<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Supplement to the
SCHEDULE 14D-9/A
(Amendment No. 1)
Solicitation/Recommendation Statement Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
Mobley Environmental Services, Inc.
------------------------------
(Name of Subject Company)
Mobley Environmental Services, Inc.
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(Name of Person Filing Statement)
Class A Common Stock
------------------------------
(Title of Class of Securities)
607419-10-8
------------------------------
(CUSIP Number of Class of Securities)
Howard V. Rose
111 Congress Avenue, Suite 1400
Austin, Texas, 78701
(512) 479-9701
------------------------------
(Name, address and telephone number of person authorized to receive
notice and communications on behalf of the person filing statement)
This Amendment No. 1 to the Solicitation/Recommendation Statement on
Schedule 14D-9 (the "Statement") relates to the tender offer (the "Offer")
disclosed in a Tender Offer Statement on Schedule 14D-1, dated June 11, 1999
as amended by the Schedule 14D-1/A (Amendment No. 1) dated July 13, 1999, of
GAP Capital, L.L.C. a Texas limited liability company (the "Purchaser") to
purchase all outstanding shares of the Class A common stock, par value $.01
per share (the "Class A Shares"), of Mobley Environmental Services, Inc., a
Delaware corporation (the "Company"). The purpose of this Amendment No. 1
is to amend and supplement Items 2, 4, 5 and 9 of the Schedule 14D-9 as
described below.
<PAGE>
Item 2. Tender Offer of the Bidder
Item 2 is hereby amended and supplemented as follows:
This Statement relates to the tender offer disclosed in the Tender
Offer Statement on Schedule 14D-1, dated June 11, 1999 and Amendment No. 1
thereto dated July 13, 1999 (the "Supplement") (the "Schedule 14D-1") of GAP
Capital, L.L.C., a Texas limited liability company (the "Purchaser"), for all
outstanding Class A Shares, at a purchase price of $.25 per Class A Share,
net to the seller in cash, without interest thereon (the "Offer Price"), upon
the terms and subject to the conditions set forth in the Offer to Purchase
dated June 11, 1999 and Supplement thereto dated July 13, 1999 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which together with the
Offer to Purchase constitute the "Offer"). Pursuant to the Supplement, the
Purchaser has extended the Expiration Date to 12:00 Midnight, New York City
time on Tuesday, July 27, 1999, and has increased the Offer Price to $.25 per
share.
Item 4. The Solicitation or Recommendation
Item 4 is hereby amended and supplemented as follows:
(a) This Statement relates to a cash tender offer being made for
the Class A Shares of the Company. A solicitation in furtherance of the
Offer is being made. The description of the background of the Offer set forth
in Item 11 ("Contacts with the Company; Background of the Offer") of the
Offer to Purchase is incorporated by reference herein. In addition, the
Board of Directors has re-recommended that the Company's stockholders accept
the Offer as it has been increased and tender their Class A Shares. In
reaching its decision to recommend acceptance of the Offer, the Board
determined the Offer Price is fair to the Company's stockholders and that the
Offer is in the best interests of the Company and its stockholders and is
fair to the stockholders of the Company.
(b) In reaching its conclusions described above, the Board asked
for and received information, made certain judgments and considered a number
of factors, including, without limitation, the following:
(1) The Offer Price is for $.25 per Class A Share. The offer
was increased 25% from $.20 per share.
(2) The current market price of the Class A Shares is
approximately $.20 per Class A Share presumably because of the Offer and few
Class A Shares are being bought and sold. Further, a seller in the market
would ordinarily have to pay a brokerage commission out of the sales proceeds.
(3) The Company may be subject to certain material contingent
liabilities arising from (i) pending lawsuits arising out of the operations
of Gibraltar Chemical Resources, Inc. ("Gibraltar"), a former wholly-owned
subsidiary of the Company, which the Company sold on
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December 31, 1994, alleging, among other things, that Gibraltar's operations
caused bodily injury and personal property damage as a result of the release
of toxic chemicals; (ii) potential claims from the purchaser of Gibraltar
arising under indemnity provisions of the agreement between that purchaser
and the Company; and (iii) possible claims by former customers of Gibraltar
for damages incurred by those parties as a result of third party claims
relating to Gibraltar's operations. The Company believes that it may continue
to be subject to potential liabilities arising from these factors for an
indefinite period of time in the future.
(4) The Company is a defendant in several pending lawsuits,
one or more of which may continue for an indefinite period of time in the
future. The Company currently expects to incur defense costs attributable to
one of these lawsuits of approximately $900,000 for 1999. The Company
expects defense costs to continue at similar levels, or to increase, in
future years. Amounts that are not spent on defense costs may in turn be
spent as part of settlements, in that settlement amounts are often a function
of the litigants' perception of their alternative defense costs. Although
settlement discussions in several of these lawsuits occur periodically, the
Company does not expect to be able to resolve all of the lawsuits to which it
is a part in the foreseeable future.
(5) Although certain of the Company's defense costs are being
borne by its insurance carrier under an existing pollution liability
insurance policy, costs advanced by that carrier to date have exceeded the
policy limits. In addition, an insurer of Gibraltar's purchaser is paying
one-half of all defense costs relating to another lawsuit to which the
Company is a party. There can be no assurance that the Company's insurer or
the insurer of Gibraltar's purchaser will continue to bear defense costs as
they have in the past.
