AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999
Registration No. 333-68455
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
CRC HOLDINGS CORP.
[TO BE RENAMED CRC-EVANS INTERNATIONAL, INC.]
(Exact name of registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
DELAWARE 1623 76-0539257
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
</TABLE>
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11601 N. HOUSTON ROSSLYN ROAD
HOUSTON, TEXAS 77086
(281) 999-8920
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
M. TIMOTHY CAREY
CHIEF EXECUTIVE OFFICER
11601 N. HOUSTON ROSSLYN ROAD
HOUSTON, TEXAS 77086
(281) 999-8920
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
DAVID S. PETERMAN, P.C. WILLIAM N. FINNEGAN, IV
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. ANDREWS & KURTH L.L.P.
711 LOUISIANA STREET, SUITE 1900 600 TRAVIS STREET, SUITE 4200
HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002
(713) 220-5800 (713) 220-4200
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [ ]
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. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) 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. [ ]
If this form is a post-effective amendment filed pursuant to Section 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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434 under
the Securities Act, check the following box. [ ]
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.
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<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
3,000,000 SHARES
[LOGO] CRC-EVANS INTERNATIONAL, INC.
COMMON STOCK
$ PER SHARE
- --------------------------------------------------------------------------------
This is an initial public offering of common stock of CRC-Evans International,
Inc. CRC-Evans is offering 3,000,000 shares of common stock with this
prospectus.
There is currently no public market for the shares. CRC-Evans expects that the
price to the public in the offering will be between $12.00 and $14.00 per share.
The market price of the shares after the offering may be higher or lower than
the offering price.
CRC-Evans has applied for its common stock to be listed on the
under the symbol " ."
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 10.
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PER SHARE TOTAL
--------- ------------
<S> <C> <C>
Price to the public.................. $ $
Underwriting discount................
Proceeds to CRC-Evans................
</TABLE>
CRC-Evans has granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 450,000 additional
shares from CRC-Evans within 30 days following the date of this prospectus to
cover over-allotments. The underwriters are offering the shares subject to
various conditions and may reject all or part of any order. The shares should be
ready for delivery on or about , 1999 against payment in
immediately available funds.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC OPPENHEIMER
BT ALEX. BROWN
SIMMONS & COMPANY
INTERNATIONAL
The date of this prospectus is , 1999.
<PAGE>
[THE ARTWORK DEPICTS THE COMPANY'S PRODUCTS AND SERVICES IN USE AND PHOTOGRAPHS
OF VARIOUS TYPES OF PRODUCTS THE COMPANY MANUFACTURES.]
2
<PAGE>
TABLE OF CONTENTS
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PAGE
----
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Prospectus Summary...................... 5
Risk Factors............................ 10
Forward-Looking Statements.............. 15
Use of Proceeds......................... 16
Dividend Policy......................... 16
Capitalization.......................... 17
Dilution................................ 18
Unaudited Pro Forma Financial Data...... 19
Selected Consolidated Financial Data.... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 23
Business................................ 30
Management.............................. 43
Principal Stockholders.................. 48
Certain Related Transactions............ 49
Description of Capital Stock............ 50
Shares Eligible For Future Sale......... 52
Underwriting............................ 53
Legal Matters........................... 55
Experts................................. 55
Index to Financial Statements........... F-1
</TABLE>
------------------------------------
As used in this prospectus, the term "CRC-Evans" means CRC-Evans
International, Inc. and its subsidiaries, including the predecessor business
described below (unless the context indicates a different meaning), and the term
"common stock" means CRC-Evans' common stock, $0.01 par value.
As used in this prospectus, references to CRC-Evans' "predecessors" or the
"predecessor business" refer to the business and assets of the consolidated
subsidiaries of CRC-Evans, prior to their acquisition by CRC-Evans on June 12,
1997, and their predecessors. In the acquisition, Messrs. D. Dale Wood, M.
Timothy Carey and C. Paul Evans, CRC-Evans' Chairman, Chief Executive Officer
and President, respectively, arranged for the purchase of CRC-Evans' business
and assets from Weatherford Enterra, Inc. "Pro forma" information reflects the
effects of the June 1997 acquisition and related financing.
CRC-Evans' principal executive offices are located at 11601 N. Houston Rosslyn
Road, Houston, Texas 77086. Its telephone number is (281) 999-8920.
Unless otherwise stated herein, all information contained in this prospectus
assumes no exercise of the over-allotment option granted to the underwriters.
Simultaneous with the effectiveness of the registration statement, CRC-Evans
will effect a 40 for 1 stock split and an amendment to its certificate of
incorporation as disclosed herein. All common stock numbers and other
information in this prospectus reflect the stock split and the amendment to
CRC-Evans' certificate of incorporation.
3
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(This page has been intentionally left blank.)
4
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PROSPECTUS SUMMARY
INTRODUCTION TO CRC-EVANS
CRC-Evans is the world's leading provider of specialized equipment and services
used in the construction and rehabilitation of gas and oil transmission
pipelines. CRC-Evans and its predecessors have been leaders in the specialized
pipeline construction equipment industry since 1933. CRC-Evans provides
equipment and services, primarily to pipeline contractors, which are essential
to the successful completion of a pipeline construction project. CRC-Evans'
pipeline products include automatic pipeline welding systems, pipe bending
equipment, line-up clamps, pipe coating plants, coating and cleaning equipment,
pipeline rehabilitation equipment and lay barge pipe handling equipment.
CRC-Evans also provides specialized services including joint coating, cement
weighting, induction and resistance heating, and automatic welding systems
training and technical assistance.
CRC-Evans' management team together with two institutional investors, Natural
Gas Partners IV, L.P. and Equus II Incorporated, acquired CRC-Evans' assets and
business from Weatherford Enterra in June 1997. CRC-Evans believes the depth and
experience of its management and employees are keys to its excellent reputation
with the world's leading pipeline contractors.
CRC-Evans has experienced significant growth in revenues, EBITDA (net income
before interest, taxes, depreciation, and amortization), and net income since
the June 1997 buyout. For the six months ended September 30, 1998, CRC-Evans
generated revenues of $56.8 million, EBITDA of $17.7 million and net income of
$8.8 million. These amounts represent increases over the pro forma results for
the six months ended September 30, 1997 of 65.3% in revenues, 241.5% in EBITDA
and 469.2% in net income.
Management believes that this growth is attributable to:
o a recent increase in demand for CRC-Evans' specialized products and
services in response to increased worldwide pipeline construction and
rehabilitation activity;
o CRC-Evans' strategic acquisitions; and
o the successful implementation of CRC-Evans' business strategy.
INDUSTRY OVERVIEW
The pipeline construction equipment and services industry provides products and
services to support pipeline construction and rehabilitation performed by
pipeline construction contractors. CRC-Evans provides specialized equipment and
services used in the construction of gas and oil pipelines ranging from 6 to 60
inches in diameter and steel water pipelines ranging up to 120 inches in
diameter. These products and services are generally provided by specialized
pipeline equipment manufacturers and service providers because:
o most pieces of pipeline construction equipment are specific to a small
range of diameter sizes, while the contractor works on a wide range of
pipeline diameters;
o contracts often have short lead times, requiring quick delivery of
equipment and services; and
o proprietary equipment, specialized engineering and technical operating
capabilities are critical to meeting the requirements of pipeline
welding, bending and coating.
Worldwide pipeline construction activity, based upon miles of pipeline
completed, has grown substantially since 1995, increasing approximately 58% from
14,201 miles in 1995 to 22,397 in 1998. Industry sources estimate that
approximately 49,000 miles of pipeline are presently planned to be constructed
in 1999 and thereafter. In addition, CRC-Evans expects a growing share of
activity in the pipeline and equipment services industry will be derived from
rehabilitating large-diameter pipelines.
5
<PAGE>
CRC-EVANS' STRENGTHS
CRC-Evans believes it is well positioned to continue as the leading provider of
specialized equipment and services used in the construction and rehabilitation
of gas and oil transmission pipelines. It believes it possesses a unique
combination of specific strengths which provides a solid foundation for its
growth strategy. CRC-Evans' strengths include:
o INDUSTRY LEADER. CRC-Evans is the world's leading provider of specialized
equipment and services used in constructing and rehabilitating pipelines.
o SIGNIFICANT BARRIERS TO ENTRY. CRC-Evans believes its large investment in
specialized rental equipment, highly experienced management, proprietary
technology, technical expertise and personnel, and worldwide sales force
and sales representative network all serve as barriers to entry.
o WORLDWIDE PRESENCE. CRC-Evans manages its geographically diverse customer
base through its international direct sales force and commissioned sales
representatives and distributors.
o CUSTOMER RELATIONSHIPS. CRC-Evans has developed long-term relationships
with the majority of the world's leading pipeline construction contractors
and pipe coating contractors.
o EXPERIENCED MANAGEMENT. CRC-Evans' current senior management team has
been involved in managing CRC-Evans or its predecessors' major lines of
business since 1971.
BUSINESS STRATEGY
CRC-Evans seeks to maximize shareholder value through its growth strategy which
includes:
o EXPANDING INTERNATIONAL OPERATIONS. CRC-Evans seeks to strengthen and
expand its international operational capability primarily by acquiring
established operations in several key international regions. These new
operations centers are intended to provide distribution hubs from which it
can more readily provide existing and new products and services to
customers' projects.
o ADDING RELATED PRODUCTS AND SERVICES. CRC-Evans intends to acquire or
develop related products and services which it intends to provide through
its broad distribution system comprised of its sales force, international
sales representatives and operations centers in key geographic regions.
o MAKING STRATEGIC ACQUISITIONS. CRC-Evans believes acquisition candidates
are available that should allow it to increase market share in its
existing lines of business, provide product line extensions, and expand
the geographic scope of its operations.
o EXTENDING AND LEVERAGING TECHNOLOGICAL LEADERSHIP. CRC-Evans intends to
further extend its technological leadership and capabilities through
in-house research and development, acquisition and licensing of technology
as well as participation in joint development efforts.
6
<PAGE>
THE OFFERING
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<CAPTION>
<S> <C>
Common stock offered by CRC-Evans.... 3,000,000 shares
Common stock to be outstanding after
the
offering(1)........................ 9,294,520 shares
Use of proceeds...................... CRC-Evans intends to use the net proceeds from the
offering, estimated to be approximately $
million after underwriting discount and other expenses
of the offering, to repay indebtedness and to provide
for working capital and general corporate purposes,
including strategic acquisitions. See "Use of
Proceeds."
Proposed trading symbol..............
</TABLE>
- ---------------------------
(1) Excludes 670,160 shares of common stock which could be issued upon the
exercise of outstanding stock options, 24,000 of which are currently
exercisable.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth, for the dates and periods indicated, summary
historical and pro forma financial data of CRC-Evans. The summary historical
financial data set forth below have been derived from CRC-Evans' historical
financial statements. The summary pro forma financial data for the year ended
March 31, 1998 and the six months ended September 30, 1997 give effect to the
June 1997 buyout, the associated equity financing provided by Natural Gas
Partners and Equus and borrowings by CRC-Evans under its credit facility (the
"Purchase Transactions"), as if they had occurred on April 1, 1997. The As
Adjusted Balance Sheet data as of September 30, 1998, give effect to the sale of
shares of common stock in this offering and CRC-Evans' use of the net proceeds.
The pro forma financial data do not necessarily represent what CRC-Evans'
results of operations would have been if the transactions described above had
occurred on such date and are not intended to project CRC-Evans' results of
operations for any period. Such data should be read in conjunction with the
information contained in the Unaudited Pro Forma Financial Data and CRC-Evans'
financial statements and notes thereto found elsewhere in this prospectus. See
"Use of Proceeds" and "Capitalization."
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<CAPTION>
HISTORICAL
PREDECESSOR BUSINESS PRO FORMA HISTORICAL
-------------------- PRO FORMA CRC-EVANS(1) CRC-EVANS(1)
CRC-EVANS(1) ------------- -------------
YEAR ENDED ------------ SIX MONTHS SIX MONTHS
MARCH 31, YEAR ENDED ENDED ENDED
-------------------- MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1997 1998
--------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
(dollars in thousands, except per share data)
STATEMENT OF EARNINGS DATA:
Revenues:
Sales revenue......................... $ 25,325 $ 26,082 $ 29,537 $ 15,589 $ 20,428
Rental and service revenue............ 39,329 43,293 34,919 18,766 36,360
--------- --------- ------------ ------------- -------------
Total revenues.......................... 64,654 69,375 64,456 34,355 56,788
Total cost of revenues.................. 45,851 46,676 43,762 23,413 31,403
--------- --------- ------------ ------------- -------------
Gross profit............................ 18,803 22,699 20,694 10,942 25,385
Operating expenses:
Selling, general and administrative... 13,056 13,018 13,130 6,910 9,175
Research and development.............. 856 754 1,104 472 690
Other expenses (income)............... 2,750 367 (74) (195) (324)
--------- --------- ------------ ------------- -------------
Operating income........................ 2,141 8,560 6,534 3,755 15,844
Interest expense (income)............... (246) (689) 2,695 1,164 1,709
--------- --------- ------------ ------------- -------------
Income before income taxes.............. 2,387 9,249 3,839 2,591 14,135
Income tax expense...................... 889 3,359 1,535 1,041 5,313
--------- --------- ------------ ------------- -------------
Net income.............................. $ 1,498 $ 5,890 $ 2,304 $ 1,550 $ 8,822
========= ========= ============ ============= =============
NET INCOME PER SHARE:
Basic................................... $ 0.58 $ 0.39 $ 1.56
Diluted................................. 0.56 0.38 1.43
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic................................... 4,000,000 4,000,000 5,670,479
Diluted................................. 4,120,000 4,120,000 6,171,301
OTHER FINANCIAL DATA:
EBITDA.................................. $ 6,978 $ 10,847 $ 9,456 $ 5,193 $ 17,732
Depreciation and amortization........... 4,837 2,287 2,922 1,438 1,888
Net cash provided by (used in)
operating activities.................. 9,005 3,061 4,200
Net cash provided by (used in)
investing activities.................. (464) (2,367) (10,660)
Net cash provided by (used in)
financing activities.................. (9,250) 815 9,896
Capital expenditures (excluding
acquisitions)......................... 464 2,367 1,759
</TABLE>
8
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SEPTEMBER 30, 1998
------------------------------
HISTORICAL AS ADJUSTED
---------- --------------
(dollars in thousands)
BALANCE SHEET DATA:
Working capital......................... $ 34,330 $ 34,330
Total assets............................ 84,469 84,469
Total long-term debt, excluding current
installments.......................... 36,441 658
Total liabilities....................... 61,168 25,385
Total stockholders' equity.............. 23,301 59,084
- ---------------------------
(1) Does not give effect to the offering and the application of the net proceeds
therefrom. Giving effect to the use of such proceeds as described in "Use
of Proceeds," interest expense and net income per share would be $0.0 and
$0.58 for the pro forma year ended March 31, 1998, $0.0 and $0.33 for the
pro forma six months ended September 30, 1997 and $56,000 and $1.14 for the
historical six months ended September 30, 1998, respectively.
9
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RISK FACTORS
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION
IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN THE SHARES.
THE PIPELINE CONSTRUCTION INDUSTRY IS CYCLICAL
CRC-Evans' revenues and profits would likely be hurt by reduced activity in the
pipeline construction industry. This is because demand for CRC-Evans' equipment
and services rises and falls based primarily on the level of new pipeline
construction by major oil and gas transmission companies and, to a lesser
extent, on the level of rehabilitation work on existing pipelines. Historically,
the pipeline construction industry has been cyclical, with a number of factors
influencing spending decisions in the industry, including:
o costs of producing and transporting oil and gas;
o conversion to natural gas for residential and power generation usage;
o discoveries of new oil and gas reserves;
o local and international political and economic conditions;
o technological advances;
o the ability of oil and gas transmission companies to generate capital; and
o current and projected oil and gas prices.
CRC-Evans cannot control these factors. If CRC-Evans' construction or
rehabilitation projects were delayed or cancelled, the revenues and cash flow of
CRC-Evans would be adversely impacted. Although CRC-Evans seeks to mitigate
revenue and cash flow fluctuations through the execution of its business
strategy, CRC-Evans' revenues and cash flow will likely continue to be subject
to substantial cyclical swings. In particular, CRC-Evans is aware of projects
which would provide demand for its products and services being cancelled or
delayed in the countries making up the former Soviet Union and Southeast Asia.
The former Soviet Union has historically been a significant region for
CRC-Evans. See "-- CRC-Evans' operations are focused on a few projects,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business."
CRC-EVANS HAS A LIMITED NUMBER OF MAJOR CUSTOMERS
CRC-Evans' success depends on keeping its current customers and building
relationships with new customers. This is particularly true because CRC-Evans
has a limited number of customers and potential customers. If CRC-Evans loses
one or more of its major customers, its revenues and profits would likely
decrease. Ten customers were responsible for 45% of CRC-Evans' total revenues in
the fiscal year ended March 31, 1998 (56% in 1997). One customer accounted for
approximately 11% of CRC-Evans' total revenues in 1998. In addition, as a result
of the small number of customers, CRC-Evans' accounts receivable are exposed to
concentration risks, which risks are increased because its accounts receivable
are generally not collateralized. See "Business -- Customers and contracts."
CRC-EVANS' OPERATIONS ARE FOCUSED ON A FEW PROJECTS
CRC-Evans' operations are usually focused on a few projects, because at any time
there are a limited number of major pipeline construction projects worldwide.
Accordingly, the status of these projects is critical to CRC-Evans' business. In
addition, because CRC-Evans' operations are focused on only a few projects, the
company is subject to variations in quarter to quarter financial results. See
"-- The pipeline construction industry is cyclical."
CRC-EVANS IS EXPOSED TO RISKS IN DEVELOPING AND OTHER COUNTRIES
Many of the developing countries in which CRC-Evans operates pose risks that are
not found in developed countries. These risks include foreign currency
restrictions, substantial exchange rate fluctuations, government seizure of
assets, riots, government instability and underdeveloped legal systems. In
addition, state-owned gas, oil and water pipeline companies are often CRC-Evans'
major customers in these countries. These companies may choose not to use
CRC-Evans' equipment or services for political reasons,
10
<PAGE>
or may be unable to do so if the government or local economy experiences
problems. The legal risks in these countries are great, and can include unfair
application of laws and regulations to foreign businesses, and unanticipated
taxes of various kinds.
Recently, certain developing countries, particularly those in Asia and the
Former Soviet Union, have experienced substantial economic turmoil. If this
turmoil continues or spreads to other developing countries, fewer pipelines may
be built in these countries, which could result in lower demand for CRC-Evans'
products and services. This would likely reduce CRC-Evans' revenues and income.
The following table shows investors, on the basis of revenues from the point of
sale, some of the countries where CRC-Evans' operations have recently been
concentrated:
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL HISTORICAL
PREDECESSOR PREDECESSOR PRO FORMA CRC-EVANS
BUSINESS BUSINESS CRC-EVANS -------------
----------- ----------- ---------- SIX MONTHS
YEAR ENDED YEAR ENDED YEAR ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, SEPTEMBER 30,
COUNTRY 1996 1997 1998 1998
- ------------------------------------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
United States of America............. 19.5% 18.8% 26.6% 42.5%
Canada............................... 7.9 12.0 9.4 21.3
United Kingdom....................... 7.1 6.4 6.9 6.6
Brazil............................... 1.9 0.9 3.2 5.0
Russia............................... 9.6 8.1 7.9 0.4
France............................... 1.3 3.5 6.4 0.4
Algeria.............................. 20.3 13.1 2.3 1.5
All others(1)........................ 32.4 37.2 37.3 22.3
----------- ----------- ---------- -------------
Total Revenues.................. 100.0% 100.0% 100.0% 100.0%
=========== =========== ========== =============
</TABLE>
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(1) This includes Saudi Arabia, Egypt, Bolivia, Norway, Greece, Malaysia, UAE
and the Netherlands, none of which accounted for more than 4% of revenues in
the six months ended September 30, 1998.
ACCIDENTS INVOLVING CRC-EVANS' EQUIPMENT COULD EXPOSE CRC-EVANS TO LITIGATION
Like most large pieces of construction equipment, operating CRC-Evans' equipment
involves a certain degree of risk to the operator and those working in the
vicinity. If there is a defect or malfunction in CRC-Evans' equipment, the
results can include injury or loss of life and damage to property. If any of
these happened, CRC-Evans could lose revenues, face higher costs or be sued.
Litigation arising from such an occurrence could result in CRC-Evans being named
as a defendant in lawsuits asserting large claims.
CRC-Evans maintains insurance to cover its losses in these situations. However,
this insurance may be insufficient to pay for all or a large part of these
losses. If CRC-Evans' insurance did not pay for these losses, its income would
fall. In addition, CRC-Evans may not be able to maintain its insurance if
insurance rates or insurance industry policies change. See
"Business -- Insurance."
ACQUISITIONS CAN ADVERSELY EFFECT CRC-EVANS' PERFORMANCE
CRC-Evans' growth strategy which includes acquiring other companies and product
lines, exposes CRC-Evans to risks outside the ordinary course of business. After
an acquisition, CRC-Evans must devote significant management resources
integrating the newly acquired company or assets which could adversely effect
its existing business. CRC-Evans also could have lower income and cash flow in
the short term while the newly acquired company or assets are being integrated
into the company. In addition, if the integration of the new company or assets
does not work, CRC-Evans could be adversely affected over the longer term.
Furthermore, if CRC-Evans acquires an operating business, it may incorrectly
value the business, or it may be subject to liabilities that were not discovered
in the investigation before the acquisition.
11
<PAGE>
CRC-Evans cannot predict whether it will be able to find good acquisition
candidates. Even if it finds a good acquisition candidate, it may be unable to
complete the acquisition for any number of reasons, including the inability to
obtain capital to finance the acquisition. If CRC-Evans makes an acquisition, it
may issue new stock or incur debt to pay for the acquired company. If it issues
stock, the issuance could result in substantial dilution to CRC-Evans' then
existing stockholders. In addition, CRC-Evans may need to use a large part of
its cash resources or its borrowing capacity for a single acquisition.
GOVERNMENT REGULATION MAY DECREASE CRC-EVANS' REVENUES AND PROFITS
The governments of the countries where CRC-Evans operates regulate its business
in many ways including local currency controls, taxes imposed on CRC-Evans and
its employees, trade restrictions, including embargos, and rules controlling its
use of local workers and suppliers. Because the demand for CRC-Evans' products
and services depends primarily on the oil and gas pipeline construction
industry, regulations which affect this industry also affect CRC-Evans'
business. If the countries in which CRC-Evans operates change their regulations
or impose new regulations, CRC-Evans' revenues and profits could decrease.
CRC-Evans cannot predict how regulations might change and, therefore, cannot
predict whether regulatory changes will hurt its business. See
"Business -- Government regulation -- General."
CRC-EVANS MAY BE REQUIRED TO DEVOTE SUBSTANTIAL RESOURCES COMPLYING WITH
ENVIRONMENTAL LAWS
CRC-Evans' equipment is often used in sensitive environmental areas such as
rivers, lakes and wetlands. If CRC-Evans' equipment does not perform properly in
these areas, environmental damage could occur, such as from the release of a
hazardous substance. In addition, the pipeline coating materials removed during
pipeline rehabilitation often contain hazardous substances and, therefore, are
subject to environmental regulation. Some environmental laws impose joint and
several strict liability for cleanup after the release of a hazardous substance.
This means that CRC-Evans might have to pay for cleanup even if it was not at
fault or was complying with all environmental laws. If there is a release of a
hazardous substance, CRC-Evans might also be sued for personal injury or
property damage if people or property are exposed to the substance. See
"Business -- Government regulation -- Environmental."
CRC-Evans' operations may be subject to the Resource Conservation and Recovery
Act, the Clean Water Act, the Clean Air Act, the Oil Pollution Act of 1990, the
Endangered Species Act and the Toxic Substances Control Act and comparable
foreign and state statutes and regulations. Violation of these laws could expose
CRC-Evans to substantial monetary penalties and injunctions.
CRC-EVANS COMPETES WITH PIPELINE CONSTRUCTION EQUIPMENT AND SERVICE COMPANIES
AND ITS CUSTOMERS PROVIDING CRC-EVANS' PRODUCTS AND SERVICES INTERNALLY
The pipeline construction equipment business is very competitive, and CRC-Evans
expects it to remain so. CRC-Evans competes on the basis of a number of factors,
including price, customer service, satisfying technical specifications,
flexibility in meeting customer needs and the quality and reliability of its
equipment. CRC-Evans' competitors include many smaller pipeline construction
equipment companies worldwide and several business units of larger companies. In
addition, certain major contractors, who are often CRC-Evans' customers, have
chosen and may continue to choose to build their own specialized pipeline
construction equipment and perform on their own services the company provides,
which could reduce its revenues or income. See "Business -- Competition."
DEPENDENCE ON KEY PERSONNEL
Because CRC-Evans' success has been and will continue to be highly dependent on
the efforts and skills of its senior management, if it were to lose any of its
senior management, its operations could be disrupted. CRC-Evans maintains a $1.0
million "key man" life insurance policy on its Chief Executive Officer, M.
Timothy Carey, but does not insure any other senior managers. In addition,
CRC-Evans' future success depends on its ability to find and retain new key
management personnel, which it may not be able to do successfully. See
"Management."
12
<PAGE>
PURCHASERS OF THE COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION
Purchasers of common stock will experience immediate and substantial dilution in
net tangible book value of $6.87 per share based on an assumed initial public
offering price of $13.00 per share (the midpoint of the range of initial public
offering prices set forth on the cover page of this prospectus). See
"Dilution."
PERCENTAGE OWNERSHIP WILL BE REDUCED IF CRC-EVANS ISSUES NEW SHARES
Investors' percentage ownership of CRC-Evans would be reduced if shares are
issued in connection with acquisitions, exercise of stock options, or for other
reasons. CRC-Evans can issue all (up to a total of 14,460,320) of its unissued
shares without receiving stockholder approval. CRC-Evans might issue these
shares to acquire another company or to raise money for CRC-Evans. In addition,
CRC-Evans has reserved 1,245,160 shares of common stock for issuance under its
various employee stock option plans. There are currently outstanding options to
purchase 670,160 shares of common stock. CRC-Evans may also have trouble raising
additional capital because of the possible dilution which could occur upon
exercise of options granted under stock option plans. See "Management -- Stock
option plans" and "Description of Capital Stock."
THERE HAS BEEN NO PRIOR MARKET FOR THE COMMON STOCK AND THE MARKET PRICE OF THE
SHARES WILL FLUCTUATE
The price of the common stock after the offering may fluctuate widely, depending
on many factors, including:
o the perceived prospects of CRC-Evans and the oil and gas pipeline
construction industry;
o differences between CRC-Evans' actual financial and operating results and
those expected by investors and analysts;
o changes in analysts' recommendations or projections;
o general economic or market conditions; and
o broad market fluctuations.
As a result, the common stock may trade at prices significantly below the
initial public offering price.
Prior to the offering, there has been no public market for the common stock. The
initial public offering price of the common stock will be determined by
negotiations between CRC-Evans and the underwriters' representatives. See
"Underwriting" for information on the determination of the initial public
offering price. CRC-Evans will apply for quotation of the common stock on
. There is no guarantee that a trading market for the common
stock will develop or, if a market does develop, of the level of trading volume
for the common stock.
SHARE PRICE MAY DECLINE BECAUSE OF SHARES ELIGIBLE FOR FUTURE SALE
Actual sales or the possibility of sales of substantial amounts of common stock
from any sources may adversely affect the price of CRC-Evans' common stock and
impede CRC-Evans' ability to raise capital by issuing more equity securities.
See "Shares Eligible for Future Sale."
Upon completion of the offering, there will be 9,294,520 shares of common stock
outstanding (or up to 9,744,520 shares if the underwriters' over-allotment
option is exercised). All of the shares sold in the offering will be freely
transferable without restriction by the Securities Act, except for shares
purchased by affiliates of CRC-Evans.
The remaining 6,294,520 shares outstanding after the offering cannot be sold
unless the sale is registered under the Securities Act or an exemption from
registration is available, including the exemption provided by Rule 144 under
the Securities Act.
Some of CRC-Evans' stockholders have signed a Registration Rights Agreement with
the company which allows them to require the company to register for public sale
their shares of common stock. The parties to this Agreement have agreed that
they will not sell or otherwise dispose of their common stock for 180 days after
the date of this prospectus, unless CIBC Oppenheimer Corp. consents. See
"Description of Capital Stock."
CRC-Evans has reserved 1,245,160 shares of common stock for issuance under its
outstanding stock options and under its stock incentive plan. Of these, 670,160
shares of common stock are issuable upon the exercise of outstanding stock
options, 24,000 of which are currently exercisable. CRC-Evans will register
13
<PAGE>
the offering and sale of common stock which can be issued under its stock option
plans. See "Management -- Stock option plans."
CRC-EVANS DOES NOT INTEND TO PAY CASH DIVIDENDS
CRC-Evans does not intend to pay cash dividends on the common stock in the
foreseeable future because it anticipates that future earnings will be retained
to finance future operations and expansion. In addition, CRC-Evans' credit
facility prohibits it from paying dividends on its common stock. See "Dividend
Policy" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and capital resources."
CRC-EVANS' SIGNIFICANT STOCKHOLDERS WILL CONTROL IT
At the closing, CRC-Evans' officers, directors and principal stockholders will
beneficially own approximately 58.5% of the common stock. As a result, these
stockholders will be able to elect a majority or all of the Board of Directors,
and, in general, determine (without the consent of CRC-Evans' other
stockholders) the outcome of any corporate transaction or other matter submitted
to the stockholders for approval, including mergers, consolidations and the sale
of all or substantially all of the company's assets. These stockholders will be
able to prevent or cause a change in control of the company. See "Principal
Stockholders" and "Description of Capital Stock."
14
<PAGE>
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These statements include,
among others, the following: plans for, and successful closing and integration
of, future acquisitions, CRC-Evans' capacity to integrate successfully
acquisitions that have already been completed, the adequacy of anticipated
sources of cash, including the proceeds from this offering, to fund CRC-Evans'
future capital requirements and statements with respect to areas of potential
growth. These statements may be found under "Prospectus Summary," "Unaudited
Pro Forma Financial Data," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and esults of Operations," "Selected
Consolidated Financial Data" and "Business" as well as elsewhere herein.
Forward-looking statements typically are identified by use of terms such as
"may," "will," "should," "expect," "anticipate," "estimate" and
similar words, although some forward-looking statements are expressed
differently. Investors should be aware that CRC-Evans' actual results could
differ materially from those contained in the forward-looking statements due to
a number of factors, including: general economic conditions, labor costs,
competition, pipeline construction and rehabilitation activity worldwide,
sufficiency of capital resources, ability to integrate acquired businesses
successfully, potential adverse economic and political conditions and
unanticipated difficulties in product and services development. Investors should
also consider carefully the statements under "Risk Factors" and other sections
of this prospectus, which address additional factors that could cause CRC-Evans'
actual results to differ from those set forth in the forward-looking statements.
In addition, the safe harbor protections with respect to forward-looking
statements afforded by Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act are not applicable to initial public offerings.
15
<PAGE>
USE OF PROCEEDS
CRC-Evans estimates that the net proceeds from the sale of common stock it is
offering will be approximately $35.8 million. If the underwriters fully exercise
the over-allotment option, the net proceeds to CRC-Evans will be $41.2 million.
