<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) SHARE PRICE FEE(2)
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share..... 1,725,000 $10.50 $18,112,500 $5,489
</TABLE>
(1) Includes 225,000 shares which may be purchased by the Underwriters pursuant
to an over-allotment option.
(2) Calculated pursuant to Rule 457(o) of the rules and regulations under the
Securities Act of 1933, as amended.
--------------------------
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: JUNE 26, 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
U S LIQUIDS INC. [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 for inclusion of
the Common Stock on the Nasdaq National Market under the symbol "USLQ."
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 $16,387,500,
$1,188,000 and $14,288,000 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.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
2
<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 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 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 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. The
Company believes that, during 1996, it treated and disposed of approximately
one-third of all NOW generated in the Gulf of Mexico that was treated off-site
by third parties and a substantial percentage of all NOW generated inland in
Louisiana and Texas that was treated off-site by third parties, in each case
excluding saltwater. 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 earnings before interest,
taxes, depreciation and amortization for this period were $9.6 million, or 30.7%
of pro forma revenues.
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 "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 Nasdaq National Market
symbol.......................... USLQ
</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) 283,125 shares issuable pursuant to outstanding employee
stock options, and (iii) 702,000 shares issuable pursuant to options and
warrants 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; (ii) the effect of the acquisitions of
the Companies and AWW on a historical basis; and (iii) 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>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
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 $ 7,313 $ 7,862
Gross profit.............................................................. 10,534 2,165 2,579
Selling, general and administrative expenses.............................. 3,964 970 715
------- --------- ---------
Income from operations.................................................... 6,570 1,195 1,864
Interest expense, net..................................................... 2,317 556 408
------- --------- ---------
Income before income taxes................................................ 4,253 639 1,456
------- --------- ---------
Net income................................................................ $ 2,508 $ 378 $ 859
------- --------- ---------
------- --------- ---------
Net income per share...................................................... $ 0.37 $ 0.06 $ 0.13
Shares used in computing pro forma net income(1).......................... 6,829 6,829 6,829
EBITDA(2)................................................................. $ 9,558 $ 1,733 $ 2,545
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------
SUPPLEMENTAL
CONSOLIDATED AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA
Working capital.................................................................. $ (735) $ 10,559
Total assets..................................................................... 43,154 52,519
Total debt....................................................................... 25,691 23,084
Stockholders' equity............................................................. 2,417 14,607
</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) 499,766 of the 1,500,000 shares issued in
connection with the offering, the net proceeds of which will be used to
repay indebtedness and other long-term obligations, and (iv) 1,090,713
shares representing the effect of outstanding warrants and options to
purchase Common Stock, using the treasury stock method. Excludes 702,000
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 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, or earnings before interest, income taxes, depreciation and
amortization, is included because it is used by some investors in analyzing
companies. EBITDA is not required by generally accepted accounting
principles and should not be construed as an alternative to operating
income, net income, net cash provided by operating activities or any other
measure of performance required by generally accepted accounting principles
or as an indicator of the Company's operating performance.
(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 $9.5 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."
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; VOLUME AND PRICE RESTRICTIONS
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 for
treatment and disposal at certain of its Louisiana landfarms a substantial,
specified amount of NOW. In return, the Company has agreed that, prior to August
12, 2001 and subject to certain exceptions, it will not, among other things,
accept for disposal from anyone other than Newpark any NOW generated in the Gulf
of Mexico and certain other areas. 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 Louisiana, Texas,
Mississippi, Alabama and the Gulf of Mexico. 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 services may be adjusted, which
conditions are completely beyond the Company's control. See "Certain
Transactions." Currently, the price paid by Newpark to the Company under the
Disposal Agreement is significantly less than the open market price, and this
disparity is expected to continue for the duration of the Disposal Agreement.
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. See "Business--Regulatory Background."
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
9
<PAGE>
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.
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 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
10
<PAGE>
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 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 covering such risks, 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."
POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Company's Restated 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 Restated 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."
11
<PAGE>
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 986,250
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."
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." 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.
12
<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 $970,000
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% and
matures on September 15, 1997, and approximately $650,000 to repay certain
promissory notes held by former stockholders of AWW, of which approximately
$314,000 will go to William H. Wilson, Jr., a key employee of the Company. 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, of which approximately
$945,000 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. These debts have maturity dates ranging from September 1997 to
October 2006 and bear interest at rates ranging from 0% to 12.25%. See "Certain
Transactions." Approximately $1.5 million of the proceeds will be used for
capital expenditures to be made by the Company. The Company intends to use the
balance of the net proceeds of the offering of approximately $9.5 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 March 31, 1997, the supplemental consolidated net tangible book value per
share of the Common Stock was $.42. 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 March 31, 1997
would have been approximately $1.33. This represents an immediate dilution of
$8.17 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
Supplemental consolidated net tangible book value per share
as of March 31, 1997...................................... .42
Increase attributable to this offering...................... .91
---------
Pro forma net tangible book value per share after offering.... 1.33
---------
Dilution to new investors..................................... $ 8.17
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 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% $ 2,417,000 14.5% $ .46
New investors.......................... 1,500,000 22.3 14,250,000 85.5 $ 9.50
---------- ----- ------------- -----
Total................................ 6,738,875 100.0% $ 16,667,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
13
<PAGE>
CAPITALIZATION
The following table summarizes the capitalization of the Company as of March
31, 1997 on (i) a supplemental consolidated basis as adjusted to give effect to
the acquisitions of the Mesa Companies and AWW and the one for two reverse stock
split, and (ii) as further 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>
MARCH 31, 1997
-------------------------
SUPPLEMENTAL
CONSOLIDATED AS ADJUSTED
------------ -----------
<S> <C> <C>
(IN THOUSANDS)
Current portion of long-term debt(1).................................................. $ 3,443 $ 1,774
------------ -----------
------------ -----------
Long-term debt, net of current portion................................................ $ 22,248 $ 21,310
Stockholders' equity:
Preferred Stock, $.01 par value, 10,010,000 shares authorized; 10,000 shares issued
and outstanding................................................................... 10 10
Common Stock, $.01 par value, 50,000,000 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 13,596
Retained earnings................................................................... 976 934
------------ -----------
Total stockholders' equity........................................................ 2,417 14,607
------------ -----------
Total capitalization............................................................ $ 24,665 $ 35,917
------------ -----------
------------ -----------
</TABLE>
- ------------------------
(1) For a description of the Company's debt, see the notes to the Supplemental
Consolidated Financial Statements.
(2) Excludes 1,770,625 shares issuable upon exercise of options and warrants
outstanding as of March 31, 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."
14
<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, and the financial data of the Company as of December 31,
1996, and for the period from inception (November 18, 1996) through December 31,
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 three months ended March 31, 1996, and the
historical income statement and balance sheet data for the Company as of and for
the three months ended March 31, 1997, have been derived from unaudited
financial statements of the Predecessor and the Company. The supplemental
consolidated income statement and balance sheet data below sets forth the
financial data of the Company consolidated with the financial data of the Mesa
Companies and AWW as of and for the year ended December 31, 1996, and the
financial data of the Mesa Companies and AWW as of December 31, 1995, and for
the years ended December 31, 1994 and 1995, derived from the financial
statements audited by Arthur Andersen LLP, which appear elsewhere in this
Prospectus. The supplemental 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 three months ended March 31, 1996, have been derived
from the unaudited financial statements of the Mesa Companies and AWW. The
supplemental consolidated income statement and balance sheet data as of and for
the three months ended March 31, 1997 have been derived from the unaudited
financial statements of the Company consolidated with the Mesa Companies and
AWW. The unaudited financial statements for all entities and 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>
<S> <C> <C> <C> <C> <C> <C> <C>
THE
THE PREDECESSOR THE COMPANY PREDECESSOR
--------------------------------------------------------- ------------- -----------
<CAPTION>
THREE
JANUARY 1, MONTHS
1996 INCEPTION ENDED MARCH
YEARS ENDED DECEMBER 31, THROUGH THROUGH 31,
------------------------------------------ DECEMBER 13, DECEMBER 31, -----------
1992 1993 1994 1995 1996 1996 1996
--------- --------- --------- --------- ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL(1)
Revenues.................................. $ 9,515 $ 12,413 $ 14,847 $ 15,119 $ 16,853 $ 826 $ 3,616
--------- --------- --------- --------- ------------- ------------- -----------
Gross profit.............................. 4,295 5,816 7,369 6,484 7,717 469 1,417
Selling, general and administrative
expenses................................ 2,058 2,263 2,626 2,989 2,524 343 696
--------- --------- --------- --------- ------------- ------------- -----------
Income from operations.................... 2,237 3,553 4,743 3,495 5,193 126 721
Interest and other expense, net........... -- (260) (71) 195 256 100 38
--------- --------- --------- --------- ------------- ------------- -----------
Income before income taxes................ 2,237 3,813 4,814 3,300 4,937 26 683
--------- --------- --------- --------- ------------- ------------- -----------
Net income................................ $ 1,232 $ 2,357 $ 2,869 $ 1,900 $ 2,893 $ 12 $ 412
--------- --------- --------- --------- ------------- ------------- -----------
--------- --------- --------- --------- ------------- ------------- -----------
<CAPTION>
THE COMPANY, THE MESA COMPANIES AND AWW
-------------------------------------------------------------------------------------
THREE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- -----------
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED(2)
Revenues.................................. $ 4,955 $ 3,799 $ 8,039 $ 11,127 $ 14,285 $ 3,697
--------- --------- --------- --------- ------------- -----------
Gross profit.............................. 866 1,873 481 1,192 2,495 458
Selling, general and administrative
expenses................................ 1,093 1,813 643 863 1,440 274
--------- --------- --------- --------- ------------- -----------
Income (loss) from operations............. (227) 60 (162) 329 1,055 184
Interest and other expense, net........... (13) 125 109 177 309 50
--------- --------- --------- --------- ------------- -----------
Income (loss) before income taxes......... (214) (65) (271) 152 746 134
--------- --------- --------- --------- ------------- -----------
Net income (loss)......................... $ (214) $ (65) $ (182) $ 103 $ 491 $ 72
--------- --------- --------- --------- ------------- -----------
--------- --------- --------- --------- ------------- -----------
<CAPTION>
THE COMPANY
-----------
1997
-----------
<S> <C>
HISTORICAL(1)
Revenues.................................. $ 4,256
-----------
Gross profit.............................. 1,934
Selling, general and administrative
expenses................................ 452
-----------
Income from operations.................... 1,482
Interest and other expense, net........... 414
-----------
Income before income taxes................ 1,068
-----------
Net income................................ $ 625
-----------
-----------
1997
-----------
<S> <C>
SUPPLEMENTAL CONSOLIDATED(2)
Revenues.................................. $ 7,862
-----------
Gross profit.............................. 2,579
Selling, general and administrative
expenses................................ 715
-----------
Income (loss) from operations............. 1,864
Interest and other expense, net........... 481
-----------
Income (loss) before income taxes......... 1,383
-----------
Net income (loss)......................... $ 879
-----------
-----------
</TABLE>
- ------------------------------
(1) Does not include results of the Mesa Companies and AWW, which were acquired
on June 17, 1997.
(2) Does not include results of the Campbell Wells Acquired Assets for periods
prior to their acquisition on December 13, 1996.
15
<PAGE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
THE PREDECESSOR THE COMPANY
DECEMBER 31, -------------
------------------------------------------ DECEMBER 31,
1992 1993 1994 1995 1996
--------- --------- --------- --------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
HISTORICAL
Total assets........................................................... $ 46,328 $ 54,448 $ 57,235 $ 60,541 $ 41,152
Total debt............................................................. $ 172 $ 91 $ 306 $ -- $ 26,410
<CAPTION>
MARCH 31,
1997
------------
<S> <C>
HISTORICAL
Total assets........................................................... $ 36,977
Total debt............................................................. $ 22,240
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY, THE MESA COMPANIES AND AWW
---------------------------------------------------------
DECEMBER 31,
---------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
SUPPLEMENTAL CONSOLIDATED
Total assets........................................................... $ 1,031 $ 1,277 $ 1,410 $ 3,007 $ 46,851
Total debt............................................................. $ 1,169 $ 1,320 $ 1,447 $ 2,010 $ 29,950
------------------------------------------------------------------------
<CAPTION>
MARCH 31,
1997
------------
<S> <C>
SUPPLEMENTAL CONSOLIDATED
Total assets........................................................... $ 43,154
Total debt............................................................. $ 25,691
------------------------------------------
</TABLE>
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, (ii) the effects of the acquistions of the Mesa
Companies and AWW on a historical basis and (iii) the consummation of the
offering 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>
PRO FORMA
---------------------------
THREE
MONTHS
ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, -----------
1996 1996
-------------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
PRO FORMA
Revenues............................................................................................ $ 31,138 $ 7,313
------- -----------
Gross profit........................................................................................ 10,534 2,165
Selling, general and administrative expenses........................................................ 3,964 970
------- -----------
Income from operations.............................................................................. 6,570 1,195
Interest and other expense, net..................................................................... 2,317 556
------- -----------
Income before income taxes.......................................................................... 4,253 639
------- -----------
Net income.......................................................................................... $ 2,508 $ 378
------- -----------
------- -----------
Net income per share................................................................................ $ 0.37 $ 0.06
------- -----------
------- -----------
Shares used in computing pro forma net income(1).................................................... 6,829 6,829
EBITDA(2)........................................................................................... $ 9,558 $ 1,733
<CAPTION>
1997
-----------
<S> <C>
PRO FORMA
Revenues............................................................................................ $ 7,862
-----------
Gross profit........................................................................................ 2,579
Selling, general and administrative expenses........................................................ 715
-----------
Income from operations.............................................................................. 1,864
Interest and other expense, net..................................................................... 408
-----------
Income before income taxes.......................................................................... 1,456
-----------
Net income.......................................................................................... $ 859
-----------
-----------
Net income per share................................................................................ $ 0.13
-----------
-----------
Shares used in computing pro forma net income(1).................................................... 6,829
EBITDA(2)........................................................................................... $ 2,545
</TABLE>
BALANCE SHEET DATA
<TABLE>
<CAPTION>
AS OF MARCH
31, 1997
-------------
SUPPLEMENTAL
CONSOLIDATED
-------------
<S> <C>
(IN
THOUSANDS)
Working capital.................................................................................................. $ (735)
Total assets..................................................................................................... 43,154
Total debt....................................................................................................... 25,691
Stockholders' equity............................................................................................. 2,417
<CAPTION>
AS ADJUSTED(3)
--------------
<S> <C>
Working capital.................................................................................................. $ 10,559
Total assets..................................................................................................... 52,519
Total debt....................................................................................................... 23,084
Stockholders' equity............................................................................................. 14,607
</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) 499,766 of the 1,500,000 shares issued in
connection with the offering to pay down debt and other long-term
obligations, and (iv) 1,090,713 shares representing the effect of
outstanding warrants and options to purchase Common Stock, using the
treasury stock method. Excludes 702,000 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 shares issuable pursuant to options, the vesting of which are
contingent upon the successful completion of certain corporate development
activities.
(2) EBITDA, or earnings before interest, income taxes, depreciation and
amortization, is included because it is used by some investors in analyzing
companies. EBITDA is not required by generally accepted accounting
principles and should not be construed as an alternative to operating
income, net income, net cash provided by operating activities or any other
measure of performance required by generally accepted accounting principles
or as an indicator of the Company's operating performance.
(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."
16
<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 Supplemental
Consolidated Financial Statements which reflect the historical results of
operations of the Company for the 18-days ended December 31, 1996 and the three
months ended March 31, 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 supplemental 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. 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 to $10.25 per barrel. 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 two-thirds of NOW revenues for the
quarter ending March 31, 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
governs the price to be paid by Newpark to the Company. The contractual price is
lower than the price that the Company could obtain in the open market, and the
Company expects such disparity to persist for the duration of the Disposal
Agreement. 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." Due to certain noncompete
restrictions with Newpark related to offshore-generated NOW, the Company intends
to focus its future marketing efforts
17
<PAGE>
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 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 oil field waste in order to match revenues
with their related costs. As treatment occurs, generally over 12 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. Further, the Company expects to recognize approximately $400,000 of
nonrecurring expenses in the second quarter of 1997 associated with the
acquisitions of the Mesa Companies and AWW.
PRO FORMA COMBINED RESULTS OF OPERATIONS
The following tables set forth certain unaudited pro forma financial data
and a presentation of percentages of total pro forma revenues for the years
ended December 31, 1994, 1995 and 1996 and the three month periods ended March
31, 1996 and 1997. The unaudited pro forma financial data reflect (i) the
results of operations of the Mesa Companies and AWW on a historical basis, (ii)
the effects of certain pro forma adjustments to the historical financial
statements of the Predecessor including, but not limited to, adjusting
depreciation expense to reflect purchase price allocations, recording interest
expense to reflect the outstanding debt due to Sanifill, increasing insurance
expenses consistent with the amounts for the Company, and recording an income
tax provision consistent with the Company's Supplemental Consolidated Financial
Statements and (iii) the consummation of the 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.
18
<PAGE>
PRO FORMA:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues...................................................... $ 22,886 $ 26,246 $ 31,138 $ 7,313 $ 7,862
--------- --------- --------- --------- ---------
Gross profit.................................................. 7,678 8,330 10,534 2,165 2,579
Selling, general and administrative expenses.................. 3,269 3,852 3,964 970 715
--------- --------- --------- --------- ---------
Income from operations........................................ 4,409 4,478 6,570 1,195 1,864
Interest and other expense, net............................... 2,023 2,357 2,317 556 408
--------- --------- --------- --------- ---------
Income before income taxes.................................... 2,386 2,121 4,253 639 1,456
--------- --------- --------- --------- ---------
Net income.................................................... $ 1,408 $ 1,251 $ 2,508 $ 378 $ 859
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin................................................ 33.6 31.7 33.8 29.6 32.8
Selling, general and administrative......................... 14.3 14.7 12.7 13.3 9.1
Income from operations...................................... 19.3 17.1 21.1 16.3 23.7
Interest and other expense, net............................. 8.8 9.0 7.4 7.6 5.2
Income taxes................................................ 4.3 3.3 5.6 3.6 7.6
----- ----- ----- ----- -----
Net income.................................................. 6.2% 4.8% 8.1% 5.2% 10.9%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
REVENUES. Revenues increased to $7.9 million in the first quarter of 1997
as compared to $3.7 million in the first quarter of 1996. NOW operations are not
included in results of operations for the first quarter of 1996. On a pro forma
basis to reflect NOW operations in both quarters, pro forma revenues increased
by 7.5% to $7.9 million for the first quarter of 1997 from pro forma revenues of
$7.3 million in the first quarter of 1996. Of total pro forma revenues in the
first quarter of 1997, NOW operations contributed 54.1%, finished product sales
contributed 35.1% and NCW tipping and collection fees contributed 10.8%. During
the first quarter of 1996, pro forma revenues were derived 49.5% from NOW
treatment, 44.9% from finished product sales and 5.7% from NCW tipping and
collection fees.
Revenues for the first quarter of 1997 from NCW operations decreased by 2.5%
from the first quarter of 1996. Revenues from the sale of finished products
decreased by 15.9%, while revenues from NCW treatment and disposal increased by
104.0%. This decrease in finished product sales was attributable to an 11.7%
decrease in volume and a 4.8% decrease in the average price per pound. Volume in
the first two months of 1996 was unusually high because of longer-term
commitments which had been made at the end of 1995. The lower average price per
pound in the first quarter of 1997 reflects generally lower market prices as
well as the introduction of lower-priced higher-margin products from the South
Texas processing facility, which was purchased in September 1996, and which 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
127.7% 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.
Pro forma revenues from NOW operations increased by 17.7%. The Company
received 958,000 barrels of NOW for treatment in the first quarter of 1997, a
1.3% increase over the 946,000 barrels received during the first quarter of
1996. Deliveries of NOW by Newpark from September 1996 through
19
<PAGE>
March 1997 were ahead of its annualized contractual obligation. Newpark has
reduced monthly deliveries and is expected to be consistent with the minimum
agreed-upon volumes by the end of August 1997. For the year, the Company expects
NOW revenues to be equal to or slightly higher than they were in 1996.
GROSS MARGINS. The Company's gross margin increased to 32.8% in the first
quarter of 1997 from 12.4% in the first quarter 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 quarter of 1997 increased to 32.8% from 29.6%
in the first quarter of 1996. NOW operations contributed 75.0% and 78.9% of the
Company's pro forma gross profit during the first quarters of 1997 and 1996,
respectively.
Gross margin in the NCW operations increased from 12.4% in the first quarter
of 1996 to 17.9% in the first quarter of 1997. Improvement in the gross margin
in NCW operations reflects the increased share of NCW treatment and disposal
operations. 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. In addition, since the first quarter of 1996, the
Company has emphasized short-term commitments to control margins. The 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
decreased from 47.2% in the first quarter of 1996 to 45.5% in the first quarter
of 1997 due to the pricing structure under the Disposal Agreement with Newpark.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $715,000 in the first quarter of 1997 from
$274,000 in the first quarter of 1996, as a result of the addition of the NOW
operations. Pro forma selling, general and administrative expenses decreased
from $970,000, or 13.3% of pro forma revenues in the first quarter of 1996, to
$715,000, or 9.1% of pro forma revenues in the first quarter of 1997, due to a
reduction in marketing expenses as a result of the Newpark transaction as well
as a temporary reduction in personnel associated with the relocation of the
Company's corporate offices to Houston in the first quarter of 1997. The Company
expects to add personnel at its corporate office during 1997. 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
$481,000 in the first quarter of 1997 from $50,000 in the first quarter of 1996,
as a result of interest expense on debt incurred in the Campbell Wells
Acquisition. The Company made a total of $5.6 million in principal reductions on
the Sanifill Note in December 1996 and January 1997.
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 trap collection business in March 1996.
20
<PAGE>
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 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.
21
<PAGE>
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 $735,000 at March 31, 1997,
compared to net working capital of $137,000 at December 31, 1996.
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 expected 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
expected 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 March 31, 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 Well
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.
22
<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"
23
<PAGE>
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 3.3 million
barrels of NOW, which the Company believes comprised approximately one-third of
all NOW generated in the Gulf of Mexico and treated off-site by third parties
and a substantial percentage of all NOW generated inland in Louisiana and Texas
that was treated off-site by third parties, in each case excluding saltwater.
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 the Disposal Agreement, 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
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matter how large the offshore NOW market (or Newpark's share of it is), the
ability of the Company to participate in any substantial growth of the offshore
NOW market may be limited. However, growth or stability in the offshore NOW
market would increase the likelihood that the Company will receive at least
1,850,000 barrels of NOW annually from Newpark. See "Certain Transactions."
The Disposal Agreement does not restrict the Company's ability to receive
inland-generated NOW. 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
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management team which includes individuals with successful track records
operating businesses in the waste management industry and acquiring new
businesses. See "Risk Factors--Risks Related to the Company's Acquisition
Strategy."
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." 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." The Company believes that
focusing its marketing efforts in this manner will increase the total amount
of NOW that is delivered to the Company for treatment and disposal.
Further, the Company believes that there is a substantial amount of NOW
stockpiled in onshore surface pits. The Company currently estimates that
less than one million barrels of such stockpiled NOW is treated each year
and that such amount would grow substantially if state regulations requiring
remediation of these onshore surface pits are further tightened and
enforced. See "Risk Factors-- Absence of Combined Operating History" and
"--Reliance on Key Personnel; Management of Growth" and
"Business--Regulatory Background--State and Local Regulations."
See "Risk Factors--Risks Related to Operating and Internal Growth Strategy."
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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 customers for its finished products include several large
Mexican companies and Mexican affiliates of major U.S. poultry producers.
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."
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."
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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.
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 months. In the final stage, the remaining material is tested
to ensure compliance with regulatory requirements. Thereafter, the material is
transported to on-site stockpile areas for storage.
In connection with the Campbell Wells Acquisition, Sanifill assigned to the
Company its rights and obligations under the Disposal Agreement between Sanifill
and Newpark. Pursuant to the terms of the Disposal Agreement, through June 30,
2021, Newpark is obligated to deliver to the Company on an annual basis for
treatment and disposal at certain of its Louisiana landfarms the lesser of (i)
one-third of the barrels of NOW that Newpark receives for processing and
disposal in Louisiana, Texas, Mississippi,
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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." See
also "Risk Factors--Dependence on Newpark for Offshore-Generated NOW; Volume and
Price Restrictions."
In addition to NOW received from Newpark (which is primarily
offshore-generated NOW), the Company receives NOW generated on land within
Louisiana and Texas. Due to its contractual arrangements with Newpark which
limit the Company's offshore activities as well as the lower price per barrel
paid to the Company by Newpark, the Company intends to concentrate its marketing
efforts towards inland generators of NOW. The Company believes that this
strategy will increase the total amount of NOW that is delivered to the Company
for treatment and disposal.
All of the Company's landfarms (except Elm Grove, Louisiana) have water
access, a key factor enabling barge transport of the NOW and reducing
transportation costs. As part of the Company's predecessor's contractual
arrangements with Newpark, however, the dock facilities at the Company's other
three Louisiana landfarms have been leased to Newpark until August 31, 2021.
The Company's Bustamonte, Texas facility generally accepts inland-generated
NOW generated within a radius of 150 miles. The Bustamonte facility uses a
combination of landfarming and landfilling, due primarily to the dry climate in
South Texas. The treatment process used is similar to Louisiana landfarming
although the NOW is dispersed and dried, rather than flushed with fresh water,
prior to stockpiling in on-site, synthetically-lined landfilled areas.
COMPETITION
NCW. In its NCW operations, the Company must compete for the procurement of
used cooking oil and other food processing residuals necessary to manufacture
its finished products. The limited availability of these higher-grade raw
materials causes competition among processors who bid for suppliers' materials.
The amount of used cooking oil and other food processing residuals processed
directly affects the amount of finished goods produced.
The Company purchases used cooking oil and other food processing residuals
utilized to process its finished products from clients on pre-established
routes, independent transporters and in bulk. A number of companies, some of
which have substantially greater resources than the Company, compete for such
materials through purchases from independent transporters and direct purchases
from restaurants. Because the Company competes with independent transporters in
some markets with respect to the collection of these materials, some independent
transporters may be reluctant to deliver collected materials to the Company for
processing.
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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. The Company believes that the landfarming and landfilling
methods constitute at least 45% of the off-site NOW treatment and disposal
business in the Gulf Coast region.
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
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Louisiana, Texas, Mississippi, Alabama and the Gulf of Mexico. This prohibition
expires on August 12, 2001. See "Certain Transactions."
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 onshore in the
Gulf Coast region. The Company competes for inland-generated NOW with a number
of smaller companies which treat and dispose of NOW in landfarm operations,
landfills and injection wells, and with one company which de-waters NOW and
disposes of the residual sludge in a landfill. Although complete information
regarding market share for inland-generated NOW is not available, the Company
estimates that it receives a substantial percentage of all NOW generated inland
in Louisiana and Texas that is treated off-site by third parties, excluding
saltwater.
The Company believes that there are certain barriers to entry in the
off-site NOW disposal business in the Gulf Coast region. These barriers include
formalized procedures for customer acceptance, licenses, permits, and the need
for specially equipped facilities and trained personnel.
See "Risk Factors--Competition."
REGULATORY BACKGROUND
The Company's business operations are affected both directly and indirectly
by governmental regulations, including various federal and state pollution
control and health and safety programs that are administered and enforced by
regulatory agencies including, without limitation, the EPA, the U.S. Coast
Guard, the U.S. Army Corps of Engineers, the TNRCC, the Texas Department of
Health, the Texas Railroad Commission, the Louisiana Department of Environmental
Quality and the Louisiana Department of Natural Resources. These programs are
applicable or potentially applicable to one or more of the Company's existing
operations. Although the Company intends to make capital expenditures to expand
its NCW and NOW treatment capabilities, the Company believes that it is not
presently required to make material capital expenditures to remain in compliance
with federal, state and local laws and regulations relating to the protection of
the environment. See "Risk Factors--Dependence Upon NOW Exemption Under RCRA and
Other Environmental Regulations" and "--Failure To Comply with Governmental
Regulations."
RCRA. RCRA is the principal federal statute governing hazardous and solid
waste generation, treatment, storage and disposal. The Company's Louisiana and
Texas landfarms treat and dispose of NOW, which is exempt from classification as
a RCRA-regulated waste.
At various times in the past, proposals have been made to rescind the
exemption that excludes NOW from regulation under RCRA. The appeal or
modification of this exemption by administrative, legislative or judicial
process would require the Company to change significantly its method of doing
business and would have a material adverse effect on the Company's business,
financial condition and results of operations. There is no assurance that the
Company would have the capital resources available to do so, or that it would be
able to adapt its operations. See "Risk Factors--Failure to Comply with
Governmental Regulations."
In addition to its positive impact on the Company's NOW operations, RCRA
also indirectly affects the Company's operations at its NCW treatment facilities
by prohibiting, among other things, the disposal of certain liquid wastes in
landfills. This prohibition increases demand for the services provided by the
Company's NCW treatment facilities.
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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.
None of the Company, Campbell Wells, AWW or any of the Mesa Companies has
ever been named by the EPA as a potentially responsible party in any CERCLA
action, and the Company does not believe that there is any basis for such a
claim. Nonetheless, the identification of one or more sites at which cleanup
action is required could subject the Company to liabilities which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
THE CLEAN WATER ACT. The Company treats and discharges wastewaters at its
NCW facilities and at its NOW landfarms. These activities are subject to the
requirements of the Clean Water Act and federal and state enforcement of these
regulations. The Clean Water Act regulates the discharge of pollutants,
including NCW and NOW, into waters. The Clean Water Act establishes a system of
standards, permits and enforcement procedures for the discharge of pollutants
from industrial and municipal wastewater sources. The law sets treatment
standards for industries and wastewater treatment plants and provides federal
grants to assist municipalities in complying with the new standards. In addition
to requiring permits for industrial and municipal discharges directly into the
waters of the United States, the Clean Water Act also requires pretreatment of
industrial wastewater before discharge into municipal systems. The Clean Water
Act gives the EPA the authority to set pretreatment limits for direct and
indirect industrial discharges. In addition, the Clean Water Act prohibits
certain discharges of oil or hazardous substances and authorizes the federal
government to remove or arrange for removal of such oil or hazardous substances.
The Clean Water Act also requires the adoption of the National Contingency Plan
to cover removal of such materials. Under the Clean Water Act, the owner or
operator of a vessel or facility may be liable for penalties and costs incurred
by the federal government in responding to a discharge of oil or hazardous
substances.
The Clean Water Act also has a significant impact on the operations of the
Company's customers for NOW services. The EPA Region 6 Outer Continental Shelf
("OCS") permit covering oil and gas operations in federal waters in the Gulf of
Mexico (seaward of the Louisiana and Texas territorial seas) was reissued in
November 1992 and modified in December 1993. This permit imposes stricter
discharge limits on oil and grease concentrations in produced waters to be
discharged. These limits are based on the Best Available Treatment Economically
Available ("BAT") requirements contained in the Oil and Gas Offshore Subcategory
national guidelines which were published March 4, 1993. Additional requirements
include toxicity testing and bioaccumulation monitoring studies of proposed
discharges.
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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.
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
33
<PAGE>
NCW to retain third parties such as the Company to handle their NCW on an
ongoing basis. See "Business--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."
(2) Each of these properties is held subject to a deed of trust.
In October 1996, the Company began construction in Fort Worth of a 14,000
square foot facility for the recovery and processing of finished products. This
new facility is expected to begin production in September 1997. The Company also
owns an administrative office in Fort Worth consisting of approximately 2,000
square feet of office space and a facility located in Laredo, Texas that is used
as a terminal.
The Company operates five NOW treatment facilities in Louisiana and Texas.
The following table sets forth information relating to the Company's NOW
treatment facilities.
<TABLE>
<CAPTION>
AREA PERMITTED
FOR NOW APPROXIMATE SQUARE 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.
34
<PAGE>
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.
With one exception, each of the lawsuits filed against Campbell Wells seeks
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, or (ii) alleged air, water and soil
contamination in connection with operations at the Mermentau, Louisiana
landfarm. 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 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, subject to
certain limitations, Sanifill has agreed to indemnify the Company from and
against all liabilities associated with such lawsuits. See "Certain
Transactions." 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).
35
<PAGE>
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 June 20, 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 adequate for its
operations. See "Risk Factors--Adequacy of Liability Insurance."
36
<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 and Senior Vice
President--Finance
Thomas B. Blanton(2)................................. 50 Director and Vice President--NCW Operations
Sammy L. Cooper...................................... 40 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)............................ 55 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
37
<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 and Senior Vice President--Finance 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.
38
<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 280(G) 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
39
<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 year preceding his initial election or appointment to the Board
is automatically granted an option to purchase 10,000 shares of Common Stock;
however, no such initial option was granted to Mr. Rothrock. In addition,
commencing in 1998, each outside director will be automatically granted an
option to purchase 5,000 shares of Common Stock on the first business day of
each 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 because of death or
disability.
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.
40
<PAGE>
STOCK OPTION PLANS
STOCK OPTION PLAN.The U S Liquids Inc. Amended and Restated Stock Option
Plan (the "Stock Option Plan") was adopted by the Board of Directors on November
20, 1996, and amendments to the Stock Option Plan were adopted by the Board of
Directors and approved by stockholders in June 1997. 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
consisting of at least two members of the Board of Directors who are not
employees of the Company. The Board of Directors has appointed the Compensation
Committee to administer the Stock Option Plan. In awarding options under the
Stock Option Plan, the Compensation 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 Compensation
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 foregoing
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. Options may be granted only to a
director of the Company who has not been an employee of the Company at any time
during the year preceding his election or appointment to the Board of Directors.
The Directors' Plan provides that, at the time of his or her initial election or
appointment to the Board, each outside director (other than Mr. Rothrock) 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, in
1998, each outside director will automatically be granted an option to purchase
5,000 shares of Common Stock on the first business day of each 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 administered by the Compensation Committee consisting
of Messrs. Tyler and Rothrock. 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.
41
<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 a promissory note to Sanifill
in the amount of $27.8 million (the "Sanifill Note"), 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 $40.7 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
42
<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 misrepresentations 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 misrepresentation 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.
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.
43
<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. 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 Bustamonte, Texas facility
and collection of NOW within a 200-mile radius of the Bustamonte facility,
44
<PAGE>
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 in a series of mergers 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. Following this offering, the Company will cause AWW
to pay to Mr. Wilson $314,000 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 $205,000 of the proceeds of
this offering to pay in full the debts secured by these deeds of trust and, at
such time, Mr. Blanton will transfer each of these properties to the Company.
Pending transfer of these properties to the Company, Mr. Blanton is leasing the
properties to the Company free of charge. In addition, the Company intends to
use approximately $1.0 million of the net proceeds of this offering to repay
various debts of the Mesa Companies (including all amounts owed to Mr. Blanton's
brother-in-law, Tommy Yount), of which approximately $740,000 has been
personally guaranteed by Mr. Blanton.
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 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
45
<PAGE>
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.
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.
46
<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) ..................................................... 534,000 10.2 7.9
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.
47
<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 290,000 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 50,000,000 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 June 20, 1997, the Company had 159 holders of record of
Common Stock.
PREFERRED STOCK
The Company's Restated Certificate of Incorporation authorizes the issuance
of 10,000,000 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.
48
<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" 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.
49
<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 476,250 shares held by other members of management, 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 Restated 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 Restated 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 Restated 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.
50
<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
51
<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
52
<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.
53
<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
Supplemental Consolidated Balance Sheets........................................... F-9
Supplemental Consolidated Statements of Income..................................... F-10
Supplemental Consolidated Statements of Stockholders' Equity....................... F-11
Supplemental Consolidated Statements of Cash Flows................................. F-12
Notes to Supplemental Consolidated Financial Statements............................ F-13
U S LIQUIDS INC. AND SUBSIDIARY
Report of Independent Public Accountants........................................... F-27
Consolidated Balance Sheets........................................................ F-28
Consolidated Statements of Income.................................................. F-29
Consolidated Statements of Stockholders' Equity.................................... F-30
Consolidated Statements of Cash Flows.............................................. F-31
Notes to Consolidated Financial Statements......................................... F-32
U S LIQUIDS INC. PREDECESSOR
Report of Independent Public Accountants........................................... F-41
Balance Sheets..................................................................... F-42
Statements of Income............................................................... F-43
Notes to Financial Statements...................................................... F-44
</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 supplemental 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 on 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.
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>
MARCH 31, 1997
---------------------------------------
ASSETS
SUPPLEMENTAL POST MERGER AS
CONSOLIDATED ADJUSTMENTS ADJUSTED
------------- ------------- ---------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................. $ 2,771 $ 12,327(A) $ 12,273
(2,825)(B)
Accounts receivable, net of allowance..................................... 3,736 3,736
Inventories............................................................... 422 422
Prepaid expenses and other current assets................................. 746 (95)(A) 651
------------- ------------- ---------
Total current assets.................................................... 7,675 9,407 17,082
PROPERTY, PLANT AND EQUIPMENT, net.......................................... 34,497 34,497
DEFERRED INCOME TAXES....................................................... 412 412
OTHER ASSETS, net........................................................... 570 (42)(B) 528
------------- ------------- ---------
Total assets............................................................ $ 43,154 $ 9,365 $ 52,519
------------- ------------- ---------
------------- ------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURENT LIABILITIES:
Current maturities of long-term obligations............................... $ 3,005 $ (1,231)(B) $ 1,774
Accounts payable.......................................................... 2,406 2,406
Accrued liabilities....................................................... 2,561 (218)(B) 2,343
Advances from stockholders and current maturities of related-party notes
payable................................................................. 438 (438)(B) --
------------- ------------- ---------
Total current liabilities............................................... 8,410 (1,887) 6,523
LONG-TERM OBLIGATIONS, net of current maturities............................ 22,248 (938)(B) 21,310
CELL PROCESSING RESERVE..................................................... 7,579 7,579
CLOSURE AND REMEDIATION
RESERVES.................................................................. 2,500 2,500
------------- ------------- ---------
Total liabilities....................................................... 40,737 (2,825) 37,912
------------- ------------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock........................................................... 10 10
Common stock.............................................................. 52 15(A) 67
Additional paid-in capital................................................ 1,379 12,217(A) 13,596
Retained earnings......................................................... 976 (42)(B) 934
------------- ------------- ---------
Total stockholder's equity.............................................. 2,417 12,190 14,607
------------- ------------- ---------
Total liabilities and stockholders' equity.............................. $ 43,154 $ 9,365 $ 52,519
------------- ------------- ---------
------------- ------------- ---------
</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
-----------------------------------------------------------------------------------
SUPPLEMENTAL U S LIQUIDS PRO FORMA POST MERGER
CONSOLIDATED PREDECESSOR ADJUSTMENTS PRO FORMA ADJUSTMENTS 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.................... 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............... $ 0.37
-----------
-----------
SHARES USED IN COMPUTING NET INCOME
PER SHARE........................ 6,829(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 THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------------------------
SUPPLEMENTAL PRO FORMA POST MERGER
CONSOLIDATED ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ----------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES......................................... $ 7,862 $ $ 7,862 $ $ 7,862
COST OF GOODS SOLD............................... 5,283 5,283 5,283
------ ----------- ----------- -------------- ------
GROSS PROFIT................................... 2,579 2,579 2,579
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..... 715 715 715
------ ----------- ----------- -------------- ------
INCOME (LOSS) FROM OPERATIONS.................. 1,864 1,864 1,864
INTEREST EXPENSE AND OTHER (INCOME), net......... 481 481 (73)(E) 408
------ ----------- ----------- -------------- ------
INCOME BEFORE INCOME TAXES....................... 1,383 1,383 73 1,456
PROVISION FOR INCOME TAXES....................... 504 63(D) 567 30(D) 597
------ ----------- ----------- -------------- ------
NET INCOME (LOSS)................................ $ 879 $ (63) $ 816 $ 43 $ 859
------ ----------- ----------- -------------- ------
------ ----------- ----------- -------------- ------
NET INCOME PER SHARE............................. $ 0.13
------
------
SHARES USED IN COMPUTING NET INCOME PER SHARE.... 6,829(F)
------
------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------------------------------------
SUPPLEMENTAL U S LIQUIDS PRO FORMA POST MERGER AS
CONSOLIDATED PREDECESSOR ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
------------- ----------- ------------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES................................ $ 3,697 $ 3,616 $ $ 7,313 $ $ 7,313
(415)(A)
COST OF GOODS SOLD...................... 3,239 2,199 125(B) 5,148 5,148
------------- ----------- ------------- ----------- ----- ---------
GROSS PROFIT.......................... 458 1,417 290 2,165 2,165
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 274 696 970 970
------------- ----------- ------------- ----------- ----- ---------
INCOME FROM OPERATIONS................ 184 721 290 1,195 1,195
INTEREST EXPENSE AND OTHER (INCOME),
net................................... 50 38 496(C) 584 (28)(E) 556
------------- ----------- ------------- ----------- ----- ---------
INCOME (LOSS) BEFORE INCOME TAXES....... 134 683 (206) 611 28 639
PROVISION (BENEFIT) FOR INCOME TAXES.... 62 271 (83)(D) 250 11(D) 261
------------- ----------- ------------- ----------- ----- ---------
NET INCOME (LOSS)....................... $ 72 $ 412 $ (123) $ 361 $ 17 $ 378
------------- ----------- ------------- ----------- ----- ---------
------------- ----------- ------------- ----------- ----- ---------
NET INCOME PER SHARE.................... $ 0.06
---------
---------
SHARES USED IN COMPUTING NET INCOME PER
SHARE................................. 6,829(F)
---------
---------
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.