(6) The Company has no ongoing business operations. The
Company's assets consist, almost entirely, of cash and items that can be, or
will be with the passage of time, readily converted into cash. The Company
invests its cash in readily marketable securities. As a result, the
Company's income is significantly less than the cost associated with managing
its contingent liabilities, including bearing its share of defense costs. To
the extent that the Company should be required to participate in any
settlement of lawsuits to which it is a party, or the extent that it should
determine to settle any of its contingent liabilities, the Company may be
required to utilize a significant portion of its available cash resources.
The Company has liquid assets amounting to approximately $.81 per share
(including both Class A Shares and Class B Shares), which assets include an
earnout payment due to the Company from U.S. Filter Recovery Services
(Southwest), Inc. that was estimated to be approximately $600,000 and has now
been determined to be approximately $1,679,000 (each pre-tax and net of
applicable commissions), which resulted in an increase in the Company's
assets of $.12 per share (including both Class A Shares and Class B Shares).
Defense costs have been estimated to be between $3.5 million to $7 million
(which does not include potential liability to Gibraltar's purchaser and its
former customers) over the next three and a half years, which would represent
a cost of approximately $.40 to $.80 per share.
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(7) The timing of the resolution of the contingent
liabilities is not known. The Company has an agreement with the purchaser of
Gibraltar not to pursue claims arising out of that purchase until July 31,
2000. One of the suits is set for trial in February of 2000 and under
current pretrial orders another suit is expected to require several years to
conclude.
(8) The Company currently has no employees and no operating
businesses or investments in operating businesses. The Board of Directors
believe that the Company is currently without the personnel or expertise
required to conduct business operations and does not expect to seek to engage
in an active business in the foreseeable future.
(9) An independent investment banker has issued an opinion
that the Class A Shares may be valued at from zero to $.39 per share based
primarily on the range of the contingent liabilities. The opinion concludes
that the Offer Price is fair to the holders of Class A Shares. See Opinion
of Harris, Webb & Garrison attached as an Exhibit 1 hereto.
Item 5. Persons Retained, Employed or to be Compensated
Item 5 is hereby amended and supplement as follows:
No person or class of persons has been employed, retained or to be
compensated by the persons filing this statement to make solicitations or
recommendations to security holders. The Company has employed Harris, Webb &
Garrison as a financial advisor as to this transaction for a fee of $52,500
plus expenses.
Item 9. Material to Be Filed as Exhibits
Item 9 is hereby amended and supplemented as follows:
Exhibit 7 The opinion of subject Company's financial adviser dated July 16,
1999.
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Signature. After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
Mobley Environmental Services, Inc.
7-21-99 by: /s/ John Mobley
------- ---------------
Date John A. Mobley
President
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EXHIBIT 7
SCHEDULE 14D-9/A
MOBLEY ENVIRONMENTAL SERVICES, INC.
<PAGE>
FAIRNESS OPINION
FOR
MOBLEY ENVIRONMENTAL SERVICES, INC.
[LOGO]
July 15, 1999
<PAGE>
G. CLYDE BUCK
MANAGING DIRECTOR
July 15, 1999
PERSONAL AND CONFIDENTIAL
- -------------------------
Mobley Environmental Services, Inc.
111 Congress Avenue, Suite 1400
Austin, Texas 78701
Attention: Mr. John Mobley
President, Chief Financial Officer and Secretary
Dear John:
You have advised Harris Webb & Garrison, Inc. ("HWG") that a
confidential proposed investor, Harvard Capital, L.L.C. ("Harvard") has
proposed to acquire the outstanding Class A common stock of Mobley
Environmental Services, Inc. ("Mobley") at a price of $0.25 per share in cash
via a cash tender offer for at least 50 percent of the Class A common shares.
You have requested that HWG act as financial advisor and issue an opinion
("Opinion") as to the fairness to the Class A shareholders of Mobley of the
financial terms of the Proposed Investment.
HWG, as part of its investment banking business, is frequently engaged
in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions
of listed and unlisted securities, private placements, and valuations for
estate, corporate and other purposes.
In arriving at our opinion, we have, among other things:
1. Reviewed a Schedule 14-D-1 Tender Offer Statement filed by Mobley with
the Securities and Exchanage Commission on 6/11/99 and an amendment
dated 7/13/99;
2. Reviewed an Offer to Purchase for Cash document dated 6/11/99 and a
supplement dated 7/13/99;
3. Reviewed a letter of intent dated 3/23/99 from Harvard regarding the
potential purchase of at least 50% of Mobley's Class A common shares;
<PAGE>
Mobley Environmental Services, Inc.
