiary thereof and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either
Allis-Chalmers or a
Restricted Subsidiary thereof, will be deemed, in each case, to
constitute an Incurrence of such Indebtedness by
Allis-Chalmers or such
Restricted Subsidiary, as the case may be, that was not
permitted by this clause (6); |
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(7) the Guarantee by
Allis-Chalmers or any
of the Guarantors of Indebtedness of
Allis-Chalmers or a Restricted Subsidiary of
Allis-Chalmers that was
permitted to be Incurred by another provision of this covenant; |
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(8) the Incurrence by
Allis-Chalmers or any
of its Restricted Subsidiaries of Hedging Obligations that are
Incurred for the purpose of fixing, hedging or swapping interest
rate, commodity price or foreign currency exchange rate risk (or
to reverse or amend any such agreements previously made for such
purposes), and not for speculative purposes, and that do not
increase the Indebtedness of the obligor outstanding at any time
other than as a result of fluctuations in interest rates,
commodity prices or foreign currency exchange rates or by reason
of fees, indemnities and compensation payable thereunder; |
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(9) the Incurrence by
Allis-Chalmers or any
of its Restricted Subsidiaries of Indebtedness in respect of
workers compensation claims, self-insurance obligations,
bankers acceptances, performance bonds, completion bonds,
bid bonds, appeal bonds and surety bonds or other similar bonds
or obligations, and any Guarantees or letters of credit
functioning as or supporting any of the foregoing; |
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(10) the Incurrence by
Allis-Chalmers or any
of its Restricted Subsidiaries of Indebtedness constituting
reimbursement obligations with respect to letters of credit
issued in the ordinary course of business; provided that,
upon the drawing of such letters of credit or the Incurrence of
such Indebtedness, such obligations are reimbursed within one
year following such drawing or Incurrence; |
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(11) the Incurrence by
Allis-Chalmers of
Indebtedness to the extent that the net proceeds thereof are
promptly deposited to defease or to satisfy and discharge the
notes; |
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(12) the Incurrence by Foreign Subsidiaries of Indebtedness
in an aggregate amount outstanding at any one time not to exceed
15% of such Foreign Subsidiaries Consolidated Tangible
Assets; or |
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(13) the Incurrence by
Allis-Chalmers or any
of its Restricted Subsidiaries of additional Indebtedness in an
aggregate amount at any time outstanding, including all
Permitted Refinancing Indebtedness Incurred to refund,
refinance, defease, discharge or replace any Indebtedness
Incurred pursuant to this clause (13), not to exceed
$25.0 million. |
For purposes of determining compliance with this covenant, in
the event that any proposed Indebtedness meets the criteria of
more than one of the categories of Permitted Debt described in
54
clauses (1) through (13) above, or is entitled to be
Incurred pursuant to the first paragraph of this covenant,
Allis-Chalmers will be
permitted to divide and classify such item of Indebtedness at
the time of its Incurrence in any manner that complies with this
covenant. In addition, any Indebtedness originally divided or
classified as Incurred pursuant to clauses (1) through
(13) above may later be re-divided or reclassified by
Allis-Chalmers such
that it will be deemed as having been Incurred pursuant to
another of such clauses provided that such re-divided or
reclassified Indebtedness could be Incurred pursuant to such new
clause at the time of such re-division or reclassification.
Notwithstanding the foregoing, Indebtedness under the Credit
Agreement outstanding on the Issue Date will be deemed to have
been Incurred on such date in reliance on the exception provided
by clause (1) of the definition of Permitted Debt.
Notwithstanding any other provision of this covenant, the
maximum amount of Indebtedness that may be Incurred pursuant to
this covenant will not be deemed to be exceeded with respect to
any outstanding Indebtedness due solely to the result of
fluctuations in the exchange rates of currencies.
Allis-Chalmers will not Incur any Indebtedness that is
subordinate in right of payment to any other Indebtedness of
Allis-Chalmers unless it is subordinate in right of payment to
the notes to the same extent. Allis-Chalmers will not permit any
Guarantor to Incur any Indebtedness that is subordinate in right
of payment to any other Indebtedness of such Guarantor unless it
is subordinate in right of payment to such Guarantors
Subsidiary Guarantee to the same extent. For purposes of the
foregoing, solely for the avoidance of doubt and without any
other implication, no Indebtedness will be deemed to be
subordinated in right of payment to any other Indebtedness of
Allis-Chalmers or any Guarantor, as applicable, solely by reason
of any Liens or Guarantees arising or created in respect thereof
or by virtue of the fact that the holders of any secured
Indebtedness have entered into intercreditor agreements giving
one or more of such holders priority over the other holders in
the collateral held by them.
Liens
Allis-Chalmers will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or suffer to
exist any Lien securing Indebtedness, upon any asset now owned
or hereafter acquired, except Permitted Liens, unless the notes
are equally and ratably secured (except that Liens securing
Subordinated Indebtedness shall be expressly subordinate to any
Lien securing the notes to at least the same extent such
Subordinated Indebtedness is subordinate to the notes).
Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries
Allis-Chalmers will not, and will not permit any of its
Restricted Subsidiaries to create or permit to exist or become
effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to:
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(1) pay dividends or make any other distributions on its
Capital Stock (or with respect to any other interest or
participation in, or measured by, its profits) to Allis-Chalmers
or any of its Restricted Subsidiaries or pay any liabilities
owed to Allis-Chalmers or any of its Restricted Subsidiaries; |
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(2) make loans or advances to Allis-Chalmers or any of its
Restricted Subsidiaries; or |
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(3) transfer any of its properties or assets to
Allis-Chalmers or any of its Restricted Subsidiaries. |
55
However, the preceding restrictions will not apply to
encumbrances or restrictions:
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(1) existing under, by reason of or with respect to any
Credit Facility, Existing Indebtedness, Capital Stock or any
other agreements or instruments in effect on the Issue Date and
any amendments, modifications, restatements, renewals,
extensions, supplements, refundings, replacements or
refinancings thereof, provided that the encumbrances and
restrictions in any such amendments, modifications,
restatements, renewals, increases, extensions, supplements,
refundings, replacement or refinancings are, in the reasonable
good faith judgment of the Chief Executive Officer and the Chief
Financial Officer of Allis-Chalmers, no more restrictive, taken
as a whole, than those contained in the Credit Agreement,
Existing Indebtedness, Capital Stock or such other agreements or
instruments, as the case may be, as in effect on the Issue Date; |
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(2) set forth in the indenture, the notes and the
Subsidiary Guarantees or contained in any other instrument
relating to any other Indebtedness so long as the Board of
Directors determines that such encumbrances or restrictions are
no more restrictive in the aggregate than those contained in the
indenture; |
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(3) existing under, by reason of or with respect to
applicable law, rule, regulation or order; |
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(4) with respect to any Person or the property or assets of
a Person acquired by Allis-Chalmers or any of its Restricted
Subsidiaries existing at the time of such acquisition, which
encumbrance or restriction is not applicable to any Person or
the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired and any
amendments, modifications, restatements, renewals, increases,
extensions, supplements, refundings, replacements or
refinancings thereof, provided that the encumbrances and
restrictions in any such amendments, modifications,
restatements, renewals, increases, extensions, supplements,
refundings, replacement or refinancings are, in the reasonable
good faith judgment of the Chief Executive Officer and the Chief
Financial Officer of Allis-Chalmers, no more restrictive, taken
as a whole, than those in effect on the date of the acquisition; |
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(5) Indebtedness Incurred or Capital Stock issued by any
Restricted Subsidiary, provided that the restrictions
contained in the agreements or instruments governing such
Indebtedness or Capital Stock (a) either (i) apply
only in the event of a payment default or a default with respect
to a financial covenant in such agreement or instrument or
(ii) will not materially affect Allis-Chalmers
ability to pay all principal, interest and premium and
Liquidated Damages, if any, on the notes, as determined in good
faith by the Chief Executive Officer and the Chief Financial
Officer of Allis-Chalmers, whose determination shall be
conclusive; and (b) are not materially more disadvantageous
to the Holders of the notes than is customary in comparable
financings (as determined by the Chief Financial Officer of
Allis-Chalmers, whose determination shall be conclusive). |
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(6) in the case of clause (3) of the first paragraph
of this covenant: |
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(A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease,
license, conveyance or contract or similar property or asset; |
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(B) existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any
property or assets of Allis-Chalmers or any Restricted
Subsidiary thereof not otherwise prohibited by the indenture; |
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(C) purchase money obligations for property acquired in the
ordinary course of business and Capital Lease Obligations; |
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(D) provisions limiting the disposition or distribution of
assets or property in joint venture agreements, asset sale
agreements, sale-leaseback agreements, stock sale agreements |
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and other similar agreements entered into with the approval of
Allis-Chalmers Board of Directors or in the ordinary
course of business, which limitation is applicable only to the
assets that are the subject of such agreements; |
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(E) any instrument governing secured Indebtedness; and |
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(F) arising or agreed to in the ordinary course of
business, not relating to any Indebtedness, and that do not,
individually or in the aggregate, detract from the value of
property or assets of Allis-Chalmers or any Restricted
Subsidiary thereof in any manner material to Allis-Chalmers or
any Restricted Subsidiary thereof; |
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(7) existing under, by reason of or with respect to any
agreement for the sale or other disposition of all or
substantially all of the Capital Stock of, or property and
assets of, a Restricted Subsidiary that restrict distributions
by that Restricted Subsidiary pending such sale or other
disposition; |
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(8) Permitted Refinancing Indebtedness; provided
that the restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are not materially more
restrictive, taken as a whole, than those contained in the
agreements governing the Indebtedness being refinanced; |
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(9) Liens permitted to be incurred under the provisions of
the covenant described above under the caption
Liens that limit the right of the debtor
to dispose of the assets subject to such Liens; |
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(10) encumbrances or restrictions contained in agreements
entered into in connection with Hedging Obligations permitted
from time to time under the indenture; and |
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(11) existing under restrictions on cash or other deposits
or net worth imposed by customers or required by insurance,
surety or bonding companies, in each case, under contracts
entered into in the ordinary course of business. |
Merger, Consolidation or Sale of Assets
Allis-Chalmers will not: (1) consolidate or merge with or
into another Person (regardless of whether Allis-Chalmers is the
surviving corporation) or (2) directly or indirectly sell,
assign, transfer, convey or otherwise dispose of all or
substantially all of the properties and assets of Allis-Chalmers
and its Restricted Subsidiaries taken as a whole, in one or more
related transactions, to another Person, unless:
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(1) either: (a) Allis-Chalmers is the surviving
corporation; or (b) the Person formed by or surviving any
such consolidation or merger (if other than Allis-Chalmers) or
to which such sale, assignment, transfer, conveyance or other
disposition will have been made (i) is a corporation
organized or existing under the laws of the United States, any
state thereof or the District of Columbia and (ii) assumes
all the obligations of Allis-Chalmers under the notes, the
indenture and the Registration Rights Agreement pursuant to
agreements reasonably satisfactory to the trustee; |
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(2) immediately after giving effect to such transaction, no
Default or Event of Default exists; |
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(3) either (A) immediately after giving effect to such
transaction on a pro forma basis,
Allis-Chalmers or the
Person formed by or surviving any such consolidation or merger
(if other than
Allis-Chalmers), or to
which such sale, assignment, transfer, conveyance or other
disposition will have been made will be permitted to Incur at
least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption
Incurrence of Indebtedness; or
(B) immediately after giving effect to |
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such transaction on a pro forma basis and any related financing
transactions as if the same had occurred at the beginning of the
applicable four quarter period, the Fixed Charge Coverage Ratio
of Allis-Chalmers is
equal to or greater than its Fixed Charge Coverage Ratio
immediately before such transaction; and |
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(4) Allis-Chalmers delivers to the trustee an
Officers Certificate (attaching the arithmetic computation
to demonstrate compliance with clause (3) above) and
Opinion of Counsel, in each case stating that such transaction
and such agreement complies with this covenant and that all
conditions precedent provided for herein relating to such
transaction have been complied with. |
Upon any merger or consolidation, or any sale, transfer,
assignment, conveyance or other disposition of all or
substantially all of the properties or assets of Allis-Chalmers
and its Restricted Subsidiaries in accordance with this
covenant, the successor Person formed by the consolidation or
into which
Allis-Chalmers is
merged or to which the sale, transfer, assignment, conveyance or
other disposition is made, will succeed to and be substituted
for Allis-Chalmers, and may exercise every right and power of
Allis-Chalmers under the indenture with the same effect as if
the successor had been named as
Allis-Chalmers therein.
When the successor assumes all of Allis-Chalmers
obligations under the indenture, Allis-Chalmers will be
discharged from those obligations; provided, however,
that Allis-Chalmers
shall not be relieved from the obligation to pay the principal
of and interest on the notes except in the case of a sale of all
of Allis-Chalmers assets in a transaction that is subject
to, and that complies with the provisions of this covenant.
In addition, Allis-Chalmers and its Restricted Subsidiaries may
not, directly or indirectly, lease all or substantially all of
the properties or assets of Allis-Chalmers and its Restricted
Subsidiaries considered as one enterprise, in one or more
related transactions, to any other Person.
