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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) Of The Securities
Exchange Act Of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
ERC INDUSTRIES, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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ERC INDUSTRIES, INC.
1441 Park Ten Boulevard
Houston, Texas 77084
(281) 398-8901
June 19, 2000
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of ERC
Industries, Inc., which will be held at the headquarters of Wood Group Pressure
Control, 1441 Park Ten Boulevard, Houston, Texas 77084, on Tuesday, July 18,
2000, at 10:00 a.m., Houston time.
At the special meeting, we will ask you to vote on the merger of ERC and ERC
Acquisition, Inc., a subsidiary of John Wood Group PLC. Wood Group currently
owns 89.7% of our common stock, and, as a result of the merger, we will become
100% owned by Wood Group. In the merger, holders of common stock, other than
Wood Group and any stockholder that perfects his or her appraisal rights under
Delaware law, will receive $1.60 in cash for each share of common stock owned.
The $1.60 per share price represents a 264% premium over the $0.44 per share
closing price on November 17, 1999, the last full trading day before Wood Group
first proposed to purchase the remaining shares of our common stock it does not
already own.
Because four of the six members of the Board of Directors are affiliates of
Wood Group or employees of ERC and may therefore have a conflict of interest
regarding the merger, the Board formed a Special Committee of independent
directors to evaluate the fairness of the merger to the stockholders of ERC not
associated with Wood Group. The Special Committee comprises Mr. Jorge E.
Estrada and Mr. George Tilley, who are not employees or directors of Wood Group
or employees of ERC and do not have any commercial relationship with Wood
Group.
The Special Committee received a written opinion from Schroder & Co. Inc.,
its financial advisor, that as of February 17, 2000, the $1.60 per share merger
price was fair from a financial point of view to ERC's stockholders other than
Wood Group. Schroders subsequently confirmed the opinion as of March 28, 2000.
We have included a copy of that opinion as Appendix B to the accompanying proxy
statement, and you should read it in its entirety.
Your Board of Directors, acting on the recommendation of the Special
Committee, has unanimously approved the merger agreement and the merger. In
arriving at its decision, the Board gave careful consideration to the factors
described in the accompanying proxy statement, including the opinion of
Schroders. The Board believes that the merger is in the best interests of ERC
stockholders and unanimously recommends that you vote FOR approval and adoption
of the merger agreement and the merger.
The merger agreement provides that the merger will occur only if a majority
of the outstanding shares of our common stock not owned by Wood Group voting at
the meeting votes to adopt the merger agreement. In addition, under Delaware
law, the merger agreement must be adopted by the affirmative vote of at least a
majority of the outstanding shares. Because Wood Group will vote for adoption
of the merger agreement, satisfaction of this Delaware law requirement is
assured.
The attached Notice of Special Meeting of Stockholders and proxy statement
explain the proposed merger and provide specific information about the special
meeting. Please read these materials carefully. In addition, you may obtain
information about us from documents that we have filed with the Securities and
Exchange Commission, including the Schedule 13E-3 Transaction Statement.
If you do not vote in favor of the merger agreement, you will have the right
to dissent and to seek appraisal of the fair market value of your shares of
common stock if the merger is consummated. To do so, however, you must properly
perfect your appraisal rights under Delaware law in accordance with the
procedures described beginning on page 31 of the accompanying proxy statement.
<PAGE>
Whether or not you plan to attend the special meeting, I urge you to
complete, sign and promptly return the enclosed proxy card to ensure that your
shares will be voted at the special meeting. If you sign, date and return your
proxy card without indicating how you want to vote, your proxy will be counted
as a vote in favor of the merger agreement and any other matters to be voted
upon at the special meeting. You may revoke your proxy at any time before it is
voted by submitting to our corporate secretary a written revocation or a proxy
bearing a later date, or by attending the special meeting and giving oral
notice of your intention to vote in person. Attendance at the special meeting
by a stockholder who has executed and delivered a proxy to ERC will not,
however, in and of itself constitute a revocation of such proxy.
On behalf of the Board of Directors, I thank you for your support and urge
you to vote FOR approval and adoption of the merger agreement and the merger.
Sincerely,
/s/ Wendell R. Brooks
Wendell R. Brooks
Chairman and Chief Executive Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of this transaction, passed upon
the merits or fairness of the transaction or passed upon the adequacy or
accuracy of the disclosure in the document. Any representation to the
contrary is a criminal offense.
This proxy statement and the accompanying form of proxy are first being mailed
to stockholders on or about June 19, 2000.
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ERC INDUSTRIES, INC.
1441 Park Ten Boulevard
Houston, Texas 77084
(281) 398-8901
Notice of Special Meeting of Stockholders
To Be Held July 18, 2000
To the Stockholders of
ERC Industries, Inc.:
Notice is hereby given that a Special Meeting of the Stockholders of ERC
Industries, Inc., a Delaware corporation, will be held at the headquarters of
Wood Group Pressure Control, 1441 Park Ten Boulevard, Houston, Texas 77084, on
Tuesday, July 18, 2000, at 10:00 a.m., Houston time, for the following
purposes:
. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of March 29, 2000, by and among ERC
Industries, Inc., John Wood Group PLC and ERC Acquisition, Inc., a wholly
owned subsidiary of Wood Group, and the transactions contemplated
thereby. In the merger, ERC Acquisition will be merged with and into ERC,
with ERC surviving as a wholly owned subsidiary of Wood Group. Each share
of ERC common stock outstanding, other than shares held by Wood Group or
by any stockholder that perfects his or her appraisal rights under
Delaware law, will be converted into the right to receive $1.60 in cash.
The merger agreement is more fully described in the accompanying proxy
statement and is attached to this document as Appendix A.
. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Only stockholders of record at the close of business on June 16, 2000 are
entitled to notice of and to vote at the special meeting or any adjournment or
postponement thereof. A list of those stockholders will be available for
examination for proper purposes during ordinary business hours at the offices
of ERC at 1441 Park Ten Boulevard, Houston, Texas 77084, for the 10-day period
before the special meeting.
A proxy statement containing a detailed description of the matters to be
considered at the special meeting accompanies this notice.
You are invited to attend the meeting in person. Whether or not you plan to
attend the meeting personally, please complete, sign and date the enclosed
proxy and return it as soon as possible in the enclosed postage prepaid
envelope provided. You may revoke your proxy any time prior to its exercise,
and you may attend the meeting and vote in person, even if you have previously
returned your proxy.
By order of the Board of Directors,
/s/ Wendell R. Brooks
Wendell R. Brooks
Chairman and Chief Executive Officer
Houston, Texas
June 19, 2000
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SUMMARY TERM SHEET
The following summarizes the most material terms of our merger with ERC
Acquisition, Inc., but does not contain all information that may be important
to consider when evaluating the merits of the merger agreement and the merger.
We encourage you to read this proxy statement and the documents we have
incorporated by reference in their entirety before voting.
. John Wood Group PLC currently owns 89.7% of the outstanding shares of our
common stock. Wood Group proposes to acquire all the shares it does not own
for $1.60 per share in cash.
. This is a "going-private" transaction. As a result of the merger:
. Wood Group will own the entire equity interest in us
. you will no longer have any interest in our future earnings or growth
. we will no longer be a public company
. our common stock will no longer be traded on the over-the-counter market
Please read "Special Factors--Certain Effects of the Merger" on page 22.
. A Special Committee of independent directors has determined that the merger
is fair to and in the best interest of our stockholders other than Wood
Group and has recommended to the full Board that the merger be approved.
Please read "Special Factors--Recommendation of the Special Committee and
Board of Directors; Fairness of the Merger" beginning on page 8.
. The Special Committee received a written opinion from Schroder & Co. Inc.,
its financial advisor, that as of February 17, 2000, the $1.60 per share
merger price was fair from a financial point of view to our stockholders
other than Wood Group. Schroders subsequently confirmed the opinion as of
March 28, 2000. Please read "Special Factors--Opinion of Financial Advisor
to the Special Committee" beginning on page 12.
. Acting on the recommendation of the Special Committee, the Board of
Directors has unanimously approved the merger agreement and the merger and
recommends that you vote to approve the merger. Please read "Special
Factors--Recommendation of the Special Committee and Board of Directors;
Fairness of the Merger" beginning on page 8.
. The merger agreement and the merger must be approved by a majority of the
outstanding shares of our common stock not owned by Wood Group voting at the
special meeting. Please read "Information Concerning the Special Meeting--
Required Vote; Effect of Abstentions and Non-Votes" beginning on page 5 and
"The Merger Agreement--Conditions to the Merger--Conditions to Each Party's
Obligation" on page 29.
. In addition, under Delaware law, adoption of the merger agreement requires
the affirmative vote of a majority of the outstanding shares of our common
stock. Because Wood Group will vote for adoption, satisfaction of this
Delaware law requirement is assured. Please read "Information Concerning the
Special Meeting--Required Vote; Effect of Abstentions and Non-Votes"
beginning on page 5.
. Delaware law entitles stockholders who do not vote in favor of the merger
and who fulfill other procedural requirements to a judicial appraisal of the
fair value of their shares. Please read "Dissenters Rights of Appraisal"
beginning on page 31.
. Your receipt of cash in the merger generally will be a taxable transaction
to you. Please read "Special Factors--Federal Income Tax Consequences of the
Merger" beginning on page 24.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY.................................................................... 1
INFORMATION CONCERNING THE SPECIAL MEETING................................. 5
Time, Place, Date........................................................ 5
Purpose of the Special Meeting........................................... 5
Record Date; Voting at the Meeting; Quorum............................... 5
Required Vote; Effect of Abstentions and Non-Votes....................... 5
Action to Be Taken under the Proxy....................................... 6
Proxy Solicitation....................................................... 6
SPECIAL FACTORS............................................................ 7
Background of the Merger................................................. 7
Recommendation of the Special Committee and Board of Directors; Fairness
of the Merger........................................................... 8
Wood Group's Purpose and Reason for the Merger........................... 11
Opinion of Financial Advisor to the Special Committee.................... 12
Certain Projections...................................................... 20
Certain Effects of the Merger............................................ 22
Plans for the Company after the Merger................................... 23
Conduct of the Business of ERC If the Merger Is Not Consummated.......... 23
Interests of Certain Persons in the Merger; Certain Relationships........ 23
Accounting Treatment..................................................... 24
Financing of the Merger.................................................. 24
Regulatory Requirements.................................................. 24
Federal Income Tax Consequences of the Merger............................ 24
Fees and Expenses........................................................ 25
Provisions for Unaffiliated Security Holders............................. 25
THE PARTIES................................................................ 26
ERC Industries, Inc...................................................... 26
ERC Acquisition, Inc..................................................... 26
John Wood Group PLC...................................................... 26
THE MERGER AGREEMENT....................................................... 26
The Merger............................................................... 26
Procedures for Exchange of Certificates.................................. 27
Representations and Warranties........................................... 28
Covenants................................................................ 28
Conditions to the Merger................................................. 29
Amendment and Waiver..................................................... 30
Termination.............................................................. 30
Expenses................................................................. 31
DISSENTERS RIGHTS OF APPRAISAL............................................. 31
SUMMARY CONSOLIDATED FINANCIAL DATA OF ERC................................. 35
CERTAIN RELATIONSHIPS AND TRANSACTIONS..................................... 36
Lines of Credit.......................................................... 36
Management Support Fee................................................... 36
Pressure Control Acquisition............................................. 36
Other Registration Rights Agreements..................................... 37
MARKET FOR THE COMMON STOCK................................................ 38
Common Stock Market Price Information; Dividend Information.............. 38
Common Stock Purchase Information........................................ 38
SECURITIES OWNERSHIP....................................................... 39
</TABLE>
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<S> <C>
MANAGEMENT.................................................................. 40
Directors and Executive Officers of ERC................................... 40
Directors and Executive Officers of ERC Acquisition....................... 42
Executive and Nonexecutive Directors of Wood Group........................ 43
INDEPENDENT ACCOUNTANTS..................................................... 44
STOCKHOLDER PROPOSALS....................................................... 44
WHERE YOU CAN FIND MORE INFORMATION......................................... 44
OTHER BUSINESS.............................................................. 45
APPENDIX A AGREEMENT AND PLAN OF MERGER
APPENDIX B OPINION OF SCHRODER & CO. INC.
APPENDIX C SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
</TABLE>
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SUMMARY
This summary highlights information from this proxy statement, but does not
contain all information that may be important to consider when evaluating the
merits of the merger agreement and the merger. We encourage you to read this
proxy statement and the documents we have incorporated by reference in their
entirety before voting. The actual terms and conditions of the merger are
contained in the merger agreement, which we have attached to this proxy
statement as Appendix A.
The Merger (Page 26)
ERC Industries, Inc. and John Wood Group PLC, the holder of 89.7% of the
outstanding shares of ERC common stock, are proposing that Wood Group acquire
the remaining stock of ERC by means of a merger. In the merger, ERC
Acquisition, Inc., a wholly owned subsidiary of Wood Group, would merge into
ERC. As a result of the merger, Wood Group will acquire the entire equity
interest in ERC, and ERC's public stockholders will receive $1.60 in cash for
each share they own.
Date, Time and Place of the Special Meeting (Page 5)
The special meeting to vote on the merger will be held on July 18, 2000, at
the headquarters of Wood Group Pressure Control, 1441 Park Ten Boulevard,
Houston, Texas 77084, at 10:00 a.m., Houston time.
Purposes of the Special Meeting (Page 5)
At the special meeting, stockholders of ERC will be asked:
. to consider and vote upon a proposal to approve and adopt the merger
agreement and the merger and
. to transact such other business as may properly come before the special
meeting or any adjournment or postponement thereof
Voting (Page 5)
The Board of Directors has set the close of business on June 16, 2000 as the
record date for determining stockholders entitled to notice of and to vote at
the special meeting. At the special meeting, each share of common stock will be
entitled to one vote. As of the record date, there were 30,698,272 shares of
common stock outstanding and entitled to vote. As of such date, there were
approximately 800 holders of record.
Any proxy given by a stockholder may be revoked by the stockholder at any
time before it is voted by delivering a written notice of revocation to the
Secretary of ERC, by executing and delivering a later-dated proxy or by
attending the meeting and giving oral notice of the stockholder's intention to
vote in person. However, attendance at the special meeting by a stockholder who
has executed and delivered a proxy to ERC will not in and of itself constitute
a revocation of such proxy.
A broker holding shares in "street name" on behalf of a stockholder will
vote those shares only if that stockholder provides written instructions on how
to vote. The stockholder should follow the directions provided by the broker
regarding how to instruct the broker to vote those shares.
Unless contrary instructions are indicated on the proxy, all shares of
common stock represented by valid proxies will be voted for the approval and
adoption of the merger agreement and the merger and, as to any other proposal
that may properly come before the meeting, in the best judgment of the persons
named in the enclosed form of proxy.
Stockholders are requested to sign and mail their proxy card in the enclosed
return envelope as soon as possible so that their shares can be represented at
the meeting. Stockholders should not send in their stock certificates now. If
the merger is completed, written instructions for exchanging stock certificates
for the merger consideration will be sent.
Required Vote (Page 5)
The merger agreement requires that the merger be approved by the affirmative
vote of a majority of the shares of ERC common stock not held by Wood Group
voting at the special meeting. In addition, under Delaware law, adoption of the
merger agreement requires the affirmative vote of a majority of the outstanding
shares of common stock. Wood Group, which owns a majority of the outstanding
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shares, will vote in favor of the proposal. Accordingly, satisfaction of this
Delaware law requirement is assured.
What You Will Receive in the Merger (Page 26)
Each holder of common stock (other than Wood Group or any stockholder that
properly perfects his or her appraisal rights under Delaware law) will receive
$1.60 per share in cash. The $1.60 per share price represents a 264% premium
over the $0.44 per share closing price on November 17, 1999, the last full
trading day before Wood Group first proposed to purchase the remaining shares
of common stock it does not already own.
Background of the Merger; Purpose and Reasons for the Merger (Page 7)
In December 1992, Wood Group acquired 6.5 million shares of ERC common stock
from ERC's then-largest stockholder and other stockholders to obtain a
significant equity interest in ERC of approximately 47.2%. Over the next
several years, Wood Group continued to evaluate its investment in ERC and made
additional open-market and privately negotiated purchases of such stock.
Currently, Wood Group owns 27.5 million shares of ERC common stock, or 89.7% of
the outstanding shares.
Wood Group's purpose for engaging in the merger is to acquire 100% of the
ownership of ERC in a transaction in which ERC stockholders other than Wood
Group would have their equity interest in ERC extinguished in exchange for cash
in the amount of $1.60 per share.
The determination to proceed with the acquisition at this time would, in the
view of Wood Group, afford ERC's stockholders an opportunity to dispose of
their shares at a significant premium over recent market prices. Wood Group
believes that the acquisition is an attractive investment opportunity at this
time because causing ERC to be closely held, and therefore no longer required
to file periodic reports with the Securities and Exchange Commission, would:
. enable management to focus on the creation of long-term value, rather
than being subject to the pressures associated with the reporting of
quarterly earnings
. provide Wood Group with flexibility in conducting the business and
dealing with the assets of ERC
. eliminate conflicts of interest between Wood Group and the minority
stockholders and
. reduce costs associated with ERC's obligations and reporting requirements
under the securities laws
The Special Committee (Page 7)
Because four of the six members of the ERC Board of Directors are affiliates
of Wood Group or employees of ERC and may therefore have a conflict of interest
regarding the merger, the Board formed a Special Committee of independent
directors to evaluate the fairness of the merger to the stockholders of ERC not
associated with Wood Group. The Special Committee comprises Jorge E. Estrada
and George Tilley, who are not employees or directors of Wood Group or
employees of ERC and do not have any commercial relationships with Wood Group.
Opinion of Schroder & Co. Inc. (Page 12)
The Special Committee retained Schroder & Co. Inc. as its financial advisor
in connection with its evaluation of the merger. On February 17, 2000,
Schroders delivered to the Special Committee its opinion that, as of that date
and based upon and subject to the various limitations, qualifications and
assumptions stated in the opinion, the merger consideration of $1.60 per share
of common stock to be received by ERC's stockholders other than Wood Group in
connection with the merger is fair to them from a financial point of view.
Schroders subsequently confirmed the opinion as of March 28, 2000. A copy of
Schroders' written opinion, which describes the assumptions made, matters
considered and limitations on the review undertaken in connection with the
opinion, is included as Appendix B to this proxy statement. You should read
Schroders' opinion carefully and in its entirety.
Recommendation of the Board of Directors (Page 10)
The Board of Directors, taking into account the recommendation of the
Special Committee and the opinion of Schroders, has determined that the terms
of the merger agreement are fair to, and in the best
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interests of, ERC and its stockholders, has declared its advisability and
unanimously recommends that you vote FOR approval and adoption of the merger
agreement and the merger.
Conflicts of Interest (Page 23)
In considering the recommendation of the Board of Directors with respect to
the merger, you should be aware of certain inherent conflicts of interest and
that some officers and directors of ERC may have interests in the merger that
may be different from, or in addition to, those of ERC's stockholders
generally. Wood Group currently owns 89.7% of the outstanding common stock, and
four of the directors of ERC are affiliates of Wood Group or employees of ERC.
In addition, the surviving corporation of the merger will indemnify ERC's
officers and directors for six years to the fullest extent permitted by law.
Wood Group also will maintain officer and director liability insurance for
ERC's officers and directors for six years on terms substantially no less
advantageous to those individuals than their existing insurance.
Effects of the Merger (Page 22)
Following the merger, the public stockholders will receive the merger
consideration of $1.60 in cash in exchange for each share of common stock they
own. As a result, Wood Group will own the entire equity interest of ERC. It is
expected that, immediately following the merger, the business and operations of
ERC will be continued by ERC, as the surviving company in the merger,
substantially as they are currently being conducted. However, ERC and Wood
Group will continue to evaluate ERC's business and operations after the
consummation of the merger and make changes as are deemed appropriate from time
to time.
Following the merger, Wood Group will be the sole beneficiary of any future
earnings and growth of ERC, and the public stockholders will no longer benefit
from any increase in the value of ERC. On the other hand, the public
stockholders will no longer bear the risk of any decrease in the value of ERC.
As a result of the merger:
. the common stock will cease to be traded on the over-the-counter market
. there will be no public market for the common stock and
. ERC will terminate registration of its common stock under the Securities
Exchange Act of 1934
Conditions to the Merger (Page 29)
Consummation of the merger is subject to various conditions, including:
. the approval and adoption of the merger agreement and the merger by the
affirmative vote of holders of a majority of the outstanding shares of
common stock, other than Wood Group, entitled to vote on the matter and
voting at the special meeting
. the absence of any court decree, order or injunction prohibiting the
merger or any governmental statute, rule or regulation prohibiting the
merger or making it unlawful
. the absence of any event or occurrence having or likely to have a
material adverse effect on ERC's business or financial condition or on
ERC's or Wood Group's ability to complete the merger or fulfill the
conditions to closing of the merger
. the fairness opinion of Schroders not having been withdrawn
Termination of the Merger Agreement (Page 30)
Wood Group and ERC may terminate the merger agreement by mutual written
consent. In addition, either Wood Group or ERC may terminate the merger
agreement if:
. ERC's stockholders fail to approve and adopt the merger agreement and the
merger or
. a court or governmental order, ruling or other action permanently
prohibits the merger
Wood Group may terminate the agreement if:
. ERC's Board of Directors or the Special Committee withdraws or materially
modifies its approval or recommendation of the merger or
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. ERC materially breaches any representation, warranty, covenant or
agreement that would give rise to a failure of a condition to the merger
and such breach is not curable or is not cured within 30 days after
receipt of notice of such breach
ERC may terminate the agreement if Wood Group materially breaches any
representation, warranty, covenant or agreement that would give rise to a
failure of a condition to the merger and such breach is not curable or is not
cured within 30 days after receipt of notice of such breach.
In each of these cases, ERC may terminate the merger agreement only if
authorized by the Special Committee.
Appraisal Rights (Page 31)
Any stockholder who does not wish to accept the merger consideration has the
right under Section 262 of Delaware General Corporation Law to have the "fair
value" of his or her shares of common stock determined by the Delaware Court of
Chancery. This "right of appraisal" is subject to a number of restrictions and
technical requirements. Generally, to exercise appraisal rights:
. the stockholder must not vote in favor of the merger agreement and the
merger
. the stockholder must make a written demand for appraisal before the vote
on the merger agreement and the merger in accordance with the Delaware
General Corporation Law
. the stockholder must have been a record owner of shares of common stock
on the date of the demand for appraisal and continue to own them through
the effective time of the merger and
. the stockholder, or another stockholder who has perfected his right of
appraisal, or ERC, must have filed an action in the Delaware Court of
Chancery within 120 days after the effective time of the merger seeking
an appraisal of dissenting shares. ERC does not intend to file such a
suit.
Merely voting against the merger agreement and the merger will not protect
your right of appraisal. Appendix C to this proxy statement contains Section
262 of the Delaware General Corporation Law regarding appraisal rights.
Federal Income Tax Consequences (Page 24)
The receipt of the merger consideration will be a taxable transaction to the
public stockholders for U.S. federal income tax purposes under the Internal
Revenue Code and may be a taxable transaction for foreign, state and local
income tax purposes as well. For U.S. federal income tax purposes, the public
stockholders will recognize gain or loss measured by the difference between the
amount of cash they receive and their tax basis in the shares of common stock
exchanged for the merger consideration. Public stockholders should consult
their own tax advisors regarding the U.S. federal income tax consequences of
the merger, as well as any tax consequences under state, local or foreign laws.
Financing and Expenses of the Merger (Page 24)
At the closing of the merger, the public stockholders will be paid an
aggregate purchase price of approximately $5.1 million for their shares of
common stock, assuming that no public stockholders exercise and perfect their
Delaware appraisal rights in connection with the merger. In addition, Wood
Group will require approximately $400,000 to pay the expenses and costs related
to the transaction. Wood Group expects that the funds used to pay the aggregate
merger consideration and those costs and expenses will come from its working
capital.
Accounting Treatment (Page 24)
The cost of purchasing the common stock from stockholders other than Wood
Group will be accounted for as a treasury stock transaction by ERC, the
surviving company, since the merger will not constitute a change of control
under generally accepted accounting principles. This means that the historical
cost basis of ERC's assets and liabilities will be carried forward with the
aggregate cost, including expenses, of such treasury stock purchase being
accounted for as a charge to stockholders' equity.
