-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TBI5Sz64Ldjuu6d43mekuRR6QXwgohdkZgDJCKJATr2G3kl1K/F+nchekXpXRK8i GE1FSGWcmVQ2mB4MjeL47Q== 0000950148-02-000407.txt : 20020414 0000950148-02-000407.hdr.sgml : 20020414 ACCESSION NUMBER: 0000950148-02-000407 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20020220 GROUP MEMBERS: ENERGY SPECTRUM LLC GROUP MEMBERS: ENERGY SPECTRUM PARTNERS, LP GROUP MEMBERS: JAMES P. BENSON GROUP MEMBERS: JAMES W. SPANN GROUP MEMBERS: LELAND B. WHITE GROUP MEMBERS: SIDNEY L. TASSIN GROUP MEMBERS: THOMAS O. WHITENER, JR. FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: ENERGY SPECTRUM CAPITAL L P CENTRAL INDEX KEY: 0001167771 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 5956 SHERRY LANE STREET 2: SUITE 900 CITY: DALLAS STATE: TX ZIP: 75225 SUBJECT COMPANY: 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: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-30107 FILM NUMBER: 02554527 BUSINESS ADDRESS: STREET 1: P O BOX 512 CITY: MILWAUKEE STATE: WI ZIP: 53201 BUSINESS PHONE: 4144752000 MAIL ADDRESS: STREET 1: 1126 SOUTH 70TH STREET STREET 2: 1126 SOUTH 70TH STREET CITY: WEST ALLIS STATE: WI ZIP: 53214 FORMER COMPANY: FORMER CONFORMED NAME: ALLIS CHALMERS MANUFACTURING CO DATE OF NAME CHANGE: 19710614 SC 13D 1 v79338sc13d.htm ALLIS-CHALMERS CORPORATION SCHEDULE 13D ALLIS-CHALMERS CORPORATION
Table of Contents

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Schedule 13D

Under the Securities Exchange Act of 1934
(Amendment No. ____)*

Allis-Chalmers Corporation
(Name of Issuer)

Common Stock, par value $0.15 per share
(Title of Class of Securities)

019645407
(CUSIP Number)

Brad L. Whitlock, Esq.
Jackson Walker L.L.P.
901 Main Street
Suite 6000
Dallas, Texas 75202
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

February 7, 2002
(Date of Event which Requires Filing
of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of §§ 240. 13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box [   ].

NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 240.13d-7 for other parties to whom copies are to be sent.

*The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

 

ITEM 1. SECURITY AND ISSUER SECURITIES ACQUIRED.
ITEM 2. IDENTITY AND BACKGROUND.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
ITEM 4. PURPOSE OF TRANSACTION.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
SIGNATURES
Exhibit 7.1
Exhibit 7.2
Exhibit 7.3
Exhibit 7.4
Exhibit 7.5

Table of Contents

               
1   NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION OF ABOVE PERSONS (ENTITIES ONLY)
 
Energy Spectrum Partners, LP
2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a) [   ]
  (b) [X]
        
3   SEC USE ONLY
 
4   SOURCE OF FUNDS (SEE INSTRUCTIONS)
OO
5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
     
[   ]
6   CITIZENSHIP OR PLACE OF ORGANIZATION
 
Delaware
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON
WITH		   7   SOLE VOTING POWER
 
  8   SHARED VOTING POWER
 
11,664,029
  9   SOLE DISPOSITIVE POWER
 
  10   SHARED DISPOSITIVE POWER
 
11,664,029
11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
11,664,029
12   CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)
 		 [   ]
13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
47.32%
14   TYPE OF REPORTING PERSON*
 
PN

Page 2

Table of Contents

               
1   NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION OF ABOVE PERSONS (ENTITIES ONLY)
 
Energy Spectrum Capital LP
2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a)    [   ]
  (b)    [X]
        
3   SEC USE ONLY
 
4   SOURCE OF FUNDS (SEE INSTRUCTIONS)

N/A
5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
     
[   ]
6   CITIZENSHIP OR PLACE OF ORGANIZATION
 
Delaware
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON
WITH		   7   SOLE VOTING POWER
 
  8   SHARED VOTING POWER
 
11,664,029
  9   SOLE DISPOSITIVE POWER
 
  10   SHARED DISPOSITIVE POWER
 
11,664,029
11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
11,664,029
12   CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)
 		 [   ]
13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
47.32%
14   TYPE OF REPORTING PERSON*
 
PN

Page 3

Table of Contents

               
1   NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION OF ABOVE PERSONS (ENTITIES ONLY)
 
Energy Spectrum LLC
2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a)    [   ]
  (b)    [X]
        
3   SEC USE ONLY
 
4   SOURCE OF FUNDS (SEE INSTRUCTIONS)

N/A
5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
     
[   ]
6   CITIZENSHIP OR PLACE OF ORGANIZATION
 
Texas
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON
WITH		   7   SOLE VOTING POWER
 
  8   SHARED VOTING POWER
 
11,664,029
  9   SOLE DISPOSITIVE POWER
 
  10   SHARED DISPOSITIVE POWER
 
11,664,029
11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
11,664,029
12   CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)
 		 [   ]
13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
47.32%
14   TYPE OF REPORTING PERSON*
 
OO

Page 4

Table of Contents

               
1   NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION OF ABOVE PERSONS (ENTITIES ONLY)
 
Sidney L. Tassin
2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a)    [   ]
  (b)    [X]
        
3   SEC USE ONLY
 
4   SOURCE OF FUNDS (SEE INSTRUCTIONS)

N/A
5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
     
[   ]
6   CITIZENSHIP OR PLACE OF ORGANIZATION
 
Texas
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON
WITH		   7   SOLE VOTING POWER
 
  8   SHARED VOTING POWER
 
11,664,029
  9   SOLE DISPOSITIVE POWER
 
  10   SHARED DISPOSITIVE POWER
 
11,664,029
11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
11,664,029
12   CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)
 		 [   ]
13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
47.32%
14   TYPE OF REPORTING PERSON*
 
IN

Page 5

Table of Contents

               
1   NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION OF ABOVE PERSONS (ENTITIES ONLY)
 
James W. Spann
2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a)    [   ]
  (b)    [X]
        
3   SEC USE ONLY
 
4   SOURCE OF FUNDS (SEE INSTRUCTIONS)

N/A
5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
     
[   ]
6   CITIZENSHIP OR PLACE OF ORGANIZATION
 
Texas
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON
WITH		   7   SOLE VOTING POWER
 
  8   SHARED VOTING POWER
 
11,664,029
  9   SOLE DISPOSITIVE POWER
 
  10   SHARED DISPOSITIVE POWER
 
11,664,029
11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
11,664,029
12   CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)
 
 [   ]
13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
47.32%
14   TYPE OF REPORTING PERSON*
 
IN

Page 6

Table of Contents

               
1   NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION OF ABOVE PERSONS (ENTITIES ONLY)
 
James P. Benson
2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a)    [   ]
  (b)    [X]
        
3   SEC USE ONLY
 
4   SOURCE OF FUNDS (SEE INSTRUCTIONS)
N/A
5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
     
[   ]
6   CITIZENSHIP OR PLACE OF ORGANIZATION
 
Texas
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON
WITH		   7   SOLE VOTING POWER
 
  8   SHARED VOTING POWER
 
11,664,029
  9   SOLE DISPOSITIVE POWER
 
  10   SHARED DISPOSITIVE POWER
 
11,664,029
11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
11,664,029
12   CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)
 		 [   ]
13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
47.32%
14   TYPE OF REPORTING PERSON*
 
IN

Page 7

Table of Contents

               
1   NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION OF ABOVE PERSONS (ENTITIES ONLY)
 
Leland B. White
2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a)    [   ]
  (b)    [X]
        
3   SEC USE ONLY
 
4   SOURCE OF FUNDS (SEE INSTRUCTIONS)

N/A
5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
     
[   ]
6   CITIZENSHIP OR PLACE OF ORGANIZATION
 
Texas
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON
WITH		   7   SOLE VOTING POWER
 
  8   SHARED VOTING POWER
 
11,664,029
  9   SOLE DISPOSITIVE POWER
 
  10   SHARED DISPOSITIVE POWER
 
11,664,029
11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
11,664,029
12   CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)
 		 [   ]
13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
47.32%
14   TYPE OF REPORTING PERSON*
 
IN

Page 8

Table of Contents

               
1   NAMES OF REPORTING PERSONS
I.R.S. IDENTIFICATION OF ABOVE PERSONS (ENTITIES ONLY)
 
Thomas O. Whitener, Jr.
2   CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS) (a)    [   ]
  (b)    [X]
        
3   SEC USE ONLY
 
4   SOURCE OF FUNDS (SEE INSTRUCTIONS)

N/A
5   CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)
     
[   ]
6   CITIZENSHIP OR PLACE OF ORGANIZATION
 
Texas
NUMBER OF
SHARES
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON
WITH		   7   SOLE VOTING POWER
 
  8   SHARED VOTING POWER
 
11,664,029
  9   SOLE DISPOSITIVE POWER
 
  10   SHARED DISPOSITIVE POWER

11,664,029
11   AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
 
11,664,029
12   CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (SEE INSTRUCTIONS)
 
 [   ]
13   PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
 
47.32%
14   TYPE OF REPORTING PERSON*
 
IN

Page 9

Table of Contents

ITEM 1. SECURITY AND ISSUER SECURITIES ACQUIRED.

     Security: Common Stock of Allis-Chalmers Corporation (“Common Stock”).

     Issuer: Allis-Chalmers Corporation (“Issuer”), 8150 Lawndale Avenue, Houston, Texas 77012.

ITEM 2. IDENTITY AND BACKGROUND.

     Pursuant to Rule 13d-1(a) of Regulation 13D-G of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the “Act”), this Schedule 13D Statement is hereby filed by the following persons (collectively, the “Reporting Persons”):

     Energy Spectrum Partners, LP (“ES Partners”) is a Delaware limited partnership, the principal business of which is investments. The principal business address of ES Partners, which also serves as its principal office, is 5956 Sherry Lane, Suite 900, Dallas, Texas 75225.

     Energy Spectrum Capital LP (“ES Capital”) is a Delaware limited partnership, the principal business of which is serving as the general partner of ES Partners, and activities related thereto. The principal business address of ES Capital, which also serves as its principal office, is 5956 Sherry Lane, Suite 900, Dallas, Texas 75225. Sidney L. Tassin is President, James W. Spann is Chief Investment Officer and Thomas O. Whitener Jr. is Chief Operating Officer of ES Capital. It has no other executive officers.

