<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required, effective October 7, 1996)
For the Fiscal Year Ended December 31, 1996
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 0-19497
MOBLEY ENVIRONMENTAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2242963
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4415 E. GREENWOOD
BAYTOWN, TEXAS 77520
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 383-7033
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
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 other information
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Class A Common Stock held by non-affiliates of
the registrant at May 1, 1997, based on the closing price as reported by the OTC
Bulletin Board as of such date, was estimated to be $1,041,788.
The number of shares outstanding of the registrant's common stock, as of May 1,
1997 was 4,155,097 shares of Class A Common Stock, $.01 par value and 4,680,196
shares of Class B Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of an Information Statement filed by Registrant with the Commission,
and mailed to shareholders, on May 9, 1997 are incorporated by reference into
Part I.
THIS ENTIRE FORM 10-K IS SUBJECT TO FORM 12B-25 FILED APRIL 1, 1997.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FORM 10-K INDEX
PART I
Page Number
-----------
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 14
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
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . 17
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . 18
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . . . . . . . . 26
PART III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . 26
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 29
Item 12. Security Ownership of Certain Beneficial Owners and Management. . 35
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . 36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . 37
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Mobley Environmental Services, Inc. (the "Company") provides diverse
environmental and field-related services to industrial, governmental and
commercial markets, and specializes in the collection, transportation,
treatment, recycling, and management of a wide variety of non-hazardous liquid
hydrocarbons, oil filters, absorbents, and related materials. Prior to January
20, 1997, as discussed below, the Company also provided oilfield services,
including transporting, marketing, storing, and disposing of various liquid
materials used or produced as waste throughout the lifecycle of oil and gas
wells.
The Company was formed in July 1991 for the purpose of combining the
businesses of Gibraltar Chemical Resources, Inc. ("Gibraltar"), Mobley Company,
Inc. ("Mobley Co."), and Mobley Group, Inc. which had been under common
management since their inception. Shareholders of the predecessor companies
received shares of the Company's Class B Common Stock in exchange for their
shares of common stock of these companies, and certain of the principal
shareholders of the Company sold to the Company for cash certain assets used in
the business of the predecessor companies. As a result of the foregoing
transactions, Gibraltar and Mobley Co. became wholly-owned subsidiaries of the
Company and Mobley Group, Inc. was merged into the Company.
The Company's oilfield services business was founded in 1943, primarily for
the recycling of tank bottoms, an oilfield waste material which was processed
and used to make specialty polishes and waxes. Based on the experience of
certain of the Company's principal shareholders in establishing and operating
several businesses managing chemicals and liquid and solid wastes, including the
operation of oilfield salt water disposal wells, in 1980 the Company expanded
into the hazardous waste treatment and disposal business through its Gibraltar
subsidiary with the construction of a deepwell and related facilities in Winona,
Texas. Additional facilities for waste-derived fuels blending and solvent
recycling were added at the Gibraltar site in 1986 and 1987 and a second
deepwell was completed in 1991. As discussed below and in Note 3 of Notes to
Consolidated Financial Statements set forth in Item 8 herein, the Company
completed the sale of Gibraltar on December 31, 1994. Since that time, the
Company has not been involved in the commercial management of hazardous wastes.
In 1987, the Company expanded its waste management services activities to
include the collection and treatment of non-hazardous, hydrocarbon-laden
wastes for customers outside the oil and gas industry and opened its initial
oily waste treatment facility in Kilgore, Texas. Subsequently, in 1991 and
1993, additional treatment facilities for the processing of non-hazardous
hydrocarbon-laden fluids commenced operations in Corsicana, Texas and
Baytown, Texas, respectively. These treatment and recycling plants are
supported by a network of seven transportation terminals and transfer
facilities in Texas, Arkansas, and Louisiana. In 1995, the Company, through a
newly-formed subsidiary, Hydrocarbon Technologies, Inc., broadened its
hydrocarbon recycling and recovery activities to include the collection and
marketing of used oil and oil filter collection and recycling through the
acquisition of the assets of a group of three related recycling companies.
Additionally, as part of a strategic business plan, construction of two new
facilities for the recycling of used motor oil and fuel mixtures into
higher-value finished products for sale and the processing and recycling of
used oil filters, absorbents and related materials was completed during 1996.
See "Business Strategy and Background of the Transaction" herein.
On October 30, 1996 and April 25, 1997, respectively, the Company
executed a letter of intent and definitive asset acquisition agreement (filed
as Exhibit 10.26 to this Form 10-K) with United States Filter Corporation
("U.S. Filter") for the sale of its
1
<PAGE>
hydrocarbon recycling and recovery assets (the "Transaction"). The Transaction
is expected to be consummated by May 31, 1997. See "Business Strategy and
Background of Transaction" herein, Note 2 of Notes to Consolidated Financial
Statements set forth in Item 8 herein, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" set forth in Item 7 herein.
On January 20, 1997, the Company completed the sale of the assets used in
its oilfield services business to Dawson Production Services, Inc. ("Dawson").
See "BUSINESS--Oilfield Services" herein, Note 2 of Notes to Consolidated
Financial Statements set forth in Item 8 herein, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" set forth in Item
7 herein.
RESTRUCTURING AND DIVESTITURE OF HAZARDOUS WASTE OPERATIONS
In late 1993, management developed and began implementation of a
restructuring plan for Gibraltar. Such restructuring was precipitated by a
general decline in the hazardous waste services industry during 1992 and 1993 as
a result of an increasingly competitive and changing market, trends toward
recycling/recovery and waste minimization by industrial waste generators, as
well as the effects of a recessionary economy. In addition, Gibraltar was
negatively impacted by a series of regulatory and legal issues. After a period
of continued operating losses, in light of management's ongoing assessment of
changed conditions in the hazardous waste market, and considering the
significance of Gibraltar's regulatory issues and future capital requirements,
in late 1993, the Company's senior management and Board of Directors determined
that the divestiture of its hazardous waste business was in the best interests
of the Company and its shareholders. On May 10, 1994 the Company entered into a
definitive agreement (the "Stock Purchase Agreement") for the sale of all of the
outstanding shares of common stock of Gibraltar to American Ecology Corporation
("AEC"). The sale of Gibraltar was completed effective December 31, 1994. See
Note 3 of Notes to Consolidated Financial Statements set forth in Item 8 herein.
The Company made extensive warranties and representations in the Stock
Purchase Agreement, including the absence of any liabilities arising prior to
closing other than those disclosed to AEC. The Company is required to indemnify
AEC for all losses resulting from breaches of warranties and representations and
pending or future claims or proceedings resulting from circumstances existing
prior to closing through June 30, 1996 (or in the case of tax, environmental and
ERISA claims, through June 30, 1998). The maximum liability of the Company
under such indemnity with respect to undisclosed claims is $3.0 million; there
is no limit with respect to disclosed liabilities. See Note 13 of Notes to
Consolidated Financial Statements set forth in Item 8 herein for further
information regarding certain obligations and contingent liabilities relating to
Gibraltar.
The Company had also formed a joint venture called Pro Ambiente, S.A. de
C.V. ("Pro Ambiente"), with Cemex, S.A. de C.V. ("Cemex") in March of 1993 to
collect organic hazardous wastes and blend hazardous waste fuels for certain
cement kilns operated by Cemex in Mexico. After the divestiture of Gibraltar
and the Company's decision to focus on its non-hazardous hydrocarbon recycling
business, and in light of the economic uncertainties in Mexico, the Company sold
its interest in the joint venture to Cemex in July 1995. See Note 5 of Notes to
Consolidated Financial Statements set forth in Item 8 herein.
BUSINESS STRATEGY AND BACKGROUND OF THE TRANSACTION
Having exited the hazardous waste industry with the year-end 1994 sale of
Gibraltar and the mid-1995 divestiture of its interest in Pro Ambiente, the
Company's focus has been on the continued growth and development of its
non-hazardous hydrocarbon recycling and recovery business. In anticipation
of the Gibraltar sale, the Company sought to develop a strategic business
plan to maintain and enhance its financial position upon the divestiture of
Gibraltar, and to achieve long-term profitability for the Company in the face
2
<PAGE>
of changing conditions in the waste management services industry. Through this
planning process, management identified significant market opportunities in the
business of non-hazardous hydrocarbon recycling and recovery. The Company's
Board of Directors and management believed that its core skills in managing
liquid hydrocarbon wastes, combined with its experience in processing industrial
oily wastes, formed a solid foundation for a business expansion into more
advanced hydrocarbon recycling and recovery technologies. The strategic plan
developed by the Company contemplated growth through process enhancement
projects, as well as through the acquisition of complementary existing business
operations.
In particular, through its strategic review process, the Company developed
a business plan that included (i) acquisitions of small used oil collection
operations in geographic areas where the Company was already active in the oily
waste business; (ii) installation of a distillate fuels production facility at
the Company's Baytown, Texas processing complex to manufacture value-added
products from recovered hydrocarbon waste streams; (iii) installation of a
filter recycling plant at its Baytown facility for the recycling of used oil
filters, absorbents and related materials; (iv) aggressive marketing of the
Company's new services to its existing industrial customer base; and (v)
exploration of new geographic and service markets for further expansion.
Management also believed that it would become increasingly important for the
Company to develop the skills and capabilities necessary to provide on-site
treatment services to its larger industrial clients in light of industry trends
toward waste minimization and recycle/recovery.
As an initial step in the implementation of this plan, the Company
identified the used motor and industrial oils, filter, and antifreeze
collection and recycling businesses as a promising expansion opportunity for
its existing non-hazardous high water-content hydrocarbon recycling and
recovery business, by providing used oil and oil filter feedstock for the
manufacture of value-added finished products at facilities to be constructed
in Baytown, Texas. Based on the studies and analysis conducted by management,
it determined that much of the used oil and oil filter collection was
currently performed by small operators characterized by limited capital
resources who lacked the enhanced processing capabilities to add value to the
products collected. Accordingly, the Company pursued and eventually completed
the acquisition of certain assets of a group of three related recycling
companies in July 1995. Simultaneously, the Company continued its due
diligence on the industry in general, its targeted business markets, and the
specific distillate fuels production and filter recycling facilities most
feasible for accomplishment of the Company's objectives. To assist in this
process, the Company engaged several consultants to provide needed
information regarding capital costs, relevant industry data, price
relationships, and general project economics. Management's market research
and industry analysis culminated in specific plans for the engineering and
construction of a distillate fuels production facility and oil filter
recycling facility.
Engineering of the two new processing facilities began in April 1995;
however, permitting issues and contractor delays pushed commencement of
construction to the third quarter of that year. Construction of the filter
recycling facility was completed by the end of the 1996 first quarter and the
plant began operations in April of that year. The distillate fuels production
facility began its mechanical checkout and startup process during the 1996
second quarter; however, as a result of various technical and operational
issues, an extended testing and evaluation period delayed full-scale operation
of the plant until August, 1996.
In October 1995, the Company engaged Cureton and Co., Incorporated
("Cureton & Co."), an investment banking and business advisory firm, to assist
it with the investigation and possible financing of other business combination
opportunities that had come to the Company's attention during the course of its
strategic planning, industry analysis, and due diligence. With the assistance
of Cureton & Co., the Company investigated possible relationships or
affiliations with a variety of entities whose operations might be a feasible
expansion of, or complementary to, the Company's existing operations or those
contemplated under its strategic plan. Of the discussions undertaken by
management, PORI International, Inc. ("PORI"), based in Baltimore, Maryland,
emerged as a candidate for serious consideration due to its longstanding
reputation
3
<PAGE>
in the treatment of oily wastes on customers' sites, its historic development of
oil/water separations technologies, and its established presence as a
consolidator of used oil from collectors in the Middle Atlantic region of the
United States. On March 11, 1996, the Company's discussions with PORI
culminated in a letter of intent to acquire substantially all of PORI's assets
and assume certain of its liabilities with completion of the transaction subject
to, among other things, the Company's ability to secure the necessary financing.
Although initial inquiries indicated financial institutions to be a
potential source of financing, it also became evident that significant equity
infusions would be required to complete the PORI acquisition and to otherwise
carry out the Company's overall expansion plans. In an effort to secure equity
financing, the Company prepared a detailed business plan that described the
opportunities for growth and the plan for the development of the business,
including financial projections. In addition to the acquisition of PORI, the
plan contemplated several follow-on business acquisitions in targeted geographic
regions, the expansion of its used oil and filter collection capabilities, and
the construction of new facilities for oil/water processing, distillate fuels
production, and oil filter recycling. Financing necessary to effectuate the
entire plan was estimated to require approximately $34.5 million in excess of
internally-generated funds over a three-year period.
The Company incurred operating losses during the 1996 first and second
quarters of $672,000, or $0.08 per share, and $492,000, or $0.06 per share,
respectively. Such disappointing financial results reflected the impact of an
extended regional drought which severely impaired fluid volumes, revenues, and
the related profitability of the Company's oil/water separations business. In
addition to the effect of the drought conditions, this core business was also
impacted by the ongoing decline of fluids associated with underground storage
tank remediation activities. While such event-driven volumes were partially
offset by an increase in production-oriented oily wastes, the change in business
mix toward more difficult-to-treat waste streams resulted in diminished profit
margins. Additionally, competitive pressures in the Company's oilfield services
business, along with an unfavorable shift in business mix favoring a higher
proportion of lower-margin contract services revenue, reduced the profit
contribution from this segment during the fourth quarter of 1995 and first
quarter of 1996. Further, because of the startup nature of its used oil and
filter collection and recycling activities, compounded by delays in bringing the
new processing facilities on-line, these new business lines made virtually no
contribution to operating profit during this period. The operating losses
sustained by the Company, coupled with the aggressive capital spending program
associated with the execution of its growth strategy, significantly weakened the
Company's liquidity over the first half of 1996. By the end of the 1996 second
quarter, the Company had a working capital deficit of approximately $4.8
million, including $4.4 million in outstanding bank indebtedness which was
classified as a current liability as a result of violations of certain
restrictive covenants in its bank credit agreement. The Company's cash
resources had been reduced from $1.5 million at year-end 1995 to $516,000 at
June 30, 1996, and it had exhausted substantially all of its available
borrowing capacity.
As a result of the Company's deteriorated financial condition and
unfavorable results of operations, bank debt financing had effectively been
eliminated as a viable source of funds for the continued execution of its
strategic plan. Through Cureton & Co., the Company contacted over 30 venture
capitalists, private investors, and industry participants during the ensuing
months of the summer of 1996 to discuss the possibilities of a private
investment in the Company or other strategic alliance. Of those contacted,
approximately 27 asked to review the Company's business plan, many of whom
indicated interest in further investigation. Senior management was interviewed
by several potential investors, and six potential investor groups toured the
Company's Baytown facility to further discuss possible relationships or
investment structures. Through these discussions, it became evident to
management that more serious negotiations with most potential investors were
thwarted by one or more issues facing the Company, including the risks
associated with the unproven nature of the Company's distillate fuels production
facility, and the perceived litigation exposure arising from the Company's
former ownership of Gibraltar (see "LEGAL PROCEEDINGS--Claims and Legal
4
<PAGE>
Proceedings Against Gibraltar" set forth in Item 3 herein and Note 13 of Notes
to Consolidated Financial Statements set forth in Item 8 herein).
Through this exhaustive process, U.S. Filter emerged as the most viable
party interested in pursuing a specific transaction with the Company. After
lengthy discussions, it became clear that U.S. Filter was not interested in
joint ownership and would only proceed with negotiations on the basis of
purchasing, with registered shares of U.S. Filter common stock as consideration,
the Company's entire interest in its hydrocarbon recycling and oil/water
processing business.
In light of the Company's severely weakened financial condition and given
U.S. Filter's stated interest in acquiring the Company's hydrocarbon recycling
and recovery business, the Board of Directors reviewed the challenges facing the
Company and discussed in general terms the alternatives available to address
them. The Board and management noted that the hydrocarbon recycling and recovery
industry is currently highly fragmented, but characterized by increasing
consolidation, intensifying competition, and continued growth through
acquisition by larger entities with greater access to financial resources than
that of the Company. Among other things, the Board of Directors discussed (i)
the Company's relatively small size and the resultant constraints on its ability
to make significant investments in additional processing or collection
businesses without an infusion of equity; (ii) the Company's inability to
obtain bank financing and the unfavorable results of recent efforts to attract
equity investors to fund activities contemplated by the Company's strategic
business plan; (iii) the Company's default under its bank credit agreement due
to its inability to maintain compliance with certain covenants contained in such
agreement; and (iv) the Company's severely strained liquidity and immediate need
for working capital to continue its current operations. As part of these
deliberations, management and Cureton & Co. reviewed in detail with the Board of
Directors the contacts that had been made with third parties regarding possible
investments in, or strategic alliances with, the Company. Since such efforts had
not yielded access to funds on terms acceptable to the Company, discussions were
then focused on the possible acquisition of the Company's hydrocarbon recycling
and recovery business by U.S. Filter as offering the best prospects for the
Company and its shareholders. In conjunction with this decision, the Company
abandoned its plans to acquire the assets of PORI; such assets were subsequently
acquired by U.S. Filter in February 1997.
Discussions and negotiations with U.S. Filter continued through September
1996 and during this period management and Cureton & Co. continued to respond to
inquiries from other parties who had expressed an initial interest in a possible
investment in the Company; however, none of these inquiries resulted in a formal
offer. On October 9, 1996, the Company's Board of Directors met and reviewed
with management and Cureton & Co. the status of such negotiations. Based on the
progress of those discussions, and the terms of the outstanding offer from U.S.
Filter, the Company's Board authorized the Company to enter into a letter of
intent pursuant to which the Company would sell to U.S. Filter the net assets of
the Company's hydrocarbon recycling and recovery business in consideration for
U.S. Filter common stock having an aggregate exchange value of $8.0 million,
plus the right to receive additional shares of U.S. Filter common stock with an
exchange value of up to $4.0 million upon the attainment of certain financial
performance goals in the two-year period following the sale. The Company
executed a letter of intent with U.S. Filter on October 30, 1996, and
thereafter, U.S. Filter continued its due diligence business review of the
Company. Senior management of the Company, assisted by Cureton & Co. and legal
counsel, and U.S. Filter then began negotiating the terms of a definitive asset
purchase agreement. Matters negotiated during this time included the terms of
the consideration to be received by the Company, including among others,
finalization of the formula pursuant to which the number of shares of U.S.
Filter common stock issuable to the Company would be determined, the specific
terms regarding the contingent U.S. Filter common stock that may be earned by
the Company, the nature and scope of representations and warranties to be given
by the Company to U.S. Filter, the extent of indemnifications to be given by
each party to the other party, and specific conditions precedent to closing of
the Transaction. The negotiations between the Company and U.S. Filter continued
5
<PAGE>
through April 16, 1997 and resulted in approval by the Company's Board of
Directors of a definitive Asset Purchase Agreement (the "Agreement") (filed
as Exhibit 10.26 to this Form 10-K) on that date, subject to subsequent
modifications as may be deemed appropriate by the Company's executive
officers, financial advisors, and legal counsel. Such Agreement was executed
on April 25, 1997.
Additional information regarding the sale of the Company's hydrocarbon
recycling and recovery business to U.S. Filter is contained in an Information
Statement to the Company's shareholders dated May 9, 1997. A definitive filing
of such Information Statement with the Securities and Exchange Commission was
made on that date.
MARKET DEMAND FACTORS
In recent years, the demand for the Company's waste management services
has resulted primarily from public concern over the quality of the
environment and ensuing adoption and enforcement of increasingly stringent
federal, state and local environmental laws and regulations. These laws and
regulations have increased the costs and potential liabilities associated
with handling of wastes, including used oil. Governmental regulation has also
caused a number of commercial treatment and disposal facilities to close, as
many have been unable to meet the increasingly strict siting and operating
standards imposed by RCRA and other applicable laws. Furthermore, many
generators of hazardous and non-hazardous wastes have chosen not to maintain
their own treatment and disposal facilities or to develop the technical
expertise necessary to assure regulatory compliance. Accordingly, many
generators have sought to have their waste streams managed by firms that
possess collection, recycling, treatment, transportation and disposal
capabilities and have the expertise and financial capacity necessary to
comply with applicable environmental regulations.
Additionally, concerns by generators about long-term liability has led the
industry toward waste minimization and recycle/recovery and thus have
significantly changed the market for both hazardous and non-hazardous waste
treatment and disposal in recent years, as waste generators continue to look for
ways to reduce or reuse the wastes they generate. Many generators and other
purchasers of waste management services have attempted to decrease the number of
providers of these services they utilize in response to liability concerns. The
Company believes that these trends will continually force waste management
services firms to focus on technological innovation, sound waste-tracking
capabilities and a heightened commitment to customer service and responsiveness.
It has been the Company's intention to be responsive to these needs in the
expansion of its hydrocarbon recycling business.
The hydrocarbon recycling and recovery industry--particularly the oil and
filter recycling markets--is undergoing fundamental change. Currently, these
markets are highly fragmented, consisting primarily of many small companies and
relatively few major firms. The Company believes that continued regulatory
scrutiny and a growing awareness of the benefits of proper recycling practices
will continue to stimulate industry-wide consolidation, and it sees a growing
need for waste minimization and on-site services. These factors are expected to
reinforce the demand for hydrocarbon recycling and recovery firms with multiple
capabilities.
BUSINESS SEGMENTS
See Note 2 of Notes to Consolidated Financial Statements set forth in Item
8 herein for information regarding the Company's business segments.
6
<PAGE>
WASTE MANAGEMENT SERVICES
Since the divestiture of Gibraltar at year-end 1994, the waste management
services provided by the Company have consisted of the collection,
transportation, treatment, recycling, and management of non-hazardous liquid
industrial hydrocarbons, off-specification motor fuels, used oils, oil filters,
absorbents and related materials. These activities are collectively referred to
herein as "hydrocarbon recycling and recovery".
TREATMENT AND RECYCLING OF OIL-WATER AND FUEL-WATER MIXTURES
The Company treats selected non-hazardous oily fluids through phase
separation processes as a part of its hydrocarbon recycling and recovery
services. These oily fluids consist primarily of three types: industrial
oily fluids, off-specification motor fuels, and underground storage tank
remediation fluids. Oily fluids are broken into separate phases through the
addition of chemicals, heat, agitation, and mechanically-enhanced gravity
separation. Off-specification motor fuels and underground storage tank
remediation fluids are similarly processed at segregated facilities. The
water recovered from the above mixtures is treated and discharged to a local
sewer system, and reclaimed oil is marketed as industrial fuel. Recycled
motor fuel is marketed as refinery feedstock. The Company currently operates
three hydrocarbon recycling and recovery facilities in Baytown, Kilgore, and
Corsicana, Texas. Sources of oily fluids managed as used oils include
industrial and manufacturing operations and transportation activities.
Sources of motor fuel-water mixtures managed as off-specification motor fuels
include motor fuel distribution, transportation, and retailing activities.
Underground storage tank fluid sources include underground storage tank
corrective action, removal, and groundwater remediation activities.
COLLECTION ACTIVITIES
The Company transports high-water oily fluids using vacuum tank trucks and
other transports dedicated to the waste management business. The Company
collects motor fuel-water mixtures, as well as waste lubricants, machine
coolants, and other hydrocarbon-laden fluids, from industrial, manufacturing,
and transportation operations. Prior to treatment, these materials may be held
temporarily at one of the Company's transfer facilities. The Company also uses
its collection equipment to provide in-plant support services to industrial
companies and environmental engineering firms engaged in remediating groundwater
problems, cleaning up spills, or pumping and transporting industrial liquids and
sludges within their own plant sites.
USED OIL COLLECTION AND RECOVERY SERVICES
As a result of the asset acquisition in July 1995 described in Note 4 of
Notes to Consolidated Financial Statements set forth in Item 8 herein, the
Company began the collection and marketing of used lubricating oils from various
sources, including automobile and truck dealers, transportation fleets,
automotive garages, oil change outlets, service stations, industrial plants, and
other businesses. Currently, the majority of this used oil is acquired with no
fee payments to or from the generator. Additionally, the Company currently
acquires certain quantities of used oil from other collectors, and typically
pays the collectors for this material based on the quantities and quality of the
used oil acquired. This purchased oil was formerly aggregated with the oil from
the Company's own collection activities and sold unprocessed to fuels blenders
for use as a fuel in certain industrial applications for which such oil is
suitable. With the startup of its distillate fuels production facility in the
1996 second quarter, the Company began utilizing substantially all of the used
oil it collects and purchases as feedstock for the manufacture of distillate
fuel products, including marine diesel oil blendstock, light distillates, and
asphalt flux. Such conversion of used oils into higher-value finished products
allows the Company to derive revenue from the sale of such products it sells
into relatively large commodity markets. The new plant is designed to process
nominally 19.0 million gallons of feedstock annually, including both used oils
and mixed motor fuels. Although the plant initially achieved such production
rates for short periods of time, technical problems and operational issues
associated with startup of the used oil processing
7
<PAGE>
operations prevented it from sustaining these throughput levels. As a
result, the plant's monthly production averaged 800,000 gallons during the
period from August 1996 to December, 1996 compared to its used oil processing
capacity of 1.2 million gallons per month. This production shortfall, as
well as a later-than-expected plant completion, materially impacted the
decline in the Company's liquidity during 1996. Management believes that
certain capital improvements to the plant, which are currently underway and
scheduled to be completed in the 1997 second quarter, will enable the plant
to approach or achieve its design and operating cost expectations.
FILTER COLLECTION AND RECYCLING SERVICES
Similarly, with the aforementioned asset acquisition, the Company began the
collection and recycling of used oil filters. In this business line, the
Company derives revenues from the fees it charges customers to manage used oil
filters and related products, as well as from the sale of the recovered
products, as described below. Containers (generally 55-gallon drums) of used
automotive and industrial filters and absorbents are typically collected from
customers using the Company's collection fleet and aggregated at selected sites
in its network of transfer facilities. These filters are then transported to
the Company's Baytown filter recycling facility, which commenced operations in
April 1996. Prior to the completion of its recycling plant, the Company
utilized a third-party processor to recycle the spent filters. The new filter
processing plant shreds, separates and recycles used oil filters into three
reusable components--used oil, filter fluff, and metal. The recovered used oil
is utilized as feedstock for the distillate fuels production facility described
in the preceding paragraph. The filter fluff is utilized as an alternative fuel
source for approved industrial users where possible, or otherwise properly
managed. The recovered metal is marketed as feedstock for regional "mini-
mills" in the steel-producing industry. The new facility is estimated to have a
single-shift processing capacity of approximately 97,000 drum equivalents of
filters annually.
ANALYTICAL SERVICES
The Company provides analytical services through two laboratory facilities
in Baytown and Kilgore that are integral to its ability to manage recyclable
hydrocarbons and used oil properly. These captive laboratory facilities
perform tests on the waste streams of customers and potential customers which
enable the Company to determine the optimal means of recycling or treatment.
These tests also allow the Company to determine whether or not it has the
capability of accepting the waste stream, determine whether the wastes conform
to the customer's pre-approved waste profile, and to estimate the cost of
managing the wastes. The Company's internal analytical capabilities are
supplemented through the use of outside commercial laboratories as needed.
OILFIELD SERVICES
Until the recent sale of its oilfield services assets described in the
following paragraph, the Company's strategy with respect to this business was to
maintain its operations in east Texas, but not to expand such services to other
geographic regions. This business segment consisted of the transportation,
management and disposal of various liquids which are used or produced as waste
in the drilling, completion, and production operations of oil and gas wells. In
particular, the Company had extensive capabilities in supplying fluids and the
necessary storage tanks for massive hydraulic fracture treatments prevalent in
its oilfield market in east Texas. The Company operated a fleet of specialized
trucks, some of which were also used in its hydrocarbon recycling operations,
for pumping and transporting oilfield drilling fluids and oilfield liquid waste,
including produced salt water, and it rented to customers portable tanks for
well stimulation services and temporary fluids storage. The Company operated
three salt water disposal wells in east Texas. In addition, the Company sold
clear brine fluids which are used in well completion, workover, and fracturing
operations.
In light of its decision to sell the assets of its hydrocarbon recycling
and recovery business, the Company's Board of Directors evaluated the remainder
of the Company's assets and business activities,
8
<PAGE>
including its oilfield services business. Given the relatively high
administrative costs of operating a business as small as the oilfield services
business on a stand-alone basis, and the rather limited growth opportunities
available to the Company for this business (either internally or through
acquisition), the Board of Directors concluded that a sale of the business was
in the best interest of the Company. The Company, with the assistance of
Cureton & Co., prepared a memorandum describing this segment of the Company's
business, including its assets, key personnel and historical and anticipated pro
forma operating results. The memorandum was distributed to numerous potentially
interested parties, and an offer by Dawson to acquire the oilfield services
business was deemed to be superior to the expressions of interest by other
parties. Dawson's offer was deemed superior to the other expressions of interest
received given its recent experience in completing similar acquisitions, its
industry reputation and base of operations in the Company's general market area,
as well as its financial capabilities. On November 1, 1996, the Company
executed a letter of intent to sell to Dawson substantially all of its oilfield
services assets and such sale was completed on January 20, 1997 pursuant to a
definitive asset purchase agreement (filed as Exhibit 10.27 to this Form 10-K).
The Company received approximately $4.9 million in cash and a subordinated note
for $500,000 (filed as Exhibit 10.28 to this Form 10-K), due in January 2002, as
proceeds from the sale. The cash proceeds were used to reduce the Company's
outstanding bank indebtedness by $3.3 million, fund transaction expenses of
approximately $255,000 and for working capital purposes. See Note 2 of Notes to
Consolidated Financial Statements set forth in Item 8 herein for related
information regarding this segment of the Company's business.
CUSTOMERS AND MARKETING
The Company provides its waste management services to large and
small-stream generators of recyclable hydrocarbons engaged in the manufacturing,
transportation, steel, refining, chemical, automotive, and other industries.
The Company derives a substantial portion of its revenues from customers in
Texas, Louisiana, and Arkansas. A substantial portion of the Company's
customers have used its services on an ongoing basis, although no single
customer accounted for more than 10% of the Company's consolidated revenues in
1996.
Waste streams are generally received by the Company pursuant to
continuing contracts which are terminable upon 30 days notice of either party
and which do not obligate either the customer to deliver, or the Company to
accept, any specific quantities of waste. The Company's waste management
services are marketed directly by its sales force. In addition to targeting
small-stream generators who require more value-added service, the sales force
targets medium-to-large companies who have large volumes of waste, and seeks
to increase the quantities of material managed on behalf of each existing
customer by serving more of the customer's locations and managing additional
types of waste streams.
COMPETITION
The Company competes with numerous large and small companies in its waste
management services business. Among its primary competitors are Allwaste, Inc.,
Laidlaw Environmental, Inc., Safety-Kleen Corp., Specialty Environmental
Services, Philip Environmental and World Fuel Services, Inc. Each of these
companies is able to provide one or more of the waste management services
offered by the Company or alternative services, and many of the Company's
competitors have access to greater financial resources than does the Company.
In addition, the Company competes with other local or smaller regional
companies, many of which are privately-owned, that have hydrocarbon recycling
capabilities or that collect and market used oil. The Company believes that the
principal competitive factors in its markets for the waste management services
it offers are customers' ability to audit and approve competing waste treatment
and recycling facilities, comprehensiveness and quality of services, the degree
of sophistication of the treatment and recycling services offered (including the
number and types of materials capable of being processed), the availability of
alternative technologies, the physical proximity of facilities to customers, and
price.
9
<PAGE>
REGULATION
The Company is subject to comprehensive and continuously evolving
regulation by federal, state, and local authorities. These authorities are
empowered to regulate compliance with extensive environmental laws, regulations,
and ordinances. Federal environmental statutes affecting the business of the
Company include, but are not limited to, the Resource Conservation and Recovery
Act of 1976 ("RCRA"), the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 ("CERCLA"), Superfund Amendments and Reauthorization Act
of 1986 ("SARA"), the Safe Drinking Water Act, as amended (the "SDW Act"), the
Clean Air Acts of 1970 and 1972, as amended (the "Clean Air Acts"), the Clean
Water Act of 1972, as amended (the "Clean Water Act"), and the Occupational
Safety and Health Administration Act ("OSHA"). Such statutes are designed to
address management of waste at active disposal facilities, clean-up and
remediation of inactive hazardous waste sites, protection of public water
supplies, control of air quality standards, and exposure to toxic substances and
other forms of pollution in the workplace. These laws provide significant
penalties for violators, as well as continuing liability for waste generators,
owners, and operators of waste treatment facilities and others for past disposal
practices. Many states have been authorized by the EPA to enforce regulations
promulgated under various federal environmental statutes. The state of Texas
has authority to administer most of the regulations related to RCRA as well as
regulate the management of non-hazardous industrial wastes. In addition, there
are numerous state and local authorities that further regulate the environment,
some of which impose standards stricter than those established in federal laws
and regulations. Penalties for violations of applicable laws or regulations
include injunctive relief, recovery of damages for injury to air, water or
property, and fines for non-compliance.
In September 1992, the United States Environmental Protection Agency
("EPA") finalized regulations that govern the management of used oils destined
for recycling. Although used oil is not classified as a hazardous waste under
federal law, certain states do regulate used oil as hazardous. The new
regulations address several areas of environmental risks that caused
environmental problems at used oil recycling facilities in the past, and contain
specific requirements for generators, transporters, and used oil processors. The
Texas Natural Resource Conservation Commission ("TNRCC") has adopted rules that
essentially implemented the EPA regulations in Texas effective March 26, 1996.
In some respects, these regulations are more stringent than the EPA rules,
including provisions for more frequent and comprehensive reporting and financial
assurance requirements for used oil processors. The Company has built and
operates its facilities to standards that meet and, in certain instances, exceed
current standards.
The Company believes that it has obtained all material permits, approvals,
and authorizations required of it to operate its current hydrocarbon recycling
business. However, the Company may be required to obtain additional permits,
approvals, or authorizations or take substantial corrective action to retain
existing permits, approvals, and authorizations at its facilities to continue
current operations if new legislation or regulations are enacted or existing
laws and regulations are either amended or enforced differently. The Company
may in the future be required under these regulatory requirements to increase
capital and operating expenditures in order to maintain current operations or
initiate new operations. Under certain circumstances, the Company might be
required to curtail operations until a particular problem is remedied. Although
the Company cannot predict the extent to which any new legislation or regulation
may affect its operations, it is possible that changes in the current
environmental laws and regulations, or changes in the enforcement thereof, could
have a material adverse effect on the Company's operations, earnings and
competitive position.
The waste generators serviced by the Company segregate hazardous waste from
non-hazardous waste and are aware of the penalties for misrepresenting wastes.
The Company requires generators of non-hazardous wastes to certify that the
wastes, for which they are seeking management and recycling services, are not
"hazardous" pursuant to federal regulations. The Company requires generators to
submit
10
<PAGE>
a characterization sample, along with pertinent analytical data, prior to
approval of the waste stream for collection.
The Company is subject to enforcement actions for violations of any of
its permits. Citizens are entitled to file civil actions if certain
regulatory agencies fail to act on alleged violations of permits. The
Company must comply with all applicable regulations including those mandated
by RCRA, OSHA, CERCLA, the Clean Air Acts, the Clean Water Act, the SDW Act,
and other applicable regulations. The Company must exercise care to assure
that it accepts only wastes that it is authorized to manage at its various
facilities. Evaluation of the source generating waste materials, written
representations required of the generator, and analytical determinations
(performed on samples of waste to be received) are necessary to prevent the
receipt of unauthorized wastes. In addition to possible regulatory sanctions
or fines associated with the receipt of unauthorized materials, the Company
must be concerned with possible risks to its employees, equipment, and the
environment that might result from receipt and management of unauthorized
wastes. When transporting wastes, the Company is liable for any damages
related to the accidental release of waste materials. Such liability extends
to injuries caused to individuals, costs related to emergency response
activities, and remediation of spill sites. Once wastes arrive at one of the
Company's facilities, the Company must assure that there is no release of
waste from tanks and containers used for interim storage. Clean-up of such
releases is mandated by state regulation in the case of non-hazardous waste
releases.
Generators and transporters of hazardous substances, as well as past and
present owners and operators of hazardous release sites, are made strictly,
jointly and severally liable for the clean-up costs resulting from releases
and threatened releases of CERCLA-regulated hazardous substances. A large
portion of the materials collected by the Company are recycled or converted
into materials which may be used for another purpose. The amount of material
that the Company deposits at waste disposal sites is, therefore, small in
relation to the volume of materials collected by the Company, and the Company
has sought new treatment and processing technologies to reduce this amount
even further. Additionally, the Company periodically sends some of the
materials it collects to selected third party facilities for treatment and/or
disposal. The Company audits third-party treatment and disposal facilities
prior to shipping any materials to attempt to minimize its potential CERCLA
liability at these sites. At the present time, the Company is aware of only
one proceeding in which the Company may be a potentially responsible party
(see "LEGAL PROCEEDINGS--Litigation and Various Other Claims" set forth in
Item 3 herein).
COMPLIANCE AND RISK MANAGEMENT
The Company regards compliance with applicable environmental laws and
regulations as a critical component of its overall operations, from providing
quality service to its customers to protecting the health and safety of its
employees and neighbors and protecting the Company's facilities from damage.
The Company strives to maintain the highest professional standards in its
compliance activities; its internal operating requirements are in many instances
more stringent than those imposed by regulation. The Company's compliance
program has been developed for each of its operational facilities under the
direction of the Company's compliance staff, which is responsible for facilities
compliance, health and safety, field safety, compliance training, transportation
compliance, and related record keeping.
As part of the Company's continuing efforts to monitor environmental
compliance, its treatment and recycling facilities are periodically inspected by
its compliance staff, and also by regulators and customers. The Company
believes that its facilities are in substantial compliance with all applicable
requirements. Future legislation, regulatory interpretation, or administrative
procedures are likely to require capital expenditures to maintain compliance,
the amount of which cannot be anticipated. On certain occasions, the Company's
facilities have been cited for regulatory violations, and environmental problems
have been found in the facilities. The extent to which such violations and
problems have affected the financial condition and results
11
<PAGE>
of operations of the Company is reflected in the Consolidated Financial
Statements and Notes thereto set forth in Item 8 herein. The Company has
compliance and health and safety representatives to oversee the implementation
of the Company's compliance program at its facilities. The Company also
performs periodic inspections of treatment, recycling, and disposal facilities
of other firms utilized by the Company.
The Company follows a program of risk management policies and practices
designed to reduce potential liability as well as to manage customers' ongoing
regulatory responsibility. This program includes employee training, laboratory
testing and environmental monitoring, and policy decisions restricting the types
of wastes handled or projects undertaken. The Company evaluates all revenue
opportunities and declines those which it believes involve unacceptable risks.
Typically, the Company applies established technologies to the treatment,
recycling, and disposal of wastes. The Company believes its operations are
conducted in a safe and prudent manner and in substantial compliance with
applicable laws and regulations. There can be no assurance, however, that the
Company is, in fact, in substantial compliance with such laws and regulations or
that it will not be subject to fines, damages, loss of permits, or other similar
consequences resulting from past, present or future violations.
INSURANCE
The Company maintains insurance coverage for normal business risks,
including workers' compensation for its employees, automobile liability, general
liability, and excess liability insurance coverage. Additionally, the Company
carries pollution liability insurance providing coverage for damage to third
persons from pollution from its waste management facilities. Because this
coverage is on a claims-made basis, the Company will be covered only if the
policy is in place on the date the claim is asserted even if the Company carried
insurance on the date of the event giving rise to the claim.
As discussed in Note 13 of Notes to Consolidated Financial Statements set
forth in Item 8 herein, the Company has been notified by its pollution liability
insurance carrier that the carrier disputes the Company's interpretation of its
pollution liability insurance coverage and policy limitations applicable to
certain pending claims (see "LEGAL PROCEEDINGS--Litigation and Various Other
Claims" set forth in Item 3 herein).
EMPLOYEES
At April 30, 1997, the Company employed approximately 181 persons. Of this
number, 17 were involved in corporate administrative and support functions and
164 were employed in its waste management services activities. The Company is
currently not a party to any collective bargaining agreements covering its
employees, has not experienced any work stoppages, and believes that relations
with its employees are good.
FUTURE PLANS OF THE COMPANY
Because of its indemnity obligations related to the sale of Gibraltar, as
well as potential indemnification responsibilities with respect to the
Transaction and the recent asset sale of the Company's oilfield services
business (see "BUSINESS--Oilfield Services" herein), and considering the extent
of ongoing litigation (see "LEGAL PROCEEDINGS" set forth in Item 3 herein and
Note 13 of Notes to Consolidated Financial Statements set forth in Item 8
herein), the Company will remain in existence for the foreseeable future, but
will have no operating assets after the Transaction.
The extensive litigation involving the Company is in varying stages, with
some cases in the early phases of discovery, while others are awaiting trial.
The claims are unliquidated; and the Company's potential
12
<PAGE>
liability, even after considering potential recoveries from available insurance
coverage, could exceed the amount of its assets. Accordingly, based on
consultation with legal counsel (including the firms of Brown McCarroll & Oaks
Hartline and Bracewell & Patterson, L.L.P.), the Company's Board of Directors
believes that they are required by applicable law to hold the Company's assets
as a fiduciary for potential creditors as well as the stockholders. No steps
will be taken to reduce the corporate corpus of the Company by paying
liquidating or other dividends to shareholders until these claims are resolved
or more nearly quantified. In light of the nature and complexity of the
litigation, the Company expects that it may take a period of up to several years
to resolve these matters.
As circumstances change or additional information with respect to the
Company's potential indemnity obligations and litigation exposure becomes
available, the Board of Directors will continue to evaluate various uses of the
Company's funds. While the Company may investigate new business opportunities
that arise, the nature and probability of any investments which might result
from such investigations cannot be determined.
ITEM 2. PROPERTIES
The principal facilities of the Company are described below. Except as
otherwise indicated, the Company owns all of its principal facilities. The
Company has three facilities for processing and recycling certain materials
managed as non-hazardous oily wastes, off-specification motor fuels, and
underground storage tank remediation fluids. One of these facilities is
located in Kilgore, Texas at a site which is a short distance from where the
Company maintains operations offices for its local hydrocarbon recycling
terminal. This facility's processing and storage area is located on a 25-acre
site with an off-loading bay, tanks and other facilities for the testing and
phase separation of hydrocarbon-laden fluids and storing the recovered oil
for shipment by truck to the Company's distillate fuels processing facility,
described below, or to approved outlets. The Company has a facility for the
recycling of off-specification motor fuels and underground storage tank
remediation fluids in Corsicana, Texas. This facility's processing and
storage area is located on an 11-acre site with an off-loading bay, tanks and
other facilities for the phase separation of motor fuels and storage of the
recovered product for shipment by truck to the Company's distillate fuels
plant. The construction of a separations plant near Baytown, Texas was
completed in late 1993 for the recycling of oil-water mixtures,
off-specification motor fuels and underground storage tank remediation fluids
in separate processing units in a manner similar to that described above for
the two other facilities. This operation's analytical testing, off-loading,
processing and storage facilities are located on a 28-acre site that is
shared with various other facilities described below.
The Company completed construction of an oil filter recycling facility at
its site in Baytown in April 1996, with an estimated single-shift processing
capacity of 97,000 drum equivalents of filters annually. The oil filter and
absorbent processing unit recovers high-grade scrap metal for use as steel
manufacturing feedstock and filter fluff with a targeted primary outlet for use
as supplemental fuel for approved industrial users. Construction of a
distillate fuels production facility at the Baytown site for the manufacture of
marine distillate fuels and related products from used oils and motor fuel
feedstocks was substantially completed in June 1996 and various operational
issues associated with startup have, until recently, hindered its ability to
produce at its design throughput objective of 1,300 barrels of feedstock per
day.
The Company also owns a terminal facility adjacent to its Baytown plant
consisting of approximately 6,300 square feet of office space, which also serves
as an administrative corporate office. Another terminal facility near Austin,
Texas, is owned and similar facilities in or near Dallas, Kilgore and San
Antonio, Texas, Little Rock, Arkansas, and Baton Rouge, Louisiana are leased.
These facilities provide for the dispatching of trucks and equipment to
customers and providing other customer services, as well as serving as the base
for regional sales activities. In most cases, such facilities also temporarily
hold non-hazardous hydrocarbon-
13
<PAGE>
laden fluids, used oil and oil filters collected in the local service areas, but
do not process or treat these materials. All materials collected are shipped by
truck to one of the Company's treatment and recovery facilities discussed in the
previous paragraphs.
The Company completed the relocation of its primary corporate offices and
consolidation of administrative support functions to Baytown, Texas in late
1996, utilizing the existing terminal facility referred to previously,
supplemented by an additional 3,000 square feet of modular office space. The
Company's previous corporate office in Kilgore, Texas, consisting of land and
approximately 10,000 square feet of office space, is currently held for sale or
lease.
The Company's current mailing address is 4415 E. Greenwood, Baytown, Texas
77520. Following completion of the Transaction, the Company's mailing address
will be P.O. Box 1640, Kilgore, Texas 75662.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION AND VARIOUS OTHER CLAIMS. On January 26, 1996, Mobley Co. was
notified by the Texas Natural Resource Conservation Commission that it is a
potentially responsible party ("PRP") for the alleged release, during the early
or mid-1980s, of hazardous substances at the McBay Oil and Gas State Superfund
Site located near Grapeland, Texas. The Company has recorded an accrual for its
estimated exposure in connection with this matter, the amount of which is not
material to its consolidated financial statements.
On May 3, 1996, the Company filed a complaint against National Union Fire
Insurance Company of Pittsburgh, Pa. ("National Union") in the United States
District Court for the Eastern District of Texas seeking declaratory judgment
that National Union is obligated to indemnify the Company under three pollution
legal liability insurance policies issued by National Union and that certain
claims previously made by the Company with respect to such policies are not
"related claims" covered by a single policy as is alleged by National Union.
Subsequently, the suit in the Texas Court was dismissed and a similar petition
was filed in the United States District Court, Southern District of New York.
Previously, National Union had issued three pollution liability policies to the
Company, each covering a different time period and each containing a provision
that all claims arising out of related or continuous acts would be considered a
single loss and be deemed first reported during the policy period in which the
initial claim was first reported. The Company sought a declaratory judgement
establishing that the foregoing provision was not applicable to claims that
might arise under various lawsuits in which the Company is a defendant (see
"Claims and Legal Proceedings Against Gibraltar" below).
Additionally, in connection with its prior ownership of Gibraltar, the
Company is a party to lawsuits styled WILLIAMS V. GIBRALTAR CHEMICAL RESOURCES,
INC., STEICH V. GIBRALTAR CHEMICAL RESOURCES, INC. and DANIELS V. GIBRALTAR
CHEMICAL RESOURCES, INC. to which Gibraltar is also a party. These lawsuits are
described below.
CLAIMS AND LEGAL PROCEEDINGS AGAINST GIBRALTAR. In connection with the
sale of Gibraltar discussed in Note 3 of Notes to Consolidated Financial
Statements set forth in Item 8 herein, the Company is obligated to indemnify AEC
for certain claims against Gibraltar, including various legal claims and
proceedings disclosed to AEC, arising from circumstances existing on or prior to
the date of the sale of Gibraltar. The following items constitute material
legal claims and proceedings for which the Company is obligated to indemnify
AEC:
A suit was filed against Gibraltar in August 1992 styled MONCRIEF V.
GIBRALTAR CHEMICAL RESOURCES, INC. in State District Court in Smith County,
Texas by certain persons who own land in the vicinity of Gibraltar's hazardous
waste facility in Winona, Texas. The suit asserts that the value of the
plaintiffs' land has been
14
<PAGE>
diminished as a result of the alleged emission of objectionable odors from
Gibraltar's facility. The plaintiffs assert various grounds for recovery of
damages and seek compensatory and punitive damages. The Company defended these
claims in a jury trial which resulted in inconsequential damages being awarded
to the plaintiffs on November 7, 1996.
On October 18, 1993, a suit styled WILLIAMS V. GIBRALTAR CHEMICAL
RESOURCES, INC. was filed against the Company, Gibraltar, Mobley Co. and certain
individuals, former customers of Gibraltar and other entities. This case is
currently pending in the State District Court of Smith County, Texas. The named
plaintiffs, who have requested class certification, are certain individuals
residing in Smith County, and are seeking monetary damages for themselves and on
behalf of all other persons similarly situated. The petition alleges various
acts of negligence, fraudulent concealment, nuisance, trespass, and various
others resulting from operations of Gibraltar's hazardous waste facility. On
May 12, 1997, plaintiffs' claims were dismissed with prejudice by the Court.
However, the Court's decision is subject to appeal in accordance with applicable
rules of civil procedure.
Also on October 18, 1993, a suit was filed against the Company, Gibraltar,
Mobley Co., and certain individuals, former customers of Gibraltar and other
entities, and is currently pending in State District Court in Smith County,
Texas styled STEICH V. GIBRALTAR CHEMICAL RESOURCES, INC. The three named
plaintiffs have allegedly lived in the vicinity of Gibraltar's hazardous waste
facility. The plaintiffs' seek compensation for damages allegedly resulting
from various acts of negligence, nuisance, trespass, and fraudulent concealment
committed by Gibraltar through its operations. Discovery is ongoing in this
case. While the Company disputes the material allegations of the plaintiffs'
suit and is vigorously defending the case, it is unable to determine the
likelihood of an unfavorable outcome at this time.
A suit styled DANIELS V. GIBRALTAR CHEMICAL RESOURCES, INC. was filed on
August 31, 1995 in the State District Court of Dallas County, Texas against the
Company, Mobley Co., Gibraltar, and certain individuals, former customers of
Gibraltar and other entities by certain residents of Smith County, Texas. The
plaintiffs claim that they have experienced personal injury and property damage
which are alleged to have been caused by the operation of the Company's former
subsidiary, Gibraltar. The plaintiffs demand recovery of unspecified monetary
damages based on various legal grounds, including fraudulent concealment,
negligence, and assault & battery. This case is in the early stages of
discovery. While the Company disputes the material allegations of the
plaintiffs' suit and is vigorously defending the litigation, it is unable to
determine the likelihood of an unfavorable outcome at this time.
A suit styled GLAZER V. GIBRALTAR CHEMICAL RESOURCES, INC. was filed on
September 6, 1994, in the United States District Court for the Eastern District
of Texas Tyler Division against Gibraltar by an individual and Mothers Organized
to Stop Environmental Sins ("MOSES"), under the citizens' suit provisions of the
Clean Air Act and the Resource Conservation and Recovery Act. The suit alleges
repeated and continuing violations of these federal environmental protection
statutes by Gibraltar and an imminent and substantial endangerment to public
health and the environment caused by Gibraltar's alleged improper
transportation, storage, treatment and disposal of solid and hazardous wastes.
The plaintiffs request that Gibraltar's hazardous waste facility be permanently
closed, civil penalties be imposed, and plaintiffs' costs of litigation be
awarded. The Company has recently been granted summary judgment as to a
significant number of the claims against it as the court found that certain
alleged violations of environmental protection statutes, on which plaintiffs'
claims were based, were diligently prosecuted by the State of Texas. The
Company continues to vigorously defend remaining claims in this litigation;
however, it is unable to determine the likelihood of an unfavorable outcome as
to remaining claims.
15
<PAGE>
A suit styled ADAMS V. AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORPORATION,
F/K/A GIBRALTAR CHEMICAL RESOURCES, INC. was filed on August 7, 1996 in the
State District Court of Tarrant County, Texas against Gibraltar by certain
individuals. The plaintiffs claim that they have experienced personal injury
and property damage which are alleged to have been caused by the operation of
Gibraltar. The plaintiffs demand recovery of unspecified monetary damages and
injunctive relief based on various legal grounds including negligence, assault
and battery, and intentional infliction of emotional distress. Discovery is
ongoing in this case. The Company may be obligated to indemnify the purchaser
of Gibraltar for certain losses resulting from the claims asserted by the
plaintiffs. While the Company disputes the material allegations of the
plaintiffs suit and intends to vigorously defend the litigation, it is unable to
determine the likelihood of an unfavorable outcome at this time.
The Company is currently not able to reasonably estimate its potential
exposure with respect to the foregoing matters. The Company's future financial
condition, results of operations, and liquidity could be materially adversely
impacted as the nature and scope of the Company's ultimate liability arising
from Gibraltar's operations and sale become better defined. Notwithstanding the
pending sale of its hydrocarbon recycling and recovery business to U.S. Filter,
all responsibility for the foregoing matters will be retained by the Company.
To the extent the Company is held liable for these matters, it anticipates
paying for any such obligations not covered by insurance with funds retained
from the net proceeds of such sale. See Note 13 of Notes to Consolidated
Financial Statements set forth in Item 8 herein for related information.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Prior to May 23, 1996, the Company's Common Stock was traded on the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation System National Market System ("NASDAQ") under the symbol
"MBLYA". Since that date, the Company's Common Stock has been quoted for
trading on the OTC Bulletin Board under the same symbol. The following table
presents the high and low closing prices for the Company's Common Stock for 1995
and for 1996 prior to its de-listing, as reported by the NASDAQ. The table also
reflects the range of reported high and low bid quotations for the Company's
Common Stock for the period from May 23, 1996 through December 31, 1996 as
reported by the OTC Bulletin Board. Such over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
QUARTER ENDED 1996 1995
------------- ----------------------- -----------------
HIGH LOW HIGH LOW
---------- --------- ------- ------
March 31 $ 1 1/4 $ 5.5/8 $ 1 3/4 $1 3/8
June 30 1 1/4 5/8 2 1 3/8
September 30 15.5/16 1/2 2 15/16
December 31 3/4 1/8 1 3/8 1/2
At April 4, 1997, there were approximately 1,100 beneficial owners of the
Company's Class A Common Stock, and 39 stockholders of record of the Company's
Class B Common Stock.
16
<PAGE>
The Company has not paid any cash dividends on its Common Stock since its
initial public offering in September 1991 and has no current plans to make any
distributions to its shareholders (see "BUSINESS--Future Plans of the Company"
set forth in Item 1 herein).
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth, for the periods indicated, (i) certain
historical financial information of the Company and (ii) certain pro forma
financial information of the Company after giving effect to the sales of
substantially all of the operating assets of the Company's two business
segments. This information should be read in conjunction with the Consolidated
Financial Statements and notes thereto set forth at pages F-1 to F-26. The
information presented herein is not necessarily indicative of the financial
position or operating results that would have occurred had the sales been
completed on the date as of which, or at the beginning of periods for which, the
sales are being given effect nor is it necessarily indicative of future
operating results or financial position. All dollar amounts are in thousands,
except per share data.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------------------------------------------- ------------
YEAR ENDED
YEARS ENDED DECEMBER 31, DECEMBER 31,
--------------------------------------------------------- ------------
1996 1995 1994 1993 1992 1996
----------- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues $21,580 18,588 29,510 35,618 43,130 $ --
Operating income (loss) (1,166) (1,304) (3,389) (12,129) 3,829 (1,166)
Net income (loss) from
continuing operations (1,286) (1,463) (4,095) (10,111) 2,530 (1,286)
Net income (loss) (10,235) (1,463) (4,095) (10,111) 2,530 (1,286)
BALANCE SHEET DATA:
Working capital
(deficit) (7,471) (95) (2,646) 6,162 7,435 4,472
Total assets 11,983 19,097 22,252 22,081 35,346 11,042
Long-term debt,
excluding current
maturities -- 490 -- 853 473 --
Total stockholders'
equity 2,467 12,606 12,373 17,156 27,023 5,251
PER SHARE DATA:
Net income (loss) (1.16) (0.17) (0.52) (1.28) .32 (0.15)
Book value 0.28 1.50 1.56 2.17 3.40 0.59
</TABLE>
17
<PAGE>
- - Years prior to 1995 include results of operations of Gibraltar Chemical
Resources, Inc., which was sold effective December 31, 1994.
- - Year ended December 31, 1995 includes results of acquired businesses from
date of acquisition.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
AUDITED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1996 AND 1995, AND THE
RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY, AND CASH
FLOWS FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1996
("CONSOLIDATED FINANCIAL STATEMENTS") AND RELATED NOTES THERETO SET FORTH AT
PAGES F-1 TO F-26 ATTACHED HERETO.
GENERAL
The Company provides diverse environmental and field-related services to
industrial, governmental, and commercial markets, and specializes in the
collection, transportation, treatment, recycling and management of a wide
variety of non-hazardous liquid hydrocarbons, oil filters, absorbents and
related materials. Prior to the sale of Gibraltar at year-end 1994 (see Note 3
of Notes to Consolidated Financial Statements set forth in Item 8 herein), the
Company's waste management services activities also included the management of
hazardous wastes. Prior to the sale of its oilfield services assets on January
20, 1997, the Company also provided oilfield services for managing liquids used
or produced during the lifecycle of oil and gas wells (see "BUSINESS--Oilfield
Services" set forth in Item 1 herein and Note 2 of Notes to Consolidated
Financial Statements set forth in Item 8 herein).
The Company's revenues have historically consisted of fees collected from
customers, principally related to waste management and oilfield services and, to
a lesser extent, from product sales and equipment rentals. As a result of new
business lines which began in 1995 and continued to grow in 1996, a larger
percentage of the Company's waste management services revenues have been derived
from sales of manufactured or recovered products. Revenues derived from waste
management services are closely associated with volumes of waste collected,
levels of service provided and the related pricing. Revenues from oilfield
services were derived from hourly and fixed charges for services provided,
equipment rentals and products sold. Cost of revenues include direct costs of
providing services to customers, such as labor, third party disposal, supplies
and other consumables, depreciation, utilities and fuel, equipment maintenance,
and repair. Selling, general and administrative expenses include selling and
marketing expenses, certain insurance and administrative salary expenses,
depreciation, amortization of goodwill, and legal and consulting fees.
As more fully described in "LEGAL PROCEEDINGS" set forth in Item 3 herein
and Note 13 of Notes to Consolidated Financial Statements set forth in Item 8
herein, the Company continues to defend various claims resulting from the
operations of Gibraltar. As of May 1, 1997, six such lawsuits were pending,
seeking compensatory and punitive damages for alleged personal injury and
property damage allegedly caused by operations and emissions of Gibraltar's
hazardous waste disposal facility, and permanent closure of the facility and
civil penalties as the remedy for alleged violations by Gibraltar of
environmental protection statutes and endangerment to public health and the
environment. These matters raise difficult and complex factual and legal
issues, including the nature and amount of the Company's liability, if any.
Although the Company is a defendant in certain of these claims, in other matters
the Company's potential liability arises from material contractual
indemnifications given by the Company to the purchaser of Gibraltar, including
the potential liability of certain former Gibraltar customers who have become
defendants in litigation
18
<PAGE>
involving Gibraltar's operations. The Company is currently unable to reasonably
estimate its potential exposure for defending such matters, any indemnity
obligations resulting therefrom, and any corresponding insurance reimbursement.
Accordingly, the Company has not made an accrual for any losses which might
result from these legal matters as such amounts nor a range of amounts are not
currently reasonably estimatable. The Company's future financial condition,
results of operations, and liquidity could be materially adversely impacted as
the nature and scope of the Company's ultimate liability arising from
Gibraltar's operations and sale become better defined.
RECENT AND PENDING ASSET SALES, DISCONTINUED OPERATIONS AND RESTRUCTURING
CHARGES
Due to the Company's inability to secure, on acceptable terms, the capital
resources necessary to continue the implementation of its strategic plans to
expand its hydrocarbon recycling and recovery business, and after considering
the attendant risks of continuing to pursue such strategy in light of its
severely strained liquidity, in September 1996, the Company's Board of Directors
determined that the divestiture of its operations was in the best interests of
the Company and its shareholders. Subsequently, on October 30, 1996 and
November 1, 1996, the Company executed letters of intent to sell substantially
all of its operating assets in two separate transactions (see
"BUSINESS--Business Strategy and Background of the Transaction" and "--Oilfield
Services" set forth in Item 1 herein and Note 2 of Notes to Consolidated
Financial Statements set forth in Item 8 herein). Because of the sales pending
at December 31, 1996, results of operations of the Company's two business
segments have been accounted for as discontinued operations in the accompanying
Consolidated Financial Statements. The transactions and their impact on the
Consolidated Financial Statements are described in the following paragraphs.
SALE OF WASTE MANAGEMENT SERVICES ASSETS & DISCONTINUANCE OF BUSINESS
SEGMENT. As described herein, on October 30, 1996, the Company signed a letter
of intent with U.S. Filter to sell substantially all of the assets related to
its waste management services activities (see "BUSINESS--Business Strategy and
Background of the Transaction"). The assets of the Business which are the
subject of the letter of intent, and the subsequently executed Agreement, are
shown in the December 31, 1996 consolidated balance sheet as "net assets of
discontinued operations" at their estimated net realizable value as determined
by the terms of the Agreement, less anticipated transaction costs of
approximately $450,000. Such Assets had a net book value at December 31, 1996
(net of assumed liabilities) of approximately $15,149,000. As a result of the
pending Transaction, the Company recorded a charge of $7,621,000 (net of a
deferred income tax benefit of $698,000) during the 1996 third quarter,
representing the estimated loss on the disposal of the business segment,
including certain required capital expenditures prior to the Transaction. In
determining the estimated loss on disposal, only the $8.0 million fixed portion
of the Purchase Price was considered (I.E., that portion which is contingent on
the future performance of the Business was ignored). The Company estimates that
it will incur additional operating losses in this business segment, after the
allocation of certain overhead and interest costs, amounting to approximately
$331,000 during the phase-out period from October 1, 1996 through the expected
closing date of the sale. A provision for such estimated net losses was
recorded in the year ended December 31, 1996. The Company's waste management
services segment incurred a net loss of approximately $288,000 during the period
October 1, 1996 through December 31, 1996.
SALE OF OILFIELD SERVICES ASSETS AND DISCONTINUANCE OF BUSINESS SEGMENT.
On November 1, 1996, the Company signed a letter of intent with Dawson
Production Services, Inc. ("Dawson") to sell substantially all of the assets
related to its oilfield services business. Such sale was completed on January
20, 1997 pursuant to a definitive asset purchase agreement. Under the terms of
the definitive agreement, the Company received $4,917,000 and a subordinated
note in the amount of $500,000, due in January 2002, in exchange for such
assets. The assets which are the subject of the sale had a net book value, based
on historical cost adjusted for accumulated depreciation and amortization, of
approximately $2,378,000 at December 31, 1996, and are shown in the December 31,
1996 consolidated balance sheet as "net assets of discontinued operations" at
that
19
<PAGE>
carrying amount. The results of operations of the discontinued segment through
the disposal date, after allocation of certain overhead and interest costs, did
not result in a loss and consequently, no additional losses have been reflected
in the statements of operations for the year ended December 31, 1996. The
Company's oilfield services segment generated net income of approximately
$120,000 during the period October 1, 1996 to December 31, 1996. The Company
recognized a gain upon completion of the sale, after transaction costs of
$255,000, amounting to approximately $2,800,000 in January 1997.
In anticipation of the planned divestitures and after consideration of its
ongoing operational needs, the Company recorded certain restructuring expenses
during the 1996 third quarter. Such expenses, totaling $650,000, included
employee severance obligations, costs associated with the relocation and
recruitment of personnel, and other related expenses.
The net effect of the transactions and related charges described in the
preceding paragraphs on the results of operations for the year ended December
31, 1996 approximated $8.6 million, and is summarized as follows (in thousands
of dollars):
Provision for loss on disposal of waste management $ 8,319
services segment
Provision for losses during phase-out period of waste 331
management services segment
Deferred income tax benefit (698)
----------
7,952
Restructuring expenses 650
----------
Total $ 8,602
----------
----------
RESULTS OF OPERATIONS -- 1996 COMPARED TO 1995
Revenues for the year ended December 31, 1996 amounted to $21,580,000
compared to $18,588,000 in 1995, an increase of $2,992,000, or 16.1%. All of
the increase was attributable to the waste management services segment, as
revenues from oilfield services during 1996 were virtually unchanged from the
prior year.
The growth in segment revenues stemmed largely from the continued expansion
of the Company's used oil and filter recycling activities, which contributed
$5,186,000 in 1996 vs. $960,000 in 1995. These new business lines commenced
operations in the 1995 third quarter with the Company's acquisition of an
existing business and their development has continued since that time through
enhancements of the Company's collection capabilities and the construction of
two new processing facilities in Baytown, Texas. The new facilities commenced
operation during 1996.
Revenues from the Company's hydrocarbon/water separations business fell
from approximately $13,300,000 during 1995 to $12,021,000 in 1996, reflecting
the effect of a severe regional drought which greatly reduced fluid volumes
received for recycling in the first half of 1996. Such volumes, particularly
those fluids associated with the remediation of underground storage tanks, are
generated from groundwater and/or rainwater associated with construction
activities and thus are directly impacted by the amount of rainfall received.
Gross profit (revenues less operating expenses) for the year ended December
31, 1996 totaled $4,333,000 compared to $5,731,000 in 1995. In the waste
management services segment, gross profit amounted to $3,201,000, or 18.6% of
revenues, in 1996, compared to $4,310,000, or 30.3% of segment revenues, in the
20
<PAGE>
year-ago period. The marked degradation in gross margin was primarily
attributable to inordinately high costs associated with the startup of the new
used oil and filter recycling facilities. As discussed previously, such startup
began in the 1996 second quarter and while the new distillate fuels plant
initially achieved its design production rates, technical and operational
problems prevented the facility from sustaining these throughput levels. In
addition to the negative effect of the production shortfall on product yields,
higher maintenance costs also contributed to the reduced gross profit.
Ultimately, in order to achieve its design throughput and product yield
specifications, certain modifications to the facility, as originally designed
and constructed, were determined to be required. These capital improvements are
currently underway and scheduled to be completed in the 1997 second quarter.
