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<SEC-DOCUMENT>0001019687-02-000509.txt : 20020415
<SEC-HEADER>0001019687-02-000509.hdr.sgml : 20020415
ACCESSION NUMBER: 0001019687-02-000509
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20011231
FILED AS OF DATE: 20020401
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ALLIS CHALMERS CORP
CENTRAL INDEX KEY: 0000003982
STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590]
IRS NUMBER: 390126090
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 002-59583
FILM NUMBER: 02596609
BUSINESS ADDRESS:
STREET 1: 7660 WOODWAY #200
CITY: HOUSTON
STATE: TX
ZIP: 77063
BUSINESS PHONE: 713-369-0550
MAIL ADDRESS:
STREET 1: 7660 WEELWAY
STREET 2: #200
CITY: HOUSTON
STATE: TX
ZIP: 77063
FORMER COMPANY:
FORMER CONFORMED NAME: ALLIS CHALMERS MANUFACTURING CO
DATE OF NAME CHANGE: 19710614
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>allischalmers_10k-123101.txt
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________
TO _______________
Commission file number 1-2199
ALLIS-CHALMERS CORPORATION
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 39-0126090
- ------------------------------------------------ ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7660 WOODWAY, SUITE 200, HOUSTON, TEXAS 77063
---------------------------------------------------
(Address of principal executive offices) (Zip code)
(713) 369-0550
--------------------------------------------------
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, par value $0.15 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
At March 29, 2002 were 19,545,840 shares of Common Stock outstanding.
<PAGE>
2001 FORM 10-K CONTENTS
PART I
ITEM PAGE
---- ----
1. Business.................................................3
2. Properties...............................................9
3. Legal Proceedings........................................9
4. Submission of Matters to a Vote of
Security Holders......................................10
PART II
5. Market for Registrant's Common Equity
and Related Stockholder Matters.......................11
6. Selected Financial Data.................................12
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................13
7A. Quantitative and Qualitative Disclosures about
Market Risk...........................................24
8. Financial Statements....................................25
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................51
PART III
10. Directors and Executive Officers
of the Registrant.....................................52
11. Executive Compensation..................................58
12. Security Ownership of Certain Beneficial
Owners and Management.................................61
13. Certain Relationships and Related Transactions..........63
PART IV
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..............................................64
Signatures....................................................................65
<PAGE>
PART I.
ITEM 1. BUSINESS
- -----------------
BUSINESS OF ALLIS-CHALMERS CORPORATION
- --------------------------------------
GENERAL
- -------
In May 2001, we consummated a merger in which we acquired OilQuip Rentals, Inc.
(OilQuip) and its wholly owned subsidiary, Mountain Compressed Air, Inc.
("MCA"), in exchange for 10,000,000 shares of our common stock (which, when
issued, represented over 85% of our outstanding common stock). In February 2002,
we acquired approximately 81% of the capital stock of Jens Oilfield Service,
Inc. ("Jens") and substantially all of the capital stock of Strata Directional
Drilling Technologies, Inc. ("Strata"). Our business conducted in 2001 did not
include the operations of Jens and Strata which will be material to our
continuing business operations.
We were incorporated in 1913 under Delaware law. We reorganized in bankruptcy in
1988, and sold all of our major businesses.
Through MCA, Jens and Strata, and through additional acquisitions in the
industry, we intend to exploit opportunities in the oil and natural gas service
and rental industry.
INDUSTRY OVERVIEW
- -----------------
Oil and gas producers tend to focus on their core competencies of identifying
gas reserves, which has resulted in the extensive outsourcing of drilling and
service functions. The use of service companies allows gas companies to avoid
the capital and maintenance costs of the equipment in what is already a capital
intensive industry.
As drilling becomes increasingly more technical and costly, exploration and
production companies are increasingly demanding higher quality equipment and
service from equipment and service providers. Companies that can meet customer's
demands will continue to earn new and repeat business, and major gas companies
are currently consolidating their supplier base to streamline their purchasing
operations and generate economies of scale by purchasing from just a few
suppliers. Producers are favoring larger suppliers that provide a comprehensive
list of products and services. We believe many businesses in the highly
fragmented oilfield industry lack sufficient size (many businesses generate
annual revenues of less than $15 million), lack depth of management (many
businesses are family-owned and managed) and have unsophisticated production
techniques and control capabilities. Accordingly, we believe we can offer
customers crucial advantages over our competitors.
We believe that significant opportunities exist in the oil and gas service
industry, and that consolidation among larger oilfield service providers has
created an opportunity for us to compete effectively in certain niche markets
which are under-served by larger oilfield service and equipment companies and in
which we can provide better products and services than the smaller, fragmented
competitors currently providing a significant portion of the services in this
industry.
3
<PAGE>
BUSINESS STRATEGY
- -----------------
We intend to consolidate businesses operating within four areas of the oilfield
services and equipment market: (i) casing related services, (ii) air compression
equipment, (iii) directional drilling, and (iv) rental tools, each of which are
described below. We also believe that significant opportunities exist to
cross-market to the customers of our various businesses.
CASING AND TUBING COMPANIES. Most wells drilled for oil and gas require some
form of casing and tubing to be installed during the drilling and the completion
phase of a well. We believe that through geographic expansion we can optimize
the utilization of both casing handling and tubing tools, as well as personnel.
AIR COMPRESSORS. Our primary focus will be to expand the air compression
business related to underbalanced drilling, which we believe provides a
cost-effective alternative to traditional drilling methods for certain types of
reservoirs. As such, we expect to see an increased use of underbalanced drilling
in North America.
DIRECTIONAL AND HORIZONTAL DRILLING. This segment of the oilfield services and
equipment market has seen substantial growth over the last ten years. We believe
that this fragmented segment offers substantial consolidation opportunities.
RENTAL TOOLS. We believe that the rental tool and equipment business offers high
margins, significant operating leverage and may also offer some synergistic
benefits to the other three segments. We do not currently have operations in
this area of the market.
ACQUISITION PROFILE. We intend to seek to identify and acquire companies with
significant management and field expertise, strong client relationships and high
quality products and services. With typically less than $20 million in revenues,
each target company is likely to have limited financial resources for expansion
and few exit alternatives for the owners.
DESCRIPTION OF SUBSIDIARIES' BUSINESSES
- ---------------------------------------
MOUNTAIN COMPRESSED AIR, INC. MCA is a leading natural gas exploration and
drilling rental company providing equipment and trained personnel in the
southwestern United States, and was acquired by OilQuip in February 2001. MCA
primarily provides compressed air equipment and trained operators to companies
drilling for natural gas. MCA believes that it has a significant share of the
market for compressed air services in the San Juan basin of New Mexico.
MCA's products and services are almost exclusively geared towards air drilling.
Air drilling is a method of rotary drilling that uses compressed air, mist or
foam as the circulation medium, rather than mud, and is used primarily in
formations containing small amounts of water. As the bit drills, the compressors
provide air to move the cuttings away from the bit's teeth and lift them to the
4
<PAGE>
surface for disposal. Air, unlike mud, exerts very low pressure on the bottom of
the hole. As a result, the drilling rate can be dramatically increased. Air
drilling equipment is also favored in natural gas exploration and production in
many areas where formations are stable enough to allow drilling with air or
where lost circulation conditions do not allow the use of drilling fluids as a
method of removing drilled cuttings from the well bore.
With over 30 years of drilling experience, MCA's specialists have developed
extensive knowledge of down-hole conditions and have developed highly
specialized mists and foams, which provide more efficient and safer air
drilling. MCA has been a pioneer in developing highly technical equipment,
procedures and processes to increase rate of penetration, bit life, and to
successfully drill "lost circulation" zones. Due to the technical nature of the
equipment, a highly trained staff of field service personnel, parts inventory
and a diversified fleet of natural gas compressors are often necessary to
perform such functions in the most economic and safe manner. MCA has a fleet of
35 identical Gardner-Denver two-stage reciprocating compressors, powered by
Caterpillar diesel engines. MCA uses a piston type air compressor, which results
in low fuel consumption and reliable performance. We believe MCA is a leader in
its market due to its successful 25 year operating history of providing
equipment rental and services for natural gas production in the San Juan basin
and Rocky Mountain regions of the United States.
Product technology is an increasingly important aspect of MCA's products and
services. Improving technology helps MCA provide customers with more efficient,
higher margin and cost-effective tools to find and produce natural gas. MCA
intends to offer the newest technologies and services to reduce customers'
drilling and production costs through more efficient and accurate air drilling
techniques. MCA maintains its own repair and maintenance facilities and
replacement parts inventory.
JENS OILFIELD SERVICE, INC. Jens' Oilfield Service, Inc. ("Jens"), founded in
1982, is headquartered in Edinburg, Texas. Jens supplies specialized equipment
and trained operators that are utilized to install and replace casing and
production tubing required to drill and complete oil and gas wells. Jens'
provides equipment to both onshore and offshore drilling and workover
operations.
Jens has an extensive inventory of specialized equipment consisting of casing
tongs and laydown machines in various sizes, powered by diesel motor driven
hydraulic pumps. Non-powered equipment consists of elevators, slips, links and
projectors. Jens' also maintains other revenue-generating equipment such as
forklifts and delivery trucks that transport Jens' various rental equipment and
transfer the customer's casing from truck to pipe rack.
Jens' provides service primarily to South Texas, as well as in Mexico through a
joint venture partner, in Villa Hermosa, Reynosa, Vera Cruz, and Ciudad de
Carmen, Mexico. For the Mexico operations, Jens' provides equipment for Pemex.
STRATA DIRECTIONAL TECHNOLOGY, INC. Strata was founded in January 1996 and is
headquartered in Houston, Texas. Strata provides Measure While Drilling ("MWD")
directional and horizontal drilling services to oil and gas companies operating
both onshore and offshore. Strata also performs short radius wireline drilling,
slimhole reentry, and casing window milling services primarily to onshore oil
and gas operations.
5
<PAGE>
Strata has pursued a strategy of providing high end directional drilling
technology services in geographic or technical niche markets where customized,
and technically focused applications are necessary to be conducted by highly
experienced personnel using state-of-the-art tools. These include well site
computers to provide "real time" bore hole location and geological information.
Strata owns six measurement while drilling (MWD) systems with back up tools and
four wireline steering tool units. Strata's sales, well planning, technical
support and drilling operations support team has extensive experience in newly
developed directional and reentry drilling technology. Flexibility to select
tools, software, technology and applications that meet the customer's
specifications has enabled Strata to establish a strong presence in the Austin
Chalk area and diversify geographically along the Gulf Coast. Upon damage to
equipment utilized on the job, Strata is fully reimbursed through either the
operator of the well or insurance.
CYCLICAL NATURE OF EQUIPMENT RENTAL AND SERVICES INDUSTRY
- ---------------------------------------------------------
The oil and gas equipment rental and services industry is highly cyclical. The
most critical factor in assessing the outlook for the industry is worldwide
supply and demand for oil and natural gas (the supply and demand for oil and gas
are generally correlative). Its peaks and valleys are further apart than those
of many other cyclical industries. This is primarily a result of the industry
being driven by commodity demand and corresponding price increases. As demand
increases, producers raise their prices. The price escalation enables producers
to increase their capital expenditures. The increased capital expenditures
ultimately result in stronger revenues and profits for services and equipment
companies.
After experiencing a strong market throughout most of 2000 and the first half of
2001, the energy services industry experienced a significant drop-off due to
lower demand for hydrocarbons (particularly natural gas), which is largely a
function of the U.S. recession, a warm winter and increased inventory levels.
Management believes that energy services activity will rebound in 2002 due to
increased demand and declining production rates. Because of these market
fundamentals for natural gas, management believes the long-term trend of
activity in the oilfield services market will be favorable at least through
2003.
COMPETITION
- -----------
We experience significant competition in all areas of our business. In general,
the markets in which we compete are highly fragmented, and a large number of
companies offer services that overlap and are competitive with our services and
products. We believe that the principal competitive factors are technical
capabilities, management experiences, past performance and price. While we have
considerable experience, there are many other companies that have comparable
skills. Many of our competitors are larger and have greater financial resources
than we do.
MCA believes that it has a significant share of the market for compressed air
services in the San Juan basin of New Mexico. There are a number of larger and
better capitalized companies providing compressed air services throughout the
Southwest.
6
<PAGE>
The casing crew market is highly competitive with at least 30 casing crew
companies working in the U.S. alone. We believe only a few contractors provide
services in the territories in Mexico where Jens operates.
Three directional drilling companies dominate the market, with the balance
generally consisting of smaller regional niche players, including Strata.
CUSTOMERS
- ---------
MCA services customers in the New Mexico, Colorado, the Gulf of Mexico, Utah,
Wyoming, Texas, Louisiana, California and Nevada. MCA has relied on strong
customer relationships to generate sales and has not implemented a formalized
sales and marketing effort. MCA has no dedicated sales and marketing personnel
because it has historically operated at or near capacity. Further, MCA's
management believes that no one employee is key to the company's relationship
with key customers. However, MCA is reliant on one customer, Burlington
Resources, Inc., which accounted for 69.3% of total revenue in 2000 and 65% of
total revenue in 2001. A loss of this customer would cause its business to
suffer.
Jens primarily services customers in South Texas. For the years ended 2001 and
2000, one customer, El Paso Energy Corp., accounted for more than 10% of its
annual revenues. Jens' top ten customers accounted for $4.2 million, or 42% and
$2.7 million, or 33% of revenues for the years ended 2001 and 2000,
respectively.
Strata primarily services customers in Texas and Louisiana. For the years ended
2001 and 2000, two customers accounted for more than 10% of Strata's annual
revenues. Strata's top ten customers accounted for $9.8 million or 75%, and $8.7
million or 76%, of revenues for the years ended 2001 and 2000, respectively
SUPPLIERS
- ---------
Where possible, we purchase equipment from a number of suppliers and at auctions
on an opportunistic basis. The equipment provided by these suppliers is
customized and often times overhauled by MCA in order to improve performance. In
other instances, equipment must be made to order. As a result of purchasing the
majority of its equipment at auction, MCA is not significantly dependent upon
any one supplier.
EMPLOYEES
- ---------
Our strategy is to acquire Companies with strong management and to enter into
long-term employment contracts with key employees in order to preserve customer
relationships and assure continuity following acquisition. We believe we have
good relations with our employees, none of which are represented by a union. We
actively train employees across various functions, which we believe is crucial
to motivate our workforce and maximize efficiency. Employees showing a higher
level of skill are trained on the more technically complex equipment and given
greater responsibility. All employees are responsible for on-going quality
assurance.
7
<PAGE>
At December 31, 2001, we had 45 employees, which included 43 MCA employees and 2
employees of Allis-Chalmers Corporation. At March 1, 2002, Jens and Strata had
84 and 35 employees, respectively.
INSURANCE
- ---------
We carry a variety of insurance for our operations, and are partially
self-insured for certain claims in amounts that we believe to be customary and
reasonable. However, there is a risk that our insurance may not be sufficient to
cover any particular loss or that insurance may not cover all losses. For
example, an adverse claim could arise that is in excess of our coverage.
Finally, insurance rates have in the past been subject to wide fluctuation, and
changes in coverage could result in increases in our cost or higher deductibles
and retentions.
FEDERAL REGULATIONS AND ENVIRONMENTAL MATTERS
- ---------------------------------------------
Our operations are subject to federal, state and local 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. Because we provide services to companies producing oil and gas, which
are toxic substances, we may become subject to claims relating to the release of
such substances into the environment. While we are not currently aware of any
situation involving an environmental claim that would likely have a material
adverse effect on us, it is always possible that an environmental claim could
arise that could cause its business to suffer.
In addition to claims based on our current operations, we are from time to time
subject to claims relating to our activities prior to our bankruptcy in 1988
(See, "Item 2. Legal Proceedings").
HOUSTON DYNAMIC SERVICE, INC.
- ----------------------------
HDS, which was disposed of on December 12, 2001, services and repairs various
types of mechanical equipment, including compressors, pumps, turbines, engines
and other machinery, providing repair, inspection, testing and other services
for various industrial customers, including those in the petrochemical,
chemical, refinery, utility, waste and waste treatment, minerals processing,
power generation, pulp and paper and irrigation industries.
INTELLECTUAL PROPERTY RIGHTS
- ----------------------------
As part of the overall corporate strategy to focus on its core business of
providing services to the oil and gas industry and to increase shareholder
value, the Company intends to sell or license its worldwide rights to patents,
trade names and logos for products and services outside the energy sector.
8
<PAGE>
ITEM 2. PROPERTIES
- -------------------
MCA leases an 18,000 square foot facility in Grand Junction, Colorado, which is
used as offices, shop and as a warehouse. It also leases a storage yard in
Farmington, New Mexico.
Jens' maintains a facility, which has approximately 10,000-sq. ft. of office
space and 2,500-sq. ft. of warehouse space and an additional repair shop and
maintenance facility in Edinburg, Texas.
Strata leases office space and a shop in Houston, Texas. In connection with the
acquisition of Strata, we relocated our principal executive offices to Strata's
offices in Houston, Texas.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
REORGANIZATION PROCEEDINGS UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY
- ---------------------------------------------------------------------------
CODE.
- -----
On June 29, 1987, we filed for reorganization under Chapter 11 of the United
States Bankruptcy Code. Our plan of reorganization was confirmed by the
Bankruptcy Court after acceptance by our creditors and stockholders, and was
consummated on December 2, 1988.
At confirmation of our plan of reorganization, the United States Bankruptcy
Court approved the establishment of the A-C Reorganization Trust as the primary
vehicle for distributions and the administration of claims under our plan of
reorganization, two trust funds to service health care and life insurance
programs for retired employees and a trust fund to process and liquidate future
product liability claims. The trusts assumed responsibility for substantially
all remaining cash distributions to be made to holders of claims and interests
pursuant to our plan of reorganization. We were thereby discharged of all debts
that arose before confirmation of our plan of reorganization.
We do not administer any of the aforementioned trusts and retain no
responsibility for the assets transferred to or distributions to be made by such
trusts pursuant to our plan of reorganization.
As part of our plan of reorganization, we settled U.S. Environmental Protection
Agency ("EPA") claims for cleanup costs at all known sites where we were alleged
to have disposed of hazardous waste. The EPA settlement included both past and
future cleanup costs at these sites and released us of liability to other
potentially responsible parties in connection with these specific sites. In
addition, we negotiated settlements of various environmental claims asserted by
certain state environmental protection agencies.
Subsequent to our bankruptcy reorganization, the EPA and state environmental
protection agencies have in certain cases asserted we are liable for cleanup
costs or fines in connection with several hazardous waste disposal sites
containing products manufactured by us prior to consummation of the Plan of
Reorganization. In each instance, we have taken the position that the cleanup
cost or other liabilities related to these sites were discharged in the
bankruptcy, and the cases have been disposed of without material cost. A number
of Federal Courts of Appeal have issued rulings consistent with this position
and based on such rulings we believe that we will continue to prevail in our
position that our liability to the EPA and third parties for claims for
environment cleanup costs for pre-bankruptcy releases or threatened releases of
environmental contaminants has been discharged. However, there can be no
assurance that we will not be subject to environmental claims relating to
pre-bankruptcy activities which would have a material, adverse effect on us.
9
<PAGE>
The EPA and certain state agencies also continue to request information in
connection with various waste disposal sites in which products manufactured by
us before consummation of the Plan of Reorganization were disposed of by other
parties. Although we have been discharged of liabilities with respect to
hazardous waste sites, we are under a continuing obligation to provide
information with respect to our products to federal and state agencies. The A-C
Reorganization Trust, under its mandate to provide Plan of Reorganization
implementation services to us, has responded to these informational requests
because pre-bankruptcy activities are involved, and therefore we do not incur
material expenses as a result of responding to such requests.
No environmental claims have been asserted against us involving our
postbankruptcy operations. However, there can be no assurance that we will not
be subject to material environmental claims in the future.
We are named as a defendant from time to time in product liability lawsuits
alleging personal injuries resulting from our activities prior to our
reorganization, which claims are referred to and handled by the products
liability trust formed in connection with our reorganization. As with
environmental claims, we do not believe we are liable for product liability
claims relating to our business prior to our bankruptcy; moreover, the products
liability trust is processing (and is responsible for the costs associated with)
all such claims. However, there can be no assurance that we will not be subject
to material product liability claims in the future.
We are subject to legal proceedings, claims and litigation arising in the
ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------------------------------------------------------------
Not applicable
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
- -------------------------------------------------------------------------------
MARKET INFORMATION. There is no established public trading market for the common
stock, which is traded on the Over the Counter Bulletin Board. We have no
current intention to apply to list the common stock on any exchange.
The following table sets forth, for the periods indicated, the high and low bid
information for the common stock, as determined from sporadic quotations on the
Over-the-Counter Bulletin Board, as well as the total number of shares of common
stock traded during the periods indicated:
CALENDAR QUARTER HIGH LOW VOLUME
- ---------------- ---- --- ------
2000
First Quarter.................... 3.63 1.50 3,500
Second Quarter................... 4.13 2.00 25,200
Third Quarter.................... 3.50 2.06 15,300
Fourth Quarter................... 3.25 1.44 9,700
2001
First Quarter.................... 1.75 1.44 12,100
Second Quarter................... 2.50 1.30 18,600
Third Quarter.................... 1.85 1.07 6,200
Forth Quarter.................... 1.70 .90 8,200
HOLDERS. As of March 22, 2002, there were approximately 6,852 holders of our
common stock. On March 22, 2002, the bid price for our common stock was $0.55.
DIVIDENDS. No dividends were declared or paid during the past three years, and
no dividends are anticipated to be declared or paid in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES. In 2001 we issued 10,000,000 shares of
our common stock to the shareholders of OilQuip Rentals, Inc. ("OilQuip") in
connection with the merger of OilQuip into a wholly-owned subsidiary. As a
result of the transaction, OilQuip became our wholly-owned subsidiary and the
seven former shareholders of OilQuip became the owners of 86.3% of our
outstanding common stock (See Notes 1 and 4 to our Consolidated Financial
Statements). The transaction was exempt from registration under the Securities
Act of 1933 because the transaction did not involve a public offering.
In October 2001, we issued an option to purchase 500,000 shares of our common
stock to Leonard Toboroff, a director and our Executive Vice President. The
option is exercisable for a period of ten years at an exercise price of $0.50
per share. The option was issued in consideration of services rendered to us
(See Note 10 to our Consolidated Financial Statements and "Item 13 - Certain
Transactions."). The transaction was exempt from registration under the
Securities Act of 1933 because the transaction did not involve a public
offering.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
- ---------------------------------
ALLIS-CHALMERS SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
- --------------------------------------------------------------
As discussed in "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation", in May 2001, for financial reporting
purposes, we were deemed to be acquired by OilQuip Rentals, Inc. Accordingly,
the following data for periods prior to May 2001 reflect only the operations of
OilQuip Rentals, Inc., which was incorporated in February 2000, and, from
February 2001, its subsidiary, MCA.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
PERIOD FEBRUARY 4, 2000
(INCEPTION) THROUGH
YEAR ENDED DECEMBER 31,2001 DECEMBER 31, 2000
---------------------------- -----------------
<S> <C> <C>
Sales $ 4,796 $ -
Income (loss) from continuing
operations $(2,273) $ (627)
Net income (loss) $(4,577) $ (627)
Per Share Data:
Net (loss) income per common
share, basic and diluted $ (1.15) $ (1.57)
Weighted average number of common
shares outstanding, basic and diluted 3,952 400
</TABLE>
CONSOLIDATED BALANCE SHEET DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
AS OF DECEMBER 31,
------------------
2001 2000
---- ----
Total Assets $12,465 $ 2,360
Long-term debt classified as:
Current $ 1023 $ -
Long Term $ 6,833 $ -
Stockholders' Equity $ 1,250 $ 2,348
Book value per share $ 0.10 $ 5.87
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS.
--------------
BACKGROUND
- ----------
Prior to 2001, we operated primarily through HDS. In May 2001, as part of a
strategy to acquire and develop businesses in the natural gas and oil services
industry, we consummated a merger (the "OilQuip Merger") in which we acquired
100% of the capital stock of OilQuip Rentals, Inc. ("OilQuip"), which owned 100%
of the capital stock of MCA. In December 2001, we disposed of HDS, and in
February 2002, we acquired substantially all of the capital stock of Strata and
approximately 81% of the capital stock of Jens. (see, "--Recent Developments
- --Acquisition of Jens Oilfield Service, Inc, and Strata Directional Drilling,
Inc.; Disposition of HDS," below). Our business conducted in 2001 did not
include the operations of Jens and Strata which will be material to our
continuing business operations.
For accounting purposes, the OilQuip Merger was treated as a reverse acquisition
of Allis-Chalmers and financial statements presented herein for periods prior to
May 2001 present the results of operations and financial condition of OilQuip.
As a result of the OilQuip Merger, the fixed assets, and goodwill and other
intangibles of Allis-Chalmers in existence immediately prior to the Merger (the
"Prior A-C Assets") were increased by $2,691,000. Goodwill and other intangibles
included in the Prior A-C Assets are being amortized over 10 to 20 years and the
fixed assets included in the Prior A-C Assets are being depreciated over 10
years.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
We have identified the policies below as critical to our business operations and
the understanding of our results of operations. The impact and any associated
risks related to these policies on our business operations is discussed
throughout management's Discussion and Analysis of Financial Condition and
Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of these and
other accounting policies, see Note 1 in the Notes to the Consolidated Financial
Statements in this Annual Report on Form 10-K. Note that our preparation of this
Annual Report on Form 10-K requires us to make estimates and assumptions that
affect the reported amount of assets and liabilities, disclosure of contingent
assets and liabilities at the date of our financial statements, and the reported
amounts of revenue and expenses during the reporting period. There can be no
assurance that actual results will not differ from those estimates.
REVENUE RECOGNITION. Our revenue recognition policy is significant because our
revenue is a key component of our results of operations. In addition, our
revenue recognition determines the timing of certain expenses, such as
commissions and royalties. We follow very specific and detailed guidelines in
measuring revenue; however, certain judgments affect the application of our
revenue policy. Revenue results are difficult to predict, and any shortfall in
revenue or delay in recognizing revenue could cause our operating results to
vary significantly from quarter to quarter and could result in future operating
losses.
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IMPAIRMENT OF LONG-LIVED ASSETS. Long-lived assets, which include property,
plant and equipment, goodwill and other intangibles, and other assets comprise a
significant amount of the Company's total assets. The Company makes judgments
and estimates in conjunction with the carrying value of these assets, including
amounts to be capitalized, depreciation and amortization methods and useful
lives. Additionally, the carrying values of these assets are periodically
reviewed for impairment or whenever events or changes in circumstances indicate
that the carrying amounts may not be recoverable. An impairment loss is recorded
in the period in which it is determined that the carrying amount is not
recoverable. This requires the Company to make long-term forecasts of its future
revenues and costs related to the assets subject to review. These forecasts
require assumptions about demand for the Company's products and services, future
market conditions and technological developments. Significant and unanticipated
changes to these assumptions could require a provision for impairment in a
future period.
RESULTS OF OPERATIONS
- ---------------------
Results of operations for 2001 and 2000 reflect the business operations of
OilQuip. From its inception on February 4, 2000 to February 6, 2001, OilQuip was
in the developmental stage. OilQuip's activities for the period prior to
February 6, 2001 consisted of developing its business plan, raising capital and
negotiating with potential acquisition targets. Therefore, the results for
operations for prior to February 6, 2001 had no sales, cost of sales, or
marketing and administrative expenses that would be reflective of the ongoing
company. On February 6, 2001, OilQuip acquired the assets of Mountain Air which
conducted natural gas exploration equipment rental and services operations. On
May 9, 2001, OilQuip acquired the Prior A-C Assets, including the operations of
HDS. The results of operation of HDS, which was sold in December 2001, are
included in discontinued operations from May 9, 2001.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO PERIOD FEBRUARY 4, 2000 (INCEPTION)
- ----------------------------------------------------------------------------
THROUGH DECEMBER 31, 2000:
- --------------------------
Sales for the year 2001 totaled $4,796,000, reflecting the revenue of MCA
following the acquisition of the assets from MCA's predecessor, Mountain Air
Drilling, Inc. (the "Mountain Air Acquisition"). In the Period February 4, 2000
(inception) through December 31, 2000, OilQuip had no revenues.
Gross margin, as a percentage of sales, was 30.5% in 2001.
General and administrative expense was $2,898,000 in 2001 compared with $627,000
in the period February 4, 2000 (inception) through December 31, 2000 increasing
as a result of the Mountain Air Acquisition and the issuance of stock options in
2001.
We had EBITDA (earnings before interest, income taxes, depreciation and
amortization) loss from continuing operation of $330,000 for the year ended
December 31, 2001.
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We incurred a net loss from continuing operations of $2,273,000, or $0.57 per
common share, for the year 2001 compared with a loss by OilQuip of $627,000, or
$1.57 per common share, for the period from February 4, 2000 (inception) through
December 31, 2000. The Company incurred a net loss of $4,577,000, or $1.15 per
common share, for the year 2001 compared with a loss by OilQuip of $627,000, or
$1.57 per common share, for the period February 4, 2000 (inception) through
December 31, 2000
The loss from discontinued operations for 2001 of $2,304,000 includes the loss
on the sale of HDS.
PRO FORMA RESULTS
Pro forma results of operation set forth below includes results of operations of
the Oilquip, MCA and MCA's predecessor for all of 2001 and excludes the
operations of HDS. These financial statements should be read in conjunction with
the pro forma financial statements included herein.
Pro forma sales in the year 2001 totaled $5,289,000, which represents sales by
MCA and its predecessor.
Pro forma gross profit totaled $2,222,000 for a gross profit margin of 42.0% of
sales in 2001.
The Company had pro forma EBITDA (loss) and an operating loss of $6,000 and
$1,188,000, respectively, for the year ended December 31, 2001.
The Company incurred a pro forma net loss from continuing operations of
$2,039,000, or $0.18 per common share, for the year ended December 31, 2001.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
Cash and cash equivalents totaled $152,000 at December 31, 2001, an increase
from $4,000 for OilQuip at December 31, 2000 mainly due to the OilQuip Merger
and the Mountain Air Acquisition.
Net trade receivables at December 31, 2001 were $973,000. This increased
significantly from the December 31, 2000 balance for OilQuip due to the Mountain
Air Acquisition..
Net property, plant and equipment were $4,246,000 at December 31, 2001, as a
result of Mountain Air Acquisition and the OilQuip Merger. Capital expenditures
for the year 2001 were $402,000. Capital expenditures for 2002 are projected to
be approximately $350,000.
Trade accounts payable at December 31, 2001 were $298,000. This increased
significantly from the December 31, 2000 balance due the Mountain Air
Acquisition and the OilQuip Merger.
Other current liabilities, excluding the current portion of long term debt, were
$1,637,000 consisting of interest in the amount of $176,000, accrued salary and
benefits in the amount of $851,000, and legal and professional expenses in the
amount of $610,000. Included in salary and benefits payable is deferred
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<PAGE>
compensation in the amount of $318,000 due the CEO of the Company. All of these
balance sheet accounts increased significantly from December 31, 2000 balances
for OilQuip due to the Mountain Air Acquisition
Long term debt was $7,856,000 at December 31, 2001 including current maturities.
Long-term debt was primarily a result of the cost of the Mountain Air
Acquisition in February 2001:
o A term loan in the amount of $3,550,000 at a floating interest
rate with quarterly principal payments of $147,917. The
maturity date of the loan is February 7, 2004.
o A seller's note in the amount of $2,200,000 at 5.75% simple
interest. The principal and interest are due on February 6,
2004.
o Subordinated debt in the amount of $1,400,000 at 12% interest.
The principal will be due on January 31, 2004. In connection
with incurring the debt, the Company issued redeemable
warrants which have been recorded as a liability of $600,000.
This amount is amortizable over three years as additional
interest expense. $183,000 has been amortized in 2001.
o A delayed draw term loan in the amount of $282,291 at LIBOR
plus 0.5% interest payable quarterly commencing on November
30, 2001 (Interest rate of 5.25% at December 31, 2001) The
principal will be due on February 7, 2004.
As described below in, "-- Recent Developments --Acquisition of Jens Oilfield
Service, Inc. and Strata Directional Drilling, Inc.; Disposition of HDS," the
Company incurred an additional $13.2 million in long-term debt in connection
with the acquisition of Jens and Strata in February 2002.
As of September 30, 2001, the Company was in default of certain covenants set
forth in its term loan and subordinated debt agreements with financing
institutions, relating to the maintenance of certain financial ratios. In the
first quarter of 2002, the financing institutions granted forbearance for the
default at September 30, 2001 and the Company is now in compliance with the debt
covenants. The Company continues to make all payments to the financing
institution in compliance with the debt agreements.
In addition to the debt discussed above, the Company had available lines of
credit totaling $775,000 at December 31, 2001, of which $400,000 was available
and unused. In connection with the acquisition of Jens and Strata in February
2002, these lines of credit were increased to $4,275,000 of which $858,000 was
available and unused at February 28, 2002.
Our long term capital needs are to provide funds for the existing operations,
the retirement of existing debt, the redemption of the Series A Preferred Stock
and to secure funds for the acquisitions in the oil and gas equipment rental and
services industry. To continue our growth through additional acquisitions we
will require additional financing, which may include the issuance of new equity
or debt securities, as well as secured and unsecured loans (substantially all of
our assets are pledged to secure our existing financing). We have had
discussions regarding the issuance of additional equity securities; however,
there can be no assurance that we will be able to consummate any such
transaction.
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<PAGE>
RECENT DEVELOPMENTS --ACQUISITION OF JENS OILFIELD SERVICE, INC. AND STRATA
- ---------------------------------------------------------------------------
DIRECTIONAL DRILLING, INC.; DISPOSITION OF HDS
- ----------------------------------------------
DISPOSITION OF HDS. As part of a corporate strategy to focus on providing
services to the oil and gas industry, on December 12, 2001, we sold the stock of
HDS to the general manager of HDS, Clayton Lau. Under the terms of the sale, we
received a promissory note from the Lau in the amount of $790,500 due on
November 30, 2007, secured by certain HDS equipment. HDS assigned to us the HDS
accounts receivable and we assumed the obligation to pay the HDS accounts
payable and the outstanding balance on a revolving line of credit in the amount
of $375,000. A loss on the sale of approximately $2.0 million resulting from the
sale was recorded for the year ended December 31, 2001. The note received from
the Lau was collaterally assigned to Wells Fargo Bank Texas, National
Association.
JENS OIL FIELD TRANSACTION. We purchased 81% of the outstanding stock of Jens
for (i) $10,250,000 in cash, (ii) a $4,000,000 note payable with a 7.5% interest
rate and the principal due in four years, (iii) $1,000,000 for a non-compete
agreement payable monthly for five years, (iv) an additional payment estimated
to be from $1,000,000 to $1,250,000, based upon Jens' working capital as of
December 31, 2001, (v) 1,397,849 shares of our common stock, and (vi) an amount
equal to the net income of Jens for the period January 1, 2002 through January
31, 2002. We entered into a three year employment agreement with Mr. Mortensen
under which we will pay Mr. Mortensen a base salary of $150,000 per year. We
also entered into a Shareholders Agreement with Jens and Mr. Mortensen providing
for restrictions against transfer of the stock of Jens by us and Mr. Mortensen,
and providing Mr. Mortensen the option after February 1, 2003, to exchange his
shares of stock of Jens for shares of our common stock with a value equal to 4.6
times the trailing EBITDA of Jens determined in accordance with GAAP, less any
intercompany loans or third party investments in Jens, times nineteen percent
(19%). Our common stock will be valued based on the average closing bid price
for the stock for the preceding 30 days. Mr. Mortensen has a demand registration
right pursuant to the Shareholder Agreement that requires the Company to
register his shares of the Company under the Securities Act of 1933, as amended,
which can not be effected until after August 1, 2002, and within 3 years
thereafter at Mr. Mortensen's cost, along with piggyback registration rights.
STRATA ACQUISITION. We acquired 100% of the preferred stock and 95% of the
common stock of Strata in consideration for the issuance to Energy Spectrum
Partners, LP ("Energy Spectrum") of 6,559,863 shares of our common stock,
warrants to purchase an additional 437,500 shares of Company common stock at an
exercise price of $0.15 per share and 3,500,000 shares of a newly created Series
A 10% Cumulative Convertible Preferred Stock of the Company ("Series A Preferred
Stock"). In addition, in the event the Series A Preferred Stock is not converted
or redeemed prior to February 4, 2004, an additional warrant will be issued to
Energy Spectrum which will entitle it to acquire 875,000 shares at an exercise
price of $0.15 per share. Energy Spectrum, which is now our largest shareholder,
is a private equity fund headquartered in Dallas.
