-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MX3eDkR9fxtSswPI7M6/BRgHP1UBNuE++7HDPzKnd34Nz1PokLvykITIvaf4M7mW D78TYg98CwKidtMa4X95qQ== 0000890566-99-000183.txt : 19990215 0000890566-99-000183.hdr.sgml : 19990215 ACCESSION NUMBER: 0000890566-99-000183 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19990212 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRC EVANS INTERNATIONAL INC CENTRAL INDEX KEY: 0001074144 STANDARD INDUSTRIAL CLASSIFICATION: OIL & GAS FILED MACHINERY & EQUIPMENT [3533] IRS NUMBER: 760639257 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-68455 FILM NUMBER: 99536260 BUSINESS ADDRESS: STREET 1: 11601 N HOUSTON ROSSLYN RD CITY: HOUSTON STATE: TX ZIP: 77086 BUSINESS PHONE: 2819998920 MAIL ADDRESS: STREET 1: 11601 N HOUSTON ROSSLYN RD CITY: HOUSTON STATE: TX ZIP: 77086 S-1/A 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999 Registration No. 333-68455 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ CRC HOLDINGS CORP. [TO BE RENAMED CRC-EVANS INTERNATIONAL, INC.] (Exact name of registrant as specified in its charter)
DELAWARE 1623 76-0539257 (State or other jurisdiction of (Primary standard industrial (I.R.S. Employer incorporation or organization) classification code number) Identification No.)
------------------------ 11601 N. HOUSTON ROSSLYN ROAD HOUSTON, TEXAS 77086 (281) 999-8920 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------ M. TIMOTHY CAREY CHIEF EXECUTIVE OFFICER 11601 N. HOUSTON ROSSLYN ROAD HOUSTON, TEXAS 77086 (281) 999-8920 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------ COPIES TO: DAVID S. PETERMAN, P.C. WILLIAM N. FINNEGAN, IV AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P. ANDREWS & KURTH L.L.P. 711 LOUISIANA STREET, SUITE 1900 600 TRAVIS STREET, SUITE 4200 HOUSTON, TEXAS 77002 HOUSTON, TEXAS 77002 (713) 220-5800 (713) 220-4200 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Section 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, check the following box. [ ] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999 THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. 3,000,000 SHARES [LOGO] CRC-EVANS INTERNATIONAL, INC. COMMON STOCK $ PER SHARE - -------------------------------------------------------------------------------- This is an initial public offering of common stock of CRC-Evans International, Inc. CRC-Evans is offering 3,000,000 shares of common stock with this prospectus. There is currently no public market for the shares. CRC-Evans expects that the price to the public in the offering will be between $12.00 and $14.00 per share. The market price of the shares after the offering may be higher or lower than the offering price. CRC-Evans has applied for its common stock to be listed on the under the symbol " ." INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 10.
PER SHARE TOTAL --------- ------------ Price to the public.................. $ $ Underwriting discount................ Proceeds to CRC-Evans................
CRC-Evans has granted an over-allotment option to the underwriters. Under this option, the underwriters may elect to purchase a maximum of 450,000 additional shares from CRC-Evans within 30 days following the date of this prospectus to cover over-allotments. The underwriters are offering the shares subject to various conditions and may reject all or part of any order. The shares should be ready for delivery on or about , 1999 against payment in immediately available funds. - -------------------------------------------------------------------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. CIBC OPPENHEIMER BT ALEX. BROWN SIMMONS & COMPANY INTERNATIONAL The date of this prospectus is , 1999. [THE ARTWORK DEPICTS THE COMPANY'S PRODUCTS AND SERVICES IN USE AND PHOTOGRAPHS OF VARIOUS TYPES OF PRODUCTS THE COMPANY MANUFACTURES.] 2 TABLE OF CONTENTS
PAGE ---- Prospectus Summary...................... 5 Risk Factors............................ 10 Forward-Looking Statements.............. 15 Use of Proceeds......................... 16 Dividend Policy......................... 16 Capitalization.......................... 17 Dilution................................ 18 Unaudited Pro Forma Financial Data...... 19 Selected Consolidated Financial Data.... 22 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 23 Business................................ 30 Management.............................. 43 Principal Stockholders.................. 48 Certain Related Transactions............ 49 Description of Capital Stock............ 50 Shares Eligible For Future Sale......... 52 Underwriting............................ 53 Legal Matters........................... 55 Experts................................. 55 Index to Financial Statements........... F-1
------------------------------------ As used in this prospectus, the term "CRC-Evans" means CRC-Evans International, Inc. and its subsidiaries, including the predecessor business described below (unless the context indicates a different meaning), and the term "common stock" means CRC-Evans' common stock, $0.01 par value. As used in this prospectus, references to CRC-Evans' "predecessors" or the "predecessor business" refer to the business and assets of the consolidated subsidiaries of CRC-Evans, prior to their acquisition by CRC-Evans on June 12, 1997, and their predecessors. In the acquisition, Messrs. D. Dale Wood, M. Timothy Carey and C. Paul Evans, CRC-Evans' Chairman, Chief Executive Officer and President, respectively, arranged for the purchase of CRC-Evans' business and assets from Weatherford Enterra, Inc. "Pro forma" information reflects the effects of the June 1997 acquisition and related financing. CRC-Evans' principal executive offices are located at 11601 N. Houston Rosslyn Road, Houston, Texas 77086. Its telephone number is (281) 999-8920. Unless otherwise stated herein, all information contained in this prospectus assumes no exercise of the over-allotment option granted to the underwriters. Simultaneous with the effectiveness of the registration statement, CRC-Evans will effect a 40 for 1 stock split and an amendment to its certificate of incorporation as disclosed herein. All common stock numbers and other information in this prospectus reflect the stock split and the amendment to CRC-Evans' certificate of incorporation. 3 (This page has been intentionally left blank.) 4 PROSPECTUS SUMMARY INTRODUCTION TO CRC-EVANS CRC-Evans is the world's leading provider of specialized equipment and services used in the construction and rehabilitation of gas and oil transmission pipelines. CRC-Evans and its predecessors have been leaders in the specialized pipeline construction equipment industry since 1933. CRC-Evans provides equipment and services, primarily to pipeline contractors, which are essential to the successful completion of a pipeline construction project. CRC-Evans' pipeline products include automatic pipeline welding systems, pipe bending equipment, line-up clamps, pipe coating plants, coating and cleaning equipment, pipeline rehabilitation equipment and lay barge pipe handling equipment. CRC-Evans also provides specialized services including joint coating, cement weighting, induction and resistance heating, and automatic welding systems training and technical assistance. CRC-Evans' management team together with two institutional investors, Natural Gas Partners IV, L.P. and Equus II Incorporated, acquired CRC-Evans' assets and business from Weatherford Enterra in June 1997. CRC-Evans believes the depth and experience of its management and employees are keys to its excellent reputation with the world's leading pipeline contractors. CRC-Evans has experienced significant growth in revenues, EBITDA (net income before interest, taxes, depreciation, and amortization), and net income since the June 1997 buyout. For the six months ended September 30, 1998, CRC-Evans generated revenues of $56.8 million, EBITDA of $17.7 million and net income of $8.8 million. These amounts represent increases over the pro forma results for the six months ended September 30, 1997 of 65.3% in revenues, 241.5% in EBITDA and 469.2% in net income. Management believes that this growth is attributable to: o a recent increase in demand for CRC-Evans' specialized products and services in response to increased worldwide pipeline construction and rehabilitation activity; o CRC-Evans' strategic acquisitions; and o the successful implementation of CRC-Evans' business strategy. INDUSTRY OVERVIEW The pipeline construction equipment and services industry provides products and services to support pipeline construction and rehabilitation performed by pipeline construction contractors. CRC-Evans provides specialized equipment and services used in the construction of gas and oil pipelines ranging from 6 to 60 inches in diameter and steel water pipelines ranging up to 120 inches in diameter. These products and services are generally provided by specialized pipeline equipment manufacturers and service providers because: o most pieces of pipeline construction equipment are specific to a small range of diameter sizes, while the contractor works on a wide range of pipeline diameters; o contracts often have short lead times, requiring quick delivery of equipment and services; and o proprietary equipment, specialized engineering and technical operating capabilities are critical to meeting the requirements of pipeline welding, bending and coating. Worldwide pipeline construction activity, based upon miles of pipeline completed, has grown substantially since 1995, increasing approximately 58% from 14,201 miles in 1995 to 22,397 in 1998. Industry sources estimate that approximately 49,000 miles of pipeline are presently planned to be constructed in 1999 and thereafter. In addition, CRC-Evans expects a growing share of activity in the pipeline and equipment services industry will be derived from rehabilitating large-diameter pipelines. 5 CRC-EVANS' STRENGTHS CRC-Evans believes it is well positioned to continue as the leading provider of specialized equipment and services used in the construction and rehabilitation of gas and oil transmission pipelines. It believes it possesses a unique combination of specific strengths which provides a solid foundation for its growth strategy. CRC-Evans' strengths include: o INDUSTRY LEADER. CRC-Evans is the world's leading provider of specialized equipment and services used in constructing and rehabilitating pipelines. o SIGNIFICANT BARRIERS TO ENTRY. CRC-Evans believes its large investment in specialized rental equipment, highly experienced management, proprietary technology, technical expertise and personnel, and worldwide sales force and sales representative network all serve as barriers to entry. o WORLDWIDE PRESENCE. CRC-Evans manages its geographically diverse customer base through its international direct sales force and commissioned sales representatives and distributors. o CUSTOMER RELATIONSHIPS. CRC-Evans has developed long-term relationships with the majority of the world's leading pipeline construction contractors and pipe coating contractors. o EXPERIENCED MANAGEMENT. CRC-Evans' current senior management team has been involved in managing CRC-Evans or its predecessors' major lines of business since 1971. BUSINESS STRATEGY CRC-Evans seeks to maximize shareholder value through its growth strategy which includes: o EXPANDING INTERNATIONAL OPERATIONS. CRC-Evans seeks to strengthen and expand its international operational capability primarily by acquiring established operations in several key international regions. These new operations centers are intended to provide distribution hubs from which it can more readily provide existing and new products and services to customers' projects. o ADDING RELATED PRODUCTS AND SERVICES. CRC-Evans intends to acquire or develop related products and services which it intends to provide through its broad distribution system comprised of its sales force, international sales representatives and operations centers in key geographic regions. o MAKING STRATEGIC ACQUISITIONS. CRC-Evans believes acquisition candidates are available that should allow it to increase market share in its existing lines of business, provide product line extensions, and expand the geographic scope of its operations. o EXTENDING AND LEVERAGING TECHNOLOGICAL LEADERSHIP. CRC-Evans intends to further extend its technological leadership and capabilities through in-house research and development, acquisition and licensing of technology as well as participation in joint development efforts. 6 THE OFFERING
Common stock offered by CRC-Evans.... 3,000,000 shares Common stock to be outstanding after the offering(1)........................ 9,294,520 shares Use of proceeds...................... CRC-Evans intends to use the net proceeds from the offering, estimated to be approximately $ million after underwriting discount and other expenses of the offering, to repay indebtedness and to provide for working capital and general corporate purposes, including strategic acquisitions. See "Use of Proceeds." Proposed trading symbol..............
- --------------------------- (1) Excludes 670,160 shares of common stock which could be issued upon the exercise of outstanding stock options, 24,000 of which are currently exercisable. 7 SUMMARY CONSOLIDATED FINANCIAL INFORMATION The following table sets forth, for the dates and periods indicated, summary historical and pro forma financial data of CRC-Evans. The summary historical financial data set forth below have been derived from CRC-Evans' historical financial statements. The summary pro forma financial data for the year ended March 31, 1998 and the six months ended September 30, 1997 give effect to the June 1997 buyout, the associated equity financing provided by Natural Gas Partners and Equus and borrowings by CRC-Evans under its credit facility (the "Purchase Transactions"), as if they had occurred on April 1, 1997. The As Adjusted Balance Sheet data as of September 30, 1998, give effect to the sale of shares of common stock in this offering and CRC-Evans' use of the net proceeds. The pro forma financial data do not necessarily represent what CRC-Evans' results of operations would have been if the transactions described above had occurred on such date and are not intended to project CRC-Evans' results of operations for any period. Such data should be read in conjunction with the information contained in the Unaudited Pro Forma Financial Data and CRC-Evans' financial statements and notes thereto found elsewhere in this prospectus. See "Use of Proceeds" and "Capitalization."
HISTORICAL PREDECESSOR BUSINESS PRO FORMA HISTORICAL -------------------- PRO FORMA CRC-EVANS(1) CRC-EVANS(1) CRC-EVANS(1) ------------- ------------- YEAR ENDED ------------ SIX MONTHS SIX MONTHS MARCH 31, YEAR ENDED ENDED ENDED -------------------- MARCH 31, SEPTEMBER 30, SEPTEMBER 30, 1996 1997 1998 1997 1998 --------- --------- ------------ ------------- ------------- (dollars in thousands, except per share data) STATEMENT OF EARNINGS DATA: Revenues: Sales revenue......................... $ 25,325 $ 26,082 $ 29,537 $ 15,589 $ 20,428 Rental and service revenue............ 39,329 43,293 34,919 18,766 36,360 --------- --------- ------------ ------------- ------------- Total revenues.......................... 64,654 69,375 64,456 34,355 56,788 Total cost of revenues.................. 45,851 46,676 43,762 23,413 31,403 --------- --------- ------------ ------------- ------------- Gross profit............................ 18,803 22,699 20,694 10,942 25,385 Operating expenses: Selling, general and administrative... 13,056 13,018 13,130 6,910 9,175 Research and development.............. 856 754 1,104 472 690 Other expenses (income)............... 2,750 367 (74) (195) (324) --------- --------- ------------ ------------- ------------- Operating income........................ 2,141 8,560 6,534 3,755 15,844 Interest expense (income)............... (246) (689) 2,695 1,164 1,709 --------- --------- ------------ ------------- ------------- Income before income taxes.............. 2,387 9,249 3,839 2,591 14,135 Income tax expense...................... 889 3,359 1,535 1,041 5,313 --------- --------- ------------ ------------- ------------- Net income.............................. $ 1,498 $ 5,890 $ 2,304 $ 1,550 $ 8,822 ========= ========= ============ ============= ============= NET INCOME PER SHARE: Basic................................... $ 0.58 $ 0.39 $ 1.56 Diluted................................. 0.56 0.38 1.43 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic................................... 4,000,000 4,000,000 5,670,479 Diluted................................. 4,120,000 4,120,000 6,171,301 OTHER FINANCIAL DATA: EBITDA.................................. $ 6,978 $ 10,847 $ 9,456 $ 5,193 $ 17,732 Depreciation and amortization........... 4,837 2,287 2,922 1,438 1,888 Net cash provided by (used in) operating activities.................. 9,005 3,061 4,200 Net cash provided by (used in) investing activities.................. (464) (2,367) (10,660) Net cash provided by (used in) financing activities.................. (9,250) 815 9,896 Capital expenditures (excluding acquisitions)......................... 464 2,367 1,759
8 SEPTEMBER 30, 1998 ------------------------------ HISTORICAL AS ADJUSTED ---------- -------------- (dollars in thousands) BALANCE SHEET DATA: Working capital......................... $ 34,330 $ 34,330 Total assets............................ 84,469 84,469 Total long-term debt, excluding current installments.......................... 36,441 658 Total liabilities....................... 61,168 25,385 Total stockholders' equity.............. 23,301 59,084 - --------------------------- (1) Does not give effect to the offering and the application of the net proceeds therefrom. Giving effect to the use of such proceeds as described in "Use of Proceeds," interest expense and net income per share would be $0.0 and $0.58 for the pro forma year ended March 31, 1998, $0.0 and $0.33 for the pro forma six months ended September 30, 1997 and $56,000 and $1.14 for the historical six months ended September 30, 1998, respectively. 9 RISK FACTORS INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN THE SHARES. THE PIPELINE CONSTRUCTION INDUSTRY IS CYCLICAL CRC-Evans' revenues and profits would likely be hurt by reduced activity in the pipeline construction industry. This is because demand for CRC-Evans' equipment and services rises and falls based primarily on the level of new pipeline construction by major oil and gas transmission companies and, to a lesser extent, on the level of rehabilitation work on existing pipelines. Historically, the pipeline construction industry has been cyclical, with a number of factors influencing spending decisions in the industry, including: o costs of producing and transporting oil and gas; o conversion to natural gas for residential and power generation usage; o discoveries of new oil and gas reserves; o local and international political and economic conditions; o technological advances; o the ability of oil and gas transmission companies to generate capital; and o current and projected oil and gas prices. CRC-Evans cannot control these factors. If CRC-Evans' construction or rehabilitation projects were delayed or cancelled, the revenues and cash flow of CRC-Evans would be adversely impacted. Although CRC-Evans seeks to mitigate revenue and cash flow fluctuations through the execution of its business strategy, CRC-Evans' revenues and cash flow will likely continue to be subject to substantial cyclical swings. In particular, CRC-Evans is aware of projects which would provide demand for its products and services being cancelled or delayed in the countries making up the former Soviet Union and Southeast Asia. The former Soviet Union has historically been a significant region for CRC-Evans. See "-- CRC-Evans' operations are focused on a few projects," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." CRC-EVANS HAS A LIMITED NUMBER OF MAJOR CUSTOMERS CRC-Evans' success depends on keeping its current customers and building relationships with new customers. This is particularly true because CRC-Evans has a limited number of customers and potential customers. If CRC-Evans loses one or more of its major customers, its revenues and profits would likely decrease. Ten customers were responsible for 45% of CRC-Evans' total revenues in the fiscal year ended March 31, 1998 (56% in 1997). One customer accounted for approximately 11% of CRC-Evans' total revenues in 1998. In addition, as a result of the small number of customers, CRC-Evans' accounts receivable are exposed to concentration risks, which risks are increased because its accounts receivable are generally not collateralized. See "Business -- Customers and contracts." CRC-EVANS' OPERATIONS ARE FOCUSED ON A FEW PROJECTS CRC-Evans' operations are usually focused on a few projects, because at any time there are a limited number of major pipeline construction projects worldwide. Accordingly, the status of these projects is critical to CRC-Evans' business. In addition, because CRC-Evans' operations are focused on only a few projects, the company is subject to variations in quarter to quarter financial results. See "-- The pipeline construction industry is cyclical." CRC-EVANS IS EXPOSED TO RISKS IN DEVELOPING AND OTHER COUNTRIES Many of the developing countries in which CRC-Evans operates pose risks that are not found in developed countries. These risks include foreign currency restrictions, substantial exchange rate fluctuations, government seizure of assets, riots, government instability and underdeveloped legal systems. In addition, state-owned gas, oil and water pipeline companies are often CRC-Evans' major customers in these countries. These companies may choose not to use CRC-Evans' equipment or services for political reasons, 10 or may be unable to do so if the government or local economy experiences problems. The legal risks in these countries are great, and can include unfair application of laws and regulations to foreign businesses, and unanticipated taxes of various kinds. Recently, certain developing countries, particularly those in Asia and the Former Soviet Union, have experienced substantial economic turmoil. If this turmoil continues or spreads to other developing countries, fewer pipelines may be built in these countries, which could result in lower demand for CRC-Evans' products and services. This would likely reduce CRC-Evans' revenues and income. The following table shows investors, on the basis of revenues from the point of sale, some of the countries where CRC-Evans' operations have recently been concentrated:
HISTORICAL HISTORICAL HISTORICAL PREDECESSOR PREDECESSOR PRO FORMA CRC-EVANS BUSINESS BUSINESS CRC-EVANS ------------- ----------- ----------- ---------- SIX MONTHS YEAR ENDED YEAR ENDED YEAR ENDED ENDED MARCH 31, MARCH 31, MARCH 31, SEPTEMBER 30, COUNTRY 1996 1997 1998 1998 - ------------------------------------- ----------- ----------- ---------- ------------- United States of America............. 19.5% 18.8% 26.6% 42.5% Canada............................... 7.9 12.0 9.4 21.3 United Kingdom....................... 7.1 6.4 6.9 6.6 Brazil............................... 1.9 0.9 3.2 5.0 Russia............................... 9.6 8.1 7.9 0.4 France............................... 1.3 3.5 6.4 0.4 Algeria.............................. 20.3 13.1 2.3 1.5 All others(1)........................ 32.4 37.2 37.3 22.3 ----------- ----------- ---------- ------------- Total Revenues.................. 100.0% 100.0% 100.0% 100.0% =========== =========== ========== =============
- --------------------------- (1) This includes Saudi Arabia, Egypt, Bolivia, Norway, Greece, Malaysia, UAE and the Netherlands, none of which accounted for more than 4% of revenues in the six months ended September 30, 1998. ACCIDENTS INVOLVING CRC-EVANS' EQUIPMENT COULD EXPOSE CRC-EVANS TO LITIGATION Like most large pieces of construction equipment, operating CRC-Evans' equipment involves a certain degree of risk to the operator and those working in the vicinity. If there is a defect or malfunction in CRC-Evans' equipment, the results can include injury or loss of life and damage to property. If any of these happened, CRC-Evans could lose revenues, face higher costs or be sued. Litigation arising from such an occurrence could result in CRC-Evans being named as a defendant in lawsuits asserting large claims. CRC-Evans maintains insurance to cover its losses in these situations. However, this insurance may be insufficient to pay for all or a large part of these losses. If CRC-Evans' insurance did not pay for these losses, its income would fall. In addition, CRC-Evans may not be able to maintain its insurance if insurance rates or insurance industry policies change. See "Business -- Insurance." ACQUISITIONS CAN ADVERSELY EFFECT CRC-EVANS' PERFORMANCE CRC-Evans' growth strategy which includes acquiring other companies and product lines, exposes CRC-Evans to risks outside the ordinary course of business. After an acquisition, CRC-Evans must devote significant management resources integrating the newly acquired company or assets which could adversely effect its existing business. CRC-Evans also could have lower income and cash flow in the short term while the newly acquired company or assets are being integrated into the company. In addition, if the integration of the new company or assets does not work, CRC-Evans could be adversely affected over the longer term. Furthermore, if CRC-Evans acquires an operating business, it may incorrectly value the business, or it may be subject to liabilities that were not discovered in the investigation before the acquisition. 11 CRC-Evans cannot predict whether it will be able to find good acquisition candidates. Even if it finds a good acquisition candidate, it may be unable to complete the acquisition for any number of reasons, including the inability to obtain capital to finance the acquisition. If CRC-Evans makes an acquisition, it may issue new stock or incur debt to pay for the acquired company. If it issues stock, the issuance could result in substantial dilution to CRC-Evans' then existing stockholders. In addition, CRC-Evans may need to use a large part of its cash resources or its borrowing capacity for a single acquisition. GOVERNMENT REGULATION MAY DECREASE CRC-EVANS' REVENUES AND PROFITS The governments of the countries where CRC-Evans operates regulate its business in many ways including local currency controls, taxes imposed on CRC-Evans and its employees, trade restrictions, including embargos, and rules controlling its use of local workers and suppliers. Because the demand for CRC-Evans' products and services depends primarily on the oil and gas pipeline construction industry, regulations which affect this industry also affect CRC-Evans' business. If the countries in which CRC-Evans operates change their regulations or impose new regulations, CRC-Evans' revenues and profits could decrease. CRC-Evans cannot predict how regulations might change and, therefore, cannot predict whether regulatory changes will hurt its business. See "Business -- Government regulation -- General." CRC-EVANS MAY BE REQUIRED TO DEVOTE SUBSTANTIAL RESOURCES COMPLYING WITH ENVIRONMENTAL LAWS CRC-Evans' equipment is often used in sensitive environmental areas such as rivers, lakes and wetlands. If CRC-Evans' equipment does not perform properly in these areas, environmental damage could occur, such as from the release of a hazardous substance. In addition, the pipeline coating materials removed during pipeline rehabilitation often contain hazardous substances and, therefore, are subject to environmental regulation. Some environmental laws impose joint and several strict liability for cleanup after the release of a hazardous substance. This means that CRC-Evans might have to pay for cleanup even if it was not at fault or was complying with all environmental laws. If there is a release of a hazardous substance, CRC-Evans might also be sued for personal injury or property damage if people or property are exposed to the substance. See "Business -- Government regulation -- Environmental." CRC-Evans' operations may be subject to the Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act, the Oil Pollution Act of 1990, the Endangered Species Act and the Toxic Substances Control Act and comparable foreign and state statutes and regulations. Violation of these laws could expose CRC-Evans to substantial monetary penalties and injunctions. CRC-EVANS COMPETES WITH PIPELINE CONSTRUCTION EQUIPMENT AND SERVICE COMPANIES AND ITS CUSTOMERS PROVIDING CRC-EVANS' PRODUCTS AND SERVICES INTERNALLY The pipeline construction equipment business is very competitive, and CRC-Evans expects it to remain so. CRC-Evans competes on the basis of a number of factors, including price, customer service, satisfying technical specifications, flexibility in meeting customer needs and the quality and reliability of its equipment. CRC-Evans' competitors include many smaller pipeline construction equipment companies worldwide and several business units of larger companies. In addition, certain major contractors, who are often CRC-Evans' customers, have chosen and may continue to choose to build their own specialized pipeline construction equipment and perform on their own services the company provides, which could reduce its revenues or income. See "Business -- Competition." DEPENDENCE ON KEY PERSONNEL Because CRC-Evans' success has been and will continue to be highly dependent on the efforts and skills of its senior management, if it were to lose any of its senior management, its operations could be disrupted. CRC-Evans maintains a $1.0 million "key man" life insurance policy on its Chief Executive Officer, M. Timothy Carey, but does not insure any other senior managers. In addition, CRC-Evans' future success depends on its ability to find and retain new key management personnel, which it may not be able to do successfully. See "Management." 12 PURCHASERS OF THE COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION Purchasers of common stock will experience immediate and substantial dilution in net tangible book value of $6.87 per share based on an assumed initial public offering price of $13.00 per share (the midpoint of the range of initial public offering prices set forth on the cover page of this prospectus). See "Dilution." PERCENTAGE OWNERSHIP WILL BE REDUCED IF CRC-EVANS ISSUES NEW SHARES Investors' percentage ownership of CRC-Evans would be reduced if shares are issued in connection with acquisitions, exercise of stock options, or for other reasons. CRC-Evans can issue all (up to a total of 14,460,320) of its unissued shares without receiving stockholder approval. CRC-Evans might issue these shares to acquire another company or to raise money for CRC-Evans. In addition, CRC-Evans has reserved 1,245,160 shares of common stock for issuance under its various employee stock option plans. There are currently outstanding options to purchase 670,160 shares of common stock. CRC-Evans may also have trouble raising additional capital because of the possible dilution which could occur upon exercise of options granted under stock option plans. See "Management -- Stock option plans" and "Description of Capital Stock." THERE HAS BEEN NO PRIOR MARKET FOR THE COMMON STOCK AND THE MARKET PRICE OF THE SHARES WILL FLUCTUATE The price of the common stock after the offering may fluctuate widely, depending on many factors, including: o the perceived prospects of CRC-Evans and the oil and gas pipeline construction industry; o differences between CRC-Evans' actual financial and operating results and those expected by investors and analysts; o changes in analysts' recommendations or projections; o general economic or market conditions; and o broad market fluctuations. As a result, the common stock may trade at prices significantly below the initial public offering price. Prior to the offering, there has been no public market for the common stock. The initial public offering price of the common stock will be determined by negotiations between CRC-Evans and the underwriters' representatives. See "Underwriting" for information on the determination of the initial public offering price. CRC-Evans will apply for quotation of the common stock on . There is no guarantee that a trading market for the common stock will develop or, if a market does develop, of the level of trading volume for the common stock. SHARE PRICE MAY DECLINE BECAUSE OF SHARES ELIGIBLE FOR FUTURE SALE Actual sales or the possibility of sales of substantial amounts of common stock from any sources may adversely affect the price of CRC-Evans' common stock and impede CRC-Evans' ability to raise capital by issuing more equity securities. See "Shares Eligible for Future Sale." Upon completion of the offering, there will be 9,294,520 shares of common stock outstanding (or up to 9,744,520 shares if the underwriters' over-allotment option is exercised). All of the shares sold in the offering will be freely transferable without restriction by the Securities Act, except for shares purchased by affiliates of CRC-Evans. The remaining 6,294,520 shares outstanding after the offering cannot be sold unless the sale is registered under the Securities Act or an exemption from registration is available, including the exemption provided by Rule 144 under the Securities Act. Some of CRC-Evans' stockholders have signed a Registration Rights Agreement with the company which allows them to require the company to register for public sale their shares of common stock. The parties to this Agreement have agreed that they will not sell or otherwise dispose of their common stock for 180 days after the date of this prospectus, unless CIBC Oppenheimer Corp. consents. See "Description of Capital Stock." CRC-Evans has reserved 1,245,160 shares of common stock for issuance under its outstanding stock options and under its stock incentive plan. Of these, 670,160 shares of common stock are issuable upon the exercise of outstanding stock options, 24,000 of which are currently exercisable. CRC-Evans will register 13 the offering and sale of common stock which can be issued under its stock option plans. See "Management -- Stock option plans." CRC-EVANS DOES NOT INTEND TO PAY CASH DIVIDENDS CRC-Evans does not intend to pay cash dividends on the common stock in the foreseeable future because it anticipates that future earnings will be retained to finance future operations and expansion. In addition, CRC-Evans' credit facility prohibits it from paying dividends on its common stock. See "Dividend Policy" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and capital resources." CRC-EVANS' SIGNIFICANT STOCKHOLDERS WILL CONTROL IT At the closing, CRC-Evans' officers, directors and principal stockholders will beneficially own approximately 58.5% of the common stock. As a result, these stockholders will be able to elect a majority or all of the Board of Directors, and, in general, determine (without the consent of CRC-Evans' other stockholders) the outcome of any corporate transaction or other matter submitted to the stockholders for approval, including mergers, consolidations and the sale of all or substantially all of the company's assets. These stockholders will be able to prevent or cause a change in control of the company. See "Principal Stockholders" and "Description of Capital Stock." 14 FORWARD-LOOKING STATEMENTS Some of the information in this prospectus contains forward-looking statements within the meaning of the federal securities laws. These statements include, among others, the following: plans for, and successful closing and integration of, future acquisitions, CRC-Evans' capacity to integrate successfully acquisitions that have already been completed, the adequacy of anticipated sources of cash, including the proceeds from this offering, to fund CRC-Evans' future capital requirements and statements with respect to areas of potential growth. These statements may be found under "Prospectus Summary," "Unaudited Pro Forma Financial Data," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and esults of Operations," "Selected Consolidated Financial Data" and "Business" as well as elsewhere herein. Forward-looking statements typically are identified by use of terms such as "may," "will," "should," "expect," "anticipate," "estimate" and similar words, although some forward-looking statements are expressed differently. Investors should be aware that CRC-Evans' actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including: general economic conditions, labor costs, competition, pipeline construction and rehabilitation activity worldwide, sufficiency of capital resources, ability to integrate acquired businesses successfully, potential adverse economic and political conditions and unanticipated difficulties in product and services development. Investors should also consider carefully the statements under "Risk Factors" and other sections of this prospectus, which address additional factors that could cause CRC-Evans' actual results to differ from those set forth in the forward-looking statements. In addition, the safe harbor protections with respect to forward-looking statements afforded by Section 27A of the Securities Act and Section 21E of the Securities Exchange Act are not applicable to initial public offerings. 15 USE OF PROCEEDS CRC-Evans estimates that the net proceeds from the sale of common stock it is offering will be approximately $35.8 million. If the underwriters fully exercise the over-allotment option, the net proceeds to CRC-Evans will be $41.2 million. "Net proceeds" is what CRC-Evans expects to receive after paying the underwriting discount and other expenses of the offering. For purposes of estimating net proceeds, CRC-Evans is assuming the public offering price will be $13.00 per share. CRC-Evans intends to use (i) $33.9 million of the net proceeds to repay indebtedness under its credit facility and (ii) approximately $1.9 million to repay its 12% subordinated notes due 2002. Until CRC-Evans uses the net proceeds of the offering for these purposes, it intends to invest them in short-term, investment grade, interest bearing securities. As part of the June 1997 buyout, CRC-Evans entered into its credit facility with a syndicate of banks led by BankBoston for up to a maximum of $45 million, of which: o $20.0 million was a revolving line of credit, o $20.0 million was a six year term loan, and o approximately $5.0 million was a revolving line of credit denominated in British pounds. On July 3, 1998, the credit facility was amended to provide for $17.5 million and 1.45 million of availability to finance acquisitions and growth capital expenditures, and $5.0 million of additional revolving line of credit availability for general working capital. CRC-Evans borrowed approximately $32.5 million to finance the June 1997 buyout. In addition, since July 3, 1998, CRC-Evans has borrowed $9.0 million and 5/81.3 million under the credit facility principally to finance acquisitions. As of November 30, 1998, CRC-Evans had approximately $35.4 million of senior debt outstanding as follows: AMOUNT OUTSTANDING(1) (MILLIONS OF DOLLARS) INTEREST RATE MATURITY --------------------- ------------- --------------- Term U.S............ $17.4 7.1%(2) June 12, 2003 Revolving U.S............ 13.0(3) 7.1%(2) June 12, 2003 U.K............ 5.0(4) 9.5%(5) June 12, 2003 - --------------------------- (1) Principal payments on the term loan and the converting portions of the revolving loan are to be made on a formula-based amortization schedule beginning September 30, 1997 and March 31, 2000, respectively. (2) The interest rate is calculated based on the higher of (a) Bank Boston's base rate and (b) 0.5% above the federal funds effective rate plus 0.25% to 1%. CRC-Evans may elect to borrow instead at an interest rate equal to the Eurodollar rate plus 1.75% to 2.50%. (3) If still outstanding, $9.0 million of the $13.0 million would convert into a term loan on December 31, 1999. (4) If still outstanding, $2.1 million of the $5.0 million would convert into a term loan on December 31, 1999. (5) The interest rate is calculated based on LIBOR plus 1%. DIVIDEND POLICY CRC-Evans has never declared or paid any cash dividends on its common stock. In addition, CRC-Evans' credit facility prohibits it from paying dividends on its common stock. Following the offering, CRC-Evans intends to retain any future earnings to fund growth and does not anticipate paying any cash dividends in the foreseeable future. Any future determination as to CRC-Evans' dividend policy will be made at the discretion of its Board of Directors and will depend on a number of factors, including future earnings, capital requirements, financial condition and future prospects, restrictions on dividend payments pursuant to credit or other agreements and such other factors as the Board of Directors may deem relevant. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and capital resources." 16 CAPITALIZATION The following table shows: o The capitalization of CRC-Evans on September 30, 1998. o The capitalization of CRC-Evans on September 30, 1998, assuming the completion of the offering at an assumed public offering price of $13.00 per share and the use of the net proceeds as described under "Use of Proceeds." SEPTEMBER 30, 1998 ------------------------- HISTORICAL AS ADJUSTED ---------- ----------- (dollars in thousands) Current installments of long-term debt................................. $ 2,707 $ 2,707 ========== =========== Long-term debt, excluding current installments....................... $ 34,522 $ 658 12% subordinated notes due 2002...... 1,919 -- ---------- ----------- Total long-term debt............ 36,441 658 ---------- ----------- Stockholders' equity: Common stock, $0.01 par value, 25,000,000 shares authorized, 6,294,520 shares issued and outstanding, actual; 9,294,520 shares issued and outstanding, as adjusted(1)........................ 14,333 50,116 Preferred stock, $0.01 par value, 2,500,000 shares authorized, no shares issued and outstanding, actual; no shares issued and outstanding, as adjusted........... -- -- Retained earnings.................... 11,164 11,164 Less notes receivable from shareholders....................... (2,083) (2,083) Cumulative foreign currency translation adjustment............. (113) (113) ---------- ----------- Total stockholders' equity...... 23,301 59,084 ---------- ----------- Total capitalization....... $ 59,742 $59,742 ========== =========== - --------------------------- (1) Excludes 670,160 shares of common stock which could be issued upon the exercise of outstanding stock options, 24,000 of which are currently exercisable. 17 DILUTION CRC-Evans' net tangible book value on September 30, 1998 was $21.2 million, or $3.37 per share. "Net tangible book value" is total assets minus the sum of liabilities and intangible assets. "Net tangible book value per share" is net tangible book value divided by the total number of shares outstanding before the offering. After giving effect to certain adjustments relating to the offering, CRC-Evans' pro forma net tangible book value on September 30, 1998 would have been $57.0 million or $6.13 per share. The adjustments made to determine pro forma net tangible book value per share are the following: An increase in total assets and a decrease in total debt to reflect receipt of the net proceeds of the offering as described under "Use of Proceeds" (assuming that the public offering price will be $13.00 per share). The addition of the number of shares offered by this prospectus to the number of shares outstanding. The following table illustrates the pro forma increase in net tangible book value of $2.76 per share and the dilution (the difference between the offering price per share and net tangible book value per share) to new investors: Assumed public offering price per share.............................. $ 13.00 Net tangible book value per share as of September 30, 1998.............. $ 3.37 Increase in net tangible book value per share attributable to the offering........................... 2.76 --------- Pro forma net tangible book value per share, as of September 30, 1998, after giving effect to the offering........................... 6.13 --------- Dilution per share to new investors in the offering.................... $ 6.87 ========= The following table shows the difference between existing stockholders and new investors with respect to the number of shares purchased from CRC-Evans, the total consideration paid and the average price paid per share. The table assumes that the public offering price will be $13.00 per share.