Additionally, the diminished volumes referred to in the previous paragraph and
the relatively fixed nature of plant operating costs negatively impacted
profitability in its hydrocarbon/water separations business.
Segment gross profit from oilfield services declined from $1,421,000 (32.6%
of revenues) in 1995 to $1,132,000 (25.9% of revenues) in 1996 largely the
result of an unfavorable business mix including reduced trucking and mobile
storage tank rental income and a higher proportion of lower-margin contract
services revenue. Segment profitability was further weakened by higher
operating costs, particularly those related to transportation services provided.
Selling, general and administrative ("SG&A") expenses during 1996 were
$5,925,000 compared to $7,035,000 in 1995. Such costs in 1995 included certain
non-recurring expenses, including adjustments to insurance accruals, severance
expenses related to the retirement of an executive officer, relocation costs,
and legal and consulting fees. Excluding the effect of such costs, SG&A
expenses declined slightly during 1996 from their 1995 levels. As a percentage
of revenues, SG&A expenses amounted to 27.5% and 37.8% in 1996 and 1995,
respectively, reflecting, in part, the increased leverage of the Company's
overhead costs resulting from its new business lines.
Other expense, net in 1996 amounted to $329,000 and consisted principally
of interest expense on bank indebtedness and other miscellaneous expenses,
partially offset by interest income on invested funds and other miscellaneous
receipts. In 1995, other expense, net amounted to $630,000, including losses
associated with the Company's Mexican operations, which were sold in the 1995
second quarter, and the writedown of a building held for sale to its estimated
net realizable value.
In connection with the planned asset divestitures discussed previously, the
Company recorded a deferred income tax benefit of $698,000 during 1996,
representing a reduction in previously established deferred tax liabilities. No
other income tax expense or benefit was recognized during the year.
RESULTS OF OPERATIONS--1995 COMPARED TO 1994
Total revenues fell from $29,510,000 in 1994 to $18,588,000 in 1995, an
overall decline of 37.0%. The decline was attributable to a 44.8% decline in
waste management services revenue, partially offset by a 17.4% increase in
oilfield services revenue. On a pro forma basis (excluding Gibraltar in 1994),
revenues from waste management services grew 3.2% in 1995.
Increased waste management services revenues in 1995 compared to pro forma
revenues in the prior year were attributable to the revenue contribution of the
used oil and filter businesses acquired in July 1995, which approximated
$960,000 for the partial-year period. 1995 revenues from the Company's
hydrocarbon recycling activities involving the separation of relatively low
hydrocarbon/high water mixtures declined 3.8% compared to those of 1994, despite
an expansion into Baton Rouge, Louisiana in early 1995, while such revenues from
collection terminals open twelve months or longer decreased by approximately
6.0% during the year. This decline was largely a result of diminished volumes
of fluids collected in 1995, partially
21
<PAGE>
mitigated by improved pricing. A significant special project in the 1994
first quarter, accounting for nearly 5% of the year's total volume, as well
as unusually heavy rainfall in the Texas Gulf Coast region during the 1994
fourth quarter, were also key factors in the 1995 relative volume shortfall.
Fluid volumes associated with underground storage tank remediation activities
fell precipitously in 1995 compared to 1994 levels, partly the result of an
extended regional drought in the latter part of the year which continued into
1996. Volumes of industrial oily wastes, which are more production-oriented
as opposed to event-driven, increased approximately 15.4% during the same
period. This pronounced shift in business mix, which began in 1994,
continued throughout 1995 and has been largely driven by market changes and
regulatory influences. Revenues from transportation and plant-related
services increased modestly in 1995 compared to the prior year, largely on
the strength of a significant one-time project in the Dallas, Texas area, but
the overall revenue contribution from large nonrecurring sources declined
somewhat during the year.
Revenues in the Company's oilfield services business in 1995 surpassed 1994
levels by 17.4% due to renewed marketing efforts, including a focus on new
revenue sources, and weaker activity from this sector during the second and
third quarters of 1994.
Total gross profit for the year ended December 31, 1995 fell 6.0% to
$5,731,000 from $6,094,000 in the prior year. On a segment basis, gross
profit from waste management services fell 9.1% during 1995, while gross
profit from oilfield services increased 5.1%. Stated as a percentage of
revenues, waste management services gross profit increased to 30.3% in 1995
from 18.4% in the prior year, which included the impact of Gibraltar's
significantly diminished revenues and relatively high operating costs in
1994. Excluding the effects of Gibraltar, the 1994 segment gross profit
margin was 36.0%. The relative decline in 1995 profitability was influenced
by higher analytical and plant operating expenses throughout the year,
particularly at the Company's Baytown, Texas oil-fuel-water separations
facility. These escalated operating expenses were attributable, in part, to
the ongoing shift in business mix toward more difficult-to-treat oily waste
streams, as noted previously, and reflect the startup of a new terminal
operation in Baton Rouge, Louisiana in the 1995 first quarter. Throughout
1995, management devoted substantive attention to the enhancement of its
Baytown operations and made significant capital improvements at the facility.
1995 gross profit was further weakened by higher labor and maintenance
costs, as well as equipment utilization issues, relating to the
transportation services provided by the Company.
Segment gross profit from oilfield services declined as a percentage of
revenue in 1995 to 32.6% from 36.5% a year ago, largely as a result of
competitive pricing pressures and a less profitable mix of business, despite the
increased activity and revenues referred to previously.
SG&A expenses totaled $7,035,000 in 1995 vs. $9,483,000 in 1994, a 25.8%
decrease. Excluding the effects of Gibraltar on 1994 overhead expenses, such
costs increased 12.5% in 1995 primarily as a result of certain nonrecurring
expenses in the fourth quarter amounting to approximately $770,000. These
expenses included the following approximate amounts: insurance costs of
$235,000, severance expenses of $300,000 related to the retirement of an
executive officer, costs associated with the relocation of certain executive
officers totaling $100,000, consulting fees of $50,000 related to the Company's
strategic review of its opportunities for possible business combinations, and
certain legal expense accruals amounting to $70,000. Additionally, 1995 SG&A
spending was impacted by the incremental overhead costs associated with the
acquisition and new business lines discussed in Note 3 of Notes to Consolidated
Financial Statements, which amounted to approximately $375,000. Excluding the
impact of the significant one-time charges referred to previously, 1995 SG&A
expenses were relatively flat with pro forma 1994 expenses, despite the added
SG&A costs of the acquired businesses. Management continued its cost
containment efforts throughout 1995 in light of the Company's smaller revenue
base following the sale of Gibraltar at year-end 1994. As a percentage of
revenues, 1995 SG&A expenses amounted to 37.8% (33.7% excluding the special
charges) vs. 32.1% in 1994 (35.7% on a pro forma basis).
22
<PAGE>
Other expense, net of $276,000 in 1995 resulted from a $392,000 write-down
of the carrying value of a Kilgore, Texas office building to its estimated net
realizable value in the 1995 fourth quarter, partially offset by other income.
The building, previously used by the Company as a corporate office, has been
held for sale since the Company relocated its corporate offices and consolidated
its administrative support functions. Other income, net of $50,000 in 1994
included a net loss on asset dispositions, offset by lease income and
miscellaneous other net receipts.
Interest income, net of $193,000 for the year ended December 31, 1995
compares to net interest expense of $154,000 in 1994. The Company had virtually
no indebtedness outstanding during 1995, prior to borrowings on its term loan
facility in December to fund certain capital expenditures. Strained liquidity
during 1994, leading up to the completion of the sale of Gibraltar at year-end,
resulted in higher levels of outstanding indebtedness throughout the year.
Losses associated with the Company's Mexican operations in 1995 totaled
$547,000, including a second quarter loss on the sale of the Company's 25%
interest in Pro Ambiente, S.A. de C.V., a Mexican joint venture (see Note 4 of
Notes to Consolidated Financial Statements). During 1994, the Company's equity
in losses of the joint venture amounted to $55,000. Additionally, at year-end
1994, the Company recorded, as a reduction of stockholders equity, a $700,000
write-down of its joint venture investment through establishment of a valuation
allowance for foreign currency translation losses. Such write-down was
necessitated by the devaluation of the Mexican peso late in 1994.
The 1995 income tax benefit was $471,000, and consisted of a refund of
previously-paid Federal income taxes and net deferred income tax benefits
resulting principally from differences in depreciation expense for financial
accounting and income tax reporting purposes. Income tax expense for 1994 was
$547,000, and was impacted by the establishment of valuation allowances for
deferred tax assets resulting from an assessment of their likely realizability.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1996, the Company used net cash of
approximately $206,000 in its operating activities, including its discontinued
waste management services and oilfield services operations. The substantial net
loss posted by the Company during the year of $10,235,000 included significant
net non- cash charges amounting to $8,602,000 for anticipated losses in
connection with the pending disposal of its waste management services assets and
related restructuring expenses.
Capital expenditures in 1996 amounted to approximately $5,339,000 compared
to $5,226,000 in 1995 and $3,042,000 in 1994. Capital spending during 1995 and
1996 included approximately $6,188,000 associated with the construction of two
new recycling plants at the Company's Baytown, Texas facility as part of a major
expansion initiative.
The substantial losses sustained by the Company in 1995 and 1996, coupled
with the significant capital requirements necessary to support its facilities
expansion, have severely weakened the Company's liquidity, substantially
consuming its cash resources and exhausting its existing borrowing capacity. The
sizeable capital investment referred to in the previous paragraph was funded
largely through bank borrowings, resulting in outstanding indebtedness of
$5,014,000 at year-end 1996. On January 20, 1997, the Company utilized
$3,300,000 of the cash proceeds realized from the sale of its oilfield services
assets to reduce such outstanding bank indebtedness, and the maturity date of
its credit agreement with Bank One, Texas, N.A. was amended to be March 31,
1997. The Company and the bank subsequently extended the maturity date of the
credit agreement to May 31, 1997 to accommodate the expected completion of the
Transaction and the Company intends to retire the remaining outstanding
indebtedness with the proceeds from such sale. The
23
<PAGE>
Company has been in violation of certain covenant requirements of its credit
agreement since June 30, 1996, placing it in technical default, and no
additional borrowings are available under such agreement.
Presently, it is contemplated that all or substantially all of the $8.0
million in U.S. Filter Stock received at the closing of the Transaction will be
sold as soon as possible thereafter, resulting in net proceeds totaling
approximately $5.8 million after repayment of the aforementioned outstanding
bank indebtedness (approximately $1.75 million) and transaction expenses
estimated at $450,000. Such net proceeds will be used to fund the liabilities
retained by the Company following the sale, and the remaining surplus cash is
expected to be invested in relatively low-risk, liquid short-term investments.
The Company anticipates that ongoing general and administrative expenses will be
reduced to approximately $300,000 annually upon completion of the sale, and
expects earnings from investments to largely offset such costs. The amounts
described herein are approximate and based on the Company's current estimates.
Furthermore, there can be no assurance that such amounts will actually be
realized.
In addition to the aforementioned proceeds, under the terms of the
Agreement, the Company may receive up to $4.0 million in U.S. Filter Stock
during the two-year period following the sale based on the financial performance
of the Business. Additionally, the Company received a $500,000 subordinated
note receivable from Dawson, bearing interest at 8.5%, which matures in January
2002.
Because of its indemnification obligations related to the sale of
Gibraltar, as well as potential indemnity obligations with respect to the asset
sales to U.S. Filter and Dawson, and in light of the ongoing litigation (see
"Legal Proceedings" set forth in Item 3 herein), the Company, based on
consultation with legal counsel, does not currently anticipate making a
distribution to its shareholders in the foreseeable future. As circumstances
change or additional information with respect to the extent of the Company's
potential indemnity obligations becomes available, the Board of Directors will
continue to evaluate various uses of the Company's funds. While the Company may
investigate new business opportunities that arise, the nature and probability of
any investments which might result from such investigations cannot be
determined.
In the event that the sale to U.S. Filter is not consummated, the Company's
Board of Directors may seek to sell some or all of the Company's assets to
another purchaser or purchasers. The Company's inability to consummate the sale
to U.S. Filter as planned in a timely manner could have a material adverse
effect on the Company's consolidated financial position and liquidity.
ENVIRONMENTAL MATTERS
The Company is subject to extensive and evolving regulation by federal,
state, and local authorities. This body of law provides for significant
penalties for violators, as well as continuing liability for waste generators,
owners, and operators of waste disposal facilities and others for past disposal
practices. The Company regards environmental compliance as a critical component
of its overall operations, from providing quality service to its customers to
protecting the health and safety of its employees and protecting human health
and the environment. This environmental compliance effort is the shared
responsibility of all operating personnel and is under the direction of a staff
of employees who are responsible for its facilities' compliance, health and
safety, field safety, compliance training, and related recordkeeping. The
Company has taken, and is routinely taking, measures to correct all known
existing problems and to safeguard against potential problems. The Company
believes that its facilities are in substantial compliance with all applicable
requirements. Future legislation, regulatory interpretation, or administrative
procedures are likely to require capital expenditures to maintain compliance,
the amount of which cannot be anticipated.
24
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Company are the responsibility
of management. They have been prepared in accordance with generally accepted
accounting principles and include estimates and judgments made by management.
To meet the responsibility for reliable financial data, management
maintains a system of internal accounting controls which is designed to provide
reasonable assurance that transactions are executed as authorized and are
accurately recorded and that assets are properly safeguarded. Although
accounting controls are designed to achieve this objective, it must be
recognized that errors or irregularities may occur. In addition, it is necessary
to assess and balance the relative costs and the expected benefits of the
internal accounting controls.
The Company's independent auditors, KPMG Peat Marwick LLP, have audited the
Consolidated Financial Statements in accordance with generally accepted auditing
standards, which include a review of the system of internal accounting controls
only to the extent necessary to determine audit procedures required to express
their opinion.
CERTAIN TRENDS AND UNCERTAINTIES
As a cautionary note to investors, the Company and its representatives may
make oral or written statements from time to time that are "forward-looking
statements" within the meaning of the United States federal securities laws,
including information contained herein which is not historical. There are a
number of important factors which could cause actual results and consequences to
differ materially from those anticipated. Such factors include, but are not
limited to, those set forth below.
COMPLETION OF THE TRANSACTION. Closing of the Transaction described herein
is subject to various conditions set forth in the Agreement, many of which are
beyond the control of the Company. The Company's inability to consummate the
sale of the Assets to U.S. Filter or another prospective purchaser in a timely
manner could have a material adverse effect on the Company's consolidated
financial position and liquidity.
INABILITY TO LIQUIDATE SHARES OF U.S. FILTER STOCK. It is currently
contemplated that all or substantially all of the U.S. Filter stock to be
received at the time of the closing of the Transaction will be sold by the
Company as soon as possible following such closing. There can be no assurances
that the Company will, in fact, will be able to sell such shares, nor can there
be any assurance of the amounts that will actually be realized from such sales,
if any.
RESOLUTION OF INDEMNIFICATION OBLIGATIONS AND PENDING LITIGATION. As more
fully discussed in "LEGAL PROCEEDINGS" set forth in Item 3 herein and Note 13 of
Notes to Consolidated Financial Statements set forth in Item 8 herein, the
Company has various outstanding contractual indemnification obligations and is a
defendant in various pending litigation matters. These matters raise difficult
and complex factual and legal issues, including but not limited to, the nature
and amount of the Company's liability, if any. The Company, based on
consultation with its legal counsel, believes that it is probable that the
Company will continue to incur expenses associated with the foregoing matters
and the Company has made an accrual for estimated out- of-pocket costs
associated with the ongoing administrative management of existing legal matters.
However, the Company is currently unable to reasonably estimate its potential
exposure for defending such matters, any indemnity obligations resulting
therefrom, and any corresponding insurance reimbursement. The Company's future
financial condition, results of operations, and liquidity could be materially
adversely impacted as the
25
<PAGE>
nature and scope of the Company's ultimate liability arising from Gibraltar's
operations and sale become better defined.
FUTURE PLANS OF THE COMPANY. For reasons described elsewhere in this Form
10-K (see "BUSINESS--Future Plans of the Company" set forth in Item 1 herein),
the Company does not currently anticipate making a distribution to its
shareholders in the foreseeable future. As circumstances change or additional
information with respect to the extent of the Company's potential indemnity
obligations becomes available, the Board of Directors will continue to evaluate
various uses for the Company's funds. While the Company may investigate new
business opportunities that arise, the nature and probability of any investments
which might result from such investigations cannot be determined. The Company
anticipates that its ongoing general and administrative expenses will be reduced
to approximately $300,000 annually upon completion of the Transaction, and
expects earnings from investments to largely offset such costs. This amount is
based on current estimates and actual amounts could differ from this estimate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information on pages F-1 to F-26 of this Form 10-K is incorporated by
reference in response to this item.
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
DIRECTORS:
Set forth below is certain information regarding each of the three (3)
persons currently serving as directors of the Company.
DIRECTOR
NAME AGE POSITIONS WITH THE COMPANY SINCE
CLASS A DIRECTOR:
Stewart Cureton, Jr. 51 Director; Member of Audit Committee and 1991
Compensation Committee
26
<PAGE>
CLASS B DIRECTORS:
John Mobley 66 Chairman of the Board; Member of 1991
Executive Committee, Environmental,
Health and Safety Committee and
Compensation Committee
T.M. Mobley 61 Vice-Chairman of the Board; Member 1991
of Executive Committee, Environmental,
Health and Safety Committee,
Compensation Committee and Audit Committee
JOHN MOBLEY has been Chairman of the Board of the Company since its
organization. From the time of the Company's organization through November
1993, Mr. Mobley served as Chief Executive Officer. Prior to the organization
of the Company, Mr. Mobley held various senior management positions with the
Company's predecessors. Mr. Mobley was President of Tiger Corporation, a
solid-waste disposal company, from 1971 until it was sold to a national
solid-waste disposal company in 1986.
T.M. MOBLEY has been Vice Chairman of the Board since November 1992.
Previously Mr. Mobley had served as President and Chief Operating Officer of the
Company from the time of its organization until November 1992 and had held
various senior management positions with the Company's predecessors since 1961.
Mr. Mobley joined Gibraltar Chemical Resources, Inc. ("Gibraltar") as President
in 1985 and served in that capacity until 1991. Mr. Mobley served as President
of Mobley Company, Inc. ("Mobley Co.") from 1965 until 1989.
STEWART CURETON, JR. became a director upon completion of the initial
public offering by the Company, which closed on October 1, 1991. Mr. Cureton
has been with Cureton & Co., Incorporated and its predecessor Curtin & Co.,
Incorporated, a private investment firm, since 1978, and its President since
1989.
Jim A. Smith served as a Class A director until May 21, 1996; however, he
declined to be nominated for reelection at the Company's Annual Meeting of
Shareholders held on that date because of other responsibilities. John Mobley
and T.M. Mobley are brothers. There are no other family relationships among the
Company's directors and executive officers.
EXECUTIVE OFFICERS:
Set forth below is certain information regarding the Company's executive
officers serving during 1996.
NAME AGE POSITION
Michael M. Stark 53 President and Chief Executive
Officer
W. Christopher Chisholm 38 Vice President and Chief Financial
Officer, Secretary and Treasurer
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
27
<PAGE>
MICHAEL M. STARK has been President and Chief Executive Officer of the
Company since November 3, 1993. From November 1992 to November 1993, he served
as the Company's President and Chief Operating Officer. During the previous
five years, Mr. Stark was Senior Vice President of TETRA Technologies, Inc. in
Houston, Texas, heading its waste treatment operations. Mr. Stark served as a
director of the Company and member of the Executive and Environmental, Health
and Safety Committees prior to his resignation from the Board on November 8,
1996 (see "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" set forth in Item 13
herein).
W. CHRISTOPHER CHISHOLM has been Vice President and Chief Financial
Officer, Secretary and Treasurer of the Company since December 1993. Prior to
that time, Mr. Chisholm held the position of Vice President and Controller.
Prior to joining the Company in October 1991, Mr. Chisholm was a Senior Manager
with KPMG Peat Marwick LLP.
Donald L. Barkman was an Executive Vice President of the Company and
President of Mobley Co. until his retirement effective January 31, 1996.
SECTION 16 REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), requires the Company's directors and officers, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
initial reports of ownership and reports of changes in ownership with the
Securities and Exchange Commission (the "SEC"). Such persons are required by
SEC regulations to furnish the Company with copies of all Section 16(a) forms
they file. Based solely on its review of the copies of such forms received by
it with respect to fiscal year 1996, or written representations from certain
reporting persons, the Company believes that all filing requirements applicable
to its directors, officers, and persons who own more than 10% of a registered
class of the Company's equity securities have been complied with except as
follows: Michael M. Stark was late in filing a Form 4 to report one transaction
involving shares of the Company's Class A common stock.
28
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid to the Company's Chief Executive Officer during the Company's last three
fiscal years (no other executive officer of the Company earned in excess of
$100,000 during 1996).
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------------------
Annual Compensation Awards Pay-outs
------------------------------------- ------------------------- --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
------------------- ---- -------- ------ --------- ---------- ----------- -------- ------------
Other Securities
Annual Restricted Underlying LTIP All Other
Name and Principal Salary Bonus Compensa- Stock Options/ Pay-outs Compensation
Position Year ($) ($)(1) tion ($) Awards ($) SARs (#)(2) ($) ($)
------------------- ---- -------- ------ --------- ---------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael M. Stark 1996 218,000 -- -- -- -- -- 7,453(3)
PRESIDENT & CHIEF 1995 219,440 5,000 -- 150,000(4) 6,000 -- 6,500(5)
EXECUTIVE OFFICER 1994 220,340 -- -- -- 240,000 -- 6,500(5)
</TABLE>
- --------------------------------
(1) Reflects bonus earned during the fiscal year. In some instances all or a
portion of the bonus was paid during the next fiscal year.
(2) Reflects shares of Class A Stock underlying options to acquire same.
(3) Consists of contribution to Company's Profit Sharing Plan of $3,203, term
life insurance premiums of $864 and disability insurance premiums of
$3,386.
(4) Mr. Stark was granted 100,000 shares of restricted Class A Stock in
conjunction with the approval of the 1995 Employee Restricted Stock Plan
(the "Restricted Stock Plan") at the Company's Annual Meeting of
Shareholders on June 8, 1995. Based on the market price of such stock on
that date, as reported by the NASDAQ ($1.50 per share), the total value of
the restricted stock award was $150,000. At December 31, 1995, the total
value of such restricted shares was $56,250, based on the market price of
the Class A Stock on that date, as reported by the NASDAQ ($0.5625 per
share). Pursuant to the terms of the Restricted Stock Plan and a related
Restricted Stock Agreement (under which the grant was made), vesting is to
occur with respect to 20% of the total shares granted on each January 1,
1996, 1997, 1998, 1999 and 2000, so that the shares are fully vested on
January 1, 2000. The Restricted Stock Plan also provides that the employee
has the right to receive and retain all cash dividends and distributions
thereon.
(5) Consists of contribution to the Company's Profit Sharing Plan of $2,250,
term life insurance premiums of $864 and disability insurance premiums of
$3,386.
AGGREGATED OPTION/SAR EXERCISES IN 1996 FISCAL YEAR AND DECEMBER 31, 1996
OPTION/SAR VALUES
The following table sets forth, with respect to the named executives,
information concerning exercise of options during the last fiscal year and
unexercised options and SARs held as of the end of the fiscal year.
29
<PAGE>
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs
December 31, at December 31,
1996 (#) 1996 ($)
--------------- ---------------
Number of
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
------------------- --------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Michael M. Stark -- -- 190,200 / 90,800 --/--
</TABLE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors is comprised of
Stewart Cureton, Jr., John Mobley, and T.M. Mobley, all of which are
non-employee directors of the Company. The Committee reviews the salaries,
benefits and other compensation for officers of the Company and its
subsidiaries and advises the Company's Board of Directors regarding the
Company's compensation policies. The Compensation Committee also administers
the Company's stock incentive plan and restricted stock award plan.
The following report submitted by the above-listed committee members in
their capacity as the Board's Compensation Committee addresses the Company's
compensation policy as it relates to its executive officers for fiscal 1996.
It has been the Committee's belief that in order for the Company to succeed
and grow, its compensation programs must be geared toward the attraction and
retention of high-caliber executives and other key employees by rewarding
individual performance and ultimately, to the promotion of enhanced value for
its shareholders. To achieve these objectives, the Company's executive
compensation programs have been structured to include two principal elements:
(1) salary and bonuses, and (2) longer-term incentive rewards.
ANNUAL COMPENSATION--SALARY AND BONUS
It has been the Compensation Committee's practice to review and approve
salaries, including salary increases for executive officers and bonus awards,
annually. The salary level for the Company's Chief Executive Officer is set by
the Committee based on the experience he brings to that position and his
contributions to the performance of the Company. Mr. Stark joined the Company
as President and Chief Operating Officer in November 1992 and became Chief
Executive Officer in November 1993. His base salary has not been changed since
the inception of his employment. Mr. Stark's employment agreement entitles him
to incentive compensation in an amount to be determined annually by the
Compensation Committee. No such bonus was awarded during the year ended
December 31, 1996.
The Committee receives reports of recommended salary and bonus actions for
the other executive officers from the Chief Executive Officer. The Committee
reviews these recommendations, may request additional information and analysis,
and ultimately determines whether to approve, recommend changes, or disapprove
salary actions.
30
<PAGE>
LONG-TERM INCENTIVE COMPENSATION
In past years, incentives designed to focus on and reward performance over
longer-term operations have been provided to executive officers and other key
employees in the form of options to acquire shares of the Company's Class A
Stock, as well as grants of restricted shares of Class A Stock.
STOCK OPTIONS
The plan provides for the grant of options priced at not less than the
market price on the date of the grant. Such options become exercisable in
increments of 20% of the shares granted on each anniversary date following the
date of the grant. Structuring the reward in this manner requires continued
performance in order to realize the full benefit of the options, thus fostering
employee loyalty and retaining a continuing incentive to achieve results
beneficial to shareholders in terms of higher stock value. Additionally, the
option agreements include provisions for termination if employment ceases.
Consequently, substantially all of the options granted under the plan will lapse
following the closing of the Transaction referred to in Item 1 herein.
RESTRICTED STOCK AWARDS
To enable the Company to provide its executive and other key officers with
an additional incentive to maximize both long-term and short-term shareholder
value by giving them a proprietary interest in the Company through the ownership
of stock, thereby increasing the personal stakes of such key employees in the
future growth and success of the Company, the Compensation Committee concluded
that the grant of restricted shares of Class A Common Stock was in the best
interests of the Company and its shareholders. Consequently, the Board of
Directors adopted the 1995 Employee Restricted Stock Plan effective January 1,
1995. In light of the pending Transaction referred to in Item 1 herein, it is
contemplated that the individual grant agreements will be amended such that the
deferred compensation costs associated with the unvested shares will be earned
by the Company's two executive officers and three other officers only in the
event and to the extent that the Company receives additional shares of U.S.
Filter Stock pursuant to an "earnout" provision in the definitive asset
acquisition agreement (see "BUSINESS--Business Strategy and Background of the
Transaction" set forth in Item 1 herein).
COMPENSATION TO BE PAID TO CERTAIN OFFICERS IN CONNECTION WITH TRANSACTION
Effective with the closing of the Transaction referred to in Item 1 herein,
the Company's Board of Directors has approved payments totaling $165,000 to
certain of the Company's officers in recognition of their years of service and
past efforts.
DEDUCTIBILITY OF COMPENSATION
The compensation paid to the Company's executive officers during 1996, and
the level of compensation the Company anticipates paying to its executive
officers for the foreseeable future, is fully deductible by the Company in
calculating the Company's Federal taxable income notwithstanding Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"), which limits the
deductibility of certain employee remuneration in excess of $1,000,000 per
employee. The Committee is aware of the provisions of Code Section 162(m) and
will take into account its potential application with respect to compensation
decisions.
31
<PAGE>
SUMMARY
The decisions the Committee makes in approving salaries and bonuses and
granting options and other incentives to executive officers are made
subjectively by the Committee using their judgment and reflect their evaluation
and assessment of individual performance. The Committee bases its decisions, in
part, on its regular exposure to these executive officers at Board meetings and
the various information it receives about the business during the year.
Additionally, the Committee receives the Chief Executive Officer's
recommendations regarding compensation for other executive officers and key
employees. All such decisions have been made with the objective of retaining
and compensating those officers and key employees who have demonstrated to the
satisfaction of the Committee the capacity to contribute to the performance of
the Company.
COMPENSATION COMMITTEE
----------------------
STEWART CURETON, JR., CHAIRMAN
JOHN MOBLEY
T.M. MOBLEY
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is comprised of
Stewart Cureton, Jr., John Mobley, and T.M. Mobley, all of which are currently
non-employee directors of the Company. From the time of the Company's
organization until November 1993, John Mobley served as the Company's Chief
Executive Officer and held various management positions with its predecessors
prior to that time. From the time of the Company's organization until November
1992, T.M. Mobley served as the Company's President and Chief Operating Officer,
and held various senior management positions with its predecessors prior to that
time. The Company is currently a party to a consulting contract with Cureton &
Co., Incorporated, an entity in which Stewart Cureton, Jr. has an ownership and
management interest. See "Certain Relationships and Related Transactions" set
forth in Item 13 herein.
COMPENSATION OF DIRECTORS
During 1996, directors received annual compensation as follows:
Chairman & Other Non-
Vice Chairman Employee Directors
------------- ------------------
Annual retainer $7,500 $7,500
Chairman/Vice Chairman
compensation 5,000 --
Committee chairman fees 2,500 2,500
Board meeting fees (1) 750 750
Committee meeting fees (2) 500 500
- -------------------------------------
(1) Payment of fees limited to four meetings annually.
(2) Committee meeting fees are $250 for committee meetings held the same
day and location as Board meetings.
32
<PAGE>
Mr. Stark did not receive separation compensation for his services as a
director prior to his resignation on November 8, 1996. In addition to the fees
noted above, directors of the Company are reimbursed for expenses incurred in
attending meetings.
In addition to the aforementioned cash compensation, certain non-employee
directors also participated in the Company's 1996 Non-Employee Director Stock
Option Plan. Mr. Cureton was granted an option to purchase 15,000 shares of the
Company's Class A common stock pursuant to such plan upon its approval by the
Company's shareholders on May 21, 1996.
COMPANY PERFORMANCE GRAPH
The chart below compares the yearly percentage change in the cumulative
total shareholder return on the Company's Class A Stock during the period from
September 25, 1991 (the date the Company's stock began trading after its initial
public offering) to December 31, 1996, with the cumulative total return on the
S&P 500 Index and a Company-constructed peer group. The comparison assumes
$100 was invested on September 25, 1991 in the Company's Class A Stock and in
each of the foregoing indices and assumes reinvestment of dividends.
Companies included in the peer group are as follows: Clean Harbors, Inc.;
Rollins Environmental Services, Inc.; Safety Kleen Corp. and TETRA Technologies,
Inc. Horsehead Resource Development, Inc., which was included in the peer group
in prior years, has not been included in the chart below due to a change in its
corporate structure during 1996.
Cumulative Total Return
------------------------------------------------
12/91 12/92 12/93 12/94 12/95 12/96
Mobley Environmental Svcs 100 61 24 16 6 2
PEER GROUP 100 100 62 59 58 63
S&P 500 100 108 118 120 165 203
33
<PAGE>
SUMMARY OF COMPENSATION PLANS
RESTATED STOCK COMPENSATION PLAN
The Company has adopted the Restated Stock Compensation Plan to provide for
the grant of non-qualified options to participating employees. An aggregate of
645,000 shares of Class A Stock have been authorized and reserved for issuance
under the plan, subject to adjustment to reflect changes in the Company's
capitalization in the case of a stock split or similar event. The plan is
administered by the Compensation Committee, which consists of non-employee
members of the Board of Directors. The Compensation Committee has the sole
authority to interpret the plan, to determine the persons to whom options will
be granted, and to determine the exercise price, duration and other terms of
options to be granted under the plan; provided that, the exercise price of all
options granted under the plan may not be less than the fair market value of the
Class A Stock at the date of grant of the option, and no option may be
exercisable more than ten years after the date of grant. Except in connection
with the replacement of existing options, options generally vest 20% per year
from the date of grant and expire no later than the tenth anniversary of the
date the options are granted. Options covering 3,500 shares were granted under
this plan during 1996.
PROFIT SHARING PLAN
The Company and its subsidiaries have adopted the Mobley Employees Profit
Sharing Plan, which is intended to comply with Section 401 of the Internal
Revenue Code and the provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA"). All employees of the companies who have completed six months
of service and attained the age of 21 are eligible to participate in the plan.
Participating employees may make pre-tax contributions to their accounts of up
to 15% of their compensation (up to a maximum of $9,240 in 1995). The employer,
in its discretion, may make matching contributions based on the employee's
elective contribution and may make an aggregate contribution which would be
allocated among participating employees based on relative compensation levels.
Employer contributions vest 30% after three years of service, 40% after four
years of service, and 20% per year of service thereafter. Distributions
generally are payable in a lump sum after retirement, death or disability.
During 1996, the Company made matching contributions to the Plan totaling
approximately $62,000, based on one-half of the employees' contributions, up to
a maximum of 1.5% of an employee's annual salary, subject to certain
limitations. No aggregate contribution was made to the Plan in 1996, based on
the Company's financial performance.
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Michael M. Stark
effective October 23, 1992, which specified that his duties were that of
President and Chief Operating Officer of the Company, with a base annual salary
of $218,000 (Mr. Stark subsequently became Chief Executive Officer effective
November 3, 1993). The agreement also provides that Mr. Stark is entitled to a
bonus in an amount to be determined annually by the Compensation Committee. Mr.
Stark was not awarded bonus compensation in 1996, but is expected to receive
compensation in connection with the Transaction, as previously described. The
agreement also provides that in the event of termination without cause, Mr.
Stark is entitled to have 100% of his base salary continued for twelve months.
Pursuant to the terms of the employment agreement, Mr. Stark was granted options
covering 240,000 shares of the Company's Class A Stock, which as a result of
subsequent repricings, currently have exercise prices as follows: 80,000 shares
at $2.00 per share, 80,000 shares at $2.50 per share, and 80,000 shares at $2.75
per share. Such options are exercisable according to the following schedule:
currently exercisable--168,000 shares; and 1997--72,000 shares.
34
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of April 15, 1997, the shares of Class A
and Class B Stock beneficially owned by (i) each person known to the Company to
be the beneficial owner of more than five percent of the issued and outstanding
shares of the Company's Class A or Class B Stock, (ii) each director, (iii) the
Company's Chief Executive Officer and the Company's other executive officer who
earned over $100,000 in salary and bonus during the year ended December 31,
1995, and (iv) the directors and executive officers as a group. This
information is based on public filings made with the Securities and Exchange
Commission through March 1997, and certain information supplied to the Company
by the persons listed below.
<TABLE>
<CAPTION>
CLASS A STOCK(1) CLASS B STOCK(1)
Percent of Percent of
Name of Beneficial Owner (2) Shares(3)(4) Class(5) Shares Class
- ------------------------------------------ ---------------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
John Mobley 38,600(6) * 864,780(7) 18.5%
Lois Ann Mobley -- -- 253,550(8) 5.4%
James A. Mobley(9) -- -- 558,629 11.9%
Steven M. Mobley(9) -- -- 558,629 11.9%
H. David Hughes, Trustee -- -- 365,786(10) 7.8%
T.M. Mobley -- -- 1,108,210(11) 23.7%
Jo Ann Mobley Grooms -- -- 324,671(12) 6.9%
Susan Mobley Matthews -- -- 235,471(13) 5.0%
David Mobley -- -- 515,163(14) 11.0%
Robert G. Schleier, Trustee -- -- 691,527(15) 14.8%
Michael M. Stark(16) 296,200 6.80% -- --
Stewart Cureton, Jr. 10,000 * -- --
Antar & Co.(17) 470,809 10.8% -- --
Directors and Executive Officers
as a Group (5 persons) 464,564 10.6% 1,972,990
- ----------------------------
*Less than 1%
</TABLE>
(1) Each share of Class B Stock is convertible into Class A Stock on a
share-for-share basis at any time. The information set forth for Class A
Stock does not include the shares of Class B Stock which are convertible
into Class A Stock.
(2) Addresses of beneficial owners are as follows: John Mobley and Lois Ann
Mobley, Stillhouse Canyon Office Park, Building One, 4807 Spicewood Springs
Road, Suite 1245, Austin, Texas; James A. Mobley, 919 Hillcrest Drive,
Longview, Texas; Steven M. Mobley, 816 Congress Avenue, Suite 1100, Austin,
Texas; H. David Hughes, 111 Congress Avenue, Suite 1400, Austin, Texas;
T.M. Mobley, Michael M. Stark, Stewart Cureton, Jr., 4415 E. Greenwood,
Baytown, Texas; Jo Ann Mobley Grooms, 1880 Bent Tree, Tyler, Texas; Susan
Mobley Matthews, HCR 68, Box 23A, Hondo, Texas; David Mobley, 1909 N.
Longview Street, Kilgore, Texas; Robert G. Schleier, 1100 Stone Road, Suite
101, Kilgore, Texas; and Antar & Co., 600 Jefferson #850, Houston, Texas.
(3) Includes 190,200 shares for Mr. Stark; 10,000 shares for Mr. Cureton; and
219,964 shares for Directors and Executive Officers as a Group which may be
acquired within 60 days of April 15, 1997, pursuant to options granted to
such persons by the Company.
(4) Includes 100,000 shares for Mr. Stark and 200,000 shares for Directors and
Executive Officers as a Group which were granted pursuant to the 1995
Employee Restricted Stock Plan. Such shares vest over a five year period
beginning January 1, 1995, and vesting may be accelerated upon the
attainment of certain specified increases in the market price of the Class
A Stock.
35
<PAGE>
(5) Percentages are calculated on 4,375,061 shares, the number of shares that
would be outstanding if the stock options described in Footnote (3) were
exercised.
(6) Includes a pro-rata portion of the shares of Class A Stock owned by a
corporation which is owned 40% by John Mobley; Mr. Mobley shares voting and
investment power for shares owned by such corporation.
(7) Includes 253,550 shares held by a family trust for which Mr. Mobley's
spouse, Lois Ann Mobley, is co-trustee; Mr. Mobley has no pecuniary
interest in such shares.
(8) Represents shares held as co-trustee for a trust; Mrs. Mobley shares voting
and investment power for such shares with H. David Hughes.
(9) The number of shares listed for each of James A. Mobley and Steven M.
Mobley includes 290,600 shares owned by trusts for which they serve as
trustees.
(10)Represents shares held as co-trustee for two trusts (see Footnotes (8) and
(11)). Although Mr. Hughes shares voting and investment power for such
shares, he has no pecuniary interest in the shares.
(11)Includes 112,236 shares held as co-trustee for a trust; although Mr. Mobley
shares voting and investment power with H. David Hughes for shares owned by
such trust, he has no pecuniary interest in those shares.
(12)Includes 296,671 shares owned by trusts for which Mrs. Grooms is sole
trustee. Also includes 28,000 shares owned of record by Mrs. Grooms'
spouse; Mrs. Grooms disclaims beneficial ownership for such shares.
(13)Includes 207,471 shares owned by trusts for which Mrs. Matthews is sole
trustee. Also includes 28,000 shares owned of record by Mrs. Matthews'
spouse; Mrs. Matthews disclaims beneficial ownership for such shares.
(14)Represents shares held as trustee or co-trustee for trusts. Mr. Mobley
shares voting and investment power for 512,739 of the shares.
(15)Represents shares held as trustee or co-trustee for four trusts; Mr.
Schleier shares voting and investment power with David Mobley for 511,527
of these shares. However, Mr. Schleier has no pecuniary interest in any of
the shares he beneficially owns.
(16)It is anticipated that Mr. Stark will become an officer and employee of
U.S. Filter upon completion of the Transaction. In order to avoid any
possible conflict of interest which might result from such situation, Mr.
Stark resigned his position as director with the Company effective November
8, 1996; he continues to serve as the Company's President and Chief
Executive Officer.
(17)Neither Antar & Co. nor any person claiming through Antar & Co. has filed a
Schedule 13D with the Securities and Exchange Commission. Based on the
absence of such filing, the Company has assumed that no beneficial owner of
the shares registered in the name of Antar & Co. owns 5% or more of the
Company's Class A Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has engaged Cureton & Co., an entity in which Stewart Cureton,
Jr. has an ownership and management interest, to provide certain business
consulting services to the Company, including analysis and negotiation of
potential business combination transactions to which the Company might be a
party. Mr. Cureton is a Class A director. Under the terms of the engagement,
the Company has paid Cureton & Co. retainer fees of $162,000 through December
31, 1996, and would be obligated to pay additional fees in the event a
transaction is consummated by the Company. Based on the terms of the
Agreement, the Company will be obligated to pay Cureton & Co. a total of
approximately $220,000, plus out-of-pocket expenses, in conjunction with the
Transaction. In addition, the Company paid Cureton & Co. a fee of approximately
$207,500, plus out-of-pocket expenses, in connection with U. S. Filter's
acquisition of PORI, which was completed on February 28, 1997. Under the terms
of the Agreement, U.S. Filter reimbursed the Company $250,000 for expenses
associated with its due diligence investigations of PORI, including amounts due
to Cureton & Co. Additionally, in connection with the disposition of its
oilfield services business described
36
<PAGE>
previously, the Company paid Cureton & Co. approximately $150,000, plus
out-of-pocket expenses. A portion of the retainer fees referred to
previously are partially creditable toward the various transaction fees. The
Company believes that the terms of its arrangements with Cureton & Co. are
consistent with industry standards for similar services.
It is anticipated that Michael M. Stark, the Company's President and Chief
Executive Officer, and W. Christopher Chisholm, the Company's Chief Financial
Officer and a Vice President, will become employees of U.S. Filter upon
completion of the Transaction. Prior to November 8, 1996, Mr. Stark was also a
director of the Company; however, to avoid any possible conflict of interest
which might have resulted from his potential future employment with U.S. Filter,
he resigned his director position with the Company effective that date.
Additionally, although certain directors of the Company may also be
substantial shareholders of the Company, their interests in the Transaction are
no different than that of any other shareholder of the Company. No member of
U.S. Filter's Board of Directors is a director or officer of the Company or an
associate of any officer or director of the Company. Neither the Company nor
any of its affiliates has any relationships with U.S. Filter.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ITEM 14 (a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements of the Company and its
subsidiaries are incorporated by reference in response to this item:
PAGE
----
Independent Auditor's Report F-1
Consolidated Balance Sheets
December 31, 1996 and 1995 F-2
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6 to F-26
37
<PAGE>
ITEM 14 (a) 2. FINANCIAL STATEMENT SCHEDULES
-----------------------------
All schedules have been omitted because the required information is shown
in the consolidated financial statements or notes thereto or they are not
applicable.
ITEM 14 (a) 3. LIST OF EXHIBITS
----------------
Exhibit
NUMBER
- ------
3.1* Certificate of Incorporation of the Company (filed as Exhibit 3.1 to
the Company's Registration Statement on Form S-1, No. 33-41722).
3.2* Bylaws of the Company (filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1, No. 33-41722).
3.3* Amendment to Bylaws of the Company (filed as Exhibit 3.2(b) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1991).
4.1* Specimen Class A Common Stock Certificate (filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-1, No. 33-41722).
4.2* Specimen Class B Common Stock Certificate (filed as Exhibit 4.2 to the
Company's Registration Statement on Form S-1, No. 33-41722).
10.1*+ Form of Nonqualified Stock Option Plan for Outside Directors (filed as
Exhibit 10.6 to the Company's Registration Statement on Form S-1, No.
33-41722).
10.2*+ Form of Restated Stock Compensation Plan (filed as Exhibit 4.3 to the
Company's Registration Statement on Form S-8, No. 33-92336).
10.3* Agreement and Plan of Restructuring among the Company, Gibraltar,
Mobley Co., Mobley Group, Inc. ("Mobley Group"), Mobley Industries
Partnership ("MIP"), Mobley Properties, John Mobley, Thomas M. Mobley,
David Mobley and David Mobley Grantor Trust (filed as Exhibit 10.9 to
the Company's Registration Statement on Form S-1, No. 33-41722).
10.4*+ Mobley Employees Profit Sharing Plan, as amended and restated
effective January 1, 1994 (filed as Exhibit 10(e) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.5* Registration Rights Agreement, dated August 23, 1991 between the
Company and David Mobley Grantor Trust (filed as Exhibit 10.54 to the
Company's Registration Statement on Form S-1, No. 33-41722).
10.6*+ Employment agreement between Mobley Environmental Services, Inc. and
Michael M. Stark, dated October 23, 1992 (filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1992).
38
<PAGE>
10.7* Stock Purchase Agreement dated May 10, 1994 by and between American
Ecology Corporation and Mobley Environmental Services, Inc. (filed as
Exhibit 10(ii) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10.8* Side Letter Agreement dated May 13, 1994 between American Ecology
Corporation and Mobley Environmental Services, Inc. regarding the
Stock Purchase Agreement set forth at Exhibit 10(ii) (filed as Exhibit
10(jj) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10.9* Amendment to Stock Purchase Agreement dated September 2, 1994 between
American Ecology Corporation and Mobley Environmental Services, Inc.
regarding the Stock Purchase Agreement (filed as Exhibit 10(mm) to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1994).
10.10* Promissory Note in the original principal amount of $550,000 dated
December 31, 1994 executed by American Ecology Corporation payable to
Mobley Environmental Services, Inc. (filed as Exhibit 10(v) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
10.11* Loan Agreement dated June 2, 1995 between the Company and Bank One,
Texas, N.A. (filed as Exhibit 10(a) to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1995).
10.12* Security Agreement dated June 2, 1995 between the Company and Bank
One, Texas, N.A. (filed as Exhibit 10(b) to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1995).
10.13* Unlimited Guaranty between Mobley Company, Inc. and Bank One, Texas,
N.A. (filed as Exhibit 10(c) to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1995).
10.14* Asset Purchase Agreement dated June 7, 1995 between the Company and
Romero Bros. Oil Exchange, Environmental Petroleum Products Co./EPPCO,
and Environmental Insight, Inc. (filed as Exhibit 10(d) to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995).
10.15* Assignment by the Company of the Asset Purchase Agreement to
Hydrocarbon Technologies, Inc., a wholly-owned subsidiary of the
Company (filed as Exhibit 10(e) to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1995).
10.16* Escrow Agreement dated July 19, 1995 between the Company, Romero Bros.
Oil Exchange, Inc. and Bank One, Texas, N.A. (filed as Exhibit 10(f)
to the Company's Quarterly Report on Form 10- Q for the quarterly
period ended June 30, 1995).
10.17* Promissory Note in the amount of $75,000.00 dated July 19, 1995,
executed by the Company, payable to Romero Bros. Oil Exchange, Inc.
(filed as Exhibit 10(g) to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1995).
10.18* Pledge Agreement between the Company and Romero Bros. Oil Exchange,
Inc. securing the Promissory Note executed by the Company payable to
Romero Bros. Oil Exchange, Inc. (filed as
39
<PAGE>
Exhibit 10(h) to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995).
10.19* Contract dated July 12, 1995 between the Company and Promotora de
Servicios y Proyectos Ecologicos, S.A. de C.V. for the sale of the
shares of Pro Ambiente, S.A. de C.V. (filed as Exhibit 10(i) to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1995).
10.20* Memorandum dated August 3, 1995 regarding amendment of contract for
the sale of shares of Pro Ambiente, S.A. de C.V. to Promotora de
Servicios y Proyectos Ecologicos, S.A. de C.V. (filed as Exhibit 10(j)
to the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1995).
10.21* Design and Construction Agreement dated April 26, 1995 between the
Company and Engineering, Procurement & Construction, Inc. (filed as
Exhibit 10(k) to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995).
10.22* Sales and Design Contract dated April 28, 1995 between the Company and
Lecorp for construction of oil filter recycling facility (filed as
Exhibit 10(l) to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995).
10.23* Modification Agreement dated August 11, 1995 between the Company and
Promotora de Servicios y Proyectos Ecologicos, S.A. de C.V., amending
the contract for the sale of the shares of Pro Ambiente, S.A. de C.V.
(filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1995).
10.24* Termination Agreement dated July 12, 1995 between the Company and
Promotora de Servicios y Proyectos Ecologicos, S.A. de C.V.,
terminating the Organization Agreement dated March 29, 1993 (filed as
Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995).
10.25*+ 1995 Employee Restricted Stock Plan (filed as Exhibit 4.4 to the
Company's Registration Statement on Form S-8, No. 33-92336).
10.26 Asset Purchase Agreement dated April 25, 1997 by and among Mobley
Environmental Services, Inc., Mobley Company, Inc., Hydrocarbon
Technologies, Inc., United States Filter Corporation, and U.S. Filter
Recovery Services (Southwest), Inc.
10.27 Asset Purchase Agreement dated January 20, 1997 by and among Mobley
Company, Inc., and Dawson Production Services, Inc.
10.28 Promissory Note in the amount of $500,000 dated January 20, 1997
executed by Dawson Production Services, Inc. payable to Mobley
Company, Inc.
10.29 First Amendment to Letter Loan Agreement and Master Lease Modification
Agreement dated January 20, 1997 between the Company and Bank One,
Texas, N.A.
10.30 Deed of Trust, Security Agreement, and Financing Statement dated
January 20, 1997 executed by Mobley Company, Inc. for the benefit of
Bank One, Texas, N.A.
40
<PAGE>
10.31 Unlimited Guaranty dated January 20, 1997 executed by Hydrocarbon
Technologies, Inc. to Bank One, Texas, N.A. guaranteeing indebtedness
of the Company.
10.32 Security Agreement dated January 20, 1997 executed by Hydrocarbon
Technologies, Inc. in favor of Bank One, Texas, N.A. securing
indebtedness of the Company.
10.33* Information Statement dated May 9, 1997 to the Shareholders of the
Company relating to the pending sale of the Company's hydrocarbon
recycling and recovery business, including Supplement thereto dated
May 12, 1997 (filed as Schedule 14C on May 9, 1997 and May 14, 1997).
11 Statement regarding computation of per share earnings (loss).
21 Subsidiaries of the Company.
23 Independent Auditors' Consent.
27 Financial Data Schedule (submitted only in electronic format)
- --------------------------------
* Incorporated herein by reference to the respective filing identified
above.
+ Identifies management or compensatory plan or arrangement required to
be filed as an exhibit to this form pursuant to Item 14(c) of this
report.
ITEM 14 (b) REPORTS ON FORM 8-K
-------------------
On January 28, 1997, the Company filed a Form 8-K Current Report in
connection with the completion of the sale of its oilfield services assets to
Dawson Production Services, Inc.
On May 5, 1997, the Company filed a Form 8-K Current Report in connection
with the April 25, 1997 signing of a definitive Asset Purchase Agreement with
United States Filter Corporation for the sale of substantially all of the
remaining operating assets of its subsidiaries.
41
<PAGE>
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.
Date: May 19, 1997 Mobley Environmental Services, Inc.
Registrant
/s/ Michael M. Stark
---------------------
Michael M. Stark
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, 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/ John Mobley Chairman of the Board May 19, 1997
- ----------------------------- and Director
John Mobley
/s/ T.M. Mobley Vice-Chairman of the May 19, 1997
- ----------------------------- Board and Director
T.M. Mobley
/s/ Stewart Cureton, Jr. Director May 19, 1997
- -----------------------------
Stewart Cureton, Jr.
/s/ Michael M. Stark President and Chief May 19, 1997
- ----------------------------- Executive Officer
Michael M. Stark
/s/ W. Christopher Chisholm Vice President and May 19, 1997
- ----------------------------- Chief Financial Officer,
W. Christopher Chisholm Secretary and Treasurer
(Principal Accounting
Officer)
42
<PAGE>
SUPPLEMENTAL INFORMATION
As of the date of filing this Annual Report on Form 10-K, no Annual Report
to Shareholders for the year ended December 31, 1996 has been sent to the
Company's shareholders. Likewise, no proxy statement or form of proxy has been
sent to shareholders with respect to any annual or other meeting of security
holders. At such time as Annual Reports to Shareholders and proxy statements are
distributed to the Company's shareholders, copies of such material will also be
furnished to the Securities and Exchange Commission.
43
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mobley Environmental Services, Inc.:
We have audited the accompanying consolidated balance sheets of Mobley
Environmental Services, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mobley
Environmental Services, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
February 28, 1997, except for the second sentence
of the last paragraph of note 7 which is as of
March 31, 1997
F-1
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................ $ 385 $ 1,476
Trade receivables, less allowance for doubtful accounts of $50 in 1996 and $257 in
1995................................................................................... 161 2,836
Prepaid expenses and other current assets................................................ 207 582
Net assets of discontinued operations--current........................................... 1,144 --
--------- ---------
Total current assets................................................................. 1,897 4,894
Property, plant, and equipment, net...................................................... 230 12,837
Excess of purchase price over fair value of net assets acquired, net..................... -- 1,122
Net assets of discontinued operations--non-current....................................... 9,659 --
Other assets, net........................................................................ 197 244
--------- ---------
$ 11,983 19,097
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt...................................... $ 5,014 70
Accounts payable......................................................................... 633 1,306
Accrued expenses......................................................................... 3,721 3,613
--------- ---------
Total current liabilities............................................................ 9,368 4,989
Long-term debt, less current portion....................................................... -- 490
Other long-term liabilities................................................................ -- 166
Deferred income taxes...................................................................... 148 846
--------- ---------
Total liabilities.................................................................... 9,516 6,491
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized, none issued................ -- --
Common stock, $.01 par value:
Class A, 15,000,000 shares authorized; 4,155,097 and 4,085,343 shares issued and
outstanding in 1996 and 1995, respectively........................................... 42 41
Class B, 10,000,000 shares authorized; 4,764,903 shares issued and 4,680,196 shares
outstanding in 1996, 4,834,657 shares issued and 4,749,950 shares outstanding in
1995................................................................................. 48 49
Additional paid-in capital............................................................... 25,159 25,159
Accumulated deficit...................................................................... (22,486) (12,251)
Deferred compensation costs under restricted stock agreements............................ (288) (384)
Treasury stock, 84,707 shares of Class B common stock, at cost........................... (8) (8)
--------- ---------
Total stockholders' equity........................................................... 2,467 12,606
Commitments and contingencies
--------- ---------
$ 11,983 $ 19,097
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues................................................................... $ -- $ -- $ --
Cost of revenues........................................................... -- -- --
---------- ---------- ----------
Gross profit........................................................... -- -- --
Selling, general, and administrative expenses.............................. 516 683 376
Restructuring expenses..................................................... 650 -- --
---------- ---------- ----------
Operating loss......................................................... (1,166) (683) (376)
Other expense, net......................................................... (120) (630) (5)
---------- ---------- ----------
Loss from continuing operations before income taxes.................... (1,286) (1,313) (381)
Income tax benefit......................................................... -- 320 49
---------- ---------- ----------
Loss from continuing operations........................................ (1,286) (993) (332)
---------- ---------- ----------
Discontinued operations, net of tax:
Provision for loss on disposal of waste management services segment...... (7,621) -- --
Provision for losses during phase-out period of waste management services
segment................................................................ (331) -- --
Net loss from operations of waste management services segment............ (623) (318) (3,727)
Net loss from operations of oilfield services segment.................... (374) (152) (36)
---------- ---------- ----------
Loss from discontinued operations...................................... (8,949) (470) (3,763)
---------- ---------- ----------
Net loss............................................................... $ (10,235) $ (1,463) $ (4,095)
---------- ---------- ----------
---------- ---------- ----------
Net loss per share:
Continuing operations.................................................... $ (0.15) $ (0.12) $ (0.04)
Discontinued operations.................................................. (1.01) (0.05) (0.48)
---------- ---------- ----------
$ (1.16) $ (0.17) $ (0.52)
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of common shares outstanding....................... 8,835,293 8,378,142 7,915,293
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Preferred stock--none issued.................................................. $ -- $ -- $ --
---------- ---------- ----------
Class A common stock:
Balance at beginning of year................................................ 41 27 26
Issuance of 420,000 shares of restricted common stock....................... -- 4 --
Issuance of 500,000 shares of common stock in connection with asset
acquisition............................................................... -- 5 --
Conversion of Class B common stock (69,754 shares in 1996, 500,809 shares in
1995, and 30,263 shares in 1994).......................................... 1 5 1
---------- ---------- ----------
Balance at end of year.................................................... 42 41 27
---------- ---------- ----------
Class B common stock:
Balance at beginning of year................................................ 49 54 55
Conversion into Class A common stock (69,754 shares in 1996, 500,809 shares
in 1995, and 30,263 shares in 1994)....................................... (1) (5) (1)
---------- ---------- ----------
Balance at end of year.................................................... 48 49 54
---------- ---------- ----------
Additional paid-in capital:
Balance at beginning of year................................................ 25,159 23,788 23,788
Issuance of restricted common stock......................................... -- 626 --
Issuance of common stock in connection with asset acquisition............... -- 745 --
---------- ---------- ----------
Balance at end of year.................................................... 25,159 25,159 23,788
---------- ---------- ----------
Accumulated deficit:
Balance at beginning of year................................................ (12,251) (10,788) (6,693)
Net loss.................................................................... (10,235) (1,463) (4,095)
---------- ---------- ----------
Balance at end of year.................................................... (22,486) (12,251) (10,788)
---------- ---------- ----------
Allowance for foreign currency translation loss:
Balance at beginning of year................................................ -- (700) --
Provision for foreign currency translation loss............................. -- (155) (700)
Reduction in allowance for foreign currency translation loss due to sale of
investment in foreign joint venture....................................... -- 855 --
---------- ---------- ----------
Balance at end of year.................................................... -- -- (700)
---------- ---------- ----------
Deferred compensation costs under restricted stock agreements:
Balance at beginning of year................................................ (384) -- (12)
Issuance of restricted stock................................................ -- (630) --
Amortization of deferred compensation costs................................. 96 246 12
---------- ---------- ----------
Balance at end of year.................................................... (288) (384) --
---------- ---------- ----------
Treasury stock................................................................ (8) (8) (8)
---------- ---------- ----------
Total stockholders' equity.............................................. $ 2,467 $ 12,606 $ 12,373
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (10,235) $ (1,463) $ (4,095)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Provision for loss on disposal and losses during phase-out period of waste
management services segment................................................ 8,650 -- --
Provision for restructuring charges.......................................... 650 -- --
Depreciation and amortization................................................ 2,594 2,361 3,431
Deferred income tax expense (benefit)........................................ (698) (471) 547
Deferred compensation costs under restricted stock agreements................ 96 246 12
Provision for losses on accounts receivable.................................. -- 200 271
Equity in net loss and loss on sale of joint venture......................... -- 323 55
Write-down of assets......................................................... -- 392 --
Changes in certain operating assets and liabilities:
Trade receivables.......................................................... (698) (123) (612)
Other assets............................................................... (126) 343 1,150
Accounts payable........................................................... 840 (1,732) 2,161
Accrued expenses and other liabilities..................................... (1,279) (265) (2,409)
---------- --------- ---------
Net cash provided by (used in) operating activities, including
discontinued operations................................................ (206) (189) 511
---------- --------- ---------
Cash flows from investing activities:
Capital expenditures........................................................... (5,339) (5,226) (3,042)
Proceeds from sale of joint venture investment................................. -- 1,324 --
Acquisition of assets.......................................................... -- (770) --
Proceeds from sale of subsidiary, net of $229 cash balance at date of sale..... -- -- 5,500
Other investing activities, net................................................ -- 56 135
---------- --------- ---------
Net cash provided by (used in) investing activities, including
discontinued operations................................................ (5,339) (4,616) 2,593
---------- --------- ---------
Cash flows from financing activities:
Net borrowings on revolving lines of credit.................................... 4,686 -- 135
Principal payments on long-term debt........................................... (232) (1,750) (651)
Borrowings of long-term debt................................................... -- 560 250
Net advances from purchaser prior to sale of subsidiary........................ -- -- 3,355
---------- --------- ---------
Net cash provided by (used in) financing activities, including
discontinued operations................................................ 4,454 (1,190) 3,089
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents..................... (1,091) (5,995) 6,193
Cash and cash equivalents at beginning of year................................... 1,476 7,471 1,278
---------- --------- ---------
Cash and cash equivalents at end of year......................................... $ 385 $ 1,476 $ 7,471
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The accompanying financial statements present
the consolidated accounts of Mobley Environmental Services, Inc. (the "Company")
and its wholly-owned subsidiaries, Hydrocarbon Technologies, Inc. ("HTI"),
Gibraltar Chemical Resources, Inc. ("Gibraltar"), and Mobley Company, Inc.
("Mobley"). In the fourth quarter of 1996, the Company announced its plans to
sell substantially all of its operating assets and completed the sale of the
assets of its oilfield services segment in January 1997 (note 2). On December
31, 1994, the Company sold Gibraltar (note 3). All significant intercompany
accounts and transactions have been eliminated in consolidation.
DESCRIPTION OF BUSINESS--The Company provides diverse environmental and
field-related services to industrial, governmental, and commercial markets, and
specializes in the collection, transportation, treatment, recycling, and
management of a wide variety of non-hazardous liquid hydrocarbons, oil filters,
absorbents, and related materials. Prior to the sale of Gibraltar in 1994, the
Company's waste management services activities also included the management of
hazardous wastes. Prior to sale of the Company's oilfield services segment in
January 1997, the Company also provided oilfield services for managing liquids
used or produced during the lifecycle of oil and gas wells. The Company operates
primarily in the states of Texas, Louisiana, and Arkansas.
BASIS OF PRESENTATION--The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern.
As discussed in note 2, the Company's Board of Directors determined that the
divestiture of its operations was in the best interests of the Company and its
shareholders. The consolidated financial statements do not include any
adjustments that might result from the liquidation of the Company.
CASH EQUIVALENTS--For purposes of reporting cash flows, the Company
considers investments with original maturities of three months or less to be
cash equivalents. Cash equivalents consist of investments in money market
accounts at December 31, 1996 and 1995.
REVENUE RECOGNITION--Waste management services revenues are recognized when
the services are performed or upon the receipt and acceptance of waste material
at the Company's transfer or processing facilities. Upon the recognition of such
revenue, appropriate incidental treatment and residual disposal costs are
accrued. In the case of product sales, revenues are recognized upon acceptance
of the related product by the customer. Oilfield services revenues are
recognized when the services are performed.
PROPERTY, PLANT, AND EQUIPMENT--Property, plant, and equipment are recorded
at cost and depreciated using the straight-line method over their estimated
useful lives ranging from three to thirty years.
MAINTENANCE AND REPAIRS--Major repairs to disposal well facilities are
estimated and accrued by monthly charges to expense. Periodic costs incurred for
such items are charged against the related accrued expenses. All other
maintenance and repair costs are charged to expense as incurred. Renewals and
betterments are capitalized.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF--The
Company adopted the provisions of Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of ("SFAS 121"), on January 1, 1996. SFAS 121 requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying
F-6
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
amount of an asset to future net cash flows, undiscounted and without interest
charges, expected to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or fair value
less costs to sell.
In its review of possible asset impairment, management considered the
following factors: (i) the limited operating history of the Company's new
business endeavors prior to and as of January 1, 1996; (ii) the fact that a
substantial part of its capital assets were under construction prior to and as
of January 1, 1996; and (iii) the anticipated continued operations of the
Company, and the expected future net cash flows to be generated by such
operations. Based on these facts and circumstances, and considering its
analyses, management of the Company concluded that there was no indicated
impairment of the Company's assets consequently, the adoption of SFAS 121 did
not have a material impact on its financial position or results of operations.
Subsequent to the adoption of SFAS 121, the Company announced its plans to sell
substantially all of its operating assets which required material adjustments to
the carrying values of the Company's assets in the third quarter of 1996 (note
2).
INVESTMENT IN JOINT VENTURE--Investment in joint venture consisted of a 25%
interest in Pro Ambiente, S.A. de C.V. ("Pro Ambiente"), a joint venture in
Mexico. On July 12, 1995, the Company sold its interest in Pro Ambiente (note
5). This investment was accounted for by the equity method.
Assets and liabilities of Pro Ambiente were translated at the rate of
exchange in effect on the last day of each fiscal year. The related translation
adjustments are reflected in the allowance for foreign currency translation loss
in the stockholders' equity section of the consolidated balance sheet at that
date. Income and expenses have been translated at the average rates of exchange
prevailing during the year.
INTANGIBLE ASSETS--Intangible assets are stated at unamortized cost and
consist primarily of excess of purchase price over fair value of net assets
acquired (goodwill). Historically, the carrying value of intangible assets has
been periodically reviewed by the Company based on the expected future
undiscounted operating cash flows of the related business segment. Goodwill was
being amortized over a fifteen-year life on a straight-line basis prior to the
decision to sell substantially all operating assets (note 2).
INCOME TAXES--Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
EARNINGS PER SHARE--Earnings per share computations are based on the
weighted average number of common and dilutive common equivalent shares
outstanding.
USE OF ESTIMATES--Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates which could have a material adverse
effect on the Company's future financial condition, results of operations and
liquidity as disclosed in note 13.
F-7
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FINANCIAL INSTRUMENTS AND CREDIT RISK CONCENTRATIONS--Financial instruments
which potentially subject the Company to concentrations of credit risk consist
principally of cash equivalents and trade receivables. The Company places its
cash equivalents with high credit quality financial institutions; however, such
amounts are generally in excess of federally insured limits. Although the
Company does not require collateral for trade receivables, the credit risk is
limited due to the large number of customers. For the years ended December 31,
1996, 1995, and 1994 no customer accounted for more than 10% of revenues. At
December 31, 1996 and 1995, no receivable, that is going to be retained by the
Company after completion of the proposed transactions to sell its operating
assets, from any customer exceeded 5% of stockholders' equity.