     Energy Spectrum LLC (“ES LLC”) is a Texas limited liability company, the principal business of which is serving as the general partner of ES Capital and activities related thereto. The principal business address of ES LLC, which also serves as its principal office, 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. It has no other executive officers. No person owns more than 50% of the outstanding membership interests of ES LLC.

     The principal occupation of each of Messrs. Tassin, Spann, Benson, White and Whitener is investments. The principal business address of each of them, which also serves as their principal office, is 5956 Sherry Lane, Suite 900, Dallas, Texas 75225.

     The Reporting Persons may be deemed to comprise a “group” within the meaning of Section 13(d)(3) of the Act, although neither the fact of this filing nor any of the information contained herein shall be deemed to be an admission by any of the Reporting Persons that a “group” exists.

     During the last five years, none of the Reporting Persons (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.

     ES Partners acquired all of its Common Stock in exchange for all of the capital stock of Strata Directional Technology, Inc. (“Strata”), a Texas corporation, owned by ES Partners. See Item 4 below.

ITEM 4. PURPOSE OF TRANSACTION.

     Pursuant to a Stock Purchase Agreement dated effective February 1, 2002, which transaction was closed on February 7, 2002, ES Partners sold all of its capital stock in Strata to the Issuer in exchange for 6,559,863 shares of Common Stock, a presently exercisable warrant to purchase 437,500 shares of Common Stock at an exercise price of $.15 per share and 3,500,000 shares of Issuer’s Series A 10% Cumulative Convertible Preferred Stock (“Preferred Stock”), which preferred shares are presently convertible into 4,666,666 shares of Common Stock. In the event all

 

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of the outstanding shares of Preferred Stock, except one, are not redeemed by the Issuer prior to the first anniversary of the closing, the Issuer will issue ES Partners an additional warrant to purchase 875,000 shares of Common Stock at an exercise price of $.15 per share.

     Pursuant to the terms of the Preferred Stock, ES Partners has the right to elect three (3) members of Issuer’s board of directors. ES Partners has designated Messrs. Whitener, Spann and Michael D. Tapp to serve on the Issuer’s board of directors. ES Partners, as the holder of the Preferred Stock, also has the right to elect additional directors in the event its shares are not redeemed as required by the terms of the Preferred Stock, and to approve specified major decisions made by the Issuer. On February 1, 2003, the conversion price of the Preferred Stock will be lowered to the lesser of (i) $.60 per share or (ii) 75% of the average closing prices of the Common Stock for the ten (10) trading days prior to that date. All except one share of the Preferred Stock must be redeemed by the Issuer upon the occurrence of certain events as required by the terms of the Preferred Stock.

     Each of the Reporting Persons acquired shares of Common Stock as an investment.

     The Reporting Persons reserve the right to (i) dispose of all or part of their investment in the Stock at any time, (ii) acquire additional equity securities of the Issuer or its affiliates, in the open market, in private transactions or otherwise, (iii) propose a merger or other business combination with the Issuer or its affiliates, or (iv) to take any other action with respect to the Issuer. Any such purchases will depend upon the market prices for the shares of Common Stock, the number of shares which may become available for purchase at prices which each of the Reporting Persons regard as attractive and various other factors which each of the Reporting Persons may determine to be relevant.

     Except as set forth in this Item 4, the Reporting Persons have no present plans or proposals that relate to or that would result in any of the actions or events described in paragraphs (a) through (j) of Item 4 of Schedule 13D. However, the Reporting Persons retain their respective rights to modify their plans with respect to the transactions described in this Item 4, to acquire or dispose of securities of the Issuer and to formulate plans and proposals which could result in the occurrence of any such events, subject to applicable laws and regulations.

ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.

     Pursuant to Rule 13d-3(a), at the close of business on February 7, 2002, each of ES Partners, ES Capital and ES LLC may be deemed to be the beneficial owner of 11,664,029 shares of the Common Stock, which constitutes approximately 47% of the shares of the Common Stock outstanding on February 7, 2002, according to information provided by the Issuer (the “Outstanding Shares”). Each of the Reporting Persons, either directly or indirectly, has or shares the power to vote or to direct the vote and to dispose or to direct the disposition of, such shares of Stock.

     The Reporting Persons have not purchased shares of Stock in open market transactions.

     (d)  Not applicable

     (e)  Not applicable.

ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER.

     To the best knowledge of the Reporting Persons, except for the constituent documents of ES Partners, ES Capital and ES LLC, (which do not specifically address the securities of the Issuer), there are no other contracts, arrangements, understandings or relationships (legal or otherwise) among the Reporting Persons or between the Reporting Persons and any other person with respect to any securities of the Issuer, including but not limited to, transfer or voting of any of the securities of the Issuer, finder’s fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies, or a pledge or contingency the occurrence of which would give another person voting power over the securities of the Issuer, except for the following:

 

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     (a)  ES Partners and the Issuer have entered into a Registration Rights Agreement granting ES Partners two demand registrations and an unlimited number of piggyback registrations with respect to the shares owned by ES Partners.

     (b)  ES Partners, the Issuer, Munawar H. Hidayatallah (President of the Issuer) and Wells Fargo Energy Capital, Inc. have entered into a Shareholders’ Agreement whereby Wells Fargo Capital, Inc. will have the right to “tag-along” on any sales of the Issuer’s stock by either ES Partners or Mr. Hidayatallah, on equal economic terms, except that these rights do not apply to sales pursuant to an effective registration statement filed pursuant to the Securities Act of 1933, as amended.

ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.

     
Exhibit 7.1   Stock Purchase Agreement
Exhibit 7.2   Certificate of Designation, Preferences and Rights of the Series A 10% Cumulative Convertible Preferred Stock of Allis-Chalmers Corporation
Exhibit 7.3   Warrant
Exhibit 7.4   Registration Rights Agreement By and Among Allis-Chalmers Corporation and Energy Spectrum Partners, LP
Exhibit 7.5   Shareholders’ Agreement Among Allis-Chalmers Corporation and the Shareholders and Warrantholder who are Signatories hereto

 

Page 12

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SIGNATURES

     After reasonable inquiry and to the best of the knowledge and belief of the undersigned, the undersigned certify that the information set forth in this statement is true, complete and correct.

     Pursuant to Rule 13d-1(k)(l)(iii) of Regulation 13D-G of the General Rules and Regulations of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, the undersigned agree that the attached statement is filed on behalf of each of them in the capacities set forth below.
         
DATED: February 19, 2002 ENERGY SPECTRUM PARTNERS, LP
         
  By: Energy Spectrum Capital LP, General Partner
    By:  Energy Spectrum LLC, General Partner
         
      By:   /s/ Thomas O. Whitener, Jr.
       
      Its:  
       
         
  ENERGY SPECTRUM CAPITAL LP
         
    By:  Energy Spectrum LLC, General Partner
         
      By:   /s/ Thomas O. Whitener, Jr
       
      Its:  
       
  ENERGY SPECTRUM LLC
         
  By:   /s/ Thomas O. Whitener, Jr
   
  Its:  
   
   
  /s/ Sidney L. Tassin
Sidney L. Tassin
   
  /s/ James W. Spann
James W. Spann
   
  /s/ James P. Benson
James P. Benson
   
  /s/ Leland B. White
Leland B. White
   
  /s/ Thomas O. Whitener, Jr.
Thomas O. Whitener, Jr.

