TABLE OF CONTENTS
Item 1.01. Entry into a Material Definitive Agreement.
BRIDGE LOAN AGREEMENT
General
On December 18, 2006, Allis-Chalmers Energy Inc., a Delaware corporation (the “Company”), as
borrower, entered into a $300.0 million senior unsecured bridge loan agreement (the “Bridge Loan
Agreement”) with Royal Bank of Canada, as administrative agent, RBC Capital Markets Corporation, as
exclusive lead arranger and sole bookrunner, and the guarantors and institutional lenders named
therein.
On December 18, 2006, the Company incurred two loans under the Bridge Loan Agreement,
consisting of (1) a Bridge A Loan in the aggregate principal amount of $225.0 million and (2) a
Bridge B Loan in the aggregate principal amount of $75.0 million. The proceeds of the loans were
used to finance the cash component of the purchase price for the Company’s acquisition of
substantially all the assets of Oil & Gas Rental Services, Inc., a Louisiana corporation (“OGR”),
and for general corporate purposes. The loans will mature on June 18, 2008.
Interest
Borrowings under the Bridge Loan Agreement bear interest under one of two rate options,
selected by the Company, equal to either:
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option 1: the greater of (a) the administrative agent’s base rate and (b) the federal
funds rate plus one-half of one percent plus (1) in the case of a Bridge A Loan, 3.75% per
annum, increasing to 4.75% per annum on December 18, 2007, and (2) in the case of a Bridge
B Loan, 5.75% per annum, increasing to 6.75% per annum on December 18, 2007; or |
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option 2: the Adjusted LIBO Rate (as defined in the Bridge Loan Agreement) for the
interest period plus (1) in the case of a Bridge A Loan, 4.75% per annum, increasing to
5.75% per annum on December 18, 2007, and (2) in the case of a Bridge B Loan, 6.75% per
annum, increasing to 7.75% per annum on December 18, 2007. |
Regardless of which interest rate options the Company selects for the Bridge A Loan and the
Bridge B Loan, the Bridge Loan Agreement provides that the interest rate shall never be less than
(1) 9% per annum for the Bridge A Loan and (2) 11% per annum for the Bridge B Loan.
On December 18, 2006, the Company selected option 1 for both the Bridge A Loan and the Bridge
B Loan.
Borrowings under the Bridge Loan Agreement may be prepaid prior to the maturity date without
penalty.
Covenants and Events of Default
The Bridge Loan Agreement contains covenants customary for agreements of this type, including,
but not limited to, limitations on the Company’s and certain of its subsidiaries ability to: (a)
incur additional indebtedness or guarantees, (b) create liens or other encumbrances on its or their
property, income or revenue, (c) enter into any sale and lease-back transactions, (d) make certain
investments, loans or advances, (e) consolidate, merge or sell assets, (f) declare or make any
restricted payments, (g) enter into transactions with its or their affiliates, (h) change the
character of its or their business, (i) change its or their capital structure or modify or
supplement other loan documents, (j) create or acquire a new subsidiary, (k) become a general
partner in a limited partnership, (l) change its or their accounting, reporting practices and tax
reporting treatment or fiscal year, and (m) make capital expenditures in excess of specified amounts. The covenants and provisions are subject to a
number of important qualifications and exceptions.
The Bridge Loan Agreement also includes customary representations, warranties and events of
default, including, but not limited to, events of default relating to non-payment of principal,
interest and fees, violation of covenants, inaccuracy of representations and warranties, default
under related loan documents, default under hedging agreements, material and uncured judgments,
bankruptcy or insolvency, certain reportable events under ERISA, any of the guarantees ceasing to
be in full force and effect, related loan documents ceasing to be valid, change of control, and
failure to comply with the terms of any subordination or intercreditor agreement. An event of
default under the Bridge Loan Agreement will permit the lenders to accelerate the maturity of the
outstanding indebtedness under the Bridge Loan Agreement.
Guarantees
The Company’s domestic subsidiaries are required to guarantee the Company’s obligations under
the Bridge Loan Agreement.
