As filed with the Securities and Exchange Commission on February 20, 2008

Registration No. 333-          

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

Allis-Chalmers Energy Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

5075 Westheimer, Suite 890

Houston, Texas 77056

(713) 369-0550

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Victor M. Perez

Allis-Chalmers Energy Inc.

Chief Financial Officer

5075 Westheimer, Suite 890

Houston, Texas 77056

(713) 369-0550

Fax: (713) 369-0555

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

Copies to:

 

 

 

 

Approximate date of commencement of proposed sale of the securities to the public:  As soon as practicable after the effectiveness of this registration statement and the satisfaction or waiver of all other conditions to the proposed merger described in the joint proxy statement/prospectus forming a part of this registration statement.

 

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

SUBJECT TO COMPLETION, DATED FEBRUARY 20, 2008

 

 

To the Stockholders of Allis-Chalmers Energy Inc. and Bronco Drilling Company, Inc.:

 

On January 23, 2008, Allis-Chalmers Energy Inc., or Allis-Chalmers, and Bronco Drilling Company, Inc., or Bronco, entered into an Agreement and Plan of Merger, providing for the acquisition of Bronco by Allis-Chalmers. Pursuant to the merger agreement, Allis-Chalmers and Bronco agreed that, subject to the satisfaction of several closing conditions (including approval by each company’s stockholders), Elway Merger Sub, Inc., a wholly-owned subsidiary of Allis-Chalmers, which we refer to as Merger Sub, would merge with and into Bronco, and Bronco would survive the merger as a subsidiary of Allis-Chalmers.

 

The merger agreement provides that at the effective time of the merger, Bronco stockholders will receive merger consideration with an aggregate value of approximately $437.8 million, comprised of (1) $280.0 million in cash and (2) Allis-Chalmers common stock valued at approximately $157.8 million. The number of shares of Allis-Chalmers common stock that will be issued for each share of Bronco common stock will be calculated based on an exchange ratio that will be determined by dividing (1) the quotient obtained by dividing $157,836,000 by the average of the closing sale prices of Allis-Chalmers common stock on the NYSE Composite Transactions Tape for each of the ten consecutive trading days ending with the second complete trading day prior to the merger closing date by (2) the aggregate number of shares of Bronco common stock issued and outstanding immediately prior to the merger effective time. If the merger closing date had been          , 2008, Bronco stockholders would have received $      in cash and           Allis-Chalmers shares for each share of Bronco common stock.

 

The board of directors of Allis-Chalmers has (1) determined that the merger is advisable and in the best interests of Allis-Chalmers and its stockholders, (2) approved the merger and the merger agreement and (3) directed that the issuance of Allis-Chalmers common stock in the merger be submitted to the stockholders of Allis-Chalmers for approval at a special meeting of Allis-Chalmers’ stockholders. Accordingly, the Allis-Chalmers board recommends that the stockholders of Allis-Chalmers approve the issuance of Allis-Chalmers common stock in the merger.

 

The board of directors of Bronco has unanimously (1) determined that the merger agreement, the merger and the other transactions contemplated thereby are advisable and in the best interests of Bronco and its stockholders, (2) approved the merger agreement, the merger and the other transactions contemplated thereby and (3) directed that the merger agreement be submitted for adoption by the stockholders of Bronco at a special meeting of Bronco’s stockholders. Accordingly, the Bronco board unanimously recommends that the stockholders of Bronco adopt the merger agreement.

 

Your vote is very important. We cannot complete the merger unless, among other things, the Bronco stockholders vote to adopt the merger agreement and the Allis-Chalmers stockholders vote to approve the issuance of Allis-Chalmers stock in the merger. Allis-Chalmers and Bronco will each hold a special meeting of stockholders to vote on these matters. The special meetings of stockholders will be held at the times and locations set forth below. Regardless of whether you plan to attend a special meeting, please submit your proxy by completing and mailing the enclosed proxy card or, in the case of Bronco, by using the telephone or Internet procedures provided to you. If your shares are held in “street name,” you must instruct your broker how to vote them.

 

 

Before casting your vote, please take the time to review carefully this joint proxy statement/prospectus, including the section entitled “Risk Factors” beginning on page 24 for a discussion of the risks relating to the merger.

 

Allis-Chalmers common stock trades on the New York Stock Exchange, which we refer to as the NYSE, under the symbol “ALY.” Bronco common stock trades on The NASDAQ Global Market, which we refer to as Nasdaq, under the symbol “BRNC.”

 

Sincerely,

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or has passed upon the adequacy or accuracy of the disclosure in this joint proxy statement/prospectus. Any representation to the contrary is a criminal offense.

 

This joint proxy statement/prospectus is dated          , 2008, and is first being mailed to Allis-Chalmers stockholders and Bronco stockholders on or about          , 2008.

 

ALLIS-CHALMERS ENERGY INC.
5075 Westheimer, Suite 890
Houston, Texas 77056

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To be held on          , 2008

 

To the Stockholders

of Allis-Chalmers Energy Inc.:

 

The special meeting of stockholders of Allis-Chalmers Energy Inc., or the Allis-Chalmers Meeting, will be held on          , 2008, at 9:00 a.m., Central Time, at the          , Houston, Texas for the following purposes:

 

1. to approve the issuance of Allis-Chalmers Energy Inc.’s common stock to the stockholders of Bronco Drilling Company, Inc. in connection with the merger of Elway Merger Sub, Inc., a wholly-owned subsidiary of Allis-Chalmers Energy Inc, with and into Bronco Drilling Company, Inc., as set forth in the Agreement and Plan of Merger, dated as of January 23, 2008, by and among Allis-Chalmers Energy Inc., Bronco Drilling Company, Inc. and Elway Merger Sub, Inc., a copy of which is attached as Annex A to the joint proxy statement/prospectus accompanying this notice;

 

2. to approve the adjournment of the Allis-Chalmers Meeting, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposal; and

 

3. to transact any other business as may properly come before the Allis-Chalmers Meeting or any adjournments or postponements thereof.

 

Attached to this notice is a joint proxy statement/prospectus setting forth information with respect to these proposals and certain other information.

 

The Allis-Chalmers board of directors has fixed the close of business on          , 2008 as the record date for the determination of stockholders entitled to notice of and to vote at the Allis-Chalmers Meeting or any adjournment or postponement thereof. Only holders of record of Allis-Chalmers common stock at the close of business on the record date are entitled to notice of and to vote at the Allis-Chalmers Meeting. For a period of ten days prior to the Allis-Chalmers Meeting, a complete list of the holders of record of Allis-Chalmers common stock entitled to vote at the meeting will be available at Allis-Chalmers’ executive offices for inspection by stockholders during normal business hours for proper purposes, and will also be available at the Allis-Chalmers Meeting.

 

The Allis-Chalmers Energy Inc. Board of Directors recommends that you vote FOR the issuance of Allis-Chalmers common stock in the merger and any adjournments of the Allis-Chalmers Meeting, if necessary or appropriate, to solicit additional proxies.

 

Your vote is important. All stockholders are cordially invited to attend the meeting. Regardless of whether you plan to attend the Allis-Chalmers Meeting, please sign, date and return the enclosed proxy card as promptly as possible in the envelope provided, using the procedures in the voting instructions provided to you. No postage is required if mailed in the United States. Should you receive more than one proxy card because your shares are registered in different names and addresses, each proxy card should be signed and returned to ensure that all your shares will be voted. Your proxy may be revoked at any time prior to the time it is voted at the Allis-Chalmers Meeting.

 

By Order of the Board of Directors

 

Munawar H. Hidayatallah

Chairman of the Board of Directors

and Chief Executive Officer

 

Houston, Texas

               , 2008

 

Bronco Drilling Company, Inc.
16217 North May Avenue
Edmond, Oklahoma 73013

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To be held on          , 2008

 

Notice is hereby given that a special meeting of stockholders of Bronco Drilling Company, Inc., or the Bronco Meeting, will be held at the                    ,               , Oklahoma, at 9:00 a.m., Central Time, on          , 2008, for the following purposes:

 

1. to adopt the Agreement and Plan of Merger, dated as of January 23, 2008, by and among Allis-Chalmers Energy Inc., Bronco Drilling Company, Inc. and Elway Merger Sub, Inc., a copy of which is attached as Annex A to the joint proxy statement/prospectus accompanying this notice, pursuant to which Elway Merger Sub, Inc., a wholly-owned subsidiary of Allis-Chalmers Energy Inc., will merge with and into Bronco Drilling Company, Inc.;

 

2. to approve the adjournment of the Bronco Meeting, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposal; and

 

3. to transact any other business as may properly come before the Bronco Meeting or any adjournments or postponements thereof.

 

Attached to this notice is a joint proxy statement/prospectus setting forth information with respect to these proposals and certain other information.

 

The Bronco board of directors has fixed the close of business on          , 2008 as the record date for the determination of stockholders entitled to notice of and to vote at the Bronco Meeting or any adjournment or postponement thereof. Only holders of record of Bronco common stock at the close of business on the record date are entitled to notice of and to vote at the Bronco Meeting or any adjournment or postponement thereof. For a period of ten days prior to the Bronco Meeting, a complete list of the holders of record of Bronco common stock entitled to vote at the meeting will be available at Bronco’s executive offices for inspection by stockholders during normal business hours for proper purpose, and will also be available at the Bronco Meeting.

 

The Bronco Board of Directors recommends that you vote FOR the adoption of the merger agreement and any adjournments of the Bronco Meeting, if necessary or appropriate, to solicit additional proxies.

 

By Order of the Board of Directors

 

Zachary M. Graves

Chief Financial Officer, Secretary and Treasurer

 

Edmond, Oklahoma

                    , 2008

 

Your vote is important. All stockholders are cordially invited to attend the meeting. Regardless of whether you plan to attend the Bronco Meeting, please sign, date and return the enclosed proxy card as promptly as possible in the envelope provided, or submit your proxy by telephone or the Internet if telephone and Internet voting is made available to you in your proxy card, using the procedures in the voting instructions provided to you. No postage is required if mailed in the United States. Should you receive more than one proxy card because your shares are registered in different names and addresses, each proxy card should be signed and returned to ensure that all your shares will be voted. Your proxy may be revoked at any time prior to the time it is voted at the Bronco Meeting.

 

ADDITIONAL INFORMATION

 

This joint proxy statement/prospectus incorporates by reference important business and financial information about Allis-Chalmers and Bronco that is not included in or delivered with this joint proxy statement/prospectus. Such information is included in Allis-Chalmers’ and Bronco’s documents filed with the Securities and Exchange Commission, which we refer to as the SEC, which are available to Allis-Chalmers and Bronco stockholders without charge from the SEC’s website at www.sec.gov, or upon written or oral request, excluding any exhibits to those documents, unless the exhibit is specifically incorporated by reference as an exhibit in this joint proxy statement/prospectus. You can obtain any of these documents by requesting them in writing or by telephone from the appropriate company.

 

 

See “Where You Can Find More Information” beginning on page 101 for a detailed description of the documents incorporated by reference into this joint proxy statement/prospectus.

 

In order for you to receive timely delivery of the documents in advance of the meetings, Allis-Chalmers or Bronco, as applicable, should receive your request by no later than  , 2008.

 

Information contained on the Allis-Chalmers and Bronco websites is expressly not incorporated by reference into this joint proxy statement/prospectus.

 

All information in this joint proxy statement/prospectus concerning Allis-Chalmers has been furnished by Allis-Chalmers. All information in this document concerning Bronco has been furnished by Bronco. Allis-Chalmers has represented to Bronco, and Bronco has represented to Allis-Chalmers, that the information furnished by and concerning it is true and complete in all material respects.

 

ABOUT THIS DOCUMENT

 

This document, which forms part of a registration statement on Form S-4 filed with the SEC by Allis-Chalmers (File No. 333-          ), constitutes a prospectus of Allis-Chalmers under Section 5 of the Securities Act of 1933, as amended, which we refer to as the Securities Act, with respect to the shares of Allis-Chalmers common stock to be issued to Bronco stockholders in the merger pursuant to the merger agreement.

 

This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, (1) with respect to the Allis-Chalmers Meeting, at which Allis-Chalmers stockholders will be asked to consider and vote upon certain proposals, including a proposal to approve the issuance of shares of Allis-Chalmers common stock to Bronco stockholders in the merger pursuant to the merger agreement, and (2) with respect to the Bronco Meeting, at which Bronco stockholders will be asked to consider and vote upon certain proposals, including a proposal to adopt the merger agreement.

TABLE OF CONTENTS

 

 

Important Information and Risks:  The following are brief answers to some questions that you may have regarding the proposed merger and the proposals being considered at the Allis-Chalmers Meeting and the Bronco Meeting. Allis-Chalmers and Bronco urge you to read and consider carefully the remainder of this joint proxy statement/prospectus, including the Risk Factors beginning on page 24 and the attached Annexes, because the information in this section does not provide all of the information that might be important to you. Additional important information and descriptions of risk factors are also contained in the documents incorporated by reference in this joint proxy statement/prospectus.

 

Your vote is very important. You are encouraged to submit a proxy as soon as possible.

