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Mobley Environmental Services Inc – ‘SC 14D9/A’ on 7/23/99 re: Mobley Environmental Services Inc – EX-7

On: Friday, 7/23/99 · Accession #: 1047469-99-28346 · File #: 5-41780

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/23/99  Mobley Environmental Services Inc SC 14D9/A              2:50K  Mobley Environmental Services Inc Merrill Corp/New/FA

Amendment to Tender-Offer Solicitation/Recommendation Statement — Schedule 14D-9
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: SC 14D9/A   Amendment to Tender-Offer                              5     17K 
                          Solicitation/Recommendation Statement                  
 2: EX-7        Opinion re: Liquidation Preference                    30     60K

EX-7 — Opinion re: Liquidation Preference

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 EXHIBIT 7

SCHEDULE 14D-9/A

     MOBLEY ENVIRONMENTAL SERVICES, INC.

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FAIRNESS OPINION

 FOR

     MOBLEY ENVIRONMENTAL SERVICES, INC.

[LOGO]

 July 15, 1999

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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;

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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.          

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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

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 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 
----------------- 

                                                                [Download Table]

                                                                       PAGE
                                                                       ----
                                                                           
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 

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    EXHIBITS

1.   Mobley's Financial Statements                                              

2.   Schedule of Mobley's Current Investment Assets                             

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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.                                                            

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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.                 

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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.            

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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").                                                          

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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.                             

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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.                                 

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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.       

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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.

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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                    

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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                                      

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  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:                            

                                                                [Download Table]

Type                          # of Shares      % Ownership
----                          -----------      -----------
                                                          
Class A Common Stock           4,259,650          48.2%   
Class B Common Stock           4,575,643          51.8%   
                               ---------         ------   
     Total                     8,835,293         100.0%   

       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.            

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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

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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

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       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.)                                             

                                                                [Download Table]

STOCK DATA:                                                              
                                                                         
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                            

 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.     

                                                                [Download Table]

                                   AVERAGE DAILY       AVERAGE DAILY  
                                    STOCK PRICE        VOLUME (SHARES)
                                   -------------       ---------------
                                                                      
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      

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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.   

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13.  ESTIMATED VALUE OF 100% OF MOBLEY NEAR 7/13/99                             

    MOBLEY BALANCE SHEET

                                                                [Download Table]

AS OF 6/30/99                                      CASE A       CASE B 
(IN THOUSANDS)                           BOOK     ADJUSTED     ADJUSTED
                                        VALUE       BOOK         BOOK  
                                       ------     --------     --------
                                                                       
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
                                       ------      ------        ------
                                       ------      ------        ------

(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.                                                                

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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.

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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

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MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES    
BALANCE SHEET 

                                                                [Download Table]

                                                                DECEMBER 31,     
                                                  JUNE 30,  -------------------- 
                                                   1999       1998        1997   
                                                 --------   --------    -------- 
                                                                                 
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             

EX-7 29th Page of 30 TOC 1st Previous Next ↓Bottom Just 29th
MOBLEY ENVIRONMENTAL SERVICES, INC. AND SUBSIDIARIES    
INCOME STATEMENT    
(In $000's)     

                                                                [Download Table]

                                                               YEARS ENDED    
                                                               DECEMBER 31,   
                                                            ----------------- 
                                                              1998      1997  
                                                            -------   ------- 
                                                                              
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 
                                                            -------   ------- 
                                                            -------   ------- 

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ACCOUNT STATEMENT FOR JUNE 1 - JUNE 30, 1999                                    

                                                                [Download Table]
                                                                        
MARKET VALUE AS OF MAY 31, 1999                            $5,010,686.48

MARKET VALUE AS OF JUNE 30, 1999                           $5,027,600.24

------------------------------------------------------------------------------  

PORTFOLIO SUMMARY                                                               

THE INVESTMENT OBJECTIVE FOR THIS ACCOUNT IS INCOME                             

ASSETS                                                                          

                                                                [Download Table]

                              MARKET VALUE      MARKET VALUE     PERCENT OF
                               LAST PERIOD       THIS PERIOD         ASSETS
---------------------------------------------------------------------------
                                                                           
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%

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘SC 14D9/A’ Filing	Date	First	Last	Other Filings

Filed on:	7/23/99
	7/15/99	2	6
	7/13/99	4	14	SC 14D1/A
	6/30/99	30
	5/31/99	30
	4/6/99	4	14
				List all Filings

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Filing Submission 0001047469-99-028346 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Mobley Environmental Services Inc – ‘SC 14D9/A’ on 7/23/99 re: Mobley Environmental Services Inc – EX-7

On: Friday, 7/23/99 · Accession #: 1047469-99-28346 · File #: 5-41780

Previous ‘SC 14D9’: ‘SC 14D9’ on 6/11/99 · Latest ‘SC 14D9’: This Filing

Amendment to Tender-Offer Solicitation/Recommendation Statement — Schedule 14D-9Filing Table of Contents

EX-7 — Opinion re: Liquidation Preference

Dates Referenced Herein and Documents Incorporated by Reference

Amendment to Tender-Offer Solicitation/Recommendation Statement — Schedule 14D-9
Filing Table of Contents