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<PAGE>
The Series A Preferred Stock issued to Energy Spectrum in connection with the
Strata transaction has cumulative dividends at $ .10 per share payable in cash
or additional Series A Preferred Stock. Additionally, the Series A Preferred
Stock is convertible at $0.75 per share of Company common stock until February
1, 2003, when the conversion price will be lowered to the lesser of (i) $0.60
per share or (ii) 75% of the market price calculated in accordance with the
certificate of designations of the Series A Preferred Stock. The Series A
Preferred Stock is also subject to anti-dilution in the event of issuances below
the conversion price of the Series A Preferred Stock and is subject to mandatory
redemption on the second anniversary date of issuance or earlier from the net
proceeds of new equity sales and is subject to optional redemption by us at any
time. The redemption price of the Series A Preferred Stock is $1.00 per share
plus an amount equal to all accrued and unpaid dividends to such date. In
addition, the holder of the Series A Preferred Stock is entitled to appoint
three directors to our Board of Directors and three persons designated by Energy
Spectrum, Thomas O. Whitener, Jr., James W. Spann, and Michael D. Tapp, were
appointed as directors upon consummation of the acquisition of Strata. We also
granted Energy Spectrum registration rights which includes two demand
registrations at our expense and piggyback registration rights.
BANK FINANCING. In connection with the acquisition of Jens, Wells Fargo Bank and
its affiliates (the "Banks") provided $5,574,396 in financing consisting of a
revolving credit facility in the amount of $1,000,000, a term equipment facility
in the amount of $4,042,396 and a real estate term facility in the amount of
$532,000. The facilities have a floating interest rate and a maturity date of
February 1, 2005.
In connection with the acquisition of Strata, the Banks provided financing of
$4,154,000 consisting of a revolving credit facility in the amount of $2,500,000
and a term facility in the amount of $1,654,000. The facilities have a floating
interest rate and a maturity date of February 1, 2005.
In connection with the Jens and Strata acquisitions, the banks also made a
subordinated loan to us in the amount of $3,000,000. This loan has a 12.0%
interest rate and a maturity date of February 1, 2005. Energy Capital has been
issued warrants for 1,165,000 shares of common stock at a $0.15 exercise price
and 335,000 warrants to purchase common stock at $1.00 per share exercise price
in connection with their subordinated debt financing. We have the right to
redeem 465,000 of these warrant for $600,000 after two years and 700,000 of
these warrants for $900,000 after three years. In addition, previously issued
warrants to purchase common stock of MCA were cancelled.
Substantially all of the Company's tangible assets have been pledged as
collateral on the loans from the Banks.
As a result of the transactions described above, we have outstanding
approximately 19.5 million shares of common stock, as well as preferred stock,
options and warrants convertible into or exercisable for an additional 9.6
million shares.
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<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In June 2001, the Financial Accounting Standards Board finalized FASB Statements
No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142. The Company's previous
business combinations were accounted for using the purchase method. Currently,
the Company is assessing but has not yet determined how the adoption of SFAS 141
and SFAS 142 will impact its financial position and results of operations.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of long-lived assets and the
associated asset retirement costs. SFAS No. 143 requires that the fair value of
a liability associated with an asset retirement be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated retirement costs are capitalized as part of the carrying amount of
the long-lived asset and subsequently depreciated over the life of the asset.
The Company has not completed its analysis of the impact, if any, of the
adoption of SFAS No. 143 on its consolidated financial statements. The Company
will adopt SFAS No. 143 for its fiscal year beginning January 1, 2003.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 addresses the financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. SFAS No. 144 provides updated guidance
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<PAGE>
concerning the recognition and measurement of an impairment loss for certain
types of long-lived assets and modifies the accounting and reporting of
discontinued operations. SFAS No. 144 is not expected to materially change the
methods used by the Company to measure impairment losses on long-lived assets,
but may result in future dispositions being reported as discontinued operations
to a greater extent than is currently permitted. The Company will adopt SFAS No.
144 for its fiscal year beginning January 1, 2002.
RISK FACTORS
This Annual Report on Form 10-K (including without limitation the following Risk
Factors) contains forward-looking statements (within the meaning of Section 27A
of the Securities Act of 1933 (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934) 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, but are not
the exclusive means of identifying forward-looking statements in this Annual
Report on Form 10-K.
Although forward-looking statements in this Annual Report on Form 10-K reflect
the good faith judgment of our management, such statements can only be based on
facts and factors we currently know about. Consequently, forward-looking
statements are inherently subject to risks and uncertainties, and actual results
and outcomes may differ materially from the results and outcomes discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences in results and outcomes include, but are not limited to, those
discussed below and elsewhere in this Annual Report on Form 10-K and in our
other SEC filings and publicly available documents. Readers are urged not to
place undue reliance on these forward-looking statements, which speak only as of
the date of the this Annual Report on Form 10-K. We undertake no obligation to
revise or update any forward-looking statements in order to reflect any event or
circumstance that may arise after the date of this Annual Report on Form 10-K.
LOW PRICES FOR OIL AND NATURAL GAS WILL ADVERSELY AFFECT THE DEMAND FOR OUR
SERVICES AND PRODUCTS.
The natural gas exploration and drilling business is highly cyclical.
Exploration and drilling activity declines as marginally profitable projects
become uneconomic and either are delayed or eliminated. A decline in the number
of operating oil rigs would adversely affect our business. Accordingly, when oil
and natural gas prices are relatively low, our revenues and income will suffer.
The oil and gas industry is extremely volatile and subject to change based on
political and economic factors outside our control.
WE ARE HIGHLY LEVERAGED.
As a result of acquisition financing, we are highly leveraged. At February 28,
2002, we had approximately $21 million of debt outstanding. Our level of debt
will impair our ability to obtain additional financing, makes us more vulnerable
to economic downturns and declines in oil and natural gas prices, and makes us
more vulnerable to increases in interest rates. We may not maintain sufficient
revenues to meet our debt obligations or to fund our operations. Our lack of
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funds may limit our flexibility in planning for, or reacting to, changes in our
business and industry, place us at a competitive disadvantage compared to our
competitors that have greater access to funds, limit our ability to borrow
additional funds, and result in an event of default if we fail to comply with
the financial and other restrictive covenants in the our debt obligations.
TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to fund operations, to make payments on or refinance our
indebtedness, and to fund planned acquisitions and capital expenditures will
depend on our ability to generate cash in the future. This ability, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control.
OUR HISTORICAL RESULTS ARE NOT AN INDICATOR OF FUTURE OPERATIONS.
Our business is conducted through three subsidiaries, one of which was acquired
in February 2001 and two of which were acquired in February 2002. As a result,
past performance is not indicative of future results and our likelihood of
success must be considered in light of the volatility of our industry, our
leveraged condition, competition, and other factors set forth herein.
OUR FAILURE TO OBTAIN ADDITIONAL FINANCING MAY ADVERSELY AFFECT US.
Expansion of our operations through the acquisition of additional companies will
require substantial amounts of capital. The availability of financing may affect
our ability to expand.
There can be no assurance that funds for such expansion, whether from equity or
debt financings or other sources, will be available or, if available, will be on
terms satisfactory to us. We may also enter into strategic partnerships for the
purpose of developing new businesses. Our future growth may be limited if we are
unable to complete acquisitions or strategic partnerships.
WE MAY HAVE DIFFICULTIES INTEGRATING ACQUIRED BUSINESSES.
We may not be able to successfully integrate the business of MCA, Strata and
Jens. The integration of the businesses will be complex and time consuming and
may disrupt our future business. We may encounter substantial difficulties,
costs and delays involved in integrating common information and communication
systems, operating procedures, financial controls and human resources practices,
including incompatibility of business cultures and the loss of key employees and
customers. The various risks associated with our acquisition of businesses and
uncertainties regarding the profitability of such operations could have a
material adverse effect on us.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO ACQUIRE AND INTEGRATE ADDITIONAL
BUSINESSES.
Our business strategy is to acquire companies operating in the oil and natural
gas equipment rental and services industry. However, there can be no assurance
that we will be successful in acquiring any additional companies. Our successful
acquisition of new companies will depend on various factors, including our
ability to obtain financing, the competitive environment for acquisitions, as
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well as the integration issues described in the preceding paragraph. There can
be no assurance that we will be able to acquire and successfully operate any
particular business, that we will be able to expand into areas that we have
targeted
WE MAY NOT EXPERIENCE EXPECTED SYNERGIES.
We may not be able to achieve the synergies we expect from the combination of
businesses, including our plans to reduce overhead through shared facilities and
systems, to cross market to the businesses' customers, and to access a larger
pool of customers due to the combined businesses' ability to provide a larger
range of services.
THERE IS NO TRADING MARKET FOR OUR COMMON STOCK
Our common stock is not registered on any exchange or NASDAQ and is traded only
sporadically on the Over the Counter Bulletin Board. There can be no assurance
that an active market for our common stock will develop in the future.
EXISTING SHAREHOLDERS MAY BE DILUTED IN CONNECTION WITH ADDITIONAL FINANCINGS.
We expect to issue additional equity securities in connection with the
acquisition of additional businesses, as well as in connection with employee
benefit plans and other plans. Such issuances will dilute the holdings of
existing stockholders. Such securities may be prior to or on a parity with, our
common stock.
COMPETITION COULD CAUSE OUR BUSINESS TO SUFFER.
The natural gas equipment rental and services industry is highly competitive.
Despite recent consolidation activities, the industry remains highly fragmented.
Some of our competitors are significantly larger and have greater financial,
technological and operating resources than we do. In addition, a number of
individual and regional operators compete with us throughout our existing and
targeted markets. These competitors compete with us both for customers and for
acquisitions of other businesses. This competition may cause our business to
suffer.
OUR PRODUCTS AND SERVICES MAY BECOME OBSOLETE.
Our business success is dependent upon providing our customers efficient,
cost-effective oil and gas drilling equipment. While we are not aware of any new
types of equipment or technology which would compete with our equipment and
services, there can be no assurance that new technologies will not be developed
which may render some of our equipment and technologies obsolute, and have a
material adverse effect on us.
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WE ARE CONTROLLED BY A FEW STOCKHOLDERS.
A small number of stockholders effectively control us. Energy Spectrum, Mr.
Hidayatallah and Colebrook Investements, Inc. own approximately 33.6%, 22.4% and
17.3%, respectively, of our currently outstanding common stock, and Energy
Spectrum owns Series A Preferred Stock and Warrants which entitle it to acquire
shares which would give Energy Spectrum ownership of approximately 47% of our
outstanding common stock. In addition, as the holder of the Series A Preferred
Stock, Energy Spectrum has the right to elect three (3) directors to our Board
of Directors. Energy Spectrum and either Mr. Hidayatallah or Colebrook
Investments, Inc., voting together, will have the power to control the outcome
of all matters requiring stockholder approval, including the election of our
directors or a proposed change in control of the Company.
No natural person controls Colebrooke, and none of our officers or directors has
a financial interest in Colebrooke. The owner of all of Colebrooke's shares is
Jupiter Trust, a Guernsey trust. The corporate trustee of Jupiter Trust is the
Ansbacher Trust Company ("Ansbacher"), a Guernsey trust in which action is taken
upon majority vote of such trust's three directors, Messrs. Robert Bannister and
Phillip Retz and Ms. Rachel Whatley. Such directors have absolute discretion to
take action and make investment decisions on behalf of Ansbacher and can be
deemed to control Ansbacher, which has sole voting and dispository power over
the shares of Colebrooke. There are no individuals directors of Colebrooke; the
corporate director for Colebrooke is Plaiderie Corporate Directors One Limited,
a Guernsey Company ("Plaiderie"). Plaiderie is wholly-owned by Ansbacher
Guernsey Limited ("Ansbacher Limited"), a controlled registered bank in
Guernsey. The ultimate parent of Ansbacher Limited is First Rand Limited ("First
Rand"), a publicly-owned company listed on the Johannesburg Stock Exchange.
First Rand can be deemed to control Plaiderie.
DEPENDENCE UPON KEY PERSONNEL.
We are dependent upon the efforts and skilled of our executives, including our
President, Chief Executive Officer and Chairman Munawar H. Hidayatallah, to
manage our business as well as to identify and consummate additional
acquisitions. In addition, our business strategy is to acquire businesses which
are dependent upon skilled management personnel, and to retain such personnel to
operate the business. The loss of the services of Mr. Hidayatallah or one or
more of our key personnel at our operating subsidiaries could have a material
adverse effect on us. We do not maintain key man insurance on any of our
personnel. 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 such employees.
OUR CUSTOMERS' CREDIT RISKS COULD CAUSE OUR BUSINESS TO SUFFER.
The majority of our customers are engaged in the energy industry. This
concentration of customers may impact our overall exposure to credit risk, in
that customers may be similarly affected by changes in economic and industry
conditions.
23
<PAGE>
WE ARE VULNERABLE TO PERSONAL INJURY AND PROPERTY DAMAGE.
Our services are used for the exploration and production of 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
result in our being named as a defendant in lawsuits asserting potentially large
claims. We maintain customary insurance to protect our business against these
potential losses. However, we could become subject to material uninsured
liabilities.
GOVERNMENT REGULATIONS COULD CAUSE OUR BUSINESS TO SUFFER.
We are subject to various federal, state and local 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 such
statutes, rules or regulations, any changes could cause our business to suffer.
LABOR COSTS OR THE UNAVAILABILITY OF SKILLED WORKERS COULD CAUSE OUR BUSINESS TO
SUFFER.
We are dependent upon the available labor pool of skilled employees. We are also
subject to the Fair Labor Standards Act, which governs such matters as a minimum
wage, overtime and other working conditions. A shortage in the labor pool or
other general inflationary pressures or changes in applicable laws and
regulations could require us to enhance our wage and benefits packages. There
can be no assurance that our labor costs will not increase. Any increase in our
operating costs could cause our business to suffer.
WE MAY BE SUBJECT TO CERTAIN ENVIRONMENTAL LIABILITIES RELATING TO DISCONTINUED
OPERATIONS.
We were reorganized under the bankruptcy laws in 1988; since that time, a number
of parties, including the Environmental Protection Agency (the "EPA"), have
asserted that we are responsible for the cleanup of hazardous waste sites. These
assertions have been made only with respect to our pre-bankruptcy activities. We
believe such claims are barred by applicable bankruptcy law; however, if we do
not prevail with respect to these claims, we could become subject to material
environmental liabilities.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- --------------------------------------------------------------------
None.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS.
- ------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
PAGE
----
Financial Statements:
Independent Auditors' Report 26
Consolidated Statements of Operations for the Year Ended
December 31, 2001 and the period February 4, 2000 (Inception)
through December 31, 2000 27
Consolidated Balance Sheets as of December 31, 2001 and 2000 28
Consolidated Statement of Stockholders' Equity for the Year
Ended December 31, 2001 and the period February 4, 2000 (Inception)
through December 31, 2000 29
Consolidated Statements of Cash Flows for the Year Ended
December 31, 2001 and the period February 4, 2000 (Inception)
through December 31, 2000 30
Notes to Consolidated Financial Statements 31
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Allis-Chalmers Corporation
Houston, Texas
We have audited the consolidated balance sheets of Allis-Chalmers Corporation
(the "Company") as of December 31, 2001 and 2000 and the related statements of
operations, stockholders' equity, and cash flows for the year ended December 31,
2001 and for the period from February 4, 2000 (Inception) to December 31, 2000.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Allis-Chalmers Corporation as
of December 31, 2001 and 2000, and the results of their consolidated operations
and cash flows for the year ended December 31, 2001 and for the period from
February 4, 2000 (Inception) to December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
/S/ GORDON, HUGHES & BANKS LLP
Greenwood Village, CO
February 21, 2002
26
<PAGE>
ALLIS-CHALMERS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share)
Period from
Year February 4,
Ended 2000 through
December 31, December 31
2001 2000
-------- --------
Revenues $ 4,796 $ -
Cost of revenues 3,331 -
-------- --------
Gross margin 1,465 -
General and administrative expense 2,898 383
Abandoned acquisition costs - 244
-------- --------
Total operating expense (2,898) (627)
(Loss) from operations (1,433) (627)
Other income (expense):
Interest income 41 -
Interest expense (869) -
Other (12) -
-------- --------
Total other income (expense) (840) -
-------- --------
Net income (loss) from continuing operations (2,273) (627)
-------- --------
(Loss) from discontinued operations (291) -
(Loss) on sale of discontinued operations (2,013) -
-------- --------
Net income (loss) from discontinued operations (2,304) -
-------- --------
Net income (loss) $(4,577) $ (627)
======== ========
Income (loss) per common share (basic and diluted)
Continuing operations $ (.57) $ (1.57)
Discontinued operations (.58) -
-------- --------
Net income (loss) per common share $ (1.15) $ (1.57)
======== ========
Weighted average number of common shares
outstanding
Basic 3,952 400
======== ========
Diluted 3,952 400
======== ========
The accompanying Notes are an integral part of the Financial Statements
27
<PAGE>
<TABLE>
ALLIS-CHALMERS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
<CAPTION>
DECEMBER 31
-----------
2001 2000
ASSETS --------- ---------
- ------
<S> <C> <C>
Cash and cash equivalents $ 152 $ 4
Trade receivables 973 -
Common stock subscribed - 1,838
Due from related party 61 104
Other current assets 153 20
--------- ---------
Total current assets 1,339 1,966
Property and equipment, net of accumulated depreciation
of $664 and $0 at December 31, 2001 and 2000 4,246 -
Goodwill and other intangibles, net of accumulated amortization
of $403 and $0 at December 31, 2001 and 2000 5,067 -
Debt issuance costs, net of accumulated amortization
of $79 and $0 at December 31, 2001 and 2000 180 -
Lease deposit 701 -
Note receivable 791
Other assets 141 394
--------- ---------
Total assets $ 12,465 $ 2,360
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current maturities of long-term debt $ 1,023 $ -
Trade accounts payable 298 12
Accrued employee benefits and payroll taxes 851 -
Accrued interest 176 -
Accrued expenses 610 -
--------- ---------
Total current liabilities 2,958 12
Accrued postretirement benefit obligations 824 -
Long-term debt 6,833 -
Redeemable warrant 600 -
Shareholders' equity
Common stock, $0.15 par value (110,000 shares authorized;
11,588,128 and 400,000 issued and outstanding at
December 31, 2001 and 2000, respectively) 1,738 60
Capital in excess of par value 4,716 2,915
Accumulated (deficit) (5,204) (627)
--------- ---------
Total shareholders' equity 1,250 2,348
--------- ---------
Total liabilities and shareholders' equity $ 12,465 $ 2,360
========= =========
The accompanying Notes are an integral part of the Financial Statements.
</TABLE>
28
<PAGE>
<TABLE>
ALLIS-CHALMERS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<CAPTION>
COMMON STOCK Capital in
------------ Excess of Par Accumulated
Shares Amount Value (Deficit) Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, February 4, 2000
(Inception) - $ - $ - $ - $ -
Issuance of common stock subscribed
at $94 per share 4,250 - 400 - 400
Issuance of common stock for
conversion of notes payable at
$250 per share 1,000 - 250 - 250
Issuance of common stock for cash
at $326 per share 307 - 100 - 100
Issuance of common stock subscribed
at $326 per share 3,068 - 1,000 - 1,000
Issuance of common stock subscribed
at $350 per share 1,250 - 438 - 438
Contributed capital and services - - 787 - 787
Retroactive effect of
Recapitalization on
May 9, 2001 390,125 60 (60) - -
Net (loss) - - - (627) (627)
-----------------------------------------------------------------------------
Balances, December 31, 2000 400,000 60 2,915 (627) 2,348
Issuance of common stock
in connection with
Recapitalization. 11,188,128 1,678 1,101 - 2,779
Issuance of stock options for
services - - 500 - 500
Issuance of stock purchase warrants
for services - - 200 - 200
Net (loss) - - - (4,577) (4,577)
-----------------------------------------------------------------------------
Balances, December 31, 2001 11,588,128 $1,738 $4,716 $(5,204) $1,250
=============================================================================
The accompanying Notes are an integral part of the Financial Statements.
</TABLE>
29
<PAGE>
<TABLE>
ALLIS-CHALMERS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Period from
Year February 4,
Ended 2000 through
December 31, December 31,
2001 2000
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(4,577) $ (627)
Adjustments to reconcile net (loss) income to
net cash provided (used) by operating activities:
Depreciation 621 -
Amortization 482 -
Abandoned acquisition costs - 244
Contributed services - 250
Issuance of stock options for services 500 -
Amortization of discount on debt 183 -
Changes in working capital:
Decrease (increase) in accounts receivable (511) (124)
Decrease (increase) in due from related party 43 -
Decrease (increase) in other current assets (139) 538
(Decrease) increase in accounts payable 238 12
(Decrease) increase in accrued interest 176 -
(Decrease) increase in accrued expenses 156 -
(Decrease) increase in accrued employee benefits
and payroll taxes 463 -
Discontinued Operations
Loss on sale of HDS operations 2,013 -
Operating cash provided (used) 381 -
Depreciation and amortization 124 -
-------- --------
Net cash provided by operating activities 153 293
Cash flows from investing activities:
Recapitalization costs, net of cash received (88) -
Business acquisition costs (141) (624)
Acquisition of MCA, net of cash acquired (9,534) -
Purchase of equipment (402) -
Proceeds from sale-leaseback of equipment,
net of lease deposit 2,803 -
Proceeds from sale of equipment 45 -
-------- --------
Net cash (used) by investing activities (7,317) (624)
Cash flows from financing activities:
Net proceeds from issuance of long-term debt 5,832 -
Payments on long-term debt (489) -
Proceeds from issuance of common stock, net 1,838 350
Borrowings on line of credit, net 375 (15)
Debt issuance costs (244) -
-------- --------
Net cash provided by financing activities 7,312 335
-------- --------
Net increase in cash and cash equivalents 148 4
Cash and cash equivalents at beginning of year 4 -
-------- --------
Cash and cash equivalents at end of year $ 152 $ 4
======== ========
Supplemental information - interest paid $ 802 $ -
======== ========
</TABLE>
The accompanying Notes are an integral part of the Financial Statements.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS AND SMUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION OF BUSINESS
On May 9, 2001, OilQuip Rentals, Inc., an oil and gas rental company
("OilQuip"), merged into a subsidiary of Allis-Chalmers Corporation
("Allis-Chalmers" or the "Company"). In the merger, all of OilQuip's outstanding
common stock was converted into 400,000 shares of Allis-Chalmers' common stock
and the right to receive an additional 9,600,000 shares of Allis-Chalmers'
common stock upon the filing of an amendment to the Amended and Restated
Certificate of Incorporation ("Certificate") to authorize the issuance of such
shares. That authorization and issuance occurred on October 15, 2001.
For legal purposes, Allis-Chalmers acquired OilQuip, the parent company of
Mountain Compressed Air, Inc. ("MCA"). However, for accounting purposes OilQuip
was treated as the acquiring company in a reverse acquisition of Allis-Chalmers.
The financial statements prior to the merger, including those for the period in
2000, are the financial statements of OilQuip. As a result of the merger, the
fixed assets, goodwill and other intangibles of Allis-Chalmers were increased by
$2,691,000. Goodwill and other intangibles are being amortized over 10 to 20
years and the fixed assets are being depreciated over 7 years.
OilQuip was incorporated on February 4, 2000 to find and acquire targets to
operate as subsidiaries.
During the period February 4, 2000 (Inception) to February 6, 2001, OilQuip had
been in the development stage. OilQuip's activities through February 6, 2001
consisted of developing its business plan, raising capital and negotiating with
potential acquisition targets.
On February 6, 2001, OilQuip, through its subsidiary, MCA, acquired certain
assets of Mountain Air Drilling Service Co., Inc. ("Mountain Air"), whose
business consists of providing equipment and trained personnel in the four
corner areas of the southwestern United States. MCA primarily provides
compressed air equipment and trained operators to companies in the business of
drilling for natural gas. With the acquisition of Mountain Air assets, OilQuip
ceased to be in the development stage.
On November 30, 2001, the Company entered into an agreement to sell its wholly
owned subsidiary, Houston Dynamic Service, Inc. ("HDS"), to Clayton Lau, the
general manager of HDS, in a management buy-out. The sale of HDS was finalized
on December 12, 2001.
In conjunction with the sale of HDS, the Company formally discontinued the
operations related to precision machining of rotating equipment, which was the
principal HDS business.
31
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Future events and their effects cannot be perceived
with certainty. Accordingly, the Company's accounting estimates require the
exercise of judgment. While management believes that the estimates and
assumptions used in the preparation of the consolidated financial statements are
appropriate, actual results could differ from those estimates. Estimates are
used for, but are not limited to, determining the following: allowance for
doubtful accounts reserves, recoverability of long-lived assets, useful lives
used in depreciation and amortization, income taxes and related valuation
allowances, and insurance and legal accruals. The accounting estimates used in
the preparation of the consolidated financial statements may change as new
events occur, as more experience is acquired, as additional information is
obtained and as the Company's operating environment changes.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Allis-Chalmers and
its wholly-owned subsidiaries. All significant intercompany transactions have
been eliminated.
REVENUE RECOGNITION
The Company's only operating unit at December 31, 2001 was Mountain Compressed
Air. Under the terms of the service agreements, revenues are recognized on a
monthly basis, as the services revenues are billed at the time the service is
rendered. Costs are recorded when incurred.
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less at the time of purchase to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment represents the cost of equipment in use in the operations
of Mountain Compressed Air.
Maintenance and repairs are charged to operations when incurred. Betterments and
renewals are capitalized. When property and equipment are sold or otherwise
disposed of, the asset account and related accumulated depreciation account are
relieved, and any gain or loss is included in operations.
32
<PAGE>
The cost of property and equipment currently in service is depreciated over the
estimated useful lives of the related assets, which range from three to seven
years. Depreciation is computed on the straight-line method for financial
reporting purposes. Depreciation expense charged to operations was $621,000 for
the year ended December 31, 2001 and there was no expense for the period from
February 4, 2000 through December 31, 2000.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, which include property, plant and equipment, goodwill and
other intangibles, and certain other assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recorded in the period in which it is
determined that the carrying amount is not recoverable. The determination of
recoverability is made based upon the estimated undiscounted future net cash
flows, excluding interest expense. The impairment loss is determined by
comparing the fair value, as determined by a discounted cash flow analysis, with
the carrying value of the related assets.
FINANCIAL INSTRUMENTS
Financial instruments consist of cash and cash equivalents, accounts receivable
and payable, and long-term debt. The carrying values of cash and cash
equivalents, accounts receivable and payable approximate fair value. The Company
believes the fair values and the carrying value of the long-term debt would not
be materially different due to the instruments' interest rates approximating
market rates for similar borrowings at December 31, 2001 and 2000.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Statement of Financial Accounting Standards No. 105, DISCLOSURE OF INFORMATION
ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FINANCIAL
INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, requires disclosure of
significant concentration of credit risk regardless of the degree of such risk.
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents and trade accounts
receivable. The Company does not have concentrations of credit risk within their
cash and cash equivalents as their deposits are at several financial
institutions.
Approximately 79% of the Company's revenues for the year ended December 31, 2001
were derived from two customers, including one customer that accounted for 65%
of the Company's revenues. There were no revenues for the period February 4,
2000 through December 31, 2000. Accounts receivable at December 31, 2001
includes $550,000 from these two customers.
33
<PAGE>
DEBT ISSUANCE COSTS
The costs related to the issuance of debt are capitalized and amortized to
interest expense on a straight-line and interest methods depending upon the
principal payments streams of each of the notes over the lives of the related
debt.
ADVERTISING
The Company expenses advertising costs as they are incurred. Advertising
expenses for the year ended December 31, 2001 and the period February 4, 2000
through December 31, 2000 totaled $31,400 and $0, respectively.
INCOME TAXES
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES. SFAS No. 109 requires
recognition of deferred tax liabilities and assts for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, the deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
COMPREHENSIVE INCOME
There are no adjustments necessary to net loss as presented in the accompanying
statements of operations to derive comprehensive income in accordance with SFAS
No. 130, REPORTING COMPREHENSIVE INCOME.
RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform to current year
presentation.
BUSINESS ACQUISITION COSTS
The Company capitalizes direct costs associated with successful business
acquisitions and expenses acquisitions costs for unsuccessful acquisition
efforts.
CAPITAL STRUCTURE
The Company utilizes SFAS No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL
STRUCTURE, which requires companies to disclose all relevant information
regarding their capital structure.
34
<PAGE>
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion ("APB") No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, in accounting for stock based
compensation. Under APB No. 25, the Company recognizes no compensation expense
related to employee or director stock options unless options are granted with an
exercise price below fair value on the day of grant. SFAS No. 123, "Accounting
for Stock- Based Compensation" provides an alternative method of accounting for
stock-based compensation arrangements for employees and directors, based on fair
value of the stock-based compensation utilizing various assumptions regarding
the underlying attributes of the options and stock. Stock, options or warrants
issued to consultants and outsiders are recorded at fair value under SFAS No.
123. The Financial Accounting Standards Board encourages, but does not require,
entities to adopt the fair-value based method. The Company will continue its
accounting under APB No. 25 for employees and directors but uses the
disclosure-only provisions of SFAS No. 123 for any options or warrants issued to
employees and directors.
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION, replaces the industry segment approach under previously issued
pronouncements with the management approach. The management approach designates
the internal organization that is used by management for allocating resources
and assessing performance as the source of the Company's reportable segments.
SFAS No. 131 also requires disclosures about products and services, geographic
areas and major customers. At December 31, 2001, the Company only operates in
one segment.
PENSION AND OTHER POST RETIREMENT BENEFITS
SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSION AND OTHER POST RETIREMENT
BENEFITS, requires certain disclosures about employers' pension and other post
retirement benefit plans and specifies the accounting and measurement or
recognition of those plans. SFAS No. 132 requires disclosure of information on
changes in the benefit obligations and fair values of the plan assets that
facilitates financial analysis.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Currently, as the Company has no derivative
instruments, the adoption of SFAS No. 133 has no impact on the Company's
financial condition or results of operations.
INCOME (LOSS) PER COMMON SHARE
The Company computes loss per common share in accordance with the provisions of
35
<PAGE>
SFAS No. 128, EARNINGS PER SHARE. SFAS No. 128 requires companies with complex
capital structures to present basic and diluted earnings per share. Basic
earnings per share are measured as the income or loss available to common
stockholders divided by the weighted average outstanding common shares for the
period. Diluted earnings per share is similar to basic earnings per share, but
presents the dilutive effect on a per share basis of potential common shares
(e.g., convertible securities, stock options, etc.) as if they had been
converted at the beginning of the periods presented. Potential common shares
that have an anti-dilutive effect (e.g., those that increase income per share or
decrease loss per share) are excluded from diluted earnings per share.
The basic and diluted loss per common share for all periods presented herein was
computed by dividing the net loss attributable to common shares by the weighted
average outstanding common shares for the period. Potential common shares were
not included in the computation of weighted average shares outstanding because
their inclusion would be anti-dilutive.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board finalized FASB Statement
No. 141, BUSINESS COMBINATIONS ("SFAS 141"), and No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS ("SFAS 142"). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS 141.
SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at the date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within the
first interim quarter after adoption of SFAS 142.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of long-lived assets and the
associated asset retirement costs. SFAS No. 143 requires that the fair value of
a liability associated with an asset retirement be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated retirement costs are capitalized as part of the carrying amount of
the long-lived asset and subsequently depreciated over the life of the asset.
36
<PAGE>
The Company has not completed its analysis of the impact, if any, of the
adoption of SFAS No. 143 on its consolidated financial statements. The Company
will adopt SFAS No. 143 for its fiscal year beginning January 1, 2003.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 addresses the financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
replaces SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of. SFAS No. 144 provides updated guidance
concerning the recognition and measurement of an impairment loss for certain
types of long-lived assets and modifies the accounting and reporting of
discontinued operations. SFAS No. 144 is not expected to materially change the
methods used by the Company to measure impairment losses on long-lived assets,
but may result in future dispositions being reported as discontinued operations
to a greater extent than is currently permitted. The Company will adopt SFAS No.
144 for its fiscal year beginning January 1, 2002.
The Company's previous business combinations were accounted for using the
purchase method. As of December 31, 2001, the net carrying amount of goodwill is
$3,706,411 and of other intangible assets is $1,360,589. Amortization expense
during the twelve-month period ended December 31, 2001 was $403,186. Currently,
the Company is assessing but has not yet determined how the adoption of SFAS 141
and SFAS 142 will impact its financial position and results of operations. The
Company plans to adopt SFAS 141 and SFAS 142 for the fiscal year beginning
January 1, 2002.
NOTE 2 - EMERGENCE FROM CHAPTER 11
Allis-Chalmers Corporation emerged from Chapter 11 proceedings on October 31,
1988 under a plan of reorganization, which was consummated on December 2, 1988.
The Company was thereby discharged of all debts that arose before confirmation
of its First Amended and Restated Joint Plan of Reorganization (Plan of
Reorganization), and all of its capital stock was cancelled and made eligible
for exchange for shares of common stock of the reorganized Company (Common
Stock).
NOTE 3 - POSTRETIREMENT OBLIGATIONS--PENSION PLAN
In 1994, the Company's independent pension actuaries changed the assumptions for
mortality and administrative expenses used to determine the liabilities of the
Allis-Chalmers Consolidated Pension Plan (the "Consolidated Plan"), and as a
result the Consolidated Plan was under funded on a present value basis. The
Company was unable to fund its obligations and in September 1997 obtained from
the Pension Benefit Guaranty Corporation ("PBGC") a "distress" termination of
the Consolidated Plan under section 4041(c) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). The PBGC agreed to a plan
termination date of April 14, 1997. The PBGC became trustee of the terminated
Consolidated Plan on September 30, 1997.
Upon termination of the Consolidated Plan, the Company and its subsidiaries
incurred a liability to the PBGC that the PBGC estimated to be approximately
$67.9 million (the "PBGC Liability")
37
<PAGE>
In September 1997, the Company and the PBGC entered into an agreement in
principle for the settlement of the PBGC Liability which required, among other
things, satisfactory resolution of the Company's tax obligations with respect to
the Consolidated Plan under Section 4971 of the Internal Revenue Code of 1986,
as amended ("Code"). In August 1998, the Company and the Internal Revenue
Service ("IRS") settled the Company's tax liability under Code Section 4971 for
$75,000.
In June 1999, the Company and the PBGC entered into an agreement for the
settlement of the PBGC Liability (the "PBGC Agreement"). Pursuant to the terms
of the PBGC Agreement, the Company issued 585,100 shares of its common stock to
the PBGC, reducing the pension liability by the estimated fair market value of
the shares to $66.9 million (the Company has a right of first refusal with
respect to the sale of such shares). In connection with the PBGC Agreement, the
Company and the PBGC entered into the following agreements: (i) a Registration
Rights Agreement (the "Registration Rights Agreement"); and (ii) a Lock-Up
Agreement by and among Allis-Chalmers, the PBGC, and others. In connection with
the merger with OilQuip described below, the Lock-Up Agreement was terminated
and the Registration Rights Agreement was amended to provide the PBGC the right
to have its shares of common stock registered under the Securities Act of 1933
on Form S-3 during the 12 month period following the Merger (to the extent the
Company is eligible to use Form S-3 which it currently is not) and thereafter to
have its shares registered on Form S-1 or S-2.
In order to satisfy and discharge the PBGC Liability, the PBGC Agreement
provided that the Company had to either: (i) receive, in a single transaction or
in a series of related transactions, debt financing which made available to the
Company at least $10 million of borrowings or (ii) consummate an acquisition, in
a single transaction or in a series of related transactions, of assets and/or a
business where the purchase price (including funded debt assumed) is at least
$10 million ("Release Event").
The merger with OilQuip (the "Merger") on May 9, 2001 (as described in Note 1)
constituted a Release Event, which satisfied and discharged the PBGC Liability.
In connection with the Merger, the Company and the PBGC agreed that the PBGC
should have the right to appoint one member of the Board of Directors of the
Company for so long as it holds at least 117,020 shares of the common stock.
In connection with the Merger, the Lock-Up Agreement was terminated in its
entirety and the Company has recorded a post-retirement benefit obligation of
$824,000 associated with this transaction. The actuarial present value of the
expected retiree benefit obligation is determined by an actuary and is the
amount that results from applying actuarial assumptions to (1) historical
claims-cost data, (2) estimates for the time value of money (through discounts
for interest) and (3) the probability of payment (including decrements for
death, disability, withdrawal, or retirement) between today and expected date of
benefit payments.
38
<PAGE>
NOTE 4 - ACQUISITIONS
On January 25, 2001, OilQuip formed a subsidiary, MCA (Note 1), a Texas
corporation. On February 6, 2001, MCA acquired the business and certain assets
of Mountain Air, a private company, for $10,000,000 (including a $200,000
deposit paid in 2000) in cash and a $2,200,000 promissory note to the sellers
(with interest at 5 3/4 percent and principal and interest due February 6,
2006). The acquisition was accounted for using the purchase method of
accounting. Goodwill of $3,660,000 and other identifiable intangible assets of
$800,000 were recorded with the acquisition.
On May 9, 2001, OilQuip merged into a subsidiary of Allis-Chalmers. In the
Merger, all of OilQuip's outstanding common stock was converted initially into
400,000 shares of Allis-Chalmers' common stock plus 9,600,000 shares of
Allis-Chalmers' common stock issued on October 15, 2001. The acquisition was
accounted for using the purchase method of accounting as a reverse acquisition.