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INFORMATION CONCERNING THE SPECIAL MEETING
Time, Place, Date
This proxy statement is furnished to stockholders of ERC in connection with
the solicitation of proxies on behalf of the Board of Directors of ERC for use
at the special meeting to be held on July 18, 2000 at the time and place
specified in the attached Notice of Special Meeting, or at any adjournments or
postponements thereof.
Purpose of the Special Meeting
At the special meeting, the stockholders of ERC will be asked to consider
and vote upon the approval and adoption of the merger agreement and the merger.
Acting on the recommendation of the Special Committee, the Board of
Directors of ERC has unanimously determined that the merger agreement and the
merger are fair to, and in the best interests of, ERC's stockholders other than
Wood Group, has unanimously approved the merger agreement and the merger and
unanimously recommends that stockholders vote "FOR" approval and adoption of
the merger agreement and the merger.
Record Date; Voting at the Meeting; Quorum
Acting under authority granted to it by the Board of Directors, the Special
Committee has fixed the close of business on June 16, 2000 as the record date
for the determination of the ERC stockholders entitled to receive notice of and
to vote at the special meeting. As of the close of business on the record date,
ERC had outstanding 30,698,272 shares of common stock held of record by
approximately 800 registered holders. Wood Group beneficially owns 27,537,702
shares of ERC's common stock, representing 89.7% of the outstanding shares.
Each outstanding share of common stock is entitled to one vote on all matters
coming before the special meeting. The presence, either in person or by proxy,
of the holders of a majority of the issued and outstanding shares of common
stock entitled to vote at the special meeting is necessary to constitute a
quorum for the transaction of business at the meeting.
Required Vote; Effect of Abstentions and Non-Votes
Wood Group and ERC have agreed in the merger agreement that it is a
condition to consummation of the merger that the merger agreement and the
merger be approved and adopted by the holders of a majority of the shares of
ERC common stock not owned, directly or indirectly, by Wood Group that are
entitled to vote thereon and that are voting for or against the matter in
person or by proxy at the special meeting (the "Independent Vote Condition").
In addition, under Delaware law, the merger agreement must be adopted by the
affirmative vote of the holders of a majority of the outstanding shares of ERC
common stock (the "Delaware Vote Requirement"). Wood Group owns a majority of
the outstanding shares and will vote in favor of the merger agreement.
Accordingly, the Delaware Vote Requirement will be satisfied.
The inspectors of election will treat shares of ERC common stock represented
by proxies that reflect abstentions as shares that are present and entitled to
vote for purposes of determining the presence of a quorum at the special
meeting and for purposes of determining the outcome of any question submitted
to the stockholders for a vote. The inspectors of election will treat "broker
non-votes" (i.e., shares held by brokers that are represented at a meeting but
with respect to which the broker does not have discretionary authority to vote)
as shares that are present and entitled to vote for purposes of establishing a
quorum. For purposes of determining the outcome of any question as to which the
broker has physically indicated on the proxy that it does not have
discretionary authority to vote, these shares will be treated as not present
and not entitled to vote with respect to that question, even though those
shares are considered entitled to vote for quorum purposes and may be entitled
to vote on other questions. Accordingly, abstentions and broker non-votes will
have the same
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effect as votes against the approval and adoption of the merger agreement for
purposes of the Delaware Vote Requirement. Abstentions and broker non-votes
will not, however, be treated as voting for or against the matter in connection
with the Independent Vote Condition.
As of the record date, no shares of ERC common stock were beneficially owned
by directors and executive officers of ERC and their affiliates.
Action to Be Taken under the Proxy
The enclosed proxy is solicited on behalf of ERC's Board of Directors. The
giving of a proxy does not preclude the right to vote in person if any
stockholder giving the proxy so desires. Stockholders have an unconditional
right to revoke their proxy at any time prior to its exercise, either by filing
with ERC's Secretary at ERC's principal executive offices a written revocation
or a duly executed proxy bearing a later date or by voting in person at the
special meeting. Attendance at the special meeting without casting a ballot
will not, by itself, constitute revocation of a proxy.
All shares of common stock represented at the special meeting by properly
executed proxies received prior to or at the special meeting, unless previously
revoked, will be voted at the special meeting in accordance with the
instructions on the proxies. Unless contrary instructions are indicated,
proxies will be voted FOR the approval and adoption of the merger agreement and
the merger. As explained below in the section entitled "Dissenters Rights of
Appraisal," a vote in favor of the merger agreement means that the stockholder
owning those shares will not have the right to dissent and seek appraisal of
the fair market value of the shares. ERC does not know of any matters, other
than as described in the Notice of Special Meeting, which are to come before
the special meeting. If any other matters are properly presented at the special
meeting for action, the persons named in the enclosed form of proxy and acting
thereunder will have discretion to vote on such matters in accordance with
their best judgment. If any other matters are properly presented at the special
meeting for action, including, among other things, consideration of a motion to
adjourn such meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the merger), the persons
named in the enclosed form of proxy and acting thereunder generally will have
discretion to vote on such matters in accordance with their best judgment.
Notwithstanding the foregoing, the persons named in the proxies will not use
their discretionary authority to use proxies voting against the merger to vote
in favor of adjournment or postponement of the special meeting.
Proxy Solicitation
The cost of preparing, assembling and mailing this proxy statement, the
Notice of Special Meeting and the enclosed form of proxy will be borne by ERC.
ERC is requesting that banks, brokers and other custodians, nominees and
fiduciaries forward copies of the proxy material to their principals and
request authority for the execution of proxies. ERC may reimburse such persons
for their expenses in so doing. In addition to the solicitation of proxies by
mail, the directors, officers and employees of ERC and its subsidiaries may
solicit proxies by telephone, facsimile, telegram or in person. Such directors,
officers and employees will not be additionally compensated for such
solicitation but may be reimbursed for out-of-pocket expenses incurred. ERC
also has engaged Morrow & Co., Inc. for a fee of $7,500, plus expenses, to aid
in the solicitation of proxies.
No person is authorized to give any information or make any representation
not contained in this proxy statement, and if given or made, such information
or representation should not be relied upon as having been authorized.
If the merger agreement is approved and adopted and the merger is
consummated, holders of ERC common stock will be sent instructions regarding
the surrender of their certificates representing shares of common stock.
Holders should not send their stock certificates until they receive these
instructions.
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SPECIAL FACTORS
Background of the Merger
In December 1992, Wood Group acquired 6.5 million shares of ERC common stock
from Quantum Fund, N.V., ERC's then-largest stockholder, and other stockholders
to obtain a significant equity interest in ERC of approximately 47.2%. In March
1996, Wood Group exercised its option to purchase an additional 780,000 shares
from Quantum, which increased its equity ownership to approximately 52.8%. Over
the next several years, Wood Group continued to evaluate its investment in ERC
and made additional open-market and privately negotiated purchases of such
stock. Most recently, in May 1999 Wood Group acquired 1.4 million shares of
common stock and 1.9 million shares of convertible preferred stock (which was
converted in February 2000 into an equal number of shares of common stock) in
connection with its sale to ERC of Wood Group Pressure Control Holding Limited.
Please read "Certain Relationships and Transactions--Pressure Control
Acquisition." Currently, Wood Group owns 27.5 million shares of ERC common
stock, or 89.7% of the outstanding shares.
On November 18, 1999, by letter to ERC's Board of Directors, Wood Group
proposed to acquire the outstanding shares of ERC common stock it did not own
for $1.50 per share. The proposed transaction would be structured as a merger
of ERC and a wholly owned subsidiary of Wood Group and would be subject to two
principal conditions: (1) the approval of a special committee of ERC's Board of
Directors consisting solely of directors not affiliated with Wood Group and (2)
the approval of a majority of the shares of ERC common stock held by
stockholders other than Wood Group that are voting at the special meeting
called for that purpose. Wood Group attached to the letter a proposed form of
merger agreement. On November 22, 1999, Wood Group filed with the SEC an
amendment to its Schedule 13D with respect to, and ERC issued a press release
announcing its receipt of, the proposal.
On November 24, 1999, ERC's Board of Directors appointed the Special
Committee, consisting of ERC directors Jorge E. Estrada and George Tilley, to
negotiate with Wood Group on behalf of ERC's stockholders other than Wood
Group, to determine the advisability of the proposed transaction and its
fairness to such stockholders and to make a recommendation to the full Board
with respect to the transaction. Messrs. Estrada and Tilley were the only
members of ERC's Board of Directors who neither were employees of ERC or
directors or employees of Wood Group nor had financial relationships with Wood
Group. In addition, each of these directors had previously served on a special
committee in connection with other transactions between ERC and Wood Group.
Following its appointment, the Special Committee retained the Houston law
firm of Bracewell & Patterson, L.L.P. to serve as its counsel. The Special
Committee retained that law firm because of its expertise relating to corporate
and securities law matters and because the firm had not previously represented
either ERC or Wood Group.
The Committee also contacted several investment banks to discuss their
interest in serving as financial advisor to the Special Committee. On January
19, 2000, the Special Committee met with Schroder & Co. Inc. to discuss the
proposal. After that meeting, Schroders met with ERC management to discuss
certain due diligence items. On January 20, 2000, the Special Committee
retained Schroders as its financial advisor because of its experience in
advising special committees, its background and experience in the oil service
business and its lack of conflicts of interest. Schroders also had represented
ERC in connection with other transactions between ERC and Wood Group.
Counsel representing the Special Committee, ERC and Wood Group met on
January 27, 2000 to discuss the proposed form of merger agreement that had been
prepared by counsel for Wood Group and attached to the initial proposal letter.
On February 14, 2000, the Special Committee met with its counsel and
financial advisor to discuss the proposed offer of $1.50 per share offered by
Wood Group.
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<PAGE>
On February 15, 2000, the Special Committee and its counsel met by telephone
with Wood Group and its counsel to discuss the proposed $1.50 per share offer.
At that meeting, the Special Committee negotiated with Wood Group to increase
its offer. Wood Group indicated that although it considered its initial offer
to be a fair valuation of ERC, it would consider such an increase. On February
17, 2000, Wood Group indicated to the Special Committee that it would increase
its offer to $1.60 per share.
On February 22, 2000, the Special Committee reviewed with its counsel and
Schroders the terms of the proposed merger agreement that had been negotiated
by counsel representing the Special Committee, ERC and Wood Group. At the
Special Committee meeting, Schroders delivered its opinion that, as of February
17, 2000, the proposed merger consideration of $1.60 per share was fair, from a
financial point of view, to ERC stockholders other than Wood Group.
On March 10, 2000, Wendell Brooks, ERC's Chairman, and Iain Murray, ERC's
Secretary, together with counsel for ERC, met with one of ERC's long-time
stockholders, who is also a former employee of ERC, to discuss the proposed
merger. When Wood Group initially made its offer of $1.50 per share, the
stockholder requested meetings with ERC's Board of Directors and the Special
Committee to express his concerns regarding the offer. The March 10 meeting was
provided as an opportunity for him to express those concerns.
At the meeting, after reviewing ERC's history and the current state of the
petroleum services market, the stockholder stated his belief that Wood Group's
$1.50 per share offer was inadequate. The stockholder stated his belief that
the timing of the offer was inappropriate given his expectations that ERC's
prospects would improve in coming months due to improved oil prices and
industry conditions. He also stated that the EBITDA multiples implicit in Wood
Group's offer should be higher given the trading multiples of companies the
stockholder believed are comparable to ERC. Certain of the companies used in
the stockholder's analysis had been included in Schroders' presentation to the
Special Committee. In addition, the stockholder stated that the proper
methodology for determining the value of the ERC minority interest was to have
Wood Group solicit offers from third parties to purchase 100% of ERC. Finally,
the stockholder questioned the Special Committee's selection of its financial
advisor.
After this meeting, Messrs. Brooks and Murray forwarded to the Special
Committee the information provided by the stockholder. On March 16, 1999,
George Tilley, on behalf of the Special Committee, together with counsel for
the Special Committee, initiated a telephone conference with the stockholder
and reviewed with him the financial data provided. The stockholder expressed
substantially the same concerns to Mr. Tilley as at the March 10 meeting. The
Special Committee believed that the concerns raised by the stockholder had been
addressed by Schroders and the Special Committee in the Special Committee's
deliberative processes.
On March 29, 2000, the Special Committee approved the $1.60 price and other
terms and provisions of the proposed merger agreement and found such price and
terms and provisions to be fair to and in the best interest of ERC and its
stockholders other than Wood Group, and determined to recommend that the full
Board of Directors approve the proposed merger agreement. At the Special
Committee meeting, Schroders confirmed its opinion dated February 17, 2000
that, as of March 28, 2000, the proposed merger consideration of $1.60 per
share was fair, from a financial point of view, to ERC stockholders other than
Wood Group.
A special meeting of the Board of Directors was held immediately following
the Special Committee meeting to consider the proposed merger agreement. All
directors were present (in person or by telephone) at the meeting. The Special
Committee reported to the Board of Directors that it had concluded, and so
advised and recommended to the Board, that the terms of the merger agreement be
approved and that the Board of Directors declare its advisability. After the
Special Committee's recommendation, the Board determined that the terms of the
merger agreement were fair to, and in the best interests of, ERC and its
stockholders other than Wood Group. The merger agreement was executed, and its
execution was announced, on March 29, 2000.
Recommendation of the Special Committee and Board of Directors; Fairness of the
Merger
On March 29, 2000, the Special Committee determined that the merger and the
terms and provisions of the merger agreement are fair to and in the best
interest of ERC and its stockholders other than Wood Group, and recommended to
the Board of Directors of ERC that it approve the merger agreement.
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At a special meeting held on March 29, 2000, at which all directors of ERC
were present, the Board of Directors of ERC considered the recommendation of
the Special Committee and unanimously concluded that the terms and provisions
of the merger agreement and the merger are fair to and in the best interest of
ERC and its stockholders other than Wood Group, approved the merger agreement
and declared its advisability, and recommended that the stockholders approve
and adopt the merger agreement.
Special Committee
The Special Committee unanimously approved the merger agreement, believes
that the merger is fair to and in the best interests of the stockholders of ERC
(other than Wood Group) and unanimously recommends approval and adoption of the
merger agreement by the ERC stockholders at the special meeting. In reaching
these conclusions, the Special Committee considered the following procedural
aspects of the merger approval process that affords both the Special Committee
and the minority stockholders of ERC a meaningful opportunity to participate in
and influence the outcome of that process:
. The requirement that the merger be approved by a majority of the
outstanding shares of ERC common stock not owned by Wood Group voting at
the special meeting
. The composition of the membership of the Special Committee and its
empowerment by ERC and Wood Group to retain legal counsel and investment
bankers selected by it
. The availability of appraisal rights under Delaware law for stockholders
of ERC who believe that the terms of the merger are unfair, which rights
are described under "Dissenters Rights of Appraisal"
Additionally, the Special Committee considered the following favorable
economic factors in reaching its conclusion that the merger is fair to the
minority stockholders of ERC:
. The Special Committee's negotiations with Wood Group, which resulted in
an increase in the merger consideration from $1.50 to $1.60 per share
. The substantial equity premiums implied by the $1.60 per share merger
consideration of 264%, 264% and 132% over ERC's stock prices one day, one
week and four weeks, respectively, prior to the initial announcement of
Wood Group's proposal on November 22, 1999
. The following ranges of implied equity values for ERC's stock derived
pursuant to the four valuation methodologies employed by Schroders in
analyzing ERC for purposes of its fairness opinion:
<TABLE>
<CAPTION>
Implied Equity
Value Per Share
-------------------
Summary of Valuation Methodologies(*) Low High Average
------------------------------------- --- ----- -------
<S> <C> <C> <C>
DCF Valuation......................................... $0.34 $0.91 $0.61
Publicly Traded Petroleum Equipment Companies......... 0.00 3.40 1.60
Comparable M&A Transactions........................... 0.00 8.29 0.58
Equity Premiums Paid Analysis......................... 0.39 1.39 0.68
Average............................................... $0.18 $3.50 $0.87
</TABLE>
--------
(*) Implied average values from publicly traded petroleum equipment
companies, comparable M&A transactions and equity premiums paid
analysis represent an average of the respective average excluding
high/low values. Implied values of $0.00 per share are a result of
subtracting net debt amounts in excess of the implied enterprise
values to determine implied equity values.
. The written opinion of Schroders that, as of February 17, 2000, the cash
merger consideration of $1.60 per share was fair to the ERC stockholders
(other than Wood Group) from a financial point of view, which opinion was
confirmed as of March 28, 2000
Finally, the Special Committee considered the following adverse procedural
and economic aspects of the proposed transaction in reaching its fairness
conclusions:
. Since Wood Group desired to retain its 89.7% equity interest in ERC and
declined to offer ERC for sale as an entirety to a third party, minority
stockholders were not afforded an opportunity to
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<PAGE>
participate in any control premium that might have been generated by the
sale of the entire company to a third party
. The expectation that the merger will be a taxable transaction for ERC
stockholders
. The fact that the minority stockholders of ERC will have no ongoing
equity participation in the surviving corporation following the merger
The Special Committee believed that the ranges of implied equity values
generated pursuant to the four valuation methodologies used by Schroders in
connection with the rendition of its fairness opinion were more reflective of
the fair value of ERC than the net book value (which was $0.85 per share as of
March 31, 2000) and liquidation value of ERC's stock. The Special Committee
considered that net book value is indicative of historical cost and that the
valuation methodologies used by Schroders incorporate the expected future
performance and business prospects of ERC to arrive at a market based value
for the stock. The Special Committee did not find it practicable to, and did
not, appraise the assets of ERC to determine a liquidation value for ERC. The
Special Committee considers ERC as a viable, going-concern business and did
not consider the liquidation value as a relevant valuation methodology.
In view of the variety of factors considered by the Special Committee, the
Special Committee did not find it practicable to, and it did not, quantify or
otherwise attempt to assign specific or relative weights to the factors
considered in making its determination. In addition, each member of the
Special Committee may have given different weights to the various factors.
Board of Directors
The Board of Directors unanimously approved the merger agreement, believes
that the merger is fair to and in the best interests of the stockholders of
ERC (other than Wood Group) and unanimously recommends approval of the merger
agreement by the ERC stockholders at the special meeting. The Board considered
the following factors in deciding to recommend that stockholders vote "FOR"
the adoption and approval of the merger agreement at the special meeting:
. the recommendation of the Special Committee and
. the fact that the merger consideration and the terms and conditions of
the merger agreement were the result of arm's-length negotiations between
the Special Committee and its independent legal and financial advisors,
on the one hand, and representatives of Wood Group, on the other hand
In view of the factors considered by the Board of Directors in connection
with the evaluation of the merger and the complexity of these matters, the
Board of Directors did not consider it practicable to, nor did it attempt to,
quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its decision, nor did it evaluate whether these factors
were of equal importance. The Board of Directors also received an extensive
presentation from, and relied on the experience and expertise of, Schroders
with respect to the quantitative analysis of the financial terms of the
merger. The Board of Directors conducted a discussion of, among other things,
the factors described above, including asking questions of ERC's management
and regularly retained legal advisors, and reached the conclusion that the
merger was advisable and in the best interests of the ERC and its stockholders
(other than Wood Group). The Board has relied upon and adopted the analysis
and recommendation of the Special Committee with respect to the fairness of
the merger to ERC stockholders (other than Wood Group). In considering the
factors described above, individual members of the Board of Directors may have
given different weight to different factors.
The Board of Directors believes that the merger is procedurally fair
because, among other things:
. the Special Committee consisted entirely of non-management, non-
affiliated independent directors appointed by the Board of Directors to
represent solely the interests of ERC's stockholders (other than Wood
Group)
. the Special Committee retained and was advised by its own independent
financial advisor, Schroders, to assist it in evaluating the merger and
provide it with financial advice
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. the Special Committee retained and was advised by its own independent
legal counsel, Bracewell & Patterson L.L.P.
. the Special Committee engaged in extensive negotiations and deliberations
in evaluating the merger and merger consideration
. the merger consideration and the other terms and conditions of the merger
agreement resulted from active arm's-length bargaining between the
Special Committee and Wood Group and their respective advisors
. even though the Special Committee consisted of directors of ERC and was
therefore not completely unaffiliated with ERC, committees of independent
directors are a commonly used mechanism that are recognized under
applicable law to ensure fairness in transactions of this type and
. approval and adoption of the merger agreement and the merger requires the
affirmative vote of a majority of the outstanding shares of ERC common
stock not owned by Wood Group voting at the special meeting
In view of the foregoing, the Board of Directors believes that sufficient
procedural safeguards exist to ensure fairness of the merger and to permit the
Special Committee to effectively represent the interests of ERC's stockholders
(other than Wood Group), and therefore, additional unaffiliated representatives
to act on behalf of such stockholders are not necessary.
Wood Group's Purpose and Reason for the Merger
Wood Group's purpose for engaging in the transactions contemplated by the
merger agreement is to acquire 100% ownership of ERC in a transaction in which
the stockholders of ERC other than Wood Group would have their equity interest
in ERC extinguished in exchange for cash in the amount of $1.60 per share. The
determination to proceed with the acquisition at this time would, in the view
of Wood Group, afford ERC's stockholders an opportunity to dispose of their
shares at a significant premium over recent market prices. Wood Group believes
that the acquisition is an attractive investment opportunity at this time
because causing ERC to be closely held, and therefore no longer required to
file periodic reports with the Securities and Exchange Commission, would enable
management to focus on the creation of long-term value, rather than being
subject to the pressures associated with the reporting of quarterly earnings,
would provide Wood Group with flexibility in conducting the business and
dealing with the assets of ERC, would eliminate conflicts of interest between
Wood Group and the minority stockholders and would reduce costs associated with
ERC's obligations and reporting requirements under the securities laws,
estimated to be approximately $130,000 per year.
Wood Group did not pursue a liquidation of ERC or a sale of ERC to a third
party because Wood Group wished to continue to operate the business of ERC on
an ongoing basis and wanted to acquire the entire equity interest in ERC. Wood
Group did not desire to sell the shares that it owned to a third party.
Wood Group considered alternatives to the merger to accomplish its goal of
acquiring all the equity interest in ERC, including (1) a first step tender
offer followed by a second-step merger and (2) open market purchases of ERC
common stock. The acquisition was structured as a cash merger, however, to
accomplish the acquisition in a single step, without the necessity of financing
separate purchases of shares in a tender offer or in open market purchases
while at the same time not materially disrupting ERC's operations. Wood Group
did not consider any alternatives that would have allowed the public
stockholders to maintain an equity interest in ERC because no such alternative
would have accomplished Wood Group's purposes described above. Wood Group
determined to undertake the transaction at this time because it believed that a
long term strategy for increasing the value of ERC would be more readily
achievable if ERC were private.
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Wood Group has concluded that the merger, including the merger consideration
of $1.60 per share, and the terms and conditions of the merger agreement are
fair to ERC and its public stockholders based upon the following factors:
. the conclusions and recommendations of the Special Committee and ERC's
Board of Directors
. the fact that a group of ERC's directors comprising persons not
affiliated with Wood Group had unanimously approved the merger and
recommended that stockholders approve and adopt the merger agreement
. the fact that the merger is conditioned upon the affirmative vote of a
majority of the outstanding shares of ERC common stock not owned by Wood
Group voting at the special meeting
. the fact that the merger consideration and the other terms and conditions
of the merger agreement were the result of arm's-length good faith
negotiations between the Special Committee and its advisors and Wood
Group and its advisors
. the fact that Schroders issued a fairness opinion to the Special
Committee to the effect that, as of the date of such opinion, based upon
and subject to various considerations and assumptions stated therein, the
$1.60 per share to be received in the merger is fair from a financial
point of view to the holders of common stock other than Wood Group
. the other factors referred to above as having been taken into account by
the Special Committee and ERC's Board of Directors, which Wood Group
adopts as its own (see also "Special Factors--Background of the Merger"
and "--Opinion of Financial Advisor to the Special Committee")
Opinion of Financial Advisor to the Special Committee
On February 17, 2000, Schroders rendered its opinion to the Special
Committee that, as of the date of the opinion, the merger consideration to be
received by the holders of ERC common stock (other than Wood Group) was fair,
from a financial point of view. Subsequently, Schroders confirmed its opinion
to the Special Committee that as of March 28, 2000, the merger consideration to
be received by the holders of ERC common stock (other than Wood Group) was
fair, from a financial point of view.