 

 

 

 

Georgeson Inc.
199 Water Street
26th Floor
New York, NY 10038

 

Banks, brokers and other nominees call 212-440-9800
Allis-Chalmers stockholders call toll-free 1-866-577-4988
Bronco stockholders call toll-free 1-877-668-1647

 

SUMMARY

 

The Companies

 

The Merger (see page 38)

 

Risk Factors (see page 24)

	•	any delay in completing the merger may reduce the benefits expected to be obtained from the merger;
	•	the failure to complete the merger could negatively affect the stock price and the future business and financial results of Allis-Chalmers and Bronco;
	•	the rights of Bronco stockholders who become stockholders of Allis-Chalmers in the merger will be governed by Allis-Chalmers’ certificate of incorporation and bylaws, which are different in some respects from the Bronco certificate of incorporation and bylaws; and
	•	the directors and executive officers of Bronco have personal interests that may motivate them to support or approve the merger.

	•	Allis-Chalmers may experience difficulties in integrating Bronco’s businesses, which could cause the combined company to fail to realize many of the anticipated potential benefits of the merger;

	•	Allis-Chalmers will incur significant debt to fund the merger; and
	•	the impact of purchase accounting could adversely affect Allis-Chalmers’ earnings.

 

Merger Consideration (see page 74)

 

Financing of the Merger (see page 92)

 

Treatment of Bronco Equity Awards (see page 75)

 

Recommendation of the Allis-Chalmers Board of Directors and Its Reasons for the Merger (see page 45)

 

Recommendation of the Bronco Board of Directors and Its Reasons for the Merger (see page 47)

 

Stockholders Entitled to Vote; Vote Required for Approval (see pages 32 and 35)

 

Opinions of Financial Advisers (see pages 49 and 60)

 

Ownership of Allis-Chalmers After the Merger

 

Share Ownership of Directors and Executive Officers of Allis-Chalmers

 

Share Ownership of Directors and Executive Officers of Bronco

 

Voting Agreements (see page 84)

 

Interests of Directors and Executive Officers of Bronco in the Merger (see page 66)

	•	change of control severance payments for Bronco’s executive officers at the effective time of the merger;
	•	the accelerated vesting of, and payment of the merger consideration with respect to, shares of Bronco restricted stock held by Bronco’s executive officers and certain directors;
	•	arrangements that all current and former Bronco directors and officers will be indemnified by Allis-Chalmers with respect to acts or omissions by them in their capacities as directors and officers of Bronco prior to the effective time of the merger; and

	•	the expected employment of one or more executive officers of Bronco by Allis-Chalmers after the merger, although no agreement with any executive officer of Bronco regarding future employment has been discussed.

 

Listing of Allis-Chalmers Common Stock; Delisting and Deregistration of Bronco Common Stock (see page 72)

 

Appraisal Rights in the Merger (see page 88)

 

Conditions to the Completion of the Merger (see page 77)

	•	the approval by the Allis-Chalmers stockholders of the issuance of the shares of Allis-Chalmers common stock to be issued in the merger;
	•	the adoption of the merger agreement by the Bronco stockholders;
	•	the expiration or termination of the waiting period, which will expire on          , 2008, under the Hart-Scott-Rodino Act, as long as no additional information is sought by federal authorities from either party;
	•	obtaining all other consents, approvals, permits and authorizations required to be obtained from any governmental authority to consummate the merger;
	•	the absence of any action taken by any governmental entity that restrains or otherwise prohibits the consummation of the merger or imposes any material restrictions on the parties with respect to the merger;

	•	subject to certain exceptions, the accuracy of Allis-Chalmers’ and Bronco’s respective representations and warranties contained in the merger agreement;
	•	the absence of any event or circumstance that constitutes a material adverse effect with respect to either Allis-Chalmers or Bronco;
	•	the effectiveness of a registration statement relating to the shares of Allis-Chalmers common stock to be issued in the merger; and
	•	the approval of the shares of Allis-Chalmers common stock to be issued in the merger for listing on the NYSE.

 

Regulatory Approvals Required for the Merger (see page 71)

 

No Solicitation of Alternative Transactions (see page 83)

	•	the board of directors of Bronco, acting in good faith, has determined that the acquisition proposal constitutes, or is reasonably likely to result in, a superior proposal and that the conditions of such proposal are all reasonably capable of being satisfied in a timely manner; and
	•	Bronco has complied with the terms of the merger agreement relating to superior proposals.

 

Termination of the Merger Agreement (see page 84)

	•	the failure to consummate the merger by October 31, 2008, unless extended pursuant to the merger agreement, provided that a party may not terminate upon occurrence of this event if that party’s breach of a representation or warranty or such party’s failure to fulfill its obligations under the merger agreement has been the principal cause or resulted in the merger not occurring before October 31, 2008, unless extended pursuant to the merger agreement;
	•	the failure to obtain the necessary Bronco or Allis-Chalmers stockholder approvals;

	•	any governmental authority has issued an order, decree or ruling or taken any other action permanently prohibiting the consummation of the merger or making the merger illegal and such order, decree or ruling or other action will have become final and nonappealable;
	•	a material breach of the other party’s representations, warranties or covenants that gives rise to a failure of certain conditions to closing or would otherwise materially impair or delay or otherwise have a material adverse effect on the non-breaching party’s ability to consummate the transactions contemplated by the merger agreement (subject to a 20-day cure period, if the breach is capable of being cured);
	•	by Allis-Chalmers upon the occurrence of a material breach or failure to perform by Bronco of any of its covenants or agreements contained in the merger agreement as described under “The Merger Agreement — Covenants — No Solicitation of Alternative Transactions,” or a change by the board of directors of Bronco of its recommendation with respect to the merger or upon the Bronco board of directors’ resolution to make an adverse recommendation change; or
	•	by Bronco, if Bronco receives an acquisition proposal that the Bronco board of directors determines in good faith is a superior proposal, provided that, prior to termination, Bronco provides Allis-Chalmers with written notice of its intention to accept the superior proposal and a four business day period for Allis-Chalmers to make a counterproposal and Bronco pays a $10 million termination fee.

 

Termination Fees and Expenses (see page 85)

 

Material U.S. Federal Income Tax Consequences (see page 73)

 

Accounting Treatment (see page 72)

 

Payment of Dividends (see page 94)

 

Comparison of Rights of Allis-Chalmers and Bronco Stockholders (see page 96)

 

SUMMARY HISTORICAL FINANCIAL AND OPERATING INFORMATION OF ALLIS-CHALMERS

		Nine Months Ended
		September 30,								Years Ended December 31,
		2007				2006				2006				2005				2004
		(Unaudited)																(Restated)
		(In thousands, except per share data)
Statement of Operations Data:
Revenues		$	427,143			$	196,066			$	310,964			$	108,022			$	47,726
Income from operations		$	104,092			$	44,300			$	67,730			$	13,518			$	4,291
Net income		$	44,656			$	25,270			$	35,626			$	7,175			$	888
Net income from continuing operations per common share:
Basic		$	1.32			$	1.33			$	1.73			$	0.48			$	0.10
Diluted		$	1.29			$	1.25			$	1.66			$	0.44			$	0.09
Weighted average number of common shares outstanding:
Basic			33,934				18,944				20,548				14,832				7,930
Diluted			34,512				20,155				21,410				16,238				9,510

		As of
		September 30,				As of December 31,
		2007				2006				2005				2004
		(Unaudited)												(Restated)
		(In thousands, except per share data)
Consolidated Balance Sheet Data:
Total assets		$	1,020,274			$	908,326			$	137,355			$	80,192
Long-term debt classified as:
Current		$	7,579			$	6,999			$	5,632			$	5,541
Long-term		$	508,858			$	561,446			$	54,937			$	24,932
Stockholders’ equity		$	405,587			$	253,933			$	60,875			$	35,109
Book value per share		$	11.57			$	8.99			$	3.61			$	2.58

 

SUMMARY HISTORICAL FINANCIAL AND OPERATING INFORMATION OF BRONCO

		Nine Months
		Ended
		September 30,								Years Ended December 31,
		2007				2006				2006				2005				2004
		(Unaudited)
		(In thousands, except per share data)
Statement of Operations Data:
Revenues		$	229,987			$	203,351			$	285,828			$	77,885			$	21,873
Income (loss) from operations			52,925				71,010				100,177				14,652				(2,206	)
Net income (loss)			31,169				43,481				59,833				5,131				(2,766	)
Net income per common share:
Basic		$	1.20			$	1.78			$	2.43			$	0.32				—
Diluted		$	1.20			$	1.77			$	2.43			$	0.31				—
Weighted average common shares outstanding:
Basic			25,984				24,467				24,585				16,259				—
Diluted			26,064				24,505				24,623				16,306				—

		As of
		September 30,				As of December 31,
		2007				2006				2005				2004
		(Unaudited)
		(In thousands, except per share data)
Balance Sheet Data:
Total assets		$	547,735			$	482,488			$	330,520			$	90,143
Long-term debt classified as:
Current			1,034				636				8,012				3,550
Long-term			61,639				64,091				36,310				12,750
Stockholders’/members’ equity			388,954				339,985				239,336				50,803
Book value per share		$	14.94			$	13.63			$	10.33				—

 

SUMMARY UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS

		Nine Months
		Ended				Year Ended
		September 30,				December 31,
		2007				2006
		(Unaudited)
		(In thousands, except per share data)
Statement of Operations Data:
Revenues		$	657,130			$	806,042
Operating income		$	166,611			$	202,410
Net income		$	65,653			$	73,281
Earnings per common share:
Basic		$	1.38			$	1.53
Diluted		$	1.36			$	1.51

		As of
		September 30,
		2007
		(In thousands)
		(Unaudited)
Balance Sheet Data:
Total current assets		$	287,167
Total assets		$	1,628,759
Long-term debt		$	866,437
Total stockholders’ equity		$	563,423

 

UNAUDITED COMPARATIVE PER SHARE DATA

For the Year Ended December 31, 2006:		Allis-Chalmers				Bronco
Basic earnings per common share
Historical		$	1.73			$	2.43
Pro forma (1)		$	1.53
Diluted earnings per common share
Historical		$	1.66			$	2.43
Pro forma (1)		$	1.51
Dividends declared on common stock
Historical			—				—
Pro forma			—				—
Book value per common share (2)
Historical		$	8.99			$	13.63

For the Nine Months Ended September 30, 2007:
Basic earnings per common share
Historical		$	1.32			$	1.20
Pro forma (1)		$	1.38
Diluted earnings per common share
Historical		$	1.29			$	1.20
Pro forma (1)		$	1.36
Dividends declared on common stock
Historical			—				—
Pro forma			—				—
Book value per common share (2)
Historical		$	11.57			$	14.94
Pro forma		$	11.64

(1)		Allis-Chalmers pro forma combined earnings per share is calculated by dividing the pro forma net income by the pro forma weighted average number of shares outstanding during the period.
(2)		Book value per share is computed by dividing stockholders’ equity by the number of shares of common stock outstanding at the end of the period.

COMPARATIVE ALLIS-CHALMERS AND BRONCO
MARKET PRICE DATA AND DIVIDEND INFORMATION

Number of

Cash

Shares of

Consideration

Allis-Chalmers

per Share of

Common Stock per Share

Allis-Chalmers

Bronco

Bronco

of Bronco

Common Stock

Common Stock

Common Stock

Common Stock

January 23, 2008

$

10.80

$

13.41

$

10.44

0.4698

, 2008

$

$

 

In addition to the matters addressed under “Cautionary Statement Concerning Forward-Looking Statements,” you should carefully consider the following risks before deciding how to vote. In addition, you should read and consider the discussion of other risks included in the Annual Reports on Form 10-K of Allis-Chalmers and Bronco for the year ended December 31, 2006, as well any other risks discussed in their respective Quarterly Reports on Form 10-Q filed with the SEC subsequent to such Annual Report, all of which are incorporated by reference into this joint proxy statement/prospectus. You should also consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information,” beginning on page 101.

 

The number of shares of Allis-Chalmers common stock that holders of Bronco common stock will receive is not fixed because the stock component of the merger consideration is based on the average of the closing sale prices of Allis-Chalmers common stock during a ten-day period ending two trading days before the merger closes.

 

The number of shares of Allis-Chalmers common stock to be issued in the merger will be based on the average of the closing sale prices of Allis-Chalmers common stock on the NYSE Composite Transactions Tape (as reported by The Wall Street Journal (Northeast edition), or, if not reported thereby, as reported by any other authoritative source) for the ten consecutive trading days ending with the second complete trading day prior to the closing date (not including the closing date), or the Allis-Chalmers Common Stock Value. Although the aggregate value of the stock consideration in the merger is fixed at $157,836,000, the number of shares of Allis-Chalmers common stock to be issued to the Bronco stockholders will depend on the Allis-Chalmers Common Stock Value. Therefore, Bronco stockholders cannot be sure of the number of shares that they will receive, and Allis-Chalmers stockholders cannot be sure of the number of shares of Allis-Chalmers common stock that will be issued to the Bronco stockholders. In addition, because the exchange ratio will be determined using a period that ends two trading days prior to the closing date, the number of shares of Allis-Chalmers common stock to be issued will likely be different than it would be if the price on the closing date were to be used.

 

The price of Allis-Chalmers common stock will continue to fluctuate after the merger and may be affected by factors that are different than the separate factors that currently affect the prices of Allis-Chalmers common stock and Bronco common stock.