"Net proceeds" is what CRC-Evans expects to receive after paying the
underwriting discount and other expenses of the offering. For purposes of
estimating net proceeds, CRC-Evans is assuming the public offering price will be
$13.00 per share.
CRC-Evans intends to use (i) $33.9 million of the net proceeds to repay
indebtedness under its credit facility and (ii) approximately $1.9 million to
repay its 12% subordinated notes due 2002. Until CRC-Evans uses the net proceeds
of the offering for these purposes, it intends to invest them in short-term,
investment grade, interest bearing securities.
As part of the June 1997 buyout, CRC-Evans entered into its credit facility with
a syndicate of banks led by BankBoston for up to a maximum of $45 million, of
which:
o $20.0 million was a revolving line of credit,
o $20.0 million was a six year term loan, and
o approximately $5.0 million was a revolving line of credit denominated in
British pounds.
On July 3, 1998, the credit facility was amended to provide for $17.5 million
and 1.45 million of availability to finance acquisitions and growth capital
expenditures, and $5.0 million of additional revolving line of credit
availability for general working capital.
CRC-Evans borrowed approximately $32.5 million to finance the June 1997 buyout.
In addition, since July 3, 1998, CRC-Evans has borrowed $9.0 million and 5/81.3
million under the credit facility principally to finance acquisitions.
As of November 30, 1998, CRC-Evans had approximately $35.4 million of senior
debt outstanding as follows:
AMOUNT OUTSTANDING(1)
(MILLIONS OF DOLLARS) INTEREST RATE MATURITY
--------------------- ------------- ---------------
Term
U.S............ $17.4 7.1%(2) June 12, 2003
Revolving
U.S............ 13.0(3) 7.1%(2) June 12, 2003
U.K............ 5.0(4) 9.5%(5) June 12, 2003
- ---------------------------
(1) Principal payments on the term loan and the converting portions of the
revolving loan are to be made on a formula-based amortization schedule
beginning September 30, 1997 and March 31, 2000, respectively.
(2) The interest rate is calculated based on the higher of (a) Bank Boston's
base rate and (b) 0.5% above the federal funds effective rate plus 0.25% to
1%. CRC-Evans may elect to borrow instead at an interest rate equal to the
Eurodollar rate plus 1.75% to 2.50%.
(3) If still outstanding, $9.0 million of the $13.0 million would convert into a
term loan on December 31, 1999.
(4) If still outstanding, $2.1 million of the $5.0 million would convert into a
term loan on December 31, 1999.
(5) The interest rate is calculated based on LIBOR plus 1%.
DIVIDEND POLICY
CRC-Evans has never declared or paid any cash dividends on its common stock. In
addition, CRC-Evans' credit facility prohibits it from paying dividends on its
common stock. Following the offering, CRC-Evans intends to retain any future
earnings to fund growth and does not anticipate paying any cash dividends in the
foreseeable future. Any future determination as to CRC-Evans' dividend policy
will be made at the discretion of its Board of Directors and will depend on a
number of factors, including future earnings, capital requirements, financial
condition and future prospects, restrictions on dividend payments pursuant to
credit or other agreements and such other factors as the Board of Directors may
deem relevant. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and capital resources."
16
<PAGE>
CAPITALIZATION
The following table shows:
o The capitalization of CRC-Evans on September 30, 1998.
o The capitalization of CRC-Evans on September 30, 1998, assuming the
completion of the offering at an assumed public offering price of $13.00
per share and the use of the net proceeds as described under "Use of
Proceeds."
SEPTEMBER 30, 1998
-------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(dollars in thousands)
Current installments of long-term
debt................................. $ 2,707 $ 2,707
========== ===========
Long-term debt, excluding current
installments....................... $ 34,522 $ 658
12% subordinated notes due 2002...... 1,919 --
---------- -----------
Total long-term debt............ 36,441 658
---------- -----------
Stockholders' equity:
Common stock, $0.01 par value,
25,000,000 shares authorized,
6,294,520 shares issued and
outstanding, actual; 9,294,520
shares issued and outstanding, as
adjusted(1)........................ 14,333 50,116
Preferred stock, $0.01 par value,
2,500,000 shares authorized, no
shares issued and outstanding,
actual; no shares issued and
outstanding, as adjusted........... -- --
Retained earnings.................... 11,164 11,164
Less notes receivable from
shareholders....................... (2,083) (2,083)
Cumulative foreign currency
translation adjustment............. (113) (113)
---------- -----------
Total stockholders' equity...... 23,301 59,084
---------- -----------
Total capitalization....... $ 59,742 $59,742
========== ===========
- ---------------------------
(1) Excludes 670,160 shares of common stock which could be issued upon the
exercise of outstanding stock options, 24,000 of which are currently
exercisable.
17
<PAGE>
DILUTION
CRC-Evans' net tangible book value on September 30, 1998 was $21.2 million, or
$3.37 per share. "Net tangible book value" is total assets minus the sum of
liabilities and intangible assets. "Net tangible book value per share" is net
tangible book value divided by the total number of shares outstanding before the
offering.
After giving effect to certain adjustments relating to the offering, CRC-Evans'
pro forma net tangible book value on September 30, 1998 would have been $57.0
million or $6.13 per share. The adjustments made to determine pro forma net
tangible book value per share are the following:
An increase in total assets and a decrease in total debt to reflect receipt of
the net proceeds of the offering as described under "Use of Proceeds"
(assuming that the public offering price will be $13.00 per share).
The addition of the number of shares offered by this prospectus to the number of
shares outstanding. The following table illustrates the pro forma increase in
net tangible book value of $2.76 per share and the dilution (the difference
between the offering price per share and net tangible book value per share) to
new investors:
Assumed public offering price per
share.............................. $ 13.00
Net tangible book value per share as
of September 30, 1998.............. $ 3.37
Increase in net tangible book value
per share attributable to the
offering........................... 2.76
---------
Pro forma net tangible book value per
share, as of September 30, 1998,
after giving effect to the
offering........................... 6.13
---------
Dilution per share to new investors
in the offering.................... $ 6.87
=========
The following table shows the difference between existing stockholders and new
investors with respect to the number of shares purchased from CRC-Evans, the
total consideration paid and the average price paid per share. The table assumes
that the public offering price will be $13.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 6,294,520 67.7% $ 14,382,979 26.9% $ 2.28
New investors........................ 3,000,000 32.3 39,000,000 73.1 $ 13.00
---------- ------- ------------- -------
Total........................... 9,294,520 100.0% $ 53,382,979 100.0%
========== ======= ============= =======
</TABLE>
The foregoing tables exclude the effect of 670,160 shares of common stock
issuable upon exercise of outstanding stock options, 24,000 of which are
currently exercisable, and which were granted to officers, employees and
consultants at a weighted average exercise price of $2.78 per share. To the
extent any of the outstanding options or warrants are exercised, there will be
further dilution to stockholders. See "Management -- Stock option plans."
18
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma statements of earnings for the year ended March 31, 1998
and the six months ended September 30, 1997, give effect to the Purchase
Transactions as if they had occurred on April 1, 1997. The unaudited pro forma
statement of earnings for the year ended March 31, 1998 is derived from the
audited historical financial statements of (a) CRC-Evans' predecessors for the
period from April 1, 1997 through June 11, 1997 and (b) CRC-Evans from June 12,
1997 through March 31, 1998. The unaudited pro forma statement of earnings for
the year ended September 30, 1997 is derived from the (a) audited financial
statements of CRC-Evans' predecessors for the period from April 1, 1997 through
June 11, 1997 and (b) unaudited financial statements of the Company for the
period from June 12, 1997 through September 30, 1997.
The pro forma adjustments which give effect to the various events described
above are based upon currently available information and upon certain
assumptions that management believes are reasonable. CRC-Evans has accounted for
the assets acquired and liabilities assumed in the June 1997 buyout at their
allocated estimated fair market values at the date of the buyout using the
purchase method of accounting. See "Risk Factors -- Acquisitions can adversely
effect CRC-Evans' performance."
The unaudited pro forma financial statements do not purport to be indicative of
the results of operations that would have occurred or that may be obtained in
the future if the transactions described had occurred as presented in such
statements. In addition, future results may vary significantly from the results
reflected in such statements due to general economic conditions, labor costs,
competition, pipeline construction and rehabilitation activity worldwide,
insufficient capital resources, inability to integrate acquired businesses
successfully, adverse economic conditions, unanticipated difficulties in product
development and several other factors, many of which are beyond CRC-Evans'
control. See "Risk Factors."
The unaudited pro forma financial statements should be read in conjunction with
the notes thereto, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the historical financial statements of
CRC-Evans and its predecessors, including the notes thereto, included elsewhere.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
YEAR ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
PREDECESSOR BUSINESS CRC-EVANS
4/1/97-6/11/97 6/12/97-3/31/98 ADJUSTMENTS PRO FORMA(D)
-------------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
(dollars in thousands, except per share data)
Revenues:
Sales revenue...................... $ 5,687 $ 23,850 $ 29,537
Rental and service revenue......... 6,928 27,991 34,919
-------------------- --------------- ------------
Total revenues....................... 12,615 51,841 64,456
-------------------- --------------- ------------
Cost of revenues:
Cost of sales revenue.............. 3,712 16,096 $ 3(a) 19,811
Cost of rental and service
revenue......................... 5,451 18,311 189(a) 23,951
-------------------- --------------- ----------- ------------
Total cost of revenues............... 9,163 34,407 192 43,762
-------------------- --------------- ----------- ------------
Gross profit......................... 3,452 17,434 (192) 20,694
Operating expenses:
Selling, general and
administrative.................. 3,016 10,114 -- 13,130
Research and development........... 153 951 -- 1,104
Other expenses (income)............ (153) 79 -- (74)
-------------------- --------------- ----------- ------------
Operating income..................... 436 6,290 (192) 6,534
Interest expense (income)............ (50) 2,411 334(b) 2,695
-------------------- --------------- ----------- ------------
Income before income taxes........... 486 3,879 (526) 3,839
Income tax expense................... 207 1,536 (208)(c) 1,535
-------------------- --------------- ----------- ------------
Net income........................... $ 279 $ 2,343 $(318) $ 2,304
==================== =============== =========== ============
NET INCOME PER SHARE:
Basic................................ $ 0.59 $ 0.58
Diluted.............................. 0.57 0.56
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic................................ 4,000,000 4,000,000
Diluted.............................. 4,120,000 4,120,000
</TABLE>
- ---------------------------
(a) Resulting depreciation from the write up of the fair value of property,
plant and equipment and rental assets. Depreciation is computed using the
straight-line method over the useful life of the assets. Useful lives for
determining depreciation for the major classes of assets are as follows:
Buildings and improvements........... 20 to 40 years
Machinery and equipment.............. 7 years
Furniture and fixtures............... 7 years
Automobiles and trucks............... 5 years
Computer equipment................... 5 years
Costs associated with refurbishing rental equipment are amortized during the
rental period.
(b) Reflects net expense adjustment due to funds borrowed in connection with the
Purchase Transactions pursuant to the acquisition term note payable as
follows:
Term note payable.................... $20,000,000
Calculated interest rate on
acquisition term note payable for
the period from April 1, 1997 to
June 11, 1997...................... 1.67%
----------
Interest expense adjustment for the
period from April 1, 1997 to June
11, 1997........................... $ 334,000
==========
(c) Reflects tax effect of all pre-tax pro forma adjustments.
(d) Does not give effect to the offering and the application of the net proceeds
therefrom. Giving effect to the use of such proceeds as described in "Use
of Proceeds," interest expense and net income per share would be $0.0 and
$0.58, respectively.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS
SIX MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
PREDECESSOR BUSINESS CRC-EVANS
4/1/97-6/11/97 6/12/97-9/30/97 ADJUSTMENTS PRO FORMA(D)
--------------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C>
(dollars in thousands, except per share data)
Revenues:
Sales revenue...................... $ 5,687 $ 9,902 $ 15,589
Rental and service revenue......... 6,928 11,838 18,766
--------------------- ---------------- ------------
Total revenues....................... 12,615 21,740 34,355
--------------------- ---------------- ------------
Cost of revenues:
Cost of sales revenue.............. 3,712 6,470 $ 3(a) 10,185
Cost of rental and service
revenue......................... 5,451 7,588 189(a) 13,228
--------------------- ---------------- ------------ ------------
Total cost of revenues............... 9,163 14,058 192 23,413
--------------------- ---------------- ------------ ------------
Gross profit......................... 3,452 7,682 (192) 10,942
Operating expenses:
Selling, general and
administrative.................. 3,016 3,894 6,910
Research and development........... 153 319 472
Other expenses (income)............ (153) (42) (195)
--------------------- ---------------- ------------ ------------
Operating income..................... 436 3,511 (192) 3,755
Interest expense (income)............ (50) 880 334(b) 1,164
--------------------- ---------------- ------------ ------------
Income before income taxes........... 486 2,631 (526) 2,591
Income tax expense................... 207 1,042 (208)(c) 1,041
--------------------- ---------------- ------------ ------------
Net income........................... $ 279 $ 1,589 $ (318) $ 1,550
===================== ================ ============ ============
NET INCOME PER SHARE:
Basic................................ $ 0.40 $ 0.39
Diluted.............................. 0.39 0.38
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic................................ 4,000,000 4,000,000
Diluted.............................. 4,120,000 4,120,000
</TABLE>
- ---------------------------
(a) Resulting depreciation from the write up of the fair value of property,
plant and equipment and rental assets. Depreciation is computed using the
straight-line method over the useful life of the assets. Useful lives for
determining depreciation for the major classes of assets are as follows:
Buildings and improvements........... 20 to 40 years
Machinery and equipment.............. 7 years
Furniture and fixtures............... 7 years
Automobiles and trucks............... 5 years
Computer equipment................... 5 years
__ Costs associated with refurbishing rental equipment are amortized during the
rental period.
(b) Reflects net expense adjustment due to funds borrowed in connection with the
Purchase Transactions pursuant to the acquisition term note payable as
follows:
Term note payable.................... $20,000,000
Calculated interest rate on
acquisition term note payable for
the period from April 1, 1997 to
June 11, 1997...................... 1.67%
----------
Interest expense adjustment for the
period from April 1, 1997 to June
11, 1997........................... $ 334,000
==========
(c) Reflects tax effect of all pre-tax pro forma adjustments.
(d) Does not give effect to the offering and the application of the net proceeds
therefrom. Giving effect to the use of such proceeds as described in "Use
of Proceeds," interest expense and net income per share would be $0.0 and
$0.33, respectively.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth, for the dates and periods indicated, selected
historical consolidated financial data of CRC-Evans and its predecessors. The
data for each of the years ended March 31, 1996 and 1997 and the periods from
April 1, 1997 to June 11, 1997 and from June 12, 1997 to March 31, 1998 are
derived from the audited financial statements of CRC Evans and its predecessors.
The data for each of the years ended March 31, 1994 and 1995 are derived from
the unaudited financial statements of CRC-Evans' predecessors. The data for the
six months ended September 30, 1998 are derived from the unaudited condensed
consolidated financial statements of CRC-Evans that are included elsewhere in
this prospectus. The following financial data should be read in connection with
such financial statements including the notes thereto. Results of operations for
the interim periods are not necessarily indicative of results that may be
expected for any other interim period or for the year as a whole.
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
PREDECESSOR BUSINESS CRC-EVANS
-------------------------------------------------------- ------------
YEAR ENDED MARCH 31,
------------------------------------------ 4/1/97-6/11 6/12/97-3/31
1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
(dollars in thousands, except per share data)
STATEMENT OF EARNINGS DATA:
Revenues:
Sales revenue......................... $ 20,843 $ 30,838 $ 25,325 $ 26,082 $ 5,687 $ 23,850
Rental and service revenue............ 31,029 35,717 39,329 43,293 6,928 27,991
--------- --------- --------- --------- ----------- ------------
Total revenues.......................... 51,872 66,555 64,654 69,375 12,615 51,841
--------- --------- --------- --------- ----------- ------------
Cost of revenues:
Cost of sales revenue................. 15,128 26,398 16,595 18,373 3,712 16,096
Cost of rental and service revenue.... 21,695 24,391 29,256 28,303 5,451 18,311
--------- --------- --------- --------- ----------- ------------
Total cost of revenues.................. 36,823 50,789 45,851 46,676 9,163 34,407
--------- --------- --------- --------- ----------- ------------
Gross profit............................ 15,049 15,766 18,803 22,699 3,452 17,434
Operating expenses:
Selling, general and administrative... 12,656 12,955 13,056 13,018 3,016 10,114
Research and development.............. 731 703 856 754 153 951
Other expenses (income)............... 4 (267) 2,750 367 (153) 79
--------- --------- --------- --------- ----------- ------------
Operating income........................ 1,658 2,375 2,141 8,560 436 6,290
Interest expense (income)............... (642) 213 (246) (689) (50) 2,411
--------- --------- --------- --------- ----------- ------------
Income before income taxes.............. 2,300 2,162 2,387 9,249 486 3,879
Income tax expense...................... 445 799 889 3,359 207 1,536
--------- --------- --------- --------- ----------- ------------
Net income.............................. $ 1,855 $ 1,363 $ 1,498 $ 5,890 $ 279 $ 2,343
========= ========= ========= ========= =========== ============
NET INCOME PER SHARE:
Basic................................... $ 0.59
Diluted................................. 0.57
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic................................... 4,000,000
Diluted................................. 4,120,000
OTHER FINANCIAL DATA:
EBITDA.................................. $ 6,365 $ 7,207 $ 6,978 $ 10,847 $ 824 $ 8,632
Depreciation and amortization........... 4,707 4,832 4,837 2,287 388 2,342
Capital Expenditures (excluding
acquisitions)......................... 464 2,367 473 2,402 65 1,083
BALANCE SHEET DATA:
Working capital......................... $ 21,267 $ 24,435 $ 19,663 $ 25,792 $23,895 $ 24,056
Total assets............................ 50,612 53,177 40,501 48,034 46,503 56,344
Total long-term debt, excluding current
installments.......................... 1,225 1,040 -- -- -- 30,939
Total liabilities....................... 13,981 18,482 12,659 13,172 14,013 46,748
Total equity............................ 36,631 34,695 27,842 34,862 32,490 9,596
</TABLE>
SIX MONTHS
ENDED
SEPTEMBER 30,
1998
-------------
STATEMENT OF EARNINGS DATA:
Revenues:
Sales revenue......................... $ 20,428
Rental and service revenue............ 36,360
-------------
Total revenues.......................... 56,788
-------------
Cost of revenues:
Cost of sales revenue................. 13,342
Cost of rental and service revenue.... 18,061
-------------
Total cost of revenues.................. 31,403
-------------
Gross profit............................ 25,385
Operating expenses:
Selling, general and administrative... 9,175
Research and development.............. 690
Other expenses (income)............... (324)
-------------
Operating income........................ 15,844
Interest expense (income)............... 1,709
-------------
Income before income taxes.............. 14,135
Income tax expense...................... 5,313
-------------
Net income.............................. $ 8,822
=============
NET INCOME PER SHARE:
Basic................................... $ 1.56
Diluted................................. 1.43
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic................................... 5,670,479
Diluted................................. 6,171,301
OTHER FINANCIAL DATA:
EBITDA.................................. $ 17,732
Depreciation and amortization........... 1,888
Capital Expenditures (excluding
acquisitions)......................... 1,759
Working capital......................... $ 34,330
Total assets............................ 84,469
Total long-term debt, excluding current
installments.......................... 36,441
Total liabilities....................... 61,168
Total equity............................ 23,301
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INVESTORS SHOULD READ THIS DISCUSSION TOGETHER WITH THE FINANCIAL STATEMENTS AND
OTHER INFORMATION INCLUDED IN THIS PROSPECTUS.
OVERVIEW
CRC-Evans has been under its current ownership since June 12, 1997, when certain
members of management, together with Natural Gas Partners and Equus, purchased
CRC-Evans' business and assets from Weatherford Enterra.
CRC-Evans provides equipment and services, primarily to pipeline contractors,
which are essential to the successful completion of a pipeline construction
project. Although CRC-Evans' products and services represent only a relatively
small cost component of a pipeline construction project, the critical nature of
CRC-Evans' equipment and services has a significant impact on the pipeline
contractor's ability to complete a project within budget and on time. CRC-Evans'
pipeline products and services provide a wide range of solutions to the pipeline
construction and rehabilitation industry. CRC-Evans sells and/or rents automatic
pipeline welding systems, pipe bending equipment, line-up clamps, pipe coating
plants, coating and cleaning equipment, pipeline rehabilitation equipment and
lay barge pipe handling equipment. CRC-Evans also provides specialized services
including joint coating, cement weighting, induction and resistance heating, and
automatic welding systems training and supervision.
CRC-Evans' business is seasonal. In the United States, CRC-Evans' highest level
of sales and rentals generally occur from April through November of each year,
mainly due to the constraints on pipeline construction during the winter months.
Canadian pipeline construction is also seasonal but consists of a summer and a
winter pipeline construction season. There is no significant seasonality with
respect to the aggregate of other international operations in the company's
industry. CRC-Evans' pipeline equipment is generally rented in the United States
and Canada and, with the exception of automatic welding equipment, sold
internationally.
CRC-Evans derives its revenue from contracts or purchase orders with durations
from less than a week to several months and, occasionally, for greater than one
year. CRC-Evans obtains contracts for its work primarily by competitive bidding
or through negotiations with long-standing clients. Large projects can cause
variability in CRC-Evans' quarterly results. This factor, as well as external
factors, such as weather, client financial condition and financing requirements,
labor, governmental regulations and politics may affect a project's timing,
progress and completion date and the resulting timing of revenue recognition. In
addition, the pipeline construction industry is cyclical, and demand for
CRC-Evans' equipment and services rises and falls based primarily on the level
of new pipeline construction by major oil and gas pipeline construction
companies as well as the level of rehabilitation work on existing pipelines.
CRC-Evans' revenues and cash flow have been and will likely continue to be
subject to substantial cyclical swings.
CRC-Evans recognizes sales revenue when it ships equipment, rental revenue
ratably over the term of the rental agreement and service revenue when it
renders the services. Because of the character of its business, CRC-Evans
believes that quarter-to-quarter comparisons of operating results may not always
be meaningful and that its operating results should be evaluated over a
sufficiently long time horizon to gauge the effects of large projects.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the relationship (in percentage terms) to the
related line items of certain revenues and expenses together with the change in
such line items from period to period. Pro forma data give effect to the
Purchase Transactions as if they had occurred on April 1, 1997.
<TABLE>
<CAPTION>
HISTORICAL
PREDECESSOR BUSINESS HISTORICAL
---------------------------------- PRO FORMA CRC-EVANS
CRC-EVANS -----------
PERIOD FROM --------------------------- PERIOD FROM
YEAR ENDED MARCH 31, APRIL 1, SIX MONTHS JUNE 12,
1997 TO YEAR ENDED ENDED 1997 TO
-------------------- JUNE 11, MARCH 31, SEPTEMBER 30, MARCH 31,
1996 1997 1997 1998 1997 1998
--------- --------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Sales revenue...................... 39.2% 37.6% 45.1% 45.8% 45.4% 47.9%
Rental and service revenue......... 60.8 62.4 54.9 54.2 54.6 54.0
Cost of revenues:
Cost of sales revenue.............. 65.5 70.4 65.3 67.1 65.3 67.5
Cost of rental and service
revenue.......................... 74.4 65.4 78.7 68.6 70.5 65.4
Total cost of revenues............... 70.9 67.3 72.6 67.9 68.2 66.4
Gross profit......................... 29.1 32.7 27.4 32.1 31.9 33.6
Operating expenses:
Selling, general and
administrative................... 20.2 18.8 23.9 20.4 20.1 19.5
Research and development........... 1.3 1.1 1.2 1.7 1.4 1.8
Other expenses (income)............ 4.3 0.5 (1.3) (0.1) (0.6) 1.5
Operating income..................... 3.3 12.3 3.5 10.1 10.9 12.1
Interest expense (income)............ (0.4) (0.1) (0.4) 4.2 3.4 4.7
Income before income tax............. 3.7 13.3 3.9 6.0 7.5 7.5
Income tax expense................... 37.2 36.3 42.6 40.0 40.2 39.6
Net income........................... 2.3% 8.5% 2.2% 3.6% 4.5% 4.5%
</TABLE>
PERIOD FROM
JUNE 12, SIX MONTHS
1997 TO ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
OPERATING DATA:
Revenues:
Sales revenue...................... 45.5% 36.0%
Rental and service revenue......... 54.5 64.0
Cost of revenues:
Cost of sales revenue.............. 65.3 65.3
Cost of rental and service
revenue.......................... 64.1 49.7
Total cost of revenues............... 64.7 55.3
Gross profit......................... 35.3 44.7
Operating expenses:
Selling, general and
administrative................... 17.9 16.2
Research and development........... 1.5 1.2
Other expenses (income)............ (0.2) (0.6)
Operating income..................... 16.1 27.9
Interest expense (income)............ 4.1 3.0
Income before income tax............. 12.1 24.9
Income tax expense................... 39.6 37.6
Net income........................... 7.3% 15.5%
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
THE PRO FORMA RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1997
SALES REVENUE. Sales revenue increased to $20.4 million in the six months ended
September 30, 1998 from $15.6 million in the six months ended September 30,
1997, representing an increase of 31.0%. This increase was caused by the
acquisition of B.L. Key Services, L.L.C., CRC-Evans' concrete weighting
operations, on April 1, 1998, which increase was partially offset by a 14.8%
decrease in pipeline products sales and a 13.9% decrease in automatic welding
products sales.
RENTAL AND SERVICE REVENUE. Rental and service revenue increased to $36.4
million in the six months ended September 30, 1998 from $18.8 million in the six
months ended September 30, 1997, representing an increase of 93.8%. This
increase was attributable to increased pipeline construction activity in North
and South America, and to a lesser extent, the acquisition of certain pipeline
construction equipment assets.
COST OF SALES REVENUE. Cost of sales revenue increased to $13.3 million in the
six months ended September 30, 1998 from $10.2 million in the six months ended
September 30, 1997, representing an increase of 31.0% due to an increase in
sales volume. The cost of sales as a percentage of sales revenue was the same at
65.3% for the two periods.
COST OF RENTAL AND SERVICE REVENUE. Cost of rental and service revenue
increased to $18.1 million in the six months ended September 30, 1998 from $13.2
million in the six months ended September 30, 1997, representing an increase of
36.5% because of increased rental and service activities. Costs as a percentage
24
<PAGE>
of rental and service revenue declined 29.5% from 70.5% to 49.7%. This
improvement was due to CRC Evans' participation in longer-term projects thereby
reducing equipment overhaul costs as a percentage of revenue.
GROSS PROFIT. Gross profit increased to $25.4 million in the six months ended
September 30, 1998 from $10.9 million in the six months ended September 30,
1997, representing an increase of 132.0%. Gross profit as a percentage of total
revenues increased 40.1% due to an increase in rental income which typically
generates higher margins for CRC-Evans than equipment sales and service revenue.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $9.2 million in the six months ended September 30, 1998
from $6.9 million in the six months ended September 30, 1997, representing an
increase of 32.8%. Approximately $0.6 million of the increase was due to
additional costs associated with owning and operating Key since April 1998 and
the remainder was associated with increased activities. As a percentage of total
revenues, selling, general and administrative expenses decreased from 20.1% to
16.2% for the respective periods. This improvement was due to relatively fixed
costs being spread over increased total revenues.
RESEARCH AND DEVELOPMENT Research and development expenses increased to $0.7
million in the six months ended September 30, 1998 from $0.5 million in the six
months ended September 30, 1997 representing an increase of 46.2%.
OPERATING INCOME. Operating income increased to $15.8 million in the six months
ended September 30, 1998 from $3.8 million in the six months ended September 30,
1997, representing an increase of 321.9% due to increased revenue and
improvements in operating expense margins.
INTEREST EXPENSE. Interest expense increased to $1.7 million in the six months
ended September 30, 1998 from $1.2 million in the six months ended September 30,
1997, representing an increase of 46.8% as a result of an increased debt level
incurred as a result of acquisitions closed by CRC-Evans during the six months
ended September 30, 1998.
PRO FORMA RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1998 COMPARED TO
RESULTS OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 1997
SALES REVENUE. Sales revenue increased to $29.5 million in the year ended March
31, 1998 from $26.1 million in the year ended March 31, 1997, representing an
increase of 13.2%. This increase was a result of an increase in pipeline
construction activity around the world primarily in North and South America and
non-recurring automatic welding sales.
RENTAL AND SERVICE REVENUE. Rental and service revenue decreased to $34.9
million in the year ended March 31, 1998 from $43.3 million in the year ended
March 31, 1997, representing a decrease of 19.3%. This decrease was attributable
to unusually large contracts in Algeria for joint coating products and services
and, to a lesser extent, automatic welding, which contracts were completed in
1997.
COST OF SALES REVENUE. Cost of sales revenue increased to $19.8 million in the
year ended March 31, 1998 from $18.4 million in the year ended March 31, 1997,
representing an increase of 7.8% due to increased sales activity. The cost of
equipment sales as a percentage of equipment sales revenue decreased 4.7% due to
a higher proportion of CRC-Evans' sales being of higher margin products.
COST OF RENTAL AND SERVICE REVENUE. Cost of rental and service revenue
decreased to $24.0 million in the year ended March 31, 1998 from $28.3 million
in the year ended March 31, 1997, representing a decrease of 15.4% due to lower
rentals and services related to large contracts in Algeria which were completed
in 1997. Costs of rental and service revenue as a percentage of rental and
service revenue increased approximately 4.9% as a result of lower rental and
service revenue, partially offset by a decrease in equivalent expense due to
spreading some relatively fixed costs over a lower revenue base.
GROSS PROFIT. Gross profit decreased to $20.7 million in the year ended March
31, 1998 from $22.7 million in the year ended March 31, 1997, representing a
decrease of 8.8%. Gross profit as a percentage of total revenues decreased 1.8%
which was primarily due to lower rental and services revenue which typically
generates higher margins for CRC-Evans than equipment sales and service revenue.
25
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased to $13.1 million in the year ended March 31, 1998 from $13.0
million in the year ended March 31, 1997, representing an increase of less than
1%.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to $1.1
million in the year ended March 31, 1998 from $0.8 million in the year ended
March 31, 1997.
OPERATING INCOME. Operating income decreased to $6.5 million in the year ended
March 31, 1998 from $8.6 million in the year ended March 31, 1997, representing
a decrease of 23.7% which was primarily due to lower total revenues.
INTEREST EXPENSE. Interest expense increased to $2.7 million in the year ended
March 31, 1998 from interest income of $0.7 million in the year ended March 31,
1997. This increase is attributable to the debt incurred to complete the June
1997 buyout and for working capital.
RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997 COMPARED TO THE YEAR
ENDED MARCH 31, 1996
SALES REVENUE. Sales revenue increased to $26.1 million in the year ended March
31, 1997 from $25.3 million in the year ended March 31, 1996, representing an
increase of 3.0% as a result of slight increases in demand for CRC-Evans'
products.
RENTAL AND SERVICE REVENUE. Rental and service revenue increased to $43.3
million in the year ended March 31, 1997 from $39.3 million in the year ended
March 31, 1996, representing an increase of 10.1%. This increase was primarily
due to increased demand for automatic welding rentals and services.
COST OF SALES REVENUE. Cost of sales revenue increased to $18.4 million in the
year ended March 31, 1997 from $16.6 million in the year ended March 31, 1996,
representing an increase of 10.7%. The cost of equipment sales as a percentage
of equipment sales revenue increased 7.5% primarily due to a higher proportion
of sales of lower margin products.