Page 13 EX-7.1 3 v79338ex7-1.txt EXHIBIT 7.1 EXHIBIT 7.1 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 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 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 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 (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. Page 5 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. Page 6 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 Page 7 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 Page 8 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 Page 9 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 Page 10 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) Page 11 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 Page 12 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] Page 13 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 EX-7.2 4 v79338ex7-2.txt EXHIBIT 7.2 EXHIBIT 7.2 CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF THE SERIES A 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK ($.01 PAR VALUE) OF ALLIS-CHALMERS CORPORATION ----------------------------- Allis-Chalmers Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (hereinafter called the "COMPANY"), hereby certifies that the following resolution was adopted by the Board of Directors of the Company as required by Section 151 of the General Corporation Law: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of the Company (hereinafter called the "BOARD OF DIRECTORS") in accordance with the provisions of the Certificate of Incorporation of the Company, the Board of Directors hereby creates a series of preferred stock, par value $.01 per share, of the Company and hereby states the designation and number of shares, and fixes the relative rights, preferences, and limitations thereof as follows: Section 1. Designation and Amount. The shares of such series shall be designated as the "Series A 10% Cumulative Convertible Preferred Stock, par value $0.01 per share (the "SERIES A PREFERRED STOCK") and the number of shares constituting such series shall be 4,200,000. Such number of shares may be increased from time to time by resolution of the Board of Directors to the extent dividends on the Series A Preferred Stock are paid in shares of Series A Preferred Stock pursuant to Section 4(a) or may be decreased from time to time by resolution of the Board of Directors; provided, however, that such number may not be decreased below the number of then currently outstanding shares of Series A Preferred Stock. Section 2. Certain Definitions. For the purposes of the Certificate of Designation, Preferences and Rights which embodies this resolution, unless the context otherwise requires, capitalized terms used and not otherwise defined in such Certificate of Designation, Preferences and Rights shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural): "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares (including treasury shares) of Common Stock issued or sold (or, pursuant to clause (iii) of Section 11(b), deemed to be issued) by the Company after the date hereof, whether or not subsequently reacquired or retired by the Company, other than (i) shares of Common Stock issued upon conversion of the Series A Preferred Stock, (ii) shares of Common Stock issued concurrently with the issuance of the Series A Preferred Stock or (iii) shares issued in connection with the following matters: 1 (a) Options issued to Leonard Toboroff to purchase 500,000 shares of Common Stock at $.50 per share. (b) Warrants to purchase 1,165,000 shares of Common Stock to Wells Fargo Energy Capital, Inc. at $.15 per share and 335,000 shares of Common Stock at $1.00 per share along with a "put" by Wells Fargo Energy at $1,500,000.00. (c) Warrants to Energy Spectrum Partners, LP for 437,500 shares of Common Stock at $.15 per share and an agreement to issue an additional 875,000 warrants at the same price in the event the Series A Preferred Stock is not redeemed on or before its first anniversary. (d) Shares of Common Stock issuable under the Mortensen Agreement. (e) Shares of Common Stock issuable to Munawar H. Hidayatallah pursuant to his Employment Agreement with the Company. (f) Shares issued directly or under warrants, in replacement of warrants issued to Houlihan, Lokey, Howard & Zukin for 620,000 shares of common stock of Mountain Compressed Air, Inc. "BUSINESS DAY" shall mean any day on which banks are open for business in Houston, Texas (other than a Saturday or a Sunday), provided, that any reference to "days" (unless Business Days are specified) shall mean calendar days. "COMMISSION" shall mean the Securities and Exchange Commission or any successor federal agency having similar powers. "COMMON STOCK" shall mean the common stock of the Company, par value $.15 per share, any stock into which such stock shall have been converted or changed or any stock resulting from any reclassification of such stock and all other stock of any class or classes (however designated) of the Company, the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference. "COMPANY" shall mean Allis-Chalmers Corporation, a Delaware corporation. "CONVERSION PRICE" shall initially be $.75 per share, and on February 1, 2003 shall be lowered to the lesser of (i) $.60 per share or (ii) 75% of the Market Price established as of the trading day prior to February 1, 2003, calculated in accordance with the procedures set forth in the definition of "Market Price". The Conversion Price, as in effect per the prior sentence, shall be further adjusted and readjusted from time to time as provided in Section 11(b) and, as so adjusted and readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by Section 11(b). 2 "CONVERTIBLE SECURITIES" shall mean with respect to the Company any evidences of indebtedness, shares of stock (other than Common Stock) or other securities directly or indirectly convertible into or exchangeable for Additional Shares of Common Stock. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "FAIR VALUE" shall mean with respect to any securities or other property, the fair value thereof as of a date which is within 15 days of the date as of which the determination is to be made (a) determined by agreement between the Company and the Holder, or (b) if the Company and the Holder fail to agree, determined jointly by an independent investment banking firm retained by the Company and by an independent investment banking firm retained by the Holder, either of which firms may be an independent investment banking firm regularly retained by the Company, or (c) if the Company or the Holder shall fail so to retain an independent investment banking firm within ten Business Days of the retention of such a firm by the Holder or the Company, as the case may be, determined solely by the firm so retained, or (d) if the firms so retained by the Company and by the Holder shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm which is not a regular investment banking firm of the Company chosen by the first two such firms. "HOLDER" shall have the meaning set forth in Section 3. "LIQUIDATION VALUE" shall mean, as of any date, an amount equal to $1.00 per share of Series A Preferred Stock (as appropriately adjusted for any subdivision or combination of Series A Preferred Stock) plus an amount equal to all dividends (whether or not declared) accrued and unpaid to such date on the Series A Preferred Stock. "MAJOR DECISION" shall mean the decision (whether at a meeting or by written consent) of the Board of Directors of the Company to do any of the following: (g) to sell all or substantially all of the assets of the Company; (h) to seek protection under any federal or state bankruptcy or insolvency laws now or hereafter in effect; (i) to create, by reclassification or otherwise, any class or series of stock ranking prior or on parity with the Series A Preferred Stock either as to dividends or upon liquidation, dissolution or winding up; (j) to approve any merger, consolidation or compulsory share exchange of the Company with or into any entity; (k) to file a registration statement covering any of the Company's securities with any federal or state securities commission or any similar regulatory body, whether within or without the United States of America; (l) to approve any financing by the Company which involves in excess of $1,000,000; 3 (m) to issue any Additional Shares of Common Stock or any Convertible Securities or any Options with respect to any of the foregoing, except for (i) Options granted to employees of the Company with the approval of the compensation committee of the Board of Directors, or (ii) Additional Shares of Common Stock issued in connection with the Mortensen Agreement; (n) to repurchase or redeem (or permit any subsidiary of the Company to repurchase) any shares of the capital stock of the Company except as required herein or pursuant to the terms of that certain Employment Agreement between the Company and Munawar H. Hidayatallah; (o) to amend, alter or repeal any of the provisions of the Certificate of Incorporation of the Company (including the Certificate of Designation, Preferences and Rights that embodies this resolution); (p) to amend, alter or repeal any of the provisions of the Certificate of Incorporation of the Company except to increase the authorized shares of Common Stock; or (q) to change the material focus of the Company's business. "MANDATORY REDEMPTION DATE" shall mean February 1, 2004. "MANDATORY REDEMPTION EVENT" shall mean the consummation of an offering of equity securities by the Company that results in net proceeds to the Company at least equal to the Liquidation Value of the Series A Preferred Stock. "MARKET PRICE" shall mean on any date specified herein, with respect to Common Stock or to common stock of a third party, the amount per share equal to (i) the average of the closing prices thereof for the ten (10) trading days prior to such date, in each case as officially reported on the principal national securities exchange on which the same are then listed or admitted to trading, or (ii) if no shares of Common Stock or no shares of such common stock (or equivalent equity interests), as the case may be, are then listed or admitted to trading on any national securities exchange, the average of the reported closing bid and asked prices thereof for the ten (10) trading days prior to such date as quoted in the Nasdaq National Market or, if no shares of Common Stock or no shares of such common stock (or equivalent equity interest), as the case may be, are then quoted in the Nasdaq National Market, as published by the National Quotation Bureau, Incorporated or any similar successor organization, and in either case as reported by any member firm of the New York Stock Exchange selected by the Company; provided that with respect to (ii) above, if the average daily trading volume for the subject shares for the thirty (30) days prior to the date of determination shall be less than 1,000 shares per day, then the subject Market Price shall be the average of the closing bid price of such shares on the ten (10) trading days prior to the date of determination, or (iii) if no shares of Common Stock or no shares of such common stock (or equivalent equity interests), as the case may be, are then listed or admitted to trading on any national securities exchange or quoted or published in the over-the-counter market, the Fair Value thereof. 4 "MORTENSEN AGREEMENT" shall mean, collectively, that certain Stock Purchase Agreement and Shareholder Agreement dated February 1, 2002, between the Company and Jens H. Mortensen, Jr. "OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of the Company by its President, one of its Vice Presidents or its Treasurer. "OPTIONAL REDEMPTION DATE" shall have the meaning specified in Section 8(b). "OPTIONS" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Additional Shares of Common Stock or Convertible Securities. "OTHER SECURITIES" shall mean when referring to the Company, any stock (other than Company Common Stock) and any other securities of the Company or any other Person (corporate or otherwise) which the Holder of Series A Preferred Stock at any time shall be entitled to receive, or shall have received, upon conversion of Series A Preferred Stock, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 11(b) or otherwise. "PERSON" shall mean and include an individual, a partnership, a limited partnership, an association, a joint venture, a corporation, a trust, a limited liability company, an unincorporated organization and a government or any department or agency thereof. "QUARTERLY DIVIDEND PAYMENT DATE" shall have the meaning specified in Section 4(a). "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SERIES A PREFERRED STOCK" shall have the meaning specified in Section 1. Section 3. Limitation on Holders. All of the outstanding shares of the Series A Preferred Stock must be held at all times by only one Person (such Person being referred to herein as the "Holder"). The Holder shall not have the right to transfer less than all of the outstanding shares of the Series A Preferred Stock to a third party, except for redemptions and conversions provided for herein. Section 4. Dividends and Distributions. (a) Dividend Amounts and Payment Dates. The Holder of shares of Series A Preferred Stock, in preference to the holders of shares of the Common Stock of the Company and of any other capital stock of the Company ranking junior to the Series A Preferred Stock as to payment of dividends, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for that purpose, cash dividends at the annual rate of $.10 per share, which dividends shall be fully cumulative, in equal quarterly payments on the last day of December, March, June and September in each year, except that if any such date is not a Business Day, then such dividends shall be payable on the next Business Day (each such date being referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), 5 commencing on the first Quarterly Dividend Payment Date following the date of original issue of the Series A Preferred Stock. Notwithstanding the foregoing, on any Quarterly Dividend Payment Date, the Company may, at its sole option, elect to pay the dividend due on such Quarterly Dividend Payment Date in shares of Series A Preferred Stock, valued at $1.00 per share, in lieu of a cash dividend payment. (b) Accrual of Dividends; Partial Dividend Periods. Dividends payable pursuant to this Section 4 shall accrue and be cumulative from the date of original issue of the Series A Preferred Stock whether or not there are funds legally available for the payment of such dividends and whether or not such dividends are declared. The amount of dividends payable for the initial dividend period and any other period shorter than a full quarterly dividend period shall be determined on the basis of a 360-day year of twelve 30-day months. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of the Holder of shares of Series A Preferred Stock entitled to receive payment of a dividend declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 5. Voting Rights. The Holder of shares of Series A Preferred Stock shall have the following voting rights: (a) Election of Director. So long as any shares of Series A Preferred Stock are outstanding, the Holder shall have, in addition to the other voting rights set forth herein, the right, voting separately as a single class, in person or by proxy, to elect members of the Board of Directors of the Company (such director(s) to be in addition to the number of directors constituting the Board of Directors immediately prior to the exercise of such right and in addition to any directors that are elected pursuant to, and without regard for any restrictions with respect to the election of such director(s) by the Series A Preferred Stock set forth in, the certificates of designation of any other preferred stock of the Company, with the remaining directors to be elected by the classes or series of stock entitled to vote thereon) as follows: (i) If the Holder owns at least 25% of the outstanding Common Stock, on a fully diluted basis, which shall include shares issuable upon conversion of the Series A Preferred Stock, the Holder shall have the right to elect three (3) members of the Board of Directors of the Company; provided that the Holder shall have the right to elect such larger number of Directors as most closely reflects the Holder's ownership percentage of the outstanding Common Stock on a fully diluted basis; rounding to the nearest whole number of Directors; and further provided that the Holder shall not be entitled to elect a majority of the members of the Board of Directors unless the Holder shall own in excess of 50% of the outstanding Common Stock, on a fully diluted basis; and 6 (ii) If the Holder owns less than 25% but more than 10% of the outstanding Common Stock on a fully diluted basis, the Holder shall have the right to elect two (2) members of the Board of Directors; and (iii) If the Holder owns less than 10% but more than 5% of the outstanding Common Stock on a fully diluted basis, the Holder of Series A Preferred Stock shall have the right to elect one (1) member of the Board of Directors. If the Holder owns less than 5% of the outstanding Common Stock on a fully diluted basis, the Holder shall not be entitled to elect any members of the Board of Directors except as provided in subsection (b) below. (b) Default Election Rights. If at any time or times the Series A Preferred Stock is not redeemed on the Mandatory Redemption Date or upon the occurrence of a Mandatory Redemption Event, then the Holder of the Series A Preferred Stock shall have, in addition to the other voting rights set forth herein, the right, voting separately as a single class, in person or by proxy, to elect two (2) additional members of the Board of Directors of the Company. Such directors shall be in addition to the number of directors constituting the Board immediately prior to the accrual of such right and in addition to any directors that are elected pursuant to, and without regard for any restrictions with respect to the election of such directors by the Series A Preferred Stock set forth in, the certificates of designation of any other preferred stock of the Company, the remaining directors to be elected by the classes or series of stock entitled to vote thereon. Such voting rights shall continue until such time as the Series A Preferred Stock is redeemed as provided below; provided, however, that the Holder of the Series A Preferred Stock shall again have such voting right to elect such directors at any subsequent time during which the Series A Preferred Stock is not redeemed on the Mandatory Redemption Date or upon the occurrence of a Mandatory Redemption Event. (c) Exercise of Voting Rights. The voting rights of the Holder of the Series A Preferred Stock, voting separately as one class pursuant to this Section 5, may be exercised either at an annual or special meeting of the stockholders of the Company, or by written consent of such Holder in lieu of a meeting. If at any time (i) the voting right to elect a number of directors pursuant to Section 5(b) shall have vested in the Holder or (ii) the directorship or directorships filled by the Holder pursuant to Section 5(a) or 5(b) becomes vacant, the Holder may, by sending a written consent addressed to the Secretary of the Company, elect such directors referred to in clause (i) above or fill such vacancy or vacancies referred to in clause (ii) above, as the case may be. Any director elected pursuant to this Section 5 shall serve until the next annual meeting or until his or her successor shall be elected and shall qualify; provided, however, that with respect to any directors elected by the Holder pursuant to Section 5(b), when the right of such Holder to elect directors pursuant to such Section 5(b) shall terminate, the terms of office of all directors so elected by such Holder shall thereupon automatically terminate, and the number of directors constituting the entire Board shall thereupon be the number of directors remaining following said termination. 7 Any director elected by the Holder may be removed from office only by consent of the Holder. (d) Provisions of Certificate of Incorporation and Bylaws. So long as any shares of Series A Preferred Stock are outstanding, the Certificate of Incorporation and Bylaws of the Company shall contain provisions ensuring that the number of directors of the Company shall at all times be such that the exercise by the Holder of the right to elect a director or directors pursuant to this Section 5 will not contravene any provisions of the Company's Certificate of Incorporation or Bylaws. (e) Additional Voting Rights; Major Decisions. (i) Until such time as all except one of the outstanding shares of the Series A Preferred Stock shall have been redeemed, the Company will not either directly or indirectly, without the written consent of the Holder of the Series A Preferred Stock, consummate any transaction constituting a Major Decision; and (ii) except as otherwise provided herein or required by law, the Holder of Series A Preferred Stock shall vote as a single class with the holders of Common Stock and shall have such votes in respect of each share of Series A Preferred Stock on any matter, including, without limitation, the election of directors, submitted to the holders of Common Stock as the number of shares of Common Stock into which shares of Series A Preferred Stock may then be converted. The Holder shall be entitled to notice of any stockholders' meeting or solicitation of stockholders' consents in the manner provided in the Bylaws of the Company for general notices. Section 6. Certain Restrictions. (a) Prohibition on Payment of Dividends in Respect of Other Capital Stock. Whenever quarterly dividends payable on shares of Series A Preferred Stock as provided in Section 4 hereof are in arrears, thereafter and until all accrued and unpaid dividends, whether or not declared, on the outstanding shares of Series A Preferred Stock shall have been paid in full, or in the event the Series A Preferred Stock is not redeemed on the Mandatory Redemption Date or upon the occurrence of a Mandatory Redemption Event, as applicable, the Company shall not: (i) declare or pay dividends, or make any other distributions, on any shares of capital stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock or (ii) declare or pay dividends, or make any other distributions, on any shares of capital stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all capital stock ranking on a parity with the Series A Preferred Stock and on which dividends are payable or in arrears, in proportion to the total amounts to which the holders of all such shares are then entitled. (b) Prohibition on Redemption of Capital Stock. Whenever quarterly dividends payable on shares of the Series A Preferred Stock as provided in Section 4 hereof are in arrears, thereafter and until all accrued and unpaid dividends, whether or not declared, on the outstanding shares of each series of the Series A Preferred Stock shall have been paid in full, or in the event each series of the Series A Preferred Stock is not redeemed on the Mandatory Redemption Date or upon the occurrence of a Mandatory Redemption Event, as applicable, 8 the Company shall not: (i) redeem or purchase or otherwise acquire for consideration any shares of capital stock ranking (either as to dividends or upon liquidation, dissolution or winding up) junior to, or on a parity with, the Series A Preferred Stock; or (ii) redeem or purchase or otherwise acquire for consideration any shares of the Series A Preferred Stock, except the Company (A) shall redeem outstanding shares of Series A Preferred Stock pursuant to Section 7 hereof and (B) may otherwise redeem shares of Series A Preferred Stock pursuant to Section 8 hereof. (c) Prohibition on Acquisition of Capital Stock by Subsidiary. The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of capital stock of the Company unless the Company could purchase such shares at such time and in such manner. Section 7. Mandatory Redemption by the Company. (a) Redemption. Upon the earlier to occur of a Mandatory Redemption Event or the Mandatory Redemption Date, the Company shall redeem all except one share of the Series A Preferred Stock as set forth herein. The Company will not take any action that consummates or finalizes a Mandatory Redemption Event unless at least thirty (30) days prior to such action it shall have delivered written notice of such impending Mandatory Redemption Event by mail, postage prepaid, to the Holder at its address then appearing on the books of the Company. The Company will, within five Business Days after the occurrence of any Mandatory Redemption Event, deliver written notice of such Mandatory Redemption Event by mail, postage prepaid, to the Holder at its address then appearing on the books of the Company. (b) Redemption Price. Redemption of shares of the Series A Preferred Stock to be redeemed pursuant to this Section 6 shall be at a redemption price equal to the Liquidation Value per share, which shall include an amount equal to all dividends (whether or not declared) accrued and unpaid to such date. The redemption shall be made on the earlier of the Mandatory Redemption Date or not less than five (5) nor more than ten (10) Business Days following the delivery of notice of the occurrence of a Mandatory Redemption Event, as appropriate. If the Company shall not have sufficient funds legally available for redeeming the shares of the Series A Preferred Stock at the designated date above for redemption, the Company shall redeem such number of the Holder's shares of Series A Preferred Stock as possible out of funds legally available therefor and shall redeem the remaining shares to be redeemed (with dividends continuing to accrue on such shares until redeemed) as soon as practicable after the Company has funds legally available therefor. (c) Shares Deemed No Longer Outstanding. From and after payment in full of the redemption price of any shares of the Series A Preferred Stock redeemed pursuant to this Section 7, including an amount equal to accrued and unpaid dividends thereon to the date designated for redemption, and notwithstanding that any certificate representing shares of the Series A Preferred Stock to be redeemed shall not have been surrendered for cancellation, such shares shall no longer be deemed outstanding, and the Holder shall have no rights in or with respect to the Company except the right to receive, whether or not the certificates 9 representing the shares of the applicable series of the Series A Preferred Stock are surrendered prior to, on or subsequent to the date designated for redemption, the redemption price therefor, which shall include an amount equal to accrued and unpaid dividends thereon to the date designated for redemption. (d) Redemption of Remaining Share. Following redemption of all except one share of the Series A Preferred Stock, the Company shall, upon the written request of the Holder, redeem the remaining share of Series A Preferred Stock at a redemption price equal to the Liquidation Value of such share. Section 8. Optional Redemption. (a) Optional Redemption. The Company, at its option, may at any time redeem all (excluding, subject to Section 8(f) hereof, one share), of the shares or such lesser part, of the shares of the then outstanding shares of the Series A Preferred Stock, at a redemption price equal to the Liquidation Value, which shall include an amount equal to all dividends (whether or not declared) accrued and unpaid to such date. (b) Notice of Optional Redemption. In the event the Company elects to redeem all but excluding one of the outstanding shares of the Series A Preferred Stock as set forth above, the Company will, at least 30 days prior to the date fixed for the redemption of the Series A Preferred Stock pursuant to this Section 8, deliver written notice of such redemption election by mail, postage prepaid, to the Holder of record of the Series A Preferred Stock at its address then appearing on the books of the Company. Such notice shall specify the date fixed for redemption (the "OPTIONAL REDEMPTION DATE"), which shall be not less than 30 days and not more than 90 days after the date such notice is delivered. Such notice shall be accompanied by the certificate described in Section 8(e). (c) Redemption Price. Redemption of the Series A Preferred Stock to be redeemed pursuant to this Section 8 shall be at a redemption price equal to the Liquidation Value per share, which shall include an amount equal to all dividends (whether or not declared) accrued and unpaid to such date. The redemption shall be made on the Optional Redemption Date. (d) Shares Deemed No Longer Outstanding. From and after payment in full of the redemption price of any shares of the Series A Preferred Stock redeemed pursuant to this Section 8, which shall include an amount equal to accrued and unpaid dividends thereon to the date designated for redemption, and notwithstanding that any certificate representing shares of the Series A Preferred Stock called for redemption shall not have been surrendered for cancellation, such shares shall no longer be deemed outstanding, and the Holder shall have with respect to such shares no rights in or with respect to the Company except the right to receive, whether or not certificates representing the shares of the applicable series of the Series A Preferred Stock are surrendered prior to, on or subsequent to the Optional Redemption Date, the redemption price therefor, which shall include an amount equal to accrued and unpaid dividends thereon to the date designated for redemption. 