SHARES PURCHASED TOTAL CONSIDERATION -------------------- ----------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ------------- ------- ------------- Existing stockholders................ 6,294,520 67.7% $ 14,382,979 26.9% $ 2.28 New investors........................ 3,000,000 32.3 39,000,000 73.1 $ 13.00 ---------- ------- ------------- ------- Total........................... 9,294,520 100.0% $ 53,382,979 100.0% ========== ======= ============= =======
The foregoing tables exclude the effect of 670,160 shares of common stock issuable upon exercise of outstanding stock options, 24,000 of which are currently exercisable, and which were granted to officers, employees and consultants at a weighted average exercise price of $2.78 per share. To the extent any of the outstanding options or warrants are exercised, there will be further dilution to stockholders. See "Management -- Stock option plans." 18 UNAUDITED PRO FORMA FINANCIAL DATA The unaudited pro forma statements of earnings for the year ended March 31, 1998 and the six months ended September 30, 1997, give effect to the Purchase Transactions as if they had occurred on April 1, 1997. The unaudited pro forma statement of earnings for the year ended March 31, 1998 is derived from the audited historical financial statements of (a) CRC-Evans' predecessors for the period from April 1, 1997 through June 11, 1997 and (b) CRC-Evans from June 12, 1997 through March 31, 1998. The unaudited pro forma statement of earnings for the year ended September 30, 1997 is derived from the (a) audited financial statements of CRC-Evans' predecessors for the period from April 1, 1997 through June 11, 1997 and (b) unaudited financial statements of the Company for the period from June 12, 1997 through September 30, 1997. The pro forma adjustments which give effect to the various events described above are based upon currently available information and upon certain assumptions that management believes are reasonable. CRC-Evans has accounted for the assets acquired and liabilities assumed in the June 1997 buyout at their allocated estimated fair market values at the date of the buyout using the purchase method of accounting. See "Risk Factors -- Acquisitions can adversely effect CRC-Evans' performance." The unaudited pro forma financial statements do not purport to be indicative of the results of operations that would have occurred or that may be obtained in the future if the transactions described had occurred as presented in such statements. In addition, future results may vary significantly from the results reflected in such statements due to general economic conditions, labor costs, competition, pipeline construction and rehabilitation activity worldwide, insufficient capital resources, inability to integrate acquired businesses successfully, adverse economic conditions, unanticipated difficulties in product development and several other factors, many of which are beyond CRC-Evans' control. See "Risk Factors." The unaudited pro forma financial statements should be read in conjunction with the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the historical financial statements of CRC-Evans and its predecessors, including the notes thereto, included elsewhere. 19 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS YEAR ENDED MARCH 31, 1998
HISTORICAL HISTORICAL PREDECESSOR BUSINESS CRC-EVANS 4/1/97-6/11/97 6/12/97-3/31/98 ADJUSTMENTS PRO FORMA(D) -------------------- --------------- ----------- ------------ (dollars in thousands, except per share data) Revenues: Sales revenue...................... $ 5,687 $ 23,850 $ 29,537 Rental and service revenue......... 6,928 27,991 34,919 -------------------- --------------- ------------ Total revenues....................... 12,615 51,841 64,456 -------------------- --------------- ------------ Cost of revenues: Cost of sales revenue.............. 3,712 16,096 $ 3(a) 19,811 Cost of rental and service revenue......................... 5,451 18,311 189(a) 23,951 -------------------- --------------- ----------- ------------ Total cost of revenues............... 9,163 34,407 192 43,762 -------------------- --------------- ----------- ------------ Gross profit......................... 3,452 17,434 (192) 20,694 Operating expenses: Selling, general and administrative.................. 3,016 10,114 -- 13,130 Research and development........... 153 951 -- 1,104 Other expenses (income)............ (153) 79 -- (74) -------------------- --------------- ----------- ------------ Operating income..................... 436 6,290 (192) 6,534 Interest expense (income)............ (50) 2,411 334(b) 2,695 -------------------- --------------- ----------- ------------ Income before income taxes........... 486 3,879 (526) 3,839 Income tax expense................... 207 1,536 (208)(c) 1,535 -------------------- --------------- ----------- ------------ Net income........................... $ 279 $ 2,343 $(318) $ 2,304 ==================== =============== =========== ============ NET INCOME PER SHARE: Basic................................ $ 0.59 $ 0.58 Diluted.............................. 0.57 0.56 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic................................ 4,000,000 4,000,000 Diluted.............................. 4,120,000 4,120,000
- --------------------------- (a) Resulting depreciation from the write up of the fair value of property, plant and equipment and rental assets. Depreciation is computed using the straight-line method over the useful life of the assets. Useful lives for determining depreciation for the major classes of assets are as follows: Buildings and improvements........... 20 to 40 years Machinery and equipment.............. 7 years Furniture and fixtures............... 7 years Automobiles and trucks............... 5 years Computer equipment................... 5 years Costs associated with refurbishing rental equipment are amortized during the rental period. (b) Reflects net expense adjustment due to funds borrowed in connection with the Purchase Transactions pursuant to the acquisition term note payable as follows: Term note payable.................... $20,000,000 Calculated interest rate on acquisition term note payable for the period from April 1, 1997 to June 11, 1997...................... 1.67% ---------- Interest expense adjustment for the period from April 1, 1997 to June 11, 1997........................... $ 334,000 ========== (c) Reflects tax effect of all pre-tax pro forma adjustments. (d) Does not give effect to the offering and the application of the net proceeds therefrom. Giving effect to the use of such proceeds as described in "Use of Proceeds," interest expense and net income per share would be $0.0 and $0.58, respectively. 20 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF EARNINGS SIX MONTHS ENDED SEPTEMBER 30, 1997
HISTORICAL HISTORICAL PREDECESSOR BUSINESS CRC-EVANS 4/1/97-6/11/97 6/12/97-9/30/97 ADJUSTMENTS PRO FORMA(D) --------------------- ---------------- ------------ ------------ (dollars in thousands, except per share data) Revenues: Sales revenue...................... $ 5,687 $ 9,902 $ 15,589 Rental and service revenue......... 6,928 11,838 18,766 --------------------- ---------------- ------------ Total revenues....................... 12,615 21,740 34,355 --------------------- ---------------- ------------ Cost of revenues: Cost of sales revenue.............. 3,712 6,470 $ 3(a) 10,185 Cost of rental and service revenue......................... 5,451 7,588 189(a) 13,228 --------------------- ---------------- ------------ ------------ Total cost of revenues............... 9,163 14,058 192 23,413 --------------------- ---------------- ------------ ------------ Gross profit......................... 3,452 7,682 (192) 10,942 Operating expenses: Selling, general and administrative.................. 3,016 3,894 6,910 Research and development........... 153 319 472 Other expenses (income)............ (153) (42) (195) --------------------- ---------------- ------------ ------------ Operating income..................... 436 3,511 (192) 3,755 Interest expense (income)............ (50) 880 334(b) 1,164 --------------------- ---------------- ------------ ------------ Income before income taxes........... 486 2,631 (526) 2,591 Income tax expense................... 207 1,042 (208)(c) 1,041 --------------------- ---------------- ------------ ------------ Net income........................... $ 279 $ 1,589 $ (318) $ 1,550 ===================== ================ ============ ============ NET INCOME PER SHARE: Basic................................ $ 0.40 $ 0.39 Diluted.............................. 0.39 0.38 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic................................ 4,000,000 4,000,000 Diluted.............................. 4,120,000 4,120,000
- --------------------------- (a) Resulting depreciation from the write up of the fair value of property, plant and equipment and rental assets. Depreciation is computed using the straight-line method over the useful life of the assets. Useful lives for determining depreciation for the major classes of assets are as follows: Buildings and improvements........... 20 to 40 years Machinery and equipment.............. 7 years Furniture and fixtures............... 7 years Automobiles and trucks............... 5 years Computer equipment................... 5 years __ Costs associated with refurbishing rental equipment are amortized during the rental period. (b) Reflects net expense adjustment due to funds borrowed in connection with the Purchase Transactions pursuant to the acquisition term note payable as follows: Term note payable.................... $20,000,000 Calculated interest rate on acquisition term note payable for the period from April 1, 1997 to June 11, 1997...................... 1.67% ---------- Interest expense adjustment for the period from April 1, 1997 to June 11, 1997........................... $ 334,000 ========== (c) Reflects tax effect of all pre-tax pro forma adjustments. (d) Does not give effect to the offering and the application of the net proceeds therefrom. Giving effect to the use of such proceeds as described in "Use of Proceeds," interest expense and net income per share would be $0.0 and $0.33, respectively. 21 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth, for the dates and periods indicated, selected historical consolidated financial data of CRC-Evans and its predecessors. The data for each of the years ended March 31, 1996 and 1997 and the periods from April 1, 1997 to June 11, 1997 and from June 12, 1997 to March 31, 1998 are derived from the audited financial statements of CRC Evans and its predecessors. The data for each of the years ended March 31, 1994 and 1995 are derived from the unaudited financial statements of CRC-Evans' predecessors. The data for the six months ended September 30, 1998 are derived from the unaudited condensed consolidated financial statements of CRC-Evans that are included elsewhere in this prospectus. The following financial data should be read in connection with such financial statements including the notes thereto. Results of operations for the interim periods are not necessarily indicative of results that may be expected for any other interim period or for the year as a whole.
HISTORICAL HISTORICAL PREDECESSOR BUSINESS CRC-EVANS -------------------------------------------------------- ------------ YEAR ENDED MARCH 31, ------------------------------------------ 4/1/97-6/11 6/12/97-3/31 1994 1995 1996 1997 1997 1998 --------- --------- --------- --------- ----------- ------------ (dollars in thousands, except per share data) STATEMENT OF EARNINGS DATA: Revenues: Sales revenue......................... $ 20,843 $ 30,838 $ 25,325 $ 26,082 $ 5,687 $ 23,850 Rental and service revenue............ 31,029 35,717 39,329 43,293 6,928 27,991 --------- --------- --------- --------- ----------- ------------ Total revenues.......................... 51,872 66,555 64,654 69,375 12,615 51,841 --------- --------- --------- --------- ----------- ------------ Cost of revenues: Cost of sales revenue................. 15,128 26,398 16,595 18,373 3,712 16,096 Cost of rental and service revenue.... 21,695 24,391 29,256 28,303 5,451 18,311 --------- --------- --------- --------- ----------- ------------ Total cost of revenues.................. 36,823 50,789 45,851 46,676 9,163 34,407 --------- --------- --------- --------- ----------- ------------ Gross profit............................ 15,049 15,766 18,803 22,699 3,452 17,434 Operating expenses: Selling, general and administrative... 12,656 12,955 13,056 13,018 3,016 10,114 Research and development.............. 731 703 856 754 153 951 Other expenses (income)............... 4 (267) 2,750 367 (153) 79 --------- --------- --------- --------- ----------- ------------ Operating income........................ 1,658 2,375 2,141 8,560 436 6,290 Interest expense (income)............... (642) 213 (246) (689) (50) 2,411 --------- --------- --------- --------- ----------- ------------ Income before income taxes.............. 2,300 2,162 2,387 9,249 486 3,879 Income tax expense...................... 445 799 889 3,359 207 1,536 --------- --------- --------- --------- ----------- ------------ Net income.............................. $ 1,855 $ 1,363 $ 1,498 $ 5,890 $ 279 $ 2,343 ========= ========= ========= ========= =========== ============ NET INCOME PER SHARE: Basic................................... $ 0.59 Diluted................................. 0.57 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic................................... 4,000,000 Diluted................................. 4,120,000 OTHER FINANCIAL DATA: EBITDA.................................. $ 6,365 $ 7,207 $ 6,978 $ 10,847 $ 824 $ 8,632 Depreciation and amortization........... 4,707 4,832 4,837 2,287 388 2,342 Capital Expenditures (excluding acquisitions)......................... 464 2,367 473 2,402 65 1,083 BALANCE SHEET DATA: Working capital......................... $ 21,267 $ 24,435 $ 19,663 $ 25,792 $23,895 $ 24,056 Total assets............................ 50,612 53,177 40,501 48,034 46,503 56,344 Total long-term debt, excluding current installments.......................... 1,225 1,040 -- -- -- 30,939 Total liabilities....................... 13,981 18,482 12,659 13,172 14,013 46,748 Total equity............................ 36,631 34,695 27,842 34,862 32,490 9,596
SIX MONTHS ENDED SEPTEMBER 30, 1998 ------------- STATEMENT OF EARNINGS DATA: Revenues: Sales revenue......................... $ 20,428 Rental and service revenue............ 36,360 ------------- Total revenues.......................... 56,788 ------------- Cost of revenues: Cost of sales revenue................. 13,342 Cost of rental and service revenue.... 18,061 ------------- Total cost of revenues.................. 31,403 ------------- Gross profit............................ 25,385 Operating expenses: Selling, general and administrative... 9,175 Research and development.............. 690 Other expenses (income)............... (324) ------------- Operating income........................ 15,844 Interest expense (income)............... 1,709 ------------- Income before income taxes.............. 14,135 Income tax expense...................... 5,313 ------------- Net income.............................. $ 8,822 ============= NET INCOME PER SHARE: Basic................................... $ 1.56 Diluted................................. 1.43 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic................................... 5,670,479 Diluted................................. 6,171,301 OTHER FINANCIAL DATA: EBITDA.................................. $ 17,732 Depreciation and amortization........... 1,888 Capital Expenditures (excluding acquisitions)......................... 1,759 Working capital......................... $ 34,330 Total assets............................ 84,469 Total long-term debt, excluding current installments.......................... 36,441 Total liabilities....................... 61,168 Total equity............................ 23,301 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INVESTORS SHOULD READ THIS DISCUSSION TOGETHER WITH THE FINANCIAL STATEMENTS AND OTHER INFORMATION INCLUDED IN THIS PROSPECTUS. OVERVIEW CRC-Evans has been under its current ownership since June 12, 1997, when certain members of management, together with Natural Gas Partners and Equus, purchased CRC-Evans' business and assets from Weatherford Enterra. CRC-Evans provides equipment and services, primarily to pipeline contractors, which are essential to the successful completion of a pipeline construction project. Although CRC-Evans' products and services represent only a relatively small cost component of a pipeline construction project, the critical nature of CRC-Evans' equipment and services has a significant impact on the pipeline contractor's ability to complete a project within budget and on time. CRC-Evans' pipeline products and services provide a wide range of solutions to the pipeline construction and rehabilitation industry. CRC-Evans sells and/or rents automatic pipeline welding systems, pipe bending equipment, line-up clamps, pipe coating plants, coating and cleaning equipment, pipeline rehabilitation equipment and lay barge pipe handling equipment. CRC-Evans also provides specialized services including joint coating, cement weighting, induction and resistance heating, and automatic welding systems training and supervision. CRC-Evans' business is seasonal. In the United States, CRC-Evans' highest level of sales and rentals generally occur from April through November of each year, mainly due to the constraints on pipeline construction during the winter months. Canadian pipeline construction is also seasonal but consists of a summer and a winter pipeline construction season. There is no significant seasonality with respect to the aggregate of other international operations in the company's industry. CRC-Evans' pipeline equipment is generally rented in the United States and Canada and, with the exception of automatic welding equipment, sold internationally. CRC-Evans derives its revenue from contracts or purchase orders with durations from less than a week to several months and, occasionally, for greater than one year. CRC-Evans obtains contracts for its work primarily by competitive bidding or through negotiations with long-standing clients. Large projects can cause variability in CRC-Evans' quarterly results. This factor, as well as external factors, such as weather, client financial condition and financing requirements, labor, governmental regulations and politics may affect a project's timing, progress and completion date and the resulting timing of revenue recognition. In addition, the pipeline construction industry is cyclical, and demand for CRC-Evans' equipment and services rises and falls based primarily on the level of new pipeline construction by major oil and gas pipeline construction companies as well as the level of rehabilitation work on existing pipelines. CRC-Evans' revenues and cash flow have been and will likely continue to be subject to substantial cyclical swings. CRC-Evans recognizes sales revenue when it ships equipment, rental revenue ratably over the term of the rental agreement and service revenue when it renders the services. Because of the character of its business, CRC-Evans believes that quarter-to-quarter comparisons of operating results may not always be meaningful and that its operating results should be evaluated over a sufficiently long time horizon to gauge the effects of large projects. 23 RESULTS OF OPERATIONS The following table sets forth the relationship (in percentage terms) to the related line items of certain revenues and expenses together with the change in such line items from period to period. Pro forma data give effect to the Purchase Transactions as if they had occurred on April 1, 1997.