Schroders is an internationally recognized investment banking firm with
experience in the valuation of businesses and their securities in connection
with mergers, acquisitions, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
In arriving at its opinion, Schroders, among other things:
. reviewed ERC's Annual Report on Form 10-K filed with the SEC for the year
ended December 31, 1998
. reviewed ERC's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999
. reviewed ERC management's estimates of financial performance for the year
ended December 31, 1999, including any non-recurring items
. reviewed certain projected financial information prepared by management
of ERC for the years ending December 31, 2000 through 2004
. reviewed ERC management's estimates of the application and expiration of
the net operating loss (the "NOL") in the years ending December 31, 1999
through 2004
. reviewed certain publicly available information concerning ERC
. conducted discussions with the Chairman of the Special Committee and
senior management of ERC concerning the merger, ERC's historical
financial results and projected financial information as described above
12
<PAGE>
. performed various financial analyses, as Schroders deemed appropriate, of
ERC using generally accepted analytical methodologies, including:
. a discounted cash flow analysis utilizing the projections provided by
ERC's management for the years ending December 31, 2000 through 2004
. the application to the financial results of ERC of the public trading
multiples of companies that Schroders deemed comparable to ERC
. the application to the financial results of ERC of the multiples
reflected in recent merger and acquisition ("M&A") transactions for
businesses that Schroders deemed comparable to ERC and
. the application to the share price of ERC of the average equity
premiums paid in remaining interest acquisitions where the acquirer
held an existing control position in the stock
. reviewed the historical trading prices and volumes of the ERC Common
Stock on the Nasdaq National Market and the OTC Bulletin Board from
January 1, 1996 to March 28, 2000
. reviewed the draft merger agreement as distributed on February 4, 2000
and
. performed such other financial studies, analyses, inquiries and
investigations as Schroders deemed appropriate
In Schroders' review and analysis and in formulating the Schroders' opinion,
Schroders:
. relied upon and assumed the accuracy and completeness of all financial
and other information supplied or otherwise made available to it by ERC,
including management estimates of financial performance for certain
periods
. relied upon ERC's assurance that it was not aware of any information or
facts that would make the information provided to Schroders incomplete or
misleading
. did not attempt to independently verify any such information
. did not undertake an independent appraisal of the assets or liabilities
(contingent or otherwise) of ERC, nor was Schroders furnished with any
such appraisals
. with respect to the projected financial information referred to above,
was advised by ERC, and Schroders assumed, without independent
investigation, that they were reasonably prepared and reflected the best
estimates and judgements of the expected future financial performance of
ERC
. expressed no opinion with respect to such projected financial statements
and
. did not, and was not requested by ERC to, actively solicit third party
indications of a possible acquisition of ERC
A copy of Schroders' written opinion, which sets forth the assumptions made,
matters considered and limitations on the scope of the review undertaken by
Schroders, is attached as Appendix B to this proxy statement, and is
incorporated in this proxy statement by reference. The Schroders' opinion was
provided at the request of the Special Committee and is directed only to the
fairness, from a financial point of view, of the merger consideration to the
holders of ERC common stock (other than Wood Group). Schroders has consented to
the inclusion of its opinion as Appendix B. The description of the Schroders'
opinion set forth in this proxy statement is qualified in its entirety by
reference to the full text of the Schroders' opinion attached as Appendix B.
ERC stockholders should read the Schroders' opinion carefully and in its
entirety. In reading the discussion of the fairness opinion set forth below,
ERC stockholders should be aware that the Schroders' opinion:
. was provided to the Special Committee for its use and benefit
. did not address ERC's underlying business decision to effect the merger
. did not constitute a recommendation to the Special Committee in
connection with the merger and
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<PAGE>
. does not constitute a recommendation to any ERC stockholder as to how to
vote in connection with the merger
Although Schroders evaluated the fairness, from a financial point of view,
of the merger consideration to be received by the holders of ERC common stock
(other than Wood Group), the consideration itself was determined by Wood Group
and ERC.
The Schroders' opinion was necessarily based on financial, economic, market
and other conditions as they existed and could be evaluated by Schroders on the
date thereof. Schroders disclaimed any undertaking or obligation to advise any
person of any change in any fact or matter affecting the Schroders' opinion
that may come or be brought to its attention unless specifically requested by
the Special Committee to do so.
In rendering its opinion, Schroders was not engaged as an agent or fiduciary
of ERC's stockholders or any other third party. Schroders' opinion related
solely to the fairness, from a financial point of view, of the merger
consideration to be received by the holders of ERC common stock (other than
Wood Group). Schroders expressed no opinion therein as to the structure, terms
or effects of any other aspect of the transactions contemplated by, or
provisions of, the merger agreement or any of the agreements or instruments
delivered pursuant to that agreement.
In performing its analysis, Schroders made numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Schroders
and ERC. No company, transaction or business used in the analysis as a
comparison is identical to ERC or the merger, nor is an evaluation of the
results of the analysis entirely mathematical. Any estimate contained in the
analysis performed by Schroders is not necessarily indicative of actual values
or future results, which may be significantly more or less favorable than
suggested by this analysis. Additionally, estimates of the value of businesses
or securities do not purport to be appraisals or reflect the prices at which
such businesses or securities may actually be sold. Accordingly, these analyses
and estimates are inherently subject to substantial uncertainty.
The analyses described below were presented to the Special Committee on
March 29, 2000. The analyses prepared by Schroders and presented to the Special
Committee on February 17, 2000 were substantially the same as the March 29
presentation, except as described below.
The following is a summary of the material valuation, financial and
comparative analyses considered by Schroders in connection with the rendering
of the Schroders' opinion and was provided by Schroders for inclusion herein.
<TABLE>
<CAPTION>
Implied Equity Value Per Share
------------------------------
Summary of Valuation Methodologies Low High Average
---------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
DCF Valuation......................... $0.34 $0.91 $0.61
Publicly Traded Petroleum Equipment
Companies............................ 0.00 3.40 1.60
Comparable M&A Transactions........... 0.00 8.29 0.58
Equity Premiums Paid Analysis......... 0.39 1.39 0.68
Average............................... $0.18 $3.50 $0.87
</TABLE>
--------
Note: Implied average values from publicly traded petroleum equipment
companies, comparable M&A transactions and equity premiums paid
analysis represent an average of the respective average excluding
high/low values. Implied values of $0.00 per share are a result of
subtracting net debt amounts in excess of the implied enterprise
values to determine implied equity values.
In establishing the range of equity values per share resulting from the
application of each of the analyses, Schroders made qualitative judgements as
to the meaningfulness of the valuation measurements. The judgments were based
upon the number and similarity of comparable companies and transactions, as
well as the predictability and volatility of future earnings when assessing the
relative significance of the discounted cash flow analysis described below. The
relative appropriateness of certain other valuation measurements was also taken
into account in making such judgments. Schroders considered that some of the
individual implied per
14
<PAGE>
share values resulted in values greater than $1.60 per share offered by Wood
Group. Schroders relied on an average of the average excluding high/low values
as opposed to individual values because Schroders believed some of the
multiples were outliers given the typical range of multiples seen in the
industry.
Discounted Cash Flow Analysis
Schroders estimated the present value of the stream of projected free cash
flows for the fiscal years ending 2000 through 2004 for ERC. Free cash flows
are defined as after tax EBIT (earnings before interest and taxes), plus
depreciation and amortization, less capital expenditures, less changes in
working capital. All projections were provided by management and reviewed by
Schroders. The present value of a range of terminal values was calculated by
applying a range of exit multiples of 6.0x, 7.0x and 8.0x to projected 2004
EBITDA (earnings before interest, taxes, depreciation and amortization), and
discounting these figures to December 31, 1999, using a range of weighted
average cost of capital of 10.0%, 12.0% and 14.0%.
The range of terminal multiples was based upon the forward trading range of
ERC's peer group of comparable companies. The range of Enterprise Value
(defined as market value of equity plus total debt, plus minority interest,
plus preferred stock, less cash and cash equivalents) to estimated 1999, 2000
and 2001 EBITDA multiples was 6.7x to 32.9x. The comparable companies are
larger in size, have broader product lines, have greater market penetration and
have more substantial product development capability than ERC. Therefore,
Schroders applied the low end of the range of trading multiples or 6.0x, 7.0x
and 8.0x, to calculate the present value of a range of terminal values.
Further, the terminal multiples are forward multiples that are applied to 2004
EBITDA statistics. This implies that even with moderate growth in these
businesses, the current multiples will be higher than forward multiples.
The range of discount rates was based upon the weighted average cost of
capital of ERC on a stand-alone basis, as well as the discount rates of ERC's
peer group of comparable companies. In calculating ERC's weighted average cost
of capital, Schroders applied a micro-capitalization premium of 2.95% to ERC's
cost of equity to come up with an adjusted cost of equity (per Ibbotson
Associates Inc. 1999 Yearbook). The premium considers the downward effect on
ERC's Beta due to the small percentage of float in ERC's market capitalization
and the resulting effect on the shares' liquidity. Varying the capital
structures from 0% to 100% debt to equity, resulted in a range of discount
rates for ERC of 9.1% to 11.9%. The weighted average cost of capital of ERC's
peer companies ranged from 12.2% to 14.4%. Schroders applied a range of
discount rates of 10%, 12% and 14% to calculate a range of enterprise, equity
and per share values for ERC.
A range of Enterprise Values for ERC was determined by adding the present
value of the projected free cash flows of ERC, the present value of forecasted
benefits from the NOLs, and the present value of the estimated terminal value
of ERC. Based on outstanding net debt as of December 31, 1999 of $26.6 million
(net of $1.4 million of cash), and 30,698,272 ERC shares outstanding, the
implied per share equity values for ERC ranged from $0.34 to $0.91, with an
average implied value of $0.61 per share.
<TABLE>
<CAPTION>
Enterprise Value
from DCF Analysis
-----------------------
Discount Rates
-----------------------
2004 Exit EBITDA Multiple 10.0% 12.0% 14.0%
------------------------- ------- ------- -------
($ in thousands)
<S> <C> <C> <C>
6.0x............................................. $43,848 $40,299 $37,105
7.0x............................................. 49,223 45,212 41,601
8.0x............................................. 54,599 50,124 46,098
<CAPTION>
Equity Value Per Share
from DCF Analysis
-----------------------
Discount Rates
-----------------------
2004 Exit EBITDA Multiple 10.0% 12.0% 14.0%
------------------------- ------- ------- -------
<S> <C> <C> <C>
6.0x............................................. $ 0.56 $ 0.45 $ 0.34
7.0x............................................. 0.74 0.61 0.49
8.0x............................................. 0.91 0.77 0.63
</TABLE>
15
<PAGE>
Selected Comparable Companies Analysis
Schroders compared certain operating, financial, trading and valuation
information for ERC to certain publicly available operating, financial, trading
and valuation information for seven selected petroleum equipment manufacturers,
which, in Schroders' judgement, were the most comparable to ERC for purposes of
this analysis. In determining the appropriate comparable companies, Schroders
considered a variety of factors, including market capitalization, business
focus and end-markets, EBITDA, EBIT, cash flow and net income. The following
companies were included in the analysis:
. Baker Hughes Incorporated
. Cooper Cameron Corporation
. Dril-Quip, Inc.
. National Oilwell, Inc.
. Smith International, Inc.
. Varco International, Inc.
. Weatherford International, Inc.
Schroders calculated multiples of: Enterprise Value to estimated 2000 and
2001 EBITDA; Enterprise Value to estimated 2000 and 2001 EBIT; stock price per
share to estimated 2000 and 2001 cash flow per share; and stock price per share
to estimated 2001 earnings per share. Schroders applied the range of multiples,
including the high, low and average excluding high/low multiples from the
analysis to ERC's financial results to determine a range of implied values for
ERC. Schroders analysis was based on closing stock prices as of February 16,
2000 (for the February 17, 2000 presentation to the Special Committee) and
March 28, 2000 (for the March 29, 2000 presentation to the Special Committee).
The results of the analysis are set forth below:
<TABLE>
<CAPTION>
March 29, 2000 Presentation February 17, 2000 Presentation
----------------------------- -------------------------------
Enterprise Value Multiple to: Enterprise Value Multiple to:
----------------------------- -------------------------------
2000 EBITDA 2001 EBITDA 2000 EBITDA 2001 EBITDA
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Multiple Range.......... 11.7x-28.6x 9.1x-16.1x 9.3x-16.3x 6.7x-12.1x
Average Excluding
High/Low Multiple...... 18.5x 13.0x 13.8x 10.1x
Implied ERC Per Share
Value.................. $1.89 $1.99 $1.19 $1.34
(based on average
excluding high/low
multiple)
<CAPTION>
Enterprise Value Multiple to: Enterprise Value Multiple to:
----------------------------- -------------------------------
2000 EBIT 2001 EBIT 2000 EBIT 2001 EBIT
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Multiple Range.......... 20.0x-42.6x 13.9x-27.0x 14.5x-35.1x 9.4x-22.2x
Average Excluding
High/Low Multiple...... 34.2x 19.0x 26.0x 15.5x
Implied ERC Per Share
Value.................. $1.24 $1.54 $0.74 $1.09
(based on average
excluding high/low
multiple)
<CAPTION>
Equity Value Multiple to: Equity Value Multiple to:
----------------------------- -------------------------------
2000 Cash Flow 2001 Cash Flow 2000 Cash Flow 2001 Cash Flow
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Multiple Range.......... 11.5x-32.4x 9.3x-23.1x 9.4x-24.7x 8.0x-17.4x
Average Excluding
High/Low Multiple...... 24.1x 17.6x 18.6x 14.1x
Implied ERC Per Share
Value.................. $1.96 $2.51 $1.51 $2.02
(based on average
excluding high/low
multiple)
<CAPTION>
Equity Value Multiple to: Equity Value Multiple to:
----------------------------- -------------------------------
2000 Net 2001 Net 2000 Net 2001 Net
Income Income Income Income
-------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Multiple Range.......... 32.2x-82.9x 21.1x-45.8x 27.1x-72.3x 16.8x-35.9x
Average Excluding
High/Low Multiple...... 61.2x 33.3x 47.8x 27.2x
Implied ERC Per Share
Value.................. NM $1.69 NM $1.38
(based on average
excluding high/low
multiple)
</TABLE>
16
<PAGE>
Schroders noted that none of the comparable companies considered is
identical to ERC and that, accordingly, any analysis of comparable companies
necessarily involved complex consideration and judgments concerning differences
in financial and operating characteristics and other factors that would
necessarily affect the relative trading value of ERC as compared to the
companies to which ERC was being compared. Schroders also considered that many
of the individual implied per share values resulted in values greater than
$1.60 per share offered by Wood Group. Schroders relied on an average of the
average excluding high/low values as opposed to individual values because,
again, none of the companies considered were directly comparable to ERC.
Selected M&A Transactions
Schroders reviewed and analyzed the publicly available financial terms of
relevant merger and acquisition transactions in four industry categories:
. oilfield services (48 transactions)
. equipment manufacturers (4 transactions)
. pump equipment (12 transactions)
. flow control (25 transactions)
In the comparable M&A transaction analysis, Schroders considered that ERC's
estimated 1999 financial performance may not be representative of ERC's
historical financial performance, and is not representative of what ERC's
management is projecting ERC's performance will be in the future.
Schroders believes that this is due in part to the fact that ERC is engaged
in a highly cyclical business. After bottoming out during the Asian crisis and
Russian economic deterioration, oil and gas prices and energy supply and demand
fundamentals have improved. However, levels of capital spending by major and
independent oil and gas companies have yet to increase to the levels required
to meet projected oil and gas demand. While Schroders expects increased levels
of capital spending by major and independent oil and gas companies in 2000 and
subsequent improvement in activity levels of oilfield service and equipment
companies, improvement in the sector can be affected by a change in global
economic conditions, a change in OPEC's position regarding production
restraint, weather and other factors outside of the control of ERC management.
In addition, Schroders believes that oil and gas development activity has
yet to increase despite the recovery in oil and gas prices. ERC management does
not expect that its business will benefit from the recovery in oil prices until
oil company capital spending increases and oilfield development activity
increases, which is expected to be late 2000 or early 2001. Furthermore, ERC
currently has two to three year contracts in place, which will somewhat limit
the benefit to ERC of an improving demand environment in the oilfield equipment
sector in the near future.
17
<PAGE>
As a result, the method of using last twelve months ("LTM") multiples from
relevant M&A transactions and applying them to estimated 1999 results for ERC
may not result in meaningful valuation data. As an alternative analytical
method, Schroders calculated "normalized" EBITDA and net income figures for ERC
by taking an average of the respective results in 1998, and projections for
estimated 1999, 2000 and 2001. Normalized net income continued to result in
non-meaningful implied valuations for ERC.
<TABLE>
<CAPTION>
Normalized EBITDA and Net Income
--------------------------------------
Fiscal Year Ended or
Ending December 31,
------------------------------ 4 Year
1998 1999 2000 2001 Average
------ ------ ------ ------ -------
($ in thousands)
<S> <C> <C> <C> <C> <C>
EBITDA............................ $7,888 $ 281 $4,573 $6,719 $4,865
Net Income........................ (647) (4,380) (186) 1,556 (914)
</TABLE>
--------
Note: Due to a lack of pro forma financial information prior to 1998 (as a
result of a lack of financial information for certain businesses
acquired by ERC over the last several years), Schroders was unable
to use historical figures exclusively when calculating normalized
EBITDA and net income.
Schroders reviewed the prices paid in the selected transactions and analyzed
various operating and financial information and imputed valuation multiples and
ratios. Schroders calculated an Implied Enterprise Value (defined as purchase
price of equity, plus debt, plus minority interest, less cash and cash
equivalents) to the acquired company's LTM EBITDA; as well as Price (defined as
the purchase price of equity) to the acquired company's LTM earnings. All
multiples were based on financial information available at the time of the
relevant transaction.
<TABLE>
<CAPTION>
Implied Multiples and Values from Comparable M&A Transaction Analysis
--------------------------------------------------------------------------
Average
Excluding
Low High High/Low
------- -------- ---------
<S> <C> <C> <C>
EV/EBITDA Multiples
Oilfield Services.............................. 3.0x 57.8x 10.5x
Equipment Manufacturers........................ 7.6x 13.2x 9.0x
Pump Equipment................................. 6.3x 12.4x 8.3x
Flow Control................................... 6.3x 18.4x 8.6x
Implied ERC EV ($ in thousands)
Oilfield Services.............................. $14,529 $281,209 $50,932
Equipment Manufacturers........................ 36,929 64,265 44,020
Pump Equipment................................. 30,878 60,336 40,217
Flow Control................................... 30,747 89,607 42,001
Implied Per Share Values
Oilfield Services.............................. $ 0.00 $ 8.29 $ 0.79
Equipment Manufacturers........................ 0.34 1.23 0.57
Pump Equipment................................. 0.14 1.10 0.44
Flow Control................................... 0.13 2.05 0.50
</TABLE>
Schroders noted that none of the comparable M&A transactions considered is
identical to the merger and that, accordingly, any analysis of comparable M&A
transactions necessarily involved complex consideration and judgments
concerning differences in financial and operating characteristics and other
factors that would necessarily affect the relative value of ERC as compared to
the transactions to which the merger was being
18
<PAGE>
compared. Schroders also considered the high value of $8.29 per share an
outlier given the typical range of Enterprise Value to EBITDA multiples seen in
this industry, and believes that it is more appropriate to focus on implied
valuation based on the average excluding high/low multiples.
Premium Paid Analysis
Schroders considered the average equity premiums paid on remaining interest
acquisitions from January 1997 to January 2000, where the acquirer had an
existing control position in the stock. The premiums were calculated based on
periods of time relative to the announcement date and include average premiums
paid one day prior to the announcement, one week prior to the announcement and
four weeks prior to the announcement. Schroders considered 55 transactions over
this period, which included transactions ranging between $1.3 million and $16.4
billion in Implied Enterprise Value. The average one-day, one-week and four-
week equity premiums paid in these transactions were 25.9%, 29.5% and 35.1%,
respectively. Schroders applied these premiums to the relevant ERC share prices
to determine a range of implied per share values for ERC of $0.39 to $1.39,
respectively, and an average (defined as the average of the average values for
the one day, one week and four week periods) share price of $0.68. The Wood
Group's offer price of $1.60 per share implies a premium of 264% to the one-day
and one-week closing share price of ERC, and a 133% premium to the four-week
closing share price.
<TABLE>
<CAPTION>
Period Prior to Announcement
------------------------------------
Remaining Interest Acquisitions One Day One Week Four Weeks
------------------------------- --------- --------- -----------
<S> <C> <C> <C>
Highest Premium Paid............... 100.0% 112.5% 101.7%
Lowest Premium Paid................ (11.1%) (11.6%) (40.8%)
Average Premium Paid............... 25.9% 29.5% 35.1%
ERC Share Price.................... $0.4375 $ 0.4375 $ 0.6875
Implied ERC Value Based on:
Highest Premium.................... $ 0.88 $ 0.93 $ 1.39
Lowest Premium..................... $ 0.39 $ 0.39 $ 0.41
Average Premium.................... $ 0.55 $ 0.57 $ 0.93
</TABLE>
The preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant quantitative and
qualitative methods of financial analysis and the application of those methods
to the particular circumstances and, therefore, is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, Schroders
considered the results of all its analyses as a whole and did not attribute any
particular weight to any analysis or factor considered by it. Schroders'
analyses must be considered as a whole and considering any portion of such
analyses and of the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
the Schroders' opinion.
Any estimates contained in Schroders' analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than those contained in such
analyses. Estimated values do not purport to be appraisals or to reflect the
prices at which businesses or companies may be sold in the future, and such
estimates are inherently subject to uncertainty.
Schroders previously has performed financial advisory services for ERC. On
November 17, 1998, Schroders was engaged by a special committee of the Board of
Directors of ERC to provide an opinion as to the fairness, from a financial
point of view, of the merger consideration to Wood Group for the purchase of
two businesses: Wood Group Engineering Services (Peterhead) and Arabian Oil
Equipment Services (AOES). These transactions subsequently closed in May 1999.
Schroders may provide investment banking or financial advisory services to ERC
or the Wood Group in the future.
ERC has agreed to pay Schroders a fee of $125,000, which is contingent upon
and payable in cash upon the issuance and delivery of Schroders' opinion to the
Special Committee. This fee was not conditioned upon the conclusion reached by
Schroders as to the fairness, from a financial point of view, of the merger
19
<PAGE>
consideration. ERC has also agreed to reimburse Schroders for its reasonable
out-of-pocket expenses, including the reasonable fees and expenses of its legal
counsel and any other agents or experts that may be retained by Schroders,
incurred in connection with the services performed hereunder. In addition, ERC
has agreed to indemnify Schroders against certain expenses and liabilities in
connection with its engagement.
In the ordinary course of Schroders' business, Schroders may trade in the
equity securities of ERC for its own account and for the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities.
Certain Projections
In the normal course of business, ERC management prepares plans, estimates,
unaudited forecasts or projections as to future revenues, earnings or other
financial information to be able to anticipate the financial performance of
ERC. It does not, as a matter of course, publicly disclose these internal
documents. In connection with the proposed merger, however, to facilitate the
financial due diligence by the Special Committee and its financial advisor, ERC
provided the Special Committee and its financial advisor with estimates for the
year ended December 31, 1999 and projections for the five years ending December
31, 2004.
The unaudited financial estimates and projections were subject to and
prepared on the basis of estimates, limitations, qualifications and assumptions
and involved judgments with respect to, among other things, future economic,
competitive, regulatory and financial market conditions and other matters,
including effective tax rates and future business decisions that may not be
realized, and are inherently subject to significant business, economic,
competitive and regulatory uncertainties, all of which are difficult to predict
and many of which are beyond ERC's control. These estimates and projections
should be read together with the financial statements of ERC incorporated by
reference herein.
Although ERC believes that these estimates and assumptions are reasonable,
there can be no assurance that the unaudited projections will be accurate, and
actual results may vary materially from those shown. In light of the
uncertainties inherent in forward-looking information of any kind, the
inclusion of these unaudited projections herein should not be regarded as a
representation by ERC, Wood Group or any other entity or person that the
anticipated results will be achieved, and investors are cautioned not to place
undue reliance on such information.