COST OF RENTAL AND SERVICE REVENUE. Cost of rental and service revenue
decreased to $28.3 million in the year ended March 31, 1997 from $29.3 million
in the year ended March 31, 1996, representing a decrease of 3.3%. The cost of
rental and service revenue as a percentage of rental and service revenue
decreased 12.1% primarily due to participation in longer-term projects thereby
reducing equipment overhaul costs as a percentage of revenue.
GROSS PROFIT. Gross profit increased to $22.7 million in the year ended March
31, 1997 from $18.8 million in the year ended March 31, 1996, representing an
increase of 20.7%. Gross profit as a percentage of total revenues increased
12.4% due to a relatively greater increase in rental income which typically
generates higher margins for CRC-Evans than equipment sales and service revenue.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased to $13.0 million in the year ended March 31, 1997 from $13.1
million in the year ended March 31, 1996, representing a decrease of 0.3%
primarily because selling, general and administrative expenses are relatively
fixed.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased to $0.8
million in the year ended March 31, 1997 from $0.9 million in the year ended
March 31, 1996, representing a decrease of 11.9%.
OPERATING INCOME. Operating income increased to $8.6 million in the year ended
March 31, 1997 from $2.1 million in the year ended March 31, 1996, representing
an increase of 299.8% due to increased revenues and improvement in operating
expense margins.
LIQUIDITY AND CAPITAL RESOURCES
CRC-Evans intends to pursue a growth oriented strategy, which is to be
implemented by (i) expanding international operations, (ii) adding related
products and services, (iii) making strategic acquisitions and (iv) extending
and leveraging its technological leadership. CRC-Evans is currently evaluating
certain business acquisition and expansion opportunities, but currently has no
binding contracts or capital commitments relating to any potential acquisitions
or developments. See "Risk Factors -- Acquisitions can adversely effect
CRC-Evans' performance."
26
<PAGE>
Net cash used in operating activities for the period from June 12, 1997 to March
31, 1998 was $2.3 million. For the six months ended September 30, 1998, net cash
provided by operating activities was $4.2 million. Improvements in cash flow
from operating activities are principally the result of an increase in the level
of pipeline construction which had a positive effect on all of CRC-Evans'
operations.
Capital expenditures, excluding acquisitions, were $1.1 million and $1.8 million
for the period from June 12, 1997 to March 31, 1998 and the six months ended
September 30, 1998, respectively. Principal payments on long-term debt were $1.5
million and $1.1 million for the period June 12, 1997 to March 31, 1998 and the
six months ended September 30, 1998, respectively. Capital expenditures for
CRC-Evans, excluding acquisitions, from September 30, 1998 through March 31,
2000 are expected to be approximately $8.0 million.
On May 20, 1998, CRC-Evans issued 995,640 shares of common stock to each of
Natural Gas Partners and Equus and 235,240 shares of common stock to certain
members of management for aggregate proceeds of approximately $5.1 million.
As of November 30, 1998, the principal amount of outstanding indebtedness under
the credit facility for the U.S. revolver, U.K. revolver and term loan was $13.0
million, approximately $5.0 million and $17.4 million, respectively, of which
$9.0 million of the U.S. revolver and $2.1 million of the U.K. revolver will
convert into a term loan on December 31, 1999. The current maturity of the
credit facility is June 12, 2003; however, principal payments on the current
term loan and the term loans to be converted are made on a formula-based
amortization schedule beginning September 30, 1997 and March 31, 2000,
respectively, with final maturity on June 12, 2003. All amounts outstanding
under the credit facility are secured by substantially all of CRC-Evans' assets.
CRC-Evans also has (a) $1.9 million in the form of 12% subordinated notes due
2002 (which it expects to repay with the proceeds of the offering), (b) $0.4
million of other subordinated debt and (c) contingent liabilities for issued
standby letters of credit totaling $2.4 million outstanding.
After the closing of the offering and the application of the net proceeds
therefrom, CRC-Evans expects to have $34.0 million and approximately $5.0
million of availability under the U.S. and U.K. revolvers, respectively.
CRC-Evans believes cash on hand and the proceeds from the offering, together
with cash flow anticipated from operations and available borrowings under the
credit facility, will be adequate to meet debt service requirements, fund
continuing capital requirements and satisfy working capital and general
corporate needs through the next twelve to eighteen months.
CRC-Evans may need to raise additional funds through public or private debt or
equity financing to take advantage of opportunities that may become available to
it, including acquisitions and more rapid expansion. The availability of such
capital will depend upon prevailing market conditions and other factors over
which CRC-Evans has no control, as well as the company's financial condition and
results of operations. There can be no assurance that sufficient funds will be
available to finance intended acquisitions or capital expenditures to sustain
CRC-Evans' recent rate of growth.
EFFECT OF INFLATION AND CHANGING PRICES; FOREIGN EXCHANGE RISK MANAGEMENT
CRC-Evans' operations are affected by increases in prices, whether caused by
inflation, government mandates or other economic factors in the countries in
which it operates. CRC-Evans attempts to recover anticipated increases in the
cost of labor, materials and outside services through price escalation
provisions in certain of its major contracts or by considering the estimated
effect of such increases when bidding or pricing its equipment and services.
CRC-Evans' operations in the United States, Canada and the U.K. typically
negotiate contracts in U.S. dollars, Canadian dollars and British pounds,
respectively. CRC-Evans' aggregate foreign exchange losses during the last four
years have been limited to $286,838.
THE YEAR 2000
With the new millennium approaching, many institutions around the world are
reviewing and modifying their computer systems to ensure that they are "year
2000" compliant. The issue, in general terms, is that
27
<PAGE>
many existing computer systems and microprocessors with date functions
(including those in non-information technology equipment and systems) use only
two digits to identify a year in the date field with the assumption that the
first two digits of the year are always "19." Consequently, on January 1,
2000, computers that are not "year 2000" compliant may read the year 1900.
Systems that calculate, compare or sort using the incorrect date may
malfunction. CRC-Evans uses a number of computer programs across its entire
operation both in application software (IT applications) and in plant and
equipment (embedded technology). In view of the potential adverse impact of this
"year 2000" issue on its business, operations, and financial condition,
CRC-Evans has established a central function to coordinate and report on a
continuing basis with regard to the assessment, remediation planning, and plan
implementation processes of the company directed to "year 2000" issues in the
IT application and embedded technology contexts. CRC-Evans has completed
surveying its major vendors and customers and has checked its products'
computers (particularly its automated welding system) for "year 2000"
compliance. CRC-Evans believes that the "year 2000" assessment, remediation
planning and plan implementation will be completed by the end of the second
quarter of 1999. CRC-Evans has hired no independent consultants in connection
with its "year 2000" plans. In connection with its survey, CRC-Evans
accelerated its decision to purchase a new business software system, which
purchase was completed on December 31, 1998. The new system is projected to be
in place by June 30, 1999. As a backup for the new system, CRC-Evans has
obtained a software patch for the system it currently uses. Costs to date
incurred in connection with the "year 2000" assessment, remediation, planning
and plan implementation are approximately $400,000 of which $100,000 has been
expensed. Aggregate cost to CRC-Evans, including estimated cost of $600,000
associated with the acquisition and installation of the new business software
system, is estimated to be $900,000. Substantially all of these expenditures are
expected to be funded with working capital and have been used to replace rather
than repair CRC-Evans' software and hardware. CRC-Evans is continuing its
assessment of the impact of "year 2000" across its business and operations,
but currently believes that the costs of addressing this issue will not have a
material adverse impact on the Company's financial position. However, if
CRC-Evans and third parties upon which it relies are unable to address this
issue in a timely manner, it could result in a material financial risk to it. In
an attempt to assure that this does not occur, CRC-Evans plans to devote all
resources required to resolve any significant year 2000 issues in a timely
manner.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
It does not, however, specify when to recognize or how to measure items that
make up comprehensive income. SFAS 130 was issued to address the concerns over
the practice of reporting elements of comprehensive income directly in equity.
SFAS 130 is effective for annual periods beginning after December 15, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information (SFAS
131). SFAS 131 supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise but retains the requirement to report information about
major customers. SFAS 131 replaces the "industry segment" concept of Statement
14 with a "management approach" concept as the basis for identifying
reportable segments. The management approach is based on the way that management
organizes the segments within the enterprise for making operating decisions and
assessing performance. Consequently, the segments are evident from the structure
of the enterprise's internal organization. It focuses on financial information
that an enterprise's decision makers use to make decisions about the
enterprise's operating matters. SFAS 131 is effective for financial statements
for periods beginning after December 15, 1997. CRC-Evans believes that all of
its operations are part of the pipeline construction and rehabilitation industry
and accordingly reports as a single industry segment. Worldwide operations are
conducted through CRC-Evans' principal subsidiaries located in the United
States, the United Kingdom and Canada. Therefore it is anticipated that SFAS 131
will not have a significant impact on CRC-Evans' segment reporting.
28
<PAGE>
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits
(SFAS 132), which is required to be implemented for fiscal years beginning after
December 15, 1997. SFAS 132 revises employers' disclosures about pension and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans.
Statement of Financial Accounting Standards No. 133, Accounting for Derivatives
Instruments and Hedging Activities (SFAS 133), was issued by the FASB in June
1998. Statement 133 standardizes the accounting for derivatives instruments,
including certain derivative instruments embedded in other contracts. CRC-Evans
does not utilize derivative instruments.
29
<PAGE>
BUSINESS
CRC-EVANS
CRC-Evans is the world's leading provider of specialized equipment and services
used in the construction and rehabilitation of gas and oil transmission
pipelines. CRC-Evans and its predecessors have been leaders in the specialized
pipeline construction equipment industry since 1933.
CRC-Evans' management team together with two institutional investors, Natural
Gas Partners and Equus, acquired CRC-Evans' assets and business from Weatherford
Enterra in a management buyout in June 1997. CRC-Evans' current senior
management team has been involved in managing CRC-Evans or its predecessors'
major lines of business since 1971. CRC-Evans believes the depth and experience
of its management and employees are keys to the company's excellent reputation
with the world's leading pipeline contractors.
CRC-Evans provides equipment and services, primarily to pipeline contractors,
which are essential to successfully completing a pipeline construction project.
Although CRC-Evans' products and services represent only a relatively small cost
component of a pipeline construction project, the critical nature of CRC-Evans'
equipment and services has a significant impact on the pipeline contractor's
ability to complete a project within budget and on time. CRC-Evans' pipeline
products and services provide a wide range of solutions to the pipeline
construction and rehabilitation industry. CRC-Evans sells and/or rents automatic
pipeline welding systems, pipe bending equipment, line-up clamps, pipe coating
plants, coating and cleaning equipment, pipeline rehabilitation equipment and
lay barge pipe handling equipment. CRC-Evans also provides specialized services
including joint coating, cement weighting, induction heating, and automatic
welding systems training and technical assistance.
CRC-Evans has experienced significant growth in revenues, EBITDA and net income
since the June 1997 buyout. For the six months ended September 30, 1998,
CRC-Evans generated revenue, EBITDA and net income of $56.8 million, $17.7
million and $8.8 million, respectively. These amounts represent increases of
approximately 65.3%, 241.5% and 469.2%, respectively, over the pro forma six
months ended September 30, 1997 results. Management believes that this growth is
attributable to:
o a recent increase in demand for CRC-Evans' specialized products and
services in response to increased worldwide pipeline construction and
rehabilitation activity,
o CRC-Evans' strategic acquisitions and
o the successful implementation of CRC-Evans' business strategy.
INDUSTRY OVERVIEW
The pipeline construction equipment and services industry provides products and
services to support pipeline construction and rehabilitation performed by
pipeline construction contractors. CRC-Evans provides specialized equipment and
services used in the construction of gas and oil pipelines ranging from 6 to 60
inches in diameter and steel water pipelines ranging up to 120 inches in
diameter. These specialized products and services are critical to the pipeline
contractor's ability to complete a project within budget and on time. These
products and services are generally provided by specialized pipeline equipment
manufacturers and service providers such as CRC-Evans because:
o most pieces of pipeline construction equipment are specific to a small
range of diameter sizes, while the contractor works on a wide range of
pipeline diameters and needs to use multiple equipment sizes for
relatively short periods of time;
o contracts are often procured with short lead times, so rapid delivery of
equipment and services is required; and
o proprietary equipment, specialized engineering and technical operating
capabilities, such as those CRC-Evans offers, are critical to meeting the
speed, efficiency and engineering requirements of pipeline welding,
bending and coating.
30
<PAGE>
Accordingly, CRC-Evans has developed its business strategy around designing,
manufacturing, reconditioning and providing a broad inventory of specialized
pipeline construction equipment, for rental or sale, and services on an
expedited basis to pipeline general contractors.
The primary factor influencing demand for CRC-Evans' products and services is
the worldwide level of gas, oil and water pipeline construction and
rehabilitation activity. CRC-Evans believes several factors influenced by global
economic growth will contribute to worldwide pipeline infrastructure capital
expenditures.
LONG-TERM INCREASING GLOBAL ENERGY DEMAND
Long-term growth in the consumption of energy is one of the primary factors
which increases the demand for pipeline construction equipment and services. The
demand for natural gas is particularly relevant for pipeline construction
equipment and services, since pipelines are normally the most efficient method
of transporting natural gas.
The following graphs show the increased consumption of gas and oil since 1975.
Gas and oil consumption has grown at an average annual rate of 2.8% and 1.3%,
respectively, since 1975.
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
WORLD OIL CONSUMPTION
(MILLIONS OF BARRELS PER DAY)
U.S. REST OF WORLD TOTAL WORLD CONSUMPTION
----- ------------- -----------------------
1975 16.7 39.4 56.1
1976 17.8 41.7 59.5
1977 18.8 42.7 61.5
1978 19.2 44.5 63.7
1979 18.9 46.2 65.1
1980 17.4 45.2 62.4
1981 16.4 44.1 60.5
1982 15.5 43.4 58.9
1983 15.4 43.3 58.7
1984 16.0 43.7 59.7
1985 15.9 43.9 59.8
1986 16.5 45.2 61.7
1987 16.9 46.3 63.2
1988 17.5 47.5 65.0
1989 17.5 48.4 65.9
1990 17.2 49.0 66.2
1991 17.0 49.8 66.8
1992 17.2 50.0 67.2
1993 17.5 50.3 67.8
1994 18.0 50.6 68.6
1995 18.0 52.1 70.1
1996 18.5 53.3 71.8
1997E 18.7 55.0 73.7
- --------------------------
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
WORLD NATURAL GAS CONSUMPTION
(BILLIONS OF CUBIC FEET PER DAY)
U.S. REST OF WORLD TOTAL WORLD CONSUMPTION
----- ------------- -----------------------
1975 53.5 62.0 115.5
1976 54.5 67.7 122.2
1977 53.5 71.4 124.9
1978 53.8 76.6 130.4
1979 55.5 83.6 139.1
1980 54.3 85.7 140.0
1981 53.2 87.5 140.7
1982 49.3 91.6 140.9
1983 46.1 97.7 143.8
1984 49.0 105.6 154.6
1985 47.3 112.9 160.2
1986 44.4 117.0 161.4
1987 47.2 122.6 169.8
1988 49.3 129.1 178.4
1989 51.5 135.0 186.5
1990 51.3 138.8 190.1
1991 52.2 141.3 193.5
1992 53.4 140.4 193.8
1993 55.6 140.9 196.5
1994 56.7 140.3 197.0
1995 59.1 143.6 202.7
1996 60.0 152.8 212.8
1997 60.1 152.3 212.4
- -------------------------
Source: Natural gas data from the International Energy Agency. 1975 - 1996 oil
data from International Energy Agency. 1997 estimated oil data provided
by Cambridge Energy Research Associates.
31
<PAGE>
Longer term, there are several key factors which could dictate the increased
consumption of gas. These include: (i) environmental considerations which
provide strong incentives to use "cleaner-burning" natural gas in place of
other carbon or nuclear fuels; (ii) the plentiful supply of natural gas in North
America and worldwide; (iii) increasing electricity deregulation in the United
States because electricity generation is currently the fastest growing market
for natural gas in the United States and (iv) the development of local
international gas markets.
EXPANDED GAS, OIL AND WATER TRANSPORTATION INFRASTRUCTURE
Areas of energy supply and demand shift over time. Therefore, CRC-Evans believes
that new pipeline and transportation infrastructure and the resulting demand for
pipeline construction equipment and services should increase faster than energy
demand growth.
In addition, the exploration and development of new oil and gas fields has led
to, and is expected to continue to lead to, demand for additional pipeline
infrastructure. Many newly developed oil and gas reserves are in remote regions
of the world, including deep-water offshore areas and regions in South America,
Asia, Siberia and Africa, which are far from where the products will be used. As
these remote fields are developed, CRC-Evans believes that demand for long-haul
transmission pipelines to transport gas or oil to refineries, electric
generation facilities, areas of residential and other industrial consumption, or
marine shipping terminals will continue to increase.
Many geographic regions currently lack the infrastructure to transport natural
gas from areas of supply to areas of demand. As a result, these regions are
developing natural gas pipeline grids. For example, in North America there are
specific pipeline construction projects to transport natural gas from Canada
southward and eastward to the large consumption markets in the eastern and
midwestern United States. Regional pipeline grids are also being constructed in
the Mercosur Free Trade Zone of South America (Argentina, Brazil, Paraguay and
Uruguay) and in multiple regions within Asia.
For political and other factors, many pipelines are being routed around certain
countries. For example, stated United States foreign policy proposes that
multiple oil pipelines be constructed from the Caspian Sea thereby reducing
dependence on any one geographic region. As a result, many miles of pipeline may
be constructed that would otherwise not be constructed.
OTHER IMPORTANT TRENDS
The pipeline rehabilitation market is influenced by the necessity to address an
aging pipeline infrastructure to maintain safe operating conditions and to
comply with increasing governmental regulations concerning safety and
environmental protection. For example, if a large-diameter pipeline has
significantly deteriorated due to corrosion, it is often more economical to
rehabilitate the pipeline than to replace it. Industry sources estimate that 19%
of all United States pipelines currently in service were built before 1950, 49%
were built between 1950 and 1969 and 32% were built between 1970 and 1998.
CRC-Evans believes pipeline operators in the United States and in other
countries such as the countries of the Former Soviet Union are addressing and
will continue to address their aging pipeline infrastructure. CRC-Evans expects
that a growing share of activity in the industry will be derived from
larger-diameter pipeline rehabilitation in the United States and Canada and
elsewhere.
There is a continuing trend to design and build gas pipelines to operate at
increasingly higher pressures. High pressure transmission pipelines require the
use of higher strength steels and tougher welds. The use of certain of
CRC-Evans' products, including its automatic welding systems, to address these
technical needs has recently increased substantially, and CRC-Evans believes
these trends will continue.
CRC-Evans expects that a significant shortage of usable water throughout the
world, increased industrialization, higher living standards and the
privatization of the water industry around the world should lead to increased
potable and wastewater infrastructure development and, as a result, water
pipeline construction.
32
<PAGE>
PIPELINE CONSTRUCTION STATISTICS
Pipeline construction has become increasingly international since 1995 as
developing nations expand their pipeline infrastructure. The following table
sets forth the total miles of gas and oil pipeline construction projects that
were completed from 1992 through 1998. The U.S. market has been steadily growing
since 1995, especially in response to Canadian gas imports. Worldwide pipeline
construction mileage increased from 14,201 miles in 1995 to 22,397 miles in
1998. Industry sources estimate that approximately 49,000 miles of pipeline are
presently planned to be constructed in 1999 and thereafter.
WORLD PIPELINE CONSTRUCTION MILEAGE
1992-1998(1)
<TABLE>
<CAPTION>
1992 1993 1994 1995
-------------------- -------------------- -------------------- --------------------
LOCATION MILES % MILES % MILES % MILES %
- ------------------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.................................. 6,328 39.2% 5,591 36.0% 5,426 35.9% 4,623 32.6%
Other................................ 9,801 60.8 9,559 64.0 9,677 64.1 9,578 67.4
--------- --------- --------- --------- --------- --------- --------- ---------
World Total.......................... 16,129 100.0% 15,150 100.0% 15,103 100.0% 14,201 100.0%
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1996 1997 1998
-------------------- -------------------- --------------------
LOCATION MILES % MILES % MILES %
- ------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S.................................. 5,537 31.7% 6,598 32.2% 7,177 32.0%
Other................................ 11,935 68.3 13,887 67.8 15,220 68.0
--------- --------- --------- --------- --------- ---------
World Total.......................... 17,472 100.0% 20,485 100.0% 22,397 100.0%
========= ========= ========= ========= ========= =========
</TABLE>
- ---------------------------
Source: (1) PIPE LINE & GAS INDUSTRY, January 1999.
COMPANY STRENGTHS
CRC-Evans believes it is well positioned to continue as the leading provider of
specialized equipment and services used in the construction and rehabilitation
of gas and oil transmission pipelines. The Company believes it possesses a
unique combination of specific strengths which provides a solid foundation for
its growth strategy.
o INDUSTRY LEADER. CRC-Evans is the world's leading provider of specialized
equipment and services used in the construction and rehabilitation of
pipelines. According to Spears, a market research consulting firm,
CRC-Evans enjoys a market share of approximately 66% in the specialized
pipeline equipment rental markets in North America and a market share of
approximately 75% in the worldwide field joint coating markets outside
North America. In addition, management believes CRC-Evans enjoys a market
share of approximately 70% in the worldwide onshore pipeline automatic
welding equipment market. CRC-Evans believes its portfolio of specialized
pipeline construction and rehabilitation equipment and services is the
most complete in the industry.
o SIGNIFICANT BARRIERS TO ENTRY. CRC-Evans believes its large investment in
specialized rental equipment, highly experienced management, technical
expertise and personnel, and worldwide sales force and sales
representative network all serve as a barrier to entry. Furthermore, the
company believes that its proprietary technology, including patents and
pending patents, provides it with a significant technological advantage
over its competitors in many of its product lines and services. In
particular, CRC-Evans developed the first commercially accepted automatic
pipeline welding system in 1968 and continues to provide the most commonly
used automatic pipeline welding systems in the world.
o WORLDWIDE PRESENCE. Pipeline construction is worldwide in scope. While
the United States is a large market, the majority of new pipeline
construction projects are located outside the United States. CRC-Evans is
organized to manage its diverse geographic customer base with a strong
international direct sales force which is further complemented by a
network of experienced commissioned sales representatives and distributors
in key international markets.
o CUSTOMER RELATIONSHIPS. CRC-Evans has developed long-term relationships
with the majority of the world's leading pipeline construction contractors
and pipe coating contractors. CRC-Evans has enjoyed repeat business with
the majority of these companies. CRC-Evans' Total Project Support program
helps its customers achieve maximum efficiency and productivity on
projects by making available to its customers the experience and technical
expertise of its engineers and support staff throughout the entire
project.
33
<PAGE>
o EXPERIENCED MANAGEMENT WITH SIGNIFICANT OWNERSHIP. CRC-Evans' current
senior management team has been involved in managing CRC-Evans or its
predecessors' major lines of business since 1971. Management also has
significant acquisition and operational experience gained through numerous
years of service as executive officers of public companies. Messrs. Wood,
Carey and Evans have completed over 30 acquisitions for CRC-Evans and its
predecessors. Following the completion of the offering, CRC-Evans'
officers and other management will beneficially own approximately 16.2% of
the common stock.
BUSINESS STRATEGY
CRC-Evans seeks to maximize shareholder value through its growth strategy which
includes:
o EXPANDING INTERNATIONAL OPERATIONS. Although CRC-Evans has historically
served a worldwide customer base, it intends to strengthen and expand its
international operational capability. It seeks to accomplish this goal
primarily by acquiring established operations in several key international
regions. These new operations centers will provide distribution hubs from
which CRC-Evans can more readily provide existing and new products and
services to customers' projects. By being in close proximity to its
customers, CRC-Evans expects to strengthen its long-term customer
relationships through increased customer contact as well as augment its
market intelligence through the company's local personnel.
o ADDING RELATED PRODUCTS AND SERVICES. CRC-Evans intends to acquire or
develop related products and services. CRC-Evans will provide these new
products and services through its broad distribution system comprised of
the company's sales force, international sales representatives and
operations centers in key geographic regions of pipeline construction and
rehabilitation activity. This strategy is designed to enhance the
performance of acquired companies, increase the speed of new product
acceptance and further diversify CRC-Evans' sources of revenue.
o MAKING STRATEGIC ACQUISITIONS. CRC-Evans continually evaluates
opportunities to acquire businesses that offer complementary or
competitive products and services. CRC-Evans believes acquisition
candidates are available that will allow it to increase market share in
its existing lines of business, provide product line extensions, and
expand the geographic scope of its operations. CRC-Evans has completed
three acquisitions since March 1998 with an aggregate purchase price of
approximately $17.4 million (including all estimated future earn-out
payments). CRC-Evans has consolidated a domestic competitor with pipeline
rental assets, expanded its business into concrete weighting for pipelines
and added resistance heat treating services to complement its pipeline
induction heating business.
o EXTENDING AND LEVERAGING TECHNOLOGICAL LEADERSHIP. Continuing its long
history of innovation in the pipeline equipment and services industry,
CRC-Evans intends to further extend its technological leadership and
capabilities through in-house research and development, acquisition and
licensing of technology as well as participation in joint development
efforts with providers of related products or processes which incorporate
CRC-Evans' products. This strategy has produced many industry innovations
for the company including the automatic welding system, pneumatic line-up
clamps and mandrels, hydraulic pipe bending machines and line travel
pipeline rehabilitation systems.
PRODUCT AND SERVICES OVERVIEW
CRC-Evans is the world's leading provider of specialized equipment and services
used in the construction and rehabilitation of gas and oil transmission
pipelines. Its company's pipeline products and services provide a wide range of
solutions to the pipeline construction and rehabilitation industry. CRC-Evans
sells and rents automatic pipeline welding systems, pipe bending equipment,
line-up clamps, pipe coating plants, coating and cleaning equipment, pipeline
rehabilitation equipment and lay barge pipe handling equipment. CRC-Evans also
provides specialized services including joint coating, cement weighting,
induction and resistance heating and automatic welding systems training and
supervision.
CRC-Evans products and services are used in various aspects of pipeline
construction. In constructing a pipeline, after the survey, design and
permitting stages, the site is prepared for the pipeline by clearing land and
digging the ditch in which the pipeline will be laid. As the ditch is dug,
sections of pipe are brought to the site and are placed end-to-end beside the
ditch prior to bending and welding. Except for the ends
34
<PAGE>
which will be welded together and coated at the site, these sections are usually
coated with a protective coating either at the pipe mill where the pipe is
fabricated or at a separate coating plant. At this time, equipment is used to
bend those sections to conform to the ditch in which the pipe will be laid. The
sections are lined up using pneumatic line-up clamps, and welded together either
manually or by automatic welding systems. After the sections are welded, the
uncoated ends which have been welded together are coated through a variety of
application methods, including an induction heating and epoxy powder coating
process, spray-applied coatings or shrink sleeves. Because pipe coatings often
require protection from rocks in the soil, prior to being placed in the ditch, a
padding of screened dirt or sand is often placed into the ditch to protect the
pipe coating. At this time, unless the pipeline runs across a river or through a
wetland, the ditch is refilled with dirt. If the pipeline is laid across a river
or through a wetland, the pipeline needs to be weighted to prevent it from
floating out of the ditch or off the bottom of the river. To anchor the
pipeline, it is covered with on-site manufactured concrete bolt-on weights,
set-on weights or a continuous coating of concrete.
As pipelines age and the original coating deteriorates, a decision is made
whether to replace or rehabilitate them. The decision either to replace or
rehabilitate is made based on the amount of corrosion the pipeline has suffered
and the cost and effectiveness of employing cathodic protection to prevent
additional corrosion. CRC-Evans provides rehabilitation equipment and services
to perform certain operations in the rehabilitation process. A rehabilitation
project begins with exposing the pipeline sections to be rehabilitated and
stripping the pipe of its former protective coating. This stripping process
requires highly specialized equipment, usually high pressure water blasting,
both to remove the coating and, if required, to contain the removed coating,
which may contain hazardous material such as asbestos. After the pipe is
stripped, it undergoes inspection to ascertain the degree of corrosion, and
based on this inspection, affected areas are cut out and replaced. The surface
is prepared for recoating using steel shot/grit or sand blasting and is then
recoated by a mobile coating plant. After recoating, the pipe sections are
rejoined by welding and lowered into the ditch and buried and, if necessary, the
pipeline is reweighted.
CRC-Evans' products and services can be divided into five major areas: (a)
pipeline equipment and services; (b) automatic welding systems and services; (c)
pipe joint coating equipment and services; (d) pipeline weighting products and
services; and (e) rehabilitation equipment and services.
PIPELINE EQUIPMENT AND SERVICES
As a full-line provider of specialized equipment to the pipeline construction
industry, CRC-Evans designs, manufactures, sells, rents, refurbishes and
supports an extensive line of equipment used in the construction and
rehabilitation of oil and gas pipelines and water pipelines, including bending
machines, bending mandrels, pipe facing machines, line-up clamps and coating
equipment, as well as specialized equipment such as internal and external
coating plants, double-jointing plants and lay barge pipe handling equipment. In
addition, CRC-Evans' service technicians provide installation, training, field
operations, repair services and on-site support to ensure product reliability.
As a complement to its equipment and services, the company also operates a
division which provides pipeline contractors with basic pipeline construction
supplies such as pipe beveling machines, tensile testers, coating defect
detectors, external line-up clamps, power tools, protective gear and
miscellaneous tools and supplies.
35
<PAGE>
The following is a listing of CRC-Evans' major specialized pipeline construction
equipment and its uses:
PRODUCT DESCRIPTION/BENEFIT
- ------------------------------------------------------------------------------
Bending Machines......................... Bend pipe to follow the contour of
the ditch.
Bending Mandrels......................... Internally support the pipe during
bending.
Bending Sets............................. Allow a bending machine to bend pipes
of a specific diameter within the
bending machine's range.
Cleaning/Priming/Taping Machines......... Feature dual counter-rotating
cleaning heads with wire cup brushes,
scraper knives or a combination of
both to clean the full pipe
circumference and to perform pipe
cleaning, primer application and tape
wrapping simultaneously.
Coating/Wrapping Machines................ Apply enamel-type coating and
reinforcing wrap to pipe.
Cradles.................................. Lift pipe string from skids and
provide support for pipe during
cleaning, coating, and lowering into
ditch after welding.
Cutting/Beveling Machines................ Flame cut, bevel pipe, and cut
mechanical testing samples.
Double Jointing Systems.................. Using the submerged arc process, the
double jointer welds joints together
prior to pipeline construction,
thereby reducing the need for on-site
welding services.
Internal Pneumatic Line-Up
Clamps................................. Align pipe joints for external
welding.
Pipe Coating Plants...................... Systems used to transport, clean,
heat, apply coatings, cure coatings
and cool coated pipe; either
permanent facilities or for portable
plants.
Pipe Facing Machines..................... Produces any desired end bevel within
a tolerance of 0.005 inches.
Pipe Lay Barge Equipment................. Transport and handle pipe on board a
pipe lay barge during offshore pipe
laying operations.
Pipeline Kettles......................... Heat large quantities of enamel-type
coating materials to a liquid state
for field or plant application.
Road Boring Machines..................... Machines for boring underneath roads
and installing pipe casing.