Goodwill of $1,319,000 and other identifiable intangible assets of $500,000 were
recorded in connection with the merger. Effective on the date of the merger,
OilQuip retroactively became the reporting company. As a result, financial
statements prior to the merger are those of OilQuip.
The following unaudited pro forma consolidated summary financial information
illustrates the effects of the acquisition of Mountain Air and the merger with
OilQuip on the Company's results of operations, based on the historical
statements of operations, as if the transactions had occurred as of the
beginning of the periods presented. The discontinued HDS operations were not
included in the pro forma information
Year ended December 31,
----------------------------
2001 2000
-------- --------
(in thousands)
Revenues $ 5,289 $ 2,360
Operating (loss) $(1,188) $ (199)
Net (loss) $(2,039) $ (957)
(Loss) per share $ (0.18) $ (0.08)
NOTE 5 - DISCONTINUED OPERATIONS
As discussed in Note 1, on December 12, 2001, the Company consummated the sale
of its wholly owned subsidiary, Houston Dynamic Service, Inc. ("HDS"), to
Clayton Lau (the "Buyer"), the general manager of HDS, in a management buy-out.
Under the terms of the sale, the Company received a promissory note from the
buyer in the amount of $790,500 due on November 30, 2007, secured by certain HDS
equipment. The note accrues interest at a rate of 7% through the payment date.
HDS assigned to the Company the HDS accounts receivable and the Company assumed
the obligation to pay the HDS accounts payable and the outstanding balance on a
revolving line of credit in the amount of $375,000. A loss on the sale of
approximately $2.0 million has been recorded in the year ended December 31,
2001.
39
<PAGE>
In conjunction with the sale of HDS, the Company formally discontinued the
operations related to precision machining of rotating equipment, which was the
principal HDS business.
The operating results of the business sold have been reported separately as
discontinued operations in the accompanying statement of operations and consists
of the following:
Period May 9,
2001 through
November 30,
2001
--------------
(thousands)
Revenues $ 1,925
Cost of sales 1,486
--------------
Gross profit 439
Operating expenses 594
Depreciation and amortization 124
--------------
Income (loss) from operations (279)
Other (expense) income
Interest expense (12)
--------------
Income (loss) from discontinued operations $ (291)
==============
Loss on sale of discontinued operations $ (2,013)
==============
40
<PAGE>
NOTE 6 - PROPERTY, GOODWILL AND OTHER INTANGIBLES
Property and equipment is comprised of the following at December 31:
Depreciation
Period 2001 2000
------ ----------- -----------
(thousands)
Machinery and equipment 3 - 7 years $ 4,559 $ -
Tools, patterns, furniture, fixtures
and leasehold improvements 3 - 7 years 351 -
----------- -----------
Total 4,910 -
Less: accumulated depreciation (664) -
----------- -----------
Property and equipment, net $ 4,246 $ -
=========== ===========
Goodwill and other intangibles are as follows at December 31:
Amortization
Period 2001 2000
------ ----------- -----------
Goodwill 10 - 20 years $ 3,951 -
Intellectual property 20 years 719
Other intangible assets 3 - 20 years 800 -
----------- -----------
Total 5,470 -
Less: accumulated amortization (403) -
----------- -----------
Goodwill and other intangibles, net $ 5,067 $ -
=========== ===========
NOTE 7 - INCOME TAXES
Temporary differences are differences between the tax basis of assets and
liabilities and their reported amounts in the financial statements that will
result in differences between income for tax purposes and income for financial
statement purposes in future years. A valuation allowance is established for
deferred tax assets when management, based upon available information, considers
it more likely than not that a benefit from such assets will not be realized.
The Company has recorded a valuation allowance equal to the excess of deferred
tax assets over deferred tax liabilities as the Company was unable to determine
that it is more likely than not that the deferred tax asset will be realized.
41
<PAGE>
The Tax Reform Act of 1986 contains provisions that limit the utilization of net
operating loss and tax credit carryforwards if there has been a "change of
ownership" as described in Section 382 of the Internal Revenue Code. Such a
change of ownership may limit the Company's utilization of its net operating
loss and tax credit carryforwards, and could be triggered by an initial public
offering or by subsequent sales of securities by the Company or its
stockholders.
Deferred income tax assts and the related allowance as of December 31, 2001 and
2000 are as follows:
2001 2000
--------- ---------
(thousands)
Deferred non-current income tax assets:
Net future tax deductible items $ 498 $ --
Net operating loss carry forwards 2,087 128
A-C Reorganization Trust claims 35,000 --
--------- ---------
Total deferred non-current income tax assets 37,585 128
Valuation allowance (37,585) (128)
--------- ---------
Net deferred non-current income taxes $ -- $ --
========= =========
Net operating loss carry forwards for tax purposes at December 31, 2001 are
estimated to be $5.4 million expiring starting in 2002 through 2021.
Net future tax-deductible items relate primarily to differences in book and tax
depreciation and amortization and to compensation expense related to the
issuance of stock options. Gross deferred tax liabilities at December 31, 2001
and 2000 are not material.
The Plan of Reorganization established the A-C Reorganization Trust to settle
claims and to make distributions to creditors and certain shareholders. The
Company transferred cash and certain other property to the A-C Reorganization
Trust on December 2, 1988. Payments made by the Company to the A-C
Reorganization Trust did not generate tax deductions for the Company upon the
transfer but generate deductions for the Company as the A-C Reorganization Trust
makes payments to holders of claims.
The Plan of Reorganization also created a trust to process and liquidate product
liability claims. Payments made by the A-C Reorganization Trust to the product
liability trust did not generate current tax deductions for the Company. Future
deductions will be available to the Company as the product liability trust makes
payments to liquidate claims.
The Company believes the above-named trusts are grantor trusts and therefore
includes the income or loss of these trusts in the Company's income or loss for
tax purposes, resulting in an adjustment of the tax basis of net operating and
capital loss carry forwards. The income or loss of these trusts is not included
in the Company's results of operations for financial reporting purposes.
42
<PAGE>
NOTE 8 - DEBT
Long-term debt is as follows at December 31:
<TABLE>
<CAPTION>
2001 2000
------------ ------------
(thousands)
<S> <C> <C>
Notes payable to certain current and former Directors $ 354 $ --
Line of Credit with Wells Fargo 375
Notes payable to Wells Fargo - Term Note 3,062 --
Notes payable to Wells Fargo - Subordinated Debt less discount 1,583 --
Notes payable to Wells Fargo - Equipment Term Loan 282 --
Notes payable to Seller of Mountain Air 2,200 --
------------ ------------
Total debt 7,856 --
Less short-term debt and current maturities 1,023 --
------------ ------------
Long-term debt $ 6,833 $ --
============ ============
</TABLE>
NOTES PAYABLE TO CERTAIN CURRENT AND FORMER DIRECTORS - The Allis-Chalmers Board
established an arrangement by which to compensate former and continuing Board
members who had served from 1989 to March 31, 1999 without compensation.
Pursuant to the arrangement in 1999, Allis-Chalmers issued promissory notes
totaling $325,000 to current or former directors and officers. The notes bear
interest at the rate of 5% and are due March 28, 2005. At December 31, 2001, the
notes are recorded at $354,000, including accrued interest.
LINE OF CREDIT WITH WELLS FARGO - At December 31, 2001, the Company has a
$775,000 line of credit at Wells Fargo bank, of which $375,000 was outstanding.
The committed line of credit is due on April 30, 2002. Interest accrues at a
rate equal to the Prime rate plus 0.5% to 1.25% (5.25% at December 31, 2001) for
the committed portion. Additionally, the Company pays a 0.5% fee for the
uncommitted portion.
NOTES PAYABLE TO WELLS FARGO - TERM NOTE - A term loan in the amount of
$3,550,000 at variable interest rates related to the Prime or LIBOR rates
(7.125% at December 31, 2001), interest payable quarterly, with quarterly
principal payments of $147,917 due on the last day of April, July, October and
January. The maturity date of the loan is February 7, 2004.
NOTES PAYABLE TO WELLS FARGO - SUBORDINATED DEBT AND AMORTIZATION OF REDEEMABLE
WARRANT - Subordinated debt in the amount of $2,000,000 at 12% interest payable
quarterly commencing on April 1, 2001. The principal will be due on January 31,
2004. In connection with incurring the debt, the Company issued redeemable
warrants valued at $600,000, which have been recorded as discount to the
subordinated debt and a liability. The discount is amortizable over three years
as additional interest expense. $183,000 has been amortized in 2001.
NOTES PAYABLE TO WELLS FARGO - EQUIPMENT TERM LOAN - A delayed draw term loan in
the amount of $282,291 at LIBOR plus 0.5% interest payable quarterly commencing
on November 30, 2001 (Interest rate of 5.25% at December 31, 2001) The principal
will be due on February 7, 2004.
43
<PAGE>
NOTES PAYABLE TO SELLER OF MOUNTAIN AIR - A sellers note in the amount of
$2,200,000 at 5.75% simple interest. The principal and interest are due on
February 6, 2004.
Substantially all of the Company's assets are pledged as collateral to the
outstanding debt agreements. As of December 31, 2001, the Company's weighted
average interest rate for all of its outstanding debt is approximately 7%.
Maturities of debt at December 31, 2001 are as follows: 2002 - $1,023,000; 2003
- - $648,000; 2004 - $5,831,000; 2005 - $354,000.
REDEEMABLE WARRANTS - The Company has issued redeemable warrants that are
exercisable into a maximum of 1,350,000 shares of the Company's common stock at
an exercise price of $0.15 per share. The warrants are exercisable beginning
January 31, 2004. The warrants are subject to a cash redemption provision
("put") at the discretion of the warrant holder beginning January 31, 2004 and
extending through January 31, 2006 if the warrant holder decides not to exercise
the warrants. The Company has recorded a liability of $600,000 and is amortizing
the effects of the put to interest expense over the life of the debt instrument
NOTE 9 - COMMITMENTS AND CONTINGENCIES
On February 6, 2001, MCA, a subsidiary of OilQuip, completed the purchase of
certain assets including rental equipment from Mountain Air. A portion of the
purchased equipment was sold to a leasing company and leased back. The equipment
lease is being accounted for as an operating lease. Lease payments totaling
$3,480,000 will be made over a period of six years. The lease expense for the
year ended December 31, 2001 was $ 586,000. The leasing company holds a lease
deposit of $701,000 for the length of the lease.
The Company rents office space on a five-year lease, which expires February 5,
2006. Rent expense for the year ended December 31, 2001 was $ 90,000. The
Company has no further lease obligations.
44
<PAGE>
At December 31, 2001, future minimum rental commitments for all operating leases
are as follows:
Operating
Leases
-----------
2002 ............................................... $ 810,893
2003 ............................................... 810,893
2004 ............................................... 810,893
2005 ............................................... 810,893
2006 ............................................... 67,574
Thereafter ......................................... --
-----------
Total minimum lease payments ....................... $3,311,146
===========
NOTE 10 - SHAREHOLDERS' EQUITY
During 2000, OilQuip entered into the following transactions. Various investors
subscribed to 4,250 shares of common stock for $400,000 ($94 per share), 3,068
shares of common stock for $1,000,000 ($326 per share) and 1,250 shares of
common stock for $437,500 ($350 per share). As of December 31, 2000, $1,837,500
in subscriptions receivable was outstanding. The entire amount was received from
the investors in cash in January and February 2001. During 2000, OilQuip also
issued 1,000 shares of common stock for $250,000 ($250 per share). OilQuip also
recorded $250,000 in compensation expense for services contributed by the
Company's President and majority stockholder. The President and majority
stockholder also advanced an aggregate of $538,106 to the Company by paying
corporate expenses on the Company's behalf. These contributed amounts have been
recorded as a contribution to the Company's capital.
The equity and per share data on the financial statements for 2000 have been
presented so as to give effect to the recapitalization of the Company, which
occurred in the reverse acquisition of Allis-Chalmers on May 9, 2001. Under the
recapitalization, the original number of shares outstanding of the formerly
private OilQuip are considered to have been exchanged for the 400,000 shares of
Allis-Chalmers that were issued on the date of the reverse acquisition to the
owners of OilQuip. As a result, 390,125 shares are presented as if issued in
2000 to increase the outstanding shares of OilQuip at December 31, 2000 to
400,000.
On October 15, 2001, an additional 9,600,000 shares of Allis-Chalmers were
issued to the former owners of OilQuip after shareholder approval of the
increase in the maximum authorized number of shares of Allis-Chalmers. For legal
purposes, Allis-Chalmers acquired OilQuip, the parent company of MCA. However,
for accounting purposes OilQuip was treated as the acquiring company in a
reverse acquisition of Allis-Chalmers. The business combination was accounted
for as a purchase. As a result, $2,779,000, the value of the Allis-Chalmers
common stock outstanding at the date of acquisition, was added to shareholders'
equity, which reflects the recapitalization of Allis-Chalmers and the
reorganization of the combined company.
45
<PAGE>
NOTE 11 - STOCK OPTIONS
In 2000, in conjunction with the promissory notes issued to certain current and
former Directors (Note 8), Allis-Chalmers' Board of Directors also granted stock
options to these same individuals. Options to purchase 24,000 shares of common
stock were granted with an exercise price of $2.75. These options vested
immediately and may be exercised any time prior to March 28, 2010. During 2000
or 2001, none of the stock options were exercised. No compensation expense has
been recorded for these options that were issued with an exercise price
approximately equal to the fair value of the common stock at the date of grant.
On May 31, 2001, the Board granted to Leonard Toboroff, a director of
Allis-Chalmers an option to purchase 500,000 shares of common stock at $0.50 per
share, exercisable for 10 years from October 15, 2001. The option was granted
for services provided by Mr. Toboroff to OilQuip prior to the merger, including
providing financial advisory services, assisting in OilQuip's capital structure
and assisting OilQuip in finding strategic acquisition opportunities. The
Company recorded compensation expense of $500,000 for the issuance of the option
for the year ended December 31, 2001.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
December 31, 2001 December 31, 2000
Shares Under Weighted Shares Under Weighted
Option Average Option Average
Exercise Exercise
Price Price
----------------------------------------------------------
<S> <C> <C> <C> <C>
Beginning balance outstanding 24,000 $ 2.75 -- $ --
Granted 500,000 0.50 24,000 2.75
Canceled -- -- -- --
Exercised -- -- -- --
----------------------------------------------------------
Ending balance outstanding 524,000 $ 0.60 24,000 $ 2.75
==========================================================
</TABLE>
The following table summarizes additional information about the Company's stock
options outstanding as of December 31, 2001:
Weighted Average
Remaining Contractual
Exercise Price Shares under Option Life
- --------------------------------------------------------------------------
$0.50 500,000 9.75 years
$2.75 24,000 8.25 years
Had compensation expense for options granted during 2000 been determined based
on option fair value at the grant date, as prescribed by SFAS No. 123,
"Accounting for Stock Based Compensation", the effect on Allis-Chalmers' net
loss during 2000 would not have been material.
46
<PAGE>
NOTE 12 - STOCK PURCHASE WARRANTS
In conjunction with the Mountain Air purchase by OilQuip Rentals in February of
2001, the Company issued a common stock warrant for 620,000 shares to a
third-party investment firm that assisted the Company in its initial
identification purchase of the Mountain Air assets. The warrant entitles the
holder to acquire up to 620,000 shares of common stock of MCA at an exercise
price of $.01 per share over a nine-year period commencing on February 7, 2001.
The stock purchase warrant has been recorded at a fair value of $200,000 for the
year ended December 31, 2001.
As more fully described in Note 8, MCA issued a warrant for the purchase of
1,350,000 shares at $0.01 per share. The holder may redeem the warrant for
$600,000.
NOTE 13 - RELATED PARTY TRANSACTIONS
MCA leases its shop and administrative office space in Colorado from a
partnership whose partners are the former owners of MCA and current employees of
MCA. The current lease agreement requires a monthly rent payment of $9,000 and
expires February 5, 2006. Rent expense charged to operations under the lease was
$90,000 for the year ended December 31, 2001.
At December 31, 2001, the Company owed the President and majority stockholder of
the Company $ 318,000 related to deferred compensation. At the same time, the
President and majority stockholder owed the Company $61,000. These amounts were
settled in the first quarter of 2002.
NOTE 14 - SUPPLEMENTAL CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
February 4,
2000
(Inception)
through
December 31,
(Dollars in thousands) 2001 2000
----------- -------------
<S> <C> <C>
Non-cash investing and financing transactions in
connection with the acquisition of Mountain Air assets:
Fair value of net assets acquired $ (7,183) $ --
Goodwill and other intangibles (4,551) --
Notes payable to Seller of Mountain Air 2,200 --
----------- -------------
Net cash paid to acquire subsidiary (9,534) --
=========== =============
47
<PAGE>
Non-cash investing transactions in connection with
the merger of Allis-Chalmers and OilQuip:
Fair value of common stock exchanged (2,779) --
Fair value of net assets, net of cash received 872 --
Goodwill and other intangibles 1,819 --
----------- -------------
Net cash paid to consummate merger $ (88) $ --
=========== =============
</TABLE>
48
<PAGE>
NOTE 15 - QUARTERLY RESULTS (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(In thousands, except per share amounts)
YEAR 2001:
Revenues $ 606 $ 1,341 $ 1,521 $ 1,328
Operating Income (Loss)
continuing operations $ (150) $ (549) $ 35 $ (769)
Net income (loss)
Continuing operations $ (270) $ (775) $ (80) $(1,148)
Discontinued operations -- 4 (108) (2,200)
-------- -------- -------- --------
$ (270) $ (771) $ (188) $(3,348)
======== ======== ======== ========
Income (loss) per common share
(Basic and diluted)
Continuing operations $ (0.06) $ (0.19) $ (0.02) $ (0.30)
Discontinued operations -- -- (0.03) (0.55)
-------- -------- -------- --------
$ (0.06) $ (0.19) $ (0.05) $ (0.85)
======== ======== ======== ========
YEAR 2000:
Revenues $ -- $ -- $ -- $ --
Operating Income (Loss)
continuing operations $ (61) $ (111) $ (102) $ (353)
Net income (loss)
Continuing operations $ (61) $ (111) $ (102) $ (353)
Discontinued operations -- -- -- --
-------- -------- -------- --------
$ (61) $ (111) $ (102) $ (353)
======== ======== ======== ========
Income (loss) per common share
(Basic and diluted)
Continuing operations $ (0.15) $ (0.28) $ (0.26) $ (0.88)
Discontinued operations -- -- -- --
-------- -------- -------- --------
$ (0.15) $ (0.28) $ (0.26) $ (0.88)
======== ======== ======== ========
NOTE 16 - SUBSEQUENT EVENTS
The Company completed two acquisitions and related financing on February 6,
2002.
The Company purchased 81% of the outstanding stock of Jens Oil Field Service,
Inc. ("Jens"). Jens supplies highly specialized equipment and operations to
install casing and production tubing required to drill and complete oil and gas
wells. The Company also purchased substantially all the outstanding common stock
and preferred stock of Strata Directional Technology, Inc. ("Strata"). Strata
provides high end directional and horizontal drilling technology for specific
targeted reservoirs that cannot be reached vertically.
49
<PAGE>
The purchase price for Jens and Strata was (i) $10,250,000 in cash, (ii) a
$4,000,000 note payable due in four years, (iii) $1,000,000 for a non-compete
agreement payable for five years, (iv) 7,957,712 shares of common stock of the
Company, (v) 3,500,000 shares of a newly created Series A 10% Cumulative
Convertible Preferred Stock of the Company ("Series A Preferred Stock") and (vi)
an additional payment estimated to be from $1,000,000 to $1,250,000, based upon
Jens' working capital on February 1, 2002.
In connection with the acquisition of Strata and Jens, the Company's bank
provided financing of $12,728,396 consisting of revolving credit facilities in
the amount of $3,500,000, term facilities in the amount of $5,696,396 and a
subordinated loan in the amount of $3,000,000.
In connection with the Strata purchase, the Company has authorized the creation
of Series A Preferred Stock. 3,500,000 shares of Series A Preferred stock will
be issued to the seller, Energy Spectrum. The Series A Preferred stock has
cumulative dividends at ten percent (10%) per annum payable in cash or
additional Series A Preferred Stock. Additionally, the Series A Preferred Stock
is convertible into common stock of the Company. The Series A Preferred Stock is
also subject to mandatory redemption on or before February 4, 2004 or earlier
from the net proceeds of new equity sales and optional redemption by the Company
at any time. The redemption price of the Series A Preferred Stock is $1.00 per
share. In addition, in connection with the Strata acquisition, Energy Spectrum
is being issued warrants for 437,500 shares of Company common stock at an
exercise price of $0.15 per share.
The Company issued to the banks warrants for 1,165,000 shares of common stock at
an exercise price of $0.15 per share and 335,000 warrants to purchase common
stock at a $1.00 per share in connection with their subordinated debt financing.
All of these shares are subject to redemption at the option of the warrant
holders for $1,500,000 after three years by the Company.
As a result of these transactions, the Company will have approximately 19.5
million shares of common stock outstanding at March 31, 2002, as well as options
and warrants to purchase up to 9.6 million additional shares. Substantially all
of the Company's tangible assets have been pledged as collateral on the loans
from the banks.
50
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The financial statements of Allis-Chalmers as of December 31, 2001 and 2000 and
for the year ended December 31, 2001 and the period February 4, 2000 (inception)
through December 31, 2000, included in this filing, have been audited by the
accounting firm of Gordon, Hughes and Banks, LLP.
51
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
INFORMATION RELATING TO OUR DIRECTORS
The names of our directors, and certain information about them, are set forth
below.
NAME AGE DIRECTOR SINCE
- ---- --- --------------
Dr. Phillip David 70 May 2001
David Groshoff 30 October 1999
Munawar H. Hidayatallah 57 May 2001
Robert E. Nederlander 68 May 1989
Saeed Sheikh 65 May 2001
James W. Spann 49 February 2002
Michael D. Tapp 32 February 2002
Alan R. Tessler 64 September 1992
Leonard Toboroff 68 May 1989
Thomas O. Whitener, Jr 54 February 2002
Dr. Phillip David has served as our director since May 2001. Mr. David has
served as a Director of The Fairchild Corporation since 1985 and served as an
employee and consultant to The Fairchild Corporation from January 1988 to June
1993. Mr. David served as a director of IRI International, Inc. from 1994
through 2000, and was a Professor of Urban Development at the Massachusetts
Institute of Technology from 1971 to 1987.
David Groshoff has served as our director since October 1999. Mr. Groshoff has
been employed by Pacholder Associates, Inc. since September 1997 and currently
serves as Senior Vice President and Assistant General Counsel. From November
1996 until September 1997, Mr. Groshoff was a practicing attorney. Mr. Groshoff
serves on our Board of Directors on behalf of the Pension Benefit Guaranty
Corporation, which has the right to appoint one director for so long as it holds
117,020 shares of our common stock. Mr. Groshoff is also a director of Atlas
Minerals, Inc.
Munawar H. Hidayatallah has served as our director, President, Chief Executive
Officer and Chairman since May 2001. Mr. Hidayatallah was Chief Executive
Officer of OilQuip, which merged with us in May 2001, from its formation in
February 2000 until its dissolution in December 2001. From December 1994 until
August 1999, Mr. Hidayatallah was the Chief Financial Officer and a director of
IRI International, Inc. which was acquired by National Oilwell, Inc. in early
2000. From August 1999 until February 2000, Mr. Hidayatallah worked as a
consultant to IRI International, Inc. and Riddell Sports Inc.
52
<PAGE>
Robert E. Nederlander has served as our director since May 1989. Mr. Nederlander
served as our Chairman of the Board of Directors from May 1989 to 1993, and as
our Vice Chairman from 1993 to 1996. Mr. Nederlander has been a Director of
Cendent since December 1997, and was a Director of HFS from July 1995 to
December 1997. Mr. Nederlander has been President and/or Director since November
1981 of the Nederlander Organization, Inc., owner and operator of legitimate
theaters in the City of New York. Since December 1998, Mr. Nederlander has been
a co-managing partner of the Nederlander Company, LLC, operator of legitimate
theaters outside the City of New York. Mr. Nederlander has been Chairman of the
Board of Riddell Sports Inc. (now known as Varsity Brands) since April 1988 and
was the Chief Executive Officer of such Corporation from 1988 through April 1,
1993. From February until June 1992, Mr. Nederlander was also Riddell Sports
Inc.'s interim President and Chief Operating Officer. He served as the Managing
General Partner of the New York Yankees from August 1990 until December 1991,
and has been a limited partner and a Director since 1973. Mr. Nederlander has
been President since October 1985 of Nederlander Television and Film
Productions, Inc.; and was Chairman of the Board and Chief Executive Officer
from January 1988 to January 2002 of Mego Financial Corp. ("Mego"). Mr.
Nederlander was a Director of Mego Mortgage Corp. from September 1996 until June
1998. In October 1996, Mr. Nederlander became a Director of the New
Communications, Inc., a publisher of community oriented free circulation
newspapers.
Saeed Sheikh has served as our director since May 2001. For the previous five
years Mr. Sheikh has served as President and a director of Star Trading &
Marine, Inc., a ship brokerage firm and international shipping agents.
James W. Spann has served as our director since February 2001. Mr. Spann was a
founding partner and since May 1996 has served as Chief Investment Officer of
Energy Spectrum Capital, the general partner of Energy Spectrum Partners LP, a
private equity partnership focusing on the energy industry. Prior to 1996, Mr.
Spann was a managing director of CIGNA Private Securities, a private lending and
private equity investment company, at which Mr. Spann oversaw an oil, gas and
chemical portfolio of private securities totaling over $1.5 billion.
Michael D. Tapp has served as our director since February 2001. Since 1998, Mr.
Tapp has served as Vice President of Energy Spectrum Partners, LP, which is an
energy focused private equity fund. From August 1997 to 1998, Mr. Tapp served as
an associate in the energy group of the Houston branch of Canadian investment
banking firm of Nesbitt Burns in Houston. He participated in various M&A
advisory assignments as well as public and private debt and equity offerings.
53
<PAGE>
Alan R. Tessler has served as our director since September 1992. Mr. Tessler
served as Chairman of the Board of Directors and Chief Executive Officer of the
Company from November 1993 until January 1996. Mr. Tessler has been Chairman of
the Board of Directors and Chief Executive Officer of International Financial
Group, Inc., an international merchant banking firm since 1987. He is also Chief
Executive Officer and Chairman of the Board of Directors of JNET Enterprises,
Inc., a technology holding company. From March to August 2001, Mr. Tessler was
Acting Chief Executive Officer of Jasmine Networks. He was Co-Chairman of the
Board of Directors of Data Broadcasting Corporation, a provider of financial and
business information to institutional and individual investors, from June 1992
until May 2000, and Co-Chief Executive Officer from June 1992 until November 29,
1999. Mr. Tessler remains a director of Interactive Data Corporation, the
successor company of Data Broadcasting Corporation. Mr. Tessler was Chairman of
the Board of Directors of Enhance Financial Services Group, Inc. from 1986 to
February 2001. Since 2001, he has been Chairman of the Board of Directors of
InterWorld Corporation. Sine January 1997, Mr. Tessler has also served as
Chairman of Checker Holding Corp. IV. He is also a Director and Chairman of the
Finance Committee of The Limited, Inc.
Leonard Toboroff has served as our director, Vice Chairman of the Board of
Directors and our Executive Vice President since May 1989. Mr. Toboroff has
served as a director and Vice Chairman of Riddell Sports, Inc. from April 1988
to the present, and is also a director of Engex Corp. and H-Rise Recycling Corp.
Mr. Toboroff has been a practicing attorney continuously since 1961.
Thomas O. Whitener, Jr. has served as our director since February 1, 2001. Mr.
Whitener is a founding partner of Energy Spectrum Capital and has been a partner
since May 1996. He has also served as a managing director of Energy Spectrum
Securities Corp., a financial advisory firm for energy companies, since October
1997. Mr. Whitener has been financing companies in the energy industry since
1974. From 1987 to 1996, Mr. Whitener was an investment banker with R. Reid
Investments Inc. and Dean Witter Reynolds.
Messrs. Spann, Tapp & Whitener serve as designees of Energy Spectrum Partners,
L.P., which as the holder of the outstanding Series A Preferred Stock has the
right to appoint three directors to our Board of Directors.
INFORMATION RELATING TO OUR BOARD OF DIRECTORS AND ITS COMMITTEES
Meetings of Our Board of Directors; Committees
- ----------------------------------------------
During fiscal 2001, our Board of Directors held 7 meetings. No committee
meetings were held during fiscal 2001. No incumbent director attended less than
75% of the aggregate number of meetings of our Board of Directors on which he
served for such year except that Mr. Tessler did not attend three meetings, Mr.
Nederlander did not attend two meetings and Mr. David did not attend any of the
five meetings held while he was a director. Our Board of Directors currently has
3 standing committees: the Executive Committee, the Audit Committee and the
Compensation Committee.
54
<PAGE>
Executive Committee
- -------------------
The current members of the Executive Committee are David Groshoff, Robert E.
Nederlander and Alan R. Tessler. The Executive Committee is empowered to
exercise all powers of our Board of Directors in the management and affairs of
our business with certain exceptions. In practice, it meets only infrequently to
take formal action on specific matters when it would be impractical to call a
meeting of our Board of Directors.
Audit Committee
- ---------------
Our Audit Committee consists of three independent directors, Dr. Philip David,
James W. Spann and Michael D. Tapp. The Audit Committee did not meet during 2000
or fiscal 2001. The Audit Committee reviews and monitors the corporate financial
reporting and the internal and external audits of the Company, including, among
other things, the Company's internal audit and control functions, the results
and scope of the annual audit and other services provided by the Company's
independent auditors, and the Company's compliance with legal matters that have
a significant impact on the Company's financial reports. The Audit Committee
also consults with the Company's management and the Company's independent
auditors prior to the presentation of financial statements to stockholders and,
as appropriate, initiates inquiries into various aspects of the Company's
financial affairs. In addition, the Audit Committee is responsible for
considering and recommending the appointment of, and reviewing fee arrangements
with, the Company's independent auditors. The Audit Committee has the authority
to conduct any investigation appropriate to fulfilling its responsibilities and
it has direct access to the independent auditors as well as anyone in the
organization. The Audit Committee has the ability to retain, at our expense,
special legal, accounting, or other consultants or experts it deems necessary in
the performance of its duties.
The Board of Directors adopted and approved a charter for the Audit Committee in
March 2002. The Board of Directors has determined that all members of the Audit
Committee are "independent" as that term is defined in Rule 4200 of the listing
standards of the National Association of Securities Dealers.
The Audit Committee was not fully constituted during 2000 and 2001, having only
one member. Therefore, many of the functions of the Audit Committee were
performed by the full Board of Directors.
Compensation Committee
- ----------------------
The current members of the Compensation Committee are Saeed M. Sheikh and Thomas
O. Whitener. The Compensation Committee did not meet during fiscal 2001. The
general functions of the Compensation Committee includes approval (or
recommendations to our Board of Directors) of the compensation arrangements for
senior management, directors and other key employees. The Compensation Committee
also administers our 2002 Stock Incentive Plan.
55
<PAGE>
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Compensation Committee of the Board of Directors currently consists of
Messrs. Sheikh and Whitener. Neither of these individuals was our officer or
employee at any time during 2001 or at any other time. No current executive
officer has ever served as a member of the Board of Directors or compensation
committee of any other entity that has or has had one or more executive officers
serving as a member of our Board of Directors or our Compensation Committee.
Board of Directors Compensation
- -------------------------------
Effective January 1, 2002, each of our directors will receive a $1,000 per
quarter, plus an annual grant of options to purchase 5,000 shares of our common
stock at an exercise price equal to the fair market value of the shares on the
date of grant. Directors are also compensated for out of pocket travel expenses.
INFORMATION RELATING TO OUR EXECUTIVE OFFICERS
- ----------------------------------------------
The names of our current executive officers, and certain information about them,
are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Munawar H. Hidayatallah 57 President, Chief Executive Officer and Chairman since May 2001. Mr.
Hidayatallah founded OilQuip in February 2000 and has significant
experience in the oil field services industry. From 1994 until
August 1999, Mr. Hidayatallah was the Chief Financial Officer and a
director of IRI International, Inc. which was acquired by National
Oilwell, Inc. in early 2000. From August 1999 until February 2000,
Mr. Hidayatallah worked as a consultant to IRI International, Inc.
and Riddell Sports, Inc.
Leonard Toboroff 68 Leonard Toboroff has served as our Executive Vice President, director,
and Vice Chairman of the Board of Directors since May 1989. Mr.
Toboroff has served as a director and Vice Chairman of Riddell
Sports, Inc. from April 1988 to the present, and is also a director
of Engex Corp. and H-Rise Recycling Corp. Mr. Toboroff has been a
practicing attorney continuously since 1961
Jeffrey R. Freedman 54 Mr. Freedman has served as our Executive Vice President since April 1,
2002. From April 1994 until October of 2000, Mr. Freedman served as
56
<PAGE>
Senior Oil Service Analyst in the equity research division of
Prudential Securities, focusing on the energy industry. From
October 2000 through March 2002, Mr. Freedman served as a
consultant to us.
V. William Archer, III 51 Mr. Archer has served as our Executive Vice President and Chief Financial
Officer since April 1, 2002. From June 2001 to March 2002, Mr.
Archer was a consultant to the Company. From May 1996 to February
2001 he was employed by Compagnie Generale de Geophysique, a
geophysical company, as Chief Financial Officer of Sercel, Inc., a
subsidiary. From October 1994 to May 1996 Mr. Archer was the Vice
President - Finance of Teletouch Communications, Inc., a
telecommunications company.
Jens H. Mortenson 48 Mr. Mortenson has been president of Jens Oil Service, Inc., which is 81%
owned by us, since its formation in 1982. Prior to forming Jens, he
spent seven years in operations and sales in the oilfield services
industry.
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, as well as beneficial owners of 10% or more of
the Company's Common Stock, to file reports concerning their ownership of
Company equity securities with the Securities and Exchange Commission and the
Company. Based solely upon information provided to the Company and by individual
directors, executive officers and such beneficial owners, the Company believes
that during the fiscal year ended December 31, 2000 all its directors, executive
officers and beneficial owners of 10% or more of its Common Stock complied with
the Section 16(a) filing requirements, except as follows:
Colebrook Investments, Inc. and Mr. Nederlander each filed a Form 4 late in
connection with the acquisiton of our common stock in October 2001 in connection
with the OilQuip Merger.
Mr. Toboroff and Mr. Neederlander each filed a Form 4 for December 2001 late,
which Form 4s related to the distribution of our common stock to them in
connection with the dissolution of a limited partnership of which they were
partners
57
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
Mr. Hidayatallah has served as our President, Chief Executive Officer, and
Chairman since consummation of the OilQuip Merger in May 2001. John T. Grigsby,
who served our Chief Financial Officer during 2001, effectively acted as Chief
Executive Officer prior to May 2001. The following table sets forth the
compensation paid by us in 2001 to Mr. Hidayatallah, Mr. Grigsby and Mr.
Toboroff, our only other officer who has received compensation in excess of
$100,000 during any of the past thee years. None of the named individuals
received compensation during 2000 or 1999.
SUMMARY COMPENSATION TABLE
Long-Term
Compen-
sation
Annual Compensation Awards
Name and -------------------- Options All Other
Principal Position Year Salary Bonus Shares Compensation
- ------------------ ---- --------- -------- ------- ------------
Munawar H. Hidayatallah, 2001 $240,635 $77,000 None $0
President, Chairman &
Chief Executive Officer
John T. Grigsby, Chief 2001 $0 $0 None $0
Executive Officer
Leonard Toboroff, 2001 $0 $0 500,000 $0
Executive Vice President
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
--------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM(1)
OPTIONS EMPLOYEES PER SHARE EXPIRATION ------------------------------
NAME GRANTED IN 2000 ($/SH) DATE 0% 5% 10%
- --------- ---------- ---------- --------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Leonard
Toboroff 500,000 100% $0.50 10/13/11 $500,000 $971,671 $1,695,307
</TABLE>
(1) The 0%, 5% and 10% assumed rates of appreciation are prescribed by the rules
and regulations of the Securities and Exchange Commission and do not represent
the Company's estimate or projection of the future trading prices of its common
stock. The potential realizable value is based on the assumption that our common
stock price will appreciate at the assumed rate of appreciation from the price
on the date of grant ($1.50 per share). As of March 22, 2002, the closing bid
58
<PAGE>
price of our common stock was $0.55 per share. Therefore, if the market price of
the common stock does not appreciate over the remainder of the option term, the
value of the option at the end of the option term would be $25,000. Actual
gains, if any, on stock option exercises are dependent on numerous factors,
including, without limitation, the future performance of the Company and overall
business and market conditions, which factors are not reflected in this table.