July 15, 1999
Page 2
- ------------------------------------------------------------------------------
4. Reviewed an internally-prepared draft of Mobley's unaudited balance
sheet as of 6/30/99;
5. Reviewed Mobley's Form 10-Q for the quarterly period ended 3/31/99;
6. Reviewed Mobley's Form 10-Q for the quarterly period ended 9/30/98;
7. Reviewed Mobley's Form 10-KSB for the year ended 12/31/98;
8. Reviewed Mobley's Preliminary Financial Statements for the year ended
12/31/98 prepared by KPMG;
9. Reviewed Plaintiffs' Second Amended Original Petition for ADAMS V.
AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORPORATION, F/K/A GIBRALTAR
CHEMICAL RESOURCES, INC.;
10. Reviewed Plaintiffs' Third Amended Original Petition for DANIELS V.
GIBRALTAR CHEMICAL RESOURCES, INC.;
11. Reviewed Plaintiffs' Fourth Amended Original Class Action Petition FOR
WILLIAMS V. GIBRALTAR CHEMICAL RESOURCES, INC.;
12. Reviewed a letter from U.S. Filter dated 7/9/99 regarding estimated
earn-out payments;
13. Reviewed a letter dated 7/13/99 from the law firm, Ramey & Flock,
stating that the estimated budget for the Adams case arrived at in May
remained the same in July;
14. Discussed with management of Mobley the outlook for future operating
results, assets and liabilities of the company, materials in the
foregoing documents, and other matters we considered relevant to our
inquiry; and
15. Considered such other information, financial studies, analyses and
investigations as we deemed relevant under the circumstances.
In our review and in arriving at our opinion, we have, with your
permission, (i) not independently verified any of the foregoing information
and have relied upon its being complete and accurate in all material
respects, and (ii) not made an independent evaluation or appraisal of
specific assets of Mobley. Our Opinion is provided to you pursuant to the
terms of our engagement letters dated April 6, 1999 and July 13, 1999.
<PAGE>
Mobley Environmental Services, Inc.
July 15, 1999
Page 3
- ------------------------------------------------------------------------------
Based upon and subject to the foregoing, it is our Opinion that, as of
the date hereof, the consideration to be received pursuant to the proposed
transaction is fair to the Class A shareholders of Mobley from a financial
point of view.
HARRIS WEBB & GARRISON, INC.
By: ______________________________
G. Clyde Buck
Managing Director
<PAGE>
M E M O R A N D U M
-------------------
TO: File
FROM: G. Clyde Buck
Holden W. Burrow
DATE: July 15, 1999
RE: Logic Memo to Support HWG Fairness Opinion to the Class A common
shareholders of Mobley Environmental Services, Inc. ("Mobley") in
Connection with a cash tender offer for at least 50% of the Class A
common shares by a confidential proposed investor, Harvard Capital,
L.L.C. ("Harvard") to the shareholders of Mobley.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
A. BACKGROUND OF MOBLEY ENVIRONMENTAL SERVICES, INC. 3
B. SUMMARY OF PROPOSED INVESTMENT 7
C. SUMMARY OF CRITICAL FACTORS TO SUPPORT
HWG'S FAIRNESS OPINION 9
</TABLE>
1
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EXHIBITS
1. Mobley's Financial Statements
2. Schedule of Mobley's Current Investment Assets
2
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A. BACKGROUND OF MOBLEY ENVIRONMENTAL SERVICES, INC.
Mobley Environmental Services, Inc. ("Mobley") has had no operating
assets since the sale of its oilfield services business and hydrocarbon
recovery and recycling business in 1997. Because of contingent litigation
from several sources, Mobley will remain in existence for several years.
Mobley 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. Shareholders of the
predecessor companies received shares of Mobley's Class B common stock in
exchange for their shares of these companies, and Class A shares were sold
to the public in an initial public offering. As a result of the foregoing
transactions, Gibraltar and Mobley Co. became wholly-owned subsidiaries of
Mobley and Mobley Group, Inc. was merged into Mobley.
Gibraltar was started in 1980, in the hazardous waste treatment and
disposal business. Mobley completed the sale of Gibraltar on 12/31/94; and
since that time, Mobley has not been involved in the commercial management
of hazardous wastes.
Mobley Co., founded in 1943, was in the oilfield service business
principally the handling of oilfield fluids. In 1987, Mobley expanded
its services activities to include the collection and treatment of
non-hazardous, hydrocarbon-laden wastes for customers outside the oil
and gas industry. In 1995, Mobley, 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 filters. Additionally, during 1996, Mobley completed
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.
3
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On 1/20/97, Mobley completed the sale of the assets used in its
oilfield services business to Dawson Production Services, Inc. ("Dawson").
Thereafter, Mobley completed the sale (the "Transaction") of its
hydrocarbon recycling and recovery assets to the United States Filter
Corporation ("U.S. Filter") on 5/29/97.
RESTRUCTURING AND DIVESTITURE OF HAZARDOUS WASTE OPERATIONS
In late 1993, Mobley determined that the divestiture of its hazardous
waste business conducted by Gibraltar was in the best interests of Mobley
and its shareholders. On 5/10/94, Mobley 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"), and such sale was completed effective 12/31/94.
Mobley is required to indemnify AEC for all losses resulting from breaches
of warranties and from pending or future claims resulting from
circumstances existing prior to closing. Mobley and AEC executed a Tolling
Agreement, extending the statute of limitations for certain claims to
7/30/00.
BUSINESS STRATEGY AND BACKGROUND OF DISPOSITION TRANSACTIONS
Having exited the hazardous waste industry with the sale of Gibraltar,
Mobley focused on the continued growth and development of its non-hazardous
hydrocarbon recycling and recovery business. Mobley'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. Specific plans were made
for the engineering and construction of a distillate fuels production
facility and oil filter recycling facility. The filter recycling facility
began operations in April, 1996, and the distillate fuels production
facility began full-scale operations in August, 1996.
