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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, 1997
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
(State of incorporation) (I.R.S. Employer Identification No.)
1441 Park Ten Boulevard, 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 16, 1998 was $7,901,425.
The number of shares outstanding of the registrant's common stock, as of March
17, 1998 was 27,498,272.
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 2000, 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:
<TABLE>
<CAPTION>
Positions and Offices Director
Name and Age With the Company Since
- ------------ ---------------------- --------
<S> <C> <C>
Jorge E. Estrada M., 50 Director 1998
(Class I)
Wendell R. Brooks, 48 President and Director 1995
(Class I)
John Derek Prichard-Jones, 62 Chairman and Director 1993
(Class II)
Anthony Howells, 61 Director 1996
(Class II)
Allister Langlands, 40 Director 1993
(Class III)
</TABLE>
JORGE E. ESTRADA M. joined the Company as a director in March of 1998.
Since 1987, Mr. Estrada has been President and Chief Executive Officer of JEMPSA
Media & Entertainment, a company which he founded that specializes in the
Spanish and Latin American entertainment industry. Since 1993, Mr. Estrada has
been a director of Pride International, Inc., a public energy drilling and
workover service company based in Houston, Texas. He also serves as a director
for Production Operators, Inc., a Delaware corporation, which is engaged in
compression and other gas handling services in the oil field services industry.
Previously, Mr. Estrada served as President-Worldwide Drilling Division of
Geosource, and Vice President of Geosource Exploration Division-Latin America.
WENDELL R. BROOKS was elected President and Director in August 1995. Mr.
Brooks has over 20 years of general management experience in the oil and gas
service industry. He has been involved in business development activities,
including acquisitions and mergers for the Drilling and Production Services
Division of John Wood Group USA, Inc. Prior to joining John Wood Group USA,
Inc., 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 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
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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.
EXECUTIVE OFFICERS
JAMES E. KLIMA joined the Company in October 1995 as Vice President and
Chief Financial Officer. Mr. Klima has over 20 years of financial management
experience and international expertise in the oil and gas industry with such
companies as Combustion Engineering, Gray Tool, Vetco Gray and CTC
International.
D. PATRICK GEIGER joined the Company in January 1995 as Vice President,
General Manager. Mr. Geiger has been in the wellhead and valve business for
over 15 years with such companies as Cameron, Gray Tool, Vetco Gray and CTC
International. In January 1998, Mr. Geiger was promoted to Executive Vice
President, International and Drilling Products.
HEINRICH LANG joined the Company in July 1996 in the position of Vice
President, Engineering and Business Development. Mr. Lang has over 25 years of
experience in the wellhead and valve industry with such companies as Gray Tool,
Vetco Gray and Ingram-Cactus.
ALAN SENN joined the Company in 1978. He has served in all levels of
operations including management positions within the Company's U.S. Operations.
In January 1998, Mr. Senn was promoted to Sr. Vice President, U.S. Operations
with areas of responsibility including North American operations and
manufacturing.
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, 1997.
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, 1997,
December 31, 1996 and December 31, 1995 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 $100,000 for the fiscal years ended December 31, 1997,
December 31, 1996, and December 31, 1995 (the "Named Executive Officers").
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<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- --------------------------------
AWARDS PAYOUTS
---------------------- -------
SECURITIES
RESTRICTED UNDERLYING
NAME & OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
- --------------------------- ---- ------------ ------- ------------ ---------- ---------- ------- ------------
($) ($) ($) ($)/(3)/ (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wendell R. Brooks(1) 1997 $ 156,058 $36,305 -- -- -- -- --
President 1996 138,966 28,592 -- -- -- -- --
1995 75,000(2) -- -- -- -- -- --
Patrick Geiger(5) 1997 $ 103,269 $19,102 -- -- -- -- --
Executive Vice 1996 103,210 9,000 -- -- -- -- $23,684(4)
President-International 1995 88,365 -- -- -- -- -- 5,853
Operations
James E. Klima(6) 1997 $ 96,950 $22,530 -- -- -- -- --
Vice President & 1996 88,925 -- -- -- -- -- --
Chief Financial Officer 1995 20,671 -- -- -- -- -- --
Heinrich Lang(7) 1997 $ 95,885 $ 9,577 -- -- -- -- --
Vice President- 1996 45,000 -- -- -- -- -- --
Engineering & 1995 -- -- -- -- -- -- --
Business Development
Alan D. Senn 1997 $ 96,625 $19,667 -- -- -- -- --
Vice President- 1996 78,647 8,000 -- -- -- -- --
U.S. Operations 1995 72,827 -- -- -- -- -- --
</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.
(6) Mr. Klima joined the Company in October 1995.
(7) Mr. Lang joined the Company in July 1996.
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 $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's matching contributions totaled
approximately $53,000 in 1996 and $130,000 in 1997.
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")
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(such number being subject to antidilution adjustments under certain
circumstances) at prices determined by the Board of Directors. Plan
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). In
general, Plan participants can exercise up to 20% of the Units in any grant in
each of years three through seven after the date of grant. Holders of Units
electing to exercise must irrevocably elect in writing to exercise the Units
within 30 days after the employee receives the annual statement of Current Value
of 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 and its
subsidiaries and affiliated entities 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 income and costs and (2) adjusting for the
pre-tax impact of minority equity interests.