20
<PAGE>
The following table presents the unaudited estimates for the year ended
December 31, 1999 and projections for the five years ending December 31, 2004
provided by ERC to the Special Committee and its financial advisors:
<TABLE>
<CAPTION>
Year Ending December 31,
-----------------------------------------------------------
1999E 2000P 2001P 2002P 2003P 2004P
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 88,876 $ 99,024 $114,726 $131,836 $125,244 $118,982
Direct Costs(1)......... (69,813) (74,524) (86,326) (99,836) (93,244) (86,982)
-------- -------- -------- -------- -------- --------
Gross Profit............ 19,063 24,500 28,400 32,000 32,000 32,000
Gross Margin............ 21.4% 24.7% 24.8% 24.3% 25.6% 26.9%
Selling, General and
Administrative......... $(20,698) $(22,000) $(23,900) $(25,100) $(25,100) $(25,100)
Amortization of Existing
Goodwill............... (607) (607) (607) (607) (607) (607)
-------- -------- -------- -------- -------- --------
EBIT.................... (2,242) 1,893 3,893 6,293 6,293 6,293
EBIT Margin............. (2.5)% 1.9% 3.4% 4.8% 5.0% 5.3%
Interest Expense, net... $ (1,745) $ (1,880) $ (1,887) $ (2,067) $ (1,957) $ (1,660)
-------- -------- -------- -------- -------- --------
EBT..................... (3,987) 13 2,006 4,226 4,336 4,633
Taxes................... (393) (198) (450) (759) (767) (1,427)
Tax Rate................ NM NM 22.4% 18.0% 17.7% 30.8%
Net Income.............. $ (4,380) $ (186) $ 1,556 $ 3,467 $ 3,569 $ 3,206
======== ======== ======== ======== ======== ========
EBIT.................... $ (2,242) $ 1,893 $ 3,893 $ 6,293 $ 6,293 $ 6,293
Depreciation............ 1,916 2,073 2,219 2,386 2,091 1,757
Amortization of Existing
Goodwill............... 607 607 607 607 607 607
-------- -------- -------- -------- -------- --------
EBITDA.................. $ 281 $ 4,573 $ 6,719 $ 9,286 $ 8,991 $ 8,657
======== ======== ======== ======== ======== ========
EBITDA Margin........... 0.3% 4.6% 5.9% 7.0% 7.2% 7.3%
Cash Flow............... $ (1,857) $ 2,495 $ 4,382 $ 6,460 $ 6,267 $ 5,571
Cash Flow Margin........ NM 2.5% 3.8% 4.9% 5.0% 4.7%
</TABLE>
--------
(1) 1999 direct costs include adjustment for reversal of write-down of
inventory of $636,000.
As of December 31, 1998, ERC had a net operating loss carryforward ("NOL")
of $10.5 million. In the estimates for the year ended December 31, 1999
provided by ERC to the Special Committee and its financial advisors, ERC
estimated an additional NOL of $666,000 from the anticipated loss in 1999,
resulting in an NOL of approximately $11.1 million as of December 31, 1999.
ERC's management prepared a schedule of the forecasted application and
expiration of the NOL based on management's projections of U.S. taxable income.
The value of the NOL was then determined by multiplying the amount of the NOL
utilized in a particular year by the corporate tax rate of 34% for each of the
years ending December 31, 2000 to 2004, and then discounting the stream of cash
flows back to December 31, 1999. Discount rates of 10%, 12% and 14% were
applied. (Note: the remaining tax shown on the income statement was calculated
using EBIT from international operations, less 30% of total interest expense,
multiplied by the corporate tax rate of 34%).
The foregoing information is presented in this proxy statement because it
was provided to the Special Committee and its financial advisor in connection
with its engagement described herein. ERC does not intend to update or
otherwise revise the unaudited financial projections to reflect circumstances
existing after the date that they were prepared or to reflect the occurrence of
unanticipated events.
Certain matters discussed herein are forward-looking statements that involve
risks and uncertainties. Forward-looking statements include the financial
projections set forth above. Such information has been included in this proxy
statement for the limited purpose of giving ERC's stockholders access to
financial projections by ERC's management. The financial projections were based
on assumptions concerning ERC's business prospects through December 31, 2004.
The information also was based on other revenue and operating assumptions.
Information of this type is based on estimates and assumptions that are
inherently subject to
21
<PAGE>
significant economic and competitive uncertainties and contingencies, all of
which are difficult to predict and many of which are beyond ERC's control.
Accordingly, there can be no assurance that the projected results would be
realized or that actual results would not be significantly higher or lower than
those set forth in the financial projections. In addition, the financial
projection data was not prepared with a view to public disclosure or compliance
with the published guidelines of the SEC or the guidelines established by the
American Institute of Certified Public Accountants regarding projections and
forecasts. PricewaterhouseCoopers LLP, ERC's independent accountants, has not
examined or applied any agreed upon procedures to this information and,
accordingly, assumes no responsibility for this information.
Certain Effects of the Merger
If the merger is consummated, the public stockholders of ERC will no longer
have any interest in, and will not be stockholders of, ERC. Accordingly, such
holders will not benefit from any future earnings or growth of ERC or from any
increases in the value of ERC and will no longer bear the risk of any decreases
in value of ERC. Instead, each such stockholder will have the right to receive,
upon consummation of the merger, $1.60 in cash for each share of common stock
held (other than shares held by stockholders who perfect their rights under
Delaware law to dissent from the merger and seek an appraisal of the fair
market value of their shares ("Dissenting Shares")). The benefit to the public
stockholders of the transaction is the payment of a significant premium, in
cash, above the market value for such stock prior to the announcement of the
transaction. This cash payment assures that all stockholders will receive the
same amount for their shares, rather than taking the risks associated with
attempting to sell their shares in the market. The detriment to such holders is
their inability to participate as continuing stockholders in the possible
future growth of ERC.
If the merger is consummated, Wood Group will hold the entire equity
interest in ERC and will benefit from any future earnings or growth of ERC and
any increases in value of ERC. Wood Group will, however, bear the risk of any
decreases in value of ERC. In addition, because ERC will be closely held and
cease to be publicly traded, Wood Group believes that it may be able to
increase the value of ERC to a greater degree than if it were still public
because management will no longer be focused on meeting quarterly earnings and
other estimates but instead will be focused on the creation of long-term
stockholder value. Moreover, because the securities of ERC will cease to be
publicly traded, Wood Group will bear the risks associated with the lack of
liquidity in its investment in ERC.
As a result of the merger, Wood Group will have a 100% interest in the net
book value and net earnings of ERC, increasing its interests from the
approximately 89% it owned as of December 31, 1999. Based on the net book value
of ERC at December 31, 1999 of $26.6 million and net loss for the year ended
December 31, 1999, Wood Group's interest in net book value would have decreased
from approximately $23.7 million to approximately $21.4 million (reflecting an
increase in percentage interest from 89% to 100% and a decrease in net book
value resulting from the merger of approximately $2.3 million) and Wood Group's
interest in net loss would have increased from approximately $5.3 million to
approximately $6.5 million (reflecting an increase in percentage interest from
89% to 100% and an increase in net loss resulting from the merger of $0.5
million (assuming the proposed merger took place on January 1, 1999 and the
loss of an investment return of 10% on cash used in connection with the
merger)).
ERC's common stock is currently registered under the Securities Exchange Act
of 1934. As a result of the merger, the common stock will cease to be traded on
the over-the-counter market, the registration of the common stock under the
Exchange Act will be terminated, ERC will be relieved of the obligation to
comply with the proxy rules under Section 14 of the Exchange Act, and its
officers, directors and beneficial owners of more than 10% of the common stock
will be relieved of the reporting requirements and restrictions on insider
trading under Section 16 of the Exchange Act. Further, ERC will no longer be
subject to the periodic reporting requirements of the Exchange Act and will
cease filing information with the SEC. Accordingly, less information will be
required to be made publicly available than presently is the case.
The directors of ERC Acquisition immediately prior to the effective time of
the merger will be the directors of the surviving corporation immediately after
the merger. The officers of ERC immediately prior to the effective time of the
merger will be the officers of the surviving corporation immediately after the
merger.
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The certificate of incorporation and bylaws of ERC immediately prior to the
effective time will be the certificate of incorporation and bylaws of surviving
corporation immediately after the merger.
Plans for the Company after the Merger
Wood Group expects that the business and operations of the surviving
corporation of the merger will be continued substantially as they are currently
being conducted by ERC and its subsidiaries. Wood Group does not currently
intend to dispose of any assets of the surviving corporation, other than in the
ordinary course of business. It is anticipated, however, that Wood Group will
from time to time evaluate and review their businesses, operations and
properties and make such changes as are deemed appropriate.
Except as described in this proxy statement, neither Wood Group, ERC
Acquisition nor ERC has any present plans or proposals involving ERC or its
subsidiaries which relate to or would result in an extraordinary corporate
transaction such as a merger, reorganization or liquidation, or a purchase,
sale or transfer of a material amount of assets, or any material change in the
present dividend policy, indebtedness or capitalization, or any other material
change in ERC's corporate structure or business. However, Wood Group will
review proposals or may propose the acquisition or disposition of assets or
other changes in the surviving corporation's business, corporate structure,
capitalization, management or dividend policy which they consider to be in the
best interest of the surviving corporation and its stockholders.
Conduct of the Business of ERC If the Merger Is Not Consummated
If the merger is not consummated, the Board of Directors expects that ERC's
current management will continue to operate ERC's business substantially as
presently operated. No other alternatives are presently being considered.
Interests of Certain Persons in the Merger; Certain Relationships
In considering the recommendation of the Special Committee and the Board of
Directors with respect to the merger, ERC stockholders should be aware that
certain members of the Board and of ERC's management have interests that may
present them with actual, potential or the appearance of potential conflicts of
interest in connection with the merger. The Special Committee and the Board of
Directors were aware of these potential or actual conflicts of interest and
considered them along with other matters described under "Special Factors--
Recommendation of the Special Committee and Board of Directors; Fairness of the
Merger."
The merger agreement provides that, following the merger, Wood Group will
cause the surviving corporation to indemnify, defend and hold harmless to the
fullest extent permitted under applicable law each person who was as of the
date of the merger agreement, or has been at any time prior to the effective
time of merger, an officer or director of ERC or any of its subsidiaries
against all losses, claims, damages, liabilities, costs or expenses, judgments,
fines, penalties and amounts paid in settlement in connection with any claim,
action, suit, proceeding or investigation arising out of or pertaining to acts
or omissions, or alleged acts or omissions, by them in their capacities as
officers or directors of ERC or its subsidiaries. The surviving corporation's
duty to indemnify, defend and hold harmless applies whether or not such actions
are commenced, asserted or claimed before or after the effective time of the
merger. In the event of any such claim, action, suit, proceeding or
investigation, the surviving corporation is required to pay the fees and
expenses of counsel selected by the party to be indemnified, to the fullest
extent permitted by applicable law in advance of the final disposition of any
such action, and to cooperate in the defense of the matter.
The merger agreement provides that the rights to indemnification will
survive the merger and continue in full force and effect for six years after
the completion of the merger. The merger agreement also provides that, for a
period of six years after the effective time of the merger, Wood Group will
maintain officers' and directors' liability insurance covering the persons
described above who are or were at any time prior to the effective time of the
merger covered under existing officers' and directors' liability insurance
policies maintained by Wood Group on terms substantially no less advantageous
to those individuals than the existing insurance.
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Accounting Treatment
The cost of repurchasing ERC's outstanding common stock will be accounted
for as a treasury stock transaction, since the merger will not constitute a
change of control within the context of generally accepted accounting
principles. This means that the historical cost basis of ERC's assets and
liabilities will be carried forward to the surviving corporation rather than
using a new basis of accounting to account for the assets and liabilities of
the surviving corporation. Consequently, the aggregate cost of repurchasing
ERC's outstanding common stock will be accounted for as a charge to
stockholders' equity.
Financing of the Merger
The total amount of funds required by Wood Group to pay the aggregate merger
consideration due to ERC stockholders at the closing of the merger, assuming
there are no Dissenting Shares, is expected to be approximately $5.1 million.
In addition, Wood Group will require approximately $400,000 to pay the expenses
and costs relating to the transactions. Wood Group expects that the funds to be
used to pay the aggregate merger consideration and such expenses and costs will
come from Wood Group's working capital. If Wood Group's working capital is
insufficient to pay such amounts, Wood Group expects to obtain the required
funds from borrowings under its existing credit facilities.
Regulatory Requirements
ERC does not believe that any material federal or state regulatory
approvals, filings or notices are required by ERC in connection with the merger
other than such approvals, filings or notices required under federal securities
laws and the filing of the certificate of merger with the Secretary of State of
the State of Delaware.
Federal Income Tax Consequences of the Merger
The following is a summary of material U.S. federal income tax
considerations relevant to beneficial owners whose shares of common stock are
converted to cash in the merger. This summary is based upon laws, regulations,
rulings and decisions currently in effect, all of which are subject to change
possibly with retroactive effect, and is not applicable to Wood Group and
certain parties related to Wood Group, if any. The summary applies only to
beneficial owners who hold shares of common stock as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code"), and may not apply to certain types of beneficial owners of common
stock (such as insurance companies, tax-exempt organizations and broker-
dealers) who may be subject to special rules. This summary does not address the
U.S. federal income tax consequences to a beneficial owner of common stock who,
for U.S. federal income tax purposes, is a nonresident alien individual, a
foreign corporation, a foreign partnership or a foreign estate or trust, nor
does it consider the effect of any foreign, state or local tax laws.
Because individual circumstances may differ, each beneficial owner of shares
of common stock should consult such beneficial owner's own tax advisor to
determine the applicability of the rules discussed below to such beneficial
owner and the particular tax effects to such beneficial owner of the merger,
including the application and effect of state, local and other tax laws.
The receipt of cash for shares of common stock pursuant to the merger will
be a taxable transaction for U.S. federal income tax purposes. In general, for
U.S. federal income tax purposes, a beneficial owner of shares of common stock
will recognize capital gain or loss equal to the difference between the
beneficial owner's adjusted tax basis in the shares of common stock converted
to cash in the merger and the amount of cash received. A beneficial owner's
adjusted basis in the shares of common stock generally will equal the
beneficial owner's purchase price for such shares of common stock. Gain or loss
must be determined separately for each block of common stock (i.e., shares of
common stock acquired at the same cost in a single transaction) converted to
cash in the merger.
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Net capital gain (i.e., generally, capital gain in excess of capital loss)
recognized by individuals, estates and trusts from the sale of property held
more than one year will generally be taxed at a rate not to exceed 20% for U.S.
federal income tax purposes. Net capital gain from property held for one year
or less will be subject to tax at ordinary income tax rates. In addition,
capital gains recognized by a corporate taxpayer will be subject to tax at the
ordinary income tax rates applicable to corporations. In general, capital
losses are deductible only against capital gains and are not available to
offset ordinary income. However, individual taxpayers are allowed to offset a
limited amount of capital losses against ordinary income.
Payments in connection with the merger may be subject to "backup
withholding" at a rate of 31%, unless a beneficial owner of common stock (1)
comes within certain exempt categories (including a corporation) or (2)
provides a certified taxpayer identification number on Form W-9 and otherwise
complies with the backup withholding rules. Backup withholding is not an
additional tax; any amounts so withheld may be credited against the U.S.
federal income tax liability of the beneficial holder subject to the
withholding.
Fees and Expenses
Whether or not the merger is consummated and except as otherwise provided in
this proxy statement, all fees and expenses incurred in connection with the
merger will be paid by Wood Group. Estimated fees and expenses to be incurred
by ERC, Wood Group or ERC Acquisition in connection with the merger are as
follows:
<TABLE>
<S> <C>
Financial Advisors Fee.......................................... $125,000
SEC Filing Fees................................................. 1,012
Legal Fees and Expenses......................................... 150,000
Accounting Fees................................................. 10,000
Printing and Mailing Expenses................................... 60,000
Exchange Agent Fees............................................. 10,000
Solicitation Fees............................................... 15,000
Miscellaneous................................................... 28,988
--------
Total......................................................... $400,000
========
</TABLE>
Please read "--Opinion of Financial Advisor to the Special Committee" for
information regarding Schroders' fee.
Provisions for Unaffiliated Security Holders
Neither ERC, Wood Group nor ERC Acquisition has made any provision to grant
unaffiliated stockholders of ERC access to the corporate files of ERC, Wood
Group or ERC Acquisition or to obtain counsel or appraisal services at the
expense of ERC, Wood Group or ERC Acquisition.
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THE PARTIES
ERC Industries, Inc.
ERC Industries, Inc. is a Delaware corporation engaged in the manufacture,
remanufacture and service of oilfield wellhead equipment. Equipment Renewal
Company, the former name of ERC, was founded in 1962 to remanufacture and
reemploy used, out-of-service wellhead equipment, a service ERC continues to
provide. In a series of transactions beginning in 1993, ERC expanded its
operations from a U.S. domestic remanufacturer of valves and wellheads into a
recognized international supplier of a more advanced range of new and
remanufactured valves, wellheads and blowout preventors. ERC and its
subsidiaries conduct business under the name Wood Group Pressure Control. ERC
has its principal executive offices at 1441 Park Ten Boulevard, Houston, Texas
77084. Its telephone number at that address is (281) 398-8901.
In December 1992, Wood Group completed the purchase of approximately 47% of
the issued and outstanding shares of ERC common stock. In several transactions
from June 1996 and May 1999, Wood Group increased its ownership of ERC to
approximately 89%.
ERC Acquisition, Inc.
ERC Acquisition, Inc. was incorporated in Delaware in February 2000 by Wood
Group in connection with the proposed merger. ERC Acquisition has not been
engaged in any business activities other than those in connection with the
merger. The principal office and business address of ERC Acquisition is c/o
John Wood Group PLC, 16920 Park Row, Houston, Texas 77084. The telephone number
at that address is (281) 398-0911.
Since its incorporation, ERC Acquisition has not been convicted in a
criminal proceeding, nor has it been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining ERC
Acquisition from future violations of, or prohibiting the activities subject
to, federal or state securities laws, or a finding of any violation of federal
or state securities laws.
John Wood Group PLC
John Wood Group PLC is an international energy services company registered
in Scotland and incorporated under the Companies Acts of the United Kingdom.
Its businesses serve the oil and gas, power generation, petrochemical and
aviation industries around the world. The principal office and business address
of Wood Group is John Wood House, Greenwell Road, East Tullos, Aberdeen,
Scotland AB1 4AX. The telephone number at that address is 011-44-1224-851000.
For the last five years, Wood Group has not been convicted in a criminal
proceeding, nor has it been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining Wood
Group from future violations of, or prohibiting the activities subject to,
federal or state securities laws, or a finding of any violation of federal or
state securities laws.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement, a copy of which is attached as Appendix A to this proxy statement.
This summary is qualified in its entirety by reference to the full text of the
merger agreement. The merger agreement is incorporated into this proxy
statement by this reference.
The Merger
The merger agreement provides for the merger of ERC Acquisition with and
into ERC. ERC will be the surviving corporation and will become a wholly owned
subsidiary of Wood Group at the effective time of the
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merger. In the merger, each share of ERC common stock outstanding immediately
prior to the effective time (other than Dissenting Shares and shares held in
ERC's treasury or owned by Wood Group, ERC Acquisition or a wholly owned
subsidiary of ERC or Wood Group) will be converted automatically into the right
to receive $1.60 in cash.
Each share of ERC common stock and all other shares of ERC capital stock
that are held in ERC's treasury or that are owned by Wood Group, ERC
Acquisition or any wholly owned subsidiary of Wood Group or ERC will be
canceled and retired without payment of any consideration therefor.
Each share of common stock of ERC Acquisition outstanding immediately prior
to the effective time will be converted into and become one share of common
stock of the surviving corporation and shall constitute the only outstanding
shares of capital stock of the surviving corporation.
Dissenting stockholders who do not vote to approve and adopt the merger
agreement and who otherwise strictly comply with the provisions of Delaware law
regarding statutory appraisal rights have the right to seek a determination of
the fair value of their shares of common stock and such payment in cash
therefor in lieu of the merger consideration. See "Dissenters Rights of
Appraisal."
The closing of the merger will occur on the first business day on which the
last of the conditions to the merger contained in the merger agreement has been
satisfied or waived or on such other date as Wood Group and ERC may agree. On
the closing date, the parties will cause a certificate of merger to be filed
with the Delaware Secretary of State, and the time of such filing will be the
"effective time" unless otherwise provided in the certificate of merger.
Under the merger agreement, the certificate of incorporation and bylaws of
ERC will be the certificate of incorporation and bylaws of the surviving
corporation of the merger. The directors of ERC Acquisition and the officers of
ERC immediately prior to the effective time will be the initial directors and
officers of the surviving corporation.
Procedures for Exchange of Certificates
As of the effective time, Wood Group will deposit or cause to be deposited
with an exchange agent selected by Wood Group, for the benefit of the holders
of shares of ERC common stock (other than Dissenting Shares), cash in an amount
equal to the aggregate merger consideration to be paid under the merger
agreement in exchange for outstanding shares of ERC common stock. The exchange
agent will be American Stock Transfer & Trust Company, the transfer agent for
ERC common stock. As soon as reasonably practicable after the effective time,
the exchange agent will mail a transmittal form to former stockholders of ERC.
The transmittal form will contain instructions with respect to the surrender of
stock certificates formerly representing shares of ERC common stock to be
exchanged in the merger. Stockholders should not return stock certificates with
the enclosed proxy card.
Upon the surrender of each certificate by ERC stockholders, the holder of
such certificate will be entitled to receive in exchange for each share of ERC
common stock represented by such certificate cash in an amount equal to the
merger consideration, without interest, after giving effect to any required
withholding tax. Any surrendered certificate will be canceled.
At or after the effective time, no transfers of ERC common stock will be
permitted on the stock transfer books of the surviving corporation. If, after
the effective time, certificates formerly representing shares of ERC common
stock are presented to the surviving corporation or the exchange agent, such
certificates will be canceled and exchanged for cash in an amount equal to the
merger consideration deliverable under the merger agreement.
Any portion of the exchange fund that remains unclaimed by former
stockholders of ERC one year after the effective time will be delivered to Wood
Group. After that time, a holder of a certificate representing ERC common stock
may look only to Wood Group for payment of the merger consideration.
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None of Wood Group, the surviving corporation or the exchange agent shall be
liable to any holder of shares of ERC common stock for any amount properly
delivered to a public official under any applicable abandoned property, escheat
or similar law.
Representations and Warranties
The merger agreement contains various representations and warranties by each
of Wood Group, ERC Acquisition and ERC. The representations of ERC relate to,
among other things:
. the organization, good standing and corporate authority of ERC
. the authorization (including by the Special Committee), execution,
delivery and enforceability of the merger agreement and related matters
. the capital structures of ERC
. the absence of conflicts with, violations of or defaults under ERC's
certificate of incorporation or bylaws, any material agreement or
applicable law, or resulting from the execution or delivery of the merger
agreement or the consummation of the merger
. the documents and reports filed by ERC with the SEC, its financial
statements and the accuracy of the information contained in the filings
and financial statements
. brokerage and similar fees
. the stockholder vote required in connection with the merger agreement and
. the opinion of the Special Committee's financial advisor
The representations of Wood Group and ERC Acquisition relate to, among other
things:
. the organization, good standing and corporate authority of Wood Group and
ERC Acquisition
. the authorization, execution, delivery and enforceability of the merger
agreement and related matters
. the absence of conflicts with, violations of or defaults under the
charter or bylaws of Wood Group or ERC Acquisition, any material
agreement or applicable law, or resulting from the execution or delivery
of the merger agreement or the consummation of the merger
. brokerage and similar fees
. activities of ERC Acquisition and
. financing of the merger
Covenants
ERC has agreed (except as contemplated by the merger agreement, as required
by law or to the extent that the Wood Group has otherwise consented in writing)
that, prior to the effective time, it will, among other things:
. conduct its business in the ordinary course in substantially the same
manner as previously conducted
. use its reasonable best efforts to preserve its business organizations
and goodwill, keep available the services of its officers and employees
and maintain satisfactory business relationships
. not amend its certificate of incorporation or bylaws
. promptly deliver to Wood Group any SEC filings made subsequent to the
date of the merger agreement
. not (1) except upon exercise of options, warrants and other rights
existing on the date of the merger agreement, issue any shares of its
capital stock, effect any stock split or otherwise change its
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capitalization, (2) grant any new options, warrants or other rights not
existing on the date of the merger agreement to acquire shares of its
capital stock, (3) increase the compensation or benefits or enter into or
amend any employment agreement with any officer or director, except as
consistent with past practice or (4) adopt any new employee benefit plan
or materially amend any existing employee benefit plan
. not declare, set aside or pay any dividends on or make other
distributions on its capital stock, or redeem, purchase or otherwise
acquire any shares of its capital stock
. not sell, lease or otherwise dispose of any material assets, except in
the ordinary course of business or
. not take any action likely to delay materially or adversely affect the
ability of any of the parties (1) to obtain required consents,
authorizations, orders or approvals of governmental or other regulatory
authorities or (2) to close the merger
In addition, ERC, Wood Group and ERC Acquisition have made further
agreements regarding the special meeting of ERC stockholders; preparation and
filing of this proxy statement and the required Schedule 13E-3 with the SEC;
cooperation and reasonable best efforts to obtain all consents and approvals
to consummate the merger; and public announcements.