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, requires that the Company disclose estimated
fair values for its financial instruments. Fair value estimates are set forth
below for the Company's financial instruments:
- Cash, Cash Equivalents, Trade Receivables, Accounts Payable, and Accrued
Expenses--The carrying amounts approximate fair value because of the short
maturity of these instruments.
- Notes Payable and Long-term Debt--The carrying amount of the notes payable
and long-term debt approximates market because of the variable interest
rate, which is based on the bank's prime rate, or the current interest
rate available to the Company for debt of similar terms approximates the
existing rate.
The fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instruments.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
STOCK OPTION PLANS--Prior to January 1, 1996, the Company accounted for its
stock option plans in accordance with the provisions of Accounting Principles
Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and
related interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock exceeded
the exercise price. On January 1, 1996, the Company adopted Statement of
Accounting Standards Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION
("SFAS 123"), which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS 123 also allows entities to continue to apply the provisions
of APB 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS 123 has been applied. The Company
has elected to continue to apply the provisions of APB 25 and provide the pro
forma disclosure provisions of SFAS 123 (note 11).
RECLASSIFICATIONS--Certain amounts in the prior year's financial statements
have been reclassified to conform to the current year presentation.
(2) RECENT AND PENDING ASSET SALES AND DISCONTINUED OPERATIONS
In light of the Company's severely weakened financial condition and, in
particular, concerns about its liquidity, the Board of Directors reviewed the
challenges facing the Company and discussed in general terms the alternatives
available to address them. Among other things, the Board of Directors considered
F-8
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) RECENT AND PENDING ASSET SALES AND DISCONTINUED OPERATIONS (CONTINUED)
(i) the Company's relatively small size and the resultant constraints on its
ability to make significant investments in additional processing or collection
businesses without an infusion of equity in an industry characterized by
increasing consolidation, intensifying competition, and continued growth through
acquisition by larger entities with greater access to financial resources than
has the Company; (ii) the Company's inability to obtain bank financing and the
unfavorable results of recent efforts to attract equity investors to fund
activities contemplated by the Company's strategic business plan; (iii) the
Company's default under its bank credit agreement due to its inability to
maintain compliance with certain covenants contained in such agreement; and (iv)
the Company's severely strained liquidity and immediate need for working capital
to continue its current operations. As part of these deliberations, management
and the Company's financial advisors reviewed in detail with the Board of
Directors their efforts with third parties to attract possible investments in,
or strategic alliances with, the Company. Since such efforts had not yielded
access to funds on terms acceptable to the Company, the Board of Directors
determined that the divestiture of its operations was in the best interests of
the Company and its shareholders. These circumstances required the Company to
re-evaluate the basis used to assess the carrying values of assets pursuant to
the provisions of SFAS 121. Subsequently, on October 30, 1996, and November 1,
1996, the Company executed letters of intent to sell substantially all of its
operating assets in two separate transactions. The transactions and their impact
on the Company's consolidated financial statements are described in the
following paragraphs. The Company's waste management services segment consists
of the operations of HTI and certain operations of Mobley. The Company's
oilfield services segment consists of certain operations of Mobley.
SALE OF WASTE MANAGEMENT SERVICES ASSETS AND DISCONTINUANCE OF BUSINESS
SEGMENT. On October 30, 1996, the Company signed a letter of intent with United
States Filter Corporation ("USF") to sell substantially all of the assets
related to its waste management services activities. Under the terms of the
letter of intent, the Company will receive $8,000,000 in shares of USF common
stock (registered with the Securities and Exchange Commission) in exchange for
such assets, and can earn up to an additional $4,000,000 in USF common stock
based on the performance of the business during the two years following its
sale, currently anticipated to be completed in the 1997 second quarter.
Additionally, USF will assume certain liabilities (accounts payable and accrued
expenses) as part of the transaction. The letter of intent further specifies
that the sales price of the assets will be adjusted upward or downward based on
the level of net assets, as defined, at the time of closing. Completion of the
transaction is subject to final negotiation and signing of a definitive
acquisition agreement, which is expected to contain standard conditions to
closing, including board and shareholder approval and due diligence, and the
distribution of an Information Statement describing the proposed transaction to
the Company's shareholders.
The net assets which are the subject of the letter of intent are shown in
the accompanying December 31, 1996, consolidated balance sheet as "net assets of
discontinued operations" at their estimated net realizable value as determined
by the aforementioned terms, less anticipated transaction costs of approximately
$450,000. Such assets have a net book value at December 31, 1996, (net of
assumed liabilities) of approximately $15,149,000. As a result of the pending
sale, the Company recorded a charge of $7,621,000 (net of a deferred income tax
benefit of $698,000) during the year ended December 31, 1996, representing the
estimated loss on the disposal of the business segment, including certain
required capital expenditures prior to the sale amounting to approximately
$900,000. In determining the estimated loss on disposal, only the $8,000,000
fixed portion of the sales price was considered (i.e., that portion which is
contingent on the future performance of the business was ignored). Such loss was
recognized in the third quarter, when it was determined that a sale of the
assets was necessary given the Company's inability to secure acceptable
financing and concerns about its liquidity. Prior to that time, the evaluation
of potential
F-9
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) RECENT AND PENDING ASSET SALES AND DISCONTINUED OPERATIONS (CONTINUED)
asset impairment had been made on a "going-concern" basis and cash flow
projections for the segment supported the carrying values of the related assets.
The Company estimates that it will incur additional operating losses in this
business segment, after the allocation of certain overhead and interest costs,
amounting to approximately $331,000 during the phase-out period from October 1,
1996 to the expected closing date of the transaction. A provision for such
estimated net losses has been made in the accompanying consolidated statements
of operations for the year ended December 31, 1996. The Company's waste
management services segment incurred a net loss of approximately $288,000 during
the period October 1, 1996 to December 31, 1996.
SALE OF OILFIELD SERVICES ASSETS AND DISCONTINUANCE OF BUSINESS SEGMENT. On
November 1, 1996, the Company signed a letter of intent with Dawson Production
Services, Inc. to sell substantially all of the assets related to its oilfield
services business. Such sale was completed on January 20, 1997, pursuant to a
definitive asset purchase agreement. Under the terms of the definitive
agreement, the Company received approximately $4,917,000 and a subordinated note
in the amount of $500,000, due in January 2002, in exchange for such assets. The
assets which were the subject of the sale had a net book value, based on
historical cost adjusted for accumulated depreciation and amortization, of
approximately $2,378,000, and are shown in the accompanying December 31, 1996,
consolidated balance sheet as "net assets of discontinued operations" at that
carrying amount. The results of operations associated with the discontinued
segment through the anticipated disposal date, after allocation of certain
overhead and interest costs, did not result in a loss and consequently, no
additional losses have been reflected in the accompanying statements of
operations for the year ended December 31, 1996. The Company's oilfield services
segment generated net income of approximately $120,000 during the period October
1, 1996, to December 31, 1996. The Company recognized a gain upon completion of
the sale, after transaction costs of approximately $255,000, amounting to
approximately $2,800,000 in January 1997.
In anticipation of the planned divestitures and the significant reduction in
personnel necessary to support the administration of the Company's remaining
assets, the Company recorded certain restructuring expenses, none of which are
expected to benefit its future activities, during the 1996 third quarter. Such
expenses, totaling $650,000, included employee severance obligations of
approximately $285,000, costs associated with the relocation and recruitment of
personnel of approximately $155,000, and other related expenses of approximately
$210,000. Substantially all of such costs were subsequently incurred during the
1996 fourth quarter and 1997 first quarter. The twelve employees to be
terminated are primarily involved in providing certain corporate support
functions, including accounting, information systems, and environmental, health
and safety.
Because of the outstanding contractual indemnification obligations of the
Company and in light of pending litigation to which the Company is a party, the
Company will remain in existence and incur certain general and administrative
expenses for the foreseeable future but will have no operating assets after the
sale of its waste management services segment to USF. Therefore, certain general
and administrative expenses and nonoperating income and expense have been
accounted for as continuing operations. Future costs incurred in connection with
these indemnification obligations and litigation responsibilities will be
reported as part of the discontinued operations in which they originated or to
which they relate. The Company believes it is probable that it will continue to
incur certain costs associated with these legal matters and accordingly, in
connection with the divestiture of Gibraltar in 1994, established an accrual for
estimated out-of-pocket expenses related to the ongoing administrative
management of such matters. However, the Company is currently unable to
reasonably estimate its potential exposure for defending
F-10
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) RECENT AND PENDING ASSET SALES AND DISCONTINUED OPERATIONS (CONTINUED)
such matters, any indemnity obligations resulting therefrom, and any
corresponding insurance reimbursement (note 13).
The Company's two business segments, waste management services and oilfield
services, have been accounted for as discontinued operations, and accordingly,
their operations have been segregated in the accompanying consolidated
statements of operations. The revenues, operating costs and expenses, interest
expense, and income taxes for the years ended December 31, 1996, 1995, and 1994,
have been reclassified for amounts associated with the discontinued segments.
Due to the relative significance of the Company's business segments to its
operations as a whole, and in light of the Company's decision to divest itself
of substantially all of its operating assets in the 1996 third quarter, the
Company has allocated certain general and administrative expenses to the
business segments in the accompanying consolidated statements of operations and
note 2. Historically, such costs had been treated as "corporate overhead" and
thus not allocated. The Company believes that such allocation provides financial
information that is more indicative of the actual operating results of the
business segments. However, such allocation method differs from that used in
presenting certain information about the Company's business segments in its
annual report on Form 10-K for the years ended December 31, 1995, 1994 and 1993.
General and administrative expenses attributable to continuing operations have
been determined based upon an allocation of such costs betweeen the business
segments and continuing operations. Restructuring charges, other income and
expense, and equity in losses and loss from sale of joint venture have been
recorded as continuing operations as such amounts are not specifically
attributable to either of the Company's business segments which are being
disposed of. Interest expense has been allocated to the segments based on the
outstanding indebtedness attributable to each of the business segments. Income
taxes have been allocated based on the effective tax rate, after a specific
charge to the waste management services segment for the change in the
beginning-of-the-year balance of the valuation allowance for deferred tax assets
of Gibraltar.
F-11
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) RECENT AND PENDING ASSET SALES AND DISCONTINUED OPERATIONS (CONTINUED)
Operating results and the estimated loss on disposal of the Company's waste
management services segment for the years ended December 31, 1996, 1995, and
1994 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues..................................................... $ 17,207 $ 14,233 $ 25,801
Cost of revenues............................................. 14,006 9,923 21,059
--------- --------- ---------
Gross profit............................................... 3,201 4,310 4,742
Selling, general, and administrative expenses, including
allocated amounts.......................................... 3,902 4,730 7,714
--------- --------- ---------
Operating loss............................................. (701) (420) (2,972)
Interest expense, net........................................ (210) -- (154)
--------- --------- ---------
Loss before income taxes................................... (911) (420) (3,126)
Income tax expense (benefit)................................. -- (102) 601
--------- --------- ---------
Net loss from operations of waste management services
segment.................................................. (911) (318) (3,727)
Reduction in reserve for losses from operations of waste
management services segment during phase-out period........ 288 -- --
--------- --------- ---------
$ (623) $ (318) $ (3,727)
--------- --------- ---------
--------- --------- ---------
Provision for losses from operations of waste management
services segment during phase-out period, recognized in the
third quarter of 1996...................................... $ (331) $ -- $ --
--------- --------- ---------
--------- --------- ---------
Provision for loss on disposal of waste management services
segment, recognized in the third quarter of 1996:
Asset valuation adjustment................................. (5,673) -- --
Accrued transaction costs and capital expenditures
subsequent to measurement date........................... (1,595) -- --
Write-off of excess of purchase price over fair value of
net assets acquired...................................... (1,051) -- --
Deferred income tax benefit................................ 698 -- --
--------- --------- ---------
$ (7,621) $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-12
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) RECENT AND PENDING ASSET SALES AND DISCONTINUED OPERATIONS (CONTINUED)
Operating results of the Company's oilfield services segment for the years
ended December 31, 1996, 1995, and 1994 are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues......................................................... $ 4,373 $ 4,355 $ 3,709
Cost of revenues................................................. 3,241 2,934 2,357
--------- --------- ---------
Gross profit................................................... 1,132 1,421 1,352
Selling, general, and administrative expenses, including
allocated amounts.............................................. 1,506 1,622 1,393
--------- --------- ---------
Operating loss................................................. (374) (201) (41)
Income tax benefit............................................... -- (49) (5)
--------- --------- ---------
Net loss from operations of oilfield services segment.......... $ (374) $ (152) $ (36)
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1996, the net assets of the Company's waste management
services segment are recorded at their estimated net realizable value and the
net assets of its oilfield services segment are recorded at their net book
value, and are included in the accompanying consolidated balance sheet as "net
assets of discontinued operations." Such assets are summarized as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
WASTE
MANAGEMENT OILFIELD
SERVICES SERVICES TOTAL
------------ ----------- ---------
<S> <C> <C> <C>
Trade receivables.......................................... $ 2,873 $ 500 $ 3,373
Other current assets....................................... 519 32 551
Property, plant and equipment, net of accumulated
depreciation of $14,087 and valuation reserve of
$5,673................................................... 7,780 1,846 9,626
Excess of purchase price over fair value of net assets
acquired, net of accumulated amortization of $101 and
valuation reserve of $1,051.............................. -- -- --
Other assets, net.......................................... 33 -- 33
Current liabilities........................................ (2,780) -- (2,780)
------------ ----------- ---------
Net assets of discontinued operations.................... $ 8,425 $ 2,378 $ 10,803
------------ ----------- ---------
------------ ----------- ---------
</TABLE>
Presently, it is contemplated that all or substantially all of the USF
common stock received at the time of closing will be immediately sold. Such
proceeds will be used to fund the current liabilities retained by the Company,
with the remaining surplus cash expected to initially be deployed in short-term
investments. The Company anticipates that ongoing general and administrative
expenses will be reduced to approximately $300,000 annually, and expects
earnings from investments to largely offset such costs. The amounts described
herein are approximate and based on the Company's current estimates.
Furthermore, there can be no assurance that such amounts will actually be
realized.
In the event that the sale to USF is not consummated, the Company's Board of
Directors may seek to sell some or all of the Company's assets to another
purchaser or purchasers. The Company's inability to
F-13
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) RECENT AND PENDING ASSET SALES AND DISCONTINUED OPERATIONS (CONTINUED)
consummate the sale to USF as planned in a timely manner could have a material
adverse effect on the Company's consolidated financial position and liquidity.
In 1996, the Company engaged an investment banking and financial advisory
firm in which a Class A director has an ownership and management interest to
provide certain business consulting services to the Company, including analysis
and negotiation of potential business combination transactions to which the
Company might be a party. Under the terms of the engagement, the Company has
paid the investment banking firm retainer fees of approximately $162,000 through
December 31, 1996, and is obligated to pay additional fees in the event a
transaction is consummated by the Company. Additionally, the Company will be
obligated to pay such investment banking firm a total of approximately $220,000,
plus out-of-pocket expenses, in conjunction with the transaction with USF.
Further, the Company paid such investment banking firm approximately $207,500,
plus out-of-pocket expenses, in connection with USF's acquisition of an
unrelated entity, which was completed in February 1997. USF reimbursed the
Company $250,000 for certain expenses, including amounts that were paid to the
investment banking firm. Finally, in connection with the disposition of the
Company's oilfield services segment, the Company paid the investment banking
firm approximately $150,000, plus out-of-pocket expenses. The Company believes
that the terms of its arrangement with the investment banking firm are
consistent with industry standards for similar services.
(3) SALE OF GIBRALTAR
After a period of continued operating losses, in light of management's
ongoing assessment of changed conditions in the hazardous waste market, and
considering the significance of Gibraltar's regulatory issues and future capital
requirements, in late 1993, the Company's senior management and Board of
Directors determined that the divestiture of Gibraltar was in the best interests
of the Company and its shareholders.
On May 10, 1994, the Company executed a definitive agreement (the "Stock
Purchase Agreement") for the sale of all of the outstanding shares of common
stock of Gibraltar to American Ecology Corporation ("AEC"). Such agreement was
subsequently amended in an agreement dated September 2, 1994. The Company
completed the sale of Gibraltar to AEC pursuant to the Stock Purchase Agreement,
as amended, on December 31, 1994, and received cash of $5,500,000 from AEC. In
addition to the cash proceeds reflected above, AEC executed a note payable to
the Company in the amount of $550,000 to be held in escrow as a source of
payment of claims, if any, for which the Company indemnifies AEC under the Stock
Purchase Agreement (note 13).
During 1993, as part of a restructuring of its hazardous waste business, the
Company recorded charges of $5,711,000 related to the abandonment and write-down
of certain of Gibraltar's assets and to reduce the net assets of Gibraltar to
their estimated net realizable value at December 31, 1993, determined primarily
based on the terms of the Stock Purchase Agreement. During 1994, the Company
recorded additional provisions for losses on the divestiture of Gibraltar of
$4,092,000 to further reduce the carrying value of Gibraltar's net assets. The
additional charges were necessitated by: (i) the settlement of litigation
against Gibraltar by the State of Texas involving its alleged violation of
environmental laws and regulations; (ii) Gibraltar's continuing losses prior to
the closing of the sale on December 31, 1994; (iii) the aforementioned amendment
to the Stock Purchase Agreement; (iv) certain indemnity obligations of the
Company to AEC relative to existing claims involving Gibraltar (note 13); and
(v) additional expenses related to the sale.
F-14
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SALE OF GIBRALTAR (CONTINUED)
The change in the reserve for loss on sale of subsidiary for the years ended
December 31, 1996 and 1995, is summarized as follows (in thousands of dollars):
<TABLE>
<S> <C>
Balance at December 31, 1994, included in accrued expenses......... $ 1,430
1995 expenditures related to Gibraltar indemnity obligations....... (534)
---------
Balance at December 31, 1995, included in accrued expenses......... 896
1996 expenditures related to Gibraltar indemnity obligations....... (492)
---------
Balance at December 31, 1996, included in accrued expenses......... $ 404
---------
---------
</TABLE>
A summary of Gibraltar's results of operations for the year ended December
31, 1994, follows (in thousands of dollars):
<TABLE>
<S> <C>
Revenues........................................................... $ 12,017
---------
---------
Gross profit (loss)................................................ $ (432)
---------
---------
Operating loss..................................................... $ (3,664)
---------
---------
Net loss........................................................... $ (4,012)
---------
---------
</TABLE>
Included in the net loss of Gibraltar for the year ended December 31, 1994,
was $166,000, of intercompany overhead and interest charges assessed Gibraltar
by the Company.
(4) ASSET ACQUISITION AND BUSINESS EXPANSION
On July 21, 1995, the Company acquired, pursuant to an asset purchase
agreement dated June 7, 1995, certain assets of a group of three affiliated
companies, including Romero Bros. Oil Exchange, Inc., Environmental Petroleum
Products Co./EPPCO, and Environmental Insight, Inc. The Texas and
Louisiana-based companies were involved in the collection and marketing of used
oils and oil filter collection and recycling. The asset purchase was effectuated
through a newly-formed, wholly-owned subsidiary of the Company, HTI. The
tangible assets acquired, consisting primarily of transportation equipment, were
recorded at their estimated fair market value of $500,000 and will be
depreciated over their estimated remaining useful lives. The total acquisition
cost of $1,536,000 included cash of approximately $786,000, including
acquisition-related costs, and the issuance of 500,000 shares of the Company's
Class A common stock. The purchase method of accounting has been used for this
asset acquisition; therefore, HTI's results of operations are consolidated with
the Company's since July 21, 1995. The excess of cost over fair market value of
net assets acquired amounted to $1,152,000, including $116,000 of deferred tax
liabilities for the basis difference in tangible assets. Such excess of cost
over fair market value of net assets acquired was written off in connection with
the decision to sell substantially all operating assets (note 2). Of the 500,000
shares of common stock issued, 300,000 of such shares are being held in escrow
pending the attainment of certain performance goals by HTI, including objectives
relating to operating profit and collected volumes of used oil and oil filters.
An additional 100,000 shares are being held by the Company as security for the
repayment of a $75,000 loan to the sellers.
F-15
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) SALE OF INTEREST IN MEXICAN JOINT VENTURE
On July 12, 1995, effective June 30, 1995, the Company executed an agreement
for the sale of its 25% interest in Pro Ambiente to Promotora de Servicios y
Proyectos Ecologicos, S.A. de C.V., owner of the remaining 75% of the joint
venture. Pro Ambiente is a Mexican corporation engaged in the collection and
blending of waste-derived fuels for use in cement kilns. The payment terms of
the sale were subsequently modified pursuant to an agreement dated August 11,
1995. Under the terms of the sale agreement, as amended, the Company received
cash proceeds of $1,324,000. As a result of the sale and other expenses
associated with its Mexican operations, the Company recorded losses totaling
$547,000 in the year ended December 31, 1995.
(6) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment, including $9,626,000 of property, plant, and
equipment, net, included in net assets of discontinued operations, consisted of
the following at December 31, 1996 and 1995 (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land.............................................................................. $ 802 $ 802
Buildings and improvements........................................................ 1,862 1,588
Machinery and equipment........................................................... 26,514 19,168
Furniture, fixtures, and other.................................................... 704 673
Construction in progress.......................................................... 61 3,037
--------- ---------
29,943 25,268
Less: Accumulated depreciation.................................................... 14,414 12,431
Valuation reserve............................................................. 5,673 --
--------- ---------
Net property, plant, and equipment................................................ $ 9,856 $ 12,837
--------- ---------
--------- ---------
</TABLE>
Depreciation expense totaled $2,523,000, $2,328,000, and $3,366,000 for the
years ended December 31, 1996, 1995, and 1994, respectively.
The Company recorded a pre-tax charge of $392,000 during the 1995 fourth
quarter related to the write-down of an office building in Kilgore, Texas, to
its estimated net realizable value. Such amount is included in "other expense,
net" as a component of continuing operations in the accompanying consolidated
statements of operations for the year ended December 31, 1995. The property is
currently held for sale.
(7) NOTES PAYABLE
The Company has a credit agreement, as amended, (the "Credit Agreement")
with Bank One, Texas, N.A. (the "Bank") that matures on March 31, 1997, that
provides up to $6,500,000 in available credit for the Company. Under the terms
of the Credit Agreement, the Company may borrow, subject to a defined borrowing
base, up to $4,000,000 under a revolving line of credit (including up to
$1,800,000 in letters of credit) for working capital and general corporate
purposes, and up to $2,500,000 under a term loan facility for purposes of
acquiring certain eligible equipment. The Credit Agreement is secured primarily
by accounts receivable and equipment.
F-16
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) NOTES PAYABLE (CONTINUED)
At December 31, 1996, the Company had borrowings of approximately $2,738,000
outstanding under the revolving line of credit and had approximately $1,179,000
in letters of credit outstanding. Interest on the revolving line of credit is
payable quarterly at the Bank's prime rate (8.875% at December 31, 1996). At
December 31, 1996, the Company had borrowed the full $2,500,000 available under
the term loan portion of the Credit Agreement, consisting of two notes in the
original amounts of $700,000 (payable quarterly over five years) and $1,800,000
(payable quarterly over seven years). Both notes bear interest at 8.25%. The
outstanding balance at December 31, 1996 was approximately $2,276,000 under the
term loan portion of the Credit Agreement.
The Credit Agreement contains restrictive covenants which include the
maintenance of minimum tangible net worth, as defined, and certain financial
ratios. The Company has not been in compliance with certain covenant
requirements since June 30, 1996, placing the Company in technical default.
Consequently, the Company has classified the entire outstanding balance as a
current liability.
In connection with the closing of the sale of the Company's oilfield
services segment in January 1997, the Company repaid $3,300,000 of outstanding
indebtedness under the Credit Agreement. On March 31, 1997, the Bank extended
the maturity date of the Credit Agreement to May 31, 1997, to accommodate the
anticipated closing date of the sale of the Company's waste management services
assets to USF. The Company's inability to consummate the sale to USF as planned
in a timely manner could have a material adverse effect on the Company's
consolidated financial position and liquidity.
(8) ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 1996 and 1995
(in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Accrued transaction costs and capital expenditures to be incurred prior to the sale
of the waste management services segment (note 2).................................. $ 987 $ --
Insurance premiums and accrued claims payable........................................ 696 742
Accrued expenses for estimated legal costs relating to Gibraltar
(notes 3 and 13)................................................................... 404 896
Accrued restructuring expenses (note 2).............................................. 402 --
Salaries, wages, and benefits........................................................ 258 591
Current portion of Gibraltar judgment (notes 3 and 13)............................... 167 167
Taxes other than income taxes........................................................ 116 265
Accrued losses from operations of waste management services segment during phase-out
period (note 2).................................................................... 43 --
Other................................................................................ 648 952
--------- ---------
3,721 3,613
--------- ---------
Salaries, wages, and benefits........................................................ 400 --
Taxes other than income taxes........................................................ 210 --
Other................................................................................ 491 --
--------- ---------
Accrued expenses, included in net assets available for sale.......................... 1,101 --
--------- ---------
$ 4,822 3,613
--------- ---------
--------- ---------
</TABLE>
F-17
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1996, 1995,
and 1994, consisted of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Deferred Federal income tax benefit from continuing operations................ $ -- (320) (49)
--------- --------- ---------
Deferred Federal income tax expense (benefit)................................. (698) (151) 603
Deferred state income tax benefit............................................. -- -- (7)
--------- --------- ---------
Income tax expense (benefit) from discontinued operations................... (698) (151) 596
--------- --------- ---------
Income tax expense (benefit)................................................ $ (698) (471) 547
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. Federal income tax rate of 34% to loss before income taxes as a result
of the following (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax benefit.......................................... $ (3,717) (658) (1,206)
Change in the beginning-of-the-year balance of the valuation allowance
for deferred tax assets................................................ 3,198 364 608
Change in the beginning-of-the-year balance of the valuation allowance
for deferred tax assets of Gibraltar................................... -- -- 1,007
Other, net............................................................... (179) (177) 138
--------- --------- ---------
Total income tax expense (benefit)..................................... $ (698) (471) 547
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-18
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and 1995, are presented below (in thousands of dollars):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................................................ $ 1,954 1,157
Property, plant and equipment--basis differences and depreciation............... 1,985 --
Accrued expenses, provisions for book not yet deductible for tax................ 896 483
Capital loss carryforward....................................................... 194 220
Alternative minimum tax credit carryforward..................................... 134 134
Other........................................................................... 137 108
--------- ---------
Total gross deferred tax assets............................................... 5,300 2,102
Less valuation allowance...................................................... (5,300) (2,102)
--------- ---------
Net deferred tax assets....................................................... $ -- --
--------- ---------
Deferred tax liabilities:
Property, plant, and equipment--depreciation and basis differences.............. $ -- 698
Other........................................................................... 148 148
--------- ---------
Total gross deferred tax liabilities.......................................... 148 846
--------- ---------
Net deferred tax liability.................................................... $ 148 846
--------- ---------
--------- ---------
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities and projected future taxable
income in making this assessment. Subsequently recognized tax benefits relating
to the valuation allowance for deferred tax assets as of December 31, 1996, will
be included as an income tax benefit in the consolidated statement of operations
in future periods.
At December 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $5,100,000. Such amounts are
available to offset future Federal taxable income, if any, through 2011 and
expire in the following years: 2009--approximately $1,700,000;
2010--approximately $1,200,000; and 2011--approximately $2,200,000.
(10) LEASES
The Company leases certain equipment and facilities used in its operations,
all of which have or will be assumed by Dawson and USF in connection with the
respective asset sales. Total rentals approximated $550,000, $330,000, and
$863,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
Included in the total expense for the years ended December 31, 1994, are
$663,000, related to Gibraltar.
(11) EMPLOYEE BENEFIT PLANS
RESTATED STOCK COMPENSATION PLAN--The Company has adopted the Restated Stock
Compensation Plan to provide for the grant of nonqualified options to
participating employees. An aggregate of 645,000
F-19
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) EMPLOYEE BENEFIT PLANS (CONTINUED)
shares of Class A common stock has been authorized and reserved for issuance
under such plan. The plan is administered by the Compensation Committee of the
Board of Directors, which has the sole authority to interpret the plan, to
determine the persons to whom options will be granted, and to determine the
exercise price, duration, and other terms of options to be granted under the
plan, provided that options may not be granted at prices less than fair market
value on the dates of the grants and that options may not be outstanding for a
period longer than ten years from the date the options are granted.
The following table summarizes activity under the Company's Restated Stock
Compensation Plan for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
OPTIONS PRICE
----------- ---------
<S> <C> <C>
Balance at December 31, 1994..................................................... 542,127 $ 2.5861
Granted........................................................................ 84,000 0.5625
Forfeited...................................................................... (30,000) 2.3319
-----------
Balance at December 31, 1995..................................................... 596,127 2.3138
Granted........................................................................ 3,500 1.2500
Forfeited...................................................................... (31,954) 1.7161
-----------
Balance at December 31, 1996..................................................... 567,673 2.3408
-----------
-----------
Exercisable at December 31, 1996................................................. 345,140 2.5504
-----------
-----------
Exercisable at December 31, 1995................................................. 226,478 2.6545
-----------
-----------
</TABLE>
The following table summarizes the Company's outstanding stock options at
December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
NUMBER OF REMAINING AVERAGE
RANGE OF EXERCISE OPTIONS CONTRACTUAL EXERCISE
PRICES OUTSTANDING LIFE PRICE
- ----------------- ----------- --------------- ---------
<S> <C> <C> <C>
$0.5625 73,500 9 years $ 0.5625
$1.25 - $2.75 227,244 7 years 2.5470
$2.00 - $2.75 240,000 6 years 2.4167
$2.75 - $4.75 14,091 6 years 3.6667
$6.00 12,838 6 years 6.0000
-----------
$0.5625 - $6.00 567,673 7 years $ 2.3408
-----------
-----------
</TABLE>
F-20
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table summarizes the Company's exercisable stock options at
December 31, 1996:
<TABLE>
<CAPTION>
NUMBER OF
RANGE OF EXERCISE OPTIONS WEIGHTED AVERAGE
PRICES OUTSTANDING EXERCISE PRICE
- ----------------- ----------- ----------------
<S> <C> <C>
$0.5625 14,700 $ 0.5625
$1.25 - $2.75 140,896 2.5765
$2.00 - $2.75 168,000 2.4167
$2.75 - $4.75 11,272 3.6667
$6.00 10,272 6.0000
-----------
$0.5625 - $6.00 345,140 $ 2.5504
-----------
-----------
</TABLE>
The per-share weighted average fair value of stock options granted during
1996 and 1995 was not material. The Company applies APB 25 in accounting for the
plan and, accordingly, no compensation cost has been recognized for its stock
options in the consolidated financial statements. Had the Company determined
compensation cost based on the value at the grant date for its stock options
under SFAS 123, the Company's net loss and net loss per share for 1996 and 1995
would not have been affected. The full impact of calculating compensation costs
for stock options under SFAS 123 has not been considered because compensation
cost is reflected over the options' vesting period of five years and
compensation cost for options granted prior to January 1, 1995, is not
considered.
1995 EMPLOYEE RESTRICTED STOCK PLAN--In January 1995, the Board of Directors
adopted the 1995 Employee Restricted Stock Plan (the "Restricted Plan"). The
Restricted Plan was approved by the shareholders in June 1995, at which time the
420,000 shares of Class A common stock available for issuance under the
Restricted Plan were issued to certain executive officers and senior managers of
the Company pursuant to the terms of the Restricted Plan. The shares granted
under the Restricted Plan vest 20% per year beginning in January 1995 with
provisions for earlier vesting based on increases in the Company's stock price.
1996 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN--In December 1995, the Board of
Directors adopted, subject to shareholder approval, the 1996 Non-Employee
Director Stock Option Plan. Such plan replaced the Nonqualified Stock Option
Plan for Outside Directors, which as adopted in 1991. Directors who are not
employees of the Company are eligible to participate in the plan. Under the
terms of the plan, the exercise price of each option granted shall be equal to
the fair market value on the date of grant. Options become fully exercisable one
year from the date of grant, provided that such vesting period will be
accelerated upon the occurrence of a change of control. Options expire ten years
after the date of grant. A total of 90,000 shares of Class A common stock have
been reserved for issuance under the plan. Participants were granted, effective
December 6, 1995, options to purchase 15,000 shares of Class A common stock at
an exercise price equal to the fair market value at that date of $1.0625, of
which 5,000 shares vested immediately with the remainder vesting in equal
increments on the first and second anniversary dates of the grant. Upon the
election of any new outside directors, each such director shall be granted an
option to purchase 7,500 shares of Class A common stock. Thereafter, each
participant is to be granted an option to purchase 3,000 shares of Class A
common stock each date he or she is reelected as a director of the Company,
subject to share availability, adjustment for stock dividends, splits, and
similar events.
F-21
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) EMPLOYEE BENEFIT PLANS (CONTINUED)
MOBLEY EMPLOYEES' PROFIT SHARING PLAN--The Company has a contributory profit
sharing plan for the benefit of substantially all employees. Contributions to
the plan are made at the discretion of the Compensation Committee of the Board
of Directors and approximated $62,000, $51,000, and $96,000 for the years ended
December 31, 1996, 1995, and 1994, respectively. Included in the total
contributions for the year ended December 31, 1994, are approximately $39,000,
related to Gibraltar.
MOBLEY ENVIRONMENTAL SERVICES, INC. EMPLOYEES' BENEFIT TRUST--The Company
has a medical benefit plan which is funded by employer and participant
contributions and is supplemented by stop-loss insurance. Contributions are
determined by the plan administrator based upon the actual claim experience and
administrative costs of the plan.
(12) STOCKHOLDERS' EQUITY
The Company is authorized to issue up to 2,000,000 shares of preferred stock
(par value $.01), and the Board of Directors has the authority to fix the
rights, preferences, privileges, limitations, and restrictions of such stock. No
preferred stock has been issued as of December 31, 1996.
Each share of the Company's Class A and Class B common stock is entitled to
one vote per share and ten votes per share, respectively. Each share of Class B
common stock is convertible into one share of Class A common stock at any time
at the option of the stockholder, and certain restrictions exist upon the
transfer of Class B common shares.
In May 1996, the shareholders of the Company approved a one-for-two reverse
stock split of the Company's Class A and Class B common stock through approval
of an amendment to the Certificate of Incorporation of the Company, pursuant to
which each authorized and outstanding share of Class A common stock would have
been reclassified into one-half of a new share of Class A common stock and each
authorized and outstanding share of Class B common stock would have been
reclassified into one-half of a new share of Class B common stock (the "Reverse
Stock Split"). Subsequent to approval by the shareholders, the Board of
Directors determined that such action was not in the best interests of the
Company and its shareholders and elected not to effectuate the Reverse Stock
Split.
(13) COMMITMENTS AND CONTINGENCIES
LETTERS OF CREDIT
At December 31, 1996, letters of credit totaling approximately $1,012,000
had been provided by the Company to its insurance carrier in connection with its
workers' compensation, general liability, and auto liability insurance policies.
Additionally, the Company has provided a letter of credit to the Texas Natural
Resource Conservation Commission ("TNRCC") in the amount of approximately
$167,000 to secure the payment of fines assessed Gibraltar by the TNRCC in
connection with the December 1994 settlement of certain litigation.
REGULATORY ENFORCEMENT ACTION AND LAWSUIT
In November 1993, the State of Texas filed a lawsuit against Gibraltar
stemming from an enforcement action by the TNRCC alleging certain regulatory
violations. The lawsuit was subsequently amended to include certain notices of
violation issued by the TNRCC and allegations of noncompliance associated with
certain regulatory orders. In July 1994, this litigation was tentatively settled
through mediation and an
F-22
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Agreed Final Judgment was subsequently entered in December 1994. Under the terms
of the judgment, Gibraltar was obligated for $1,150,000 in assessed fines and
attorneys fees. Of such amount, $450,000 was paid by AEC and the Company is
responsible for payment of the remaining $700,000. As of December 31, 1996, the
Company had paid all but $167,000 of such amount, which is due in June 1997 and
included in "accrued expenses" in the December 31, 1996 consolidated balance
sheet (note 8).
LITIGATION AND VARIOUS OTHER CLAIMS
The Company continues to defend various claims resulting from the operations
of its former subsidiary, Gibraltar (the sale of which is discussed in note 3).
As of February 28, 1997, six such lawsuits were pending, one of which is
asserted as a class action. During the Company's ownership of Gibraltar,
Gibraltar engaged in the collection, transportation, analysis, treatment,
management, and disposal of various types of hazardous wastes. In the actions
pending against the Company and/or Gibraltar, the plaintiffs complain of a
variety of acts by Gibraltar which allegedly occurred in the course of its
operations, including improper air emissions, nuisance odors, contamination of
water supplies, and repeated and continuing violations of environmental laws. In
the various pending actions, plaintiffs assert similar theories as the alleged
basis for recovery, including negligence, nuisance, trespass, fraudulent
concealment, assault and battery, and international infliction of emotional
distress. Likewise, such plaintiffs seek similar types of damages, including
loss of property value and compensatory and punitive damages for personal injury
and property damage for nuisance odors, physical discomfort and impairment,
interference with use and enjoyment of property, medical expenses, mental
anguish, and loss of earning capacity. An additional claimant seeks permanent
closure of the facility and civil penalties as the remedy for alleged violations
by Gibraltar of environmental protection statutes and endangerment to public
health and the environment. While all of the six actions are technically
pending, in one such action, the Company has defended the subject claims in a
jury trial which resulted in inconsequential damages being awarded to the
plaintiffs on November 7, 1996. However, the verdict is subject to appeal in
accordance with the applicable rules of civil procedure.
These matters raise difficult and complex factual and legal issues,
including but not limited to, the nature and amount of the Company's liability,
if any. Although the Company is a defendant in some litigation, in other matters
the Company's potential liability arises from material contractual
indemnifications given by the Company to the purchaser of Gibraltar. In
particular, in connection with the sale of Gibraltar, the Company made extensive
representations and warranties regarding Gibraltar and agreed to indemnify the
purchaser, AEC, for any breaches of such representations and warranties.
Additionally, the Company is obligated to indemnify AEC for certain claims
against Gibraltar arising from circumstances existing on or prior to the closing
of the sale, including various claims and proceedings disclosed to AEC. The
Company's indemnification obligations to AEC expired June 30, 1996, except in
the case of tax, environmental and ERISA claims, for which any claims for
indemnification must be asserted prior to June 30, 1998. These indemnifications
may include the potential liability of former customers of Gibraltar,
approximately 50 of which have also become defendants in litigation involving
Gibraltar's operations. The Company's contractual indemnity obligations to AEC
also encompass various pending regulatory and permit renewal proceedings. The
failure of Gibraltar to prevail in these matters could result in significant
liabilities to the Company.
The Company has been notified by its insurance carrier that it disputes the
Company's interpretation of its pollution liability insurance coverage and
policy limitations applicable to the foregoing claims. While
F-23
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) COMMITMENTS AND CONTINGENCIES (CONTINUED)
the Company is vigorously pursuing a favorable resolution of this dispute, it is
unable to determine the likelihood of an unfavorable outcome at this time.
The Company, based on consultation with its legal counsel, believes that it
is probable that the Company will continue to incur certain costs associated
with the foregoing matters and accordingly, in connection with the divestiture
of Gibraltar in 1994, established an accrual for estimated out-of-pocket
expenses related to the ongoing administrative management of such matters (notes
3 and 8). However, the Company is currently unable to reasonably estimate its
potential exposure for defending such matters, any indemnity obligations
resulting therefrom, and any corresponding insurance reimbursement. As noted
above, the litigation matters to which the Company is a party raise several
difficult and complex factual and legal issues. More specifically: (i) while
certain of the plaintiffs exhibit apparent physical injury and a variety of
health problems, the requisite causal connection to Gibraltar's facilities or
operations has not been established; (ii) certain of the cases involve literally
hundreds of plaintiffs whose physical condition and medical history have not yet
begun to be investigated; (iii) although the Company has experienced some degree
of success recently in two separate jury trials, there is inherent uncertainty
associated with jury trials in cases such as these which tend to have a strong
emotional appeal; (iv) the extent of pollution liability insurance coverage
available to the Company for potential indemnity exposure and defense costs is
currently in dispute and is itself the subject of pending litigation as noted
previously; (v) the Company's potential liability relating to defense cost
claims of approximately 50 of Gibraltar's former customers who have also been
named in the litigation (and who are represented by over 20 different law firms)
is currently not determinable; and (vi) the indemnifications given to AEC in
connection with the Gibraltar sale are comprehensive and subject to broad
interpretation. Accordingly, the Company has not made an accrual for losses, if
any, which might result from these legal matters as such amounts or a range of
amounts are not currently reasonably estimatable. The Company's future financial
condition, results of operations, and liquidity could be materially adversely
affected as the nature and scope of the Company's ultimate liability arising
from Gibraltar's operations and sale become better defined.
In January 1996, Mobley was notified by the TNRCC that it is a potentially
responsible party of the alleged release, during the early or mid-1980s, of
hazardous substances at the McBay Oil and Gas State Superfund Site located near
Grapeland, Texas. The Company has recorded an accrual for its estimated exposure
in connection with this matter, the amount of which is not material to the
consolidated financial statements.
There are various other routine claims and legal actions pending and
threatened against the Company which are incidental to the Company's business
and have arisen in the ordinary course of its business related to services,
contracts, employment, and other matters. Where applicable, the Company has
recorded accruals for estimated potential damages and expenses associated with
such matters. While the final outcome of these matters cannot be predicted with
certainty, management, upon consultation with legal counsel, and considering the
Company's limited continuing activities, believes that financial obligations of
the Company arising from such claims could have a material adverse effect on its
consolidated financial condition, results of operations, or liquidity.
F-24
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS OF DOLLARS)
Interest paid, net of amounts capitalized............................. $ 261 $ 32 $ 199
Noncash operating activities--provision for foreign currency
translation loss.................................................... -- 155 700
</TABLE>
Included in the total interest paid for the year ended December 31, 1994, is
$12,000, related to Gibraltar.
(15) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized consolidated quarterly financial data for 1996, 1995, and 1994 is
as follows (in thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
1ST 2ND(1) 3RD(2) 4TH(3)
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996
Revenues............................................ $ 4,507 $ 4,670 $ 5,751 $ 6,652
Gross profit........................................ 901 1,105 1,221 1,106
Operating loss...................................... (690) (284) (1,056) (212)
Net income (loss)................................... (672) (491) (9,117) 45
Net income (loss) per common share.................. (0.08) (0.06) (1.03) 0.01
1995
Revenues............................................ $ 4,206 $ 4,763 $ 4,904 $ 4,715
Gross profit........................................ 1,487 1,603 1,630 1,011
Operating income (loss)............................. 117 142 195 (1,758)
Net income (loss)................................... 81 (254) 233 (1,523)
Net income (loss) per common share(4)............... 0.01 (0.03) 0.03 (0.17)
1994
Revenues............................................ $ 6,955 $ 7,273 $ 7,100 $ 8,182
Gross profit........................................ 1,460 1,616 1,288 1,730
Operating income (loss)............................. 63 (2,394) 159 (1,217)
Net income (loss)................................... 98 (2,452) 79 (1,820)
Net income (loss) per common share.................. 0.01 (0.31) 0.01 (0.23)
</TABLE>
- ------------------------
(1) Second quarter 1994 results of operations include a charge of $2,470,000
related to an additional provision for loss on the divestiture of Gibraltar.
(2) Third quarter 1996 results of operations include charges of $7,952,000
related to provisions for loss on disposal and provision for losses during
phase-out period of waste management services segment. In addition, charges
of $650,000 related to restructuring expenses including employee severance
obligations, costs associated with the relocation and recruitment of
personnel, and other related expenses are included in third quarter 1996
results of operations.
F-25
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(15) QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
(3) Fourth quarter 1995 results of operations include certain nonrecurring
expenses totaling $1,162,000, including insurance accruals, severance
expenses, relocation expenses, legal and consulting expenses, and a
write-down of the carrying value of an office building to its estimated net
realizable value.
Fourth quarter 1994 results of operations include a charge of $1,622,000 for
certain estimated liabilities in connection with the Company's indemnity
obligations related to the sale of Gibraltar.
(4) The sum of the 1995 quarterly per share amounts does not equal the per share
amount for the year due to the effect of the issuance of common stock on the
weighted average number of common shares outstanding.
F-26
<PAGE>
EXHIBIT 10.26
ASSET PURCHASE AGREEMENT
BY AND AMONG
UNITED STATES FILTER CORPORATION
U.S. FILTER RECOVERY SERVICES (SOUTHWEST), INC.
MOBLEY ENVIRONMENTAL SERVICES, INC.
MOBLEY COMPANY, INC. AND
HYDROCARBON TECHNOLOGIES, INC.
April 25, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS; CONSTRUCTION.................................................1
1.1 DEFINITIONS..........................................................1
1.2 CONSTRUCTION.........................................................6
ARTICLE II
THE TRANSACTION...........................................................6
2.1 SALE AND PURCHASE OF ASSETS..........................................6
2.2 RETAINED ASSETS......................................................7
2.3 ASSUMPTION OF LIABILITIES............................................8
2.4 RETAINED LIABILITIES.................................................8
2.5 PURCHASE PRICE.......................................................9
2.6 CLOSING..............................................................9
2.7 PAYMENT OF PURCHASE PRICE............................................9
(a) AT CLOSING......................................................9
(b) AFTER CLOSING...................................................9
2.8 POST-CLOSING PURCHASE PRICE ADJUSTMENT..............................10
2.9 CLOSING STATEMENTS..................................................10
(a) CLOSING BALANCE SHEET..........................................10
(b) ARBITRATION....................................................10
(c) FINAL CLOSING BALANCE SHEET....................................11
2.10 ALLOCATION OF PURCHASE PRICE........................................11
2.11 TITLE...............................................................11
2.12 CERTAIN CONSENTS....................................................11
2.13 EARNOUT.............................................................12
2.14 ESCROW; DELIVERY OF SHARES..........................................13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS ...............................13
3.1 ORGANIZATION........................................................13
3.2 AUTHORIZATION; ENFORCEABILITY.......................................13
3.3 NO SUBSIDIARIES.....................................................14
3.4 NO VIOLATION OF LAWS OR AGREEMENTS; CONSENTS........................14
3.5 FINANCIAL INFORMATION...............................................14
(a) RECORDS........................................................14
(b) FINANCIAL STATEMENTS...........................................14
3.6 UNDISCLOSED LIABILITIES.............................................15
3.7 NO CHANGES..........................................................15
3.8 TAXES...............................................................15
<PAGE>
3.9 INVENTORY...........................................................16
3.10 RECEIVABLES.........................................................16
3.11 CONDITION OF ASSETS; TITLE; BUSINESS................................16
3.12 NO PENDING LITIGATION OR PROCEEDINGS................................17
3.13 CONTRACTS; COMPLIANCE...............................................17
3.14 PERMITS; COMPLIANCE WITH LAW........................................18
3.15 REAL PROPERTY.......................................................18
3.16 TRANSACTIONS WITH RELATED PARTIES...................................19
3.17 LABOR RELATIONS.....................................................19
3.18 PRODUCT LIABILITIES; WARRANTIES.....................................19
3.19 INSURANCE...........................................................20
3.20 INTELLECTUAL PROPERTY RIGHTS........................................20
3.21 EMPLOYEE BENEFITS...................................................20
(a) BENEFIT PLANS; SELLERS PLANS...................................20
(b) SELLERS GROUP MATTERS; FUNDING.................................20
(c) COMPLIANCE.....................................................21
(d) QUALIFIED PLANS................................................21
(e) DEFINED BENEFIT PLANS..........................................21
(f) MULTIEMPLOYER PLANS............................................21
(g) PROHIBITED TRANSACTIONS; FIDUCIARY DUTIES......................22
3.22 ENVIRONMENTAL MATTERS...............................................22
(a) COMPLIANCE; NO LIABILITY.......................................22
(b) TREATMENT; CERCLIS.............................................22
(c) NOTICES; EXISTING CLAIMS; CERTAIN REGULATED MATERIALS; STORAGE
TANKS..........................................................22
3.23 CUSTOMER RELATIONS..................................................23
3.24 FINDERS' FEES.......................................................23
3.25 INVESTMENT..........................................................23
3.26 DISCLOSURE..........................................................23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER..................................23
4.1 ORGANIZATION........................................................23
4.2 AUTHORIZATION AND ENFORCEABILITY....................................24
4.3 NO VIOLATION OF LAWS; CONSENTS......................................24
4.4 NO PENDING LITIGATION OR PROCEEDINGS................................24
4.5 CAPITALIZATION......................................................24
4.6 FINDERS' FEES.......................................................24
4.7 REGISTRATION STATEMENT AND INFORMATION..............................24
ARTICLE V
CERTAIN COVENANTS........................................................25
5.1 CONDUCT OF BUSINESS PENDING CLOSING.................................25
(a) ORDINARY COURSE; COMPLIANCE....................................25
(b) PROHIBITED TRANSACTIONS........................................25
(c) ACCESS, INFORMATION AND DOCUMENTS..............................25
<PAGE>
5.2 PUBLICITY...........................................................26
5.3 FULFILLMENT OF AGREEMENTS...........................................26
5.4 CERTAIN TRANSITIONAL MATTERS........................................26
(a) COLLECTION OF ACCOUNTS RECEIVABLES.............................26
(b) ENDORSEMENT OF CHECKS..........................................26
(c) REMIT FUNDS....................................................26
(d) ASSUMED LIABILITIES CONTROLLED BY BUYER........................26
(e) USE OF NAMES...................................................26
5.5 INSURANCE...........................................................26
5.6 ASSISTANCE..........................................................27
5.7 NO SOLICITATION OF THE EMPLOYEES OF THE BUSINESS....................27
5.8 SEVERANCE AND TERMINATION PAYMENTS..................................27
5.9 SELLERS' EMPLOYEES..................................................27
5.10 WORKERS' COMPENSATION AND DISABILITY CLAIMS.........................28
(a) SELLERS' LIABILITY.............................................28
(b) BUYER'S LIABILITY..............................................28
5.11 COVENANT NOT TO COMPETE.............................................28
(a) RESTRICTION....................................................28
(b) ENFORCEMENT....................................................28
5.12 CERTAIN FEES........................................................29
5.13 SALE OF USF SHARES..................................................29
ARTICLE VI
CONDITIONS TO CLOSING; TERMINATION.......................................29
6.1 CONDITIONS PRECEDENT TO OBLIGATION OF BUYER.........................29
(a) BRINGDOWN OF REPRESENTATIONS AND WARRANTIES; COVENANTS.........29
(b) LITIGATION.....................................................29
(c) NO MATERIAL ADVERSE CHANGE.....................................29
(d) CLOSING CERTIFICATE............................................29
(e) ARRANGEMENTS WITH EMPLOYEES....................................30
(g) CLOSING DOCUMENTS..............................................30
(h) TITLE INSURANCE................................................30
(i) OTHER DELIVERIES...............................................30
(j) ESTOPPEL CERTIFICATES..........................................30
(k) LISTING ON NYSE................................................31
(l) CONSENTS.......................................................31
(m) PERMITS........................................................31
6.2 CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS.......................31
(a) BRINGDOWN OF REPRESENTATIONS AND WARRANTIES; COVENANTS.........31
(b) LITIGATION.....................................................31
(c) CLOSING CERTIFICATE............................................31
(d) LISTING ON NYSE................................................31
(e) CLOSING DOCUMENTS..............................................31
6.3 DELIVERIES AND PROCEEDINGS AT CLOSING...............................31
(a) DELIVERIES BY SELLERS..........................................32
<PAGE>
(b) DELIVERIES BY BUYER............................................33
6.4 TERMINATION.........................................................33
(a) MUTUAL CONSENT; FAILURE OF CONDITIONS..........................33
(b) CASUALTY DAMAGE................................................34
ARTICLE VII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.............................34
7.1 SURVIVAL OF REPRESENTATIONS.........................................34
7.2 INDEMNIFICATION BY SELLERS..........................................34
7.3 INDEMNIFICATION BY BUYER............................................35
7.4 LIMITATION OF LIABILITY.............................................35
(a) THRESHOLD......................................................35
(b) CEILING........................................................35
(c) TIME PERIOD....................................................35
(d) FRAUD; INTENTIONAL MISREPRESENTATION...........................36
(e) WAIVER OF STATUTE OF LIMITATIONS...............................36
7.5 NOTICE OF CLAIMS....................................................36
7.6 THIRD PARTY CLAIMS..................................................36
7.7 GOOD FAITH EFFORTS TO SETTLE DISPUTES...............................37
7.8 ESCROW..............................................................37
(a) CREATION.......................................................37
(b) DISBURSEMENT FOR CLAIMS........................................37
(c) DIVIDENDS ON ESCROW............................................37
(d) TERMINATION....................................................37
7.9 PAYMENT.............................................................37
7.10 ARBITRATION.........................................................37
ARTICLE VIII
MISCELLANEOUS............................................................38
8.1 COSTS AND EXPENSES..................................................38
8.2 PRORATION OF EXPENSES...............................................38
8.3 FURTHER ASSURANCES..................................................38
8.4 NOTICES.............................................................38
8.5 CURRENCY............................................................40
8.6 OFFSET; ASSIGNMENT; GOVERNING LAW...................................40
8.7 AMENDMENT AND WAIVER; CUMULATIVE EFFECT.............................40
8.8 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES......................41
8.9 SEVERABILITY........................................................41
8.10 COUNTERPARTS........................................................41
<PAGE>
INDEX OF SCHEDULES
Schedule
Reference Title of Schedule
- --------- -----------------
1.1(p) Permitted Encumbrances
2.1(ii) Personal Property
2.1(iii) Inventory
2.1(vii) Leases of Personal Property
2.1(xi) Vehicle and Trailers
2.2 Retained Assets
2.3 Assumed Liabilities
2.9 Assumptions Relating to Pro Forma Financial Statements
and Final Closing Balance Sheet
2.10 Allocation of Purchase Price
2.13 Assumptions Relating to Earnout
3.3 Subsidiaries
3.4 Authorizations and Consents
3.6 Undisclosed Liabilities
3.7 Changes in Business
3.8 Taxes
3.9 Inventory Exceptions
3.10 Trade Accounts Receivable
3.11 Encumbrances of Purchased Assets
3.12 Pending Litigation
3.13 Contracts
3.14 Permits
3.15 Real Property
3.16 Transactions with Related Parties
3.17 Labor Relations
3.18 Products Liabilities; Warranties
3.19 Insurance
3.20 Intellectual Property
3.21 Employee Benefits
3.22 Environmental Matters
3.23(a) Two Percent Customers
3.23(b) Major Suppliers
3.24 Finder's Fee
5.1 Prohibited Transactions
5.12 Reimbursable Capital Expenditures
6.1 Material Leasehold Interests
<PAGE>
INDEX OF EXHIBITS
Exhibit Description
- ------- -----------
A 6-30-96 Balance Sheet of the Business
B Audited Consolidated Financial Statements for MES
C Unaudited Consolidating Balance Sheet for Sellers at December 31, 1996
D Form of Legal Opinion of Brown McCarroll & Oaks Hartline
E Form of Noncompetition Agreement
F Form of Legal Opinion of Damian C. Georgino, Esq.
<PAGE>
Asset Purchase Agreement ("AGREEMENT"), dated as
of April 25, 1997, by and among MOBLEY
ENVIRONMENTAL SERVICES, INC., a Delaware
corporation ("MES"), MOBLEY COMPANY, INC., a Texas
corporation and a wholly owned subsidiary of MES
("MOBLEY"), HYDROCARBON TECHNOLOGIES, INC., a
Texas corporation and a wholly owned subsidiary of
MES ("HTI") (MES, Mobley and HTI are together
referred to herein as the "SELLERS"), UNITED
STATES FILTER CORPORATION, a Delaware corporation
("USF"), and U.S. FILTER RECOVERY SERVICES
(SOUTHWEST), INC. ("BUYER"), a Delaware
corporation.
Sellers desire to sell and assign to Buyer, and Buyer desires to purchase
and assume from Sellers, substantially all of Sellers' operating assets and
certain of Sellers' liabilities on the terms and subject to the conditions set
forth below. In consideration of the representations, warranties, covenants and
agreements contained herein, Sellers, USF and Buyer, each intending to be
legally bound hereby, agree as set forth below.
ARTICLE I
DEFINITIONS; CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms have the
meanings specified in this SECTION 1.1. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
"ACCOUNTING PRINCIPLES" has the meaning given that term in SECTION 2.9(a).
"AFFILIATE" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with such Person.
"AGREEMENT" means this Asset Purchase Agreement, as it may be amended from
time to time.
"ASSUMED LIABILITIES" has the meaning given that term in SECTION 2.3.
"ASSUMPTION AGREEMENT" has the meaning given that term in SECTION 2.3.
"AUDITORS" means KPMG Peat Marwick LLP.
1
<PAGE>
"BALANCE SHEET DATE" means June 30, 1996.
"BENEFIT PLAN" has the meaning given that term in SECTION 3.21(a).
"BUSINESS" means the oil/water and fuel/water processing, distillate fuels
production, absorbent and filter recycling and related activities of Sellers.
"BUYER" means U.S. Filter Recovery Services (Southwest), Inc., a Delaware
corporation, an ultimate subsidiary of USF.
"BUYER DAMAGES" has the meaning given that term in SECTION 7.2.
"BUYER INDEMNITEES" has the meaning given that term in SECTION 7.2.
"CERCLIS" means the United States Comprehensive Environmental Response
Compensation Liability Information System List pursuant to Superfund.
"CLOSING" has the meaning given that term in SECTION 2.6.
"CLOSING BALANCE SHEET" has the meaning given that term in SECTION 2.9.
"CLOSING DATE" has the meaning given that term in SECTION 2.6.
"CODE" means the United States Internal Revenue Code of 1986, as amended,
and the applicable rulings and regulations thereunder.
"COMMISSION" means the United States Securities and Exchange Commission.
"CONTRACT" and "CONTRACTS" have the respective meanings given those terms
in SECTION 3.13.
"DAMAGES" means Buyer Damages or Seller Damages, as the case may be.
"DEFINED BENEFIT PLAN" has the meaning given that term in SECTION 3.21(e).
"EARNOUT" has the meaning given that term in SECTION 2.13.
"ENCUMBRANCE" means any liability, debt, mortgage, deed of trust, pledge,
security interest, encumbrance, option, right of first refusal, agreement of
sale, adverse claim, easement, lien, assessment, restrictive covenant,
encroachment, burden or charge of any kind or nature whatsoever or any item
similar or related to the foregoing.
"ENVIRONMENTAL LAW" means any applicable Law relating to public health and
safety or protection of the environment, including common law nuisance, property
damage and similar common law theories.
2
<PAGE>
"ERISA" means the United States Employee Retirement Income Security Act of
1974, as amended, and the applicable rulings and regulations thereunder.
"ESCROW" has the meaning given that term in SECTION 7.8.
"ESCROW AGENT" has the meaning given that term in SECTION 7.8
"FASB" means the United States Financial Accounting Standards Board or its
successor.
"FINAL CLOSING BALANCE SHEET" has the meaning given that term in SECTION
2.9(c).
"FINANCIAL STATEMENTS" has the meaning given that term in SECTION 3.5(b).
"GAAP" means United States generally accepted accounting principles.
"GOVERNING DOCUMENTS" means, with respect to any Person who is not a
natural Person, the certificate or articles of incorporation, bylaws, deed of
trust, formation or governing agreement and other charter documents or
organization or governing documents or instruments of such Person.
"GOVERNMENTAL BODY" means any court, government (federal, state, local or
foreign), department, commission, board, bureau, agency, official or other
regulatory, administrative or governmental authority or instrumentality.
"INDEMNIFIED PARTY" has the meaning given that term in SECTION 7.5.
"INDEMNIFYING PARTY" has the meaning given that term in SECTION 7.5.
"INTELLECTUAL PROPERTY" has the meaning given that term in SECTION 3.20.
"IRS" means the United States Internal Revenue Service.
"LAW" means any applicable federal, state, municipal, local or foreign
statute, law, ordinance, rule, regulation, judgment or order of any kind or
nature whatsoever including any public policy, judgment or order of any
Governmental Body or principle of common law.
"LIABILITIES" with respect to any Person, means all debts, liabilities and
obligations of such Person of any nature or kind whatsoever, whether or not due
or to become due, accrued, fixed, absolute, matured, determined, determinable or
contingent and whether or not incurred directly by such Person or by any
predecessor of such Person, and whether or not arising out of any act, omission,
transaction, circumstance, sale of goods or service or otherwise.
"LITIGATION" has the meaning given that term in SECTION 3.12.
"MULTIEMPLOYER PLAN" has the meaning given that term in SECTION 3.21(f).
3
<PAGE>
"NYSE" means the New York Stock Exchange.
"OTHER AGREEMENT" means each other agreement or document contemplated
hereby to be executed and delivered in connection with the transactions
contemplated by this Agreement on or before Closing.
"PBGC" means the United States Pension Benefit Guaranty Corporation.
"PCBS" means polychlorinated biphenyls.
"PERMIT" and "PERMITS" have the respective meanings given those terms in
SECTION 3.14.
"PERMITTED ENCUMBRANCES" means (i) liens for current taxes not yet due; and
(ii) with respect to the Real Property, easements, covenants, rights-of-way,
zoning restrictions and other encumbrances or restrictions of record identified
on SCHEDULE 1.1(p); PROVIDED, HOWEVER, that any Encumbrances in clauses (i) and
(ii) do not or will not either individually or in the aggregate adversely affect
the value of the property encumbered or prohibit or interfere with the
operations of the Business.
"PERSON" means and includes a natural person, a corporation, an
association, a partnership, a limited liability company, a trust, a joint
venture, an unincorporated organization, a business, any other legal entity, and
a Governmental Body.
"POST-CLOSING PURCHASE PRICE ADJUSTMENT" means the post-closing adjustment
to the Purchase Price pursuant to SECTION 2.8.
"PURCHASE PRICE" has the meaning given that term in SECTION 2.5.
"PURCHASED ASSETS" has the meaning given that term in SECTION 2.1.
"QUALIFIED PLAN" has the meaning given that term in SECTION 3.21(d).
"REAL PROPERTY" has the meaning given that term in SECTION 3.15.
"RECEIVABLES" has the meaning given that term in SECTION 3.10.
"REGISTRATION STATEMENT" means USF's registration statement filed with the
Commission on Form S-4 with respect to the USF Shares.
"REGULATED MATERIAL" means any pollutant, contaminant, waste or chemical or
any toxic, radioactive, ignitable, corrosive, reactive or otherwise hazardous
substance as defined by any Environmental Law and any other substance, waste or
material regulated by any applicable Environmental Law, including petroleum,
petroleum-related material, crude oil or any fraction thereof, PCBs and friable
asbestos.
4
<PAGE>
"RELATED PARTY" means (i) Sellers, (ii) any Affiliate of Sellers, (iii) any
officer or director of any Person identified in clauses (i) or (ii) preceding,
and (iv) any spouse, sibling, ancestor or lineal descendant of any natural
Person identified in any one of the preceding clauses.
"RETAINED ASSETS" has the meaning given that term in SECTION 2.2.
"RETAINED LIABILITIES" has the meaning given that term in SECTION 2.4.
"SECURITY RIGHT" means, with respect to any security, any option, warrant,
subscription right, preemptive right, other right, proxy, put, call, demand,
plan, commitment, agreement, understanding or arrangement of any kind relating
to such security, whether issued or unissued, or any other security convertible
into or exchangeable for any such security, including, without limitation, any
right relating to issuance, sale, assignment, transfer, purchase, redemption,
conversion, exchange, registration or voting and includes rights conferred by
statute, by the issuer's Governing Documents or by agreement.
"SECURITIES ACT" means the United States Securities Act of 1933, as
amended, together with the rules and regulations of the Commission thereunder.
"SELLERS" means Mobley Environmental Services, Inc., a Delaware
corporation, Mobley Company, Inc., a Texas corporation, and Hydrocarbon
Technologies, Inc., a Texas corporation, and, with respect to all of the
representations, warranties, covenants and agreements made herein, includes all
Subsidiaries.
"SELLERS DAMAGES" has the meaning given that term in SECTION 7.3.
"SELLERS INDEMNITEES" has the meaning given that term in SECTION 7.3.
"SELLERS GROUP" means a member, whether past or present, of Sellers'
affiliated group of corporations within the meaning of Code Section 1504(a).
"SELLERS PLAN" has the meaning given that term in SECTION 3.21(a).
"SUBSIDIARY" means any corporation, partnership, joint venture or other
entity in which Sellers own, directly or indirectly, more than 20% of the
outstanding voting securities or equity interests.
"SUPERFUND" means the United States Comprehensive Environmental Response
Compensation and Liability Act of 1980, 42 U.S.C. Sections 6901 ET SEQ., as
amended.
"TAX" means any domestic or foreign federal, state, county or local tax,
levy, impost or other charge of any kind whatsoever, including any interest or
penalty thereon or addition thereto, whether disputed or not.
5
<PAGE>
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to any Tax, including any schedule or
attachment thereto, and including any amendment thereof.
"TOTAL OWNER'S EQUITY" has the meaning given to that term in SECTION 2.8.
"USF" means United States Filter Corporation.
"USF AVERAGE SHARE VALUE" means the average closing price for the USF
Common Stock as reported by the NYSE for the twenty consecutive trading days
ending on the sixth trading day immediately preceding the Closing Date.
"USF COMMON STOCK" means Buyer's common stock, par value $.01 per share.
"USF SHARES" has the meaning given that term in SECTION 2.7(a)(ii).