This Merger, Consolidation or Sale of Assets
covenant will not apply to:
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(1) a merger of Allis-Chalmers with an Affiliate solely for
the purpose of reincorporating Allis-Chalmers in another
jurisdiction; or |
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(2) any merger or consolidation, or any sale, transfer,
assignment, conveyance, lease or other disposition of assets
between or among Allis-Chalmers and its Restricted Subsidiaries
that are Guarantors. |
Transactions with Affiliates
Allis-Chalmers will not, and will not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease,
transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into,
make, amend, renew or extend any transaction, contract,
agreement, understanding, loan, advance or Guarantee with, or
for the benefit of, any Affiliate of
Allis-Chalmers (each,
an Affiliate Transaction), unless:
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(1) such Affiliate Transaction is on terms that are no less
favorable to Allis-Chalmers or the relevant Restricted
Subsidiary than those that would have been obtained in a
comparable
arms-length
transaction by Allis-Chalmers or such Restricted Subsidiary with
a Person that is not an Affiliate of Allis-Chalmers; and |
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(2) Allis-Chalmers delivers to the trustee: |
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(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
in excess of $5.0 million, a Board Resolution set forth in
an Officers Certificate certifying that such Affiliate
Transaction or series of related Affiliate Transactions complies
with this covenant and that such Affiliate Transaction or series
of related |
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Affiliate Transactions has been approved by a majority of the
disinterested members of the Board of Directors of
Allis-Chalmers; and |
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(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
in excess of $15.0 million, an opinion as to the fairness
to Allis-Chalmers or such Restricted Subsidiary of such
Affiliate Transaction or series of related Affiliate
Transactions from a financial point of view issued by an
Independent Financial Advisor. |
The following items will not be deemed to be Affiliate
Transactions and, therefore, will not be subject to the
provisions of the prior paragraph:
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(1) transactions between or among Allis-Chalmers and/or its
Restricted Subsidiaries; |
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(2) payment of reasonable and customary fees to, and
reasonable and customary indemnification and similar payments on
behalf of, directors of Allis-Chalmers and its Subsidiaries; |
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(3) any Permitted Investments or Restricted Payments that
are permitted by the provisions of the indenture described above
under the caption Restricted Payments; |
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(4) any issuance of Equity Interests (other than
Disqualified Stock) of Allis-Chalmers, or receipt of any capital
contribution from any Affiliate of Allis-Chalmers; |
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(5) transactions with a Person that is an Affiliate of
Allis-Chalmers solely because
Allis-Chalmers owns,
directly or through a Restricted Subsidiary, an Equity Interest
in, or controls, such Person; |
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(6) transactions pursuant to agreements or arrangements in
effect on the Issue Date and described in the offering
memorandum dated January 24, 2007 relating to the initial
offering of the old notes or in any of the documents
incorporated by reference therein, or any amendment,
modification, or supplement to such agreements or arrangements
or any replacement thereof, as long as such agreement or
arrangement, as so amended, modified, supplemented or replaced,
taken as a whole, is not more disadvantageous to Allis-Chalmers
and its Restricted Subsidiaries than the original agreement or
arrangement in existence on the Issue Date; |
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(7) loans or advances to employees in the ordinary course
of business not to exceed $2.0 million in the aggregate at
any one time outstanding; and |
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(8) any employment, consulting, service or termination
agreement, employee benefit plan or arrangement, reasonable and
customary indemnification arrangements or any similar agreement,
plan or arrangement, entered into by Allis-Chalmers or any of
its Restricted Subsidiaries with officers, directors,
consultants or employees of Allis-Chalmers or any of its
Subsidiaries and the payment of compensation to officers,
directors, consultants and employees of Allis-Chalmers or any of
its Subsidiaries (including amounts paid pursuant to employee
benefit plans, employee stock option or similar plans), and any
payments, indemnities or other transactions permitted or
required by bylaw, statutory provisions or any of the foregoing
agreements, plans or arrangements; so long as such agreement or
payment has been approved by a majority of the disinterested
members of the Board of Directors of Allis-Chalmers. |
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Designation of Restricted and
Unrestricted Subsidiaries |
The Board of Directors of Allis-Chalmers may designate any
Restricted Subsidiary of
Allis-Chalmers to be an
Unrestricted Subsidiary; provided that:
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(1) any Guarantee by Allis-Chalmers or any Restricted
Subsidiary thereof of any Indebtedness of the Subsidiary being
so designated will be deemed to be an Incurrence of Indebtedness
by Allis-Chalmers or
such Restricted Subsidiary (or both, if applicable) at the time
of such designation, and such Incurrence of Indebtedness would
be permitted under the covenant described above under the
caption Incurrence of Indebtedness; |
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(2) the aggregate Fair Market Value of all outstanding
Investments owned by Allis-Chalmers and its Restricted
Subsidiaries in the Subsidiary being so designated (including
any Guarantee by Allis-Chalmers or any Restricted Subsidiary
thereof of any Indebtedness of such Subsidiary) will be deemed
to be a Restricted Investment made as of the time of such
designation and that such Investment would be permitted under
the covenant described above under the caption
Restricted Payments; |
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(3) such Subsidiary does not hold any Liens on any property
of Allis-Chalmers or any Restricted Subsidiary thereof; |
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(4) the Subsidiary being so designated: |
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(a) is a Person with respect to which neither
Allis-Chalmers nor any of its Restricted Subsidiaries has any
direct or indirect obligation (i) to subscribe for
additional Equity Interests or (ii) to maintain or preserve
such Persons financial condition or to cause such Person
to achieve any specified levels of operating results; |
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(b) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of Allis-Chalmers
or any of its Restricted Subsidiaries, except to the extent such
Guarantee or credit support would be released upon such
designation; and |
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(c) has at least one director on its Board of Directors
that is not a director or officer of Allis-Chalmers or any of
its Restricted Subsidiaries and has at least one executive
officer that is not a director or officer of Allis-Chalmers or
any of its Restricted Subsidiaries; and |
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(5) no Default or Event of Default would be in existence
following such designation. |
Any designation of a Restricted Subsidiary of Allis-Chalmers as
an Unrestricted Subsidiary will be evidenced to the trustee by
filing with the trustee the Board Resolution giving effect to
such designation and an Officers Certificate certifying
that such designation complied with the preceding conditions and
was permitted by the indenture. If, at any time, any
Unrestricted Subsidiary would fail to meet any of the preceding
requirements described in subclauses (a) or (b) of
clause (4) above, it will thereafter cease to be an
Unrestricted Subsidiary for purposes of the indenture and any
Indebtedness of such Subsidiary will be deemed to be Incurred or
made by a Restricted Subsidiary of Allis-Chalmers as of such
date and, if such Indebtedness, Investments or Liens are not
permitted to be Incurred or made as of such date under the
indenture, Allis-Chalmers will be in default under the indenture.
The Board of Directors of Allis-Chalmers may at any time
designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that:
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(1) such designation will be deemed to be an Incurrence of
Indebtedness by a Restricted Subsidiary of Allis-Chalmers of any
outstanding Indebtedness of such Unrestricted Subsidiary and
such designation will only be permitted if such Indebtedness is
permitted under the covenant described under the caption
Incurrence of Indebtedness; and |
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(2) no Default or Event of Default would be in existence
following such designation. |
Subsidiary Guarantees
If Allis-Chalmers or any of its Restricted Subsidiaries acquires
or creates another Domestic Subsidiary on or after the Issue
Date, then that newly acquired or created Domestic Subsidiary
must become a Guarantor and execute a supplemental indenture and
deliver an Opinion of Counsel to the trustee within 15 business
days of the date on which it was acquired or created;
provided, however, that a Domestic Subsidiary that
owns net assets that have an aggregate fair market value (as
determined in good faith by the Board of Directors of
Allis-Chalmers) of less than 5% of the Consolidated Tangible
Assets as of the end of the previous quarter, need not become a
Guarantor.
However, if, as of the end of any fiscal quarter, the Domestic
Subsidiaries that are not Guarantors collectively own net assets
that have an aggregate fair market value (as determined in good
faith by our Board of Directors) equal to or greater than 5% of
the Consolidated Tangible Assets, then we will designate one or
more of such non-Guarantor Domestic Subsidiaries to become
Guarantors such that after giving effect to such designation or
designations, as the case may be, the total net assets owned by
all such remaining non-Guarantor Domestic Subsidiaries will have
an aggregate fair market value (as determined in good faith by
our Board of Directors) of less than 5% of the Consolidated
Tangible Assets. Any such Restricted Subsidiary so designated
must become a Guarantor and execute a supplemental indenture and
deliver an Opinion of Counsel to the trustee within 15 business
days of the date on which it was designated.
Our current and future Foreign Subsidiaries (such as DLS and its
subsidiaries) will not be required to guarantee the notes.
A Guarantor may not sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge
with or into (regardless of whether such Guarantor is the
surviving Person), another Person, other than Allis-Chalmers or
another Guarantor, unless:
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(1) immediately after giving effect to that transaction, no
Default or Event of Default exists; and |
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(2) either: |
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(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such
consolidation or merger (if other than the Guarantor) is
organized or existing under the laws of the United States, any
state thereof or the District of Columbia and assumes all the
obligations of that Guarantor under the indenture, its
Subsidiary Guarantee and the Registration Rights Agreement
pursuant to a supplemental indenture satisfactory to the
trustee; or |
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(b) such sale or other disposition or consolidation or
merger complies with the covenant described above under the
caption Repurchase at the Option of
Holders Asset Sales. |
The Subsidiary Guarantee of a Guarantor will be released:
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(1) in connection with any sale or other disposition of all
or substantially all of the assets of that Guarantor (including
by way of merger or consolidation) to a Person that is not
(either before or after giving effect to such transaction)
Allis-Chalmers or a Restricted Subsidiary of Allis-Chalmers, if
the sale or other disposition does not violate the Asset
Sale provisions of the indenture; |
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(2) in connection with any sale or other disposition of all
of the Capital Stock of a Guarantor to a Person that is not
(either before or after giving effect to such transaction) a
Restricted Subsidiary of Allis-Chalmers, if the sale of all such
Capital Stock of that Guarantor complies with the covenant
described above under the caption Repurchase
at the Option of Holders Asset Sales; |
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(3) if Allis-Chalmers properly designates any Restricted
Subsidiary that is a Guarantor as an Unrestricted Subsidiary
under the indenture; or |
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(4) upon legal defeasance or satisfaction and discharge of
the indenture as provided below under the captions
Legal Defeasance and Covenant Defeasance
and Satisfaction and Discharge. |
Payments for Consent
Allis-Chalmers will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, pay or cause
to be paid any consideration to or for the benefit of any Holder
of notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the indenture or
the notes unless such consideration is offered to be paid and is
paid to all Holders of the notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents
relating to such consent, waiver or agreement.
Reports
Allis-Chalmers will furnish to the trustee and, upon request, to
beneficial owners and prospective investors a copy of all of the
information and reports referred to in clauses (1) and
(2) below within the time periods specified in the
SECs rules and regulations:
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(1) all quarterly and annual financial information that
would be required to be contained in a filing with the SEC on
Forms 10-Q and
10-K if Allis-Chalmers
were required to file such Forms, including a
Managements Discussion and Analysis of Financial
Condition and Results of Operations and, with respect to
the annual information only, a report on the annual financial
statements by our certified independent accountants; and |
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(2) all current reports that would be required to be filed
with the SEC on
Form 8-K if we
were required to file such reports. |
Regardless of whether required by the SEC, Allis-Chalmers will
comply with the periodic reporting requirements of the Exchange
Act and will file the reports specified in the preceding
paragraph with the SEC within the time periods specified above
unless the SEC will not accept such a filing. Allis-Chalmers
agrees that we will not take any action for the purpose of
causing the SEC not to accept any such filings. If,
notwithstanding the foregoing, the SEC will not accept
Allis-Chalmers filings for any reason,
Allis-Chalmers will
post the reports referred to in the preceding paragraph on its
Web site within the time periods that would apply if we were
required to file those reports with the SEC.
If Allis-Chalmers has designated any of its Subsidiaries as
Unrestricted Subsidiaries, then the quarterly and annual
financial information required by this covenant will include a
reasonably detailed presentation, either on the face of the
financial statements or in the footnotes thereto, and in
Managements Discussion and Analysis of Financial
Condition and Results of Operations, of the financial
condition and results of operations of Allis-Chalmers and its
Restricted Subsidiaries separate from the financial condition
and results of operations of the Unrestricted Subsidiaries of
Allis-Chalmers.
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In addition, Allis-Chalmers and the Guarantors have agreed that,
for so long as any notes remain outstanding, they will furnish
to the Holders and to prospective investors, upon their request,
the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
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(1) default for 30 days in the payment when due of
interest on, or Liquidated Damages, if any, with respect to, the
notes; |
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(2) default in payment when due of the principal of, or
premium, if any, on the notes; |
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(3) failure by Allis-Chalmers to comply with its
obligations described under the caption
Covenants Merger, Consolidation or
Sale of Assets or to consummate a purchase of notes when
required pursuant to the covenants described under the captions
Repurchase at the Option of
Holders Change of Control or
Repurchase at the Option of
Holders Asset Sales; |
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(4) failure by Allis-Chalmers or any of its Restricted
Subsidiaries for 30 days to comply with the provisions
described under the captions
Covenants Restricted
Payments or Covenants
Incurrence of Indebtedness or to comply with the
provisions described under the captions
Repurchase at the Option of
Holders Change of Control or
Repurchase at the Option of
Holders Asset Sales to the extent not
described in clause (3) above; |
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(5) failure by Allis-Chalmers or any of its Restricted
Subsidiaries for 60 days after written notice by the
trustee or Holders representing 25% or more of the aggregate
principal amount of notes outstanding to comply with any of the
other agreements in the indenture; |
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(6) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by
Allis-Chalmers or any of its Restricted Subsidiaries (or the
payment of which is Guaranteed by Allis-Chalmers or any of its
Restricted Subsidiaries) whether such Indebtedness or Guarantee
now exists, or is created after the Issue Date, if that default: |
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(a) is caused by a failure to make any payment when due at
the final maturity of such Indebtedness (a Payment
Default); or |
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(b) results in the acceleration of such Indebtedness prior
to its express maturity, |
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and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default
or the maturity of which has been so accelerated, aggregates
$15.0 million or more; |
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(7) failure by Allis-Chalmers or any of its Restricted
Subsidiaries to pay final judgments (to the extent such
judgments are not paid or covered by insurance provided by a
reputable carrier that has the ability to perform and has
acknowledged coverage in writing) aggregating in excess of
$15.0 million, which judgments are not paid, discharged or
stayed for a period of 60 days; |
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(8) except as permitted by the indenture, any Subsidiary
Guarantee is held in any judicial proceeding to be unenforceable
or invalid or ceases for any reason to be in full force and
effect or any Guarantor, or any Person acting on behalf of any
Guarantor, denies or disaffirms its obligations under its
Subsidiary Guarantee; and |
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(9) certain events of bankruptcy or insolvency with respect
to Allis-Chalmers, any Guarantor or any Significant Subsidiary
of Allis-Chalmers (or any Restricted Subsidiaries that together
would constitute a Significant Subsidiary). |
The indenture contains a provision providing that in the case of
an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to Allis-Chalmers, any Restricted
Subsidiary that is a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding notes will become due
and payable immediately without further action or notice.