 

Holders of Bronco common stock will receive Allis-Chalmers common stock in the merger. Allis-Chalmers’ results of operations, as well as the price of Allis-Chalmers common stock following the merger, may be affected by factors that are different than those factors currently affecting Allis-Chalmers’ or Bronco’s results of operations and the prices of Allis-Chalmers common stock and Bronco common stock. For a discussion of Allis-Chalmers’ business and Bronco’s business and certain factors to consider in connection with their respective businesses, including risk factors associated therewith, see their respective Annual Reports on Form 10-K for the fiscal year ended December 31, 2006 and Quarterly Reports on Form 10-Q for the periods ended March 31, 2007, June 30, 2007 and September 30, 2007, which are incorporated by reference into this joint proxy statement/prospectus. See also the other documents incorporated by reference into this joint proxy statement/prospectus under the caption “Where You Can Find More Information,” beginning on page 101.

 

Any delay in completing the merger and integrating the businesses may reduce the benefits expected to be obtained from the merger.

 

In addition to obtaining the required regulatory clearances and approvals, the merger is subject to a number of other conditions beyond the control of Bronco and Allis-Chalmers that may prevent, delay or otherwise materially adversely affect its completion. See “The Merger Agreement — Conditions to the Completion of the Merger,” beginning on page 77. Allis-Chalmers and Bronco cannot predict whether or when

the conditions to closing will be satisfied. Any delay in completing the merger and integrating the businesses may reduce the benefits that Allis-Chalmers and Bronco expect to achieve in the merger.

 

Failure to complete the merger could negatively affect the stock price and the future business and financial results of Allis-Chalmers and Bronco.

 

Neither Allis-Chalmers nor Bronco can assure you that the merger agreement will be adopted by Bronco stockholders, that the issuance of the shares of Allis-Chalmers common stock will be approved by Allis-Chalmers stockholders or that the other conditions to the completion of the merger will be satisfied. In addition, Bronco has the right to terminate the merger agreement and pursue alternative transactions under certain conditions. If the merger is not completed, neither Allis-Chalmers nor Bronco will receive any expected benefits of the merger and will be subject to risks and/or liabilities, including the following:

 

 

If the merger is not completed, these risks and liabilities may materially adversely affect Bronco’s and Allis-Chalmers’ business, financial results, financial condition and stock price.

 

In addition, there can be no assurance that Allis-Chalmers will be successful in obtaining expected financing. Although financing is not a condition to closing of the merger, if Allis-Chalmers were not able to obtain the expected financing, or not able to obtain the financing on commercially reasonable terms, it might not be able to complete the merger and might be subject to other adverse consequences.

 

There are two separate lawsuits seeking to delay or prevent the consummation of the merger.

 

Two Bronco stockholders have separately filed complaints seeking class action status relating to the merger. One action was filed in the District Court of Oklahoma County in the State of Oklahoma on January 29, 2008. The defendants in the Oklahoma complaint are Bronco, the Bronco board of directors, Allis-Chalmers and Merger Sub. The second action was filed in the Court of Chancery in the State of Delaware on January 29, 2008. The defendants in the Delaware complaint are Bronco, the Bronco board of directors and Allis-Chalmers. The plaintiff in the Oklahoma complaint has filed a motion for expedited discovery. Both complaints generally allege that the merger consideration is inadequate and that the Bronco board of directors has breached its fiduciary duties. The actions generally seek to enjoin the merger, to cause the Bronco board of directors to undertake an auction for Bronco or otherwise take action to maximize stockholder value, to award monetary damages to the stockholders of Bronco and, in the case of the Oklahoma complaint, to rescind the transaction (to the extent that it is consummated). The claims against Allis-Chalmers seek monetary damages. Answers to the complaints are not yet due, although a motion to dismiss the Oklahoma proceeding has been filed by Bronco. Allis-Chalmers and Bronco intend to vigorously defend these actions. As of this time, no order has been issued in either proceeding that would preclude the consummation of the merger. Each of Allis-Chalmers and Bronco has the right to terminate the merger agreement in the event a court enjoins the consummation of the merger.

A group that beneficially owns a significant amount of the outstanding voting stock of Bronco has announced its intention to oppose the merger.

 

On January 25, 2008, Bronco received a letter from Third Avenue Management LLC, which we refer to as Third Avenue, stating that it was opposed to the merger. The letter was also filed with the SEC by Third Avenue on an amendment to its Schedule 13D on January 25, 2008. According to its filing, Third Avenue, on behalf of its investment advisory clients, beneficially owned 5,512,116 shares of Bronco common stock, representing 21.18% of Bronco’s outstanding common stock as of January 25, 2008.

 

The rights of Bronco stockholders who become Allis-Chalmers stockholders in the merger will be governed by Allis-Chalmers’ certificate of incorporation and bylaws.

 

Bronco stockholders who receive shares of Allis-Chalmers common stock in the merger will become Allis-Chalmers stockholders. Although their rights as stockholders will remain subject to the DGCL, they will be governed by Allis-Chalmers’ certificate of incorporation and bylaws, rather than Bronco’s certificate of incorporation and bylaws. As a result, there will be material differences between the current rights of Bronco stockholders, as compared to the rights they will have as Allis-Chalmers stockholders. For more information, see “Comparison of Rights of Allis-Chalmers and Bronco Stockholders,” beginning on page 96.

 

The directors and executive officers of Bronco may have personal interests that differ from yours and that may motivate them to support or approve the merger.

 

The directors of Bronco who have recommended the merger to Bronco stockholders and the executive officers of Bronco who provided information to the Bronco board of directors relating to the merger have employment, indemnification and/or severance benefit arrangements, will benefit from the acceleration of restricted stock awards, if any, and have rights to ongoing indemnification and director and officer insurance. Any of these arrangements or benefits may cause these individuals to have interests that may differ from yours. The benefits that would result from the merger may have influenced these directors in approving the merger and these executive officers in supporting the merger.

 

You should consider these interests when you consider the recommendation of the Bronco board of directors that you vote for the adoption of the merger agreement. As a result of these interests, these directors and executive officers may be more likely to support the merger than they would if they did not have these interests. For a discussion of the interests of directors and executive officers in the merger, see “The Merger — Interests of Directors and Executive Officers of Bronco in the Merger,” beginning on page 66.

 

The merger agreement limits Bronco’s ability to pursue an alternative to the merger.

 

The merger agreement prohibits Bronco from soliciting alternative transactions. See “The Merger Agreement — Conditions to the Completion of the Merger” on page 77. Additionally, under the merger agreement, before (i) the board of directors of Bronco changes its recommendation regarding the merger as a result of its receipt of an unsolicited acquisition proposal, (ii) the board of directors of Bronco recommends an alternative transaction or (iii) Bronco enters into an alternative transaction, Bronco must allow Allis-Chalmers a four-business day period to make a revised proposal. These provisions limit Bronco’s ability to pursue offers from third parties that could result in greater value to its stockholders.

 

Bronco’s obligation to pay a termination fee may also discourage a third party from pursuing an alternative transaction proposal. Under the merger agreement, Bronco may be required to pay to Allis-Chalmers a termination fee of $10 million or out-of-pocket expenses of up to $5 million if the merger agreement is terminated under specified circumstances. If a termination fee is payable, the payment of this fee could have material and adverse consequences on Bronco’s financial condition.

 

Allis-Chalmers may experience difficulties in integrating Bronco’s business and could fail to realize potential benefits of the merger.

 

Achieving the anticipated benefits of the merger will depend in part upon whether Allis-Chalmers is able to integrate Bronco’s business in an efficient and effective manner. Allis-Chalmers may not be able to accomplish this integration process smoothly or successfully. The difficulties of combining the two companies’ businesses potentially will include, among other things:

 

 

Any inability to realize the potential benefits of the merger, as well as any delays in integration, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may affect the value of Allis-Chalmers common stock after the closing of the merger.

 

Allis-Chalmers will have substantial debt after the merger, which could have a material adverse effect on its financial health and limit its future operations.

 

Allis-Chalmers will have a significant amount of debt immediately after the merger. As of September 30, 2007, on a pro forma basis to reflect the merger and Allis-Chalmers’ borrowing to finance the cash component of the merger consideration, repayment of outstanding Bronco debt and expenses relating to the merger, Allis-Chalmers’ total outstanding long-term debt would have been $866.4 million. Under the commitment letter between Allis-Chalmers, Royal Bank and GSCP, dated January 28, 2008, and subject to the terms and conditions set forth in the commitment letter, Royal Bank and GSCP have committed to provide an aggregate principal amount of up to $350.0 million under a senior unsecured bridge facility to Allis-Chalmers or one of its wholly-owned subsidiaries reasonably satisfactory to Royal Bank and GSCP. The proceeds of the bridge facility may be used by Allis-Chalmers to finance the cash component of the merger consideration, repay outstanding Bronco debt and pay expenses relating to the merger.

 

Allis-Chalmers’ substantial debt could have a material adverse effect on its financial condition and results of operations. In particular, it could:

 

 

Allis-Chalmers’ debt agreements contain restrictive covenants that may limit the ability of Allis-Chalmers to respond to changes in market conditions or pursue business opportunities.

 

The credit agreements and other instruments governing Allis-Chalmers’ credit facilities will contain restrictive covenants that will limit Allis-Chalmers’ ability and the ability of certain of its subsidiaries after the merger to, among other things:

 

 

In addition, Allis-Chalmers will have to meet certain quarterly financial ratios and tests, notably with respect to a fixed charge coverage ratio and a maximum leverage ratio. Allis-Chalmers’ need to comply with these provisions may materially adversely affect its ability to react to changes in market conditions, take advantage of business opportunities it believes to be desirable, obtain future financing, fund needed capital expenditures, finance its acquisitions, equipment purchases and development expenditures, or withstand a future downturn in its business.

 

If Allis-Chalmers is unable to comply with the restrictions and covenants in the agreements governing its indebtedness, there could be a default under the terms of these agreements, which could result in an acceleration of payment of funds that Allis-Chalmers has borrowed.

 

If Allis-Chalmers is unable to comply with the restrictions and covenants in the agreements governing its indebtedness or in current or future debt financing agreements, there could be a default under the terms of these agreements. Allis-Chalmers’ ability to comply with these restrictions and covenants, including meeting financial ratios and tests, may be affected by events beyond its control. As a result, Allis-Chalmers cannot assure Allis-Chalmers and Bronco stockholders that Allis-Chalmers will be able to comply with these restrictions and covenants or meet these tests. If a default occurs under these agreements, lenders could terminate their commitments to lend or accelerate the outstanding loans and declare all amounts borrowed due and payable. Borrowings under other debt instruments that contain cross-acceleration or cross-default provisions may also be accelerated and become due and payable. If any of these events occur, the assets of Allis-Chalmers might not be sufficient to repay in full all of its outstanding indebtedness and Allis-Chalmers may be unable to find alternative financing. Even if Allis-Chalmers could obtain alternative financing, it might not be on terms that are favorable or acceptable to Allis-Chalmers. If Allis-Chalmers were unable to repay amounts borrowed, the holders of the debt could initiate a bankruptcy proceeding or liquidation proceeding against collateral.

 

The effect of purchase accounting could adversely affect Allis-Chalmers’ earnings.

 

Purchase accounting will require the combined company to allocate the price being paid in the merger to Bronco’s assets and liabilities on the basis of their estimated fair values at the time of the closing of the merger. Those adjustments are expected to result in significant increases in the carrying values of property, plant and equipment, and intangibles as reflected in the unaudited pro forma condensed combined balance sheet contained elsewhere in this document. The increased value of property, plant and equipment will increase the combined company’s depreciation expense, which will reduce reported earnings but have no effect on cash flows.

 

In addition, the preliminary estimate of goodwill as of September 30, 2007 associated with the merger is approximately $57.5 million, as reflected in the unaudited pro forma condensed combined balance sheet

contained elsewhere in this joint proxy statement/prospectus. Allis-Chalmers will annually assess this amount for impairment under generally accepted accounting principles as applied by Allis-Chalmers. If Allis-Chalmers concludes that the goodwill associated with the merger is impaired or, additionally, that the carrying value of assets acquired in the merger are impaired, the amount of the impairment would reduce the amount of earnings Allis-Chalmers would otherwise report but would have no effect on its cash flows.

 

The business of Allis-Chalmers following the merger is expected to continue to be cyclical. The goodwill associated with the merger and the increased carrying values of Bronco’s assets on the balance sheet of Allis-Chalmers could, therefore, increase the potential for impairment, possibly causing a write-down or write-off of the goodwill and the carrying values of Allis-Chalmers’ assets acquired in the merger.

 

Failure to retain key employees could adversely affect Allis-Chalmers following the merger.

 

Allis-Chalmers’ performance following the merger could be adversely affected if it is unable to retain certain key employees of Allis-Chalmers and Bronco. The loss of the services of one or more of these key employees, including Allis-Chalmers Chief Executive Officer and President, Mr. Hidayatallah, could adversely affect Allis-Chalmers future operating results because of their experience and knowledge of the respective businesses of Allis-Chalmers and Bronco. Allis-Chalmers does not currently have any agreements with Bronco’s senior management regarding their continued employment following the merger.