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) 499,766 of the 1,500,000 shares
issued in connection with the Offering to pay down debt and other long-term
obligations, 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
702,000 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 supplemental consolidated balance sheets of
U S Liquids Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1996, and the related supplemental consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These supplemental consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these supplemental 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 supplemental 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 supplemental consolidated financial statements referred
to above present fairly, in all material respects, the supplemental 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 6, 1997
F-8
<PAGE>
U S LIQUIDS INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
-------------------- MARCH 31,
1995 1996 1997
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 39 $ 5,604 $ 2,771
Accounts receivable, less allowances of $12, $265 and $244.................... 723 4,843 3,736
Inventories................................................................... 364 339 422
Prepaid expenses and other current assets..................................... 67 764 746
--------- --------- -----------
Total current assets........................................................ 1,193 11,550 7,675
PROPERTY, PLANT AND EQUIPMENT, net.............................................. 1,680 34,582 34,497
DEFERRED INCOME TAXES........................................................... 65 186 412
OTHER ASSETS, net............................................................... 69 533 570
--------- --------- -----------
Total assets................................................................ $ 3,007 $ 46,851 $ 43,154
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations................................... $ 214 $ 5,817 $ 3,005
Accounts payable.............................................................. 1,231 2,984 2,406
Accrued liabilities........................................................... 124 2,147 2,561
Advances from stockholders and current maturities of related-party notes
payable..................................................................... 200 465 438
--------- --------- -----------
Total current liabilities................................................... 1,769 11,413 8,410
LONG-TERM OBLIGATIONS, net of current maturities................................ 1,044 23,668 22,248
RELATED-PARTY NOTES PAYABLE..................................................... 552 -- --
CELL PROCESSING RESERVE......................................................... -- 7,732 7,579
CLOSURE AND REMEDIATION RESERVES................................................ -- 2,500 2,500
--------- --------- -----------
Total liabilities........................................................... 3,365 45,313 40,737
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 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) 97 976
--------- --------- -----------
Total stockholders' equity.................................................. (358) 1,538 2,417
--------- --------- -----------
Total liabilities and stockholders' equity.................................. $ 3,007 $ 46,851 $ 43,154
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-9
<PAGE>
U S LIQUIDS INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------------
1994 1995 1996 1996 1997
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
REVENUES............................................... $ 8,039 $ 11,127 $ 14,285 $ 3,697 $ 7,862
COST OF OPERATIONS..................................... 7,558 9,935 11,790 3,239 5,283
--------- --------- --------- ----------- -----------
Gross profit......................................... 481 1,192 2,495 458 2,579
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 643 863 1,440 274 715
--------- --------- --------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS.......................... (162) 329 1,055 184 1,864
INTEREST EXPENSE....................................... 110 159 397 51 524
OTHER (INCOME) EXPENSE, net............................ (1) 18 (88) (1) (43)
--------- --------- --------- ----------- -----------
INCOME (EXPENSE) BEFORE PROVISION (BENEFIT) FOR INCOME
TAXES................................................ (271) 152 746 134 1,383
PROVISION (BENEFIT) FOR INCOME TAXES................... (89) 49 255 62 504
--------- --------- --------- ----------- -----------
Net income (loss).................................... $ (182) $ 103 $ 491 $ 72 $ 879
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-10
<PAGE>
U S LIQUIDS INC.
SUPPLEMENTAL 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)......................... -- -- -- -- -- 879
--------- ----- ---------- ----- ----------- -----
BALANCE, March 31, 1997 (unaudited).............. 10,000 $ 10 5,238,875 $ 52 $ 1,379 $ 976
--------- ----- ---------- ----- ----------- -----
--------- ----- ---------- ----- ----------- -----
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-11
<PAGE>
U S LIQUIDS INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------------
1994 1995 1996 1996 1997
--------- --------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ (182) $ 103 $ 491 $ 72 $ 879
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Depreciation and amortization.......................... 136 159 424 90 633
Deferred income tax provision (benefit)................ (86) 31 (121) (28) (226)
Changes in operating assets and liabilities--
Accounts receivable.................................. (6) (539) (105) 175 1,107
Inventories.......................................... (5) (288) 44 (140) (83)
Prepaid expenses and other current assets............ (11) (19) (635) (80) 18
Other assets......................................... (5) (20) (113) (111) (41)
Accounts payable and accrued liabilities............. 201 946 1,567 293 (178)
Closure, remediation and cell processing reserves.... -- -- (13) -- (153)
--------- --------- --------- ------ -----------
Net cash provided by operating activities.......... 42 373 1,539 271 1,956
--------- --------- --------- ------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............... (178) (916) (1,795) (632) (544)
Net cash (paid for) acquired through acquisitions........ -- -- 5,985 (25) --
--------- --------- --------- ------ -----------
Net cash provided by (used in) investing
activities....................................... (178) (916) 4,190 (657) (544)
--------- --------- --------- ------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on advances from stockholders and related party
notes payable.......................................... -- (6) (139) (58) (27)
Proceeds from issuance of long-term obligations.......... 144 1,084 1,152 486 97
Principal payments on long-term obligations.............. (77) (564) (1,650) (37) (4,329)
Interest accrued on related-party notes payable.......... 47 50 56 14 14
Preferred stock dividends paid........................... (4) (7) -- -- --
Issuance of common stock................................. -- -- 417 -- --
--------- --------- --------- ------ -----------
Net cash provided by (used in) financing
activities....................................... 110 557 (164) 405 (4,245)
--------- --------- --------- ------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (26) 14 5,565 19 (2,833)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 51 25 39 39 5,604
--------- --------- --------- ------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 25 $ 39 $ 5,604 $ 58 $ 2,771
--------- --------- --------- ------ -----------
--------- --------- --------- ------ -----------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest................................... $ 110 $ 102 $ 339 $ 50 $ 599
Cash paid for income taxes............................... -- 2 7 6 23
Assets acquired under capital leases..................... -- 88 -- -- --
Assets acquired with stock warrants...................... -- -- 995 -- --
</TABLE>
The accompanying notes are an integral part of these supplemental consolidated
financial statements.
F-12
<PAGE>
U S LIQUIDS INC.
NOTES TO SUPPLEMENTAL 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 supplemental 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 supplemental
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
supplemental 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 supplemental 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 supplemental consolidated financial statements as of March 31,
1997, and for the three months ended March 31, 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
supplemental 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
F-13
<PAGE>
U S LIQUIDS INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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.
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 SUPPLEMENTAL 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 supplemental 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 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. 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 SUPPLEMENTAL 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 supplemental consolidated
financial statements. Costs were allocated to the net assets acquired based on
F-16
<PAGE>
U S LIQUIDS INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS: (CONTINUED)
management's 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.............................................................. 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 SUPPLEMENTAL 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
supplemental 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 SUPPLEMENTAL 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 SUPPLEMENTAL 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 SUPPLEMENTAL 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 SUPPLEMENTAL 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 SUPPLEMENTAL 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 SUPPLEMENTAL 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.
F-24
<PAGE>
U S LIQUIDS INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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.
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.
With one exception, each of the lawsuits filed against Campbell Wells seeks
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, or (ii) alleged air, water and soil
contamination in connection with operations at the Mermentau, Louisiana
landfarm. 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 SUPPLEMENTAL 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. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
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 supplemental
consolidated financial statements have been restated to reflect the adjusted
number of shares, warrants and options.
On June 17, 1997, the Company amended and restated its articles of
incorporation and bylaws to provide, among other things, for the amount of
authorized common stock to be increased to 50 million and authorized 10 million
shares of preferred stock. The supplemental consolidated financial statements
have been restated to reflect these actions.
On June 17, 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.
F-26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To U S Liquids Inc.:
We have audited the accompanying consolidated balance sheet of U S Liquids
Inc. (a Delaware corporation) and subsidiary as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity and cash flows
for the period from inception (November 18, 1996) through 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 audit.
We conducted our audit 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 audit provides 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 subsidiary as of December 31, 1996, and the results of
their operations and their cash flows for the period from inception (November
18, 1996) through December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
June 6, 1997
F-27
<PAGE>
U S LIQUIDS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ -----------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 5,590 $ 2,709
Accounts receivable, less allowances of $246 and $225............................... 3,945 2,715
Prepaid expenses and other current assets........................................... 640 626
------------ -----------
Total current assets.............................................................. 10,175 6,050
PROPERTY, PLANT AND EQUIPMENT, net.................................................... 30,615 30,326
DEFERRED INCOME TAXES................................................................. 33 233
OTHER ASSETS.......................................................................... 329 368
------------ -----------
Total assets...................................................................... $ 41,152 $ 36,977
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligation.......................................... $ 4,170 $ 1,375
Accounts payable.................................................................... 1,680 784
Accrued liabilities................................................................. 1,406 1,823
------------ -----------
Total current liabilities......................................................... 7,256 3,982
LONG-TERM OBLIGATION, net of current maturities....................................... 22,240 20,865
CELL PROCESSING RESERVE............................................................... 7,732 7,581
CLOSURE AND REMEDIATION RESERVES...................................................... 2,500 2,500
------------ -----------
Total liabilities................................................................... 39,728 34,928
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 10,000,000 shares authorized, none issued or outstanding
Common stock, $.01 par value, 50,000,000 shares authorized, 3,538,875 shares issued
and outstanding................................................................... 35 35
Additional paid-in capital.......................................................... 1,377 1,377
Retained earnings................................................................... 12 637
------------ -----------
Total stockholders' equity........................................................ 1,424 2,049
------------ -----------
Total liabilities and stockholders' equity........................................ $ 41,152 $ 36,977
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
U S LIQUIDS INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION THREE
THROUGH MONTHS
DECEMBER 31, ENDED MARCH
1996 31, 1997
--------------- -----------
<S> <C> <C>
(UNAUDITED)
REVENUES.............................................................................. $ 826 $ 4,256
COST OF OPERATIONS.................................................................... 357 2,322
----- -----------
Gross profit........................................................................ 469 1,934
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......................................... 343 452
----- -----------
INCOME FROM OPERATIONS................................................................ 126 1,482
INTEREST INCOME....................................................................... (12) (15)
INTEREST EXPENSE...................................................................... 110 441
OTHER (INCOME) EXPENSE, net........................................................... 2 (12)
----- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES.............................................. 26 1,068
PROVISION FOR INCOME TAXES............................................................ 14 443
----- -----------
Net income.......................................................................... $ 12 $ 625
----- -----------
----- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
U S LIQUIDS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, November 18, 1996 (inception)................ -- $ -- $ -- $ -- $ --
Issuance of common stock............................ 3,538,875 35 382 -- 417
Issuance of stock warrants.......................... -- -- 995 -- 995
Net income.......................................... -- -- -- 12 12
---------- ----- ----------- ----- ------------
BALANCE, December 31, 1996............................ 3,538,875 35 1,377 12 1,424
Net income (unaudited).............................. -- -- -- 625 625
---------- ----- ----------- ----- ------------
BALANCE, March 31, 1997 (unaudited)................... 3,538,875 $ 35 $ 1,377 $ 637 $ 2,049
---------- ----- ----------- ----- ------------
---------- ----- ----------- ----- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
U S LIQUIDS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION THREE
THROUGH MONTHS
DECEMBER 31, ENDED MARCH
1996 31, 1997
------------- -----------
<S> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................................................... $ 12 $ 625
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation...................................................................... 78 503
Deferred income tax benefit....................................................... (33) (200)
Changes in operating assets and liabilities--
Accounts receivable............................................................. 35 1,230
Prepaid expenses and other current assets....................................... (579) 14
Other assets.................................................................... (58) (41)
Accounts payable and accrued liabilities........................................ 1,120 (479)
Closure, remediation and cell processing reserves............................... (13) (151)
------ -----------
Net cash provided by operating activities..................................... 562 1,501
------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired through the Campbell Wells Acquisition................................ 6,001 --
Additions to property, plant and equipment.......................................... -- (212)
------ -----------
Net cash provided by (used in) investing activities........................... 6,001 (212)
------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term obligations......................................... (1,390) (4,170)
Issuance of common stock............................................................ 417 --
------ -----------
Net cash used in financing activities......................................... (973) (4,170)
------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................. 5,590 (2,881)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................................... -- 5,590
------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................ $ 5,590 $ 2,709
------ -----------
------ -----------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.............................................................. $ 110 $ 511
Cash paid for income taxes.......................................................... -- --
Assets acquired with stock warrants................................................. 995 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<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").
U S Liquids Inc. and subsidiary ("U S Liquids" or the "Company") treats and
disposes nonhazardous oil field waste ("NOW") streams principally from the Gulf
Coast region. The Company has treatment facilities located in Louisiana and
Texas that service the Gulf Coast region of the United States.
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 the Company in conformity with generally
accepted accounting principles. All significant intercompany transactions have
been eliminated in consolidation.
INTERIM FINANCIAL INFORMATION
The interim consolidated financial statements as of March 31, 1997, and for
the three months ended March 31, 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 consolidated interim financial
statements, 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 and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or
less are classified as cash equivalents.
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, 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, 1996, 19 percent and 50 percent of total accounts
receivable are associated with two customers,
F-32
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
respectively. In addition, sales to one customer represented 72 percent of total
revenues for the period from inception through December 31, 1996. See Note 11.
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.
INSURANCE
The Company maintains various types of insurance coverage for its business,
including without limitation, commercial general liability and commercial
compensation and employer liability.
INCOME TAXES
The Company will file a consolidated return for federal income tax purposes.
Income taxes 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.
CLOSURE AND REMEDIATION RESERVES
The closure and remediation reserves represent accruals for the 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. 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.
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
F-33
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
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. THE CAMPBELL WELLS ACQUISITION:
Effective December 14, 1996, the Company 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 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
F-34
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. THE CAMPBELL WELLS ACQUISITION: (CONTINUED)
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.
Accordingly, the following unaudited pro forma income statement data includes
the revenues and income from operations 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................................................................ $ 15,119 $ 17,679
Net income.............................................................. 1,115 1,912
</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 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.
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets at December 31, 1996, consist of
the following (in thousands):
<TABLE>
<S> <C>
Prepaid insurance.................................................. $ 568
Other.............................................................. 72
---------
$ 640
---------
---------
</TABLE>
F-35
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31, 1996, consist of the following
(in thousands):
<TABLE>
<CAPTION>
DEPRECIABLE
LIFE
-------------
(YEARS)
<S> <C> <C>
Landfarm and treatment sites..................................... 25 $ 14,781
Buildings and improvements....................................... 10-12 12,894
Machinery and equipment.......................................... 3-5 2,599
Vehicles......................................................... 3-5 265
Furniture and fixtures........................................... 3 154
-------
30,693
Less--Accumulated depreciation................................... (78)
-------
$ 30,615
-------
-------
</TABLE>
6. OTHER ASSETS:
Other assets at December 31, 1996, consist of the following (in thousands):
<TABLE>
<CAPTION>
Note receivable................................................ $ 196
<S> <C>
Asset held for resale.......................................... 75
Organizational costs........................................... 58
-----------
$ 329
-----------
-----------
</TABLE>
7. ACCRUED LIABILITIES:
Accrued liabilities at December 31, 1996, consist of the following (in
thousands):
<TABLE>
<CAPTION>
Insurance premium promissory note, interest rate at 6.0%, due
July 1997.................................................... $ 589
<S> <C>
Accrued salaries............................................... 161
Engineering and testing fees................................... 147
Professional fees.............................................. 118
Accrued interest............................................... 105
Repairs and maintenance........................................ 96
Other.......................................................... 190
-----------
$ 1,406
-----------
-----------
</TABLE>
F-36
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES:
The components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
Current--
<S> <C>
Federal...................................................... $ 36
State........................................................ 11
-----------
47
Deferred--
Federal...................................................... (26)
State........................................................ (7)
-----------
(33)
-----------
$ 14
-----------
-----------
</TABLE>
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before provision for income
taxes result from the following (in thousands):
<TABLE>
<CAPTION>
Tax at statutory rate.......................................... $ 9
<S> <C>
Add--
State income taxes, net of federal benefit................... 2
Nondeductible expenses....................................... 3
-----------
$ 14
-----------
-----------
</TABLE>
The tax effects of significant temporary differences representing deferred
income tax assets and liabilities are as follows (in thousands):
<TABLE>
<S> <C>
Deferred income tax assets--
Cell processing reserve...................................... $ 1,577
Accrued expenses............................................. 77
-----------
Total...................................................... 1,654
Deferred income tax liabilities--
Property and equipment....................................... (1,621)
-----------
Total...................................................... (1,621)
-----------
Net deferred income tax asset.............................. $ 33
-----------
-----------
</TABLE>
9. LONG-TERM OBLIGATION:
The Company's long-term obligation at December 31, 1996, consists of the
following (in thousands):
<TABLE>
<S> <C>
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 the Company............ $ 26,410
Less--Current maturities of long-term obligation............. (4,170)
-----------
$ 22,240
-----------
-----------
</TABLE>
F-37
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM OBLIGATION: (CONTINUED)
Principal payments of the long-term obligation and minimum lease payments
under operating lease obligations as of December 31, 1996, are as follows (in
thousands):
<TABLE>
<CAPTION>
OPERATING LONG-TERM
LEASES DEBT
----------- -----------
<S> <C> <C>
Year ending December 31--
1997................................................................ $ 269 $ 4,170
1998................................................................ 270 5,560
1999................................................................ 272 5,560
2000................................................................ 283 5,560
2001................................................................ 202 5,560
Thereafter.......................................................... 6,142 --
----------- -----------
Total............................................................. $ 7,438 $ 26,410
----------- -----------
----------- -----------
</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.
Management estimates that the fair value of its debt obligations
approximates the historical value of $26,410,000 at December 31, 1996.
10. STOCK OPTIONS:
On November 20, 1996, the Company 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
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 $10,000. 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>
<CAPTION>
Expected stock price volatility................................... 35.55%
<S> <C>
Risk-free interest rate........................................... 6.17%
Expected life of options.......................................... 10 years
</TABLE>
F-38
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
The Company 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 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 under noncancelable operating leases
for periods ranging from four to 27 years. Rent expense was approximately
$10,000 for the period from inception (November 18, 1996) through December 31,
1996.
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 the Company as part of the Campbell
Wells Acquisition.
With one exception, each of the lawsuits filed against Campbell Wells seeks
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, or (ii) alleged air, water and soil
contamination in connection with operations at the Mermentau, Louisiana
landfarm. 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
F-39
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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 has
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 the 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.
12. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
(UNAUDITED):
On June 16, 1997, the Company acquired Mesa Processing, Inc., and related
companies and American WasteWater Inc. through pooling-of-interests
transactions. Subsequent to an initial public offering, the Company intends to
acquire other similar companies through merger or purchase in order to expand
its operations.
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 17, 1997, the Company amended and restated its articles of
incorporation and by-laws to provide, among other things, for the amount of
authorized common stock to be increased to 50 million and authorized 10 million
shares of preferred stock. The consolidated financial statements have been
restated to reflect these actions.
On June 17, 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 million 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, the Company filed a registration statement on Form S-1 for
the sale of its common stock.
F-40
<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 6, 1997
F-41
<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-42
<PAGE>
U S LIQUIDS INC. PREDECESSOR
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, PERIOD ENDED THREE
-------------------- DECEMBER 13, MONTHS
1994 1995 1996 ENDED MARCH
--------- --------- ------------ 31, 1996
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES........................................................ $ 14,847 $ 15,119 $ 16,853 $ 3,616
COST OF OPERATIONS.............................................. 7,478 8,635 9,136 2,199
--------- --------- ------------ -----------
Gross profit.................................................. 7,369 6,484 7,717 1,417
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................... 2,626 2,989 2,524 696
--------- --------- ------------ -----------
Income from operations........................................ 4,743 3,495 5,193 721
INTEREST EXPENSE................................................ 105 246 353 61
OTHER INCOME, net............................................... (176) (51) (97) (23)
--------- --------- ------------ -----------
INCOME BEFORE PROVISION FOR INCOME TAXES........................ 4,814 3,300 4,937 683
PROVISION FOR INCOME TAXES...................................... 1,945 1,400 2,044 271
--------- --------- ------------ -----------
NET INCOME...................................................... $ 2,869 $ 1,900 $ 2,893 $ 412
--------- --------- ------------ -----------
--------- --------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<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-44
<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 three months ended March 31, 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.
F-45
<PAGE>
U S LIQUIDS INC. PREDECESSOR
NOTES TO PREDECESSOR 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.
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 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. 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.
F-46
<PAGE>
U S LIQUIDS INC. PREDECESSOR
NOTES TO PREDECESSOR FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
For purposes of these predecessor financial statements, current and deferred
income taxes have been provided on a separate return basis.
NEW ACCOUNTING STANDARD
Effective January 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting (SFAS) Standards 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. 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-47
<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-48
<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
F-49
<PAGE>
U S LIQUIDS INC. PREDECESSOR
NOTES TO PREDECESSOR FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
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.
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.
With one exception, each of the lawsuits filed against Campbell Wells seeks
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, or (ii) alleged air, water and soil
contamination in connection with operations at the Mermentau, Louisiana
landfarm. 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-50
<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................................ 13
Dilution....................................... 13
Capitalization................................. 14
Dividend Policy................................ 14
Selected Financial Data........................ 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 17
Business....................................... 23
Management..................................... 37
Certain Transactions........................... 42
Principal Stockholders......................... 47
Description of Securities...................... 48
Underwriting................................... 51
Legal Matters.................................. 52
Experts........................................ 52
Additional Information......................... 52
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.
U S LIQUIDS INC.
1,500,000 SHARES OF 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
NASDAQ National Market listing fee................................................ 34,317
Printing expenses................................................................. *
Accounting fees and expenses...................................................... *
Legal fees and expenses........................................................... *
Blue sky fees and expenses........................................................ 15,000
Transfer agent fees............................................................... *
Miscellaneous..................................................................... *
----------
TOTAL........................................................................... $ *
----------
----------
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated 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 Restated 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--
II-1
<PAGE>
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 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 18, 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 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
10.5 Noncompetition Agreement, dated August 12, 1996, between Sanifill, Inc. and Newpark
Resources, Inc.
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 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 Employment Agreement, dated June 17, 1997, between U S Liquids Inc. and Jerry L. Brazzel.
*10.18 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------
<C> <S>
10.28 Financial Advisory Agreement, dated May 15, 1997, between U S Liquids Inc. and Sanders Morris
Mundy Inc.
*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.
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 (included herein on Signature Page).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
*To be filed by amendment.
(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 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
II-4
<PAGE>
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 June 25, 1997.
U S LIQUIDS INC.
By: /s/ W. GREGORY ORR
-----------------------------------------
W. Gregory Orr
PRESIDENT
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of W. Gregory Orr and Earl J. Blackwell with full power to act without the
other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (until revoked in writing) to sign any and all amendments
(including post-effective amendments) to this Registration Statement, to file
the same, together with all exhibits thereto and other documents in connection
therewith, with the SEC, to sign any and all applications, registration
statements, notices and other documents necessary or advisable to comply with
the applicable state securities laws, and to file the same, together with all
other documents in connection therewith, with the appropriate state securities
authorities, granting unto said attorneys-in-fact and agents or any of them or
their or his substitutes or substitute, full power and authority to perform and
do each and every act and thing necessary and advisable as fully to all intents
and purposes as he might or could perform and do in person, thereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitutes or substitute, may lawfully do or cause to be done by
virtue hereof.
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 JUNE 25, 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
II-6
<PAGE>
U S LIQUIDS INC.
UNDERWRITING AGREEMENT
August __, 1997
VAN KASPER & COMPANY
SANDERS MORRIS MUNDY INC.
As Representatives of the
Several Underwriters
c/o Van Kasper & Company
10877 Wilshire Blvd., Suite 1700
Los Angeles, California 90024
Ladies and Gentlemen:
U S Liquids Inc., a Delaware corporation (the "Company"), proposes to issue
and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters") an aggregate of 1,500,000 shares (the "Firm Shares") of its
authorized but unissued Common Stock, par value $0.01 per share (the "Common
Stock"). The Company also proposes to grant to the Underwriters an option to
purchase up to 225,000 additional shares of Common Stock (the "Option Shares")
for the sole purpose of covering over-allotments, if any, in connection with the
sale of the Firm Shares. The Firm Shares and any Option Shares purchased
pursuant to this Agreement are referred to below as the "Shares." Van Kasper &
Company and Sanders Morris Mundy Inc. are acting as representatives of the
several Underwriters and in that capacity are referred to in this Agreement as
the "Representatives."
The Company hereby confirms its agreement with the several Underwriters as
follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to and agrees with each Underwriter as follows:
(a) A registration statement (Registration No. 333-_____) on Form S-1
under the Securities Act of 1933, as amended (the "Securities Act"), relating to
the Shares, including such amendments to such registration statement as may have
been required to the date of this Agreement, has been prepared by the Company
under and in conformity with the provisions of the Securities Act and the rules
and regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder and has been filed with the Commission.
After the execution of this Agreement, the Company will file with the Commission
either (i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Securities Act, either (A)
if the Company relies on Rule 434 under the Securities Act, a Term Sheet
(defined below) relating to the Shares, that identifies the Preliminary
Prospectus (defined below) that it supplements and contains such information as
is required or permitted by Rules 434, 430A and 424(b) of the Rules and
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<PAGE>
Regulations or (B) if the Company does not rely on Rule 434 under the Securities
Act, a prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment has been filed, in such
registration statement), with such changes or insertions as are required by Rule
430A of the Rules and Regulations or permitted by Rule 424(b) of the Rules and
Regulations, and in the case of either (i)(A) or (i)(B) of this sentence, as has
been provided to and approved by the Representatives prior to the execution of
this Agreement, or (ii) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the
Securities Act, an amendment to such registration statement, including a form of
prospectus, a copy of which amendment has been furnished to and approved by the
Representatives prior to the execution of this Agreement. As used in this
Agreement, the term "Registration Statement" means such registration statement,
as amended at the time when it was or is declared effective, including all
financial schedules and exhibits thereto, any information omitted therefrom
pursuant to Rule 430A of the Rules and Regulations and included in the
Prospectus (defined below) and further including all filings or other documents
incorporated therein, as well as any additional registration statement filed in
connection with the offering of the Shares pursuant to Rule 462(b) under the
Securities Act; the term "Preliminary Prospectus" means each prospectus subject
to completion filed with such registration statement or any amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement or any amendment thereto at the time it was or is
declared effective and further including all filings or documents incorporated
therein); and the term "Prospectus" means the following, including any filings
or documents incorporated therein:
(A) if the Company relies on Rule 434 under the Securities Act, the
Term Sheet relating to the Securities that is first filed
pursuant to Rule 424(b)(7) under the Securities Act, together
with the Preliminary Prospectus identified therein that such Term
Sheet supplements;
(B) if the Company does not rely on Rule 434 under the Securities
Act, the prospectus first filed with the Commission pursuant to
Rule 424(b) under the Securities Act; or
(C) if the Company does not rely on Rule 434 under the Securities Act
and if no prospectus is required to be filed pursuant to Rule
424(b) under the Securities Act, the prospectus included in the
Registration Statement;
provided that if any revised prospectus that is provided to the Underwriters by
the Company for use in connection with the offering of the Shares differs from
the prospectus on file with the Commission at the time the Registration
Statement became or becomes, as the case may be, effective, whether or not the
revised prospectus is required to be filed with the Commission pursuant to Rule
424(b)(3) of the Rules and Regulations, the term "Prospectus" shall mean such
revised prospectus (including all filings and documents incorporated therein)
from and after the time it is first provided to the Underwriters for such use.
The term "Term Sheet" as used in this Agreement means any term sheet that
satisfies the requirements of Rule 434 under the Securities
-2-
<PAGE>
Act. Any reference in this Agreement to the "date" of a Prospectus that
includes a Term Sheet means the date of such Term Sheet.
(b) No order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of any Preliminary Prospectus or
the Prospectus has been issued and no proceedings for that purpose are pending
or, to the best knowledge of the Company, threatened or contemplated by the
Commission; no stop order suspending the sale of the Shares in any jurisdiction
has been issued and no proceedings for that purpose are pending or, to the best
knowledge of the Company, threatened or contemplated, and any request of the
Commission for additional information (to be included in the Registration
Statement, any Preliminary Prospectus or the Prospectus or otherwise) has been
complied with.
(c) Each of the Company and its direct and indirect subsidiaries has
been duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full power
(corporate and other) and authority to own or lease its properties and conduct
its business as described in the Registration Statement and the Prospectus and
as is currently being conducted by it and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the character of
the property owned or leased or the nature of the business transacted by it
makes qualification necessary (except where the failure to be so qualified would
not have a material adverse effect on the business, properties, condition
(financial or otherwise), results of operations or prospects of the Company and
its direct and indirect subsidiaries, taken as a whole (a "Consolidated Material
Adverse Effect")). The Company and each of its direct and indirect subsidiaries
is in possession of and operating in compliance with all authorizations,
licenses, certificates, consents, orders and permits from federal, state, local
and other governmental or regulatory authorities that are material to the
conduct of its or their business, all of which are valid and in full force and
effect. Except as disclosed in the Registration Statement, the Company owns
directly or indirectly all of the outstanding capital stock or other equity
interests of each of its direct or indirect subsidiaries, free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest of any
type, kind or nature. As used in this Agreement, the word "subsidiary" means
any corporation, partnership, limited liability company or other entity of which
the Company directly or indirectly owns 50% or more of the equity or that the
Company directly or indirectly controls. So long as the Company owns
directly or indirectly no more than 49% of Grasas Alimenticias Premezclades
S.A. de C.Z., that entity shall not be deemed a subsidiary for purposes of
this Agreement.
(d) When any Preliminary Prospectus was filed with the Commission it
(i) contained all statements required to be contained therein and complied in
all respects with the requirements of the Securities Act, the Rules and
Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations of the Commission thereunder (the "Exchange
Act Rules and Regulations") and (ii) did not include any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. When the Registration Statement or any amendment thereto
was or is declared effective (the "Effective Date"), it (i) contained or will
contain all statements required to be contained therein and complied or will
comply in all respects with the requirements of the Securities Act, the Rules
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<PAGE>
and Regulations, the Exchange Act and the Exchange Act Rules and Regulations and
(ii) did not or will not include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading. When the Prospectus or any Term Sheet that is a part thereof or any
amendment or supplement to the Prospectus is filed with the Commission pursuant
to Rule 424(b) (or, if the Prospectus or part thereof or such amendment or
supplement is not required to be so filed, when the Registration Statement or
the amendment thereto containing such amendment or supplement to the Prospectus
was or is declared effective) and on the Closing Date (defined below) and any
date on which Option Shares are to be purchased, the Prospectus, as amended or
supplemented at any such time, (i) contained or will contain all statements
required to be contained therein and complied or will comply in all respects
with the requirements of the Securities Act, the Rules and Regulations and the
Exchange Act Rules and Regulations and (ii) did not or will not include any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. The foregoing provisions of this
paragraph (d) do not apply to statements or omissions made
in any Preliminary Prospectus, the Registration Statement or any amendment
thereto or the Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein.
(e) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), there has not been any
material loss or interference with the business of the Company or any of its
direct or indirect subsidiaries from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any court or governmental action,
order or decree, or any changes in the capital stock or long-term debt of the
Company or any of its direct or indirect subsidiaries, or any dividend or
distribution of any kind declared, paid or made on the capital stock of the
Company, or any material change, or a development known to the Company that
might cause or result in a Consolidated Material Adverse Effect, whether or not
arising from transactions in the ordinary course of business, in each case other
than as may be set forth in the Registration Statement and the Prospectus (or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus),
and since such dates, except in the ordinary course of business, neither the
Company or any of its direct or indirect subsidiaries has entered into any
material transaction not described in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus).
(f) There is no agreement, contract, license, lease or other document
required to be described in the Registration Statement or the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus) or
to be filed as an exhibit to the Registration Statement which is not described
or filed as required. All contracts described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus), if any,
are in full force and effect on the date hereof, and neither the Company or any
of its direct or indirect
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<PAGE>
subsidiaries nor, to the best knowledge of the Company, any other party, is
in material breach of or default under any such contract.
(g) The authorized and outstanding capital stock of the Company is
set forth in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), and the description of the capital stock therein
conforms with and accurately describes the rights set forth in the instruments
defining the same. The Shares are duly authorized and will, when issued in
accordance with the terms of this Agreement and against payment therefor, be
validly issued, fully paid and non-assessable, and the issuance of the Shares is
not subject to any preemptive or similar rights.
(h) All of the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all applicable federal and
state securities laws and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities. All
of the issued shares of capital stock or other equity interests of each direct
or indirect subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and are directly or indirectly owned
by the Company. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted or
exercised thereunder, set forth in the Prospectus (or, if the Prospectus is not
in existence, in the most recent Preliminary Prospectus), accurately and fairly
present the information required to be shown with respect to such plans,
arrangements, options and rights. Other than this Agreement, the "Warrant
Agreement" (as defined in Section 1(ab) below) and the options and warrants to
purchase Common Stock described in the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), there are no options,
warrants or other rights outstanding to subscribe for or purchase any shares of
the Company's capital stock. There are no preemptive rights applicable to any
shares of capital stock of the Company. There are no restrictions upon the
voting or transfer of any of the Firm Shares or Option Shares pursuant to the
Company's certificate of incorporation, as amended to date ("Certificate of
Incorporation"), bylaws or other governing documents or any agreement to which
the Company is a party or by which it may be bound. Except as is provided in the
Warrant Agreement and for the Shares, neither the filing of the Registration
Statement nor the offering or sale of the Shares as contemplated by this
Agreement gives rise to any rights, other than those which have been waived, for
or relating to the registration of any securities (other than the Shares) of or
issued by the Company.
(i) The Company has full right, power and authority to enter into and
perform its obligations under this Agreement and the Warrant Agreement and to
issue, sell and deliver the Shares. This Agreement and the Warrant Agreement
have each been duly authorized, executed and delivered by the Company and
constitute the valid and binding agreements of the Company, and each is
enforceable against the Company in accordance with its terms except insofar as
enforceability may be affected by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and except
insofar as the indemnification and
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<PAGE>
contribution provisions of Section 7 of this Agreement and Section 3(f) of
the Warrant Agreement hereof may be affected by public policy concerns.
(j) Neither the Company or any of its direct or indirect subsidiaries
is, nor with the giving of notice or lapse of time or both would be, in
violation of or in default under, nor will the execution or delivery of this
Agreement or the Warrant Agreement or the consummation of the transactions
contemplated by this Agreement or the Warrant Agreement result in a violation of
or constitute a breach of or a default (including without limitation with the
giving of notice, the passage of time or otherwise) under the Certificate of
Incorporation, bylaws or other governing documents of the Company or any of its
direct or indirect subsidiaries or any obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, deed of trust, loan
agreement, lease, license, joint venture or other agreement or instrument to
which the Company or any of its direct or indirect subsidiaries is a party or by
which any of its or their properties may be bound or affected. The Company has
not incurred any liability, direct or indirect, for any finders' or similar fees
payable on behalf of the Company or the Underwriters in connection with the
transactions contemplated by this Agreement. The performance by the Company of
its obligations under this Agreement and the Warrant Agreement will not violate
any law, ordinance, rule or regulation (provided that no representation or
warranty is made hereby with respect to the effect, if any, of public policy
concerns on the indemnification and contribution provisions of Section 7 hereof
and Section 3(f) of the Warrant Agreement), or any order, writ, injunction,
judgment or decree of any governmental agency or body or of any court having
jurisdiction over the Company or any of its direct or indirect subsidiaries or
any of its or their properties, or result in the creation or imposition of any
lien, charge, claim or encumbrance upon any property or asset of the Company or
any of its direct or indirect subsidiaries. Except for permits and similar
authorizations required under the Securities Act, the Exchange Act or under
state securities or Blue Sky laws and for such permits and authorizations that
have been obtained, no consent, approval, authorization or order of any court,
governmental agency or body, financial institution or any other person is
required in connection with the consummation of the transactions contemplated by
this Agreement or the Warrant Agreement.
(k) Each of the Company and its direct and indirect subsidiaries
owns, or has valid rights to use, all items of real and personal property which
are material to the business of the Company and its direct and indirect
subsidiaries, taken as a whole, free and clear, except as described in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), of all liens, encumbrances
and claims that might materially interfere with the business, properties,
condition (financial or otherwise), results of operations or prospects of the
Company and its direct and indirect subsidiaries, taken as a whole.
(l) Each of the Company and its direct and indirect subsidiaries,
taken as a whole, owns or possesses adequate rights to use all material patents,
patent rights, inventions, trade secrets, know-how, trademarks, service marks,
tradenames and copyrights described or referred to in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) as owned by or used by any of them, or which are
necessary for the conduct of its or their business as described in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
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<PAGE>
existence, the most recent Preliminary Prospectus); and the Company has not
received any notice of infringement of or conflict with asserted rights of
others with respect to any patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, tradenames or copyrights which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
might have a Consolidated Material Adverse Effect.
(m) There is no litigation or governmental proceeding to which the
Company or any of its direct or indirect subsidiaries is a party or to which any
property of the Company or any of its direct or indirect subsidiaries is subject
which is pending or, to the best knowledge of the Company, is threatened or
contemplated against the Company or any of its direct or indirect subsidiaries
that might have a Consolidated Material Adverse Effect, that might prevent
consummation of the transactions contemplated by this Agreement or the Warrant
Agreement or that is required to be disclosed in the Registration Statement or
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and is not so disclosed.
(n) Neither the Company or any of its direct or indirect subsidiaries
is in violation of any law, order, ordinance, rule or regulation, or any order,
writ, injunction, judgment or decree of any governmental agency or body or of
any court, to which it or its properties (whether owned or leased) may be
subject, which violation might have a Consolidated Material Adverse Effect.
(o) The Company has not taken and shall not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to cause or result in, under the Exchange
Act, the Exchange Act Rules and Regulations or otherwise, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares. No bid or purchase by the Company and, to the best
knowledge of the Company, no bid or purchase that could be attributed to the
Company (as a result of bids or purchases by an "affiliated purchaser" within
the meaning of Regulation M under the Exchange Act) for or of the Common Stock,
any securities of the same class or series as the Common Stock or any securities
convertible into or exchangeable for or that represent any right to acquire the
Common Stock is now pending or in progress or will have commenced at any time
prior to the completion of the distribution of the Shares.