HISTORICAL PREDECESSOR BUSINESS HISTORICAL ---------------------------------- PRO FORMA CRC-EVANS CRC-EVANS ----------- PERIOD FROM --------------------------- PERIOD FROM YEAR ENDED MARCH 31, APRIL 1, SIX MONTHS JUNE 12, 1997 TO YEAR ENDED ENDED 1997 TO -------------------- JUNE 11, MARCH 31, SEPTEMBER 30, MARCH 31, 1996 1997 1997 1998 1997 1998 --------- --------- ----------- ---------- ------------- ----------- OPERATING DATA: Revenues: Sales revenue...................... 39.2% 37.6% 45.1% 45.8% 45.4% 47.9% Rental and service revenue......... 60.8 62.4 54.9 54.2 54.6 54.0 Cost of revenues: Cost of sales revenue.............. 65.5 70.4 65.3 67.1 65.3 67.5 Cost of rental and service revenue.......................... 74.4 65.4 78.7 68.6 70.5 65.4 Total cost of revenues............... 70.9 67.3 72.6 67.9 68.2 66.4 Gross profit......................... 29.1 32.7 27.4 32.1 31.9 33.6 Operating expenses: Selling, general and administrative................... 20.2 18.8 23.9 20.4 20.1 19.5 Research and development........... 1.3 1.1 1.2 1.7 1.4 1.8 Other expenses (income)............ 4.3 0.5 (1.3) (0.1) (0.6) 1.5 Operating income..................... 3.3 12.3 3.5 10.1 10.9 12.1 Interest expense (income)............ (0.4) (0.1) (0.4) 4.2 3.4 4.7 Income before income tax............. 3.7 13.3 3.9 6.0 7.5 7.5 Income tax expense................... 37.2 36.3 42.6 40.0 40.2 39.6 Net income........................... 2.3% 8.5% 2.2% 3.6% 4.5% 4.5%
PERIOD FROM JUNE 12, SIX MONTHS 1997 TO ENDED SEPTEMBER 30, SEPTEMBER 30, 1997 1998 ------------- ------------- OPERATING DATA: Revenues: Sales revenue...................... 45.5% 36.0% Rental and service revenue......... 54.5 64.0 Cost of revenues: Cost of sales revenue.............. 65.3 65.3 Cost of rental and service revenue.......................... 64.1 49.7 Total cost of revenues............... 64.7 55.3 Gross profit......................... 35.3 44.7 Operating expenses: Selling, general and administrative................... 17.9 16.2 Research and development........... 1.5 1.2 Other expenses (income)............ (0.2) (0.6) Operating income..................... 16.1 27.9 Interest expense (income)............ 4.1 3.0 Income before income tax............. 12.1 24.9 Income tax expense................... 39.6 37.6 Net income........................... 7.3% 15.5% RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE PRO FORMA RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 SALES REVENUE. Sales revenue increased to $20.4 million in the six months ended September 30, 1998 from $15.6 million in the six months ended September 30, 1997, representing an increase of 31.0%. This increase was caused by the acquisition of B.L. Key Services, L.L.C., CRC-Evans' concrete weighting operations, on April 1, 1998, which increase was partially offset by a 14.8% decrease in pipeline products sales and a 13.9% decrease in automatic welding products sales. RENTAL AND SERVICE REVENUE. Rental and service revenue increased to $36.4 million in the six months ended September 30, 1998 from $18.8 million in the six months ended September 30, 1997, representing an increase of 93.8%. This increase was attributable to increased pipeline construction activity in North and South America, and to a lesser extent, the acquisition of certain pipeline construction equipment assets. COST OF SALES REVENUE. Cost of sales revenue increased to $13.3 million in the six months ended September 30, 1998 from $10.2 million in the six months ended September 30, 1997, representing an increase of 31.0% due to an increase in sales volume. The cost of sales as a percentage of sales revenue was the same at 65.3% for the two periods. COST OF RENTAL AND SERVICE REVENUE. Cost of rental and service revenue increased to $18.1 million in the six months ended September 30, 1998 from $13.2 million in the six months ended September 30, 1997, representing an increase of 36.5% because of increased rental and service activities. Costs as a percentage 24 of rental and service revenue declined 29.5% from 70.5% to 49.7%. This improvement was due to CRC Evans' participation in longer-term projects thereby reducing equipment overhaul costs as a percentage of revenue. GROSS PROFIT. Gross profit increased to $25.4 million in the six months ended September 30, 1998 from $10.9 million in the six months ended September 30, 1997, representing an increase of 132.0%. Gross profit as a percentage of total revenues increased 40.1% due to an increase in rental income which typically generates higher margins for CRC-Evans than equipment sales and service revenue. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased to $9.2 million in the six months ended September 30, 1998 from $6.9 million in the six months ended September 30, 1997, representing an increase of 32.8%. Approximately $0.6 million of the increase was due to additional costs associated with owning and operating Key since April 1998 and the remainder was associated with increased activities. As a percentage of total revenues, selling, general and administrative expenses decreased from 20.1% to 16.2% for the respective periods. This improvement was due to relatively fixed costs being spread over increased total revenues. RESEARCH AND DEVELOPMENT Research and development expenses increased to $0.7 million in the six months ended September 30, 1998 from $0.5 million in the six months ended September 30, 1997 representing an increase of 46.2%. OPERATING INCOME. Operating income increased to $15.8 million in the six months ended September 30, 1998 from $3.8 million in the six months ended September 30, 1997, representing an increase of 321.9% due to increased revenue and improvements in operating expense margins. INTEREST EXPENSE. Interest expense increased to $1.7 million in the six months ended September 30, 1998 from $1.2 million in the six months ended September 30, 1997, representing an increase of 46.8% as a result of an increased debt level incurred as a result of acquisitions closed by CRC-Evans during the six months ended September 30, 1998. PRO FORMA RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1998 COMPARED TO RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997 SALES REVENUE. Sales revenue increased to $29.5 million in the year ended March 31, 1998 from $26.1 million in the year ended March 31, 1997, representing an increase of 13.2%. This increase was a result of an increase in pipeline construction activity around the world primarily in North and South America and non-recurring automatic welding sales. RENTAL AND SERVICE REVENUE. Rental and service revenue decreased to $34.9 million in the year ended March 31, 1998 from $43.3 million in the year ended March 31, 1997, representing a decrease of 19.3%. This decrease was attributable to unusually large contracts in Algeria for joint coating products and services and, to a lesser extent, automatic welding, which contracts were completed in 1997. COST OF SALES REVENUE. Cost of sales revenue increased to $19.8 million in the year ended March 31, 1998 from $18.4 million in the year ended March 31, 1997, representing an increase of 7.8% due to increased sales activity. The cost of equipment sales as a percentage of equipment sales revenue decreased 4.7% due to a higher proportion of CRC-Evans' sales being of higher margin products. COST OF RENTAL AND SERVICE REVENUE. Cost of rental and service revenue decreased to $24.0 million in the year ended March 31, 1998 from $28.3 million in the year ended March 31, 1997, representing a decrease of 15.4% due to lower rentals and services related to large contracts in Algeria which were completed in 1997. Costs of rental and service revenue as a percentage of rental and service revenue increased approximately 4.9% as a result of lower rental and service revenue, partially offset by a decrease in equivalent expense due to spreading some relatively fixed costs over a lower revenue base. GROSS PROFIT. Gross profit decreased to $20.7 million in the year ended March 31, 1998 from $22.7 million in the year ended March 31, 1997, representing a decrease of 8.8%. Gross profit as a percentage of total revenues decreased 1.8% which was primarily due to lower rental and services revenue which typically generates higher margins for CRC-Evans than equipment sales and service revenue. 25 SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased to $13.1 million in the year ended March 31, 1998 from $13.0 million in the year ended March 31, 1997, representing an increase of less than 1%. RESEARCH AND DEVELOPMENT. Research and development expenses increased to $1.1 million in the year ended March 31, 1998 from $0.8 million in the year ended March 31, 1997. OPERATING INCOME. Operating income decreased to $6.5 million in the year ended March 31, 1998 from $8.6 million in the year ended March 31, 1997, representing a decrease of 23.7% which was primarily due to lower total revenues. INTEREST EXPENSE. Interest expense increased to $2.7 million in the year ended March 31, 1998 from interest income of $0.7 million in the year ended March 31, 1997. This increase is attributable to the debt incurred to complete the June 1997 buyout and for working capital. RESULTS OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1997 COMPARED TO THE YEAR ENDED MARCH 31, 1996 SALES REVENUE. Sales revenue increased to $26.1 million in the year ended March 31, 1997 from $25.3 million in the year ended March 31, 1996, representing an increase of 3.0% as a result of slight increases in demand for CRC-Evans' products. RENTAL AND SERVICE REVENUE. Rental and service revenue increased to $43.3 million in the year ended March 31, 1997 from $39.3 million in the year ended March 31, 1996, representing an increase of 10.1%. This increase was primarily due to increased demand for automatic welding rentals and services. COST OF SALES REVENUE. Cost of sales revenue increased to $18.4 million in the year ended March 31, 1997 from $16.6 million in the year ended March 31, 1996, representing an increase of 10.7%. The cost of equipment sales as a percentage of equipment sales revenue increased 7.5% primarily due to a higher proportion of sales of lower margin products. COST OF RENTAL AND SERVICE REVENUE. Cost of rental and service revenue decreased to $28.3 million in the year ended March 31, 1997 from $29.3 million in the year ended March 31, 1996, representing a decrease of 3.3%. The cost of rental and service revenue as a percentage of rental and service revenue decreased 12.1% primarily due to participation in longer-term projects thereby reducing equipment overhaul costs as a percentage of revenue. GROSS PROFIT. Gross profit increased to $22.7 million in the year ended March 31, 1997 from $18.8 million in the year ended March 31, 1996, representing an increase of 20.7%. Gross profit as a percentage of total revenues increased 12.4% due to a relatively greater increase in rental income which typically generates higher margins for CRC-Evans than equipment sales and service revenue. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses decreased to $13.0 million in the year ended March 31, 1997 from $13.1 million in the year ended March 31, 1996, representing a decrease of 0.3% primarily because selling, general and administrative expenses are relatively fixed. RESEARCH AND DEVELOPMENT. Research and development expenses decreased to $0.8 million in the year ended March 31, 1997 from $0.9 million in the year ended March 31, 1996, representing a decrease of 11.9%. OPERATING INCOME. Operating income increased to $8.6 million in the year ended March 31, 1997 from $2.1 million in the year ended March 31, 1996, representing an increase of 299.8% due to increased revenues and improvement in operating expense margins. LIQUIDITY AND CAPITAL RESOURCES CRC-Evans intends to pursue a growth oriented strategy, which is to be implemented by (i) expanding international operations, (ii) adding related products and services, (iii) making strategic acquisitions and (iv) extending and leveraging its technological leadership. CRC-Evans is currently evaluating certain business acquisition and expansion opportunities, but currently has no binding contracts or capital commitments relating to any potential acquisitions or developments. See "Risk Factors -- Acquisitions can adversely effect CRC-Evans' performance." 26 Net cash used in operating activities for the period from June 12, 1997 to March 31, 1998 was $2.3 million. For the six months ended September 30, 1998, net cash provided by operating activities was $4.2 million. Improvements in cash flow from operating activities are principally the result of an increase in the level of pipeline construction which had a positive effect on all of CRC-Evans' operations. Capital expenditures, excluding acquisitions, were $1.1 million and $1.8 million for the period from June 12, 1997 to March 31, 1998 and the six months ended September 30, 1998, respectively. Principal payments on long-term debt were $1.5 million and $1.1 million for the period June 12, 1997 to March 31, 1998 and the six months ended September 30, 1998, respectively. Capital expenditures for CRC-Evans, excluding acquisitions, from September 30, 1998 through March 31, 2000 are expected to be approximately $8.0 million. On May 20, 1998, CRC-Evans issued 995,640 shares of common stock to each of Natural Gas Partners and Equus and 235,240 shares of common stock to certain members of management for aggregate proceeds of approximately $5.1 million. As of November 30, 1998, the principal amount of outstanding indebtedness under the credit facility for the U.S. revolver, U.K. revolver and term loan was $13.0 million, approximately $5.0 million and $17.4 million, respectively, of which $9.0 million of the U.S. revolver and $2.1 million of the U.K. revolver will convert into a term loan on December 31, 1999. The current maturity of the credit facility is June 12, 2003; however, principal payments on the current term loan and the term loans to be converted are made on a formula-based amortization schedule beginning September 30, 1997 and March 31, 2000, respectively, with final maturity on June 12, 2003. All amounts outstanding under the credit facility are secured by substantially all of CRC-Evans' assets. CRC-Evans also has (a) $1.9 million in the form of 12% subordinated notes due 2002 (which it expects to repay with the proceeds of the offering), (b) $0.4 million of other subordinated debt and (c) contingent liabilities for issued standby letters of credit totaling $2.4 million outstanding. After the closing of the offering and the application of the net proceeds therefrom, CRC-Evans expects to have $34.0 million and approximately $5.0 million of availability under the U.S. and U.K. revolvers, respectively. CRC-Evans believes cash on hand and the proceeds from the offering, together with cash flow anticipated from operations and available borrowings under the credit facility, will be adequate to meet debt service requirements, fund continuing capital requirements and satisfy working capital and general corporate needs through the next twelve to eighteen months. CRC-Evans may need to raise additional funds through public or private debt or equity financing to take advantage of opportunities that may become available to it, including acquisitions and more rapid expansion. The availability of such capital will depend upon prevailing market conditions and other factors over which CRC-Evans has no control, as well as the company's financial condition and results of operations. There can be no assurance that sufficient funds will be available to finance intended acquisitions or capital expenditures to sustain CRC-Evans' recent rate of growth. EFFECT OF INFLATION AND CHANGING PRICES; FOREIGN EXCHANGE RISK MANAGEMENT CRC-Evans' operations are affected by increases in prices, whether caused by inflation, government mandates or other economic factors in the countries in which it operates. CRC-Evans attempts to recover anticipated increases in the cost of labor, materials and outside services through price escalation provisions in certain of its major contracts or by considering the estimated effect of such increases when bidding or pricing its equipment and services. CRC-Evans' operations in the United States, Canada and the U.K. typically negotiate contracts in U.S. dollars, Canadian dollars and British pounds, respectively. CRC-Evans' aggregate foreign exchange losses during the last four years have been limited to $286,838. THE YEAR 2000 With the new millennium approaching, many institutions around the world are reviewing and modifying their computer systems to ensure that they are "year 2000" compliant. The issue, in general terms, is that 27 many existing computer systems and microprocessors with date functions (including those in non-information technology equipment and systems) use only two digits to identify a year in the date field with the assumption that the first two digits of the year are always "19." Consequently, on January 1, 2000, computers that are not "year 2000" compliant may read the year 1900. Systems that calculate, compare or sort using the incorrect date may malfunction. CRC-Evans uses a number of computer programs across its entire operation both in application software (IT applications) and in plant and equipment (embedded technology). In view of the potential adverse impact of this "year 2000" issue on its business, operations, and financial condition, CRC-Evans has established a central function to coordinate and report on a continuing basis with regard to the assessment, remediation planning, and plan implementation processes of the company directed to "year 2000" issues in the IT application and embedded technology contexts. CRC-Evans has completed surveying its major vendors and customers and has checked its products' computers (particularly its automated welding system) for "year 2000" compliance. CRC-Evans believes that the "year 2000" assessment, remediation planning and plan implementation will be completed by the end of the second quarter of 1999. CRC-Evans has hired no independent consultants in connection with its "year 2000" plans. In connection with its survey, CRC-Evans accelerated its decision to purchase a new business software system, which purchase was completed on December 31, 1998. The new system is projected to be in place by June 30, 1999. As a backup for the new system, CRC-Evans has obtained a software patch for the system it currently uses. Costs to date incurred in connection with the "year 2000" assessment, remediation, planning and plan implementation are approximately $400,000 of which $100,000 has been expensed. Aggregate cost to CRC-Evans, including estimated cost of $600,000 associated with the acquisition and installation of the new business software system, is estimated to be $900,000. Substantially all of these expenditures are expected to be funded with working capital and have been used to replace rather than repair CRC-Evans' software and hardware. CRC-Evans is continuing its assessment of the impact of "year 2000" across its business and operations, but currently believes that the costs of addressing this issue will not have a material adverse impact on the Company's financial position. However, if CRC-Evans and third parties upon which it relies are unable to address this issue in a timely manner, it could result in a material financial risk to it. In an attempt to assure that this does not occur, CRC-Evans plans to devote all resources required to resolve any significant year 2000 issues in a timely manner. NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. It does not, however, specify when to recognize or how to measure items that make up comprehensive income. SFAS 130 was issued to address the concerns over the practice of reporting elements of comprehensive income directly in equity. SFAS 130 is effective for annual periods beginning after December 15, 1997. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131). SFAS 131 supersedes SFAS No. 14, Financial Reporting for Segments of a Business Enterprise but retains the requirement to report information about major customers. SFAS 131 replaces the "industry segment" concept of Statement 14 with a "management approach" concept as the basis for identifying reportable segments. The management approach is based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. Consequently, the segments are evident from the structure of the enterprise's internal organization. It focuses on financial information that an enterprise's decision makers use to make decisions about the enterprise's operating matters. SFAS 131 is effective for financial statements for periods beginning after December 15, 1997. CRC-Evans believes that all of its operations are part of the pipeline construction and rehabilitation industry and accordingly reports as a single industry segment. Worldwide operations are conducted through CRC-Evans' principal subsidiaries located in the United States, the United Kingdom and Canada. Therefore it is anticipated that SFAS 131 will not have a significant impact on CRC-Evans' segment reporting. 28 In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits (SFAS 132), which is required to be implemented for fiscal years beginning after December 15, 1997. SFAS 132 revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. Statement of Financial Accounting Standards No. 133, Accounting for Derivatives Instruments and Hedging Activities (SFAS 133), was issued by the FASB in June 1998. Statement 133 standardizes the accounting for derivatives instruments, including certain derivative instruments embedded in other contracts. CRC-Evans does not utilize derivative instruments. 29 BUSINESS CRC-EVANS CRC-Evans is the world's leading provider of specialized equipment and services used in the construction and rehabilitation of gas and oil transmission pipelines. CRC-Evans and its predecessors have been leaders in the specialized pipeline construction equipment industry since 1933. CRC-Evans' management team together with two institutional investors, Natural Gas Partners and Equus, acquired CRC-Evans' assets and business from Weatherford Enterra in a management buyout in June 1997. CRC-Evans' current senior management team has been involved in managing CRC-Evans or its predecessors' major lines of business since 1971. CRC-Evans believes the depth and experience of its management and employees are keys to the company's excellent reputation with the world's leading pipeline contractors. CRC-Evans provides equipment and services, primarily to pipeline contractors, which are essential to successfully completing a pipeline construction project. Although CRC-Evans' products and services represent only a relatively small cost component of a pipeline construction project, the critical nature of CRC-Evans' equipment and services has a significant impact on the pipeline contractor's ability to complete a project within budget and on time. CRC-Evans' pipeline products and services provide a wide range of solutions to the pipeline construction and rehabilitation industry. CRC-Evans sells and/or rents automatic pipeline welding systems, pipe bending equipment, line-up clamps, pipe coating plants, coating and cleaning equipment, pipeline rehabilitation equipment and lay barge pipe handling equipment. CRC-Evans also provides specialized services including joint coating, cement weighting, induction heating, and automatic welding systems training and technical assistance. CRC-Evans has experienced significant growth in revenues, EBITDA and net income since the June 1997 buyout. For the six months ended September 30, 1998, CRC-Evans generated revenue, EBITDA and net income of $56.8 million, $17.7 million and $8.8 million, respectively. These amounts represent increases of approximately 65.3%, 241.5% and 469.2%, respectively, over the pro forma six months ended September 30, 1997 results. Management believes that this growth is attributable to: o a recent increase in demand for CRC-Evans' specialized products and services in response to increased worldwide pipeline construction and rehabilitation activity, o CRC-Evans' strategic acquisitions and o the successful implementation of CRC-Evans' business strategy. INDUSTRY OVERVIEW The pipeline construction equipment and services industry provides products and services to support pipeline construction and rehabilitation performed by pipeline construction contractors. CRC-Evans provides specialized equipment and services used in the construction of gas and oil pipelines ranging from 6 to 60 inches in diameter and steel water pipelines ranging up to 120 inches in diameter. These specialized products and services are critical to the pipeline contractor's ability to complete a project within budget and on time. These products and services are generally provided by specialized pipeline equipment manufacturers and service providers such as CRC-Evans because: o most pieces of pipeline construction equipment are specific to a small range of diameter sizes, while the contractor works on a wide range of pipeline diameters and needs to use multiple equipment sizes for relatively short periods of time; o contracts are often procured with short lead times, so rapid delivery of equipment and services is required; and o proprietary equipment, specialized engineering and technical operating capabilities, such as those CRC-Evans offers, are critical to meeting the speed, efficiency and engineering requirements of pipeline welding, bending and coating. 30 Accordingly, CRC-Evans has developed its business strategy around designing, manufacturing, reconditioning and providing a broad inventory of specialized pipeline construction equipment, for rental or sale, and services on an expedited basis to pipeline general contractors. The primary factor influencing demand for CRC-Evans' products and services is the worldwide level of gas, oil and water pipeline construction and rehabilitation activity. CRC-Evans believes several factors influenced by global economic growth will contribute to worldwide pipeline infrastructure capital expenditures. LONG-TERM INCREASING GLOBAL ENERGY DEMAND Long-term growth in the consumption of energy is one of the primary factors which increases the demand for pipeline construction equipment and services. The demand for natural gas is particularly relevant for pipeline construction equipment and services, since pipelines are normally the most efficient method of transporting natural gas. The following graphs show the increased consumption of gas and oil since 1975. Gas and oil consumption has grown at an average annual rate of 2.8% and 1.3%, respectively, since 1975. [LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW] WORLD OIL CONSUMPTION (MILLIONS OF BARRELS PER DAY) U.S. REST OF WORLD TOTAL WORLD CONSUMPTION ----- ------------- ----------------------- 1975 16.7 39.4 56.1 1976 17.8 41.7 59.5 1977 18.8 42.7 61.5 1978 19.2 44.5 63.7 1979 18.9 46.2 65.1 1980 17.4 45.2 62.4 1981 16.4 44.1 60.5 1982 15.5 43.4 58.9 1983 15.4 43.3 58.7 1984 16.0 43.7 59.7 1985 15.9 43.9 59.8 1986 16.5 45.2 61.7 1987 16.9 46.3 63.2 1988 17.5 47.5 65.0 1989 17.5 48.4 65.9 1990 17.2 49.0 66.2 1991 17.0 49.8 66.8 1992 17.2 50.0 67.2 1993 17.5 50.3 67.8 1994 18.0 50.6 68.6 1995 18.0 52.1 70.1 1996 18.5 53.3 71.8 1997E 18.7 55.0 73.7 - -------------------------- [LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW] WORLD NATURAL GAS CONSUMPTION (BILLIONS OF CUBIC FEET PER DAY) U.S. REST OF WORLD TOTAL WORLD CONSUMPTION ----- ------------- ----------------------- 1975 53.5 62.0 115.5 1976 54.5 67.7 122.2 1977 53.5 71.4 124.9 1978 53.8 76.6 130.4 1979 55.5 83.6 139.1 1980 54.3 85.7 140.0 1981 53.2 87.5 140.7 1982 49.3 91.6 140.9 1983 46.1 97.7 143.8 1984 49.0 105.6 154.6 1985 47.3 112.9 160.2 1986 44.4 117.0 161.4 1987 47.2 122.6 169.8 1988 49.3 129.1 178.4 1989 51.5 135.0 186.5 1990 51.3 138.8 190.1 1991 52.2 141.3 193.5 1992 53.4 140.4 193.8 1993 55.6 140.9 196.5 1994 56.7 140.3 197.0 1995 59.1 143.6 202.7 1996 60.0 152.8 212.8 1997 60.1 152.3 212.4 - ------------------------- Source: Natural gas data from the International Energy Agency. 1975 - 1996 oil data from International Energy Agency. 1997 estimated oil data provided by Cambridge Energy Research Associates. 31 Longer term, there are several key factors which could dictate the increased consumption of gas. These include: (i) environmental considerations which provide strong incentives to use "cleaner-burning" natural gas in place of other carbon or nuclear fuels; (ii) the plentiful supply of natural gas in North America and worldwide; (iii) increasing electricity deregulation in the United States because electricity generation is currently the fastest growing market for natural gas in the United States and (iv) the development of local international gas markets. EXPANDED GAS, OIL AND WATER TRANSPORTATION INFRASTRUCTURE Areas of energy supply and demand shift over time. Therefore, CRC-Evans believes that new pipeline and transportation infrastructure and the resulting demand for pipeline construction equipment and services should increase faster than energy demand growth. In addition, the exploration and development of new oil and gas fields has led to, and is expected to continue to lead to, demand for additional pipeline infrastructure. Many newly developed oil and gas reserves are in remote regions of the world, including deep-water offshore areas and regions in South America, Asia, Siberia and Africa, which are far from where the products will be used. As these remote fields are developed, CRC-Evans believes that demand for long-haul transmission pipelines to transport gas or oil to refineries, electric generation facilities, areas of residential and other industrial consumption, or marine shipping terminals will continue to increase. Many geographic regions currently lack the infrastructure to transport natural gas from areas of supply to areas of demand. As a result, these regions are developing natural gas pipeline grids. For example, in North America there are specific pipeline construction projects to transport natural gas from Canada southward and eastward to the large consumption markets in the eastern and midwestern United States. Regional pipeline grids are also being constructed in the Mercosur Free Trade Zone of South America (Argentina, Brazil, Paraguay and Uruguay) and in multiple regions within Asia. For political and other factors, many pipelines are being routed around certain countries. For example, stated United States foreign policy proposes that multiple oil pipelines be constructed from the Caspian Sea thereby reducing dependence on any one geographic region. As a result, many miles of pipeline may be constructed that would otherwise not be constructed. OTHER IMPORTANT TRENDS The pipeline rehabilitation market is influenced by the necessity to address an aging pipeline infrastructure to maintain safe operating conditions and to comply with increasing governmental regulations concerning safety and environmental protection. For example, if a large-diameter pipeline has significantly deteriorated due to corrosion, it is often more economical to rehabilitate the pipeline than to replace it. Industry sources estimate that 19% of all United States pipelines currently in service were built before 1950, 49% were built between 1950 and 1969 and 32% were built between 1970 and 1998. CRC-Evans believes pipeline operators in the United States and in other countries such as the countries of the Former Soviet Union are addressing and will continue to address their aging pipeline infrastructure. CRC-Evans expects that a growing share of activity in the industry will be derived from larger-diameter pipeline rehabilitation in the United States and Canada and elsewhere. There is a continuing trend to design and build gas pipelines to operate at increasingly higher pressures. High pressure transmission pipelines require the use of higher strength steels and tougher welds. The use of certain of CRC-Evans' products, including its automatic welding systems, to address these technical needs has recently increased substantially, and CRC-Evans believes these trends will continue. CRC-Evans expects that a significant shortage of usable water throughout the world, increased industrialization, higher living standards and the privatization of the water industry around the world should lead to increased potable and wastewater infrastructure development and, as a result, water pipeline construction. 32 PIPELINE CONSTRUCTION STATISTICS Pipeline construction has become increasingly international since 1995 as developing nations expand their pipeline infrastructure. The following table sets forth the total miles of gas and oil pipeline construction projects that were completed from 1992 through 1998. The U.S. market has been steadily growing since 1995, especially in response to Canadian gas imports. Worldwide pipeline construction mileage increased from 14,201 miles in 1995 to 22,397 miles in 1998. Industry sources estimate that approximately 49,000 miles of pipeline are presently planned to be constructed in 1999 and thereafter. WORLD PIPELINE CONSTRUCTION MILEAGE 1992-1998(1)
1992 1993 1994 1995 -------------------- -------------------- -------------------- -------------------- LOCATION MILES % MILES % MILES % MILES % - ------------------------------------- --------- --------- --------- --------- --------- --------- --------- --------- U.S.................................. 6,328 39.2% 5,591 36.0% 5,426 35.9% 4,623 32.6% Other................................ 9,801 60.8 9,559 64.0 9,677 64.1 9,578 67.4 --------- --------- --------- --------- --------- --------- --------- --------- World Total.......................... 16,129 100.0% 15,150 100.0% 15,103 100.0% 14,201 100.0% ========= ========= ========= ========= ========= ========= ========= =========
1996 1997 1998 -------------------- -------------------- -------------------- LOCATION MILES % MILES % MILES % - ------------------------------------- --------- --------- --------- --------- --------- --------- U.S.................................. 5,537 31.7% 6,598 32.2% 7,177 32.0% Other................................ 11,935 68.3 13,887 67.8 15,220 68.0 --------- --------- --------- --------- --------- --------- World Total.......................... 17,472 100.0% 20,485 100.0% 22,397 100.0% ========= ========= ========= ========= ========= =========
- --------------------------- Source: (1) PIPE LINE & GAS INDUSTRY, January 1999. COMPANY STRENGTHS CRC-Evans believes it is well positioned to continue as the leading provider of specialized equipment and services used in the construction and rehabilitation of gas and oil transmission pipelines. The Company believes it possesses a unique combination of specific strengths which provides a solid foundation for its growth strategy. o INDUSTRY LEADER. CRC-Evans is the world's leading provider of specialized equipment and services used in the construction and rehabilitation of pipelines. According to Spears, a market research consulting firm, CRC-Evans enjoys a market share of approximately 66% in the specialized pipeline equipment rental markets in North America and a market share of approximately 75% in the worldwide field joint coating markets outside North America. In addition, management believes CRC-Evans enjoys a market share of approximately 70% in the worldwide onshore pipeline automatic welding equipment market. CRC-Evans believes its portfolio of specialized pipeline construction and rehabilitation equipment and services is the most complete in the industry. o SIGNIFICANT BARRIERS TO ENTRY. CRC-Evans believes its large investment in specialized rental equipment, highly experienced management, technical expertise and personnel, and worldwide sales force and sales representative network all serve as a barrier to entry. Furthermore, the company believes that its proprietary technology, including patents and pending patents, provides it with a significant technological advantage over its competitors in many of its product lines and services. In particular, CRC-Evans developed the first commercially accepted automatic pipeline welding system in 1968 and continues to provide the most commonly used automatic pipeline welding systems in the world. o WORLDWIDE PRESENCE. Pipeline construction is worldwide in scope. While the United States is a large market, the majority of new pipeline construction projects are located outside the United States. CRC-Evans is organized to manage its diverse geographic customer base with a strong international direct sales force which is further complemented by a network of experienced commissioned sales representatives and distributors in key international markets. o CUSTOMER RELATIONSHIPS. CRC-Evans has developed long-term relationships with the majority of the world's leading pipeline construction contractors and pipe coating contractors. CRC-Evans has enjoyed repeat business with the majority of these companies. CRC-Evans' Total Project Support program helps its customers achieve maximum efficiency and productivity on projects by making available to its customers the experience and technical expertise of its engineers and support staff throughout the entire project. 33 o EXPERIENCED MANAGEMENT WITH SIGNIFICANT OWNERSHIP. CRC-Evans' current senior management team has been involved in managing CRC-Evans or its predecessors' major lines of business since 1971. Management also has significant acquisition and operational experience gained through numerous years of service as executive officers of public companies. Messrs. Wood, Carey and Evans have completed over 30 acquisitions for CRC-Evans and its predecessors. Following the completion of the offering, CRC-Evans' officers and other management will beneficially own approximately 16.2% of the common stock. BUSINESS STRATEGY CRC-Evans seeks to maximize shareholder value through its growth strategy which includes: o EXPANDING INTERNATIONAL OPERATIONS. Although CRC-Evans has historically served a worldwide customer base, it intends to strengthen and expand its international operational capability. It seeks to accomplish this goal primarily by acquiring established operations in several key international regions. These new operations centers will provide distribution hubs from which CRC-Evans can more readily provide existing and new products and services to customers' projects. By being in close proximity to its customers, CRC-Evans expects to strengthen its long-term customer relationships through increased customer contact as well as augment its market intelligence through the company's local personnel. o ADDING RELATED PRODUCTS AND SERVICES. CRC-Evans intends to acquire or develop related products and services. CRC-Evans will provide these new products and services through its broad distribution system comprised of the company's sales force, international sales representatives and operations centers in key geographic regions of pipeline construction and rehabilitation activity. This strategy is designed to enhance the performance of acquired companies, increase the speed of new product acceptance and further diversify CRC-Evans' sources of revenue. o MAKING STRATEGIC ACQUISITIONS. CRC-Evans continually evaluates opportunities to acquire businesses that offer complementary or competitive products and services. CRC-Evans believes acquisition candidates are available that will allow it to increase market share in its existing lines of business, provide product line extensions, and expand the geographic scope of its operations. CRC-Evans has completed three acquisitions since March 1998 with an aggregate purchase price of approximately $17.4 million (including all estimated future earn-out payments). CRC-Evans has consolidated a domestic competitor with pipeline rental assets, expanded its business into concrete weighting for pipelines and added resistance heat treating services to complement its pipeline induction heating business. o EXTENDING AND LEVERAGING TECHNOLOGICAL LEADERSHIP. Continuing its long history of innovation in the pipeline equipment and services industry, CRC-Evans intends to further extend its technological leadership and capabilities through in-house research and development, acquisition and licensing of technology as well as participation in joint development efforts with providers of related products or processes which incorporate CRC-Evans' products. This strategy has produced many industry innovations for the company including the automatic welding system, pneumatic line-up clamps and mandrels, hydraulic pipe bending machines and line travel pipeline rehabilitation systems. PRODUCT AND SERVICES OVERVIEW CRC-Evans is the world's leading provider of specialized equipment and services used in the construction and rehabilitation of gas and oil transmission pipelines. Its company's pipeline products and services provide a wide range of solutions to the pipeline construction and rehabilitation industry. CRC-Evans sells and rents automatic pipeline welding systems, pipe bending equipment, line-up clamps, pipe coating plants, coating and cleaning equipment, pipeline rehabilitation equipment and lay barge pipe handling equipment. CRC-Evans also provides specialized services including joint coating, cement weighting, induction and resistance heating and automatic welding systems training and supervision. CRC-Evans products and services are used in various aspects of pipeline construction. In constructing a pipeline, after the survey, design and permitting stages, the site is prepared for the pipeline by clearing land and digging the ditch in which the pipeline will be laid. As the ditch is dug, sections of pipe are brought to the site and are placed end-to-end beside the ditch prior to bending and welding. Except for the ends 34 which will be welded together and coated at the site, these sections are usually coated with a protective coating either at the pipe mill where the pipe is fabricated or at a separate coating plant. At this time, equipment is used to bend those sections to conform to the ditch in which the pipe will be laid. The sections are lined up using pneumatic line-up clamps, and welded together either manually or by automatic welding systems. After the sections are welded, the uncoated ends which have been welded together are coated through a variety of application methods, including an induction heating and epoxy powder coating process, spray-applied coatings or shrink sleeves. Because pipe coatings often require protection from rocks in the soil, prior to being placed in the ditch, a padding of screened dirt or sand is often placed into the ditch to protect the pipe coating. At this time, unless the pipeline runs across a river or through a wetland, the ditch is refilled with dirt. If the pipeline is laid across a river or through a wetland, the pipeline needs to be weighted to prevent it from floating out of the ditch or off the bottom of the river. To anchor the pipeline, it is covered with on-site manufactured concrete bolt-on weights, set-on weights or a continuous coating of concrete. As pipelines age and the original coating deteriorates, a decision is made whether to replace or rehabilitate them. The decision either to replace or rehabilitate is made based on the amount of corrosion the pipeline has suffered and the cost and effectiveness of employing cathodic protection to prevent additional corrosion. CRC-Evans provides rehabilitation equipment and services to perform certain operations in the rehabilitation process. A rehabilitation project begins with exposing the pipeline sections to be rehabilitated and stripping the pipe of its former protective coating. This stripping process requires highly specialized equipment, usually high pressure water blasting, both to remove the coating and, if required, to contain the removed coating, which may contain hazardous material such as asbestos. After the pipe is stripped, it undergoes inspection to ascertain the degree of corrosion, and based on this inspection, affected areas are cut out and replaced. The surface is prepared for recoating using steel shot/grit or sand blasting and is then recoated by a mobile coating plant. After recoating, the pipe sections are rejoined by welding and lowered into the ditch and buried and, if necessary, the pipeline is reweighted. CRC-Evans' products and services can be divided into five major areas: (a) pipeline equipment and services; (b) automatic welding systems and services; (c) pipe joint coating equipment and services; (d) pipeline weighting products and services; and (e) rehabilitation equipment and services. PIPELINE EQUIPMENT AND SERVICES As a full-line provider of specialized equipment to the pipeline construction industry, CRC-Evans designs, manufactures, sells, rents, refurbishes and supports an extensive line of equipment used in the construction and rehabilitation of oil and gas pipelines and water pipelines, including bending machines, bending mandrels, pipe facing machines, line-up clamps and coating equipment, as well as specialized equipment such as internal and external coating plants, double-jointing plants and lay barge pipe handling equipment. In addition, CRC-Evans' service technicians provide installation, training, field operations, repair services and on-site support to ensure product reliability. As a complement to its equipment and services, the company also operates a division which provides pipeline contractors with basic pipeline construction supplies such as pipe beveling machines, tensile testers, coating defect detectors, external line-up clamps, power tools, protective gear and miscellaneous tools and supplies. 35 The following is a listing of CRC-Evans' major specialized pipeline construction equipment and its uses: PRODUCT DESCRIPTION/BENEFIT - ------------------------------------------------------------------------------ Bending Machines......................... Bend pipe to follow the contour of the ditch. Bending Mandrels......................... Internally support the pipe during bending. Bending Sets............................. Allow a bending machine to bend pipes of a specific diameter within the bending machine's range. Cleaning/Priming/Taping Machines......... Feature dual counter-rotating cleaning heads with wire cup brushes, scraper knives or a combination of both to clean the full pipe circumference and to perform pipe cleaning, primer application and tape wrapping simultaneously. Coating/Wrapping Machines................ Apply enamel-type coating and reinforcing wrap to pipe. Cradles.................................. Lift pipe string from skids and provide support for pipe during cleaning, coating, and lowering into ditch after welding. Cutting/Beveling Machines................ Flame cut, bevel pipe, and cut mechanical testing samples. Double Jointing Systems.................. Using the submerged arc process, the double jointer welds joints together prior to pipeline construction, thereby reducing the need for on-site welding services. Internal Pneumatic Line-Up Clamps................................. Align pipe joints for external welding. Pipe Coating Plants...................... Systems used to transport, clean, heat, apply coatings, cure coatings and cool coated pipe; either permanent facilities or for portable plants. Pipe Facing Machines..................... Produces any desired end bevel within a tolerance of 0.005 inches. Pipe Lay Barge Equipment................. Transport and handle pipe on board a pipe lay barge during offshore pipe laying operations. Pipeline Kettles......................... Heat large quantities of enamel-type coating materials to a liquid state for field or plant application. Road Boring Machines..................... Machines for boring underneath roads and installing pipe casing. CRC Evans provides pipeline equipment throughout the world, with activity levels depending on the level of pipeline construction in given regions. Historically, the majority of the company's pipeline equipment-related revenues has come from sales of equipment in markets outside North America, while it has typically rented its equipment domestically. Although the company achieves higher margins on rental equipment, pipeline contractors also prefer renting because they do not have to make a capital investment in a wide variety of pipeline diameter-specific equipment, and the equipment costs can be expensed to the project. AUTOMATIC WELDING SYSTEMS AND SERVICES CRC-Evans is the world's largest provider of pipeline automatic welding systems. The company designs, manufactures and rents these systems which are primarily used on large diameter pipeline construction projects. CRC-Evans' automatic welding systems include internal and external automatic welders, pipe facing machines, all-weather protected welding enclosures, specialized equipment used in conjunction with automatic welding, and consumables, such as welding wire. Automatic welding systems are more economically suited for larger diameter, longer distance pipeline projects and high strength steel pipelines used for high pressure gas transmission. CRC-Evans designed the first commercially viable pipeline automatic welding system in 1968. The company's automatic welding systems have been used to complete, or are in the process of completing, approximately 25,600 miles of pipe. Although some pipeline construction companies provide their own automatic welding systems, CRC-Evans believes that it is the largest provider of automatic welding systems and services used in the onshore market and it also believes that it is the largest third-party provider of automatic welding systems and services used in the offshore market. CRC-Evans believes that its automatic welding systems are generally superior to manual welding because they provide shorter weld times and more consistent and higher quality welds. In addition to providing automatic welding equipment, the Company develops and provides welding procedures, advises and 36 instructs contractors in the use of its equipment and maintains a staff of welding technicians for assisting customers in project set-up, personnel training and equipment maintenance. CRC-Evans' automatic welding systems consist of a fine wire, gas-metal-arc welding process developed specifically for the field welding of large diameter pipelines. The company's system is capable of producing consistently high quality, lower cost welds with higher production rates than manual welding methods. PRODUCT DESCRIPTION/BENEFIT - ------------------------------------------------------------------------------ Combination Internal Welder & Line-up Clamp.................................. Applies the internal weld to the pipe joints from inside the pipe. Internal welders have four, six or eight remotely controlled welding heads, depending on the pipe diameter. External Welders......................... Travel on alignment bands positioned on the pipe and apply multiple external weld layers. Support Equipment........................ This equipment is designed to users'specifications and includes items such as welding rectifiers, welding tractors and all-weather welding enclosures. Pipe Facing Machine...................... Used to create new bevels on pipe ends for either automatic or manual welding. CRC-Evans has had most of its success in automatic pipeline welding outside of the United States. Historically, the use of automatic welding onshore in the United States has not been well accepted. CRC-Evans believes, however, that there is an increasing acceptance of automatic welding by the industry in the United States. This acceptance is being dictated in part by the changing nature of pipelines being constructed and the demands of pipeline owners. The increasing use of higher strength alloy metal pipe that requires high quality welds with properties that are not available or are difficult to achieve with manual welding processes is expected to result in greater use of automatic welding in pipeline projects both in the United States and internationally. In addition, on larger diameter and longer distance pipeline construction projects, automatic welding is often a lower cost alternative to manual welding. The project engineers for the 1,900 mile Alliance Pipeline, which is scheduled to begin construction in 1999 and is expected to begin piping gas from Canada to the United States in late 2000, have specified that the pipeline will be welded with automatic welding systems. CRC-Evans has obtained orders to provide automatic welding systems for major portions of the Alliance Pipeline. The majority of revenues associated with CRC-Evans' automatic welding systems have been generated by equipment rentals and associated services. Sales revenues are generated primarily from the sale of welding wire, other consumable items and spare parts. 37 PIPE JOINT COATING EQUIPMENT AND SERVICES CRC-Evans is the leading provider of specialty pipe joint coating services outside North America. The company provides field-joint coating services, cleaning and coating services, and rents post-weld heat treating equipment for pipeline construction applications and resistance and thermal heat treating equipment and services for power generation, refining, petrochemical, large fabrication and refractory applications. CRC-Evans provides these products and services to a wide range of onshore and offshore contractors.
