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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the
transition period from ........... to .............
COMMISSION FILE NUMBER 1-9891
HADSON CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 31-0679954
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2777 STEMMONS FREEWAY, SUITE 700, DALLAS, TEXAS 75207
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (214) 640-6800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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Name of each exchange
Title of each class on which registered
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Common Stock, $.01 par value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Junior Exercisable Automatically Convertible
Preferred Stock, Series B, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
_____ _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
_____ _____
Aggregate market value of the voting stock held by non-affiliates of the
registrant based on closing prices as reported on the New York Stock Exchange
on March 14, 1994 was approximately: $25,806,000
25,689,147 shares of Common Stock, par value $.01 per share, were
outstanding as of March 14, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive Proxy Statement for the
Annual Meeting of Stockholders to be held on May 26, 1994 to be filed pursuant
to Regulation 14A under the Securities Exchange Act of 1934 (to the extent set
forth in Items 10, 11, 12 and 13 of Part III of this report) are incorporated
by reference.
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TABLE OF CONTENTS
PART I
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Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Financial Information about Industry Segments . . . . . . . . . . . . . 4
Energy Products and Services . . . . . . . . . . . . . . . . . . . . . . 4
Operations of Unconsolidated Subsidiaries . . . . . . . . . . . . . . . 12
Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . 13
Number of Persons Employed . . . . . . . . . . . . . . . . . . . . . . . 13
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Natural Gas Gathering Facilities . . . . . . . . . . . . . . . . . . . . 14
Other Gathering and Transmission Facilities and Related Property . . . . 14
Natural Gas Liquids Facilities and Related Property . . . . . . . . . . 14
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Power Systems Properties . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Fixed Price Contract Dispute . . . . . . . . . . . . . . . . . . . . . . 14
Gas Sales Contract Dispute . . . . . . . . . . . . . . . . . . . . . . . 15
Personal Injury Case . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Joint Venture Case . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . 16
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . . . . . 17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . 20
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . 20
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . 25
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . 25
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PART III
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Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . 25
Item 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . 25
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS . . . . . . . . . . 25
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . . . . . 25
PART IV
Item 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, FINANCIAL
STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. . . . . . . . . . . . 26
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PART I
ITEM 1. BUSINESS
GENERAL
Hadson Corporation, a Delaware corporation (the "Company"), is
engaged, through its consolidated subsidiaries, in providing energy products
and services, consisting of the purchasing, gathering, processing, storing and
transporting of natural gas and natural gas liquids ("NGLs"), as well as the
marketing of such products and related services.
Prior to July 15, 1993, the Company owned approximately 49% of the
outstanding common stock of Hadson Energy Resources Corporation ("HERC"), which
conducts oil and gas exploration, development and production activities, both
domestically and internationally. On July 15, 1993, the Company sold its
equity interest in HERC to Apache Corporation ("Apache"). See "--Recent
Developments -- Sale of HERC Shares" below and "--Operations of Unconsolidated
Subsidiaries" below.
Discontinued operations include the Company's defense systems
business, primarily conducted by HRB Systems, Inc. and Ultrasystems Defense
Inc., which were sold, respectively, in October 1990 and February 1991, and the
Company's power systems business, conducted by Hadson Power Systems, Inc.
("Hadson Power"), which the Company sold in December 1991. See "-- Recent
Developments -- Sale of Discontinued Operations" and "--Discontinued
Operations" below.
The Company was incorporated in Ohio in 1964 as Hadson Ohio Oil
Company. In 1980, it effected a change of domicile to the state of Delaware,
and in 1986 its name was changed to Hadson Corporation. The Company's
corporate headquarters are located at 101 Park Avenue, Suite 1400, Oklahoma
City, Oklahoma 73102, and its telephone number is (405) 235-9531. Effective
approximately April 15, 1994, the corporate headquarters will be relocated to
2777 Stemmons Freeway, Suite 700, Dallas, Texas 75207, and the telephone
number will be (214) 640-6800.
RECENT DEVELOPMENTS
Merger of Adobe Gas Pipeline Company with and into the Company
On December 14, 1993, the stockholders of the Company approved and
adopted an Agreement of Merger, dated July 28, 1993, as amended (the "Merger
Agreement"), among the Company, Santa Fe Energy Resources, Inc. ("Santa Fe")
and Adobe Gas Pipeline Company ("AGPC"), then an indirect-wholly owned
subsidiary of Santa Fe. Pursuant to the Merger Agreement, AGPC was merged (the
"Merger") with and into the Company (which was the surviving corporation in the
Merger). AGPC, through its wholly-owned subsidiaries, was engaged in the
gathering, processing, transmission and marketing of natural gas, had interests
in 10 natural gas pipeline systems and three natural gas processing plants and,
prior to the Merger, entered into a master gas purchase agreement (the "Gas
Contract") having a term of approximately seven years and providing for the
purchase by AGPC of essentially all the domestic natural gas production of
Santa Fe, as well as natural gas that Santa Fe has the right to market. In
addition to effecting the acquisition by the Company of AGPC, the Merger also
effected a restructuring of the Company's debt and equity capitalization
(including an approximate one-for-15 reverse split of the Company's Common
Stock). Pursuant to the Merger Agreement, among other things:
(i) all of the outstanding common stock of AGPC (which was owned
by a wholly-owned subsidiary of Santa Fe) was converted into (A) 2,080,000
shares of new Senior Cumulative Preferred Stock, Series A, par value $.01 per
share, of the Company and (B) 10,395,665 shares new Common Stock, par value
$.01 per share, of the Company ("New Common Stock" ), which is equal to
approximately 40% of the outstanding New Common Stock, giving effect to the
issuance and deposit by the Company to the "H/P Trust", described below, of
4,983,180 shares of New Common Stock;
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(ii) each outstanding share of the Company's 8% Junior Cumulative
Convertible Preferred Stock, Series B, par value $.01 per share ("Old Junior
Preferred Stock" ), was converted into (A) 1.50733 shares of New Common Stock
(5,723,652 shares in the aggregate) and (B) 1.09667 shares of new Junior
Exercisable Automatically Convertible Preferred Stock, Series B, par value $.01
per share, of the Company ("New Junior Preferred Stock") (4,163,852 shares in
the aggregate), each share of which entitles the holder to purchase from the
Company, upon surrender of such share and payment of the exercise price, one
share of New Common Stock (an aggregate of 4,983,180 shares, including the
shares issuable upon the exercise of the additional shares of New Junior
Preferred Stock described in clause (iii) below) at an exercise price of $3.225
per share of New Common Stock (in each case subject to adjustment) at any time
prior to the automatic conversion of such share of New Junior Preferred Stock
into .001 of a share of New Common Stock, which will occur on the second
anniversary of the Merger (or earlier under certain circumstances);
(iii) each outstanding share of the existing Common Stock, par value
$.01 per share, of the Company ("Old Common Stock") was converted into (A)
.06667 (approximately 1/15th) of a share of New Common Stock (3,277,488 shares
in the aggregate) and (B) approximately .01667 of a share of New Junior
Preferred Stock (819,328 shares in the aggregate);
(iv) all of the outstanding shares of the Company's Class B Common
Stock, par value $.01 per share ("Class B Common Stock"), all of which were
held by The Prudential Insurance Company of America and certain of its
affiliates (collectively, "Prudential" ), were converted into the right to
receive a portion of the "P Interest" in the H/P Trust described below, which
interest (in its entirety) initially represented a beneficial trust interest in
4,983,180 shares of New Common Stock deposited by the Company to the H/P Trust
(the "Trust Shares" ) and could ultimately result in the payment to Prudential
of an amount equal to the amount of all proceeds payable upon the exercise of
the shares of New Junior Preferred Stock issued in the Merger (which could
total as much as approximately $16.1 million), as described below;
(v) each outstanding share of the Company's Class C Common Stock,
par value $.01 per share ("Class C Common Stock"), all of which were held by
Prudential, was converted into .06667 (approximately 1/15th) of a share of New
Common Stock (approximately 756,104 shares in the aggregate); and
(vi) all of the outstanding shares of the Company's 7% Senior
Cumulative Preferred Stock, Series A, par value $.01 per share ("Old Senior
Preferred Stock" ), which had an aggregate liquidation preference of $49.5
million and were held by Prudential, were converted into (A) an aggregate of
approximately 553,658 shares of New Common Stock, (B) the right to receive the
remainder of the "P Interest" in the H/P Trust and (C) the right to receive $33
million aggregate principal amount of new 8% Senior Secured Notes Due 2003
("New Senior Secured Notes") of the Company.
The H/P Trust was established by the Company in connection with the
Merger. The Company issued the Trust Shares to the H/P Trust immediately
following the Merger. As a result of the Merger, Prudential received the "P
Interest" in the H/P Trust, which initially represented beneficial ownership of
all of the Trust Shares. As holders of shares of New Junior Preferred Stock
exercise their right to purchase shares of Common Stock, the Company will
periodically deposit, or cause to be deposited, to the H/P Trust all proceeds
of such exercises. At the end of each calendar quarter and upon termination of
the H/P Trust, if the dollar amount of exercise proceeds held in the H/P Trust
has reached certain levels, the trustee will pay such proceeds to Prudential
and will distribute a corresponding number of Trust Shares to the Company.
Upon termination of the H/P Trust, all remaining Trust Shares, if any, will be
distributed to Prudential.
Concurrently with the Merger, the Company and Prudential entered into
a securities purchase agreement (the "New Securities Purchase Agreement")
pursuant to which the Company issued, subject to certain conditions, an
additional $23.4 million of New Senior Secured Notes in exchange for $23.4
million of 6.20% Senior Secured Notes Due 2000 (the "6.20% Notes") of the
Company held by Prudential prior to the Merger. See Note 2 of the Notes to
Consolidated Financial Statements appearing elsewhere herein.
Prudential and Santa Fe entered into a voting agreement (the "Voting
Agreement") in connection with the Merger pursuant to which, among other
things, Santa Fe has agreed to vote all shares of Common Stock of
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the Company beneficially owned by it following the Merger in favor of any one
person designated from time to time by Prudential for election as a Class I
director of the Company, Prudential has agreed to vote all shares of Common
Stock beneficially owned by it following the Merger in favor of persons
designated from time to time by Santa Fe for election as directors of the
Company up to a specified maximum, and each of Santa Fe and Prudential have
agreed to vote the shares of Common Stock beneficially owned by it following
the Merger in favor of any one person jointly designated from time to time by
Santa Fe and Prudential as a Class III director of the Company.
Concurrently with the consummation of the Merger, the Company entered
into a new working capital facility with the Bank of Montreal ("BMO"). This
new facility ("New BMO Credit Agreement") provides for up to $60 million of
letters of credit and replaces an agreement between BMO and Hadson Energy
Products and Services, Inc. Consummation of the New BMO Credit Agreement was a
condition precedent for completion of the Merger and the New Securities
Purchase Agreement.
Finally, in connection with the Merger, the Company's Restated
Certificate of Incorporation was amended to provide, among other things, for an
increase in the number of directors constituting the entire Board of Directors
of the Company to eight and to divide the Company's Board of Directors into
three classes.
Sale of HERC Shares
Pursuant to a sale agreement entered into by the Company and Apache on
June 17, 1993, the Company, on July 15, 1993, sold the stock of HERC owned by
the Company (the "HERC Shares") to Apache for $45 million in cash ($3 million
of which was paid in November 1993 following the satisfaction of a condition
relating to the acquisition by Apache of additional shares of HERC's common
stock). In consideration of the release by Prudential of its security interest
in the HERC Shares, the Company applied the proceeds from the sale of the HERC
Shares as follows: $1 million to pay costs and expenses related to the sale;
approximately $2.2 million was applied to pay in full all principal remaining
outstanding under a credit agreement between the Company and Prudential
pursuant to which Prudential had provided interim financing to fund the costs
of the Company's financial reorganization in 1992 (the "Prudential Credit
Agreement"), as well as all accrued and unpaid interest thereon; $1 million to
prepay the New Senior Secured Notes upon closing of the Merger; approximately
$1.3 million was applied to pay all accrued and unpaid interest under the 6.20%
Notes through the date of such sale and certain fees due to Prudential; and $33
million was applied to the prepayment of principal under the 6.20% Notes. The
remaining approximately $6.5 million of such proceeds was used by the Company
for the payment of transaction costs related to the Merger and related
transactions and for working capital.
Financial Reorganization
In December 1992, the Company completed a restructuring of its
long-term debt through a "pre-packaged" bankruptcy proceeding (the "1992
Restructuring"). The Company solicited votes for and against its plan of
reorganization (the "Plan") from its senior secured lenders (Prudential),
holders of the Company's 7-3/4% Convertible Subordinated Debentures and its
common stockholders. Votes in favor of the Plan were received sufficient to
allow for confirmation of the Plan, and, on October 15, 1992, the Company filed
its Chapter 11 bankruptcy petition as well as the Plan in the Western District
of Oklahoma. The bankruptcy court confirmed the Plan on November 30, 1992, and
the Plan was consummated on December 16, 1992. Pursuant to the Plan,
approximately $131.9 million of long-term debt with the related accrued
interest and certain other obligations were converted into $56.4 million of the
6.20% Notes and into shares of Old Senior Preferred Stock, Old Junior Preferred
Stock, Class B and Class C Common Stock and Old Common Stock.
Sale of Discontinued Operations
In late 1989, the Company planned and began to implement a corporate
restructuring and debt-reduction program in response to (i) high debt service
requirements which severely restricted the Company's ability to capitalize on
business opportunities and (ii) operating losses in the third and fourth
quarters of 1989, which resulted in violations of certain financial covenants
contained in the Company's credit agreements with
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its major lenders. The Company was able to negotiate temporary amendments to
these agreements, enabling it to be in compliance with the agreements while the
Company analyzed ways by which it could reduce and restructure long-term debt.
The disposition of the Company's defense systems and power systems operations,
completed in February 1991 and December 1991, respectively, were key components
of the debt-reduction plan developed by the Company. Substantially all of the
proceeds of such sales was used to repay all outstanding bank debt and to
reduce the Company's indebtedness to Prudential. See "-- Discontinued
Operations" below.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
For financial information about industry segments, see Note 1 of the
Notes to Consolidated Financial Statements appearing elsewhere herein.
ENERGY PRODUCTS AND SERVICES
General
The Company's energy products and services business is concentrated
primarily in three areas: (1) natural gas marketing operations and related
energy services, (2) natural gas facilities operations, which include
gathering, transportation, processing, treatment and storage operations, and
(3) natural gas liquids transportation and marketing operations. For the year
ended December 31, 1993, these activities accounted for approximately 99% of
the consolidated revenues of the Company from continuing operations. Such
activities were conducted through Hadson Energy Products and Services, Inc.
("HEPSI"). Effective December 14, 1993, the Company merged HEPSI with and
into the Company, with the Company being the surviving corporation, and made
Western Natural Gas and Transmission Corporation ("Western") a direct
subsidiary of the Company. The primary operating subsidiaries of the Company
are Hadson Gas Systems, Inc. ("Gas Systems"), Llano, Inc. ("Llano"), Minerals,
Inc. ("Minerals"), United LP Gas Corporation ("United"), Western, and the
former AGPC subsidiaries which are now wholly-owned subsidiaries of the Company
and renamed as follows: Hadson Gas Co., Hadson Gas Marketing Co. and Hadson Gas
Gathering & Processing Co.
The energy products and services business is seasonal, and affected by
weather patterns in the market areas served by the Company. West Coast,
Southwest and Southeast markets typically have higher demand for the Company's
products in the summer months, while the Northeast and Midwest market demand is
generally greater in the winter.
Natural Gas Marketing Operations
The majority of the Company's natural gas marketing operations are
conducted through Gas Systems. As part of the services it offers customers,
Gas Systems aggregates supplies of natural gas from gas producers and
processors, uses its knowledge of federal, state and local regulations and the
natural gas industry to contract for transportation services, arranges for
transportation of gas over the most expeditious and economical pipeline routes
and assists its customers in complying with regulatory filings and other
matters relating to the requirements of the Federal Energy Regulatory
Commission ("FERC"). Gas Systems believes that the growth of its gas marketing
business depends primarily upon its ability to provide quality services in
response to evolving customer needs and market conditions.
The volume of gas transported and marketed by Gas Systems has
increased from an average of 83 million cubic feet of gas ("MMCF") per day in
1985 to average daily volumes of approximately 452 MMCF in 1993. As of
December 31, 1993, Gas Systems had approximately 520 direct gas sales contracts
with industrial firms, local gas distribution companies, electric utilities,
large commercial entities and institutions such as hospitals, military bases
and universities. Gas Systems maintains a diverse customer base in order to
limit its reliance on any one industry or region. No customer accounted for
10% or more of Gas Systems' total gas sales in 1993. Gas Systems competes with
other gas marketers primarily on the basis of market-responsive pricing,
reliability of supply and customer service.
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In connection with its gas marketing operations, Gas Systems purchases
and takes title to gas at the wellhead, processing plants or other points of
delivery primarily from independent producers and major integrated oil
companies and sells such gas to industrial and institutional users, local gas
distribution companies and electric utilities across the United States. It is
Gas Systems' general practice to contract for a diverse supply of gas from
various geographic locations and producers to minimize its reliance on any
single source or region and to maximize its ability to deliver gas to its
customers by the most advantageous route. Gas Systems believes that it has
retained and increased its sources of supply because of its demonstrated
ability to market and transport the quantities of gas purchased. When
interruptible transportation is used, Gas Systems generally arranges for the
transportation of gas from the point of purchase to the customer's delivery
point. If firm transportation is used, generally this transportation is
contracted for by the customer, although Gas Systems has executed a limited
number of firm transportation agreements.
Gas is purchased under contracts that, to the extent possible,
complement Gas Systems' gas sales contracts as to term and pricing. Gas
Systems purchases gas under long-term contracts, as well as in the "spot"
market for contract terms of generally 30 days, or less. Because most of Gas
Systems' gas purchase contracts contain market-sensitive pricing mechanisms,
Gas Systems is to a large extent insensitive to changes in natural gas prices.
Some of Gas Systems' gas sales contracts are terminable by either Gas
Systems or its customers upon relatively short notice (generally 30 to 90
days). This contract structure is designed to maintain Gas Systems'
flexibility to respond to changes in customer needs, market conditions and
regulations. In response to changes currently taking place in the gas
industry, Gas Systems has been de-emphasizing its short-term markets, and an
increasing proportion of its revenues are earned pursuant to value-added
services, such as those provided by the CD Conversion contracts, described
below, and other energy management services described below.
As a result of the Merger, the Company succeeded to the rights and
obligations of AGPC under the Gas Contract with Santa Fe and Santa Fe Energy
Operating Partners, L.P. ("SFEOP"). Following the Merger, the Company assigned
the Gas Contract to Gas Systems. The Gas Contract has a term of approximately
seven years and provides for the purchase by the Company of essentially all of
Santa Fe's and SFEOP's existing domestic natural gas production as well as
natural gas production that either Santa Fe or SFEOP has the right to market.
In addition, the Company has the right to purchase new production from certain
development properties of Santa Fe and SFEOP. The price to be paid by the
Company for natural gas purchases under the Gas Contract is based on generally
recognized published price indices. The Gas Contract provides, among other
things, terms (i) for the release of gas dedicated under the Gas Contract, (ii)
for payment by the Company and (iii) for termination of the Gas Contract under
certain conditions.
Regulatory changes beginning in 1985 have caused the largest
purchasers of natural gas (primarily gas distribution companies and electric
utilities) to convert a growing percentage of their supply portfolio or
"contract demand" away from the traditional pipeline supplier to new suppliers
such as natural gas producers and marketing companies. As a result of such
regulatory changes, utilities and end-users holding contract demand with
interstate pipelines are now able to convert those contracts to firm pipeline
transportation capacity ("CD Conversions") and thereby assure delivery of their
new supply sources. During 1993, Gas Systems delivered approximately 161 MMCF
of gas per day to such CD Conversion customers.
Gas Systems offers end-users contracted management services to reduce
or eliminate administrative expense associated with energy procurement, and
assists natural gas producers in managing the delivery of their product to
market through gas volume accounting, transportation and related services.
Customers for Gas Systems' energy management services are typically larger
industrial, commercial and governmental consumers that operate multiple
facilities in various geographic areas or producers that desire to avoid the
administrative complexity and costs of natural gas marketing and transportation
regulatory requirements. These value-added energy service contracts are
generally long-term (three to five years). Gas Systems believes that its
value-added service approach enhances its ability to respond to evolving
customer and producer requirements in the changing natural gas industry.
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Natural gas prices have become extremely volatile over the past two
years. Mid-month price volatility has increased from typically five cents per
million British thermal unit ("MMBtu") during 1991 to as much as 45 cents or
more per MMBtu during 1993. Gas Systems has begun to assist customers and
producers in managing the risk associated with such changes in natural gas
prices. This is accomplished by utilizing various financial instruments such
as natural gas futures contracts, options and swap arrangements. In addition,
Gas Systems may provide such services via fixed-price sales or supply contracts
which are then coupled with these financial instruments to hedge price risk
exposure to Gas Systems. Such hedging strategies are subject to inefficiencies
in the financial instruments utilized, as well as management's judgment in the
design and execution of the strategies. Another tool which Gas Systems
utilizes in its gas sales and purchase contracts to combat price volatility is
market-sensitive pricing which reflects monthly and/or daily commodity pricing.
Short-term or "spot" sales of natural gas comprised 42% of Gas
Systems' sales of natural gas in 1993. These activities will continue to play
a critical role in Gas Systems' overall strategy because they provide an
important source of market intelligence, while serving a portfolio balancing
function.
Natural Gas Facilities Operations
The Company's natural gas facilities operations include natural gas
gathering, treatment, processing, underground storage, intrastate transmission
and contract production operations, as well as field and technical services, and
are conducted through the Company's subsidiaries. These operations are
concentrated in southeastern New Mexico, the Louisiana Gulf Coast and the
Permian Basin of West Texas (as a result of AGPC's operations in that area).
Assets employed to conduct these operations include Llano's 650-mile intrastate
pipeline in southeastern New Mexico (the "Llano Pipeline"), six separate
gathering systems consisting of 26 miles of pipeline, two gas processing
facilities and an underground gas storage facility with a current working
capacity of approximately 6 billion cubic feet ("BCF") of gas.
In addition, as a result of the Merger, the Company acquired either a
100% interest or some lesser interest in nine gas gathering systems, six of
which are operated by the Company through its subsidiaries, and one gas
transmission system. The Company also acquired three gas processing plants
through the Merger.
The principal asset of the Company's natural gas facilities operations
is the Llano Pipeline. The Llano Pipeline, which has a design capacity of
approximately 180 MMCF of gas per day, is capable of delivering gas to four
different interstate pipelines and directly to three end-users, as well as
receiving gas from three interstate pipelines. The Company, through its
various subsidiaries, purchases gas from over 55 producers connected directly
to the Llano Pipeline and sells the gas directly to end-user customers or
delivers the gas into one of the interstate pipelines for sale by Gas Systems.
The Company, through its various subsidiaries, also transports natural gas
through the Llano Pipeline for third parties and is paid a transportation fee
for such services. In connection with gas moved through the Llano Pipeline,
the Company, through its various subsidiaries, also provides gas treatment and
contract operation services. During 1993, an average of approximately 114 MMCF
of natural gas per day moved through the Llano Pipeline, as compared to
approximately 124 MMCF of natural gas per day in 1992 and approximately 118
MMCF of natural gas per day in 1991.
The nine gas gathering systems in which AGPC previously held interests
gathered approximately 30 MMCF of natural gas per day during 1993 (net to
AGPC's interest). The one gas transmission system, in which AGPC held an
interest, transported 24 MMCF of natural gas per day during 1993 (net to AGPC's
interest). In certain circumstances, these pipeline systems are used to
transport or gather natural gas for others in return for a transportation fee.
Connected to the Llano Pipeline are two natural gas processing
facilities, including a cryogenic unit capable of processing approximately 50
MMCF per day of natural gas. These facilities extract NGLs, including propane,
ethane, butanes and natural gasoline, from the natural gas stream, at which
point the mixed stream of liquids is sold to United. In 1992, the facilities
processed approximately 39 million gallons of NGLs. During 1993, approximately
44 million gallons of NGLs were processed and sold from these facilities.
6
<PAGE> 10
The interests in the three gas processing facilities acquired through
the Merger, Sale Ranch, Antelope Ridge and Apple Creek, produced approximately
24 million gallons of NGLs (net to AGPC's interest) during 1993. The Antelope
Ridge Plant was recently refurbished and connected to the Llano Pipeline, in
addition to the two plants described above.
Also connected to the Llano Pipeline is a natural gas storage
facility. This facility has current working capacity of approximately 6 BCF.
This capacity could be increased to approximately 10 BCF by decreasing
mechanical limits on withdrawals from and injections into the facility. The
Company, through its subsidiary, offers this storage capacity to third parties
on a fee basis. During 1993, approximately 6 BCF (the entire current working
capacity) was leased to other parties.
NGL Marketing and Transportation
Through United, the Company engages in NGL purchasing, transporting,
marketing and trading, primarily in Oklahoma, Texas and Louisiana. United
generally purchases NGLs from "landlocked" gas processing plants and transports
the liquids through its fleet of 32 trucks to injection points on common
carrier and private pipelines. Five of these injection facilities are owned
and operated by United. The liquids are then transported via the pipelines to
fractionation plants, at which point the liquids are normally sold. United
also markets NGLs which are not transported by its own trucks. Because the
NGLs transported by United are highly volatile, the Company carries insurance,
in amounts it believes are in line with industry practice, against risks
involved in transporting these liquids. During 1993, United transported
approximately 129 million gallons of NGLs and marketed approximately 387
million gallons of NGLs.
In December 1992, United entered into a three-year contract to market
all NGLs produced by a large independent oil and gas producer. This
transaction involves marketing approximately 4 million gallons per month on
behalf of this particular producer.
United is working to expand its marketing efforts in the wholesale
distribution of NGLs, especially propane. Potential customers in this market
include industrial users of propane, some of which are currently customers of
the Company's natural gas marketing operations. Since 1990, United has owned a
40% interest in Beck & Root Fuel Company, a retail propane sales and
distribution company located in Oklahoma.
Competition
The Company, through its various subsidiaries, competes with gas
pipelines, producers and other gas marketers primarily on the basis of
market-responsive pricing, reliability of markets and supply, and customer
service. The Company believes that its ownership and control of gathering and
transmission facilities, its detailed knowledge of market and regulatory
factors affecting the industry and its ability to respond quickly and flexibly
to changes in market conditions, governmental regulations and customer needs
have been important factors in its success to date. The Company devotes
significant management time and resources to monitoring closely federal and
local gas regulation developments and, where appropriate, seeking regulatory
enforcement or other appropriate action.
The Company faces intense competition in marketing gas to end-user
customers and local distribution companies. Its competitors include the major
integrated oil companies, pipeline-affiliated marketing companies, and regional
gas gatherers, brokers and marketers of widely varying sizes, financial
resources and experience. Some of these competitors, such as the major
integrated companies, have capital resources many times greater than the
Company's and control substantially greater supplies of natural gas. In some
cases, local utilities and gas distribution companies (some of which are
customers of the Company) also engage, directly and through affiliates, in
marketing activities that compete with the Company's subsidiaries.
7
<PAGE> 11
Environmental Matters
The Company believes that it is in substantial compliance with
applicable material environmental regulations. The construction and operation
of pipelines, plants and other facilities for transporting, gathering,
processing, treating or storing natural gas and other products are subject to
federal, state and local environmental laws and regulations, including those
that can impose obligations to clean up hazardous substances at the locations
at which the Company operates or to which it sends waste for disposal. In most
instances, the applicable regulatory requirements relate to water and air
pollution control or solid waste management measures. Environmental regulation
can increase the cost of planning, design, initial installation and operation
of such facilities. Historically, the Company's expenditures for environmental
control facilities and for remediation have not been significant in relation to
its results of operations. The Company believes, however, that it is
reasonably likely that the trend in environmental legislation and regulations
will continue to be towards stricter standards. The Company is not aware of
any future environmental standards that it believes are reasonably likely to be
adopted that will have a material adverse effect on the Company's results of
operations, but cannot rule out that possibility. It is not anticipated that
the Company will be required in the near future to expend amounts that are
material in relation to its total capital expenditures program by reason of
environmental laws and regulations, but inasmuch as such laws and regulations
are frequently changed, the Company is unable to predict the ultimate cost of
compliance.
Governmental Regulation
The production, transportation and certain sales of natural gas are
subject to federal, state or local regulations which have a significant impact
upon the Company's energy products and services business. Regulation at the
federal level of domestically produced or transported natural gas is
administered primarily by the FERC pursuant to the Natural Gas Act (the "NGA")
and the Natural Gas Policy Act (the "NGPA"). Maximum selling prices of certain
categories of gas, whether sold in interstate or intrastate commerce,
previously were regulated pursuant to NGPA. The NGPA established various
categories of gas and provided for graduated deregulation of price controls of
several categories of gas and the deregulation of sales of certain categories
of gas. All price deregulation contemplated under the NGPA has already taken
place. Subsequently, the Natural Gas Wellhead Control Act of 1989 terminated
all NGA and NGPA price controls on "first" sales of domestic natural gas on
January 1, 1993. The sale for resale of certain natural gas in interstate
commerce is regulated, in part, pursuant to the NGA, which requires certificate
and abandonment authority to initiate and terminate such sales. In addition,
natural gas marketed by Gas Systems is usually transported by interstate
pipeline companies that are subject to the jurisdiction of the FERC. See "--
Order No. 636" below. Similarly, some of the transportation and storage
services provided by Llano are subject to FERC regulation under section 311 of
the NGPA. These services are frequently sold to gas distribution companies
that contract with interstate pipeline companies for transportation from the
Llano facility to their respective service areas. Section 311 permits
intrastate pipelines under certain circumstances to sell gas to, transport gas
for, or have gas transported by, interstate pipeline companies, and assign
contract rights to purchase surplus gas from producers to interstate pipeline
companies without being regulated as interstate pipelines under the NGA. The
FERC has established regulations governing the rates, construction of
facilities and conditions of service applicable to section 311 service
performed by intrastate pipelines. Pursuant to these rules and related FERC
orders, Llano is currently required to obtain approval of its rates at least
once every three years. Llano's current section 311 rates were approved by an
order issued August 13, 1991, which also required Llano to seek new rate
approval no later than July 3, 1993. Llano has informally advised the FERC
staff of its inadvertent failure to satisfy this requirement, and that it will
apply for such approval in April or May 1994, after completion of certain
related market studies and the required rate application. Rates charged for
section 311 transportation performed by Llano since July 3, 1993 will be
subject to refund and the outcome of FERC action on this filing, when made. In
addition, until this filing is made, Llano will not be in compliance with the
FERC's order. Under the NGPA, the FERC has authority to assess penalties of up
to $5,000 per day per violation of its regulations and orders implementing the
NGPA. However, given the tenor of the Company's informal discussions about
this matter with the FERC staff and the past action taken by the FERC in
similar circumstances, the Company does not believe that Llano will be assessed
any material penalty. In addition, the Company does not believe that Llano will
be required to make any material rate refunds.
8
<PAGE> 12
In 1990, FERC's broad interpretation of the scope of NGPA section 311
transportation authority was reversed by an appellate court. FERC has since
issued a new rule (Order 537) interpreting the "on-behalf-of" test found in
section 311. The revised rule requires the on-behalf-of entity to either have
physical custody of and transport the natural gas at some point during the
transaction or hold title to the natural gas for a purpose related to its
status as an intrastate pipeline, local distribution company or interstate
pipeline, as applicable. The new rules narrow the scope of transactions that
can be performed under section 311, but the Company does not believe this will
adversely affect the Llano Pipeline or the availability of transportation for
gas sold by the Company's subsidiaries.