Conditions to the Merger
Conditions to Each Party's Obligation
The obligations of each party to effect the merger are subject to the
satisfaction at or prior to the closing date of the following conditions:
. Stockholder Approval. The merger agreement and the merger shall have been
adopted and approved by the affirmative vote of (1) the holders of a
majority of the outstanding shares of ERC common stock entitled to vote
on the matter and (2) holders of a majority of the outstanding shares of
ERC common stock not owned, directly or indirectly, by Wood Group that
are entitled to vote and that are voting for or against the matter in
person or by proxy at the special meeting.
. No Injunctions or Restraints. None of the parties shall be subject to any
decree, order or injunction of a U.S. or foreign court that prohibits the
consummation of the merger. Prior to invoking this condition, however,
each party has agreed to use its reasonable best efforts to have any such
decree, order or injunction lifted or vacated. In addition, no statute,
rule or regulation shall have been enacted by any governmental authority
that prohibits or makes unlawful the consummation of the merger.
Additional Conditions to Obligations of ERC
The obligations of ERC to effect the merger are subject to the satisfaction
at or prior to the closing date of the following additional conditions, any or
all of which may be waived in whole or in part by ERC (with the approval of
the Special Committee):
. Covenants, Representations and Warranties. Wood Group shall have
performed in all material respects its covenants and agreements contained
in the merger agreement required to be performed on or prior to the
closing date. In addition, the representations and warranties of Wood
Group and ERC Acquisition contained in the merger agreement and in any
document delivered in connection with the merger agreement shall be true
and correct in all material respects as of the date of the merger
agreement and as of the closing date (except for representations and
warranties made as of a specified date, which need be true and correct in
all material respects only as of the specified date). ERC shall have
received a certificate of Wood Group, executed on its behalf by the
President or a Vice President of Wood Group, to that effect.
. No Material Adverse Effect. At any time after the date of the merger
agreement, there shall not have been any event or occurrence that has had
or is likely to have a material adverse effect on the ability of
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<PAGE>
Wood Group to consummate the transactions contemplated by the merger
agreement or fulfill the conditions to closing.
. Fairness Opinion. At the time of mailing of this proxy statement to ERC
stockholders and at the effective time of the merger, Schroders shall not
have withdrawn its fairness opinion.
Additional Conditions to Obligations of Wood Group and ERC Acquisition
The obligations of Wood Group and ERC Acquisition to effect the merger are
subject to the satisfaction at or prior to the closing date of the following
additional conditions, any or all of which may be waived in whole or in part by
Wood Group:
. Covenants, Representations and Warranties. ERC shall have performed in
all material respects its covenants and agreements contained in the
merger agreement required to be performed on or prior to the closing
date. In addition, the representations and warranties of ERC contained in
the merger agreement and in any document delivered in connection with the
merger agreement shall be true and correct in all material respects as of
the date of the merger agreement and as of the closing date (except for
representations and warranties made as of a specified date, which need be
true and correct in all material respects only as of the specified date).
Wood Group shall have received a certificate of ERC, executed on its
behalf by the President or a Vice President of ERC, to that effect.
. No Material Adverse Effect. At any time after the date of the merger
agreement, there shall not have been any event or occurrence that has had
or is likely to have a material adverse effect on (a) the business or
financial condition of ERC and its subsidiaries on a consolidated basis,
except for such changes or effects in general economic, capital market,
regulatory or political conditions or changes that affect generally the
energy services industry or (b) the ability of ERC to consummate the
transactions contemplated by the merger agreement or fulfill the
conditions to closing.
Amendment and Waiver
The merger agreement may be amended by the parties (in the case of ERC, only
if authorized by the Special Committee) at any time before or after approval of
the matters presented in connection with the merger by ERC stockholders. After
any such approval, however, no amendment that by law requires further approval
by such stockholders may be made without obtaining such further approval.
At any time prior to the effective time, each party may, to the extent
legally allowed, (1) extend the time for the performance of any of the
obligations or other acts of the other parties; (2) waive any inaccuracies in
the representations and warranties made to such party contained in the merger
agreement or in any document delivered under the merger agreement; and (3)
waive compliance with any of the agreements or conditions for the benefit of
such party contained in the merger agreement. If ERC is to make any such
waiver, it must first obtain the approval of the Special Committee.
Termination
The merger agreement may be terminated at any time prior to the effective
time:
(1) by the mutual consent of Wood Group and ERC (with, in the case of
ERC, the approval of the Special Committee)
(2) by Wood Group or ERC (with, in the case of ERC, the approval of the
Special Committee) if:
(a) a meeting (including adjournments and postponements) of ERC's
stockholders has been held and the required approval of such
stockholders has not been obtained or
(b) a U.S. or foreign court or a United States or foreign
governmental, regulatory or administrative agency or commission has
issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the merger and such
order, decree, ruling
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<PAGE>
or other action shall have become final and non-appealable; provided,
however, that the party seeking to terminate the merger agreement
pursuant to clause (b) must have used reasonable best efforts to remove
such injunction, order or decree
(3) by ERC, by action of its Board of Directors (with the approval of
the Special Committee), if (A) there has been a material breach by Wood
Group or ERC Acquisition of any representation, warranty, covenant or
agreement in the merger agreement or if any representation or warranty of
Wood Group or ERC Acquisition has become materially untrue and (B) such
breach is not curable, or, if curable, is not cured within 30 days after
written notice of such breach is given to Wood Group by ERC; provided,
however, that the right to terminate the merger agreement pursuant to
clause (3) will not be available to ERC if it, at such time, is in material
breach of any representation, warranty, covenant or agreement in the merger
agreement
(4) by Wood Group, by action of its Board of Directors, if:
(a) (i) there has been a material breach by ERC of any
representation, warranty, covenant or agreement in the merger agreement
or if any representation or warranty of ERC has become materially
untrue and (ii) such breach is not curable, or, if curable, is not
cured within 30 days after written notice of such breach is given by
Wood Group to ERC; provided, however, that the right to terminate the
merger agreement pursuant to clause (b) will not be available to Wood
Group if it, at such time, is in material breach of any representation,
warranty, covenant or agreement in the merger agreement or
(b) the ERC Board or the Special Committee has withdrawn or
materially modified, in a manner adverse to Wood Group, its approval or
recommendation of the merger, or resolved to do so
Expenses
Whether or not the merger is consummated, all costs and expenses incurred in
connection with the merger agreement and the merger will be paid by the party
incurring such expenses.
DISSENTERS RIGHTS OF APPRAISAL
Under Section 262 of the Delaware General Corporation Law ("DGCL"), any
holder of ERC common stock who does not wish to accept the merger consideration
may dissent from the merger and elect to have the fair value of such
stockholder's shares (exclusive of any element of value arising from the
accomplishment or expectation of the merger) judicially determined and paid to
such stockholder in cash, together with a fair rate of interest, if any;
provided that such stockholder complies with the provisions of Section 262. The
following discussion is not a complete statement of the law pertaining to
appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262, which is provided as Appendix C to this proxy statement.
All references in Section 262 and in this summary to a "stockholder" are to the
record holder of the shares of ERC common stock as to which appraisal rights
are asserted. A person having a beneficial interest in shares of common stock
held of record in the name of another person, such as a broker or nominee, must
act promptly to cause the record holder to follow properly the steps summarized
below and in a timely manner to perfect appraisal rights.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of the special meeting of ERC
stockholders described in this proxy statement, the corporation, not less than
20 days prior to the meeting, must notify each of its stockholders entitled to
appraisal rights that such appraisal rights are available and include in such
notice a copy of Section 262. This proxy statement constitutes such notice to
the holders of ERC common stock, and the applicable statutory provisions of the
DGCL are attached to this proxy statement as Appendix C. Any stockholder who
wishes to exercise such appraisal rights or who wishes to preserve the right to
do so should review carefully the following discussion and Appendix C to this
proxy statement because failure to comply with the procedures specified in
Section 262
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timely and properly will result in the loss of appraisal rights. Moreover,
because of the complexity of the procedures for exercising the right to seek
appraisal of the common stock, ERC believes that stockholders who consider
exercising such rights should seek the advice of counsel.
Any holder of common stock wishing to exercise the right to dissent from the
merger and demand appraisal under Section 262 of the DGCL must satisfy each of
the following conditions:
. Such stockholder must deliver to ERC a written demand for appraisal of
such stockholder's shares before the vote on the merger agreement at the
special meeting, which demand will be sufficient if it reasonably informs
ERC of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares.
. Such stockholder must not vote its shares of common stock in favor of the
merger agreement. Because a proxy that does not contain voting
instructions will, unless revoked, be voted in favor of the merger
agreement, a stockholder who votes by proxy and who wishes to exercise
appraisal rights must vote against the merger agreement or abstain from
voting on the merger agreement.
. Such stockholder must continuously hold such shares from the date of
making the demand through the effective time of the merger. Accordingly,
a stockholder who is the record holder of shares of common stock on the
date the written demand for appraisal is made but who thereafter
transfers such shares prior to the effective time of the merger will lose
any right to appraisal in respect of such shares.
Neither voting in person or by proxy against, abstaining from voting on or
failing to vote on the proposal to approve and adopt the merger agreement will
constitute a written demand for appraisal within the meaning of Section 262.
The written demand for appraisal must be in addition to and separate from any
such proxy or vote.
Only a holder of record of shares of common stock issued and outstanding
immediately prior to the effective time of the merger is entitled to assert
appraisal rights for the shares of common stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the
stockholder of record, fully and correctly, as such stockholder's name appears
on such stock certificates, should specify the stockholder's name and mailing
address, the number of shares of common stock owned and that such stockholder
intends thereby to demand appraisal of such stockholder's common stock.
If the shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity. If the shares are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all owners. An authorized agent, including one or more joint owners,
may execute a demand for appraisal on behalf of a stockholder; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is acting as agent for such owner or
owners.
A record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more beneficial owners while not exercising such rights with respect
to the shares held for one or more beneficial owners; in such case, the written
demand should set forth the number of shares as to which appraisal is sought,
and where no number of shares is expressly mentioned, the demand will be
presumed to cover all shares held in the name of the record owner. Stockholders
who hold their shares in brokerage accounts or other nominee forms and who wish
to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal
by such a nominee.
A stockholder who elects to exercise appraisal rights pursuant to Section
262 should mail or deliver a written demand to ERC Industries, Inc., 1441 Park
Ten Boulevard, Houston, Texas 77084, Attention: Iain Murray, Secretary.
32
<PAGE>
Within ten days after the effective time of the merger, the surviving
corporation must send a notice as to the effectiveness of the merger to each
former stockholder of ERC who has made a written demand for appraisal in
accordance with Section 262 and who has not voted in favor of the merger
agreement. Within 120 days after the effective time, but not thereafter, either
the surviving corporation or any holder of Dissenting Shares who has complied
with the requirements of Section 262 may file a petition in the Delaware
Chancery Court demanding a determination of the value of all Dissenting Shares
held by dissenting stockholders. ERC is under no obligation to and has no
present intent to file a petition for appraisal, and stockholders seeking to
exercise appraisal rights should not assume that the surviving corporation will
file such a petition or that the surviving corporation will initiate any
negotiations with respect to the fair value of such shares. Accordingly,
stockholders who desire to have their shares appraised should initiate any
petitions necessary for the perfection of their appraisal rights within the
time periods and in the manner prescribed in Section 262. Inasmuch as ERC has
no obligation to file such a petition, the failure of a stockholder to do so
within the period specified could nullify such stockholder's previous written
demand for appraisal. In any event, at any time within 60 days after the
effective time of the merger (or at any time thereafter with the written
consent of ERC), any stockholder who has demanded appraisal has the right to
withdraw the demand and to accept payment of the merger consideration.
Within 120 days after the effective time, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from the surviving corporation, upon written request, a statement
setting forth the aggregate number of shares not voted in favor of the merger
agreement and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. The surviving corporation
must mail such statement to the stockholder within 10 days of receipt of such
request or within 10 days after expiration of the period for delivery of
demands for appraisals under Section 262, whichever is later.
A stockholder timely filing a petition for appraisal with the Court of
Chancery must deliver a copy to the surviving corporation, which will then be
obligated within 20 days to provide the Delaware Court of Chancery with a duly
verified list containing the names and addresses of all stockholders who have
demanded appraisal of their shares. After notice to such stockholders, the
Delaware Court of Chancery is empowered to conduct a hearing on the petition to
determine which stockholders are entitled to appraisal rights. The Delaware
Court of Chancery may require stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates to the Register in Chancery for notation thereon of the pendency
of the appraisal proceedings, and if any stockholder fails to comply with the
requirement, the Delaware Court of Chancery may dismiss the proceedings as to
that stockholder.
After determining the stockholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the "fair value" of their shares, exclusive of
any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. The costs of the action may be
determined by the Delaware Chancery Court and taxed upon the parties as the
Delaware Chancery Court deems equitable. Upon application of a holder of
Dissenting Shares, the Delaware Chancery Court may also order that all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all of the shares entitled to appraisal. Stockholders considering seeking
appraisal should be aware that the fair value of their shares as determined
under Section 262 could be more than, the same as or less than the merger
consideration they would receive pursuant to the merger agreement if they did
not seek appraisal of their shares. Stockholders should also be aware that
investment banking opinions are not opinions as to fair value under Section
262.
In determining fair value and, if applicable, a fair rate of interest, the
Delaware Chancery Court is to take into account all relevant factors. In
Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by
33
<PAGE>
any techniques or methods which are generally considered acceptable in the
financial community and otherwise admissible in court" should be considered,
and that "fair price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that, in
making this determination of fair value, the court must consider market value,
asset value, dividends, earnings prospects, the nature of the enterprise and
any other facts that could be ascertained as of the date of the merger that
throw any light on future prospects of the merged corporation. In Weinberger,
the Delaware Supreme Court stated that "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the
date of the merger and not the product of speculation, may be considered."
Section 262 provides that fair value is to be "exclusive of any element of
value arising from the accomplishment or expectation of the merger."
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the effective time of the merger, be entitled to
vote the shares subject to such demand for any purpose or to receive payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of shares as of a record date prior
to the effective time).
Any stockholder may withdraw its demand for appraisal and accept the merger
consideration by delivering to the surviving corporation a written withdrawal
of such stockholder's demand for appraisal, except that (1) any such attempt to
withdraw made more than 60 days after the effective time will require written
approval of the surviving corporation and (2) no appraisal proceeding in the
Delaware Chancery Court will be dismissed as to any stockholder without the
approval of the Delaware Chancery Court, and such approval may be conditioned
upon such terms as the Delaware Chancery Court deems just. If the surviving
corporation does not approve a stockholder's request to withdraw a demand for
appraisal when such approval is required or if the Delaware Chancery Court does
not approve the dismissal of an appraisal proceeding, the stockholder would be
entitled to receive only the appraised value determined in any such appraisal
proceeding, which value could be lower than the value of the merger
consideration.
Failure to comply strictly with all of the procedures set forth in Section
262 of the DGCL will result in the loss of a stockholder's statutory appraisal
rights. Consequently, any stockholder wishing to exercise appraisal rights is
urged to consult legal counsel before attempting to exercise such rights.
34
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF ERC
The following table presents summary historical consolidated financial data
of ERC as of and for the three-month periods ended March 31, 2000 and 1999 and
as of and for each of the two fiscal years in the period ended December 31,
1999. These data have been derived from consolidated financial statements of
ERC incorporated by reference in this proxy statement. The data as of and for
the three-month periods ended March 31, 2000 and 1999 have been derived from
unaudited financial statements incorporated by reference in this proxy
statement. In the opinion of ERC's management, the unaudited financial data
reflect all adjustments, consisting of normal, recurring adjustments, necessary
for a fair presentation of the financial data for such interim periods. Results
for the three-month periods are not necessarily indicative of the results
expected for a full year or any other interim period.
No pro forma data giving effect to the merger have been provided because ERC
does not believe such information is material to stockholders in evaluating the
proposed merger and merger agreement since (1) the proposed merger
consideration is all cash and (2) if the merger is completed, ERC's common
stock would cease to be publicly traded.
The following financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and ERC's consolidated financial statements, accompanying notes and
other financial information included in ERC's annual report on Form 10-K and
quarterly report on Form 10-Q incorporated by reference in this proxy
statement. See "Where You Can Find More Information." The data presented below
includes the effects of the acquisition of Bompet C.A. completed in February
1998 and the acquisition of Church Oil Tools, Inc. completed in July 1997. Each
of these acquisitions was accounted for as a purchase. In addition, the data
reflects the acquisitions of Wood Group Pressure Control and Engineering
Services Limited and Wood Group Pressure Control (Arabian) LLC on May 14, 1999,
which acquisitions have been accounted for in a manner similar to a pooling of
interests. Accordingly, the historical financial information of ERC for periods
prior to these acquisitions has been restated as though the acquisitions had
been made from the period when they first were under the control of Wood Group.
<TABLE>
<CAPTION>
As of and for
the three As of and for
months ended the year ended
March 31, December 31,
---------------- -----------------
1999 2000 1998 1999
------- ------- -------- -------
(in thousands, except
ratios and per share data)
<S> <C> <C> <C> <C>
Revenues................................. $22,666 $26,627 $117,679 $88,876
Gross profit............................. 5,024 5,490 29,395 19,549
Operating income (loss).................. (457) 35 2,367 (4,214)
Net income (loss)........................ (759) (335) (647) (5,897)
Income per share from continuing
operations.............................. (0.03) (0.01) (0.02) (0.20)
Diluted net income (loss) per share...... (0.03) (0.01) (0.02) (0.20)
Ratio of earnings to fixed charges (1)... -- 0.07x -- 1.16x
Current assets........................... 61,211 63,093 60,394
Current liabilities...................... 43,484 41,737 43,045
Total assets............................. 71,317 77,314 71,221
Total liabilities........................ 45,075 44,547 44,661
Working capital.......................... 17,727 21,356 17,349
Book value per share..................... 0.85 1.14 0.92
</TABLE>
--------
(1) The ratio of earnings to fixed charges has been computed by dividing
earnings by fixed charges. For these purposes, "earnings" consist of
earnings before income taxes plus fixed charges. "Fixed charges" consist of
interest expense. For the three months ended March 31, 1999 and the year
ended December 31, 1999, earnings were inadequate to cover fixed charges by
$457,000 and $6.0 million, respectively.
35
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Lines of Credit
On September 2, 1998, ERC obtained a $22 million secured line of credit with
Wood Group. The line bears interest at the LIBOR rate plus 0.85%, which was
approximately 6.5% and 5.9% at December 31, 1999 and 1998, respectively. At
December 31, 1999, loan amounts outstanding under the agreement were $12.3
million.
Two subsidiaries of ERC, Wood Group Pressure Control Limited ("WGPCL") and
Wood Group Pressure Control and Engineering Services Limited, have lines of
credit with a bank in Scotland provided as part of a group banking arrangement
with Wood Group. The lines of credit are used for the purpose of general
working capital requirements and provide overdraft and documentary credit
facilities. Interest payable on the overdrafts is equal to the bank's base rate
plus 1% per annum. At December 31, 1999, the bank's base rate was 5.5% (1998:
6.25%). The amounts outstanding under this agreement at December 31, 1999 and
1998 were $8.3 million and $3.6 million, respectively.
WGPCL has a loan from Wood Group at December 1999 and 1998 amounting to $3.2
million, which is repayable on demand. The loan is used for the purpose of
general working capital requirements. Interest payable on the loan is charged
at base rate plus 0.85% per annum.
ERC's Abu Dhabi subsidiary has a line of credit of up to $0.5 million with a
bank in Scotland provided as part of a group banking arrangement with Wood
Group. The amount outstanding under this agreement at December 31, 1999 was
$0.4 million (1998: $0.3 million). Interest is charged at bank base rate plus
0.5%. At December 31, 1999 the base rate was 7.25% (1998: 6.48%). The line of
credit is used for the purpose of general working capital requirements and
provides overdraft and documentary facilities. In addition, the subsidiary has
a loan of $0.7 million at December 31, 1999 and 1998 from Wood Group. Interest
payable on the loan is charged at 6.7%.
Management Support Fee
ERC and Wood Group have agreed to an annual provision for administrative and
financial services fees in amounts to be determined on an annual basis. ERC
paid or accrued $667,000 in such fees for the fiscal year ended December 31,
1999.
Pressure Control Acquisition
In May 1999, ERC, in a privately negotiated transaction, completed its
acquisition from Wood Group of all of the outstanding capital stock of Wood
Group Pressure Control Holdings Limited ("Holdings"). Prior to the acquisition,
Holdings was a wholly owned subsidiary of Wood Group.
The sole assets of Holdings consist of all of the issued and outstanding
capital stock of each of Wood Group Pressure Control and Engineering Services
Limited and Wood Group Engineering (Middle East) Limited, which in turn
beneficially owns Wood Group Pressure Control (Arabian) LLC. These companies
market, manufacture and service products used in the drilling and production
segment of the oil and gas industry, primarily consisting of the repair and
overhaul of valves and wellheads. They operate out of one facility located in
Scotland and one facility in the United Arab Emirates.
In connection with the transaction, as part of the consideration for the
acquisition, ERC granted certain registration rights to Wood Group pursuant to
a registration rights agreement. Under the terms of that agreement, ERC granted
to Wood Group and its assignees the right to require ERC to register the offer
and sale of the ERC common stock issued in the transaction and the common stock
issuable upon the conversion of the Series A Cumulative Convertible Preferred
Stock up to two times, subject to certain deferral and cutback provisions. In
addition, ERC also granted to Wood Group and its assignees certain incidental
or "piggyback"
36
<PAGE>
registration rights, which allow Wood Group to participate in certain
underwritten public offerings initiated by ERC, subject to certain limitations
and conditions set forth in the agreement. Under the terms of the agreement,
the ability of Wood Group to exercise such rights may not be subordinated or
subject to registration rights of any other person or entity. The rights
granted under the agreement terminate on the earlier of (1) the fifth
anniversary date of the agreement, or (2) such time as the shares may be
immediately sold under Rule 144 under the Securities Act of 1933 during any 90-
day period.
Prior to the consummation of the transactions, Wood Group owned
approximately 88.5% of the outstanding shares of ERC's common stock. Prior to
the negotiation and consummation of this transaction, ERC's Board of Directors
appointed a special committee consisting of its two outside independent
directors to evaluate and negotiate the transaction. The special committee
engaged Schroder & Co. Inc. as its financial advisor to assist it in evaluating
and determining the fairness of the transaction to ERC's stockholders. On
February 1, 1999, Schroders delivered an opinion stating that the consideration
to be received by ERC in the transaction was fair to ERC's stockholders from a
financial point of view. Because the terms, conditions and consideration for
the transaction as consummated were the same as the terms, conditions and
consideration analyzed by Schroders, and the valuation of the acquired
companies increased since the date of the fairness opinion, the special
committee determined that the transaction was fair to ERC's stockholders as of
the date of the acquisition.