10 (e) Delivery of Officer's Certificate. Each notice delivered pursuant to Section 8(b) shall be accompanied by an Officer's Certificate, specifying (i) that such redemption is being elected pursuant to this Section 8, (ii) the dividends that would be due on each share of the Series A Preferred Stock to be redeemed, accrued to the Optional Redemption Date, and (iii) describing any conversion rights applicable to the Series A Preferred Stock. (f) Redemption of Remaining Share. The Company may redeem all of the outstanding shares of Series A Preferred Stock in accordance with the provisions set forth above, at any time when the Holder shall own less than 5% of the outstanding Common Stock on a fully diluted basis. Section 9. Reacquired Shares. Any shares of Series A Preferred Stock converted, redeemed, purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of preferred stock without designation as to class or series and may thereafter be issued, but not as shares of Series A Preferred Stock. Section 10. Liquidation, Dissolution or Winding Up. (a) Liquidation Preference. Except as provided in Section 10(b), upon any liquidation, dissolution or winding up of the Company, no distribution shall be made (i) to the holders of shares of capital stock of the Company ranking junior (upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the Holder of shares of Series A Preferred Stock shall have received an amount equal to the Liquidation Value for all outstanding shares of Series A Preferred Stock or (ii) to the holders of shares of capital stock ranking on a parity (upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. (b) Insolvency. If the Company shall commence a voluntary case under the federal bankruptcy laws or any other applicable federal or state bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any such law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Company shall be entered by a court having jurisdiction in the premises in an involuntary case under the federal bankruptcy laws or any other applicable federal or state bankruptcy, insolvency or similar law, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of 90 consecutive days and on account of any such event the Company shall liquidate, dissolve or wind up, no distribution shall be made (i) to the holders of shares of capital stock of the Company ranking junior (upon liquidation, dissolution or winding up) to the Series A Preferred Stock 11 unless, prior thereto, the Holder of shares of Series A Preferred Stock shall have received an amount equal to the Liquidation Value for all outstanding shares of Series A Preferred Stock to the date of such payment, or (ii) to the holders of shares of capital stock ranking on a parity (upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. (c) Business Combinations. Neither the consolidation, merger or other business combination of the Company with or into any other Person or Persons nor the sale of all or substantially all of the assets of the Company shall be deemed to be a liquidation, dissolution or winding up of the Company for purposes of this Section 10. Section 11. Conversion. The shares of Series A Preferred Stock may be converted at any time, at the option of the Holder, in whole or in part, into shares of Common Stock, on the terms and conditions set forth in this Section 11. (a) Conversion Ratio. Subject to the provisions for adjustment set forth below, each share of Series A Preferred Stock shall be convertible in the manner hereinafter set forth into that number of duly authorized, validly issued, fully paid and nonassessable shares of Common Stock equal to the Liquidation Value divided by the Conversion Price. (b) Anti-Dilution Adjustments. The Conversion Price and the number of shares of Common Stock into which each share of Series A Preferred Stock is convertible shall be subject to adjustment from time to time as follows: (i) Issuance of Additional Shares of Common Stock. In case the Company, at any time or from time to time after the date hereof, shall issue or sell Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to clause (iii) below) for a consideration per share (determined pursuant to clause (iv) below) less than the Conversion Price, on the date of and immediately prior to such issue or sale, then, and in each such case, subject to clause (v) below, the Conversion Price shall be reduced, concurrently with such issue or sale, to a price equal to the consideration per share (determined pursuant to clause (iv) below) for which such Additional Shares of Common Stock were issued or sold or deemed issued or sold. (ii) Adjustment for Change in Capital Stock. If the Company: (1) pays a dividend or makes a distribution on its Common Stock in shares of its Common Stock or Options; (2) subdivides its outstanding shares of Common Stock into a greater number of shares; (3) combines its outstanding shares of Common Stock into a smaller number of shares; 12 (4) makes a distribution on its Common Stock in shares of its capital stock other than Common Stock; or (5) issues by reclassification of its Common Stock any other securities; then the conversion privilege and the Conversion Price in effect immediately prior to such action shall be adjusted so that the Holder may receive the number of shares of capital stock of the Company that it would have owned immediately following such action if it had converted the Series A Preferred Stock immediately prior to such action. This adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. If after an adjustment the Holder upon conversion of such shares may receive shares of two or more classes of capital stock of the Company, the Company shall determine the allocation of the adjusted Conversion Price between the classes of capital stock. After such allocation, the conversion privilege and the Conversion Price of each class of capital stock thereafter shall be subject to adjustment on terms comparable to those applicable to Common Stock in this Section. In case the Company shall declare, order, pay or make a dividend or other distribution other than (A) a dividend payable in shares of Common Stock or in Options or (B) a regular periodic dividend payable in cash then, and in each such case, the Company shall pay over to the Holder of Series A Preferred Stock, on the date on which such dividend or other distribution is paid to the holders of Common Stock, the securities and other property (including cash) which such Holder would have received if such Holder had converted such Series A Preferred Stock to Common Stock immediately prior to the record date fixed in connection with such dividend or other distribution. (iii) Treatment of Options and Convertible Securities. In case the Company, at any time or from time to time after the date hereof, shall issue, sell, grant or assume, any Options or Convertible Securities, whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, then, and in each such case, the shares of Common Stock (as set forth in the instrument relating thereto, without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, issuable upon the conversion or exchange of such Convertible Securities (or the exercise of such Options for Convertible Securities and subsequent conversion or exchange of the Convertible Securities issued), shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue, sale, grant or assumption, provided, that such Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to clause (iv) below) of such 13 shares would be less than the Conversion Price in effect on the date of and immediately prior to such issue, sale, grant or assumption, and provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued, (A) no further adjustment of the Conversion Price shall be made upon the subsequent issue or sale of Additional Shares of Common Stock or Convertible Securities upon the exercise of such Options or the conversion or exchange of such Convertible Securities; (B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Company, or change in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Conversion Price computed upon the original issue, sale, grant or assumption thereof, and any subsequent adjustments based thereon, shall, upon any such change becoming effective, be recomputed to reflect such change insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, which are outstanding at such time; (C) upon the expiration of all such Options or of all of the rights of conversion or exchange under any such Convertible Securities which shall not have been exercised (or upon purchase by the Company and cancellation or retirement of all such Options which shall not have been exercised or of any such Convertible Securities the rights of conversion or exchange under which shall not have been exercised), the Conversion Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration (or such cancellation or retirement, as the case may be), be recomputed as if such Options or Convertible Securities had never been issued, sold, granted or assumed; and (D) no recomputation pursuant to subclauses (B) or (C) above shall have the effect of increasing the Conversion Price then in effect by an amount in excess of the amount of the adjustment thereof originally made in respect of the issue, sale, grant or assumption of such Options or Convertible Securities. (iv) Computation of Consideration. For the purposes of this Section 11: (A) The consideration for the issue or sale of any Additional Shares of Common Stock or for the issue, sale, grant or assumption of any Options or Convertible Securities, irrespective of the accounting treatment of such consideration, 14 (1) insofar as it consists of cash, shall be computed as the amount of cash received by the Company, and insofar as it consists of securities or other property, shall be computed as of the date immediately preceding such issue, sale, grant or assumption as the Fair Value of such consideration (or, if such consideration is received for the issue or sale of Additional Shares of Common Stock and the Market Price thereof is less than the Fair Value of such consideration, then such consideration shall be computed as the Market Price of such Additional Shares of Common Stock), in each case without deducting any expenses paid or incurred by the Company, any commissions or compensation paid or concessions or discounts allowed to underwriters, dealers or others performing similar services and any accrued interest or dividends in connection with such issue or sale, and (2) in case Additional Shares of Common Stock are issued or sold or Options or Convertible Securities are issued, sold, granted or assumed together with other stock or securities or other assets of the Company for a consideration which covers both, shall be the proportion of such consideration so received, computed as provided in subclause (1) above, allocable to such Additional Shares of Common Stock or Options or Convertible Securities, as the case may be, all as determined in good faith by the Board of Directors of the Company. (B) Additional Shares of Common Stock deemed to have been issued for consideration pursuant to clause (iii) above, relating to Options and Convertible Securities, shall be deemed to have been issued for a consideration per share determined by dividing (1) the total amount, if any, received and receivable by the Company as consideration for the issue, sale, grant or assumption of the Options or Convertible Securities in question, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise in full of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, in each case computing such consideration as provided in the foregoing subclause (A), by 15 (2) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (v) Minimum Adjustment of the Conversion Price. If the amount of any adjustment of the Conversion Price required hereunder would be less than one percent of the Conversion Price in effect at the time such adjustment is otherwise so required to be made, such amount shall be carried forward and adjustment with respect thereto made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate at least one percent of such Conversion Price; provided, that upon the conversion of any Series A Preferred Stock, all adjustments carried forward and not theretofore made up to and including the date of such conversion shall, with respect to the shares of Series A Preferred Stock then converted, be made to the nearest .001 of a cent. (vi) Changes in Common Stock. In case at any time the Company shall be a party to any transaction (including, without limitation, a merger, consolidation, sale of all or substantially all of the Company's assets, liquidation or recapitalization of the Common Stock) in which the previously outstanding Common Stock shall be changed into or exchanged for different securities of the Company or common stock or other securities of another company or interests in a noncorporate entity or other property (including cash) or any combination of any of the foregoing then, as a condition of the consummation of such transaction, lawful and adequate provisions (in form reasonably satisfactory to the Holder) shall be made so that the Holder, upon the conversion thereof at any time on or after the consummation date of the subject transaction shall be entitled to receive, and each share of Series A Preferred Stock shall thereafter represent the right to receive, in lieu of the Common Stock previously issuable upon such conversion the same consideration as the Holder would have received had the Holder converted its Series A Preferred Stock into Common Stock immediately prior to the transaction. Notwithstanding anything contained herein to the contrary, the Company shall not effect any transaction