However, the effect of such provision may be limited by
applicable laws. If any other Event of Default occurs and is
continuing, the trustee or the Holders of at least 25% in
principal amount of the then outstanding notes may declare all
the notes to be due and payable immediately by notice in writing
to Allis-Chalmers specifying the Event of Default.
Holders of the notes may not enforce the indenture or the notes
except as provided in the indenture. Subject to certain
limitations, Holders of a majority in principal amount of the
then outstanding notes may direct the trustee in its exercise of
any trust or power. The trustee may withhold from Holders of the
notes notice of any Default or Event of Default (except a
Default or Event of Default relating to the payment of principal
or interest or Liquidated Damages) if it determines that
withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the
notes then outstanding by notice to the trustee may on behalf of
the Holders of all of the notes waive any existing Default or
Event of Default and its consequences under the indenture except
a continuing Default or Event of Default in the payment of
interest or Liquidated Damages on, or the principal of, the
notes. The Holders of a majority in principal amount of the then
outstanding notes will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy
available to the trustee. However, the trustee may refuse to
follow any direction that conflicts with law or the indenture,
that may involve the trustee in personal liability, or that the
trustee determines in good faith may be unduly prejudicial to
the rights of Holders of notes not joining in the giving of such
direction and may take any other action it deems proper that is
not inconsistent with any such direction received from Holders
of notes. A Holder may not pursue any remedy with respect to the
indenture or the notes unless:
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(1) the Holder gives the trustee written notice of a
continuing Event of Default; |
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(2) the Holder or Holders of at least 25% in aggregate
principal amount of outstanding notes make a written request to
the trustee to pursue the remedy; |
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(3) such Holder or Holders offer the trustee indemnity
satisfactory to the trustee against any costs, liability or
expense; |
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(4) the trustee does not comply with the request within
60 days after receipt of the request and the offer of
indemnity; and |
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(5) during such
60-day period, the
Holders of a majority in aggregate principal amount of the
outstanding notes do not give the trustee a direction that is
inconsistent with the request. |
However, such limitations do not apply to the right of any
Holder of a note to receive payment of the principal of, premium
or Liquidated Damages, if any, or interest on, such note or to
bring suit for the enforcement of any such payment, on or after
the due date expressed in the notes, which right will not be
impaired or affected without the consent of the Holder.
The Holders of a majority in aggregate principal amount of the
notes then outstanding by written notice to the trustee may, on
behalf of the Holders of all of the notes, rescind an
acceleration or waive any existing Default or Event of Default
and its consequences under the indenture except a continuing
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Default or Event of Default in the payment of interest or
premium or Liquidated Damages on, or the principal of, the notes.
Allis-Chalmers is required to deliver to the trustee annually
within 90 days after the end of each fiscal year a
statement regarding compliance with the indenture. Upon becoming
aware of any Default or Event of Default, Allis-Chalmers is
required to deliver to the trustee a statement specifying such
Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, incorporator, stockholder,
member, manager or partner of
Allis-Chalmers or any
Guarantor, as such, will have any liability for any obligations
of Allis-Chalmers or the Guarantors under the notes, the
indenture, the Subsidiary Guarantees or for any claim based on,
in respect of, or by reason of, such obligations or their
creation. Each Holder of notes by accepting a note waives and
releases all such liability. The waiver and release are part of
the consideration for issuance of the notes. The waiver may not
be effective to waive liabilities under the federal securities
laws.
Legal Defeasance and Covenant Defeasance
Allis-Chalmers may, at its option and at any time, elect to have
all of its obligations discharged with respect to the
outstanding notes and all obligations of the Guarantors
discharged with respect to their Subsidiary Guarantees
(Legal Defeasance) except for:
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(1) the rights of Holders of outstanding notes to receive
payments in respect of the principal of, or interest or premium
and Liquidated Damages, if any, on such notes when such payments
are due from the trust referred to below; |
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(2) Allis-Chalmers obligations with respect to the
notes concerning issuing temporary notes, registration of notes,
mutilated, destroyed, lost or stolen notes and the maintenance
of an office or agency for payment and money for security
payments held in trust; |
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(3) the rights, powers, trusts, duties and immunities of
the trustee, and Allis-Chalmers and the Guarantors
obligations in connection therewith; and |
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(4) the Legal Defeasance provisions of the 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 the provisions of the indenture described above
under Repurchase at the Option of
Holders and under Covenants (other than
the covenant described under
Covenants Merger, Consolidation
or Sale of Assets, except to the extent described below)
and the limitation imposed by clause (3) under
Covenants Merger, Consolidation or
Sale of Assets (such release and termination being
referred to as Covenant 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
indenture, the Events of Default described under
clauses (3) through (7) under the caption
Events of Default and Remedies and the
Event of Default described under clause (9) under the
caption Events of Default and Remedies
(but only with respect to Subsidiaries of Allis-Chalmers), in
each case, will no longer constitute an Event of Default.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
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(1) Allis-Chalmers must irrevocably deposit with the
trustee, in trust, for the benefit of the Holders of the notes,
cash in U.S. dollars, non-callable Government Securities,
or a combination |
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thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized investment bank, appraisal firm or
firm of independent public accountants, to pay the principal of,
or interest and premium and Liquidated Damages, if any, on the
outstanding notes on the Stated Maturity or on the applicable
redemption date, as the case may be, and Allis-Chalmers must
specify whether the notes are being defeased to maturity or to a
particular redemption date; |
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(2) in the case of Legal Defeasance, Allis-Chalmers will
have delivered to the trustee an Opinion of Counsel reasonably
acceptable to the trustee confirming that
(a) Allis-Chalmers has received from, or there has been
published by, the Internal Revenue Service a ruling or
(b) since the Issue Date, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such Opinion of Counsel will confirm
that, the Holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had
not occurred; |
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(3) in the case of Covenant Defeasance, Allis-Chalmers will
have delivered to the trustee an Opinion of Counsel reasonably
acceptable to the trustee confirming that the Holders of the
outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred; |
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(4) no Default or Event of Default will have occurred and
be continuing (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such
deposit) either: (a) on the date of such deposit; or
(b) insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period
ending on the 123rd day after the date of deposit; |
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(5) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default
under any material agreement or instrument (other than the
indenture) to which Allis-Chalmers or any of its Subsidiaries is
a party or by which Allis-Chalmers or any of its Subsidiaries is
bound; |
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(6) in the case of legal defeasance, Allis-Chalmers must
have delivered to the trustee an Opinion of Counsel to the
effect that, (1) assuming no intervening bankruptcy of
Allis-Chalmers or any Guarantor between the date of deposit and
the 123rd day following the deposit and assuming that no
Holder is an insider of Allis-Chalmers under
applicable bankruptcy law, after the 123rd day following
the deposit, the trust funds will not be subject to the effect
of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors rights generally,
including Section 547 of the United States Bankruptcy Code
and Section 15 of the New York Debtor and Creditor Law and
(2) the creation of the defeasance trust does not violate
the Investment Company Act of 1940; |
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(7) Allis-Chalmers must deliver to the trustee an
Officers Certificate stating that the deposit was not made
by Allis-Chalmers with the intent of preferring the Holders over
the other creditors of Allis-Chalmers with the intent of
defeating, hindering, delaying or defrauding creditors of
Allis-Chalmers or others; |
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(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 |
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(9) Allis-Chalmers must deliver to the trustee an Opinion
of Counsel (which Opinion of Counsel may be subject to customary
assumptions, qualifications and exclusions), stating that all
conditions precedent set forth in clauses (2) and
(3) of this paragraph have been complied with. |
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the
indenture or the notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal
amount of the notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of,
or tender offer or exchange offer for, notes), and any existing
Default or Event of Default or compliance with any provision of
the indenture or the notes may be waived with the consent of the
Holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or
exchange offer for, notes).
Without the consent of each Holder affected, an amendment or
waiver may not (with respect to any notes held by a
non-consenting Holder):
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(1) reduce the principal amount of notes whose Holders must
consent to an amendment, supplement or waiver; |
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(2) reduce the principal of or change the fixed maturity of
any note or alter the provisions, or waive any payment with
respect to the redemption of the notes; provided,
however, that solely for the avoidance of doubt, and
without any other implication, any purchase or repurchase of
notes, including pursuant to the covenants described above under
the caption Repurchase at the Option of
Holders, shall not be deemed a redemption of the notes; |
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(3) reduce the rate of or change the time for payment of
interest on any note; |
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(4) waive a Default or Event of Default in the payment of
principal of, or interest, or premium or Liquidated Damages, if
any, on, the notes (except a rescission of acceleration of the
notes by the Holders of at least a majority in aggregate
principal amount of the then outstanding notes and a waiver of
the payment default that resulted from such acceleration); |
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(5) make any note payable in money other than
U.S. dollars; |
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(6) make any change in the provisions of the indenture
relating to waivers of past Defaults or the rights of Holders of
notes to receive payments of principal of, or interest or
premium or Liquidated Damages, if any, on, the notes; |
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(7) release any Guarantor from any of its obligations under
its Subsidiary Guarantee or the indenture, except in accordance
with the terms of the indenture; |
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(8) impair the right to institute suit for the enforcement
of any payment on or with respect to the notes or the Subsidiary
Guarantees; |
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(9) amend or modify any of the provisions of the indenture
or the related definitions affecting the ranking of the notes or
any Subsidiary Guarantee in any manner adverse to the Holders of
the notes or any Subsidiary Guarantee; or |
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(10) make any change in the preceding amendment and waiver
provisions. |
67
Notwithstanding the preceding, without the consent of any Holder
of notes, Allis-Chalmers, the Guarantors and the trustee may
amend or supplement the indenture or the notes:
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(1) to cure any ambiguity, defect or inconsistency; |
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(2) to provide for uncertificated notes in addition to or
in place of certificated notes; |
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(3) to provide for the assumption of Allis-Chalmers
or any Guarantors obligations to Holders of notes in the
case of a merger or consolidation or sale of all or
substantially all of Allis-Chalmers or such
Guarantors assets; |
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(4) to make any change that would provide any additional
rights or benefits to the Holders of notes or that does not
materially adversely affect the legal rights under the indenture
of any such Holder; |
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(5) to comply with requirements of the SEC in order to
effect or maintain the qualification of the indenture under the
Trust Indenture Act; |
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(6) to add any Subsidiary Guarantee or to effect the
release of a Guarantor from its Subsidiary Guarantee and the
termination of such Subsidiary Guarantee, all in accordance with
the provisions of the indenture governing such release and
termination or to otherwise comply with the provisions described
under Covenants Guarantees; |
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(7) to secure the notes or any Subsidiary Guarantees or any
other obligation under the indenture; |
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(8) to evidence and provide for the acceptance of
appointment by a successor trustee; |
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(9) to conform the text of the indenture or the notes to
any provision of this Description of notes to the extent that
such provision in this Description of notes was intended to be a
verbatim recitation of a provision of the indenture, the
Subsidiary Guarantees or the notes; or |
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(10) to provide for the issuance of additional notes in
accordance with the indenture. |
The consent of the Holders of the notes is not necessary under
the indenture to approve the particular form of any proposed
amendment or waiver. It is sufficient if such consent approves
the substance of the proposed amendment or waiver.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further
effect as to all notes issued thereunder, when:
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(a) all notes that have been authenticated (except lost,
stolen or destroyed notes that have been replaced or paid and
notes for whose payment money has theretofore been deposited in
trust and thereafter repaid to Allis-Chalmers) have been
delivered to the trustee for cancellation; or |
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(b) all notes that have not been delivered to the trustee
for cancellation have become due and payable by reason of the
mailing of a notice of redemption or otherwise or will become
due and payable within one year and Allis-Chalmers or any
Guarantor has irrevocably deposited or caused to be deposited
with the trustee as trust funds in trust solely for the benefit
of the Holders, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts
as will be sufficient without consideration of any |
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reinvestment of interest, to pay and discharge the entire
Indebtedness on the notes not delivered to the trustee for
cancellation for principal, premium and Liquidated Damages, if
any, and accrued interest to the date of maturity or redemption; |
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(2) no Default or Event of Default has occurred and is
continuing on the date of the deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be
applied to such deposit); |
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(3) such deposit will not result in a breach or violation
of, or constitute a default under, any material agreement or
instrument (other than the indenture) to which Allis-Chalmers or
any Guarantor is a party or by which Allis-Chalmers or any
Guarantor is bound; |
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(4) Allis-Chalmers or any Guarantor has paid or caused to
be paid all sums payable by it under the indenture; and |
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(5) Allis-Chalmers has delivered irrevocable instructions
to the trustee under the indenture to apply the deposited money
toward the payment of the notes at maturity or the redemption
date, as the case may be. |
In addition, Allis-Chalmers must deliver to the trustee
(a) an officers certificate, stating that all
conditions precedent set forth in clauses (1) through (5)
above have been satisfied, and (b) an opinion of counsel
(which opinion of counsel may be subject to customary
assumptions and qualifications), stating that all conditions
precedent set forth in clauses (3) and (5) above have
been satisfied; provided that the opinion of counsel with
respect to clause (3) above may be to the knowledge of such
counsel.