In connection with the transaction and in exchange for all of the shares of
the capital stock of Holdings, ERC issued to Wood Group 1,350,000 shares of ERC
common stock, representing approximately 0.5% of the issued and outstanding
shares of Common Stock. In addition, ERC issued 1,850,000 shares of its Series
A Cumulative Convertible Preferred Stock. For purposes of valuing the common
stock and preferred stock issued to Wood Group in the transaction, ERC used a
value of $1.00 per share, which was the closing price of ERC common stock on
the Nasdaq SmallCap Market on May 13, 1999, the day prior to the closing of the
transaction. Using this per share value, the total dollar value of the
transaction was approximately $5.2 million, including debt assumed by ERC. The
total value of the assets reflected on Holdings' balance sheet immediately
prior to the closing of the transaction was $6.0 million. In February 2000,
Wood Group converted such shares of preferred stock into 1,850,000 shares of
common stock.
Other Registration Rights Agreements
In June 1996 and September 1997, Wood Group purchased from ERC an aggregate
of 13.6 million shares of ERC common stock. In connection with such purchases,
ERC granted registration rights to Wood Group under two registration rights
agreements. Under such agreements, Wood Group has demand registration rights
pursuant to which Wood Group may request, not more than two times, registration
by ERC of any or all of the shares of common stock purchased within 120 days
after notice to ERC. Wood Group also has piggyback registration rights with
respect to 6.3 million of the shares, which allow Wood Group to participate in
underwritten public offerings initiated by ERC during the five years after the
date of the agreement, subject to limitations and conditions in that agreement.
The ability of Wood Group to exercise the rights granted under the agreements
may not be subordinated or subject to registration rights granted to any other
person or entity.
The rights granted under each agreement terminate, and the registration
rights will not be exercisable by Wood Group, on the earlier of (1) the fifth
anniversary date of such agreement, or (2) at such time as all the shares
subject to the agreement may immediately be sold under Rule 144 under the
Securities Act of 1933 during any 90-day period.
37
<PAGE>
MARKET FOR THE COMMON STOCK
Common Stock Market Price Information; Dividend Information
ERC's common stock is traded on the over-the-counter market under the symbol
"ERCI". Prior to November 8, 1999, the common stock was traded on the Nasdaq
Stock Market. For periods prior to November 8, 1999, the following table shows
the per share high and low sales prices reported on the Nasdaq Stock Market for
transactions in the common stock for the periods indicated. For periods after
November 8, 1999, the table shows the per share high and low bid prices
reported by Muller Data Corp. for transactions in the common stock for the
periods indicated.
<TABLE>
<CAPTION>
Price
-----------
High Low
----- -----
<S> <C> <C>
1998
First Quarter...................................................... $4.50 $1.88
Second Quarter..................................................... 3.25 2.00
Third Quarter...................................................... 2.38 1.63
Fourth Quarter..................................................... 1.75 0.50
1999
First Quarter...................................................... 1.47 0.69
Second Quarter..................................................... 2.25 0.69
Third Quarter...................................................... 1.19 0.69
Fourth Quarter..................................................... 1.56 0.44
2000
First Quarter...................................................... 1.63 1.31
Second Quarter (through June 16, 2000)............................. 1.63 1.13
</TABLE>
On November 17, 1999, the last full trading day prior to the day on which
Wood Group proposed to purchase the shares of ERC common stock it did not
already own, the closing price for the common stock was $0.44 per share. On
March 28, 2000, the last full trading day prior to the day on which the
execution of the merger agreement was publicly announced, the closing price for
the common stock was $1.44 per share. On June 16, 2000, the last trading day
prior to the date of this proxy statement, the closing price for the common
stock was $1.50 per share.
The market price for common stock is subject to fluctuation, and
stockholders are urged to obtain current market quotations. No assurance can be
given as to the future price of or market for common stock.
No cash dividends have been paid during the last two years by ERC on its
common stock.
Common Stock Purchase Information
Except as provided below, from December 31, 1999 through June 16, 2000, none
of ERC, Wood Group, ERC Acquisition, any director, executive officer or
controlling person of ERC, Wood Group or ERC Acquisition, pension, profit-
sharing or similar plan of ERC, Wood Group or ERC Acquisition, or any associate
or majority-owned subsidiary of ERC, Wood Group or ERC Acquisition has effected
any purchases or sales of ERC common stock.
In May 1999, ERC issued to Wood Group, in exchange for all the outstanding
capital stock of Wood Group Pressure Control Holdings Limited, 1,350,000 shares
of ERC common stock and 1,850,000 shares of its Series A Cumulative Convertible
Preferred Stock, which are convertible into an equal number of shares of ERC
common stock. In February 2000, Wood Group converted such shares of preferred
stock into 1,850,000 shares of common stock. Please read "Certain Relationships
and Transactions--Pressure Control Acquisition."
38
<PAGE>
SECURITIES OWNERSHIP
This section provides information as of March 31, 2000 with respect to the
beneficial ownership of ERC's common stock by the persons or entities
identified below. Under the SEC rules generally, a person is deemed to be a
"beneficial owner" of a security if he has or shares the power to vote or
direct the voting of such security, or the power to dispose or to direct the
disposition of such security. Thus, more than one person may be deemed a
beneficial owner of the same security. Except as otherwise indicated, each
person listed below has informed ERC that such person has (1) sole voting and
investment power with respect to such person's shares of stock, except to the
extent that authority is shared by spouses under applicable law, and (2) record
and beneficial ownership with respect to such person's shares of stock.
ERC. The following table presents information about the beneficial ownership
of ERC's common stock by each person or group known by ERC to own more than 5%
of the common stock and by each director, executive officer and controlling
person of ERC, any pension, profit-sharing or similar plan of ERC, or any
associate or majority-owned subsidiary of ERC, and by all directors and
executive officers of ERC as a group:
<TABLE>
<CAPTION>
Percentage
of
Number of Outstanding
Shares Shares
Name of Beneficial Owner Owned Owned
------------------------ ---------- -----------
<S> <C> <C>
John Wood Group PLC (1)................................ 27,537,702 89.7%
Wendell R. Brooks...................................... -- --
Scott J. Bender........................................ -- --
Alan Senn.............................................. -- --
Jorge E. Estrada....................................... -- --
Allister G. Langlands.................................. -- --
John Derek Prichard-Jones.............................. -- --
George Tilley.......................................... -- --
Joel A. Bender......................................... -- --
James E. Klima......................................... -- --
Heinrich Lang.......................................... -- --
Directors and executive officers of ERC as a group (10
persons).............................................. -- --
</TABLE>
--------
(1) Includes 1,850,000 shares of common stock issued in February 2000 upon
conversion of the shares of Series A Cumulative Convertible Preferred Stock
held by John Wood Group PLC.
Wood Group. No director, executive officer or controlling person of Wood
Group, or any pension, profit-sharing or similar plan of Wood Group or any
associate or majority-owned subsidiary of Wood Group beneficially owns any
common stock of ERC.
ERC Acquisition. None of ERC Acquisition, any pension, profit-sharing or
similar plan of ERC Acquisition or any associate or majority-owned subsidiary
of ERC Acquisition beneficially owns any shares of ERC common stock. No
director, executive officer or controlling person of ERC Acquisition
beneficially owns any shares of ERC common stock other than Wood Group. The
beneficial ownership information for Wood Group is provided above in this
section under the subheading "ERC."
39
<PAGE>
MANAGEMENT
Directors and Executive Officers of ERC
Presented below are the name and business address of each director,
executive officer and controlling person of ERC, the current principal
occupation or employment of each such person and the name, principal business
and address of the corporation or other organization in which such occupation
or employment of each such person is conducted, and the material occupations,
positions, offices and employment and the name, principal business and address
of any corporation or other organization in which any material occupation,
position, office or employment of each such person was held during the last
five years. Allister G. Langlands is a citizen of the United Kingdom, Jorge E.
Estrada is a citizen of Colombia and the remaining directors and executive
officers are citizens of the United States. Unless otherwise indicated below,
the business address of each director and executive officer is c/o ERC
Industries, Inc., 1441 Park Ten Boulevard, Houston, Texas 77084. For the last
five years, none of such persons has been convicted in a criminal proceeding,
nor have any of such persons been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order enjoining such
person from future violations of, or prohibiting the activities subject to,
federal or state securities laws, or a finding of any violation of federal or
state securities laws.
<TABLE>
<CAPTION>
Name Business Address and Principal Occupation
---- -----------------------------------------
<S> <C>
Wendell R. Brooks.......... Mr. Brooks was elected as a director of ERC in
August 1995 and Chief Executive Officer in 1998.
Since June 1999, Mr. Brooks has served as Chairman
of the Board. 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., a
Houston-based, indirect, wholly owned subsidiary of
Wood Group performing administrative services for
Wood Group's U.S. operations. Mr. Brooks currently
serves as President and Chief Operating Officer of
Wood Group Petroleum Services, Inc. Prior to joining
Wood Group in June 1994, 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.
Scott J. Bender............ Mr. Bender joined ERC as President in May 2000 and
was appointed to ERC's Board of Directors at the
same time. From May 1997 to May 2000, Mr. Bender
served as President and Chief Executive Officer of
Entech Industries, Inc., an investment company in
the oil and gas services industry, located at One
Greenway Plaza, Suite 460, Houston, Texas 77046.
Prior to joining Entech, Mr. Bender had served,
since 1978, as President of Ingram-Cactus Company, a
privately held oilfield service company located at
One Greenway Plaza, Suite 200, Houston, Texas 77046.
Alan Senn.................. Mr. Senn joined ERC in 1978. He has served in all
levels of operations including management positions
within ERC's U.S. operations. In January 1998, Mr.
Senn was promoted to Senior Vice President, U.S.
Operations with areas of responsibility including
North American operations and manufacturing and
became President and Chief Operating Officer of ERC
in July 1998. In May 2000, Mr. Senn resigned as
President of ERC and became President of Wood Group
ESP, a subsidiary of Wood Group. Mr. Senn was
elected to ERC's Board of Directors in June 1999.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Name Business Address and Principal Occupation
---- -----------------------------------------
<S> <C>
Jorge E. Estrada............. Mr. Estrada joined ERC as a director in March
1998. Since 1987, Mr. Estrada has been President
and Chief Executive Officer of JEMPSA Media &
Entertainment, a company he founded that
specializes in the Spanish and Latin American
entertainment industry, located at Lavalle 2024,
Pizo8, (1051) Buenos Aires, Argentina. Since 1993,
Mr. Estrada has been a director of Pride
International, Inc., a public contract 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.
Allister G. Langlands........ Mr. Langlands has served as a director of ERC
since 1993. Mr. Langlands is a Qualified Chartered
Accountant. He has been Finance Director of Wood
Group since August 1991 and Deputy Managing
Director since January 2000. 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.
John Derek Prichard-Jones.... Mr. Prichard-Jones has served as a director of ERC
since 1993. Mr. Prichard-Jones served as Chairman
of ERC from February 1993 until June 1999. Since
1991, Mr. Jones has served as Chairman and Chief
Executive Officer of Wood Group Petroleum
Services, Inc. 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.
George Tilley................ Mr. Tilley joined ERC as a director in 1993 and
resigned from the Board of Directors as of
November 1, 1997. Mr. Tilley was appointed as a
director by the Board of Directors in September
1999 to fill the vacancy caused by the death of
one of ERC's directors. From June 1993 to November
1996, Mr. Tilley served as President and Chief
Executive Officer of Grant Geophysical, Inc., a
public company providing geophysical services to
the oil industry, located at 16850 Park Row,
Houston, Texas 77084. 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.
Joel A. Bender............... Mr. Bender joined ERC as Vice President,
Operations in May 2000. From May 1997 to May 2000,
Mr. Bender served as Executive Vice President of
Entech Industries, Inc., an investment company in
the oil and gas services industry, located at One
Greenway Plaza, Suite 460, Houston, Texas 77046.
Prior to joining Entech, Mr. Bender had served,
since 1985, as Vice President of operations for
Ingram-Cactus Company, a privately held oilfield
service company located at One Greenway Plaza,
Suite 200, Houston, Texas 77046.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Name Business Address and Principal Occupation
---- -----------------------------------------
<S> <C>
James E. Klima................. Mr. Klima joined ERC in October 1995 as Vice
President and Chief Financial Officer. From May
1991 to October 1995, Mr. Klima served as Chief
Financial Officer of CTC International, a
privately held oil and gas service company
located at 4265 San Felipe, Suite 400, Houston,
Texas 77027. Mr. Klima has resigned his
positions with ERC effective as of July 1, 2000.
Brian Small.................... Effective as of July 1, 2000, Mr. Small will
become Vice President and Chief Financial
Officer of ERC. Mr. Small is a Qualified
Chartered Accountant. He joined Wood Group in
August 1994 and, since January 1999, has served
as the Controller of ERC. From March 1981 to
August 1994, Mr. Small worked in the
international accounting firm of Coopers &
Lybrand.
Heinrich Lang.................. Mr. Lang joined ERC in July 1996 in the position
of Vice President, Engineering and Business
Development. From June 1992 to July 1996, Mr.
Lang served as Manager of wellhead engineering
for Ingram-Cactus Company, a privately held
oilfield service company located at One Greenway
Plaza, Suite 200, Houston, Texas 77046.
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.
</TABLE>
Directors and Executive Officers of ERC Acquisition
Messrs. Brooks, Langlands, Prichard-Jones and Senn are the initial directors
of ERC Acquisition. Mr. Brooks is the president. Information regarding those
persons is described above in this section under the subheading "Directors and
Executive Officers of ERC."
42
<PAGE>
Executive and Nonexecutive Directors of Wood Group
Presented below are the name and business address of each executive and
nonexecutive director and each controlling person of Wood Group (other than
Messrs. Brooks and Langlands), the current principal occupation or employment
of each such person and the name, principal business and address of the
corporation or other organization in which such occupation or employment of
each such person is conducted, and the material occupations, positions, offices
and employment and the name, principal business and address of any corporation
or other organization in which any material occupation, position, office or
employment of each such person was held during the last five years. Information
regarding Messrs. Brooks and Langlands is described above in this section under
the subheading "Directors and Executive Officers of ERC." Each person listed
below is a citizen of the United Kingdom. Unless otherwise indicated below, the
business address of each person listed below is c/o John Wood Group PLC, John
Wood House, Greenwell Road, East Tullos, Aberdeen, Scotland AB1 4AX. For the
last five years, none of such persons has been convicted in a criminal
proceeding, nor have any of such persons been a party to any judicial or
administrative proceeding that resulted in a judgment, decree or final order
enjoining such person from future violations of, or prohibiting the activities
subject to, federal or state securities laws, or a finding of any violation of
federal or state securities laws.
<TABLE>
<CAPTION>
Name Business Address and Principal Occupation
---- ----------------------------------------------------
<S> <C>
Sir Ian Wood............... Sir Wood has served as the Managing Director of Wood
Group since 1967 and Chairman of Wood Group since
1982. Sir Wood pioneered Wood Group's development
into oil industry related markets in the 1970s. He
is the Chairman of Scottish Enterprise, the Chairman
of the OSO Industry Board, the Chairman of J W
Holdings Limited, a member of the Scottish Business
Forum, and a member of the Government Oil and Gas
Industry Task Force.
Edwin C. Garrett........... Mr. Garrett has served as the nonexecutive Vice
Chairman of Wood Group since 1992. Mr. Garrett
joined Wood Group in 1968. He is a Chartered
Secretary and a Fellow of the Association of
Corporate Treasurers and the Vice Chairman of
J W Holdings Limited.
Ewan Brown................. Mr. Brown has served as a nonexecutive director of
Wood Group since February 1983. For the past five
years, he has served as a merchant banker and an
executive director of Noble Grossart Limited, 48
Queen Street, Edinburgh, EH2 3NR. Mr. Brown also
serves as Chairman of Dunedin Income Growth Trust
Plc and of TSB Bank Scotland PLC and as a
nonexecutive director of Lloyds TSB Group Plc,
Stagecoach Holdings PLC and a number of other
companies.
John C. Morgan............. Mr. Morgan has served as a nonexecutive director of
Wood Group since October 1998. From January 1994 to
January 1997, he was President of BP Exploration
(Alaska) Inc., 900 E. Benson Blvd., Anchorage,
Alaska 99519. Since February 1997, Mr. Morgan has
been an independent consultant. He also serves as a
director of Venture Production Company Ltd. and of
Concept Systems Holdings Ltd.
William Edgar.............. Mr. Edgar has served as Group Director responsible
for the Engineering & Operations Support division of
Wood Group since March 1995. Mr. Edgar joined Wood
Group in September 1995 as Chairman of Wood Group
Engineering. From 1990 to 1995, he was the Chief
Executive Officer of the National Engineering
Laboratory in East Kilbride, Scotland. Mr. Edgar
also has served as a director of Vickers Marine
Engineering Division and of Seaforth Maritime
Limited.
Tom Motherwell............. Mr. Motherwell has served as Group Director
responsible for the Gas Turbines division of Wood
Group since joining the division in 1985.
</TABLE>
43
<PAGE>
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of ERC as of December 31, 1999 and
1998 and for the three years in the period ended December 31, 1999,
incorporated in this proxy statement by reference to its Annual Report on Form
10-K for the fiscal year ended December 31, 1999, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
STOCKHOLDER PROPOSALS
If the merger is consummated, there will be no public stockholders of ERC
and no public participation in any future meetings of stockholders of ERC.
However, if the merger is not consummated, ERC's public stockholders will
continue to be entitled to attend and participate in ERC's stockholder
meetings. Pursuant to Rule 14a-8 promulgated by the SEC, any ERC stockholder
who wishes to present a proposal at the 2000 annual meeting of stockholders of
ERC (in the event the merger is not consummated) and who wishes to have such
proposal included in ERC's proxy statement for that meeting must have delivered
a copy of such proposal to ERC's offices at 1441 Park Ten Blvd., Houston, Texas
77084, Attention: Secretary, by May 10, 2000.
ERC's bylaws contain a provision requiring that a stockholder may bring
other business before an annual stockholder meeting only if written notice of
such business by such stockholder has been given to the Secretary of ERC not
later than 45 nor more than 60 days prior to an annual meeting. If less than 55
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so
received not later than 10 days after the earlier of the day on which such
notice of the date of the meeting was mailed or such public disclosure was
made.
WHERE YOU CAN FIND MORE INFORMATION
ERC files annual, quarterly and special reports, proxy statements and other
information with the SEC. You can read and copy any materials ERC files with
the SEC at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can obtain information about the operation of the
SEC's public reference room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a Web site that contains information ERC files electronically with
the SEC, which you can access over the Internet at http://www.sec.gov.
Because the merger is a "going private" transaction, ERC Acquisition, Wood
Group and ERC have filed a Rule 13e-3 Transaction Statement on Schedule 13E-3
under the Securities Exchange Act of 1934 with respect to the merger. The
Schedule 13E-3 and the reports, proxy statements and other information ERC
files with the SEC contain additional information about ERC. A copy of the
written report presented by Schroder & Co. Inc. to the Special Committee,
including Schroders' opinion as to the fairness of the consideration to be
received in the merger, was filed as an exhibit to such Schedule 13E-3. Copies
of the Schedule 13E-3 are available for inspection and copying at the principal
executive offices of ERC during regular business hours by any interested
stockholder of ERC, or a representative who has been so designated in writing,
and may be inspected and copied, or obtained by mail by written request
directed to ERC Industries, Inc., 1441 Park Ten Boulevard, Houston, Texas
77084, Attn: Secretary; telephone number (281) 398-8901.
44
<PAGE>
ERC is incorporating by reference information it files with the SEC, which
means that it is disclosing important information to you by referring you to
those documents. The information ERC incorporates by reference is an important
part of this prospectus, and later information that ERC files with the SEC
automatically will update and supersede this information. ERC incorporates by
reference the documents listed below and any future filings it makes with the
SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 until the date of the special meeting of ERC stockholders. The documents
incorporated by reference are:
. ERC's annual report on Form 10-K for the year ended December 31, 1999,
including the financial statements therein
. ERC's quarterly report on Form 10-Q for the quarterly period ended March
31, 2000, including the financial statements therein
ERC undertakes to provide by first class mail, without charge and within one
business day of receipt of any request, to any person to whom a copy of this
proxy statement has been delivered, a copy of any or all of the documents
referred to above which have been incorporated by reference in this proxy
statement, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference therein). Requests for such copies
should be directed to ERC Industries, Inc., 1441 Park Ten Boulevard, Houston,
Texas 77084, Attn: Secretary; telephone number (281) 398-8901.
OTHER BUSINESS
The Board of Directors of ERC does not know of any other matters to be
presented for action at the special meeting other than as described in this
proxy statement. If any other business should properly come before the meeting,
the persons named in the accompanying form of proxy intend to vote thereon in
accordance with their best judgment unless they are directed by a proxy to do
otherwise.
By Order of the Board of Directors
/s/ Wendell R. Brooks
Wendell R. Brooks
Chairman
Houston, Texas
June 19, 2000
45
<PAGE>
APPENDIX A
====================================================
AGREEMENT AND PLAN OF MERGER
among
JOHN WOOD GROUP PLC,
ERC ACQUISITION, INC.
and
ERC INDUSTRIES, INC.
Dated as of March 29, 2000
====================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
THE MERGER
Section 1.1 The Merger...................................................A-1
Section 1.2 The Closing..................................................A-1
Section 1.3 Effective Time...............................................A-1
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation.................................A-2
Section 2.2 Bylaws.......................................................A-2
ARTICLE 3
DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION
Section 3.1 Directors of Surviving Corporation...........................A-2
Section 3.2 Officers of Surviving Corporation............................A-2
ARTICLE 4
EFFECT OF THE MERGERS ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
Section 4.1 Effect of Merger on Capital Stock............................A-2
Section 4.2 Exchange of Certificates Representing Company Common Stock...A-3
Section 4.3 Dissenting Shares............................................A-4
Section 4.4 Adjustment of Consideration..................................A-4
Section 4.5 Treatment of Units...........................................A-4
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1 Existence; Good Standing; Corporate Authority................A-4
Section 5.2 Authorization, Validity and Effect of Agreements.............A-4
Section 5.3 Capitalization...............................................A-5
Section 5.4 No Conflict..................................................A-5
Section 5.5 SEC Documents................................................A-5
Section 5.6 No Brokers...................................................A-6
Section 5.7 Vote Required................................................A-6
Section 5.8 Opinion of Financial Advisor.................................A-6
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Section 6.1 Existence; Good Standing; Corporate Authority................A-6
Section 6.2 Authorization, Validity and Effect of Agreements.............A-6
Section 6.3 No Brokers...................................................A-7
A-i
<PAGE>
Section 6.4 No Conflict..................................................A-7
Section 6.5 Merger Sub...................................................A-7
Section 6.6 Financing....................................................A-7
ARTICLE 7
COVENANTS
Section 7.1 Conduct of Businesses........................................A-7
Section 7.2 Meetings of Stockholders.....................................A-8
Section 7.3 Proxy Statement..............................................A-8
Section 7.4 Expenses.....................................................A-9
Section 7.5 Consents.....................................................A-9
Section 7.6 Publicity....................................................A-9
Section 7.7 Indemnification; Insurance...................................A-9
ARTICLE 8
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger...A-10
Section 8.2 Conditions to Obligation of the Company to Effect the
Merger......................................................A-10
Section 8.3 Conditions to Obligation of Parent and Merger Sub to
Effect the Merger...........................................A-11
ARTICLE 9
TERMINATION
Section 9.1 Termination by Mutual Consent................................A-11
Section 9.2 Termination by Parent or the Company.........................A-11
Section 9.3 Termination by the Company...................................A-11
Section 9.4 Termination by Parent........................................A-12
Section 9.5 Effect of Termination........................................A-12
Section 9.6 Extension; Waiver............................................A-12
ARTICLE 10
GENERAL PROVISIONS
Section 10.1 Nonsurvival of Representations, Warranties and Agreements....A-12
Section 10.2 Notices......................................................A-12
Section 10.3 Assignment; Binding Effect; Benefit..........................A-13
Section 10.4 Entire Agreement.............................................A-13
Section 10.5 Amendments...................................................A-14
Section 10.6 Governing Law................................................A-14
Section 10.7 Counterparts.................................................A-14
Section 10.8 Headings.....................................................A-14
Section 10.9 Interpretation...............................................A-14
Section 10.10 Waivers......................................................A-14
Section 10.11 Severability.................................................A-15
Section 10.12 Obligation of Parent.........................................A-15
Section 10.13 Subsidiaries.................................................A-15
Section 10.14 Action by the Company........................................A-15
A-ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as
of March 29, 2000 is among John Wood Group PLC, a company incorporated in the
United Kingdom and registered in Scotland ("Parent"), ERC Acquisition, Inc., a
Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and
ERC Industries, Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, as of the date hereof, Parent owns 89.7% of the
outstanding shares of common stock, par value $0.01 per share, of the Company
("Company Common Stock");
WHEREAS, the parties hereto desire to merge Merger Sub with
and into the Company (the "Merger"), with the Company surviving as a wholly
owned subsidiary of Parent, pursuant to which each share of the Company Common
Stock not owned by Parent will be converted into the right to receive $1.60 in
cash;
WHEREAS, the respective Boards of Directors of Merger Sub and
the Company have determined the Merger, in the manner contemplated herein, to be
advisable and in the best interests of their respective corporations and
stockholders and to be consistent with, and in furtherance of, their respective
business strategies and goals, and, by resolutions duly adopted, have approved
and adopted this Agreement;
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions
of this Agreement, at the Effective Time (as defined in Section 1.3), Merger Sub
shall be merged with and into the Company in accordance with this Agreement, and
the separate corporate existence of Merger Sub shall thereupon cease. The
Company shall be the surviving corporation in the Merger (sometimes hereinafter
referred to as the "Surviving Corporation"). The Merger shall have the effects
specified in the General Corporation Law of the State of Delaware (the "DGCL").