4
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In October 1995, Mobley 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 Mobley's attention. With the
assistance of Cureton & Co., Mobley investigated possible relationships or
affiliations with a variety of entities whose operations might be a
feasible expansion of, or complementary to, Mobley's existing operations or
those contemplated under its strategic plan.
Operating losses sustained by Mobley in early 1996, coupled with the
capital spending program associated with the execution of its growth
strategy, significantly weakened Mobley's liquidity over the first half of
1996. As a result of Mobley's deteriorated financial condition and
unfavorable results of operations, bank debt financing was effectively
eliminated as a viable source of funds for the continued execution of its
strategic plan. Through Cureton & Co., Mobley contacted numerous persons
during the summer of 1996 to discuss the possibilities of a private
investment in Mobley or other strategic alliance. Through an exhaustive
process, U.S. Filter emerged as the most viable party interested in
pursuing a specific transaction with Mobley. 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 Mobley's
entire interest in its hydrocarbon recycling and oil/water processing
business.
On 4/25/97 entered an Asset Purchase Agreement ("Agreement") to sell
to U.S. Filter the net assets of the Mobley'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
by the business in the two-year period following the sale.
5
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Mobley's current "game plan" is to (a) resolve its remaining lawsuits
and indemnity claims and (b) develop some investment opportunities for
whatever funds remain in a joint enterprise with Harvard Capital L.L.C.
("Harvard").
6
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B. SUMMARY OF PROPOSED INVESTMENT BY HARVARD CAPITAL, L.L.C.
Harvard proposes to make a tender offer for at least 50% of Mobley's
Class A common shares based on a revised tender offer (the "Tender Offer").
The Tender Offer will be at a purchase price of $0.25 per share
payable in cash (revised from a prior offer at $0.20 when the expected
value of future U.S. Filter earn-out payments was approximately $1,079,000
lower). The new Tender Offer was made on 7/13/99.
Thereafter, it is proposed that Mobley deregister its Class A Common
Stock with the Securities and Exchange Commission. This would mean that
Mobley would not be a reporting company and would not file financials and
other reports with the SEC. This would save the Company approximately
$100,000 per year. Mobley may deregister if it has fewer than 300
shareholders of record. It is contemplated that the Tender Offer will
accomplish this result. However, if there are more than 300 shareholders
of record after the Tender Offer, it is contemplated that Mobley would
further reduce its number of record shareholders through a reverse split or
similar transaction. However, no decision on this matter has yet been
made.
After Mobley is deregistered, it is contemplated that the Mobley B
shareholders and the remaining A shareholders, including Harvard, will
jointly own an entity that will in turn own Mobley. This entity will seek
attractive investment opportunities. This entity has not been formed, and
no opportunities have been identified at this time.
As a condition to the Investment, the holders of such number of shares
of Class B common stock as is satisfactory to Harvard in its sole
discretion shall execute a Lock-up and Voting Agreement which will provide
that such holders (i) will not convert, sell, exchange or otherwise
transfer their shares of Class B
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common stock and (ii) will vote in favor of a reverse split if the
decision is made to have a reverse split.
8
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C. SUMMARY OF CRITICAL FACTORS TO SUPPORT HWG'S FAIRNESS OPINION
The following items are noted to create a record of the critical
factors considered in conjunction with (a) our overall knowledge of
fairness in business transactions from a financial point of view and (b)
our business judgment in rendering a fairness opinion to Class A common
shareholders of Mobley in May 1999. We define "fair market value" as "the
price agreed upon between a willing buyer and a willing seller with each
having full knowledge of all relevant facts and neither being under any
compulsion to act."
In preparing this memo, with Mobley's approval, we performed no audit
work, did not prepare appraisals of specific Mobley assets and did not
verify the accuracy or completeness of information furnished to us by
Mobley.
HWG's engagement to furnish a fairness opinion in connection with the
Exchange was first set forth in an engagement letter agreement between HWG
and Mobley dated April 6, 1999. The agreement involved a total fee of
$35,000, reimbursement for reasonable out-of-pocket expenses and
indemnification of HWG. HWG was asked to update the fairness opinion based
on a revised Tender Offer by Harvard. A second engagement letter agreement
between HWG and Mobley dated July 13, 1999 calls for an additional fee of
$17,500 plus reasonable out-of-pocket expenses and indemnification of HWG.
1. Our primary logic for evaluating the fairness of the Proposed Investment to
the Class A Common shareholders of Mobley was to:
(a) estimate a reasonable range for the current fair market value per
share of 100% of the common shares of Mobley before consideration of
contingent liabilities and expenses related to legal proceedings;
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(b) estimate a reasonable range for litigation costs and other contingent
liabilities which Mobley may expect to incur in the future (see page
13); and
(c) arrive at a fair market value for the common shares after considering
a reasonable range of contingent liabilities and expenses related to
lawsuits.
The primary valuation concern is the effect of litigation costs and
other contingent liabilities on the Mobley assets. This requires a review
of the pending legal proceedings.
As shown in the NET ASSET VALUE ANALYSIS ON PAGE 19, we estimated a
range for the current (e.g., near 5/1/99) fair market value of 100% of
Mobley at $0.00 - 0.39 per common share. As shown in the analysis on page
14, we estimated a range for the fair market value of the expected
litigation and settlement costs at $3.5 - 7.0 million.