CRC Evans provides pipeline equipment throughout the world, with activity levels
depending on the level of pipeline construction in given regions. Historically,
the majority of the company's pipeline equipment-related revenues has come from
sales of equipment in markets outside North America, while it has typically
rented its equipment domestically. Although the company achieves higher margins
on rental equipment, pipeline contractors also prefer renting because they do
not have to make a capital investment in a wide variety of pipeline
diameter-specific equipment, and the equipment costs can be expensed to the
project.
AUTOMATIC WELDING SYSTEMS AND SERVICES
CRC-Evans is the world's largest provider of pipeline automatic welding systems.
The company designs, manufactures and rents these systems which are primarily
used on large diameter pipeline construction projects. CRC-Evans' automatic
welding systems include internal and external automatic welders, pipe facing
machines, all-weather protected welding enclosures, specialized equipment used
in conjunction with automatic welding, and consumables, such as welding wire.
Automatic welding systems are more economically suited for larger diameter,
longer distance pipeline projects and high strength steel pipelines used for
high pressure gas transmission. CRC-Evans designed the first commercially viable
pipeline automatic welding system in 1968. The company's automatic welding
systems have been used to complete, or are in the process of completing,
approximately 25,600 miles of pipe. Although some pipeline construction
companies provide their own automatic welding systems, CRC-Evans believes that
it is the largest provider of automatic welding systems and services used in the
onshore market and it also believes that it is the largest third-party provider
of automatic welding systems and services used in the offshore market.
CRC-Evans believes that its automatic welding systems are generally superior to
manual welding because they provide shorter weld times and more consistent and
higher quality welds. In addition to providing automatic welding equipment, the
Company develops and provides welding procedures, advises and
36
<PAGE>
instructs contractors in the use of its equipment and maintains a staff of
welding technicians for assisting customers in project set-up, personnel
training and equipment maintenance.
CRC-Evans' automatic welding systems consist of a fine wire, gas-metal-arc
welding process developed specifically for the field welding of large diameter
pipelines. The company's system is capable of producing consistently high
quality, lower cost welds with higher production rates than manual welding
methods.
PRODUCT DESCRIPTION/BENEFIT
- ------------------------------------------------------------------------------
Combination Internal Welder & Line-up
Clamp.................................. Applies the internal weld to the pipe
joints from inside the pipe. Internal
welders have four, six or eight
remotely controlled welding heads,
depending on the pipe diameter.
External Welders......................... Travel on alignment bands positioned
on the pipe and apply multiple
external weld layers.
Support Equipment........................ This equipment is designed to
users'specifications and includes
items such as welding rectifiers,
welding tractors and all-weather
welding enclosures.
Pipe Facing Machine...................... Used to create new bevels on pipe
ends for either automatic or manual
welding.
CRC-Evans has had most of its success in automatic pipeline welding outside of
the United States. Historically, the use of automatic welding onshore in the
United States has not been well accepted. CRC-Evans believes, however, that
there is an increasing acceptance of automatic welding by the industry in the
United States. This acceptance is being dictated in part by the changing nature
of pipelines being constructed and the demands of pipeline owners. The
increasing use of higher strength alloy metal pipe that requires high quality
welds with properties that are not available or are difficult to achieve with
manual welding processes is expected to result in greater use of automatic
welding in pipeline projects both in the United States and internationally. In
addition, on larger diameter and longer distance pipeline construction projects,
automatic welding is often a lower cost alternative to manual welding. The
project engineers for the 1,900 mile Alliance Pipeline, which is scheduled to
begin construction in 1999 and is expected to begin piping gas from Canada to
the United States in late 2000, have specified that the pipeline will be welded
with automatic welding systems. CRC-Evans has obtained orders to provide
automatic welding systems for major portions of the Alliance Pipeline. The
majority of revenues associated with CRC-Evans' automatic welding systems have
been generated by equipment rentals and associated services. Sales revenues are
generated primarily from the sale of welding wire, other consumable items and
spare parts.
37
<PAGE>
PIPE JOINT COATING EQUIPMENT AND SERVICES
CRC-Evans is the leading provider of specialty pipe joint coating services
outside North America. The company provides field-joint coating services,
cleaning and coating services, and rents post-weld heat treating equipment for
pipeline construction applications and resistance and thermal heat treating
equipment and services for power generation, refining, petrochemical, large
fabrication and refractory applications. CRC-Evans provides these products and
services to a wide range of onshore and offshore contractors.
<TABLE>
<CAPTION>
SERVICE/PRODUCT DESCRIPTION/BENEFIT
- ------------------------------------- ------------------------------------------------------------------
<S> <C>
Fusion-Bond Epoxy Powder
Coating -- Onshore................. Specialized equipment for the application of fusion bonded epoxy
powder both in the field and plant.
Fusion-Bond Epoxy Powder
Coating -- Offshore................ Purpose-built equipment designed to work within the critical cycle
times demanded by the offshore pipeline construction contractor.
Heat Treatment Services.............. Induction pre/interpass and post-weld heat treatment services for
pipeline applications; resistance heat treatment services for
stress relieving applications and thermal heating for refractory
dry-outs.
Insulation Field-joint Systems....... Allow for the application of coating both on and offshore,
providing similar physical and insulation properties to the
factory applied coating.
Internal Field-joint Coating Application systems operate inside the pipeline during
System............................. construction, offering total corrosion protection to the internal
field-joint area.
Specialist Coatings.................. Liquid epoxy, polyurethane and three-layer coating systems that
are applied both onshore and offshore for the oil and gas and
civil construction industries. CRC-Evans also supplies joint
infill (e.g., foam) systems primarily for offshore pipelay
activities.
</TABLE>
CRC-Evans' service personnel and equipment are dispatched primarily from its
offices in Burnley, England to pipeline construction sites worldwide (with the
exception of North America where the Company rents the equipment to customers).
The company conducts the majority of its fabrication coating operations at a
leased facility in Aberdeen, Scotland. CRC-Evans' industrial heat treating
operations are located at Didcot, England, which provides ready access to its
markets in the southern portion of the United Kingdom. Historically, a
significant portion of CRC-Evans' revenue for pipe end coating equipment and
services and industrial heat treatment has been generated in the United Kingdom.
PIPELINE WEIGHTING PRODUCTS AND SERVICES
CRC-Evans is the industry leader in the United States in the on-site manufacture
of concrete weights for pipeline construction in wetlands or across rivers.
Pipeline weighting is accomplished through bolt-on weights, set-on weights or a
continuous coating of concrete applied to the exterior of the pipe. Continuous
concrete coating is also used for pipe casing under roads or railways. CRC-Evans
provides technical supervision personnel, molds and materials for the on-site
production of weights.
Since acquiring this line of business in April 1998, the company has begun to
focus on providing concrete weighting services to markets outside of the United
States using its foreign subsidiaries and sales force.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION/BENEFIT
- ------------------------------------- ------------------------------------------------------------------
<S> <C>
Set-on Weights....................... Used primarily in wetland areas where there is no flowing water.
Bolt-on Weights...................... Constructed of two halves which circle the pipe. Bolt-on weights
are used where there is flowing water and may be attached before
the pipe is put in place.
Continuous Concrete Coating.......... Used in wetlands and river crossings. Provides protection and
negative buoyancy. Also used for pipeline casing under roads or
railways.
Plastic Pipe Weighting............... Used to weight plastic pipe.
</TABLE>
38
<PAGE>
REHABILITATION EQUIPMENT AND SERVICES
CRC-Evans believes that the pipeline rehabilitation sector should be a growing
business over the long term as pipelines around the world begin to reach the end
of their useful lives. The company's pipeline rehabilitation equipment applies
high pressure water (20,000 - 35,000 psi) to remove old and deteriorated
external coatings. Then the pipe surface is prepared for re-coating by using
steel shot/grit or sand blasting. New coatings are then applied using
specialized coating equipment. A key to CRC-Evans' success in this area is its
patented pipeline coating removal equipment. Most of CRC-Evans' current
rehabilitation rental revenue is derived in the United States and Canada, and
its sales are mainly international.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION/BENEFITS
- ------------------------------------- ------------------------------------------------------------------
<S> <C>
High Pressure Waterblast Machine..... Removes deteriorated pipeline coating either in-plant or on-site.
Shot/Grit Mechanical and Airblast
Cleaning Systems................... Remove rust and prepare pipe surface for coating.
Plural Component Coating Systems..... Mix and apply plural component corrosion coatings to the pipeline
on-site.
Envirosystem......................... Collects, dewaters, and packages removed coatings for disposal.
</TABLE>
RESEARCH AND DEVELOPMENT
CRC-Evans conducts ongoing research and development of new products and services
to maintain its technological position. The company has approximately 145
patents relating to and covering various features of the many types of equipment
it manufactures for use in pipeline construction and rehabilitation. Of these
patents, 44 are U.S. patents and the remaining 101 are non-U.S. patents based on
corresponding U.S. patents or patent applications. In addition, CRC-Evans has 46
pending applications, of which two are U.S. applications. The Company's patents
have expiration dates ranging through 2015. No single patent or group of related
patents covers products that account for over 10% of the Company's revenues.
MARKETING AND SALES
CRC-Evans sells its products and services through its salesforce of 26
salespeople and approximately 27 independent international sales representatives
and distributors covering 70 countries. The company's sales offices are located
in Houston, Texas; Tulsa, Oklahoma; Toms River, New Jersey; Hoevelaken,
Netherlands; Edmonton, Alberta; Burnley, England and Didcot, England. CRC-Evans'
salespeople and representatives generally have over ten years of experience
selling the company's products and services and several international sales
representatives have represented the company for over 30 years. CRC-Evans
believes that due to the relatively small community of companies and people
involved in the construction of large diameter pipelines, the two factors that
are most important in marketing its products and services are its high quality,
dependable equipment and services, and the relationship between its management,
sales and technical personnel and its customers.
CRC-Evans believes that its Total Project Support program is important in
marketing its products and services. The program helps the company's customers
achieve maximum efficiency and productivity on projects by making available to
its customers high-performance equipment, trained operating technicians, on-site
advisors, technical support and training programs throughout the entire project.
Total Project Support helps CRC-Evans' customers keep expensive job downtime to
a minimum with an equipment backup fleet, international service teams and a full
spare parts inventory.
CUSTOMERS AND CONTRACTS
Although CRC-Evans' customer base is broadly based in the worldwide pipeline
construction industry, the industry is comprised of relatively few companies
around the world. For the fiscal year ended March 31, 1998, CRC-Evans' largest
project was responsible for less than 7% of the company's revenues, but 45% of
the company's revenues were attributed to its ten largest customers during such
period. One customer, Petroleum Projects and Technical Consultation Co.
(Petrojet), an Egyptian company, accounted for approximately 11% of CRC-Evans'
total revenues during 1998. At any time the relative significance of any
customer or group of customers depends on the type and location of pipeline
construction projects in
39
<PAGE>
progress. As such, CRC-Evans' customer base tends to change from year to year
depending on these factors. CRC-Evans' customers include pipeline construction
contractors (onshore and offshore), pipe coating contractors and, in the
international market, state-owned gas and oil pipeline companies. See "Risk
Factors -- CRC-Evans has a limited number of major customers."
CRC-Evans attempts to mitigate financial and other risk through the terms of its
contracts with its customers. For instance, in its automatic welding rental
operations, the company generally requires the payment of all mobilization and
demobilization fees in cash before starting a project. In addition, CRC-Evans
mitigates its expropriation and force majeure risks by requiring the equipment
renter to be financially responsible for the return of all rented equipment
regardless of the reason for loss in its international automatic welding
contracts, which represent substantially all of CRC-Evans' international rental
contracts.
EQUIPMENT
CRC-Evans' pipeline construction equipment and automatic welding equipment is
manufactured at its Tulsa, Oklahoma facility. The company fabricates and
assembles its products using certain purchased components in addition to its own
manufactured components, and typically buys most of the high-volume machine
parts used in its products from vendors. CRC-Evans' production level varies with
pipeline construction activity and is frequently project-oriented in nature. The
company is able to satisfy sales demand for reconditioned equipment by selling
equipment out of its rental fleet and replacing the sold equipment with newly
manufactured or repurchased equipment. This enables CRC-Evans to maintain
relatively constant production staff levels using flexible work schedules.
CRC-Evans maintains a comprehensive rental equipment fleet and spare parts
inventory to meet the delivery requirements of its customers. The company's
equipment is manufactured, maintained and refurbished as necessary to satisfy
projected customer demand. CRC-Evans has maintenance facilities in Tulsa,
Oklahoma; Edmonton, Alberta; Burnley, England and Didcot, England, and performs
on-site maintenance to minimize downtime. CRC-Evans maintains a facility for
welding research and development in Houston, Texas.
COMPETITION
The specialized pipeline equipment sales, rental and services businesses are
highly competitive. Generally, CRC-Evans competes directly with smaller
companies and the in-house provision of products and services by general
contractors. Several of CRC-Evans' competitors within certain product lines have
greater financial resources than the company. CRC-Evans believes it is currently
the world's leading provider of specialized equipment and services used in the
construction and rehabilitation of gas and oil transmission pipelines. CRC-Evans
believes that in addition to long-standing relationships, competition is based
on price, customer service, including the availability of personnel in remote
locations, flexibility in meeting customer needs and the quality and reliability
of its equipment and related services.
FACILITIES
CRC-Evans owns a 29-acre equipment yard/manufacturing/maintenance facility and
supply warehouse in Tulsa, Oklahoma and a 9,800 square foot sales
office/warehouse/service facility in Edmonton, Canada. The company leases all
other facilities used in its operations, including its corporate offices in
Houston, Texas and various office facilities and equipment sites in the United
Kingdom and the Netherlands. The aggregate lease payments made by CRC-Evans for
its facilities were $206,000 for the fiscal year ended March 31, 1998. In
November 1998, CRC-Evans purchased 19 acres in Houston, Texas which it currently
intends to use for corporate and sales personnel and certain of its operations.
GOVERNMENT REGULATION
GENERAL
Many aspects of CRC-Evans' operations are subject to government regulations in
the countries in which the company operates, including those relating to
currency conversion and repatriation, taxation of its earnings and the earnings
of its personnel, and its use of local employees and suppliers. In addition,
CRC-Evans depends on the demand for its services from the oil and gas pipeline
construction industry and, therefore, is affected by changing taxes, price
controls and laws and regulations relating to that industry generally. The
40
<PAGE>
adoption of laws and regulations by countries in which CRC-Evans operates
curtailing oil and gas exploration and development drilling for economic and
other policy reasons could adversely affect CRC-Evans' operations by limiting
demand for its services. CRC-Evans' operations are also subject to the risk of
changes in foreign and domestic laws and policies, including trade restrictions
and embargos, which may impose restrictions on the company that could have a
material adverse effect on its operations. Other types of government regulation
which could, if enacted or implemented, adversely affect CRC-Evans' operations
include expropriation or nationalization decrees, confiscatory tax systems,
primary or secondary boycotts directed at specific countries or companies,
embargoes, extensive import restrictions or other trade barriers, mandatory
sourcing rules and unrealistically high labor rate and fuel price regulation.
CRC-Evans cannot determine to what extent future operations and earnings of the
company may be affected by new legislation, new regulations or changes in, or
new interpretations of, existing regulations.
ENVIRONMENTAL
CRC-Evans' operations are subject to extensive federal, state and local
environmental laws and regulations. The company regularly works in and around
sensitive environmental areas such as rivers, lakes and wetlands. Significant
fines and penalties may be imposed for non-compliance with environmental laws
and regulations. Certain environmental laws including, but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. 9601 ET SEQ., and analogous state statutes, provide for joint and several
strict liability for remediation of releases of hazardous substances, rendering
an owner or operator liable for environmental damage without regard to
negligence or fault. In addition, CRC-Evans may be subject to claims alleging
personal injury or property damage as a result of exposure to hazardous
substances. Such laws and regulations may expose the company to liability
arising out of the conduct of operations or conditions caused by others, or for
the acts of the company which were in compliance with all applicable laws at the
time such acts were performed.
CRC-Evans' operations may generate or transport both hazardous and non-hazardous
solid wastes that are subject to the requirements of the Resource Conservation
and Recovery Act, 42 U.S.C. 6901 ET SEQ., and comparable state statutes and
regulations. The operations of the company may also be subject to the Clean
Water Act, 33 U.S.C. 1251 ET SEQ., and the Clean Air Act, 42 U.S.C. 7401 ET
SEQ., and comparable state statutes and regulations. Additional environmental
laws, including but not limited to, the Oil Pollution Act of 1990, the
Endangered Species Act and the Toxic Substances Control Act may also impact
CRC-Evans' operations. To the company's knowledge, its operations are in
substantial compliance, and are expected to continue to comply in all material
respects, with applicable environmental laws, regulations and ordinances.
CRC-Evans does not believe that it will be required in the near future to expend
material amounts due to compliance with or liability under such environmental
laws and regulations.
In recent years, environmental requirements have become increasingly stringent.
Future developments, such as stricter environmental laws, regulations or
enforcement policies, could affect the handling, manufacture, use, emission or
disposal of substances by CRC-Evans.
INSURANCE
CRC-Evans maintains workers' compensation, employers' liability, general
liability, directors' and officers' liability, automobile liability and excess
liability insurance to provide benefits to employees and to protect it against
claims by third parties with policy limits adequate to meet its expected needs
and consistent with industry standards. Such insurance is underwritten by A+ or
better rated insurance companies (AM Best rating as to claims paying ability).
CRC-Evans also maintains physical damage insurance covering loss of or damage to
its property on a worldwide basis, with special insurance covering loss or
damage caused by political or terrorist risks in locations where such coverage
is deemed prudent. CRC-Evans maintains risk management and safety programs,
which have resulted in favorable loss ratios and cost savings. CRC-Evans
believes its risk management, safety and insurance programs are adequate to meet
its needs.
EMPLOYEES AND LABOR RELATIONS
As of November 1, 1998, CRC-Evans had approximately 381 permanent employees and
178 temporary employees for a total of approximately 559 employees. Of these
employees, approximately 356, 20, 176 and 7 are located in the United States,
Canada, the United Kingdom and the Netherlands, respectively. No
41
<PAGE>
permanent employees are represented by labor unions, and CRC-Evans believes that
its relations with its employees are satisfactory.
LEGAL PROCEEDINGS
CRC-Evans is involved in litigation incidental to the conduct of its business,
none of which management believes is, individually or in the aggregate, material
to the company's financial condition or results of operations.
DESCRIPTION OF JUNE 1997 BUYOUT AND RELATED TRANSACTIONS
In June 1997, CRC-Evans purchased the business and assets of its predecessors
from Weatherford Enterra for approximately $40.0 million using proceeds from
bank loans and capital provided by certain officers, directors and key
employees, led by Messrs. Wood, Carey and Evans, together with institutional
investors Natural Gas Partners and Equus. Each of Natural Gas Partners and Equus
made an equity investment of approximately $3.2 million, representing a 35%
interest in the company. In addition, CRC-Evans borrowed $1.9 million from
Natural Gas Partners and Equus pursuant to subordinated promissory notes due
June 30, 2002, each in the original principal amount of $959,700, and each
bearing interest at a rate of 12% per annum. Employees and members of the
management team -- 14 people total -- made an equity investment of approximately
$2.7 million, representing a 30% interest in CRC-Evans, $1.9 million of which
was borrowed from CRC-Evans pursuant to promissory notes bearing interest at a
rate of 6.75% per annum and maturing on June 30, 2002.
In addition to the above financing sources, CRC-Evans borrowed $32.5 million
under its credit facility to assist in financing the management buyout. See
"Use of Proceeds."
ADDITIONAL INFORMATION
CRC-Evans has filed a registration statement on Form S-1 with the Securities and
Exchange Commission. In addition, upon completion of the offering, CRC-Evans
will be required to file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. Investors may
read and copy the registration statement and any other documents filed by
CRC-Evans at the Securities and Exchange Commission's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the Public
Reference Room. CRC-Evans' Securities and Exchange Commission filings are also
available to the public at the Securities and Exchange Commission's Internet
site at http://www.sec.gov.
This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to any contract or other document of CRC-Evans, the
reference may not be complete and investors should refer to the exhibits that
are a part of the registration statement for a copy of the contract or document.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The name, age and respective position of each executive officer and director of
CRC-Evans are as follows:
NAME AGE POSITION
- ----------------------------------- --- ------------------------------
D. Dale Wood....................... 60 Chairman and Chairman of the
Board of Directors
M. Timothy Carey................... 54 Chief Executive Officer and
Director
C. Paul Evans...................... 68 President and Director
Windell D. Norris, Jr.............. 55 Vice President -- Finance and
Administration
Norman R. Francis.................. 68 Chief Financial Officer,
Treasurer and Secretary
Richard L. Covington............... 40 Director
Gary L. Forbes..................... 54 Director
Kenneth A. Hersh................... 35 Director
Nolan Lehmann...................... 54 Director
The following is a brief description of the background and principal occupation
of each executive officer and director:
D. DALE WOOD has been affiliated with CRC-Evans and its predecessors since 1971.
Prior to becoming Chairman and Chairman of the Board of Directors of CRC-Evans
in June 1997, Mr. Wood served as President and Chief Executive Officer of
Enterra Corporation (a predecessor) from March 1991 until October 1995 and
additionally as its Chairman of the Board of Directors from November 1991 until
October 1995. In October 1995, Mr. Wood left Enterra as the result of its merger
into Weatherford Enterra to pursue personal investments, including the formation
of the buy-out groups which acquired Container-Care International, Inc. in
February 1997 and CRC-Evans in June 1997. Mr. Wood devotes approximately 30% of
his working time to CRC-Evans. Mr. Wood is a certified public accountant.
M. TIMOTHY CAREY has been affiliated with the pipeline industry and CRC-Evans'
predecessors since 1972, during which time he ran the predecessors' automatic
welding division and held positions as Executive Vice President and President.
Prior to joining the Company as Chief Executive Officer in June 1997, Mr. Carey
was President of the Oilfield Services and Equipment Group of Enterra from 1992
through October 1995. From October 1995 through March 1996, Mr. Carey served as
Sr. Vice President of Weatherford Enterra. From March 1996 through June 1997 he
was a private investor and a key participant in structuring the June 1997
buyout.
C. PAUL EVANS has been affiliated with the pipeline industry and CRC-Evans'
predecessors for 41 years. Prior to becoming President of CRC-Evans in June
1997, Mr. Evans served as President of a predecessor to CRC-Evans from October
1995 to June 1997, and as its Chairman of the Board of Directors, President and
Chief Executive Officer from 1992 to October 1995. From 1988 to 1995, Mr. Evans
was a member of the Board of Directors of Enterra.
WINDELL D. NORRIS, JR. has been in the energy and pipeline equipment business
for 31 years, including 26 years with CRC-Evans and its predecessors during
which time he held positions as President -- Pipeline Division, Vice
President -- Corporate Development and Executive Vice President until January
1996. He served as Chief Executive Officer of Wedge Dia-Log, Inc. from September
1996 to December 1996 and as an independent consultant for CRC-Evans and others
from January 1997 until June 1998, at which time he rejoined CRC-Evans as Vice
President -- Finance and Administration.
NORMAN R. FRANCIS has been affiliated with CRC-Evans and its predecessors since
1960. He became the Chief Financial Officer, Treasurer and Secretary of the
Company in June 1997. His prior experience with CRC-Evans' predecessors was as
Credit Manager, Controller, Assistant Treasurer, Vice President -- Finance and
Chief Financial Officer. Mr. Francis is a certified public accountant.
RICHARD L. COVINGTON has served as a director of CRC-Evans since June 1997.
Since February 1997, Mr. Covington has served as principal and general counsel
to the Natural Gas Partners investment funds. From
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1988 to February 1997, Mr. Covington was a senior stockholder and an associate
with the law firm of Thompson & Knight.
GARY L. FORBES has been a director of CRC-Evans since June 1997. Since 1991, Mr.
Forbes has served as a Vice President of Equus Capital Management, a registered
investment advisor, and as a Vice President of Equus. He serves as a director of
Consolidated Graphics, Inc., a consolidator of commercial printing companies,
Drypers Corporation, a manufacturer of disposable diapers, NCI Building Systems,
Inc., a manufacturer of prefabricated metal buildings, and Advanced Technical
Products, Inc., a manufacturer of high performance composite parts for the
aerospace and defense industries, all of which are public companies. Mr. Forbes
is a certified public accountant.
KENNETH A. HERSH has served as a director of CRC-Evans since June 1997. Since
1989, Mr. Hersh has been a manager of the Natural Gas Partners investment funds,
which were organized to make direct equity investments in the North American
energy industry. He is currently responsible for co-managing Natural Gas
Partners' overall investment portfolio. Mr. Hersh serves as a director of
Pioneer Natural Resources Company, Titan Exploration, Inc., HS Resources, Inc.,
Petroglyph Energy, Inc. and Vista Energy Resources, Inc., all of which are
public companies engaged in the oil and gas business.
NOLAN LEHMANN has been a director of CRC-Evans since June 1997. Since 1983, Mr.
Lehmann has served as the president and a director of Equus and Equus Capital
Management Corporation. Mr. Lehmann also serves as a director of Allied Waste
Industries, Inc., a solid waste management company, American Residential
Services, Inc., a residential services company, Brazos Sportswear, Inc., a
casual sportswear company, Drypers Corporation, a manufacturer of disposable
diapers, and Paracelsus Healthcare Corporation, a hospital management company,
all of which are public companies. Mr. Lehmann is a certified public accountant.
Directors are elected at each annual meeting of stockholders. Effective upon
consummation of this offering, the Board of Directors will be divided into two
classes of directors, with directors serving staggered two-year terms, expiring
at the annual meeting of stockholders for fiscal years 1999 and 2000,
respectively. At each annual meeting of stockholders, one class of directors
will be elected for a full term of two years to succeed to that class of
directors whose terms are expiring. Messrs. Hersh, Wood, Evans and Forbes will
serve for initial two-year terms and Messrs. Lehman, Carey and Covington will
serve for initial one-year terms.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for the Chief
Executive Officer of CRC-Evans and the four additional most highly compensated
executive officers for the period from June 12, 1997 to March 31, 1998 (the
"Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
AWARDS
-------------------------
ANNUAL COMPENSATION SECURITIES PAYOUTS
------------------------------------ RESTRICTED UNDERLYING -------
OTHER ANNUAL STOCK OPTIONS LTIP ALL OTHER
NAME/PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION AWARDS(S) PLANS/SARS PAYOUTS COMPENSATION
- ------------------------------------- --------- ------- ------------ ---------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
D. Dale Wood(1)...................... $ 96,652 -- $7,600 -- -- -- $ 972
M. Timothy Carey(1).................. 163,760 -- 7,600 -- -- -- 3,710
C. Paul Evans(1)..................... 120,414 -- 9,859 -- -- -- 4,094
Windell D. Norris, Jr.(2)............ -- -- -- -- -- -- --
Norman R. Francis(1)(3).............. 103,025 -- 7,600 -- -- -- 2,649
</TABLE>
- ---------------------------
(1) Messrs. Wood, Carey, Evans and Francis receive annual salaries of $120,000,
$200,000, $145,000 and $80,000, respectively.
(2) Mr. Norris joined CRC-Evans in June 1998 and receives an annual salary of
$120,000.
(3) Includes salary from January 1997 which was paid after the June 1997 buyout.
44
<PAGE>
KEY MANAGEMENT COMPENSATION PLAN
The Company has a Key Management Incentive Compensation Plan effective June 13,
1997 by which certain employees may receive a maximum bonus between 15% to 60%
of their salary. The bonus plan year is from April 1 through March 31 and was
pro rated for the period from June 13, 1997 to March 31, 1998. The bonus plan
awards incentive bonuses to CRC-Evans' executive officers and certain key
employees. The bonuses are calculated by multiplying the employee's base salary
by a factor of 1 to 4, depending on the employee's level of responsibility, and
by CRC-Evans' percentage EBITDA return on total capitalization for the prior
fiscal year less 20%. The Board of Directors must ratify any bonus paid to
Messrs. Wood, Carey and Evans pursuant to the bonus plan.
If CRC-Evans' percentage EBITDA return on total capitalization is less than 20%
for such fiscal year, no bonuses are paid and the difference is carried forward
for up to two years to reduce the bonus percentage factor in those years. If the
percentage EBITDA return on total capitalization exceeds 35%, such percentage
factor is 15% and the excess carries forward for up to two years to increase the
percentage factor in those years. The bonuses are paid 50% upon completion of
the fiscal year-end audit report and 50% at the end of the following fiscal
year, if the employee has not voluntarily left CRC-Evans or been terminated for
cause.
DIRECTOR COMPENSATION
Directors who are employees of CRC-Evans are not compensated for their services
as directors. Non-employee directors receive an annual fee of $10,000. Directors
are reimbursed, however, for ordinary and necessary expenses incurred in
attending board or committee meetings.
COMMITTEES OF THE BOARD OF DIRECTORS; COMPENSATION COMMITTEE INTERLOCKS
CRC-Evans has an Audit Committee and a Compensation Committee. The Audit
Committee reviews and reports to the Board of Directors the scope and results of
audits by CRC-Evans' outside auditor. The committee also recommends the firm of
certified public accountants to serve as the Company's independent public
accountants, subject to nomination by the Board of Directors and approval of the
stockholders, authorizes all audit and other professional services rendered by
the auditor and periodically reviews the independence of the auditor. Membership
of the Audit Committee is restricted to those directors who are not active or
retired officers or employees of the Company. Messrs. Covington and Lehmann are
members of the Audit Committee.
The Compensation Committee will be established to oversee the compensation of
senior management and the incentive stock option plan to be adopted with the
effectiveness of this registration statement. The Compensation Committee is
currently comprised of Messrs. Hersh and Forbes. At the closing of the offering,
no members of the Compensation Committee will be a present or former officer or
employee of CRC-Evans or any subsidiary.
No executive officer or director of CRC-Evans serves as an executive officer,
director, or member of a compensation committee of any other entity, for which
an executive officer of such entity is a member of the board of directors or the
Compensation Committee of CRC-Evans.
STOCK OPTION PLANS
INITIAL STOCK OPTIONS
As of June 12, 1997, CRC-Evans issued to certain employees options to purchase
up to 138,080 shares of CRC-Evans' common stock. With respect to these options,
certain stockholders have agreed to sell to CRC-Evans up to 18,080 shares at the
same price as the exercise price of such options if options to purchase more
than 120,000 shares are exercised. Each option has an exercise price of $2.78
per share and vests at the rate of 20% per year over five years, beginning with
the first anniversary of the date of the option agreement and continuing until
the fifth anniversary of the agreement, at which time the options are fully
vested. Each option expires on August 31, 2002.
CRC-Evans subsequently adopted a stock option plan on May 20, 1998. The May 1998
plan authorizes the issuance of additional options to purchase up to 550,160
shares of common stock to certain employees, officers, contractors or
consultants of CRC-Evans. The purposes of the May 1998 plan are to promote the
45
<PAGE>
interests of CRC-Evans and its stockholders by attracting, retaining and
stimulating the performance of selected individuals in giving such individuals
the opportunity to acquire a proprietary interest in CRC-Evans and increasing
personal interest in CRC-Evans' continued success and progress. The May 1998
plan options constitute non-qualified options that are not "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended.
All options granted under the May 1998 plan have an exercise price of $2.78 per
share and vest at a rate of 33 1/3% per year over three years, beginning with
the first anniversary of the governing option agreement and continuing until the
third anniversary of the agreement, at which time the options are fully vested.
