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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, 1998
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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
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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.)
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. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 19, 1999 was $3,259,338.
The number of shares outstanding of the registrant's common stock, as of March
19, 1999 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 2001,
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, 51 Director 1998
(Class I)
Wendell R. Brooks, 49 Chief Executive Officer and Director 1995
(Class I)
John Derek Prichard-Jones, 63 Chairman and Director 1993
(Class II)
Anthony Howells, 62 Director 1996
(Class II)
Allister Langlands, 41 Director 1993
(Class III)
</TABLE>
JORGE E. ESTRADA 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 as a Director in August 1995 and Chief
Executive Officer in 1998. 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 Wood
Group Petroleum Services, Inc. Mr Brooks currently serves as President and
Chief Operating Officer of Wood Group Petroleum Services, Inc. Prior to joining
Wood Group, Mr. Brooks served for nine years as President and CEO of Del Norte
Technology, Inc., an international supplier of equipment and services to the
offshore oil and gas industry. He has been a director of Wood Group since
January 1999.
JOHN DEREK PRICHARD-JONES was elected Chairman of the Company in February
1993. Since 1991, Mr. Jones has served as Chairman and Chief Executive Officer
of Wood Group Petroleum Services, 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.
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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.
EXECUTIVE OFFICERS
ALAN D. SENN, age 40, joined the Company in 1978. He has served in all
levels of operations including management positions within the Company's U.S.
Operations. In June 1998, Mr. Senn was promoted to President and Chief
Operating Officer.
JAMES E. KLIMA, age 50, 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, age 51, joined the Company in January 1995 as Vice
President, General Manager. Mr. Geiger has been in the wellhead and valve
business for over 18 years with such companies as Cameron, Gray Tool, Vetco Gray
and CTC International. In January 1998, Mr. Geiger was promoted to Executive
Vice President.
HEINRICH LANG, age 60, joined the Company 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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,
due to an administrative error, Forms 3 required by Section 16(a) of the 1934
Act for Messrs. Senn, Lang, Brooks, Estrada and Howells were not timely filed.
Although, none of Messrs. Brooks, Estrada or Howells have ever owned shares of
the Company's Common Stock, (i) Mr. Senn's Form 3 indicated ownership of 35,000
units of Stock Appreciation Rights ("SARs") issued in 1997; and (ii) Mr. Lang's
Form 3 indicated ownership of 35,000 units of SARs issued in 1997. The Forms 3
for Messrs. Brooks, Estrada and Howells indicate no ownership of the Company's
securities. In addition, Forms 4 required by Section 16(a) of the 1934 Act for
Messrs. Klima, Geiger, Lang and Senn were not timely filed. Mr. Klima filed a
Form 4 in April 1999 with respect to (i) 110,000 shares of the Company's Common
Stock sold in September 1996, (ii) 37,000 units of SARs awarded in 1996, (iii)
35,000 units of SARs awarded in 1997 and (iv) 15,000 units of SARs awarded in
1998. Mr. Geiger filed a Form 4 in April 1999 with respect to (i) 29,000 shares
of the Company's Common Stock sold in September 1996, (ii) 30,000 units of SARs
awarded in 1996, (iii) 35,000 units of SARs awarded in 1997 and (iv) 15,000
units of SARs awarded in 1998. In April 1999, Mr. Lang filed a Form 4 with
respect to 15,000 units of SARs awarded in 1998, and Mr. Senn filed a Form 4
with respect to 20,000 units of SARs awarded in 1998. None of the SARs awarded
to the individuals named above have ever been exercised. See Item 11.
"Executive Compensation - Long Term Incentive Program."
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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, 1998,
December 31, 1997 and December 31, 1996 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 $100,000 for the fiscal years ended December 31, 1998,
December 31, 1997, and December 31, 1996 (the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ ------------------------------------
AWARDS PAYOUTS
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SECURITIES
RESTRICTED UNDERLYING AWARDS
NAME & OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
- ----------------------------- ---- --------- -------- ------------- ----------- ----------- -------- -------------
($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wendell R. Brooks 1998 $178,365 $85,087 -- -- -- -- --
Chief Executive 1997 156,058 36,305 -- -- -- -- --
Officer 1996 138,966 28,592 -- -- -- -- --
Alan D. Senn 1998 $132,819 $22,903 -- -- 20,000 -- $28,349/(2)/
President & Chief 1997 96,625 19,667 -- -- 35,000 -- --
Operating Officer 1996 78,647 8,000 -- -- 30,000 -- --
James E. Klima 1998 $111,085 $22,722 -- -- 15,000 -- --
Vice President & 1997 96,950 22,530 -- -- 35,000 -- --
Chief Financial Officer 1996 88,925 -- -- -- 37,000 -- --
Heinrich Lang/(1)/ 1998 $111,431 $23,178 -- -- 15,000 -- --
Vice President- 1997 95,885 9,577 -- -- 35,000 -- --
Engineering & Business 1996 45,000 -- -- -- -- -- --
Development
Patrick Geiger 1998 $128,077 $27,993 -- -- 15,000 -- --
Executive Vice 1997 103,269 19,102 -- -- 35,000 -- --
President 1996 103,210 9,000 -- -- 30,000 -- $23,684/(2)/
</TABLE>
_______________________
(1) Mr. Lang joined the Company in July 1996.