We noted that THE CASH RECEIVED OF $0.25 PER SHARE IS IN THE TOP HALF
OF A REASONABLE RANGE OF ESTIMATED "VALUE GIVEN UP" OF ROUGHLY $0.00 - 0.39
PER SHARE. THUS, THE TENDER OFFER APPEARS TO BE FAIR TO THE PUBLIC CLASS A
COMMON SHAREHOLDERS OF MOBLEY.
2. LEGAL PROCEEDINGS
In connection with its prior ownership of Gibraltar, Mobley is a party
to lawsuits styled WILLIAMS V. GIBRALTAR CHEMICAL RESOURCES, INC., ADAMS V.
GIBRALTAR CHEMICAL RESOURCES, INC. DANIELS V. GIBRALTAR CHEMICAL RESOURCES,
INC. AND GLAZER V. GIBRALTAR CHEMICAL RESOURCES, INC. to which Gibraltar is
also a party. These lawsuits are described below. In connection with the
sale of Gibraltar, Mobley is obligated to indemnify AEC from liability and
costs associated with these lawsuits.
10
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On 10/18/93, a suit styled WILLIAMS V. GIBRALTAR CHEMICAL RESOURCES,
INC. was filed against Mobley, Gibraltar, Mobley Co. and certain
individuals, former customers of Gibraltar and other entities in the State
District Court of Smith County, Texas. The petition alleges various acts
of negligence, fraudulent concealment, nuisance, trespass resulting from
operations of Gibraltar's hazardous waste facility. On 5/12/97,
plaintiffs' claims were dismissed by the district court for failure to
adhere to discovery deadlines. The dismissal has been appealed to the
Court of Appeals.
DANIELS V. GIBRALTAR CHEMICAL RESOURCES, INC. was filed on 8/31/95 in
the State District Court of Dallas County, Texas against Mobley, 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 caused
by the operation of Gibraltar. The plaintiffs demand recovery of
unspecified monetary damages based on various legal grounds, including
fraudulent concealment, negligence, and assault & battery. This case has
been set for trial in 1999.
GLAZER V. GIBRALTAR CHEMICAL RESOURCES, INC. was filed on 9/6/94, 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. This case has been abated by
the court pending closure of the plant site pursuant to TNRCC regulations
and approvals; the closure process for the facility is ongoing.
11
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ADAMS V. AMERICAN ECOLOGY ENVIRONMENTAL SERVICES CORPORATION, F/K/A
GIBRALTAR CHEMICAL RESOURCES, INC. was filed on 8/7/96 in the State
District Court of Tarrant County, Texas against Gibraltar, Mobley, Mobley
Co., approximately 60 former customers of Gibraltar and certain individuals
by approximately 600 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. A pretrial order directs that 60 of the
plaintiffs be selected and divided into groups of 12. Discovery is
proceeding on the first group with a trial setting for November of 1999.
The other groups will proceed to trial after discovery is completed.
Discovery is ongoing in this case. Neither the defense costs nor the
damages, if any, arising from this action are covered by any insurance
policies the Company currently has or had at the time of the alleged
activities. AEC's insurer is paying 50% of the defense costs of this case.
12
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3. PER SHARE VALUATION
The Mobley assets are primarily (a) cash and investment grade
securities (see Exhibit 2) worth approximately $5.5 million plus (b) the
second year of the U.S. Filter earn-out, which is estimated to be
$1,679,000, net of commissions (see page 19). The valuation of these
assets is straightforward and reliable because their fair market value is
easy to determine. Thus, the assets are worth approximately $0.81 per
share.
Mobley's contingent liabilities consist of (i) litigation defense
cost, (ii) plaintiff's recoveries against Mobley in the pending cases,
(iii) indemnity claims of customer defendants and AEC arising out of the
litigation and (iv) indemnity claims of AEC arising out of the sale of
Gribraltar.
Mobley's counsel has prepared budgets for litigation cost for the
Adams case for the balance of 1999. Mobley's 50% of these costs will be
approximately $900,000. (We reviewed a letter from Mobley's counsel
stating that as of 7/13/99, the budget remains the same.) Based on the
pre-trial order in effect, these costs will continue until all the cases of
the 600 plaintiffs are tried or settled. This process could well continue
for 3 years past 1999. Amounts not spent for trial costs will likely be
spent for settlement, i.e., settlements will likely be based on the cost of
defense. If AEC's insurer stops paying one-half of the defense cost in
Adams, Mobley's cost will double for this case.
Mobley contends that it has at least three pollution liability
policies that cover it for the Daniels and Williams cases. These policies
would provide $14 million in indemnity coverage and $9 million in defense
cost. Mobley's insurer claims that only our policy covers these cases
providing a maximum of $4 million in indemnity coverage and $2 million in
defense cost. If the insurer is correct, there remains approximately $3
million in indemnity coverage for these two cases. Also, defense costs
have exceeded $2 million to date. The carrier has
13
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continued to pay defense costs in these two cases, but Mobley has no
assurance that it will continue to do so.
Therefore, Mobley must defray substantial defense costs in the next
3.5 years in the Adams case and possibly the other two as well. On the
low end these costs appear to be approximately $1 million per year for
3.5 years. On the high end, Mobley could have to bear all the Adams
costs and all the Daniel and Williams costs. This could easily be twice
the low end. THUS, DEFENSE COSTS OVER THE NEXT 3.5 YEARS COULD RANGE
FROM $3.5 MILLION TO $7.0 MILLION OR FROM $0.40 TO $0.80 PER SHARE.