 

Allis-Chalmers and Bronco will incur substantial costs in connection with the merger.

 

Allis-Chalmers and Bronco expect to incur a number of non-recurring transaction fees and other costs associated with completing the merger and combining the operations of the two companies, including legal and accounting fees and expenses related to stockholder litigation. These fees and costs will be substantial and many of them will be incurred regardless of whether the merger is consummated. Additional unanticipated costs may also be incurred in the integration of the businesses of Allis-Chalmers and Bronco. If the total costs and indebtedness incurred in completing the merger exceed estimates, the financial results of the combined company may be materially adversely affected.

 

The issuance of shares of Allis-Chalmers common stock to Bronco stockholders in the merger will dilute the ownership interests of Allis-Chalmers stockholders.

 

After the merger, Allis-Chalmers stockholders will own a significantly smaller percentage of the combined company than they currently own of Allis-Chalmers due to the issuance of shares of Allis-Chalmers common stock to Bronco stockholders. As a result, the relative percentage interest of current Allis-Chalmers stockholders with respect to earnings, voting, liquidation value, book value and market value will be reduced to approximately     % of the combined company. If the merger fails to produce the results Allis-Chalmers and Bronco anticipate, the acquisition may not be accretive to Allis-Chalmers’ stockholders on a per share basis.

 

This joint proxy statement/prospectus, including information incorporated by reference into this joint proxy statement/prospectus, contains certain forward-looking statements within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Generally, the words “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of these words, their negatives and similar expressions identify forward-looking statements, and any statements regarding the timing or benefits of the merger, or Allis-Chalmers’ or Bronco’s future financial condition, results of operations and business, are also forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These statements are based upon current expectations and estimates of the respective management of Allis-Chalmers and Bronco. These statements occur in, among other places:

 

 

Allis-Chalmers and Bronco have based these statements on their assumptions and analyses in light of their experience and perception of historical trends, current conditions, expected future developments and other factors they believe are appropriate in the circumstances. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly affect expected results, and actual future results and stockholder values of Allis-Chalmers, Bronco and the combined company could differ materially from those described in these statements. Although it is not possible to identify all factors, Allis-Chalmers and Bronco continue to face many risks and uncertainties, many of which are beyond Allis Chalmers’ and Bronco’s ability to control or predict. Among the factors that could cause actual future results or values to differ materially are the risks and uncertainties described under “Risk Factors,” beginning on page 24, elsewhere in this joint proxy statement/prospectus and in the documents incorporated by reference into this joint proxy statement/prospectus, including, but not limited to, the following:

 

 

 

Actual results and plans could differ materially from those expressed in any forward-looking statements if underlying assumptions prove incorrect, or if there occurs one or more of the risks or uncertainties described elsewhere herein or in the reports and documents incorporated by reference into this joint proxy statement/prospectus as described under “Where You Can Find More Information,” beginning on page 101.

 

All forward-looking statements, expressed or implied, included in this joint proxy statement/prospectus are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that Allis-Chalmers, Bronco or persons acting on their behalf may issue.

 

Except as otherwise required by applicable law, Allis-Chalmers and Bronco disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section. See also “Where You Can Find More Information,” beginning on page 101.

 

This section contains information from Allis-Chalmers for Allis-Chalmers stockholders about the Allis-Chalmers Meeting to approve the issuance of Allis-Chalmers common stock in the merger and transact other business described below. Together with this document, Allis-Chalmers is also sending a notice of the Allis-Chalmers Meeting and a form of proxy that is being solicited by the Allis-Chalmers board of directors for use at the Allis-Chalmers Meeting. The information and instructions contained in this section are addressed to Allis-Chalmers stockholders only, and all references to “you” in this section should be understood to be addressed to Allis-Chalmers stockholders.

 

The special meeting of stockholders of Allis-Chalmers Energy Inc. will be held on          , 2008, at 9:00 a.m., Central Time, at the          , Houston, Texas for the following purposes:

 

1. to approve the issuance of Allis-Chalmers Energy Inc.’s common stock to the stockholders of Bronco Drilling Company, Inc. in connection with the merger of Elway Merger Sub, Inc., a wholly-owned subsidiary of Allis-Chalmers Energy Inc., with and into Bronco Drilling Company, Inc., as set forth in the Agreement and Plan of Merger, dated as of January 23, 2008, by and among Allis-Chalmers Energy Inc., Bronco Drilling Company, Inc. and Elway Merger Sub, Inc., a copy of which is attached as Annex A to the joint proxy statement/prospectus (Proposal No. 1);

 

2. to approve the adjournment of the Allis-Chalmers Meeting, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposal (Proposal No. 2); and

 

3. to transact any other business as may properly come before the Allis-Chalmers Meeting or any adjournments or postponements thereof.

 

The approval of Proposal No. 1 is a condition to the completion of the merger. Accordingly, if Allis-Chalmers stockholders wish to support the merger, they must approve Proposal No. 1.

 

The Allis-Chalmers board of directors recommends that Allis-Chalmers stockholders vote FOR Proposal No. 1 and Proposal No. 2.

 

Only holders of record of Allis-Chalmers common stock at the close of business on          , 2008, the record date for the Allis-Chalmers Meeting, are entitled to notice of and to vote at the Allis-Chalmers Meeting. On the record date, there were           shares of Allis-Chalmers common stock outstanding and entitled to be voted at the Allis-Chalmers Meeting held by approximately          stockholders of record. A majority of these shares, present in person or represented by proxy, is necessary to constitute a quorum. Each share of Allis-Chalmers common stock is entitled to one vote at the Allis-Chalmers Meeting.

 

The affirmative vote of the holders of a majority of the votes cast by Allis-Chalmers stockholders entitled to vote at the Allis-Chalmers Meeting, at which a quorum is present, is required to approve the issuance of shares of Allis-Chalmers common stock in the merger and to approve any adjournment of the Allis-Chalmers Meeting, if necessary or appropriate, to solicit additional proxies. Abstentions and broker non-votes will not be counted either in favor of or against Proposals No. 1 or 2 at the Allis-Chalmers Meeting.

 

A quorum will be present at the Allis-Chalmers Meeting if a majority of all the shares of Allis-Chalmers common stock issued and outstanding on the Allis-Chalmers record date and entitled to vote at the Allis-Chalmers Meeting are present in person or represented by proxy at the Allis-Chalmers Meeting. Abstentions and broker non-votes will be treated as present at the Allis-Chalmers Meeting for purposes of determining the presence or absence of a quorum for the transaction of all business.

 

If a quorum of Allis-Chalmers stockholders is not present in person or represented by proxy at the Allis-Chalmers Meeting, the Allis-Chalmers Meeting may be adjourned by Allis-Chalmers stockholders holding a majority of Allis-Chalmers common stock present or represented at the meeting until a quorum is present or represented. In addition, if the adjournment proposal is approved, adjournments of the Allis-Chalmers Meeting may be made for the purpose of soliciting additional proxies in favor of Proposal No. 1.

 

We refer to a stockholder who holds Allis-Chalmers common stock in the stockholder’s own name (as opposed to being held in the name of their broker, bank or other nominee) as a “holder of record.” Holders of record may vote in person at the Allis-Chalmers Meeting or by proxy. Allis-Chalmers recommends that holders of record vote by proxy even if they plan to attend the Allis-Chalmers Meeting. Holders of record can always revoke their proxy and change their votes at the Allis-Chalmers Meeting.

 

Voting instructions are attached to your proxy card. If you properly submit your proxy to Allis-Chalmers in time to vote, one of the individuals named as your proxy will vote your shares as you have directed. You may vote for or against any or all of the proposals submitted at the Allis-Chalmers Meeting or abstain from voting.

 

If you are a holder of record, please vote your proxy by mail as provided below. Your submission of proxy authorizes Munawar H. Hidayatallah and Victor M. Perez, and each of them, as proxies, each with the power to appoint his or her substitute, to represent and vote your shares.

 

To submit your proxy by mail:

 

 

Only the latest dated proxy received from you will be voted at the Allis-Chalmers Meeting.

 

If your shares of Allis-Chalmers common stock are not held in your own name but rather by your broker, bank or another nominee, we refer to your shares as being held in “street name” by your nominee. If your shares are held in street name you must instruct your nominee how to vote your shares.

 

Your nominee may send to you a separate voting instruction form asking you for your voting instructions. If you do not receive a request for voting instructions well in advance of the Allis-Chalmers Meeting, we recommend that you directly contact your nominee to determine how to cause your shares to be voted as you wish.

 

Unless you give voting instructions, your nominee will not vote your shares on the proposal to issue Allis-Chalmers common stock in the merger or any other matter that comes before the Allis-Chalmers Meeting. Your shares held in street name will, however, be counted for purposes of determining whether a quorum is present at the Allis-Chalmers Meeting.

 

If you wish to attend the Allis-Chalmers Meeting and personally vote your shares held in street name, you must obtain a legally sufficient proxy from your nominee authorizing you to vote your shares held in street name.

 

If holders of record do not indicate how their shares of Allis-Chalmers common stock should be voted on a matter, the shares of Allis-Chalmers common stock represented by their properly completed proxy will be voted (unless properly withdrawn) as the Allis-Chalmers board of directors recommends and therefore will be voted:

 

 

No proxy that is voted against a proposal described in this joint proxy statement/prospectus will be voted in favor of adjournment of the Allis-Chalmers Meeting for the purpose of soliciting additional proxies.

 

You may revoke your proxy at any time prior to its exercise by:

 

 

Your attendance at the Allis-Chalmers Meeting in person without voting will not automatically revoke your proxy. If you revoke your proxy during the meeting, this will not affect any vote previously taken. If you hold shares through someone else, such as a broker, bank or other nominee, and you desire to revoke your proxy, you should follow the instructions provided by your nominee.

 

Tabulation of the Votes

 

Allis-Chalmers has appointed American Stock Transfer & Trust Company to serve as the Inspector of Election for the Allis-Chalmers Meeting. American Stock Transfer & Trust Company will independently tabulate affirmative and negative votes and abstentions.

 

Allis-Chalmers and Bronco will each pay one-half of the expenses incurred in connection with the printing and mailing of this joint proxy statement/prospectus. Allis-Chalmers has retained Georgeson Inc. for a fee of approximately $8,500, plus certain expenses, to assist in the solicitation of proxies and otherwise in connection with the Allis-Chalmers Meeting. Allis-Chalmers and Georgeson will also request brokers, banks and other nominees holding shares of Allis-Chalmers common stock beneficially owned by others to send this joint proxy statement/prospectus to, and obtain proxies from, the beneficial owners and will reimburse holders for their reasonable expenses in so doing.

 

Allis-Chalmers’ stock transfer agent and registrar, American Stock Transfer & Trust Company, will also solicit proxies from holders of record of Allis-Chalmers common stock for a fee not in excess of its usual fee for serving as Allis-Chalmers’ stock transfer agent and registrar. Solicitation of proxies by mail may be supplemented by telephone, email and other electronic means, advertisements and personal solicitations by the directors, officers and employees of Allis-Chalmers. No additional compensation will be paid to Allis-Chalmers’ directors, officers or employees for their solicitation efforts.

 

If you have any questions or need further assistance in voting your shares, please call Georgeson Inc. at the following numbers:

 

 

This section contains information from Bronco for Bronco stockholders about the special meeting of stockholders it has called to adopt the merger agreement and the other proposals described below. Together with this document, Bronco is also sending you a notice of the Bronco Meeting and a form of proxy that is being solicited by the Bronco board of directors for use at the Bronco Meeting. The information and instructions contained in this section are addressed to Bronco stockholders only, and all references to “you” in this section should be understood to be addressed to Bronco stockholders.

 

The Bronco Meeting will be held on          , 2008, at 9:00 a.m., Central Time, at the          ,          , Oklahoma. The purpose of the Bronco Meeting is:

 

1. to adopt the Agreement and Plan of Merger, dated as of January 23, 2008, by and among Allis-Chalmers Energy Inc., Bronco Drilling Company, Inc. and Elway Merger Sub, Inc., a copy of which is attached as Annex A to the joint proxy statement/prospectus accompanying this notice, pursuant to which Elway Merger Sub, Inc., a wholly-owned subsidiary of Allis-Chalmers Energy Inc., will merge with and into Bronco Drilling Company, Inc. (Proposal No. 1);

 

2. to approve the adjournment of the Bronco Meeting, if necessary or appropriate, to solicit additional proxies in favor of the foregoing proposal (Proposal No. 2); and

 

3. to transact any other business as may properly come before the Bronco Meeting or any adjournment or postponement of the Bronco Meeting.

 

The Bronco board of directors unanimously recommends that Bronco stockholders vote:

 

 

For the reasons for these recommendations, see “The Merger — Recommendation of the Bronco Board of Directors and Its Reasons for the Merger,” beginning on page 47.

 

Only holders of record of Bronco common stock at the close of business on          , 2008, the Bronco record date, are entitled to notice of, and to vote at, the Bronco Meeting. As of that date, there were           shares of Bronco common stock outstanding and entitled to vote at the Bronco Meeting, held by approximately           stockholders of record. Each share of Bronco common stock is entitled to one vote at the Bronco Meeting.