Under the NGA, natural gas gathering facilities are exempt from FERC
jurisdiction. Interstate transmission facilities are, on the other hand,
subject to FERC jurisdiction. The FERC has historically distinguished between
these types of activities on a very fact-specific basis which makes it
difficult to predict with certainty the status of the Company's gathering
facilities. While the FERC has not issued any order or opinion declaring the
Company's facilities as gathering rather than transmission facilities, the
Company believes that these systems meet the traditional tests that the FERC
has used to establish a pipeline's status as a gatherer. Members of the FERC
have recently expressed the intention to reassess the FERC's traditional
gathering criteria in light of the implementation of Order No. 636, discussed
below. The Company cannot predict what, if any, changes such reassessment
might cause in the traditional gathering test applied by the FERC.
Except as discussed in the foregoing paragraphs, regulation of natural
gas gathering (other than gatherings by interstate pipelines) and intrastate
transportation activities is primarily a matter of state oversight. Regulation
of gathering and transportation activities in New Mexico, as in most other
states, includes various safety, environmental and non-discriminatory purchase
requirements. While some states provide for the rate regulation of pipelines
engaged in the intrastate transportation of natural gas, such regulation has
not generally been applied against gatherers of natural gas. However, Oklahoma
has recently enacted legislation that prohibits the imposition of unjustly or
unlawfully discriminatory gathering rates. The Company's gathering systems
could be adversely affected should they be subjected in the future to the
application of such state or federal regulation.
Order Nos. 436 and 500. Under the rules promulgated by the FERC
beginning in 1985 (the "Order 436/500 Rules"), transportation service by
interstate pipelines must be provided on an open access, nondiscriminatory
basis. The effect of the Order 436/500 Rules has been to enable the Company,
through its subsidiaries, to market natural gas as well as other services to a
broad array of customers via the national network of natural gas transportation
and distribution facilities. The opportunity to compete directly with other
users for firm or interruptible interstate transportation services at
nondiscriminatory rates and terms has substantially increased the Company's
access to such services and its ability to arrange for transportation of its
gas to customers, a significant factor in the growth of the Company's gas
marketing operations.
The Order 436/500 Rules were challenged in the United States Court of
Appeals. After a number of changes were made by the FERC in response to
several rulings by such Court from 1987 to 1990 (none of which altered the
basic open access requirement of the rules), the substantive provisions of the
Order 436/500 Rules have been upheld by the courts and become final.
Order No. 636. In the summer of 1991, the FERC initiated further
rulemaking proceedings for the purpose of modifying the terms and conditions
under which open access transportation is provided in order to ensure that
"unbundled" transportation service (i.e., transportation service not sold as an
integral part of a sale of natural gas supplies) is provided on an open access
basis "comparable" to the transportation services that the pipelines "bundle"
with their own, regulated sales. These proceedings became generally known in
the industry as the "Mega-NOPR" (for "Mega Notice of Proposed Rulemaking")
proceedings. The FERC stated that its goal, recognizing that pipelines have
become predominantly transporters, not sellers, of gas, was to "create a
regulatory framework that will accommodate the meeting of as many gas sellers
and gas buyers as possible", and to thereby further enhance competition in the
domestic natural gas markets.
9
<PAGE> 13
In April 1992, the FERC adopted final rules in this proceeding which
were designated as Order No. 636 (the "Order 636 Rules"). The Order 636 Rules
are currently in effect but are subject to pending requests for judicial review
and possible modification or reversal as a result.
The Order 636 Rules reaffirm the basic open access transportation
regime of the Order 436/500 Rules and extend that regulatory approach in
several ways:
(i) Equality of service -- the equal access rules. The
Order 636 Rules require interstate pipelines to provide a level of
transmission and storage service that is equal for all shippers
regardless of whether the gas commodity is sold by the interstate
pipeline or by a competing gas merchant. In particular, the rules
require interstate pipelines to provide equal access in a number of
specified areas, including: equal access to transmission facilities;
equal access to most storage facilities; equal and timely access to
information relevant to the availability of the open access
transmission services; equal access to a new flexible delivery
service; and equal access to a pipeline's contract rights to receive
certain transmission services from upstream pipelines.
(ii) Flexibility of service. The Order 636 Rules seek to
expand shippers' ability to use all receipt and delivery points on a
pipeline on a more flexible basis than in the past, such that, subject
to reasonable pipeline operating requirements, shippers will be able
to receive natural gas from any person at any point on the pipeline
facilities and deliver gas to any person at any point as long as the
receipt and delivery points are within the path of the firm
transportation capacity to which the shipper is entitled and for which
it pays. The rules also prohibit pipeline tariff provisions that
inhibit the development of "market centers" (areas where gas may be
delivered into multiple pipeline interconnects). Defining the scope
and operation of this requirement has been left to case-by-case
implementation procedures.
(iii) Mandatory "unbundling" of pipeline system sales. The
Order 636 Rules find that the traditional interstate pipeline practice
of making "bundled," city-gate firm gas sales causes considerable
competitive harm to all segments of the natural gas industry and
constitutes an unlawful restraint of trade which is not balanced by
the "no-notice" aspect of the service. This "bundled" sales service
is the traditional pipeline sales service in which the interstate
pipeline sells the gas commodity to retail local distribution
companies ("LDCs") on a delivered basis at the point of
interconnection between the physical facilities of the LDC and the
interstate pipeline.
As a remedy to this finding of unlawful restraint of trade,
the FERC under Order 636 ordered all interstate pipelines to
"unbundle" their gas sales from the transmission, storage and related
services and make any sales at aggregation points in or near gas
production areas.
Pipelines will be allowed to make such unbundled sales
pursuant to new "blanket" certificate authorizations under which the
FERC intends to provide great pricing and operational flexibility
("light-handed regulation" of unbundled pipeline sales). It is
anticipated that this light-handed regulation will allow fully
market-based pricing of gas sales by the unbundled pipeline merchant
in the great majority of cases. The Order 636 Rules contemplate that
all gas merchants (unbundled pipelines, producers and marketers) will
be able to contract for or manage the various unbundled component
services in order to offer a "repackaged" delivered service to LDCs
and others.
To ensure that the pipeline's unbundled gas merchant service
does not gain an improper competitive advantage from its association
with the pipeline-as-transporter, the Order 636 Rules forbid the
pipeline-as-transporter from giving any preference to shippers of gas
sold by the pipeline over shippers of gas sold by any other merchant
in matters relating to open access transportation. To implement this
prohibition, the Order 636 Rules require the operating employees of
merchant and transportation departments of all interstate pipelines to
"function independently" of each other "to the maximum extent
practicable" and to adopt various record-keeping and reporting
requirements regarding dealings between the pipeline- transporter and
the pipeline-merchant. Gas Systems has
10
<PAGE> 14
voiced concerns in regulatory proceedings as to the adequacy of these
rules and procedures to achieve the FERC's stated goals.
(iv) Customer option to terminate supply contracts with
pipelines. The Order 636 Rules allow LDCs to reduce or even terminate
their existing contracts to purchase gas from the
pipeline-as-merchant. The purpose of this requirement is to enable
those customers to freely negotiate to purchase gas from the pipeline
under its new market-based sales service or to purchase gas from other
gas suppliers.
(v) Capacity assignment and "release" programs. The
Order 636 Rules adopt certain capacity reallocation or "release"
mechanisms, the stated purpose of which is to allow LDCs and other
firm shippers the ability to better access supplies on pipeline
systems to which they are not directly interconnected and to
indirectly make available to others the firm capacity that the shipper
holds but is not using. The intent of these provisions is to
facilitate the development of a secondary transportation market while
eliminating the potential for firm shippers to unduly discriminate in
the assignment of capacity rights.
(vi) Pregranted abandonment. The Order 636 Rules adopt
several procedures governing a pipeline's ability under the NGA to
terminate service at the expiration of the contract term. In general,
these provisions allow a pipeline to terminate transmission service at
the end of the contract term for (A) all contracts for interruptible
transmission services and (B) short-term contracts for firm
transmission contracts (i.e., contracts of one year or less). For
longer- term contracts for firm transmission service, the Order 636
Rules adopt a "right of first refusal" mechanism which allows the firm
shipper a federal right to extend its service under specified
circumstances. Finally, the Order 636 Rules allow the termination of
a pipeline's sales obligation at the expiration of the contract for
the unbundled sales service.
(vii) Policy favoring "straight fixed-variable" rates. As
a general matter, the FERC will require pipeline transportation rates
to be set so as to recover all fixed costs (including the pipeline's
return on equity and associated income taxes) through fixed monthly
demand charges. This shift will tend to increase the price of
reserving firm capacity while lowering the price of actually using an
incremental unit of the reserved firm capacity.
(viii) Transition costs. The Order 636 Rules adopt major
changes in how pipelines will be allowed to recover costs associated
with certain take-or-pay contracts, upstream transmission contracts
and certain other costs of the transition to operations in the Order
636 Rules. These changes essentially allow all such costs which are
prudently incurred to be passed on by the pipeline to its firm
open-access transportation customers. This aspect of the Order 636
Rules therefore tends to increase costs of transportation on affected
pipelines, although, due to the pricing structure of most of its
purchase, sales and transportation transactions, the Company does not
believe that this has an adverse effect on its operations.
(ix) Implementation and effectiveness. The Order 636
Rules are subject to pending court review, a process which is
anticipated to take at least 12 months to complete. Hence, it is not
certain to what extent the Order 636 Rules will be affirmed following
completion of judicial review. The Order 636 Rules are effective
during this process, however, and following case by case rulings by
the FERC during 1992 and 1993 are currently in effect on essentially
all interstate pipelines. Most of these rulings are now the subject
of court challenges and are not expected to be resolved for at least
12 months.
While the first phase of implementation of the Order 636 Rules is now
largely completed many of the operational and other implementation issues are
expected to continue to evolve in the next 12 to 18 months. The Company
anticipates that these regulatory developments will generally present
additional opportunities to the Company and its subsidiaries in providing gas
sales and/or energy and capacity management services while creating certain
risks associated with potential penalties for shippers exceeding allowed
tolerance levels.
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<PAGE> 15
Other Regulations. In October 1992, the Energy Policy Act of 1992 was
enacted. This Act streamlined the permitting process necessary to import
Canadian gas and altered the treatment of such gas under the NGPA, eliminating
the FERC's jurisdiction over the price of non-pipeline sales of gas imported
from Canada. Canadian gas imports still require import authorizations from the
Department of Energy's Office of Fossil Energy under Section 3 of the NGA and
construction and siting authorizations, where applicable, from the FERC. These
changes could enhance the ability of Canadian producers to export gas to the
United States and increase competition in the domestic natural gas market.
In December 1992, the FERC issued Order No. 547, governing the
issuance of blanket marketer sales certificates to all gas sellers other than
interstate pipelines. The order eliminates the need for gas producers and
marketers to seek specific authorization under Section 7 of the NGA from the
FERC to make certain sales of natural gas, such as imported gas and gas
purchased from interstate pipelines. Instead, effective January 7, 1993, these
gas sellers, by operation of the order, have been issued blanket certificates
of public convenience and necessity allowing them to make jurisdictional gas
sales for resale at negotiated rates without seeking specific FERC
authorization. The FERC intends Order No. 547, in tandem with Order No. 636,
to foster a competitive market for natural gas by giving gas purchasers access
to multiple supply sources at market-driven prices. Order No. 547 may also
increase competition in the natural gas market while presenting opportunities
for the offering of supply and capacity management services.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by the United States Congress, the
FERC, state public utility regulatory bodies and the courts. The Company cannot
predict when or whether any such proposals or proceedings may become effective,
or their effect, if any, on the Company's operations. In addition, the natural
gas industry historically has been very heavily regulated; therefore, there can
be no assurance that the light-handed regulatory approach currently pursued by
the FERC and Congress will continue indefinitely into the future.
Certain pipeline systems which the Company acquired as a result of the
Merger are subject to the jurisdiction of the Railroad Commission of Texas (the
"RRC"). The RRC has the authority, under the Texas Gas Utility Regulatory Act
and other statutes, to regulate the rates, services and operations of gas
utilities in Texas. The Company believes that its activities subject to such
regulation materially comply with all applicable laws and regulations of the
RRC.
OPERATIONS OF UNCONSOLIDATED SUBSIDIARIES
Prior to July 15, 1993, the Company owned an approximate 49% interest
in HERC, an independent oil and gas exploration, development and production
company with interests principally offshore Western Australia, in the
Mid-Continent Region of the United States and in Indonesia. HERC was formed as
part of the Company's debt-reduction plan, whereby the Company accomplished a
partial disposition of its oil and gas exploration and production operations by
transferring to HERC, in February 1990, two major oil and gas subsidiaries of
the Company in exchange for HERC common stock and the assumption by HERC of
related indebtedness of approximately $62 million. On July 15, 1993, the
Company sold such interest to Apache for $45 million in cash ($3 million of
which was paid in November 1993 following the satisfaction of a condition
relating to the acquisition by Apache of additional shares of HERC's common
stock). The Company's interest in HERC was reported in its financial
statements under the equity method of accounting.
The Company has an approximate 17% interest in Midwest Energy Company
("Midwest"), whose current activities are centered around production from its
existing domestic wells, as well as exploration in the Paris and Aquitaine
Basins of France, where Midwest owns various interests in six oil and gas
exploration permits granted by the French government. The Company's interest
in Midwest is reported in its financial statements under the cost method of
accounting.
The Company, through its United subsidiary, owns a 40% interest in
Beck & Root Fuel Company ("Beck & Root"). Beck & Root is a propane retailer
with outlets located in central and western Oklahoma. The Company's interest
in Beck & Root is reported in its financial statements under the equity method
of accounting.
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<PAGE> 16
DISCONTINUED OPERATIONS
Defense Systems Operations
The defense systems operations were conducted through two
subsidiaries, Ultrasystems Defense Inc. ("UDI") and HRB Systems, Inc. ("HRB")
(collectively, "Defense Systems"). The Company acquired UDI in April 1988 in
conjunction with the acquisition of Ultrasystems Incorporated (through which
the Company acquired its power systems operations described below) and acquired
HRB in August 1988. Both UDI and HRB were engaged in the design and
development of sophisticated software and hardware for the United States
Department of Defense and federal intelligence agencies.
The Company sold HRB in October 1990 to E-Systems, Inc. ("E-Systems")
for $65 million in cash. In February 1991, the Company sold substantially all
the operations of UDI to Logicon, Inc. ("Logicon") for approximately $5.5
million in cash. The Company retained accounts receivable totaling
approximately $1 million related to certain government contracts, of which
approximately $.5 million has been collected as of December 31, 1993, and lease
obligations related to facilities formerly occupied by UDI. Such lease
obligations were settled in conjunction with the confirmation of the Plan.
Power Systems Operations
The Company, through Hadson Power, was engaged in the development,
engineering, construction, operation and ownership of power generation
facilities. The Company sold Hadson Power in December 1991 to a subsidiary of
LG&E Energy Corp. ("LG&E") for a purchase price of $50.5 million, subject to
adjustment upon certain events. The agreement related to the sale of Hadson
Power provided for an adjustment to the purchase price based upon the net worth
of Hadson Power as of the date of the sale. The amount of such adjustment was
the subject of a dispute between the Company and LG&E. However, as discussed
below, the Company and LG&E have reached agreement regarding the amount of such
adjustment.
Of the $50.5 million purchase price, LG&E retained $2.5 million as a
"hold-back" to in effect secure the Company's indemnification obligations to
LG&E with respect to certain engineering and construction contracts of the
power systems business; any amounts not utilized as reimbursement for the
indemnity obligations are to be released to the Company upon the occurrence of
certain events.
In conjunction with the 1992 Restructuring, the Company and LG&E
reached settlement on certain, but not all, of the indemnity obligations. As a
result, LG&E paid the Company a total of approximately $.4 million and the new
hold-back amount was established at approximately $2.2 million. LG&E has also
agreed that other indemnity claims against the Company cannot exceed $.5
million. Based on the current status of various claims of LG&E subject to the
hold-back amount, the Company believes it unlikely that it will receive any
significant amount of the hold-back.
Pursuant to the stock purchase agreement with LG&E, the Company
retained the equity interests in six cogeneration facilities and a waste wood
processing facility formerly held by Hadson Power. The Company disposed of its
interest in the wood processing facility and its interests in four of such
cogeneration facilities during 1992.
NUMBER OF PERSONS EMPLOYED
As of December 31, 1993, there were 226 people employed by the Company
and its consolidated subsidiaries.
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<PAGE> 17
ITEM 2. PROPERTIES
Natural Gas Gathering Facilities. The Company, through certain
subsidiaries, owns, or has an interest in, 12 natural gas gathering systems, of
which nine were previously owned by AGPC. See "Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operation." These systems
are located in Texas, Louisiana, Montana and Oklahoma.
Other Gathering and Transmission Facilities and Related Property. The
Company, through a subsidiary, owns the Llano Pipeline, a 650-mile intrastate
gas pipeline system in southeastern New Mexico with a throughput capacity of
180 MMCF of gas per day. The Company, through a subsidiary, has an interest in
a 74-mile gas transmission system located in Texas. This system, which was
previously owned by AGPC, has a design capacity of 80 MMCF of gas per day. The
Company, through certain subsidiaries, also owns and operates five natural gas
processing plants located in southeastern New Mexico and western Texas with a
total design capacity of 125 MMCF of gas per day. Three of these natural gas
processing facilities were acquired through the Merger. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operation." The Company, through a subsidiary, owns and operates an
underground natural gas storage facility adjacent to its pipeline system in
southeastern New Mexico with a current working capacity of approximately 6 BCF
of natural gas.
Natural Gas Liquids Facilities and Related Property. The Company,
through certain of its subsidiaries, operates 33 tractors (8 owned and 25
leased) and 32 trailers (29 owned and 3 leased), primarily in Oklahoma, Texas
and Louisiana. The Company owns and operates five proprietary pipeline
injection points and is a joint owner in a sixth facility, each of which
include storage facilities. Additionally, the Company has exclusive injection
rights at three facilities owned by others.
Other. The Company is currently headquartered in Oklahoma City,
Oklahoma, where it leases approximately 30,000 square feet of office space. In
April 1994, the Company's headquarters will be moved to Dallas, Texas, where
the Company will lease approximately 40,000 square feet of office space.
Various subsidiaries of the Company lease office space in Irving, Texas;
Washington, D.C.; Denver, Colorado; and Chicago, Illinois. Additionally, the
Company owns real estate in Hobbs, New Mexico, where Llano maintains offices
and service facilities.
Power Systems Properties. The following table provides information
regarding the two power projects in which the Company currently owns an equity
interest:
<TABLE>
<CAPTION>
Initial Company Joint Venture
Project Name Operating Year Ownership Partner/Ownership Location Megawatts
- ------------ -------------- --------- ----------------- -------- ---------
<S> <C> <C> <C> <C> <C>
Ultrapower 3 1985 50% Rincon-Blue Lake(1)/50% Blue Lake, CA 11
Ultrapower 4 1986 5% Pacific Energy
Resources(2)/50% Chinese Station, CA 26
CII Woodpower I(3)/45%
</TABLE>
(1) Wholly-owned subsidiary of Tucson Electric.
(2) Wholly-owned subsidiary of Pacific Enterprises, formerly Pacific Lighting
Corporation.
(3) Wholly-owned subsidiary of Baltimore Gas & Electric Company.
ITEM 3. LEGAL PROCEEDINGS
Fixed-Price Contract Dispute. In May 1990, the United States Army
terminated a contract with a subsidiary of the Company alleging that the
subsidiary had defaulted in the performance of the contract. In August 1990,
the subsidiary appealed such termination to the Armed Services Board of
Contract Appeals on the grounds that the contract was in fact terminated for
the convenience of the government. In addition, the
14
<PAGE> 18
subsidiary submitted a claim to the government for additional costs related to
the contract and amounting to more than $13 million. The Army alleged that the
subsidiary was obligated to repay progress payments in the amount of
approximately $5.3 million and the costs of reprocuring the terminated contract
from another party. Although the government had filed a claim in the Company's
Chapter 11 case, in November 1992 the Army, in settlement of that claim, agreed
that the Company's liability, if any, under the subsidiary's contract would be
limited to a maximum of $750,000, payable over a 10-year period.
On September 22, 1993, the subsidiary and the Army entered into a
settlement agreement whereby each party agreed to release all claims against
the other and the Army agreed to release to the subsidiary amounts due under
other government contracts amounting to approximately $1.8 million and to make
a payment to the subsidiary of $7 million, which amount was received in full in
November 1993. On September 28, 1993, the Armed Services Board of Contract
Appeals entered an order granting a stipulated settlement pursuant to this
agreement.
Gas Sales Contract Dispute. On July 16, 1991, Western and PDH Energy
Partnership, Ltd. ("PDH") entered into a Gas Purchase and Sale Contract (the
"PDH Contract") obligating Western to deliver to PDH, subject to certain
conditions, through 2007, all of PDH's requirements for natural gas up to a
maximum of 2,000 MMBtu per day. The price to be paid by PDH for gas delivered
under the PDH Contract is $1.50 per MMBtu during the first year of the
contract with provisions for escalation of 4% per year during each of the first
10 years of the contract, and 6% per year thereafter. By letter dated
September 15, 1993, Western notified PDH that Western was exercising its right
to terminate the PDH Contract. The PDH Contract contains a provision
permitting Western to terminate the PDH Contract in the event of any acts by
governmental authorities which, in Western's sole judgment, are unduly
burdensome or unacceptable. PDH has disputed Western's ability to terminate
the PDH Contract, and attempts to settle the dispute have proven unsuccessful
to date. PDH has threatened to sue Western for breach of contract. In
addition, PDH's project lender has threatened suit against Western based on a
consent to assignment of the PDH Contract executed by Western. If either or
both of such suits should be filed, Western intends to dispute such claims (to
both of which it believes that it has meritorious defenses), but there can be
no assurance that Western will prevail in either matter. While, to the
knowledge of the Company, no specific damage claims have been made to date,
should either PDH or the project lender, or both, prevail, the resulting
judgment(s) could have a material adverse effect on the Company and its results
of operations.
Personal Injury Case. On October 6, 1992, United was named as a
defendant, along with several other companies, in a lawsuit involving a propane
explosion in which two individuals were severely burned. One of the
individuals died 13 days after the accident. The case, Annie Moore, et al. v.
A-1 Propane, et al., is currently pending in the District Court of Harris
County, Texas, 113th Judicial District. The plaintiffs have alleged that
United was the supplier of the propane which exploded and that United, along
with the other defendants in the case, were grossly negligent, inter alia, in
their failure to insure that the propane was adequately odorized. The
plaintiffs have not yet specified the amount of damages which they will assert
against the defendants if this matter goes to trial. The plaintiffs have
requested punitive damages equal to four times the amount of actual damages.
United has primary insurance coverage for up to $1 million. The applicability
of various other insurance coverages for amounts in excess of $1 million is
uncertain. In the event it is determined that United's liability exceeds $1
million and additional coverage is not available, the resulting judgment or
settlement, as the case may be, could have a material adverse effect on United
and its results of operations.
Joint Venture Case. In December 1990, West Texas Transmission Corp.
and Brent Jordan filed a lawsuit in the District Court of Harris County, Texas,
190th Judicial District, against a number of defendants, including AGPC, Adobe
Gas Co. and Adobe Gas Marketing Co. As a result of the Merger, Adobe Gas Co.
(now known as Hadson Gas Co.) and Adobe Gas Marketing Co. (now known as Hadson
Gas Marketing Co.) are subsidiaries of the Company. This lawsuit arises out of
the purchase, in 1987, by Adobe Gas Co. of the plaintiffs' joint venture
interests in the Power-Tex joint venture. Plaintiffs have alleged, inter alia,
that Adobe Gas Co., as the operator of the Power-Tex joint venture, failed to
disclose certain material information which affected the value of the joint
venture interests sold to Adobe Gas Co. The plaintiffs allege causes of action
for breach of fiduciary duty, breach of the duty of good faith and fair
dealing, fraud and conspiracy, as well as other allegations. Discovery is in
process, and the matter is set for trial in November 1994. The plaintiffs'
most recent
15
<PAGE> 19
petition does not assert any particular dollar amount of damages. The Company
is continuing to assess the merit of the plaintiffs' various assertions.
In addition to the matters mentioned above, the Company is from time
to time involved as a defendant in litigation incidental to its business. The
Company does not believe that any such other lawsuits in which the Company is
currently involved will have a material adverse effect on the Company's
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of stockholders of the Company was held on December
14, 1993 for the purpose of (1) authorizing, approving and adopting the Merger
Agreement and (2) approving the Company's 1992 Equity Incentive Plan, as
amended and restated as of November 5, 1993. Both items were approved by the
Company's stockholders with votes cast as follows:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTES(1)
------------ ------- ------- ---------
<S> <C> <C> <C> <C>
MERGER AGREEMENT
Old Common Stock (2) 21,379,673 1,765,711 3,147,105 0
Class B Common Stock (2) 72,704,000 0 0 0
Class C Common Stock (2) 11,341,000 0 0 0
Old Junior Preferred Stock (2) 37,824,687 873,622 290,925 0
---------- -------- --------- ---------
Totals 143,249,360 2,639,333 3,438,030 0
=========== ========= ========= =========
Old Senior Preferred Stock (3) 49,500 0 0 0
</TABLE>
1992 EQUITY INCENTIVE PLAN,
AS AMENDED AND RESTATED
AS OF NOVEMBER 5, 1993
<TABLE>
<S> <C> <C> <C> <C>
Common Stock 19,304,739 3,543,053 3,453,697 0
</TABLE>
(1) A "broker non-vote" occurs if a broker or other nominee does not have
discretionary authority to vote on and has not received instructions
with respect to a particular proposal.
(2) With the holders of such classes of stock voting together as a single
class on such matter.
(3) With the holders of the Old Senior Preferred Stock voting separately as
a class on such matter.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
COMMON STOCK
The Common Stock is traded on the New York Stock Exchange (the "NYSE")
under the symbol "HAD." As of December 31, 1993, the Company did not meet
certain of the NYSE's continued listing criteria as a result of the Company's
recent financial results, and the NYSE has advised the Company that careful
consideration will continue to be given to the appropriateness of continued
listing of the Company's securities. Accordingly, there can be no assurance
that the NYSE will not delist the Common Stock in the future if the Company
continues not to meet the NYSE's requirements for continued listing.
The following table sets forth, for the periods indicated, the high
and low closing sales prices of the Common Stock, as reported on the NYSE
Composite Tape, adjusted to give effect to the approximate one-for-15 reverse
split of the Old Common Stock which occurred December 14, 1993 through the
Merger.
16
<PAGE> 20
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
Year ended December 31, 1992
First quarter . . . . . . . . . . . . . . . 15 $ 5-5/32
Second quarter . . . . . . . . . . . . . . 7-1/2 3-3/4
Third quarter . . . . . . . . . . . . . . . 9-3/8 3-9/32
Fourth quarter (1) . . . . . . . . . . . . 5-5/32 2-3/16
Year ended December 31, 1993
First quarter . . . . . . . . . . . . . . . 4-7/32 2-7/64
Second quarter . . . . . . . . . . . . . . 4-11/16 2-13/16
Third quarter . . . . . . . . . . . . . . . 4-11/16 3-3/36
Fourth quarter (2) . . . . . . . . . . . . 2-5/8 2-7/64
</TABLE>
(1) The 1992 Restructuring was consummated on December 16, 1992. See "Item 1.
Business -- Recent Developments -- Financial Reorganization."
(2) The Merger, which effected a restructuring of the Company's debt and
equity capitalization (including an approximate one-for-15 reverse split
of the Old Common Stock), was consummated on December 14, 1993. See "Item
1. Business --Recent Developments -- Merger of Adobe Gas Pipeline Company
With and Into the Company."
On March 14, 1994, the closing price of the Common Stock on the NYSE
was $2-7/8. On March 14, 1994, there were 25,689,147 shares of Common Stock
outstanding and approximately 4,079 holders of record of Common Stock.
DIVIDENDS
The Company has never paid a cash dividend on the Common Stock and
will not do so in the foreseeable future. The Company's ability to pay cash
dividends on the Common Stock is dependent upon its financial condition. The
Company is currently prohibited from paying cash dividends on its capital stock
under the New Securities Purchase Agreement with Prudential.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below is certain selected historical consolidated financial
information of the Company as of December 31, 1989, 1990, 1991, 1992 and 1993
and for each of the five years in the period ended December 31, 1993. The
selected historical consolidated financial information as of December 31, 1992
and 1993 and for each of the three years in the period ended December 31, 1993
has been derived from the Company's audited consolidated financial statements
appearing elsewhere herein. The selected historical consolidated financial
information as of December 31, 1989, 1990 and 1991, and for each of the two
years in the period ended December 31, 1990, has been derived from audited
historical consolidated financial statements previously filed with the
Commission but not contained or incorporated herein. The following information
should be read in conjunction with "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and related notes appearing elsewhere herein.
17
<PAGE> 21
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1989 1990(1) 1991 1992 1993
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Sales $479,195 446,296 439,396 427,781 522,661
Interest and other income 2,427 783 687 478 495
Interest on tax refund - - 1,766 - -
Gain on sale of assets - 2,407 703 - 6,355
Gain on restructuring - - - 925 -
Equity in earnings (loss) of
unconsolidated affiliates - 2,897 (987) 1,716 629
-------- ------- ------- ------- -------
481,622 452,383 441,565 430,900 530,140
-------- ------- ------- ------- -------
Expenses:
Cost of sales and services 441,885 417,446 414,220 410,960 514,117
Depreciation, depletion and amortization 19,149 7,358 6,733 6,111 6,280
Write-off of goodwill - - - - 3,077
Selling, general and administrative 28,419 20,470 16,743 15,593 16,407
Interest(2) 7,479 5,544 10,822 13,441 2,648
Write down of NGL inventory - - 2,500 - 1,002
Settlement of litigation - - - 1,000 475
Reorganization and other - - - - 2,704
Income taxes (benefit) (3,372) (300) (304) (1,139) (694)
-------- ------- -------- ------- -------
$493,560 450,518 450,714 445,966 546,016
-------- ------- ------- ------- -------
Earnings (loss) from continuing operations $(11,938) 1,865 (9,149) (15,066) (15,876)
Preferred stock dividend requirements - - - 61 293
-------- ------- ------- ------- -------
Earnings (loss) from continuing operations
attributable to common stock $(11,938) 1,865 (9,149) (15,127) (16,169)
======== ======= ======= ======= =======
Earnings (loss) from continuing operations per
common and common equivalent share (4) $ (5.02) .75 (3.64) (5.35) (1.93)
Dividends per common share $ - - - - -
Shares used to compute earnings (loss) per common
share from continuing operations (4) 2,380 2,497 2,517 2,826 8,383
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1989 1990(1) 1991 1992 1993
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Total assets $549,529 224,874 172,623 154,850 211,641
Net working capital, excluding current
maturities of long-term debt $ 20,467 15,538 10,251 1,540 5,134
Long-term debt $253,116 144,183 116,357 56,400 55,800
Stockholders' equity (deficit)(3) $118,911 (18,735) (22,353) 19,081 39,473
- -----------------
</TABLE>
(1) In February 1990, HERC, a newly formed subsidiary to which the Company had
transferred substantially all of its oil and gas exploration, development
and production activities, sold approximately 51% of its common stock in a
public offering. Accordingly, subsequent to that date the Company's 49%
investment in HERC was accounted for using the equity method until the
remaining 49% investment in HERC was sold in July 1993.
(2) Interest expense related to continuing operations was higher in 1991 as
compared to 1990 as a result of a change in the estimated amount of
interest expense on long-term debt attributable to discontinued
operations.
(3) The defense systems and power systems operations have been accounted for
as discontinued operations and, therefore, are not included in the above
Statement of Operations Data, which is presented on the basis of
continuing operations. Losses attributable to the defense systems
operations for each of the
18
<PAGE> 22
years in the four-year period ended December 31, 1991 were $1,165,000,
$21,095,000, $2,033,000 and $0, respectively. The year ended December 31,
1990 also included a loss of $142,529,000 from the sale of the defense
systems operations. Earnings (losses) attributable to the power systems
operations for each of the years in the four-year period ended December
31, 1991 were $10,223,000, $(1,839,000), $288,000 and $0, respectively.