Book-Entry, Delivery and Form
Except as set forth below, notes will be issued in registered,
global form in minimum denominations of $2,000 and integral
multiples of $1,000 in excess thereof (Global Notes).
The Global Notes will be deposited upon issuance with the
trustee as custodian for The Depository Trust Company
(DTC), in New York, New York, and registered
in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described
below. Global Notes may also be held through Euroclear Bank,
S.A./ N.V. as the operator of the Euroclear System
(Euroclear) and Clearstream Banking, S.A.
(Clearstream) (as indirect participants in
DTC).
Except as set forth below, the Global Notes may be transferred,
in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the
Global Notes may not be exchanged for notes in certificated form
except in the limited circumstances described below. See
Exchange of Book-Entry Notes for Certificated
Notes.
Except in the limited circumstances described below, owners of
beneficial interests in the Global Notes will not be entitled to
receive physical delivery of notes in certificated form.
Transfers of beneficial interests in the Global Notes will be
subject to the applicable rules and procedures of DTC and its
direct or indirect participants (including, if applicable, those
of Euroclear and Clearstream), which may change from time to
time.
Depository Procedures
The following description of the operations and procedures of
DTC, Euroclear and Clearstream are provided solely as a matter
of convenience. These operations and procedures are solely
within the control of the respective settlement systems and are
subject to changes by them. Allis-Chalmers takes no
responsibility for these operations and procedures and urges
investors to contact the system or their participants directly
to discuss these matters.
69
DTC has advised Allis-Chalmers that DTC is a limited-purpose
trust company created to hold securities for its participating
organizations (collectively, the
Participants) and to facilitate the clearance
and settlement of transactions in those securities between
Participants through electronic
book-entry changes in
accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and
certain other organizations. Access to DTCs system is also
available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly
(collectively, the Indirect Participants).
Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the
Indirect Participants. The ownership interests in, and transfers
of ownership interests in, each security held by or on behalf of
DTC are recorded on the records of the Participants and Indirect
Participants.
DTC has also advised Allis-Chalmers that, pursuant to procedures
established by it:
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(1) |
upon deposit of the Global Notes, DTC will credit the accounts
of Participants designated by the Initial Purchasers with
portions of the principal amount of the Global Notes; and |
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(2) |
ownership of these interests in the Global Notes will be shown
on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect
Participants (with respect to other owners of beneficial
interest in the Global Notes). |
Investors in the Global Notes who are Participants in DTCs
system may hold their interests therein directly through DTC.
Investors in the Global Notes who are not Participants may hold
their interests therein indirectly through organizations
(including Euroclear and Clearstream) which are Participants in
such system. Euroclear and Clearstream will hold interests in
the Global Notes on behalf of their participants through
customers securities accounts in their respective names on
the books of their respective depositories, which are Euroclear
Bank, S.A./ N.V., as operator of Euroclear, and Citibank, N.A.,
as operator of Clearstream. All interests in a Global Note,
including those held through Euroclear or Clearstream, may be
subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Clearstream may also be
subject to the procedures and requirements of such systems.
Except as described below, owners of interests in the Global
Notes will not have notes registered in their names, will not
receive physical delivery of notes in certificated form and will
not be considered the registered owners or Holders
thereof under the indenture for any purpose.
Payments in respect of the principal of, and interest and
premium and Liquidated Damages, if any, on a Global Note
registered in the name of DTC or its nominee will be payable to
DTC in its capacity as the registered Holder under the
indenture. Under the terms of the indenture, Allis-Chalmers and
the trustee will treat the Persons in whose names the notes,
including the Global Notes, are registered as the owners thereof
for the purpose of receiving payments and for all other
purposes. Consequently, neither Allis-Chalmers, the trustee nor
any agent of Allis-Chalmers or the trustee has or will have any
responsibility or liability for:
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(1) |
any aspect of DTCs records or any Participants or
Indirect Participants records relating to or payments made
on account of beneficial ownership interest in the Global Notes
or for maintaining, supervising or reviewing any of DTCs
records or any Participants or Indirect Participants
records relating to the beneficial ownership interests in the
Global Notes; or |
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(2) |
any other matter relating to the actions and practices of DTC or
any of its Participants or Indirect Participants. |
70
DTC has advised Allis-Chalmers that its current practice, upon
receipt of any payment in respect of securities such as the
notes (including principal and interest), is to credit the
accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe it will not
receive payment on such payment date. Each relevant Participant
is credited with an amount proportionate to its beneficial
ownership of an interest in the principal amount of the relevant
security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial
owners of notes will be governed by standing instructions and
customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the
responsibility of DTC, the trustee or Allis-Chalmers. Neither
Allis-Chalmers nor the trustee will be liable for any delay by
DTC or any of its Participants or the Indirect Participants in
identifying the beneficial owners of the notes, and
Allis-Chalmers and the trustee may conclusively rely on and will
be protected in relying on instructions from DTC or its nominee
for all purposes.
Transfers between Participants in DTC will be effected in
accordance with DTCs procedures, and will be settled in
same-day funds, and
transfers between participants in Euroclear and Clearstream will
be effected in accordance with their respective rules and
operating procedures.
Cross-market transfers
between the Participants in DTC, on the one hand, and Euroclear
or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTCs rules on behalf of
Euroclear or Clearstream, as the case may be, by their
respective depositaries; however, such
cross-market
transactions will require delivery of instructions to Euroclear
or Clearstream, as the case may be, by the counterparty in such
system in accordance with the rules and procedures and within
the established deadlines (Brussels time) of such system.
Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to
effect final settlement on its behalf by delivering or receiving
interests in the relevant Global Note in DTC, and making or
receiving payment in accordance with normal procedures for
same-day funds
settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly
to the depositories for Euroclear or Clearstream.
DTC has advised Allis-Chalmers that it will take any action
permitted to be taken by a Holder of notes only at the direction
of one or more Participants to whose account DTC has
credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the notes
as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default under
the notes, DTC reserves the right to exchange the Global Notes
for legended notes in certificated form, and to distribute such
notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the
foregoing procedures to facilitate transfers of interests in the
Global Notes among participants in DTC, Euroclear and
Clearstream, they are under no obligation to perform or to
continue to perform such procedures, and may discontinue such
procedures at any time. Neither Allis-Chalmers nor the trustee
nor any of their respective agents will have any responsibility
for the performance by DTC, Euroclear or Clearstream or their
respective participants or indirect participants of their
respective obligations under the rules and procedures governing
their operations.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for definitive notes in registered
certificated form (Certificated notes) if:
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(1) |
DTC (a) notifies Allis-Chalmers that it is unwilling or
unable to continue as depositary for the Global Notes or
(b) has ceased to be a clearing agency registered under the
Exchange Act, and in each case Allis-Chalmers fails to appoint a
successor depositary; |
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(2) |
Allis-Chalmers, at its option, notifies the trustee in writing
that it elects to cause the issuance of Certificated notes (DTC
has advised Allis-Chalmers that, in such event, under its
current practices, DTC would notify its participants of
Allis-Chalmers request, but will only withdraw beneficial
interests from a Global Note at the request of each DTC
participant); or |
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(3) |
there will have occurred and be continuing a Default or Event of
Default with respect to the notes. |
In addition, beneficial interests in a Global Note may be
exchanged for Certificated notes upon prior written notice given
to the trustee by or on behalf of DTC in accordance with the
indenture. In all cases, Certificated notes delivered in
exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the
depositary (in accordance with its customary procedures).
Same Day Settlement and Payment
Allis-Chalmers will make payments in respect of the notes
represented by the Global Notes (including principal, premium,
if any, interest and Liquidated Damages, if any) by wire
transfer of immediately available funds to the accounts
specified by DTC or its nominee. Allis-Chalmers will make all
payments of principal, interest and premium and Liquidated
Damages, if any, with respect to Certificated notes by wire
transfer of immediately available funds to the accounts
specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holders
registered address. The notes represented by the Global Notes
are expected to trade in DTCs Same-Day Funds Settlement
System, and any permitted secondary market trading activity in
such notes will, therefore, be required by DTC to be settled in
immediately available funds. Allis-Chalmers expects that
secondary trading in any Certificated notes will also be settled
in immediately available funds.
Because of time zone differences, the securities account of a
Euroclear or Clearstream participant purchasing an interest in a
Global Note from a Participant in DTC will be credited, and any
such crediting will be reported to the relevant Euroclear or
Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC.
DTC has advised Allis-Chalmers that cash received in Euroclear
or Clearstream as a result of sales of interests in a Global
Note by or through a Euroclear or Clearstream participant to a
Participant in DTC will be received with value on the settlement
date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for
Euroclear or Clearstream following DTCs settlement date.
Definitions
Set forth below are certain defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all
such terms, as well as any other capitalized terms used herein
for which no definition is provided.
Acquired Debt means, with respect to any
specified Person, Indebtedness of any other Person existing at
the time such other Person is merged with or into or became a
Subsidiary of such specified Person, regardless of whether such
Indebtedness is incurred in connection with, or in contemplation
of, such other Person merging with or into, or becoming a
Restricted Subsidiary of, such specified Person.
Affiliate of any specified Person means any
other Person directly or indirectly controlling or controlled by
or under direct or indirect common control with such specified
Person. For purposes of this definition, control, as
used with respect to any Person, will mean the possession,
directly or
72
indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For
purposes of this definition, the terms controlling,
controlled by and under common control
with will have correlative meanings.
Asset Sale means:
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(1) the sale, lease, conveyance or other disposition of any
assets, other than a transaction governed by the provisions of
the indenture described above under the caption
Repurchase at the Option of
Holders Change of Control and/or the
provisions described above under the caption
Covenants Merger, Consolidation or
Sale of Assets; and |
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(2) the issuance of Equity Interests by any of
Allis-Chalmers Restricted Subsidiaries or the sale by
Allis-Chalmers or any Restricted Subsidiary thereof of Equity
Interests in any of its Subsidiaries (other than directors
qualifying shares and shares issued to foreign nationals to the
extent required by applicable law). |
Notwithstanding the preceding, the following items, which may
constitute all or a portion of any transaction, will be deemed
not to be Asset Sales:
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(1) any single transaction or series of related
transactions that involves assets or other Equity Interests
having a Fair Market Value of less than $3.0 million or for
Net Proceeds of less than such amount; |
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(2) any issuance or transfer of assets or Equity Interests
between or among two or more of the Persons that are among
Allis-Chalmers and its Restricted Subsidiaries; |
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(3) the sale, lease or other disposition of products,
services, equipment, inventory, accounts receivable or other
assets in the ordinary course of business; |
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(4) the sale or other disposition of cash or Cash
Equivalents; |
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(5) dispositions (including without limitation surrenders
and waivers) of accounts receivable or other contract rights in
connection with the compromise, settlement or collection thereof; |
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(6) the issuance or sale of Equity Interests or the sale,
lease or other disposition of products, services, equipment,
inventory, accounts receivable or other assets pursuant to any
Restricted Payment that is permitted by the covenant described
above under the caption Covenants
Restricted Payments or any Permitted Investment; |
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(7) the trade or exchange by Allis-Chalmers or any
Restricted Subsidiary of any asset for any other asset or
assets, including any cash or Cash Equivalents necessary in
order to achieve an exchange of equivalent value;
provided, however, that the Fair Market Value of
the asset or assets received by Allis-Chalmers or any Restricted
Subsidiary in such trade or exchange (including any such cash or
Cash Equivalents) is at least equal to the Fair Market Value (as
determined in good faith by the Board of Directors or an
executive officer of Allis-Chalmers or of such Restricted
Subsidiary with responsibility for such transaction, which
determination shall be conclusive evidence of compliance with
this provision) of the asset or assets disposed of by
Allis-Chalmers or any Restricted Subsidiary pursuant to such
trade or exchange; |
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(8) any sale, lease, conveyance or other disposition of any
assets or any sale or issuance of Equity Interests in each case,
made pursuant to a Permitted Joint Venture Investment or a Joint
Marketing Arrangement; |
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(9) any sale or disposition of any property or equipment
that has become damaged, worn out or obsolete or pursuant to a
program for the maintenance or upgrading of such property or
equipment; and |
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(10) the creation of a Lien not prohibited by the indenture
and any disposition of assets resulting from the enforcement or
foreclosure of any such Lien. |
Beneficial Owner has the meaning assigned to
such term in
Rule 13d-3 and
Rule 13d-5 under
the Exchange Act, except that in calculating the beneficial
ownership of any particular person (as that term is
used in Section 13(d)(3) of the Exchange Act), such
person will be deemed to have beneficial ownership
of all securities that such person has the right to
acquire by conversion or exercise of other securities, whether
such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition. The terms
Beneficially Owns, Beneficially Owned
and Beneficially Owning will have a corresponding
meaning.
Board of Directors means:
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(1) with respect to a corporation, the board of directors
of the corporation or, except in the context of the definitions
of Change of Control and Continuing
Directors, a duly authorized committee thereof; |
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(2) with respect to a partnership, the Board of Directors
of the general partner of the partnership; and |
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(3) with respect to any other Person, the board or
committee of such Person serving a similar function. |
Board Resolution means a resolution certified
by the Secretary or an Assistant Secretary of
Allis-Chalmers to have
been duly adopted by the Board of Directors of Allis-Chalmers
and to be in full force and effect on the date of such
certification.
business day means any day other than a Legal
Holiday.