 

A majority of the outstanding shares of Bronco common stock entitled to vote must be cast in favor of adoption of the merger agreement for it to be approved. Abstentions and broker non-votes will have the same effect as a vote against the proposal to adopt the merger agreement.

 

The affirmative vote of a majority of votes cast is required to approve the proposal to adjourn the Bronco Meeting to solicit additional proxies in favor of adopting the merger agreement. Abstentions and broker non-votes will not be counted either in favor of or against this proposal.

 

For purposes of conducting the Bronco Meeting, the holders of at least a majority of the stock issued and outstanding and entitled to vote at the Bronco Meeting will constitute a quorum. Abstentions and broker non-votes will count for purposes of determining whether a quorum is present.

 

If a quorum is not present in person or represented by proxy at the Bronco Meeting, the Chairman of the Bronco board of directors or Bronco stockholders holding a majority of the Bronco common stock present or represented at the Bronco Meeting have the power to adjourn the meeting from time to time, without notice other than an announcement at the meeting. In addition, if the adjournment proposal is approved, adjournments of the Bronco Meeting may be made for the purpose of soliciting additional proxies in favor of Proposal No. 1. However, no proxy that is voted against a proposal described in this joint proxy statement/prospectus will be voted in favor of adjournment of the Bronco Meeting for the purpose of soliciting additional proxies.

 

We refer to stockholders who hold their Bronco common stock in their own name (as opposed to being held in the name of their broker, bank or other nominee) as “holders of record.” Holders of record may vote in person at the Bronco Meeting or by proxy. Bronco recommends that holders of record vote by proxy even if they plan to attend the Bronco Meeting. Holders of record can always revoke their proxy and change their votes at the Bronco Meeting.

 

Voting instructions are attached to your proxy card. If you properly submit your proxy to Bronco in time to vote, one of the individuals named as your proxy will vote your shares as you have directed. You may vote for or against any or all of the proposals submitted at the Bronco Meeting or abstain from voting.

 

If you are a holder of record, there are three ways to vote your proxy: by telephone, by Internet or by mail. Please follow the instructions provided on your proxy card with respect to voting by mail, telephone or Internet. Your submission of proxy by telephone or Internet authorizes D. Frank Harrison and Zachary M. Graves, and each of them, as proxies, each with the power to appoint his substitute, to represent and vote your shares in the same manner as if you marked, signed and returned your proxy form by mail.

 

Only the latest dated proxy received from you, whether by mail, telephone or Internet, will be voted at the Bronco Meeting. If you submit your proxy by telephone or Internet, please do not mail your proxy form.

 

If your shares of Bronco common stock are not held in your own name but rather by your broker, bank or another nominee, we refer to your shares as being held in “street name” by your nominee. If your shares are held in street name you must instruct your nominee how to vote your shares.

 

Your nominee may send to you a separate voting instruction form asking you for your voting instructions. If you do not receive a request for voting instructions well in advance of the Bronco Meeting, we recommend that you directly contact your nominee to determine how to cause your shares to be voted as you wish. Your nominee may permit you to instruct the voting of your shares electronically using the telephone or Internet.

 

Unless you give voting instructions, your nominee will not vote your shares on the proposal to adopt the merger agreement. Shares held in street name but not voted will have the same effect as a vote against adoption of the merger agreement. We therefore urge you to provide voting instructions to your nominee. Your shares held in street name will, however, be counted for purposes of determining whether a quorum is present at the Bronco Meeting, if your shares are represented at the Bronco Meeting by your nominee.

 

All shares of Bronco common stock entitled to vote and represented by properly completed proxies received prior to the Bronco Meeting (unless properly revoked) will be voted at the Bronco Meeting as instructed on the proxies. If Bronco stockholders do not indicate how their shares of Bronco common stock should be voted on a matter, the shares of Bronco common stock represented by their properly completed and not properly withdrawn proxy will be voted as the Bronco board of directors recommends and therefore will

be voted FOR the adoption of the merger agreement and FOR approval to adjourn the Bronco meeting, if necessary or appropriate to solicit additional votes. Any proxy that is voted against adoption of the merger agreement will also be voted against any adjournment of the Bronco Meeting for the purpose of soliciting additional proxies.

 

You may revoke your proxy before it is voted by:

 

 

If you have instructed your nominee to vote your shares for you, you must follow directions you receive from your nominee in order to change or revoke your vote.

 

Bronco has appointed Computershare Trust Company, N.A. to serve as the Inspector of Election for the Bronco Meeting. Computershare Trust Company, N.A. will independently tabulate affirmative and negative votes and abstentions.

 

Bronco and Allis-Chalmers will each pay one-half of the expenses incurred in connection with printing and mailing of this joint proxy statement/prospectus. Bronco has retained Georgeson Inc. for a fee of $10,500 (subject to adjustment in certain circumstances), plus reasonable out-of-pocket expenses, to assist in the solicitation of proxies and otherwise in connection with the Bronco Meeting. Bronco and Georgeson will also request brokers, banks and other nominees holding shares of Bronco common stock beneficially owned by others to send this joint proxy statement/prospectus to, and obtain proxies from, the beneficial owners and will reimburse holders for their reasonable expenses in so doing.

 

Bronco’s stock transfer agent and registrar, Computershare Trust Company, N.A., will also solicit proxies from holders of record of Bronco common stock for a fee not in excess of its usual fee for serving as Bronco’s stock transfer agent and registrar. Solicitation of proxies by mail may be supplemented by telephone, email and other electronic means, advertisements and personal solicitations by the directors, officers and employees of Bronco. No additional compensation will be paid to Bronco directors, officers or employees for their solicitation efforts.

 

If you have any questions or need further assistance in voting your shares, please call Georgeson Inc. at the following numbers:

 

 

The following is a description of material aspects of the merger. Although Allis-Chalmers and Bronco believe that the following description provides certain material information regarding the merger, the description may not contain all of the information that is important to you. Allis-Chalmers and Bronco encourage their stockholders to carefully read this entire joint proxy statement/prospectus, including the merger agreement attached to this joint proxy statement/prospectus as Annex A and incorporated by reference herein, for a more complete understanding of the merger.

 

The boards of directors of Allis-Chalmers, Merger Sub and Bronco have approved the merger agreement providing for the merger of Merger Sub with and into Bronco. Bronco, which will be a wholly-owned subsidiary of Allis-Chalmers, will be the surviving entity in the merger, and upon completion of the merger, the separate corporate existence of Merger Sub will terminate. Bronco stockholders will receive the merger consideration described below under “The Merger Agreement — Merger Consideration,” beginning on page 74.

 

Each of Allis-Chalmers’ and Bronco’s boards of directors has from time to time engaged with its company’s senior management in strategic reviews and evaluation of opportunities to achieve long-term strategic goals and enhance stockholder value of its company. As part of this review process, the senior management of each company has periodically made presentations to its board of directors regarding potential opportunities for business combinations, acquisitions and dispositions, and each company’s board of directors has evaluated a variety of options in light of the business trends and other conditions affecting the company and the industry in which it operates. In addition, during the last several years various parties, including investment bankers, other companies operating in the same or similar industries and financial buyers, have informally raised with members of the boards of directors and senior management of each company the possibility of strategic acquisitions or combinations. As a result, since 2001, Allis-Chalmers has completed 23 acquisitions, including six in 2005, five in 2006 and four in 2007, and since commencing its operations in 2001, Bronco has completed a number of strategic acquisitions.

 

On October 17, 2007, representatives of Johnson Rice arranged a lunch meeting with Frank Harrison, Bronco’s Chairman and Chief Executive Officer, and Munawar Hidayatallah, Allis-Chalmers’ Chairman and Chief Executive Officer. Also present were Ms. Alya Hidayatallah, Allis-Chalmers’ manager of corporate finance, and representatives of Johnson Rice. The purpose of the meeting was to introduce the chief executive officers of companies that operate in related industries and share a strategic vision. During this meeting, Mr. Hidayatallah and Mr. Harrison discussed generally their respective businesses, philosophies and strategies for international growth and diversification. Mr. Harrison commented that Bronco was pursuing this strategy through acquisitions and that Bronco could be on either side of a transaction if it were in the best interest of Bronco stockholders.

 

In early December 2007, Mr. Hidayatallah contacted a representative of Johnson Rice with the request to arrange a second meeting with Mr. Harrison.

 

On December 12, 2007, Mr. Hidayatallah and Ms. Hidayatallah met with Mr. Harrison, Mark Dubberstein, Bronco’s president, Zachary Graves, Bronco’s chief financial officer, and representatives of Johnson Rice in Oklahoma City, Oklahoma, to further discuss each company’s outlook, strategy and desire to expand internationally, which discussions were based on publicly available information for each company. During the meeting, Mr. Hidayatallah noted that, from his perspective, to enhance international growth opportunities, a company such as Allis-Chalmers needed a fleet of land drilling rigs to complement its oilfield services business. Mr. Hidayatallah then hypothetically raised the possibility of a business combination involving Allis-Chalmers and Bronco whereby Allis-Chalmers would consider acquiring Bronco for cash and common stock with an implied enterprise value of approximately $500 million.

On December 17, 2007, Mr. Hidayatallah called Mr. Harrison to make arrangements to continue their prior discussions. During the telephone call, the parties agreed to meet in Houston, Texas on December 19, 2007.

 

On December 18, 2007, Bronco and Allis-Chalmers negotiated the terms of a confidentiality agreement to facilitate the disclosure by Bronco of non-public information to Allis-Chalmers and its advisers and potential lenders. The confidentiality agreement was executed by Allis-Chalmers on December 18, 2007 and by Bronco on December 19, 2007.

 

On December 18, 2007, in anticipation of the December 19, 2007 meeting, Mr. Hidayatallah began discussions with RBC about its potential role as Allis-Chalmers’ financial adviser in connection with any potential transaction with Bronco and in arranging financing from its parent company, Royal Bank, and other potential lenders. Royal Bank subsequently contacted GSCP and invited GSCP to participate in the financing.

 

On December 18, 2007, Allis-Chalmers engaged RBC to provide financial advisory services in connection with a possible business combination transaction with Bronco. Thereafter, representatives of RBC provided financial advisory services to Allis-Chalmers throughout the process that culminated in the execution of the merger agreement on January 23, 2008, and representatives of RBC, Royal Bank and GSCP performed due diligence with respect to both Allis-Chalmers and Bronco. RBC, as lead arranger of the potential financing for the merger, negotiated with Allis-Chalmers the terms of such financing, which negotiations culminated in the execution of initial bridge financing commitment documents with Royal Bank on January 23, 2008 and superseding commitment documents with Royal Bank and GSCP on January 28, 2008.

 

On December 19, 2007, Mr. Hidayatallah and representatives of RBC met with Mr. Harrison and representatives of Johnson Rice at Allis-Chalmers’ offices in Houston, Texas. During the meeting, Allis-Chalmers discussed its business strategy, its objective to diversify its business and capitalize on growing markets outside the United States and its pending and potential acquisitions. In addition, Allis-Chalmers discussed its projected financial and operating results for the fourth quarter of 2007 and projected outlook for 2008. Following such discussion, Mr. Hidayatallah presented a non-binding proposal for the acquisition of Bronco by Allis-Chalmers for consideration consisting of approximately 60% cash and 40% Allis-Chalmers common stock, representing a 10% to 15% premium to the trading price of Bronco’s common stock as of the date of signing of a definitive agreement for such acquisition. The parties then discussed the scope and timing of due diligence, valuation alternatives, financing requirements, possible structures and the timing of a potential business combination involving Allis-Chalmers and Bronco. Mr. Harrison then briefly discussed near term corporate plans for Bronco, including its intention to issue restricted stock awards in early January 2008 primarily to employees, including Bronco’s executive officers, to replace awards that were vesting at that time. These restricted stock awards were ultimately granted by the compensation committee of Bronco’s board on January 18, 2008. Mr. Hidayatallah and Mr. Harrison indicated their understanding that both Bronco and Allis-Chalmers would continue their respective business operations in the ordinary course while the two companies discussed a potential business combination.

 

From December 20 to December 24, 2007, Allis-Chalmers and Bronco negotiated a revised written confidentiality agreement to confirm in writing their prior understanding of the confidential nature of the disclosure of non-public due diligence information by Allis-Chalmers to Bronco and its advisers, and they executed the revised written confidentiality agreement on December 24, 2007.

 

On December 20, 2007, the Allis-Chalmers board of directors met telephonically with senior management of Allis-Chalmers and its financial advisers to discuss the proposed acquisition by Allis-Chalmers of Bronco. The Allis-Chalmers board reviewed Bronco’s business and operations, the then-proposed terms of the transaction, transaction structures and the potential benefits and risks of the proposed transaction. Representatives from RBC presented a preliminary financial analysis of the proposed transaction. After discussion, the Allis-Chalmers board authorized Mr. Hidayatallah to proceed with negotiations on the basis of consideration consisting of an aggregate of $280 million in cash, 11.7 million shares of Allis-Chalmers common stock with a floating exchange ratio between 83% and 117% of Allis-Chalmers stock price and a fixed exchange ratio beyond those price levels, and assumption of Bronco’s debt. The board agreed that the transaction did not

need to be subject to a financing contingency and instructed Mr. Hidayatallah to present a non-binding proposal to Bronco regarding the terms of the proposed acquisition.