2002 Stock Incentive Plan
- -------------------------
In March 2002 our Board of Directors adopted, subject to stockholder approval,
our 2002 Stock Incentive Plan (the "Plan") pursuant to which we are able to
grant stock options and other stock-based compensation to our officers,
directors and services providers. On March 6, 2002, we granted to Jeffrey R.
Freedman and V. William Archer, III options to purchase 300,000 and 275,000
shares of our common stock, respectively. Each option is exercisable for a
period of ten years at an exercise price of $0.51 per share, which was the fair
market value of one share of our common stock on the date of grant. The option
granted to Mr. Freedman will become exercisable with respect to 130,000 shares
upon approval of the Plan by our stockholders, and will become exercisable with
respect to an additional 85,000 shares on each of the first two anniversaries of
the date of grant. The option granted to Mr. Archer will become exercisable with
respect to 91,667 shares upon approval of the Plan by our stockholders, and will
become exercisable with respect to an additional 91,666 shares on each of the
first two anniversaries of the date of grant. We plan to present the Plan to
stockholders for approval at the next annual meeting of stockholders.
Employment, Severance and Other Agreements with Management
- ----------------------------------------------------------
Mr. Hidayatallah serves as our President, Chief Executive Officer and Chairman
of the Board of Directors pursuant to the terms of a three-year employment
agreement dated as of February 7, 2001. Under the terms of his employment
agreement, Mr. Hidayatallah receives an annual base salary of $300,000 subject
to increase or decrease by our Board of Directors, but in no event will the base
salary be less than $200,000. In addition, Mr. Hidayatallah is entitled to
receive incentive compensation equal to one-half of one percent of the purchase
price of any company we acquire. If Mr. Hidayatallah's employment agreement is
terminated by us for any reason other than "cause", as defined in Mr.
Hidayatallah's employment agreement, or death or disability, then he is entitled
to receive his then current salary for 12 months following the date of his
termination reduced by the compensation Mr. Hidayatallah receives from any new
employer during such period. If Mr. Hidayatallah's employment agreement is
terminated as a result of his disability, then he is entitled to receive his
then current salary for up to 6 months or until he obtains benefits under any
disability plan we maintain for him. In addition, we are required to maintain a
term life insurance policy in the amount of $2,500,000 the proceeds of which
would be used to repurchase shares of our common stock from Mr. Hidayatallah's
estate in the event of his death. The number of shares purchased will be
determined based upon the fair market value of our common stock, as determined
by a third party experienced in valuation of this type appointed by the Company.
Jens H. Mortensen, Jr. serves as President of Jens pursuant to the terms of a
three year employment agreement dated February 1, 2002. Under the terms of his
agreement, Mr. Mortensen receives a salary of $150,000 that may not be reduced
59
<PAGE>
below such amount. If Mr. Mortensen's agreement is terminated by us for any
reason other than "cause", as defined in Mr. Mortensen's agreement, or death or
disability, then he is immediately entitled to receive all amounts due through
the term of his agreement.
We intend to enter into additional employment agreements with V. William Archer,
III, our Executive Vice President and Chief Financial Officer, and Jeffrey R.
Freedman, our Executive Vice President, Chief Planning and Communications
Officer. Mr. Archer's salary will be $180,000 per annum, and Mr. Freedman's
salary will be $200,000 per annum. Each employment agreement will provide for a
term of three years, will provide for a bonus of up to 25% of base salary
conditioned upon meeting performance goals to be determined, and will include
other customary provisions. In addition, Mr. Freedman will be provided a
transportation, vehicle and living allowance of $50,000 during the first year of
his employment.
60
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information known to us with respect to
the beneficial ownership of our common stock as of March 28, 2002 by (i) all
persons known to beneficially own five percent (5%) or more of either class of
the our common stock, (ii) each director, (iii) the executive officers named in
the Summary Compensation Table in Item 11 -- Executive Compensation, and (iv)
all current directors and executive officers as a group.
Ownership
---------
Name Number of Shares Percentage
- ---- ---------------- ----------
Energy Spectrum (1) 11,664,030 47.3%
Munawar H. Hidayatallah (2) 4,375,000 22.4%
Colebrooke Investments, Inc. (3) 3,375,000 17.3%
Robert E. Nederlander (4) 341,310 1.7%
Leonard Toboroff (5) 591,309 3.0%
Saeed Sheikh 1,000,000 5.1%
James W. Spann (1) 11,664,030 47.3%
Michael D. Tapp (1) 11,664,030 47.3%
Thomas O. Whitener (1) 11,664,030 47.3%
John Grigsby (5) 10,000 *
David Groshoff 585,100 3.0%
Alan R. Tessler 0 *
* (less than one percent)
All directors and executive officers as a group
(13 persons) 20,454,598 81.3%
- -----------
(1) Energy Spectrum includes Energy Spectrum Partners, LP ("ES Partners"), a
Delaware limited partnership, the principal business of which is investments,
Energy Spectrum Capital LP ("ES Capital"), a Delaware limited partnership, the
principal business of which is serving as the general partner of ES Partners,
Energy Spectrum LLC ("ES LLC") a Texas limited liability company, the principal
business of which is serving as the general partner of ES Capital, and Sydney L.
Tassin, James W. Spann, James P. Benson, Leland B. White and Thomas O. Whitener,
Jr. The principal business address of each of the foregoing persons is 5956
Sherry Lane, Suite 900, Dallas, Texas 75225. Messrs. Tassin, Spann, Benson,
White and Whitener are the members and managers of ES LLC, and Messrs. Tassin
(President), Whitener (Chief Operating Officer) and Spann (Chief Information
Officer) are executive officers of ES LLC. ES Partners is the record owner of
6,559,863 shares of our common stock, warrants to purchase 437,500 shares of
common stock, and 3,500,000 shares of our Series A 10% Cumulative Convertible
Preferred Stock which are convertible into 4,666,667 shares of our common stock.
Upon conversion of the preferred stock and exercise of the warrants, ES Partners
would beneficially own approximately 47% of our outstanding common stock. The
other persons listed above are also deemed to beneficially own the securities
held of record by ES Partners.
61
<PAGE>
(2) Mr. Hidayatallah's address is 7660 Woodway, Suite 200, Houston, Texas 77064.
(3) Colebrooke Investments, Inc. is a limited company organized under the laws
of Guernsey, whose address is LaPlaiderie House, St. Peter Port, Guernsey
GY13DQ. No natural person controls Colebrooke, and none of our officers or
directors has a financial interest in Colebrooke. The owner of all of
Colebrooke's shares is Jupiter Trust, a Guernsey trust. The corporate trustee of
Jupiter Trust is the Ansbacher Trust Company ("Ansbacher"), a Guernsey trust in
which action is taken upon majority vote of such trust's three directors,
Messrs. Robert Bannister and Phillip Retz and Ms. Rachel Whatley. Such directors
have absolute discretion to take action and make investment decisions on behalf
of Ansbacher and can be deemed to control Ansbacher, which has sole voting and
dispository power over the shares of Colebrooke. There are no individuals
directors of Colebrooke; the corporate director for Colebrooke is Plaiderie
Corporate Directors One Limited, a Guernsey Company ("Plaiderie"). Plaiderie is
wholly-owned by Ansbacher Guernsey Limited ("Ansbacher Limited"), a controlled
registered bank in Guernsey. The ultimate parent of Ansbacher Limited is First
Rand Limited ("First Rand"), a publicly-owned company listed on the Johannesburg
Stock Exchange. First Rand can be deemed to control Plaiderie.
(4) Includes options to purchase 2,000 shares of our common stock at an exercise
price of $2.75 per share which are currently exercisable.
(5) Includes options to purchase 500,000 shares of our common stock at an
exercise price of $0.50 per share and options to purchase 2,000 shares of our
common stock at an exercise price of $2.75 per share, all of which are currently
exercisable. See "Certain Relationships and Related Transactions."
(6) Includes options to purchase 10,000 shares of our common stock at an
exercise price of $2.75 per share which are currently exercisable.
(7) Mr. Groshoff has the authority to vote and to direct the disposition of
these shares on behalf of the PBGC.
62
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Hidayatallah loaned $200,000 to us on February 1, 2001, and loaned $75,000
to us on June 30, 2001, which loans did not bear interest and were repaid in
2001.
We loaned $70,000 to Mr. Hidayatallah on December 31, 2001, which loan did not
bear interest and has been repaid.
Mr. Hidayatallah is a personal guarantor of substantially all of the financing
extended to us by commercial banks.
On May 31, 2001, options to purchase 500,000 shares of our common stock, with an
exercise price of $0.50 per share, were granted to our director Leonard Toboroff
in connection with services provided by Mr. Toboroff, including providing
financial advisory services to OilQuip, introducing OilQuip to us, assisting in
the capital structure of OilQuip and assisting OilQuip in finding strategic
acquisition opportunities through the introduction of OilQuip to equity sources.
Such options may be exercised at any time prior to October 13, 2011.
Energy Spectrum Partners, L.P. sold to us 100% of the outstanding capital stock
of Strata Directional Technologies, Inc. in February 2002 for a combination of
shares of our common stock, warrants to purchase our common stock and Series A
Preferred Stock. See, "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Recent Developments --Acquisition of Jens
Oilfield Service, Inc. and Strata Directional Drilling, Inc.; Disposition of
HDS." Three of our directors, Messrs. Spann, Tapp and Whitener, are members,
partners and officers of Energy Spectrum Partners, L.P. and its affiliates. See
"Item 12. Security Ownership of Certain Beneficial Owners and Management."
Jens H. Mortensen sold to us 81% of the outstanding capital stock of Jens
Oilfield Service, Inc. in February 2002 for a combination of cash, debt and
securities. See, "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Recent Developments --Acquisition of Jens
Oilfield Service, Inc. and Strata Directional Drilling, Inc.; Disposition of
HDS." Mr. Mortensen is President of Jens Oilfield Service, Inc. and as such is
considered to be one of our executive officers.
63
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of Documents Filed
-----------------------
The Index to Financial Statements is included on page 25 of this report.
Financial statements Schedules not included in this report have been omitted
because they are not applicable or the required information is shown in the
Financial Statements or Notes thereto.
(b) Reports on Form 8-K
-------------------
On December 27, 2001, the Company filed a Current Report on Form 8-K with an
Event Date of December 12, 2001, reporting events in response to Item 2 and Item
7 of From 8-K relating to the disposition of Houston Dynamic Service, Inc. In
connection therewith, the Company filed the following financial statements:
Pro Forma Financial Information.
Unaudited Pro Forma Consolidated Condensed Statement of Financial
Position as of September 30, 2001
Unaudited Pro Forma Consolidated Condensed Statement of Operations for
the Nine Months Ended September 30, 2001
Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements
(c) Exhibits
--------
See Exhibit Index at Page 66 of this Annual Report on Form 10K.
64
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on March 29, 2002.
/s/ Munawar H. Hidayatallah
-----------------------------------------------
Munawar H. Hidayatallah
President, Chief Executive Officer and Chairman
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, this report has been signed on March 29, 2001 by the
following persons on behalf of the registrant and in the capacities indicated.
/s/ Munawar H. Hidayatallah /s/ V. William Archer, III
- ---------------------------------- ------------------------------------
Munawar H. Hidayatallah V. William Archer, III
President, Chief Executive Executive Vice President and Chief
Officer and Chairman Financial Officer (Principal
(Principal Executive Officer) Financial and Accounting Officer)
/s/Dr. Phillip David /s/ Michael D. Tapp
- ---------------------------------- ------------------------------------
Dr. Phillip David, Director Michael D. Tapp, Director
/s/ David A. Groshoff
- ---------------------------------- ------------------------------------
David A. Groshoff, Director Allan R. Tessler, Director
/s/ Saeed Sheikh /s/ Robert E. Nederlander
- ---------------------------------- ------------------------------------
Saeed Sheikh, Director Robert E. Nederlander
/s/ Leonard Toboroff /s/ Thomas O. Whitener, Jr.
- ---------------------------------- ------------------------------------
Leonard Toboroff, Director Thomas O. Whitener, Jr., Director
/s/ James W. Spann
- ----------------------------------
James W. Spann, Director
65
<PAGE>
2.1. First Amended Disclosure Statement pursuant to Section 1125 of the
Bankruptcy Code, which includes the First Amended and Restated
Joint Plan of Reorganization dated September 14, 1988
(incorporated by reference to the Company's Report on Form 8-K
dated December 1, 1988).
2.2 Agreement and Plan of Merger by and among Allis-Chalmers
Corporation, Allis-Chalmers, Acquisition Corp., and OilQuip
Rentals, Inc. dated as of May 9, 2001(incorporated by reference to
the Company's Report on Form 8-K filed May 15, 2001).
2.3. Letter Agreement between Allis-Chalmers Corporation and the
Pension Benefit Guaranty Corporation and others dated as of May 9,
2001(incorporated by reference to the Company's Report on Form 8-K
filed May 15, 2001).
2.4. Termination Agreement by and among Allis-Chalmers Corporation, the
Pension Benefit Guaranty Corporation and others dated as of May 9,
2001 (incorporated by reference to the Company's Report on Form
8-K filed May 15, 2001).
2.5. Stock Purchase Agreement dated November 30, 2001 by and between
Clayton Lau and Mountain (incorporated by reference to the
Company's Report on Form 8-K dated December 27, 2001)
2.6. HDS Promissory Note executed by Clayton Lau dated November 30,
2001 (incorporated by reference to the Company's Report on Form
8-K dated December 27, 2001).
2.7. HDS Security Agreement dated November 30, 2001 by and between
Clayton Lau and Mountain Compressed Air, Inc., (incorporated by
reference to the Company's Report on Form 8-K dated December 27,
2001)
2.8. Stock Purchase Agreement dated February 1, 2002 by and between
Allis-Chalmers Corporation, a Delaware corporation ("Buyer") and
Jens H. Mortensen, Jr. (incorporated by reference to the Company's
Report on Form 8-K filed February 21, 2002)
2.9. Shareholder's Agreement among Jens Oilfield Services, Inc., a
Texas corporation, Jens H. Mortensen, Jr., and Allis-Chalmers
Corporation
2.10. Stock Purchase Agreement dated February 1, 2002 by and between
Allis-Chalmers Corporation, Energy Spectrum Partners, LP, and
Strata Directional Technology, Inc.
66
<PAGE>
2.11 Registration Rights Agreement dated by and among Allis-Chalmers
Corporation and Energy Spectrum Partners, LP.
2.12 Shareholders' Agreement among Allis-Chalmers Corporation and the
Shareholders and Warrantholder signatories thereto dated February
1, 2002.
3.1. Amended and Restated Certificate of Incorporation of
Allis-Chalmers Corporation.
3.2 Certificate of Designation, Preferences and Rights of the SERIES A
10% CUMULATIVE CONVERTIBLE PREFERRED STOCK ($.01 Par Value) of
Allis Chalmers Corporation (incorporated by reference to the
Company's Report on Form 8-K filed February 21, 2002)
3.3. Amended and Restated By-laws of Allis-Chalmers Corporation.
*10.1. Amended and Restated Retiree Health Trust Agreement between
Allis-Chalmers Corporation and Wells Fargo Bank (incorporated by
reference to Exhibit C-1 of the First Amended and Restated Joint
Plan of Reorganization dated September 14, 1988 included in the
Company's Report on Form 8-K dated December 1, 1988).
*10.2. Amended and Restated Retiree Health Trust Agreement between
Allis-Chalmers Corporation and Firstar Trust Company (incorporated
by reference to Exhibit C-2 of the First Amended and Restated
Joint Plan of Reorganization dated September 14, 1988 included in
the Company's Report on Form 8-K dated December 1, 1988).
10.3. Reorganization Trust Agreement between Allis-Chalmers Corporation
and John T. Grigsby, Jr., Trustee (incorporated by reference to
Exhibit D of the First Amended and Restated Joint Plan of
Reorganization dated September 14, 1988 included in the Company's
Report on Form 8-K dated December 1, 1988).
10.4. Product Liability Trust Agreement between Allis-Chalmers
Corporation and Bruce W. Strausberg, Trustee (incorporated by
reference to Exhibit E of the First Amended and Restated Joint
Plan of Reorganization dated September 14, 1988 included in the
Company's Report on Form 8-K dated December 1, 1988).
*10.5. Allis-Chalmers Savings Plan (incorporated by reference to the
Company's Report on Form 10-K for the year ended December 31,
1988.
*10.6. Allis-Chalmers Consolidated Pension Plan (incorporated by
reference to the Company's Report on Form 10-K for the year ended
December 31, 1988).
67
<PAGE>
10.7. Agreement dated as of March 31, 1999, by and between
Allis-Chalmers Corporation and the Pension Benefit Guaranty
Corporation (incorporated by reference to the Company's Report on
Form 10-Q for the quarter ended June 30, 1999).
10.8. Registration Rights Agreement dated as of March 31, 1999, by and
between Allis-Chalmers Corporation and the Pension Benefit
Guaranty Corporation (incorporated by reference to the Company's
Report on Form 10-Q for the quarter ended June 30, 1999).
10.9. Letter Agreement between Allis-Chalmers Corporation and the
Pension Benefit Guarantee Corporation dated as of May 9, 2001
(incorporated by reference to the Company's Report on Form 8-K
filed on May 15, 2002).
10.10. Termination Agreement between Allis-Chalmers Corporation, the
Pension Benefit Guarantee Corporation and others, dated as of May
9, 2001(incorporated by reference to the Company's Report on Form
8-K filed on May 15, 2002).
*10.11. Employment Agreement dated February 7, 2001 by and between Oil
Quip Rentals, Inc. and Munawar H. Hidayatallah.
10.12. Option Agreement dated October 15, 2001 between Allis-Chalmers
Corporation and Leonard Toboroff (incorporated by reference to the
Company's Report on Form 10-Q for the quarter ended September 30,
2001).
10.13. Credit and Security Agreement dated February 1, 2002 by and
between Jens' Oil Field Service, Inc. and Wells Fargo Credit, Inc.
(incorporated by reference to the Company's Report on Form 8-K
filed February 21, 2002).
10.14. Amended and Restated Credit and Security Agreement dated February
1, 2002 by and between Strata Directional Technology, Inc. and
Wells Fargo Credit, Inc. (incorporated by reference to the
Company's Report on Form 8-K filed February 21, 2002)
10.15 Credit Agreement dated February 1, 2002 by and between
Allis-Chalmers Corporation and Wells Fargo Energy Capital, Inc.
(incorporated by reference to the Company's Report on Form 8-K
filed February 21, 2002)
10.16. Warrant Purchase Agreement dated February 1, 2002 by and between
Allis-Chalmers Corporation and Wells Fargo Energy Capital, Inc
(incorporated by reference to the Company's Report on Form 8-K
filed February 21, 2002)
68
<PAGE>
*10.17. Employment Agreement dated February 1, 2002, by Jens' Oil Field
Service, Inc. and Jens H. Mortensen, Jr. (incorporated by
reference to the Company's Report on Form 8-K filed February 21,
2002).
21.1. Subsidiaries of Allis-Chalmers Corporation.
* Compensation Plan or Agreement
69
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.9
<SEQUENCE>3
<FILENAME>allis_ex2-9.txt
<TEXT>
<PAGE>
Exhibit 2.9
SHAREHOLDER AGREEMENT
THIS SHAREHOLDER AGREEMENT ("Agreement") is made to be effective as of
February 1, 2002 by and among Jens Oilfield Services, Inc., a Texas corporation
(the "Corporation"), Jens H. Mortensen, Jr., ("Mortensen") and Allis-Chalmers
Corporation, a Delaware corporation ("ACC")(each of Mortensen and ACC being
referred to individually as a "Shareholder" and collectively as the
"Shareholders") with respect to all of the now or hereafter issued and
outstanding shares of common or preferred stock or other issued and outstanding
securities of the Corporation (including options, warrants and convertible
instruments), presently or hereafter owned by each of the Shareholders (the
"Stock"). Any reference to Stock owned by a Shareholder shall mean all of the
Stock held in that Shareholder's name and including, but not limited to, any
community property interest of the Shareholder's spouse in such stock.
WHEREAS, the Shareholders are presently the holders of record of all of
the issued and outstanding shares of the Stock of the Corporation; and
WHEREAS, the Shareholders believe that it would be in the best interest
of the Shareholders and the Corporation to place certain restrictions upon the
right of any Owner of Stock to transfer any Stock owned by such Owner; and
WHEREAS, the directors of the Corporation, having considered the
provisions of this Agreement, have resolved that in their opinions the
restrictions upon the transfer of the Stock of the Corporation and the
provisions for the redemption and/or purchase of the Stock, all as hereinafter
set forth, are in the best interest of the Corporation.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.01. DEFINITIONS OF CERTAIN AGREEMENT TERMS. For purposes of
this Agreement, the terms hereinafter set forth shall have the following
definitions unless otherwise specifically stated.
(a) BANKRUPTCY CODE. The term "Bankruptcy Code" shall mean the
Bankruptcy Reform Act of 1978, as amended.
(b) BUSINESS DAYS. The term "Business Days" shall mean days that
are not Saturdays, Sundays, or legal holidays in the United
States or the State of Texas.
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(c) CLOSING. The term "Closing" shall have the meaning set forth
in Section 4.01 of this Agreement, unless "Closing" is
otherwise defined in a specific section.
(d) CLOSING DATE. The term "Closing Date" shall have the meaning
set forth in Section 4.01 of this Agreement, unless "Closing
Date" is otherwise defined in a specific section.
(e) COMPETING EMPLOYMENT RELATIONSHIP. A "Competing Employment
Relationship" shall exist between a person and the Corporation
if such person, directly or indirectly, without the prior
written consent of the Corporation, renders services for any
person (including self-employment) or entity other than the
Corporation (i) that are similar to the services he or she
renders or that other employees customarily render to the
Corporation, or (ii) that are similar to the services that the
Corporation customarily renders to its clients. For the
purpose of this definition Tex-Mex Rental & Supply Company, a
Texas corporation ("Tex-Mex") owned by Mortensen and his
family shall not be deemed a Competing Employment
Relationship.
(f) CORPORATION. The term "Corporation" shall mean Jens Oilfield
Services, Inc., a Texas corporation.
(g) EMPLOYMENT RELATIONSHIP. An Employment Relationship shall
exist between a person and the Corporation if such person is
employed by the Corporation on a continuing basis pursuant to
which such person customarily renders substantially all of his
or her business time and efforts to the performance of duties
assigned to him or her by the Corporation, subject to
reasonable periods of absence for vacations. An Employment
Relationship also shall be deemed to exist between the
Corporation and a person regardless of the quantum of business
time devoted by such individual to the performance of duties
assigned to him or her by the Corporation, so long as the
Board of Directors of the Corporation believes such person is
adequately performing his or her duties as an employee of the
Corporation.
(h) EVENT OF TRANSFER. The term "Event of Transfer" shall mean the
completion of any Transfer, as that term is defined herein.
(i) EXCESS OFFERED STOCK. The term "Excess Offered Stock" shall
have the meaning set forth in Section 3.03 of this Agreement.
(j) FIRST REFUSAL NOTICE DATE. The term "First Refusal Notice
Date" shall have the meaning set forth in Section 3.01 of this
Agreement.
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<PAGE>
(k) NOTICE OF RIGHT OF FIRST REFUSAL. The term "Notice of Right of
First Refusal" shall have the meaning set forth in Section
3.01 of this Agreement.
(l) OFFER PRICE. The term "Offer Price" shall have the meaning set
forth in Section 3.01 of this Agreement.
(m) OFFERED STOCK. The term "Offered Stock" shall have the meaning
set forth in Section 3.01 of this Agreement.
(n) OFFEROR SHAREHOLDER. The term "Offeror Shareholder" shall have
the meaning set forth in Section 3.01 of this Agreement.
(o) OTHER SHAREHOLDERS. The term "Other Shareholders" shall, in
Article III, mean the Shareholders that are not the Offeror
Shareholder.
(p) OWNED. Stock referred to as being "owned" by any person shall
include all Stock owned (whether acquired before or after this
date) as the separate property of such person, all Stock owned
as the community property of such person and his or her spouse
that is registered in the name of such person, all Stock
acquired by gift, partition or other transfer of community
property Stock, and any shares into which any such Stock, or
any portion thereof, may be converted. A person who owns Stock
is sometimes referred to as an "Owner." While a spouse of a
Shareholder may own an interest in Stock that is deemed to be
"owned" by such Shareholder under this definition, the term
"Shareholder" as used in this Agreement does not apply to the
spouse of any such named party to this Agreement unless such
spouse also owns Stock.
(q) PERMITTED TRANSFERS. The term "Permitted Transfers" shall have
the meaning set forth in Section 3.07 of this Agreement.
(r) PURCHASE PRICE. The term "Purchase Price" shall have the
meaning set forth in Section 3.05 of this Agreement.
(s) SHAREHOLDER. The term "Shareholder" shall include all of the
individuals who own Stock in the Corporation who are parties
to this Agreement, and any persons who subsequently shall
become parties to this Agreement.
(t) SHAREHOLDER'S ESTATE. A "Shareholder's Estate" shall mean and
include a deceased Shareholder's executor, administrator or
similar personal representative (if one has qualified and is
then acting), and his or her surviving spouse, heirs,
beneficiaries, devisees and legatees to the extent, if any,
that their action is required in order to effect a full and
complete transfer of such deceased Shareholder's Stock
pursuant to the terms of this Agreement. The general agent of
the persons and entities comprising a Shareholder's Estate
shall be his or her duly appointed and qualified executor or
administrator, or his or her surviving spouse where no such
representative is appointed, and all notices and
communications hereunder shall be effected to and through such
general agent.
3
<PAGE>
(u) SHAREHOLDER'S STOCK. Stock referred to as being owned by a
Shareholder at any point in time, sometimes referred to as
"Shareholder's Stock", shall include any shares of Stock owned
by such Shareholder at such time.
(v) STOCK. The term "Stock" shall have the meaning set forth in
the introductory paragraph of this Agreement.
(w) THIRD PARTY OFFER. The term "Third Party Offer" shall have the
meaning set forth in Section 3.01 of this Agreement.
(x) TRANSFER. The term "Transfer" shall have the meaning set forth
in Section 2.01 of this Agreement.
(y) TRANSFEREE. A "Transferee" or "Transferees" shall include any
lineal descendant of a Shareholder, any custodian, guardian or
other representative for a lineal descendant of a Shareholder,
and the trustee of any trust created for the benefit of a
Shareholder's lineal descendant(s) and any other party who
succeeds to the ownership of any Stock originally owned by a
Shareholder whether by purchase, assignment, gift, bequest,
devise, levy, execution or any other means of transfer. At
such time as a Transferee shall become a Shareholder and
become a signatory to this Agreement, he or she shall cease to
be a "Transferee" hereunder. The Shareholder from whom a
Transferee acquired Stock, or the general agent of such
Shareholder's Estate if such Shareholder is deceased, shall
constitute the general agent for all of such Shareholder's
Transferees, and all notices and communications hereunder
shall be effected to and through such general agent.
ARTICLE II
RESTRICTIONS AGAINST TRANSFER
-----------------------------
Section 2.01. TRANSFER OF STOCK RESTRICTED. Each of the Shareholders
agrees that he, she or they will not in any way Transfer (as defined herein) any
of his or their Stock, or any right or interest therein, without the prior
written consent of the Corporation and the other Shareholders, except for
Permitted Transfers or other Transfer that meets the requirements of this
Agreement. "Transfer" shall, herein, mean the sale, exchange, assignment,
pledge, gift, hypothecation, transfer or other disposition (whether voluntary or
involuntary) by a Shareholder of his or her Stock, either directly or
indirectly, to any third party or any offer or attempt to accomplish any of the
foregoing. Transfer will specifically not include for purposes of this
Agreement, the pledge by ACC of its Stock in the Corporation to Wells Fargo
Credit, Inc. and Wells Fargo Energy Capital, Inc. (collectively, "WELLS FARGO")
pursuant to the financing of its acquisition of the Stock of the Corporation,
4
<PAGE>
which Stock has been pledged to Wells Fargo as of the date hereof or the
exercise of the Mortensen Option (as defined in Section 6.03 hereof). Any
purported Transfer in violation of any provision of this Agreement will be void
and will not operate to transfer any right, title, or interest in the Stock to
the purported Transferee, and will give the Corporation and the other
Shareholders an option to purchase such Stock in the manner and on the terms and
conditions provided in this Agreement. The right of the Corporation to exercise
its option to purchase the Stock is subject to the laws of the State of Texas
governing the rights of the corporation to purchase its own shares.
ARTICLE III
RIGHT OF FIRST REFUSAL
----------------------
Section 3.01. NOTICE OF RIGHT OF FIRST REFUSAL. In the event that a
Shareholder receives a bona fide offer (a "Third Party Offer") for the purchase
of all or a part of his or her Stock (or any rights or interests therein) that
such Shareholder desires to accept, such Shareholder (the "Offeror Shareholder")
agrees to give written notice of such Third Party Offer (the "Notice of Right of
First Refusal") to the Secretary of the Corporation and to the other
Shareholders (the "Other Shareholders"). The notice must set forth the name of
the proposed Transferee, the number of shares to be transferred (the "Offered
Stock"), the price per share (the "Offer Price"), all details of the payment
terms, and all other terms and conditions of the proposed Transfer. A Third
Party Offer may not contain provisions related to any property other than the
Stock of the Offeror Shareholder, and the Offer Price shall be expressed only in
terms of cash contained in the proposed transfer. The Offeror Shareholder shall
deliver such Notice of Right of First Refusal to the parties noted above
immediately upon receiving such Third Party Offer, but in any event not less
than sixty (60) days prior to the date of the proposed Transfer. An offer for
the purchase of Stock in which property other than cash is to be exchanged for
the Stock shall not be considered a valid Third Party Offer hereunder.
The last date that the Notice of Right of First Refusal is received by
the Other Shareholders shall constitute the "First Refusal Notice Date." The
Corporation shall be obligated to promptly determine the First Refusal Notice
Date following its receipt of a Notice of Right of First Refusal, and such date
shall be promptly communicated in writing by the Corporation to all Shareholders
within five (5) days of the determination of such date. For purposes of this
Section 3.01, a "Third Party Offer" to purchase part or all of a Shareholder's
Stock shall mean a written offer to purchase such Stock from a person or entity
unrelated to that Shareholder. Without limitation of the generality of the
foregoing, a Third Party Offer does not include an offer where the Shareholder
receiving such offer has an option or obligation to reacquire all or part of the
Stock covered by such offer.
Notwithstanding the foregoing provisions of this Section 3.01, if the
proposed Transfer is entirely donative with no consideration to be received for
the proposed Transfer, the Offer Price therefor shall be equal to $10.00.
5
<PAGE>
Section 3.02. PRIMARY RIGHT OF FIRST REFUSAL BY CORPORATION. The
Corporation shall have the sole and exclusive option to acquire all or any
portion of the shares of Stock offered for Transfer in accordance with the
provisions of the Notice of Right of First Refusal for a period of twenty (20)
days from the First Refusal Notice Date. The Corporation may exercise such
option by giving written notice of exercise to the Offeror Shareholder and to
all Other Shareholders prior to the termination of its exclusive option period.
Such notice of exercise shall refer to the Notice of Right of First Refusal and
shall set forth the number of shares of Stock to be acquired by the Corporation.
Section 3.03. SECONDARY RIGHT OF FIRST REFUSAL BY OTHER SHAREHOLDER(S).
The Other Shareholders shall have the exclusive option from the twenty-first day
to the fortieth day following the First Refusal Notice Date, to acquire the
Offered Stock not being acquired by the Corporation in accordance with the
procedure described in this Section 3.03. The Other Shareholders may, by
agreement, allocate among themselves the right to acquire such part of the
Offered Stock that will not be acquired by the Corporation.
In the absence of such an agreement between the Other Shareholders,
each Other Shareholder will be entitled to give written notice to the Offeror
Shareholder, to the Corporation, and to the Other Shareholders, within forty
(40) days from the First Refusal Notice Date, of such Shareholder's election to
acquire all or any part of such Offered Stock that is not being acquired by the
Corporation ("Excess Offered Stock"). If the Other Shareholders' offers to
purchase exceed the amount of Excess Offered Stock, the option to acquire such
Stock shall be allocated among the Other Shareholders desiring to purchase it as
follows:
(i) Each Other Shareholder shall be absolutely entitled to acquire any
number of shares of Excess Offered Stock that is equal to or less than
their proportionate part of such Excess Offered Stock, based upon the
number of shares owned by each Other Shareholder electing to acquire
any of the Excess Offered Stock;
(ii) Each Other Shareholder electing to acquire more than their
proportionate part of the Excess Offered Stock under the previous
allocation step may acquire a proportionate part of the remainder of
the Excess Offered Stock that is not previously allocated to Other
Shareholders, (i.e., because some acquiring Other Shareholders did not
elect to acquire their entire ratable portion under the preceding
allocation step), based upon the number of shares of Stock owned by
each such acquiring Other Shareholder who has elected to acquire more
than their proportionate part of the Excess Offered Stock;
(iii) The allocation procedure described in Paragraph (ii) shall be repeated
until all of the Excess Offered Stock has been allocated among all of
the Other Shareholders electing to acquire such Excess Offered Stock
and no such acquiring Other Shareholder has been allocated more than
his proportionate share of the remaining Excess Offered Stock under the
last such allocation step.
If a husband and wife are both Shareholders, the Stock owned by each
such spouse shall be limited to the Stock actually registered in a spouse's name
plus one-half of the Stock registered in the joint names of both spouses for the
limited purpose of determining each Other Shareholder's proportionate part of
the Offered Stock.
6
<PAGE>
If the Corporation and Other Shareholders have not given written notice
of election to acquire all of the Offered Stock within forty (40) days of the
First Refusal Notice Date, then between the forty-first and fiftieth day
following the First Refusal Notice Date the Corporation or any of the Other
Shareholders may give written notice to the Offeror Shareholder, to the
Corporation, and to the Other Shareholders of an election to purchase any or all
of the Offered Stock that the Corporation or Other Shareholders have not
previously agreed to purchase. Such additional shares of Stock shall be
allocated on a first-to-give notice basis determined as of the date written
notice is received by the Corporation.
Section 3.04. REQUIREMENT TO PURCHASE ALL OFFERED STOCK.
Notwithstanding the provisions of the preceding Section 3.03, the options to
purchase shares of Stock described in the Notice of Right of First Refusal may
be exercised and the Closing consummated only if the Corporation and the Other
Shareholders collectively agree to purchase all of the shares of the Offered
Stock.
Section 3.05. PURCHASE PRICE. The total purchase price (the "Purchase
Price") for all the Stock to be purchased pursuant to Article III will be the
total purchase price for the proposed Transfer, and upon the same terms and
conditions, as set forth in the Third Party Offer.
Section 3.06. COMPLIANCE REQUIRED. Any Transfer described in this
Article III of a Shareholder's Stock without complying with the giving of a
Notice of Right of First Refusal and the Right of First Refusal provisions of
this Article III shall be void, and the Corporation shall issue a Notice of
Right of First Refusal upon discovery of such Transfer, a copy of which shall be
sent to the person or entity making such Transfer, his or her Transferee, the
Corporation, and all Shareholders. The duty of the Corporation to see to the
issuance of such Notice of Right of First Refusal shall not be considered to be
elective, but shall be mandatory. Upon the giving of the Notice of Right of
First Refusal, the time periods for the exercise of the options specified in
Sections 3.02 and 3.03 shall commence running. If a Notice of Right of First
Refusal had already been given to the Corporation, but the Corporation is
required to issue a new Notice of Right of First Refusal under this Section, the
prior Notice of Right of First Refusal shall have no effect and the time periods
under the Notice of Right of First Refusal issued by the Corporation shall
apply.
Section 3.07. PERMITTED TRANSFERS. The following transfers of Stock
shall be Permitted Transfers that do not require the giving of a Notice of a
Right of First Refusal under this Article III. Notwithstanding any other
provisions of this Agreement, a transfer or disposition in the manner described
below shall be permitted: (i) a Transfer by will or intestate succession to such
Shareholder's executors, administrators, testamentary trustees, legatees or
beneficiaries, (ii) a Transfer in a public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, or pursuant
to Rule 144 promulgated thereunder, (iii) a Transfer to one or more Related
Parties of such Shareholders and (iv) a Transfer in connection with the pledge
of Stock by ACC to Wells Fargo as described in Section 2.01 hereof or any action
taken in connection with such pledge. As used herein, the term "Related
Parties," with respect to any person or entity means: (a) any other person or
entity that directly or indirectly, through one or more intermediaries, has
control of or is controlled by, or is under common control with, the person or
entity specified; and (b) with respect to any Shareholder which is an
individual, a lineal descendent, sibling, lineal descendent of a sibling, in
each case whether by blood or adoption, parent, spouse, spouse of a lineal
descendent or lineal descendent of a sibling (collectively, "Family Members"),
or a trust for the benefit of one or more Family Members.
Section 3.08. TRANSFER UNDER OTHER ARTICLES. Notwithstanding any other
provision of this Article III, a Transfer pursuant to the provisions of Article
VI shall be permitted without complying with the Right of First Refusal
provisions of this Article III.