SERVICE/PRODUCT DESCRIPTION/BENEFIT - ------------------------------------- ------------------------------------------------------------------ Fusion-Bond Epoxy Powder Coating -- Onshore................. Specialized equipment for the application of fusion bonded epoxy powder both in the field and plant. Fusion-Bond Epoxy Powder Coating -- Offshore................ Purpose-built equipment designed to work within the critical cycle times demanded by the offshore pipeline construction contractor. Heat Treatment Services.............. Induction pre/interpass and post-weld heat treatment services for pipeline applications; resistance heat treatment services for stress relieving applications and thermal heating for refractory dry-outs. Insulation Field-joint Systems....... Allow for the application of coating both on and offshore, providing similar physical and insulation properties to the factory applied coating. Internal Field-joint Coating Application systems operate inside the pipeline during System............................. construction, offering total corrosion protection to the internal field-joint area. Specialist Coatings.................. Liquid epoxy, polyurethane and three-layer coating systems that are applied both onshore and offshore for the oil and gas and civil construction industries. CRC-Evans also supplies joint infill (e.g., foam) systems primarily for offshore pipelay activities.
CRC-Evans' service personnel and equipment are dispatched primarily from its offices in Burnley, England to pipeline construction sites worldwide (with the exception of North America where the Company rents the equipment to customers). The company conducts the majority of its fabrication coating operations at a leased facility in Aberdeen, Scotland. CRC-Evans' industrial heat treating operations are located at Didcot, England, which provides ready access to its markets in the southern portion of the United Kingdom. Historically, a significant portion of CRC-Evans' revenue for pipe end coating equipment and services and industrial heat treatment has been generated in the United Kingdom. PIPELINE WEIGHTING PRODUCTS AND SERVICES CRC-Evans is the industry leader in the United States in the on-site manufacture of concrete weights for pipeline construction in wetlands or across rivers. Pipeline weighting is accomplished through bolt-on weights, set-on weights or a continuous coating of concrete applied to the exterior of the pipe. Continuous concrete coating is also used for pipe casing under roads or railways. CRC-Evans provides technical supervision personnel, molds and materials for the on-site production of weights. Since acquiring this line of business in April 1998, the company has begun to focus on providing concrete weighting services to markets outside of the United States using its foreign subsidiaries and sales force.
PRODUCT DESCRIPTION/BENEFIT - ------------------------------------- ------------------------------------------------------------------ Set-on Weights....................... Used primarily in wetland areas where there is no flowing water. Bolt-on Weights...................... Constructed of two halves which circle the pipe. Bolt-on weights are used where there is flowing water and may be attached before the pipe is put in place. Continuous Concrete Coating.......... Used in wetlands and river crossings. Provides protection and negative buoyancy. Also used for pipeline casing under roads or railways. Plastic Pipe Weighting............... Used to weight plastic pipe.
38 REHABILITATION EQUIPMENT AND SERVICES CRC-Evans believes that the pipeline rehabilitation sector should be a growing business over the long term as pipelines around the world begin to reach the end of their useful lives. The company's pipeline rehabilitation equipment applies high pressure water (20,000 - 35,000 psi) to remove old and deteriorated external coatings. Then the pipe surface is prepared for re-coating by using steel shot/grit or sand blasting. New coatings are then applied using specialized coating equipment. A key to CRC-Evans' success in this area is its patented pipeline coating removal equipment. Most of CRC-Evans' current rehabilitation rental revenue is derived in the United States and Canada, and its sales are mainly international.
PRODUCT DESCRIPTION/BENEFITS - ------------------------------------- ------------------------------------------------------------------ High Pressure Waterblast Machine..... Removes deteriorated pipeline coating either in-plant or on-site. Shot/Grit Mechanical and Airblast Cleaning Systems................... Remove rust and prepare pipe surface for coating. Plural Component Coating Systems..... Mix and apply plural component corrosion coatings to the pipeline on-site. Envirosystem......................... Collects, dewaters, and packages removed coatings for disposal.
RESEARCH AND DEVELOPMENT CRC-Evans conducts ongoing research and development of new products and services to maintain its technological position. The company has approximately 145 patents relating to and covering various features of the many types of equipment it manufactures for use in pipeline construction and rehabilitation. Of these patents, 44 are U.S. patents and the remaining 101 are non-U.S. patents based on corresponding U.S. patents or patent applications. In addition, CRC-Evans has 46 pending applications, of which two are U.S. applications. The Company's patents have expiration dates ranging through 2015. No single patent or group of related patents covers products that account for over 10% of the Company's revenues. MARKETING AND SALES CRC-Evans sells its products and services through its salesforce of 26 salespeople and approximately 27 independent international sales representatives and distributors covering 70 countries. The company's sales offices are located in Houston, Texas; Tulsa, Oklahoma; Toms River, New Jersey; Hoevelaken, Netherlands; Edmonton, Alberta; Burnley, England and Didcot, England. CRC-Evans' salespeople and representatives generally have over ten years of experience selling the company's products and services and several international sales representatives have represented the company for over 30 years. CRC-Evans believes that due to the relatively small community of companies and people involved in the construction of large diameter pipelines, the two factors that are most important in marketing its products and services are its high quality, dependable equipment and services, and the relationship between its management, sales and technical personnel and its customers. CRC-Evans believes that its Total Project Support program is important in marketing its products and services. The program helps the company's customers achieve maximum efficiency and productivity on projects by making available to its customers high-performance equipment, trained operating technicians, on-site advisors, technical support and training programs throughout the entire project. Total Project Support helps CRC-Evans' customers keep expensive job downtime to a minimum with an equipment backup fleet, international service teams and a full spare parts inventory. CUSTOMERS AND CONTRACTS Although CRC-Evans' customer base is broadly based in the worldwide pipeline construction industry, the industry is comprised of relatively few companies around the world. For the fiscal year ended March 31, 1998, CRC-Evans' largest project was responsible for less than 7% of the company's revenues, but 45% of the company's revenues were attributed to its ten largest customers during such period. One customer, Petroleum Projects and Technical Consultation Co. (Petrojet), an Egyptian company, accounted for approximately 11% of CRC-Evans' total revenues during 1998. At any time the relative significance of any customer or group of customers depends on the type and location of pipeline construction projects in 39 progress. As such, CRC-Evans' customer base tends to change from year to year depending on these factors. CRC-Evans' customers include pipeline construction contractors (onshore and offshore), pipe coating contractors and, in the international market, state-owned gas and oil pipeline companies. See "Risk Factors -- CRC-Evans has a limited number of major customers." CRC-Evans attempts to mitigate financial and other risk through the terms of its contracts with its customers. For instance, in its automatic welding rental operations, the company generally requires the payment of all mobilization and demobilization fees in cash before starting a project. In addition, CRC-Evans mitigates its expropriation and force majeure risks by requiring the equipment renter to be financially responsible for the return of all rented equipment regardless of the reason for loss in its international automatic welding contracts, which represent substantially all of CRC-Evans' international rental contracts. EQUIPMENT CRC-Evans' pipeline construction equipment and automatic welding equipment is manufactured at its Tulsa, Oklahoma facility. The company fabricates and assembles its products using certain purchased components in addition to its own manufactured components, and typically buys most of the high-volume machine parts used in its products from vendors. CRC-Evans' production level varies with pipeline construction activity and is frequently project-oriented in nature. The company is able to satisfy sales demand for reconditioned equipment by selling equipment out of its rental fleet and replacing the sold equipment with newly manufactured or repurchased equipment. This enables CRC-Evans to maintain relatively constant production staff levels using flexible work schedules. CRC-Evans maintains a comprehensive rental equipment fleet and spare parts inventory to meet the delivery requirements of its customers. The company's equipment is manufactured, maintained and refurbished as necessary to satisfy projected customer demand. CRC-Evans has maintenance facilities in Tulsa, Oklahoma; Edmonton, Alberta; Burnley, England and Didcot, England, and performs on-site maintenance to minimize downtime. CRC-Evans maintains a facility for welding research and development in Houston, Texas. COMPETITION The specialized pipeline equipment sales, rental and services businesses are highly competitive. Generally, CRC-Evans competes directly with smaller companies and the in-house provision of products and services by general contractors. Several of CRC-Evans' competitors within certain product lines have greater financial resources than the company. CRC-Evans believes it is currently the world's leading provider of specialized equipment and services used in the construction and rehabilitation of gas and oil transmission pipelines. CRC-Evans believes that in addition to long-standing relationships, competition is based on price, customer service, including the availability of personnel in remote locations, flexibility in meeting customer needs and the quality and reliability of its equipment and related services. FACILITIES CRC-Evans owns a 29-acre equipment yard/manufacturing/maintenance facility and supply warehouse in Tulsa, Oklahoma and a 9,800 square foot sales office/warehouse/service facility in Edmonton, Canada. The company leases all other facilities used in its operations, including its corporate offices in Houston, Texas and various office facilities and equipment sites in the United Kingdom and the Netherlands. The aggregate lease payments made by CRC-Evans for its facilities were $206,000 for the fiscal year ended March 31, 1998. In November 1998, CRC-Evans purchased 19 acres in Houston, Texas which it currently intends to use for corporate and sales personnel and certain of its operations. GOVERNMENT REGULATION GENERAL Many aspects of CRC-Evans' operations are subject to government regulations in the countries in which the company operates, including those relating to currency conversion and repatriation, taxation of its earnings and the earnings of its personnel, and its use of local employees and suppliers. In addition, CRC-Evans depends on the demand for its services from the oil and gas pipeline construction industry and, therefore, is affected by changing taxes, price controls and laws and regulations relating to that industry generally. The 40 adoption of laws and regulations by countries in which CRC-Evans operates curtailing oil and gas exploration and development drilling for economic and other policy reasons could adversely affect CRC-Evans' operations by limiting demand for its services. CRC-Evans' operations are also subject to the risk of changes in foreign and domestic laws and policies, including trade restrictions and embargos, which may impose restrictions on the company that could have a material adverse effect on its operations. Other types of government regulation which could, if enacted or implemented, adversely affect CRC-Evans' operations include expropriation or nationalization decrees, confiscatory tax systems, primary or secondary boycotts directed at specific countries or companies, embargoes, extensive import restrictions or other trade barriers, mandatory sourcing rules and unrealistically high labor rate and fuel price regulation. CRC-Evans cannot determine to what extent future operations and earnings of the company may be affected by new legislation, new regulations or changes in, or new interpretations of, existing regulations. ENVIRONMENTAL CRC-Evans' operations are subject to extensive federal, state and local environmental laws and regulations. The company regularly works in and around sensitive environmental areas such as rivers, lakes and wetlands. Significant fines and penalties may be imposed for non-compliance with environmental laws and regulations. Certain environmental laws including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 ET SEQ., and analogous state statutes, provide for joint and several strict liability for remediation of releases of hazardous substances, rendering an owner or operator liable for environmental damage without regard to negligence or fault. In addition, CRC-Evans may be subject to claims alleging personal injury or property damage as a result of exposure to hazardous substances. Such laws and regulations may expose the company to liability arising out of the conduct of operations or conditions caused by others, or for the acts of the company which were in compliance with all applicable laws at the time such acts were performed. CRC-Evans' operations may generate or transport both hazardous and non-hazardous solid wastes that are subject to the requirements of the Resource Conservation and Recovery Act, 42 U.S.C. 6901 ET SEQ., and comparable state statutes and regulations. The operations of the company may also be subject to the Clean Water Act, 33 U.S.C. 1251 ET SEQ., and the Clean Air Act, 42 U.S.C. 7401 ET SEQ., and comparable state statutes and regulations. Additional environmental laws, including but not limited to, the Oil Pollution Act of 1990, the Endangered Species Act and the Toxic Substances Control Act may also impact CRC-Evans' operations. To the company's knowledge, its operations are in substantial compliance, and are expected to continue to comply in all material respects, with applicable environmental laws, regulations and ordinances. CRC-Evans does not believe that it will be required in the near future to expend material amounts due to compliance with or liability under such environmental laws and regulations. In recent years, environmental requirements have become increasingly stringent. Future developments, such as stricter environmental laws, regulations or enforcement policies, could affect the handling, manufacture, use, emission or disposal of substances by CRC-Evans. INSURANCE CRC-Evans maintains workers' compensation, employers' liability, general liability, directors' and officers' liability, automobile liability and excess liability insurance to provide benefits to employees and to protect it against claims by third parties with policy limits adequate to meet its expected needs and consistent with industry standards. Such insurance is underwritten by A+ or better rated insurance companies (AM Best rating as to claims paying ability). CRC-Evans also maintains physical damage insurance covering loss of or damage to its property on a worldwide basis, with special insurance covering loss or damage caused by political or terrorist risks in locations where such coverage is deemed prudent. CRC-Evans maintains risk management and safety programs, which have resulted in favorable loss ratios and cost savings. CRC-Evans believes its risk management, safety and insurance programs are adequate to meet its needs. EMPLOYEES AND LABOR RELATIONS As of November 1, 1998, CRC-Evans had approximately 381 permanent employees and 178 temporary employees for a total of approximately 559 employees. Of these employees, approximately 356, 20, 176 and 7 are located in the United States, Canada, the United Kingdom and the Netherlands, respectively. No 41 permanent employees are represented by labor unions, and CRC-Evans believes that its relations with its employees are satisfactory. LEGAL PROCEEDINGS CRC-Evans is involved in litigation incidental to the conduct of its business, none of which management believes is, individually or in the aggregate, material to the company's financial condition or results of operations. DESCRIPTION OF JUNE 1997 BUYOUT AND RELATED TRANSACTIONS In June 1997, CRC-Evans purchased the business and assets of its predecessors from Weatherford Enterra for approximately $40.0 million using proceeds from bank loans and capital provided by certain officers, directors and key employees, led by Messrs. Wood, Carey and Evans, together with institutional investors Natural Gas Partners and Equus. Each of Natural Gas Partners and Equus made an equity investment of approximately $3.2 million, representing a 35% interest in the company. In addition, CRC-Evans borrowed $1.9 million from Natural Gas Partners and Equus pursuant to subordinated promissory notes due June 30, 2002, each in the original principal amount of $959,700, and each bearing interest at a rate of 12% per annum. Employees and members of the management team -- 14 people total -- made an equity investment of approximately $2.7 million, representing a 30% interest in CRC-Evans, $1.9 million of which was borrowed from CRC-Evans pursuant to promissory notes bearing interest at a rate of 6.75% per annum and maturing on June 30, 2002. In addition to the above financing sources, CRC-Evans borrowed $32.5 million under its credit facility to assist in financing the management buyout. See "Use of Proceeds." ADDITIONAL INFORMATION CRC-Evans has filed a registration statement on Form S-1 with the Securities and Exchange Commission. In addition, upon completion of the offering, CRC-Evans will be required to file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission. Investors may read and copy the registration statement and any other documents filed by CRC-Evans at the Securities and Exchange Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the Public Reference Room. CRC-Evans' Securities and Exchange Commission filings are also available to the public at the Securities and Exchange Commission's Internet site at http://www.sec.gov. This prospectus is part of the registration statement and does not contain all of the information included in the registration statement. Whenever a reference is made in this prospectus to any contract or other document of CRC-Evans, the reference may not be complete and investors should refer to the exhibits that are a part of the registration statement for a copy of the contract or document. 42 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The name, age and respective position of each executive officer and director of CRC-Evans are as follows: NAME AGE POSITION - ----------------------------------- --- ------------------------------ D. Dale Wood....................... 60 Chairman and Chairman of the Board of Directors M. Timothy Carey................... 54 Chief Executive Officer and Director C. Paul Evans...................... 68 President and Director Windell D. Norris, Jr.............. 55 Vice President -- Finance and Administration Norman R. Francis.................. 68 Chief Financial Officer, Treasurer and Secretary Richard L. Covington............... 40 Director Gary L. Forbes..................... 54 Director Kenneth A. Hersh................... 35 Director Nolan Lehmann...................... 54 Director The following is a brief description of the background and principal occupation of each executive officer and director: D. DALE WOOD has been affiliated with CRC-Evans and its predecessors since 1971. Prior to becoming Chairman and Chairman of the Board of Directors of CRC-Evans in June 1997, Mr. Wood served as President and Chief Executive Officer of Enterra Corporation (a predecessor) from March 1991 until October 1995 and additionally as its Chairman of the Board of Directors from November 1991 until October 1995. In October 1995, Mr. Wood left Enterra as the result of its merger into Weatherford Enterra to pursue personal investments, including the formation of the buy-out groups which acquired Container-Care International, Inc. in February 1997 and CRC-Evans in June 1997. Mr. Wood devotes approximately 30% of his working time to CRC-Evans. Mr. Wood is a certified public accountant. M. TIMOTHY CAREY has been affiliated with the pipeline industry and CRC-Evans' predecessors since 1972, during which time he ran the predecessors' automatic welding division and held positions as Executive Vice President and President. Prior to joining the Company as Chief Executive Officer in June 1997, Mr. Carey was President of the Oilfield Services and Equipment Group of Enterra from 1992 through October 1995. From October 1995 through March 1996, Mr. Carey served as Sr. Vice President of Weatherford Enterra. From March 1996 through June 1997 he was a private investor and a key participant in structuring the June 1997 buyout. C. PAUL EVANS has been affiliated with the pipeline industry and CRC-Evans' predecessors for 41 years. Prior to becoming President of CRC-Evans in June 1997, Mr. Evans served as President of a predecessor to CRC-Evans from October 1995 to June 1997, and as its Chairman of the Board of Directors, President and Chief Executive Officer from 1992 to October 1995. From 1988 to 1995, Mr. Evans was a member of the Board of Directors of Enterra. WINDELL D. NORRIS, JR. has been in the energy and pipeline equipment business for 31 years, including 26 years with CRC-Evans and its predecessors during which time he held positions as President -- Pipeline Division, Vice President -- Corporate Development and Executive Vice President until January 1996. He served as Chief Executive Officer of Wedge Dia-Log, Inc. from September 1996 to December 1996 and as an independent consultant for CRC-Evans and others from January 1997 until June 1998, at which time he rejoined CRC-Evans as Vice President -- Finance and Administration. NORMAN R. FRANCIS has been affiliated with CRC-Evans and its predecessors since 1960. He became the Chief Financial Officer, Treasurer and Secretary of the Company in June 1997. His prior experience with CRC-Evans' predecessors was as Credit Manager, Controller, Assistant Treasurer, Vice President -- Finance and Chief Financial Officer. Mr. Francis is a certified public accountant. RICHARD L. COVINGTON has served as a director of CRC-Evans since June 1997. Since February 1997, Mr. Covington has served as principal and general counsel to the Natural Gas Partners investment funds. From 43 1988 to February 1997, Mr. Covington was a senior stockholder and an associate with the law firm of Thompson & Knight. GARY L. FORBES has been a director of CRC-Evans since June 1997. Since 1991, Mr. Forbes has served as a Vice President of Equus Capital Management, a registered investment advisor, and as a Vice President of Equus. He serves as a director of Consolidated Graphics, Inc., a consolidator of commercial printing companies, Drypers Corporation, a manufacturer of disposable diapers, NCI Building Systems, Inc., a manufacturer of prefabricated metal buildings, and Advanced Technical Products, Inc., a manufacturer of high performance composite parts for the aerospace and defense industries, all of which are public companies. Mr. Forbes is a certified public accountant. KENNETH A. HERSH has served as a director of CRC-Evans since June 1997. Since 1989, Mr. Hersh has been a manager of the Natural Gas Partners investment funds, which were organized to make direct equity investments in the North American energy industry. He is currently responsible for co-managing Natural Gas Partners' overall investment portfolio. Mr. Hersh serves as a director of Pioneer Natural Resources Company, Titan Exploration, Inc., HS Resources, Inc., Petroglyph Energy, Inc. and Vista Energy Resources, Inc., all of which are public companies engaged in the oil and gas business. NOLAN LEHMANN has been a director of CRC-Evans since June 1997. Since 1983, Mr. Lehmann has served as the president and a director of Equus and Equus Capital Management Corporation. Mr. Lehmann also serves as a director of Allied Waste Industries, Inc., a solid waste management company, American Residential Services, Inc., a residential services company, Brazos Sportswear, Inc., a casual sportswear company, Drypers Corporation, a manufacturer of disposable diapers, and Paracelsus Healthcare Corporation, a hospital management company, all of which are public companies. Mr. Lehmann is a certified public accountant. Directors are elected at each annual meeting of stockholders. Effective upon consummation of this offering, the Board of Directors will be divided into two classes of directors, with directors serving staggered two-year terms, expiring at the annual meeting of stockholders for fiscal years 1999 and 2000, respectively. At each annual meeting of stockholders, one class of directors will be elected for a full term of two years to succeed to that class of directors whose terms are expiring. Messrs. Hersh, Wood, Evans and Forbes will serve for initial two-year terms and Messrs. Lehman, Carey and Covington will serve for initial one-year terms. EXECUTIVE COMPENSATION The following table sets forth certain compensation information for the Chief Executive Officer of CRC-Evans and the four additional most highly compensated executive officers for the period from June 12, 1997 to March 31, 1998 (the "Named Executive Officers").
LONG-TERM COMPENSATION ------------------------------------ AWARDS ------------------------- ANNUAL COMPENSATION SECURITIES PAYOUTS ------------------------------------ RESTRICTED UNDERLYING ------- OTHER ANNUAL STOCK OPTIONS LTIP ALL OTHER NAME/PRINCIPAL POSITION SALARY(1) BONUS COMPENSATION AWARDS(S) PLANS/SARS PAYOUTS COMPENSATION - ------------------------------------- --------- ------- ------------ ---------- ----------- ------- ------------ D. Dale Wood(1)...................... $ 96,652 -- $7,600 -- -- -- $ 972 M. Timothy Carey(1).................. 163,760 -- 7,600 -- -- -- 3,710 C. Paul Evans(1)..................... 120,414 -- 9,859 -- -- -- 4,094 Windell D. Norris, Jr.(2)............ -- -- -- -- -- -- -- Norman R. Francis(1)(3).............. 103,025 -- 7,600 -- -- -- 2,649
- --------------------------- (1) Messrs. Wood, Carey, Evans and Francis receive annual salaries of $120,000, $200,000, $145,000 and $80,000, respectively. (2) Mr. Norris joined CRC-Evans in June 1998 and receives an annual salary of $120,000. (3) Includes salary from January 1997 which was paid after the June 1997 buyout. 44 KEY MANAGEMENT COMPENSATION PLAN The Company has a Key Management Incentive Compensation Plan effective June 13, 1997 by which certain employees may receive a maximum bonus between 15% to 60% of their salary. The bonus plan year is from April 1 through March 31 and was pro rated for the period from June 13, 1997 to March 31, 1998. The bonus plan awards incentive bonuses to CRC-Evans' executive officers and certain key employees. The bonuses are calculated by multiplying the employee's base salary by a factor of 1 to 4, depending on the employee's level of responsibility, and by CRC-Evans' percentage EBITDA return on total capitalization for the prior fiscal year less 20%. The Board of Directors must ratify any bonus paid to Messrs. Wood, Carey and Evans pursuant to the bonus plan. If CRC-Evans' percentage EBITDA return on total capitalization is less than 20% for such fiscal year, no bonuses are paid and the difference is carried forward for up to two years to reduce the bonus percentage factor in those years. If the percentage EBITDA return on total capitalization exceeds 35%, such percentage factor is 15% and the excess carries forward for up to two years to increase the percentage factor in those years. The bonuses are paid 50% upon completion of the fiscal year-end audit report and 50% at the end of the following fiscal year, if the employee has not voluntarily left CRC-Evans or been terminated for cause. DIRECTOR COMPENSATION Directors who are employees of CRC-Evans are not compensated for their services as directors. Non-employee directors receive an annual fee of $10,000. Directors are reimbursed, however, for ordinary and necessary expenses incurred in attending board or committee meetings. COMMITTEES OF THE BOARD OF DIRECTORS; COMPENSATION COMMITTEE INTERLOCKS CRC-Evans has an Audit Committee and a Compensation Committee. The Audit Committee reviews and reports to the Board of Directors the scope and results of audits by CRC-Evans' outside auditor. The committee also recommends the firm of certified public accountants to serve as the Company's independent public accountants, subject to nomination by the Board of Directors and approval of the stockholders, authorizes all audit and other professional services rendered by the auditor and periodically reviews the independence of the auditor. Membership of the Audit Committee is restricted to those directors who are not active or retired officers or employees of the Company. Messrs. Covington and Lehmann are members of the Audit Committee. The Compensation Committee will be established to oversee the compensation of senior management and the incentive stock option plan to be adopted with the effectiveness of this registration statement. The Compensation Committee is currently comprised of Messrs. Hersh and Forbes. At the closing of the offering, no members of the Compensation Committee will be a present or former officer or employee of CRC-Evans or any subsidiary. No executive officer or director of CRC-Evans serves as an executive officer, director, or member of a compensation committee of any other entity, for which an executive officer of such entity is a member of the board of directors or the Compensation Committee of CRC-Evans. STOCK OPTION PLANS INITIAL STOCK OPTIONS As of June 12, 1997, CRC-Evans issued to certain employees options to purchase up to 138,080 shares of CRC-Evans' common stock. With respect to these options, certain stockholders have agreed to sell to CRC-Evans up to 18,080 shares at the same price as the exercise price of such options if options to purchase more than 120,000 shares are exercised. Each option has an exercise price of $2.78 per share and vests at the rate of 20% per year over five years, beginning with the first anniversary of the date of the option agreement and continuing until the fifth anniversary of the agreement, at which time the options are fully vested. Each option expires on August 31, 2002. CRC-Evans subsequently adopted a stock option plan on May 20, 1998. The May 1998 plan authorizes the issuance of additional options to purchase up to 550,160 shares of common stock to certain employees, officers, contractors or consultants of CRC-Evans. The purposes of the May 1998 plan are to promote the 45 interests of CRC-Evans and its stockholders by attracting, retaining and stimulating the performance of selected individuals in giving such individuals the opportunity to acquire a proprietary interest in CRC-Evans and increasing personal interest in CRC-Evans' continued success and progress. The May 1998 plan options constitute non-qualified options that are not "incentive stock options" under Section 422 of the Internal Revenue Code of 1986, as amended. All options granted under the May 1998 plan have an exercise price of $2.78 per share and vest at a rate of 33 1/3% per year over three years, beginning with the first anniversary of the governing option agreement and continuing until the third anniversary of the agreement, at which time the options are fully vested. CRC-Evans currently intends to amend the June 1997 options and the May 1998 options upon effectiveness of the registration statement to allow for immediate vesting of the outstanding stock options. The Board of Directors, which currently administers the May 1998 plan, has the authority to set the number of shares of common stock to be covered by each option granted under the plan, and to amend, modify, suspend or terminate the plan, which by its terms will terminate on May 20, 2004. However, all available options have been issued under the plan and the Board of Directors does not intend to authorize the issuance of any additional options under the plan in connection with the closing of this offering. All of the options currently issued and outstanding under the plan expire on May 31, 2003, and will continue to be recognized until expiration. The June 1997 options and the May 1998 options are not transferable other than by will or the laws of descent and distribution. Each option may be exercised within the term of the option agreement pursuant to which it was granted, so long as CRC-Evans continues to employ the optionee. In addition, within three months after termination of an optionee's employment, an option may be exercised as to vested shares, except in the case of termination for "cause" or an optionee's voluntary termination, in which cases the Initial Option shall automatically expire on termination, provided that CRC-Evans may redeem the option by paying cash to the optionee equal to the excess of the book value of the option shares over the exercise price of the option. In the event of an optionee's death or disability, the options may remain outstanding and may be exercised by the acquiror of the options, but only within one year following the date of death or disability. To date, none of the June 1997 or May 1998 options have been exercised. STOCK INCENTIVE PLAN CRC-Evans will adopt a stock incentive plan effective as of the effectiveness of the registration statement. At such time, 575,000 shares of common stock will be subject to issuance under the incentive plan. The incentive plan provides for the grant of stock options (including incentive stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended, and non-qualified stock options), stock appreciation rights ("SARs") and other stock awards (including restricted stock awards, dividend rights and stock bonuses) to any officer, director, or employee of CRC-Evans or its subsidiaries, or any consultant or advisor engaged by CRC-Evans or its subsidiaries. The purpose of the incentive plan is to attract, retain and encourage qualified individuals to serve CRC-Evans with a high degree of commitment by providing additional financial incentives. The Compensation Committee currently administers the incentive plan and recommends to the Board of Directors for its final approval the recipients who are to receive grants of options, the terms and conditions of options and the rules and regulations for administration of the incentive plan. The final approval of the full Board of Directors is required for any options granted under the incentive plan. Stock options may be granted under the incentive plan on such terms, including vesting and payment forms, as the Board of Directors deems appropriate in its discretion; provided that no option may be exercised later than ten years after its grant, and the purchase price for the incentive stock options and non-qualified stock options shall not be less than 100% of the fair market value of the common stock on the grant date (110% in the case of an incentive stock option granted to an individual owning more than 10% of the voting stock of CRC-Evans or a subsidiary). SARs may be granted by the Board of Directors on such terms, including payment in forms, as the Board of Directors deems appropriate, provided that an SAR granted in connection with a stock option shall become exercisable and lapse according to the same vesting schedule and lapse rules established for the stock option (which shall not exceed ten years from the date of grant). 46 Unless terminated by the Board of Directors, the incentive plan has no automatic termination date. Upon the occurrence of an event constituting a change in control of CRC-Evans, all options and SARs under certain incentive plan award agreements will become immediately exercisable, restrictions on stock granted pursuant to a restricted stock award will lapse, and other awards will be treated in the manner determined by the Board of Directors on the grant date. The Board of Directors has not authorized the granting of any options under the incentive plan. EMPLOYMENT AGREEMENTS D. Dale Wood, CRC-Evans' Chairman and Chairman of the Board of Directors, has entered into an employment agreement, effective June 12, 1997, with a term of five years, which establishes a base salary of $120,000 per year. Mr. Wood's employment agreement also provides that, in certain circumstances, he will receive severance payments equal to his then current base salary for up to two years upon termination of his employment by CRC-Evans. Mr. Wood is subject to a non-competition agreement for up to two years after a voluntary termination of his employment and for eighteen months after an involuntary termination of his employment. M. Timothy Carey, CRC-Evans' Chief Executive Officer, has entered into an employment agreement, effective June 10, 1997, with a term of five years, which establishes a base salary of $200,000 per year. Mr. Carey's employment agreement also provides that, in certain circumstances, he will receive severance payments equal to his then current base salary for up to two years upon termination of his employment by CRC-Evans. Mr. Carey is subject to a non-competition agreement for up to two years after a voluntary termination of his employment and for eighteen months after an involuntary termination of his employment. C. Paul Evans, CRC-Evans' President, has entered into an employment agreement, effective June 12, 1997, with a term of three years, which establishes a base salary of $145,000 per year. Mr. Evans' employment agreement also provides that, in certain circumstances, he will receive severance payments equal to his then current base salary for up to two years upon termination of his employment by CRC-Evans. Mr. Evans is subject to a non-competition agreement for up to two years after a voluntary termination of his employment and for eighteen months after an involuntary termination of his employment. 47 PRINCIPAL STOCKHOLDERS The following table sets forth certain information as of November 30, 1998 with respect to the beneficial ownership of CRC-Evans' common stock by: o each director of CRC-Evans, o each Named Executive Officer, o each other person known to beneficially own 5% or more of the outstanding shares of common stock and o all current executive officers (regardless of salary and bonus level) and directors of CRC-Evans as a group. Unless otherwise indicated, (a) the persons listed in the table below have sole voting and investment powers with respect to the shares indicated and (b) each person's address is 11601 N. Houston Rosslyn Road, Houston, Texas 77086.