Section 1.2 The Closing. Subject to the terms and
conditions of this Agreement, the closing of the Merger (the "Closing") shall
take place (a) at the offices of Baker & Botts L.L.P., One Shell Plaza, 910
Louisiana, Houston, Texas, at 9:00 a.m., local time, on the first business day
on which the last to be fulfilled or waived of the conditions set forth in
Article 8 shall be fulfilled or waived in accordance herewith or (b) at such
other time, date or place as Parent and the Company may agree. The date on which
the Closing occurs is hereinafter referred to as the "Closing Date."
Section 1.3 Effective Time. If all the conditions to the
Merger set forth in Article 8 shall have been fulfilled or waived in accordance
herewith and this Agreement shall not have been terminated as provided in
Article 9, Parent, Merger Sub and the Company shall cause a certificate of
merger (the "Certificate of Merger") meeting the requirements of section 251 of
the DGCL to be properly executed and filed in accordance with such section on
the Closing Date. The Merger shall become effective at the time of filing of the
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the DGCL, or at such later time that the parties hereto shall
have agreed upon and designated in such filing as the effective time of the
Merger (the "Effective Time").
A-1
<PAGE>
ARTICLE 2
CERTIFICATE OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation. The certificate
of incorporation of the Company in effect immediately prior to the Effective
Time shall be the certificate of incorporation of the Surviving Corporation,
until duly amended in accordance with applicable law.
Section 2.2 Bylaws. The bylaws of the Company in effect
immediately prior to the Effective Time shall be the bylaws of the Surviving
Corporation, until duly amended in accordance with applicable law.
ARTICLE 3
DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION
Section 3.1 Directors of Surviving Corporation. The
directors of Merger Sub immediately prior to the Effective Time shall be the
directors of the Surviving Corporation as of the Effective Time.
Section 3.2 Officers of Surviving Corporation. The officers
of the Company immediately prior to the Effective Time shall be the officers of
the Surviving Corporation as of the Effective Time.
ARTICLE 4
EFFECT OF THE MERGERS ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
Section 4.1 Effect of Merger on Capital Stock.
(a) At the Effective Time, each share of the common stock, par
value $0.01 per share, of Merger Sub outstanding immediately prior to the
Effective Time shall be converted into and become one fully paid and non-
assessable share of Common Stock, par value $0.01 per share, of the Surviving
Corporation.
(b) At the Effective Time, each share of Company Common Stock
issued and outstanding immediately prior to the Effective Time (other than (i)
Dissenting Shares (as defined in Section 4.3) and (ii) shares of Company Common
Stock (x) held in the Company's treasury or (y) owned by Parent, Merger Sub or
any other wholly owned Subsidiary (as defined in Section 10.13) of Parent or the
Company) shall, by virtue of the Merger and without any action on the part of
the holder thereof, be converted into the right to receive $1.60 in cash (the
"Consideration"), subject to adjustment as provided in Section 4.4.
(c) As a result of the Merger and without any action on the
part of the holder thereof, each share of Company Common Stock shall cease to be
outstanding and shall be canceled and retired and shall cease to exist, and each
holder of a certificate (a "Certification") representing any shares of Company
Common Stock (other than (i) Dissenting Shares and (ii) shares of Company Common
Stock (x) held in the Company's treasury or (y) owned by Parent, Merger Sub or
any other wholly owned Subsidiary of Parent or the Company) shall thereafter
cease to have any rights with respect to such shares, except the right to
receive, without interest, the Consideration in accordance with Section 4.2(b)
upon the surrender of such Certificate.
(d) Each share of Company Common Stock and all other shares of
capital stock of the Company that are held in the Company's treasury, and each
share of Company Common Stock and all other shares of capital stock of the
Company that are owned by Parent, Merger Sub or any other wholly owned
Subsidiary of Parent or the Company,
A-2
<PAGE>
shall, at the Effective Time and by virtue of the Merger, cease to be
outstanding, be canceled and retired and cease to exist without payment of any
consideration therefor, and no stock of Parent or other consideration shall be
delivered in exchange therefor.
Section 4.2 Exchange of Certificates Representing Company
Common Stock.
(a) As of the Effective Time, Parent shall deposit, or shall
cause to be deposited, with an exchange agent selected by Parent (the "Exchange
Agent"), for the benefit of the holders of shares of Company Common Stock (other
than Dissenting Shares), for exchange in accordance with this Article 4, cash in
an amount equal to the total aggregate Consideration (such cash being
hereinafter referred to as the "Exchange Fund") to be paid pursuant to Section
4.1(b) in exchange for outstanding shares of Company Common Stock.
(b) As soon as reasonably practicable after the Effective
Time, Parent shall cause the Exchange Agent to mail to each holder of record of
one or more Certificates (other than to (i) holders of Dissenting Shares and
(ii) holders of Company Common Stock that, pursuant to Section 4.1(d), are
canceled without payment of any consideration therefor): (A) a letter of
transmittal (the "Letter of Transmittal") which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify and
(B) instructions for use in effecting the surrender of the Certificates in
exchange for the Consideration. Upon surrender of a Certificate for cancellation
to the Exchange Agent, together with such Letter of Transmittal, duly executed
and completed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange for each share of Company
Common Stock represented by such Certificate cash in an amount equal to the
Consideration, after giving effect to any required withholding tax, and the
Certificate so surrendered shall forthwith be canceled. No interest will be paid
or accrued on the cash payable to holders of Certificates. In the event of a
transfer of ownership of Company Common Stock which is not registered in the
transfer records of the Company, the Consideration shall be paid to such a
transferee if the Certificate representing such Company Common Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
(c) At or after the Effective Time, there shall be no
transfers on the stock transfer books of the Company of the shares of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates are presented to the Surviving
Corporation or the Exchange Agent, the presented Certificates shall be canceled
and exchanged for cash in an amount equal to the Consideration deliverable in
respect thereof pursuant to this Agreement in accordance with the procedures set
forth in this Article 4.
(d) Any portion of the Exchange Fund (including the proceeds
of any investments thereof) that remains unclaimed by the former stockholders of
the Company one year after the Effective Time shall be delivered to Parent. Any
former stockholders of the Company who have not theretofore complied with this
Article 4 shall thereafter look only to Parent for payment of the Consideration
deliverable in respect of each Certificate such former stockholder holds as
determined pursuant to this Agreement.
(e) None of Parent, the Surviving Corporation, the Exchange
Agent or any other person shall be liable to any former holder of shares of
Company Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(f) Parent and the Exchange Agent shall be entitled to deduct
and withhold from the Consideration otherwise payable pursuant to this Agreement
to any holder of shares of Company Common Stock such amounts as Parent or the
Exchange Agent reasonably determines is required to be deducted and withheld
with respect to the making of such payment under the United States Internal
Revenue Code of 1986, as amended, or any provision of state, local or foreign
tax law. To the extent that amounts are so withheld by Parent or the Exchange
Agent, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the shares of
A-3
<PAGE>
Company Common Stock in respect of which such deduction and withholding was made
by Parent or the Exchange Agent.
(g) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate cash in an amount equal to the Consideration deliverable in respect
thereof pursuant to this Agreement.
Section 4.3 Dissenting Shares. Notwithstanding anything in
this Agreement to the contrary, no share of Company Common Stock, the holder of
which shall not have voted shares in favor of the Merger and shall have properly
complied with the provisions of Section 262 of the DGCL as to appraisal rights
(a "Dissenting Share"), shall be deemed converted into and to represent the
right to receive the Consideration hereunder; and the holders of Dissenting
Shares, if any, shall be entitled to payment, solely from the Surviving
Corporation, of the appraised value of such Dissenting Shares to the extent
permitted by and in accordance with the provisions of Section 262 of the DGCL;
provided, however, that (i) if any holder of Dissenting Shares shall, under the
circumstances permitted by the DGCL, subsequently deliver a written withdrawal
of his or her demand for appraisal of such Dissenting Shares, (ii) if any holder
fails to establish his or her entitlement to rights to payment as provided in
such Section 262 or (iii) if neither any holder of Dissenting Shares nor the
Surviving Corporation has filed a petition demanding a determination of the
value of all Dissenting Shares within the time provided in such Section 262,
such holder or holders (as the case may be) shall forfeit such right to payment
for such Dissenting Shares pursuant to such Section 262 and each such Dissenting
Share shall thereupon be deemed to be converted into the right to receive the
Consideration.
Section 4.4 Adjustment of Consideration. In the event that,
subsequent to the date of this Agreement but prior to the Effective Time, the
Company changes the number of shares of Company Common Stock issued and
outstanding as a result of a stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction without receipt of consideration
with respect to Company Common Stock, the Consideration shall be appropriately
adjusted.
Section 4.5 Treatment of Units. All units outstanding as of
the Effective Time under the Company's long-term incentive plan (the "LTIP")
shall continue in full force and effect and shall not be affected in any manner
as a result of the Merger.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent that:
Section 5.1 Existence; Good Standing; Corporate Authority.
The Company is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation. The Company has
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now conducted. The copies of the
Company's certificate of incorporation and bylaws previously made available to
Parent are true and correct and contain all amendments as of the date hereof.
Section 5.2 Authorization, Validity and Effect of
Agreements. The Company has the requisite corporate power and authority to
execute and deliver this Agreement and all other agreements and documents
contemplated hereby. This Agreement and the consummation by the Company of the
Merger and the other transactions contemplated hereby has been duly authorized
and approved by a unanimous vote of a special committee of the Board of
Directors of the Company consisting solely of directors who are not affiliated
with Parent (the "Special Committee") and by all other requisite corporate
action, other than, with respect to the Merger, the approval and adoption of
this
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Agreement by the Company's stockholders. This Agreement constitutes the valid
and legally binding obligation of the Company, enforceable against the Company
in accordance with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights and general
principles of equity.
Section 5.3 Capitalization. The authorized capital stock of
the Company consists of 40,000,000 shares of Company Common Stock and 10,000,000
shares of serial preferred stock, par value $1.00 per share, of the Company
("Company Preferred Stock"). As of March 29, 2000, (i) 30,698,272 shares of
Company Common Stock and no shares of Company Preferred Stock were issued and
outstanding and (ii) no shares of Company Common Stock or Company Preferred
Stock were reserved for issuance. All such issued and outstanding shares of
Company Common Stock are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. There are no outstanding shares of
capital stock and there are no options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments that obligate
the Company or any of its Subsidiaries to issue, transfer or sell any shares of
capital stock or other voting securities of the Company or any of its
Subsidiaries. The Company has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of the Company on any matter.
Section 5.4 No Conflict.
(a) Neither the execution and delivery by the Company of this
Agreement nor the consummation by the Company of the transactions contemplated
hereby in accordance with the terms hereof will: (i) conflict with or result in
a breach of any provisions of the certificate of incorporation or bylaws of the
Company; (ii) violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination or in a
right of termination or cancellation of, or give rise to a right of purchase
under, or accelerate the performance required by, or result in the creation of
any lien upon any of the properties of the Company or its Subsidiaries under, or
result in being declared void, voidable, or without further binding effect, or
otherwise result in a detriment to the Company or any of its Subsidiaries under,
any of the terms, conditions or provisions of, any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, lease, contract,
agreement, joint venture or other instrument or obligation to which the Company
or any of its Subsidiaries is a party, or by which the Company or any of its
Subsidiaries or any of their properties is bound or affected; or (iii)
contravene or conflict with or constitute a violation of any provision of any
law, rule, regulation, judgment, order or decree binding upon or applicable to
the Company or any of its Subsidiaries, except, in the case of matters described
in clause (ii) or (iii), as would not have, individually or in the aggregate, a
Company Material Adverse Effect.
(b) Neither the execution and delivery by the Company of this
Agreement nor the consummation by the Company of the transactions contemplated
hereby in accordance with the terms hereof will require any consent, approval or
authorization of, or filing or registration with, any governmental or regulatory
authority, other than (i) the filings provided for in Article 1 and (ii) filings
required the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
with respect to the meeting of the stockholders of the Company to approve and
adopt this Agreement and the transactions contemplated hereby (collectively, the
"Filings"), except for any consent, approval or authorization the failure of
which to obtain and for any filing or registration the failure of which to make
would not have a Company Material Adverse Effect.
Section 5.5 SEC Documents. The Company has made available
to Parent each registration statement, report, schedule, proxy statement or
information statement (other than preliminary materials) filed by the Company
with the Securities and Exchange Commission (the "SEC") since January 1, 1998,
each in the form (including exhibits and any amendments thereto) filed with the
SEC (collectively, the "Company Reports"). As of their respective dates, the
Company Reports (i) were prepared in all material respects in accordance with
the applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), the Exchange Act and the rules and regulations promulgated
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading, except for such statements, if any, as have been
modified by subsequent filings with the SEC prior to the date hereof. Each of
the consolidated balance sheets included in or incorporated by reference
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into the Company Reports (including the related notes and schedules) fairly
presents in all material respects the consolidated financial position of the
Company and its Subsidiaries as of its date and each of the consolidated
statements of income, cash flows and changes in stockholder's equity of the
Company included in or incorporated by reference into the Company Reports
(including any related notes and schedules) fairly presents in all material
respects the results of operations, cash flows or changes in stockholders'
equity, as the case may be, of the Company and its Subsidiaries for the periods
set forth therein (subject, in the case of unaudited statements, to (x) such
exceptions as may be permitted by Form 10-Q of the SEC and (y) normal year-end
audit adjustments), in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
as may be noted therein. Except as and to the extent set forth on the
consolidated balance sheet of the Company and its Subsidiaries at December 31,
1998, including all notes thereto, as of such date, neither the Company nor any
of its Subsidiaries had any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on, or reserved against in, a balance sheet of the Company or in the
notes thereto prepared in accordance with generally accepted accounting
principles consistently applied, other than liabilities or obligations which
would not have, individually or in the aggregate, a Company Material Adverse
Effect.
Section 5.6 No Brokers. The Company has not entered into
any contract, arrangement or understanding with any person or firm that may
result in the obligation of the Company or Parent to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except that the Special Committee has retained
Schroder & Co. Inc. as its financial advisor, the arrangements with which have
been disclosed in writing to Parent prior to the date hereof.
Section 5.7 Vote Required. The affirmative vote of the
holders of at least a majority of the outstanding shares of Company Common
Stock, together with the vote contemplated by Section 8.1(a)(ii), is the only
vote of the holders of any class or series of Company capital stock necessary to
approve and adopt this Agreement and the transactions contemplated hereby.
Section 5.8 Opinion of Financial Advisor. The Special
Committee has received the opinion dated March 28, 2000 (the "Fairness Opinion")
of Schroder & Co. Inc. to the effect that, as of the date thereof, the
Consideration is fair, from a financial point of view, to the holders of the
Company Common Stock other than Parent.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Parent and Merger Sub, jointly and severally, represent and
warrant to the Company that:
Section 6.1 Existence; Good Standing; Corporate Authority.
Parent and Merger Sub are corporations duly incorporated, validly existing and
in good standing under the laws of their respective jurisdictions of
incorporation. Parent has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as now conducted.
The copies of Parent's certificate of incorporation and bylaws previously made
available to the Company are true and correct and contain all amendments as of
the date hereof.
Section 6.2 Authorization, Validity and Effect of
Agreements. Each of Parent and Merger Sub has the requisite corporate power and
authority to execute and deliver this Agreement and all other agreements and
documents contemplated hereby to which it is a party. This Agreement and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
has been duly authorized by all requisite corporate action on the part of Parent
and Merger Sub. This Agreement constitutes the valid and legally binding
obligation of each of Parent and Merger Sub, enforceable against Parent and
Merger Sub in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
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Section 6.3 No Brokers. Parent has not entered into any
contract, arrangement or understanding with any person or firm that may result
in the obligation of the Company or Parent to pay any finders' fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby.
Section 6.4 No Conflict.
(a) Neither the execution and delivery by Parent and Merger
Sub of this Agreement nor the consummation by Parent and Merger Sub of the
transactions contemplated hereby in accordance with the terms hereof will:
(i) conflict with or result in a breach of any provisions of the certificate of
incorporation or bylaws of Parent or Merger Sub; (ii) violate, or conflict with,
or result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination or in a right of termination or cancellation of, or
give rise to a right of purchase under, or accelerate the performance required
by, or result in the creation of any lien upon any of the properties of Parent
or its Subsidiaries under, or result in being declared void, voidable, or
without further binding effect, or otherwise result in a detriment to Parent or
any of its Subsidiaries under, any of the terms, conditions or provisions of,
any note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
lease, contract, agreement, joint venture or other instrument or obligation to
which Parent or any of its Subsidiaries is a party, or by which Parent or any of
its Subsidiaries or any of their properties is bound or affected; or (iii)
contravene or conflict with or constitute a violation of any provision of any
law, rule, regulation, judgment, order or decree binding upon or applicable to
Parent or any of its Subsidiaries, except, in the case of matters described in
clause (ii) or (iii), as would not have, individually or in the aggregate, a
Parent Material Adverse Effect.
(b) Neither the execution and delivery by Parent or Merger Sub
of this Agreement nor the consummation by Parent or Merger Sub of the
transactions contemplated hereby in accordance with the terms hereof will
require any consent, approval or authorization of, or filing or registration
with, any governmental or regulatory authority, other than the Filings, except
for any consent, approval or authorization the failure of which to obtain and
for any filing or registration the failure of which to make would not have a
Parent Material Adverse Effect.
Section 6.5 Merger Sub. Merger Sub was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement and
has not engaged in any activities other than in connection with or as
contemplated by this Agreement.
Section 6.6 Financing. Parent has the financial resources
to consummate the transactions contemplated by this Agreement and to pay the
total aggregate Consideration.
ARTICLE 7
COVENANTS
Section 7.1 Conduct of Businesses. Prior to the Effective
Time, except as expressly contemplated by any other provision of this Agreement
or as required by applicable law, unless Parent has consented in writing
thereto, the Company:
(a) shall, and shall cause each of its Subsidiaries to,
conduct its operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(b) shall use its reasonable best efforts, and shall cause
each of its Subsidiaries to use its reasonable best efforts, to preserve intact
their business organizations and goodwill, keep available the services of their
respective officers and employees and maintain satisfactory relationships with
those persons having business relationships with them;
(c) shall not amend its certificate of incorporation or
bylaws;
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(d) shall promptly deliver to Parent true and correct copies
of any report, statement or schedule filed with the SEC subsequent to the date
of this Agreement;
(e) shall not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the date
hereof, issue any shares of its capital stock, effect any stock split or
otherwise change its capitalization as it existed on the date hereof; (ii)
grant, confer or award any option, warrant, conversion right or other right not
existing on the date hereof to acquire any shares of its capital stock; (iii)
increase any compensation or benefits, except in the ordinary course of business
consistent with past practice, or enter into or amend any employment agreement
with any of its present or future officers or directors, except with new
employees consistent with past practice; or (iv) adopt any new employee benefit
plan (including any stock option, stock benefit or stock purchase plan) or amend
(except as required by law) any existing employee benefit plan in any material
respect, except for changes which are less favorable to participants in such
plans;
(f) shall not (i) declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares of its capital
stock or (ii) redeem, purchase or otherwise acquire any shares of its capital
stock or capital stock of any of its Subsidiaries, or make any commitment for
any such action;
(g) shall not, and shall not permit any of its Subsidiaries
to, sell, lease or otherwise dispose of any of its assets (including capital
stock of Subsidiaries) that are material to the Company, individually or in the
aggregate, except in the ordinary course of business;
(h) shall not, nor shall it permit any of its Subsidiaries to,
agree in writing or otherwise to take any of the foregoing actions; and
(i) shall not take any action that is likely to delay
materially or adversely affect the ability of any of the parties hereto (i) to
obtain any consent, authorization, order or approval of any governmental
commission, board or other regulatory body or (ii) to consummate the Merger.
Section 7.2 Meetings of Stockholders.
(a) The Company will take all action necessary in accordance
with applicable law and its certificate of incorporation and bylaws to convene a
meeting of its stockholders as promptly as practicable to consider and vote upon
the approval and adoption of this Agreement and the Merger.
(b) The Company, through the Special Committee, shall
recommend approval of such matters subject to the determination by the Board of
Directors of the Company after consultation with counsel that recommending
approval of such matters would not be inconsistent with its fiduciary
obligations. Additionally, the Special Committee may at any time prior to the
Effective Time withdraw, modify, or change any recommendation and declaration
regarding this Agreement or the Merger if in the opinion of the Special
Committee after consultation with its counsel the failure to so withdraw,
modify, or change its recommendation and declaration would be inconsistent with
its fiduciary obligations.
Section 7.3 Proxy Statement.
(a) Each of Parent and the Company shall cooperate and
promptly prepare and the Company shall file as soon as practicable with the SEC
under the Exchange Act a proxy statement with respect to the meeting of the
stockholders of the Company to approve and adopt this Agreement and the
transactions contemplated hereby (the "Proxy Statement"). The respective parties
will cause the Proxy Statement to comply as to form in all material respects
with the applicable provisions of the Exchange Act and the rules and regulations
promulgated thereunder, including Rule 13e-3. The Company will advise Parent,
promptly after it receives notice thereof, of any request by the SEC for
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amendment of the Proxy Statement or comments thereon and responses thereto or
requests by the SEC for additional information.
(b) The Company will use its reasonable best efforts to cause
the Proxy Statement to be mailed to its stockholders as promptly as practicable
after the date hereof.
(c) Each of Parent and the Company agrees that the information
provided by it for inclusion in the Proxy Statement and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
meeting of stockholders of the Company, (i) will not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (ii) will comply
as to form in all material respects with the provisions of the Exchange Act.
(d) As soon as practicable after the date of this Agreement,
Parent, Merger Sub and the Company shall file with the SEC a Rule 13E-3
Transaction Statement on Schedule 13E-3 ("Schedule 13E-3"), with respect to the
Merger. Each of the parties hereto agrees to use its reasonable best efforts to
cooperate and to provide each other with such information as any of such parties
may reasonably request in connection with the preparation of the Schedule 13E-3.
Each party hereto agrees promptly to supplement, update and correct any
information provided by it for use in the Schedule 13E-3 if and to the extent
that it is or shall have become incomplete, false or misleading.
Section 7.4 Expenses. Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses.
Section 7.5 Consents. Each of the Company and Parent shall
cooperate, and use its reasonable best efforts, to make all filings and obtain
all licenses, permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and other third parties necessary to
consummate the transactions contemplated by this Agreement.
Section 7.6 Publicity. The parties will consult with each
other and will mutually agree upon any press releases or public announcements
pertaining to this Agreement or the transactions contemplated hereby and shall
not issue any such press releases or make any such public announcements prior to
such consultation and agreement, except as may be required by applicable law or
by obligations pursuant to any listing agreement with any national securities
exchange, in which case the party proposing to issue such press release or make
such public announcement shall use its best efforts to consult in good faith
with the other party before issuing any such press releases or making any such
public announcements.