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<PAGE>
ARTICLE IV
CLOSING AND PAYMENT OF PURCHASE PRICE
-------------------------------------
Section 4.01. CLOSING DATE AND LOCATION. If no other Closing is set by
the article hereof applicable to a purchase or sale hereunder, the closing of
the purchase and sale of the shares of Stock (the "Closing") provided for in
this Agreement will be held 10:00 a.m. at the offices of the Corporation on the
thirtieth (30th) day following the giving of the last notice of election
indicating a sale and purchase is to be made under the terms of this Agreement,
or such other date and place as the parties may agree (the "Closing Date").
Section 4.02. MANNER OF PAYMENT. At the Closing, the Shareholders
purchasing such shares of Stock will pay their respective portions of the cash
purchase price by a cashier's check drawn on a bank in Houston, Texas. The full
amount of the purchase price must be paid at the Closing, unless the terms of
sale permit otherwise, or the parties hereto agree to permit another method of
payment. At the Closing, the Offering Shareholder or other person or persons
holding such shares of Stock will duly execute and deliver the certificates
evidencing such shares of Stock to the purchaser, in proper form for transfer,
free and clear of all liens, adverse claims and encumbrances, except as
contained in this Agreement.
ARTICLE V
PREEMPTIVE RIGHT AND FUTURE STOCK ISSUANCE
------------------------------------------
Section 5.01. PREEMPTIVE RIGHT. In the event the Corporation proposes
to issue or sell any new capital stock ("NEW STOCK" for purposes of this Section
5.01), it will give the Shareholders written notice of its intention, describing
the type of New Stock and the price and terms upon which the Corporation
proposes to issue or sell the New Stock. The Shareholders will have ten (10)
days from the date of receipt of such notice to agree to purchase their
respective pro rata percentage of the New Stock for the price and upon the terms
specified in the notice by giving written notice to the Corporation stating the
quantity of New Stock agreed to be purchased pursuant to the preemptive right
granted under this Section 5.01. The preemptive right granted under this Section
5.01 will expire upon the sale of any Stock by the Shareholders under this
Agreement or in the event that the Shareholders do not exercise their preemptive
right upon any issuance or sale of New Stock by the Corporation.
Section 5.02. FUTURE STOCK ISSUANCE. The Corporation agrees that, as a
part of the consideration to be received for the issuance of any additional
Stock by the Corporation, the Corporation shall require the purchaser of such
Stock, and the spouse of such purchaser (if any), to assume all of the rights,
restrictions and obligations that are conferred and imposed upon the
Shareholders and their spouses pursuant to the terms of this Agreement, such
purchaser and his or her spouse to evidence their agreement to be so bound by
becoming signatory parties to this Agreement in their respective capacities as
Shareholder and spouse of a Shareholder. The Shareholders agree to enter into an
amendment to this Agreement providing that any such purchaser shall be deemed to
be a Shareholder of the Corporation, and that such purchaser's spouse shall be
deemed to be a spouse consenting to the terms of this Agreement. Prior to the
8
<PAGE>
issuance of any additional Stock of the Corporation, the Shareholders who are
parties to this Agreement shall be allowed to purchase any additional Stock to
be offered by the Corporation upon such terms as the Corporation may so offer in
order to maintain their pro rata ownership in the Corporation.
Section 5.03. RESTRICTED ACTIVITIES.
(a) ACC, Mortensen and JOS acknowledge that JOS has entered into
that certain Credit and Security Agreement with Wells Fargo,
whereby JOS has borrowed under certain term loans and
revolving credit loans from Wells Fargo ("Wells Fargo Debt").
ACC and Mortensen agree that, except for the initial Wells
Fargo Debt, JOS will not incur additional indebtedness in
excess of $500,000.00 without the written consent of
eighty-five percent (85%) of the outstanding Stock. It is also
acknowledged and agreed by ACC, Mortensen and JOS that the
proceeds from the Wells Fargo Debt will be loaned by JOS to
ACC as evidenced by that certain promissory note of even date
herewith from ACC to JOS.
(b) ACC, Mortensen and JOS acknowledge that JOS has loaned funds
to ACC pursuant to that promissory note (fixed rate) ("ACC
Note") of even date herewith. ACC, JOS and Mortensen agree
that except for the ACC Note, JOS will not make any additional
loans to ACC or any of its affiliates in excess of $500,000
without written consent of eighty-five percent (85%) of the
outstanding Stock.
ARTICLE VI
BRING-ALONG RIGHT, TAG-ALONG RIGHT AND MORTENSEN OPTION
-------------------------------------------------------
Section 6.01. BRING-ALONG RIGHT.
(a) PROPOSED TRANSFER. If one or more Shareholders ("Sellers"
for purposes of this Article VI) propose to Transfer (in a sale
consummated in a single transfer or series of related transfers to a
single purchaser or a group of purchaser as part of a single
transaction or group of related transactions) Stock representing
fifty-one percent (51%) or more of the then outstanding Stock (a
"Transfer" for purposes of this Article VI), and provided that the
Transfer is not an Permitted Transfer (as defined in Section 3.07
hereof), then such Sellers shall have the right ("Bring-Along Right"),
but not the obligation, to cause each of the Other Shareholders ("Other
Shareholders" for purposes of this Article VI) to tender to the
third-party offeror(s) ("Third Party") for purchase, at the same price
per share of Stock and on the same terms of payment and conditions as
apply to such Sellers, the Stock held by such Other Shareholders equal
to the total number of shares of Stock held by such Other Shareholders
multiplied by a fraction, the numerator of which is the number of
shares of Stock the Sellers propose to themselves Transfer to the Third
Party, and the denominator of which is the aggregate number of shares
of Stock held by Sellers. A determination by the Sellers to exercise
the Bring-Along Right shall be made based upon a written agreement to
do so executed by Sellers holding at least fifty-one percent (51%) of
the then outstanding Stock of the Corporation. In the event that
Shareholders owning in the aggregate fifty- one percent (51%) or more
of the outstanding Stock of the Corporation propose to Transfer such
Stock, and exercise the Bring-Along Right under this Section, then the
other provisions of this Agreement shall be suspended and inapplicable
with regard to such Transfer except for the option by Mortensen as set
forth in Section 6.03 hereof.
9
<PAGE>
(b) BRING-ALONG NOTICE. If the Sellers elect to exercise their
Bring-Along Right under this Article, then such Sellers shall notify
the Corporation and the other Shareholders in writing ("Bring-Along
Notice"). Each Bring-Along Notice shall set forth (i) the name of the
Third Party to which the Sellers propose to Transfer Stock and the
number of shares proposed to be transferred, (ii) the address of the
Third Party, (iii) the proposed amount and form of consideration, and
terms and conditions of payment offered by the Third Party ("Third
Party Terms"), and (iv) that the Third Party has been informed of the
rights provided for in this Article and has agreed to purchase Stock in
accordance with the terms hereof. The Bring-Along Notice shall be given
at least thirty (30) days prior to settlement of the proposed Transfer.
(c) CONSUMMATION. Except as otherwise provided in this
Agreement, upon the giving of a Bring-Along Notice, each Other
Shareholder shall be entitled and obligated to sell the Stock set forth
therein to the Third Party on the Third Party Terms; neither the
Sellers nor any Other Shareholder shall be obligated to consummate the
sale of any Stock if the Third Party does not purchase all Stock which
the Shareholders are entitled to sell pursuant thereto. Upon the giving
of a Bring-Along Notice, Mortensen shall (i) either sell his shares as
set forth in this Section 6.01, or (ii) exercise the option to convert
his shares as set forth in Section 6.03 hereof, except that the one
year time restriction shall not apply to his option under Section 6.03
in the event of a Bring- Along Notice.
(d) SETTLEMENT. At the settlement of any Transfer pursuant to
this Article, the Third Party shall remit to each Shareholder the
consideration for the total sales price of the Stock of such
Shareholders sold pursuant hereto, upon delivery by such Shareholder of
certificate(s) for such Stock duly endorsed in blank for transfer or
accompanied by stock power(s) duly executed in blank , and the
compliance by such Shareholder with all other conditions to settlement
generally applicable to the Sellers and all Other Shareholders selling
Stock in such transaction (including the provision by the Other
Shareholders to the Third Party of representations and warranties
covering the same subject matter as those provided by the Sellers).
Section 6.02 TAG-ALONG RIGHT.
(a) PROPOSED TRANSFER. If one or more Shareholders ("Sellers")
propose to Transfer Stock representing fifty-one percent (51%) or more
of the then outstanding Stock, and provided that the Transfer is not a
Permitted Transfer (as defined in Section 3.07 hereof), then each of
the Shareholders other than the Sellers ("Tag-Along Shareholders")
shall have the right ("Tag-Along Right") to require the proposed
purchaser(s) to purchase from such Tag-Along Shareholder up to the
number of whole shares of Stock not to exceed the number derived by
multiplying the total number of shares of Stock to be purchased by the
proposed purchaser(s) in such transaction(s) by a fraction, the
numerator of which is the total number of shares of Stock owned by such
10
<PAGE>
Tag- Along Shareholder, and the denominator of which is the total
number of shares of Stock owned by the Sellers and all Tag-Along
Shareholders. Any Stock purchased from Tag-Along Shareholders pursuant
to this Section shall be paid for at the same price per share and upon
the same terms of payment and conditions as such proposed Transfer by
the Sellers ("Transfer Terms").
(b) TAG-ALONG NOTICE. The Sellers shall promptly notify the
Tag-Along Shareholders in the event they propose to make a Transfer
giving rise to Tag-Along Rights, and shall furnish the Tag-Along
Shareholders with the Transfer Terms and a copy of any written offer or
agreement pertaining thereto. The Tag-Along Right may be exercised by
any Tag-Along Shareholder by delivery of a written notice to each
Seller proposing to sell Stock ("Tag-Along Notice") within fifteen (15)
days following such Tag-Along Shareholder's receipt of such notice from
Sellers. The Tag-Along Notice shall state the number of shares of Stock
that such Tag-Along Shareholder proposes to include in such Transfer to
the proposed purchaser (not to exceed the number determined in
accordance with Article 6.02(a) above). In the event that the proposed
purchaser does not purchase the specified number of shares of Stock
from the Tag-Along Shareholders on the Transfer Terms, and subject to
the same terms and conditions as are applicable to the Sellers in such
transaction, then the Sellers shall not be permitted to sell any shares
of Stock to the proposed purchaser in the proposed Transfer.
(c) SETTLEMENT. At the settlement of any Transfer pursuant to
this Article 6.02, the proposed purchaser shall remit to each selling
Shareholder the consideration for the total sales price of the shares
of Stock of such Shareholder sold pursuant hereto, upon delivery by
such Shareholder of certificate(s) for such shares of Stock duly
endorsed in blank for transfer or accompanied by stock power(s) duly
executed in blank ,and the compliance by such Shareholder with all
other conditions to settlement generally applicable to the Sellers and
all other Tag-Along Shareholders selling shares of Stock in such
transaction (including the provision by Tag-Along Shareholders to the
proposed purchaser of representations and warranties covering the same
subject matter as those provided by Sellers).
Section 6.03 MORTENSEN OPTION. At the end of one (1) year from the date
of this Agreement, in the event that no sale of Stock has occurred by Mortensen
pursuant to this Agreement, Mortensen shall have the option ("OPTION"), at any
time after such time, to convert all his shares of Stock of the Corporation into
the common stock, $.15 par value ("ACC STOCK") of ACC. The Option to convert
Mortensen's Stock into ACC Stock shall be determined by multiplying (i) 4.6
times the trailing twelve months EBITDA (as defined below) of the Corporation as
determined in accordance with generally accepted accounting principles (ii) less
any net inter-company loans to the Corporation and third party investments in
the Corporation (iii) times nineteen percent (19%). The trailing twelve months
EBITDA will be determined by the Corporation's certified public accountants.
Mortensen shall give the Corporation and ACC written notice of his intention to
exercise the Option. Upon notice of exercise of the Option hereunder, ACC shall
calculate the conversion multiple within thirty (30) days of receipt of such
notice and the number shares of ACC Stock to be received by Mortensen shall be
based on the average closing bid price of ACC Stock for the preceding thirty
(30) days in which the ACC Stock was traded from the date of notice given by
Mortensen. ACC will immediately notify Mortensen of such calculation, and if
11
<PAGE>
agreed to by Mortensen, the parties will proceed with the conversion at a
mutually agreeable date and place, which shall in no event be later than sixty
(60) days following the date Mortensen gave notice hereunder. In addition, in
the event that Mortensen is given a Bring Along Notice pursuant to Section 6.01
hereunder prior to exercise of the Option hereunder, the Option hereunder must
be exercised by Mortensen within thirty (30) days of receipt of the Bring Along
Notice, otherwise the Bring Along Notice will take precedence and the Option
hereunder will terminate.
"EBITDA," for purposes of this Agreement, is defined as the
Corporation's earnings before interest, taxes, depreciation and amortization and
any payments made to ACC as parent company overhead.
ARTICLE VII
REGISTRATION RIGHTS
-------------------
Section 7.01. DEMAND REGISTRATION.
(a) REQUEST. If ACC receives at any time after six (6) months
from the date of this Agreement and within three (3) years thereafter,
a written request from Mortensen that ACC file a registration statement
under the Securities Act of 1933, as amended ("Securities Act")
covering the registration of Mortensen's ACC Stock pursuant to this
Section 7.01, then ACC will effect as soon as reasonable, within ten
(10) business days after receipt of such written request, the
registration under the Securities Act of all ACC Stock which Mortensen
requests to be registered and included in such registration.
(b) UNDERWRITING. If Mortensen intends to distribute the ACC
Stock covered by his request by means of an underwriting, then
Mortensen will so advise ACC as a part of his request made pursuant to
this Section 7.01. Mortensen will enter into an underwriting agreement
in customary form with the managing underwriter or underwriters
selected for such underwriting by ACC. Notwithstanding any other
provision of this Section 7.01, if the underwriter(s) advise(s) ACC in
writing that marketing factors require a limitation of the number of
securities to be underwritten then ACC will so advise Mortensen, and
the number of shares of ACC Stock that may be included in the
underwriting will be reduced as required by the underwriter(s).
(c) MAXIMUM NUMBER OF DEMAND REGISTRATIONS. ACC is obligated
to effect only one (1) such registration pursuant to this Section 7.01.
(d) DEFERRAL. Notwithstanding the foregoing, if ACC furnishes
Mortensen a certificate signed by the Chief Executive Officer of ACC
stating that in the good faith judgment of the Board of Directors of
ACC , it would be seriously detrimental to ACC and its stockholders for
such registration statement to be filed and it is therefore essential
to defer the filing of such registration statement, then ACC will have
the right to defer such filing for a period of not more than one
hundred twenty (120) days after receipt of the request of Mortensen;
provided, however, that ACC may not utilize this right more than once
in any twelve (12) month period.
12
<PAGE>
(e) EXPENSES. All expenses incurred in connection with the
registration pursuant to this Section 7.01, including without
limitation all registration and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for ACC and
underwriters (but excluding underwriters' discounts and commissions),
will be borne by Mortensen.
Section 7.02. PIGGYBACK REGISTRATION. If following the exercise of the
Option by Mortensen, ACC at any time proposes to file on its behalf or on behalf
of any of its security holders a registration statement under the Securities Act
of 1933, as amended ( "Act") on any form (other than a registration statement on
Form S-3 or relating to any employee benefit plan or corporation reorganization)
for ACC Stock it will give written notice setting forth the terms of the
proposed offering at least thirty (30) days before the initial filing with the
Securities and Exchange Commission ("SEC") of such registration statement, and
offer to include in such filing such shares of ACC Stock as Mortensen may
request. Mortensen will advise the ACC in writing within ten (10) days after the
date of receipt of such notice from ACC, setting forth the amount of such shares
of ACC Stock for which registration is requested. ACC will thereupon include in
such filing the number of shares of ACC Stock for which registration is so
requested and will use its best efforts to effect registration under the Act of
such shares of ACC Stock. Notwithstanding the foregoing, if the managing
underwriter(s) of such offering deliver a written statement to ACC that the
success of the offering would be materially and adversely affected by inclusion
of the ACC Stock owned by Mortensen or other ACC stockholders requested to be
included, then the amount of securities to be offered for the accounts of
Mortensen and the other ACC stockholders will be reduced pro rata (according to
the securities requested to be included in registration) to the extent necessary
to reduce the total amount of securities to be included in such offering to the
amount recommended by such managing underwriter(s).
7.03. FORM S-3 REGISTRATIONS. In addition to the registration rights
provided in Section 7.01 above, if at any time ACC is eligible to use Form S-3
(or any successor form) for registration of secondary sales of ACC Stock,
Mortensen may request in writing that the ACC register the shares of ACC Stock
owned by him on such form. Thereupon, the ACC will, as soon as practicable, use
its best efforts to effect the registration on Form S-3 of all securities that
ACC has so be requested to register by Mortensen for sale. ACC will use its best
efforts to qualify and maintain its qualification for eligibility to use Form
S-3 for such purpose.
ARTICLE VIII
NOTICES
-------
Section 8.01. NOTICE PROCEDURE. All notices required to be given
hereunder will be deemed to be duly given on the date of delivery if delivered
in person or three (3) Business Days after the date of mailing if mailed by
registered or certified mail, postage prepaid, return receipt requested, to the
Secretary of the Corporation and to the Shareholders at the addresses indicated
on the signature page of this Agreement. The address of any Shareholder may be
changed only by giving written notice of such change of address to all of the
other parties hereto in the manner provided herein for giving notices.
13
<PAGE>
ARTICLE IX
STOCK LEGEND
------------
Section 9.01. LEGEND REQUIRED BY THIS AGREEMENT. The Corporation and
each Shareholder hereby agrees that all certificates representing shares of
Stock of the Corporation that at any time are subject to the provisions of this
Agreement will have endorsed upon them, in addition to any legend required by
the Corporation's bylaws, in boldface type a legend in substantially the
following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
SHAREHOLDERS' AGREEMENT ("AGREEMENT"), DATED FEBRUARY 1, 2002, AMONG THE
SHAREHOLDERS, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION, AND SAID SHARES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
HYPOTHECATED, OR OTHERWISE DISPOSED OF EXCEPT IN STRICT ACCORDANCE WITH THE
TERMS OF THE AGREEMENT. A COPY OF THE AGREEMENT WILL BE FURNISHED WITHOUT CHARGE
TO THE HOLDER OF THIS CERTIFICATE UPON RECEIPT BY THE CORPORATION AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE OF A WRITTEN REQUEST FROM THE
HOLDER REQUESTING SUCH A COPY.
Section 9.02. EXECUTION OF AGREEMENT BY TRANSFEREE. Under no
circumstances will any sale or other Transfer of any shares of Stock subject to
this Agreement be valid until the proposed transferee has executed and become a
party to an Agreement substantially similar to this Agreement and thereby
becomes subject to all of its provisions, unless this requirement is waived by
written consent of the parties; notwithstanding any other provisions of this
Agreement, no such sale or other Transfer of any kind will in any event result
in the nonapplicability of the provisions of this Agreement at any time to any
of the shares of Stock subject to this Agreement.
ARTICLE X
TERM
----
Section 10.01. TERMINATION OF AGREEMENT. This Agreement will terminate
upon the earlier of: (a) the agreement of all parties hereto to terminate this
Agreement, (b) the purchase by the Corporation of all the shares of Stock of all
but one Shareholder, (c) the purchase by any one Shareholder of all of the
issued and outstanding shares of Stock of the Corporation, (d) upon the exercise
by Mortensen of the Option described in Section 6.03 and subsequent conversion
of his Stock for shares of ACC Stock, or (e) upon the dissolution of the
Corporation, or upon the filing of a voluntary or involuntary petition by or
against the Corporation under Chapter 7 or Chapter 11 of the Bankruptcy Code
upon the appointment of a receiver for the Corporation.
Section 10.02. TERMINATION AS TO SPECIFIC SHAREHOLDER. This Agreement
shall terminate as to any specific Shareholder upon the date such Shareholder
ceases to own any Stock. Such Shareholder also shall cease to be a party to this
Agreement as of the date that he ceases to own, directly or beneficially, any
Stock.
14
<PAGE>
ARTICLE XI
MISCELLANEOUS
-------------
Section 11.01. FURTHER ASSURANCES. Each party to this Agreement agrees
to perform all further acts and to execute and deliver all further documents
which may be reasonably necessary to carry out the provisions of this Agreement.
Section 11.02. SEVERABILITY. In the event that any of the provisions,
or portions thereof, of this Agreement are held to be unenforceable or invalid
by an court of competent jurisdiction, the validity and enforceability of the
remaining provisions, or portions thereof, will not be affected, and in lieu of
such unenforceable provision there shall be added automatically as part of this
Agreement a provision as similar in terms as may be valid and enforceable.
Section 11.03. CONSTRUCTION. Whenever used in this Agreement, the
singular number will include the plural, and the plural number will include the
singular; pronouns in the masculine, feminine, or neuter gender will include
each other gender.
Section 11.04. GOVERNING LAW. This Agreement has been executed in and
will be governed by the laws of the State of Texas.
Section 11.05. SUCCESSORS. Subject to the restrictions against Transfer
or assignment as contained in this Agreement, the provisions of this Agreement
will benefit and will be binding on the assigns, successors in interest,
personal representatives, estates, heirs and legatees of each of the parties
hereto. Each of the Shareholders agrees that he or she will not create or permit
to exist any lien, claim or encumbrance at any time on any of his or her shares
of stock subject to this Agreement, other than the encumbrance created by this
Agreement.
Section 11.06. AMENDMENT. This Agreement may only be amended by the
written consent of all of the parties to this Agreement at the time of such
amendment.
Section 11.07. HEADINGS. The section headings contained in this
Agreement are for convenience only and shall in no manner be construed as part
of this Agreement.
Section 11.08. TREASURY STOCK. If any Stock that is held as treasury
stock of the Corporation is transferred pursuant to a foreclosure, the
Transferee of such transaction shall hold the Stock subject to all of the
provisions of this Agreement as if such Transferee were a "Shareholder" as that
term is used herein.
Section 11.09. ENTIRE AGREEMENT: COUNTERPARTS. This Agreement contains
the entire understanding between the parties concerning the subject matter
contained in this Agreement. There are no representations, agreements,
arrangements or understandings, oral or written, between or among the parties
hereto, relating to the subject matter of this Agreement, which are not fully
expressed herein. This Agreement may be signed in one or more counterparts, all
of which shall be considered one and the same agreement.
15
<PAGE>
Section 11.10. INSURANCE. The Corporation may desire to acquire
insurance on the lives of any one or more Shareholders in order to provide funds
for its commitment to purchase Stock in the event of a Shareholder's death. Each
Shareholder agrees to cooperate with the Corporation in this endeavor and to
assist it to the extent required in order to allow it to obtain such insurance.
Section 11.11. WAIVER. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach by an party.
Section 11.12. SPECIFIC PERFORMANCE. The right to own and vote Stock
and to restrict the transfer of the Stock is hereby declared by the parties
hereto to be a unique right, the loss of which is not readily susceptible to
monetary quantification. Consequently, the parties hereto agree that an action
for specific performance of the purchase and sale obligations created by this
Agreement or an action brought to enjoin the unauthorized transfer of Stock are
remedies for the breach of the provisions of this Agreement. If the parties to
this Agreement are forced to institute legal proceedings to enforce their rights
in accordance with the provisions of this Agreement, they shall be entitled to
recover their reasonable attorneys' fees and court costs incurred in enforcing
such rights.
Section 11.13. BUSINESS DAYS. Whenever the terms of this Agreement call
for the performance of a specific act on a specified date, which date falls on a
Saturday, Sunday or legal holiday, the date for the performance of such act
shall be postponed to the next succeeding regular Business Day following such
Saturday, Sunday or legal holiday.
Section 11.14. COMMUNITY PROPERTY INTERESTS. The parties hereto
acknowledge that a spouse of a Shareholder may own a community property interest
in the Stock of a spouse, but the parties hereto hereby agree that the term
"Shareholder" shall apply only to the named individual parties to this
Agreement, and shall not apply to the spouse of any such party.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
to be effective as of the date first written above.
JENS OILFIELD SERVICES, INC.
By: /S/ MUNAWAR H. HIDAYATALLAH
--------------------------------------
Munawar H. Hidayatallah,
Chairman and Chief Executive Officer
8150 Lawndale
Houston, Texas 77012
16
<PAGE>
SHAREHOLDER: ALLIS-CHALMERS CORPORATION
By: /S/ MUNAWAR H. HIDAYATALLAH
----------------------------------------
Munawar H. Hidayatallah,
Chief Executive Officer
8150 Lawndale
Houston, Texas 77012
Owner of ______ Shares
SHAREHOLDER: By: /S/ JENS H. MORTENSEN, JR.
----------------------------------------
Jens H. Mortensen, Jr.
12301 Rooth Road
McAllen, Texas 78504
Owner of ______ Shares
By: /S/ TAMMI MORTENSEN
----------------------------------------
[Spouse of Jens H. Mortensen, Jr.]
--------------------------------------
[Name Printed]
17
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.10
<SEQUENCE>4
<FILENAME>allis_ex2-10.txt
<TEXT>
<PAGE>
EXHIBIT 2.10
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made effective as of
February 1, 2002, by Allis-Chalmers Corporation, a Delaware corporation
("Buyer"), Energy Spectrum Partners, LP, a Delaware limited partnership
("Seller") and Strata Directional Technology, Inc., a Texas corporation (the
"Company").
RECITALS
The Company has 16,765,716 issued and outstanding shares of common
stock, of which Seller owns 14,541,413 of such shares of common stock (the
shares owned by Seller being referred to as the "Common Shares"). Seller also
owns 20,796,875 issued and outstanding shares of 9% Cumulative Convertible
Preferred Stock, Series C of the Company (the "Preferred Shares", and
collectively with the Common Shares, the "Shares").
Seller desires to sell, and Buyer desires to purchase, all of the issued
and outstanding Common Shares of the Company owned by Seller, and all of the
issued and outstanding Preferred Shares that are outstanding as of the Closing,
for the consideration and on the terms set forth in this Agreement.
AGREEMENT
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"BREACH" -- a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement will be deemed to have occurred if
there is or has been (a) any inaccuracy in or breach of, or any failure
to perform or comply with, such representation, warranty, covenant,
obligation, or other provision, or (b) any claim (by any Person) or
other occurrence or circumstance that is or was inconsistent with such
representation, warranty, covenant, obligation, or other provision, and
the term "Breach" means any such inaccuracy, breach, failure, claim,
occurrence, or circumstance.
"BUYER" -- as defined in the first paragraph of this Agreement.
"BUYER BALANCE SHEET" -- as defined in Section 4.4.
"BUYER SHARES" -- as defined in Section 2.2(a).
"CLOSING" -- as defined in Section 2.4.
"CLOSING DATE" -- the date and time as of which the Closing actually
takes place
<PAGE>
which shall be the date of this Agreement, as provided in Section 2.4.
"COMMON SHARES" -- as defined in the Recitals to this Agreement.
"COMPANY" -- as defined in the first paragraph of this Agreement.
"CONSENT" -- any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).
"CONTRACT"--any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"DAMAGES" -- as defined in Section 5.2.
"ENCUMBRANCE" -- any charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest,
right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of
any other attribute of ownership, but excluding restrictions arising
under state and federal securities laws.
"GAAP" -- generally accepted United States accounting principles,
applied on a consistent basis.
"GOVERNMENTAL AUTHORIZATION" -- any approval, consent, license, permit,
waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant
to any Legal Requirement.
"GOVERNMENTAL BODY" -- any nation, state, county, city, town, village,
district, or other jurisdiction of any nature; federal, state, local,
municipal, foreign, or other government; governmental or
quasi-governmental authority of any nature (including any governmental
agency, branch, department, official, or entity and any court or other
tribunal); multi-national organization or body; or body exercising, or
entitled to exercise, any administrative, executive, judicial,
legislative, police, regulatory, or taxing authority or power of any
nature.
"LEGAL REQUIREMENT" -- any federal, state, local, municipal, foreign,
international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation,
statute, or treaty.
"ORDER" -- any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"ORGANIZATIONAL DOCUMENTS" -- the articles or certificate of
incorporation and the bylaws of a corporation and any amendments
thereto.
"PERSON" -- any individual, corporation (including any non-profit
corporation),
Page 2
<PAGE>
general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other
entity or Governmental Body.
"PREFERRED SHARES" -- as defined in the Recitals of this Agreement.
"PROCEEDING" -- any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by
or before, or otherwise involving, any Governmental Body or arbitrator.
"PURCHASE PRICE" -- as defined in Section 2.2(a).
"REGISTRATION RIGHTS AGREEMENT" -- as defined in Section 2.3.
"SECURITIES ACT" -- the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"SELLER" -- as defined in the first paragraph of this Agreement.
"SHARES" -- as defined in the Recitals of this Agreement.
2. SALE AND TRANSFER OF SHARES; OTHER TRANSACTIONS; CLOSING.
2.1. SHARES. Subject to the terms and conditions of this Agreement, at
the Closing, Seller will sell and transfer the Shares to Buyer, and Buyer will
purchase the Shares from Seller, free and clear of all Encumbrances.
2.2. PURCHASE PRICE.
(a) The purchase price (the "Purchase Price") for all of the Shares will
be 6,559,863 shares of Buyer's common stock, $.15 par value per share ("Buyer
Common Stock") and 3,500,000 shares of Series A 10% Cumulative Convertible
Preferred Stock, $.01 par value, of Buyer, in the form of designation attached
as Exhibit B hereto ("Buyer Preferred Stock", collectively with the Buyer Common
Stock, the "Buyer Shares").
(b) In addition, at the Closing, Buyer shall issue to Seller a warrant
in the form attached hereto as Exhibit C permitting Seller to purchase 437,500
shares of Buyer Common Stock at an exercise price of $ .15 per share (the
"Warrant"). In the event all of the outstanding shares of the Buyer Preferred
Stock, except one, shall not have been redeemed by the Buyer on or before the
first anniversary of the Closing, Buyer shall issue to Seller a warrant
substantially in the form attached as Exhibit C hereto to purchase an additional
875,000 shares of Buyer Common Stock at an exercise price of $.15 per share.
2.3. REGISTRATION RIGHTS. At the Closing, Seller and Buyer will enter
into a Registration Rights Agreement in the form attached hereto as Exhibit D
(the "Registration Rights Agreement"), pursuant to which Seller will be granted
demand and piggyback registration rights as described therein.
Page 3
<PAGE>
2.4. CLOSING. Consummation of the purchase by Buyer of the Shares as
contemplated herein (the "Closing") is taking place on the date of this
Agreement (the "Closing Date").
2.5. CLOSING OBLIGATIONS. At the Closing:
(a) Seller is delivering or causing to be delivered to Buyer:
(i) certificates representing the Shares, duly indorsed (or
accompanied by duly executed stock powers), for transfer to Buyer;
(ii) the Registration Rights Agreement; and
(iii) a legal opinion of counsel to Seller in form acceptable to
Buyer.
(b) Buyer is delivering or will cause to be delivered to Seller:
(i) certificates representing the Buyer Shares issuable to Seller
in the name of Seller;
(ii) the Warrant;
(iii) the Registration Rights Agreement; and
(iv) a legal opinion of counsel to Buyer in form acceptable to
Seller.
3. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller hereby represents and warrants to Buyer as of the Closing Date as
follows:
3.1. ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
incorporated, validly existing, and in good standing under the laws of the State
of Texas, with full corporate power and authority to conduct its business as it
is now being conducted and to own or use the properties and assets that it
purports to own or use. Seller and the Company have delivered or made available
to Buyer copies of the Organizational Documents of the Company as currently in
effect.
3.2. AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation
of Seller, enforceable against Seller in accordance with its terms, except as
may be limited by applicable bankruptcy laws or general principles of equity.
Seller has all corporate right, power, authority, and capacity to execute and
deliver this Agreement and to perform its obligations under this Agreement.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated herein will,
directly or indirectly (with or without notice or lapse of time):
Page 4
<PAGE>
(i) contravene, conflict with, or result in a violation of (1)
any provision of the Organizational Documents of the Company or Seller, or (2)
any resolution adopted by the partners of the Seller or the Board of Directors
or shareholders of the Company;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
transactions contemplated herein or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which the Company or Seller, or any
of the assets owned or used by the Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
business of, or any of the assets owned or used by, the Company;
(iv) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Contract to which the Company is a party;
or
(v) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by the Company.
(c) Neither Seller or the Company is or will be required to give any
notice to or obtain any Consent from any person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
transactions contemplated herein, except as have been obtained.
(d) Seller is acquiring the Buyer Shares for its own account and not
with a view to their distribution within the meaning of Section 2(11) of the
Securities Act.
3.3. CAPITALIZATION. The authorized equity securities of the Company
consist of 70,000,000 Shares of common stock, $0.01 par value per share, of
which 16,765,716 Shares are issued and outstanding and 30,000,000 Shares of
preferred stock, $.10 par value per share, of which only the Preferred Shares
are issued and outstanding. All of the outstanding equity securities of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable. All options to acquire any shares of common stock or preferred
stock of the Company have been terminated by the holders thereof and the
Company. Seller is the record and beneficial owner and holder of the Shares,
free and clear of all Encumbrances. None of the Shares were issued in violation
of the Securities Act or any other Legal Requirement. Schedule 3.3 lists all of
the holders of the shares of the Company's Common Stock, together with the
number of shares owned by each holder. Except for the Company's offer to redeem
shares of Common Stock at $.10 per share, there are no Contracts relating to the
issuance, sale, conversion or transfer of any equity securities or other
securities of the Company. Except for shares of Production Well Testers, Inc.,
the Company does not own, or have any Contract to acquire, any equity,
securities, or other securities of any Person or any direct or indirect equity
or ownership interest in any other business.
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3.4. BROKERS OR FINDERS. Neither the Company nor Seller nor any of their
respective officers and agents have incurred any obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
3.5. BOOKS AND RECORDS. The books of account, minute books, stock record
books, and other records of the Company, all of which have been made available
to Buyer, are complete and correct and have been maintained in accordance with
sound business practices. The minute books of the Company contain accurate and
complete records of all meetings held of, and corporate action taken by, the
shareholders, the Boards of Directors, and committees of the Boards of Directors
of the Company, and no meeting of any such shareholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books. At the Closing, all of those books and records
will be in the possession of the Company.
3.6. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. Seller has
delivered to Buyer: (a) an audited balance sheet of the Company as at December
31, 2000 (including the notes thereto, the "Company Balance Sheet"), and the
related statement of income for the fiscal year then ended, and (b) an unaudited
balance sheet of the Company as at November 30, 2001, (the "Interim Company
Balance Sheet") and the related unaudited statement of income for the eleven
(11) months then ended. Such financial statements and notes fairly present the
financial condition and the results of operations of the Company as at the
respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP, subject, in the case of interim
financial statements, to normal recurring year-end adjustments (the effect of
which will not, individually or in the aggregate, be materially adverse) and the
absence of notes; the financial statements referred to in this Section 3.6
reflect the consistent application of such accounting principles throughout the
periods involved. As of the date of the Interim Company Balance Sheet and except
as set forth on the Interim Company Balance Sheet, the Company did not have any
liabilities required by GAAP to be disclosed on the Interim Company Balance
Sheet.
3.7. ACCREDITED INVESTOR. Seller is an "accredited investor" within the
meaning of Regulation D of the Securities Act of 1933, as amended.
4. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Seller as of the Closing Date as
follows:
4.1. ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware, with full corporate power and authority to conduct its business as it
is now being conducted and, to own or use the properties and assets that it
purports to own or use.
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4.2. AUTHORITY; NO CONFLICT.
(a) This Agreement constitutes the legal, valid, and binding obligation
of Buyer, enforceable against Buyer in accordance with its terms, except as may
be limited by applicable bankruptcy laws or general principles of equity. Buyer
has the absolute and unrestricted right, power, and authority to execute and
deliver this Agreement and to perform its obligations under this Agreement.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the transactions contemplated herein will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (1)
any provision of the Organizational Documents of Buyer, or (2) any resolution
adopted by the board of directors or the shareholders of Buyer;
(ii) contravene, conflict with, or result in a violation of, or
give any Governmental Body or other Person the right to challenge any of the
transactions contemplated herein or to exercise any remedy or obtain any relief
under, any Legal Requirement or any Order to which Buyer, or any of the assets
owned or used by Buyer, may be subject;
(iii) contravene, conflict with, or result in a violation of any
of the terms or requirements of, or give any Governmental Body the right to
revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental
Authorization that is held by Buyer or that otherwise relates to the business
of, or any of the assets owned or used by, Buyer;
(iv) contravene, conflict with, or result in a violation or
breach of any provision of, or give any Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Contract to which Buyer is a party; or
(v) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by Buyer.
(c) Buyer was not required to give any notice to or obtain any Consent
from in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the transactions contemplated herein.