While Mobley believes it has valid defenses to all of these cases, they
must be defended or settled, and the outcome would be highly uncertain
to an investor near 5/1/99.
Most of the customer defendants in these cases have indemnity
agreements under which Gibraltar agreed to indemnify them from liability
for improper handling of their waste streams. In turn, Mobley gave
indemnities to AEC against liability from these cases. If the customers
seek recovery of their defense costs and any settlement or recovery amounts
they pay, AEC could seek recovery for these amounts from Mobley. Also,
AEC's carrier could make a claim against Mobley for amounts it has
expended. Mobley believes it has valid defenses to these claims as well
but these defenses must be asserted.
In addition, AEC could make claims against Mobley for breaches of
warranty involved in the sale of Gibraltar to AEC.
Further discussion of these lawsuits and possible tactics for defense
or settlement was beyond the scope of our expertise as financial analysts.
Moreover, management believed it was in the best interests of the Mobley
shareholders to keep certain details of the cases confidential. In any
case, it appeared likely that the litigation would be expensive and would
be a major negative concern to a
14
<PAGE>
buyer of 100% of Mobley's Class A common shares. (See also values cited
on page 10.)
4. PREMIUM
We also noted that trading of small minority interests of Mobley
shares at the end of May, 1999 have been at approximately $0.14 per share.
From a minority shareholders viewpoint, AN OFFER WORTH $0.25 PER SHARE
WITHOUT COMMISSIONS FOR MOBLEY WOULD BE A FAIR PREMIUM OF 79% OVER A RECENT
MARKET PRICE OF $0.14 PER SHARE.
Mobley's shares have not traded since 6/21/99, when its shares settled
at $0.20 (the original Tender Offer). On 7/13/99, Harvard increased its
offer by 25% to $0.25 per share.
5. OWNERSHIP OF MOBLEY
We noted that Mobley has two classes of common shares with the
following shares outstanding as of 5/1/99:
<TABLE>
<CAPTION>
Type # of Shares % Ownership
---- ----------- -----------
<S> <C> <C>
Class A Common Stock 4,259,650 48.2%
Class B Common Stock 4,575,643 51.8%
--------- ------
Total 8,835,293 100.0%
</TABLE>
Each share of Class B common stock is convertible into one share of
Class A common stock at any time. Certain beneficial owners and management
own 1,578,487 shares (17.9% of total shares) of Class B common stock and no
shares of Class A common Stock. The Mobley family and related trusts and
other entities own in excess of 95% of the Class B shares.
15
<PAGE>
6. UNSOLICITED OFFER
According to management, the offer from Harvard was unsolicited.
Management believed that the Company could not be sold until the legal
matters were resolved. Consequently, management did not attempt to sell
the Company. Harvard approached Mobley because Harvard wanted to be the
Company's partner in the Company's future investments. The original price
of $0.20 per share was proposed by Harvard as a reasonable and fair premium
over the $0.14 per share recent trading price of the stock. Harvard was
not furnished any confidential information concerning the negative value of
Mobley's lawsuits. Once Harvard learned of the unexpected additional
earn-out (see item 12), Harvard increased its offer by 25% to $0.25. No
other bidders have approached Mobley since Harvard made its offer.
7. BREAK-UP FEE
If Mobley enters into an agreement with a third party (i.e., not
Harvard) calling for the acquisition by a third party of in excess of 9.9%
of any class of equity securities of Mobley, then Mobley will grant to
Harvard a warrant (the "Warrant") to purchase (i) that number of Class A
common stock equal to 4.9% of the issued and outstanding shares of Class A
common stock and (ii) that number of Class B common stock equal to 4.9% of
the issued and outstanding shares of Class B common stock. The exercise
price will be $0.20 per share and will expire 12/31/03.
However, we believe the dilution which would arise from the Warrant
would not prohibit Mobley from accepting another offer. For instance, if a
third party offered $0.30 per share, the dilution would be 1.6% (i.e., the
Warrant would receive net proceeds of approximately $0.095 for 432,930
shares or $41,270).
16
<PAGE>
8. CLASS A SHAREHOLDERS
WE ALSO NOTED THAT THE CLASS A COMMON SHAREHOLDERS OF MOBLEY AS A WHOLE ARE
NOT BEING FORCED TO GIVE UP THEIR CLASS A COMMON MOBLEY SHARES. Each has
the option to accept or reject the Harvard offer and a majority must accept
for the transaction to proceed. In this context, someone evaluating the
fairness of the Harvard offer might ask whether or not it would be fair to
deny Mobley's Class A common shareholders the right to accept or reject the
Harvard offer.
In the event that Mobley has over 300 record shareholders after the
Tender Offer, there may be a reverse split in order to bring about
deregistration with the SEC. A decision on this has not been made. If
there is such a split, Class A shareholders could be cashed out if they
hold less shares than the conversion amount. If this occurs, Mobley
intends to assist any shareholder acquire additional shares to avoid this
result. However, there is no assurance this will occur.
9. FINANCIALS
Our review included a preliminary unaudited balance sheet of Mobley as of
6/30/99.
10. MINIMUM PARTICIPATION
We noted that the adoption of the Tender Offer requires the consent of 50%
of the Class A common shareholders of Mobley.