(p) Arthur Andersen LLP, whose report appears in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) is, and during the periods covered by its
report in the Registration Statement was, independent accountants as required by
the Securities Act and the Rules and Regulations. The historical and pro forma
financial statements and schedules included in the Registration Statement, each
Preliminary Prospectus and the Prospectus present fairly (or, if the Prospectus
has not been filed with the Commission, as to the Prospectus, will present
fairly) the financial condition, results of operations, cash flows and changes
in stockholders' equity of the Company
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<PAGE>
and its subsidiaries at the dates and for the periods indicated, and the
historical and pro forma financial statements and schedules included in the
Registration Statement present fairly the information required to be stated
therein. Such financial statements and schedules have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods presented, except as may be stated
therein. The selected and summary financial and statistical data included in
the Registration Statement and the Prospectus present fairly (or, if the
Prospectus has not been filed with the Commission, as to the Prospectus, will
present fairly) the information shown therein and have been compiled on a
basis consistent with the audited financial statements presented therein. No
other financial statements or schedules are required to be included in the
Registration Statement.
(q) Any pro forma financial or other information and related notes
included in the Registration Statement, each Preliminary Prospectus and the
Prospectus comply (or, if the Prospectus has not been filed with the Commission,
as to the Prospectus, will comply) in all material respects with the
requirements of the Securities Act and the Rules and Regulations and present
fairly the pro forma information shown, as of the dates and for the periods
covered by such pro forma information. Such pro forma information, including
any related notes and schedules, has been prepared on a basis consistent with
the historical financial statements and other historical information, as
applicable, included in the Registration Statement, the Preliminary Prospectus
and the Prospectus (if filed with the Commission), except for the pro forma
adjustments specified therein, and give effect to assumptions made on a
reasonable basis to give effect to historical and, if applicable, proposed
transactions described in the Registration Statement, each Preliminary
Prospectus and the Prospectus (if filed with the Commission).
(r) The books, records and accounts of the Company and its direct and
indirect subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in and dispositions of the assets of the Company and its direct and
indirect subsidiaries. The systems of internal accounting controls maintained
by the Company and its direct and indirect subsidiaries are sufficient to
provide reasonable assurances that: (i) transactions are executed in accordance
with management's general or specific authorization; (ii) transactions are
recorded as necessary (x) to permit preparation of financial statements in
conformity with generally accepted accounting principles and (y) to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(s) The Company has delivered to Van Kasper & Company the written
agreement of each of its officers and directors and, to the knowledge of the
Company at the date of this Agreement, the beneficial owners of one percent or
more of the Common Stock (assuming for this purpose that all options and
convertible securities held by each beneficial owner, but not by any other
person, have been exercised or exchanged for or converted into Common Stock)
(collectively, "Material Holders"), and certain other persons (collectively with
the Material Holders, the "Holders") to the effect that each of the Holders will
not, for a period of 180 days following the date of this Agreement, without the
prior written consent of Van Kasper &
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<PAGE>
Company, offer, sell, grant any option to purchase, contract to sell, or
otherwise dispose of any Common Stock or options or convertible securities
exercisable or exchangeable for, or convertible into, Common Stock or any
rights to purchase or acquire Common Stock, or announce any offer to do so.
(t) No labor disturbance by the employees of the Company or any of
its direct or indirect subsidiaries exists, is imminent or, to the knowledge of
the Company, is contemplated or threatened; and the Company is not aware of an
existing, imminent or threatened labor disturbance by the employees of any
principal suppliers, manufacturers, contractors or others that might be expected
to result in any Consolidated Material Adverse Effect. No collective bargaining
agreement exists with any of the Company's employees or those of its direct or
indirect subsidiaries and, to the best knowledge of the Company, no such
agreement is imminent.
(u) Each of the Company and its direct and indirect subsidiaries has
filed all federal, state, local and foreign tax returns which are required to be
filed or has requested extensions thereof and has paid all taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
to the extent that the same have become due and payable. No tax assessment or
deficiency has been made or proposed against the Company or any of its direct or
indirect subsidiaries nor has the Company or any of its direct or indirect
subsidiaries received any notice of any proposed tax assessment or deficiency.
All tax liabilities of the Company and its direct and indirect subsidiaries are
adequately provided for on the books of the Company.
(v) Except as set forth in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), there are no
outstanding loans, advances or guaranties of indebtedness by the Company or any
of its direct or indirect subsidiaries to or for the benefit of any of (i) its
"affiliates," as such term is defined in the Rules and Regulations, (ii) except
for immaterial advances in the ordinary course of business, any of the officers
or directors of any of its direct or indirect subsidiaries, or (iii) any of the
members of the families of any of them.
(w) Neither the Company or any of its direct or indirect subsidiaries
has directly or indirectly, at any time: (i) made any contributions to any
candidate for political office, or failed to disclose fully any such
contribution, in violation of law; (ii) made any payment to any local, state,
federal or foreign governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments required or
allowed by all applicable laws; or (iii) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended.
(x) Neither the Company or any of its direct or indirect subsidiaries
has any liability, absolute or contingent, relating to: (i) public health or
safety; (ii) worker health or safety; or (iii) product defect or warranty (all
except as would not reasonably be expected to have a Consolidated Material
Adverse Effect or as are disclosed in the Registration Statement and Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus)).
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<PAGE>
(y) The Company has not distributed and will not distribute prior to
the Closing Date or on or prior to any date on which the Option Shares are to be
purchased, as the case may be, any prospectus or other offering material in
connection with the offering and sale of the Shares other than the Preliminary
Prospectus(es), the Prospectus, the Registration Statement and any other
material which may be permitted by the Securities Act and the Rules and
Regulations.
(z) Subject to official notice of issuance, the Shares have been
approved for inclusion for quotation on the Nasdaq National Market.
(aa) The Company is not now, and intends to conduct its affairs in the
future in such a manner so that it will not become, an investment company within
the meaning of the Investment Company Act of 1940, as amended.
(bb) The "Warrants" (as defined in the Warrant Agreement, dated as of
August __, 1997, among the Company, Van Kasper & Company and Sanders Morris
Mundy Inc. (the "Warrant Agreement")) have been duly and validly authorized by
all requisite corporate action of the Company and, when issued and delivered
against payment therefor as provided in Section 3(l) below, will be valid and
binding obligations of the Company in accordance with their terms; the "Warrant
Shares" (as defined in the Warrant Agreement) have been duly and validly
reserved and authorized for issuance upon exercise of the Warrants and when so
issued against payment therefor as provided in the Warrant Agreement will be
validly issued, fully paid and non-assessable; and no person has any preemptive
rights with respect to the Warrants or the Warrant Shares.
(cc) The Company and each of its direct and indirect subsidiaries is
in compliance in all material respects with all presently applicable provisions
of the Employee Retirement Income Security Act of 1974, as amended, including
the regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) for which the Company or any of its
direct or indirect subsidiaries would have any liability has occurred; neither
the Company nor any of its direct or indirect subsidiaries has incurred or
expects to incur liability under (1) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (2) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each "pension plan"
for which the Company or any of its direct or indirect subsidiaries would have
any liability that is intended to be qualified under Section 401(a) of the Code
is so qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.
(dd) Except as set forth in the Prospectus (or if the Prospectus is
not in existence, the most recent Preliminary Prospectus), there has to the best
knowledge of the Company been no storage, disposal, generation, manufacture,
refinement, transportation, handling or treatment of toxic wastes, hazardous
wastes or hazardous substances by the Company or any of its direct or indirect
subsidiaries (or any of their predecessors in interest) at,
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<PAGE>
upon or from any of the property now or previously owned or leased by the
Company or its direct or indirect subsidiaries in violation of any applicable
law, ordinance, rule, regulation, order, judgment, decree or permit or which
would require remedial action under any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit; there has to the best
knowledge of the Company been no material spill, discharge, leak, emission,
injection, escape, dumping or release of any kind onto such property or into
the environment surrounding such property of any toxic wastes, medical
wastes, solid wastes, hazardous wastes or hazardous substances due to or
caused by the Company or any of its direct or indirect subsidiaries or with
respect to which the Company or any of its direct or indirect subsidiaries
have knowledge; and the terms "hazardous wastes," "toxic wastes" and
"hazardous substances" shall have the meanings specified in any applicable
local, state, federal and foreign laws or regulations with respect to
environmental protection.
(ee) The Company and each of its direct and indirect subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the businesses in
which they are engaged; neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for; and neither the Company
nor any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not cause a Consolidated Material Adverse
Effect, except as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(ff) Each certificate signed by any officer of the Company or any of
its direct or indirect subsidiaries and delivered to the Representatives or
Underwriters' counsel shall be deemed to be a representation and warranty by the
Company to each Underwriter as to the matters covered thereby.
2. PURCHASE, SALE AND DELIVERY OF SHARES.
(a) On the basis of the representations, warranties, covenants and
agreements of the Company contained in this Agreement and subject to the terms
and conditions set forth in this Agreement, the Company agrees to sell to the
several Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at a purchase price of $___ per share
[7.25% DISCOUNT], the respective number of Firm Shares set forth opposite the
name of such Underwriter on Schedule I to this Agreement (subject to adjustment
as provided in Section 8 of this Agreement).
(b) On the basis of the several (and not joint) covenants and
agreements of the Underwriters contained in this Agreement and subject to the
terms and conditions set forth in this Agreement, the Company grants an option
to the several Underwriters to purchase from the Company, severally and not
jointly, all or any portion of the Option Shares at the same price per
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share as the Underwriters are to pay for the Firm Shares. This option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not
more than once) on or before the 45th day after the date of the Prospectus
upon written or telecopied notice by the Representatives (or either of them)
to the Company setting forth the aggregate number of Option Shares as to
which the several Underwriters are exercising the option and the settlement
date. The Option Shares shall be purchased severally, and not jointly, by
each Underwriter, if purchased at all, in the same proportion that the number
of Firm Shares set forth opposite the name of the Underwriter in Schedule I
to this Agreement bears to the total number of Firm Shares to be purchased by
the Underwriters under Section 2(a) above, subject to such adjustments as the
Representatives in their absolute discretion shall make to eliminate any
fractional shares. Delivery of certificates for the Option Shares, and
payment therefor, shall be made as provided in Section 2(c) and Section 2(d)
below.
(c) Delivery of the Firm Shares and payment therefor, less the
nonaccountable expense allowance provided for in Section 4(a)(ii) of this
Agreement, shall be made at the office of Van Kasper & Company, 10877 Wilshire
Boulevard, Suite 1700, Los Angeles, California 90024 (or at such other location
as is agreed by the parties), at 6:30 a.m., Los Angeles time, on August __,
1997, or at such time on such other day, not later than seven full business days
after such date, as shall be agreed upon in writing by the Company and the
Representatives, or as provided in Section 7(h) of this Agreement. The date and
hour of delivery and payment for the Firm Shares are referred to in this
Agreement as the "Closing Date." As used in this Agreement, "business day" means
a day on which the Nasdaq National Market is open for trading and on which banks
in New York and California are open for business and not permitted by law or
executive order to be closed.
(d) If the option granted by the Company in Section 2(b) above is
exercised, delivery of the Option Shares and payment therefor, less the
applicable portion, if any, of the nonaccountable expense allowance provided for
in Section 4(a)(ii) of this Agreement, shall be made at the office of Van Kasper
& Company, 10877 Wilshire Boulevard, Suite 1700, Los Angeles, California 90024
(or at such other location as is agreed by the parties), at 6:30 a.m., Los
Angeles time, on the date specified by the Representatives (which shall be three
business days after the exercise of the option, but not in excess of the period
of time specified in the Rules and Regulations).
(e) Payment of the purchase price for the Shares by the several
Underwriters shall be made by certified or official bank check or checks drawn
in next-day funds, payable to the order of the Company. Such payment shall be
made upon delivery of certificates for the Shares to the Representatives for the
respective accounts of the several Underwriters. Certificates for the Shares to
be delivered to the Representatives shall be registered in such name or names
and shall be in such denominations as the Representatives may request at least
two business days before the Closing Date, in the case of Firm Shares, and at
least one business day prior to the purchase of the Option Shares, in the case
of the Option Shares. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices
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of Alex. Brown & Sons, New York, New York, not less than one full business
day prior to the Closing Date or, in the case of the Option Shares, by 3:00
p.m., New York time, on the first business day preceding the date of purchase.
It is understood that the Representatives or either of them,
individually and not on behalf of the Underwriters, may (but shall not be
obligated to) make payment to the Company for Shares to be purchased by any
Underwriter whose check shall not have been received by the Representatives on
the Closing Date or any later date on which Option Shares are purchased for the
account of such Underwriter. Any such payment shall not relieve such
Underwriter from any of its obligations hereunder.
(f) It is understood that the several Underwriters propose to offer
the Shares for sale to the public as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the public
at the public offering price set forth (or to be set forth) in the Prospectus.
The Representatives may from time to time thereafter change the public offering
price and other selling terms.
(g) The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), the legend
respecting stabilization set forth on the inside front cover page and the
statements set forth under the caption "Underwriting" in any Preliminary
Prospectus and in the final form of Prospectus filed pursuant to Rule 424(b)
constitute the only information furnished by the Underwriters to the Company for
inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement.
3. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees
with the several Underwriters as follows:
(a) The Company will use its best efforts to cause the Registration
Statement, and any amendment thereof, if not effective at the time of execution
of this Agreement, to become effective as promptly as possible. If the
Registration Statement has become or becomes effective pursuant to Rule 430A, or
filing of the Prospectus is otherwise required under Rule 424(b), the Company
will file the Prospectus, properly completed (and in form and substance
reasonably satisfactory to the Underwriters) pursuant to Rule 424(b) within the
time period prescribed and will provide evidence satisfactory to the
Representatives of such timely filing. The Company will not file the
Prospectus, any amended Prospectus, any amendment (including post-effective
amendments) to the Registration Statement or any supplement to the Prospectus
without (i) advising the Representatives of and, a reasonable time prior to the
proposed filing of such amendment or supplement, furnishing the Representatives
with copies thereof and (ii) obtaining the prior consent of the Representatives
to such filing. The Company will prepare and file with the Commission, promptly
upon the request of the Representatives, any amendment to the Registration
Statement or supplement to the Prospectus that may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters and use its
best efforts to cause the same to become effective as promptly as possible.
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(b) The Company will promptly advise the Representatives (i) when the
Registration Statement becomes effective, (ii) when any post-effective amendment
thereof becomes effective, (iii) of any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus or
for any additional information, (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (v) of the
receipt by the Company of any notification with respect to the suspension of the
registration, qualification or exemption from registration or qualification of
the Shares for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose. The Company will use its best efforts to prevent
the issuance of any such stop order or suspension and, if issued, to obtain as
soon as possible the withdrawal thereof.
(c) The Company will (i) on or before the Closing Date, deliver to
each of the Representatives and to Underwriters' counsel a signed copy of the
Registration Statement as originally filed and of each amendment thereto filed
prior to the time the Registration Statement becomes effective and, promptly
upon the filing thereof, a signed copy of each post-effective amendment, if any,
to the Registration Statement (together with, in each case, all exhibits thereto
unless and to the extent previously furnished to the Representatives) and all
documents filed by the Company with the Commission under the Exchange Act and
deemed to be incorporated by reference into any Preliminary Prospectus or the
Prospectus and will also deliver to the Representatives, for distribution to the
several Underwriters, a sufficient number of additional conformed copies of each
of the foregoing (excluding exhibits) so that one copy of each may be
distributed to each Underwriter, (ii) as promptly as possible deliver to each of
the Representatives and send to the several Underwriters, at such office or
offices as the Representatives may designate, as many copies of the Prospectus
as the Representatives may reasonably request and (iii) thereafter from time to
time during the period in which a prospectus is required by law to be delivered
by an Underwriter or a dealer, likewise send to the Underwriters as many
additional copies of the Prospectus and as many copies of any supplement to the
Prospectus and of any amended Prospectus, filed by the Company with the
Commission, as the Representatives may reasonably request for the purposes
contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or a dealer any event shall
occur as a result of which it is necessary to supplement or amend the Prospectus
in order to make the Prospectus not misleading or so that the Prospectus will
not omit to state a material fact necessary to be stated therein, in each case
at the time the Prospectus is delivered to a purchaser of the Shares, or if it
shall be necessary to amend or to supplement the Prospectus to comply with the
Securities Act or the Rules and Regulations, the Company will forthwith prepare
and file with the Commission a supplement to the Prospectus or an amended
Prospectus so that the Prospectus as so supplemented or amended will not contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein not misleading and so that it
then will otherwise comply with the Securities Act and the Rules and
Regulations. If, after the public offering of the Shares by the Underwriters
commences and during such period, the
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Underwriters propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, the Representatives will
advise the Company in writing of the proposed variation and if, in the
opinion either of counsel for the Company or counsel for the Underwriters,
such proposed variation requires that the Prospectus be supplemented or
amended, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended Prospectus setting forth such
variation. The Company authorizes the Underwriters and all dealers to whom
any of the Shares may be sold by the Underwriters to use the Prospectus, as
from time to time so amended or supplemented, in connection with the sale of
the Shares in accordance with the applicable provisions of the Securities Act
and the Rules and Regulations for such period.
(e) The Company will cooperate with the Representatives and
Underwriters' counsel in the qualification or registration of the Shares for
offer and sale under the securities or blue sky laws of such jurisdictions as
the Representatives may designate and, if applicable, in connection with
exemptions from such qualification or registration and, during the period in
which a Prospectus is required by law to be delivered by an Underwriter or a
dealer, in keeping such qualifications, registrations and exemptions in effect;
provided, however, that the Company shall not be obligated to file any general
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction in which it is not so qualified. The Company
will, from time to time, prepare and file such statements, reports and other
documents as are or may be required to continue such qualifications,
registrations and exemptions in effect for so long a period as the
Representatives may reasonably request for the distribution of the Shares.
(f) During a period of five years commencing with the date of this
Agreement, the Company will promptly furnish to the Representatives and to each
Underwriter who may so request in writing copies of (i) all periodic and special
reports furnished by it to shareholders of the Company, (ii) all information,
documents and reports filed by it with the Commission, Nasdaq National Market,
any securities exchange or the NASD, (iii) all press releases and material news
items or articles in respect of the Company, its products or affairs released or
prepared by the Company (other than promotional and marketing materials
disseminated solely to customers and potential customers of the Company in the
ordinary course of business) and (iv) any additional information concerning the
Company or its business which the Representatives may reasonably request.
(g) As soon as practicable, but not later than the 45th day following
the end of the fiscal quarter first ending after the first anniversary of the
Effective Date, the Company will make generally available to its securities
holders and furnish to the Representatives an earnings statement or statements
in accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(h) The Company agrees that, without Van Kasper & Company's prior
written consent, the Company will not, and will not allow the Holders to, in
each case directly or indirectly, issue, sell, offer, contract to sell, grant
any option to purchase or otherwise dispose of any shares of Common Stock, or
any securities convertible into, exchangeable for or exercisable
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for Common Stock or any rights to purchase or acquire Common Stock, for a
period of 180 days following the date of this Agreement, excluding only (i)
the sale of the Shares to be sold to the Underwriters pursuant to this
Agreement, (ii) the grant of options to purchase Common Stock (provided that
none of such options are or become exercisable during such 180-day period) or
the issuance of shares of Common Stock upon the exercise in accordance with
of options previously granted under the Company's presently authorized stock
option plans as described in the Prospectus or in documents incorporated
therein, or upon the exercise in accordance with their terms of previously
granted warrants which are described in the Prospectus or in documents
incorporated therein, (iii) securities issued in future acquisitions
accounted for as a purchase (provided that each recipient of such acquisition
securities enters into and delivers to Van Kasper & Company a lock-up
agreement of the kind described in Section 1(s) of this Agreement, but with a
180-day period beginning on the date of such acquisition), and (iv)
securities issued in future acquisitions accounted for as a pooling of
interests (provided that each recipient of such acquisition securities agrees
not to dispose of such securities in such a manner or at such a time as would
disqualify the transaction for pooling-of-interests accounting treatment).
(i) The Company will establish and maintain all financial control and
financial reporting systems customary for well-established public companies,
including but not limited to adequate management information and reporting
systems, and will employ and maintain, with adequate staffing levels at
headquarters and at each functional division, and at each level of
responsibility, an employee staff of well trained and highly qualified financial
professionals.
(j) The Company will apply the net proceeds from the offering
received by it in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(k) The Company will, and at all times for a period of at least five
years after the date of this Agreement, unless such securities are then listed
on a national securities exchange, use its best efforts to cause the Common
Stock (including the Shares) to be included for quotation on the Nasdaq National
Market, and the Company will comply with all registration, filing, reporting and
other requirements of the Exchange Act and the Nasdaq National Market which may
from time to time be applicable to the Company.
(l) The Company will use its best efforts to maintain insurance of
the types and in the amounts which it deems adequate for its business consistent
with insurance coverage maintained by companies of similar size and engaged in
similar businesses including, but not limited to, general liability insurance
covering all real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against.
(m) In accordance with the Warrant Agreement, which the Company has
executed and delivered, the Company agrees, upon its receipt of the purchase
price therefor (as specified in the Warrant Agreement), to deliver to Van Kasper
& Company and Sanders Morris Mundy Inc. (individually and not as the
Representatives of the Underwriters) on the Closing
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Date and simultaneously with completion of the purchase and sale of the Firm
Shares and on the date the Option Shares are purchased by the Underwriters
pursuant to Section 2 of this Agreement, Warrants (in the form attached as
Exhibit A to the Warrant Agreement) representing the right to purchase
105,000 shares and 7% of the number of Option Shares so purchased,
respectively, of Common Stock at a price equal to 120% of the offering price
per share to the public as set forth or to be set forth on the Cover Page of
the Prospectus or in the Term Sheet.
(n) The Company will issue no press release prior to or within 70
days after the Closing Date without the Representatives' prior written consent.
(o) Within a reasonable time after the Closing Date, not to exceed
90 days, the Company shall supply to the Representatives and the Underwriters'
counsel, at the Company's cost, such number of bound volumes as may be
reasonably requested by such counsel each containing all material documents
relating to the offering of the Shares.
4. FEES AND EXPENSES.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses in
connection with: the preparation, printing and filing of
the Registration Statement (including financial statements,
schedules and exhibits), Preliminary Prospectuses and the
Prospectus, any drafts of each of them and any amendments or
supplements to any of them; the duplication or, if
applicable, printing (including all drafts thereof) of this
Agreement, the Agreement Among Underwriters, any Selected
Dealer Agreements, the Warrant Agreement, the Preliminary
Blue Sky Survey and any Supplemental Blue Sky Survey, the
Underwriters' Questionnaire and the Power of Attorney and
the duplication and printing (including of drafts thereof)
of any other underwriting documents and material (including
but not limited to marketing memoranda and other marketing
material) in connection with the offering, purchase, sale
and delivery of the Shares; the issuance and delivery of the
Shares under this Agreement to the several Underwriters,
including all expenses, taxes, duties, fees and commissions
on the purchase and sale of the Shares and Nasdaq National
Market, brokerage and transaction levies with respect to the
purchase and, if applicable, the sale of the Shares (x)
incident to the sale and delivery of the shares by the
Company to the Underwriters and (y) incident to the sale and
delivery of the Shares by the Underwriters to the initial
purchasers thereof; the cost of printing all stock
certificates; the Transfer Agent's and Registrar's fees; the
fees and disbursements of counsel for the Company; all fees
and other
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charges of the Company's independent public accountants
and any other experts named in the Prospectus; the cost of
furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits),
Preliminary Prospectus(es) and the Prospectus, the
agreements and other documents and instruments referred to
above and any amendments or supplements to any of the
foregoing; NASD filing fees; the cost of qualifying or
registering the Shares (or obtaining exemptions from
qualification or registration) under the laws of such
jurisdictions as the Representatives may designate
(including filing fees and fees and disbursements of
Underwriters' counsel in connection with such state
securities or Blue Sky qualifications, registrations and
exemptions) and preparing the preliminary and any final
Blue Sky Memorandum (which cost, filing fees, fees and
disbursements shall not exceed $15,000 without prior
approval of the Company and shall be paid on or prior to
the Closing Date); all fees and expenses in connection
with qualification of the Shares for inclusion for
quotation on the Nasdaq National Market; the Company's
share of roadshow expenses; and all other expenses
incurred by the Company in connection with the performance
of its obligations hereunder.
(ii) In addition to its obligations under Section 4(a)(i) above,
the Company agrees to pay the Representatives a
non-accountable expense allowance equal to 1.0% of the
public offering price of the Shares. Such allowance shall
be paid to the Representatives as provided in Sections 2(c)
and 2(d) of this Agreement.
(iii) In addition to its obligations under Section 7(a) of
this Agreement, the Company agrees that, as an interim
measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out
of or based upon any loss, claim, damage or liability
described in Section 7(a) of this Agreement, it will
reimburse or advance to or for the benefit of the
Underwriters, and each of them, on a monthly basis (or
more often, if requested) for all legal and other
expenses incurred in connection with investigating or
defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety
and enforceability of the Company's obligation to
reimburse or advance for the benefit of the
Underwriters for such expenses or the possibility that
such payments might later be held to have been improper
by a court of competent jurisdiction. To the extent
that any portion, or all, of any such interim
reimbursement payments or advances are so held
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<PAGE>
to have been improper, the Underwriters receiving the same
shall promptly return such amounts to the Company together
with interest, compounded daily, at the prime rate (or
other commercial lending rate for borrowers of the highest
credit standing) announced from time to time by Bank of
America, NT&SA, San Francisco, California (the "Prime
Rate"), but not in excess of the maximum rate permitted by
applicable law. Any such interim reimbursement payments
or advances that are not made to or for the Underwriters
within 30 days of a request for reimbursement or for an
advance shall bear interest at the Prime Rate, but not in
excess of the maximum rate permitted by applicable law,
from the date of such request until the date paid.
(b) In addition to their obligations under Section 7(b) of this
Agreement, the Underwriters severally and in proportion to their obligation to
purchase Firm Shares as set forth on Schedule I hereto, agree that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding arising out of or based upon any loss, claim, damage or
liability described in Section 7(b) of this Agreement, they will reimburse or
advance to or for the benefit of the Company on a monthly basis (or more often,
if requested) for all legal and other expenses incurred by the Company in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety or enforceability of the
Underwriters' obligation to reimburse or advance for the benefit of the Company
for such expenses and the possibility that such payments or advances might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any portion, or all, of any such interim reimbursement payments or
advances are so held to have been improper, the Company shall promptly return
such amounts to the Underwriters together with interest, compounded daily, at
the Prime Rate, but not in excess of the maximum rate permitted by applicable
law. Any such interim reimbursement payments or advances that are not made to
the Company within 30 days of a request for reimbursement or for an advance
shall bear interest at the Prime Rate, but not in excess of the maximum rate
permitted by applicable law, from the date of such request until the date paid.
(c) It is agreed that any controversy arising out of the operation of
the interim reimbursement and advance arrangements set forth in Sections
4(a)(iii) and 4(b) above, including the amounts of any requested reimbursement
payments or advance, the method of determining such amounts and the basis on
which such amounts shall be apportioned among the indemnifying parties, shall be
settled by arbitration conducted under the provisions of the Constitution and
Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant
to the Code of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or a written notice of
intention to arbitrate, therein electing the arbitration tribunal. If the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to the demand or notice is
authorized to do so. Any such arbitration will be limited to the interpretation
and obligations of the parties under the interim reimbursement and advance
provisions contained in Sections
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<PAGE>
4(a)(iii) and 4(b) above and will not resolve the ultimate propriety or
enforceability of the obligation to indemnify for or contribute to expenses
that is created by the provisions of Section 7 of this Agreement.
(d) If the sale of the Shares provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section 5 of this Agreement is not satisfied, or because of any
termination pursuant to Section 8(b) of this Agreement, or because of any
refusal, inability or failure on the part of the Company to perform any
covenant or agreement set forth in this Agreement or to comply with any
provision of this Agreement other than by reason of a default by any of the
Underwriters, the Company agrees to reimburse the Representatives upon demand
for, or pay directly, all out-of-pocket expenses (including fees and
disbursements of counsel) that shall have been incurred by the
Representatives in connection with investigating, preparing to market or
marketing the Shares or otherwise in connection with this Agreement or the
offering of the Shares; provided that such accountable expense reimbursement
shall not exceed $150,000.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several obligations of
the Underwriters to purchase and pay for the Shares shall be subject, in the
sole discretion of the Representatives, to the accuracy as of the date of
execution of this Agreement, the Closing Date and the date on which the
Option Shares are to be purchased, as the case may be, of the representations
and warranties of the Company set forth in this Agreement, to the accuracy of
the statements of the Company and its officers made in any certificate
delivered pursuant to this Agreement, to the performance by the Company of
all of its obligations to be performed under this Agreement at or prior to
the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, to the satisfaction of all conditions to be
satisfied or performed by the Company at or prior to that date and to the
following additional conditions:
(a) The Registration Statement shall have become effective (or, if
a post-effective amendment is required to be filed pursuant to Rule 430A
under the Act, such post-effective amendment shall become effective and the
Company shall have provided evidence satisfactory to the Representatives of
such filing and effectiveness) not later than 5:00 p.m., New York time, on
the date of this Agreement or at such later date and time as the
Representatives may approve in writing and, at the Closing Date or, with
respect to the Option Shares, the date on which such Option Shares are to be
purchased; no stop order suspending the effectiveness of the Registration
Statement or any qualification, registration or exemption from qualification
or registration for the sale of the Shares in any jurisdiction shall have
been issued and no proceedings for that purpose shall have been instituted or
threatened; and any request for additional information on the part of the
Commission shall have been complied with to the reasonable satisfaction of
the Representatives and their counsel.
(b) The Representatives shall have received from Brobeck, Phleger &
Harrison LLP, counsel for the Underwriters, an opinion, dated the Closing Date,
with respect to the issuance and sale of the Shares and such other related
matters as the Representatives may
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<PAGE>
reasonably require, and the Company shall have furnished such counsel with
all documents which they may request for the purpose of enabling them to pass
upon such matters.
(c) The Representatives shall have received on the Closing Date and
on any later date on which Option Shares are purchased, as the case may be, the
opinion of Hartzog Conger & Cason, counsel for the Company, addressed to the
Underwriters and dated the Closing Date or such later date, with reproduced
copies or signed counterparts thereof for each of the Underwriters, covering the
matters set forth in Annex A to this Agreement and in form and substance
satisfactory to the Representatives.
(d) The Representatives shall be satisfied that there has not been
any material change in the market for securities in general or in political,
financial or economic conditions as to render it impracticable in the
Representatives' sole judgment to make a public offering of the Shares, or a
material adverse change in market levels for securities in general (or those
of environmental companies in particular) or financial or economic conditions
which render it inadvisable to proceed.
(e) The Representatives shall have received on the Closing Date and
on any later date on which Option Shares are purchased a certificate, dated
the Closing Date or such later date, as the case may be, and signed by the
President and the Chief Financial Officer of the Company stating that:
(i) the representations and warranties of the Company set forth
in Section 1 of this Agreement are true and correct with the
same force and effect as if expressly made at and as of the
Closing Date or such later date, and the Company has
complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or
prior to the Closing Date or such later date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings
for that purpose have been instituted or are pending or are
threatened under the Securities Act; and
(iii) (A) the respective signers of the certificate have
carefully examined the Registration Statement in the form
in which it originally became effective and the Prospectus
and any supplements or amendments to any of them and, as
of the Effective Date, the statements made in the
Registration Statement and the Prospectus were true and
correct in all material respects and neither the
Registration Statement nor the Prospectus omitted to state
any material fact required to be stated therein or
necessary in order to make the statements therein not
misleading, (B) since the Effective
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Date, no event has occurred that should have been set
forth in an amendment to the Registration Statement or a
supplement or amendment to the Prospectus that has not
been set forth in such an amendment or supplement, (C)
since the respective dates as of which information is
given in the Registration Statement in the form in which
it originally became effective and the Prospectus
contained therein, there has not been any Consolidated
Material Adverse Effect or any development involving a
prospective Consolidated Material Adverse Effect, whether
or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary
course of business, neither the Company or any of its
direct or indirect subsidiaries has entered into any
material transaction not referred to in the Registration
Statement in the form in which it originally became
effective and the Prospectus contained therein, (D) there
are not any pending or known threatened legal proceedings
to which the Company or any of its direct or indirect
subsidiaries is a party or of which property of the
Company or any of its direct or indirect subsidiaries is
the subject which are material and which are not disclosed
in the Registration Statement and the Prospectus and (E)
there are not any license agreements, contracts, leases or
other documents that are required to be filed as exhibits
to the Registration Statement that have not been filed as
required.
(f) The Representatives shall have received from Arthur Andersen
LLP a letter or letters, addressed to the Underwriters and dated the Closing
Date and any later date on which Option Shares are purchased, confirming that
they are independent accountants with respect to the Company within the
meaning of the Securities Act and the applicable Rules and Regulations
thereunder and, based upon the procedures described in their letter, referred
to below, delivered to the Representatives concurrently with the execution of
this Agreement (the "Original Letter"), but carried out to a date not more
than five business days prior to the Closing Date or such later date on which
Option Shares are purchased, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as
of the Closing Date or such later date, as the case may be, and (ii) setting
forth any revisions and additions to the statements and conclusions set forth
in the Original Letter that are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. Such letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business, properties or
condition (financial or otherwise), results of operations or prospects of the
Company or any of its direct or indirect subsidiaries which, in the
Representatives' sole judgment, makes it impractical or inadvisable to
proceed with the public offering of the Shares or the purchase of the Option
Shares as contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). In addition, the
Representatives shall have received from Arthur Andersen LLP, on or prior to
the Closing Date, a letter addressed to the
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Company and made available to the Representatives for the use of the
Underwriters stating that their review of the Company's system of internal
controls, to the extent they deemed necessary in establishing the scope of their
examination of the Company's consolidated financial statements as of December
31, 1996 or in delivering their Original Letter, did not disclose any weaknesses
in internal controls that they considered to be a material weaknesses.
(g) Prior to the Closing Date, the Shares shall have been
designated national market system securities, duly authorized for quotation
on the Nasdaq National Market upon official notice of issuance.
(h) On or prior to the Closing Date, you shall have received from
all Material Holders executed agreements covering the matters described in
Section 1(s) of this Agreement.
(i) On or prior to the Closing Date, the Company shall have entered
into the Warrant Agreement, substantially in the form filed as Exhibit 10.33
to the Registration Statement; and on the Closing Date, concurrently with the
purchase and sale of the Firm Shares and on the date any Option Shares are
purchased pursuant to this Agreement, the Company shall have issued, sold and
delivered the Warrants to the Representatives.
(j) The Company shall have furnished to the Representatives such
further certificates and documents as the Representatives shall reasonably
request (including certificates of officers of the Company), as to the
accuracy of the representations and warranties of the Company set forth in
this Agreement, the performance by the Company of its obligations under this
Agreement and the other conditions concurrent and precedent to the
obligations of the Underwriters under this Agreement.
All the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement will be in compliance with the
provisions of this Agreement only if they are reasonably satisfactory to the
Representatives. The Company will furnish the Representatives with such
number of conformed copies of such opinions, certificates, letters and
documents as the Representatives shall reasonably request.
If any of the conditions specified in this Section 5 shall not have
been fulfilled in all material respects when and as provided in this
Agreement, time being of the essence, or if any of the opinions and
certificates mentioned above or elsewhere in this Agreement shall not be in
all material respects reasonably satisfactory in form and substance to the
Representatives and Underwriters' counsel, this Agreement and all obligations
of the Underwriters hereunder may be canceled by the Representatives at, or
at any time prior to, the Closing Date or (with respect to the Option Shares)
prior to the date upon which the Option Shares are to be purchased, as the
case may be. Notice of such cancellation shall be given to the Company in
writing or by telephone or telecopy confirmed in writing. Any such
termination shall be without liability of the Company to the Underwriters
(except as provided in Section 4 or Section 7 of this Agreement) and without
liability of the Underwriters to the Company (except to the extent provided
in Section 7 of this Agreement).
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6. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company to sell and deliver the Shares required to be delivered as and when
specified in this Agreement shall be subject to the condition that, at the
Closing Date or (with respect to the Option Shares) the date upon which the
Option Shares are to be purchased, no stop order suspending the effectiveness of
the Registration Statement shall be in effect and no proceedings therefor shall
be pending or threatened by the Commission.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person (including each partner or officer thereof) who
controls any Underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, 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) related to negligence on the part of any Underwriter, and the Company
agrees to reimburse each such Underwriter and controlling person for any legal
or other expenses (including, except as otherwise provided below, settlement
expenses and fees and disbursements of counsel) incurred by the respective
indemnified parties in connection with defending against any such losses,
claims, damages or liabilities or in connection with any investigation or
inquiry of, or other proceeding that may be brought against, the respective
indemnified parties, in each case insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon, in
whole or in part, (i) any breach of any representation, warranty, covenant or
agreement of the Company in this Agreement, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement in
the form originally filed or in any amendment thereto (including the Prospectus
as part thereof) or any post-effective amendment thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading or (iii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading or (iv) any untrue
statement or alleged untrue statement of a material fact contained in any
application or other document, or any amendment or supplement thereto, executed
by 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 Shares
under the securities or Blue Sky laws thereof or to obtain an exemption from
such qualification or registration or filed with the Commission or any
securities association, the Nasdaq National Market, or any securities exchange,
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that (1) the indemnity agreements of the Company contained in this Section 7(a)
shall not apply to any such losses, claims, damages,
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liabilities or expenses if such statement or omission was made in reliance
upon and in conformity with information furnished in writing to the Company
by or on behalf of any Underwriter through the Representatives specifically
for use in the Registration Statement, any Preliminary Prospectus or the
Prospectus or any such amendment thereof or supplement thereto and (2) the
indemnity agreement contained in this Section 7(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Shares that are the subject thereof (or to the benefit
of any person controlling such Underwriter) if the Company can demonstrate
that at or prior to the written confirmation of the sale of such Shares a
copy of the Prospectus (or the Prospectus as amended or supplemented)
(excluding the documents incorporated therein by reference) was not sent or
delivered to such person and the untrue statement or omission of a material
fact contained in such Preliminary Prospectus was corrected in the Prospectus
(or the Prospectus as amended or supplemented), unless the failure is the
result of noncompliance by the Company with Section 3 of this Agreement. The
indemnity agreements of the Company contained in this Section 7(a) and the
representations and warranties of the Company contained in Section 1 of this
Agreement shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any indemnified party and shall
survive the delivery of and payment for the Shares. This indemnity agreement
shall be in addition to any liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company, each of its officers who signs the Registration
Statement, each of its directors, each other Underwriter and each person
(including each partner or officer thereof) who controls the Company or any such
other Underwriter within the meaning of Section 15 of the Securities Act from
and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, or other federal or state statute,
law or regulation or at common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, settlement expenses and fees and disbursements of counsel) incurred by
the respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding that may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any breach of
any representation, warranty, covenant or agreement of the indemnifying
Underwriter in this Agreement, (ii) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (including
the Prospectus as part thereof) or any post-effective amendment thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (iii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, but in each case under clauses (ii) and (iii) above, as the case may
be, only
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if such statement or omission was made in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of such
indemnifying Underwriter through the Representatives specifically for use in
the Registration Statement, in any Preliminary Prospectus or the Prospectus
or any such amendment thereof or supplement thereto. The Company
acknowledges and agrees that the matters described in Section 2(g) of this
Agreement constitute the only information furnished in writing by or on
behalf of the several Underwriters for inclusion in the Registration
Statement, any Preliminary Prospectus or the Prospectus. The indemnity
agreement of each Underwriter contained in this Section 7(b) shall remain
operative and in full force and effect regardless of any investigation made
by or on behalf of any indemnified party and shall survive the delivery of
and payment for the Shares. This indemnity agreement shall be in addition to
any liabilities which each Underwriter may otherwise have.
