U S LIQUIDS INC, 424B1, 1997-08-20

U S LIQUIDS INC
424B1, 1997-08-20
HAZARDOUS WASTE MANAGEMENT

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<PAGE>
Filed Pursuant to Rule 424(b)(1)
Registration No. 333-30065

1,500,000 Shares

[LOGO]

Common Stock

All 1,500,000 shares of common stock, par value $.01 per share ("Common
Stock"), offered hereby are being sold by U S Liquids Inc., a Delaware
corporation (the "Company"). See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. Prior to this
offering, there has been no public market for the Common Stock. The Common Stock
has been approved for listing on the American Stock Exchange under the symbol
"USL."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6 OF THIS PROSPECTUS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS TO
TO PUBLIC DISCOUNTS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................ $9.50 $.68875 $8.81125
Total(3)................................. $14,250,000 $1,033,125 $13,216,875
</TABLE>

(1) Excludes a non-accountable expense allowance payable by the Company to the
representatives of the Underwriters (the "Representatives") and the value of
a warrant to be issued to the Representatives to purchase up to 112,500
shares of Common Stock at a price per share equal to 120% of the Price to
Public as shown above. The Company has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting."

(2) Before deducting expenses of the offering payable by the Company, estimated
at $747,000.

(3) The Company has granted the Underwriters a 45-day option to purchase up to
225,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public as shown above. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Proceeds to Company will be $16,387,500, $1,188,094 and
$15,199,406 respectively. See "Underwriting."

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the certificates representing such shares will be made
against payment therefor at the offices of Van Kasper & Company, in San
Francisco, California on or about August 25, 1997.

VAN KASPER & COMPANY SANDERS MORRIS MUNDY

AUGUST 19, 1997
<PAGE>
[PHOTO]

A photograph of a nonhazardous commercial waste treatment facility owned by
the Company and a waste flow chart will be inserted here.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
<PAGE>
PROSPECTUS SUMMARY

UNLESS OTHERWISE INDICATED BY THE CONTEXT, (I) THE "MESA COMPANIES" MEANS
MESA PROCESSING, INC., T&T GREASE SERVICE, INC. AND PHOENIX FATS & OILS, INC.,
EACH A TEXAS CORPORATION ACQUIRED BY THE COMPANY ON JUNE 17, 1997, (II) "AWW"
MEANS AMERICAN WASTEWATER INC., A TEXAS CORPORATION ACQUIRED BY THE COMPANY ON
JUNE 17, 1997, (III) "CAMPBELL WELLS" MEANS CAMPBELL WELLS, L.P. AND CAMPBELL
WELLS NORM, L.P., COLLECTIVELY, EACH OF WHICH IS A WHOLLY-OWNED SUBSIDIARY OF
SANIFILL, INC. ("SANIFILL"), (IV) THE "CAMPBELL WELLS ACQUIRED ASSETS" MEANS THE
ASSETS AND OPERATIONS OF CAMPBELL WELLS ACQUIRED BY THE COMPANY FROM CAMPBELL
WELLS/SANIFILL ON DECEMBER 13, 1996, (V) THE "CAMPBELL WELLS ACQUISITION" MEANS
THE COMPANY'S PURCHASE OF THE CAMPBELL WELLS ACQUIRED ASSETS AND (VI) THE
"PREDECESSOR" MEANS CAMPBELL WELLS TO THE EXTENT OF THE CAMPBELL WELLS ACQUIRED
ASSETS.

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED HEREIN, ALL INFORMATION IN THIS
PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE
"UNDERWRITING."

THE COMPANY

The Company was formed in November 1996 to become a leading national
provider of services for the treatment, processing, recovery and disposal of (i)
nonhazardous liquid wastes, including nonhazardous commercial waste ("NCW")
generated by restaurants, meat processors, other food processors, grocery stores
and other generators and (ii) nonhazardous oilfield waste ("NOW") generated in
the exploration for and production of oil and natural gas. NCW currently handled
by the Company includes used cooking oil and other food processing residuals,
grease trap and grit trap waste, oil-contaminated water and other industrial and
commercial wastewater. NOW treated by the Company consists primarily of oil,
grease, chlorides and heavy metals found in oil-based and water-based drilling
fluids, as well as cuttings, saltwater, workover completion fluids, production
pit sludges and soil containing these materials. The Company's current
operations are in Louisiana and Texas.

The Company acquired the Mesa Companies and AWW in June 1997 in
pooling-of-interests transactions. The Mesa Companies and AWW are engaged in the
treatment and disposal of NCW and the processing of NCW to recover finished
products, including various grades of fats, oils and feed proteins, which are
sold primarily for use as ingredients in livestock feed and chemicals. The
Company's NCW operations include five facilities located throughout Texas which
process and recover finished products, two of which also treat and dispose of
other NCW. The Company operates a fleet of vehicles to collect NCW directly from
over 6,000 restaurants and other NCW generators and also receives NCW from
independent transporters servicing thousands of additional generators. In
December 1996, the Company acquired its NOW operations from Campbell
Wells/Sanifill, including five landfarming and landfilling facilities located in
Louisiana and Texas. During 1996, these facilities treated and disposed of
approximately 3.4 million barrels of NOW. Approximately 56.8% of the Company's
pro forma 1996 revenues of $31.1 million was derived from the treatment and
disposal of NOW, approximately 36.5% was derived from the sale of finished
products processed and recovered by the Company from NCW, and approximately 6.7%
was derived from the collection, treatment and disposal of NCW. Pro forma net
income and pro forma earnings before interest, taxes, depreciation and
amortization expense for this period were $2.5 million and $8.8 million, or 8.1%
and 28.3%, of pro forma revenues, respectively.

The Company believes that the NCW market is highly fragmented and is
comprised primarily of relatively small owner-operated businesses. These smaller
entities generally have limited access to the resources required for
modernization and expansion, and as a result they may be unable to take
advantage of pending and future regulatory changes that the Company believes
will result in increased demand for NCW treatment, processing, recovery and
disposal services. The Company also believes that many NCW generators would
prefer to have a multi-city, single source provider for the collection,
treatment and disposal of all of their nonhazardous waste streams. As a result,
the Company believes there is a significant opportunity for it to provide
comprehensive services for the treatment, processing, recovery and disposal of

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NCW and that the fragmented nature of this market will provide it with
opportunities for expansion through acquisitions and internal growth.

Growth in the nonhazardous liquid waste industry is driven primarily by the
adoption and enforcement of increasingly stringent local, state and federal
regulations governing the treatment and disposal of NCW and NOW. For example,
the damage caused by grease and other liquid wastes to municipal collection and
treatment systems is causing cities and states to adopt and enforce laws and
regulations governing the disposal of such materials. Similarly, Louisiana,
Texas and certain other oil and gas producing states have enacted comprehensive
laws and regulations governing the proper handling of NOW. As a result of this
increased regulation and enforcement, generators of NCW and NOW have become
concerned about their liability for noncompliance and are increasingly looking
to independent providers such as the Company to handle their nonhazardous liquid
waste on an ongoing basis.

The Company plans to achieve its goal of becoming a leading national
provider of services for the treatment, processing, recovery and disposal of NCW
and NOW by expanding through acquisitions, emphasizing continued internal growth
and improving its existing operations. The Company has assembled a management
team with significant operating and consolidation experience in the waste
management industry. See "Management." The key elements of the Company's
strategy are:

EXPAND THROUGH ACQUISITIONS. The Company will pursue acquisitions of
companies engaged in the business of treating NCW or NOW within its existing
markets and in new geographic areas; however, the Company's ability to
expand its NOW operations in certain areas is limited by certain agreements.
See "Risk Factors--Dependence on Newpark for Offshore-Generated NOW;
Covenant Not to Compete; and Obligation to Treat NOW Received from Newpark
at Below-Market Prices." The Company may also acquire companies which
provide complementary services.

ESTABLISH REPUTATION AS SINGLE SOURCE PROVIDER. The Company intends to
market itself to restaurant chains and other NCW generators as a multi-city,
single source provider of NCW services.

EXPAND EXISTING FACILITIES AND TYPES OF NCW ACCEPTED. The Company
intends to invest in its existing NCW treatment facilities to expand
physical plant size and to increase the treatment capabilities of its
facilities, and will seek to amend its permits for certain facilities in
order to receive additional waste streams.

CAPITALIZE ON TRENDS TOWARD OUTSOURCING AND PRIVATIZATION. The Company
believes that its experience in treating and disposing of numerous types of
NCW will allow it to capitalize on opportunities presented by the increasing
number of private companies that retain third parties to handle their NCW on
an ongoing basis and municipalities that shift certain of their wastewater
treatment services to private industry.

INCREASE INLAND NOW BUSINESS. The Company is subject to certain
agreements which restrict its ability to grow its offshore-generated NOW
business. See "Risk Factors--Dependence on Newpark for Offshore-Generated
NOW; Covenant Not to Compete; and Obligation to Treat NOW Received from
Newpark at Below-Market Prices," "Business--The Nonhazardous Liquid Waste
Industry" and "Certain Transactions--Newpark Agreements." As a result, the
Company intends to focus its marketing efforts towards inland (as opposed to
offshore) generators of NOW, and by so doing, the Company believes that it
will be able to increase the total amount of NOW that is delivered to the
Company for treatment and disposal.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered.............. 1,500,000 shares
Common Stock to be outstanding
after the offering.............. 6,738,875 shares(1)
Use of proceeds................... Repayment of certain indebtedness, capital expenditures,
working capital and general corporate purposes, which
are expected to include future acquisitions.
AMEX symbol....................... USL
</TABLE>

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

(1) Excludes 1,930,125 shares of Common Stock subject to options and warrants
previously granted or to be granted by the Company as of the effective date
of this offering, consisting of (i) 1,000,000 shares issuable pursuant to a
warrant issued to Sanifill in connection with the Campbell Wells
Acquisition, the resale of which shares is subject to certain contractual
restrictions, (ii) 405,125 shares issuable pursuant to outstanding employee
stock options, and (iii) 525,000 shares issuable pursuant to options and
warrants granted or to be granted in connection with this offering. Also
excludes 468,750 shares issuable pursuant to options, the vesting of which
are contingent upon the successful completion of certain corporate
development activities. See "Management--Stock Option Plans" and "Certain
Transactions--Campbell Wells Acquisition."

4
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA

The following unaudited pro forma financial data present certain information
for the Company as adjusted for (i) the effect of the Campbell Wells Acquisition
as if it had occurred on January 1, 1996, including certain pro forma
adjustments to the historical financial statements of the Predecessor, including
adjusting depreciation expense to reflect purchase price allocations, recording
interest expense to reflect the outstanding debt due to Sanifill, adjusting
insurance expense consistent with the expenses for the Company and the related
income tax effects of these adjustments and (ii) the consummation of this
offering at the offering price of $9.50 per share and the application of the net
proceeds therefrom. See "Selected Financial Data" and the unaudited Pro Forma
Financial Statements and the notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, --------------------
1996 1996 1997
------------------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT AND OTHER DATA
PRO FORMA
Revenues................................................................. $ 31,138 $ 14,374 $ 17,734
Gross profit............................................................. 10,534 4,340 6,372
Selling, general and administrative expenses............................. 3,964 2,025 2,716
------- --------- ---------
Income from operations................................................... 6,570 2,315 3,656
Interest and other expense, net.......................................... 2,317 1,081 1,003
------- --------- ---------
Income before income taxes............................................... 4,253 1,234 2,653
------- --------- ---------
Net income............................................................... $ 2,508 $ 728 $ 1,565
------- --------- ---------
------- --------- ---------
Net income per share..................................................... $ 0.32 $ 0.09 $ 0.20
------- --------- ---------
------- --------- ---------
Shares used in computing pro forma net income(1)......................... 7,830 7,830 7,830
EBITDA(2)................................................................ $ 8,820 $ 3,745 $ 4,940
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
AS
ACTUAL ADJUSTED(3)
--------- -----------
<S> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA
Working capital (deficit)................................................................ $ (1,450) $ 9,835
Total assets............................................................................. 43,863 52,897
Total debt............................................................................... 25,974 23,260
Stockholders' equity..................................................................... 2,853 14,835
</TABLE>

- ------------------------------
(1) Includes (i) 3,538,875 shares issued and outstanding prior to this offering
and the acquisitions of the Mesa Companies and AWW, (ii) 1,700,000 shares
issued to the stockholders of the Mesa Companies and AWW in conjunction with
their acquisitions, (iii) 1,500,000 shares issued in connection with the
offering and (iv) 1,090,713 shares representing the effect of outstanding
warrants and options to purchase Common Stock, using the treasury stock
method. Excludes 525,000 shares of Common Stock subject to options and
warrants granted or to be granted in connection with the offering at an
exercise price equal to or exceeding the initial public offering price and
468,750 shares issuable pursuant to options, the vesting of which are
contingent upon the successful completion of certain corporate development
activities. See "Management--Stock Option Plans" and "Certain
Transactions--Campbell Wells Acquisition."

(2) EBITDA represents earnings presented above before interest, income taxes,
depreciation and amortization expense and is calculated as defined in the
Company's note agreement with Sanifill. See footnote 3 under "Selected
Financial Data." The earnings presented above do not include any interest
expense related to the Predecessor's intercompany account with Sanifill. See
the Introduction to the unaudited Pro Forma Financial Statements included
elsewhere in this Prospectus. EBITDA is not a measure of cash flow,
operating results or liquidity, as determined in accordance with generally
accepted accounting principles, and differs from net cash provided by
operating activities as determined under generally accepted accounting
principles in that EBITDA excludes interest expense and does not reflect the
effects of changes in working capital or deferred tax items. EBITDA should
not be considered in isolation or as an alternative to, or more meaningful
than, net income or cash flows provided by operations, as determined in
accordance with generally accepted accounting principles. The pro forma
EBITDA amounts shown for the Company may not be comparable to EBITDA as
reported by or for other companies because the Company's pro forma EBITDA
may not be calculated on the same basis as EBITDA as reported by or for
other companies.

(3) Adjusted for the sale of 1,500,000 shares of Common Stock offered by the
Company hereby and the application of the estimated net proceeds therefrom.
See "Use of Proceeds."

5
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED
IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING AN INVESTMENT IN THE COMMON STOCK. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS
STATEMENTS OF THE COMPANY'S STRATEGIES, PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF ANY NUMBER OF
FACTORS, INCLUDING THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS. THE CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS
BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR
IN THIS PROSPECTUS.

ABSENCE OF COMBINED OPERATING HISTORY

The Company was organized in November 1996 and consummated the Campbell
Wells Acquisition on December 13, 1996. See "Certain Transactions." In June
1997, the Company acquired the Mesa Companies and AWW. Prior to June 1997, the
Mesa Companies and AWW had been operating as separate independent entities and
there can be no assurance that the Company will be able to integrate their
operations successfully or to institute the necessary systems and procedures,
including accounting and financial reporting systems, to manage on a profitable
basis either of the NCW operations individually, the NCW operations collectively
or the entire combined enterprise. While each of the Company's officers and
directors has substantial business experience, they have no experience in
managing all of the different business operations in which the Company is now
engaged. Accordingly, there can be no assurance that the Company's management
group will be able to effectively manage the combined entity or to effectively
implement the Company's acquisition program and internal growth strategy. The
Pro Forma Financial Statements of the Company cover periods when the Company,
the Mesa Companies and AWW were not under common control or management and may
not be indicative of the Company's future financial or operating results. The
inability of the Company to integrate the Mesa Companies and AWW successfully
would have a material adverse effect on the Company's business, results of
operations and financial condition, as well as its acquisition program. See
"Business--Strategy" and "Management."

DEPENDENCE UPON NOW EXEMPTION UNDER RCRA AND OTHER ENVIRONMENTAL REGULATIONS

NOW is currently exempt from the requirements of the Resource Conservation
and Recovery Act, as amended ("RCRA"), which is the principal federal statute
governing the handling and disposal of waste. In recent years, proposals have
been made to rescind this exemption. The repeal or modification of the exemption
covering NOW or modification of applicable regulations or interpretations
regarding the treatment and/or disposal of NOW would require the Company to
alter its method of treating and disposing of NOW, which does not comply with
the methods prescribed by the U.S. Environmental Protection Agency (the "EPA")
for treatment and/or disposal of RCRA-regulated waste. Such repeal or
modification would have a material adverse effect on the Company's business,
results of operations and financial condition. Each of the Company's operations
is also dependent to varying degrees on the existence and enforcement of local,
state and federal environmental regulations. Any repeal or relaxation of such
regulations, or a failure of governmental authorities to enforce such
regulations, could result in decreased demand for the Company's services and,
therefore, could materially adversely affect the Company's business, results of
operations and financial condition. The Company's operations may also be
adversely affected by new regulations or changes in other applicable
regulations. See "Business--Regulatory Background."

RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY

The Company intends to grow significantly through the acquisition of
additional nonhazardous liquid waste and complementary businesses. The Company
expects to face competition for acquisition candidates, which may limit the
number of acquisition opportunities and may lead to higher acquisition prices.

6
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There can be no assurance that the Company will be able to identify, acquire or
manage additional businesses profitably or to integrate successfully any
acquired businesses into the Company without substantial or material
unanticipated costs, delays or other operational or financial problems. Further,
acquisitions involve a number of special risks including, without limitation,
failure of the acquired business to achieve expected results, diversion of
management's attention, failure to retain key personnel of the acquired business
and risks associated with unanticipated events or liabilities, all of which
could have a material adverse effect on the Company's business, results of
operations and financial condition. Customer dissatisfaction or performance
problems at a single acquired company could have an adverse effect on the
reputation of the Company and its sales and marketing initiatives. The Company
may consider acquiring complementary businesses to its existing operations, and
there can be no assurance that these complementary businesses could be
successfully integrated. In addition, if the Company's acquisition strategy is
not successful, the benefits expected to be derived by the Company from
consolidating certain overhead functions such as cash management, finance and
insurance will not be realized. The Company currently has no agreements or
understandings to make any acquisitions. See "Business--Strategy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."

RISKS RELATED TO ACQUISITION FINANCING

The timing, size and success of the Company's acquisition efforts and the
associated capital commitments cannot be readily predicted. The Company
currently intends to finance future acquisitions by using shares of its Common
Stock for all or a substantial portion of the consideration to be paid. If the
Common Stock does not maintain a sufficient market value, or potential
acquisition candidates are otherwise unwilling to accept Common Stock as part of
the consideration for the sale of their businesses, the Company may be required
to use more of its cash resources, if available, or incur indebtedness in order
to implement its acquisition program. Upon completion of this offering, the
Company will have approximately $7.9 million of net proceeds remaining for
future acquisitions and working capital after payment of certain indebtedness
and budgeted capital expenditures. If the Company does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity financings. There can be no assurance that the
Company will be able to obtain such financing when required or that such
financing will be available on terms and conditions reasonably acceptable to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."

As a result of the Campbell Wells Acquisition, the Company has a note
agreement with Sanifill which places limits on indebtedness which may be
incurred by the Company (including, without limitation, preexisting debt of
businesses subsequently acquired by the Company and any debt instrument issued
by the Company to the owners of any acquired businesses). Also, the Company has
agreed, in a noncompetition agreement with Sanifill, not to own before December
2001 any interest in any company engaged in the municipal solid waste,
construction debris or demolition debris collection, treatment and disposal
business. The Company will not be able to effect acquisitions which would
violate these conditions unless it is able to obtain Sanifill's consent. See
"Certain Transactions--Campbell Wells Acquisition."

RISKS RELATED TO OPERATING AND INTERNAL GROWTH STRATEGY

Key elements of the Company's strategy are to improve the profitability and
increase the revenues of its existing operations and any subsequently acquired
businesses. The Company intends to improve the profitability of its existing
operations and any subsequently acquired businesses by various means including,
without limitation, more efficient utilization of its NCW treatment facilities.
The Company's ability to increase the revenues of its existing operations and
any subsequently acquired businesses will be affected by various factors,
including demand for NCW and NOW treatment and disposal services and finished
products produced by the Company, and the Company's ability to expand the range
of services offered to customers, develop national and regional accounts for its
NCW treatment facilities and other marketing

7
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programs necessary to attract new customers and attract and retain necessary
personnel. Many of these factors are beyond the Company's control, and there can
be no assurance that the Company's operating and internal growth strategies will
be successful or that the Company will be able to generate cash flow adequate
for its operations and to support internal growth. See "Business--Strategy."

DEPENDENCE ON OIL AND GAS INDUSTRY

Demand for the Company's NOW treatment and disposal services depends in
large part upon the level of exploration for and production of oil and gas,
particularly in the Gulf Coast region. This demand, in turn, depends on, among
other things, oil and gas prices, expectations about future prices, the cost of
exploring for, producing and delivering oil and gas, the discovery rate of new
oil and gas reserves and the ability of oil and gas companies to raise capital.
Prices for oil and gas historically have been extremely volatile and have
reacted to changes in the supply of and demand for oil and natural gas, domestic
and worldwide economic conditions and political instability in oil-producing
countries. No assurance can be given that current levels of oil and gas
activities will be maintained or that the demand for the Company's NOW services
will reflect the level of such activities. Prices for oil and natural gas are
expected to continue to be volatile and affect demand for the Company's NOW
disposal services. A material decline in oil or natural gas prices or
exploration activities could materially adversely affect the demand for the
Company's NOW services and, therefore, the Company's business, results of
operations and financial condition.

COMPETITION

The nonhazardous liquid waste industry is competitive. With respect to NCW
operations, the Company must compete for the procurement of used cooking oil and
other food processing residuals necessary for the production and sale of the
Company's finished products. The Company's inability to procure sufficient
quantities of such materials, or an increase in the cost of procuring such
materials, would have a material adverse effect on the Company's business,
results of operations and financial condition. The market for sales of the
Company's finished products is also competitive and is served by several large
companies and a number of smaller, owner-operated companies. The Company also
competes with other NCW treatment facilities and alternative methods of disposal
of certain waste streams provided by area landfills and injection wells, as well
as the alternative of illegal disposal. In addition, competitive products and
services have been and will continue to be successfully developed and marketed
by others. Furthermore, future technological change and innovation may result in
a reduction in the amount of NCW being generated or alternative methods of
treatment and/or disposal being developed. Also, there is nothing to prevent
other companies from attempting to replicate the Company's strategy of acquiring
NCW businesses to develop a national or regional presence. With respect to its
NOW disposal operations, the Company must compete with alternative methods of
off-site disposal of NOW provided by a large public company and a number of
smaller private companies. The Company also faces competition from customers who
seek to enhance and develop their own methods of disposal instead of using the
services of third parties such as the Company. Future technological change and
innovation may increase the amount of internal NOW treatment and disposal as
well as the number of competitors in this market. Increased use of internal
treatment and disposal methods and other competitive factors could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, until August 12, 2001, the Company is
prohibited from certain activities relating to the collection, transportation or
disposal of NOW generated in the Gulf of Mexico and certain surrounding states
and other related businesses, and until December 13, 2001, the Company is
prohibited from collecting, treating and disposing of municipal solid wastes,
construction debris and demolition debris. See "Certain Transactions."

Competitors of the Company may be better capitalized, have greater name
recognition or be able to provide services or products at a lower cost. In
addition, because the treatment, processing and disposal of NCW and NOW are
relatively new businesses, competition in these markets can be expected to
increase as the markets develop. As a result of these competitive factors, there
can be no assurance that the

8
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Company's growth strategy will be successful or that the Company will be able to
generate cash flow adequate for its operations and to support future
acquisitions and internal growth. See "Business-- Competition."

IMPACT OF COMMODITY PRICES

The Company's finished products are commodities, the prices of which are
reported by commodity pricing services. While the Company's prices for its
finished products are generally influenced by the quoted prices, historically
the Company has generally been able to achieve above-average prices because its
sales have been made primarily to large, long-time customers based in Mexico.
There can be no assurance that prices for the Company's finished products will
not be subject to greater influence in the future by the reported commodity
prices or that, if competition for sales of finished products increases, the
Company will be able to continue generating higher prices through its sales to
customers based in Mexico. Used cooking oil and other food processing residuals
used in the production of the Company's finished products are also commodities
subject to price fluctuation. A significant increase in the prices paid for
these materials could have a material adverse effect on the Company's business,
results of operations and financial condition.

DEPENDENCE ON NEWPARK FOR OFFSHORE-GENERATED NOW; COVENANT NOT TO COMPETE; AND
OBLIGATION TO TREAT NOW RECEIVED FROM NEWPARK AT BELOW-MARKET PRICES

In the Campbell Wells Acquisition, the Company acquired an agreement (the
"Disposal Agreement") with Newpark Resources, Inc., a public company located in
New Orleans ("Newpark"), that obligates Newpark to deliver to the Company, in
each of the next 24 years, NOW for treatment and disposal at certain of the
Company's Louisiana landfarms. The Disposal Agreement was originally created as
part of Newpark's acquisition in August 1996 of the marine-based NOW business of
Campbell Wells for approximately $70.5 million. Specifically, during each of the
next 24 years, Newpark is obligated to deliver to the Company for treatment and
disposal the lesser of (i) one-third of the barrels of NOW that Newpark receives
for processing and disposal in Louisiana, Texas, Mississippi, Alabama and the
Gulf of Mexico (the "Territory") and (ii) 1,850,000 barrels of NOW, in each case
excluding saltwater. In return, the Company is obligated not to, prior to August
12, 2001, engage, directly or indirectly, in the collection, transfer,
transportation, treatment or disposal of NOW generated in a marine environment
(which is the source of a substantial portion of the NOW delivered to the
Company) or transported in marine vessels or the site remediation and closure
business in the Territory. As a result of these contractual arrangements with
Newpark, the Company's NOW operations are dependent upon Newpark's ability to
maintain its share of the NOW disposal market in the Territory. There can be no
assurance that Newpark will be able to maintain its share of the NOW disposal
market in the Territory, and a significant decline in Newpark's market share
could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, these contractual arrangements
limit the ability of the Company to expand its NOW operations in the Territory
through acquisitions or otherwise; however, the Company is free to expand its
NOW operations in areas outside of the Territory and/or acquire any business
that treats and disposes of NOW generated on land and transported from the site
where it was generated entirely by on-land transportation.

The Company's arrangements with Newpark also establish the conditions upon
and the extent to which the price per barrel paid by Newpark to the Company for
NOW treatment and disposal may be adjusted, which conditions are completely
beyond the Company's control. Currently, the price paid by Newpark to the
Company under the Disposal Agreement is $5.50 per barrel. As of July 31, 1997,
the market price for treatment and disposal of NOW consisting primarily of oil,
grease, chlorides and heavy metals found in water-based and oil-based drilling
fluids ranged from $6.75 to $10.25 per barrel, depending upon the makeup of the
NOW. A disparity between the price paid by Newpark to the Company under the

9
<PAGE>
Disposal Agreement and the open market price is expected to continue for the
duration of the Disposal Agreement.

For the year ended December 31, 1996, revenues of approximately $17.7
million, or approximately 56.8% of the Company's total pro forma revenues, were
derived from the treatment and disposal of NOW, of which amount approximately
$8.8 million, or approximately 49.7%, was derived from the treatment and
disposal of NOW generated offshore.

From August 13, 1996 to December 31, 1996, Newpark delivered approximately
1,054,000 barrels of NOW to the Company and the Predecessor for treatment and
disposal. For the six months ended June 30, 1997, Newpark delivered to the
Company approximately 820,000 barrels of NOW for treatment and disposal.

For a more thorough summary of the Disposal Agreement and related
transactions, see "Certain Transactions--Newpark Agreements."

FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS

The Company's operations are subject to numerous and continually evolving
federal, state and local laws, regulations and policies that govern
environmental protection, zoning and other matters. If existing regulatory
requirements change, the Company may, among other things, be required to make
significant unanticipated capital and operating expenditures. Although the
Company believes that it is presently in material compliance with applicable
laws and regulations, there can be no assurance that it will be deemed to be in
compliance in the future. Governmental authorities may seek to impose fines and
penalties on the Company or to revoke or deny the issuance or renewal of
operating permits for failure to comply with applicable laws and regulations.
Under such circumstances, the Company might be required to curtail or cease
operations or conduct site remediation until a particular problem is remedied,
which could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, if the Company's operations
resulted in the release of hazardous substances, the Company could incur
liability under the Comprehensive Environmental Response, Compensation and
Liability Act, as amended. See "Business--Regulatory Background."

POTENTIAL DILUTION FROM FUTURE ACQUISITIONS

The Company's strategy contemplates the acquisition of additional
nonhazardous liquid waste and complementary businesses, and that such
acquisitions may be fully or partially paid for by using Common Stock. In order
to implement its acquisition strategy, after the completion of this offering,
the Company intends to register 3,000,000 additional shares of Common Stock for
issuance in connection with future acquisitions. In the event shares of Common
Stock are issued in connection with future acquisitions, purchasers of Common
Stock in this offering may experience dilution in the net tangible book value of
their stock. See "Description of Securities--Shares Eligible for Future Sale."

CONCENTRATION OF CUSTOMERS

The Company's customers are concentrated in the oil and gas industry in
Louisiana and Texas, the NCW collection business in Texas and the livestock feed
and chemical processing industries in Mexico. Sales of finished products to one
customer in Mexico, Bachoco, S.A. De C.V. ("Bachoco"), accounted for
approximately 52%, 62% and 43% of total revenues, and approximately 18%, 26% and
20% of total pro forma revenues, for the years ended December 31, 1994, 1995 and
1996, respectively. The loss of, or a significant reduction in the amount of
sales to, this customer would have a material adverse effect on the Company's
business, results of operations and financial condition. Total sales to
customers in Mexico represented approximately 80%, 82% and 70% of total
revenues, and approximately 28%, 35% and 32% of total pro forma revenues, for
the years ended December 31, 1994, 1995 and 1996, respectively. A significant
decline in the Mexican economy could materially adversely affect demand for the
Company's

10
<PAGE>
finished products and, therefore, the Company's business, results of operations
and financial condition. Likewise, among other things, a material decline in
demand for the livestock feed and chemicals produced by purchasers of the
Company's finished products could have a material adverse effect on the
Company's business, results of operations and financial condition. With respect
to NOW operations, Newpark constituted approximately 49% of total revenues for
the six months ended June 30, 1997. See
"--Dependence on Newpark for Offshore-Generated NOW; Covenant Not to Compete;
and Obligation to Treat NOW Received from Newpark at Below-Market Prices."

CONCENTRATION OF CREDIT RISKS

At December 31, 1996, 41% and 16%, respectively, of the Company's total
accounts receivable were associated with two customers, Newpark and Chevron
Corporation. At December 31, 1995, 37% and 10%, respectively, of the Company's
total accounts receivable and 4% and 1%, respectively, of the Company's total
pro forma accounts receivable were associated with Bachoco and Oleofinos, a
Mexican corporation. In addition, at December 31, 1995, Chevron Corporation and
Texaco Inc. accounted for 17% and 11%, respectively, of the Predecessor's total
accounts receivable and 15% and 10%, respectively, of the Company's total pro
forma accounts receivable. Although the Company performs ongoing credit analyses
of its customers, the Company's inability to collect any such significant
account would have a material adverse effect on the Company's business, results
of operations and financial condition.