11. MOBLEY'S COMMON SHARES ARE PUBLICLY TRADED over the counter on the bulletin
board under the symbol "MBLYA" and have traded at $0.14 per share recently
in a very thin market.
17
<PAGE>
The average closing price for Mobley in the 30, 60, 90 and 120 days
prior to 4/23/99 has been $0.14, $0.14, $0.14 and $0.14, respectively.
(See table on next page.)
<TABLE>
<CAPTION>
STOCK DATA:
<S> <C> <C> <C>
4/23/99 Stock Price: $0.14 52-Week High: $0.38
Market Capitalization: $1.2 million 52-Week Low: $0.13
Shares Outstanding: 4.3 million shares
Float: 2.5 million shares
</TABLE>
As the table below may indicate and because Mobley's stock is
thinly-traded, not widely held by institutional investors and not followed
by research analysts, we consider the Mobley market price to be somewhat
inefficient and perhaps not reliable. It does, however, represent prices
agreed upon between willing buyers and willing sellers on numerous days of
recent trading, with all trades being at $0.14 or $0.15 per share.
Mobley's shares climbed to $0.20 after the announcement of the $0.20
original Tender Offer. The shares have not traded since 6/21/99.
<TABLE>
<CAPTION>
AVERAGE DAILY AVERAGE DAILY
STOCK PRICE VOLUME (SHARES)
------------- ---------------
<S> <C> <C>
4/23/99 $0.14 0
Prior 7 days of trading 0.14 400
Prior 30 days of trading 0.14 755
Prior 60 days of trading 0.14 1,085
Prior 90 days of trading 0.14 737
Prior 120 days of trading 0.14 741
</TABLE>
18
<PAGE>
12. EARN-OUT
As of 5/29/99, 20% of a two-year $4 million earn-out from U.S. Filter
has been received by Mobley and the shares liquidated. On 5/29/99, Mobley
received a preliminary estimate that the remaining earn-out payment
calculated after 5/29/99 will be approximately $600,000 and that it will be
paid to Mobley within 90 days of 5/29/99.
On 7/9/99, Mobley received a letter from U.S. Filter indicating that
the earn-out would be equal to $1,840,000 less an 8.75% commission of
$161,000. As a result, Harvard revised its Tender Offer and we revised our
net asset value calculation based on an earn-out of $1,679,000. Our
revised net asset value calculation now considers the possible increase of
$1,079,000 in value which is equal to $0.12 per share. A shareholder may
argue that Harvard's offer should increase by $0.12 rather than $0.05 per
share. It is important to note, however, that the additional $1,079,000 is
at risk from the Company's substantial legal claims. Our range of value
considering the new earn-out amount demonstrates in Case B that the net
asset value per share still could be $0.00.
By accepting the Tender Offer, a Mobley shareholder receives $0.25 per
share and thus eliminates the risk of his shares being worth zero and also
eliminates the possible reward of them being worth $0.39 per share.
19
<PAGE>
13. ESTIMATED VALUE OF 100% OF MOBLEY NEAR 7/13/99
MOBLEY BALANCE SHEET
<TABLE>
<CAPTION>
AS OF 6/30/99 CASE A CASE B
(IN THOUSANDS) BOOK ADJUSTED ADJUSTED
VALUE BOOK BOOK
------ -------- --------
<S> <C> <C> <C>
Current Assets $ 748 $ 763 $ 763
Investment Securities (A) 4,542 4,734 4,734
Other Assets 543 521 521
Proceeds of Earn-out (B) 0 1,679 1,679
------ ------ ------
Total Assets $5,833 $7,697 $7,697
------ ------ ------
------ ------ ------
Current Liabilities 621 724 724
Long Term Debt 0 0 0
Costs Related to Lawsuits (C) 0 3,500 7,000
Shareholders' Equity 5,212 3,473 -27
------ ------ ------
Total Liabilities and Equity $5,833 $7,697 $7,697
------ ------ ------
------ ------ ------
Common Shares Outstanding (5/1/98) 8,835 8,835 8,835
Value Per Share $ 0.59 $ 0.39 $ 0.00
------ ------ ------
------ ------ ------
</TABLE>
(A) Of this amount $4,017,155 is held in high quality fixed income
securities at Northern Trust. On 4/23/99, Mobley sold its remaining
23,294 shares of U.S. Filter for $31.50 which resulted in proceeds of
$733,775. This amount was deposited in the Northern Trust account in
early May. $4,017,155 plus $733,775 equals $4,750,930, which is close
to the book value of $4,734,000.
(B) Payment of $1,840,000 less a commission of $161,000 is expected in
June or July, 1999.
(c) See page 14 of this report.
In our net asset value analysis near 5/1/99, we estimated a $600,000
possible earn-out. As a result, our value per share ranged from $0.00 to
$0.27. By increasing the earn-out to $1,679,000, based on new information
from the Company our range of value per share has widened to $0.00 to
$0.39.
20
<PAGE>
14. MATERIAL CHANGES
We discussed with management of Mobley whether any material changes in the
affairs and values of Mobley had taken place since 3/31/99, and management
of Mobley confirmed that no material changes had occurred other than those
previously noted in our logic memo (including the increase in expected
proceeds from the U.S. Filter earn-out).
