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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ____________________________
Commission file number 0-14439
ERC INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 76-0382879
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(State of incorporation) (I.R.S. Employer Identification No.)
15835 Park Ten Place, Suite 115 Houston, Texas 77084
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(Address of principal executive offices)
Registrant's telephone number, including area code (281) 398-8901
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 13, 1997 was $4,345,784.
The number of shares outstanding of the registrant's common stock, as of
February 28, 1997 was 21,248,272.
Documents Incorporated by Reference: None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors of the Company presently consists of five
directors. These directors are divided into three classes: Class I (two
directors), Class II (two directors) and Class III (one director). The term of
the Class I directors expires at the Annual Meeting of Stockholders to be held
in 1997, the term of the Class II directors expires at the Annual Meeting to be
held in 1998, and the term of the Class III directors will expire at the Annual
Meeting of Stockholders to be held in 1999.
The following table sets forth certain information as to the directors and
executive officers of the Company:
Positions and Offices Director
Name and Age With the Company Since
- ------------ ---------------------- ---------
George W. Tilley, 60 Director 1993
(Class I)
Wendell R. Brooks, 47 President and Director 1995
(Class I)
John Derek Prichard-Jones, 61 Chairman and Director 1993
(Class II)
Anthony Howells, 60 Director 1996
(Class II)
Allister Langlands, 39 Director 1993
(Class III)
GEORGE W. TILLEY joined the Company as a director in 1993. Mr. Tilley
served as President and Chief Executive Officer of Grant Geophysical, Inc., a
public company providing geophysical services to the oil industry until
November, 1996. Prior to his position with Grant, Mr. Tilley was the President
and Chief Executive Officer of Halliburton Geophysical Services, a division of
Halliburton Company, from 1990 to 1992. Prior to 1990, Mr. Tilley held other
positions with Halliburton.
WENDELL R. BROOKS was elected President and Director August 1995.
Mr. Brooks has over 20 years of general management experience in the oil and gas
service industry. Prior to joining the Company, Mr. Brooks was involved in
business development activities, including acquisitions and mergers for the
Drilling and Productions Services Division of the Wood Group. Prior to joining
the Wood Group, Mr. Brooks served for nine years as President and C.E.O. of Del
Norte Technology, Inc., an international supplier of equipment and services to
the offshore oil and gas industry.
JOHN DEREK PRICHARD-JONES was elected Chairman of the Company in
February 1993. Since 1991, Mr. Jones has served as President of Wood Group USA
Inc., a Houston-based, indirect wholly-owned subsidiary of Wood Group performing
administrative services for Wood Group's U.S. operations, and serves in various
other capacities for other subsidiaries and affiliates
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of Wood Group. From 1990 to 1991, Mr. Jones served as Vice President -
Manufacturing of Western Atlas Inc., a well logging and seismic company
headquartered in Houston, Texas. Mr. Jones served as President of Computalog USA
Inc., an oilfield services company having its principal executive offices
located in Houston, Texas, from 1989 to 1990. He has been a Director of Wood
Group since 1986.
ANTHONY HOWELLS was appointed to serve as a director of the Company in
1996. He has extensive experience in the oil and gas service business, both
domestically and internationally. A graduate of Oxford University, Mr. Howells
began his career with Schlumberger Overseas, in Paris, France. From 1966 to
1991, Mr. Howells was employed by Dresser Atlas in various senior management
positions. Since 1992, Mr. Howells has served as a management consultant to
oil and gas service companies specializing in facilitating better business
practices and implementing programs to improve organizational effectiveness.
ALLISTER G. LANGLANDS is a Qualified Chartered Accountant. He has been
Group Financial Director of Wood Group since August 1991. From 1989 to August
1991, Mr. Langlands was a partner in the international accounting firm of
Coopers & Lybrand Deloitte and its predecessor Deloitte Haskins & Sells.
SECTION 16(A) REPORTING
Section 16(a) of the 1934 Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten-percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
provided to the Company pursuant to Rule 16a-3(e), the Company believes that all
reports required by Section 16(a) of the 1934 Act were filed on a timely basis
by the required persons during the fiscal year ended December 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid or accrued by
the Company for services rendered during the years ended December 31, 1996,
December 31, 1995 and December 31, 1994 to the Company's Chief Executive Officer
and the other executive officers of the Company who received total annual salary
and bonus in excess of $100,000 for the fiscal years ended December 31, 1996,
December 31, 1995, and December 31, 1994.