 

Late on December 20, 2007, Mr. Hidayatallah advised Mr. Harrison via telephone of the non-binding terms he had been authorized to propose, and Allis-Chalmers, through RBC, provided to Bronco, through Johnson Rice, a non-binding term sheet reflecting those proposed terms.

 

On December 21, 2007, the Bronco board of directors met in Oklahoma City, Oklahoma for a special meeting called by Mr. Harrison. Messrs. Harrison, Dubberstein, Graves and David Treadwell, Bronco’s general counsel, representatives of Akin Gump Strauss Hauer & Feld LLP, outside counsel to Bronco, which we refer to as Akin Gump, and representatives of Johnson Rice also attended the meeting. At the meeting, Mr. Harrison informed the Bronco board that Bronco had received a non-binding proposal from Allis-Chalmers regarding a possible business combination transaction and recounted for the board the process that led to the discussions between the companies. He noted that the purpose of the meeting was to inform the Bronco board of the proposal and to seek the board’s authorization to further explore a possible transaction. Johnson Rice then provided the board with additional details regarding the terms of the proposal and Allis-Chalmers’ desired timeline. Representatives of Johnson Rice next presented an overview of industry trends and the challenges facing domestic drilling companies. The representatives referenced a recent industry survey suggesting that domestic exploration and production expenditures were expected to rise at a rate of less than 5% annually while drilling rig capacity was expected to increase, which could add further downward pressure on utilization and day rates. While this same survey suggested international exploration and production expenditures were projected to grow at 16% to 20% annually, Johnson Rice expressed its belief that, based on its own assessment and discussions with Bronco’s senior management, it would take Bronco longer than five years to achieve the product, service and geographic diversification that a combination between Bronco and Allis-Chalmers would have upon the closing of the proposed transaction.

 

At that meeting, representatives of Johnson Rice also reviewed in detail with the Bronco board Johnson Rice’s preliminary financial analysis of the Allis-Chalmers proposal, which included a pro forma deal analysis, an accretion/dilution analysis, a pro forma credit statistics analysis and relative publicly traded peer comparison analysis for both companies. Throughout this presentation, the board asked questions regarding and discussed these analyses. The board also focused on the stock component of the proposed merger consideration and the effect of the 17% exchange ratio collar. The board was concerned that unfavorable financial results for Allis-Chalmers for the fourth quarter of 2007, which under the schedule proposed by Allis-Chalmers would not be disclosed prior to the announcement of a transaction with Bronco, could adversely affect the merger consideration received by Bronco’s stockholders. The Bronco board also questioned management and Johnson Rice regarding the possibility of other potential transactions. The board and management then reviewed prior discussions and negotiations since June 2006 with two other public oilfield services companies and one financial investor, none of which had progressed beyond preliminary discussions. Both management and Johnson Rice advised the Bronco board that, in their view based on their knowledge of the industry, Bronco’s peers and financial investors, they did not think it likely that a strategic or financial buyer would emerge with an interest in a business combination transaction with Bronco.

 

Following completion of the presentation by Johnson Rice and the board’s discussion of such presentation, Akin Gump reviewed with the Bronco board its fiduciary duties under Delaware law with respect to evaluating and responding to the proposal. As part of this discussion, the representatives of Akin Gump inquired if any of the members of the board were financially interested in the transaction and/or not independent with respect to it. In response to this discussion, Mr. Harrison noted that the change of control provision in his employment agreement would be triggered by the closing of the proposed transaction. Three other directors held restricted stock awards received as part of their standard director compensation that would vest upon a change of control. No other potential interests in the transaction were identified by members of the board. Following this discussion and to facilitate further consideration of the proposal from Allis-Chalmers, the board resolved to form a negotiating committee comprised of Messrs. Gary Hill and William Snipes, with Mr. Hill serving as chairman of the committee. The Bronco board authorized and empowered the negotiating committee to review, evaluate, negotiate and reject or recommend to the full board any potential transaction related to the Allis-Chalmers proposal. The board then authorized the engagement of Johnson Rice as its

financial advisor and Akin Gump as its outside legal counsel in connection with the proposed transaction. The board also authorized Bronco’s management to engage in negotiations regarding the proposed transaction, but only within parameters established by the board and the negotiating committee and subject to the direction and supervision of the board and the committee. The Bronco board further instructed management not to discuss any post-closing employment or other personal service agreements with Allis-Chalmers unless and until a definitive agreement for a transaction had been signed.

 

Following the Bronco board meeting, Mr. Harrison called Mr. Hidayatallah to inform him that the Bronco board had authorized further consideration of Allis-Chalmers’ proposal. Subsequently, on December 21, 2007, Andrews Kurth LLP, counsel to Allis-Chalmers, which we refer to as Andrews Kurth, delivered an initial draft merger agreement, which had been reviewed by Allis-Chalmers and RBC, to Bronco and its legal and financial advisers reflecting the non-binding proposal made by Allis-Chalmers on December 20, 2007.

 

On December 24, 2007, representatives from Allis-Chalmers and its financial advisers met telephonically with representatives of Bronco and its legal and financial advisers to facilitate, and assign responsibilities for, their respective due diligence reviews. Management presentations from both companies were subsequently scheduled for early January 2008. Thereafter, throughout the period prior to the execution of the merger agreement, the two companies, directly and through their respective financial and legal advisers, exchanged due diligence information, which was also provided to Royal Bank and GSCP as prospective lenders.

 

On December 31, 2007, the negotiating committee of the Bronco board met telephonically to discuss the terms of the draft merger agreement with Allis-Chalmers and related process matters. Messrs. Dubberstein and Treadwell and representatives of Johnson Rice and Akin Gump also took part in the meeting via telephone. Mr. Hill, serving as the chairman of the negotiating committee, asked representatives of Akin Gump to update the negotiating committee with respect to the negotiations of the terms of the merger agreement, a draft of which had been distributed by Allis-Chalmers’ counsel on December 21, 2007. Each member of the committee was provided with a marked copy of the draft merger agreement reflecting proposed changes to Allis-Chalmers’ original draft of the merger agreement. Representatives of Akin Gump provided a general overview of the Allis-Chalmers draft of the merger agreement and then conducted a page-by-page review of the draft that included detailed explanations of the terms of, and material open issues in, the draft and proposed alternatives. These discussions included, but were not limited to, the definition of “material adverse effect,” the termination date of the merger agreement, the purchase price and calculation of the purchase price, the treatment of stock options and restricted stock awards, the representations and warranties of each party, non-competition and voting agreements, the circumstances under which the agreement could be terminated and the consequences of such terminations (including break-up fees and payment of expenses), the non-solicitation provision and the board’s related “fiduciary out.” Specifically to assure that the negotiation of an acquisition agreement with Allis-Chalmers would not foreclose the possibility of achieving even greater value for Bronco’s stockholders, the committee instructed that the merger agreement must permit Bronco to terminate the agreement to accept a superior proposal, subject to payment of an appropriate break-up fee. The negotiating committee then directed representatives of Akin Gump to continue to negotiate the terms of the draft merger agreement and to attempt to resolve the open points as discussed in the meeting.

 

On December 31, 2007, Akin Gump delivered to Allis-Chalmers’ counsel a revised draft of the merger agreement. Negotiations between Allis-Chalmers and Bronco, and their respective counsel, regarding the draft merger agreement continued through the execution of the merger agreement on January 23, 2008.

 

On January 2, 2008, representatives of Bronco, Johnson Rice and RBC held a conference call to discuss a trip to Argentina to perform due diligence with respect to Allis-Chalmers’ international operations. On January 3 and 4, 2008, representatives of Bronco met with representatives of Allis-Chalmers in Buenos Aires, Argentina and performed due diligence on Allis-Chalmers’ Argentine drilling operations.

 

On January 3, 2008, representatives of Allis-Chalmers held a telephone conference attended by representatives of Bronco, Johnson Rice and RBC, during which Allis-Chalmers presented its estimated results for the fourth quarter of 2007.

On January 9, 2008, representatives of the senior management teams of Allis-Chalmers and Bronco met at Andrews Kurth’s offices in Houston, Texas, to present a summary of their respective companies’ operations and financial information. Representatives of the two companies’ legal and financial advisers were also present, as well as representatives of Royal Bank and GSCP as prospective lenders to Allis-Chalmers.

 

On January 12, 2008, Mr. Harrison advised Mr. Hidayatallah during a telephone conversation that Bronco was uncomfortable with coupling any announcement of a transaction with Allis-Chalmers’ earnings release and that Bronco’s board would expect at least a 20% premium to the company’s trading price at the time of signing of a definitive agreement.

 

On January 15, 2008, representatives of Allis-Chalmers performed due diligence at Bronco’s manufacturing and refurbishing facilities in Oklahoma City, Oklahoma, and on its rigs in the surrounding area.

 

On January 15, 2008, representatives of Bronco, Allis-Chalmers, Johnson Rice and RBC had a telephone conference call to further discuss the Allis-Chalmers and Bronco financial information that was presented at the January 9, 2008 meeting in Houston. The parties also discussed the status of the merger agreement negotiations and due diligence and the timing of the proposed transaction. Due diligence efforts continued until the signing of the merger agreement on January 23, 2008.

 

On January 16, 2008, Bronco communicated through Johnson Rice to Allis-Chalmers and RBC that the then current structure of the proposed transaction was no longer attractive to Bronco given the declining price of Allis-Chalmers common stock and, as a result, the potential declining value of the stock component of the acquisition consideration, in light of the collar on the exchange ratio, which had been proposed by Allis-Chalmers up until this point. In response, Allis-Chalmers proposed to revise its acquisition proposal to provide for consideration consisting of an aggregate of $280.0 million in cash, shares of Allis-Chalmers common stock with an aggregate value of approximately $157.8 million, to be calculated based on the average of the closing sale prices for a share of Allis-Chalmers common stock for the ten consecutive trading days ending two trading days prior to the closing of the merger with no collar on the exchange ratio, and the assumption of Bronco’s net indebtedness (approximately $62.4 million as of December 31, 2007). Later that day, Andrews Kurth delivered a revised draft merger agreement to Akin Gump which reflected the revised transaction terms.

 

On January 17, 2008, the negotiating committee of the Bronco board met telephonically to further discuss the status of negotiations of the terms of the merger agreement. Messrs. Dubberstein and Treadwell and representatives of Akin Gump also took part in the meeting via telephone. Mr. Hill, serving as the chairman of the negotiating committee, asked representatives of Akin Gump to update the negotiating committee with respect to the negotiations of the terms of the merger agreement. Representatives of Akin Gump provided the negotiating committee with details of the exchange of comments and interim drafts of the merger agreement. Each member of the committee had been provided prior to the meeting with a marked copy of the draft merger agreement reflecting cumulative changes that had been made as a result of the negotiations. Representatives of Akin Gump informed the negotiating committee that the then current draft merger agreement proposed by Allis-Chalmers still did not satisfactorily address many of the material issues discussed during the December 31, 2007 meeting of the negotiating committee. Representatives of Akin Gump again led the negotiating committee through a page-by-page review of the document, explaining material changes and open issues in the revised draft. These open material items included, among others, the circumstances and manner in which the Bronco board could consider and accept alternative acquisition proposals, the size of the potential termination fee and the circumstances under which a termination fee and/or expense reimbursement would have to be paid to Allis-Chalmers. During these discussions, the committee was informed of the proposal by Allis-Chalmers to eliminate the collar on the stock portion of the merger consideration and of the value of the Allis-Chalmers common stock to be paid as merger consideration and the proposed method of calculating the exchange ratio. Based on these discussions, the committee was not prepared to recommend the transaction on the terms then proposed by Allis-Chalmers and instructed Akin Gump to continue negotiation of the merger agreement and related documentation consistent with the committee’s position at the meeting. During the next four days, representatives of Akin Gump and Andrews Kurth, along with members of senior management of Bronco and Allis-Chalmers, continued their negotiations of the terms of, and exchanged numerous drafts of, the merger agreement and related documentation.

On January 17, 2008, representatives of Bronco, Johnson Rice and RBC had a conference call regarding the status of the merger agreement negotiations and due diligence and the timing of the proposed transaction. Such discussions continued periodically until pending issues were resolved to the mutual satisfaction of the parties and the signing of the definitive merger agreement on January 23, 2008.

 

On January 18, 2008, representatives of Allis-Chalmers had a telephonic discussion with representatives of Grant Thornton, Bronco’s independent accountants, a representative of Bronco and representatives of Johnson Rice and RBC regarding tax issues affecting Bronco.

 

On January 21, 2008, in contemplation of meetings of Bronco’s negotiating committee and its board of directors on January 23, 2008, the then current drafts of the merger agreement and related documentation were distributed to the members of Bronco’s board.

 

On January 23, 2008, Royal Bank approved a bridge financing commitment to Allis-Chalmers of up to $350 million to finance the cash component of the proposed merger consideration as well as to refinance certain Bronco debt and to pay related fees and expenses.