Capital Lease Obligation means, at the time
any determination thereof is to be made, the amount of the
liability in respect of a capital lease that would at that time
be required to be capitalized on a balance sheet in accordance
with GAAP, and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such
lease prior to the first date upon which such lease may be
prepaid by the lessee without payment of a penalty.
Capital Stock means:
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(1) in the case of a corporation, corporate stock; |
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(2) in the case of an association or business entity, any
and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock; |
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(3) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or
limited); and |
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(4) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person, but
excluding from all of the foregoing any debt securities
convertible into Capital Stock, regardless of whether such debt
securities include any right of participation with Capital Stock. |
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Cash Equivalents means:
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(1) United States dollars; |
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(2) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or
instrumentality thereof (provided that the full faith and
credit of the United States is pledged in support of such
securities), maturing, unless such securities are deposited to
defease any Indebtedness, not more than one year from the date
of acquisition; |
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(3) certificates of deposit and eurodollar time deposits
with maturities of one year or less from the date of
acquisition, bankers acceptances with maturities not
exceeding one year and overnight bank deposits, in each case,
with any domestic commercial bank having capital and surplus in
excess of $500.0 million and a rating at the time of
acquisition thereof and a Thomson Bank Watch Rating of
B or higher; |
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(4) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in
clauses (2) and (3) above entered into with any
financial institution meeting the qualifications specified in
clause (3) above; |
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(5) commercial paper having the highest rating obtainable
from either (i) Moodys Investors Service, Inc. or
(ii) Standard & Poors Rating Services and in
each case maturing within one year after the date of
acquisition; and |
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(6) securities issued and fully guaranteed by any state,
commonwealth or territory of the United States of America, or by
any political subdivision or taxing authority thereof, rated at
least A by Moodys Investors Service, Inc. or
Standard & Poors Rating Services and having
maturities of not more than one year from the date of
acquisition; and |
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(7) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in
clauses (1) through (6) of this definition. |
Change of Control means the occurrence of any
of the following:
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(1) the direct or indirect sale, transfer, conveyance or
other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of
all or substantially all of the properties or assets of
Allis-Chalmers and its Restricted Subsidiaries, taken as a
whole, to any person (as that term is used in
Section 13(d)(3) of the Exchange Act) other than a
Permitted Holder; |
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(2) the adoption of a plan relating to the liquidation or
dissolution of Allis-Chalmers; |
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(3) any person or group (as such
terms are used in Sections 13(d) and 14(d) of the Exchange
Act) other than Parent or a Permitted Holder becomes the
Beneficial Owner, directly or indirectly, of more than 50% of
the voting power of the Voting Stock of Allis-Chalmers; or |
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(4) the first day on which a majority of the members of the
Board of Directors of
Allis-Chalmers are not
Continuing Directors. |
Consolidated Cash Flow means, with respect to
any specified Person for any period, the Consolidated Net Income
of such Person for such period plus:
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(1) any net loss realized by such Person or any of its
Restricted Subsidiaries in connection with an Asset Sale, to the
extent such losses were deducted in computing such Consolidated
Net Income; plus |
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(2) all extraordinary, unusual or non-recurring items of
loss or expense to the extent deducted in computing such
Consolidated Net Income; plus |
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(3) provision for taxes based on income or profits of such
Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was deducted in computing
such Consolidated Net Income; plus |
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(4) Fixed Charges of such Person and its Restricted
Subsidiaries for such period, to the extent that any such Fixed
Charges were deducted in computing such Consolidated Net Income;
plus |
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(5) depreciation, amortization (including amortization of
intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash expenses
(excluding any such non-cash expense to the extent that it
represents an accrual of or reserve for cash expenses in any
future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income; plus |
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(6) all expenses related to restricted stock and redeemable
stock interests granted to officers, directors and employees, to
the extent such expenses were deducted in computing such
Consolidated Net Income; minus |
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(7) non-cash items increasing such Consolidated Net Income
for such period, other than the accrual of revenue in the
ordinary course of business; |
in each case, on a consolidated basis and determined in
accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on
the income or profits of, the Fixed Charges of and the
depreciation and amortization and other non-cash expenses of, a
Restricted Subsidiary of Allis-Chalmers will be added to
Consolidated Net Income to compute Consolidated Cash Flow of
Allis-Chalmers (A) in the same proportion that the Net
Income of such Restricted Subsidiary was added to compute such
Consolidated Net Income of Allis-Chalmers and (B) only to
the extent that a corresponding amount would be permitted at the
date of determination to be dividended or distributed directly
or indirectly to Allis-Chalmers by such Restricted Subsidiary
without prior governmental approval (that has not been
obtained), and without restriction pursuant to the terms of its
charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable
to that Subsidiary or its stockholders (without regard to any
restrictions existing by reason of, or any governmental
approvals necessary pursuant to, any law, rule, regulation,
order or decree that is generally applicable to all Persons
operating in any jurisdiction in which Allis-Chalmers or any of
its Restricted Subsidiaries are conducting business so long as
there is in effect no specific order, decree or other
prohibition pursuant to any such law, rule or regulation in such
jurisdiction limiting the payment of a dividend or similar
distribution by such Restricted Subsidiary).
Consolidated Net Income means, with respect
to any specified Person for any period, the aggregate of the Net
Income of such Person and its Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP;
provided that:
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(1) the Net Income or loss of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity
method of accounting will be included only to the extent of the
amount of dividends or similar distributions paid in cash to the
specified Person or a Restricted Subsidiary thereof; |
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(2) the Net Income of any Restricted Subsidiary will be
excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary
of that |
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Net Income is not at the date of determination permitted without
any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter
or any judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its
equityholders (without regard to any restrictions existing by
reason of, or any governmental approvals necessary pursuant to,
any law, rule, regulation, order or decree that is generally
applicable to all Persons operating in any jurisdiction in which
Allis-Chalmers or any of its Restricted Subsidiaries are
conducting business so long as there is in effect no specific
order, decree or other prohibition pursuant to any such law,
rule or regulation in such jurisdiction limiting the payment of
a dividend or similar distribution by such Restricted
Subsidiary); |
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(3) the cumulative effect of a change in accounting
principles will be excluded; and |
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(4) to the extent deducted in the calculation of Net
Income, any non-recurring charges associated with any premium or
penalty paid, write-offs of deferred financing costs or other
financial recapitalization charges in connection with redeeming
or retiring any Indebtedness prior to its Stated Maturity will
be added back to arrive at Consolidated Net income. |
Consolidated Tangible Assets means, with
respect to any Person as of any date, the amount which, in
accordance with GAAP, would be set forth under the caption
Total Assets (or any like caption) on a consolidated
balance sheet of such Person and its Restricted Subsidiaries,
less all goodwill, patents, tradenames, trademarks, copyrights,
franchises, experimental expenses, organization expenses and any
other amounts classified as intangible assets in accordance with
GAAP.
Continuing Directors means, as of any date of
determination, any member of the Board of Directors of
Allis-Chalmers who:
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(1) was a member of such Board of Directors on the Issue
Date; or |
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(2) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing
Directors who were members of such Board of Directors at the
time of such nomination or election. |
Credit Agreement means the Amended and
Restated Credit Agreement, dated as of January 18, 2006 by
and among Allis-Chalmers, Royal Bank of Canada, as
Administrative Agent, and the other lenders named therein
providing for up to $25.0 million of revolving credit
borrowings, including any standby letters of credit, related
notes, Guarantees, collateral documents, instruments and
agreements executed in connection therewith, and in each case as
amended, restated, modified, renewed, refunded, replaced or
refinanced from time to time, regardless of whether such
amendment, restatement, modification, renewal, refunding,
replacement or refinancing is with the same financial
institutions or otherwise.
Credit Facilities means, one or more debt
facilities (including, without limitation, the Credit
Agreement), commercial paper facilities, in each case with banks
or other institutional lenders, providing for revolving credit
loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such
receivables), one or more letters of credit, or one or more
indentures or similar agreements, including any related bond,
note, debentures, Guarantees, collateral documents, instruments
and agreements executed in connection therewith, in each case,
as amended, restated, modified, renewed, refunded, replaced or
refinanced (including by means of sales of debt securities to
institutional investors) in whole or in part from time to time.
Default means any event that is, or with the
passage of time or the giving of notice or both would be, an
Event of Default.
77
Disqualified Stock means any Capital Stock
that, by its terms (or by the terms of any security into which
it is convertible, or for which it is exchangeable, in each case
at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the
option of the holder thereof, in whole or in part, on or prior
to the date that is 91 days after the date on which the
notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require
Allis-Chalmers to repurchase such Capital Stock upon the
occurrence of a change of control or an asset sale will not
constitute Disqualified Stock if the terms of such Capital Stock
provide that Allis-Chalmers may not repurchase or redeem any
such Capital Stock pursuant to such provisions unless such
repurchase or redemption complies with the covenant described
above under the caption Covenants
Restricted Payments. The amount of Disqualified Stock
deemed to be outstanding at any time for purposes of the
indenture will be the maximum amount that Allis-Chalmers and its
Restricted Subsidiaries may become obligated to pay upon the
maturity of, or pursuant to any mandatory redemption provisions
of, such Disqualified Stock, exclusive of accrued dividends.
Domestic Subsidiary means each Restricted
Subsidiary of Allis-Chalmers organized or existing under the
laws of the United States, any state thereof or the District of
Columbia.
Equity Interests means Capital Stock and all
warrants, options or other rights to acquire Capital Stock (but
excluding any debt security that is convertible into, or
exchangeable for, Capital Stock).
Equity Offering means any issuance or sale of
Equity Interests (other than Disqualified Stock), or a
contribution to the equity capital, of Allis-Chalmers to any
Person (other than a Restricted Subsidiary of Allis-Chalmers).
Existing Indebtedness means the aggregate
amount of Indebtedness of Allis-Chalmers and its Restricted
Subsidiaries (other than Indebtedness under the Credit Agreement
or under the notes and the related Subsidiary Guarantees) in
existence on the Issue Date after giving effect to the
application of the proceeds of (1) the notes and
(2) any borrowings made under the Credit Agreement on the
Issue Date, until such amounts are repaid.
Fair Market Value means the value that would
be paid by a willing buyer to an unaffiliated willing seller in
a transaction not involving distress or necessity of either
party, determined in good faith by the Board of Directors of
Allis-Chalmers (unless otherwise provided in the indenture).
Fixed Charges means, with respect to any
specified Person for any period, the sum, without
duplication, of:
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(1) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or
accrued, including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment
obligations, the interest component of all payments associated
with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or
bankers acceptance financings, and net of the effect of
all payments made or received pursuant to Hedging Obligations;
plus |
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(2) the consolidated interest of such Person and its
Restricted Subsidiaries that was capitalized during such period;
plus |
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(3) any interest expense on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or
one of its Restricted Subsidiaries, whether or not such
Guarantee or Lien is called upon; plus |
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(4) all dividends, whether paid or accrued and whether or
not in cash, on any series of Disqualified Stock of such Person
or any of its Restricted Subsidiaries or Preferred Stock of such
Persons Restricted Subsidiaries, other than dividends on
Equity Interests payable solely in Equity Interests (other than
Disqualified Stock) of Allis-Chalmers or to Allis-Chalmers or a
Restricted Subsidiary of Allis-Chalmers, |
in each case, on a consolidated basis and in accordance with
GAAP.
Fixed Charge Coverage Ratio means with
respect to any specified Person for any period, the ratio of the
Consolidated Cash Flow of such Person for such period to the
Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Restricted Subsidiaries
Incurs, repays, repurchases or redeems any Indebtedness (other
than the incurrence or repayment of revolving credit borrowings,
except to the extent that a repayment is accompanied by a
permanent reduction in revolving credit commitments) or issues,
repurchases or redeems Disqualified Stock subsequent to the
commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated and on or prior to the date on which
the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the Calculation Date), then
the Fixed Charge Coverage Ratio will be calculated giving pro
forma effect to such Incurrence, repayment, repurchase or
redemption of Indebtedness, or such issuance, repurchase or
redemption of Disqualified Stock, and the use of the proceeds
therefrom as if the same had occurred at the beginning of such
period.
In addition, for purposes of calculating the Fixed Charge
Coverage Ratio:
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(1) acquisitions and dispositions of business entities or
property and assets constituting a division or line of business
of any Person that have been made by the specified Person or any
of its Restricted Subsidiaries, including through mergers or
consolidations, during the four-quarter reference period or
subsequent to such reference period and on or prior to the
Calculation Date will be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period,
and Consolidated Cash Flow for such reference period will be
calculated on a pro forma basis in good faith on a reasonable
basis by a responsible financial or accounting Officer of
Allis-Chalmers;
provided, that such Officer may in his discretion include
any pro forma changes to Consolidated Cash Flow, including any
pro forma reductions of expenses and costs, that have occurred
or are reasonably expected by such Officer to occur (regardless
of whether such expense or cost savings or any other operating
improvements could then be reflected properly in pro forma
financial statements prepared in accordance with
Regulation S-X
under the Securities Act or any other regulation or policy of
the SEC); |
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(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, will be
excluded; |
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(3) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP will be
excluded, but only to the extent that the obligations giving
rise to such Fixed Charges will not be obligations of the
specified Person or any of its Restricted Subsidiaries following
the Calculation Date; and |
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(4) Fixed Charges attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a
pro forma basis and bearing a floating interest rate will be
computed as if the rate in effect on the Calculation Date
(taking into account any interest rate option, swap, cap or
similar agreement applicable to such Indebtedness if such
agreement has a remaining term in excess of 12 months or,
if shorter, at least equal to the remaining term of such
Indebtedness) had been the applicable rate for the entire period. |
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Foreign Subsidiary means any Restricted
Subsidiary of Allis-Chalmers other than a Domestic Subsidiary.