The years ended December 31, 1991 and 1992 included a gain of $4,829,000
and a loss of $8,103,000, respectively, from the sale of Hadson Power.
The year ended December 31, 1993 included a gain of $5,553,000 related to
a contract settlement from defense systems.
(4) The Merger which was consummated December 14, 1993, effected an
approximate one-for-15 reverse split of the Old Common Stock. Share and
per share amounts presented were computed after giving effect to the
reverse split for all periods. Subsequent to the Merger there were
25,689,147 shares of New Common Stock outstanding.
19
<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In December 1993, the Company completed the Merger and related
transactions (the Merger, the New Securities Purchase Agreement and the New BMO
Credit Agreement are collectively referred to herein as the "Transactions").
The Transactions were pivotal to the Company in enhancing its control of
natural gas production for its natural gas marketing operations, increasing its
operational and financial credibility, and improving its financial stability
and capital structure. As a result of the Transactions, the sale of the HERC
Shares and the contract dispute settlement discussed below, from December 31,
1992 to December 31, 1993, (i) the Company's total assets increased from
approximately $155 million to $212 million (ii) total stockholders' equity
increased from approximately $19 million to $39 million and (iii) working
capital increased from a deficit of approximately $3.5 million to a positive
amount of approximately $4.1 million.
In 1993, the Company completed the sale of its approximate 49%
interest in HERC to Apache for $45 million in cash. The $45 million in gross
proceeds from the sale of the HERC Shares were used in the following manner: $1
million to pay costs and expenses related to the sale; approximately $1.3
million to pay accrued interest on the 6.20% Notes and restructuring fees due
Prudential; approximately $2.2 million to repay all amounts due Prudential
pursuant to the Prudential Credit Agreement, which was used to pay for costs
and expenses related to the 1992 Restructuring; $1 million to prepay the New
Senior Secured Notes upon closing of the Transaction; and $33 million to prepay
principal outstanding under the 6.20% Notes. The remainder of approximately
$6.5 million was used for costs and expenses associated with the Transactions
and for working capital.
In September 1993, the Company reached a settlement with the United
States Army regarding various claims relating to a contract between a
subsidiary of the Company and the United States Army. See "Item 3. Legal
Proceedings -- Fixed-Priced Contract Dispute." As a part of this settlement,
the Army released to the Company amounts due pursuant to other government
contracts which totaled approximately $1.8 million and made a cash payment to
the Company of $7 million. After payment of litigation costs of approximately
$1.7 million, the net cash proceeds to the Company from this settlement totaled
approximately $7.1 million. These proceeds were used to prepay the New Senior
Secured Notes by $1.5 million upon closing of the Transactions with the balance
utilized for working capital.
As a result of the Merger, the Company acquired gas gathering,
transmission and processing assets which have produced operating cash flow in
excess of $7.5 million annually for recent years. In December 1993, subsequent
to the Merger, the Company and a producer entered into an agreement regarding
one of the assets, the Sale Ranch gathering system and processing plant.
Pursuant to this agreement, the producer dedicated certain natural gas
production to the system and paid the Company $2.5 million in cash, and the
Company transferred to the producer an approximate 30% interest in the system.
The amount of additional natural gas production dedicated to the system will
increase over the next two years; however, in the short run, the Company's
share of operating cash flow from the Sale Ranch system is expected to be less
than in prior years, because of the reduction in the Company's ownership
interest in the system. Also in late 1993, a producer terminated a natural gas
processing agreement regarding the Apple Creek processing plant, which was
acquired in the Merger. This producer had been the sole source of supply for
this processing plant. The Company expects to be able to utilize the
processing capacity of the Apple Creek plant in conjunction with its other
operations in the area. However, operating cash flow will be negatively
impacted in the near term as a result of these events. Had these events
concerning the Sale Ranch gathering system and processing plant and the Apple
Creek processing plant occurred in prior years, the Company estimates the
historical annual operating cash flow from these assets, as described above,
would have decreased by approximately $2.0 million.
In addition to the incremental cash flow expected to be provided by
the assets acquired in the Merger, the Gas Contract with Santa Fe and SFEOP is
expected to provide the Company with a long-term source of natural gas supply
which will not require security in the form of letters of credit. Furthermore,
the added financial stability expected to result from the Transactions,
including the New BMO Credit Agreement, should
20
<PAGE> 24
enhance the Company's general creditworthiness and, over time, reduce the
Company's dependence on letters of credit to support purchases of natural gas
and NGLs.
The consummation of the Transactions is expected to result in an
enhancement of the Company's ability to support working capital credit
agreements by expanding the Company's "borrowing base." The Company has
entered into the New BMO Credit Agreement. The new facility initially provides
for letters of credit of up to $50 million, subject to availability under a
borrowing base formula, which amount may increase to $60 million upon the
syndication of the facility to one or more additional banks. The Company and
BMO are currently in the process of syndicating this facility and hope to
conclude these efforts early in the second quarter of 1994. The facility
allows for direct borrowings of up to $10 million on a revolving basis (as
compared to $5 million under the former agreement with BMO), within the $50
million or $60 million overall limit (as compared to $37.5 million under the
former agreement with BMO). However, specified amounts of these borrowings
must be repaid on a quarterly basis (which is generally referred to as a
"clean-up" provision). The new facility is secured by a first priority lien,
granted in favor of a collateral agent for the benefit of BMO and Prudential,
primarily on the stock of the Company's operating and certain other
subsidiaries, as well as the accounts receivable and other personal property of
the Company, and by a first priority lien in favor of BMO on the accounts
receivable and other personal property of certain of the Company's operating
subsidiaries. The facility limits the incurrence of additional debt, the
payment of dividends, investments and the sale of assets, all within specified
limits. The Company is also required to maintain certain minimum levels of net
worth, working capital and liquidity. This agreement has a term of two years
and may be extended for a third year by the mutual consent of the Company and
the lenders thereunder, subject to certain conditions. At February 28, 1994,
$10.0 million in borrowings and letters of credit amounting to approximately
$37.4 million were outstanding under the New BMO Credit Agreement, leaving
approximately $2.6 million available under this facility.
The ability of the Company to purchase natural gas and NGLs is
dependent in large part on its ability to obtain trade credit, either with or
without credit enhancements such as letters of credit. Since the 1992
Restructuring, the Company has enjoyed success in certain circumstances in
procuring unsecured trade credit. However, the recent failures of several gas
marketing companies, as well as the Company's recent financial results, have
resulted in a heightened awareness within the industry as to credit exposure.
As a result, in certain other instances the Company has experienced increased
demand for letters of credit to secure its performance obligations under
purchase contracts. As discussed above, management believes the Transactions
will have a positive effect on the Company's ability to obtain unsecured trade
credit in addition to increasing its ability to obtain letters of credit,
thereby increasing the Company's ability to purchase and resell natural gas and
NGLs. To that effect, during the first quarter of 1994, the Company's
purchases and sales of natural gas have increased significantly as compared to
the first quarter of 1993.
Pursuant to the Merger, all outstanding shares of Old Junior Preferred
Stock were converted into shares of New Junior Preferred Stock (which carry no
dividend rights) and New Common Stock. Therefore, the Company will have no
dividend requirements related to these securities. Pursuant to the
Transactions, all securities held by Prudential were exchanged for New Senior
Secured Notes, New Common Stock and the P Interest in the H/P Trust. Annual
interest costs on the New Senior Secured Notes will initially amount to
approximately $4.3 million and mandatory prepayments of principal (other than
the $2.5 million prepayment made upon the closing of the Transactions and a $1
million prepayment due by August 1994) will begin in 1996. The New Senior
Secured Notes are secured by the first priority lien granted in favor of the
collateral agent for the benefit of BMO and Prudential described above. The
terms of the New Securities Purchase Agreement restrict the incurrence of
additional debt, the payment of dividends, investments and the sale of assets
within certain limitations, but generally are much less restrictive than the
terms of the previous securities purchase agreement with Prudential that
governed the 6.20% Notes.
Cash flow used by operations amounted to approximately $4.2 million
for the year ended December 31, 1993 compared to approximately $4.1 million
provided by operations for the same period of 1992 and approximately $5.2
million used by continuing operations in 1991. The decrease in 1993 is
primarily attributable to lower earnings from operations in 1993. Additions to
property, equipment and improvements for the year ended December 31, 1993 were
higher than for the same period in 1992 due to increased drilling activity
around
21
<PAGE> 25
the Company's pipeline systems in New Mexico and the resulting addition of new
gathering facilities to connect new wells. Additions to property, equipment
and improvements in 1991 included certain amounts related to discontinued
operations. Cash flows from financing activities during 1993 included the
payment of approximately $1 million of costs and claims related to the 1992
Restructuring and $1.8 million related to transactions completed in connection
with the Merger.
Between December 31, 1992 and December 31, 1993, certain significant
changes took place in the amounts reflected under certain captions of the
consolidated balance sheets included in the Consolidated Financial Statements
appearing elsewhere herein. Accounts receivable and accounts payable increased
significantly due to increased natural gas marketing activity late in 1993 and
increased natural gas prices. Inventories increased due to greater volumes of
NGLs held at year end 1993. Prepaid expenses and other current assets
increased due to prepaid insurance and transportation costs as well as amounts
to be received from the Sale Ranch gathering system and processing plant
transaction discussed above. Other assets declined due to the write-off of
goodwill in 1993 and the realization of amounts due under certain government
contracts. Deferred revenues decreased due to the reclassification of certain
amounts as other long-term liabilities. Other long-term liabilities consist of
certain accrued costs payable more than one year from December 31, 1993 and
deferred revenue and gas imbalances not estimated to be settled within one
year.
The Company may consider disposing of certain assets acquired through
the Merger or other non-strategic assets in order to re-deploy its capital in
more strategic areas. The Company's ability to do this will be limited to some
degree by restrictions in the New BMO Credit Agreement and the New Securities
Purchase Agreement. In addition, the Company intends to explore ways to
further increase its equity capital and its control over supplies of natural
gas. This might entail issuing common equity as full or partial consideration
for additional natural gas gathering or processing facilities or for a
dedication of natural gas production for the Company's natural gas marketing
operations.
RESULTS OF OPERATIONS
General. During 1992, the ongoing operations of the Company were
impacted by the 1992 Restructuring. The uncertainty generally associated with
a Chapter 11 bankruptcy case caused many suppliers and other business partners
to be very cautious in dealing with the Company. Furthermore, the use of
available financial resources necessary to effect the 1992 Restructuring
precluded the Company from applying those resources to its ongoing operations
and thereby reduced operational flexibility to some degree.
In 1993, these negative influences continued to a large extent. The
uncertainty within the industry discussed above and poor results from certain
of the Company's operations have tended to have additional negative influences.
Management believes that over time, and in light of the Merger, these negative
influences will diminish.
Discontinued Operations. The Company's discontinued operations
consist of the defense systems operations, which were sold in two separate
transactions in October 1990 and February 1991, and the power systems
operations, the majority of which were sold in December 1991 and a resulting
gain of approximately $4.9 million was recognized. See "Item 1. Business --
Discontinued Opertions." The loss of approximtely $8.1 million in 1992 related
primarily to discontinued operations resulting from the adjustment of amounts
expected to be realized from certain contingent payments from the sale of
Hadson Power and from a note received in the sale of a waste-wood processing
facility. The gain of approximately $5.6 million in 1993 resulted from the
settlement of a contract dispute between a subsidiary and the United States
Army. See Note 3 of the Notes to the Consolidated Financial Statements of the
Company appearing elsewhere herein.
Earnings from HERC. Equity in earnings of unconsolidated affiliate in
1991 was a loss of approximately $1 million, which reflected an adjustment to
the carrying value of HERC's domestic oil and gas properties. During 1992 and
1993, the corresponding amounts were earnings of approximately $1.7 million and
$0.6 million, respectively, to the Company's interest. In 1993, the Company
sold its interest in HERC and recorded a gain of approximately $6.4 million.
See Note 4 of the Notes to the Consolidated Financial Statements of the
Company included elsewhere herein.
22
<PAGE> 26
Energy Products and Services - General. The Company's ongoing
operations include natural gas and NGL purchasing, gathering, processing,
storage, transportation and marketing operations. Revenues, gross profit,
sales volume and gross margin information related to these operations are
provided below. Certain nonrecurring items are excluded from the average gross
margins for natural gas. These items include in 1993 approximately $2.3
million in charges related to the re-valuation of certain natural gas
imbalances and transportation liabilities.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1991 1992 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Revenues $439,396 427,781 522,661
Gross profit (including depreciation
and amortization) 16,857 9,843 4,714
Sales volumes:
Natural gas (MMCF/day) 513 473 508
NGLs (MBbls/day) 28 24 25
Average gross margin:
Natural gas ($/MCF) .097 .067 .058
NGLs ($/Bbl) .348 .204 .175
Production of NGLs (MBbls/day) 2.8 2.5 2.9
Gross profit from NGL production ($/Bbl) 4.85 2.28 .78
</TABLE>
Natural Gas. Sales volumes for natural gas increased in 1993 as
compared to 1992. The volumes in 1992 were negatively impacted by the 1992
Restructuring as the Company curtailed certain business activities during that
period. In 1993, the Company began resuming normal operations and
correspondingly, sales volumes increased. During 1993, a decrease in gas
volumes sold under "spot" contracts partially offset an increase in volumes
sold under term contracts, primarily with local distribution companies. The
Company has continued to emphasize longer term contracts and has consistently
been increasing the number of such contracts.
Since 1990, the Company and the natural gas industry in general have
experienced generally tighter margins due to competitive pressures. Margins
for natural gas sales declined during 1992 and 1993 as compared to prior
periods due primarily to certain sales to small industrial end-users. These
sales were made through the Company's Western subsidiary pursuant to long-term
contracts, many of which have fixed-prices which are redetermined on a periodic
(quarterly or annual) basis. During the fall and winter of 1992 and continuing
into early 1993, natural gas prices increased dramatically, particularly in the
Permian Basin and Rocky Mountain areas of the country. As a result, the cost
of acquiring gas supplies exceeded the sales price on many of these contracts.
This situation was exacerbated by the fact that the relationship, or "basis
differential", between Permian Basin and Rocky Mountain prices on the one hand
and the prices reflected by natural gas futures contracts on the other hand
changed from what had been experienced in the past. This caused certain of the
Company's hedging transactions related to those fixed-price contracts to be
ineffective. These circumstances concerning Western resulted in a decline in
gross profit of $2.9 million from 1991 to 1992 and of approximately $3.8
million from 1992 to 1993. During 1993, the Company renegotiated substantially
all of these contracts such that Western returned to profitable operations in
the fourth quarter of 1993.
Margins from natural gas sales were also negatively affected in 1993
by dramatic price changes which occurred in May and to a lesser extent
December. During these months, natural gas prices dropped significantly from
first of the month prices. These large price changes caused certain customers
to change
23
<PAGE> 27
supply sources from the Company during the month to take advantage of the
relatively inexpensive mid-month prices. The Company had committed for
supplies to serve these markets at the higher price levels; therefore, the
Company found itself with relatively expensive supplies which it was forced to
dispose of at a loss in some cases. Subsequent to that time, the Company has
renegotiated the pricing provisions of substantially all of these sales
contracts to provide for pricing mechanisms which reflect what has become
highly volatile intra-month pricing of natural gas.
NGL. Sales volumes of NGLs remained relatively consistent during
1991, 1992 and 1993. Average gross margins on sales of NGL in 1993 decreased
from 1992 primarily because of continually increasing competition which has led
to compressed margins. During 1993, high inventory levels at certain key
product aggregation points have also placed downward pressures on premium
margins arising from location differentials. In the fourth quarter of 1993,
the Company liquidated certain inventory positions at losses and lowered the
carrying value of its remaining inventory at December 31, 1993 by $1 million to
reflect the net realizable value of such inventory.
Margins for NGL sales in 1992 reflect the effect of liquidating
certain inventory positions at losses. In order to maintain liquidity during
1992, the Company established a schedule for the sale of certain NGL
inventories. Those transactions resulted in losses of approximately $2
million.
Production of NGLs. Volumes decreased slightly in 1992 from 1991
levels because of reduced natural gas through-put while one of the Company's
processing plants was undergoing repairs and modifications. During 1993,
production increased due to certain plant enhancements and modifications which
were completed in the first quarter of 1993. Gross profit from NGL production
is primarily a function of NGL prices and the cost of the natural gas which is
processed. NGL prices in 1992 were slightly lower than during 1991, and 1993
prices were lower than 1992 prices. Fuel and shrinkage costs, which are
directly related to the cost of natural gas, were substantially higher in 1992
and 1993 than in the previous periods because of the significant increase in
natural gas prices. In addition, during 1992 the Company incurred certain
repair and maintenance costs associated with the processing plant which were
not incurred in the previous year.
Beginning in 1993, significant incremental volumes of natural gas have
been purchased under reserve dedication contracts which contemplate that such
volumes will be processed by the Company and that proceeds from the sale of
extracted NGLs and processed gas will be shared between the Company and the
producer. Due to delays in adding additional processing capacity such
additional gas volumes were not being processed until late in 1993. However,
the Company continued to incur additional operating and gas purchase costs
related to these gas volumes.
Selling, General and Administrative. Selling, general and
administrative expenses increased slightly in 1993 as compared to 1992. This
increase was due primarily to additional bad debt expense recognized in the
fourth quarter of 1993. These expenses decreased from 1991 to 1992 as a result
of the Company's cost reduction efforts.
Interest Expense. Interest expense was lower for 1993 than 1992.
This decrease is due to a combination of lower debt balances and lower interest
rates in 1993 compared to 1992. The lower debt balances and lower interest
rates are attributable to the 1992 Restructuring of the Company's debt and
equity capitalization which was completed in December of 1992. Interest
expense in 1992 was higher than in 1991 because of a change in the estimate of
interest applicable to discontinued operations in 1991.
Other. Results for 1992 include a gain of $925,000 related to the
1992 Restructuring which represents the difference between the carrying value
of the Company's 7-3/4% Convertible Subordinated Debentures and the liquidation
preference of the Old Junior Preferred Stock into which it was converted, less
costs and expenses of the 1992 Restructuring. Results for 1991 include
$703,000 related to the sale of certain gas gathering systems.
In the fourth quarter of 1993, the Company wrote off all remaining
goodwill which amounted to approximately $3.1 million and related to United and
Western. Due to the recent financial results of these
24
<PAGE> 28
entities, management did not feel that these operations continued to support
such goodwill. Also in the fourth quarter of 1993 the Company recorded a
charge of approximately $2.7 million related to the moving of its corporate
office from Oklahoma City to Dallas and the consolidation of certain other
functions, including those related to the Merger.
Neither the provisions of the Omnibus Budget Reconciliation Act of
1993 nor any recently issued accounting standards are expected to have a
material effect on the Company's financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to Item 8 is submitted in a separate section of this
report. See the Consolidated Financial Statements and Schedules of Hadson
Corporation and Subsidiaries attached hereto and listed in Item 14 of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing under the captions "Voting Information,"
"Election of Directors," "Nominees for Election to Board of Directors - Class
I," "Members of Board of Directors Continuing in Office - Class II," "Members
of Board of Directors Continuing in Office - Class III," "Board of Directors
and Committees of the Board," "Executive Officers" and "Beneficial Ownership of
Securities" set forth in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as
amended, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the captions "Certain Relationships
and Related Transactions," "Management Compensation," "Compensation Committee
Report" and "Comparison of Total Stockholder Return" set forth in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the following captions set forth in
the Company's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, is incorporated herein
by reference: "Beneficial Ownership of Securities" and "Certain Relationships
and Related Transactions."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Management Compensation"
and "Certain Relationships and Related Transactions" set forth in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended, is incorporated herein by
reference.
25
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS ANNUAL REPORT ON
FORM 10-K:
(1) Financial Statements: The consolidated financial statements
of the Company filed as part of this report are listed in the "Index
to Financial Statements and Financial Statement Schedules" on Page F-1
hereof.
(2) Financial Statement Schedules: The financial statement
schedules of the Company filed as part of this report are listed in
the "Index to Financial Statements and Financial Statement Schedules"
on Page F-1 hereof.
(3) Exhibits: (Asterisk (*) indicates exhibits incorporated
herein by reference.)
*2.01 - Agreement of Merger, dated as of July 28, 1993, by
and among Santa Fe, AGPC and the Company (filed as
exhibit (c)(i) to the Copmany's Schedule 13E-3, File
No. 5-14102, as amended, and incorporated herein by
reference)
*2.02 - Amendment No. 1 to Agreement of Merger, dated as of
November 9, 1993, by and among Santa Fe, AGPC and the
Company (filed as exhibit (c)(iv) to the Company's
Schedule 13E-3, File No. 5-14102, as amended, and
incorporated herein by reference)
*3.01 - Restated Certificate of Incorporation of the Company
(filed as exhibit 4.01 to the Company's Registration
Statement on Form S-3, File No. 33-51373, and
incorporated herein by reference)
*3.02 - Amended and Restated Bylaws of the Company (filed as
exhibit 4.2 to the Company's Registration Statement
on Form S-3, File No. 33-51373, and incorporated
herein by reference)
*4.01 - Specimen certificate of the Common Stock of the
Company (filed as exhibit 4.3 to the Company's
Registration Statement on Form S-3, File No.
33-51373, and incorporated herein by reference)
*4.02 - Specimen certificate of new Senior Cumulative
Preferred Stock, Series A, of the Company (filed as
exhibit 4.01 to the Company's Registration Statement
on Form S-4, File No. 33-68224, and incorporated
herein by reference)
*4.03 - Specimen certificate of new Junior Exercisable
Preferred Stock, Series B, of the Company (filed as
exhibit 4.02 to the Company's Registration Statement
on Form S-4, File No. 33-68224, and incorporated
herein by reference)
*4.04 - Securities Purchase Agreement dated as of December
14, 1993, between the Company and Prudential (filed
as exhibit 4.2 to the Company's Current Report on
Form 8-K dated December 14, 1993 and incorporated
herein by reference)
26
<PAGE> 30
*4.05 - Restated Securities Purchase Agreement, dated as of
December 16, 1992, by and between the Company and
Prudential (filed as Exhibit 10.1 to the Company's
Current Report on Form 8-K dated October 15, 1992 and
incorporated herein by reference)
*4.06 - Trust Agreement dated as of December 14, 1993 among
the Company, Prudential and Liberty Bank and Trust
Company of Oklahoma City, N.A., as Trustee (filed as
exhibit 4.3 to the Company's Current Report on Form
8- K dated December 14, 1993 and incorporated herein
by reference)
*9 - Voting Agreement dated December 14, 1993 between
Prudential and Santa Fe (filed as exhibit 9 to the
Company's Registration Statement on Form S-4, File
No. 33-68224, and incorporated herein by reference)
*10.01 - Form of Indemnity Agreement between the Company and
its directors (filed as exhibit 10.02 to the
Company's Registration Statement on Form S-2, File
No. 33-12577 and incorporated herein by reference)
10.02 - Form of Employment Agreement dated as of March 31,
1994 between the Company and James Ervin Cannon.
10.03 - Form of Employment Agreement dated as of March 31,
1994 between the Company and Greg G. Jenkins.
*10.04 - Employment Agreement dated as of April 3, 1990
between the Company and J. Michael Adcock (filed as
exhibit 10.04 to the Company's Form 10-K for the year
ended December 31, 1990 and incorporated herein by
reference)
*10.05 - Amendment to Employment Agreement dated as of
December 14, 1993 between the Company and J. Michael
Adcock (filed as exhibit 10.3 to the Company's
Current Report on Form 8-K dated December 14, 1993
and incorporated herein by reference)
*10.06 - Employment Agreement dated as of April 3, 1990
between the Company and Robert P. Capps (filed as
exhibit 10.08 to the Company's Form 10-K for the year
ended December 31, 1990 and incorporated herein by
reference)
10.07 - Form of Amended and Restated Employment Agreement
dated as of March 31, 1994 between the Company and
Robert P. Capps.
*10.08 - Employment Agreement dated as of April 1, 1990
between Gas Systems and Robert L. Laughman (filed as
exhibit 10.24 to the Company's Annual Report on Form
10-K for the year ended December 31, 1992 and
incorporated herein by reference)
*10.09 - Employment Agreement dated as of April 1, 1990
between Hadson Liquid Fuels, Inc. and C. Jeff Goodell
filed as exhibit 10.25 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference)
*10.10 - Hadson Corporation Employee 401(k) Savings Plan as
Amended and Restated Effective January 1, 1992 (filed
as exhibit 10.16 to the Company's Form 10-K for the
year ended December 31, 1991 and incorporated herein
by reference)
*10.11 - Purchase and Sale Agreement, dated December 6, 1991
but effective as of July 1, 1991, by and between
Reliance Gas Marketing Company and Gas Systems filed
as exhibit 10.21 to the Company's Form 10-K for the
year ended December 31, 1991 and incorporated herein
by reference)
27
<PAGE> 31
*10.12 - Stock Purchase Agreement dated June 17, 1993, by and
between the Company and Apache (filed as exhibit 2.1
to the Company's Current Report on Form 8-K, dated
July 15, 1993, and incorporated herein by reference)
*10.13 - Credit Agreement, dated as of December 16, 1992,
among the Company and Prudential (filed as exhibit
10.2 to the Company's Current Report on Form 8-K
dated October 15, 1992 and incorporated herein by
reference)
*10.14 - Stock Purchase Agreement by and among the Company, HD
Energy Corporation, LG&E Energy Corp., and LG&E
Energy Systems Inc. dated as of December 13, 1991
(filed as exhibit 10.4 to the Company's Current
Report on Form 8-K dated December 15, 1992 and
incorporated herein by reference)
*10.15 - Credit Agreement dated as of December 14, 1993 among
the Company, Gas Systems, United, Western and BMO,
individually and as Agent for the other Banks which
may become a party thereto (filed as exhibit 10.2 to
the Company's Current Report on Form 8-K dated
December 14, 1993 and incorporated herein by
reference)
*10.16 - Cash Collateral Agreement, dated as of July 15, 1993,
by and between the Company and Prudential (filed as
exhibit 10.21 to the Company's Registration Statement
on Form S-4, File No. 33-68224, and incorporated
herein by reference)
*10.17 - Amendment No. 1 to Cash Collateral Agreement, dated
as of August 31, 1993, by and among the Company and
Prudential (filed as exhibit 10.27 to the Company's
Registration Statement on Form S-4, File No.
33-68224, and incorporated herein by reference)
*10.18 - Registration Rights Agreement dated as of December
14, 1993 among the Company, Santa Fe and Prudential
(filed as exhibit 10.2 to the Company's Current
Report on Form 8-K dated December 14, 1993 and
incorporated herein by reference)
*10.19 - Form of Hadson Corporation 1992 Equity Incentive Plan
as amended and restated as of November 5, 1993
(included as Appendix V to the Proxy Statement
Prospectus)
10.20 - Hadson Corporation 1992 Equity Incentive Plan, as
amended and restated as of March 9, 1994
*10.21 - Form of Master Gas Purchase Agreement dated December
14, 1993 among Santa Fe, SFEOP and AGPC (filed as
exhibit 10.23 to the Company's Registration Statement
on Form S-4, File No. 33-68224, and incorporated
herein by reference)
*10.22 - Form of Nonstatutory Stock Option Agreement dated
December 13, 1993 that was entered between the
Company with each of Harry G. Hadler, S. D. Wilks,
C.D., and Walter C. Wilson (filed as exhibit 10.28
to the Company's Registration Statement on Form S-4,
File No. 33-68224, and incorporated herein by
reference)
10.23 - Form of Nonstatutory Stock Option Agreement dated
December 14, 1993 that was entered into by and
between the Company and each of Messrs. Payne,
Haasbeek, Thompson and Rosinski
28
<PAGE> 32
*10.25 - Credit Agreement, dated November 30, 1990, by and
among HEPSI, Gas Systems, United, Western and BMO,
individually and as Agent for the other Banks which
may become a party thereto (filed as exhibit 10.21 to
the Company's Form 10-K for the year ended December
31, 1990 and incorporated herein by reference)
*10.26 - Fourth Amendment to Credit Agreement, dated January
31, 1992 but effective as of December 31, 1991, by
and among HEPSI, Gas Systems, United, Western and
BMO, individually and as Agent for the other Banks
which may become a party thereto (filed as exhibit
10.23 to the Company's Form 10-K for the year ended
December 31, 1991 and incorporated herein by
reference)
*10.27 - Fifth Amendment to Credit Agreement, dated as of June
25, 1992, by and among HEPSI, Gas Systems, United,
Western and BMO, individually and as Agent for the
other Banks which may become a party thereto (filed
as exhibit 10.25 to the Company's Registration
Statement on Form S-4, File No. 33-49386, and
incorportaed herein by reference)
*10.28 - First Modification to Fifth Amendment to Credit
Agreement, dated as of August 4, 1992, by and among
HEPSI, Gas Systems, United, Western and BMO,
individually and as Agent for the other Banks which
may become a party thereto (filed as exhibit 10.26 to
the Company's Registration Statement on Form S-4,
File No. 33- 49386, and incorporated herein by
reference)
*10.29 - Second Modification to Fifth Amendment to Credit
Agreement, dated as of September 11, 1992, by and
among HEPSI, Gas Systems, United, Western and BMO,
individually and as Agent for the other Banks which
may become a party thereto (filed as exhibit 10.27 to
the Company's Registration Statement on Form S-4,
File No. 33- 49386, and incorporated herein by
reference)
*10.30 - Third Modification to Fifth Amendment to Credit
Agreement, dated as of September 24, 1992, by and
among HEPSI, Gas Systems, United, Western and BMO,
individually and as Agent for the other Banks which
may become a party thereto (filed as exhibit 10.28 to
the Company's Registration Statement on Form S-4,
File No. 33- 49386, and incorporated herein by
reference)
*10.31 - Sixth Amendment to Credit Agreement, dated March 31,
1993, by and among HEPSI, Gas Systems, United,
Western and BMO, individually and as Agent for the
other Banks which may become a party thereto (filed
as exhibit 10.25 to the Company's Registration
Statement on Form S-4, File No. 33- 49386 and
incorporated herein by reference)
*10.32 - Seventh Amendment to Credit Agreement, dated as of
September 30, 1993, by and among HEPSI, Gas Systems,
United, Western and BMO, individually and as Agent
for the other Banks which may become a party thereto
(filed as exhibit 10.26 to the Company's Registration
Statement on Form S-4, File No. 33- 49386 and
incorporated herein by reference)
11 - Computation of per share earnings
22.01 - List of subsidiaries of the Company
23 - Consent of independent public accountants
29
<PAGE> 33
(B) REPORTS ON FORM 8-K.
During the quarter ended December 31, 1993, Registrant filed the
following Reports on Form 8-K:
(1) Form 8-K dated July 15, 1993, reporting the disposition of the
Company's 49% interest in Hadson Energy Resources Corporation.
An unaudited pro forma consolidated balance sheet and
unaudited pro forma statements of operations were filed as
part of the Report.
(2) Amendment No. 1 to Form 8-K dated July 15, 1993, amending in
its entirety Form 8-K dated July 15, 1993, reporting the
disposition of the Company's 49% interest in Hadson Energy
Resources Corporation. An unaudited pro forma consolidated
balance sheet and unaudited pro forma statements of operations
were filed as part of the Amendment.
(3) Form 8-K dated September 22, 1993, reporting the settlement
agreement between the Company's wholly-owned subsidiary,
Hadson Defense Systems, Inc. (formerly Ultrasystems Defense
and Space, Inc.) and the United States (the "Government")
resolving all claims and disputes between those parties
relating to a contract between the parties which was
terminated by the Government on May 24, 1990.
(4) Form 8-K dated December 14, 1993, reporting the Merger of
Adobe Gas Pipeline Company ("AGPC") with and into the Company
pursuant to an Agreement of Merger dated as of July 28, 1993
between the Company, Santa Fe Energy Resources, Inc. and AGPC.