"6-30-96 BALANCE SHEET" means the pro forma balance sheet of the Business
as of June 30, 1996, a copy of which is attached hereto as EXHIBIT A.
1.2 CONSTRUCTION. As used herein, unless the context otherwise requires:
(i) references to "Article" or "Section" are to an article or section hereof;
(ii) all "Exhibits" and "Schedules" referred to herein are to Exhibits and
Schedules attached hereto and are incorporated herein by reference and made a
part hereof; (iii) "include", "includes" and "including" are deemed to be
followed by "without limitation" whether or not they are in fact followed by
such words or words of like import; and (iv) the headings of the various
articles, sections and other subdivisions hereof are for convenience of
reference only and shall not modify, define or limit any of the terms or
provisions hereof.
ARTICLE II
THE TRANSACTION
2.1 SALE AND PURCHASE OF ASSETS. At the Closing, Sellers shall sell and
transfer to Buyer, and Buyer shall purchase from Sellers, all of Sellers'
properties and business as a going concern and goodwill and assets of every
kind, nature and description existing on the Closing Date, wherever such
assets are located and whether real, personal or mixed, tangible or
intangible, in electronic form or otherwise, and whether or not any of such
assets have any value for accounting purposes or are carried or reflected on
or specifically referred to in Sellers' books or financial statements, except
those assets specifically excluded pursuant to SECTION 2.2, free and clear of
all Encumbrances other than Permitted Encumbrances. The properties, business,
goodwill and assets of Sellers to be transferred hereunder (collectively, the
"Purchased Assets") shall include, but not be limited to, the following:
(i) All those certain lots and pieces of ground, together with the
buildings, structures and other improvements erected thereon, and together
with all easements, rights and
6
<PAGE>
privileges appurtenant thereto, of all Real Property owned by Sellers, which
Real Property is more particularly described in SCHEDULE 3.15;
(ii) All of Sellers' machinery, equipment, tooling, dies, jigs,
spare parts and supplies, including the items identified on SCHEDULE 2.1(ii);
(iii) All of Sellers' inventories of raw materials,
work-in-process, parts, subassemblies and finished goods, wherever located
and whether or not obsolete or carried on Sellers' books of account,
including the items identified on SCHEDULE 2.1(iii);
(iv) All of Sellers' other tangible assets, including office
furniture, office equipment and supplies, computer hardware and software
(except for Seller's Macola accounting software and other generally available
off the shelf software packages which are not assignable), leasehold
improvements and vehicles, including the items identified on SCHEDULE 2.1(ii);
(v) All of Sellers' trade and other notes and accounts
receivable, deposits, advance payments, prepaid items and expenses, deferred
charges, rights of offset and credits and claims for refunds relating to the
Business;
(vi) All of Sellers' books, records, manuals, documents, books
of account, work records, correspondence, sales and credit reports, customer
lists, literature, brochures, advertising material and the like relating to
the Business;
(vii) All of Sellers' rights under leases for real or personal
property set forth on SCHEDULES 2.1(vii) OR 3.15, and all of Sellers' rights
under all other leases, service or maintenance contracts, contracts to
perform work or provide services and all other agreements and purchase and
sale orders;
(viii) All of Sellers' claims, choses in action, causes of action
and judgments;
(ix) All of Sellers' goodwill and rights in and to the name
"Hydrocarbon Technologies, Inc." and in any other tradename, trademark,
fictitious name or service mark, or any variant of any of them, and any
applications therefor or registrations thereof, patents, invention reports,
industrial property rights and know how and any other forms of Intellectual
Property;
(x) All of Sellers' rights to the Business;
(xi) All of the outstanding capital stock of HTI Vehicle
Acquisition Corp., which shall own the vehicles and trailers set forth on
SCHEDULE 2.1(xi); and
(xii) To the extent not described above, all of the assets to be
reflected on the Final Closing Balance Sheet.
2.2 RETAINED ASSETS. Sellers shall retain and the Purchased Assets shall
not include the following assets (collectively, the "RETAINED ASSETS"):
(i) the consideration to be delivered to Sellers pursuant to
this Agreement;
7
<PAGE>
(ii) Sellers' other rights specifically granted hereunder;
(iii) Sellers' minute book, stock book and seal;
(iv) all claims, choses in action, causes of action and
judgments in respect of any Litigation matter identified on SCHEDULE 3.12 not
assumed by Buyer and with respect to any other Retained Liability; and
(v) all items identified on SCHEDULE 2.2.
2.3 ASSUMPTION OF LIABILITIES. At the Closing, Buyer shall, pursuant to
an Assumption Agreement in a form agreed to by the parties (the "ASSUMPTION
AGREEMENT"), assume and agree to perform, pay or discharge, when due, to the
extent not theretofore performed, paid or discharged, the Liabilities listed on
SCHEDULE 2.3, and only such Liabilities (collectively, the "ASSUMED
LIABILITIES"), which Liabilities shall include: (i) liabilities specifically
accrued on the Final Closing Balance Sheet in the amounts shown thereon,
(ii) liabilities incurred in the ordinary course including ordinary course
contractual commitments of Sellers relating to the Business that do not exceed
the threshold limitations set forth in SECTION 3.13, and (iii) liabilities
incurred after the Closing Date and specified pursuant to the express terms of
the Contracts, other than for breach or nonperformance thereof that predates the
Closing; provided, however, that Buyer does not assume any obligations to
deliver goods, services or other items with respect to which payments were made
prior to the Closing Date unless Sellers have remitted the amount of such
payments to Buyer.
2.4 RETAINED LIABILITIES. Except for the Assumed Liabilities, Buyer
does not hereby and shall not assume or in any way undertake to pay, perform,
satisfy or discharge any other Liability of Sellers, whether existing on, before
or after the Closing Date or arising out of any transactions entered into, or
any state of facts existing on, prior to or after the Closing Date (the
"RETAINED LIABILITIES"), and Sellers agree to pay and satisfy when due all
Retained Liabilities. Without limiting the foregoing, except for the Assumed
Liabilities, the term "RETAINED LIABILITIES" shall include Liabilities:
(i) for or in connection with any dividends, distributions,
redemptions, or Security Rights with respect to any security of Sellers;
(ii) arising out of any transaction affecting Sellers or
obligations incurred by Sellers after the Closing (excluding matters
incorrectly directed to Sellers that are Assumed Liabilities hereunder);
(iii) for expenses, taxes or fees incident to or arising out of
the negotiation, preparation, approval or authorization of this Agreement and
the consummation of the transactions contemplated hereby, including, without
limitation, all legal and accounting fees and all brokers or finders fees or
commissions payable by Sellers except as otherwise provided in SECTION 5.12 ;
(iv) against which Sellers are insured or otherwise indemnified
or that would have been covered by insurance (or indemnification) but for a
claim by the issuer (or the indemnitor) that
8
<PAGE>
the insured (or the indemnities) had breached its obligations under the policy
of insurance (or the contract of indemnity) or had committed fraud in the
insurance application;
(v) to any Related Party not arising out of this Agreement;
(vi) to indemnify Sellers' officers, directors, employees or
agents;
(vii) for any Taxes, including transfer Taxes, whether or not by
reason of, or in connection with, the transactions contemplated by this
Agreement;
(viii) for any product liability relating to any product
manufactured, distributed or sold by Sellers prior to the Closing Date
whether or not such Liability relates to products that are defective or
improperly designed or maintained or in breach of any express or implied
product warranty;
(ix) for any liability under Environmental Laws in any way
arising with respect to activities engaged in or circumstances existing prior
to the Closing Date;
(x) for any third party debt of Sellers or their Affiliates,
other than trade payables; and
(xi) for such salary and related expenses (such as employment
taxes, retirement contributions and withholdings and other amounts generally
withheld from salary payments by Sellers) attributable to periods prior to
Closing.
2.5 PURCHASE PRICE. The aggregate purchase price for the Purchased Assets
shall be $8,000,000, plus the assumption of the Assumed Liabilities (the
"PURCHASE PRICE"), subject to the Post-Closing Purchase Price Adjustment as
provided in SECTION 2.8 and the Earnout as provided in SECTION 2.13.
2.6 CLOSING. The consummation of the purchase and sale of the Purchased
Assets, the assumption of the Assumed Liabilities, and the consummation of the
other transactions contemplated hereby (the "CLOSING") shall take place at 10:00
a.m., local time, on the fifth day following the fulfillment of all conditions
in SECTION 6.1 AND 6.2, 1997 at the offices of Sutherland, Asbill & Brennan,
L.L.P., 999 Peachtree Street, N.E., Atlanta, Georgia 30309, or at such other
time, date or place as the parties agree (the "Closing Date").
2.7 PAYMENT OF PURCHASE PRICE.
(a) AT CLOSING. At Closing, the Purchase Price shall be
paid by Buyer to Sellers as follows:
(i) by Buyer's assumption of the Assumed Liabilities pursuant
to the Assumption Agreement; and
(ii) by delivery (subject to SECTION 2.14) of that number of
shares of USF Common Stock equal to the result obtained by dividing
$8,000,000 by the USF Average Share Value
9
<PAGE>
(the "USF SHARES"). The USF Shares shall be registered under the Securities Act
pursuant to a shelf registration on Form S-4.
(b) AFTER CLOSING.
(i) within five business days after the determination of the
Post-Closing Purchase Price Adjustment is made, Buyer or Sellers, as the case
may be, shall deliver the Post-Closing Purchase Price Adjustment by wire
transfer of federal funds, in the case of payments by Sellers, and in shares of
USF Common Stock equal to the result obtained by dividing the amount owed by the
USF Average Share Value (using the date of determination of the Post Closing
Purchase Price Adjustment in place of the Closing Date in determining the USF
Average Share Value), in case of payment by Buyer.
(ii) within five business days after the Earnout is computed pursuant
to Section 2.13, Buyer shall deliver the Earnout amount, if any, in Shares of
USF Common Stock equal to the result obtained by dividing the amount owed by
Buyer to Sellers by the USF Average Share Value (using the date of determination
of the Earnout in place of the Closing Date in determining the USF Average Share
Value).
2.8 POST-CLOSING PURCHASE PRICE ADJUSTMENT. If the Total Owner's Equity
at the close of business on the Closing Date is less than the Total Owner's
Equity as of June 30, 1996 as reflected on the 6-30-96 Balance Sheet
($15,086,000) by more than $500,000, then the Purchase Price shall be reduced by
the same percentage as the total percentage decrease in Total Owner's Equity .
If the Total Owner's Equity at the close of business on the Closing Date is
greater than the Total Owner's Equity as of June 30, 1996 as reflected on the
6-30-96 Balance Sheet by more than $500,000, then the Purchase Price shall be
increased by the same percentage as the total percentage increase in Total
Owner's Equity (the "Post Closing Purchase Price Adjustment"). "Total Owner's
Equity" means "Total Equity" as computed and reflected in the column headed
"Proforma Presentation - Assets and Liabilities sold to Buyer" on the December
31, 1996 consolidating balance sheet attached hereto as EXHIBIT C.
2.9 CLOSING STATEMENTS.
(a) CLOSING BALANCE SHEET. As soon as practicable following the
Closing, but in no event later than forty-five days following the Closing, Buyer
(in consultation with, and with such assistance as Buyer shall reasonably
request of Sellers) shall prepare a statement of assets acquired and liabilities
assumed as of the close of business on the Closing Date, reflecting Total
Owner's Equity (the "Closing Balance Sheet"). The Closing Balance Sheet shall
consist solely of the Purchased Assets and Assumed Liabilities and shall be
prepared in accordance with the Accounting Principles. As used herein,
"Accounting Principles" mean GAAP applied on a basis consistent with the 6-30-96
Balance Sheet, except that (i) only the Purchased Assets and the Assumed
Liabilities shall be included therein, (ii) no items shall fail to be included
therein or excluded therefrom on the basis of materiality, individually or
collectively, and (iii) the accounting conventions and assumptions described in
SCHEDULE 2.9 shall apply. Sellers and their representatives shall be provided
complete access to all work papers and other information used by Buyer in
preparing the Closing Balance Sheet. The Closing Balance Sheet, when delivered
by Buyer to
10
<PAGE>
Sellers, shall be deemed conclusive and binding on the parties for purposes of
determining the Post-Closing Purchase Price Adjustment, unless Sellers notify
Buyer in writing within 10 business days after receipt of the Closing Balance
Sheet of its disagreement therewith, which notice shall state with reasonable
specificity the reasons for any disagreement and identify the items and amounts
in dispute.
(b) ARBITRATION. If any disagreement concerning the Post-Closing
Purchase Price Adjustment is not resolved by Buyer and Sellers within 30 days
following the receipt by Sellers of the Closing Balance Sheet, the undisputed
amount shall be paid in accordance with SECTION 2.7(b), and Buyer and Sellers
shall promptly engage (on standard terms and conditions for a matter of such
nature) a nationally recognized firm of certified public accountants to resolve
such dispute. The firm of certified public accountants shall be proposed in
writing by Buyer to Sellers. In the absence of prompt agreement on the identity
of the certified public accountants, the Houston office of the accounting firm
of Arthur Andersen, LLP shall be engaged by the parties. The engagement
agreement with the certified public accountants shall require the certified
public accountants to make their determination with respect to the items in
dispute within 90 days following the receipt by Sellers of the Closing Balance
Sheet. Buyer and Sellers shall each pay one-half of the cost of the fees and
expenses of such certified public accountants at the time of payment of the
Post-Closing Purchase Price Adjustment. The resolution by the certified public
accountants of any dispute concerning the Post-Closing Purchase Price Adjustment
shall be final, binding and conclusive upon the parties and shall be the
parties' sole and exclusive remedy regarding any dispute concerning the
Post-Closing Purchase Price Adjustment
(c) FINAL CLOSING BALANCE SHEET. The Closing Balance Sheet, as
modified by the parties' agreement and by any determination by the certified
public accountants as described in this SECTION 2.9, shall be the "Final Closing
Balance Sheet."
2.10 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among the Purchased Assets in accordance with the allocation set forth in
SCHEDULE 2.10. Buyer and Sellers shall report the federal, state and local
income and other tax consequences of the purchase and sale contemplated hereby
in a manner consistent with such allocation and shall not take any position
inconsistent therewith upon examination of any tax return, in any refund claim,
in any litigation, or otherwise. Any Post-Closing Purchase Price Adjustment
shall be allocated among the Purchased Assets in accordance with their
respective values shown on SCHEDULE 2.10.
2.11 TITLE. Title to all Purchased Assets shall pass from Sellers to Buyer
at Closing, subject to the terms and conditions of this Agreement. Buyer assumes
no risk of loss to the Purchased Assets prior to Closing.
2.12 CERTAIN CONSENTS. Nothing in this Agreement shall be construed as an
attempt to assign any contract, agreement, Permit, franchise, or claim included
in the Purchased Assets which is by its terms or in law nonassignable without
the consent of the other party or parties thereto, unless such consent shall
have been given, or as to which all the remedies for the enforcement thereof
enjoyed by Sellers would not, as a matter of law, pass to Buyer as an incident
of the assignments provided for by this Agreement. In order, however, to provide
Buyer with the full realization and value of every contract, agreement, Permit,
franchise and claim of the character
11
<PAGE>
described in the immediately preceding sentence, Sellers agree that on and after
the Closing, it will, at the request and under the direction of Buyer, in the
name of Sellers or otherwise as Buyer shall specify take all reasonable action
(including without limitation the appointment of Buyer as attorney-in-fact for
Sellers) and do or cause to be done all such things as shall in the opinion of
Buyer or its counsel be necessary or proper (i) to assure that the rights of
Sellers under such contracts, agreements, Permits, franchises and claims shall
be preserved for the benefit of Buyer and (ii) to facilitate receipt of the
consideration to be received by Sellers in and under every such contract,
agreement, Permit, franchise and claim, which consideration shall be held for
the benefit of, and shall be delivered to, Buyer. Nothing in this Section shall
in any way diminish Sellers' obligations hereunder to obtain all consents and
approvals and to take all such other actions prior to or at Closing as are
necessary to enable Sellers to convey or assign valid title to all the Purchased
Assets to Buyer.
2.13 EARNOUT. In the event that the net operating earnings of the
Business, calculated based upon the accounting principles set forth in
subparagraph (d) below, exceed certain goals in the fiscal year commencing on
the first day of the month following the Closing Date and ending one year
thereafter ("Earnout Year 1998") or the year commencing one year after the first
day of the month following the Closing Date and ending one year thereafter
("Earnout Year 1999"), the Purchase Price will be increased (the "EARNOUT"), and
any amounts owed will be paid by Buyer as provided in SECTION 2.7(b). The
determination of the Earnout will be made following the end of each of Earnout
Year 1998 and Earnout Year 1999. Within forty-five days following the end of
each of Earnout Year 1998 and Earnout Year 1999, Buyer will deliver to Sellers a
Statement of Net Operating Earnings for the Business for the applicable year.
The Statement of Net Operating Earnings, when delivered by Buyer to Sellers,
shall be deemed conclusive and binding on the parties for purposes of computing
the Earnout, unless Sellers notify Buyer in writing within 10 days after receipt
of the Statement of Net Operating Earnings of its disagreement therewith, which
notice shall state with reasonable specificity the reasons for any disagreement
and identify the items and amounts in dispute. The aggregate maximum Earnout
available shall be $4 million as follows:
(a) In the event that the Business has net operating earnings equal
to or less than $500,000 in Earnout Year 1998 or Earnout Year 1999, then no
Earnout shall be paid with respect to such year.
(b) In the event that the Business has net operating earnings greater
than $500,000 but less than $1.6 million for Earnout Year 1998, then Sellers
shall be entitled to receive a percentage of the maximum Earnout of $4 million,
equal to the percentage of the amount in excess of $500,000 but less than $1.6
million earned by the Business. For example, if the Business earns $1,050,000,
it will have earned $550,000 (50%) of the total range of $1.1 million ($1.6
million less $500,000), and thus Sellers will receive 50% of the total $4
million maximum Earnout for Earnout Year 1998. The remaining $2 million will be
available to be earned in Earnout Year 1999 pursuant to subparagraph (c). If
the Business net operating earnings for Earnout Year 1998 are equal to or exceed
$1.6 million, Sellers shall receive the full amount of the total $4 million
maximum Earnout for Earnout Year 1998, and no Earnout will be available for
Earnout Year 1999.
(c) In the event that the Business has net operating earnings during
Earnout Year 1999 higher than the greater of (i) $500,000 or (ii) net operating
earnings for the Business for Earnout Year 1998 (the "1999 Base Amount"), then
Sellers shall be entitled to receive a percentage
12
<PAGE>
of the maximum Earnout of $4 million, equal to the percentage of the amount in
excess of the 1999 Base Amount but less than $2 million earned by the Business.
For example, if the Business earns $1,200,000 in Earnout Year 1999 after having
earned $800,000 in Earnout Year 1998, it will have earned $400,000 (33.33%) of
the total range of $1,200,000 ($2,000,000-$800,000) and thus Sellers will
receive 33.33% of the total $4 million maximum Earnout. Notwithstanding the
calculation in this subsection (c), in no case will the aggregate Earnout for
Earnout Year 1998 and Earnout Year 1999 exceed $4,000,000. If th e combined
calculated payments under subparagraphs (b) and (c) exceed $4,000,000, then the
amount payable in Earnout Year 1999 shall be $4,000,000 less the amounts paid
for Earnout Year 1998. If net operating earnings for the Business for Earnout
Year 1999 are equal to or exceed $2 million, and no Earnout was paid for Earnout
Year 1998, Sellers shall be entitled to receive $4 million.
(d) The computations required in this SECTION 2.13 shall be made
utilizing the accounting conventions and assumptions set forth on SCHEDULE 2.13.
(e) If any disagreement concerning the Earnout is not resolved by
Buyer and Sellers within 30 days following the receipt by Sellers of the
applicable Statement of Net Operating Earnings, the undisputed amount shall be
paid in accordance with SECTION 2.7(b), and Buyer and Sellers shall promptly
engage (on standard terms and conditions for a matter of such nature) a
nationally recognized firm of independent accountants to resolve such dispute.
The firm of independent accountants shall be proposed in writing by Buyer to
Sellers. In the absence of prompt agreement on the identity of the independent
accountants, the Houston office of the accounting firm of Arthur Andersen, LLP
shall be engaged by the parties. The engagement agreement with the independent
accountants shall require the independent accountants to make their
determination with respect to the items in dispute within 90 days following the
receipt by Sellers of the applicable Statement of Net Operating Earnings. Buyer
and Sellers shall each pay one-half of the cost of the fees and expenses of such
independent accountants at the time of payment of the Earnout. The resolution by
the independent accountants of any dispute concerning the Earnout shall be
final, binding and conclusive upon the parties and shall be the parties' sole
and exclusive remedy regarding any dispute concerning the Earnout.
(f) Buyer shall provide Sellers with a good faith estimate of the
Earnout calculations on a quarterly basis, provided that such estimates shall
not be binding on either Buyer or Sellers and shall not affect the computation
of the Earnout as described in this SECTION 2.13.
2.14 ESCROW; DELIVERY OF SHARES. At Closing, Buyer shall deliver one
certificate for USF Shares equal to ten percent (10%) of the number computed
pursuant to SECTION 2.7(a)(ii) (the "Escrow Shares") to the Escrow Agent for the
Escrow established pursuant to SECTION 7.8. A second certificate for the
remaining USF Shares shall be delivered to Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
As an inducement to Buyer to enter into this Agreement and consummate the
transactions contemplated hereby, Sellers, jointly and severally, represent and
warrant to Buyer on the date hereof and on the Closing Date as follows:
13
<PAGE>
3.1 ORGANIZATION. Each of Sellers is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, and has the corporate power and authority to own or lease its
properties, carry on the Business as now conducted, enter into this Agreement
and the Other Agreements to which it is or is to become a party and perform its
obligations hereunder and thereunder.
3.2 AUTHORIZATION; ENFORCEABILITY. This Agreement and each Other
Agreement to which Sellers are a party has been duly executed and delivered by
and constitute the legal, valid and binding obligations of Sellers, enforceable
against it in accordance with their respective terms. Each Other Agreement to
which Sellers are to become a party pursuant to the provisions hereof, when
executed and delivered by Sellers, will constitute the legal, valid and binding
obligation of Sellers, enforceable against Sellers in accordance with the terms
of such Other Agreement. All actions contemplated by this Section have been
duly and validly authorized by all necessary proceedings by Sellers.
3.3 NO SUBSIDIARIES. Except as set forth on SCHEDULE 3.3, Sellers do not
have any Subsidiaries and the Purchased Assets do not contain any shares of
capital stock of or other equity interest in any corporation, partnership, joint
venture or other entity.
3.4 NO VIOLATION OF LAWS OR AGREEMENTS; CONSENTS. Neither the execution
and delivery of this Agreement or any Other Agreement to which Sellers are or
are to become parties, the consummation of the transactions contemplated hereby
or thereby nor the compliance with or fulfillment of the terms, conditions or
provisions hereof or thereof by Sellers will: (i) contravene any provision of
any Governing Document of Sellers; (ii) conflict with, result in a breach of,
constitute a default or an event of default (or an event that might, with the
passage of time or the giving of notice or both, constitute a default or event
of default) under any of the terms of, result in the termination of, result in
the loss of any right under, or give to any other Person the right to cause such
a termination of or loss under, any Purchased Asset or any other contract,
agreement or instrument to which Sellers are parties or by which any of their
assets may be bound or affected; (iii) result in the creation, maturation or
acceleration of any Assumed Liability or any other Liability of Sellers (or give
to any other Person the right to cause such a creation, maturation or
acceleration); (iv) violate any Law or violate any judgment or order of any
Governmental Body to which Sellers are subject or by which any of the Purchased
Assets or any of Sellers' other assets may be bound or affected; or (v) result
in the creation or imposition of any Encumbrance upon any of the Purchased
Assets or give to any other Person any interest or right therein. Except as
provided on SCHEDULE 3.4, no consent, approval or authorization of, or
registration or filing with, any Person is required in connection with the
execution and delivery by Sellers of this Agreement or any of the Other
Agreements to which they are or are to become parties pursuant to the provisions
hereof or the consummation by Sellers of the transactions contemplated hereby or
thereby.
3.5 FINANCIAL INFORMATION.
(a) RECORDS. The books of account and related records of Sellers
reflect fairly the Purchased Assets and Assumed Liabilities.
14
<PAGE>
(b) FINANCIAL STATEMENTS. Attached as EXHIBIT B are the audited
consolidated balance sheets, income statements and statements of cash flows for
MES at December 31, 1994, December 31, 1995 and December 31, 1996 and for the
years then ended (the "Consolidated Financial Statements'). Also attached
hereto as EXHIBIT A is the unaudited consolidated balance sheet for Sellers at
June 30, 1996, prepared on a pro forma basis, and, as EXHIBIT C, is the
unaudited consolidating balance sheet for Sellers at December 31, 1996, prepared
on a pro forma basis (collectively, the "Pro Forma Financial Statements"). The
Consolidated Financial Statements (i) are accurate, correct and complete in
accordance with the books of account and records of Sellers, (ii) have been
prepared in accordance with GAAP on a consistent basis throughout the indicated
periods, and (iii) fairly present in all material respects the consolidated
financial condition, assets and liabilities and results of operations of Sellers
at the dates and for the relevant periods indicated. The Pro Forma Financial
Statements (i) are accurate, correct and complete in all material respects in
accordance with the books of account and records of Sellers, (ii) have been
prepared in accordance with GAAP on a consistent basis throughout the indicated
periods, subject to the accounting conventions and assumptions described in
SCHEDULE 2.9, except that they contain no footnotes or audit adjustments, and
(iii) fairly present the Purchased Assets and Assumed Liabilities at the dates
indicated. The Final Closing Balance Sheet, when delivered, shall be accurate,
correct and complete in accordance with the books of account and records of
Sellers and shall fairly present the Purchased Assets and Assumed Liabilities as
of the Closing Date in accordance with the Accounting Principles. The Total
Owner's equity at June 30, 1996, as determined by reference to the 6-30-96
Balance Sheet, was $15,086,000.
3.6 UNDISCLOSED LIABILITIES. Sellers have no Liabilities, except: (i)
those reflected or reserved against on the 6-30-96 Balance Sheet in the amounts
shown therein; (ii) those not required under GAAP to be reflected or reserved
against in the 6-30-96 Balance Sheet that are expressly quantified and set forth
in the Contracts (including contractual commitments of Sellers related to the
Business incurred in the ordinary course of business that do not exceed the
threshold limitations set forth in SECTION 3.13); (iii) those disclosed on
SCHEDULE 3.6; (iv) Retained Liabilities; and (v) those of the same nature as
those set forth on the 6-30-96 Balance Sheet that have arisen in the ordinary
course of business of Sellers after the Balance Sheet Date through the date
hereof, all of which have been consistent in amount and character with past
practice and experience, and none of which, individually or in the aggregate,
has had or will have an adverse effect on the Business or the financial
condition or prospects of Sellers and none of which is a Liability for breach of
contract or warranty or has arisen out of tort, infringement of any intellectual
property rights, or violation of Law or is claimed in any pending or threatened
legal proceeding.
3.7 NO CHANGES. Except as disclosed on SCHEDULE 3.7, since December 31,
1996, Sellers have conducted the Business only in the ordinary course. Except
as disclosed on SCHEDULE 3.7, without limiting the generality of the foregoing
sentence, since the December 31, 1996, there has not been any: (i) material
adverse change in the financial condition, assets, Liabilities, net worth,
earning power, Business or prospects of Sellers; (ii) damage or destruction to
any asset of Sellers, whether or not covered by insurance; (iii) strike or other
labor trouble at Sellers; (iv) declaration or payment of any dividend or other
distribution on or with respect to or redemption or purchase by Sellers of any
shares of capital stock of Sellers; (v) increase in the salary, wage or bonus of
any employee of Sellers; (vi) asset acquisition, including capital expenditure,
in excess of $25,000 in the aggregate,
15
<PAGE>
other than the purchase of inventory in the ordinary course of business; (vii)
change in any Sellers Plan; (viii) change in any method of accounting; (ix)
payment to or transaction with any Related Party, which payment or transaction
is not specifically disclosed on SCHEDULE 3.16; (x) disposition of any asset
(other than inventory in the ordinary course of business) for more than $25,000
in the aggregate or for less than fair market value; (xi) payment, prepayment or
discharge of any Liability other than in the ordinary course of business or any
failure to pay any Liability when due; (xii) write-offs or write-downs of any
assets of Sellers in excess of $25,000 in the aggregate; (xiii) creation,
termination or amendment of, or waiver of any right under, any material
agreement of Sellers; or (xiv) agreement or commitment to do any of the
foregoing.
3.8 TAXES. Sellers have filed or caused to be filed on a timely basis, or
will file or cause to be filed on a timely basis, all Tax Returns relating to
Sellers that are required to be filed by it prior to or on the Closing Date,
pursuant to the Law of each Governmental Body with taxing power over it. All
such Tax Returns were or will be, as the case may be, correct and complete.
Sellers have paid or will pay all Taxes that have or will become due as shown on
such Tax Returns or pursuant to any assessment received as an adjustment to such
Tax Returns, except (i) such Taxes, if any, as are being contested in good faith
and disclosed on SCHEDULE 3.8, (ii) such Taxes that are fully reserved against
on the 6-30-96 Balance Sheet, and (iii) Taxes accruing after the Balance Sheet
Date that are not yet due. Except as set forth on SCHEDULE 3.8, Sellers are not
currently the beneficiary of any extension of time within which to file any Tax
Return. No claim has been made by a taxing authority of a jurisdiction where
Sellers do not file Tax Returns that they are or may be subject to taxation in
that jurisdiction. Without limiting the foregoing, Sellers have no Liability for
any Tax except (x) Taxes disclosed on SCHEDULE 3.8, (y) Taxes fully reserved
against on the 6-30-96 Balance Sheet and (z) Taxes accrued after the Balance
Sheet Date and fully reserved on the Final Closing Balance Sheet. Sellers have
withheld and, except as to those liabilities assumed pursuant to SECTION 2.3,
paid all Taxes required to have been withheld in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
third party.
3.9 INVENTORY. All of the inventory included in the Purchased Assets is
valued on the books and records of Sellers and in the Financial Statements at
lower of cost or market, the cost thereof being determined on an average cost
basis in accordance with GAAP. All of the finished goods inventory included in
the Purchased Assets is in good, merchantable and usable condition and, except
as disclosed on SCHEDULE 3.9, is saleable in the ordinary course of the business
within a reasonable time and at normal profit margins for Sellers' industry
taking into account the posted price at the time of sale, and all of the raw
materials and work-in-process inventory of Sellers can reasonably be expected to
be consumed in the ordinary course of business within a reasonable period of
time. None of Sellers' inventory is obsolete, slow-moving, has been consigned to
others or is on consignment from others.
3.10 RECEIVABLES. SCHEDULE 3.10 discloses all trade and other accounts
receivable included in the Purchased Assets ("RECEIVABLES") outstanding as of
December 31, 1996 presented on an aged basis and separately identifies the name
of each account debtor and the total amount of each related Receivable. All
Receivables, whether reflected on the 6-30-96 Balance Sheet, disclosed on
SCHEDULE 3.10 or created after the Balance Sheet Date, arose from bona fide sale
transactions of Sellers, and no portion of any Receivable is subject to
counterclaim, defense or set-off or is otherwise in dispute.
16
<PAGE>
Except to the extent of the recorded reserve for doubtful accounts specified on
the 12-31-96 Pro Forma Financial Statements, all of the Receivables are
collectible in the ordinary course of business and will be fully collected
within 90 days after having been created using commercially reasonable efforts.
In the event that any of the Receivables shall not have been collected by Buyer
in the ordinary course of business within 90 days of Closing, Buyer shall have
the option of either: (a) retaining the uncollected receivables and foregoing
any claim against Sellers for indemnification under this Section, or (b)
delivering to Sellers a list of such uncollected receivables, transferring title
to such receivables to Sellers and obtaining from Sellers a refund of the
Purchase Price in the amount of such uncollected receivables after deducting the
recorded reserve for bad debt.
3.11 CONDITION OF ASSETS; TITLE; BUSINESS. SCHEDULES 2.1(ii), 2.1(iii),
2.1(xi) AND 3.10 correctly describe all personal property with book value in
excess of $5,000 used in the Business included in the Purchased Assets. The
Purchased Assets are in good operating condition and repair and are suitable for
the purposes for which they are used in the Business. Sellers have good,
indefeasible and exclusive title to all of the Purchased Assets (which for
purposes of Real Property leased to Sellers shall mean a valid leasehold
interest in such assets); all of the Purchased Assets are reflected on the
6-30-96 Balance Sheet or, under GAAP, are not required to be reflected thereon;
the Purchased Assets include all assets that are necessary for use in and
operation of the Business; and except as disclosed on SCHEDULE 3.11, none of the
Purchased Assets is subject to any Encumbrance or impairment, whether due to its
condition, utility, collectability or otherwise, other than Permitted
Encumbrances, and all Encumbrances reflected on SCHEDULE 3.11 shall be removed
prior to Closing. Sellers are engaged in the Business and no other business.
3.12 NO PENDING LITIGATION OR PROCEEDINGS. Except as disclosed on SCHEDULE
3.12, no action, suit, investigation, claim or proceeding of any nature or kind
whatsoever, whether civil, criminal or administrative, by or before any
Governmental Body or arbitrator ("LITIGATION") is pending or, to the knowledge
of Sellers, threatened against or affecting Sellers, the Business, any of the
Purchased Assets, the Assumed Liabilities, the ability of Sellers to perform its
obligations under this Agreement or any of the transactions contemplated by this
Agreement or any Other Agreement, and, to Sellers' knowledge, there is no basis
for any such Litigation. Except as disclosed on SCHEDULE 3.12, Sellers have not
been a party to any other Litigation since December 31, 1993. Except as
disclosed on SCHEDULE 3.12, there is presently no outstanding judgment, decree
or order of any Governmental Body against or affecting Sellers, the Business,
any of the Purchased Assets, the Assumed Liabilities, or any of the transactions
contemplated by this Agreement or any Other Agreement. Except as disclosed on
SCHEDULE 3.12, Sellers have no pending Litigation in which Sellers' are the
plaintiffs against any third party.
3.13 CONTRACTS; COMPLIANCE. Disclosed on SCHEDULES 2.1(vii), 3.13, 3.15,
3.16 OR 3.21 is a brief description of each contract, lease, indenture,
mortgage, instrument, commitment or other agreement, arrangement or
understanding, oral or written, formal or informal, included in the Purchased
Assets (except for agreements specifically made herein) and that (i) is material
to the Business, individually or in the aggregate; (ii) involves the purchase,
sale or lease of any asset, materials, supplies, inventory or services in excess
of $25,000 per year; (iii) has an unexpired term of more than six months from
the date hereof, taking into account the effect of any renewal options; (iv)
relates to the borrowing or lending of any money or guarantee of any obligation
in excess of
17
<PAGE>
$25,000; (v) limits the right of Sellers (or, after Closing, Buyer) to compete
in any line of business or otherwise restricts any right Sellers (or, after
Closing, Buyer) may have; (vi) is an employment or consulting contract involving
payment of compensation and benefits in excess of $25,000 per year; (vii)
involves sales, distribution or other similar issues and provides for payments
in excess of $10,000 per year; (viii) forms any partnership, joint venture or
other similar agreement; (ix) grants any option, license, franchise or similar
agreement; (x) is for the lease of any real property; or (xi) was not entered
into in the ordinary course (each, a "CONTRACT" and collectively, the
"CONTRACTS"). Each Contract is a legal, valid and binding obligation of Sellers
and is in full force and effect. Sellers and each other party to each Contract
has performed all obligations required to be performed by it thereunder and is
not in breach or default, and is not alleged to be in breach or default, in any
respect thereunder, and no event has occurred and no condition or state of facts
exists (or would exist upon the giving of notice or the lapse of time or both)
that would become or cause a breach, default or event of default thereunder,
would give to any Person the right to cause such a termination or would cause an
acceleration of any obligation thereunder. Sellers are not currently
renegotiating any Contract nor have Sellers received any notice of non-renewal
or price increase or sales or production allocation with respect to any
Contract.
3.14 PERMITS; COMPLIANCE WITH LAW. Except as reflected on SCHEDULE 3.14,
Sellers hold, and the Purchased Assets include, all permits, certificates,
licenses, franchises, privileges, approvals, registrations and authorizations
required under any applicable Law or otherwise advisable in connection with the
operation of the Purchased Assets and Business (each, a "PERMIT" and
collectively, "PERMITS"). Each Permit is valid, subsisting and in full force and
effect. Sellers are in material compliance with and have fulfilled and performed
its obligations under each Permit, and no event or condition or state of facts
exists (or would exist upon the giving of notice or lapse of time or both) that
could constitute a breach or default under any Permit. Except as set forth on
SCHEDULE 3.22, Sellers (relating to the Business) have not been since December
31, 1993 nor are they currently in violation of any Law and has received no
notice of any violation of Law, and to Seller's knowledge no event has occurred
or condition or state of facts exists that could give rise to any such
violation. Sellers have not received any notice of non-renewal of any Permit.
3.15 REAL PROPERTY. SCHEDULE 3.15 discloses and summarizes all real
properties currently owned, used or leased by Sellers or in which Sellers have
an interest that are included in the Purchased Assets (collectively, the "REAL
PROPERTY") and identifies the record title holder or tenant of all of the Real
Property. Except as disclosed on SCHEDULE 3.15, Sellers have good and
indefeasible fee simple title to all Real Property shown as owned by it on
SCHEDULE 3.15, free and clear of all Encumbrances other than Permitted
Encumbrances, and all Encumbrances reflected on SCHEDULE 3.15 shall be removed
prior to Closing. Sellers have the right to quiet enjoyment of all Real
Property in which it holds a leasehold interest for the full term, including all
renewal rights, of the lease or similar agreement relating thereto. Copies of
all title insurance policies written in favor of Sellers and all surveys
relating to the Real Property owned by Sellers have been delivered to Buyer. All
structures and other improvements on all Real Property owned by Sellers are
within the lot lines and do not encroach on the properties of any other Person,
and the use and operation of all Real Property conform to all applicable
building, zoning, safety and subdivision Laws, Environmental Laws and other
Laws, and all restrictive covenants and restrictions and conditions affecting
title. No portion of any Real Property is located in a flood plain, flood hazard
area or
18
<PAGE>
designated wetlands area. Sellers have not received any written or oral notice
of assessments for public improvements against any Real Property or any written
or oral notice or order by any Governmental Body, any insurance company that has
issued a policy with respect to any of such properties or any board of fire
underwriters or other body exercising similar functions that relates to
violations of building, safety or fire ordinances or regulations, claims any
defect or deficiency with respect to any of such properties or requests the
performance of any repairs, alterations or other work to or in any of such
properties or in the streets bounding the same. Each parcel of Real Property
owned by Sellers is considered a separate parcel of land for taxing and
conveyancing purposes. There is no pending condemnation, expropriation, eminent
domain or similar proceeding affecting all or any portion of the Real Property
owned by Sellers. All public utilities (including water, gas, electric, storm
and sanitary sewage, and telephone utilities) required to operate the facilities
of Sellers are available to such facilities, and such utilities enter the
boundaries of such facilities through adjoining public streets, easements or
rights-of-way of record in favor of Sellers. Such public utilities are all
connected pursuant to valid permits, are all in good working order and are
adequate to service the operations of such facilities as currently conducted and
permit full compliance with all requirements of Law. Sellers have not received
any written notice of any proposed, planned or actual curtailment of service of
any utility supplied to any facility of Sellers. All Real Property used by
Sellers has access to a publicly open street.
3.16 TRANSACTIONS WITH RELATED PARTIES. No Related Party is or has been
since December 31, 1996 a party to any transaction, agreement or understanding
with Sellers except pursuant to arrangements disclosed on SCHEDULE 3.16 and
except for dividends properly reflected as such in the Financial Statements. No
Related Party uses any of the Purchased Assets except directly in connection
with the Business, and no Related Party owns or has any interest in any
Purchased Asset or other asset used in the Business. No Related Party has any
claim of any nature, including any inchoate claim, against any of the Purchased
Assets or the Business. Except as expressly provided herein or in any Other
Agreement or as otherwise may be mutually agreed after Closing, (i) no Related
Party will at any time after Closing for any reason, directly or indirectly, be
or become entitled to receive any payment or transfer of money or other property
of any kind from Buyer, and (ii) Buyer will not at any time after Closing for
any reason, directly or indirectly, be or become subject to any obligation to
any Related Party.
3.17 LABOR RELATIONS. SCHEDULE 3.17 sets forth a true and complete list of
the names, titles, annual salaries and other compensation of all employees of
the Business. The relations of Sellers with their employees are good. No
employee of Sellers is represented by any union or other labor organization. No
representation election, arbitration proceeding, grievance, labor strike,
dispute, slowdown, stoppage or other labor trouble is pending or, to the
knowledge of Sellers, threatened against, involving, affecting or potentially
affecting Sellers. No complaint against Sellers is pending or, to the knowledge
of Sellers, threatened before the National Labor Relations Board, the Equal
Employment Opportunity Commission or any similar state or local agency, by or on
behalf of any employee of Sellers. Sellers have no Liability for sick leave,
vacation time, severance pay or any similar item not fully reserved on the
6-30-96 Balance Sheet, except as set forth on SCHEDULE 3.17. Sellers have no
Liability for any occupational disease of any of its employees, former employees
or others. Neither the execution and delivery of this Agreement, the performance
of the
19
<PAGE>
provisions hereof nor the consummation of the transactions contemplated hereby
will trigger any severance pay obligation under any contract or under any Law.
3.18 PRODUCT LIABILITIES; WARRANTIES. Each of the products produced or
sold in connection with the Business is, and at all times up to and including
the Closing has been, (a) in compliance in all material respects with all
applicable federal, state, local and foreign laws and regulations and (b) fit
for the ordinary purposes for which it is intended to be used and conforms in
all material respects to any promises or affirmations of fact made on the
container or label for such product or in connection with its sale. There is no
design defect with respect to any of such products, and each of such products
contains adequate warnings, presented in a reasonably prominent manner, in
accordance with applicable laws, rules and regulations and current industry
practice with respect to its contents and use. SCHEDULE 3.18 discloses and
describes the terms of all express product warranties under which Buyer may have
Liability after the Closing Date.
3.19 INSURANCE. SCHEDULE 3.19 discloses all insurance policies on an
"occurrence" basis with respect to which Sellers is the owner, insured or
beneficiary. Such policies are commercially reasonable, in both scope and
amount, in light of the risks attendant to the Business and are comparable in
coverage to policies customarily maintained by others engaged in similar lines
of business. There is no claim pending under any of such policies as to which
coverage has been questioned, denied or disputed which relates to the Business.
3.20 INTELLECTUAL PROPERTY RIGHTS. SCHEDULE 3.20 discloses all of the
trademark and service mark rights, applications and registrations, trade names,
fictitious names, service marks, logos and brand names, copyrights, copyright
applications, letters patent, patent applications and licenses of any of the
foregoing owned or used by Sellers in or applicable to the Business. Sellers
have the entire right, title and interest in and to, or has the exclusive
perpetual royalty-free right to use, the intellectual property rights disclosed
on SCHEDULE 3.20 and all other processes, know-how, show-how, formulae, trade
secrets, inventions, discoveries, improvements, blueprints, specifications,
drawings, designs, and other proprietary rights necessary or applicable to or
advisable for use in the Business ("INTELLECTUAL PROPERTY"), free and clear of
all Encumbrances. SCHEDULE 3.20 separately discloses all Intellectual Property
under license. The Intellectual Property is valid and not the subject of any
interference, opposition, reexamination or cancellation. To the knowledge of
Sellers, no Person is infringing upon nor has any Person misappropriated any
Intellectual Property. Sellers are not infringing upon the intellectual
property rights of any other Person.
3.21 EMPLOYEE BENEFITS.
(a) BENEFIT PLANS; SELLERS PLANS. SCHEDULE 3.21 discloses all
written and unwritten "employee benefit plans" within the meaning of Section
3(3) of ERISA, and any other written and unwritten profit sharing, pension,
savings, deferred compensation, fringe benefit, insurance, medical, medical
reimbursement, life, disability, accident, post-retirement health or welfare
benefit, stock option, stock purchase, sick pay, vacation, employment,
severance, termination or other plan, agreement, contract, policy, trust fund or
arrangement for employees of the Business (each, a "BENEFIT PLAN"), whether or
not funded and whether or not terminated, (i) maintained or sponsored by Sellers
in which Sellers participate; (ii) with respect to which Sellers have or may
have Liability or is obligated to contribute; (iii) that otherwise covers any
of the current
20
<PAGE>
or former employees of Sellers or their beneficiaries; or (iv) as to which any
such current or former employees of Sellers or their beneficiaries participated
or were entitled to participate or accrue or have accrued any rights thereunder
(each, a "SELLERS PLAN"). No Sellers Plan covers any employees of any member of
the Sellers Group in any foreign country or territory. With the exception of the
requirements of Section 4980B of the Code, no post-retirement benefits are
provided under any Sellers Plan that is a welfare benefit plan as described in
ERISA Section 3(1).
(b) SELLERS GROUP MATTERS; FUNDING. Neither Sellers nor any
corporation that may be aggregated with Sellers under Sections 414(b),(c), (m)
or (o) of the Code (the "SELLERS GROUP") has any obligation to contribute to or
any Liability under or with respect to any Benefit Plan of the type described in
Sections 4063 and 4064 of ERISA or Section 413(c) of the Code. Sellers do not
have any Liability, and after the Closing Buyer will not have any Liability,
with respect to any Benefit Plan of any other member of the Sellers Group,
whether as a result of delinquent contributions, distress terminations,
fraudulent transfers, failure to pay premiums to the PBGC, withdrawal Liability
or otherwise. No accumulated funding deficiency (as defined in Section 302 of
ERISA and Section 412 of the Code) exists nor has any funding waiver from the
IRS been received or requested with respect to any Sellers Plan or any Benefit
Plan of any member of the Sellers Group and no excise or other Tax is due or
owing because of any failure to comply with the minimum funding standards of the
Code or ERISA with respect to any of such plans.
(c) COMPLIANCE. Each Sellers Plan and all related trusts, insurance
contracts and funds have been created, maintained, funded and administered in
all respects in compliance with all applicable Laws and in compliance with the
plan document, trust agreement, insurance policy or other writing creating the
same or applicable thereto. No Sellers Plan is or is proposed to be under audit
or investigation, and no completed audit of any Sellers Plan has resulted in the
imposition of any Tax, fine or penalty.
(d) QUALIFIED PLANS. SCHEDULE 3.21 discloses each Sellers Plan that
purports to be a qualified plan under Section 401(a) of the Code and exempt from
United States federal income tax under Section 501(a) of the Code (a "QUALIFIED
PLAN"). With respect to each Qualified Plan, a current determination letter (or
opinion or notification letter, if applicable) has been received from the IRS
that such plan is qualified under Section 401(a) of the Code and exempt from
federal income tax under Section 501(a) of the Code. No Qualified Plan has been
amended since the date of the most recent such letter. No member of the Sellers
Group, nor any fiduciary of any Qualified Plan, nor any agent of any of the
foregoing, has done or failed to do anything that would adversely affect the
qualified status of a Qualified Plan or the qualified status of any related
trust.
(e) DEFINED BENEFIT PLANS. SCHEDULE 3.21 also discloses each Sellers
Plan that is a defined benefit plan as defined in Section 3(35) of ERISA (a
"DEFINED BENEFIT PLAN"). The present value of vested and nonvested accrued
benefits under each Defined Benefit Plan does not exceed the present fair market
value of the assets of such plan, based on the actuarial assumptions and
methodology used for funding purposes (i) as set forth in such plan's most
recent actuarial report; (ii) as required by the PBGC on a termination basis;
and (iii) as set forth in FASB 87. No Defined Benefit Plan sponsored by any
member of or covering any employee of the Sellers Group has been terminated or
partially terminated since September 1, 1974. No event has occurred and no
condition has existed that could constitute grounds under Section 4042 of ERISA
for termination
21
<PAGE>
of or appointment of a trustee to administer any Defined Benefit Plan. No member
of the Sellers Group has transferred, in whole or in part, a Defined Benefit
Plan to a corporation that was at the time of transfer a member of a different
controlled group of corporations (within the meaning of Section 4001(a)(14) of
ERISA) than the transferor. Sellers have no Liability for any Sellers Plan that
is not accrued on the 6-30-96 Balance Sheet or, if arising after the Balance
Sheet Date and on and before the Closing, will not be accrued on the Final
Closing Balance Sheet.
(f) MULTIEMPLOYER PLANS. No Sellers Plan is a multiemployer plan
within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA (a
"MULTIEMPLOYER PLAN"). No member of the Sellers Group has withdrawn from any
Multiemployer Plan or incurred any withdrawal Liability to or under any
Multiemployer Plan.
(g) PROHIBITED TRANSACTIONS; FIDUCIARY DUTIES. No prohibited
transaction (within the meaning of Section 406 of ERISA and Section 4975 of the
Code) with respect to any Sellers Plan exists or has occurred that could subject
Sellers to any Liability or Tax under Part 5 of Title I of ERISA or Section 4975
of the Code. No member of the Sellers Group, nor any administrator or fiduciary
of any Sellers Plan, nor any agent of any of the foregoing, has engaged in any
transaction or acted or failed to act in a manner that will subject Sellers to
any Liability for a breach of fiduciary or other duty under ERISA or any other
applicable Law.
3.22 ENVIRONMENTAL MATTERS. Except as disclosed in SCHEDULE 3.22:
(a) COMPLIANCE; NO LIABILITY. Sellers have operated the Business and
each parcel of Real Property in compliance with all applicable Environmental
Laws. Neither Sellers is subject to any Liability, penalty or expense
(including legal fees), and Buyer will not suffer or incur any loss, Liability,
penalty or expense (including legal fees) by virtue of any violation of any
Environmental Law with respect to the Business occurring prior to the Closing,
any environmental activity conducted on or with respect to any property at or
prior to the Closing or any environmental condition existing on or with respect
to any property at or prior to the Closing, in each case whether or not Sellers
permitted or participated in such act or omission.
(b) TREATMENT; CERCLIS. Except as part of Sellers' Business operated
in the ordinary course and not in violation of any Environmental Law, (i)
Sellers have not treated, stored, recycled or disposed of any Regulated Material
on any real property, and no other Person has treated, stored, recycled or
disposed of any Regulated Material on any part of the Real Property; (ii) there
has been no release of any Regulated Material at, on or under any Real Property;
and (iii) Sellers have not transported any Regulated Material or arranged for
the transportation of any Regulated Material to any location that is listed or
proposed for listing on the National Priorities List pursuant to Superfund, on
CERCLIS or any other location that is the subject of a federal, state or local
enforcement action or other investigation that may lead to claims against
Sellers for cleanup costs, remedial action, damages to natural resources, to
other property or for personal injury including claims under Superfund. None of
the Real Property is listed or, to the knowledge of Sellers, proposed for
listing on the National Priorities List pursuant to Superfund, CERCLIS or any
state or local list of sites requiring investigation or cleanup.
22
<PAGE>
(c) NOTICES; EXISTING CLAIMS; CERTAIN REGULATED MATERIALS; STORAGE
TANKS. Sellers, with respect to the Business, have not received any request for
information, notice of claim, demand or other notification that they are or may
be potentially responsible with respect to any investigation, abatement or
cleanup of any threatened or actual release of any Regulated Material.
Sellers, with respect to the Business, are not required to place any notice or
restriction relating to the presence of any Regulated Material at any Real
Property or in any deed to any Real Property. Sellers have provided to Buyer a
list of all sites to which Sellers have transported any Regulated Material for
recycling, treatment, disposal, other handling or otherwise (as a part of
SCHEDULE 3.22). There has been no past, and there is no pending or contemplated,
claim by Sellers, with respect to the Business, under any Environmental Law or
Laws based on actions of others that may have impacted the Real Property, and
Sellers, with respect to the Business, have not entered into any agreement with
any Person regarding any Environmental Law, remedial action or other
environmental Liability or expense. Except as disclosed on SCHEDULE 3.22, there
are no underground storage tanks on the Real Property. All aboveground storage
tanks located on the Real Property are disclosed on SCHEDULE 3.22, and all such
tanks and associated piping are in sound condition and are not leaking and have
not leaked, except for leaks which would not cause a violation of any
Environmental Law.
3.23 CUSTOMER RELATIONS. SCHEDULES 3.23(a) AND 3.23(b) respectively, set
forth (a) the name of, and a brief description of the goods supplied to, each
customer of the Business whose purchases from Sellers during the twelve-month
period ending December 31, 1996 equaled or exceeded two percent of the net sales
of the Business during such period, and (b) the name of, and a brief description
of the goods or services supplied by, each supplier of goods or services to the
Business to whom Sellers paid $75,000 or more during the same period. There
exists no condition or state of facts or circumstances involving Sellers'
customers, suppliers, distributors or sales representatives that Sellers can
reasonably foresee could adversely affect the Business or the Purchased Assets
after the Closing Date.
3.24 FINDERS' FEES. Other than as set forth in SCHEDULE 3.24, neither
Sellers nor any of their officers, directors or employees has employed any
broker or finder or incurred any Liability for any brokerage fee, commission or
finders' fee in connection with any of the transactions contemplated hereby or
by any Other Agreement.
3.25 INVESTMENT. The Sellers have no intention of selling the USF Shares
or any interest therein in violation of the federal securities Laws or any
applicable state securities Laws. Prior to the date of this Agreement, each
Seller has received all information provided to it by Buyer and has had the
opportunity to ask questions of and receive answers from representatives of
Buyer concerning Buyer, USF and the USF Shares and to obtain certain additional
information requested of Buyer.
3.26 DISCLOSURE. None of the representations or warranties of Sellers
contained herein and none of the information contained in the Schedules referred
to in ARTICLE III is false or misleading in any material respect or omits to
state a fact herein or therein necessary to make the statements herein or
therein not misleading in any material respect, and all of such representations
and warranties of Sellers, disregarding all qualifications and exceptions
contained therein relating to
23
<PAGE>
materiality, are true and correct with only such exceptions as would not in the
aggregate reasonably be expected to have a material adverse effect on the
Business.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Sellers to enter into this Agreement and consummate the
transactions contemplated hereby, Buyer and USF represent and warrant to Sellers
on the date hereof and on the Closing Date as follows:
4.1 ORGANIZATION. Each of USF and Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and has the corporate power and authority to own or lease its properties, carry
on its business, enter into this Agreement and the Other Agreements to which it
is or is to become a party and perform its obligations hereunder and thereunder.
4.2 AUTHORIZATION AND ENFORCEABILITY. This Agreement and each Other
Agreement to which either Buyer or USF are a party have been duly executed and
delivered by and constitute the legal, valid and binding obligations of Buyer
and USF, enforceable against them in accordance with their respective terms.
Each Other Agreement to which Buyer or USF is to become a party pursuant to the
provisions hereof, when executed and delivered by Buyer or USF, will constitute
the legal, valid and binding obligation of Buyer or USF, enforceable against
Buyer or USF in accordance with the terms of such Other Agreement. All actions
contemplated by this Section have been duly and validly authorized by all
necessary proceedings by Buyer and USF.
4.3 NO VIOLATION OF LAWS; CONSENTS. Neither the execution and delivery of
this Agreement or any Other Agreement to which Buyer or USF is or is to become a
party, the consummation of the transactions contemplated hereby or thereby nor
the compliance with or fulfillment of the terms, conditions or provisions hereof
or thereof by Buyer or USF will: (i) contravene any provision of the Governing
Documents of Buyer or USF, or (ii) violate any Law or any judgment or order of
any Governmental Body to which Buyer or USF is subject or by which any of its
assets may be bound or affected. Except for listing of the USF Shares on the
NYSE, no consent, approval or authorization of, or registration or filing with,
any Person is required in connection with the execution or delivery by Buyer or
USF of this Agreement or any of the Other Agreements to which Buyer or USF is or
is to become a party pursuant to the provisions hereof or the consummation by
Buyer or USF of the transactions contemplated hereby or thereby.
4.4 NO PENDING LITIGATION OR PROCEEDINGS. No Litigation is pending or, to
the knowledge of Buyer or USF, threatened against or affecting Buyer or USF in
connection with any of the transactions contemplated by this Agreement or any
Other Agreement to which Buyer or USF is or is to become a party. There is
presently no outstanding judgment, decree or order of any Governmental Body
against or affecting Buyer or USF in connection with the transactions
contemplated by this Agreement or any Other Agreement to which Buyer or USF is
or is to become a party.
24
<PAGE>
4.5 CAPITALIZATION. The authorized capital stock of USF consists of (i)
150,000,000 shares of USF Common Stock, $.01 par value, of which 69,986,221 were
issued and outstanding as of December 31, 1996, and (ii) 3,000,000 shares of
Preferred Stock, $0.10 par value, none of which are issued and outstanding. On
the Closing Date, all issued and outstanding shares of the USF Common Stock will
be, duly authorized, validly issued, fully paid and nonassessable. The USF
Shares to be issued to the Sellers pursuant to this Agreement will be duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, USF's Certificate of Incorporation or
By-Laws or any agreement to which USF is a party or is bound.
4.6 FINDERS' FEES. Neither Buyer nor USF nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fee, commission or finder's fee in connection with
any of the transactions contemplated hereby.
4.7 REGISTRATION STATEMENT AND INFORMATION. The Registration Statement on
Form S-4 covering the USF Shares has been declared effective by the Commission.
All information provided by Buyer or USF to Sellers for use in Sellers
Information Statement was, when delivered, true and correct in all material
respects. USF meets the requirements for the use of Form S-3.
ARTICLE V
CERTAIN COVENANTS
5.1 CONDUCT OF BUSINESS PENDING CLOSING. From and after the date hereof
and until the Closing Date, unless Buyer shall otherwise consent in writing,
Sellers shall, and Sellers shall cause Sellers to conduct, its affairs as
follows:
(a) ORDINARY COURSE; COMPLIANCE. The Business shall be conducted
only in the ordinary course and consistent with past practice. Sellers shall
maintain the Purchased Assets and Assumed Liabilities consistent with past
practice and shall comply in a timely fashion with the provisions of all
Contracts and Permits and its other agreements and commitments. Sellers shall
use their best efforts to keep the Business organization intact, keep available
the services of their present employees and preserve the goodwill of its
suppliers, customers and others having business relations with it. Sellers shall
maintain in full force and effect their policies of insurance, subject only to
variations required by the ordinary operations of the Business, or else shall
obtain, prior to the lapse of any such policy, substantially similar coverage
with insurers of recognized standing.
(b) PROHIBITED TRANSACTIONS. Except as set forth on SCHEDULE 5.1,
Sellers shall not: (i) make any distribution with respect to its capital stock;
(ii) organize any subsidiary, acquire any capital stock or other equity
securities of any other corporation, or acquire any equity or ownership interest
in any business; (iii) cancel or waive any claim or right to sell, transfer,
distribute or otherwise dispose of any assets or properties, except in the
ordinary course of business; (iv) make any capital expenditures in excess of
$100,000 in the aggregate or make any new commitment for additions to property,
plant or equipment; (v) enter into any contract or commitment the performance of
which may extend beyond the Closing, except those made in the ordinary course of
business, the terms of which are consistent with past practice; (vi) enter into
any employment or consulting
25
<PAGE>
contract or arrangement that is not terminable at will and without penalty or
continuing obligation; (vii) fail to pay any Liability or charge when due, other
than Liabilities contested in good faith by appropriate proceedings; (viii) take
any action that is reasonably likely to result in the occurrence of any event
described in SECTION 3.7; or (ix) take any action or omit to take any action
that will cause a breach or termination of any Permit or Contract, other than
termination by fulfillment of the terms thereunder.
(c) ACCESS, INFORMATION AND DOCUMENTS. Sellers shall give to Buyer
and to Buyer's employees and representatives (including accountants, actuaries,
attorneys, environmental consultants and engineers) access during normal
business hours to all of the properties, books, Tax returns, contracts,
commitments, records, officers, personnel and accountants (including independent
public accountants and their workpapers concerning Sellers) of Sellers and shall
furnish to Buyer all such documents and copies of documents and all information
with respect to the properties, Liabilities and affairs of Sellers as Buyer may
reasonably request, except to the extent providing any such materials would
violate an attorney/client privilege.
5.2 PUBLICITY. Sellers and Buyer shall not issue any press release or
otherwise make any announcements to the public or the employees of Sellers with
respect to this Agreement without the prior written consent of the other, except
as required by Law and the implementation of this Agreement and the Other
Agreements. This Section shall expire on the 10th day after the Closing Date.
5.3 FULFILLMENT OF AGREEMENTS. Each party hereto shall use its best
efforts to cause all of those conditions to the obligations of the other parties
under ARTICLE VI that are not beyond its reasonable control to be satisfied on
or prior to the Closing and shall use its best efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary, proper
or advisable to consummate and make effective the transactions contemplated by
this Agreement. Without limiting the foregoing, Sellers shall, prior to
Closing, obtain the consents identified in SCHEDULE 3.4
5.4 CERTAIN TRANSITIONAL MATTERS.
(a) COLLECTION OF ACCOUNTS RECEIVABLES. Sellers agree that Buyer,
from and after the Closing, shall have the right and authority to collect for
Buyer's own account all accounts receivable and other items which shall be
transferred to Buyer as provided herein.
(b) ENDORSEMENT OF CHECKS. From and after the Closing, Buyer shall
have the right and authority to retain and endorse without recourse the name of
Sellers on any check or any other evidences of indebtedness received by Buyer on
account of any of the Business and Purchased Assets transferred to Buyer
hereunder.
(c) REMIT FUNDS. After the Closing, Sellers shall promptly (but no
less frequently than weekly) transfer and deliver to Buyer any cash or other
property, if any, that Sellers may receive related to the Business or the
Purchased Assets.
26
<PAGE>
(d) ASSUMED LIABILITIES CONTROLLED BY BUYER. From and after the
Closing, Buyer shall have complete control over the payment, settlement or other
disposition of, or any dispute involving, any Assumed Liability, and Buyer shall
have the right to conduct and control all negotiations and proceedings with
respect thereto. Sellers shall notify Buyer immediately of any claim made with
respect to any Assumed Liability and shall not, except with the prior written
consent of Buyer, voluntarily make any payment of, or settle or offer to settle,
or consent to any compromise with respect to, any such Assumed Liability.
Sellers shall cooperate with Buyer in connection with any negotiations or
proceedings involving any Assumed Liability.
(e) USE OF NAMES. Promptly after the date hereof, Sellers shall no
longer use any name bearing a resemblance to Hydrocarbon Technologies, Inc.
Buyer shall be permitted to use the names Mobley Environmental Services, Inc.
and Mobley Company for a period ending 90 days after the Closing, after which
all rights to such names shall revert to Sellers.
5.5 INSURANCE. Following the Closing, Sellers shall, to the extent that
coverage under its insurance policies extends to include the Business in respect
of claims or occurrences concerning Sellers prior to the Closing, (i) take no
action to eliminate or reduce such coverage, other than normal elimination or
reduction of coverage as they occur by virtue of the filing of claims in the
ordinary course under such insurance policies, (ii) pay when due any premiums
under such policies for periods, including retrospective or retroactive premium
adjustments and (iii) use its best efforts to assist in filing and processing
claims under, and otherwise cooperate with Buyer (and their successors) to allow
them, in their own names, or on behalf of Sellers, to obtain all coverage
benefits applicable to the Business under such insurance policies, including the
execution of assignments or powers of attorney for the benefit of Buyer. Any
proceeds of insurance paid by an insurer to Sellers for claims of Buyer made in
accordance with this Section shall be promptly paid to Buyer. Nothing herein
shall require Sellers to extend any existing policy of insurance to provide
coverage for occurrences after the Closing Date.
5.6 ASSISTANCE. Sellers shall cooperate with and assist Buyer and its
authorized representatives in order to provide, to the extent reasonably
requested by Buyer, an efficient transfer of control of the Purchased Assets and
to avoid any undue interruption in the activities and operations of the Business
following the Closing Date.
5.7 NO SOLICITATION OF THE EMPLOYEES OF THE BUSINESS. For a period of
three years from and after the Closing Date, none of Sellers shall, directly or
indirectly through another person or entity, induce or seek to induce to leave
the employ of Buyer or any of its Affiliates, or, without the prior written
consent of Buyer, employ or otherwise use the services of, any employee employed
in the Business, other than any such employee whose employment is terminated by
Buyer or any of its Affiliates prior to such time.
5.8 SEVERANCE AND TERMINATION PAYMENTS. Sellers agree to pay, perform and
discharge any and all severance payments and other Liabilities with respect to
employees of Sellers which result from the transfer of the Purchased Assets
hereunder and the employment by Buyer of those employees and indemnify and hold
harmless Buyer and its directors, officers and Affiliates from and against any
and all losses, Liabilities, damages, costs and expenses, including reasonable
legal
27
<PAGE>
fees and disbursements, that any of the aforesaid may suffer or incur by reason
of or relating to any Liabilities referred to in this SECTION 5.8. Buyer shall
be responsible for severance payments for all employees terminated by Buyer
following the Closing pursuant to USF's severance policies.
5.9 SELLERS' EMPLOYEES. Buyer shall have the right, but not the
obligation, to employ any or all of the employees of Sellers; provided,
however, that certain key employees of Sellers shall enter into employment or
consulting agreements with Buyer, on terms mutually acceptable to Buyer and such
individual managers. Such agreements shall provide for employment of such
Sellers' managers for a mutually acceptable period of time. Buyer shall give to
all employees of Sellers who are hired by Buyer credit for years of service with
Sellers in all Benefit Plans of Buyer as if such years of service had been in
the employ of Buyer, but only for purposes of eligibility and vesting and not
for benefit accrual.