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<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
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NAME & PRINCIPAL OTHER ANNUAL OPTION ALL OTHER
POSITION YEAR/(1)/ SALARY BONUS COMPENSATION AWARDS/(3)/ COMPENSATION
- ----------------- --------- ----------- ------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Wendell R. Brooks /(1)/ 1996 $138,966 28,592 -- -- --
President 1995 $ 75,000(2) -- -- -- --
1994 $ 0 -- -- -- --
Patrick Geiger (5) 1996 $103,210 9,000 -- -- 23,684(4)
1995 $ 88,365 5,853(4)
</TABLE>
(1) Mr. Brooks joined the Company in August 1995.
(2) Mr. Brooks served as the Company's President from August 1995 to the
present. During 1995, Mr. Brooks served the Company as a consultant
pursuant to which he was paid $75,000 for his services. Effective
January 1, 1996, Mr. Brooks became a salaried employee of the Company.
(3) The Company had no stock option, restricted stock, stock bonus or other
equity compensation plans in effect during the fiscal years covered by this
table.
(4) Amount paid for expenses relating to moving from Shawnee, Oklahoma to
Houston, Texas.
(5) Mr. Geiger joined the Company in January 1995.
The Company has a defined contribution 401(k) profit sharing plan. The plan
covers substantially all employees subject to certain length of service
requirements. Contributions are made at the discretion of the Board of
Directors. The Company paid $49,000 during 1994 for contributions accrued
at December 31, 1993. The Company paid $27,000 during 1995 for
contributions accrued at December 31, 1994. No contributions were paid or
accrued for the year ended December 31, 1995. In June 1996, the Company
began matching employee's contributions up to 6% of their eligible
compensation at a rate of 25% of employee contributions. The Company
matching contributions totaled approximately $53,000 in 1996.
LONG TERM INCENTIVE PROGRAM
In November 1994, the Company's Board of Directors approved a long term
incentive plan (the "1994 Plan") pursuant to which certain key employees of the
Company may receive cash incentives based upon the Company's earnings in given
years. Awards may be granted under the 1994 Plan up to an aggregate of
1,386,366 units (the "Units") (such number being subject to antidilution
adjustments under certain circumstances) at prices determined by the Board of
Directors. Plan
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participants, awards to participants, exercise prices and performance
measurement periods are determined by the Company's Board of Directors.
Units granted under the Plan may be exercised and converted into cash at
such times and in such amounts as set forth in the applicable agreement entered
into in connection with the grant (but in no event earlier than three years
after the grant of the Units or later than seven years after the grant). Holders
of Units electing to exercise must irrevocably elect in writing to exercise the
Units between February 1 and March 31 of the year in which the holder desires to
exercise the Units (the "Window Period"). Such irrevocable election must be
delivered to and received by the Board of Directors during such Window Period.
Upon exercise, holders shall be entitled to receive an amount of cash,
within 30 days of notice of exercise, equal to the excess of (A) the aggregate
Current Value (hereinafter defined) of the Units so exercised over (B) the
aggregate price for the Units (as set forth in the individual agreement with
holders) so exercised. The Company shall pay to the holder, within 30 days
after the exercise date, the cash amount payable to such holder. The Current
Value of a Unit shall be determined as of the end of the Company's fiscal year
preceding the exercise date (the "Valuation Date"). "Current Value" of a Unit
shall mean the average net consolidated pre-tax earnings of the Company for the
two (2) years ending prior to the Window Period in which the holder gives notice
of his or her election to exercise Units pursuant to the 1994 Plan and the
applicable agreement, multiplied by a factor of five (5) and this result shall
be the Current Value of the entire Company as of the Valuation Date, and such
Current Value shall be divided by the sum of (x) the number of issued and
outstanding shares of the Common Stock on the Valuation Date, plus (y) the
number of Units which are issued and outstanding on the Valuation Date. For
purposes of determining the Company's net consolidated pre-tax earnings, the
earnings will be determined after (1) subtracting all exceptional costs
including (I) bonus payments, (ii) contributions to qualified employee benefit
plans, such as the Company's 401(k) plans, pension plans or other retirement
plans or trusts, and (iii) management fees, and (2) setting aside any portion of
the earnings which are restricted or which are subject to a preference in favor
of any preferred stock or other senior securities issued by the Company.