No financial statements were filed as a part of the Report.
(5) Amendment No. 1 to Form 8-K dated December 14, 1993, amending
such Form 8-K in its entirety.
(C) SEE SUBITEM (A)(3) ABOVE.
(D) SEE SUBITEM (A)(2).
30
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HADSON CORPORATION
DATE: March 9, 1994
By:/s/ GREG G. JENKINS
-----------------------------------
Greg G. Jenkins, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ GREG G. JENKINS President, Chief Executive March 9, 1994
- -------------------------- Officer and Director
Greg G. Jenkins (Principal Executive Officer)
/s/ ROBERT P. CAPPS Executive Vice President, March 9, 1994
- -------------------------- Chief Financial Officer
Robert P. Capps (Principal Financial Officer)
/s/ MARTHA A. BURGER Vice President - Controller March 9, 1994
- -------------------------- (Principal Accounting Officer)
Martha A. Burger
Chairman of the Board of
- -------------------------- Directors
J. E. Cannon
/s/ MICHAEL ADCOCK Director March 9, 1994
- --------------------------
J. Michael Adcock
/s/ B. M. THOMPSON Director March 9, 1994
- --------------------------
B. M. Thompson
/s/ JAMES L. PAYNE Director March 9, 1994
- --------------------------
James L. Payne
31
<PAGE> 35
/s/ MICHAEL J. ROSINSKI Director March 9, 1994
- --------------------------
Michael J. Rosinski
/s/ J. FRANK HAASBEEK Director March 9, 1994
- --------------------------
J. Frank Haasbeek
/s/ JAMES A. BITZER Director March 9, 1994
- --------------------------
James A. Bitzer
32
<PAGE> 36
HADSON CORPORATION AND SUBSIDIARIES
Index to Financial Statements and Financial Statement Schedules
<TABLE>
<CAPTION>
Page
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants ................................ F-2
Consolidated Balance Sheets
December 31, 1992 and 1993 ................................. F-3
Consolidated Statements of Operations ............................
Years Ended December 31, 1991, 1992 and 1993 ............... F-4
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1991, 1992 and 1993 F-5
Consolidated Statements of Cash Flows
Years Ended December 31, 1991, 1992 and 1993 F-6
Notes to Consolidated Financial Statements ....................... F-8
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
V. Consolidated Property and Equipment
Three Years Ended December 31, 1993 .................. F-23
VI. Consolidated Accumulated Depreciation, Depletion
and Amortization of Property and Equipment
Three Years Ended December 31, 1993 .................. F-24
VIII. Consolidated Valuation and Qualifying Accounts
Three Years Ended December 31, 1993 .................. F-25
</TABLE>
F-1
<PAGE> 37
HADSON CORPORATION AND SUBSIDIARIES
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Hadson Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Hadson Corporation and its subsidiaries (the "Company") at December
1992 and 1993, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audits 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Oklahoma City, Oklahoma
February 18, 1994
F-2
<PAGE> 38
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1992 1993
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,445 2,466
Accounts receivable, net of allowance for doubtful
accounts of $285 and $888, respectively 62,329 85,097
Inventories 2,716 5,754
Prepaid expenses and other current assets 3,700 9,363
--------- --------
Total current assets 72,190 102,680
--------- --------
Property, equipment and improvements at cost, net of accumulated
depreciation, depletion and amortization of $27,803 and $32,135, respectively 38,492 99,431
Gas supply contract - 6,798
Investment in unconsolidated affiliate 37,016 -
Other assets 7,152 2,732
--------- --------
$ 154,850 211,641
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current long-term debt $ 5,000 1,000
Accounts payable 60,543 88,872
Accrued liabilities 3,572 4,289
Deferred revenue 6,535 4,385
--------- --------
Total current liabilities 75,650 98,546
--------- --------
Long-term debt 56,400 55,800
Note payable 1,474 -
Other long-term liabilities 1,725 15,123
Deferred income taxes 520 2,699
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock, par value $.01 per share
Authorized, 25,000,000 shares -
7% Senior Cumulative, Series A; issued 49,500 shares
in 1992, at aggregate carrying value 42,543 -
Senior Cumulative, Series A; issued 2,080,000 shares
in 1993, at aggregate carrying value - 49,000
8% Junior Cumulative, Series B; issued 4,065,000
shares in 1992, at aggregate liquidation preference 20,325 -
Junior Exercisable Automatically Convertible, Series B;
issued 4,983,180 shares in 1993, at par value - 50
Common stock (after effect of Reverse Stock Split), par value $.01 per share
Authorized, 16,061,467 and 35,000,000 shares;
issued 2,605,133 and 25,689,147 shares 391 257
Common stock, Class B and C, par value $.01 per share
Authorized 156,749,000 and -0- shares;
issued 84,045,000 shares in 1992 840 -
Additional paid-in capital 150,337 196,625
Accumulated deficit (195,355) (206,459)
--------- --------
Total stockholders' equity 19,081 39,473
--------- --------
$ 154,850 211,641
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 39
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1991 1992 1993
-------- ------- -------
<S> <C> <C> <C>
Revenues:
Sales $439,396 427,781 522,661
Interest and other income 687 478 495
Interest on tax refund 1,766 - -
Gain on sale of assets 703 - 6,355
Net gain on 1992 Restructuring and settlements - 925 -
Equity in earnings (loss) of unconsolidated affiliate (987) 1,716 629
-------- ------- -------
441,565 430,900 530,140
-------- ------- -------
Expenses:
Cost of sales and services (includes amounts from related
parties of $1,912, $948 and $-0-, respectively) 414,220 410,960 514,117
Depreciation, depletion and amortization 6,733 6,111 6,280
Write-off of goodwill - - 3,077
Selling, general and administrative (net of billings to
related party of $756, $823 and $-0-, respectively) 16,743 15,593 16,407
Interest 10,822 13,441 2,648
Write down of NGL inventory 2,500 - 1,002
Settlement of litigation - 1,000 475
Reorganization and other - - 2,704
-------- ------- -------
451,018 447,105 546,710
-------- ------- -------
Loss from continuing operations before income taxes (9,453) (16,205) (16,570)
Income tax benefit (304) (1,139) (694)
-------- ------- -------
Loss from continuing operations (9,149) (15,066) (15,876)
Earnings (loss) from discontinued operations, net of income tax
(benefit) of $80 in 1991 and $(78) in 1993 4,829 (8,103) 5,553
-------- -------- -------
Net loss (4,320) (23,169) (10,323)
Preferred stock dividend requirements - 61 293
-------- ------- -------
Net loss attributable to common stock $ (4,320) (23,230) (10,616)
======== ======= =======
Income (loss) per common and common equivalent share:
Continuing operations $ (3.64) (5.35) (1.93)
Discontinued operations 1.92 (2.87) .66
-------- ------- -------
Net loss $ (1.72) (8.22) (1.27)
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 40
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1991, 1992 and 1993
(In Thousands)
<TABLE>
<CAPTION>
7% Senior Senior
Common Stock Preferred Stock Preferred Stock
Common Stock Class B and C Series A Series A
------------------- ------------------ ---------------- -----------------
Par Par Carrying Carrying
Shares Value Shares Value Shares Value Shares Value
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 2,513 $ 3,769 - - - - - -
Issuance of treasury stock - - - - - - - -
Exercise of stock options 4 7 - - - - - -
Net loss for the year ended
December 31, 1991 - - - - - - - -
------- ------- -------- ------- ------- ------ ------ ------
Balance at December 31, 1991 2,517 3,776 - - - - - -
Issuance of common stock 68 102 - - - - - -
Adjust par value to $.01 - (3,490) - - - - - -
Restructuring of debt and
equity capitalization 20 3 84,045 840 49 42,543 - -
Net loss for the year ended
December 31, 1992 - - - - - - - -
------- ------- -------- ------- ------- ------ ------ ------
Balance at December 31, 1992 2,605 391 84,045 840 49 42,543 - -
Issuance of common stock 13 2 - - - - - -
Issuance of 8% Junior
Preferred stock - - - - - - - -
Conversion of 8% Junior Preferred stock 659 99 - - - - - -
Dividend on 8% Junior Preferred stock - - - - - - - -
Issuance of stock pursuant to Merger 10,396 104 - - - - 2,080 49,000
Issuance and conversion of stock
pursuant to recapitalization 12,016 (339) (84,045) (840) (49) (42,543) - -
Net loss for the year ended
December 31, 1993 - - - - - - - -
------- ------- -------- ------- ------- ------ ----- ------
Balance at December 31, 1993 25,689 $ 257 - - - - 2,080 49,000
======= ======= ======== ======= ======= ====== ===== ======
</TABLE>
<TABLE>
<CAPTION>
8% Junior Junior
Preferred Stock Preferred Stock
Series B Series B
------------------ ---------------
Liqui- Additional Accumu- Total
dation Par Paid-in lated Treasury Stockholders'
Shares Value Shares Value Capital Deficit Stock Equity
------ ------- ------ ------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 - - - - 145,902 (167,395) (1,011) (18,735)
Issuance of treasury stock - - - - - (471) 1,011 540
Exercise of stock options - - - - 155 - - 162
Net loss for the year ended
December 31, 1991 - - - - - (4,320) - (4,320)
------ ------ ----- ----- ------- -------- ------ -------
Balance at December 31, 1991 - - - - 146,057 (172,186) - (22,353)
Issuance of common stock - - - - 790 - - 892
Adjust par value to $.01 - - - - 3,490 - - -
Restructuring of debt and
equity capitalization 4,065 20,325 - - - - - 63,711
Net loss for the year ended
December 31, 1992 - - - - - (23,169) - (23,169)
------ ------ ----- ----- ------- -------- ------ -------
Balance at December 31, 1992 4,065 20,325 - - 150,337 (195,355) - 19,081
Issuance of common stock - - - - - - - 2
Issuance of 8% Junior
Preferred stock 30 150 - - - - - 150
Conversion of 8% Junior Preferred stock (455) (2,273) - - 2,174 - - -
Dividend on 8% Junior Preferred stock 156 781 - - - (781) - -
Issuance of stock pursuant to Merger - - - - 16,292 - - 65,396
Issuance and conversion of stock
pursuant to recapitalization (3,796) (18,983) 4,983 50 27,822 - - (34,833)
Net loss for the year ended
December 31, 1993 - - - - - (10,323) - (10,323)
------ ------ ----- ----- ------- -------- ------ -------
Balance at December 31, 1993 - - 4,983 50 196,625 (206,459) - 39,473
====== ====== ===== ===== ======= ======== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 41
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $ (9,149) (15,066) (15,876)
Items not affecting cash flow:
Depreciation, depletion and amortization 6,733 6,111 6,280
Write-off of goodwill - - 3,077
Write down of NGL inventory 2,500 - 1,002
Deferred income taxes - (338) (609)
Gain on sale of assets (703) - (6,355)
Reorganization costs - - 1,372
Net gain on 1992 Restructuring and settlements - (925) -
Interest settled in 1992 Restructuring - 12,941 -
Equity in (earnings) loss of unconsolidated
affiliate and other 1,169 (1,282) 2,203
Accruals of operating cash receipts and payments, net
of effects of acquired or sold companies:
Change in trade receivables 4,311 5,392 (24,371)
Change in inventories 892 7,659 (2,231)
Change in current liabilities (13,789) (9,415) 37,332
Change in prepaid expenses and other current assets 2,746 (956) (6,056)
-------- ------- -------
Operating cash flow provided (used) by
continuing operations (5,290) 4,121 (4,232)
Operating cash flow used by
discontinued operations (28,209) - -
-------- ------- -------
Cash flows provided (used) by operating activities (33,499) 4,121 (4,232)
-------- ------- -------
Cash flows from investing activities:
Additions to property, equipment and improvements (6,904) (3,384) (4,482)
Dispositions of properties 7,851 257 261
Net proceeds from sale of affiliates 48,970 - 44,000
Cash proceeds (requirements) related to discontinued operations (1,592) (3,548) 7,339
Reduction in consolidated cash and cash equivalents resulting
from sale of subsidiaries (3,588) - -
Investments in and advances to unconsolidated affiliates (1,546) - -
Distributions from unconsolidated affiliates 2,578 - -
Other (68) (276) 143
-------- ------- -------
Cash flows provided (used) by investing activities 45,701 (6,951) 47,261
-------- ------- -------
</TABLE>
F-6
<PAGE> 42
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from borrowings $ 4,000 7,970 200
Repayments of borrowings (32,009) (1,000) (39,774)
Transaction costs related to restructuring - (4,491) (4,434)
Loan origination and amendment fees - (537) -
Issuance of common stock 162 892 -
-------- ------- -------
Cash flows provided (used) by financing
activities (27,847) 2,834 (44,008)
-------- ------- -------
Net increase in cash and cash equivalents (15,645) 4 (979)
Cash and cash equivalents at beginning of period 19,086 3,441 3,445
-------- ------- -------
Cash and cash equivalents at end of period $ 3,441 3,445 2,466
======== ======= =======
Supplemental disclosures of cash flow information:
Cash paid for:
Interest (net of amounts capitalized and including
amounts attributable to discontinued operations) 16,709 830 2,975
Income taxes (net of refunds) (1,010) (2) 102
-------- ------- ------
$ 15,699 828 3,077
======== ======= ======
Supplemental disclosures of non-cash activities:
Issuance of 6.2% Senior Secured Notes $ - 56,400 33,000
Retirement of debt in 1992 Restructuring:
Convertible Subordinated Debentures - (27,528) -
11.2% Senior Notes - (13,973) -
12.9% Senior Subordinated Notes - (75,000) -
Issuance (Retirement) of 7% Senior Preferred Stock - 42,543 (42,543)
Issuance (Retirement) of 8% Junior Preferred Stock - 20,325 (20,325)
Issuance (Retirement) of Class B and C Common Stock - 843 (843)
Additions to property, equipment and improvements - - 65,000
Issuance of Senior Preferred Stock - - 49,000
Issuance of Common Stock - - 46,154
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 43
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Hadson Corporation (the "Company") and its subsidiaries are engaged in
the purchasing, gathering, processing, storing, transporting and marketing of
natural gas and natural gas liquids ("NGL").
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. Material
intercompany balances and transactions have been eliminated. The Company's
proportionate share of assets, liabilities, revenues and expenses of various
energy related partnerships and joint ventures is included in the consolidated
financial statements in accordance with industry practice. Investments in
other joint ventures and partnerships, which are owned 50% or less and in which
the Company exercises significant management influence, are included in the
consolidated financial statements under the equity method of accounting.
Business Segment Information
The Company's operations consist of only one segment; therefore, no
segment information is presented for the three years ending December 31, 1993.
During 1991, 1992 and 1993, no one customer accounted for more than 10% of
total revenues from operations.
Fair Value of Financial Instruments
In accordance with the requirements of Statement of Financial
Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of
Financial Instruments," the Company has provided fair value information about
valuation methodologies in various notes to the consolidated financial
statements.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand deposits and funds
invested in highly liquid instruments which are available on short notice,
generally overnight. The carrying amount approximates fair value because of
the short maturity of those instruments.
Concentration of Credit Risk
The Company's accounts receivable relate primarily to sales of energy
products and services in the United States to end-user and utility markets.
Receivables which are considered a credit risk are backed by letters of credit.
Credit terms, typical of industry standards, are of a short-term nature.
Gas Imbalances and Inventories
In the course of buying and selling natural gas, the Company may
receive or deliver volumes that are different than the amount nominated. Such
variances arise as a result of certain attributes of the natural gas commodity
and the industry itself. These transactions result in volumetric receivable
and payable balances which are recovered or repaid through the receipt or
delivery of gas in the future, or settled in cash. Natural gas imbalances
expected to be settled within one year are classified as current assets or
liabilities, with the remaining net imbalance position reflected in other
long-term liabilities as of December 31, 1993. As of December 31, 1992, all
natural gas imbalances were classified as current.
F-8
<PAGE> 44
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Amounts classified as inventories consist of natural gas contained in
a gas storage facility which is expected to be withdrawn and sold within one
year, NGL held in storage facilities, natural gas imbalances due from others
and NGL exchange balances. Gas held in storage and NGL are valued as of
year-end at the lower of net realizable value or cost on an average cost basis.
Exchange balances (quantities of product due to/from others) are carried at
market value. The accompanying statements of operations for the three years
ended December 31, 1993 reflect adjustments to NGL inventory to estimated
realizable value of $2.5 million, $-0- and $1.0 million.
The major classes of inventory at December 31, 1992 and 1993 are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1992 1993
------ ------
(In Thousands)
<S> <C> <C>
Inventory:
Natural gas in storage $ 211 260
NGL 2,030 1,442
Exchange balances:
NGL 228 (29)
Natural gas imbalances 247 4,081
------ -----
$2,716 5,754
====== =====
</TABLE>
Accounting for Futures Contracts
The Company enters into natural gas futures contracts primarily for
the purpose of hedging price risks associated with certain firm purchase and
sales commitments. Realized gains or losses related to fixed purchase price
commitments and changes in the market value of open futures contracts are
deferred until the gain or loss of the hedged transaction or futures contract
is recognized. The amounts of speculative futures gains and losses are
immaterial in the periods presented.
Property, Equipment and Improvements
Natural gas gathering and transportation facilities are depreciated
using the straight-line method over the expected life of the underlying
natural gas reserves, which range from three to 15 years. Depreciation of
other property and equipment is provided using the straight-line method over
estimated useful lives of three to 10 years.
Intangible Assets
The excess of the acquisition costs over the fair value of purchased
businesses is recorded within other assets as goodwill ($5,522,000 at December
31, 1992). In 1993, due to lower than expected performance of the previously
purchased businesses, the entire balance of goodwill was written off in the
accompanying statement of operations. The gas supply contract acquired
pursuant to the December 14, 1993 merger of Adobe Gas Pipeline Company ("AGPC")
with and into the Company (the "Merger") is being amortized on a straight-line
basis over its seven-year term. (See Note 2.)
Stock Options
No accounting is made with respect to stock options until they are
exercised as all options have been granted at a price equal to or greater than
fair value at date of grant. Upon exercise, the excess of the proceeds over
the par value of the shares issued is credited to additional paid-in capital.
F-9
<PAGE> 45
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company has provided deferred taxes for the difference in the tax
and financial reporting bases of assets and liabilities in accordance with SFAS
No. 109, "Accounting for Income Taxes."
Investment and energy tax credits, when available, are accounted for
under the flow-through method.
Net Earnings Per Common Share
For the three years ended December 31, 1993, net loss per common share
was based upon the weighted average shares of common stock outstanding of
2,517,000, 2,826,000 and 8,383,000, respectively, as the inclusion of any
common stock equivalents would be anti-dilutive. The weighted average shares
of Common Stock are computed after giving effect to the approximate one-for-15
reverse split of the Common Stock effected by the Merger in December 1993 and
described in Note 2. Fully diluted earnings per common share assume the
conversion of convertible debt securities and common stock equivalents which
would arise from the exercise of stock options, unless such items would be
anti-dilutive. Therefore, primary and fully diluted earnings per share are the
same for all periods presented. As of December 31, 1993, there were 25,689,147
shares of Common Stock outstanding.
Basis of Presentation
Certain reclassifications have been made in the consolidated
financial statements for the years ended December 31, 1991 and 1992 to conform
to the presentation used for the December 31, 1993 financial statements.
(2) MERGER AND RECAPITALIZATION OF DEBT AND EQUITY
In December 1992, the Company's then-existing debt and equity
capitalization was restructured (the "1992 Restructuring") pursuant to a
"prepackaged" plan of reorganization filed by the Company in connection with
its October 1992 filing of a voluntary proceeding for reorganization under
Chapter 11 of the United States Bankruptcy Code. The Company recognized a net
gain on the 1992 Restructuring of $925,000.
The Merger was consummated on December 14, 1993. Prior to the Merger,
AGPC was an indirect-wholly owned subsidiary of Santa Fe Energy Resources, Inc.
("Santa Fe") and engaged, through its wholly-owned subsidiaries, in the
gathering, processing, transmission and marketing of natural gas, with
interests in 10 natural gas pipeline systems located in Texas, New Mexico,
Oklahoma and Montana (of which six were operated by AGPC) and three natural gas
processing plants (collectively, and including the various contracts associated
with such facilities, the "AGPC Assets"). In addition to effecting the
acquisition by the Company of AGPC, the Merger also effected a restructuring of
the Company's debt and equity capitalization (including an approximate
one-for-15 reverse split of the Company's common stock (the "Reverse Stock
Split")).
Prior to the Merger, AGPC entered into a gas contract (the "Gas
Contract") with Santa Fe and Santa Fe Energy Operating Partners, L.P.
("SFEOP"). As a result of the Merger, the Company succeeded to the rights and
obligations of AGPC under the Gas Contract. Following the Merger, the Company
assigned such contract to Hadson Gas Systems, Inc., a wholly-owned subsidiary
of the Company through which the majority of the Company's natural gas
marketing operations are conducted. The Gas Contract has a term of
approximately seven years and provides for the purchase by the Company of
essentially all of Santa Fe's and SFEOP's existing domestic natural gas
production as well as natural gas production that either Santa Fe or SFEOP has
the right to market.
F-10
<PAGE> 46
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) MERGER AND RECAPITALIZATION OF DEBT AND EQUITY (Continued)
Pursuant to the Merger, the Company issued to Santa Fe, in exchange
for the stock of AGPC, 2,080,000 shares of Senior Cumulative Preferred Stock,
Series A, ("Senior Preferred Stock") having an aggregate liquidation preference
of $52 million and 10,395,665 shares of post reverse-split Common Stock
representing approximately 40% of the total number of shares of Common Stock
outstanding immediately after the Merger.
The combination of AGPC and its subsidiaries and the Company has been
accounted for using the purchase method of accounting. The value of the net
assets acquired by the Company in the Merger was more readily determinable than
the value of the total consideration issued by the Company and, therefore, net
assets were used in determining the fair value of such consideration. The
value of the AGPC Assets was determined primarily based on a multiple of
expected cash flow from those assets. The value of the Gas Contract was
determined by evaluating estimated savings in gas purchase costs over
historical gas purchase costs expected to be afforded the Company over the term
of the Gas Contract discounted to net present value at 12%. The value of the
Senior Preferred Stock was determined based on the yield of the Senior
Preferred Stock as compared to the yield of other securities deemed to be
comparable. A summary of the purchase price and consideration follows:
<TABLE>
<CAPTION>
(In Thousands)
--------------
<S> <C>
Determination of purchase price:
AGPC Assets $ 65,000
Gas Contract 6,798
Deferred tax liability (2,788)
Current liabilities (244)
Long-term liabilities (1,487)
------
$ 67,279
======
Consideration:
Senior Preferred Stock $ 49,000
Common Stock 16,396
Costs of acquisition of AGPC Assets and Gas Contract 1,883
-------
$ 67,279
======
</TABLE>
Components of the restructuring of the Company's debt and equity
recapitalization which were effected by the Merger are described below.
Transaction costs associated with the recapitalization were approximately $1.8
million.
All of the shares of the Company's Class B Common Stock, Class C
Common Stock, 7% Senior Cumulative Preferred Stock, Series A ("Old Senior
Preferred Stock"), all of which were held by The Prudential Insurance Company
of America and certain of its affiliates (collectively, "Prudential") and $23.4
million in 6.20% Senior Secured Notes Due 2000 ("Old Senior Secured Notes") due
to Prudential were exchanged for or converted, pursuant to the Merger, into, in
the aggregate, $56.4 million of 8% Senior Secured Notes due 2003 ("New Senior
Secured Notes"), 1,309,762 shares of Common Stock, and the "P Interest" in a
trust formed in connection with the Merger (the "H/P Trust") (see Note 6),
which interest represented a beneficial trust interest in 4,983,180 shares of
Common Stock which were deposited by the Company to the H/P Trust (the "Trust
Shares") and could result in the payment to Prudential of an amount equal to
the amount of all proceeds payable upon the exercise of New Junior Exercisable
Automatically Convertible Preferred Stock, Series B ("New Junior Preferred
Stock") (See Note 6). Such amount could total approximately $16 million. The
shares of Common Stock issued to the H/P Trust are treated as outstanding by
the Company.
F-11
<PAGE> 47
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) MERGER AND RECAPITALIZATION OF DEBT AND EQUITY (Continued)
The 3,796,814 shares of 8% Junior Cumulative Convertible Preferred
Stock, Series B ("Old Junior Preferred Stock") outstanding at the time of the
Merger were converted into 5,723,052 shares of Common Stock and 4,163,852
shares of New Junior Preferred Stock.
To effect the Reverse Stock Split, the 49,159,867 shares of common
stock outstanding at the time of the Merger were converted into 3,277,488
shares of Common Stock and 819,328 shares of New Junior Preferred Stock.
The following represents the unaudited pro forma results of operations
as if the 1992 Restructuring, the sale of the common stock of Hadson Energy
Resources Corporation ("HERC") (see Note 4), the Merger and the
recapitalization of debt and equity had occurred on January 1, 1992:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1992 1993
-------- -------
(In Thousands, except
per share data)
<S> <C> <C>
Net sales $601,055 700,254
Loss from continuing operations (2,933) (18,795)
Loss attributable to common stock (8,783) (24,645)
Loss per share from continuing operations (.34) (.96)
</TABLE>
The pro forma financial information does not purport to be indicative
of the results of operations that would have occurred had the transactions
taken place at the beginning of the periods presented or of future results of
operations.
(3) DISCONTINUED OPERATIONS
The power systems group ("Power Systems"), excluding certain assets,
was sold in December 1991 for proceeds of $50.5 million which resulted in a
gain of $4.9 million. The proceeds from the transaction were subject to
certain adjustments and had additional amounts payable under certain
circumstances. The adjustments to proceeds included a purchase price
adjustment, the amount of which was the subject of a dispute between the
Company and the purchaser.
Of the $50.5 million purchase price, the purchaser retained $2.5
million as a "holdback" to secure certain of the Company's indemnification
obligations related to the sale. In 1992, the Company and the purchaser
reached agreement regarding the settlement of certain matters relating to this
sale, including the purchase price adjustment, certain indemnity claims and the
manner and time period for resolving other indemnity claims. Pursuant to such
settlement agreement, the purchaser paid the Company $0.4 million and continues
to hold $2.2 million as security for certain indemnity claims that may arise.
The purchaser has also agreed that other indemnity claims against the Company
cannot exceed $0.5 million. If, however, within the time limits set forth in
the settlement agreement, the claims are less than the $2.2 million held by the
purchaser, then the balance of the holdback will be returned to the Company.
In connection with the settlement agreement, the Company charged $4.2 million
to loss on discontinued operations in 1992, as the Company believes that it is
unlikely to receive any significant additional amounts.
F-12
<PAGE> 48
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) DISCONTINUED OPERATIONS (Continued)
The assets of Power Systems retained by the Company after the 1991
sale related to subsidiaries of the Company having investments in joint
ventures which own six cogeneration projects and one waste wood processing
facility. In 1992, the Company disposed of four of its subsidiaries having
investments in cogeneration projects and the one having the investment in the
waste-wood processing facility. The Company recognized a loss of $3.9 million
in connection with these dispositions.
In September 1993, the Company reached a settlement with the United
States Army regarding various claims relating to a contract between a defense
subsidiary of the Company and the Army. As a part of this settlement, the Army
released to the Company amounts due to the subsidiary pursuant to certain other
government contracts which totalled approximately $1.8 million and made a cash
payment to the Company of $7 million. After payment of litigation costs of
approximately $1.7 million, the net cash proceeds to the Company from this
settlement were approximately $7.1 million. Of the proceeds, $1.5 million was
applied as a principal prepayment of the New Senior Secured Notes issued
pursuant to the Merger and the rest was retained by the Company to pay
transaction costs related to the Merger and related transactions and for
general corporate purposes. The accompanying consolidated statement of
operations for the year ended December 31, 1993 reflects a gain of $5.6
million related to the settlement.
Power Systems and the Defense Systems Group have been accounted for as
discontinued operations in the accompanying consolidated financial statements.
Their operating results are reported in this manner for all years presented in
the accompanying consolidated statements of operations and other related income
data. Net sales for these groups totalled $119,312,000, $-0- and $-0- for the
years ending December 31, 1991, 1992 and 1993, respectively.
(4) SALE OF ASSETS
In July 1993, the Company completed the sale of its approximately 49%
interest in the outstanding common stock of HERC. The equity method was
utilized in accounting for the investment.
Total proceeds from the sale of $45 million were applied as follows:
(i) $33.0 million principal prepayment of the Company's Old Senior Secured
Notes, (ii) approximately $1.3 million to pay accrued interest on the Old
Senior Secured Notes and fees due Prudential, (iii) approximately $2.2 million
in repayment of all borrowings and accrued interest under an interim financing
facility with Prudential described in Note 5, (iv) $1.0 million in repayment of
the New Senior Secured Notes and (v) the remainder was retained by the Company
for costs and expenses related to the sale and other corporate purposes. A
gain of approximately $6.4 million was recognized on the sale.
In February of 1994, the Company assigned a 30% interest in a
gathering system and processing plant to a joint owner in return for (i) the
dedication of additional production to the system, (ii) the assignment of a
gathering system in New Mexico along with its dedicated production, and (iii)
$2.5 million in cash. Due to the recent valuation of the gathering system and
processing plant in the Merger, no gain or loss was recognized on the sale.
The accompanying consolidated balance sheet includes $2.5 million in current
assets related to the assets which were sold.
In December 1991, the Company completed the sale of certain Oklahoma
and Texas gathering systems and processing facilities which had been held
through joint ventures for which the Company was managing partner. The sale
proceeds totalled $2,890,000, which resulted in a gain to the Company of
$703,000.
F-13
<PAGE> 49
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) LONG-TERM DEBT AND NOTE PAYABLE
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1992 1993
------- ------
(In Thousands)
<S> <C> <C>
6.20% senior secured notes, due 2000 (A) $56,400 -
8.0% senior secured notes, due 2003 (A) - 53,900
Bank credit agreement (B) 5,000 2,900
-------- ------
61,400 56,800
Current portion (5,000) (1,000)
------- ------
$56,400 55,800
======= ======
</TABLE>
(A) In December 1993, in connection with the debt and equity
recapitalization effected by the Merger, the Company entered into a
Securities Purchase Agreement (the "Securities Purchase Agreement")
with Prudential. See Note 2. The agreement provided that all
outstanding Old Senior Secured Notes be cancelled. Pursuant to the
Securities Purchase Agreement, the Company issued $56.4 million of New
Senior Secured Notes. Upon completion of the Merger, the Company paid
$2.5 million to Prudential in partial repayment of the notes.
The New Senior Secured Notes bear interest at the rate of 8.0%
per annum and mature on December 31, 2003. Such notes are prepayable
in whole or in part (in minimum increments of $500,000) without
premium or penalty. Remaining required principal prepayments are as
follows: (i) $1.0 million by August 1, 1994, (ii) an additional $2.5
million by December 31, 1996, (iii) an additional $5.9 million by
December 31, 1997 and (iv) an additional $8 million by December 31 of
each year thereafter through 2002 with a final payment of $4.5 million
due by December 31, 2003. The Company is also required to prepay the
New Senior Secured Notes in an amount equal to proceeds of asset sales
over certain amounts. The New Senior Secured Notes are secured by the
first priority lien on all the stock of certain of the Company's
subsidiaries, on the accounts receivable and other personal property
of the Company (but not of its operating subsidiaries), which lien has
been granted to a collateral agent for the benefit of Prudential and
Bank of Montreal ("BMO"), as more fully discussed below.
The Securities Purchase Agreement restricts the payment of
dividends, including the payment of dividends on the Senior Preferred
Stock (other than those dividends payable in additional shares of
Senior Preferred Stock). In addition, the outstanding principal
balance of the New Senior Secured Notes must be reduced to certain
specified levels before any cash dividends may be paid on the Senior
Preferred Stock. See Note 6. Other provisions of the Securities
Purchase Agreement include restrictions on the incurrence of
additional debt, the creation of liens, investments, issuance of
capital stock by subsidiaries and dispositions of assets and
subsidiaries.