CRC-Evans currently intends to amend the June 1997 options and the May 1998
options upon effectiveness of the registration statement to allow for immediate
vesting of the outstanding stock options.
The Board of Directors, which currently administers the May 1998 plan, has the
authority to set the number of shares of common stock to be covered by each
option granted under the plan, and to amend, modify, suspend or terminate the
plan, which by its terms will terminate on May 20, 2004. However, all available
options have been issued under the plan and the Board of Directors does not
intend to authorize the issuance of any additional options under the plan in
connection with the closing of this offering. All of the options currently
issued and outstanding under the plan expire on May 31, 2003, and will continue
to be recognized until expiration.
The June 1997 options and the May 1998 options are not transferable other than
by will or the laws of descent and distribution. Each option may be exercised
within the term of the option agreement pursuant to which it was granted, so
long as CRC-Evans continues to employ the optionee. In addition, within three
months after termination of an optionee's employment, an option may be exercised
as to vested shares, except in the case of termination for "cause" or an
optionee's voluntary termination, in which cases the Initial Option shall
automatically expire on termination, provided that CRC-Evans may redeem the
option by paying cash to the optionee equal to the excess of the book value of
the option shares over the exercise price of the option. In the event of an
optionee's death or disability, the options may remain outstanding and may be
exercised by the acquiror of the options, but only within one year following the
date of death or disability.
To date, none of the June 1997 or May 1998 options have been exercised.
STOCK INCENTIVE PLAN
CRC-Evans will adopt a stock incentive plan effective as of the effectiveness of
the registration statement. At such time, 575,000 shares of common stock will be
subject to issuance under the incentive plan. The incentive plan provides for
the grant of stock options (including incentive stock options as defined in
Section 422 of the Internal Revenue Code of 1986, as amended, and non-qualified
stock options), stock appreciation rights ("SARs") and other stock awards
(including restricted stock awards, dividend rights and stock bonuses) to any
officer, director, or employee of CRC-Evans or its subsidiaries, or any
consultant or advisor engaged by CRC-Evans or its subsidiaries. The purpose of
the incentive plan is to attract, retain and encourage qualified individuals to
serve CRC-Evans with a high degree of commitment by providing additional
financial incentives.
The Compensation Committee currently administers the incentive plan and
recommends to the Board of Directors for its final approval the recipients who
are to receive grants of options, the terms and conditions of options and the
rules and regulations for administration of the incentive plan. The final
approval of the full Board of Directors is required for any options granted
under the incentive plan. Stock options may be granted under the incentive plan
on such terms, including vesting and payment forms, as the Board of Directors
deems appropriate in its discretion; provided that no option may be exercised
later than ten years after its grant, and the purchase price for the incentive
stock options and non-qualified stock options shall not be less than 100% of the
fair market value of the common stock on the grant date (110% in the case of an
incentive stock option granted to an individual owning more than 10% of the
voting stock of CRC-Evans or a subsidiary). SARs may be granted by the Board of
Directors on such terms, including payment in forms, as the Board of Directors
deems appropriate, provided that an SAR granted in connection with a stock
option shall become exercisable and lapse according to the same vesting schedule
and lapse rules established for the stock option (which shall not exceed ten
years from the date of grant).
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<PAGE>
Unless terminated by the Board of Directors, the incentive plan has no automatic
termination date. Upon the occurrence of an event constituting a change in
control of CRC-Evans, all options and SARs under certain incentive plan award
agreements will become immediately exercisable, restrictions on stock granted
pursuant to a restricted stock award will lapse, and other awards will be
treated in the manner determined by the Board of Directors on the grant date.
The Board of Directors has not authorized the granting of any options under the
incentive plan.
EMPLOYMENT AGREEMENTS
D. Dale Wood, CRC-Evans' Chairman and Chairman of the Board of Directors, has
entered into an employment agreement, effective June 12, 1997, with a term of
five years, which establishes a base salary of $120,000 per year. Mr. Wood's
employment agreement also provides that, in certain circumstances, he will
receive severance payments equal to his then current base salary for up to two
years upon termination of his employment by CRC-Evans. Mr. Wood is subject to a
non-competition agreement for up to two years after a voluntary termination of
his employment and for eighteen months after an involuntary termination of his
employment.
M. Timothy Carey, CRC-Evans' Chief Executive Officer, has entered into an
employment agreement, effective June 10, 1997, with a term of five years, which
establishes a base salary of $200,000 per year. Mr. Carey's employment agreement
also provides that, in certain circumstances, he will receive severance payments
equal to his then current base salary for up to two years upon termination of
his employment by CRC-Evans. Mr. Carey is subject to a non-competition agreement
for up to two years after a voluntary termination of his employment and for
eighteen months after an involuntary termination of his employment.
C. Paul Evans, CRC-Evans' President, has entered into an employment agreement,
effective June 12, 1997, with a term of three years, which establishes a base
salary of $145,000 per year. Mr. Evans' employment agreement also provides that,
in certain circumstances, he will receive severance payments equal to his then
current base salary for up to two years upon termination of his employment by
CRC-Evans. Mr. Evans is subject to a non-competition agreement for up to two
years after a voluntary termination of his employment and for eighteen months
after an involuntary termination of his employment.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of November 30, 1998 with
respect to the beneficial ownership of CRC-Evans' common stock by:
o each director of CRC-Evans,
o each Named Executive Officer,
o each other person known to beneficially own 5% or more of the outstanding
shares of common stock and
o all current executive officers (regardless of salary and bonus level) and
directors of CRC-Evans as a group.
Unless otherwise indicated, (a) the persons listed in the table below have sole
voting and investment powers with respect to the shares indicated and (b) each
person's address is 11601 N. Houston Rosslyn Road, Houston, Texas 77086.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY OWNED
---------------------------
SHARES PRIOR TO AFTER THE
BENEFICIALLY OWNED THE OFFERING OFFERING
------------------- ------------- ----------
<S> <C> <C> <C>
D. Dale Wood......................... 186,280 3.0% 2.0%
M. Timothy Carey..................... 232,880 3.7 2.5
C. Paul Evans........................ 139,680 2.2 1.5
Windell D. Norris, Jr................ 68,000 1.1 *
Norman R. Francis.................... 23,280 * *
Kenneth A. Hersh(1).................. 2,395,640 38.1 25.8
Richard L. Covington................. -- -- 25.8
Nolan Lehmann(2)..................... 2,395,640 38.1 25.8
Gary L. Forbes(3).................... 2,395,640 38.1 25.8
Natural Gas Partners IV, L.P......... 2,395,640 38.1 25.8
777 Main Street, Suite 2250
Fort Worth, Texas 76102
Equus II Incorporated................ 2,395,640 38.1 25.8
2929 Allen Parkway, 25th Floor
Houston, Texas 77019
All directors and executive officers
as a group (9 persons)............. 5,441,400 86.4 58.5
</TABLE>
- ---------------------------
* Less than 1%
(1) All shares of common stock that Natural Gas Partners holds. Mr. Hersh, in
his capacity as one of the managing members of the general partner of
Natural Gas Partners, may be deemed to have indirect beneficial ownership of
the shares of common stock owned by Natural Gas Partners. Mr. Hersh
disclaims any such beneficial ownership.
(2) All shares of common stock that Equus holds. Mr. Lehmann, in his capacity as
president and director of Equus, may be deemed to have indirect beneficial
ownership of the shares of common stock owned by Equus. Mr. Lehmann
disclaims any such beneficial ownership.
(3) All shares of common stock that Equus holds. Mr. Forbes, in his capacity as
vice president of Equus, may be deemed to have indirect beneficial ownership
of the shares of common stock owned by Equus. Mr. Forbes disclaims any such
beneficial ownership.
48
<PAGE>
CERTAIN RELATED TRANSACTIONS
SUBORDINATED PROMISSORY NOTES
In connection with the June 1997 buyout, the Company borrowed $1.9 million from
Natural Gas Partners and Equus under subordinated promissory notes due June 30,
2002, each in the original principal amount of $959,700, and each bearing
interest at a rate of 12% per annum. These notes will be repaid with a portion
of the proceeds from the offering.
PROMISSORY NOTES
In connection with the June 1997 buyout, certain officers, directors and key
employees borrowed, in the aggregate, $1.9 million from CRC-Evans under
promissory notes due June 30, 2002, all of which bear interest at a rate of
6.75% per annum. The following directors and executive officers borrowed the
following amounts: Mr. Wood, $255,920; Mr. Carey, $319,900; and Mr. Evans,
$191,940.
FEE AGREEMENTS
In connection with the June 1997 buyout, CRC-Evans paid each of Natural Gas
Partners and Equus a financing fee of $70,000 along with reimbursement of
out-of-pocket costs. Pursuant to this agreement, the company also paid Mr.
Covington $77,577 for acting as legal counsel to the purchasers in the June 1997
buyout.
NORRIS PROMISSORY NOTE
In connection with a purchase of 68,000 shares of common stock, Mr. Norris
borrowed $155,380 from CRC-Evans under a promissory note dated June 15, 1998,
due June 30, 2002, and bearing interest at a rate of 6.75% per annum.
INDEMNITY AGREEMENTS
CRC-Evans has entered into indemnification agreements with each of its
directors, affiliates and/or "controlling persons," within the meaning of
applicable securities laws, and certain of its executive officers. The
indemnification agreements provide that CRC-Evans shall indemnify these
individuals against certain liabilities, including settlements, and expenses
actually and reasonably incurred by them in connection with any threatened or
pending legal action, proceeding or investigation, other than actions brought by
or in the right of CRC-Evans, to which any of them is, or is threatened to be,
made a party by reason of their status as a director, officer or agent of
CRC-Evans. However, with respect to a civil, administrative or non-criminal
investigative action, such individual must have acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of CRC-Evans, and with respect to any criminal proceedings, he or she
must have had no reasonable cause to believe his or her conduct was unlawful.
With respect to any action brought by or in the right of CRC-Evans, such
individuals may be indemnified, to the extent not prohibited by applicable laws
or as determined by a court of competent jurisdiction, against expenses actually
and reasonably incurred by them in connection with such action if they acted in
good faith and in a manner they reasonably believed to be in, or not opposed to,
the best interests of CRC-Evans. The agreements also require indemnification of
such individuals for all reasonable expenses incurred in connection with the
successful defense of any action or claim and provide for partial
indemnification in the case of any partially successful defense.
STOCKHOLDERS AGREEMENT
Equus, Natural Gas Partners and Messrs. Wood, Carey and Evans have agreed to
approve an amended and restated Certificate of Incorporation providing for two
classes of directors to be elected to staggered terms, and amended and restated
bylaws to eliminate the need for special Board approval for certain actions and
to allow for the Bylaws to be more easily amended. These documents will be
adopted simultaneous with the effectiveness of the registration statement.
In addition, upon the close of the offering, it is anticipated that Equus,
Natural Gas Partners, Messrs. Wood, Carey and Evans and other members of
management will enter into a Stockholders Agreement. Under the Stockholders
Agreement, stockholders wishing to sell their shares to purchasers other than
affiliated entities must first provide notice to the other owners, and must
cause the proposed purchaser to offer to the other stockholders tag-along rights
to purchase a proportionate share of the shares being sold. A tag-along right is
the right of a non-selling shareholder to require a selling shareholder to
include in a sale
49
<PAGE>
of shares the non-selling shareholder's shares. The tag-along provisions of the
Stockholders Agreement terminate on the first to occur of the following:
o the third anniversary of the date of the agreement;
o the first date on which all parties to the Stockholders Agreement do not
own at least 20% of the equity interests in CRC-Evans;
o the bankruptcy of CRC-Evans, an assignment for the benefit of creditors
and appointment of a receiver, or a voluntary or involuntary dissolution;
o when only one stockholder remains a party to the Stockholders Agreement;
or
o the agreement of all parties to the Stockholders Agreement.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of CRC-Evans consists of 25,000,000 shares of
common stock, of which
9,294,520 shares will be outstanding immediately following the offering and of
which no shares will be held as treasury stock, and 2,500,000 shares of
preferred stock, par value $.01 per share.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all matters to
be voted on by stockholders of CRC-Evans. Subject to any preferential rights of
any outstanding series of preferred stock designated by the Board of Directors,
the holders of common stock are entitled to receive, ratably, such dividends, if
any, as may be declared from time to time by the Board of Directors out of funds
legally available therefor. In the event of a liquidation, dissolution or
winding up of CRC-Evans, the holders of common stock are entitled to receive pro
rata all assets of the company available for distribution to such holders after
distribution in full of the preferential amount to be distributed to holders of
shares of the preferred stock, if any. CRC-Evans' Amended and Restated
Certificate of Incorporation denies cumulative voting. The common stock has no
conversion rights or other subscription rights and there are no redemption or
sinking fund provisions applicable to the common stock, other than those
described under "Certain Related Transactions -- Stockholders agreement."
PREFERRED STOCK
The preferred stock may be issued from time to time by the Board of Directors as
shares of one or more classes or series. Subject to the provisions of CRC-Evans'
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions of any class or series of shares,
including dividend rights, dividend rates, terms of redemption, redemption
prices, conversion rights and liquidation preferences of the shares constituting
any class or series of the preferred stock, in each case without any further
action or vote by the stockholders. CRC-Evans has no current plans to issue any
shares of preferred stock of any class or series.
One of the effects of undesignated preferred stock may be to enable the Board of
Directors to render more difficult or to discourage an attempt to obtain control
of CRC-Evans by means of a tender offer, proxy contest, merger or otherwise, and
thereby to protect the continuity of CRC-Evans' management. The issuance of
shares of preferred stock pursuant to the Board of Directors' authority
described above may adversely affect the rights of the holders of common stock.
For example, preferred stock issued by CRC-Evans may rank prior to the common
stock as to dividend rights, liquidation preference or both, may have full or
limited voting rights and may be convertible into shares of common stock.
Accordingly, the issuance of shares of preferred stock may discourage bids for
the common stock at a premium or may otherwise adversely affect the market price
of the common stock.
50
<PAGE>
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND THE BYLAWS
CRC-Evans' Certificate of Incorporation divides the Board of Directors into two
classes, with one class of three directors and one class of four directors,
serving staggered two-year terms. As a result, only one class of directors will
be elected at each annual meeting of stockholders of the company with the other
class continuing for the remainder of its two-year term. Pursuant to the
Certificate of Incorporation, the Board of Directors is also authorized to issue
shares of "blank check" preferred stock. The Certificate of Incorporation also
provides that directors may only be removed with cause by a majority of the
stockholders.
The Company's Bylaws permit stockholders to nominate a person for election as a
director before an annual stockholder meeting only if written notice of such
intent is provided to CRC-Evans at least 90 days prior to the meeting. Such
notice of intent to nominate a person for election as a director is required to
set forth the same kind of information respecting such nominee as would be
required under the proxy rules of the Securities and Exchange Commission,
including the written consent of the nominee to serve as a director, if elected,
and the name and address of the stockholder making the nomination as well as the
number of shares owned by such stockholder. In the case of other proposed
business at an annual stockholder meeting, the notice must be filed with the
secretary of CRC-Evans not less than 60 nor more than 120 days prior to the
meeting, and must set forth a brief description of each matter proposed, the
name and address of the stockholder proposing the matter, and the number of
shares owned by such stockholder.
The foregoing provisions may tend to deter any potential unfriendly offers or
other efforts to obtain control of CRC-Evans that are not approved by the Board
of Directors and thereby deprive the stockholders of opportunities to sell
shares of common stock at prices higher than the prevailing market price. On the
other hand, these provisions may tend to ensure continuity of management and
corporate policies and to induce any person seeking control of CRC-Evans or a
business combination with CRC-Evans to negotiate on terms acceptable to the then
elected Board of Directors.
DELAWARE ANTITAKEOVER LAW
CRC-Evans is subject to Section 203 of the Delaware General Corporation Law,
which prohibits Delaware corporations from engaging in a wide range of specified
transactions with any interested stockholder. "Interested stockholders"
include any person, other than such corporation and any of its majority-owned
subsidiaries, who owns 15% or more of any class or series of stock entitled to
vote generally in the election of directors, unless, among other exceptions, the
transaction is approved by (a) the Board of Directors prior to the date the
interested stockholder obtained such status or (b) the holders of two-thirds of
the outstanding shares of each class or series of stock entitled to vote
generally in the election of directors, not including those shares owned by the
interested stockholder.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Harris Trust and
Savings Bank.
REGISTRATION RIGHTS AGREEMENT
CRC-Evans entered into a Registration Rights Agreement dated June 12, 1997 with
Natural Gas Partners, Equus and Messrs. Wood, Evans and Carey. Approximately
5,350,120 shares of common stock have the benefit of "demand" registration
rights which may be exercised by the holders of not less than 20% of the stock
owned by the parties to the agreement and the employees of CRC-Evans on up to
three separate occasions that allow the holder to require CRC-Evans, subject to
certain limitations, to file a registration statement under the Securities Act
at CRC-Evans' expense covering all or part of such securities. In addition, all
of the parties to the agreement and all employee owners of these securities have
the benefit of "piggyback" registration rights that allow the holders thereof
to require CRC-Evans to register the underlying shares of common stock if
CRC-Evans files a registration statement under the Securities Act. If such
registration statement is with respect to an underwritten offering, the
underwriter may reduce the amount of "piggyback" shares to be registered in
the underwriting in its discretion. The registration rights agreement includes
traditional covenants and indemnification provisions, including the
indemnification of the selling stockholders for violations of the Securities
Act.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
When the offering is completed, CRC-Evans will have a total of 9,294,520 shares
of common stock outstanding. The 3,000,000 shares offered by this prospectus
will be freely tradable unless "affiliates" of CRC-Evans, as defined in Rule
144 under the Securities Act, purchase them. The remaining 6,294,520 shares are
"restricted," which means they were originally sold in certain types of
offerings that were not subject to a registration statement filed with the
Commission. These restricted shares may be resold only through registration
under the Securities Act or under an available exemption from registration, such
as provided through Rule 144. Under Rule 144, all of the restricted shares may
be sold after the 180-day "lock-up" period.
In addition, 670,160 shares are issuable upon exercise of employee options. If
any options are exercised, the shares issued upon exercise will also be
restricted, but may be sold under Rule 144 after the shares have been held for
one year. Sales under Rule 144 may be subject to certain volume limitations and
other conditions.
The holders of 5,441,400 shares of common stock have agreed to a 180-day
"lock-up" with respect to these shares. This generally means that they cannot
sell these shares during the 180 days following the date of this prospectus.
After the 180-day lock-up period, these shares subject to lock-up may be sold in
accordance with Rule 144. See "Underwriting" for additional details.
A total of 1,245,160 shares of common stock have been reserved for issuance
under CRC-Evans' outstanding options and the Incentive Plan, 24,000 of which are
issuable upon exercise of vested options outstanding on November 30, 1998, or
that will become vested within 60 days after such date. CRC-Evans will register
on Form S-8 under the Securities Act the offering and sale of common stock
issuable under its May 1998 option plan.
52
<PAGE>
UNDERWRITING
CRC-Evans entered into an underwriting agreement with the underwriters named
below. CIBC Oppenheimer Corp., BT Alex. Brown Incorporated and Simmons & Company
International are acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that they are required to purchase a
specified number of shares, but are not responsible for the commitment of any
other underwriter to purchase shares. Subject to the terms and conditions of the
underwriting agreement, each underwriter has severally agreed to purchase the
number of shares of common stock set forth opposite its name below:
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------- ---------
CIBC Oppenheimer Corp...................
BT Alex. Brown Incorporated.............
Simmons & Company International.........
---------
Total..............................
=========
This is a firm commitment underwriting. This means that the underwriters have
agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.
The representatives have advised CRC-Evans that the underwriters propose to
offer the shares directly to the public at the public offering price that
appears on the cover page of this prospectus. In addition, the representatives
may offer some of the shares to certain securities dealers at such price less a
concession of $ per share. The underwriters may also allow, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at various
times.
CRC-Evans has granted the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of additional shares
from CRC-Evans to cover over-allotments. If the underwriters exercise all or
part of this option, they will purchase shares covered by the option at the
initial public offering price that appears on the cover page of this prospectus,
less the underwriting discount. If this option is exercised in full, the total
price to the public will be $ and the total proceeds to CRC-Evans will
be $ . The underwriters have severally agreed that, to the extent the
over-allotment option is exercised, they will each purchase a number of
additional shares proportionate to the underwriters' initial amount reflected in
the foregoing table.
The following table provides information regarding the amount of the discount to
be paid to the underwriters by CRC-Evans:
<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE OF TOTAL WITH FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- ------------------------- ---------------------------
<S> <C> <C> <C>
CRC-Evans International, Inc............ $ $ $
</TABLE>
CRC-Evans estimates that its total expenses of the offering, excluding the
underwriting discount, will be approximately $ .
CRC-Evans has agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
53
<PAGE>
CRC-Evans and its officers and directors and certain other CRC-Evans
stockholders, who beneficially own in the aggregate 5,441,400 shares of common
stock, have agreed that for a period of 180 days following the date of this
prospectus, CRC-Evans and such persons will not offer, sell, pledge or otherwise
dispose of shares of common stock and certain other CRC-Evans securities that
they beneficially own, including securities that are convertible into shares of
common stock and securities that are exchangeable or exercisable for shares of
common stock, without the prior written consent of CIBC Oppenheimer Corp.
The representatives have informed CRC-Evans that they do not expect
discretionary sales by the underwriters to exceed five percent of the shares
offered by this prospectus.
CRC-Evans intends to use more than ten percent of the net proceeds of the sale
of the shares to repay indebtedness it owes to Bankers Trust Company, an
affiliate of one of the underwriters. Therefore, the offering is being made in
compliance with the requirements of Rule 2710(c)(8) of the National Association
of Securities Dealers, Inc. Conduct Rules. Under this rule, if more than ten
percent of the net proceeds from the sale of the shares, not including
underwriting compensation, is paid to the underwriters or their affiliates, the
initial public offering price of the stock can be no higher than that
recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, CIBC Oppenheimer Corp. is
assuming the responsibilities of acting as a qualified independent underwriter
in pricing the offering and conducting due diligence. The price of the shares
will be no higher than the price recommended by CIBC Oppenheimer Corp.
There is no established trading market for the shares. The offering price for
the shares has been determined by CRC-Evans and the representatives, based on
the following factors:
o CRC-Evans' historical performance
o Estimates of the earnings prospects of CRC-Evans
o Prevailing market conditions
o Market valuation of companies in related businesses
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
o Stabilizing transactions -- The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.
o Over-allotments and syndicate covering transactions -- The underwriters
may create a short position in the shares by selling more shares than are
set forth on the cover page of this prospectus. If a short position is
created in connection with the offering, the representatives may engage in
syndicate covering transactions by purchasing shares in the open market.
The representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option.
o Penalty bids -- If the representatives purchase shares in the open market
in a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither CRC-Evans nor the underwriters makes any representation or prediction as
to the effect that the transactions described above may have on the price of the
shares. These transactions may occur on or otherwise. If such
transactions are commenced, they may be discontinued without notice at any time.
54
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the sale of the common stock offered
hereby are being passed upon for CRC-Evans by Akin, Gump, Strauss, Hauer & Feld,
L.L.P., and for the underwriters by Andrews & Kurth L.L.P.
EXPERTS
The consolidated financial statements of the Company as of March 31, 1998 and
for the period from June 12, 1997 (date of inception) to March 31, 1998 and the
financial statements of CRC-Evans' predecessors as of March 31, 1997 and for
each of the years in the two year period then ended and the period from April 1,
1997 to June 11, 1997 have been included herein and in the registration
statement in reliance upon the reports of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
55
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
CRC Holdings Corp., and Subsidiaries:
Independent Auditors' Report.... F-2
Consolidated Balance
Sheets -- March 31, 1998 and
September 30, 1998
(Unaudited).................... F-3
Consolidated Statements of
Earnings -- Period from June
12, 1997 to March 31, 1998,
period from June 12, 1997 to
September 30, 1997 (Unaudited)
and six months ended September
30, 1998 (Unaudited)........... F-4
Consolidated Statements of
Stockholders' Equity........... F-5
Consolidated Statements of Cash
Flows -- Period from June 12,
1997 to March 31, 1998, period
from June 12, 1997 to September
30, 1997 (Unaudited) and six
months ended September 30, 1998
(Unaudited).................... F-6
Notes to Consolidated Financial
Statements..................... F-7
CRC Holdings Corp. Predecessor
Business:
Independent Auditors' Report.... F-17
Statement of Net Assets
Acquired -- March 31, 1997..... F-18
Statements of Earnings of Net
Assets Acquired -- Years ended
March 31, 1996 and 1997 and
period from April 1, 1997 to
June 11, 1997.................. F-19
Statements of Equity in Net
Assets Acquired -- Years ended
March 31, 1996 and 1997 and
period from April 1, 1997 to
June 11, 1997.................. F-20
Statements of Cash Flows of Net
Assets Acquired -- Years ended
March 31, 1996 and 1997 and
period from April 1, 1997 to
June 11, 1997.................. F-21
Notes to Financial Statements... F-22
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
WHEN THE TRANSACTION REFERRED TO IN NOTE 15 OF THE NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION TO RENDER
THE FOLLOWING REPORT.
KPMG LLP
The Board of Directors
CRC Holdings Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of CRC Holdings
Corp. and subsidiaries as of March 31, 1998, and the related consolidated
statement of earnings, stockholders' equity and cash flows for the period from
June 12, 1997 (date of inception) to March 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CRC Holdings Corp.
and subsidiaries as of March 31, 1998, and the results of their operations and
their cash flows for the period from June 12, 1997 (date of inception) to March
31, 1998, in conformity with generally accepted accounting principles.
Tulsa, Oklahoma
May 19, 1998 except Note 15
which is as of [date]
F-2
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
1998 1998
---------- --------------
(Unaudited)
ASSETS
Current assets:
Cash............................ $1,558,837 $4,841,090
Accounts receivable net of
allowance for doubtful accounts
of $317,490 and $193,589 at
March 31, 1998 and September 30,
1998, respectively.............. 15,968,674 26,896,979
Inventories..................... 18,281,331 21,110,121
Prepaid expenses and other
current assets................ 650,205 1,033,447
Deferred income taxes........... 351,243 1,543,000
Deferred costs.................. 2,971,685 3,296,995
---------- --------------
Total current assets....... 39,781,975 58,721,632
---------- --------------
Rental assets, net of accumulated
depreciation of $1,776,359 and
$3,188,945 at March 31, 1998 and
September 30, 1998, respectively... 9,836,440 16,293,371
Net property, plant and equipment.... 4,717,621 5,115,465
Debt issue costs, net of accumulated
amortization of $231,078 and
$402,812, at March 31, 1998 and
September 30, 1998, respectively... 1,509,360 1,518,563
Goodwill, net of accumulated
amortization of $72,018............ -- 2,088,529
Deferred income taxes................ 273,110 220,000
Other assets......................... 225,475 512,045
---------- --------------
Total assets............... $56,343,981 $84,469,605
========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of
long-term debt................ $2,387,704 $2,707,342
Bank overdraft.................. 782,951 --
Accounts payable -- trade....... 3,765,307 6,664,944
Income taxes payable............ 635,645 3,154,282
Accrued liabilities............. 6,019,850 7,025,855
Deferred revenue................ 2,134,545 4,838,867
---------- --------------
Total current
liabilities................ 15,726,002 24,391,290
Long-term debt, excluding current
installments....................... 29,019,192 34,521,652
12% subordinated notes due 2002...... 1,919,400 1,919,400
Deferred income taxes................ 83,100 335,800
---------- --------------
Total liabilities.......... 46,747,694 61,168,142
---------- --------------
Stockholders' equity:
Preferred stock, $.01 par value,
2,500,000 shares authorized,
none issued and outstanding... -- --
Common stock, $.01 par value;
25,000,000 shares authorized;
4,000,000 and 6,294,520 shares
issued at March 31, 1998 and
September 30, 1998,
respectively.................. 40,000 62,945
Additional paid-in capital...... 9,100,000 14,270,034
Retained earnings............... 2,342,515 11,164,072
Cumulative foreign currency
translation adjustment........ 41,269 (112,862)
---------- --------------
Stockholders' equity before
notes receivable from
shareholders.................. 11,523,784 25,384,189
Less notes receivable from
shareholders.................. 1,927,497 2,082,726
---------- --------------
Total stockholders'
equity................... 9,596,287 23,301,463
Commitments and contingencies (Notes
12, 13 and 14)
---------- --------------
Total liabilities and
equity................... $56,343,981 $84,469,605
========== ==============
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM SIX MONTHS
JUNE 12, 1997 TO JUNE 12, 1997 TO ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
---------------- ------------------ ------------------
<S> <C> <C> <C>
(Unaudited) (Unaudited)
Revenues:
Sales revenue................... $23,849,375 $9,902,110 $20,428,029
Rental and service revenue...... 27,991,283 11,837,912 36,360,141
---------------- ------------------ ------------------
Total revenues............. 51,840,658 21,740,022 56,788,170
---------------- ------------------ ------------------
Cost of Revenues:
Cost of sales revenue........... 16,096,239 6,470,230 13,341,826
Cost of rental and service
revenue....................... 18,310,559 7,587,640 18,061,715
---------------- ------------------ ------------------
Total cost of revenues..... 34,406,798 14,057,870 31,403,541
---------------- ------------------ ------------------
Gross profit.......... 17,433,860 7,682,152 25,384,629
Operating expenses:
Selling, general and
administrative................ 10,113,322 3,893,514 9,174,868
Research and development........ 951,180 319,442 689,672
Other expenses (income)......... 79,148 (41,705) (323,538)
---------------- ------------------ ------------------
11,143,650 4,171,251 9,541,002
---------------- ------------------ ------------------
Operating income...... 6,290,210 3,510,901 15,843,627
Interest expense..................... 2,411,405 880,566 1,709,132
---------------- ------------------ ------------------
Income before income
taxes............... 3,878,805 2,630,335 14,134,495
Income tax expense................... 1,536,290 1,041,804 5,312,938
---------------- ------------------ ------------------
Net income............ $2,342,515 $1,588,531 $8,821,557
================ ================== ==================
Net income per share:
Basic........................... $ .59 $ .40 $ 1.56
================ ================== ==================
Diluted......................... $ .57 $ .39 $ 1.43
================ ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK CAPITAL IN CURRENCY TOTAL
---------------------- EXCESS OF TRANSLATION RETAINED STOCKHOLDERS'
SHARES PAR VALUE PAR VALUE ADJUSTMENT EARNINGS EQUITY
---------- --------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 12, 1997............... -- $ -- $ -- $ -- $ -- $ --
Net income...................... -- -- -- -- 2,342,515 2,342,515
Issuance of stock............... 4,000,000 40,000 9,100,000 -- -- 9,140,000
Translation adjustments......... -- -- -- 41,269 -- 41,269
---------- --------- ------------- ---------- ------------- -------------
Balance, March 31, 1998.............. 4,000,000 40,000 9,100,000 41,269 2,342,515 11,523,784
---------- --------- ------------- ---------- ------------- -------------
Net income (unaudited).......... -- -- -- -- 8,821,557 8,821,557
Issuance of stock (unaudited)... 2,294,520 22,945 5,170,034 -- -- 5,192,979
Translation adjustments
(unaudited)................... -- -- -- (154,131) -- (154,131)
---------- --------- ------------- ---------- ------------- -------------
Balance, September 30, 1998
(unaudited)........................ 6,294,520 $62,945 $ 14,270,034 $ (112,862) $ 11,164,072 $ 25,384,189
========== ========= ============= ========== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JUNE 12, JUNE 12, SIX MONTHS
1997 TO 1997 TO ENDED
MARCH 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998
----------- ------------- -------------
<S> <C> <C> <C>
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income......................... $ 2,342,515 $ 1,588,531 $ 8,821,557
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization... 2,341,344 857,959 1,888,450
Other........................... 9,717 -- --
Deferred income tax benefit..... (224,000) -- (885,947)
(Increase) decrease in assets:
Accounts receivable........... (599,867) (2,304,446) (10,928,305)
Inventories................... (10,981) 695,605 (2,828,790)
Prepaid expenses and other
assets..................... (658,016) (728,819) (669,812)
Deferred costs................ (2,885,960) (2,382,695) (325,310)
Increase (decrease) in
liabilities:
Accounts payable -- trade..... (6,666,104) (4,547,974) 2,899,637
Accrued liabilities........... 1,301,109 1,279,793 1,006,005
Income taxes payable.......... 635,645 834,586 2,518,637
Deferred income............... 2,134,545 867,665 2,704,322
----------- ------------- -------------
Net cash provided by (used
in) operating
activities............... (2,280,053) (3,839,795) 4,200,444
----------- ------------- -------------
Cash flows from investing activities:
Capital expenditures............... (1,082,942) (65,544) (1,758,811)
Payment for acquired business...... (34,673,749) (34,673,749) (8,901,209)
----------- ------------- -------------
Net cash used in investing
activities............... (35,756,691) (34,739,293) (10,660,020)
----------- ------------- -------------
Cash flows from financing activities:
Increase (decrease) in bank
overdraft....................... 782,951 -- (782,951)
Net borrowings (repayments) under
revolving line of credit........ 12,889,959 12,925,356 (2,046,721)
Proceeds from long-term debt....... 20,000,000 20,000,000 9,000,000
Principal payments on long-term
debt............................ (1,510,063) (693,136) (1,131,181)
Debt issuance costs................ (1,740,438) (1,646,937) (180,937)
Loans to stockholders, net......... (8,097) (1,331) 151
Proceeds from issuance of common
stock........................... 9,140,000 9,140,000 5,037,599
----------- ------------- -------------
Net cash provided by
financing activities..... 39,554,312 39,723,952 9,895,960
Effect of exchange rate changes on
cash............................... 41,269 (106,251) (154,131)
----------- ------------- -------------
Net increase in cash................. 1,558,837 1,038,613 3,282,253
Cash at beginning of period.......... -- -- 1,558,837
----------- ------------- -------------
Cash at end of period................ $ 1,558,837 $ 1,038,613 $ 4,841,090
=========== ============= =============
Supplementary disclosure of cash flow
information:
Cash paid for interest............. $ 2,411,405 $ 880,566 $ 1,462,676
=========== ============= =============
Income taxes....................... $ 1,056,859 $ -- $ 3,679,469
=========== ============= =============
Supplemental disclosure of non-cash
financing information --
Notes receivable from stockholders
for common stock................ $ 1,919,400 $ 1,919,400 $ 155,380
=========== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
CRC Holdings Corp. and subsidiaries (the Company) designs, manufactures, sells,
and rents specialized equipment to the pipeline construction and rehabilitation
industry. The Company operates on a world wide basis through wholly owned
subsidiaries with principal operations located in Tulsa, Oklahoma; Houston,
Texas; Edmonton, Alberta; Burnley, United Kingdom; and Hoevelaken, the
Netherlands.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of CRC
Holdings Corp. and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method for all inventories.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Betterments and renewals that extend the life of the asset are capitalized;
other repairs and maintenance are expensed.