INVESTOR RIGHTS AGREEMENT
On December 18, 2006, in accordance with (and in connection with the consummation of the
transactions contemplated by) the Asset Purchase Agreement dated as of October 25, 2006 (the “Asset
Purchase Agreement”) by and between the Company and OGR, the Company entered into an Investor
Rights Agreement (the “Investor Rights Agreement”) with OGR. Pursuant to the Investor Rights
Agreement, the Company agreed to:
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grant OGR the right to designate one nominee for election to the Company’s board of
directors (the “Board”), |
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support the nomination of the nominee designated by OGR, |
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use its best efforts to cause the Board (and the Company’s nominating committee, if any)
to recommend the inclusion of such person in the slate of nominees recommended to
stockholders for election as directors at each annual meeting of stockholders of the
Company, and |
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one year after the closing of the Asset Purchase Agreement, file with the Securities and
Exchange Commission (the “SEC”) a registration statement on appropriate form relating to
the registration of the offer and sale by OGR of an aggregate of 3,200,000 shares of the
Company’s common stock, par value $0.01 per share (the “Common Stock”), issued to OGR
pursuant to the Asset Purchase Agreement. |
In addition, the Company granted OGR “piggyback” registration rights to include such shares in
the first two registered offerings of Common Stock by the Company that occur at least one year
after the closing date of the Asset Purchase Agreement (other than certain specifically excluded
registrations).
EMPLOYMENT AGREEMENT
On December 18, 2006, in accordance with (and in connection with the consummation of the
transactions contemplated by) the Asset Purchase Agreement, the Company entered into an employment
agreement with Burt A. Adams (the “Employment Agreement”) pursuant to which Mr. Adams will act as
Vice Chairman of the Company. The Employment Agreement is for an initial term of three years.
Under the terms of the Employment Agreement, Mr. Adams will receive an annual base salary of
$350,000 subject to annual review and potentially an increase by the Board. In addition, Mr. Adams
may receive an annual discretionary bonus in an amount equal to up to 50% of his base salary. If
Mr. Adams’ employment is terminated for any reason other than “cause” (as defined in his Employment
Agreement), then he is entitled to receive his then-current salary for a period equal to the
greater of six months or the then-remaining employment term, vested benefits under any employee
benefit and any other benefits earned and accrued or unreimbursed expenses incurred as of the date
of termination.
Copies of the Bridge Loan Agreement, the Investor Rights Agreement and the Employment
Agreement are attached hereto as Exhibits 10.1, 10.2 and 10.3, respectively, and are incorporated
by reference into this Item 1.01. The foregoing descriptions of the Bridge Loan Agreement,
Investor Rights Agreement and Employment Agreement are qualified in their entireties by reference
to the full text of such agreements.
Item 2.01 Completion of Acquisition or Disposition of Assets.
On December 18, 2006, the Company completed its acquisition of substantially all of the assets
of OGR, pursuant to the Asset Purchase Agreement, as more fully described in the Company’s Current
Report on Form 8-K filed with the SEC on October 26, 2006 (the “October 26 8-K”). The information
included in, or incorporated by reference into, Items 1.01 and 8.01 of the October 26 8-K
(including without limitation Exhibit 99.1 thereto) is incorporated by reference into this Item
2.01.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet
Arrangement of a Registrant
The information set forth in Item 1.01 of this report under the caption “Bridge Loan
Agreement” is hereby incorporated by reference into this Item 2.03.
Item 3.02. Unregistered Sales of Equity Securities
The information set forth in, and incorporated by reference into, Item 2.01 of this report is
hereby incorporated by reference into this Item 3.02.
On December 18, 2006, in accordance with (and in connection with the consummation of the
transactions contemplated by) the Asset Purchase Agreement, the Company issued an aggregate of
3,200,000 shares of Common Stock to OGR as the stock component of the purchase price for the
Company’s acquisition of substantially all of OGR’s assets. The issuance of the Shares to OGR was
exempt from the registration requirements of the Securities Act of 1933, as amended (the
“Securities Act”), under Section 4(2) of the Securities Act, which did not involve a public
offering. The issuance did not involve any general solicitation or general advertising. OGR is an
accredited investor, as defined by Rule 501 of Regulation D under the Securities Act.