(d) Buyer is acquiring the Shares for its own account and not with a
view to their distribution within the meaning of Section 2(11) of the Securities
Act. Buyer is an "accredited investor" as such term is defined in Rule 501(a)
under the Securities Act.
4.3. CAPITALIZATION. The authorized equity securities of Buyer consist
of 100,000,000 shares of common stock, $0.15 par value per share, of which
11,588,128 shares are issued and outstanding (prior to issuances contemplated by
Schedule 4.3) and 10,000,000 shares of preferred stock, of which 3,500,000
shares of Buyer Preferred Stock will be issued and outstanding following the
consummation of this Agreement. All of the Buyer Shares have been duly
authorized and, when
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issued in connection with the transactions contemplated herein, will be validly
issued and fully paid and nonassessable. Set forth on Schedule 4.3, is a list of
all Contracts relating to the issuance, sale, conversion or transfer of any
equity securities or other securities of the Buyer, including option and warrant
agreements entered into by Buyer.
4.4. FINANCIAL STATEMENTS; SEC DOCUMENTS. Buyer has delivered to Seller:
(a) an audited balance sheet of Buyer as at December 31, 2000 (including the
notes thereto, the "Buyer Balance Sheet"), and the related statements of income
and retained earnings and cash flows for the fiscal year then ended, together
with the report thereon of PricewaterhouseCoopers LLP, independent certified
public accountants, and (b) an unaudited balance sheet of Buyer as at September
30, 2001, and the related unaudited consolidated statements of income, and
retained earnings and cash flows for the nine (9) months then ended. Such
financial statements and notes fairly present the financial condition and the
results of operations, changes in stockholders' equity, and cash flows of Buyer
as at the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP, subject, in the case of interim
financial statements, to normal recurring year-end adjustments (the effect of
which will not, individually or in the aggregate, be materially adverse) and the
absence of notes (that, if presented, would not differ materially from those
included in the Buyer Balance Sheet); the financial statements referred to in
this Section 4.4 reflect the consistent application of such accounting
principles throughout the periods involved. Buyer has filed all documents
required to be filed by it with the Securities and Exchange Commission. As of
their respective filing dates, all of such documents complied in all material
respects with all applicable legal requirements, and none of such documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading
except to the extent corrected by a subsequently filed document.
4.5. BROKERS OR FINDERS. Buyer and its officers and agents have incurred
no obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or other similar payment in connection with this
Agreement.
5. INDEMNIFICATION; REMEDIES.
5.1. SURVIVAL. All representations, warranties, covenants, and
obligations in this Agreement, the schedules hereto and any other certificate or
document delivered pursuant to this Agreement will survive the Closing for a
period of one year.
5.2. INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER. Seller will
indemnify and hold harmless Buyer, the Company, and their respective
Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising from (a) any
Breach of any representation or warranty made by Seller in this Agreement, the
schedules hereto or any other certificate or document delivered by Seller
pursuant to this Agreement; (b) any Breach by Seller or the Company of any
covenant or obligation of Seller or the Company in this Agreement; or (c) any
claim by any Person for brokerage or finder's fees or commissions or
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similar payments based upon any agreement made by any such Person with Seller or
the Company (or any Person acting on their behalf) in connection with any of the
transactions contemplated herein.
The remedies provided in this Section 5.2 will be the sole remedy
available to Buyer and the Other Indemnified Persons.
5.3. INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER. Buyer will
indemnify and hold harmless Seller and its Representatives, stockholders,
controlling persons, and affiliates, and will pay to such Persons the amount of
any Damages arising from (a) any Breach of any representation or warranty made
by Buyer in this Agreement or in any Schedule or certificate delivered by Buyer
pursuant to this Agreement, (b) any Breach by Buyer of any covenant or
obligation of Buyer in this Agreement, or (c) any valid claim by any Person for
brokerage or finder's fees or commissions or similar payments based upon any
agreement made by such Person with Buyer (or any Person acting on its behalf) in
connection with any of the transactions contemplated herein.
5.4. PROCEDURE FOR INDEMNIFICATION -- THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under Section 5.2 or
Section 5.3 of notice of the commencement of any Proceeding against it, such
indemnified party will, if a claim is to be made against an indemnifying party
under such Section, give notice to the indemnifying party of the commencement of
such claim, but the failure to notify the indemnifying party will not relieve
the indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's failure to give
such notice.
(b) If any Proceeding referred to in Section 5.4(a) is brought against
an indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will, unless the claim
involves taxes, be entitled to participate in such Proceeding and, to the extent
that it wishes (unless (i) the indemnifying party is also a party to such
Proceeding and the indemnified party determines in good faith that joint
representation would be inappropriate, or (ii) the indemnifying party fails to
provide reasonable assurance to the indemnified party of its financial capacity
to defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel satisfactory
to the indemnified party and, after notice from the indemnifying party to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will not, as long as it diligently conducts such defense, be
liable to the indemnified party under this Section 5.4 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the indemnified party in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the
indemnifying party assumes the defense of a Proceeding; (i) it will be
conclusively established for purposes of this Agreement that the claims made in
that Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the indemnifying
party without the indemnified party's consent unless (1) there is no finding or
admission of any violation of Legal Requirements or any violation of the rights
of any Person and no effect on any other claims that may be made against the
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indemnified party, and (2) the sole relief provided is monetary damages that are
paid in full by the indemnifying party; and (3) the indemnified party will have
no liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an indemnifying party of the
commencement of any Proceeding and the indemnifying party does not, within ten
days after the indemnified party's notice is given, give notice to the
indemnified party of its election to assume the defense of such Proceeding, the
indemnifying party will be bound by any determination made in such Proceeding or
any compromise or settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Seller hereby consents to the non-exclusive jurisdiction of any
court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this Agreement
with respect to such Proceeding on the matters alleged therein, and agree that
process may be served on Seller with respect to such claim anywhere in the
world.
5.5. PROCEDURE FOR INDEMNIFICATION -- OTHER CLAIMS. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
5.6. LIMITATIONS ON AMOUNTS FOR DAMAGES. Seller shall be entitled to
satisfy and pay the entirety of any Damages to Buyer with respect to any matters
described in Section 5.2, by the delivery to Buyer of that number of Buyer
Shares having a value equal to the amount of such Damages. For the purposes of
this Section 5.6, the Buyer Shares will be valued at the average closing price
of Buyer Common Stock during the ten trading days immediately preceding the
Closing, as such term is defined in Section 2.5. The total aggregate liability
of Seller to Buyer for Damages under this Agreement shall be limited, under all
circumstances, to the aggregate value of the Buyer Shares delivered to Seller
pursuant to Section 2.2(a), as such value is calculated in accordance with this
Section 5.6. The total aggregate liability of Buyer to Seller shall be limited
to the aggregate value of the Buyer Shares delivered to Seller pursuant to
Section 2.2(a), as such value is calculated in accordance with this Section 5.6.
6. GENERAL PROVISIONS.
6.1. EXPENSES. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the transactions contemplated herein, including all fees and expenses of
agents, representatives, counsel, and accountants. In the event the Closing
occurs, Buyer will bear all legal and other expenses with respect to the
transaction contemplated herein, including the fees and expenses of counsel
representing Seller and the Company. In the
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<PAGE>
event of termination of this Agreement, the obligation of each party to pay its
own expenses will be subject to any rights of such party arising from a Breach
of this Agreement by another party.
6.2. PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity
with respect to this Agreement or the transactions contemplated herein will be
issued, if at all, at such time and in such manner as the parties shall mutually
determine. Seller, the Company and Buyer will consult with each other concerning
the means by which the Company' employees, customers, and suppliers and others
having dealings with the Company will be informed of the transactions
contemplated herein, and Buyer will have the right to be present for any such
communication.
6.3. NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), provided that a copy
is mailed by registered mail, return receipt requested, or (c) when received by
the addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
SELLER: Thomas O. Whitener, Jr.
Energy Spectrum Partners, LP
5956 Sherry Lane, Suite 900
Dallas, Texas 75225
Facsimile: (214) 987-6110
copy to: Frank P. McEachern
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202
Facsimile: (214) 953-5822
BUYER: Allis-Chalmers Corporation
1875 Century Park East, Suite 600
Century City, California 90067
Facsimile: (310) 407-5499
copy to: Theodore F. Pound III
Wilson, Cribbs, Goren & Flaum, P.C.
440 Louisiana, Suite 2200
Houston, Texas 77002
Facsimile: (713) 228-8824
6.4. JURISDICTION; SERVICE OF PROCESS. Any action or Proceeding seeking
to enforce any provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the courts of the State
of Texas, Counties of Dallas or Harris, or, if it has or can acquire
jurisdiction, in the United States District Court for the Northern or Southern
District of Texas, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts)
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<PAGE>
in any such action or Proceeding and waives any objection to venue laid therein.
Process in any action or Proceeding referred to in the preceding sentence may be
served on any party anywhere in the world.
6.5. FURTHER ASSURANCES. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
6.6. WAIVER. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by any
party in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; (b) no waiver that may be
given by a party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one party will be deemed to be a
waiver of any obligation of such party or of the right of the party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
6.7. ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter
(including the Letter of Intent between Buyer, the Company and Seller dated July
25, 2001, as amended) and constitutes (along with the documents referred to in
this Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement executed by the party to be charged
with the amendment.
6.8. ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties. Subject to the preceding sentence, this Agreement will apply
to, be binding in all respects upon, and inure to the benefit of the successors
and permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their successors and assigns.
6.9. SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
6.10. SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All
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words used in this Agreement will be construed to be of such gender or number as
the circumstances require. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
6.11. TIME OF ESSENCE. With regard to all dates and time periods set
forth or referred to in this Agreement, time is of the essence.
6.12. GOVERNING LAW. This Agreement will be governed by the laws of the
State of Texas without regard to conflicts of laws principles.
6.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
6.14. CONFIDENTIALITY. Each party shall keep all documents and other
information obtained from the other party in confidence, subject to the valid
requirements of any governmental or other authorities, and except with respect
to information that is readily ascertainable from public or public information
or trade sources. If the transaction contemplated herein is not consummated, all
such confidential information will be promptly returned to the party furnishing
it.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
BUYER:
ALLIS-CHALMERS CORPORATION
By: /s/ Munawar H. Hidayatallah
--------------------------------------
Munawar H. Hidayatallah
Its: Chairman and Chief Executive Officer
SELLER:
ENERGY SPECTRUM PARTNERS, LP
By: Energy Spectrum Capital LP, General Partner
By: Energy Spectrum LLC, General Partner
By: /s/ Thomas O. Whitener, Jr.
-----------------------------
Thomas O. Whitener, Jr.
Its: Chief Operating Officer
THE COMPANY:
STRATA DIRECTIONAL TECHNOLOGY, INC.
By: /s/ Stanley J. Buffington
--------------------------------------
Stanley J. Buffington
Its: President
Schedule 3.3
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.11
<SEQUENCE>5
<FILENAME>allis_ex2-11.txt
<TEXT>
<PAGE>
EXHIBIT 2.11
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as
of February 1, 2002, is made by and between Allis-Chalmers Corporation, a
Delaware corporation (the "Company"), and Energy Spectrum Partners, LP, a
Delaware limited partnership ("Energy Spectrum").
WITNESSETH:
WHEREAS, the Company, Energy Spectrum and Strata Directional
Technology, Inc. (the "Corporation") are parties to that certain Stock Purchase
Agreement, dated as of February 1, 2002 (the "Securities Purchase Agreement"),
pursuant to which, among other things, Energy Spectrum is exchanging shares of
capital stock of the Corporation for shares of capital stock of the Company; and
WHEREAS, in connection with the consummation of the transactions
contemplated by the Securities Purchase Agreement, the Company has agreed to
grant to Energy Spectrum certain registration rights with respect to shares of
Common Stock owned or to be acquired by Energy Spectrum;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the mutual benefits to be gained by
the performance thereof and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged and accepted, the parties
hereto hereby agree as follows:
SECTION 1. Definitions. For purposes of this Agreement, the terms
set forth below shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, par value $0.15 per share,
of the Company.
"Common Stock Equivalents" means securities convertible into, or
exchangeable or exercisable for, shares of Common Stock, including without
limitation the Company Preferred Stock and all rights, warrants and options
granted by the Company to third parties or shareholders or employees of the
Company.
"Company" has the meaning set forth in the preamble hereto.
"Company Preferred Stock" means the Series A 10% Cumulative
Convertible Preferred Stock, $0.01 par value, issued by the Company and
convertible into Common Stock.
"Corporation" has the meaning set forth in the recitals hereto.
"Demand Registration" has the meaning set forth in Section 2(a)
hereto.
<PAGE>
"Demand Registration Request" has the meaning set forth in
Section 2(a) hereto.
"Energy Spectrum" has the meaning set forth in the preamble
hereto.
"Holdback Agreements" has the meaning set forth in Section 4
hereto.
"Indemnified Party" has the meaning set forth in Section 7(c)
hereto.
"Issuer Indemnified Party" has the meaning set forth in Section
7(c) hereto.
"Person" means an individual, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture,
unincorporated organization or governmental entity or any department, agency or
political subdivision thereof.
"Piggyback Registration" has the meaning set forth in Section 3
hereto.
"Registrable Shares" means at any time any shares of Common Stock
owned by Energy Spectrum, whether acquired on the date hereof or hereafter
acquired, including without limitation, any shares of Common Stock issuable upon
the conversion, exchange or exercise of Common Stock Equivalents owned by Energy
Spectrum; provided, however, that Registrable Shares shall not include any
shares the sale of which has been registered pursuant to a registration
statement filed under the Securities Act which has been declared effective or
which may be otherwise transferred without restriction (including volume
restrictions) under Rule 144 or any similar successor rule or provision then in
force.
"Registration Expenses" has the meaning set forth in Section 6
hereto.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations promulgated
thereunder, all as the same may be in effect from time to time.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any successor federal statute, and the rules and
regulations promulgated thereunder, all as the same may be in effect from time
to time.
"Selling Indemnified Party" has the meaning set forth in Section
7(a) hereto.
SECTION 2. Demand Registration.
(a) Requests for Registration. Subject to the limitations
set forth in this Section 2 at any time, but no more than twice, Energy
Spectrum may request the Company to register under the Securities Act
all or any part of the Registrable Shares (a "Demand Registration
Request").
(b) Registration by the Company. Unless the Company has
the right to refuse registration pursuant to Section 2(c) hereof, the
Company shall file a registration statement under the Securities Act
covering the Registrable Shares which are the subject of
2
<PAGE>
any Demand Registration Request as soon as practicable after receipt by
the Company of any such Demand Registration Request (each, a "Demand
Registration"); provided, however, that if (i) in the good faith
judgment of the Board of Directors of the Company, such registration
would be seriously detrimental to the Company (or any proposed
acquisition or disposition of assets or properties) and the Board of
Directors of the Company concludes, as a result, that it is essential to
defer the filing of such registration statement at such time, and (ii)
the Company shall furnish Energy Spectrum a certificate signed by the
Chief Executive Officer of the Company stating that, in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for such registration statement to be filed
in the near future and that it is, therefore, essential to defer the
filing of such registration statement, then the Company shall have the
right to defer such filing for the period during which the disclosure
contained in such filings would be seriously detrimental to the Company,
provided, however, that the Company may not defer the filing of a
registration statement for a period of more than 120 days after receipt
of the Demand Registration Request of Energy Spectrum, and, provided
further, that the Company shall not defer its obligation in this manner
more than once in any twelve-month period and shall give written notice
to Energy Spectrum immediately after the reason for deferring the filing
of the registration statement has ceased to exist. The Company shall not
be required to register any shares of Registrable Securities during any
period in which it has exercised its deferral right as aforesaid.
(c) Demand Registration Limitations. The Company shall not
be required to make any Demand Registration pursuant to this Section 2
during the period ending 90 days after the effective date of any
registration statement filed pursuant to the Securities Act for an
underwritten public offering by the Company of shares of Common Stock
other than in connection with an employee benefit plan, dividend
reinvestment plan or merger, consolidation or other business
combination.
(d) Priority on Demand Registrations. The registration
statement filed pursuant to the Demand Registration Request of Energy
Spectrum may, subject to the limitations set forth below, include other
securities of the Company, with respect to which registration rights
have been granted, and may include securities of the Company being sold
for the account of the Company. If a Demand Registration is an
underwritten public offering and the managing underwriters advise the
Company in writing that in their opinion the number of Registrable
Shares and other securities requested to be included exceeds the number
of Registrable Shares and other securities which can be sold in such
offering, the Company shall include in such registration, first the
number of Registrable Shares requested to be included by Energy Spectrum
and then any securities to be sold by the Company or any other
securities which are not Registrable Shares.
(e) Underwriters. The parties agree that Jeffries &
Company, Inc. shall be the managing underwriter for any Demand
Registration, provided that they agree to serve as such and further
provided that they have entered into an agreement with the Company to
serve generally as managing underwriter for the Company. If Jeffries &
Company, Inc. will not be the managing underwriter of a Demand
Registration, then any managing underwriter
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or underwriters for any Demand Registration shall be selected by Energy
Spectrum, which managing underwriter or underwriters shall be reasonably
acceptable to the Company.
SECTION 3. Piggyback Registration.
(a) Right to Piggyback. If at any time the Company
proposes to file a registration statement under the Securities Act with
respect to any underwritten offering of any securities of the Company,
other than a registration statement on Form S-4 or S-8 (or any
substitute form for comparable purposes that may be adopted by the
Commission) or a registration statement filed in connection with an
exchange offer or an offering of securities solely to the Company's
existing security holders (a "Piggyback Registration"), the Company
shall in each case give written notice of such proposed filing to Energy
Spectrum as soon as practicable, but in no event less than 30 days
before the anticipated filing date, and shall, subject to Section 3(h)
hereof, include in such registration statement all Registrable Shares
with respect to which the Company has received a written request for
inclusion therein within 15 days after the Company's notice is received
by Energy Spectrum.
(b) Priority in Piggyback Registrations. If the managing
underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in a Piggyback
Registration exceeds the number which can be sold in such offering, the
Company shall include in such registration (i) first, the securities the
Company proposes to sell, if any, and (ii) second, the Registrable
Shares requested to be included in such registration, pro rata among
Energy Spectrum and the holders of other securities requested to be
included on the basis of the then number of Registrable Shares and other
securities requested to be included by each holder of such securities.
(c) Right to Withdraw. Notwithstanding anything to the
contrary, neither the delivery of the notice by the Company nor of the
request by Energy Spectrum shall in any way obligate the Company to
file, or Energy Spectrum to have included in, a registration statement
under this Section 3 and notwithstanding such filing, the Company may,
at any time prior to the effective date thereof, in its sole discretion,
determine not to offer the securities to which the registration
statement relates without liability to Energy Spectrum, and Energy
Spectrum may determine not to include its Registrable Shares therein
without liability.
(d) Selection of Underwriters. The managing underwriter or
underwriters for any Piggyback Registration shall be selected by the
Company, by action of the Board of Directors.
SECTION 4. Holdback Agreements. In the event that Registrable
Shares are registered by the Company pursuant to Section 2 or 3 hereof, Energy
Spectrum shall enter into such agreements, including underwriting agreements and
lock-up agreements, as the managing underwriter of any offering registered under
the Securities Act shall reasonably request (collectively, "Holdback
Agreements"); provided, however, that with respect to any registrations, such
Holdback Agreements shall not exceed a period of 14 calendar days prior to, and
120 calendar days after, the effective date of such registration.
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SECTION 5. Registration Procedures. Whenever Energy Spectrum has
requested that any Registrable Shares be registered pursuant to this Agreement,
the Company shall use its best efforts to effect the registration and the sale
of such Registrable Shares in accordance with the intended method of disposition
thereof, and pursuant thereto the Company shall as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such Registrable Shares and use its best
efforts to cause such registration statement to become and remain
effective until such securities are sold, in any case not to exceed six
months;
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith as may be necessary to keep such registration
statement effective for a period of not more than six months and comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration
statement;
(c) furnish, without charge, to Energy Spectrum and the
underwriters of the securities being registered such number of copies of
such registration statement, each amendment and supplement thereto, in
each case including all exhibits, the prospectus included in such
registration statement, including each preliminary prospectus, and such
other documents as Energy Spectrum or the underwriters may reasonably
request in order to facilitate the disposition of the Registrable Shares
owned by Energy Spectrum or the sale of such securities by such
underwriters;
(d) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as Energy Spectrum shall reasonably request and do any and
all other acts and things which may be reasonably necessary or advisable
to enable Energy Spectrum to consummate the disposition in such
jurisdictions of the Registrable Shares owned by Energy Spectrum,
provided, however, that the Company shall not be required to (1) qualify
generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 5(d), (ii) subject
itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction;
(e) cause all such Registrable Shares covered by such
registration statement to be listed on the principal securities exchange
on which similar securities issued by the Company are then listed, if
any, if the listing of such Registrable Shares is then permitted under
the rules of such exchange;
(f) provide and cause to be maintained a transfer agent
and registrar for all such Registrable Shares not later than the
effective date of such registration statement;
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(g) enter into such customary agreements, including
underwriting agreements in customary form, and take all such other
actions as the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of such Registrable Shares;
(h) upon receipt of such confidentiality agreements as the
Company may reasonably request, make reasonably available for inspection
by Energy Spectrum, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or
other agent retained by Energy Spectrum or any such underwriter, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all information
reasonably requested by Energy Spectrum or any such underwriter,
attorney, accountant or agent in connection with such registration
statement;
(i) promptly notify Energy Spectrum, (i) of the time when
the registration statement, any pre-effective amendment, the prospectus
or any prospectus supplement related thereto or post-effective amendment
to the registration statement has been filed and, with respect to the
registration statement or any post-effective amendment, when the same
has become effective and (ii) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Shares for sale under the securities or blue sky laws of any
jurisdiction or the initiation of any proceeding for such purpose;
(j) notify Energy Spectrum of any requests by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(k) prepare and file with the Commission, promptly upon
the request of Energy Spectrum, any amendments or supplements to such
registration statement or prospectus which, in the written opinion of
counsel selected by Energy Spectrum, is required under the Securities
Act or the rules and regulations thereunder in connection with the
distribution of Registrable Shares by Energy Spectrum;
(l) prepare and promptly file with the Commission and
promptly notify Energy Spectrum of the filing of such amendment or
supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be delivered under
the Securities Act, any event shall have occurred as the result of which
any such prospectus as then in effect would include an untrue statement
of a material fact or omit to state any material fact necessary to make
the statements therein, in the light of the circumstances in which they
were made, not misleading;
(m) advise Energy Spectrum, promptly after the Company
shall receive notice or obtain knowledge thereof, of the issuance of any
stop order by the Commission suspending the effectiveness of such
registration statement or the initiation or threatening of
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any proceeding for such purpose and promptly use all reasonable efforts
to prevent the issuance of any stop order or to obtain its withdrawal if
such stop order should be issued;
(n) provide notice within a reasonable amount of time
prior to the filing of any registration statement or prospectus of any
amendment or supplement to such registration statement or prospectus,
furnish a copy thereof to Energy Spectrum and refrain from filing any
such registration statement, prospectus, amendment or supplement to
which counsel selected by Energy Spectrum shall have reasonably objected
on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or the
rules and regulations thereunder, unless, in the case of an amendment or
supplement, the Company reasonably believes the filing of such amendment
or supplement is reasonably necessary to protect the Company from any
liabilities under any applicable federal or state law;
(o) at the request of Energy Spectrum in connection with
an underwritten offering, furnish on the date or dates provided for in
the underwriting agreement: (i) an opinion of counsel, addressed to the
underwriters and Energy Spectrum, covering such matters as such
underwriters may reasonably request including, without limiting the
generality of the foregoing, opinions to the effect that (A) such
registration statement has become effective under the Securities Act;
(B) to the best of such counsel's knowledge no stop order suspending the
effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the
Securities Act; (C) the registration statement, the prospectus, and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the Securities Act and the applicable
rules and regulations of the Commission thereunder except that such
counsel need express no opinion as to financial statements or other
financial or statistical data contained therein; and (ii) a "cold
comfort" letter or letters from the independent certified public
accountants of the Company addressed to the underwriters and Energy
Spectrum, covering such matters as such underwriters may reasonably
request, in which letters such accountants shall state, without limiting
the generality of the foregoing, that they are independent certified
public accountants within the meaning of the Securities Act and that in
the opinion of such accountants the financial statements and other
financial data of the Company included in the registration statement,
the prospectus, or any amendment or supplement thereto comply in all
material respects with the applicable accounting requirements of the
Securities Act;
(p) subject to any confidentiality agreements, deliver,
promptly after the receipt thereof, to Energy Spectrum and each
underwriter, if any, copies of all correspondence between the Commission
and the Company, its counsel or auditors and all memoranda relating to
discussions with the Commission or its staff with respect to the
registration statement, other than those portions of any such
correspondence and memoranda which contain information subject to
attorney-client privilege with respect to the Company;
(q) provide a CUSIP number for all Registrable Shares, not
later than the effective date of the registration statement;
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(r) make reasonably available its employees and personnel
and otherwise provide reasonable assistance to the underwriters, taking
into account the needs of the Company's business and the requirements of
the marketing process, in the marketing of Registrable Shares in any
underwritten offering;
(s) prior to the filing of any document which is to be
incorporated by reference into the registration statement or the
prospectus, after the initial filing of such registration statement,
provide copies of such document to counsel to Energy Spectrum and to the
managing underwriter, if any, and make the Company's representatives
reasonably available for discussion of such document and make such
changes in such document prior to the filing thereof as counsel for
Energy Spectrum or such underwriters may reasonably request;
(t) furnish, promptly after the filing thereof, to Energy
Spectrum and the managing underwriter, without charge, at least one
signed copy of the registration statement and any post-effective
amendments thereto, including financial statements and schedules, all
documents incorporated therein by reference and all exhibits, including
those incorporated by reference;
(u) comply with all applicable rules and regulations of
the Commission, and make generally available to its security holders, as
soon as reasonably practicable after the effective date of the
registration statement, and in any event within 16 months thereafter, an
earnings statement (which need not be audited) covering the period of at
least twelve consecutive months beginning with the first day of the
Company's first calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of Section 11 (a) of the Securities Act and Rule 158
thereunder; and
(v) take all such other commercially reasonable actions as
are necessary or advisable in order to expedite or facilitate the
disposition of such Registrable Shares.
SECTION 6. Registration Expenses. Except as otherwise provided
herein, all expenses incident to the Company's performance of or compliance with
this Agreement, including without limitation, all registration and filing fees,
fees and expenses of compliance with securities or blue sky laws, including a
blue sky survey and the related fees and expenses of counsel; printing expenses,
messenger and delivery expenses; fees and disbursements of counsel for the
Company and its independent certified public accountants; fees and disbursements
of one counsel selected by Energy Spectrum; fees and disbursements of any other
Persons (including experts) retained by the Company; and all other fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (all such expenses being herein called "Registration Expenses"),
shall be borne by the Company. In addition, the Company shall pay its internal
expenses, including without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties, the expense of any
annual audit or quarterly review, the expense of any liability insurance
obtained by the Company and the expenses; fees for listing the securities so
registered on each securities exchange on which any shares of common stock are
then listed or on the Nasdaq Stock Market. Registration Expenses shall not
include (a) the fees and expenses of more than one counsel for
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Energy Spectrum, or (b) any underwriting discounts, commissions or similar
charges attributable to the sale of Registrable Shares included in such
registration.
SECTION 7. Indemnification and Contribution.
(a) Indemnification by the Company. The Company shall
indemnify and hold harmless to the fullest extent permitted by law
Energy Spectrum, its officers, directors, fiduciaries, stockholders,
partners (and the directors, officers, employees and stockholders
thereof) and agents and each Person, if any, who controls Energy
Spectrum within the meaning of Section 15 of the Act or Section 20 of
the Securities Exchange Act (collectively, the "Selling Indemnified
Parties" and, individually, a "Selling Indemnified Party"), from and
against, on a current basis, any and all losses, claims, damages,
whether in contract, tort or otherwise, liabilities, expenses, actions
and proceedings, whether commenced or threatened, in respect thereof,
including reasonable costs of investigation, counsel fees and amounts
paid in settlement, whatsoever (as incurred or suffered) arising out of
or based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or preliminary,
final or summary prospectus relating to the Registrable Shares or in any
amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities
or expenses arise out of, or are based upon, any such untrue statement
or omission or allegation thereof based upon information furnished in
writing to the Company by Energy Spectrum or on Energy Spectrum's behalf
expressly for use therein. The Company shall also indemnify any
underwriters of the Registrable Shares, their officers, partners and
directors and each Person who controls such underwriters on
substantially the same basis as that of the indemnification of the
Selling Indemnified Parties provided in this Section 7 or to provide
such other indemnification customarily obtained by underwriters at the
time of offering.
(b) Conduct of Indemnification Proceedings. If any action
or proceeding, including any governmental investigation, shall be
brought or asserted against any Selling Indemnified Party in respect of
which indemnity may be sought from the Company, the Company shall, at
its expense, assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Selling Indemnified Party. Such
Selling Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of
such Selling Indemnified Party unless (i) the Company has agreed to pay
such fees and expenses, (ii) the Company fails to diligently defend the
action or proceeding within 20 days after receiving notice from the
Selling Indemnified Party that the Selling Indemnified Party believes
the Company has so failed or (iii) the named parties to any such action
or proceeding, including any impleaded parties, include both such
Selling Indemnified Party and the Company, and such Selling Indemnified
Party shall have been advised by counsel that there may be a conflict of
interest between any of the parties, or that representation of the
Selling Indemnified Party and the Company is otherwise inappropriate
under applicable standards of professional conduct, or one or more legal
defenses are available to such Selling
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indemnified Party which are different from or additional to those
available to the Company; in which case, if such Selling Indemnified
Party notifies the Company in writing that it elects to employ separate
counsel at the expense of the Company, the Company shall not have the
right to assume the defense of such action or proceeding on behalf of
such Selling Indemnified Party; it being understood, however, that the
Company shall not, in connection with any one such action or proceeding
or separate but substantially similar or related actions or proceedings
in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one
separate firm of attorneys (together with appropriate local counsel) at
any time for all such Selling Indemnified Parties, which firm shall be
designated in writing by a majority of the Selling Indemnified Parties.
The Company shall not be liable for any settlement of any such action or
proceeding effected without the Company's written consent, but if
settled with its written consent, which consent shall not be
unreasonably withheld or delayed, or if there be a final judgment no
longer subject to appeal for the plaintiff in any such action or
proceeding, the Company agrees to indemnify and hold harmless such
Selling Indemnified Parties from and against any loss or liability (to
the extent stated above) by reason of such settlement or judgment.
(c) Indemnification by Energy Spectrum. Energy Spectrum
shall indemnify and hold harmless the Company, its directors, officers,
fiduciaries, stockholders and agents and each Person, if any, who
controls the Company within the meaning of either Section 15 of the Act
or Section 20 of the Securities Exchange Act (collectively, the "Issuer
Indemnified Parties" and, individually, a "Issuer Indemnified Party"
and, together with a Selling Indemnified Party an "Indemnified Party"),
to the same extent as the foregoing indemnity from the Company to Energy
Spectrum, but only with respect to information furnished in writing by
Energy Spectrum or on Energy Spectrum's behalf expressly for use in any
registration statement or prospectus relating to the Registrable Shares,
or any amendment or supplement thereto, or any preliminary prospectus.
In case any action or proceeding shall be brought against an Issuer
Indemnified Party, in respect of which indemnity may be sought against
Energy Spectrum, Energy Spectrum shall have the rights and duties given
to the Company, and the Issuer Indemnified Parties shall have the rights
and duties given to Energy Spectrum, by the preceding Section 7(b)
hereof. Energy Spectrum shall also indemnify and hold harmless
underwriters of the Registrable Shares, their officers, directors,
fiduciaries, stockholders and agents and each Person who controls such
underwriters on substantially the same basis as that of the
indemnification of the Company provided in this Section 7.
(d) Contribution. If the indemnification provided for in
this Section 7 is unavailable to any Indemnified Party in respect of any
losses, claims, damages, liabilities, expenses, actions or proceedings
referred to herein, then each such indemnifying party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such losses, claims,
damages, liabilities, expenses, actions and proceedings (i) as between
the Issuer Indemnified Parties and the Selling Indemnified Parties on
the one hand and the underwriters on the other, in such proportion as is
appropriate to reflect the relative benefits received by the Issuer
Indemnified Parties and
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the Selling Indemnified Parties on the one hand and the underwriters on
the other from the offering of the Registrable Shares, or if such
allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only such relative benefits but also the
relative fault of the Issuer Indemnified Parties and the Selling
Indemnified Parties on the one hand and of the underwriters on the other
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities, expenses actions or proceedings,
as well as any other relevant equitable considerations and (ii) as
between the Issuer Indemnified Parties, on the one hand, and each
Selling Indemnified Party on the other, in such proportion as is
appropriate to reflect the relative fault of the Issuer Indemnified
Parties and of each Selling Indemnified Party in connection with such
statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by the Issuer Indemnified
Parties and the Selling Indemnified Parties on the one hand and the
underwriters on the other shall be deemed to be in the same proportion
as the total proceeds from the offering, net of underwriting discounts
and commissions but before deducting expenses, received by the Issuer
Indemnified Parties and the Selling Indemnified Parties bear to the
total underwriting discounts and commissions received by the
underwriters, in each case as set forth in the table on the cover page
of the prospectus. The relative fault of the Issuer Indemnified Parties
and the Selling Indemnified Parties on the one hand and of the
underwriters on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Issuer Indemnified Parties
and the Selling Indemnified Parties or by the underwriters. The relative
fault of the Issuer Indemnified Parties on the one hand and of each
Selling Indemnified Party on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and Energy Spectrum hereby agree that it would
not be just and equitable if contribution pursuant to this Section 7(d)
were determined by pro rata allocation, even if the underwriters were
treated as one entity for such purpose, or by any other method of
allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or
payable by an Indemnified Party as a result of the losses, claims,
damages, liabilities, expenses, actions or proceedings referred to in
the immediately preceding paragraph shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7(d), no underwriter shall be required to
contribute any amount in excess of the amount by which the total price
at which the Registrable Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages
which such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission,
and Energy Spectrum shall not be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Shares of Energy Spectrum were offered to the public exceeds the amount
of any damages which Energy Spectrum has otherwise
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been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation, within the meaning of Section 11(f) of the
Securities Act, shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation.
(e) Settlement or Compromise. No indemnifying party shall
without the written consent of the Indemnified Party, effect the
settlement or compromise of, or consent to the entry of any judgment
with respect to, any pending or threatened action or claim in respect of
which indemnification or contribution may be sought hereunder, whether
or not the Indemnified Party is an actual or potential party to such
action or claim, unless such settlement, compromise or judgment (A)
includes an unconditional release of the Indemnified Party from all
liability arising out of such action or claim and (B) does not include a
statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any Indemnified Party.
(f) Rights not Exclusive. The indemnity agreements
contained in this Section 7 shall be in addition to any other rights to
indemnification or contribution which any Indemnified Party may have
pursuant to law or contract and shall remain operative and in full force
and effect regardless of any investigation made or omitted by or on
behalf of any indemnified party and shall survive the transfer of the
Registrable Shares by any such party.
SECTION 8. Compliance with Rule 144. At the request of Energy
Spectrum proposing to sell securities in compliance with Rule 144 promulgated by
the Commission under the Securities Act, the Company shall (i) forthwith furnish
to Energy Spectrum a written statement of compliance with the filing
requirements of the Commission as set forth in Rule 144 as such rule may be
amended from time to time and (ii) timely file and make available to the public
and Energy Spectrum such reports and other information as will enable Energy
Spectrum to make sales pursuant to Rule 144.
SECTION 9. Participation in Underwritten Registrations. No Person
may participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements, (b) provides all such information as is reasonably
required to effect such registration and completes and executes all
undertakings, questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements or applicable laws, and (c) complies with all other
reasonable requests of the managing underwriter and with the Company and
complies with all other reasonable requests related to such registration.
SECTION 10. Additional Grants of Registration Rights. Subsequent
to the date of this Agreement, the Company may not, without the prior written
consent of Energy Spectrum, not to be unreasonably withheld, (i) offer other
registration rights other than (a) piggyback registration rights and one demand
registration right (at his expense) granted to Jens H. Mortensen, Jr. in
connection with the Shareholder Agreement between the Company and him and (b)
those granted to Wells Fargo Energy Capital, Inc. or (ii) extend the
registration rights provided for in this
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Agreement to other Persons who are or become holders of Common Stock or Common
Stock Equivalents.
SECTION 11. Remedies. Any Person having rights under any
provision of this Agreement will be entitled to enforce such rights
specifically, to recover damages caused by reason of any breach of any provision
of this Agreement and to exercise all other rights granted by law.
SECTION 12. Amendments and Waivers. Except as otherwise expressly
provided herein, the provisions of this Agreement including, but not limited to,
notice provisions may be amended or waived at any time only by the written
agreement of the Company and Energy Spectrum. Any waiver, permit, consent or
approval of any kind or character on the part of Energy Spectrum of any
provision or condition of this Agreement must be made in writing and shall be
effective only to the extent specifically set forth in writing.