28
<PAGE>
5.10 WORKERS' COMPENSATION AND DISABILITY CLAIMS.
(a) SELLERS' LIABILITY. Sellers shall remain liable for all
Liability for all workers' compensation, disability and occupational diseases of
or with respect to all of Sellers' employees to the extent attributable to
injuries, claims, conditions, events and occurrences occurring on or before the
Closing Date.
(b) BUYER'S LIABILITY. Buyer shall be liable for all Liability for
all workers' compensation, disability and occupational diseases of or with
respect to all employees of Sellers hired by Buyer to the extent attributable to
injuries, claims, conditions, events and occurrences occurring after the Closing
Date.
5.11 COVENANT NOT TO COMPETE.
(a) RESTRICTION. From and after the Closing Date, Sellers shall not,
directly or indirectly, own, manage, operate, join, control or participate in
the ownership, management, operation or control of, or be connected as an
officer, employee, stockholder, partner or otherwise with, any business
conducting business under any name similar to the name of Hydrocarbon
Technologies, Inc., United States Filter Corporation or United States Filter
Recovery Services (Southwest), Inc. For a period of five years from and after
the Closing Date, Sellers shall not, directly or indirectly, own, manage,
operate, join, control or participate in the ownership, management, operation or
control of, or be employed or otherwise connected as an officer, employer,
stockholder, partner or otherwise with, any business that at any relevant time
during such period directly or indirectly competes with the Business in
Arkansas, Louisiana, Mississippi, Oklahoma and Texas. Ownership of not more
than 2% of the outstanding stock of any publicly traded company shall not be a
violation of this Section.
(b) ENFORCEMENT. The restrictive covenant contained in this Section
is a covenant independent of any other provision of this Agreement and the
existence of any claim that Sellers may allege against any other party to this
Agreement, whether based on this Agreement or otherwise, shall not prevent the
enforcement of this covenant. Sellers agree that Buyer's remedies at law for
any breach or threat of breach by Sellers of the provisions of this Section will
be inadequate, and that Buyer shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Section and to enforce
specifically the terms and provisions hereof, in addition to any other remedy to
which Buyer may be entitled at law or equity. In the event of litigation
regarding this covenant not to compete, the prevailing party in such litigation
shall, in addition to any other remedies the prevailing party may obtain in such
litigation, be entitled to recover from the other party its reasonable legal
fees and out of pocket costs incurred by such party in enforcing or defending
its rights hereunder. The length of time for which this covenant not to compete
shall be in force shall not include any period of violation or any other period
required for litigation during which Buyer seeks to enforce this covenant.
Should any provision of this Section be adjudged to any extent invalid by any
competent tribunal, such provision will be deemed modified to the extent
necessary to make it enforceable.
29
<PAGE>
5.12 CERTAIN FEES. Sellers acknowledge that Buyer has reimbursed Sellers
for expenses incurred by Sellers in connection with Buyer's acquisition of
substantially all of the assets of PORI International, Inc. ("PORI") in the
amount of $250,000. Buyer shall also pay Sellers a fee of $10,000 per month
plus reasonable out of pocket expenses beginning February 1, 1997 until the
Closing as compensation for assistance provided by Sellers to Buyer in
connection with the operations of PORI. Buyers shall also reimburse Sellers for
certain capital expenditures set forth on SCHEDULE 5.12 in an amount not to
exceed $275,000.
5.13 SALE OF USF SHARES. Following the Closing all sales of USF Shares by
the Sellers shall be made through Donaldson, Lufkin & Jenrette Securities
Corporation or such other broker as designated by Sellers and approved by Buyer.
All USF Shares disposed of by the Sellers shall be sold in agency sales or
ordinary brokerage transactions on the New York Stock Exchange and will not be
disposed of in any manner which is disruptive to the market for USF Common
Stock.
ARTICLE VI
CONDITIONS TO CLOSING; TERMINATION
6.1 CONDITIONS PRECEDENT TO OBLIGATION OF BUYER. The obligation of Buyer
to proceed with the Closing under this Agreement is subject to the fulfillment
prior to or at Closing of the following conditions, any one or more of which may
be waived in whole or in part by Buyer at Buyer's sole option:
(a) BRINGDOWN OF REPRESENTATIONS AND WARRANTIES; COVENANTS. Each of
the representations and warranties of Sellers contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date, with
the same force and effect as though such representations and warranties had been
made on, as of and with reference to the Closing Date. Sellers shall have
performed in all respects all of the covenants and complied with all of the
provisions required by them Agreement to be performed or complied with by it at
or before the Closing.
(b) LITIGATION. No statute, regulation or order of any Governmental
Body shall be in effect that restrains or prohibits the transactions
contemplated hereby or that would limit or adversely affect Buyer's ownership of
the Purchased Assets or assumption of the Assumed Liabilities, and there shall
not have been threatened, nor shall there be pending, any action or proceeding
by or before any Governmental Body challenging the lawfulness of or seeking to
prevent or delay any of the transactions contemplated by this Agreement or any
of the Other Agreements or seeking monetary or other relief by reason of the
consummation of any of such transactions.
(c) NO MATERIAL ADVERSE CHANGE. Between the date hereof and the
Closing Date, there shall have been no material adverse change, regardless of
insurance coverage therefor, in the Business or any of the Purchased Assets,
results of operations, Liabilities, prospects or condition, financial or
otherwise, of Sellers.
(d) CLOSING CERTIFICATE. Sellers shall have delivered a certificate,
dated the Closing Date, in such detail as Buyer shall request, certifying to the
fulfillment of the conditions set
30
<PAGE>
forth in subparagraphs (a), (b) and (c) of this Section. Such certificate shall
constitute a representation and warranty of Sellers with regard to the matters
therein for purposes of this Agreement.
(e) ARRANGEMENTS WITH EMPLOYEES. Substantially all of Sellers'
employees shall have accepted employment with Buyer effective on the Closing
Date and Buyer shall have entered into arrangements with Robert Romero, Allen
Romero, Howard Romero, Richard Reese, Chris Chisholm and Mike Stark,
satisfactory to Buyer in its sole discretion.
(f) APPROVAL BY SELLERS' SHAREHOLDERS. Sellers' shareholders holding
a majority of the votes represented by the outstanding common stock of MES shall
have approved the transactions contemplated in connection with this Agreement in
accordance with applicable law.
(g) CLOSING DOCUMENTS. Buyer shall have received the other documents
referred to in SECTION 6.3(A). All agreements, certificates, opinions and other
documents delivered by Sellers to Buyer hereunder shall be in form and substance
satisfactory to Buyer.
(h) TITLE INSURANCE. Buyer shall have obtained for all Real Property
owned by Sellers and all material leasehold interests held by Sellers set forth
on SCHEDULE 6.1(H) final marked commitments to issue to Buyer owner's policies
of title insurance in accordance with the laws of the State of Texas in coverage
amounts equal to the fair market values of such Real Property or leasehold
interests, insuring good and indefeasible fee simple title to such Real Property
and good title to such leasehold interests with mechanic's liens coverage and
such endorsements as Buyer may have reasonably requested and with exceptions
only for applicable standard printed exceptions (other than mechanic's and
materialmen's liens and rights of possession), and Permitted Encumbrances.
(i) OTHER DELIVERIES. Buyer shall have received with respect to the
Real Property owned by Sellers:
(i) surveys of such property which conform to the standards set
forth in the ALTA/American Congress on Surveying and Mapping Minimum Standard
Detail Requirements for Land Title Surveys and which disclose no state of facts
inconsistent with the representations and warranties of Sellers set forth in
SECTION 3.15 hereof and are otherwise acceptable to Buyer;
(ii) ALTA extended coverage statements/affidavits in form and
substance satisfactory to Buyer's title insurer regarding title, mechanic's
liens and such other customary matters as may be reasonably requested by Buyer
or Buyer's title insurer; and
(iii) a certificate, duly executed and acknowledged by an officer
of Sellers under penalties of perjury, in the form prescribed by Treasury
Regulation Section 1.1445-2(b)(2)(iii), stating Sellers' names, addresses and
federal tax identification numbers, and that each is not a "foreign person"
within the meaning of Section 1445 of the Code.
31
<PAGE>
(j) ESTOPPEL CERTIFICATES. Buyer shall have received estoppel
certificates from each lessor of each leasehold estate included in the Purchased
Assets, in form and substance satisfactory to Buyer.
(k) LISTING ON NYSE. The USF Shares shall have been authorized for
listing on the NYSE, subject to official notice of issuance.
(l) CONSENTS. Sellers shall have received the consents, approvals
and actions of the Persons referred to in SCHEDULE 3.4.
(m) PERMITS. USF or Buyer shall have verified or obtained all
required or appropriate permits, licenses, franchises, authorizations and
approvals to conduct the business of Sellers as presently conducted.
6.2 CONDITIONS PRECEDENT TO OBLIGATION OF SELLERS. The obligation of
Sellers to proceed with the Closing under this Agreement is subject to the
fulfillment prior to or at Closing of the following conditions, any one or more
of which may be waived in whole or in part by Sellers at Seller's sole option:
(a) BRINGDOWN OF REPRESENTATIONS AND WARRANTIES; COVENANTS. Each of
the representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects on and as of the Closing Date, with
the same force and effect as though such representations and warranties had been
made on, as of and with reference to the Closing Date. Buyer shall have
performed all of the covenants and complied in all respects with all of the
provisions required by this Agreement to be performed or complied with by it at
or before the Closing.
(b) LITIGATION. No statute, regulation or order of any Governmental
Body shall be in effect that restrains or prohibits the transactions
contemplated hereby, and there shall not have been threatened, nor shall there
be pending, any action or proceeding by or before any Governmental Body
challenging the lawfulness of or seeking to prevent or delay any of the
transactions contemplated by this Agreement or the Other Agreements or seeking
monetary or other relief by reason of the consummation of such transactions.
(c) CLOSING CERTIFICATE. Buyer shall have delivered a certificate,
dated the Closing Date, in such detail as Sellers shall request, certifying to
the fulfillment of the conditions set forth in subparagraphs (a) and (b) of this
SECTION 6.2. Such certificate shall constitute a representation and warranty of
Buyer with regard to the matters therein for purposes of this Agreement.
(d) LISTING ON NYSE. The USF Shares shall have been authorized for
listing on the NYSE, subject to official notice of issuance.
(e) CLOSING DOCUMENTS. Sellers shall also have received the other
documents referred to in SECTION 6.3(b). All agreements, certificates, opinions
and other documents delivered
32
<PAGE>
by Buyer to Sellers hereunder shall be in form and substance satisfactory to
counsel for Sellers, in the exercise of such counsel's reasonable professional
judgment.
6.3 DELIVERIES AND PROCEEDINGS AT CLOSING.
(a) DELIVERIES BY SELLERS. Sellers shall deliver or cause to be
delivered to Buyer at the Closing:
(i) A general warranty deed or deeds to the Real Property owned
by Sellers included in the Purchased Assets in a form acceptable to Buyer duly
executed and acknowledged by Sellers.
(ii) A general warranty bill of sale and instrument of
assignment to the other Purchased Assets in a form acceptable to Buyer, duly
executed by Sellers.
(iii) Assignments of all transferable or assignable licenses,
Permits and warranties relating to the Purchased Assets and of any trademarks,
trade names, patents, patent applications, and other Intellectual Property, duly
executed and in forms acceptable to Buyer.
(iv) Stock certificates representing all of the outstanding stock
of HTI Vehicle Acquisition Corp.
(v) Certificates of the appropriate public officials to the
effect that each of Sellers is a validly existing corporation in good standing
in Texas and Delaware as of a date not more than 10 days prior to the Closing
Date.
(vi) Incumbency and specimen signature certificates dated the
Closing Date, signed by the officers of Sellers and certified by its Secretary.
(vii) True and correct copies of (A) the Governing Documents
(other than the bylaws) of Sellers as of a date not more than 10 days prior to
the Closing Date, certified by the Secretary of State of Texas or Delaware, as
applicable, and (B) the bylaws of Sellers as of the Closing Date, certified by
their respective Secretaries.
(viii) Certificates of the respective Secretaries of Sellers (A)
setting forth all resolutions of the Board of Directors of Sellers and, if
necessary, the stockholders of Sellers authorizing the execution and delivery of
this Agreement and the performance by Sellers of the transactions contemplated
hereby, and (B) to the effect that the Governing Documents of Sellers delivered
pursuant to SECTION 6.3(a)(vii) were in effect at the date of adoption of such
resolutions, the date of execution of this Agreement and the Closing Date.
(ix) General releases by all officers and directors of Sellers
and by Sellers of all Liability of Sellers to them and of any claim that they or
any of them may have against Sellers.
33
<PAGE>
(x) The opinion of Brown McCarroll & Oaks Hartline, legal
counsel to Sellers, in substantially the form of EXHIBIT D.
(xi) Noncompetition Agreements in the form of EXHIBIT E executed
by John Mobley, Tom Mobley and Steve Mobley.
(xii) Such other agreements and documents as Buyer may reasonably
request.
(b) DELIVERIES BY BUYER. Buyer shall deliver or cause to be
delivered to Sellers at the Closing:
(i) Stock certificates evidencing the USF Shares (subject to
SECTION 2.14) duly endorsed in the respective names of Sellers as may be
directed by Sellers and registered at the address of Sellers identified in
SECTION 8.5 using Sellers' federal tax identification numbers which shall be
75-2242963 for MES, 75-1109068 for Mobley and 75-2604260 for HTI, and which
shall be delivered in accordance with instructions of Sellers.
(ii) The Assumption Agreement.
(iii) A certificate of the appropriate public official to the
effect that Buyer is a validly existing corporation in its state of
incorporation as of a date not more than 10 days prior to the Closing Date.
(iv) Incumbency and specimen signature certificates signed by the
officers of Buyer and certified by the Secretary of Buyer.
(v) True and correct copies of (A) the Governing Documents
(other than the bylaws) of Buyer as of a date not more than 10 days prior to the
Closing Date, certified by the Secretary of State of the state of Buyer's
incorporation and (B) the bylaws of Buyer as of the Closing Date, certified by
the Secretary of Buyer.
(vi) A certificate of the Secretary of Buyer (A) setting forth
all resolutions of the Board of Directors of Buyer authorizing the execution and
delivery of this Agreement and the performance by Buyer of the transactions
contemplated hereby, certified by the Secretary of Buyer and (B) to the effect
that the Governing Documents of Buyer delivered pursuant to SECTION 6.3(b)(v)
were in effect at the date of adoption of such resolutions, the date of
execution of this Agreement and the Closing Date.
(vii) The opinion of Damian C. Georgino, Esq., General Counsel to
Buyer, in substantially the form of EXHIBIT F.
(viii) Such other agreements and documents as Sellers may
reasonably request.
34
<PAGE>
6.4 TERMINATION.
(a) MUTUAL CONSENT; FAILURE OF CONDITIONS. Except as provided in
SECTION 6.4(b), this Agreement may be terminated at any time prior to Closing
by: (i) mutual consent of Buyer and Sellers; (ii) Buyer, if any of the
conditions specified in SECTION 6.1 hereof shall not have been fulfilled by May
31, 1997 and shall not have been waived by Buyer; or (iii) Sellers, if any of
the conditions specified in SECTION 6.2 hereof shall not have been fulfilled by
May 31, 1997 and shall not have been waived by Sellers. In the event of
termination of this Agreement by either Buyer or Sellers pursuant to clause (ii)
or (iii) of the immediately preceding sentence, Buyer and Sellers shall be
liable to the other for any breach hereof by such party, which breach led to
such termination, and the rights and obligations of the parties set forth in
SECTIONS 7.2, 7.3 and 8.1 shall survive such termination. Buyer or Sellers
shall also be entitled to seek any other remedy to which it may be entitled at
law or in equity in the event of such termination, which remedies shall include
injunctive relief and specific performance. Notwithstanding the foregoing, in
the event that this Agreement is terminated by one party hereto pursuant to
clause (ii) or (iii) of the first sentence of this Section solely as a result of
a breach by the other party hereto of a representation or warranty of such other
party as of a date after the date of this Agreement, which breach could not have
been reasonably anticipated by such other party and was beyond the reasonable
control of such other party, then the remedy of the party terminating this
Agreement shall be limited solely to recovery of all of such party's costs and
expenses incurred in connection herewith.
(b) CASUALTY DAMAGE. Notwithstanding anything else herein to the
contrary, if prior to Closing the Purchased Assets (or any portion thereof) are
damaged by fire or any other cause, the reasonable estimate of the immediate
repair of which would cost more than $250,000, Seller at its option, which may
be exercised by written notice given to Buyer within thirty (30) business days
after Buyer's receipt of notice of such loss, may reduce the Purchase Price by
the amount of any insurance deductible and transfer the rights to insurance
coverage fully covering the amount of the loss to Buyer and proceed with the
transactions contemplated hereunder. If Seller does not so elect, Buyer may, at
its option, declare this Agreement null and void, or Buyer may close subject to
reduction of the Purchase Price by the amount of any applicable insurance
deductible which shall be paid by Buyer and assignment to Buyer of the proceeds
from any insurance carried by Sellers covering such loss. If prior to Closing
the Purchased Assets (or any portion thereof) are damaged by fire or any other
cause, the reasonable estimate of the repair of which would cost $250,000 or
less, such event shall not excuse Buyer from its obligations under this
Agreement, but the Purchase Price shall be reduced by an amount equal to the
amount of such cost.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS. All representations, warranties and
agreements made by any party in this Agreement or pursuant hereto shall survive
the Closing, but all claims for damages made by virtue of such representations,
warranties and agreements shall be made under, and subject to the limitations
set forth in, this ARTICLE VII. The representations and warranties set forth in
ARTICLES III and IV are cumulative, and any limitation or qualification set
forth in any one
35
<PAGE>
representation and warranty therein shall not limit or qualify any other
representation and warranty therein.
7.2 INDEMNIFICATION BY SELLERS. Sellers shall indemnify, defend, save and
hold Buyer and its officers, directors, employees, agents and Affiliates
(collectively, "BUYER INDEMNITEES") harmless from and against all demands,
claims, allegations, assertions, actions or causes of action, assessments,
losses, damages, deficiencies, Liabilities, costs and expenses (including
reasonable legal fees, interest, penalties, and all reasonable amounts paid in
investigation, defense or settlement of any of the foregoing and whether or not
any such demands, claims, allegations, etc., of third parties are meritorious;
collectively, "BUYER DAMAGES") asserted against, imposed upon, resulting to,
required to be paid by, or incurred by any Buyer Indemnitees, directly or
indirectly arising out of (i) a breach of any representation or warranty made
by Sellers in this Agreement, in any certificate or document furnished pursuant
hereto by Sellers or in any Other Agreement to which Sellers are or are to
become parties, (ii) a breach or nonfulfillment of any covenant or agreement
made by Sellers in or pursuant to this Agreement or in any Other Agreement to
which Sellers are or are to become parties, and (iii) any Retained Liability.
7.3 INDEMNIFICATION BY BUYER. Buyer and USF shall indemnify, defend, save
and hold Sellers and their officers, directors, employees, Affiliates and agents
(collectively, "SELLERS INDEMNITEES") harmless from and against any and all
demands, claims, allegations, assertions, actions or causes of action,
assessments, losses, damages, deficiencies, liabilities, costs and expenses
(including reasonable legal fees, interest, penalties, and all reasonable
amounts paid in investigation, defense or settlement of any of the foregoing and
whether or not any such demands, claims, allegations, etc., of third parties are
meritorious; collectively, "SELLERS DAMAGES") asserted against, imposed upon,
resulting to, required to be paid by, or incurred by any Sellers Indemnitees,
directly or indirectly arising out of (i) a breach of any representation or
warranty made by Buyer or USF in this Agreement or in any certificate or
document furnished pursuant hereto by Buyer or USF or in any Other Agreement to
which Buyer or USF is a party; (ii) a breach or nonfulfillment of any covenant
or agreement made by Buyer or USF in or pursuant to this Agreement or in any
Other Agreement to which Buyer or USF is a party; and (iii) any Assumed
Liability and (iv) any claim asserted by a third party (including a Governmental
Body) arising out of Buyer's or USF's operation of the Business after the
Closing Date unless such claim arises from a breach of a representation or
warranty by Sellers herein.
7.4 LIMITATION OF LIABILITY. Notwithstanding the foregoing, Sellers' or
Buyer's or USF's obligations to indemnify the other against any Damages shall
be subject to all of the following limitations:
(a) THRESHOLD. No indemnification shall be made under clause (i) of
SECTION 7.2 or clause (i) of SECTION 7.3 until the aggregate amount of Damages
thereunder exceeds $100,000, but if the aggregate amount of Damages thereunder
exceeds $100,000 in the aggregate, then indemnification shall be made by Sellers
thereunder to the full extent of the Buyer Damages or Seller Damages.
36
<PAGE>
(b) CEILING. Each party's obligations to indemnify under clause (i)
of SECTION 7.2 or clause (i) of SECTION 7.3, as applicable, shall be limited to
an aggregate amount not to exceed four million dollars ($4,000,000).
(c) TIME PERIOD. An Indemnifying Party shall be obligated to
indemnify an Indemnified Party by virtue of clause (i) of SECTION 7.2 or clause
(i) of SECTION 7.3 only for those Damages as to which the Indemnified Party has
given the Indemnifying Party written notice thereof within two years after the
Closing Date; PROVIDED, HOWEVER, that with respect to any claim for Damages
sustained by reason of a breach of any representation or warranty relating to
those matters governed by SECTIONS 3.8 AND 3.22, Sellers' liability shall be
limited to Buyer Damages as to which such written notice shall have been given
within five years after the Closing Date.
(d) FRAUD; INTENTIONAL MISREPRESENTATION. The limitations set forth
in SECTIONS 7.4(a), (b) AND (c) shall not apply to Damages arising out of (i)
fraud, (ii) the breach of any representation or warranty contained herein or
pursuant hereto if such representation or warranty was made with actual
knowledge that it contained an untrue statement of a fact or omitted to state a
fact necessary to make the statements of facts contained therein not misleading,
(iii) negligent misrepresentation, or (iv) the breach by Sellers of the
agreements in SECTION 2.4 and the representations and warranties in SECTIONS
3.1, 3.2 AND 3.11.
(e) WAIVER OF STATUTE OF LIMITATIONS. Each party hereto waives any
applicable statute of limitations that may be applicable to Damages arising
under clause (iii) of SECTION 7.2 or clause (iii) of SECTION 7.3.
7.5 NOTICE OF CLAIMS. If any Buyer Indemnitee or Sellers Indemnitee (an
"INDEMNIFIED PARTY") believes that it has suffered or incurred or will suffer or
incur any Damages for which it is entitled to indemnification under this ARTICLE
VII, such Indemnified Party shall so notify the party or parties from whom
indemnification is being claimed (the "INDEMNIFYING PARTY") with reasonable
promptness and reasonable particularity in light of the circumstances then
existing. If any action at law or suit in equity is instituted by or against a
third party with respect to which any Indemnified Party intends to claim any
Damages, such Indemnified Party shall promptly notify the Indemnifying Party of
such action or suit. The failure of an Indemnified Party to give any notice
required by this Section shall not affect any of such party's rights under this
ARTICLE VII or otherwise except and to the extent that such failure is actually
prejudicial to the rights or obligations of the Indemnified Party.
7.6 THIRD PARTY CLAIMS. The Indemnifying Party shall have the right to
conduct and control, through counsel of its choosing, the defense of any third
party claim, action or suit, and the Indemnifying Party may compromise or settle
the same, provided that the Indemnifying Party shall give the Indemnified Party
advance notice of any proposed compromise or settlement. The Indemnifying Party
shall permit the Indemnified Party to participate in the defense of any such
action or suit through counsel chosen by the Indemnified Party, provided that
the fees and expenses of such counsel shall be borne by the Indemnified Party.
If the Indemnifying Party undertakes to conduct and control the conduct and
settlement of such action or suit, (i) the Indemnifying Party shall not thereby
permit to exist any Encumbrance upon any asset of the Indemnified Party; and
(ii)
37
<PAGE>
the Indemnifying Party shall not consent to any settlement that does not include
as an unconditional term thereof the giving of a complete release from liability
with respect to such action or suit to the Indemnified Party. To the extent the
Indemnifying Party elects not to defend such proceeding (and the Indemnifying
Party hereby agrees to give prompt notice of such decision to the Indemnified
Party) and the Indemnified Party defends against such proceeding or otherwise
deals with such proceeding, the Indemnified Party may retain counsel and
control, defend against, negotiate, settle or otherwise deal with such
proceeding, claim or demand. The costs of the Indemnified Party shall be
included in the indemnification obligation of the Indemnifying Party.
7.7 GOOD FAITH EFFORTS TO SETTLE DISPUTES. Buyer and Sellers agree that,
prior to commencing any litigation against the other concerning any matter with
respect to which such party intends to claim a right of indemnification in such
proceeding, the respective chief executive officers (or officers holding such
authority) of such parties shall meet in a timely manner and attempt in good
faith to negotiate a settlement of such dispute during which time such officers
shall disclose to the others all relevant information relating to such dispute.
7.8 ESCROW.
(a) CREATION. The Escrow Shares together with a stock power executed
in blank by Sellers shall be delivered by Buyer to PNC Bank, National
Association or such other financial institution as may be agreed upon by Sellers
and Buyer (the "ESCROW AGENT"). The fees payable to the Escrow Agent for
maintaining the Escrow (as hereinafter defined) shall be paid by Buyer. The
Escrow Shares shall be maintained by the Escrow Agent for a period beginning at
the Closing Date and ending on the first anniversary of the Closing Date, as an
escrow (the "ESCROW") available to satisfy the indemnification rights of Buyer
set forth in SECTION 7.2, pursuant to the terms of an escrow agreement in form
and substance reasonably satisfactory to Buyer and Sellers.
(b) DISBURSEMENT FOR CLAIMS. If Buyer gives a notice of claim
pursuant to SECTION 7.5, asserting a claim for indemnification pursuant to
SECTION 7.2, Sellers, within thirty (30) days following receipt of such notice
of claim, shall either (i) give Buyer and the Escrow Agent a counternotice with
respect to such notice of claim, or (ii) instruct the Escrow Agent to deliver to
Buyer Escrow Shares equal in value to the amount of such claim (based upon the
USF Average Share Value) from the Escrow Shares; provided, however, that if a
counternotice given by Sellers alleges that a notice of claim is only partially
invalid, Sellers, within thirty (30) days of receipt of such notice of claim,
shall instruct the Escrow Agent to deliver to Buyer Escrow Shares equal in value
to an amount equal to that portion of the amount specified in the notice of
claim as to which no objection is made.
(c) DIVIDENDS ON ESCROW. All cash dividends declared with respect to
the Escrow Shares shall be paid to Sellers.
(d) TERMINATION. The Escrow established pursuant to this SECTION 7.8
shall terminate on the first anniversary of the Closing Date; provided, however,
that the Escrow shall continue beyond such period to the extent that Buyer has
given Sellers a notice of claim prior to such time and the indemnification
claims asserted therein remain unsatisfied or unresolved. Upon
38
<PAGE>
termination of the Escrow, the remaining Escrow Shares (along with any dividends
and interest thereon) shall be delivered by the Escrow Agent to Seller.
7.9 PAYMENT. All indemnification payments under this ARTICLE VII shall be
made promptly
in cash.
7.10 ARBITRATION. After the Closing, any controversy or claim arising out
of or relating to this Agreement, including, without limitation, the
indemnification provisions of this ARTICLE 7, shall be settled by arbitration in
accordance with the then prevailing Commercial Arbitration Rules of the American
Arbitration Association. Such arbitration shall be held in Chicago, Illinois
before a panel of three (3) arbitrators, one selected by USF and one selected by
the Sellers and the third selected by mutual agreement of the first two
arbitrators. Judgment upon any award rendered by the arbitrators may be entered
in any court of competent jurisdiction.
ARTICLE VIII
MISCELLANEOUS
8.1 COSTS AND EXPENSES. Subject to SECTION 2.9(c), and SECTION 2.13(e),
Buyer and Sellers shall each pay its respective expenses, brokers' fees and
commissions, with Sellers paying all fees owed to Cureton & Co. Incorporated
and Sellers shall pay all of the pre-Closing expenses of Sellers incurred in
connection with this Agreement and the transactions contemplated hereby,
including all accounting, legal and appraisal fees and settlement charges. All
transfer taxes incurred as a result of the transfer of the Purchased Assets
shall be paid by Sellers.
8.2 PRORATION OF EXPENSES. All accrued expenses associated with the Real
Property included in the Purchased Assets, such as electricity, gas, water,
sewer, telephone, property taxes, security services and similar items, shall be
prorated between Buyer and Sellers as of the Closing Date. Buyer and Sellers
shall settle such amounts promptly following Closing.
8.3 FURTHER ASSURANCES. Sellers shall, at any time and from time to time
on and after the Closing Date, upon request by Buyer and without further
consideration, take or cause to be taken such actions and execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, such
instruments, documents, transfers, conveyances and assurances as may be required
or desirable for the better conveying, transferring, assigning, delivering,
assuring and confirming the Purchased Assets to Buyer.
8.4 NOTICES. All notices and other communications given or made pursuant
to this Agreement shall be in writing and shall be deemed to have been duly
given or made the second business day after the date of mailing, if delivered
by registered or certified mail, postage prepaid, upon delivery, if sent by
hand delivery, upon delivery, if sent by prepaid courier, with a record of
receipt, or the next day after the date of dispatch, if sent by cable,
telegram, facsimile or telecopy (with a copy simultaneously sent by registered
or certified mail, postage prepaid, return receipt requested), to the parties at
the following addresses:
39
<PAGE>
(i) if to Buyer, to:
United States Filter Corporation
40-004 Cook Street
Palm Desert, California 92211
Attention: Chief Executive Officer
Telecopy: (619) 341-9368
with a required copy to the General Counsel of Buyer at
the above address and telecopy number (619) 346-4024
(ii) if to Sellers, to:
Mobley Environmental Services, Inc.
c/o Brown McCarroll & Oaks Hartline
1400 Franklin Plaza
111 Congress Avenue
Austin, Texas 78701-4043
Attention: Howard V. Rose
Telecopy: (512) 479-1101
with a required copy to:
Mary Jane Broussard
Brown McCarroll & Oaks Hartline
1400 Franklin Plaza
111 Congress Avenue
Austin, Texas 78701-4043
Telecopy: (512) 479-1101
Any party hereto may change the address to which notice to it, or copies
thereof, shall be addressed, by giving notice thereof to the other parties
hereto in conformity with the foregoing.
8.5 CURRENCY. All currency references herein are to United States
dollars.
8.6 OFFSET; ASSIGNMENT; GOVERNING LAW. Buyer shall be entitled to offset
or recoup from any amounts due to Sellers from Buyer hereunder or under any
Other Agreement against any obligation of Sellers to Buyer hereunder or under
any Other Agreement. This Agreement and all the rights and powers granted
hereby shall bind and inure to the benefit of the parties hereto and their
respective permitted successors and assigns. This Agreement and the rights,
interests and obligations hereunder may not be assigned by any party hereto
without the prior written consent of the other parties hereto, except that Buyer
may make assignments to any Affiliate of Buyer provided that Buyer remains
liable hereunder. This Agreement shall be governed by and construed in
accordance with the laws of California without regard to its conflict of law
doctrines.
40
<PAGE>
8.7 AMENDMENT AND WAIVER; CUMULATIVE EFFECT. To be effective, any
amendment or waiver under this Agreement must be in writing and be signed by the
party against whom enforcement of the same is sought. Neither the failure of
any party hereto to exercise any right, power or remedy provided under this
Agreement or to insist upon compliance by any other party with its obligations
hereunder, nor any custom or practice of the parties at variance with the terms
hereof shall constitute a waiver by such party of its right to exercise any such
right, power or remedy or to demand such compliance. The rights and remedies of
the parties hereto are cumulative and not exclusive of the rights and remedies
that they otherwise might have now or hereafter, at law, in equity, by statute
or otherwise.
8.8 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement and
the Schedules and Exhibits to this Agreement, the Other Agreements, and the
items noted in SECTION 6.3 set forth all of the promises, covenants,
agreements, conditions and undertakings between the parties hereto with respect
to the subject matter hereof, and supersede all prior or contemporaneous
agreements and understandings, negotiations, inducements or conditions, express
or implied, oral or written, including the letter of intent. This Agreement is
not intended to confer upon any Person other than the parties hereto any rights
or remedies hereunder, except the provisions of SECTIONS 7.2 AND 7.3 relating to
Buyer Indemnitees and Sellers Indemnitees.
8.9 SEVERABILITY. If any term or other provision of this Agreement is
held by a court of competent jurisdiction to be invalid, illegal or incapable of
being enforced under any rule of Law in any particular respect or under any
particular circumstances, such term or provision shall nevertheless remain in
full force and effect in all other respects and under all other circumstances,
and all other terms, conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
8.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall be deemed to be one and the same instrument.
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
MOBLEY ENVIRONMENTAL SERVICES, INC.
By: /s/ John Mobley
------------------------------------------
Title: Chairman of the Board
---------------------------------------
MOBLEY COMPANY, INC.
By: /s/ John Mobley
------------------------------------------
Title: Agent and Attorney-in-Fact
---------------------------------------
HYDROCARBON TECHNOLOGIES, INC.
By: /s/ John Mobley
------------------------------------------
Title: Agent and Attorney-in-Fact
---------------------------------------
UNITED STATES FILTER CORPORATION
By: /s/ Damian C. Georgino
------------------------------------------
Title: Vice President
---------------------------------------
UNITED STATES FILTER RECOVERY
SERVICES (SOUTHWEST), INC.
By: /s/ Damian C. Georgino
------------------------------------------
Title: Vice President
---------------------------------------
42
<PAGE>
EXHIBIT 10.27
ASSET PURCHASE AGREEMENT
BY AND AMONG
DAWSON PRODUCTION SERVICES, INC., PURCHASER
AND
MOBLEY COMPANY, INC., SELLER
AND
MOBLEY ENVIRONMENTAL SERVICES, INC.,
SELLER STOCKHOLDER
- --------------------------------------------------------------------------------
THIS AGREEMENT CONTAINS IMPORTANT INDEMNITY PROVISIONS.
SEE PARTICULARLY ARTICLE VI.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I - PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Agreement to Sell. . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Included Assets . . . . . . . . . . . . . . . . . . . . . . . . 2
(b) Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Agreement to Purchase. . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 The Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Assumption of Liabilities. . . . . . . . . . . . . . . . . . . . . . 4
1.5 Prorations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.6 Transfer Taxes; Recording Fees . . . . . . . . . . . . . . . . . . . 5
ARTICLE II - CLOSING, ITEMS TO BE DELIVERED, THIRD PARTY CONSENTS
AND FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Items to be Delivered at Closing . . . . . . . . . . . . . . . . . . 5
2.3 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . 7
3.1 Representations and Warranties of Seller and Seller Stockholder. . . 7
(a) Corporate Existence . . . . . . . . . . . . . . . . . . . . . . 7
(b) Corporate Power; Authorization; Enforceable Obligations . . . . 7
(c) Validity of Contemplated Transactions, Etc. . . . . . . . . . . 8
(d) No Third Party Options. . . . . . . . . . . . . . . . . . . . . 8
(e) Financial Statements. . . . . . . . . . . . . . . . . . . . . . 8
(f) Taxes; Tax and Other Returns and Reports. . . . . . . . . . . . 8
(g) Books of Account. . . . . . . . . . . . . . . . . . . . . . . . 9
(h) Existing Condition. . . . . . . . . . . . . . . . . . . . . . . 9
(i) Title to Properties . . . . . . . . . . . . . . . . . . . . . . 9
(j) Compliance with Laws; Authorizations. . . . . . . . . . . . . .10
(k) Transactions With Affiliates. . . . . . . . . . . . . . . . . .10
(l) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . .10
(m) Contracts and Commitments . . . . . . . . . . . . . . . . . . .10
(n) Environmental Matters . . . . . . . . . . . . . . . . . . . . .11
(o) Real Properties . . . . . . . . . . . . . . . . . . . . . . . .14
(p) Availability of Documents . . . . . . . . . . . . . . . . . . .15
(q) Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
(r) Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . .15
(s) Conditions Affecting Seller or Seller Stockholder . . . . . . .16
(t) Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . .16
(u) Personnel.. . . . . . . . . . . . . . . . . . . . . . . . . . .17
(v) Accounts Receivable . . . . . . . . . . . . . . . . . . . . . .17
3.2 Representations and Warranties of Purchaser. . . . . . . . . . . . .18
<PAGE>
(a) Corporation . . . . . . . . . . . . . . . . . . . . . . . . . .18
(b) Corporate Power and Authorization . . . . . . . . . . . . . . .18
(c) Validity of Contemplated Transactions, Etc. . . . . . . . . . .18
3.3 Survival of Representations and Warranties and Covenants . . . . . .18
ARTICLE IV - AGREEMENTS PENDING CLOSING. . . . . . . . . . . . . . . . . . . .19
ARTICLE V - CONDITIONS PRECEDENT TO THE CLOSING. . . . . . . . . . . . . . . .19
ARTICLE VI - INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . .19
6.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
6.2 Indemnification by Seller. . . . . . . . . . . . . . . . . . . . . .19
6.3 Indemnification by Purchaser . . . . . . . . . . . . . . . . . . . .20
6.4 Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
6.5 Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
6.6 Payment and Offset . . . . . . . . . . . . . . . . . . . . . . . . .22
6.7 Failure to Pay Indemnification . . . . . . . . . . . . . . . . . . .22
6.8 Adjustment of Liability. . . . . . . . . . . . . . . . . . . . . . .22
6.9 Express Negligence . . . . . . . . . . . . . . . . . . . . . . . . .22
6.10 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
(a) Negotiation Period. . . . . . . . . . . . . . . . . . . . . . .23
(b) Commencement of Arbitration . . . . . . . . . . . . . . . . . .23
(c) Consolidation of Hearings . . . . . . . . . . . . . . . . . . .23
(d) Discovery . . . . . . . . . . . . . . . . . . . . . . . . . . .23
(e) Conclusion of Arbitration . . . . . . . . . . . . . . . . . . .24
(f) Expenses of Arbitrators . . . . . . . . . . . . . . . . . . . .24
6.11 Other Rights and Remedies Not Affected . . . . . . . . . . . . . . .24
ARTICLE VII - POST CLOSING MATTERS . . . . . . . . . . . . . . . . . . . . . .24
7.1 Discharge of Business Obligations. . . . . . . . . . . . . . . . . .24
7.2 Maintenance of Books and Records . . . . . . . . . . . . . . . . . .24
7.3 Payments Received. . . . . . . . . . . . . . . . . . . . . . . . . .25
7.4 Use of Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
7.5 Inquiries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
7.6 [OMITTED]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
7.7 Transition Period. . . . . . . . . . . . . . . . . . . . . . . . . .25
(a) Collections . . . . . . . . . . . . . . . . . . . . . . . . . .25
(b) Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . .25
(c) Licenses and Permits. . . . . . . . . . . . . . . . . . . . . .26
7.8 Accounting Records . . . . . . . . . . . . . . . . . . . . . . . . .26
7.9 Nondisclosure of Proprietary Information . . . . . . . . . . . . . .26
7.10 Contact with Former Employees. . . . . . . . . . . . . . . . . . . .26
7.11 Accrued Vacation . . . . . . . . . . . . . . . . . . . . . . . . . .26
7.12 Assumed Obligations. . . . . . . . . . . . . . . . . . . . . . . . .26
7.13 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . .26
<PAGE>
7.14 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
7.15 Additional Obligations . . . . . . . . . . . . . . . . . . . . . . .27
7.16 Press Release. . . . . . . . . . . . . . . . . . . . . . . . . . . .27
7.17 Operation of Radio . . . . . . . . . . . . . . . . . . . . . . . . .27
ARTICLE VIII - TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . .28
ARTICLE IX - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . .28
9.1 Finders' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . .28
9.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
9.3 Assignment and Binding Effect. . . . . . . . . . . . . . . . . . . .28
9.4 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
9.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .29
9.6 No Benefit to Others . . . . . . . . . . . . . . . . . . . . . . . .29
9.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .29
9.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
9.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
9.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
9.11 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
9.12 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
9.13 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . .30
9.14 Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . .30
9.15 Good Faith . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
9.16 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . .31
<PAGE>
DEFINITIONS:
- -----------
The definition of "401(k) PLAN" can be found in Section 3.1(t).
The definition of "ACCOUNTS RECEIVABLE" can be found in Section 1.1(a)(xiii).
The definition of "AFFECTED EMPLOYEES" can be found in Section 3.1(t).
The definition of "AGREEMENT" can be found on page 1.
The definition of "ASSETS" can be found in Section 1.1.
The definition of "ASSIGNED CONTRACTS" can be found in Section 1.1(a)(iv).
The definition of "ASSUMED LIABILITIES" can be found in Section 1.4(a).
The definition of "AUTHORIZATIONS" can be found in Section 3.1(j).
The definition of "BUSINESS" can be found on page 1.
The definition of "CLOSING" can be found in Section 2.1.
The definition of "CLOSING DATE" can be found in Section 2.1.
The definition of "CONTAMINATION" can be found in Section 3.1(n)(i)(A).
The definition of "CONTRACTS" can be found in Section 3.1(c)(iv).
The definition of "DAMAGES" can be found in Section 6.2.
The definition of "DISPUTE NOTICE" can be found in Section 6.10(a).
The definition of "EFFECTIVE DATE" can be found on page 1.
The definition of "EMPLOYEE BENEFIT PLAN" can be found in Section 3.1(t)(ii).
The definition of "ENVIRONMENTAL, HEALTH AND SAFETY LAWS" can be found in
Section 3.1(n)(i)(B).
The definition of "ENVIRONMENTAL LOSS" can be found in Section 3.1(n)(i)(C).
The definition of "EQUIPMENT" can be found in Section 1.1(a)(viii).
The definition of "EQUIPMENT LEASES" can be found in Section 1.1(a)(vii).
The definition of "ERISA" can be found in Section 3.1(t).
The definition of "EXCLUDED ASSETS" can be found in Section 1.1(b).
The definition of "FEE PROPERTIES" can be found in Section 1.1(a)(i).
The definition of "FINAL ARBITRATOR" can be found in Section 6.10(b).
The definition of "FUEL AND INVENTORY" can be found in Section 1.1(a)(xii).
The definition of "GOVERNMENTAL ENTITY" can be found in Section 6.1(a).
The definition of "HAZARDOUS SUBSTANCE" can be found in Section 3.1(n)(i)(D) and
Section 9.11.
The definition of "INDEMNITEE" can be found in Section 6.1(b).
The definition of "INDEMNITOR" can be found in Section 6.1(c).
The definition of "IRS" can be found in Section 3.1(t)(i).
The definition of "LEASED PROPERTIES" can be found in Section 1.1(a)(ii).
The definition of "NEGOTIATION PERIOD" can be found in Section 6.10(a).
The definition of "NOTE" can be found in Section 1.3.
The definition of "PERMITS" can be found in Section 1.1(a)(xi).
The definition of "PERMITTED LIENS" can be found in Section 3.1(i).
The definition of "PERSON" can be found in Section 9.11.
The definition of "PERSONAL PROPERTY" can be found in Section 1.1(a)(x).
The definition of "POTENTIAL EMPLOYEES" can be found in Section 7.1.
The definition of "PROPERTY TAXES" can be found in Section 1.5.
The definition of "PROPRIETARY INFORMATION" can be found in Section 7.9.
<PAGE>
The definition of "PURCHASE PRICE" can be found in Section 1.3.
The definition of "PURCHASER" can be found on page 1.
The definition of "PURCHASER LOSSES" can be found in Section 6.2.
The definition of "REAL PROPERTIES" can be found in Section 1.1(a)(ii).
The definition of "REAL ESTATE LEASES" can be found in Section 3.1(o)(i)(A).
The definition of "RECORDS" can be found in Section 1.1(a)(ix).
The definition of "REGULATIONS" can be found in Section 3.1(j).
The definition of "RELEASE" can be found in Section 3.1(n)(i)(E).
The definition of "REMEDIATION" can be found in Section 3.1(n)(i)(F).
The definition of "SELLER" can be found on page 1.
The definition of "SELLER LOSSES" can be found in Section 6.3.
The definition of "SELLERS' DOCUMENTS" can be found in Section 3.1(b).
The definition of "SELLER STOCKHOLDER" can be found on page 1.
The definition of "SUB STOCK" can be found in Section 1.1(a)(v).
The definition of "SURVIVAL PERIOD" can be found in Section 3.3.
The definition of "TAX RETURNS" can be found in Section 3.1(f).
The definition of "TAXES" can be found in Section 3.1(f).
The definition of "THIRD PARTY CLAIMS" can be found in Section 6.5(b).
The definition of "TRADEMARKS" can be found in Section 1.1(a)(iii).
The definition of "TRANSITION PERIOD" can be found in Section 7.7.
The definition of "VEHICLE OPERATING LEASES" can be found in Section 1.1(a)(vi).
The definition of "VEHICLES" can be found in Section 1.1(a)(v).
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "AGREEMENT"), dated as of the 20th day
of January, 1997 ("EFFECTIVE DATE"), is entered into by and among Mobley
Company, Inc., a Texas corporation ("SELLER"), Mobley Environmental Services,
Inc., a Delaware corporation (the "SELLER STOCKHOLDER") and Dawson Production
Services, Inc., a Texas corporation ("PURCHASER").
RECITALS:
A. Seller is engaged in the oil field service business and in other
businesses.
B. Seller Stockholder owns 100% of the capital stock of Seller.
C Purchaser is engaged in the oil field servicing business and desires
to purchase, as described below, all of the oil field servicing business
operations and oil field servicing business assets of Seller currently used or
usable by Seller in its oil field servicing business (the "BUSINESS");
D. The respective Boards of Directors of Purchaser, Seller and Seller
Stockholder have approved this Agreement and the transactions contemplated by
this Agreement; and
E. Subject to the limitations and exclusions contained in this Agreement
and on the terms and conditions hereinafter set forth, Seller desires to sell
and Purchaser desires to purchase the Business and substantially all of the
assets of Seller used in the Business.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements contained in this
Agreement, and intending to be legally bound by this Agreement, the parties
agree as follows:
ARTICLE I - PURCHASE AND SALE
1.1 AGREEMENT TO SELL. At the Closing (as defined in Section 2.1), and
except as otherwise specifically provided in this Section 1.1, Seller shall
grant, sell, convey, assign, transfer and deliver to Purchaser, upon and subject
to the terms and conditions of this Agreement, all right, title and interest of
Seller in and to (a) the Business as a going concern, and (b) all of the assets,
properties and rights of Seller constituting the Business or used therein, of
every kind and description, real, personal and mixed, tangible and intangible,
wherever situated (which Business, assets, properties and rights, together with
the Sub Stock as hereinafter defined, are herein sometimes collectively referred
to as the "ASSETS"), free and clear of all mortgages, liens, pledges, security
interests, charges, claims, restrictions and encumbrances of any nature
whatsoever, except Permitted Liens (as defined in Section 3.1(i)).
<PAGE>
(a) INCLUDED ASSETS. The Assets shall include, without limitation,
the following assets, properties and rights of Seller used directly or
indirectly in the conduct of, or generated by or constituting the Business:
(i) all interests of Seller in all real properties that are
owned by Seller and used primarily in connection with, or necessary to the
operation of, the Business, including but not limited to the properties
identified in SCHEDULE 1.1(a)(i), all of which will be owned at the Closing free
and clear of all leases, liens or other encumbrances (the "FEE PROPERTIES")
except for Permitted Liens;
(ii) all of Seller's interests as lessee in all real property and
offices leased or subleased to Seller, including but not limited to the
properties identified in SCHEDULE 1.1(a)(ii) (the "LEASED PROPERTIES" and,
together with the Fee Properties, the "REAL PROPERTIES");
(iii) all of Seller's rights, title and interest in and to the
trade names, trademarks and service marks, and the goodwill, if any, associated
therewith, to the extent transferable, whether or not the trade names,
trademarks and service marks are the subject of registration or applications for
registration, including but not limited to those marks and names described in
SCHEDULE 1.1(a)(iii) (the "TRADEMARKS");
(iv) those Contracts (as hereinafter defined), exclusive of all
leases of personal property, to which Seller is a party described in SCHEDULE
1.1(a)(iv) (collectively, the "ASSIGNED CONTRACTS");
(v) all of the issued and outstanding stock of Mobley Vehicle
Acquisition Corp. (the "SUB STOCK") which, as of the Closing Date, will own all
of the vehicles (the "VEHICLES") described in SCHEDULE 1.1(a)(v);
(vi) all of Seller's rights as lessee in and to operating leases
of vehicles, all of which are described in SCHEDULE 1.1(a)(vi) (the "VEHICLE
OPERATING LEASES"), subject to the consents of lessors, if required; provided
however, if the parties are not able to obtain the lessors' consents, Purchaser
shall prepay or refinance the amounts owing under the Vehicle Operating Leases
and Seller shall take all such actions as may be necessary or appropriate to
enable Purchaser to accomplish such prepayment or refinancing;
(vii) all of Seller's rights in and to operating leases of
personal property other than vehicles, all of which are described in SCHEDULE
1.1(a)(vii) (the "EQUIPMENT LEASES"), subject to the consents of lessors, if
required;
(viii) all office furniture, fixtures and equipment owned by Seller
and all other equipment, parts, materials, supplies, furniture and fixtures
owned by Seller including, without limitation, the equipment, furniture,
fixtures, computers, servers, local area network systems, intranet systems,
financial accounting equipment, and systems described on SCHEDULE 1.1(a)(viii)
(collectively, the "EQUIPMENT");
2
<PAGE>
(ix) all books, records, correspondence, files, plans and other
documents and instruments of Seller, including customer information relating to
the Business or to the Assets (collectively, the "RECORDS");
(x) all other intangible and tangible personal property, all
technologies, methods, formulations, data bases, trade secrets, customer lists,
know-how, inventions and other intellectual property used in the Business or
under development, and owned, leased or licensed by Seller, all of which is
described on SCHEDULE 1.1(a)(x) (collectively, the "PERSONAL PROPERTY");
(xi) all permits, authorizations, certificates, approvals,
registrations, or other approvals and licenses granted by any federal, state,
local or foreign court, arbitrator or administrative or Governmental Entity (as
hereinafter defined) in connection with the Business, which are described on
SCHEDULE 1.1(a)(xi) (collectively, the "PERMITS"); and
(xii) all motor fuel and inventory on hand on the Closing Date,
including without limitation, all motor fuel, oil, lubricants, drilling mud and
other items of tangible personal property of similar character (collectively,
the "FUEL AND INVENTORY");
(xiii) all of Seller's customers' accounts receivable relating to
the Business in existence on the Closing Date, including but not limited to
those listed on SCHEDULE 1.1(a)(xiii) (excluding those collected as of the
Closing Date) (collectively, the "ACCOUNTS RECEIVABLE"); and
(xiv) all other property, either real or personal, not listed in
this Section 1.1(a) or excluded by Section 1.1(b), which is owned by the Seller
or Seller Stockholder and is reasonably necessary to operate the Business.
(b) EXCLUDED ASSETS. The Assets shall not include the corporate
seals, certificates of incorporation, minute books, stock books, or other
records having to do with the corporate organization of Seller Stockholder and
Seller, or any of Seller Stockholder's subsidiaries, cash, Seller's prepaid
items and the deposits not subject to proration under Section 1.5; the Assets
additionally shall not include any items listed on SCHEDULE 1.1(b), the rights
which accrue or will accrue to Seller under this Agreement, the rights to any of
Seller's claims for any federal, state, local, or foreign tax refunds, Seller's
financial and accounting records not relating to the Business, or the other
assets, properties or rights not used in the normal course of operations of the
Business, all of which are referred to in this Agreement as the "EXCLUDED
ASSETS."
1.2 AGREEMENT TO PURCHASE. At the Closing, Purchaser shall purchase the
Assets from Seller upon and subject to the terms and conditions of this
Agreement and in reliance on the representations, warranties and covenants of
Seller contained herein, in exchange for the Purchase Price (as defined in
Section 1.3). In addition, Purchaser shall assume at the Closing and agree to
pay, discharge or perform, as appropriate, certain liabilities and obligations
of Seller, but only to the extent expressly provided in Section 1.4. Except as
expressly provided in Section 1.4, Purchaser shall not assume or be responsible
for any liabilities or obligations based on events occurring prior to Closing
relative to the Assets, the Business, Seller or Seller Stockholder.
3
<PAGE>
1.3 THE PURCHASE PRICE. In consideration of the transfer to Purchaser of
the Assets, Purchaser shall pay $5,416,650.74 (the "PURCHASE PRICE"),
$4,916,650.74 of which shall be paid by wire transfer at the Closing and
$500,000 of which shall be paid by delivery at the Closing of a subordinated
promissory note (the "NOTE"). Notwithstanding the foregoing, however, the
Purchase Price shall be reduced (by a reduction in the amount wire transferred
to Seller at the Closing) by the amount, if any, determined in accordance with
Sections 1.5, 1.6, and 7.11 of this Agreement.
1.4 ASSUMPTION OF LIABILITIES.
(a) At the Closing and except as otherwise specifically provided in
this Section 1.4, Purchaser shall assume and agree to pay, discharge or perform,
as appropriate, the liabilities and obligations of Seller set forth on SCHEDULE
1.4(a) (the "ASSUMED LIABILITIES").
(b) Notwithstanding Section 1.4(a), it is expressly understood that,
other than obligations and liabilities expressly assumed in Section 1.4(a),
Purchaser shall not be liable for, and shall not assume, any of Seller's or
Seller Stockholder's obligations or liabilities, whether known or unknown,
matured or unmatured, or fixed or contingent, including but not limited to
liabilities relating to events occurring prior to the Closing, any Taxes (as
hereinafter defined, other than those pro rated as of the Closing Date), or any
liabilities under any Employee Benefit Plans of Seller. Seller shall remain
obligated to pay and discharge any liabilities and obligations not expressly
assumed by Purchaser hereby. Seller hereby agrees that it will indemnify
Purchaser for any liabilities of Seller not expressly assumed by Purchaser
pursuant to Section 1.4(a).
1.5 PRORATIONS. All annual or periodic ad valorem fees, taxes and
assessments, licensing fees and vehicle use fees, and similar charges imposed by
taxing authorities on the Assets (collectively, "PROPERTY TAXES") shall be borne
and paid (a) by Seller for all full tax years or periods ending before the date
of the Closing and for that portion of any tax year or period ending on or after
the effective date of Closing from the date of commencement of such year or
period to the date immediately preceding the effective date of the Closing and
(b) by Purchaser for all full tax years or periods beginning on or after the
effective date of Closing and for that portion of any tax year or period ending
on or after the effective date of the Closing from and including the effective
date of Closing to the final date of such year or period, regardless of when or
by which party such Property Taxes are actually paid to the applicable taxing
authority. In addition, all rents and other lease charges, power and utility
charges, license or other fees, Assigned Contracts, and similar items shall be
allocated between Purchaser and Seller effective as of 12:01 a.m. on the
effective date of the Closing. Such allocations shall be determined and payment
accordingly made from one party to the other, as the case may be, on the date of
the Closing to the extent they are known and agreed to by Purchaser and Seller;
otherwise such allocations shall be determined and payment made (effective as of
12:01 a.m. on the effective date of the Closing) as soon as practicable but not
later than the date 30 days thereafter. All work for customers of Seller which
is unbilled at Closing shall be prorated to the Closing Date, invoiced by
Purchaser in the name of Seller, with such invoices deemed to be Accounts
Receivable conveyed to Purchaser pursuant to the terms of this Agreement.
4
<PAGE>
1.6 TRANSFER TAXES; RECORDING FEES.
(a) Purchaser and Seller acknowledge and agree that the Purchase
Price includes and is inclusive of any and all sales, use, transfer or other
similar Taxes (as hereinafter defined) imposed as a result of the consummation
of the transactions contemplated by this Agreement and Seller hereby agrees to
indemnify Purchaser against, and agrees to protect, save and hold Purchaser
harmless from, any loss, liability, obligation or claim (whether or not
ultimately successful) for sales, use, transfer or other similar Taxes (and any
interest, penalties, additions to tax and fines thereon or related thereto)
imposed as a result of the consummation of the transactions contemplated by this
Agreement.
(b) Purchaser shall pay any and all recording, filing or other fees
relating to the conveyance or transfer of the Assets from Seller to Purchaser.
(c) Purchaser is purchasing certain of the Fuel and Inventory for
resale and shall deliver to Seller on the Closing Date a certificate certifying
that the Fuel and Inventory is being purchased for resale to the extent stated
therein.
ARTICLE II - CLOSING, ITEMS TO BE DELIVERED,
THIRD PARTY CONSENTS AND FURTHER ASSURANCES
2.1 CLOSING. Subject to the terms and conditions of this Agreement, the
execution of documents relative to the sale and purchase of the Assets shall be
held at Jenkens & Gilchrist, A Professional Corporation, in Austin, Texas at
10:00 a.m., January 20, 1997. The effective date and time of the Closing
(referred to herein as the "CLOSING" or "CLOSING DATE") shall be 12:01 a.m.,
January 20, 1997, and all risk of loss shall be borne by Seller until such
Closing Date time, and thereafter all such risk of loss shall be borne by Buyer.
2.2 ITEMS TO BE DELIVERED AT CLOSING. At the Closing and subject to the
terms and conditions contained in this Agreement,
(a) Seller shall deliver to Purchaser the following:
(i) bills of sale with covenants of warranty of title,
assignments, stock certificates representing the Sub Stock, together with
executed stock powers, warranty deeds, and other good and sufficient instruments
and documents of conveyance and transfer, in form reasonably satisfactory to
Purchaser and its counsel, as shall be necessary and effective to transfer and
assign to and vest in Purchaser all of Seller's right, title and interest in and
to the Assets;
(ii) all of the certificates, certificates of title, Contracts,
customer lists, supplier lists, Vehicle Operating Leases, Equipment Leases,
Accounts Receivable, Real Estate Leases assumed by Purchaser, all
correspondence, files, plans and other documents and instruments, books,
Records, and data belonging to Seller which are part of the Assets;
5
<PAGE>
(iii) a Closing Certificate from Seller and Seller Stockholder,
dated January 20, 1997, certifying that all representations and warranties of
Seller and Seller Stockholder contained in this Agreement or in any Schedule,
certificate or document delivered by Seller or Seller Stockholder to Purchaser
pursuant to the provisions of this Agreement are true on the Closing Date and
that Seller and Seller Stockholder have performed and complied in all material
respects with all of their obligations under this Agreement to be performed or
complied with by them prior to or at the Closing and certifying that Seller and
Seller Stockholder have obtained all consents and approvals required with
respect to either of them or the Business except as otherwise set forth on a
Schedule hereto;
(iv) a written opinion of Brown McCarroll & Oaks Hartline,
Austin, Texas, outside counsel for Seller, dated January 20, 1997, reasonably
satisfactory to Purchaser;
(v) certificates issued by the Secretary of State of the State
of Texas and by the Secretary of State of Delaware, as appropriate, evidencing
the existence of Seller and Seller Stockholder, as of a date not more than five
calendar days prior to January 20, 1997 and a certificate issued by the Texas
Comptroller of Public Accounts evidencing that all applicable state franchise
taxes have been paid by Seller; and simultaneously with such delivery, Seller
shall take all steps as may be reasonably required to put Purchaser in actual
possession and operating control of the Assets.
(b) Purchaser shall deliver to Seller the following:
(i) the wire transfer of the Purchase Price less adjustments, if
any, in accordance with Section 1.3(a);
(ii) a fully executed Assignment of Contracts;
(iii) a written opinion of Jenkens & Gilchrist, A Professional
Corporation, counsel for Purchaser, dated January 20, 1997, reasonably
satisfactory to Seller.
2.3 THIRD PARTY CONSENTS. To the extent that Seller's rights under any
Contracts, Authorizations (as defined in Section 3.1(j)), Permits, Vehicle
Operating Leases, Equipment Leases, Real Estate Leases assumed by Purchaser, or
other Assets to be assigned to Purchaser hereunder may not be assigned without
the consent of another person, which consent has not been obtained prior to the
Closing, this Agreement shall not constitute an agreement to assign the same if
an attempted assignment would constitute a breach thereof or be unlawful, and
Seller, at its expense, shall use its best efforts to obtain any such required
consent(s) as promptly as possible after Closing. If any such consents are not
obtained or if any attempted assignment would be ineffective or would impair
Purchaser's rights under the Asset in question so that Purchaser would not in
effect acquire the benefit of all such rights, Seller, to the maximum extent
permitted by law and by the terms of any documents affecting the Asset, at
Seller's expense, shall act for one year after the Closing as Purchaser's agent
in order to obtain for Purchaser the benefits thereunder and shall cooperate, to
the maximum extent permitted by law and by the terms of any document affecting
the Asset, with Purchaser in any other reasonable arrangement designed to
provide such
6
<PAGE>
benefits to Purchaser. Seller and Seller Stockholder jointly and severally
agree to indemnify and hold Purchaser harmless from any failure to obtain any
such third party consent, including without limitation any termination fee or
assignment fee provided for in such agreement, but not any consequential damages
related thereto.
2.4 FURTHER ASSURANCES. Seller from time to time after the Closing, at
Purchaser's request, will execute, acknowledge and deliver to Purchaser such
other instruments of conveyance and transfer and will take such other actions
and execute and deliver such other documents, certifications and further
assurances as Purchaser may reasonably request in order to vest more effectively
in Purchaser, or to put Purchaser more fully in possession of, any of the
Assets, or to better enable Purchaser to complete, perform or discharge any of
the liabilities or obligations assumed by Purchaser at the Closing pursuant to
Section 1.4. Each of the parties will cooperate with the other and execute and
deliver to the other parties hereto such other instruments and documents and
take such other actions as may be reasonably requested from time to time by any
other party hereto as necessary to carry out, evidence and confirm the intended
purposes of this Agreement. If Seller dissolves within one year following the
Closing Date, effective as of the dissolution of Seller, Seller hereby
irrevocably appoints Purchaser or Purchaser's substitute as its attorney-in-fact
coupled with an interest and with full power of substitution to carry out the
provisions of this Section 2.4.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF SELLER AND SELLER STOCKHOLDER.
Seller and Seller Stockholder, jointly and severally, hereby represent and
warrant to Purchaser that the following statements are true and correct, except
as set forth on the Schedules, each of which scheduled exceptions shall
specifically identify the relevant section of this Agreement to which it relates
and shall be deemed to be representations and warranties as if made hereunder:
(a) CORPORATE EXISTENCE. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas.
Seller Stockholder is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Each of Seller and Seller
Stockholder is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the conduct of the Business
requires it to be so qualified, all of which jurisdictions are listed on
SCHEDULE 3.1(a).
(b) CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. Seller
and Seller Stockholder each have the corporate power, authority and legal right
to execute, deliver and perform this Agreement. The execution, delivery and
performance of this Agreement by Seller and Seller Stockholder have been duly
authorized by all necessary corporate action as of the Closing Date. This
Agreement has been, and the other agreements, documents and instruments required
to be delivered by Seller or Seller Stockholder in accordance with the
provisions hereof (collectively, the "SELLERS' DOCUMENTS") will be duly executed
and delivered on behalf of Seller and Seller Stockholder by duly authorized
officers or directors of Seller and Seller Stockholder and this Agreement
constitutes, and the Sellers' Documents when executed and delivered will
7
<PAGE>
constitute, the legal, valid and binding obligation of Seller and Seller
Stockholder enforceable against Seller and Seller Stockholder in accordance with
their respective terms except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, or other laws affecting the enforcement
of creditors' rights generally and the application of general principles of
equity. The Boards of Directors of Seller and Seller Stockholder have approved
this Agreement and the transactions contemplated hereby.
(c) VALIDITY OF CONTEMPLATED TRANSACTIONS, ETC. Except as provided
on SCHEDULE 3.1(c), the execution, delivery and performance of this Agreement by
Seller and Seller Stockholder does not and will not violate, conflict with or
result in the breach of any material term, condition or provision of, or require
the consent of any other person under:
(i) any Regulation (as hereinafter defined) to which Seller or
Seller Stockholder is subject,
(ii) any judgment, order, writ, injunction, decree or award of
any court, arbitrator or Governmental Entity which is applicable to Seller or
Seller Stockholder,
(iii) the charter documents of Seller or Seller Stockholder or any
securities issued by Seller or Seller Stockholder, or
(iv) any material mortgage, indenture, undertaking, note, bond,
debenture, letter of credit, commitment, agreement, contract, lease,
Authorization, Assigned Contract (including but not limited to Vehicle Operating
Leases and Equipment Leases) or other instrument, or understanding, whether or
not assigned hereby (collectively, the "CONTRACTS"), by which Seller or Seller
Stockholder may have rights or by which any of the Assets may be bound or
affected.
No fact or condition exists which would give any party to a Contract the right
to terminate, modify, accelerate or otherwise change the existing rights or
obligations of Seller or Seller Stockholder in or to the Assets. Except as
aforesaid, no Authorization, approval or consent of, and no registration or
filing with, any Governmental Entity is required in connection with the
execution, delivery or performance of this Agreement by Seller and Seller
Stockholder.
(d) NO THIRD PARTY OPTIONS. No person has any existing agreements,
options, commitments or rights to acquire any of the Assets or any interest
therein.
(e) FINANCIAL STATEMENTS. Seller has attached as SCHEDULE 3.1(e)
Seller's internally generated, unaudited statements of operations for the 11-
month period ended November 30, 1996, which reports fairly present, in all
material respects, the revenues and direct and indirect expenses of the Business
for the periods therein indicated, and contain all adjustments necessary to
present fairly, in all material respects, the results of operations of the
Business for the periods therein set forth.