SIGNIFICANT AMOUNT OF OFFERING PROCEEDS PAYABLE TO OR FOR THE BENEFIT OF
AFFILIATES OF THE COMPANY

Of the net proceeds of this offering, $964,000 will be used to repay a
promissory note held by AWW's primary lender, which note is guaranteed by
William H. Wilson, Jr., a key employee of the Company. In addition,
approximately $780,000 will be used to repay certain promissory notes held by
former stockholders of AWW, of which approximately $341,000 will go to Mr.
Wilson. Approximately $1.2 million of the net proceeds will be used to repay
certain indebtedness of the Mesa Companies, all of which was incurred or
personally guaranteed by Thomas B. Blanton, an officer and director of the
Company. Approximately $214,000 of this $1.2 million will be paid to the
brother-in-law of Mr. Blanton. See "Use of Proceeds" and "Certain
Transactions--Other."

The Company has historically engaged in significant transactions with
affiliates of the Company. See "Certain Transactions--Other." Although the
Company has no current plans to enter into any additional significant
transactions with any of its affiliates, the Board of Directors of the Company
has adopted a resolution requiring all future transactions with affiliates to be
approved by the vote of a majority of the disinterested directors of the
Company.

POTENTIAL IMPACT OF LITIGATION INVOLVING THE OPERATIONS OF CERTAIN OF THE
COMPANY'S LANDFARMS

Prior to the closing of the Campbell Wells Acquisition, several lawsuits
were filed against Campbell Wells based upon the operation of certain of the
Louisiana landfarms purchased by the Company as part of the Campbell Wells
Acquisition. In one of the lawsuits filed against Campbell Wells, approximately
300 individuals residing in and around Grand Bois, Louisiana are seeking
unspecified monetary damages allegedly suffered as a result of (i) odors
allegedly emitted by NOW received from Exxon Company U.S.A. at the Company's
Bourg, Louisiana landfarm in March 1994, and (ii) alleged air, water and soil
contamination in connection with ongoing operations at the facility. A second
lawsuit, brought by one individual, seeks unspecified monetary damages allegedly
suffered as a result of odors allegedly emitted by NOW received from Exxon
Company U.S.A. at the Bourg landfarm in March 1994. A third lawsuit, filed as a
class action, seeks unspecified monetary damages allegedly suffered as a result
of alleged air, water and soil contamination in connection with ongoing
operations at the Company's Mermentau, Louisiana landfarm. In a fourth lawsuit,
six individuals are seeking injunctive relief against certain treatment
operations conducted at the Bourg landfarm which the plaintiffs contend have
resulted in and will result in adverse health effects by way of emissions of
alleged air pollutants.

11
<PAGE>
The Company has not been named as a defendant in any of these lawsuits;
however, there can be no assurance that the Company will not subsequently be
named as a defendant in one or more of these lawsuits. Sanifill has retained
responsibility for, and agreed to indemnify the Company against, the contingent
liabilities associated with these lawsuits. Sanifill's indemnification
obligation is limited to the lesser of the amount of the unpaid principal of the
promissory note (the "Sanifill Note") issued by the Company to Sanifill in
connection with the Campbell Wells Acquisition outstanding at the time of any
claim for indemnification and $10 million. As of July 31, 1997, the outstanding
principal balance of the Sanifill Note was $22.2 million. The Sanifill Note is
payable in 20 equal quarterly installments of principal plus accrued interest,
beginning on March 31, 1997 and, therefore, the principal balance of the
Sanifill Note is currently scheduled to be reduced below $10 million on June 30,
2000. In the event the Company is subsequently added as a defendant in any of
these lawsuits, a monetary judgment is entered against the Company and Sanifill
is not required or is unable to completely indemnify the Company against such
judgment, the Company's business, results of operations and financial condition
could be materially adversely affected. In addition, notwithstanding any
indemnification to be provided by Sanifill, an adverse ruling against the
Company (if it is subsequently added as a defendant) in the lawsuit seeking
injunctive relief could materially adversely affect the Company's operations at
the Bourg landfarm (which operations contributed 19.8% of the Company's pro
forma revenues for the year ended December 31, 1996 and 13.7% of the Company's
actual revenues for the first six months of 1997) and, therefore, the Company's
business, results of operations and financial condition.

For additional information regarding these lawsuits and Sanifill's
obligations, see "Business--Legal Proceedings" and "Certain
Transactions--Campbell Wells Acquisition."

POTENTIAL IMPACT OF ADVERSE MEDIA PUBLICITY REGARDING THE COMPANY'S NOW
OPERATIONS

The lawsuits involving the operations of the Company's Bourg and Mermentau
landfarms have generated considerable media coverage regarding the NOW treatment
and disposal industry in general, the operations conducted at these landfarms
and the impact of these operations upon the environment and persons living in
close proximity to the landfarms. A number of articles describing the lawsuits,
the Company's landfarms and the NOW treatment and disposal industry have
appeared in newspapers throughout Louisiana. In addition, the Company has been
advised that the CBS television network ("CBS") is investigating, among other
things, the lawsuits involving the Company's landfarms, the operations conducted
at these landfarms, the exemption that excludes NOW from regulation under RCRA
and the NOW treatment and disposal industry, and intends to broadcast a program
regarding its findings in fall 1997. Although the Company is unaware of the
complete scope or the findings of the investigation conducted by CBS or the
manner in which these findings will ultimately be presented to the public, any
television program eventually broadcast by CBS may be critical of the Company,
the operations conducted at the Company's landfarms and/or the exemption that
excludes NOW from regulation under RCRA. Adverse publicity or political
developments resulting from any such television program or other scrutiny of the
NOW treatment and disposal industry or the Company's operations could have a
material adverse effect on the Company's business, results of operations and
financial condition, as well as the market price of the Common Stock. In
addition, any such adverse publicity could spur new efforts to rescind the
exemption that excludes NOW from regulation under RCRA, which rescission would
have a material adverse effect on the Company's business, results of operations
and financial condition.

POTENTIAL IMPACT OF GOVERNMENTAL EXAMINATIONS OF THE COMPANY'S BOURG, LOUISIANA
LANDFARM

In 1997, after an unsuccessful attempt was made in the Louisiana legislature
to require the Bourg landfarm to relocate or close, the Governor of Louisiana
directed certain state agencies to examine the operations at the Bourg landfarm
and to review generally Louisiana's rules and regulations regarding the
treatment and disposal of NOW. The Company's operations could be materially
adversely affected by new regulations or changes in applicable regulations
resulting from such examinations of the Company's

12
<PAGE>
operations at the Bourg landfarm or the overall review of Louisiana's rules and
regulations regarding the treatment and disposal of NOW.

IMPACT OF INCREASE IN ENERGY PRICES

The Company operates a fleet of trucks and other equipment in its
operations. In addition, the Company uses significant amounts of energy in the
processing of NCW. Energy prices are subject to volatility. A significant
increase in energy prices could affect the Company's operations, which could
have a material adverse effect on the Company's business, results of operations
and financial condition.

FOREIGN SALES

A substantial portion of the Company's revenues is derived from the sale of
finished products to customers in Mexico. Foreign sales are subject to certain
inherent risks, including unexpected changes in regulatory and legal
requirements, tariffs and other trade barriers, greater difficulty in collecting
trade accounts and foreign exchange fluctuations. There can be no assurance that
these or similar factors will not have an adverse effect on the Company's future
results of operations and financial condition. See "Business--Operations and
Services Provided."

RELIANCE ON KEY PERSONNEL; MANAGEMENT OF GROWTH

The Company will be highly dependent on its executive officers and senior
management, and the Company likely will depend on the senior management of any
significant business it acquires in the future. The business or prospects of the
Company could be materially adversely affected if any of its current executive
officers (including Mr. Lawlor, who will become Chief Executive Officer upon
completion of this offering) or key employees or any member of senior management
of any subsequently acquired business does not continue in his management role
until the Company is able to attract and retain qualified replacements. The
Company does not maintain key man life insurance on any of its executive
officers or key employees.

The acquisitions of the Mesa Companies and AWW have placed and will continue
to place substantial burdens on the Company's management resources and financial
controls. The Company's ability to manage its growth effectively will require it
to continue to implement and improve its operational, financial and management
information systems and controls, and to train, motivate and manage its
employees. The Company intends to continually review and upgrade its management
information systems, as well as hire additional management and other personnel
in order to maintain the adequacy of its operational, financial and management
controls. The Company's failure to manage its growth effectively could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Management."

CONTROL BY EXISTING MANAGEMENT

Following the completion of this offering, the Company's executive officers
and directors will beneficially own approximately 35.9% of the outstanding
shares of Common Stock (34.7% if the Underwriters' over-allotment option is
exercised in full). These persons, if acting in concert, will have significant
voting power with respect to the election of directors and, in general, the
outcome of any other matter submitted to a vote of stockholders. See "Principal
Stockholders."

NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE

Prior to this offering, there has been no public market for the Common
Stock. Therefore, the initial public offering price for the Common Stock will be
determined by negotiation between the Company and the Representatives and may
bear no relation to the price at which the Common Stock will trade after the
offering. See "Underwriting" for the factors to be considered in determining the
initial public offering price. There can be no assurance that an active trading
market will develop subsequent to this offering and,

13
<PAGE>
if developed, that it will be sustained. After this offering, the market price
of the Common Stock may be subject to significant fluctuations in response to
numerous factors, including the timing of any acquisitions by the Company,
variations in the Company's annual or quarterly financial results or those of
its competitors, changes by financial research analysts in their estimates of
the Company's future earnings, if any, conditions in the economy in general or
in the Company's operations in particular, unfavorable publicity or changes in
applicable laws and regulations (or judicial or administrative interpretations
thereof) affecting the Company, the NOW treatment and disposal market or the NCW
treatment and disposal market (including the sale of finished products). From
time to time the stock market experiences significant price and volume
volatility, which may affect the market price of the Common Stock for reasons
unrelated to the Company's performance.

ADEQUACY OF LIABILITY INSURANCE

The Company's activities entail a risk of personal injury and property
damage to its employees and/or other persons in proximity to its operations.
While the Company maintains insurance in such amounts and covering such risks as
are consistent with customary practices and standards of companies engaged in
similar businesses, there can be no assurance that such coverage will be
adequate. Even a partially uninsured claim, if successful and of significant
magnitude, could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business--Insurance."

LACK OF DIVIDENDS

The Company has not paid dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The Company intends to
retain future earnings, if any, to finance the expansion of its operations and
for general corporate purposes, including future acquisitions. In addition, the
Company's agreements with Sanifill restrict the Company's ability to pay
dividends on its capital stock. See "Dividend Policy" and "Certain
Transactions--Campbell Wells Acquisition."

POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

The Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), provides for a Board of Directors with staggered terms, which
may discourage or prevent certain types of transactions involving an actual or
potential change in control of the Company, including transactions in which
selling stockholders may otherwise receive a premium for their shares over then
current market prices. In addition, pursuant to the Certificate of
Incorporation, the Board of Directors has been authorized to approve the
issuance of shares of currently undesignated preferred stock, to determine the
price, powers, preferences and rights and the qualifications, limitations or
restrictions granted to or imposed on any unissued series of such preferred
stock, and to fix the number of shares constituting any such series and the
designation of such series, without any vote or future action by the
stockholders. The preferred stock could be issued with voting, liquidation,
dividend and other rights superior to the rights of the Common Stock. See
"Description of Securities--Preferred Stock."

SHARES ELIGIBLE FOR FUTURE SALE

Upon the completion of this offering, the Company will have outstanding
6,738,875 shares of Common Stock. The 1,500,000 shares sold in this offering
(other than shares that may be purchased by affiliates of the Company) will be
freely tradeable. The remaining outstanding shares ("restricted shares") may be
resold publicly only following their registration under the Securities Act of
1933, as amended (the "Securities Act"), or pursuant to an available exemption
from registration (such as provided by Rule 144, promulgated under the
Securities Act, following a one-year holding period for previously unregistered
shares). Sales of restricted shares could adversely affect the market price of
the Common Stock. The Company has agreed to register for public resale 990,000
shares of the restricted shares referred to above, including 652,800 shares
owned or controlled by executive officers of the Company. The sale of such
shares

14
<PAGE>
by holders thereof could also adversely affect the market price of the Common
Stock. See "Description of Securities--Shares Eligible for Future Sale."

Upon completion of this offering, the Company will also have outstanding
options and warrants to purchase 2,398,875 additional shares of Common Stock,
including options to purchase 715,125 shares granted under the terms of the
Company's existing stock option plans. The Company intends to file a
registration statement on Form S-8 to register all shares subject to these
plans. The Company also is obligated to and intends to register the 1,000,000
shares subject to the warrant granted to Sanifill in connection with the
Campbell Wells Acquisition. In connection with such registration, Sanifill has
agreed to restrict the number of shares sold by it annually pursuant to such
registration statement. See "Certain Transactions--Campbell Wells Acquisition."
The Company also intends to register 3,000,000 additional shares of Common Stock
under the Securities Act after completion of this offering for issuance in
connection with future acquisitions.

The executive officers and directors of the Company owning an aggregate of
3,036,000 shares (including options to purchase an aggregate of 610,000 shares)
and the beneficial owners of at least 3,785,000 additional shares (including
options and warrants to purchase an aggregate of at least 1,463,125 shares) have
agreed not to sell or transfer any shares owned by them for a period of 180 days
after the effective date of this offering without the prior written consent of
Van Kasper & Company.

15
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered hereby are estimated to be $12.3 million ($14.3 million if
the Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and estimated offering expenses. The Company intends to
use approximately $964,000 of the net proceeds of the offering to repay a
promissory note held by AWW's primary lender, which note bears interest at the
prime rate plus 2.75%, matures on September 15, 1997 and is guaranteed by
William H. Wilson, Jr., a key employee of the Company, and approximately
$780,000 to repay certain promissory notes held by former stockholders of AWW,
of which approximately $341,000 will go to Mr. Wilson. Each of these notes bears
interest at a rate of 10% and has a maturity date of January 1, 1998.
Approximately $1.2 million of the proceeds will be used to repay certain
indebtedness of the Mesa Companies, all of which was incurred or personally
guaranteed by Thomas B. Blanton, an officer and director of the Company, as the
former sole stockholder of the Mesa Companies. Approximately $214,000 of this
$1.2 million will be paid to the brother-in-law of Mr. Blanton. These debts have
maturity dates ranging from September 1997 to October 2006 and bear interest at
rates ranging from 0% to 25.7%. See "Risk Factors--Significant Amount of
Offering Proceeds Payable to or for the Benefit of Affiliates of the Company"
and "Certain Transactions--Other." Approximately $1.5 million of the proceeds
will be used for capital expenditures to be made by the Company. The Company
intends to use the balance of the net proceeds of the offering of approximately
$7.9 million (assuming no exercise of the Underwriter's over-allotment option)
for working capital and general corporate purposes, which are expected to
include future acquisitions. The Company currently has no agreements or
understandings to make any acquisitions. See "Business--Strategy." Pending
application of the net proceeds as described herein, the Company intends to
invest the net proceeds in short-term, interest-bearing, investment grade
securities.

DILUTION

At June 30, 1997, the consolidated net tangible book value per share of the
Common Stock was $.52. Net tangible book value per share of Common Stock is
equal to the total tangible assets of the Company less total liabilities,
divided by the number of shares of Common Stock outstanding or deemed to be
outstanding. After giving effect to the issuance of shares in this offering at
the initial public offering price of $9.50 per share, and after deducting
estimated offering expenses and underwriting discounts, the pro forma net
tangible book value per share of Common Stock as of June 30, 1997 would have
been approximately $2.18. This represents an immediate dilution of $7.32 per
share to new investors purchasing Common Stock in this offering. The following
table illustrates this per share dilution.

<TABLE>
<S> <C> <C>
Initial public offering price per share............................ $ 9.50
Net tangible book value per share as of June 30, 1997............ .52
Increase attributable to this offering........................... 1.66
---------
Pro forma net tangible book value per share after offering......... 2.18
---------
Dilution to new investors.......................................... $ 7.32
---------
---------
</TABLE>

The following table summarizes, on a pro forma basis as of June 30, 1997,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ 5,238,875 77.7% $ 2,853,000 16.7% $ .54
New investors................................ 1,500,000 22.3 14,250,000 83.3 $ 9.50
---------- ----- ------------- -----
Total...................................... 6,738,875 100.0% $ 17,103,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>

16
<PAGE>
CAPITALIZATION

The following table summarizes the capitalization of the Company as of June
30, 1997, as adjusted to reflect the sale of 1,500,000 shares of Common Stock in
this offering at the initial public offering price of $9.50 per share and
application of the net proceeds thereof as described in "Use of Proceeds." This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the unaudited Pro Forma
Financial Statements and related notes appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------
AS
ACTUAL ADJUSTED
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Current portion of long-term debt(1)........................................................ $ 5,072 $ 3,082
--------- ---------
--------- ---------
Long-term debt, net of current portion...................................................... $ 20,902 $ 20,178
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; no shares issued and
outstanding; $1.00 par value, 10,000 shares authorized; 10,000 shares issued and
outstanding............................................................................. 10 10
Common Stock, $.01 par value, 30,000,000 shares authorized; 5,238,875 shares issued and
outstanding and 6,738,875 shares issued and outstanding, as adjusted(2)................. 52 67
Additional paid-in capital................................................................ 1,379 13,373
Retained earnings......................................................................... 1,412 1,385
--------- ---------
Total stockholders' equity.............................................................. 2,853 14,835
--------- ---------
Total capitalization.................................................................. $ 23,755 $ 35,013
--------- ---------
--------- ---------
</TABLE>

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

(1) For a description of the Company's debt, see the notes to the Consolidated
Financial Statements.

(2) Excludes 1,986,375 shares issuable upon exercise of options and warrants
outstanding as of June 30, 1997.

DIVIDEND POLICY

The Company has not paid dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The Company intends to
retain future earnings, if any, to finance the expansion of its operations and
for general corporate purposes, including possible future acquisitions. In
addition, the Company's note agreement with Sanifill restricts the ability of
the Company to pay dividends on its capital stock. See "Certain
Transactions--Campbell Wells Acquisition."

17
<PAGE>
SELECTED FINANCIAL DATA

The historical income statement and balance sheet data below sets forth the
financial data of the Predecessor as of December 31, 1995, and for the years
ended December 31, 1994 and 1995 and for the period from January 1, 1996 through
December 13, 1996, derived from the financial statements audited by Arthur
Andersen LLP, which appear elsewhere in this Prospectus. For a description of
the Predecessor, see Note 1 of the Notes to the Consolidated Financial
Statements of the Company. The historical income statement and balance sheet
data below for the Predecessor as of December 31, 1992, 1993 and 1994 and for
the years ended December 31, 1992, and 1993, and for the six months ended June
30, 1996, have been derived from unaudited financial statements of the
Predecessor. The consolidated income statement and balance sheet data below set
forth the consolidated financial data of the Company as of December 31, 1995 and
1996, and for the years ended December 31, 1994, 1995 and 1996, derived from the
consolidated financial statements audited by Arthur Andersen LLP, which appear
elsewhere in this Prospectus. The consolidated income statement and balance
sheet data as of December 31, 1992, 1993 and 1994 and for the years ended
December 31, 1992 and 1993, and for the six months ended June 30, 1996 and 1997,
have been derived from the unaudited consolidated financial statements of the
Company. The unaudited financial statements for all periods have been prepared
on the same basis as the audited financial statements and, in the opinion of the
Company reflect all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of such data.

INCOME STATEMENT DATA
<TABLE>
<CAPTION>
JANUARY 1,
1996
YEARS ENDED DECEMBER 31, THROUGH
------------------------------------------ DECEMBER 13,
1992 1993 1994 1995 1996
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
PREDECESSOR
Revenues................................................................ $ 9,515 $ 12,413 $ 14,847 $ 15,119 $ 16,853
--------- --------- --------- --------- -------------
Gross profit............................................................ 4,295 5,816 7,369 6,484 7,717
Selling, general and administrative expenses............................ 2,058 2,263 2,626 2,989 2,524
--------- --------- --------- --------- -------------
Income from operations.................................................. 2,237 3,553 4,743 3,495 5,193
Interest and other expense, net......................................... -- (260) (71) 195 256
--------- --------- --------- --------- -------------
Income before income taxes.............................................. 2,237 3,813 4,814 3,300 4,937
--------- --------- --------- --------- -------------
Net income.............................................................. $ 1,232 $ 2,357 $ 2,869 $ 1,900 $ 2,893
--------- --------- --------- --------- -------------
--------- --------- --------- --------- -------------

SIX MONTHS
ENDED JUNE
30, 1996
-----------
<S> <C>

PREDECESSOR
Revenues................................................................ $ 7,617
-----------
Gross profit............................................................ 3,159
Selling, general and administrative expenses............................ 1,498
-----------
Income from operations.................................................. 1,661
Interest and other expense, net......................................... 95
-----------
Income before income taxes.............................................. 1,566
-----------
Net income.............................................................. $ 924
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
CONSOLIDATED
Revenues.............................................................. $ 4,955 $ 3,799 $ 8,039 $ 11,127 $ 14,285
--------- --------- --------- --------- ---------
Gross profit.......................................................... 866 1,873 481 1,192 2,495
Selling, general and administrative expenses.......................... 1,093 1,813 643 863 1,440
--------- --------- --------- --------- ---------
Income (loss) from operations......................................... (227) 60 (162) 329 1,055
Interest and other expense, net....................................... (13) 125 109 177 309
--------- --------- --------- --------- ---------
Income (loss) before income taxes..................................... (214) (65) (271) 152 746
--------- --------- --------- --------- ---------
Net income (loss)..................................................... $ (214) $ (65) $ (182) $ 103 $ 491
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------

<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1997
--------- ---------
<S> <C> <C>

CONSOLIDATED
Revenues.............................................................. $ 6,757 $ 17,734
--------- ---------
Gross profit.......................................................... 1,006 6,372
Selling, general and administrative expenses.......................... 527 2,716
--------- ---------
Income (loss) from operations......................................... 479 3,656
Interest and other expense, net....................................... 96 1,137
--------- ---------
Income (loss) before income taxes..................................... 383 2,519
--------- ---------
Net income (loss)..................................................... $ 251 $ 1,486
--------- ---------
--------- ---------
</TABLE>

BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1992 1993 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
PREDECESSOR
Total assets............................................................ $ 46,328 $ 54,448 $ 57,235 $ 60,541
Total debt.............................................................. $ 172 $ 91 $ 306 $ --

DECEMBER 31,
---------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED
Total assets............................................................ $ 1,031 $ 1,277 $ 1,410 $ 3,007 $ 46,851
Total debt.............................................................. $ 1,163 $ 1,320 $ 1,447 $ 2,010 $ 29,950

<S> <C>

PREDECESSOR
Total assets............................................................
Total debt..............................................................

JUNE 30,
1997
-----------

<S> <C>
CONSOLIDATED
Total assets............................................................ $ 43,863
Total debt.............................................................. $ 25,974
</TABLE>

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

18
<PAGE>
The following unaudited pro forma financial data present certain financial
information for the Company as adjusted for (i) the effects of the Campbell
Wells Acquisition as if it had occurred on January 1, 1996 and certain Pro Forma
adjustments to the historical financial statements of the Predecessor, including
adjusting depreciation expense to reflect purchase price allocations, recording
interest expense to reflect the outstanding debt due to Sanifill, adjusting
insurance expense consistent with the expenses for the Company and the related
income tax effects of these adjustments, and (ii) the consummation of this
offering at the initial public offering price of $9.50 per share and the
application of the net proceeds therefrom. See the unaudited Pro Forma Financial
Statements and the notes thereto included elsewhere in this Prospectus.

INCOME STATEMENT AND OTHER DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------
1996 1996
-------------- -----------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
PRO FORMA
Revenues............................................................................................ $ 31,138 $ 14,374
------- -----------
Gross profit........................................................................................ 10,534 4,340
Selling, general and administrative expenses........................................................ 3,964 2,025
------- -----------
Income from operations.............................................................................. 6,570 2,315
Interest and other expense, net..................................................................... 2,317 1,081
------- -----------
Income before income taxes.......................................................................... 4,253 1,234
------- -----------
Net income.......................................................................................... $ 2,508 $ 728
------- -----------
------- -----------
Net income per share................................................................................ $ 0.32 $ 0.09
------- -----------
------- -----------
Shares used in computing pro forma net income(1).................................................... 7,830 7,830
EBITDA(2)........................................................................................... $ 8,820 $ 3,745

1997
-----------
<S> <C>

PRO FORMA
Revenues............................................................................................ $ 17,734
-----------
Gross profit........................................................................................ 6,372
Selling, general and administrative expenses........................................................ 2,716
-----------
Income from operations.............................................................................. 3,656
Interest and other expense, net..................................................................... 1,003
-----------
Income before income taxes.......................................................................... 2,653
-----------
Net income.......................................................................................... $ 1,565
-----------
-----------
Net income per share................................................................................ $ 0.20
-----------
-----------
Shares used in computing pro forma net income(1).................................................... 7,830
EBITDA(2)........................................................................................... $ 4,940
</TABLE>

BALANCE SHEET DATA
<TABLE>
<CAPTION>
JUNE 30,
1997
---------
ACTUAL
---------
<S> <C>
(IN
THOUSANDS)
Working capital (deficit)............................................................................................... $ (1,450)
Total assets............................................................................................................ 43,863
Total debt.............................................................................................................. 25,974
Stockholders' equity.................................................................................................... 2,853

ADJUSTED(3
)
----------
- -
<S> <C>

Working capital (deficit)............................................................................................... $ 9,835

Total assets............................................................................................................ 52,897

Total debt.............................................................................................................. 23,260

Stockholders' equity.................................................................................................... 14,835

</TABLE>

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

(1) Includes (i) 3,538,875 shares issued by the Company prior to this offering
and the acquistions of the Mesa Companies and AWW, (ii) 1,700,000 shares
issued to the stockholders of the Mesa Companies and AWW in conjunction with
their acquisition, (iii) 1,500,000 shares issued in connection with the
offering, and (iv) 1,090,713 shares representing the effect of outstanding
warrants and options to purchase Common Stock, using the treasury stock
method. Excludes 525,000 shares of Common Stock subject to options and
warrants granted or to be granted in connection with the offering at an
exercise price equal to or exceeding the initial public offering price and
468,750 shares issuable pursuant to options, the vesting of which are
contingent upon the successful completion of certain corporate development
activities.

(2) Under the Note Agreement, dated December 13, 1996, between the Company and
Sanifill, the Company agreed to limit its overall indebtedness to 400% of
its annual EBITDA. See "Certain Transactions--Campbell Wells Acquisition."
EBITDA represents earnings presented above before interest, income taxes,
depreciation and amortization expense. The earnings presented above do not
include any interest expense related to the Predecessor's intercompany
account with Sanifill. See the Introduction to the unaudited Pro Forma
Financial Statements included elsewhere in this Prospectus. EBITDA is not a
measure of cash flow, operating results or liquidity, as determined in
accordance with generally accepted accounting principles, and differs from
net cash provided by operating activities as determined under generally
accepted accounting principles in that EBITDA excludes interest expense and
does not reflect the effects of changes in working capital or deferred tax
items. EBITDA should not be considered in isolation or as an alternative to,
or more meaningful than, net income or cash flows provided by operations, as
determined in accordance with generally accepted accounting principles. The
pro forma EBITDA amounts shown for the Company may not be comparable to
EBITDA as reported by or for other companies because the Company's pro forma
EBITDA may not be calculated on the same basis as EBITDA as reported by or
for other companies.

(3) Adjusted for the sale of 1,500,000 shares of Common Stock offered by the
Company hereby and the application of the estimated net proceeds therefrom.
See "Use of Proceeds."

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO AND THE OTHER FINANCIAL
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS.

OVERVIEW

The Company is engaged in two areas of the industrial and commercial
wastewater segment of the nonhazardous liquid waste industry: the treatment and
disposal of NCW, including the processing of NCW to recover finished products,
and the treatment and disposal of NOW. On December 13, 1996, the Company
acquired its NOW treatment and disposal operations from Campbell Wells/Sanifill.
In June 1997, the Mesa Companies and AWW became wholly-owned subsidiaries of the
Company in mergers which were accounted for under the pooling-of-interests
method of accounting. The following discussion addresses the results of
operations and financial condition of the Company as shown in the Consolidated
Financial Statements which reflect the historical results of operations of the
Company from its inception in November 1996 through December 31, 1996 and the
six months ended June 30, 1997, and of the Mesa Companies and AWW for all
periods presented. The following discussion also addresses the pro forma
combined operating results of the Company to the extent necessary to better
analyze the Company's consolidated results of operations. Pro forma operating
results include the historical results of operations of the Predecessor for the
period from January 1, 1996 through December 13, 1996 and for the years ended
December 31, 1994 and 1995, with certain pro forma adjustments as described in
the notes to the Pro Forma Financial Statements. The Pro Forma Financial
Statements assume that the Campbell Wells Acquisition and the acquisitions of
the Mesa Companies and AWW were consummated on January 1, 1994 and are not
necessarily indicative of the results the Company would have obtained had these
events actually then occurred or of the Company's future results.

Revenues from NCW operations are derived from two principal sources: the
sale of finished products (fats, oils and feed proteins processed and recovered
from NCW) and tipping and collection fees received for treating and disposing of
NCW. Prices of finished products fluctuate approximately in proportion to the
prices of such products as reported by commodity pricing services. Finished
products are sold primarily to customers in Mexico. Because substantially all of
the Company's NCW operations are conducted in the United States and foreign
sales are denominated and paid in U.S. dollars, the Company is generally not
subject to direct foreign exchange gains and losses. Although such currency risk
is borne by the Company's customers, foreign exchange rate fluctuations could
affect the Company's business by making its products more expensive. See "Risk
Factors--Foreign Sales." The Company does not believe that fluctuations in the
Mexican peso and other foreign currencies have materially impacted its business
in the past. NCW tipping and collection fees charged to customers vary per
gallon by waste stream according to constituents of the waste, expenses
associated with treating the waste and competitive factors.

NOW revenues are derived from fees charged to customers for treating and
disposing of NOW. These fees are based on the volume in barrels of waste
delivered by a customer and the composition of the waste. Currently, such fees
range from $.40 per barrel for salt water to $10.25 per barrel for oil-based
drilling fluids; however, as of July 31, 1997, the market price for treatment
and disposal of NOW consisting primarily of oil, grease, chlorides and heavy
metals found in water-based and oil-based drilling fluids ranged from $6.75 to
$10.25 per barrel, depending upon the makeup of the NOW. Accordingly, the
Company believes that total NOW revenues are a better indicator of performance
than is the average fee charged. Newpark is the largest customer of the
Company's NOW operations, and accounted for approximately 49% of NOW revenues
for the six months ending June 30, 1997. Under the terms of the Disposal
Agreement assigned to the Company in connection with the Campbell Wells
Acquisition, Newpark is obligated to deliver to the Company the lesser of (i)
one-third of the barrels of NOW that Newpark receives for treatment and disposal
in Louisiana, Texas, Mississippi, Alabama and the Gulf of Mexico and (ii)
1,850,000 barrels of NOW, in each case excluding saltwater. The Disposal
Agreement also

20
<PAGE>
governs the price to be paid by Newpark to the Company. Currently, Newpark is
paying $5.50 for each barrel of NOW delivered to the Company for treatment and
disposal under the Disposal Agreement. On June 30, 1998 and on each subsequent
December 31st and June 30th, the per barrel price to be paid by Newpark to the
Company may be adjusted, but not to below $5.50 per barrel. See "Certain
Transactions-- Newpark Agreements" and "Business--The Nonhazardous Liquid Waste
Industry." Although the contractual price is lower than the price that the
Company could obtain in the open market, Newpark's delivery obligations under
the Disposal Agreement allow the Company to eliminate virtually all marketing
and transfer expenses on NOW delivered under the Disposal Agreement.
Accordingly, the Company's gross margin on this NOW volume generally is lower
than the gross margin on NOW volume from customers other than Newpark, but the
Company believes that operating margins on NOW volume from Newpark and other
customers are comparable. The Company expects a disparity between the contract
price and market price to continue for the duration of the Disposal Agreement.
There is no absolute floor on the variable minimum delivery requirements under
the Disposal Agreement and, therefore, a significant reduction in the volume of
NOW generated in the Territory or in Newpark's market share could materially
adversely affect the Company's results of operations and its liquidity. See
"Risk Factors--Dependence on Oil and Gas Industry," and "--Dependence on Newpark
for Offshore-Generated NOW; Covenant Not to Compete; and Obligation to Treat NOW
Received from Newpark at Below-Market Prices." Due to certain noncompete
restrictions with Newpark related to offshore-generated NOW, the Company intends
to focus its future marketing efforts toward inland generators of NOW. The
Company believes that fees charged for services to inland generators will exceed
those under the Disposal Agreement and, if its marketing efforts are successful,
could improve both gross and operating margins.