The Company's Board of Directors shall administer the 1994 Plan and may,
from time to time, amend, suspend or discontinue the 1994 Plan, or amend any
Units granted hereunder; provided, that without the written consent of a holder,
no amendment or suspension of the 1994 Plan shall substantially impair any
Units.
During the year ended December 31, 1996, the Board granted 432,000 Units to
employees of the Company under the 1994 Plan.
DIRECTOR COMPENSATION
From 1990 to January 1993, the Company's policy was to provide each
director of the Company who was not an employee of the Company and who was not
compensated under any other agreement, $20,000 in cash as director's fees for
each full year of service, plus $500 per meeting attended. In January 1993, the
Company terminated this policy regarding directors' fees
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and meeting fees for directors who are employed by either the Company or Wood
Group. As a result, the only directors who now receive fees for their services
as directors are Messrs. Tilley and Howells, who are not employed by either the
Company or Wood Group. Messrs. Howells and Tilley are to receive $10,000 for
each full year of service as a director.
BOARD OF DIRECTORS INTERLOCKS AND INSIDER PARTICIPATION
Compensation decisions with respect to the executive officers of the
Company are made by the Board of Directors, which includes John Derek Prichard-
Jones, Chairman of the Board, and Wendell R. Brooks, President. Mr. Jones does
not receive compensation from the Company for his service as Chairman. Mr.
Brooks did not participate in any deliberations or votes with respect to his
compensation during fiscal 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 29, 1997, by (i) each
director, nominee for director and the Chief Executive Officer of the Company,
(ii) all executive officers and directors of the Company as a group, and (iii)
all persons who are known by the Company to be beneficial owners of 5% or more
of the Company's outstanding Common Stock.
NAME AND ADDRESS OF BENEFICIAL SHARES OWNED
OWNER (1) PERCENT OF CLASS
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John Wood Group PLC(1) 18,087,702(1) 85%(1)
Allister G. Langlands(2) 0 0%
George W. Tilley 0 0%
Wendell R. Brooks 0 0%
John Derek Prichard-Jones(2) 0 0%
Anthony Howells 0 0%
Directors and Executive Officers 0 *
as a group (5 persons)
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*Less than 1%
Except as otherwise indicated, the persons named in the table possess sole
voting and investment power with respect to all shares of Common Stock shown as
beneficially owned by them. Includes shares of Common Stock held by spouses and
minor children of such persons and corporations in which such persons hold a
controlling interest.
(1) The address of John Wood Group PLC, a corporation registered in Scotland
and incorporated under the laws of the United Kingdom ("Wood Group"), is John
Wood House, Greenwell Road, East Tullos, Aberdeen, Scotland AB1 4AX.
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(2) The directors of Wood Group, which include Messrs. Prichard-Jones and
Langlands and Sir Ian Wood C.B.E., L.L.D., Chairman and Managing Director of
Wood Group, may be deemed the beneficial owners of the Company's Common Stock
owned by Wood Group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 10, 1992, Wood Group completed the purchase (the "Purchase")
of approximately 47% of the issued and outstanding shares of Common Stock of Old
ERC and presently controls approximately 85% of the voting stock of the Company.
The Wood Group is recognized as a leading contracting and service company in
energy-related markets worldwide.
On April 16, 1993, the Company (which formerly was a wholly-owned
subsidiary of Old ERC), was merged with Old ERC pursuant to a vote of Old ERC's
stockholders (the "Merger"), under which the Company was the surviving
corporation. The Company effected the Merger primarily to preserve and maximize
the Company's ability to offset taxable income with Old ERC's net operating
losses available for carryforward ("NOL Carryforwards"). Under Section 382 of
the Internal Revenue Code of 1986, as amended (the "Code"), and the Regulations
issued thereunder, a corporation's future use of its federal income tax net
operating losses available for carryforward to future periods may be limited
after the occurrence of an "ownership" change. An ownership change is a
transaction or series of transactions resulting in an increase of more than 50
percentage points in the percentage of ownership interests of stockholders who,
before or after such ownership change, own, directly or indirectly, stock
representing 5% or more of the aggregate fair market value of the outstanding
stock of such corporation.