(c) Each person or entity indemnified under the provisions of
Sections 7(a) and 7(b) above agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
Sections, it will, if a claim in respect thereunder is to be made against the
indemnifying party or parties under this Section 7, promptly give written notice
(the "Notice") of such service or notification to the party or parties from whom
indemnification may be sought hereunder. No indemnification provided for in
Sections 7(a) or 7(b) above shall be available to any person who fails to so
give the Notice if the party to whom such Notice was not given was unaware of
the action, suit, investigation, inquiry or proceeding to which the Notice would
have related, but only to the extent such party was materially prejudiced by the
failure to receive the Notice, and the omission so to notify such indemnifying
party or parties shall not relieve such indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of Sections 7(a) and 7(b). Any indemnifying party
shall be entitled at its own expense to participate in the defense of any
action, suit or proceeding against, or investigation or inquiry of, an
indemnified party. Any indemnifying party shall be entitled, if it so elects
within a reasonable time after receipt of the Notice by giving written notice
(the "Notice of Defense") to the indemnified party, to assume (alone or in
conjunction with any other indemnifying party or parties) the entire defense of
such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or parties,
by counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that (i) if
the indemnified party or parties reasonably determine that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses or
rights available to such indemnified party or parties different from or in
addition to those available to the indemnifying party or parties, then separate
counsel for and selected by the indemnified party or parties shall be entitled
to conduct, at the expense of the indemnifying parties, the defense of the
indemnified parties to the extent determined by such counsel to be necessary to
protect the interests of the indemnified party or parties, and (ii) provided,
further, that the indemnifying party shall not be liable for the fees and
expenses of more than one separate counsel, reasonably
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approved by the indemnifying party, for all of the indemnified parties, plus,
if applicable, local counsel in each jurisdiction. In addition, in any
event, the indemnified party or parties shall be entitled to have counsel
selected by such indemnified party or parties participate in, but not
conduct, the defense. If, within a reasonable time after receipt of the
Notice, an indemnifying party gives a Notice of Defense and, unless separate
counsel is to be chosen by the indemnified party or parties as provided
above, the counsel chosen by the indemnifying party or parties is reasonably
satisfactory to the indemnified party or parties, the indemnifying party or
parties will not be liable under Sections 7(a) through 7(c) for any legal or
other expenses subsequently incurred by the indemnified party or parties in
connection with the defense of the action, suit, investigation, inquiry or
proceeding, except that (A) the indemnifying party or parties shall bear and
pay the legal and other expenses incurred in connection with the conduct of
the defense as referred to in clause (i) of the proviso to the preceding
sentence and (B) the indemnifying party or parties shall bear and pay such
other expenses as it or they have authorized to be incurred by the
indemnified party or parties. If, within a reasonable time after receipt of
the Notice, no Notice of Defense has been given, the indemnifying party or
parties shall be responsible for any legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 7
but is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right to appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 7 provides for
indemnification in such case, each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages, liabilities and expenses referred to in Section 7(a) or 7(b)
above (i) in such proportion as is appropriate to reflect the relative benefits
received by each indemnifying party from the offering of the Shares or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Underwriters shall be deemed to be in the same respective
proportions as the total proceeds from the offering of the Shares, net of the
underwriting discounts, received by the Company and the total underwriting
discount retained by the Underwriters bear to the aggregate public offering
price of the Shares. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by a party and the party's relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this Section
7(d) and
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to the considerations referred to in the third sentence of the first
paragraph of this Section 7(d). The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities, or actions in respect
thereof, referred to in the first sentence of this Section 7(d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating, preparing to defend or
defending against any action or claim which is the subject of this Section
7(d). Notwithstanding the provisions of this Section 7(d), no Underwriter
shall be required to contribute any amount in excess of the underwriting
discount applicable to the Shares purchased by that Underwriter. For
purposes of this Section 7(d), each person who controls an Underwriter within
the meaning of the Securities Act shall have the same rights to contribution
as such Underwriter, and each person who controls the Company within the
meaning of the Securities Act, each officer of the Company who signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company, subject in each case to the
immediately preceding and immediately following sentences. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute in this Section 7(d) are several in proportion to their
respective underwriting obligations and not joint.
Each party or other entity entitled to contribution agrees that upon
the service of a summons or other initial legal process upon it in any action
instituted against it in respect of which contribution may be sought, it will
promptly give written notice of such service to the party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
of any such service shall not relieve the party from whom contribution may be
sought from any obligation it may have hereunder or otherwise (except as
specifically provided in Section 7(c) above). This Section 7(d) shall not be
operative as to any Underwriter to the extent that the Company is entitled to
receive or has received indemnity under this Section 7.
(e) The Company shall not, without the prior written consent of each
Underwriter, 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 or contribution may be sought hereunder (whether or not such
Underwriter or any person who controls such Underwriter within the meaning of
Section 15 of the Securities Act is a party to such claim, action, suit or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of each such Underwriter and each such controlling person
from all liability arising out of such claim, action, suit or proceeding.
(f) No Underwriter shall, without the consent of the Company, 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
or contribution may be sought hereunder (whether or not the Company is a party
to such claim, action, suit or proceeding), which consent shall not be
unreasonably withheld, unless such settlement, compromise or consent includes an
unconditional release of the Company, each of its officers who signed the
Registration Statement, each of its directors and each person who controls the
Company within the meaning
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<PAGE>
of Section 15 of the Securities Act, from all liability arising out of such
claim, action, suit or proceeding.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions of this Agreement, including, without
limitation, the provisions of Sections 4(a)(iii), 4(b) and 4(c) and this Section
7 of this Agreement and that they are fully informed regarding all such
provisions. They further acknowledge that the provisions of Sections 4(a)(iii),
4(b) and 4(c) and this Section 7 of this Agreement fairly allocate the risks in
light of the ability of the parties to investigate the Company and its business
in order to assure that adequate disclosure is made in the Registration
Statement, each Preliminary Prospectus and the Prospectus as required by the
Securities Act, the Rules and Regulations, the Exchange Act and the rules and
regulations of the Commission under the Exchange Act. The parties are advised
that federal or state policy, as interpreted by the courts in certain
jurisdictions, may be contrary to certain provisions of Sections 4(a)(iii), 4(b)
and 4(c) and this Section 7 of this Agreement and, to the extent permitted by
law, the parties hereto hereby expressly waive and relinquish any right or
ability to assert such public policy as a defense to a claim under Sections
4(a)(iii), 4(b) or 4(c) or this Section 7 of this Agreement and further agree
not to attempt to assert any such defense.
(h) SUBSTITUTION OF UNDERWRITERS. If for any reason one or more of
the Underwriters fails or refuses (otherwise than for a reason sufficient to
justify the termination of this Agreement under the provisions of Section 5 or
Section 9 of this Agreement) to purchase and pay for the number of Firm Shares
agreed to be purchased by such Underwriter or Underwriters, the Company shall
immediately give notice thereof to the Representatives and the non-defaulting
Underwriters shall have the right within 24 hours after the receipt by the
Representatives of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon among the
Representatives and such purchasing Underwriter or Underwriters and upon the
terms set forth herein, all or any part of the Firm Shares that such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail to make such arrangements with respect to all such Shares, the
number of Firm Shares that each non-defaulting Underwriter is otherwise
obligated to purchase under this Agreement shall be automatically increased on a
pro rata basis to absorb the remaining Shares that the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the Shares that the defaulting
Underwriter or Underwriters agreed to purchase if the aggregate number of such
Shares exceeds 10% of the total number of Firm Shares that all Underwriters
agreed to purchase under this Agreement. If the total number of Firm Shares
that the defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the first 24-hour
period above referred to, to make arrangements with other underwriters or
purchasers satisfactory to the Representatives for purchase of such Shares on
the terms set forth in this Agreement. In any such case, either the
Representatives or the Company shall have the right to postpone the Closing Date
determined as provided in Section 2(c) of this Agreement for not more than seven
business days after the date
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originally fixed as the Closing Date pursuant to said Section 2(c) in order
that any necessary changes in the Registration Statement, the Prospectus or
any other documents or arrangements may be made.
If neither the non-defaulting Underwriters nor the Company makes
arrangements within the time periods provided in the first three sentences of
the first paragraph of this Section 7(h) for the purchase of all the Firm Shares
that the defaulting Underwriter or Underwriters agreed to purchase hereunder,
this Agreement shall be terminated without further act or deed and without any
liability on the part of the Company to any non-defaulting Underwriter (except
as provided in Section 4 or Section 7 of this Agreement) and without any
liability on the part of any non-defaulting Underwriter to the Company (except
to the extent provided in Section 7 of this Agreement). Nothing in this Section
7(h), and no action taken hereunder, shall relieve any defaulting Underwriter
from liability, if any, to the Company or any non-defaulting Underwriter for
damages occasioned by its default under this Agreement. The term "Underwriter"
in this Agreement shall include any persons substituted for an Underwriter under
this Section 7(h).
8. EFFECTIVE DATE OF AGREEMENT AND TERMINATION.
(a) If the Registration Statement has not been declared effective
prior to the date of this Agreement, this Agreement shall become effective at
such time, after notification of the effectiveness of the Registration Statement
has been released by the Commission, as the Representatives and the Company
shall agree upon the public offering price and the purchase price of the Shares.
If the public offering price and the purchase price of the Shares shall not have
been determined prior to 5:00 p.m., New York time, on the fifth full business
day after the Registration Statement has become effective, this Agreement shall
thereupon terminate without liability on the part of the Company to the
Underwriters (except as provided in Section 4 or Section 7 of this Agreement) or
the Underwriters to the Company (except as set forth in Section 7 of this
Agreement). By giving notice before the time this Agreement becomes effective,
the Representatives may prevent this Agreement from becoming effective without
liability of any party to the other party, except that the Company shall remain
obligated to pay costs and expenses to the extent provided in Section 4 and
Section 7 of this Agreement. If the Registration Statement has been declared
effective prior to the date of this Agreement, this Agreement shall become
effective upon execution and delivery by the Representatives and the Company.
(b) This Agreement may be terminated by the Representatives in their
absolute discretion by giving written notice to the Company at any time on or
prior to the Closing Date or, with respect to the purchase of the Option Shares,
on or prior to any later date on which the Option Shares are to be purchased, as
the case may be, if prior to such time any of the following has occurred or, in
the Representatives' opinion, is likely to occur: (i) after the respective dates
as of which information is given in the Registration Statement and the
Prospectus, any material adverse change or development involving a prospective
adverse change in or affecting particularly the business, properties, condition
(financial or otherwise), results of operations or prospects of the Company and
its direct and indirect subsidiaries, taken as a whole, whether or not arising
in the ordinary course of business, occurs which would, in the
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Representatives' sole judgment, make the offering or the delivery of the
Shares impracticable or inadvisable; or (ii) if there shall have been the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States
on or after the date hereof, or any outbreak of hostilities or other national
or international calamity or crisis or change in economic or political
conditions, if the effect of such outbreak, calamity, crisis or change in
economic or political conditions on the financial markets of the United
States would, in the Representatives' sole judgment, make the offering or
delivery of the Shares impracticable or inadvisable; or (iii) if there shall
have been suspension of trading in securities generally or a material adverse
decline in value of securities generally on the New York Stock Exchange, the
American Stock Exchange, the Nasdaq National Market, or limitations on prices
(other than limitations on hours or numbers of days of trading) for
securities on either such exchange or system; or (iv) if there shall have
been the enactment, publication, decree or other promulgation of any federal
or state statute, regulation, rule or order of, or commencement of any
proceeding or investigation by, any court, legislative body, agency or other
governmental authority which in the Representatives' sole judgment has or may
have a Consolidated Material Adverse Effect; or (v) if there shall have been
the declaration of a banking moratorium by federal, New York, California or
Texas state authorities; or (vi) if there shall have been the taking of any
action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Representatives' sole judgment has a
material adverse effect on the securities markets in the United States; or
(vii) existing international monetary conditions shall have undergone a
material change which, in your sole judgment, makes the offering or delivery
of the Shares impracticable or inadvisable. If this Agreement shall be
terminated pursuant to this Section 8, there shall be no liability of the
Company to the Underwriters (except pursuant to Section 4 and Section 7 of
this Agreement) and no liability of the Underwriters to the Company (except
to the extent provided in Section 7 of this Agreement).
9. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing and, if to the Underwriters, shall be mailed,
telecopied or delivered to Van Kasper & Company, 600 California Street, Suite
1700, San Francisco, California 90024, Attention: Syndicate Manager
(telecopier: (415) 397-2744); and if to the Company, shall be mailed,
telecopied or delivered to it at its office at U S Liquids Inc., 411 N. Sam
Houston Parkway East, Ste. 400, Houston, Texas 77060-3545 (telecopier: (281)
272-4545) Attention: President. All notices given by telecopy shall be
promptly confirmed by letter.
10. PERSONS ENTITLED TO THE BENEFIT OF THIS AGREEMENT. This Agreement
shall inure to the benefit of the Company and the several Underwriters and, with
respect to the provisions of Section 4 and Section 7 of this Agreement, the
several parties (in addition to the Company and the several Underwriters)
indemnified under the provisions of Section 4 and Section 7, and their
respective personal representatives, successors and assigns. Nothing in this
Agreement is intended or shall be construed to give to any other person, firm or
corporation any legal or equitable remedy or claim under or in respect of this
Agreement or any provision contained herein. The term "successors and assigns"
as herein used shall not include any purchaser, as such purchaser, of any of the
Shares from the several Underwriters.
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11. GENERAL. Notwithstanding any provision of this Agreement to the
contrary, the reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties, covenants and
agreements in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof or by or on behalf of
the Company or their respective directors or officers and (c) delivery and
payment for the Shares under this Agreement; provided, however, that if this
Agreement is terminated prior to the Closing Date, the provisions of
Sections 3(f)-3(n) of this Agreement shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall constitute an original, but all of which together shall constitute one and
the same instrument, and may be delivered by facsimile transmission.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS, AND NOT THE LAWS PERTAINING TO CHOICE OR CONFLICT OF LAWS, OF THE
STATE OF CALIFORNIA.
12. AUTHORITY OF THE REPRESENTATIVES. In connection with this Agreement,
the Representatives will act for and on behalf of the several Underwriters, and
any action taken under this Agreement by the Representatives, as representatives
of the several Underwriters, will be binding on all the Underwriters.
If the foregoing correctly sets forth your understanding, please so
indicate by signing in the space provided below for that purpose, whereupon this
letter shall constitute a binding agreement among the Company and the several
Underwriters.
Very truly yours,
U S LIQUIDS INC.
By:
------------------------------------
Its:
-----------------------------------
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
On their own behalf and on behalf of each of
the several Underwriters named in Schedule I
hereto
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VAN KASPER & COMPANY
By:
--------------------------------
Authorized Signatory
SANDERS MORRIS MUNDY INC.
By:
--------------------------------
Authorized Signatory
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SCHEDULE I
UNDERWRITERS
Number of Firm
Underwriters Shares to be Purchased
- ------------ ----------------------
Van Kasper & Compan. . . . . . . . . . . . . . . . . . . .
Sanders Morris Mundy Inc . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500,000
---------
---------
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<PAGE>
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF COUNSEL FOR THE COMPANY
(i) Each of the Company, MBO Inc. and US Liquids LP Holding Co.
has been duly organized and is validly existing as a corporation
in good standing under the laws of Delaware; each of American
WasteWater Inc., Mesa Processing, Inc., T&T Grease Service, Inc.,
Phoenix Fats & Oils, Inc., South Texas By-Products, Inc.,
Imperial Services, Inc., and National Enviro Waste Company, Inc.
has been duly organized and is validly existing as a corporation
in good standing under the laws of Texas; and US Liquids of La.,
L.P. has been duly organized and is validly existing as a limited
partnership under the laws of Delaware;
(ii) Each of the Company and each of its direct and indirect
subsidiaries has the corporate power or partnership power, as
the case may be, to own, lease and operate its properties and
to conduct its business as described in the Prospectus;
(iii) Each of the Company and each of its direct and indirect
subsidiaries is duly qualified to do business as a foreign
corporation (or, in the case of US Liquids of Louisiana, L.P.,
as a foreign limited partnership) and is in good standing in
all jurisdictions in the United States, if any, in which the
ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure
so to qualify would not have a material adverse effect on the
business, properties, condition (financial or otherwise),
results of operations or prospects of such entity;
(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein; the issued and
outstanding shares of capital stock (or other equity interests)
of the Company and each of its direct and indirect subsidiaries
have been duly and validly authorized and issued, are fully paid
and nonassessable and, to the best knowledge of such counsel,
have not been issued in violation of any preemptive right or
other rights to subscribe for or purchase securities or in
violation of any applicable federal or state securities laws; and
the Company directly or indirectly owns all of the issued and
outstanding equity securities of each of its direct and indirect
subsidiaries and, to such counsel's best knowledge, there are no
outstanding options, warrants or other rights to acquire any
equity securities of any such subsidiary;
(v) The Shares will, upon issuance and delivery against payment
therefor in accordance with the terms of the Agreement, be duly
authorized, validly
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issued, fully paid and nonassessable and, to the best knowledge
of such counsel, will not have been issued in violation of any
preemptive right or other rights to subscribe for or purchase
securities;
(vi) The Company has corporate power and authority to enter into the
Agreement and to issue, sell and deliver the Shares to the
Underwriters and carry out all the other terms and provisions
thereof;
(vii) The Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly
executed and delivered by the Company and, assuming its due
authorization, execution and delivery by the Representatives,
is the valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except insofar
as the indemnification and contribution provisions of the
Agreement may be limited by public policy concerns and except
as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors'
rights generally or by general equitable principles;
(viii) The Registration Statement has become effective under the
Securities Act and, to the best knowledge of such counsel, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are pending or threatened under the
Securities Act;
(ix) The Registration Statement and the Prospectus, and each amendment
or supplement thereto (other than the financial statements,
financial data and supporting schedules included therein, as to
which such counsel need express no opinion), as of the effective
date of the Registration Statement, complied as to form in all
material respects with the requirements of the Securities Act and
the applicable Rules and Regulations;
(x) The terms and provisions of the capital stock of the Company
conform in all material respects to the description thereof
contained in the Registration Statement and Prospectus, and the
forms of certificates evidencing the Common Stock comply with
Delaware law;
(xi) The information in the Prospectus under the caption "Risk Factors
-- NOW Business Dependent Upon Exemption Under RCRA and Other
Environmental Regulations," "Risk Factors--Potential Anti-Takeover
Effect of Certain Charter Provisions," "Business--The Nonhazardous
Liquid Waste Industry--NCW," "Business--The Nonhazardous Liquid
Waste Industry--NOW," "Business--Regulatory Background,"
"Management--Amended and Restated 1996 Stock Option Plan" and
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<PAGE>
"Description of Securities," to the extent it constitutes matters
of law or legal conclusions, has been reviewed by such counsel
and is correct in all material respects;
(xii) The description in the Registration Statement and the Prospectus
of the Certificate of Incorporation and bylaws of the Company and
of statutes and contracts are accurate in all material respects
and fairly present in all material respects the information
required to be presented by the Securities Act and the Rules and
Regulations;
(xiii) To the best knowledge of such counsel, there are no agreements,
contracts, licenses, leases or documents of a character required
to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration
Statement that are not described or referred to therein and
filed as required;
(xiv) The execution and delivery of the Agreement and the Warrant
Agreement do not, and the Company's performance of the Agreement
and the Warrant Agreement and the consummation of the transactions
contemplated by each of them will not, conflict with, violate or
result in the breach of or a default (including without limitation
with the giving of notice, the passage of time or otherwise) under
any of the terms and provisions of the Company's Certificate of
Incorporation or Bylaws or any contract, indenture, mortgage, deed
of trust, loan agreement, lease, license, joint venture or,
without limitation, other agreement or instrument known to such
counsel to which the Company or any of its direct or indirect
subsidiaries is a party or by which any of its or their properties
are bound or any law, ordinance, rule or regulation or, to the
best knowledge of such counsel, any order, writ, injunction,
judgment or decree of any governmental agency or body or of any
court or arbitration tribunal having jurisdiction over the Company
or any of its direct or indirect subsidiaries or over any of its
or their properties; provided, however, that no opinion need be
rendered concerning state securities or Blue Sky laws;
(xv) No authorization, approval or consent or other order of any
governmental authority or agency is necessary in connection with
the consummation of the transactions contemplated by the
Agreement or the Warrant Agreement, except such as have been
obtained under the Securities Act, are necessary under the
Securities Act in connection with the registration for resale of
the Warrant Shares or as may be required under state securities
or Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters or the
registration and sale of the Warrant Shares;
A-3
<PAGE>
(xvi) To the best knowledge of such counsel, there are no legal or
governmental proceedings pending or threatened against the
Company or any of its direct or indirect subsidiaries of a
character which are required to be disclosed in the
Registration Statement or the Prospectus by the Securities
Act or the applicable Rules and Regulations, other than
those described therein;
(xvii) To the best knowledge of such counsel, neither the Company or
any of its direct or indirect subsidiaries is presently in breach
of, or in default under, any bond, debenture, note or other
evidence of indebtedness or any contract, indenture, mortgage,
deed of trust, loan agreement, lease, license or, without
limitation, other agreement or instrument to which the Company
or any of its direct or indirect subsidiaries is a party or by
which any of its or their properties are bound which is material
to the business, properties, condition (financial or otherwise),
prospects or results of operations or prospects of such entity;
(xviii) To the best knowledge of such counsel, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock
or, except as is provided in the Warrant Agreement, other
securities of the Company have unexercised registration rights
with respect to any securities of the Company;
(xix) The Warrant Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by the Representatives,
is the valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except insofar
as the indemnification and contribution provisions of the Warrant
Agreement may be limited by public policy concerns and except
as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors'
rights generally or by general equitable principles;
(xx) The Warrants have been duly and validly authorized and constitute
valid and binding obligations of the Company enforceable in
accordance with their terms (except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' rights generally or by general
equitable principles); the Warrant Shares have been duly and
validly reserved and authorized for issuance upon exercise of the
Warrants against payment therefor as provided in the Warrant
Agreement (including, as provided in the Warrant Agreement, by
surrender of Warrants) and, when so issued, will be validly
issued, fully paid and nonassessable; and to the best knowledge
of such counsel no
A-4
<PAGE>
stockholder has any preemptive rights or other rights to
subscribe for or purchase with respect to the Warrants or
the Warrant Shares;
In addition, such counsel shall state that such counsel has participated
in conferences with officers and other representatives of the Company, the
independent public accountants of the Company, the Representatives and
counsel to the Underwriters, at which conferences the contents of the
Registration Statement and the Prospectus and related matters were discussed
and, although they have not independently verified the accuracy, completeness
or fairness of the statements contained in the Registration Statement or the
Prospectus, nothing has come to the attention of such counsel that caused
them to believe that, at the time the Registration Statement became
effective, the Registration Statement (except as to financial statements,
financial data and supporting schedules contained therein, as to which such
counsel need express no opinion) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the Closing
Date or any later date on which the Option Shares are to be purchased, as the
case may be, the Prospectus contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
A-5
<PAGE>
AGREEMENT AND PLAN OF MERGER
<PAGE>
TABLE OF CONTENTS
Page
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SECTION 1 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Effect of the Merger . . . . . . . . . . . . . . . . . . . . 2
1.2 Effective Time of the Merger . . . . . . . . . . . . . . . . 2
1.3 Articles of Incorporation and Bylaws of AWW
Following Effective Time . . . . . . . . . . . . . . . . . . 2
1.4 Directors of AWW . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2 CONVERSION AND EXCHANGE OF STOCK . . . . . . . . . . . . . . 3
2.1 Conversion and Exchange of AWW Stock at
Effective Time . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Surrender and Exchange of AWW Stock. . . . . . . . . . . . . 3
2.3 Adjustments Because of Changes in Liquids
Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3 REPRESENTATIONS AND WARRANTIES OF AWW. . . . . . . . . . . . 4
3.1 Existence; Qualification . . . . . . . . . . . . . . . . . . 4
3.2 Title to Stock . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Financial Statements . . . . . . . . . . . . . . . . . . . . 5
3.5 Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 5
3.6 Permits, Licenses, Etc.. . . . . . . . . . . . . . . . . . . 6
3.7 Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . 6
3.8 Contracts and Agreements; Adverse Restrictions . . . . . . . 6
3.9 Transactions with Related Parties. . . . . . . . . . . . . . 6
3.10 Title and Liens. . . . . . . . . . . . . . . . . . . . . . . 7
3.11 Personnel. . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.12 Employment Agreements and Benefit Plans. . . . . . . . . . . 8
3.13 Continuation of Business . . . . . . . . . . . . . . . . . . 8
3.14 Copies Complete; No Default. . . . . . . . . . . . . . . . . 8
3.15 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . 8
3.16 No Hazardous Waste, Other Facilities . . . . . . . . . . . . 9
3.17 No Exposure to Hazardous or Toxic Substances . . . . . . . . 9
3.18 Underground Storage Tanks. . . . . . . . . . . . . . . . . . 9
3.19 Disposal Facilities Used . . . . . . . . . . . . . . . . . . 10
3.20 Borrowed Monies. . . . . . . . . . . . . . . . . . . . . . . 10
3.21 Absence of Certain Changes, Events or
Conditions . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.22 Tax Returns and Audits . . . . . . . . . . . . . . . . . . . 11
3.23 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.24 Rights and Authorizations. . . . . . . . . . . . . . . . . . 12
3.25 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.26 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . 13
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<PAGE>
3.27 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.28 Environmental Matters. . . . . . . . . . . . . . . . . . . . 13
3.29 Approval by AWW Stockholders and Directors . . . . . . . . . 14
3.30 Specific Representations and Warranties Relating
to Pooling-of-Interests Accounting . . . . . . . . . . . . . 14
3.31 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 15
3.32 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . 15
SECTION 4 RESALES OF LIQUIDS STOCK . . . . . . . . . . . . . . . . . . 15
4.1 Stock Distribution Agreements and Investor
Representation Letters . . . . . . . . . . . . . . . . . . . 15
SECTION 5 REPRESENTATIONS AND WARRANTIES OF LIQUIDS . . . . . . 15
5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . 15
5.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . 16
5.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 16
5.4 Copies Complete; No Default. . . . . . . . . . . . . . . . . 16
5.5 No Conflict. . . . . . . . . . . . . . . . . . . . . . . . . 17
5.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.7 Representations and Warranties Relating to
Pooling-of-Interests Accounts. . . . . . . . . . . . . . . . 17
5.8 Brokers, Finders, Etc. . . . . . . . . . . . . . . . . . . . 17
5.9 Financial Statements . . . . . . . . . . . . . . . . . . . . 18
5.10 Accuracy of Registration Statement . . . . . . . . . . . . . 18
5.11 Representations Relating to Tax-Free
Reorganizations. . . . . . . . . . . . . . . . . . . . . . . 18
5.12 Absence of Voting or Buy-Sell Agreement. . . . . . . . . . . 19
SECTION 6 COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.1 Conduct of Business. . . . . . . . . . . . . . . . . . . . . 20
6.2 Access to Information. . . . . . . . . . . . . . . . . . . . 22
6.3 Public Announcements . . . . . . . . . . . . . . . . . . . . 23
6.4 Notification of Material Events. . . . . . . . . . . . . . . 23
6.5 Certain Employee Matters . . . . . . . . . . . . . . . . . . 23
6.6 Employment Agreement . . . . . . . . . . . . . . . . . . . . 23
6.7 THIS SECTION HAS BEEN INTENTIONALLY LEFT BLANK . . . . . . . 23
6.8 Noncompetition . . . . . . . . . . . . . . . . . . . . . . . 23
6.9 Liquids Stock Options. . . . . . . . . . . . . . . . . . . . 23
6.10 Resignations . . . . . . . . . . . . . . . . . . . . . . . . 24
6.11 Disposition of Stockholders' Notes and Release
of Personal Liability on AWW Indebtedness. . . . . . . . . . 24
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<PAGE>
Page
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6.12 Transferability of AWW Stock . . . . . . . . . . . . . . . . 25
6.13 Amendments to Mesa Companies Merger Agreement. . . . . . . . 25
6.14 Termination of AWW Shareholders' Agreement . . . . . . . . . 25
SECTION 7 CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . 25
7.1 Conditions to the Obligations of Liquids and
Newco. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Accuracy of Representations and
Warranties. . . . . . . . . . . . . . . . . . . . . 25
(b) Performance of Covenants . . . . . . . . . . . . . . . 26
(c) No Adverse Proceedings or Events . . . . . . . . . . . 26
(d) Deliveries at Closing. . . . . . . . . . . . . . . . . 26
(e) Opinion of Counsel . . . . . . . . . . . . . . . . . . 26
(f) Qualification as Pooling of Interest . . . . . . . . . 26
(g) Closing of the Mesa Mergers. . . . . . . . . . . . . . 26
(h) Termination of Shareholders' Agreement . . . . . . . . 26
7.2 Conditions to Obligations of AWW and the
Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . 26
(a) Accuracy of Representations and
Warranties. . . . . . . . . . . . . . . . . . . . . 27
(b) Performance of Covenants . . . . . . . . . . . . . . . 27
(c) No Adverse Proceedings or Events . . . . . . . . . . . 27
(d) Deliveries at Closing. . . . . . . . . . . . . . . . . 27
(e) Opinion of Counsel . . . . . . . . . . . . . . . . . . 27
(f) Closing of the Other Mergers . . . . . . . . . . . . . 27
SECTION 8 CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.1 Time and Place . . . . . . . . . . . . . . . . . . . . . . . 27
8.2 Deliveries by AWW at Closing . . . . . . . . . . . . . . . . 28
8.3 Deliveries by Liquids at Closing . . . . . . . . . . . . . . 28
8.4 Expenses of Closing. . . . . . . . . . . . . . . . . . . . . 29
SECTION 9 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . 29
9.1 Mutual Consent . . . . . . . . . . . . . . . . . . . . . . . 29
9.2 By Liquids . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.3 By AWW . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.4 Termination by AWW or Liquids. . . . . . . . . . . . . . . . 32
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<PAGE>
Page
----
SECTION 10 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . 32
10.1 General Indemnity. . . . . . . . . . . . . . . . . . . . . . 32
10.2 Limitations on Indemnity . . . . . . . . . . . . . . . . . . 33
(a) Indemnification Period . . . . . . . . . . . . . . . . 33
(b) Indemnification Procedure. . . . . . . . . . . . . . . 33
(c) Limitations on Indemnified Losses. . . . . . . . . . . 34
(d) Third-Party Beneficiaries. . . . . . . . . . . . . . . 34
(e) Defense of Third-Party Claims. . . . . . . . . . . . . 35
SECTION 11 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.2 Integrated Agreement . . . . . . . . . . . . . . . . . . . . 36
11.3 Construction . . . . . . . . . . . . . . . . . . . . . . . . 37
11.4 Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.5 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . 37
11.6 Litigation Expense . . . . . . . . . . . . . . . . . . . . . 37
11.7 Counterpart Execution. . . . . . . . . . . . . . . . . . . . 37
11.8 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . 37
11.9 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . 38
11.10 Negation of Third-Party Beneficiary . . . . . . . . . . . . . . . 38
11.11 Survival of Representations and Warranties. . . . . . . . . . . . 38
11.12 Knowledge Defined . . . . . . . . . . . . . . . . . . . . . . . . 38
11.13 Waiver of Subrogation, Etc. . . . . . . . . . . . . . . . . . . . 38
11.14 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . . 38
-iv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of June 16,
1997 (the "Effective Date"), is entered into between and among U S LIQUIDS INC.
("Liquids"), a Delaware corporation; AMERICAN WASTEWATER INC., a Texas
corporation ("AWW"), AWW ACQUISITION CORP. ("Newco"), a Texas corporation, and
MICHAEL W. MINICK and WILLIAM H. WILSON, JR. (the "Guarantors").
R E C I T A L S:
Liquids, by and through its subsidiary corporations, is engaged in the
environmental services business and, among other things, provides environmental
services for major and independent oil and gas companies and manages, treats,
and disposes of nonhazardous oil field waste. AWW is a Texas corporation
engaged in the business of processing nonhazardous liquid wastes (the "AWW
Business"). Mesa Processing, Inc. ("Mesa") is a Texas corporation, which is in
the business, generally, of collecting, processing, and recycling fats and oils,
servicing grease traps and septic tanks, and selling these processed and
recycled finished products in the marketplace. T & T Grease Service, Inc.
("T&T") is a Texas corporation which owns and operates a business which
complements and works together with the business of Mesa. Phoenix Fats & Oils,
Inc. ("Phoenix") is a Texas corporation which provides general and
administrative support to Mesa and T&T. Mesa, T&T, and Phoenix are collectively
referred to as the "Mesa Companies." Liquids has developed a plan whereby the
business of Liquids will be combined with the businesses of AWW, T&T, Mesa, and
Phoenix. Liquids, AWW, T&T, Mesa, and Phoenix are all privately owned. The
plan contemplates that AWW will enter into this Agreement and the Mesa Companies
will enter into a separate Merger Agreement (the "Mesa Companies Merger
Agreement"), pursuant to which AWW, Mesa, T&T, and Phoenix will each become a
subsidiary corporation of Liquids, with the stockholders of those corporations
receiving Liquids stock in the mergers. These mergers are intended to qualify
under Section 368(a)(2)(E) of the Internal Revenue Code.
The respective boards of directors of Liquids, a wholly-owned subsidiary of
Liquids, and T&T have approved the merger of the wholly-owned subsidiary of
Liquids with and into T&T pursuant to the terms and conditions of the Mesa
Companies Merger Agreement. The respective boards of directors of Liquids,
another wholly-owned subsidiary of Liquids, and Phoenix have approved the merger
of the wholly-owned subsidiary of Liquids with and into Phoenix pursuant to the
terms and conditions of the Mesa Companies Merger Agreement. The respective
boards of directors of Liquids, a separate wholly-owned subsidiary of Liquids,
and Mesa have approved the merger of a wholly-owned subsidiary of Liquids with
and into Mesa pursuant to the terms and conditions of the Mesa Companies Merger
Agreement. The T&T Merger, the Phoenix Merger, and the Mesa Merger are referred
to herein as the "Mesa Mergers." It is anticipated that as a part of this plan,
AWW will enter into this Agreement,
<PAGE>
pursuant to which Newco will be merged into AWW, with AWW becoming a wholly-
owned subsidiary of Liquids (the "Merger").
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, and agreements herein contained, the
parties agree as follows:
SECTION 1
THE MERGER
1.1 EFFECT OF THE MERGER. In accordance with the provisions of this
Agreement and the Texas Business Corporation Act (the "Act"), at the Effective
Time (as defined in Section 1.2 hereof), Newco shall be merged with and into
AWW; the separate existence of Newco shall cease; and AWW as the surviving
entity shall continue its corporate existence under the laws of the State of
Texas. Pursuant to the Merger, AWW shall possess all the rights, privileges,
powers, and franchises of Newco and shall be subject to all the restrictions,
disabilities, and duties of Newco; all rights, privileges, powers, and
franchises of Newco and all property, real, personal, and mixed, belonging to
Newco shall be vested in AWW; and all property, rights, privileges, powers, and
franchises and every other interest shall be thereafter as effectually the
property of AWW as they were of Newco, and the title to any real estate vested
by deed or otherwise in Newco shall not revert or be in any way impaired by
reason of the Merger, provided that all rights of creditors and all liens upon
any property of Newco shall be preserved unimpaired and all debts, liabilities,
and duties of Newco shall thenceforth attach to AWW and may be enforced against
Newco to the same extent as if said debts, liabilities, and duties have been
incurred or contracted by AWW. Without limiting the generality of the
foregoing, the Merger shall have the effects as set forth in the Act.
1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective upon
the filing of Articles of Merger with the Office of the Secretary of State of
Texas, which filing shall be made simultaneously with the closing of the
transactions contemplated by this Agreement in accordance with Section 8, below.
The date and time when the Merger shall become effective is referred to herein
as the "Effective Time."
1.3 ARTICLES OF INCORPORATION AND BYLAWS OF AWW FOLLOWING EFFECTIVE TIME.
The Articles of Incorporation and Bylaws of AWW, as in effect immediately prior
to the Effective Time, shall be the Articles of Incorporation and Bylaws of AWW
immediately after the Effective Time.
-2-
<PAGE>
1.4 DIRECTORS OF AWW. As of the Effective Time, the directors of AWW
shall be as follows:
William H. Wilson, Jr.
W. Gregory Orr
SECTION 2
CONVERSION AND EXCHANGE OF STOCK
2.1 CONVERSION AND EXCHANGE OF AWW STOCK AT EFFECTIVE TIME. At the
Effective Time, by virtue of the Merger, without any action on the part of any
party hereto, (i) all of the shares of AWW common stock (the "AWW Stock"), par
value $.10 per share, issued and outstanding as of the Effective Time shall be
converted into 637,500 shares of Liquids common stock, par value $.01 per share
(the "Liquids Stock"), to be allocated among the stockholders of AWW (the
"Stockholders") as set forth on Schedule 2.1, and (ii) each issued and
outstanding share of common stock of Newco, par value $.01 per share, shall be
converted into one share of common stock of AWW, par value $.10 per share.
2.2 SURRENDER AND EXCHANGE OF AWW STOCK. At the Effective Time, the
holders of certificates representing shares of AWW Stock shall cease to have any
rights as stockholders of AWW, except such rights as they may have pursuant to
this Agreement or the Act. After the Effective Time, each Stockholder shall be
entitled to receive, upon surrender to Liquids of any certificate or
certificates representing such Stockholder's shares of AWW Stock, a certificate
or certificates representing the number of shares of Liquids Stock into which
such Stockholder's AWW Stock shall have been converted in accordance with
Section 2.1 hereof and Schedule 2.1.
2.3 ADJUSTMENTS BECAUSE OF CHANGES IN LIQUIDS STOCK. The number of shares
of Liquids Stock to be issued pursuant to Section 2.1 shall be subject to
equitable adjustment in the event of any stock split, stock dividend, reverse
stock split, or other change in the number of shares of Liquids Stock
outstanding and issuable pursuant to the transactions contemplated hereunder.
-3-
<PAGE>
SECTION 3
REPRESENTATIONS AND WARRANTIES OF AWW
In order to induce Liquids and Newco to enter into this Agreement, AWW
represents, warrants, and covenants to Liquids and to Newco, effective as of the
date of this Agreement and again as of the Closing Date, each of the matters set
forth in this Section 3. For purposes of this Section 3, the term "AWW" shall
include not only American WasteWater Inc., but it shall also include American
WasteWater Ltd., a limited liability company which was the predecessor to
American WasteWater, Inc. Further, the Guarantors, jointly and severally,
represent, warrant, and covenant to Liquids and to Newco, effective as of the
date of this Agreement and again as of the Closing Date, each of the matters set
forth in Sections 3.1, 3.2, 3.3, 3.4, 3.9, 3.21, 3.22 (except to the extent
limited to knowledge in Section 3.2) and 3.29.
3.1 EXISTENCE; QUALIFICATION. AWW is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas and
is qualified or licensed and in good standing in all jurisdictions in which the
nature of the AWW Business or the properties owned by it require or will require
it to be qualified or licensed to do business, except where failure to be so
qualified or licensed will not have a material adverse effect on it.
3.2 TITLE TO STOCK. Schedule 3.2 lists all of the Stockholders of
AWW and sets forth the number of shares of AWW Stock owned by each such
Stockholder. The Stockholders have good title to all of the AWW Stock of record
and beneficially, free and clear of all liens, pledges, claims, contract
restrictions and encumbrances of any kind. (The representation, warranty, and
covenant of the Guarantors with respect to the immediately preceding sentence is
limited to the knowledge of the Guarantors.) A true and correct copy of the
Articles of Incorporation and the Bylaws of AWW has been provided by AWW to
Liquids. There is no other agreement in effect between or among the
Stockholders affecting the governance of AWW. Except as described in Schedule
3.2, none of the AWW Stock is subject to any buy-sell agreement or any other
contractual right or restriction.
All issued and outstanding shares of AWW Stock have been duly authorized
and validly issued and are fully paid and nonassessable. There are no
outstanding subscriptions, options, contracts, commitments, warrants, calls,
agreements, understandings or other arrangements or rights of any character
affecting or relating in any manner to the issuance of stock or other securities
of AWW (whether by subscription, option, exchange, right of conversion,
-4-
<PAGE>
right of refusal or otherwise) or entitling anyone to acquire shares of stock or
other securities of any kind of AWW.
3.3 AUTHORITY. AWW has all requisite right, power and authority to
own, lease and operate its properties, to carry on the AWW Business as it has
previously been carried on. This Agreement is a valid and legally binding
obligation of AWW and each Guarantor, enforceable against him or it in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
3.4 FINANCIAL STATEMENTS. AWW has delivered to Liquids copies of the
following consolidated financial statements (the "Financial Statements") of AWW
at Schedule 3.4:
(i) Balance Sheet, as of December 31, 1996 and Balance Sheets as
of December 31, 1995; and
(ii) Income Statements for the fiscal years ending December 31,
1996, December 31, 1995, and December 31, 1994.