8
<PAGE>
(f) TAXES; TAX AND OTHER RETURNS AND REPORTS. Except as set forth on
Schedule 3.1(l), item 2, all federal, state, local and foreign tax returns,
reports, statements and other similar filings required to be filed by Seller or
Seller Stockholder and affecting the Assets or the Business (the "TAX RETURNS")
with respect to any federal, state, local or foreign taxes, assessments,
interest, penalties, deficiencies, fees, duties and other governmental charges
or impositions (including without limitation all income tax, unemployment
compensation, social security, payroll, sales and use, excise, gross receipts,
value-added, privilege, property, ad valorem, franchise, license, school
transfer, mortgage recording, customs, withholding, estimated and other tax or
similar governmental charge or imposition under laws of the United States or any
state, county, or municipal entity, agency or instrumentality or political
subdivision thereof or any foreign country or political subdivision thereof)
insofar as same may affect the Assets or the Business (the "TAXES") have been
timely filed with the appropriate governmental agencies in all jurisdictions in
which such Tax Returns are required to be filed, and all such Tax Returns
properly reflect the liabilities of Seller for Taxes for the periods, property
and events covered thereby. All Taxes, including, without limitation, those
which are called for by the Tax Returns, have been properly accrued or timely
paid. Purchaser will have no liability to any person or taxing authority for
Taxes relating to actions or events occurring on or prior to the Closing Date,
except as otherwise provided by Section 1.5. Seller and Seller Stockholder's
warranties and representations under this Section 3.1(f) shall be construed
consistently with Section 1.5.
(g) BOOKS OF ACCOUNT. The books, records and accounts of Seller
maintained with respect to the Business and the Assets fairly reflect, in all
material respects and in reasonable detail, the transactions and the assets and
liabilities of Seller with respect to the Business.
(h) EXISTING CONDITION. During the 12-month period preceding the
Closing Date, neither Seller nor Seller Stockholder has (i) entered into any
transaction affecting the Business or the Assets except in the ordinary course
of business, consistent with past practice; (ii) encumbered or transferred any
assets which would have been included in the Assets if the Closing had been held
on November 30, 1996 or on any date since then except in the ordinary course of
business, consistent with past practice; (iii) subjected any of the Assets to
any lien or other encumbrance of any nature whatsoever, except in the ordinary
course of business, consistent with past practice, and except for Permitted
Liens (defined in Section 3.1(i)); (iv) made any amendment or termination of any
material agreement affecting the Business or the Assets, or canceled, modified
or waived any rights of substantial value affecting the Business or the Assets,
whether or not in the ordinary course of business; (v) changed any of the
accounting principles followed by it or the methods of applying such principles;
(vi) increased the compensation of any of the Affected Employees (as hereinafter
defined) other than in the ordinary course of business; or (vii) suffered any
loss, whether or not covered by insurance, (a) materially and adversely
affecting the Business or Assets or (b) of any items if such loss individually
represents a loss of $10,000 or more individually or $100,000 or more in the
aggregate.
(i) TITLE TO PROPERTIES. Notwithstanding anything herein to the
contrary, Seller has good, valid and marketable title (or in the case of real
property, indefeasible title) to all of its assets, real, personal and mixed,
which would be included in the Assets if the Closing took place on the date
hereof, which it purports to own, including without limitation all assets
reflected on
9
<PAGE>
the Schedules hereto, free and clear of all liens (including but not limited to
tax liens), claims, restrictions and other encumbrances and defects of title of
any nature whatsoever, except for (i) liens for current real or personal
property taxes not yet due and payable; (ii) Real Properties as to which Seller
is the lessee; and (iii) liens and other exceptions to title as disclosed in
SCHEDULES 3.1(i) (collectively, "PERMITTED LIENS").
(j) COMPLIANCE WITH LAWS; AUTHORIZATIONS. Seller and Seller
Stockholder have complied in all material respects with each, and is not in
material violation of any, law, ordinance or governmental or regulatory rule or
regulation, whether federal, state, local or foreign, to which the Business or
Assets is subject ("REGULATIONS"). Seller owns, holds, possesses or lawfully
uses in the operation of the Business all permits, franchises, licenses,
easements, rights, applications, filings, registrations and other authorizations
("AUTHORIZATIONS") which are in any material respect necessary for it to conduct
the Business as now conducted or for the ownership and use of the Assets in the
conduct of the Business. Seller is in compliance with all Regulations related to
the Authorizations. All such Authorizations are listed and described in
SCHEDULE 3.1(j). Seller is not in default, nor has it received any notice of
any claim of default, with respect to any such Authorization. Seller has not
received any notice that any of the Authorizations used by Seller in the
operation of the Business would not or cannot be renewed or continued in the
ordinary course of business, and to Seller's knowledge, all such Authorizations
are renewable by Seller by their terms or in the ordinary course of business.
No person other than Seller owns or has any proprietary, financial or other
interest (direct or indirect) in any Authorization.
(k) TRANSACTIONS WITH AFFILIATES. Any material transactions between
Seller and its affiliates affecting the Business or the Assets and occurring
since December 31, 1995 have been upon terms substantially comparable to those
that would have been available to Seller from third parties in arms length
transactions.
(l) LITIGATION. Except as set forth on SCHEDULE 3.1(l), no
litigation or administrative proceeding, including any arbitration,
investigation or other proceeding of or before any court, arbitrator or
Governmental Entity is pending or, to the best knowledge of Seller and Seller
Stockholder, threatened against Seller or Seller Stockholder, which relates to
the Business or Assets or the transactions contemplated by this Agreement, nor
does Seller or Seller Stockholder, know of any reasonably likely basis for any
such litigation, arbitration, investigation or proceeding, the result of which
could reasonably be expected to adversely affect the Assets or Business, or the
transactions contemplated hereby. Neither Seller nor Seller Stockholder is a
party to or subject to the provisions of any judgment, order, writ, injunction,
decree or award of any court, arbitrator or Governmental Entity which may
materially adversely affect the Assets or Business, or the transactions
contemplated hereby.
(m) CONTRACTS AND COMMITMENTS. Except as set forth on SCHEDULE
3.1(m), neither Seller nor Seller Stockholder is a party to any written or oral:
(i) lease under which Seller or Seller Stockholder is either
lessor or lessee relating to the Assets or any property at which the Assets are
located other than those set forth on the Schedules to this Agreement;
10
<PAGE>
(ii) Contract or agreement for any capital expenditure or
leasehold improvement in excess of $50,000 relating to the Assets or Business;
or
(iii) Contract or agreement limiting or restraining Seller, its
successor or assigns from engaging or competing in any manner in the Business,
nor, to Seller's or Seller Stockholder's knowledge, is any employee of Seller
engaged in the conduct of the Business subject to any such Contract.
Each of the Contracts and agreements listed in SCHEDULE 3.1(m), and each other
Assigned Contract, including but not limited to Vehicle Operating Leases and
Equipment Leases under which Purchaser is to acquire rights or obligations
hereunder, is valid and enforceable in accordance with its terms; Seller is, and
to Seller's and Seller Stockholder's knowledge all other parties thereto are, in
compliance with the provisions thereof; Seller is not, and to Seller's and
Seller Stockholder's knowledge no other party thereto is, in default in the
performance, observance or fulfillment of any material obligation, covenant or
condition contained therein; and to Seller's and Seller Stockholder's knowledge
no event has occurred which with or without the giving of notice or lapse of
time, or both, would constitute a default thereunder. Furthermore, no such
Contract or agreement, in the reasonable opinion of Seller and Seller
Stockholder, contains any requirement with which there is a reasonable
likelihood Seller or, to Seller's and Seller Stockholder's knowledge, any other
party thereto will be unable to comply.
(n) ENVIRONMENTAL MATTERS.
(i) DEFINITIONS. For purposes of this Agreement the following
terms shall have the following meanings:
A. "CONTAMINATION" shall mean the Release of Hazardous
Substances in, on, underlying or surrounding (including into air, soils, surface
water or groundwater) the Real Properties, including migration of or depositing
of Hazardous Substances onto or from adjoining or neighboring properties or the
Release or presence of Hazardous Substances from or associated with the
operations conducted on any one or more of the Real Properties when such
Hazardous Substances have been transported to any other offsite location.
B. "ENVIRONMENTAL, HEALTH AND SAFETY LAWS" shall mean any
and all federal, state or local laws (including common law), rules, regulations,
orders, agreements, ordinances, writs, judgments, injunctions, decrees or
determinations, or similar requirements, whether issued by a court or a
Governmental Entity, relating to the protection of the environment, the Release
of any Hazardous Substances into the environment, the generation, management,
transportation, storage, treatment and disposal of Hazardous Substances, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, Releases, or threatened releases of pollutants,
Contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, soils, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes (including, without
limitation, the Clean Air Act, the Toxic Substance Control
11
<PAGE>
Act, the Clean Water Act, the Oil Pollution Act of 1990, the Comprehensive
Environmental Response, Compensation and Liability Act, the Resource
Conservation and Recovery Act, and the Occupational Safety and Health Act of
1970, all as amended, including similar state or local laws).
C. "ENVIRONMENTAL LOSS" shall mean any and all claims,
damages, losses, expenses, costs, deficiencies, penalties, liens, interests,
fines, assessments, charges, compensation, obligations and liabilities of any
kind, whether known or unknown, imposed by private parties or Governmental
Entities in civil, criminal or administrative proceedings, or incurred by, under
or pursuant to Environmental, Health and Safety Laws, whether based on
negligence, strict liability or otherwise, under any theory or process of
recovery or relief, at law or at equity, including Remediation, restoration,
abatement, investigation, testing, monitoring, personal injury, death and
property damage costs, business losses, contribution for, or recovery of such
costs under the Comprehensive Environmental Response, Compensation and Liability
Act, as amended, or similar state or federal laws, and reasonable attorneys'
fees, court costs and interest paid or accrued, related to Contamination of the
Real Properties or third party claims involving the presence of Hazardous
Substances at offsite locations arising from Seller's operations or activities,
including but not limited to transportation or disposal activities.
D. "HAZARDOUS SUBSTANCE" shall mean any toxic or hazardous
substance, material or waste, pollutant, petroleum or petroleum derived
substance or waste, salt water, oil and gas waste, radioactive substance,
material or waste, asbestos containing materials, or any constituent of any such
substance or waste regulated under or defined by or pursuant to any
Environmental, Health and Safety Law.
E. "RELEASE" shall mean any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the environment or into or out of the Real Properties,
including the movement of Hazardous Substances through or in the air, soil,
surface water or groundwater of the Real Properties or adjoining properties.
F. "REMEDIATION" shall mean all actions, whether
undertaken pursuant to judicial or administrative order or otherwise, reasonably
necessary to comply with applicable Environmental, Health and Safety Laws, to
(a) investigate, clean up, remediate, remove, treat, cover or in any other way
adjust Hazardous Substances in or around the Real Properties; or (b) prevent or
control the Release of Hazardous Substances so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment.
(ii) REPRESENTATIONS AND WARRANTIES. The parties agree that the
following representations and warranties shall govern in the event of any
conflict between the provisions of this Section 3.1(n) and any other provision
of this Agreement or of the other agreements or conveyance instruments
contemplated hereby. Seller and Seller Stockholder, jointly and severally,
represent and warrant that, except as otherwise set forth on SCHEDULE 3.1(n),
the following statements are true and correct:
12
<PAGE>
A. Seller has obtained all Authorizations, including
permits, which are required in connection with the conduct of the Business under
Environmental, Health and Safety Laws;
B. Seller is in compliance in all material respects in the
conduct of the Business with all terms and conditions of the required
Authorizations, and is also in compliance in all material respects with all
Environmental, Health and Safety Laws and with any plan required by law, order,
decree, judgment, or injunction entered, promulgated or approved thereunder,
and, to the best of Seller's knowledge, with any notice or demand letter issued
thereunder;
C. Seller has not received any notice, demand or threat
that could reasonably form the basis of any claim, demand, suit, proceeding,
hearing, study or investigation arising out of the handling or Release of any
Hazardous Substance in the conduct of the Business and is not aware of any
circumstance that could reasonably prevent compliance with any Environmental,
Health and Safety Laws or interfere with the conduct of the Business;
D. There is no civil, criminal or administrative action,
suit, order, demand, claim, hearing, notice or demand letter, notice of
violation, investigation, or proceeding pending or, to Seller's knowledge,
threatened against Seller in connection with the conduct of the Business
relating in any way to any Environmental, Health and Safety Laws;
E. Seller agrees to reasonably cooperate with Purchaser,
both prior to and following the Closing, in connection with Purchaser's
application for the transfer, renewal or issuance of any Authorizations or
Purchaser's efforts to satisfy any Environmental, Health and Safety Laws
involving the Business;
F. In the ordinary course of operating the Business,
Seller has handled, disposed of or arranged for the disposal of Hazardous
Substances in compliance with applicable Environmental, Health and Safety laws
and Authorizations. To Seller's and Seller Stockholder's knowledge, Seller has
not exposed any employee to any Hazardous Substance or condition or owned or
operated any Assets in any manner that could form the basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand for damage to, or for investigation and Remediation of, any
site, location, or body of water (surface or subsurface), for any illness of or
personal injury to any employee or other individual, or for any reason under any
Environmental, Health and Safety Laws or Authorizations;
G. To Seller's and Seller Stockholder's knowledge, all of
the Real Properties are free from Contamination;
H. Seller has provided Purchaser all material information
in Seller's control or possession relating to: (1) the existence of
Contamination on or affecting all Assets; (2) compliance with all Environmental,
Health and Safety Laws; and (3) any alleged or actual Environmental Losses; and
13
<PAGE>
I. No oral or written agreements, including but not
limited to indemnity or cleanup agreements, exist between Seller or Seller
Stockholder and any third parties, relating to or concerning the environmental,
safety or health conditions of the Assets.
(o) REAL PROPERTIES.
(i) REAL ESTATE LEASES.
A. Seller and Seller Stockholder have delivered to
Purchaser a true and complete copy of every real estate lease and sublease that
is in writing to which Seller is a tenant or subtenant as to each of the Leased
Properties described on SCHEDULE 1.1(a)(ii) (the "REAL ESTATE LEASES");
B. Each Real Estate Lease is, and at Closing shall be, in
full force and effect and has not been assigned, modified, supplemented or
amended except as listed in SCHEDULE 1.1(a)(ii) or SCHEDULE 3.1(o), and neither
Seller nor the landlord or sublessor under any Real Estate Lease is in material
default under any of the Real Estate Leases, and, other than provisions in the
Real Estate Leases permitting termination without cause, no circumstances or
state of facts presently exists which, with the giving of notice or passage of
time, or both, would permit the landlord or sublessor under any Real Estate
Lease to terminate any Real Estate Lease; and
C. At Closing, Seller shall assign to Purchaser all right,
title and interest of Seller in and to all Real Estate Leases and shall deliver
to Purchaser originals or copies of all consents required for such assignments.
All security deposits made by Seller pursuant to any of the Real Estate Leases,
including, but not limited to, the security deposits listed in SCHEDULE 3.1(o),
together with all interest earned on such deposits shall be retained by
Purchaser pursuant to SCHEDULE 1.1(b) or shall be reimbursed by Purchaser to
Seller at the Closing or as soon thereafter as practicable.
(ii) ZONING. To the best of Seller and Seller Stockholder's
knowledge, the Real Properties as used at the date of execution of this
Agreement, until and including the Closing Date, are in compliance with all
applicable zoning and other land use requirements.
(iii) ACCESS. Seller and Seller Stockholder have obtained all
Authorizations and rights-of-way, including proof-of-dedication, which are
necessary to ensure vehicular and pedestrian ingress and egress to and from the
Real Properties. To the best of Seller and Seller Stockholder's knowledge,
there are no restrictions on entrances to or exits from the Real Properties to
adjacent public streets and no conditions exist which will result in the
termination of the present access from the Real Properties to existing highways
and roads.
(iv) ASSESSMENTS. Neither Seller nor Seller Stockholder has
received written notice from any Governmental Entity that the assessed value of
any of the Real Properties has been determined to be materially greater than
that upon which county, township or school tax was paid for the 1995 tax year.
If, at the time of Closing, the Real Properties or any portion
14
<PAGE>
thereof are affected by any assessment which is or may become payable in annual
installments, of which one or more is then payable or has been paid, then for
the purpose of this Agreement, all the unpaid installments of any such
assessment including, without limitation, those which are to become due and
payable after Closing, shall be prorated in accordance with Section 1.5.
(v) EMINENT DOMAIN. Neither Seller nor Seller Stockholder has
received written notice and has reason to believe that any Governmental Entity
having the power of eminent domain over the Real Properties has commenced or
intends to exercise the power of eminent domain or a similar power with respect
to any part of the Real Properties that in the aggregate is material to the
Business. If between the date of this Agreement and Closing the Real Properties
or any portion thereof or interest therein is taken or condemned as a result of
the exercise of the power of eminent domain, or if a Governmental Entity having
the power of eminent domain informs Seller, Seller Stockholder or Purchaser that
it intends to take or condemn all or part of the Real Properties that in the
aggregate is material to the Business, then Purchaser may terminate this
Agreement.
(vi) NO VIOLATIONS. The Real Properties and the present uses
thereof comply in all material respects with all regulations of the Governmental
Entities having jurisdiction over the Real Properties, and neither Seller nor
Seller Stockholder has received any written notices from any Governmental
Entity, and neither Seller nor Seller Stockholder has any reasonable basis upon
which to believe that the Real Properties or any improvements erected or
situated thereon, or the uses conducted thereon, violate any regulations of any
such Governmental Entity.
(vii) EXECUTORY CONTRACTS. Neither Seller nor Seller Stockholder
is a party to or bound by any material executory contracts for the operation,
management or maintenance of the Real Properties.
(p) AVAILABILITY OF DOCUMENTS. Seller and Seller Stockholder have
made available to Purchaser copies of all material documents, including without
limitation all of the contracts, permits, licenses, patents, trademarks,
copyrights and applications therefor listed in the Schedules. Seller and Seller
Stockholder will use their best efforts to obtain any such documents not in its
possession and promptly deliver same to Purchaser. Such copies are true and
complete and include all amendments, supplements and modifications thereto or
waivers currently in effect thereunder.
(q) ASSETS. Except as set forth in SCHEDULE 3.1(q), the Assets
include all rights and property reasonably necessary for the conduct of the
Business by Purchaser in the manner in which it has been conducted by Seller for
the period of time reflected in the financial statements included as SCHEDULE
3.1(e), and for the conduct of the Business as presently conducted by Seller,
and no property excluded from the Assets under Section 1.1(b) constitutes
property or rights material to the Business.
(r) RESTRICTIONS. Neither Seller nor Seller Stockholder is a party
to any material agreement, license, Permit, Authorization or other instrument
or, to the best of their knowledge,
15
<PAGE>
any understanding or oral agreement, and neither Seller nor Seller Stockholder
is subject to any charter or other corporate restriction or any judgment, order,
writ, injunction, decree or award, which materially adversely affects or
materially restricts the Business or Assets.
(s) CONDITIONS AFFECTING SELLER OR SELLER STOCKHOLDER. Other than
the transactions contemplated by this Agreement and such conditions as may
affect as a whole the well servicing industry generally, there is no fact known
to Seller or Seller Stockholder which would materially adversely affect the
Business considered as a whole.
(t) EMPLOYEE BENEFIT PLANS. SCHEDULE 3.1(t) lists all of Seller's
and Seller Stockholder's Employee Benefit Plans. Except for the plan maintained
by Seller pursuant to Section 401(k) of the Code (the "401(k) PLAN"), Seller is
not now and for the preceding five years has not been, a party to any "employee
pension benefit plan" as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). Seller is under no legal
obligation to create a new Employee Benefit Plan, or amend an existing Employee
Benefit Plan, that would affect any of the employees of Seller or Seller
Stockholder who are employed or otherwise compensated for activities involving
the Assets or the Business ("AFFECTED EMPLOYEES").
(i) The 401(k) Plan is a tax-qualified plan under the Code, and,
specifically under Code Section 401(a), has remained tax-qualified under the
Code since inception, and has been determined by the Internal Revenue Service
("IRS") to be so qualified. The IRS has taken no action to revoke such
determination or qualification. Seller shall take all actions necessary or
appropriate to fully vest the benefits of the Affected Employees under the
401(k) Plan.
(ii) Except as provided in Section 7.11, Purchaser shall have no
responsibility or liability with respect to benefits which may have accrued or
been promised to any Affected Employee under any "Employee Benefit Plan" of
Seller or Seller Stockholder, or any member of Seller's or Seller Stockholder's
control group as determined under Sections 414(b) or (c) of the Code, or which
form an affiliated service group with Seller or Seller Stockholder within the
meaning of Section 414(m) of the Code. The term "EMPLOYEE BENEFIT PLAN"
includes, but is not limited to any profit sharing, stock, bonus, 401(k),
nonqualified deferred compensation, medical, dental, workers' compensation, life
insurance, incentive, vacation benefits, and fringe benefits plan or program and
each "employee benefit plan" described in Section 3(3) of ERISA. Seller and
Seller Stockholder shall indemnify Purchaser as provided in Section VI of this
Agreement against and in respect of any Damages (as hereinafter defined) which
arise directly or indirectly with respect to an Employee Benefit Plan. Neither
Seller nor Seller Stockholder contributes to any "multiemployer plan" as defined
in Section 3(37) or 4001(o)(3) of ERISA.
(iii) Seller and Seller Stockholder shall pay and be liable to
Purchaser, and shall indemnify Purchaser as provided in Section VI of this
Agreement, from and against and in respect of any and all Damages that arise
under section 4980B of the Code, imposed upon, incurred by, or assessed against
Purchaser or any of its employees arising by reason of or relating (x) to any
failure to comply with the continuation health care coverage requirements of
section
16
<PAGE>
4980B of the Code, which failure occurred with respect to any current or prior
employee of Seller or any "qualified beneficiary" of such employee (as defined
in section 4980B(g)(I) of the Code) on or prior to the Closing Date, and (y) to
the excess, if any, of any amounts paid by Purchaser under its health plan to
any current or prior employee of Seller as a result of a "qualifying event" (as
defined in Section 4980B(f)(3) of the Code) which occurred prior to the Closing
Date, over the amount of the "applicable premium" (as defined in section
4980B(f)(4) of the Code) paid to Purchaser or Purchaser's health plan, by such
current or prior employee. References to the Code include any amendments that
may be made to the Code from time to time.
(u) PERSONNEL. SCHEDULE 3.1(u) lists the names and monthly or, as
applicable, hourly rates of compensation (including base salary, bonus,
commissions, and incentive pay) of those Affected Employees whom Purchaser will
hire at Closing (the "SELECTED EMPLOYEES") and summarizes the bonus, profit
sharing, percentage compensation, automobile, club membership and other like
benefits, if any, paid or payable to the Selected Employees during Seller's 1996
fiscal year and to the Effective Date. SCHEDULE 3.1(u) also contains a brief
description of all material terms of all written or oral employment agreements,
severance agreements, confidentiality agreements, noncompete agreements or
similar agreements to which any Selected Employee is or may be subject. Seller
has delivered to Purchaser accurate and complete copies of all such agreements,
and all other agreements, plans and other instruments to which Seller is a party
and under which the Selected Employees are entitled to receive benefits of any
nature. To Seller's and Seller Stockholder's knowledge, and except as set forth
on SCHEDULE 3.1(u), the employee relations of Seller are good and there is no
pending or threatened controversy, labor dispute or union organization campaign
between Seller and any of its employees or former employees. None of the
Selected Employees are represented by any labor union or organization nor is
Seller a party to any collective bargaining agreement. Except as set forth on
SCHEDULE 3.1(u), Seller is in compliance in all material respects with all
federal and state laws respecting employment and employment practices, terms and
conditions of employment and wages and hours and is not engaged in any unfair
labor practices. There is no unfair labor practices complaint or charge of
employment discrimination pending, or threatened with respect to a Selected
Employee before the National Labor Relations Board, the Equal Employment
Opportunity Commission, or any other state, federal or local court or
Governmental Entity, or any strike, labor dispute, work slowdown or work
stoppage pending or, to Seller's or Seller Stockholder's knowledge, threatened
against or involving Seller, and Seller has not experienced any material labor
difficulty during the last three years.
(v) ACCOUNTS RECEIVABLE. All Accounts Receivable are identified on
SCHEDULE 1.1(a)(xiii) and all such Accounts Receivable will be transferred to
Purchaser at the Closing. All Accounts Receivable are reflected properly on the
Seller's books and records and on SCHEDULE 1.1(a)(xiii), are valid receivables,
are not subject to any setoffs or counterclaims and are collectible.
17
<PAGE>
3.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to Seller as follows:
(a) CORPORATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas.
(b) CORPORATE POWER AND AUTHORIZATION. Purchaser has the corporate
power, authority and legal right to execute, deliver and perform this Agreement.
The execution, delivery and performance of this Agreement by Purchaser have been
duly authorized by all necessary corporate action. This Agreement has been duly
executed and delivered by Purchaser and constitutes the legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, or other laws affecting the enforcement of creditors' rights
generally and the application of general principles of equity.
(c) VALIDITY OF CONTEMPLATED TRANSACTIONS, ETC. The execution,
delivery and performance of this Agreement by Purchaser does not and will not
violate, conflict with or result in the breach of any material term, condition
or provision of, or require the consent of any other party under, (i) any
existing law, ordinance, or governmental rule or regulation to which Purchaser
is subject, (ii) any judgment, order, writ, injunction, decree or award of any
court, arbitrator or governmental or regulatory official, body or authority
which is applicable to Purchaser, (iii) the Articles of Incorporation or Bylaws
of, or any securities issued by, Purchaser, or (iv) any contract to which
Purchaser is a party or by which Purchaser is otherwise bound. Except as
otherwise contemplated by this Agreement, no Authorization, approval or consent
of, and no registration or filing with, any Governmental Entity is required in
connection with the execution, delivery and performance of this Agreement by
Purchaser.
3.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS. All
statements of fact contained in any written statement (including financial
statements), certificate, instrument or document delivered by or on behalf of
Seller pursuant to this Agreement shall be deemed representations and warranties
of Seller and of Seller Stockholder. The representations and warranties of the
parties to this Agreement shall survive the Closing Date and shall remain in
full force and effect as provided in Section 6.4. The period during which a
representation and warranty shall survive is referred to herein, with respect to
such representation or warranty, as the "SURVIVAL PERIOD." A claim for
indemnification under Article VI relating to any of the representations and
warranties may be made if a written notice asserting a claim has been given in
accordance with Article VI within the Survival Period with respect to such
matter. Any claim for indemnification made during the Survival Period shall be
valid and the representations and warranties relating thereto shall remain in
effect for purposes of such indemnification notwithstanding such claim may not
be resolved within the Survival Period. All covenants and agreements contained
herein shall survive without limitation. All representations, warranties,
covenants and agreements made by the parties shall not be affected by any
investigation heretofore or hereafter made by and on behalf of any of them and
shall not be deemed merged into any instruments or agreements delivered in
connection with this Agreement or otherwise in connection with the transactions
contemplated hereby.
18
<PAGE>
ARTICLE IV - AGREEMENTS PENDING CLOSING
[intentionally omitted]
ARTICLE V - CONDITIONS PRECEDENT TO THE CLOSING
[intentionally omitted]
ARTICLE VI - INDEMNIFICATION
------------------------------------------------------------
------------------------------------------------------------
THE FOLLOWING SECTIONS ARE IMPORTANT
AND SHOULD BE READ CAREFULLY.
------------------------------------------------------------
------------------------------------------------------------
6.1 DEFINITIONS.
(a) "GOVERNMENTAL ENTITY" shall mean any arbitrator, court,
administrative or regulatory agency, commission, department, board or bureau or
body or other government or authority or instrumentality or any entity or person
exercising, executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
(b) "INDEMNITEE" shall mean the person or persons indemnified, or
entitled or claiming to be entitled to be indemnified, pursuant to the
provisions of Article VI.
(c) "INDEMNITOR" shall mean the person or persons having the
obligation to indemnify pursuant to the provisions of Article VI.
6.2 INDEMNIFICATION BY SELLER. Except as otherwise limited by this
Article VI or by Section 3.3 (Survival of Representations and Warranties and
Covenants), Seller and Seller Stockholder, jointly and severally, agree to
indemnify, defend and hold harmless Purchaser and each of its officers,
directors, employees, agents, shareholders and controlling persons, and their
respective successors and assigns, separate consideration for which is hereby
acknowledged, of, from and against and in respect of any and all liabilities,
losses, damages, demands, assessments, claims, costs and expenses (including
interest, awards, judgments, penalties, settlements, fines, costs of
Remediation, diminutions in value, costs and expenses incurred in connection
with investigating and defending any claims or causes of action including
attorneys' fees and expenses and all fees and expenses of consultants and other
professionals) ("DAMAGES") actually suffered, incurred or realized by such party
(collectively, "PURCHASER LOSSES") arising out of or resulting from or relating
to any of the following:
(a) any misrepresentation, breach of warranty or breach of any
covenant or agreement made or undertaken by Seller or Seller Stockholder in this
Agreement or any
19
<PAGE>
misrepresentation in or omission from any other agreement, certificate, exhibit
or writing delivered to Purchaser pursuant to this Agreement, including the
Schedules;
(b) any liability other than the Assumed Liabilities relating to the
Assets or the Business, whether known or unknown, now existing or hereafter
arising, contingent or liquidated, including without limitation, any Tax
liabilities of Seller pertaining to the Assets or the Business, in connection
with the operation of the Business by Seller prior to Closing;
(c) any products manufactured, sold or distributed or services
provided by or on behalf of Seller on or prior to the Closing Date or with
respect to any claims made pursuant to warranties to third persons in connection
with products manufactured, sold or distributed or services provided by or on
behalf of Seller on or prior to the Closing Date;
(d) if (i) a claim is asserted or threatened by a third party
(including any Governmental Entities), or (ii) Remediation is clearly required
to comply with Environmental, Health and Safety Laws, any Environmental Losses
in connection with, relating to, or arising from conditions in existence on or
prior to the Closing Date;
(e) if (i) a claim is asserted or threatened by a third party
(including any Governmental Entities) or (ii) Remediation is clearly required to
comply with Environmental, Health and Safety Laws, Remediation of any
Contamination (i) existing prior to or on the Closing Date at, on or under the
Real Properties or neighboring or adjacent properties or (ii) at any offsite
location required as a result of the operation of the Business prior to or on
the Closing Date;
(f) those matters referenced in paragraph 1 (relating to the McBay
matter) of SCHEDULE 3.1(l) and third party claims involving the presence of
Hazardous Substances at off-site locations arising from Seller's operations or
activities, including but not limited to transportation or disposal activities;
and
(g) any claims arising from, in connection with, or relating to, any
breach of this Agreement.
6.3 INDEMNIFICATION BY PURCHASER. Except as otherwise limited by this
Article VI and Section 3.3 (Survival of Representations and Warranties and
Covenants), Purchaser agrees to indemnify, defend and hold Seller and Seller
Stockholder and each of their respective officers, directors, employees, agents,
shareholders and controlling persons and their successors and assigns harmless,
separate consideration for which is hereby acknowledged, of, from and against
and in respect of Damages actually suffered, incurred or realized by such party
(collectively, "SELLER LOSSES") arising out of or resulting from any of the
following:
(a) any misrepresentation, breach of warranty or breach of any
covenant or agreement made or undertaken by Purchaser in this Agreement or any
misrepresentation in or omission from any other agreement, certificate, exhibit
or writing delivered to Seller pursuant to this Agreement;
(b) any Assumed Liability; or
20
<PAGE>
(c) assuming a claim is asserted or threatened by a third party
(including any Governmental Entities), any Environmental Loss arising out of or
resulting from or relating to Purchaser's operation of the Business after the
Closing Date.
6.4 LIMITATIONS. Notwithstanding anything to the contrary contained
herein:
(a) Seller and Seller Stockholder shall have no liability under this
Article VI, and Purchaser shall have no liability under this Article VI, unless
notice of a claim for indemnity shall have been given within 24 months after the
Closing Date except that:
the Seller or Seller Stockholder may give notice of and make
a claim for indemnity arising under Section 6.3(b) and
6.3(c) within the period of the applicable statute of
limitations pertaining to the claim; and
the Purchaser may give notice of and make a claim for
indemnity arising under (i) Section 6.2(f) at any time; and
(ii) Section 6.2(d) or (e) within 60 months after the
Closing Date.
(b) The aggregate liability of Seller and Seller Stockholder, or of
Purchaser, for any matters covered by this Article VI shall be limited in each
case to $2 million; provided, however, the aggregate liability of Seller and
Seller Stockholder shall be limited to the Purchase Price as to events or
occurrences covered by Section 6.2(d) and (e) and such limitations shall not
apply in any manner to events or occurrences covered by Section 6.2(f) or to the
known breach of any representation or warranty by any Indemnitor.
(c) Seller and Seller Stockholder shall not be liable under this
Article VI unless and until the aggregate amount of any Purchaser Losses exceeds
$100,000; and Purchaser shall not be so liable unless and until any Seller
Losses exceed $100,000; provided, however, liability under this Article VI shall
not be so limited if Purchaser Losses arise under Section 6.2(b), (d), (e), or
if Seller Losses arise under Section 6.3(b) or (c).
6.5 PROCEDURE. All claims for indemnification shall be asserted and
resolved as follows:
(a) An Indemnitee shall promptly give the Indemnitor notice of any
matter that an Indemnitee has determined has given or could give rise to a right
of indemnification under this Agreement, stating the amount of the Damages, if
known, and method of computation thereof, all with reasonable particularity, and
stating with particularity the nature of such matter. Failure to provide such
notice shall not affect the right of an Indemnitee to indemnification except to
the extent such failure shall have resulted in liability to the Indemnitor that
actually could have been avoided had such notice been provided within the
required time period.
(b) The obligations and liabilities of an Indemnitor with respect to
Damages arising from claims of any third party that are subject to the
indemnification provided for in this Article VI ("THIRD PARTY CLAIMS") shall be
governed by and contingent upon the following
21
<PAGE>
additional terms and conditions: If an Indemnitee receives notice of any Third
Party Claim, the Indemnitee shall give the Indemnitor prompt notice of such
Third Party Claim and the Indemnitor may, at its option, assume and control the
defense of such Third Party Claim at the Indemnitor's expense and through
counsel of the Indemnitor's choice reasonably acceptable to the Indemnitee. If
the Indemnitor assumes the defense against any such Third Party Claim as
provided above, the Indemnitee shall have the right to participate at its own
expense in the defense of such asserted liability, shall cooperate with the
Indemnitor in such defense and will attempt to make available on a reasonable
basis to the Indemnitor all witnesses, pertinent records, materials and
information in its possession or under its control relating thereto as
reasonably required by the Indemnitor. If the Indemnitor does not elect to
conduct the defense against any such Third Party Claim, the Indemnitor shall pay
all reasonable costs and expenses of such defense as incurred and shall
cooperate with the Indemnitee (and be entitled to participate) in such defense
and attempt to make available to it on a reasonable basis all such witnesses,
records, materials and information in its possession or under its control
relating thereto as reasonably required by the Indemnitee. Except for the
settlement of a Third Party Claim that involves the payment of money only and
for which the Indemnitee is totally indemnified by the Indemnitor, no Third
Party Claim may be settled without the written consent of the Indemnitee.
6.6 PAYMENT AND OFFSET. Payment of any amount due pursuant to this
Article VI shall be made by the Indemnitor within 30 business days after notice
is sent by the Indemnitee. Purchaser may, at its option, offset any Purchaser
Losses against any amount due under the Note.
6.7 FAILURE TO PAY INDEMNIFICATION. If and to the extent an Indemnitee
makes written demand upon an Indemnitor for indemnification pursuant to this
Article VI and the Indemnitor refuses or fails to pay in full within 30 business
days of such written demand, then the Indemnitee after arbitration of the matter
may use any legal or equitable remedy to collect from the Indemnitor the amount
of its Damages. Nothing contained herein is intended to limit or constrain an
Indemnitee's rights against an Indemnitor for indemnity, the remedies herein
being cumulative and in addition to all other rights and remedies of the
Indemnitee.
6.8 ADJUSTMENT OF LIABILITY. The amount which an Indemnitee shall be
entitled to receive from an Indemnitor with respect to any Damages under this
Article VI shall be net of any insurance recovery by an Indemnitee on account of
such Damages from an unaffiliated party.
6.9 EXPRESS NEGLIGENCE. THE FOREGOING INDEMNITIES ARE INTENDED TO BE
ENFORCEABLE AGAINST THE PARTIES IN ACCORDANCE WITH THE EXPRESS TERMS AND SCOPE
THEREOF NOTWITHSTANDING TEXAS' EXPRESS NEGLIGENCE RULE OR ANY SIMILAR DIRECTIVE
THAT WOULD PROHIBIT OR OTHERWISE LIMIT INDEMNITIES BECAUSE OF THE NEGLIGENCE
(WHETHER SOLE, CONCURRENT, ACTIVE OR PASSIVE) OR OTHER FAULT OR STRICT LIABILITY
OF ANY OF THE INDEMNIFIED PARTIES.
22
<PAGE>
6.10 ARBITRATION.
(a) NEGOTIATION PERIOD. All disputes arising under this Agreement
(other than a suit for injunctive relief as set forth in Section 9.13 hereof or
an action involving a third party) or arising with respect to any transaction
contemplated hereby will be subject to binding arbitration in San Antonio, Texas
in accordance with this Section 6.10. If such a dispute exists, the parties
shall attempt for a 30-day period (the "NEGOTIATION PERIOD") from the date any
party gives any one or more of the other parties notice (a "DISPUTE NOTICE")
pursuant to this Section, to negotiate in good faith, a resolution of the
dispute. The Dispute Notice shall set forth with specificity the basis of the
dispute and shall be delivered to each party to this Agreement to whom the
dispute relates. During the Negotiation Period, representatives of each party
involved in the dispute who have authority to settle the dispute shall meet at
mutually convenient times and places and use their best efforts to resolve the
dispute.
(b) COMMENCEMENT OF ARBITRATION. If a resolution is not reached by
the parties prior to the end of the Negotiation Period, each party shall have 10
days from the end of such period to give each other party who received a Dispute
Notice written notice of the selection of an independent arbitrator. If only
one party gives such written notice, the arbitrator selected by that party (the
"FINAL ARBITRATOR") shall make a final and binding determination as to the
parties' respective rights and obligations with respect to the matters set forth
in the Dispute Notice. If more than one party selects an arbitrator, the
arbitrators so selected shall, within 10 days of the last timely notice of
selection of an arbitrator, select a different independent arbitrator (also
referred to herein as the "FINAL ARBITRATOR") who shall make a final and binding
determination of the parties' respective rights and obligations with respect to
the matters set forth in the Dispute Notice. Following the selection of the
Final Arbitrator, the other arbitrators selected shall have no further
responsibilities hereunder. Each arbitrator selected hereunder shall be
experienced in the arbitration of complex commercial disputes.
(c) CONSOLIDATION OF HEARINGS. If more than one party delivers a
Dispute Notice to one or more other parties pursuant to this Section 6.10, the
Final Arbitrators selected with respect to each such Dispute Notice may elect,
in their sole discretion, to combine the matters set forth in one or more, but
not necessarily all, of the Dispute Notices into one or more hearings, in which
case, the Final Arbitrators shall adjust the time deadlines set forth herein as
they determine appropriate, and shall decide which one of them will hear the
evidence and render a final determination with respect to each hearing.
(d) DISCOVERY. Unless the Final Arbitrator otherwise directs, each
party to an arbitration shall be entitled to one deposition, lasting no more
than one day, of a designated representative of each other party to the
arbitration prior to the arbitration hearing; and each party shall be entitled,
within 30 days of the appointment of the Final Arbitrator, to serve upon each
other party one set of Interrogatories (seeking no more than 30 responses), one
set of Requests for Production (limited to 30 requests) and one set of Requests
for Admission (limited to 30 requests), each of which shall be answered by the
recipient thereof within two weeks of its receipt. Otherwise, the arbitration
shall be conducted by the Final Arbitrator and not by the American
23
<PAGE>
Arbitration Association, but the Final Arbitrator shall conduct the arbitration
in accordance with the rules of the American Arbitration Association.
(e) CONCLUSION OF ARBITRATION. Unless the Final Arbitrator otherwise
directs, the decision of the Final Arbitrator as to the parties' respective
rights and obligations shall be made within 60 days of the end of the
Negotiation Period and shall be binding on the parties. The Final Arbitrator
may determine that a party is entitled to damages hereunder from one or more
other parties, and the manner in which such damages shall be assessed against
the other parties. However, the Final Arbitrator may not award emotional
distress or punitive damages.
(f) EXPENSES OF ARBITRATORS. The expenses of the Final Arbitrator
shall be shared equally by the parties to the arbitration. The expenses of each
other arbitrator selected hereunder shall be borne by the party selecting such
arbitrator.
6.11 OTHER RIGHTS AND REMEDIES NOT AFFECTED. The indemnification rights of
the parties under this Agreement are independent of and in addition to such
rights and remedies as the parties may have at law or in equity or otherwise for
any misrepresentation, breach of warranty or failure to fulfill any agreement or
covenant hereunder on the part of any party hereto, including without limitation
the right to seek specific performance, rescission or restitution, none of which
rights or remedies shall be affected or diminished hereby.
ARTICLE VII - POST CLOSING MATTERS
7.1 DISCHARGE OF BUSINESS OBLIGATIONS. Following the Closing Date, Seller
or Seller Stockholder shall pay and discharge, in accordance with past practice
but not less than 45 days within receipt of an invoice, all obligations and
liabilities incurred prior to the Closing Date in respect of the Business and
the Assets, its operations or the assets and properties used therein (except for
those expressly assumed by Purchaser hereunder and except to the extent prorated
pursuant to Section 1.5), including without limitation any liabilities or
obligations to employees, trade creditors and clients of the Business. Seller,
Seller Stockholder and Purchaser shall each use its best efforts following the
Closing to ensure a smooth transition of Seller's operations to Purchaser.
7.2 MAINTENANCE OF BOOKS AND RECORDS. Seller, Seller Stockholder and
Purchaser shall each preserve all records possessed by such party relating to
the Business or Assets prior to the Closing Date for a period of at least six
years following the fiscal year to which the records relate. After the Closing
Date, where there is a legitimate purpose, such party shall provide the other
parties and their representatives with access, upon prior reasonable written
request specifying the need therefor, during regular business hours, to (a) the
officers and employees of such party and (b) the books of account and records of
such party, but, in each case, only to the extent relating to the Assets or
Business prior to the Closing Date, and the other parties and their
representatives shall have the right to make copies of such books and records;
provided, however, that the foregoing right of access shall not be exercisable
in such a manner as to interfere unreasonably with the normal operations and
business of such party; and further, provided that,
24
<PAGE>
as to so much of such information as constitutes trade secrets or confidential
business information of such party, the requesting party and its officers,
directors and representatives will use due care to not disclose such information
except (x) as required by law, (y) with the prior written consent of such party,
which consent shall not be unreasonably withheld, or (z) where such information
becomes available to the public generally, or becomes generally known to
competitors of such party through sources other than the requesting party, its
affiliates or its officers, directors or representatives. Such records may
nevertheless be destroyed by a party if such party sends to the other parties
written notice of its intent to destroy the records, specifying with
particularity the contents of the records to be destroyed. Such records may
then be destroyed after the 30th day after such notice is given unless another
party objects to the destruction in which case the party seeking to destroy the
records shall deliver such records to the objecting party.
7.3 PAYMENTS RECEIVED. Seller, Seller Stockholder and Purchaser each
agree that after the Closing they will hold and will promptly transfer and
deliver to the other, from time to time as and when received by them, any cash,
checks with appropriate endorsements (using their best efforts not to convert
such checks into cash), or other property that they may receive on or after the
Closing which properly belongs to the other party, including without limitation
any insurance proceeds, and will account to the other for all such receipts.
Following the Closing, Purchaser shall have the right and authority to endorse
without recourse the name of Seller on any check or any other evidences of
indebtedness received by Purchaser on account of the Business and the Assets
transferred to Purchaser hereunder, for the sole purpose of depositing such
items into accounts over which Seller has signatory authority.
7.4 USE OF NAME. Within 60 days following the Closing, Purchaser shall
have changed all signage on the Assets to delete references to "Mobley."
7.5 INQUIRIES. Following the Closing Date, Seller and Seller Stockholder
will promptly refer all inquiries with respect to ownership of the Assets or the
Business to Purchaser. Seller and Seller Stockholder will execute such
documents and financing statements as Purchaser may reasonably request from time
to time to evidence transfer of the Assets to Purchaser, including any necessary
assignments of financing statements. In addition, Seller and Seller Stockholder
shall take all reasonable steps necessary to convey to Purchaser any Assets used
in the normal course of the Business which are not listed in the Schedules set
forth in Section 1.1(a) of this Agreement.
7.6 [OMITTED]
7.7 TRANSITION PERIOD. During the six-month period following the Closing
(the "TRANSITION PERIOD"), the parties shall operate the Business in the
following manner:
(a) COLLECTIONS. Purchaser's employees shall issue invoices for work
in process as of the Closing Date for both the portion of the work completed by
Seller prior to the effective date of the Closing and the portion of the work
completed by Purchaser thereafter.
25
<PAGE>
(b) ACCOUNTING. Purchaser's employees will assist Seller as
reasonably necessary to close out Seller's books and records related to the
Business.
(c) LICENSES AND PERMITS. Seller and Seller Stockholder will
continue to cooperate with Purchaser in connection with Purchaser's applications
for the transfer, renewal or issuance of any permits, licenses, approvals or
other Authorizations and as required to satisfy any regulatory requirements
arising as a result of the sale of the Business pursuant to this Agreement,
provided that all out-of-pocket expenses incurred in connection therewith shall
be paid by Purchaser.
7.8 ACCOUNTING RECORDS. For a five-year period following the Closing,
Seller and Seller Stockholder will use their best efforts to take all action
necessary or appropriate to allow Purchaser to obtain access to audit work
papers of Seller and Seller Stockholder's accountants for the immediately
preceding five years, if Purchaser requests such access in connection with the
audit by Purchaser of Seller for periods preceding the Closing.
7.9 NONDISCLOSURE OF PROPRIETARY INFORMATION. Seller and Seller
Stockholder agree that, from and after the Closing Date, Seller, Seller
Stockholder and their subsidiaries shall hold in confidence and will not
directly or indirectly at any time reveal, report, publish, disclose or transfer
to any person other than Purchaser any proprietary information relating to the
Business or the Assets (the "PROPRIETARY INFORMATION") that is not generally
known to the public or use any Proprietary Information for any purpose. Seller
and Seller Stockholder acknowledge that all documents and objects containing or
reflecting any Proprietary Information whether developed by Seller, Seller
Stockholder or by a third party for Seller or Seller Stockholder, will after the
Closing Date become the exclusive property of Purchaser and be delivered to
Purchaser.
7.10 CONTACT WITH FORMER EMPLOYEES. Seller and Seller Stockholder agree for
a period of two years following the Closing Date, not to solicit, directly or
indirectly, any of Purchaser's employees, or employees of Purchaser's
subsidiaries.
7.11 ACCRUED VACATION. With respect to employees of Seller or Seller
Stockholder who, upon Closing, become employees of Purchaser, Purchaser agrees
to provide accrued but unused vacation equal to the unused vacation such
employee previously had with Seller. The cost of any such accrued vacation
shall be determined at Closing, and the Purchase Price shall be reduced by a
like amount.
7.12 ASSUMED OBLIGATIONS. Purchaser shall fulfill in all material respects
the obligations it assumes in connection with the Assumed Liabilities, and shall
indemnify Seller for any loss or expense incurred by Seller for events occurring
after the Closing Date relative to the Assumed Liabilities.
7.13 ACCOUNTS RECEIVABLE. Purchaser shall pay to Seller or Seller
Stockholder within ten days following the month of collection all amounts
collected pursuant to the Accounts Receivable in excess of $500,000, net of
actual out of pocket expenses, upon and subject to the following terms and
conditions:
26
<PAGE>
(a) If Purchaser is unable to collect a minimum of $500,000 from the
Accounts Receivable using commercially reasonable business practices within 120
days of the Closing Date, Purchaser shall be entitled to an adjustment of the
Purchase Price payable within 10 days of demand, equal to $500,000, less the net
amounts actually collected;
(b) Purchaser may, in its sole discretion without the consent of
Seller or Seller Stockholder, write down any of the Accounts Receivable by up to
10% (but not more than $7500 in the aggregate), if such action is otherwise in a
manner that is consistent with commercially reasonable business practices and
Purchaser's previous collection efforts. Purchaser shall provide Seller with
current, monthly reports of collections of the Accounts Receivable;
(c) Purchaser shall, 120 days following the Closing Date, and upon
payment from Seller in accordance with Section 7.13(a), assign without recourse
any uncollected or uncollectible Accounts Receivable to Seller or Seller
Stockholder;
(d) Purchaser, Seller and Seller Stockholder agree to cooperate in
good faith to maximize the amounts collected pursuant to this provision.
(e) Purchaser agrees to file merchants' and mechanics' liens with
respect to such Accounts Receivable in a timely manner.
7.14 NOTICE. Until four years following the Closing, Seller and Seller
Stockholder shall provide Purchaser with written notice 90 days prior to any
distribution to shareholders, any liquidation or dissolution or other similar
event or in any case in which Seller Stockholder has reason to believe that its
net assets will be less than $1.0 million.
7.15 ADDITIONAL OBLIGATIONS. Seller and Seller Stockholder shall complete
each of the procedures and processes referenced in SCHEDULE 7.15, using a
consultant reasonably satisfactory to Purchaser and in accordance with all
Environmental, Health and Safety Laws and Authorizations (and without causing
unreasonable interference with the Business) as soon as practicable but in no
event later than January 31, 1997.
7.16 PRESS RELEASE. Upon the execution of this Agreement, the parties will
cooperate in the drafting and issuance of respective press releases concerning
this Agreement. Except for such press releases and discussions with employees
and customers as mutually agreed to by Seller, Seller Stockholder and Purchaser
and except as required by applicable law, none of the parties shall give notice
to any third parties or otherwise make any public statement or releases
concerning this Agreement or the transactions contemplated hereby except for
such written information as shall have been approved in writing as to form and
content by the other parties, which approval shall not be unreasonably withheld.
7.17 OPERATION OF RADIO. During the period between Closing and the date
that Purchaser receives a license to operate the dispatch radio system conveyed
as part of the Assets, Seller shall operate the radio for the benefit of and in
accordance with the instructions of Purchaser.
27
<PAGE>
ARTICLE VIII - TERMINATION
[intentionally omitted]
ARTICLE IX - MISCELLANEOUS
9.1 FINDERS' FEES. Except as set forth on SCHEDULE 9.1, Seller and Seller
Stockholder represent to Purchaser and Purchaser represents to Seller and Seller
Stockholder that all negotiations relative to this Agreement have been carried
on by them directly without the intervention of any person who may be entitled
to any brokerage or finder's fee or other commission in respect of this
Agreement or the consummation of the transactions contemplated hereby, and each
agrees to indemnify and hold harmless the other against any and all claims,
losses, liabilities and expenses which may be asserted against or incurred by it
as a result of its dealings, arrangements or agreements with any such person.
9.2 EXPENSES. Except as otherwise provided in this Agreement, each party
hereto shall pay its own expenses incidental to the preparation of this
Agreement, the carrying out of the provisions of this Agreement and the
consummation of the transactions contemplated hereby.
9.3 ASSIGNMENT AND BINDING EFFECT. This Agreement may not be assigned
prior to the Closing by any party hereto without the prior written consent of
the other party; provided, however, Purchaser may assign its rights and
obligations hereunder to any other entity that is controlling, controlled by or
under common control with Purchaser. Purchaser shall give Seller prompt written
notice of any such assignment. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the successors and assigns of Seller and Purchaser.
9.4 NOTICES. Any notice, request, demand, waiver, consent, approval or
other communication which is required or permitted hereunder shall be in writing
and shall be deemed given only if delivered personally or sent by telegram,
facsimile, first class mail, postage prepaid, or overnight courier as follows:
If to Purchaser, to: With a copy to:
Dawson Production Services, Inc. Jenkens & Gilchrist,
901 N.E. Loop 410, Suite 700 A Professional Corporation
San Antonio, Texas 78209-1306 600 Congress Avenue, Suite 2200
ATTN: Michael E. Little Austin, Texas 78701
Facsimile Number: (210) 930-3345 ATTN: J. Rowland Cook
Facsimile Number: (512) 404-3520
28
<PAGE>
If to Seller, to: With a copy to:
Mobley Company, Inc. Brown McCarroll & Oaks Hartline
c/o Brown McCarroll & Oaks Hartline 111 Congress Avenue, Suite 1400
111 Congress Avenue, Suite 1400 Austin, Texas 78701
Austin, Texas 78701 ATTN: Howard Rose
ATTN: Howard Rose Facsimile Number: (512) 479-1101
Facsimile Number: (512) 479-1101
or to such other address as the addressee may have specified in a notice duly
given to the sender as provided herein. Such notice, request, demand, waiver,
consent, approval or other communication will be deemed to have been given as of
the date so delivered, telegraphed or faxed or five business days after the date
so mailed, or on the day after the date delivered to Federal Express or another
similar courier marked for next day delivery if delivered within the continental
United States, and, if delivered overseas, two business days after the date so
delivered to DHL, Federal Express or another similar overseas delivery service.
9.5 GOVERNING LAW. This Agreement shall be governed by, interpreted and
enforced in accordance with the laws of the State of Texas (without regard to
the choice or conflicts of law provisions of Texas law).
9.6 NO BENEFIT TO OTHERS. The representations, warranties, covenants and
agreements contained in this Agreement are for the sole benefit of the parties
hereto and, in the case of Article VI hereof, certain other indemnified parties,
and their heirs, executors, administrators, legal representatives, successors
and assigns, and they shall not be construed as conferring any rights on any
other persons.
9.7 ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the parties and supersedes any
prior understandings, agreements, or representations by or among the parties,
written or oral, to the extent they related in any way to the subject matter
hereof. All Exhibits and Schedules referred to herein are incorporated herein
in full and are specifically made a part of this Agreement.
9.8 HEADINGS. All Section headings contained in this Agreement are for
convenience of reference only, do not form a part of this Agreement and shall
not affect in any way the meaning or interpretation of this Agreement.
9.9 SEVERABILITY. Any provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall be ineffective to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining provisions hereof, and any such invalidity or enforceability in
any jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction; provided if any provision of this Agreement is held to
be illegal, invalid, or unenforceable under present or future laws effective
during the effective period of this Agreement, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part of this
29
<PAGE>
Agreement; and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement. Furthermore,
in lieu of each illegal, invalid, or unenforceable provision there shall be
added automatically as part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
9.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and any party hereto may execute any such counterpart, each of
which when executed and delivered shall be deemed to be an original and all of
which counterparts taken together shall constitute but one and the same
instrument. This Agreement shall become binding when all counterparts taken
together shall have been executed and delivered by the parties. It shall not be
necessary in making proof of this Agreement as to a party to produce or account
for any of the other counterparts signed by another party not joined in the
action.
9.11 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "INCLUDING" shall mean including without limitation. Words used herein,
regardless of the number and gender specifically used, shall be deemed and
construed to include any other number, singular or plural, and any other gender,
masculine, feminine or neuter, as the context requires. Any reference to a
"PERSON" herein shall include an individual, firm, corporation, partnership,
trust, Governmental Entity, association, unincorporated organization and any
other entity. Any references to a Section, Article, Schedule or Exhibit are to
sections, articles, schedule and exhibits to this Agreement, unless otherwise
specifically stated.
9.12 WAIVER. No waiver by any party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
9.13 SPECIFIC PERFORMANCE. Seller and Seller Stockholder acknowledge and
agree that Purchaser would be damaged irreparably if any of the provisions of
this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, Seller and Seller Stockholder agree that
Purchaser shall be entitled to an injunction or injunctions to prevent breaches
of the provisions of this Agreement and to enforce specifically this Agreement
and the terms and provisions of this Agreement in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
parties and the matter (subject to the provisions set forth in Section 6.9), in
addition to any other remedy to which they may be entitled, at law or in equity.
30
<PAGE>
9.14 SUBMISSION TO JURISDICTION. Each of the parties submits to the
jurisdiction of any state or federal court sitting in Austin, Texas, in any
action or proceeding arising out of or relating to this Agreement and agrees
that all claims or proceedings will be heard and determined in any such court.
Each party also agrees not to bring any action or proceeding arising out of or
relating to this Agreement in any other court. Each of the parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of
any other party with respect thereto. Each party agrees that a final judgment
in any action or proceeding so brought shall be conclusive and may be enforced
by suit on the judgment or in any other manner provided by law or at equity.
9.15 GOOD FAITH. The parties agree to act in good faith in the performance
and enforcement of the Agreement.
9.16 ATTORNEYS' FEES. Except as otherwise provided in Section 6.10, if any
arbitration or action at law or in equity, including an action for declaratory
relief, is brought to enforce or interpret the provisions of this Agreement, the
prevailing party shall be entitled to recover reasonable attorneys' fees and
costs from the other party; provided, however, that no party shall be a
prevailing party unless such party has recovered more or paid less as a result
of arbitration or a final order resulting from judicial proceedings than the
amount offered by an opposing party to settle the dispute.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the date first written.
DAWSON PRODUCTION SERVICES, INC.
By: /s/ P. Mark Stark
-------------------------------------------
P. Mark Stark, Vice President and
Chief Financial Officer
MOBLEY COMPANY, INC.
By: /s/ W. Christopher Chisholm
-------------------------------------------
W. Christopher Chisholm, Vice President
31
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC.
By: /s/ W. Christopher Chisholm
------------------------------------------
W. Christopher Chisholm, Vice President
and Chief Financial Officer
32
<PAGE>
LIST OF SCHEDULES
-----------------
Schedule 1.1(a)(i) Fee Properties
Schedule 1.1(a)(ii) Leased Properties
Schedule 1.1(a)(iii) Trademarks
Schedule 1.1(a)(iv) Assigned Contracts
Schedule 1.1(a)(v) Vehicles
Schedule 1.1(a)(vi) Vehicle Operating Leases
Schedule 1.1(a)(vii) Equipment Leases
Schedule 1.1(a)(viii) Equipment
Schedule 1.1(a)(x) Personal Property
Schedule 1.1(a)(xi) Permits
Schedule 1.1(a)(xiii) Accounts Receivable
Schedule 1.1(b) Excluded Assets
Schedule 1.4(a) Assumed Liabilities
Schedule 3.1(a) Corporate Jurisdiction
Schedule 3.1(c) Validity of Contemplated Transactions
Schedule 3.1(e) Financial Statements
Schedule 3.1(i) Permitted Liens
Schedule 3.1(j) Compliance with Laws; Authorizations
Schedule 3.1(l) Litigation
Schedule 3.1(m) Contracts and Commitments
Schedule 3.1(n) Environmental Matters
Schedule 3.1(o) Real Properties
Schedule 3.1(q) Assets
Schedule 3.1(t) Employee Benefit Plans
Schedule 3.1(u) Personnel
Schedule 7.15 Additional Obligations
Schedule 9.1 Finders' Fees
33
<PAGE>
EXHIBIT 10.28
PROMISSORY NOTE
$500,000 Austin, Texas January 20, 1997
FOR VALUE RECEIVED, the undersigned, DAWSON PRODUCTION SERVICES, INC., a
Texas corporation ("MAKER"), promises to pay to MOBLEY COMPANY, INC., a Texas
corporation ("PAYEE"), the principal sum of FIVE HUNDRED THOUSAND DOLLARS
($500,000), together with interest on the unpaid principal balance from time to
time remaining at a rate per annum equal to eight and one-half percent (81/2%)
(calculated on the basis of actual days elapsed, but computed as if each
calendar year consisted of 365 days) (the "CONTRACT RATE"). The principal of
and accrued interest on this Note shall be due and payable in lawful money of
the United States of America, in Austin, Texas, at the office of Payee, c/o
Brown McCarroll & Oaks Hartline, 111 Congress Avenue, Suite 1400, Austin, Texas,
78701.
1. PAYMENTS; MATURITY. The principal of this Note shall be due and
payable on or before the fifth anniversary date of this Note. Payments of
interest shall be due and payable, in arrears, beginning March 31, 1997, and
continuing on the last day of each succeeding calendar quarter thereafter until
the date all principal hereof is paid.
2. LATE PAYMENTS. All past due principal of and accrued interest on this
Note shall bear interest from maturity until paid at a rate per annum equal to
the lesser of (a) eighteen percent (18%) or (b) the Highest Lawful Rate (as
hereinafter defined).
3. PREPAYMENTS. Maker shall be permitted to prepay the indebtedness
evidenced hereby, all or in part, at any time, without penalty.
4. EVENTS OF DEFAULT AND REMEDIES. Except as provided in Section 15
hereof, the entire unpaid principal balance of, and all accrued interest on,
this Note shall immediately become due and payable at the option of Payee upon
the occurrence of one or more of the following events of "DEFAULT:"
(i) The failure or refusal of Maker to pay any installment of
principal or accrued interest on this Note as and when the same becomes due and
payable in accordance with the terms hereof, which failure or refusal continues
for a period of 10 days following written notice thereof; or
1
<PAGE>
(ii) Maker shall (a) become insolvent within the meaning of the
Bankruptcy Code of the United States, as amended, (b) admit in writing its
inability to pay its debts generally as they become due, (c) voluntarily seek,
consent to, or acquiesce in the benefit or benefits of any Debtor Relief Law, or
(d) become a party to (or be made the subject of) any proceeding provided for by
any Debtor Relief Law. As used herein, "DEBTOR RELIEF LAW" means the Bankruptcy
Code of the United States and all other applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization,
or similar debtor relief laws from time to time in effect affecting the rights
of creditors generally.
5. CUMULATIVE RIGHTS. No delay on the part of Payee in the exercise of
any power or right under this Note shall operate as a waiver thereof, nor shall
a single or partial exercise of any such power or right.
6. WAIVER. Except as otherwise expressly provided herein, including the
condition that Payee shall provide Maker with written notice of default pursuant
to Section 4(i), Maker, and each surety, endorser, guarantor, and other party
ever liable for the payment of any sum of money payable on this Note, jointly
and severally waive demand, presentment, protest, notice of nonpayment, notice
of intention to accelerate, notice of protest, notice of acceleration and any
and all lack of diligence or any delay in collection or the filing of suit
hereon which may occur, and agree that their liability on this Note shall not be
affected by any renewal or extension in the time of payment hereof, by any
indulgences, or by any release or change in any security for the payment of this
Note, and hereby consent to any and all renewals of the number of such renewals,
extensions, indulgences, released or changes.
7. ATTORNEYS' FEES AND COSTS. If a Default occurs, and if thereafter
this Note is placed in the hands of an attorney for collection, or if this Note
is collected in whole or in part through legal proceedings of any nature, then
and in any such case, Maker promises to pay all costs of collection, including
but not limited to reasonable attorneys' fees incurred by Payee on account of
such collection, whether or not suit is filed.
8. NOTICES. Any notice or demand given hereunder by Payee shall be
deemed to have been given and received (a) when actually delivered to the
address of the party to be notified or delivered in person, (b) if mailed, on
the third Business Day (hereinafter defined) after it is deposited in the United
States mail, certified, return receipt requested or (c) one Business Day after
it has been deposited with an overnight courier, marked for next day delivery.
For purposes hereof, the address of Payee is as set forth above.
9. GOVERNING LAW. THIS NOTE IS DELIVERED IN AND IS INTENDED TO BE PAID
AND PERFORMED IN THE STATE OF TEXAS AND SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF TEXAS WITHOUT REGARD TO CHOICE OF LAW OR CONFLICTS OF LAW PRINCIPLES.
2
<PAGE>
10. SUCCESSORS AND ASSIGNS. This Note is binding on Maker and its
successors and assigns. Payee shall not be entitled to transfer, assign,
hypothecate or otherwise encumber this Note in any manner.
11. MAXIMUM INTEREST RATE. Regardless of any provision contained herein,
or in any other documents or instruments executed in connection herewith, Payee
shall never be entitled to receive, collect or apply, as interest hereon, any
amount in excess of the Highest Lawful Rate and if Payee ever receives, collects
or applies, as interest, any such excess, such amount which would be excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and, if the principal hereof is paid in full, any remaining excess
shall be refunded to Maker. In determining whether or not the interest paid or
payable, under any specific contingency, exceeds the Highest Lawful Rate, Maker
and Payee shall, to the maximum extent permitted under applicable law, (a)
characterize any nonprincipal payment as an expense, fee or premium rather than
as interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
spread the total amount of interest throughout the entire contemplated term
hereof; provided that if the interest received for the actual period of
existence hereof exceeds the Highest Lawful Rate, Payee shall either apply or
refund to Maker the amount of such excess as herein provided, and neither party
shall not be subject to any penalties provided by any laws for contracting for,
charging or receiving interest in excess of the Highest Lawful Rate. The term
"HIGHEST LAWFUL RATE" means, at any given time during which indebtedness shall
be outstanding hereunder, the maximum nonusurious interest rate, if any, that at
any time or from time may be contracted for, taken, reserved, charged, or
received on the indebtedness evidenced by this Note under the laws of the United
States and the State of Texas applicable hereto which are presently in effect
or, to the extent allowed by law, under such applicable laws of the United
States and the State of Texas which may hereafter be in effect and which allow a
higher maximum nonusurious interest rate than applicable laws now allow, in any
case after taking into account, to the extent required by applicable law, any
and all relevant payments or charges under this Note and any documents executed
in connection herewith.