described in the immediately preceding paragraph unless prior to the consummation thereof each corporation or entity (other than the Company) which may be required to deliver any securities or other property upon the conversion of Series A Preferred Stock shall assume, by written instrument delivered to the Holder, the obligation to deliver to the Holder such securities or other property as to which, in accordance with the foregoing provisions, the Holder may be entitled, and such corporation or entity shall have similarly delivered to the Holder an opinion of counsel for such corporation or entity, satisfactory to the Holder, which opinion shall state that the conversion rights of the Holder shall thereafter continue in full force and effect and shall be enforceable against such corporation or entity in 16 accordance with the terms hereof and thereof, together with such other matters as the Holder may reasonably request. (vii) Certain Issues Excepted. Anything herein to the contrary notwithstanding, the Company shall not be required to make any adjustment of the Conversion Price in the case of (i) the issuance of the Series A Preferred Stock, (ii) the issuance of shares of Common Stock issuable upon conversion of the Series A Preferred Stock, (iii) the issuance of Common Stock concurrently with the transaction in which the Series A Preferred Stock was issued (iv) the exercise by the Holder of any Options owned by it, (v) the issuance of any Common Stock in connection with the Mortensen Agreement, and (vi) the exercise of the Toboroff Options or Options granted to management of the Company. (viii) Dilution in Case of Other Securities. In case any other securities shall be issued or sold or shall become subject to issue or sale upon the conversion or exchange of any stock of the Company (or any other issuer or Person) or become subject to subscription, purchase or other acquisition pursuant to any Options issued or granted by the Company (or any other issuer or Person), in each case for a consideration such as to dilute, on a basis to which the standards established in the other provisions of this Section 11 do not apply, the conversion rights of the Holder, then in each such case the computations, adjustments and readjustments provided for in this Section 11 with respect to the Conversion Price shall be made as nearly as possible in the manner so provided and applied to determine the amount of other securities from time to time receivable upon the conversion of the Series A Preferred Stock, so as to protect the Holder against the effect of such dilution. (ix) Notice of Adjustment. Upon the occurrence of any event requiring an adjustment of the Conversion Price, then and in each such case the Company shall promptly deliver to the Holder an Officer's Certificate stating the Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares of Common Stock issuable upon conversion of each share of Series A Preferred Stock, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Within 90 days after each fiscal year in which any such adjustment shall have occurred, or within 30 days after any request therefor by the Holder stating that the Holder contemplates conversion of any Series A Preferred Stock, the Company will obtain and deliver to such Holder the opinion of its regular independent auditors or another firm of independent public accountants of recognized national standing selected by the Company's Board of Directors, which opinion shall confirm the statements in the most recent Officer's Certificate delivered under this clause. (x) Other Notices. In case at any time: (A) the Company shall declare to the holders of Common Stock any dividend; 17 (B) the Company shall declare or pay any dividend upon its Common Stock payable in stock or make any special dividend or other distribution (other than regular cash dividends) to the holders of its Common Stock; (C) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (D) there shall be any capital reorganization, or reclassification of the capital stock of the Company, or consolidation or merger of the Company with or sale of all or substantially all of its assets to, another corporation or other entity; (E) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or (F) there shall be made any tender offer for any shares of capital stock of the Company; then, in any one or more of such cases, the Company shall give to the Holder of Series A Preferred Stock (1) at least 10 days prior to any event referred to in subclause (A) or (B) above, at least 20 days prior to any event referred to in subclause (C), (D) or (E) above, and within five days after it has knowledge of any pending tender offer or other transaction, written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or similar transaction or the date by which shareholders must tender shares in any tender offer and (2) in the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or tender offer known to the Company, at least 20 days prior written notice of the date (or, if not then known, a reasonable approximation thereof by the Company) when the same shall take place. Such notice in accordance with the foregoing clause (1) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (2) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding-up or tender offer, as the case may be. Such notice shall also state that the action in question or the record date is subject to the effectiveness of a registration statement under the Securities Act or to a favorable vote of security holders, if either is required. (xi) Certain Events. If any event occurs as to which, in the good faith judgment of the Board of Directors of the Company, the other provisions of this 18 Section 11 are not strictly applicable or if strictly applicable would not fairly protect the conversion rights of the Holder in accordance with the essential intent and principles of such provisions, then the Board of Directors of the Company shall appoint its regular independent auditors or another firm of independent public accountants of recognized national standing which shall give their opinion upon the adjustment, if any, on a basis consistent with such essential intent and principles, necessary to preserve, without dilution, the rights of the Holder. Upon receipt of such opinion, the Board of Directors of the Company shall forthwith make the adjustments described therein; provided, that no such adjustment shall have the effect of increasing the Conversion Price as otherwise determined pursuant to this Section 11. The Company may make such reductions in the Conversion Price as it deems advisable, including any reductions intended to ensure that any event treated for Federal income tax purposes as a distribution of stock or stock rights not be taxable to recipients. (xii) Prohibition of Certain Actions. The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 11 and in the taking of all such action as may reasonably be requested by the Holder in order to protect the conversion privilege of such Holder against dilution or other impairment, consistent with the tenor and purpose of this Section 11. Without limiting the generality of the foregoing, the Company (A) will not increase the par value of any shares of Common Stock receivable upon the conversion of Series A Preferred Stock above the Conversion Price then in effect, (and before taking any action which would cause an adjustment reducing the Conversion Price below the then par value (if any) of the Common Stock deliverable upon conversion of the Series A Preferred Stock, will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and non-assessable Common Stock at such adjusted Conversion Price), (B) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the conversion of all Series A Preferred Stock from time to time outstanding, (C) will not take any action which results in any adjustment of the Conversion Price if the total number of shares of Common Stock or Other Securities issuable after the action upon the conversion of all shares of Series A Preferred Stock would exceed the total number of shares of Common Stock or Other Securities then authorized by the Company's Certificate of Incorporation and available for the purpose of issue upon such conversion, and (D) will not issue any capital stock of any class which has the right to more than one vote per share or any capital stock of any class which is preferred as to dividends or as to the distribution of assets upon voluntary or involuntary dissolution, liquidation or winding-up, unless the rights of the holders thereof shall be limited to a fixed sum or percentage (or floating rate related to market yields) of par value or stated value in respect of participation in dividends and 19 a fixed sum or percentage of par value or stated value in any such distribution of assets. (c) Surrender of Certificates. The Holder may exercise such Holder's right to convert shares of Series A Preferred Stock into shares of Common Stock by surrendering for such purpose to the Company, at its principal office or at such other office or agency maintained by the Company for that purpose, a certificate or certificates representing the shares of Series A Preferred Stock to be converted accompanied by a written notice stating that such Holder elects to convert all or a specified whole number of such shares in accordance with the provisions of this Section 11 and specifying the name or names in which such Holder wishes the certificate or certificates for shares of Common Stock to be issued. As promptly as practicable, and in any event within five Business Days after the surrender of such certificate or certificates and the receipt of such notice relating thereto, the Company shall deliver or cause to be delivered (i) certificates representing the number of validly issued, fully paid and nonassessable full shares of Common Stock to which the holder of shares of Series A Preferred Stock so converted shall be entitled and (ii) if less than the full number of shares of Series A Preferred Stock evidenced by the surrendered certificate or certificates are being converted, a new certificate or certificates, of like tenor, for the number of shares evidenced by such surrendered certificate or certificates less the number of shares converted. Such conversion shall be deemed to have been made at the close of business on the date of giving of such notice and of such surrender of the certificate or certificates representing the shares of Series A Preferred Stock to be converted so that the rights of the Holder thereof as to the shares being converted shall cease except for the right to receive shares of Common Stock in accordance herewith, and the person entitled to receive the shares of Common Stock shall be treated for all purposes as having become the record holder of such shares of Common Stock at such time. (d) Time for Conversion. Shares of Series A Preferred Stock may be converted at any time up to the close of business on the Business Day preceding the date fixed for redemption of such shares pursuant to Sections 7 or 8 hereof. (e) Dividends in Respect of Converted Shares. Upon conversion of any shares of Series A Preferred Stock, the Holder thereof shall not be entitled to receive any accumulated, accrued or unpaid dividends in respect of the shares so converted; provided, that such Holder shall be entitled to receive any dividends on such shares of Series A Preferred Stock declared prior to such conversion if such Holder held such shares on the record date fixed for the determination of the Holder to receive payment of such dividend. (f) Fractional Shares. In connection with the conversion of any shares of Series A Preferred Stock, no fractions of shares of Common Stock shall be issued, but in lieu thereof the Company shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Market Price per share of the Common Stock on the day on which such shares of Series A Preferred Stock are deemed to have been converted. 20 (g) Stock to be Reserved. The Company will at all times reserve and keep available out of the authorized Common Stock, solely for the purpose of issue upon conversion of Series A Preferred Stock as herein provided, such number of shares of the Common Stock as shall then be issuable upon the conversion of all outstanding Series A Preferred Stock, and the Company will maintain at all times all other rights and privileges sufficient to enable it to fulfill all its obligations hereunder. The Company covenants that all shares of the Common Stock which shall be so issuable shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, free from preemptive or similar rights on the part of the holders of any shares of capital stock or securities of the Company or any other Person, and free from all taxes, liens and charges with respect to the issue thereof (not including any income taxes payable by the holders of Series A Preferred Stock being converted in respect of gains thereon). The Company will take all such action as may be necessary to assure that such shares of the Common Stock may be so issued without violation of any applicable law or regulation, or of any applicable requirements of the National Association of Securities Dealers, Inc. and of any domestic securities exchange upon which the Common Stock may be listed. (h) Registration of Common Stock. If any shares of Common Stock required to be reserved for purposes of the conversion of Series A Preferred Stock require registration with or approval of any governmental authority under any Federal or State law, before such shares may be issued upon the conversion thereof, the Company will, at its expense and as expeditiously as possible, use its best efforts to cause such shares to be duly registered or approved, as the case may be. At any such time as the Common Stock is listed on any national securities exchange or quoted by the Nasdaq National Market or any successor thereto or any comparable system, the Company will, at its expense, obtain promptly and maintain the approval for listing on each such exchange or quoting by the Nasdaq National Market or such successor thereto or comparable system, upon official notice of issuance, the shares of the Common Stock issuable upon conversion of the then outstanding Series A Preferred Stock and maintain the listing or quoting of such shares after their issuance so long as the Common Stock is so listed or quoted; and the Company will also cause to be so listed or quoted, will register under the Exchange Act and will maintain such listing or quoting of, any Other Securities that at any time are issuable upon conversion of the Series A Preferred Stock, if and at the time that any securities of the same class shall be listed on such national securities exchange by the Company. (i) Issue Tax. The issuance of certificates for shares of the Common Stock upon conversion of any shares of Series A Preferred Stock shall be made without charge to the Holder thereof for any issuance tax in respect thereto. (j) Closing of Books. The Company will at no time close its transfer books against the transfer of any shares of Series A Preferred Stock or of any share of the Common Stock issued or issuable upon the conversion of Series A Preferred Stock in any manner which interferes with the timely conversion of such Series A Preferred Stock. 