Each Balance Sheet described in (i) above fairly presents the financial
condition of AWW as of the date indicated thereon, and the Income Statements
described in (ii) above fairly present the results of operations for whom they
were prepared for the period set forth thereon. The Financial Statements have
been prepared in accordance with generally accepted accounting principles,
subject in the case of the unaudited Financial Statements, to year-end audit
adjustments as would be made if they were audited and the absence of complete
footnotes.
3.5 LIABILITIES. Schedule 3.5 contains a list and description at
Schedule 3.5 of all liabilities, whether fixed, contingent, or uncontested, as
to which AWW, or any part of the AWW Business is subject on the Effective Date
to the knowledge of AWW, except those liabilities shown on the December 31, 1996
Balance Sheet or incurred in the ordinary course of business or which do not, in
the aggregate, materially and adversely affect the AWW Business. At Closing,
AWW shall finally certify to Liquids that Schedule 3.5, as updated as of the
Closing Date, is true, complete, and accurate, and such updated Schedule 3.5, as
finally certified at Closing, will not vary materially and adversely from the
Schedule 3.5 delivered to Liquids as of the Effective Date.
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3.6 PERMITS, LICENSES, ETC. Schedule 3.6 contains a list of all
material permits, licenses, applications, certificates, trademarks, trade names,
and similar such items and rights, either pending, in negotiation, or otherwise
relating to the AWW Business. To the knowledge of AWW, except as set forth on
Schedule 3.6, all of the permits, licenses, applications, franchises and other
items set forth therein are adequate for the operation of the AWW Business
except as would not have a material adverse effect upon the AWW Business, are
valid and in full force and effect and will be owned by AWW at Closing.
3.7 FIXED ASSETS. Schedule 3.7 includes a list of all applicable
title reports and title insurance policies and all leases, including those
covering vehicles, relating to the assets of AWW. To the knowledge of AWW, all
of the machinery and equipment of AWW shall be in the same condition on the
Closing Date which they were in as of the Effective Date, less ordinary wear and
tear. All leases of fixed assets used by AWW in the AWW Business shall be in
full force and effect and binding upon the parties thereto, and none of the
parties thereto shall be in breach of any of the material provisions thereof at
Closing. AWW shall regularly update Schedule 3.7 between the Effective Date and
the Closing Date to cause the information contained in Schedule 3.7 to continue
to be reasonably accurate on the Closing Date. At Closing, AWW shall finally
certify to Liquids that Schedule 3.7, as updated as of the Closing Date, is
true, complete, and accurate, and such updated Schedule 3.7 as finally
certified, shall not vary materially and adversely from the Schedule 3.7
delivered to Liquids as of the Effective Date.
3.8 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS. Schedule 3.8
contains a list, as of the Effective Date, of all material written agreements to
which AWW is a party or by which it or any of its property is bound (including,
but not limited to, joint venture or partnership agreements, loan agreements,
bonds, mortgages, liens, pledges or other security agreements in any way
relating to the AWW Business). All such agreements included in Schedule 3.8 are
in full force and effect and binding upon the parties thereto, and to the
knowledge of AWW none of the parties thereto is in breach of any material
provisions thereof.
3.9 TRANSACTIONS WITH RELATED PARTIES. Except as set forth on
Schedule 3.9 or for matters in the ordinary course of business, such as claims
for salary, expense reimbursements, and similar items, no Stockholder or
affiliate of a Stockholder of AWW has any claim of any kind against AWW.
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3.10 TITLE AND LIENS.
(a) At the Effective Time, AWW will have good and indefeasible
title to all material contracts, assets and leasehold estates, real and
personal, owned and used in the AWW Business, subject to no security
interest, mortgage, pledge, lien, or encumbrance, except for:
(i) liens or security interests reflected on
Schedule 3.10(a) as securing specified liabilities that have no
payment which is due through the date hereof which is not paid;
(ii) liens for current taxes and assessments that are not
yet due and payable;
(iii) materialmen's, mechanics', workers', repairmen's
or other similar liens arising in the ordinary cause of business for
amounts not due and payable; or
(iv) Any other encumbrance (excluding any security interest,
mortgage, pledge or lien) which does not materially and adversely
affect the use or value of any contract, asset or leasehold estate
(including without limitation utility easements, reservations of
mineral rights and similar matters), or the business, operations, or
financial condition of AWW.
(b) AWW owns certain real properties, the legal descriptions of
which are attached at Schedule 3.10(b) (referred to herein as the "Real
Property"). There are no leases, agreements or arrangements which create
in or confer on any person or entity the right to occupy, possess, or use
all or any portion of the Real Property or create in or confer on any such
person or entity any right, title or interest in or to the Real Property or
any portion thereof; except as set forth on Schedule 3.10(b), no portion of
the Real Property contains any wetlands or lies within any floodway or the
100 year flood plain as determined or designated by the U.S. Army Corp of
Engineers or any other federal, state or local governmental agency or
instrumentality which materially interferes with the use of the Real
Property, except as disclosed in any title insurance policy furnished to
Liquids pursuant to Section 3.7; and there are no claims or demands pending
or, to the best knowledge of AWW, threatened by any person against the Real
Property which, if valid, would create in, or confer on, any person other
than AWW, any material right, title or interest in or to the Real Property
or any portion thereof or any interest therein.
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3.11 PERSONNEL. Schedule 3.11 includes a list, as of the Effective
Date, of all officers, directors, and employees of AWW and their respective
rates of compensation (including the portions thereof attributable to bonuses),
including any other salary, bonus or other compensation arrangement made with
any of them.
3.12 EMPLOYMENT AGREEMENTS AND BENEFIT PLANS. AWW has no pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan or arrangement.
3.13 CONTINUATION OF BUSINESS. It is the contemplation of the parties
that substantially all employees, agents, and independent contractors who are
regularly engaged in the performance of services in the AWW Business prior to
Closing shall continue to be willing to perform those same services on the same
terms and conditions as they were performed prior to Closing, and AWW has no
reason to know of any such employees, agents, or independent contractors who
will not so continue to perform those services as aforesaid.
3.14 COPIES COMPLETE; NO DEFAULT. The certified copies of AWW's
Articles of Incorporation and Bylaws, attached as Exhibit 3.14, both as amended
to date, and the copies of all leases, instruments, agreements, licenses,
permits, certificates or other documents which have been delivered to Liquids in
connection with the transactions contemplated hereby are substantially complete
and accurate and are true and correct copies of the originals thereof, as
amended; and the execution of this Agreement and the performance of the
obligations hereunder will not violate or result in a breach or constitute a
default under any of the terms or provisions thereof. Except as provided in
Schedule 3.14, none of such leases, instruments, agreements, licenses, permits,
certificates or other documents requires notice to, or the consent or approval
of, any governmental agency or other third party to any of the transactions
contemplated hereby. Any consents or approvals that are required shall be
obtained by AWW prior to Closing.
3.15 BANK ACCOUNTS. Schedule 3.15 contains a list, as of the
Effective Date, of:
(a) the name of each bank in which AWW has accounts or safe
deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account; and
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(d) the name of each person authorized to draw thereon or have
access thereto.
AWW shall regularly update Schedule 3.15, and at Closing AWW shall certify the
updated Schedule 3.15 as true and correct.
3.16 NO HAZARDOUS WASTE, OTHER FACILITIES. To the knowledge of AWW,
(a) AWW has never transported or disposed of, or contracted for
the transportation or disposal of, hazardous wastes, hazardous substances,
infectious or medical waste, radioactive waste or sewage sludges in
violation of the Resource Conservation and Recovery Act of 1976, as
amended, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Atomic Energy Act of 1954, as
amended, or any comparable federal or state laws, or rules or regulations
promulgated under any of the foregoing; and
(b) AWW has never owned, operated and/or leased a hazardous
waste transfer, treatment, storage or disposal facility.
3.17 NO EXPOSURE TO HAZARDOUS OR TOXIC SUBSTANCES. To the knowledge
of AWW, except as set forth in Schedule 3.17, none of AWW's employees have, in
the course and scope of employment with AWW, been exposed in a manner which
would be detrimental to their health to hazardous, infectious, radioactive or
toxic wastes or substances as those terms are defined in the Resource
Conservation and Recovery Act of 1976, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Atomic Energy Act of 1954, as amended, or any comparable federal or state laws,
or rules and regulations promulgated under any of the foregoing.
3.18 UNDERGROUND STORAGE TANKS. To the knowledge of AWW, except as
set forth in Schedule 3.18, AWW has never owned or leased any real estate having
any underground storage tanks containing petroleum products or wastes or other
hazardous substances and regulated by 40 CFR 280 and/or other applicable
federal, state or local laws, rules, regulations and requirements.
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3.19 DISPOSAL FACILITIES USED. Schedule 3.19 contains a list, as of
the Effective Date, of all disposal sites (including dumps, landfills and all
other disposal facilities) utilized at any time since January 1, 1991 by AWW for
the disposal of any waste materials. For each such disposal site, AWW has
provided to Liquids in Schedule 3.19:
(a) the name and address of such disposal site; and
(b) the type or types of waste materials delivered to such
disposal site.
3.20 BORROWED MONIES. AWW is not in default or in violation of any
agreement or note for the payment of borrowed monies. Copies of all notes and
other documents relating to indebtedness for borrowed monies by AWW have been
provided to Liquids.
3.21 ABSENCE OF CERTAIN CHANGES, EVENTS OR CONDITIONS. Except as
described in Schedule 3.21 or as otherwise expressly provided in or contemplated
by this Agreement, and except for any acts contemplated by, required by, or in
furtherance of the Mergers and the other transactions contemplated as a part of
the plan referred to under the caption "RECITALS" above, since January 1, 1997,
AWW has: (a) conducted its business in the ordinary course, not engaged or
agreed to engage in any extraordinary transactions or distributions, and not
engaged or agreed to engage in any other transaction except at arm's length and
for fair consideration; (b) not disposed of any of its assets, except in the
ordinary course of business; (c) not materially increased the level of
compensation of any employee; (d) not issued any stock or securities or rights
with respect to any stock or securities, or paid any dividends, redeemed any
securities or otherwise caused any assets of AWW to be distributed to its
Stockholders; (e) not borrowed any funds under existing lines of credit or
otherwise, except as reasonably necessary for the ordinary operation of its
business in a manner, and in amounts, in keeping with historical practices, or
made any loans or guaranteed the obligations of any other persons; (f) not
suffered any material and adverse change in its assets, business, or operations;
(g) not changed or amended its charter documents or bylaws; (h) not entered into
any contract, commitment, or transaction which is not in the ordinary course of
its business; and (i) not failed to keep its properties and assets insured with
at least as much liability and property damage, fire, and other casualty
coverage as was effective on December 31, 1996.
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3.22 TAX RETURNS AND AUDITS. Except as set forth in Schedule 3.22, as
of the Effective Date of this Agreement AWW has, and as of the Closing Date AWW
will have: (a) filed in accordance with applicable laws all federal, state, and
local tax returns required to be filed by it; (b) paid all taxes, assessments,
penalties, and interest charges shown to be due and payable on each such return
or otherwise due or to become due or required to be paid; and (c) accrued or
created reserves for all taxes due or to become due by it for all periods ending
before, on or with the Effective Date. The federal income tax liability of AWW
has not been examined by the Internal Revenue Service during the six-year period
ending on December 31, 1996, nor has there been an examination of any other tax
liability of AWW during the past six (6) years. Except as set forth in Schedule
3.22, AWW has not been delinquent in the payment of any tax, assessment or
governmental charge, nor has any tax deficiency been proposed or assessed
against it which has not been satisfied, except for the delinquent payment of
past property taxes, payment of which has been made in full. AWW has not
executed any waiver of the statute of limitations on the assessment or
collection of any tax. Copies of the federal and state income tax returns of
AWW, and all adjustments and amendments to such returns, for the three years
ended December 31, 1996, together with copies of all reports, as filed, of any
taxing authority relating to examinations thereof, have been previously
delivered to Liquids, and to the best of each Guarantor's knowledge, are
accurate and complete. AWW has withheld or otherwise collected all taxes or
amounts it is required to withhold or collect under any applicable federal,
state, or local law, including, without limitation, any amounts required to be
withheld or collected with respect to social security, unemployment
compensation, sales or use taxes or workers' compensation, and all such amounts
have been timely remitted to the proper authorities. For purposes of this
Section 3.22, the term "tax" or "taxes" shall include, but not be limited to,
income taxes, employment taxes, excise taxes, sales and use taxes, franchise
taxes, and any other tax that may be imposed by a taxing authority.
AWW is not a party to any tax allocation or sharing agreement or otherwise
under any obligation to indemnify any person with respect to taxes.
There are no accounting method changes or proposed account method changes
of AWW that could give rise to an adjustment under Section 481 of the Code for
any period after the Closing.
There are no requests for rulings in respect of any tax pending between AWW
and any tax authority.
AWW is not a party to any joint venture, partnership, or other arrangement
that is treated as a partnership for federal income tax purposes.
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3.23 LITIGATION. Except as set forth on Schedule 3.23, to its
knowledge, AWW is not subject to or bound by any court, regulatory commission,
board or administrative judgment, order or decree, and no suit, action,
proceeding or other litigation in any court or before any administrative or
arbitration panel or commission or before or by any governmental department or
agency to which AWW is a party or which affects the AWW Business or properties
of AWW is now pending. AWW has no knowledge of any governmental proceeding or
investigation involving AWW, nor does it have reason to believe that any such
proceeding or investigation is pending or threatened or that there exists any
basis for any such proceeding or investigation, except as may be set forth on
Schedule 3.23. AWW has no knowledge of any facts which might reasonably be
believed to be a basis for any other action, suit, proceeding, arbitration,
claim, or counterclaim against AWW. To its knowledge, there are no existing
violations of federal, state or local laws, ordinances, rules, regulations or
orders by AWW which materially and adversely affect the AWW Business or property
of AWW or the possession, use, occupancy or operation of any of its facilities
or operation.
3.24 RIGHTS AND AUTHORIZATIONS. AWW owns or holds all licenses,
permits, approvals, and other authorizations (collectively "Authorizations")
which are used in or required for the AWW Business, and at Closing, AWW shall
own and hold all such Authorizations, outright and without material restriction.
AWW has no knowledge and has not received any notice that any such Authorization
is not valid or sufficient or in full force and effect. Except as set forth on
Schedule 3.14 or Schedule 3.24, neither the execution and delivery nor the
consummation of the transactions contemplated hereby will cause a termination
of, or interfere in any respect with, the operation under any such
Authorizations.
3.25 INSURANCE. AWW has maintained and as of the Closing Date AWW
shall have in full force and effect motor vehicle and comprehensive general
liability insurance and worker's compensation insurance covering the AWW
Business, its properties and operations, and fire and extended coverage
insurance with respect to its properties as is reasonably necessary to
adequately insure and protect its properties and assets. Schedule 3.25 contains
a complete list of all such insurance policies and a description of all pending
claims (including the amount of coverage thereunder) in effect as of the
Effective Date. Such insurance policies are owned exclusively by AWW. Except
as specified in such policies, AWW has no knowledge that any such insurance
policies are subject to any retroactive rate or audit adjustments or
co-insurance arrangements. No notice of cancellation or nonrenewal of or
disallowance of any claim under any such policy has been received.
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3.26 NO CONFLICTS. Except as provided in Schedule 3.26, neither the
execution and delivery of this Agreement nor any of the related documents
contemplated hereby will materially violate, conflict with, or result in a
breach of any provisions of, or constitute a material default (or an event
which, with notice or lapse of time or both would constitute a material default)
under, or result in the termination of, or accelerate the performance required
by, or result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, or encumbrance upon any of the material
properties or assets of AWW or otherwise comprising a part of the AWW Business
under any of the terms, conditions or provisions of (i) its charter documents or
Bylaws, or (ii) any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation, to which AWW is a party or
to which it or any of its material properties or assets may be subject.
3.27 CONSENTS. Except as listed on Schedule 3.27, no notice to,
approval by, filing with, or authorization, consent or approval of, any federal,
state, local or other public body, agency or authority or any other third party
is necessary for the consummation of the transactions contemplated by this
Agreement and the carrying on of the AWW Business by AWW following the Closing
Date. The foregoing notwithstanding, AWW makes no representation or warranty as
to the application of the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
as amended (the "HSR Act"), or the Exon-Florio Amendment, Section 721 of the
Defense Production Act of 1950 ("Exon-Florio"), to the transactions contemplated
by this Agreement. It shall be the sole obligation of Liquids to determine the
application of the HSR Act or Exon-Florio to the transactions contemplated by
this Agreement. To the extent Liquids determines that the HSR Act or Exon-
Florio applies to the transactions contemplated by this Agreement, the parties
hereto shall cooperate to comply therewith and all expenses incurred in
complying with the HSR Act or Exon-Florio shall be borne by Liquids.
3.28 ENVIRONMENTAL MATTERS. To the knowledge of AWW, except as set
forth in Schedule 3.28, AWW currently is and at all times in the past has
operated in substantial compliance in all material respects with all federal,
state and local laws, rules and regulations (collectively, the "Environmental
Laws") relating to the use, management, handling, transport, treatment,
generation, storage, disposal, release or discharge of hazardous substances or
wastes. Except as set forth in Schedule 3.28, no governmental agency has
conducted any extraordinary audits, assessments, tests or other reviews in
connection with AWW's compliance with any Environmental Law.
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3.29 APPROVAL BY AWW STOCKHOLDERS AND DIRECTORS. This Agreement, the
Merger, and all transactions contemplated hereby have been duly approved by the
Board of Directors of AWW and by the Stockholders in accordance with applicable
law and the Bylaws and the Articles of Incorporation of AWW. Immediately prior
to the execution of this Agreement, the Guarantors will provide to Liquids a
copy, certified by the Secretary of AWW to be true and correct, of the
resolutions of the Board of Directors and of the Stockholders of AWW approving
this Agreement, the Merger and the transactions contemplated hereby. No
Stockholder or other person has or will exercise any appraisal or dissenter's
rights in connection with the Merger.
3.30 SPECIFIC REPRESENTATIONS AND WARRANTIES RELATING TO POOLING-OF-
INTERESTS ACCOUNTING.
(a) American WasteWater Inc. has not acquired any treasury stock
during the two-year period preceding the Effective Date. Further, American
WasteWater Ltd., the predecessor of AWW, did not acquire any membership
interest in American WasteWater, Ltd. from a member during the two-year
period preceding the Effective Date.
(b) Except as set forth in Schedule 3.30(b), neither the voting
structure of American WasteWater Inc. nor the relative ownership of shares
of American WasteWater Inc. has been altered or changed materially within
the two (2) years preceding the Effective Date. Further, except as set
forth in Schedule 3.30(b), neither the voting structure of American
WasteWater, Ltd. nor the relative ownership of membership interests of
American WasteWater, Ltd. has been altered or changed materially within the
two (2) years preceding the Effective Date, except in connection with the
incorporation of American WasteWater, Ltd. into AWW.
(c) To AWW's knowledge, there has been no other transaction or
action taken with respect to the equity ownership of AWW in contemplation
of the Merger which would prevent Liquids from accounting for the Merger on
a pooling-of-interests basis for financial accounting purposes.
(d) AWW has not been a subsidiary or division of another
corporation during the two-year period prior to the Effective Date.
(e) There has been no sale of any significant assets of AWW
other than in the ordinary course of business during the two-year period
preceding the Effective Date.
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(f) The Stockholders will exercise their voting rights as to the
Liquids Stock to be received by them in the Merger, and there will be no
mechanisms such as a voting trust or other stockholders' or voting trust
agreement that would in any way deprive or restrict the Stockholders from
exercising their respective voting rights as to the Liquids Stock received
by them in the Merger.
3.31 SUBSIDIARIES. AWW does not have any subsidiaries or other equity
interests (controlling or otherwise) in any corporation, association or other
entity, nor is it a partner in nor a party to any partnership or joint venture.
3.32 DISCLOSURE SCHEDULES. Anything disclosed under any Schedule
referenced in this Section 3 shall be deemed disclosed under each and every
other Schedule referenced in this Section 3.
SECTION 4
RESALES OF LIQUIDS STOCK
4.1 STOCK DISTRIBUTION AGREEMENTS AND INVESTOR REPRESENTATION
LETTERS. Contemporaneously with the execution of this Agreement, AWW shall
deliver to Liquids fully executed Investor Representation Letters and Stock
Distribution Agreements in the forms attached hereto as Exhibits 4.1A and 4.1B,
respectively, from all Stockholders of AWW to whom Liquids Stock will be issued
in connection with the Merger. Liquids will also fully execute each of the
Stock Distribution Agreements contemporaneously with the execution of this
Agreement.
SECTION 5
REPRESENTATIONS AND WARRANTIES OF LIQUIDS
Liquids represents, warrants, and covenants to AWW, effective as of the
date of this Agreement and again as of the Closing Date, as follows:
5.1 CORPORATE ORGANIZATION. Each of Liquids and Newco is a
corporation duly organized, validly existing and in good standing under the laws
of the state in which it is incorporated and has all requisite corporate power
and authority to enter into this Agreement and perform its obligations
hereunder.
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5.2 AUTHORIZATION. Liquids has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The Board of Directors of Liquids and Newco have, and the
shareholder of Newco has, each duly authorized the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby. No
other corporate proceedings on the part of Liquids or Newco is necessary to
approve and authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement
constitutes the valid and binding agreement of Liquids and Newco, enforceable
against them in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency, moratorium and other similar laws
affecting the enforcement of creditors' rights generally and except as such
enforceability may be affected by equitable principles (whether considered in a
proceeding at law or in equity).
5.3 CAPITALIZATION. As of the date of this Agreement, the authorized
stock and securities of Liquids consist of 50,000,000 shares of common stock,
$.01 par value per share, of which 3,538,875 shares are issued and outstanding
and 10,000,000 shares of preferred stock, $.01 par value per share, of which no
shares are issued and outstanding. The authorized stock and securities of Newco
consist of 10,000 shares of common stock, $.01 par value per share, of which
1,000 shares are issued and outstanding. All of such issued and outstanding
shares of capital stock of Liquids and Newco have been duly authorized and
validly issued and are fully paid and nonassessable. Except as described in
Schedule 5.3, there are no outstanding or authorized subscriptions, options,
contracts, commitments, warrants, calls, agreements, understandings or other
arrangements or rights of any character affecting or relating in any manner to
the issuance of capital stock or other securities of Liquids (whether by
subscription, option, exchange, right of conversion, right of refusal or
otherwise) or entitling anyone to acquire shares of the capital stock of Liquids
or other securities of any kind of Liquids.
5.4 COPIES COMPLETE; NO DEFAULT. The certified copies of the
Certificate (Articles) of Incorporation and Bylaws, both as amended to date, of
Liquids and Newco and the copies of all other documents which have been
delivered by Liquids to AWW in connection with the transactions contemplated
hereby are substantially complete and accurate and are true and correct copies
of the originals thereof; and the execution of this Agreement and the
performance of the obligations hereunder will not violate or result in a breach
or constitute a default under any of the terms and provisions hereof. The copy
of the Mesa Companies Merger Agreement shall be a true and correct copy thereof.
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5.5 NO CONFLICT. Neither the execution and delivery of this
Agreement nor any other related documents contemplated hereby will violate,
conflict with, or result in a breach of any provisions of or constitute a
default (or an event which, with the giving of notice or lapse of time, or both,
would constitute a default) under or result in the termination of or accelerate
the performance required by or result in a right of termination or acceleration
under or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Liquids or Newco under any
of the terms, conditions or provisions of (i) the charter documents or bylaws of
Liquids or Newco, or (ii) any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Liquids or
Newco is a party or to which it or any of its properties or assets may be
subject.
5.6 LITIGATION. Except as set forth on Schedule 5.6, to its
knowledge, Liquids is not subject to or bound by any court, regulatory
commission, board or administrative judgment, order or decree, and no suit,
action, proceeding or other litigation in any court or before any administrative
or arbitration panel or commission or before or by any governmental department
or agency to which Liquids is a party or which affects the business or
properties of Liquids is now pending. Except as set forth on Schedule 5.6,
Liquids has no knowledge of any governmental proceeding or investigation
involving Liquids, nor does it have reason to believe that any such proceeding
or investigation is pending or threatened or that there exists any basis for any
such proceeding or investigation, except as may be set forth on Schedule 3.23;
to its knowledge, there are no existing violations of federal, state or local
laws, ordinances, rules, regulations or orders by Liquids which materially and
adversely affect the business or property of Liquids or the possession, use,
occupancy or operation of any of its facilities or business.
5.7 REPRESENTATIONS AND WARRANTIES RELATING TO POOLING-OF-INTERESTS
ACCOUNTS. Liquids will not knowingly take or cause to be taken any action or
cause any matter to occur which might reasonably prevent the Merger to be
accounted for as a pooling-of-interests.
5.8 BROKERS, FINDERS, ETC. All negotiations relating to this
Agreement and transactions contemplated hereby have been carried on without the
intervention of any broker, finder, or other person, acting on behalf of Liquids
in any manner as to give rise to any claim against Liquids for any brokerage,
finder's, or similar fee or commission.
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5.9 FINANCIAL STATEMENTS. Liquids has delivered to AWW copies of the
following financial statements (the "Financial Statement") of Liquids at
Schedule 5.9:
(i) Balance Sheet as of December 31, 1996; and
(ii) Income Statement for the period from inception to December
31, 1996.
The Balance Sheet fairly presents the financial condition of Liquids as of the
date set forth thereon, and the Income Statement fairly presents the results of
operation for the period indicated thereon, all in accordance with generally
accepted accounting principles, subject to year-end audit adjustments and the
absence of complete footnotes.
5.10 ACCURACY OF REGISTRATION STATEMENT. As of the Effective Date,
Liquids is preparing a registration statement to be filed by Liquids with the
SEC on Form S-1 (the "Registration Statement") as soon as practicable following
the closing of the AWW Merger. Liquids hereby represents and warrants that the
Registration Statement, when filed, will not to Liquids' knowledge contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
However, Liquids shall have no responsibility hereunder for any untrue
statements of a material fact or omissions to state a material fact in the
Registration Statement which are derived from information which has been
provided to or which should have been provided to Liquids by the Guarantors or
AWW.
5.11 REPRESENTATIONS RELATING TO TAX-FREE REORGANIZATIONS.
(a) Prior to the Merger, Liquids will be in control of Newco within
the meaning of Code Section 368(c).
(b) Following the Merger, Liquids has no plan or intention to issue
additional shares of capital stock of AWW which would result in Liquids
losing control of AWW within the meaning of Section 368(c) of the Internal
Revenue Code.
(c) Liquids has no plan or intention to reacquire any of the Liquids
Stock issued in the Merger.
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(d) Liquids has no plan or intention to (i) liquidate AWW, (ii) merge
AWW with or into another corporation, (iii) sell or otherwise dispose of
the stock of AWW except for transfers of stock to corporations controlled
by Liquids, or (iv) cause AWW to sell or otherwise dispose of any of its
assets or of any of the assets acquired from Newco, except for dispositions
made in the ordinary course of business or transfers of assets to a
corporation controlled by Liquids.
(e) Newco will not have any liabilities assumed by AWW, and will not
transfer to AWW any assets subject to liabilities in the Merger.
(f) Newco was formed expressly for the purpose of effecting the
Merger, and as a result of the Merger, AWW will hold 100% of the Newco
assets held by Newco immediately prior to the Merger.
(g) Following the Merger, Liquids shall cause AWW to continue its
historic business or use a significant portion of its historic business
assets in a business.
(h) There is no intercorporate indebtedness existing between AWW and
Liquids or between Newco and AWW.
(i) The Liquids Stock is voting common stock of Liquids as described
in Code Section 368(a)(2)(E).
(j) Liquids does not own, nor has it owned in the past five (5)
years, any stock of AWW.
(k) Neither Liquids nor Newco is an investment company as defined in
Code Section 368(a)(2)(F)(iii) and (iv).
5.12 ABSENCE OF VOTING OR BUY-SELL AGREEMENT. There is no existing
agreement to which Liquids is a party which imposes any voting obligation or
buy-sell obligation with respect to any Liquids Stock, except as set forth in or
contemplated by this Agreement or the Mesa Companies Merger Agreement.
SECTION 6
COVENANTS
AWW makes certain covenants below to Liquids and Newco, and Liquids and
Newco jointly and severally make certain covenants to AWW below. Further, the
Guarantors jointly and severally guarantee the full and complete performance by
AWW of those matters set forth in Sections 6.1, 6.4 and 6.6.
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6.1 CONDUCT OF BUSINESS. Except as otherwise provided for or
contemplated by this Agreement or in Schedule 6.1, and except for any acts
contemplated by, required by, or in furtherance of the Merger and the other
transactions contemplated as a part of the plan referred to under the caption
"RECITALS" above, during the period from the Effective Date of this Agreement to
the Effective Time, AWW will conduct the AWW Business and operations according
to its ordinary and usual course and consistent with past practice, and will use
its commercially reasonable best efforts to preserve intact its business
organization, to keep available the services of its officers and employees and
to maintain satisfactory relationships with licensors, licensees, suppliers,
contractors, distributors, customers and others having business relationships
with it. Except as otherwise expressly provided in or contemplated by this
Agreement, and except for any acts contemplated by, required by, or in
furtherance of the Merger and the other transactions contemplated as a part of
the plan referred to under the caption "RECITALS" above, after the Effective
Date and prior to the Effective Time, AWW will not, without the prior written
consent of Liquids, do any of the things listed in this Section 6.1. Further,
except as otherwise expressly provided in or contemplated by this Agreement, and
except for any acts contemplated by, required by, or in furtherance of the Mesa
Companies Merger Agreement, and the other transactions contemplated as a part of
the plan referred to under the caption "RECITALS" above, Liquids will not do
any of the acts listed below without the prior written consent of AWW, which
consent shall not be unreasonably withheld. The acts referred to above are as
follows:
(a) amend its Articles of Incorporation or Bylaws (and in the
case of Liquids, amend its Certificate of Incorporation or Bylaws);
(b) authorize for issuance, issue, sell or deliver (whether
through the issuance or granting of additional options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of
any class or any securities convertible into shares of stock of any class;
(c) split, combine or reclassify any shares of its stock, or
redeem or otherwise acquire any shares of the stock;
(d) (i) create, incur or assume any debt (other than debt
created, incurred or assumed in the ordinary course of its business,
consistent with past practice and with respect only to acquisition by it of
property used in the ordinary course of business); (ii) create, incur or
assume any (A) long-term debt (including capitalized lease obligations), or
(B) short-term debt except trade payables incurred in the ordinary course
of business and consistent with past practice; (iii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for
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the obligations of any other person; or (iv) make any loans, advances or
capital contributions to, or investments in, any other person or entity,
other than short-term investments in financial instruments in the ordinary
course of business and consistent with past practice;
(e) (i) increase in any manner the compensation of any of its
directors, officers or other employees; or (ii) commit itself to any
additional pension, profit-sharing, bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan,
agreement or arrangement, or to any employment or consulting agreement with
or for the benefit of any person, or amend any of such plans or any of such
agreements in existence on the date hereof;
(f) sell, transfer, mortgage, or otherwise dispose of or
encumber any real property;
(g) except in the ordinary course of business and consistent
with past practice or pursuant to contractual obligations existing on the
date hereof (i) sell, transfer, mortgage, or otherwise dispose of or
encumber any personal property with a market value which, individually or
in the aggregate, exceeds $10,000; (ii) pay, discharge or satisfy claims,
liabilities or obligations (absolute, accrued, contingent or otherwise); or
(iii) cancel any debts or intentionally waive any claims or rights;
(h) make any capital expenditure or commitment except in the
ordinary course of business consistent with past practices and in an amount
in excess of $10,000 individually or in the aggregate;
(i) enter into any other agreements, commitments or contracts
which, individually or in the aggregate, are material to AWW, except
agreements, commitments or contracts expressly provided for or contemplated
by this Agreement or for the purchase, sale or lease of goods or services
in the ordinary course of business, consistent with past practice and not
in excess of current requirements or for the provision of data processing
or related services in the ordinary course of business and consistent with
past practice, or otherwise make any material change in the conduct of the
business or operations of AWW;
(j) make any distribution to Stockholders (except as provided
for in Section 6.15, below); or
(k) agree, whether in writing or otherwise, to do any of the
foregoing.
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6.2 ACCESS TO INFORMATION.
(a) AWW will afford Liquids and its representatives access,
during normal business hours, to all of AWW's business, operations,
properties, books, files and records and will cooperate in the examination
thereof. Liquids agrees that all information, including the existence and
contents of this Agreement and the other agreements among the parties, so
provided will be treated as confidential (except for necessary disclosures
to professional advisors, and except for securities law disclosures, and
except for disclosures to any underwriter with whom Liquids negotiates to
offer and sell its stock, and except for any disclosures required by law),
that Liquids will not disclose or make any use of such confidential
information unless the same is or shall become available to it through
nonconfidential means or shall otherwise come into the public domain. If
the transactions contemplated by this Agreement are not consummated for any
reason, then after this Agreement is terminated, Liquids will continue to
hold in confidence all information obtained from AWW and will return to AWW
all copies of any confidential documents obtained by Liquids in connection
with the transactions contemplated by this Agreement.
(b) Liquids will afford AWW access, during normal business
hours, to all of its business, operations, properties, books, files and
records and will cooperate with AWW and its representatives in the audit
and examination thereof and will do everything reasonably necessary to
enable AWW to make a complete examination of the business, assets and
properties of Liquids and the condition thereof. AWW agrees that all
information, including the existence and contents of this Agreement and the
other agreements among the parties, so provided will be treated as
confidential (except for necessary disclosures to professional advisors,
and except for any disclosures required by law, including securities law
disclosure and further except for disclosures to any underwriter with whom
Liquids negotiates to offer and sell its stock), that neither AWW nor any
Stockholder will disclose or make any use of such confidential information
unless the same is or shall become available to it through nonconfidential
means or shall otherwise come into the public domain. If the transactions
contemplated by this Agreement are not consummated for any reason, then
after this Agreement is terminated, AWW and the Stockholders will continue
to hold in confidence all information obtained from Liquids and will return
to Liquids all copies of any confidential documents obtained by AWW or any
Stockholder in connection with the transactions contemplated by this
Agreement.
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6.3 PUBLIC ANNOUNCEMENTS. AWW will consult with Liquids before
issuing any press release or otherwise making any public statements with respect
to the transactions contemplated by this Agreement and shall not issue any such
press release or make any such public statement without Liquids' prior approval.
6.4 NOTIFICATION OF MATERIAL EVENTS. Each party shall promptly
notify the others in writing of the occurrence of any event which will or could
reasonably be expected to result in its failure to satisfy any of the
representations, warranties, covenants, or conditions specified in this
Agreement.
6.5 CERTAIN EMPLOYEE MATTERS. AWW will take reasonable steps
necessary to maintain and enforce all employment contracts and noncompetition
and nondisclosure agreements which it now has and has had with its employees and
former employees.
6.6 EMPLOYMENT AGREEMENT. AWW will cause William H. Wilson, Jr. to
execute and deliver to Liquids at Closing the Employment Agreement in the form
attached hereto at Exhibit 6.6, which shall also be executed and delivered by
AWW at Closing.
6.7 THIS SECTION HAS BEEN INTENTIONALLY LEFT BLANK.
6.8 NONCOMPETITION. At Closing, AWW shall deliver a Noncompetition
Agreement from each Stockholder of AWW which shall be fully executed and in the
form set forth at Exhibit 6.8.
6.9 LIQUIDS STOCK OPTIONS. Liquids has adopted a stock option plan
entitling optionees to purchase Liquids Stock. Following the Closing, options
to purchase not less than 37,500 shares of Liquids Stock will be granted to
those employees of AWW as designated by William H. Wilson, Jr., and if he fails
for any reason to do so, then those options shall be designated to such persons
as AWW deems deserving. It is contemplated by the parties that the exercise
price of these stock options shall be a price per share equal to or not
materially different from the anticipated price per share for which Liquids
Stock will be sold in an initial public offering presently being prepared for by
Liquids and certain other necessary persons. The exercise price of these
options to be granted pursuant to this Section 6.9 shall not be less than the
exercise price of the stock options contemporaneously granted to other optionees
under that stock option plan. The exercise price of these options shall be
adjusted as appropriate for any recapitalization, stock dividend, or other
change in capital structure or capitalization. Liquids will use its
commercially
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reasonable efforts to cause these options to qualify as incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended.
6.10 RESIGNATIONS. Each officer and director of AWW other than those
whom Liquids shall have specified in writing at least two (2) days prior to the
Closing shall execute and deliver to Liquids at Closing his or her written
resignation as an officer or director of AWW effective as of the Closing.
6.11 DISPOSITION OF STOCKHOLDERS' NOTES AND RELEASE OF PERSONAL
LIABILITY ON AWW INDEBTEDNESS.
6.11.1 Within thirty (30) days following the date upon which
the Registration Statement referred to in Section 5.10 is declared effective,
but in any event no later than December 31, 1997, Liquids will cause AWW to pay
off in cash the Notes Payable to the AWW Stockholders. True and correct copies
of these Notes have been provided by AWW to Liquids and are attached as Exhibit
6.11.1. As of May 31, 1997, the Notes had an aggregate unpaid balance of
principal and interest equal to $633,354.46 and continue to accrue interest at
the rate set forth therein.
6.11.2 Further, each of the Guarantors has personal liability
with respect to the indebtedness listed on Schedule 6.11.2. At the Closing, AWW
shall assume and become responsible for all of the Guarantors' Personal
Liabilities. As soon as practicable following Closing, but in any event within
the earlier of thirty (30) days following the date upon which the Registration
Statement referred to in Section 5.10 is declared effective, or 120 days
following Closing, Liquids will cause the Guarantors to be released from any
personal liability on that indebtedness by either obtaining releases from the
creditors, or by refinancing the indebtedness, or by paying off the indebtedness
or other liability, or otherwise. To the extent that the Guarantors are not
released from any personal liability, Liquids will indemnify the Guarantors for
any expenses or losses incurred by them in connection with such indebtedness.
Except as otherwise provided herein, Liquids shall indemnify and hold the
Guarantors harmless for any expenses or losses incurred by them in connection
with any other liability of AWW which has been properly disclosed to Liquids in
this Agreement or in a schedule or exhibit hereto.
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6.12 TRANSFERABILITY OF AWW STOCK. AWW covenants that prior to the
Closing Date, no Stockholder shall transfer or grant a security interest in all
or any portion of his AWW Stock. Further, AWW agrees that as of the Closing
Date, there will be no restriction or encumbrance of any kind upon the ability
of Liquids to acquire all outstanding shares of AWW Stock in the Merger.
6.13 AMENDMENTS TO MESA COMPANIES MERGER AGREEMENT. Liquids does not
presently contemplate entering into any amendment to the Mesa Companies Merger
Agreement. However, in the event the Mesa Companies Merger Agreement is
amended, then Liquids shall promptly give notice thereof to AWW. If any such
amendment would have a material adverse effect upon AWW, then AWW shall have the
right, for a period of ten (10) days following the receipt of notice of such
amendment, to give notice to Liquids that this Agreement is terminated.
6.14 TERMINATION OF AWW SHAREHOLDERS' AGREEMENT. At Closing, AWW
shall provide to Liquids executed documentation reasonably satisfactory to
Liquids showing that the Shareholders' Agreement, dated effective May 1, 1997,
between and among AWW and its shareholders has been terminated and is of no
further force and effect.
SECTION 7
CLOSING CONDITIONS
7.1 CONDITIONS TO THE OBLIGATIONS OF LIQUIDS AND NEWCO. Each and
every obligation of Liquids and Newco under this Agreement and under the other
agreements, instruments, and documents related to this Agreement (the "Related
Documents") shall be subject to the satisfaction, as of Closing, of each of the
following conditions, each of which can be waived by Liquids, but only in
writing:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of AWW and the Guarantors contained in this
Agreement shall be true and correct as of the date hereof and shall be
deemed to have been made again at Closing and shall then be true and
correct, except for any inaccuracy of a representation or warranty which in
the reasonable opinion of Liquids is not material.