PERCENTAGE OF SHARES BENEFICIALLY OWNED --------------------------- SHARES PRIOR TO AFTER THE BENEFICIALLY OWNED THE OFFERING OFFERING ------------------- ------------- ---------- D. Dale Wood......................... 186,280 3.0% 2.0% M. Timothy Carey..................... 232,880 3.7 2.5 C. Paul Evans........................ 139,680 2.2 1.5 Windell D. Norris, Jr................ 68,000 1.1 * Norman R. Francis.................... 23,280 * * Kenneth A. Hersh(1).................. 2,395,640 38.1 25.8 Richard L. Covington................. -- -- 25.8 Nolan Lehmann(2)..................... 2,395,640 38.1 25.8 Gary L. Forbes(3).................... 2,395,640 38.1 25.8 Natural Gas Partners IV, L.P......... 2,395,640 38.1 25.8 777 Main Street, Suite 2250 Fort Worth, Texas 76102 Equus II Incorporated................ 2,395,640 38.1 25.8 2929 Allen Parkway, 25th Floor Houston, Texas 77019 All directors and executive officers as a group (9 persons)............. 5,441,400 86.4 58.5
- --------------------------- * Less than 1% (1) All shares of common stock that Natural Gas Partners holds. Mr. Hersh, in his capacity as one of the managing members of the general partner of Natural Gas Partners, may be deemed to have indirect beneficial ownership of the shares of common stock owned by Natural Gas Partners. Mr. Hersh disclaims any such beneficial ownership. (2) All shares of common stock that Equus holds. Mr. Lehmann, in his capacity as president and director of Equus, may be deemed to have indirect beneficial ownership of the shares of common stock owned by Equus. Mr. Lehmann disclaims any such beneficial ownership. (3) All shares of common stock that Equus holds. Mr. Forbes, in his capacity as vice president of Equus, may be deemed to have indirect beneficial ownership of the shares of common stock owned by Equus. Mr. Forbes disclaims any such beneficial ownership. 48 CERTAIN RELATED TRANSACTIONS SUBORDINATED PROMISSORY NOTES In connection with the June 1997 buyout, the Company borrowed $1.9 million from Natural Gas Partners and Equus under subordinated promissory notes due June 30, 2002, each in the original principal amount of $959,700, and each bearing interest at a rate of 12% per annum. These notes will be repaid with a portion of the proceeds from the offering. PROMISSORY NOTES In connection with the June 1997 buyout, certain officers, directors and key employees borrowed, in the aggregate, $1.9 million from CRC-Evans under promissory notes due June 30, 2002, all of which bear interest at a rate of 6.75% per annum. The following directors and executive officers borrowed the following amounts: Mr. Wood, $255,920; Mr. Carey, $319,900; and Mr. Evans, $191,940. FEE AGREEMENTS In connection with the June 1997 buyout, CRC-Evans paid each of Natural Gas Partners and Equus a financing fee of $70,000 along with reimbursement of out-of-pocket costs. Pursuant to this agreement, the company also paid Mr. Covington $77,577 for acting as legal counsel to the purchasers in the June 1997 buyout. NORRIS PROMISSORY NOTE In connection with a purchase of 68,000 shares of common stock, Mr. Norris borrowed $155,380 from CRC-Evans under a promissory note dated June 15, 1998, due June 30, 2002, and bearing interest at a rate of 6.75% per annum. INDEMNITY AGREEMENTS CRC-Evans has entered into indemnification agreements with each of its directors, affiliates and/or "controlling persons," within the meaning of applicable securities laws, and certain of its executive officers. The indemnification agreements provide that CRC-Evans shall indemnify these individuals against certain liabilities, including settlements, and expenses actually and reasonably incurred by them in connection with any threatened or pending legal action, proceeding or investigation, other than actions brought by or in the right of CRC-Evans, to which any of them is, or is threatened to be, made a party by reason of their status as a director, officer or agent of CRC-Evans. However, with respect to a civil, administrative or non-criminal investigative action, such individual must have acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of CRC-Evans, and with respect to any criminal proceedings, he or she must have had no reasonable cause to believe his or her conduct was unlawful. With respect to any action brought by or in the right of CRC-Evans, such individuals may be indemnified, to the extent not prohibited by applicable laws or as determined by a court of competent jurisdiction, against expenses actually and reasonably incurred by them in connection with such action if they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of CRC-Evans. The agreements also require indemnification of such individuals for all reasonable expenses incurred in connection with the successful defense of any action or claim and provide for partial indemnification in the case of any partially successful defense. STOCKHOLDERS AGREEMENT Equus, Natural Gas Partners and Messrs. Wood, Carey and Evans have agreed to approve an amended and restated Certificate of Incorporation providing for two classes of directors to be elected to staggered terms, and amended and restated bylaws to eliminate the need for special Board approval for certain actions and to allow for the Bylaws to be more easily amended. These documents will be adopted simultaneous with the effectiveness of the registration statement. In addition, upon the close of the offering, it is anticipated that Equus, Natural Gas Partners, Messrs. Wood, Carey and Evans and other members of management will enter into a Stockholders Agreement. Under the Stockholders Agreement, stockholders wishing to sell their shares to purchasers other than affiliated entities must first provide notice to the other owners, and must cause the proposed purchaser to offer to the other stockholders tag-along rights to purchase a proportionate share of the shares being sold. A tag-along right is the right of a non-selling shareholder to require a selling shareholder to include in a sale 49 of shares the non-selling shareholder's shares. The tag-along provisions of the Stockholders Agreement terminate on the first to occur of the following: o the third anniversary of the date of the agreement; o the first date on which all parties to the Stockholders Agreement do not own at least 20% of the equity interests in CRC-Evans; o the bankruptcy of CRC-Evans, an assignment for the benefit of creditors and appointment of a receiver, or a voluntary or involuntary dissolution; o when only one stockholder remains a party to the Stockholders Agreement; or o the agreement of all parties to the Stockholders Agreement. DESCRIPTION OF CAPITAL STOCK The authorized capital stock of CRC-Evans consists of 25,000,000 shares of common stock, of which 9,294,520 shares will be outstanding immediately following the offering and of which no shares will be held as treasury stock, and 2,500,000 shares of preferred stock, par value $.01 per share. COMMON STOCK The holders of common stock are entitled to one vote per share on all matters to be voted on by stockholders of CRC-Evans. Subject to any preferential rights of any outstanding series of preferred stock designated by the Board of Directors, the holders of common stock are entitled to receive, ratably, such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of CRC-Evans, the holders of common stock are entitled to receive pro rata all assets of the company available for distribution to such holders after distribution in full of the preferential amount to be distributed to holders of shares of the preferred stock, if any. CRC-Evans' Amended and Restated Certificate of Incorporation denies cumulative voting. The common stock has no conversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to the common stock, other than those described under "Certain Related Transactions -- Stockholders agreement." PREFERRED STOCK The preferred stock may be issued from time to time by the Board of Directors as shares of one or more classes or series. Subject to the provisions of CRC-Evans' Certificate of Incorporation and limitations prescribed by law, the Board of Directors is expressly authorized to adopt resolutions to issue the shares, to fix the number of shares and to change the number of shares constituting any series, and to provide for or change the voting powers, designations, preferences and relative, participating, optional or other special rights, qualifications, limitations or restrictions of any class or series of shares, including dividend rights, dividend rates, terms of redemption, redemption prices, conversion rights and liquidation preferences of the shares constituting any class or series of the preferred stock, in each case without any further action or vote by the stockholders. CRC-Evans has no current plans to issue any shares of preferred stock of any class or series. One of the effects of undesignated preferred stock may be to enable the Board of Directors to render more difficult or to discourage an attempt to obtain control of CRC-Evans by means of a tender offer, proxy contest, merger or otherwise, and thereby to protect the continuity of CRC-Evans' management. The issuance of shares of preferred stock pursuant to the Board of Directors' authority described above may adversely affect the rights of the holders of common stock. For example, preferred stock issued by CRC-Evans may rank prior to the common stock as to dividend rights, liquidation preference or both, may have full or limited voting rights and may be convertible into shares of common stock. Accordingly, the issuance of shares of preferred stock may discourage bids for the common stock at a premium or may otherwise adversely affect the market price of the common stock. 50 CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND THE BYLAWS CRC-Evans' Certificate of Incorporation divides the Board of Directors into two classes, with one class of three directors and one class of four directors, serving staggered two-year terms. As a result, only one class of directors will be elected at each annual meeting of stockholders of the company with the other class continuing for the remainder of its two-year term. Pursuant to the Certificate of Incorporation, the Board of Directors is also authorized to issue shares of "blank check" preferred stock. The Certificate of Incorporation also provides that directors may only be removed with cause by a majority of the stockholders. The Company's Bylaws permit stockholders to nominate a person for election as a director before an annual stockholder meeting only if written notice of such intent is provided to CRC-Evans at least 90 days prior to the meeting. Such notice of intent to nominate a person for election as a director is required to set forth the same kind of information respecting such nominee as would be required under the proxy rules of the Securities and Exchange Commission, including the written consent of the nominee to serve as a director, if elected, and the name and address of the stockholder making the nomination as well as the number of shares owned by such stockholder. In the case of other proposed business at an annual stockholder meeting, the notice must be filed with the secretary of CRC-Evans not less than 60 nor more than 120 days prior to the meeting, and must set forth a brief description of each matter proposed, the name and address of the stockholder proposing the matter, and the number of shares owned by such stockholder. The foregoing provisions may tend to deter any potential unfriendly offers or other efforts to obtain control of CRC-Evans that are not approved by the Board of Directors and thereby deprive the stockholders of opportunities to sell shares of common stock at prices higher than the prevailing market price. On the other hand, these provisions may tend to ensure continuity of management and corporate policies and to induce any person seeking control of CRC-Evans or a business combination with CRC-Evans to negotiate on terms acceptable to the then elected Board of Directors. DELAWARE ANTITAKEOVER LAW CRC-Evans is subject to Section 203 of the Delaware General Corporation Law, which prohibits Delaware corporations from engaging in a wide range of specified transactions with any interested stockholder. "Interested stockholders" include any person, other than such corporation and any of its majority-owned subsidiaries, who owns 15% or more of any class or series of stock entitled to vote generally in the election of directors, unless, among other exceptions, the transaction is approved by (a) the Board of Directors prior to the date the interested stockholder obtained such status or (b) the holders of two-thirds of the outstanding shares of each class or series of stock entitled to vote generally in the election of directors, not including those shares owned by the interested stockholder. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the common stock is Harris Trust and Savings Bank. REGISTRATION RIGHTS AGREEMENT CRC-Evans entered into a Registration Rights Agreement dated June 12, 1997 with Natural Gas Partners, Equus and Messrs. Wood, Evans and Carey. Approximately 5,350,120 shares of common stock have the benefit of "demand" registration rights which may be exercised by the holders of not less than 20% of the stock owned by the parties to the agreement and the employees of CRC-Evans on up to three separate occasions that allow the holder to require CRC-Evans, subject to certain limitations, to file a registration statement under the Securities Act at CRC-Evans' expense covering all or part of such securities. In addition, all of the parties to the agreement and all employee owners of these securities have the benefit of "piggyback" registration rights that allow the holders thereof to require CRC-Evans to register the underlying shares of common stock if CRC-Evans files a registration statement under the Securities Act. If such registration statement is with respect to an underwritten offering, the underwriter may reduce the amount of "piggyback" shares to be registered in the underwriting in its discretion. The registration rights agreement includes traditional covenants and indemnification provisions, including the indemnification of the selling stockholders for violations of the Securities Act. 51 SHARES ELIGIBLE FOR FUTURE SALE When the offering is completed, CRC-Evans will have a total of 9,294,520 shares of common stock outstanding. The 3,000,000 shares offered by this prospectus will be freely tradable unless "affiliates" of CRC-Evans, as defined in Rule 144 under the Securities Act, purchase them. The remaining 6,294,520 shares are "restricted," which means they were originally sold in certain types of offerings that were not subject to a registration statement filed with the Commission. These restricted shares may be resold only through registration under the Securities Act or under an available exemption from registration, such as provided through Rule 144. Under Rule 144, all of the restricted shares may be sold after the 180-day "lock-up" period. In addition, 670,160 shares are issuable upon exercise of employee options. If any options are exercised, the shares issued upon exercise will also be restricted, but may be sold under Rule 144 after the shares have been held for one year. Sales under Rule 144 may be subject to certain volume limitations and other conditions. The holders of 5,441,400 shares of common stock have agreed to a 180-day "lock-up" with respect to these shares. This generally means that they cannot sell these shares during the 180 days following the date of this prospectus. After the 180-day lock-up period, these shares subject to lock-up may be sold in accordance with Rule 144. See "Underwriting" for additional details. A total of 1,245,160 shares of common stock have been reserved for issuance under CRC-Evans' outstanding options and the Incentive Plan, 24,000 of which are issuable upon exercise of vested options outstanding on November 30, 1998, or that will become vested within 60 days after such date. CRC-Evans will register on Form S-8 under the Securities Act the offering and sale of common stock issuable under its May 1998 option plan. 52 UNDERWRITING CRC-Evans entered into an underwriting agreement with the underwriters named below. CIBC Oppenheimer Corp., BT Alex. Brown Incorporated and Simmons & Company International are acting as representatives of the underwriters. The underwriting agreement provides for the purchase of a specific number of shares of common stock by each of the underwriters. The underwriters' obligations are several, which means that they are required to purchase a specified number of shares, but are not responsible for the commitment of any other underwriter to purchase shares. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally agreed to purchase the number of shares of common stock set forth opposite its name below: NUMBER OF UNDERWRITER SHARES - ---------------------------------------- --------- CIBC Oppenheimer Corp................... BT Alex. Brown Incorporated............. Simmons & Company International......... --------- Total.............................. ========= This is a firm commitment underwriting. This means that the underwriters have agreed to purchase all of the shares offered by this prospectus (other than those covered by the over-allotment option described below) if any are purchased. Under the underwriting agreement, if an underwriter defaults in its commitment to purchase shares, the commitments of non-defaulting underwriters may be increased or the underwriting agreement may be terminated, depending on the circumstances. The representatives have advised CRC-Evans that the underwriters propose to offer the shares directly to the public at the public offering price that appears on the cover page of this prospectus. In addition, the representatives may offer some of the shares to certain securities dealers at such price less a concession of $ per share. The underwriters may also allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the shares are released for sale to the public, the representatives may change the offering price and other selling terms at various times. CRC-Evans has granted the underwriters an over-allotment option. This option, which is exercisable for up to 30 days after the date of this prospectus, permits the underwriters to purchase a maximum of additional shares from CRC-Evans to cover over-allotments. If the underwriters exercise all or part of this option, they will purchase shares covered by the option at the initial public offering price that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total price to the public will be $ and the total proceeds to CRC-Evans will be $ . The underwriters have severally agreed that, to the extent the over-allotment option is exercised, they will each purchase a number of additional shares proportionate to the underwriters' initial amount reflected in the foregoing table. The following table provides information regarding the amount of the discount to be paid to the underwriters by CRC-Evans:
TOTAL WITHOUT EXERCISE OF TOTAL WITH FULL EXERCISE OF PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION --------- ------------------------- --------------------------- CRC-Evans International, Inc............ $ $ $
CRC-Evans estimates that its total expenses of the offering, excluding the underwriting discount, will be approximately $ . CRC-Evans has agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act. 53 CRC-Evans and its officers and directors and certain other CRC-Evans stockholders, who beneficially own in the aggregate 5,441,400 shares of common stock, have agreed that for a period of 180 days following the date of this prospectus, CRC-Evans and such persons will not offer, sell, pledge or otherwise dispose of shares of common stock and certain other CRC-Evans securities that they beneficially own, including securities that are convertible into shares of common stock and securities that are exchangeable or exercisable for shares of common stock, without the prior written consent of CIBC Oppenheimer Corp. The representatives have informed CRC-Evans that they do not expect discretionary sales by the underwriters to exceed five percent of the shares offered by this prospectus. CRC-Evans intends to use more than ten percent of the net proceeds of the sale of the shares to repay indebtedness it owes to Bankers Trust Company, an affiliate of one of the underwriters. Therefore, the offering is being made in compliance with the requirements of Rule 2710(c)(8) of the National Association of Securities Dealers, Inc. Conduct Rules. Under this rule, if more than ten percent of the net proceeds from the sale of the shares, not including underwriting compensation, is paid to the underwriters or their affiliates, the initial public offering price of the stock can be no higher than that recommended by a "qualified independent underwriter" meeting certain standards. In accordance with this requirement, CIBC Oppenheimer Corp. is assuming the responsibilities of acting as a qualified independent underwriter in pricing the offering and conducting due diligence. The price of the shares will be no higher than the price recommended by CIBC Oppenheimer Corp. There is no established trading market for the shares. The offering price for the shares has been determined by CRC-Evans and the representatives, based on the following factors: o CRC-Evans' historical performance o Estimates of the earnings prospects of CRC-Evans o Prevailing market conditions o Market valuation of companies in related businesses Rules of the Securities and Exchange Commission may limit the ability of the underwriters to bid for or purchase shares before the distribution of the shares is completed. However, the underwriters may engage in the following activities in accordance with the rules: o Stabilizing transactions -- The representatives may make bids or purchases for the purpose of pegging, fixing or maintaining the price of the shares, so long as stabilizing bids do not exceed a specified maximum. o Over-allotments and syndicate covering transactions -- The underwriters may create a short position in the shares by selling more shares than are set forth on the cover page of this prospectus. If a short position is created in connection with the offering, the representatives may engage in syndicate covering transactions by purchasing shares in the open market. The representatives may also elect to reduce any short position by exercising all or part of the over-allotment option. o Penalty bids -- If the representatives purchase shares in the open market in a stabilizing transaction or syndicate covering transaction, they may reclaim a selling concession from the underwriters and selling group members who sold those shares as part of this offering. Stabilization and syndicate covering transactions may cause the price of the shares to be higher than it would be in the absence of such transactions. The imposition of a penalty bid might also have an effect on the price of the shares if it discourages resales of the shares. Neither CRC-Evans nor the underwriters makes any representation or prediction as to the effect that the transactions described above may have on the price of the shares. These transactions may occur on or otherwise. If such transactions are commenced, they may be discontinued without notice at any time. 54 LEGAL MATTERS Certain legal matters in connection with the sale of the common stock offered hereby are being passed upon for CRC-Evans by Akin, Gump, Strauss, Hauer & Feld, L.L.P., and for the underwriters by Andrews & Kurth L.L.P. EXPERTS The consolidated financial statements of the Company as of March 31, 1998 and for the period from June 12, 1997 (date of inception) to March 31, 1998 and the financial statements of CRC-Evans' predecessors as of March 31, 1997 and for each of the years in the two year period then ended and the period from April 1, 1997 to June 11, 1997 have been included herein and in the registration statement in reliance upon the reports of KPMG LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. 55 CRC HOLDINGS CORP. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE ----- CRC Holdings Corp., and Subsidiaries: Independent Auditors' Report.... F-2 Consolidated Balance Sheets -- March 31, 1998 and September 30, 1998 (Unaudited).................... F-3 Consolidated Statements of Earnings -- Period from June 12, 1997 to March 31, 1998, period from June 12, 1997 to September 30, 1997 (Unaudited) and six months ended September 30, 1998 (Unaudited)........... F-4 Consolidated Statements of Stockholders' Equity........... F-5 Consolidated Statements of Cash Flows -- Period from June 12, 1997 to March 31, 1998, period from June 12, 1997 to September 30, 1997 (Unaudited) and six months ended September 30, 1998 (Unaudited).................... F-6 Notes to Consolidated Financial Statements..................... F-7 CRC Holdings Corp. Predecessor Business: Independent Auditors' Report.... F-17 Statement of Net Assets Acquired -- March 31, 1997..... F-18 Statements of Earnings of Net Assets Acquired -- Years ended March 31, 1996 and 1997 and period from April 1, 1997 to June 11, 1997.................. F-19 Statements of Equity in Net Assets Acquired -- Years ended March 31, 1996 and 1997 and period from April 1, 1997 to June 11, 1997.................. F-20 Statements of Cash Flows of Net Assets Acquired -- Years ended March 31, 1996 and 1997 and period from April 1, 1997 to June 11, 1997.................. F-21 Notes to Financial Statements... F-22 F-1 INDEPENDENT AUDITORS' REPORT WHEN THE TRANSACTION REFERRED TO IN NOTE 15 OF THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION TO RENDER THE FOLLOWING REPORT. KPMG LLP The Board of Directors CRC Holdings Corp. and Subsidiaries: We have audited the accompanying consolidated balance sheet of CRC Holdings Corp. and subsidiaries as of March 31, 1998, and the related consolidated statement of earnings, stockholders' equity and cash flows for the period from June 12, 1997 (date of inception) to March 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CRC Holdings Corp. and subsidiaries as of March 31, 1998, and the results of their operations and their cash flows for the period from June 12, 1997 (date of inception) to March 31, 1998, in conformity with generally accepted accounting principles. Tulsa, Oklahoma May 19, 1998 except Note 15 which is as of [date] F-2 CRC HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, SEPTEMBER 30, 1998 1998 ---------- -------------- (Unaudited) ASSETS Current assets: Cash............................ $1,558,837 $4,841,090 Accounts receivable net of allowance for doubtful accounts of $317,490 and $193,589 at March 31, 1998 and September 30, 1998, respectively.............. 15,968,674 26,896,979 Inventories..................... 18,281,331 21,110,121 Prepaid expenses and other current assets................ 650,205 1,033,447 Deferred income taxes........... 351,243 1,543,000 Deferred costs.................. 2,971,685 3,296,995 ---------- -------------- Total current assets....... 39,781,975 58,721,632 ---------- -------------- Rental assets, net of accumulated depreciation of $1,776,359 and $3,188,945 at March 31, 1998 and September 30, 1998, respectively... 9,836,440 16,293,371 Net property, plant and equipment.... 4,717,621 5,115,465 Debt issue costs, net of accumulated amortization of $231,078 and $402,812, at March 31, 1998 and September 30, 1998, respectively... 1,509,360 1,518,563 Goodwill, net of accumulated amortization of $72,018............ -- 2,088,529 Deferred income taxes................ 273,110 220,000 Other assets......................... 225,475 512,045 ---------- -------------- Total assets............... $56,343,981 $84,469,605 ========== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of long-term debt................ $2,387,704 $2,707,342 Bank overdraft.................. 782,951 -- Accounts payable -- trade....... 3,765,307 6,664,944 Income taxes payable............ 635,645 3,154,282 Accrued liabilities............. 6,019,850 7,025,855 Deferred revenue................ 2,134,545 4,838,867 ---------- -------------- Total current liabilities................ 15,726,002 24,391,290 Long-term debt, excluding current installments....................... 29,019,192 34,521,652 12% subordinated notes due 2002...... 1,919,400 1,919,400 Deferred income taxes................ 83,100 335,800 ---------- -------------- Total liabilities.......... 46,747,694 61,168,142 ---------- -------------- Stockholders' equity: Preferred stock, $.01 par value, 2,500,000 shares authorized, none issued and outstanding... -- -- Common stock, $.01 par value; 25,000,000 shares authorized; 4,000,000 and 6,294,520 shares issued at March 31, 1998 and September 30, 1998, respectively.................. 40,000 62,945 Additional paid-in capital...... 9,100,000 14,270,034 Retained earnings............... 2,342,515 11,164,072 Cumulative foreign currency translation adjustment........ 41,269 (112,862) ---------- -------------- Stockholders' equity before notes receivable from shareholders.................. 11,523,784 25,384,189 Less notes receivable from shareholders.................. 1,927,497 2,082,726 ---------- -------------- Total stockholders' equity................... 9,596,287 23,301,463 Commitments and contingencies (Notes 12, 13 and 14) ---------- -------------- Total liabilities and equity................... $56,343,981 $84,469,605 ========== ============== See accompanying notes to consolidated financial statements. F-3 CRC HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
PERIOD FROM PERIOD FROM SIX MONTHS JUNE 12, 1997 TO JUNE 12, 1997 TO ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 ---------------- ------------------ ------------------ (Unaudited) (Unaudited) Revenues: Sales revenue................... $23,849,375 $9,902,110 $20,428,029 Rental and service revenue...... 27,991,283 11,837,912 36,360,141 ---------------- ------------------ ------------------ Total revenues............. 51,840,658 21,740,022 56,788,170 ---------------- ------------------ ------------------ Cost of Revenues: Cost of sales revenue........... 16,096,239 6,470,230 13,341,826 Cost of rental and service revenue....................... 18,310,559 7,587,640 18,061,715 ---------------- ------------------ ------------------ Total cost of revenues..... 34,406,798 14,057,870 31,403,541 ---------------- ------------------ ------------------ Gross profit.......... 17,433,860 7,682,152 25,384,629 Operating expenses: Selling, general and administrative................ 10,113,322 3,893,514 9,174,868 Research and development........ 951,180 319,442 689,672 Other expenses (income)......... 79,148 (41,705) (323,538) ---------------- ------------------ ------------------ 11,143,650 4,171,251 9,541,002 ---------------- ------------------ ------------------ Operating income...... 6,290,210 3,510,901 15,843,627 Interest expense..................... 2,411,405 880,566 1,709,132 ---------------- ------------------ ------------------ Income before income taxes............... 3,878,805 2,630,335 14,134,495 Income tax expense................... 1,536,290 1,041,804 5,312,938 ---------------- ------------------ ------------------ Net income............ $2,342,515 $1,588,531 $8,821,557 ================ ================== ================== Net income per share: Basic........................... $ .59 $ .40 $ 1.56 ================ ================== ================== Diluted......................... $ .57 $ .39 $ 1.43 ================ ================== ==================
See accompanying notes to consolidated financial statements. F-4 CRC HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CUMULATIVE FOREIGN COMMON STOCK CAPITAL IN CURRENCY TOTAL ---------------------- EXCESS OF TRANSLATION RETAINED STOCKHOLDERS' SHARES PAR VALUE PAR VALUE ADJUSTMENT EARNINGS EQUITY ---------- --------- ------------- ---------- ------------- ------------- Balance, June 12, 1997............... -- $ -- $ -- $ -- $ -- $ -- Net income...................... -- -- -- -- 2,342,515 2,342,515 Issuance of stock............... 4,000,000 40,000 9,100,000 -- -- 9,140,000 Translation adjustments......... -- -- -- 41,269 -- 41,269 ---------- --------- ------------- ---------- ------------- ------------- Balance, March 31, 1998.............. 4,000,000 40,000 9,100,000 41,269 2,342,515 11,523,784 ---------- --------- ------------- ---------- ------------- ------------- Net income (unaudited).......... -- -- -- -- 8,821,557 8,821,557 Issuance of stock (unaudited)... 2,294,520 22,945 5,170,034 -- -- 5,192,979 Translation adjustments (unaudited)................... -- -- -- (154,131) -- (154,131) ---------- --------- ------------- ---------- ------------- ------------- Balance, September 30, 1998 (unaudited)........................ 6,294,520 $62,945 $ 14,270,034 $ (112,862) $ 11,164,072 $ 25,384,189 ========== ========= ============= ========== ============= =============
See accompanying notes to consolidated financial statements. F-5 CRC HOLDINGS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM PERIOD FROM JUNE 12, JUNE 12, SIX MONTHS 1997 TO 1997 TO ENDED MARCH 31, SEPTEMBER 30, SEPTEMBER 30, 1998 1997 1998 ----------- ------------- ------------- (Unaudited) (Unaudited) Cash flows from operating activities: Net income......................... $ 2,342,515 $ 1,588,531 $ 8,821,557 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization... 2,341,344 857,959 1,888,450 Other........................... 9,717 -- -- Deferred income tax benefit..... (224,000) -- (885,947) (Increase) decrease in assets: Accounts receivable........... (599,867) (2,304,446) (10,928,305) Inventories................... (10,981) 695,605 (2,828,790) Prepaid expenses and other assets..................... (658,016) (728,819) (669,812) Deferred costs................ (2,885,960) (2,382,695) (325,310) Increase (decrease) in liabilities: Accounts payable -- trade..... (6,666,104) (4,547,974) 2,899,637 Accrued liabilities........... 1,301,109 1,279,793 1,006,005 Income taxes payable.......... 635,645 834,586 2,518,637 Deferred income............... 2,134,545 867,665 2,704,322 ----------- ------------- ------------- Net cash provided by (used in) operating activities............... (2,280,053) (3,839,795) 4,200,444 ----------- ------------- ------------- Cash flows from investing activities: Capital expenditures............... (1,082,942) (65,544) (1,758,811) Payment for acquired business...... (34,673,749) (34,673,749) (8,901,209) ----------- ------------- ------------- Net cash used in investing activities............... (35,756,691) (34,739,293) (10,660,020) ----------- ------------- ------------- Cash flows from financing activities: Increase (decrease) in bank overdraft....................... 782,951 -- (782,951) Net borrowings (repayments) under revolving line of credit........ 12,889,959 12,925,356 (2,046,721) Proceeds from long-term debt....... 20,000,000 20,000,000 9,000,000 Principal payments on long-term debt............................ (1,510,063) (693,136) (1,131,181) Debt issuance costs................ (1,740,438) (1,646,937) (180,937) Loans to stockholders, net......... (8,097) (1,331) 151 Proceeds from issuance of common stock........................... 9,140,000 9,140,000 5,037,599 ----------- ------------- ------------- Net cash provided by financing activities..... 39,554,312 39,723,952 9,895,960 Effect of exchange rate changes on cash............................... 41,269 (106,251) (154,131) ----------- ------------- ------------- Net increase in cash................. 1,558,837 1,038,613 3,282,253 Cash at beginning of period.......... -- -- 1,558,837 ----------- ------------- ------------- Cash at end of period................ $ 1,558,837 $ 1,038,613 $ 4,841,090 =========== ============= ============= Supplementary disclosure of cash flow information: Cash paid for interest............. $ 2,411,405 $ 880,566 $ 1,462,676 =========== ============= ============= Income taxes....................... $ 1,056,859 $ -- $ 3,679,469 =========== ============= ============= Supplemental disclosure of non-cash financing information -- Notes receivable from stockholders for common stock................ $ 1,919,400 $ 1,919,400 $ 155,380 =========== ============= =============