GAAP means generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants, the opinions and pronouncements of
the Public Company Accounting Oversight Board and in the
statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity
as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
Government Securities means securities that
are direct obligations of, or obligations guaranteed by, the
United States of America for the timely payment of which its
full faith and credit is pledged.
Guarantee means, as to any Person, a
guarantee other than by endorsement of negotiable instruments
for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of
a pledge of assets or through letters of credit or reimbursement
agreements in respect thereof, of all or any part of any
Indebtedness of another Person.
Guarantors means:
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(1) the Initial Guarantors; and |
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(2) any other subsidiary that executes a Subsidiary
Guarantee in accordance with the provisions of the indenture; |
and their respective successors and assigns until released from
their obligations under their Subsidiary Guarantees and the
indenture in accordance with the terms of the indenture.
Hedging Obligations means, with respect to
any specified Person, the obligations of such Person under:
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(1) interest rate swap agreements, interest rate cap
agreements, interest rate collar agreements and other agreements
or arrangements with respect to interest rates; |
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(2) commodity swap agreements, commodity option agreements,
forward contracts and other agreements or arrangements with
respect to commodity prices; |
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(3) foreign exchange contracts, currency swap agreements
and other agreements or arrangements with respect to foreign
currency exchange rates; |
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(4) other agreements or arrangements designed to protect
such Person or any Restricted Subsidiaries against fluctuations
in interest rates, commodity prices or currency exchange
rates; and |
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(5) letters of credit and reimbursement obligations with
respect to letters of credit, in each case supporting
obligations of the types described in the preceding clauses of
this definition. |
Holder means a Person in whose name a note is
registered.
Incur means, with respect to any
Indebtedness, to incur, create, issue, assume, Guarantee or
otherwise become directly or indirectly liable for or with
respect to, or become responsible for, the payment of,
contingently or otherwise, such Indebtedness (and
Incurrence and Incurred
will have meanings correlative to the foregoing); provided
that (1) any Indebtedness of a Person existing at the
time such Person becomes a Restricted Subsidiary of
Allis-Chalmers will be deemed to be Incurred by such Restricted
Subsidiary at the time it becomes a Restricted Subsidiary of
Allis-Chalmers and (2) neither the accrual of interest nor
the accretion of original issue discount nor the payment of
interest in the form of additional Indebtedness with the same
terms and the payment of dividends on
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Disqualified Stock in the form of additional shares of the same
class of Disqualified Stock (to the extent provided for when the
Indebtedness or Disqualified Stock on which such interest or
dividend is paid was originally issued) will be considered an
Incurrence of Indebtedness; provided that in each case
the amount thereof is for all other purposes included in the
Fixed Charges and Indebtedness of Allis-Chalmers or its
Restricted Subsidiary as accrued.
Indebtedness means, with respect to any
specified Person, any indebtedness of such Person, whether or
not contingent:
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(1) in respect of borrowed money; |
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(2) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in
respect thereof); |
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(3) in respect of bankers acceptances; |
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(4) in respect of Capital Lease Obligations; |
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(5) in respect of the balance deferred and unpaid of the
purchase price of any property or services due more than six
months after such property is acquired or such services are
completed, except any such balance that constitutes an accrued
expense or a trade payable; |
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(6) representing Hedging Obligations; or |
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(7) representing Disqualified Stock valued at the greater
of its voluntary or involuntary maximum fixed repurchase price
plus accrued dividends, |
if and to the extent any of the preceding items (other than
letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of the specified Person prepared
in accordance with GAAP. In addition, the term
Indebtedness includes (x) all Indebtedness of
others secured by a Lien on any asset of the specified Person
(whether or not such Indebtedness is assumed by the specified
Person), provided that the amount of such Indebtedness
will be the lesser of (A) the Fair Market Value of such
asset at such date of determination and (B) the amount of
such Indebtedness, and (y) to the extent not otherwise
included, the Guarantee by the specified Person of any
Indebtedness of any other Person. For purposes hereof, the
maximum fixed repurchase price of any Disqualified
Stock which does not have a fixed repurchase price will be
calculated in accordance with the terms of such Disqualified
Stock, as applicable, as if such Disqualified Stock were
repurchased on any date on which Indebtedness will be required
to be determined pursuant to the indenture.
Notwithstanding the foregoing, the following shall not
constitute Indebtedness:
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(1) accrued expenses and trade accounts payable arising in
the ordinary course of business; |
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(2) any indebtedness that has been defeased in accordance
with GAAP or defeased pursuant to the deposit of cash or Cash
Equivalents (in an amount sufficient to satisfy all obligations
relating thereto at maturity or redemption, as applicable,
including all payments of interest and premium, if any) in a
trust or account created or pledged for the sole benefit of the
holders of such indebtedness, and subject to no other Liens, and
in accordance with the other applicable terms of the instrument
governing such indebtedness; |
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(3) any obligation arising from the honoring by a bank or
other financial institution of a check, draft or similar
instrument drawn against insufficient funds in the ordinary
course of business; provided, however, that such
obligation is extinguished within five business days of its
incurrence; and |
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(4) any obligation arising from any agreement providing for
indemnities, Guarantees, purchase price adjustments, holdbacks,
contingency payment obligations based on the performance of the
acquired or disposed assets or similar obligations (other than
Guarantees of Indebtedness) incurred by any Person in connection
with the acquisition or disposition of any assets, including
Capital Stock. |
The amount of any Indebtedness outstanding as of any date will
be the outstanding balance at such date of all unconditional
obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, and will be:
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(1) the accreted value thereof, in the case of any
Indebtedness issued with original issue discount; and |
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(2) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the
case of any other Indebtedness. |
Independent Financial Advisor means a
nationally recognized accounting, appraisal or investment
banking firm that is, in the reasonable judgment of the Board of
Directors, qualified to perform the task for which such firm has
been engaged hereunder and disinterested and independent with
respect to
Allis-Chalmers and its
Affiliates; provided that providing accounting, appraisal
or investment banking services to Allis-Chalmers or any of its
Affiliates or having an employee, officer or other
representative serving as a member of the Board of Directors of
Allis-Chalmers or any of its Affiliates will not disqualify any
firm from being an Independent Financial Advisor.
Initial Guarantors means all of the Domestic
Subsidiaries of Allis-Chalmers on the Issue Date.
Investments means, with respect to any
Person, all direct or indirect investments by such Person in
other Persons (including Affiliates) in the form of loans or
other extensions of credit (including Guarantees), advances,
capital contributions (by means of any transfer of cash or other
property to others or any payment for property or services for
the account or use of others, excluding commission, travel and
similar advances to officers and employees made in the ordinary
course of business and excluding accounts receivable created or
acquired in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests
or other securities, together with all items that are or would
be classified as investments on a balance sheet prepared in
accordance with GAAP.
If Allis-Chalmers or any Restricted Subsidiary of Allis-Chalmers
sells or otherwise disposes of any Equity Interests of any
direct or indirect Restricted Subsidiary of Allis-Chalmers such
that, after giving effect to any such sale or disposition, such
Person is no longer a Restricted Subsidiary of Allis-Chalmers,
Allis-Chalmers will be deemed to have made an Investment on the
date of any such sale or disposition equal to the Fair Market
Value of the Investment in such Subsidiary not sold or disposed
of. The acquisition by Allis-Chalmers or any Restricted
Subsidiary of Allis-Chalmers of a Person that holds an
Investment in a third Person will be deemed to be an Investment
by Allis-Chalmers or such Restricted Subsidiary in such third
Person in an amount equal to the Fair Market Value of the
Investment held by the acquired Person in such third Person.
Issue Date means the first date of original
issuance of the notes under the indenture.
Joint Marketing Arrangement means any joint
venture, partnership, lease, joint marketing agreement,
operating agreement, or other arrangement (which may or may not
include joint ownership of any Person) pursuant to which
Allis-Chalmers or any of its Restricted Subsidiaries arrange for
the marketing, lease or sale of products and services and share
in the profits therefrom.
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Legal Holiday means a Saturday, a Sunday or a
day on which banking institutions in The City of New York or
Houston, Texas or at a place of payment are authorized or
required by law, regulation or executive order to remain closed.
Lien means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset, whether or not filed,
recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or
agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
Liquidated Damages means all Liquidated
Damages then owing pursuant to the Registration Rights Agreement.
Net Income means, with respect to any
specified Person, the net income (loss) of such Person,
determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however:
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(1) any gain or loss, together with any related provision
for taxes on such gain or loss, realized in connection with:
(a) any Asset Sale; or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries
or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries; and |
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(2) any extraordinary gain or loss, together with any
related provision for taxes on such extraordinary gain or loss. |
Net Proceeds means the aggregate cash
proceeds, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but
not the interest component, thereof) received by Allis-Chalmers
or any of its Restricted Subsidiaries in respect of any Asset
Sale (including, without limitation, any cash received upon the
sale or other disposition of any non-cash consideration received
in any Asset Sale), net of (1) the direct costs relating to
such Asset Sale, including, without limitation, legal,
accounting, investment banking and brokerage fees, and sales
commissions, and any relocation expenses incurred as a result
thereof, (2) taxes paid or payable as a result thereof, in
each case, after taking into account any available tax credits
or deductions and any tax sharing arrangements, (3) amounts
required to be applied to the repayment of Indebtedness or other
liabilities secured by a Lien on the asset or assets that were
the subject of such Asset Sale or required to be paid as a
result of such sale, (4) any reserve for adjustment in
respect of the sale price of such asset or assets established in
accordance with GAAP, (5) in the case of any Asset Sale by
a Restricted Subsidiary of Allis-Chalmers, payments to holders
of Equity Interests in such Restricted Subsidiary in such
capacity (other than such Equity Interests held by
Allis-Chalmers or any Restricted Subsidiary thereof) to the
extent that such payment is required to permit the distribution
of such proceeds in respect of the Equity Interests in such
Restricted Subsidiary held by Allis-Chalmers or any Restricted
Subsidiary thereof, and (6) appropriate amounts to be
provided by Allis-Chalmers or its Restricted Subsidiaries as a
reserve against liabilities associated with such Asset Sale,
including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in accordance
with GAAP; provided that (a) excess amounts set
aside for payment of taxes pursuant to clause (2) above
remaining after such taxes have been paid in full or the statute
of limitations therefor has expired and (b) amounts
initially held in reserve pursuant to clause (6) no longer
so held, will, in the case of each of subclause (a) and
(b), at that time become Net Proceeds.
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Obligations means any principal, interest,
penalties, fees, indemnifications, reimbursements, damages and
other liabilities payable under the documentation governing any
Indebtedness.
Officer means, with respect to any Person,
the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary, any Assistant Secretary or any Vice President of
such Person.
Officers Certificate means a
certificate signed on behalf of Allis-Chalmers by at least two
Officers of Allis-Chalmers, one of whom must be the principal
executive officer, the principal financial officer, the
treasurer or the principal accounting officer of Allis-Chalmers,
that meets the requirements of the indenture.
Opinion of Counsel means an opinion from
legal counsel who is reasonably acceptable to the trustee (who
may be counsel to or an employee of Allis-Chalmers) that meets
the requirements of the indenture.
Parent means any entity that becomes the
holder of 100% of the outstanding Equity Interests of
Allis-Chalmers in a transaction in which the Beneficial Owners
of Allis-Chalmers immediately prior to such transaction are
Beneficial Owners in the same proportion of Allis-Chalmers
immediately after such transaction.
Permitted Business means any business
conducted or proposed to be conducted (as described in the
offering memorandum dated January 24, 2007 relating to the
initial offering of the old notes or any document incorporated
by reference therein) by Allis-Chalmers and its Restricted
Subsidiaries on the Issue Date and other businesses reasonably
related or ancillary thereto.
Permitted Holder means:
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(1) any Officer or member of the Board of Directors of
Allis-Chalmers or any Beneficial Owner of at least 5% of
Allis-Chalmers Equity Interests as of the Issue Date; |
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(2) any controlling stockholder, 80% (or more) owned
Subsidiary or immediate family member (in the case of an
individual) of any Person referred to in clause (1); or |
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(3) any trust, corporation, partnership or other entity,
the beneficiaries, stockholders, partners, owners or Persons
Beneficially Owning an 80% or more controlling interest of which
consist of any one or more Persons referred to in
clause (1) or (2). |
Permitted Investments means:
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(1) any Investment in Allis-Chalmers or in a Restricted
Subsidiary of Allis-Chalmers; |
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(2) any Investment in cash or Cash Equivalents; |
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(3) any Investment by Allis-Chalmers or any Restricted
Subsidiary of Allis-Chalmers in a Person, if as a result of such
Investment: |
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(a) such Person becomes a Restricted Subsidiary of
Allis-Chalmers; or |
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(b) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets
to, or is liquidated into, Allis-Chalmers or a Restricted
Subsidiary of Allis-Chalmers; |
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(4) any Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under the
caption Repurchase at the Option of
Holders Asset Sales; |
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(5) Hedging Obligations that are Incurred for the purpose
of fixing, hedging or swapping interest rate, commodity price or
foreign currency exchange rate risk (or to reverse or amend any
such agreements previously made for such purposes), and not for
speculative purposes, and that do not increase the Indebtedness
of the obligor outstanding at any time other than as a result of
fluctuations in interest rates, commodity prices or foreign
currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder; |
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(6) stock, obligations or securities received in
satisfaction of judgments; |
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(7) advances to customers or suppliers in the ordinary
course of business that are, in conformity with GAAP, recorded
as accounts receivable, prepaid expenses or deposits on the
balance sheet of Allis-Chalmers or its Restricted Subsidiaries
and endorsements for collection or deposit arising in the
ordinary course of business; |
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(8) any Investment in any Person solely in exchange for the
issuance of Equity Interests (other than Disqualified Stock) of
Allis-Chalmers or any of its Subsidiaries; |
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(9) any Investments received in compromise or resolution of
(A) obligations of trade creditors or customers that were
incurred in the ordinary course of business of Allis-Chalmers or
any of its Restricted Subsidiaries, including pursuant to any
plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of any trade creditor or customer; or
(B) litigation, arbitration or other disputes with Persons
who are not Affiliates; |
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(10) loans to officers and employees of Allis-Chalmers or
any of its Subsidiaries made in the ordinary course of business; |
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(11) commission, payroll, travel, entertainment and similar
advances to officers and employees of Allis-Chalmers or any of
its Restricted Subsidiaries that are expected at the time of
such advance ultimately to be recorded as an expense in
conformity with GAAP; |
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(12) Permitted Joint Venture Investments made by
Allis-Chalmers or any of its Restricted Subsidiaries and
Investments made pursuant to any Joint Marketing Arrangement, in
an aggregate amount (measured on the date each such Investment
was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made
pursuant to this clause (12), that does not exceed
$10.0 million; |
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(13) Investments existing on the Issue Date; |
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(14) repurchases of, or other Investments in, the notes; |
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(15) advances, deposits and prepayments for purchases of
any assets, including any Equity Interests; and |
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(16) other Investments in any Person having an aggregate
Fair Market Value (measured on the date each such Investment was
made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to
this clause (16) since the Issue Date, not to exceed
the greater of (a) $35.0 million or (b) 5.0% of
Consolidated Tangible Assets. |
In determining whether any Investment is a Permitted Investment,
Allis-Chalmers may allocate or reallocate all or any portion of
an Investment among the clauses of this definition and any of
the provisions of the covenant described under the caption
Covenants Restricted
Payments.