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(b) PERFORMANCE OF COVENANTS. Each of the covenants and other
obligations of AWW and the Guarantors to be performed by any of them on or
before Closing pursuant to the terms hereof shall have been duly performed
and complied with in all material respects, except for the failure to
perform or comply with any covenant or obligation which in the reasonable
opinion of Liquids is not material.
(c) NO ADVERSE PROCEEDINGS OR EVENTS. No suit, action or other
proceeding shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit any of the transactions
contemplated by this Agreement or to obtain damages or other relief in
connection with this Agreement or the transactions contemplated hereby,
unless such suit, action or proceeding is without substantial merit or
basis.
(d) DELIVERIES AT CLOSING. All documents or instruments
required to be delivered at Closing by AWW and/or its Stockholders and/or
the Guarantors shall be delivered and tendered at Closing.
(e) OPINION OF COUNSEL. At Closing, Liquids shall receive an
opinion from Cokinos, Bosien & Young, counsel to AWW, dated the Closing
Date, in the form set forth at Exhibit 7.1(e).
(f) QUALIFICATION AS POOLING OF INTEREST. There shall be no
material risk that the Merger will not qualify as a "pooling of interests"
for financial accounting purposes.
(g) CLOSING OF THE MESA MERGERS. Prior to or at Closing, the
Mesa Mergers shall be closed and consummated.
(h) TERMINATION OF SHAREHOLDERS' AGREEMENT. Prior to Closing,
that certain Shareholders' Agreement, dated effective as of May 1, 1997,
between AWW and the Stockholders shall have been terminated and be of no
further force or effect.
7.2 CONDITIONS TO OBLIGATIONS OF AWW AND THE GUARANTORS. Each and
every obligation of AWW and the Guarantors under this Agreement shall be subject
to the satisfaction at Closing of the following conditions, each of which may be
waived by AWW, but only in writing:
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(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Liquids contained in this Agreement shall
be true and correct as of the date hereof and shall be deemed to have been
made again at Closing and shall then be true and correct, except for any
inaccuracy of a representation or warranty which in the reasonable opinion
of AWW is not material.
(b) PERFORMANCE OF COVENANTS. Each of the covenants and other
obligations of Liquids to be performed by it on or before Closing pursuant
to the terms hereof shall have been duly performed and complied with in all
material respects, except for the failure to perform or comply with any
covenant or obligation which in the reasonable opinion of AWW is not
material.
(c) NO ADVERSE PROCEEDINGS OR EVENTS. No suit, action or other
proceeding shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit any of the transactions
contemplated by this Agreement or to obtain damages or other relief in
connection with this Agreement or the transactions contemplated hereby,
unless such suit, action or proceeding is without substantial merit or
basis.
(d) DELIVERIES AT CLOSING. All documents or instruments
required to be delivered at Closing by Liquids or Newco shall be delivered
and tendered at Closing.
(e) OPINION OF COUNSEL. At Closing, Liquids' counsel, Hartzog
Conger & Cason, a professional corporation, shall deliver to AWW and the
Guarantors its opinion, dated the Closing Date, in the form set forth at
Exhibit 7.2(e).
(f) CLOSING OF THE OTHER MERGERS. Prior to or at Closing, the
Mesa Companies Mergers shall be closed and consummated.
SECTION 8
CLOSING
8.1 TIME AND PLACE. The closing (the "Closing") of the transactions
contemplated in this Agreement shall occur as soon as possible after all
conditions to Closing contained herein are satisfied (the "Closing Date"), at
Houston, Texas, or at such other place or at such other time as Liquids may
designate.
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8.2 DELIVERIES BY AWW AT CLOSING. At Closing, AWW shall deliver, and
the Guarantors shall cause AWW to deliver, the following Related Documents, each
of which shall be fully executed and completed as appropriate or as required
under this Agreement:
(a) all stock certificates representing all shares of AWW Stock
issued and outstanding as of the Effective Time;
(b) the opinion of counsel referred to in Section 7.1(e);
(c) the executed employment agreement referred to in Section
6.6;
(d) all books, minutes, records, tax returns, reports, etc.
related to AWW and the AWW Business;
(e) the executed Noncompetition Agreements referred to in
Section 6.8 and the resignations referred to in Section 6.10;
(f) the resignations referred to in Section 6.12; and
(g) all other certificates, documents, and other instruments
required to be delivered by AWW or the Stockholders pursuant to this
Agreement.
8.3 DELIVERIES BY LIQUIDS AT CLOSING. At Closing, Liquids shall
deliver the following Related Documents, each of which shall be fully executed
and completed as appropriate or as required under this Agreement:
(a) all stock certificates representing all shares of Liquids
Stock required to be delivered by Liquids to the Stockholders pursuant to
this Agreement;
(b) the opinion of counsel to Liquids referred to in Section
7.2(e);
(c) the executed employment agreement referred to in Section
6.6; and
(d) all other certificates, documents, and other instruments
required to be delivered by Liquids pursuant to this Agreement.
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8.4 EXPENSES OF CLOSING. AWW has engaged the services of Cokinos,
Bosien & Young as legal counsel to AWW in connection with the transactions
contemplated by this Agreement. AWW shall submit to Liquids all invoices for
legal services so incurred by AWW. All invoices for legal services and charges
shall be on a reasonably detailed line-item form basis. Liquids agrees to
promptly pay any such legal fees and expenses. It is acknowledged that certain
of such fees and expenses will be for services which have benefitted the
Stockholders in connection with the transactions contemplated by this Agreement.
Any such legal fees and expenses shall be deemed to have been
incurred by AWW and shall be payable hereunder. This Section 8.4 shall not
limit any expenses which are incurred by AWW or the Guarantors in connection
with any matters for which they are indemnified pursuant to this Agreement
or in any Related Document. No amounts payable to Liquids' accountants,
attorneys, underwriters, investment bankers, or other outside consultants
(collectively, "Consultants"), regardless of whether such Consultants perform
services in respect of AWW or the Guarantors (including, without limitation,
preparation of financial statements of AWW or any registration statements or
portions thereof), shall be included within the expenses deemed to have been
incurred by AWW. Liquids shall be solely responsible for the payment of all
fees and expenses of any Consultants engaged by it.
SECTION 9
TERMINATION
9.1 MUTUAL CONSENT. This Agreement may be terminated by the mutual
consent of Liquids and AWW.
9.2 BY LIQUIDS. This Agreement may be terminated by Liquids if a
material default should be made by AWW or any Guarantor in the observance of or
in the due and timely performance by any of them of any of their respective
material agreements and covenants herein contained, or if there shall have been
a material breach by any of them of any of their respective material warranties
and representations herein contained, or if the conditions of this Agreement to
be complied with or performed by any of them at or before Closing shall not have
been complied with or performed on or before August 1, 1997, unless such
noncompliance or nonperformance shall have been waived by Liquids in writing.
Notwithstanding the foregoing, if AWW or any Guarantor materially defaults in
the observance of or in the due and timely performance of any of the material
agreements and covenants herein contained or materially breaches any of the
material warranties and representations herein contained, and if that material
default or breach is curable by AWW or any Guarantor, then AWW or that Guarantor
may give notice (the "Notice of Intent to Cure") to
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Liquids, making express reference to this Section 9.2 and setting forth in
detail the facts and circumstances of the material default or breach and further
setting forth AWW's or the Guarantor's intent to cure the same and describing
how the material default or breach will be cured. Within seven (7) business
days of this Notice of Intent to Cure by AWW or a Guarantor, Liquids may give a
response notice to AWW (the "Response Notice") as to whether Liquids consents to
the proposed cure of the material default or breach by AWW or the Guarantor;
provided however, that Liquids shall not unreasonably withhold consent to cure.
The failure by Liquids to give a timely Response Notice shall be deemed to be a
consent by Liquids to the proposed cure. If consent to cure is granted by
Liquids, then AWW or the Guarantor shall have ten (10) days following the date
of Liquids' Response Notice (or if no Response Notice is given, then seventeen
[17] days from the date of the Notice of Intent to Cure) to cause the material
default or breach to be cured. For purposes of this Section 9.2, a material
default in the observance of or in the due and timely performance of any of the
material agreements and covenants herein contained is curable only if AWW or a
Guarantor can cause such material agreements and covenants to be observed and
performed, and so long as such cure will cause the material default to become
immaterial. For purposes of Section 9.2, a material default of any of the
material warranties and representations herein contained is curable only if AWW
or a Guarantor causes such material warranties and representations to become
true and correct, and so long as the failure of any such material warranties and
representations to be true and correct prior to their cure is rendered
immaterial. In the event that AWW or any Guarantor materially defaults in the
observance of or in the due and timely performance of any of the material
agreements and covenants herein contained or materially breaches any of the
material warranties and representations herein contained, and if that material
default or breach is curable by AWW or any Guarantor, and if AWW or that
Guarantor does not give Notice of Intent to Cure to Liquids, as described above,
then Liquids shall have the right to terminate this Agreement, but only after
first giving notice of its intent to terminate to AWW, in which event AWW shall
have the right, for a period of five (5) business days from that notice, to give
to Liquids a Notice of Intent to Cure. Failure by AWW or a Guarantor to give
the Notice of Intent to Cure shall be deemed a waiver of that right. If a
Notice of Intent to Cure is given by AWW or a Guarantor, then the procedure
described above shall be followed.
9.3 BY AWW. This Agreement may be terminated by AWW, if a material
default shall be made by Liquids (which for these purposes shall be deemed to
include Newco) in the observance of or in the due and timely performance by
Liquids of any material agreements and covenants of Liquids herein contained, or
if there shall have been a material breach by Liquids of any of the material
warranties and representations of Liquids, or if the conditions of
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this Agreement to be complied with or performed by Liquids at or before Closing
shall not have been complied with or performed on or before August 1, 1997,
unless such noncompliance or nonperformance shall have been waived by AWW in
writing. Notwithstanding the foregoing, if Liquids materially defaults in the
observance of or in the due and timely performance of any of the material
agreements and covenants herein contained or materially breaches any of the
material warranties and representations herein contained, and if that material
default is curable by Liquids, then Liquids may give notice the "Notice of
Intent to Cure") to AWW, making express reference to this Section 9.3 and
setting forth in detail the facts and circumstances of the material default or
breach and further setting forth Liquids' intent to cure the same and describing
how the material default or breach will be cured. Within seven (7) business
days of this Notice of Intent to Cure by Liquids, AWW may give a response notice
to Liquids (the "Response Notice") as to whether AWW consents to the proposed
cure of the material default or breach by Liquids; provided however, that AWW
shall not unreasonably withhold consent to cure. The failure by AWW to give a
timely Response Notice shall be deemed to be a consent by AWW to the proposed
cure. If consent to cure is granted by AWW, then Liquids shall have ten (10)
days following the date of AWW's Response Notice (or if no Response Notice is
given, then seventeen [17] days from the date of the Notice of Intent to Cure)
to cause the material default or breach to be cured. For purposes of this
Section 9.3, a material default in the observance of or in the due and timely
performance of any of the material agreements and covenants herein contained is
curable only if Liquids can cause such material agreements and covenants to be
observed and performed, and so long as such cure will cause the material default
to become immaterial. For purposes of Section 9.3, a material default of any of
the material warranties and representations herein contained is curable only if
Liquids causes such material warranties and representations to become true and
correct, and so long as the failure of any such material warranties and
representations to be true and correct prior to their cure is rendered
immaterial. In the event that Liquids materially defaults in the observance of
or in the due and timely performance of any of the material agreements and
covenants herein contained or materially breaches any of the material warranties
and representations herein contained, and if that material default or breach is
curable by Liquids, and if Liquids does not give a Notice of Intent to Cure,
then AWW shall have the right to terminate this Agreement, but only after first
giving notice of its intent to terminate to Liquids, in which event Liquids
shall have the right, for a period of five (5) business days from that notice,
to give to AWW a Notice of Intent to Cure. Failure by Liquids to give the
Notice of Intent to Cure shall be deemed a waiver of that right. If a Notice of
Intent to Cure is given by Liquids, then the procedure described above shall be
followed. This Agreement may also be terminated by AWW under the conditions set
forth in Section 6.14.
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9.4 TERMINATION BY AWW OR LIQUIDS. If AWW terminates this Agreement
pursuant to this Section 9, this Agreement shall be deemed terminated on behalf
of AWW and the Guarantors. If Liquids terminates this Agreement pursuant to
this Section 9, this Agreement shall be deemed terminated on behalf of Liquids
and Newco.
SECTION 10
INDEMNIFICATION
AWW and the Guarantors each makes the following indemnities, and where
specifically stated, Liquids makes the following indemnities, which shall not be
in limitation of any remedies and rights otherwise available to the indemnified
persons under this Agreement or by law:
10.1 GENERAL INDEMNITY.
(a) (i) Subject to the limitations set forth in Section 10.2,
AWW (the "Indemnitor") agrees that it will indemnify and hold harmless
Newco and Liquids and their respective officers, directors, employees, and
agents (the "Indemnitees") from and against all losses, damages, costs, and
expenses relating to any claims, actions, suits, proceedings, demands,
assessments, and adjustments, including reasonable attorneys' fees and
expenses of investigation (collectively, the "Indemnified Losses"),
reasonably incurred by any of the aforesaid Indemnitees as a result of or
incident to any material breach by AWW of any representation, warranty,
covenant, or agreement set forth herein or on any schedule, exhibit, or
certificate made or delivered in connection herewith by or on behalf of the
Indemnitor (an "Indemnification Event"). With respect to any
Indemnification Event relating to any environmental matter, the Indemnified
Loss shall also include any costs and expenses of analysis, testing,
remediation, transportation, incineration, treatment, or other necessary
and appropriate disposition or mitigation of a hazardous environmental
condition.
(ii) Subject to the limitations set forth in Section 10.2,
each Guarantor (the "Indemnitor") agrees that he will indemnify and hold
harmless Newco and Liquids and their respective officers, directors,
employees, and agents (the "Indemnitees") from and against all losses,
damages, costs, and expenses relating to any claims, actions, suits,
proceedings, demands, assessments, and adjustments, including reasonable
attorneys' fees and expenses of investigation (collectively, the
"Indemnified Losses"), reasonably incurred by any of the aforesaid
Indemnitees as a result of or incident
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<PAGE>
to any material breach by any of such Guarantors of any representation,
warranty, covenant, or agreement set forth herein or on any schedule,
exhibit, or certificate made or delivered in connection herewith (an
"Indemnification Event").
(b) Subject to the limitations set forth in Section 10.2, Newco
and Liquids (the "Indemnitors") agree that they will jointly and severally
indemnify and hold harmless AWW and the Guarantors and their respective
officers, directors, employees, and agents (the "Indemnitees") from and
against all Indemnified Losses, reasonably incurred by any of the
aforesaid Indemnitees as a result of or incident to any material breach by
Newco or Liquids of any representation, warranty, covenant, or agreement
set forth herein or on any schedule, exhibit, or certificate made or
delivered in connection herewith (an "Indemnification Event"). With
respect to any Indemnification Event relating to any environmental matter,
the Indemnified Loss shall also include any costs and expenses of analysis,
testing, remediation, transportation, incineration, treatment, or other
necessary and appropriate disposition or mitigation of a hazardous
environmental condition.
10.2 LIMITATIONS ON INDEMNITY. An Indemnitee, as described in Section
10.1(a) or (b) above, may seek indemnification from an Indemnitor, described in
that same section above, for any Indemnified Loss resulting from an
Indemnification Event which occurs during the Indemnification Period and in
respect of which a claim is made before the end of the Indemnification Period,
all as provided for as follows:
(a) INDEMNIFICATION PERIOD. The "Indemnification Period" shall
include all periods of time prior to the Effective Date and shall expire
one (1) year from the Closing Date or one (1) year from the termination of
this Agreement; except that, the Indemnification Period relating to the
representations and warranties contained in Section 3.22 shall extend for
the applicable statute of limitations period.
(b) INDEMNIFICATION PROCEDURE. If an Indemnitee reasonably
believes that an Indemnification Event has occurred or is existing during
the Indemnification Period with respect to which the Indemnitee would have
a right of indemnification against an Indemnitor, then the Indemnitee may
give notice (the "Indemnification Notice") to each Indemnitor with respect
to whom a claim for Indemnification is being made. The Indemnification
Notice shall describe in reasonable detail the alleged Indemnification
Event, the basis for which the Indemnitee believes that there is an
Indemnification Event, the amount of Indemnified Losses theretofore paid by
the Indemnitee, and an estimate of the total amount of Indemnified
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<PAGE>
Losses which the Indemnitee believes may be incurred by the Indemnitee with
respect to the Indemnification Event. Any purported Indemnitee who does
not give an Indemnification Notice with respect to an Indemnification Event
during the Indemnification Period shall be deemed to have waived the right
to receive indemnification for that Indemnification Event.
(c) LIMITATIONS ON INDEMNIFIED LOSSES. If an Indemnification
Notice is timely given, then the Indemnified Losses which the Indemnitee
may be entitled to recover hereunder shall include any such Indemnified
Losses incurred by the Indemnitee, whether during or after the
Indemnification Period which relates to the Indemnification Event described
in the Indemnification Notice. However, no indemnification shall be
required under Section 10.1(a)(i) except to the extent that the total
amount of Indemnified Losses payable with respect to all Indemnification
Events under Section 10.1(a)(i) exceed $100,000 in the aggregate, reduced
by the amount of all Indemnified Losses actually recovered against and paid
by the Indemnitors under Section 10.1(a)(ii). Further, no indemnification
shall be allowed under Section 10.1(a)(ii) except to the extent that the
total amount of Indemnified Losses payable with respect to all
Indemnification Events under Section 10.1(a)(ii) exceed $100,000 in the
aggregate, reduced by the amount of Indemnified Losses recovered against
and actually paid by the Indemnitor under Section 10.1(a)(i); provided
further, that the amount of Indemnified Losses which may be recovered
against any Guarantor in the aggregate shall not exceed the sum of the
value of the Liquids Stock received by the Guarantor as a result of the
Merger, with such value to be determined at such time as the Indemnitee is
first entitled to recover any Indemnified Losses. However, in the event
that the Guarantor has transferred any of such Liquids Stock in any arm's-
length sale, then the value of that transferred Liquids Stock shall be
deemed to be the actual sales price thereof reduced by the amount of income
taxes incurred by the Guarantor attributable to the sale. For these
purposes, the amount of income taxes which the Guarantor shall be deemed to
have incurred as a result of any such sale shall be the difference between
the income taxes which would have been incurred by the Guarantor had the
sale not occurred less the actual income taxes incurred by the Guarantor.
Further, no indemnification shall be allowed under Section 10.1(b) except
to the extent that the total amount of Indemnified Losses payable with
respect to all Indemnification Events under Section 10.1(b) exceed $100,000
in the aggregate.
(d) THIRD-PARTY BENEFICIARIES. Any Indemnitee who is not a
signatory party to this Agreement shall nevertheless be deemed to be a
third-party beneficiary of this Agreement for purposes of this Section 10.
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(e) DEFENSE OF THIRD-PARTY CLAIMS. In the event any claim,
action, suit, proceeding, demand, assessment, or adjustment is asserted
against any Indemnitee hereunder other than by an Indemnitor (such claim,
action, suit, proceeding, demand, assessment, or adjustment being referred
to herein as a "Third-Party Claim"), then the Indemnitee shall defend the
Third-Party Claim in a diligent, prudent, and good faith manner. The
Indemnitee shall also use reasonable efforts to mitigate, to the extent
reasonably possible under the circumstances, the amount of the Indemnified
Losses with respect to the Third-Party Claim. The Indemnitee shall not
make or agree to make any payments in settlement or compromise of any
Third-Party Claim or consent to the entry of any judgment with respect to
any Third-Party Claim without first giving notice thereof to the
Indemnitor. Nothing contained herein shall prevent the Indemnitor and
Indemnitee from further agreeing as between themselves as to the allocation
between them of the duties, responsibilities, and costs of defense and
settlement of any such Third-Party Claim. At all times, the Indemnitor and
Indemnitee will advise and consult with each other regarding the matters
contained in this Section 10 and shall be under a duty to act cooperatively
and in good faith.
SECTION 11
GENERAL
11.1 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 or 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 party to whom notice is to be given
at the address 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, on the
first business day following actual receipt if notice is given by an overnight
express mail service. All notices and other communications to the Members shall
be given as follows:
AWW AND
GUARANTORS: ATTN: William H. Wilson, Jr.
American WasteWater Ltd.
250 Gellhorn
Houston, Texas 77013
(713) 673-2995
Telecopier No.: (713) 673-2997
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<PAGE>
WITH A COPY TO:
Casey Doherty, Esq.
Cokinos, Bosien & Young
1500 Liberty Tower
2919 Allen Parkway
Houston, Texas 77019
(713) 535-5514
Telecopier No.: (713) 535-5533
LIQUIDS: U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, Texas 77060
ATTN: W. Gregory Orr
Chief Executive Officer
WITH A COPY TO:
Hartzog Conger & Cason
1600 Bank of Oklahoma Plaza
201 Robert S. Kerr
Oklahoma City, Oklahoma 73112
(405) 235-7000
Attn: Len Cason and John Robertson
Telecopier No.: (405) 235-7329
11.2 INTEGRATED AGREEMENT. This Agreement 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, including but not limited to that certain letter, dated
February 14, 1997. There are no agreements, understandings, restrictions,
warranties or representations among the parties relating to the subject matter
hereof other than those set forth or referred to herein. All schedules and
exhibits attached hereto are hereby incorporated herein and made a part of this
Agreement. This instrument is not intended to have any legal effect whatsoever,
or to be a legally binding agreement or any evidence thereof, until it has been
signed by all parties hereto. Any reference to this Agreement shall be deemed
to also refer to the exhibits, schedules, and attachments hereof.
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<PAGE>
11.3 CONSTRUCTION. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of Texas. In the event any
party hereto institutes any legal action in connection with any matter contained
herein, that legal action shall be instituted in the District Court of Harris
County, Texas, if in state court, and if federal court, then in the federal
district court of Houston, Texas. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine or neuter gender thereof or to the
plurals of each, as the identity of the person or persons or the context may
require. The descriptive headings contained in this Agreement are for reference
purposes only and are not intended to describe, interpret, define or limit the
scope, extent or intent of this Agreement or any provision contained herein.
Any reference to a person shall include any individual or legal entity.
11.4 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 provisions shall be deemed modified so as to constitute a
provision conforming as nearly as possible to such invalid, illegal, void or
unenforceable provisions while still remaining valid and enforceable, and the
remaining terms or provisions contained herein shall not be affected thereby.
11.5 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, successors and assigns.
11.6 LITIGATION EXPENSE. In any action brought by a party hereto to
enforce the obligations of any other party hereto, the prevailing party shall be
entitled to collect from the other parties to such action such party's
reasonable attorneys' and accountants' fees, court costs and other expenses
incidental to such litigation.
11.7 COUNTERPART EXECUTION. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
11.8 AMENDMENT AND WAIVER. This Agreement may be amended at any time,
but only by an instrument in writing executed by both parties hereto. A party
hereto may waive any requirement to be performed by the other party, provided
that such waiver shall be in writing and executed by the party waiving the
requirement.
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11.9 TIME OF ESSENCE. Time shall be of the essence with
respect to the performance by the parties hereto of their respective
obligations hereunder.
11.10 NEGATION OF THIRD-PARTY BENEFICIARY. Nothing contained in
this Agreement, expressed or implied, is intended to confer upon any person,
other than the parties hereto and their respective successors and assigns, any
rights or remedies under or by reason of this Agreement, nor is anything in this
Agreement intended to relieve or discharge the obligation or liability of any
third person to any party to this Agreement.
11.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, covenants, and warranties contained in this Agreement, except
as otherwise specifically stated, shall survive the Closing Date for a period of
one (1) year.
11.12 KNOWLEDGE DEFINED. For purposes of this Agreement, AWW will
be deemed to know or have knowledge of any matter if either Guarantor has actual
knowledge of that matter. A Guarantor will be deemed to have actual knowledge
of any matter if, during the course of that Guarantor's business and affairs,
(i) he should have knowledge of such matter and (ii) it would be highly unlikely
that he did not have actual knowledge of that matter.
11.13 WAIVER OF SUBROGATION, ETC. If any Guarantor materially
breaches any representation, warranty, covenant, or other obligation of the
Guarantor set forth in this Agreement, then he waives and agrees that he shall
not have any right of subrogation, indemnity, or similar remedy against AWW;
provided, however, that this waiver shall not apply if this Agreement is
terminated and AWW is not acquired by Liquids.
11.14 SCHEDULES AND EXHIBITS. The parties acknowledge that
certain schedules and exhibits hereto pertaining to AWW have been prepared or
assembled with the participation of representatives of Liquids. Nevertheless,
the Stockholders and AWW represent and agree that Liquids shall have no
responsibility or liability for any participation in the preparation of such
schedules and exhibits and shall have no responsibility or accountability
therefor.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed below.
AWW ACQUISITION CORP.
By: /s/ Earl J. Blackwell
--------------------------
U S LIQUIDS INC.
By: /s/ W. Gregory Orr
--------------------------
AMERICAN WASTEWATER INC.
By: /s/ William H. Wilson, Jr.
--------------------------
/s/ Michael W. Minick
------------------------------
Michael W. Minick
/s/ William H. Wilson, Jr.
------------------------------
William H. Wilson, Jr.
<PAGE>
AGREEMENT AND PLAN OF MERGER
<PAGE>
TABLE OF CONTENTS
Page
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SECTION 1 THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Effect of the Merger. . . . . . . . . . . . . . . . . . . . . . 2
1.2 Effective Time of the Mergers . . . . . . . . . . . . . . . . . 3
1.3 Articles of Incorporation and Bylaws of Mesa
Following Effective Time. . . . . . . . . . . . . . . . . . . . 4
1.4 Directors of Mesa . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2 CONVERSION AND EXCHANGE OF STOCK. . . . . . . . . . . . . . . . 4
2.1 Conversion and Exchange of Mesa Stock at
Effective Time. . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Surrender and Exchange of Stock . . . . . . . . . . . . . . . . 5
2.3 Adjustments Because of Changes in Liquids
Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 3 REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDER AND THE MESA COMPANIES. . . . . . . . . . . . . 5
3.1 Existence; Qualification. . . . . . . . . . . . . . . . . . . . 6
3.2 Title to Stock and Subsidiaries . . . . . . . . . . . . . . . . 6
3.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 7
3.5 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 Permits, Licenses, Etc. . . . . . . . . . . . . . . . . . . . . 8
3.7 Fixed Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.8 Contracts and Agreements; Adverse Restrictions. . . . . . . . . 9
3.9 Transaction with Related Parties. . . . . . . . . . . . . . . . 9
3.10 Title and Liens . . . . . . . . . . . . . . . . . . . . . . . . 9
3.11 Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.12 Employment Agreements and Benefit Plans . . . . . . . . . . . . 11
3.13 Continuation of Business. . . . . . . . . . . . . . . . . . . . 11
3.14 Copies Complete; No Default . . . . . . . . . . . . . . . . . . 11
3.15 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.16 No Hazardous Waste, Other Facilities. . . . . . . . . . . . . . 12
3.17 No Exposure to Hazardous or Toxic Substances. . . . . . . . . . 13
3.18 Underground Storage Tanks . . . . . . . . . . . . . . . . . . . 13
3.19 Disposal Facilities Used. . . . . . . . . . . . . . . . . . . . 13
3.20 Borrowed Monies . . . . . . . . . . . . . . . . . . . . . . . . 13
3.21 Absence of Certain Changes, Events or
Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.22 Tax Returns and Audits. . . . . . . . . . . . . . . . . . . . . 14
3.23 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.24 Rights and Authorizations . . . . . . . . . . . . . . . . . . . 16
3.25 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.26 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . 16
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3.27 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.28 Environmental Matters . . . . . . . . . . . . . . . . . . . . . 17
3.29 Approval by Shareholder and Directors . . . . . . . . . . . . . 17
3.30 Specific Representations and Warranties Relating
to Pooling-of-Interests Accounting. . . . . . . . . . . . . . . 18
3.31 Disclosure Schedules. . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4 RESALES OF LIQUIDS STOCK. . . . . . . . . . . . . . . . . . . . 18
4.1 Stock Distribution Agreement. . . . . . . . . . . . . . . . . . 18
4.2 Investment Representations and Warranties . . . . . . . . . . . 19
(a) Investment Intent . . . . . . . . . . . . . . . . . . . . 19
(b) Access to Information . . . . . . . . . . . . . . . . . . 19
(c) Investment Advice . . . . . . . . . . . . . . . . . . . . 19
SECTION 5 REPRESENTATIONS AND WARRANTIES OF LIQUIDS . . . . . . . . . . . 20
5.1 Corporate Organization. . . . . . . . . . . . . . . . . . . . . 20
5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . 20
5.4 Copies Complete; No Default . . . . . . . . . . . . . . . . . . 21
5.5 No Conflict.. . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.6 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.7 Representations and Warranties Relating to
Pooling-of-Interests Accounts . . . . . . . . . . . . . . . . . 22
5.8 Brokers, Finders, Etc.. . . . . . . . . . . . . . . . . . . . . 22
5.9 Financial Statements. . . . . . . . . . . . . . . . . . . . . . 22
5.10 Accuracy of Registration Statement. . . . . . . . . . . . . . . 22
5.11 Representations Relating to Tax-Free
Reorganizations . . . . . . . . . . . . . . . . . . . . . . . . 23
5.12 Absence of Voting or Buy-Sell Agreement . . . . . . . . . . . . 24
SECTION 6 COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.1 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . 24
6.2 Access to Information . . . . . . . . . . . . . . . . . . . . . 26
6.3 Public Announcements. . . . . . . . . . . . . . . . . . . . . . 27
6.4 Notification of Material Events . . . . . . . . . . . . . . . . 27
6.5 Certain Employee Matters. . . . . . . . . . . . . . . . . . . . 28
6.6 Employment Agreements . . . . . . . . . . . . . . . . . . . . . 28
6.7 THIS SECTION HAS BEEN INTENTIONALLY LEFT BLANK. . . . . . . . . 28
6.8 Noncompetition. . . . . . . . . . . . . . . . . . . . . . . . . 28
6.9 Election of Shareholder to Board of Directors of
Liquids . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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6.10 Redemption of Mesa Series A Preferred Stock . . . . . . . . . . 28
6.11 Liquids Stock Options . . . . . . . . . . . . . . . . . . . . . 29
6.12 Resignations. . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.13 Amendments to Liquids/AWW Merger Agreement. . . . . . . . . . . 29
6.14 Certain Indebtedness. . . . . . . . . . . . . . . . . . . . . . 30
SECTION 7 CLOSING CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . 30
7.1 Conditions to the Obligations of Liquids and the
Newco Companies . . . . . . . . . . . . . . . . . . . . . . . . 30
(a) Accuracy of Representations and
Warranties. . . . . . . . . . . . . . . . . . . . . . . . 30
(b) Performance of Covenants. . . . . . . . . . . . . . . . . 31
(c) No Adverse Proceedings or Events. . . . . . . . . . . . . 31
(d) Deliveries at Closing . . . . . . . . . . . . . . . . . . 31
(e) Opinion of Counsel. . . . . . . . . . . . . . . . . . . . 31
(f) Qualification as Pooling of Interest. . . . . . . . . . . 31
(g) Closing of the AWW Merger . . . . . . . . . . . . . . . . 31
7.2 Conditions to Obligations of the Shareholder and
the Mesa Companies. . . . . . . . . . . . . . . . . . . . . . . 31
(a) Accuracy of Representations and
Warranties. . . . . . . . . . . . . . . . . . . . . . . . 31
(b) Performance of Covenants. . . . . . . . . . . . . . . . . 32
(c) No Adverse Proceedings or Events. . . . . . . . . . . . . 32
(d) Deliveries at Closing . . . . . . . . . . . . . . . . . . 32
(e) Opinion of Counsel. . . . . . . . . . . . . . . . . . . . 32
(f) Closing of the AWW Merger . . . . . . . . . . . . . . . . 32
(g) Complete Execution of Stock Voting
Agreement . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 8 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.1 Time and Place. . . . . . . . . . . . . . . . . . . . . . . . . 32
8.2 Deliveries by Shareholder at Closing. . . . . . . . . . . . . . 33
8.3 Deliveries by Liquids at Closing. . . . . . . . . . . . . . . . 33
8.4 Expenses of Closing . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 9 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Mutual Consent. . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 By Liquids. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
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9.3 By the Shareholder. . . . . . . . . . . . . . . . . . . . . . . 36
9.4 Termination by the Shareholder or Liquids . . . . . . . . . . . 37
SECTION 10 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 37
10.1 General Indemnity . . . . . . . . . . . . . . . . . . . . . . . 37
10.2 Limitations on Indemnity. . . . . . . . . . . . . . . . . . . . 38
(a) Indemnification Period. . . . . . . . . . . . . . . . . . 39
(b) Indemnification Procedure . . . . . . . . . . . . . . . . 39
(c) Limitations on Indemnified Losses . . . . . . . . . . . . 39
(d) Third-Party Beneficiaries . . . . . . . . . . . . . . . . 40
(e) Defense of Third-Party Claims . . . . . . . . . . . . . . 40
SECTION 11 GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.2 Integrated Agreement. . . . . . . . . . . . . . . . . . . . . . 42
11.3 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.4 Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.5 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . 42
11.6 Litigation Expense. . . . . . . . . . . . . . . . . . . . . . . 43
11.7 Counterpart Execution . . . . . . . . . . . . . . . . . . . . . 43
11.8 Amendment and Waiver. . . . . . . . . . . . . . . . . . . . . . 43
11.9 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . 43
11.10 Negation of Third-Party Beneficiary . . . . . . . . . . . . . . 43
11.11 Survival of Representations and Warranties. . . . . . . . . . . 43
11.12 Knowledge Defined . . . . . . . . . . . . . . . . . . . . . . . 43
11.13 Waiver of Subrogation, Etc. . . . . . . . . . . . . . . . . . . 44
11.14 Joint and Several Agreements, Representations,
Warranties, and Covenants . . . . . . . . . . . . . . . . . . . 44
11.15 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . 44
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement"), dated as of June 16,
1997 (the "Effective Date"), is entered into between and among U S LIQUIDS INC.
("Liquids"), a Delaware corporation; MESA ACQUISITION CORP. ("Mesa Newco"), T&T
GS ACQUISITION CORP. ("T&T Newco"), and PHOENIX F&O ACQUISITION CORP. ("P
Newco"), each a Texas corporation and a wholly-owned subsidiary of Liquids (the
"Newco Companies"); MESA PROCESSING, INC. ("Mesa"), T&T GREASE SERVICE, INC.
("T&T") and PHOENIX FATS & OILS, INC. ("Phoenix"), each a Texas corporation
(collectively referred to as the "Mesa Companies"), and THOMAS B. BLANTON (the
"Shareholder").
R E C I T A L S:
Liquids, by and through its subsidiary corporations, is engaged in the
environmental services business, and among other things, Liquids provides
environmental services for major and independent oil and gas companies and
manages, treats, and disposes of nonhazardous oil field waste. Mesa is in the
business, generally, of collecting, processing, and recycling fats and oils,
servicing grease traps and septic tanks, and selling these processed and
recycled finished products in the marketplace (referred to as the "Mesa
Business"). T & T is affiliated with Mesa by common ownership, and owns and
operates a business which complements and works together with the business of
Mesa. Phoenix is also affiliated with Mesa by common ownership, and provides
general and administrative support to Mesa and T&T. American WasteWater Inc.
("AWW") is a Texas corporation engaged in the business of processing
nonhazardous liquid wastes. Liquids has developed a plan whereby the business
of Liquids will be combined with the businesses of AWW, Mesa, T&T, and Phoenix.
Liquids, AWW, Mesa, T&T, and Phoenix are all privately owned. The plan
contemplates that each of Mesa, T&T, Phoenix, and AWW will merge into a separate
Newco Company, pursuant to which Mesa, T&T, Phoenix, and AWW will each become a
subsidiary corporation of Liquids, with the stockholders of those corporations
receiving Liquids stock in the mergers.
The respective boards of directors of Liquids, the Newco Companies, and the
Mesa Companies have approved the merger of Mesa Newco into Mesa (the "Mesa
Merger"), T&T Newco into T&T (the "T&T Merger") and P Newco into Phoenix (the
"Phoenix Merger"), (collectively, the "Mergers") upon the terms and subject to
the conditions set forth herein and have approved this Agreement as a "plan of
reorganization" within the meaning of Section 368(a)(1)(A) and Section
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended.
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Further, the respective boards of directors of Liquids, another wholly-
owned subsidiary of Liquids, and AWW have approved the merger of that wholly-
owned subsidiary of Liquids into AWW (the "AWW Merger") pursuant to the terms
and conditions of an agreement and plan of merger, dated as of the date hereof
among Liquids, AWW Acquisition Corp. and AWW) (the "Liquids/AWW Merger
Agreement") upon the terms and conditions set forth therein.
NOW THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, and agreements herein contained, the
parties agree as follows:
SECTION 1
THE MERGER
1.1 EFFECT OF THE MERGER. In accordance with the provisions of this
Agreement and the Texas Business Corporation Act (the "Texas Act"), at the
Effective Time (as defined in Section 1.2 hereof):
1.1.1 Mesa Newco shall be merged with and into Mesa; the
separate existence of Mesa Newco shall cease; and Mesa as the surviving
corporation shall continue its corporate existence under the laws of the State
of Texas. Pursuant to the Mesa Merger, Mesa shall possess all the rights,
privileges, powers, and franchises of Mesa Newco and shall be subject to all the
restrictions, disabilities, and duties of Mesa Newco; all rights, privileges,
powers, and franchises of Mesa Newco and all property, real, personal, and
mixed, belonging to Mesa Newco shall be vested in Mesa; and all property,
rights, privileges, powers, and franchises and every other interest shall be
thereafter as effectually the property of Mesa as they were of Mesa Newco, and
the title to any real estate vested by deed or otherwise in Mesa Newco shall not
revert or be in any way impaired by reason of the Mesa Merger, provided that all
rights of creditors and all liens upon any property of Mesa Newco shall be
preserved unimpaired and all debts, liabilities, and duties of Mesa Newco shall
thenceforth attach to Mesa and may be enforced against Mesa Newco to the same
extent as if said debts, liabilities, and duties have been incurred or
contracted by Mesa. Without limiting the generality of the foregoing, the Mesa
Merger shall have the effects as set forth in the Texas Act.
1.1.2 T&T Newco shall be merged with and into T&T; the
separate existence of T&T Newco shall cease; and T&T as the surviving
corporation shall continue its corporate existence under the laws of the State
of Texas. Pursuant to the T&T Merger, T&T shall possess all the rights,
privileges, powers, and franchises of T&T Newco and shall be subject to all the
restrictions, disabilities, and duties of T&T Newco; all rights, privileges,
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powers, and franchises of T&T Newco and all property, real, personal, and mixed,
belonging to T&T Newco shall be vested in T&T; and all property, rights,
privileges, powers, and franchises and every other interest shall be thereafter
as effectually the property of T&T as they were of T&T Newco, and the title to
any real estate vested by deed or otherwise in T&T Newco shall not revert or be
in any way impaired by reason of the T&T Merger, provided that all rights of
creditors and all liens upon any property of T&T Newco shall be preserved
unimpaired and all debts, liabilities, and duties of T&T Newco shall thenceforth
attach to T&T and may be enforced against T&T Newco to the same extent as if
said debts, liabilities, and duties have been incurred or contracted by T&T.
Without limiting the generality of the foregoing, the T&T Merger shall have the
effects as set forth in the Texas Act.
1.1.3 P Newco shall be merged with and into Phoenix; the
separate existence of P Newco shall cease; and Phoenix as the surviving
corporation shall continue its corporate existence under the laws of the State
of Texas. Pursuant to the Phoenix Merger, Phoenix shall possess all the rights,
privileges, powers, and franchises of P Newco and shall be subject to all the
restrictions, disabilities, and duties of P Newco; all rights, privileges,
powers, and franchises of P Newco and all property, real, personal, and mixed,
belonging to P Newco shall be vested in Phoenix; and all property, rights,
privileges, powers, and franchises and every other interest shall be thereafter
as effectually the property of Phoenix as they were of P Newco, and the title to
any real estate vested by deed or otherwise in P Newco shall not revert or be in
any way impaired by reason of the Phoenix Merger, provided that all rights of
creditors and all liens upon any property of P Newco shall be preserved
unimpaired and all debts, liabilities, and duties of P Newco shall thenceforth
attach to Phoenix and may be enforced against P Newco to the same extent as if
said debts, liabilities, and duties have been incurred or contracted by Phoenix.