SECTION 13. Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto, whether so expressed or
not.
SECTION 14. Final Agreement. This Agreement constitutes the final
agreement of the parties hereto concerning the matters referred to herein, and
supersedes all prior agreements and understandings with respect to the subject
matter hereof.
SECTION 15. Severability. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under Applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
SECTION 16. Descriptive Headings. The descriptive headings of
this Agreement are inserted for convenience of reference only and do not
constitute a part of and shall not be utilized in interpreting this Agreement.
SECTION 17. Notices. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered by hand, by
telex or telecopier, by overnight courier service or by certified or registered
mail, postage prepaid and return receipt requested. Notices shall be deemed to
have been given upon delivery, if delivered by hand, three days after mailing,
if mailed, one business day after delivery to the courier, if delivered by
overnight courier service, and upon receipt of an appropriate electronic
confirmation, if by telex or telecopier. Notices shall be delivered to the
Company and Energy Spectrum at the addresses set forth below.
If to the Company:
Allis-Chalmers Corporation
7660 Woodway, Suite 200
Houston, Texas 77063
13
<PAGE>
Attention: Chief Executive Officer
Telephone: 713-369-0550
Telecopy: 713-369-0555
If to Energy Spectrum:
Energy Spectrum Partners, LP
5956 Sherry Lane, Suite 900
Dallas, Texas 75225
Attention: Thomas O. Whitener, Jr.
Telephone: (214) 987-6100
Telecopy: (214) 987-6110
SECTION 18. GOVERNING LAW. THE VALIDITY, MEANING AND EFFECT OF
THIS AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE.
SECTION 19. Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it and the Company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first above written.
ALLIS-CHALMERS CORPORATION
By: /s/ Munawar H. Hidayatallah
--------------------------------------
Munawar H. Hidayatallah
Chairman and Chief Executive Officer
ENERGY SPECTRUM PARTNERS, LP
By: Energy Spectrum Capital LP, General Partner
By: Energy Spectrum LLC, General Partner
By: /s/ Thomas O. Whitener, Jr.
-------------------------------
Thomas O. Whitener, Jr.
Chief Operating Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.12
<SEQUENCE>6
<FILENAME>allis_ex2-12.txt
<TEXT>
<PAGE>
EXHIBIT 2.12
SHAREHOLDERS' AGREEMENT
AMONG
ALLIS-CHALMERS CORPORATION
(A DELAWARE CORPORATION),
AND
THE SHAREHOLDERS AND WARRANTHOLDER WHO ARE SIGNATORIES HERETO
FEBRUARY 1, 2002
<PAGE>
EXHIBIT 2.12
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT, dated as of February 1, 2002 (the
"Agreement"), is by and among MUNAWAR H. HIDAYATALLAH, ENERGY SPECTRUM PARTNERS,
LP, a Delaware limited partnership ("ESP") (collectively, the "Shareholders"),
ALLIS-CHALMERS CORPORATION, a Delaware corporation (the "Company"), and WELLS
FARGO ENERGY CAPITAL, INC., a Texas corporation (the "Warrantholder").
W I T N E S S E T H:
WHEREAS, the Shareholders are the record and beneficial owner of the
number of issued and outstanding shares of Common Stock, par value $0.15 per
share, of the Company ("Common Stock") listed opposite each such shareholder's
name on the signature page hereto;
WHEREAS, the Company and Warrantholder have agreed to cancel that
certain Warrant, dated February 6, 2001, to purchase 1,350,000 Shares of the
common stock, par value $0.01 per share, of Mountain Compressed Air, Inc., a
Texas corporation and wholly-owned subsidiary of the Company, held by
Warrantholder (the "Cancellation");
WHEREAS, the Warrantholder has agreed to arrange for or to lend an
aggregate principal amount of $3,000,000 to the Company pursuant that certain
Credit Agreement, dated as of even date herewith, between the Company and the
Warrantholder (the "Loan Agreement");
WHEREAS, in connection with the Cancellation and the transactions
contemplated by the Loan Agreement, the Company has agreed to issue to
Warrantholder, in accordance with that certain Warrant Purchase Agreement, dated
as of even date herewith ("Warrant Purchase Agreement"), Warrants to purchase
1,500,000 shares of Common Stock (the "Warrants");
WHEREAS, the Company and the Shareholders have agreed to enter into this
Agreement to provide Warrantholder with certain rights related to its ownership
of the Warrants; and
WHEREAS, capitalized terms not otherwise defined in this Agreement shall
have the respective meanings assigned to such terms in the Warrant Purchase
Agreement or, in the event such term is not defined in the Warrant Purchase
Agreement, in Article VII of the Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the receipt and sufficiency of which consideration
are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
TAG-ALONG RIGHTS
SECTION 1.1. TAG-ALONG RIGHTS. This Section 1.1 shall apply to a
Transfer (each a "Tag-Along Transfer" and, together, "Tag-Along Transfers") by
either or both of the Shareholders of any number of shares of Common Stock or
Other Securities owned of record or beneficially by either of such Shareholders
(each a "Seller" and, together, the "Sellers"). No Shareholder shall engage in
any Tag-Along Transfer without complying with the terms and conditions set forth
in this Section 1.1; provided, that the requirements of this Section 1.1 shall
<PAGE>
not apply to any Transfer pursuant to, or consummated through, an effective
registration statement filed pursuant to the Securities Act of 1933, as amended,
with respect to such sale.
(a) If any Shareholder (a "Tag-Along Initiator") desires to engage in a
Tag-Along Transfer, it shall give not less than twenty (20) days' prior written
notice of such intended Transfer to Warrantholder (for purposes of this Section
1.1, the "Tag-Along Offeree") and to the Company. Such notice (the "Tag-Along
Notice") shall set forth the terms and conditions of such proposed Transfer,
including the name of the proposed transferee (the "Transferee"), the number of
shares of Common Stock or Other Securities proposed to be transferred by the
Tag-Along Initiator, the purchase price per share proposed to be paid therefor
and the payment terms and type of transfer to be effectuated. Within ten (10)
days after delivery of the Tag-Along Notice by the Tag-Along Initiator (the
"Tag-Along Acceptance Period") to the Tag-Along Offeree and to the Company, the
Tag-Along Offeree shall, by written notice (the "Offeree Notice") to the
Tag-Along Initiator and the Company, have the opportunity and right to sell to
such Transferee in such proposed Transfer (upon the same terms and conditions as
the Tag-Along Initiator) up to that number of shares of Common Stock or Other
Securities owned by the Tag-Along Offeree as shall be determined under Section
1.1(c). The failure of the Tag-Along Offeree to deliver an Offeree Notice to the
Tag-Along Initiator within the Tag-Along Acceptance Period shall be deemed to be
an automatic refusal of the Tag-Along Offer.
(b) At the closing of any proposed Transfer in respect of which a
Tag-Along Notice has been delivered, the Tag-Along Initiator together with the
Tag-Along Offeree, if it has elected to sell shares of Common Stock or Other
Securities, shall deliver, free and clear of all liens, to the proposed
Transferee certificates evidencing the shares of Common Stock or Other
Securities to be sold thereto duly endorsed with transfer powers and shall
receive in exchange therefor the consideration to be paid or delivered by the
proposed Transferee in respect of such shares of Common Stock or Other
Securities as described in the Tag-Along Notice. In connection with the closing,
the Tag-Along Offeree shall execute such investor representation and other
related documents as the Transferee may reasonably request.
(c) The maximum number of shares of Common Stock or Other Securities
that the Tag-Along Offeree may cause the Transferee to purchase pursuant to this
Section 1.1 shall equal the following:
(i) if Common Stock is being transferred in the Tag-Along
Transfer, the number of shares of Common Stock set forth in the Tag-Along Notice
multiplied by a fraction, the numerator of which is the number of shares of
Common Stock owned by the Tag-Along Offeree immediately prior to the date of the
consummation of the Tag-Along Transfer (the "Sale Date"), and the denominator of
which is the sum of the number of shares of Common Stock owned by the Tag-Along
Offeree plus the number of shares of Common Stock owned by the Seller(s); and
(ii) if Other Securities are being transferred in the Tag-Along
Transfer, the number of shares of Other Securities set forth in the Tag-Along
Notice multiplied by a fraction, the numerator of which is the number of shares
of Other Securities owned by the Tag-Along Offeree immediately prior to the Sale
Date, and the denominator is the sum of the number of
Page 2
<PAGE>
shares of Other Securities owned by the Tag-Along Offeree plus the number of
shares of Other Securities owned by the Seller(s).
For purposes of computing the number of shares of Common Stock or Other
Securities owned by the Tag-Along Offeree, as of any date, the Tag-Along Offeree
will be deemed to own the sum of the following (without duplication): the number
of shares of Common Stock or Other Securities beneficially owned on such date
plus the number of shares of Common Stock or Other Securities the Tag-Along
Offeree would be entitled to receive upon exercise of any Warrants owned on such
date.
(d) The purchase price (the "Purchase Price") for shares of Common Stock
or Other Securities transferred under this Section 1.1 shall equal the average
price per share specified in the Tag-Along Notice, and shall include the amount
of cash, the market value of marketable securities, the amount and type of any
Other Securities and consideration for non-competition covenants and payments
pursuant to employment or consulting agreements where the value of the services
to be rendered as reasonably and fairly determined in good faith by the Board of
Directors of the Company does not substantially equal the value of the
consideration paid.
SECTION 1.2. PURCHASE OF WARRANT. In lieu of causing the Transferee to
purchase Common Stock or Other Securities, the Warrantholder may cause the
Transferee to purchase Warrants convertible into all or a portion of the number
of shares of Common Stock or Other Securities that the Transferee is obligated
to purchase under Section 1.1. In order to cause the Transferee to purchase
Warrants hereunder, the Warrantholder shall specify in the Offeree Notice, in
addition to the other information required in such Offeree Notice, that it is
electing to transfer Warrants to the Transferee, and the number of shares of
Common Stock or Other Securities represented by such Warrants. At the Sale Date,
the Warrantholder will deliver the Warrant to the Transferee duly endorsed for
transfer without any lien, claim, encumbrance, pledge or security interest and
the Transferee will pay the Purchase Price for the Common Stock or Other
Securities represented by such Warrant, reduced by the exercise price of such
Warrant.
SECTION 1.3. ONGOING RIGHTS. The exercise or non-exercise of the
Warrantholder's right in one or more sales of shares of Common Stock or Other
Securities by a Seller shall not adversely affect the ability of the
Warrantholder to exercise any of its rights, powers or privileges under this
Agreement in the future.
ARTICLE II.
PROHIBITED TRANSFERS
SECTION 2.1. TREATMENT OF PROHIBITED TRANSFERS. In the event any
Shareholder should sell any Common Stock or Other Securities in contravention of
this Agreement (a "Prohibited Transfer"), the Warrantholder, in addition to such
other remedies as may be available at law, in equity or hereunder, shall have
the right to receive the Purchase Price in the same manner as the Warrantholder
otherwise would have been entitled under this Agreement. For purposes of this
Section 2.1, the Seller(s) shall pay to the Warrantholder such Purchase Price
within thirty (30) days after the later of (i) the date on which the
Warrantholder received notice from the Seller(s) of the Prohibited Transfer and
(ii) the date the Warrantholder otherwise became aware of the Prohibited
Transfer. Notwithstanding the foregoing, any transfer of shares,
Page 3
<PAGE>
or purported or attempted transfer to be effected, not in accordance with the
terms and conditions of this Agreement, shall be voidable by the Company at the
option of the Warrantholder; provided, however, any such transfer or purported
or attempted transfer or any such voidance by the Company shall not affect the
obligation of the Transferee to pay the Purchase Price to the Warrantholder in
accordance with Article I. In the event the Company receives notice from the
Seller(s) of a Prohibited Transfer or otherwise becomes aware of a Prohibited
Transfer, the Company shall promptly notify the Warrantholder. The Company
agrees it will not effect any such transfer nor will it treat any alleged
transferee as the registered owner of such shares of Common Stock or Other
Securities without affording to the Warrantholder notice and opportunity to
exercise its rights pursuant to Article I or Article II.
ARTICLE III.
(RESERVED)
ARTICLE IV.
LEGENDED CERTIFICATES
A copy of this Agreement shall be filed with the Secretary of the
Company and kept with the records of the Company. Each certificate representing
shares of the Common Stock or Other Securities now or hereafter owned by any
Shareholder (and all certificates issued in exchange therefore or substitution
thereof) shall be endorsed with the following legend:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A SHAREHOLDERS
AGREEMENT, DATED AS OF FEBRUARY 1, 2002, AMONG THE STOCKHOLDERS AND
WARRANTHOLDERS NAMED ON THE SIGNATURE PAGES THERETO, AND THE COMPANY. A
COPY OF SUCH AGREEMENT IS ON FILE AT THE OFFICE OF THE COMPANY. THE
COMPANY SHALL FURNISH A COPY OF SUCH AGREEMENT TO THE RECORD HOLDER
HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST.
ARTICLE V.
TERMINATION OF RIGHTS
The term of this Agreement shall continue until such time as (a) the
Warrantholder shall no longer be the registered holder of any Warrants issued
pursuant to the Warrant Purchase Agreement, (b) the Warrantholder shall no
longer be the registered owner of any Common Stock or Other Securities issued
upon exercise of the Warrants, or (c) all shares of Common Stock or Other
Securities held by the Warrantholder may immediately be sold under Rule 144 of
the Securities Act of 1933, as amended.
ARTICLE VI.
MISCELLANEOUS
SECTION 6.1. SPECIFIC PERFORMANCE. The parties acknowledge and agree
that any breach of the agreements and covenants contained in this Agreement
would cause irreparable injury to the Warrantholder, the Shareholders or the
Company for which the Warrantholder, the
Page 4
<PAGE>
Shareholders or the Company would have no adequate remedy at law. In addition to
any other remedy that the Warrantholder, the Shareholders or the Company may be
entitled to, the parties agree that temporary and permanent injunctive relief
and other equitable relief and specific performance may be granted without proof
of actual damages or inadequacy of legal remedy in any proceeding that may be
brought to enforce any of the provisions of this Agreement.
SECTION 6.2. PAYMENT OF COSTS AND EXPENSES. Whether or not the
transactions contemplated by this Agreement are consummated, the Company will
pay all costs and expenses in connection with the negotiation, preparation and
performance of, and compliance with the terms of this Agreement.
SECTION 6.3. FURTHER ASSURANCES. Each party agrees to use its best
efforts to take, or cause to be taken, and to do, or cause to be done, all
things that may be necessary or appropriate to consummate and make effective the
transactions contemplated by this Agreement.
SECTION 6.4. AMENDMENT. This Agreement may not be modified or amended
except by a written instrument executed by or on behalf of each of the parties
hereto.
SECTION 6.5. WAIVERS. The observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) by the party entitled to enforce such term, but such waiver
shall be effective only if in a writing signed by the party or parties against
which such waiver is to be asserted. Unless otherwise expressly provided herein,
no delay or omission on the part of any party hereto in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver or omission on the part of any party hereto of any right, power or
privilege hereunder operate as a waiver of any other right, power or privilege
hereunder nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. All remedies, either
under this Agreement or by law or otherwise afforded to any party, shall be
cumulative and not alternative.
SECTION 6.6. ENTIRE AGREEMENT. This Agreement and the documents
expressly referred to or incorporated herein constitute the entire agreement
among the parties hereto with respect to the matters covered hereby, and any
other prior or contemporaneous oral or written understandings or agreements with
respect to the matters covered hereby are expressly superseded by this
Agreement.
SECTION 6.7. SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be judicially
declared to be invalid, unenforceable or void, such decision will not have the
effect of invalidating or voiding the remainder of this Agreement or affect the
application of such provision to other persons or circumstances, and the parties
hereto agree that the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom and the
remainder of this Agreement will have the same force and effect as if such part
or parts had never been included herein. Any such finding or invalidity or
unenforceability shall not prevent the enforcement of such provision in any
other jurisdiction to the maximum extent permitted by applicable law.
Page 5
<PAGE>
SECTION 6.8. NOTICES. Unless otherwise expressly provided herein, all
notices, requests, demands, consents, waivers, instructions, approvals and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered to or mailed, certified mail, return receipt
requested, first-class postage paid, addressed as follows:
IF TO MUNAWAR H. HIDAYATALLAH, TO:
7660 Woodway, Suite 200
Houston, Texas 77063
IF TO ENERGY SPECTRUM PARTNERS, LP, TO:
5956 Sherry Lane, Suite 900
Dallas, Texas 75225
Attn: Thomas O. Whitener, Jr.
WITH A COPY (WHICH SHALL NOT CONSTITUTE EFFECTIVE NOTICE UNDER THIS
SECTION 5.8) TO:
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attn: Frank P. McEachern, Esq.
IF TO THE COMPANY, TO:
7660 Woodway, Suite 200
Houston, Texas 77063
Attn: Munawar H. Hidayatallah, Chairman and CEO
WITH A COPY (WHICH SHALL NOT CONSTITUTE EFFECTIVE NOTICE UNDER THIS
SECTION 5.8) TO:
Wilson, Cribbs, Goren & Flaum
2200 Lyric Centre
440 Louisiana
Houston, Texas 77002
Attention: Theodore F. Pound III
IF TO THE WARRANTHOLDER, TO:
1000 Louisiana, Suite 600
Houston, Texas 77002
Attn: Gary Milavec, Senior Vice President
Page 6
<PAGE>
WITH A COPY (WHICH SHALL NOT CONSTITUTE EFFECTIVE NOTICE UNDER THIS
SECTION 5.8) TO:
Haynes and Boone, LLP
1000 Louisiana, Suite 4300
Houston, Texas 77002
Attention: Buddy Clark, Esq.
or to such other address or to such other individuals as any party shall have
last designated by notice to the other party. All notices and other
communications given to any party in accordance with the provisions of this
Agreement shall be deemed to have been given when delivered or sent to the
intended recipient thereof in accordance with the provisions of Section 5.8.
SECTION 6.9. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF TEXAS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
SECTION 6.10. SUCCESSORS AND ASSIGNS. Unless otherwise expressly
provided herein, this Agreement shall be binding upon and inure to the benefit
of the parties hereto, and their respective legal representatives, successors
and permitted assigns. Unless otherwise expressly provided herein, neither this
Agreement nor any of the rights, interests or obligations hereunder may be
assigned, by operation of law or otherwise, by any party hereto without the
prior written consent of all other parties.
SECTION 6.11. HEADINGS. The Article and Section headings in this
Agreement are for convenience of reference only and shall not be deemed to alter
or affect the meaning or interpretation of any provisions hereof.
SECTION 6.12. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original and all of
which together shall be deemed to be one and the same instrument.
[THE REMAINDER OF THIS PAGE INTENTIONALLY BLANK. SIGNATURE PAGES TO FOLLOW.]
Page 7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
as of the date first above written.
ALLIS -- CHALMERS CORPORATION
By: /s/ Munawar H. Hidayatallah
------------------------------------------
Munawar H. Hidayatallah, Chairman
and Chief Executive Officer
NUMBER OF SECURITIES OWNED:
/s/ Munawar H. Hidayatallah
------------------------------------------
_______ shares of Common Stock MUNAWAR H. HIDAYATALLAH
_______ shares of Common Stock ENERGY SPECTRUM PARTNERS, LP
By: Energy Spectrum Capital, LP
its General Partner
By: Energy Spectrum, LLC
its General Partner
By: /s/ Thomas O. Whitener, Jr.
Thomas O. Whitener, Jr.
Chief Operating Officer
Warrants to purchase 1,500,000 WELLS FARGO ENERGY CAPITAL, INC.
shares of Common Stock
By: /s/ Gary Milavec
------------------------------------------
Gary Milavec, Senior Vice President
Page 8
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>7
<FILENAME>allis_ex3-1.txt
<TEXT>
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ALLIS-CHALMERS CORPORATION
Allis-Chalmers Corporation, a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation is Allis-Chalmers Corporation (the
"Corporation"). The Corporation was originally incorporated under the name
Allis-Chalmers Manufacturing Company. The original Certificate of Incorporation
of the Corporation was filed with the Secretary of State of the State of
Delaware (the "Secretary of State") on March 15, 1913, and was amended by the
Restated Certificate of Incorporation filed with the Secretary of State on
December 2, 1988, the Certificate of Amendment of Restated Certificate of
Incorporation filed with the Secretary of State on November 17, 1989, and
Certificate of Amendment of Amended and Restated Certificate of Incorporation
filed with the Secretary of State on July 8, 1992.
SECOND: Pursuant to Sections 242 and 245 of the General Corporation Law
of the State of Delaware, this Amended and Restated Certificate of Incorporation
restates and amends the provisions of the Corporation's Certificate of
Incorporation, as amended, in all respects.
THIRD: The text of the Amended and Restated Certificate of
Incorporation is hereby restated and amended to read in its entirety as follows:
I. The name of the Corporation is ALLIS-CHALMERS CORPORATION (hereinafter called
the "Corporation").
II. The registered office of the Corporation in the State of Delaware is located
at 1209 Orange Street in the City of Wilmington in the County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
III. The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
IV. The total number of shares of all classes of stock which the Corporation
shall have authority to issue is one hundred and ten million (110,000,000)
shares, of which one hundred million (100,000,000) shares shall be common stock,
par value $0.15 per share (the "Common Stock") and ten million (10,000,000)
shares shall be preferred stock, par value $0.01 per share (the "Preferred
Stock").
A. PREFERRED STOCK. The designations and the powers, preferences and
rights, and the qualifications, limitations or restrictions thereof, of each
class of Preferred Stock are as follows:
<PAGE>
The Board of Directors of the Corporation (the "Board of Directors") is
expressly authorized at any time, and from time to time, to provide for the
issuance of shares of Preferred Stock in one or more series, with such voting
powers, full or limited, or without voting powers and with such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issue thereof
adopted by the Board of Directors, subject to the limitations prescribed by law
and in accordance with the provisions hereof, including (but without limiting
the generality thereof) the following:
(1) The designation of the series and the number of shares to
constitute the series;
(2) The dividend rate, if any, of the series, the conditions
and dates upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or classes or
stock, and whether such dividends shall be cumulative or noncumulative;
(3) Whether the shares of the series shall be subject to
redemption by the Corporation and if made subject to such redemption, the times,
prices and other terms and conditions of such redemption;
(4) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of the series;
(5) Whether or not the shares of the series shall be
convertible into or exchangeable for shares of any other class or classes or of
any other series of any class or classes of stock of the Corporation, and if
provision be made for conversion or exchange, the times, prices, rates,
adjustments and other terms and conditions of such conversion or exchange;
(6) The extent, if any, to which the holders of the shares of
the series shall be entitled to vote with respect to the election of directors
or otherwise;
(7) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock; and
(8) The rights of the holders of the shares of the series upon
the dissolution, liquidation, or winding up of the Corporation.
Subject to the prior or equal rights, if any, of the Preferred Stock of
any and all series stated and expressed by the Board of Directors in the
resolution or resolutions providing for the issuance of such Preferred Stock,
the holders of Common Stock shall be entitled (i) to receive dividends when and
as declared by the Board of Directors out of any funds legally available
therefor, (ii) in the event of any dissolution, liquidation or winding up of the
Corporation, to receive the remaining assets of the Corporation, ratably
according to the number of shares of common stock held, and (iii) to one vote
for each share of common stock held on all matters submitted to a vote of
stockholders. No holder of Common Stock shall have any preemptive right to
purchase or subscribe for any part of any issue of stock or of securities of the
corporation convertible into stock of any class whatsoever, whether now or
hereafter authorized.
2
<PAGE>
V. The Corporation shall have perpetual existence.
VI. The private property of the stockholders shall not be subject to the payment
of the debts of the Corporation to any extent whatever.
VII. The business and affairs of the Corporation shall be managed and controlled
by the Board of Directors, which shall contain of not more than fifteen (15) nor
fewer than three (3) directors, except as provided by law, the By-Laws of the
Corporation or this Amended and Restated Certificate of Incorporation.
VIII. The stockholders may adopt, amend or repeal any By-Laws of the Corporation
at any annual meeting, or at any special meeting, provided notice of any
proposed adoption, amendment or repeal of a By-Law is included in the notice of
such meeting. The Board may also adopt, amend or repeal any By-Laws of the
Corporation except any by-laws adopted or amended by the stockholders after the
date hereof.
IX. Indemnification.
A. Each person who was or is made a party or is threatened to be made a
party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he, or a person for whom he is the legal representative,
is or was a director, officer or employee of the Corporation or is or was
serving at the request of the Corporation as a director, officer or employee of
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, shall be indemnified
by the Corporation to the fullest extent permitted by the Delaware Corporation
Law as the same exists or may hereafter be amended, against all expense,
liability and loss (including settlement) reasonably incurred or suffered by
such person in connection with such service; provided, however, that the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding initiated by him only if such proceeding was
authorized by the board of directors, either generally or in the specific
instance. The right to indemnification shall include the advancement of expenses
incurred in defending any such proceeding in advance of its final disposition in
accordance with procedures established from time to time by the board of
directors; provided, however, that if the Delaware General Corporation Law so
requires, the director, officer or employee shall deliver to the Corporation an
undertaking to repay all amounts so advanced if it shall ultimately be
determined that he is not entitled to be indemnified under this Article IX or
otherwise.
B. The rights of indemnification provided in this Article IX shall be
in addition to any rights to which any person may otherwise be entitled by law
or under any By-Law, agreement, vote of stockholders or disinterested directors,
or otherwise. Such rights shall continue as to any person who has ceased to be a
director, officer or employee and shall inure to the benefit of his heirs,
executors and administrators, and shall be applied to proceedings commenced
after the adoption hereof, whether arising from acts or omissions occurring
before or after the adoption hereof.
3
<PAGE>
X. No Director shall be personally liable to the Corporation or any stockholders
for monetary damages for breach of fiduciary duty as a Director, except for any
matter in respect of which such Director (a) shall be liable under Section 174
of the Delaware General Corporation Law or any amendment thereto or successor
provision thereto; or (b) shall be liable by reason that in addition to any and
all other requirements for such liability, he (i) shall have breached his duty
of loyalty to the Corporation or its stockholders, (ii) shall not have acted in
good faith or, in failing to act, shall not have acted in good faith, (iii)
shall have acted in a manner involving intentional misconduct or a knowing
violation of law, or (iv) shall have derived an improper personal benefit.
Neither the amendment nor repeal of this Article X, nor the adoption of any
provision of the Certificate of Incorporation inconsistent with this Article X
shall eliminate or reduce the effect of this Article X in respect of any matter
occurring, or any cause of action, suit or claim that but for this Article X
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
XI. The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a Director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of the Delaware General Corporation Law.
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed and alleged to under the penalties of perjury this
_______, 2001.
ALLIS-CHALMERS CORPORATION
By: /S/ Munawar H. Hidayatallah
-------------------------------
Munawar H. Hidayatallah, President
4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.3
<SEQUENCE>8
<FILENAME>allis_ex3-3.txt
<TEXT>
<PAGE>
Exhibit 3.3
AMENDED AND RESTATED
BY-LAWS
OF
ALLIS-CHALMERS CORPORATION
ARTICLE I
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of Allis-Chalmers
Corporation (the "Corporation") within the State of Delaware shall be located at
the principal place of business in said State of such corporation or individual
acting as the Corporation's registered agent in Delaware.
SECTION 1.2. OTHER OFFICES. The Corporation may also have offices and
places of business at such other places both within and without the State of
Delaware as the Board of Directors may from time to time determine or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.1. PLACE OF MEETINGS. All meetings of stockholders shall be
held at the principal office of the Corporation, or at such other place within
or without the State of Delaware as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.
SECTION 2.2. ANNUAL MEETINGS. The annual meeting of stockholders for
the election of directors shall be held at such time on such day, other than a
legal holiday, as the Board of Directors in each such year determines. At the
annual meeting, the stockholders entitled to vote for the election of directors
shall elect, by a plurality vote, a Board of Directors and transact such other
business as may properly come before the meeting.
SECTION 2.3. SPECIAL MEETINGS. Special meetings of stockholders, for
any purpose or purposes, may be called by a majority of the Board of Directors.
Any such request shall state the purpose or purposes of the proposed meeting. At
any special meeting of stockholders, only such business may be transacted as is
related to the purpose or purposes set forth in the notice of such meeting.
SECTION 2.4. NOTICE OF MEETINGS. Written notice of every meeting of
stockholders, stating the place, date and hour thereof and, in the case of a
special meeting of stockholders, the purpose or purposes thereof and the person
or persons by whom or at whose direction such meeting has been called and such
notice is being issued, shall be given not less than ten (10) nor more than
sixty (60) days before the date of the meeting, either personally or by mail, by
<PAGE>
or at the direction of the Chairman of the Board, Secretary, or the persons
calling the meeting, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the stock transfer books of the Corporation. Nothing
herein contained shall preclude the stockholders from waiving notice as provided
in Section 4.1 hereof.
SECTION 2.5. QUORUM. The holders of a majority of the issued and
outstanding shares of stock of the Corporation entitled to vote, represented in
person or by proxy, shall be necessary to and shall constitute a quorum for the
transaction of business at any meeting of stockholders. If, however, such quorum
shall not be present or represented at any meeting of stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At any such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. Notwithstanding the foregoing, if after any
such adjournment the Board of Directors shall fix a new record date for the
adjourned meeting, or if the adjournment is for more than thirty (30) days, a
notice of such adjourned meeting shall be given as provided in Section 2.4 of
these By-Laws, but such notice may be waived as provided in Section 4.1 hereof.
SECTION 2.6. VOTING. At each meeting of stockholders, each holder of
record of shares of stock entitled to vote shall be entitled to vote in person
or by proxy, and each such holder shall be entitled to one vote for every share
standing in his name on the books of the Corporation as of the record date fixed
by the Board of Directors or prescribed by law and, if a quorum is present, a
majority of the shares of such stock present or represented at any meeting of
stockholders shall be the vote of the stockholders with respect to any item of
business, unless otherwise provided by any applicable provision of law, by these
By-Laws or by the Certificate of Incorporation of the Corporation, as in effect
(the "Certificate of Incorporation").
SECTION 2.7. PROXIES. Every stockholder entitled to vote at a meeting
or by consent without a meeting may authorize another person or persons to act
for him by proxy. Each proxy shall be in writing executed by the stockholder
giving the proxy or by his duly authorized attorney. No proxy shall be valid
after the expiration of three (3) years from its date, unless a longer period is
provided for in the proxy. Unless and until voted, every proxy shall be
revocable at the pleasure of the person who executed it, or his legal
representatives or assigns except in those cases where an irrevocable proxy
permitted by statute has been given.
SECTION 2.8. CONSENTS. Whenever a vote of stockholders at a meeting
thereof is required or permitted to be taken in connection with any corporate
action by any provision of statute, the Certificate of Incorporation or these
By-Laws, the meeting, prior notice thereof and vote of stockholders may be
dispensed with if the holders of shares having not less than the minimum number
of votes that would have been necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted
shall consent in writing to the taking of such action. Where corporate action is
taken in such matter by less than unanimous written consent, prompt written
notice of the taking of such action shall be given to all stockholders.
2
<PAGE>
SECTION 2.9. STOCK RECORDS. The Secretary or agent having charge of the
stock transfer books shall make, at least ten (10) days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order and showing
the address of and the number and class and series, if any, of shares held by
each. Such list, for a period of ten (10) days prior to such meeting, shall be
kept at the principal place of business of the Corporation or at the office of
the transfer agent or registrar of the Corporation and such other places as
required by statute and shall be subject to inspection by any stockholder at any
time during usual business hours. Such list shall also be produced and kept open
at the time and place of the meeting and shall be subject to the inspection of
any stockholder at any time during the meeting.
ARTICLE III
DIRECTORS
SECTION 3.1. NUMBER. The number of directors of the Corporation which
shall constitute the entire Board of Directors shall initially be fixed by the
Incorporator and thereafter from time to time by a vote of a majority of the
entire Board and shall be not less than three nor more than fifteen.
SECTION 3.2. RESIGNATION AND REMOVAL. Any director may resign at any
time upon notice of resignation to the Corporation. Any director may be removed
at any time by vote of the stockholders then entitled to vote for the election
of directors at a special meeting called for that purpose, either with or
without cause.
SECTION 3.3. NEWLY CREATED DIRECTORSHIP AND VACANCIES. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason whatsoever shall be
filled by vote of the Board. If the number of directors then in office is less
than a quorum, such newly created directorships and vacancies may be filled by a
vote of a majority of the directors then in office. Any director elected to fill
a vacancy shall be elected until the next meeting of stockholders at which the
election of directors is in the regular course of business, and until his
successor has been elected and qualified.
SECTION 3.4. POWERS AND DUTIES. Subject to the applicable provisions of
law, these By-Laws or the Certificate of Incorporation, but in furtherance and
not in limitation of any rights therein conferred, the Board of Directors shall
have the control and management of the business and affairs of the Corporation
and shall exercise all such powers of the Corporation and do all such lawful
acts and things as may be exercised by the Corporation.
SECTION 3.5. PLACE OF MEETINGS. All meetings of the Board of Directors
may be held either within or without the State of Delaware.
3
<PAGE>
SECTION 3.6. ANNUAL MEETINGS. An annual meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting to the newly elected directors shall
be necessary in order to legally constitute the meeting, provided a quorum shall
be present, or the newly elected directors may meet at such time and place as
shall be fixed by the written consent of all of such directors.
SECTION 3.7. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held upon such notice or without notice, and at such time and
at such place as shall from time to time be determined by the Board.
SECTION 3.8. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by a majority of the Board of Directors. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice or waiver of notice of
such meeting.
SECTION 3.9. NOTICE OF MEETINGS. Notice of each special meeting of the
Board (and of each regular meeting for which notice shall be required) shall be
given by the Secretary or an Assistant Secretary and shall state the place, date
and time of the meeting. Notice of each such meeting shall be given orally or
shall be mailed to each director at his residence or usual place of business. If
notice of less than three (3) days is given, it shall be oral, whether by
telephone or in person, or sent by special delivery mail or telegraph. If
mailed, the notice shall be given when deposited in the United States mail,
postage prepaid. Notice of any adjourned meeting, including the place, date and
time of the new meeting, shall be given to all directors not present at the time
of the adjournment, as well as to the other directors unless the place, date and
time of the new meeting is announced at the adjourned meeting. Nothing herein
contained shall preclude the directors from waiving notice as provided in
Section 4.1 hereof.
SECTION 3.10. QUORUM AND VOTING. At all meetings of the Board of
Directors, a majority of the entire Board shall be necessary to, and shall
constitute a quorum for, the transaction of business at any meeting of
directors, unless otherwise provided by any applicable provision of law, by
these By-Laws, or by the Certificate of Incorporation. The act of a majority of
the directors present at the time of the vote, if a quorum is present at such
time, shall be the act of the Board of Directors, unless otherwise provided by
an applicable provision of law, by these By-Laws or by the Certificate of
Incorporation. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, until a quorum shall be present.
SECTION 3.11. COMPENSATION. The Board of Directors, by the affirmative
vote of a majority of the directors then in office, and irrespective of any
personal interest of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the Corporation as
directors, officers or otherwise.
4
<PAGE>
SECTION 3.12. BOOKS AND RECORDS. The directors may keep the books of
the Corporation, except such as are required by law to be kept within the state,
outside of the State of Delaware, at such place or places as they may from time
to time determine.
SECTION 3.13. ACTION WITHOUT A MEETING. Any action required or
permitted to be taken by the Board, or by a committee of the Board, may be taken
without a meeting if all members of the Board or the committee, as the case may
be, consent in writing to the adoption of a resolution authorizing the action.
Any such resolution and the written consents thereto by the members of the Board
or committee shall be filed with the minutes of the proceedings of the Board or
committee.
SECTION 3.14. TELEPHONE PARTICIPATION. Any one or more members of the
Board, or any committee of the Board, may participate in a meeting of the Board
or committee by means of a conference telephone call or similar communications
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation by such means shall constitute presence in
person at a meeting.
SECTION 3.15. COMMITTEES OF THE BOARD. The Board, by resolution adopted
by a majority of the entire Board, may designate one or more committees, each
consisting of one or more directors. The Board may designate one or more
directors as alternate members of any such committee. Such alternate members may
replace any absent member or members at any meeting of such committee. Each
committee (including the members thereof) shall serve at the pleasure of the
Board and shall keep minutes of its meetings and report the same to the Board.
Except as otherwise provided by law, each such committee, to the extent provided
in the resolution establishing it, shall have and may exercise all the authority
of the Board with respect to all matters.
ARTICLE IV
WAIVER
SECTION 4.1. WAIVER. Whenever a notice is required to be given by any
provision of law, by these By-Laws, or by the Certificate of Incorporation, a
waiver thereof in writing, whether before or after the time stated therein,
shall be deemed equivalent to such notice. In addition, any stockholder
attending a meeting of stockholders in person or by proxy without protesting
prior to the conclusion of the meeting the lack of notice thereof to him or her,
and any director attending a meeting of the Board of Directors without
protesting prior to the meeting or at its commencement such lack of notice,
shall be conclusively deemed to have waived notice of such meeting.