Permitted Joint Venture Investment means,
with respect to an Investment by any specified Person, an
Investment by such specified Person in any other Person engaged
in a Permitted Business (a) over which the specified Person
is responsible (either directly or through a services agreement)
for day-to-day
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operations or otherwise has operational and managerial control
of such other Person, or veto power over significant management
decisions affecting such other Person and (b) of which at
least 30% of the outstanding Equity Interests of such other
Person is at the time owned directly or indirectly by the
specified Person.
Permitted Liens means:
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(1) Liens on the assets of Allis-Chalmers and any
Restricted Subsidiary securing Indebtedness Incurred under
clause (1) of the second paragraph of the covenant
described under the caption Covenants
Incurrence of Indebtedness; |
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(2) Liens in favor of Allis-Chalmers or any Restricted
Subsidiary; |
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(3) Liens on property of a Person (i) existing at the
time of acquisition thereof or (ii) existing at the time
such Person is merged with or into or consolidated with
Allis-Chalmers or any Restricted Subsidiary of Allis-Chalmers;
provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend
to any assets other than those of the Person acquired or merged
into or consolidated with Allis-Chalmers or the Restricted
Subsidiary; |
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(4) Liens on property existing at the time of acquisition
thereof by Allis-Chalmers or any Restricted Subsidiary of
Allis-Chalmers, provided that such Liens were in
existence prior to, and not in contemplation of, such
acquisition and do not extend to any property other than the
property so acquired by Allis-Chalmers or the Restricted
Subsidiary; |
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(5) Liens securing the notes and the Subsidiary Guarantees; |
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(6) Liens existing on the Issue Date (other than any Liens
securing Indebtedness Incurred under clause (1) of the
covenant described under the caption Covenants
Incurrence of Indebtedness); |
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(7) Liens securing Permitted Refinancing Indebtedness;
provided that such Liens do not extend to any property or
assets other than the property or assets that secure the
Indebtedness being refinanced; |
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(8) Liens on property or assets used to defease or to
satisfy and discharge Indebtedness; provided that
(a) the Incurrence of such Indebtedness was not prohibited
by the indenture and (b) such defeasance or satisfaction
and discharge is not prohibited by the indenture; |
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(9) Liens securing obligations that do not exceed
$25.0 million at any one time outstanding; |
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(10) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (4) of the second
paragraph of the covenant described under the caption
Covenants Incurrence of
Indebtedness; provided that any such Lien
(i) covers only the assets acquired, constructed,
refurbished, installed, improved, deployed, refurbished,
modified or leased with such Indebtedness and (ii) is
created within 180 days of such acquisition, construction,
refurbishment, installation, improvement, deployment,
refurbishment, modification or lease; |
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(11) Liens to secure Indebtedness incurred for the purpose
of financing all or any part of the purchase price or the cost
of construction, development, expansion or improvement of the
equipment or other property subject to such Liens;
provided, however, that (a) the principal
amount of any Indebtedness secured by such a Lien does not
exceed 100% of such purchase price or cost, (b) such Lien
does not extend to or cover any property other than such item of
property or any improvements on such item of property and
(c) the incurrence of such Indebtedness is otherwise not
prohibited by the indenture; |
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(12) Liens securing Indebtedness of any Foreign Subsidiary
which Indebtedness is permitted by the indenture; |
86
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(13) Liens securing Hedging Obligations of Allis-Chalmers
or any of its Restricted Subsidiaries; |
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(14) Liens incurred or deposits made in the ordinary course
of business in connection with workers compensation,
unemployment insurance or other social security obligations; |
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(15) Liens, deposits or pledges to secure the performance
of bids, tenders, contracts (other than contracts for the
payment of Indebtedness), leases, or other similar obligations
arising in the ordinary course of business; |
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(16) survey exceptions, encumbrances, easements or
reservations of, or rights of others for, rights of way,
electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of
properties, and defects in title which, in the case of any of
the foregoing, were not incurred or created to secure the
payment of Indebtedness, and which in the aggregate do not
materially adversely affect the value of such properties or
materially impair the use for the purposes of which such
properties are held by Allis-Chalmers or any of its Restricted
Subsidiaries; |
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(17) judgment and attachment Liens not giving rise to an
Event of Default, notices of lis pendens and associated
rights related to litigation being contested in good faith by
appropriate proceedings and for which adequate reserves have
been made and any Liens that are required to protect or enforce
any rights in any administrative, arbitration, litigation or
other court proceeding in the ordinary course of business; |
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(18) Liens, deposits or pledges to secure public or
statutory obligations, surety, stay, appeal, indemnity,
performance or other similar bonds or obligations; and Liens,
deposits or pledges in lieu of such bonds or obligations, or to
secure such bonds or obligations, or to secure letters of credit
in lieu of or supporting the payment of such bonds or
obligations; |
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(19) Liens in favor of collecting or payor banks having a
right of setoff, revocation, refund or chargeback with respect
to money or instruments of Allis-Chalmers or any Subsidiary
thereof on deposit with or in possession of such bank; |
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(20) any interest or title of a lessor, licensor or
sublicensor in the property subject to any lease, license or
sublicense; |
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(21) Liens for taxes, assessments and governmental charges
not yet delinquent or being contested in good faith and for
which adequate reserves have been established to the extent
required by GAAP; |
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(22) Liens arising from precautionary UCC financing
statements regarding operating leases or consignments; |
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(23) Liens of franchisors in the ordinary course of
business not securing Indebtedness; |
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(24) Liens imposed by law, such as carriers,
warehousemens, repairmens, landlords and
mechanics Liens or other similar Liens, in each case,
incurred in the ordinary course of business; |
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(25) Liens contained in purchase and sale agreements
limiting the transfer of assets pending the closing of the
transactions contemplated thereby; |
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(26) Liens that may be deemed to exist by virtue of
contractual provisions that restrict the ability of
Allis-Chalmers or any of its Subsidiaries from granting or
permitting to exist Liens on their respective assets; and |
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(27) Liens in favor of the trustee as provided for in the
indenture on money or property held or collected by the trustee
in its capacity as trustee. |
87
Permitted Payments to Parent means, for so
long as Allis-Chalmers is a member of a group filing a
consolidated or combined tax return with the Parent, payments to
the Parent in respect of an allocable portion of the tax
liabilities of such group that is attributable to Allis-Chalmers
and its Subsidiaries (Tax Payments). The Tax
Payments shall not exceed the lesser of (a) the amount of
the relevant tax (including any penalties and interest) that
Allis-Chalmers would owe if Allis-Chalmers were filing a
separate tax return (or a separate consolidated or combined
return with its Subsidiaries that are members of the
consolidated or combined group), taking into account any
carryovers and carrybacks of tax attributes (such as net
operating losses) of Allis-Chalmers and such Subsidiaries from
other taxable years and (b) the net amount of the relevant
tax that the Parent actually owes to the appropriate taxing
authority. Any Tax Payments received from Allis-Chalmers shall
be paid over to the appropriate taxing authority within
30 days of the Parents receipt of such Tax Payments
or refunded to Allis-Chalmers.
Permitted Refinancing Indebtedness means any
Indebtedness of Allis-Chalmers or any of its Restricted
Subsidiaries issued (a) in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace,
defease, discharge, refund or otherwise retire for value, in
whole or in part, or (b) constituting an amendment,
modification or supplement to or a deferral or renewal of ((a)
and (b) above collectively, a
Refinancing) any other Indebtedness of
Allis-Chalmers or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
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(1) the amount of such Permitted Refinancing Indebtedness
does not exceed the amount of the Indebtedness so Refinanced
(plus all accrued and unpaid interest thereon and the
amount of any reasonably determined premium necessary to
accomplish such refinancing and such reasonable expenses
incurred in connection therewith); |
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(2) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being
Refinanced; |
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(3) if the Indebtedness being Refinanced is subordinated in
right of payment to the notes or the Subsidiary Guarantees, such
Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of the notes and is
subordinated in right of payment to the notes or the Subsidiary
Guarantees, as applicable, on terms at least as favorable, taken
as a whole, to the Holders of notes as those contained in the
documentation governing the Indebtedness being
Refinanced; and |
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(4) such Indebtedness is Incurred by either (a) the
Restricted Subsidiary that is the obligor on the Indebtedness
being Refinanced or (b) Allis-Chalmers. |
Person means any individual, corporation,
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, limited liability company or
government or other entity.
Preferred Stock means, with respect to any
Person, any Capital Stock of such Person that has preferential
rights to any other Capital Stock of such Person with respect to
dividends or redemptions upon liquidation.
Registration Rights Agreement means
(1) with respect to the notes issued on the Issue Date, the
Registration Rights Agreement, dated the Issue Date, among
Allis-Chalmers, the Initial Guarantors, RBC Capital Markets
Corporation and Morgan Joseph & Co., Inc. and (2) with
respect to any additional notes, any registration rights
agreement between Allis-Chalmers and the other parties thereto
relating to the registration by Allis-Chalmers of such
additional notes under the Securities Act.
Replacement Assets means (1) non-current
assets that will be used or useful in a Permitted Business or
(2) substantially all the assets of a Permitted Business or
a majority of the Voting Stock of
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any Person engaged in a Permitted Business that will become on
the date of acquisition thereof a Restricted Subsidiary.
Restricted Investment means an Investment
other than a Permitted Investment.
Restricted Subsidiary of a Person means any
Subsidiary of such Person that is not an Unrestricted Subsidiary.
SEC means the United States Securities and
Exchange Commission.
Significant Subsidiary means any Subsidiary
that would be a significant subsidiary as defined in
Article 1,
Rule 1-02 of
Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation
is in effect on the Issue Date.
Stated Maturity means, with respect to any
installment of interest or principal on any series of
Indebtedness, the date on which such payment of interest or
principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent
obligations to repay, redeem or repurchase any such interest or
principal prior to the date originally scheduled for the payment
thereof.
Subordinated Indebtedness means Indebtedness
of Allis-Chalmers or a Guarantor that is contractually
subordinated in right of payment, in any respect (by its terms
or the terms of any document or instrument relating thereto), to
the notes or the Subsidiary Guarantee of such Guarantor, as
applicable.
Subsidiary means, with respect to any
specified Person:
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(1) any corporation, association or other business entity
of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and |
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(2) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners
of which are such Person or one or more Subsidiaries of such
Person (or any combination thereof). |
Subsidiary Guarantee means a Guarantee of the
notes by a Subsidiary of Allis-Chalmers in accordance with the
provisions of the indenture.
Unrestricted Subsidiary means any Subsidiary
of Allis-Chalmers that is designated by the Board of Directors
of Allis-Chalmers as an Unrestricted Subsidiary pursuant to a
Board Resolution in compliance with the covenant described under
the caption Covenants Designation
of Restricted and Unrestricted Subsidiaries, and any
Subsidiary of such Subsidiary.
Voting Stock of any Person as of any date
means the Capital Stock of such Person that is ordinarily
entitled to vote in the election of the Board of Directors of
such Person.
Weighted Average Life to Maturity means, when
applied to any Indebtedness at any date, the number of years
obtained by dividing:
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(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking
fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest
one-twelfth) that will
elapse between such date and the making of such payment; by |
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(2) the then outstanding principal amount of such
Indebtedness. |
89
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following describes material U.S. federal income tax
consequences applicable to the exchange of old notes for new
notes in the exchange offer and of owning and disposing of the
notes. This discussion is not a complete discussion of all the
potential tax consequences that may be relevant to you. This
discussion is based upon the Internal Revenue Code of 1986, as
amended, its legislative history, existing and proposed
regulations thereunder, published rulings and court decisions,
all as in effect on the date of this document, and all of which
are subject to change, possibly on a retroactive basis. For
purposes of this discussion, you are a U.S. holder
if you are a beneficial owner of notes and you are a U.S.
person for U.S. federal income tax purposes or a
non-U.S. holder if you are a beneficial owner of
notes that is not a U.S. holder (other than an entity treated as
a partnership for U.S. federal income tax purposes). A
U.S. person is:
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an individual citizen or resident of the United States; |
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a corporation or other entity treated as a corporation for U.S.
federal income tax purposes, created or organized in the United
States or under the laws of the United States or of any state
thereof or the District of Columbia; |
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an estate whose income is subject to U.S. federal income
taxation regardless of its source; or |
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a trust if a U.S. court is able to exercise primary supervision
over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions
of the trust or a trust that has a valid election in effect
under applicable regulations to be treated as a U.S. person. |
If a partnership or other entity treated as a partnership for
U.S. federal income tax purposes holds the notes, the tax
treatment of a partner will generally depend on the status of
the partner and on the activities of the partnership. Partners
of partnerships holding notes are urged to consult their tax
advisors.