Because the New Senior Secured Notes were issued late in 1993
and were priced to approximate a market yield for similar securities,
the carrying value of the New Senior Secured Notes approximates fair
value.
(B) Upon consummation of the Merger, the Company entered into a
new credit agreement with BMO ("BMO Credit Agreement") which replaced
its existing credit agreement with BMO. The Company and certain of
its marketing subsidiaries are obligors under the BMO Credit
Agreement.
F-14
<PAGE> 50
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) LONG-TERM DEBT AND NOTE PAYABLE (Continued)
The BMO Credit Agreement provides for aggregate borrowings of
up to $10 million and the issuance of letters of credit of up to $50
million (less the amount of any outstanding borrowings) primarily to
support trade obligations, all on a revolving basis and subject to
availability under a "borrowing base." Upon the syndication of a
portion of the facility to one or more additional banks, the limit of
the facility may be increased to $60 million, subject to the borrowing
base. Under the facility, the borrowing base at any time will be
equal to the sum of approximately 80% of the aggregate dollar amount
of eligible accounts receivable of certain of the Company's
subsidiaries in which BMO has a security interest plus the full amount
of the Company's cash and certain short-term investments in which BMO
has a security interest.
Borrowings outstanding under the BMO Credit Agreement bear
interest, payable quarterly, at the base rate announced from time to
time by BMO plus 1% per annum. In addition, the Company is required
to pay a letter of credit fee of 1-7/8% per annum, payable quarterly,
on the amount of any outstanding letters of credit, a commitment fee
of 0.5% per annum, payable quarterly, on the unused portion of the
facility and a facility fee of .125% per annum, payable quarterly, on
the maximum amount of the facility. In addition, during each of the
four quarters of 1994, the Company is required to reduce the
outstanding amount of borrowings under the facility to no more than $5
million and, during each fiscal quarter thereafter, the Company is
required to reduce such borrowings to zero, in each case for not less
than 10 consecutive business days. Amounts outstanding under the
facility will be due and payable upon the termination of the
facility on December 14, 1995, provided that the facility may be
extended for an additional year by the mutual consent of the Company
and all of the Banks then parties to such facility, subject to the
payment of a fee and certain customary conditions.
During 1993, the average amount of borrowings outstanding
under the BMO Credit Agreement and the credit agreement with BMO which
it replaced was $3,176,000. At December 31, 1993, letters of credit
amounting to $29,636,000 were outstanding under the BMO Credit
Agreement. Of this amount, $24,679,000 relates to standby letters of
credit which support trade accounts payable included in the
accompanying current year consolidated balance sheet.
The Company's obligations under the BMO Credit Agreement are
secured by a first priority lien, granted in favor of a collateral
agent for the benefit of BMO and Prudential, on the outstanding
capital stock of certain of the Company's subsidiaries, on the
accounts receivable and other personal property of the Company and on
certain other miscellaneous collateral, and by a first priority lien
granted in favor of BMO on the accounts receivable and other personal
property of the Company's subsidiaries that are obligors under the BMO
Credit Agreement. Pursuant to certain intercreditor arrangements
entered into by BMO and Prudential, the proceeds of any sale by the
collateral agent, following an event of default, of any collateral
that is subject to such intercreditor arrangements will be applied
first to the payment of amounts due under the BMO Credit Agreement and
second to payment of the New Senior Secured Notes.
Debt issuance costs are included in current assets on the
accompanying consolidated balance sheet and are amortized on a
straight-line basis over the term of the BMO Credit Agreement.
The BMO Credit Agreement contains restrictions on, among other
things, the incurrence of additional debt, payments of dividends,
investments, issuance of capital stock by subsidiaries and
dispositions of assets and subsidiaries. In addition, it calls for
the Company to maintain minimum levels of working capital, liquidity
and net worth. Because the credit facility is priced at an interest
rate that floats along with a market rate, the carrying amount
approximates fair value.
F-15
<PAGE> 51
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) LONG-TERM DEBT AND NOTE PAYABLE (Continued)
As of December 31, 1993, annual maturities of long-term debt for each of
the next five years are as follows:
<TABLE>
<S> <C>
(In Thousands)
1994 $ 1,000
1995 2,900
1996 2,500
1997 5,900
1998 8,000
Thereafter 36,500
-------
$56,800
=======
</TABLE>
Note Payable
In order to fund the costs of effecting the 1992 Restructuring, Prudential
had made advances to the Company through three separate facilities. In
December 1992, the Company entered into the third of the facilities, (the
"Credit Agreement") which provided for maximum advances of $2.2 million. In
January 1993, there was $2.2 million outstanding under the Credit Agreement.
In June 1993, the Company paid all interest and principal due pursuant to the
Credit Agreement with proceeds from sale of its investment in HERC and the
Credit Agreement was cancelled. See Note 4.
(6) CAPITAL STOCK
Senior Cumulative Preferred Stock, Series A ("Senior Preferred Stock")
The 2,080,000 shares of Senior Preferred Stock outstanding on December 31,
1993 were issued to Santa Fe pursuant to the Merger. The shares have a par
value of $.01, have an aggregate liquidation preference of $52 million, or $25
per share, and are senior in liquidation preference to all other classes of
equity securities of the Company. Dividends accumulate at a rate of 11.25% per
annum of the liquidation preference ($2.81 per share per year) from December
14, 1993 through December 31, 1995 and 10.70% per annum ($2.67 per share per
year) commencing January 1, 1996. Dividends are cumulative and are payable
quarterly in arrears. Through December 31, 1995, dividends are payable only in
shares of Senior Preferred Stock having a liquidation preference equal to the
dividend payable. Beginning January 1, 1996, dividends are payable only in
cash.
Beginning January 1, 1999, the Senior Preferred Stock is redeemable for
cash at the option of the Company, in whole or in part, at per share redemption
prices which begin at $26.25 for 1999 and decrease to $25.00 for 2004 and
thereafter. The Securities Purchase Agreement and the BMO Credit Agreement
limit such redemption.
Holders of Senior Preferred Stock have class voting rights in connection
with certain fundamental corporate transactions, including amendments to the
Company's certificate of incorporation which would alter or change the powers,
preferences or special rights of such stock so as to affect them adversely,
certain mergers and consolidations involving the Company which may have a
material adverse effect on such powers, preferences or special rights and the
creation of senior or pari passu securities. In addition, if at any time
regular dividends are in an amount equal to six full quarterly regular dividend
payments in arrears and unpaid, then until all such regular dividend payments
shall be paid in full, the holders of the Senior Preferred Stock, voting
separately as a class, will be entitled to elect two directors of the Company.
F-16
<PAGE> 52
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) CAPITAL STOCK (Continued)
Junior Exercisable Automatically Convertible Preferred Stock, Series B ("New
Junior Preferred Stock")
The 4,983,180 shares of New Junior Preferred Stock outstanding at December
31, 1993 were issued in December 1993, through the Merger, to the holders of
the 8% Junior Preferred Stock and the holders of the common stock pursuant to
the conversion of such stock in the Merger. Each share of New Junior Preferred
Stock has a par value of $.01 and a liquidation preference of $.75. No
dividends are payable on the New Junior Preferred Stock. Each share of New
Junior Preferred Stock entitles the holder to purchase one share of Common
Stock (an aggregate of 4,983,180 shares) upon surrender of such share of New
Junior Preferred Stock and payment of the exercise price of $3.225 per share of
Common Stock (in each case subject to adjustment under certain circumstances)
until the date of automatic conversion described below. Pursuant to the trust
agreement governing the H/P Trust, the Company is required to deposit all
proceeds from such exercise to the H/P Trust as described below.
The H/P Trust was established by the Company in connection with the
Merger. As a result of the Merger, Prudential received the "P Interest" in the
H/P Trust, which initially represented beneficial ownership of all of the Trust
Shares. As holders of New Junior Preferred Stock exercise their right to
purchase shares of Common Stock, the Company will periodically deposit to the
H/P Trust all proceeds of such exercises. At the end of each calendar quarter
and upon termination of the H/P Trust, if the dollar amount of exercise
proceeds held in the H/P Trust has reached certain levels, the trustee will pay
such proceeds to Prudential and will distribute a corresponding number of Trust
Shares to the Company. Upon termination of the H/P Trust, all remaining Trust
Shares, if any, will be distributed to Prudential.
Each outstanding share of New Junior Preferred Stock will automatically
convert into .001 of a share of Common Stock on the earlier of (i) the date
that is 30 days after the first date (the "Trigger Date") on which the closing
price per share of the Common Stock on each of the immediately preceding 40
consecutive trading days shall have exceeded 200% of the exercise price of the
New Junior Preferred Stock in effect on such trading day (the Company will be
required to mail a notice of such automatic conversion to each holder of shares
of New Junior Preferred Stock within 10 days following the Trigger Date) and
(ii) December 14, 1995.
(7) INCOME TAXES
The significant components of income tax (benefit) are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1991 1992 1993
----- ------ ----
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $ 399 (1,180) (145)
State (623) 379 60
----- ------ ----
(224) (801) (85)
----- ------ ----
Deferred:
Federal - (438) (204)
State - 100 (405)
----- ------ ----
- (338) (609)
----- ------ ----
Total income tax (benefit) $(224) (1,139) (694)
===== ====== ====
Relates to:
Continuing operations $(304) (1,139) (616)
Discontinued operations 80 - (78)
----- ------ ----
$(224) (1,139) (694)
===== ====== ====
</TABLE>
F-17
<PAGE> 53
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) INCOME TAXES (Continued)
Reconciliations from the expected statutory income tax (benefit) to the
income tax (benefit) are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1991 1992 1993
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Expected statutory income tax (benefit) $ (1,545) (8,265) (3,746)
Increases (reductions) in taxes resulting from:
Capital loss utilization (6,095) (215) (8,491)
State taxes, net of federal benefit (413) 19 (151)
Amortization of goodwill 289 115 1,160
Gain or loss on disposition of affiliates 547 3,741 5,412
Equity in earnings of unconsolidated affiliate 363 1,420 (47)
Net operating loss carryover 6,752 3,761 6,707
Other (122) (1,715) (1,538)
-------- ------- -------
Income tax (benefit) $ (224) (1,139) (694)
======== ====== =======
</TABLE>
Temporary differences between the financial statement carrying amounts
and the tax bases of assets and liabilities that give rise to significant
portions of the deferred tax liabilities at December 31, 1991, 1992 and
1993 relate to the following:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1991 1992 1993
--------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Property, equipment and improvements and related
depreciation, depletion and amortization $ 5,099 3,044 13,005
Investment in unconsolidated affiliates - 870 -
Accounts receivable 413 - -
Other - - 1,263
-------- ------- -------
Gross deferred tax liabilities 5,512 3,914 14,268
-------- ------- -------
Investment in unconsolidated affiliates (9) - (10)
Accounts receivable - (70) (275)
Subordinated debentures (1,344) - -
Accrued liabilities - (417) (1,132)
Other (35) (16) -
Net operating loss carryover (27,967) (19,826) (17,585)
Capital loss carryover (16,181) (15,561) (6,306)
General business credit carryover (8,606) (8,431) (7,887)
Depletion carryover (702) (702) (1,021)
-------- ------- -------
Gross deferred tax assets (54,844) (45,023) (34,216)
Deferred tax assets valuation allowance 50,190 41,629 22,647
--------- ------- -------
$ 858 520 2,699
========= ======= =======
</TABLE>
F-18
<PAGE> 54
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) INCOME TAXES (Continued)
The net change in the valuation allowance for deferred tax assets was an
increase of $528,000 in 1991; a decrease of $8,561,000 in 1992; and a decrease
of $18,982,000 in 1993. The increase in 1991 was primarily attributable to the
provision of valuation allowance on the net increase in loss carryovers. The
decrease in 1992 was primarily attributable to the anticipated $28,479,000
reduction of the net operating loss which would have been required had the
Company made a certain election under the Internal Revenue Code of 1986, as
amended. The net decrease in 1993 was primarily attributable to additional
expected utilization of net operating loss carryovers against the future
realization of the taxable temporary differences created as a result of the
Merger.
At December 31, 1993, the Company has carryovers of tax benefits as
follows:
<TABLE>
<CAPTION>
TAX
-------
(In Thousands)
<S> <C>
Net operating losses $ 115,619
=======
Alternative minimum tax net operating losses $ 102,379
=======
General business credits $ 7,887
========
Minimum tax credit $ 789
=========
Depletion $ 3,003
========
Capital losses $ 18,547
=======
</TABLE>
The capital loss carryover expires in 1994. The depletion carryover is
not subject to expiration. All other carryovers principally expire between
1998 and 2008.
All of the carryovers of tax benefits generated prior to the December 16,
1992 effective date of the Company's plan of reorganization under Chapter 11 of
the Bankruptcy Code (see Note 2) are, due to the greater than 50% change of
ownership effected by such plan, subject to an annual limitation of $4,510,000
under sections 382 and 383 of the Code. Such annual limitation may be
increased by any realized built-in gains and unused annual limitation from a
prior year. Accordingly, the portion of the carryovers above not limited under
section 382 consist of the $10,143,000 of regular net operating loss and
$9,650,000 of alternative minimum tax net operating loss generated during the
period from December 17, 1992 to December 31, 1993.
During the first quarter of 1991, the Company received a refund of taxes
previously paid of $324,000 and interest amounting to $1,776,000 related to the
settlement of an audit of previous years' federal income tax returns by the
Internal Revenue Service.
(8) EMPLOYEE BENEFIT PLANS
Effective January 1, 1992, the Hadson Employee Stock Ownership/401(k)
Savings Plan (the "Old Employee Plan"), which was organized into two parts, the
Profit Sharing Portion and the ESOP Portion, was amended and restated as the
Hadson Corporation Employee 401(k) Savings Plan (the "Employee Plan"). Under
the Employee Plan, the ESOP Portion of the Old Employee Plan was eliminated.
Additionally, the Employee Plan provides for the Company matching of a
participant's compensation, as defined, from 3% to 8% based upon length of
service. Employees vest immediately in their contribution. The Company's
contribution vests over a four-year period of
F-19
<PAGE> 55
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(8) EMPLOYEE BENEFIT PLANS (Continued)
service. The Company's contribution to the Employee Plan for each of the years
ended December 31, 1992 and 1993 was $347,000 and $351,000, respectively. The
Company's contribution to the Old Employee Plan was $1,893,000 for the year
ended December 31, 1991.
The Company also has various incentive compensation plans for officers
and employees. Amounts available for incentive compensation are based on
various financial and operational results. For each of the years ended
December 31, 1991, 1992 and 1993, such incentive compensation amounted to
$243,000, $121,000 and $62,000, respectively.
In connection with the 1992 Restructuring, all existing stock options
and warrants were cancelled and the Company implemented a new Stock Option Plan
(the "Stock Plan") for the benefit of employees and non-employee directors.
The maximum number of shares of Common Stock issuable under the Stock Plan was
300,000 at December 31, 1992 and 633,365 at December 31, 1993. The exercise
price of options granted under the Stock Plan, other than incentive stock
options, must be equal to the market value of the Common Stock at the date of
grant. Options are exercisable in whole or in part over a 10-year period from
the date of grant.
Information as to common shares subject to options is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1992 1993
-------- -------
<S> <C> <C>
Shares outstanding at beginning of year 139,867 173,533
Changes in shares issuable:
Cancelled in conjunction with 1992 Restructuring (139,867) -
Issued 173,533 78,333
-------- -------
Shares outstanding at end of year 173,533 251,866
======== =======
Shares available for grant under option plans
at end of year 126,467 381,499
======== =======
Price range of options outstanding $3.45 2.34
to
4.20
Options exercisable 64,511 189,578
======== =======
</TABLE>
(9) RELATED PARTY TRANSACTIONS
Certain officers and directors are shareholders, partners or
principals of companies or firms which have provided various services to the
Company and its subsidiaries. Aggregate billings to the Company, a portion of
which were billed to other parties, approximated $54,000, $22,000 and $-0-,
respectively, for each of the years ended December 31, 1991, 1992 and 1993.
F-20
<PAGE> 56
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) COMMITMENTS AND CONTINGENCIES
The Company leases equipment and office facilities under
non-cancellable operating leases which expire from 1993 through 2004. The
leases require annual rentals of the following:
(In Thousands)
1994 $ 2,600
1995 1,837
1996 1,384
1997 922
1998 699
Thereafter 3,376
-------
$10,818
=======
Rent expense for each of the years ended December 31, 1991, 1992 and
1993 was $6,877,000, $2,157,000 and $2,611,000, respectively.
A wholly-owned subsidiary of the Company is a defendant, along with
several co-defendants, in a lawsuit involving an explosion of propane which
resulted in the death of one individual and severe injury to another. The
plaintiffs have requested an as yet unspecified amount of damages and punitive
damages against the defendants. The subsidiary's ultimate proportionate share
of any settlement or judgment cannot be determined at this time.
The Company has primary insurance coverage for losses of this type up
to $1 million. The availability of insurance coverage for any amounts in
excess of this amount, however, is uncertain at this time due to questions
regarding the applicability of various other insurance coverages. The Company
has established provisions in the accompanying financial statements for any
liability which can be reasonably estimated and for which it is probable that
the subsidiary will be held ultimately liable.
The Company is subject to other various legal proceedings and claims
which arise in the normal course of business. In the opinion of management,
based in part on consultation with counsel, the amount of ultimate liability
with respect to those actions will not materially affect the Company's
financial position.
(11) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly results of operations for the years ended December 31, 1992
and 1993 are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
------- ------- ------- ------- -------
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1992:
Total revenue from continuing
operations $105,655 90,860 107,842 126,543 430,900
======== ====== ======= ======= =======
Gross profit from continuing
operations $ 3,595 2,884 3,501 655 10,635
======== ====== ======= ======= =======
Loss from continuing operations $ (3,799) (2,340) (3,027) (5,900) (15,066)
======== ====== ======= ======= =======
Net loss $ (3,799) (4,100) (3,027) (12,243) (23,169)
======== ====== ======= ======= =======
Net loss attributable to
common stock $ (3,799) (4,100) (3,027) (12,304) (23,230)
======== ====== ======= ======= =======
Loss per share from
continuing operations $ (1.47) (.91) (1.17) (1.67) (5.35)
======== ====== ======= ======= =======
Loss per share $ (1.47) (1.59) (1.17) (3.45) (8.22)
======== ====== ======= ======= =======
</TABLE>
F-21
<PAGE> 57
HADSON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
------- -------- ------- -------- ---------
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1993:
Total revenue from continuing
operations $132,385 121,407 123,319 146,674 523,785
======== ======= ======= ======= =======
Gross profit (loss) from continuing
operations $ 2,479 2,099 236 (5,627) (813)
======== ======= ======= ======= =======
Loss from continuing operations $ (1,793) (2,494) (939) (10,650) (15,876)
======== ======= ======= ======= =======
Net earnings (loss) $ (1,793) (2,494) 4,742 (10,778) (10,323)
======== ======= ======= ======= =======
Net earnings (loss) attributable to
common stock $ (1,793) (2,494) 4,742 (11,071) (10,616)
======== ======= ======= ======= =======
Loss per share from
continuing operations $ (.22) (.29) (.15) (1.31) (1.93)
======== ======= ======= ======= =======
Earnings (loss) per share $ (.22) (.29) .54 (1.37) (1.27)
======== ======= ======= ======= =======
Weighted average number of shares 8,261 8,485 8,727 8,059 8,383
======== ======= ======= ======= =======
</TABLE>
F-22
<PAGE> 58
Schedule V
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED PROPERTY AND EQUIPMENT
Three Years Ended December 31, 1993
(In Thousands)
<TABLE>
<CAPTION>
Balance at Balance
beginning Additions Retirements at end
Classification of year at cost and sales of year
- ------------- ------- --------- ----------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1991:
Oil and gas properties:
Domestic $ - - - -
Foreign 4,485 - 4,485 -
Natural gas and NGL gathering and
transportation facilities 55,727 5,365 5,280 55,812
Other 8,931 290 16 9,205
------- ------ ----- -------
$69,143 5,655 9,781 65,017
======= ====== ===== =======
Year ended December 31, 1992:
Natural gas and NGL gathering
and transportation facilities $55,812 3,076 2,201 56,687
Other 9,205 308 (95) 9,608
------- ------ ----- -------
$65,017 3,384 2,106 66,295
======= ====== ===== =======
Year ended December 31, 1993:
Natural gas and NGL gathering
and transportation facilities $ 56,687 66,686 1,295 122,078
Other 9,608 3,074 3,194(a) 9,488
------- ------ ----- -------
$66,295 69,760 4,489 131,566
======= ====== ===== =======
</TABLE>
(a) Includes reclassification of property and equipment to current assets of
$2,832.
F-23
<PAGE> 59
Schedule VI
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
Three Years Ended December 31, 1993
(In Thousands)
<TABLE>
<CAPTION>
Balance at Additions Deductions, Balance
beginning charged to retirements at end
Classification of year earnings and sales of year
- -------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1991:
Natural gas and NGL gathering and
transportation facilities $ 17,519 4,313 2,809 19,023
Other 3,803 1,221 145 4,879
------- ------- ------- -------
$ 21,322 5,534 2,954 23,902
======= ======= ======= =======
Year ended December 31, 1992:
Natural gas and NGL gathering
and transportation facilities $ 19,023 3,958 1,093 21,888
Other 4,879 1,502 466 5,915
------- ------- ------- -------
$ 23,902 5,460 1,559 27,803
======= ======= ======= =======
Year ended December 31, 1993:
Natural gas and NGL gathering
and transportation facilities $ 21,888 4,006 1,060 24,834
Other 5,915 1,549 163 7,301
------- ------- ------- -------
$ 27,803 5,555 1,223 32,135
======= ======= ======= =======
</TABLE>
F-24
<PAGE> 60
Schedule VIII
HADSON CORPORATION AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
Three Years Ended December 31, 1993
(In Thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance
beginning charged to at end
of year earnings(a) Deduction of year
----------- ----------- --------- -------
<S> <C> <C> <C> <C>
1991
- ----
Reserves deducted from assets
to which they apply:
Allowance for bad debts $ 821 501 903 419
====== ==== ==== ====
1992
- ----
Reserves deducted from assets
to which they apply:
Allowance for bad debts $ 419 360 494 285
====== ==== ==== ====
1993
- ----
Reserves deducted from assets
to which they apply:
Allowance for bad debts $ 285 925 322 888
====== ==== ==== ====
</TABLE>
(a) Adjustment of reserve to required level.
F-25
<PAGE> 1
Exhibit 10.02
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of
March __, 1994 (the "Effective Date") by and between Hadson Corporation, a
Delaware corporation (the "Company"), and James Ervin Cannon ("Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee in an executive
capacity on the terms and conditions, and for the consideration, hereinafter
set forth for the period provided herein commencing upon the Effective Date,
and Employee desires to be employed by the Company on such terms and conditions
and for such consideration;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, the Company and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 EMPLOYMENT. The Company agrees to employ Employee and
Employee agrees to be employed by the Company, beginning as of the Effective
Date and continuing for the period of time set forth in Article 2 of this
Agreement, on and subject to the terms and conditions of this Agreement.
1.2 POSITIONS AND DUTIES. The Company shall maintain Employee in
the position of Chairman of the Board of the Company, or in such other
positions as the parties hereto mutually may agree. Employee agrees (a) to
serve in the positions referred to in the preceding sentence as well as in such
additional executive officer positions of the Company or any of its affiliates
to which Employee is elected from time to time and (b) to perform diligently
and to the best of his abilities the duties and services appertaining to such
offices as set forth in the bylaws of the Company or such affiliate, as the
case may be, as the same may be amended from time to time, as well as such
additional duties and services which the parties hereto mutually may agree upon
from time to time or, subject to paragraph 2.3(a)(iii) hereof, which the Board
of Directors of the Company (the "Board of Directors") or of such affiliate may
prescribe. Employee shall at all times comply with and be subject to such
policies and procedures as the Company may establish from time to time that are
applicable to executive officers of the Company.
1.3 OTHER ACTIVITIES. During the period of his employment by the
Company, Employee shall devote his primary business time, energy and best
efforts to the business and affairs of the Company and its affiliates and shall
not engage, directly or indirectly, in any other business or businesses,
whether or not similar to that of the Company or its affiliates, except with
the consent of the Board of Directors or except to the extent that the Board of
<PAGE> 2
Directors or such affiliate may prescribe, or induce any employee of the
Company or any affiliate to terminate his or her employment with the Company or
such affiliate except on behalf of the Company or such affiliate. The parties
recognize and agree that Employee may engage in passive personal investments
and other activities that do not conflict with the business and affairs of the
Company or its affiliates or interfere with Employee's performance of his
duties hereunder.
ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT
2.1 TERM. Unless sooner terminated pursuant to other provisions
hereof, the Company shall employ Employee for a term beginning on the Effective
Date and ending on the second anniversary of the Effective Date. Such term may
be extended for successive one-year periods by the mutual written consent of
the Company and Employee executed at least 90 days prior to the anniversary of
the Effective Date on which such term would otherwise terminate.
Notwithstanding the preceding provisions of this paragraph, the term of
Employee's employment hereunder shall terminate upon his death.
2.2 TERMINATION BY THE COMPANY. The Company shall have the right
to terminate Employee's employment under this Agreement at any time prior to
the termination of this Agreement pursuant to paragraph 2.1 hereof for any of
the following reasons and only for the following reasons:
(a) Employee's continuing disability, which for purposes
of this Agreement shall mean Employee's becoming incapacitated by
accident, sickness or other circumstance which renders him mentally or
physically incapable, with reasonable accommodation (within the
meaning of the Americans with Disabilities Act of 1990, as amended),
of performing the essential functions of the duties and services
required of him hereunder for a period of more than 90 consecutive
days during any 12-month period;
(b) for cause, which for purposes of this Agreement shall
mean any of the following, in each case as determined in good faith by
the Board of Directors in its sole discretion: (i) Employee's gross
negligence or willful misconduct in performance of the duties and
services required of him pursuant to this Agreement; (ii) the willful
and continued failure by Employee to follow the reasonable
instructions of the Board of Directors after written notice of such
failure has been given to Employee by the Board of Directors; (iii)
the willful commission by Employee of acts that are dishonest and
demonstrably and materially injurious to the Company, monetarily or
otherwise; or (iv) Employee's final conviction of a felony or of a
misdemeanor involving moral turpitude; or
(c) Employee's material breach of any material provision
of this Agreement which, if correctable, remains uncorrected for 30
days following written notice to Employee by the Company of such
breach;
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<PAGE> 3
provided, however, that (i) if an event described in subparagraph (a) above
shall occur, Employee shall continue to be disabled as of the date of
termination by the Company of Employee's employment hereunder pursuant to such
subparagraph and (ii) if an event described in subparagraph (b) or (c) above
shall occur, the Company shall terminate Employee's employment hereunder within
90 days following, and by reason of, the occurrence of such event.
2.3 TERMINATION BY EMPLOYEE. Employee shall have the right to
terminate his employment under this Agreement at any time prior to the
termination of this Agreement pursuant to paragraph 2.1 hereof for any of the
following reasons and only for the following reasons:
(a) the occurrence, without Employee's express written
consent, of any one or more of the following events which, if
correctable, remains uncorrected for 30 days following written notice
of such occurrence by Employee to the Company: (i) a change in the
eligibility requirements under any bonus, incentive or compensation
plan, program or arrangement under which Employee is covered on the
Effective Date which adversely affects Employee, except as may be
required by law or to maintain the qualified status of any plan,
program or arrangement; (ii) the reduction of Employee's base salary,
as the same may hereafter be increased from time to time; (iii) the
assignment to Employee by the Board of Directors of duties materially
inconsistent with the duties associated with the positions described
in paragraph 1.2 hereof as such duties are constituted as of the
Effective Date (except (A) in connection with the termination of his
employment by the Company pursuant to paragraph 2.2 hereof or (B) as a
result of his disability); (iv) any action by the Company which
results in a material diminution in the position, duties or status of
Employee with the Company as contemplated by this Agreement, except
(A) for strategic reallocations of the personnel reporting to
Employee, (B) in connection with termination of his employment by the
Company pursuant to paragraph 2.2 hereof or (C) as a result of his
disability; or (v) the Company requiring Employee to be permanently
based anywhere other than within 50 miles of Dallas, Texas (Employee
shall not be deemed to be permanently based at any other location by
reason of temporary assignments for reasonable periods of times at
such other location if the Company or any of its subsidiaries or other
affiliates have a special need for Employee's services at such other
location); or
(b) a material breach by the Company of any material
provision of this Agreement which, if correctable, remains uncorrected
for 30 days following written notice by Employee to the Company of
such breach;
provided, however, that Employee shall terminate his employment hereunder
within 90 days following, and by reason of, the occurrence of such event.
2.4 NOTICE OF TERMINATION. If the Company or Employee desires to
terminate Employee's employment hereunder pursuant to paragraph 2.2 or 2.3
hereof, as the case may
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<PAGE> 4
be, it or he shall do so by giving written notice to the other party that it or
he has elected to terminate Employee's employment hereunder and stating the
effective date and reason for such termination, and upon the specified
effective date Employee's employment hereunder shall be so terminated; provided
that no such action shall alter or amend any provision hereof or rights arising
hereunder.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 BASE SALARY. During the term of his employment hereunder,
Employee shall receive a minimum annual base salary determined by the Board of
Directors consistent with its practices for executive officers of the Company,
but not less than $150,000 per year, payable in accordance with the customary
payroll practices of the Company with respect to its executive officers. If
Employee's base annual salary is increased at any time during the term of this
Agreement, it shall not thereafter be decreased during the term of this
Agreement.
3.2 BONUSES; INCENTIVE COMPENSATION PROGRAMS. (a) During the term
of his employment hereunder, Employee shall be entitled to participate in the
Company's Incentive Compensation Plan (the "Incentive Compensation Plan"). The
Company hereby agrees that Employee's ICP Level (as defined in such plan) shall
be 50%. Any bonus payable to Employee under the Incentive Compensation Plan
shall be paid to Employee in the calendar year following the calendar year in
which such amount would otherwise be paid pursuant to such plan, with interest
on such deferred amount, from the date such amount became payable until the
date such amount is paid, at a rate per annum equal to the rate established
from time to time by Bank of Montreal as its prime rate. Employee's right to
receive any such deferred amount shall not be subject to voluntary or
involuntary assignment, alienation or transfer by Employee. The Company's
obligation to pay any such deferred amount shall be unfunded and Employee's
right to receive any such amount shall be unsecured.
(b) The Company hereby represents to Employee, and Employee hereby
acknowledges, that the Compensation Committee of the Board of Directors has
granted to Employee, effective as of the Effective Date and pursuant to the
Company's 1992 Equity Incentive Plan as amended and restated as of March 9,
1994, an option to purchase 150,000 shares of the common stock, par value $.01
per share, of the Company ("Common Stock") at a per share exercise price equal
to the Fair Market Value (as defined in such plan) of one share of Common Stock
on the Effective Date and upon and subject to the terms and conditions set
forth in the form of Option Agreement attached hereto as Exhibit A, which grant
is subject to (i) the execution by Employee and the Company of this Agreement,
(ii) the execution by Employee of such Option Agreement and (iii) the approval
by the holders of the Common Stock of such plan. Employee further acknowledges
that the grant of additional awards to him, if any, under such plan shall be at
the sole discretion of such Committee.
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<PAGE> 5
3.3 VACATION AND SICK LEAVE, CLUB MEMBERSHIPS, ETC. During each
year of his employment hereunder:
(a) Employee shall be entitled to (i) four weeks of vacation at
full pay and (ii) sick leave, at full pay, equal to the maximum sick leave
available to any executive officer of the Company, in each case without regard
to the period of service that might otherwise be necessary to entitle Employee
to such vacation or sick leave under standard Company policy applicable to its
executive officers.