Section 7.7 Indemnification; Insurance.
(a) From and after the Effective Time, Parent shall cause the
Surviving Corporation to indemnify, defend and hold harmless to the fullest
extent permitted under applicable law each person who is now, or has been at any
time prior to the date hereof, an officer or director of the Company or any
Subsidiary thereof (individually, an "Indemnified Party" and, collectively, the
"Indemnified Parties") against all losses, claims, damages, liabilities, costs
or expenses (including reasonable attorneys' fees), judgments, fines, penalties
and amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to acts or omissions,
or alleged acts or omissions, with respect to matters occurring through the
Effective Time, by them in their capacities as such, whether commenced, asserted
or claimed before or after the Effective Time. In the event of any such claim,
action, suit, proceeding or investigation (an "Action"), (i) Parent shall cause
the Surviving Corporation to pay, as incurred, the reasonable fees and expenses
of counsel selected by the Indemnified Party, which counsel shall be reasonably
acceptable to the Surviving Corporation, in advance of the final disposition of
any such Action to the fullest extent permitted by applicable law, upon receipt
of any undertaking required by applicable law, and (ii) Parent shall cause the
Surviving Corporation to cooperate in the defense of any such matter; provided,
however, the Surviving Corporation shall not be liable for any settlement
effected without its written consent, and provided further that the
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Surviving Corporation shall not be obligated pursuant to this Section 7.7 to pay
the fees and disbursements of more than one counsel for all Indemnified Parties
in any single Action, unless, in the opinion of counsel for any of the
Indemnified Parties, there is a conflict of interests between two or more of
such Indemnified Parties.
(b) The parties agree that the rights to indemnification,
including provisions relating to advances of expenses incurred in defense of any
action or suit, in the certificate of incorporation and bylaws of the Company
with respect to matters occurring through the Effective Time, shall survive the
Merger and shall continue in full force and effect for a period of six years
from the Effective Time; provided, however, that all rights to indemnification
in respect of any Action pending or asserted within such period shall continue
until the disposition of such Action.
(c) For a period of six years after the Effective Time, Parent
shall cause to be maintained officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered, in their capacities
as officers and directors, by Parent's existing officers' and directors'
liability insurance policies on terms substantially no less advantageous to the
Indemnified Parties than such existing insurance, with respect to matters
occurring through the Effective Time; provided that Parent shall not be required
to pay annual premiums in excess of the last annual premium paid by Parent prior
to the date hereof, but in such case shall purchase as much coverage as
reasonably practicable for such amount.
(d) The rights of each Indemnified Party hereunder shall be in
addition to any other rights such Indemnified Party may have under the
certificate of incorporation or bylaws of the Company, under the DGCL, under
indemnity agreements with the Company existing on the date hereof or otherwise.
The provisions of this Section 7.7 shall survive the consummation of the Merger
and expressly are intended to benefit each of the Indemnified Parties.
ARTICLE 8
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation to
Effect the Merger. The respective obligation of each party to effect the Merger
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) This Agreement and the Merger shall have been adopted and
approved by the affirmative vote of (i) holders of a majority of the issued and
outstanding shares of Company Common Stock entitled to vote thereon and
(ii) holders of a majority of the issued and outstanding shares of Company
Common Stock not owned, directly or indirectly, by Parent that are entitled to
vote thereon and that are voting for or against the matter in person or by proxy
at the meeting of stockholders of the Company called for such purpose.
(b) None of the parties hereto shall be subject to any decree,
order or injunction of a court of competent jurisdiction, U.S. or foreign, which
prohibits the consummation of the Merger; provided, however, that prior to
invoking this condition each party agrees to use its reasonable best efforts to
have any such decree, order or injunction lifted or vacated; and no statute,
rule or regulation shall have been enacted by any governmental authority which
prohibits or makes unlawful the consummation of the Merger.
Section 8.2 Conditions to Obligation of the Company to
Effect the Merger. The obligation of the Company to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Parent shall have performed in all material respects its
covenants and agreements contained in this Agreement required to be performed on
or prior to the Closing Date and the representations and warranties of Parent
and Merger Sub contained in this Agreement and in any document delivered in
connection herewith shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date (except for representations
and warranties made as of a specified date, which need be true and correct
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in all material respects only as of the specified date), and the Company shall
have received a certificate of the Parent, executed on its behalf by its
President or a Vice President of Parent, dated the Closing Date, certifying to
such effect.
(b) At any time after the date of this Agreement, there shall
not have been any event or occurrence that has had or is likely to have a Parent
Material Adverse Effect.
(c) At the time of the mailing of the Proxy Statement to the
stockholders of the Company and at the Effective Time, Schroder & Co. Inc. shall
not have withdrawn the Fairness Opinion.
Section 8.3 Conditions to Obligation of Parent and Merger
Sub to Effect the Merger. The obligations of Parent and Merger Sub to effect the
Merger shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) The Company shall have performed in all material respects
its covenants and agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and warranties
of the Company contained in this Agreement and in any document delivered in
connection herewith shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date (except for representations
and warranties made as of a specified date, which need be true and correct in
all material respects only as of the specified date), and Parent shall have
received a certificate of the Company, executed on its behalf by its President
or a Vice President of the Company, dated the Closing Date, certifying to such
effect.
(b) At any time after the date of this Agreement, there shall
not have been any event or occurrence that has had or is likely to have a
Company Material Adverse Effect.
ARTICLE 9
TERMINATION
Section 9.1 Termination by Mutual Consent. This Agreement
may be terminated at any time prior to the Effective Time by the mutual written
consent of the Company and Parent.
Section 9.2 Termination by Parent or the Company. This
Agreement may be terminated by Parent or the Company if:
(a) a meeting (including adjournments and postponements) of
the Company's stockholders for the purpose of obtaining the approvals required
by Section 8.1(a) shall have been held and such stockholder approvals shall not
have been obtained; or
(b) a court of competent jurisdiction (U.S. or foreign) or a
U.S. or foreign governmental, regulatory or administrative agency or commission
shall have issued an order, decree or ruling or taken any other action
permanently restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and non-
appealable; provided, however, that the party seeking to terminate this
Agreement pursuant to this clause (b) shall have used its reasonable best
efforts to remove such injunction, order or decree.
Section 9.3 Termination by the Company. This Agreement may
be terminated prior to the Effective Time, by action of the Board of Directors
of the Company, if (i) there has been a breach by Parent or Merger Sub of any
representation, warranty, covenant or agreement set forth in this Agreement or
if any representation or warranty of Parent or Merger Sub shall have become
untrue, in either case such that the conditions set forth in Section 8.2(a)
would not be satisfied and (ii) such breach is not curable, or, if curable, is
not cured within 30 days after written
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notice of such breach is given to Parent by the Company; provided, however, that
the right to terminate this Agreement pursuant to this Section 9.3 shall not be
available to the Company if it, at such time, is in material breach of any
representation, warranty, covenant or agreement set forth in this Agreement such
that the condition set forth in Section 8.3(a) shall not be satisfied.
Section 9.4 Termination by Parent. This Agreement may be
terminated at any time prior to the Effective Time, by action of the Board of
Directors of Parent, if:
(a) (i) there has been a breach by the Company of any
representation, warranty covenant or agreement set forth in this Agreement or if
any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 8.3(a) would not be
satisfied and (ii) such breach is not curable, or, if curable, is not cured
within 30 days after written notice of such breach is given by Parent to the
Company; provided, however, that the right to terminate this Agreement pursuant
to this Section 9.4(a) shall not be available to Parent if it, at such time, is
in material breach of any representation, warranty, covenant or agreement set
forth in this Agreement such that the conditions set forth in Section 8.2(a)
shall not be satisfied; or
(b) the Board of Directors of the Company or the Special
Committee shall have withdrawn or materially modified, in a manner adverse to
Parent, its approval or recommendation of the Merger, or resolved to do so.
Section 9.5 Effect of Termination. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article 9, all obligations of the parties hereto shall terminate, except the
obligations of the parties pursuant to this Section 9.5 and Section 7.4 and
except for the provisions of Sections 10.3, 10.4, 10.6, 10.8, 10.9, 10.11 and
10.12, provided that nothing herein shall relieve any party from any liability
for any willful and material breach by such party of any of its covenants or
agreements set forth in this Agreement and all rights and remedies of such
nonbreaching party under this Agreement in the case of such a willful and
material breach, at law or in equity, shall be preserved.
Section 9.6 Extension; Waiver. At any time prior to the
Effective Time, each party may, to the extent legally allowed, (a) extend the
time for the performance of any of the obligations or other acts of the other
parties hereto, (b) waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant hereto
and (c) waive compliance with any of the agreements or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE 10
GENERAL PROVISIONS
Section 10.1 Nonsurvival of Representations, Warranties and
Agreements. All representations, warranties and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement shall not survive the
Merger; provided, however, that the agreements contained in Article 4, in
Sections 7.4 and 7.7 and this Article 10 shall survive the Merger.
Section 10.2 Notices. Any notice required to be given
hereunder shall be sufficient if in writing, and sent by facsimile transmission
or by courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
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(a) if to Parent or Merger Sub:
John Wood Group PLC
John Wood House
East Tullos
Greenwell Road
Aberdeen, Scotland
AB12 3AX
Attention: General Counsel
Facsimile: 011-44-1-224-851-110
with a copy to:
J. David Kirkland, Jr., Esq.
Baker Botts L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
Facsimile: (713) 229-1522
(b) if to the Company:
ERC Industries, Inc.
1441 Park Ten Boulevard
Houston, Texas 77084
Attention: President
Facsimile: (281) 398-8086
with a copy to:
Bryce D. Linsenmayer
Haynes and Boone, LLP
1000 Louisiana, Suite 4300
Houston, Texas 77002-5012
Facsimile: (713) 547-2600
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
Section 10.3 Assignment; Binding Effect; Benefit. Neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject to
the preceding sentence, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, except for
the provisions of Article 4 and Section 7.7, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, successors, executors, administrators and
assigns any rights, remedies, obligations or liabilities under or by reason of
this Agreement. The provisions of Article 4 and Section 7.7 may be enforced by
the beneficiaries thereof.
Section 10.4 Entire Agreement. This Agreement and any
documents delivered by the parties in connection herewith constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto. No addition to or
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modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
Section 10.5 Amendments. This Agreement may be amended by
the parties hereto (in the case of the Company, only if authorized by the
Special Committee), at any time before or after approval of matters presented in
connection with the Merger by the stockholders of the Company, but after any
such stockholder approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
Section 10.6 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware without
regard to its rules of conflict of laws. Each of the Company and Parent hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of Delaware and of the United States of America
located in the State of Delaware (the "Delaware Courts") for any litigation
arising out of or relating to this Agreement and the transactions contemplated
hereby (and agrees not to commence any litigation relating thereto except in
such courts), waives any objection to the laying of venue of any such litigation
in the Delaware Courts and agrees not to plead or claim in any Delaware Court
that such litigation brought therein has been brought in an inconvenient forum.
Section 10.7 Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
Section 10.8 Headings. Headings of the Articles and Sections
of this Agreement are for the convenience of the parties only, and shall be
given no substantive or interpretative effect whatsoever.
Section 10.9 Interpretation.
In this Agreement:
(a) Unless the context otherwise requires, words describing
the singular number shall include the plural and vice versa, and words denoting
any gender shall include all genders and words denoting natural persons shall
include corporations and partnerships and vice versa.
(b) The phrase "to the knowledge of" and similar phrases
relating to knowledge of the Company or Parent, as the case may be, shall mean
the actual knowledge of its executive officers.
(c) "Company Material Adverse Effect" shall mean a material
adverse effect or change on (a)athe business or financial condition of the
Company and its Subsidiaries on a consolidated basis, except for such changes or
effects in general economic, capital market, regulatory or political conditions
or changes that affect generally the energy services industry, or (b)athe
ability of the Company to consummate the transactions contemplated by this
Agreement or fulfill the conditions to Closing.
(d) "Parent Material Adverse Effect" shall mean a material
adverse effect or change on the ability of Parent to consummate the transactions
contemplated by this Agreement or fulfill the conditions to Closing.
Section 10.10 Waivers. Except as provided in this Agreement,
no action taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants or agreements contained in this Agreement. The waiver by
any party hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
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Section 10.11 Severability. Any term or provision of this
Agreement which is invalid or unenforceable in any jurisdiction shall, as to
that jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broadly as is enforceable.
Section 10.12 Obligation of Parent. Whenever this Agreement
requires Merger Sub (or its successors) to take any action, such requirement
shall be deemed to include an undertaking on the part of Parent to cause Merger
Sub to take such action and a guarantee of the performance thereof.
Section 10.13 Subsidiaries. As used in this Agreement, the
word "Subsidiary" when used with respect to any party means any corporation or
other organization, whether incorporated or unincorporated, of which such party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization, or any organization of which such party
is a general partner; provided, however, that for purposes of this Agreement,
prior to the Effective Time, neither the Company nor any of its Subsidiaries
shall be deemed a Subsidiary of Parent.
Section 10.14 Action by the Company. Any action permitted to
be taken by the Company pursuant to Article VIII or IX shall be taken only if
authorized by the Special Committee prior thereto.
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IN WITNESS WHEREOF, the parties have executed this Agreement
and caused the same to be duly delivered on their behalf on the day and year
first written above.
JOHN WOOD GROUP PLC
By: /s/ Wendell Brooks
--------------------------
Name: Wendell Brooks
Title: Director
ERC ACQUISITION, INC.
By: /s/ Wendell Brooks
--------------------------
Name: Wendell Brooks
Title: President
ERC INDUSTRIES, INC.
By: /s/ Alan Senn
--------------------------
Name: Alan Senn
Title: President
A-16
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APPENDIX B
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February 17, 2000 [SCHRODERS LETTERHEAD APPEARS HERE]
Special Committee of the Board of Directors
ERC Industries, Inc.
1441 Park Ten Boulevard
Houston, TX 77084
Gentlemen:
We understand that John Wood Group, PLC (the "Wood Group") intends to enter
into an Agreement and Plan of Merger (the "Merger Agreement") with ERC
Industries, Inc. ("ERCI") pursuant to which a wholly owned subsidiary of the
Wood Group will merge with and into ERCI with each outstanding share of common
stock, par value $0.01 per share ("Common Stock"), of ERCI (other than shares
of Common Stock held in treasury or owned by the Wood Group or any of its
wholly owned subsidiaries and dissenting shares ("Excluded Shares")) to be
converted into the right to receive $1.60 per share in cash (the "Merger
Consideration").
You have requested our opinion as to the fairness, from a financial point of
view, of the Merger Consideration to be paid to the holders of Common Stock
(other than Excluded Shares) in the Merger (the "Opinion"). It is understood
that the Opinion shall be used by you solely in connection with your
consideration of the fairness of the Merger Consideration and for no other
purpose, and that you will not furnish the Opinion or any other material
prepared by Schroder & Co. Inc. ("Schroders") to any other person or persons or
use, or refer to, the Opinion for any other purpose, without Schroders' prior
written approval. Schroders understands and agrees that its Opinion may be
referred to and reproduced in full in any proxy statement mailed to
shareholders of ERCI, provided that the disclosure of the Opinion shall be
subject to Schroders' review and consent, which consent shall not be
unreasonably withheld.
Schroders, as part of its investment banking business, is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuation for estate, corporate and
other purposes.
Our Opinion does not address ERCI's underlying business decision to effect the
Merger. In addition, our Opinion does not address whether the Wood Group or any
other party would be willing to pay consideration in excess of the Merger
Consideration for the Common Stock. At your direction, we have not been asked
to, nor do we, offer any opinion as to the material terms of the Merger
Agreement or the form of the Merger. In rendering this Opinion, we have
assumed, with your consent, that the final executed form of the Merger
Agreement does not differ in any material respect from the draft we have
examined, and that the Merger will be consummated on the terms set forth in the
Merger Agreement. We have further assumed that the Merger will comply with
applicable United States, foreign, federal and state laws.
In connection with our Opinion set forth herein, we have, among other things:
(i) reviewed ERCI's Annual Reports on Form 10-K filed with the Securities
Exchange Commission for the fiscal year ended December 31, 1998, including
the financial statements for the twelve month period ended December 31,
1997; and its Quarterly Report on Form 10-Q for the nine month period and
quarter ended September 30, 1999, including the financial statements for
the nine month period and quarter ended September 30, 1998;
--------------------------------------------------------------------------------
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(ii) reviewed ERCI management's estimates of financial performance for the
year ended December 31, 1999, including any non-recurring items;
(iii) reviewed certain projected financial information prepared by management
of ERCI for the years 2000E to 2004E;
(iv) reviewed ERCI management's estimates of the application and expiration of
the net operating loss in the years 1999E to 2004E;
(v) reviewed certain publicly available information concerning ERCI;
(vi) conducted discussions with the Chairman of the Special Committee and
senior management of ERCI concerning the Merger, ERCI's historical
financial results and projected financial information as presented and
described in clauses (i), (ii), (iii) and (iv) above;
(vii) performed various financial analyses, as we deemed appropriate, of ERCI
using generally accepted analytical methodologies, including: (a) a
discounted cash flow analysis utilizing the projections referred to in
clauses (iii) and (iv); (b) the application to the financial results of
ERCI of the public trading multiples of companies which we deemed
comparable to ERCI; (c) the application to the financial results of ERCI
of the multiples reflected in relevant mergers and acquisitions for
businesses which we deemed comparable to ERCI; and (d) the application to
the share price of ERCI of the average equity premiums paid in remaining
interest acquisitions where the acquirer held an existing control
position;
(viii) reviewed the historical trading prices and volumes of the Common Stock
on the NASDAQ National Market System from January 1, 1996 to February
16, 2000;
(ix) reviewed the draft Merger Agreement as distributed on February 4, 2000,
including the form of agreements attached thereto as exhibits; and
(x) performed such other financial studies, analyses, inquiries and
investigations as we deemed appropriate.
In our review and analysis and in formulating our Opinion, we have assumed and
relied upon the accuracy and completeness of all information supplied or
otherwise made available to us by ERCI (including the estimates and projected
financial information described in clauses (ii), (iii) and (iv) above) or
obtained by us from other sources, and upon the assurance of ERCI's management
that they are not aware of any information or facts that would make the
information provided to us incomplete or misleading. We have not attempted to
independently verify any of such information. We have not undertaken an
independent appraisal of the assets or liabilities (contingent or otherwise)
of ERCI, nor have we been furnished with any such appraisals. With respect to
the estimates and projected financial information (as described in clauses
(ii) (iii) and (iv) above), we have been advised by ERCI, and we have assumed,
without independent verification or investigation, that they have been
reasonably prepared and reflect the best estimates of management of ERCI. In
connection with our engagement, we were not requested to, and did not, solicit
third party indications of interest in the possible acquisition of all or a
part of ERCI.
Our Opinion is necessarily based upon financial, economic, market and other
conditions as they exist and can be evaluated by us on the date hereof. We
disclaim any undertaking or obligation to advise any person of any change in
any fact or matter affecting our Opinion which may come or be brought to our
attention after the date of the Opinion unless specifically requested to do
so.
Our Opinion is provided to the Special Committee of the Board of Directors of
ERCI only and does not constitute a recommendation as to any action any
shareholder of ERCI should take in connection with the Merger or any aspect
thereof or alternative thereto. Without limitation to the foregoing, this
letter does not constitute a recommendation to any shareholder with respect to
whether to vote in favor of the Merger, and should not be relied upon by any
shareholder as such. In rendering our Opinion, we have not been engaged as an
agent or fiduciary of ERCI's shareholders or of any other third party. Our
Opinion relates solely to the fairness, from a financial point of view, of the
Merger Consideration to be paid to the holders of Common Stock (other than
Excluded Shares) pursuant to the Merger.
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We have been engaged to render this Opinion to the Special Committee of the
Board of Directors of ERCI in connection with the Merger and will receive a
fee for such services. In addition, ERCI has agreed to indemnify us for
certain liabilities that may arise out of the rendering of this Opinion. We
bring to your attention that Schroders has provided investment banking
services for both ERCI and the Wood Group in the past, and is presently
engaged to provide investment banking services to an affiliate of the Wood
Group. In the ordinary course of our business, we may trade in the securities
of ERCI and/or any other affiliate of the Wood Group for our own account and
for the accounts of our customers and, accordingly, may at any time hold a
long or short position in such securities.
Based upon and subject to all the foregoing, we are of the opinion, that, as
of the date hereof, the Merger Consideration to be paid to the holders of
Common Stock (other than Excluded Shares) pursuant to the Merger Agreement is
fair, from a financial point of view, to such holders.
Very truly yours,
SCHRODER & CO. INC.
By:/s/ SCHRODER & CO. INC.
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[SCHRODERS LETTERHEAD APPEARS HERE]
March 28, 2000
Special Committee of the Board of Directors
ERC Industries, Inc.
1441 Park Ten Boulevard
Houston, TX 77084
Members of the Special Committee:
As of February 17, 2000, Schroder & Co. Inc. ("Schroders") delivered to you
a fairness opinion (the "Fairness Opinion"), which is incorporated herein by
this reference, as investment bankers as to the fairness, from a financial
point of view, of the Merger Consideration to be received by the holders of ERC
Industries, Inc. Common Stock in the Transaction with John Wood Group, PLC.
You have requested that Schroders confirm that the opinion set forth in the
Fairness Opinion remains true and correct as of the date hereof. All
capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed to them in the Fairness Opinion.
Schroders hereby confirms, subject to and based on all of the assumptions,
limitations and qualifications set forth in the Fairness Opinion and such other
updated and/or additional information that Schroders believed was necessary or
appropriate to render this letter, that Schroders is of the opinion, as
investment bankers, that, as of the date hereof, the Merger Consideration to be
received by the holders of ERC Industries, Inc. Common Stock in the Transaction
is fair to such holders from a financial point of view.
This letter may be reproduced in full in the Proxy Statement of ERC
Industries, Inc. pertaining to the Transaction.
Very truly yours,
SCHRODER & CO. INC.
By: /s/ SCHRODER & CO. INC.
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APPENDIX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to (S)228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S)251 (other than a merger effected pursuant to (S)251(g)
of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under (S)253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days
after the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or
of the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated
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therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after such stockholder's written request for such a statement is received
by the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted such stockholder's certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings until
it is finally determined that such stockholder is not entitled to appraisal
rights under this section.
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-4
<PAGE>
REVOCABLE PROXY
ERC INDUSTRIES, INC.
Special Meeting of Stockholders
July 18, 2000
The undersigned acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement dated June 19, 2000. Wendell R. Brooks and
Brian Small, each with full power of substitution, and acting alone, are hereby
constituted proxies of the undersigned and authorized to attend the Special
Meeting of Stockholders of ERC Industries, Inc. (the "Company") to be held at
the headquarters of Wood Group Pressure Control, 1441 Park Ten Boulevard,
Houston, Texas on July 18, 2000 at 10:00 a.m., Houston Time, or any adjournment
of such meeting, and to represent and vote all shares of common stock of the
Company that the undersigned is entitled to vote.
1. Approval and adoption of
the Agreement and Plan FOR AGAINST ABSTAIN
of Merger, dated as of [_] [_] [_]
March 29, 2000, by and
among the Company, John
Wood Group PLC and ERC
Acquisition, Inc., and
the transactions
contemplated thereby.
This proxy is revocable. The undersigned hereby revokes any proxy or proxies
to vote or act with respect to such shares heretofore given by the undersigned.
(Continued, and to be signed, on the other side)
This proxy is solicited on behalf of the Board of Directors. This proxy will
be voted in accordance with the instructions specified above and, in the
absence of such specifications, will be voted "FOR" Item 1. If any other
business properly comes before the meeting or any adjournment thereof, this
proxy will be voted in the discretion of the proxies named herein.
Please mark, sign, date and return this proxy promptly using the enclosed
envelope.
Dated:
-----------------------------------
----------------------------------------
(Signature)
----------------------------------------
(Signature)
----------------------------------------
(Print Name)
Please sign exactly as your stock is
registered. Joint owners should each
sign personally. Executors,
administrators, trustees, etc. should
so indicate when signing.