Without limiting the generality of the foregoing, the Phoenix Merger shall have
the effects as set forth in the Texas Act.
1.2 EFFECTIVE TIME OF THE MERGERS. Each Merger shall become
effective when a properly executed Articles of Merger, the form of which is
attached hereto as Exhibit 1.2, is duly filed with the Office of the Secretary
of State of Texas, which filing shall be made simultaneously with the closing of
the transactions contemplated by this Agreement. The date and time when the
Mergers shall become effective is referred to as the "Effective Time."
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1.3 ARTICLES OF INCORPORATION AND BYLAWS OF MESA FOLLOWING EFFECTIVE
TIME. The Articles of Incorporation and Bylaws of each of the Mesa Companies,
as in effect immediately prior to the Effective Time, shall be the Articles of
Incorporation and Bylaws of each respective Mesa Company immediately after the
Effective Time.
1.4 DIRECTORS OF MESA. As of the Effective Time, the officers and
directors of each of the Mesa Companies shall be as follows:
Thomas B. Blanton
W. Gregory Orr.
SECTION 2
CONVERSION AND EXCHANGE OF STOCK
2.1 CONVERSION AND EXCHANGE OF MESA STOCK AT EFFECTIVE TIME.
2.1.1 At the Effective Time, by virtue of the Mesa Merger and
without any action on the part of any party hereto, (i) all of the shares of
Mesa common stock (the "Mesa Stock"), par value $1.00 per share, issued and
outstanding as of the Effective Time shall be converted into shares of Liquids
common stock, par value $.01 per share (the "Liquids Stock"), and (ii) each
issued and outstanding share of common stock of Mesa Newco, par value $.01 per
share, shall be converted into one share of common stock of Mesa, par value
$1.00 per share.
2.1.2 At the Effective Time, by virtue of the T&T Merger and
without any action on the part of any party hereto, (i) all of the shares of T&T
common stock (the "T&T Stock"), par value $1.00 per share, issued and
outstanding as of the Effective Time, shall be converted into shares of Liquids
common stock, par value $.01 per share (the "Liquids Stock"), and (ii) each
issued and outstanding share of common stock of T&T Newco, par value $.01 per
share, shall be converted into one share of common stock of T&T, par value $1.00
per share.
2.1.3 At the Effective Time, by virtue of the Phoenix Merger
and without any action on the part of any party hereto, (i) all of the shares of
Phoenix common stock (the "Phoenix Stock"), par value $1.00 per share, issued
and outstanding as of the Effective Time shall be converted into shares of
Liquids common stock, par value $.01 per share (the "Liquids Stock"), and (ii)
each issued and outstanding share of common stock of P Newco, par value $.01 per
share, shall be converted into one share of common stock of Phoenix, par value
$1.00 per share.
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The Mesa Stock, T&T Stock, and Phoenix Stock are referred to herein
collectively as the "Mesa Companies Stock."
The total number of shares of Liquids Stock into which the Mesa Companies
Stock will be converted pursuant to Sections 2.1.1, 2.1.2, and 2.1.3, shall be
1,062,500.
2.2 SURRENDER AND EXCHANGE OF STOCK. At the Effective Time, the
Shareholder shall cease to have any rights as a shareholder of any of the Mesa
Companies, except such rights as he may have pursuant to this Agreement. After
the Effective Time, the Shareholder shall be entitled to receive, upon surrender
to Liquids of all certificates representing any of his ownership in the Mesa
Companies Stock, a certificate or certificates representing the 1,062,500 shares
of Liquids Stock into which his Mesa Companies Stock shall have been converted
in accordance with Section 2.1 hereof.
2.3 ADJUSTMENTS BECAUSE OF CHANGES IN LIQUIDS STOCK. The number of
shares of Liquids Stock to be issued pursuant to Section 2.1 shall be subject to
equitable adjustment in the event of any stock split, stock dividend, reverse
stock split, or other change in the number of shares of Liquids Stock
outstanding and issuable pursuant to the transactions contemplated hereunder.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDER AND THE MESA COMPANIES
In order to induce Liquids and the Newco Companies to enter into this
Agreement, the Mesa Companies jointly and severally represent, warrant, and
covenant to Liquids and to the Newco Companies, effective as of the date of this
Agreement and again as of the Closing Date, each of the matters set forth in
this Section 3. Further, the Shareholder represents, warrants, and covenants to
Liquids and to the Newco Companies, effective as of the date of this Agreement
and again as of the Closing Date, each of the matters set forth in Sections 3.1,
3.2, 3.3, 3.4, 3.9, 3.21, 3.22 and 3.29.
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3.1 EXISTENCE; QUALIFICATION. Each Mesa Company and Subsidiary,
defined below, is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation (except that
with respect to Grasas, defined below, this representation and warranty shall be
limited to the knowledge of the Mesa Companies) and is qualified or licensed and
in good standing in all jurisdictions in which the nature of its business or the
properties owned by it require or will require it to be qualified or licensed to
do business, except where failure to be so qualified or licensed will not have a
material adverse effect on the Mesa Companies as a whole.
3.2 TITLE TO STOCK AND SUBSIDIARIES.
(a) Mesa has issued and outstanding 1,000 shares of Mesa Stock and
10,000 shares of Series A Preferred Stock, $1.00 par value. Thomas B.
Blanton owns all 1,000 shares of the issued and outstanding Mesa Stock, and
Sterling Trust Co., for the benefit of Earnest H. Byers, Jr., M.D., owns
all 10,000 issued and outstanding shares of the Mesa Series A Preferred
Stock, $1.00 par value. Prior to Closing, the Mesa Series A Preferred
Stock shall be redeemed as described in Section 6.10. T&T has issued and
outstanding 1,000 shares of T&T Stock. The Shareholder owns all such
shares of the issued and outstanding T&T Stock. Phoenix has issued and
outstanding 1,000 shares of Phoenix Stock. The Shareholder owns all such
shares of the issued and outstanding Phoenix Stock. The Shareholder has
good title to all of the Mesa Companies Stock of record and beneficially,
free and clear of all liens, pledges, claims, contract restrictions and
encumbrances of any kind. None of the Mesa Companies Stock is subject to
any buy-sell agreement or any other contractual right or restriction. All
issued and outstanding shares of the Mesa Companies Stock have been duly
authorized and validly issued and are fully paid and nonassessable. There
are no outstanding subscriptions, options, contracts, commitments,
warrants, calls, agreements, understandings or other arrangements or rights
of any character affecting or relating in any manner to the issuance of
stock or other securities of any Mesa Company (whether by subscription,
option, exchange, right of conversion, right of refusal or otherwise) or
entitling anyone to acquire shares of stock or other securities of any kind
of any Mesa Company.
(b) Mesa owns all 100 issued and outstanding shares of Mesa
International, Inc., a Barbados corporation ("MII"), and South Texas By-
Products, Inc., a Texas Corporation. Further, the Shareholder owns all
1,000 issued and outstanding shares of Imperial Services, Inc., doing
business as T&T, and all 1,000 issued and outstanding shares of National
Enviro Waste Company, Inc., a Texas corporation. The Shareholder also owns
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49% of the issued and outstanding stock of Grasas Alimenticias
Premezciadas, S.A. DE C.V. (GAPSA) ("Grasas"). Imperial Services, Inc.,
Mesa International, Inc., South Texas By-Products, Inc., National Enviro
Waste Company, Inc., and Grasas are collectively referred to herein as the
"Subsidiaries."
(c) The Shareholder agrees that upon request by Liquids at or any
time following Closing, the Shareholder shall execute such documents as are
requested by Liquids to cause all issued and outstanding shares of any of
the Subsidiaries owned by the Shareholder to be transferred to Liquids or
to a Mesa Company designated by Liquids.
(d) The Shareholder represents and warrants to Liquids that he has
previously entered into a verbal agreement with the holders of all issued
and outstanding shares of stock of Grasas whereby the Shareholder has the
right to acquire ownership of all issued and outstanding stock of Grasas
not presently owned by the Shareholder. However, the Shareholder does not
represent and warrant that this verbal agreement is legally enforceable by
him. Nevertheless, if so requested by Liquids, then the Shareholder shall
at or anytime following Closing take such action as is reasonably necessary
and appropriate to acquire all issued and outstanding shares of Grasas not
presently owned by the Shareholder. If such action is requested by
Liquids, then Liquids will indemnify and hold the Shareholder harmless for
any costs or expenses incurred in connection with acquiring such stock of
Grasas.
3.3 AUTHORITY. Each Mesa Company and Subsidiary has all requisite
right, power and authority to own, lease and operate its properties, to carry on
its business as it has previously been carried on, and to perform its
obligations under this Agreement. This Agreement is a valid and legally binding
obligation of each Mesa Company and the Shareholder, enforceable against them in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
3.4 FINANCIAL STATEMENTS. The Mesa Companies have delivered to
Liquids copies of the following financial statements (the "Financial
Statements") of Mesa, T&T, Phoenix and the Subsidiaries at Schedule 3.4:
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(i) Balance Sheet, as of March 31, 1997 (the "Balance Sheet
Date") and Balance Sheets as of December 31, 1995 and December 31, 1995;
and
(ii) Income Statements for the three (3) months ended March 31,
1996 and fiscal years ending December 31, 1996, December 31, 1995, and
December 31, 1994.
Each Balance Sheet described in (i) above fairly presents the financial
condition of the subject Mesa Company as of the date set forth thereon, and the
Income Statements described in (ii) above fairly present the results of
operations of the subject Mesa Company for the period set forth thereon. The
Financial Statements have been prepared in accordance with generally accepted
accounting principles, subject in the case of the unaudited Financial
Statements, to such year-end audit adjustments as would be made if they were
audited and the absence of complete footnotes.
3.5 LIABILITIES. Schedule 3.5 contains a list and description of all
liabilities, whether fixed, contingent, or uncontested, as to which any Mesa
Company or Subsidiary or any part of its respective business is subject on the
Effective Date to the knowledge of the Mesa Companies, except those liabilities
shown on the December 31, 1996 Balance Sheet or incurred in the ordinary course
of business or which do not, in the aggregate, materially and adversely affect
the business of the Mesa Companies taken as a whole. At Closing, the
Shareholder shall finally certify to Liquids that Schedule 3.5, as updated as of
the Closing Date, is true, complete, and accurate, and such updated
Schedule 3.5, as finally certified at Closing, will not vary materially and
adversely from the Schedule 3.5 delivered to Liquids as of the Effective Date.
3.6 PERMITS, LICENSES, ETC. Schedule 3.6 contains a list of all
material permits, licenses, applications, certificates, trademarks, trade names,
and similar such items and rights, either pending, in negotiation, or otherwise
relating to the business of any Mesa Company or Subsidiary. To the knowledge of
each Mesa Company, except as set forth on Schedule 3.6, all of the permits,
licenses, applications, franchises and other items set forth therein are
adequate for the operation of the business of each Mesa Company or Subsidiary,
except as would not have a material adverse effect upon the Mesa Companies and
Subsidiaries taken as a whole, are valid and in full force and effect and will
be owned by the Mesa Company or Subsidiary listed on Schedule 3.6 at Closing.
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3.7 FIXED ASSETS. Schedule 3.7 includes a list of all applicable
title reports and title insurance policies and all leases, including those
covering vehicles, relating to the assets of each Mesa Company or Subsidiary.
To the knowledge of the Mesa Companies, all of the vehicles, machinery and
equipment shall be in the same condition on the Closing Date which they were in
as of the Effective Date, less ordinary wear and tear. All leases of fixed
assets shall be in full force and effect and binding upon the parties thereto,
and none of the parties thereto shall be in breach of any of the material
provisions thereof at the Effective Time. The Mesa Companies shall regularly
update Schedule 3.7 between the Effective Date and the Closing Date to cause the
information contained in Schedule 3.7 to continue to be reasonably accurate on
the Closing Date. At Closing, the Shareholder shall finally certify to Liquids
that Schedule 3.7, as updated as of the Closing Date, is true, complete, and
accurate, and such updated Schedule 3.7 as finally certified, shall not vary
materially and adversely from the Schedule 3.7 delivered to Liquids as of the
Effective Date.
3.8 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS. Schedule 3.8
includes copies, as of the Effective Date, a copy of all material agreements to
which any Mesa Company or Subsidiary is a party or by which it or any of its
property is bound (including, but not limited to, joint venture or partnership
agreements, loan agreements, bonds, mortgages, liens, pledges or other security
agreements in any way relating to the business of any Mesa Company or
Subsidiary). Except as indicated in Schedule 3.8, all such agreements included
in Schedule 3.8 are in full force and effect and binding upon the parties
thereto, and to the knowledge of each Mesa Company none of the parties thereto
is in breach of any material provisions thereof.
3.9 TRANSACTION WITH RELATED PARTIES. Except as set forth on
Schedule 3.9 or for matters in the ordinary course of business, such as claims
for salary, expense reimbursements, and similar items, neither the Shareholder
nor any person who is affiliated with him has any claim of any kind against any
Mesa Company or Subsidiary.
3.10 TITLE AND LIENS.
(a) At the Effective Time, each Mesa Company or Subsidiary will
have good and indefeasible title to all contracts, assets and leasehold
estates, real and personal, owned and used in its business, subject to no
security interest, mortgage, pledge, lien, or encumbrance, except for:
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(i) liens or security interests reflected on
Schedule 3.10(a) as securing specified liabilities that have no
payment which is due through the date hereof which is not paid;
(ii) liens for current taxes and assessments that are not
yet due and payable;
(iii) materialmen's, mechanics', workers', repairmen's or
other similar liens arising in the ordinary cause of business for
amounts not due and payable; or
(iv) any other encumbrance (excluding any security
interest, mortgage, pledge or lien) which does not materially and
adversely affect the use or value of any contract, asset or leasehold
estate (including without limitation utility easements, reservations
of mineral rights and similar matters), or the business, operations,
or financial condition of the Mesa Companies taken as a whole.
(b) The legal descriptions of all real properties owned or used
by a Mesa Company or Subsidiary are attached at Schedule 3.10(b) (referred
to herein as the "Real Property"). To the extent any such Real Property is
held in the name of the Shareholder, the Shareholder and the Mesa Companies
agree to, within 125 days after the Closing, take such actions as shall be
requested by Liquids to transfer such real property to a Mesa Company
acceptable to Liquids at such time, at or following the Closing, as such
Real Property may be permissibly transferred. During the period between
the Effective Time and the date upon which any such Real Property is so
transferred, the Shareholder shall make such Real Property available to the
Mesa Companies or Subsidiaries on the same basis upon which he is making it
available to them as of the Effective Date. The parties agree that in
order to enable the Shareholder to transfer such Real Property, the
mortgage indebtedness on such Real Property, in the amounts set forth on
Schedule 3.10(b), shall be required to be satisfied. Liquids agrees that
it shall pay such Real Property mortgage indebtedness following the Closing
and shall pay any other ordinary expenses required to be paid in order to
enable the Shareholder to transfer such Real Property to one or more of the
Mesa Companies as required herein. There are no leases, agreements or
arrangements which create in or confer on any person or entity the right to
occupy, possess, or use all or any portion of the Real Property or create
in or confer on any such person or entity any right, title or interest in
or to the Real Property or any portion thereof; except as set forth on
Schedule 3.10(b), no portion of the Real Property contains any wetlands or
lies within any
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floodway or the 100 year flood plain as determined or designated by the
U.S. Army Corp of Engineers or any other federal, state or local
governmental agency or instrumentality which materially interferes with the
use of the Real Property, except as disclosed in any title insurance policy
furnished to Liquids pursuant to Section 3.7; and there are no claims or
demands pending or, to the best knowledge of the Shareholder, threatened by
any person against the Real Property which, if valid, would create in, or
confer on, any person other than the party identified as the owner thereof
in Schedule 3.10(b), any right, title or interest in or to the Real
Property or any portion thereof or any interest therein.
3.11 PERSONNEL. Schedule 3.11 includes a list, as of the Effective
Date, of all officers, directors and employees of each Mesa Company and each
Subsidiary and their respective rates of compensation (including the portions
thereof attributable to bonuses), including any other salary, bonus or other
compensation arrangement made with any of them.
3.12 EMPLOYMENT AGREEMENTS AND BENEFIT PLANS. None of the Mesa
Companies have any pension, profit-sharing, deferred compensation, stock option,
employee stock purchase or other employee benefit plan or arrangement except as
described on Schedule 3.12.
3.13 CONTINUATION OF BUSINESS. It is the contemplation of the parties
that substantially all employees, agents, and independent contractors who are
regularly engaged in the performance of services in the business of the Mesa
Companies or Subsidiaries prior to Closing shall continue to be willing to
perform those same services on the same terms and conditions as they were
performed prior to Closing, and none of the Mesa Companies has any reason to
know of any such employees, agents, or independent contractors who will not so
continue to perform those services as aforesaid.
3.14 COPIES COMPLETE; NO DEFAULT. The certified copies of the
Articles of Incorporation and Bylaws, both as amended to date, of each Mesa
Company attached as Schedule 3.14, and the copies of all leases, instruments,
agreements, licenses, permits, certificates or other documents which have been
delivered to Liquids in connection with the transactions contemplated hereby are
substantially complete and accurate and are true and correct copies of the
originals thereof, as amended. Except as provided in Schedule 3.14, none of
such leases, instruments, agreements, licenses, permits, certificates or other
documents requires notice to, or the consent or approval of, any governmental
agency or other
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third party to any of the transactions contemplated hereby. Any consents or
approvals that are required shall be obtained by the Mesa Companies prior to
Closing.
3.15 BANK ACCOUNTS. Schedule 3.15 contains a list, as of the date
hereof, of:
(a) the name of each bank in which each Mesa Company or
Subsidiary has accounts or safe deposit boxes;
(b) the names in which the accounts or boxes are held;
(c) the type of account; and
(d) the name of each person authorized to draw thereon or have
access thereto.
The Mesa Companies shall regularly update Schedule 3.15, and at Closing the Mesa
Companies shall certify the updated Schedule 3.15 as true and correct.
3.16 NO HAZARDOUS WASTE, OTHER FACILITIES. Except as set forth on
Schedule 3.16,
(a) No Mesa Company or Subsidiary has ever transported or
disposed of, or contracted for the transportation or disposal of, hazardous
wastes, hazardous substances, infectious or medical waste, or radioactive
waste in violation of the Resource Conservation and Recovery Act of 1976,
as amended, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Atomic Energy Act of 1954, as
amended, or any comparable federal or state laws, or rules or regulations
promulgated under any of the foregoing; and
(b) No Mesa Company or Subsidiary has ever owned, operated
and/or leased a hazardous waste transfer, treatment, storage or disposal
facility.
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3.17 NO EXPOSURE TO HAZARDOUS OR TOXIC SUBSTANCES. To the knowledge
of the Mesa Companies, except as set forth in Schedule 3.17, none of the
employees of any Mesa Company or Subsidiary have, in the course and scope of
employment with such Mesa Company or Subsidiary, been exposed in a manner which
would be detrimental to their health to hazardous, infectious, radioactive or
toxic wastes or substances as those terms are defined in the Resource
Conservation and Recovery Act of 1976, as amended, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Atomic Energy Act of 1954, as amended, or any comparable federal or state laws,
or rules and regulations promulgated under any of the foregoing.
3.18 UNDERGROUND STORAGE TANKS. To the knowledge of the Mesa
Companies, except as set forth in Schedule 3.18, no Mesa Company has ever owned
or leased any real estate having any underground storage tanks containing
petroleum products or wastes or other hazardous substances and regulated by
40 CFR 280 and/or other applicable federal, state or local laws, rules,
regulations and requirements.
3.19 DISPOSAL FACILITIES USED. Schedule 3.19 contains a list, as of
the Effective Date, of all disposal sites (including dumps, landfills and all
other disposal facilities) utilized at any time since January 1, 1991 by any
Mesa Company for the disposal of any waste materials. For each such disposal
site, the Mesa Companies have provided to Liquids in Schedule 3.19:
(a) the name and address of such disposal site; and
(b) the type or types of waste materials delivered to such
disposal site.
3.20 BORROWED MONIES. None of the Mesa Companies or Subsidiaries is
in default or in violation of any agreement or note for the payment of borrowed
monies. Copies of all notes and other documents relating to indebtedness for
borrowed monies by any Mesa Company or Subsidiaries are identified on an
appropriate schedule hereto.
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3.21 ABSENCE OF CERTAIN CHANGES, EVENTS OR CONDITIONS. Except as
described in Schedule 3.21 or as otherwise expressly provided in or contemplated
by this Agreement, and except for any acts contemplated by, required by, or in
furtherance of the Mergers and the other transactions contemplated as a part of
the plan referred to under the caption "RECITALS" above, since March 31, 1997,
each Mesa Company and Subsidiary has: (a) conducted its business in the
ordinary course, not engaged or agreed to engage in any extraordinary
transactions or distributions, and not engaged or agreed to engage in any other
transaction except at arm's length and for fair consideration; (b) not disposed
of any of its assets, except in the ordinary course of business; (c) not
materially increased the level of compensation of any employee; (d) not issued
any stock or securities or rights with respect to any stock or securities, or
paid any dividends, redeemed any securities or otherwise caused any of its
assets to be distributed to its shareholder; (e) not borrowed any funds under
existing lines of credit or otherwise, except as reasonably necessary for the
ordinary operation of its business in a manner, and in amounts, in keeping with
historical practices, or made any loans or guaranteed the obligations of any
other persons; (f) not suffered any material and adverse change in its assets,
business, or operations, nor have any of its assets suffered any material and
adverse change in value other than ordinary wear and depreciation; (g) not
changed or amended its charter documents or bylaws; (h) not entered into any
contract, commitment, or transaction which is not in the ordinary course of its
business; and (i) not failed to keep its properties and assets insured with at
least as much liability and property damage, fire, and other casualty coverage
as was effective on December 31, 1996.
3.22 TAX RETURNS AND AUDITS. Except as set forth in Schedule 3.22, as
of the Effective Date of this Agreement, each Mesa Company has, and as of the
Closing Date, it will have: (a) filed in accordance with applicable laws all
federal, state, and local tax returns required to be filed by it; (b) paid all
taxes, assessments, penalties, and interest charges shown to be due and payable
on each such return or otherwise due; and (c) accrued or created reserves for
all taxes due or to become due by it for all periods ending before, on or with
the Effective Date. No federal income tax liability of any Mesa Company has
been examined by the Internal Revenue Service during the six-year period ending
on December 31, 1996 nor has there been an examination of any other tax
liability of any Mesa Company during the past six (6) years. Except as set
forth in Schedule 3.22, no Mesa Company (i) has been delinquent in the payment
of any tax, assessment or governmental charge, nor has any tax deficiency been
proposed or assessed against it which has not been satisfied and (ii) has
executed any waiver of the statute of limitations on the assessment or
collection of any tax. Copies of the federal and state income tax returns of
each Mesa Company and each subsidiary, and all
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adjustments and amendments to such returns, for the three years ended
December 31, 1996, together with copies of all reports, as filed, of any taxing
authority relating to examinations thereof, have been previously delivered to
Liquids, and to the knowledge of each Mesa Company, each such tax return is
accurate and complete. Except as set forth in Schedule 3.22, each Mesa Company
has withheld or otherwise collected all taxes or amounts it is required to
withhold or collect under any applicable federal, state, or local law,
including, without limitation, any amounts required to be withheld or collected
with respect to social security, unemployment compensation, sales or use taxes
or workers' compensation, and all such amounts have been timely remitted to the
proper authorities. For purposes of this Section 3.22, the term "tax" or
"taxes" shall include, but not be limited to, income taxes, employment taxes,
excise taxes, sales and use taxes, franchise taxes, and any other tax that may
be imposed by a taxing authority.
None of the Mesa Companies is a party to any tax allocation or sharing
agreement or otherwise under any obligation to indemnify any person with respect
to taxes.
There are no accounting method changes or proposed account method changes
of the Mesa Companies that could give rise to an adjustment under Section 481 of
the Code for any period after the Closing.
There are no requests for rulings in respect of any tax pending between any
of the Mesa Companies and any tax authority.
None of the Mesa Companies is a party to any joint venture, partnership, or
other arrangement that is treated as a partnership for federal income tax
purposes.
3.23 LITIGATION. Except as set forth on Schedule 3.23, to the
knowledge of each Mesa Company, no Mesa Company or Subsidiary is subject to or
bound by any court, regulatory commission, board or administrative judgment,
order or decree, and no suit, action, proceeding or other litigation in any
court or before any administrative or arbitration panel or commission or before
or by any governmental department or agency to which any Mesa Company is a party
or which affects its business or properties is now pending. No Mesa Company has
any knowledge of any governmental proceeding or investigation involving any Mesa
Company or Subsidiary, nor does it have reason to believe that any such
proceeding or investigation is pending or threatened or that there exists any
basis for any such proceeding or investigation, except as may be set forth on
Schedule 3.23. No Mesa Company has any knowledge of any facts which might
reasonably be believed to be a basis for any other action, suit, proceeding,
arbitration, claim, or counterclaim against any Mesa Company or Subsidiary. To
the
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Mesa Companies' knowledge, there are no existing violations of federal, state or
local laws, ordinances, rules, regulations or orders by any Mesa Company or
Subsidiary which materially and adversely affect the business or properties of
the Mesa Companies, taken as a whole.
3.24 RIGHTS AND AUTHORIZATIONS. Each Mesa Company and Subsidiary owns
or holds all licenses, permits, approvals, and other authorizations
(collectively "Authorizations") which are used in or required for its business,
and at Closing, it shall own and hold all such Authorizations, outright and
without material restriction, except as set forth on Schedule 3.24. No Mesa
Company has any knowledge or has received any notice that any such Authorization
is not valid or sufficient or in full force and effect. Except as indicated in
Schedule 3.14 or Schedule 3.24, neither the execution and delivery nor the
consummation of the transactions contemplated hereby will cause a termination
of, or interfere in any respect with, the operation under any such
Authorizations.
3.25 INSURANCE. Schedule 3.25 contains a complete list of all such
insurance policies and a description of all pending claims (including the amount
of coverage thereunder) in effect as of the Effective Date. Such insurance
policies are owned exclusively by one or more Mesa Companies, except for life
insurance policies insuring the lives of employees of one or more of the Mesa
Companies. Except as specified in such policies, no Mesa Company has any
knowledge that any such insurance policies are subject to any retroactive rate
or audit adjustments or co-insurance arrangements. No notice of cancellation or
nonrenewal of or disallowance of any claim under any such policy has been
received.
3.26 NO CONFLICTS. Except as provided in Schedule 3.26, neither the
execution and delivery of this Agreement nor any of the related documents
contemplated hereby will violate, conflict with, or result in a breach of any
provisions of, or constitute a material default (or an event which, with notice
or lapse of time or both would constitute a material default) under, or result
in the termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, security interest, or encumbrance upon any of the properties or assets of
any Mesa Company or Subsidiary or otherwise comprising a part of the business of
the Mesa Companies or Subsidiaries under any of the terms, conditions or
provisions of (i) any of their respective charter documents or bylaws, or under
(ii) any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation, to which any Mesa Company or
Subsidiary is a party or to which it or any of its properties or assets may be
subject.
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3.27 CONSENTS. Except as listed in Schedule 3.27, no notice to,
approval by, filing with, or authorization, consent or approval of, any federal,
state, local or other public body, agency or authority or any other third party
is necessary for the consummation of the transactions contemplated by this
Agreement and the carrying on of the business of the Mesa Companies and
Subsidiaries following the Closing Date. The foregoing notwithstanding, the
Mesa Companies make no representation or warranty as to the application of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), or the Exon-Florio Amendment, Section 721 of the Defense Production Act
of 1950 ("Exon-Florio"), to the transactions contemplated by this Agreement. It
shall be the sole obligation of Liquids to determine the application of the HSR
Act or Exon-Florio to the transactions contemplated by this Agreement. To the
extent Liquids determines that the HSR Act or Exon-Florio applies to the
transactions contemplated by this Agreement the parties hereto shall cooperate
to comply therewith and all expenses incurred in complying with the HSR Act or
Exon-Florio shall be borne by Liquids.
3.28 ENVIRONMENTAL MATTERS. To the knowledge of the Mesa Companies,
except as set forth in Schedule 3.28, each Mesa Company and Subsidiary currently
is and at all times in the past has operated in substantial compliance in all
material respects with all federal, state and local laws, rules and regulations
(collectively, the "Environmental Laws") relating to the use, management,
handling, transport, treatment, generation, storage, disposal, release or
discharge of hazardous substances or wastes. Except as set forth in Schedule
3.28, no governmental agency has conducted any extraordinary audits,
assessments, tests or other reviews in connection with any Mesa Company's or
Subsidiary's compliance with any Environmental Law.
3.29 APPROVAL BY SHAREHOLDER AND DIRECTORS. This Agreement, each of
the Mergers, and all transactions contemplated hereby have been duly approved by
the Board of Directors of each Mesa Company and by the Shareholder in accordance
with applicable law and the Bylaws and the Articles of Incorporation of each
Mesa Company. Immediately following the execution of this Agreement, each Mesa
Company will provide to Liquids a copy, certified by the secretary of such
Company to be true and correct, of the resolutions of the Board of Directors and
Shareholder approving this Agreement, the applicable Merger, and the
transactions contemplated hereby. Neither the Shareholder nor any other person
has or will exercise any appraisal or dissenter's rights in connection with any
of the applicable Mergers.
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3.30 SPECIFIC REPRESENTATIONS AND WARRANTIES RELATING TO POOLING-OF-
INTERESTS ACCOUNTING.
(a) No Mesa Company has acquired any treasury stock during the
two-year period preceding the date hereof.
(b) Neither the voting stock structure of any Mesa Company nor
the relative ownership of shares of any Mesa Company has been altered or
changed materially within the two (2) years preceding the Effective Date.
(c) To the knowledge of each Mesa Company, there has been no
other transaction or action taken with respect to the equity ownership of
that Mesa Company in contemplation of the Mergers which would prevent
Liquids from accounting for the Mergers on a pooling-of-interests basis for
financial accounting purposes.
(d) No Mesa Company has been a subsidiary or division of another
corporation during the two-year period prior to the Effective Date.
(e) There has been no sale of any significant assets of any Mesa
Company other than in the ordinary course of business during the two-year
period preceding the Effective Date.
(f) The Shareholder will exercise his voting rights as to the
Liquids Stock to be received by him in the Mergers, and there will be no
mechanisms such as a voting trust or other shareholders' or voting trust
agreement that would in any way deprive or restrict the Shareholder from
exercising his voting rights as to the Liquids Stock received by him in the
Mergers.
3.31 DISCLOSURE SCHEDULES. Anything disclosed under any Schedule
referenced in this Section 3 shall be deemed disclosed under each and every
other Schedule referenced in this Section 3.
SECTION 4
RESALES OF LIQUIDS STOCK
4.1 STOCK DISTRIBUTION AGREEMENT. Contemporaneously with the
execution of this Agreement, the Shareholder shall deliver to Liquids a fully
executed Stock Distribution Agreement, in the form attached hereto as Exhibit
4.1. Liquids will also fully execute such Stock Distribution Agreement
contemporaneously with the execution of this Agreement.
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4.2 INVESTMENT REPRESENTATIONS AND WARRANTIES. The Shareholder
represents and warrants to Liquids, effective as of the date of this Agreement
and again as of the Closing Date, as follows:
(a) INVESTMENT INTENT. The Shareholder is acquiring the Liquids
Stock for his own account, as principal, for the purpose of investment, and
except as to the Liquids Stock to be registered for resale under the Stock
Distribution Agreement, not with a view to or for sale in connection with
any distribution thereof.
(b) ACCESS TO INFORMATION. The Shareholder has to his
satisfaction reviewed the business and affairs of Liquids and understands
the risks of, and other considerations relating to, his receipt of the
Liquids Stock. The Shareholder (i) has been furnished a copy of all
materials and information requested by him relating to Liquids and its
activities and proposed activities and any other information or materials
concerning Liquids and the Liquids Stock which he will receive as a result
of the Mergers, and (ii) has been afforded access and the opportunity to
obtain any and all information which he deems relevant and material to make
an informed decision as to his acquisition of the Liquids Stock, and to ask
questions of and receive answers from the officers, directors and employees
of Liquids including, without limitation, the background and experience of
such officers and directors and the current conduct, and status, and
prospects of Liquids' business.
(c) INVESTMENT ADVICE. The Shareholder has not relied on any
investment advice from Liquids or anyone acting on Liquids' behalf or on
any investment advisor other than his own attorneys, accountants, and
personal business and investment advisors in connection with evaluating the
risks and merits of owning Liquids Stock. The Shareholder acknowledges
that Liquids has advised him that he should seek professional advice from
his attorneys, accountants, and business and investment advisors with
respect to the risks and merits of ownership of the Liquids Stock and the
advisability of entering into this Agreement. However, the parties
acknowledge that the Shareholder is entitled to, and in fact has, relied
upon all representations, warranties, agreements, and covenants made by
Liquids and the Newco Companies in this Agreement and in all exhibits,
schedules, agreements, and documents related hereto.
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SECTION 5
REPRESENTATIONS AND WARRANTIES OF LIQUIDS
Liquids represents, warrants, and covenants to the Shareholder, effective
as of the date of this Agreement and again as of the Closing Date, as follows:
5.1 CORPORATE ORGANIZATION. Each of Liquids and the Newco Companies
is a corporation duly organized, validly existing and in good standing under the
laws of the state of its domicile, and has all requisite corporate power and
authority to enter into this Agreement and perform its obligations hereunder.
5.2 AUTHORIZATION. Liquids has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The Board of Directors of Liquids and each Newco Company
have, and the shareholder of each Newco Company has, duly authorized the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. No other corporate proceedings on the part of
Liquids or any Newco Company is necessary to approve and authorize the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby. This Agreement constitutes the valid and binding agreement
of Liquids and the Newco Companies, enforceable against them in accordance with
its terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, moratorium and other similar laws affecting the enforcement of
creditors' rights generally and except as such enforceability may be affected by
equitable principles (whether considered in a proceeding at law or in equity).
5.3 CAPITALIZATION. As of the date of this Agreement, the authorized
stock and securities of Liquids consist of 50,000,000 shares of common stock,
$.01 par value per share, of which 3,538,875 shares (post-reverse split) are
issued and outstanding. The authorized stock and securities of each Newco
Company consist solely of ten thousand (10,000) shares of common stock, $.01 par
value per share, of which one thousand (1,000) shares are issued and
outstanding. All of such issued and outstanding shares of capital stock of
Liquids and the Newco Companies have been duly authorized and validly issued and
are fully paid and nonassessable. Except as described in Schedule 5.3, there
are no outstanding or authorized subscriptions, options, contracts, commitments,
warrants, calls, agreements, understandings or other arrangements or rights of
any character affecting or relating in any manner to the issuance of capital
stock or other securities of Liquids (whether by subscription, option, exchange,
right of conversion, right of refusal or otherwise) or entitling
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anyone to acquire shares of the capital stock of Liquids or other securities of
any kind of Liquids.
5.4 COPIES COMPLETE; NO DEFAULT. The certified copies of the
Certificate of Incorporation and Bylaws, both as amended to date, of Liquids and
the Newco Companies and the copies of all other documents which have been
delivered by Liquids to the Mesa Companies in connection with the transactions
contemplated hereby are substantially complete and accurate and are true and
correct copies of the originals thereof; and the execution of this Agreement and
the performance of the obligations hereunder will not violate or result in a
breach or constitute a default under any of the terms and provisions hereof.
5.5 NO CONFLICT. Neither the execution and delivery of this
Agreement nor any other related documents contemplated hereby will violate,
conflict with, or result in a breach of any provisions of or constitute a
default (or an event which, with the giving of notice or lapse of time, or both,
would constitute a default) under or result in the termination of or accelerate
the performance required by or result in a right of termination or acceleration
under or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Liquids or the Newco
Companies under any of the terms, conditions or provisions of (i) the charter
documents or bylaws of Liquids and the Newco Companies, or (ii) any note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Liquids or any Newco Company is a party or to
which either of them or any of their properties or assets may be subject.
5.6 LITIGATION. Except as set forth on Schedule 5.6, to its
knowledge, Liquids (which for purposes of this Section 5.6 includes any first
tier or more remote subsidiary corporation of Liquids) is not subject to or
bound by any court, regulatory commission, board or administrative judgment,
order or decree, and no suit, action, proceeding or other litigation in any
court or before any administrative or arbitration panel or commission or before
or by any governmental department or agency to which Liquids is a party or which
affects the business or properties of Liquids is now pending; Liquids has no
knowledge of any governmental proceeding or investigation involving Liquids nor
does it have reason to believe that any such proceeding or investigation is
pending or threatened or that there exists any basis for any such proceeding or
investigation, except as may be set forth on Schedule 3.23; to its knowledge,
there are no existing violations of federal, state or local laws, ordinances,
rules, regulations or orders by Liquids which materially and adversely affect
the
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business or property of Liquids or the possession, use, occupancy or operation
of any of its facilities or business.
5.7 REPRESENTATIONS AND WARRANTIES RELATING TO POOLING-OF-INTERESTS
ACCOUNTS. Liquids will not knowingly take or cause to be taken any action or
cause any matter to occur which might reasonably prevent the Mergers to be
accounted for as a pooling-of-interests.
5.8 BROKERS, FINDERS, ETC. All negotiations relating to this
Agreement and transactions contemplated hereby have been carried on without the
intervention of any broker, finder, or other person, acting on behalf of Liquids
in any manner as to give rise to any claim against Liquids for any brokerage,
finder's, or similar fee or commission.
5.9 FINANCIAL STATEMENTS. Liquids has delivered to the Shareholder
copies of the following financial statements (the "Financial Statement") of
Liquids at Schedule 5.9:
(i) Balance Sheet as of December 31, 1996; and
(ii) Income Statement for the period from inception to December
31, 1996.
The Balance Sheet fairly presents the financial condition of Liquids as of the
date set forth thereon, and the Income Statement fairly presents the results of
operation for the period indicated thereon, all in accordance with generally
accepted accounting principles, subject to year-end audit adjustments and the
absence of complete footnotes.
5.10 ACCURACY OF REGISTRATION STATEMENT. As of the Effective Date,
Liquids is preparing a registration statement to be filed by Liquids with the
SEC on Form S-1 (the "Registration Statement") as soon as practicable following
the closing of the Mergers. Liquids hereby represents and warrants that the
Registration Statement, when filed, will not to Liquids' knowledge contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading.
However, Liquids shall have no responsibility hereunder for any untrue
statements of a material fact or omissions to state a material fact in the
Registration Statement which are derived from information which has been
provided to or which should have been provided to Liquids by the Shareholder or
any of the Mesa Companies in respect of the Shareholder or the Mesa Companies.
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5.11 REPRESENTATIONS RELATING TO TAX-FREE REORGANIZATIONS.
(a) Prior to the Mergers, Liquids will be in control of each Newco
Company within the meaning of Code Section 368(c).
(b) Following the Mergers, Liquids has no plan or intention to issue
additional shares of capital stock of any Mesa Company which would result
in Liquids losing control of that Mesa Company within the meaning of
Section 368(c) of the Internal Revenue Code.
(c) Liquids has no plan or intention to reacquire any of the Liquids
Stock issued in the Mergers.
(d) Liquids has no plan or intention to (i) liquidate any Mesa
Company, (ii) merge any Mesa Company with or into another corporation,
(iii) sell or otherwise dispose of the stock of any Mesa Company except for
transfers of stock to corporations controlled by Liquids, or (iv) cause any
Mesa Company to sell or otherwise dispose of any of its assets or of any of
the assets acquired from any Newco Company, except for dispositions made in
the ordinary course of business or transfers of assets to a corporation
controlled by Liquids.
(e) No Newco Company will have any liabilities assumed by any Mesa
Company, and will not transfer to any Mesa Company any assets subject to
liabilities in the Mergers.
(f) The Newco Companies were formed expressly for the purpose of
effecting the Mergers, and as a result of the Mergers, the Mesa Companies
will hold 100% of the Newco Companies' assets held by the Newco Companies
immediately prior to the Mergers.