(b) The Company shall pay or reimburse Employee for the payment of
all fees and dues required to be paid by Employee with respect to Employee's
membership in any one business, luncheon, athletic or country club of
Employee's choosing.
(c) The Company shall pay or reimburse Employee for the payment of
the cost of an annual physical examination to be conducted by a doctor of
Employee's choosing, to the extent that such cost is not payable or
reimbursable to Employee under any health insurance plan maintained by the
Company.
3.4 OTHER COMPANY BENEFITS. During his employment hereunder,
Employee and, to the extent applicable, Employee's family, dependents and
beneficiaries, shall be allowed to participate in all employee benefit plans
and programs (including, without limitation, profit sharing, thrift, medical,
health and dental care, life insurance, disability insurance and pension plans,
but excluding any incentive compensation plans and programs other than those
referred to in paragraph 3.2 hereof), including improvements or modifications
of the same, available to similarly-situated Company employees on or after the
Effective Date, except for such benefit plans and programs which the Board of
Directors, in its sole discretion, shall adopt for select employees to
compensate them for special or extenuating circumstances.
3.5 OBLIGATIONS OF THE COMPANY REGARDING BENEFIT PLANS. The
Company shall not by reason of this Article 3 be obligated to institute,
maintain or refrain from changing, amending or discontinuing any incentive
compensation or employee benefit plan or program, so long as such actions are
applicable to covered executive officers of the Company generally. Except to
the extent specifically set forth in this Article 3 or in Article 4 hereof,
nothing in this Agreement is to be construed or interpreted to provide Employee
greater rights, participation, coverage or benefits under such benefit plans or
programs than provided to similarly situated employees pursuant to the terms
and conditions of such benefit plans and programs. Moreover, unless
specifically provided for in a written plan document adopted by the Board of
Directors, none of the benefits or arrangements described in this Article 3 or
in Article 4 hereof shall be secured or funded in any way, and each shall
instead constitute an unfunded and unsecured promise to pay money in the future
exclusively from the general assets of the Company.
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<PAGE> 6
ARTICLE 4: EFFECT OF TERMINATION ON COMPENSATION
4.1 BY EXPIRATION. Upon the termination of Employee's employment
hereunder pursuant to paragraph 2.1 hereof, all compensation and all benefits
to Employee hereunder shall cease and terminate as of the date of such
termination, except that all health and dental benefits available to Employee
under the Company's group health and dental plans as of the date of such
termination shall continue to be made available to Employee for a period of
three years following such termination. In the event of such termination,
Employee shall be entitled to receive his base salary through the date of such
termination, together with the full amount of any bonus that would have been
payable to him for the year in which such termination occurred pursuant to the
Incentive Compensation Plan had he been employed by the Company at the end of
such year.
4.2 PRIOR TO EXPIRATION. (a) If Employee's employment hereunder
shall be terminated (i) by the Company pursuant to paragraph 2.2 hereof or (ii)
by Employee in breach of this Agreement, all compensation and all benefits to
Employee hereunder shall cease and terminate contemporaneously with such
termination of employment. Employee shall be entitled to receive his base
salary through the date of such termination, but shall not be entitled to any
bonus not yet paid under the Incentive Compensation Plan at the date of such
termination.
(b) If Employee's employment hereunder is terminated (i) by the
Company in breach of this Agreement or (ii) by Employee pursuant to paragraph
2.3 hereof, then (A) all compensation and all benefits to Employee hereunder
shall cease and terminate contemporaneously with such termination of
employment, except that all health and dental benefits available to Employee
under the Company's group health and dental plans as of the date of such
termination shall continue to be made available to Employee for a period of
three years following such termination, (B) Employee shall be entitled to
receive his base salary through the date of such termination, together with the
full amount of any bonus that would have been payable to him for the year in
which such termination occurred pursuant to the Incentive Compensation Plan had
he been employed by the Company at the end of such year, and (C) Employee shall
be entitled to be paid a severance payment equal to two times the total of (x)
the amount of his highest annual base salary plus (y) the amount of his highest
annual bonus during the term of this Agreement. For purposes of the preceding
clause (C), if no greater bonus has been paid to Employee during the term of
this Agreement, then the highest annual bonus shall be deemed to be an amount
equal to the maximum bonus available for payment to any employee of the Company
during the term of this Agreement under the Incentive Compensation Plan.
(c) As a condition to the receipt of any payment under paragraph
4.2(b) hereof, Employee shall first execute a release, in the form established
by the Company, releasing and forever discharging the Company and its
affiliates and the officers, directors, employees and agents of the Company and
its affiliates from any and all claims and from any and all causes of action of
any kind or character, including but not limited to all claims or causes of
action arising out of Employee's employment with the Company (or any of its
affiliates)
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<PAGE> 7
or the termination of such employment. If Employee is entitled to and receives
the payments provided under paragraph 4.2(b) hereof, performance of the
obligations of the Company thereunder will constitute full settlement of all
claims that Employee might otherwise assert against the Company or its
affiliates on account of the termination of the employment relationship.
4.3 DATE OF PAYMENTS. Except as otherwise agreed to by the
parties hereto, any payment payable to Employee under paragraph 4.2(a) or
4.2(b) hereof (other than with respect to any health or dental benefits
referred to in such paragraphs) shall be paid within 30 days after the date of
termination of Employee's employment hereunder, provided that the payment of
the bonus referred to in paragraph 4.1 hereof and in clause (B) of paragraph
4.2(b) hereof shall be paid as provided in paragraph 3.2(a) hereof.
4.4 EFFECT OF TERMINATION ON COMPANY PLANS AND PROGRAMS. Except
to the extent specifically provided in this Article 4, the provisions of this
Article 4 shall not affect any rights or obligations of the Company or Employee
under any employee benefit plan or program. Notwithstanding the foregoing,
Employee shall not be entitled to any payment that would otherwise be payable
to him under any severance plan or policy of the Company in connection with the
termination of his employment hereunder.
4.5 LIMITATION ON CHANGE OF CONTROL ACTIONS. Notwithstanding the
provisions of Article 3 hereof and the preceding provisions of this Article 4,
any and all payments (including any benefit or transfer of property) in the
nature of compensation to or for the benefit of Employee under any arrangement
which is deemed to be contingent on a change of control for purposes of section
280G of the Internal Revenue Code ("change in control actions") shall be
collectively subject to an overall maximum limit. Such maximum limit shall be
$1.00 less than the largest amount under which no portion of the "change of
control actions" is considered a "parachute payment," within the meaning of
section 280G of the Internal Revenue Code (taking into account all of the
limitations, exceptions and exemptions contained therein). Accordingly, to the
extent that the change of control actions would be considered a parachute
payment, then the portions of such change of control actions shall be reduced
or eliminated in the following order until the remaining change of control
actions with respect to Employee is $1.00 less than the maximum allowable which
would not be considered a parachute payment under the Internal Revenue Code:
(a) first, any cash payment to Employee; and
(b) second, any change of control actions not described in
clause (a) of this paragraph 4.5.
As used in this paragraph 4.5, the term "arrangement" includes any agreement
between Employee and the Company or any affiliate of the Company and any and
all of the Company's and any affiliate's salary, bonus, incentive, compensation
or benefit plans, programs or arrangements, and shall include this Agreement.
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<PAGE> 8
4.6 NO DUTY TO MITIGATE LOSSES. Employee shall have no duty to
find new employment following the termination of his employment (a) by Employee
pursuant to paragraph 2.3 hereof or (b) by the Company in breach of this
Agreement. Any salary, remuneration or other amounts received by Employee from
a third party for the providing of personal services (whether by employment or
by functioning as an independent contractor) or which might have been received
by Employee had he sought to provide such services to a third party shall not
reduce the Company's obligation to make any payments to Employee pursuant to
paragraph 4.2(b) hereof or the amount of such payments.
ARTICLE 5: CONFIDENTIAL INFORMATION
5.1 COMPANY INFORMATION. Employee acknowledges that the Company's
business is highly competitive and that the Company's books, records and
documents, the Company's technical information concerning its products,
equipment, services and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning the Company's customers and business associates and other
proprietary information, including, but not limited to, systems, procedures,
manuals and data as well as financial information concerning the Company's
products and services (including the revenues, costs or profits associated with
any such products and services), information with respect to the nature and
type of the Company's products and services, the equipment and methods used and
preferred by the Company's customers and the fees paid by such customers, all
comprise confidential business information and trade secrets of the Company
which are valuable, special and unique assets of the Company, which the Company
uses in its business to obtain a competitive advantage over the Company's
competitors which do not know or use this information. Employee further
acknowledges that protection of the Company's confidential business information
and trade secrets against unauthorized disclosure and use is of critical
importance to the Company in maintaining its competitive position.
Accordingly, Employee hereby agrees that he will not, at any time during, and
continuing until the second anniversary of the termination of, his employment
hereunder make or permit any unauthorized disclosure of any confidential
business information or trade secrets of the Company, or make or permit any use
thereof, except for the benefit of, and on behalf of, the Company. For the
purposes of this Article 5, the term "the Company" shall also include
affiliates of the Company.
5.2 THIRD PARTY INFORMATION. Employee acknowledges that, as a
result of his employment by the Company, he may from time to time have access
to, or knowledge of, confidential business information or trade secrets of
third parties, such as customers, suppliers, partners, joint venturers and the
like, of the Company. Employee agrees to preserve and protect the
confidentiality of such third party confidential information and trade secrets
to the same extent, and on the same basis, as confidential business information
and trade secrets of the Company.
5.3 RETURN OF DOCUMENTS. All written or magnetic materials,
records and other documents made by, or coming into the possession of, Employee
during the period of his
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<PAGE> 9
employment by the Company which contain or disclose the Company confidential
business information or trade secrets shall be and remain the property of the
Company. Upon termination of Employee's employment hereunder for any reason or
upon the request of the Company at any time, Employee promptly shall deliver
the same, and all copies thereof, to the Company (for purposes of this
sentence, the term "the Company" shall not include affiliates of the Company).
5.4 INJUNCTIVE RELIEF. Without intending to limit the remedies
available to the Company and notwithstanding the provisions of paragraph 6.1
hereof, Employee acknowledges that a breach of any of the provisions of this
Article 5 would likely result in material irreparable injury to the Company
which would not, in whole or in part, be compensable in money damages and for
which the Company would have no adequate remedy at law. Accordingly, Employee
agrees that, in the event of such a breach or threat thereof, the Company shall
be entitled to obtain a temporary restraining order and/or a preliminary or
permanent injunction restraining Employee from engaging in activities
prohibited by this Article 5 or such other relief as may be available to
specifically enforce any of the provisions of this Article 5.
ARTICLE 6: MISCELLANEOUS
6.1 ARBITRATION. Subject to the provisions of paragraph 5.4
hereof, any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Dallas County, Texas
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Each party hereto shall bear his or its own costs of
arbitration, but if Employee is the prevailing party in such arbitration, he
shall be entitled to recover from the Company as part of any award entered his
reasonable expenses for attorneys' fees and disbursements.
6.2 WITHHOLDING. The Company may withhold from any compensation,
benefits or amounts payable under this Agreement all federal, state, city or
other taxes as may be required pursuant to any law or governmental regulation
or ruling.
6.3 NOTICES. For purposes of this Agreement, all notices and
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Company, to: Hadson Corporation
2777 Stemmons Freeway, Suite 700
Dallas, Texas 75207
Attention: President
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<PAGE> 10
If to Employee, to: James Ervin Cannon
2777 Stemmons Freeway, Suite 700
Dallas, Texas 75207
or to such other address as either such party may furnish to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
6.4 APPLICABLE LAW. This Agreement is entered into under, and
shall be governed by, and construed and interpreted in accordance with, the
laws of the State of Texas.
6.5 NO WAIVER. No failure by either party hereto at any time to
give notice of any breach by the other party of, or to require compliance with,
any condition or provision of this Agreement shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
6.6 SEVERABILITY. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
6.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
6.8 HEADINGS. The paragraph headings in this Agreement have been
inserted for purposes of convenience and shall not be used for interpretive
purposes.
6.9 AFFILIATE. As used in this Agreement, "affiliate" shall mean
any entity which, directly or indirectly, owns or controls, is owned or
controlled by, or is under common ownership or control with, the Company.
6.10 ASSIGNMENT. The rights and obligations of Employee hereunder
are personal and no right, benefit or obligation of Employee hereunder shall be
subject to voluntary or involuntary assignment, alienation or transfer, whether
by operation of law or otherwise, without the prior written consent of the
Company. Subject to the provisions of the preceding sentence, this Agreement
shall be binding upon, and inure to the benefit of, the parties hereto and
their respective heirs, administrators, executors, successors and assigns.
6.11 TERM. This Agreement has a term co-extensive with the term of
employment specified in paragraph 2.1 hereof, provided that (a) except as
otherwise provided herein, termination shall not affect any right or obligation
of any party which is accrued or vested prior to or upon such termination and
(b) the provisions of Article 5 hereof shall survive the termination of this
Agreement.
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<PAGE> 11
6.12 ENTIRE AGREEMENT. Except as provided in (a) written policies
and procedures promulgated by the Company that are applicable to executive
officers of the Company, (b) the written benefit plans and programs referenced
in Article 3 hereof or (c) any signed written agreements hereafter executed by
the Company and Employee, this Agreement constitutes the entire agreement of
the parties with regard to such subject matters, and contains all of the
covenants, promises, representations, warranties and agreements between the
parties with respect to such subject matters and replaces and merges previous
agreements and discussions pertaining to the employment relationship between
the Company and Employee. Any modification or waiver of any provision of this
Agreement will be effective only if it is in writing and signed by both of the
parties hereto.
IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement effective as of the Effective Date.
HADSON CORPORATION
By:
Name:
Title:
James Ervin Cannon
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<PAGE> 1
Exhibit 10.03
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made effective as of
March ___, 1994 (the "Effective Date") by and between Hadson Corporation, a
Delaware corporation (the "Company"), and Greg G. Jenkins ("Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ Employee in an executive
capacity on the terms and conditions, and for the consideration, hereinafter
set forth for the period provided herein commencing upon the Effective Date,
and Employee desires to be employed by the Company on such terms and conditions
and for such consideration;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, the Company and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 EMPLOYMENT. The Company agrees to employ Employee and
Employee agrees to be employed by the Company, beginning as of the Effective
Date and continuing for the period of time set forth in Article 2 of this
Agreement, on and subject to the terms and conditions of this Agreement.
1.2 POSITIONS AND DUTIES. The Company shall maintain Employee in
the positions of President and Chief Operating Officer of the Company, or in
such other positions as the parties hereto mutually may agree. Employee agrees
(a) to serve in the positions referred to in the preceding sentence as well as
in such additional executive officer positions of the Company or any of its
affiliates to which Employee is elected from time to time and (b) to perform
diligently and to the best of his abilities the duties and services
appertaining to such offices as set forth in the bylaws of the Company or such
affiliate, as the case may be, as the same may be amended from time to time, as
well as such additional duties and services which the parties hereto mutually
may agree upon from time to time or, subject to paragraph 2.3(a)(iii) hereof,
which the Board of Directors of the Company (the "Board of Directors") or of
such affiliate may prescribe. Employee shall at all times comply with and be
subject to such policies and procedures as the Company may establish from time
to time that are applicable to executive officers of the Company.
1.3 OTHER ACTIVITIES. During the period of his employment by the
Company, Employee shall devote his primary business time, energy and best
efforts to the business and affairs of the Company and its affiliates and shall
not engage, directly or indirectly, in any other business or businesses,
whether or not similar to that of the Company or its affiliates, except with
the consent of the Board of Directors or except to the extent that the Board of
<PAGE> 2
Directors or such affiliate may prescribe, or induce any employee of the
Company or any affiliate to terminate his or her employment with the Company or
such affiliate except on behalf of the Company or such affiliate. The parties
recognize and agree that Employee may engage in passive personal investments
and other activities that do not conflict with the business and affairs of the
Company or its affiliates or interfere with Employee's performance of his
duties hereunder.
ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT
2.1 TERM. Unless sooner terminated pursuant to other provisions
hereof, the Company shall employ Employee for a term beginning on the Effective
Date and ending on the second anniversary of the Effective Date. On each
anniversary of the Effective Date, commencing with the second anniversary of
the Effective Date, the term of this Agreement shall be extended automatically
for successive one-year periods unless on or prior to the September 30
immediately preceding the last day of any such one-year period either the
Compensation Committee of the Board of Directors, on behalf of the Company, or
Employee shall give written notice to the other that no such automatic
extension shall occur, in which event this Agreement shall terminate on the
last day of such one-year period. Unless such notice shall specify that
Employee's employment with the Company shall terminate on the date of such
termination of this Agreement, the employment relationship between the Company
and Employee shall continue at-will following such termination.
Notwithstanding the preceding provisions of this paragraph, the term of
Employee's employment hereunder shall terminate upon his death.
2.2 TERMINATION BY THE COMPANY. The Company shall have the right
to terminate Employee's employment under this Agreement at any time prior to
the termination of this Agreement pursuant to paragraph 2.1 hereof for any of
the following reasons and only for the following reasons:
(a) Employee's continuing disability, which for purposes
of this Agreement shall mean Employee's becoming incapacitated by
accident, sickness or other circumstance which renders him mentally or
physically incapable, with reasonable accommodation (within the
meaning of the Americans with Disabilities Act of 1990, as amended),
of performing the essential functions of the duties and services
required of him hereunder for a period of more than 90 consecutive
days during any 12-month period;
(b) for cause, which for purposes of this Agreement shall
mean any of the following, in each case as determined in good faith by
the Board of Directors in its sole discretion: (i) Employee's gross
negligence or willful misconduct in performance of the duties and
services required of him pursuant to this Agreement; (ii) the willful
and continued failure by Employee to follow the reasonable
instructions of the Board of Directors after written notice of such
failure has been given to Employee by the Board of Directors; (iii)
the willful commission by Employee of acts that are
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<PAGE> 3
dishonest and demonstrably and materially injurious to the Company,
monetarily or otherwise; or (iv) Employee's final conviction of a
felony or of a misdemeanor involving moral turpitude; or
(c) Employee's material breach of any material provision
of this Agreement which, if correctable, remains uncorrected for 30
days following written notice to Employee by the Company of such
breach;
provided, however, that (i) if an event described in subparagraph (a) above
shall occur, Employee shall continue to be disabled as of the date of
termination by the Company of Employee's employment hereunder pursuant to such
subparagraph and (ii) if an event described in subparagraph (b) or (c) above
shall occur, the Company shall terminate Employee's employment hereunder within
90 days following, and by reason of, the occurrence of such event.
2.3 TERMINATION BY EMPLOYEE. Employee shall have the right to
terminate his employment under this Agreement at any time prior to the
termination of this Agreement pursuant to paragraph 2.1 hereof for any of the
following reasons and only for the following reasons:
(a) the occurrence, without Employee's express written
consent, of any one or more of the following events which, if
correctable, remains uncorrected for 30 days following written notice
of such occurrence by Employee to the Company: (i) a change in the
eligibility requirements under any bonus, incentive or compensation
plan, program or arrangement under which Employee is covered on the
day immediately preceding the Effective Date which adversely affects
Employee, except as may be required by law or to maintain the
qualified status of any plan, program or arrangement; (ii) the
reduction of Employee's base salary, as the same may hereafter be
increased from time to time; (iii) the assignment to Employee by the
Board of Directors of duties materially inconsistent with the duties
associated with the positions described in paragraph 1.2 hereof as
such duties are constituted as of the day immediately preceding the
Effective Date (except (A) in connection with the termination of his
employment by the Company pursuant to paragraph 2.2 hereof or (B) as a
result of his disability); (iv) any action by the Company which
results in a material diminution in the position, duties or status of
Employee with the Company as contemplated by this Agreement, except
(A) for strategic reallocations of the personnel reporting to
Employee, (B) in connection with termination of his employment by the
Company pursuant to paragraph 2.2 hereof or (C) as a result of his
disability; or (v) the Company requiring Employee to be permanently
based anywhere other than within 50 miles of Dallas, Texas (Employee
shall not be deemed to be permanently based at any other location by
reason of temporary assignments for reasonable periods of times at
such other location if the Company or any of its subsidiaries or other
affiliates have a special need for Employee's services at such other
location); or
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(b) a material breach by the Company of any material
provision of this Agreement which, if correctable, remains uncorrected
for 30 days following written notice by Employee to the Company of
such breach;
provided, however, that if an event described in subparagraph (a) or (b) above
shall occur, Employee shall terminate his employment hereunder within 90 days
following, and by reason of, the occurrence of such event.
2.4 NOTICE OF TERMINATION. If the Company or Employee desires to
terminate Employee's employment hereunder pursuant to paragraph 2.2 or 2.3
hereof, as the case may be, it or he shall do so by giving written notice to
the other party that it or he has elected to terminate Employee's employment
hereunder and stating the effective date and reason for such termination, and
upon the specified effective date Employee's employment hereunder shall be so
terminated; provided that no such action shall alter or amend any provision
hereof or rights arising hereunder.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 BASE SALARY. During the term of his employment hereunder,
Employee shall receive a minimum annual base salary determined by the Board of
Directors consistent with its practices for executive officers of the Company,
but not less than $170,000 per year, payable in accordance with the customary
payroll practices of the Company with respect to its executive officers. If
Employee's base annual salary is increased at any time during the term of this
Agreement, it shall not thereafter be decreased during the term of this
Agreement.
3.2 BONUSES; INCENTIVE COMPENSATION PROGRAMS. During the term of
his employment hereunder, Employee (a) shall be paid such bonuses, if any, as
shall be determined by the Board of Directors consistent with its practices for
executive officers of the Company and (b) shall be entitled to participate, on
a basis commensurate with his positions with the Company, in all employee
incentive compensation programs maintained by the Company on or after the
Effective Date which are generally made available to executive officers of the
Company. If Employee is awarded any stock option or restricted stock grant
under the Company's Equity Incentive Plan during the term of this Agreement,
the agreement covering each such award shall provide that if Employee's
employment hereunder is terminated either by the Company in breach of this
Agreement or by Employee pursuant to paragraph 2.3 hereof, then all stock
options subject to such agreement shall become immediately exercisable in full
and all restrictions on all shares of restricted stock subject to such
agreement shall immediately lapse.
3.3 VACATION AND SICK LEAVE. During each year of his employment
hereunder, Employee shall be entitled to vacation and sick leave, at full pay,
equal to the maximum available to any executive officer of the Company, without
regard to the period of service
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that might otherwise be necessary to entitle Employee to such vacation or sick
leave under standard Company policy applicable to its executive officers.
3.4 OTHER COMPANY BENEFITS. During his employment hereunder,
Employee and, to the extent applicable, Employee's family, dependents and
beneficiaries, shall be allowed to participate in all employee benefit plans
and programs (including, without limitation, profit sharing, thrift, medical,
health and dental care, life insurance, disability insurance and pension
plans), including improvements or modifications of the same, available to
similarly-situated Company employees on or after the Effective Date, except for
such benefit plans and programs which the Board of Directors, in its sole
discretion, shall adopt for select employees to compensate them for special or
extenuating circumstances.
3.5 OBLIGATIONS OF THE COMPANY REGARDING BENEFIT PLANS. The
Company shall not by reason of this Article 3 be obligated to institute,
maintain or refrain from changing, amending or discontinuing any incentive
compensation or employee benefit plan or program, so long as such actions are
applicable to covered executive officers of the Company generally. Except to
the extent specifically set forth in this Article 3, nothing in this Agreement
is to be construed or interpreted to provide Employee greater rights,
participation, coverage or benefits under such benefit plans or programs than
provided to similarly situated employees pursuant to the terms and conditions
of such benefit plans and programs. Moreover, unless specifically provided for
in a written plan document adopted by the Board of Directors, none of the
benefits or arrangements described in this Article 3 or in Article 4 hereof
shall be secured or funded in any way, and each shall instead constitute an
unfunded and unsecured promise to pay money in the future exclusively from the
general assets of the Company.
ARTICLE 4: EFFECT OF TERMINATION ON COMPENSATION
4.1 BY EXPIRATION. Upon the termination of this Agreement
pursuant to paragraph 2.1 hereof, all compensation and all benefits to Employee
hereunder shall cease and terminate as of the date of such termination. In
such event, Employee shall be entitled to receive his base salary through the
date of such termination, together with a pro rata payment of any individual
bonuses or incentive compensation earned or accrued but not yet paid.
4.2 PRIOR TO EXPIRATION. (a) If Employee's employment hereunder
shall be terminated (i) by the Company pursuant to paragraph 2.2 hereof or (ii)
by Employee in breach of this Agreement, all compensation and all benefits to
Employee hereunder shall cease and terminate contemporaneously with such
termination of employment. Employee shall be entitled to receive his base
salary through the date of such termination, but shall not be entitled to any
individual bonuses or incentive compensation not yet paid at the date of such
termination.
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(b) If Employee's employment hereunder is terminated (i) by the
Company in breach of this Agreement or (ii) by Employee pursuant to paragraph
2.3 hereof, then (A) all compensation and all benefits to Employee hereunder
shall cease and terminate contemporaneously with such termination of
employment, (B) Employee shall be entitled to receive his base salary through
the date of such termination, together with the full amount of any individual
bonuses or incentive compensation that would have been payable to him for the
year in which such termination occurred pursuant to the terms of the applicable
bonus or incentive compensation plan had he been employed by the Company at the
end of such year, and (C) Employee shall be entitled to be paid a severance
payment equal to two times the total of (x) the amount of his highest annual
base salary plus (y) the amount of his highest annual bonus during the term of
this Agreement. For purposes of the preceding clause (C), if no greater bonus
has been paid to Employee during the term of this Agreement, then the highest
annual bonus shall be deemed to be an amount equal to the maximum bonus
available for payment to any employee of the Company during the term of this
Agreement under the Company's Incentive Compensation Plan.
(c) As a condition to the receipt of any payment under paragraph
4.2(b) hereof, Employee shall first execute a release, in the form established
by the Company, releasing and forever discharging the Company and its
affiliates and the officers, directors, employees and agents of the Company and
its affiliates from any and all claims and from any and all causes of action of
any kind or character, including but not limited to all claims or causes of
action arising out of Employee's employment with the Company (or any of its
affiliates) or the termination of such employment. If Employee is entitled to
and receives the payments provided under paragraph 4.2(b) hereof, performance
of the obligations of the Company thereunder will constitute full settlement of
all claims that Employee might otherwise assert against the Company or its
affiliates on account of the termination of the employment relationship.
4.3 DATE OF PAYMENTS. Any payment payable to Employee under
paragraph 4.2(a) or 4.2(b) hereof shall be paid within 30 days after the date
of termination of Employee's employment hereunder or at such other date as the
parties hereto agree.
4.4 EFFECT OF TERMINATION ON COMPANY PLANS AND PROGRAMS. Except
to the extent specifically provided in this Article 4, the provisions of this
Article 4 shall not affect any rights or obligations of the Company or Employee
under any employee benefit plan or program. Notwithstanding the foregoing,
Employee shall not be entitled to any payment that would otherwise be payable
to him under any severance plan or policy of the Company in connection with the
termination of his employment hereunder.
4.5 LIMITATION ON CHANGE OF CONTROL ACTIONS. Notwithstanding the
provisions of Article 3 hereof and the preceding provisions of this Article 4,
any and all payments (including any benefit or transfer of property) in the
nature of compensation to or for the benefit of Employee under any arrangement
which is deemed to be contingent on a change of control for purposes of section
280G of the Internal Revenue Code ("change in control actions") shall be
collectively subject to an overall maximum limit. Such maximum limit
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shall be $1.00 less than the largest amount under which no portion of the
"change of control actions" is considered a "parachute payment," within the
meaning of section 280G of the Internal Revenue Code (taking into account all
of the limitations, exceptions and exemptions contained therein). Accordingly,
to the extent that the change of control actions would be considered a
parachute payment, then the portions of such change of control actions shall be
reduced or eliminated in the following order until the remaining change of
control actions with respect to Employee is $1.00 less than the maximum
allowable which would not be considered a parachute payment under the Internal
Revenue Code:
(a) first, any cash payment to Employee; and
(b) second, any change of control actions not described in
clause (a) of this paragraph 4.5.
As used in this paragraph 4.5, the term "arrangement" includes any agreement
between Employee and the Company or any affiliate of the Company and any and
all of the Company's and any affiliate's salary, bonus, incentive, compensation
or benefit plans, programs or arrangements, and shall include this Agreement.
4.6 NO DUTY TO MITIGATE LOSSES. Employee shall have no duty to
find new employment following the termination of his employment (a) by Employee
pursuant to paragraph 2.3 hereof or (b) by the Company in breach of this
Agreement. Any salary, remuneration or other amounts received by Employee from
a third party for the providing of personal services (whether by employment or
by functioning as an independent contractor) or which might have been received
by Employee had he sought to provide such services to a third party shall not
reduce the Company's obligation to make any payments to Employee pursuant to
paragraph 4.2(b) hereof or the amount of such payments.
ARTICLE 5: CONFIDENTIAL INFORMATION
5.1 COMPANY INFORMATION. Employee acknowledges that the Company's
business is highly competitive and that the Company's books, records and
documents, the Company's technical information concerning its products,
equipment, services and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning the Company's customers and business associates and other
proprietary information, including, but not limited to, systems, procedures,
manuals and data as well as financial information concerning the Company's
products and services (including the revenues, costs or profits associated with
any such products and services), information with respect to the nature and
type of the Company's products and services, the equipment and methods used and
preferred by the Company's customers and the fees paid by such customers, all
comprise confidential business information and trade secrets of the Company
which are valuable, special and unique assets of the Company, which the Company
uses in its business to obtain a competitive advantage over the Company's
competitors which do not know or use this information. Employee further
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acknowledges that protection of the Company's confidential business information
and trade secrets against unauthorized disclosure and use is of critical
importance to the Company in maintaining its competitive position.
Accordingly, Employee hereby agrees that he will not, at any time during, and
continuing until the second anniversary of the termination of, his employment
hereunder make or permit any unauthorized disclosure of any confidential
business information or trade secrets of the Company, or make or permit any use
thereof, except for the benefit of, and on behalf of, the Company. For the
purposes of this Article 5, the term "the Company" shall also include
affiliates of the Company.
5.2 THIRD PARTY INFORMATION. Employee acknowledges that, as a
result of his employment by the Company, he may from time to time have access
to, or knowledge of, confidential business information or trade secrets of
third parties, such as customers, suppliers, partners, joint venturers and the
like, of the Company. Employee agrees to preserve and protect the
confidentiality of such third party confidential information and trade secrets
to the same extent, and on the same basis, as confidential business information
and trade secrets of the Company.
5.3 RETURN OF DOCUMENTS. All written or magnetic materials,
records and other documents made by, or coming into the possession of, Employee
during the period of his employment by the Company (whether before, on or after
the Effective Date) which contain or disclose the Company confidential business
information or trade secrets shall be and remain the property of the Company.
Upon termination of Employee's employment hereunder for any reason or upon the
request of the Company at any time, Employee promptly shall deliver the same,
and all copies thereof, to the Company (for purposes of this sentence, the term
"the Company" shall not include affiliates of the Company).
5.4 INJUNCTIVE RELIEF. Without intending to limit the remedies
available to the Company and notwithstanding the provisions of paragraph 6.1
hereof, Employee acknowledges that a breach of any of the provisions of this
Article 5 would likely result in material irreparable injury to the Company
which would not, in whole or in part, be compensable in money damages and for
which the Company would have no adequate remedy at law. Accordingly, Employee
agrees that, in the event of such a breach or threat thereof, the Company shall
be entitled to obtain a temporary restraining order and/or a preliminary or
permanent injunction restraining Employee from engaging in activities
prohibited by this Article 5 or such other relief as may be available to
specifically enforce any of the provisions of this Article 5.