 

Later on January 23, 2008, the Allis-Chalmers board of directors met telephonically to consider the proposed merger. In addition to Allis-Chalmers directors, representatives of Andrews Kurth and RBC were in attendance. Mr. Hidayatallah made a presentation regarding his views as to the business and strategic aspects of the proposed merger. Representatives of RBC reviewed RBC’s analysis of the fairness of the merger consideration, from a financial point of view, to Allis-Chalmers. These representatives also delivered RBC’s oral opinion (which was subsequently confirmed in writing on January 23, 2008) that, as of such date, and based upon and subject to the assumptions, qualifications and limitations set forth in RBC’s written opinion, the merger consideration was fair, from a financial point of view, to Allis-Chalmers (the full text of RBC’s written opinion is set forth in Annex B to this joint proxy statement/prospectus and should be read carefully in its entirety in conjunction with the information contained in “The Merger — Opinion of Allis-Chalmers’ Financial Adviser,” beginning on page 49). Representatives of RBC also summarized the proposed terms of Royal Bank’s bridge financing commitment.

 

The Allis-Chalmers board of directors then discussed the information it had received and the terms, potential benefits and potential risks associated with the merger. Following this discussion, the board determined that the merger was advisable and in the best interests of Allis-Chalmers and its stockholders, approved the merger agreement, approved the Royal Bank financing commitment and voted to recommend that Allis-Chalmers stockholders approve the issuance of shares of Allis-Chalmers common stock in the merger.

 

Subsequent to the Allis-Chalmers board meeting, on January 23, 2008, Allis-Chalmers, Royal Bank and RBC entered into agreements formalizing Royal Bank’s bridge financing commitment and providing for other matters relating to the financing of the cash component of the merger consideration. These agreements were superseded on January 28, 2008 by replacement agreements that added GSCP, which committed to fund 50% of the $350 million commitment pursuant to internal approval received on January 25, 2008.

 

On January 23, 2008, the negotiating committee of the Bronco board met telephonically. Mr. Treadwell and representatives of Akin Gump also took part in the meeting. Mr. Hill, serving as the chairman of the negotiating committee, asked Akin Gump to update the negotiating committee with respect to the status of negotiations of the terms of the merger agreement. Representatives of Akin Gump provided the negotiating committee with a history of the exchange of comments on and drafts of the merger agreement since the January 17, 2008 meeting of the negotiating committee and updated the committee on the status of the negotiations and the resolution of all open issues in the merger agreement and related documentation. Following a discussion of the agreement and such documentation, the meeting was adjourned so that a joint meeting of Bronco’s negotiating committee and its full board of directors could be convened for purposes of receiving Johnson Rice’s analysis of the fairness of the merger consideration to be received by Bronco’s stockholders in the transaction, from a financial point of view. It was agreed that the meeting of the negotiating committee would be reconvened following receipt of the Johnson Rice analysis so that the negotiating committee could further discuss the terms of the merger agreement, together with the information

provided by Johnson Rice, and thereafter make a recommendation to the board with respect to the proposed transaction.

 

A joint meeting of the Bronco board and the negotiating committee was held on January 23, 2008 following the adjournment of the negotiating committee meeting. All Bronco directors and members of the negotiating committee participated in the meeting either in person or, in the case of Mr. Houston, via telephone. Messrs. Dubberstein, Graves and Treadwell and representatives of Akin Gump (via telephone) and Johnson Rice also attended the meeting. Representatives of Akin Gump explained that the meeting was a joint meeting of the Bronco board and the negotiating committee, which would allow all members of the board, including the members of the negotiating committee, to hear and actively participate in Johnson Rice’s fairness analysis and delivery of its fairness opinion with respect to the proposed merger. Representatives of Akin Gump then led the Bronco board and the negotiating committee through a review of the terms of the final merger agreement, a copy of which had been provided to each director prior to the meeting, and other legal matters. Members of the Bronco board and the negotiating committee asked questions and discussed the terms of the merger agreement throughout Akin Gump’s presentation. Representatives of Johnson Rice then led the Bronco board and the negotiating committee through Johnson Rice’s financial analysis regarding the fairness of the transaction. Under the terms of the merger agreement, the total consideration per share represented a premium of approximately 29.1% to the closing sale price of Bronco’s common stock on January 22, 2008. The Bronco board and the negotiating committee asked questions and engaged in discussion throughout Johnson Rice’s presentation. Upon completion of the discussion, representatives of Johnson Rice delivered Johnson Rice’s oral opinion, which was subsequently confirmed in writing later that day, that subject to specified assumptions and limitations, the merger consideration to be received by the holders of Bronco common stock in the merger (other than Allis-Chalmers, Merger Sub and their respective subsidiaries and affiliates) was fair, from a financial point of view, to such holders. The full text of Johnson Rice’s written fairness opinion is set forth in Annex C to this joint proxy statement/prospectus and should be read carefully in its entirety in conjunction with the information contained in “The Merger — Opinion of Bronco’s Financial Adviser,” beginning on page 60. The Bronco board and the negotiating committee then engaged in discussions with representatives of Johnson Rice and Akin Gump regarding the terms of the proposed transaction, the reasons for the merger, related advantages and disadvantages and other issues relating to the proposed transaction. Following such discussion, the meeting of the Bronco board was temporarily adjourned and the negotiating committee reconvened to discuss the proposed transaction. With the benefit of the foregoing presentation and advice, the negotiating committee, having deliberated regarding the terms of the proposed transaction, unanimously resolved that the merger and the merger agreement and the other transactions contemplated thereby were advisable and fair to and in the best interest of Bronco and its stockholders and recommended that the Bronco board declare the advisability of the merger, the merger agreement and the other transactions contemplated thereby, approve the merger and the merger agreement and the other transactions contemplated thereby and recommend that Bronco’s stockholders adopt the merger agreement.

 

Following the receipt of the recommendation of the negotiating committee, the Bronco board deliberated and, based on its review of all the relevant factors, including without limitation the terms of the merger agreement, the business prospects of, and alternatives available to, Bronco, the unanimous recommendation of the negotiating committee, the fairness opinion and the related presentation by Johnson Rice, unanimously determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement were advisable and fair to and in the best interest of Bronco and its stockholders and approved the merger, the merger agreement and the transactions contemplated by the merger agreement, recommended that stockholders of Bronco adopt the merger agreement and directed that the merger agreement be submitted for adoption to the Bronco stockholders at the Bronco Meeting.

 

On January 23, 2008, representatives of both Allis-Chalmers and Bronco had several telephone calls to finalize due diligence and related matters.

 

On January 23, 2008, Allis-Chalmers and Bronco executed the proposed merger agreement.

 

On January 24, 2008, before the opening of trading in their respective stocks, Allis-Chalmers and Bronco issued a joint press release publicly announcing the merger agreement.

 

The Allis-Chalmers board of directors, at a special meeting held on January 23, 2008, determined that the merger agreement and the transactions contemplated by the merger agreement were advisable and in the best interests of Allis-Chalmers and its stockholders and approved the merger and the merger agreement. The Allis-Chalmers board of directors recommends that Allis-Chalmers stockholders vote FOR the issuance of the shares of Allis-Chalmers common stock in the merger.

 

Terms of the Merger Agreement and Merger Consideration

 

In reaching its decision to approve the merger agreement and recommend the issuance of shares of Allis-Chalmers common stock in the merger, the Allis-Chalmers board of directors considered the following factors relating to the terms of the merger agreement:

 

 

Strategic and Other Considerations

 

In addition to the factors listed above, the Allis-Chalmers board of directors considered the following strategic and other factors:

 

 

 

Risks of the Merger

 

The Allis-Chalmers board of directors also considered the following potential risks related to the merger with Bronco, but concluded that the anticipated benefits from the merger with Bronco were likely to outweigh these risks:

 

 

The preceding list of factors considered is not intended to be exhaustive. After due consideration of the potential benefits and risks and other information, the Allis-Chalmers board of directors determined, in its judgment, that the merger is in the best interests of Allis-Chalmers and its stockholders. The Allis-Chalmers board of directors did not quantify or assign relative weight to the factors considered in reaching its conclusion but approved the merger based on the totality of the information it reviewed and considered. Individual directors may have given different weight to different factors.

This description of the factors considered by the Allis-Chalmers board of directors and all other information presented in this section is forward-looking in nature, and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Concerning Forward-Looking Statements,” beginning on page 30.

 

The Bronco board of directors, at a special meeting held on January 23, 2008, unanimously determined that the merger agreement and the other transactions contemplated by the merger agreement were advisable and in the best interests of Bronco and its stockholders, unanimously approved the merger agreement, the merger and the transactions contemplated thereby and directed that the merger agreement be submitted for adoption by the Bronco stockholders at the Bronco Meeting. The Bronco board of directors unanimously recommends that Bronco stockholders vote FOR adoption of the merger agreement.

 

Terms of the Merger Agreement and Merger Consideration

 

In reaching its decision to approve and recommend the merger agreement for adoption by the Bronco stockholders, the Bronco board of directors considered the following factors relating to the terms of the merger agreement, the merger and merger consideration:

 

 

 

 

Strategic and Other Considerations

 

In addition to the factors listed above, the Bronco board of directors considered the following strategic and other factors:

 

 

 

Risks and Challenges of the Merger

 

The Bronco board of directors also considered the following potential risks and challenges related to the merger, but concluded that the anticipated benefits from the merger with Allis-Chalmers were likely to outweigh these risks and challenges:

 

 

Although the preceding list of factors considered is not intended to be exhaustive, in the judgment of the Bronco board of directors, the potential benefits of the merger outweigh the risks and the potential disadvantages. In view of the variety of factors considered in connection with its evaluation of the proposed merger and the terms of the merger agreement, the Bronco board of directors did not quantify or assign relative weight to the factors considered in reaching its conclusion. Rather, the Bronco board of directors

views its recommendation as being based on the totality of the information presented to and considered by it. In addition, individual Bronco directors may have given different weight to different factors.

 

It should be noted that this explanation of the reasoning of the Bronco board of directors and all other information presented in this section is forward-looking in nature, and, therefore, should be read in light of the factors discussed under the heading “Cautionary Statement Concerning Forward-Looking Statements,” beginning on page 30.

 

General Information Regarding RBC’s Fairness Opinion

 

On January 23, 2008, RBC, in its capacity as financial adviser to Allis-Chalmers, rendered its written opinion to Allis-Chalmers’ board of directors that, as of that date and subject to the assumptions, qualifications and limitations set forth in its opinion, the merger consideration per share of Bronco common stock (defined in RBC’s opinion and this section as the amount of cash without interest, and the number of fully paid and nonassessable shares of Allis-Chalmers common stock, each to be determined by the formula summarized below in this section and more fully specified in the merger agreement, to be received by Bronco stockholders for each of their shares) was fair, from a financial point of view, to Allis-Chalmers. The full text of RBC’s written opinion, dated January 23, 2008, is attached to this joint proxy statement/prospectus as Annex B. RBC’s opinion was approved by the RBC Fairness Opinion Committee. This summary of RBC’s opinion is qualified in its entirety by reference to the full text of the opinion. Allis-Chalmers stockholders are urged to read the RBC opinion carefully and in its entirety.

 

RBC’s opinion was addressed to, and provided for the information and assistance of, the Allis-Chalmers board of directors in connection with its evaluation of the merger. RBC’s opinion did not address the merits of Allis-Chalmers’ underlying decision to engage in the merger or the relative merits of the merger compared to any alternative business strategy or transaction in which Allis-Chalmers might engage. RBC’s opinion and presentation to Allis-Chalmers’ board of directors were only two of many factors taken into consideration by Allis-Chalmers’ board of directors in making its determination to approve the merger. RBC’s opinion does not constitute a recommendation to any stockholder as to how such stockholder should vote with respect to the merger.

 

RBC’s opinion addressed solely the fairness, from a financial point of view, of the merger consideration to Allis-Chalmers, and did not in any way address other terms or arrangements of the merger or the merger agreement, including, without limitation, the financial or other terms of any other agreement contemplated by, or to be entered into in connection with, the merger agreement , nor did it address, and RBC expressed no opinion with respect to, Allis-Chalmers’ solvency or the impact thereon of the bridge financing for the merger (referred to below in this section and described in more detail under the heading “Financing of the Merger,” beginning on page 92) or the merger. Further, in rendering its opinion, RBC expressed no opinion about the fairness of the amount or nature of the compensation (if any) to any of the officers, directors, or employees of any party to the merger, or class of such persons, relative to the merger consideration or otherwise.

 

In rendering its opinion, RBC assumed and relied upon the accuracy and completeness of all information that was publicly available to RBC and all of the financial, legal, tax, operating, and other information provided to or discussed with RBC by Allis-Chalmers or Bronco (including, without limitation, the financial statements and related notes thereto of each of Allis-Chalmers and Bronco, respectively). RBC did not assume responsibility for independently verifying, and did not independently verify, this information. RBC assumed that the financial projections and forecasts (referred to in RBC’s opinion and this section as the “Forecasts”) of Allis-Chalmers and the combined post-merger company provided by Allis-Chalmers’ management (including forecasts provided to RBC by Allis-Chalmers with respect to certain cost and revenue synergies expected to be realized from the merger), and of Bronco, prepared by its management, and reviewed by RBC, were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the future financial performance of Allis-Chalmers or Bronco (as the case may be), respectively, as standalone entities (or, in the case of the projected synergies, as a combined company). RBC expressed no opinion as to the Forecasts or the assumptions on which they were based. RBC did not assume any responsibility to

perform, and did not perform, an independent evaluation or appraisal of any of the assets or liabilities of Allis-Chalmers or Bronco, and RBC was not furnished with any such valuations or appraisals (except that an independent June 2007 appraisal of Bronco’s drilling rigs, performed for Bronco, was provided to Allis-Chalmers and RBC as part of the merger due diligence process but was not considered relevant by RBC in connection with the analyses it performed for purposes of its opinion). In addition, RBC did not assume any obligation to conduct, and did not conduct, any physical inspection of the property or facilities of Allis-Chalmers or Bronco. Additionally, RBC did not investigate, and made no assumption regarding, any litigation or other claims affecting Allis-Chalmers or Bronco.