The estimated useful lives for determining depreciation for the major classes of
assets are:
Buildings and improvements.............. 20 to 40 years
Machinery and equipment................. 7 years
Furniture and fixtures.................. 7 years
Automobiles and trucks.................. 5 years
Computer equipment...................... 5 years
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for impairment of long-lived assets to be recognized when
indicators of impairment are present and the undiscounted cash flows are not
sufficient to recover the assets carrying amount. The impairment is measured by
comparing the fair value of the asset to its carrying amount. Fair values are
based on discounted future cash flows or information provided by sales and
purchases of similar assets.
DEBT ISSUANCE COSTS
Debt issuance costs are initially capitalized as intangible assets and are
amortized over the term of the debt to which they relate.
REVENUE RECOGNITION
Equipment sales revenue is recognized when the equipment is shipped. Equipment
rental revenue is deferred and recognized ratably over the term of the rental
agreement. Service revenue is recognized upon customer billing which occurs at
the time the services have been rendered. Cost associated with refurbishing
rental equipment is incurred and deferred at the time the equipment is readied
for use. Such costs are amortized during the rental period.
F-7
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected period
to be benefited which is 15 years. The Company assesses the recoverability of
goodwill by determining whether the amortization of the balance over its
remaining life can be recovered through undiscounted future cash flows of the
acquired operation. The amount of goodwill impairment, if any, is measured based
on projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
FOREIGN CURRENCY TRANSLATION
All significant asset and liability accounts stated in currencies other than
United States dollars are translated into United States dollars at year end
exchange rates. Translation adjustments are accumulated in a separate component
of stockholders' equity. Revenue and expense accounts are converted at
prevailing rates throughout the year.
EMPLOYEE BENEFIT PLAN
The Company has a defined contribution pension plan covering substantially all
of its employees.
STOCK OPTION PLAN
The Company has adopted Statement of Financial Accounting Standards (SFAS) No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of Accounting Principles Board (APB) Opinion
No. 25, ACCOUNTING FOR STOCK-BASED COMPENSATION, and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made in future years as if the fair-value-based method defined in SFAS
No. 123 had been applied. The Company has elected to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
ENVIRONMENTAL REMEDIATION OBLIGATIONS
The Company accrues for losses associated with environmental remediation
obligations, if any, when such losses are probable and reasonably estimable.
Accruals for estimated losses from environmental remediation obligations
generally are recognized no later than completion of the remedial feasibility
study. Such accruals are adjusted as further information develops or
circumstances change. Costs of future expenditures for environmental remediation
obligations are not discounted to their present value. Recoveries of
environmental remediation costs from other parties, if any, are recorded as
assets when their receipt is deemed probable.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
F-8
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERIM PERIOD (UNAUDITED)
The interim unaudited consolidated financial statements, in the opinion of
management, reflect all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the consolidated financial
position and the results of operations for such periods in conformity with
generally accepted accounting principles. The operating results for any interim
period are not necessarily indicative of operating results that may be expected
for a full year.
(2) FORMATION AND ACQUISITION
The Company was formed to acquire the net assets of CRC-Evans Pipeline
International, Inc. and the issued and outstanding shares of CRC-Evans Canada
Ltd. and Pipeline Induction Heat Ltd., wholly owned subsidiaries of the Company.
The aggregate purchase price after working capital adjustments was $36,640,000.
The transaction was effective June 12, 1997.
Other than the issuance of capital stock and debt on June 12, 1997 the Company
had no operations prior to June 12, 1997. Accordingly, the accompanying
consolidated financial statements represent the results of operations from June
12, 1997 to March 31, 1998.
The purchase price net of cash acquired was allocated to the assets acquired and
liabilities assumed as follows:
Accounts receivable.................. $ 15,368,807
Inventories.......................... 18,270,350
Rental assets........................ 10,721,613
Property, plant and equipment........ 4,869,489
Deferred income taxes................ 317,253
Other assets......................... 303,389
Accounts and notes payable.......... (10,458,411)
Accrued liabilities.................. (4,718,741)
--------------
Net assets acquired............. $ 34,673,749
==============
In connection with the issuance of the capital stock the Company also issued
subordinated debentures to certain of its shareholders. The proceeds were
utilized to allow other shareholders to purchase capital stock. The loan is
subordinated, bears interest at 12% and is payable in 2002. The notes receivable
bear interest at 6.75%, are repayable in 2002 and are secured by the common
stock of the Company.
(3) BUSINESS AND CREDIT CONCENTRATIONS
The Company has a concentration of customers in the oil and gas pipeline
construction industry which expose the Company to a concentration of credit risk
within an industry. Receivables are generally not collateralized.
Ten customers were responsible for 45% of the Company's total revenue in the
year ended March 31, 1998. In addition, one customer accounted for approximately
11% of the Company's total revenues in the period ended March 31, 1998. The
Company believes that the allowance for bad debts is adequate.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, bank overdraft, trade
accounts payable, income taxes payable, and accrued liabilities approximate fair
value due to the short maturity of these instruments.
The carrying amounts of notes receivable from shareholders, long-term debt, and
notes payable to shareholders approximate fair value as the interest rates and
terms of the agreements approximate those available to the Company in the
marketplace.
F-9
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1998 1998
------------- --------------
<S> <C> <C>
(Unaudited)
Raw materials........................ $ 8,661,523 $8,573,968
Work-in-process...................... 2,244,875 4,604,457
Finished goods....................... 7,374,933 7,931,696
------------- --------------
$ 18,281,331 $21,110,121
============= ==============
</TABLE>
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of:
MARCH 31, SEPTEMBER 30,
1998 1998
------------ --------------
(Unaudited)
Property, plant and equipment:
Land and improvements................ $ 1,026,228 $1,053,836
Buildings and improvements........... 2,591,995 2,570,546
Machinery and equipment.............. 325,021 463,044
Furniture and fixtures............... 83,165 140,158
Automobiles and trucks............... 379,345 557,958
Leasehold improvements............... 295,940 298,517
Computer equipment................... 344,179 505,294
------------ --------------
5,045,873 5,589,353
Less accumulated depreciation and
amortization....................... (328,252) (473,888)
------------ --------------
Net property, plant and
equipment..................... $ 4,717,621 $5,115,465
============ ==============
F-10
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) GEOGRAPHIC DATA
The Company believes that all of its operations are part of the pipeline
construction and rehabilitation industry and accordingly reports as a single
industry segment. Worldwide operations are conducted through the Company's
principal subsidiaries located in the United States, the United Kingdom and
Canada. Information relating to the Company's operations is set forth in the
following table. Identifiable assets consist of accounts receivable,
inventories, fixed assets and rental equipment. Cost of rental equipment has
been allocated to geographical locations based on the insured value of the
equipment attributable to specific rental contracts.
<TABLE>
<CAPTION>
UNAUDITED
PERIOD FROM JUNE 12, 1997 UNAUDITED SIX MONTHS ENDED
TO MARCH 31, 1998 PERIOD FROM JUNE 12, 1997 SEPTEMBER 30, 1998
---------------------------- TO SEPTEMBER 30, 1997 ----------------------------
IDENTIFIABLE ------------------------- IDENTIFIABLE
REVENUES ASSETS REVENUES REVENUES ASSETS
------------- ------------ ------------------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Algeria.............................. $ 794,000 $ -- $ -- $ -- $ --
Brazil............................... 2,040,000 1,111,000 563,000 2,864,000 1,160,000
Canada............................... 5,521,000 3,977,000 2,918,000 12,084,000 5,245,000
France............................... 2,772,000 64,000 2,091,000 229,000 60,000
Russia............................... 3,955,000 510,000 197,000
United Kingdom....................... 3,470,000 6,703,000 2,069,000 3,739,000 6,541,000
United States........................ 14,069,000 31,209,000 7,766,000 24,137,000 51,235,000
All other............................ 19,220,000 5,740,000 5,823,000 13,538,000 5,174,000
------------- ------------ ------------------------- ------------- ------------
$ 51,841,000 $48,804,000 $21,740,000 $ 56,788,000 $69,415,000
============= ============ ========================= ============= ============
</TABLE>
F-11
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) LONG-TERM DEBT
Long-term debt consists of the following:
MARCH 31 SEPTEMBER 30,
1998 1998
---------- -------------
(Unaudited)
Note payable to bank, bearing interest
at either (i) a base rate equal to the
lendor's base rate or 0.5% above the
Federal funds effective rate, plus
0.25% to 1%, or (ii) the Eurodollar
rate plus the applicable margin
ranging from 1.75% to 2.50% (9.5% and
8.1875% at March 31, 1998); payable in
escalating quarterly installments;
secured by substantially all assets of
the Company. (a)...................... $18,500,000 $17,375,000
Notes payable to bank under $5,000,000
line of credit, bearing interest a
floating rate equal to LIBOR plus 1%
(10.0389% at March 31, 1998); secured
by substantially all assets of the
Company. In July 1998, the Company
added a $2,500,000 acquisition
facility to this note. (a), (b)....... 2,389,959 2,971,675
Note payable to bank under $20,000,000
line of credit, bearing interest at
either (i) a base rate equal to the
higher of the lendor's base rate or
0.5% above the Federal funds effective
rate, plus 0.25% to 1%, or (ii) the
Eurodollar rate plus the applicable
margin ranging from 1.75% to 2.50%
(9.5% and 8.1875% at March 31, 1998);
secured by substantially all assets of
the Company. In July 1998, the line of
credit was increased by $5,000,000 and
the Company added a $17,500,000
acquisition facility. (a), (b)........ 10,500,000 16,500,000
Other installment notes................. 16,937 382,319
---------- -------------
Total notes payable........... 31,406,896 37,228,994
Less current installments............... (2,387,704) (2,707,342)
---------- -------------
Notes payable, excluding
current installments........ $29,019,192 $34,521,652
========== =============
- ---------------------------
(a) The loan agreement which expires June 12, 2003, contains various covenants,
including, but not limited to, maintenance of minimum net worth and a ratio
of liabilities to net worth, as defined in the agreement.
(b) The Company is required to pay a commitment fee ranging from 0.425% to
0.500% of the unused portion of the revolving line of credit. The commitment
fee varies based upon the ratio of average funded debt to earnings before
interest, taxes, depreciation, and amortization.
Aggregate maturities of long-term debt are as follows:
1999................................. $ 2,387,704
2000................................. 2,879,233
2001................................. 3,375,000
2002................................. 3,875,000
2003................................. 4,750,000
Thereafter........................... 14,139,959
F-12
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) INCOME TAXES
Income tax expense (benefit) for the period from June 12, 1997 to March 31, 1998
consists of the following:
CURRENT DEFERRED TOTAL
------------ ----------- ------------
Federal.............................. $ 1,133,323 $ (191,265) $ 942,058
State................................ 162,038 (17,735) 144,303
International........................ 464,929 (15,000) 449,929
------------ ----------- ------------
$ 1,760,290 $ (224,000) $ 1,536,290
============ =========== ============
Total income tax expense differs from the amounts computed by applying the U.S.
federal statutory income tax rates of 34% to income before income taxes as a
result of the following:
Computed "expected" income tax
expense............................ $ 1,318,794
Increase (decrease) in income taxes
resulting from:
State income taxes, net of
federal income tax benefit...... 173,678
Foreign income taxes, net of
federal foreign tax credits..... (31,699)
Expenses not deductible for
income tax purposes............. 121,243
Other........................... (45,726)
------------
$ 1,536,290
============
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets (liabilities) at March 31, 1998 are presented below:
Deferred tax assets (liabilities):
Inventories, principally due to
additional costs capitalized
for tax purposes and the
allowance for obsolete
inventory...................... $ 49,708
Accrued liabilities not
deductible until paid.......... 768,420
Deferred income taxable when
received....................... 610,644
Maintenance costs capitalized
for book purposes.............. (1,077,529)
Property and equipment,
principally due to differences
in depreciation................ 120,260
Debt issue costs, due to
differences in amortization.... (10,840)
Foreign tax credit.............. 80,590
-------------
Net deferred tax assets.... $ 541,253
=============
Management believes that it is more likely than not that the Company will
realize the benefit of the deferred tax assets in future periods.
F-13
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) EARNINGS PER SHARE
The following information reconciles the number of shares used to compute basic
earnings per share to those used to compute diluted earnings per share:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM SIX MONTHS
JUNE 12, 1998 TO JUNE 12, 1997 TO ENDED
MARCH 31, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
(Unaudited)
Net Income........................... $ 2,342,515 $ 1,588,531 $ 8,821,557
=========== =========== ===========
Weighted average shares of common
stock outstanding.................. 4,000,000 4,000,000 5,670,480
Basic earnings per share......... $ .59 $ .40 $ 1.56
=========== =========== ===========
Effect of dilutive
securities -- stock options........ 120,000 120,000 500,840
--------- --------- ---------
4,120,000 4,120,000 6,171,320
========= ========= =========
Diluted earnings per share....... $ .57 $ .39 $ 1.43
=========== =========== ===========
</TABLE>
(11) STOCK OPTION PLAN
On June 12, 1997, the Company adopted a stock option plan (the 1997 Plan) and
granted options to key employees to purchase up to 120,000 shares of the
Company's stock. The options originally had an exercise price equal to the
stock's initial price per share times 1.0675 raised to the power of n, where n
equals number of years from the date of grant. These options vest in twenty
percent annual increments and become fully exercisable after five years from the
date of grant. All stock options expire August 31, 2002.
At March 31, 1998, there were no additional shares available for grant under the
Plan. The per share weighted-average fair value of stock options granted was
$2.28 on the date of grant using the Minimum Value method assuming a risk-free
interest rate of 6.75% and an expected life of five years.
The Company applies APB Opinion No. 25 and records compensation expense,
accordingly. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options under SFAS No. 123, the Company's
net income would not have been impacted as the exercise price multiplier is
equal to the assumed risk-free interest rate.
(12) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company provides warranties on parts and
equipment sold and rented.
In addition to these warranties, the Company has warranted specific systems and
components provided for an oceangoing pipe laying vessel. The Company is liable
for all items, systems, components, and spare parts through October 1998 and for
design failure through October 2001. The Company's liability on design failure
is limited to the amount required to correct the design failure, including
replacement, reassembly, and technical support. The Company is not liable for
loss of business or revenue. The vessel is undergoing tests and no claims have
been made to date under the warranty provisions of the contract. The Company has
accrued an estimated amount for its liability under the warranty provisions. The
aggregate amount of warranty claims, if any, cannot be determined. Payments of
claims significantly in excess of amounts accrued, if any, could have an adverse
effect on the Company's consolidated financial position, results of operations,
and liquidity.
F-14
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is obligated under various noncancelable operating leases for
certain operating facilities, automobiles, and equipment. The remaining terms of
the leases range from one to sixteen years. Future minimum lease payments as of
March 31, 1998 are:
Year ending March 31:
1999....................... $ 177,000
2000....................... 171,000
2001....................... 160,000
2002....................... 149,000
2003....................... 149,000
Thereafter...................... 1,639,000
Rent expense was approximately $290,385 for the period ended March 31, 1998.
The Company has issued standby letters of credit aggregating $1,686,000 to
guarantee performance to third parties under certain contracts.
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, or liquidity.
(13) SUBSEQUENT EVENTS -- UNAUDITED
In April 1998, the Company acquired substantially all of the business assets of
B.L. Key Services LLC (B. L. Key), a manufacturer and seller of concrete
pipeline weights. This acquisition was accounted for using the purchase method
of accounting. The purchase price of the assets acquired totaled approximately
$3,029,000 of which $1,029,000 was paid in cash and $2,000,000 was financed with
a note payable to the seller. Goodwill, which represents the excess of purchase
price over fair value of net assets acquired, will be amortized on a
straight-line basis over 15 years. The results of operations for B.L. Key have
been included from the date of acquisition.
The estimated fair value of assets acquired consists of the following:
Inventory............................ $ 119,000
Property and equipment............... 1,193,000
Other................................ 29,000
------------
Fair value of net assets acquired.... 1,341,000
Excess of purchase price paid over
fair value of assets acquired...... 1,688,000
------------
$ 3,029,000
============
On May 29, 1998 the Company acquired substantially all of the pipeline equipment
assets of Hamilton Heavy Equipment, Inc. and Jerry Hamilton dba HHC
International (collectively, Hamilton). This acquisition was accounted for using
the purchase method of accounting. The purchase price of the assets was
$5,748,000 of which $4,773,000 was paid in cash at closing, $400,000 financed
with a note payable to the seller and the balance to be paid upon receipt of
final valuations. The results of operations for Hamilton have been included from
the date of acquisition.
The estimated fair value of the assets acquired follows:
Rental assets........................ $ 5,495,000
Inventory............................ 200,000
Property and equipment............... 53,000
------------
$ 5,748,000
============
F-15
<PAGE>
CRC HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1998, the Company issued 2,226,520 shares of common stock at $2.28 per
share for total proceeds of $5,087,598. In conjunction with the issuance, the
Company paid a $25,000 fee plus out of pocket expenses to each of the two
majority shareholders.
In June 1998, the Company issued 68,000 shares of common stock at $2.28 per
share in exchange for a note payable of $155,380.
In November 1998, the Company acquired substantially all of the business assets
of Didcot Heat Treatment Limited (Didcot) for an aggregate purchase price of
$3,400,000 using the purchase method of accounting. Didcot performs resistance
heat treating services, with its primary markets in the United Kingdom and
Western Europe.
(14) INITIAL PUBLIC OFFERING -- UNAUDITED
On December 7, 1998, the Company filed a registration statement with the
Securities and Exchange Commission relating to the initial public offering (IPO)
of 3,000,000 shares of its common stock. The Company intends to use the net
proceeds from the offering, estimated to be $35,782,500 to repay indebtedness
and to provide working capital for general corporate purposes, including
strategic acquisitions.
Upon successful completion of an IPO, the Company will be required to disclose
pro-forma net income and earnings per share amounts giving effect to expected
future volatility of the Company's stock price. In addition, the Company will be
required to record additional compensation expense for stock options. As certain
amendments to the option plan have not been finalized, the additional
compensation expense and related disclosures have not been reflected in these
financial statements.
The expected additional compensation expense, which may be material, will depend
on a number of factors, including the plan amendments. The Company intends to
finalize these amendments, record additional compensation expense, and provide
the required disclosures prior to completion of an IPO.
(15) OTHER
At or before the effective date of this registration statement, the Company
intends to effect a 40-for-1 split of its common stock. The share and per share
amounts in the accompanying financial statements have been adjusted to reflect
the common stock split for all periods presented.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CRC Holdings Corp.:
We have audited the statement of net assets acquired of CRC Holdings Corp.
Predecessor Businesses as of March 31, 1997 and the related statements of
earnings of net assets acquired, equity in net assets acquired and cash flows
for the years ended March 31, 1996 and 1997 and for the period from April 1,
1997 to June 11, 1997. These financial statements are the responsibility of the
management of CRC Holdings Corp. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets acquired of CRC Holdings Corp. Predecessor
Businesses as of March 31, 1997 and the results of operations and cash flows for
the years ended March 31, 1996 and 1997 and for the period from April 1, 1997 to
June 11, 1997, in conformity with generally accepted accounting principles.
KPMG LLP
Tulsa, Oklahoma
October 3, 1998
F-17
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
STATEMENT OF NET ASSETS ACQUIRED
MARCH 31, 1997
ASSETS
Current assets:
Cash............................... $ 2,761,376
Accounts receivable net of
allowance for doubtful accounts of
$618,084.......................... 17,688,716
Inventories........................ 15,187,889
Prepaid expenses and other current
assets............................ 172,039
Deferred income taxes.............. 1,138,423
Deferred costs..................... 2,015,524
-------------
Total current assets.......... 38,963,967
-------------
Rental assets, net of accumulated
depreciation of $22,074,798........... 4,759,171
Net property, plant and equipment....... 3,737,124
Deferred income taxes................... 344,538
Other assets............................ 228,882
-------------
Total assets.................. $ 48,033,682
=============
LIABILITIES AND EQUITY
Current liabilities:
Notes payable...................... $ 29,121
Accounts payable -- trade.......... 4,582,552
Income taxes payable............... 555,703
Accrued liabilities................ 4,252,786
Deferred revenue................... 3,751,617
-------------
Total current liabilities..... 13,171,779
Equity in net assets acquired........... 34,861,903
Commitments and contingencies (note 8)
-------------
Total liabilities and
equity........................ $ 48,033,682
=============
See accompanying notes to financial statements.
F-18
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
STATEMENTS OF EARNINGS OF NET ASSETS ACQUIRED
YEARS ENDED MARCH 31, 1996 AND 1997 AND THE PERIOD APRIL 1, 1997 TO JUNE 11,
1997
MARCH 31, MARCH 31, JUNE 11,
1996 1997 1997
------------- ------------- -------------
Revenues:
Sales revenue................. $ 25,324,527 $ 26,081,330 $ 5,686,973
Rental and service revenue.... 39,329,096 43,293,159 6,928,325
------------- ------------- -------------
Total revenues........... 64,653,623 69,374,489 12,615,298
------------- ------------- -------------
Cost of revenues:
Cost of sales revenue......... 16,594,858 18,372,975 3,712,139
Cost of rental and service
revenue..................... 29,255,453 28,302,656 5,450,835
------------- ------------- -------------
Total cost of revenues... 45,850,311 46,675,631 9,162,974
------------- ------------- -------------
Gross profit............. 18,803,312 22,698,858 3,452,324
------------- ------------- -------------
Operating expenses:
Selling, general and
administrative.............. 13,055,632 13,017,645 3,015,862
Research and development...... 855,900 753,919 152,928
Other expenses (income)....... 2,750,298 367,135 (152,674)
------------- ------------- -------------
Operating income......... 2,141,482 8,560,159 436,208
Interest income.................... 245,147 688,714 49,676
------------- ------------- -------------
Income before income
taxes.................. 2,386,629 9,248,873 485,884
Income tax expense................. 888,848 3,359,203 207,108
------------- ------------- -------------
Net income............... $ 1,497,781 $ 5,889,670 $ 278,776
============= ============= =============
See accompanying notes to financial statements.
F-19
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
STATEMENTS OF EQUITY IN NET ASSETS ACQUIRED
YEARS ENDED MARCH 31, 1996 AND 1997 AND THE PERIOD APRIL 1, 1997 TO JUNE 11,
1997
MARCH 31, MARCH 31, JUNE 11,
1996 1997 1997
---------- ---------- ----------
Equity in net assets acquired at
beginning of period................. $34,695,243 $27,841,772 $34,861,903
Net income.......................... 1,497,781 5,889,670 278,776
Effect of exchange rate changes..... (178,208) 306,999 297,725
Net capital contributions
(withdrawals)....................... (8,173,044) 823,462 (2,948,148)
---------- ---------- ----------
Equity in net assets at end of
period.............................. $27,841,772 $34,861,903 $32,490,256
========== ========== ==========
See accompanying notes to financial statements.
F-20
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
STATEMENTS OF CASH FLOWS OF NET ASSETS ACQUIRED
YEARS ENDED MARCH 31, 1996 AND 1997 AND THE PERIOD APRIL 1, 1997 TO JUNE 11,
1997
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, JUNE 11,
1996 1997 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $ 1,497,781 $ 5,889,670 $ 278,776
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization... 4,836,161 2,287,012 387,560
Other........................... 74,311 153,451 (25,740)
Deferred income tax benefit..... (887,614) (417,356) 3,027
(Increase) decrease in assets:
Accounts receivable........... 6,161,830 (2,107,661) 1,789,726
Inventories................... 104,530 (2,928,757) (3,012,645)
Prepaid expenses and other
assets..................... 230,947 (152,757) 187,770
Deferred costs................ 399,606 (903,350) (683,481)
Increase (decrease) in
liabilities:
Accounts payable -- trade..... 538,359 413,025 483,449
Accrued liabilities........... (935,691) (1,551,140) 155,028
Income taxes payable.......... 700,755 (324,381) (326,208)
Deferred income............... (3,715,597) 2,703,531 531,436
------------- ------------- -------------
Net cash provided by (used
in) operating
activities............... 9,005,378 3,061,287 (231,302)
------------- ------------- -------------
Cash flows from investing
activities --
Capital expenditures............... (464,114) (2,366,731) (37,147)
------------- ------------- -------------
Net cash used in investing
activities............... (464,114) (2,366,731) (37,147)
------------- ------------- -------------
Cash flows from financing activities:
Principal payments on debt......... (1,076,467) (8,957) (2,121)
Net increase (decrease) in equity
in net assets acquired.......... (8,173,044) 823,462 (2,948,148)
------------- ------------- -------------
Net cash provided by (used
in) financing
activities............... (9,249,511) 814,505 (2,950,269)
------------- ------------- -------------
Effect of exchange rate changes on
cash............................... (178,208) 306,999 297,725
------------- ------------- -------------
Net increase in cash................. (886,455) 1,816,060 (2,920,993)
Cash at beginning of period.......... 1,831,771 945,316 2,761,376
------------- ------------- -------------
Cash at end of period................ $ 945,316 $ 2,761,376 $ (159,617)
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Effective June 12, 1997 CRC Holdings Corp. (Holdings) acquired from Weatherford
Enterra, Inc. (Weatherford) the net assets of CRC-Evans Pipeline International,
Inc. and the issued and outstanding shares of CRC-Evans Canada, Ltd, and
Pipeline Induction Heat, Ltd. (collectively the Predecessor Businesses). Prior
to the acquisition the Predecessor Businesses were operated as a business unit
by Weatherford.
The accompanying financial statements have been prepared from records maintained
by Weatherford and may not necessarily be indicators of the conditions which
could have existed if the Predecessor Businesses had been operated as an
independent entity.
DESCRIPTION OF BUSINESS
The Predecessor Businesses design, manufacture, sell, and rent specialized
equipment to the pipeline construction and rehabilitation industry. The
Predecessor Businesses operate on a world wide basis with principal operations
located in Tulsa, Oklahoma; Houston, Texas; Edmonton, Alberta; Burnley, United
Kingdom; and Hoevelaken, the Netherlands.
CASH AND CASH EQUIVALENTS
The Predecessor Businesses consider all highly liquid investments with original
maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method for all inventories.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Betterments and renewals that extend the life of the asset are capitalized;
other repairs and maintenance are expensed.
The estimated useful lives for determining depreciation for the major classes of
assets are:
Buildings and improvements........... 20 to 40 years
Machinery and equipment.............. 7 years
Furniture and fixtures............... 7 years
Automobiles and trucks............... 5 years
Computer equipment................... 5 years
IMPAIRMENT OF LONG-LIVED ASSETS
The Predecessor Businesses account for impairment of long-lived assets to be
recognized when indicators of impairment are present and the undiscounted cash
flows are not sufficient to recover the assets carrying amount. The impairment
is measured by comparing the fair value of the asset to its carrying amount.
Fair values are based on discounted future cash flows or information provided by
sales and purchases of similar assets.
REVENUE RECOGNITION
Equipment sales revenue is recognized when the equipment is shipped. Equipment
rental revenue is recognized during the period of customer usage. Rental revenue
derived from equipment located outside of the continental United States is
deferred and recognized ratable over the term of the rental agreement. Service
revenue is recognized upon customer billing which occurs at the time the
services have been
F-22
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
rendered. Cost associated with refurbishing rental equipment is incurred and
deferred at the time the equipment is readied for use. Such costs are amortized
during the rental period.
INCOME TAXES
The results of operations of the Predecessor Businesses are included in
Weatherford's consolidated federal and state income tax returns. Income tax
expense or benefit has been determined as if the Predecessor Businesses filed a
separate federal and state tax return.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
FOREIGN CURRENCY TRANSLATION
All significant asset and liability accounts stated in currencies other than
United States dollars are translated into United States dollars at year end
exchange rates. Translation adjustments are accumulated in a separate component
of stockholders' equity. Revenue and expense accounts are converted at
prevailing rates throughout the year.