ARTICLE 6: MISCELLANEOUS
6.1 ARBITRATION. Subject to the provisions of paragraph 5.4
hereof, any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Dallas County, Texas
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Each party hereto shall bear his or its
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<PAGE> 9
own costs of arbitration, but if Employee is the prevailing party in such
arbitration, he shall be entitled to recover from the Company as part of any
award entered his reasonable expenses for attorneys' fees and disbursements.
6.2 WITHHOLDING. The Company may withhold from any compensation,
benefits or amounts payable under this Agreement all federal, state, city or
other taxes as may be required pursuant to any law or governmental regulation
or ruling.
6.3 NOTICES. For purposes of this Agreement, all notices and
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Company, to: Hadson Corporation
600 E. John Carpenter Freeway
Suite 201
Irving, Texas 75062-3977
Attention: President
If to Employee, to: Greg G. Jenkins
600 E. John Carpenter Freeway
Suite 201
Irving, Texas 75062-3977
or to such other address as either such party may furnish to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
6.4 APPLICABLE LAW. This Agreement is entered into under, and
shall be governed by, and construed and interpreted in accordance with, the
laws of the State of Texas.
6.5 NO WAIVER. No failure by either party hereto at any time to
give notice of any breach by the other party of, or to require compliance with,
any condition or provision of this Agreement shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
6.6 SEVERABILITY. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
6.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
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6.8 HEADINGS. The paragraph headings in this Agreement have been
inserted for purposes of convenience and shall not be used for interpretive
purposes.
6.9 AFFILIATE. As used in this Agreement, "affiliate" shall mean
any entity which, directly or indirectly, owns or controls, is owned or
controlled by, or is under common ownership or control with, the Company.
6.10 ASSIGNMENT. The rights and obligations of Employee hereunder
are personal and no right, benefit or obligation of Employee hereunder shall be
subject to voluntary or involuntary assignment, alienation or transfer, whether
by operation of law or otherwise, without the prior written consent of the
Company. Subject to the provisions of the preceding sentence, this Agreement
shall be binding upon, and inure to the benefit of, the parties hereto and
their respective heirs, administrators, executors, successors and assigns.
6.11 TERM. This Agreement has a term co-extensive with the term of
employment specified in paragraph 2.1 hereof (without giving effect to the
third sentence thereof), provided that (a) except as otherwise provided herein,
termination shall not affect any right or obligation of any party which is
accrued or vested prior to or upon such termination and (b) the provisions of
Article 5 hereof shall survive the termination of this Agreement.
6.12 ENTIRE AGREEMENT. Except as provided in (a) written policies
and procedures promulgated by the Company that are applicable to executive
officers of the Company, (b) the written benefit plans and programs referenced
in Article 3 hereof or (c) any signed written agreements hereafter executed by
the Company and Employee, this Agreement constitutes the entire agreement of
the parties with regard to such subject matters, and contains all of the
covenants, promises, representations, warranties and agreements between the
parties with respect to such subject matters and replaces and merges previous
agreements and discussions pertaining to the employment relationship between
the Company and Employee. Any modification or waiver of any provision of this
Agreement will be effective only if it is in writing and signed by both of the
parties hereto.
IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement effective as of the Effective Date.
HADSON CORPORATION
By:
Robert P. Capps,
Executive Vice President
Greg G. Jenkins
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Exhibit 10.07
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement") is
made effective as of March ___, 1994 (the "Effective Date") by and between
Hadson Corporation, a Delaware corporation (the "Company"), and Robert P. Capps
("Employee").
W I T N E S S E T H:
WHEREAS, the Company and Employee are parties to an Employment
Agreement dated as of April 3, 1990 (the "Original Agreement"); and
WHEREAS, a "Change of Control," as defined in the Original Agreement,
occurred in connection with the merger of Adobe Gas Pipeline Company into the
Company effected on December 14, 1993 and, as a result, Employee is entitled to
certain severance payments if his employment with the Company is terminated
within one year of such "Change of Control"; and
WHEREAS, the Company desires to continue its employment of Employee in
an executive capacity on the terms and conditions, and for the consideration,
hereinafter set forth for the period provided herein commencing upon the
Effective Date, and Employee desires to continue employment with the Company on
such terms and conditions and for such consideration;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, the Company and Employee agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 EMPLOYMENT. The Company agrees to employ Employee and
Employee agrees to be employed by the Company, beginning as of the Effective
Date and continuing for the period of time set forth in Article 2 of this
Agreement, on and subject to the terms and conditions of this Agreement.
1.2 POSITIONS AND DUTIES. The Company shall maintain Employee in
the positions of Executive Vice President, Chief Financial Officer and
Treasurer of the Company, or in such other positions as the parties hereto
mutually may agree. Employee agrees (a) to serve in the positions referred to
in the preceding sentence as well as in such additional executive officer
positions of the Company or any of its affiliates to which Employee is elected
from time to time and (b) to perform diligently and to the best of his
abilities the duties and services appertaining to such offices as set forth in
the bylaws of the Company or such
<PAGE> 2
affiliate, as the case may be, as the same may be amended from time to time, as
well as such additional duties and services which the parties hereto mutually
may agree upon from time to time or, subject to paragraph 2.3(a)(iii) hereof,
which the Board of Directors of the Company (the "Board of Directors") or of
such affiliate may prescribe. Employee shall at all times comply with and be
subject to such policies and procedures as the Company may establish from time
to time that are applicable to executive officers of the Company.
1.3 OTHER ACTIVITIES. During the period of his employment by the
Company, Employee shall devote his primary business time, energy and best
efforts to the business and affairs of the Company and its affiliates and shall
not engage, directly or indirectly, in any other business or businesses,
whether or not similar to that of the Company or its affiliates, except with
the consent of the Board of Directors or except to the extent that the Board of
Directors or such affiliate may prescribe, or induce any employee of the
Company or any affiliate to terminate his or her employment with the Company or
such affiliate except on behalf of the Company or such affiliate. The parties
recognize and agree that Employee may engage in passive personal investments
and other activities that do not conflict with the business and affairs of the
Company or its affiliates or interfere with Employee's performance of his
duties hereunder.
ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT
2.1 TERM. Unless sooner terminated pursuant to other provisions
hereof, the Company shall employ Employee for a term beginning on the Effective
Date and ending on the second anniversary of the Effective Date. On each
anniversary of the Effective Date, commencing with the second anniversary of
the Effective Date, the term of this Agreement shall be extended automatically
for successive one-year periods unless on or prior to the September 30
immediately preceding the last day of any such one-year period either the
Compensation Committee of the Board of Directors, on behalf of the Company, or
Employee shall give written notice to the other that no such automatic
extension shall occur, in which event this Agreement shall terminate on the
last day of such one-year period. Unless such notice shall specify that
Employee's employment with the Company shall terminate on the date of such
termination of this Agreement, the employment relationship between the Company
and Employee shall continue at-will following such termination.
Notwithstanding the preceding provisions of this paragraph, the term of
Employee's employment hereunder shall terminate upon his death.
2.2 TERMINATION BY THE COMPANY. The Company shall have the right
to terminate Employee's employment under this Agreement at any time prior to
the termination of this Agreement pursuant to paragraph 2.1 hereof for any of
the following reasons and only for the following reasons:
(a) Employee's continuing disability, which for purposes
of this Agreement shall mean Employee's becoming incapacitated by
accident, sickness or other circumstance which renders him mentally or
physically incapable, with reasonable
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<PAGE> 3
accommodation (within the meaning of the Americans with Disabilities
Act of 1990, as amended), of performing the essential functions of the
duties and services required of him hereunder for a period of more
than 90 consecutive days during any 12-month period;
(b) for cause, which for purposes of this Agreement shall
mean any of the following, in each case as determined in good faith by
the Board of Directors in its sole discretion: (i) Employee's gross
negligence or willful misconduct in performance of the duties and
services required of him pursuant to this Agreement; (ii) the willful
and continued failure by Employee to follow the reasonable
instructions of the Board of Directors after written notice of such
failure has been given to Employee by the Board of Directors; (iii)
the willful commission by Employee of acts that are dishonest and
demonstrably and materially injurious to the Company, monetarily or
otherwise; or (iv) Employee's final conviction of a felony or of a
misdemeanor involving moral turpitude; or
(c) Employee's material breach of any material provision
of this Agreement which, if correctable, remains uncorrected for 30
days following written notice to Employee by the Company of such
breach;
provided, however, that (i) if an event described in subparagraph (a) above
shall occur, Employee shall continue to be disabled as of the date of
termination by the Company of Employee's employment hereunder pursuant to such
subparagraph and (ii) if an event described in subparagraph (b) or (c) above
shall occur, the Company shall terminate Employee's employment hereunder within
90 days following, and by reason of, the occurrence of such event.
2.3 TERMINATION BY EMPLOYEE. Employee shall have the right to
terminate his employment under this Agreement at any time prior to the
termination of this Agreement pursuant to paragraph 2.1 hereof for any of the
following reasons and only for the following reasons:
(a) the occurrence, without Employee's express written
consent, of any one or more of the following events which, if
correctable, remains uncorrected for 30 days following written notice
of such occurrence by Employee to the Company: (i) a change in the
eligibility requirements under any bonus, incentive or compensation
plan, program or arrangement under which Employee is covered on the
day immediately preceding the Effective Date which adversely affects
Employee, except as may be required by law or to maintain the
qualified status of any plan, program or arrangement; (ii) the
reduction of Employee's base salary, as the same may hereafter be
increased from time to time; (iii) the assignment to Employee by the
Board of Directors of duties materially inconsistent with the duties
associated with the positions described in paragraph 1.2 hereof as
such duties are constituted as of the day immediately preceding the
Effective Date (except (A) in connection with the termination of his
employment by the Company pursuant to paragraph 2.2 hereof or
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(B) as a result of his disability); (iv) any action by the Company
which results in a material diminution in the position, duties or
status of Employee with the Company as contemplated by this Agreement,
except (A) for strategic reallocations of the personnel reporting to
Employee, (B) in connection with termination of his employment by the
Company pursuant to paragraph 2.2 hereof or (C) as a result of his
disability; or (v) the Company requiring Employee to be permanently
based anywhere other than within 50 miles of Dallas, Texas (Employee
shall not be deemed to be permanently based at any other location by
reason of temporary assignments for reasonable periods of times at
such other location if the Company or any of its subsidiaries or other
affiliates have a special need for Employee's services at such other
location); or
(b) a material breach by the Company of any material
provision of this Agreement which, if correctable, remains uncorrected
for 30 days following written notice by Employee to the Company of
such breach;
provided, however, that if an event described in subparagraph (a) or (b) above
shall occur, Employee shall terminate his employment hereunder within 90 days
following, and by reason of, the occurrence of such event.
2.4 NOTICE OF TERMINATION. If the Company or Employee desires to
terminate Employee's employment hereunder pursuant to paragraph 2.2 or 2.3
hereof, as the case may be, it or he shall do so by giving written notice to
the other party that it or he has elected to terminate Employee's employment
hereunder and stating the effective date and reason for such termination, and
upon the specified effective date Employee's employment hereunder shall be so
terminated; provided that no such action shall alter or amend any provision
hereof or rights arising hereunder.
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 BASE SALARY. During the term of his employment hereunder,
Employee shall receive a minimum annual base salary determined by the Board of
Directors consistent with its practices for executive officers of the Company,
but not less than $163,500 per year, payable in accordance with the customary
payroll practices of the Company with respect to its executive officers. If
Employee's base annual salary is increased at any time during the term of this
Agreement, it shall not thereafter be decreased during the term of this
Agreement.
3.2 BONUSES; INCENTIVE COMPENSATION PROGRAMS. During the term of
his employment hereunder, Employee (a) shall be paid such bonuses, if any, as
shall be determined by the Board of Directors consistent with its practices for
executive officers of the Company and (b) shall be entitled to participate, on
a basis commensurate with his positions with the Company, in all employee
incentive compensation programs maintained by the Company on or after the
Effective Date which are generally made available to
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executive officers of the Company. If Employee is awarded any stock option or
restricted stock grant under the Company's Equity Incentive Plan during the
term of this Agreement, the agreement covering each such award shall provide
that if Employee's employment hereunder is terminated either by the Company in
breach of this Agreement or by Employee pursuant to paragraph 2.3 hereof, then
all stock options subject to such agreement shall become immediately
exercisable in full and all restrictions on all shares of restricted stock
subject to such agreement shall immediately lapse.
3.3 VACATION AND SICK LEAVE. During each year of his employment
hereunder, Employee shall be entitled to vacation and sick leave, at full pay,
equal to the maximum available to any executive officer of the Company, without
regard to the period of service that might otherwise be necessary to entitle
Employee to such vacation or sick leave under standard Company policy
applicable to its executive officers.
3.4 OTHER COMPANY BENEFITS. During his employment hereunder,
Employee and, to the extent applicable, Employee's family, dependents and
beneficiaries, shall be allowed to participate in all employee benefit plans
and programs (including, without limitation, profit sharing, thrift, medical,
health and dental care, life insurance, disability insurance and pension
plans), including improvements or modifications of the same, available to
similarly-situated Company employees on or after the Effective Date, except for
such benefit plans and programs which the Board of Directors, in its sole
discretion, shall adopt for select employees to compensate them for special or
extenuating circumstances.
3.5 OBLIGATIONS OF THE COMPANY REGARDING BENEFIT PLANS. The
Company shall not by reason of this Article 3 be obligated to institute,
maintain or refrain from changing, amending or discontinuing any incentive
compensation or employee benefit plan or program, so long as such actions are
applicable to covered executive officers of the Company generally. Except to
the extent specifically set forth in this Article 3, nothing in this Agreement
is to be construed or interpreted to provide Employee greater rights,
participation, coverage or benefits under such benefit plans or programs than
provided to similarly situated employees pursuant to the terms and conditions
of such benefit plans and programs. Moreover, unless specifically provided for
in a written plan document adopted by the Board of Directors, none of the
benefits or arrangements described in this Article 3 or in Article 4 hereof
shall be secured or funded in any way, and each shall instead constitute an
unfunded and unsecured promise to pay money in the future exclusively from the
general assets of the Company.
ARTICLE 4: EFFECT OF TERMINATION ON COMPENSATION
4.1 BY EXPIRATION. Upon the termination of this Agreement
pursuant to paragraph 2.1 hereof, all compensation and all benefits to Employee
hereunder shall cease and terminate as of the date of such termination. In
such event, Employee shall be entitled to receive his base salary through the
date of such termination, together with a pro rata
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payment of any individual bonuses or incentive compensation earned or accrued
but not yet paid.
4.2 PRIOR TO EXPIRATION. (a) If Employee's employment hereunder
shall be terminated (i) by the Company pursuant to paragraph 2.2 hereof or (ii)
by Employee in breach of this Agreement, all compensation and all benefits to
Employee hereunder shall cease and terminate contemporaneously with such
termination of employment. Employee shall be entitled to receive his base
salary through the date of such termination, but shall not be entitled to any
individual bonuses or incentive compensation not yet paid at the date of such
termination.
(b) If Employee's employment hereunder is terminated (i) by the
Company in breach of this Agreement or (ii) by Employee pursuant to paragraph
2.3 hereof, then (A) all compensation and all benefits to Employee hereunder
shall cease and terminate contemporaneously with such termination of
employment, (B) Employee shall be entitled to receive his base salary through
the date of such termination, together with the full amount of any individual
bonuses or incentive compensation that would have been payable to him for the
year in which such termination occurred pursuant to the terms of the applicable
bonus or incentive compensation plan had he been employed by the Company at the
end of such year, and (C) Employee shall be entitled to be paid a severance
payment equal to two times the total of (x) the amount of his highest annual
base salary plus (y) the amount of his highest annual bonus during the term of
this Agreement. For purposes of the preceding clause (C), if no greater bonus
has been paid to Employee during the term of this Agreement, then the highest
annual bonus shall be deemed to be an amount equal to the maximum bonus
available for payment to any employee of the Company during the term of this
Agreement under the Company's Incentive Compensation Plan.
(c) As a condition to the receipt of any payment under paragraph
4.2(b) hereof, Employee shall first execute a release, in the form established
by the Company, releasing and forever discharging the Company and its
affiliates and the officers, directors, employees and agents of the Company and
its affiliates from any and all claims and from any and all causes of action of
any kind or character, including but not limited to all claims or causes of
action arising out of Employee's employment with the Company (or any of its
affiliates) or the termination of such employment. If Employee is entitled to
and receives the payments provided under paragraph 4.2(b) hereof, performance
of the obligations of the Company thereunder will constitute full settlement of
all claims that Employee might otherwise assert against the Company or its
affiliates on account of the termination of the employment relationship.
4.3 DATE OF PAYMENTS. Any payment payable to Employee under
paragraph 4.2(a) or 4.2(b) hereof shall be paid within 30 days after the date
of termination of Employee's employment hereunder or at such other date as the
parties hereto agree.
4.4 EFFECT OF TERMINATION ON COMPANY PLANS AND PROGRAMS. Except
to the extent specifically provided in this Article 4, the provisions of this
Article 4 shall not affect any
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rights or obligations of the Company or Employee under any employee benefit
plan or program. Notwithstanding the foregoing, Employee shall not be entitled
to any payment that would otherwise be payable to him under any severance plan
or policy of the Company in connection with the termination of his employment
hereunder.
4.5 LIMITATION ON CHANGE OF CONTROL ACTIONS. Notwithstanding the
provisions of Article 3 hereof and the preceding provisions of this Article 4,
any and all payments (including any benefit or transfer of property) in the
nature of compensation to or for the benefit of Employee under any arrangement
which is deemed to be contingent on a change of control for purposes of section
280G of the Internal Revenue Code ("change in control actions") shall be
collectively subject to an overall maximum limit. Such maximum limit shall be
$1.00 less than the largest amount under which no portion of the "change of
control actions" is considered a "parachute payment," within the meaning of
section 280G of the Internal Revenue Code (taking into account all of the
limitations, exceptions and exemptions contained therein). Accordingly, to the
extent that the change of control actions would be considered a parachute
payment, then the portions of such change of control actions shall be reduced
or eliminated in the following order until the remaining change of control
actions with respect to Employee is $1.00 less than the maximum allowable which
would not be considered a parachute payment under the Internal Revenue Code:
(a) first, any cash payment to Employee; and
(b) second, any change of control actions not described in
clause (a) of this paragraph 4.5.
As used in this paragraph 4.5, the term "arrangement" includes any agreement
between Employee and the Company or any affiliate of the Company and any and
all of the Company's and any affiliate's salary, bonus, incentive, compensation
or benefit plans, programs or arrangements, and shall include this Agreement.
4.6 NO DUTY TO MITIGATE LOSSES. Employee shall have no duty to
find new employment following the termination of his employment (a) by Employee
pursuant to paragraph 2.3 hereof or (b) by the Company in breach of this
Agreement. Any salary, remuneration or other amounts received by Employee from
a third party for the providing of personal services (whether by employment or
by functioning as an independent contractor) or which might have been received
by Employee had he sought to provide such services to a third party shall not
reduce the Company's obligation to make any payments to Employee pursuant to
paragraph 4.2(b) hereof or the amount of such payments.
ARTICLE 5: CONFIDENTIAL INFORMATION
5.1 COMPANY INFORMATION. Employee acknowledges that the Company's
business is highly competitive and that the Company's books, records and
documents, the Company's technical information concerning its products,
equipment, services and processes,
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procurement procedures and pricing techniques, the names of and other
information (such as credit and financial data) concerning the Company's
customers and business associates and other proprietary information, including,
but not limited to, systems, procedures, manuals and data as well as financial
information concerning the Company's products and services (including the
revenues, costs or profits associated with any such products and services),
information with respect to the nature and type of the Company's products and
services, the equipment and methods used and preferred by the Company's
customers and the fees paid by such customers, all comprise confidential
business information and trade secrets of the Company which are valuable,
special and unique assets of the Company, which the Company uses in its
business to obtain a competitive advantage over the Company's competitors which
do not know or use this information. Employee further acknowledges that
protection of the Company's confidential business information and trade secrets
against unauthorized disclosure and use is of critical importance to the
Company in maintaining its competitive position. Accordingly, Employee hereby
agrees that he will not, at any time during, and continuing until the second
anniversary of the termination of, his employment hereunder make or permit any
unauthorized disclosure of any confidential business information or trade
secrets of the Company, or make or permit any use thereof, except for the
benefit of, and on behalf of, the Company. For the purposes of this Article 5,
the term "the Company" shall also include affiliates of the Company.
5.2 THIRD PARTY INFORMATION. Employee acknowledges that, as a
result of his employment by the Company, he may from time to time have access
to, or knowledge of, confidential business information or trade secrets of
third parties, such as customers, suppliers, partners, joint venturers and the
like, of the Company. Employee agrees to preserve and protect the
confidentiality of such third party confidential information and trade secrets
to the same extent, and on the same basis, as confidential business information
and trade secrets of the Company.
5.3 RETURN OF DOCUMENTS. All written or magnetic materials,
records and other documents made by, or coming into the possession of, Employee
during the period of his employment by the Company (whether before, on or after
the Effective Date) which contain or disclose the Company confidential business
information or trade secrets shall be and remain the property of the Company.
Upon termination of Employee's employment hereunder for any reason or upon the
request of the Company at any time, Employee promptly shall deliver the same,
and all copies thereof, to the Company (for purposes of this sentence, the term
"the Company" shall not include affiliates of the Company).
5.4 INJUNCTIVE RELIEF. Without intending to limit the remedies
available to the Company and notwithstanding the provisions of paragraph 6.1
hereof, Employee acknowledges that a breach of any of the provisions of this
Article 5 would likely result in material irreparable injury to the Company
which would not, in whole or in part, be compensable in money damages and for
which the Company would have no adequate remedy at law. Accordingly, Employee
agrees that, in the event of such a breach or threat thereof, the Company shall
be entitled to obtain a temporary restraining order and/or a preliminary or
permanent injunction restraining Employee from engaging in activities
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prohibited by this Article 5 or such other relief as may be available to
specifically enforce any of the provisions of this Article 5.
ARTICLE 6: MISCELLANEOUS
6.1 ARBITRATION. Subject to the provisions of paragraph 5.4
hereof, any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Dallas County, Texas
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. Each party hereto shall bear his or its own costs of
arbitration, but if Employee is the prevailing party in such arbitration, he
shall be entitled to recover from the Company as part of any award entered his
reasonable expenses for attorneys' fees and disbursements.
6.2 WITHHOLDING. The Company may withhold from any compensation,
benefits or amounts payable under this Agreement all federal, state, city or
other taxes as may be required pursuant to any law or governmental regulation
or ruling.
6.3 NOTICES. For purposes of this Agreement, all notices and
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to the Company, to: Hadson Corporation
600 E. John Carpenter Freeway
Suite 201
Irving, Texas 75062-3977
Attention: President
If to Employee, to: Robert P. Capps
600 E. John Carpenter Freeway
Suite 201
Irving, Texas 75062-3977
or to such other address as either such party may furnish to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective only upon receipt.
6.4 APPLICABLE LAW. This Agreement is entered into under, and
shall be governed by, and construed and interpreted in accordance with, the
laws of the State of Texas.
6.5 NO WAIVER. No failure by either party hereto at any time to
give notice of any breach by the other party of, or to require compliance with,
any condition or provision of
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this Agreement shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
6.6 SEVERABILITY. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
6.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
6.8 HEADINGS. The paragraph headings in this Agreement have been
inserted for purposes of convenience and shall not be used for interpretive
purposes.
6.9 AFFILIATE. As used in this Agreement, "affiliate" shall mean
any entity which, directly or indirectly, owns or controls, is owned or
controlled by, or is under common ownership or control with, the Company.
6.10 ASSIGNMENT. The rights and obligations of Employee hereunder
are personal and no right, benefit or obligation of Employee hereunder shall be
subject to voluntary or involuntary assignment, alienation or transfer, whether
by operation of law or otherwise, without the prior written consent of the
Company. Subject to the provisions of the preceding sentence, this Agreement
shall be binding upon, and inure to the benefit of, the parties hereto and
their respective heirs, administrators, executors, successors and assigns.
6.11 TERM. This Agreement has a term co-extensive with the term of
employment specified in paragraph 2.1 hereof (without giving effect to the
third sentence thereof), provided that (a) except as otherwise provided herein,
termination shall not affect any right or obligation of any party which is
accrued or vested prior to or upon such termination and (b) the provisions of
Article 5 hereof shall survive the termination of this Agreement.
6.12 ENTIRE AGREEMENT. Except as provided in (a) written policies
and procedures promulgated by the Company that are applicable to executive
officers of the Company, (b) the written benefit plans and programs referenced
in Article 3 hereof or (c) any signed written agreements hereafter executed by
the Company and Employee, this Agreement constitutes the entire agreement of
the parties with regard to such subject matters, and contains all of the
covenants, promises, representations, warranties and agreements between the
parties with respect to such subject matters and replaces and merges previous
agreements and discussions pertaining to the employment relationship between
the Company and Employee. Specifically, but not by way of limitation, the
Original Agreement is hereby cancelled and Employee hereby irrevocably waives
and renounces all of Employee's rights and claims under such Agreement. Any
modification or waiver of any provision of this Agreement will be effective
only if it is in writing and signed by both of the parties hereto.
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IN WITNESS WHEREOF, the Company and Employee have executed this
Agreement effective as of the Effective Date.
HADSON CORPORATION
By:
Greg G. Jenkins,
President
Robert P. Capps
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<PAGE> 1
Exhibit 10.20
HADSON CORPORATION 1992 EQUITY INCENTIVE PLAN
(as amended and restated as of March 9, 1994)
SECTION 1.
PURPOSE
The purposes of this Hadson Corporation 1992 Equity Incentive Plan
(this "Plan") are to attract and retain the best available employees and
directors of Hadson Corporation (the "Company") and any Parent or Subsidiary of
the Company (each as hereinafter defined), to provide additional incentive to
such persons and to promote the success of the business of the Company. This
Plan is intended to comply with Rule 16b-3 under Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any successor
provision ("Rule 16b-3"), and this Plan shall be construed, interpreted and
administered to so comply.
SECTION 2.
OTHER DEFINITIONS
As used in this Plan:
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Committee" means the Compensation Committee or other committee
appointed by the Board, which shall consist of two or more directors, each of
whom shall be a "disinterested person" within the meaning of Rule 16b-3(c)
under the Exchange Act, or any successor provision.
"Common Stock" means the Common Stock, $.01 par value, of the Company.
"Effective Date" means December 16, 1992.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Fair Market Value" means, with respect to the Common Stock and at any
date, (i) the reported closing price of such stock on the New York Stock
Exchange or other established stock exchange or the NASDAQ National Market
System on such date, or if no sale of such stock shall have been made on such
an exchange or the NASDAQ National Market System on that date, on the preceding
date on which there was such a sale, (ii) if such stock is not then listed on
such an exchange or quoted on the NASDAQ National Market System, the average of
the closing bid and asked prices per share for such stock in the
over-the-counter market as quoted on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") on such date, or (iii) if
such stock is not then listed on such an exchange or quoted on NASDAQ or the
NASDAQ National Market System, an amount determined in good faith by the
Committee in its sole discretion.
<PAGE> 2
"Incentive Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under this Plan which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Non-Employee Director" means a director of the Company who is not an
employee of the Company or any Parent or Subsidiary of the Company.
"Non-Qualified Stock Option" means an option to purchase shares of
Common Stock awarded to a Participant under this Plan which is not intended to
be an Incentive Stock Option.
"Option" means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
"Participant" means a person selected by the Committee to receive an
award under this Plan and Non-Employee Directors.
"Restricted Stock" means Common Stock awarded to a Participant subject
to restrictions pursuant to this Plan.
"Restricted Stock Grant" means an award of shares of Restricted Stock.
"Section 16 Participant" means a Participant subject to Section 16 of
the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
SECTION 3.
ADMINISTRATION
(a) Committee Authority; Delegation. This Plan shall be
administered by the Committee. Among other things, the Committee shall have
authority, subject to the terms of this Plan (including, without limitation,
the provisions governing participation in this Plan by Non-Employee Directors),
to grant awards under this Plan and to determine the individuals to whom and
the time or times at which awards may be granted, the type(s) of award(s) to be
granted to such individuals pursuant to this Plan and the terms and conditions
of such awards; provided, however, that the maximum number of shares which may
be subject to all Options and Restricted Stock Grants awarded to a Participant
during any calendar year may not exceed 500,000 (subject to adjustment pursuant
to Section 5(b) hereof). All administrative powers may be delegated by the
Committee, except where (i) such powers with respect to the selection of and
determination of awards for Section 16 Participants are required to be
exercised by the Committee in order to enable this Plan to
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<PAGE> 3
qualify for the exemption provided by Rule 16b-3 or (ii) such delegation would
cause the benefits under this Plan to "covered employees" within the meaning of
Section 162(m) of the Code to not qualify as performance-based compensation
within the meaning of Section 162(m) of the Code and applicable interpretive
authority thereunder.
(b) Actions of Committee. Subject to the provisions of Section
10(e) hereof, the Committee shall have authority to adopt, alter and repeal
such administrative rules, guidelines and practices governing the operation of
this Plan as it shall from time to time consider advisable, to interpret the
provisions of this Plan and any Option Agreement or Restricted Stock Agreement
(each as hereinafter defined), and to decide all disputes arising in connection
with this Plan. The Committee's decisions and interpretations shall be final
and binding. Any action of the Committee with respect to the administration of
this Plan shall be taken pursuant to a majority vote or by the unanimous
written consent of its members.
(c) Indemnification. The Company shall indemnify and hold
harmless each director of the Company and each Committee member for any action
or determination made in good faith with respect to this Plan or any Option
Agreement or Restricted Stock Agreement.
SECTION 4.
ELIGIBILITY
The following individuals shall be eligible to receive awards pursuant
to this Plan as follows:
(a) Any employee (including any officer or director who is an
employee) of the Company or any Parent or Subsidiary of the Company shall be
eligible to receive Incentive Stock Options under this Plan. Any employee
(including any officer or director who is an employee) of the Company or any
Parent, Subsidiary or other affiliate of the Company shall be eligible to
receive Non- Qualified Stock Options and Restricted Stock Grants under this
Plan. Eligible employees may receive more than one Option or Restricted Stock
Grant under this Plan.
(b) Any Non-Employee Director of the Company shall be eligible to
receive Options and Restricted Stock Grants only as set forth in Section 8
hereof.
SECTION 5.
STOCK AVAILABLE UNDER THIS PLAN
(a) Number of Shares Available. Subject to any adjustments made
pursuant to Section 5(b) hereof, the aggregate number of shares of Common Stock
that may be delivered pursuant to the exercise of all Options granted and
pursuant to all Restricted Stock Grants awarded under this Plan shall be
3,900,000, of which no more than 1,000,000 shares may be delivered pursuant to
Restricted Stock Grants and the exercise of Options awarded to Non-Employee
Directors in accordance with the provisions of Section 8 hereof. If any Option
expires or is terminated before exercise or if any portion of any Restricted
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<PAGE> 4
Stock Grant is forfeited for any reason, the shares of Common Stock which were
subject to but were either forfeited to the Company or not delivered under such
Option or Restricted Stock Grant, and any other shares of Common Stock that for
any other reason are not issued to a Participant, shall again be available for
award under this Plan as if no Option or Restricted Stock Grant had been
awarded with respect to such shares. Awards under this Plan may be fulfilled
with either authorized and unissued shares of Common Stock or issued and
reacquired shares of Common Stock.
(b) Adjustment. In the event of a stock dividend, stock split or
combination of shares of Common Stock, recapitalization or other increase or
decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company, appropriate and proportionate
adjustment shall be made in (i) the number and kind of shares of stock in
respect of which Options or Restricted Stock Grants may be awarded under this
Plan, (ii) the number and kind of shares of stock or other property subject to
outstanding Options and Restricted Stock Grants and (iii) the award, exercise
or conversion price with respect to any of the foregoing. In the event that
the Committee determines in its sole discretion that any extraordinary cash
dividend, creation of a class of equity securities, recapitalization,
reclassification, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
transaction, affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made
available under this Plan to Participants other than Non-Employee Directors,
the Committee shall have the right to adjust equitably any or all of (i) the
number and kind of shares of stock in respect of which Options or Restricted
Stock Grants may be awarded under this Plan to Participants other than
Non-Employee Directors, (ii) the number and kind of shares of stock or other
property subject to outstanding Options and Restricted Stock Grants held by
Participants other than Non-Employee Directors and (iii) the award, exercise or
conversion price with respect to any of the foregoing held by Participants
other than Non-Employee Directors.