The Certificate of Incorporation of the Company now contains certain
stock transfer restrictions in order to seek to preserve the Company's NOL
Carryforwards. The Certificate of Incorporation of the Company provides that no
person who, as a result of any attempted transfer of Common Stock of the
Company, would own, directly or indirectly, Common Stock having a fair market
value equal to 5% or more of the aggregate fair market value of the outstanding
shares of Common Stock, may acquire shares of Common Stock (or options,
warrants, or rights or securities exercisable, convertible or exchangeable
therefor), unless such person obtains the approval of the Board of Directors of
the Company. Each certificate representing shares of Common Stock issued in
connection with the Merger bears a legend referring to this restriction on
transfer. Approval of the Board of Directors must be obtained by written
request addressed to the Company's Board of Directors at the address of the
Company's principal executive offices. Any attempted transfer without Board of
Directors' approval (or approval of a duly appointed committee of the Board)
would be void and without effect, and the intended transferee would be deemed to
have appointed the Company as exclusive agent to sell such shares to a
transferee eligible to acquire such shares or otherwise approved by the Board of
Directors of the Company (or a committee thereof). All proceeds from the sale
of such shares shall be remitted to such appointed transferee. This restriction
on transfer would terminate upon the earliest to occur of (i) December 31, 2002,
(ii) the date when the existing NOL Carryforwards expire or (iii) the date when
the NOL Carryforwards become subject to the limitations of Section 382 of the
Code.
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The Merger had the effect of prohibiting the transfer of Common Stock of
any person who directly or indirectly owns, or as a result of the attempted
transfer would own, stock having a fair market value equal to 5% or more of the
aggregate fair market value of Common Stock unless such transfer is approved in
advance by a majority of the directors (or a committee thereof).
Quantum Fund N.V. ("Quantum"), the Company's largest stockholder in
October, 1992, and Wood Group entered into a Standstill and Voting Agreement
dated October 15, 1992 pursuant to which Quantum had agreed for a period
commencing on the date of the Standstill and Voting Agreement and continuing for
three years plus ninety days following the consummation of the Purchase, not to
effect any transaction with respect to any of the shares of Common Stock
retained by it or any interest therein, without the prior written consent of the
Board of Directors if the transaction may result in the Company being subject to
the limitations on the use of the Company's net operating losses pursuant to
Section 382 of the Code. These transactions include, but are not limited to (a)
any sale, conveyance, transfer or entering into any agreement to sell or convey
any of such retained shares; (b) any grant of any warrants, options, rights,
convertible debt instruments or other securities which are exercisable for,
convertible into or exchangeable for any or all of such retained shares, or
other similar interests or rights in such shares; or (c) any conveyance,
transfer or other disposition of its retained shares or any interest in its
retained shares in any transaction or series of transactions which would or may
be treated as a sale, conveyance, transfer or disposition for purposes of
Section 382 of the Code or the regulations promulgated thereunder.
Additionally, Quantum agreed under the Standstill and Voting Agreement
that for a period of four years following consummation of the Purchase or until
such earlier date that Quantum ceases to be the beneficial owner of voting stock
of the Company, it would vote its shares of Common Stock for the Wood Group's
designees for election or appointment to the Board of Directors of the Company
and would vote against the removal of any such designee or nominee if a vote by
stockholders on such removal were ever called.
In March 1996 Wood Group purchased an additional 1,544,518 shares of
Common Stock in privately negotiated transactions, including the 780,000 shares
owned by Quantum subject to the Standstill and Voting Agreement. In June 1996,
the Company sold an aggregate of 7,384,616 shares of Common Stock to the Wood
Group for an aggregate purchase price of $6,000,000. As a result of these
transactions and other purchases, Wood Group currently owns 18,087,702 shares of
Common Stock.
The Company and Wood Group have agreed to an annual provision for
administrative and financial services fees in amounts to be determined on an
annual basis. The Company paid or accrued $188,000 in such fees for the fiscal
year ended December 31, 1996.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Annual Report on Form 10-K/A-1 to
be signed on its behalf by the undersigned, thereunto duly authorized.
ERC INDUSTRIES, INC.
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Dated: April 29, 1997 /s/ Wendell Brooks
_____________________________
Wendell Brooks
President