12. ASSET PURCHASE AGREEMENT. This Note has been executed and delivered
by Maker to Payee pursuant to the terms and provisions of that certain Asset
Purchase Agreement (as the same may hereafter be amended from time to time,
herein called the "PURCHASE AGREEMENT"), of even date herewith, executed by
Maker, Payee and others.
13. SUBORDINATION. All indebtedness evidenced by this Note, including the
principal thereof and interest thereon, shall be subordinated and junior in
right of payment to the Maker's obligations for borrowed money to its other
creditors, whether such obligations are now outstanding or hereafter incurred,
and in case of any bankruptcy, insolvency, receivership, conservatorship,
reorganization, readjustment of debt, marshaling of assets and liabilities or
similar proceedings, or any liquidation or winding-up of or relating to Maker,
whether voluntary or involuntary, all such other obligations for borrowed money
shall be entitled to be paid in full before any payment shall be made on account
of the principal of or interest on this Note. In the
3
<PAGE>
event of any such proceeding, after payment in full of all sums owing with
respect to such prior obligations, Payee, together with the holders of any
obligations of Maker ranking on a parity herewith, shall be entitled to be paid
the unpaid principal thereof and interest thereon from the remaining assets of
Maker before any payment or other distribution, whether in cash, property or
otherwise, shall be made on account of any obligations of Maker subordinate
hereto. Upon a default in the timely payment of principal or interest on any of
Maker's indebtedness senior hereto, Maker shall cease making payments of
principal or interest on this Note; however, at such time if at all as the
aforementioned senior indebtedness is made current, Maker shall bring current
its payments of principal and interest (including all arrearages) on this Note.
14. OFFSET. Maker's obligations under this Note are subject to the
provisions of Section 6.6 of the Purchase Agreement.
15. MERGER, CONSOLIDATION, ETC.
(i) Upon any consolidation of Maker with or merger of Maker with or
into another entity, or any sale, lease or other transfer or conveyance to
another entity of all or substantially all the property of Maker, Maker shall
provide Payee with written notice of such proposed transaction. In case of any
such consolidation, merger, sale, lease or other transfer or conveyance, the
entity resulting from such consolidation or surviving such merger or to which
such sale or transfer shall be made, as the case may be, shall make suitable
provision (which shall be fair and equitable to the holder of the Note) and
shall assume the obligations of Maker hereunder (by written instrument executed
and delivered to Maker).
16. NOTICE. Maker shall give written notice to Payee of the occurrence
of any event described in Section 13, Section 14 or Section 15 no less than 30
days prior to the closing of such event. Such notice shall be deemed given when
as provided in Section 8 above.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the day
and year first above written.
DAWSON PRODUCTION SERVICES, INC.
By: /S/ P. MARK STARK
-------------------------------------
P. Mark Stark, Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 10.29
FIRST AMENDMENT TO LETTER LOAN AGREEMENT
AND
MASTER LEASE MODIFICATION AGREEMENT
THIS FIRST AMENDMENT TO LETTER LOAN AGREEMENT AND MASTER LEASE MODIFICATION
AGREEMENT ("AMENDMENT AND MODIFICATION AGREEMENT") is made and entered into as
of January 20, 1997, by and between MOBLEY ENVIRONMENTAL SERVICES, INC., a
Delaware corporation (herein called "BORROWER"), and BANK ONE, TEXAS, N.A., a
national banking association (herein called "BANK").
R E C I T A L S:
WHEREAS, Borrower and Bank entered into a Letter Loan Agreement dated June
2, 1995 (the "LOAN AGREEMENT"; the terms defined therein being used herein as
therein defined unless otherwise defined herein);
WHEREAS, Borrower and Banc One Leasing Corporation, an Ohio corporation
("ORIGINAL LESSOR"), entered into a Master Lease Agreement dated February 9,
1996 pursuant to which equipment was to be leased from time to time by the
attachment thereto of one of more lease schedules (such lease agreement,
together with all lease schedules attached thereto herein called the "MASTER
LEASE AGREEMENT");
WHEREAS, pursuant to lease schedule no. 1000049223 between Borrower and the
Original Lessor, certain motor vehicles and equipment having a total cost of
$699,860.35 were leased, on a financing lease basis, by the Original Lessor to
Borrower, such lease term expiring on February 15, 2001 ("LEASE SCHEDULE NO.
49223");
WHEREAS, pursuant to lease schedule no. 1000049649 between Borrower and the
Original Lessor, certain equipment associated with the Mobley Distillate Fuel
Plant located at 4415 E. Greenwood, Baytown, Texas (the "DISTILLATE PLANT"),
having a total cost of $1,800,515.65 was leased, on a financing lease basis, by
the Original Lessor to Borrower, such lease term expiring on March 15, 2003
("LEASE SCHEDULE NO. 49649");
WHEREAS, pursuant to an Assignment and Bill of Sale dated February 15,
1996, the Original Lessor assigned to Banc One Texas Leasing Corporation
("SUCCESSOR LESSOR") all of its rights, titles and interests in and to Lease
Schedule No. 49223;
WHEREAS, pursuant to an Assignment and Bill of Sale dated March 15, 1996,
the Original Lessor assigned to Successor Lessor all of its rights, titles and
interests in and to Lease Schedule No. 49649;
<PAGE>
WHEREAS, pursuant to an Assignment and Bill of Sale dated January 10, 1997,
the Successor Lessor assigned to Bank all of its rights, titles and interests in
and to Lease Schedule No. 49223 and Lease Schedule No. 49649;
WHEREAS, the Distillate Plant is located on certain property owned by
Mobley Company, Inc., a Texas corporation and wholly-owned subsidiary of
Borrower ("MCI"), in Chambers County, Texas;
WHEREAS, Borrower has subsequent to the execution of the Loan Agreement
formed a new subsidiary called Hydrocarbon Technologies, Inc. ("HTI") and HTI
has guaranteed Borrower's indebtedness owing under the Loan Agreement and
Master Leasse Agreement;
WHEREAS, Borrower and Bank desire to amend the Loan Agreement to provide
for (i) the release by the Bank of certain liens and security interests in
assets of the Borrower (and MCI) comprising Borrower's (or MCI's) oil field
services business which is being sold to Dawson Production Services, Inc.
("DAWSON PRODUCTION") for a cash sale price estimated to be approximately
$5,000,000 (such sale price, less any associated closing costs and adjustments
payable by Borrower herein called the "SALE PROCEEDS"), (ii) Borrower's
directing that all of the Sale Proceeds be paid to Bank and Bank being
instructed to use the Sale Proceeds, first, to prepay in full all amounts owing
under the Master Lease Agreement (such amount if paid on or before January 21,
1997 totalling $2,300,401.46 and herein called the "LEASE PAYOFF AMOUNT")
including, without limitation, $622,534.04 under Lease Schedule No. 49223 (with
a per diem $159.28) and $1,677,858.42 under Lease Schedule No. 49649 (with a
per diem $409.77) and then to apply the balance (the "REVOLVING LINE OF CREDIT
PAYDOWN AMOUNT") to paydown the Revolving Line of Credit, (iii) limiting Bank's
obligation to make further advances under the Revolving Line of Credit to an
aggregate amount (the "READVANCE AMOUNT") equal to the difference between (a)
the sum of the Lease Payoff Amount plus the Revolving Line of Credit Paydown
Amount and (b) $3,300,000.00, (iv) terminating Bank's obligation to issue
letters of credit under the Revolving Line of Credit and terminating Bank's
obligation to make further advances under the Advancing Line of Credit, and (v)
changing the Termination Date from June 2, 1997 to March 31, 1997; and
WHEREAS, Borrower and Bank desire to amend the Master Lease Agreement to
provide for (i) the release by the Bank of certain liens and security interests
in lease financed assets of the Borrower (and MCI) comprising Borrower's (and
MCI's) oil field services business which is being sold to Dawson Production for
a cash sale price estimated to be approximately $5,000,000, (ii) Borrower's
directing that all of the Sale Proceeds be paid to Bank and Bank being
instructed to use the Sale Proceeds, first, to pay the Lease Payoff Amount to
Bank and then to apply the Revolving Line of Credit Paydown Amount to paydown
the Revolving Line of Credit, (iii) changing the final date of the lease term
for Lease No. 49223 from February, 15, 2001 to January 20, 1997, and (iv)
changing the final date of the lease term for Lease No. 49649 from March 15,
2003 to January 20, 1997.
2
<PAGE>
A G R E E M E N T:
NOW, THEREFORE, in consideration of the mutual promises herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, Borrower, MCI and Bank hereby agree as hereinafter set forth.
1. AMENDMENTS TO LOAN AGREEMENT. The Loan Agreement is effective the
date hereof and subject to the satisfaction of the conditions precedent set
forth in Section 4 hereof, hereby amended as follows:
(a) The first paragraph of the Loan Agreement is hereby deleted and the
following substituted therefor:
"This Letter Loan Agreement (the "LOAN AGREEMENT"), as amended by
that certain First Amendment to Letter Loan Agreement and Master Lease
Modification Agreement dated January 20, 1997 (the "FIRST AMENDMENT"),
will serve to set forth the terms of the financing transactions by and
between Mobley Environmental Services, Inc., a Delaware corporation
("BORROWER"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION ("BANK"):"
(b) Section 1(a) of the Loan Agreement is hereby amended by deleting the
date "June 2, 1997" and substituting therefor the date "March 31, 1997",
which date will be the new definition of the defined term "Termination
Date".
(c) Section 1 of the Loan Agreement is hereby amended by adding thereto a
new subsection (c) to read in its entirety as follows:
"(c) Anything to the contrary herein notwithstanding, from and after
January 20, 1997 (i) Bank shall not be obligated to make revolving
credit advances to Borrower under the Revolving Line of Credit except
that the Readvance Amount (as defined in the First Amendment) shall be
advanced by the Bank under the Revolving Line of Credit provided there
is availability under the Borrowing Base, (ii) Bank shall not be
obligated to issue letters of credit for the account of Borrower, and
(iii) Bank shall not be obligated to make loans to Borrower under the
Advancing Line of Credit. Anything to the contrary herein
notwithstanding, Borrower hereby agrees to repay to Bank on or before
March 31, 1997 all Indebtedness owing by Borrower to Bank including,
without limitation, all amounts outstanding under this Loan Agreement,
the Revolving Line of Credit and the Advancing Line of Credit.
Anything to the contrary herein notwithstanding, Borrower agrees on or
before March 31, 1997 to deposit with Bank cash in an amount equal to
the sum of (i) the amount of any unfunded letter of credit obligation
issued by Bank for Borrower's account outstanding as of March 31, 1997
plus (ii) such amount as may be reasonably estimated by Bank to cover
incidental costs and expenses associated with processing and/or
honoring a drawing under such letters of credit, such deposit to be
held by Bank and used to reimburse Bank for any drawing on any such
letter(s) of credit and the costs
3
<PAGE>
associated therewith or, if no such drawing is made before the
termination of such letter(s) of credit, then the amount of such
deposit shall be refunded to Borrower."
(d) Section 3 of the Loan Agreement is hereby designated as subsection
3(a) and a new subsection 3(b) is added thereto to read in its entirety as
follows:
"(b) In connection with the sale of Borrower's oil field service
business to Dawson Production Services, Inc., Borrower agrees to
direct that all of the Sale Proceeds (as defined in the First
Amendment) be paid to Bank and to instruct the Bank to use the Sale
Proceeds, first, to pay to the Lease Payoff Amount (as defined in the
First Amendment) and then to apply the Revolving Line of Credit
Paydown Amount (as defined in the First Amendment) to paydown the
Revolving Line of Credit. In consideration for such payments, Bank
agrees to execute a release in the form attached to the First
Amendment as EXHIBIT "A" (the "RELEASE") and to additionally execute
such partial releases on form UCC-3 as may be necessary or required to
reflect of record the release of the Bank's lien on and security
interest in the items of Collateral set forth in the Release. Bank
also agrees with respect to all items of Collateral set forth in the
Release for which motor vehicle certificates of title have been
issued, to deliver to Borrower the originals of all such motor vehicle
certificates of title, duly signed by Bank to release the Bank's lien
on such motor vehicle certificate."
2. SHORTENING OF MATURITY OF NOTES. The Bank is hereby authorized to
endorse on the Notes the following legend: "The maturity of this Note has been
shortened to March 31, 1997 pursuant to a First Amendment to Loan Agreement and
Master Lease Modification Agreement dated as of January 20, 1997 amending the
Loan Agreement referred to in this Note" or a legend of similar effect.
3. AMENDMENTS TO MASTER LEASE AGREEMENT. The Master Lease Agreement is
effective the date hereof and subject to the satisfaction of the conditions
precedent set forth in Section 4 hereof, hereby amended as follows:
(a) LEASE SCHEDULE NO. 49223. Lease Schedule No. 49223 is hereby amended
by making all changes necessary therein to make January 20, 1997 the last
day of the Lease Term (as therein defined) and the Bank is hereby
authorized to endorse on Lease Schedule No. 49223 the following legend:
"The term of this Lease Schedule has been shortened so that January 20,
1997 is the last day of the Lease Term pursuant to a First Amendment to
Loan Agreement and Master Lease Modification Agreement dated as of January
20, 1997 amending this Lease Schedule" or a legend of similar effect.
(b) LEASE SCHEDULE NO. 49649. Lease Schedule No. 49649 is hereby amended
by making all changes necessary therein to make January 20, 1997 the last
day of the Lease Term (as therein defined) and the Bank is hereby
authorized to endorse on Lease Schedule No. 49649 the following legend:
"The term of this Lease Schedule has been shortened so that January 20,
1997 is the last day of the Lease Term pursuant to a First
4
<PAGE>
Amendment to Loan Agreement and Master Lease Modification Agreement dated
as of January 20, 1997 amending this Lease Schedule" or a legend of similar
effect.
4. CONDITIONS OF EFFECTIVENESS. This Amendment and Modification
Agreement shall become effective when, and only when, Bank shall have received
the following:
(a) counterparts of this Amendment and Modification Agreement executed by
Borrower and MCI;
(c) Consent of Guarantors from MCI and HTI (the "CONSENT OF GUARANTORS"),
substantially in the form of EXHIBIT "B" attached hereto;
(d) a borrowing base certificate dated as of January 20, 1997 showing that
giving effect to (i) the sale of the Borrower's (and MCI's) oil field
services business to Dawson Production, (ii) the application of the
Revolving Line of Credit Paydown Amount to the Revolving Line of Credit,
and (iii) the relending of the Readvance Amount, the amount outstanding on
the Revolving Line of Credit plus the amount of issued and outstanding
letters of credit would not exceed the Borrowing Base, as adjusted to take
into account the sale of the Borrower's and MCI's oil field services
business to Dawson Production;
(e) executed originals of the following:
(i) UCC-1 Financing Statement from Borrower in favor of Banc One
Texas Leasing Corporation to be filed with the Texas Secretary of
State;
(ii) UCC-1 Financing Statement from Borrower in favor of Banc One
Texas Leasing Corporation to be filed with the Arkansas Secretary
of State;
(iii) UCC-1 Financing Statement from Borrower in favor of Banc One
Texas Leasing Corporation to be filed with the Louisiana
Secretary of State;
(iv) UCC-1 Financing Statement from HTI in favor of Bank to be filed
with the Texas Secretary of State;
(v) UCC-1 Financing Statement from HTI in favor of Bank to be filed
with the Arkansas Secretary of State;
(vi) UCC-1 Financing Statement from HTI in favor of Bank to be filed
with the Louisiana Secretary of State;
(vii) Fixture Filing Financing Statement from HTI in favor of Bank to
be filed in the Real Property Records of Chambers County, Texas;
(viii) Fixture Filing Financing Statement from Borrower in favor of Bank
to be filed in the Real Property Records of Chambers County,
Texas;
5
<PAGE>
(ix) Deed of Trust, Security Agreement and Financing Statement from
MCI in favor of Bank to be filed in the Real Property Records of
Chambers County, Texas;
(x) Unlimited Guaranty from HTI in favor of Bank;
(xi) Security Agreement from HTI in favor of Bank; and
(f) any additional documentation or materials reasonably required by Bank.
5. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents and
warrants as follows:
(a) Borrower is duly authorized and empowered to execute, deliver and
perform this Amendment and Modification Agreement and all other instruments
referred to or mentioned herein to which it is a party, and all action on
its part requisite for the due execution, delivery and the performance of
this Amendment and Modification Agreement has been duly and effectively
taken. This Amendment and Modification Agreement, when executed and
delivered, will constitute valid and binding obligations of Borrower
enforceable in accordance with its terms. This Amendment and Modification
Agreement does not violate any provisions of Borrower's Articles of
Incorporation, By-Laws, or any contract, agreement, law or regulation to
which Borrower is subject, and does not require the consent or approval of
any regulatory authority or governmental body of the United States or any
state.
(b) After giving effect to (i) the sale of the Borrower's (and MCI's) oil
field services business to Dawson Production, (ii) the application of the
Revolving Line of Credit Paydown Amount to the Revolving Line of Credit,
and (iii) the relending of the Readvance Amount, the amount outstanding on
the Revolving Line of Credit plus the amount of issued and outstanding
letters of credit does not exceed the Borrowing Base, as adjusted to take
into account the sale of the Borrower's and MCI's oil field services
business to Dawson Production.
(c) Borrower has no subsidiaries other than Mobley Company, Inc.,
Hydrocarbon Technologies, Inc. and Mobley Vehicle Acquisition Corp. and
Mobley Vehicle Acquisition Corp. will be sold to Dawson Production as part
of the sale of the Borrower's and MCI's oil field services business.
(d) Borrower represents that the indebtedness evidenced by the Master
Lease Agreement and Lease Schedules No. 49223 and 49649 was originally
funded under the Loan Agreement and Advancing Line of Credit and
constituted "Indebtedness" as defined in that certain Security Agreement
dated June 2, 1995 between Borrower and Bank (the "SECURITY AGREEMENT"),
was rolled into the lease financing at the election of Borrower and that
Borrower contemplated if Bank reacquired the indebtedness evidenced by the
Master Lease Agreement and Lease Schedules No. 49223 and 49649 it would be
"Indebtedness" secured by such Security Agreement.
6
<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF MCI. MCI represents and warrants
that it is duly authorized and empowered to execute, deliver and perform this
Amendment and Modification Agreement, the Consent of Guarantors and all other
instruments referred to or mentioned herein to which it is a party, and all
action on its part requisite for the due execution, delivery and the performance
of this Amendment and Modification Agreement, the Consent of Guarantors and all
other instruments referred to or mentioned herein to which it is a party, have
been duly and effectively taken. This Amendment and Modification Agreement, the
Consent of Guarantors and all other instruments referred to or mentioned herein
to which it is a party, when executed and delivered, will constitute valid and
binding obligations of MCI enforceable in accordance with their respective
terms. Neither this Amendment and Modification Agreement, the Consent of
Guarantors nor any of the other instruments referred to or mentioned herein to
which it is a party violates any provisions of MCI's Articles of Incorporation,
By-Laws, or any contract, agreement, law or regulation to which MCI is subject,
and none of the foregoing require the consent or approval of any regulatory
authority or governmental body of the United States or any state.
7. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the effectiveness of Section 1 hereof, on and after the date
hereof each reference in the Loan Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each reference
in the other Loan Documents, shall mean and be a reference to the Loan
Agreement as amended hereby.
(b) Except as specifically amended above, the Loan Agreement and the
Notes and all other instruments securing or guaranteeing Borrower's
obligations to Bank (the "LOAN DOCUMENTS") shall remain in full force and
effect and are hereby ratified and confirmed. Without limiting the
generality of the foregoing, the Loan Documents and all collateral
described therein do and shall continue to secure the payment of all
obligations of Borrower under the Loan Agreement and the Notes, as amended
hereby, and under the other Loan Documents.
(c) The execution, delivery and effectiveness of this Amendment and
Modification Agreement shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of Bank under any of the
Loan Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
8. REFERENCE TO AND EFFECT ON THE MASTER LEASE AGREEMENT, LEASE SCHEDULE
49223 AND LEASE SCHEDULE NO. 49649.
(a) Upon the effectiveness of Section 3 hereof, on and after the date
hereof each reference in the Master Lease Agreement to "this Lease", "this
Master Lease Agreement", "hereunder", "hereof", "herein" or words of like
import, and each reference in the lease schedules, shall mean and be a
reference to the Master Lease Agreement as amended hereby.
7
<PAGE>
(b) Upon the effectiveness of Section 3 hereof, on and after the date
hereof each reference in Lease Schedule No. 49223 to "this Lease Schedule",
"hereunder", "hereof", "herein" or words of like import, and each reference
in the Master Lease Agreement, shall mean and be a reference to Lease
Schedule No. 49223 as amended hereby.
(c) Upon the effectiveness of Section 3 hereof, on and after the date
hereof each reference in Lease Schedule No. 49649 to "this Lease Schedule",
"hereunder", "hereof", "herein" or words of like import, and each reference
in the Master Lease Agreement, shall mean and be a reference to Lease
Schedule No. 49649 as amended hereby.
(d) Except as specifically amended above, the Loan Agreement and the
Notes and all other instruments securing or guaranteeing Borrower's
obligations to Bank (the "LOAN DOCUMENTS") shall remain in full force and
effect and are hereby ratified and confirmed. Without limiting the
generality of the foregoing, the Loan Documents and all collateral
described therein do and shall continue to secure the payment of all
obligations of Borrower under the Loan Agreement and the Notes, as amended
hereby, and under the other Loan Documents.
(e) Except as specifically amended above, the Master Lease Agreement
and schedules thereto and all other instruments securing or guaranteeing
Borrower's obligations to Bank (the "LEASE DOCUMENTS") shall remain in full
force and effect and are hereby ratified and confirmed. Without limiting
the generality of the foregoing, the Lease Documents and all collateral
described therein do and shall continue to secure the payment of all
obligations of Borrower under the Master Lease Agreement and the schedules
thereto, as amended hereby, and under the other Lease Documents.
(f) The execution, delivery and effectiveness of this Amendment and
Modification Agreement shall not, except as expressly provided herein (i)
operate as a waiver of any right, power or remedy of Bank under any of the
Loan Documents, nor constitute a waiver of any provision of any of the Loan
Documents or (i) operate as a waiver of any right, power or remedy of Bank
under any of the Lease Documents, nor constitute a waiver of any provision
of any of the Lease Documents.
9. WAIVER. As additional consideration for the execution, delivery and
performance of this Amendment and Modification Agreement by the parties hereto
and to induce Bank to enter into this Amendment and Modification Agreement,
Borrower and MCI warrant and represent to Bank that no facts, events, statuses
or conditions exist or have existed which, either now or with the passage of
time or giving of notice, or both, constitute or will constitute a basis for any
claim or cause of action against Bank or any defense to (i) the payment of any
obligations and indebtedness under the Notes, Loan Documents and/or Lease
Documents or (ii) the performance of any of their obligations with respect to
the Notes, Loan Documents and/or Lease Documents, and in the event any such
facts, events, statuses or conditions exist or have existed, Borrower and MCI
unconditionally and irrevocably waive any and all claims and causes
8
<PAGE>
of action against Bank and any defense to their payment and performance
obligations in respect to the Notes, Loan Documents and Lease Documents.
10. COSTS AND EXPENSES. Borrower agrees to pay on demand all costs and
expenses of Bank in connection with the preparation, reproduction, execution and
delivery of this Amendment and Modification Agreement and the other instruments
and documents to be delivered hereunder, including the reasonable fees and
out-of-pocket expenses of counsel for Bank. In addition, Borrower shall pay any
and all fees payable or determined to be payable in connection with the
execution and delivery, filing or recording of this Amendment and Modification
Agreement and the other instruments and documents to be delivered hereunder, and
agrees to save Bank harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such fees,
except such liabilities arising from the gross negligence of Bank.
11. EXECUTION IN COUNTERPARTS. This Amendment and Modification Agreement
may be executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
12. GOVERNING LAW. This Amendment and Modification Agreement shall be
governed by and construed in accordance with the laws of the State of Texas
insofar as it amends the Loan Documents and by the laws of the State of Ohio
insofar as it amends the Lease Documents.
13. FINAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed in multiple counterparts, each of which is an original instrument
for all purposes, all as of the day and year first above written.
"BORROWER"
MOBLEY ENVIRONMENTAL
SERVICES, INC.
By: /s/ W. Christopher Chisholm
----------------------------------------------
W. Christopher Chisholm
Vice President and CFO
"MCI"
MOBLEY COMPANY, INC.
By: /s/ W. Christopher Chisholm
----------------------------------------------
W. Christopher Chisholm
Secretary-Treasurer
"BANK"
BANK ONE, TEXAS, N.A.
By: /s/ Randall B. Durant
----------------------------------------------
Randall B. Durant
Vice President
10
<PAGE>
EXHIBIT "A"
FULL RELEASE OF LIEN
In consideration of the payment of $_________ by MOBLEY ENVIRONMENTAL
SERVICES, INC., a Delaware corporation ("BORROWER"), to BANK ONE, TEXAS, N.A., a
national banking association ("BANK"), (A) in partial payment of amounts owing
by Borrower to Bank under that certain Letter Loan Agreement dated June 2, 1995
by and between Borrower and Bank, as amended by that certain First Amendment to
Letter Loan Agreement and Master Lease Modification Agreement dated of even date
herewith (as amended, the "LOAN AGREEMENT"), and (B) in full payment of all
amounts owing by Borrower to Bank under that certain Master Lease Agreement
dated February 9, 1996 and the lease schedules related thereto between Borrower,
as lessee, and BANC ONE LEASING CORPORATION, as lessor (BANC ONE LEASING
CORPORATION having assigned its rights thereunder to BANC ONE TEXAS LEASING
CORPORATION, and BANC ONE TEXAS LEASING CORPORATION having assigned its rights
thereunder to Bank), as amended by that certain First Amendment to Letter Loan
Agreement and Master Lease Modification Agreement dated of even date herewith
(as amended, the "MASTER LEASE AGREEMENT"), Bank hereby releases and discharges
all of its rights, titles and interests in and to the items of collateral
described on EXHIBIT "A" attached hereto and incorporated herein by reference
previously pledged by Borrower as security for amounts owing under the Loan
Agreement and Master Lease Agreement.
EXECUTED this 20th day of January, 1997.
BANK ONE, TEXAS, N.A.
By:
------------------------------------
Randall B. Durant
Vice President
A-1
<PAGE>
EXHIBIT "B"
CONSENT OF GUARANTORS
Dated as of January 20, 1997
The undersigned, MOBLEY COMPANY, INC., a Texas corporation, and HYDROCARBON
TECHNOLOGIES, INC., a Texas corporation, as the Guarantors referred to in the
attached First Amendment to Letter Loan Agreement and Master Lease Modification
Agreement (the "AMENDMENT"), hereby consent to the Amendment and hereby confirm
and agree that (i) the Loan Documents (which specifically includes the Unlimited
Guaranty executed by each of the undersigned) in effect on the date hereof to
which it is a party is, and shall continue to be, in full force and effect and
is hereby confirmed and ratified in all respects except that, upon the
effectiveness of, and on and after the date of, the Amendment, all references in
such Loan Documents to the Loan Agreement and Notes shall mean the Loan
Agreement and Notes as amended by the Amendment, and (ii) such Loan Documents
consisting of guaranties, security agreements and deeds of trust and all of the
collateral described therein do, and shall continue to, secure the payment by
the Borrower of its obligations under the Loan Agreement and Notes, as amended
by the Amendment, except to the extent certain of the collateral is specifically
released pursuant to the Amendment.
MOBLEY COMPANY, INC.
By:
-----------------------------------------
W. Christopher Chisholm
Secretary-Treasurer
HYDROCARBON TECHNOLOGIES,
INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
B-1
<PAGE>
EXHIBIT 10.30
DEED OF TRUST, SECURITY AGREEMENT
AND FINANCING STATEMENT
THE STATE OF TEXAS Section
Section KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF CHAMBERS Section
THAT THE UNDERSIGNED, MOBLEY COMPANY, INC., a Texas corporation whose
address is 4415 E. Greenwood, Baytown, Texas 77520 (hereinafter called
"Grantor"), for and in consideration of the indebtedness hereinafter described,
has granted, bargained, sold and conveyed, and by these presents does grant,
bargain, sell and convey, in trust, unto CHRISTOPHER T. KLIMKO of Dallas County,
Texas whose address is 1717 MAIN STREET, BANK ONE CENTER, DALLAS, TEXAS 75201,
as Trustee and all substitute trustees hereunder (all of whom are hereinafter
called "Trustee"), and unto his or their successors and assigns, forever, all
and singular the property hereinafter described, situated in the County of
Chambers and State of Texas, to wit:
ALL THOSE CERTAIN LOTS OR PARCELS OF LAND IN CHAMBERS COUNTY, TEXAS
MORE PARTICULARLY DESCRIBED ON EXHIBIT "A" ATTACHED HERETO AND MADE A
PART HEREOF FOR ALL PURPOSES,
together with (a) all rights, titles, interests, estates, reversions and
remainders owned and to be owned by Grantor in and to the above described
premises and in and to the properties covered hereby and all lands owned or to
be owned by Grantor next or adjacent to any land herein described or herein
mentioned; (b) all buildings and improvements now or hereafter located on the
lands described or mentioned; (c) all rights, titles and interests now owned or
hereafter acquired by Grantor in and to all easements, streets and rights-of-way
of every kind and nature adjoining the said lands, and all public or private
utility connections thereto, and all appurtenances, servitudes, rights, ways,
privileges and prescriptions thereunto; (d) the escrowed sums described in
paragraph (5) hereof, all goods, equipment, fixtures, inventory, machinery,
furniture, furnishings and other personal property that is now owned or
hereafter acquired by Grantor and now or hereafter affixed to, or located on,
the above described real estate and used or usable for any present or future
operation of any building or buildings now or hereafter located on said lands,
including without limitation, all rights, titles and interests of Grantor in and
to any such personal property that may be subject to any title retention or
security agreement superior in lien or security interest to the lien or security
interest of this Deed of Trust; (e) all permits, licenses, franchises,
certificates, utility commitments and/or reservations, wastewater capacity
reservations and other rights and privileges obtained in connection with the
property described herein; (f) all rights, titles and interests of Grantor in
and to all timber to be cut, or crops to be harvested, from the real estate
covered hereby and all minerals in, under, and upon,
<PAGE>
produced and to be produced from said real estate; and without limitation of the
foregoing, any and all rights, rents, revenues, benefits, leases, contracts,
accounts, general intangibles, money, instruments, documents, tenements,
hereditaments and appurtenances now or hereafter owned by Grantor and
appertaining to, generated from, arising out of or belonging to the
above-described properties or any part thereof (all of the aforesaid being
hereinafter sometimes called the "Mortgaged Property").
TO HAVE AND TO HOLD the Mortgaged Property unto Trustee and his assigns,
forever, and Grantor does hereby bind Grantor, its successors and assigns, to
warrant and forever defend the Mortgaged Property unto Trustee, his successors
and assigns, forever, against the claim or claims of all persons whomsoever
claiming or to claim the same, or any part thereof.
This conveyance is made in trust, however, to secure and enforce (i) the
payment of all amounts that may be owing by MOBLEY ENVIRONMENTAL SERVICES, INC.,
a Delaware corporation ("Borrower") to BANK ONE, TEXAS, N.A., a national banking
association with offices at 910 Travis Street, Houston, Texas 7002
("Beneficiary") pursuant to (a) that certain Letter Loan Agreement dated June 2,
1995 between Borrower and Beneficiary (the "Letter Loan Agreement") including,
without limitation, all amounts owing pursuant to that certain $4,000,000.00
Revolving Line of Credit Promissory Note dated June 2, 1995 and that certain
$2,500,000.00 Advancing Line of Credit Promissory Note also dated June 2, 1995,
both of which notes have a maturity date of June 2, 1997 (collectively, the
"Notes") and (b) that certain Master Lease Agreement dated February 9, 1996
between Banc One Leasing Corporation, as lessor ("Original Lessor"), and
Borrower, as lessee, pursuant to which equipment was to be leased from time to
time by the attachment thereto of one or more lease schedules (such lease
agreement, together with all lease schedules attached thereto herein called the
"Master Lease Agreement"), including specifically that certain lease schedule
no. 1000049223 between Borrower and the Original Lessor, pursuant to which
certain motor vehicles and equipment having a total cost of $699,860.35 were
leased, on a financing lease basis, by the Original Lessor to Borrower, such
lease term expiring on February 15, 2001 ("Lease Schedule No. 49223") and that
certain lease schedule no. 1000049649 between Borrower and the Original Lessor
pursuant to which certain equipment having a total cost of $1,800,515.65 was
leased, on a financing lease basis, by the Original Lessor to Borrower, such
lease term expiring on March 15, 2003 ("Lease Schedule No. 49649"); Lease
Schedule No. 49223 having been assigned by the Original Lessor to Banc One Texas
Leasing Corporation pursuant to an Assignment and Bill of Sale dated February
15, 1995 and Lease Schedule No. 49649 having been assigned by the Original
Lessor to Banc One Texas Leasing Corporation pursuant to an Assignment and Bill
of Sale dated March 15, 1996; Lease Schedule No. 49223 and Lease Schedule
No. 49649 having been further assigned by Banc One Texas Leasing Corporation to
Beneficiary pursuant to an Assignment and Bill of Sale dated January 10, 1997,
(ii) the payment of all amounts that may be owing by Grantor to Beneficiary
pursuant to (a) that certain Unlimited Guaranty dated June 2, 1995 guaranteeing
payment of the Notes (the "Note Guaranty"), such Notes providing in part, that
if certain defaults occur, the unpaid principal thereof and all accrued unpaid
interest may be declared due and payable, at the holder's option, prior to the
stated maturity thereof, and providing further for the payment of attorney's
fees and other expenses of collection under
2
<PAGE>
certain circumstances, (b) that certain Corporate Guaranty dated February 9,
1996 guaranteeing payment of Lease Schedule No. 49223 and all amounts owing
under the Master Lease Agreement (the "49223 Guaranty"), and (c) that certain
Corporate Guaranty dated March 8, 1996 guaranteeing payment of Lease Schedule
No. 49649 and all amounts owing under the Master Lease Agreement (the "49649
Guaranty"; the Note Guaranty, the 49223 Guaranty and the 49649 Guaranty
collectively herein called the "Guaranty") and (iii) the performance of all
covenants and agreements of Grantor herein.
This Deed of Trust, Security Agreement and Assignment of Rents (herein
called "Deed of Trust") shall secure, in addition to the Letter Loan Agreement,
Master Lease Agreement, Notes and Guaranty, all funds hereafter advanced by
Beneficiary to or for the benefit of Grantor, as contemplated by any covenant or
provision herein contained or for any other purpose, and all other indebtedness,
of whatever kind or character, owing or which may hereafter become owing by
Grantor to Beneficiary, whether such indebtedness is direct or indirect, primary
or secondary, fixed or contingent or arises out of or is evidenced by note, deed
of trust, open account, overdraft, endorsement, surety agreement, guaranty, or
otherwise, it being contemplated that Grantor may hereafter become indebted to
Beneficiary in further sum or sums (all of the aforesaid, including all amounts
payable under the Letter Loan Agreement, Master Lease Agreement, Notes and
Guaranty being hereinafter sometimes called the "Indebtedness"). Said
indebtedness shall be payable at the above stated address of Beneficiary or at
such other place as Beneficiary may hereafter direct in writing; and, unless
otherwise provided herein or in the instrument evidencing the Indebtedness,
shall bear interest at the same rate per annum as the Notes bear, from date of
accrual of the Indebtedness until paid. In addition, any and all attorney's
fees and expenses of collection payable under the terms of the Letter Loan
Agreement, Master Lease Agreement, Notes and/or Guaranty shall be and constitute
a part of the Indebtedness secured hereby. This Deed of Trust shall also secure
all renewals, rearrangements, extensions and enlargements of any of the
Indebtedness.
In order to better secure payment of the Indebtedness, and to secure
performance of Grantor'S covenants and agreements set forth herein, Grantor
hereby covenants and agrees with Beneficiary and with Trustee and represents and
warrants to Beneficiary and Trustee as follows:
1. PAYMENT OF INDEBTEDNESS. Grantor shall pay all of the Indebtedness,
together with the interest and other appurtenant charges thereon, when the same
shall become due, in accordance with the terms of the Letter Loan Agreement,
Master Lease Agreement, Notes and Guaranty and all other instruments evidencing
the Indebtedness or evidencing any renewals, rearrangements, extensions or
enlargements of the same, or any part thereof.
2. TITLE OF GRANTOR; LEGAL EXISTENCE; COMPLIANCE WITH LAWS. Grantor
represents and warrants that it has good and indefeasible title in fee simple to
the above described land and the improvements thereon subject only to permitted
encumbrances of record, that the Mortgaged Property is free from encumbrance
superior to the liens and security interests hereby created, unless otherwise
herein provided, and that Grantor has full right and authority to make this
conveyance. Grantor agrees to maintain and preserve its legal existence and all
related rights,
3
<PAGE>
franchises and privileges. Grantor shall at all times comply with and perform
all obligations under any applicable laws, statutes, regulations or ordinances
relating to the Mortgaged Property and Grantor's use and operation thereof. To
the best of Grantor's knowledge, the Mortgaged Property has never been used as a
toxic or hazardous waste or substance disposal site, nor are any toxic or
hazardous wastes or substances disposed of, stored on, or contained in the
Mortgaged Property in any way which could subject Grantor, Beneficiary, or any
subsequent lienholder of the Mortgaged Property to liability or damages under
any applicable laws pertaining to health or the environment. Grantor will
defend, at its own cost and expense, indemnify and hold Beneficiary harmless
from and against, any action, proceeding, claim, liability or damages arising
from, in connection with, or in any way affecting or related to, the Mortgaged
Property or any breach, default or noncompliance with any legal requirement
(including, without limitation, any applicable laws pertaining to health or the
environment), and all costs and expenses incurred by Beneficiary in protecting
its interests hereunder or defending itself in such an event (including all
court costs and attorneys' fees) shall be borne by Grantor.
3. INSURANCE. [Intentionally Omitted.]
4. TAXES AND ASSESSMENTS. Grantor shall pay all taxes and assessments
against the Mortgaged Property including, without limitation, all taxes in lieu
of ad valorem taxes, as the same become due and payable. Grantor shall provide
Beneficiary with copies of paid tax receipts or other satisfactory evidence
showing that all taxes and assessments against the Mortgaged Property have been
paid in full at least fifteen (15) days prior to the date such taxes or other
assessments are delinquent. At any time any law shall be enacted imposing or
authorizing the imposition of any tax upon this Deed of Trust, or upon any
rights, titles, liens, or security interests created hereby, Grantor shall
immediately pay all such taxes; provided, that, if it is unlawful for Grantor to
pay such taxes, Grantor shall prepay the Indebtedness in full without penalty
within sixty (60) days after demand therefor by Beneficiary.
5. TAX AND INSURANCE ESCROW. [Intentionally Omitted.]
6. ASSIGNMENT OF CONDEMNATION PROCEEDS. Immediately upon its obtaining
knowledge of the institution or threatened institution of any proceeding for the
condemnation of the Mortgaged Property or any portion thereof, Grantor shall
notify Beneficiary of such fact. All judgments, decrees and awards or payment
for injury or damage to the Mortgaged Property, and all awards pursuant to
proceedings for condemnation thereof, including interest thereon, are hereby
assigned in their entirety to Beneficiary, who shall apply the same first to
reimbursement of all costs and expenses incurred by Beneficiary in connection
with such condemnation proceeding and the balance shall be applied to the
Indebtedness in such manner as it may elect; and Beneficiary is hereby
authorized, in the name of Grantor, to execute and deliver valid acquittances
for, and to appeal from, any such award, judgment or decree. If Beneficiary
elects to allow a portion of the proceeds of any condemnation proceeding to be
paid to Grantor for use in rebuilding, restoring or repairing the Mortgaged
Property, then the disbursement of such proceeds shall be on such terms and
subject to such conditions as Beneficiary may specify. Grantor shall promptly
notify Beneficiary of the institution or threatened institution of any
4
<PAGE>
proceeding for the condemnation of any of the Mortgaged Property. Beneficiary
shall have the right to participate in any such condemnation proceeding.
7. DEFENSE OF TITLE. If, while this trust is in force, the title of
Trustee to the Mortgaged Property, or any part thereof, shall be endangered or
shall be attacked directly or indirectly, Grantor hereby authorizes Beneficiary,
at Grantor's expense, to take all necessary and proper steps for the defense of
said title, including the employment of counsel, the prosecution or defense of
litigation, and the compromise or discharge of claims made against said title.
8. COSTS AND EXPENSES. All costs and expenses incurred in performing and
complying with Grantor's covenants set forth herein shall be borne solely by
Grantor. If Grantor shall fail, refuse or neglect to make any payment or
perform any act required herein, then at any time thereafter, and without notice
to or demand upon Grantor and without waiving or releasing any other right,
remedy or recourse Beneficiary may have because of same, Beneficiary may (but
shall not be obligated to) make such payment or perform such act for the account
of and at the expense of Grantor, and shall have the right to rent the Mortgaged
Property for such purpose and to take all such actions and expend such sums
thereon and with respect to the Mortgaged Property as it may deem necessary or
appropriate. Grantor shall pay or reimburse Beneficiary against any and all
such expenses and costs. To the extent not prohibited by applicable law,
Grantor will pay all costs and expenses and reimburse Beneficiary for any and
all expenditures of every character incurred or expended from time to time,
regardless of whether or not a default shall have occurred hereunder, in
connection with Beneficiary's evaluating, monitoring, administering and
protecting the Mortgaged Property, and creating, perfecting and realizing upon
Beneficiary's security interests in and liens on the Mortgaged Property,
including, without limitation, all appraisal fees, consulting fees, filing fees,
taxes, brokerage fees and commissions, fees incident to security interest, lien
and other title searches and reports, escrow fees, attorneys' fees, legal
expenses, court costs, auctioneer fees and expenses, other fees and expenses
incurred in connection with the liquidation or sale of the Mortgaged Property
and all other professional fees. Any amount to be paid hereunder by Grantor to
Beneficiary, to the extent not prohibited by applicable law, shall be payable
upon demand and shall bear interest from the date of expenditure until paid at
the lesser of (i) the rate of interest provided in the Notes for past due
installments of principal and/or interest, or (ii) the maximum nonusurious rate
of interest from time to time permitted by applicable law ("Highest Lawful
Rate"). At all such times, if any, that Chapter One ("Chapter One") of Title
79, Texas Revised Civil Statutes, 1925, as amended (the "Texas Credit Code")
establishes the Highest Lawful Rate, the Highest Lawful Rate shall be the
"indicated rate ceiling" (as defined in Chapter One) from time to time in effect
unless the Notes specifically provide otherwise. Grantor shall indemnify
Beneficiary for any expenses incurred by Beneficiary pursuant to this paragraph,
and shall indemnify Beneficiary against all losses, expenses, damage, claims and
causes of action, incurred or accruing by reason of any acts performed by
Beneficiary pursuant to the provisions of this paragraph. To the extent not
prohibited by applicable law, the sum of all such costs and expenses incurred by
Beneficiary pursuant to this paragraph and not reimbursed by Grantor shall be
added to the Indebtedness and thereafter shall form a part of the same; and it
shall be secured by this Deed of Trust and by subrogation to all of the rights
of the person, corporation or body politic receiving such payment.
5
<PAGE>
9. MAINTENANCE OF PROPERTY. [Intentionally Omitted.]
10. RESTRICTIONS ON TRANSFER. [Intentionally Omitted.]
11. GRANTOR'S SUCCESSORS IN INTEREST. [Intentionally Omitted.]
12. DEFAULT AND ACCELERATION. In the event Grantor shall default in the
prompt payment, when due, of the Indebtedness, or any part thereof, or fail to
keep and perform any of the covenants or agreements contained herein or in any
other document securing the payment of the Indebtedness, or, in the event
Grantor or any person liable for the Indebtedness, or any part thereof, files a
voluntary petition in bankruptcy or for corporate reorganization, makes an
assignment for the benefit of any creditor, or if the Mortgaged Property or any
property owned by a person liable for the Indebtedness is placed under control
or in the custody of any court or receiver, or if Grantor abandons any of the
Mortgaged Property, then, in any such event, Beneficiary, at Beneficiary's
option, and without demand, presentment for payment, notice of nonpayment,
grace, protest, notice of protest, notice of intent to accelerate the
Indebtedness, notice of acceleration of the Indebtedness, or any other notice,
all of which are hereby expressly waived by Grantor, may declare the entire
unpaid balance and accrued interest on the Notes and any other unpaid
Indebtedness immediately due and payable, whereupon it shall be so due and
payable.
13. PREPAYMENT. [Intentionally Omitted.]
14. SURVIVAL OF COVENANTS AND LIENS. All of the covenants and agreements
of Grantor set forth herein shall survive the execution and delivery of this
Deed of Trust and shall continue in force until the Indebtedness is paid in
full. Accordingly, if Grantor shall perform faithfully each and all of the
covenants and agreements herein contained, then, and then only, this conveyance
shall become null and void and shall be released in due form, upon Grantor's
written request and at Grantor's expense; otherwise, it shall remain in full
force and effect. No release of this conveyance or the lien thereof shall be
valid unless executed by Beneficiary.
15. FORECLOSURE AND SALE. If an event of default hereunder shall occur,
Beneficiary may, at Beneficiary's election and by or through Trustee or
otherwise, sell or offer for sale, in one or more sales, all or any part of the
Mortgaged Property, in accordance with applicable law.
16. SUBSTITUTE TRUSTEE. If the herein named Trustee shall die or become
disqualified from acting in the execution of this trust, or shall fail or refuse
to execute the same when requested by Beneficiary so to do, or if, for any
reason, Beneficiary shall prefer to appoint a substitute trustee to act instead
of the herein named Trustee, Beneficiary shall have full power to appoint, at
any time by written instrument, a substitute trustee, and, if necessary, several
substitute trustees in succession, who shall succeed to all the estate, rights,
powers and duties of Trustee named herein, and no notice of such appointment
need to be given to Grantor or to any other person or filed for record in any
public office. Such appointment may be executed by any authorized agent of
Beneficiary; and if Beneficiary be a corporation and such appointment be
6
<PAGE>
executed in its behalf by any officer of such corporation, such appointment
shall be conclusively presumed to be executed with authority and shall be valid
and sufficient without proof of any action by the board of directors or any
superior officer of the corporation. Grantor hereby ratifies and confirms any
and all acts that the Trustee, or his successor or successors in this trust,
shall lawfully do by virtue hereof.
17. PURCHASER'S RIGHT TO DISAFFIRM. [Intentionally Omitted.]
18. BENEFICIARY AS PURCHASER. Beneficiary may bid and being the highest
bidder therefor, become the purchaser of any and all Mortgaged Property offered
for sale at any trustee's or foreclosure sale hereunder and shall have the right
to credit the amount of the bid upon the amount of the Indebtedness owing to
Beneficiary, in lieu of cash payment.
19. RECOVERY OF UNMATURED INDEBTEDNESS. [Intentionally Omitted.]
20. RIGHTS OF BENEFICIARY UPON DEFAULT. In the event of default by
Grantor in the performance of one or more of its covenants and agreements as set
forth herein, then Beneficiary may, at its option, enter upon and take exclusive
possession of the Mortgaged Property and thereafter manage, use, lease and
otherwise operate same in such manner and by and through such persons, objects
or employees as it may deem proper and necessary. Beneficiary shall be likewise
entitled to possession of all books and records of Grantor that relate to the
Mortgaged Property. The rights of Beneficiary under this paragraph may be
enforced through an action for forcible entry and detainer or any other means
authorized by law. Any and all rents or other issues or profits received by
Beneficiary shall be accounted for in the manner provided for in the opening
provisions of this Deed of Trust. Grantor hereby indemnifies and holds
Beneficiary harmless from and against any and all liability, loss, cost, damage
or expense which Beneficiary may incur under or by reason of this paragraph or
for any action taken by Beneficiary hereunder.
21. ELECTION TO DISCONTINUE REMEDY. [Intentionally Omitted.]
22. RELEASE OR RENEWAL OF LIENS. [Intentionally Omitted.]
23. MAXIMUM INTEREST. The invalidity, or unenforceability in particular
circumstances, of any provisions of this Deed of Trust shall not extend beyond
such provision in such circumstances and no other provision of this Deed of
Trust shall be affected thereby. It is the intention of the parties hereto to
comply with the applicable usury laws; accordingly, it is agreed that,
notwithstanding any provisions to the contrary in the Notes or any instrument
evidencing the Indebtedness, or in this Deed of Trust or any of the documents or
instruments securing payment of the Indebtedness or otherwise relating thereto,
in no event shall the Notes or such documents require the payment or permit the
collection of interest in excess of the maximum amount permitted by such laws.
If any such excess interest is contracted for, charged or received, under the
Notes or any instrument evidencing the Indebtedness, or under this Deed of Trust
or under the terms of any of the other documents securing payment of the
Indebtedness or otherwise relating thereto, or in the event the maturity of any
of the Indebtedness is
7
<PAGE>
accelerated in whole or in part, or in the event that all or part of the
principal or interest of the Indebtedness shall be prepaid, so that under any of
such circumstances, the amount of interest contracted for, charged or received
under the Notes or any instruments evidencing the Indebtedness, or under this
Deed of Trust or under any of the instruments securing payment of the
Indebtedness or otherwise relating thereto, shall exceed the maximum amount of
interest permitted by the applicable usury laws, then in any such event (a) the
provisions of this paragraph shall govern and control, (b) neither Grantor nor
any other person or entity now or hereafter liable for the payment of the Notes
or any instrument evidencing the Indebtedness shall be obligated to pay the
amount of such interest to the extent that it is in excess of the maximum amount
of interest permitted by the applicable usury laws, (c) any such excess that may
have been collected shall be either applied as a credit against the then unpaid
principal amount of the Indebtedness or refunded to Grantor, at the holder's
option, and (d) the effective rate of interest shall be automatically reduced to
the maximum lawful contract rate allowed under the applicable usury laws as now
or hereafter construed by the courts having jurisdiction thereof. It is further
agreed that without limitation of the foregoing, all calculations of the rate of
interest contracted for, charged or received under the Notes, or any instrument
evidencing the Indebtedness, or under this Deed of Trust or under such other
documents that are made for the purpose of determining whether such rate exceeds
the maximum lawful contract rate, shall be made, to the extent permitted by the
applicable usury laws, by amortizing, prorating, allocating and spreading in
equal parts during the period of the full stated term of the loans evidenced by
the Notes or the instruments evidencing the Indebtedness, all interest at any
time contracted for, charged or received from Grantor or otherwise by the holder
or holders hereof in connection with such loans.
24. WAIVER OF MARSHALLING AND CERTAIN RIGHTS. To the extent that Grantor
may lawfully do so, Grantor hereby expressly waives any right pertaining to the
marshalling of assets, the administration of estates of decedents, or other
matters to defeat, reduce or affect (a) the right of Beneficiary to sell all or
any part of the Mortgaged Property for the collection of the Indebtedness
(without any prior or different resort for collection), or (b) the right of
Beneficiary to the payment of the Indebtedness out of the proceeds of the sale
of all or any part of the Mortgaged Property in preference to every other person
and claimant.
25. WAIVERS. [Intentionally Omitted.]
26. TERMINABLE TENANCY UPON FORECLOSURE. [Intentionally Omitted.]
27. APPLICATION OF PAYMENTS ON INDEBTEDNESS. [Intentionally Omitted.]
28. APPOINTMENT OF RECEIVER. [Intentionally Omitted.]
29. SUBROGATION. [Intentionally Omitted.]
8
<PAGE>
30. SECURITY AGREEMENT.
(a) SECURITY INTEREST. This Deed of Trust shall be a security
agreement between Grantor, as the debtor, and Beneficiary, as the secured party,
covering the Mortgaged Property constituting personal property or fixtures
governed by the Texas Uniform Commercial Code (the "Code"), and Grantor grants
to Beneficiary a security interest in such portion of the Mortgaged Property.
In addition to Beneficiary's other rights hereunder, Beneficiary shall have all
rights of a secured party under the Code. Grantor shall execute and deliver to
Beneficiary all financing statements that may be required by Beneficiary to
establish and maintain the validity and priority of Beneficiary's security
interest, and Grantor shall bear all costs thereof, including all state and
county UCC record searches reasonably required by Beneficiary. If Beneficiary
should dispose of any of the Mortgaged Property pursuant to the Code, ten (10)
days' written notice by Beneficiary to Grantor shall be deemed to be reasonable
notice; provided, however, Beneficiary may dispose of such property in
accordance with the foreclosure procedures of this Deed of Trust in lieu of
proceeding under the Code. Beneficiary and Grantor agree that a carbon,
photographic or other reproduction of this Deed of Trust is sufficient as a
financing statement.
(b) NOTICE OF CHANGES. Grantor shall give advance notice in writing
to Beneficiary of any proposed change in Grantor's name, identity, or structure,
and shall execute and deliver to Beneficiary, prior to or concurrently with the
occurrence of any such change, all additional financing statements that
Beneficiary may require to establish and maintain the validity and priority of
Beneficiary's security interest with respect to any of the Mortgaged Property
described or referred to herein.
(c) FIXTURES. Some of the items of the Mortgaged Property described
herein are goods that are or are to become fixtures related to the land
described herein, and it is intended that, as to those goods, this Deed of Trust
shall be effective as a financing statement filed as a fixture filing from the
date of its filing for record in the real estate records of the county in which
the Mortgaged Property is situated. Information concerning the security
interest created by this Deed of Trust may be obtained from Beneficiary, as
secured party, at the address of Beneficiary stated above. The mailing address
of the Grantor, as debtor, is as stated above.
31. INCOME AND EXPENSE STATEMENTS. [Intentionally Omitted.]
32. BENEFICIARY'S CONSENT. In any instance hereunder where Beneficiary's
prior approval or consent is required to be obtained by Grantor, or
Beneficiary's judgment is required to be exercised as to any matter, the
granting or denial of such approval or consent and the exercise of such judgment
shall be within the sole discretion of Beneficiary, and Beneficiary shall not,
for any reason and to any extent, be required to grant such approval or consent
or exercise such judgment in any particular manner regardless of the
reasonableness of either the request or Beneficiary's judgment.
9
<PAGE>
33. NOTICES. All notices or other communications required or permitted to
be given pursuant to this Deed of Trust shall be in writing and shall be
considered as properly given if (i) mailed by first class United States mail,
postage prepaid, registered or certified with return receipt requested, or
(ii) delivered in person to the address of the intended addressee, or (iii) by
prepaid telegram. Notice by mail shall be effective upon the expiration of
three (3) business days after its deposit in the United States mail, except as
otherwise set forth in Paragraph (15) above when notice is effective upon
deposit in the United States mail. Notice given in any other manner shall be
effective only if and when received at the address of the addressee. For
purposes of notice, the addresses of the parties shall be as set forth in the
opening recitals hereinabove; provided, however, that either party shall have
the right to change its address for notice hereunder to any other location
within the United States by the giving of thirty (30) days' notice to the other
party in the manner set forth hereinabove.
34. FURTHER DOCUMENTATION. Grantor agrees that Grantor shall execute and
deliver such other and further documents and do and perform such other acts as
may be reasonably necessary and proper to carry out the intention of the parties
as herein expressed and to effect the purposes of this Deed of Trust. Without
limitation of the foregoing, Grantor agrees to execute and deliver such
documents as may be necessary to cause the liens and security interests granted
hereby to cover and apply to any property placed in, on or about the Mortgaged
Property in addition to, or as replacement or substitute for any of the
Mortgaged Property.
35. BINDING ON SUCCESSORS. The covenants herein contained shall inure to
the benefit of Beneficiary and Trustee, their successors and assigns, and shall
be binding upon the successors and assigns of Grantor, but nothing in this
paragraph shall constitute an authorization for Grantor to sell or in any way
dispose of the Mortgaged Property or any part thereof if otherwise prohibited by
any of the terms hereof.
36. DEFINITIONS. Wherever used in this Deed of Trust, unless the context
clearly indicates a contrary intent or unless otherwise specifically provided
herein, the words "Deed of Trust" shall mean "this Deed of Trust, Security
Agreement and Financing Statement and any supplement or supplements hereto"; the
word "Grantor" shall mean "Grantor, its successors and assigns, and/or any
subsequent owner or owners of the Mortgaged Property"; the word "Beneficiary"
shall mean "Beneficiary or any subsequent lawful holder or holders of the Notes
or other indebtedness secured hereby"; the word "Notes" shall mean the "Notes
secured by this Deed of Trust and any renewals, extensions, rearrangements and
enlargements thereof"; the word "person" shall mean "an individual, corporation,
trust, partnership or unincorporated association"; and the pronouns of any
gender shall include the other genders, and either the singular or plural shall
include the other.
37. NO ORAL AGREEMENTS. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
10
<PAGE>
EXECUTED this 20th day of January, 1997.
GRANTOR:
MOBLEY COMPANY, INC.
By: /s/ W. Christopher Chisholm
-----------------------------------------
W. Christopher Chisholm
Secretary-Treasurer
11
<PAGE>
STATE OF TEXAS Section
Section
COUNTY OF HARRIS Section
Before me, the undersigned authority, on this day personally appeared W.
CHRISTOPHER CHISHOLM, Secretary-Treasurer of MOBLEY COMPANY, INC., a Texas
corporation, known to me to be the person whose name is subscribed to the
foregoing instrument and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, in the capacity therein stated,
and as the act and deed of said corporation.
Given under my hand and seal of office this 20th day of January, 1997.
------------------------------------------
Notary Public in and for
the State of T E X A S
12
<PAGE>
EXHIBIT "A"
TRACT NO. 1 - 15.9975 ACRES GROSS - 15.4511 ACRES NET
BEGINNING at a 1/2 inch iron rod set for the Northeast corner of this tract of
land and an interior corner of a 60 foot easement conveyed to Houston Lighting
and Power Company by United States Steel Corporation by deed recorded in Volume
377 at Page 50 of the Deed Records of Chambers County, Texas. This BEGINNING
corner has a State Plane Coordinate Value of Y = 708,006.93 and
X = 3,297,591.02.
THENCE South with the East line of this tract and the West line of said 60 foot
right of way a distance of 948.28 feet to a 1/2 inch iron rod set for the
Southeast corner of this tract and for the Northeast corner of a 100 foot access
easement.
THENCE West with the South line of this tract and the North line of said access
easement, at 722.46 feet set a 1/2 inch iron rod in the East line of the Vintage
Petroleum, Inc. 50 foot pipeline right of way, in all a total distance of 747.48
feet to a 1/2 inch iron rod set for the Southwest corner of this tract of land
in the centerline of said 50 foot easement.
THENCE North 01 deg 31 min 30 sec East with the West line of this tract and the
centerline of said 50 foot easement a distance of 948.61 feet of a 1/2 inch iron
rod set for the Northwest corner of this tract of land in the South line of said
60 foot easement.
THENCE East with the North line of this tract and the South line of said 60 foot
easement, at 25.00 feet set a 1/2 inch iron rod in the East line of said 50 foot
easement, in all a total distance of 722.24 feet to the PLACE OF BEGINNING,
containing within said boundaries 15.995 acres of land.
A-1
<PAGE>
TRACT NO. 2 - 13.1569 ACRES GROSS - 12.8374 ACRES NET
BEGINNING at a 1/2 inch iron rod set for the Southeast corner of this tract of
land in the North line of an 80 foot easement conveyed to Houston Lighting and
Power Company by United States Steel Corporation by instrument recorded in
Volume 307 at Page 332 of the Deed Records of Chambers County, Texas. From this
point the Northeast corner of said 80 foot easement bears East 160.00 feet and
the Northeast corner of the above described Tract No. 1 bears South 160.00 feet.
This BEGINNING corner has a State Plane Coordinate Value of Y = 708,166.92 and X
= 3,297,591.02.
THENCE West with the South line of this tract and the North line of said 80 foot
easement, at 691.26 feet set a 1/2 inch iron rod in the East right of way line
of the Vintage Petroleum, Inc. 50 foot pipeline right of way, in all a total
distance of 716.28 feet to a 1/2 inch iron rod set for the Southwest corner of
this tract of land in the centerline of said 50 foot right of way.
THENCE North 02 deg 05 min 49 sec East with the West line of this tract and the
centerline of said 50 foot easement a distance of 546.89 feet to a 1/2 inch iron
rod set for the Northwest corner of this tract of land in the South right of way
line of the United States Steel 80 Foot Railroad Reserve.
THENCE North 52 deg 20 min 00 sec East with the North line of this tract and the
South line of said Railroad Reserve, at 32.56 feet set a 1/2 inch iron rod in
the East right of way line of said 50 foot pipeline easement, in all a total
distance of 879.59 feet to a 1/2 inch iron rod set for the Northeast corner of
this tract of land.
THENCE South with the East line of this tract a distance of 1084.02 feet to the
PLACE OF BEGINNING, containing within said boundaries 13.1569 acres of land.
A-2
<PAGE>
EXHIBIT 10.31
UNLIMITED GUARANTY
THIS UNLIMITED GUARANTY ("Guaranty") is made as of the 20th day of January,
1997 by Guarantor (as hereinafter defined) for the benefit of Bank (as
hereinafter defined).
1. DEFINITIONS. As used in this Guaranty, the following terms shall
have the meanings indicated below:
(a) The term "BANK" shall mean BANK ONE, TEXAS, NATIONAL ASSOCIATION;
whose address for notice purposes is the following:
910 Travis, Houston, Harris County, Texas 77002 Attn: Mark Story.
(b) The term "BORROWER" (whether one or more) shall mean the
following:
Mobley Environmental Services, Inc.
(c) The term "GUARANTEED INDEBTEDNESS" shall mean (a) that certain
Letter Loan Agreement dated June 2, 1995 between Borrower and Bank (the
"LETTER LOAN AGREEMENT") including, without limitation, all amounts owing
pursuant to that certain $4,000,000.00 Revolving Line of Credit Promissory
Note dated June 2, 1995 and that certain $2,500,000.00 Advancing Line of
Credit Promissory Note also dated June 2, 1995, both of which notes have a
maturity date of June 2, 1997 (collectively, the "NOTES"), (b) that certain
Master Lease Agreement dated February 9, 1996 between Banc One Leasing
Corporation, as lessor ("ORIGINAL LESSOR"), and Borrower, as lessee,
pursuant to which equipment was to be leased from time to time by the
attachment thereto of one or more lease schedules (such lease agreement,
together with all lease schedules attached thereto herein called the
"MASTER LEASE AGREEMENT"), including specifically that certain lease
schedule no. 1000049223 between Borrower and the Original Lessor, pursuant
to which certain motor vehicles and equipment having a total cost of
$699,860.35 were leased, on a financing lease basis, by the Original Lessor
to Borrower, such lease term expiring on February 15, 2001 ("LEASE SCHEDULE
NO. 49223") and that certain lease schedule no. 1000049649 between Borrower
and the Original Lessor pursuant to which certain equipment having a total
cost of $1,800,515.65 was leased, on a financing lease basis, by the
Original Lessor to Borrower, such lease term expiring on March 15, 2003
("LEASE SCHEDULE NO. 49649"); Lease Schedule No. 49223 having been assigned
by the Original Lessor to Banc One Texas Leasing Corporation pursuant to an
Assignment and Bill of Sale dated February 15, 1995 and Lease Schedule No.
49649 having been assigned by the Original Lessor to Banc One Texas Leasing
Corporation pursuant to an Assignment and Bill of Sale dated March 15,
1996; Lease Schedule No. 49223 and Lease Schedule No. 49649 having been
further assigned by Banc One Texas Leasing Corporation to Bank
<PAGE>
pursuant to an Assignment and Bill of Sale dated January 10, 1997, (c) all
other indebtedness, obligations and liabilities of Borrower to Bank of any
kind or character, now existing or hereafter arising, whether direct,
indirect, related, unrelated, fixed, contingent, liquidated, unliquidated,
joint, several or joint and several, and regardless of whether such
indebtedness, obligations and liabilities may, prior to their acquisitions
by Bank, be or have been payable to or in favor of a third party and
subsequently acquired by Bank (it being contemplated that Bank may make
such acquisitions from third parties), including without limitation all
indebtedness, obligations and liabilities of Borrower to Bank now existing
or hereafter arising by note, draft, acceptance, guaranty, endorsement,
letter of credit, assignment, purchase, overdraft, discount, indemnity
agreement or otherwise, (d) all accrued but unpaid interest on any of the
indebtedness described in (a), (b) and (c) above, (e) all obligations of
Borrower to Bank under any documents evidencing, securing, governing and/or
pertaining to all or any part of the indebtedness described in (a), (b),
(c) and (d) above (collectively, the "LOAN DOCUMENTS"), (f) all costs and
expenses incurred by Bank in connection with the collection and
administration of all or any part of the indebtedness and obligations
described in (a), (b), (c), (d) and (e) above or the protection or
preservation of, or realization upon, the collateral securing all or any
part of such indebtedness and obligations, including without limitation all
reasonable attorneys' fees, and (g) all renewals, extensions, modifications
and rearrangements of the indebtedness and obligations described in (a),
(b), (c), (d), (e) and (f) above.
(d) The term "GUARANTOR" shall mean Hydrocarbon Technologies, Inc., a
Texas corporation, whose address for notice purposes is the following:
4415 E. Greenwood, Baytown, Texas 77520
2. OBLIGATIONS. As an inducement to Bank to extend or continue to
extend credit and other financial accommodations to Borrower, Guarantor, for
value received, does hereby unconditionally and absolutely guarantee the prompt
and full payment and performance of the Guaranteed Indebtedness when due or
declared to be due and at all times thereafter.