See accompanying notes to consolidated financial statements. F-6 CRC HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS CRC Holdings Corp. and subsidiaries (the Company) designs, manufactures, sells, and rents specialized equipment to the pipeline construction and rehabilitation industry. The Company operates on a world wide basis through wholly owned subsidiaries with principal operations located in Tulsa, Oklahoma; Houston, Texas; Edmonton, Alberta; Burnley, United Kingdom; and Hoevelaken, the Netherlands. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the financial statements of CRC Holdings Corp. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method for all inventories. PROPERTY, PLANT AND EQUIPMENT Property, plant, and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Betterments and renewals that extend the life of the asset are capitalized; other repairs and maintenance are expensed. The estimated useful lives for determining depreciation for the major classes of assets are: Buildings and improvements.............. 20 to 40 years Machinery and equipment................. 7 years Furniture and fixtures.................. 7 years Automobiles and trucks.................. 5 years Computer equipment...................... 5 years IMPAIRMENT OF LONG-LIVED ASSETS The Company accounts for impairment of long-lived assets to be recognized when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets carrying amount. The impairment is measured by comparing the fair value of the asset to its carrying amount. Fair values are based on discounted future cash flows or information provided by sales and purchases of similar assets. DEBT ISSUANCE COSTS Debt issuance costs are initially capitalized as intangible assets and are amortized over the term of the debt to which they relate. REVENUE RECOGNITION Equipment sales revenue is recognized when the equipment is shipped. Equipment rental revenue is deferred and recognized ratably over the term of the rental agreement. Service revenue is recognized upon customer billing which occurs at the time the services have been rendered. Cost associated with refurbishing rental equipment is incurred and deferred at the time the equipment is readied for use. Such costs are amortized during the rental period. F-7 CRC HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GOODWILL Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over the expected period to be benefited which is 15 years. The Company assesses the recoverability of goodwill by determining whether the amortization of the balance over its remaining life can be recovered through undiscounted future cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. The assessment of the recoverability of goodwill will be impacted if estimated future operating cash flows are not achieved. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. FOREIGN CURRENCY TRANSLATION All significant asset and liability accounts stated in currencies other than United States dollars are translated into United States dollars at year end exchange rates. Translation adjustments are accumulated in a separate component of stockholders' equity. Revenue and expense accounts are converted at prevailing rates throughout the year. EMPLOYEE BENEFIT PLAN The Company has a defined contribution pension plan covering substantially all of its employees. STOCK OPTION PLAN The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR STOCK-BASED COMPENSATION, and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants made in future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. ENVIRONMENTAL REMEDIATION OBLIGATIONS The Company accrues for losses associated with environmental remediation obligations, if any, when such losses are probable and reasonably estimable. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Recoveries of environmental remediation costs from other parties, if any, are recorded as assets when their receipt is deemed probable. USE OF ESTIMATES Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. F-8 CRC HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INTERIM PERIOD (UNAUDITED) The interim unaudited consolidated financial statements, in the opinion of management, reflect all adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the consolidated financial position and the results of operations for such periods in conformity with generally accepted accounting principles. The operating results for any interim period are not necessarily indicative of operating results that may be expected for a full year. (2) FORMATION AND ACQUISITION The Company was formed to acquire the net assets of CRC-Evans Pipeline International, Inc. and the issued and outstanding shares of CRC-Evans Canada Ltd. and Pipeline Induction Heat Ltd., wholly owned subsidiaries of the Company. The aggregate purchase price after working capital adjustments was $36,640,000. The transaction was effective June 12, 1997. Other than the issuance of capital stock and debt on June 12, 1997 the Company had no operations prior to June 12, 1997. Accordingly, the accompanying consolidated financial statements represent the results of operations from June 12, 1997 to March 31, 1998. The purchase price net of cash acquired was allocated to the assets acquired and liabilities assumed as follows: Accounts receivable.................. $ 15,368,807 Inventories.......................... 18,270,350 Rental assets........................ 10,721,613 Property, plant and equipment........ 4,869,489 Deferred income taxes................ 317,253 Other assets......................... 303,389 Accounts and notes payable.......... (10,458,411) Accrued liabilities.................. (4,718,741) -------------- Net assets acquired............. $ 34,673,749 ============== In connection with the issuance of the capital stock the Company also issued subordinated debentures to certain of its shareholders. The proceeds were utilized to allow other shareholders to purchase capital stock. The loan is subordinated, bears interest at 12% and is payable in 2002. The notes receivable bear interest at 6.75%, are repayable in 2002 and are secured by the common stock of the Company. (3) BUSINESS AND CREDIT CONCENTRATIONS The Company has a concentration of customers in the oil and gas pipeline construction industry which expose the Company to a concentration of credit risk within an industry. Receivables are generally not collateralized. Ten customers were responsible for 45% of the Company's total revenue in the year ended March 31, 1998. In addition, one customer accounted for approximately 11% of the Company's total revenues in the period ended March 31, 1998. The Company believes that the allowance for bad debts is adequate. (4) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash, accounts receivable, bank overdraft, trade accounts payable, income taxes payable, and accrued liabilities approximate fair value due to the short maturity of these instruments. The carrying amounts of notes receivable from shareholders, long-term debt, and notes payable to shareholders approximate fair value as the interest rates and terms of the agreements approximate those available to the Company in the marketplace. F-9 CRC HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (5) INVENTORIES Inventories consist of the following:
MARCH 31, SEPTEMBER 30, 1998 1998 ------------- -------------- (Unaudited) Raw materials........................ $ 8,661,523 $8,573,968 Work-in-process...................... 2,244,875 4,604,457 Finished goods....................... 7,374,933 7,931,696 ------------- -------------- $ 18,281,331 $21,110,121 ============= ==============
(6) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, at cost, consist of: MARCH 31, SEPTEMBER 30, 1998 1998 ------------ -------------- (Unaudited) Property, plant and equipment: Land and improvements................ $ 1,026,228 $1,053,836 Buildings and improvements........... 2,591,995 2,570,546 Machinery and equipment.............. 325,021 463,044 Furniture and fixtures............... 83,165 140,158 Automobiles and trucks............... 379,345 557,958 Leasehold improvements............... 295,940 298,517 Computer equipment................... 344,179 505,294 ------------ -------------- 5,045,873 5,589,353 Less accumulated depreciation and amortization....................... (328,252) (473,888) ------------ -------------- Net property, plant and equipment..................... $ 4,717,621 $5,115,465 ============ ============== F-10 CRC HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (7) GEOGRAPHIC DATA The Company believes that all of its operations are part of the pipeline construction and rehabilitation industry and accordingly reports as a single industry segment. Worldwide operations are conducted through the Company's principal subsidiaries located in the United States, the United Kingdom and Canada. Information relating to the Company's operations is set forth in the following table. Identifiable assets consist of accounts receivable, inventories, fixed assets and rental equipment. Cost of rental equipment has been allocated to geographical locations based on the insured value of the equipment attributable to specific rental contracts.
UNAUDITED PERIOD FROM JUNE 12, 1997 UNAUDITED SIX MONTHS ENDED TO MARCH 31, 1998 PERIOD FROM JUNE 12, 1997 SEPTEMBER 30, 1998 ---------------------------- TO SEPTEMBER 30, 1997 ---------------------------- IDENTIFIABLE ------------------------- IDENTIFIABLE REVENUES ASSETS REVENUES REVENUES ASSETS ------------- ------------ ------------------------- ------------- ------------ Algeria.............................. $ 794,000 $ -- $ -- $ -- $ -- Brazil............................... 2,040,000 1,111,000 563,000 2,864,000 1,160,000 Canada............................... 5,521,000 3,977,000 2,918,000 12,084,000 5,245,000 France............................... 2,772,000 64,000 2,091,000 229,000 60,000 Russia............................... 3,955,000 510,000 197,000 United Kingdom....................... 3,470,000 6,703,000 2,069,000 3,739,000 6,541,000 United States........................ 14,069,000 31,209,000 7,766,000 24,137,000 51,235,000 All other............................ 19,220,000 5,740,000 5,823,000 13,538,000 5,174,000 ------------- ------------ ------------------------- ------------- ------------ $ 51,841,000 $48,804,000 $21,740,000 $ 56,788,000 $69,415,000 ============= ============ ========================= ============= ============
F-11 CRC HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (8) LONG-TERM DEBT Long-term debt consists of the following: MARCH 31 SEPTEMBER 30, 1998 1998 ---------- ------------- (Unaudited) Note payable to bank, bearing interest at either (i) a base rate equal to the lendor's base rate or 0.5% above the Federal funds effective rate, plus 0.25% to 1%, or (ii) the Eurodollar rate plus the applicable margin ranging from 1.75% to 2.50% (9.5% and 8.1875% at March 31, 1998); payable in escalating quarterly installments; secured by substantially all assets of the Company. (a)...................... $18,500,000 $17,375,000 Notes payable to bank under $5,000,000 line of credit, bearing interest a floating rate equal to LIBOR plus 1% (10.0389% at March 31, 1998); secured by substantially all assets of the Company. In July 1998, the Company added a $2,500,000 acquisition facility to this note. (a), (b)....... 2,389,959 2,971,675 Note payable to bank under $20,000,000 line of credit, bearing interest at either (i) a base rate equal to the higher of the lendor's base rate or 0.5% above the Federal funds effective rate, plus 0.25% to 1%, or (ii) the Eurodollar rate plus the applicable margin ranging from 1.75% to 2.50% (9.5% and 8.1875% at March 31, 1998); secured by substantially all assets of the Company. In July 1998, the line of credit was increased by $5,000,000 and the Company added a $17,500,000 acquisition facility. (a), (b)........ 10,500,000 16,500,000 Other installment notes................. 16,937 382,319 ---------- ------------- Total notes payable........... 31,406,896 37,228,994 Less current installments............... (2,387,704) (2,707,342) ---------- ------------- Notes payable, excluding current installments........ $29,019,192 $34,521,652 ========== ============= - --------------------------- (a) The loan agreement which expires June 12, 2003, contains various covenants, including, but not limited to, maintenance of minimum net worth and a ratio of liabilities to net worth, as defined in the agreement. (b) The Company is required to pay a commitment fee ranging from 0.425% to 0.500% of the unused portion of the revolving line of credit. The commitment fee varies based upon the ratio of average funded debt to earnings before interest, taxes, depreciation, and amortization. Aggregate maturities of long-term debt are as follows: 1999................................. $ 2,387,704 2000................................. 2,879,233 2001................................. 3,375,000 2002................................. 3,875,000 2003................................. 4,750,000 Thereafter........................... 14,139,959 F-12 CRC HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (9) INCOME TAXES Income tax expense (benefit) for the period from June 12, 1997 to March 31, 1998 consists of the following: CURRENT DEFERRED TOTAL ------------ ----------- ------------ Federal.............................. $ 1,133,323 $ (191,265) $ 942,058 State................................ 162,038 (17,735) 144,303 International........................ 464,929 (15,000) 449,929 ------------ ----------- ------------ $ 1,760,290 $ (224,000) $ 1,536,290 ============ =========== ============ Total income tax expense differs from the amounts computed by applying the U.S. federal statutory income tax rates of 34% to income before income taxes as a result of the following: Computed "expected" income tax expense............................ $ 1,318,794 Increase (decrease) in income taxes resulting from: State income taxes, net of federal income tax benefit...... 173,678 Foreign income taxes, net of federal foreign tax credits..... (31,699) Expenses not deductible for income tax purposes............. 121,243 Other........................... (45,726) ------------ $ 1,536,290 ============ The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at March 31, 1998 are presented below: Deferred tax assets (liabilities): Inventories, principally due to additional costs capitalized for tax purposes and the allowance for obsolete inventory...................... $ 49,708 Accrued liabilities not deductible until paid.......... 768,420 Deferred income taxable when received....................... 610,644 Maintenance costs capitalized for book purposes.............. (1,077,529) Property and equipment, principally due to differences in depreciation................ 120,260 Debt issue costs, due to differences in amortization.... (10,840) Foreign tax credit.............. 80,590 ------------- Net deferred tax assets.... $ 541,253 ============= Management believes that it is more likely than not that the Company will realize the benefit of the deferred tax assets in future periods. F-13 CRC HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (10) EARNINGS PER SHARE The following information reconciles the number of shares used to compute basic earnings per share to those used to compute diluted earnings per share:
PERIOD FROM PERIOD FROM SIX MONTHS JUNE 12, 1998 TO JUNE 12, 1997 TO ENDED MARCH 31, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 ---------------------- ---------------------- ---------------------- (Unaudited) Net Income........................... $ 2,342,515 $ 1,588,531 $ 8,821,557 =========== =========== =========== Weighted average shares of common stock outstanding.................. 4,000,000 4,000,000 5,670,480 Basic earnings per share......... $ .59 $ .40 $ 1.56 =========== =========== =========== Effect of dilutive securities -- stock options........ 120,000 120,000 500,840 --------- --------- --------- 4,120,000 4,120,000 6,171,320 ========= ========= ========= Diluted earnings per share....... $ .57 $ .39 $ 1.43 =========== =========== ===========
(11) STOCK OPTION PLAN On June 12, 1997, the Company adopted a stock option plan (the 1997 Plan) and granted options to key employees to purchase up to 120,000 shares of the Company's stock. The options originally had an exercise price equal to the stock's initial price per share times 1.0675 raised to the power of n, where n equals number of years from the date of grant. These options vest in twenty percent annual increments and become fully exercisable after five years from the date of grant. All stock options expire August 31, 2002. At March 31, 1998, there were no additional shares available for grant under the Plan. The per share weighted-average fair value of stock options granted was $2.28 on the date of grant using the Minimum Value method assuming a risk-free interest rate of 6.75% and an expected life of five years. The Company applies APB Opinion No. 25 and records compensation expense, accordingly. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income would not have been impacted as the exercise price multiplier is equal to the assumed risk-free interest rate. (12) COMMITMENTS AND CONTINGENCIES In the ordinary course of business, the Company provides warranties on parts and equipment sold and rented. In addition to these warranties, the Company has warranted specific systems and components provided for an oceangoing pipe laying vessel. The Company is liable for all items, systems, components, and spare parts through October 1998 and for design failure through October 2001. The Company's liability on design failure is limited to the amount required to correct the design failure, including replacement, reassembly, and technical support. The Company is not liable for loss of business or revenue. The vessel is undergoing tests and no claims have been made to date under the warranty provisions of the contract. The Company has accrued an estimated amount for its liability under the warranty provisions. The aggregate amount of warranty claims, if any, cannot be determined. Payments of claims significantly in excess of amounts accrued, if any, could have an adverse effect on the Company's consolidated financial position, results of operations, and liquidity. F-14 CRC HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company is obligated under various noncancelable operating leases for certain operating facilities, automobiles, and equipment. The remaining terms of the leases range from one to sixteen years. Future minimum lease payments as of March 31, 1998 are: Year ending March 31: 1999....................... $ 177,000 2000....................... 171,000 2001....................... 160,000 2002....................... 149,000 2003....................... 149,000 Thereafter...................... 1,639,000 Rent expense was approximately $290,385 for the period ended March 31, 1998. The Company has issued standby letters of credit aggregating $1,686,000 to guarantee performance to third parties under certain contracts. The Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. (13) SUBSEQUENT EVENTS -- UNAUDITED In April 1998, the Company acquired substantially all of the business assets of B.L. Key Services LLC (B. L. Key), a manufacturer and seller of concrete pipeline weights. This acquisition was accounted for using the purchase method of accounting. The purchase price of the assets acquired totaled approximately $3,029,000 of which $1,029,000 was paid in cash and $2,000,000 was financed with a note payable to the seller. Goodwill, which represents the excess of purchase price over fair value of net assets acquired, will be amortized on a straight-line basis over 15 years. The results of operations for B.L. Key have been included from the date of acquisition. The estimated fair value of assets acquired consists of the following: Inventory............................ $ 119,000 Property and equipment............... 1,193,000 Other................................ 29,000 ------------ Fair value of net assets acquired.... 1,341,000 Excess of purchase price paid over fair value of assets acquired...... 1,688,000 ------------ $ 3,029,000 ============ On May 29, 1998 the Company acquired substantially all of the pipeline equipment assets of Hamilton Heavy Equipment, Inc. and Jerry Hamilton dba HHC International (collectively, Hamilton). This acquisition was accounted for using the purchase method of accounting. The purchase price of the assets was $5,748,000 of which $4,773,000 was paid in cash at closing, $400,000 financed with a note payable to the seller and the balance to be paid upon receipt of final valuations. The results of operations for Hamilton have been included from the date of acquisition. The estimated fair value of the assets acquired follows: Rental assets........................ $ 5,495,000 Inventory............................ 200,000 Property and equipment............... 53,000 ------------ $ 5,748,000 ============ F-15 CRC HOLDINGS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In May 1998, the Company issued 2,226,520 shares of common stock at $2.28 per share for total proceeds of $5,087,598. In conjunction with the issuance, the Company paid a $25,000 fee plus out of pocket expenses to each of the two majority shareholders. In June 1998, the Company issued 68,000 shares of common stock at $2.28 per share in exchange for a note payable of $155,380. In November 1998, the Company acquired substantially all of the business assets of Didcot Heat Treatment Limited (Didcot) for an aggregate purchase price of $3,400,000 using the purchase method of accounting. Didcot performs resistance heat treating services, with its primary markets in the United Kingdom and Western Europe. (14) INITIAL PUBLIC OFFERING -- UNAUDITED On December 7, 1998, the Company filed a registration statement with the Securities and Exchange Commission relating to the initial public offering (IPO) of 3,000,000 shares of its common stock. The Company intends to use the net proceeds from the offering, estimated to be $35,782,500 to repay indebtedness and to provide working capital for general corporate purposes, including strategic acquisitions. Upon successful completion of an IPO, the Company will be required to disclose pro-forma net income and earnings per share amounts giving effect to expected future volatility of the Company's stock price. In addition, the Company will be required to record additional compensation expense for stock options. As certain amendments to the option plan have not been finalized, the additional compensation expense and related disclosures have not been reflected in these financial statements. The expected additional compensation expense, which may be material, will depend on a number of factors, including the plan amendments. The Company intends to finalize these amendments, record additional compensation expense, and provide the required disclosures prior to completion of an IPO. (15) OTHER At or before the effective date of this registration statement, the Company intends to effect a 40-for-1 split of its common stock. The share and per share amounts in the accompanying financial statements have been adjusted to reflect the common stock split for all periods presented. F-16 INDEPENDENT AUDITORS' REPORT The Board of Directors CRC Holdings Corp.: We have audited the statement of net assets acquired of CRC Holdings Corp. Predecessor Businesses as of March 31, 1997 and the related statements of earnings of net assets acquired, equity in net assets acquired and cash flows for the years ended March 31, 1996 and 1997 and for the period from April 1, 1997 to June 11, 1997. These financial statements are the responsibility of the management of CRC Holdings Corp. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets acquired of CRC Holdings Corp. Predecessor Businesses as of March 31, 1997 and the results of operations and cash flows for the years ended March 31, 1996 and 1997 and for the period from April 1, 1997 to June 11, 1997, in conformity with generally accepted accounting principles. KPMG LLP Tulsa, Oklahoma October 3, 1998 F-17 CRC HOLDINGS CORP. PREDECESSOR BUSINESSES STATEMENT OF NET ASSETS ACQUIRED MARCH 31, 1997 ASSETS Current assets: Cash............................... $ 2,761,376 Accounts receivable net of allowance for doubtful accounts of $618,084.......................... 17,688,716 Inventories........................ 15,187,889 Prepaid expenses and other current assets............................ 172,039 Deferred income taxes.............. 1,138,423 Deferred costs..................... 2,015,524 ------------- Total current assets.......... 38,963,967 ------------- Rental assets, net of accumulated depreciation of $22,074,798........... 4,759,171 Net property, plant and equipment....... 3,737,124 Deferred income taxes................... 344,538 Other assets............................ 228,882 ------------- Total assets.................. $ 48,033,682 ============= LIABILITIES AND EQUITY Current liabilities: Notes payable...................... $ 29,121 Accounts payable -- trade.......... 4,582,552 Income taxes payable............... 555,703 Accrued liabilities................ 4,252,786 Deferred revenue................... 3,751,617 ------------- Total current liabilities..... 13,171,779 Equity in net assets acquired........... 34,861,903 Commitments and contingencies (note 8) ------------- Total liabilities and equity........................ $ 48,033,682 ============= See accompanying notes to financial statements. F-18 CRC HOLDINGS CORP. PREDECESSOR BUSINESSES STATEMENTS OF EARNINGS OF NET ASSETS ACQUIRED YEARS ENDED MARCH 31, 1996 AND 1997 AND THE PERIOD APRIL 1, 1997 TO JUNE 11, 1997 MARCH 31, MARCH 31, JUNE 11, 1996 1997 1997 ------------- ------------- ------------- Revenues: Sales revenue................. $ 25,324,527 $ 26,081,330 $ 5,686,973 Rental and service revenue.... 39,329,096 43,293,159 6,928,325 ------------- ------------- ------------- Total revenues........... 64,653,623 69,374,489 12,615,298 ------------- ------------- ------------- Cost of revenues: Cost of sales revenue......... 16,594,858 18,372,975 3,712,139 Cost of rental and service revenue..................... 29,255,453 28,302,656 5,450,835 ------------- ------------- ------------- Total cost of revenues... 45,850,311 46,675,631 9,162,974 ------------- ------------- ------------- Gross profit............. 18,803,312 22,698,858 3,452,324 ------------- ------------- ------------- Operating expenses: Selling, general and administrative.............. 13,055,632 13,017,645 3,015,862 Research and development...... 855,900 753,919 152,928 Other expenses (income)....... 2,750,298 367,135 (152,674) ------------- ------------- ------------- Operating income......... 2,141,482 8,560,159 436,208 Interest income.................... 245,147 688,714 49,676 ------------- ------------- ------------- Income before income taxes.................. 2,386,629 9,248,873 485,884 Income tax expense................. 888,848 3,359,203 207,108 ------------- ------------- ------------- Net income............... $ 1,497,781 $ 5,889,670 $ 278,776 ============= ============= ============= See accompanying notes to financial statements. F-19 CRC HOLDINGS CORP. PREDECESSOR BUSINESSES STATEMENTS OF EQUITY IN NET ASSETS ACQUIRED YEARS ENDED MARCH 31, 1996 AND 1997 AND THE PERIOD APRIL 1, 1997 TO JUNE 11, 1997 MARCH 31, MARCH 31, JUNE 11, 1996 1997 1997 ---------- ---------- ---------- Equity in net assets acquired at beginning of period................. $34,695,243 $27,841,772 $34,861,903 Net income.......................... 1,497,781 5,889,670 278,776 Effect of exchange rate changes..... (178,208) 306,999 297,725 Net capital contributions (withdrawals)....................... (8,173,044) 823,462 (2,948,148) ---------- ---------- ---------- Equity in net assets at end of period.............................. $27,841,772 $34,861,903 $32,490,256 ========== ========== ========== See accompanying notes to financial statements. F-20 CRC HOLDINGS CORP. PREDECESSOR BUSINESSES STATEMENTS OF CASH FLOWS OF NET ASSETS ACQUIRED YEARS ENDED MARCH 31, 1996 AND 1997 AND THE PERIOD APRIL 1, 1997 TO JUNE 11, 1997
MARCH 31, MARCH 31, JUNE 11, 1996 1997 1997 ------------- ------------- ------------- Cash flows from operating activities: Net income......................... $ 1,497,781 $ 5,889,670 $ 278,776 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization... 4,836,161 2,287,012 387,560 Other........................... 74,311 153,451 (25,740) Deferred income tax benefit..... (887,614) (417,356) 3,027 (Increase) decrease in assets: Accounts receivable........... 6,161,830 (2,107,661) 1,789,726 Inventories................... 104,530 (2,928,757) (3,012,645) Prepaid expenses and other assets..................... 230,947 (152,757) 187,770 Deferred costs................ 399,606 (903,350) (683,481) Increase (decrease) in liabilities: Accounts payable -- trade..... 538,359 413,025 483,449 Accrued liabilities........... (935,691) (1,551,140) 155,028 Income taxes payable.......... 700,755 (324,381) (326,208) Deferred income............... (3,715,597) 2,703,531 531,436 ------------- ------------- ------------- Net cash provided by (used in) operating activities............... 9,005,378 3,061,287 (231,302) ------------- ------------- ------------- Cash flows from investing activities -- Capital expenditures............... (464,114) (2,366,731) (37,147) ------------- ------------- ------------- Net cash used in investing activities............... (464,114) (2,366,731) (37,147) ------------- ------------- ------------- Cash flows from financing activities: Principal payments on debt......... (1,076,467) (8,957) (2,121) Net increase (decrease) in equity in net assets acquired.......... (8,173,044) 823,462 (2,948,148) ------------- ------------- ------------- Net cash provided by (used in) financing activities............... (9,249,511) 814,505 (2,950,269) ------------- ------------- ------------- Effect of exchange rate changes on cash............................... (178,208) 306,999 297,725 ------------- ------------- ------------- Net increase in cash................. (886,455) 1,816,060 (2,920,993) Cash at beginning of period.......... 1,831,771 945,316 2,761,376 ------------- ------------- ------------- Cash at end of period................ $ 945,316 $ 2,761,376 $ (159,617) ============= ============= =============
See accompanying notes to financial statements. F-21 CRC HOLDINGS CORP. PREDECESSOR BUSINESSES NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997 (1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION Effective June 12, 1997 CRC Holdings Corp. (Holdings) acquired from Weatherford Enterra, Inc. (Weatherford) the net assets of CRC-Evans Pipeline International, Inc. and the issued and outstanding shares of CRC-Evans Canada, Ltd, and Pipeline Induction Heat, Ltd. (collectively the Predecessor Businesses). Prior to the acquisition the Predecessor Businesses were operated as a business unit by Weatherford. The accompanying financial statements have been prepared from records maintained by Weatherford and may not necessarily be indicators of the conditions which could have existed if the Predecessor Businesses had been operated as an independent entity. DESCRIPTION OF BUSINESS The Predecessor Businesses design, manufacture, sell, and rent specialized equipment to the pipeline construction and rehabilitation industry. The Predecessor Businesses operate on a world wide basis with principal operations located in Tulsa, Oklahoma; Houston, Texas; Edmonton, Alberta; Burnley, United Kingdom; and Hoevelaken, the Netherlands. CASH AND CASH EQUIVALENTS The Predecessor Businesses consider all highly liquid investments with original maturities of three months or less to be cash equivalents. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method for all inventories. PROPERTY, PLANT AND EQUIPMENT Property, plant, and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Betterments and renewals that extend the life of the asset are capitalized; other repairs and maintenance are expensed. The estimated useful lives for determining depreciation for the major classes of assets are: Buildings and improvements........... 20 to 40 years Machinery and equipment.............. 7 years Furniture and fixtures............... 7 years Automobiles and trucks............... 5 years Computer equipment................... 5 years IMPAIRMENT OF LONG-LIVED ASSETS The Predecessor Businesses account for impairment of long-lived assets to be recognized when indicators of impairment are present and the undiscounted cash flows are not sufficient to recover the assets carrying amount. The impairment is measured by comparing the fair value of the asset to its carrying amount. Fair values are based on discounted future cash flows or information provided by sales and purchases of similar assets. REVENUE RECOGNITION Equipment sales revenue is recognized when the equipment is shipped. Equipment rental revenue is recognized during the period of customer usage. Rental revenue derived from equipment located outside of the continental United States is deferred and recognized ratable over the term of the rental agreement. Service revenue is recognized upon customer billing which occurs at the time the services have been F-22 CRC HOLDINGS CORP. PREDECESSOR BUSINESSES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) rendered. Cost associated with refurbishing rental equipment is incurred and deferred at the time the equipment is readied for use. Such costs are amortized during the rental period. INCOME TAXES The results of operations of the Predecessor Businesses are included in Weatherford's consolidated federal and state income tax returns. Income tax expense or benefit has been determined as if the Predecessor Businesses filed a separate federal and state tax return. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. FOREIGN CURRENCY TRANSLATION All significant asset and liability accounts stated in currencies other than United States dollars are translated into United States dollars at year end exchange rates. Translation adjustments are accumulated in a separate component of stockholders' equity. Revenue and expense accounts are converted at prevailing rates throughout the year. EMPLOYEE BENEFIT PLAN The Predecessor Businesses have a defined contribution pension plan covering substantially all of their employees. USE OF ESTIMATES Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. (2) BUSINESS AND CREDIT CONCENTRATIONS The Predecessor Businesses have a concentration of customers in the oil and gas pipeline construction industry which exposes the Predecessor Businesses to a concentration of credit risk within an industry, including one customer which accounts for approximately 10% of total revenues. Receivables are generally not collateralized. The allowance for bad debts is considered adequate. (3) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash, accounts receivable, trade accounts payable, income taxes payable, and accrued liabilities approximate fair value due to the short maturity of these instruments. (4) INVENTORIES Inventories at March 31, 1997 consist of the following: Raw materials........................... $ 5,375,067 Work-in-process......................... 4,726,083 Finished goods.......................... 5,086,739 ------------- $ 15,187,889 ============= F-23 CRC HOLDINGS CORP. PREDECESSOR BUSINESSES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (5) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, at cost, consist of: Property, plant and equipment: Land and improvements........... $ 751,161 Buildings and improvements...... 2,981,060 Machinery and equipment......... 1,074,652 Furniture and fixtures.......... 337,339 Automobiles and trucks.......... 1,125,029 Leasehold improvements.......... 437,079 Computer equipment.............. 1,086,617 ------------ 7,792,937 Less accumulated depreciation and amortization.............. 4,055,813 ------------ Net property, plant and equipment.... $ 3,737,124 ============ (6) GEOGRAPHIC DATA The Predecessor Business believes that all of its operations are part of the pipeline construction and rehabilitation industry and accordingly reports as a single industry segment. Worldwide operations are conducted through entities located in the United States, the United Kingdom and Canada. Information relating to the Predecessor Business operations is set forth in the following table. Identifiable assets consist of accounts receivable, inventories, fixed assets and rental equipment. Cost of rental equipment has been allocated to geographical locations based on the insured value of the equipment attributable to specific rental contracts.