Depreciation and amortization expenses account for a substantial portion of
the Company's expenses each period. Landfarms, which constitute approximately
43% of the Company's net property, plant and equipment, are amortized over 25
years. Other depreciable assets are expensed over periods ranging from three to
39 years.

The Company anticipates that the NCW operations will represent a growing
share of the Company's business and that the internal growth of the NCW
operations will continue at a faster rate than the internal growth of NOW
operations. Internal growth from NCW operations is expected to continue because
of enactment of state-wide "full pump" regulations in Texas as well as recent
and ongoing expansions of the Company's NCW processing and treatment facilities.
See "Business--The Nonhazardous Liquid Waste Industry." In addition, the Company
expects to focus its acquisition activity primarily in NCW-related businesses.
See "Business--Strategy."

When waste is unloaded at a given site, the Company recognizes the related
revenue and records a reserve for the estimated amount of expenses to be
incurred with the treatment of the NOW in order to match revenues with their
related costs. As treatment occurs, generally over nine to twelve months, the
reserve is released as expenses are incurred.

The Company anticipates that it will benefit from the consolidation of
certain overhead functions relating to the Campbell Wells Acquired Assets, the
Mesa Companies and AWW, such as cash management, finance and insurance. In
addition, the individual operations will have access to the combined financial
resources of the Company, which are greater than the financial resources of the
individual operations. These benefits, however, cannot be accurately quantified
and, to the extent they materialize, will be offset in part or in whole by
increased corporate general and administrative expenses relating to the combined
entities.

21
<PAGE>
RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1997 AND 1996

REVENUES. Revenues increased to $17.7 million in the first six months of
1997 as compared to $6.8 million in the first six months of 1996. NOW operations
are not included in results of operations for the first six months of 1996. On a
pro forma basis to reflect NOW operations in both periods, revenues for the
first six months of 1997 increased by 23.4% from pro forma revenues of $14.4
million in the first six months of 1996. Of total revenues in the first six
months of 1997, NOW operations contributed 56.0%, finished product sales
contributed 32.6% and NCW tipping and collection fees contributed 11.4%. During
the first six months of 1996, pro forma revenues were derived 53.0% from NOW
operations, 40.7% from finished product sales and 6.3% from NCW treatment and
disposal (tipping and collection fees).

Revenues for the first six months of 1997 from NCW operations increased by
15.6% from the first six months of 1996. Revenues from the sale of finished
products decreased by 1.1%, while revenues from NCW treatment and disposal
increased by 123.2%. The average price per pound for finished product sales
decreased by 5.8%, which was offset by a 5.9% increase in volume. The lower
average price per pound and the increased volume in the first six months of 1997
are primarily due to the introduction of lower-priced higher-margin products
from the South Texas processing facility, which was purchased in September 1996,
and which the Company expects will generate a larger share of total finished
product output and NCW revenues for 1997. The increase in NCW treatment and
disposal revenues was attributable to a 183.4% increase in volume, most of which
occurred at the Houston facility, reflecting the expanded permitted volume and
waste capabilities of the facility and implementation of the "full pump"
regulations in Houston. The 1997 period also includes a full six months of
collection revenues from a NCW collection business acquired by the Company in
March 1996.

Revenues for the first six months of 1997 from NOW operations increased by
30.3% from pro forma revenues during the first six months of 1996. The Company
received 2,244,000 barrels of NOW for treatment in the first six months of 1997,
a 19.6% increase over the 1,877,000 barrels received on a pro forma basis during
the first six months of 1996, primarily due to a large one-time delivery of NOW
from a blown-out well and increased deliveries of inland-generated NOW. Pro
forma revenues in the 1996 and 1997 periods are not comparable because 1996
revenues from offshore-generated NOW reflect intercompany transfer prices
established by Sanifill between its transfer station operations and the
Predecessor while such revenues in 1997 reflect the price paid by Newpark under
the Disposal Agreement. Deliveries of NOW by Newpark from September 1996 through
June 1997 were ahead of its annualized contractual obligation. Newpark has
reduced monthly deliveries and is expected to be at the level of the minimum
contractual volumes by the end of 1997. For the year, the Company expects total
NOW revenues to be equal to or slightly higher than what they were in 1996 on a
pro forma basis. Overall, because of the Company's strong pro forma results for
the second half of 1996, the Company does not expect that either its total
revenues or its net income for the second half of 1997 will be significantly
greater than its total pro forma revenues and net income for the second half of
1996, respectively.

GROSS MARGINS. The Company's gross margin increased to 35.9% in the first
six months of 1997 from 14.9% in the first six months of 1996, reflecting the
higher margin contribution of the NOW operations in the 1997 period. On a pro
forma basis, gross margin in the first six months of 1996 was 30.2%. NOW
operations contributed 76.5% and 76.8% of the Company's actual and pro forma
gross profits, respectively, during the first six months of 1997 and 1996,
respectively.

Gross margin in the NCW operations increased from 14.9% in the first six
months of 1996 to 19.1% in the first six months of 1997. Improvement in the
gross margin in NCW operations reflects the increased share of higher-margin NCW
treatment and disposal operations. Gross margin on finished products improved
due to relatively lower product costs. In addition, the Company expects gross
margin on finished products to continue to improve as output of the South Texas
facility increases due to higher margins

22
<PAGE>
generated on the blends of finished products processed and recovered at that
facility. Since the first quarter of 1996, the Company also has emphasized
short-term contractual commitments to control margins in its finished products
operations. This increase in the gross margin on NCW treatment and disposal was
attributable to increased throughput at the Houston facility. Pro forma gross
margin in the NOW operations increased from 43.8% in the first six months of
1996 to 49.1% in the first six months of 1997 due primarily to increased
volumes.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $2,716,000 in the first six months of 1997
from $527,000 in the first six months of 1996, as a result of the addition of
the NOW operations in December 1996. Pro forma selling, general and
administrative expenses increased by $691,000, from 14.1% of pro forma revenues
in the first six months of 1996 to 15.3% of pro forma revenues in the first six
months of 1997, primarily due to $400,000 of nonrecurring expenses associated
with the acquisitions of the Mesa Companies and AWW and additional personnel at
the corporate headquarters. The Company also expects selling, general and
administrative expenses to increase in relation to revenues due to additional
expenses associated with being a public company.

INTEREST AND OTHER EXPENSES. Net interest and other expenses increased to
$1,137,000 in the first six months of 1997 from $96,000 in the first six months
of 1996, primarily as a result of interest expense on debt incurred in the
Campbell Wells Acquisition.

YEARS ENDED DECEMBER 31, 1996 AND 1995

REVENUES. Revenues in 1996 totalled $14.3 million versus $11.1 million in
1995. On a pro forma basis, revenues increased by 18.6% to $31.1 million in 1996
from $26.2 million in 1995. Of total pro forma revenues, NOW operations
contributed 56.8% in 1996 and 57.6% in 1995, finished product sales contributed
36.5% in 1996 and 37.3% in 1995, and NCW tipping and collection fees contributed
6.7% in 1996 and 5.1% in 1995.

Finished product sales increased by 16.1% from 1995 to 1996 and NCW tipping
and collection fees increased by 57.1%. This increase in revenues from the sale
of finished products was due to a 4.5% increase in volumes and an 11.2% increase
in the average price per pound. The increase in volumes, in turn, resulted from
increased production of certain blends of product in response to market demand.
The increased price per pound was attributable to product mix and generally
higher market prices. NCW treatment and disposal volumes in 1996 increased by
33.9% and the average price per gallon increased by 16.9%. The increase in NCW
volumes reflects growth of the Houston market. The increase in the average price
per gallon was primarily attributable to collection revenues obtained in the
Company's acquisition of a NCW collection business in March 1996.

Pro forma revenues from NOW operations increased by 16.9%. The number of
barrels received for treatment increased by 37.4% to 3,424,000 barrels in 1996
from 2,492,000 barrels in 1995, primarily due to increased deliveries of pit
remediation NOW. The Company expects that the volume of NOW delivered for
treatment and disposal in 1997 will be slightly lower than 1996 volume because
of the restrictions and limited contractual delivery requirements under the
Disposal Agreement. See "Certain Transactions-- Newpark Agreements."

GROSS MARGINS. The Company's gross margin increased to 17.5% in 1996 from
10.7% in 1995, reflecting improved margins in the NCW operations, as well as the
addition of the NOW operations at the end of 1996. Pro forma gross margin was
33.8% in 1996, as compared to 31.7% in 1995. During 1996 and 1995, NOW
operations contributed approximately 80.8% and 85.7%, respectively, of pro forma
gross profit.

Gross margin in the NCW operations increased to 15.1% in 1996 from 10.7% in
1995. This improvement is attributable to increased sales of finished products,
lower per unit processing costs, lower per unit costs of raw materials, and
increased revenues from treatment and disposal, offset in part by

23
<PAGE>
increased personnel expenses. The Company believes that gross margin on finished
product sales improved because of increased capacity and utilization of the
processing facilities, resulting in more efficient operations. Pro forma gross
margin in the NOW operations increased to 48.1% in 1996 from 47.2% in 1995. This
improvement is primarily the result of increased volumes in 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In 1996, selling, general and
administrative expenses increased to $1,440,000 from $863,000 in 1995. The
majority of the increase relates to the addition of the NOW operations at the
end of 1996. On a pro forma basis, selling, general and administrative expenses
increased from $3,852,000 in 1995 to $3,964,000 in 1996. However, pro forma
selling, general and administrative expenses were reduced to 12.7% of 1996 pro
forma revenues from 14.7% of 1995 pro forma revenues, primarily due to improved
economies of scale.

INTEREST AND OTHER EXPENSES. Net interest and other expenses increased to
$309,000 in 1996 from $177,000 in 1995, primarily as a result of interest
expense related to the Campbell Wells Acquisition.

YEARS ENDED DECEMBER 31, 1995 AND 1994

REVENUES. Revenues increased from $8.0 million in 1994 to $11.1 million in
1995, primarily as a result of increased finished products sales. The Company
experienced a 14.7% increase in pro forma revenues from $22.9 million in 1994 to
$26.2 million in 1995. For 1995, NOW operations contributed 57.6% to total pro
forma revenues, while finished product sales contributed 37.3% and NCW treatment
and disposal revenues contributed 5.1%. During 1994, pro forma revenues were
derived 64.9% from NOW operations, 30.7% from finished product sales and 4.5%
from NCW treatment and disposal revenues.

Revenues from the sale of finished products increased by 38.4% while
revenues from NCW treatment and disposal increased by 30.0%. The volume of
finished products sold in 1995 increased by 28.9% in 1995 due to an expansion of
the Company's processing capacity during 1995. In addition, the average price
per pound increased by 8.6% from 1994 to 1995, reflecting general market price
changes. NCW treatment and disposal volumes increased by 55.1% in 1995,
primarily from the addition of a major collection client in 1995. The average
tipping fee per gallon of NCW received for treatment and disposal fell by 12.1%
from 1994 to 1995, due to competitive pricing on volumes from a major collection
client and changes in the mix of waste delivered for treatment and disposal. Pro
forma revenues from NOW treatment increased by 1.8%.

GROSS MARGINS. The Company had a gross margin of 10.7% in 1995 versus 6.0%
in 1994. Pro forma gross margin was 31.7% in 1995 compared to 33.6% in 1994. In
1995, NOW operations accounted for 85.7% of the Company's pro forma gross
profit, as compared to 93.7% in 1994.

Gross margin in the NCW operations increased to 10.7% in 1995 from 6.0% in
1994. Improvement in the gross margin from 1994 to 1995 was due primarily to
increases in volume and associated operating efficiencies, as well as a more
favorable product mix. Pro forma gross margin in the NOW operations decreased to
47.2% in 1995 from 48.5% in 1994 due to changes in operating protocols which led
to the addition of personnel. Changes were made in 1995 to eliminate these
unnecessary personnel costs.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $863,000 in 1995 from $643,000 in 1994. Pro
forma selling, general and administrative expenses increased to $3,852,000 in
1995, 14.7% of 1995 pro forma revenues, from $3,269,000 in 1994, 14.3% of 1994
pro forma revenues, due to personnel additions.

INTEREST AND OTHER EXPENSE. Net interest and other expenses totalled
$177,000 in 1995 and $109,000 in 1994 because of debt financing on capital
expenditures in the NCW operations.

24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

The Company had a net working capital deficit of $1,450,000 at June 30,
1997, compared to net working capital of $137,000 at December 31, 1996. The
Company made a total of $5.6 million in principal reductions on the $27.8
million Sanifill Note in December 1996 and January 1997. In connection with the
Company's acquisitions of the Mesa Companies and AWW, the Company agreed to pay
from the proceeds of this offering approximately $2.1 million of long-term debt
of the acquired entities, which agreement caused these amounts to be
reclassified as current liabilities and, thus, created the net working capital
deficit at June 30, 1997. On a pro forma basis to give effect to the offering
and the application of the net proceeds thereof, pro forma working capital at
June 30, 1997 was $9,835,000.

The Company's capital requirements for its continuing operations consist of
its general working capital needs, scheduled principal payments on its debt
obligations and capital leases, and planned capital expenditures. The Company
anticipates that its net working capital requirement will increase by
approximately $1 million during 1997 due to internal growth of its business.

Capital expenditures for 1997 are budgeted at approximately $3.9 million. Of
this amount, approximately $1.9 million is budgeted to be invested in the NOW
operations on heavy equipment and expenditures related to the relocation of the
Company's headquarters and other operating offices. The remaining amount is
budgeted to be invested in the Company's NCW operations to increase capacity and
comply with regulatory requirements. The Company plans to use a portion of the
net proceeds of this offering to fund budgeted capital expenditures. See "Use of
Proceeds."

At June 30, 1997, the Company had established a $2.5 million reserve to
provide for the cost of future closures of landfarms. The amount of this
unfunded reserve is based on the estimated total cost to the Company of closing
the facilities as calculated in accordance with the applicable regulations.
Applicable regulatory agencies require the Company to post financial assurance
with the agencies to assure that all waste will be treated and the facilities
closed appropriately. The Company has in place a total of $4 million of
financial assurance in the form of a letter of credit and bonds.

The Company believes that the proceeds from this offering and the cash flow
which is expected to be generated by operations will be sufficient to provide
the Company's capital requirements for continuing operations for at least the
next 12 months.

The Company also plans to pursue acquisitions of businesses in the
nonhazardous liquid waste industry, and expects to use a portion of the proceeds
of this offering for such future acquisitions. It is anticipated that additional
capital may be required to pursue the Company's acquisition strategy and,
therefore, following the completion of this offering, the Company intends to
seek a line of credit for general working capital purposes and to finance, in
whole or in part, future acquisitions. Any such line of credit must comply with
the Company's agreements with Sanifill. See "Certain Transactions--Campbell
Wells Acquisition." In addition, there can be no assurance that the Company will
be able to obtain such a line of credit on terms reasonably acceptable to the
Company.

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BUSINESS

The Company was organized in November 1996 to become a leading national
provider of services for the treatment, processing, recovery and disposal of
nonhazardous liquid wastes, including NCW and NOW. On December 13, 1996, the
Company acquired from Campbell Wells certain assets used in the treatment and
disposal of NOW and naturally occurring radioactive material ("NORM") generated
in the exploration for and production of oil and natural gas. In January 1997,
the Company ceased accepting NORM for treatment and disposal. On June 16, 1997,
the Company implemented a one for two reverse split of its Common Stock. On June
17, 1997, the Company acquired all of the issued and outstanding stock of each
of the Mesa Companies and AWW in exchange for an aggregate of 1,700,000 shares
of Common Stock. The acquisitions of each of the Mesa Companies and AWW were
accounted for under the pooling-of-interests method of accounting.

The Company's executive offices are located at 411 N. Sam Houston Parkway
East, Suite 400, Houston, Texas 77060-3545, and its telephone number is (281)
272-4500.

THE NONHAZARDOUS LIQUID WASTE INDUSTRY

GENERAL. The Company is engaged in two areas of the industrial and
commercial wastewater segment of the nonhazardous liquid waste industry: the
treatment and disposal of NCW, including the processing of NCW to recover
finished products, and the treatment and disposal of NOW generated in the
exploration for and production of oil and natural gas. Through its NCW
facilities located throughout Texas, the Company processes used cooking oil and
other food processing residuals to recover medium-grade fats and oils. In
addition, the Company receives fees to collect, process and dispose of other
NCW. The Company also manages, treats and disposes of NOW, which consists
primarily of oil, grease, chlorides and heavy metals found in oil-based and
water-based drilling fluids, as well as cuttings, saltwater, workover completion
fluids, production pit sludges and soil containing these materials.

NONHAZARDOUS COMMERCIAL WASTE ("NCW"). The Company operates five NCW
facilities which process used cooking oil and other food processing residuals
received from restaurants, meat processors, other food processors, grocery
stores and other generators to recover finished products consisting of fats,
oils and feed proteins which are sold for use as ingredients in livestock feed
and chemicals. In addition, the Company receives fees to collect and process NCW
such as grease trap waste (from which the Company also produces low-grade fats,
oils and feed proteins for sale) from restaurants and other food manufacturing
and preparation facilities, grit trap waste from car washes and other types of
industrial wastewaters. The Company operates a fleet of vehicles to collect NCW
directly from over 6,000 NCW generators and also receives NCW from independent
transporters servicing thousands of additional generators. In October 1996, the
Company began construction in Fort Worth of a sixth NCW facility which is
expected to begin production in September 1997. Two of the five existing NCW
facilities also treat and dispose of grease trap waste, and one of these two
facilities also treats and disposes of grit trap waste, oil-contaminated water
and other NCW.

The Company's NCW operations benefit from federal, state and local
regulations prohibiting the disposal of used cooking oil, grease and grit trap
waste and other NCW in municipal collection and treatment systems. Although
restaurants and other food manufacturing and preparation facilities, car washes
and other industrial operations have produced NCW for years, regulations
governing the management of NCW, and the enforcement of such regulations, have
become increasingly stringent. For example, effective as of October 1993,
Subtitle D of RCRA banned the disposal of untreated bulk liquid wastes in
landfills.

State and local regulations also have a significant impact on generators of
grease and grit trap waste and other NCW. For example, effective in March 1997,
the Texas Natural Resource Conservation Commission (the "TNRCC") implemented
state-wide "full pump" regulations requiring 100% evacuation of all grease and
grit traps and proper disposal of the full volume of each trap. The state-wide
"full pump" regulations, together with a similar "full pump" ordinance
implemented by the City of Houston in

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April 1997, have increased demand for the services provided by the Company's NCW
treatment facility in Houston and are expected to create opportunities for
receipt of NCW from markets other than the major metropolitan areas in which the
Company currently operates. Similar regulations had previously been in effect in
the Dallas/Fort Worth area. The failure of governmental authorities to enforce
such "full pump" regulations and ordinances could, however, diminish the demand
for the Company's NCW treatment and disposal services.

NONHAZARDOUS OILFIELD WASTE ("NOW"). The Company treats and disposes of NOW
at five landfarming and landfilling facilities located in Louisiana and Texas.
During 1996, these facilities treated and disposed of approximately 3.4 million
barrels of NOW. Through the processes described in "Operations and Services
Provided-NOW" below, the Company treats NOW to below prescribed regulatory
levels and then transports the resulting material to on-site stockpile areas for
storage.

The market for NOW treatment and disposal results from waste produced in the
drilling and production of oil and gas wells and governmental regulations
governing its treatment and disposal. Louisiana, Texas and certain other oil and
gas producing states have enacted comprehensive laws and regulations governing
the proper management of NOW. Under Louisiana and Texas regulations, if NOW
cannot be treated for discharge or disposed of at the well where it is
generated, it must be transported to a licensed NOW treatment or disposal
facility. There are three primary alternatives for off-site treatment and
disposal of NOW available to generators in the Gulf Coast: (i) landfarming and
landfilling services, which the Company provides; (ii) underground injection;
and (iii) processing and conversion of the NOW into a reuse product. In
addition, federal regulations restrict, and in some cases prohibit entirely, the
discharge of NOW into U.S. waters. Consequently, many operators of exploration
and production facilities, including major and independent oil companies, are
retaining third parties such as the Company to manage their NOW on an ongoing
basis. See "Risk Factors--Dependence Upon NOW Exemption Under RCRA and Other
Environmental Regulations" and "--Dependence on Oil and Gas Industry."

The Company believes that market conditions in the Gulf Coast NOW disposal
market are positive for the following reasons. First, offshore drilling, which
currently generates a substantial portion of the NOW delivered to the Company,
is strong. The Company estimates that over 95% of NOW is generated from drilling
operations. Second, the number of wells drilled to depths in excess of 15,000
feet has steadily increased in the Gulf of Mexico and inland over the past
several years. The Company believes that the drilling of deeper wells benefits
the NOW disposal market due to larger volumes and complexities of drilling
fluids used and the additional cuttings generated. Finally, the Company believes
that, as federal and state regulations governing the disposal of NOW are further
tightened, a greater percentage of NOW will be transported from well sites for
treatment and disposal, thereby increasing the overall market. For example,
effective as of January 1, 1997, federal regulations prohibit the discharge of
any NOW in the coastal zone of the Gulf of Mexico (generally including inland
waters and transition zone onshore areas). In addition, in September 1996, the
comment period expired for proposed EPA zero-discharge regulations for the
territorial seas of Louisiana and Texas (I.E., beginning at the line of ordinary
low water along the part of the coast that is in direct contact with the open
sea and extending three nautical miles). Final regulations are expected to be
promulgated in late 1997 or early 1998. See "--Regulatory Background."

Under the terms of its agreements with Newpark, the Company is contractually
prohibited from accepting from anyone other than Newpark NOW generated in the
Gulf of Mexico and certain other areas and receives for NOW delivered by Newpark
a price per barrel less than the open market price. However, each year, the
Company is contractually entitled to receive from Newpark not less than the
lesser of (i) one-third of the barrels of NOW that Newpark receives for
processing and disposal in Louisiana, Texas, Mississippi, Alabama and the Gulf
of Mexico, and (ii) 1,850,000 barrels of NOW, in each case excluding saltwater.
Because Newpark is obligated to deliver no more than 1,850,000 barrels to the
Company no matter how large the offshore NOW market (or Newpark's share of it
is), the ability of the Company to participate in any substantial growth of the
offshore NOW market may be limited. However, growth or stability in the offshore
NOW market would increase the likelihood that the Company will receive at least
1,850,000 barrels of NOW annually from Newpark. See "Certain
Transactions--Newpark Agreements."

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<PAGE>
The Disposal Agreement does not restrict the Company's ability to receive
inland-generated NOW that is delivered to the Company's landfarms from the
generation site by land transportation. Land-based drilling activity in Texas
and Louisiana continues to be strong. In addition, inland markets are also
experiencing the trend towards deeper wells, which generate greater volumes and
complexities of NOW. Because the Company is currently receiving a higher price
per barrel (and higher profit margins) from NOW generated onshore than NOW
generated offshore and because of the contractual prohibitions in the Disposal
Agreement, the Company intends to focus its marketing efforts towards inland
generators of NOW.

The Company expects that its NOW operations will expand through growth of
existing operations and, potentially, expansion into new geographic areas. The
Company believes that other NOW treatment and disposal opportunities exist in
other regions of the United States, particularly in those states with
significant oil and gas exploration activity.

STRATEGY

The Company plans to become a leading national provider of services for the
treatment, processing, recovery and disposal of NCW and NOW by expanding through
acquisitions and continued internal growth.

ACQUISITIONS. The Company believes the NCW industry is highly fragmented.
As a result, the Company believes that it has a significant opportunity to
implement an acquisition strategy that consolidates the industry. The Company
anticipates that acquisition candidates in the NCW markets will typically have
annual revenues ranging from $1 million to $10 million. The key elements of the
Company's acquisition strategy are:

ENTER NEW GEOGRAPHIC MARKETS. In new markets, the Company intends to
target one or more leading local or regional companies providing NCW
treatment, processing, recovery and disposal services. The Company will seek
acquisition targets that have the customer base, technical skills and
infrastructure necessary to be a core business into which other NCW
operations can be consolidated.

EXPAND WITHIN MARKETS. Once the Company has entered a market, it will
seek to expand its market penetration and range of services offered through
"tuck-in" acquisitions of other local companies, whose operations can be
integrated into an existing Company operation or expanded to provide
additional NCW services.

ACQUIRE COMPLEMENTARY BUSINESSES. The Company will focus on its
traditional markets in the NCW treatment, processing, recovery and disposal
business and may acquire companies providing complementary services to the
same customer base, such as biosolids management and rendering businesses.
This will enable the Company to offer its customers comprehensive, single
source NCW treatment, processing, recovery and disposal services in certain
markets.

In addition, the Company may seek to acquire other NOW landfarms and
landfills, as well as environmental service businesses providing complementary
services to its NOW customers, such as the cleaning and rental of containers
used to store and transport NOW. The Company's ability to expand its NOW
operations is limited, however, by the Company's contractual arrangements with
Newpark. See "Risk Factors--Dependence on Newpark for Offshore-Generated NOW;
Covenant Not to Compete; and Obligation to Treat NOW Received from Newpark at
Below-Market Prices."

The Company believes it will be regarded by certain acquisition candidates
as an attractive acquiror because of: (i) the Company's strategy for creating a
national, comprehensive and professionally managed nonhazardous liquid waste
company, which capitalizes on cross-marketing and business development
opportunities; (ii) the Company's increased visibility and access to financial
resources as a public company; (iii) the potential for owners of the businesses
being acquired to participate in the Company's planned internal growth and
growth through acquisitions, while realizing liquidity; and (iv) the Company's
management team which includes individuals with successful track records
operating businesses in the waste management industry and acquiring new
businesses. See "Risk Factors--Risks Related to the Company's Acquisition
Strategy."

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<PAGE>
After the completion of this offering, the Company intends to register
3,000,000 additional shares of Common Stock under the Securities Act for use in
connection with future acquisitions. See "Description of Securities--Shares
Eligible for Future Sale." After the completion of this offering, the Company
also intends to seek a line of credit to be used for future acquisitions and
working capital. There can be no assurance, however, that such a line of credit
can be obtained. In addition, any debt instruments issued in making acquisitions
and any borrowings made under any such line of credit (and any preacquisition
debt owed by acquired companies) must be within the limits permitted by the
Company's note agreement with Sanifill. See "Certain Transactions--Campbell
Wells Acquisition." The Company currently has no agreements or understandings to
make any acquisitions.

INTERNAL GROWTH. A key component of the Company's strategy is to continue
the internal growth of its existing operations and subsequently acquired
businesses. The elements of the Company's internal growth strategy include:

ESTABLISH REPUTATION AS SINGLE SOURCE PROVIDER. The Company believes
there are a number of restaurant chains which would prefer to have a single
source provider for the collection, treatment and disposal of grease trap
wastes and used cooking oils, but are unable to do so because the NCW
treatment industry is fragmented. Similarly, opportunities exist in the grit
trap market for multi-unit car wash owners. The Company intends to market
itself as a multi-city, single source provider for such restaurant chains
and multi-unit car wash owners.

CAPITALIZE ON TRENDS TOWARDS OUTSOURCING AND PRIVATIZATION. In response
to Subtitle D of RCRA, some municipalities began accepting certain types of
NCW at their wastewater treatment plants because local generators were no
longer allowed to dispose of their NCW at landfills. As private market
alternatives have become available, some of those municipalities are again
refusing to accept NCW for treatment and disposal at their main treatment
plants. As a result, opportunities may exist for the Company to develop
separate NCW treatment facilities in cooperation with municipalities.
Likewise, companies in the private sector are increasingly recognizing the
need to engage third parties such as the Company to handle their NCW on an
ongoing basis.

INCREASE INLAND NOW BUSINESS. Because of the Company's contractual
arrangements with Newpark which limit the Company's offshore activities as
well as the price paid to it by Newpark per barrel of NOW treated and
disposed, but which guarantee the Company a substantial volume of offshore
NOW, the Company intends to focus its marketing efforts towards inland
generators of NOW. See "Certain Transactions--Newpark Agreements." The
Company believes that focusing its marketing efforts in this manner will
increase the total amount of NOW that is delivered to the Company for
treatment and disposal.

Further, the Company believes that there is a substantial amount of NOW
stockpiled in onshore surface pits. The Company currently estimates that
less than one million barrels of such stockpiled NOW is treated each year
and that such amount would grow substantially if state regulations requiring
remediation of these onshore surface pits are further tightened and
enforced. See "Risk Factors-- Absence of Combined Operating History" and
"--Reliance on Key Personnel; Management of Growth" and
"Business--Regulatory Background--State and Local Regulations."

See "Risk Factors--Risks Related to Operating and Internal Growth Strategy."

OPERATIONS AND SERVICES PROVIDED

The Company provides a range of services for the treatment, processing,
recovery and disposal of NCW and NOW and, as part of its NCW treatment and
processing operations, the Company manufactures

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<PAGE>
finished products which are sold primarily to producers of livestock feed and
chemicals in Mexico for use as ingredients in such products.

NCW

FINISHED PRODUCTS. The Company processes used cooking oil and other food
processing residuals received from restaurants, meat processors, other food
processors, grocery stores and other generators, as well as lower-grade
materials recovered from its treatment of grease trap waste, to produce finished
products. The Company sells these finished products almost exclusively in Mexico
to producers of livestock feed and chemicals.

The Company believes that the primary constraint in its finished product
operations is its ability to procure used cooking oil and other food processing
residuals which are used in the production of finished products. Such used
cooking oil and other food processing residuals are collected in one of the
following three manners:

- COMPANY ROUTES: Company drivers service clients on pre-established
routes. These clients are secured through the Company's sales staff and
agreements are entered into whereby the Company agrees to pick up the
materials at the clients' facilities. In most cases, clients are paid per
pound of material collected. The Company currently collects used cooking
oil from approximately 6,000 restaurants.

- THIRD PARTY TRANSPORTERS: The Company purchases used cooking oil and
other food processing residuals from third parties that acquire such
materials from clients and routes serviced by them.

- BULK PURCHASES: The Company purchases used cooking oil and other food
processing residuals in bulk as needed. Such bulk purchases are typically
made in tanker and railcar size loads and are shipped directly to the
Company's Laredo plant for mixing and/or refining.

Used cooking oil is deposited by clients into containers supplied by the
Company. The contents of these containers are then loaded by Company drivers
onto trucks. The frequency of service is determined by the volume of used
cooking oil generated by the client's establishment. After delivery to Company
facilities, the used cooking oil is processed by heating, settling and treating,
as well as by refining and mixing. The finished products are fats, oils and feed
proteins of various grades. Grease trap waste is processed in a similar manner
to produce lower-grade finished products.

The Company's finished products are commodities, the prices of which are
reported by commodities pricing services. While the Company's prices for its
finished products are generally influenced by reported prices, historically the
Company has generally been able to achieve above-average prices due to
particular supply/demand dynamics. There can be no assurance, however, that
sales of finished products in Mexico will continue to generate higher prices
than if the products were sold elsewhere. See "Risk Factors-- Impact of
Commodity Prices."

The Company's finished products are distributed by truck/tanker-trailers
from the various processing facilities to Laredo for mixing and final
preparation. The finished products are then distributed to customers by truck
and/or rail from Laredo.

CUSTOMERS. The Company's customers for its finished products are almost
exclusively producers of livestock feed and various chemicals located in Mexico.
Sales of finished products to customers in Mexico represented approximately 80%,
82% and 70% of total revenues, and approximately 28%, 35% and 32% of total pro
forma revenues, for the years ended December 31, 1994, 1995 and 1996,
respectively. Sales to Bachoco represented approximately 52%, 62% and 43% of
total revenues, and approximately 18%, 26% and 20% of total pro forma revenues,
for such years. Marketing activities are conducted through the Company's
marketing department in Fort Worth. The Company obtains payment protection for
most foreign sales by requiring letters of credit issued or guaranteed by U.S.
banks. The Company invoices in U.S. dollars in order to avoid currency exchange
losses or foreign exchange control difficulties. See "Risk Factors--Foreign
Sales," "--Concentration of Customers," and "--Concentration of Credit Risks."

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<PAGE>
TREATMENT AND DISPOSAL OPERATIONS. At its Dallas facility and one of its
Houston facilities, the Company treats and disposes of NCW generated by various
types of businesses. Revenues are earned from tipping fees paid by customers.
Grease trap waste from restaurants and other food manufacturing and preparation
facilities, grit trap waste from car washes and other types of NCW are
transported to the Company's facilities in vacuum trucks, trailers and other
transportable containers. The Company operates a fleet of vehicles to service
grease traps in the Dallas/Fort Worth area. In this market, the Company has both
regular and call-in customers that pay for the Company to service their grease
traps. In the Houston metropolitan area, other than used cooking oil, the
Company does not collect any NCW for processing. Accordingly, its customers in
this area are typically independent transporters that collect NCW from their own
customers and deliver the NCW to the Company for treatment and disposal.

Using a variety of physical, chemical, thermal and biological techniques,
the NCW is broken down into constituent components. At the Company's facilities,
water extracted from the NCW is pretreated and then discharged into the
municipal sanitary sewer system, recyclables, such as recovered greases, are
transported to one of the Company's cooking oil processing facilities for use in
producing lower-grade fats, oils and feed proteins, and solid materials are
dried and disposed of in a solid waste landfill.

The Company's NCW treatment facilities are designed to treat and dispose of
NCW that cannot be lawfully deposited into municipal collection and treatment
systems. The Company's Dallas facility is the only grease and grit trap waste
processing facility in Texas which also has the required regulatory approvals
from the Texas Health Department for operation as a used cooking oil rendering
facility. One of the Company's Houston facilities is the only grease and grit
trap waste processing facility in the Houston area which also accepts
nonhazardous industrial waste.

NOW

At its five NOW facilities located in Louisana and Texas, the Company treats
and disposes of NOW that is generated in the exploration for and production of
oil and natural gas. NOW consists primarily of oil, grease, chlorides and heavy
metals found in oil-based and water-based drilling fluids, as well as cuttings,
saltwater, workover and completion fluids, production pit sludges and soil
containing these materials.

Landfarming involves six distinct stages. NOW is brought to the Company's
facilities in trucks and on barges and the delivered waste materials are then
tested. Materials which do not qualify as permitted NOW in accordance with
applicable state regulations are rejected. Accepted NOW is then loaded into
treatment cells at the rate of approximately 15,000 barrels per acre. This
loading process creates a layer of NOW approximately two feet thick across the
treatment cell. Next, the treatment cell is flooded with fresh water and mixed
to dissolve salts and soluble materials. Saltwater is then pumped out through a
collection system and typically disposed of at a saltwater injection well
on-site. This flooding process is typically repeated several times. The NOW is
then processed to remove organic contamination through biological degradation.
The treatment cells are periodically agitated to ensure that the microbes
receive sufficient oxygen, sunlight and water. Total treatment of a cell takes
approximately nine to twelve months. In the final stage, the remaining material
is tested to ensure compliance with regulatory requirements. Thereafter, the
material is transported to on-site stockpile areas for storage.

In connection with the Campbell Wells Acquisition, Sanifill assigned to the
Company its rights and obligations under the Disposal Agreement between Sanifill
and Newpark. Pursuant to the terms of the Disposal Agreement, through June 30,
2021, Newpark is obligated to deliver to the Company on an annual basis for
treatment and disposal at certain of its Louisiana landfarms the lesser of (i)
one-third of the barrels of NOW that Newpark receives for processing and
disposal in Louisiana, Texas, Mississippi, Alabama and the Gulf of Mexico and
(ii) 1,850,000 barrels of NOW, in each case excluding saltwater. The Disposal
Agreement also governs the price to be paid by Newpark to the Company for
delivered NOW. The contractual price is lower than the price for treatment and
disposal that the Company would obtain in the open market, and the Company
expects such price disparity to persist for an indefinite time period.
Currently, Newpark is paying to the Company $5.50 for each barrel of NOW
delivered to the Company under the Disposal Agreement. On June 30, 1998 and on
each subsequent December 31st and June 30th

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occurring during the term of the Disposal Agreement, the per barrel price to be
paid by Newpark to the Company will be adjusted. Adjustments are made based upon
changes occurring in the average prices received by Newpark from customers for
NOW treatment and disposal and other related services performed by Newpark
during the six-month period ending on the applicable adjustment date compared,
on a percentage basis, to the average prices received by Newpark from customers
for such disposal and services during the six-month period commencing 12 months
prior to such adjustment date and concluding six months prior to such adjustment
date. The adjusted price will be applied retroactively to all invoices received
by Newpark from the Company during the six-month period preceding the applicable
adjustment date. In no event, however, will the price paid by Newpark to the
Company be less than $5.50 per barrel. For a more thorough summary of the
Disposal Agreement and related transactions, see "Certain Transactions--Newpark
Agreements." See also "Risk Factors--Dependence on Newpark for Offshore-
Generated NOW; Covenant Not to Compete; and Obligation to Treat NOW Received
from Newpark at Below-Market Prices."

In addition to NOW received from Newpark (which is primarily
offshore-generated NOW), the Company receives NOW generated on land within
Louisiana and Texas. Due to its contractual arrangements with Newpark which
limit the Company's offshore activities as well as the lower price per barrel
paid to the Company by Newpark, the Company intends to concentrate its marketing
efforts towards inland generators of NOW. The Company believes that this
strategy will increase the total amount of NOW that is delivered to the Company
for treatment and disposal.

All of the Company's landfarms (except Elm Grove, Louisiana) have water
access, a key factor enabling barge transport of the NOW and reducing
transportation costs. As part of the Company's predecessor's contractual
arrangements with Newpark, however, the dock facilities at the Company's other
three Louisiana landfarms have been leased to Newpark until August 31, 2021.

The Company's Bustamonte, Texas facility generally accepts inland-generated
NOW generated within a radius of 150 miles. The Bustamonte facility uses a
combination of landfarming and landfilling, due primarily to the dry climate in
South Texas. The treatment process used is similar to Louisiana landfarming
although the NOW is dispersed and dried, rather than flushed with fresh water,
prior to stockpiling in on-site, synthetically-lined landfilled areas.

COMPETITION

NCW. In its NCW operations, the Company must compete for the procurement of
used cooking oil and other food processing residuals necessary to manufacture
its finished products. The limited availability of these higher-grade raw
materials causes competition among processors who bid for suppliers' materials.
The amount of used cooking oil and other food processing residuals processed
directly affects the amount of finished goods produced.

The Company purchases used cooking oil and other food processing residuals
utilized to process its finished products from clients on pre-established
routes, independent transporters and in bulk. A number of companies, some of
which have substantially greater resources than the Company, compete for such
materials through purchases from independent transporters and direct purchases
from restaurants. Because the Company competes with independent transporters in
some markets with respect to the collection of these materials, some independent
transporters may be reluctant to deliver collected materials to the Company for
processing.

The Company also competes in the sale of finished products with other
processors of used cooking oil, as well as with producers of other alternative
commodities. However, few competitors have established a customer base in Mexico
due to, among other things, the complexity of shipments across the border, lack
of long-term business relationships in Mexico, and the uncertainty of the
Mexican economy. In addition, there are inadequate supplies of fats and oils
available to Mexican customers from Mexican suppliers. Companies affiliated with
Thomas B. Blanton, the Company's Vice President--NCW Operations, have been
conducting business in Mexico for over 20 years and have several long-time
customers. Competition

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for sales of finished products to the Company's Mexican customers can be
expected to increase. There can be no assurance, however, that the Company will
be able to continue to export most of its finished products to Mexico or
continue to receive higher prices from sales to Mexican customers than would be
available from U.S. customers. See "Risk Factors--Foreign Sales."

The Company has also developed proprietary products that have been used by
its customers as substitutes for other more expensive products previously used
as ingredients in goods produced by such customers. The Company believes that
these proprietary products provide it a competitive edge over competitors in the
sale of certain finished products.

The business of treating and disposing of NCW such as grease and grit trap
waste in the Texas market is also competitive and fragmented. Competitors in
this market compete primarily on the basis of proximity to collection
operations, tipping fees charged and quality of service. Area landfills operated
by large national waste management companies accept grease trap and grit trap
waste materials. In addition, with respect to the grease trap business, several
privately owned companies in the Houston market collect and treat grease trap
waste materials.

Competition in the grease trap business in the Dallas/Fort Worth area exists
primarily from two NCW treatment facilities, one of which is owned by a national
waste management company with established pick-up routes.

Competition for nonhazardous liquids classified by the TNRCC as Class I and
Class II nonhazardous liquids such as tank wash water is more diversified than
is the case with other waste streams. Area landfills accept both Class I and
Class II liquids for disposal. Additional competition for NCW treatment and
disposal is provided by local recycling companies and a number of injection
wells.

In addition to present competition, other companies with significantly
greater capital and other resources than the Company that do not currently
operate NCW treatment facilities may enter this area of the industry.

See "Risk Factors--Competition."

NOW. The Company estimates that over 90% of NOW generated in the Gulf Coast
region is processed or disposed of on-site by the generators of the NOW or by
independent third parties. The Company does not provide any NOW treatment or
disposal services at the well-site. Under state regulations, if NOW cannot be
treated for discharge or disposed at the well where it is generated, it must be
transported to a licensed NOW disposal or treatment facility. There are three
primary alternatives for off-site treatment and disposal of NOW available to
generators in the Gulf Coast: (i) landfarming and landfilling services, which
the Company provides; (ii) underground injection; and (iii) processing and
conversion of the NOW into a reuse product. In the geographic market served by
the Company, there are over 100 permitted commercial facilities including
landfarms, landfills and injection facilities authorized to treat and dispose of
NOW.

Since August 1996, Newpark has controlled substantially all of the market in
the Gulf Coast for offshore, off-site NOW disposal, certain of which is directed
to the Company in order for Newpark to fulfill its obligations to the Company
under the Disposal Agreement. Due to its contractual arrangements with Newpark,
the Company is prohibited from, among other things, competing with Newpark for
the collection or disposal of NOW generated in a marine environment or
transported in marine vessels within Louisiana, Texas, Mississippi, Alabama and
the Gulf of Mexico. This prohibition expires on August 12, 2001. See "Certain
Transactions--Newpark Agreements."

In addition to present competition in the Gulf Coast region, one or more
third parties could establish additional transfer stations along the Gulf Coast
to accept NOW for transport to an existing or newly constructed commercial
disposal facility. Since January 1, 1997, a third party has filed notice of its
intent to apply for the permits and licenses necessary to establish three such
transfer stations. To the extent any such

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transfer stations, individually or in the aggregate, diverted substantial
amounts of offshore generated NOW from Newpark, the amount of NOW ultimately
delivered to the Company could be reduced.

Newpark is also a competitor with respect to NOW produced inland in the Gulf
Coast region. The Company competes for inland-generated NOW with a number of
smaller companies which treat and dispose of NOW in landfarm operations,
landfills and injection wells, and with one company which de-waters NOW and
disposes of the residual sludge in a landfill. Although complete information
regarding market share for inland-generated NOW is not available, the Company
estimates that it receives a substantial percentage of all NOW generated inland
in Louisiana and Texas that is treated off-site by third parties, excluding
saltwater.

The Company believes that there are certain barriers to entry in the
off-site NOW disposal business in the Gulf Coast region. These barriers include
formalized procedures for customer acceptance, licenses, permits, and the need
for specially equipped facilities and trained personnel.

See "Risk Factors--Competition."

REGULATORY BACKGROUND

The Company's business operations are affected both directly and indirectly
by governmental regulations, including various federal and state pollution
control and health and safety programs that are administered and enforced by
regulatory agencies including, without limitation, the EPA, the U.S. Coast
Guard, the U.S. Army Corps of Engineers, the TNRCC, the Texas Department of
Health, the Texas Railroad Commission, the Louisiana Department of Environmental
Quality and the Louisiana Department of Natural Resources. These programs are
applicable or potentially applicable to one or more of the Company's existing
operations. Although the Company intends to make capital expenditures to expand
its NCW and NOW treatment capabilities, the Company believes that it is not
presently required to make material capital expenditures to remain in compliance
with federal, state and local laws and regulations relating to the protection of
the environment. See "Risk Factors--Dependence Upon NOW Exemption Under RCRA and
Other Environmental Regulations" and "--Failure To Comply with Governmental
Regulations."

RCRA. RCRA is the principal federal statute governing hazardous and solid
waste generation, treatment, storage and disposal. The Company's Louisiana and
Texas landfarms treat and dispose of NOW, which is exempt from classification as
a RCRA-regulated waste.

At various times in the past, proposals have been made to rescind the
exemption that excludes NOW from regulation under RCRA. The appeal or
modification of this exemption by administrative, legislative or judicial
process would require the Company to change significantly its method of doing
business and would have a material adverse effect on the Company's business,
financial condition and results of operations. There is no assurance that the
Company would have the capital resources available to do so, or that it would be
able to adapt its operations. See "Risk Factors--Failure to Comply with
Governmental Regulations."

In addition to its positive impact on the Company's NOW operations, RCRA
also indirectly affects the Company's operations at its NCW treatment facilities
by prohibiting, among other things, the disposal of certain liquid wastes in
landfills. This prohibition increases demand for the services provided by the
Company's NCW treatment facilities.

CERCLA. The Comprehensive Environmental Response, Compensation and
Liability Act, as amended in 1986 ("CERCLA"), provides for immediate response
and removal actions coordinated by the EPA for releases of hazardous substances
into the environment and authorizes the government, or private parties, to
respond to the release or threatened release of hazardous substances. The
government may also order persons responsible for the release to perform any
necessary cleanup. Liability extends to the present owners and operators of
waste disposal facilities from which a release occurs, persons who owned or
operated such facilities at the time the hazardous substances were released,
persons who arranged for

34
<PAGE>
disposal or treatment of hazardous substances and waste transporters who
selected such facilities for treatment or disposal of hazardous substances.
CERCLA has been interpreted to create strict, joint and several liability for
the cost of removal and remediation, other necessary response costs and damages
for injury to natural resources.

Despite the current exemption of NOW under RCRA, if the Company's operations
resulted in the release of hazardous substances, the Company could incur CERCLA
liability. Although the Company is not aware of any such event, it (or AWW, the
Mesa Companies or Campbell Wells) may have disposed or arranged for disposal of
hazardous substances that could result in the imposition of CERCLA liability on
the Company in the future. In addition, the Company would incur CERCLA liability
if any hazardous substances at the Company's facilities leached down into
groundwater.

None of the Company, Campbell Wells, AWW or any of the Mesa Companies has
ever been named by the EPA as a potentially responsible party in any CERCLA
action, and the Company does not believe that there is any basis for such a
claim. Nonetheless, the identification of one or more sites at which cleanup
action is required could subject the Company to liabilities which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

THE CLEAN WATER ACT. The Company treats and discharges wastewaters at its
NCW facilities and at its NOW landfarms. These activities are subject to the
requirements of the Clean Water Act and federal and state enforcement of these
regulations. The Clean Water Act regulates the discharge of pollutants,
including NCW and NOW, into waters. The Clean Water Act establishes a system of
standards, permits and enforcement procedures for the discharge of pollutants
from industrial and municipal wastewater sources. The law sets treatment
standards for industries and wastewater treatment plants and provides federal
grants to assist municipalities in complying with the new standards. In addition
to requiring permits for industrial and municipal discharges directly into the
waters of the United States, the Clean Water Act also requires pretreatment of
industrial wastewater before discharge into municipal systems. The Clean Water
Act gives the EPA the authority to set pretreatment limits for direct and
indirect industrial discharges. In addition, the Clean Water Act prohibits
certain discharges of oil or hazardous substances and authorizes the federal
government to remove or arrange for removal of such oil or hazardous substances.
The Clean Water Act also requires the adoption of the National Contingency Plan
to cover removal of such materials. Under the Clean Water Act, the owner or
operator of a vessel or facility may be liable for penalties and costs incurred
by the federal government in responding to a discharge of oil or hazardous
substances.

The Clean Water Act also has a significant impact on the operations of the
Company's customers for NOW services. The EPA Region 6 Outer Continental Shelf
("OCS") permit covering oil and gas operations in federal waters in the Gulf of
Mexico (seaward of the Louisiana and Texas territorial seas) was reissued in
November 1992 and modified in December 1993. This permit imposes stricter
discharge limits on oil and grease concentrations in produced waters to be
discharged. These limits are based on the Best Available Treatment Economically
Available ("BAT") requirements contained in the Oil and Gas Offshore Subcategory
national guidelines which were published March 4, 1993. Additional requirements
include toxicity testing and bioaccumulation monitoring studies of proposed
discharges.

EPA Region 6, which includes the Company's current market, continues to
issue new and amended National Pollution Discharge Elimination System ("NPDES")
general permits further limiting or restricting substantially all discharges of
produced water from the Oil and Gas Extraction Point Source Category into waters
of the United States. These permits include:

- Onshore subcategory permits for Texas, Louisiana, Oklahoma and New Mexico.
These permits completely prohibit the discharge of drilling fluids, drill
cuttings, produced water or sand, and various other oilfield wastes
generated by onshore operations into waters of the U.S. This provision has
the effect of requiring that most oilfield wastes follow established state
disposal programs.

35
<PAGE>
- The OCS permit for the western Gulf of Mexico, covering oil and gas
operations in federal waters (seaward of the Louisiana and Texas
territorial seas).

During September 1996, the period for commenting on proposed EPA
zero-discharge regulations for the territorial seas subcategory of the Gulf of
Mexico expired. Final regulations are expected to be promulgated in late 1997 or
early 1998. Zero-discharge regulations in the coastal zone (generally including
inland waters and transition zone onshore areas) became effective January 1,
1997. The combined effect of all these regulations will closely approach a "zero
discharge" standard affecting all waters except those of the OCS.

STATE AND LOCAL REGULATIONS. Order 29-B of the Louisiana Department of
Natural Resources contains extensive rules regarding the generation, treatment,
storage, transportation and disposal of NOW. Under Order 29-B, on-site disposal
of NOW is limited and subject to stringent guidelines. If these guidelines
cannot be met, NOW must be transported and disposed of off-site in accordance
with the provisions of Order 29-B. Moreover, under Order 29-B, most, if not all,
active waste pits (a typical on-site disposal method used by inland generators
of NOW) must be closed or modified to meet regulatory standards; however, full
enforcement of this portion of Order 29-B has been deferred. Rule 8 of the Texas
Railroad Commission also contains detailed requirements for the management and
disposal of NOW. Permits issued by state regulatory agencies are required for
each NOW treatment facility operating within Louisiana and Texas. The Company
must perform tests before acceptance of any NOW, as well as during and after
treatment to ensure compliance with all regulatory requirements.

The closure of any of the Company's landfarms is also regulated by state
authorities. In general, closure of a landfarm involves a multi-phase process
whereby all injection wells at the landfarm are plugged and abandoned, all
surface equipment is removed from the site, the treatment cells and perimeter
containment levees are removed and the surface of the site is contoured and
vegetated. Additional regulatory requirements include monitoring the surface
runoff water, the soil pore water and the groundwater for a period of five
years. If, after five years, the water quality meets the requirements specified
in the state regulations, the site is certified as closed.

The Company's NCW treatment facilities are subject to direct regulation by a
variety of state and local authorities. Typically, the Company is required to
obtain processing, wastewater discharge and air quality permits from state and
local authorities to operate its NCW treatment facilities and to comply with
applicable regulations concerning, among other things, the generation and
discharge of odors and wastewater.

The Company also holds hauler permits issued by the TNRCC and a rendering
hauler permit issued under the Texas Rendering License Act. All but one of the
Company's NCW treatment facilities hold permits issued under the Texas Rendering
License Act.

State and local regulations also indirectly affect the Company's operations
at its NCW treatment facilities. "Full-pump" regulations and ordinances adopted
by the TNRCC and the Cities of Dallas, Fort Worth, Houston and San Antonio each
require 100% evacuation of all grease and grit traps and proper disposal of the
full volume of each trap. These regulations are causing many of the generators
of such NCW to retain third parties such as the Company to handle their NCW on
an ongoing basis. See "--The Nonhazardous Liquid Waste Industry."

States and localities into which the Company may expand, by acquisition or
otherwise, may now or in the future have regulations with positive or negative
effects on the Company. It is possible that state or local regulations could
adversely affect the Company's execution of its acquisition strategy. See "Risk
Factors-- Dependence Upon Exemption Under RCRA and Other Environmental
Regulations" and "--Failure to Comply with Governmental Regulations."

PROPERTIES

The Company's corporate offices are located in Houston, Texas. The corporate
offices were relocated from Lafayette, Louisiana in May 1997. The current
corporate offices consist of approximately 6,800 square feet of office space
occupied under a lease which expires on June 1, 2002.

36
<PAGE>
The Company owns and operates five NCW treatment facilities in Texas. The
following table sets forth information relating to the Company's NCW treatment
facilities.

<TABLE>
<CAPTION>
APPROXIMATE
SQUARE OWNED/
LOCATION FOOTAGE PRIMARY USE LEASED
- --------------------------------- ------------- --------------------------------- ----------
<S> <C> <C> <C>
Dallas, Texas.................... 6,000 Treatment and disposal of NCW; Leased(1)
processing and recovery of
finished products
Houston, Texas................... 23,000 Treatment and disposal of NCW; Owned(2)
processing and recovery of
finished products
Houston, Texas................... 5,000 Processing and recovery of Leased(1)
finished products
Los Fresnos, Texas............... 9,000 Processing and recovery of Owned(2)
finished products
San Antonio, Texas............... 5,700 Processing and recovery of Leased(1)
finished products
</TABLE>

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

(1) Each of these properties is owned by Thomas B. Blanton and is being leased
to the Company at no charge until it can be conveyed free of any material
encumbrances to the Company. See "Certain Transactions--Other."

(2) Each of these properties is held subject to a deed of trust.

In October 1996, the Company began construction in Fort Worth of a 14,000
square foot facility for the recovery and processing of finished products. This
new facility is expected to begin production in September 1997. The Company also
owns an administrative office in Fort Worth consisting of approximately 2,000
square feet of office space and a facility located in Laredo, Texas that is used
as a terminal.

The Company operates five NOW treatment facilities in Louisiana and Texas.
The following table sets forth information relating to the Company's NOW
treatment facilities.

<TABLE>
<CAPTION>
AREA PERMITTED
FOR NOW APPROXIMATE SQUARE
TREATMENT AND FOOTAGE OF OFFICE OWNED/
LOCATION DISPOSAL FACILITIES LEASED
- -------------------------------- --------------------- ------------------------- ----------
<S> <C> <C> <C>
Bateman Island, Louisiana....... 115 acres 5,000 Leased(1)
Bourg, Louisiana................ 140 acres 5,000 Leased(2)
Elm Grove, Louisiana............ 152 acres 500 Owned
Mermentau, Louisiana............ 277 acres 10,000 Owned
Bustamonte, Texas............... 120 acres 1,000 Owned
</TABLE>

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

(1) Lease expires in October 1999, with seven three-year renewal options.

(2) Lease expires in January 2000, with seven three-year renewal options.

The Company also owns a facility in Lacassine, Louisiana. This facility
consists of approximately 8,000 square feet of office and equipment storage
space and approximately 130 acres of undeveloped land. A total of 100 acres of
the Lacassine facility is currently permitted for NOW/NORM landfarming; however,
the facility has been used exclusively for the treatment and disposal of NORM.
In January 1997, the Company ceased accepting NORM at the Lacassine facility.
The Company has begun taking the steps necessary to close this facility in
accordance with Louisiana law.

All of the Company's facilities satisfy its present needs; however, as part
of its internal growth strategy, the Company intends to expand the size of
certain of its NCW treatment facilities and increase the number and types of
permitted waste streams and treatment capabilities of such facilities. The
Company believes that the unutilized capacity of each of the leased landfarms is
sufficient for at least 25 years; which, in each case, exceeds the remaining
term (including options) of the lease agreement for such facility. The Company
also believes that the remaining capacity at each of the landfarms owned by the
Company is sufficient for at least 25 years.

37
<PAGE>
LEGAL PROCEEDINGS

In August 1997, one of the Company's subsidiaries was added as a defendant
in a lawsuit originally filed in 1994 against Campbell Wells and others in the
District Court of Jim Wells County, Texas. This dispute arose out of an
application filed by Waste Facilities, Inc. ("WFI"), the operator of a South
Texas NOW treatment facility, to renew its permit to treat NOW. The suit
alleges, among other things, that Campbell Wells and the other defendants
(including the Company's subsidiary) wrongfully interfered with WFI's ongoing
relations with its customers and with WFI's prospective contractual and business
relations. In addition, WFI has alleged that the defendants conspired to
wrongfully restrain trade and interfere with WFI's business. WFI's amended
petition seeks actual and punitive damages from each of the defendants.
Virtually all of the actions complained of by WFI occurred prior to the time
that the Company and the subsidiary involved were organized and, therefore, the
Company believes that the claims asserted against its subsidiary are without
merit.

With the exception of the lawsuit described above, there are no material
pending legal proceedings to which the Company or any of its subsidiaries is a
party. However, prior to the closing of the Campbell Wells Acquisition, several
lawsuits were brought against Campbell Wells based upon the operation of certain
of the Louisiana landfarms purchased by the Company as part of the Campbell
Wells Acquisition.

In one of the lawsuits filed against Campbell Wells, approximately 300
individuals residing in and around Grand Bois, Louisiana are seeking unspecified
monetary damages allegedly suffered as a result of (i) odors allegedly emitted
by NOW received from Exxon Company U.S.A. ("Exxon") at the Bourg, Louisiana
landfarm in March 1994, and (ii) alleged air, water and soil contamination in
connection with ongoing operations at the facility. Trial is set to commence in
this matter on January 20, 1998. A second lawsuit, brought by one individual,
seeks unspecified monetary damages allegedly suffered as a result of odors
allegedly emitted by NOW received from Exxon at the Bourg landfarm in March
1994. The trial date for this lawsuit is also January 20, 1998. A third lawsuit,
filed as a class action, seeks unspecified monetary damages allegedly suffered
as a result of alleged air, water and soil contamination in connection with
ongoing operations at the Mermentau, Louisiana landfarm. No trial date has been
set for this lawsuit. In a fourth lawsuit, six individuals filed suit on March
7, 1996 against Campbell Wells in Louisiana state court, seeking preliminary and
permanent injunctive relief against certain treatment operations conducted at
the Bourg, Louisiana landfarm which the plaintiffs contend have resulted and
will result in adverse health effects by way of emissions of alleged air
pollutants. The plaintiffs' request for a preliminary injunction was heard
during the summer of 1996. On December 30, 1996, the court entered an order
granting in part and denying in part the relief requested by the plaintiffs.
Specifically, the court found that there was no evidence that emissions
resulting from the treatment operations complained of equalled or exceeded any
relevant safety standard, health standard or occupational standard and,
therefore, denied the plaintiffs' request for a temporary injunction prohibiting
such treatment operations. The court did, however, preliminarily enjoin Campbell
Wells (and, thus, indirectly the Company) from treating NOW received from Exxon
Company U.S.A. in March 1994 in one particular treatment cell located within 500
feet of a building in which one of the plaintiffs resides. In connection
therewith, the court ordered that the Commissioner of the Louisiana Department
of Conservation be made a party to the litigation and substituted for the
plaintiffs on the limited issue of whether Campbell Wells has violated the
location criteria for the particular treatment cell involved. No trial date has
been set for the plaintiffs' request for permanent injunctive relief; however,
based upon the court's rulings from the preliminary injunction trial and initial
discussions with the Louisiana Department of Conservation, the Company believes
that any permanent injunctive relief that might be entered against Campbell
Wells will not have a materially adverse effect upon the Company's operations at
the Bourg landfarm.

In the Campbell Wells Acquisition Agreement, Sanifill agreed, with certain
enumerated exceptions, to retain responsibility for all liabilities of Campbell
Wells as of the closing date of the Campbell Wells Acquisition including,
without limitation, the contingent liabilities associated with each of the
above-referenced lawsuits. Sanifill also agreed in the Campbell Wells
Acquisition Agreement to indemnify the Company from and against, among other
things, the contingent liabilities associated with such lawsuits. The obligation
of Sanifill to indemnify the Company is limited to the lesser of the amount of
the unpaid principal of the Sanifill Note and $10 million. As of July 31, 1997,
the outstanding principal balance of the Sanifill Note was $22.2 million. The

38
<PAGE>
SaniFill Note is payable in 20 equal quarterly installments of principal plus
accrued interest, beginning on March 31, 1997 and, therefore, the principal
balance of the Sanifill Note is currently scheduled to be reduced below $10
million on June 30, 2000. Subject to the maximum limitation on Sanifill's
indemnification obligation, the Company is entitled to set off against the
Sanifill Note amounts for which Sanifill becomes obligated to indemnify the
Company under the Campbell Wells Acquisition Agreement. See "Certain
Transactions-- Campbell Wells Acquisition."

The Company believes that the ultimate disposition of the above-referenced
lawsuits will not have a materially adverse effect on the Company's business,
results of operations or financial condition. This belief is based upon, among
other things, the following reasons: (i) the Company is not a defendant in any
of the lawsuits, (ii) Sanifill has agreed to retain responsibility for the
contingent liabilities associated with these lawsuits, (iii) Sanifill has agreed
to indemnify the Company against such contingent liabilities up to the lesser of
the unpaid principal balance of the Sanifill Note and $10 million, (iv) the
Company has been operating the Bourg and Mermentau landfarms only since December
1996, approximately four months after the last of the three lawsuits seeking
monetary damages was originally filed, and (v) the results of air, water and
soil testing conducted in and around the Bourg landfarm by the Louisiana
Department of Health and Hospitals, the Louisiana Department of Natural
Resources and the Louisiana Department of Environmental Quality indicate that
the Company's operations at the landfarms are in compliance with all applicable
rules and regulations. There can be no assurance, however, that the Company will
not subsequently be named as a defendant in one or more of these lawsuits or
that, if named as a defendant, a judgment will not be entered against the
Company in one or more of these lawsuits. In the event the Company is
subsequently added as a defendant in any of these lawsuits, a monetary judgment
is entered against the Company and Sanifill is not required or is unable to
completely indemnify the Company against such judgment, the Company's business,
results of operations and financial condition could be materially adversely
affected. In addition, notwithstanding any indemnification to be provided by
Sanifill, an adverse ruling against the Company (if it is subsequently added as
a defendant) in the lawsuit seeking injunctive relief could materially adversely
affect the Company's operations at the Bourg landfarm (which operations
contributed 19.8% of the Company's pro forma revenues for the year ended
December 31, 1996 and 13.7% of the Company's actual revenues for the first six
months of 1997) and, therefore, the Company's business, results of operations
and financial condition.

The Company believes that the nature of the NOW business makes it
susceptible to claims such as those described above, and that its NCW business
will also be susceptible to similar claims. In addition, the Company expects to
become subject to various kinds of litigation, including claims for personal
injuries to employees and other persons in proximity to the Company's
operations, in the ordinary course of its business. See "Risk Factors--Potential
Impact of Adverse Media Publicity Regarding the Company's NOW Operations."

EMPLOYEES

At July 31, 1997, the Company employed approximately 200 persons full-time.
Neither the Company nor any of its subsidiaries is a party to any collective
bargaining agreement covering its employees. The Company believes that its
relationships with its employees are satisfactory.

INSURANCE

The Company maintains various types of insurance coverage for its operations
including, without limitation, commercial general liability, commercial
automobile liability, workers' compensation and employers' liability, pollution
legal liability, commercial marine terminal operators liability, directors and
officers liability and property and casualty insurance. In addition, the Company
maintains business interruption insurance on its NCW operations. The Company
believes that the types and amounts of insurance maintained are consistent with
customary practices and standards of companies engaged in similar businesses.
See "Risk Factors-- Adequacy of Liability Insurance."

39
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the directors,
executive officers and significant employees of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Michael P. Lawlor(1)................................. 58 Chairman of the Board of Directors and Chief
Executive Officer*

W. Gregory Orr(1).................................... 42 Director, President and Chief Operating Officer

Earl J. Blackwell.................................... 55 Chief Financial Officer, Senior Vice
President--Finance and Secretary

Thomas B. Blanton(2)................................. 50 Director and Vice President--NCW Operations

Sammy L. Cooper...................................... 41 Vice President--NOW Operations

William H. Wilson, Jr................................ 38 Chief Executive Officer of AWW

Jerry L. Brazzel..................................... 51 Environmental Compliance Manager

William A. Rothrock IV(2)(4)(5)...................... 45 Director

Alfred Tyler 2nd(3)(4)(5)............................ 54 Director
</TABLE>

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

(1) Term on Board expires in 2000.

(2) Term on Board expires in 1999.

(3) Term on Board expires in 1998.

(4) Member of Audit Committee.

(5) Member of Compensation Committee.

The following is a brief account of the principal occupation and business
experience of each director, officer and significant employee of the Company.

*MICHAEL P. LAWLOR will, simultaneous with the effective date of this
offering, assume the position of Chairman of the Board and Chief Executive
Officer of the Company. From March 1996 to present, Mr. Lawlor has been a
private investor. Mr. Lawlor has 30 years of experience in the environmental
services industry. From December 1992 to March 1996, Mr. Lawlor was Chief
Executive Officer and a director of ITEQ, Inc. f/k/a Air-Cure Technologies,
Inc., a manufacturer of air treatment and air moving and process systems,
equipment and components. From 1970 to 1992, Mr. Lawlor held various positions
with Browning-Ferris Industries, Inc. ("BFI"), a national waste services
company. Mr. Lawlor started with BFI in 1970, became a corporate officer in
1978, and from 1970 to 1988 was responsible for all of BFI's landfill
operations, during which time total landfill revenues grew from $1 million to
$500 million annually. Mr. Lawlor was the Chairman of the Wildlife Habitat
Enhancement Council, a nonprofit conservation organization, from 1992 to 1996.

W. GREGORY ORR is a co-founder of the Company and has served as Chairman of
the Board, Chief Executive Officer and President of the Company from November
1996 to the present. Mr. Orr will continue to serve as a director and President
of the Company and will also become Chief Operating Officer following the
effective date of this offering. From 1995 until December 1996, Mr. Orr was the
President and Chief Operating Officer of Campbell Wells. From 1990 to 1991, Mr.
Orr was Regional Vice President of Sanifill's Atlantic Region, and from 1991 to
1995, Mr. Orr was a Vice President of Operations of Sanifill, during which time
Mr. Orr was responsible for reviewing and approving up to $75 million in

40
<PAGE>
annual capital spending projects, as well as reviewing and approving operating
budgets and acquisition opportunities. Mr. Orr was also responsible for the
initial development of Sanifill's marketing and development program including
assisting in the formation of the management team and systems and infrastructure
development. From 1981 to 1989, Mr. Orr served in various capacities with BFI,
including Divisional Vice President.

EARL J. BLACKWELL is a co-founder of the Company and has served as Chief
Financial Officer, Senior Vice President--Finance and Secretary of the Company
from November 1996 to the present. From 1991 to December 1996, Mr. Blackwell was
Divisional Chief Financial Officer for Sanifill and controller for Campbell
Wells. During this time, Mr. Blackwell was responsible for organizing and
managing the financial and administrative functions of this division including
the design, installation and management of a financial reporting and management
system interfacing with Sanifill's general accounting system. In November 1987,
Mr. Blackwell filed a voluntary petition for bankruptcy under Chapter 7 of the
Bankruptcy Code. The Company does not believe that this event is material to an
evaluation of the ability or integrity of Mr. Blackwell.

THOMAS B. BLANTON has been a director and Vice President--NCW Operations of
the Company since June 1997. From 1991 to June 1997, Mr. Blanton served as the
sole director and President of each of the Mesa Companies. Mr. Blanton has owned
and operated fats and oils businesses for over 30 years. In February 1991, Mr.
Blanton and Metro Fab, Inc., a metal fabrication company of which Mr. Blanton
was the President and sole shareholder and director, filed voluntary petitions
for bankruptcy under Chapter 7 of the Bankruptcy Code. The Company does not
believe that either of these events is material to an evaluation of the ability
or integrity of Mr. Blanton.

WILLIAM H. WILSON, JR. is a co-founder of AWW and has served as Chairman and
Chief Executive Officer of AWW since its inception in 1992. During 1990 and
1991, Mr. Wilson served as the Chief Financial Officer of NoteBook Computer
Company, L.P., a private company located in Houston, Texas. From 1985 to 1989,
Mr. Wilson served in various capacities for Lehman Brothers, including Vice
President of Corporate Finance.

SAMMY L. COOPER has been Vice President--NOW Operations of the Company since
December 1996. From 1994 to December 1996, Mr. Cooper was Marketing Manager and
General Manager for Campbell Wells in which capacity he had overall
responsibility for divisional performance, as well as marketing, technical
support and business development activities. From 1990 to 1994, Mr. Cooper was
Health, Safety and Environmental Coordinator in Texas, Louisiana and Mississippi
for Conoco, Inc.

JERRY L. BRAZZEL has served as Environmental Compliance Manager for the
Company since December 1996. From 1986 to December 1996, he was Division
Environmental Engineer for Campbell Wells where he was responsible for the
automation of all of its accounting functions. He also developed an extensive
computer program, including data entry and a tracking system to track waste from
receipt until such time as it is declared reusable by state regulatory agencies.

WILLIAM A. ROTHROCK IV became a director of the Company in June 1997. Since
1990, he has been Vice President--Business Development for Sanifill and,
subsequently, USA Waste Services, Inc. From 1984 to 1990, Mr. Rothrock was
Divisional Vice President--Landfill Marketing for BFI.

ALFRED TYLER 2ND became a director of the Company in June 1997. Mr. Tyler
has over 20 years experience in the environmental services industry, most
recently as the President and Chief Executive Officer of Enviro-Gro
Technologies, a provider of sludge management services. In late 1992, Enviro-Gro
was sold to Wheelabrator Technologies and Mr. Tyler resigned his positions to
manage his other investments. From 1989 to the present, Mr. Tyler has been the
President and the sole stockholder of Weston Investments, Inc., a private
investment company. Mr. Tyler is also the President of Days Cove Reclamation
Company, a landfill operation and construction company, and a partner and
managing director of Bedford Capital Corporation, a New York consulting firm.

41
<PAGE>
The total number of persons comprising the Board of Directors is currently
set at five. The Board is divided into three classes. At each annual meeting of
stockholders, directors will be elected by the stockholders to succeed the
directors in the class whose terms are expiring. Directors may be removed from
office only for cause.

With the exception of Mr. Blanton, there are no arrangements or
understandings between the Company and any person pursuant to which any person
was selected as a director. See "Employment Agreements; Changes in Control;
Covenants Not to Compete" below.

During 1996, each of the Company's directors attended at least 75% of the
aggregate of (i) the total number of meetings of the Board of Directors, and
(ii) the total number of meetings held by all committees of the Board on which
he served.

EXECUTIVE COMPENSATION

The Company was incorporated in November 1996. Messrs. Orr and Blackwell
were the only executive officers of the Company to receive any compensation from
the Company in 1996. Messrs. Orr's and Blackwell's total cash compensation
received from the Company in 1996 was $2,403 and $1,923, respectively. The
Company anticipates that during 1997 the four most highly compensated executive
officers and key employees, in addition to Chief Executive Officer Lawlor, will
be Messrs. Orr, Blanton, Blackwell and Wilson. No stock options or stock
appreciation rights have been granted by the Company to any of these five named
individuals; however, upon the effective date of this offering, Mr. Lawlor will
be granted an option to purchase 300,000 shares of Common Stock at the price to
public set forth on the cover page of this Prospectus (the "IPO Price").

EMPLOYMENT AGREEMENTS; CHANGES IN CONTROL; COVENANTS NOT TO COMPETE

Mr. Lawlor has entered into an employment agreement with the Company which
will take effect upon completion of this offering. The employment agreement will
be for a term of five years with the term to be extended an additional one year
on each anniversary date of the employment agreement, unless either party gives
notice that the term of the employment agreement should not be so extended. Mr.
Lawlor will receive an initial base salary of $175,000 per year, with the right
to receive incentive compensation at the discretion of the Board of Directors.
If Mr. Lawlor's employment is terminated by the Company without cause, then Mr.
Lawlor will continue to receive his base salary and employee benefits for the
remainder of the term of his employment agreement. If his employment is
terminated by the Company with cause, then Mr. Lawlor will not be entitled to
earn any further compensation or benefits under his employment agreement. If the
Company undergoes a "change in control", then, under certain circumstances, Mr.
Lawlor will have the right to require the Company to pay to him a lump sum
amount equal to approximately three times his "base amount", as defined in
Section 280G of the Internal Revenue Code. This base amount is generally equal
to the average annual gross income of the employee for the five taxable years
ending before the date on which the change in control occurs. This payment will
be in lieu of any further compensation or benefits payable to Mr. Lawlor under
the employment agreement. The employment agreement also contains a covenant by
Mr. Lawlor not to compete with the Company at any time during his employment and
for a period of two years after the termination of his employment, except for a
termination subsequent to a change in control.

Each of Messrs. Orr, Blanton, Blackwell and Wilson have entered into
employment agreements with the Company providing for an annual base salary of
$125,000, $125,000, $100,000 and $95,000, respectively. Each employment
agreement is for a term of one year, and unless terminated or not renewed by the
Company or the employee, the term will continue thereafter on a year-to-year
basis on the same terms and conditions existing at the time of renewal. Each of
these agreements provides that, in the event of a termination of employment by
the Company without cause during the first two years of employment, the employee
will be entitled to receive his then current salary until the earlier of (i) the
second anniversary of

42
<PAGE>
his employment date or (ii) the first date the employee is eligible to sell all
of his shares of Common Stock in accordance with Rule 144 promulgated under the
Securities Act. Each employment agreement contains a covenant not to compete
with the Company during the term of his employment and for two years thereafter
unless the employee is terminated by the Company without cause in which event
the covenant shall continue for as long as the employee is receiving salary
payments under his employment agreement.

Messrs. Blanton and Wilson also entered into noncompetition agreements with
the Company in connection with the Company's acquisition of the Mesa Companies
and AWW. Pursuant to the terms of these agreements, Messrs. Blanton and Wilson
have each agreed not to compete against the Company in the businesses of
treating, processing and disposing of NCW until June 2002.

In connection with the acquisition of the Mesa Companies, the Company caused
Mr. Blanton to be appointed to the Board of Directors of the Company. In
addition, for as long as Mr. Blanton is the beneficial owner of at least 5% of
the outstanding Common Stock, the Company is obligated to nominate Mr. Blanton
for election to the Company's Board of Directors and Messrs. Orr, Blackwell and
William M. DeArman are obligated to vote all of the shares of Common Stock
controlled by them in favor of Mr. Blanton's election to the Board of Directors.

DIRECTORS' COMPENSATION

Directors who are also employees of the Company or one of its subsidiaries
will not receive additional compensation for serving as directors. Each director
who is not an employee of the Company or one of its subsidiaries will receive a
fee of $1,000 for attendance at each Board of Directors' meeting and $1,000 for
attendance at each committee meeting (unless held on the same day as the Board
of Directors' meeting). Directors are also reimbursed for out-of-pocket expenses
incurred in attending meetings of the Board of Directors or committees thereof.

Under the Company's Directors' Stock Option Plan, each director who is not
an employee of the Company and has not been an employee of the Company at any
time during the 12 months preceding his initial election or appointment to the
Board is automatically granted an option to purchase 10,000 shares of Common
Stock at the time of his or her initial election or appointment; however, no
such initial option was granted to Mr. Rothrock. In addition, commencing with
calendar year 1998, each outside director will be automatically granted an
option to purchase 5,000 shares of Common Stock on January 1 of such calendar
year. Such options have an exercise price equal to the fair market value of the
Common Stock on the date of grant, vest in full on the date of the grant and
expire at the earlier of ten years from the date of grant or one year after the
director ceases to be a member of the Board.

AUDIT AND COMPENSATION COMMITTEES

Until June 1997, no committees of the Board of Directors existed. Messrs.
Orr and Blackwell, the only directors of the Company from November 1996 to June
1997, participated in deliberations concerning executive compensation.

In June 1997, the Board of Directors established an Audit Committee and a
Compensation Committee. The members of both the Audit Committee and the
Compensation Committee are Messrs. Tyler and Rothrock. The principal duties of
the Audit Committee are to recommend to the Board of Directors the selection of
the Company's independent accountants, discuss and review with the Company's
independent accountants the audit plan, auditor's report and management letter
and the Company's accounting policies, and review the accounting procedures and
internal control procedures recommended by the Company's independent
accountants. The principal duties of the Compensation Committee are to establish
and review the objectives, structure, cost and administration of the Company's
major compensation and benefit policies and programs, review annually officers'
and key employees' salaries, management incentives and stock options, and
administer the Company's stock option plan, management incentive plans and other
long-term incentive plans.

43
<PAGE>
STOCK OPTION PLANS

STOCK OPTION PLAN. On November 20, 1996, the Board of Directors adopted the
U S Liquids Inc. 1996 Incentive Stock Option Plan. Thereafter, in June 1997, the
Board of Directors adopted various amendments to this plan, and the amended plan
(the "Stock Option Plan") was approved by the stockholders of the Company. The
purpose of the Stock Option Plan is to promote the long-term growth and
profitability of the Company and the value of the Common Stock by providing
selected employees and consultants of the Company (including directors who are
also employees) with incentives to contribute to the success of the Company. The
number of shares of Common Stock issuable under the Stock Option Plan is
automatically adjusted on the first day of each fiscal year to an amount equal
to 15% of the total number of shares of Common Stock which are outstanding on
such date, provided that the number of shares issuable under the Stock Option
Plan will not be less than 1,500,000 shares or exceed 3,000,000 shares.

The Stock Option Plan is required to be administered by a committee
designated by the Board of Directors. The committee must consist of at least two
Non-Employee Directors, as that term is defined in Rule 16b-3 under the
Securities Exchange Act of 1934, or, at the discretion of the Board of Directors
in order to comply with the requirements of Rule 16b-3, the committee may
consist of the entire Board of Directors. Currently, the committee consists of
Messrs. Rothrock and Tyler. In awarding options under the Stock Option Plan, the
committee considers various factors, such as the past and expected future
performance of an employee and the extent to which an employee has been
compensated for his or her performance. The committee has not established any
fixed formula for awarding options under the Stock Option Plan. The exercise
price for options issued under the Stock Option Plan shall, in the case of
incentive stock options, be at least equal to the fair market value of the
Common Stock subject to the option at the time the option is granted, and in the
case of nonqualified stock options, be at least equal to 75% of the fair market
value of the shares subject to the option at the time it is granted. In the case
of an incentive stock option granted to an employee who holds more than 10% of
the Common Stock of the Company, the exercise price must be at least 110% of the
fair market value of the shares subject to the option at the time it is granted.
Options for a total of 405,125 shares of Common Stock have been granted under
the Stock Option Plan at exercise prices ranging from $.02 per share to the IPO
Price. All of the outstanding options vest at the rate of 33 1/3% per year,
commencing on the first anniversary of the date upon which the option was
granted and expire at the earlier of ten years from the date of grant or three
months following termination of employment. Simultaneous with the completion of
this offering, the Company intends to grant to Mr. Lawlor an option to purchase
300,000 shares of Common Stock at an exercise price equal to the IPO Price.

DIRECTORS' STOCK OPTION PLAN. The Board of Directors adopted the U S Liquids
Inc. Directors' Stock Option Plan (the "Directors' Plan") and the stockholders
approved the Directors' Plan in June 1997. The Directors' Plan is intended to
further the interests of the Company by providing recognition and compensation
to its outside directors for their time, effort and participation in the growth
and protection of the Company's business. The Directors' Plan provides that, at
the time of his or her initial election or appointment to the Board, each
director (other than Mr. Rothrock) who is not an employee of the Company and has
not been an employee of the Company during the preceding 12 months will
automatically be granted an option to purchase 10,000 shares of Common Stock.
Accordingly, Mr. Tyler received an initial grant of an option to purchase 10,000
shares at an exercise price equal to the IPO Price. In addition, commencing with
calendar year 1998, each outside director will automatically be granted an
option to purchase 5,000 shares of Common Stock on January 1 of such calendar
year. The exercise price of all options granted under the Directors' Plan must
be equal to the fair market value of the Common Stock at the time the option is
granted.

The Directors' Plan is required to be administered by a committee consisting
of at least two members of the Board of Directors. The Compensation Committee is
required to administer the Directors' Plan in strict accordance with its terms
and does not have the discretion to vary, add to or take from the terms of the
Directors' Plan. The Board of Directors has appointed Messrs. Rothrock and Tyler
to serve on the committee administering the Directors' Plan.

44
<PAGE>
CERTAIN TRANSACTIONS

CAMPBELL WELLS ACQUISITION

On December 13, 1996, the Campbell Wells Acquisition was consummated
pursuant to an Asset Purchase Agreement, dated December 2, 1996, (the "Campbell
Wells Acquisition Agreement") among the Company, Sanifill and Campbell Wells.

The assets acquired in the Campbell Wells Acquisition included four NOW
treatment facilities in Louisiana, one NOW treatment facility in Texas, one
NOW/NORM treatment facility in Louisiana, a corporate headquarters facility in
Lafayette, Louisiana, all equipment and capital improvements related to the
treatment facilities, and approximately $8.1 million of working capital. In
consideration for these assets, the Company issued the $27.8 million Sanifill
Note to Sanifill, issued to Sanifill a transferable 10-year warrant for the
purchase of one million shares (post-reverse split) of Common Stock at an
exercise price (as adjusted for the subsequent reverse stock split) of $2.00 per
share (the "Sanifill Warrant") and assumed certain outstanding liabilities of
Sanifill including, without limitation, approximately $2.0 million of accounts
payable. Since the closing of the Campbell Wells Acquisition, the Company has
used a portion of its working capital to make two principal prepayments
totalling approximately $5.6 million on the Sanifill Note and has relocated its
corporate headquarters to Houston, Texas. In addition, the Company has ceased
accepting NORM for treatment at its facility in Lacassine, Louisiana and has
begun taking the steps necessary to close this facility in accordance with
Louisiana law.

The Sanifill Note is payable in 20 equal quarterly installments of principal
plus accrued interest, beginning on March 31, 1997. The first four quarterly
installments of the Sanifill Note were prepaid as described above. The unpaid
principal of the Sanifill Note bears interest at the rate of 7.5% per annum,
except for past due principal and interest, which bear interest at 9.5%.
However, if the volume of NOW accepted by the Company for disposal in any full
calendar year is less than two million barrels, then the Company may, at its
option, reduce its quarterly payments of principal, but not interest, for the
immediately following calendar year by up to 50%. The Company must elect each
such deferral within 30 days after any calendar year for which its volume of
accepted waste falls below two million barrels. If the Company elects one or
more such deferrals, the Sanifill Note provides that its maturity will be
extended for as many quarters as may be necessary to permit payment of the
deferred principal in quarterly payments equal to the original quarterly
principal installments.

The Sanifill Note is governed by a Note Agreement, dated December 13, 1996
(the "Note Agreement"), between the Company and Sanifill, which imposes certain
obligations and restrictions on the Company pending payment of the Sanifill
Note. The Note Agreement contains minimum net worth and earnings requirements
which must be satisfied by the Company, and places restrictions on, among other
things, dividends which may be paid, assets which may be disposed of, and other
indebtedness which may be incurred (including, without limitation, preexisting
debt of any business subsequently acquired by the Company and any promissory
note issued by the Company to the owners of any subsequently acquired business),
by the Company. The overall indebtedness limitation is 400% of the Company's
annual EBITDA. Assuming EBITDA of $10.2 million and approximately $24.8 million
owed to Sanifill and other items enumerated in the Note Agreement, the
limitation on other indebtedness would be approximately $15.9 million. The
holder of the Sanifill Note may, at its option, accelerate the debt evidenced by
the Sanifill Note in the event that, among other things, the Company fails to
perform any agreement contained in the Note Agreement.

The Company has agreed to file within 90 days after the effective date of
this offering a shelf registration statement under Rule 415 of the Securities
Act for the shares of Common Stock issuable upon exercise of the Sanifill
Warrant and to keep the shelf registration statement continuously effective
until the earlier of three years after the date of final exercise of the
Sanifill Warrant and such time as the holder of the Sanifill Warrant has sold
all of the shares issuable upon exercise thereof. However, without the

45
<PAGE>
Company's prior consent, and, under certain circumstances, the prior consent of
one of the Representatives, the number of shares offered pursuant to the shelf
registration statement in any calendar year cannot exceed the following
limitations:

<TABLE>
<CAPTION>
MAXIMUM NUMBER OF
SHARES TO BE
YEAR OFFERED
- --------------------------------------------------------------- -------------------
<S> <C>
1997........................................................... 0
1998........................................................... 200,000
1999........................................................... 200,000
2000........................................................... 250,000
2001-2006...................................................... 300,000
</TABLE>

The Sanifill Warrant also grants its holder the "piggyback" registration
right to include shares of Common Stock purchased upon exercise of the Sanifill
Warrant in the coverage of any registration statement under the Securities Act
filed by the Company with respect to an offering of Common Stock by the Company
for its own account or for the account of any of its securities holders.
Sanifill has waived its right to have any shares registered for resale in
connection with this offering.

The Campbell Wells Acquisition Agreement provides that if, prior to December
31, 1999, the Company is required by the Louisiana Department of Natural
Resources or the Louisiana Department of Environmental Quality to construct or
install additional water injection wells with respect to any or all of the
Mermentau, Bourg or Bateman Island, Louisiana facilities purchased by the
Company from Sanifill, Sanifill will reimburse the Company up to $1.6 million of
expenses incurred by the Company in constructing or installing the additional
water injection wells. Sanifill is also required to reimburse the Company up to
$1.3 million of the costs incurred by the Company for closure and post-closure
requirements associated with the Lacassine, Louisiana NORM facility. Except to
the extent of the reimbursement obligations of Sanifill with respect to closure
of the Lacassine, Louisiana NORM facility and the construction or installation
of additional water injection wells at any of the three sites described above
under the Campbell Wells Acquisition Agreement, the Company assumed all
liabilities and obligations of Campbell Wells for closure, post-closure,
monitoring, maintenance, environmental remediation and clean-up of all landfarms
and treatment sites owned, occupied, leased or operated by Campbell Wells as of
the date of the Campbell Wells Acquisition.

In the Campbell Wells Acquisition Agreement, Sanifill agreed to indemnify
the Company against all liabilities of Sanifill not expressly assumed by the
Company and, subject to certain limitations, against any breach of any agreement
or covenant made by Sanifill in the Campbell Wells Acquisition Agreement. To be
eligible for indemnification by Sanifill, an individual claim or loss by the
Company based on a Sanifill breach must exceed $10,000, and all such claims and
losses must have exceeded $200,000, in which case the indemnification obligation
of Sanifill is limited to the amount of such claims and losses in excess of
$200,000. Further, the obligation of Sanifill to indemnify the Company is
limited to the lesser of the amount of unpaid principal of the Sanifill Note
outstanding at the time of any claim for indemnification and $10 million. As of
July 31, 1997, the outstanding principal balance of the Sanifill Note was $22.2
million. Subject to the $200,000 deductible and the maximum limitation on
Sanifill's indemnification obligations, the Company is entitled to set off
against the Sanifill Note amounts for which Sanifill becomes obligated to
indemnify the Company under the Campbell Wells Acquisition Agreement.

In connection with the Campbell Wells Acquisition, the Company and Sanifill
executed noncompetition agreements under which each party agreed not to compete
with the other in certain businesses for a period of five years. In its
noncompetition agreement, Sanifill agreed not to engage in the collection,
transfer, transportation, treatment or disposal of NOW during the restricted
period. In return, the Company agreed not to engage in the collection, treatment
or disposal of municipal solid wastes, construction debris or demolition debris
during the restricted period, or own any interest in any company engaged in any
such business.

46
<PAGE>
NEWPARK AGREEMENTS

In August 1996, prior to the Campbell Wells Acquisition, Sanifill
transferred to Newpark certain assets of its NOW service business including,
without limitation, docks at three of the landfarm facilities later purchased by
the Company from Sanifill for a purchase price of approximately $70.5 million.
As a result of this transaction between Newpark and Campbell Wells (the "Newpark
Transaction") and the subsequent Campbell Wells Acquisition in which the Company
acquired Sanifill's rights and obligations under the Disposal Agreement, Newpark
is obligated to deliver to the Company, in each of the twenty-five years
following the closing of the Newpark Transaction, NOW for treatment and disposal
at the Company's landfarming facilities in Elm Grove, Louisiana, Bourg,
Louisiana, Bateman Island, Louisiana and Mermentau, Louisiana (the "Landfarms").
Specifically, under the terms of the Disposal Agreement, during each such year,
Newpark is obligated to deliver to the Company for disposal at the Landfarms the
lesser of (i) one-third of the barrels of NOW that Newpark receives for
processing and disposal in Louisiana, Texas, Mississippi, Alabama and the Gulf
of Mexico (the "Territory"), and (ii) 1,850,000 barrels of NOW, in each case
excluding saltwater. The number of barrels of NOW that Newpark is required to
deliver to the Company in any year is subject to reduction by a number of
barrels determined by dividing revenues that the Company receives from the
collection and disposal of oilfield waste or site remediation in the Territory
by the price per barrel that Newpark pays for disposal under the Disposal
Agreement. No reduction is made for revenues received by the Company from (i)
disposal at any of the Landfarms of NOW that is generated and collected on land
and is delivered to the Landfarms from the generation site by on-land
transportation ("Inland NOW"), (ii) disposal of NOW at the Bustamonte, Texas
facility and collection of NOW within a 200-mile radius of the Bustamonte
facility, and (iii) disposal of NOW under the Disposal Agreement.

The Disposal Agreement also governs the price to be paid by Newpark to the
Company for delivered NOW. The contractual price is lower than the price for
treatment and disposal that the Company would obtain in the open market, and the
Company expects such price disparity to persist for an indefinite time period.
Currently, Newpark is paying to the Company $5.50 for each barrel of NOW
delivered to the Company under the Disposal Agreement. On June 30, 1998 and on
each subsequent December 31st and June 30th occurring during the term of the
Disposal Agreement, the per barrel price to be paid by Newpark to the Company
will be adjusted. Adjustments are made based upon changes occurring in the
average prices received by Newpark from customers for NOW disposal and other
related services performed by Newpark during the six-month period ending on the
applicable adjustment date compared, on a percentage basis, to the average
prices received by Newpark from customers for such disposal and services during
the six-month period commencing 12 months prior to such adjustment date and
concluding six months prior to such adjustment date. The adjusted price will be
applied retroactively to all invoices received by Newpark from the Company
during the six-month period preceding the applicable adjustment date. In no
event, however, will the price paid by Newpark to the Company be less than $5.50
per barrel. The Company does not presently believe that this adjustment
mechanism will in the near future result in a material increase in the price per
barrel paid by Newpark.

Under the Disposal Agreement, the Company is obligated to indemnify Newpark
from any and all liabilities, including environmental liabilities, in connection
with the Company's ownership and operation of the Landfarms, except for
liability resulting from the delivery by Newpark or its customers of waste that
does not conform to the specifications of the Disposal Agreement, which
generally require Newpark and such customers to deliver only waste that is
legally classified as NOW.

As a result of the Campbell Wells Acquisition and the Newpark Transaction,
the Company is prohibited from engaging, directly or indirectly, in the
collection, transfer, transportation, treatment or disposal of NOW generated in
a marine environment or transported in marine vessels or the site remediation
and closure business in Louisiana, Texas, Alabama, Mississippi and the Gulf of
Mexico prior to August 12, 2001. However, the Company is not prohibited from
marketing and conducting activities related to treatment and disposal at any of
the Landfarms of Inland NOW, disposal of NOW at the

47
<PAGE>
Bustamonte, Texas facility and collection of NOW within a 200-mile radius of the
Bustamonte facility, collection and disposal of NOW or other waste at the
Lacassine, Louisiana facility and treatment and disposal of NOW under the
Disposal Agreement.

OTHER

On June 17, 1997, the Company acquired all of the outstanding stock of the
Mesa Companies. Mr. Blanton, the sole stockholder of each of the Mesa Companies,
received 1,062,500 shares of Common Stock in exchange for his capital stock of
the Mesa Companies. Pursuant to the terms of the merger agreement, Mr. Blanton
became a director and Vice President of the Company. See "Management--
Employment Agreements; Changes in Control; Covenants Not to Compete" for a
description of the terms of Mr. Blanton's employment agreement with the Company.

On June 17, 1997, the Company acquired all of the outstanding stock of AWW
in exchange for 637,500 shares of Common Stock. Mr. Wilson received 245,625
shares of such Common Stock. The Company intends to use approximately $964,000
of the net proceeds of this offering to repay a promissory note held by AWW's
primary lender, which note is guaranteed by Mr. Wilson. Following this offering,
the Company will cause AWW to pay to Mr. Wilson $341,000 in repayment of
principal and interest owed on a loan made by Mr. Wilson to AWW. See
"Management--Employment Agreements; Changes in Control; Covenants Not to
Compete" for a description of the terms of Mr. Wilson's employment agreement
with the Company.

On August 1, 1991, Tommy Yount, the brother-in-law of Mr. Blanton, loaned
$200,000 to one of the Mesa Companies. This loan bears interest at a rate of 3%
per annum, has a maturity date of August 1, 2001, and is secured by certain
equipment and other intangible assets of one of the Mesa Companies. In a
separate transaction, on February 21, 1996, Mr. Yount sold to one of the Mesa
Companies certain real estate and related improvements located in Fort Worth,
Texas for $120,000. This purchase price was paid by the delivery of a promissory
note of one of the Mesa Companies in the original principal amount of $120,000.
The promissory note bears interest at a rate of 10%, has a maturity date of
March 1, 2007 and is secured by certain vehicles owned by one of the Mesa
Companies. The Company regularly purchases used cooking oil and other food
processing residuals that Mr. Yount collects from generators of such materials.
During 1996, the Company purchased approximately $537,000 of such materials from
Mr. Yount.

The Company's NCW facilities in Dallas and San Antonio, as well as one of
the Company's NCW facilities in Houston, are owned by Mr. Blanton subject to
deeds of trust. In connection with the Company's acquisition of the Mesa
Companies, the Company agreed to use approximately $171,000 of the proceeds of
this offering to pay in full the debts secured by these deeds of trust and, at
such time, Mr. Blanton will transfer each of these properties to the Company.
Pending transfer of these properties to the Company, Mr. Blanton is leasing the
properties to the Company free of charge. In addition, the Company intends to
use approximately $1.0 million of the net proceeds of this offering to repay
various debts of the Mesa Companies, all of which has been personally guaranteed
by Mr. Blanton, and of which approximately $214,000 is owed to Mr. Yount.

On July 9, 1996, Eric Warden, a principal stockholder of the Company, loaned
$250,000 to one of the Mesa Companies. This unsecured loan bears interest at a
rate of 8% and has a maturity date of January 9, 1998.

In May 1997, the Company engaged Sanders Morris Mundy Inc. ("SMM"), a
representative of the Underwriters in this offering, to advise and assist the
Company in, among other things, the development and implementation of an
acquisition program and the identification and structuring of and negotiations
with potential sources of capital for the Company. In consideration for its
services, the Company issued to SMM a warrant (the "SMM Warrant") to purchase
37,500 (post-reverse split) shares of Common Stock at the IPO Price. The SMM
Warrant has a term of five years, is fully vested and provides under certain
circumstances for weighted average anti-dilution adjustments to the exercise
price and number of shares

48
<PAGE>
issuable under the SMM Warrant. The SMM Warrant also grants its holder the
"piggyback" registration right to include shares of Common Stock purchased upon
exercise of the SMM Warrant in the coverage of any registration statement under
the Securities Act for its own account or for the account of any of its
securities holders. The Company also agreed, among other things, to pay to SMM a
sliding-scale fee for acquisition and financing transactions which are
introduced to the Company by SMM or arranged by SMM during the one-year term of
the engagement. No fee under such agreement will be paid to SMM in connection
with this offering.

In connection with the organization of the Company in November 1996, Messrs.
Orr, Blackwell and DeArman, who may be deemed to be promoters of the Company,
purchased (together with members of their immediate family or entities
controlled by them) 976,000, 375,000 and 500,000 shares of Common Stock (as
adjusted for the subsequent reverse stock split) for $19,520 $7,500 and $10,000,
respectively. In December 1996, Mr. DeArman purchased an additional 50,000
(post-reverse split) shares of Common Stock for $87,500.

The Company has granted to Mr. Rothrock a nonqualified option to purchase
187,500 (post-reverse split) shares of Common Stock at a price of $.02 per
share. These options vest at the rate of 33 1/3% per year commencing in 1997,
but only if Mr. Rothrock has presented to the Company an introduction or
business opportunity pursuant to which the Company completes during such
calendar year an acquisition of the stock or substantially all of the assets of
another party. If in any calendar year 1997, 1998 or 1999, the Company does not
complete any such acquisition as a result of an introduction or business
opportunity presented by Mr. Rothrock, the option shall terminate with respect
to 33 1/3% of the total number of shares issuable under the option. Vested
options expire at the earlier of ten years from the date of grant or one year
after the death of Mr. Rothrock. Options having identical terms and conditions
exercisable for an aggregate of 281,250 shares were granted to three other
individuals in November 1996.

The Company believes that the terms of each transaction discussed above are
as favorable to the Company as could have been negotiated with an unaffiliated
third party. The Board of Directors has, however, adopted a resolution requiring
all future transactions with an affiliate of the Company to be approved by the
vote of a majority of the disinterested directors of the Company.

49
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership of
the Common Stock as of the date of this Prospectus by (i) each person who is
known to the Company to beneficially own more than 5% of the outstanding shares
of Common Stock, (ii) each director of the Company, (iii) Mr. Lawlor, as the
Chief Executive Officer, and each of the four officers and key employees of the
Company expected to be most highly compensated in 1997, and (iv) all directors
and executive officers of the Company as a group. Unless otherwise indicated,
all persons listed have an address c/o the Company's principal executive offices
and have sole voting and investment power with respect to their shares of Common
Stock, except to the extent authority is shared by spouses under applicable law.

<TABLE>
<CAPTION>
PERCENT OF
SHARES OUTSTANDING
------------------------
NUMBER OF BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OFFERING OFFERING
- --------------------------------------------------------------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Michael P. Lawlor(1) ...................................................... 150,000 2.9% 2.2%

W. Gregory Orr(2) ......................................................... 751,000 14.3 11.1

Earl J. Blackwell(3) ...................................................... 375,000 7.2 5.6

Thomas B. Blanton ......................................................... 1,062,500 20.3 15.8
3820 N. Grove Street
Fort Worth, TX 76106

William H. Wilson, Jr.(4) ................................................. 286,375 5.5 4.2
250 Gellhorn
Houston, TX 77013

William A. Rothrock IV(5) ................................................. 62,500 1.2 *

Alfred Tyler 2nd(6) ....................................................... -- -- --

Sanifill, Inc.(7) ......................................................... 1,000,000 16.0 12.9
1001 Fannin Street, Suite 4000
Houston, Texas 77002

William M. DeArman(8) ..................................................... 546,500 10.4 8.1
5420 Huckleberry Lane
Houston, TX 77056

Eric Warden(9) ............................................................ 337,500 6.4 5.0
10117 Andre Drive
Irving, TX 75063

All executive officers and directors as a group (7 persons)(10)............ 2,419,750 46.2% 35.9%
</TABLE>

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

(1) Excludes 300,000 shares exercisable pursuant to a stock option to be granted
to Mr. Lawlor on the effective date of this offering.

(2) Includes 250,000 shares held by The Wiley Gregory & Genene M. Orr Family
LLC, a limited liability company, over which Mr. Orr, as the manager, has
sole voting and investment power, 25,000 shares held by Mr. Orr's wife,
Genene Orr, 25,000 shares held by Mr. Orr's wife as custodian for two of Mr.
Orr's children, and 12,500 shares held individually by one of Mr. Orr's
children. Mr. Orr disclaims beneficial ownership of all shares held
individually by his children.

(3) Includes 200,000 shares held by The Earl J. and Christine J. Blackwell
Family LLC, a limited liability company, over which Mr. Blackwell, as the
manager, has sole voting and investment power and 100,000 shares held in an
individual retirement account for the benefit of Mr. Blackwell.

50
<PAGE>
(4) Includes 20,375 shares held in an individual retirement account for the
benefit of Mr. Wilson and 20,375 shares held by Mr. Wilson's wife, Debi
Wilson.

(5) Excludes 187,500 shares which, contingent upon the occurrence of certain
events, may be exercisable pursuant to a stock option granted to Mr.
Rothrock.

(6) Excludes 10,000 shares which Mr. Tyler has the right to acquire pursuant to
the terms of a stock option granted by the Company to him.

(7) Represents shares which Sanifill has the right to acquire pursuant to the
terms of a warrant issued by the Company to Sanifill on December 13, 1996.

(8) Includes 250,000 shares held by a trust of which Mr. DeArman is the sole
beneficiary, 12,500 shares held individually by one of Mr. DeArman's
children, and 47,500 shares held by trusts for the benefit of certain of Mr.
DeArman's children. Mr. DeArman disclaims beneficial ownership of all shares
held by or for the benefit of his children.

(9) Excludes 145,000 shares owned by Carl Warden, Mr. Warden's father. Eric
Warden disclaims beneficial ownership of such shares.

(10) Excludes the 497,500 shares subject to the options granted or to be granted
to Messrs. Lawlor, Rothrock and Tyler described above.

* Constitutes less than 1% of the outstanding Common Stock.

DESCRIPTION OF SECURITIES

COMMON STOCK

The Company is authorized to issue 30,000,000 shares of Common Stock, of
which 5,238,875 shares are outstanding. After this offering, there will be
6,738,875 shares outstanding. Holders of Common Stock are entitled to one vote
for each share held on all matters submitted to a vote of stockholders. There is
no cumulative voting with respect to the election of directors. See "Risk
Factors--Concentration of Voting Control." Holders of Common Stock are entitled
to receive ratably any dividends that may be declared by the Board of Directors
of the Company out of legally available funds. Upon the liquidation, dissolution
or winding up of the Company, the holders of Common Stock are entitled to
receive ratably the net assets of the Company after payment of all debts and
liabilities and liquidation preferences of any outstanding shares of Preferred
Stock. Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. As of July 31, 1997, the Company had 158 holders of record of
Common Stock.

PREFERRED STOCK

The Company's Certificate of Incorporation authorizes the issuance of
5,000,000 shares of Preferred Stock, of which no shares are outstanding. Shares
of unissued Preferred Stock may be issued in one or more series from time to
time with such designations, rights, preferences and limitations as the Board of
Directors may determine. The rights, preferences and limitations of separate
series of Preferred Stock may differ with respect to such matters as may be
determined by the Board of Directors including without limitation, the rate of
dividends, method or nature of payment of dividends, terms of redemption,
amounts payable on liquidation, sinking fund provisions, conversion rights and
voting rights. Such undesignated shares could also be used as an anti-takeover
device by the Company. For example, they could be issued with "super-voting
rights" and placed in the control of parties friendly to the current management.

OPTIONS AND WARRANTS

The Company has outstanding options to purchase an aggregate of 883,875
shares of Common Stock. Simultaneous with the completion of this offering, the
Company intends to grant to Mr. Lawlor an option

51
<PAGE>
to purchase an additional 300,000 shares of Common Stock at an exercise price
equal to the IPO Price. The Company has (or will have immediately after the
offering) outstanding warrants to purchase an additional 1,215,000 shares of
Common Stock consisting of (i) the Sanifill Warrant for 1,000,000 at $2.00 per
share; (ii) warrants issued to the Representatives for 112,500 total shares at
120% of the IPO Price (the "Representatives' Warrants"); (iii) the SMM Warrant
for 37,500 shares at the IPO Price; (iv) a warrant issued to Bellmeade Capital
Partners for 45,000 shares at the IPO Price; and (v) a warrant issued to Mark
Liebovit for 20,000 shares at the IPO Price. See "Certain Transactions--Other"
and "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
6,738,875 shares of Common Stock. The 1,500,000 shares sold in this offering
(plus any additional shares sold upon exercise of the Underwriters'
over-allotment option) will be freely tradeable without restriction unless
acquired by affiliates of the Company. None of the remaining outstanding shares
of Common Stock have been registered under the Securities Act, which means that
they may be resold publicly only upon registration under the Securities Act or
in compliance with an exemption from the registration requirements of the
Securities Act, including the exemption provided by Rule 144 thereunder.

In general, under Rule 144, if a period of at least one year has elapsed
between the later of the date on which restricted securities were acquired from
the Company or the date on which they were acquired from an affiliate, the
holder of such restricted securities (including an affiliate) is entitled to
sell a number of shares within any three-month period that does not exceed the
greater of (i) 1% of the then outstanding shares of the Common Stock
(approximately 67,389 shares upon completion of this offering) or (ii) the
average weekly reported volume of trading of the Common Stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain requirements pertaining to the manner of such sales, notices of such
sales and the availability of current public information concerning the Company.
Affiliates may sell shares not constituting restricted securities in accordance
with the foregoing volume limitations and other requirements but without regard
to the one year holding period. Under Rule 144(k), if a period of at least two
years has elapsed between the later of the date on which restricted securities
were acquired from the Company and the date on which they were acquired from an
affiliate, a holder of such restricted securities who is not an affiliate at the
time of the sale and has not been an affiliate for at least three months prior
to the sale is entitled to sell the shares immediately without regard to volume
limitations and other conditions described above.

The Company and its officers, directors and certain stockholders, who
beneficially own at least 6,821,000 shares of Common Stock in the aggregate
(including options and warrants to purchase an aggregate of at least 2,073,125
shares), have agreed not to sell or otherwise dispose of any shares of Common
Stock for a period of 180 days after the effective date of this offering without
the prior written consent of Van Kasper & Company, except that the Company may
issue shares of Common Stock offered hereby, shares of Common Stock issued
pursuant to the exercise of outstanding options and warrants, shares of Common
Stock issued (subject to certain conditions) in connection with acquisitions and
options granted under the Company's stock option plans, so long as none of such
options become exercisable during said 180-day period. See "Underwriting."

After the completion of this offering, the Company intends to register
3,000,000 shares of its Common Stock under the Securities Act for use by the
Company in connection with future acquisitions. Upon such registration, these
shares will generally be freely tradeable after their issuance. In some
instances, however, the Company may contractually restrict the sale of shares
issued in connection with future acquisitions.

The Company intends to file a registration statement on Form S-8 to register
all shares subject to the Stock Option Plan and the Directors' Plan following
the date of this Prospectus. The Company has also agreed to register for resale
up to 510,000 shares issued to former stockholders of the Mesa Companies

52
<PAGE>
and AWW, up to 334,050 shares held by other members of management, up to 145,950
shares held by a principal stockholder, the 1,000,000 shares of Common Stock
issuable upon the exercise of the Sanifill Warrant and all shares of Common
Stock issuable upon the exercise of the Representatives' Warrants and the SMM
Warrant.

Prior to this offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, the sale of
shares or the availability of shares for sale will have on the market price for
the Common Stock prevailing from time to time. Nevertheless, sales, or the
availability for sale of, substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices and the future ability of
the Company to raise equity capital and complete any additional acquisitions for
Common Stock.

DELAWARE LAW AND CERTAIN CHARTER PROVISIONS

The Company's Certificate of Incorporation limits, to the fullest extent
permitted by Delaware law, the liability of a director to the Company or its
stockholders for monetary damages for a breach of such director's fiduciary duty
as a director. Delaware law presently permits such limitations of a director's
liability except where a director breaches his or her duty of loyalty to the
Company or its stockholders, fails to act in good faith or engages in
intentional misconduct or a knowing violation of law, authorizes payment of an
unlawful dividend or stock repurchase, or obtains an improper personal benefit.
This provision is intended to afford directors additional protection, and limit
their potential liability, from suits alleging a breach of the duty of care by a
director. The Company believes this provision will assist it in maintaining and
securing the services of directors who are not employees of the Company. As a
result of the inclusion of such a provision, stockholders may be unable to
recover, under Delaware law, monetary damages against directors for actions
taken by them that constitute negligence or gross negligence or that are in
violation of their fiduciary duties, although it may be possible to obtain
injunctive or other equitable relief with respect to such actions. If equitable
remedies are found not to be available to stockholders for any particular case,
stockholders may not have any effective remedy, under Delaware law, against the
challenged conduct.

The Company's Certificate of Incorporation and Bylaws also provide that
directors and officers shall be indemnified against liabilities arising from
their service as directors or officers to the fullest extent permitted by law,
which generally requires that the individual act in good faith and in a manner
he or she reasonably believes to be in or not opposed to the Company's best
interests. The Company has obtained directors and officers liability insurance
to limit its exposure under these provisions.

Under the Company's Certificate of Incorporation, the Board of Directors is
divided into three classes of directors with each class serving a staggered
three-year term. The classification system of electing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company and may maintain the incumbency of the Board of
Directors, as it generally makes it more difficult for stockholders to replace a
majority of the directors. See "Risk Factors--Potential Anti-Takeover Effect of
Charter Provisions."

TRANSFER AGENT

The Company's transfer agent for the Common Stock is ChaseMellon Shareholder
Services, L.L.C.

53
<PAGE>
UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), through their representatives,
Van Kasper & Company and Sanders Morris Mundy Inc. (the "Representatives"), have
severally agreed to purchase from the Company the number of shares of Common
Stock set forth opposite their names below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Van Kasper & Company............................................................. 512,500
Sanders Morris Mundy Inc......................................................... 512,500
Alex. Brown & Sons Incorporated.................................................. 50,000
Donaldson, Lufkin, Jenrette Securities Corporation............................... 50,000
PaineWebber Incorporated......................................................... 50,000
Prudential Securities Incorporated............................................... 50,000
Equitable Securities Corporation................................................. 25,000
First of Michigan Corporation.................................................... 25,000
First Analysis Securities Corporation............................................ 25,000
Hanifen, Imhoff Inc.............................................................. 25,000
Jensen Securities................................................................ 25,000
Legg Mason Wood Walker, Inc...................................................... 25,000
Pauli & Company Incorporated..................................................... 25,000
Pennsylvania Merchant Group Ltd.................................................. 25,000
Pacific Crest Securities......................................................... 25,000
Rauscher Pierce Refsnes, Inc..................................................... 25,000
Tucker Anthony Corporation....................................................... 25,000
----------
Total.......................................................................... 1,500,000
----------
----------
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all of the shares of Common Stock offered hereby (other than those
subject to the Underwriters' over-allotment option described below) if any are
purchased.

The Underwriters propose to offer the shares of Common Stock directly to the
public at the price to public set forth on the cover page of this Prospectus and
to certain dealers at this price less a concession not in excess of $.37 per
share. The Underwriters may allow and these dealers may reallow a concession not
in excess of $.10 per share to certain other dealers. After the initial
offering, the offering price and other selling terms may be changed by the
Representatives.

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined
through negotiation among the Company and the Representatives. Factors to be
considered in making such determination include the prevailing market
conditions, the Company's financial and operating history and condition, its
prospects and the market prices of securities for companies in businesses
similar to that of the Company.

The Company has granted to the Underwriters an option, exercisable no later
than 45 days after the date of this Prospectus, to purchase up to 225,000
additional shares of Common Stock at the IPO Price, less the underwriting
discount set forth on the cover page of this Prospectus, solely to cover over-
allotments. To the extent that the Representatives act to exercise this option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage thereof as the number of shares of Common Stock to be
purchased by it shown in the above table bears to the total offering, and the

54
<PAGE>
Company will be obligated, pursuant to the option, to sell such shares of Common
Stock to the Underwriters.

In connection with the offering made hereby, the Company has agreed to sell
to the Representatives, for nominal consideration, the Representatives'
Warrants, which entitle the Representatives to purchase from the Company 112,500
of shares of Common Stock. The Representatives' Warrants are exercisable, in
whole or in part, at an exercise price of 120% of the IPO Price at any time
during the four-year period commencing one year after the effective date of the
Registration Statement of which this Prospectus is a part, and cannot be
transferred for a period of one year from the date of issuance except to the
Underwriters, selling group members and their officers or partners. The warrant
agreement pursuant to which the Representatives' Warrants will be issued will
contain provisions providing for adjustment of the exercise price and the number
and type of securities issuable upon exercise of the Representatives' Warrants
should any one or more of certain specified events occur. The Representatives'
Warrants grant to the holders thereof certain rights of registration for the
securities issuable upon exercise of the Representatives' Warrants.

At the closing of the offering, the Company will also pay to the
Representatives a non-accountable expense allowance equal to 1% of the total
price to public of the shares sold in the offering.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Representatives
have informed the Company that the Underwriters do not intend to confirm sales
to accounts over which they exercise discretionary authority.

The Company, all of its executive officers and directors, and certain
beneficial owners of the Common Stock have agreed not to, directly or
indirectly, offer to sell, contract to sell, sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable for
shares of Common Stock or any rights to purchase or acquire Common Stock for the
180-day period after the closing of this offering without the prior written
consent of Van Kasper & Company. Van Kasper & Company may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to these lock-up agreements. In addition, the Company has
agreed that for a period of 180 days after the date of this Prospectus, it will
not, without the prior written consent of Van Kasper & Company, issue, offer,
sell, grant options to purchase or otherwise dispose of any equity securities or
securities convertible into or exchangeable for equity securities except for
shares of Common Stock offered hereby, shares of Common Stock issued pursuant to
the exercise of outstanding options and warrants, shares of Common Stock issued
in connection with acquisitions and options granted under the Company's existing
stock option plans so long as none of such options become exercisable during
said 180-day period, and (subject to certain conditions) shares issued in future
acquisitions. Sales of such shares in the future could adversely affect the
market price of the Common Stock. See "Shares Eligible for Future Sale."

In May 1997, the Company engaged SMM to assist it in, among other things,
developing and implementing an acquisition program. As consideration for its
services, the Company issued to SMM the SMM Warrant to purchase 37,500
(post-reverse split) shares of Common Stock at the IPO Price. See "Certain
Transactions--Other."

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Hartzog Conger & Cason, Oklahoma City, Oklahoma. Certain legal
matters related to this offering will be passed on for the Underwriters by
Brobeck, Phleger & Harrison LLP, San Diego, California.

EXPERTS

The audited financial statements included elsewhere in this Prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated

55
<PAGE>
in their reports with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.

ADDITIONAL INFORMATION

The Company has filed with the Commission a registration statement (which
term shall encompass any and all amendments thereto) on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the shares of
Common Stock offered by this Prospectus. This Prospectus, which is part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain items of
which are omitted in accordance with the rules and regulations of the SEC.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is hereby made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. For further information with
respect to the Company, reference is hereby made to the Registration Statement
and such exhibits and schedules filed as a part thereof, which may be inspected,
without charge, at the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the SEC located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The SEC maintains a web site that contains
reports, proxy and information statements regarding registrants that file
electronically with the SEC. The address of this web site is
(http://www.sec.gov). Copies of all or any portion of the Registration Statement
may be obtained from the Public Reference Section of the SEC, upon payment of
the prescribed fees.

56
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
U S LIQUIDS INC. PRO FORMA
Introduction to Unaudited Pro Forma Financial Statements........................... F-2
Pro Forma Balance Sheet (unaudited)................................................ F-3
Notes to Pro Forma Balance Sheet (unaudited)....................................... F-4
Pro Forma Statements of Income (unaudited)......................................... F-5
Notes to Pro Forma Statements of Income (unaudited)................................ F-7

U S LIQUIDS INC. AND SUBSIDIARIES
Report of Independent Public Accountants........................................... F-8
Consolidated Balance Sheets........................................................ F-9
Consolidated Statements of Income.................................................. F-10
Consolidated Statements of Stockholders' Equity.................................... F-11
Consolidated Statements of Cash Flows.............................................. F-12
Notes to Consolidated Financial Statements......................................... F-13

U S LIQUIDS INC. PREDECESSOR
Report of Independent Public Accountants........................................... F-28
Balance Sheets..................................................................... F-29
Statements of Income............................................................... F-30
Notes to Predecessor Financial Statements.......................................... F-31
</TABLE>

F-1
<PAGE>
U S LIQUIDS INC.

INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The following unaudited Pro Forma Financial Statements present the balance
sheet and income statement data from the consolidated financial statements of U
S Liquids Inc. ("U S Liquids" or "The Company") which include the financial
statements of Mesa Processing, Inc. and related companies ("Mesa") and American
WasteWater Inc. ("AWW") combined with the 1996 results of operations data for
Campbell Wells, L.P. and Campbell Wells NORM L.P. (collectively, "Campbell
Wells" or the "U S Liquids Inc. Predecessor") which are wholly-owned
subsidiaries of Sanifill, Inc. ("Sanifill") relating to the assets acquired and
liabilities assumed by U S Liquids (The Campbell Wells Acquisition) as if the
Campbell Wells Acquisition and the U S Liquids initial public offering (the
"Offering") had occurred on January 1, 1996.

The Company has preliminarily analyzed the savings that it expects to be
realized by consolidating certain operational and general and administrative
functions. The Company has not and cannot quantify these savings due to the
short period of time since the Campbell Wells Acquisition and the merger with
Mesa and AWW. It is anticipated that these savings will be partially offset by
the costs of being a publicly-held company and the incremental increase in costs
related to the Company's corporate management. However, these costs, like the
savings that they offset, cannot be quantified accurately. Neither the
anticipated savings nor the anticipated costs have been included in the Pro
Forma Financial Statements. The Company has estimated the additional insurance
costs that the U S Liquids Predecessor would have incurred as a stand-alone
entity by comparing the insurance cost allocations that the U S Liquids Inc.
Predecessor received from its previous parent Sanifill to the contractual
premiums paid by U S Liquids Inc.

The Pro Forma Financial Statements include certain adjustments to the
historical financial statements of the U S Liquids Inc. Predecessor, including
adjusting depreciation expense to reflect purchase price allocations, recording
interest expense to reflect the outstanding debt due to Sanifill, adjusting
insurance expense consistent with the expenses for U S Liquids Inc. and the
related income tax effects of these adjustments. As a wholly-owned subsidiary of
Sanifill, the U S Liquids Inc. Predecessor maintained a noninterest-bearing
intercompany account with Sanifill for recording intercompany charges for costs
and expenses, intercompany purchases of equipment and additions under capital
leases and intercompany transfers of cash, among other transactions. It is not
feasible to ascertain the amount of related interest expense which would have
been recorded in the historical financial statements had the U S Liquids Inc.
Predecessor been operated as a stand-alone entity. Accordingly, neither the
historical nor the pro forma financial statements include interest expenses
related to the U S Liquids Inc. Predecessor's intercompany account with
Sanifill.

The Pro Forma Adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The Pro Forma Financial Statements do not purport to
represent what the Company's financial position or results of operations would
actually have been if such transactions in fact had occurred on those dates or
project the Company's financial position or results of operations for any future
period. Since the Company, the U S Liquids Inc. Predecessor and Mesa and AWW
were not under common control or management for all periods, historical combined
results may not be comparable to, or indicative of, future performance. The
unaudited Pro Forma Financial Statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus, as well as information included under the headings "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Risk Factors" included elsewhere herein.

F-2
<PAGE>
U S LIQUIDS INC.

PRO FORMA BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------
ASSETS
OFFERING AS
CONSOLIDATED EFFECTS ADJUSTED
------------- ------------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 2,704 $ 12,327(A) $ 12,083
(2,948)(B)
Accounts receivable, net of allowance..................................... 4,196 4,196
Inventories............................................................... 446 446
Prepaid expenses and other current assets................................. 860 (318)(A) 542
------------- ------------- ---------
Total current assets.................................................... 8,206 9,061 17,267
PROPERTY, PLANT AND EQUIPMENT, net.......................................... 34,982 34,982
OTHER ASSETS, net........................................................... 675 (27)(B) 648
------------- ------------- ---------
Total assets............................................................ $ 43,863 $ 9,034 $ 52,897
------------- ------------- ---------
------------- ------------- ---------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURENT LIABILITIES:
Current maturities of long-term obligations............................... $ 4,527 $ (1,445)(B) $ 3,082
Accounts payable.......................................................... 1,966 1,966
Accrued liabilities....................................................... 2,618 (234)(B) 2,384
Advances from stockholders and current maturities of related-party notes
payable................................................................. 545 (545)(B) --
------------- ------------- ---------
Total current liabilities............................................... 9,656 (2,224) 7,432
LONG-TERM OBLIGATIONS, net of current maturities............................ 20,902 (724)(B) 20,178
CELL PROCESSING RESERVE..................................................... 7,886 7,886
CLOSURE AND REMEDIATION
RESERVES.................................................................. 2,500 2,500
Deferred income taxes..................................................... 66 66
------------- ------------- ---------
Total liabilities....................................................... 41,010 (2,948) 38,062
------------- ------------- ---------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
Preferred stock........................................................... 10 10
Common stock.............................................................. 52 15(A) 67
Additional paid-in capital................................................ 1,379 11,994(A) 13,373
Retained earnings......................................................... 1,412 (27)(B) 1,385
------------- ------------- ---------
Total stockholders' equity.............................................. 2,853 11,982 14,835
------------- ------------- ---------
Total liabilities and stockholders' equity.............................. $ 43,863 $ 9,034 $ 52,897
------------- ------------- ---------
------------- ------------- ---------
</TABLE>

The accompanying notes are an integral part of this pro forma financial
statement.

F-3
<PAGE>
U S LIQUIDS INC.

NOTES TO PRO FORMA BALANCE SHEET (UNAUDITED)

(A) Reflects the proceeds from the issuance of 1,500,000 shares of Common Stock,
net of estimated offering costs. Offering costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and
printing expenses.

(B) Reflects the repayment of certain debt obligations with proceeds from the
Offering.

F-4
<PAGE>
U S LIQUIDS INC.

PRO FORMA STATEMENT OF INCOME (UNAUDITED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------------
U S LIQUIDS PRO FORMA OFFERING
CONSOLIDATED PREDECESSOR ADJUSTMENTS PRO FORMA EFFECTS AS ADJUSTED
------------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES.............................. $ 14,285 $ 16,853 $ $ 31,138 $ $ 31,138
(768)(A)
COST OF GOODS SOLD.................... 11,790 9,136 446(B) 20,604 20,604
------------- ----------- ------------ ----------- ----- -----------
GROSS PROFIT........................ 2,495 7,717 322 10,534 10,534
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 1,440 2,524 3,964 3,964
------------- ----------- ------------ ----------- ----- -----------
INCOME FROM OPERATIONS.............. 1,055 5,193 322 6,570 6,570
INTEREST EXPENSE AND OTHER (INCOME),
net, excluding intercompany interest
expense............................. 309 256 1,986(C) 2,551 (234)(E) 2,317
------------- ----------- ------------ ----------- ----- -----------
INCOME (LOSS) BEFORE INCOME TAXES..... 746 4,937 (1,664) 4,019 234 4,253
PROVISION (BENEFIT) FOR INCOME
TAXES............................... 255 2,044 (650)(D) 1,649 96(D) 1,745
------------- ----------- ------------ ----------- ----- -----------
NET INCOME (LOSS)..................... $ 491 $ 2,893 $ (1,014) $ 2,370 $ 138 $ 2,508
------------- ----------- ------------ ----------- ----- -----------
------------- ----------- ------------ ----------- ----- -----------
NET INCOME PER SHARE.................. $ 0.32
-----------
-----------
SHARES USED IN COMPUTING NET INCOME
PER SHARE........................... 7,830(F)
-----------
-----------
</TABLE>

The accompanying notes are an integral part of this pro forma financial
statement.

F-5
<PAGE>
U S LIQUIDS INC.

PRO FORMA STATEMENTS OF INCOME (UNAUDITED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1997
-------------------------------------------
OFFERING AS
CONSOLIDATED EFFECTS ADJUSTED
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES.................................................................... $ 17,734 $ $ 17,734
COST OF GOODS SOLD.......................................................... 11,362 11,362
------------- ------------- -------------
GROSS PROFIT.............................................................. 6,372 6,372
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................ 2,716 2,716
------------- ------------- -------------
INCOME FROM OPERATIONS.................................................... 3,656 3,656
INTEREST EXPENSE AND OTHER (INCOME), net.................................... 1,137 (134)(E) 1,003
------------- ------------- -------------
INCOME BEFORE INCOME TAXES.................................................. 2,519 134 2,653
PROVISION FOR INCOME TAXES.................................................. 1,033 55(D) 1,088
------------- ------------- -------------
NET INCOME.................................................................. $ 1,486 $ 79 $ 1,565
------------- ------------- -------------
------------- ------------- -------------
NET INCOME PER SHARE........................................................ $ 0.20
-------------
-------------
SHARES USED IN COMPUTING NET INCOME PER SHARE............................... 7,830(F)
-------------
-------------
</TABLE>

<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------------------------------
U S LIQUIDS PRO FORMA OFFERING AS
CONSOLIDATED PREDECESSOR ADJUSTMENTS PRO FORMA EFFECTS ADJUSTED
------------- ----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES......................... $ 6,757 $ 7,617 $ $ 14,374 $ $ 14,374
(384)(A)
COST OF GOODS SOLD............... 5,751 4,458 209(B) 10,034 10,034
------------- ----------- ------------- ------------- ------------- -------------
GROSS PROFIT................... 1,006 3,159 175 4,340 4,340
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES........ 527 1,498 2,025 2,025
------------- ----------- ------------- ------------- ------------- -------------
INCOME FROM OPERATIONS......... 479 1,661 175 2,315 2,315
INTEREST EXPENSE AND OTHER
(INCOME), net, excluding
intercompany interest
expense........................ 96 95 992(C) 1,183 (102)(E) 1,081
------------- ----------- ------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME
TAXES.......................... 383 1,566 (817) 1,132 102 1,234
PROVISION (BENEFIT) FOR INCOME
TAXES.......................... 132 642 (310)(D) 464 42(D) 506
------------- ----------- ------------- ------------- ------------- -------------
NET INCOME (LOSS)................ $ 251 $ 924 $ (507) $ 668 $ 60 $ 728
------------- ----------- ------------- ------------- ------------- -------------
------------- ----------- ------------- ------------- ------------- -------------
NET INCOME PER SHARE............. $ 0.09
-------------
-------------
SHARES USED IN COMPUTING NET
INCOME PER SHARE............... 7,830(F)
-------------
-------------
</TABLE>

The accompanying notes are an integral part of these pro forma financial
statements.

F-6
<PAGE>
U S LIQUIDS INC.

NOTES TO PRO FORMA STATEMENTS OF INCOME (UNAUDITED)

(A) Adjusts depreciation expense to reflect the revaluation of property, plant
and equipment in conjunction with the Campbell Wells Acquisition purchase
price allocations.

(B) Adjusts insurance expense to reflect the differences in the contractual
insurance premiums paid by the Company versus the intercompany insurance
cost allocations received by the U S Liquids Predecessor from its previous
parent Sanifill, Inc.

(D) Reflects the incremental provision (benefit) for federal and state income
taxes relating to the pro forma income statement adjustments as well as
providing federal income taxes on AWW (a limited liability company).

(E) Reflects the reduction in interest expense attributed to obligations retired
with proceeds from the Offering.

(F) Includes (i) 3,538,875 shares issued by U S Liquids prior to the offering,
(ii) 1,700,000 shares issued to the stockholders of Mesa and AWW in
conjunction with their acquisition, (iii) 1,500,000 shares issued in
connection with the Offering, and (iv) 1,090,713 shares representing the
weighted average portion of shares for the dilution attributable to
outstanding warrants and options to purchase common stock, using the
treasury stock method. Excludes 525,000 shares of Common Stock subject to
options and warrants to be granted in connection with the Offering at an
exercise price equal to or exceeding the initial public offering price and
468,750 options which are contingent upon the successful completion of
certain corporate development activities.

F-7
<PAGE>
U S LIQUIDS INC.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To U S Liquids Inc.:

We have audited the accompanying consolidated balance sheets of U S Liquids
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
U S Liquids Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
June 26, 1997

F-8
<PAGE>
U S LIQUIDS INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 39 $ 5,604 $ 2,704
Accounts receivable, less allowances of $12, $265 and $265.................... 723 4,843 4,196
Inventories................................................................... 364 339 446
Prepaid expenses and other current assets..................................... 67 764 860
--------- --------- -----------
Total current assets........................................................ 1,193 11,550 8,206
PROPERTY, PLANT AND EQUIPMENT, net.............................................. 1,680 34,582 34,982
DEFERRED INCOME TAXES........................................................... 65 186 --
OTHER ASSETS, net............................................................... 69 533 675
--------- --------- -----------
Total assets................................................................ $ 3,007 $ 46,851 $ 43,863
--------- --------- -----------
--------- --------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current maturities of long-term obligations................................... $ 214 $ 5,817 $ 4,527
Accounts payable.............................................................. 1,231 2,984 1,966
Accrued liabilities........................................................... 124 2,147 2,618
Advances from stockholders and current maturities of related-party notes
payable..................................................................... 200 465 545
--------- --------- -----------
Total current liabilities................................................... 1,769 11,413 9,656
LONG-TERM OBLIGATIONS, net of current maturities................................ 1,044 23,668 20,902
RELATED-PARTY NOTES PAYABLE..................................................... 552 -- --
CELL PROCESSING RESERVE......................................................... -- 7,732 7,886
CLOSURE AND REMEDIATION RESERVES................................................ -- 2,500 2,500
Deferred income taxes......................................................... -- -- 66
--------- --------- -----------
Total liabilities........................................................... 3,365 45,313 41,010

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued or
outstanding
Series A 72 percent cumulative preferred stock, $1.00 par value, 10,000 shares
authorized, 10,000 shares issued and outstanding............................ 10 10 10
Common stock, $.01 par value, 50,000,000 shares authorized, 1,700,000,
5,238,875 and 5,238,875 shares issued and outstanding....................... 17 52 52
Additional paid-in capital.................................................... 2 1,379 1,379
Retained earnings (deficit)................................................... (387) 97 1,412
--------- --------- -----------
Total stockholders' equity.................................................. (358) 1,538 2,853
--------- --------- -----------
Total liabilities and stockholders' equity.................................. $ 3,007 $ 46,851 $ 43,863
--------- --------- -----------
--------- --------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-9
<PAGE>
U S LIQUIDS INC.

CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- ------------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES............................................... $ 8,039 $ 11,127 $ 14,285 $ 6,757 $ 17,734
COST OF OPERATIONS..................................... 7,558 9,935 11,790 5,751 11,362
--------- --------- --------- ----------- -----------
Gross profit......................................... 481 1,192 2,495 1,006 6,372
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 643 863 1,440 527 2,716
--------- --------- --------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS.......................... (162) 329 1,055 479 3,656
INTEREST EXPENSE....................................... 110 159 397 122 1,032
OTHER (INCOME) EXPENSE, net............................ (1) 18 (88) (26) 105
--------- --------- --------- ----------- -----------
INCOME (EXPENSE) BEFORE PROVISION (BENEFIT) FOR INCOME
TAXES................................................ (271) 152 746 383 2,519
PROVISION (BENEFIT) FOR INCOME TAXES................... (89) 49 255 132 1,033
--------- --------- --------- ----------- -----------
Net income (loss).................................... $ (182) $ 103 $ 491 $ 251 $ 1,486
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-10
<PAGE>
U S LIQUIDS INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED
---------------------- ----------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
--------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993....................... 10,000 $ 10 1,700,000 $ 17 $ 2 $ (294)
Net loss....................................... -- -- -- -- -- (182)
Preferred stock dividends...................... -- -- -- -- -- (7)
--------- ----- ---------- ----- ----------- -----------
BALANCE, December 31, 1994....................... 10,000 10 1,700,000 17 2 (483)
Net income..................................... -- -- -- -- -- 103
Preferred stock dividends...................... -- -- -- -- -- (7)
--------- ----- ---------- ----- ----------- -----------
BALANCE, December 31, 1995....................... 10,000 10 1,700,000 17 2 (387)
Net income..................................... -- -- -- -- -- 491
Issuance of common stock....................... -- -- 3,538,875 35 382 --
Preferred stock dividends...................... -- -- -- -- -- (7)
Issuance of stock warrants..................... -- -- -- -- 995 --
--------- ----- ---------- ----- ----------- -----------
BALANCE, December 31, 1996....................... 10,000 10 5,238,875 52 1,379 97
Net income (unaudited)......................... -- -- -- -- -- 1,486
Distributions equal to the current
income taxes of the limited liability
corporation.................................. -- -- -- -- -- (171)
--------- ----- ---------- ----- ----------- -----------
BALANCE, June 30, 1997 (unaudited)............... 10,000 $ 10 5,238,875 $ 52 $ 1,379 $ 1,412
--------- ----- ---------- ----- ----------- -----------
--------- ----- ---------- ----- ----------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-11
<PAGE>
U S LIQUIDS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------------
1994 1995 1996 1996 1997
--------- --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ (182) $ 103 $ 491 $ 251 $ 1,486
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Depreciation and amortization.......................... 136 159 424 152 1,285
Deferred income tax provision (benefit)................ (86) 31 (121) (43) 152
Changes in operating assets and liabilities--
Accounts receivable.................................. (6) (539) (105) (35) 647
Inventories.......................................... (5) (288) 44 (107) (107)
Prepaid expenses and other current assets............ (11) (19) (635) (52) 4
Other assets......................................... (5) (20) (113) (27) (151)
Accounts payable and accrued liabilities............. 201 946 1,567 340 (575)
Closure, remediation and cell processing reserves.... -- -- (13) -- 154
--------- --------- --------- ------ -----------
Net cash provided by operating activities.......... 42 373 1,539 479 2,895
--------- --------- --------- ------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............... (178) (916) (1,795) (961) (1,676)
Net cash (paid for) acquired through acquisitions........ -- -- 5,985 (25) --
--------- --------- --------- ------ -----------
Net cash provided by (used in) investing
activities....................................... (178) (916) 4,190 (986) (1,676)
--------- --------- --------- ------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from (payments to) stockholders and related
party notes payable.................................... -- (6) (139) (61) 80
Proceeds from issuance of long-term obligations.......... 144 1,084 1,152 677 305
Principal payments on long-term obligations.............. (77) (564) (1,650) (110) (4,361)
Interest accrued on related-party notes payable.......... 47 50 56 28 28
Preferred stock dividends paid........................... (4) (7) -- -- --
Issuance of common stock................................. -- -- 417 -- --
Distributions equal to the current income taxes of the
limited liability corporation.......................... -- -- -- -- (171)
--------- --------- --------- ------ -----------
Net cash provided by (used in) financing
activities....................................... 110 557 (164) 534 (4,119)
--------- --------- --------- ------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (26) 14 5,565 27 (2,900)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 51 25 39 38 5,604
--------- --------- --------- ------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 25 $ 39 $ 5,604 $ 65 $ 2,704
--------- --------- --------- ------ -----------
--------- --------- --------- ------ -----------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest................................... $ 110 $ 102 $ 339 $ 98 $ 1,028
Cash paid for income taxes............................... -- 2 7 -- 1,030
Assets acquired under capital leases..................... -- 88 -- -- 46
Assets acquired with stock warrants...................... -- -- 995 -- --
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-12
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

U S Liquids Inc. was founded November 18, 1996, and effective December 13,
1996 acquired certain assets and assumed certain liabilities of Campbell Wells,
L.P., and Campbell Wells NORM, L.P. (collectively, "Campbell Wells"), which are
wholly owned subsidiaries of Sanifill, Inc. ("Sanifill"). On June 17, 1997, U S
Liquids Inc. merged with Mesa Processing, Inc., and related companies ("Mesa")
and American WasteWater Inc. ("AWW") through poolings-of-interests transactions.

U S Liquids Inc. and subsidiary (collectively, "U S Liquids") treats and
disposes nonhazardous oil field waste ("NOW") generated in the exploration for
and production of oil and natural gas. U S Liquids has NOW facilities located in
Louisiana and Texas that service the Gulf Coast region of the United States.

Mesa and AWW treat and dispose non-hazardous commercial waste ("NCW"),
including the processing and recovering of marketable waste products generated
by restaurants, food processors, and other industries. Revenues are derived from
two principal sources: the sale of finished products and tipping and collection
fees received for treatment and disposal of NCW.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of U S Liquids,
Mesa and AWW (collectively, the Company) after elimination of all significant
intercompany accounts and transactions. The consolidated financial statements
for 1994 and 1995 represent the operations of Mesa and AWW prior to their
acquisition by the Company. The combined revenues and net income of Mesa and AWW
for the preacquisition period in 1996 were $13,459,000 and $479,000,
respectively.

INTERIM FINANCIAL INFORMATION

The interim consolidated financial statements as of June 30, 1997, and for
the six months ended June 30, 1996 and 1997, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
consolidated financial statements, have been included. The results of operations
for the interim periods are not necessarily indicative of the results for the
entire fiscal year.

USE OF ESTIMATES

The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

All highly liquid investments with an original maturity of three months or
less are classified as cash equivalents.

F-13
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RISK FACTORS

An investment in the Company's common stock involves a high degree of risk.
Those risks include, but are not limited to, government regulation, dependence
on the oil and gas industry and foreign customers, absence of a combined
operating history, reliance on key personnel and risks related to the Company's
acquisition strategy. For a more complete description of the Company's risks,
see "Risk Factors" included elsewhere in this prospectus.

CONCENTRATIONS OF CREDIT RISK

Accounts receivable potentially subject the Company to concentrations of
credit risk. At December 31, 1995, 37 percent and 10 percent, respectively, of
total accounts receivable are associated with two customers. At December 31,
1996, 41 percent and 16 percent, respectively, of total accounts receivable are
associated with two customers. In addition, sales to one customer represented 52
percent, 62 percent and 43 percent of total revenues for the years ended
December 31, 1994, 1995 and 1996, respectively.

The Company's customers are concentrated in the oil and gas industry in
Louisiana and Texas, the grease collection business in Texas and the chemical
processing and livestock feed industries in Mexico. Total sales to customers in
Mexico represented 80 percent, 82 percent and 70 percent of total revenues for
the years ended December 31, 1994, 1995 and 1996, respectively. Accounts
receivable with customers in Mexico represented approximately 64 percent and 9
percent of total accounts receivable at December 31, 1995 and 1996,
respectively. Management performs ongoing credit analyses of the accounts of its
customers and provides allowances as deemed necessary. Additionally, sales are
dollar-denominated and the majority of international sales are secured by
letters of credit.

INVENTORIES

Inventories are stated at the lower of cost or market and, at December 31,
1995 and 1996, consisted of finished grease products of $273,000 and $265,000,
respectively, and unprocessed grease of $91,000 and $74,000, respectively. Cost
is determined using the first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is recorded at cost. Improvements or
betterments which significantly extend the life of an asset are capitalized.
Expenditures for maintenance and repair costs are charged to operations as
incurred. The cost of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts in the year of
disposal. Gains and losses resulting from property disposals are included in
other income or expense. Depreciation is computed using the straight-line and
double-declining balance methods.

INSURANCE

The Company maintains various types of insurance coverage for its business,
including, without limitation, commercial general liability and commercial auto
liability, workers' compensation and employer liability, pollution legal
liability and a general umbrella policy. The Company has not incurred
significant claims or losses in excess of its insurance limits during the
periods presented in the accompanying consolidated financial statements.

F-14
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES

The Company will file a consolidated return for federal income tax purposes.
Income taxes for U S Liquids and Mesa are provided under the liability method
considering the tax effects of transactions reported in the financial statements
which are different from the tax return. The deferred income tax assets and
liabilities represent the future tax consequences of those differences, which
will either be taxable or deductible when the underlying assets or liabilities
are realized or settled. Prior to June 1997, AWW was a limited liability company
(LLC), as defined by the Internal Revenue Code, whereby it was not subject to
taxation for federal income tax purposes. Under LLC status, the equity owners
reported their shares of AWW's federal taxable earnings or losses on their
personal income tax returns. In June 1997, AWW converted to a C Corporation for
federal income tax purposes and has recorded current and deferred income tax
assets and liabilities existing on the date of conversion.

CLOSURE AND REMEDIATION RESERVES

The closure and remediation reserves represent accruals for the total
estimated future costs associated with the ultimate closure of the Company's
landfarm facilities, including costs of decommissioning and statutory monitoring
costs required during the closure and subsequent postclosure periods. Management
periodically reviews the level of these reserves and adjusts them to reflect its
current estimate of the total costs necessary to complete the closure and
remediation of its landfarm facilities. In conjunction with the Company's
acquisition of certain assets and assumption of certain liabilities of Campbell
Wells, Sanifill has agreed to maintain certain landfarm facility closure bonds
and related letters of credit totalling $4 million posted with the states of
Louisiana and Texas through December 31, 1997, at which time the Company will
replace these closure bonds and letters of credit with similar instruments.

REVENUE RECOGNITION AND CELL PROCESSING RESERVE

When waste is unloaded at a given site, the Company recognizes the related
revenue and records a reserve for the estimated amount of expenses to be
incurred with the treatment of the oil field waste in order to match revenues
with their related costs. The related treatment costs are charged against the
reserve as such costs are incurred.

Mesa recognizes sales revenue when the product is shipped to the customer.
Service revenue is recognized when the material to be processed is unloaded at
Mesa's plant, if delivered by the customer, or at the time the service is
performed, if Mesa collects the materials from the customer's location.

AWW recognizes revenue from processing services when customers unload their
wastes at AWW's facilities. AWW recognizes revenue from grease sales when the
product is delivered to a rendering company.

F-15
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
The Company's revenues consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Product sales................................................. $ 7,023 $ 9,866 $ 11,474
Processing revenues........................................... 1,002 1,231 2,779
Other revenues................................................ 14 30 32
--------- --------- ---------
Total....................................................... $ 8,039 $ 11,127 $ 14,285
--------- --------- ---------
--------- --------- ---------
</TABLE>

NEW ACCOUNTING STANDARD

Effective January 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Under these
provisions, the Company reviews certain long-lived assets for impairment
whenever events indicate that the carrying amount of an asset may not be
recoverable and recognizes an impairment loss under certain circumstances in the
amount by which the carrying value exceeds the fair value of the asset. The
adoption of SFAS No. 121 had no impact on the Company's financial position or
results of operations.

3. ACQUISITIONS:

THE CAMPBELL WELLS ACQUISITION

Effective December 14, 1996, U S Liquids Inc. purchased certain assets and
assumed certain liabilities of Campbell Wells by issuing a long-term promissory
note for $27,800,000 and warrants to purchase 1,000,000 shares of U S Liquids
Inc. common stock at an exercise price of $2.00 per share (the "Campbell Wells
Acquisition"). The total purchase price includes a calculation of the fair value
of the warrants at their date of issuance using the Black-Scholes pricing model
with the following assumptions:

<TABLE>
<S> <C>
Expected stock price volatility................................... 35.55%
Risk-free interest rate........................................... 6.35%
Expected life of warrants......................................... 10 years
</TABLE>

The Campbell Wells Acquisition was accounted for under the purchase method
of accounting, and the net assets and results of operations since the date of
the Campbell Wells Acquisition are included in the consolidated financial
statements. Costs were allocated to the net assets acquired based on
management's

F-16
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS: (CONTINUED)
estimate of the fair value of the acquired assets and liabilities at the date of
the Campbell Wells Acquisition. The purchase price has been allocated as follows
(in thousands):

<TABLE>
<S> <C>
Acquired assets--
Cash and cash equivalents....................................... $ 6,001
Accounts receivable............................................. 3,980
Prepaid expenses and other current assets....................... 61
Property, plant and equipment................................... 30,693
Deferred income tax asset....................................... 1,628
Other assets.................................................... 271
Assumed liabilities--
Accounts payable and accrued liabilities........................ (1,966)
Closure, remediation and cell processing reserves............... (10,245)
Deferred income tax liability................................... (1,628)
---------
Total purchase price.......................................... $ 28,795
---------
---------
</TABLE>

The following table sets forth unaudited pro forma income statement data to
present the effect of the Campbell Wells Acquisition on the Company's results of
operations for the years ended December 31, 1995 and 1996. The income statement
data for Campbell Wells may not necessarily be indicative of the results of
operations that would have been realized had Campbell Wells been operated as a
stand-alone entity.

As a wholly-owned subsidiary of Sanifill, Campbell Wells maintained a
noninterest-bearing intercompany account with Sanifill for recording
intercompany charges for costs and expenses, intercompany purchases of equipment
and additions under capital leases and intercompany transfers of cash, among
other transactions. It is not feasible to ascertain the amount of related
interest expense which would have been recorded in the statements of income had
Campbell Wells been operated as a stand-alone entity. The following unaudited
pro forma income statement data includes the revenues and net income of the
Company, plus the acquired operations of Campbell Wells, as if the Campbell
Wells Acquisition were effective on the first day of the year being reported:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
--------- ---------
<S> <C> <C>
(UNAUDITED)
(IN THOUSANDS)
Revenues................................................................ $ 26,246 $ 31,138
Net income, excluding intercompany interest expense..................... 1,251 2,370
</TABLE>

Pro forma adjustments for all periods included in the preceding table
primarily relate to (a) the recording of interest expense on the debt incurred
to effect the Campbell Wells Acquisition, (b) the adjustment to depreciation
expense to reflect the revaluation of property, plant and equipment in
conjunction with the Campbell Wells Acquisition purchase price allocation, (c)
the adjustment of insurance expense to reflect the differences in insurance
expenses recorded by U S Liquids compared to the

F-17
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS: (CONTINUED)
intercompany insurance expenses allocated to Campbell Wells from Sanifill, and
(d) the related income tax effects of these adjustments.

The pro forma combined results presented above are not necessarily
indicative of actual results which might have occurred had the operations and
management teams of the Company and the acquired operations of Campbell Wells
been combined at the beginning of the periods presented.

ACQUISITIONS MADE BY MESA

In March 1996, Mesa acquired all of the assets of the trap and septic
division of a grease processing company through the purchase of assets. In
September 1996, Mesa acquired all of the assets and assumed all liabilities of a
feed and tallow processing company through the purchase of stock. Mesa paid
$16,000 in cash, net of cash acquired, and issued $925,000 of debt obligations
in conjunction with both of these acquisitions (collectively, the Purchased
Companies). Both acquisitions were accounted for under the purchase method of
accounting, and the net assets and results of operations of the Purchased
Companies since their respective dates of acquisition are included in the
consolidated financial statements.

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS:

Prepaid expenses and other current assets at December 31, 1995 and 1996,
consist of the following:

<TABLE>
<CAPTION>
1995 1996
----- ---------
<S> <C> <C>
(IN THOUSANDS)
Prepaid insurance........................................................... $ 62 $ 668
Other....................................................................... 5 96
--- ---------
$ 67 $ 764
--- ---------
--- ---------
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment at December 31, 1995 and 1996, consist of the
following:

<TABLE>
<CAPTION>
DEPRECIABLE
LIFE (YEARS) 1995 1996
------------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Landfarm and treatment sites.......................................... 25 $ -- $ 14,781
Land.................................................................. -- 298 508
Buildings and improvements............................................ 5-39 859 14,496
Machinery and equipment............................................... 3-15 667 4,260
Vehicles.............................................................. 3-5 303 1,176
Furniture and fixtures................................................ 3-5 37 255
--------- ---------
2,164 35,476
Less--Accumulated depreciation........................................ (484) (894)
--------- ---------
$ 1,680 $ 34,582
--------- ---------
--------- ---------
</TABLE>

F-18
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. OTHER ASSETS:

Other assets at December 31, 1995 and 1996, consist of the following:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Note receivable............................................................. $ -- $ 196
Asset held for resale....................................................... -- 75
Noncompetition agreements................................................... -- 74
Organization costs.......................................................... -- 58
SBA loan costs.............................................................. 43 42
Other....................................................................... 40 116
--- ---------
83 561
Less--Accumulated amortization.............................................. (14) (28)
--- ---------
$ 69 $ 533
--- ---------
--- ---------
</TABLE>

The Company has entered into noncompetition agreements with former owners of
the Purchased Companies that are being amortized under the straight-line method
for five years over the terms of the agreements. Purchased collection routes and
contracts are amortized under the straight-line method over the life of the
applicable contracts.

7. ACCRUED LIABILITIES:

Accrued liabilities at December 31, 1995 and 1996, consist of the following:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Insurance premium promissory note, interest rate at 6.0%, due July 1997...... $ -- $ 589
Income taxes payable......................................................... 14 340
Accrued interest on related-party notes payable.............................. -- 204
Accrued salaries............................................................. -- 161
Engineering and testing fees................................................. -- 147
Other accrued taxes.......................................................... 64 120
Other........................................................................ 46 586
--------- ---------
$ 124 $ 2,147
--------- ---------
--------- ---------
</TABLE>

F-19
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES:

The components of the provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current--
Federal............................................................. $ (4) $ 12 $ 327
State............................................................... 1 6 49
--------- --------- ---------
(3) 18 376
Deferred--
Federal............................................................. (73) 30 (107)
State............................................................... (13) 1 (14)
--------- --------- ---------
(86) 31 (121)
--------- --------- ---------
$ (89) $ 49 $ 255
--------- --------- ---------
--------- --------- ---------
</TABLE>

The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before provision (benefit) for
income taxes result from the following:

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Tax at statutory rate................................................. $ (94) $ 52 $ 253
Add--
State income taxes, net of federal benefit........................ (8) 6 24
Other............................................................. 13 (9) (22)
--------- --------- ---------
$ (89) $ 49 $ 255
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-20
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. INCOME TAXES: (CONTINUED)
The tax effects of significant temporary differences representing deferred
income tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Deferred income tax assets--
Cell processing reserve................................................... $ -- $ 1,577
Accrued expenses.......................................................... 37 184
Net operating losses...................................................... 71 135
Other..................................................................... 11 15
--------- ---------
Total................................................................... 119 1,911
Deferred income tax liabilities--
Property and equipment.................................................... -- (1,622)
Inventory................................................................. (50) (77)
Conversion from cash to accrual........................................... -- (21)
Other..................................................................... (4) (5)
--------- ---------
Total................................................................... (54) (1,725)
--------- ---------
Net deferred income tax asset........................................... $ 65 $ 186
--------- ---------
--------- ---------
</TABLE>

F-21
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. LONG-TERM OBLIGATIONS:

The Company's long-term obligations at December 31, 1995 and 1996, consist
of the following:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Note payable to Sanifill, interest at 7.5%, due in 19 quarterly
installments of $1,390,000, maturing December 2001, secured by
substantially all of the assets of U S Liquids......................... $ -- $ 26,410

SBA loan with a commercial bank, interest at prime rate (8.25% at
December 31, 1996) plus 2.75%, due in monthly installments, with
interest-only payments to June 1996, and principal and interest
payments of $10,816 thereafter, maturing in June 2014, secured by
substantially all of the assets of AWW................................. 559 989

Notes payable to banks and credit institutions, interest ranging from
5.9% to 13.75%, due in monthly installments ranging from $660 to
$1,859, maturing January 1997 to August 2001, secured by vehicles and
equipment.............................................................. 76 306

Notes payable to individuals, interest ranging from noninterest-bearing
to 10.0%, due in monthly installments ranging from $425 to $8,333,
maturing May 1999 to October 2006, secured by property, plant and
equipment.............................................................. 223 1,195

Notes payable to individuals, interest ranging from 3% to 18%, due in
monthly installments ranging from $295 to $2,854, maturing January 1998
to August 2001......................................................... 317 512

Obligations under capital leases, interest ranging from 8.3% to 9.5%, due
in monthly installments ranging from $396 to $822, secured by
vehicles............................................................... 63 45

Other.................................................................... 20 28

Less--Current maturities of long-term obligations........................ (214) (5,817)
--------- ---------

$ 1,044 $ 23,668
--------- ---------
--------- ---------
</TABLE>

Under the terms of the Company's note agreement with Sanifill, the Company
is required to maintain certain minimum financial ratios and is subject to
certain other restrictions and covenants.

AWW's Small Business Administration (SBA) loan requires certain restrictions
and covenants, including provisions prohibiting mergers with and acquisitions of
AWW by other entities and the payment of dividends. AWW's loan agreement with
the SBA currently provides that the SBA loan may be due and payable in full upon
AWW merging with other entities. Accordingly, the SBA loan has been included in
current maturities of long-term obligations at December 31, 1996.

F-22
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. LONG-TERM OBLIGATIONS: (CONTINUED)
Related-party notes payable at December 31, 1995 and 1996, consist of the
following:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Notes payable to equity owners, interest at 10%, with interest
payable yearly and principal due at maturity................... $ 552 $ 608
--------- ---------
--------- ---------
</TABLE>

The related-party notes payable are subordinated to the SBA note. Under the
subordination agreement, no principal or interest has been or will be paid on
the related-party notes payable until the entire balance of the SBA note is
repaid. Included in related-party notes payable is accrued interest of $148,000
and $204,000 at December 31, 1995 and 1996, respectively. The principal portion
of the related party notes payable has been reclassified as a current liability
at December 31, 1996 and the accrued interest on the related-party notes payable
has been included in accrued liabilities at December 31, 1996 in conjunction
with the anticipated retirement of the SBA note.

Principal payments of long-term debt obligations and minimum lease payments
under operating and capital lease obligations as of December 31, 1996, are as
follows:

<TABLE>
<CAPTION>
OPERATING CAPITAL LONG-TERM
LEASES LEASES DEBT
----------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Year ending December 31--
1997..................................................... $ 323 $ 35 $ 5,785
1998..................................................... 283 14 6,091
1999..................................................... 272 -- 5,847
2000..................................................... 283 -- 5,813
2001..................................................... 203 -- 5,722
Thereafter............................................... 6,142 -- 182
----------- --------- -----------
7,506 49 29,440
Less--Interest portion of capital leases................... -- (4) --
----------- --------- -----------
Total.................................................... $ 7,506 $ 45 $ 29,440
----------- --------- -----------
----------- --------- -----------
</TABLE>

Management estimates that the fair value of its debt obligations
approximates the historical value of $29,440,000 at December 31, 1996.

10. STOCK OPTIONS:

On November 20, 1996, U S Liquids established a stock option plan and
authorized the issuance of 1,560,000 stock options for various corporate
purposes. In accordance with this authorization, on November 20, 1996, the
Company granted 301,875 incentive stock options to employees and 468,750
nonqualified stock options to various other individuals for corporate
development purposes. Each of these options has an exercise price of $.02, vests
equally in three annual installments, commencing on the first anniversary of the
date upon which the options were granted, and expires after being outstanding
for a period of 10 years. The nonqualified stock options are further contingent
upon the successful completion of certain corporate development activities and,
accordingly, no calculation of the fair value of the nonqualified stock options

F-23
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. STOCK OPTIONS: (CONTINUED)
will be determined or recorded until the realization of such contingencies. No
stock options have been exercised or forfeited through December 31, 1996.