21 Section 12. Ranking. For purposes of the Certificate of Designation, Preferences and Rights embodying this resolution, any stock of any class or series of the Company shall be deemed to rank: (a) prior to shares of the Series A Preferred Stock, either as to dividends or upon liquidation, if the holders of stock of such class or series shall be entitled by the terms thereof to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the Holder of shares of the Series A Preferred Stock; (b) on a parity basis with shares of the Series A Preferred Stock, either as to dividends or upon liquidation, whether or not the dividend rates or redemption or liquidation prices per share thereof be different from those of the Series A Preferred Stock, if the holders of stock of such class or series shall be entitled by the terms thereof to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority of one over the other as between the holders of such stock and the Holder of shares of the Series A Preferred Stock; and (c) junior to shares of the Series A Preferred Stock, either as to dividends or upon liquidation, if such class or series shall be the Common Stock of the Company or if the Holder of the Series A Preferred Stock shall be entitled to the receipt of dividends or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of stock of such class or series. Section 13. Headings of Subdivisions. The headings of the various Sections and other subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. Section 14. Severability of Provisions. If any voting powers, preferences and relative, participating, optional and other special rights of the Series A Preferred Stock and qualifications, limitations and restrictions thereon set forth in the Certificate of Designation, Preferences and Rights embodying this resolution is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other powers, preferences and relative, participating, optional and other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereon set forth therein which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional and other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereon shall, nevertheless, remain in full force and effect, and no voting powers, preferences and relative, participating, optional or other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereon herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Series A Preferred Stock and qualifications, limitations and restrictions thereon unless so expressed herein. IN WITNESS WHEREOF, said Allis-Chalmers Corporation has caused this Certificate of Designation, Preferences and Rights of 10% Cumulative Convertible Preferred Stock, Series A, to 22 be duly executed by its President and attested to by its Secretary this ______ day of ______________, 2002. ALLIS-CHALMERS CORPORATION By: /s/ Munawar H. Hidayatallah ------------------------------------- Chief Executive Officer ATTEST: - ---------------------------------- Secretary 23 EX-7.3 5 v79338ex7-3.txt EXHIBIT 7.3 EXHIBIT 7.3 THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. THIS WARRANT MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR ASSIGNED TO ANY OTHER PERSON OR ENTITY, EXCEPT AS SET FORTH HEREIN. WARRANT TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF ALLIS-CHALMERS CORPORATION VOID AFTER 5:00 P.M., CENTRAL TIME, ON JANUARY [28], 2012, OR IF NOT A BUSINESS DAY, AS DEFINED HEREIN. AT 5:00 P.M., CENTRAL TIME ON THE IMMEDIATELY FOLLOWING BUSINESS DAY Date of Issuance: February 1, 2002 THIS CERTIFIES that, for good and valuable consideration, ENERGY SPECTRUM PARTNERS, LP, a Delaware limited partnership ("Energy Spectrum"), or registered assigns, is entitled to subscribe for and purchase from Allis-Chalmers Corporation, a Delaware corporation (the "Company"), at the price of $0.15 per share (such price, as from time to time to be adjusted as hereinafter provided, being hereinafter called the "Warrant Price"), at any time and from time to time after the date hereof but not later than the Expiration Date (as defined below), up to such number of fully paid, nonassessable shares of Common Stock, par value $.15 per share ("Common Stock"), of the Company as is specified in the following sentence, subject, however, to the provisions and upon the terms and conditions hereinafter set forth, including without limitation the provisions of Section 3 hereof. This Warrant shall be exercisable for up to 437,500 shares of Common Stock upon issuance, subject to adjustment as provided herein. "Expiration Date" shall mean 5:00 P.M., Central time, on January 31, 2012, provided, that if such day is not a Business Day, as defined herein, at 5:00 P.M., Central time, on the immediately following Business Day. "Business Day" shall mean a day other than a Saturday, Sunday or other day on which banks in the State of Texas are authorized by law to remain closed. SECTION 1. EXERCISE OF WARRANT (a) CASH OR CASHLESS EXERCISE This Warrant may be exercised, at any time and from time to time but not later than the Expiration Date, by the holder hereof (hereinafter referred to as the "Warrantholder"), in whole or in part (but not as to a fractional share of Common Stock), by the completion of the subscription form attached hereto and by the surrender of this Warrant (properly endorsed) at the Company's offices at 7660 Woodway, Suite 200, Houston, Texas 77063 (or at such other location in the United States as the Company may designate by notice in writing to the Warrantholder at the address of the Warrantholder appearing on the books of the Company), and by payment to the Company of the Warrant Price for each share being purchased, (i) in cash or by certified or official bank check or (ii) by delivering notice to the Company that the Warrantholder is exercising this Warrant by authorizing the Company to reduce the number of shares of Common Stock subject to this Warrant by the number of shares having an aggregate Fair Market Value equal to the applicable Warrant Price. For purposes of this Warrant, the term "Fair Market Value" shall mean on any date specified herein, with respect to Common Stock, the amount per share equal to (a) the average of the closing prices thereof on the ten (10) trading days prior to such date, in each case as officially reported on the principal national securities exchange on which the same are then listed or admitted to trading, or (b) if no shares of Common Stock are then listed or admitted to trading on any national securities exchange, the average of the reported closing bid and asked prices thereof on the ten (10) trading days prior to such date as quoted in the Nasdaq National Market or, if no shares of Common Stock are then quoted in the Nasdaq National Market, as published by the National Quotation Bureau, Incorporated or any similar successor organization, and in either case as reported by any member firm of the New York Stock Exchange selected by the Company; provided that with respect to (b) above, if the average daily trading volume for the subject shares for the thirty (30) days prior to the date of determination shall be less than 1,000 shares per day, then the subject Market Price shall be the average of the closing bid price of such shares on the ten (10) trading days prior to the date of determination, or (c) if not so reported, the fair market value of the Common Stock, as determined in good faith by the Board of Directors of the Company. (b) PROCEDURE FOR EXERCISE In the event of any exercise of the rights represented by this Warrant, a certificate or certificates for the total number of whole shares of Common Stock so purchased, registered in the name of the Warrantholder, shall be delivered to the Warrantholder within a reasonable time, not exceeding five Business Days, after the rights represented by this Warrant shall have been so exercised; and, unless this Warrant has expired, a new Warrant representing the number of shares (except a remaining fractional share), if any, with respect to the unexercised portion of this Warrant shall also be issued to the Warrantholder within such time. With respect to any such exercise, the Warrantholder shall for all purposes be deemed to have become the holder of record of the number of shares of Common Stock evidenced by such certificate or certificates, from the date on which this Warrant was surrendered and, if exercise is pursuant to Section 1(a), payment of the Warrant Price was made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date on which the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. No fractional shares shall be issued upon exercise of this Warrant and no payment or adjustment shall be made upon any exercise on account of any cash dividends on the Common Stock issued upon such exercise. If any fractional interest in a share of Common Stock would, except for the provisions of this Section 1, be delivered upon any such exercise, the Company, in lieu of delivering the fractional share thereof, shall pay to the Warrantholder an amount in cash equal to the current market price of such fractional interest, as determined below. Page 2 SECTION 2. ADJUSTMENT OF NUMBER OF SHARES Upon each adjustment of the Warrant Price for any stock dividend or distribution or any subdivision or combination of the outstanding shares of the Common Stock as provided in Section 3, the Warrantholder shall thereafter be entitled to purchase, at the Warrant Price resulting from such adjustment (each an "Adjusted Warrant Price"), the number of shares (calculated to the nearest hundredth of a share) obtained by multiplying the Warrant Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Adjusted Warrant Price resulting from such adjustment. SECTION 3. ADJUSTMENT OF WARRANT PRICE AND OTHER MATTERS The Warrant Price and the number and kind of shares issuable hereunder shall be subject to adjustment from time to time upon the happening of certain events as provided in this Section 3. (a) ADJUSTMENTS FOR ISSUE OR SALE OF COMMON STOCK AT LESS THAN CONVERSION RATE If the Company shall issue or sell shares of its Common Stock (other than pursuant to this Warrant) for a consideration per share less than the Warrant Price (as the same shall be adjusted from time to time, as provided herein), then in each such case, the Warrant Price shall be reduced to an amount equal to the price per share received by the Company in such sale. (b) ADJUSTMENT PROVISIONS; OTHER MATTERS (1) If at any time prior to the exercise of this Warrant in full, the Company shall (A) declare a dividend or make a distribution on the Common Stock payable in shares of its capital stock (whether shares of Common Stock or of capital stock of any other class); (B) subdivide, reclassify or recapitalize its outstanding Common Stock into a greater number of shares; (C) combine, reclassify or recapitalize its outstanding Common Stock into a smaller number of shares; or (D) issue any shares of its capital stock by reclassification of its Common Stock (excluding any such reclassification in connection with a consolidation or a merger that is subject to Section 3(b)(4)), the Warrant Price in effect at the time of the record date of such dividend, distribution, subdivision, combination, reclassification or recapitalization shall be adjusted so that the Warrantholder shall be entitled to receive the aggregate number and kind of shares which, if this Warrant had been exercised in full immediately prior to such event, it would have owned upon such exercise and been entitled to receive by virtue of such dividend, distribution, subdivision, combination, reclassification or recapitalization. Any adjustment required by this Section 3(b) shall be made immediately after the record date, in the case of a dividend or distribution, or the effective date, in the case of a subdivision, combination, reclassification or recapitalization, to allow the purchase of such aggregate number and kind of shares. (2) If at any time prior to the exercise of this Warrant in full, the Company shall make a distribution to all holders of the Common Stock of (i) stock of a subsidiary or securities convertible into or exercisable for such stock, or (ii) evidence of indebtedness of the Page 3 Company or assets of the Company (excluding cash dividends or distributions out of earned surplus), then in lieu of an adjustment in the Warrant Price or the number of shares of Common Stock purchasable upon the exercise of this Warrant (and in addition to the Common Stock or other securities to be received upon exercise of this Warrant as provided herein), each Warrantholder, upon the exercise hereof at any time after such distribution, shall be entitled to receive from the Company, such subsidiary or both, as the Company shall determine, the stock or other securities to which such Warrantholder would have been entitled if such Warrantholder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in this Section 3, and the Company shall reserve, for the life of the Warrant, such securities of such subsidiary or other corporation; provided, however, that no adjustment in respect of dividends or interest on such stock or other securities shall be made during the term of this Warrant or upon its exercise. (3) If at any time prior to the expiration of this Warrant in full, the Company shall issue shares of Common Stock or rights or warrants entitling persons to subscribe for or purchase Common Stock in either case at a price per share or exercise price per share less than the current Warrant Price, then, in each such case the Warrant Price shall be reduced to the subject issue or exercise price, as appropriate. (4) In the event of any capital reorganization of the Company (other than an event referred to in Section 3(b)(1)), or in case