PERIOD FROM 1997 APRIL 1, 1997 TO 1996 ----------------------------- JUNE 11, 1997 ------------- IDENTIFIABLE ----------------- REVENUES REVENUES ASSETS REVENUES ------------- ------------- ------------- ----------------- Algeria........... $ 13,119,000 $ 9,109,000 $ -- $ 695,000 Brazil............ 1,251,000 623,000 -- 13,000 Canada............ 5,131,000 8,297,000 2,557,000 555,000 France............ 860,000 2,413,000 196,000 1,332,000 Russia............ 6,208,000 5,640,000 -- 1,152,000 United Kingdom.... 4,583,000 4,466,000 7,288,000 955,000 United States..... 12,630,000 13,033,000 27,452,000 3,102,000 All other......... 20,872,000 25,793,000 3,880,000 4,811,000 ------------- ------------- ------------- ----------------- $ 64,654,000 $ 69,374,000 $ 41,373,000 $12,615,000 ============= ============= ============= =================
F-24 CRC HOLDINGS CORP. PREDECESSOR BUSINESSES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (7) INCOME TAXES Income tax expense (benefit) consists of the following for the years ended March 31, 1996 and 1997 and the period from April 1, 1997 to June 11, 1997: CURRENT DEFERRED TOTAL ------------ ----------- ------------ March 31, 1996: Federal......................... $ 351,255 $ (556,728) $ (205,473) State........................... 133,451 (56,409) 77,042 Foreign......................... 1,291,756 (274,477) 1,017,279 ------------ ----------- ------------ $ 1,776,462 $ (887,614) $ 888,848 ============ =========== ============ March 31, 1997: Federal......................... $ 2,252,715 $ (430,483) $ 1,822,232 State........................... 414,861 (43,617) 371,244 Foreign......................... 1,108,983 56,744 1,165,727 ------------ ----------- ------------ $ 3,776,559 $ (417,356) $ 3,359,203 ============ =========== ============ June 11, 1997: Federal......................... $ 171,979 $ 48,919 $ 220,898 State........................... 38,962 4,957 43,919 Foreign......................... (6,860) (50,849) (57,709) ------------ ----------- ------------ $ 204,081 $ 3,027 $ 207,108 ============ =========== ============ Total income tax expense differs from the amounts computed by applying the U.S. federal statutory income tax rates of 34% to income before income taxes as a result of the following: MARCH 31, MARCH 31, JUNE 11, 1996 1997 1997 ---------- ------------ ---------- Computed "expected" income tax expense............................ $ 811,454 $ 3,144,617 $ 165,201 Increase (decrease) in income taxes resulting from: State income taxes, net of federal income tax benefit.... 50,848 245,021 28,987 Expenses not deductible for income tax purposes........... 91,146 87,961 17,197 Other........................... (64,600) (118,396) (4,277) ---------- ------------ ---------- $ 888,848 $ 3,359,203 $ 207,108 ========== ============ ========== The tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) at March 31, 1997 are presented below: Deferred tax assets (liabilities): Inventories, principally due to additional costs capitalized for tax purposes and the allowance for obsolete inventory...................... $ 18,715 Accrued liabilities not deductible until paid.......... 1,119,708 Property and equipment, principally due to differences in depreciation................ 344,538 ------------ Net deferred tax assets.... $ 1,482,961 ============ Management believes that it is more likely than not that the benefit of the deferred tax assets will be realized in future periods. (8) COMMITMENTS AND CONTINGENCIES In the ordinary course of business, the Predecessor Businesses provide warranties on parts and equipment sold and rented. F-25 CRC HOLDINGS CORP. PREDECESSOR BUSINESSES NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) In addition to these warranties, the Predecessor Businesses have warranted specific systems and components provided for an oceangoing pipe laying vessel. The Predecessor Businesses are liable for all items, systems, components, and spare parts through October 1998 and for design failure through October 2001. The Predecessor Businesses' liability on design failure is limited to the amount required to correct the design failure, including replacement, reassembly, and technical support. The Predecessor Businesses are not liable for loss of business or revenue. The vessel is undergoing tests and no claims have been made through June 11, 1997, under the warranty provisions of the contract. The Predecessor Businesses have accrued an estimated amount for its liability under the warranty provisions. The aggregate amount of warranty claims, if any, cannot be determined. Payments of claims significantly in excess of amounts accrued, if any, could have an adverse effect on the Predecessor Businesses' financial position, results of operations, and liquidity. The Predecessor Businesses are obligated under various noncancelable operating leases for certain operating facilities, automobiles, and equipment. The remaining terms of the leases range from one to sixteen years. Future minimum lease payments as of March 31, 1997 are: YEAR ENDING MARCH 31: 1998............................ $ 182,000 1999............................ 182,000 2000............................ 165,000 2001............................ 158,000 Thereafter...................... 1,910,000 Rent expense was approximately $145,444, $91,862, and $170,948 for the years ended March 31, 1996 and 1997, and the period from April 1, 1997 to June 11, 1997. The Predecessor Businesses have issued standby letters of credit aggregating $1,462,084 to guarantee performance to third parties under certain contracts. The Predecessor Businesses are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Predecessor Businesses' financial position, results of operations, or liquidity. F-26 SCHEDULE IIA CRC HOLDINGS CORP. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS PERIOD FROM JUNE 12, 1997 TO MARCH 31, 1998
BALANCE CHARGED TO BALANCE JUNE 12, COST AND DEDUCTIONS/ MARCH 31, 1997 EXPENSE WRITEOFFS 1998 ---------- ---------- ----------- ---------- Accounts receivable -- allowance for doubtful accounts.................. $ 369,055 $ 13,975 $65,540 $ 317,490 ========== ========== =========== ==========
SCHEDULE IIB CRC HOLDINGS CORP. PREDECESSOR BUSINESSES CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED MARCH 31, 1996 AND 1997 AND THE PERIOD APRIL 1, 1997 TO JUNE 11, 1997
BALANCE CHARGED TO BALANCE APRIL 1, COST AND DEDUCTIONS/ MARCH 31, 1995 EXPENSE WRITEOFFS 1996 ---------- ---------- ----------- ---------- Accounts receivable -- allowance for doubtful accounts.................. $ 309,165 $ 83,570 $56,812 $ 335,923 ========== ========== =========== ==========
BALANCE CHARGED TO BALANCE APRIL 1, COST AND DEDUCTIONS/ MARCH 31, 1996 EXPENSE WRITEOFFS 1997 ---------- ---------- ----------- ---------- Accounts receivable -- allowance for doubtful accounts.................. $ 335,923 $305,081 $22,920 $ 618,084 ========== ========== =========== ==========
BALANCE CHARGED TO BALANCE APRIL 1, COST AND DEDUCTIONS/ JUNE 11, 1997 EXPENSE WRITEOFFS 1997 ---------- ---------- ----------- ---------- Accounts receivable -- allowance for doubtful accounts.................. $ 618,084 $ 1,354 $ 250,383 $ 369,055 ========== ========== =========== ==========
- -------------------------------------------------------------------------------- [LOGO] CRC-EVANS INTERNATIONAL, INC. SHARES COMMON STOCK ---------------------------- PROSPECTUS ---------------------------- , 1999 CIBC OPPENHEIMER BT ALEX. BROWN SIMMONS & COMPANY INTERNATIONAL - -------------------------------------------------------------------------------- INVESTORS SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES. DEALER PROSPECTUS DELIVERY OBLIGATION: UNTIL , 1999 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated expenses in connection with the issuance and distribution of the securities being registered, other than underwriting discounts and commissions, are set forth in the following table. The company shall pay the estimated expenses of issuance and distribution in proportion to the respective number of shares sold by it in the offering. Each amount, except for the Securities and Exchange Commission and National Association of Securities Dealers, Inc. fees, is estimated. SEC registration fees................ $ 13,000 NASD filing fees..................... $ 5,000 application and listing fees................................. $ * Transfer agent's and registrar's fees and expenses......................... $ * Printing and engraving expenses...... $ * Legal fees and expenses.............. $ * Accounting fees and expenses......... $ * Blue sky fees and expenses........... $ * Miscellaneous........................ $ * --------- Total........................... $ * ========= - --------------------------- * To be filed by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the General Corporation Law of the State of Delaware (the "DGCL") empowers a Delaware corporation to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was an officer or director of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. A Delaware corporation may indemnify past or present officers and directors of such corporation or of another corporation or other enterprise at the former corporation's request, in an action by or in the right of the corporation to procure a judgment in its favor under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in defense of any action referred to above, or in defense of any claim, issue or matter therein, the corporation must indemnify such person against the expenses (including attorneys' fees) which such person actually and reasonably incurred in connection therewith. Section 145 further provides that any indemnification shall be made by the corporation only as authorized in each specific case upon a determination that indemnification of such person is proper because he has met the applicable standard of conduct by the (i) stockholders, (ii) board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, (iii) committee of directors who are not parties to such action, suit or proceeding designated by majority vote by such disinterested directors even if less than a quorum, or (iv) independent legal counsel, if there are no such disinterested directors, or if such disinterested directors so direct. Section 145 further provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. II-1 CRC-Evans has entered into indemnification agreements with each of its directors and certain of its executive officers. The indemnification agreements provide that CRC-Evans shall indemnify each of its directors and his affiliates and any "controlling person" (within the meaning of applicable securities laws) and each indemnified officer against certain liabilities (including settlements) and expenses actually and reasonably incurred by them in connection with any threatened or pending legal action, proceeding or investigation (other than actions brought by or in the right of CRC-Evans) to which any of them is, or is threatened to be, made a party by reason of their status as a director, affiliate, "controlling person," officer or agent of CRC-Evans; PROVIDED that, with respect to a civil, administrative or investigative (other than criminal) action, such individual acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of CRC-Evans, and with respect to any criminal proceedings, he or she had no reasonable cause to believe his or her conduct was unlawful. With respect to any action brought by or in the right of CRC-Evans, such individuals may be indemnified, to the extent not prohibited by applicable laws or as determined by a court of competent jurisdiction, against expenses actually and reasonably incurred by them in connection with such action if they acted in good faith and in a manner they reasonably believed to be in, or not opposed to, the best interests of CRC-Evans. The agreements also require indemnification of such individuals for all reasonable expenses incurred in connection with the successful defense of any action or claim and provide for partial indemnification in the case of any partially successful defense. CRC-Evans has obtained an insurance policy providing for indemnification of its officers and directors and certain other persons against liabilities and expenses incurred by any of them in certain stated proceedings and under certain stated conditions. CRC-Evans has entered into separate indemnification agreements with each of its directors which may require CRC-Evans, among other things, to indemnify such directors against certain liabilities that may arise by reason of their status or service as directors to the maximum extent permitted under Delaware law. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES All of the following issuances reflect figures prior to CRC-Evans' 40-for-1 stock split. Since its inception on June 12, 1997, CRC-Evans issued and sold the following unregistered securities: (1) On June 12, 1997, CRC-Evans issued 35,000 shares of common stock to Natural Gas Partners in connection with the management buyout for $91.40 per share. On June 12, 1997, CRC-Evans issued a subordinated promissory note to Equus, due June 30, 2002, in the original principal amount of $959,700, and bearing interest at 12% per annum. On May 20, 1998, CRC-Evans issued an additional 24,891 shares of common stock to Natural Gas Partners for $91.40 per share. All of these issuances were exempt from registration under Section 4(2) of the Securities Act. (2) On June 12, 1997, CRC-Evans issued 35,000 shares of common stock to Equus, in connection with the management buyout for $91.40 per share. On June 12, 1997, CRC-Evans issued a subordinated promissory note to Natural Gas Partners, due June 30, 2002, in the original principal amount of $959,700, and bearing interest at 12% per annum. On May 20, 1998, CRC-Evans issued an additional 24,891 shares of common stock to Equus for $91.40 per share. All of these issuances were exempt from registration under Section 4(2) of the Securities Act. (3) On June 12, 1997, CRC-Evans issued 30,000 shares of common stock to members of management and certain employees, in connection with the management buyout for $91.40 per share. On May 20, 1998, CRC-Evans issued an additional 5,881 shares of common stock to members of management and certain employees for $91.40 per share. Both issuances were exempt from registration under Section 4(2) of the Securities Act. (4) On June 15, 1998, CRC-Evans issued 1,700 shares of common stock to Windell D. Norris, Jr. for $91.40 per share. This issuance was exempt from registration under Section 4(2) of the Securities Act. II-2 ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits The following is a list of exhibits filed as part of this Registration Statement. EXHIBIT NO. DESCRIPTION - ------------------------------------------------------------- 1.1* -- Form of Underwriting Agreement. 3.1* -- Form of Amended and Restated Certificate of Incorporation of CRC-Evans. 3.2* -- Form of Amended and Restated Bylaws of CRC-Evans. 4.1* -- Specimen of Stock Certificate. 4.2+ -- Registration Rights Agreement, dated June 12, 1997, among CRC-Evans and Natural Gas Partners, Equus and Messrs. Wood, Evans and Carey. 5.1* -- Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P. 10.1+ -- Form of Indemnity Agreement entered into by CRC-Evans in favor of members of the Board of Directors and certain executive officers. 10.2+ -- Revolving Credit and Term Loan Agreement dated June 12, 1997, by and among CEPI Holdings, Inc., CRC-Evans and a syndicate of banks led by BankBoston. 10.3+ -- Facility Agreement dated June 12, 1997, by and among Pipeline Induction Heat Limited and a syndicate of banks led by BankBoston. 10.4+ -- First Amendment to Revolving Credit and Term Loan Agreement, dated July 3, 1998, by and among CRC-Evans Pipeline International, Inc., CRC Holdings Corp., BankBoston and Bankers Trust Company. 10.5+ -- Supplemental Agreement dated July 3, 1998, amending Facility Agreement dated June 12, 1997, among Pipeline Induction Heat Limited and BankBoston. 10.6* -- Form of Stockholders Agreement. 10.7+ -- Form of Employment Agreement, executed June 1997, by and among CRC-Evans, the predecessor business and Messrs. Carey, Wood and Evans. 10.8+ -- Amended and Restated Asset Purchase Agreement dated as of January 31, 1997, by and among the predecessor business, Weatherford Enterra, Inc. and CRC-Evans. 10.9+ -- Share Transfer Agreement dated June 12, 1997, between Weatherford Enterra Canada Ltd. and CRC-Evans. 10.10+ -- Agreement of Purchase and Sale dated as of April 24, 1998, by and among CRC-Evans Pipeline International, Inc., Tulsa Pipeline Equipment & Supply, Inc., Hamilton Heavy Equipment, Inc., and Jerry Hamilton, individually and d/b/a/ HHC International. 10.11+ -- Amendment to Agreement of Purchase and Sale dated as of April 24, 1998, by and among CRC-Evans Pipeline International, Inc., Tulsa Pipeline Equipment & Supply, Inc., Hamilton Heavy Equipment, Inc., and Jerry Hamilton, individually and d/b/a/ HHC International. 10.12+ -- Asset Purchase Agreement dated as of March 31, 1998, by and among CRC-Key, Inc. and B.L. Key Services, L.L.C., Bobby L. Key, James C. McGill, the James C. McGill Revocable Living Trust and James Michael McGill 10.13+ -- Form of Option Agreement granting options to certain employees of CRC-Evans, dated June 12, 1997. 10.14+ -- Option Plan, dated May 20, 1998. 10.15+ -- Form of Option Agreement issued under the Option Plan. 10.16+ -- Amendment No. 1 to Option Plan, dated June 15, 1998. II-3 EXHIBIT NO. DESCRIPTION - ------------------------------------------------------------- 10.17 -- Agreement for the Sale and Purchase of the whole of the Issued Share Capital of Ditcot Heat Treatment Limited, dated November 18, 1998, among Andrew Maxwell Anderson, Hilda Jane Anderson and Pipeline Induction Heat Limited. 10.18* -- Form of Stock Incentive Plan. 10.19+ -- Form of Promissory Note, dated June 12, 1997, made by Messrs. Wood, Carey, Evans and Francis, James F. Reed, Jr., P.M. Bond, B.C. Goff, Richard L. Jones, Brian S. Laing, Geurt W. Meijer, Dale Roland, M.P. Smith, Sidney A. Taylor and Robert A. Teale, to the order of CRC-Evans. 10.20+ -- Promissory Note, dated June 15, 1998, made by Mr. Norris to the order of CRC-Evans. 10.21+ -- Key Management Incentive Compensation Plan, dated as of June 13, 1997. 10.22+ -- Fee Agreement, dated June 12, 1997, between CRC-Evans and Natural Gas Partners. 10.23+ -- Fee Agreement, dated June 12, 1997, between CRC-Evans and Equus. 10.24* -- Form of Promissory Note, dated June 12, 1997, made by CRC-Evans to the order of each of Natural Gas Partners and Equus. 21.1+ -- List of subsidiaries of CRC-Evans. 23.1 -- Consent of KPMG LLP. 23.2* -- Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (contained in Exhibit 5.1). 24.1+ -- Power of Attorney. 27.1+ -- Financial Data Schedule. - --------------------------- * To be filed by amendment. + Previously filed. (b) Financial Data Schedules None. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to Item 14 herein, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON FEBRUARY 12, 1999. CRC-EVANS INTERNATIONAL, INC. By: /s/ NORMAN R. FRANCIS NORMAN R. FRANCIS, CHIEF FINANCIAL OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON FEBRUARY 12, 1999:
SIGNATURE TITLE DATE - ----------------------------- ----------------------------------- ----------------- * Chairman and Chairman of the Board February 12, 1999 (D. DALE WOOD) of Directors * Chief Executive Officer and February 12, 1999 (M. TIMOTHY CAREY) Director (Principal Executive Officer) * President and Director February 12, 1999 (C. PAUL EVANS) /s/ NORMAN R. FRANCIS Chief Financial Officer, Treasurer February 12, 1999 (NORMAN R. FRANCIS) and Secretary (Principal Accounting and Financial Officer) * Director February 12, 1999 (KENNETH A. HERSH) * Director February 12, 1999 (RICHARD L. COVINGTON) * Director February 12, 1999 (NOLAN LEHMANN) * Director February 12, 1999 (GARY L. FORBES) /s/ NORMAN R. FRANCIS February 12, 1999 *ATTORNEY-IN-FACT
II-5 EX-10.17 2 EXHIBIT 10.17 DATED 18 NOVEMBER, 1998 (1) MR AND MRS A M ANDERSON (2) PIPELINE INDUCTION HEAT LIMITED AGREEMENT FOR THE SALE AND PURCHASE OF THE WHOLE OF THE ISSUED SHARE CAPITAL OF DIDCOT HEAT TREATMENT LIMITED Hammond Suddards Solicitors Trinity Court 16 John Dalton Street Manchester M60 8HS Tel: 0161 830 5000 Fax: 0161 830 5001 SALE AND PURCHASE AGREEMENT THIS AGREEMENT is made on November 18, 1998 BETWEEN: (1) THE PERSONS whose names and addresses are set out in column 1 of Schedule 1 ("the Vendors"). (2) PIPELINE INDUCTION HEAT LIMITED (Company No: 1478556) whose registered office is at The Pipeline Centre, Farrington Road, Rossendale Road Industrial Estate, Burnley, BB11 5SW ("the Purchaser"). IT IS HEREBY AGREED as follows: 1. INTERPRETATION 1.1 In this Agreement, unless the context otherwise requires, the following words and expressions shall bear the following meanings: "ADDITIONAL means the amount of (pound)508,000. ELEMENT" "ASSOCIATE" means any person, firm or company which is a connected person (as defined in Section 839 ICTA) of the Vendors (or any of them), or which is an associated company of the Vendors (or any of them) within the meaning of Section 416 ICTA but as if in sub-section (2) of that Section there was substituted for the words "the greater part" wherever they appear the words "twenty five per cent or more"). "BANK means the sum of (pound)0 being the amount LIABILITIES" above (pound)0 allocated for bank debt and any amount above (pound)11,000 allocated for hire purchase agreements in the Management Accounts. "BUSINESS DAY" means any day other than Saturdays Sundays and Bank Holidays during which clearing banks are open for business in the City of London. "CA 1985" means the Companies Act 1985. "CA 1989" means the Companies Act 1989. "COMPANIES ACTS" means CA 1985 and CA 1989 and the former Companies Acts (within the meaning of Section 735(1) of CA 1985). "COMPANY" means Didcot Heat Treatment Limited brief details of which are set out in Schedule 2. "COMPLETION" means completion of the sale and purchase of the Shares in accordance with Clause 6. "DISCLOSURE means the letter of even date herewith from LETTER" the Vendors to the Purchaser disclosing exceptions to the Warranties. "DIRECTORS LOANS" means the loans of (pound)130,587 due to the Directors of the Company as detailed in the Management Accounts of the Company. "FA" means Finance Act. "FEBRUARY means the balance sheet of the Company as at the BALANCE SHEET" close of business on 28 February 1999 to be prepared in accordance with Clause 5. "FINAL PRICE" means the Net Assets plus the Additional Element and the Sizewell Payment. "FIRST TRANCHE" means the sum of (pound)1,265,000 . "ICTA" means the Income and Corporation Taxes Act 1988. "INTELLECTUAL means any patents, trade marks, service marks, PROPERTY RIGHTS" registered designs, utility models, design right, copyright (including copyright in computer software), semi-conductor topography right, inventions, trade secrets and other confidential information, know-how, business or trade names and all other intellectual property and rights of a similar or corresponding nature in any part of the world, whether registered or not or capable of registration or not and including all applications and the right to apply for any of the foregoing rights. "LAST ACCOUNTS" means the audited balance sheet of the Company as at the Last Accounts Date and the audited profit and loss account of the Company made up to the Last Accounts Date and (in each case) the auditor's and the directors' reports and notes thereon. "LAST ACCOUNTS DATE" means 28 February 1998. "LEASE" means the lease of Unit 1 Station Yard, Steventon, Oxfordshire between (1) Trustees for the time being of Didcot Heat Treatment Limited Private Pension Plan and (2) Didcot Heat Treatment Limited dated with the date of this Agreement. "METHOD means the method statement of the Company STATEMENT" developed by the Company and used in carrying out the Sizewell Contract a copy of an example of the method statement is contained in Annex A to this Agreement. "MANAGEMENT means the unaudited balance sheet and profit ACCOUNTS" and loss account of the Company for the period ended 30 September 1998. "NET ASSETS" means Total Assets less Total Liabilities. "PLANNING ACTS" means the Town and Country Planning Act 1990, the Planning (Listed Buildings and Conservation Areas) Act 1990, the Planning (Consequential Provisions) Act 1990, the Planning (Hazardous Substances) Act 1990 and the Planning (Compensation) Act 1991, and any other statute or subordinate legislation relating to town and country planning. "PROPERTY" means the property of the Company briefly described in Schedule 5 (and for the purpose of the Warranties relating to environmental matters includes all plant, equipment, machinery, storage vessels, pipes, cables and associated apparatus present at, upon, in or underneath such Property). "PURCHASER'S means KPMG of Edward VII Quay, Navigation Way, ACCOUNTANTS" Ashton, Preston, PR2 2YF. "PURCHASER'S means Hammond Suddards, of Trinity Court, SOLICITORS" 16 John Dalton Street, Manchester M60 8HS. "SECURITY means any mortgage, charge, assignment or INTEREST" assignation by way of security, guarantee, indemnity, debenture, hypothecation, pledge, declaration of trust, lien, right of set off or combination of accounts, or any security interest whatsoever, howsoever created or arising. "SERVICE means the service agreements in the agreed form AGREEMENTS" to be entered into between the Company and Mr and Mrs Anderson respectively. "SHARES" means the 1,000 ordinary shares of (pound)1 each, in the capital of the Company fully paid or credited as fully paid to be sold by the Vendors in the numbers set out opposite their respective names in column 2 of Schedule 1. "SIZEWELL means the Agreement between the Company and CONTRACT" Mitsui Babcock Energy Service Limited for heat treatment services at the nuclear power station in Sizewell, Suffolk and, subject to the provisions of clause 10. "SIZEWELL means the payment by the Purchaser to the PAYMENT" Vendors following 28 February 1999 due entirely to the Sizewell Contract (for the avoidance of doubt any liability to the Company due entirely to the Sizewell Contract (including, but not limited to, any liability due to collection and rehousing of equipment, termination of any occupation of premises and other relocation costs) shall be taken into account in calculating this payment) determined in accordance with the provisions of Clause 10. "STOCK EXCHANGE" means London Stock Exchange Limited. "TAXATION" means all forms of taxation, charges, duties, imposts, rates, levies and governmental charges (whether national or local) in the nature of tax, whatsoever and whenever created, enacted, or imposed, and whether of the United Kingdom or elsewhere, and any amounts payable to any Taxation Authority or any other person as a result of any enactment relating to taxation, together with all fines, penalties, interest, costs, charges, surcharges and expenses connected therewith and "Tax" shall be construed accordingly. "TAXATION means the Inland Revenue, H.M. Customs and AUTHORITY" Excise or any statutory or governmental authority or body (whether in the United Kingdom or elsewhere) involved in the collection or administration of Taxation. "TAX DEED" means the Deed in the form set out in Schedule 4. "TAXATION includes statutes (and all regulations and STATUTES" arrangements whatsoever made thereunder) whether of the United Kingdom or elsewhere, and whether enacted before or after the date of this Agreement, providing for or imposing any Taxation. "TCGA" means the Taxation of Chargeable Gains Act 1992. "TOTAL ASSETS" means the value (in Sterling) of all of the assets of the Company as contained in the February Balance Sheet. "TOTAL means the amount (in Sterling) of all LIABILITIES" liabilities, or accruals for liabilities, of the Company as contained in the February Balance Sheet. "UNDERTAKING", bear the meanings ascribed to them in CA "SUBSIDIARY 1989. UNDERTAKING", "PARENT UNDERTAKING", AND "PARTICIPATING INTEREST" "VENDORS' means Grant Thornton of 1 Westminster Way, ACCOUNTANTS" Oxford, OX2 OPZ. "VENDORS' means Slade Son & Taylor of 7 St Martins SOLICITORS" Street. Wallingford, Oxon, OX10 OAN. "WARRANTIES" means the warranties and representations set out in Schedule 3 1.2 References to any statute, or to any statutory provision, statutory instrument, order or regulation made thereunder, includes that statute, provision, instrument, order or regulation as amended, modified, consolidated, re-enacted, or replaced from time to time, whether before or after the date of this Agreement and also includes any previous statute, statutory provision, instrument, order or regulation, amended, modified, consolidated, re-enacted or replaced by such statute, provision, instrument, order or regulation. 1.3 All references to a statutory provision shall be construed as including references to all statutory instruments or orders, regulations or ot her subordinate legislation made pursuant to that statutory provision. 1.4 Unless the context otherwise requires, references to the singular include the plural, references to any gender include all other genders, and references to "persons" shall include individuals, bodies corporate, unincorporated associations, professions, businesses and partnerships. 1.5 Clause headings are for information only and shall not affect the construction of t his Agreement. 1.6 The Schedules to this Agreement shall for all purposes form part of this Agreement . 1.7 Each agreement, undertaking, covenant, warranty and representation by two or more of the Vendors shall be deemed for all purposes to be made or given jointly and severally. 1.8 References to "the agreed form" mean in the form agreed in writing between the Vendors' Solicitors and the Purchaser's Solicitors prior to signature of this Agreement. 2. SALE AND PURCHASE 2.1 Subject to the terms and conditions of this Agreement, the Vendors shall sell and the Purchaser shall purchase the Shares together with all accrued benefits and rights attaching or accruing to the Shares, (including all dividends declared), on or after the date of this Agreement. 2.2 The Vendors jointly and severally covenant with the Purchaser as follows: 2.2.1 that each of the Vendors has the right to sell and transfer those Shares set out opposite his name in column 2 of Schedule 1 in accordance with the terms of this Agreement; 2.2.2 that they will at their own cost take any necessary steps to perfect the Purchaser's title to the Shares; 2.2.3 that the Shares are sold free from any liens, charges and encumbrances (whether monetary or not and including any lien which the Vendors might otherwise have, whenever arising, for unpaid amounts of consideration payable under this Agreement in respect of the Shares) and from all other rights exercisable by third parties. 3. PRE-EMPTION RIGHTS WAIVER The Vendors waive all rights of pre-emption (if any) over the Shares to which they may be entitled under the Articles of Association of the Company, or otherwise, in relation to the sale and purchase of the Shares pursuant to this Agreement. 4. CONSIDERATION 4.1 The Consideration for the Shares shall (subject to any adjustment pursuant to the provisions of Clause 5) be the Final Price which shall be satisfied in accordance with the provisions of this Clause 4. 4.2 On Completion the Purchaser will pay, on account of the Final Price, an amount equal to the First Tranche which will be satisfied by payment in cash by the Purchaser at Completion. 4.3 On account of the Final Price a payment due and payable on 28 February 1999 will be made on 30 April 1999, assuming that the February Balance Sheet has been agreed or determined pursuant to Clause 5:- 4.3.1 if the Net Assets plus the Additional Element is greater than the First Tranche the Purchase shall pay to the Vendor an amount equal to the Net Assets plus the Additional Element less the First Tranche; 4.3.2 if the Net Assets plus the Additional Element is equal to the First Tranche then no further payment will be made; 4.3.3 if the Net Assets plus the Additional Element are less than the First Tranche then the Vendor shall repay to the Purchaser an amount equal to the First Tranche less the sum of Additional Element and the Net Assets; The liability of the Vendors to the Purchaser to make any payment due under this Clause 4.3 shall be joint and several. 4.4 Provided always that if the February Balance Sheet has not been agreed or determined pursuant to Clause 5 on 30 April 1999 then the payment pursuant to Clause 4.3 will bear interest at a rate of 2% above the base rate of Lloyds Bank PLC from 30 April 1999 until the date of payment. 4.5 If at Completion the Bank Liabilities are any amount above (pound)0 then if following Completion and a cash positive position verified by the provision of bank statements for a period of one month confirming a cash positive position to that period then the Purchaser will pay the Vendors a sum equal to the amount of the Bank Liabilities (pound)0 at the Completion Date. 4.6 The Purchaser will pay to the Vendors the Sizewell Payment as per the provisions of clause 10. 5. FEBRUARY BALANCE SHEET 5.1 The Purchaser shall procure, that within six weeks after 28 February 1999 the Purchaser's Accountants will prepare a draft February Balance Sheet and a draft statement of the Final Price and submit both for approval to the Vendors. 5.2 The February Balance Sheet to be prepared: 5.2.1 on the basis of the historical cost convention; 5.2.2 using the specific accounting practices specified in Schedule 7 and (subject to the provisions of Schedule 7) generally accepted United Kingdom accounting principles (including all relevant Statements of Standard Accounting Practice issued by the Accounting Standards Committee, Financial Reporting Standards issued by the Accounting Standards Board, and any applicable pronouncements of the Urgent Issues Task Force of the Accounting Standards Board); and 5.2.3 subject to the preceding provisions of this Clause 5.2, in a manner consistent with the procedures and policies bases and methods of valuation adopted in the preparation of the Last Accounts. 5.3 Due regard shall be had in the preparation of the February Balance Sheet (inter alia) to all matters set out or referred to in the Disclosure Letter insofar as the same discloses any liability (actual or contingent) which ought properly to be provided for in the February Balance Sheet in accordance with Clause 5.2 above. 