SECTION 6.
TERMS AND CONDITIONS OF OPTIONS
(a) Grants of Options. Subject to the provisions of this Plan,
the Committee may award Incentive Stock Options and Non-Qualified Stock Options
and determine the number of shares to be covered by each Option, the option
price therefor, the term of the Option, and the other conditions and
limitations applicable to the exercise of the Option. The terms and conditions
of Incentive Stock Options shall be subject to and comply with Section 422 of
the Code, or any successor provision, and any regulations thereunder. Anything
in this Plan to the contrary notwithstanding, no term of this Plan relating to
Incentive Stock Options shall be interpreted, amended or altered, nor shall any
discretion or authority granted to the Committee under this Plan be so
exercised, so as to disqualify this Plan or, without the consent of the
Participant, any Incentive Stock Option granted under this Plan, under Section
422 of the Code. Each grant of an Option may be made alone or in combination
with, in addition to or in relation to any other award authorized by this Plan.
The terms of each Option need not be identical, and the Committee need not
treat Participants uniformly. Except as otherwise provided by this Plan or a
particular Option
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Agreement, any determination with respect to an Option may be made by the
Committee at the time of award or at any time thereafter.
(b) Agreement in Writing; Provisions. Each Option under this Plan
shall be evidenced by a written agreement (each, an "Option Agreement")
delivered to the Participant specifying the terms and conditions thereof and
containing such other terms and conditions not inconsistent with the provisions
of this Plan as the Committee considers necessary or advisable to achieve the
purposes of this Plan or comply with applicable tax and regulatory laws and
accounting principles. Each Option Agreement shall specify whether the
Option(s) granted thereby are Incentive Stock Options or Non-Qualified Stock
Options. Each Option Agreement may incorporate all or any of the terms hereof
by reference and shall comply with and be subject to the following terms and
conditions:
(i) Shares Granted. Each Option Agreement shall specify
the number of Incentive Stock Options and/or Non- Qualified Stock
Options being granted; one Option shall be deemed granted for each
share of stock. In addition, each Option Agreement shall specify the
option price and the exercisability and/or vesting schedule of such
Options, if any.
(ii) Other Terms. Each Option Agreement may contain such
other terms, provisions and conditions not inconsistent with this Plan
as may be determined by the Committee, including, without limitation,
discretionary performance standards, tax withholding provisions, or
other forfeiture provisions regarding competition and confidential
information.
(c) Option Price. The option price per share of Common Stock
purchasable under an Option shall be 100% of the Fair Market Value of the
Common Stock on the date of award. If the Participant owns or is deemed to own
(by reason of the attribution rules applicable under Section 424(d) of the
Code) more than 10% of the combined voting power of all classes of stock of the
Company or any Subsidiary or Parent of the Company and an Incentive Stock
Option is granted to such Participant, the option price shall be 110% of Fair
Market Value of the Common Stock on the date of award.
(d) Method of Payment. The purchase price for any share purchased
pursuant to the exercise of any Option granted under this Plan shall be paid in
full upon exercise of the Option by any of the following methods, to the extent
permitted under the particular Option Agreement: (i) by cash, (ii) by check or
(iii) by transferring to the Company shares of Common Stock at their Fair
Market Value as of the date of exercise of the Option. Notwithstanding the
foregoing, the Company may arrange for or cooperate in permitting cashless
exercise procedures and may extend and maintain, or arrange for the extension
and maintenance of, credit to a Participant to finance the Participant's
purchase of shares pursuant to the exercise of Options, on such terms as may be
approved by the Committee, subject to applicable regulations of the Federal
Reserve Board and any other applicable laws or regulations in effect at the
time such credit is extended.
(e) Termination. No Option shall be exercisable more than ten
years after the date the Option is awarded. If a Participant owns or is deemed
to own (by reason of the
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attribution rules of Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of stock of the Company or any Subsidiary
or Parent of the Company and an Incentive Stock Option is awarded to such
Participant, such Option shall not be exercisable after the expiration of five
years from the date of award.
(f) Exercise. No Option shall be exercisable during the lifetime
of a Participant by any person other than the Participant or his or her
guardian or legal representative. The Committee shall have the power to set
the time or times within which each Option shall be exercisable and to
accelerate the time or times of exercise of each Option, other than, in each
case, Options awarded or to be awarded to Non-Employee Directors. To the
extent that a Participant has the right to exercise one or more Options and
purchase shares pursuant thereto, the Option(s) may be exercised from time to
time by written notice to the Company stating the number of shares being
purchased and accompanied by payment in full of the option price for such
shares. Any certificate for shares of outstanding Common Stock used to pay the
option price shall be accompanied by a stock power duly endorsed in blank by
the registered owner of the certificate (with the signature thereon
guaranteed). In the event the certificate tendered by the Participant in such
payment covers more shares than are required for such payment, the certificate
shall also be accompanied by instructions from the Participant to the Company's
transfer agent with respect to the disposition of the balance of the shares
covered thereby.
(g) Disability, Death, Retirement or Other Termination. The
Committee shall determine the effect on an Option (other than an Option awarded
or to be awarded to a Non-Employee Director) of the disability, death,
retirement or other termination of employment of a Participant and the extent
to which, and the period during which, the Participant's legal representative,
guardian or designated beneficiary may exercise rights thereunder.
(h) No Deemed Termination. For purposes of this Section 6, the
following events shall not be deemed a termination of employment of a
Participant:
(i) a transfer to the employment of the Company from a
Subsidiary of the Company or from the Company to a Subsidiary of the
Company, or from one Subsidiary of the Company to another; or
(ii) an approved leave of absence for military service or
sickness, or for any other purpose approved by the Company, if the
Participant's right to reemployment is guaranteed either by a statute
or by contract or under the policy pursuant to which the leave of
absence was granted or if the Committee otherwise so provides in
writing.
For purposes of this Plan, employees of a Subsidiary of the Company shall be
deemed to have terminated their employment on the date on which such Subsidiary
ceases to be a Subsidiary of the Company.
6
<PAGE> 7
(i) Nontransferability. No Option or interest therein or right
thereunder shall be transferable by a Participant otherwise than by will or the
laws of descent and distribution.
(j) Fractional Shares. The Company shall not be required to issue
fractional shares upon the exercise of an Option. The value of any fractional
share subject to an Option shall be paid in cash in connection with the
exercise that results in all full shares subject to the grant having been
exercised, based on the Fair Market Value of the Common Stock on the date of
such exercise.
(k) $100,000 Limit for Incentive Stock Options. If required by
applicable tax rules regarding a particular grant, to the extent that the
aggregate Fair Market Value (determined as of the date an Incentive Stock
Option is granted) of the shares with respect to which an Incentive Stock
Option grant under this Plan (when aggregated, if appropriate, with shares
subject to other Incentive Stock Option grants made before said grant under
this Plan or any other plan maintained by the Company or any Parent or
Subsidiary of the Company) is exercisable for the first time by a Participant
during any calendar year exceeds $100,000 (or such other limit as is prescribed
by the Code), such Option grant shall be treated as a grant of Non-Qualified
Stock Options pursuant to Code Section 422(d).
(l) Disposition of Incentive Stock Options. A Participant shall
notify the Committee in the event that he or she disposes of Common Stock
acquired upon exercise of an Incentive Stock Option within the two-year period
following the date the Incentive Stock Option was granted or within the
one-year period following the date he or she received Common Stock upon the
exercise of an Incentive Stock Option.
(m) Option Modification. The Committee may amend, modify or
terminate any outstanding Option held by a Participant other than a
Non-Employee Director, including substituting therefor another Option of the
same or a different type, changing the date of exercise or vesting and
converting an Incentive Stock Option to a Non-Qualified Stock Option, provided
that the Participant's consent to such action shall be required unless the
Committee determines in its sole discretion that the action, taking into
account any related action, would not materially and adversely affect the
Participant (subject to Section 6(a) hereof or unless such change is required
in order to cause the benefits under this Plan to qualify as performance-based
compensation within the meaning of Section 162(m) of the Code and applicable
interpretive authority thereunder).
SECTION 7.
TERMS AND CONDITIONS OF RESTRICTED STOCK GRANTS
(a) Restricted Stock Grants. Subject to the provisions of this
Plan, the Committee may award Restricted Stock Grants and determine the number
of shares of Restricted Stock covered by such Grant, the restrictions thereon
(which may include, without limitation, restrictions on the transfer of such
shares, restrictions on the right to vote such shares and restrictions on the
right to receive dividends on such shares), the time or times at which and the
conditions upon which such restrictions shall lapse, and the other terms and
conditions
7
<PAGE> 8
applicable to such Grant. Each Restricted Stock Grant may be made alone or in
combination with, in addition to or in relation to any other award authorized
by this Plan. The terms of each Restricted Stock Grant need not be identical,
and the Committee need not treat Participants uniformly. Except as otherwise
provided by this Plan or a particular Restricted Stock Agreement, any
determination with respect to a Restricted Stock Grant may be made by the
Committee at the time of award or at any time thereafter. The Committee may,
but shall not be required to, award Restricted Stock Grants based upon the
attainment of one or more "performance goals" within the meaning of Section
162(m) of the Code and applicable interpretive authority thereunder.
(b) Agreement in Writing; Provisions. Each Restricted Stock Grant
shall be evidenced by a written agreement (each, a "Restricted Stock
Agreement") delivered to the Participant specifying the terms and conditions
thereof and containing such other terms and conditions not inconsistent with
the provisions of this Plan as the Committee considers necessary or advisable
to achieve the purposes of this Plan or comply with applicable tax and
regulatory laws and accounting principles. Each Restricted Stock Agreement may
incorporate all or any of the terms hereof by reference and shall comply with
and be subject to the following terms and conditions:
(i) Shares Awarded. Each Restricted Stock Agreement
shall specify the number of shares of Restricted Stock being awarded
pursuant to the applicable Grant and the schedule for the lapse of the
restrictions on the shares subject to such Restricted Stock Grant.
(ii) Other Terms. Each Restricted Stock Agreement may
contain such other terms, provisions and conditions not inconsistent
with this Plan as may be determined by the Committee, including,
without limitation, discretionary performance standards, tax
withholding provisions, or other forfeiture provisions regarding
competition and confidential information.
(c) Delivery of Shares. Each share of Restricted Stock, when
issued, shall be issued in the name of the Participant and the certificate
evidencing such share shall be deposited with the Company, together with a
stock power duly endorsed in blank, upon such issuance and continuing until all
applicable restrictions on such share shall have lapsed.
(d) Disability, Death, Retirement or Other Termination. The
Committee shall determine the effect on a Restricted Stock Grant (other than a
Restricted Stock Grant awarded or to be awarded to a Non-Employee Director) of
the disability, death, retirement or other termination of employment of a
Participant. For purposes of this Section 7, (i) the events described in
Section 6(h) shall not be deemed a termination of employment of a Participant
and (ii) employees of a Subsidiary of the Company shall be deemed to have
terminated their employment on the date on which such Subsidiary ceases to be a
Subsidiary of the Company.
(e) Nontransferability. Prior to the lapse of all restrictions
thereon, no share of Restricted Stock or interest therein or right thereunder
shall be transferable by a Participant otherwise than by will or the laws of
descent and distribution.
8
<PAGE> 9
(f) Restricted Stock Grant Modification. The Committee may amend,
modify or terminate any outstanding Restricted Stock Grant held by a
Participant other than a Non-Employee Director, including substituting therefor
another Restricted Stock Grant of the same or a different type and changing the
time or times at which any restrictions shall lapse, provided that the
Participant's consent to such action shall be required unless the Committee
determines in its sole discretion that the action, taking into account any
related action, would not materially and adversely affect the Participant
(unless such change is required in order to cause the benefits under this Plan
to qualify as performance-based compensation within the meaning of Section
162(m) of the Code and applicable interpretive authority thereunder).
SECTION 8.
NONDISCRETIONARY AWARDS
TO NON-EMPLOYEE DIRECTORS
Notwithstanding any other provision of this Plan, Non-Employee
Directors shall participate in this Plan only to the extent set forth in this
Section 8. The provisions of this Plan applicable to awards granted or to be
granted to Non-Employee Directors are intended to comply with the provisions of
Rule 16b-3(c)(2)(ii) under the Exchange Act, or any successor provision, and
such provisions shall be construed, interpreted and administered to so comply.
The Committee shall have no authority to take any action, and shall not take
any action, if the authority to take such action, or the taking of such action,
would result in noncompliance with such provisions.
(a) Automatic Grant of Options.
(i) Date of Grant; Number of Shares. On the date upon
which a Non-Employee Director is first elected or appointed a member of the
Board, he or she shall receive the grant of a Non-Qualified Stock Option to
purchase 6,667 shares of Common Stock. For the purpose of this Section 8(a),
each Non-Employee Director in office on the Effective Date shall be deemed to
have been first elected at such date. Non-Employee Directors subsequently
re-elected at any meeting of stockholders shall receive as of the date of each
such meeting, commencing with the annual meeting of stockholders to be held in
1994, the grant of a Non- Qualified Stock Option to purchase 666 shares of
Common Stock. Options granted to Non-Employee Directors shall be immediately
exercisable.
(ii) Term. The term of each Option granted to a
Non-Employee Director shall be ten years from its date of grant, unless sooner
terminated or extended in accordance with Section 8(e) below.
(iii) Option Price. The option price of the shares of
Common Stock subject to each Option granted to a Non- Employee Director shall
be the Fair Market Value of such shares on the date the Option is granted.
(iv) Exercise after Death or Other Termination. If a
Non-Employee Director ceases to be a director of the Company, such Non-Employee
Director's Options
9
<PAGE> 10
shall be exercisable by him only during the 36 months following the date such
person ceases to be a director, except that:
(A) if a Non-Employee Director dies while serving
as a director, such Non-Employee Director's Options shall be
exercisable by his or her executor or administrator or, if not so
exercised, by the legatees or the distributees of his or her estate,
only during the 36 months following his or her death; and
(B) notwithstanding the foregoing, a Non-Employee
Director's Options shall terminate immediately on the date that such
person is removed as a director for cause. For purposes of this
Section 8, a Non-Employee Director shall be considered to have been
dismissed "for cause" in the event he or she is dismissed on account
of any act of (x) fraud or intentional misrepresentation or (y)
embezzlement, misappropriation, or conversion of assets or
opportunities of the Company or any Subsidiary of the Company.
(b) Automatic Award of Restricted Stock Grants.
(i) Date of Award; Number of Shares. Beginning on the
date of the annual meeting of stockholders of the Company to be held in 1994
and on the date of each annual meeting of stockholders thereafter, each
Non-Employee Director shall receive 50% of the value of his or her annual
retainer fee for serving as a director of the Company for the year commencing
on such date in the form of an award of a Restricted Stock Grant. The total
number of shares of Common Stock included in each such Restricted Stock Grant
shall be determined by dividing the amount of the director's annual retainer
fee that is to be paid in the form of a Restricted Stock Grant by the Fair
Market Value of one share of Common Stock on the date of award. In no event
shall the Company be required to issue fractional shares under this Section
8(b). Whenever under the terms of this Section 8(b) a fractional share of
Common Stock would otherwise be required to be issued, an amount in cash shall
be paid in lieu thereof based on the Fair Market Value of the Common Stock on
the applicable award date.
(ii) Restrictions. Except as otherwise provided in this
Plan, shares of Common Stock received pursuant to a Restricted Stock Grant may
not be sold, assigned, pledged, hypothecated or otherwise disposed of until at
least six months and one day after the date of award of such Restricted Stock
Grant (the "Restriction Lapse Date"). Except as set forth in the preceding
sentence, with respect to all shares subject to a Restricted Stock Grant, a
Non-Employee Director shall have all voting, dividend, liquidation and other
rights of a holder of Common Stock.
(iii) Forfeiture. If a Non-Employee Director is removed as
a director of the Company for cause (as defined in Section 8(a) hereof) prior
to the Restriction Lapse Date applicable to a Restricted Stock Grant, such
person shall forfeit all shares subject to such Restricted Stock Grant.
10
<PAGE> 11
(c) Adjustments. The number and nature of shares subject to any
Option or Restricted Stock Grant held by a Non- Employee Director shall be
subject to adjustment only to the extent set forth in the first sentence of
Section 5(b) hereof.
(d) Agreement in Writing. Each Option and each Restricted Stock
Grant awarded to a Non-Employee Director shall be evidenced by a writing signed
by him or her specifying the terms and conditions thereof in accordance with
this Section 8.
SECTION 9.
ACCELERATION OF EXERCISABILITY AND
VESTING UNDER CERTAIN CIRCUMSTANCES
(a) Change of Control. In order to preserve the rights of a
Participant (other than a Non-Employee Director) under an Option or Restricted
Stock Grant in the event of a change of control of the Company, the Committee
in its discretion may, with respect to any Option or Restricted Stock Grant
(other than an Option or Restricted Stock Grant awarded to a Non-Employee
Director), at the time the Option or Restricted Stock Grant is awarded or at
any time thereafter, take one or more of the following actions with respect to
any such change of control: (i) provide for the acceleration of any time period
relating to the exercise or vesting of the Option or the lapse of any
restrictions on shares of Restricted Stock; (ii) provide for the purchase of
the Option upon the Participant's request for an amount of cash or other
property that could have been received upon the exercise of the Option had the
Option been currently exercisable; (iii) adjust the terms of the Option or
Restricted Stock Grant in such manner as may be determined by the Committee;
(iv) cause the Option or Restricted Stock Grant to be assumed, or new rights
substituted therefor, by another entity; or (v) make such other provision as
the Committee may consider equitable and in the best interests of the Company.
(b) Certain Other Occurrences. Notwithstanding any provision in
this Plan to the contrary, with regard to any Option or Restricted Stock Grant
awarded to any executive officer or director of the Company, unless the
particular Option or Restricted Stock Agreement provides otherwise, the Option
will become immediately exercisable and vested in full, and all restrictions on
any shares of Restricted Stock subject to a Restricted Stock Grant shall
immediately lapse, upon the occurrence, before the expiration or termination of
such Option or forfeiture of such shares, of any of the events listed below:
(i) the delivery of written notice to the stockholders of
the Company announcing a stockholders' meeting at which the
stockholders will consider a proposed merger of the Company, a
proposed sale by the Company of substantially all of its assets or any
similar proposed reorganization of the Company; or
(ii) the acquisition of beneficial ownership (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act) by any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act), other than (A) the Company or (B) The Prudential
Insurance Company of America and its affiliates, directly or
indirectly, of securities representing 25% or more of the total number
of votes that may be cast for the election of directors of the
Company; or
11
<PAGE> 12
(iii) the commencement (within the meaning of Rule 14d-2
promulgated under the Exchange Act) of a "tender offer" for stock of
the Company subject to Section 14(d)(2) of the Exchange Act; or
(iv) the failure, at any annual or special meeting of the
Company's stockholders following an "election contest" subject to Rule
14a-11 promulgated under the Exchange Act, of any of the persons
nominated by the Company in the proxy material mailed to stockholders
by the management of the Company to win election to seats on the
Board, excluding only those who die, retire voluntarily, are disabled
or are otherwise disqualified in the interim between their nomination
and the date of the meeting.
SECTION 10.
MISCELLANEOUS
(a) No Right of Employment. No person shall have any claim or
right to be awarded an Option or Restricted Stock Grant, and the award of an
Option or Restricted Stock Grant shall not be construed as giving a Participant
the right to continued employment. The Company expressly reserves the right at
any time to dismiss a Participant free from any liability or claim under this
Plan, except as expressly provided in the applicable Option or Restricted Stock
Agreement.
(b) Plan Not Exclusive. Nothing contained in this Plan shall
prevent the Company from adopting other or additional compensation arrangements
for its employees or directors.
(c) No Rights as Stockholders. Subject to the provisions of the
applicable Option or Restricted Stock Agreement, no Participant shall have any
rights as a stockholder with respect to any shares of Common Stock to be
distributed under this Plan until he or she becomes the record holder thereof.
(d) Investment Representation. The Committee may require, as a
condition of receiving shares of Common Stock (including shares of Restricted
Stock) issued pursuant to any Option or Restricted Stock Grant, that a
Participant furnish to the Company such written representations and information
as the Committee deems appropriate to permit the Company, in light of the
existence or nonexistence of an effective Registration Statement under the
Securities Act, to deliver such shares in compliance with the provisions of the
Securities Act.
(e) Section 16 Participants. Notwithstanding any other provision
of this Plan, in order to qualify for the exemption provided by Rule 16b-3, (i)
any shares of Restricted Stock or other equity security received by a Section
16 Participant pursuant to a Restricted Stock Grant and any Common Stock or
other equity security acquired by a Section 16 Participant upon exercise of an
Option may not be sold for six months and one day after the date of award of
the Restricted Stock Grant or Option and (ii) any Option or other right related
to an equity security issued under this Plan that constitutes a "derivative
security" within the meaning of Rule 16b-3(a)(2) under the Exchange Act, or any
successor
12
<PAGE> 13
provision, shall not be transferable other than by will or the laws of descent
and distribution. The Committee shall have no authority to take any action,
and shall not take any action, if the authority to take such action, or the
taking of such action, would disqualify this Plan from the exemption provided
by Rule 16b-3.
(f) Effectiveness. This Plan amendment and restatement shall
become effective upon its approval by the Board, subject to approval by the
stockholders of the Company. Prior to such stockholder approval, awards may be
granted under this Plan amendment and restatement subject to such stockholder
approval.
(g) Amendment; Termination. The Board may amend, suspend or
terminate this Plan or any portion thereof at any time, provided that (i) no
amendment shall be made without stockholder approval if such approval is
necessary to comply with any applicable tax or regulatory requirement,
including any requirements for exemptive relief under Section 16(b) of the
Exchange Act or any successor provision, and (ii) Section 8 hereof and, as it
relates to awards granted or to be granted to Non-Employee Directors, Section
9(b) hereof may not be amended more than once every six months other than to
comport with changes in the Code or ERISA or the rules and regulations under
either thereof. If any amendment, suspension or termination of this Plan shall
materially and adversely affect the rights of the holder of any award then
outstanding, such amendment, suspension or termination shall not be deemed to
alter such rights unless the holder shall consent thereto.
(h) Term. Options and Restricted Stock Grants may not be awarded
under this Plan after ten years from the Effective Date, but then outstanding
Options and Restricted Stock Grants may extend beyond such date. Unless sooner
terminated, this Plan shall terminate on the tenth anniversary of the Effective
Date, provided that such termination shall not terminate or affect any Option
or Restricted Stock Grant then outstanding.
13
<PAGE> 1
Exhibit 10.23
HADSON CORPORATION 1992 EQUITY INCENTIVE PLAN
NON-EMPLOYEE DIRECTOR STOCK OPTION AGREEMENT
AGREEMENT made and entered into as of the 14th day of December, 1993
between Hadson Corporation (the "Company"), and _______________ (the "Grantee").
W I T N E S S E T H:
1. GRANT. Pursuant to the provisions of the Hadson Corporation
1992 Equity Incentive Plan (the "Plan"), the Company hereby grants to the
Grantee, subject to the terms and conditions of the Plan (as it presently exits
and as it may hereafter be amended), and subject to the further terms and
conditions hereinafter set forth, as a matter of separate agreement and not in
lieu of salary or other compensation for services, the right and option (the
"Option") commencing on the date of this Agreement, to purchase all or any part
of an aggregate of 6,667 shares (the "Shares") of authorized common stock $.01
par value of the Company ("Common Stock"), such Option to be exercised in the
manner and for the purchase price as hereinafter provided. The number of
shares with respect to which this Option is exercisable, and the purchase price
with respect to each share to be acquired pursuant to the exercise of the
Option herein granted, are each subject to adjustment under certain
circumstances, as more fully set forth in the Plan.
2. Price. The purchase price of said shares of Common Stock
subject to the Option shall be $2.34 per share or Fifteen Thousand Six Hundred
Dollars and Seventy Eight Cents($15,600.78) for the aggregate 6,667 shares.
3. Option Exercise Limitations.
(a) On the date of grant, the Option shall be immediately
exercisable as to 100% of the Shares subject thereto. All Option exercise
privileges shall be cumulative, so that any Option that is exercisable but that
has not been exercised shall remain exercisable throughout the balance of the
Option period, regardless of the additional exercise privileges becoming
available during such exercise period.
(b) The Option shall be exercised by the Grantee only while he is,
and has been continuously serving as a director of the Company since the date
of this Agreement, except that:
(i) Death. If the Grantee dies while serving as a
director of the Company, the Option which is
otherwise exercisable on the date of termination of
service may be exercised within 36 months from the
date of death by the Grantee's personal
representative, heirs and legatees; and
(ii) Other Termination. The Grantee may exercise the
Option within 36 months after any other interruption
or termination of service except that
<PAGE> 2
if the Grantee's service shall be terminated by the
Company for cause, the Option shall terminate
immediately.
4. Method of Exercise. The Option granted hereunder may be
exercised in whole or in any part, and may be exercised in part from time to
time, all subject to the limitations on exercise set forth in Section 3 above.
Exercise shall be accomplished by delivery to the Company of a timely written
notice of election to exercise, which notice shall specify the number of shares
to be purchased, and which shall be accompanied by payment of the purchase
price for the Shares with respect to which the Option is being exercised. The
purchase price of the shares shall be paid in cash (including by check) or,
subject to the approval of the Committee, by the surrender to the Company of
shares of previously acquired Common Stock which shall be valued at the Fair
Market Value as of the date of the exercise of the Option (determined by the
Committee in accordance with the method for establishing Fair Market Value
contained in the Plan).
5. Rights Prior to Exercise. The Option shall not be transferable
by the Grantee otherwise than by will or the laws of descent and distribution.
No Option shall be exercisable during the lifetime of the Grantee by any person
other than the Grantee, or his guardian or legal representative. Grantee shall
have no rights as a stockholder of the Company with respect to the Option
Shares until payment of the option price is made in accordance with Section
Four.
6. Term of Option. The Option herein granted, to the extent that
it has not theretofore been exercised, shall expire at 11:59 on December 14,
2003, being ten years from the date of grant of this Option. Under no
circumstances may the Option conferred by this Agreement be exercised after ten
years from the date of the Grant.
7. Section 16 Participants. Grantee agrees to hold the Common
Stock acquired upon exercise of the Option for a period of six months from the
date of grant of the Option if Grantee is deemed a Section 16 Participant at
time of exercise of the Option.
8. Certain Adjustments. In the event of a stock dividend, stock
split or combination of shares of Common Stock, recapitalization or other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company, appropriate and proportionate
adjustment shall be made in the number, kind and per share exercise price of
shares subject to the Option then outstanding.
9. Binding Effect. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
10. Plan Document. Capitalized terms not defined herein have the
meanings set forth in the Plan. The Grantee hereby acknowledges receipt of a
copy of the Plan (attached hereto as Exhibit A) and agrees to be bound by all
the terms and provisions thereof. The terms of the Plan as it presently
exists, and as it may hereafter be amended, are deemed incorporated herein by
reference, and any conflict between the terms of this Agreement and the
provisions of the Plan shall be resolved by the Committee, whose determination
shall be final and binding on all
<PAGE> 3
parties. In general, and except as otherwise determined by the Committee, the
provisions of the Plan shall be deemed to supersede the provisions of this
Agreement to the extent of any conflict between the Plan and this Agreement.
11. Governing Law. This Agreement shall be governed by the laws of
the State of Oklahoma.
12. Notices. Every notice or other communication relating to the
Agreement shall be in writing, and shall be delivered or mailed to the Company
at 101 Park Avenue, Suite 1400, Oklahoma City, Oklahoma 73102, or to the
Grantee at the address set forth below Grantee's signature, or, in each case,
such other address as a party shall communicate in writing to the other party.
13. Amendment. This Agreement may be amended only pursuant to a
written agreement between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the _____ day of__________, 1994.
ATTEST: HADSON CORPORATION
_____________________________ By_________________________________
Terri McGuire Watson Greg G. Jenkins
Secretary President & Chief Operating Officer
GRANTEE
___________________________________
<PAGE> 1
Exhibit 11
COMPUTATION OF FULLY DILUTED EARNINGS/LOSS
PER SHARE (1)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Net loss from continuing operations
as reported $(9,149) (15,066) (15,876)
Preferred stock dividend requirements - (61) (293)
Expenses related to 7-3/4% convertible
subordinated debentures 2,325 1,978 -
------- ------- ------
Fully diluted net loss from continuing
operations available to common stock $(6,824) (13,149) (16,169)
======= ======= =======
Earnings (loss) from discontinued operations,
as reported and fully diluted 4,829 (8,103) 5,553
======= ======= =======
Average number of common shares as
reported (primary) 2,517 2,826 8,383
Additional shares assumed issued:
Options 2 - 19
7-3/4% convertible subordinated
debentures 320 306 -
8% Junior Preferred Stock - 258 -
------- ------- -------
Average number of common shares -
fully diluted 2,839 3,390 8,402
======= ======= =======
Fully diluted net loss from continuing
operations per common and common
equivalent share $ (2.40) (3.88) (1.92)
======= ======= =======
Fully diluted net earnings (loss) from discontinued
operations per common and common
equivalent share $ 1.70 (2.39) .66
======= ======= =======
</TABLE>
(1) This computation is submitted in accordance with Regulation S-K, Item
601(b)(11) although it is contrary to paragraph 10 of APB Opinion No. 15
because it produces an anti-dilutive result.
<PAGE> 1
Exhibit 22.01
HADSON CORPORATION
LIST OF SUBSIDIARIES
STATE OF
NAME OF SUBSIDIARY INCORPORATION
- ------------------ -------------
Hadson Defense Systems Inc. Delaware
(formerly Ultrasystems Defense Inc.
formerly Ultrasystems Defense and Space Inc.)
Hadson Ecuador, Inc. Oklahoma
Hadson Energy Risk Management, Inc. Oklahoma
Hadson Energy Systems, Inc. Oklahoma
Hadson Financial Corporation Delaware
Hadson Foundation Oklahoma
Hadson Fuels, Inc. Oklahoma
Hadson Gas Company Delaware
Hadson Gas Gathering & Processing Co. Delaware
Hadson Gas Marketing Co. Delaware
Hadson Gas Systems, Inc. Oklahoma
Hadson Power Live Oak Incorporated California
(formerly Ultrasystems Environmental Corporation
formerly Ultrasystems Energy Company)
Hadson Retail Services, Inc. Oklahoma
Hadson Services, Inc. Oklahoma
HD Energy Corporation Delaware
(formerly Hadson DHC Corporation)
Llano, Inc. New Mexico
Minerals, Inc. New Mexico
NMESCO Fuels, Inc. New Mexico
NuHPI, Inc. Delaware
Probe Systems, Inc. California
Triple T Services, Inc. Oklahoma
Ultrafuels Incorporated California
Ultrafuels 1 Incorporated California
Ultrapower Biomass Fuels Corporation California
(formerly Ultrapower 1 Incorporated
Ultrapower Energy Resources Incorporated California
Ultrapower 3 Incorporated California
Ultrasystems International California
Ultrasystems Small Power, Incorporated California
Ultrasystems Small Power 1, Incorporated California
United LP Gas Corporation Oklahoma
(formerly Hadson Liquid Fuels, Inc.
formerly Hadson Liquids, Inc,.)
Western Natural Gas & Transmission Corp. Colorado
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-51373) and
Form S-8 (No. 33-26666, 33-68820) of Hadson Corporation of our report dated
February 18, 1994, appearing on page F-2 of this Form 10-K.
PRICE WATERHOUSE
Oklahoma City
March 28, 1994