3. CHARACTER OF OBLIGATIONS. This is an absolute, continuing and
unconditional guaranty of payment and not of collection and if at any time or
from time to time there is no outstanding Guaranteed Indebtedness, the
obligations of Guarantor with respect to any and all Guaranteed Indebtedness
incurred thereafter shall not be affected. All Guaranteed Indebtedness
heretofore, concurrently herewith or hereafter made by Bank to Borrower shall be
conclusively presumed to have been made or acquired in acceptance hereof.
Guarantor shall be liable, jointly and severally, with Borrower and any other
guarantor of all or any part of the Guaranteed Indebtedness.
4. RIGHT OF REVOCATION. Guarantor understands and agrees that
Guarantor may revoke its future obligations under this Guaranty at any time by
giving Bank written notice that Guarantor will not be liable hereunder for any
indebtedness or obligations of Borrower incurred on or after the effective date
of such revocation. Such revocation shall be deemed to be effective on the day
following the day Bank receives such notice delivered
2
<PAGE>
either by: (a) personal delivery to the address and designated department of
Bank identified in subparagraph l(a) above, or (b) United States mail,
registered or certified, return receipt requested, postage prepaid, addressed to
Bank at the address shown in subparagraph l(a) above. Notwithstanding such
revocation, Guarantor shall remain liable on its obligations hereunder until
payment in full to Bank of (x) all of the Guaranteed Indebtedness that is
outstanding on the effective date of such revocation, and any renewals and
extensions thereof, and (y) all loans, advances and other extensions of credit
made to or for the account of Borrower on or after the effective date of such
revocation pursuant to the obligation of Bank under a commitment or agreement
made to or with Borrower prior to the effective date of such revocation. The
terms and conditions of this Guaranty, including without limitation the consents
and waivers set forth in paragraph 7 hereof, shall remain in effect with respect
to the Guaranteed Indebtedness described in the preceding sentence in the same
manner as if such revocation had not been made by Guarantor.
5. REPRESENTATIONS AND WARRANTIES. Guarantor hereby represents and
warrants the following to Bank:
(a) This Guaranty may reasonably be expected to benefit, directly or
indirectly, Guarantor, and (i) if Guarantor is a corporation, the Board of
Directors of Guarantor has determined that this Guaranty may reasonably be
expected to benefit, directly or indirectly, Guarantor, or (ii) if
Guarantor is a partnership, the requisite number of its partners have
determined that this Guaranty may reasonably be expected to benefit,
directly or indirectly, Guarantor; and
(b) Guarantor is familiar with, and has independently reviewed the
books and records regarding, the financial condition of Borrower and is
familiar with the value of any and all collateral intended to be security
for the payment of all or any part of the Guaranteed Indebtedness;
provided, however, Guarantor is not relying on such financial condition or
collateral as an inducement to enter into this Guaranty; and
(c) Guarantor has adequate means to obtain from Borrower on a
continuing basis information concerning the financial condition of Borrower
and Guarantor is not relying on Bank to provide such information to
Guarantor either now or in the future; and
(d) Guarantor has the power and authority to execute, deliver and
perform this Guaranty and any other agreements executed by Guarantor
contemporaneously herewith, and the execution, delivery and performance of
this Guaranty and any other agreements executed by Guarantor
contemporaneously herewith do not and will not violate (i) any agreement or
instrument to which Guarantor is a party, (ii) any law, rule, regulation or
order of any governmental authority to which Guarantor is subject, or (iii)
its articles or certificate of incorporation or bylaws, if Guarantor is a
corporation, or its partnership agreement, if Guarantor is a partnership;
and
(e) Neither Bank nor any other party has made any representation,
warranty or statement to Guarantor in order to induce Guarantor to execute
this Guaranty; and
3
<PAGE>
(f) The financial statements and other financial information
regarding Guarantor heretofore and hereafter delivered to Bank are and
shall be true and correct in all material respects and fairly present the
financial position of Guarantor as of the dates thereof, and no material
adverse change has occurred in the financial condition of Guarantor
reflected in the financial statements and other financial information
regarding Guarantor heretofore delivered to Bank since the date of the last
statement thereof; and
(g) As of the date hereof, and after giving effect to this Guaranty
and the obligations evidenced hereby, (i) Guarantor is and will be solvent,
(ii) the fair saleable value of Guarantor's assets exceeds and will
continue to exceed its liabilities (both fixed and contingent), (iii)
Guarantor is and will continue to be able to pay its debts as they mature,
and (iv) if Guarantor is not an individual, Guarantor has and will continue
to have sufficient capital to carry on its business and all businesses in
which it is about to engage.
6. COVENANTS. Guarantor hereby covenants and agrees with Bank as
follows:
(a) Guarantor shall not, so long as its obligations under this
Guaranty continue, transfer or pledge any material portion of its assets
for less than full and adequate consideration; and
(b) Guarantor shall promptly furnish to Bank at any time and from
time to time such financial statements and other financial information of
Guarantor as the Bank may require, in form and substance satisfactory to
Bank; and
(c) Guarantor shall comply with all terms and provisions of the Loan
Documents that apply to Guarantor; and
(d) Guarantor shall promptly inform Bank of (i) any litigation or
governmental investigation against Guarantor or affecting any security for
all or any part of the Guaranteed Indebtedness or this Guaranty which, if
determined adversely, might have a material adverse effect upon the
financial condition of Guarantor or upon such security or might cause a
default under any of the Loan Documents, (ii) any claim or controversy
which might become the subject of such litigation or governmental
investigation, and (iii) any material adverse change in the financial
condition of Guarantor.
7. CONSENT AND WAIVER.
(a) Guarantor waives (i) promptness, diligence and notice of
acceptance of this Guaranty and notice of the incurring of any obligation,
indebtedness or liability to which this Guaranty applies or may apply and
waives presentment for payment, notice of nonpayment, protest, demand,
notice of protest, notice of intent to accelerate, notice of acceleration,
notice of dishonor, diligence in enforcement and indulgences of every kind,
and (ii) the taking of any other action by Bank, including without
4
<PAGE>
limitation, giving any notice of default or any other notice to, or making
any demand on, Borrower, any other guarantor of all or any part of the
Guaranteed Indebtedness or any other party.
(b) Guarantor waives any rights Guarantor has under, or any
requirements imposed by, Chapter 34 of the Texas Business and Commerce
Code, as in effect on the date of this Guaranty or as it may be amended
from time to time.
(c) Bank may at any time, without the consent of or notice to
Guarantor, without incurring responsibility to Guarantor and without
impairing, releasing, reducing or affecting the obligations of Guarantor
hereunder: (i) change the manner, place or terms of payment of all or any
part of the Guaranteed Indebtedness, or renew, extend, modify, rearrange or
alter all or any part of the Guaranteed Indebtedness; (ii) change the
interest rate accruing on any of the Guaranteed Indebtedness (including,
without limitation, any periodic change in such interest rate that occurs
because such Guaranteed Indebtedness accrues interest at a variable rate
which may fluctuate from time to-time); (iii) sell, exchange, release,
surrender, subordinate, realize upon or otherwise deal with in any manner
and in any order any collateral for all or any part of the Guaranteed
Indebtedness or this Guaranty or set off against all or any part of the
Guaranteed Indebtedness; (iv) neglect, delay, omit, fail or refuse to take
or prosecute any action for the collection of all or any part of the
Guaranteed Indebtedness or this Guaranty or to take or prosecute any action
in connection with any of the Loan Documents; (v) exercise or refrain from
exercising any rights against Borrower or others, or otherwise act or
refrain from acting; (vi) settle or compromise all or any part of the
Guaranteed Indebtedness and subordinate the payment of all or any part of
the Guaranteed Indebtedness to the payment of any obligations, indebtedness
or liabilities which may be due or become due to Bank or others; (vii)
apply any deposit balance, fund, payment, collections through process of
law or otherwise or other collateral of Borrower to the satisfaction and
liquidation of the indebtedness or obligations of Borrower to Bank, if any,
not guaranteed under this Guaranty pursuant to paragraph 4 or 11 herein;
and (viii) apply any sums paid to Bank by Guarantor, Borrower or others to
the Guaranteed Indebtedness in such order and manner as Bank, in its sole
discretion, may determine.
(d) Should Bank seek to enforce the obligations of Guarantor
hereunder by action in any court or otherwise, Guarantor waives any
requirement, substantive or procedural, that (i) Bank first enforce any
rights or remedies against Borrower or any other person or entity liable to
Bank for all or any part of the Guaranteed Indebtedness, including without
limitation that a judgment first be rendered against Borrower or any other
person or entity, or that Borrower or any other person or entity should be
joined in such cause, or (ii) Bank shall first enforce rights against any
collateral which shall ever have been given to secure all or any part of
the Guaranteed Indebtedness or this Guaranty. Such waiver shall be without
prejudice to Bank's right, at its option, to proceed against Borrower or
any other person or entity, whether by separate action or by joinder.
5
<PAGE>
(e) In addition to any other waivers, agreements and covenants of
Guarantor set forth herein, Guarantor hereby further waives and releases
all claims, causes of action, defenses and offsets for any act or omission
of Bank, its directors, officers, employees, representatives or agents in
connection with Bank's administration of the Guaranteed Indebtedness,
except for Bank's willful misconduct and gross negligence.
8. OBLIGATIONS NOT IMPAIRED.
(a) Guarantor agrees that its obligations hereunder shall not be
released, diminished, impaired, reduced or affected by the occurrence of
any one or more of the following events: (i) the death, disability or lack
of corporate power of Borrower, Guarantor (except as provided in paragraph
11 herein) or any other guarantor of all or any part of the Guaranteed
Indebtedness, (ii) any receivership, insolvency, bankruptcy or other
proceedings affecting Borrower, Guarantor or any other guarantor of all or
any part of the Guaranteed Indebtedness, or any of their respective
property; (iii) the partial or total release or discharge of Borrower or
any other guarantor of all or any part of the Guaranteed Indebtedness, or
any other person or entity from the performance of any obligation contained
in any instrument or agreement evidencing, governing or securing all or any
part of the Guaranteed Indebtedness, whether occurring by reason of law or
otherwise; (iv) the taking or accepting of any collateral for all or any
part of the Guaranteed Indebtedness or this Guaranty; (v) the taking or
accepting of any other guaranty for all or any part of the Guaranteed
Indebtedness; (vi) any failure by Bank to acquire, perfect or continue any
lien or security interest on collateral securing all or any part of the
Guaranteed Indebtedness or this Guaranty; (vii) the impairment of any
collateral securing all or any part of the Guaranteed Indebtedness or this
Guaranty; (viii) any failure by Bank to sell any collateral securing all or
any part of the Guaranteed Indebtedness or this Guaranty in a commercially
reasonable manner or as otherwise required by law; (ix) any invalidity or
unenforceability of or defect or deficiency in any of the Loan Documents;
or (x) any other circumstance which might otherwise constitute a defense
available to, or discharge of, Borrower or any other guarantor of all or
any part of the Guaranteed Indebtedness.
(b) This Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of all or any part of the
Guaranteed Indebtedness is rescinded or must otherwise be returned by Bank
upon the insolvency, bankruptcy or reorganization of Borrower, Guarantor,
any other guarantor of all or any part of the Guaranteed Indebtedness, or
otherwise, all as though such payment had not been made.
(c) In the event Borrower is a corporation, joint stock association
or partnership, or is hereafter incorporated, none of the following shall
affect Guarantor's liability hereunder: (i) the unenforceability of all or
any part of the Guaranteed Indebtedness against Borrower by reason of the
fact that the Guaranteed Indebtedness exceeds the amount permitted by law;
(ii) the act of creating all or any part of the Guaranteed Indebtedness is
ultra vires; or (iii) the officers or partners creating all or any part of
the Guaranteed Indebtedness acted in excess of their authority. Guarantor
6
<PAGE>
hereby acknowledges that withdrawal from, or termination of, any ownership
interest in Borrower now or hereafter owned or held by Guarantor shall not
alter, affect or in any way limit the obligations of Guarantor hereunder.
9. ACTIONS AGAINST GUARANTOR. In the event of a default in the payment or
performance of all or any part of the Guaranteed Indebtedness when such
Guaranteed Indebtedness becomes due, whether by its terms, by acceleration or
otherwise, Guarantor shall, without notice or demand, promptly pay the amount
due thereon to Bank, in lawful money of the United States, at Bank's address set
forth in subparagraph l(a) above. One or more successive or concurrent actions
may be brought against Guarantor, either in the same action in which Borrower is
sued or in separate actions, as often as Bank deems advisable. The exercise by
Bank of any right or remedy under this Guaranty or under any other agreement or
instrument, at law, in equity or otherwise, shall not preclude concurrent or
subsequent exercise of any other right or remedy. The books and records of Bank
shall be admissible in evidence in any action or proceeding involving this
Guaranty and shall be prima facie evidence of the payments made on, and the
outstanding balance of, the Guaranteed Indebtedness.
10. PAYMENT BY GUARANTOR. Whenever Guarantor pays any sum which is or may
become due under this Guaranty, written notice must be delivered to Bank
contemporaneously with such payment. Such notice shall be effective for purposes
of this paragraph when contemporaneously with such payment Bank receives such
notice either by: (a) personal delivery to the address and designated department
of Bank identified in subparagraph l(a) above, or (b) United States mail,
certified or registered, return receipt requested, postage prepaid, addressed to
Bank at the address shown in subparagraph l(a) above. In the absence of such
notice to Bank by Guarantor in compliance with the provisions hereof, any sum
received by Bank on account of the Guaranteed Indebtedness shall be conclusively
deemed paid by Borrower.
11. DEATH OF GUARANTOR. In the event of the death of Guarantor, any duly
authorized representative of the estate of Guarantor may revoke Guarantor's
future obligations under this Guaranty by giving Bank written notice of
Guarantor's death and that the estate of Guarantor shall not be liable hereunder
for any indebtedness or obligations of Borrower incurred on or after the
effective date of such revocation. Such revocation shall be deemed to be
effective on the day following the day Bank receives such notice delivered
either by: (a) personal delivery to the address and designated department of
Bank identified in subparagraph l(a) above, or (b) United States mail,
registered or certified, return receipt requested, postage prepaid, addressed to
Bank at the address shown in subparagraph la) above. Notwithstanding such
revocation, the obligations of the deceased Guarantor shall continue as an
obligation against his estate as to (x) all of the Guaranteed Indebtedness that
is outstanding on the effective date of such revocation, and any renewals or
extensions thereof, and (y) all loans, advances and other extensions of credit
made to or for the account of Borrower on or after the effective date of such
revocation pursuant to an obligation of Bank under a commitment or agreement
made to or with Borrower prior to the effective date of such revocation. The
terms and conditions of this Guaranty, including without limitation the consents
and waivers set forth in paragraph 7 hereof, shall remain in effect with respect
to the Guaranteed
7
<PAGE>
Indebtedness described in the preceding sentence in the same manner as if such
revocation had not been made.
12. NOTICE OF SALE. In the event that Guarantor is entitled to receive any
notice under the Uniform Commercial Code, as it exists in the state governing
any such notice, of the sale or other disposition of any collateral securing all
or any part of the Guaranteed Indebtedness or this Guaranty, reasonable notice
shall be deemed given when such notice is deposited in the United States mail,
postage prepaid, at the address for Guarantor set forth in subparagraph l(d)
above, five (5) days prior to the date any public sale, or after which any
private sale, of any such collateral is to be held; Provided, however, that
notice given in any other reasonable manner or at any other reasonable time
shall be sufficient.
13. WAIVER BY BANK. No delay on the part of Bank in exercising any right
hereunder or failure to exercise the same shall operate as a waiver of such
right. In no event shall any waiver of the provisions of this Guaranty be
effective unless the same be in writing and signed by an officer of Bank, and
then only in the specific instance and for the purpose given.
14. SUCCESSORS AND ASSIGNS. This Guaranty is for the benefit of Bank, its
successors and assigns. This Guaranty is binding upon Guarantor and Guarantor's
heirs, executors, administrators, personal representatives and successors,
including without limitation any person or entity obligated by operation of law
upon the reorganization, merger, consolidation or other change in the
organizational structure of Guarantor.
15. COSTS AND EXPENSES. Guarantor shall pay on demand by Bank all costs and
expenses, including without limitation, all reasonable attorneys' fees incurred
by Bank in connection with the preparation, administration, enforcement and/or
collection of this Guaranty. This covenant shall survive the payment of the
Guaranteed Indebtedness.
16. SEVERABILITY. If any provision of this Guaranty is held by a court of
competent jurisdiction to be illegal, invalid or unenforceable under present or
future laws, such provision shall be fully severable, shall not impair or
invalidate the remainder of this Guaranty and the effect thereof shall be
confined to the provision held to be illegal, invalid or unenforceable.
17. NO OBLIGATION. Nothing contained herein shall be construed as an obligation
on the part of Bank to extend or continue to extend credit to Borrower.
18. AMENDMENT. No modification or amendment of any provision of this
Guaranty, nor consent to any departure by Guarantor therefrom, shall be
effective unless the same shall be in writing and signed by an officer of Bank,
and then shall be effective only in the specific instance and for the purpose
for which given.
19. CUMULATIVE RIGHTS. All rights and remedies of Bank hereunder are
cumulative of each other and of every other right or remedy which Bank may
otherwise have at law or in equity or under any instrument or agreement, and the
exercise of one or more of such rights or remedies shall not prejudice or impair
the concurrent or subsequent exercise of any other rights or remedies.
8
<PAGE>
20. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL LAWS.
21. VENUE. This Guaranty has been entered into in the county in Texas where
Bank's address for notice purposes is located, and it shall be performable for
all purposes in such county. Courts within the State of Texas shall have
jurisdiction over any and all disputes arising under or pertaining to this
Guaranty and venue for any such disputes shall be in the county or judicial
district where the Bank's address for notice purposes is located.
22. COMPLIANCE WITH APPLICABLE USURY LAWS. Notwithstanding any other provision
of this Guaranty or of any instrument or agreement evidencing, governing or
securing all or any part of the Guaranteed Indebtedness, Guarantor and Bank by
its acceptance hereof agree that Guarantor shall never be required or obligated
to pay interest in excess of the maximum nonusurious interest rate as may be
authorized by applicable law for the written contracts which constitute the
Guaranteed Indebtedness. It is the intention of Guarantor and Bank to conform
strictly to the applicable laws which limit interest rates, and any of the
aforesaid contracts for interest, if and to the extent payable by Guarantor,
shall be held to be subject to reduction to the maximum nonusurious interest
rate allowed under said law.
23. DESCRIPTIVE HEADINGS. The headings in this Guaranty are for convenience
only and shall not define or limit the provisions hereof.
24. GENDER. Within this Guaranty, words of any gender shall be held and
construed to include the other gender.
25. ENTIRE AGREEMENT. This Guaranty contains the entire agreement between
Guarantor and Bank regarding the subject matter hereof and supersedes all prior
written and oral agreements and understandings, if any, regarding same;
provided, however, this Guaranty is in addition to and does not replace, cancel,
modify or affect any other guaranty of Guarantor now or hereafter held by Bank
that relates to Borrower or any other person or entity.
EXECUTED as of the date first above written.
GUARANTOR:
HYDROCARBON TECHNOLOGIES, INC.
By: /s/ W. Christopher Chisholm
--------------------------------------
Name: W. CHRISTOPHER CHISHOLM
------------------------------------
Title: Vice President
-----------------------------------
9
<PAGE>
EXHIBIT 10.32
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("AGREEMENT") is made as of January 20, 1997, by
HYDROCARBON TECHNOLOGIES, INC., a Texas corporation, ("DEBTOR"), in favor of
BANK ONE, TEXAS, NATIONAL ASSOCIATION ("BANK"). Debtor hereby agrees with Bank
as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings indicated below:
(a) The term "BORROWER" shall mean Mobley Environmental Services,
Inc., a Delaware corporation.
(b) The term "CODE" shall mean the Uniform Commercial Code as in
effect in the State of Texas on the date of this Agreement or as it may
hereafter be amended from time to time.
(c) The term "COLLATERAL" shall mean all of the property set forth
below:
(i) All present and future accounts, chattel paper, contract
rights, documents, instruments, deposit accounts and general
intangibles (including any right to payment for goods sold or services
rendered arising out of the sale or delivery of personal property or
work done or labor performed by Debtor), now or hereafter owned, held,
or acquired by Debtor, together with any and all books of account,
customer lists and other records relating in any way to the foregoing
(including, without limitation, computer software, whether on tape,
disk, card, strip, cartridge or any other form), and in any case where
an account arises from the sale of goods, the interest of Debtor in
such goods.
(ii) All equipment and fixtures of whatsoever kind and character
now or hereafter possessed, held, acquired, leased or owned by Debtor
and used or usable in Debtor's business, together with all
replacements, accessories, additions, substitutions and accessions to
all of the foregoing, all records relating in any way to the foregoing
(including, without limitation, any computer software, whether on
tape, disk, card, strip, cartridge or any other form). To the extent
that the foregoing property is located on, attached to, annexed to,
related to, or used in connection with, or otherwise made a part of,
and is or shall become fixtures upon, real property, such real
property and the record owner thereof is described on EXHIBIT "A"
attached hereto and made a part hereof.
<PAGE>
The term Collateral, as used herein, shall also include all PRODUCTS
and PROCEEDS of all of the foregoing (including without limitation,
insurance payable by reason of loss or damage to the foregoing property)
and any property, securities, guaranties or monies of Debtor which may at
any time come into the possession of Secured Party (as hereinafter
defined). The designation of proceeds does not authorize Debtor to sell,
transfer or otherwise convey any of the foregoing property except finished
goods intended for sale in the ordinary course of Debtor's business or as
otherwise provided herein.
(d) The term "INDEBTEDNESS" shall mean:
(i) that certain Letter Loan Agreement dated June 2, 1995 between
Borrower and Bank (the "LETTER LOAN AGREEMENT") including, without
limitation, all amounts owing pursuant to that certain $4,000,000.00
Revolving Line of Credit Promissory Note dated June 2, 1995 and that
certain $2,500,000.00 Advancing Line of Credit Promissory Note also
dated June 2, 1995, both of which notes have a maturity date of June
2, 1997 (collectively, the "NOTES"), (ii) that certain Master Lease
Agreement dated February 9, 1996 between Banc One Leasing Corporation,
as lessor ("ORIGINAL LESSOR"), and Borrower, as lessee, pursuant to
which equipment was to be leased from time to time by the attachment
thereto of one or more lease schedules (such lease agreement, together
with all lease schedules attached thereto herein called the "MASTER
LEASE AGREEMENT"), including specifically that certain lease schedule
no. 1000049223 between Borrower and the Original Lessor, pursuant to
which certain motor vehicles and equipment having a total cost of
$699,860.35 were leased, on a financing lease basis, by the Original
Lessor to Borrower, such lease term expiring on February 15, 2001
("LEASE SCHEDULE NO. 49223") and that certain lease schedule no.
1000049649 between Borrower and the Original Lessor pursuant to which
certain equipment having a total cost of $1,800,515.65 was leased, on
a financing lease basis, by the Original Lessor to Borrower, such
lease term expiring on March 15, 2003 ("LEASE SCHEDULE NO. 49649");
Lease Schedule No. 49223 having been assigned by the Original Lessor
to Banc One Texas Leasing Corporation pursuant to an Assignment and
Bill of Sale dated February 15, 1995 and Lease Schedule No. 49649
having been assigned by the Original Lessor to Banc One Texas Leasing
Corporation pursuant to an Assignment and Bill of Sale dated March 15,
1996; Lease Schedule No. 49223 and Lease Schedule No. 49649 having
been further assigned by Banc One Texas Leasing Corporation to Bank
pursuant to an Assignment and Bill of Sale dated January 10, 1997,
(iii) all other indebtedness, obligations and liabilities of Borrower
to Bank of any kind or character, now existing or hereafter arising,
whether direct, indirect, related, unrelated, fixed, contingent,
liquidated, unliquidated, joint, several or joint and several, and
regardless of whether such indebtedness, obligations and liabilities
may, prior to their acquisitions by Bank, be or have been payable to
or in favor of a third party and subsequently acquired by Bank (it
2
<PAGE>
being contemplated that Bank may make such acquisitions from third
parties), including without limitation all indebtedness, obligations
and liabilities of Borrower to Bank now existing or hereafter arising
by note, draft, acceptance, guaranty, endorsement, letter of credit,
assignment, purchase, overdraft, discount, indemnity agreement or
otherwise, (iv) all accrued but unpaid interest on any of the
indebtedness described in (i), (ii) and (iii) above, (v) all
obligations of Borrower to Bank under any documents evidencing,
securing, governing and/or pertaining to all or any part of the
indebtedness described in (i), (ii), (iii) and (iv) above, (vi) all
costs and expenses incurred by Bank in connection with the collection
and administration of all or any part of the indebtedness and
obligations described in (i), (ii), (iii), (iv) and (v) above or the
protection or preservation of, or realization upon, the collateral
securing all or any part of such indebtedness and obligations,
including without limitation all reasonable attorneys' fees, and (vii)
all renewals, extensions, modifications and rearrangements of the
indebtedness and obligations described in (i), (ii), (iii), (iv), (v)
and (vi) above.
(e) The term "LOAN DOCUMENTS" shall mean all instruments and
documents evidencing, securing, governing, guaranteeing and/or pertaining
to the Indebtedness.
(f) The term "OBLIGATED PARTY" shall mean any party other than
Borrower who secures, guarantees and/or is otherwise obligated to pay all
or any portion of the Indebtedness.
(g) The term "SECURED PARTY" shall mean Bank, its successors and
assigns, including without limitation, any party to whom Bank, or its
successors or assigns, may assign its rights and interests under this
Agreement.
All words and phrases used herein which are expressly defined in Section 1.201
or Chapter 9 of the Code shall have the meaning provided for therein. Other
words and phrases defined elsewhere in the Code shall have the meaning specified
therein except to the extent such meaning is inconsistent with a definition in
Section 1.201 or Chapter 9 of the Code.
2. SECURITY INTEREST. As security for the Indebtedness, Debtor, for
value received, hereby grants to Secured Party a continuing security interest in
the Collateral.
3. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and warrants
the following to Secured Party:
(a) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and all of the other Loan Documents by Debtor have been duly
authorized by all necessary corporate action of Debtor, to the extent
Debtor is a corporation, or by all necessary partnership action, to the
extent Debtor is a partnership.
3
<PAGE>
(b) ENFORCEABILITY. This Agreement and the other Loan Documents
constitute legal, valid and binding obligations of Debtor, enforceable in
accordance with their respective terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights and except to the extent specific remedies
may generally be limited by equitable principles.
(c) OWNERSHIP AND LIENS. Debtor has good and marketable title to the
Collateral free and clear of all liens, security interests, encumbrances or
adverse claims, except for the security interest created by this Agreement.
No dispute, right of setoff, counterclaim or defense exists with respect to
all or any part of the Collateral. Debtor has not executed any other
security agreement currently affecting the Collateral and no effective
financing statement or other instrument similar in effect covering all or
any part of the Collateral is on file in any recording office except as may
have been executed or filed in favor of Secured Party.
(d) NO CONFLICTS OR CONSENTS. Neither the ownership, the intended
use of the Collateral by Debtor, the grant of the security interest by
Debtor to Secured Party herein nor the exercise by Secured Party of its
rights or remedies hereunder, will (i) conflict with any provision of (A)
any domestic or foreign law, statute, rule or regulation, (B) the articles
or certificate of incorporation, charter, bylaws or partnership agreement,
as the case may be, of Debtor, or (C) any agreement, judgment, license,
order or permit applicable to or binding upon Debtor, or (ii) result in or
require the creation of any lien, charge or encumbrance upon any assets or
properties of Debtor or of any person except as may be expressly
contemplated in the Loan Documents. Except as expressly contemplated in
the Loan Documents, no consent, approval, authorization or order of, and no
notice to or filing with, any court, governmental authority or third party
is required in connection with the grant by Debtor of the security interest
herein or the exercise by Secured Party of its rights and remedies
hereunder.
(e) SECURITY INTEREST. Debtor has and will have at all times full
right, power and authority to grant a security interest in the Collateral
to Secured Party in the manner provided herein, free and clear of any lien,
security interest or other charge or encumbrance. This Agreement creates a
legal, valid and binding security interest in favor of Secured Party in the
Collateral securing the Indebtedness. Possession by Secured Party of all
certificates, instruments and cash constituting Collateral from time to
time and/or the filing of the financing statements delivered prior hereto
and/or concurrently herewith by Debtor to Secured Party will perfect and
establish the first priority of Secured Party's security interest hereunder
in the Collateral.
(f) LOCATION. Debtor's residence or chief executive office, as the
case may be, and the office where the records concerning the Collateral are
kept is located at its address set forth on the signature page hereof.
Except as specified elsewhere herein, all Collateral shall be kept at such
address and such other addresses as may be listed in SCHEDULE "B" attached
hereto and made a part hereof.
4
<PAGE>
(g) SOLVENCY OF DEBTOR. As of the date hereof, and after giving
effect to this Agreement and the completion of all other transactions
contemplated by Debtor at the time of the execution of this Agreement, (i)
Debtor is and will be solvent, (ii) the fair saleable value of Debtor's
assets exceeds and will continue to exceed Debtor's liabilities (both fixed
and contingent), (iii) Debtor is paying and will continue to be able to pay
its debts as they mature, and (iv) if Debtor is not an individual, Debtor
has and will have sufficient capital to carry on Debtor's businesses and
all businesses in which Debtor is about to engage.
(h) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as disclosed in
writing to Secured Party: (i) Debtor is conducting Debtor's businesses in
material compliance with all applicable federal, state and local laws,
statutes, ordinances, rules, regulations, orders, determinations and court
decisions, including without limitation, those pertaining to health or
environmental matters such as the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986 (collectively, together with any
subsequent amendments, hereinafter called "CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling
Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and the
Hazardous Substance Waste Amendments of 1984 (collectively, together with
any subsequent amendments, hereinafter called "RCRA"), the Texas Water Code
and the Texas Solid Waste Disposal Act; (ii) none of the operations of
Debtor is the subject of a federal, state or local investigation evaluating
whether any material remedial action is needed to respond to a release or
disposal of any toxic or hazardous substance or solid waste into the
environment; (iii) Debtor has not filed any notice under any federal, state
or local law indicating that Debtor is responsible for the release into the
environment, the disposal on any premises in which Debtor is conducting its
businesses or the improper storage, of any material amount of any toxic or
hazardous substance or solid waste or that any such toxic or hazardous
substance or solid waste has been released, disposed of or is improperly
stored, upon any premise on which Debtor is conducting its businesses; and
(iv) Debtor otherwise does not have any known material contingent liability
in connection with the release into the environment, disposal or the
improper storage, of any such toxic or hazardous substance or solid waste.
The terms "HAZARDOUS SUBSTANCE" and "RELEASE", as used herein, shall have
the meanings specified in CERCLA, and the terms "SOLID WASTE" and
"DISPOSAL", as used herein, shall have the meanings specified in RCRA;
provided, however, that to the extent that the laws of the State of Texas
establish meanings for such terms which are broader than that specified in
either CERCLA or RCRA, such broader meanings shall apply.
(i) ACCOUNTS. Each account represents the valid and legally binding
indebtedness of a bona fide account debtor arising from the sale or lease
by Debtor of goods or the rendition by Debtor of services and is not
subject to contra accounts, setoffs, defenses or counterclaims by or
available to account debtors obligated on the accounts except as disclosed
by Debtor to Secured Party from time to time in writing. The amount shown
as to each account on Debtor's books is the true and undisputed amount
owing and
5
<PAGE>
unpaid thereon, subject only to discounts, allowances, rebates, credits and
adjustments to which the account debtor has a right and which have been
disclosed to Secured Party in writing.
4. AFFIRMATIVE COVENANTS. Debtor will comply with the covenants
contained in this Section 4 at all times during the period of time this
Agreement is effective unless Secured Party shall otherwise consent in writing.
(a) OWNERSHIP AND LIENS. Debtor will maintain good and marketable
title to all Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except for the security interest created by
this Agreement and the security interests and other encumbrances expressly
permitted by the other Loan Documents. Debtor will not permit any dispute,
right of setoff, counterclaim or defense to exist with respect to all or
any part of the Collateral. Debtor will cause any financing statement or
other security instrument with respect to the Collateral to be terminated,
except as may exist or as may have been filed in favor of Secured Party.
Debtor will defend at its expense Secured Party's right, title and security
interest in and to the Collateral against the claims of any third party.
(b) FURTHER ASSURANCES. Debtor will from time to time at its expense
promptly execute and deliver all further instruments and documents and take
all further action necessary or appropriate or that Secured Party may
request in order (i) to perfect and protect the security interest created
or purported to be created hereby and the first priority of such security
interest, (ii) to enable Secured Party to exercise and enforce its rights
and remedies hereunder in respect of the Collateral, and (iii) to otherwise
effect the purposes of this Agreement, including without limitation: (A)
executing and filing such financing or continuation statements, or
amendments thereto; and (B) furnishing to Secured Party from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral, all in reasonable
detail satisfactory to Bank.
(c) INSPECTION OF COLLATERAL. Debtor will keep adequate records
concerning the Collateral and will permit Secured Party and all
representatives and agents appointed by Secured Party to inspect any of the
Collateral and the books and records of or relating to the Collateral at
any time during normal business hours, to make and take away photocopies,
photographs and printouts thereof and to write down and record any such
information.
(d) PAYMENT OF TAXES. Debtor (i) will timely pay all property and
other taxes, assessments and governmental charges or levies imposed upon
the Collateral or any part thereof, (ii) will timely pay all lawful claims
which, if unpaid, might become a lien or charge upon the Collateral or any
part thereof, and (iii) will maintain appropriate accruals and reserves for
all such liabilities in a timely fashion in accordance with generally
accepted accounting principles. Debtor may, however, delay paying or
discharging any
6
<PAGE>
such taxes, assessments, charges, claims or liabilities so long as the
validity thereof is contested in good faith by proper proceedings and
provided Debtor has set aside on Debtor's books adequate reserves therefor;
provided, however, Debtor understands and agrees that in the event of any
such delay in payment or discharge and upon Secured Party's written
request, Debtor will establish with Secured Party an escrow acceptable to
Secured Party adequate to cover the payment of such taxes, assessments and
governmental charges with interest, costs and penalties and a reasonable
additional sum to cover possible costs, interest and penalties (which
escrow shall be returned to Debtor upon payment of such taxes, assessments,
governmental charges, interests, costs and penalties or disbursed in
accordance with the resolution of the contest to the claimant) or furnish
Secured Party with an indemnity bond secured by a deposit in cash or other
security acceptable to Secured Party. Notwithstanding any other provision
contained in this Subsection, Secured Party may at its discretion exercise
its rights under Subsection 6(c) at any time to pay such taxes,
assessments, governmental charges, interest, costs and penalties.
(e) MORTGAGEE'S AND LANDLORD'S WAIVERS. Debtor shall cause each
mortgagee of real property owned by Debtor and each landlord of real
property leased by Debtor to execute and deliver agreements satisfactory in
form and substance to Secured Party by which such mortgagee or landlord
waives or subordinates any rights it may have in the Collateral.
(f) INSURANCE. Debtor will, at its own expense, maintain insurance
with respect to all Collateral which constitutes goods in such amounts,
against such risks, in such form and with such insurers, as shall be
satisfactory to Secured Party from time to time. If requested by Secured
Party, each policy for property damage insurance shall provide for all
losses to be paid directly to Secured Party. If requested by Secured
Party, each policy of insurance maintained by Debtor shall (i) name Debtor
and Secured Party as insured parties thereunder (without any representation
or warranty by or obligation upon Secured Party) as their interests may
appear, (ii) contain the agreement by the insurer that any loss thereunder
shall be payable to Secured Party notwithstanding any action, inaction or
breach of representation or warranty by Debtor, (iii) provide that there
shall be no recourse against Secured Party for payment of premiums or other
amounts with respect thereto, and (iv) provide that at least thirty (30)
days prior written notice of cancellation or of lapse shall be given to
Secured Party by the insurer. Debtor will, if requested by Secured Party,
deliver to Secured Party original or duplicate policies of such insurance
and, as often as Secured Party may reasonably request, a report of a
reputable insurance broker with respect to such insurance. Debtor will
also, at the request of Secured Party, duly execute and deliver instruments
of assignment of such insurance policies and cause the respective insurers
to acknowledge notice of such assignment. All insurance payments in
respect of loss of or damage to any Collateral shall be paid to Secured
Party and applied as Secured Party in its sole discretion deems
appropriate.
7
<PAGE>
(g) ACCOUNTS AND GENERAL INTANGIBLES. Debtor will, except as
otherwise provided in Subsection 6(f), collect, at Debtor's own expense,
all amounts due or to become due under each of the accounts and general
intangibles. In connection with such collections, Debtor may and, at
Secured Party's direction, will take such action not otherwise forbidden by
Subsection 5(e) as Debtor or Secured Party may deem necessary or advisable
to enforce collection or performance of each of the accounts and general
intangibles. Debtor will also duly perform and cause to be performed all
of its obligations with respect to the goods or services, the sale or lease
or rendition of which gave rise or will give rise to each account and all
of its obligations to be performed under or with respect to the general
intangibles. Debtor also covenants and agrees to take any action and/or
execute any documents that Secured Party may request in order to comply
with the Federal Assignment of Claims Act, as amended.
5. NEGATIVE COVENANTS. Debtor will comply with the covenants contained
in this Section 5 at all times during the period of time this Agreement is
effective, unless Secured Party shall otherwise consent in writing.
(a) TRANSFER OR ENCUMBRANCE. Debtor will not (i) sell, assign (by
operation of law or otherwise), transfer, exchange, lease or otherwise
dispose of any of the Collateral, (ii) grant a lien or security interest in
or execute, file or record any financing statement or other security
instrument with respect to the Collateral to any party other than Secured
Party, or (iii) deliver actual or constructive possession of any of the
Collateral to any party other than Secured Party, except for (A) sales and
leases of inventory in the ordinary course of business, and (B) the sale or
other disposal of any item of equipment which is worn out or obsolete and
which has been replaced by an item of equal suitability and value, owned by
Debtor and made subject to the security interest under this Agreement, but
which is otherwise free and clear of any lien, security interest,
encumbrance or adverse claim; provided, however, the exceptions permitted
in clauses (A) and (B) above shall automatically terminate upon the
occurrence of an Event of Default.
(b) IMPAIRMENT OF SECURITY INTEREST. Debtor will not take or fail to
take any action which would in any manner impair the value or
enforceability of Secured Party's security interest in any Collateral.
(c) POSSESSION OF COLLATERAL. Debtor will not cause or permit the
removal of any Collateral from its possession, control and risk of loss,
nor will Debtor cause or permit the removal of any Collateral from the
address on the signature page hereof and the addresses specified on
Schedule "B" to this Agreement other than (i) as permitted by Subsection
5(a), or (ii) in connection with the possession of any Collateral by
Secured Party or by its bailee.
(d) COMPROMISE OF COLLATERAL. Debtor will not adjust, settle,
compromise, amend or modify any Collateral, except an adjustment,
settlement, compromise,
8
<PAGE>
amendment or modification in good faith and in the ordinary course of
business; provided, however, this exception shall automatically terminate
upon the occurrence of an Event of Default or upon Secured Party's written
request. Debtor shall provide to Secured Party such information concerning
(i) any adjustment, settlement, compromise, amendment or modification of
any Collateral, and (ii) any claim asserted by any account debtor for
credit, allowance, adjustment, dispute, setoff or counterclaim, as Secured
Party may request from time to time.
(e) FINANCING STATEMENT FILINGS. Debtor recognizes that financing
statements pertaining to the Collateral have been or may be filed where
Debtor maintains any Collateral, has its records concerning any Collateral
or has its residence or chief executive office, as the case may be.
Without limitation of any other covenant herein, Debtor will not cause or
permit any change in the location of (i) any Collateral, (ii) any records
concerning any Collateral, or (iii) Debtor's residence or chief executive
office, as the case may be, to a jurisdiction other than as represented in
Subsection 3(f) unless Debtor shall have notified Secured Party in writing
of such change at least thirty (30) days prior to the effective date of
such change, and shall have first taken all action required by Secured
Party for the purpose of further perfecting or protecting the security
interest in favor of Secured Party in the Collateral. In any written
notice furnished pursuant to this Subsection, Debtor will expressly state
that the notice is required by this Agreement and contains facts that may
require additional filings of financing statements or other notices for the
purpose of continuing perfection of Secured Party's security interest in
the Collateral.
6. RIGHTS OF SECURED PARTY. Secured Party shall have the rights
contained in this Section 6 at all times during the period of time this
Agreement is effective.
(a) ADDITIONAL FINANCING STATEMENTS FILINGS. Debtor hereby
authorizes Secured Party to file, without the signature of Debtor, one or
more financing or continuation statements, and amendments thereto, relating
to the Collateral. Debtor further agrees that a carbon, photographic or
other reproduction of this Security Agreement or any financing statement
describing any Collateral is sufficient as a financing statement and may be
filed in any jurisdiction Secured Party may deem appropriate.
(b) POWER OF ATTORNEY. Debtor hereby irrevocably appoints Secured
Party as Debtor's attorney-in-fact, such power of attorney being coupled
with an interest, with full authority in the place and stead of Debtor and
in the name of Debtor or otherwise, from time to time in Secured Party's
discretion, to take any action and to execute any instrument which Secured
Party may deem necessary or appropriate to accomplish the purposes of this
Agreement, including without limitation: (i) to obtain and adjust insurance
required by Secured Party hereunder; (ii) to demand, collect, sue for,
recover, compound, receive and give acquittance and receipts for moneys due
and to become due under or in respect of the Collateral; (iii) to receive,
endorse and collect any drafts or
9
<PAGE>
other instruments, documents and chattel paper in connection with clause
(i) or (ii) above; and (iv) to file any claims or take any action or
institute any proceedings which Secured Party may deem necessary or
appropriate for the collection and/or preservation of the Collateral or
otherwise to enforce the rights of Secured Party with respect to the
Collateral.
(c) PERFORMANCE BY SECURED PARTY. If Debtor fails to perform any
agreement or obligation provided herein, Secured Party may itself perform,
or cause performance of, such agreement or obligation, and the expenses of
Secured Party incurred in connection therewith shall be a part of the
Indebtedness, secured by the Collateral and payable by Debtor on demand.
(d) REQUEST FOR ENVIRONMENTAL INSPECTIONS. Upon Secured Party's
reasonable request from time to time, Debtor will obtain at Debtor's sole
expense an inspection or audit of Debtor's operations from an engineering
or consulting firm approved by Secured Party, indicating the presence or
absence of toxic or hazardous substances and solid wastes on any premises
in which Debtor is conducting its business; provided, however, Debtor will
be obligated to pay for the cost of any such inspection or audit no more
than one time in any twelve (12) month period unless Secured Party has
reason to believe that toxic or hazardous substances or solid wastes have
been dumped on any such premises. If Debtor fails to order or obtain an
inspection or audit within ten (10) days after Secured Party's request,
Secured Party may at its option order such inspection or audit, and Debtor
grants to Secured Party and its agents, employees, contractors and
consultants access to the premises in which it is conducting its business
and a license (which is coupled with an interest and is irrevocable) to
obtain inspections and audits. Debtor agrees to promptly provide Secured
Party with a copy of the results of any such inspection or audit received
by Debtor. The cost of such inspections and audits shall be a part of the
Indebtedness, secured by the Collateral and payable by Debtor on demand.
(e) DEBTOR'S RECEIPT OF PROCEEDS. All amounts and proceeds
(including instruments and writings) received by Debtor in respect of such
accounts or general intangibles shall be received in trust for the benefit
of Secured Party hereunder and, upon request of Secured Party, shall be
segregated from other property of Debtor and shall be forthwith delivered
to Secured Party in the same form as so received (with any necessary
endorsement) and applied to the Indebtedness in such manner as Secured
Party deems appropriate in its sole discretion.
(f) NOTIFICATION OF ACCOUNT DEBTORS. Secured Party may at its
discretion from time to time notify any or all obligors under any accounts
or general intangibles (i) of Secured Party's security interest in such
accounts or general intangibles and direct such obligors to make payment of
all amounts due or to become due to Debtor thereunder directly to Secured
Party, and (ii) to verify the accounts or general intangibles with such
obligors. Secured Party shall have the right, at the expense of Debtor, to
enforce
10
<PAGE>
collection of any such accounts or general intangibles and to adjust,
settle or compromise the amount or payment thereof, in the same manner and
to the same extent as Debtor.
7. EVENTS OF DEFAULT. Each of the following constitutes an "Event of
Default" under this Agreement:
(a) FAILURE TO PAY INDEBTEDNESS. The failure, refusal or neglect of
Borrower to make any payment of principal or interest on the Indebtedness,
or any portion thereof, as the same shall become due and payable; or
(b) NON-PERFORMANCE OF COVENANTS. The failure of Borrower or any
Obligated Party to timely and properly observe, keep or perform any
covenant, agreement, warranty or condition required herein or in any of the
other Loan Documents; or
(c) DEFAULT UNDER OTHER LOAN DOCUMENTS. The occurrence of an event
of default under any of the other Loan Documents; or
(d) FALSE REPRESENTATION. Any representation contained herein or in
any of the other Loan Documents made by Borrower or any Obligated Party is
false or misleading in any material respect; or
(e) DEFAULT TO THIRD PARTY. The occurrence of any event which
permits the acceleration of the maturity of any indebtedness owing by
Borrower or any Obligated Party to any third party under any agreement or
undertaking; or
(f) BANKRUPTCY OR INSOLVENCY. If Borrower or any Obligated Party:
(i) becomes insolvent, or makes a transfer in fraud of
creditors, or makes an assignment for the benefit of creditors, or
admits in writing its inability to pay its debts as they become due;
or
(ii) generally is not paying its debts as such debts become due;
or
(iii) has a receiver or custodian appointed for, or take
possession of, all or substantially all of the assets of such party or
any of the Collateral, either in a proceeding brought by such party or
in a proceeding brought against such party and such appointment is not
discharged or such possession is not terminated within thirty (30)
days after the effective date thereof or such party consents to or
acquiesces in such appointment or possession; or
(iv) files a petition for relief under the United States
Bankruptcy Code or any other present or future federal or state
insolvency, bankruptcy or similar laws (all of the foregoing
hereinafter collectively called "APPLICABLE BANKRUPTCY LAW") or an
involuntary petition for relief is filed against such party under any
11
<PAGE>
Applicable Bankruptcy Law and such involuntary petition is not
dismissed within thirty (30) days after the filing thereof, or an
order for relief naming such party is entered under any Applicable
Bankruptcy Law, or any composition, rearrangement, extension,
reorganization or other relief of debtors now or hereafter existing is
requested or consented to by such party; or
(v) fails to have discharged within a period of thirty (30) days
any attachment, sequestration or similar writ levied upon any property
of such party; or
(vi) fails to pay within thirty (30) days any final money
judgment against such party; or
(g) EXECUTION ON COLLATERAL. The Collateral or any portion thereof
is taken on execution or other process of law in any action against Debtor;
or
(h) ABANDONMENT. Debtor abandons the Collateral or any portion
thereof; or
(i) ACTION BY OTHER LIENHOLDER. The holder of any lien or security
interest on any of the assets of Debtor, including without limitation, the
Collateral (without hereby implying the consent of Secured Party to the
existence or creation of any such lien or security interest on the
Collateral), declares a default thereunder or institutes foreclosure or
other proceedings for the enforcement of its remedies thereunder; or
(j) LIQUIDATION, DEATH AND RELATED EVENTS. If Borrower or any
Obligated Party is an entity, the liquidation, dissolution, merger or
consolidation of any such entity or, if Borrower or any Obligated Party is
an individual, the death or legal incapacity of any such individual.
8. REMEDIES AND RELATED RIGHTS. If an Event of Default shall have
occurred, and without limiting any other rights and remedies provided herein,
under any of the other Loan Documents or otherwise available to Secured Party,
Secured Party may exercise one or more of the rights and remedies provided in
this Section.
(a) REMEDIES. Secured Party may from time to time at its
discretion, without limitation and without notice except as
expressly provided in any of the Loan Documents:
(i) exercise in respect of the Collateral all the rights and
remedies of a secured party under the Code (whether or not the Code
applies to the affected Collateral);
(ii) require Debtor to, and Debtor hereby agrees that it will at
its expense and upon request of Secured Party, assemble the Collateral
as directed
12
<PAGE>
by Secured Party and make it available to Secured Party at a place to
be designated by Secured Party which is reasonably convenient to both
parties;
(iii) reduce its claim to judgment or foreclose or
otherwise enforce, in whole or in part, the security interest
granted hereunder by any available judicial procedure;
(iv) sell or otherwise dispose of, at its office, on the
premises of Debtor or elsewhere, the Collateral, as a unit or in
parcels, by public or private proceedings, and by way of one or more
contracts (it being agreed that the sale or other disposition of any
part of the Collateral shall not exhaust Secured Party's power of
sale, but sales or other dispositions may be made from time to time
until all of the Collateral has been sold or disposed of or until
the Indebtedness has been paid and performed in full), and at any
such sale or other disposition it shall not be necessary to exhibit
any of the Collateral;
(v) buy the Collateral, or any portion thereof, at any
public sale;
(vi) buy the Collateral, or any portion thereof, at any
private sale if the Collateral is of a type customarily sold in a
recognized market or is of a type which is the subject of widely
distributed standard price quotations;
(vii) apply for the appointment of a receiver for the
Collateral, and Debtor hereby consents to any such appointment; and
(viii) at its option, retain the Collateral in satisfaction of
the Indebtedness whenever the circumstances are such that Secured
Party is entitled to do so under the Code or otherwise.
Debtor agrees that in the event Debtor is entitled to receive any notice
under the Uniform Commercial Code, as exists in the state governing any
such notice, of the sale or other disposition of any Collateral, reasonable
notice shall be deemed given when such notice is deposited in a depository
receptacle under the care and custody of the United States Postal Service,
postage prepaid, at Debtor's address set forth on the signature page
hereof, five (5) days prior to the date of any public sale, or after which
a private sale, of any of such Collateral is to be held. Secured Party
shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(b) APPLICATION OF PROCEEDS. If any Event of Default shall have
occurred, Secured Party may at its discretion apply or use any cash held by
Secured Party as Collateral, and any cash proceeds received by Secured
Party in respect of any sale or
13
<PAGE>
other disposition of, collection from, or other realization upon, all or
any part of the Collateral as follows in such order and manner as Secured
Party may elect:
(i) to the repayment or reimbursement of the reasonable
costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred by Secured Party in
connection with (A) the administration of the Loan Documents, (B)
the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, the Collateral, and (C)
the exercise or enforcement of any of the rights and remedies of
Secured Party hereunder;
(ii) to the payment or other satisfaction of any liens and
other encumbrances upon the Collateral;
(iii) to the satisfaction of the Indebtedness;
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by
applicable law (including without limitation, Section 9.504(a)(3) of
the Code or any other applicable statutory provision); and
(vi) by delivery to Debtor or any other party lawfully
entitled to receive such cash or proceeds whether by direction of a
court of competent jurisdiction or otherwise.
(c) DEFICIENCY. In the event that the proceeds of any sale of,
collection from, or other realization upon, all or any part of the
Collateral by Secured Party are insufficient to pay all amounts to which
Secured Party is legally entitled, Borrower and any party who guaranteed or
is otherwise obligated to pay all or any portion of the Indebtedness shall
be liable for the deficiency, together with interest thereon as provided in
the Loan Documents.
(d) NON-JUDICIAL REMEDIES. In granting to Secured Party the power to
enforce its rights hereunder without prior judicial process or judicial
hearing, Debtor expressly waives, renounces and knowingly relinquishes any
legal right which might otherwise require Secured Party to enforce its
rights by judicial process. Debtor recognizes and concedes that
non-judicial remedies are consistent with the usage of trade, are
responsive to commercial necessity and are the result of a bargain at arm's
length. Nothing herein is intended to prevent Secured Party or Debtor from
resorting to judicial process at either party's option.
(e) OTHER RECOURSE. Debtor waives any right to require Secured Party
to proceed against any third party, exhaust any Collateral or other
security for the Indebtedness, or to have any third party joined with
Debtor in any suit arising out of the
14
<PAGE>
Indebtedness or any of the Loan Documents, or pursue any other remedy
available to Secured Party. Debtor further waives any and all notice of
acceptance of this Agreement and of the creation, modification,
rearrangement, renewal or extension of the Indebtedness. Debtor further
waives any defense arising by reason of any disability or other defense of
any third party or by reason of the cessation from any cause whatsoever of
the liability of any third party. Until all of the Indebtedness shall have
been paid in full, Debtor shall have no right of subrogation and Debtor
waives the right to enforce any remedy which Secured Party has or may
hereafter have against any third party, and waives any benefit of and any
right to participate in any other security whatsoever now or hereafter held
by Secured Party. Debtor authorizes Secured Party, and without notice or
demand and without any reservation of rights against Debtor and without
affecting Debtor's liability hereunder or on the Indebtedness to (i) take
or hold any other property of any type from any third party as security for
the Indebtedness, and exchange, enforce, waive and release any or all of
such other property, (ii) apply such other property and direct the order or
manner of sale thereof as Secured Party may in its discretion determine,
(iii) renew, extend, accelerate, modify, compromise, settle or release any
of the Indebtedness or other security for the Indebtedness, (iv) waive,
enforce or modify any of the provisions of any of the Loan Documents
executed by any third party, and (v) release or substitute any third party.
9. INDEMNITY. Debtor hereby indemnifies and agrees to hold harmless
Secured Party, and its officers, directors, employees, agents and
representatives (each an "INDEMNIFIED PERSON") from and against any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
(collectively, the "CLAIMS") which may be imposed on, incurred by, or asserted
against, any Indemnified Person (whether or not caused by any Indemnified
Person's sole, concurrent or contributory negligence) arising in connection with
the Loan Documents, the Indebtedness or the Collateral (including without
limitation, the enforcement of the Loan Documents and the defense of any
Indemnified Person's actions and/or inactions in connection with the Loan
Documents), except to the limited extent the Claims against an Indemnified
Person are proximately caused by such Indemnified Person's gross negligence or
willful misconduct. If Debtor or any third party ever alleges such gross
negligence or willful misconduct by any Indemnified Person, the indemnification
provided for in this Section shall nonetheless be paid upon demand, subject to
later adjustment or reimbursement, until such time as a court of competent
jurisdiction enters a final judgment as to the extent and effect of the alleged
gross negligence or willful misconduct. The indemnification provided for in
this Section shall survive the termination of this Agreement and shall extend
and continue to benefit each individual or entity who is or has at any time been
an Indemnified Person hereunder.
10. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement contains the entire agreement
of Secured Party and Debtor with respect to the Collateral. If the parties
hereto are parties to any prior agreement, either written or oral, relating
to the Collateral, the terms of this
15
<PAGE>
Agreement shall amend and supersede the terms of such prior agreements as
to transactions on or after the effective date of this Agreement, but all
security agreements, financing statements, guaranties, other contracts and
notices for the benefit of Secured Party shall continue in full force and
effect to secure the Indebtedness unless Secured Party specifically
releases its rights thereunder by separate release.
(b) AMENDMENT. No modification, consent or amendment of any
provision of this Agreement or any of the other Loan Documents shall be
valid or effective unless the same is in writing and signed by the party
against whom it is sought to be enforced.
(c) ACTIONS BY SECURED PARTY. The lien, security interest and other
security rights of Secured Party hereunder shall not be impaired by (i) any
renewal, extension, increase or modification with respect to the
Indebtedness, (ii) any surrender, compromise, release, renewal, extension,
exchange or substitution which Secured Party may grant with respect to the
Collateral, or (iii) any release or indulgence granted to any endorser,
guarantor or surety of the Indebtedness. The taking of additional security
by Secured Party shall not release or impair the lien, security interest or
other security rights of Secured Party hereunder or affect the obligations
of Debtor hereunder.
(d) WAIVER BY SECURED PARTY. Secured Party may waive any Event of
Default without waiving any other prior or subsequent Event of Default.
Secured Party may remedy any default without waiving the Event of Default
remedied. Neither the failure by Secured Party to exercise, nor the delay
by Secured Party in exercising, any right or remedy upon any Event of
Default shall be construed as a waiver of such Event of Default or as a
waiver of the right to exercise any such right or remedy at a later date.
No single or partial exercise by Secured Party of any right or remedy
hereunder shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right or remedy hereunder may be exercised
at any time. No waiver of any provision hereof or consent to any departure
by Debtor therefrom shall be effective unless the same shall be in writing
and signed by Secured Party and then such waiver or consent shall be
effective only in the specific instances, for the purpose for which given
and to the extent therein specified. No notice to or demand on Debtor in
any case shall of itself entitle Debtor to any other or further notice or
demand in similar or other circumstances.
(e) COSTS AND EXPENSES. Debtor will upon demand pay to Secured Party
the amount of any and all costs and expenses (including without limitation,
attorneys' fees and expenses), which Secured Party may incur in connection
with (i) the transactions which give rise to the Loan Documents, (ii) the
preparation of this Agreement and the perfection and preservation of the
security interests granted under the Loan Documents, (iii) the
administration of the Loan Documents, (iv) the custody, preservation, use
or operation of, or the sale of, collection from, or other realization
upon, the Collateral, (v) the exercise or enforcement of any of the rights
of Secured Party under the Loan Documents, or (vi) the failure by Debtor to
perform or observe any of the provisions hereof.
16
<PAGE>
(f) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL
LAWS, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER, IN RESPECT OF
ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF TEXAS.
(g) VENUE. This Agreement has been entered into in the county in
Texas where Bank's address for notice purposes is located, and it shall be
performable for all purposes in such county. Courts within the State of
Texas shall have jurisdiction over any and all disputes arising under or
pertaining to this Agreement and venue for any such disputes shall be in
the county or judicial district where this Agreement has been executed and
delivered.
(h) SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be illegal, invalid or unenforceable
under present or future laws, such provision shall be fully severable,
shall not impair or invalidate the remainder of this Agreement and the
effect thereof shall be confined to the provision held to be illegal,
invalid or unenforceable.
(i) NO OBLIGATION. Nothing contained herein shall be construed as an
obligation on the part of Secured Party to extend or continue to extend
credit to Borrower.
(j) NOTICES. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be in
writing and given by (i) personal delivery, (ii) expedited delivery service
with proof of delivery, or (iii) United States mail, postage prepaid,
registered or certified mail, return receipt requested, sent to the
intended addressee at the address set forth on the signature page hereof or
to such different address as the addressee shall have designated by written
notice sent pursuant to the terms hereof and shall be deemed to have been
received either, in the case of personal delivery, at the time of personal
delivery, in the case of expedited delivery service, as of the date of
first attempted delivery at the address and in the manner provided herein,
or in the case of mail, upon deposit in a depository receptacle under the
care and custody of the United States Postal Service. Either party shall
have the right to change its address for notice hereunder to any other
location within the continental United States by notice to the other party
of such new address at least thirty (30) days prior to the effective date
of such new address.
(k) BINDING EFFECT AND ASSIGNMENT. This Agreement (i) creates a
continuing security interest in the Collateral, (ii) shall be binding on
Debtor and the heirs, executors, administrators, personal representatives,
successors and assigns of Debtor, and (iii) shall inure to the benefit of
Secured Party and its successors and assigns. Without limiting the
17
<PAGE>
generality of the foregoing, Secured Party may pledge, assign or otherwise
transfer the Indebtedness and its rights under this Agreement and any of
the other Loan Documents to any other party. Debtor's rights and
obligations hereunder may not be assigned or otherwise transferred without
the prior written consent of Secured Party.
(l) TERMINATION. It is contemplated by the parties hereto that from
time to time there may be no outstanding Indebtedness, but notwithstanding
such occurrences, this Agreement shall remain valid and shall be in full
force and effect as to subsequent outstanding Indebtedness. Upon (i) the
satisfaction in full of the Indebtedness, (ii) the termination or
expiration of any commitment of Secured Party to extend credit to Borrower,
(iii) written request for the termination hereof delivered by Debtor to
Secured Party, and (iv) written release or termination delivered by Secured
Party to Debtor, this Agreement and the security interests created hereby
shall terminate. Upon termination of this Agreement and Debtor's written
request, Secured Party will, at Debtor's sole cost and expense, return to
Debtor such of the Collateral as shall not have been sold or otherwise
disposed of or applied pursuant to the terms hereof and execute and deliver
to Debtor such documents as Debtor shall reasonably request to evidence
such termination.
(m) CUMULATIVE RIGHTS. All rights and remedies of Secured Party
hereunder are cumulative of each other and of every other right or remedy
which Secured Party may otherwise have at law or in equity or under any of
the other Loan Documents, and the exercise of one or more of such rights or
remedies shall not prejudice or impair the concurrent or subsequent
exercise of any other rights or remedies.
(n) GENDER AND NUMBER. Within this Agreement, words of any gender
shall be held and construed to include the other gender, and words in the
singular number shall be held and construed to include the plural and words
in the plural number shall be held and construed to include the singular,
unless in each instance the context requires otherwise.
(o) DESCRIPTIVE HEADINGS. The headings in this Agreement are for
convenience only and shall in no way enlarge, limit or define the scope or
meaning of the various and several provisions hereof.
18
<PAGE>
EXECUTED as of the date first written above.
Debtor's Address: DEBTOR:
4415 E. Greenwood HYDROCARBON TECHNOLOGIES, INC.
Baytown, Texas 77520
By: /s/ W. Christopher Chisholm
------------------------------------------
Name: W. Christopher Chisholm
----------------------------------------
Title: Vice President
---------------------------------------
Secured Party's Address:
Bank One, Texas, National Association
910 Travis
Houston, Texas 77002
19
<PAGE>
EXHIBIT "A"
TO
SECURITY AGREEMENT
DATED JANUARY __, 1997
BY AND BETWEEN
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
HYDROCARBON TECHNOLOGIES, INC.
HYDROCARBON TECHNOLOGIES, INC. PHYSICAL LOCATIONS:
- -------------------------------------------------
Austin Terminal
60312 Westinghouse Road
Georgetown, TX 78626
Baton Rouge Terminal
1122 U.S. Highway 190 W. Service Road
Port Allen, LA 70767
Carthage Yard
1127 Hills Lake Road
Carthage, TX 75633
Corsicana Oil Plant
2124 E. Highway 31
Corsicana, TX 75110
Dallas Terminal
2107 Quincy Street
Dallas, TX 75212
Houston Terminal & Treatment Plant
4415 E. Greenwood
Baytown, TX 77520
Little Rock Terminal
14420 Union Street
Little Rock, AR 72206
San Antonio Terminal
20204 FM 3175 N.
Lytle, TX 78052
Kilgore Treatment Plant
A-1
<PAGE>
Wickes St. at Hwy. 31
Kilgore, TX 75662
A-2
<PAGE>
SCHEDULE "B"
TO
SECURITY AGREEMENT
DATED JANUARY __, 1997
BY AND BETWEEN
BANK ONE, TEXAS, NATIONAL ASSOCIATION
AND
HYDROCARBON TECHNOLOGIES, INC.
The other addresses referenced in Subsection 3(f) are as follows:
[None]
B-1
<PAGE>
EXHIBIT 11
MOBLEY ENVIRONMENTAL SERVICES, INC.
Computation of Loss Per Common Share
Year Ended December 31, 1996
Loss from continuing operations $ 1,286,000
Loss from discontinued operations 8,949,000
-----------
Net loss $10,235,000
-----------
-----------
Weighted average number of
common shares outstanding
during the period 8,835,293
---------
---------
Net loss per share:
Continuing operations $ (0.15)
Discontinued operations (1.01)
--------
$ (1.16)
--------
--------
<PAGE>
<PAGE>
EXHIBIT 21
MOBLEY ENVIRONMENTAL SERVICES, INC.
LIST OF SUBSIDIARIES
Company Name State of Incorporation
------------ ----------------------
Mobley Company, Inc. Texas
Hydrocarbon Technologies, Inc. Texas
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Mobley Environmental Services, Inc.:
We consent to incorporation by reference in the Registration Statement
(No. 33-92336) on Form S-8 of Mobley Environmental Services, Inc. of our report
dated February 28, 1997, except for the second sentence of the last paragraph of
note 7 which is as of March 31, 1997, relating to the consolidated balance
sheets of Mobley Environmental Services, Inc. and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, which report is included in the December 31,
1996, annual report on Form 10-K of Mobley Environmental Services, Inc.
KPMG PEAT MARWICK LLP
Shreveport, Louisiana
May 15, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 385
<SECURITIES> 0
<RECEIVABLES> 211
<ALLOWANCES> (50)
<INVENTORY> 0
<CURRENT-ASSETS> 1,897
<PP&E> 557
<DEPRECIATION> (327)
<TOTAL-ASSETS> 11,983
<CURRENT-LIABILITIES> 9,368
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 2,377
<TOTAL-LIABILITY-AND-EQUITY> 11,983
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,286)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,286)
<DISCONTINUED> (8,949) <F1>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,235)
<EPS-PRIMARY> (1.16)
<EPS-DILUTED> (1.16)
<FN>
<F1> BECAUSE OF THE PENDING SALES OF ITS TWO BUSINESS SEGMENTS AT DECEMBER 31,
1996, SUCH SEGMENTS HAVE BEEN ACCOUNTED FOR AS DISCONTINUED OPERATIONS, AND
ACCORDINGLY, THEIR OPERATIONS HAVE BEEN SEGREGATED IN THE ACCOMPANYING
CONSOLIDATED STATEMENTS OF OPERATIONS.
</FN>
</TABLE>