ARTICLE V
OFFICERS
SECTION 5.1. EXECUTIVE OFFICERS. The officers of the Corporation shall
be a President or Chief Executive Officer, a Secretary and a Treasurer. Any
person may hold two or more of such offices. The officers of the Corporation
shall be elected annually (and from time to time by the Board of Directors, as
vacancies occur), at the annual meeting of the Board of Directors following the
meeting of stockholders at which the Board of Directors was elected.
5
<PAGE>
SECTION 5.2. OTHER OFFICERS. The Board of Directors may appoint such
other officers and agents, including Vice Presidents, Assistant Vice Presidents,
Assistant Secretaries and Assistant Treasurers, as it shall at any time or from
time to time deem necessary or advisable.
SECTION 5.3. AUTHORITIES AND DUTIES. All officers, as between
themselves and the Corporation, shall have such authority and perform such
duties in the management of business and affairs of the Corporation as may be
provided in these By-Laws, or, to the extent not so provided, as may be
prescribed by the Board of Directors.
SECTION 5.4. TENURE AND REMOVAL. The officers of the Corporation shall
be elected or appointed to hold office until their respective successors are
elected or appointed. All officers shall hold office at the pleasure of the
Board of Directors, and any officer elected or appointed by the Board of
Directors may be removed at any time by the Board of Directors for cause or
without cause at any regular or special meeting.
SECTION 5.5. VACANCIES. Any vacancy occurring in any office of the
Corporation, whether because of death, resignation or removal, with or without
cause, or any other reason, shall be filled by the Board of Directors.
SECTION 5.6. COMPENSATION. The salaries and other compensation of all
officers and agents of the Corporation shall be fixed by or in the manner
prescribed by the Board of Directors.
SECTION 5.7. PRESIDENT; CHIEF EXECUTIVE OFFICER. The President or Chief
Executive Officer shall have general charge of the business and affairs of the
Corporation, subject to the control of the Board of Directors, and shall preside
at all meetings of the stockholders and directors. The President or Chief
Executive Officer shall perform such other duties as are properly required by
him or her by the Board of Directors.
SECTION 5.8. VICE PRESIDENT. Each Vice President, if any, shall perform
such duties as may from time to time be assigned to him by the Board of
Directors.
SECTION 5.9. SECRETARY. The Secretary shall attend all meetings of the
stockholders and all meetings of the Board of Directors and shall record all
proceedings taken at such meetings in a book to be kept for that purpose; the
Secretary shall see that all notices of meetings of stockholders and meetings of
the Board of Directors are duly given in accordance with the provisions of these
By-Laws or as required by law; the Secretary shall be the custodian of the
records and of the corporate seal or seals of the Corporation; the Secretary
shall have authority to affix the corporate seal or seals to all documents, the
execution of which, on behalf of the Corporation, under its seal, is duly
authorized, and when so affixed it may be attested by the Secretary's signature;
and in general, the Secretary shall perform all duties incident to the office of
the Secretary of a corporation, and such other duties as the Board of Directors
may from time to time prescribe.
6
<PAGE>
SECTION 5.10. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit, or cause to be deposited, in the name and to the
credit of the Corporation, all moneys and valuable effects in such banks, trust
companies, or other depositories as shall from time to time be selected by the
Board of Directors. The Treasurer shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation; the Treasurer
shall render to the President or Chief Executive Officer and to each member of
the Board of Directors, whenever requested, an account of all of his
transactions as Treasurer and of the financial condition of the Corporation; and
in general, the Treasurer shall perform all of the duties incident to the office
of the Treasurer of a corporation, and such other duties as the Board of
Directors may from time to time prescribe.
SECTION 5.11. OTHER OFFICERS. The Board of Directors may also elect or
may delegate to the President or Chief Executive Officer the power to appoint
such other officers as it may at any time or from time to time deem advisable,
and any officers so elected or appointed shall have such authority and perform
such duties as the Board of Directors or the President or the Chief Executive
Officer, if he or she shall have appointed them, may from time to time
prescribe.
ARTICLE VI
PROVISIONS RELATING TO STOCK CERTIFICATES AND STOCKHOLDERS
SECTION 6.1. FORM AND SIGNATURE. The shares of the Corporation shall be
represented by a certificate signed by the Chairman of the Board or President or
Chief Executive Officer or any Vice President and by the Secretary or any
Assistant Secretary or the Treasurer or any Assistant Treasurer, and shall bear
the seal of the Corporation or a facsimile thereof. Each certificate
representing shares shall state upon its face (a) that the Corporation is formed
under the laws of the State of Delaware, (b) the name of the person or persons
to whom it is issued, (c) the number of shares which such certificate represents
and (d) the par value, if any, of each share represented by such certificate.
SECTION 6.2. REGISTERED STOCKHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares of stock to receive dividends or other distributions, and to
vote as such owner, and to hold liable for calls and assessments a person
registered on its books as the owner of stock, and shall not be bound to
recognize any equitable or legal claim to or interest in such shares on the part
of any other person.
SECTION 6.3. TRANSFER OF STOCK. Upon surrender to the Corporation or
the appropriate transfer agent, if any, of the Corporation, of a certificate
representing shares of stock duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, and, in the event that the
certificate refers to any agreement restricting transfer of the shares which it
represents, proper evidence of compliance with such agreement, a new certificate
shall be issued to the person entitled thereto, and the old certificate
cancelled and the transaction recorded upon the books of the Corporation.
7
<PAGE>
SECTION 6.4. LOST CERTIFICATES, ETC. The Corporation may issue a new
certificate for shares in place of any certificate theretofore issued by it,
alleged to have been lost, mutilated, stolen or destroyed, and the Board of
Directors may require the owner of such lost, mutilated, stolen or destroyed
certificate, or such owner's legal representatives, to make an affidavit of the
fact and/or to give the Corporation a bond in such sum as it may direct as
indemnity against any claim that may be made against the Corporation on account
of the alleged loss, mutilation, theft or destruction of any such certificate or
the issuance of any such new certificate.
SECTION 6.5. RECORD DATE. For the purpose of determining the
stockholders entitled to notice of, or to vote at, any meeting of stockholders
or any adjournment thereof, or to express written consent to any corporate
action without a meeting, or for the purpose of determining stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board may fix, in advance, a record date. Such date shall not be more than
sixty (60) nor less than ten (10) days before the date of any such meeting, nor
more than sixty (60) days prior to any other action.
SECTION 6.6. REGULATIONS. Except as otherwise provided by law, the
Board may make such additional rules and regulations, not inconsistent with
these By-Laws, as it may deem expedient, concerning the issue, transfer and
registration of certificates for the securities of the Corporation. The Board
may appoint, or authorize any officer or officers to appoint, one or more
transfer agents and one or more registrars and may require all certificates for
shares of capital stock to bear the signature or signatures of any of them.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1. DIVIDENDS AND DISTRIBUTIONS. Dividends and other
distributions upon or with respect to outstanding shares of stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, bonds, property, or in stock of the
Corporation. The Board shall have full power and discretion, subject to the
provisions of the Certificate of Incorporation or the terms of any other
corporate document or instrument to determine what, if any, dividends or
distributions shall be declared and paid or made.
SECTION 7.2. CHECKS, ETC. All checks or demands for money and notes or
other instruments evidencing indebtedness or obligations of the Corporation
shall be signed by such officer or officers or other person or persons as may
from time to time be designated by the Board of Directors.
8
<PAGE>
SECTION 7.3. SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation and the words "Corporate
Seal Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.
SECTION 7.4. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
SECTION 7.5. GENERAL AND SPECIAL BANK ACCOUNTS. The Board may authorize
from time to time the opening and keeping of general and special bank accounts
with such banks, trust companies or other depositories as the Board may
designate or as may be designated by any officer or officers of the Corporation
to whom such power of designation may be delegated by the Board from time to
time. The Board may make such special rules and regulations with respect to such
bank accounts, not inconsistent with the provisions of these By-Laws, as it may
deem expedient.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER PERSONS
SECTION 8.1. INDEMNIFICATION BY CORPORATION. To the extent permitted by
law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than said law permitted the
Corporation to provide prior to such amendment) the Corporation shall indemnify
any person against any and all judgments, fines, and amounts paid in settling or
otherwise disposing of actions or threatened actions, and expenses in connection
therewith, incurred by reason of the fact that such person, such person's
testator or intestate is or was a director or officer of the Corporation or of
any other corporation of any type or kind, domestic or foreign, which such
person served in any capacity at the request of the Corporation. To the extent
permitted by law, expenses so incurred by any such person in defending a civil
or criminal action or proceeding shall at such person's request be paid by the
Corporation in advance of the final disposition of such action or proceeding.
ARTICLE IX
ADOPTION AND AMENDMENTS
SECTION 9.1. POWER TO AMEND. These By-Laws may be amended or repealed
and any new By-Laws may be adopted by the Board of Directors; provided that
these By-Laws and any other By-Laws amended or adopted by the Board of Directors
may be amended, may be reinstated, and new By-Laws may be adopted, by the
stockholders of the Corporation entitled to vote at the time for the election of
directors.
9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>9
<FILENAME>allis_ex10-11.txt
<TEXT>
<PAGE>
Exhibit 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made as of February 7,
2001, by OILQUIP RENTALS, INC., a Delaware corporation (the "Employer"), and
MUNAWAR H. HIDAYATALLAH, an individual resident in Santa Monica, California (the
"Executive").
R E C I T A L S
The Buyer and the Employer desire the Executive's employment with the
Employer, and the Executive wishes to accept such employment, upon the terms and
conditions set forth in this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
-----------
For the purposes of this Agreement, the following terms have the
meanings specified or referred to in this Section 1.
"AGREEMENT"--this Employment Agreement.
"BASIC COMPENSATION"--Salary and Benefits.
"BENEFITS"--as defined in Section 3.1(b).
"BOARD OF DIRECTORS"--the board of directors of the Employer.
"CONFIDENTIAL INFORMATION"--any and all:
(a) trade secrets concerning the business and affairs of the
Employer, product specifications, data, know-how, formulae,
compositions, processes, designs, sketches, photographs, graphs,
drawings, samples, inventions and ideas, past, current, and planned
research and development, current and planned manufacturing or
distribution methods and processes, customer lists, current and
anticipated customer requirements, price lists, market studies,
business plans, computer software and programs (including object code
and source code), computer software and database technologies, systems,
structures, and architectures (and related formulae, compositions,
processes, improvements, devices, know-how, inventions, discoveries,
concepts, ideas, designs, methods and information, and any other
information, however documented, that is a trade secret within the
meaning of Texas State law; and
1
<PAGE>
(b) information concerning the business and affairs of the
Employer (which includes historical financial statements, financial
projections and budgets, historical and projected sales, capital
spending budgets and plans, the names and backgrounds of key personnel,
personnel training and techniques and materials, however documented;
and
(c) notes, analysis, compilations, studies, summaries, and
other material prepared by or for the Employer containing or based, in
whole or in part, on any information included in the foregoing.
"DISABILITY"--as defined in Section 6.2.
"EFFECTIVE DATE"--the date stated in the first paragraph of the
Agreement.
"EMPLOYEE INVENTION"--any idea, invention, technique, modification,
process, or improvement (whether patentable or not), any industrial
design (whether registerable or not), any mask work, however fixed or
encoded, that is suitable to be fixed, embedded or programmed in a
semiconductor product (whether recordable or not), and any work of
authorship (whether or not copyright protection may be obtained for it)
created, conceived, or developed by the Executive, either solely or in
conjunction with others, during the Employment Period, or a period that
includes a portion of the Employment Period, that relates in any way
to, or is useful in any manner in, the business then being conducted or
proposed to be conducted by the Employer, and any such item created by
the Executive, either solely or in conjunction with others, following
termination of the Executive's employment with the Employer, that is
based upon or uses Confidential Information.
"EMPLOYMENT PERIOD"--the term of the Executive's employment under this
Agreement.
"FISCAL YEAR"--the Employer's fiscal year, as it exists on the
Effective Date or as changed from time to time.
"FOR CAUSE"--as defined in Section 6.3.
"FOR GOOD CAUSE"--as defined in Section 6.4.
"INCENTIVE COMPENSATION"--as defined in Section 3.2.
"PERSON"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, or
governmental body.
"POST-EMPLOYMENT PERIOD"--as defined in Section 8.2.
"PROPRIETARY ITEMS"--as defined in Section 7.2(a)(iv).
2
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"SALARY"--as defined in Section 3.1(a).
2. EMPLOYMENT TERMS AND DUTIES
---------------------------
2.1 EMPLOYMENT
The Employer hereby employs the Executive, and the Executive hereby
accepts employment by the Employer, upon the terms and conditions set forth in
this Agreement.
2.2 TERM
Subject to the provisions of Section 6, the term of the Executive's
employment under this Agreement will be three years, beginning on the Effective
Date and ending on the third anniversary of the Effective Date.
2.3 DUTIES
The Executive will have such duties as are assigned or delegated to the
Executive by the Board of Directors, and will initially serve as Chairman and
Chief Executive Officer of the Employer. The Executive will devote his time,
attention, skill, and energy to the business of the Employer, will use his good
faith efforts to promote the success of the Employer's business, and will
cooperate fully with the Board of Directors in the advancement of the best
interests of the Employer. Nothing in this Section 2.3, however, will prevent
the Executive from engaging in additional activities in connection with personal
investments and community affairs that are not inconsistent with the Executive's
duties under this Agreement. If the Executive is elected as a director of the
Employer or as a director or officer of any of its affiliates, the Executive
will fulfill his duties as such director or officer without additional
compensation.
3. COMPENSATION
------------
3.1 BASIC COMPENSATION
(a) SALARY. The Executive will be paid an annual salary to
begin following the Employer's first acquisition of $200,000.00, which will be
increased to $250,000.00 per annum following a second acquisition, and to
$300,000.00 per annum following a third acquisition, subject to adjustment as
provided below (the "Salary"), which will be payable in equal periodic
installments according to the Employer's customary payroll practices, but no
less frequently than monthly. The Salary will be reviewed by the Board of
Directors not less frequently than annually, but in no event will the Salary be
less than $200,000.00 per year.
(b) BENEFITS. The Executive will, during the Employment
Period, be permitted to participate in such pension, profit sharing, bonus, life
insurance, hospitalization, major medical, and other employee benefit plans of
the Employer that may be in effect from time to time, to the extent the
Executive is eligible under the terms of those plans (collectively, the
"Benefits").
3
<PAGE>
(c) LIFE INSURANCE. Employer shall pay for and obtain a term
life insurance policy on the life of Executive in the amount of $2,500,000.00.
The beneficiary of the life insurance policy shall be the Employer, however,
Employer and Executive agree that the proceeds from such policy, in the event of
Executive's death, shall be used exclusively by Employer to purchase shares of
common stock, $.01 par value ("Common Stock"), of the Employer from Executive's
estate at the time of death. The value of the shares of Common Stock of
Executive shall be made by an independent third party experienced in valuations
of this type appointed by the Employer. Following the valuation, the Employer
shall utilize the $2,500,000.00 to purchase the Common Stock or portion of such
shares of Common Stock depending on the valuation of the Common Stock of
Executive. In the event the valuation of Executive's Common Stock is more than
$2,500,000.00, then the Employer shall purchase for $2,500,000.00 only such
portion of Common Stock as shall be equal to such amount, and Executive's estate
may retain the shares of Common Stock not purchased. In the event the valuation
of Executive's Common Stock is less than $2,500,000.00, then Employer shall
utilize such amount of the insurance proceeds equal to the valuation to purchase
Executive's Common Stock. The purchase of Executive's Common Stock from his
estate, following his death, shall be consummated within thirty (30) days
following Employer's receipt of the valuation.
3.2 INCENTIVE COMPENSATION. As additional compensation ("Incentive
Compensation") for services rendered by the Executive to Employer in the
assistance and procurement of additional acquisitions of companies and
businesses in the Employer's line of business ("Acquisition"), the Employer will
pay to Executive one-half of one percent (1/2 of 1%) of the value of any
Acquisitions based on the total purchase price of such Acquisition when such
Acquisition is consummated by Employer. The Incentive Compensation to be paid to
Executive, at Executive's option, shall be paid in cash or stock options in
Common Stock of Employer.
4. FACILITIES AND EXPENSES
-----------------------
4.1 GENERAL
The Employer will furnish the Executive office space, equipment,
supplies, and such other facilities and personnel as the Employer deems
necessary or appropriate for the performance of the Executive's duties under
this Agreement. The Employer will pay the Executive's dues in such professional
societies and organizations as the Chairman of the Board deems appropriate, and
will pay on behalf of the Executive (or reimburse the Executive for) reasonable
expenses incurred by the Executive at the request of, or on behalf of, the
Employer in the performance of the Executive's duties pursuant to this
Agreement, and in accordance with the Employer's employment policies, including
reasonable expenses incurred by the Executive in attending conventions,
seminars, and other business meetings, in appropriate business entertainment
activities, and for promotional expenses. The Executive must file expense
reports with respect to such expenses in accordance with the Employer's
policies.
4.2 AUTOMOBILE
The Employer will include the Executive in the Employer's automobile
allowance policy. The Executive will own his own automobile, and maintain and
insure it at his own expense, for his business use in connection with his
4
<PAGE>
employment under this Agreement. The Executive will at his own expense maintain
liability insurance on any automobile used in connection with the Employer's
business, including excess liability (umbrella) insurance coverage in an amount
not less than one million dollars per occurrence, with underlying insurance
coverage as required by such excess liability insurance policy, and the
Executive will furnish proof of such insurance to the Employer as requested by
the Employer. The Executive must file expense reports with respect to such
automobile in accordance with the Employer's policies.
5. VACATIONS AND HOLIDAYS
----------------------
The Executive will be entitled to four weeks' paid vacation each Fiscal
Year in accordance with the vacation policies of the Employer in effect for its
executive officers from time to time. Vacation must be taken by the Executive at
such time or times as approved by the Chairman of the Board or Chief Executive
Officer. The Executive will also be entitled to the paid holidays and other paid
leave set forth in the Employer's policies. Vacation days and holidays during
any Fiscal Year that are not used by the Executive during such Fiscal Year may
be used in any subsequent Fiscal Year.
6. TERMINATION
-----------
6.1 EVENTS OF TERMINATION
The Employment Period, the Executive's Basic Compensation and
Incentive Compensation, and any and all other rights of the Executive under this
Agreement or otherwise as an employee of the Employer will terminate (except as
otherwise provided in this Section 6):
(a) upon the death of the Executive;
(b) upon the disability of the Executive (as defined in
Section 6.2) immediately upon notice from either party to the other;
(c) for cause (as defined in Section 6.3), immediately upon
notice from the Employer to the Executive, or at such later time as such notice
may specify; or
(d) for good reason (as defined in Section 6.4) upon not less
than thirty days' prior notice from the Executive to the Employer.
6.2 DEFINITION OF DISABILITY
For purposes of Section 6.1, the Executive will be deemed to have a
"disability" if, for physical or mental reasons, the Executive is unable to
perform the essential functions of the Executive's duties under this Agreement
for 120 consecutive days, or 180 days during any twelvemonth period, as
determined in accordance with this Section 6.2. The disability of the Executive
will be determined by a medical doctor selected by written agreement of the
Employer and the Executive upon the request of either party by notice to the
other. If the Employer and the Executive cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two medical
doctors will select a third medical doctor who will determine whether the
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<PAGE>
Executive has a disability. The determination of the medical doctor selected
under this Section 6.2 will be binding on both parties. The Executive must
submit to a reasonable number of examinations by the medical doctor making the
determination of disability under this Section 6.2, and the Executive hereby
authorizes the disclosure and release to the Employer of such determination and
all supporting medical records. If the Executive is not legally competent, the
Executive's legal guardian or duly authorized attorney-in-fact will act in the
Executive's stead, under this Section 6.2, for the purposes of submitting the
Executive to the examinations, and providing the authorization of disclosure,
required under this Section 6.2.
6.3 DEFINITION OF "FOR CAUSE"
For purposes of Section 6.1, the phrase "for cause" means: (a) the
Executive's material breach of this Agreement; (b) the Executive's failure to
adhere to any written Employer policy if the Executive has been given a
reasonable opportunity to comply with such policy or cure his failure to comply
(which reasonable opportunity must be granted during the ten-day period
preceding termination of this Agreement); (c) the appropriation (or attempted
appropriation) of a material business opportunity of the Employer, including
attempting to secure or securing any personal profit in connection with any
transaction entered into on behalf of the Employer; (d) the misappropriation (or
attempted misappropriation) of any of the Employer's funds or property; or (e)
the conviction of, the indictment for (or its procedural equivalent), or the
entering of a guilty plea or plea of no contest with respect to, a felony, the
equivalent thereof, or any other crime with respect to which imprisonment is a
possible punishment.
6.4 DEFINITION OF "FOR GOOD REASON"
For purposes of Section 6.1, the phrase "for good reason" means any of
the following: (a) The Employer's material breach of this Agreement; (b) the
assignment of the Executive without his consent to a position, responsibilities,
or duties of a materially lesser status or degree of responsibility than his
position, responsibilities, or duties at the Effective Date; or (c) the
requirement by the Employer that the Executive be based anywhere other than the
Employer's principal executive offices, in either case without the Executive's
consent.
6.5 TERMINATION PAY
Effective upon the termination of this Agreement, the Employer will be
obligated to pay the Executive (or, in the event of his death, his designated
beneficiary as defined below) only such compensation as is provided in this
Section 6.5, and in lieu of all other amounts and in settlement and complete
release of all claims the Executive may have against the Employer. For purposes
of this Section 6.5, the Executive's designated beneficiary will be such
individual beneficiary or trust, located at such address, as the Executive may
designate by notice to the Employer from time to time or, if the Executive fails
to give notice to the Employer of such a beneficiary, the Executive's estate.
Notwithstanding the preceding sentence, the Employer will have no duty, in any
circumstances, to attempt to open an estate on behalf of the Executive, to
determine whether any beneficiary designated by the Executive is alive or to
ascertain the address of any such beneficiary, to determine the existence of any
trust, to determine whether any person or entity purporting to act as the
Executive's personal representative (or the trustee of a trust established by
the Executive) is duly authorized to act in that capacity, or to locate or
attempt to locate any beneficiary, personal representative, or trustee.
6
<PAGE>
(a) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. If the Executive
terminates this Agreement for good reason, the Employer will
pay the Executive the Executive's Salary for the remainder, if
any, of the calendar month in which such termination is
effective and for twelve consecutive calendar months
thereafter. Notwithstanding the preceding sentence, if the
Executive obtains other employment prior to the end of the six
months following the month in which the termination is
effective, he must promptly give notice thereof to the
Employer, and the Salary payments under this Agreement for any
period after the Executive obtains other employment will be
reduced by the amount of the cash compensation received and to
be received by the Executive from the Executive's other
employment for services performed during such period.
(b) TERMINATION BY THE EMPLOYER FOR CAUSE. If the Employer
terminates this Agreement for cause, the Executive will be
entitled to receive his Salary only through the date such
termination is effective, but will not be entitled to any
Incentive Compensation for the Fiscal Year during which such
termination occurs or any subsequent Fiscal Year.
(c) TERMINATION UPON DISABILITY. If this Agreement is terminated
by either party as a result of the Executive's disability, as
determined under Section 6.2, the Employer will pay the
Executive his Salary through the remainder of the calendar
month during which such termination is effective and for the
lesser of (i) six (6) consecutive months thereafter, or (ii)
the period until disability insurance benefits commence under
the disability insurance coverage furnished by the Employer to
the Executive.
(d) TERMINATION UPON DEATH. If this Agreement is terminated
because of the Executive's death, the Executive will be
entitled to receive his Salary through the end of the calendar
month in which his death occurs, and that part of the
Executive's Incentive Compensation, if any, for the Fiscal
Year during which his death occurs, prorated through the end
of the calendar month during which his death occurs.
(e) BENEFITS. The Executive's accrual of, or participation in
plans providing for, the Benefits will cease at the effective
date of the termination of this Agreement, and the Executive
will be entitled to accrued Benefits pursuant to such plans
only as provided in such plans. The Executive will not
receive, as part of his termination pay pursuant to this
Section 6, any payment or other compensation for any vacation,
holiday, sick leave, or other leave unused on the date the
notice of termination is given under this Agreement.
7. NON-DISCLOSURE COVENANT; EMPLOYEE INVENTIONS
--------------------------------------------
7.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
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<PAGE>
The Executive acknowledges that (a) during the Employment Period and as
a part of his employment, the Executive will be afforded access to Confidential
Information; (b) public disclosure of such Confidential Information could have
an adverse effect on the Employer and its business; (c) because the Executive
possesses substantial technical expertise and skill with respect to the
Employer's business, the Employer desires to obtain exclusive ownership of each
Employee Invention, and the Employer will be at a substantial competitive
disadvantage if it fails to acquire exclusive ownership of each Employee
Invention; (d) the Buyer has required that the Executive make the covenants in
this Section 7 as a condition to its purchase of the Employer's stock; and (e)
the provisions of this Section 7 are reasonable and necessary to prevent the
improper use or disclosure of Confidential Information and to provide the
Employer with exclusive ownership of all Employee Inventions.
7.2 AGREEMENTS OF THE EXECUTIVE
In consideration of the compensation and benefits to be paid or
provided to the Executive by the Employer under this Agreement, the Executive
covenants as follows:
(a) CONFIDENTIALITY.
(i) During and following the Employment Period, the
Executive will hold in confidence the Confidential
Information and will not disclose it to any person
except with the specific prior written consent of the
Employer or except as otherwise expressly permitted
by the terms of this Agreement.
(ii) Any trade secrets of the Employer will be entitled to
all of the protections and benefits under the Trade
Secrets law of the State of Texas and any other
applicable law. If any information that the Employer
deems to be a trade secret is found by a court of
competent jurisdiction not to be a trade secret for
purposes of this Agreement, such information will,
nevertheless, be considered Confidential Information
for purposes of this Agreement. The Executive hereby
waives any requirement that the Employer submit proof
of the economic value of any trade secret or post a
bond or other security.
(iii) None of the foregoing obligations and restrictions
applies to any part of the Confidential Information
that the Executive demonstrates was or became
generally available to the public other than as a
result of a disclosure by the Executive.
(iv) The Executive will not remove from the Employer's
premises (except to the extent such removal is for
purposes of the performance of the Executive's duties
at home or while traveling, or except as otherwise
specifically authorized by the Employer) any
document, record, notebook, plan, model, component,
device, or computer software or code, whether
embodied in a disk or in any other form
(collectively, the "Proprietary Items"). The
Executive recognizes that, as between the Employer
and the Executive, all of the Proprietary Items,
whether or not developed by the Executive, are the
8
<PAGE>
exclusive property of the Employer. Upon termination
of this Agreement by either party, or upon the
request of the Employer during the Employment Period,
the Executive will return to the Employer all of the
Proprietary Items in the Executive's possession or
subject to the Executive's control, and the Executive
shall not retain any copies, abstracts, sketches, or
other physical embodiment of any of the Proprietary
Items.
7.3 DISPUTES OR CONTROVERSIES
The Executive recognizes that should a dispute or controversy arising
from or relating to this Agreement be submitted for adjudication to any court,
arbitration panel, or other third party, the preservation of the secrecy of
Confidential Information may be jeopardized. All pleadings, documents,
testimony, and records relating to any such adjudication will be maintained in
secrecy and will be available for inspection by the Employer, the Executive, and
their respective attorneys and experts, who will agree, in advance and in
writing, to receive and maintain all such information in secrecy, except as may
be limited by them in writing.
8. NON-COMPETITION AND NON-INTERFERENCE
------------------------------------
8.1 ACKNOWLEDGMENTS BY THE EXECUTIVE
The Executive acknowledges that: (a) the services to be performed by
him under this Agreement are of a special, unique, unusual, extraordinary, and
intellectual character; (b) the Employer's business is regional; (c) the
Employer competes with other businesses that are or could be located in any part
of the States of Utah, New Mexico and Colorado; (d) the Buyer has required that
the Executive make the covenants set forth in this Section 8 as a condition to
the Buyer's purchase of the Executive's stock in the Employer; and (e) the
provisions of this Section 8 are reasonable and necessary to protect the
Employer's business.
8.2 COVENANTS OF THE EXECUTIVE
In consideration of the acknowledgments by the Executive, and in
consideration of the compensation and benefits to be paid or provided to the
Executive by the Employer, the Executive covenants that he will not, directly or
indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post-Employment Period, engage or invest
in, own, manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend the Executive's name or any similar
name to, lend Executive's credit to or render services or advice to, any
business whose products or activities compete in whole or in part with the
products or activities of the Employer anywhere within the States of Utah, New
Mexico and Colorado; provided, however, that the Executive may purchase or
otherwise acquire up to (but not more than) one percent of any class of
securities of any enterprise (but without otherwise participating in the
activities of such enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934;
9
<PAGE>
(b) whether for the Executive's own account or for the account
of any other person, at any time during the Employment Period and the
Post-Employment Period, solicit business of the same or similar type being
carried on by the Employer, from any person known by the Executive to be a
customer of the Employer, whether or not the Executive had personal contact with
such person during and by reason of the Executive's employment with the
Employer;
(c) whether for the Executive's own account or the account of
any other person (i) at any time during the Employment Period and the
Post-Employment Period, solicit, employ, or otherwise engage as an employee,
independent contractor, or otherwise, any person who is or was an employee of
the Employer at any time during the Employment Period or in any manner induce or
attempt to induce any employee of the Employer to terminate his employment with
the Employer; or (ii) at any time during the Employment Period and for three
years thereafter, interfere with the Employer's relationship with any person,
including any person who at any time during the Employment Period was an
employee, contractor, supplier, or customer of the Employer; or
(d) at any time during or after the Employment Period,
disparage the Employer or any of its shareholders, directors, officers,
employees, or agents.
For purposes of this Section 8.2, the term "Post-Employment Period" means the
two (2) year period beginning on the date of termination of the Executive's
employment with the Employer.
If any covenant in this Section 8.2 is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding, and enforceable against the
Executive.
The period of time applicable to any covenant in this Section 8.2 will
be extended by the duration of any violation by the Executive of such covenant.
The Executive will, while the covenant under this Section 8.2 is in
effect, give notice to the Employer, within ten days after accepting any other
employment, of the identity of the Executive's employer. The Buyer or the
Employer may notify such employer that the Executive is bound by this Agreement
and, at the Employer's election, furnish such employer with a copy of this
Agreement or relevant portions thereof.
9. GENERAL PROVISIONS
------------------
9.1 INJUNCTIVE RELIEF AND ADDITIONAL REMEDY
The Executive acknowledges that the injury that would be suffered by
the Employer as a result of a breach of the provisions of this Agreement
(including any provision of Sections 7 and 8) would be irreparable and that an
10
<PAGE>
award of monetary damages to the Employer for such a breach would be an
inadequate remedy. Consequently, the Employer will have the right, in addition
to any other rights it may have, to obtain injunctive relief to restrain any
breach or threatened breach or otherwise to specifically enforce any provision
of this Agreement, and the Employer will not be obligated to post bond or other
security in seeking such relief.
9.2 COVENANTS OF SECTIONS 7 AND 8 ARE ESSENTIAL
AND INDEPENDENT COVENANTS
The covenants by the Executive in Sections 7 and 8 are essential
elements of this Agreement, and without the Executive's agreement to comply with
such covenants, the Buyer would not have purchased the Executive's stock under
the Stock Purchase Agreement and the Employer would not have entered into this
Agreement or employed or continued the employment of the Executive. The Employer
and the Executive have independently consulted their respective counsel and have
been advised in all respects concerning the reasonableness and propriety of such
covenants, with specific regard to the nature of the business conducted by the
Employer.
The Executive's covenants in Sections 7 and 8 are independent covenants
and the existence of any claim by the Executive against the Employer under this
Agreement or otherwise, or against the Buyer, will not excuse the Executive's
breach of any covenant in Section 7 or 8.
If the Executive's employment hereunder expires or is terminated, this
Agreement will continue in full force and effect as is necessary or appropriate
to enforce the covenants and agreements of the Executive in Sections 7 and 8.
9.3 REPRESENTATIONS AND WARRANTIES BY THE EXECUTIVE
The Executive represents and warrants to the Employer that the
execution and delivery by the Executive of this Agreement do not, and the
performance by the Executive of the Executive's obligations hereunder will not,
with or without the giving of notice or the passage of time, or both: (a)
violate any judgment, writ, injunction, or order of any court, arbitrator, or
governmental agency applicable to the Executive; or (b) conflict with, result in
the breach of any provisions of or the termination of, or constitute a default
under, any agreement to which the Executive is a party or by which the Executive
is or may be bound.
11
<PAGE>
9.4 OBLIGATIONS CONTINGENT ON PERFORMANCE
The obligations of the Employer hereunder, including its obligation to
pay the compensation provided for herein, are contingent upon the Executive's
performance of the Executive's obligations hereunder.
9.5 WAIVER
The rights and remedies of the parties to this Agreement are cumulative
and not alternative. Neither the failure nor any delay by either party in
exercising any right, power, or privilege under this Agreement will operate as a
waiver of such right, power, or privilege, and no single or partial exercise of
any such right, power, or privilege will preclude any other or further exercise
of such right, power, or privilege or the exercise of any other right, power, or
privilege. To the maximum extent permitted by applicable law, (a) no claim or
right arising out of this Agreement can be discharged by one party, in whole or
in part, by a waiver or renunciation of the claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given; and (c) no
notice to or demand on one party will be deemed to be a waiver of any obligation
of such party or of the right of the party giving such notice or demand to take
further action without notice or demand as provided in this Agreement.
9.6 BINDING EFFECT; DELEGATION OF DUTIES PROHIBITED
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors, assigns, heirs, and
legal representatives, including any entity with which the Employer may merge or
consolidate or to which all or substantially all of its assets may be
transferred. The duties and covenants of the Executive under this Agreement,
being personal, may not be delegated.
9.7 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by facsimile
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nation-ally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and facsimile
numbers set forth below (or to such other addresses and facsimile numbers as a
party may designate by notice to the other parties):
If to Employer: OilQUIP Rentals, Inc.
1875 Century Park, Inc.
Suite 600, Century City
Los Angeles, California 90067
Attn.: Munawar H. Hidayatallah
Facsimile No.: 310-407-5499
12
<PAGE>
With a copy to: Wilson, Cribbs, Goren & Flaum, P.C.
2200 Lyric Centre
440 Louisiana
Houston, Texas 77002
Attn: Theodore F. Pound III
Facsimile No.: 713-229-8824
If to the Executive: Munawar H. Hidayatallah
338 Entrada Drive
Santa Monica, California 90402
With a copy to: Mr. Joseph P. Bartlett
Spolin Silverman Cohn & Bartlett,
LLP 1620 26th Street, Suite 2000
Santa Monica, California 90404
Facsimile No.: 310-586-2444
9.8 ENTIRE AGREEMENT; AMENDMENTS
This Agreement, the Stock Purchase Agreement, and the documents
executed in connection with the Stock Purchase Agreement, contain the entire
agreement between the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Agreement may not
be amended orally, but only by an agreement in writing signed by the parties
hereto.
9.9 GOVERNING LAW
This Agreement will be governed by the laws of the State of Texas
without regard to conflicts of laws principles.
9.10 JURISDICTION
Any action or proceeding seeking to enforce any provision of, or based
on any right arising out of, this Agreement may be brought against either of the
parties in the courts of the State of Texas, County of Harris, or, if it has or
can acquire jurisdiction, in the United States District Court for the Southern
District of Texas, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on either
party anywhere in the world.
9.11 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. All references to
"Section" or "Sections" refer to the corresponding Section or Sections of this
13
<PAGE>
Agreement unless otherwise specified. All words used in this Agreement will be
construed to be of such gender or number as the circumstances require. Unless
otherwise expressly provided, the word "including" does not limit the preceding
words or terms.
9.12 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by
any court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
9.13 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date above first written above.
EMPLOYER: OILQUIP RENTALS, INC.
By:/S/THEODORE F. POUND III
---------------------------------
Theodore F. Pound, III
Vice President and Secretary
EXECUTIVE: Munawar H. Hidayatallah
/S/MUNAWAR H. HIDAYATALLAH
-------------------------------------
14
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>10
<FILENAME>allis_ex21-1.txt
<TEXT>
<PAGE>
ALLIS-CHALMERS CORPORATION AND CONSOLIDATED SUBSIDIARIES
- --------------------------------------------------------
EXHIBIT 21.1.
-------------
SUBSIDIARIES
------------
State
in Which
Subsidiary
Organized
---------
OilQuip Rental, Inc Delaware
Mountain Compressed Air, Inc Texas
Jens Oilfield Services, Inc. Texas
Strata Directional Technology, Inc. Texas
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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