EMPLOYEE BENEFIT PLAN
The Predecessor Businesses have a defined contribution pension plan covering
substantially all of their employees.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) BUSINESS AND CREDIT CONCENTRATIONS
The Predecessor Businesses have a concentration of customers in the oil and gas
pipeline construction industry which exposes the Predecessor Businesses to a
concentration of credit risk within an industry, including one customer which
accounts for approximately 10% of total revenues. Receivables are generally not
collateralized. The allowance for bad debts is considered adequate.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, trade accounts payable,
income taxes payable, and accrued liabilities approximate fair value due to the
short maturity of these instruments.
(4) INVENTORIES
Inventories at March 31, 1997 consist of the following:
Raw materials........................... $ 5,375,067
Work-in-process......................... 4,726,083
Finished goods.......................... 5,086,739
-------------
$ 15,187,889
=============
F-23
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of:
Property, plant and equipment:
Land and improvements........... $ 751,161
Buildings and improvements...... 2,981,060
Machinery and equipment......... 1,074,652
Furniture and fixtures.......... 337,339
Automobiles and trucks.......... 1,125,029
Leasehold improvements.......... 437,079
Computer equipment.............. 1,086,617
------------
7,792,937
Less accumulated depreciation
and amortization.............. 4,055,813
------------
Net property, plant and equipment.... $ 3,737,124
============
(6) GEOGRAPHIC DATA
The Predecessor Business believes that all of its operations are part of the
pipeline construction and rehabilitation industry and accordingly reports as a
single industry segment. Worldwide operations are conducted through entities
located in the United States, the United Kingdom and Canada. Information
relating to the Predecessor Business operations is set forth in the following
table. Identifiable assets consist of accounts receivable, inventories, fixed
assets and rental equipment. Cost of rental equipment has been allocated to
geographical locations based on the insured value of the equipment attributable
to specific rental contracts.
<TABLE>
<CAPTION>
PERIOD FROM
1997 APRIL 1, 1997 TO
1996 ----------------------------- JUNE 11, 1997
------------- IDENTIFIABLE -----------------
REVENUES REVENUES ASSETS REVENUES
------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Algeria........... $ 13,119,000 $ 9,109,000 $ -- $ 695,000
Brazil............ 1,251,000 623,000 -- 13,000
Canada............ 5,131,000 8,297,000 2,557,000 555,000
France............ 860,000 2,413,000 196,000 1,332,000
Russia............ 6,208,000 5,640,000 -- 1,152,000
United Kingdom.... 4,583,000 4,466,000 7,288,000 955,000
United States..... 12,630,000 13,033,000 27,452,000 3,102,000
All other......... 20,872,000 25,793,000 3,880,000 4,811,000
------------- ------------- ------------- -----------------
$ 64,654,000 $ 69,374,000 $ 41,373,000 $12,615,000
============= ============= ============= =================
</TABLE>
F-24
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES
Income tax expense (benefit) consists of the following for the years ended March
31, 1996 and 1997 and the period from April 1, 1997 to June 11, 1997:
CURRENT DEFERRED TOTAL
------------ ----------- ------------
March 31, 1996:
Federal......................... $ 351,255 $ (556,728) $ (205,473)
State........................... 133,451 (56,409) 77,042
Foreign......................... 1,291,756 (274,477) 1,017,279
------------ ----------- ------------
$ 1,776,462 $ (887,614) $ 888,848
============ =========== ============
March 31, 1997:
Federal......................... $ 2,252,715 $ (430,483) $ 1,822,232
State........................... 414,861 (43,617) 371,244
Foreign......................... 1,108,983 56,744 1,165,727
------------ ----------- ------------
$ 3,776,559 $ (417,356) $ 3,359,203
============ =========== ============
June 11, 1997:
Federal......................... $ 171,979 $ 48,919 $ 220,898
State........................... 38,962 4,957 43,919
Foreign......................... (6,860) (50,849) (57,709)
------------ ----------- ------------
$ 204,081 $ 3,027 $ 207,108
============ =========== ============
Total income tax expense differs from the amounts computed by applying the U.S.
federal statutory income tax rates of 34% to income before income taxes as a
result of the following:
MARCH 31, MARCH 31, JUNE 11,
1996 1997 1997
---------- ------------ ----------
Computed "expected" income tax
expense............................ $ 811,454 $ 3,144,617 $ 165,201
Increase (decrease) in income taxes
resulting from:
State income taxes, net of
federal income tax benefit.... 50,848 245,021 28,987
Expenses not deductible for
income tax purposes........... 91,146 87,961 17,197
Other........................... (64,600) (118,396) (4,277)
---------- ------------ ----------
$ 888,848 $ 3,359,203 $ 207,108
========== ============ ==========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets (liabilities) at March 31, 1997 are presented below:
Deferred tax assets (liabilities):
Inventories, principally due to
additional costs capitalized
for tax purposes and the
allowance for obsolete
inventory...................... $ 18,715
Accrued liabilities not
deductible until paid.......... 1,119,708
Property and equipment,
principally due to differences
in depreciation................ 344,538
------------
Net deferred tax assets.... $ 1,482,961
============
Management believes that it is more likely than not that the benefit of the
deferred tax assets will be realized in future periods.
(8) COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Predecessor Businesses provide
warranties on parts and equipment sold and rented.
F-25
<PAGE>
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In addition to these warranties, the Predecessor Businesses have warranted
specific systems and components provided for an oceangoing pipe laying vessel.
The Predecessor Businesses are liable for all items, systems, components, and
spare parts through October 1998 and for design failure through October 2001.
The Predecessor Businesses' liability on design failure is limited to the amount
required to correct the design failure, including replacement, reassembly, and
technical support. The Predecessor Businesses are not liable for loss of
business or revenue. The vessel is undergoing tests and no claims have been made
through June 11, 1997, under the warranty provisions of the contract. The
Predecessor Businesses have accrued an estimated amount for its liability under
the warranty provisions. The aggregate amount of warranty claims, if any, cannot
be determined. Payments of claims significantly in excess of amounts accrued, if
any, could have an adverse effect on the Predecessor Businesses' financial
position, results of operations, and liquidity.
The Predecessor Businesses are obligated under various noncancelable operating
leases for certain operating facilities, automobiles, and equipment. The
remaining terms of the leases range from one to sixteen years. Future minimum
lease payments as of March 31, 1997 are:
YEAR ENDING MARCH 31:
1998............................ $ 182,000
1999............................ 182,000
2000............................ 165,000
2001............................ 158,000
Thereafter...................... 1,910,000
Rent expense was approximately $145,444, $91,862, and $170,948 for the years
ended March 31, 1996 and 1997, and the period from April 1, 1997 to June 11,
1997.
The Predecessor Businesses have issued standby letters of credit aggregating
$1,462,084 to guarantee performance to third parties under certain contracts.
The Predecessor Businesses are involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
the Predecessor Businesses' financial position, results of operations, or
liquidity.
F-26
<PAGE>
SCHEDULE IIA
CRC HOLDINGS CORP. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM JUNE 12, 1997 TO MARCH 31, 1998
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
JUNE 12, COST AND DEDUCTIONS/ MARCH 31,
1997 EXPENSE WRITEOFFS 1998
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Accounts receivable -- allowance for
doubtful accounts.................. $ 369,055 $ 13,975 $65,540 $ 317,490
========== ========== =========== ==========
</TABLE>
<PAGE>
SCHEDULE IIB
CRC HOLDINGS CORP. PREDECESSOR BUSINESSES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 1996 AND 1997 AND THE PERIOD APRIL 1, 1997 TO JUNE 11,
1997
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
APRIL 1, COST AND DEDUCTIONS/ MARCH 31,
1995 EXPENSE WRITEOFFS 1996
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Accounts receivable -- allowance for
doubtful accounts.................. $ 309,165 $ 83,570 $56,812 $ 335,923
========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
APRIL 1, COST AND DEDUCTIONS/ MARCH 31,
1996 EXPENSE WRITEOFFS 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Accounts receivable -- allowance for
doubtful accounts.................. $ 335,923 $305,081 $22,920 $ 618,084
========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
APRIL 1, COST AND DEDUCTIONS/ JUNE 11,
1997 EXPENSE WRITEOFFS 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Accounts receivable -- allowance for
doubtful accounts.................. $ 618,084 $ 1,354 $ 250,383 $ 369,055
========== ========== =========== ==========
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
CRC-EVANS INTERNATIONAL, INC.
SHARES
COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
, 1999
CIBC OPPENHEIMER
BT ALEX. BROWN
SIMMONS & COMPANY
INTERNATIONAL
- --------------------------------------------------------------------------------
INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO
DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS
NOT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS
IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER
OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE
DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 1999 (25
DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS THAT EFFECT
TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS'
OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions,
are set forth in the following table. The company shall pay the estimated
expenses of issuance and distribution in proportion to the respective number of
shares sold by it in the offering. Each amount, except for the Securities and
Exchange Commission and National Association of Securities Dealers, Inc. fees,
is estimated.
SEC registration fees................ $ 13,000
NASD filing fees..................... $ 5,000
application and listing
fees................................. $ *
Transfer agent's and registrar's fees
and expenses......................... $ *
Printing and engraving expenses...... $ *
Legal fees and expenses.............. $ *
Accounting fees and expenses......... $ *
Blue sky fees and expenses........... $ *
Miscellaneous........................ $ *
---------
Total........................... $ *
=========
- ---------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") empowers a Delaware corporation to indemnify any person who was or is
a party, or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation) by
reason of the fact that such person is or was an officer or director of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding, provided that such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. A Delaware
corporation may indemnify past or present officers and directors of such
corporation or of another corporation or other enterprise at the former
corporation's request, in an action by or in the right of the corporation to
procure a judgment in its favor under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in defense of any action
referred to above, or in defense of any claim, issue or matter therein, the
corporation must indemnify such person against the expenses (including
attorneys' fees) which such person actually and reasonably incurred in
connection therewith. Section 145 further provides that any indemnification
shall be made by the corporation only as authorized in each specific case upon a
determination that indemnification of such person is proper because he has met
the applicable standard of conduct by the (i) stockholders, (ii) board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, (iii) committee of directors who are
not parties to such action, suit or proceeding designated by majority vote by
such disinterested directors even if less than a quorum, or (iv) independent
legal counsel, if there are no such disinterested directors, or if such
disinterested directors so direct. Section 145 further provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
II-1
<PAGE>
CRC-Evans has entered into indemnification agreements with each of its directors
and certain of its executive officers. The indemnification agreements provide
that CRC-Evans shall indemnify each of its directors and his affiliates and any
"controlling person" (within the meaning of applicable securities laws) and
each indemnified officer against certain liabilities (including settlements) and
expenses actually and reasonably incurred by them in connection with any
threatened or pending legal action, proceeding or investigation (other than
actions brought by or in the right of CRC-Evans) to which any of them is, or is
threatened to be, made a party by reason of their status as a director,
affiliate, "controlling person," officer or agent of CRC-Evans; PROVIDED that,
with respect to a civil, administrative or investigative (other than criminal)
action, such individual acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of CRC-Evans, and with
respect to any criminal proceedings, he or she had no reasonable cause to
believe his or her conduct was unlawful. With respect to any action brought by
or in the right of CRC-Evans, such individuals may be indemnified, to the extent
not prohibited by applicable laws or as determined by a court of competent
jurisdiction, against expenses actually and reasonably incurred by them in
connection with such action if they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of
CRC-Evans. The agreements also require indemnification of such individuals for
all reasonable expenses incurred in connection with the successful defense of
any action or claim and provide for partial indemnification in the case of any
partially successful defense.
CRC-Evans has obtained an insurance policy providing for indemnification of its
officers and directors and certain other persons against liabilities and
expenses incurred by any of them in certain stated proceedings and under certain
stated conditions. CRC-Evans has entered into separate indemnification
agreements with each of its directors which may require CRC-Evans, among other
things, to indemnify such directors against certain liabilities that may arise
by reason of their status or service as directors to the maximum extent
permitted under Delaware law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
All of the following issuances reflect figures prior to CRC-Evans' 40-for-1
stock split. Since its inception on June 12, 1997, CRC-Evans issued and sold the
following unregistered securities:
(1) On June 12, 1997, CRC-Evans issued 35,000 shares of common stock to
Natural Gas Partners in connection with the management buyout for $91.40
per share. On June 12, 1997, CRC-Evans issued a subordinated promissory
note to Equus, due June 30, 2002, in the original principal amount of
$959,700, and bearing interest at 12% per annum. On May 20, 1998,
CRC-Evans issued an additional 24,891 shares of common stock to Natural
Gas Partners for $91.40 per share. All of these issuances were exempt
from registration under Section 4(2) of the Securities Act.
(2) On June 12, 1997, CRC-Evans issued 35,000 shares of common stock to
Equus, in connection with the management buyout for $91.40 per share. On
June 12, 1997, CRC-Evans issued a subordinated promissory note to Natural
Gas Partners, due June 30, 2002, in the original principal amount of
$959,700, and bearing interest at 12% per annum. On May 20, 1998,
CRC-Evans issued an additional 24,891 shares of common stock to Equus for
$91.40 per share. All of these issuances were exempt from registration
under Section 4(2) of the Securities Act.
(3) On June 12, 1997, CRC-Evans issued 30,000 shares of common stock to
members of management and certain employees, in connection with the
management buyout for $91.40 per share. On May 20, 1998, CRC-Evans issued
an additional 5,881 shares of common stock to members of management and
certain employees for $91.40 per share. Both issuances were exempt from
registration under Section 4(2) of the Securities Act.
(4) On June 15, 1998, CRC-Evans issued 1,700 shares of common stock to
Windell D. Norris, Jr. for $91.40 per share. This issuance was exempt
from registration under Section 4(2) of the Securities Act.
II-2
<PAGE>
ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following is a list of exhibits filed as part of this Registration
Statement.
EXHIBIT NO. DESCRIPTION
- -------------------------------------------------------------
1.1* -- Form of Underwriting Agreement.
3.1* -- Form of Amended and Restated
Certificate of Incorporation of
CRC-Evans.
3.2* -- Form of Amended and Restated Bylaws
of CRC-Evans.
4.1* -- Specimen of Stock Certificate.
4.2+ -- Registration Rights Agreement, dated
June 12, 1997, among CRC-Evans and
Natural Gas Partners, Equus and
Messrs. Wood, Evans and Carey.
5.1* -- Opinion of Akin, Gump, Strauss, Hauer
& Feld, L.L.P.
10.1+ -- Form of Indemnity Agreement entered
into by CRC-Evans in favor of members
of the Board of Directors and certain
executive officers.
10.2+ -- Revolving Credit and Term Loan
Agreement dated June 12, 1997, by and
among CEPI Holdings, Inc., CRC-Evans
and a syndicate of banks led by
BankBoston.
10.3+ -- Facility Agreement dated June 12,
1997, by and among Pipeline Induction
Heat Limited and a syndicate of banks
led by BankBoston.
10.4+ -- First Amendment to Revolving Credit
and Term Loan Agreement, dated July
3, 1998, by and among CRC-Evans
Pipeline International, Inc., CRC
Holdings Corp., BankBoston and
Bankers Trust Company.
10.5+ -- Supplemental Agreement dated July 3,
1998, amending Facility Agreement
dated June 12, 1997, among Pipeline
Induction Heat Limited and
BankBoston.
10.6* -- Form of Stockholders Agreement.
10.7+ -- Form of Employment Agreement,
executed June 1997, by and among
CRC-Evans, the predecessor business
and Messrs. Carey, Wood and Evans.
10.8+ -- Amended and Restated Asset Purchase
Agreement dated as of January 31,
1997, by and among the predecessor
business, Weatherford Enterra, Inc.
and CRC-Evans.
10.9+ -- Share Transfer Agreement dated June
12, 1997, between Weatherford Enterra
Canada Ltd. and CRC-Evans.
10.10+ -- Agreement of Purchase and Sale dated
as of April 24, 1998, by and among
CRC-Evans Pipeline International,
Inc., Tulsa Pipeline Equipment &
Supply, Inc., Hamilton Heavy
Equipment, Inc., and Jerry Hamilton,
individually and d/b/a/ HHC
International.
10.11+ -- Amendment to Agreement of Purchase
and Sale dated as of April 24, 1998,
by and among CRC-Evans Pipeline
International, Inc., Tulsa Pipeline
Equipment & Supply, Inc., Hamilton
Heavy Equipment, Inc., and Jerry
Hamilton, individually and d/b/a/ HHC
International.
10.12+ -- Asset Purchase Agreement dated as of
March 31, 1998, by and among CRC-Key,
Inc. and B.L. Key Services, L.L.C.,
Bobby L. Key, James C. McGill, the
James C. McGill Revocable Living
Trust and James Michael McGill
10.13+ -- Form of Option Agreement granting
options to certain employees of
CRC-Evans, dated June 12, 1997.
10.14+ -- Option Plan, dated May 20, 1998.
10.15+ -- Form of Option Agreement issued under
the Option Plan.
10.16+ -- Amendment No. 1 to Option Plan, dated
June 15, 1998.
II-3
<PAGE>
EXHIBIT NO. DESCRIPTION
- -------------------------------------------------------------
10.17 -- Agreement for the Sale and Purchase
of the whole of the Issued Share
Capital of Ditcot Heat Treatment
Limited, dated November 18, 1998,
among Andrew Maxwell Anderson, Hilda
Jane Anderson and Pipeline Induction
Heat Limited.
10.18* -- Form of Stock Incentive Plan.
10.19+ -- Form of Promissory Note, dated June
12, 1997, made by Messrs. Wood,
Carey, Evans and Francis, James F.
Reed, Jr., P.M. Bond, B.C. Goff,
Richard L. Jones, Brian S. Laing,
Geurt W. Meijer, Dale Roland, M.P.
Smith, Sidney A. Taylor and Robert A.
Teale, to the order of CRC-Evans.
10.20+ -- Promissory Note, dated June 15, 1998,
made by Mr. Norris to the order of
CRC-Evans.
10.21+ -- Key Management Incentive Compensation
Plan, dated as of June 13, 1997.
10.22+ -- Fee Agreement, dated June 12, 1997,
between CRC-Evans and Natural Gas
Partners.
10.23+ -- Fee Agreement, dated June 12, 1997,
between CRC-Evans and Equus.
10.24* -- Form of Promissory Note, dated June
12, 1997, made by CRC-Evans to the
order of each of Natural Gas Partners
and Equus.
21.1+ -- List of subsidiaries of CRC-Evans.
23.1 -- Consent of KPMG LLP.
23.2* -- Consent of Akin, Gump, Strauss, Hauer
& Feld, L.L.P. (contained in Exhibit
5.1).
24.1+ -- Power of Attorney.
27.1+ -- Financial Data Schedule.
- ---------------------------
* To be filed by amendment.
+ Previously filed.
(b) Financial Data Schedules
None.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to Item 14 herein, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the underwriter at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON,
STATE OF TEXAS, ON FEBRUARY 12, 1999.
CRC-EVANS INTERNATIONAL, INC.
By: /s/ NORMAN R. FRANCIS
NORMAN R. FRANCIS,
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT THIS REGISTRATION STATEMENT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON FEBRUARY
12, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------- ----------------------------------- -----------------
<S> <C> <C>
* Chairman and Chairman of the Board February 12, 1999
(D. DALE WOOD) of Directors
* Chief Executive Officer and February 12, 1999
(M. TIMOTHY CAREY) Director (Principal Executive
Officer)
* President and Director February 12, 1999
(C. PAUL EVANS)
/s/ NORMAN R. FRANCIS Chief Financial Officer, Treasurer February 12, 1999
(NORMAN R. FRANCIS) and Secretary (Principal Accounting
and Financial Officer)
* Director February 12, 1999
(KENNETH A. HERSH)
* Director February 12, 1999
(RICHARD L. COVINGTON)
* Director February 12, 1999
(NOLAN LEHMANN)
* Director February 12, 1999
(GARY L. FORBES)
/s/ NORMAN R. FRANCIS February 12, 1999
*ATTORNEY-IN-FACT
</TABLE>
II-5
EXHIBIT 10.17
DATED 18 NOVEMBER, 1998
(1) MR AND MRS A M ANDERSON
(2) PIPELINE INDUCTION HEAT LIMITED
AGREEMENT FOR THE SALE AND PURCHASE OF
THE WHOLE OF THE ISSUED SHARE CAPITAL OF
DIDCOT HEAT TREATMENT LIMITED
Hammond Suddards
Solicitors
Trinity Court
16 John Dalton Street
Manchester
M60 8HS
Tel: 0161 830 5000
Fax: 0161 830 5001
<PAGE>
SALE AND PURCHASE AGREEMENT
THIS AGREEMENT is made on November 18, 1998
BETWEEN:
(1) THE PERSONS whose names and addresses are set out in column 1 of
Schedule 1 ("the Vendors").
(2) PIPELINE INDUCTION HEAT LIMITED (Company No: 1478556) whose registered
office is at The Pipeline Centre, Farrington Road, Rossendale Road
Industrial Estate, Burnley, BB11 5SW ("the Purchaser").
IT IS HEREBY AGREED as follows:
1. INTERPRETATION
1.1 In this Agreement, unless the context otherwise requires, the
following words and expressions shall bear the following
meanings:
"ADDITIONAL means the amount of (pound)508,000.
ELEMENT"
"ASSOCIATE" means any person, firm or company which is a
connected person (as defined in Section 839
ICTA) of the Vendors (or any of them), or which
is an associated company of the Vendors (or any
of them) within the meaning of Section 416 ICTA
but as if in sub-section (2) of that Section
there was substituted for the words "the
greater part" wherever they appear the words
"twenty five per cent or more").
"BANK means the sum of (pound)0 being the amount
LIABILITIES" above (pound)0
<PAGE>
allocated for bank debt and any amount above
(pound)11,000 allocated for hire purchase
agreements in the Management Accounts.
"BUSINESS DAY" means any day other than Saturdays Sundays and
Bank Holidays during which clearing banks are
open for business in the City of London.
"CA 1985" means the Companies Act 1985.
"CA 1989" means the Companies Act 1989.
"COMPANIES ACTS" means CA 1985 and CA 1989 and the former
Companies Acts (within the meaning of Section
735(1) of CA 1985).
"COMPANY" means Didcot Heat Treatment Limited brief
details of which are set out in Schedule 2.
"COMPLETION" means completion of the sale and purchase
of the Shares in accordance with Clause 6.
"DISCLOSURE means the letter of even date herewith from
LETTER" the Vendors to the Purchaser disclosing
exceptions to the Warranties.
"DIRECTORS LOANS" means the loans of (pound)130,587 due to the
Directors of the Company as detailed in the
Management Accounts of the Company.
"FA" means Finance Act.
"FEBRUARY means the balance sheet of the Company as at the
BALANCE SHEET" close of business on 28 February 1999 to be
prepared
<PAGE>
in accordance with Clause 5.
"FINAL PRICE" means the Net Assets plus the Additional
Element and the Sizewell Payment.
"FIRST TRANCHE" means the sum of (pound)1,265,000 .
"ICTA" means the Income and Corporation Taxes Act 1988.
"INTELLECTUAL means any patents, trade marks, service marks,
PROPERTY RIGHTS" registered designs, utility models, design
right, copyright (including copyright in
computer software), semi-conductor topography
right, inventions, trade secrets and other
confidential information, know-how, business
or trade names and all other intellectual
property and rights of a similar or
corresponding nature in any part of the world,
whether registered or not or capable of
registration or not and including all
applications and the right to apply for any of
the foregoing rights.
"LAST ACCOUNTS" means the audited balance sheet of the Company
as at the Last Accounts Date and the audited
profit and loss account of the Company made up
to the Last Accounts Date and (in each case)
the auditor's and the directors' reports and
notes thereon.
"LAST ACCOUNTS
DATE" means 28 February 1998.
"LEASE" means the lease of Unit 1 Station Yard,
Steventon, Oxfordshire between (1) Trustees
for the time being of Didcot Heat Treatment
Limited Private Pension
<PAGE>
Plan and (2) Didcot Heat Treatment Limited
dated with the date of this Agreement.
"METHOD means the method statement of the Company
STATEMENT" developed by the Company and used in carrying
out the Sizewell Contract a copy of an example
of the method statement is contained in Annex A
to this Agreement.
"MANAGEMENT means the unaudited balance sheet and profit
ACCOUNTS" and loss account of the Company for the period
ended 30 September 1998.
"NET ASSETS" means Total Assets less Total Liabilities.
"PLANNING ACTS" means the Town and Country Planning Act 1990,
the Planning (Listed Buildings and Conservation
Areas) Act 1990, the Planning (Consequential
Provisions) Act 1990, the Planning (Hazardous
Substances) Act 1990 and the Planning
(Compensation) Act 1991, and any other statute
or subordinate legislation relating to town and
country planning.
"PROPERTY" means the property of the Company briefly
described in Schedule 5 (and for the purpose of
the Warranties relating to environmental
matters includes all plant, equipment,
machinery, storage vessels, pipes, cables and
associated apparatus present at, upon, in or
underneath such Property).
"PURCHASER'S means KPMG of Edward VII Quay, Navigation Way,
ACCOUNTANTS" Ashton, Preston, PR2 2YF.
<PAGE>
"PURCHASER'S means Hammond Suddards, of Trinity Court,
SOLICITORS" 16 John Dalton Street, Manchester M60 8HS.
"SECURITY means any mortgage, charge, assignment or
INTEREST" assignation by way of security, guarantee,
indemnity, debenture, hypothecation, pledge,
declaration of trust, lien, right of set off or
combination of accounts, or any security
interest whatsoever, howsoever created or
arising.
"SERVICE means the service agreements in the agreed form
AGREEMENTS" to be entered into between the Company and Mr
and Mrs Anderson respectively.
"SHARES" means the 1,000 ordinary shares of (pound)1
each, in the capital of the Company fully paid
or credited as fully paid to be sold by the
Vendors in the numbers set out opposite their
respective names in column 2 of
Schedule 1.
"SIZEWELL means the Agreement between the Company and
CONTRACT" Mitsui Babcock Energy Service Limited for heat
treatment services at the nuclear power station
in Sizewell, Suffolk and, subject to the
provisions of clause 10.
"SIZEWELL means the payment by the Purchaser to the
PAYMENT" Vendors following 28 February 1999 due
entirely to the Sizewell Contract (for the
avoidance of doubt any liability to the Company
due entirely to the Sizewell Contract
(including, but not limited to, any liability
due to collection and rehousing of equipment,
termination of any occupation of premises and
other
<PAGE>
relocation costs) shall be taken into account
in calculating this payment) determined in
accordance with the provisions of Clause 10.
"STOCK EXCHANGE" means London Stock Exchange Limited.
"TAXATION" means all forms of taxation, charges, duties,
imposts, rates, levies and governmental charges
(whether national or local) in the nature of
tax, whatsoever and whenever created, enacted,
or imposed, and whether of the United Kingdom
or elsewhere, and any amounts payable to any
Taxation Authority or any other person as a
result of any enactment relating to taxation,
together with all fines, penalties, interest,
costs, charges, surcharges and expenses
connected therewith and "Tax" shall be
construed accordingly.
"TAXATION means the Inland Revenue, H.M. Customs and
AUTHORITY" Excise or any statutory or governmental
authority or body (whether in the United
Kingdom or elsewhere) involved in the
collection or administration of Taxation.
"TAX DEED" means the Deed in the form set out in Schedule
4.
"TAXATION includes statutes (and all regulations and
STATUTES" arrangements whatsoever made thereunder)
whether of the United Kingdom or elsewhere, and
whether enacted before or after the date of
this Agreement, providing for or imposing any
Taxation.
"TCGA" means the Taxation of Chargeable Gains Act 1992.
<PAGE>
"TOTAL ASSETS" means the value (in Sterling) of all of the
assets of the Company as contained in the
February Balance Sheet.
"TOTAL means the amount (in Sterling) of all
LIABILITIES" liabilities, or accruals for liabilities, of
the Company as contained in the February
Balance Sheet.
"UNDERTAKING", bear the meanings ascribed to them in CA
"SUBSIDIARY 1989.
UNDERTAKING",
"PARENT
UNDERTAKING",
AND
"PARTICIPATING
INTEREST"
"VENDORS' means Grant Thornton of 1 Westminster Way,
ACCOUNTANTS" Oxford, OX2 OPZ.
"VENDORS' means Slade Son & Taylor of 7 St Martins
SOLICITORS" Street. Wallingford, Oxon, OX10 OAN.
"WARRANTIES" means the warranties and representations set out
in Schedule 3
1.2 References to any statute, or to any statutory provision,
statutory instrument, order or regulation made thereunder,
includes that statute, provision, instrument, order or regulation
as amended, modified, consolidated, re-enacted, or replaced from
time to time, whether before or after the date of this Agreement
and also includes any previous statute, statutory provision,
instrument, order or regulation, amended, modified, consolidated,
re-enacted or replaced by such statute, provision, instrument,
order or regulation.
<PAGE>
1.3 All references to a statutory provision shall be construed as
including references to all statutory instruments or orders,
regulations or ot her subordinate legislation made pursuant to
that statutory provision.
1.4 Unless the context otherwise requires, references to the singular
include the plural, references to any gender include all other
genders, and references to "persons" shall include individuals,
bodies corporate, unincorporated associations, professions,
businesses and partnerships.
1.5 Clause headings are for information only and shall not affect the
construction of t his Agreement.
1.6 The Schedules to this Agreement shall for all purposes form part
of this Agreement .
1.7 Each agreement, undertaking, covenant, warranty and
representation by two or more of the Vendors shall be deemed for
all purposes to be made or given jointly and severally.
1.8 References to "the agreed form" mean in the form agreed in
writing between the Vendors' Solicitors and the Purchaser's
Solicitors prior to signature of this Agreement.
2. SALE AND PURCHASE
2.1 Subject to the terms and conditions of this Agreement, the
Vendors shall sell and the Purchaser shall purchase the Shares
together with all accrued benefits and rights attaching or
accruing to the Shares, (including all dividends declared), on or
after the date of this Agreement.
2.2 The Vendors jointly and severally covenant with the Purchaser as
follows:
<PAGE>
2.2.1 that each of the Vendors has the right to sell and
transfer those Shares set out opposite his name in
column 2 of Schedule 1 in accordance with the terms of
this Agreement;
2.2.2 that they will at their own cost take any necessary
steps to perfect the Purchaser's title to the Shares;
2.2.3 that the Shares are sold free from any liens, charges
and encumbrances (whether monetary or not and including
any lien which the Vendors might otherwise have,
whenever arising, for unpaid amounts of consideration
payable under this Agreement in respect of the Shares)
and from all other rights exercisable by third parties.
3. PRE-EMPTION RIGHTS WAIVER
The Vendors waive all rights of pre-emption (if any) over the Shares to
which they may be entitled under the Articles of Association of the
Company, or otherwise, in relation to the sale and purchase of the
Shares pursuant to this Agreement.
4. CONSIDERATION
4.1 The Consideration for the Shares shall (subject to any adjustment
pursuant to the provisions of Clause 5) be the Final Price which
shall be satisfied in accordance with the provisions of this
Clause 4.
4.2 On Completion the Purchaser will pay, on account of the Final
Price, an amount equal to the First Tranche which will be
satisfied by payment in cash by the Purchaser at Completion.
4.3 On account of the Final Price a payment due and payable on 28
February 1999 will be made on 30 April 1999, assuming that the
February Balance Sheet has been agreed or determined pursuant to
Clause 5:-
<PAGE>
4.3.1 if the Net Assets plus the Additional Element is greater
than the First Tranche the Purchase shall pay to the
Vendor an amount equal to the Net Assets plus the
Additional Element less the First Tranche;
4.3.2 if the Net Assets plus the Additional Element is equal
to the First Tranche then no further payment will be
made;
4.3.3 if the Net Assets plus the Additional Element are less
than the First Tranche then the Vendor shall repay to
the Purchaser an amount equal to the First Tranche less
the sum of Additional Element and the Net Assets;
The liability of the Vendors to the Purchaser to make any payment
due under this Clause 4.3 shall be joint and several.