This discussion only applies to holders who hold the notes as
capital assets. The tax treatment of holders of the notes may
vary depending upon their particular situations. Certain
holders, including insurance companies, tax exempt
organizations, financial institutions, partnerships or other
entities treated as partnerships, investors in partnerships or
other entities treated as partnerships, pass-through entities,
investors in pass-through entities, expatriates, taxpayers
subject to the alternative minimum tax, broker-dealers and
persons holding the notes as part of a straddle,
hedge or conversion transaction, may be
subject to special rules not discussed below. This discussion
does not address any estate, gift, foreign, state or local taxes.
We urge you to consult your own tax advisors regarding the
particular U.S. federal income tax consequences to you of
holding and disposing of notes, any tax consequences that may
arise under the laws of any relevant foreign, state, local, or
other taxing jurisdiction or under any applicable tax treaty, as
well as possible effects of changes in federal or other tax laws.
The Exchange Offer
An exchange of old notes for new notes pursuant to the exchange
offer will not be a taxable transaction for U.S. federal income
tax purposes. Holders will not recognize any taxable gain or
loss as a result of the exchange offer and will have the same
tax basis and holding period in the new notes as they had in the
old notes immediately before the exchange.
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U.S. Holders
The following is a summary of material U.S. federal income tax
consequences that will apply to you if you are a U.S. holder of
the notes. Material consequences to non-U.S. holders of the
notes are described under Non-U.S. Holders below.
Payments of stated interest on a note will generally be taxable
to you as ordinary income at the time it is received or accrued,
depending on your method of accounting for U.S. federal income
tax purposes. Special rules governing the treatment of market
discount and premium are described below.
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Market Discount and
Premium |
If you purchased a note for less than the stated redemption
price of the note at maturity, the difference is considered
market discount to the extent it exceeds a specified de minimis
exception. Under the de minimis exception, market discount is
treated as zero if the market discount is less than 1/4 of one
percent of the stated redemption price of the note multiplied by
the number of complete years to maturity from the date acquired.
If you acquire a note at a market discount, you will be required
to treat as ordinary income any gain recognized on the
disposition of that note to the extent of the market discount
which has not previously been included in your income and is
treated as having accrued at the time of the payment or
disposition. In addition, you may be required to defer the
deduction of a portion of the interest on any indebtedness
incurred or maintained to purchase or carry the note until the
note is disposed of in a taxable transaction, unless you elect
to include market discount in income as it accrues.
Any market discount will be considered to accrue ratably during
the period from the date of acquisition to the maturity date of
the note, unless you elect to accrue on a constant interest
method. You may elect to include market discount in income
currently as it accrues on either a ratable or constant interest
method, in which case the rule described above regarding
deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies
to all market discount obligations acquired on or after the
first taxable year to which the election applies and may not be
revoked without the consent of the Internal Revenue Service,
which we refer to as the IRS.
If you purchased a note for an amount in excess of the sum of
all amounts payable on the note after the purchase date other
than qualified stated interest, you will be considered to have
purchased the note with amortizable bond premium equal to the
amount of that excess. You generally may elect to amortize the
premium using a constant yield method over the remaining term of
the note. The amount amortized in any year will be treated as a
reduction of your interest income from the note. If you do not
elect to amortize bond premium, that premium will decrease the
gain or increase the loss you would otherwise recognize on
disposition of the note. This election to amortize premium on a
constant yield method will also apply to all debt obligations
you hold or subsequently acquire on or after the first taxable
year to which the election applies and may not be revoked
without the consent of the IRS.
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Sale, Taxable Exchange,
Redemption, Retirement or Other Taxable Disposition of the
Notes |
Upon a sale, taxable exchange, redemption, retirement or other
taxable disposition of a note, you generally will recognize gain
or loss equal to the difference between the amount received upon
the sale, taxable exchange, redemption, retirement or other
taxable disposition (less any amount attributable to accrued
interest which will be taxable as ordinary income, if not
previously taken into gross income) and your adjusted tax basis
in the note at that time.
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Gain or loss realized on the sale, taxable exchange, redemption,
retirement or other taxable disposition of a note generally will
be capital gain or loss, except to the extent the gain
represents market discount on the notes not previously included
in gross income, to which extent the gain will be treated as
ordinary income. This capital gain or loss will be long-term
capital gain or loss if, at the time of sale, taxable exchange,
redemption, retirement or other taxable disposition, the note
has been held for more than one year. Under current law,
long-term capital gains of certain non-corporate holders are
generally taxed at lower rates than items of ordinary income.
The deductibility of capital losses is subject to limitations.
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Backup Withholding and
Information Reporting |
In general, information reporting will apply to certain payments
of principal and interest on the notes and to the proceeds from
the sale or other disposition of a note paid to you unless you
are an exempt recipient. Additionally, a backup withholding tax
(currently at a rate of 28%) will apply to such payments if you
fail to provide a correct taxpayer identification number or
certification of exempt status or fail to report full dividend
and interest income or otherwise fail to comply with applicable
requirements of the backup withholding rules.
Backup withholding is not an additional tax. If the backup
withholding applies to you, you may use the amounts withheld as
a refund or credit against your U.S. federal income tax
liability, as long as you timely provide certain information to
the IRS.
Non-U.S. Holders
The following is a summary of material U.S. federal income tax
consequences that will apply to you if you are a non-U.S. holder
of the notes.
Interest that we pay to you that is not effectively connected
with a U.S. trade or business will not be subject to U.S.
federal income tax and withholding of U.S. federal income tax
will not be required on that payment if you:
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do not actually or constructively own 10% or more of the
combined voting power of all classes of our stock; |
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are not a controlled foreign corporation with respect to which
we are a related person; |
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are not a bank receiving interest on a loan entered into in the
ordinary course of business within the meaning of the Internal
Revenue Code; and |
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you certify to us, our payment agent, or the person who would
otherwise be required to withhold U.S. federal income tax, on
IRS Form W-8BEN or
applicable substitute form, under penalties of perjury, that you
are not a U.S. person and provide your name and address. |
If you do not satisfy the preceding requirements, your interest
on a note that is not effectively connected with a U.S. trade or
business would generally be subject to U.S. withholding tax at a
flat rate of 30% unless that rate is reduced or eliminated
pursuant to an applicable tax treaty (provided certain
certification requirements are met).
If you are engaged in trade or business in the United States,
and if interest on a note is effectively connected with the
conduct of that trade or business (and in the case of an
applicable tax treaty, is attributable to a permanent
establishment or fixed base you maintain in the United States),
you will be exempt from U.S. withholding tax but will be subject
to regular U.S. federal income tax on the interest
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in the same manner as if you were a U.S. person. In order to
establish an exemption from U.S. withholding tax, you must
provide to us, our payment agent or the person who would
otherwise be required to withhold U.S. federal income tax, a
properly completed and executed IRS Form W-8ECI or applicable
substitute form. In addition to regular U.S. federal income tax,
if you are a corporation, you may be subject to an additional
U.S. branch profits tax at a rate of 30% (unless reduced or
eliminated by an applicable income tax treaty).
Gain on Disposition
You generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale, taxable exchange,
redemption, retirement or other taxable disposition of a note
unless:
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the gain is effectively connected with your conduct of a trade
or business within the United States (and, in the case of an
applicable income tax treaty, is attributable to a permanent
establishment or fixed base you maintain in the United States);
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if you are an individual, you are present in the United States
for 183 or more days in the taxable year of the disposition and
certain other requirements are met. |
Information Reporting and Backup
Withholding
Backup withholding and information reporting generally will not
apply to payments of interest on the notes by us or our paying
agent to you if you certify as to your non-U.S. status under
penalties of perjury or otherwise establish an exemption,
provided that neither we nor our paying agent has actual
knowledge or reason to know that you are a U.S. person or that
the conditions of any other exemptions are not in fact
satisfied. However, payments of interest on the notes are
required to be reported on IRS
Form 1042-S even
if the payments are not otherwise subject to information
reporting.
The payments of the proceeds of the disposition of notes to or
through the U.S. office of a U.S. or foreign broker will be
subject to information reporting and backup withholding unless
you provide the certification described above or otherwise
establish an exemption. The proceeds of a disposition effected
outside the United States by you of notes to or through a
foreign office of a broker generally will not be subject to
backup withholding or information reporting. However, if that
broker is a U.S. person, a controlled foreign corporation for
U.S. tax purposes, a foreign person 50% or more of whose gross
income from all sources for certain periods is effectively
connected with a trade or business in the United States, or a
foreign partnership that is engaged in the conduct of a trade or
business in the United States or that has one or more partners
that are U.S. persons who in the aggregate hold more than 50% of
the income or capital interests in the partnership, information
reporting requirements will apply unless that broker has
documentary evidence in its files of your non-U.S. status and
has no actual knowledge to the contrary or unless you otherwise
establish an exemption.
You are urged to consult your tax advisors regarding the
application of information reporting and backup withholding to
your particular situation, the availability of an exemption
therefrom, and the procedure for obtaining such an exemption, if
available. Backup withholding is not an additional tax. Any
amounts withheld from a payment to you under the backup
withholding rules will be allowed as a credit against your U.S.
federal income tax liability and may entitle you to a refund,
provided you timely furnish the required information to the IRS.
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PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC set forth in no
action letters issued to third parties, we believe that you may
transfer new notes issued under the exchange offer in exchange
for old notes unless you are:
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our affiliate within the meaning of Rule 405
under the Securities Act; |
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a broker-dealer that acquired old notes directly from us; or |
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a broker-dealer that acquired old notes as a result of
market-making or other trading activities without compliance
with the registration and prospectus delivery provisions of the
Securities Act; |
provided that you acquire the new notes in the ordinary course
of your business and you are not engaged in, and do not intend
to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of the new notes.
Broker-dealers receiving new notes in the exchange offer will be
subject to a prospectus delivery requirement with respect to
resales of the new notes.
To date, the staff of the SEC has taken the position that
participating broker-dealers may fulfill their prospectus
delivery requirements with respect to transactions involving an
exchange of securities such as this exchange offer, other than a
resale of an unsold allotment from the original sale of the old
notes, with the prospectus contained in the exchange offer
registration statement.
Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of such new
notes. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes
where such old notes were acquired as a result of market-making
activities or other trading activities. In addition, until
March 26, 2007, all dealers effecting transactions in the
new notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by
brokers-dealers or any other persons. New notes received by
broker-dealers for their own account pursuant to the exchange
offer may be sold from time to time in one or more transactions
in the over-the-counter
market, in negotiated transactions, through the writing of
options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new notes. Any
broker-dealer that resells new notes that were received by it
for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such new
notes may be deemed to be an underwriter within the
meaning of the Securities Act and any profit of any such resale
of new notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under
the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the
Securities Act.
We have agreed to pay all expenses incident to this exchange
offer other than commissions or concessions of any brokers or
dealers and will indemnify the holders of the old notes
(including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
Each broker-dealer must acknowledge and agree that, upon receipt
of notice from us of the happening of any event which makes any
statement in the prospectus untrue in any material respect or
which requires the making of any changes in the prospectus to
make the statements in the prospectus not misleading, which
notice we agree to deliver promptly to the broker-dealer, the
broker-dealer will
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suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and
have furnished copies of any amendment or supplement to the
prospectus to the broker-dealer.
LEGAL MATTERS
The validity of the notes offered in the exchange offer will be
passed upon for us by Andrews Kurth LLP, Houston, Texas.
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. as of
and for the years ended December 31, 2005, 2004 and 2003
and as of and for the period ended September 30, 2005
incorporated by reference in this prospectus have been audited
by UHY Mann Frankfort Stein & Lipp CPAs, LLP,
independent auditors, 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 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 registered public
accounting firm, and upon the authority of said firm as experts
in accounting and auditing.
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The financial statements of Petro-Rentals, Incorporated,
incorporated by reference in this prospectus have been audited
by Broussard, Pochè, Lewis & Breaux, L.L.P.,
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 financial statements of Oil & Gas Rental Services, Inc.
as of and for the years ended October 31, 2006, 2005, and
2004 incorporated by reference in this prospectus have been
audited by UHY LLP, independent auditors, 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.
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$250,000,000
Allis-Chalmers Energy Inc.
Offer to Exchange
All Outstanding 8.5% Senior Notes due 2017
for
8.5% Senior Notes due 2017
PROSPECTUS
EXCHANGE AGENT
WELLS FARGO BANK, N.A.
By Registered or Certified Mail:
Wells Fargo Bank, N.A.
MAC N9303-121
P.O. Box 1517
Minneapolis, MN 55480-1517
Attn: Corporate Trust Operations
By Regular Mail/ Hand/ Overnight Delivery:
Wells Fargo Bank, N.A.
Sixth and Marquette
MAC N9303-121
Minneapolis, MN 55479
Attn: Corporate Trust Operations
For Assistance Call:
800-344-5128
Fax Number (for eligible institutions only):
612-667-4927
UNTIL MARCH 26, 2007, ALL DEALERS THAT EFFECT
TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE DEALERS OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNUSED ALLOTMENTS OR SUBSCRIPTIONS.
February 12, 2007