In addition, on November 7, 2006, Wells Fargo Energy Capital, Inc. (“Wells Fargo”) exercised a
warrant to purchase 67,000 shares of Common Stock of the Company at an exercise price of $5.00 per
share. The Company received gross proceeds of $335,000 from this transaction. The issuance of the
shares to Wells Fargo was exempt from the registration requirements of the Securities Act, under
Section 4(2) of the Securities Act, which did not involve a public offering.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain Officers.
Pursuant to the Asset Purchase Agreement described in Item 2.01 of this report, and pursuant
to its rights as set forth in the Investor Rights Agreement described in Item 1.01 of this report,
on December 18, 2006, OGR designated Burt A. Adams as a nominee to the Board. In accordance with
the provisions of the Investor Rights Agreement, the Board appointed Mr. Adams to the Board,
effective as of December 18, 2006. In addition, on December 18, 2006, Mr. Adams was appointed as
Vice Chairman of the Company.
Mr. Adams is 45 years old. Mr. Adams pursued his undergraduate education from Tulane
University graduating in 1983 with a Bachelors of Science degree in Civil Engineering. Upon
obtaining his Masters degree in Business Administration at Harvard University, Mr. Adams worked for
Hydril Company in Houston, Texas from 1988 to 1996. He has served as President and Chief Executive
Officer of Oil & Gas Rental Services, Inc. from 1996 through 2006. He also serves as Chairman of
Offshore Energy Center, Ocean Star Museum, located in Galveston, Texas and is on the Executive
Committee of National Ocean Industries Association (NOIA). In April 2006, Mr. Adams was appointed a
director of ATP Oil & Gas Corporation.
Mr. Adams individually owns approximately 9.0% of the outstanding shares of the capital stock
of OGR. Members of Mr. Adams’ immediate family beneficially own an additional 31.8% of the
outstanding shares of the OGR’s capital stock.
On December 15, 2006, the Board increased the number of seats comprising the entire Board
positions to eleven in order to add an additional independent director. Following the appointment
of Burt A. Adams to the Board, the Company has five independent and five non-independent directors.
Pursuant to the corporate governance rules of the American Stock Exchange, at least a majority of
the directors on the Board must satisfy the impendence rules as set forth by the American Stock Exchange. The nominating committee of the Board is
currently evaluating appropriate candidates to fill the newly created independent director
position, and the Board will fill such position upon such nomination.
The information set forth in Item 1.01 of this report under the captions “Investor Rights
Agreement” and “Employment Agreement” is hereby incorporated be reference into this Item 5.02. The
information set forth in, or incorporated by reference into, Item 2.01 of this report is hereby
incorporated by reference into this Item 5.02.
Item 7.01.
Regulation FD Disclosure.
On December 18, 2006, the Company issued a press release announcing the closing of the Asset
Purchase Agreement described in Item 2.01 of this Current Report on Form 8-K. A copy of such press
release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The financial statements of OGR for the periods specified in Rule 3-05 of Regulation S-X are
attached hereto as Exhibit 99.2.
(b) Pro Form Financial Information.
The unaudited pro forma consolidated condensed financial statements of the Company required by
Article 11 of Regulation S-X are attached hereto as Exhibit 99.3, and are not necessarily
indicative of the results that actually would have been attained if our acquisition of OGR had been
completed on the dates indicated, or indicative of the results that may be attained in the future.
Such statements should be read in conjunction with the historical financial statements of the
Company and OGR.
(d) Exhibits.
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Exhibit
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10.1
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Senior Unsecured Bridge Loan
Agreement, dated December 18, 2006, by and among the Company, Royal
Bank of Canada, as administrative agent, RBC Capital Markets
Corporation, as exclusive lead arranger and sole bookrunner, and the
guarantors and institutional lenders named thereto. |
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10.2
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Investors Rights Agreement, dated
December 18, 2006, by and between the Company and OGR. |
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10.3
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Employment Agreement, dated
December 18, 2006, by and between the Company and Burt A. Adams. |
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99.1
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Press Release, dated December 18,
2006. |
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99.2
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Financial Statements of OGR. |
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99.3
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Pro Forma Financial Information. |