of the consolidation of the Company with, the merger of the Company with or into or the sale of all or substantially all of the properties and assets of the Company to any other person, if in connection therewith consideration is payable to holders of Common Stock (or other securities or property purchasable upon exercise of this Warrant) in exchange therefor, this Warrant shall remain subject to the terms and conditions set forth in this Warrant and this Warrant shall, after such capital reorganization, consolidation, merger or sale be exercisable for the number of shares of stock or other securities or assets to which a holder of the number of shares of Common Stock purchasable (at the time of such capital reorganization, reclassification of such Common Stock, consolidation, merger or sale) upon exercise of this Warrant would have been entitled if this Warrant had been exercised immediately prior to such capital reorganization, reclassification of such Common Stock, consolidation, merger or sale; and in any such case, if necessary, the provisions set forth in this Warrant with respect to the rights and interests thereafter of the Warrantholder shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock or other securities or assets thereafter deliverable `on the exercise of this Warrant. The Company shall not effect any such consolidation, merger or sale, unless prior to or simultaneously with the consummation thereof, the successor corporation (if other than the Company) resulting from such consolidation or merger or the corporation purchasing such assets or the appropriate corporation or entity shall assume, by written instrument, the obligation to deliver to the Warrantholder the shares of stock, securities or assets to which the Warrantholder may be entitled pursuant to this Section 3(b)(4). (5) Notwithstanding Section 3(b)(4), (i) if the Company merges or consolidates with, or sells all or substantially all of its property and assets to, any other person and consideration is payable to holders of Common Stock in exchange for their Common Stock in connection with such merger, consolidation or sale which consists solely of cash, or (ii) in the event of the dissolution, liquidation or winding up of the Company, then the Warrantholder shall Page 4 be entitled to receive distributions on the date of such event on an equal basis with holders of Common Stock (or other securities issuable upon exercise of this Warrant) as if this Warrant had been exercised immediately prior to such event, less the Warrant Price. Upon receipt of such payment if any, the rights of the Warrantholder shall terminate and cease and this Warrant shall expire. In case of any such merger, consolidation or sale of assets, the surviving or acquiring person and, in the event of any dissolution, liquidation or winding up of the Company, the Company shall promptly, after receipt of this surrendered Warrant, make payment by delivering a check in such amount as is appropriate (or, in the case of consideration other than cash, such other consideration as is appropriate) to such person as it may be directed in writing by the Warrantholder surrendering this Warrant. (6) No adjustment in the Warrant Price shall be required unless such adjustment would require an increase or decrease of at least one cent ($.01) in such price; provided, however, that any adjustments which by reason of this Section 3(b)(6) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 3(a) shall be made to the nearest cent or to the nearest hundredth of a share, as the case may be. Notwithstanding anything in this Section 3(b) to the contrary, the Warrant Price shall not be reduced to less than the then existing par value of the Common Stock as a result of any adjustment made hereunder. (7) In the event that at any time, as the result of any adjustment made pursuant to this Section 3(b), the Warrantholder thereafter shall become entitled to receive any securities other than Common Stock, thereafter the number of such other securities so receivable upon exercise of any Warrant shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Section 3(b). (c) NO ADJUSTMENT FOR CASH DIVIDENDS Except as provided in Section 3(b) of this Agreement, no adjustment in respect of any cash dividends shall be made during the term of this Warrant or upon the exercise of this Warrant. (d) FORM OF WARRANT AFTER ADJUSTMENTS The form of this Warrant need not be changed because of any adjustments in the Warrant Price or the number or kind of the shares purchasable pursuant to this Warrant, and Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in this Warrant, as initially issued, provided, however, that the Company may, at any time in its sole discretion (which shall be conclusive), make any change in the form of Warrant certificate that it may deem appropriate and that does not affect the substance thereof. Any Warrant certificate thereafter issued, whether upon registration of transfer of, or in exchange or substitution for, an outstanding Warrant certificate may be in the form so changed. (e) TREATMENT OF WARRANTHOLDER Prior to due presentment for registration of transfer of this Warrant, the Company may deem and treat the Warrantholder as the absolute owner of this Warrant (notwithstanding any Page 5 notation of ownership or other writing hereon) for all purposes and shall not be affected by any notice to the contrary. (f) NOTICE OF ADJUSTMENT Upon any adjustment of the Warrant Price, then and in each such case the Company shall give written notice thereof, by first-class mail, postage prepaid, addressed to each Warrantholder at the address of such holder as shown on the books of the Company, which notice shall state the Warrant Price resulting from such adjustments setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (g) STOCK TO BE RESERVED The Company will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the exercise of this Warrant as herein provided, such number of shares of Common Stock as shall then be issuable upon the exercise of this Warrant. The Company covenants that all shares of Common Stock which shall be so issued, upon full payment of the Warrant Price therefor or as otherwise set forth herein, shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and, without limiting the generality of the foregoing, the Company covenants that it will from time to time take all such action as may be required to ensure that the par value per share, if any, of the Common Stock is at all times equal to or less than the effective Warrant Price. The Company will take all such action as may be necessary to ensure that all such shares of Common Stork may be so issued without violation of any applicable law or regulation, or of any requirement of any national securities exchange or automated quotation system upon which the Common Stock of the Company may be listed or quoted. The Company will not take any action which results in any adjustment of the Warrant Price if the total number of shares of Common Stock issued and issuable after such action upon exercise of this Warrant would exceed the total number of shares of Common Stock then authorized by the Company's Certificate of Incorporation. The Company has not granted and will not grant any right of first refusal with respect to shares issuable upon exercise of this Warrant, and there are no preemptive rights associated with such shares. (h) ISSUE TAX The issuance of certificates for shares of Common Stock upon exercise of any Warrant shall be made without a charge to the Warrantholder for any issuance tax in respect thereto provided that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the Warrantholder. (i) CLOSING OF BOOKS The Company will at no time close its transfer books against the transfer of the shares of Common Stock issued or issuable upon the exercise of this Warrant in any manner which interferes with the timely exercise of this Warrant. Page 6 (j) DEFINITION OF COMMON STOCK The shares purchasable pursuant to this Warrant shall include only securities designated as Common Stock of the Company. As used herein the term "Common Stock" shall mean and include the Common Stock, par value $.15 per share, of the Company as authorized on the date hereof, or shares of any class or classes resulting from any recapitalization or reclassification thereof which are not limited to any fixed sum or percentage and are not subject to redemption by the Company and in case at any time there shall be more than one such resulting class, the shares of each class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassification bears to the total number of shares of all such classes resulting from all such reclassification. SECTION 4. NOTICES OF RECORD DATES In the event of: (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution (other than cash dividends out of earned surplus), or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any right to sell shares of stock of any class or any other right; or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other corporation or entity; or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company; then and in each such event the Company will give notice to the Warrantholder specifying (1) the date on which any such record is to be taken for the purpose of such dividend, distribution or right and stating the amount and character of such dividend, distribution or right, and (2) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock will be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up. Such notice shall be given at least 20 days and not more than 90 days prior to the date therein specified, and such notice shall state that the action in question or the record date is subject to the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") or to a favorable vote of stockholders, if either is required. SECTION 5. STOCKHOLDERS RIGHTS AND LIABILITIES No provision hereof, in the absence of affirmative action by the Warrantholder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Warrantholder shall give rise to any liability of such Warrantholder for the Warrant Price or Page 7 as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. SECTION 6. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Common Stock as provided for in such lost, stolen, destroyed or mutilated Warrant. SECTION 7. NOTICES All notices, requests and other communications required or permitted to be given or delivered hereunder shall be in writing, and shall be delivered, or shall be sent by certified or registered mail or overnight courier, postage prepaid and addressed, or by facsimile, and if to the Warrantholder to such Warrantholder at such address or facsimile number as shall have been furnished to the Company by notice from such Warrantholder and if to the Company, at 7660 Woodway, Suite 200, Houston, Texas 77063, facsimile (713) 369-0555 or at such other address or facsimile number as shall have been furnished to the Warrantholder by notice from the Company. SECTION 8. RESTRICTIONS ON TRANSFER This Warrant may not be sold, transferred, hypothecated or assigned to any other person or entity other than (i) the respective successors to Energy Spectrum in a merger or consolidation; (ii) the respective purchasers of all or substantially all of the assets of Energy Spectrum; or (iii) the partners in Energy Spectrum in the event Energy Spectrum is liquidated or dissolved. Energy Spectrum agrees not to make any sale or other disposition of either the Warrant or the underlying Common Stock except pursuant to a registration statement which has become effective under the Securities Act, setting forth the terms of such offering, the underwriting discount and the commissions and any other pertinent data with respect thereto, unless Energy Spectrum has provided the Company with an opinion of counsel reasonably acceptable to the Company that such registration is not required. This Warrant shall bear a legend setting forth the foregoing restriction. SECTION 9. AMENDMENTS AND WAIVERS This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by each of (i) a majority in interest of the holders of this Warrant and (ii) an authorized representative of the Company. SECTION 10. SEVERABILITY If one or more provisions of this Warrant are held to be unenforceable under applicable law, such provisions shall be excluded from this Warrant, and the balance of this Warrant shall Page 8 be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. SECTION 11. GOVERNING LAW THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES. SECTION 12. HEADINGS The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect any of the terms hereof. SECTION 13. COUNTERPARTS This Warrant may be executed in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] Page 9 IN WITNESS WHEREOF, the Company and Energy Spectrum have executed this warrant on and as of the day and year first above written. COMPANY: ALLIS-CHALMERS CORPORATION By: /s/ Munawar H. Hidayatallah ----------------------------------- Munawar H. Hidayatallah Its: Chairman ENERGY SPECTRUM: 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 EX-7.4 6 v79338ex7-4.txt EXHIBIT 7.4 EXHIBIT 7.4 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. "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 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 3 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. 4 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; 5 (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 6 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; 7 (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 8 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 9 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 10 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 11 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 12 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 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 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 EX-7.5 7 v79338ex7-5.txt EXHIBIT 7.5 EXHIBIT 7.5 SHAREHOLDERS' AGREEMENT AMONG ALLIS-CHALMERS CORPORATION (A DELAWARE CORPORATION), AND THE SHAREHOLDERS AND WARRANTHOLDER WHO ARE SIGNATORIES HERETO FEBRUARY 1, 2002 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 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 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 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 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 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----