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, 1997, the Board granted 491,000 Units to
employees of the Company under the 1994 Plan, 140,000 of which were granted to
the Named Executive Officers as follows:
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER
NUMBER OF PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OR OTHER PERIOD UNTIL -----------------------------
NAME & OTHER RIGHTS MATURATION OR THRESHOLD TARGET MAXIMUM
PRINCIPAL POSITION (#) PAYOUT ($)/(1)/ ($)/(2)/ ($)/(3)/
- ------------------ ----------------- ------------------ --------- -------- --------
<S> <C> <C> <C> <C> <C>
Wendell R. Brooks -- -- -- -- --
President
Patrick Geiger 35,000 7-1-1997 to .40 .38 --
Executive Vice President- 7-1-2004
International Operations
James E. Klima 35,000 7-1-1997 to .40 .38 --
Vice President & Chief 7-1-2004
Financial Officer
Heinrich Lang 35,000 7-1-1997 to .40 .38 --
Vice President-Engineering & 7-1-2004
Business Development
Alan D. Senn 35,000 7-1-1997 to .40 .38 --
Vice President-U.S. Operations 7-1-2004
</TABLE>
- -------------------
(1) Represents the price per Unit (described above).
(2) Represents the Current Value per Unit (described above).
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(3) Currently, none of the awards have a Current Value in excess of the price
per Unit. However, the 1994 Plan has no maximum amount that can be realized
upon an award.
DIRECTOR COMPENSATION
The only directors who receive fees for their services as directors are
Messrs. Estrada and Howells, who are not employed by either the Company or Wood
Group. Messrs. Howells and Estrada receive $2,500 for each meeting of the Board
of Directors that they attend.
Mr. George W. Tilley resigned from the Board of Directors as of November 1,
1997. As a non-employee director, he received $10,000 for his service on the
Board of Directors for 1997 ($2,500 per meeting attended).
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 1997.
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.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OWNED /(1)/ PERCENT OF CLASS
- -------------------------------------- ------------------ -----------------
<S> <C> <C>
John Wood Group PLC/(1)/ 24,337,702/(1)/ 88.5%/(1)/
Allister G. Langlands/(2)/ 0 0%
Jorge E. Estrada M. 0 0%
Wendell R. Brooks 0 0%
John Derek Prichard-Jones/(2)/ 0 0%
Anthony Howells 0 0%
George W. Tilley 0 0%
Directors and Executive Officers
as a group (5 persons) 0 *
</TABLE>
________________________________
*Less than 1%
(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.
(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.
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.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 8, 1997, the Company and Wood Group entered into an Investment
Agreement (the "Investment Agreement") pursuant to which the Company agreed to
issue and sell, and Wood Group agreed to purchase, 6,250,000 shares (the
"Shares") of Common Stock. The aggregate purchase price for the Shares was
$10,000,000, or $1.60 per Share. Such transaction (the "Transaction") was
consummated on September 8, 1997.
Prior to the consummation of the Transaction, Wood Group owned approximately
85% of the outstanding shares of the Company's Common Stock. Prior to the
negotiation and consummation of the transaction, the Company's Board of
Directors formed a special committee of its outside independent directors (the
"Special Committee") to evaluate and negotiate the Transaction. The Special
Committee engaged an investment banking firm, as its financial advisor to assist
it in evaluating and determining the fairness of the Transaction to the
Company's stockholders. On September 5, 1997, the investment banking firm
delivered an opinion stating that the terms of the consideration to be received
by the Company in the Transaction were fair to the Company's stockholders from a
financial point of view.
In connection with the Investment Agreement, as part of the consideration for
the purchase of the Shares, the Company granted certain registration rights to
Wood Group pursuant to a Registration Rights Agreement, dated as of September 8,
1997 (the "Registration Rights Agreement"). Under the terms of the Registration
Rights Agreement, the Company granted to Wood Group and its assignees the right
to require the Company to register the offer and sale of the Shares up to two
times, subject to certain deferral and cutback provisions. In addition, the
Company also granted to Wood Group and its assignees, certain incidental or
"piggyback" registration rights, which allow Wood Group to participate in
certain underwritten public offerings initiated by the Company, subject to
certain limitations and conditions set forth therein. Under the terms of the
Registration Rights Agreement, the ability of Wood Group to exercise the rights
granted thereunder may not be subordinated or subject to registration rights of
any other person or entity. The rights granted under the Registration Rights
Agreement terminate on the earlier of (i) the fifth anniversary of the
Registration Rights Agreement, or (ii) such time as the Shares may be
immediately sold under Rule 144 under the Securities Act of 1933, as amended,
during any 90-day period.
As a result of the consummation of the Transaction, as of September 8, 1997,
Wood Group owned an aggregate of 24,337,702 shares of Common Stock, representing
approximately 88.5% of the outstanding shares of Common Stock.
In June 1996, the Company and Wood Group entered into a substantially similar
transaction pursuant to which Wood Group purchased an aggregate of 7,384,616
shares of Common Stock for an aggregate purchase price of $6,000,000.50 ($0.8125
per share).
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 $389,000 in such fees for the fiscal
year ended December 31, 1997.
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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.
Dated: April 30, 1998 By:/s/ Wendell Brooks
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Wendell Brooks
President
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