15. OTHER
Other reasons for the Merger appearing to be fair and in the best
interest of Mobley shareholders included the following:
(1) Certainty of cash compared to uncertainty of pending litigation.
(2) Future plans for Mobley are uncertain.
(3) Mobley does not currently anticipate making a distribution to its
shareholders in the foreseeable future.
(4) Mobley anticipates that its ongoing general administrative
expenses (NOT including litigation costs) will be approximately
$400,000 per year and its investment revenues will be
approximately $300,000 per year.
(5) Mobley does not have any specific plans to conduct any kind of
operating business at any time in the future.
16. COMPARABLE COMPANY ANALYSIS
Based on the unique nature of Mobley (i.e., a company with no current
operations and uncertain, yet substantial contingent litigation risks), we
were unable to compare Mobley to any publicly traded securities.
17. COMPARABLE TRANSACTIONS
Similarly, based on the unique nature of Mobley, we were unable to
compare the proposed Investment in Mobley to any comparable transactions.
21
<PAGE>
18. In the context of HWG's fairness opinion for Mobley, "fair" would seem to
be comparable to "reasonable," "just" and "equitable" as those words apply
to a business transaction. These adjectives imply that the transaction
shows little or no evidence of favoritism, bias, undue pressure or lack of
objective, informed negotiating between the parties involved. "Fair"
involves not only what is legal and ethical, but also what is in the best
interest of all parties involved.
"Fair" is not, however, synonymous with "the best possible,"
especially in the context of a merger, acquisition or other financial
transaction. "Fair" recognizes that if ten experts were asked to suggest a
"fair market value" for a normal company, ten different values would
probably result. If each expert was well-informed and unbiased, the entire
range of values might be considered "fair" prices for selling or merging
the Company, but only one value would be the "best."
22
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 520 $ 81 $ 353
Receivables 181 155 373
Prepaid expenses 47 94 93
-------- -------- --------
Total current assets 748 330 819
Property, Plant and equipment, net 184 188 211
Note receivable 500
Investment securities available for sale 4,542 4,954 4,495
Other assets, net 359 359 192
-------- -------- --------
$ 5,833 $ 5,831 $ 6,217
-------- -------- --------
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 210 $ 61 $ 100
Accrued expenses 411 413 1,041
-------- -------- --------
Total current liabilities 621 474 1,141
-------- -------- --------
Stockholders' equity:
Preferred stock - - -
Common stock:
Class A 43 43 43
Class B 47 47 47
Paid-in capital 25,159 25,159 25,159
Accumulated deficit (20,065) (19,845) (20,093)
Accumulated other comprehensive income (loss) 36 (39) 29
Deferred compensation - - (101)
Treasury Stock (8) (8) (8)
-------- -------- --------
Total stockholders' equity 5,212 5,357 5,076
-------- -------- --------
$ 5,833 $ 5,831 $ 6,217
-------- -------- --------
-------- -------- --------
Total shares outstanding (Class A + B) 8,835 8,835
Book Value per Share 0.59 0.61
</TABLE>
<PAGE>
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES
INCOME STATEMENT
(In $000's)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1998 1997
------- -------
<S> <C> <C>
REVENUES $ - $ -
Cost of revenue - -
------- -------
Gross profit - -
S,G & A expense 704 759
------- -------
Operating loss (704) (759)
Gain on sale of investments securities - 555
Interest income 330 158
Other income (expense), net 15 42
------- -------
Loss from continuing operations before income taxes (359) (4)
Income Taxes - -
------- -------
Loss from continuing operations (359) (4)
------- -------
Discounted operations, net of tax:
Net loss from operations of waste management
services segment - (405)
Gain on sale of oilfield services segment - 2,802
Net gain from the earnout period of waste
management services segment 607 -
------- -------
Income from discontinued operations 607 2,397
------- -------
Net income (loss) 248 2,393
Other Comprehensive income (loss) - change in net
unrealized gains (losses) on securities, net of tax (68) 29
------- -------
Comprehensive income (loss) 180 2,422
------- -------
------- -------
Net income (loss) per share - basic and assuming dilution:
Continuing operations $(0.04) $ -
Discontinued operations $ 0.07 $ 0.27
------- -------
$ 0.03 $ 0.27
------- -------
------- -------
</TABLE>
<PAGE>
ACCOUNT STATEMENT FOR JUNE 1 - JUNE 30, 1999
<TABLE>
<S> <C>
MARKET VALUE AS OF MAY 31, 1999 $5,010,686.48
MARKET VALUE AS OF JUNE 30, 1999 $5,027,600.24
</TABLE>
- ------------------------------------------------------------------------------
PORTFOLIO SUMMARY
THE INVESTMENT OBJECTIVE FOR THIS ACCOUNT IS INCOME
ASSETS
<TABLE>
<CAPTION>
MARKET VALUE MARKET VALUE PERCENT OF
LAST PERIOD THIS PERIOD ASSETS
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Income Securities $4,551,428.50 $4,542,005.50 90.3%
- ---------------------------------------------------------------------------
Cash and Short Term
Investments 459,257.98 485,594.74 9.7%
- ---------------------------------------------------------------------------
TOTAL ASSETS $5,010,686.48 $5,027,600.24 100.0%
- ---------------------------------------------------------------------------
TOTAL PORTFOLIO $5,010,686.48 $5,027,600.24 100.0%
</TABLE>