4.4 Provided always that if the February Balance Sheet has not been
agreed or determined pursuant to Clause 5 on 30 April 1999 then
the payment pursuant to Clause 4.3 will bear interest at a rate
of 2% above the base rate of Lloyds Bank PLC from 30 April 1999
until the date of payment.
4.5 If at Completion the Bank Liabilities are any amount above
(pound)0 then if following Completion and a cash positive
position verified by the provision of bank statements for a
period of one month confirming a cash positive position to that
period then the Purchaser will pay the Vendors a sum equal to
the amount of the Bank Liabilities (pound)0 at the Completion
Date.
4.6 The Purchaser will pay to the Vendors the Sizewell Payment as
per the provisions of clause 10.
5. FEBRUARY BALANCE SHEET
5.1 The Purchaser shall procure, that within six weeks after 28
February 1999 the Purchaser's Accountants will prepare a draft
February Balance Sheet and a draft statement of the Final Price
and submit both for approval to the Vendors.
<PAGE>
5.2 The February Balance Sheet to be prepared:
5.2.1 on the basis of the historical cost convention;
5.2.2 using the specific accounting practices specified in
Schedule 7 and (subject to the provisions of Schedule
7) generally accepted United Kingdom accounting
principles (including all relevant Statements of
Standard Accounting Practice issued by the Accounting
Standards Committee, Financial Reporting Standards
issued by the Accounting Standards Board, and any
applicable pronouncements of the Urgent Issues Task
Force of the Accounting Standards Board); and
5.2.3 subject to the preceding provisions of this Clause 5.2,
in a manner consistent with the procedures and policies
bases and methods of valuation adopted in the
preparation of the Last Accounts.
5.3 Due regard shall be had in the preparation of the February
Balance Sheet (inter alia) to all matters set out or referred to
in the Disclosure Letter insofar as the same discloses any
liability (actual or contingent) which ought properly to be
provided for in the February Balance Sheet in accordance with
Clause 5.2 above.
5.4 Within 15 days of receipt by the Vendors of the draft February
Balance Sheet the Vendors will inform the Purchaser in writing
whether or not in their opinion the draft February Balance Sheet
complies with the requirements of this Clause 5 and, if not,
shall specify in writing, so far as they are then reasonably able
so to do, the amount and nature of any item which they do not
accept. If the Vendors confirm in writing that they accept the
draft February Balance Sheet, or if they fail to inform the
Purchaser within 15 days of receipt whether or not they accept
that the draft February Balance Sheet complies with the
requirements of this Clause 5, such draft shall be the February
Balance Sheet.
<PAGE>
5.5 If the Vendors inform the Purchaser, in accordance with Clause
5.4, that they do not accept that the draft February Balance
Sheet complies with the requirements of this Clause 5, the
Vendors and the Purchaser will hold discussions in good faith
with a view to agreeing the February Balance Sheet. If such
agreement is reached, and is confirmed in writing by the parties,
it shall be final and binding on the parties but without
prejudice to the Purchaser's right to claim under the Warranties,
the Tax Deed or otherwise in respect of any matter.
5.6 Any dispute about the February Balance Sheet which remains
unresolved 45 days after receipt by the Vendors of the draft
February Balance Sheet shall, at the request of either party be
referred for final settlement to an independent firm of chartered
accountants nominated jointly by the Vendors and the Purchaser
or, failing such nomination, within 14 days after request by
either the Vendors or the Purchaser, nominated at the request of
either party by the President for the time being of the Institute
of Chartered Accountants in England and Wales. Such independent
firm shall act as experts and not as arbitrators and (in the
absence of manifest error) its decisions (both as to the manner
in which its determination is to be made and as to the subject
matter of its determination) shall be final and binding on the
parties, but shall be without prejudice to the Purchaser's right
to claim under the Warranties, the Tax Deed or otherwise in
respect of any matter.
5.7 All costs incurred by the Vendors in reviewing and agreeing the
February Balance Sheet shall be borne by the Vendors and all such
costs incurred by the Purchaser shall be borne by the Purchaser.
The fees of such independent firm shall be payable by the Vendors
and the Purchaser in such proportions as such firm determines (or
failing such determination in equal shares).
5.8 Each party will co-operate fully with the other and, if
applicable, with the independent firm appointed under Clause 5.6
(including giving all reasonable access to records, information,
and to personnel) with a view to enabling the draft February
Balance Sheet to be prepared and subsequently discussed and, if
applicable, with a view to enabling any such independent firm to
make any
<PAGE>
determination required by Clause 5.6, and in particular the
Purchaser shall procure that the Company shall permit the Vendors
and their advisers (and, if applicable, such independent firm) to
have access to, and (where reasonable) to take copies of any
records or information belonging to the Company.
6. COMPLETION
6.1 Completion shall take place at the offices of the Vendor's
Accountants immediately after the signing of this Agreement when
the events set out in sub-clauses 6.2 to 6.5 shall occur.
6.2 At Completion the Vendors shall deliver to the Purchaser's
Solicitors:
6.2.1 duly completed and executed transfers of the Shares in
favour of the Purchaser or as it directs together with a
power of attorney from each Vendor in the agreed form
enabling the Purchaser to vote the Shares pending its
registration as shareholder;
6.2.2 the certificates for the Shares;
6.2.3 the Tax Deed duly executed by the Vendors;
6.2.4 the resignation of Mrs. Hilda Jane Anderson as director
and secretary of the Company from her respective offices
in the Company, with a written acknowledgement under
seal from her in such form as the Purchaser requires
that she has no claim up to the date of Completion
against the Company on any grounds whatsoever;
6.2.5 the resignation of the existing auditors of the Company
confirming that they have no outstanding claims of any
kind against the Company and accompanied by a statement
in relation to the Company complying with Section 394 CA
1985 that there are no circumstances connected with
their ceasing to hold office which
<PAGE>
they consider should be brought to the attention of the
members or creditors of that Company;
6.2.6 evidence satisfactory to the Purchaser that all charges,
debentures and other Security Interests affecting the
Company (including without limitation all such Security
Interests held by Lloyds Bank plc) have been discharged
in full; and.
6.2.7 the original Lease duly completed by the landlord of the
Property.
6.3 At Completion there shall be delivered or made available to the
Purchaser:
6.3.1 the Certificate of Incorporation of the Company;
6.3.2 the minute books of the Company and the duly made up
minutes of Completion;
6.3.3 the register of members and other statutory registers of
the Company duly made up to Completion;
6.3.4 the common seal of the Company;
6.3.5 all unissued share certificates of the Company;
6.3.6 the unstamped Lease;
6.3.7 all bank statements of all bank accounts of the Company
as at a date not more than three Business Days prior to
Completion together with bank reconciliation statements
in respect of each such account made up to Completion;
6.3.8 new bank mandates to be given by the Company; and
<PAGE>
6.3.9 all the current cheque books, paying in books and unused
cheques of the Company.
6.4 At Completion the Vendors shall procure that the Service
Agreements are entered into.
6.5 At Completion a Board Meeting of the Company shall be duly
convened and held at which with effect from Completion:
6.5.1 the resignation referred to in Clause 6.2.5 shall be
submitted and accepted and the Purchaser's Accountants
shall be appointed auditors of the Company;
6.5.2 the transfers referred to in Clauses 6.2.5 shall
(subject to stamping) be registered;
6.5.3 such persons as the Purchaser may nominate shall be
appointed as additional directors and as the secretary
of the Company and the resignations referred to in
Clause 6.2.4 shall be submitted and accepted;
6.5.4 all authorities to the bankers of the Company relating
to bank accounts shall be revoked and new authorities to
such persons as the Purchaser may nominate shall be
given to operate the same;
6.5.5 the Service Agreements shall be approved and executed by
the Company and thereupon exchanged with the Vendors;
6.5.6 the Lease shall be approved and executed by the Company
and thereupon exchanged with the Vendors; and
6.5.7 the registered office of the Company shall be changed to
such address as the Purchaser shall stipulate.
<PAGE>
6.6 Upon completion of the matters specified in Clauses 6.2 to 6.5
the Purchaser will pay the sum of the First Tranche by
telegraphic transfer to the Vendors' Solicitors (whose receipt
shall be an absolute discharge to the Purchaser of this
obligation).
6.7 Upon Completion the Directors Loans shall be repaid.
6.8 The Purchaser may in its absolute discretion waive any
requirement contained in Clauses 6.2 to 6.5 (inclusive) but shall
not be obliged to complete the purchase of any of the Shares
unless the purchase of all the Shares is completed in accordance
with such Clauses and this Agreement.
6.9 If in any respect any of the provisions of Clauses 6.2 to 6.5
(inclusive) are not complied with on the date agreed for
Completion then the Purchaser may defer Completion to a date not
more than 28 days after such date (and so that the provisions of
this Clause 6 (other than Clause 6.9) shall apply to Completion
as so deferred) and if there shall be non-compliance with any of
such provisions for a period of fourteen days following written
notice of non-compliance having been served by or on behalf of
the Purchaser on the Vendors then the Purchaser shall be entitled
to rescind this Agreement.
6.10 Any rights of rescission conferred upon the Purchaser by this
Agreement shall be in addition to and without prejudice to all
other rights and remedies available to the Purchaser and no
exercise or failure to exercise, or delay in exercising, such
rights of rescission shall constitute a waiver by the Purchaser
of any other rights or remedies.
7. WARRANTIES
7.1 The Vendors to the extent and subject as set out in this Clause 7
warrant, represent and covenant to the Purchaser that the
Warranties are and at Completion will be, true and accurate in
all respects.
<PAGE>
7.2 Each of the Warranties (other than those referred to in paragraph
1 of Schedule 6 in respect of which no qualification is accepted)
is given subject to the matters fully and fairly disclosed in the
Disclosure Letter but none of the Warranties is otherwise subject
to any qualification whatever. No letter, document or other
communication shall be deemed to constitute a disclosure for the
purposes of this Agreement unless the same is accepted as such by
the Purchaser and is annexed to in the Disclosure Letter.
7.3 Each of the Warranties is without prejudice to any other Warranty
and, except where expressly stated, no Clause contained in this
Agreement governs or limits the extent or application of any
other Clause and the Warranties shall not in any respect be
extinguished or affected by Completion.
7.4 The rights and remedies of the Purchaser in respect of any breach
of the Warranties shall not be affected by completion of the
purchase of the Shares, by any investigation made by or on behalf
of the Purchaser into the affairs of the Company, by its
rescinding or failure to rescind this Agreement, by any failure
to exercise or delay in exercising any right or remedy or by any
other event or matter whatsoever, except a specific and duly
authorised written waiver or release expressly referring to such
breach.
7.5 None of the information supplied by the Company or its
professional advisers prior to the date of this Agreement to any
of the Vendors or their agents, representatives or advisers in
connection with the Warranties or the contents of the Disclosure
Letter, or otherwise in relation to the business or affairs of
the Company, shall be deemed a representation, warranty or
guarantee of its accuracy by the Company to the Vendors and shall
not constitute a defence to any claim by the Purchaser under the
Warranties or under the Tax Deed, and the Vendors waive any and
all claims which they might otherwise have against the Company
and their respective officers and employees.
7.6 Notwithstanding any rule of law or equity to the contrary, any
release, waiver or compromise or any other arrangement of any
kind whatsoever to which the Purchaser may agree or effect in
relation to one of the Vendors in connection
<PAGE>
with this Agreement or the Tax Deed, and in particular, but
without limitation, in connection with any of the Warranties,
shall not affect the rights and remedies of the Purchaser as
regards any other of the Vendors.
7.7 The Vendors jointly and severally undertake to the Purchaser to
indemnify the Purchaser and the Company against (i) any
diminution in the value of the assets of the Company, (ii) any
increase in any liability of the Company, and (iii) any payment
necessarily made or required to be made by the Purchaser or the
Company, as a result of, or in connection with, any breach of any
of the Warranties or required to put the Company in the position
in which it would have been had there been no such breach of the
Warranties and against all costs and expenses incurred in
connection therewith. This indemnity shall be without prejudice
to any other rights and remedies of the Purchaser in relation to
the breach and all other rights and remedies are expressly
reserved to the Purchaser.
7.8 Each of the Vendors undertakes, in relation to any Warranty which
refers to the knowledge, information, belief or awareness of a
Vendor or any similar expression, that he has made full, due and
careful enquiry into the subject matter of that Warranty
(including without limitation where applicable of the employees,
agents and advisers of the Company) and each of them acknowledges
that the knowledge, information, belief or awareness of one of
the Vendors shall be attributable to the others of them.
7.9 Subject to 7.10 below the provisions of Schedule 6 shall have
effect to limit the liability of the Vendors under the Warranties
(other than those Warranties specified in paragraph 1 of Schedule
6 in respect of which the liability of the Vendors shall be
unlimited).
7.10 Only provisions 2.1.3, 2.1.4, 2.4, 2.7, 2.8, 2.10 and 2.11 of
Schedule 6 shall apply to any claims under any of the Warranties
where the claim has arisen due to the Company's liability under
the Sizewell Contract.
<PAGE>
7.11 Each of the Vendors jointly and severally agrees to indemnify and
keep indemnified the Purchaser (for itself and as trustee for
each member of the Purchaser's Group) from and against all
losses, liabilities, costs, charges, expenses, actions,
proceedings, claims and demands which any such person may suffer
or incur arising out of any breach of any of the Warranties due
to the Company's liability under the Sizewell Contract. This
indemnity shall be without prejudice to any other rights and
remedies of the Purchaser in relation to the breach and all other
rights and remedies are expressly reserved to the Purchaser.
8. RESTRICTIONS ON THE VENDORS
8.1 In this Clause:
"BUSINESS" means all and any trades or other
commercial activities of the Company
which as at the Completion Date the
Company shall carry on with a view to
profit or which the Company shall as
at the Completion Date have determined
to carry on with a view to profit in
the immediate or foreseeable future;
"CONFIDENTIAL BUSINESS means all or any information relating
INFORMATION" to:
(i) the business methods,
corporate plans, management
systems, finances, new
business opportunities or
development projects of the
Company;
(ii) the marketing or sales of any
past or present or future
product or
<PAGE>
service of the Company; or
(iii) any trade secrets or other
information relating to the
provision of any product or
service of the Company to
which the Company attaches
confidentiality or in
respect of which it holds
an obligation of
confidentiality to any third
party;
"CUSTOMER" means any person, firm or company who
or which shall at the date of
Completion be in negotiation with the
Company for the provision of
Restricted Services or to whom the
Company has provided Restricted
Services during the period of one year
prior to the date of
Completion;
"MATERIAL INTEREST" means:
(a) the holding of any position
as director, officer,
employee, consultant,
partner, principal or agent;
(b) the direct or indirect
control or ownership
(whether jointly or alone)
of any shares or debentures
or any voting rights attached
to them; or
(c) the direct or indirect
provision of
<PAGE>
any financial assistance.
"PURCHASING GROUP" means the Purchaser and each of its
Subsidiaries;
"RESTRICTED AREA" means any country in which the
Vendors have conducted business
during the past three years;
"RESTRICTED SERVICES" means the manufacture for sale or hire
of heat treatment equipment and
consumables; the provision of
electrical resistance and high
velocity gas fuel fired heating
services; and the production and
supply of heating methodology,
procedures and associated stress
calculations, including finite element
analysis, for heat
treatment processes.
8.2 Without prejudice to any provisions operating to similar
effect which may be contained in any service contract or contract
of employment entered into now, or in the future between any of
the Vendors and the Company or any members of the Purchaser's
Group, each of the Vendors hereby covenants with the Purchaser
that without the prior written consent of the Purchaser:
8.2.1 he will not for a period of 3 years after the date of
Completion hold any Material Interest in any business
(other than the Purchaser or the Company or any company
which may acquire the Purchaser or the Company) which
provides Restricted Services in competition with the
Business in the Restricted Area;
8.2.2 he will not for a period of 3 years after the date of
Completion hold any Material Interest in any person,
firm or company carrying on business in the Restricted
Area (other than the Purchaser or the
<PAGE>
Company or any company which may acquire the Purchaser
or the Company) which requires or might reasonably be
expected by the Company to require him to disclose or
make use of any Confidential Business Information in
order properly to discharge his duties or to further his
interest such person, firm or company;
8.2.3 he will not at any time after Completion disclose or
permit there to be disclosed (save as authorised by the
Purchaser or required by law) any Confidential Business
Information, nor will he at any time after Completion
otherwise make use of any Confidential Business
Information for his own benefit, or for the benefit of
others, or in any way to the detriment of the Company;
8.2.4 he will not at any time after Completion solicit or
entice away or seek to entice away any person who is,
and was at the date of Completion, employed by the
Company;
8.2.5 he will not for a period of 3 years after the date of
Completion within the Restricted Area and in respect of
Restricted Services directly or indirectly:
(a) solicit the custom of, or orders from, or
(b) accept orders from any person, firm or company
who at any time during the two years immediately
preceding Completion was a client or customer of
the Company in respect of Restricted Services;
8.2.6 that he will not for a period of 3 years after the date
of Completion interfere with or seek to interfere with
the continuance of supplies to the Company (or the terms
relating to such supplies) from any suppliers who have
been supplying components, materials or services to the
Company at any time during the two years immediately
preceding Completion; or
<PAGE>
8.2.7 that if he shall have obtained trade secrets or other
confidential information belonging to any third party
under an agreement which contained restrictions or
disclosure, he will not without the previous written
consent of the Purchaser at any time infringe such
restrictions.
8.3 The parties agree that the restrictions contained in Clause 8.2.3
shall not apply if and to the extent that the Confidential
Business Information concerned has ceased to be confidential or
come into the public domain (other than as a result of breach of
any obligation of confidence by the Vendors).
8.4 Each Vendor shall procure that all companies and businesses
directly or indirectly owned or controlled by him shall be bound
by and observe the provisions of this Clause as if they were
parties covenanting with the Purchaser.
8.5 Each Vendor acknowledges that the Purchaser is accepting the
benefit of the covenants contained in this Clause on its own
behalf.
8.6 Nothing in this Clause 8 shall preclude any Vendor from being the
owner for investment purposes only of not more than 3% of the
equity share capital of any company listed on the Official List
or the Alternative Investment Market of The Stock
Exchange.
8.7 The restrictions contained in this Clause 8 are considered
reasonable by the Vendors in all respects but if any of those
restrictions shall be held to be void in the circumstances where
it would be valid if some part were deleted the parties agree
that such restrictions shall apply with such deletion as may be
necessary to make it valid and effective.
8.8 The provisions of Clauses 8.2.1 to 8.2.7 (inclusive) are separate
and severable and shall be enforceable accordingly.
9. VENDORS' AND PURCHASER'S UNDERTAKING
<PAGE>
9.1 Until 28 February 1999 or the completion of the Sizewell
Contract, whichever is later, the Vendors and the Purchaser
shall procure that the Company unless both parties give their
prior written consent (any director of the Purchaser or either
Vendor having authority to do so such consent once given to be
relied upon by the other party), undertake that none of the
following shall occur:-
9.1.1 any change of location of the principal place of
business of the Company;
9.1.2 any change in the nature or conduct of the ordinary day
to day business or the goods dealt in or services
rendered by the Company;
9.1.3 the formation or acquisition of any subsidiary, the
entering into of any joint venture, partnership or any
other contract which is material in the context of its
business, assets or level of profitability;
9.1.4 any disposal of any part of the assets or undertaking of
the Company otherwise than in the ordinary and proper
course of business, and then only at full open market
value therefor;
9.1.5 any transfer to the Company of any onerous or
unprofitable activity, undertaking or obligation of the
Purchaser or from any member of the Purchaser's Group, or
of any third party;
9.1.6 the sale or provision to the Company of any goods or
services by the Purchaser or any member of the
Purchaser's Group, or the purchase by the Company from
the Purchaser or any member of the Purchaser's Group of
any goods or services at a price higher than a commercial
arms length rate for the goods or services in question;
9.1.7 the making of any monetary transfers or loans or the
payment of any service or management charges or other
payments by the Company to the Purchaser and/or the
Purchaser's Group other than in respect of
<PAGE>
charges at a fair commercial rate for services rendered
by the Purchaser or the Purchaser's Group which have
first been approved by the Vendors;
9.1.8 the passing or proposing of any resolution for the
winding-up of the Company or the presentation by the
Purchaser or the Purchaser's Group of a petition for an
order for the winding up of the Company unless the
Company shall be unable to pay its debts as they fall
due;
9.1.9 any change of name of the Company;
9.1.10 the declaration to make or the payment of any dividend
or other distribution by the Company;
9.1.11 any change in the accounting reference date or
accounting policies of the Company;
9.1.12 permit any of its insurances to lapse or become void or
voidable;
9.1.13 the creation of any charge or other encumbrance over the
assets or part of the assets of the Company or over any
of the shares in the Company or the giving of any
guarantee or indemnity by the Company in either case to
secure the liabilities of any other person or company;
9.1.14 the employment of personnel which the Vendor reasonably
believes are surplus to the requirements of the Company
or make any change in the terms and conditions of
employment or any employee of the Company (other than for
good cause);
9.1.15 permit or incur any capital expenditure or enter into
any commitment to do so;
<PAGE>
9.1.16 permit or incur any liability to arise for the Company
or enter into any commitment to do so; and
9.1.17 do any act or deed or omit to do any act or deed other
than those which show utmost good faith to each other.
9.2 Until 28 February 1998 or the completion of the Sizewell
Contract, whichever is later, the Vendors and the Purchaser agree
to procure that:
9.2.1 the Company shall retain the bank account with Lloyds
Bank Plc Sort Code: 30-93-93 and account number 0781937;
and
9.2.2 for any transaction equal to or above (pound)1,000 two
signatories shall be required, being one of the Vendors
and the other being a representative of the Purchaser;
and
9.2.3 for any transaction less than (pound)1,000 one signatory
shall be required being one of the Vendors or a
representative of the Purchaser.
10. THE SIZEWELL CONTRACT
10.1 Should the Sizewell Contract not be completed and invoiced by
its proposed completion date of 28 February 1999 then the
following provisions at this clause 10 will apply in relation to
the Sizewell Payment.
10.2 The Sizewell Payment represents the revenue attributable to the
amounts invoiced under the Sizewell Contract after the 28
February 1999 less the following costs (the "Sizewell Costs"):
(a) direct costs, the direct costs including but not limited
to; labour; subsistence allowances; transport; storage at
Sizewell; costs of the clearance of the Sizewell Site;
consumable items; depreciation of equipment; and all other
costs normally and reasonably attributable to the
completion of a contract of the same type as the Sizewell
Contract;
<PAGE>
(b) a portion of central overheads allocated in direct
proportion to the value of the Sizewell Contract revenues
expressed as a percentage of total revenues for the same
period; and
(c) a provision for corporation tax at 31 per cent of the net
of the revenue less the costs included in (a) and (b)
above.
10.3 PROVIDED THAT the Sizewell Contract is not completed and the
final invoice submitted and agreed by 28 February 1999, within
two weeks of the completion and invoice of the Sizewell Contract
the Purchaser's Accountants will prepare a draft schedule of the
Sizewell Payment (the draft "Sizewell Payment Schedule") using
the provisions of clause 10.1.1 and schedule 7 as appropriate
and submit it for approval to the Vendors.
10.4 Within 15 days of receipt by the Vendors of the draft Sizewell
Payment Schedule the Vendors will inform the Purchaser in
writing whether or not in their opinion the draft Sizewell
Payment Schedule complies with the requirements of this Clause
10 and, if not, shall specify in writing, so far as they are
then reasonably able so to do, the amount and nature of any item
which they do not accept. If the Vendors confirm in writing that
they accept the draft Sizewell Payment Schedule, or if they fail
to inform the Purchaser within 15 days of receipt whether or not
they accept that the draft Sizewell Payment Schedule complies
with the requirements of this Clause 10, such draft shall be the
Sizewell Payment Schedule.
10.5 If the Vendors inform the Purchaser, in accordance with Clause
10.3, that they do not accept that the draft Sizewell Payment
Schedule complies with the requirements of this Clause 10, the
Vendors and the Purchaser will hold discussions in good faith
with a view to agreeing Sizewell Payment Schedule. If such
agreement is reached, and is confirmed in writing by the
parties, it shall be final and binding on the parties but
without prejudice to the
<PAGE>
Purchaser's right to claim under the Warranties, the Tax Deed or
otherwise in respect of any matter.
10.6 Any dispute about the draft Sizewell Payment Schedule which
remains unresolved 15 days after receipt by the Vendors of the
draft Sizewell Payment Schedule shall, at the request of either
party be referred for final settlement to an independent firm of
chartered accountants nominated jointly by the Vendors and the
Purchaser or, failing such nomination, within 14 days after
request by either the Vendors or the Purchaser, nominated at the
request of either party by the President for the time being of
the Institute of Chartered Accountants in England and Wales.
Such independent firm shall act as experts and not as
arbitrators and (in the absence of manifest error) its decisions
(both as to the manner in which its determination is to be made
and as to the subject matter of its determination) shall be
final and binding on the parties, but shall be without prejudice
to the Purchaser's right to claim under the Warranties, the Tax
Deed or otherwise in respect of any matter.
10.7 All costs incurred by the Vendors in reviewing and agreeing the
Sizewell Payment Schedule shall be borne by the Vendors and all
such costs incurred by the Purchaser shall be borne by the
Purchaser. The fees of such independent firm shall be payable by
the Vendors and the Purchaser in such proportions as such firm
determines (or failing such determination in equal shares).
10.8 Each party will co-operate fully with the other and, if
applicable, with the independent firm appointed under Clause
10.5 (including giving all reasonable access to records,
information, and to personnel) with a view to enabling the draft
Sizewell Payment Schedule to be prepared and subsequently
discussed and, if applicable, with a view to enabling any such
independent firm to make any determination required by Clause
10.6, and in particular the Purchaser shall procure that the
Company shall permit the Vendors and their advisers (and, if
applicable, such independent firm) to have access to, and (where
reasonable) to take copies of any records or information
belonging to the Company.
<PAGE>
10.9 Subject to the provisions of this clause 10 that the Sizewell
Payment Schedule is agreed the Sizewell Payment is to be made to
the Vendors within 2 months of the Sizewell Contract being
completed and invoiced PROVIDED THAT the Vendors provide written
confirmation that all Sizewell Costs arising from the Sizewell
Contract have been taken into account in the Sizewell Payment
and should further Sizewell Costs arise following the Sizewell
Payment the Purchaser will be reimbursed by the Vendors on a
pound for pound basis.
11. PENSIONS PAYMENT
On the earlier of the date of delivery of the final invoice for the
Sizewell Contract or 21 February 1998 the Company shall procure the
payment of (pound)200,000 to the Vendor's Solicitors with a direction
that it be paid to the account in the name of Trustees for the time
being to the Didcot Heat Treatment Limited Private Pension Plan.
12. HOLIDAY PAY
The Vendors will and shall keep the Purchasers indemnified at all times
after Completion against any claims made by any employee of the Company
being an employee prior to or at the time of Completion for any and all
accrued holiday pay claimed for the period up to 31 March 2000.
13. GENERAL
13.1 This Agreement shall be binding upon and enure for the benefit of
the successors in title of the parties and the benefit of this
Agreement and of the Tax Deed may be assigned by the Purchaser.
13.2 The Vendors shall execute and perform all such further acts,
deeds or assurances as may be reasonably required for effectually
vesting the Shares in the Purchaser and otherwise for fulfilling
the provisions of this Agreement. Each of the Vendors shall
following Completion provide such information as to the Company,
its business and its affairs as the Purchaser shall reasonably
<PAGE>
and by prior notice specify, including if required attendance at
the premises of the Company.
13.3 Any sums due to the Vendors pursuant to this Agreement may be
paid to the Vendors' Solicitors whose receipt shall constitute a
full discharge of the Purchaser's obligations to make such
payment and the Purchaser shall not be concerned with the
application of any such amount between the Vendors.
13.4 The provisions of this Agreement insofar as the same shall not
have been performed at Completion shall remain in full force and
effect notwithstanding Completion.
13.5 No delay or omission by the Purchaser in exercising any right,
power or remedy shall operate as a waiver thereof, and any single
or partial exercise thereof shall not preclude any other or
further exercise thereof or the exercise of any right, power or
other remedy. The rights and remedies of the Purchaser hereunder
are cumulative and not exclusive of any right or remedy provided
by law.
13.6 Save as otherwise required by law or The Stock Exchange no
announcement shall be made by the Vendors in connection with this
Agreement unless previously approved in writing by the Purchaser.
13.7 No provision of this Agreement, or of any agreement or
arrangement of which this Agreement forms part, by virtue of
which this Agreement or the agreement or arrangement of which it
forms part is subject to registration under the Restrictive Trade
Practices Act 1976 shall take effect until the day after
particulars of this Agreement, or the agreement or arrangement of
which it forms part, (as the case may be) have been furnished to
the Director General of Fair Trading pursuant to Section 24 of
the said Act.
13.8 All expenses incurred by or on behalf of the parties, including
all fees of agents, representatives, solicitors, accountants and
actuaries employed by any of them in connection with the
negotiation, preparation or execution of this
<PAGE>
Agreement shall be borne solely by the party who incurred the
liability and there shall be no liability in respect of them
upon the Company.
13.9 This Agreement shall be governed by and construed in accordance
with English Law and the parties submit to the jurisdiction of
the English Courts.
14. NOTICES
14.1 Any notice to be given hereunder shall be in writing and
delivered by hand or by first class recorded delivery post or by
telex or facsimile letter addressed and sent to the party to be
served (in the case of the Vendors) at the address given herein
and (in the case of the Purchaser) at its registered office for
the time being.
14.2 Notice delivered by hand shall be deemed to have been served at
the time of actual delivery.
14.3 Notice sent by post shall be deemed to have been served at the
expiry of 48 hours after posting.
14.4 Notices sent by telex or by facsimile shall be deemed to have
been served in the case of:
14.4.1 telex, on receipt by the sender of the answerback code
of the addressee after transmission of the telex; and
14.4.2 facsimile, on production of a transmission report from
the machine which sent the facsimile indicating that the
facsimile was sent in its entirety to the facsimile
number of the recipient.
<PAGE>
AS WITNESS the hands of the parties hereto or their duly authorised
representatives on the date shown on the first page
SIGNED by ANDREW
MAXWELL ANDERSON in
the presence of:
SIGNED by HILDA JANE
ANDERSON in the presence
of:
Witness:
Name:
Address:
Occupation:
SIGNED by ALBERT
RAMSDEN for and on behalf
of PIPELINE INDUCTION
HEAT LIMITED in the
presence of:
Witness:
Name:
Address:
Occupation:
EXHIBIT 23.1
The Board of Directors
CRC Holdings Corp.:
The audits referred to in our reports dated May 19, 1998 except Note 15 which is
as of [date] and October 3, 1998, included the related financial statement
schedule for the period from June 12, 1997 to March 31, 1998, and the related
financial statement schedule for the years ended March 31, 1996 and 1997 and for
the period from April 1, 1997 to June 11, 1997 included in the registration
statement. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statement schedules based on our audit. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Tulsa, Oklahoma /s/ KPMG LLP
February 11, 1999 -------------------------
KPMG LLP