5.4 Within 15 days of receipt by the Vendors of the draft February Balance Sheet the Vendors will inform the Purchaser in writing whether or not in their opinion the draft February Balance Sheet complies with the requirements of this Clause 5 and, if not, shall specify in writing, so far as they are then reasonably able so to do, the amount and nature of any item which they do not accept. If the Vendors confirm in writing that they accept the draft February Balance Sheet, or if they fail to inform the Purchaser within 15 days of receipt whether or not they accept that the draft February Balance Sheet complies with the requirements of this Clause 5, such draft shall be the February Balance Sheet. 5.5 If the Vendors inform the Purchaser, in accordance with Clause 5.4, that they do not accept that the draft February Balance Sheet complies with the requirements of this Clause 5, the Vendors and the Purchaser will hold discussions in good faith with a view to agreeing the February Balance Sheet. If such agreement is reached, and is confirmed in writing by the parties, it shall be final and binding on the parties but without prejudice to the Purchaser's right to claim under the Warranties, the Tax Deed or otherwise in respect of any matter. 5.6 Any dispute about the February Balance Sheet which remains unresolved 45 days after receipt by the Vendors of the draft February Balance Sheet shall, at the request of either party be referred for final settlement to an independent firm of chartered accountants nominated jointly by the Vendors and the Purchaser or, failing such nomination, within 14 days after request by either the Vendors or the Purchaser, nominated at the request of either party by the President for the time being of the Institute of Chartered Accountants in England and Wales. Such independent firm shall act as experts and not as arbitrators and (in the absence of manifest error) its decisions (both as to the manner in which its determination is to be made and as to the subject matter of its determination) shall be final and binding on the parties, but shall be without prejudice to the Purchaser's right to claim under the Warranties, the Tax Deed or otherwise in respect of any matter. 5.7 All costs incurred by the Vendors in reviewing and agreeing the February Balance Sheet shall be borne by the Vendors and all such costs incurred by the Purchaser shall be borne by the Purchaser. The fees of such independent firm shall be payable by the Vendors and the Purchaser in such proportions as such firm determines (or failing such determination in equal shares). 5.8 Each party will co-operate fully with the other and, if applicable, with the independent firm appointed under Clause 5.6 (including giving all reasonable access to records, information, and to personnel) with a view to enabling the draft February Balance Sheet to be prepared and subsequently discussed and, if applicable, with a view to enabling any such independent firm to make any determination required by Clause 5.6, and in particular the Purchaser shall procure that the Company shall permit the Vendors and their advisers (and, if applicable, such independent firm) to have access to, and (where reasonable) to take copies of any records or information belonging to the Company. 6. COMPLETION 6.1 Completion shall take place at the offices of the Vendor's Accountants immediately after the signing of this Agreement when the events set out in sub-clauses 6.2 to 6.5 shall occur. 6.2 At Completion the Vendors shall deliver to the Purchaser's Solicitors: 6.2.1 duly completed and executed transfers of the Shares in favour of the Purchaser or as it directs together with a power of attorney from each Vendor in the agreed form enabling the Purchaser to vote the Shares pending its registration as shareholder; 6.2.2 the certificates for the Shares; 6.2.3 the Tax Deed duly executed by the Vendors; 6.2.4 the resignation of Mrs. Hilda Jane Anderson as director and secretary of the Company from her respective offices in the Company, with a written acknowledgement under seal from her in such form as the Purchaser requires that she has no claim up to the date of Completion against the Company on any grounds whatsoever; 6.2.5 the resignation of the existing auditors of the Company confirming that they have no outstanding claims of any kind against the Company and accompanied by a statement in relation to the Company complying with Section 394 CA 1985 that there are no circumstances connected with their ceasing to hold office which they consider should be brought to the attention of the members or creditors of that Company; 6.2.6 evidence satisfactory to the Purchaser that all charges, debentures and other Security Interests affecting the Company (including without limitation all such Security Interests held by Lloyds Bank plc) have been discharged in full; and. 6.2.7 the original Lease duly completed by the landlord of the Property. 6.3 At Completion there shall be delivered or made available to the Purchaser: 6.3.1 the Certificate of Incorporation of the Company; 6.3.2 the minute books of the Company and the duly made up minutes of Completion; 6.3.3 the register of members and other statutory registers of the Company duly made up to Completion; 6.3.4 the common seal of the Company; 6.3.5 all unissued share certificates of the Company; 6.3.6 the unstamped Lease; 6.3.7 all bank statements of all bank accounts of the Company as at a date not more than three Business Days prior to Completion together with bank reconciliation statements in respect of each such account made up to Completion; 6.3.8 new bank mandates to be given by the Company; and 6.3.9 all the current cheque books, paying in books and unused cheques of the Company. 6.4 At Completion the Vendors shall procure that the Service Agreements are entered into. 6.5 At Completion a Board Meeting of the Company shall be duly convened and held at which with effect from Completion: 6.5.1 the resignation referred to in Clause 6.2.5 shall be submitted and accepted and the Purchaser's Accountants shall be appointed auditors of the Company; 6.5.2 the transfers referred to in Clauses 6.2.5 shall (subject to stamping) be registered; 6.5.3 such persons as the Purchaser may nominate shall be appointed as additional directors and as the secretary of the Company and the resignations referred to in Clause 6.2.4 shall be submitted and accepted; 6.5.4 all authorities to the bankers of the Company relating to bank accounts shall be revoked and new authorities to such persons as the Purchaser may nominate shall be given to operate the same; 6.5.5 the Service Agreements shall be approved and executed by the Company and thereupon exchanged with the Vendors; 6.5.6 the Lease shall be approved and executed by the Company and thereupon exchanged with the Vendors; and 6.5.7 the registered office of the Company shall be changed to such address as the Purchaser shall stipulate. 6.6 Upon completion of the matters specified in Clauses 6.2 to 6.5 the Purchaser will pay the sum of the First Tranche by telegraphic transfer to the Vendors' Solicitors (whose receipt shall be an absolute discharge to the Purchaser of this obligation). 6.7 Upon Completion the Directors Loans shall be repaid. 6.8 The Purchaser may in its absolute discretion waive any requirement contained in Clauses 6.2 to 6.5 (inclusive) but shall not be obliged to complete the purchase of any of the Shares unless the purchase of all the Shares is completed in accordance with such Clauses and this Agreement. 6.9 If in any respect any of the provisions of Clauses 6.2 to 6.5 (inclusive) are not complied with on the date agreed for Completion then the Purchaser may defer Completion to a date not more than 28 days after such date (and so that the provisions of this Clause 6 (other than Clause 6.9) shall apply to Completion as so deferred) and if there shall be non-compliance with any of such provisions for a period of fourteen days following written notice of non-compliance having been served by or on behalf of the Purchaser on the Vendors then the Purchaser shall be entitled to rescind this Agreement. 6.10 Any rights of rescission conferred upon the Purchaser by this Agreement shall be in addition to and without prejudice to all other rights and remedies available to the Purchaser and no exercise or failure to exercise, or delay in exercising, such rights of rescission shall constitute a waiver by the Purchaser of any other rights or remedies. 7. WARRANTIES 7.1 The Vendors to the extent and subject as set out in this Clause 7 warrant, represent and covenant to the Purchaser that the Warranties are and at Completion will be, true and accurate in all respects. 7.2 Each of the Warranties (other than those referred to in paragraph 1 of Schedule 6 in respect of which no qualification is accepted) is given subject to the matters fully and fairly disclosed in the Disclosure Letter but none of the Warranties is otherwise subject to any qualification whatever. No letter, document or other communication shall be deemed to constitute a disclosure for the purposes of this Agreement unless the same is accepted as such by the Purchaser and is annexed to in the Disclosure Letter. 7.3 Each of the Warranties is without prejudice to any other Warranty and, except where expressly stated, no Clause contained in this Agreement governs or limits the extent or application of any other Clause and the Warranties shall not in any respect be extinguished or affected by Completion. 7.4 The rights and remedies of the Purchaser in respect of any breach of the Warranties shall not be affected by completion of the purchase of the Shares, by any investigation made by or on behalf of the Purchaser into the affairs of the Company, by its rescinding or failure to rescind this Agreement, by any failure to exercise or delay in exercising any right or remedy or by any other event or matter whatsoever, except a specific and duly authorised written waiver or release expressly referring to such breach. 7.5 None of the information supplied by the Company or its professional advisers prior to the date of this Agreement to any of the Vendors or their agents, representatives or advisers in connection with the Warranties or the contents of the Disclosure Letter, or otherwise in relation to the business or affairs of the Company, shall be deemed a representation, warranty or guarantee of its accuracy by the Company to the Vendors and shall not constitute a defence to any claim by the Purchaser under the Warranties or under the Tax Deed, and the Vendors waive any and all claims which they might otherwise have against the Company and their respective officers and employees. 7.6 Notwithstanding any rule of law or equity to the contrary, any release, waiver or compromise or any other arrangement of any kind whatsoever to which the Purchaser may agree or effect in relation to one of the Vendors in connection with this Agreement or the Tax Deed, and in particular, but without limitation, in connection with any of the Warranties, shall not affect the rights and remedies of the Purchaser as regards any other of the Vendors. 7.7 The Vendors jointly and severally undertake to the Purchaser to indemnify the Purchaser and the Company against (i) any diminution in the value of the assets of the Company, (ii) any increase in any liability of the Company, and (iii) any payment necessarily made or required to be made by the Purchaser or the Company, as a result of, or in connection with, any breach of any of the Warranties or required to put the Company in the position in which it would have been had there been no such breach of the Warranties and against all costs and expenses incurred in connection therewith. This indemnity shall be without prejudice to any other rights and remedies of the Purchaser in relation to the breach and all other rights and remedies are expressly reserved to the Purchaser. 7.8 Each of the Vendors undertakes, in relation to any Warranty which refers to the knowledge, information, belief or awareness of a Vendor or any similar expression, that he has made full, due and careful enquiry into the subject matter of that Warranty (including without limitation where applicable of the employees, agents and advisers of the Company) and each of them acknowledges that the knowledge, information, belief or awareness of one of the Vendors shall be attributable to the others of them. 7.9 Subject to 7.10 below the provisions of Schedule 6 shall have effect to limit the liability of the Vendors under the Warranties (other than those Warranties specified in paragraph 1 of Schedule 6 in respect of which the liability of the Vendors shall be unlimited). 7.10 Only provisions 2.1.3, 2.1.4, 2.4, 2.7, 2.8, 2.10 and 2.11 of Schedule 6 shall apply to any claims under any of the Warranties where the claim has arisen due to the Company's liability under the Sizewell Contract. 7.11 Each of the Vendors jointly and severally agrees to indemnify and keep indemnified the Purchaser (for itself and as trustee for each member of the Purchaser's Group) from and against all losses, liabilities, costs, charges, expenses, actions, proceedings, claims and demands which any such person may suffer or incur arising out of any breach of any of the Warranties due to the Company's liability under the Sizewell Contract. This indemnity shall be without prejudice to any other rights and remedies of the Purchaser in relation to the breach and all other rights and remedies are expressly reserved to the Purchaser. 8. RESTRICTIONS ON THE VENDORS 8.1 In this Clause: "BUSINESS" means all and any trades or other commercial activities of the Company which as at the Completion Date the Company shall carry on with a view to profit or which the Company shall as at the Completion Date have determined to carry on with a view to profit in the immediate or foreseeable future; "CONFIDENTIAL BUSINESS means all or any information relating INFORMATION" to: (i) the business methods, corporate plans, management systems, finances, new business opportunities or development projects of the Company; (ii) the marketing or sales of any past or present or future product or service of the Company; or (iii) any trade secrets or other information relating to the provision of any product or service of the Company to which the Company attaches confidentiality or in respect of which it holds an obligation of confidentiality to any third party; "CUSTOMER" means any person, firm or company who or which shall at the date of Completion be in negotiation with the Company for the provision of Restricted Services or to whom the Company has provided Restricted Services during the period of one year prior to the date of Completion; "MATERIAL INTEREST" means: (a) the holding of any position as director, officer, employee, consultant, partner, principal or agent; (b) the direct or indirect control or ownership (whether jointly or alone) of any shares or debentures or any voting rights attached to them; or (c) the direct or indirect provision of any financial assistance. "PURCHASING GROUP" means the Purchaser and each of its Subsidiaries; "RESTRICTED AREA" means any country in which the Vendors have conducted business during the past three years; "RESTRICTED SERVICES" means the manufacture for sale or hire of heat treatment equipment and consumables; the provision of electrical resistance and high velocity gas fuel fired heating services; and the production and supply of heating methodology, procedures and associated stress calculations, including finite element analysis, for heat treatment processes. 8.2 Without prejudice to any provisions operating to similar effect which may be contained in any service contract or contract of employment entered into now, or in the future between any of the Vendors and the Company or any members of the Purchaser's Group, each of the Vendors hereby covenants with the Purchaser that without the prior written consent of the Purchaser: 8.2.1 he will not for a period of 3 years after the date of Completion hold any Material Interest in any business (other than the Purchaser or the Company or any company which may acquire the Purchaser or the Company) which provides Restricted Services in competition with the Business in the Restricted Area; 8.2.2 he will not for a period of 3 years after the date of Completion hold any Material Interest in any person, firm or company carrying on business in the Restricted Area (other than the Purchaser or the Company or any company which may acquire the Purchaser or the Company) which requires or might reasonably be expected by the Company to require him to disclose or make use of any Confidential Business Information in order properly to discharge his duties or to further his interest such person, firm or company; 8.2.3 he will not at any time after Completion disclose or permit there to be disclosed (save as authorised by the Purchaser or required by law) any Confidential Business Information, nor will he at any time after Completion otherwise make use of any Confidential Business Information for his own benefit, or for the benefit of others, or in any way to the detriment of the Company; 8.2.4 he will not at any time after Completion solicit or entice away or seek to entice away any person who is, and was at the date of Completion, employed by the Company; 8.2.5 he will not for a period of 3 years after the date of Completion within the Restricted Area and in respect of Restricted Services directly or indirectly: (a) solicit the custom of, or orders from, or (b) accept orders from any person, firm or company who at any time during the two years immediately preceding Completion was a client or customer of the Company in respect of Restricted Services; 8.2.6 that he will not for a period of 3 years after the date of Completion interfere with or seek to interfere with the continuance of supplies to the Company (or the terms relating to such supplies) from any suppliers who have been supplying components, materials or services to the Company at any time during the two years immediately preceding Completion; or 8.2.7 that if he shall have obtained trade secrets or other confidential information belonging to any third party under an agreement which contained restrictions or disclosure, he will not without the previous written consent of the Purchaser at any time infringe such restrictions. 8.3 The parties agree that the restrictions contained in Clause 8.2.3 shall not apply if and to the extent that the Confidential Business Information concerned has ceased to be confidential or come into the public domain (other than as a result of breach of any obligation of confidence by the Vendors). 8.4 Each Vendor shall procure that all companies and businesses directly or indirectly owned or controlled by him shall be bound by and observe the provisions of this Clause as if they were parties covenanting with the Purchaser. 8.5 Each Vendor acknowledges that the Purchaser is accepting the benefit of the covenants contained in this Clause on its own behalf. 8.6 Nothing in this Clause 8 shall preclude any Vendor from being the owner for investment purposes only of not more than 3% of the equity share capital of any company listed on the Official List or the Alternative Investment Market of The Stock Exchange. 8.7 The restrictions contained in this Clause 8 are considered reasonable by the Vendors in all respects but if any of those restrictions shall be held to be void in the circumstances where it would be valid if some part were deleted the parties agree that such restrictions shall apply with such deletion as may be necessary to make it valid and effective. 8.8 The provisions of Clauses 8.2.1 to 8.2.7 (inclusive) are separate and severable and shall be enforceable accordingly. 9. VENDORS' AND PURCHASER'S UNDERTAKING 9.1 Until 28 February 1999 or the completion of the Sizewell Contract, whichever is later, the Vendors and the Purchaser shall procure that the Company unless both parties give their prior written consent (any director of the Purchaser or either Vendor having authority to do so such consent once given to be relied upon by the other party), undertake that none of the following shall occur:- 9.1.1 any change of location of the principal place of business of the Company; 9.1.2 any change in the nature or conduct of the ordinary day to day business or the goods dealt in or services rendered by the Company; 9.1.3 the formation or acquisition of any subsidiary, the entering into of any joint venture, partnership or any other contract which is material in the context of its business, assets or level of profitability; 9.1.4 any disposal of any part of the assets or undertaking of the Company otherwise than in the ordinary and proper course of business, and then only at full open market value therefor; 9.1.5 any transfer to the Company of any onerous or unprofitable activity, undertaking or obligation of the Purchaser or from any member of the Purchaser's Group, or of any third party; 9.1.6 the sale or provision to the Company of any goods or services by the Purchaser or any member of the Purchaser's Group, or the purchase by the Company from the Purchaser or any member of the Purchaser's Group of any goods or services at a price higher than a commercial arms length rate for the goods or services in question; 9.1.7 the making of any monetary transfers or loans or the payment of any service or management charges or other payments by the Company to the Purchaser and/or the Purchaser's Group other than in respect of charges at a fair commercial rate for services rendered by the Purchaser or the Purchaser's Group which have first been approved by the Vendors; 9.1.8 the passing or proposing of any resolution for the winding-up of the Company or the presentation by the Purchaser or the Purchaser's Group of a petition for an order for the winding up of the Company unless the Company shall be unable to pay its debts as they fall due; 9.1.9 any change of name of the Company; 9.1.10 the declaration to make or the payment of any dividend or other distribution by the Company; 9.1.11 any change in the accounting reference date or accounting policies of the Company; 9.1.12 permit any of its insurances to lapse or become void or voidable; 9.1.13 the creation of any charge or other encumbrance over the assets or part of the assets of the Company or over any of the shares in the Company or the giving of any guarantee or indemnity by the Company in either case to secure the liabilities of any other person or company; 9.1.14 the employment of personnel which the Vendor reasonably believes are surplus to the requirements of the Company or make any change in the terms and conditions of employment or any employee of the Company (other than for good cause); 9.1.15 permit or incur any capital expenditure or enter into any commitment to do so; 9.1.16 permit or incur any liability to arise for the Company or enter into any commitment to do so; and 9.1.17 do any act or deed or omit to do any act or deed other than those which show utmost good faith to each other. 9.2 Until 28 February 1998 or the completion of the Sizewell Contract, whichever is later, the Vendors and the Purchaser agree to procure that: 9.2.1 the Company shall retain the bank account with Lloyds Bank Plc Sort Code: 30-93-93 and account number 0781937; and 9.2.2 for any transaction equal to or above (pound)1,000 two signatories shall be required, being one of the Vendors and the other being a representative of the Purchaser; and 9.2.3 for any transaction less than (pound)1,000 one signatory shall be required being one of the Vendors or a representative of the Purchaser. 10. THE SIZEWELL CONTRACT 10.1 Should the Sizewell Contract not be completed and invoiced by its proposed completion date of 28 February 1999 then the following provisions at this clause 10 will apply in relation to the Sizewell Payment. 10.2 The Sizewell Payment represents the revenue attributable to the amounts invoiced under the Sizewell Contract after the 28 February 1999 less the following costs (the "Sizewell Costs"): (a) direct costs, the direct costs including but not limited to; labour; subsistence allowances; transport; storage at Sizewell; costs of the clearance of the Sizewell Site; consumable items; depreciation of equipment; and all other costs normally and reasonably attributable to the completion of a contract of the same type as the Sizewell Contract; (b) a portion of central overheads allocated in direct proportion to the value of the Sizewell Contract revenues expressed as a percentage of total revenues for the same period; and (c) a provision for corporation tax at 31 per cent of the net of the revenue less the costs included in (a) and (b) above. 10.3 PROVIDED THAT the Sizewell Contract is not completed and the final invoice submitted and agreed by 28 February 1999, within two weeks of the completion and invoice of the Sizewell Contract the Purchaser's Accountants will prepare a draft schedule of the Sizewell Payment (the draft "Sizewell Payment Schedule") using the provisions of clause 10.1.1 and schedule 7 as appropriate and submit it for approval to the Vendors. 10.4 Within 15 days of receipt by the Vendors of the draft Sizewell Payment Schedule the Vendors will inform the Purchaser in writing whether or not in their opinion the draft Sizewell Payment Schedule complies with the requirements of this Clause 10 and, if not, shall specify in writing, so far as they are then reasonably able so to do, the amount and nature of any item which they do not accept. If the Vendors confirm in writing that they accept the draft Sizewell Payment Schedule, or if they fail to inform the Purchaser within 15 days of receipt whether or not they accept that the draft Sizewell Payment Schedule complies with the requirements of this Clause 10, such draft shall be the Sizewell Payment Schedule. 10.5 If the Vendors inform the Purchaser, in accordance with Clause 10.3, that they do not accept that the draft Sizewell Payment Schedule complies with the requirements of this Clause 10, the Vendors and the Purchaser will hold discussions in good faith with a view to agreeing Sizewell Payment Schedule. If such agreement is reached, and is confirmed in writing by the parties, it shall be final and binding on the parties but without prejudice to the Purchaser's right to claim under the Warranties, the Tax Deed or otherwise in respect of any matter. 10.6 Any dispute about the draft Sizewell Payment Schedule which remains unresolved 15 days after receipt by the Vendors of the draft Sizewell Payment Schedule shall, at the request of either party be referred for final settlement to an independent firm of chartered accountants nominated jointly by the Vendors and the Purchaser or, failing such nomination, within 14 days after request by either the Vendors or the Purchaser, nominated at the request of either party by the President for the time being of the Institute of Chartered Accountants in England and Wales. Such independent firm shall act as experts and not as arbitrators and (in the absence of manifest error) its decisions (both as to the manner in which its determination is to be made and as to the subject matter of its determination) shall be final and binding on the parties, but shall be without prejudice to the Purchaser's right to claim under the Warranties, the Tax Deed or otherwise in respect of any matter. 10.7 All costs incurred by the Vendors in reviewing and agreeing the Sizewell Payment Schedule shall be borne by the Vendors and all such costs incurred by the Purchaser shall be borne by the Purchaser. The fees of such independent firm shall be payable by the Vendors and the Purchaser in such proportions as such firm determines (or failing such determination in equal shares). 10.8 Each party will co-operate fully with the other and, if applicable, with the independent firm appointed under Clause 10.5 (including giving all reasonable access to records, information, and to personnel) with a view to enabling the draft Sizewell Payment Schedule to be prepared and subsequently discussed and, if applicable, with a view to enabling any such independent firm to make any determination required by Clause 10.6, and in particular the Purchaser shall procure that the Company shall permit the Vendors and their advisers (and, if applicable, such independent firm) to have access to, and (where reasonable) to take copies of any records or information belonging to the Company. 10.9 Subject to the provisions of this clause 10 that the Sizewell Payment Schedule is agreed the Sizewell Payment is to be made to the Vendors within 2 months of the Sizewell Contract being completed and invoiced PROVIDED THAT the Vendors provide written confirmation that all Sizewell Costs arising from the Sizewell Contract have been taken into account in the Sizewell Payment and should further Sizewell Costs arise following the Sizewell Payment the Purchaser will be reimbursed by the Vendors on a pound for pound basis. 11. PENSIONS PAYMENT On the earlier of the date of delivery of the final invoice for the Sizewell Contract or 21 February 1998 the Company shall procure the payment of (pound)200,000 to the Vendor's Solicitors with a direction that it be paid to the account in the name of Trustees for the time being to the Didcot Heat Treatment Limited Private Pension Plan. 12. HOLIDAY PAY The Vendors will and shall keep the Purchasers indemnified at all times after Completion against any claims made by any employee of the Company being an employee prior to or at the time of Completion for any and all accrued holiday pay claimed for the period up to 31 March 2000. 13. GENERAL 13.1 This Agreement shall be binding upon and enure for the benefit of the successors in title of the parties and the benefit of this Agreement and of the Tax Deed may be assigned by the Purchaser. 13.2 The Vendors shall execute and perform all such further acts, deeds or assurances as may be reasonably required for effectually vesting the Shares in the Purchaser and otherwise for fulfilling the provisions of this Agreement. Each of the Vendors shall following Completion provide such information as to the Company, its business and its affairs as the Purchaser shall reasonably and by prior notice specify, including if required attendance at the premises of the Company. 13.3 Any sums due to the Vendors pursuant to this Agreement may be paid to the Vendors' Solicitors whose receipt shall constitute a full discharge of the Purchaser's obligations to make such payment and the Purchaser shall not be concerned with the application of any such amount between the Vendors. 13.4 The provisions of this Agreement insofar as the same shall not have been performed at Completion shall remain in full force and effect notwithstanding Completion. 13.5 No delay or omission by the Purchaser in exercising any right, power or remedy shall operate as a waiver thereof, and any single or partial exercise thereof shall not preclude any other or further exercise thereof or the exercise of any right, power or other remedy. The rights and remedies of the Purchaser hereunder are cumulative and not exclusive of any right or remedy provided by law. 13.6 Save as otherwise required by law or The Stock Exchange no announcement shall be made by the Vendors in connection with this Agreement unless previously approved in writing by the Purchaser. 13.7 No provision of this Agreement, or of any agreement or arrangement of which this Agreement forms part, by virtue of which this Agreement or the agreement or arrangement of which it forms part is subject to registration under the Restrictive Trade Practices Act 1976 shall take effect until the day after particulars of this Agreement, or the agreement or arrangement of which it forms part, (as the case may be) have been furnished to the Director General of Fair Trading pursuant to Section 24 of the said Act. 13.8 All expenses incurred by or on behalf of the parties, including all fees of agents, representatives, solicitors, accountants and actuaries employed by any of them in connection with the negotiation, preparation or execution of this Agreement shall be borne solely by the party who incurred the liability and there shall be no liability in respect of them upon the Company. 13.9 This Agreement shall be governed by and construed in accordance with English Law and the parties submit to the jurisdiction of the English Courts. 14. NOTICES 14.1 Any notice to be given hereunder shall be in writing and delivered by hand or by first class recorded delivery post or by telex or facsimile letter addressed and sent to the party to be served (in the case of the Vendors) at the address given herein and (in the case of the Purchaser) at its registered office for the time being. 14.2 Notice delivered by hand shall be deemed to have been served at the time of actual delivery. 14.3 Notice sent by post shall be deemed to have been served at the expiry of 48 hours after posting. 14.4 Notices sent by telex or by facsimile shall be deemed to have been served in the case of: 14.4.1 telex, on receipt by the sender of the answerback code of the addressee after transmission of the telex; and 14.4.2 facsimile, on production of a transmission report from the machine which sent the facsimile indicating that the facsimile was sent in its entirety to the facsimile number of the recipient. AS WITNESS the hands of the parties hereto or their duly authorised representatives on the date shown on the first page SIGNED by ANDREW MAXWELL ANDERSON in the presence of: SIGNED by HILDA JANE ANDERSON in the presence of: Witness: Name: Address: Occupation: SIGNED by ALBERT RAMSDEN for and on behalf of PIPELINE INDUCTION HEAT LIMITED in the presence of: Witness: Name: Address: Occupation: EX-23.1 3 EXHIBIT 23.1 The Board of Directors CRC Holdings Corp.: The audits referred to in our reports dated May 19, 1998 except Note 15 which is as of [date] and October 3, 1998, included the related financial statement schedule for the period from June 12, 1997 to March 31, 1998, and the related financial statement schedule for the years ended March 31, 1996 and 1997 and for the period from April 1, 1997 to June 11, 1997 included in the registration statement. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedules based on our audit. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. Tulsa, Oklahoma /s/ KPMG LLP February 11, 1999 ------------------------- KPMG LLP -----END PRIVACY-ENHANCED MESSAGE-----