 

In rendering its opinion, RBC assumed, in all respects material to its analysis, that all conditions to the consummation of the merger would be satisfied without waiver and also assumed that the executed version of the merger agreement would not differ, in any respect material to its opinion, from the proposed execution version RBC reviewed.

 

RBC’s opinion spoke only as of the date it was rendered, was based on the conditions as they existed and information with which RBC was supplied as of such date, and was without regard to any market, economic, financial, legal or other circumstances or event of any kind or nature which may exist or occur after such date. RBC has not undertaken to reaffirm or revise its opinion or otherwise comment on events occurring after the date of its opinion and does not have an obligation to update, revise or reaffirm its opinion. Unless otherwise noted, all analyses were performed based on market and other information available as of January 22, 2008, the last trading day preceding the finalization of RBC’s analysis. RBC expressed no opinion as to the prices at which Allis-Chalmers or Bronco common stock had traded or would trade following the announcement of the merger nor the price at which Allis-Chalmers common stock would trade following the consummation of the merger.

 

For the purpose of rendering its opinion, RBC undertook the review and inquiries it deemed necessary and appropriate under the circumstances, including:

 

 

In arriving at its opinion, in addition to reviewing the matters listed above, RBC performed the following analyses:

 

 

The following is a summary of the material financial analyses performed by RBC in connection with the preparation of its opinion. The summary of the analyses used by RBC contained in this section includes information presented in tabular format. To fully understand the summary of the analyses used by RBC, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses.

 

Implied Merger Consideration Value and Related Implied Data

 

For purposes of its analyses, RBC used $16.33 as the implied value of the merger consideration per share of Bronco common stock, comprised of $10.44 per share in cash and $5.89 per share in Allis-Chalmers common stock. In the case of the stock component of the merger consideration, this implied value of $5.89 per share was based on an implied exchange ratio of 0.512 shares of Allis-Chalmers common stock per share of Bronco common stock, which in turn implied 13.7 million as the approximate aggregate number of Allis-Chalmers shares issuable in the merger and 27.9% as the pro forma percentage of the number of fully-diluted shares of Allis-Chalmers outstanding immediately following the effective time of the merger that would be owned by the former Bronco stockholders.

 

In its analyses, RBC took into account the fact that these implied values per Bronco share, and other implied data, were based, in part, on factors that are subject to potential change between January 22, 2008 (the last trading day preceding the finalization of RBC’s analysis) and the effective time of the merger:

 

 

For purposes of its analyses, RBC used data available to it on January 22, 2008, including the closing sale prices of Allis-Chalmers and Bronco common stock and information from each company as to its respective capitalization. However, RBC also took into account, in its analyses, the fact that the aggregate implied value (as contrasted with the implied value per Bronco share) of the merger consideration was subject to two constants under the merger agreement:

 

 

RBC also took into account the fact that the total number of shares that the merger agreement permits Bronco to issue prior to the effective time of the merger would not affect the $16.33 implied value of the merger consideration per Bronco share derived by RBC as of January 22, 2008.

 

Allis-Chalmers Standalone Valuation Analysis

 

RBC used several methodologies to derive a current standalone valuation for Allis-Chalmers in order to determine, as of January 22, 2008, the relationship between the current market valuation of Allis-Chalmers and its valuation as determined by other selected metrics. In this analysis, RBC used the $11.51 closing sale price per share of Allis-Chalmers common stock on the NYSE on January 22, 2008, or the 1/22/08 Allis-Chalmers Price. RBC noted that the 1/22/08 Allis-Chalmers Price was at the bottom of the range of low ($11.51) to high ($27.80) closing sales prices of Allis-Chalmers common stock on the NYSE for the preceding 52-week period.

 

Research Price Target Analysis.  Using information available through Bloomberg and Thomson Research regarding the most recent Wall Street research reports issued with respect to Allis-Chalmers (including RBC’s research report), RBC identified estimated targets for the price of Allis-Chalmers common stock ranging from $15.00 to $23.00 per share, with a consensus target of $19.00 per share, as compared to the 1/22/08 Allis-Chalmers Price of $11.51.

 

Comparable Company Analysis.  RBC prepared a comparable company analysis of certain implied multiples of Allis-Chalmers in relation to the corresponding implied multiples of a group of publicly-traded companies that RBC deemed for purposes of its analysis to be comparable to Allis-Chalmers.

 

RBC reviewed the relevant metrics of the following publicly-traded oilfield services companies (with their metrics adjusted, as applicable, in two cases, to reflect recently-completed or pending acquisitions):

 

 

In this analysis, RBC compared the total enterprise value, or TEV, and market capitalization of Allis-Chalmers implied by the 1/22/08 Allis-Chalmers Price, expressed as a multiple of Allis-Chalmers’ fiscal 2007 estimated earnings before interest, taxes, depreciation and amortization, or EBITDA, and estimated net income, respectively, and of its fiscal 2008 projected EBITDA and projected net income, respectively, to the corresponding multiples of the selected comparable companies implied by the respective public trading prices of their common stock. Estimated and projected EBITDA and net income were based on Allis-Chalmers management estimates and projections in the case of Allis-Chalmers and, in the case of the comparable companies, on consensus research estimates obtain from IBES (Institutional Brokers’ Estimate System, a data service that monitors and publishes compilations of earnings estimates by selected research analysts regarding companies of interest to institutional investors) except where company projections were publicly available.

 

RBC defined TEV as total market capitalization as of January 22, 2008 plus net debt (defined by RBC as total debt less cash (other than restricted cash, where identified as such) and cash equivalents, and preferred stock and minority interests, where applicable), using Allis-Chalmers balance sheet data as of December 31, 2007 per Allis-Chalmers management’s estimate and latest publicly-available balance sheet data for the comparable companies. Calculations of Allis-Chalmers’ TEV as a multiple of EBITDA were based on fully-diluted shares outstanding as of January 22, 2008, using the treasury stock method, based on Allis-Chalmers

management’s capitalization information, and calculations of Allis-Chalmers’ market capitalization were derived using the 1/22/08 Allis-Chalmers Price.

 

The following table presents, as of January 22, 2008, Allis-Chalmers’ implied TEV-to-EBITDA and Market Capitalization-to-Net Income multiples, as determined on the basis of the 1/22/08 Allis-Chalmers Price, and the corresponding multiples for the comparable companies, as determined on the basis of their respective stock prices, for the periods reviewed by RBC in connection with its analysis:

 

 

Using the minimum and maximum multiples of the comparable companies reflected in the table above, RBC also calculated a range of implied stock prices of Allis-Chalmers common stock and compared those implied stock prices to the 1/22/08 Allis-Chalmers Price. The following table sets forth the results of this analysis:

 

 

Discounted Cash Flow Analysis.  RBC performed a discounted cash flow, or DCF, analysis of Allis-Chalmers to calculate the estimated present value of the stand-alone, unlevered, after-tax free cash flows that Allis-Chalmers could generate, based on (i) estimates of Allis-Chalmers’ management for Allis-Chalmers EBITDA for each of the fiscal years 2008 through 2012, and (ii) the present value of the projected terminal value, based on a multiple of projected EBITDA for fiscal year 2012. RBC defined terminal value as the estimated present value of the stand-alone unlevered, after-tax free cash flows that could be generated in perpetuity from fiscal 2013 onward.

 

DCF analyses are analyses of the present value of the projected unlevered free cash flows of the subject company for the periods using the indicated discount rate. Unlevered free cash flows are cash flows that would, prior to the servicing of the interest on the subject company’s outstanding debt, be available for distribution to the equity holders of the subject company.

 

RBC’s DCF analysis on Allis-Chalmers was based on terminal value EBITDA multiples ranging from 4.0x to 5.0x and applied discount rates reflecting a weighted-average cost of capital, or WACC, of 10.0% to 15.0%. RBC defined WACC as the cost of equity plus the after-tax cost of debt, weighted for capital structure using industry standard practices. The range of discount rates used in this analysis was based on RBC’s estimate of the equity cost of capital of Allis-Chalmers after taking into account Bloomberg’s estimated five-year (three-year, in the case of Allis-Chalmers) betas of Allis-Chalmers and the selected comparable publicly traded oilfield services

companies used in the Comparable Company Analysis for Allis-Chalmers on a standalone basis, described above. The projections of terminal value EBITDA multiples were based upon RBC’s judgment as well as its review of the publicly available business and financial information, and the respective financial and the respective business characteristics of Allis-Chalmers and the comparable publicly traded oilfield services companies used in the Comparable Company Analysis for Allis-Chalmers on a standalone basis, described above.

 

After adjusting for Allis-Chalmers’ current leverage, these calculations indicated implied per-share equity values for Allis-Chalmers ranging from $18.55 to $31.34, as compared to the 1/22/08 Allis-Chalmers Price.

 

Bronco Standalone Valuation Analysis

 

RBC used several methodologies to derive a current standalone valuation for Bronco in order to determine, as of January 22, 2008, the relationship between the market valuation of Bronco and its valuation as determined by other selected metrics. In this analysis, RBC used the $12.65 closing sales or price of Bronco common stock on Nasdaq on January 22, 2008, or the 1/22/08 Bronco Price, as well as the $16.33 implied value of the merger consideration per Bronco share. The valuation methodologies that RBC used for these analysis were the same as those used for the RBC standalone valuation of Allis-Chalmers except that RBC additionally used a selected precedent transaction analysis in the case of its standalone valuation of Bronco since Bronco is being acquired by Allis-Chalmers in the merger. RBC noted that the 1/22/08 Bronco Price was at the bottom of the range of low ($12.65) to high ($19.01) closing sales prices of Bronco common stock on Nasdaq for the preceding 52-week period.

 

Research Price Target Analysis.  Using information available through Bloomberg and Thomson Research regarding the most recent Wall Street research reports with respect to Bronco, RBC identified estimated targets for the price of Bronco common stock ranging from $13.00 to $18.00 per share, with a consensus target of $16.00 per share, as compared to the 1/22/08 Bronco Price of $12.65 and the $16.33 implied value of the merger consideration per Bronco share.

 

Comparable Company Analysis.  RBC prepared a comparable company analysis of certain implied multiples of Bronco in relation to the corresponding implied multiples of a group of publicly-traded companies that RBC deemed for purposes of its analysis to be comparable to Bronco.

 

RBC reviewed the relevant metrics of the following publicly-traded U.S. and international land drilling companies (with their metrics adjusted, as applicable, in one case, to reflect recently-completed or pending acquisitions and, in one case, for conversion from foreign currency into U.S. dollars):

 

 

In this analysis, RBC compared the TEV of Bronco implied by the $16.33 implied value of the merger consideration per Bronco share, expressed as a multiple of Bronco’s fiscal 2007 estimated EBITDA and fiscal 2007 estimated net income, respectively, and its fiscal 2008 projected Adjusted EBITDA (as defined below) and projected net income, respectively, to the corresponding multiples of the selected comparable companies implied by the respective trading prices of their common stock. Estimated and projected EBITDA and net income were based on Bronco management estimates and projections in the case of Bronco and, in the case of the comparable companies, on IBES consensus research estimates except where company projections were publicly available. Adjusted EBITDA represented Bronco’s projected fiscal 2008 EBITDA, adjusted by RBC to include investment income projected by Bronco management from an international minority equity

investment beginning in the first quarter of 2008 (but excluding a one-time gain projected by Bronco management for that quarter relating to the sale of certain assets to the international entity).

 

RBC defined TEV in the same manner as for its standalone valuation of Allis-Chalmers, using Bronco balance sheet data as of December 31, 2007 per Bronco management’s estimate and latest publicly-available balance sheet data for the comparable companies. Calculations of Bronco’s TEV as a multiple of EBITDA or Adjusted EBITDA were based on fully-diluted shares outstanding as of January 22, 2008, using the treasury stock method, based on Bronco management’s capitalization information, and calculations of Bronco’s market capitalization were derived from the 1/22/08 Bronco Price.

 

The following table presents, as of January 22, 2008, Bronco’s implied TEV-to-EBITDA or-Adjusted EBITDA (as applicable) and Market Capitalization-to-Net Income multiples, as determined on the basis of the $16.33 implied value of the merger consideration per Bronco share, and the corresponding multiples for the comparable companies, as determined on the basis of their respective stock prices, for the periods reviewed by RBC in connection with its analysis:

 

 

Using the minimum and maximum multiples of the comparable companies reflected in the table above, RBC also calculated a range of implied stock prices of Bronco common stock and compared those implied stock prices to the $16.33 implied value of the merger consideration per Bronco share. The following table sets forth the results of this analysis: