<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1997
REGISTRATION NO. 333-30065
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
U S LIQUIDS INC.
(Exact name of Registrant as specified in charter)
DELAWARE 8980 76-0519797
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
W. GREGORY ORR
PRESIDENT
411 N. SAM HOUSTON PARKWAY EAST, SUITE 400
HOUSTON, TEXAS 77060-3545
(281) 272-4500
(Name and address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices and agent for service)
--------------------------
COPIES TO:
JOHN D. ROBERTSON, ESQ. HAYDEN J. TRUBITT, ESQ.
Hartzog Conger & Cason Brobeck, Phleger & Harrison LLP
201 Robert S. Kerr, Suite 1600 550 West C Street, Suite 1300
Oklahoma City, Oklahoma 73102 San Diego, California 92101-3532
(405) 235-7000 (619) 234-1966
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION: AUGUST 4, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE A SALE OF ANY OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
<PAGE>
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. It is currently
anticipated that the initial public offering price for the Common Stock will be
between $8.50 and $10.50 per share. Application has been made to list the Common
Stock 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................................ $ $ $
Total(3)................................. $ $ $
</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 105,000
shares (or up to 120,750 shares if the over-allotment option is exercised in
full) 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 Commissions and Proceeds to Company will be $ ,
$ and $ 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 , 1997.
VAN KASPER & COMPANY SANDERS MORRIS MUNDY
AUGUST , 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
3
<PAGE>
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. 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.
Proposed AMEX symbol.............. USL
</TABLE>
- ------------------------
(1) Excludes 1,985,125 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) 580,000 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 "Business--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 an assumed 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 580,000 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 "Business--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 the caption
"Selected Financial Data." EBITDA is used by some investors as an
approximate measure of operating cash flow. EBITDA is not required by
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. 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 at an assumed offering price of $9.50 per share 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
<PAGE>
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. 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. Assuming an initial public offering price
of $9.50 per share, 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 may 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
<PAGE>
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
<PAGE>
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
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
Disposal Agreement and the open market price is expected to continue for the
duration of the Disposal Agreement.
9
<PAGE>
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
$8.9 million, or approximately 50.3%, was derived from the treatment and
disposal of NOW generated offshore.
From August 13, 1996 to December 31, 1996, Newpark delivered approximately
959,000 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 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
10
<PAGE>
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.
ADVERSE PUBLICITY
Due to the nature of its operations, the Company is subject to enhanced
scrutiny from regulatory authorities, the media and environmental groups.
Although the Company believes that it is presently, and has been in the past, in
substantial compliance with all laws and regulations applicable to its
operations, the Company has from time to time received complaints about odors
emitted from its facilities and other aspects of its operations and Campbell
Wells and Sanifill have been named in several lawsuits related to such
complaints. See "Business--Legal Proceedings." In addition, due to concerns
about the impact on the environment of NOW disposal techniques used in the
industry, proposals have been made at various times to rescind the exemption
that excludes NOW from regulation under RCRA. The Company has been advised that
a national television network is investigating, among other things, the
propriety of this exemption from RCRA, operations at one of the Company's
landfarms and the NOW industry in general, and intends to broadcast a program
regarding the results of its investigation in fall 1997. Adverse publicity or
political developments resulting from any such television program or other
scrutiny of the NOW industry or the Company's operations could have a material
adverse effect on the Company's business, results of operations and financial
condition.
11
<PAGE>
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 36.2% of the outstanding
shares of Common Stock (35.0% 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, 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
12
<PAGE>
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 by holders thereof could also adversely affect the market price of the
Common Stock. See "Description of Securities--Shares Eligible for Future Sale."
13
<PAGE>
Upon completion of this offering, the Company will also have outstanding
options and warrants to purchase 2,453,875 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.
14
<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), assuming a public
offering price of $9.50 per share and 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 assumed 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 agreement to make any future 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
an assumed 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>
Assumed 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, at an assumed initial
public offering price of $9.50.
<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>
15
<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 an assumed initial public offering price of $9.50 per share and
application of the 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 1,967,625 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."
16
<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
--------- --------- --------- --------- -------------
--------- --------- --------- --------- -------------
<CAPTION>
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(1)
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(1)
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>
(IN THOUSANDS)
PREDECESSOR
Total assets................................................................... $ 46,328 $ 54,448 $ 57,235 $ 60,541
Total debt..................................................................... $ 172 $ 91 $ 306 $ --
<CAPTION>
DECEMBER 31,
------------------------------------------
1992 1993 1994 1995
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED(1)
Total assets................................................................... $ 1,031 $ 1,277 $ 1,410 $ 3,007
Total debt..................................................................... $ 1,163 $ 1,320 $ 1,447 $ 2,010
<CAPTION>
<S> <C> <C>
PREDECESSOR
Total assets...................................................................
Total debt.....................................................................
JUNE 30,
1996 1997
--------- ---------
<S> <C> <C>
CONSOLIDATED(1)
Total assets................................................................... $ 46,851 $ 43,863
Total debt..................................................................... $ 29,950 $ 25,974
</TABLE>
- ------------------------------
(1) Excludes results of the Predecessor for periods prior to its acquisition by
the Company on December 13, 1996.
17
<PAGE>
------------------------------------------------------------------------
The following unaudited pro forma financial data presents certain data 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 an
assumed 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
<CAPTION>
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
<CAPTION>
AS
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 580,000 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 (the "Note Agreement"),
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. EBITDA is used by some investors as an approximate measure of
operating cash flow. EBITDA is not required by 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. 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 at an assumed offering price of $9.50 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
18
<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 for the 18-day period ended December 31, 1996 and the six months ended
June 30, 1997, and of the Mesa Companies and AWW for the 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 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
19
<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, such as cash management, finance and insurance. In
addition, the individual businesses 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.
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
20
<PAGE>
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 36.0% and NCW tipping and collection fees
contributed 8.0%. During the first six months of 1996, pro forma revenues were
derived 53.0% from NOW operations, 43.8% from finished product sales and 3.2%
from NCW 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 0.3%, while revenues from NCW treatment and disposal
increased by 112.6%. 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 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 overall NOW revenues to be equal to or slightly higher than what
they were in 1996 on a pro forma basis.
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 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 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
21
<PAGE>
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 other income of $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 56.4%. 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 18.4%. 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 16.6% to 3,260,000 barrels in 1996
from 2,796,000 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 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
22
<PAGE>
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 39.6% 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 21.2%
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.
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 promissory note issued by the Company to Sanifill in the Campbell Wells
Acquisition (the "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 (assuming an initial public offering price
23
<PAGE>
of $9.50 per share) and the application of the proceeds thereof, pro forma
working capital at June 30, 1997 was $9,832,000.
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 requirements 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.
24
<PAGE>
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"
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regulations, together with a similar "full pump" ordinance implemented by the
City of Houston in 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."
Market conditions in the Gulf Coast NOW disposal market are positive for the
following reasons. First, offshore drilling, which currently generates most of
the NOW delivered to the Company, is strong. 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 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
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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."
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 toward 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 EXISTING 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 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
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waste management industry and acquiring new businesses. See "Risk Factors--Risks
Related to the Company's Acquisition Strategy."
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 to effect any
acquisition.
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.
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. The Company also plans to expand
its collection infrastructure in order to increase plant utilization.
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."
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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 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%
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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."
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 is also permitted as a used cooking oil
rendering facility by the Texas Health Department. 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.
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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 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
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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 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. 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.
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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 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
33
<PAGE>
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 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, 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
34
<PAGE>
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.
- 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.
35
<PAGE>
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."
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.
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.
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<PAGE>
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 FOOTAGE OWNED/
LOCATION TREATMENT AND DISPOSAL OF OFFICE 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.
LEGAL PROCEEDINGS
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 the remaining 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
37
<PAGE>
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.
Sanifill has agreed to remain responsible for the contingent liabilities
associated with each of the above-referenced lawsuits. In addition, Sanifill has
agreed to indemnify the Company from and against all liabilities associated with
such lawsuits. The obligation of Sanifill to indemnify the Company is limited to
the lesser of the amount of 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. 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 these proceedings will not have a materially adverse
effect on the Company's operations or conditions (financial or otherwise).
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--Adverse
Publicity."
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."
38
<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
39
<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.
40
<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
41
<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.
42
<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.
43
<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 $6 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
44
<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.
45
<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
46
<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" 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" 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 5%
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 $1.2 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. Blanton's
brother-in-law, Tommy 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
100,000 (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 issuable under the SMM Warrant. The SMM Warrant also
grants its holder the "piggyback" registration
47
<PAGE>
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) 946,000, 375,000 and 500,000 shares of Common Stock (as
adjusted for the subsequent reverse stock split) for $18,920, $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.
48
<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)............ 2,438,500 46.5% 36.2%
</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.
49
<PAGE>
(4) Includes 20,375 shares held in an individual retirement account for the
benefit of Mr. Wilson and 20,375 shares held in an individual retirement
account for the benefit of 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.
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<PAGE>
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 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 1,270,000 shares of Common Stock consisting of (i) the
Sanifill Warrant for 1,000,000 at $2.00 per share; (ii) the Representatives'
Warrant for 105,000 shares at 120% of the IPO Price; (iii) the SMM Warrant for
100,000 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.
51
<PAGE>
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 and
AWW, up to 334,050 shares held by other members of management, up to 145,950
shares held by a principal stockholder and the 1,000,000 shares of Common Stock
issuable upon the exercise of the Sanifill 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.
52
<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.............................................................
Sanders Morris Mundy Inc.........................................................
----------
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 $ per
share. The Underwriters may allow and these dealers may reallow a concession not
in excess of $ 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
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, warrants to purchase from the
Company a number of shares of Common Stock equal to 7% of the total number of
shares issued in the offering (the "Representatives' Warrants"). The
Representatives' Warrants are exercisable, in whole or in part, at an exercise
price of 120% of the IPO
53
<PAGE>
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.
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 100,000
(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 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
54
<PAGE>
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.
55
<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-27
Balance Sheets..................................................................... F-28
Statements of Income............................................................... F-29
Notes to Financial Statements...................................................... F-30
</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 (based on an initial public offering price
of $9.50 per share). 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.
(C) Records interest expense on the debt incurred to effect the Campbell Wells
Acquisition.
(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 580,000 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 14,
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. These consolidated financial statements
are labeled as "supplemental" since the U S Liquids consolidated financial
statements have been restated to include the results of Mesa and AWW acquired
subsequent to December 31, 1996, for which postacquisition operating results
have not yet been published. However, these consolidated financial statements
will be the same as the restated consolidated financial statements which will be
issued after postacquisition operating results have been published.
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.
F-13
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or
less are classified as cash equivalents.
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.
F-14
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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.
There are no material pending legal proceedings to which U S Liquids 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. 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 the remaining 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>
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-27
<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-28
<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-29
<PAGE>
U S LIQUIDS INC. PREDECESSOR
NOTES TO PREDECESSOR FINANCIAL STATEMENTS
1. THE ACQUISITION:
Effective December 14, 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-30
<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-31
<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
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
method.
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-32
<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-33
<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-34
<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-35
<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
There are no pending legal proceedings to which the Company 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 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 the remaining 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-36
<PAGE>
A photograph of a NOW treatment facility and a waste flow chart will be included
here.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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................................ 15
Dilution....................................... 15
Capitalization................................. 16
Dividend Policy................................ 16
Selected Financial Data........................ 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
Business....................................... 25
Management..................................... 39
Certain Transactions........................... 44
Principal Stockholders......................... 49
Description of Securities...................... 50
Underwriting................................... 53
Legal Matters.................................. 54
Experts........................................ 54
Additional Information......................... 55
Index to Financial Statements.................. F-1
</TABLE>
--------------------------
UNTIL , 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 , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the securities being registered. All amounts are estimates
except for the fees payable to the SEC.
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
SEC registration fee.............................................................. $ 5,489
NASD filing fee................................................................... 2,311
American Stock Exchange listing fee............................................... 42,500
Printing expenses................................................................. 150,000
Accounting fees and expenses...................................................... 300,000
Legal fees and expenses........................................................... 200,000
Blue sky fees and expenses........................................................ 15,000
Transfer agent fees............................................................... 2,500
Miscellaneous..................................................................... 29,200
----------
TOTAL........................................................................... $ 747,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation contains a provision which
limits, to the fullest extent permitted by Delaware law, the liability of a
director to the Company or its stockholders from monetary damages for a breach
of such director's fiduciary duty as a director. Delaware law presently permits
such limitation of a director's liability except where a director (i) breaches
his or her duty of loyalty to the Company or its stockholders, (ii) fails to act
in good faith or engages in intentional misconduct or a knowing violation of
law, (iii) authorizes payment of an unlawful dividend or stock repurchase, or
(iv) obtains an improper personal benefit.
The Company's Certificate of Incorporation and the Bylaws of the Company
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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In November 1996, the Company issued to members of management and other
founding stockholders a total of 6,677,750 (pre-reverse split) shares of Common
Stock at $.01 per share. These sales were exempt from registration under Section
4(2) of the Securities Act, no public offering being involved.
On December 13, 1996, in connection with its acquisition of various assets
of affiliates of Sanifill, Inc. ("Sanifill"), the Company issued to Sanifill a
warrant to purchase 2,000,000 (pre-reverse split) shares of Common Stock at
$1.00 per share. This sale was exempt from registration under Section 4(2) of
the Securities Act, no public offering being involved.
On December 31, 1996, the Company issued and sold (pre-reverse split) shares
of Common Stock to the following parties in the amounts and for the
consideration indicated. These sales were exempt from registration under Section
4(2) of the Securities Act, no public offering being involved: Eric Warden--
175,000 shares for a consideration of $153,125; William M. DeArman--100,000
shares for a consideration of $87,500; Fred M. Ferreira--25,000 shares for a
consideration of $21,875; Steven Harter--12,500 shares
II-1
<PAGE>
for a consideration of $10,938; Ronald L. Stanfa--12,500 shares for a
consideration of $10,938; and Lorne Bain--75,000 shares for a consideration of
$65,625.
Effective June 16, 1997, the Company effected a one for two reverse split on
outstanding shares of Common Stock as of such date.
On June 17, 1997, the Company issued to Thomas B. Blanton, the former sole
stockholder of the Mesa Companies, 1,062,500 shares of Common Stock in
connection with its acquisition of the Mesa Companies. This sale was exempt from
registration under Section 4(2) of the Securities Act, no public offering being
involved.
On June 17, 1997, the Company issued a total of 637,500 shares of Common
Stock to the former stockholders of AWW in connection with the Company's
acquisition of AWW. These sales were exempt from registration under Section 4(2)
of the Securities Act, no public offering being involved.
On June 23, 1997, the Company issued to Bellmeade Capital Partners and Mark
Liebovit warrants to purchase a total of 65,000 shares of Common Stock in
consideration of consulting services provided and to be provided to the Company.
These sales were exempt from registration under Section 4(2) of the Securities
Act, no public offering being involved.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement.
*2.1 Agreement and Plan of Merger, dated June 16, 1997, among U S Liquids Inc., AWW Acquisition
Corp., American WasteWater Inc., William H. Wilson, Jr. and Michael W. Minick.
*2.2 Agreement and Plan of Merger, dated June 16, 1997, among U S Liquids Inc., Mesa Acquisition
Corp., T&T GS Acquisition Corp., Phoenix F&O Acquisition Corp., Mesa Processing, Inc., T&T
Grease Service, Inc., Phoenix Fats & Oils, Inc. and Thomas B. Blanton.
+3.1 Second Amended and Restated Certificate of Incorporation of U S Liquids Inc.
*3.2 Amended and Restated Bylaws of U S Liquids Inc.
+4.1 Form of Certificate Evidencing Ownership of Common Stock of U S Liquids Inc.
*4.2 Promissory Note of U S Liquids payable to Sanifill, Inc.
*4.3 Note Agreement, dated December 13, 1996, between U S Liquids and Sanifill, Inc.
+5.1 Opinion of Hartzog Conger & Cason.
*10.1 Asset Purchase Agreement, dated December 2, 1996, among U S Liquids Inc., Sanifill, Inc. and
certain affiliates of Sanifill, Inc.
*10.2 Seller Noncompetition Agreement, dated December 13, 1996, between U S Liquids Inc. and
Sanifill, Inc.
*10.3 Buyer Noncompetition Agreement, dated December 13, 1996, between Sanifill, Inc. and U S
Liquids Inc.
*10.4 NOW Disposal Agreement, dated June 4, 1996, among Sanifill, Inc., NOW Disposal Operating Co.,
and Campbell Wells, Ltd.
*10.5 Noncompetition Agreement, dated August 12, 1996, between Sanifill, Inc. and Newpark
Resources, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
*10.6 Assumption and Guarantee Agreement dated August 12, 1996, among Newpark Resources, Inc.,
Sanifill, Inc., and Campbell Wells, Ltd.
*10.7 Lease and Access Agreement between Campbell Wells, Ltd. and Newpark Resources, Inc.
*10.8 Sublease and Access Agreement between Campbell Wells, Ltd. and Newpark Resources, Inc. and
underlying lease agreement.
*10.9 Sublease and Access Agreement between Campbell Wells, Ltd. and Newpark Resources, Inc. and
underlying lease agreement.
*10.10 Consent to Assignment and Assumption of Contracts, dated December 13, 1996, among Sanifill,
Inc., Campbell Wells, L.P. and U S Liquids Inc.
+10.11 Form of Nonqualified Stock Option Agreement between U S Liquids Inc. and certain individuals.
+10.12 U S Liquids Inc. Amended and Restated Stock Option Plan.
+10.13 U S Liquids Inc. Directors' Stock Option Plan.
+10.14 Form of Grant of Incentive Stock Option Agreement.
*10.15 Senior Executive Employment Agreement, dated June 17, 1997, between U S Liquids Inc. and W.
Gregory Orr.
*10.16 Senior Executive Employment Agreement, dated June 17, 1997, between U S Liquids Inc. and Earl
J. Blackwell.
+10.17 Executive Employment Agreement, dated June 17, 1997, between U S Liquids Inc. and Jerry L.
Brazzel.
+10.18 Executive Employment Agreement, dated June 17, 1997, between U S Liquids Inc. and Sammy L.
Cooper.
*10.19 Senior Executive Employment Agreement, dated June 17, 1997, between U S Liquids Inc. and
Thomas B. Blanton.
*10.20 Senior Executive Employment Agreement, dated June 17, 1997, between U S Liquids Inc. and
William H. Wilson, Jr.
*10.21 Stock Distribution Agreement, dated June 16, 1997, between U S Liquids Inc. and Thomas B.
Blanton.
*10.22 Form of Stock Distribution Agreement, dated June 16, 1997, between U S Liquids Inc. and the
former stockholders of American WasteWater Inc.
*10.23 Stock Distribution Agreement, dated June 16, 1997, between U S Liquids Inc. and W. Gregory
Orr.
*10.24 Noncompetition Agreement, dated June 17, 1997, between U S Liquids Inc. and Thomas B.
Blanton.
*10.25 Noncompetition Agreement, dated June 17, 1997, between U S Liquids Inc. and William H.
Wilson, Jr.
*10.26 Agreement to Vote Stock, dated June 16, 1997, among U S Liquids Inc., Thomas B. Blanton, W.
Gregory Orr, Earl J. Blackwell, William M. DeArman and certain other parties.
*10.27 Estoppel, Waiver and Amendment Agreement, dated June 16, 1997, between Sanifill, Inc. and U S
Liquids Inc.
+10.28 Financial Advisory Agreement, dated May 15, 1997, between U S Liquids Inc. and Sanders Morris
Mundy Inc. and supplemental letter dated July 10, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
+10.29 Service Agreement, dated June 23, 1997, between U S Liquids Inc. and Bellmeade Capital
Partners.
+10.30 Service Agreement, dated June 23, 1997, between U S Liquids Inc. and Mark Liebovit.
*10.31 Warrant, dated December 13, 1996, issued by U S Liquids Inc. to Sanifill, Inc.
+10.32 Warrant Agreement, dated May 15, 1997, between U S Liquids Inc. and Sanders Morris Mundy Inc.
*10.33 Form of Warrant Agreement among U S Liquids Inc., Van Kasper & Company and Sanders Morris
Mundy Inc.
+10.34 Warrant, dated June 23, 1997, issued by U S Liquids Inc. to Bellmeade Capital Partners.
+10.35 Warrant, dated June 23, 1997, issued by U S Liquids Inc. to Mark Liebovit.
*10.36 Stock Purchase Agreement, dated September 10, 1996, among Mesa Processing, Inc., Jack C.
Wolcott and South Texas By-Products Company, Inc.
*10.37 Non-Competition Agreement, dated September 10, 1996, between Jack C. Wolcott and Mesa
Processing, Inc.
*10.38 Stock Distribution Agreement, dated June 16, 1997, between U S Liquids Inc. and Earl J.
Blackwell.
*10.39 Stock Distribution Agreement, dated June 16, 1997, between U S Liquids Inc. and William M.
DeArman.
+10.40 Employment Agreement, dated July 2, 1997, between U S Liquids Inc. and Michael P. Lawlor.
+10.41 Form of Lock-up Agreement between Van Kasper & Company and certain holders of U S Liquids
Inc.'s Common Stock.
*21.1 List of subsidiaries of U S Liquids Inc.
+23.1 Consent of Arthur Andersen LLP.
+23.2 Consent of Hartzog Conger & Cason (contained in Exhibit 5.1).
*24.1 Power of attorney.
+27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed with the Securities and Exchange Commission as an exhibit
to the Company's Registration Statement on Form S-1 as filed on June 26,
1997 and incorporated herein by reference.
+ Filed herewith.
(b) All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable, or the information is included in the consolidated financial
statements, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as
required by the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and
II-4
<PAGE>
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.
(2) For purposes of determining liability under the Securities Act of
1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, U S Liquids Inc.
has duly caused this Registration Statement or amendment thereto to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on August 1, 1997.
U S LIQUIDS INC.
By: /s/ W. GREGORY ORR
-----------------------------------------
W. Gregory Orr
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE INDICATED CAPACITIES ON AUGUST 1, 1997.
SIGNATURE TITLE
- ----------------------------------- ------------------------------------
/s/ W. GREGORY ORR
- ----------------------------------- President and Director
W. Gregory Orr
/s/ EARL J. BLACKWELL
- ----------------------------------- Chief Financial Officer and Senior
Earl J. Blackwell Vice President--Finance
/s/ WILLIAM A. ROTHROCK IV*
- ----------------------------------- Director
William A. Rothrock IV
/s/ THOMAS B. BLANTON*
- ----------------------------------- Director
Thomas B. Blanton
/s/ ALFRED TYLER 2ND*
- ----------------------------------- Director
Alfred Tyler 2nd
/s/ MICHAEL P. LAWLOR*
- ----------------------------------- Director
Michael P. Lawlor
- ------------------------
*By W. Gregory Orr as attorney-in-fact.
II-6
<PAGE>
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
U S LIQUIDS INC.
U S Liquids Inc., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The name of the Corporation is U S Liquids Inc. U S Liquids Inc.
was originally incorporated under the name "US Liquids Inc.", and the
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on November 18, 1996.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware (the "DGCL"), this Second Amended and Restated
Certificate of Incorporation restates and integrates and further amends the
provisions of the Certificate of Incorporation of the Corporation.
3. This Second Amended and Restated Certificate of Incorporation was
duly adopted in accordance with the provisions of Section 245 of the DGCL,
after being proposed by the directors and adopted by the written consent of
stockholders given in accordance with Section 228 of the DGCL. Notice of the
taking of such action by written consent has been given as provided in
Section 228 of the DGCL.
4. The text of the Certificate of Incorporation as heretofore amended
or supplemented is hereby restated and further amended to read in its
entirety as follows:
ARTICLE I
NAME
The name of the corporation is U S Liquids Inc. (hereinafter referred to
as the "Corporation").
ARTICLE II
REGISTERED AGENT
The address of the Corporation's registered office is 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
<PAGE>
ARTICLE III
PURPOSES
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
Section 1. The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is as follows:
CLASS NUMBER OF SHARES PAR VALUE
- ----- ---------------- ---------
Common Stock 30,000,000 $.01
Preferred Stock 5,000,000 $.01
Section 2. The Preferred Stock may be issued from time to time in one
or more series. The Board of Directors is hereby authorized to provide for
the issuance of shares of Preferred Stock in series and, by filing a
certificate pursuant to the DGCL (hereinafter referred to as a "Preferred
Stock Designation"), to establish from time to time the number of shares to
be included in each such series, and to fix the designation, powers,
privileges, preferences and rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. The authority of the
Board of Directors with respect to each series shall include, but not be
limited to, determination of the following:
(a) the designation of the series, which may be by distinguishing
number, letter or title;
(b) the number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding);
(c) whether dividends, if any, shall be cumulative or noncumulative
and, in the case of shares of any series having cumulative dividend rights,
the date or dates or method of determining the date or dates from which
dividends on the shares of such series shall be cumulative;
(d) the rate of any dividends (or method of determining such dividends)
payable to the holders of the shares of such series, any conditions upon
which such dividends shall be paid and the date or
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<PAGE>
dates or the method for determining the date or dates upon which such
dividends shall be payable;
(e) the price or prices (or method of determining such price or prices)
at which, the form of payment of such price or prices (which may be cash,
property or rights, including securities of the same or another corporation
or other entity) for which, the period or periods within which and the terms
and conditions upon which the shares of such series may be redeemed, in whole
or in part, at the option of the Corporation or at the option of the holder
or holders thereof or upon the happening of a specified event or events, if
any;
(f) the obligation, if any, of the Corporation to purchase or redeem
shares of such series pursuant to a sinking fund or otherwise and the price
or prices at which, the form of payment of such price or prices (which may be
cash, property or rights, including securities of the same or another
corporation or other entity) for which, the period or periods within which
and the terms and conditions upon which the shares of such series shall be
redeemed or purchased, in whole or in part, pursuant to such obligation;
(g) the amount payable out of the assets of the Corporation to the
holders of shares of the series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation;
(h) provisions, if any, for the conversion or exchange of the shares of
such series, at any time or times at the option of the holder or holders
thereof or at the option of the Corporation or upon the happening of a
specified event or events, into shares of any other class or classes or any
other series of the same or any other class or classes of stock, or any other
security, of the Corporation, or any other corporation or other entity, and
the price or prices or rate or rates of conversion or exchange and any
adjustments applicable thereto, and all other terms and conditions upon which
such conversion or exchange may be made;
(i) restrictions on the issuance of shares of the same series or of any
other class or series, if any; and
(j) the voting rights, if any, of the holders of shares of the series.
Section 3. The Common Stock shall be subject to the express terms of
the Preferred Stock and any series thereof. The shares of Common Stock shall
have no preemptive or preferential rights of subscription concerning further
issuance or authorization of the Corporation's shares of Common Stock. The
holders of shares of Common Stock shall be entitled to one vote for each such
share, in person or by proxy, upon all proposals presented to the
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<PAGE>
stockholders upon which the holders of Common Stock are entitled to vote.
Except as otherwise provided by law or by the resolution or resolutions
adopted by the Board of Directors designating the rights, powers and
preferences of any series of Preferred Stock, the Common Stock shall have the
exclusive right to vote for the election of directors and for all other
purposes, and holders of Preferred Stock shall not be entitled to receive
notice of any meeting of stockholders at which they are not entitled to vote.
The number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of the holders of a majority of the outstanding Common
Stock, without a vote of the holders of the Preferred Stock, or of any series
thereof, unless a vote of any such holders is required pursuant to any
Preferred Stock Designation. The Corporation shall be entitled to treat the
person in whose name any share of its stock is registered as the owner
thereof for all purposes and shall not be bound to recognize any equitable or
other claim to, or interest in, such share on the part of any other person,
whether or not the Corporation shall have notice thereof, except as expressly
provided by applicable law.
Section 4. At any time and from time to time when authorized by
resolution of the Board of Directors and without any action by its
stockholders, the Corporation may issue or sell any shares of its stock of
any class or series, whether out of the unissued shares thereof authorized by
the Certificate of Incorporation, as amended, or out of shares of its stock
acquired by it after the issue thereof, and whether or not the shares thereof
so issued or sold shall confer upon the holders thereof the right to exchange
or convert such shares for or into other shares of stock of the Corporation
of any class or classes or any series thereof. When similarly authorized,
but without any action by its stockholders, the Corporation may issue or
grant rights, warrants or options, in bearer or registered or such other form
as the Board of Directors may determine, for the purchase of shares of the
stock of any class or series of the Corporation within such period of time,
or without limit as to time, of such aggregate number of shares, and at such
price per share, as the Board of Directors may determine. Such rights,
warrants or options may be issued or granted separately or in connection with
the issue of any bonds, debentures, notes, obligations or other evidences of
indebtedness or shares of the stock of any class or series of the Corporation
and for such consideration and on such terms and conditions as the Board of
Directors may determine. In each case, the consideration to be received by
the Corporation for any such shares so issued or sold shall be such as shall
be fixed from time to time by the Board of Directors.
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<PAGE>
ARTICLE V
BOARD OF DIRECTORS
Section 1. Except as otherwise provided by law, the business and
affairs of the Corporation shall be managed by, or under the direction of,
its Board of Directors. In furtherance and not in limitation of the rights,
powers, privileges and discretionary authority granted or conferred by the
DGCL or other statutes or laws of the State of Delaware, the Board of
Directors is expressly authorized:
(a) to make, alter, amend or repeal the bylaws of the
Corporation;
(b) to authorize and cause to be executed mortgages and liens
upon the real and personal property of the Corporation;
(c) to set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose
and to abolish any such reserve in the manner in which it was created;
(d) to sell, lease or exchange all or substantially all of the
property and assets of the Corporation, including its good will and
its corporate franchises, upon such terms and conditions and for such
consideration, which may consist in whole or in part of money or
property including shares of stock in, and/or other securities of, any
other corporation or corporations, as the Board of Directors shall
deem expedient and for the best interest of the Corporation, when and
as authorized by the stockholders entitled to vote thereon; and
(e) to determine from time to time whether and to what extent,
and at what times and places and under what conditions and
regulations, the accounts and books of the Corporation or any of them,
shall be opened to the inspection of the stockholders, and no
stockholder shall have any right to inspect any account or book or
document of the Corporation, except as conferred by the DGCL or
authorized by the Board of Directors.
Section 2. Except as otherwise fixed by or pursuant to the provisions
of Article IV hereof relating to the rights of the holders of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation to elect additional directors under specified circumstances,
the number of the directors of the Corporation shall be fixed from time to
time exclusively pursuant to a resolution adopted by the Board of
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<PAGE>
Directors (but shall not be less than three). The directors, other than
those who may be elected by the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon
liquidation, shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, one class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1998, another class to be
originally elected for a term expiring at the annual meeting of stockholders
to be held in 1999, and another class to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 2000, with each
class to hold office until its successor is duly elected and qualified. At
each succeeding annual meeting of stockholders, directors elected to succeed
those directors whose terms then expire shall be elected for a term of office
to expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until such person's successor
shall have been duly elected and qualified.
Section 3. Except as otherwise provided for or fixed by or pursuant to
the provisions of Article IV hereof relating to the rights of the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation to elect directors under specified
circumstances, newly created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal or other cause shall be
filled by the affirmative vote of a majority of the remaining directors then
in office, even though less than a quorum of the Board of Directors, and not
by the stockholders. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred
and until such director's successor shall have been duly elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Section 4. Subject to the rights of any class or series of stock having
a preference over the Common Stock as to dividends or upon liquidation to
elect directors under specified circumstances, any director may be removed
from office only for cause.
ARTICLE VI
PERMITTED TRANSACTIONS BETWEEN DIRECTORS AND CORPORATION
To the extent permitted by law, no contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors
or officers, or
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<PAGE>
have a financial interest, shall be void or voidable solely for this reason,
or solely because the director or officer is present at or participates in
the meeting of the Board or committee thereof which authorizes the contract
or transaction, or solely because his or their votes are counted for such
purpose, if:
(a) the material facts as to his relationship or interest as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative
votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or
(b) the material facts as to his relationship or interest as to
the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(c) the contract or transaction is fair as to the Corporation as
of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
ARTICLE VII
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State
of Delaware at the time in force may be added or inserted, in the manner now
or hereafter prescribed by law; and, except as set forth in Article VIII, all
rights, preferences and privileges of whatsoever nature conferred upon
stockholders, directors or any other persons whomsoever by and pursuant to
this Certificate of Incorporation in its present form or as hereafter amended
are granted subject to the right reserved in this Article VII.
ARTICLE VIII
LIMITED LIABILITY AND INDEMNIFICATION
Section 1. A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for
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<PAGE>
monetary damages for breach of fiduciary duty as a director, except, if
required by the DGCL, as amended from time to time, for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, or (iv) for any transaction from which the director derived an
improper personal benefit. Neither the amendment nor repeal of Section 1 of
this Article VIII shall eliminate or reduce the effect of Section 1 of this
Article VIII in respect of any matter occurring, or any cause of action, suit
or claim that, but for Section 1 of this Article VIII would accrue or arise,
prior to such amendment or repeal.
Section 2. (a) Each person who was or is made a party or is threatened
to be made a party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that such person, or a person of whom
such person is the legal representative, is or was a director or officer of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified or held harmless by the Corporation to the
fullest extent authorized by the DGCL, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees,
judgments, fines, amounts paid or to be paid in settlement, and excise taxes
or penalties arising under the Employee Retirement Income Security Act of
1974, as in effect from time to time) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall continue as to
a person who has ceased to be a director or officer and shall inure to the
benefit of such person's heirs, executors and administrators; provided,
however, that except as provided in paragraph (b) hereof, the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors. The right to
indemnification conferred in this Section 2 shall be a contract right and
shall include the right to have the Corporation pay the expenses incurred in
defending any such proceeding in advance of its final disposition; any
advance payments to be paid by the Corporation within twenty calendar days
after the receipt by the Corporation of a statement or statements from the
claimant requesting such advance or advances
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<PAGE>
from time to time; provided, however, that if and to the extent the DGCL
requires, the payment of such expenses incurred by a director or officer in
such person's capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director
or officer including, without limitation, service to an employee benefit
plan) in advance of the final disposition of a proceeding, shall be made only
upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately
be determined that such director or officer is not entitled to be indemnified
under this Section 2 or otherwise. The Corporation may, to the extent
authorized from time to time by the Board of Directors, grant rights to
indemnification, and rights to have the Corporation pay the expenses incurred
in defending any proceeding in advance of its final disposition, to any
employee or agent of the Corporation to the fullest extent of the provisions
of this Article VIII with respect to the indemnification and advancement of
expenses of directors and officers of the Corporation.
(b) If a claim under Paragraph (a) of this Section 2 is not paid in
full by the Corporation within thirty calendar days after a written claim has
been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall also be entitled
to be paid the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition
where the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standard of conduct which
makes it permissible under the DGCL for the Corporation to indemnify the
claimant for the amount claimed, and the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because the
claimant has met the applicable standard of conduct set forth in the DGCL,
nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
(c) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in
this Section 2 shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaw, agreement, vote of stockholders or disinterested
directors
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<PAGE>
or otherwise. No repeal or modification of this Article VIII shall in any
way diminish or adversely affect the rights of any director, officer,
employee or agent of the Corporation hereunder in respect of any occurrence
or matter arising prior to any such repeal or modification.
(d) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability
or loss under the DGCL.
Section 3. If any provision or provisions of this Article VIII shall be
held to be invalid, illegal or unenforceable for any reason whatsoever: (i)
the validity, legality and enforceability of the remaining provisions of this
Article VIII (including, without limitation, each portion of any paragraph of
this Article VIII containing any such provision held to be invalid, illegal
or unenforceable, that is not itself held to be invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (ii)
to the fullest extent possible, the provisions of this Article VIII
(including, without limitation, each such portion of any paragraph of this
Article VIII containing any such provision held to be invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
ARTICLE IX
SECTION 203 OF THE DGCL
The Corporation expressly elects not to be governed by Section 203 of
the DGCL.
ARTICLE X
COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this
Corporation under Section 291 of the DGCL or on the application of trustees
in dissolution or of any receiver or receivers appointed for the Corporation
under Section 279 of the DGCL order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such
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<PAGE>
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class or creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may
be, agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
IN WITNESS WHEREOF, said U S Liquids Inc. has caused this Second Amended
and Restated Certificate of Incorporation to be signed by its President and
attested by its Secretary this 30th day of July, 1997.
U S LIQUIDS INC., a Delaware corporation
By: /s/ W. Gregory Orr
----------------------------------------
W. Gregory Orr, President
ATTEST:
/s/ Earl J. Blackwell
- -------------------------------
Earl J. Blackwell, Secretary
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<PAGE>
<TABLE>
<S> <C> <C>
COMMON STOCK COMMON STOCK
NUMBER SHARES
USL [LOGO]
INCORPORATED UNDER THE LAWS OF SEE REVERSE FOR
THE STATE OF DELAWARE US LIQUIDS CERTAIN DEFINITIONS
CUSIP 902974 10 4
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
US LIQUIDS INC.
transferable upon the books of the Corporation by the holder hereof in person or by
duly authorized attorney upon surrender of this Certificate properly endorsed. This
Certificate and the shares represented hereby are issued and shall be subject to all
of the provisions of the Certificate of Incorporation of the Corporation, as amended or
restated (copies of which are on file with the Corporation and the Transfer Agent), to
all of which the holder hereof assents. This Certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its
duly authorized officers.
Dated: [SEAL]
US LIQUIDS INC.
CORPORATE
Earl J. Blackwell SEAL W. Gregory Orr
Chief Financial Officer and DELAWARE President
Secretary
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
(NEW YORK, NEW YORK)
TRANSFER AGENT
AND REGISTRAR
BY AUTHORIZED SIGNATURE
<PAGE>
U S LIQUIDS INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A STATEMENT
OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS. LIMITATIONS OR RESTRICTIONS
OF SUCH PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE ADDRESSED TO THE SECRETARY OF THE
CORPORATION.
- ----------------------------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of this certificate,
shall be construed as though they were written out in full according to applicable laws or
regulations.
TEN COM- as tenants in common UNIF TRANS MIN ACT- Custodian
TEN ENT- as tenants by the entireties ------------ -------------
JT TEN- as joint tenants with (Cust) (Minor)
right of survivorship and under Uniform Transfers to Minors
not as tenants in common Act
-----------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, HEREBY SELL, ASSIGN AND TRANSFER UNTO
----------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------- SHARES
OF THE COMMON STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT
--------------------------------------------------------------------------------------------
ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
DATED
---------------------------
X
-----------------------------------------------------------
X
-----------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE
IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATSOEVER.
SIGNATURE(S) GUARANTEED:
-------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION. (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED, THE CORPORATION MAY
REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
NORTHERN BANK NOTE COMPANY
- -------------------------------
- -------------------------------
</TABLE>
<PAGE>
August __, 1997
U S Liquids Inc.
411 N. Sam Houston Parkway East, Suite 400
Houston, Texas 77060-3545
Gentlemen:
We have acted as counsel to U S Liquids Inc., a Delaware corporation
(the "Company"), in connection with the registration by the Company under the
Securities Act of 1933, as amended (the "Securities Act"), of the sale of up
to 1,725,000 shares of Common Stock, par value $.01 per share (the "Shares"),
of the Company pursuant to Registration Statement No. 333-30065 on Form S-1
(as amended or supplemented, the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") on June 26, 1997. All
terms used and not defined herein shall have the meanings set forth in the
Registration Statement.
We have examined such documents, records and matters of law as we have
deemed necessary for the purposes of this opinion, and based thereon, we are
of the opinion that the Shares to be issued and sold by the Company have been
duly and validly authorized for issuance and, upon issuance pursuant to the
terms of the Underwriting Agreement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of the foregoing opinion as an exhibit
to the Registration Statement and the reference to our Firm under the caption
"Legal Matters" in the prospectus constituting a part of the Registration
Statement.
Sincerely,
HARTZOG CONGER & CASON
/s/ Hartzog Conger & Cason
<PAGE>
1996 NON-QUALIFIED STOCK OPTION AGREEMENT
Date of Grant: , 19
------------------ --
THIS 1996 NON-QUALIFIED STOCK OPTION AGREEMENT ("Agreement"), dated as
of the date of grant first stated above (the "Date of Grant"), is delivered
by US Liquids Inc., a Delaware corporation ("Company") to _________________
(the "Grantee").
WHEREAS, the Board of Directors of the Company ("Board") believes that
the Company's association with Grantee increases and enhances the Company's
business opportunities and provides avenues for useful business counsel to
the Company; and
WHEREAS, the Board desires to incentivise Grantee to maintain an
association with the Company, and has determined that it would be in the best
interest of the Company to grant the stock options documented herein to
Grantee.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions hereinafter
set forth, Company hereby grants to the Grantee, as of the Date of Grant, an
option to purchase up to _____________ shares of common stock, par value $.01
per share ("Stock"), at a price of $______ per share, the fair market value
of such Stock on the Date of Grant. Such option is hereinafter referred to
as the "Option" and the shares of stock purchasable upon exercise of the
Option are hereinafter sometimes referred to as the "Option Shares."
2. INSTALLMENT EXERCISE. Subject to the prerequisites of this Section
2 and subject to such further limitations as are provided in this Agreement,
the Option Shares shall become exercisable as set forth below:
(a) after December 31, 1997, _________ of the Option Shares shall
become exercisable, PROVIDED that on or before December 31, 1997 the Company
or a subsidiary of the Company has completed the acquisition of the stock or
substantially all of the assets of a business (an "Acquisition") as the
result of a business opportunity and introductions or facilitating meetings
presented to the Company by Grantee with respect to such business (an
"Acquisition Opportunity Presentation"); and PROVIDED FURTHER, that if the
Company has not completed an Acquisition pursuant to an Acquisition
Opportunity Presentation by Grantee on or before December 31, 1997, the
Option of Grantee to acquire ___________ of the Option Shares shall terminate
at the close of business on December 31, 1997 without ever having become
exercisable;
(b) after December 31, 1998, ________ of the Option Shares shall become
exercisable, PROVIDED that during calendar year 1998 the Company or a
subsidiary of the
<PAGE>
Company has completed an Acquisition as the result of an Acquisition
Opportunity Presentation by Grantee; and PROVIDED FURTHER, that if the
Company has not completed an Acquisition pursuant to an Acquisition
Opportunity Presentation by Grantee during calendar year 1998, the Option of
Grantee to acquire _____________ of the Option Shares shall terminate at the
close of business on December 31, 1998 without ever having become
exercisable; and
(c) after December 31, 1999, ___________ of the Option Shares shall
become exercisable, PROVIDED that during calendar year 1999 the Company or a
subsidiary of the Company has completed an Acquisition as the result of an
Acquisition Opportunity Presentation by Grantee; and PROVIDED FURTHER, that
if the Company has not completed an Acquisition pursuant to an Acquisition
Opportunity Presentation by Grantee during calendar year 1999, the Option of
Grantee to acquire ____________ of the Option Shares shall terminate at the
close of business on December 31, 1999 without ever having become exercisable.
By way of clarification and in summary, one-third of the Option Shares shall
become exercisable after the end of each calendar year if the Grantee has
brought an Acquisition Opportunity Presentation to the Company which results
in an Acquisition by the Company during such calendar year. If in any
calendar year 1997, 1998 or 1999 the Company does not complete an Acquisition
pursuant to an Acquisition Opportunity Presentation by Grantee, Grantee's
Option to acquire one-third of the Option Shares shall terminate, without
regard to the number of Acquisitions completed by the Company in other
calendar years as the result of Acquisition Opportunity Presentations by
Grantee.
3. TERMINATION OF OPTION.
(a) The Option and all rights hereunder with respect thereto, to
the extent such rights shall not have been exercised or otherwise terminated
pursuant to the terms of this Agreement, shall terminate and become null and
void after the expiration of ten (10) years from the Date of Grant (the
"Option Term").
(b) In the event of the death of Grantee, the Option shall
terminate, but the Option may be exercised by the Grantee's legal
representative(s) during the six-month period following the date of issuance
of letters testamentary or letters of administration to the executor or
administrator of a deceased Grantee, but not later than one year after the
Grantee's death. The Option may be exercised by the Grantee's legal
representative(s) only to the extent that the Option was outstanding and
exercisable by Grantee on the date of Grantee's death. In no event shall the
six-month period referenced in this Section 3(b) extend beyond the Option
Term otherwise delineated in this Agreement.
(c) Notwithstanding any other provisions set forth herein, if the
Grantee shall commit any act of malfeasance or wrongdoing with regard to the
Company or any
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<PAGE>
subsidiary of Company, any unexercised portion of the Option shall
immediately terminate and be void.
4. EXERCISE OF OPTIONS.
(a) The Grantee may exercise the Option with respect to all or any
part of the number of Option Shares then exercisable hereunder by giving the
Secretary of Company written notice of intent to exercise. The notice of
exercise shall specify the number of Option Shares as to which the Option is
to be exercised and the date of exercise thereof, which date shall be at
least five days after the giving of such notice unless an earlier time shall
have been mutually agreed upon.
(b) Full payment (in U.S. dollars) by the Grantee of the option
price for the Option Shares purchased shall be made on or before the exercise
date specified in the notice of exercise in cash, or, with the prior written
consent of the Board, in whole or in part through the surrender of previously
acquired shares of Stock at their fair market value on the exercise date.
(c) On the exercise date specified in the Grantee's notice or as
soon thereafter as is practicable, Company shall cause to be delivered to the
Grantee, a certificate or certificates for the Option Shares then being
purchased (out of theretofore unissued Stock or reacquired Stock, as Company
may elect) upon full payment for such Option Shares. The obligation of
Company to deliver Stock shall, however, be subject to the condition that if
at any time the Board shall determine in its discretion that the listing,
registration or qualification of the Option or the Option Shares upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the Option or the issuance or purchase
of Stock thereunder, the Option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Board.
(d) If the Grantee fails to pay for any of the Option Shares
specified in such notice or fails to accept delivery thereof, the Grantee's
right to purchase such Option Shares may be terminated by Company. The date
specified in the Grantee's notice as the date of exercise shall be deemed the
date of exercise of the Option, provided that payment in full for the Option
Shares to be purchased upon such exercise shall have been received by such
date.
5. ADJUSTMENT OF AND CHANGES IN STOCK OF COMPANY. In the event of a
reorganization, recapitalization, change of shares, stock split, spin-off,
stock dividend, reclassification, subdivision or combination of shares,
merger, consolidation, rights offering, or any other change in the corporate
structure or shares of capital stock of
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<PAGE>
Company, the Board shall make such adjustment as it deems appropriate in the
number and kind of shares of Stock subject to the Option or in the option
price; provided, however, that no such adjustment shall give the Grantee any
additional benefits under the Option.
6. FAIR MARKET VALUE. As used herein, the "fair market value" of a
share of Stock shall be the average of the high and low sale prices per share
of Stock on the exchange on which it trades or, if it is not traded on an
exchange, the fair market value of a share shall be determined through the
best efforts of the Board.
7. NO RIGHTS OF STOCKHOLDERS. Neither the Grantee nor any personal
representative shall be, or shall have any of the rights and privileges of, a
stockholder of Company with respect to any shares of Stock purchasable or
issuable upon the exercise of the Option, in whole or in part, prior to the
date of exercise of the Option.
8. NON-TRANSFERABILITY OF OPTION. During the Grantee's lifetime, the
Option hereunder shall be exercisable only by the Grantee or any guardian or
legal representative of the Grantee, and the Option shall not be transferable
except, in case of the death of the Grantee, by will or the laws of descent
and distribution, nor shall the Option be subject to attachment, execution or
other similar process. In the event of (a) any attempt by the Grantee to
alienate, assign, pledge, hypothecate or otherwise dispose of the Option,
except as provided for herein, or (b) the levy of any attachment, execution
or similar process upon the rights or interest hereby conferred, Company may
terminate the Option by notice to the Grantee and it shall thereupon become
null and void.
9. AMENDMENT OF OPTION. The Option may be amended by the Board at any
time (i) if the Board determines, in its sole discretion, that amendment is
necessary or advisable in the light of any addition to or change in the
Internal Revenue Code of 1986, including amendments, or in the regulations
issued thereunder, or any federal or state securities law or other law or
regulation, which change occurs after the Date of Grant and by its terms
applies to the Option; or (ii) other than in the circumstances described in
clause (i), with the consent of the Grantee.
10. NOTICE. Any notice to Company provided for in this instrument
shall be addressed to it in care of its Secretary at its executive offices at
2014 W. Pinhook Rd., Suite 900, Lafayette, Louisiana 70508, and any notice
to the Grantee shall be addressed to the Grantee at the address shown on the
signature page of this Agreement. Any notice shall be deemed to be duly
given if and when properly addressed and posted by registered or certified
mail, postage prepaid. Any party to this Agreement may change its address for
notice by notice to the other party in accordance with this Section.
11. GOVERNING LAW. The validity, construction, interpretation and
effect of this instrument shall exclusively be governed by and determined in
accordance with the laws of the State of Texas, except to the extent
preempted by federal law.
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IN WITNESS WHEREOF, Company has used its duly authorized officers to
execute this Agreement, and the Grantee has placed his or her signature
hereon, effective as of the Date of Grant.
US LIQUIDS INC.
By: /s/ W. Gregory Orr
----------------------------------
W. Gregory Orr, President
GRANTEE
By:*
----------------------------------
Address for notice:
--------------------------------------
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* William A. Rothrock IV, David Turkal, Gary Brotherton and Dirk Dudgeon have
each entered into a 1996 Nonqualified Stock Option Agreement with U S Liquids
Inc.
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U S LIQUIDS INC.
AMENDED AND RESTATED STOCK OPTION PLAN
I. PURPOSE
The purpose of this Plan is to promote the long-term growth and
profitability of U S Liquids Inc., a Delaware corporation (the "Company"), and
the value of its Common Stock by (i) providing officers, employees and
consultants of the Company with increased incentive to contribute to the success
of the Company and (ii) enabling the Company to attract, retain and reward
persons of exceptional skill for positions of substantial responsibility.
II. DEFINITIONS
Whenever used herein, the following terms shall have the meanings set forth
below:
(a) "Board" or "Board of Directors" means the board of directors of the
Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means a committee designated by the Board as set forth in
ARTICLE III below.
(d) "Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Company.
(e) "Company" means U S Liquids Inc. and its Subsidiaries.
(f) "Consultant" means any person who renders services to the Company as
an independent contractor.
(g) "Disability" means a permanent and total disability as defined in
Section 22(e)(3) of the Code or as otherwise defined by the Committee.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(i) "Fair Market Value", as of a particular date, means (i) if the shares
of Common Stock are then listed or admitted for trading on a national securities
exchange or quoted on the National Association of Securities Dealers Automated
Quotation System, the last reported sales price of the Common Stock on such date
or, if no such sale occurred, the average of the closing bid and ask prices, as
applicable, of the
<PAGE>
Common Stock on the last trading day before such date, or (ii) if the shares
of Common Stock are not then listed or admitted for trading on a national
securities exchange or quoted on the National Association of Securities
Dealers Automated Quotation System, such value as the Committee, in its
discretion, may determine in good faith.
(j) "Incentive Stock Option" means an Option conforming to the
requirements of Section 422 of the Code.
(k) "Non-Employee Director" means a member of the Board who qualifies as a
Non-Employee Director as such term is defined in Rule 16b-3(b)(3) promulgated by
Securities and Exchange Commission, as amended from time to time.
(l) "Nonqualified Stock Option" means any Option other than an Incentive
Stock Option.
(m) "Option" means a right or rights granted by the Committee to purchase
shares of Common Stock under the Plan.
(n) "Option Shares" means any shares of Common Stock issuable upon
exercise of an Option.
(o) "Participant" means an individual to whom an Option is granted under
the Plan.
(p) "Plan" means this U S Liquids Inc. Amended and Restated Stock Option
Plan, as it may be amended and modified from time to time.
(q) "Retirement" means termination of a Participant's employment with the
Company because of the Participant's retirement at or after such Participant's
earliest permissible retirement date pursuant to and in accordance with the
rules for retirement established by the Company from time to time.
(r) "Subsidiary" means a corporation, partnership or other business entity
at least 50 percent of whose voting securities are owned, directly or
indirectly, by the Company.
III. ADMINISTRATION
The Plan shall be administered by the Committee which shall be constituted
as set forth in Section III(a) below.
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(a) APPOINTMENT OF COMMITTEE. The Committee shall consist of at
least two Non-Employee Members of the Board of Directors who shall be appointed
by and serve at the pleasure of the Board or, at the discretion of the Board of
Directors in order to comply with the requirements of Rule 16b-3 of the Exchange
Act, the Committee may consist of the entire Board of Directors. Unless the
Committee consists of the entire Board of Directors, (i) members of the
Committee shall be ineligible to receive Options while serving on the Committee,
and (ii) no member of the Board of Directors may become a member of the
Committee if that Director, during the year preceding appointment, has been
granted or awarded options or equity securities of the Company under the Plan or
any other plan of the Company which provides for the issuance of equity
securities of the Company, options to acquire equity securities or stock
appreciation rights, if such grant or award would result in such person not
being a Non-Employee Director.
(b) DUTIES AND POWERS OF COMMITTEE. Subject to the terms, provisions
and conditions of the Plan, the Committee shall have full and final authority in
its discretion to, among other things, determine (i) the persons to whom Options
are to be granted; (ii) the number of shares subject to Options; (iii) the time
or times at which Options will be granted; (iv) the exercise price of shares
subject to Options; (v) the time or times at which Options become exercisable
and the duration of the exercise period; (vi) the provisions and terms of any
option agreement or other instrument evidencing an Option granted under the
Plan; (vii) whether shares of Common Stock which are subject to Options will be
subject to any restrictions on transfer after the exercise of Options; (viii)
such rules and regulations as the Committee may deem advisable in the
administration of the Plan; and (ix) the procedures and methods for construing
and interpreting the Plan. Actions approved by a majority of all members of the
Committee at any meeting at which a quorum is present, or actions approved in
writing by all of the members of the Committee without a meeting, shall be valid
acts of the Committee. Decisions of the Committee on all matters relating to
the Plan shall be in the Committee's sole discretion and shall be conclusive and
binding on all parties, including the Company, its stockholders, and the
Participants in the Plan.
IV. SHARES AVAILABLE FOR THE PLAN
Subject to the provisions of Article VIII hereof, the maximum number of
shares of Common Stock which may be issued pursuant to the exercise of Options
under this Plan initially shall be 1,500,000 shares and thereafter, on the first
day of each fiscal year of the Company, the number of shares shall be
automatically adjusted to an amount equal to fifteen percent (15%) of the
outstanding shares of Common Stock on such date; provided, however, that except
for an adjustment in accordance with Article VIII, the number of shares of
Common Stock which may be issued pursuant to the exercise of Options under
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this Plan shall not (i) exceed 3,000,000 shares, (ii) be less than 1,500,000
shares, or (iii) be decreased as a result of a reduction in the Company's
outstanding shares of Common Stock. The shares of Common Stock to be
delivered upon the exercise of Options under this Plan shall be made available
either from the authorized but unissued shares of Common Stock or from shares
of Common Stock held by the Company as treasury shares. In the event that any
outstanding Option for any reason expires or is terminated, the Option Shares
allocable to the unexercised portion of such Option may again be subject to an
Option under the Plan.
V. PARTICIPATION
Participation in the Plan shall be limited to those officers, employees and
consultants of the Company who are believed by the Committee to be in a position
to make a substantial contribution to the success of the Company; provided,
however, that Non-Employee Directors shall not be eligible to participate in the
Plan. Notwithstanding the above, persons who are not employees of the Company
at the time an Option is granted shall not be eligible to receive Incentive
Stock Options. Further, Incentive Stock Options shall only be granted to those
employees of the Company who are determined by the Committee to be key employees
because they are in a position to make a substantial contribution to the success
of the Company.
Options may be granted to such persons and for such number of shares as the
Committee shall determine. The grant of any Option hereunder in any one year to
an eligible person shall neither guarantee nor preclude a further grant of an
Option to such person in that year or in any subsequent year.
VI. OPTIONS
Subject to the provisions hereof, the Committee may from time to time grant
Incentive Stock Options, Nonqualified Stock Options, or any combination thereof
to persons eligible to participate in the Plan. Each Option shall be evidenced
by a written option agreement, signed by an authorized officer of the Company,
which shall contain such terms and conditions not inconsistent with the Plan as
the Committee shall determine. All option agreements need not be identical, but
shall comply with or incorporate by reference the terms set forth in this
Article VI and shall be subject to all other terms and conditions of the Plan.
In the event any option agreement is inconsistent with the Plan, the terms of
the Plan shall govern the issue in question.
(a) PRICE. The price per share payable upon the exercise of each
Option (the "Exercise Price") shall not (i) in the case of Incentive Stock
Options, be less than
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100%, and (ii) in the case of Nonqualified Stock Options, be less than 75%, of
the Fair Market Value of a share of Common Stock on the date the Option is
granted.
(b) EXERCISE OF OPTIONS. Options shall be exercisable only by the
Participant to whom the Options were granted, or by the Participant's legal
guardian or personal representative, if any, in the case of exercise following
the death or Disability of the Participant as provided in Section (h)(iii) of
this Article VI. Options shall be exercised by delivery to the Company of a
written notification specifying the number of Option Shares which the
Participant then desires to purchase, together with payment for such Option
Shares. Payment may be made in the form of (i) cash, certified check or other
immediately available funds for the aggregate Exercise Price for such Option
Shares, (ii) the exchange of a number of shares of Common Stock owned by the
Participant, free and clear of all liens or encumbrances, the Fair Market Value
of which at the time of exercise is equal to the aggregate Exercise Price of
such shares, and accompanied by executed stock powers and any other documents of
transfer requested by the Committee, (iii) the relinquishment of Options to
purchase Option Shares which shall be deemed to have a value equal to the
aggregate Fair Market Value of the Option Shares issuable upon exercise thereof
less the aggregate Exercise Price for those Option Shares, or (iv) a combination
of (i), (ii), and (iii). No fractional shares may be issued or accepted by the
Company with respect to the exercise of an Option. Options may be exercisable
in installments (which may be cumulative or noncumulative or subject to
acceleration) during the terms of an Option as may be determined by the
Committee at the date of grant.
(c) FORM OF OPTION. Each option agreement shall specify whether the
Option evidenced by such option agreement is an Incentive Stock Option or a
Nonqualified Stock Option. Notwithstanding such designation in an option
agreement, in the event an Option which is designated as an Incentive Stock
Option fails to qualify as an Incentive Stock Option under Section 422 of the
Code, then such Option shall be deemed to be a Nonqualified Stock Option. Any
Option which is not designated by the Committee as an Incentive Stock Option
shall be a Nonqualified Stock Option.
(d) TERMS OF OPTIONS. The term during which each Option may be
exercised shall be determined by the Committee, but in no event shall an Option
be exercisable in whole or in part more than ten years from the date it is
granted. Further, all rights to purchase shares pursuant to an Option shall,
unless sooner terminated, expire at the date designated by the Committee. The
Committee shall determine the date on which each Option shall become exercisable
and may provide that an Option shall become exercisable in installments. The
shares constituting each installment may be purchased in whole or in part at any
time after such installment becomes exercisable, subject to such minimum
exercise requirement as may be designated by the Committee.
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<PAGE>
(e) RESTRICTIONS ON TRANSFER. Options granted under the Plan shall
not be transferable or assignable or capable of being pledged or otherwise
hypothecated in any way, and shall not be subject to execution, attachment or
similar process, other than by will or the laws of descent and distribution as
specifically permitted hereunder. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of an Option contrary to the provisions
hereof shall result in the termination of such Option, which termination shall
be effective immediately before the attempted assignment, transfer, pledge,
hypothecation or other disposition of the Option. Shares delivered upon
exercise of an Option shall be subject to such resale restrictions as may be
provided by the Committee in the option agreement pertaining to such Option.
(f) PROVISIONS APPLICABLE TO TEN PERCENT STOCKHOLDERS.
Notwithstanding any other provision of this Plan, no Incentive Stock Option
shall be granted under this Plan to a person who, at the time the Option is
granted, is the owner of more than 10 percent of the total combined voting power
of all classes of stock of the Company, unless at the time such Option is
granted, the exercise price is at least 110 percent of the Fair Market Value of
the Common Stock subject to the Option, and such Option by its terms is not
exercisable more than five (5) years after the date it is granted.
(g) LIMITATIONS ON GRANTS. If required by the Code at the time of
grant, to the extent that the aggregate Fair Market Value of Common Stock
(determined as of the grant date) with respect to which Incentive Stock Options
are exercisable for the first time by a Participant during any calendar year
(under all plans of the Company) exceeds $100,000, such Options shall be treated
as Nonqualified Stock Options. The foregoing sentence shall be applied by
taking Incentive Stock Options into account in the order in which they were
granted.
(h) TERMINATION OF EMPLOYMENT.
(i) CHANGE OF EMPLOYMENT STATUS. No Option shall be affected by
any change of duties or position of a Participant (including transfer to or
from a Subsidiary) so long as such Participant continues to be an employee
of the Company or a Subsidiary. Nothing in this Plan or in any Option
granted hereunder shall confer upon any Participant any right to continue
in the employ of the Company or any Subsidiary, and the Company's right to
terminate the employment of an Participant at any time for any reason shall
not be diminished or affected because an Option was granted to the
Participant.
(ii) TERMINATION OTHER THAN BECAUSE OF DEATH, DISABILITY OR
CAUSE. If a Participant who is an employee of the Company or a Subsidiary
ceases to be an employee for any reason, other than by reason of the death
or Disability of the Participant or cause as set forth in Section
VI(6)(h)(iv), then (a) all Options held by
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<PAGE>
such Participant which are not exercisable when the Participant ceases to
be an employee shall terminate; and (b) all Options which are exercisable
when the Participant ceases to be an employee must be exercised prior to
the earlier of (i) the expiration date of the option period of the
exercisable Options, or (ii) the date occurring 90 days after the date on
which the Participant ceases to be an employee of the Company or a
Subsidiary. Any Option which is not exercised within such period shall
terminate and be of no force or effect.
(iii) TERMINATION BECAUSE OF DEATH OR DISABILITY. If a
Participant dies or suffers a Disability while he or she is an employee of
the Company or a Subsidiary, Options which are not exercisable at the date
of death or termination due to Disability shall terminate and Options which
are exercisable on the date of death or termination due to Disability of
such Participant may be exercised by the Participant, by his or her
personal representative or by his or her other lawful successor to the
extent that such Options could have been exercised by the deceased or
disabled Optionee immediately prior to his or her death or Disability.
Notwithstanding the foregoing, upon termination of an Optionee's employment
by reason of death or disability, the following provisions shall apply:
(a) In the event the Optionee's termination of employment is due
to death, the Option to the extent exercisable upon the date of the
Optionee's death, shall be exercisable for a period equal to the
earlier to occur of twelve months after the date of death or six
months following the date of issuance of Letters Testamentary or
Letters of Administration to the executor or administrator of the
estate of the deceased Optionee.
(b) In the case the Optionee's employment is terminated due to
Disability, the Option to the extent exercisable as of the date of
termination due to Disability, shall be exercisable for a period of
one year from the date of termination.
(iv) TERMINATION FOR CAUSE. Notwithstanding any other provisions
set forth herein, if an Optionee shall (a) commit any act of malfeasance or
wrongdoing affecting the Company or any Subsidiary of the Company, (b)
breach any covenant not to compete or employment contract with the Company
or any Subsidiary of the Company or (c) engage in conduct that would
warrant the Optionee's discharge for cause (excluding the general
dissatisfaction with the performance of the Optionee's duties but including
any act of disloyalty or any conduct clearly tending to bring discredit
upon the Company or any Subsidiary of the Company) any unexercised portion
of an Option granted to such Optionee shall immediately terminate and
become void.
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<PAGE>
(i) TERMINATION WITH RESPECT TO OTHER PARTICIPANTS. With respect to
Participants who are not employees of the Company or any Subsidiary, the
conditions on which Options are exercisable and the determination of the
exercise period for any such Options shall be specified in the option agreement
pertaining to such Options.
VII. WITHHOLDING TAXES.
The Company may require, as a condition to any grant under the Plan or to
the delivery of certificates for Common Stock issued upon the exercise of an
Option hereunder, that the Participant pay to the Company, in cash, any federal,
state or local taxes of any kind required by law to be withheld with respect to
any grant of an Option or any delivery of Common Stock upon exercise of an
Option. The Company, to the extent permitted or required by law, shall have the
right to deduct from any payment of any kind (including salary or bonus)
otherwise due to a Participant any federal, state or local taxes of any kind
required by law to be withheld with respect to any grant of an Option or to the
delivery of Common Stock upon exercise of an Option under the Plan.
Subject to Committee approval, a Participant may elect to deliver shares of
Common Stock (or have the Company withhold shares acquired upon exercise of an
Option) to satisfy, in whole or in part, the amount the Company is required to
withhold for taxes in connection with a grant under the Plan. Such election
must be made on or before the date the amount of tax to be withheld is
determined and, if applicable, subject to rules, regulations and interpretations
of the Securities and Exchange Commission under Section 16(b) of the Exchange
Act. Once made, the election shall be irrevocable. The withholding tax
obligation that may be paid by the withholding or delivery of shares may not
exceed the Participant's minimum federal, state and local income tax obligations
in connection with the grant. The Fair Market Value of the shares to be
withheld or delivered will be determined the date last preceding the date as of
which the amount of tax to be withheld is determined.
VIII. CHANGES IN CAPITAL STRUCTURE, REORGANIZATIONS, MERGER, ETC.
(a) COMPANY'S POWER TO CHANGE STRUCTURE, REORGANIZE, MERGE, ETC. The
existence of outstanding Options shall not affect in any way the right or
power of the Company or its stockholders to declare or distribute any stock
dividend or to make or authorize any recapitalization, reorganization,
merger, split-up, combination or other change in the Company's capital
structure or its business, or the dissolution or liquidation of the Company
or any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceeding whether of a similar character or
otherwise. Except as expressly provided herein, no such
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corporate act or the issuance of securities by the Company shall affect
any Options outstanding under the Plan.
(b) EFFECT OF RECAPITALIZATION OR SIMILAR TRANSACTION. In the event
of any change in the total number of outstanding shares of equity
securities of the Company by reason of any stock dividend, stock split,
recapitalization, or similar transaction in which there is a distribution
of equity securities of the Company for substantially below their Fair
Market Value, then (i) the number, class and per share price of shares of
Common Stock subject to outstanding Options shall be appropriately adjusted
in such manner as to entitle a Participant to receive upon exercise of an
Option, for the same aggregate Exercise Price, the same total number and
class of equity securities as he would have received had he exercised his
Option in full immediately prior to the event requiring the adjustment; and
(ii) the number and class of equity securities then reserved for issuance
under the Plan shall be adjusted by substituting for the total number and
class of shares of Common Stock then reserved that number and class of
shares of equity securities that would have been received by the owner of
the number of shares of Common Stock then available to be issued under the
Plan.
(c) EFFECT OF DISSOLUTION, LIQUIDATION, REORGANIZATION OR OTHER
TRANSACTION IN WHICH THE COMPANY IS NOT THE SURVIVOR. Upon the dissolution
or liquidation of the Company, the sale of all or substantially all of the
Company's assets, or the occurrence of any merger, consolidation,
reorganization, or other transaction in which the Company is not the
surviving corporation, then in the absolute discretion of the Committee,
(i) all Options outstanding under the Plan shall be assumed by the
successor, remaining, or surviving corporation, or new options shall be
substituted for such Options, all as provided in Section 424(a) of the Code
and to the extent permitted by Section 424(a) of the Code, in which event
such assumption shall be made on a full and equivalent basis in accordance
with Section 424(a) of the Code in order to preclude any modification of
such Options which would be considered to be the grant of new options, or
(ii) all Options which are then exercisable, or all Options outstanding
under the Plan, regardless of whether such Options otherwise would be
exercisable, shall be exercisable for a period of 15 days immediately prior
to such transaction and after the Participant has been afforded the
opportunity to exercise such Options as aforesaid and to the extent that
such Options are not timely exercised during such period, the terms and
provisions of this Plan and any option agreement entered into hereunder
will terminate and the related Options shall terminate.
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IX. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES.
Notwithstanding any other provision of this Plan or of any option
agreement, the Company shall be under no obligation and shall not issue shares
or, in the case of treasury shares, transfer shares under this Plan, except in
compliance with all applicable federal and state laws and regulations and in
compliance with rules of any stock exchanges or listing organizations with which
the Company's shares may be listed. The determination as to whether the
issuance or transfer of shares under this Plan is in compliance with applicable
federal and state laws and regulations and rules of stock exchanges and listing
organizations shall be made solely by the Committee.
(a) USE OF RESTRICTIVE LEGENDS. Any certificate issued to
evidence shares issued upon the exercise of an Option may bear such
legends and statements as the Committee shall deem advisable to assure
compliance with federal and state laws and regulations.
(b) REPRESENTATION OF INVESTMENT INTENT. Any Participant
receiving an Option and any Participant or other person exercising an
Option may be required by the Committee to give a written
representation that the Option and the shares subject to the Option
will be acquired for investment and not with a view to public
distribution; provided, however, that the Committee, in its sole
discretion, may release any person receiving an Option from any such
representations either prior to or subsequent to the exercise of an
Option granted pursuant to this Plan.
(c) REPRESENTATION OF OWNERSHIP. In the case of the exercise of
an Option by a person or estate acquiring the right to exercise such
Option by bequest or inheritance or by reason of the death or
Disability of a Participant, the Committee may require reasonable
evidence as to the ownership of such Option or the authority of such
person and may require such consents and releases of taxing
authorities as the Committee may deem advisable.
X. RIGHTS AS A STOCKHOLDER.
The holder of an Option shall have no rights as a stockholder with respect
to any Option Shares until the date a stock certificate is issued to him or her
after the exercise of the Option. No adjustment shall be made for dividends
(ordinary or extraordinary) whether in cash, securities or other property, or
distributions, or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Article VIII.
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XI. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN.
The Board of Directors may at any time terminate or from time to time amend
or suspend this Plan; provided, however, that (i) no such amendment shall alter
or impair any of the rights or obligations under any Option theretofore granted
to a Participant under this Plan without the consent of the affected
Participant, and (ii) no amendment shall become effective without prior approval
of the stockholders of the Company if such approval would be required for
continued compliance with Rule 16b-3 promulgated under the Exchange Act or
Section 422 of the Code. Notwithstanding the foregoing, the Board of Directors
may not, without further approval of the stockholders of the Company, amend the
Plan to:
(a) materially increase the total number of shares of Common
Stock which may be made the subject of Options to be granted under the
Plan, either in the aggregate or to an individual Participant, except
as provided in Article VIII;
(b) change the manner of determination of the Exercise Price;
(c) extend the maximum period during which Options may be
granted or exercised; or
(d) materially modify the requirements as to eligibility for
participation in the Plan.
XII. COMMENCEMENT DATE; TERMINATION DATE.
The date of commencement of the Plan shall be November 20, 1996. No
Options shall be issued under the Plan after the close of business on November
19, 2006. The Plan, as amended and restated in its entirety, was adopted by the
Board on June 23, 1997 and approved by the Company's stockholders on June 23,
1997. The terms set forth herein constitute all of the terms and provisions of
the Plan until further amended pursuant to Article XI. Options outstanding
under the Plan as of the date of amendment shall be subject to all of the terms
and provisions of the Plan as amended, except for any amendment which
detrimentally alters the rights of the holder of an outstanding Option or which
would cause the Option, as modified by such amendment, to be deemed granted anew
under the Code as of the date of the amendment.
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U S LIQUIDS INC.
DIRECTORS' STOCK OPTION PLAN
I. PURPOSE
The purpose of this Directors' Stock Option Plan is to promote the long-
term growth and profitability of U S Liquids Inc., a Delaware corporation (the
"Company"), and the value of its Common Stock by providing recognition and
compensation to the Outside Directors of the Company for their time, effort and
participation in the growth and protection of the Company's business and for
their substantial contributions to the success of its business.
II. DEFINITIONS
Whenever used herein, the following terms shall have the meanings set forth
below:
(a) "Board" or "Board of Directors" means the board of directors of the
Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means a committee designated by the Board which shall
consist of not less than two members of the Board.
(d) "Common Stock" shall mean the Common Stock, par value $.01 per share,
of the Company.
(e) "Company" means U S Liquids Inc.
(f) "Disability" means a permanent and total disability as defined in
Section 22(e)(3) of the Code or, if designated by the Committee, any long-term
disability plan adopted by the Company for the benefit of its employees.
(g) "Effective Date" means the date this plan is approved by the
stockholders of the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(i) "Fair Market Value", as of a particular date, means (i) if the shares
of Common Stock are then listed or admitted for trading on a national securities
exchange or quoted on the National Association of Securities Dealers Automated
Quotation System, the last reported sales price or, if no such sale occurred,
the average of the closing bid and ask prices, as applicable, of the Common
Stock on the last trading day
<PAGE>
before such date, or (ii) if the shares of Common Stock are not then listed
or admitted for trading on a national securities exchange or quoted on the
National Association of Securities Dealers Automated Quotation System, such
value as the Committee, in its absolute discretion, may determine in good
faith.
(j) "Option" means a right or rights granted by the Committee to purchase
shares of Common Stock under the Plan.
(k) "Option Shares" means any shares of Common Stock issuable upon
exercise of an Option.
(l) "Outside Director" means a member of the Board who is eligible to be
granted options hereunder as described in Article V.
(m) "Participant" means an individual to whom an Option is granted under
the Plan.
(n) "Plan" - this Directors' Stock Option Plan, as it may be amended and
modified from time to time.
(o) "Subsidiary" means a corporation, partnership or other business entity
at least 50 percent of whose voting securities are owned, directly or
indirectly, by the Company.
III. ADMINISTRATION
(a) APPOINTMENT OF COMMITTEE. The Committee shall consist of at
least two members of the Board of Directors. Members of the Committee shall be
appointed by and serve at the pleasure of the Board.
(b) DUTIES AND POWERS OF COMMITTEE. The Committee shall administer
the Plan in strict accordance with the terms of the Plan and shall not have the
discretion to vary, add to or take from the terms of the Plan. Subject to the
terms, provisions and conditions of the Plan, the Committee shall have full and
final authority in its discretion to determine such rules and regulations as the
Committee may deem advisable in the administration of the Plan and the
procedures and methods for construing and interpreting the Plan. Actions
approved by a majority of all members of the Committee at any meeting at which a
quorum is present, or actions approved in writing by all of the members of the
Committee without a meeting, shall be valid acts of the Committee. Decisions of
the Committee on all matters relating to the Plan shall be in the Committee's
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sole discretion and shall be conclusive and binding on all parties, including
the Company, its stockholders, and the Participants in the Plan.
IV. SHARES AVAILABLE FOR THE PLAN
Subject to adjustment as provided in Article VIII, the maximum number of
shares of Common Stock that may be issued under this Plan shall be 300,000
shares. In the event that any outstanding Option for any reason expires or is
terminated, the Option Shares allocable to the unexercised portion of such
Option may again be subject to an Option under the Plan.
V. PARTICIPATION
Participation in the Plan shall be limited to Directors of the Company who
are not, and were not during the preceding twelve (12) months, common law
employees of the Company.
VI. OPTIONS
Each Option shall be evidenced by a written option agreement, signed by an
authorized officer of the Company, which shall contain such terms and conditions
not inconsistent with the Plan as the Committee shall determine. All option
agreements need not be identical, but shall comply with or incorporate by
reference the terms set forth in this Article VI and shall be subject to all
other terms and conditions of the Plan. In the event any option agreement is
inconsistent with the Plan, the terms of the Plan shall govern the issue in
question.
(a) GRANT OF OPTIONS. From and after the Effective Date, each
Outside Director shall be granted an Option to purchase 10,000 shares of Common
Stock at the time of his or her initial election or appointment to the Board of
Directors. All Outside Directors except William Rothrock who are serving as
Directors as of the Effective Date shall also be granted an option to purchase
10,000 shares of Common Stock upon adoption of this Plan by the Stockholders of
the Company. Commencing with calendar year 1998, each Outside Director shall
automatically be granted an option to purchase 5,000 shares of Common Stock as
of January 1 of such calendar year.
(b) PRICE. The price per share payable upon the exercise of each
Option (the "Exercise Price") shall not be less than 100% of the Fair Market
Value of a share of Common Stock on the date the Option is granted.
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<PAGE>
(c) EXERCISE OF OPTIONS. Options shall be exercisable only by the
Participant to whom the Options were granted, or by the Participant's legal
guardian or personal representative, if any, in the case of exercise following
the death or Disability of the Participant. Options shall be exercised by
delivery to the Company of a written notification specifying the number of
Option Shares which the Participant then desires to purchase, together with
payment for such Option Shares. Payment may be made in the form of (i) cash,
certified check or other immediately available funds for the aggregate Exercise
Price for such Option Shares, (ii) the exchange of a number of shares of Common
Stock owned by the Participant, free and clear of all liens or encumbrances, the
Fair Market Value of which at the time of exercise is equal to the aggregate
Exercise Price of such shares, and accompanied by executed stock powers and any
other documents of transfer requested by the Committee, (iii) the relinquishment
of Options to purchase Option Shares which shall be deemed to have a value equal
to the aggregate Fair Market Value of the Option Shares issuable upon exercise
thereof less the aggregate Exercise Price for those Option Shares, or (iv) a
combination of (i), (ii), and (iii). No fractional shares may be issued or
accepted by the Company with respect to the exercise of an Option.
(d) TERMS OF OPTIONS. Options granted to Participants shall be
immediately exercisable and may be exercised at any time from time to time from
the date of grant to the date which is ten years after the date of grant or, if
earlier, one year after the date when the Participant ceases to be a director of
the Company; provided, however, that if a Participant is removed as a director
of the Company for cause (as determined by the Board or the stockholders at the
time of such removal), then all Options held by the Participant shall
immediately lapse and no longer be exercisable.
(e) RESTRICTIONS ON TRANSFER. Options granted under the Plan shall
not be transferable or assignable or capable of being pledged or otherwise
hypothecated in any way, and shall not be subject to execution, attachment or
similar process, other than by will or the laws of descent and distribution as
specifically permitted hereunder. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of an Option contrary to the provisions
hereof shall result in the termination of such Option, which termination shall
be effective immediately before the attempted assignment, transfer, pledge,
hypothecation or other disposition of the Option. Shares delivered upon
exercise of an Option shall be subject to such resale restrictions as may be
provided by the Committee in the option agreement pertaining to such Option.
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<PAGE>
VII. WITHHOLDING TAXES.
The Company may require, as a condition to any grant under the Plan or to
the delivery of certificates for Common Stock issued upon the exercise of an
Option, that the Participant pay to the Company, in cash, any federal, state or
local taxes of any kind required by law to be withheld with respect to any grant
of an Option or any delivery of Common Stock upon exercise of an Option. The
Company, to the extent permitted or required by law, shall have the right to
deduct from any payment of any kind (including salary or bonus) otherwise due to
a Participant any federal, state or local taxes of any kind required by law to
be withheld with respect to any grant of an Option or to the delivery of Common
Stock upon exercise of an Option under the Plan.
Subject to Committee approval, a Participant may elect to deliver shares of
Common Stock (or have the Company withhold shares acquired upon exercise of an
Option) to satisfy, in whole or in part, the amount the Company is required to
withhold for taxes in connection with a grant under the Plan. Such election
must be made on or before the date the amount of tax to be withheld is
determined and, if applicable, subject to rules, regulations and interpretations
of the Securities and Exchange Commission under Section 16(b) of the Exchange
Act. Once made, the election shall be irrevocable. The withholding tax
obligation that may be paid by the withholding or delivery of shares may not
exceed the Participant's minimum federal, state and local income tax obligations
in connection with the grant. The Fair Market Value of the shares to be
withheld or delivered will be determined on the date last preceding the date as
of which the amount of tax to be withheld is determined.
VIII. CHANGES IN CAPITAL STRUCTURE, REORGANIZATIONS, MERGER, ETC.
(a) COMPANY'S POWER TO CHANGE STRUCTURE, REORGANIZE, MERGE, ETC. The
existence of outstanding Options shall not affect in any way the right or
power of the Company or its stockholders to declare or distribute any stock
dividend or to make or authorize any recapitalization, reorganization,
merger, split-up, combination or other change in the Company's capital
structure or its business, or the dissolution or liquidation of the Company
or any sale or transfer of all or any part of its assets or business, or
any other corporate act or proceeding whether of a similar character or
otherwise. Except as expressly provided herein, no such corporate act or
the issuance of securities by the Company shall affect any Options
outstanding under the Plan.
(b) EFFECT OF RECAPITALIZATION OR SIMILAR TRANSACTION. In the event
of any change in the total number of outstanding shares of equity
securities of the Company by reason of any stock dividend, stock split,
recapitalization, or similar
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<PAGE>
transaction in which there is a distribution of equity securities of the
Company for substantially below their Fair Market Value, then (i) the
number, class and per share price of shares of Common Stock subject to
outstanding Options shall be appropriately adjusted in such manner as to
entitle a Participant to receive upon exercise of an Option, for the same
aggregate Exercise Price, the same total number and class of equity
securities as he would have received had he exercised his Option in full
immediately prior to the event requiring the adjustment; and (ii) the
number and class of equity securities then reserved for issuance under
the Plan shall be adjusted by substituting, for the total number and class
of shares of Common Stock then reserved for issuance under the Plan,
that number and class of shares of equity securities that would have been
received by the owner of the number of shares of Common Stock then
available to be issued under the Plan.
(c) EFFECT OF DISSOLUTION, LIQUIDATION, REORGANIZATION OR OTHER
TRANSACTION IN WHICH THE COMPANY IS NOT THE SURVIVOR. Upon the dissolution
or liquidation of the Company, the sale of all or substantially all of the
Company's assets, or the occurrence of any merger, consolidation,
reorganization, or other transaction in which the Company is not the
surviving corporation, then in the absolute discretion of the Committee,
(i) all Options outstanding under the Plan shall be assumed by the
successor, remaining, or surviving corporation, or new options shall be
substituted for such Options, all as provided in Section 424(a) of the Code
and to the extent permitted by Section 424(a) of the Code, in which event
such assumption shall be made on a full and equivalent basis in accordance
with Section 424(a) of the Code in order to preclude any modification of
such Options which would be considered to be the grant of new options, or
(ii) all Options which are then exercisable, or all Options outstanding
under the Plan, regardless of whether such Options otherwise would be
exercisable, shall be exercisable for a period of 15 days immediately prior
to such event and, after the Participant has been afforded the opportunity
to exercise such Options as aforesaid and to the extent that such Options
are not timely exercised during such period, the terms and provisions of
this Plan and any option agreement entered into hereunder will terminate
and the related Options will terminate.
IX. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES.
Notwithstanding any other provision of this Plan or of any option
agreement, the Company shall be under no obligation and shall not issue shares
or, in the case of treasury shares, transfer shares under this Plan, except in
compliance with all applicable federal and state laws and regulations and in
compliance with rules of any stock exchanges or listing organizations with which
the Company's shares may be listed. The determination as to whether the
issuance or transfer of shares under this Plan is in
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<PAGE>
compliance with applicable federal and state laws and regulations and rules
of stock exchanges and listing organizations shall be made solely by the
Committee.
(a) USE OF RESTRICTIVE LEGENDS. Any certificate issued to
evidence shares issued upon the exercise of an Option may bear such
legends and statements as the Committee shall deem advisable to assure
compliance with federal and state laws and regulations.
(b) REPRESENTATION OF INVESTMENT INTENT. Any Participant
receiving an Option and any Participant or other person exercising an
Option may be required by the Committee to give a written
representation that the Option and the shares subject to the Option
will be acquired for investment and not with a view to public
distribution; provided, however, that the Committee, in its sole
discretion, may release any person receiving an Option from any such
representations either prior to or subsequent to the exercise of an
Option granted pursuant to this Plan.
(c) REPRESENTATION OF OWNERSHIP. In the case of the exercise of
an Option by a person or estate acquiring the right to exercise such
Option by bequest or inheritance or by reason of the death or
Disability of a Participant, the Committee may require reasonable
evidence as to the ownership of such Option or the authority of such
person and may require such consents and releases of taxing
authorities as the Committee may deem advisable.
X. RIGHTS AS A STOCKHOLDER.
The holder of an Option shall have no rights as a stockholder with respect
to any Option Shares until the date a stock certificate is issued to him or her
after the exercise of the Option. No adjustment shall be made for dividends
(ordinary or extraordinary) whether in cash, securities or other property, or
distributions, or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Article VIII.
XI. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN.
The Board of Directors may at any time terminate or from time to time amend
or suspend this Plan; provided, however, that (i) no such amendment shall alter
or impair the number of shares, exercise price or duration of any Option
theretofore granted to a Participant under this Plan without the consent of the
affected Participant, and (ii) no
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amendment shall become effective without prior approval of the stockholders
of the Company if such approval would be required for continued compliance
with Rule 16b-3 promulgated under the Exchange Act. Notwithstanding the
foregoing, the Board of Directors may not, without further approval of the
stockholders of the Company, amend the Plan to:
(a) materially increase the total number of shares of Common
Stock which may be made the subject of Options to be granted under the
Plan, either in the aggregate or to an individual Participant, except
as provided in Article VIII;
(b) change the manner of determination of the Exercise Price;
(c) extend the maximum period during which Options may be
granted or exercised; or
(d) materially modify the requirements as to eligibility for
participation in the Plan.
XII. COMMENCEMENT DATE; TERMINATION DATE.
The date of commencement of this Plan shall be June 23, 1997. No Options
shall be issued under the Plan after the close of business on June 22, 2007.
The Plan was adopted by the Board on June 23, 1997 and was approved by the
Company's stockholders on June 23, 1997. The terms set forth herein constitute
all of the terms and provisions of the Plan until further amended pursuant to
Article XI.
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<PAGE>
U S LIQUIDS INC.
AMENDED AND RESTATED STOCK OPTION PLAN
GRANT OF INCENTIVE STOCK OPTION
This Grant is made as of this ____ day of _____________, 19__, (the
"Date of Grant") at _______________________, by and between U S LIQUIDS INC.
(hereinafter referred to as the "Company") and _______________________
(hereinafter referred to as the "Optionee").
1. EXPLANATORY STATEMENT. The Optionee is an employee of the Company
and it is important to the Company that the Optionee be encouraged to provide
Optionee's best efforts in furthering the interests of the Company.
Accordingly, the Company desires to afford the Optionee an opportunity to
purchase shares of the Company's $.01 par value common stock (the "Common
Stock") as hereinafter provided and to otherwise carry on the purposes of the
U S Liquids Amended and Restated Stock Option Plan (the "Plan"). The option
granted hereunder is intended to be an Incentive Stock Option under the Plan.
2. DEFINITIONS. All terms defined in the Plan shall have the same
meaning when used herein unless otherwise expressly indicated.
<PAGE>
3. GRANT OF OPTION. Subject to the terms and conditions of this Grant
as well as the terms and conditions of the Plan, which are incorporated
herein by reference, the Optionee is hereby granted the right and option (the
"Option") to purchase from the Company for the consideration specified in
Section 4.3 below, all or any part of the aggregate of __________ shares of
the Common Stock (the "Option Shares") at a purchase price of $______ per
share (the "Option Price"), which price shall not in any event be less than
the Fair Market Value (as defined in Article II of the Plan) of such shares
as of the Date of Grant. The Option must be exercised as hereinafter
provided.
4. TERMS AND CONDITIONS. It is understood and agreed by the parties
hereto that the Option evidenced hereby is subject to the following terms and
conditions:
4.1 EXPIRATION DATE. Pursuant to Section VI(d) of the Plan, the
Option shall expire ___________ years after the Date of Grant (the "Option
Term") unless extended or contracted by the Committee; provided, that in
no event shall
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<PAGE>
the Option Term be greater than 10 years from the Date of Grant. The
Option granted hereunder may also be terminated pursuant to ARTICLES VI
and VIII of the Plan, Sections 4.2, 4.3, 4.4 and 5 hereof, or as otherwise
expressly provided herein.
4.2 EXERCISABILITY OF OPTION. Subject to the other terms and
conditions of the Plan and this Grant with respect to exercisability, this
Option may be exercised and the Option Shares purchased in accordance with
the following schedule:
This Option Shall Be
On or After Exercisable With Respect To
The Following Date The Following
------------------ -------------
Percent of Number of
Total Grant(1) Shares
-------------- ------
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<PAGE>
(1) The computation of the number of shares exercisable shall exclude
fractional shares.
Any shares not purchased by exercise of the Option during each exercise
period shall be available for purchase under the Option in a subsequent
period.
Any exercise shall be accompanied by a written notice in the form of
Exhibit "A" to the Company specifying the number of shares as to which the
Option is being exercised. Notation of any partial exercise shall be made
by the Company on Schedule "1" hereto. No fractional shares shall be
issued by the Company with respect to the exercise of an Option.
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<PAGE>
4.3 PAYMENT OF PURCHASE PRICE UPON EXERCISE. At the time of any
exercise, payment for the shares of Common Stock purchased pursuant to this
Option shall be made in full, in (i) cash, certified check or other
immediately available funds for the aggregate exercise price for such
Option Shares (ii) the exchange of a number of shares of Common Stock owned
by the Optionee free and clear of all liens or encumbrances, the fair
market value of which at the time of exercise is equal to the aggregate
exercise price of such shares an accompanied by executed stock powers and
other documents of transfer requested by the Company (iii) the
relinquishment of options to purchase Option Shares which shall be deemed
to have a value equal to the aggregate fair market value of the Option
Shares issuable upon exercise thereof less the aggregate exercise price for
those Option Shares, or (iv) a combination of (i), (ii) and (iii).
Notwithstanding the foregoing, no fractional shares shall be accepted by
the Company with respect to the payment for shares of Common Stock
purchased pursuant to this Option. If the Optionee fails to pay for any of
the shares of Common Stock subject to this Option after notifying the
Company of the Optionee's
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<PAGE>
exercise pursuant to Section 4.2 above, the Optionee's right to purchase
Option Shares may be terminated by the Company. The date specified in
the Optionee's notice as the Date of Exercise shall be deemed the Date
of Exercise of the Option, if payment in full for the Common Stock to be
purchased upon such exercise shall be received by such date.
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<PAGE>
4.4 NONTRANSFERABILITY. This Option shall not be transferable other
than by will or by the laws of descent and distribution. During the
lifetime of the Optionee, this Option shall be exercisable only by the
Optionee, or, subject to the terms and conditions of Section 5 hereof, by
the Optionee's legal guardian in the event the Optionee becomes disabled.
Upon death of the Optionee, this Option may, subject to the terms and
conditions of Section 5 hereof, be exercised by the executor or
administrator or similar personal representative of the estate of the
Optionee. This Option shall not be subject to attachment, execution or
other similar process. Any (a) attempt by the Optionee to alienate,
assign, pledge, hypothecate or otherwise dispose of the Option except as
provided for herein, or (b) attempt by a third person to levy on or
attach, execute or exercise any similar process upon the rights or
interests hereby conferred shall be void. Further, in the event of any
action described in clauses (a) or (b) of the preceding sentence, the
Company may terminate the Option by notice to the Optionee and the Option
shall thereupon become null and void.
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<PAGE>
4.5 NO RIGHTS AS A COMMON STOCKHOLDER. The Optionee shall have no
rights as a stockholder with respect to any shares of Common Stock subject
to this Option prior to the date of issuance to the Optionee of a
certificate or certificates for such shares of Common Stock.
4.6 NO RIGHT TO CONTINUED EMPLOYMENT. This Option shall not confer
upon the Optionee any right with respect to continuance of employment by
the Company or any Subsidiary nor shall it interfere in any way with the
right of the Optionee's employer to terminate the Optionee's employment at
any time.
4.7 OPTIONEE UNDER NO OBLIGATION TO EXERCISE. The Optionee shall be
under no obligation to exercise the Option granted hereunder.
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<PAGE>
4.8 DELIVERY OF COMMON STOCK. As soon as practicable after the
Exercise Date with respect to any Option exercised pursuant to the terms
hereof, the Company shall cause to be delivered to the Optionee, a
certificate or certificates for the Common Stock then being purchased
(from theretofore unissued Common Stock or reacquired stock as the
Company may elect) upon full payment for such Common Stock. The
obligation of the Company to deliver Common Stock shall, however, be
subject to the condition that if at any time the Committee shall
determine in its discretion that the listing, registration or
qualification of the Option or the Common Stock upon any securities
exchange, under any state or federal law, or the consent or approval of
any governmental regulatory body, is necessary or desirable as a
condition of or in connection therewith, the Option or the issuance or
purchase of Common Stock thereunder, the Option may not be exercised in
whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any
conditions not acceptable to the Committee.
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<PAGE>
5. TERMINATION OF OPTION.
(a) The Option and all rights hereunder with respect thereto, to the
extent such rights have not been exercised, shall terminate and become null
and void after the expiration of the Option Term as specified in Section
4.1 hereof.
(b) Upon the Optionee's ceasing for any reason to be employed by the
Company (such occurrence being a "Termination of Optionee's Employment"),
the Option to the extent not exercisable shall immediately terminate and
become null and void. Further, the Option to the extent exercisable but
not previously exercised shall terminate and become null and void on the
date ninety (90) days following the Termination of the Optionee's
Employment except in the case where Termination of the Optionee's
Employment is by reason of death, disability or for cause as set forth in
Section 5(d) below. Upon termination of the Optionee's employment by
reason of death or disability, the Option may be exercised to the extent
it is exercisable on the date of such death or disability as follows:
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(i) In the event the Optionee's termination of employment due
to death, the Option, to the extent exercisable upon the date of the
Optionee's death (the "Date of Death"), shall be exercisable for a
period equal to the earlier to occur of twelve months after the Date
of Death or six months following the date of issuance of letters
testamentary or letters of administration to the executor or
administrator of the estate of the deceased Optionee.
(ii) In the case the Optionee's employment is terminated due to
Disability, as such term is defined in the Plan, the Option to the
extent exercisable as of the date of termination due to Disability
shall be exercisable for a period of one-year from the date of
termination.
Notwithstanding the foregoing, in no event, shall any such period
extend beyond the Option Term. The determination as to the cause of the
Termination of Optionee's Employment including, without limitation, the
determination of whether
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<PAGE>
such Termination is due to the Optionee's disability shall be made
exclusively and in the absolute discretion of the Committee.
(c) The transfer of the Optionee's employment between the Company and
any Subsidiary of the Company or between Subsidiaries of the Company shall
not be deemed to be a Termination of the Optionee's Employment.
(d) Notwithstanding any other provision set forth herein or in the
Plan, if the Optionee shall (i) commit any act of malfeasance or
wrongdoing affecting the Company or any Subsidiary of the Company (ii)
breach any covenant not to compete or employment contract with the
Company or any Subsidiary of the Company or (iii) engage in conduct that
would warrant the Optionee's discharge for cause (excluding the general
dissatisfaction with the performance of the Optionee's duties but
including any act of disloyalty or any conduct clearly tending to bring
discredit upon the Company or any Subsidiary of the Company) any
unexercised portion of the Option shall immediately terminate and become
void.
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6. ADJUSTMENT OF AND CHANGES IN COMMON STOCK. In the event of a
reorganization, recapitalization, change of shares, stock split, spin-off,
stock dividend, reclassification, subdivision or combination of shares,
merger, consolidation, rights offering or any other change in the corporate
structure or shares of capital stock of the Company, the Committee may make
such adjustment as it deems appropriate in the number and kind of shares of
Common Stock subject to the Option or in the Option Price subject to and as
set forth in Article VIII of the Plan.
7. AMENDMENT OF OPTION. The Option may be amended by the Committee at
any time (i) if the Committee determines, in its sole discretion, that
amendment is necessary or advisable in light of any addition to or change in
the Internal Revenue Code or in the regulations issued thereunder, or any
federal or state securities law or other law or regulation which change
occurs after the Date of Grant and by its terms applies to the Option; or
(ii) other than in the circumstances described in Clause (i), with the
consent of the Grantee.
13
<PAGE>
8. OPTIONEE BOUND BY TERMS OF PLAN. The Optionee hereby acknowledges
receipt of a copy of the Plan and agrees to be bound by all the terms,
conditions and provisions hereof.
9. NOTICES. Any notice hereunder to the Company shall be addressed to
its offices at:
U S Liquids Inc.
411 North Sam Houston Parkway East, Suite 400
Houston, Texas 77060
Attn: Chief Financial Officer
Any notice hereunder to the Optionee shall be addressed to the Optionee at:
--------------------------
--------------------------
--------------------------
subject to the right of either party to designate at any time hereafter in
writing some other notice address.
10. COUNTERPARTS. This Grant has been executed in two counterparts
each of which shall constitute one and the same instrument.
14
<PAGE>
11. PARAGRAPH HEADINGS. The paragraph headings contained in this Grant
are for convenience only and shall not be used to interpret the terms hereof.
12. GOVERNING LAW AND CHOICE OF FORUM. This Grant shall be governed by
and construed in accordance with the laws of the State of Texas. The parties
hereto agree that any action brought to enforce or interpret the terms of
this Grant shall be brought exclusively in the ___________________________,
State of ___________ or the Federal District Court for the ____________
District of ______________, and the parties hereto hereby expressly consent
to the jurisdiction and venue of said courts.
15
<PAGE>
IN WITNESS WHEREOF, U S Liquids Inc. has caused this Grant to be
executed by its President or Vice President, and the Optionee has executed
this Grant both as of the day and year first written above.
COMPANY: U S LIQUIDS INC.
By:
-------------------------------
Title:
------------------------
ACCEPTED AND AGREED:
OPTIONEE:
-----------------------------------
----------------------
16
<PAGE>
EXHIBIT "A"
NOTICE OF EXERCISE OF STOCK
OPTION AND RECORD OF STOCK TRANSFER
I, the undersigned, hereby exercise my Stock Option granted by U S
Liquids Inc. subject to all the terms, conditions and provisions thereof, and
of the U S Liquids Inc. Amended and Restated Stock Option Plan referred to
therein, and notify you of my desire to purchase _________ shares of Common
Stock of the Company which were offered to me pursuant to said Option.
Enclosed is my check in the sum of $_________________ in full payment for
such shares.
I understand that to the extent the Option granted to me otherwise
qualifies as an Incentive Stock Option pursuant to Section 422 of the
Internal Revenue Code, in order for tax benefits provided by Section 422 of
the Internal Revenue Code to be applicable, I cannot dispose of any of the
shares being acquired by me pursuant to this Option within one (1) year of
the date they are received by me or within two (2) years from the date the
Option was granted to me.
Dated .
--------------------------------
-----------------------------------
Optionee's Signature
<PAGE>
RECEIPT
Receipt is hereby acknowledged of the delivery to me by U S Liquids Inc.
on ______________________ of stock certificates for _________________ shares
of Common Stock purchased by me pursuant to the terms and conditions of U S
Liquids Inc. Amended and Restated Stock Option Plan referred to above, which
shares were transferred to me on the Company stock record books on
_____________________________.
-----------------------------------
Optionee
19
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is effective as of the
17th day of June, 1997 (the "Effective Date"), between U S LIQUIDS INC., a
Delaware corporation ("Employer"), and Jerry Brazzel, a resident of Lincoln
Parish, Louisiana ("Employee"), under the following terms and conditions.
The Employee, who is willing to be employed by the Employer, on the terms
and conditions hereinafter set forth, and the Employer, which is willing to
employ the Employee, on the terms and conditions hereinafter set forth, agree as
follows:
1. EMPLOYMENT. Employer agrees to employ Employee as Environmental
Compliance Manager in Louisiana and Texas, or such other location in the United
States as Employer shall designate, with such responsibilities as may be
designated by Employer from time to time. Employee agrees to render such
services to Employer as may be required by the referenced position and such
other duties as Employer may from time to time reasonably request Employee to
assume with respect to Employer and its affiliates, and to serve Employer
faithfully, diligently and to the best of his ability. Employee shall
faithfully adhere to, execute and fulfill all policies established by Employer.
2. TERM OF EMPLOYMENT. Subject to the provisions of Section 7 of this
Agreement, Employee's employment under this Agreement shall be deemed to have
commenced on the Effective Date and continue to the first anniversary of the
Effective Date, unless sooner terminated as otherwise provided in this
Agreement. The term of this Agreement will be subject to automatic annual
renewals on each anniversary of the Effective Date without action by either
party for additional one-year periods on the same terms and conditions.
Notwithstanding the foregoing, either party may prevent the term of this
Agreement from automatically renewing by giving written notice to the other
party of its election not to renew at least 60 days in advance of the renewal
date, which occurs on the next anniversary of the Effective Date.
3. COMPENSATION. Employer shall pay Employee an annualized salary of One
Hundred Twenty Thousand and No/100 Dollars ($120,000.00) (the "Base Salary").
The Base Salary will be paid by Employer to Employee in equal installments
payable $10,000.00 per month in accordance with the regular payroll policies of
Employer in effect during the term of this Agreement, less applicable tax
withholdings or other deductions required by law or authorized by Employee. The
Base Salary may be increased, on an annual basis, but only in the sole
discretion of the Board of Directors of Employer. Employee shall have the
opportunity to earn an annual bonus of up to 50% of the Base Salary then in
effect, determined solely at the discretion of the Board of Directors of
Employer, based on corporate results and personal performance.
<PAGE>
4. BENEFITS. In addition to the compensation provided for in Section 3
above, Employer shall provide Employee with employment benefits of the type
provided to employees of Employer generally during the term of this Agreement,
including but not limited to eligibility in any vacation and sick leave benefits
and health, life and disability insurance benefits, whether now in effect or
subsequently adopted, subject to Employer's right to amend, alter or terminate
such plans. Employee shall receive fifteen (15) business days of paid vacation
per calendar year.
5. EXPENSES. Employer shall pay all reasonable pre-approved expenses
incurred by Employee in furtherance of the business of the Employer, including
traveling and entertainment expenses, and shall reimburse Employee monthly for
all such expenses paid or incurred by Employee during the preceding month upon
delivery of an appropriate expense report and receipts to Employer.
6. Intentionally Omitted
7. TERMINATION BY EMPLOYER. Employer may terminate this Agreement at any
time with or without Cause. Employer may terminate Employee immediately and
without notice for Cause. As used herein, "Cause" shall mean any of the
following occurrences:
(i) numerous recurring unexcused absences of Employee; or
(ii) willful violation by Employee of any statute, regulation or
ordinance, the compliance with which is necessary for operation of the
business of Employer; or
(iii) material breach by Employee of any of the material provisions
of this Agreement; or
(iv) commission by Employee of one or more acts of gross negligence
as to any material matter, willful or reckless misconduct, or willful
disobedience in connection with his duties as prescribed in writing by the
Board of Directors of Employer or a person delegated by the Board of
Directors ("Board Representative") or described hereunder, which, when
considered individually or in the aggregate, the Board of Directors deems
material; or
(v) use by Employee during the term hereof of illegal substances
which have a material adverse effect on the performance of the Employee's
duties hereunder or upon the reputation, business, or goodwill of Employer;
or any act of fraud or dishonesty by Employee of any material matters in
connection with his employment hereunder; or any intentional act by
Employee materially compromising Employee's reputation or ability to
represent Employer with the public; any
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<PAGE>
intentional act or omission by Employee which substantially impairs
Employer's business, good will or reputation; or
(vi) failure by Employee to follow acceptable practices as
prescribed by Employer, the Board of Directors or a Board Representative
for work, safety or general conduct relating to the business of Employer
or the premises of Employer; or
(vii) failure by Employee to abide by the rules, policies, standards
and regulations of Employer or those of its clients to which Employer is
subject which are published or communicated to employees of Employer; or
(viii) Employee being convicted of a felony; or
(ix) Employee becoming by reason of injury or illness incapacitated
or unable to perform his duties under this Agreement, which incapacity or
inability continues more than 180 days during any period of 360 days,
except to the extent prohibited by the Family Medical Leave Act or other
state or federal statute or regulation.
Notwithstanding the foregoing, no occurrence except those listed above as
items (ii), (viii) and (ix) shall constitute Cause unless Employee receives
written notice from Employer objecting to such occurrence, and Employee fails to
remedy such occurrence within ten (10) days after the receipt of such written
notice or subsequently repeats such occurrence; provided, however, in no event
shall Employer be required to give notice of or an opportunity to cure the
occurrence of any of items (i), (iii), (iv), (v), (vi) or (vii) above more often
than once for such an occurrence to constitute Cause hereunder.
Upon Employee's termination with Cause, Employer shall be required to pay
Employee compensation and benefits only through the effective date of
termination. Sums due Employee for salary under Section 3 shall be prorated for
the then current month through the date of termination. Any proration of
compensation or benefits paid on a weekly basis shall be calculated based on a
business week consisting of five (5) days and not seven (7) days. By way of
example and not of limitation, two weeks of vacation would be calculated as ten
(10) business days of vacation.
If Employer terminates Employee's employment without Cause, as defined
under this Section (including by giving the notice required by Section 2 to
prevent the automatic renewal of the term of this Agreement), Employer shall pay
Employee's salary until the end of the annual term then in effect; provided,
however, that if notice of termination is given less than 60 days prior to the
end of the annual term then in effect, Employer shall pay Employee's salary
until the end of the next annual term.
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<PAGE>
8. VOLUNTARY TERMINATION. Employee may terminate this Agreement prior to
the end of its term by written notice to Employer. Employer may accept the
proposed termination date or may set an earlier termination date by mailing or
personally delivering notice of such earlier date to Employee. In the event
Employee voluntarily terminates this Agreement (other than by preventing the
automatic renewal of the term in accordance with the notice provisions of
Section 2), he will receive the salary due under Section 3 hereof through the
effective date of termination and no other compensation or benefits.
9. OTHER ACTIVITIES. Employee shall devote all of his working time and
efforts during the Employer's normal business hours (reasonable vacations and
sick leave excluded) to the business and affairs of the Employer and to the
duties and responsibilities assigned to him pursuant to this Agreement.
10. CONFIDENTIAL INFORMATION. In the course of Employee's employment,
Employer will disclose to Employee information, technical data and know-how
regarding the business affairs, services and products of Employer as well as
Employer's customers, which constitute Confidential Information. "Confidential
Information," under this Agreement, shall consist of any and all proprietary
information and proprietary data related thereto, and any derivative works
thereof including but not limited to research, development, customer
information, pricing information, knowledge of Employer's financial condition,
information and relationships with resources, suppliers and customers of
Employer, manufacturing processes, techniques, methods, systems and trade
secrets of the Employer, its employees, or other subsidiaries, affiliates,
agents, or customers, whether or not specifically identified as confidential.
Employee agrees to receive, hold and treat all Confidential Information received
from Employer as confidential and secret and agrees to protect the secrecy of
said Confidential Information, whether or not specifically identified as
confidential. Such Confidential Information constitutes valuable, special and
unique assets of Employer, and Employee agrees that the Confidential Information
will be disclosed by Employee only to those persons who are required to have
such knowledge in connection with their work for Employer and that such
Confidential Information will not be disclosed by Employee to others without the
prior written consent of the Employer. As used herein, "persons required to
have such knowledge" shall include, but not be limited to, the Board of
Directors and such officers, employees and agents of Employer or its affiliates
to which such information is furnished in the normal course of business under
established policies approved by Employer or its affiliates and such outside
parties as are legally entitled to such information (other than as a result of
action by Employee not previously approved or authorized by the Board of
Directors of Employer) and customers and banking, lending, collection and data
processing institutions or agencies in the course of maintaining ordinary
business procedures of Employer. The provisions hereof shall not be applicable
to: (a) information which at the time of disclosure to Employee is a matter of
public knowledge or in the public domain; or (b) information which, after
disclosure to Employee, becomes public knowledge or in the public domain other
than through a breach of this Agreement. Unless the Confidential Information
shall be of the type hereinbefore
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<PAGE>
set forth in the two immediately preceding sentences, Employee shall not use
such Confidential Information for his own benefit or for a third party's or
parties' benefit at any time. The obligations imposed upon Employee by this
Section shall survive the expiration or termination of this Agreement.
11. COVENANT NOT TO COMPETE AND NON-SOLICITATION BY EMPLOYEE. For and in
consideration of Employee's employment and the disclosures that Employer will
make to Employee under Section 10 above, Employee agrees that during his
employment by Employer and for a period of two (2) years from and after the date
of termination of employment with Employer, whether by discharge with or without
Cause, or by voluntary resignation or in any other manner whatsoever including
completion of the term of this Agreement, Employee shall not, directly or
indirectly, as an employee, principal, owner, consultant, officer, director,
agent or otherwise, compete with the Business in the states of Texas or
Louisiana. As used in this Agreement, the "Business" means the collection,
transfer, transportation, treatment, minimization, recycling or disposal of
nonhazardous oilfield waste associated with the exploration and production of
oil, gas and geothermal energy. As used in this Agreement, "Compete" means to
(i) attempt in any fashion to solicit business similar in nature to the Business
from any of Employer's customers existing as of the date of termination; or
(ii) invest in, own, manage, operate, control or render services or advice
relating to the Business to any business, individual, firm, company or
organization which engages in the Business (hereinafter collectively referred to
as "Competitor"), in whole or in part. Employee further agrees that for two (2)
years after termination of employment by Employer that he will in no way attempt
to attract, induce, or solicit any employee of Employer to leave his or her
employment or to accept employment with or provide services or advice to any
Competitor.
12. INVENTIONS. Any and all inventions, conceptions, processes,
discoveries, improvements, patent rights, letter patents, programs, copyrights,
trademarks, trade names and applications therefor, in the United States and all
other countries, whether patentable or not, and any and all rights and interest
in, to and under the same, that are conceived, made, acquired, or possessed by
the Employee, alone or with other employees, during the term of this Agreement,
or within one (1) year thereafter shall become the exclusive property of the
Employer and shall at all times and for all purposes be regarded as acquired and
held by the Employee in a fiduciary capacity for the sole benefit of the
Employer, and the Employee hereby assigns and agrees to assign the same to the
Employer without further compensation. The Employee agrees that, upon request,
he will promptly make all disclosures, execute all applications, assignments or
other instruments and perform all acts whatsoever necessary or desired by the
Employer to vest and confirm in it, its successors, assigns and nominees, fully
and completely, all rights and interests created or contemplated by this
Section 12.
13. EMPLOYER PROPERTY. All products, records, designs, patents, plans,
data, manuals, "field guides", catalogs, brochures, memoranda, machinery,
devices, lists and
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<PAGE>
other property delivered to Employee by or on behalf of the Employer or by
its customers (including, but not limited to, Employer's customers solicited
by Employee), and all records compiled by the Employee which pertain to the
business of the Employer shall be and remain the property of the Employer and
be subject at all times to its discretion and control. The Employee shall
promptly deliver to a designated representative of the Employer all such
Employer property, as well as any and all correspondence with customers and
representatives, reports, records, charts, advertising materials, and other
materials, and property in his possession or control which belong to the
Employer upon termination of Employee's employment.
14. REPRESENTATIONS OF EMPLOYEE.
(a) The Employee represents that to the best of his knowledge he is
not the subject of any pending or threatened claim which involves any criminal
or governmental proceedings, or allegations of misfeasance or malfeasance, and
that he has not been charged nor threatened to be charged by any governmental or
administrative body with any violation of law except for minor traffic
violations and similar charges.
(b) The Employee represents and warrants to the Employer that he is
not prohibited from acting in any capacity for the Employer by virtue of the
operation of any non-competition or similar agreement with any prior employer,
or by any applicable statutes, regulations or ordinances or any other applicable
law or by the rules and regulations of the Securities and Exchange Commission or
any national securities exchange, and that his acting in any capacity for the
Employer, will not subject the Employer to claims or materially impair the
permit or license status of the Employer or its affiliates or any business
operated by the Employer or its affiliates.
15. DEFENSE OF CLAIMS. The Employee agrees that during the period he is
employed by the Employer, and at all reasonable times thereafter, he will
cooperate with the Employer in the defense of any claim that may be made against
the Employer or any affiliates, to the extent that such claims may relate to
services performed by the Employee for the Employer or its affiliates. In
connection with such claim, (i) if the Employee is required to travel more than
100 miles from his home, the Employer agrees to reimburse the Employee for all
of his reasonable out-of-pocket expenses associated with such travel and, to the
extent reasonably practicable, to provide the Employee with notice of at least
10 days prior to the date on which such travel is required, and (ii) if the
Employee is no longer employed by the Employer, to compensate the Employee at a
reasonable rate.
16. NOTIFICATION OF AGREEMENT. Employee shall notify any future or
prospective employers, partners or persons with a similar business relationship
to Employee ("Future Employers") about the terms of this Agreement for any
period during Employee's employment by Employer and for two (2) years after the
termination of Employee's employment by Employer. Employee does hereby
authorize Employer to notify any Future
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<PAGE>
Employers about the terms of this Agreement upon discovery by Employer that
Employee is being considered for employment, partnership or similar business
relationship (or has entered into such a relationship) with a Future Employer
in order to ensure Employee's observance and compliance herewith.
17. INJUNCTION AND OTHER RELIEF. Both parties hereto recognize that the
services to be rendered under this Agreement by Employee are special, unique and
of extraordinary character, and that in the event of the breach by Employee of
any of the terms and conditions of this Agreement to be performed by him, or in
the event Employee performs services for any person, firm or corporation in
violation of Section 11, or if Employee shall breach the provisions of this
Agreement with respect to Confidential Information, then Employer shall be
entitled, if it so elects, in addition to all other remedies available to it
under this Agreement or at law or in equity, to affirmative injunctive or other
equitable relief, and Employee waives (and shall execute such documents as may
be necessary to further evidence such waiver) any requirement that Employer
secure or post any bond in connection with such injunctive or other equitable
relief.
18. STIPULATION. Employee hereby specifically acknowledges, agrees,
stipulates and represents to Employer that:
(i) Employee has received adequate and sufficient consideration for
entering into this Agreement including the above-referenced compensation
and benefits and opportunity to purchase shares of the Employer's stock;
(ii) the execution and delivery of this Agreement and the performance
hereunder do not and shall not constitute a violation of any covenants of
non-competition, trade secrecy, or confidentiality to which Employee is a
party;
(iii) the covenants of Employee contained in Section 10 and Section 11
of this Agreement are in consideration of the promise of Employer to
provide Confidential Information (including trade secrets) to Employee and
are necessary to protect Employer's interests in such Confidential
Information, as well as Employer's business goodwill and other business
interests;
(iv) Employer will suffer great loss and irreparable harm if Employee
Competes directly or indirectly with Employer;
(v) the temporal, geographic and other restrictions contained in
this Agreement are in all respects reasonable and necessary to protect the
business goodwill, Confidential Information, trade secrets, prospects and
other business interests of Employer; and
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<PAGE>
(vi) the enforcement of this Agreement will not work an undue or
unfair hardship on Employee or otherwise be oppressive to him.
19. SEVERABILITY. In the event that any of the provisions of this
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such invalidity or unenforceability shall not affect the remainder
of this Agreement and same shall be construed as if such invalid or
unenforceable provisions had never been a part hereof. If a court of competent
jurisdiction determines that the length of time, geographical restrictions or
any other restriction, or portion thereof, set forth in this Agreement is overly
restrictive and unenforceable, the parties agree that the court shall reduce or
modify such restrictions to those which it deems reasonable and enforceable
under the circumstances, and as so reduced or modified, the parties hereto agree
that the restrictions of this Agreement shall remain in full force and effect.
In the event there is a breach by Employer or Employee of any other provision of
this Agreement, the covenants contained in Sections 10 and 11 shall remain in
full force and effect.
20. WAIVER. The waiver by either party of a breach or violation of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any subsequent or continuing breach hereof.
21. NOTICES. Any notices provided for in this Agreement shall be given in
writing and transmitted by personal delivery or prepaid first class registered
or certified U.S. mail addressed as follows:
Employer: U S Liquids Inc.
Attn: W. Gregory Orr
411 N. Sam Houston Parkway East, Suite 400
Houston, TX 77060-3534
Employee: Jerry Brazzel
139 Forsythe Road
Dubach, Louisiana 71235
22. SUCCESSORS TO EMPLOYER. Except as otherwise provided herein, this
Agreement shall inure to the benefit of Employer and any successor of Employer,
including, without limitation, any corporation or corporations acquiring
directly or indirectly all or substantially all of the assets or business of
Employer whether by merger, consolidation, sale or otherwise (and such successor
shall thereafter be deemed "Employer" for the purposes of this Agreement), but
shall not otherwise be assignable by Employer.
23. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of Texas.
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<PAGE>
24. CHOICE OF FORUM. The parties hereto agree that in the event that any
legal suits, actions or proceedings arising out of this Agreement are instituted
by any party hereto, such suits, actions or proceedings shall be instituted only
in the state or federal courts in the county of Harris in the state of Texas.
The parties hereto do hereby consent to the jurisdiction of such courts and
waive any objection which they may now or hereafter have to the venue of any
such suits, actions or proceedings; provided, however, that any party hereto
shall have the right to institute proceedings in another jurisdiction if the
purpose of such proceedings is to enforce or realize upon any final court
judgment arising out of this Agreement.
25. CONSENT TO SERVICE. Service of any and all process which may be
served on any party hereto in any suit, action or proceeding related to this
Agreement may be made by registered or certified mail, return receipt requested,
to Employee or Employer at their respective addresses for notice as set forth in
Section 21 and service so made shall be taken and held to be valid personal
service upon such party by any party to this Agreement on whose behalf such
service is made.
26. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties, superseding all prior understandings, arrangements and
agreements, whether oral or written, and may not be amended except by a writing
signed by the parties hereto. As used herein, unless the context otherwise
indicates, the term "this Agreement" means the Agreement executed to be
effective as of the Effective Date and any written amendments thereof.
IN WITNESS WHEREOF, Employer has, by its appropriate officers, executed
this Agreement and Employee has executed this Agreement on the 17th day of June,
1997 to be effective as of the Effective Date.
U S LIQUIDS INC.:
By: /s/ W. Gregory Orr
---------------------------------------
W. Gregory Orr, Chief Executive Officer
/s/ Jerry Brazzel
---------------------------------------
Jerry Brazzel, Employee
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<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement") is effective as of the
17th day of June, 1997 (the "Effective Date"), between U S LIQUIDS INC., a
Delaware corporation ("Employer"), and Sammy Cooper, a resident of Jefferson
Davis Parish, Louisiana ("Employee"), under the following terms and
conditions.
The Employee, who is willing to be employed by the Employer, on the
terms and conditions hereinafter set forth, and the Employer, which is
willing to employ the Employee, on the terms and conditions hereinafter set
forth, agree as follows:
1. EMPLOYMENT. Employer agrees to employ Employee as Vice President -
NOW Operations in Louisiana and Texas, or such other location in the United
States as Employer shall designate, with such responsibilities as may be
designated by Employer from time to time. Employee agrees to render such
services to Employer as may be required by the referenced position and such
other duties as Employer may from time to time reasonably request Employee to
assume with respect to Employer and its affiliates, and to serve Employer
faithfully, diligently and to the best of his ability. Employee shall
faithfully adhere to, execute and fulfill all policies established by
Employer.
2. TERM OF EMPLOYMENT. Subject to the provisions of Section 7 of this
Agreement, Employee's employment under this Agreement shall be deemed to have
commenced on the Effective Date and continue to the first anniversary of the
Effective Date, unless sooner terminated as otherwise provided in this
Agreement. The term of this Agreement will be subject to automatic annual
renewals on each anniversary of the Effective Date without action by either
party for additional one-year periods on the same terms and conditions.
Notwithstanding the foregoing, either party may prevent the term of this
Agreement from automatically renewing by giving written notice to the other
party of its election not to renew at least 60 days in advance of the renewal
date, which occurs on the next anniversary of the Effective Date.
3. COMPENSATION. Employer shall pay Employee an annualized salary of
Ninety Thousand and No/100 Dollars ($90,000.00) (the "Base Salary"). The
Base Salary will be paid by Employer to Employee in equal installments
payable $7,500.00 per month in accordance with the regular payroll policies
of Employer in effect during the term of this Agreement, less applicable tax
withholdings or other deductions required by law or authorized by Employee.
The Base Salary may be increased, on an annual basis, but only in the sole
discretion of the Board of Directors of Employer. Employee shall have the
opportunity to earn an annual bonus of up to 50% of the Base Salary then in
effect, determined solely at the discretion of the Board of Directors of
Employer, based on corporate results and personal performance.
<PAGE>
4. BENEFITS. In addition to the compensation provided for in Section
3 above, Employer shall provide Employee with employment benefits of the type
provided to employees of Employer generally during the term of this
Agreement, including but not limited to eligibility in any vacation and sick
leave benefits and health, life and disability insurance benefits, whether
now in effect or subsequently adopted, subject to Employer's right to amend,
alter or terminate such plans. Employee shall receive fifteen (15) business
days of paid vacation per calendar year.
5. EXPENSES. Employer shall pay all reasonable pre-approved expenses
incurred by Employee in furtherance of the business of the Employer,
including traveling and entertainment expenses, and shall reimburse Employee
monthly for all such expenses paid or incurred by Employee during the
preceding month upon delivery of an appropriate expense report and receipts
to Employer.
6. Intentionally Omitted
7. TERMINATION BY EMPLOYER. Employer may terminate this Agreement at
any time with or without Cause. Employer may terminate Employee immediately
and without notice for Cause. As used herein, "Cause" shall mean any of the
following occurrences:
(i) numerous recurring unexcused absences of Employee; or
(ii) willful violation by Employee of any statute, regulation or
ordinance, the compliance with which is necessary for operation of the
business of Employer; or
(iii) material breach by Employee of any of the material
provisions of this Agreement; or
(iv) commission by Employee of one or more acts of gross negligence as
to any material matter, willful or reckless misconduct, or willful
disobedience in connection with his duties as prescribed in writing by the
Board of Directors of Employer or a person delegated by the Board of
Directors ("Board Representative") or described hereunder, which, when
considered individually or in the aggregate, the Board of Directors deems
material; or
(v) use by Employee during the term hereof of illegal substances
which have a material adverse effect on the performance of the Employee's
duties hereunder or upon the reputation, business, or goodwill of Employer;
or any act of fraud or dishonesty by Employee of any material matters in
connection with his employment hereunder; or any intentional act by
Employee materially compromising Employee's reputation or ability to
represent Employer with the public; any
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<PAGE>
intentional act or omission by Employee which substantially impairs
Employer's business, good will or reputation; or
(vi) failure by Employee to follow acceptable practices as prescribed
by Employer, the Board of Directors or a Board Representative for work,
safety or general conduct relating to the business of Employer or the
premises of Employer; or
(vii) failure by Employee to abide by the rules, policies,
standards and regulations of Employer or those of its clients to which
Employer is subject which are published or communicated to employees of
Employer; or
(viii) Employee being convicted of a felony; or
(ix) Employee becoming by reason of injury or illness incapacitated
or unable to perform his duties under this Agreement, which incapacity or
inability continues more than 180 days during any period of 360 days,
except to the extent prohibited by the Family Medical Leave Act or other
state or federal statute or regulation.
Notwithstanding the foregoing, no occurrence except those listed above
as items (ii), (viii) and (ix) shall constitute Cause unless Employee
receives written notice from Employer objecting to such occurrence, and
Employee fails to remedy such occurrence within ten (10) days after the
receipt of such written notice or subsequently repeats such occurrence;
provided, however, in no event shall Employer be required to give notice of
or an opportunity to cure the occurrence of any of items (i), (iii), (iv),
(v), (vi) or (vii) above more often than once for such an occurrence to
constitute Cause hereunder.
Upon Employee's termination with Cause, Employer shall be required to
pay Employee compensation and benefits only through the effective date of
termination. Sums due Employee for salary under Section 3 shall be prorated
for the then current month through the date of termination. Any proration of
compensation or benefits paid on a weekly basis shall be calculated based on
a business week consisting of five (5) days and not seven (7) days. By way of
example and not of limitation, two weeks of vacation would be calculated as
ten (10) business days of vacation.
If Employer terminates Employee's employment without Cause, as defined
under this Section (including by giving the notice required by Section 2 to
prevent the automatic renewal of the term of this Agreement), Employer shall
pay Employee's salary until the end of the annual term then in effect;
provided, however, that if notice of termination is given less than 60 days
prior to the end of the annual term then in effect, Employer shall pay
Employee's salary until the end of the next annual term.
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<PAGE>
8. VOLUNTARY TERMINATION. Employee may terminate this Agreement prior
to the end of its term by written notice to Employer. Employer may accept
the proposed termination date or may set an earlier termination date by
mailing or personally delivering notice of such earlier date to Employee. In
the event Employee voluntarily terminates this Agreement (other than by
preventing the automatic renewal of the term in accordance with the notice
provisions of Section 2), he will receive the salary due under Section 3
hereof through the effective date of termination and no other compensation or
benefits.
9. OTHER ACTIVITIES. Employee shall devote all of his working time
and efforts during the Employer's normal business hours (reasonable vacations
and sick leave excluded) to the business and affairs of the Employer and to
the duties and responsibilities assigned to him pursuant to this Agreement.
10. CONFIDENTIAL INFORMATION. In the course of Employee's employment,
Employer will disclose to Employee information, technical data and know-how
regarding the business affairs, services and products of Employer as well as
Employer's customers, which constitute Confidential Information.
"Confidential Information," under this Agreement, shall consist of any and
all proprietary information and proprietary data related thereto, and any
derivative works thereof including but not limited to research, development,
customer information, pricing information, knowledge of Employer's financial
condition, information and relationships with resources, suppliers and
customers of Employer, manufacturing processes, techniques, methods, systems
and trade secrets of the Employer, its employees, or other subsidiaries,
affiliates, agents, or customers, whether or not specifically identified as
confidential. Employee agrees to receive, hold and treat all Confidential
Information received from Employer as confidential and secret and agrees to
protect the secrecy of said Confidential Information, whether or not
specifically identified as confidential. Such Confidential Information
constitutes valuable, special and unique assets of Employer, and Employee
agrees that the Confidential Information will be disclosed by Employee only
to those persons who are required to have such knowledge in connection with
their work for Employer and that such Confidential Information will not be
disclosed by Employee to others without the prior written consent of the
Employer. As used herein, "persons required to have such knowledge" shall
include, but not be limited to, the Board of Directors and such officers,
employees and agents of Employer or its affiliates to which such information
is furnished in the normal course of business under established policies
approved by Employer or its affiliates and such outside parties as are
legally entitled to such information (other than as a result of action by
Employee not previously approved or authorized by the Board of Directors of
Employer) and customers and banking, lending, collection and data processing
institutions or agencies in the course of maintaining ordinary business
procedures of Employer. The provisions hereof shall not be applicable to:
(a) information which at the time of disclosure to Employee is a matter of
public knowledge or in the public domain; or (b) information which, after
disclosure to Employee, becomes public knowledge or in the public domain
other than through a breach of this Agreement. Unless the Confidential
Information shall be of the type hereinbefore
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<PAGE>
set forth in the two immediately preceding sentences, Employee shall not use
such Confidential Information for his own benefit or for a third party's or
parties' benefit at any time. The obligations imposed upon Employee by this
Section shall survive the expiration or termination of this Agreement.
11. COVENANT NOT TO COMPETE AND NON-SOLICITATION BY EMPLOYEE. For and
in consideration of Employee's employment and the disclosures that Employer
will make to Employee under Section 10 above, Employee agrees that during his
employment by Employer and for a period of two (2) years from and after the
date of termination of employment with Employer, whether by discharge with or
without Cause, or by voluntary resignation or in any other manner whatsoever
including completion of the term of this Agreement, Employee shall not,
directly or indirectly, as an employee, principal, owner, consultant,
officer, director, agent or otherwise, compete with the Business in the
states of Texas or Louisiana. As used in this Agreement, the "Business"
means the collection, transfer, transportation, treatment, minimization,
recycling or disposal of nonhazardous oilfield waste associated with the
exploration and production of oil, gas and geothermal energy. As used in this
Agreement, "Compete" means to (i) attempt in any fashion to solicit business
similar in nature to the Business from any of Employer's customers existing
as of the date of termination; or (ii) invest in, own, manage, operate,
control or render services or advice relating to the Business to any
business, individual, firm, company or organization which engages in the
Business (hereinafter collectively referred to as "Competitor"), in whole or
in part. Employee further agrees that for two (2) years after termination of
employment by Employer that he will in no way attempt to attract, induce, or
solicit any employee of Employer to leave his or her employment or to accept
employment with or provide services or advice to any Competitor.
12. INVENTIONS. Any and all inventions, conceptions, processes,
discoveries, improvements, patent rights, letter patents, programs,
copyrights, trademarks, trade names and applications therefor, in the United
States and all other countries, whether patentable or not, and any and all
rights and interest in, to and under the same, that are conceived, made,
acquired, or possessed by the Employee, alone or with other employees, during
the term of this Agreement, or within one (1) year thereafter shall become
the exclusive property of the Employer and shall at all times and for all
purposes be regarded as acquired and held by the Employee in a fiduciary
capacity for the sole benefit of the Employer, and the Employee hereby
assigns and agrees to assign the same to the Employer without further
compensation. The Employee agrees that, upon request, he will promptly make
all disclosures, execute all applications, assignments or other instruments
and perform all acts whatsoever necessary or desired by the Employer to vest
and confirm in it, its successors, assigns and nominees, fully and
completely, all rights and interests created or contemplated by this Section
12.
13. EMPLOYER PROPERTY. All products, records, designs, patents, plans,
data, manuals, "field guides", catalogs, brochures, memoranda, machinery,
devices, lists and
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<PAGE>
other property delivered to Employee by or on behalf of the Employer or by
its customers (including, but not limited to, Employer's customers solicited
by Employee), and all records compiled by the Employee which pertain to the
business of the Employer shall be and remain the property of the Employer and
be subject at all times to its discretion and control. The Employee shall
promptly deliver to a designated representative of the Employer all such
Employer property, as well as any and all correspondence with customers and
representatives, reports, records, charts, advertising materials, and other
materials, and property in his possession or control which belong to the
Employer upon termination of Employee's employment.
14. REPRESENTATIONS OF EMPLOYEE.
(a) The Employee represents that to the best of his knowledge he
is not the subject of any pending or threatened claim which involves any
criminal or governmental proceedings, or allegations of misfeasance or
malfeasance, and that he has not been charged nor threatened to be charged by
any governmental or administrative body with any violation of law except for
minor traffic violations and similar charges.
(b) The Employee represents and warrants to the Employer that he
is not prohibited from acting in any capacity for the Employer by virtue of
the operation of any non-competition or similar agreement with any prior
employer, or by any applicable statutes, regulations or ordinances or any
other applicable law or by the rules and regulations of the Securities and
Exchange Commission or any national securities exchange, and that his acting
in any capacity for the Employer, will not subject the Employer to claims or
materially impair the permit or license status of the Employer or its
affiliates or any business operated by the Employer or its affiliates.
15. DEFENSE OF CLAIMS. The Employee agrees that during the period he
is employed by the Employer, and at all reasonable times thereafter, he will
cooperate with the Employer in the defense of any claim that may be made
against the Employer or any affiliates, to the extent that such claims may
relate to services performed by the Employee for the Employer or its
affiliates. In connection with such claim, (i) if the Employee is required
to travel more than 100 miles from his home, the Employer agrees to reimburse
the Employee for all of his reasonable out-of-pocket expenses associated with
such travel and, to the extent reasonably practicable, to provide the
Employee with notice of at least 10 days prior to the date on which such
travel is required, and (ii) if the Employee is no longer employed by the
Employer, to compensate the Employee at a reasonable rate.
16. NOTIFICATION OF AGREEMENT. Employee shall notify any future or
prospective employers, partners or persons with a similar business
relationship to Employee ("Future Employers") about the terms of this
Agreement for any period during Employee's employment by Employer and for two
(2) years after the termination of Employee's employment by Employer.
Employee does hereby authorize Employer to notify any Future
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<PAGE>
Employers about the terms of this Agreement upon discovery by Employer that
Employee is being considered for employment, partnership or similar business
relationship (or has entered into such a relationship) with a Future Employer
in order to ensure Employee's observance and compliance herewith.
17. INJUNCTION AND OTHER RELIEF. Both parties hereto recognize that
the services to be rendered under this Agreement by Employee are special,
unique and of extraordinary character, and that in the event of the breach by
Employee of any of the terms and conditions of this Agreement to be performed
by him, or in the event Employee performs services for any person, firm or
corporation in violation of Section 11, or if Employee shall breach the
provisions of this Agreement with respect to Confidential Information, then
Employer shall be entitled, if it so elects, in addition to all other
remedies available to it under this Agreement or at law or in equity, to
affirmative injunctive or other equitable relief, and Employee waives (and
shall execute such documents as may be necessary to further evidence such
waiver) any requirement that Employer secure or post any bond in connection
with such injunctive or other equitable relief.
18. STIPULATION. Employee hereby specifically acknowledges, agrees,
stipulates and represents to Employer that:
(i) Employee has received adequate and sufficient consideration for
entering into this Agreement including the above-referenced compensation
and benefits and opportunity to purchase shares of the Employer's stock;
(ii) the execution and delivery of this Agreement and the performance
hereunder do not and shall not constitute a violation of any covenants of
non-competition, trade secrecy, or confidentiality to which Employee is a
party;
(iii) the covenants of Employee contained in Section 10 and
Section 11 of this Agreement are in consideration of the promise of
Employer to provide Confidential Information (including trade secrets) to
Employee and are necessary to protect Employer's interests in such
Confidential Information, as well as Employer's business goodwill and
other business interests;
(iv) Employer will suffer great loss and irreparable harm if Employee
Competes directly or indirectly with Employer;
(v) the temporal, geographic and other restrictions contained in
this Agreement are in all respects reasonable and necessary to protect the
business goodwill, Confidential Information, trade secrets, prospects and
other business interests of Employer; and
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<PAGE>
(vi) the enforcement of this Agreement will not work an undue or
unfair hardship on Employee or otherwise be oppressive to him.
19. SEVERABILITY. In the event that any of the provisions of this
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such invalidity or unenforceability shall not affect the
remainder of this Agreement and same shall be construed as if such invalid or
unenforceable provisions had never been a part hereof. If a court of
competent jurisdiction determines that the length of time, geographical
restrictions or any other restriction, or portion thereof, set forth in this
Agreement is overly restrictive and unenforceable, the parties agree that the
court shall reduce or modify such restrictions to those which it deems
reasonable and enforceable under the circumstances, and as so reduced or
modified, the parties hereto agree that the restrictions of this Agreement
shall remain in full force and effect. In the event there is a breach by
Employer or Employee of any other provision of this Agreement, the covenants
contained in Sections 10 and 11 shall remain in full force and effect.
20. WAIVER. The waiver by either party of a breach or violation of any
provision of this Agreement shall not operate as or be construed to be a
waiver of any subsequent or continuing breach hereof.
21. NOTICES. Any notices provided for in this Agreement shall be given
in writing and transmitted by personal delivery or prepaid first class
registered or certified U.S. mail addressed as follows:
Employer: U S Liquids Inc.
Attn: W. Gregory Orr
411 N. Sam Houston Parkway East, Suite 400
Houston, TX 77060-3534
Employee: Sammy Cooper
2250 8th Street
Lake Arthur, LA 70549
22. SUCCESSORS TO EMPLOYER. Except as otherwise provided herein, this
Agreement shall inure to the benefit of Employer and any successor of
Employer, including, without limitation, any corporation or corporations
acquiring directly or indirectly all or substantially all of the assets or
business of Employer whether by merger, consolidation, sale or otherwise (and
such successor shall thereafter be deemed "Employer" for the purposes of this
Agreement), but shall not otherwise be assignable by Employer.
23. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the state of Texas.
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<PAGE>
24. CHOICE OF FORUM. The parties hereto agree that in the event that
any legal suits, actions or proceedings arising out of this Agreement are
instituted by any party hereto, such suits, actions or proceedings shall be
instituted only in the state or federal courts in the county of Harris in the
state of Texas. The parties hereto do hereby consent to the jurisdiction of
such courts and waive any objection which they may now or hereafter have to
the venue of any such suits, actions or proceedings; provided, however, that
any party hereto shall have the right to institute proceedings in another
jurisdiction if the purpose of such proceedings is to enforce or realize upon
any final court judgment arising out of this Agreement.
25. CONSENT TO SERVICE. Service of any and all process which may be
served on any party hereto in any suit, action or proceeding related to this
Agreement may be made by registered or certified mail, return receipt
requested, to Employee or Employer at their respective addresses for notice
as set forth in Section 21 and service so made shall be taken and held to be
valid personal service upon such party by any party to this Agreement on
whose behalf such service is made.
26. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties, superseding all prior understandings, arrangements and
agreements, whether oral or written, and may not be amended except by a
writing signed by the parties hereto. As used herein, unless the context
otherwise indicates, the term "this Agreement" means the Agreement executed
to be effective as of the Effective Date and any written amendments thereof.
IN WITNESS WHEREOF, Employer has, by its appropriate officers, executed
this Agreement and Employee has executed this Agreement on the 17th day of
June, 1997 to be effective as of the Effective Date.
U S LIQUIDS INC.:
By: /s/ W. Gregory Orr
-------------------------------------------
W. Gregory Orr, Chief Executive Officer
/s/ Sammy Cooper
-------------------------------------------
Sammy Cooper, Employee
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<PAGE>
FINANCIAL ADVISORY AGREEMENT
This Financial Advisory Agreement (the "Agreement") is made as of May 15,
1997, by and between US LIQUIDS INC., a Delaware corporation (the "Company"),
and SANDERS MORRIS MUNDY INC. (the "Advisor").
1. ENGAGEMENT OF ADVISOR. The Company hereby engages the Advisor on a
non- exclusive basis, and the Advisor hereby agrees, to advise, consult with,
and assist the Company on a non-exclusive basis, in (i) the development,
implementation and operation of an expansion and acquisition program, (ii) the
identification and structuring of and negotiation with potential sources of
capital for the Company, and (iii) such other matters as the parties hereto may
mutually agree.
2. COMPENSATION. As compensation for services rendered to the Company
under this Agreement, the Company shall pay to the Advisor the following
compensation:
2.1 In consideration of this Agreement, the Company shall issue to
the Advisor an assignable warrant representing the right of the holder to
purchase 200,000 shares of the common stock of the Company at an exercise
price equal to the price at which shares are offered to the public in the
Company's initial public offering (the "Advisor's Warrant"). Such
Advisor's Warrant shall have a term of five years, shall be fully vested to
the Advisor at the date of issuance, shall provide for customary weighted
average anti-dilution adjustments to the exercise price and number of
shares issuable under the warrant, and shall include such other terms as
are agreed to by the parties hereto. In addition, the Company shall grant
to the Advisor piggyback registration rights (not including the
registration of the initial public offering) with respect to the common
stock issuable upon exercise of the Advisor's Warrant.
2.2 The Company agrees to pay to the Advisor a fee for the following
transactions which are introduced to the Company by the Advisor or arranged
by the Advisor during the term of this Agreement: (i) any acquisition,
business combination, or other transaction involving the Company and
another party (whether in the form of an asset purchase, a stock purchase,
or a merger, consolidation or any other business combination transaction,
and regardless of whether the consideration is paid by the Company or the
other party to the transaction) and (ii) any financing transaction (whether
debt or equity, public or private; provided, however, that the issuance of
securities to a seller in a transaction shall not be deemed to be a
financing transaction for the purposes of this Agreement but the value of
such securities shall be included in determining the amount of acquisition
and business combination fees payable hereunder). The fee for any
acquisition, business combination, or other transaction shall be determined
as set forth in Exhibit A hereto. The fee for any financing transaction
shall be determined as set forth in Exhibit B hereto. Any fee payable to
the Advisor under this section 2.2 will be due and payable to the Advisor
in cash at the closing of the transaction. If the Company desires to
engage the Advisor to furnish any opinion as to the financial aspects of
any transaction, such engagement shall be in addition to the services
contemplated hereunder and shall be under separate agreement containing
terms and provisions, including the terms of compensation, to be mutually
agreed upon.
2.3 The Company will pay, or reimburse the Advisor for, all
reasonable out of pocket costs and expenses incurred by the Advisor in
performing its obligations under this Agreement, which costs and expenses
shall include, but not be limited to, travel expenses including but not
limited to those incurred in attending meetings of the Company's Board of
Directors, expenses incurred in performing due diligence in connection with
transactions, legal fees and expenses, costs of supplies, copying and
mailing and all other expenses reasonably incurred by the Advisor in
performing its obligations under this Agreement; provided however, that the
Advisor shall obtain the prior approval of the Company for any expenditures
in excess of $1,000 in the aggregate per month, which approval shall not be
unreasonably withheld. In seeking reimbursement for expenses, the Advisor
shall provide to the Company a written statement or statements detailing
expenses for which reimbursement is sought and, upon request by the
Company, shall provide copies of invoices and other documentation
supporting such expenses. Reimbursable expenses shall be payable by the
Company within 30 days of receipt by the Company of such written statement
or, if requested by the Company, copies of supporting documentation.
2.4 Within 30 days following the termination of this Agreement, the
Advisor shall submit to the Company a listing of all persons introduced
to the Company by the Advisor and all transactions introduced
<PAGE>
to or arranged by the Advisor during the term of this Agreement. Within
15 days after the receipt of such listing, the Company shall have the
right to object to the inclusion of any person or transaction identified
on the list on the basis that such person or transaction was not
introduced or arranged by the Advisor. In such event, the Company and
Advisor shall use their best, good faith efforts to resolve the Company's
objections. The Company shall pay fees to the Advisor, on the terms and
in the amounts set forth in this Agreement, upon the closing or
consummation by the Company of a transaction which involves any person
(including any officer, director, employee or affiliate thereof) or
transaction included on the Advisor's listing and to which no objection
was made and maintained by the Company, provided that such closing occurs
within one year after the termination of this Agreement.
3. NONEXCLUSIVITY. The Company recognizes that the Advisor is in the
business of advising and consulting with other businesses, some of which
businesses may be in competition with the Company. The Company acknowledges and
agrees that the Advisor may advise and consult with other businesses, including
those in competition with the Company, and shall not be required to devote its
full time and resources to performing services on behalf of the Company under
this Agreement or to introducing potential acquisition, business combination or
financing transactions to the Company. The Advisor shall only be required to
expend such time and resources as are reasonably appropriate to advise and
assist the Company as provided for herein. The Advisor acknowledges that this
Agreement is nonexclusive with respect to the Company, and that the Company may
employ other advisors.
4. CONFIDENTIALITY. Except for information which becomes generally
available to the public other than as a result of disclosure by the Advisor in
violation of this Agreement, or which was obtained by the Advisor from a person
that was not subject to any confidentiality agreement with the Company, the
Advisor agrees that all information provided by the Company to it will be used
solely by the Advisor, its officers, directors, employees and agents for the
purposes of providing services to the Company pursuant to this Agreement and
that, except as required by law, such information will not be disclosed to any
person for any other reason.
5. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
the Advisor and its affiliates, agents, and advisors, and their respective
directors, officers, employees, agents and controlling persons (each such person
is hereinafter referred to as an "Indemnified Party"), from and against any and
all losses, claims, damages, liabilities and expenses whatsoever, joint or
several, to which any such Indemnified Party may become subject under any
applicable federal or state law of the United States of America or otherwise,
caused by, relating to or arising out of the engagement evidenced hereby. The
Company will reimburse any Indemnified Party for all expenses (including
reasonable counsel fees and expenses) as they are incurred by an Indemnified
Party in connection with the investigation of, preparation for or defense of any
pending or threatened claim or any action or proceeding arising therefrom,
whether or not resulting in liability; provided, however, that at the time of
such reimbursement the Indemnified Party shall have entered into an agreement
with the Company whereby the Indemnified Party agrees to repay all such
reimbursed amounts if it is determined in a final judgement by a court of
competent jurisdiction that the Indemnified Party is not entitled to indemnity
from the Company. Notwithstanding the foregoing, the Company shall not be
liable to any Indemnified Party under the foregoing indemnification provision to
the extent that any loss, claim, damage, liability or expense results directly
from any such Indemnified Party's misconduct or negligence.
If for any reason (other than a final non-appealable judgement finding any
Indemnified Party liable for losses, claims, damages, liabilities or expenses
for its gross negligence or willful misconduct) the foregoing indemnity is
unavailable to an Indemnified Party or insufficient to hold an Indemnified Party
harmless, then the Company shall contribute to the amount paid or payable by an
Indemnified Party as a result of such loss, claim, damage, liability or expense
in such proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and the Advisor on the other, but also
the relative fault by the Company and the Indemnified Party as well as any
relevant equitable considerations, subject to the limitation that in no event
shall the total contribution of all Indemnified Parties to all such losses,
claims, damages, liabilities or expenses exceed the amount of fees actually
received and retained by the Advisor hereunder.
6. TERM OF AGREEMENT. This Agreement shall one year from the date hereof.
Upon termination of this Agreement, neither party shall have any further rights
2
<PAGE>
or obligations to the other, except that (i) the Company shall be obligated
under section 2.1 hereof for consideration which was due and payable during
the period prior to termination of this Agreement, (ii) the Company shall be
obligated to pay fees under section 2.2 hereof relating to transactions
commenced by the Company prior to termination of this Agreement and closed
within one year from the date of termination if such transaction is specified
or is with a person identified on the list delivered pursuant to section 2.4,
(iii) the Company shall be obligated to reimburse expenses under section 2.3
incurred by the Advisor during the period prior to termination of this
Agreement, (iv) the Advisor and the Company shall continue to be bound by the
provisions of sections 4 and 5 hereof, (v) the Advisor shall be obligated to
return all Company confidential information related to this engagement, and
(vi) the Advisor shall seek to complete any specific engagement for the
Company previously undertaken by it.
7. RELATIONSHIP OF PARTIES. The parties agree that their relationship
under this Agreement is an advisory relationship only, and nothing herein shall
cause the Advisor to be partners, agents or fiduciaries of, or joint venturers
with, the Company or with each other.
8. FINANCINGS. During the term of the Advisor's engagement hereunder, the
Advisor shall have the exclusive right (but not the obligation) to act as
private placement agent or co-managing underwriter, as the case may be, in the
event that the Company determines to make a private placement or public offering
of any of its securities (each, a "Financing"), subject to the Company's
consent, which consent shall not be unreasonably withheld. If the Company
determines to pursue a Financing, the Advisor and the Company will enter into an
agreement appropriate to the circumstances, containing provisions for, among
other things, compensation, indemnification, contribution, and representations
and warranties, which are usual and customary for similar agreements entered
into by the Advisor or other investment bankers of similar standing acting in
similar transactions, acceptable in form and substance to the Advisor and its
counsel. The Advisor shall have no obligation to act as placement agent or
underwriter or to place or purchase any securities of the Company. Any fee
payable to the Advisor in connection with a Financing shall be reduced by any
amount paid to the Advisor by the Company under Section 2.1 hereof, unless
previously credited under the terms of this agreement.
9. NOTICES. All notices required or permitted herein must be in writing
and shall be deemed to have been duly given the first business day following the
date of service if served personally, on the first business day following the
date of actual receipt if delivered by telecopier, telex or other similar
communication to the party or parties to whom notice is to be given, or on the
third business day after mailing if mailed to the party or parties to whom
notice is to be given by registered or certified mail, return receipt requested,
postage prepaid, to the Advisor and to the Company at the addresses set forth
below, or to such other addresses as either party hereto may designate to the
other by notice from time to time for this purpose.
Advisor: SANDERS MORRIS MUNDY INC.
3100 Texas Commerce Tower
Houston, Texas 77002
attn: Ben T. Morris
telecopy no. (713) 224-1101
Company: US LIQUIDS INC.
411 N. Sam Houston Parkway East, Suite 400
Houston, TX 77060
Attention: President
telecopy no. (281) 272-4545
10. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns.
11. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Texas, except for its conflicts of law
principles.
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12. ENTIRE AGREEMENT, WAIVER. This Agreement constitutes the entire
Agreement between the parties hereto and supersedes all prior Agreements
relating to the subject matter hereof. This Agreement may not be amended or
modified in any way except by subsequent Agreement executed in writing. Either
the Company or the Advisor may waive in writing any term, condition, or
requirement under this Agreement which is intended for its own benefit, and
written waiver of any breach of such term or condition of this Agreement shall
not operate as a waiver of any other breach of such term or condition, nor shall
any failure to enforce any provision hereof operate as a waiver of such
provision or of any other provision hereof.
SANDERS MORRIS MUNDY INC.
/s/ Bruce R. McMaken
- ---------------------------------
BY: Bruce R. McMaken
Vice President
US LIQUIDS INC.
/s/ W. Gregory Orr
- ---------------------------------
BY: W. Gregory Orr
its: Chief Executive Officer
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EXHIBIT A
ACQUISITION AND BUSINESS COMBINATION TRANSACTION FEES
1. FEE FOR IDENTIFYING AND NEGOTIATING A TRANSACTION.
In the event the Company consummates an acquisition, business combination,
or other transaction involving the Company and another party and the Advisor
introduced representatives of the Company to representatives of the other party
and assisted in negotiating such transaction for the Company, then the Company
shall pay to the Advisor a fee with respect to such transaction equal to a
percentage amount of the Purchase Price (as defined below) paid by the Company
in the transaction, which percentage amount shall be 5% of the first $1 million
or portion thereof of the Purchase Price, 4% of the next $1 million or portion
thereof of the Purchase Price, 3% of the next $1 million or portion thereof of
the Purchase Price, 2% of the next $1 million or portion thereof of the Purchase
Price, and 1% of the balance of the Purchase Price. Any fee payable to the
Advisor shall be payable in cash at the closing of the transaction unless
otherwise agreed. As used herein, "Purchase Price" shall include (i) cash paid
to sellers, (ii) the fair market value of any securities issued to sellers,
(iii) the fair market value of any other property transferred to sellers in
connection with the acquisition, (iv) balance sheet indebtedness assumed by the
Company in connection with the acquisition and (v) cash or the fair market value
of property paid by the Company to any officers, directors, employees or
affiliates of seller as consideration for any covenant not to compete or similar
agreement related to the transaction. In the event the Company agrees to pay
any contingent consideration in connection with such transaction (such as, for
example, consideration payable upon the fulfillment of some condition or event
which may or may not occur in the future), then such contingent consideration
shall be included in the Purchase Price, and the Advisor shall be paid its fee
with respect to that contingent consideration as and when it is paid by the
Company. If the Advisor is entitled to a fee under this paragraph 1, then the
Advisor shall not be entitled to a fee under paragraph 2 or 3.
2. FEE FOR IDENTIFYING A TRANSACTION.
In the event the Company consummates a acquisition, business combination,
or other transaction involving the Company and another party and the Advisor
introduced representatives of the Company to representatives of the other party
but the Advisor did not assist in negotiating such transaction for the Company,
then the Company shall pay to the Advisor a fee with respect to such transaction
in an amount equal to 50% of the amount determined pursuant to paragraph 1
above, "Fee for Identifying and Negotiating a Transaction". Any fee payable to
the Advisor shall be payable in cash at the closing of the transaction unless
otherwise agreed. In the event the Company agrees to pay any contingent
consideration in connection with such transaction (such as, for example,
consideration payable upon the fulfillment of some condition or event which may
or may not occur in the future), then such contingent consideration shall be
included in the Purchase Price, and the Advisor shall be paid its fee with
respect to that contingent consideration as and when it is paid by the Company.
If a fee is payable to the Advisor under this paragraph 2, then the Advisor
shall not be entitled to a fee under paragraph 1 or 3.
3. FEE FOR NEGOTIATING AND CONSUMMATING A TRANSACTION.
In the event the Company undertakes any acquisition, business combination,
or other transaction involving the Company and another party and the Advisor did
not participate in or arrange the introduction of representatives of the Company
to representatives of the other party, but in which transaction the Advisor
assisted in the negotiation and consummation thereof for the Company, the
Company shall pay to the Advisor a fee, to be determined by the Company and the
Advisor for that transaction, which is reasonable and customary for such
services in the investment banking industry. Any such fee payable to the
Advisor shall be payable in cash at the closing of the transaction unless
otherwise agreed. If the Advisor is entitled to a fee under this paragraph 3,
then the Advisor shall not be entitled to a fee under paragraph 1 or 2.
<PAGE>
EXHIBIT B
FINANCING FEES
1. FEE FOR PRIVATE EQUITY, OR PUBLIC DEBT OR EQUITY, FINANCING
TRANSACTIONS.
In the event the Company consummates a private placement of its equity
securities (the "Private Offering") for which the Advisor serves as placement
agent, then the Company shall pay to the Advisor a commission equal to seven
percent (7%) of the aggregate gross proceeds of the Offering. For the purposes
of this Agreement, equity securities shall be deemed to include any security or
instrument which is convertible into, or exchangeable for, equity securities of
the Company. If the Advisor serves as placement agent, the Advisor has the
right to form and manage a group of securities brokers or dealers to assist in
the Offering, as the case may be, to whom the Advisor may reallow all or a
portion of the commissions payable by the Company under this Agreement.
In the event the Company undertakes a public offering of its debt or equity
securities (the "Public Offering") for which the Advisor serves as underwriter,
then the Company shall pay to the Advisor a fee with respect to that offering in
an amount, to be determined by the Company and the Advisor for each transaction,
which is reasonable and customary for such services in the investment banking
industry.
2. FEE FOR PRIVATE DEBT FINANCING TRANSACTIONS.
In the event the Advisor assists the Company in securing debt financing,
then the Company shall pay to the Advisor a commission equal to one percent (1%)
of the amount of such debt in the case of senior debt obligations of the
Company, and three percent (3%) of the amount of such debt in the case of all
other debt obligations of the Company. In addition, whether or not such debt is
successfully placed, the Company shall provide the Advisor with an accountable
expense allowance to cover the Advisor's fees and expenses incurred in
connection therewith, including fees of attorneys and accountants.
3. FEES AND EXPENSES GENERALLY.
In addition to the foregoing fees, other than in the case of private debt
financing transactions, if a Private or Public Offering is consummated in which
the Advisor serves as placement agent or underwriter, unless mutually agreed
otherwise, the Company shall provide the Advisor with a nonaccountable expense
allowance equal to one percent (1%) of the gross proceeds therefrom. In the
event such a Private or Public Offering is not consummated, or in the case of
private debt financing transactions, the Company shall provide the Advisor with
an accountable expense allowance to cover the Advisor's reasonable fees and
expenses incurred in connection therewith, including reasonable fees of
attorneys and accountants.
If the Advisor is not the sole placement agent or underwriter in connection
with a transaction identified in this Exhibit B, the fees and expenses set forth
herein shall be allocated among the placement agents or underwriters as a group.
The amount of any fee under this Exhibit B shall be negotiated in good
faith by the parties hereto in the event that a fee is also payable to the
Advisor in respect of a simultaneous acquisition and business combination
transaction transaction.
<PAGE>
SANDERS MORRIS MUNDY
3100 Texas Commerce Tower
Houston, Texas 77002
713-224-3100
July 10, 1997
Mr. W. Gregory Orr
President and Chief Executive Officer
U.S. Liquids, Inc.
411 N. Sam Houston Parkway East, Suite 400
Houston, Texas 77060-3534
Dear Greg:
Further to the Financial Advisory Agreement between Sanders Morris Mundy
Inc. ("SMM") and U S Liquids Inc. ("Liquids") dated as of May 15, 1997 (the
"Agreement"), SMM hereby acknowledges that, unless otherwise mutually agreed in
writing between Liquids and SMM, Liquids shall not be obligated to pay a fee to
SMM under the Agreement with respect to (i) any acquisition, business
combination or other transaction involving Liquids and Synagro Technologies,
Inc. or (ii) any debt financing provided to Liquids by a commercial bank.
Please acknowledge your acceptance of these terms by signing below where
indicated and return a copy of this letter to us.
Very truly yours,
/s/ Bruce R. McMaken
----------------------------------
Bruce R. McMaken
Vice President
Acknowledged and accepted:
U.S. LIQUIDS INC.
/s/ W. Gregory Orr
- --------------------------------
W. Gregory Orr
President
<PAGE>
June 23, 1997
Mr. W. Gregory Orr
U S Liquids Inc.
411 N. Sam Houston Parkway E., Suite 400
Houston, TX 77060
Dear Greg:
The purpose of this letter is to outline the services to be provided by
Bellmeade Capital Partners, L.L.C. ("BCP") to U S Liquids Inc. ("Liquids") as
recently discussed.
OVERVIEW
Liquids is a privately held provider of services for the treatment,
processing, recovery and disposal of nonhazardous liquid wastes, including
nonhazardous commercial waste generated by restaurants, meat processors, other
food processors, grocery stores and other generators, and nonhazardous oilfield
waste generated in the exploration for and production of oil and natural gas.
It is our understanding that Liquids presently plans to conduct an initial
public offering of its common stock, par value $.01 per share ("Common Stock"),
with an expected effective date in late August or early September of this year.
Following the completion of this public offering, Liquids plans to achieve its
goal of becoming a leading national provider of services for the treatment and
disposal of nonhazardous liquid wastes by expanding through acquisitions,
emphasizing continued internal growth and improving its existing operations.
Liquids' management has significant experience in the operations
management, environmental, corporate development, and accounting/control aspects
of its business. Management has less experience in certain financial areas that
are important to its plans, and has proposed that BCP counsel with and provide
consulting services to Liquids concerning, but not limited to, the financial
accounting and investor relations areas.
<PAGE>
June 23, 1997
Page 2
SERVICES TO BE PROVIDED
During the term of this agreement, BCP will, among other things:
- Assist management of Liquids in developing systems and controls
appropriate for a public company, particularly a forecasting system
that helps management define the investment community's earnings
expectations.
- Assist management of Liquids in developing an investor relations plan
that includes a communication strategy for addressing the Wall Street
community to stimulate coverage by multiple analysts and development
of institutional shareholders.
- Advise management of Liquids with respect to ongoing investor
relations matters, such as press releases and presentations to
analysts.
TERM
The term of this agreement shall begin on the date hereof and continue in
effect for a period of one year. The term of this agreement may be extended
beyond this initial one-year term by mutual agreement of the parties.
COMPENSATION
As compensation for its services, BCP will receive a warrant ("Warrant") to
purchase 45,000 shares (the "Shares") of Common Stock at a per share exercise
price (the "Exercise Price") equal to the initial offering price to the public
of the Common Stock as shown on the cover of the final prospectus. The Warrant
will be in the form attached hereto as Exhibit "A".
TERMINATION
Notwithstanding anything to the contrary herein, Liquids may, at its sole
discretion, terminate this agreement and rescind the
<PAGE>
June 23, 1997
Page 3
Warrant if an initial public offering of its Common Stock has not been
completed by December 31, 1998. Written notice of such termination shall be
given to BCP.
INDEMNIFICATION
Liquids agrees to indemnify and hold harmless BCP and its affiliates,
agents, and advisors, and their respective directors, officers, employees,
agents and controlling persons (each such person is hereinafter referred to as
an "Indemnified Party"), from and against any and all losses, claims, damages,
liabilities and expenses whatsoever, joint or several, to which any such
Indemnified Party may become subject under any applicable federal or state law
of the United States of America or otherwise, caused by, relating to or arising
out of the engagement evidenced hereby. The Company will reimburse any
Indemnified Party for all expenses (including reasonable counsel fees and
expenses) as they are incurred by an Indemnified Party in connection with the
investigation of, preparation for or defense of any pending or threatened claim
or any action or proceeding arising therefrom, whether or not resulting in
liability; provided, however, that at the time of such reimbursement the
Indemnified Party shall have entered into an agreement with Liquids whereby the
Indemnified Party agrees to repay all such reimbursed amounts if it is
determined in a final judgment by a court of competent jurisdiction that the
Indemnified Party is not entitled to indemnity from Liquids. Notwithstanding
the foregoing, Liquids shall not be liable to any Indemnified Party under the
foregoing indemnification provision to the extent that any loss, claim, damage,
liability or expense results directly from any such Indemnified Party's willful
misconduct or gross negligence.
If for any reason (other than a final non-appealable judgment finding any
Indemnified Party liable for losses, claims, damages, liabilities or expenses
for its gross negligence or willful misconduct) the foregoing indemnity is
unavailable to an Indemnified Party or insufficient to hold an Indemnified Party
harmless, then the Company shall contribute to the amount paid or payable by an
Indemnified Party as a result of such loss, claim, damage, liability or expense
in such proportion as is appropriate to reflect not only the relative benefits
received by Liquids on
<PAGE>
June 23, 1997
Page 4
the one hand and BCP on the other, but also the relative fault by Liquids and
the Indemnified Party as well as any relevant equitable considerations.
If these terms meet with your approval, please sign two copies of this
letter, retain one for your files, and return the other to me.
Yours sincerely,
Bellmeade Capital Partners, L.L.C.
By: /s/ Lorne D. Bain
-------------------------------------
Lorne D. Bain, Managing Director
ACCEPTED AND AGREED TO THIS
23RD DAY OF JUNE, 1997
U S Liquids Inc.
By: /s/ W. Gregory Orr
-------------------------------------
W. Gregory Orr, President
<PAGE>
EXHIBIT "A"
NO SALE, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THIS
WARRANT OR THE SHARES PURCHASABLE HEREUNDER MAY BE MADE
EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION THEREFROM.
U S LIQUIDS INC.
WARRANT TO PURCHASE 45,000
SHARES OF COMMON STOCK
This Warrant is being issued in connection with that certain letter
agreement, dated June 23, 1997 (the "Service Agreement"), between U S Liquids
Inc., a Delaware corporation ("Company"), and Bellmeade Capital Partners, L.L.C.
("Bellmeade"). During the Exercise Period (as defined in Section 3), and
subject to the terms and conditions set forth below, for value received,
Bellmeade is entitled to purchase from Company, forty-five thousand (45,000)
fully paid and nonassessable shares of Company's common stock, par value $0.01
per share ("Common Stock"), at the Exercise Price per share set forth in Section
1 (subject to adjustment as provided below). Holder shall be entitled to
receive such shares of Common Stock upon (i) surrender to Company at Company's
principal office at 411 N. Sam Houston Parkway East, Suite 400, Houston, TX
77060-3534 (or at such other location as Company may notify Holder) of this
Warrant, properly endorsed with the attached Notice of Exercise Form filled in
and signed, and (ii) payment of the aggregate Exercise Price (as defined in
Section 1) for the number of shares for which this Warrant is being exercised.
This Warrant is subject to the following further terms and conditions:
1. EXERCISE PRICE; NUMBER OF SHARES.
1.1. INITIAL EXERCISE PRICE. The initial per share exercise price
pursuant to this Warrant shall be the price at which shares of Common Stock are
offered to the public in the Company's initial public offering of Common Stock
pursuant to an effective registration statement filed with the Securities and
Exchange Commission. Such exercise price shall be subject to adjustment
pursuant to Section 1.2. Such exercise price, as adjusted from time to time in
accordance with Section 1.2, is referred to as the "Exercise Price."
<PAGE>
1.2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER/KIND OF SHARES. The
Exercise Price and the number of and kind of securities purchasable upon
exercise of this Warrant shall be subject to adjustment from time to time as
follows:
(i) SUBDIVISIONS; COMBINATIONS; OTHER ISSUANCES. If the outstanding
shares of Common Stock shall be subdivided (by stock split, stock dividend, or
otherwise) into a greater number of shares of Common Stock, then concurrently
with the effectiveness of such subdivision the number of shares of Common Stock
purchasable hereunder shall be proportionately increased and the Exercise Price
shall be proportionately decreased. If the outstanding shares of Common Stock
shall be combined or consolidated (by reclassification or otherwise) into a
lesser number of shares of Common Stock, then concurrently with the
effectiveness of such combination or consolidation the number of shares of
Common Stock purchasable hereunder shall be proportionately decreased and the
Exercise Price shall be proportionately increased.
(ii) RECAPITALIZATION. If a distribution (other than a cash dividend
or a dividend payable in property other than Common Stock) shall be paid in
respect of the Common Stock, or if there shall occur any reclassification,
capital reorganization, or recapitalization of Company affecting the Common
Stock (other than a change in par value or a subdivision or combination
described in Section 1.2(i)), or if there shall occur any consolidation or
merger of Company with or into another entity, then (as part of any such
distribution, reclassification, reorganization, recapitalization, consolidation,
or merger) provision shall be made so that the holder of this Warrant shall have
the right thereafter to receive upon exercise of this Warrant the kind and
number of shares of stock, other securities, or property which such holder would
have been entitled to receive if immediately prior to such distribution,
reclassification, reorganization, recapitalization, consolidation, or merger
such holder had held the shares of Common Stock which were then purchasable upon
exercise of this Warrant. In any such case, appropriate adjustment shall be
made (as determined by Company's Board of Directors in its sole discretion) in
the application of the provisions of this Warrant with respect to the rights and
interests of the holder so that the provisions of this Warrant (including
provisions with respect to adjustment of the Exercise Price) shall thereafter be
applicable, as nearly as practicable, to any shares of stock, other securities,
or property thereafter purchasable upon exercise of this Warrant.
1.3. REQUIRED NOTIFICATIONS. (i) If at any time Company shall
declare a cash dividend or stock dividend upon its Common Stock, or shall make
any special dividend or other distribution to the holders of its Common Stock,
then Company shall give notice to the holder of this Warrant at least seven (7)
days prior to the date on which a record shall be taken for such dividend or
distribution, which notice shall specify the date (if any) on which the holders
of Common Stock shall be entitled to any such dividend or distribution.
-2-
<PAGE>
(ii) If at any time there shall be any reorganization or
reclassification of Company's capital stock, or any consolidation or merger of
Company with, or sale of all or substantially all of Company's assets to,
another entity, or a voluntary or involuntary dissolution, liquidation, or
winding-up of Company, then Company shall give notice to the holder of this
Warrant at least seven (7) days prior to the date on which Company's books shall
close or the date on which a record shall be taken for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding-up. Such notice shall also
specify the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up.
2. PAYMENT OF EXERCISE PRICE. Payment for shares of Common Stock
purchasable upon exercise of this Warrant may be made in the form of (i) cash,
certified check or other immediately available funds for the aggregate Exercise
Price for such shares of Common Stock, (ii) the exchange of a number of shares
of Common Stock owned by the holder, free and clear of all liens or
encumbrances, the Fair Market Value (defined below) of which at the time of
exercise is equal to the aggregate Exercise Price of such shares, accompanied by
executed stock powers and any other documents of transfer requested by the
Company, (iii) the relinquishment of Warrant Shares (defined below), which
Warrant Shares shall be deemed to have a value equal to the aggregate Fair
Market Value of such Warrant Shares less the aggregate Exercise Price of such
Warrant Shares, or (iv) a combination of (i), (ii) or (iii). For purposes of
this Section 2, the term "Fair Market Value", as of a particular day, means (a)
if the shares of Common Stock are then listed or admitted for trading on a
national securities exchange or quoted on the National Association of Securities
Dealers Automated Quotation System, the last reported sales price or the average
of the closing bid and ask prices, as applicable, of the Common Stock on the
last trading day before such date, or (b) if the shares of Common Stock are not
then listed or admitted for trading on a national securities exchange or quoted
on the National Association of Securities Dealers Automated Quotation System,
such value as the entire Board of Directors of the Company, in its absolute
discretion, may determine in good faith. For purposes of this Section 2, the
term "Warrant Shares" means shares of Common Stock issuable upon exercise of
this Warrant.
3. CONDITIONS TO EXERCISE; EXERCISE PERIOD. This Warrant shall be
exercisable only if Bellmeade shall not have breached its obligations under the
Service Agreement. This Warrant shall be exercisable only during the period
("Exercise Period") beginning on the first business day after December 23, 1997
and ending at the close of business on the fifth anniversary of the execution
date of this Warrant, at which time any unexercised portion of this Warrant
shall expire and become null and void. Notwithstanding anything to the contrary
herein, the Company may, at its sole discretion, terminate the Service Agreement
and rescind this Warrant if an initial public offering of the Common Stock has
not been completed by December 31, 1998 by giving written notice thereof to
Bellmeade. Immediately upon the giving of such notice, this Warrant shall
become null and void.
-3-
<PAGE>
4. RECORD DATE; CERTIFICATES; ETC. Any shares of Common Stock
purchased upon exercise of this Warrant shall be deemed to have been issued to
the holder thereof as of the close of business on the date of exercise. Subject
to Section 5, certificates for the shares of Common Stock so purchased shall be
delivered to the holder thereof promptly after exercise. The stock certificates
so delivered shall be in denominations requested by the holder of this Warrant
and shall be registered in such holder's name. Upon partial exercise of this
Warrant, a new warrant shall promptly be issued to the holder of this Warrant,
representing the right to purchase the number of shares of Common Stock with
respect to which this Warrant shall not have been exercised.
5. RESTRICTIONS ON TRANSFER. This Warrant and the rights hereunder
are not transferable unless and until Bellmeade shall have fully and completely
performed all of its obligations under the Service Agreement; provided, however,
that, subject to the remaining provisions of this Section 5, the Warrant may be
divided among the principals of Bellmeade at their discretion. Further, holder
shall not offer, sell, pledge, hypothecate, or otherwise dispose of this Warrant
unless such offer, sale, pledge, hypothecation, or other disposition (i) is
registered under the Securities Act of 1933, as amended (the "Securities Act"),
(ii) is in compliance with an opinion of counsel, addressed to Company or upon
which Company is authorized to rely ("Opinion of Counsel"), to the effect that
such offer, sale, pledge, hypothecation, or other disposition does not violate
the Securities Act, or (iii) is in compliance with an Opinion of Counsel that
the transaction complies with Rule 144 promulgated by the Securities and
Exchange Commission ("Rule 144"). Subject to the foregoing, transfer of this
Warrant shall be made by holder at Company's principal office (or at such other
location as Company may notify holder) by holder in person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed, with the
attached Registration of Assignment completed. Unless the securities
transferred are no longer "restricted securities" as defined under Rule 144, the
permissibility of transfers pursuant to this Section 5 shall be conditioned upon
such transferee making in writing to Company the covenant set forth in the
second sentence of this Section 5. All expenses of transfer including, without
limitation, transfer taxes and attorneys' fees, whether incurred by the Company
or the transferor, shall be borne by the transferor.
6. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. All shares of
Common Stock issued upon exercise of this Warrant, in accordance with the terms
of this Warrant, shall be duly authorized, validly issued, fully paid,
nonassessable, and free from preemptive rights. During the Exercise Period,
Company will have authorized and reserved for issuance or transfer upon exercise
of this Warrant, a sufficient number of shares of authorized but unissued Common
Stock, free from preemptive rights, when and as required to provide for exercise
of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon holder the right
to vote as a stockholder or to consent or to receive notice as a stockholder in
respect of meetings of Company's stockholders for election of directors or for
other matters. Nothing contained in this Warrant shall be construed as
conferring
-4-
<PAGE>
upon holder any other right as a stockholder of Company. No dividend or
interest shall be payable or accrued in respect of this Warrant or the stock
reserved for issuance in connection herewith until, and only to the extent
that, this Warrant shall have been exercised. In the absence of affirmative
action by holder to purchase shares of Common Stock, no provision of this
Warrant and no enumeration in this Warrant of holder's rights or privileges,
shall give rise to any liability of holder for the Exercise Price.
8. AMENDMENT; WAIVER. This Warrant may not be amended or otherwise
modified without the prior written consent of the Company and the then
registered holder of this Warrant.
9. NOTICES. All notices, approvals, consents, requests, demands,
and other communications in connection with this Warrant shall be in writing and
shall be deemed to have been duly given (i) when delivered personally,
(ii) three days after deposit in the U.S. mail (registered or certified mail),
postage prepaid, or (iii) when sent by facsimile machine with machine or other
confirmation of delivery, as follows:
(a) If to Company, to:
411 N. Sam Houston Parkway East,
Suite 400
Houston, TX 77060-3534
Fax No.: (281) 272-4545
Attention: President
(b) If to Bellmeade Capital Partners, L.L.C., to:
808 Travis, Suite 920
Houston, TX 77002
Fax No.: (713) 227-5551
Attention: J.C. Brewster
If to any subsequent holder of this Warrant, to it at such address or fax number
as may have been furnished to Company in writing by such subsequent holder. If
no address has been furnished to Company by such subsequent holder, Company
shall deliver any notice to the subsequent holder in care of the previous holder
at the address provided to Company in accordance with this Warrant. Company and
any holder of this Warrant may change their respective addresses for purposes of
notice hereunder by notice to the other party in accordance with this Section.
-5-
<PAGE>
10. BENEFITS OF AGREEMENT. Nothing in this Warrant shall be
construed to give to any person or entity other than Company and the registered
holder of this Warrant any legal or equitable right, remedy or claim under this
Warrant. This Warrant shall be for the sole and exclusive benefit of Company
and the registered holder of the Warrant.
11. SECTION HEADINGS; APPLICABLE LAW. The section headings in this
Warrant are for reference purposes only and are not intended to affect the
meaning or construction of this Warrant. THIS WARRANT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF TEXAS.
12. LOST WARRANT. Upon receipt of evidence reasonably satisfactory
to Company of the loss, theft, destruction, or mutilation of this Warrant,
Company will make and deliver a new warrant, of like tenor, in lieu of the lost,
stolen, destroyed, or mutilated Warrant; provided that (i) upon any such loss,
theft, or destruction, holder shall provide Company with an indemnity and/or
bond reasonably satisfactory to Company, and (ii) upon any such mutilation,
holder shall surrender this Warrant for cancellation. Holder shall indemnify
Company for any liability arising from replacement of this Warrant.
13. FRACTIONAL SHARES. No fractional shares shall be issued or
accepted by the Company upon exercise of this Warrant. In lieu of issuing a
fractional share, Company shall pay holder in cash a sum equal to the applicable
fraction multiplied by the per share Exercise Price.
IN WITNESS WHEREOF, Company has caused this Warrant to be duly
executed as of June 23, 1997.
U S Liquids Inc.
By:
------------------------------------
W. Gregory Orr, President
ATTEST:
By:
---------------------------------
Earl J. Blackwell, Secretary
(Corporate Seal)
-6-
<PAGE>
NOTICE OF EXERCISE FORM
(To be signed only upon exercise of Warrant)
To U S Liquids Inc.:
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, ____________________________________________
____________(_________) (*) shares of Common Stock of U S Liquids Inc. The
undersigned hereby elects to pay for such shares pursuant to clause ___(**)
of Section 2 of the Warrant and requests that certificates for such shares be
issued in the name of (and delivered to) the undersigned at the undersigned's
address as follows:
----------------------------
----------------------------
The undersigned represents that it is acquiring such Common Stock
for its own account for investment and not with a view to or for sale in
connection with any distribution thereof. Further, the undersigned makes and
reiterates the representations and covenants to Company contained in Section 5
of the Warrant as of the date of execution hereof.
Dated:
------------------- -----------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant or a duly executed and delivered
Form of Assignment)
(Print Name and address)
----------------------------------------
----------------------------------------
----------------------------------------
(*) Insert the number of shares of Common Stock called for on the face of
the Warrant (or, in the case of partial exercise, the portion thereof
as to which the Warrant is being exercised), without making any
adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
-7-
<PAGE>
(**) Insert the number of the particular clause of Section 2 describing the
payment method elected by the holder (i.e., clause (i), (ii) or (iii))
or describe the combination of such payment methods elected by the
holder.
-8-
<PAGE>
REGISTRATION OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within
Warrant, hereby sells, assigns, and transfers all of its rights under the within
Warrant, in compliance with and subject to Section 5 of the Warrant, with
respect to the number of shares of Common Stock covered thereby and set forth
below, to:
Name of Assignee Address No. of Shares
- ----------------- ------- -------------
Dated:
------------------- -----------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
(Print Name and address)
----------------------------------------
----------------------------------------
----------------------------------------
-9-
<PAGE>
June 23, 1997
Mr. W. Gregory Orr
U S Liquids Inc.
411 N. Sam Houston Parkway E., Suite 400
Houston, TX 77060
Dear Greg:
The purpose of this letter is to outline the services to be provided by
Mark Liebovit ("Liebovit") to U S Liquids Inc. ("Liquids") as recently
discussed.
OVERVIEW
Liquids is a privately held provider of services for the treatment,
processing, recovery and disposal of nonhazardous liquid wastes, including
nonhazardous commercial waste generated by restaurants, meat processors,
other food processors, grocery stores and other generators, and nonhazardous
oilfield waste generated in the exploration for and production of oil and
natural gas. It is my understanding that Liquids presently plans to conduct
an initial public offering of its common stock, par value $.01 per share
("Common Stock"), with an expected effective date in late August or early
September of this year. Following the completion of this public offering,
Liquids plans to achieve its goal of becoming a leading national provider of
services for the treatment and disposal of nonhazardous liquid wastes by
expanding through acquisitions, emphasizing continued internal growth and
improving its existing operations.
Liquids' management has significant experience in the operations
management, environmental, corporate development, and accounting/control
aspects of its business. Management has less experience in certain financial
areas that are important to its plans, and has proposed that Liebovit counsel
with and provide
<PAGE>
June 23, 1997
Page 2
consulting services to Liquids concerning, but not limited to, the financial
accounting and investor relations areas.
SERVICES TO BE PROVIDED
During the term of this agreement, Liebovit will, among other things:
- Assist management of Liquids in developing systems and controls
appropriate for a public company, particularly a forecasting system
that helps management define the investment community's earnings
expectations.
- Assist management of Liquids in developing an investor relations plan
that includes a communication strategy for addressing the Wall Street
community to stimulate coverage by multiple analysts and development
of institutional shareholders.
- Advise management of Liquids with respect to ongoing investor
relations matters, such as press releases and presentations to
analysts.
TERM
The term of this agreement shall begin on the date hereof and continue
in effect for a period of one year. The term of this agreement may be
extended beyond this initial one-year term by mutual agreement of the parties.
COMPENSATION
As compensation for his services, Liebovit will receive a warrant
("Warrant") to purchase 20,000 shares (the "Shares") of Common Stock at a per
share exercise price (the "Exercise Price") equal to the initial offering
price to the public of the Common Stock as shown on the cover of the final
prospectus. The Warrant will be in substantially the form attached hereto as
Exhibit "A".
TERMINATION
<PAGE>
June 23, 1997
Page 3
Notwithstanding anything to the contrary herein, Liquids may, at its
sole discretion, terminate this agreement and rescind the Warrant if an
initial public offering of its Common Stock has not been completed by
December 31, 1998. Written notice of such termination shall be given to
Liebovit.
INDEMNIFICATION
Liquids agrees to indemnify and hold harmless Liebovit and his
affiliates, agents, and advisors, and their respective directors, officers,
employees, agents and controlling persons (each such person is hereinafter
referred to as an "Indemnified Party"), from and against any and all losses,
claims, damages, liabilities and expenses whatsoever, joint or several, to
which any such Indemnified Party may become subject under any applicable
federal or state law of the United States of America or otherwise, caused by,
relating to or arising out of the engagement evidenced hereby. The Company
will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred by an Indemnified Party in
connection with the investigation of, preparation for or defense of any
pending or threatened claim or any action or proceeding arising therefrom,
whether or not resulting in liability; provided, however, that at the time of
such reimbursement the Indemnified Party shall have entered into an agreement
with Liquids whereby the Indemnified Party agrees to repay all such
reimbursed amounts if it is determined in a final judgment by a court of
competent jurisdiction that the Indemnified Party is not entitled to
indemnity from Liquids. Notwithstanding the foregoing, Liquids shall not be
liable to any Indemnified Party under the foregoing indemnification provision
to the extent that any loss, claim, damage, liability or expense results
directly from any such Indemnified Party's willful misconduct or gross
negligence.
If for any reason (other than a final non-appealable judgment finding
any Indemnified Party liable for losses, claims, damages, liabilities or
expenses for its gross negligence or willful misconduct) the foregoing
indemnity is unavailable to an Indemnified Party or insufficient to hold an
Indemnified Party harmless, then the Company shall contribute to the amount
paid or payable by an Indemnified Party as a result of such loss, claim,
<PAGE>
June 23, 1997
Page 4
damage, liability or expense in such proportion as is appropriate to reflect
not only the relative benefits received by Liquids on the one hand and
Liebovit on the other, but also the relative fault by Liquids and the
Indemnified Party as well as any relevant equitable considerations.
If these terms meet with your approval, please sign two copies of this
letter, retain one for your files, and return the other to me.
Yours sincerely,
/s/Mark Liebovit
- -----------------------------
Mark Liebovit
ACCEPTED AND AGREED TO THIS
23RD DAY OF JUNE, 1997
U S Liquids Inc.
By: /s/ W. Gregory Orr
---------------------------------
W. Gregory Orr, President
<PAGE>
EXHIBIT "A"
NO SALE, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THIS
WARRANT OR THE SHARES PURCHASABLE HEREUNDER MAY BE MADE
EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION THEREFROM.
U S LIQUIDS INC.
WARRANT TO PURCHASE 20,000
SHARES OF COMMON STOCK
This Warrant is being issued in connection with that certain letter
agreement, dated June 23, 1997 (the "Service Agreement"), between U S Liquids
Inc., a Delaware corporation ("Company"), and Mark Liebovit ("Liebovit").
During the Exercise Period (as defined in Section 3), and subject to the
terms and conditions set forth below, for value received, Liebovit is
entitled to purchase from Company, twenty thousand (20,000) fully paid and
nonassessable shares of Company's common stock, par value $0.01 per share
("Common Stock"), at the Exercise Price per share set forth in Section 1
(subject to adjustment as provided below). Holder shall be entitled to
receive such shares of Common Stock upon (i) surrender to Company at
Company's principal office at 411 N. Sam Houston Parkway East, Suite 400,
Houston, TX 77060-3534 (or at such other location as Company may notify
Holder) of this Warrant, properly endorsed with the attached Notice of
Exercise Form filled in and signed, and (ii) payment of the aggregate
Exercise Price (as defined in Section 1) for the number of shares for which
this Warrant is being exercised.
This Warrant is subject to the following further terms and
conditions:
1. EXERCISE PRICE; NUMBER OF SHARES.
1.1. INITIAL EXERCISE PRICE. The initial per share exercise price
pursuant to this Warrant shall be the price at which shares of Common Stock
are offered to the public in the Company's initial public offering of Common
Stock pursuant to an effective registration statement filed with the
Securities and Exchange Commission. Such exercise price shall be subject to
adjustment pursuant to Section 1.2. Such exercise price, as adjusted from
time to time in accordance with Section 1.2, is referred to as the "Exercise
Price."
<PAGE>
1.2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER/KIND OF SHARES. The
Exercise Price and the number of and kind of securities purchasable upon
exercise of this Warrant shall be subject to adjustment from time to time as
follows:
(i) SUBDIVISIONS; COMBINATIONS; OTHER ISSUANCES. If the
outstanding shares of Common Stock shall be subdivided (by stock split, stock
dividend, or otherwise) into a greater number of shares of Common Stock, then
concurrently with the effectiveness of such subdivision the number of shares
of Common Stock purchasable hereunder shall be proportionately increased and
the Exercise Price shall be proportionately decreased. If the outstanding
shares of Common Stock shall be combined or consolidated (by reclassification
or otherwise) into a lesser number of shares of Common Stock, then
concurrently with the effectiveness of such combination or consolidation the
number of shares of Common Stock purchasable hereunder shall be
proportionately decreased and the Exercise Price shall be proportionately
increased.
(ii) RECAPITALIZATION. If a distribution (other than a cash
dividend or a dividend payable in property other than Common Stock) shall be
paid in respect of the Common Stock, or if there shall occur any
reclassification, capital reorganization, or recapitalization of Company
affecting the Common Stock (other than a change in par value or a subdivision
or combination described in Section 1.2(i)), or if there shall occur any
consolidation or merger of Company with or into another entity, then (as part
of any such distribution, reclassification, reorganization, recapitalization,
consolidation, or merger) provision shall be made so that the holder of this
Warrant shall have the right thereafter to receive upon exercise of this
Warrant the kind and number of shares of stock, other securities, or property
which such holder would have been entitled to receive if immediately prior to
such distribution, reclassification, reorganization, recapitalization,
consolidation, or merger such holder had held the shares of Common Stock
which were then purchasable upon exercise of this Warrant. In any such case,
appropriate adjustment shall be made (as determined by Company's Board of
Directors in its sole discretion) in the application of the provisions of
this Warrant with respect to the rights and interests of the holder so that
the provisions of this Warrant (including provisions with respect to
adjustment of the Exercise Price) shall thereafter be applicable, as nearly
as practicable, to any shares of stock, other securities, or property
thereafter purchasable upon exercise of this Warrant.
1.3. REQUIRED NOTIFICATIONS. (i) If at any time Company shall
declare a cash dividend or stock dividend upon its Common Stock, or shall
make any special dividend or other distribution to the holders of its Common
Stock, then Company shall give notice to the holder of this Warrant at least
seven (7) days prior to the date on which a record shall be taken for such
dividend or distribution, which notice shall specify the date (if any) on
which the holders of Common Stock shall be entitled to any such dividend or
distribution.
(ii) If at any time there shall be any reorganization or
reclassification of Company's capital stock, or any consolidation or merger
of Company with, or sale of all or substantially all of
-2-
<PAGE>
Company's assets to, another entity, or a voluntary or involuntary
dissolution, liquidation, or winding-up of Company, then Company shall give
notice to the holder of this Warrant at least seven (7) days prior to the
date on which Company's books shall close or the date on which a record shall
be taken for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up. Such notice shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up.
2. PAYMENT OF EXERCISE PRICE. Payment for shares of Common Stock
purchasable upon exercise of this Warrant may be made in the form of (i)
cash, certified check or other immediately available funds for the aggregate
Exercise Price for such shares of Common Stock, (ii) the exchange of a number
of shares of Common Stock owned by the holder, free and clear of all liens or
encumbrances, the Fair Market Value (defined below) of which at the time of
exercise is equal to the aggregate Exercise Price of such shares, accompanied
by executed stock powers and any other documents of transfer requested by the
Company, (iii) the relinquishment of Warrant Shares (defined below), which
Warrant Shares shall be deemed to have a value equal to the aggregate Fair
Market Value of such Warrant Shares less the aggregate Exercise Price of such
Warrant Shares, or (iv) a combination of (i), (ii) or (iii). For purposes of
this Section 2, the term "Fair Market Value", as of a particular day, means
(a) if the shares of Common Stock are then listed or admitted for trading on
a national securities exchange or quoted on the National Association of
Securities Dealers Automated Quotation System, the last reported sales price
or the average of the closing bid and ask prices, as applicable, of the
Common Stock on the last trading day before such date, or (b) if the shares
of Common Stock are not then listed or admitted for trading on a national
securities exchange or quoted on the National Association of Securities
Dealers Automated Quotation System, such value as the entire Board of
Directors of the Company, in its absolute discretion, may determine in good
faith. For purposes of this Section 2, the term "Warrant Shares" means
shares of Common Stock issuable upon exercise of this Warrant.
3. CONDITIONS TO EXERCISE; EXERCISE PERIOD. This Warrant shall
be exercisable only if Liebovit shall not have breached its obligations under
the Service Agreement. This Warrant shall be exercisable only during the
period ("Exercise Period") beginning on the first business day after December
23, 1997 and ending at the close of business on the fifth anniversary of the
execution date of this Warrant, at which time any unexercised portion of this
Warrant shall expire and become null and void. Notwithstanding anything to
the contrary herein, the Company may, at its sole discretion, terminate the
Service Agreement and rescind this Warrant if an initial public offering of
the Common Stock has not been completed by December 31, 1998 by giving
written notice thereof to Liebovit. Immediately upon the giving of such
notice, this Warrant shall become null and void.
4. RECORD DATE; CERTIFICATES; ETC. Any shares of Common Stock
purchased upon exercise of this Warrant shall be deemed to have been issued to
the holder thereof as of the close of
-3-
<PAGE>
business on the date of exercise. Subject to Section 5, certificates for the
shares of Common Stock so purchased shall be delivered to the holder thereof
promptly after exercise. The stock certificates so delivered shall be in
denominations requested by the holder of this Warrant and shall be registered
in such holder's name. Upon partial exercise of this Warrant, a new warrant
shall promptly be issued to the holder of this Warrant, representing the
right to purchase the number of shares of Common Stock with respect to which
this Warrant shall not have been exercised.
5. RESTRICTIONS ON TRANSFER. This Warrant and the rights
hereunder are not transferable unless and until Liebovit shall have fully and
completely performed all of his obligations under the Service Agreement.
Further, holder shall not offer, sell, pledge, hypothecate, or otherwise
dispose of this Warrant unless such offer, sale, pledge, hypothecation, or
other disposition (i) is registered under the Securities Act of 1933, as
amended (the "Securities Act"), (ii) is in compliance with an opinion of
counsel, addressed to Company or upon which Company is authorized to rely
("Opinion of Counsel"), to the effect that such offer, sale, pledge,
hypothecation, or other disposition does not violate the Securities Act, or
(iii) is in compliance with an Opinion of Counsel that the transaction
complies with Rule 144 promulgated by the Securities and Exchange Commission
("Rule 144"). Subject to the foregoing, transfer of this Warrant shall be
made by holder at Company's principal office (or at such other location as
Company may notify holder) by holder in person or by his duly authorized
attorney, upon surrender of this Warrant properly endorsed, with the attached
Registration of Assignment completed. Unless the securities transferred are
no longer "restricted securities" as defined under Rule 144, the
permissibility of transfers pursuant to this Section 5 shall be conditioned
upon such transferee making in writing to Company the covenant set forth in
the second sentence of this Section 5. All expenses of transfer including,
without limitation, transfer taxes and attorneys' fees, whether incurred by
the Company or the transferor, shall be borne by the transferor.
6. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. All shares of
Common Stock issued upon exercise of this Warrant, in accordance with the
terms of this Warrant, shall be duly authorized, validly issued, fully paid,
nonassessable, and free from preemptive rights. During the Exercise Period,
Company will have authorized and reserved for issuance or transfer upon
exercise of this Warrant, a sufficient number of shares of authorized but
unissued Common Stock, free from preemptive rights, when and as required to
provide for exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY.
Nothing contained in this Warrant shall be construed as conferring upon
holder the right to vote as a stockholder or to consent or to receive notice
as a stockholder in respect of meetings of Company's stockholders for
election of directors or for other matters. Nothing contained in this
Warrant shall be construed as conferring upon holder any other right as a
stockholder of Company. No dividend or interest shall be payable or accrued
in respect of this Warrant or the stock reserved for issuance in connection
herewith until, and only to the extent that, this Warrant shall have been
exercised. In the absence of affirmative action by holder to purchase shares
of Common Stock, no provision of this Warrant and no
-4-
<PAGE>
enumeration in this Warrant of holder's rights or privileges, shall give rise
to any liability of holder for the Exercise Price.
8. AMENDMENT; WAIVER. This Warrant may not be amended or
otherwise modified without the prior written consent of the Company and the
then registered holder of this Warrant.
9. NOTICES. All notices, approvals, consents, requests, demands,
and other communications in connection with this Warrant shall be in writing
and shall be deemed to have been duly given (i) when delivered personally,
(ii) three days after deposit in the U.S. mail (registered or certified
mail), postage prepaid, or (iii) when sent by facsimile machine with machine
or other confirmation of delivery, as follows:
(a) If to Company, to:
411 N. Sam Houston Parkway East,
Suite 400
Houston, TX 77060-3534
Fax No.: (281) 272-4545
Attention: President
(b) If to Mark Liebovit
P. O. Box 1451
Sedona Arizona 86339
Fax No.: (602) 953-7993
If to any subsequent holder of this Warrant, to it at such address or fax
number as may have been furnished to Company in writing by such subsequent
holder. If no address has been furnished to Company by such subsequent
holder, Company shall deliver any notice to the subsequent holder in care of
the previous holder at the address provided to Company in accordance with
this Warrant. Company and any holder of this Warrant may change their
respective addresses for purposes of notice hereunder by notice to the other
party in accordance with this Section.
10. BENEFITS OF AGREEMENT. Nothing in this Warrant shall be
construed to give to any person or entity other than Company and the
registered holder of this Warrant any legal or equitable right, remedy or
claim under this Warrant. This Warrant shall be for the sole and exclusive
benefit of Company and the registered holder of the Warrant.
-5-
<PAGE>
11. SECTION HEADINGS; APPLICABLE LAW. The section headings in
this Warrant are for reference purposes only and are not intended to affect
the meaning or construction of this Warrant. THIS WARRANT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF TEXAS.
12. LOST WARRANT . Upon receipt of evidence reasonably
satisfactory to Company of the loss, theft, destruction, or mutilation of
this Warrant, Company will make and deliver a new warrant, of like tenor, in
lieu of the lost, stolen, destroyed, or mutilated Warrant; provided that (i)
upon any such loss, theft, or destruction, holder shall provide Company with
an indemnity and/or bond reasonably satisfactory to Company, and (ii) upon
any such mutilation, holder shall surrender this Warrant for cancellation.
Holder shall indemnify Company for any liability arising from replacement of
this Warrant.
13. FRACTIONAL SHARES. No fractional shares shall be issued or
accepted by the Company upon exercise of this Warrant. In lieu of issuing a
fractional share, Company shall pay holder in cash a sum equal to the
applicable fraction multiplied by the per share Exercise Price.
IN WITNESS WHEREOF, Company has caused this Warrant to be duly
executed as of June 23, 1997.
U S Liquids Inc.
By:
---------------------------------------
W. Gregory Orr, President
ATTEST:
By:
-----------------------------
Earl J. Blackwell, Secretary
(Corporate Seal)
-6-
<PAGE>
NOTICE OF EXERCISE FORM
(To be signed only upon exercise of Warrant)
To U S Liquids Inc.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________________________________________(_________)
(*) shares of Common Stock of U S Liquids Inc. The undersigned hereby elects
to pay for such shares pursuant to clause ___(**) of Section 2 of the Warrant
and requests that certificates for such shares be issued in the name of (and
delivered to) the undersigned at the undersigned's address as follows:
----------------------------
----------------------------
The undersigned represents that it is acquiring such Common Stock for
its own account for investment and not with a view to or for sale in
connection with any distribution thereof. Further, the undersigned makes and
reiterates the representations and covenants to Company contained in Section
5 of the Warrant as of the date of execution hereof.
Dated:
------------------- ------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant or a duly executed and delivered
Form of Assignment)
(Print Name and address)
----------------------------------------
----------------------------------------
----------------------------------------
(*) Insert the number of shares of Common Stock called for on the face of
the Warrant (or, in the case of partial exercise, the portion thereof
as to which the Warrant is being exercised), without making any
adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
-7-
<PAGE>
(**) Insert the number of the particular clause of Section 2 describing the
payment method elected by the holder (i.e., clause (i), (ii) or (iii))
or describe the combination of such payment methods elected by the
holder.
-8-
<PAGE>
REGISTRATION OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant,
hereby sells, assigns, and transfers all of its rights under the within
Warrant, in compliance with and subject to Section 5 of the Warrant, with
respect to the number of shares of Common Stock covered thereby and set forth
below, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:
------------------ ------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
(Print name and address)
----------------------------------------
----------------------------------------
----------------------------------------
<PAGE>
WARRANT AGREEMENT
Sanders Morris Mundy Inc.
3100 Texas Commerce Tower
Houston, TX 77002
Ladies and Gentlemen:
U S Liquids Inc., a Delaware corporation (the "Company"), hereby agrees, on
the terms and subject to the conditions of this Warrant Agreement (the
"Agreement"), to sell and deliver to Sanders Morris Mundy Inc. ("SMM") warrants
to purchase 200,000 shares of the "Common Stock" (defined below) of the
Company. SMM agrees, on the terms and subject to the conditions of this
Agreement, to purchase such warrants from the Company.
Each of the warrants will be exercisable by the "Holder" thereof (defined
below), as to all or any lesser number of shares of the Common Stock covered by
the Holder's warrants, at the "Exercise Price" per share (defined below), at any
time and from time to time beginning at 9:00 a.m., Los Angeles time, on May 15,
1997 and ending at 5:00 p.m., Los Angeles time, on the day that is five years
after such date. The warrants shall be evidenced by instruments in the form of
Exhibit A hereto (those instruments and all instruments issued after the date
hereof in replacement thereof are referred to below as the "Warrants").
The purchase price of the Warrants shall be $0.01 (one cent) for each share
of Common Stock purchasable as of the Closing Time on exercise of the Warrants.
The delivery of the Warrants and payment of the purchase price of the Warrants
are to be made on or about May 15, 1997 to you at the address shown hereinabove,
or such other time and place as may be agreed upon among the Company and SMM
(the date(s) of such purchase of the Warrants is referred to in this Agreement
as the "Closing Time").
1. DEFINITIONS. As used in this Agreement, the following terms, unless
the context otherwise clearly requires, shall have for all purposes the
following respective meanings:
(a) The term "Common Stock" refers to the Common Stock, par value $.01 per
share, of the Company, and all other shares of any class or classes (however
designated) of the common equity of the Company, now or hereafter authorized,
the holders of which by operation of law shall have the right, without
limitation as to amount, either to all or to a part of the balance of current
dividends and liquidating dividends and distributions after the payment of
dividends and distributions on any shares entitled to preference and the holders
of which ordinarily, in the absence of contingency, shall be entitled to vote
for the election of the directors of the Company (even though the right so to
vote has been suspended by the occurrence of such a contingency), other than
those directors of the Company (constituting a
<PAGE>
portion of the Board of Directors) who, pursuant to the Certificate of
Incorporation or other charter documents of the Company, are then to be
elected by a designated class or series of the capital stock of the Company.
(b) "Convertible Securities" shall mean any indebtedness, shares of stock
or other rights granted by the Company (other than Options) convertible into or
exchangeable for Common Stock.
(c) The term "Exercise Price" refers to the per share purchase price of
the Warrant Shares subject to this Warrant Agreement. The Exercise Price shall
initially be $10.50 per share, and, upon the completion of an initial public
offering of the Common Stock, shall be equal to the initial per share price to
the public of the shares of Common Stock sold pursuant to such initial public
offering, subject to adjustment as provided in Section 6 below.
(d) The term "Holder", when used with respect to the Warrants or the
Warrant Shares, means the person registered on the books and records of the
Company as being the holder of record of the Warrants or the Warrant Shares, as
the case may be, and, so long as SMM holds of record any Warrants or Warrant
Shares, it shall be included in the definition of "Holder," and any action to be
taken or approval to be given by the Holders shall, unless otherwise provided in
this Agreement, require the action by, or approval of, the Holder or Holders of
at least that number of Warrants and Warrant Shares which in the aggregate shall
constitute a majority of all Warrant Shares issued or issuable under this
Agreement.
(e) "Options" shall mean any warrants, options or, without limitation,
other rights granted by the Company to purchase Common Stock or Convertible
Securities.
(f) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the Holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities, whether pursuant to Section 6 below or otherwise.
(g) The term "Warrant Shares" refers to the shares of Common Stock (or
Other Securities) issued or issuable upon the exercise, in whole or in part, of
any of the Warrants.
2.1 REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to SMM as follows:
(a) CORPORATE ACTION. The Company has all requisite power and authority,
and has taken all necessary action, to enter into and perform all of its
obligations under this Agreement, to issue and deliver the Warrants and to
authorize and reserve for issuance, and
-2-
<PAGE>
upon payment from time to time of the Exercise Price in accordance with the
terms of this Agreement, to issue and deliver the Warrant Shares; and this
Agreement has been duly authorized, executed and delivered by the Company and
constitutes the legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except (i) as
such enforceability may be subject to or limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws or equitable principles now
or hereafter in effect relating to or affecting creditors' rights generally
(collectively, the "Recognized Defenses") and (ii) insofar as the
indemnification and contribution provisions hereof may be limited under
federal and state securities laws and the public policies underlying such
laws.
(b) OUTSTANDING COMMON STOCK. The outstanding shares of Common Stock have
been duly and validly authorized and issued and are fully paid and
non-assessable and free of preemptive rights. The Warrant Shares (i) are duly
authorized by the Company's Certificate of Incorporation, (ii) have been duly
and validly authorized to be issued and adequately reserved by the Board of
Directors of the Company, (iii) will, when issued and delivered to the Holders
pursuant to this Agreement, be duly and validly issued, fully paid and
non-assessable and free and clear of all liens, charges, encumbrances or rights
of others except for those which may be created by the Holder, and (iv) and have
been approved for inclusion, when issued, in the Nasdaq National Market ("NNM").
The holders of outstanding shares of capital stock of the Company are not
entitled to any preemptive or similar rights to subscribe for or purchase
Warrant Shares or other shares of capital stock of the Company and, except as
otherwise disclosed to SMM, there are no outstanding rights, warrants or options
to acquire, or instruments convertible into or exchangeable for, or agreements
or understandings with respect to the sale or issuance of, any shares of capital
stock of the Company.
(c) NO VIOLATION. None of the execution or delivery of this Agreement,
the consummation of the transactions contemplated by this Agreement or
compliance with the terms and provisions of this Agreement will (i) conflict
with or constitute a breach of, or a default (or default with notice, the
passage of time or otherwise) under any bond, debenture, note or other evidence
of indebtedness or any indenture, mortgage, deed of trust or any other agreement
or instrument to which the Company or any of its subsidiaries is a party or by
which any of them is bound or to which any of their respective property or
assets is subject, (ii) result in the imposition of a lien on any properties of
the Company or any of its subsidiaries or an acceleration of indebtedness of the
Company or any of its subsidiaries or (iii) result in a violation of any law,
administrative regulation or order of any court or governmental agency or
authority applicable to the Company or any of its subsidiaries or to any of
their respective properties or assets. No consent, approval, authorization or
other order of any regulatory body, administrative agency or other governmental
body is required for the valid issuance and sale of the Warrant Shares to SMM or
the other transactions contemplated by this Agreement, except for registration
under the federal securities laws and for permits and similar authorizations
required under state blue sky laws or similar laws.
-3-
<PAGE>
2.2 REPRESENTATIONS AND WARRANTIES OF SMM. SMM represents and warrants
to the Company that it has all requisite corporate power and corporate
authority, and has taken all necessary corporate action, to enter into and
perform all of its obligations under this Agreement and that this Agreement has
been duly authorized, executed and delivered by it and constitutes its legal,
valid and binding agreement, enforceable against it in accordance with its
terms, except (i) as such enforceability may be subject to or limited by
the Recognized Defenses and (ii) insofar as the indemnification and contribution
provisions hereof may be limited under federal and state securities laws and the
public policies underlying such laws.
3. COMPLIANCE WITH THE ACT.
(a) TRANSFERABILITY OF WARRANTS. SMM agrees that the Warrants may not be
transferred, sold, assigned or hypothecated except: (i) to its successors in a
merger or consolidation or other business combination; (ii) to purchasers of all
or substantially all of its assets; (iii) to any officers or partners of SMM, as
the case may be; (iv) by operation of law; or (v) as permitted below in this
Section 3. SMM further agrees that the Company shall have no obligation to
effect any transfer of the Warrants during the time period referred to above,
unless the transferee, purchaser, assignee or pledgee, as the case may be, has
executed an agreement obligating the transferee to comply with all terms and
conditions of this Warrant Agreement applicable to the transferor.
(b) TRANSFERABILITY OF WARRANT SHARES.
(i) Except as otherwise provided in this Section 3(b), each
certificate for Warrant Shares initially issued upon the exercise of any
Warrants shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"The Shares represented by this certificate are subject
to the conditions specified in a Warrant Agreement, dated
May 15, 1997, among the Company and Sanders Morris Mundy
Inc. Except to the extent permitted by the Warrant
Agreement, no transfer, sale, pledge, hypothecation,
encumbrance or other disposition of the shares represented
by this certificate shall be valid or effective until
registered under the Securities Act of 1933, as amended (or,
if applicable, a successor law thereto) or the Company has
been presented with satisfactory evidence that such shares
will be transferred in a transaction exempt from such
registration and until any applicable conditions contained
in the Warrant Agreement have been fulfilled. A copy of the
Warrant
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Agreement is on file at the offices of U S Liquids Inc.
The holder of this certificate, by acceptance of this
certificate, agrees to be bound by the provisions of the
Warrant Agreement."
(ii) Each certificate evidencing Warrant Shares issued upon any
transfer, sale, pledge, assignment, hypothecation or other disposition of
any Warrant Shares shall bear the restrictive legend set forth in Section
3(b)(i), unless in the opinion of counsel to such Holder reasonably
satisfactory to the Company such legend is not required in order to ensure
compliance with the Act.
(iii) Notwithstanding the foregoing provisions of this Section 3(b),
the restrictions imposed by subsections (i) and (ii) of this Section upon
the transferability of the Warrant Shares and the legend requirements of
Section 3(b)(i) shall terminate as to any particular Warrant Shares (A)
when and so long as the transfer, sale, pledge, hypothecation, encumbrance
or other disposition thereof, shall have been registered under the Act or
(B) when the Holder or Holders of any Warrants or Warrant Shares has
delivered to the Company the written opinion of counsel to such Holder or
Holders, which shall be reasonably satisfactory to the Company, stating
that such legend is not required in order to ensure compliance with the
Act. Whenever the restrictions imposed by this Section shall terminate as
to any Warrant Shares, as provided above, the Holder thereof shall be
entitled to receive from the Company, at the Company's expense, a new
certificate representing such Warrant Shares not bearing the restrictive
legend set forth in Section 3(b)(i).
(c) DEMAND REGISTRATION. At any time after the day that begins one year
after the Closing Time and on or before the end of the day that is six years
after the Closing Time, upon written, or telegraphic or telephonic notice
followed as soon as practicable by written confirmation thereof, from any Holder
or Holders (the "Requesting Holders") of that number of Warrants and/or Warrant
Shares which in the aggregate shall constitute a majority of all Warrant Shares
issued or issuable under this Agreement (excluding Warrant Shares which have
been previously sold, transferred or otherwise disposed of in a registered
public offering, pursuant to Rule 144 under the Act, as such rule may be amended
from time to time, or pursuant to Regulation S under the Act, as such Regulation
may be amended from time to time, or which in the opinion of both counsel to the
Company and counsel to the Requesting Holders may otherwise then be publicly
sold without registration under the Act), that such Holder or Holders request
the registration under the Act of any of the Warrant Shares, the Company shall
(i) immediately give notice to the other Holders and afford them the opportunity
to participate in the registration statement and (ii) as promptly as possible
after the receipt of such notice from the Requesting Holders, but in any event
within 60 days of the receipt of such notice, and solely at its cost and
expense, file a registration statement with respect to the offering and sale or
other disposition of the Warrant Shares with respect to which it shall have
received such notice. Such registration statement may, if the Company
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<PAGE>
satisfies the applicable requirements, be made on Form S-3. If a registration
requested pursuant to this Section 3(c) is an underwritten registration, the
Company and other holders of securities of the Company may include securities
in such registration without the written consent of the Holders of the
Warrant Shares for which registration has been requested pursuant to this
Section 3(c) if, but only if, the managing underwriters of such registration
advise the participating Holders of Warrant Shares in writing that in their
opinion such inclusion will not materially affect the successful marketing of
the Warrant Shares. The Holders shall not be deemed to have effected a
demand registration pursuant to this Section 3(c) unless and until the
registration statement is declared effective. The Company shall be obligated
to file only one registration statement pursuant to this Section 3(c) which
becomes effective, whether or not the registration statement at the time it
becomes effective covers all or a portion of the Warrant Shares.
(d) PIGGYBACK REGISTRATION. If, at any time during the period commencing
on the day that begins one year from the Closing Time and ending at the end of
the day that is six years after the Closing Time, the Company shall propose to
register any shares of Common Stock or Other Securities (but excluding any
shares or securities being registered pursuant to Form S-8 or Form S-4 or any
successor form to either of them), the Company shall (i) give each Holder
written notice, or telecopy and telephonic notice followed as soon as
practicable by written confirmation thereof, of such proposed registration at
least 20 business days prior to the filing of such registration statement and
(ii) upon written notice, or telecopy or telephonic notice followed as soon as
practicable by written confirmation thereof, given to the Company by any Holder
within 15 days after the giving of such written confirmation or written notice
by the Company, the Company shall include or cause to be included in any such
registration statement all or such portion of the Warrant Shares as such Holder
may request; provided, however, that the Company may at any time withdraw or
cease proceeding with any such registration if it shall at the same time
withdraw or cease proceeding with the registration of the Common Stock or Other
Securities originally proposed to be registered; and provided, further, that in
connection with any registered public offering involving an underwriting, the
managing underwriter may (if in its reasonable opinion marketing factors so
require) limit the number of securities (including any Warrants or Warrant
Shares) included in such offering (other than securities of the Company). In
the event of any such limitation, the total number of Warrant Shares to be
offered for the account of the Holders participating in the registration shall
be reduced pro rata in proportion to the respective number of shares requested
to be included therein to the extent necessary to reduce the total number of
shares proposed to be registered to the number of shares recommended by the
managing underwriter; provided, however, that if the amount or kind of
securities to be offered for the accounts of Holders shall be reduced in
accordance with this sentence, the Company shall not be permitted to include
securities of any persons (other than the Company) unless the Holders are
permitted to participate on a pro rata basis with other selling securityholders.
Notwithstanding the foregoing, the Company shall not be obligated to include
Warrant Shares in more than two registration statements pursuant to this
Agreement.
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<PAGE>
(e) COMPANY'S OBLIGATIONS IN REGISTRATION. If any Holder timely elects to
participate in an offering by including Warrant Shares in a registration
statement pursuant to Section 3(c) or (d) above, the Company shall use its best
efforts to effect such registration to permit the sale of Warrant Shares in
accordance with the intended method or methods of disposition thereof and,
without limitation, pursuant thereto the Company shall:
(i) notify the Holders as to the filing of the registration statement
and of all amendments or supplements thereto filed prior to the effective
date thereof;
(ii) use its best efforts to cause any registration statement filed
under the Act pursuant to Section 3(c) or (d) above to become effective at
the earliest possible date after the filing thereof and to comply with all
applicable rules and regulations of the Commission in connection therewith;
provided, that before filing a registration statement or prospectus or any
amendments or supplements thereto, including documents which would be
incorporated or deemed to be incorporated by reference in the registration
statement after the initial filing of any registration statement, the
Company will furnish to the Holders, their respective counsel and the
underwriters, if any, to be engaged in connection with the offering and
sale by the Company (for purposes of this Section 3(e) and Section 3(f),
the "Underwriters"), copies of all such documents proposed to be filed,
which documents will be subject to the review of the Holders, their
respective counsel and the Underwriters, and the Company will not file any
registration statement, or amendment thereto, or any prospectus or any
supplement thereto relating in whole or in part to the Holders' Warrant
Shares (including such documents incorporated or deemed to be incorporated
by reference) to which the Holders or the Underwriters, if any, shall
reasonably object;
(iii) notify the Holders immediately, and confirm the notice in
writing, (1) when the registration statement or any post-effective
amendment thereto becomes effective, (2) when a prospectus or prospectus
supplement or post-effective amendment has been filed, (3) of any request
by the Commission for amendments, supplements or additional information
related to a registration statement or prospectus or otherwise, (4) of the
issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceedings for that purpose known to the Company, (5)
of the receipt by the Company of any notification with respect to the
suspension of qualification of the Warrant Shares for sale in any
jurisdiction or of the initiation, or the threatening, of any proceedings
for that purpose known to the Company, (6) of the receipt of any comments
from the Commission or any state regulatory authority, (7) of the happening
of any event which requires the making of any changes in a registration
statement or the related prospectus or any prospectus supplement so that
such documents will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading and (8) of the determination
of the Company that a post-effective amendment to a registration statement
would be necessary or appropriate;
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<PAGE>
(iv) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a registration statement, or the
lifting of any suspension of the qualification (or exemption from
qualification) of any of the Warrant Shares for sale in any jurisdiction,
at the earliest possible moment;
(v) if reasonably requested by the Underwriters, if any, or the
Holders, immediately incorporate in a prospectus supplement or
post-effective amendment such information as the Holders and the
Underwriters, if any, agree should be included therein relating to the sale
and distribution of the Warrant Shares, including, without limitation,
information with respect to the number of Warrant Shares being sold to such
Underwriters, the purchase price being paid therefor by such Underwriters
and with respect to any other terms of the underwritten offering of the
Warrant Shares to be sold in such offering; make all required filings of
such prospectus supplement or post-effective amendment as soon as notified
of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and supplement or amend any registration
statement if reasonably requested by the Holders or any Underwriter of
Warrant Shares covered by such Warrant Shares;
(vi) furnish to each of the Holders whose Warrant Shares have been
included therein, their respective counsel and each Underwriter, if any,
without charge, at least one manually executed copy of any registration
statement (including all amendments thereto) and any post-effective
amendment thereto, including financial statements and schedules, all
documents incorporated therein by reference and all exhibits (including
those incorporated by reference);
(vii) during the time when a prospectus is required to be delivered
under the Act in connection with the distribution of the Warrant Shares,
comply so far as it is able with all requirements imposed upon it by the
Act, as now and hereafter amended, and by the Rules and Regulations
promulgated by the Commission thereunder, as from time to time in force, so
far as necessary to permit the continuance of sales of or dealings in the
Warrant Shares. If at any time when a prospectus relating to the Warrant
Shares is required to be delivered under the Act any event shall have
occurred as a result of which, in the opinion of counsel for the Company or
counsel for the Holders, the prospectus relating to the Warrant Shares as
then amended or supplemented includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, or if it is
necessary at any time to amend such prospectus to comply with the Act, the
Company will use its best efforts promptly to prepare and file with the
Commission an appropriate amendment or supplement in form and substance
reasonably satisfactory to the Holders;
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<PAGE>
(viii) make generally available to its security holders as soon as
practicable, but not later than 15 months following the effective date (and
each other deemed effective date) of such registration statement, an
earnings statement or statements of the Company and any subsidiaries it may
then have covering a period of at least 12 months beginning after the
effective date of the registration statement (but in no event commencing
later than 90 days after such date), which shall satisfy the provisions of
Section 11(a) of the Act and Rule 158 promulgated thereunder;
(ix) prepare and promptly file with the Commission such amendments
and post-effective amendments to each registration statement as may be
necessary to keep such registration statement continuously effective for a
period of nine months; cause the related prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be timely
filed pursuant to Rule 424 under the Act; and comply with the provisions of
the Act with respect to the disposition of all Warrant Shares covered by
such registration statement during the applicable period in accordance with
the intended methods of disposition as set forth in such registration
statement or supplement to such prospectus; and in these regards the
Company shall not be deemed to have used its best efforts to keep a
registration statement effective during the applicable period if it
unreasonably takes any action that would result in any Holder whose Warrant
Shares have been included therein not being able to sell such Warrant
Shares at any time during such period or for more than 30 days, whether or
not consecutive, in such period;
(x) deliver to each of the Holders, their respective counsel and the
Underwriters, if any, without charge, as many copies of the prospectus or
prospectuses (including each preliminary prospectus) and any amendment or
supplement thereto as such persons may reasonably request; and the Company
consents to the use of any such prospectus or any amendment or supplement
thereto by the Holders and each of the Underwriters, if any, in connection
with the offering and sale of the Warrant Shares covered by such prospectus
or any amendment or supplement thereto;
(xi) prior to any public offering of Warrant Shares, register or
qualify or cooperate with the Holders, the Underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Warrant Shares
for offer and sale under the securities or blue sky laws of such
jurisdictions as the Holders or any Underwriter reasonably requests in
writing; keep each such registration or qualification (or exemption
therefrom) effective during the period the applicable registration
statement is required to be kept effective and do any and all other acts or
things necessary or advisable to enable the disposition in such
jurisdictions of the Warrant Shares covered by the applicable registration
statement; provided, that the Company will not be required to qualify
generally to do business in any jurisdiction where it is not then so
qualified or to take any action which
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<PAGE>
would subject it to general service of process in any such jurisdiction
where it is not then so subject;
(xii) cooperate with the Holders and the Underwriters, if any, to
facilitate the timely preparation and delivery of certificates representing
Warrant Shares to be sold, which certificates shall not bear any
restrictive legends; and enable such Warrant Shares to be in such
denominations and registered in such names as the Underwriters may request
at least two business days prior to any sale of Warrant Shares to the
Underwriters;
(xiii) use its best efforts to cause the Warrant Shares covered by
the applicable registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to
enable the Holders and the Underwriters, if any, to consummate the
disposition of such Warrant Shares;
(xiv) enter into such agreements in form and substance reasonably
acceptable to the Company and its counsel (including an underwriting
agreement) and take all such other actions in connection therewith as may
be necessary to expedite or facilitate the disposition of such Warrant
Shares and, in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration: (1) make such representations and warranties to the Holders
with respect to the business of the Company and any subsidiaries it may
then have, the registration statement, the prospectus (and, if applicable,
prospectus supplement) and documents, if any, incorporated or deemed to be
incorporated by reference in the registration statement (and, if
applicable, prospectus supplement), in each case in such form, substance
and scope as are reasonably requested by the Holders and confirm the same
if and when requested; (2) obtain opinions of counsel to the Company and
updates thereof addressed to the Holders with respect to the matters
referred to in the preceding clause (1) in such form, scope and substance
as are reasonably requested by the Holders; (3) in the case of an
underwritten offering, enter into an underwriting agreement in form, scope
and substance as is customary in underwritten offerings and obtain (a)
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to
the Underwriters) addressed to the Underwriters covering the matters
customarily covered in opinions requested by underwriters in underwritten
offerings and such other matters as may be reasonably requested by the
Underwriters and (b) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance) shall be
reasonably satisfactory to the Holders) addressed to the Holders covering
matters reasonably requested by the Holders (whether or not such matters
are different from, or in addition to, the matters described in subclause
(a) of this subsection (xiv)(3); (4) obtain "comfort" letters and updates
thereof from the independent certified public accountants of the Company
(and, if necessary, any other
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<PAGE>
independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements
and financial data is or is required to be included in the registration
statement), addressed to the Holders and each of the Underwriters, if any,
such letters to be in customary form and covering matters of the type
customarily covered in "comfort" letters to underwriters in connection
with underwritten offerings; (5) if an underwriting agreement is entered
into, the same shall set forth in full the indemnification and contribution
provisions and procedures of Section 3(f) hereof (or such other
indemnification and contribution provisions as shall be acceptable to the
Holders and the Underwriters of such underwritten offering) with respect
to all parties to be indemnified pursuant to said section; and (6) the
Company shall deliver such documents and certificates as may be requested
by the Holders and the Underwriters, if any, to evidence the continued
validity of the representations and warranties made pursuant to clause (1)
above and to evidence compliance with any customary conditions contained
in the underwriting agreement or other agreement entered into by the
Company. Each of the above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required
thereunder;
(xv) make available for inspection by a representative of the Holders
or any Underwriter participating in any disposition pursuant to such
registration statement and any attorney or accountant retained by the
Holders or such Underwriter, all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries and
cause the officers, directors and employees of and independent accountants
and attorneys for the Company and its subsidiaries personally to meet with
and to supply all information reasonably requested by any such
representative, Underwriter, attorney or accountant in connection with any
registration of Warrant Shares; provided, that any records, information or
documents that are designated by the Company in writing as confidential
shall be kept confidential by such persons unless (i) disclosure of such
records, information or documents is required by court or administrative
order, (ii) disclosure of such records, information or document is, in the
opinion of counsel to the Holders or to any Underwriter, required pursuant
to the requirements of the Act or (iii) such records, information or
documents are otherwise publicly available;
(xvi) pay all costs and expenses incident to the performance of the
Company's obligations under Sections 3(c) and (d) above and under this
Section 3(e) (collectively "Registration Expenses"), including without
limitation the fees and disbursements of the Company's auditors, legal
counsel, any special legal counsel (including one legal counsel for the
Holders) and legal counsel (including, if applicable, legal counsel to the
Underwriters) responsible for qualifying the Warrant Shares under state
securities or blue sky laws, all filing fees and printing expenses, all
expenses in connection with the transfer and delivery of the Warrant
Shares, all expenses in connection with the
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<PAGE>
qualification or registration of the Warrant Shares under applicable state
securities or blue sky laws of such states as are designated by the Holders
(or obtaining exemptions from such qualification or registration under
state securities or blue sky laws) and, if applicable, the fee of the
National Association of Securities Dealers, Inc. in connection with its
review; provided, that in no event shall Registration Expenses include any
underwriting discounts, commissions or fees or the fees of more than one
counsel retained by the Holders or the fees, except with respect to such
state securities blue sky matters, of legal counsel retained by the
Underwriters in connection with the sale of Warrant Shares pursuant to
Section 3(c) or 3(d) above; and
(xvii) in connection with the filing of a registration statement
pursuant to Section 3(c) or (d) above, use its best efforts to obtain
indemnification of the Holders by the Underwriter to the same extent said
Underwriter provides indemnification to the Company. As used in this
Section 3(e), the term "Holders" refers only to those Holders who have
timely elected to sell Warrants Shares in an offering.
(f) INDEMNIFICATION.
(i) The Company shall indemnify and hold harmless SMM, the Holders
and any underwriter (as defined in the Act) for SMM and/or the Holders, and
each person, if any, who respectively controls (within the meaning of
Section 15 of the Act) SMM, or any of the Holders or such underwriter
against any losses, claims, damages, liabilities (or actions in respect
thereof) and expenses whatsoever (including, but not limited to, any and
all expense whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever), joint or several, to which SMM, the Holders or such
underwriter or such controlling person becomes subject, under the Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or other
federal or state statute, law or regulation, at common law or otherwise,
specifically including but not limited to losses, claims, damages or
liabilities (or actions in respect thereof) or expenses related to
negligence on the part of any such indemnified party, insofar as any such
loss, claim, damage, liability or expense (or actions in respect thereof)
(1) arises out of or is based upon any breach of any representation,
warranty or covenant of the Company in this Agreement or upon any untrue
statement or alleged untrue statement of any material fact contained in (A)
Section 2 of this Agreement, (B) any registration statement covering the
Warrant Shares as originally filed or in any amendment thereof, in the
prospectus contained therein or in an amendment or supplement thereto or
(C) in any application or other document, or any amendment or supplement
thereto (in this Section collectively called "application") executed by or
on behalf of the Company or based upon written information furnished by or
on behalf of the Company filed in any jurisdiction in order to qualify or
register the Warrant Shares under the securities or blue sky laws thereof
(or to obtain exemptions from such qualifications or registration
requirements) or filed with the Commission or any securities association or
securities
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<PAGE>
exchange, or (2) arises out of or is based upon the omission or alleged
omission to state in any of the documents described in subclauses (1)(A),
(B) or (C) above, a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to
reimburse each such indemnified person, as incurred, for any legal or other
expenses reasonably incurred by them in connection with investigation or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be obligated to indemnify in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance upon,
and in conformity with, written information furnished to the Company by the
indemnified person specifically for use therein. The Company will not,
without the prior written consent of SMM, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action,
suit or proceeding in respect of which indemnification may be sought
hereunder (whether or not SMM is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes,
without payment by SMM, an unconditional release of all indemnified
parties from all liability arising out of such claim, action, suit or
proceeding, satisfactory in form and substance to SMM.
(ii) Any Holder that includes all or a part of such Holder's Warrant
Shares in a registration statement pursuant to Sections 3(c) or (d) above
agrees to indemnify and hold harmless the Company and each of its directors
and officers who have signed any such registration statement, any other
Holder of Warrant Shares included in such registration statement and any
underwriter (as defined in the Act) for the Company or the Holders of
Warrant Shares, and each person, if any, who controls (within the meaning
of Section 15 of the Act) the Company or such underwriter to the same
extent as the indemnity by the Company in Section 3(f)(i), but only with
respect to any untrue statement or alleged untrue statement or omission or
alleged omission, if any, made in such registration statement, or any
amendment or supplement thereto, or in any application in reliance upon,
and in conformity with, written information furnished by the indemnifying
Holder to the Company or such controlling person expressly for use in the
registration statement, or any amendment or supplement thereto, or any such
application, as the case may be. If any action shall be brought in respect
of which indemnity may be sought against any of the Holders, such Holder(s)
shall have the rights and duties given to the indemnifying party, and the
persons so indemnified shall have the rights and duties given to the
indemnified party, by the provisions of Section 3(f)(iii) below;
(iii) If any action is brought against a person in respect of which
indemnity may be sought hereunder against an indemnifying party, such
person shall promptly notify the indemnifying party in writing of the
institution of such action (but the failure to so notify shall not affect
the indemnification and other rights provided for herein except to
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the extent, if any, that the indemnifying party is prejudiced by the
failure to so give or timely give such notice) and the indemnifying
party shall assume the defense of the action, including the employment
of counsel satisfactory to the indemnified person and payment as
incurred of all fees and expenses related thereto. The indemnified
person shall have the right to employ its own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of
such indemnified person unless (1) the employment of such counsel and
the payment of fees and expenses thereof shall have been authorized in
writing by the indemnifying party in connection with the defense of the
action, (2) the indemnifying party shall have failed promptly after
notice by such indemnified person to assume the defense of such action
or proceeding and to employ counsel satisfactory to the indemnified
person in any such action or proceeding or (3) the named parties to any
such action or proceeding (including any impleaded parties) include both
such indemnified person and the indemnifying party, and such indemnified
person shall have been advised by counsel that there may be legal
defenses or rights available to such indemnified person which are
different from or additional to those available to the indemnifying party
(in which case, if such indemnified person notifies the indemnifying party
in writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to
assume the defense of such action, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for such indemnified person.
Anything in this paragraph to the contrary notwithstanding, the
indemnifying party shall not be liable for any settlement of any claim or
action effected without its written consent. The indemnity agreements
contained in this Section shall remain in full force and effect regardless
of any investigation made by or on behalf of any indemnified person and
shall survive any termination of this Agreement. The indemnifying party
agrees promptly to notify the indemnified party of the commencement of any
litigation or proceedings against the indemnifying party or any of its
officers or directors in connection with any registration statement
referred to in Section 3(c) or (d) above.
(iv) If the indemnification provided for in items (i), (ii) and (iii)
of this Section 3(f) from the indemnifying party is unavailable to an
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party,
in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnified party and the indemnifying party, but also the relative fault
of the indemnifying party and indemnified parties in connection with the
actions which resulted in such losses, claims, damages, liabilities
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or expenses, as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, the indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to
include, subject to the limitations set forth in subparagraph (iii) of
this Section 3(f), any legal or other fees or expenses incurred by such
party in connection with any investigation or proceeding. The parties
hereto agree that it would not be just and equitable if contribution
pursuant to this subparagraph (iv) of this Section 3(f) were determined
by pro rata allocation or by any other method of allocation which does
not take account of the equitable and other considerations referred to
in this paragraph. If the full amount of the contribution specified in
this subparagraph (iv) of this Section 3(f) is not permitted by law, then
such indemnified person shall be entitled to contribution from the
indemnifying party to the full extent permitted by law. Notwithstanding
the provisions of this Section 3(f)(iv), no Holder shall be required to
contribute any amount in excess of the amount by which the total price at
which the Warrant Shares of such Holder were sold to the public exceeds
the amount of any damages which such Holder has otherwise been required
to pay by reason of such untrue statement or omission. No party found
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any party who
was not found guilty of such fraudulent misrepresentation.
(v) Whenever any indemnifying or contributing party is requested by
the indemnified party or the party entitled to contribution to make a
payment pursuant to the forgoing provisions of this Section 3(f), such
payment will be made within five business days after the request and, if
not so paid, the amount due will thereafter bear interest at ten percent
per annum, compounded annually (but not in excess of the maximum amount
permitted by law).
4. EXERCISE OF WARRANTS.
(a) EXERCISE OF WARRANTS. The Warrants may be exercised from time to time
and in full or in part by the Holder thereof by surrender of the Warrants, with
the Election to Purchase attached thereto duly executed by such Holder, to the
Company at its offices at 411 North Sam Houston Parkway E., Ste. 400, Houston,
TX 77060-3545, or at such other office or agency as the Company may from time to
time designate in writing to each Holder, accompanied by payment, in cash or by
cashier's check payable to the order of the Company or as provided in Section
4(c), in the amount obtained by multiplying the number of Warrant
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Shares designated by the Holder in the Election to Purchase by the Exercise
Price per share. Exercise of any Warrant shall constitute an acknowledgment
by the purchasing Holder that it will not dispose of the Warrant Shares
acquired upon such exercise except in compliance with Section 3(b) hereof and
the Act. Upon any partial exercise of the Warrants, the Company at its
expense will forthwith issue and deliver to the purchasing Holder a new
Warrant, in the name of such Holder and for the number of Warrant Shares
equal to the number of shares called for by the surrendered Warrant (after
giving effect to any adjustment therein as provided in Section 6 below) minus
the number of such Warrant Shares (after giving effect to such adjustment)
purchased by the Holder pursuant to such exercise.
(b) COMPANY TO REAFFIRM OBLIGATIONS. On the date of any exercise of any
Warrants (except that if, on that date, the stock transfer books of the Company
are closed, in which case on the next succeeding date on which such stock
transfer books are open) the Holder exercising the same shall be deemed to have
become, and thereafter shall be considered, a holder of record of the shares of
Common Stock purchased upon such exercise for all purposes. Holders of Warrants
shall have no rights of share ownership until they exercise their Warrants. The
Company will, at the time of any exercise of any Warrant, upon the request of
the Holder thereof, acknowledge in writing its continuing obligation to afford
to that Holder any rights (including without limitation any right to
registration of the Warrant Shares issued upon such exercise) to which the
Holder shall continue to be entitled after such exercise in accordance with the
provisions of this Agreement; provided, however, that if the Holder of a Warrant
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford those rights to the Holder.
(c) NET EXERCISE OF WARRANTS. Notwithstanding anything to the contrary
contained in this Section 4, any Holder may elect to exercise any Warrant in
whole or in part by receiving shares of Common Stock equal to the value
(determined below) of the Warrant (or any part hereof), upon surrender of the
Warrant (or any part thereof) at the office or agency described in Section 4(a)
above, together with notice of such election, specifying the part of the Warrant
so surrendered, in which event the Company shall issue and deliver to the Holder
a number of shares of Common Stock determined using the following formula:
X = (Y) (A-B)
---------
A
where
X = the number of shares of Common Stock to be issued to the
Holder;
Y = the number of shares of Common Stock purchasable under the
Warrant, or portion of the Warrant, surrendered;
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<PAGE>
A = the Current Market Price per share of the Common Stock,
determined pursuant to Section 6(d) of this Agreement; and
B = the then current Exercise Price per share of Common Stock.
5. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE: NO FRACTIONAL
SHARES.
(a) STOCK CERTIFICATES, ETC. As soon as practicable after the exercise of
any Warrants and in any event within five business days thereafter, the Company,
at its expense (including the payment by it of any applicable issue taxes), will
cause to be issued in the name of and delivered to the purchasing Holder a
certificate or certificates for the number of fully paid and nonassessable
Warrant Shares to which such Holder shall be entitled upon such exercise,
together with any Other Securities and property (including cash, where
applicable) to which such Holder is entitled upon such exercise pursuant to
Section 6 of this Agreement or otherwise.
(b) NO FRACTIONAL SHARES. The Company will not issue a fractional share of
Common Stock upon exercise of a Warrant. Rather, if a fractional share would
otherwise be issued, the Company will instead issue a number of whole shares
equal to the next lowest number of whole shares and shall pay to the exercising
Holder an amount in cash equal to amount obtained by multiplying (x) the
fractional shares not issued by (y) the Current Market Price (as defined in
Section 6(d)) per share of the Common Stock on the last trading day prior to the
exercise date.
6. ANTI-DILUTION PROVISIONS. The Warrants are subject to the following
additional terms and conditions:
(a) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If, after the date of this
Agreement, the Company:
(1) pays a dividend or makes a distribution on its Common Stock in
shares of its capital stock (including Common Stock);
(2) subdivides its outstanding shares of Common Stock into a greater
number of shares;
(3) combines its outstanding shares of Common Stock into smaller
number of shares; or
(4) issues by reclassification of its Common Stock any shares of its
capital stock or Other Securities (including without limitation
any such
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reclassification in connection with a consolidation or
merger in which the Company is the continuing entity);
then the Exercise Price in effect at the time of the record date of such
dividend, distribution, subdivision, combination or reclassification shall be
adjusted so that the Exercise Price shall be equal to the price determined by
multiplying the Exercise Price in effect immediately prior to such event by a
fraction, the numerator of which shall be (x) the total number of outstanding
shares of Common Stock of the Company immediately prior to such event and the
denominator of which shall be (y) the total number of outstanding shares of
Common Stock of the Company immediately after such event and, as so adjusted or
readjusted, the Exercise Price shall remain in effect until a further adjustment
or readjustment is required by this Section 6(b). Whenever the Exercise Price
payable upon exercise of each Warrant is adjusted pursuant to this Section 6(a),
the Warrant Shares shall simultaneously be adjusted by multiplying the number
of Warrant Shares issuable upon exercise of each Warrant immediately prior to
such event by the Exercise Price in effect on the date thereof and dividing the
product so obtained by the Exercise Price as adjusted. These adjustments
referred to in the preceding paragraph shall become effective on (x) in the case
of a dividend or distribution, the earlier of the record date thereof or the
distribution date thereof and (y) in the case of a subdivision, combination or
reclassification, the earlier of the record date thereof or the effective date
thereof.
(b) ADJUSTMENTS FOR OTHER DISTRIBUTIONS. If, after the date of this
Agreement, the holders of Common Stock generally shall have received or, on or
after the record date fixed for the determination of eligible stockholders,
shall have become entitled to receive (i) securities other than capital stock,
(ii) evidences of its indebtedness, (iii) assets (including cash dividends or
distributions), (iv) rights, options, warrants or convertible or exchangeable
securities (other than Convertible Securities or Options) containing the right
to subscribe for or purchase securities of the Company, then and in each such
case the Holder of each Warrant, upon the exercise thereof as provided in
Section 4 above, shall be entitled to receive, in addition to the Warrant Shares
otherwise receivable on such exercise, the amount of securities, indebtedness,
assets (including cash in the case referred to in subdivision (iii) of this
Section 6(b)) and such rights, options, warrants or convertible or exchangeable
securities which such Holder would hold on the date of such exercise if on the
date of this Agreement such Holder had been the holder of record of the number
of shares of Common Stock called for by the Warrants held by such Holder and had
thereafter, during the period from the date of this Agreement to and including
the date of such exercise, retained such shares, giving effect to all
adjustments called for during such period by this Section 6.
(c) ADJUSTMENTS FOR SALE OR OTHER ISSUANCE OF COMMON STOCK.
(i) If at any time prior to the exercise of the Warrants in full, the
Company shall issue or sell any Common Stock without consideration or for
consideration per share less than the Current Market Price per share (as
defined in Section 6(d)) on the date of such issuance or sale (which shall
be deemed for all purposes of this Section
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<PAGE>
6(c), in the case of Common Stock issued as all or part of the
consideration for an acquisition, to be the same as the date the
definitive agreement for such acquisition is entered into), the
Exercise Price shall be adjusted so that the Exercise Price shall
equal the price determined by multiplying the Exercise Price in
effect immediately prior to the date of such sale or issuance (which date
in the event of distribution to shareholders shall be deemed to be the
record date set by the Company to determine shareholders entitled to
participate in such distribution) by a fraction, the numerator of which
shall be (i) the number of shares of Common Stock outstanding on the date
of such sale or issuance, plus (ii) the number of additional shares of
Common Stock which the aggregate consideration received by the Company upon
such issuance or sale would purchase at such Current Market Price per share
of the Common Stock and the denominator of which shall be (i) the number of
shares of Common Stock outstanding on the date of such issuance or sale,
plus (ii) the number of additional shares of Common Stock offered for
purchase. Any adjustments required by this Section 6(c) shall be made
immediately after such issuance or sale or record date, as the case may be.
Such adjustments shall be made successively whenever the event shall occur.
(ii) For the purpose of making any adjustment in the Exercise Price,
or number of shares of Common Stock purchasable upon exercise of the
Warrants, as provided above and in Section 6(c)(vii) below, the
consideration received by the Company for any issue or sale of securities
shall: (A) To the extent it consists of cash, be computed as the gross
amount of cash received by the Company before deduction of any underwriting
or similar commissions, compensation, discounts or concessions paid or
allowed by the Company in connection with such issue or sale and before
deduction of any other expenses payable in connection therewith. (B) In
case of the issuance (otherwise than upon conversion or exchange of
Convertible Securities) or sale of additional Common Stock, Options or
Convertible Securities for a consideration other than cash or a
consideration a part of which is other than cash, then for purposes of this
Section 6(c) the fair value of such consideration as determined by the
Board of Directors of the Company in the good faith exercise of its
business judgment, regardless of the accounting treatment thereof, shall be
deemed to be the value of the consideration other than cash received by the
Company for such securities.
(iii) OPTIONS AND CONVERTIBLE SECURITIES. If the Company in any
manner issues or grants any Options or any Convertible Securities -- but
only to the extent (i) such Options are exercisable at less than the
Current Market Price at the date of issue of such Options or (ii) the
amount paid for such Convertible Securities per share plus any additional
amount payable per share upon conversion thereof is less than the Current
Market Price per share at the date of issue of the Convertible Securities
-- the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities at the time such Convertible
Securities first become convertible
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<PAGE>
or exchangeable shall (as of the date of issue or grant of such Options
or, in the case of the issue or sale of Convertible Securities other than
where the same are issuable upon the exercise of Options, as of the date
of such issue or sale) be deemed to be issued and to be outstanding for
the purpose of this Section 6(c) and to have been issued for the sum of
the amount (if any) paid for such Options or Convertible Securities and
the amount (if any) payable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities at the time such
Convertible Securities first become convertible or exchangeable; provided
that, subject to the other provisions of this Section 6(c), no further
adjustment of the Exercise Price shall be made upon the actual issuance
of any such Common Stock or Convertible Securities or upon the conversion
or exchange of any such Convertible Securities.
(iv) CHANGE IN OPTION PRICE OR CONVERSION RATE. If the purchase
price provided for in any Option referred to in Section 6(c)(iii), or the
rate or price at which any Convertible Securities referred to in Section
6(c)(iii) are convertible into or exchangeable for shares of Common Stock,
shall change at any time (other than under or by reason of conventional
provisions designed to protect against dilution), the Exercise Price in
effect at the time of such event shall forthwith be readjusted -- but only
to the extent such change does not result in either the per share Option
exercise price or the amount per share payable for such Convertible
Securities plus the amount payable per share on the conversion of such
Convertible Securities to be greater than the lesser of the Current Market
Price per share at the time such Options or Convertible Securities were
issued, as referred to in Section 6(c)(iii), or the Current Market Price at
the effective date of such change -- to the Exercise Price that would have
been in effect at such time had such Options or Convertible Securities then
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. If the purchase price provided for in any such
Option, or the additional consideration (if any) payable upon the
conversion or exchange of any such Convertible Securities, or the rate or
price at which any such Convertible Securities are convertible into or
exchangeable for shares of Common Stock shall be changed at any time under
or by reason of conventional provisions designed to protect against
dilution, then in case of, but only to the extent of, the delivery of
shares of Common Stock upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Security, the Exercise Price
then in effect hereunder shall, upon issuance of such shares of Common
Stock, be adjusted -- but only to the extent such change does not result in
either the per share Option exercise price or the amount per share payable
for such Convertible Securities plus the amount payable per share on the
conversion of such Convertible Securities to be greater than the Current
Market Price per share at the time such Options or Convertible Securities
were issued, as referred to in Section 6(c)(iii) -- to such amount as would
have obtained had such Option or Convertible Security never been issued and
had adjustments been made based only upon the issuance of the shares
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<PAGE>
of Common Stock for the consideration actually received for such Option or
Convertible Security and such Common Stock.
(v) EXPIRATION OF OPTION OR CONVERSION RIGHTS. In the event of the
termination or expiration of any right to purchase Common Stock under any
Option or of any right to convert or exchange Convertible Securities, the
Exercise Price shall, upon such termination, be changed to the Exercise
Price that would have been in effect at the time of such expiration had
such Option or Convertible Security, to the extent outstanding immediately
prior to such expiration, never been issued. As used in this Section
6(c)(v), the word "expiration" includes a termination, without payment of
consideration by the Company, of a right to purchase, convert or exchange.
(vi) EXCLUDED EVENTS. Notwithstanding anything in this Section 6 to
the contrary, the Exercise Price shall not be adjusted by virtue of (i) the
Warrants or the existence or exercise of any Options of the Company
outstanding on the date hereof and disclosed in the Prospectus or (ii) the
issuance or sale of, or the grant of Options to purchase, Common Stock to
employees, directors, or officers of the Company or its subsidiaries, or to
other persons who do not beneficially own more than one percent of the
Common Stock (assuming for this purpose that all Options then held by the
person, including new options then being granted, but no other Option or
Convertible Securities, have then been exercised in full) and are not the
children of such a one percent or greater shareholder or the spouses of
such children, pursuant to stock option plans currently existing or
hereafter approved by the Board of Directors of the Company, provided that
the exercise price is no less than the lower of fair market value at the
time of grant (as determined in accordance with the applicable stock option
plan) or the Current Market Price at the time of grant (all as determined
in accordance with this Section 6(c)).
(vii) ADJUSTMENT IN NUMBER OF WARRANT SHARES. Whenever the Exercise
Price payable upon exercise of a Warrant is adjusted pursuant to this
Section 6(c), the Warrant Shares issuable on exercise of the Warrant shall
simultaneously be adjusted by multiplying the number of the Warrant Shares
issuable upon exercise of the Warrant immediately prior to such event by
the Exercise Price in effect on the date thereof and dividing the product
so obtained by the Exercise Price, as adjusted.
(d) CURRENT MARKET PRICE. For the purpose of any computation under Section
6, the "Current Market Price" per share of Common Stock at any date shall be the
average of the daily closing prices for the 15 consecutive trading days
commencing 20 trading days before such date. The closing price for each day
shall be the last reported sale price, regular way or, in case no such reported
sale takes place on such day, the average of the closing bid and asked prices,
regular way, for such day, in either case on the principal national securities
exchange on which the shares are listed or admitted to trading, or if they are
not listed or admitted to
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<PAGE>
trading on any national securities exchange, but are traded in the NNM, or if
the shares are otherwise securities for which transaction reports are
required to be made on a real-time basis pursuant to an effective transaction
reporting plan under Rule 11a3-1 of the Rules of the Commission under the
Exchange Act, the last reported sales price or, if they are not listed or
admitted to trade, and if last sale data is not then available from NNM, but
are traded in the over-the-counter market, the average of the representative
closing bid and asked quotations for the Common Stock on NNM or any
comparable system, or if the Common Stock is not listed on NNM or a
comparable system, the average of the closing bid and asked prices as
furnished by two members of the National Association of Securities Dealers,
Inc. selected from time to time by the independent members of the Board of
Directors of the Company for that purpose.
(e) MINIMUM ADJUSTMENT. No adjustment in the number of Warrant Shares
purchasable hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent in the number of Warrant Shares
purchasable upon the exercise of each Warrant. No adjustment in the Exercise
Price payable hereunder shall be required unless such adjustment would require
an increase or decrease in the Exercise Price of at least $.01 per share. Any
adjustments that by reason of this Section 6(e) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment
and, notwithstanding the foregoing, all adjustments so carried forward shall be
made at the time of, and in connection with, each exercise of any of the
Warrants. All calculations shall be made to the nearest one-thousandth of a
share, or cent, as the case may be.
(f) OTHER SECURITIES. If at any time, as a result of an adjustment made
pursuant to this Section 6, the Holders shall become entitled to purchase any
shares of capital stock or Other Securities of the Company other than shares of
Common Stock, thereafter the number of such Other Securities so purchasable upon
exercise of each Warrant and the Exercise Price for such securities shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant Shares
contained in this Section 6; and the provisions of Sections 3, 4, 5 and 7,
inclusive, with respect to the Warrant Shares, shall apply on like terms to any
such Other Securities.
(g) CONSOLIDATIONS, MERGERS AND OTHER TRANSACTIONS. In case of any
consolidation of the Company with or merger of the Company into another
corporation or entity or in case of any sale or conveyance to another
corporation or entity of the property of the Company as an entirety or
substantially as an entirety, the Company or such successor or purchasing
corporation or entity, as the case may be, shall execute a binding agreement
agreeing that each Holder shall have the right thereafter upon payment of the
Exercise Price in effect immediately prior to such action to purchase upon
exercise of each Warrant the kind and amount of shares and other securities and
property which the Holder would have owned or have been entitled to receive
after the happening of such consolidation, merger, sale or conveyance had such
Warrant been exercised immediately prior to such action. The Company shall not
complete any such consolidation, merger, sale or conveyance unless the agreement
referred to in the
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<PAGE>
foregoing sentence is executed and delivered, is binding and the mailing
thereof provided for in the next sentence is done at the time of such
completion. The Company shall mail by first class mail, postage prepaid, to
each Holder, notice of the execution of and a copy of such agreement. Such
agreement shall provide for adjustments, which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Section 6 and
for other protections and rights (including without limitation registration
rights) for the Holders as are as nearly equivalent as may be practical to
those they have under this Warrant Agreement. The provisions of this Section
6 shall similarly apply to successive consolidations, mergers, sales or
conveyances. Each Holder of Warrants shall be under no duty or responsibility
to determine the correctness of any provisions contained in any such
agreement relating either to the kind or amount of shares of stock or Other
Securities or property receivable upon exercise of Warrants or with respect
to the method employed and provided therein for any adjustments.
(h) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price or the kind or
amount of securities purchasable under the Warrants shall be adjusted pursuant
to any of the provisions of this Warrant Agreement, the Company shall forthwith
thereafter cause to be sent to SMM and all other Holders a certificate setting
forth the adjustments in the Exercise Price and the number of shares and, in
addition, setting forth in detail the facts requiring such adjustments. In
addition, the Company at its expense shall within 90 days following the end of
each of its fiscal years during the term of this Agreement and promptly upon the
reasonable request of the Holders of at least ten percent of the Warrants in
connection with the exercise from time to time of all or any portion of any
Warrants, cause independent public accountants of nationally recognized standing
selected by the Company to compute any such adjustment in accordance with the
terms of the Warrants and prepare and deliver to the Holders a certificate
setting forth such adjustment and showing in detail the facts upon which the
adjustment is based.
(i) NOTICE OF CERTAIN EVENTS. In the event of (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any Other Securities or property, or to
receive any other right or (ii) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all of the assets of the Company to, or
consolidation or merger of the Company with or into, any other corporation or
other entity or (iii) any voluntary or involuntary dissolution or liquidation of
the Company, then and in each such event the Company will mail or cause to be
mailed to each Holder and, in addition, on the same date as the earliest such
mailing, telecopied and mailed to SMM, a notice specifying the date upon which
any such record date is to be taken for the purpose of such dividend,
distribution or right, stating the amount and character of such dividend,
distribution or right and the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place and the time, if any, as
of which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of
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<PAGE>
Common Stock (or Other Securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding-up.
Such notice shall be mailed at least 15 business days prior to the proposed
record date therefor.
(j) OTHER EVENTS ALTERING EXERCISE PRICE. Upon the occurrence of any
event not specifically denominated in this Section 6 as altering the Exercise
Price and the amount of Common Stock purchasable upon the exercise of the
Warrants, if the reasonable exercise of the business judgment of the independent
members of the Board of Directors of the Company (or, if none, the Board of
Directors or the Company) requires, on equitable principles, the alteration of
the Exercise Price favorable to Holders and/or corresponding adjustment
favorable to Holders to the number of shares for which the Warrants are
exercisable, the Exercise Price and such number of shares shall be equitably
altered.
7. FURTHER COVENANTS OF THE COMPANY. The Company hereby agrees as
follows:
(a) RESERVATION OF STOCK. The Company shall at all times reserve and keep
available, solely for issuance and delivery upon the exercise of the Warrants,
all Warrant Shares from time to time issuable upon the exercise of the Warrants.
(b) TITLE TO STOCK. All of the Warrant Shares delivered upon the exercise
of the Warrants and payment of the Exercise Price (including for the purpose by
a net exercise of Warrants as permitted by Section 4(c)) shall be validly
issued, fully paid and nonassessable; each Holder of a Warrant shall receive
good and marketable title to the Warrant Shares, free and clear of all voting
and other trust arrangements, liens, encumbrances, equities, preemptive rights
and, without limitation, claims of any type whatsoever; and the Company shall
have paid all taxes, if any, in respect of the issuance thereof.
(c) EXCHANGE OF WARRANTS. Subject to Section 3(a) hereof, upon surrender
for exchange of any Warrant to the Company, the Company at its expense will
promptly issue and deliver to the Holder thereof a new Warrant or Warrants of
like tenor, in the name of such Holder, calling in the aggregate for the number
of Warrant Shares called by the Warrants so surrendered.
(d) REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
Warrants and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity agreement by the Warrant Holder reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, upon surrender
by the Holder and cancellation of such Warrants, the Company at its expense will
execute and deliver, in lieu thereof, new Warrants of like tenor.
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(e) REPORTING BY THE COMPANY. The Company agrees that, during the term of
the Warrants, it will use its best efforts to keep current in the filing of all
forms and other materials which it may be required to file with the appropriate
regulatory authority pursuant to the Exchange Act and all other forms and
reports required to be filed with any regulatory authority having jurisdiction
over the Company. The Company will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable such
Holder to sell Warrant Shares without registration under the Act within the
limitation of the exemptions provided by (a) Rule 144 under the Act, as such
Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the Commission.
8. OTHER HOLDERS. The Warrants are issued upon the following terms, to
all of which each Holder or owner thereof by the taking thereof consents and
agrees: (a) any person who shall become a transferee, within the limitations on
transfer imposed by Section 3(a) hereof, of a Warrant properly endorsed, shall
take such Warrant subject to the provisions of Sections 3(a) and 3(b) hereof and
thereupon shall be authorized to represent that such transferee is the absolute
owner thereof and, subject to the restrictions contained in this Warrant
Agreement, shall be empowered to transfer absolute title by endorsement and
delivery thereof to a permitted bona fide purchaser for value; and (b) each
prior taker or owner waives and renounces all equities or rights in such Warrant
in favor of each such permitted bona fide purchaser, and each such permitted
bona fide purchaser shall acquire absolute title thereto and to all rights
presented thereby; and (c) until such time as the respective Warrant is
transferred on the books of the Company, the Company may treat the registered
Holder thereof as the absolute owner thereof for all purposes, notwithstanding
any notice to the contrary.
9. GENERAL PROVISIONS. All notices, certificates and other communications
from or at the request of the Company to the Holder of any Warrant or Warrant
Share as such shall be mailed by first class, registered or certified mail,
postage prepaid to the Holder, with a copy to Sanders Morris Mundy INc., 3100
Texas Commerce Tower, Houston, Texas 77002, Attn.: President, or to such other
address for itself as shall have furnished to the Company in writing. This
Warrant Agreement and any of the terms hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought. In
addition and notwithstanding the foregoing, the provisions of Section 3(c) and
(d) and Section 6 hereof cannot be changed, waived, discharged or terminated in
a manner adverse to the Holders without the written consent of one or more
Holder or Holders who collectively own, of record, that number of Warrants
and/or Warrant Shares which in the aggregate shall constitute two-thirds of all
Warrant Shares issued or issuable under this Agreement (excluding Warrant Shares
which have been previously sold, transferred or otherwise disposed of in a
registered public offering, pursuant to Rule 144 under the Act, as such Rule may
be amended from time to time, or pursuant to Regulation S, as such regulation
may be amended from time to time). The headings in this Warrant Agreement are
for purposes of reference only and shall not limit or otherwise affect any of
the terms hereof. This Warrant Agreement, together with the forms of
instruments annexed hereto, supersedes all prior negotiations and all prior
written and prior
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<PAGE>
and contemporaneous oral agreements, representations, warranties and
inducements and constitutes the full and complete agreement of the parties
hereto with respect to the subject matter hereof.
10. GOVERNING LAW. THIS WARRANT AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS, AND NOT THE LAW PERTAINING TO
CHOICE OR CONFLICT OF LAWS, OF THE STATE OF TEXAS.
U S LIQUIDS INC.
By: /s/ W. GREGORY ORR
------------------------------
Name: W. Gregory Orr
Title: President
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
SANDERS MORRIS MUNDY INC.
By: /s/ BRUCE R. McMAKEN
------------------------------
Name: Bruce R. McMaken
Title: Vice President
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<PAGE>
FORM OF WARRANT
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE CONDITIONS
SPECIFIED IN A WARRANT AGREEMENT, DATED MAY 15, 1997, AMONG THE COMPANY, AND
SANDERS MORRIS MUNDY INC. EXCEPT TO THE EXTENT PERMITTED BY THE WARRANT
AGREEMENT, NO TRANSFER, SALE, PLEDGE, HYPOTHECATION, ENCUMBRANCE OR OTHER
DISPOSITION OF THESE WARRANTS OR THE SHARES OF COMMON STOCK OF THE COMPANY
ACQUIRED ON EXERCISE OF THESE WARRANTS SHALL BE VALID OR EFFECTIVE UNTIL
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (OR, IF APPLICABLE, A
SUCCESSOR LAW THERETO) OR THE COMPANY HAS BEEN PRESENTED WITH SATISFACTORY
EVIDENCE THAT THESE WARRANTS OR SUCH SHARES OF COMMON STOCK WILL BE TRANSFERRED
IN A TRANSACTION EXEMPT FROM SUCH REGISTRATION AND UNTIL ANY APPLICABLE
CONDITIONS CONTAINED IN THE WARRANT AGREEMENT HAVE BEEN FULFILLED. A COPY OF
THE WARRANT AGREEMENT IS ON FILE AT THE OFFICES OF THE COMPANY. THE HOLDER OF
THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY THE
PROVISIONS OF THE WARRANT AGREEMENT.
No. ______________
Warrant to Purchase up to ______ Shares of Common Stock
EXERCISABLE COMMENCING 9:00 A.M., LOS ANGELES TIME, ON MAY 15,
1997 AND ENDING 5:00 P.M., LOS ANGELES TIME,
ON MAY 15, 2002
U S LIQUIDS INC.
COMMON STOCK PURCHASE WARRANT
This certifies that ___________________________, or registered assigns,
is the holder (the "Holder") of this Warrant to purchase, subject to adjustment,
the number of fully paid and nonassessable shares set forth above (the "Warrant
Shares") of Common Stock, par value $.01 per share (the "Common Stock"), of
U S Liquids Inc., a Delaware corporation (the "Company"), at the
per share exercise price, subject to adjustment (the "Exercise Price"), set
forth in the Warrant Agreement, dated August __, 1997 (the "Warrant Agreement"),
among the Companyand Sanders Morris Mundy Inc., at any time prior to the
Expiration Date (defined below), by surrendering this Warrant, with the form of
subscription set forth hereon duly executed, to the Company at the Company's
offices at 411 N. Sam Houston Parkway East, Ste. 400, Houston, TX 77060-3545 or
at such other office or agency as the Company may designate and by paying in
full, in the manner provided in Section 4 of the Warrant Agreement, the Exercise
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<PAGE>
Price for the Warrant Shares then purchased. Payment of the Exercise Price may
be made in cash or by cashier's check payable to the order of the Company, or by
surrender of a portion of this Warrant as provided in Section 4(c) of the
Warrant Agreement.
This Warrant may be exercised at any time and from time to time, in
whole or in part, at the option of the Holder, commencing 9:00 a.m., Los Angeles
time, on May 15, 1997 until 5:00 p.m., Los Angeles time, on May 15, 2002 (the
"Expiration Date"). Upon the purchase of fewer than all of the Warrant Shares,
there shall be issued to the Holder a new Warrant exercisable for the number of
Warrant Shares for which this Warrant has not been exercised or surrendered as
payment. Prior to the Expiration Date, the Holder shall be entitled to exchange
this Warrant, without charge, for another Warrant or Warrants exercisable for
the same aggregate number of Warrant Shares.
Prior to the Expiration Date, subject to any applicable laws restricting
transferability and to any restriction on transferability that may appear on
this Warrant or in the Warrant Agreement, the Holder shall be entitled to
transfer this Warrant upon delivery thereof, duly endorsed by the Holder or by
his, her or its duly authorized attorney or representative, or accompanied by
proper evidence of succession, assignment or authority to transfer, with the
form of assignment set forth hereon duly executed. Upon any such transfer, a
new Warrant or Warrants exercisable for the same aggregate number of Warrant
Shares will be issued by the Company, without charge, in accordance with
instructions in the form of assignment.
This Warrant is issued under and in accordance with the Warrant
Agreement and, except as otherwise provided in this Warrant, is subject to the
terms and provisions contained therein. Upon certain events provided for in the
Warrant Agreement, the Exercise Price and the number of shares of Common Stock
issuable upon the exercise of this Warrant are subject to adjustment. No
fractional shares will be issued upon the exercise of a Warrant. Instead, the
Company shall pay the value of such fractional share to the Holder in cash, as
provided in the Warrant Agreement.
THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS AND NOT THE LAW PERTAINING TO CHOICE OR CONFLICT OF LAWS, OF THE
STATE OF TEXAS.
In witness whereof, the Company has caused this Warrant to be duly
executed.
U S LIQUIDS INC.
By:
-----------------------------
Name:
Title:
-28-
<PAGE>
Attest:
---------------------------------
Name:
Title:
-29-
<PAGE>
ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise this Warrant to
purchase ______________ shares of Common Stock, acknowledges that it will not
dispose of such shares except in compliance with Section 3(b) of the Warrant
Agreement and the Securities Act of 1933, as amended, and requests that
Certificates for such shares be issued and delivered as follows:
Issue to:
------------------------------------------------------------------
(Name)
------------------------------------------------------------------
(Address, including Zip Code)
------------------------------------------------------------------
(Social Security or Tax Identification Number)
Deliver to:
------------------------------------------------------------------
(Name)
------------------------------------------------------------------
(Address, including Zip Code)
In full payment of the aggregate purchase price with respect to the number
of shares being purchased upon exercise of this Warrant, the undersigned hereby
(check applicable payment method): (i) / / tenders payment of $_________ by
cashier's check payable to the order of U S Liquids Inc. or (ii) / / hereby
surrenders to the Company, Warrants to purchase ________ shares of Common Stock.
If the Warrant is exercised hereby (and, if applicable, surrendered to purchase
shares of Common Stock) so as to purchase fewer than all the shares of Common
Stock that may be purchased pursuant to this Warrant, the undersigned requests
that a new Warrant representing the number of full shares for which the Warrant
has not been exercised or surrendered be issued and delivered as set forth
below.
Name of Warrant holder or Assignee:
------------------------------------------------------
(Please Print)
-30-
<PAGE>
Address:
- ------------------------------
- ------------------------------
Signature Dated:
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant)
-31-
<PAGE>
ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers
unto the Assignee named below all of the rights of the undersigned represented
by the within Warrant, with respect to the number of shares of Common Stock set
forth below:
No. of Shares of Taxpayer I.D.
Name of Assignee Address Common Stock Number
---------------- ------- ---------------- -------------
and does hereby irrevocably authorize the Company to make such transfer on the
Warrant Register maintained at the principal office of the Company and, if
applicable, to issue to the undersigned a Warrant for the portion of such
Warrant not so sold, assigned or transferred.
Dated:
---------------------- --------------------------------------
Signature
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant).
-32-
<PAGE>
NO SALE, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THIS
WARRANT OR THE SHARES PURCHASABLE HEREUNDER MAY BE MADE
EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION THEREFROM.
U S LIQUIDS INC.
WARRANT TO PURCHASE 45,000
SHARES OF COMMON STOCK
This Warrant is being issued in connection with that certain letter
agreement, dated June 23, 1997 (the "Service Agreement"), between U S Liquids
Inc., a Delaware corporation ("Company"), and Bellmeade Capital Partners,
L.L.C. ("Bellmeade"). During the Exercise Period (as defined in Section 3),
and subject to the terms and conditions set forth below, for value received,
Bellmeade is entitled to purchase from Company, forty-five thousand (45,000)
fully paid and nonassessable shares of Company's common stock, par value
$0.01 per share ("Common Stock"), at the Exercise Price per share set forth
in Section 1 (subject to adjustment as provided below). Holder shall be
entitled to receive such shares of Common Stock upon (i) surrender to Company
at Company's principal office at 411 N. Sam Houston Parkway East, Suite 400,
Houston, TX 77060-3534 (or at such other location as Company may notify
Holder) of this Warrant, properly endorsed with the attached Notice of
Exercise Form filled in and signed, and (ii) payment of the aggregate
Exercise Price (as defined in Section 1) for the number of shares for which
this Warrant is being exercised.
This Warrant is subject to the following further terms and
conditions:
1. EXERCISE PRICE; NUMBER OF SHARES.
1.1. INITIAL EXERCISE PRICE. The initial per share exercise price
pursuant to this Warrant shall be the price at which shares of Common Stock
are offered to the public in the Company's initial public offering of Common
Stock pursuant to an effective registration statement filed with the
Securities and Exchange Commission. Such exercise price shall be subject to
adjustment pursuant to Section 1.2. Such exercise price, as adjusted from
time to time in accordance with Section 1.2, is referred to as the "Exercise
Price."
<PAGE>
1.2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER/KIND OF SHARES. The
Exercise Price and the number of and kind of securities purchasable upon
exercise of this Warrant shall be subject to adjustment from time to time as
follows:
(i) SUBDIVISIONS; COMBINATIONS; OTHER ISSUANCES. If the
outstanding shares of Common Stock shall be subdivided (by stock split, stock
dividend, or otherwise) into a greater number of shares of Common Stock, then
concurrently with the effectiveness of such subdivision the number of shares
of Common Stock purchasable hereunder shall be proportionately increased and
the Exercise Price shall be proportionately decreased. If the outstanding
shares of Common Stock shall be combined or consolidated (by reclassification
or otherwise) into a lesser number of shares of Common Stock, then
concurrently with the effectiveness of such combination or consolidation the
number of shares of Common Stock purchasable hereunder shall be
proportionately decreased and the Exercise Price shall be proportionately
increased.
(ii) RECAPITALIZATION. If a distribution (other than a cash
dividend or a dividend payable in property other than Common Stock) shall be
paid in respect of the Common Stock, or if there shall occur any
reclassification, capital reorganization, or recapitalization of Company
affecting the Common Stock (other than a change in par value or a subdivision
or combination described in Section 1.2(i)), or if there shall occur any
consolidation or merger of Company with or into another entity, then (as part
of any such distribution, reclassification, reorganization, recapitalization,
consolidation, or merger) provision shall be made so that the holder of this
Warrant shall have the right thereafter to receive upon exercise of this
Warrant the kind and number of shares of stock, other securities, or property
which such holder would have been entitled to receive if immediately prior to
such distribution, reclassification, reorganization, recapitalization,
consolidation, or merger such holder had held the shares of Common Stock
which were then purchasable upon exercise of this Warrant. In any such case,
appropriate adjustment shall be made (as determined by Company's Board of
Directors in its sole discretion) in the application of the provisions of
this Warrant with respect to the rights and interests of the holder so that
the provisions of this Warrant (including provisions with respect to
adjustment of the Exercise Price) shall thereafter be applicable, as nearly
as practicable, to any shares of stock, other securities, or property
thereafter purchasable upon exercise of this Warrant.
1.3. REQUIRED NOTIFICATIONS. (i) If at any time Company shall
declare a cash dividend or stock dividend upon its Common Stock, or shall
make any special dividend or other distribution to the holders of its Common
Stock, then Company shall give notice to the holder of this Warrant at least
seven (7) days prior to the date on which a record shall be taken for such
dividend or distribution, which notice shall specify the date (if any) on
which the holders of Common Stock shall be entitled to any such dividend or
distribution.
(ii) If at any time there shall be any reorganization or
reclassification of Company's capital stock, or any consolidation or merger
of Company with, or sale of all or substantially all of Company's assets to,
another entity, or a voluntary or involuntary dissolution, liquidation, or
winding-up of Company, then Company shall give notice to the holder of this
Warrant at least
-2-
<PAGE>
seven (7) days prior to the date on which Company's books shall close or the
date on which a record shall be taken for determining rights to vote in
respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding-up. Such notice shall also
specify the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding-up.
2. PAYMENT OF EXERCISE PRICE. Payment for shares of Common Stock
purchasable upon exercise of this Warrant may be made in the form of (i)
cash, certified check or other immediately available funds for the aggregate
Exercise Price for such shares of Common Stock, (ii) the exchange of a number
of shares of Common Stock owned by the holder, free and clear of all liens or
encumbrances, the Fair Market Value (defined below) of which at the time of
exercise is equal to the aggregate Exercise Price of such shares, accompanied
by executed stock powers and any other documents of transfer requested by the
Company, (iii) the relinquishment of Warrant Shares (defined below), which
Warrant Shares shall be deemed to have a value equal to the aggregate Fair
Market Value of such Warrant Shares less the aggregate Exercise Price of such
Warrant Shares, or (iv) a combination of (i), (ii) or (iii). For purposes of
this Section 2, the term "Fair Market Value", as of a particular day, means
(a) if the shares of Common Stock are then listed or admitted for trading on
a national securities exchange or quoted on the National Association of
Securities Dealers Automated Quotation System, the last reported sales price
or the average of the closing bid and ask prices, as applicable, of the
Common Stock on the last trading day before such date, or (b) if the shares
of Common Stock are not then listed or admitted for trading on a national
securities exchange or quoted on the National Association of Securities
Dealers Automated Quotation System, such value as the entire Board of
Directors of the Company, in its absolute discretion, may determine in good
faith. For purposes of this Section 2, the term "Warrant Shares" means
shares of Common Stock issuable upon exercise of this Warrant.
3. CONDITIONS TO EXERCISE; EXERCISE PERIOD. This Warrant shall
be exercisable only if Bellmeade shall not have breached its obligations
under the Service Agreement. This Warrant shall be exercisable only during
the period ("Exercise Period") beginning on the first business day after
December 23, 1997 and ending at the close of business on the fifth
anniversary of the execution date of this Warrant, at which time any
unexercised portion of this Warrant shall expire and become null and void.
Notwithstanding anything to the contrary herein, the Company may, at its sole
discretion, terminate the Service Agreement and rescind this Warrant if an
initial public offering of the Common Stock has not been completed by
December 31, 1998 by giving written notice thereof to Bellmeade. Immediately
upon the giving of such notice, this Warrant shall become null and void.
4. RECORD DATE; CERTIFICATES; ETC. Any shares of Common Stock
purchased upon exercise of this Warrant shall be deemed to have been issued
to the holder thereof as of the close of business on the date of exercise.
Subject to Section 5, certificates for the shares of Common Stock so
purchased shall be delivered to the holder thereof promptly after exercise.
The stock
-3-
<PAGE>
certificates so delivered shall be in denominations requested by the holder
of this Warrant and shall be registered in such holder's name. Upon partial
exercise of this Warrant, a new warrant shall promptly be issued to the
holder of this Warrant, representing the right to purchase the number of
shares of Common Stock with respect to which this Warrant shall not have been
exercised.
5. RESTRICTIONS ON TRANSFER. This Warrant and the rights
hereunder are not transferable unless and until Bellmeade shall have fully
and completely performed all of its obligations under the Service Agreement;
provided, however, that, subject to the remaining provisions of this Section
5, the Warrant may be divided among the principals of Bellmeade at their
discretion. Further, holder shall not offer, sell, pledge, hypothecate, or
otherwise dispose of this Warrant unless such offer, sale, pledge,
hypothecation, or other disposition (i) is registered under the Securities
Act of 1933, as amended (the "Securities Act"), (ii) is in compliance with an
opinion of counsel, addressed to Company or upon which Company is authorized
to rely ("Opinion of Counsel"), to the effect that such offer, sale, pledge,
hypothecation, or other disposition does not violate the Securities Act, or
(iii) is in compliance with an Opinion of Counsel that the transaction
complies with Rule 144 promulgated by the Securities and Exchange Commission
("Rule 144"). Subject to the foregoing, transfer of this Warrant shall be
made by holder at Company's principal office (or at such other location as
Company may notify holder) by holder in person or by his duly authorized
attorney, upon surrender of this Warrant properly endorsed, with the attached
Registration of Assignment completed. Unless the securities transferred are
no longer "restricted securities" as defined under Rule 144, the
permissibility of transfers pursuant to this Section 5 shall be conditioned
upon such transferee making in writing to Company the covenant set forth in
the second sentence of this Section 5. All expenses of transfer including,
without limitation, transfer taxes and attorneys' fees, whether incurred by
the Company or the transferor, shall be borne by the transferor.
6. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. All shares of
Common Stock issued upon exercise of this Warrant, in accordance with the
terms of this Warrant, shall be duly authorized, validly issued, fully paid,
nonassessable, and free from preemptive rights. During the Exercise Period,
Company will have authorized and reserved for issuance or transfer upon
exercise of this Warrant, a sufficient number of shares of authorized but
unissued Common Stock, free from preemptive rights, when and as required to
provide for exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY.
Nothing contained in this Warrant shall be construed as conferring upon
holder the right to vote as a stockholder or to consent or to receive notice
as a stockholder in respect of meetings of Company's stockholders for
election of directors or for other matters. Nothing contained in this
Warrant shall be construed as conferring upon holder any other right as a
stockholder of Company. No dividend or interest shall be payable or accrued
in respect of this Warrant or the stock reserved for issuance in connection
herewith until, and only to the extent that, this Warrant shall have been
exercised. In the absence of affirmative action by holder to purchase shares
of Common Stock, no provision
-4-
<PAGE>
of this Warrant and no enumeration in this Warrant of holder's rights or
privileges, shall give rise to any liability of holder for the Exercise Price.
8. AMENDMENT; WAIVER. This Warrant may not be amended or
otherwise modified without the prior written consent of the Company and the
then registered holder of this Warrant.
9. NOTICES. All notices, approvals, consents, requests, demands,
and other communications in connection with this Warrant shall be in writing
and shall be deemed to have been duly given (i) when delivered personally,
(ii) three days after deposit in the U.S. mail (registered or certified
mail), postage prepaid, or (iii) when sent by facsimile machine with machine
or other confirmation of delivery, as follows:
(a) If to Company, to:
411 N. Sam Houston Parkway East,
Suite 400
Houston, TX 77060-3534
Fax No.: (281) 272-4545
Attention: President
(b) If to Bellmeade Capital Partners, L.L.C., to:
808 Travis, Suite 920
Houston, TX 77002
Fax No.: (713) 227-5551
Attention: J.C. Brewster
If to any subsequent holder of this Warrant, to it at such address or fax
number as may have been furnished to Company in writing by such subsequent
holder. If no address has been furnished to Company by such subsequent
holder, Company shall deliver any notice to the subsequent holder in care of
the previous holder at the address provided to Company in accordance with
this Warrant. Company and any holder of this Warrant may change their
respective addresses for purposes of notice hereunder by notice to the other
party in accordance with this Section.
10. BENEFITS OF AGREEMENT. Nothing in this Warrant shall be
construed to give to any person or entity other than Company and the
registered holder of this Warrant any legal or equitable right, remedy or
claim under this Warrant. This Warrant shall be for the sole and exclusive
benefit of Company and the registered holder of the Warrant.
11. SECTION HEADINGS; APPLICABLE LAW. The section headings in
this Warrant are for reference purposes only and are not intended to affect
the meaning or construction of this Warrant.
-5-
<PAGE>
THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF TEXAS.
12. LOST WARRANT. Upon receipt of evidence reasonably satisfactory
to Company of the loss, theft, destruction, or mutilation of this Warrant,
Company will make and deliver a new warrant, of like tenor, in lieu of the
lost, stolen, destroyed, or mutilated Warrant; provided that (i) upon any
such loss, theft, or destruction, holder shall provide Company with an
indemnity and/or bond reasonably satisfactory to Company, and (ii) upon any
such mutilation, holder shall surrender this Warrant for cancellation.
Holder shall indemnify Company for any liability arising from replacement of
this Warrant.
13. FRACTIONAL SHARES. No fractional shares shall be issued or
accepted by the Company upon exercise of this Warrant. In lieu of issuing a
fractional share, Company shall pay holder in cash a sum equal to the
applicable fraction multiplied by the per share Exercise Price.
IN WITNESS WHEREOF, Company has caused this Warrant to be duly
executed as of June 23, 1997.
U S Liquids Inc.
By: /s/ W. Gregory Orr
------------------------------------
W. Gregory Orr, President
ATTEST:
By: /s/ Earl J. Blackwell
------------------------------------
Earl J. Blackwell, Secretary
(Corporate Seal)
-6-
<PAGE>
NOTICE OF EXERCISE FORM
(To be signed only upon exercise of Warrant)
To U S Liquids Inc.:
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, _______________________________(_________) (*)
shares of Common Stock of U S Liquids Inc. The undersigned hereby elects
to pay for such shares pursuant to clause ___(**) of Section 2 of the Warrant
and requests that certificates for such shares be issued in the name of (and
delivered to) the undersigned at the undersigned's address as follows:
----------------------------
----------------------------
The undersigned represents that it is acquiring such Common
Stock for its own account for investment and not with a view to or for sale
in connection with any distribution thereof. Further, the undersigned makes
and reiterates the representations and covenants to Company contained in
Section 5 of the Warrant as of the date of execution hereof.
Dated:
------------------- ------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant or a duly executed and delivered
Form of Assignment)
(Print Name and address)
------------------------------------------
------------------------------------------
------------------------------------------
(*) Insert the number of shares of Common Stock called for on the face of
the Warrant (or, in the case of partial exercise, the portion thereof
as to which the Warrant is being exercised), without making any
adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
(**) Insert the number of the particular clause of Section 2 describing the
payment method elected by the holder (i.e., clause (i), (ii) or (iii))
or describe the combination of such payment methods elected by the
holder.
<PAGE>
REGISTRATION OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within
Warrant, hereby sells, assigns, and transfers all of its rights under the
within Warrant, in compliance with and subject to Section 5 of the Warrant,
with respect to the number of shares of Common Stock covered thereby and set
forth below, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:
------------------ ------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
(Print name and address)
------------------------------------------
------------------------------------------
------------------------------------------
<PAGE>
NO SALE, TRANSFER, PLEDGE, OR OTHER DISPOSITION OF THIS
WARRANT OR THE SHARES PURCHASABLE HEREUNDER MAY BE MADE
EXCEPT PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION THEREFROM.
U S LIQUIDS INC.
WARRANT TO PURCHASE 20,000
SHARES OF COMMON STOCK
This Warrant is being issued in connection with that certain letter
agreement, dated June 23, 1997 (the "Service Agreement"), between U S Liquids
Inc., a Delaware corporation ("Company"), and Mark Liebovit ("Liebovit").
During the Exercise Period (as defined in Section 3), and subject to the terms
and conditions set forth below, for value received, Liebovit is entitled to
purchase from Company, twenty thousand (20,000) fully paid and nonassessable
shares of Company's common stock, par value $0.01 per share ("Common Stock"), at
the Exercise Price per share set forth in Section 1 (subject to adjustment as
provided below). Holder shall be entitled to receive such shares of Common
Stock upon (i) surrender to Company at Company's principal office at 411 N. Sam
Houston Parkway East, Suite 400, Houston, TX 77060-3534 (or at such other
location as Company may notify Holder) of this Warrant, properly endorsed with
the attached Notice of Exercise Form filled in and signed, and (ii) payment of
the aggregate Exercise Price (as defined in Section 1) for the number of shares
for which this Warrant is being exercised.
This Warrant is subject to the following further terms and conditions:
1. EXERCISE PRICE; NUMBER OF SHARES.
1.1. INITIAL EXERCISE PRICE. The initial per share exercise price
pursuant to this Warrant shall be the price at which shares of Common Stock are
offered to the public in the Company's initial public offering of Common Stock
pursuant to an effective registration statement filed with the Securities and
Exchange Commission. Such exercise price shall be subject to adjustment
pursuant to Section 1.2. Such exercise price, as adjusted from time to time in
accordance with Section 1.2, is referred to as the "Exercise Price."
<PAGE>
1.2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER/KIND OF SHARES. The
Exercise Price and the number of and kind of securities purchasable upon
exercise of this Warrant shall be subject to adjustment from time to time as
follows:
(i) SUBDIVISIONS; COMBINATIONS; OTHER ISSUANCES. If the outstanding
shares of Common Stock shall be subdivided (by stock split, stock dividend, or
otherwise) into a greater number of shares of Common Stock, then concurrently
with the effectiveness of such subdivision the number of shares of Common Stock
purchasable hereunder shall be proportionately increased and the Exercise Price
shall be proportionately decreased. If the outstanding shares of Common Stock
shall be combined or consolidated (by reclassification or otherwise) into a
lesser number of shares of Common Stock, then concurrently with the
effectiveness of such combination or consolidation the number of shares of
Common Stock purchasable hereunder shall be proportionately decreased and the
Exercise Price shall be proportionately increased.
(ii) RECAPITALIZATION. If a distribution (other than a cash dividend
or a dividend payable in property other than Common Stock) shall be paid in
respect of the Common Stock, or if there shall occur any reclassification,
capital reorganization, or recapitalization of Company affecting the Common
Stock (other than a change in par value or a subdivision or combination
described in Section 1.2(i)), or if there shall occur any consolidation or
merger of Company with or into another entity, then (as part of any such
distribution, reclassification, reorganization, recapitalization, consolidation,
or merger) provision shall be made so that the holder of this Warrant shall have
the right thereafter to receive upon exercise of this Warrant the kind and
number of shares of stock, other securities, or property which such holder would
have been entitled to receive if immediately prior to such distribution,
reclassification, reorganization, recapitalization, consolidation, or merger
such holder had held the shares of Common Stock which were then purchasable upon
exercise of this Warrant. In any such case, appropriate adjustment shall be
made (as determined by Company's Board of Directors in its sole discretion) in
the application of the provisions of this Warrant with respect to the rights and
interests of the holder so that the provisions of this Warrant (including
provisions with respect to adjustment of the Exercise Price) shall thereafter be
applicable, as nearly as practicable, to any shares of stock, other securities,
or property thereafter purchasable upon exercise of this Warrant.
1.3. REQUIRED NOTIFICATIONS. (i) If at any time Company shall
declare a cash dividend or stock dividend upon its Common Stock, or shall make
any special dividend or other distribution to the holders of its Common Stock,
then Company shall give notice to the holder of this Warrant at least seven (7)
days prior to the date on which a record shall be taken for such dividend or
distribution, which notice shall specify the date (if any) on which the holders
of Common Stock shall be entitled to any such dividend or distribution.
(ii) If at any time there shall be any reorganization or
reclassification of Company's capital stock, or any consolidation or merger of
Company with, or sale of all or substantially all of Company's assets to,
another entity, or a voluntary or involuntary dissolution, liquidation, or
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<PAGE>
winding-up of Company, then Company shall give notice to the holder of this
Warrant at least seven (7) days prior to the date on which Company's books shall
close or the date on which a record shall be taken for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, or winding-up. Such notice shall also
specify the date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up.
2. PAYMENT OF EXERCISE PRICE. Payment for shares of Common Stock
purchasable upon exercise of this Warrant may be made in the form of (i) cash,
certified check or other immediately available funds for the aggregate Exercise
Price for such shares of Common Stock, (ii) the exchange of a number of shares
of Common Stock owned by the holder, free and clear of all liens or
encumbrances, the Fair Market Value (defined below) of which at the time of
exercise is equal to the aggregate Exercise Price of such shares, accompanied by
executed stock powers and any other documents of transfer requested by the
Company, (iii) the relinquishment of Warrant Shares (defined below), which
Warrant Shares shall be deemed to have a value equal to the aggregate Fair
Market Value of such Warrant Shares less the aggregate Exercise Price of such
Warrant Shares, or (iv) a combination of (i), (ii) or (iii). For purposes of
this Section 2, the term "Fair Market Value", as of a particular day, means (a)
if the shares of Common Stock are then listed or admitted for trading on a
national securities exchange or quoted on the National Association of Securities
Dealers Automated Quotation System, the last reported sales price or the average
of the closing bid and ask prices, as applicable, of the Common Stock on the
last trading day before such date, or (b) if the shares of Common Stock are not
then listed or admitted for trading on a national securities exchange or quoted
on the National Association of Securities Dealers Automated Quotation System,
such value as the entire Board of Directors of the Company, in its absolute
discretion, may determine in good faith. For purposes of this Section 2, the
term "Warrant Shares" means shares of Common Stock issuable upon exercise of
this Warrant.
3. CONDITIONS TO EXERCISE; EXERCISE PERIOD. This Warrant shall be
exercisable only if Liebovit shall not have breached its obligations under the
Service Agreement. This Warrant shall be exercisable only during the period
("Exercise Period") beginning on the first business day after December 23, 1997
and ending at the close of business on the fifth anniversary of the execution
date of this Warrant, at which time any unexercised portion of this Warrant
shall expire and become null and void. Notwithstanding anything to the contrary
herein, the Company may, at its sole discretion, terminate the Service Agreement
and rescind this Warrant if an initial public offering of the Common Stock has
not been completed by December 31, 1998 by giving written notice thereof to
Liebovit. Immediately upon the giving of such notice, this Warrant shall become
null and void.
4. RECORD DATE; CERTIFICATES; ETC. Any shares of Common Stock
purchased upon exercise of this Warrant shall be deemed to have been issued to
the holder thereof as of the close of business on the date of exercise. Subject
to Section 5, certificates for the shares of Common Stock so purchased shall be
delivered to the holder thereof promptly after exercise. The stock certificates
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so delivered shall be in denominations requested by the holder of this Warrant
and shall be registered in such holder's name. Upon partial exercise of this
Warrant, a new warrant shall promptly be issued to the holder of this Warrant,
representing the right to purchase the number of shares of Common Stock with
respect to which this Warrant shall not have been exercised.
5. RESTRICTIONS ON TRANSFER. This Warrant and the rights hereunder
are not transferable unless and until Liebovit shall have fully and completely
performed all of his obligations under the Service Agreement. Further, holder
shall not offer, sell, pledge, hypothecate, or otherwise dispose of this Warrant
unless such offer, sale, pledge, hypothecation, or other disposition (i) is
registered under the Securities Act of 1933, as amended (the "Securities Act"),
(ii) is in compliance with an opinion of counsel, addressed to Company or upon
which Company is authorized to rely ("Opinion of Counsel"), to the effect that
such offer, sale, pledge, hypothecation, or other disposition does not violate
the Securities Act, or (iii) is in compliance with an Opinion of Counsel that
the transaction complies with Rule 144 promulgated by the Securities and
Exchange Commission ("Rule 144"). Subject to the foregoing, transfer of this
Warrant shall be made by holder at Company's principal office (or at such other
location as Company may notify holder) by holder in person or by his duly
authorized attorney, upon surrender of this Warrant properly endorsed, with the
attached Registration of Assignment completed. Unless the securities
transferred are no longer "restricted securities" as defined under Rule 144, the
permissibility of transfers pursuant to this Section 5 shall be conditioned upon
such transferee making in writing to Company the covenant set forth in the
second sentence of this Section 5. All expenses of transfer including, without
limitation, transfer taxes and attorneys' fees, whether incurred by the Company
or the transferor, shall be borne by the transferor.
6. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. All shares of
Common Stock issued upon exercise of this Warrant, in accordance with the terms
of this Warrant, shall be duly authorized, validly issued, fully paid,
nonassessable, and free from preemptive rights. During the Exercise Period,
Company will have authorized and reserved for issuance or transfer upon exercise
of this Warrant, a sufficient number of shares of authorized but unissued Common
Stock, free from preemptive rights, when and as required to provide for exercise
of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon holder the right
to vote as a stockholder or to consent or to receive notice as a stockholder in
respect of meetings of Company's stockholders for election of directors or for
other matters. Nothing contained in this Warrant shall be construed as
conferring upon holder any other right as a stockholder of Company. No dividend
or interest shall be payable or accrued in respect of this Warrant or the stock
reserved for issuance in connection herewith until, and only to the extent that,
this Warrant shall have been exercised. In the absence of affirmative action by
holder to purchase shares of Common Stock, no provision of this Warrant and no
enumeration in this Warrant of holder's rights or privileges, shall give rise to
any liability of holder for the Exercise Price.
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<PAGE>
8. AMENDMENT; WAIVER. This Warrant may not be amended or otherwise
modified without the prior written consent of the Company and the then
registered holder of this Warrant.
9. NOTICES. All notices, approvals, consents, requests, demands,
and other communications in connection with this Warrant shall be in writing and
shall be deemed to have been duly given (i) when delivered personally,
(ii) three days after deposit in the U.S. mail (registered or certified mail),
postage prepaid, or (iii) when sent by facsimile machine with machine or other
confirmation of delivery, as follows:
(a) If to Company, to:
411 N. Sam Houston Parkway East,
Suite 400
Houston, TX 77060-3534
Fax No.: (281) 272-4545
Attention: President
(b) If to Mark Liebovit
P.O. Box 1451
Sedona Arizona 86339
Fax No.: (602) 953-7993
If to any subsequent holder of this Warrant, to it at such address or fax number
as may have been furnished to Company in writing by such subsequent holder. If
no address has been furnished to Company by such subsequent holder, Company
shall deliver any notice to the subsequent holder in care of the previous holder
at the address provided to Company in accordance with this Warrant. Company and
any holder of this Warrant may change their respective addresses for purposes of
notice hereunder by notice to the other party in accordance with this Section.
10. BENEFITS OF AGREEMENT. Nothing in this Warrant shall be
construed to give to any person or entity other than Company and the registered
holder of this Warrant any legal or equitable right, remedy or claim under this
Warrant. This Warrant shall be for the sole and exclusive benefit of Company
and the registered holder of the Warrant.
11. SECTION HEADINGS; APPLICABLE LAW. The section headings in this
Warrant are for reference purposes only and are not intended to affect the
meaning or construction of this Warrant. THIS WARRANT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF TEXAS.
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12. LOST WARRANT. Upon receipt of evidence reasonably satisfactory
to Company of the loss, theft, destruction, or mutilation of this Warrant,
Company will make and deliver a new warrant, of like tenor, in lieu of the lost,
stolen, destroyed, or mutilated Warrant; provided that (i) upon any such loss,
theft, or destruction, holder shall provide Company with an indemnity and/or
bond reasonably satisfactory to Company, and (ii) upon any such mutilation,
holder shall surrender this Warrant for cancellation. Holder shall indemnify
Company for any liability arising from replacement of this Warrant.
13. FRACTIONAL SHARES. No fractional shares shall be issued or
accepted by the Company upon exercise of this Warrant. In lieu of issuing a
fractional share, Company shall pay holder in cash a sum equal to the applicable
fraction multiplied by the per share Exercise Price.
IN WITNESS WHEREOF, Company has caused this Warrant to be duly
executed as of June 23, 1997.
U S Liquids Inc.
By: /s/ W. Gregory Orr
------------------------------
W. Gregory Orr, President
ATTEST:
By: /s/ Earl J. Blackwell
--------------------------------
Earl J. Blackwell, Secretary
(Corporate Seal)
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<PAGE>
NOTICE OF EXERCISE FORM
(To be signed only upon exercise of Warrant)
To U S Liquids Inc.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ________________________________________________________
(_________) (*) shares of Common Stock of U S Liquids Inc. The undersigned
hereby elects to pay for such shares pursuant to clause ___(**) of Section 2
of the Warrant and requests that certificates for such shares be issued in
the name of (and delivered to) the undersigned at the undersigned's address
as follows:
____________________________
____________________________
The undersigned represents that it is acquiring such Common Stock for
its own account for investment and not with a view to or for sale in
connection with any distribution thereof. Further, the undersigned makes and
reiterates the representations and covenants to Company contained in Section
5 of the Warrant as of the date of execution hereof.
Dated: ___________________ _________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant or a duly executed and delivered
Form of Assignment)
(Print Name and address)
________________________________________
________________________________________
________________________________________
(*) Insert the number of shares of Common Stock called for on the face of
the Warrant (or, in the case of partial exercise, the portion thereof
as to which the Warrant is being exercised), without making any
adjustment for additional Common Stock or any other stock or other
securities or property or cash which, pursuant to the adjustment
provisions of the Warrant, may be deliverable upon exercise.
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<PAGE>
(**) Insert the number of the particular clause of Section 2 describing the
payment method elected by the holder (i.e., clause (i), (ii) or (iii))
or describe the combination of such payment methods elected by the
holder.
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REGISTRATION OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, the holder of the within Warrant,
hereby sells, assigns, and transfers all of its rights under the within
Warrant, in compliance with and subject to Section 5 of the Warrant, with
respect to the number of shares of Common Stock covered thereby and set forth
below, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- ---------------- ------- -------------
Dated: __________________ _________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
(Print name and address)
________________________________________
________________________________________
________________________________________
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made as of the 2nd day of
July, 1997, by and between U S LIQUIDS INC., a Delaware corporation (the
"Corporation"), and MICHAEL P. LAWLOR (the "Employee").
WITNESSETH:
WHEREAS, the Corporation desires to employ the Employee upon the terms and
conditions herein set forth; and
WHEREAS, the Employee desires to be so employed upon such terms and
conditions;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties agree as follows:
1. EMPLOYMENT. The Corporation shall employ the Employee, and the
Employee shall serve as Chief Executive Officer and Chairman of the Board of the
Corporation on the terms set forth herein. The employment of the Employee
hereunder by the Corporation is subject to and shall commence only on the date
that the Corporation consummates its proposed initial public offering of its
common stock. In the event such initial public offering has not been
consummated on or before December 31, 1997, then on that date this Agreement
shall terminate and shall be of no further force or effect.
2. DUTIES AND RESPONSIBILITIES.
2.1 AS CHIEF EXECUTIVE OFFICER. As Chief Executive Officer, the
Employee shall have overall responsibility for the day-to-day management of the
business and operations of the Corporation. The Employee shall directly report
to the Board of Directors of the Corporation and shall perform such duties as
are commensurate with his position as Chief Executive Officer and President.
The Employee's place of employment shall be in the Houston, Texas metropolitan
area, subject to travel necessary for the performance of his duties hereunder.
The Corporation shall provide to the Employee adequate office facilities and
staff commensurate with his position to enable him to perform his duties
hereunder.
<PAGE>
2.2 EXTENT OF SERVICES. The Employee shall devote such of his time
as is necessary to fully and properly carry out his duties and responsibilities.
However, this Agreement shall not prohibit the Employee from engaging in other
activities, whether for family, recreation, investment, civic, charity, or other
purposes, so long as those activities do not unduly interfere with the ability
of the Employee to carry out his duties and responsibilities hereunder and so
long as they are not inconsistent or competitive with the interests of the
Corporation.
2.3 DUTY OF LOYALTY. The Employee recognizes that he owes a duty of
loyalty and good faith to the Corporation (including any subsidiary thereof) and
agrees that during the term of this Agreement he will not take advantage of any
corporate opportunity of the Corporation, engage in self-dealing with the
Corporation, sell or disclose any confidential or proprietary information of the
Corporation, or have or obtain any material economic interest in any entity or
arrangement which is competitive with the business of the Corporation or engage
in any activities which are competitive with the business of the Corporation,
without first disclosing all facts and details relating thereto to the Board of
Directors and obtaining the approval of the Board of Directors.
3. BASE SALARY AND INCENTIVE COMPENSATION.
3.1 The Corporation shall pay to the Employee for the services to be
rendered by the Employee hereunder a base salary (the "Base Salary") at the rate
of $175,000 per year, payable in equal installments (subject to withholding tax)
in accordance with the Corporation's regular payroll schedule, which as of the
date of this Agreement is on the 15th day and the last day of each calendar
month. Such Base Salary as in effect from time to time may be increased
annually or more often as determined by the Board of Directors in its sole
discretion. However, the Base Salary payable to the Employee from time to time
hereunder shall not be decreased.
3.2 The Corporation will adopt an incentive compensation plan for
certain of its executive employees, including the Employee. This executive
compensation plan will be adopted no later than December 31, 1997, and will
provide for incentive bonus compensation ("Incentive Compensation") to be paid
to the Employee and the other participants in that plan based upon the
performance of the Employee and the other participants in the plan and further
based upon the results of the Corporation's business and operations.
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<PAGE>
4. STOCK OPTIONS. No later than December 31, 1997, the Corporation will
grant options to the Employee to purchase common stock of the Corporation (the
"Options"). The Options may in the discretion of the Corporation be granted as
part of a Corporation stock option plan for other employees of the Corporation,
including the Employee, or they may in the discretion of the Corporation be
granted to the Employee as a part of a stock option arrangement having only the
Corporation and the Employee as parties. In any event, the terms and the
conditions of the Options and the grant thereof shall be standard and customary
in the industry and will be on terms no less favorable than those granted after
the date hereof to any other employee who participates in any stock option
arrangement with the Corporation (except to the extent that the terms of the
Employee's participation must be varied in order to permit an Option granted to
the Employee to qualify as an incentive stock option or other kind of qualified
statutory option under the federal income tax laws). In any event, the Options
granted to the Employee shall include the following terms:
-- The Options shall be for not less than 300,000 shares of the
Corporation's common stock, subject to ordinary and customary
adjustment for any stock dividend, stock split, or similar change in
corporate capital structure.
-- The exercise price shall be the price per share at which the common
stock is sold to the public in the Corporation's initial public
offering.
-- The Options shall become exercisable in equal increments over a period
not exceeding three (3) years from the date of grant.
-- The Options shall have a term of ten (10) years.
-- Upon the death, disability, or other termination of employment of the
Employee except for termination by the Corporation for cause as
described herein, the Employee or his legal representative shall have
a reasonable period of time following termination of employment to
exercise any remaining outstanding Options.
5. BENEFITS.
5.1 EXECUTIVE BENEFITS GENERALLY. The Employee shall be entitled to
participate in and receive benefits from any insurance, medical, dental, health
and accident, hospitalization, disability, stock purchase, defined benefit,
defined contribution, or other employee benefit plan of the Corporation which
may be in effect at any time during the course of his employment with the
Corporation and which is generally available to executives of the Corporation
(these being referred to as the Employee's "Executive Benefits").
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<PAGE>
5.2 AUTOMOBILE. If and at such time that it becomes the policy of
the Corporation to provide automobiles or an automobile allowance to the
Corporation's senior executives for their use in connection with the
Corporation's business, the Corporation shall provide such an automobile or an
automobile allowance to the Employee in accordance with such policy.
5.3 REIMBURSEMENT OF EXPENSES. The Corporation shall reimburse the
Employee for all reasonable and ordinary expenses incurred by him on behalf of
the Corporation in the course of his duties hereunder upon the presentation by
the Employee of appropriate documentation substantiating the amount of and
purpose for which such expenses were incurred.
5.4 VACATIONS. The Employee shall be entitled to four (4) weeks of
paid vacation in each calendar year (to be prorated for any calendar year during
which the Employee is employed by the Corporation for less than the full
calendar year), which vacation shall be taken at times consistent with the
performance by the Employee of his obligations hereunder. Any vacation time not
fully used by the Employee in any one (1) calendar year may be carried over for
one (1) additional calendar year. If any such vacation time is carried over to
a subsequent calendar year, then any vacation time taken in the subsequent
calendar year shall be applied first against the carryover vacation time from
the prior calendar year.
6. DISABILITY OR DEATH. In the event the Employee incurs a disability,
which for purposes of this Agreement shall mean any mental or physical illness,
injury, or condition which results in the Employee being unable to fulfill his
duties under this Agreement on a regular basis, then the Corporation shall
nevertheless continue to provide to the Employee during such period or periods
of disability all compensation and benefits under this Agreement, except that,
during any one (1) calendar year the Corporation shall not be required to pay
the Base Salary or Incentive Compensation of the Employee for periods of
disability in excess of 180 days in total.
7. NONCOMPETITION DURING EMPLOYMENT. During the term of his employment
by the Corporation, the Employee shall not, directly or indirectly, engage
directly or indirectly in any business competitive with that of the Corporation;
provided, however, that the foregoing shall not be deemed to prevent the
Employee from investing in securities of any company having a class of
securities which is publicly traded, so long as such investment holdings do not,
in the aggregate, constitute more than 5% of any class of such company's
securities.
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<PAGE>
8. TERM OF EMPLOYMENT AND RIGHTS UPON TERMINATION OF EMPLOYMENT.
8.1 TERM AND SCHEDULED TERMINATION DATE. The term of Employee's
employment hereunder shall begin on the date upon which the Corporation
consummates its initial public offering as described in Section 1 above (the
"Commencement Date") and shall continue for a term of five (5) years from the
Commencement Date (this date of termination of his employment being referred to
as the "Scheduled Termination Date"). However, as of each one-year anniversary
date hereof, the Scheduled Termination Date shall automatically be extended for
a successive one-year period of time, unless more than ninety (90) days prior to
the occurrence of any one-year anniversary date hereof, either party gives
notice to the other that such Scheduled Termination Date shall not thereafter be
so extended. If any such notice is given, then the Scheduled Termination Date
hereof shall not be automatically extended upon the future occurrence of any
one-year anniversary date hereof. Following the Scheduled Termination Date, the
Employee shall not be entitled to earn any further compensation or benefits
under this Agreement.
8.2 TERMINATION BY THE CORPORATION WITHOUT CAUSE.
(a) The Corporation may terminate this Agreement at any time, without
cause and for any reason, upon notice to the Employee setting forth the
date of termination (this date of termination and any other date of
termination prior to the Scheduled Termination Date is referred to as the
"Early Termination Date"). In this event, the Employee shall be entitled
to continue to receive, during the period of time between the Early
Termination Date and the Scheduled Termination Date, the same Base Salary
which the Employee was receiving at the time of such Early Termination Date
(in the manner and as described in Section 3.1) and all Executive Benefits
which the Employee was receiving or entitled to receive as of such Early
Termination Date (in the manner and as described in Section 5.1). Further,
all outstanding Options which shall have been granted to the Employee shall
immediately become exercisable (if not already exercisable in full) and
shall continue in full force and effect.
(b) In the event the Employee suffers from a disability (as defined
in Section 6) for a period of 180 business days out of any 360 consecutive
business day period, then the Corporation may at any time no later than
thirty (30) days following the end of said 360-day period terminate the
employment of the Employee without cause, by notice to the Employee setting
forth the effective Early Termination Date. However, the Corporation shall
not have the right to terminate the employment of the Employee hereunder
if, at the time the Corporation gives notice of termination to the
Employee, the
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Employee has then again begun to render services for the Corporation as
required hereunder. Following an Early Termination Date because of
disability, the Employee shall be entitled to receive his Base Salary then
in effect for a period of one (1) year following his Early Termination
Date and shall be entitled to retain all of his Executive Benefits for a
period of one (1) year following his Early Termination Date. Further, the
Employee's Options, to the extent not fully vested, would continue to vest
during the one-year period following his Early Termination Date.
(c) This Agreement shall terminate immediately upon the Employee's
death. In addition to any other compensation or benefits payable or
accrued to the benefit of the Employee as of the date of his death, the
Corporation shall pay to the Employee's executor or legal representative an
amount in cash equal to one (1) times the Employee's Base Salary then in
effect at the time of his death.
8.3 BY THE CORPORATION WITH CAUSE. The Corporation may terminate
this Agreement at any time for cause, by notice to the Employee setting forth
the Early Termination Date. The term "cause" shall mean (a) a wilful and
recurring refusal of the Employee to perform his duties, responsibilities or
obligations under this Agreement, which refusal continues for at least thirty
(30) days after notice thereof is given to the Employee by the Corporation
setting forth the facts upon which the notice is based, (b) the Employee's
conviction of a felony involving moral turpitude, or (c) the Employee's fraud
regarding any material matter with respect to the business or operations of the
Corporation. Following the occurrence of the Early Termination Date of the
Employee for cause, then the Employee shall not be entitled to earn any further
compensation or benefits under this Agreement.
8.4 BY EMPLOYEE WITHOUT CAUSE. The Employee may terminate this
Agreement at any time, without cause and for any reason, upon notice to the
Corporation setting forth the Employee's Early Termination Date. In such event,
the Employee shall not be entitled to earn any further compensation or benefits
under this Agreement.
8.5 BY EMPLOYEE WITH CAUSE. The Employee may terminate this
Agreement at any time with cause upon notice to the Corporation setting forth
the Early Termination Date. The term "cause" shall mean a breach of this
Agreement in any material way by the Corporation, which breach is not cured
within thirty (30) days after notice of such breach to the Corporation by the
Employee setting forth the facts upon which the notice is based. In the event
of such Early Termination Date, then from the Early Termination Date until the
Scheduled Termination Date, the Employee
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<PAGE>
shall be entitled to continue to receive, the same Base Salary which the
Employee was receiving at the time of such Early Termination Date (in the
manner and as described in Section 3.1) and all Executive Benefits which the
Employee was receiving or entitled to receive as of such Early Termination
Date (in the manner and as described in Section 5.1). Further, all
outstanding Options which shall have been granted to the Employee shall
become immediately exercisable (if not already exercisable in full) and shall
continue in full force and effect.
8.6 COMPENSATION, REIMBURSEMENTS, INDEMNIFICATION, AND BENEFITS
PAYABLE OR ACCRUED AS OF TERMINATION DATE. Upon the occurrence of any
Termination Date, whether a Scheduled Termination Date or an Early Termination
Date, and regardless of the reason for termination, the Employee shall be
entitled to receive all compensation, reimbursements, and benefits hereunder
which were either payable to the Employee, or which had accrued to the benefit
of the Employee or which had been earned by the Employee as of such Termination
Date. Any such compensation, reimbursements, or benefits shall be payable or
provided to the Employee no less quickly than they would have been payable or
provided to the Employee had the Termination Date not occurred. For these
purposes, the Employee's compensation shall include a pro rata portion of the
Incentive Compensation payable to the Employee under Section 3.2. Further, the
Employee shall be entitled to receive any indemnification payments that may have
accrued but have not been paid or that may thereafter become payable to the
Employee pursuant to the provisions of the Corporation's Certificate of
Incorporation, Bylaws or similar policy, plan or agreement relating to the
indemnification of directors or officers of the Corporation.
9. CHANGE OF CONTROL.
9.1 This Section 9 shall become effective, but not operative,
immediately upon the Commencement Date and shall remain in effect so long as the
Employee remains employed hereunder by the Corporation, but shall not be
operative unless and until there has been a Change in Control, as defined in
Section 9.4 hereof. Upon such a Change in Control, this Section 9 shall become
operative immediately.
9.2 If a Change in Control occurs (i) while the Employee is employed
by the Corporation hereunder, or (ii) subsequent to the Termination Date of the
Employee's employment hereunder other than by the Corporation for cause, or
death or disability, and prior to the later of the first anniversary of such
Termination Date or the third anniversary of the Commencement Date, or (iii)
within 180 days of the Scheduled Termination Date, the Employee may, in his sole
discretion, within twelve (12) months after the date of the Change in Control,
give notice to the Corporation that he intends to elect to exercise his rights
under this Section 9 (the "Notice
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<PAGE>
of Intention"). Within thirty (30) days after the Corporation's receipt of
the Notice of Intention, the Corporation shall provide written notice to the
Employee setting forth the Corporation's computation of the amount that would
be payable pursuant to Section 9.3, accompanied by the written opinion of the
Corporation's independent certified public accountants confirming the
Corporation's computation. If the Employee takes exception to the
Corporation's computation of such amount, the Employee may (but shall not be
prejudiced in this right to later contest the amount actually paid by failure
to do so) give a further written notice to the Corporation setting forth in
reasonable detail the Employee's exceptions to the Corporation's computation,
accompanied by the written opinion of the Employee's tax advisor confirming
the basis for such exceptions. Exercise by the Employee of his rights
pursuant to this Section 9 shall only be made by giving further notice to the
Corporation (the "Notice of Exercise") within six (6) months from the date of
the Notice of Intention.
9.3 If the Employee gives the Notice of Exercise described in Section
9.2 to the Corporation, the Termination Date of his employment hereunder shall
then occur; all outstanding Options which are not then exercisable shall
immediately become exercisable in full; and the Corporation shall pay to the
Employee a lump sum amount equal to $1.00 less than three (3) times the
Employee's "base amount" (as defined by Section 280(G), Part IX, Subchapter B,
Chapter 1 of the Internal Revenue Code of 1986, as amended). The Corporation
shall, within ten (10) business days after the date of the Notice of Exercise,
deliver to the Employee its cashier's check in the amount payable pursuant to
this Section 9.3, and payment of such amount shall terminate the Employee's
rights to receive any and all other compensation, reimbursements,
indemnification, or benefits under this Agreement, other than those which are
payable to or have accrued to the Employee as described in Section 8.6.
9.4 For the purposes of this Agreement, a Change in Control shall
mean (i) a reportable change in control under the proxy rules of the Securities
and Exchange Commission, including the acquisition of a 30% beneficial voting
interest in the Corporation (other than such acquisition by Employee or an
affiliate of Employee), or (ii) a change in any calendar year of such number of
directors as constitutes a majority of the board of directors of the
Corporation, unless the election, or the nomination for election by the
Corporation's shareholders, of each new director was approved by a vote of at
least two-thirds (2/3) of the directors then in office who were directors at the
beginning of the calendar year.
-8-
<PAGE>
10. POST-EMPLOYMENT ACTIVITIES.
10.1 For a period of two (2) years after the Employee's Termination
Date, except for a termination subsequent to a Change in Control of the
Corporation and further except for a termination by the Employee with cause,
then the Employee shall not, directly or indirectly, engage in any business
competitive with that of the Corporation; provided, however, that the foregoing
shall not be deemed to prevent the Employee from investing in securities which
is publicly traded, so long as such investment holdings do not, in the
aggregate, constitute more than 5% of any class of such company's securities.
10.2 The Employee acknowledges that he has been employed for his
special talents and that his leaving the employ of the Corporation would
seriously and adversely affect the business of the Corporation. In addition to
all remedies permitted by law or in equity and without limiting any injunctive
or other relief to which the Corporation may be entitled in respect of any
obligation of the Employee, the Corporation shall be entitled to injunctive
relief to enforce the provisions of Section 10.1 hereof; provided, that the
Corporation shall not be entitled to injunctive relief or any other relief with
respect to Section 10.1 hereof if at the time such relief is sought the
Corporation has been in default of any of its obligations to the Employee
pursuant to any of the terms of Sections 8.2, 8.5, or 8.6 hereof.
10.3 The Employee will not, during the period of two (2) years after
his Termination Date, except for a termination subsequent to a Change in Control
of the Corporation and further except for a termination by the Employee with
cause, then the Employee shall not, either in the Employee's individual capacity
or as agent for another, hire or offer to hire or entice away any person who has
been an officer, employee, or agent of the Corporation at any time during the
immediately preceding year or in any other manner persuade or attempt to
persuade any of such persons to discontinue their relationship with the
Corporation or any of its subsidiaries nor divert or attempt to divert from the
Corporation or any of its subsidiaries any business whatsoever by influencing or
attempting to influence any customer or supplier of the Corporation or any of
its subsidiaries to diminish or discontinue its business with the Corporation or
such subsidiary.
11. CONFIDENTIAL INFORMATION. The Employee shall not at any time during
the term of this Agreement or after the termination hereof directly or
indirectly divulge, furnish, use, publish or make accessible to any person or
entity any Confidential Information (as hereinafter defined). Any records of
Confidential Information prepared by the Employee or which come into Employee's
possession during this Agreement are and remain the property of the Corporation,
and upon termination of Employee's employment all such
-9-
<PAGE>
records and copies thereof shall be either left with or returned to the
Corporation. The term "Confidential Information") shall mean information
disclosed to the Employee or known, learned, created or observed by him as a
consequence of or through his employment by the Corporation, not generally
known in the relevant trade or industry, about the Corporation's business
activities, products, customers, suppliers, services and procedures,
including, but not limited to, information concerning costs, product
performance, customer requirements, advertising, sales promotion, publicity,
sales data, research, finances, accounting, methods, procedures, trade
secrets, business plans, client or supplier lists and records, potential
client or supplier lists, and client or supplier billing. Notwithstanding the
foregoing, "Confidential Information" shall not include information publicly
disclosed by the Corporation or known by the Employee other than because of
his employment with the Corporation.
12. GENERAL.
12.1 ASSIGNMENT. This Agreement shall not be assignable.
12.2 NOTICES. All notices under this Agreement shall be in writing
and shall be deemed to have been given at the time when mailed by registered or
certified mail, addressed to the address below state of the party to which
notice is given, or to such changed address as such party may have fixed by
notice:
TO THE CORPORATION: U S Liquids Inc.
411 N. Sam Houston Parkway E
Suite 400
Houston, Texas 77060-3545
ATTN: W. Gregory Orr
TO THE EMPLOYEE: Michael P. Lawlor
1801 River Watch Court
Annapolis, Maryland 21401-1052
12.3 ENTIRE AGREEMENT. This instrument contains and constitutes the
entire agreement between and among the parties herein and supersedes all prior
agreements and understandings between the parties hereto relating to the subject
matter hereof.
12.4 APPLICABLE LAW. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of Delaware.
12.5 INVALIDITY. If any provision contained in this Agreement shall
for any reason be held to be invalid, illegal, void or unenforceable in any
respect, such provision shall be deemed modified so as to constitute a provision
conforming as nearly as possible to such invalid, illegal, void or unenforceable
provision
-10-
<PAGE>
while still remaining valid and enforceable, and the remaining terms or
provisions contained herein shall not be affected thereby.
12.6 DISPUTE RESOLUTION. Any dispute arising in any way out of this
Agreement and which cannot be resolved by good faith negotiations between the
parties within thirty (30) days after either party shall have notified the other
party in writing of its desire to arbitrate the dispute shall be submitted to
and settled through binding arbitration in accordance with the rules of the
American Arbitration Association as from time to time in effect. The
arbitration proceedings shall be conducted by a sole arbitrator who shall be an
attorney with not less than ten (10) years experience in commercial law. All
disputes or claims of the parties subject to arbitration shall be consolidated
into a single arbitration proceeding. The arbitration proceedings shall be
conducted in Houston, Texas. The award or determination of the arbitrator shall
be final and binding upon all parties and shall be subject to enforcement in any
court of competent jurisdiction. The arbitrator shall have the authority to
award costs and expenses of arbitration to either party as the arbitrator sees
fit.
12.7 BINDING EFFECT. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by the parties hereto and their respective
heirs, executors, personal representatives and successors.
12.8 APPROVALS AND CONSENTS MUST BE IN WRITING. Whenever this
Agreement calls for the consent, vote, or approval of any party, such consent or
approval shall be effective only if it is in writing and signed by or on behalf
of the party who is granting such consent or approval unless the circumstances
clearly indicate that a writing is not required to evidence such consent, vote,
or approval.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
U S LIQUIDS INC.
By: /s/ W. Gregory Orr
------------------------------------
W. Gregory Orr, President
/s/ Michael P. Lawlor
------------------------------------
Michael P. Lawlor
-11-
<PAGE>
June 23, 1997
U S Liquids Inc.
411 North Sam Houston Parkway E.
Suite 400
Houston, Texas 77060-3545
Van Kasper & Company
600 California Street
Suite 1700
San Francisco, California 94111
Ladies and Gentlemen:
The undersigned, who is or will become the registered or beneficial owner
of shares of common stock (the "Common Stock") of U S Liquids Inc., a Delaware
corporation (the "Company"), understands and agrees as follows:
1. The Company proposes to file with the Securities and Exchange
Commission a Registration Statement on Form S-1 under the Securities Act of
1933, as amended (the "Registration Statement"), contemplating the public
offering of shares of Common Stock by the Company (the "Offering").
2. The Company and Van Kasper & Company, acting as Representative (the
"Representative") of the several Underwriters (the "Underwriters") for the
Offering, have agreed (and the undersigned acknowledges) that sales of Common
Stock by the officers, directors and other stockholders of the Company within
<PAGE>
Van Kasper & Company June 23, 1997
Page 2
the 180-day period after the date of the Underwriting Agreement for the
Offering, which is to be entered into between the Company and the Underwriters
(the "Underwriting Agreement"), could have an adverse effect on the Offering and
that the public to whom the Common Stock is being offered in the Offering should
be protected for a reasonable time from the impact and effect of such sales.
3. It is in the best interest of the Company and all stockholders of the
Company for the Offering to be successful and for there to be a stable and
orderly public market after the Offering is completed.
Therefore, in order to induce the Company and the Underwriters to proceed
with the Offering, the undersigned agrees that, prior to the expiration of 180
days from the date of the Underwriting Agreement, the undersigned will not,
directly or indirectly, offer, sell, contract to sell, grant any option to
purchase or establish an open "put equivalent position" within the meaning of
Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or
otherwise dispose of or grant any rights with respect to any shares of Common
Stock (or any securities convertible into, exchangeable for or exercisable for
Common Stock), now owned or hereafter acquired directly or indirectly by the
undersigned or with respect to which the undersigned has power of disposition,
or publicly announce an intention to do any of the foregoing, in each case
without the prior written consent of the Representative. The date of the
Underwriting Agreement is expected to be the same day as or one day before the
Registration Statement becomes effective by order of the Securities and Exchange
Commission.
The undersigned confirms that he, she or it understand that the
Underwriters and the Company will rely upon the representations set forth in
this letter agreement in proceeding with the Offering. The undersigned further
confirms that the agreements of the undersigned are irrevocable and shall be
binding upon the undersigned's heirs, legal representatives, successors and
assigns. The undersigned agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent
<PAGE>
Van Kasper & Company June 23, 1997
Page 3
against the transfer of securities of the Company held by the undersigned
except in compliance with this letter agreement.
The agreements provided for herein shall be effective only if the Offering
takes place on or prior to September 30, 1997.
---------------------------------
(Signature)
---------------------------------
(Print Name of Director, Officer
or Stockholder)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Houston, Texas
August 4, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 2,704
<SECURITIES> 0
<RECEIVABLES> 4,461
<ALLOWANCES> 265
<INVENTORY> 446
<CURRENT-ASSETS> 8,206
<PP&E> 37,152
<DEPRECIATION> 2,170
<TOTAL-ASSETS> 43,863
<CURRENT-LIABILITIES> 9,656
<BONDS> 20,903
0
10
<COMMON> 52
<OTHER-SE> 2,790
<TOTAL-LIABILITY-AND-EQUITY> 43,863
<SALES> 0
<TOTAL-REVENUES> 17,734
<CGS> 11,362
<TOTAL-COSTS> 14,078
<OTHER-EXPENSES> 105
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,032
<INCOME-PRETAX> 2,519
<INCOME-TAX> 1,033
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,486
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