(2) Amount paid for expenses relating to moving.
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, and in January 1998, the Company began matching
employee's contributions up to 6% of their eligible compensation at a rate of
50% of employee contributions. The Company's matching contributions totaled
approximately $53,000 in 1996, $130,000 in 1997 and $389,000 in 1998.
4
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LONG TERM INCENTIVE PROGRAM
In November 1994, the Company's Board of Directors approved a long term
incentive plan which was amended July 1997 (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 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 within 30 days after the holder receives the annual statement
of 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.
The grants vest in increments of 20% beginning with the third year following the
date of grant and are fully vested in the seventh year following the date of
grant.
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 (i) the
earnings will be determined without taking into account items of exceptional
income or exceptional costs and (ii) the earnings shall be adjusted for the pre-
tax impact of minority 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, 1998, the Board granted 215,000 Units to
employees of the Company under the 1994 Plan, 65,000 of which were granted to
the Named Executive Officers as follows:
5
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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 NUMBER OF ------------------------------
NAME & OTHER RIGHTS MATURATION OR THRESHOLD TARGET MAXIMUM
PRINCIPAL POSITION (#) PAYOUT ($)(1) ($)(2) ($)(3)
- ------------------------------ ---------------- -------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Wendell R. Brooks -- -- -- -- --
Chief Executive Officer
Alan D. Senn 20,000 11-1-1998 to .38 .19 --
President & Chief Operating 11-1-2005
Officer
James E. Klima 15,000 11-1-1998 to .38 .19 --
Vice President & Chief 11-1-2005
Financial Officer
Heinrich Lang 15,000 11-1-1998 to .38 .19 --
Vice President-Engineering & 11-1-2005
Business Development
Patrick Geiger 15,000 11-1-1998 to .38 .19 --
Executive Vice President 11-1-2005
</TABLE>
- -------------------
(1) Represents the price per Unit (described above).
(2) Represents the Current Value per Unit (described above).
(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
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 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. Estrada and Howells, who are not employed by either the Company or Wood
Group. Messrs. Howells and Estrada 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, Chief Executive Officer. 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 1998.
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, 1998, 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/(1)/ SHARES OWNED /(2)/ PERCENT OF CLASS
- -------------------------------------------- ------------------ -----------------
<S> <C> <C>
John Wood Group PLC/(2)/ 24,337,702/(2)/ 88.5%/(2)/
Allister G. Langlands/(3)/ 0 0%
</TABLE>
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<TABLE>
<S> <C> <C>
Jorge E. Estrada 0 0%
Wendell R. Brooks/(3)/ 0 0%
John Derek Prichard-Jones 0 0%
Anthony Howells 0 0%
Directors and Executive Officers
as a group (5 persons) 0 *
</TABLE>
________________________________
*Less than 1%
(1) Except as set forth below, the address of each Beneficial Owner is 1441 Park
Ten Boulevard, Houston, Texas 77084.
(2) 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.
(3) The directors of Wood Group, which include Messrs. Brooks 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 2, 1998, the Company obtained a $22 million secured line of
credit with its principal stockholder, John Wood Group PLC. The line has
substantially the same terms as the Company's previous line of credit. The new
line, payable on demand, expires on September 2, 1999 and bears interest at the
U.S. dollar LIBOR rate plus 0.85%, which was approximately 5.9% at December 31,
1998. At December 31, 1998, loan amounts outstanding under the agreement were
$15.5 million. On September 11, 1998 the Company repaid its outstanding balance
on its previous line of credit with a bank, utilizing the proceeds of the new
line of credit.
Seaboard Lloyd Limited, a private company incorporated in Scotland under the
Companies Acts of the United Kingdom and a wholly-owned subsidiary of the
Company operating under the name Wood Group Pressure Control Limited ("WGPCL"),
has a line of credit with a bank in Scotland provided as part of a group banking
arrangement with John Wood Group PLC. The line of credit is used for the purpose
of general working capital requirements and provides overdraft and documentary
credit facilities. Interest payable on the overdraft is equal to the bank's base
rate plus 1% per annum. At December 31, 1998, the bank's base rate was 6.25%.
The amount outstanding under this agreement at December 31, 1998 was $2.1
million.
WGPCL has a loan from John Wood Group PLC amounting to $3.3 million which is
repayable on demand. The loan is used for the purpose of general working
requirements. Interest payable on the loan is charged at the Sterling LIBOR
rate plus 0.85%. At December 31, 1998, the Bank's Sterling LIBOR rate was 6.25%.
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 $898,000 in such fees for the fiscal
year ended December 31, 1998.
7
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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 30, 1999 /s/ JAMES E. KLIMA
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James E. Klima
Vice President & Chief Financial Officer
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