The Company accounts for its employee stock options under the Accounting
Principles Board Opinion No. 25, in which no compensation expense is recognized
for employee stock options if there is no intrinsic value at the date of grant.
Had compensation expense for these employee stock options been determined
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income for 1996 would have been reduced to $488,000. The fair
value of each employee stock option was estimated on the date of grant using the
Black-Scholes pricing model with the following assumptions:

<TABLE>
<S> <C>
Expected stock price volatility........................... 35.55%
Risk-free interest rate................................... 6.17%
Expected life of options.................................. 10 years
</TABLE>

11. COMMITMENTS AND CONTINGENCIES:

NONCOMPETE AND NOW DISPOSAL AGREEMENTS

In conjunction with the Campbell Wells Acquisition, the Company assumed
certain rights and obligations pursuant to an earlier sales agreement entered
into during 1996 between Sanifill and Newpark Resources, Inc. ("Newpark"),
whereby Sanifill sold an unrelated portion of Campbell Wells to Newpark (the
"Newpark Transaction"). The Company has assumed Sanifill's position in a
noncompete agreement entered into between Sanifill and Newpark in conjunction
with the Newpark Transaction, in which Sanifill agreed not to compete with
Newpark in the collection of NOW from offshore sources for a period of five
years.

U S Liquids has also assumed a disposal agreement entered into between
Campbell Wells and Newpark in conjunction with the Newpark transaction, in which
Newpark agreed to deliver, and Campbell Wells agreed to accept at its Louisiana
landfarms, certain quantities of NOW each year for the next 25 years for a
specified price, subject to adjustment, and at specified annual minimum volume
levels.

CLOSURE OF LACASSINE FACILITY

As a part of the Campbell Wells Acquisition, the Company has agreed to take
full responsibility and assume all liabilities relating to the closure and
postclosure requirements of the Lacassine, Louisiana, facility, which previously
processed and treated oil field naturally occurring radioactive material.
Sanifill has agreed to reimburse the Company up to $1.3 million of costs
incurred with such closure and postclosure requirements. Management of the
Company believes the $1.3 million indemnity is adequate to cover expected
closure costs.

LEASES

The Company leases office facilities and certain equipment under
noncancelable operating leases for periods ranging from one to 27 years. Rent
expense was approximately $99,000, $98,000 and $171,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.

NONCOMPETE AGREEMENTS WITH PURCHASED COMPANIES

In conjunction with the acquisition of the Purchased Companies, the Company
has agreed not to solicit certain previous customers of the Purchased Companies
for a period of 18 months.

F-24
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
LEGAL PROCEEDINGS

The Company is involved in various legal actions arising in the ordinary
course of business. Management does not believe that the outcome of such legal
actions will have a material adverse effect on the Company's financial position
or results of operations.

Prior to the closing of the Campbell Wells Acquisition, several lawsuits
were brought against Campbell Wells based upon the operation of certain of the
Louisiana landfarms purchased by the Company as part of the Campbell Wells
Acquisition. In one of the lawsuits filed against Campbell Wells approximately
300 individuals residing in and around Grand Bois, Louisiana are seeking
unspecified monetary damages allegedly suffered as a result of (i) odors
allegedly emitted by NOW received from Exxon Company U.S.A. at the Bourg,
Louisiana landfarm in March 1994, and (ii) alleged air, water and soil
contamination in connection with ongoing operations at the facility. Trial is
set to commence in this matter on January 20, 1998. A second lawsuit, brought by
one individual, seeks unspecified monetary damages allegedly suffered as a
result of odors allegedly emitted by NOW received from Exxon at the Bourg
landfarm in March 1994. The trial date for this lawsuit is also January 20,
1998. A third lawsuit, filed as a class action, seeks unspecified monetary
damages allegedly suffered as a result of alleged air, water and soil
contamination in connection with ongoing operations at the Mermentau, Louisiana
landfarm. No trial date has been set for this lawsuit. In a fourth lawsuit, six
individuals filed suit on March 7, 1996 against Campbell Wells in Louisiana
state court, seeking preliminary and permanent injunctive relief against certain
treatment operations conducted at the Bourg, Louisiana landfarm which the
plaintiffs contend have resulted and will result in adverse health effects by
way of emissions of alleged air pollutants. The plaintiffs' request for a
preliminary injunction was heard during the summer of 1996. On December 30,
1996, the court entered an order granting in part and denying in part the relief
requested by the plaintiffs. Specifically, the court found that there was no
evidence that emissions resulting from the treatment operations complained of
equalled or exceeded any relevant safety standard, health standard or
occupational standard and, therefore, denied the plaintiffs' request for a
temporary injunction prohibiting such treatment operations. The court did,
however, preliminarily enjoin Campbell Wells (and, thus, indirectly the Company)
from treating NOW received from Exxon Company U.S.A. in March 1994 in one
particular treatment cell located within 500 feet of a building in which one of
the plaintiffs resides. In connection therewith, the court ordered that the
Commissioner of the Louisiana Department of Conservation be made a party to the
litigation and substituted for the plaintiffs on the limited issue of whether
Campbell Wells has violated the location criteria for the particular treatment
cell involved. No trial date has been set for the plaintiffs' request for
permanent injunctive relief; however, based upon the court's rulings from the
preliminary injunction trial and initial discussions with the Louisiana
Department of Conservation, the Company believes that any permanent injunctive
relief that might be entered against Campbell Wells will not have a material
adverse effect upon the Company's operations at the Bourg landfarm.

Under the terms of the Campbell Wells Acquisition Agreement, Sanifill agreed
to remain responsible for the contingent liabilities associated with each of the
above-referenced lawsuits. In addition, subject to certain limitations, Sanifill
has agreed to indemnify the Company from and against all liabilities associated
with such lawsuits up to a maximum of $10 million. See "Certain Transactions"
included elsewhere in this Prospectus. The Company believes that the ultimate
disposition of these proceedings will not have a material adverse effect on the
Company's financial condition or results of operations.

F-25
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. SEGMENT INFORMATION:

The Company's nonhazardous commercial waste (NCW) operations are conducted
by Mesa and AWW. The Company's NOW operations are conducted by U S Liquids. The
following is a summary of key business segment information:

<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Revenues--
NOW.................................................................. $ -- $ -- $ 826
NCW.................................................................. 8,039 11,127 13,459
--------- --------- ---------
Total.............................................................. $ 8,039 $ 11,127 $ 14,285
--------- --------- ---------
--------- --------- ---------
Income from operations--
NOW.................................................................. $ -- $ -- $ 126
NCW.................................................................. (162) 329 929
--------- --------- ---------
Total.............................................................. $ (162) $ 329 $ 1,055
--------- --------- ---------
--------- --------- ---------
Identifiable assets--
NOW.................................................................. $ -- $ -- $ 41,152
NCW.................................................................. 1,450 3,007 5,699
--------- --------- ---------
Total.............................................................. $ 1,450 $ 3,007 $ 46,851
--------- --------- ---------
--------- --------- ---------
Depreciation, depletion and amortization expense
NOW.................................................................. $ -- $ -- $ 78
NCW.................................................................. 136 159 346
--------- --------- ---------
Total.............................................................. $ 136 $ 159 $ 424
--------- --------- ---------
--------- --------- ---------
Capital expenditures--
NOW.................................................................. $ -- $ -- $ --
NCW.................................................................. 178 916 1,795
--------- --------- ---------
Total.............................................................. $ 178 $ 916 $ 1,795
--------- --------- ---------
--------- --------- ---------
</TABLE>

13. SUBSEQUENT EVENTS:

On June 16, 1997, the Company declared a one for two reverse stock split
whereby the number of all outstanding shares of the Company's common stock and
shares pursuant to previously issued warrants and granted stock options have
been exchanged and reduced by one-half. Accordingly, the consolidated financial
statements have been restated to reflect the adjusted number of shares, warrants
and options.

On June 16, 1997, the Company amended and restated its certificate of
incorporation and bylaws to provide, among other things, for the authorization
of 10 million shares of $.01 par value preferred stock and for the amount of
authorized common stock to be increased to 50 million shares.

On June 23, 1997, the Company amended its stock option plan to allow for a
maximum authorized shares amount of 15 percent of all outstanding stock, not to
exceed a total of 3,000,000 shares. In conjunction therewith, the Company
granted an additional 432,000 stock options to employees and directors at an
exercise price equal to the initial public offering price. In addition, the
Company has granted 270,000 warrants to underwriters and other individuals at an
exercise price equal to or exceeding the initial public offering price.

On June 26, 1997, U S Liquids filed a registration statement on Form S-1 for
the sale of its common stock.

14. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):

On July 31, 1997, the Company amended and restated its certificate of
incorporation and bylaws to provide, among other things, for the amount of
authorized common stock to be decreased to 30 million shares and for the amount
of authorized preferred stock to be decreased to 5 million shares.

F-26
<PAGE>
U S LIQUIDS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED): (CONTINUED)
In August 1997, one of the Company's subsidiaries was added as a defendant
in a lawsuit originally filed in 1994 against Campbell Wells and others in the
District Court of Jim Wells County, Texas. This dispute arose out of an
application filed by Waste Facilities, Inc. ("WFI"), the operator of a South
Texas NOW treatment facility, to renew its permit to treat NOW. The suit
alleges, among other things, that Campbell Wells and the other defendants
(including the Company's subsidiary) wrongfully interfered with WFI's ongoing
relations with its customers and with WFI's prospective contractual and business
relations. In addition, WFI has alleged that the defendants conspired to
wrongfully restrain trade and interfere with WFI's business. WFI's amended
petition seeks actual and punitive damages from each of the defendants.
Virtually all of the actions complained of by WFI occurred prior to the time
that the Company and the subsidiary involved were organized and, therefore, the
Company believes that the claims asserted against its subsidiary are without
merit.

F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To U S Liquids Inc.:

We have audited the accompanying balance sheets of the U S Liquids Inc.
Predecessor, which represents certain assets acquired and liabilities assumed by
U S Liquids Inc. from Campbell Wells, L.P. and Campbell Wells NORM, L.P.
(collectively "Campbell Wells") which are wholly-owned subsidiaries of Sanifill,
Inc., as of December 31, 1995 and December 13, 1996, and the related statements
of income for the years ended December 31, 1994 and 1995 and for the period
ended December 13, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2, the accompanying financial statements have been
prepared pursuant to the purchase agreement effective December 14, 1996, between
Sanifill, Inc. and U S Liquids Inc. and were prepared for the purpose of
complying with Rule 3-05 of Regulation S-X of the Securities and Exchange
Commission and are not intended to be a complete presentation of Campbell Wells'
assets, liabilities, operating results or cash flows on a stand-alone basis.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the balance sheet of the U S Liquids Inc. Predecessor
as of December 31, 1995 and December 13, 1996, and the results of its operations
for the years ended December 31, 1994 and 1995 and for the period ended December
13, 1996, pursuant to the purchase agreement referred to in Note 2 and in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
June 26, 1997

F-28
<PAGE>
U S LIQUIDS INC. PREDECESSOR

BALANCE SHEETS

(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 13,
1995 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................................... $ 286 $ 6,001
Accounts receivable, less allowance of $200 and $172............................... 6,393 4,053
Prepaid expenses and other current assets.......................................... 324 61
------------ ------------
Total current assets............................................................. 7,003 10,115
PROPERTY, PLANT AND EQUIPMENT, net................................................... 53,295 49,553
OTHER ASSETS......................................................................... 243 232
------------ ------------
Total assets..................................................................... $ 60,541 $ 59,900
------------ ------------
------------ ------------

LIABILITIES AND NET INTERCOMPANY BALANCE

CURRENT LIABILITIES:
Accounts payable................................................................... $ 2,875 $ 1,621
Accrued liabilities................................................................ 115 336
------------ ------------
Total current liabilities........................................................ 2,990 1,957
CELL PROCESSING RESERVE.............................................................. 7,803 7,745
CLOSURE AND REMEDIATION RESERVES..................................................... 2,619 1,969
DEFERRED INCOME TAXES................................................................ 12,571 14,554
------------ ------------
Total liabilities................................................................ 25,983 26,225

COMMITMENTS AND CONTINGENCIES

NET INTERCOMPANY BALANCE............................................................. 34,558 33,675
------------ ------------
Total liabilities and net intercompany balance................................... $ 60,541 $ 59,900
------------ ------------
------------ ------------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-29
<PAGE>
U S LIQUIDS INC. PREDECESSOR

STATEMENTS OF INCOME

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, PERIOD ENDED SIX MONTHS
-------------------- DECEMBER 13, ENDED JUNE
1994 1995 1996 30, 1996
--------- --------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES........................................................ $ 14,847 $ 15,119 $ 16,853 $ 7,617
COST OF OPERATIONS.............................................. 7,478 8,635 9,136 4,458
--------- --------- ------------ -----------
Gross profit.................................................. 7,369 6,484 7,717 3,159
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................... 2,626 2,989 2,524 1,498
--------- --------- ------------ -----------
Income from operations........................................ 4,743 3,495 5,193 1,661
INTEREST EXPENSE, excluding intercompany interest expense....... 105 246 353 122
OTHER INCOME, net............................................... (176) (51) (97) (27)
--------- --------- ------------ -----------
INCOME BEFORE PROVISION FOR INCOME TAXES........................ 4,814 3,300 4,937 1,566
PROVISION FOR INCOME TAXES...................................... 1,945 1,400 2,044 642
--------- --------- ------------ -----------
NET INCOME...................................................... $ 2,869 $ 1,900 $ 2,893 $ 924
--------- --------- ------------ -----------
--------- --------- ------------ -----------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-30
<PAGE>
U S LIQUIDS INC. PREDECESSOR

NOTES TO PREDECESSOR FINANCIAL STATEMENTS

1. THE ACQUISITION:

Effective December 13, 1996, U S Liquids Inc. ("U S Liquids") purchased
certain assets and assumed certain liabilities of Campbell Wells, L.P. and
Campbell Wells NORM L.P. ("Campbell Wells" the "U S Liquids Inc. Predecessor,"
or the "Company"), which are wholly-owned subsidiaries of Sanifill, Inc.
("Sanifill"), by issuing a long-term promissory note for $27.8 million and
warrants to purchase 1,000,000 shares of U S Liquids common stock at an exercise
price of $2.00 per share (the "Campbell Wells Acquisition"). Assets not
purchased and excluded from the accompanying predecessor financial statements
for all periods presented include transfer stations and other related assets of
Campbell Wells previously sold by Sanifill to Newpark Resources, Inc. (the
"Newpark Transaction").

The Company treats and disposes nonhazardous oil field waste ("NOW")
generated in the exploration for and production of oil and natural gas. The
Company has treatment facilities located in Louisiana and Texas that service the
Gulf Coast region of the United States. The Company also treats oil field
naturally occurring radioactive material at its treatment facility at Lacassine,
Louisiana.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

These financial statements have been prepared to present the financial
position and results of operations of Campbell Wells related to the assets
acquired and liabilities assumed by U S Liquids Inc. under the terms of the
Campbell Wells Acquisition described in Note 1 and in conformity with generally
accepted accounting principles.

The balance sheets and statements of income may not necessarily be
indicative of the financial position or results of operations that would have
been realized had Campbell Wells been operated as a stand-alone entity. The
statements of income include the amounts allocated by Sanifill to Campbell Wells
for selling, general and administrative expenses based on a percentage of
revenues and direct payroll based costs. Management believes this allocation is
reasonable.

As a wholly-owned subsidiary of Sanifill, Campbell Wells maintained a
noninterest-bearing intercompany account with Sanifill for recording
intercompany charges for costs and expenses, intercompany purchases of equipment
and additions under capital leases, and intercompany transfers of cash, among
other transactions. It is not feasible to ascertain the amount of related
interest expense which would have been recorded in the accompanying statements
of income had Campbell Wells been operated as a stand-alone entity. Sanifill did
not maintain debt balances specifically related to the operations of Campbell
Wells nor did Sanifill allocate any interest charges to Campbell Wells relating
to Sanifill's corporate debt. The interest expense reflected in the accompanying
statements of income represents the interest portion of capital lease payments
which were paid by Sanifill and directly charged to Campbell Wells.

Due to the manner in which Sanifill intercompany transactions were recorded
and also due to carve out matters relating to intercompany transactions
associated with the portion of Campbell Wells which was sold by Sanifill to
Newpark, it is not feasible to present a detailed analysis of transactions
reflected in the intercompany balance with Sanifill. The change in the
intercompany balance with Sanifill (net of income) was ($409,000), $462,000, and
$3,776,000 for the years ended December 31, 1994, 1995 and for the period ended
December 13, 1996, respectively.

F-31
<PAGE>
U S LIQUIDS INC. PREDECESSOR

NOTES TO PREDECESSOR FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
It is also not feasible to present complete statements of cash flows,
including unaudited interim cash flow data, due to the nature and manner of
recording of intercompany transactions; however, the following information
presents certain cash flow data related to the operations of Campbell Wells.

CASH FLOW INFORMATION

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 PERIOD ENDED
-------------------- DECEMBER 13,
1994 1995 1996
--------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities--
Net income............................................... $ 2,869 $ 1,900 $ 2,893
Adjustments to reconcile net income to net cash provided
by operating activities--
Depreciation........................................... 2,860 3,025 2,594
Deferred income tax provision (benefit)................ 1,234 (413) 1,983
Changes in operating assets and liabilities--
Accounts receivable.................................. (3,118) 706 2,340
Prepaid expenses and other current assets............ (8) (130) 263
Other assets......................................... (41) 58 11
Accounts payable and accrued liabilities............. (228) 1,812 (1,033)
Closure, remediation and cell processing reserves.... 340 (148) (708)
--------- --------- -------------
Net cash provided by operating activities................ $ 3,908 $ 6,810 $ 8,343
--------- --------- -------------
--------- --------- -------------
</TABLE>

INTERIM FINANCIAL INFORMATION

The interim financial statement for the six months ended June 30, 1996, is
unaudited, and certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally accepted
accounting principles, have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the results of operations with respect to the interim financial
statement, have been included. The results of operations for the interim period
are not necessarily indicative of the results for the entire fiscal year.

USE OF ESTIMATES

The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets acquired
and liabilities assumed, the disclosure of contingent assets acquired and
liabilities assumed at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

CASH AND CASH EQUIVALENTS

All highly liquid investments with an original maturity of three months or
less are classified as cash equivalents.

F-32
<PAGE>
U S LIQUIDS INC. PREDECESSOR

NOTES TO PREDECESSOR FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CONCENTRATIONS OF CREDIT RISK

Accounts receivable potentially subject the Company to concentrations of
credit risk. At December 31, 1995, two customers accounted for 17 percent and 11
percent, respectively, of the total accounts receivable balance. At December 13,
1996, 19 percent and 50 percent of the total accounts receivable are associated
with two customers, respectively.

In 1994, one customer accounted for 19 percent of total revenues. During
1995, two customers accounted for 33 percent and 22 percent, respectively, of
total revenues. During 1996, two customers accounted for 41 percent and 31
percent, respectively, of total revenues.

The Company's customers are concentrated in the oil and gas industry in
Louisiana and Texas.

PROPERTY, PLANT AND EQUIPMENT

CLOSURE AND REMEDIATION RESERVES

The closure and remediation reserves represent accruals for the total
estimated future costs associated with the ultimate closure of the Company's
landfarm facilities, including costs of decommissioning and statutory monitoring
costs required during the closure and subsequent postclosure periods. Management
periodically reviews the level of these reserves and adjusts them to reflect its
current estimate of the total costs necessary to complete the closure and
remediation of its landfarm facilities. In conjunction with U S Liquids'
acquisition of certain assets and assumption of certain liabilities of Campbell
Wells, Sanifill has agreed to maintain landfarm facility closure bonds and
related letters of credit totalling $4 million posted with the states of
Louisiana and Texas through December 31, 1997, at which time U S Liquids will
replace these closure bonds and letters of credit with similar instruments.

REVENUE RECOGNITION AND CELL PROCESSING RESERVE

When waste is unloaded at a given site, Campbell Wells recognizes the
related revenue and records a reserve for the estimated amount of expenses to be
incurred with the treatment of the oil field waste in order to match revenues
with their related costs. The related treatment costs are charged against the
reserve as such costs are incurred.

INCOME TAXES

The operations of Campbell Wells were included in the consolidated U.S.
federal income tax return of Sanifill, Inc., and no allocations of income taxes
were reflected in the historical statements of operations. For purposes of these
predecessor financial statements, current and deferred income taxes have been
provided on a separate return basis.

F-33
<PAGE>
U S LIQUIDS INC. PREDECESSOR

NOTES TO PREDECESSOR FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
NEW ACCOUNTING STANDARD

Effective January 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Under these
provisions, the Company reviews certain long-lived assets for impairment
whenever events indicate that the carrying amount of an asset may not be
recoverable and recognizes an impairment loss under certain circumstances in the
amount by which the carrying value exceeds the fair value of the asset. In
making this assessment, the Company considered the estimated future undiscounted
cash flows of the Company's long-lived assets on the basis of continuing
operations, versus the current market value of such assets on a held for sale
basis. The adoption of SFAS No. 121 had no impact on the Company's financial
position or results of operations.

3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:

Prepaid expenses and other current assets at December 31, 1995, and December
13, 1996, consist of the following:

<TABLE>
<CAPTION>
1995 1996
--------- -----
(IN THOUSANDS)
<S> <C> <C>
Closure bond................................................................ $ 211 $ --
Prepaid expenses............................................................ 33 43
Notes receivable, current portion........................................... 33 16
Other....................................................................... 47 2
--------- ---
$ 324 $ 61
--------- ---
--------- ---
</TABLE>

4. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment at December 31, 1995, and December 13, 1996,
consist of the following:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
DEPRECIABLE
LIFE
-------------
(YEARS) (IN THOUSANDS)
<S> <C> <C> <C>
Landfarm and treatment facilities.......................... 25 $ 56,732 $ 56,573
Buildings and improvements................................. 10-12 532 659
Machinery and equipment.................................... 3-5 7,494 6,445
Vehicles................................................... 3-5 826 755
Furniture and fixtures..................................... 3 355 359
--------- ---------
65,939 64,791
Less--Accumulated depreciation............................. (12,644) (15,238)
--------- ---------
$ 53,295 $ 49,553
--------- ---------
--------- ---------
</TABLE>

Included in property, plant and equipment at December 31, 1995, and December
13, 1996 are approximately $3,133,000 and $3,133,000, respectively, of assets
held under capital leases.

F-34
<PAGE>
U S LIQUIDS INC. PREDECESSOR

NOTES TO PREDECESSOR FINANCIAL STATEMENTS (CONTINUED)

5. OTHER ASSETS:

Other assets at December 31, 1995, and December 13, 1996, consist of the
following:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Note receivable.............................................................. $ 196 $ 196
Other........................................................................ 47 36
--------- ---------
$ 243 $ 232
--------- ---------
--------- ---------
</TABLE>

6. ACCRUED LIABILITIES:

Accrued liabilities at December 31, 1995, and December 13, 1996, consist of
the following:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Engineering and testing fees................................................. $ 13 $ 140
Repairs and maintenance...................................................... -- 96
Accrued salaries and benefits................................................ 21 55
Escrow deposits.............................................................. 34 --
Accrued commissions.......................................................... 33 --
Other........................................................................ 14 45
--------- ---------
$ 115 $ 336
--------- ---------
--------- ---------
</TABLE>

7. INCOME TAXES:

The components of the provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, PERIOD ENDED
--------------------- DECEMBER 13,
1994 1995 1996
---------- --------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
Current--
Federal................................................ $ 2,750 $ 1,622 $ 40
State.................................................. (2,039) 191 21
---------- --------- ------
711 1,813 61
Deferred--
Federal................................................ (1,211) (511) 1,580
State.................................................. 2,445 98 403
---------- --------- ------
1,234 (413) 1,983
$ 1,945 $ 1,400 $ 2,044
---------- --------- ------
---------- --------- ------
</TABLE>

F-35
<PAGE>
U S LIQUIDS INC. PREDECESSOR

NOTES TO PREDECESSOR FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES: (CONTINUED)
The difference in income taxes provided (benefited) and the amounts
determined by applying the federal statutory tax rate to income (loss) before
provision (benefit) for income taxes result from the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD ENDED
-------------------- DECEMBER 13,
1994 1995 1996
--------- --------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
Tax at statutory rate............................................. $ 1,585 $ 1,104 $ 1,676
Add (deduct)--
State income taxes, net of federal benefit...................... 269 191 280
Nondeductible expenses.......................................... 91 105 88
--------- --------- ------
1,945 1,400 2,044
--------- --------- ------
--------- --------- ------
</TABLE>

The tax effects of significant temporary differences representing deferred
income tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 13,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax liabilities--
Property and equipment............................................... $ (4,511) $ (4,767)
Landfarm treatment facility.......................................... (14,287) (14,286)
Other................................................................ (1,729) (2,924)
------------ ------------
Total.............................................................. (20,527) (21,977)
------------ ------------
Deferred income tax assets--
Closure accrual...................................................... 2,015 1,967
Depletion............................................................ 2,338 2,344
Processing reserve................................................... 3,373 3,373
Other................................................................ 230 (261)
------------ ------------
Total.............................................................. 7,956 7,423
------------ ------------
Net deferred income tax liabilities................................ $ 12,571 $ 14,554
------------ ------------
------------ ------------
</TABLE>

8. COMMITMENTS AND CONTINGENCIES:

NONCOMPETE AGREEMENT

Under the terms of the Newpark Transaction, Campbell Wells and Sanifill
agreed not to compete with Newpark Resources, Inc., in the collection of NOW
from offshore sources for a period of five years. This agreement was assumed by
U S Liquids pursuant to the Campbell Wells Acquisition.

NOW DISPOSAL AGREEMENT

In connection with the Newpark Transaction, Campbell Wells signed a disposal
agreement dated June 4, 1996, in which Newpark Resources, Inc., agreed to
deliver, and Campbell Wells agreed to accept at its Louisiana landfarms, certain
quantities of NOW each year for the next 25 years for a specified price, subject
to adjustment, and at specified annual minimum volume levels. This agreement was
assumed by U S Liquids pursuant to the Campbell Wells Acquisition.

F-36
<PAGE>
U S LIQUIDS INC. PREDECESSOR

NOTES TO PREDECESSOR FINANCIAL STATEMENTS (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
LEASES

The Company leases office facilities under noncancelable leases. Rent
expense was approximately $214,000, $202,000 and $214,000 for the years ended
December 31, 1994 and 1995, and for the period ended December 13, 1996,
respectively.

LEGAL PROCEEDINGS

As of December 31, 1996, there were no material pending legal proceedings to
which U S Liquids was a party. However, prior to the closing of the Campbell
Wells Acquisition, several lawsuits were brought against Campbell Wells based
upon the operation of certain of the Louisiana landfarms purchased by U S
Liquids as part of the Campbell Wells Acquisition.

In one of the lawsuits filed against Campbell Wells approximately 300
individuals residing in and around Grand Bois, Louisiana are seeking unspecified
monetary damages allegedly suffered as a result of (i) odors allegedly emitted
by NOW received from Exxon Company U.S.A. at the Bourg, Louisiana landfarm in
March 1994, and (ii) alleged air, water and soil contamination in connection
with ongoing operations at the facility. Trial is set to commence in this matter
on January 20, 1998. A second lawsuit, brought by one individual, seeks
unspecified monetary damages allegedly suffered as a result of odors allegedly
emitted by NOW received from Exxon at the Bourg landfarm in March 1994. The
trial date for this lawsuit is also January 20, 1998. A third lawsuit, filed as
a class action, seeks unspecified monetary damages allegedly suffered as a
result of alleged air, water and soil contamination in connection with ongoing
operations at the Mermentau, Louisiana landfarm. No trial date has been set for
this lawsuit. In a fourth lawsuit, six individuals filed suit on March 7, 1996
against Campbell Wells in Louisiana state court, seeking preliminary and
permanent injunction relief against certain treatment operations conducted at
the Bourg, Louisiana landfarm which the plaintiffs contend have resulted and
will result in adverse health effects by way of emissions of alleged air
pollutants. The plaintiffs' request for a preliminary injunction was heard
during the summer of 1996. On December 30, 1996, the court entered an order
granting in part and denying in part the relief requested by the plaintiffs.
Specifically, the court found that there was no evidence that emissions
resulting from the treatment operations complained of equalled or exceeded any
relevant safety standard, health standard or occupational standard and,
therefore, denied the plaintiffs' request for a temporary injunction prohibiting
such treatment operations. The court did, however, preliminary enjoin Campbell
Wells (and, thus, indirectly U S Liquids) from treating NOW received from Exxon
Company U.S.A. in March 1994 in one particular treatment cell located within 500
feet of a building in which one of the plaintiffs resides. In connection
therewith, the court ordered that the Commissioner of the Louisiana Department
of Conservation be made a party to the litigation and substituted for the
plaintiffs on the limited issue of whether Campbell Wells has violated the
location criteria for the particular treatment cell involved. No trial date has
been set for the plaintiffs' request for permanent injunction relief; however,
based upon the court's rulings from the preliminary injunction trial and initial
discussions with Louisiana Department of Conservation, U S Liquids believes that
any permanent injunctive relief that might be entered against Campbell Wells
will not have a material adverse effect upon U S Liquids' operations at the
Bourg landfarm.

Under the terms of the Campbell Wells Acquisition Agreement, Sanifill agreed
to remain responsible for the contingent liabilities associated with each of the
above-referenced lawsuits. In addition, subject to certain limitations, Sanifill
has agreed to indemnify U S Liquids from and against all liabilities associated
with such lawsuits, up to a maximum of $10 million. See "Certain Transactions"
included elsewhere in this Prospectus. U S Liquids believes that the ultimate
disposition of these proceedings will not have a material adverse effect on U S
Liquids' financial condition or results of operations.

F-37
<PAGE>
U S LIQUIDS INC. PREDECESSOR

NOTES TO PREDECESSOR FINANCIAL STATEMENTS (CONTINUED)

9.EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):

In August 1997, one of U S Liquids' subsidiaries was added as a defendant
in a lawsuit originally filed in 1994 against Campbell Wells and others in the
District Court of Jim Wells County, Texas. This dispute arose out of an
application filed by Waste Facilities, Inc. ("WFI"), the operator of a South
Texas NOW treatment facility, to renew its permit to treat NOW. The suit
alleges, among other things, that Campbell Wells and the other defendants
(including U S Liquids' subsidiary) wrongfully interfered with WFI's ongoing
relations with its customers and with WFI's prospective contractual and
business relations. In addition, WFI has alleged that the defendants conspired
to wrongfully restrain trade and interfere with WFI's business. WFI's amended
petition seeks actual and punitive damages from each of the defendants.
Virtually all of the actions complained of by WFI occurred prior to the time
that U S Liquids and the subsidiary involved were organized and, therefore, U
S Liquids believes that the claims asserted against its subsidiary are without
merit.

F-38
<PAGE>
A photograph of a NOW treatment facility and a waste flow chart will be included
here.
<PAGE>
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NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 16
Dilution....................................... 16
Capitalization................................. 17
Dividend Policy................................ 17
Selected Financial Data........................ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 26
Management..................................... 40
Certain Transactions........................... 45
Principal Stockholders......................... 50
Description of Securities...................... 51
Underwriting................................... 54
Legal Matters.................................. 55
Experts........................................ 55
Additional Information......................... 56
Index to Financial Statements.................. F-1
</TABLE>

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

UNTIL SEPTEMBER 14, 1997 (25 CALENDAR DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN SHARES OF THE COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

1,500,000 SHARES

[LOGO]

COMMON STOCK
---------------------

PROSPECTUS

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

VAN KASPER & COMPANY

SANDERS MORRIS MUNDY

AUGUST 19, 1997

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