(g) Following the Mergers, Liquids shall cause the Mesa Companies to
continue their historic business or use a significant portion of their
historic business assets in a business.
(h) There is no intercorporate indebtedness existing between any Mesa
Company and Liquids or between any Newco Company and any Mesa Company.
(i) The Liquids Stock is voting common stock of Liquids as described
in Code Section 368(a)(2)(E).
(j) Liquids does not own, nor has it owned in the past five (5)
years, any stock of any Mesa Company.
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(k) Neither Liquids nor any Newco Company is an investment company as
defined in Code Section 368(a)(2)(F)(iii) and (iv).
5.12 ABSENCE OF VOTING OR BUY-SELL AGREEMENT. There is no existing
agreement to which Liquids is a party which imposes any voting obligation or
buy-sell obligation with respect to any Liquids Stock, except as set forth in or
contemplated by this Agreement or the AWW Merger Agreement.
SECTION 6
COVENANTS
The Mesa Companies jointly and severally make certain covenants to Liquids
and the Newco Companies, and Liquids and the Newco Companies jointly and
severally make certain covenants to the Mesa Companies below. Further, the
Shareholder guarantees the full and complete performance by the Mesa Companies
of those matters set forth in Sections 6.1, 6.4, 6.6 and 6.10 and makes the
covenants set forth in Section 6.7 and Section 6.14.
6.1 CONDUCT OF BUSINESS. Except as otherwise provided for or
contemplated by this Agreement or in Schedule 6.1, and except for any acts
contemplated by, required by, or in furtherance of the Mergers and the other
transactions contemplated as a part of the plan referred to under the caption
"RECITALS" above, during the period from the Effective Date of this Agreement to
the Effective Time, each Mesa Company agrees that it will conduct its business
and operations according to its ordinary and usual course and consistent with
past practice, and will use its commercially reasonable best efforts to preserve
intact its business organization, to keep available the services of its officers
and employees and to maintain satisfactory relationships with licensors,
licensees, suppliers, contractors, distributors, customers and others having
business relationships with it. Except as otherwise expressly provided in or
contemplated by this Agreement, and except for any acts contemplated by,
required by, or in furtherance of the Mergers and the other transactions
contemplated as a part of the plan referred to under the caption "RECITALS"
above, prior to the Effective Time, each Mesa Company agrees that it will not,
without the prior written consent of Liquids, which Liquids shall not
unreasonably withhold, do any of the things listed in this Section 6.1.
Further, except as otherwise expressly provided in or contemplated by this
Agreement, and except for any acts contemplated by, required by, or in
furtherance of the AWW Mergers, and the other transactions contemplated as a
part of the plan referred to under the caption "RECITALS" above, Liquids will
not do any of the acts listed below
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without the prior written consent of the Mesa Companies, which consent shall not
be unreasonably withheld. The acts referred to above are as follows:
(a) amend its Articles of Incorporation or Bylaws (and in the
case of Liquids, amend its Certificate of Incorporation or Bylaws);
(b) authorize for issuance, issue, sell or deliver (whether
through the issuance or granting of additional options, warrants,
commitments, subscriptions, rights to purchase or otherwise) any stock of
any class or any securities convertible into shares of stock of any class;
(c) split, combine or reclassify any shares of its stock, or
redeem or otherwise acquire any shares of the stock;
(d) (i) create, incur or assume any debt (other than debt
created, incurred or assumed in the ordinary course of its business,
consistent with past practice and with respect only to acquisition by it of
property used in the ordinary course of business); (ii) create, incur or
assume any (A) long-term debt (including capitalized lease obligations), or
(B) short-term debt except trade payables incurred in the ordinary course
of business and consistent with past practice; (iii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person; or (iv)
make any loans, advances or capital contributions to, or investments in,
any other person or entity, other than short-term investments in financial
instruments in the ordinary course of business and consistent with past
practice;
(e) (i) increase in any manner the compensation of any of its
directors, officers or other employees; or (ii) commit itself to any
additional pension, profit-sharing, bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan,
agreement or arrangement, or to any employment or consulting agreement with
or for the benefit of any person, or amend any of such plans or any of such
agreements in existence on the date hereof;
(f) sell, transfer, mortgage, or otherwise dispose of or
encumber any real property;
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(g) except in the ordinary course of business and consistent
with past practice or pursuant to contractual obligations existing on the
date hereof (i) sell, transfer, mortgage, or otherwise dispose of or
encumber any personal property with a market value which, individually or
in the aggregate, exceeds $10,000; (ii) pay, discharge or satisfy claims,
liabilities or obligations (absolute, accrued, contingent or otherwise); or
(iii) cancel any debts or intentionally waive any claims or rights;
(h) make any capital expenditure or commitment except in the
ordinary course of business consistent with past practices and in an amount
in excess of $10,000 individually or in the aggregate;
(i) enter into any other agreements, commitments or contracts
which, individually or in the aggregate, are material, except agreements,
commitments or contracts expressly provided for or contemplated by this
Agreement or for the purchase, sale or lease of goods or services in the
ordinary course of business, consistent with past practice and not in
excess of current requirements or for the provision of data processing or
related services in the ordinary course of business and consistent with
past practice, or otherwise make any material change in the conduct of its
business or operations, taken as a whole;
(j) make any distribution with respect to any of the Mesa
Companies Stock; or
(k) agree, whether in writing or otherwise, to do any of the
foregoing.
6.2 ACCESS TO INFORMATION.
(a) The Mesa Companies will afford Liquids and its
representatives access, during normal business hours, to all of its
business, operations, properties, books, files and records and will
cooperate in the examination thereof. Liquids agrees that all information,
including the existence and contents of this Agreement and the other
agreements among the parties, so provided will be treated as confidential
(except for necessary disclosures to professional advisors, and except for
securities law disclosures, and further except for disclosures to any
underwriter with whom Liquids negotiates to offer and sell its stock), that
Liquids will not disclose or make any use of such confidential information
unless the same is or shall become available to it through nonconfidential
means or shall otherwise come into the public domain. If the transactions
contemplated by this Agreement are not consummated for any reason, then
after this Agreement
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is terminated, Liquids will continue to hold in confidence all information
obtained from the Mesa Companies and will return to the Mesa Companies all
copies of any confidential documents obtained by Liquids in connection with
the transactions contemplated by this Agreement.
(b) Liquids will afford the Shareholder access, during normal
business hours, to all of its business, operations, properties, books,
files and records and will cooperate with the Shareholder and his
representative in the audit and examination thereof and will do everything
reasonably necessary to enable the Shareholder and his representative to
make a complete examination of the business, assets and properties of
Liquids and the condition thereof. The Shareholder agrees that all
information, including the existence and contents of this Agreement and the
other agreements among the parties, so provided will be treated as
confidential (except for necessary disclosures to professional advisors,
and except for any disclosures required by law, including securities law
disclosure and further except for disclosures to any underwriter with whom
Liquids negotiates to offer and sell its stock), that the Shareholder will
not disclose or make any use of such confidential information unless the
same is or shall become available to it through nonconfidential means or
shall otherwise come into the public domain. If the transactions
contemplated by this Agreement are not consummated for any reason, then
after this Agreement is terminated, the Shareholder will continue to hold
in confidence all information obtained from Liquids and will return to
Liquids all copies of any confidential documents obtained by Mesa or the
Shareholder in connection with the transactions contemplated by this
Agreement.
6.3 PUBLIC ANNOUNCEMENTS. Each Mesa Company, its officers and
directors, employees, and agents will consult with Liquids before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement and shall not issue any such press
release or make any such public statement without Liquids' prior approval.
Liquids will use its commercially reasonable best efforts to consult with the
Shareholder before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement.
6.4 NOTIFICATION OF MATERIAL EVENTS. Each party shall promptly
notify the others in writing of the occurrence of any event which will or could
reasonably be expected to result in its failure to satisfy any of the
representations, warranties, covenants, or conditions specified in this
Agreement.
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6.5 CERTAIN EMPLOYEE MATTERS. The Mesa Companies will each take
reasonable steps necessary to maintain and enforce all employment contracts and
noncompetition and nondisclosure agreements which it now has and has had with
its employees and former employees.
6.6 EMPLOYMENT AGREEMENTS. The Shareholder shall execute and deliver
to Liquids at Closing the Employment Agreement in the form attached hereto at
Exhibit 6.6, which shall also be executed and delivered by Liquids at Closing.
6.7 THIS SECTION HAS BEEN INTENTIONALLY LEFT BLANK.
6.8 NONCOMPETITION. At Closing, the Shareholder shall deliver a
Noncompetition Agreement which shall be fully executed and in the form set forth
at Exhibit 6.8.
6.9 ELECTION OF SHAREHOLDER TO BOARD OF DIRECTORS OF LIQUIDS. At
Closing, the Shareholder will execute the Stock Voting Agreement in the form set
forth at Exhibit 6.9, and Liquids will use its commercially reasonable best
efforts to cause the Stock Voting Agreement to be executed by Gregory W. Orr,
the Wiley Gregory & Genene M. Orr Family L.L.C., Earl J. Blackwell, the Earl J.
and Christine J. Blackwell Family L.L.C., and William M. DeArman. Following
Closing, Liquids will use its commercially reasonable best efforts to cause Eric
Warden to execute and become a party to the Stock Voting Agreement. The
execution of this Stock Voting Agreement shall be a condition to Closing as
further described in Section 7.
6.10 REDEMPTION OF MESA SERIES A PREFERRED STOCK. At Closing, the
Mesa Companies and the Shareholder shall cause all 10,000 shares of issued and
outstanding Series A Preferred Stock of Mesa and the Promissory Note of Mesa,
dated May 5, 1993, originally payable to Ernest H. Byers, Jr., M.D. in the
original principal amount of $60,000 to be redeemed by one or more of the Mesa
Companies for a redemption price not to exceed $120,000, including any amounts
paid for any accrued or other dividends owing on the Series A Preferred Stock.
Liquids shall provide to the Mesa Companies the funds necessary for the
redemption of such shares of Series A Preferred Stock and Promissory Note.
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6.11 LIQUIDS STOCK OPTIONS. Liquids has adopted a stock option plan
entitling optionees to purchase Liquids Stock. Following the Closing, options
to purchase not less than 62,500 shares of Liquids Stock will be granted to
those employees of the Mesa Companies as designated by the Shareholder, and if
he fails for any reason to do so within sixty (60) days after the Closing Date,
then those options shall be granted to such employees of the Mesa Companies as
Liquids deems deserving. It is contemplated by the parties that the exercise
price of these stock options shall be a price per share equal to or not
materially different from the anticipated price per share for which Liquids
Stock will be sold in an initial public offering presently being prepared for by
Liquids and certain other necessary persons. The exercise price of these
options to be granted pursuant to this Section 6.11 shall not be less than the
exercise price of the stock options contemporaneously granted to other optionees
under that stock option plan. The exercise price of these options shall be
adjusted as appropriate for any recapitalization, stock dividend, or other
change in capital structure or capitalization. Liquids will use its
commercially reasonable efforts to cause these options to qualify as incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended.
6.12 RESIGNATIONS. Each officer and director of each Mesa Company and
Subsidiary (other than those whom Liquids shall have specified in writing at
least two [2] days prior to the Closing and except for Peter MCG. Patterson as
the required Barbados director of MII) shall execute and deliver to Liquids at
Closing his or her written resignation as an officer or director of such Mesa
Company effective as of the Closing.
6.13 AMENDMENTS TO LIQUIDS/AWW MERGER AGREEMENT. Liquids does not
presently contemplate entering into any amendment to the Liquids/AWW Merger
Agreement. However, in the event the Liquids/AWW Merger Agreement is amended,
then Liquids shall promptly give notice thereof to Shareholder. If any such
amendment would have a material adverse effect upon the Mesa Companies, then the
Shareholder shall have the right, for a period of ten (10) days following the
receipt of notice of such amendment, to give notice to Liquids that he desires
to terminate this Agreement.
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6.14 CERTAIN INDEBTEDNESS. The parties acknowledge and agree that
those liabilities listed on Schedule 6.14 (the "Shareholder's Personal
Liabilities") have been incurred by the Shareholder on behalf of the Mesa
Companies or have been incurred by a Mesa Company and guaranteed by the
Shareholder and, as between the Mesa Companies and the Shareholder, have been
treated as liabilities of the Mesa Companies. At the Closing, the Mesa
Companies shall assume and become responsible for all of the Shareholder's
Personal Liabilities. As soon as practicable following Closing, but in any
event within the earlier of thirty (30) days following the date upon which the
Registration Statement referred to in Section 5.10 is declared effective or 120
days following Closing, Liquids will cause the Shareholder to be released from
any personal liability on those eleven (11) Shareholder's Personal Liabilities
set forth on Schedule 6.14 and marked with an asterisk. As soon as practicable
following Closing, but in any event within the earlier of thirty (30) days
following the date upon which the Registration Statement referred to in Section
5.10 is declared effective or 120 days following Closing, Liquids will use its
commercially reasonable efforts to cause the Shareholder to be released from any
personal liability on the Shareholder's Personal Liabilities listed on Schedule
6.14 but not marked with an asterisk. To the extent that the Shareholder is not
released from any of the Shareholder's Personal Liabilities listed on Schedule
6.14 and not marked with an asterisk, Liquids will indemnify the Shareholder
from expenses or losses incurred by him in connection with such Shareholder's
Personal Liabilities.
SECTION 7
CLOSING CONDITIONS
7.1 CONDITIONS TO THE OBLIGATIONS OF LIQUIDS AND THE NEWCO COMPANIES.
Each and every obligation of Liquids and the Newco Companies under this
Agreement and under the other agreements, instruments, and documents related to
this Agreement (the "Related Documents") shall be subject to the satisfaction,
as of Closing, of each of the following conditions, each of which can be waived
by Liquids, but only in writing:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Mesa Companies and the Shareholder
contained in this Agreement shall be true and correct as of the date hereof
and shall be deemed to have been made again at Closing and shall then be
true and correct, except for any inaccuracy of a representation or warranty
which in the reasonable opinion of Liquids is not material.
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(b) PERFORMANCE OF COVENANTS. Each of the covenants and other
obligations of the Mesa Companies and the Shareholder to be performed by
any of them on or before Closing pursuant to the terms hereof shall have
been duly performed and complied with in all material respects, except for
the failure to perform or comply with any covenant or obligation which in
the reasonable opinion of Liquids is not material.
(c) NO ADVERSE PROCEEDINGS OR EVENTS. No suit, action or other
proceeding shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit any of the transactions
contemplated by this Agreement or to obtain damages or other relief in
connection with this Agreement or the transactions contemplated hereby,
unless such suit, action or proceeding is without substantial merit or
basis.
(d) DELIVERIES AT CLOSING. All documents or instruments
required to be delivered at Closing by Mesa and/or the Shareholder shall be
delivered and tendered at Closing.
(e) OPINION OF COUNSEL. At Closing, Liquids shall receive an
opinion from Reihsen & Associates, counsel to the Mesa Companies and the
Shareholder, dated the Closing Date, in the form set forth at Exhibit
7.1(e).
(f) QUALIFICATION AS POOLING OF INTEREST. There shall be no
material risk that any of the Mesa Mergers will not qualify as a "pooling
of interests" for financial accounting purposes.
(g) CLOSING OF THE AWW MERGER. The closing of the Mesa Mergers
shall be conditional upon the contemporaneous closing of the AWW Merger.
7.2 CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDER AND THE MESA
COMPANIES. Each and every obligation of the Mesa Companies and the Shareholder
under this Agreement shall be subject to the satisfaction at Closing of the
following conditions, each of which may be waived by the Shareholder, but only
in writing:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in Section 5 hereof shall be true
and correct as of the date hereof and shall be deemed to have been made
again at Closing and shall then be true and correct, except for any
inaccuracy of a representation or warranty which in the reasonable opinion
of the Shareholder is not material.
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(b) PERFORMANCE OF COVENANTS. Each of the covenants and other
obligations of Liquids and the Newco Companies to be performed by them on
or before Closing pursuant to the terms hereof shall have been duly
performed and complied with in all material respects, except for the
failure to perform or comply with any covenant or obligation which in the
reasonable opinion of the Shareholder is not material.
(c) NO ADVERSE PROCEEDINGS OR EVENTS. No suit, action or other
proceeding shall be pending before any court or governmental agency in
which it is sought to restrain or prohibit any of the transactions
contemplated by this Agreement or to obtain damages or other relief in
connection with this Agreement or the transactions contemplated hereby,
unless such suit, action or proceeding is without substantial merit or
basis.
TAB DELIVERIES AT CLOSING. All documents or instruments
required to be delivered at Closing by Liquids or the Newco Companies or
their respective shareholders shall be delivered and tendered at Closing.
(e) OPINION OF COUNSEL. At Closing, Liquids' counsel, Hartzog
Conger & Cason, a professional corporation, shall deliver to the
Shareholder and the Mesa Companies its opinion, dated the Closing Date, in
the form set forth at Exhibit 7.2(e).
(f) CLOSING OF THE AWW MERGER. The closing of the Mesa Mergers
shall be conditional upon the contemporaneous closing of the AWW Merger.
(g) COMPLETE EXECUTION OF STOCK VOTING AGREEMENT. At Closing,
Liquids shall deliver to the Shareholder the Stock Voting Agreement,
referred to in Section 6.9, fully executed by Gregory W. Orr, the Wiley
Gregory & Genene M. Orr Family L.L.C., Earl J. Blackwell, the Earl J. and
Christine J. Blackwell Family L.L.C., and William M. DeArman.
SECTION 8
CLOSING
8.1 TIME AND PLACE. The closing (the "Closing") of the transactions
contemplated in this Agreement shall occur as soon as possible after all
conditions to Closing contained herein are satisfied (the "Closing Date"), at
Houston, Texas, or at such other place or at such other time as Liquids may
designate.
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8.2 DELIVERIES BY SHAREHOLDER AT CLOSING. At Closing, the
Shareholder and the Mesa Companies shall deliver the following Related
Documents, each of which shall be fully executed and completed as appropriate or
as required under this Agreement:
(a) all stock certificates representing all shares of Mesa
Stock, T&T Stock, and Phoenix Stock issued and outstanding as of the
Effective Time;
(b) the opinion of counsel referred to in Section 7.1(e);
(c) the executed Employment Agreement referred to in
Section 6.6;
(d) all corporate books, minutes, records, tax returns, reports,
etc. related to the Mesa Companies and their respective businesses;
(e) the Noncompetition Agreement referred to in Section 6.8;
(f) the resignations referred to in Section 6.12; and
(g) all other certificates, documents, and other instruments
required to be delivered by the Mesa Companies or the Shareholder pursuant
to this Agreement.
8.3 DELIVERIES BY LIQUIDS AT CLOSING. At Closing, Liquids shall
deliver the following Related Documents, each of which shall be fully executed
and completed as appropriate or as required under this Agreement:
(a) all stock certificates representing all shares of Liquids
Stock required to be delivered by Liquids to the Shareholder pursuant to
this Agreement;
(b) the opinion of counsel to Liquids referred to in Section
7.2(e);
(c) the executed Employment Agreement referred to in Section
6.6; and
HL all other certificates, documents, and other instruments
required to be delivered by Liquids pursuant to this Agreement.
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8.4 EXPENSES OF CLOSING. The Mesa Companies have engaged the
services of Reihsen & Associates as legal counsel to the Mesa Companies in
connection with the transactions contemplated by this Agreement. The Mesa
Companies shall submit to Liquids all invoices for legal services so incurred by
the Mesa Companies. All invoices for legal services and charges shall be on a
reasonably detailed line-item form basis. Liquids agrees to promptly pay any
such legal fees and expenses. It is acknowledged that certain of such fees and
expenses will be for services which have benefitted the Shareholder in
connection with the transactions contemplated by this Agreement. Any such legal
fees and expenses shall be deemed to have been incurred by the Mesa Companies
and shall be payable hereunder. This Section 8.4 shall not limit any expenses
which are incurred by the Mesa Companies or the Shareholder in connection with
any matters for which they are indemnified pursuant to this Agreement or in any
Related Document. No amounts payable to Liquids' accountants, attorneys,
underwriters, investment bankers, or other outside consultants (collectively,
"Consultants"), regardless of whether such Consultants perform services in
respect of the Mesa Companies or the Shareholder (including, without limitation,
preparation of financial statements of the Mesa Companies or any registration
statements or portions thereof), shall be included within the expenses deemed to
have been incurred by the Mesa Companies. Liquids shall be solely responsible
for the payment of all fees and expenses of any Consultants engaged by it.
SECTION 9
TERMINATION
9. MUTUAL CONSENT. This Agreement may be terminated by the mutual
consent of the Shareholder and Liquids.
9.2 BY LIQUIDS. This Agreement may be terminated by Liquids if a
material default shall be made by any Mesa Company or the Shareholder in the
observance of or in the due and timely performance by any of them of any of
their respective material agreements and covenants herein contained, or if there
shall have been a material breach by any of them of any of their respective
material warranties and representations herein contained, or if the conditions
of this Agreement to be complied with or performed by any of them at or before
Closing shall not have been complied with or performed on or before August 1,
1997, unless such noncompliance or nonperformance shall have been waived by
Liquids in writing. Notwithstanding the foregoing, if any Mesa Company or the
Shareholder materially defaults in the observance of or in the due and timely
performance of any of the material agreements and covenants herein contained or
materially breaches any of the material warranties and representations herein
contained, and if that material default or breach is curable by such defaulting
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party, then the defaulting party may give notice (the "Notice of Intent to
Cure") to Liquids, making express reference to this Section 9.2 and setting
forth in detail the facts and circumstances of the material default or breach
and further setting forth such defaulting party's intent to cure the same and
describing how the material default or breach will be cured. Within seven (7)
business days of this Notice of Intent to Cure by the defaulting party, Liquids
will give a response notice to such defaulting party (the "Response Notice") as
to whether Liquids consents to the proposed cure of the material default or
breach by such defaulting party; provided, however, that Liquids shall not
unreasonably withhold consent to cure. The failure by Liquids to give a timely
Response Notice shall be deemed to be a consent by Liquids to the proposed cure.
If consent to cure is granted by Liquids, then such defaulting party shall have
ten (10) days following the date of Liquids' Response Notice (or if no Response
Notice is given, then seventeen (17) days from the date of the Notice of Intent
to Cure) to cause the material default or breach to be cured. For purposes of
this Section 9.2, a material default in the observance of or in the due and
timely performance of any of the material agreements and covenants herein
contained is curable only if the defaulting party can cause such material
agreements and covenants to be observed and performed, and so long as such cure
will cause the material default to become immaterial. For purposes of this
Section 9.2, a material default of any of the material warranties and
representations herein contained is curable only if the defaulting party causes
such material warranties and representations to become true and correct, and so
long as the failure of any such material warranties and representations to be
true and correct is rendered immaterial. In the event that any Mesa Company or
the Shareholder materially defaults in the observance of or in the due and
timely performance of any of the material agreements and covenants herein
contained or materially breaches any of the material warranties and
representations herein contained, and if that material default or breach is
curable by such defaulting party, and if such defaulting party does not give
Notice of Intent to Cure to Liquids, as described above, then Liquids shall have
the right to terminate this Agreement, but only after first giving notice of its
intent to terminate to the Shareholder, in which event the defaulting party
shall have the right, for a period of five (5) business days from that notice,
to give to Liquids a Notice of Intent to Cure. Failure by the defaulting party
to give the Notice of Intent to Cure shall be deemed a waiver of that right. If
a Notice of Intent to Cure is given by such defaulting party, then the procedure
described above shall be followed.
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9.3 BY THE SHAREHOLDER. This Agreement may be terminated by the
Shareholder, if a material default shall be made by Liquids or any Newco Company
in the observance of or in the due and timely performance by any of them of any
of their respective material agreements and covenants herein contained, or if
there shall have been a material breach by any of them of any of their
respective warranties and representations, or if the conditions of this
Agreement to be complied with or performed by any of them at or before Closing
shall not have been complied with or performed on or before August 1, 1997,
unless such noncompliance or nonperformance shall have been waived by the
Shareholder in writing. Notwithstanding the foregoing, if Liquids or any Newco
Company materially defaults in the observance of or in the due and timely
performance of any of the material agreements and covenants herein contained or
materially breaches any of the material warranties and representations herein
contained, and if that material default is curable by such defaulting party,
then such defaulting party may give notice (the "Notice of Intent to Cure") to
the Shareholder, making express reference to this Section 9.3 and setting forth
in detail the facts and circumstances of the material default or breach and
further setting forth such defaulting party's intent to cure the same and
describing how the material default or breach will be cured. Within seven (7)
business days of this Notice of Intent to Cure by such defaulting party, the
Shareholder may give a response notice to such defaulting party (the "Response
Notice") as to whether the Shareholder consents to the proposed cure of the
material default or breach by such defaulting party; provided however, that the
Shareholder shall not unreasonably withhold consent to cure. The failure by the
Shareholder to give a timely Response Notice shall be deemed to be a consent by
the Shareholder to the proposed cure. If consent to cure is granted by the
Shareholder, then such defaulting party shall have ten (10) days following the
date of the Shareholder's Response Notice (or if no Response Notice is given,
then seventeen (17) days from the date of the Notice of Intent to Cure) to cause
the material default or breach to be cured. For purposes of this Section 9.3, a
material default in the observance of or in the due and timely performance of
any of the material agreements and covenants herein contained is curable only if
such defaulting party can cause such material agreements and covenants to be
observed and performed, and so long as such cure will cause the material default
to become immaterial. For purposes of Section 9.3, a material default of any of
the material warranties and representations herein contained is curable only if
such defaulting party causes such material warranties and representations to
become true and correct, and so long as the failure of any such material
warranties and representations to be true and correct prior to their cure is
rendered immaterial. In the event that Liquids or any Newco Company materially
defaults in the observance of or in the due and timely performance of any of the
material agreements and covenants herein contained or materially breaches any of
the material warranties and representations herein contained, and if
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that material default or breach is curable by such defaulting party, and if such
defaulting party does not give a Notice of Intent to Cure, as described above,
then the Shareholder shall have the right to terminate this Agreement, but only
after first giving notice of its intent to terminate to Liquids, in which event
such defaulting party shall have the right, for a period of five (5) business
days from that notice, to give to the Shareholder a Notice of Intent to Cure.
Failure by such defaulting party to give the Notice of Intent to Cure shall be
deemed a waiver of that right. If a Notice of Intent to Cure is given by such
defaulting party, then the procedure described above shall be followed.
9.4 TERMINATION BY THE SHAREHOLDER OR LIQUIDS. If the Shareholder
terminates this Agreement pursuant to this Section 9, this Agreement shall be
deemed terminated on behalf of all of the Mesa Companies and the Shareholder.
If Liquids terminates this Agreement pursuant to this Section 9, this Agreement
shall be deemed terminated on behalf of all of the Newco Companies and Liquids.
SECTION 10
INDEMNIFICATION
The Mesa Companies and the Shareholder make the following indemnities, and
where specifically stated, Liquids makes the following indemnities, which shall
not be in limitation of any remedies and rights otherwise available to the
indemnified persons under this Agreement or by law.
10.1 GENERAL INDEMNITY.
(a) (i) Subject to the limitations set forth in Section 10.2,
the Mesa Companies (collectively the "Indemnitor") agree that they will
indemnify and hold harmless the Newco Companies and Liquids and their
respective officers, directors, employees, and agents (the "Indemnitees")
from and against all losses, damages, costs, and expenses relating to any
claims, actions, suits, proceedings, demands, assessments, and adjustments,
including reasonable attorneys' fees and expenses of investigation
(collectively, the "Indemnified Losses"), reasonably incurred by any of the
aforesaid Indemnitees as a result of or incident to any material breach by
any Mesa Company of any representation, warranty, covenant, or agreement
set forth herein or on any schedule, exhibit, or certificate made or
delivered in connection herewith by or on behalf of any Mesa Company (an
"Indemnification Event"). With respect to any Indemnification Event
relating to any environmental matter, the Indemnified Loss shall also
include
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any costs and expenses of analysis, testing, remediation, transportation,
incineration, treatment, or other necessary and appropriate disposition or
mitigation of a hazardous environmental condition.
(ii) Subject to the limitations set forth in Section 10.2, the
Shareholder (the "Indemnitor") agrees that he will indemnify and hold
harmless the Newco Companies and Liquids and their respective officers,
directors, employees, and agents (the "Indemnitees") from and against all
losses, damages, costs, and expenses relating to any claims, actions,
suits, proceedings, demands, assessments, and adjustments, including
reasonable attorneys' fees and expenses of investigation (collectively, the
"Indemnified Losses"), reasonably incurred by any of the aforesaid
Indemnitees as a result of or incident to any material breach by the
Shareholder of any representation, warranty, covenant, or agreement set
forth herein or on any schedule, exhibit, or certificate made or delivered
in connection herewith by or on behalf of the Shareholder (an
"Indemnification Event").
(b) Subject to the limitations set forth in Section 10.2, the
Newco Companies and Liquids (the "Indemnitors") agree that they will
jointly and severally indemnify and hold harmless the Mesa Companies and
the Shareholder and their respective officers, directors, employees, and
agents (the "Indemnitees") from and against all Indemnified Losses,
reasonably incurred by any of the aforesaid Indemnitees as a result of or
incident to any material breach by any Newco Company or Liquids of any
representation, warranty, covenant, or agreement set forth herein or on any
schedule, exhibit, or certificate made or delivered in connection herewith
by or on behalf of Liquids or any Newco Company (an "Indemnification
Event"). With respect to any Indemnification Event relating to an
environmental matter, the Indemnified Loss shall also include any costs and
expenses of analysis, testing, remediation, transportation, incineration,
treatment, or other necessary and appropriate disposition or mitigation of
a hazardous environmental condition.
10.2 LIMITATIONS ON INDEMNITY. An Indemnitee, as described in Section
10.1(a) or (b) above, may seek indemnification from an Indemnitor, described in
that same section above, for any Indemnified Loss resulting from an
Indemnification Event which occurs during the Indemnification Period and in
respect of which a claim is made before the end of the Indemnification Period,
all as provided for as follows:
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(a) INDEMNIFICATION PERIOD. The "Indemnification Period" shall
include all periods of time prior to the Effective Date and shall expire
the earlier of one (1) year from the Closing Date or one (1) year from the
termination of this Agreement; except that, the Indemnification Period
relating to the representations and warranties contained in Section 3.22
shall extend for the applicable statute of limitations period.
(b) INDEMNIFICATION PROCEDURE. If an Indemnitee reasonably
believes that an Indemnification Event has occurred or is existing during
the Indemnification Period with respect to which the Indemnitee would have
a right of indemnification against an Indemnitor, then the Indemnitee may
give notice (the "Indemnification Notice") to each Indemnitor with respect
to whom a claim for Indemnification is being made. The Indemnification
Notice shall describe in reasonable detail the alleged Indemnification
Event, the basis for which the Indemnitee believes that there is an
Indemnification Event, the amount of Indemnified Losses theretofore paid by
the Indemnitee, and an estimate of the total amount of Indemnified Losses
which the Indemnitee believes may be incurred by the Indemnitee with
respect to the Indemnification Event. Any purported Indemnitee who does
not give an Indemnification Notice with respect to an Indemnification Event
during the Indemnification Period shall be deemed to have waived the right
to receive indemnification for that Indemnification Event.
(c) LIMITATIONS ON INDEMNIFIED LOSSES. If an Indemnification
Notice is timely given, then the Indemnified Losses which the Indemnitee
may be entitled to recover hereunder shall include any such Indemnified
Losses incurred by the Indemnitee, whether during or after the
Indemnification Period. However, no indemnification shall be allowed
against the Shareholder, as Indemnitor under Section 10.1(a)(ii) except to
the extent that the total amount of Indemnified Losses payable with respect
to all Indemnification Events under Section 10.1(a)(ii) exceed $100,000 in
the aggregate; provided further, that the amount of Indemnified Losses
which may be recovered against the Shareholder shall not exceed the sum of
the value of the Liquids Stock received by the Shareholder as a result of
the Mergers, with such value to be determined at such time as the
Indemnitee is first entitled to recover any Indemnified Losses. However,
in the event that the Indemnitor has transferred any of such Liquids Stock
in any arm's-length sale, then the value of that transferred Liquids Stock
shall be deemed to be the actual sales price thereof reduced by the amount
of income taxes incurred by the Indemnitor attributable to the sale. For
these purposes, the amount of income taxes which the Indemnitor shall be
deemed to have incurred as a result of any such sale shall be the
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difference between the income taxes which would have been incurred by the
Indemnitor had the sale not occurred less the actual income taxes incurred
by the Indemnitor. Further, no indemnification shall be allowed under
Section 10.1(b) except to the extent that the total amount of Indemnified
Losses payable with respect to all Indemnification Events under Section
10.1(b) exceed $100,000 in the aggregate.
(d) THIRD-PARTY BENEFICIARIES. Any Indemnitee who is not a
signatory party to this Agreement shall nevertheless be deemed to be a
third-party beneficiary of this Agreement for purposes of this Section 10.
(e) DEFENSE OF THIRD-PARTY CLAIMS. In the event any claim,
action, suit, proceeding, demand, assessment, or adjustment is asserted
against any Indemnitee hereunder other than by an Indemnitor (such claim,
action, suit, proceeding, demand, assessment, or adjustment being referred
to herein as a "Third-Party Claim"), then the Indemnitee shall defend the
Third-Party Claim in a diligent, prudent, and good faith manner. The
Indemnitee shall also use reasonable efforts to mitigate, to the extent
reasonably possible under the circumstances, the amount of the Indemnified
Losses with respect to the Third-Party Claim. The Indemnitee shall not
make or agree to make any payments in settlement or compromise of any
Third-Party Claim or consent to the entry of any judgment with respect to
any Third-Party Claim without first giving notice thereof to the
Indemnitor. Nothing contained herein shall prevent the Indemnitor and
Indemnitee from further agreeing as between themselves as to the allocation
between them of the duties, responsibilities, and costs of defense and
settlement of any such Third-Party Claim. At all times, the Indemnitor and
Indemnitee will advise and consult with each other regarding the matters
contained in this Section 10 and shall be under a duty to act cooperatively
and in good faith.
SECTION 11
GENERAL
11.1 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 or 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 party to whom notice is to be given
at the address set forth below or to such other addresses as either party hereto
may designate to the other
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by notice from time to time for this purpose, on the first business day
following actual receipt if notice is given by an overnight express mail
service. All notices and other communications to the Shareholder shall be given
as follows:
The Mesa Companies
and the
Shareholder: Thomas B. Blanton
----------- Mesa Processing, Inc.
3820 N. Grove Street
Fort Worth, Texas 76106
(800) 433-0470
Telecopier No.: (817) 740-1236
WITH A COPY TO:
Gerald J. Reihsen, III
Reihsen & Associates
500 North Akard
Suite 3850
Dallas, Texas 75201
Telecopier No.: (214) 740-3801
Liquids: U S Liquids Inc.
------- 411 N. Sam Houston Parkway East
Suite 400
Houston, Texas 77060
ATTN: W. Gregory Orr, Chief Executive
Officer
(281) 272-4500
Telecopier No.: (281) 272-4545
WITH A COPY TO:
Hartzog Conger & Cason
1600 Bank of Oklahoma Plaza
201 Robert S. Kerr
Oklahoma City, Oklahoma 73112
(405) 235-7000
Attn: Len Cason and John Robertson
Telecopier No.: (405) 235-7329
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<PAGE>
11.2 INTEGRATED AGREEMENT. This Agreement 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, including but not limited to that certain letter, dated
February 14, 1997. There are no agreements, understandings, restrictions,
warranties or representations among the parties relating to the subject matter
hereof other than those set forth or referred to herein. All schedules and
exhibits attached hereto are hereby incorporated herein and made a part of this
Agreement. This instrument is not intended to have any legal effect whatsoever,
or to be a legally binding agreement or any evidence thereof, until it has been
signed by all parties hereto. Any reference to this Agreement shall be deemed
to also refer to the exhibits, schedules, and attachments hereof.
11.3 CONSTRUCTION. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of Texas. In the event any
party hereto institutes any legal action in connection with any matter contained
herein, that legal action shall be instituted in the District Court of Harris
County, Texas, if in state court, and if federal court, then in the federal
district court of Houston, Texas. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine or neuter gender thereof or to the
plurals of each, as the identity of the person or persons or the context may
require. The descriptive headings contained in this Agreement are for reference
purposes only and are not intended to describe, interpret, define or limit the
scope, extent or intent of this Agreement or any provision contained herein.
Any reference to a person shall include any individual or legal entity.
11.4 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 provisions shall be deemed modified so as to constitute a
provision conforming as nearly as possible to such invalid, illegal, void or
unenforceable provisions while still remaining valid and enforceable, and the
remaining terms or provisions contained herein shall not be affected thereby.
11.5 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, successors and assigns.
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11.6 LITIGATION EXPENSE. In any action brought by a party hereto to
enforce the obligations of any other party hereto, the prevailing party shall be
entitled to collect from the other parties to such action such party's
reasonable attorneys' and accountants' fees, court costs and other expenses
incidental to such litigation.
11.7 COUNTERPART EXECUTION. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same instrument.
11.8 AMENDMENT AND WAIVER. This Agreement may be amended at any
time, but only by an instrument in writing executed by both parties hereto.
A party hereto may waive any requirement to be performed by the other party,
provided that such waiver shall be in writing and executed by the party
waiving the requirement.
11.9 TIME OF ESSENCE. Time shall be of the essence with respect
to the performance by the parties hereto of their respective obligations
hereunder.
11.10 NEGATION OF THIRD-PARTY BENEFICIARY. Nothing contained in
this Agreement, expressed or implied, is intended to confer upon any person,
other than the parties hereto and their respective successors and assigns,
any rights or remedies under or by reason of this Agreement, nor is anything
in this Agreement intended to relieve or discharge the obligation or
liability of any third person to any party to this Agreement.
11.11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations, covenants, and warranties contained in this Agreement,
except as otherwise specifically stated, shall survive the Closing Date for a
period of one (1) year.
11.12 KNOWLEDGE DEFINED. For purposes of this Agreement, a
corporation will be deemed to know or have knowledge of any matter if any
executive officer or director of that corporation has actual knowledge of
that matter. Such an executive officer or director will be deemed to have
actual knowledge of any matter if, during the course of that executive
officer's or director's business and affairs, (i) he should have knowledge of
such matter and (ii) it would be highly unlikely that he did not have actual
knowledge of that matter. Each Mesa Company and the Shareholder shall be
deemed to have knowledge of any matter of which any of them has knowledge.
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11.13 WAIVER OF SUBROGATION, ETC. If the Shareholder materially
breaches any representation, warranty, covenant, or other obligation of the
Shareholder set forth in this Agreement, then he waives and agrees that he shall
not have any right of subrogation, indemnity, or similar remedy against Mesa;
provided, however, that this waiver shall not apply if this Agreement is
terminated and the Mesa Companies are not acquired by Liquids.
11.14 JOINT AND SEVERAL AGREEMENTS, REPRESENTATIONS, WARRANTIES,
AND COVENANTS. All agreements, representations, warranties, and covenants made
by any Mesa Company or by all Mesa Companies hereunder shall be deemed to be
made jointly and severally by all Mesa Companies, and all representations,
warranties, covenants made by Liquids or any Newco Company shall be deemed to be
made jointly and severally by Liquids and all Newco Companies.
11.15 SCHEDULES AND EXHIBITS. The parties acknowledge that
certain schedules and exhibits hereto pertaining to the Mesa Companies have been
prepared or assembled with the participation of representatives of Liquids.
Nevertheless, the Shareholder and the Mesa Companies represent and agree that
Liquids shall have no responsibility or liability for any participation in the
preparation of such schedules and exhibits and shall have no responsibility or
accountability therefor.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed below.
U S LIQUIDS INC.
By: /s/ W. Gregory Orr
----------------------------
W. Gregory Orr, Chief
Executive Officer
MESA ACQUISITION CORP.
By: /s/ Earl J. Blackwell
----------------------------
T&T GS ACQUISITION CORP.
By: /s/ Earl J. Blackwell
----------------------------
PHOENIX F&O ACQUISITION CORP.
By: /s/ Earl J. Blackwell
----------------------------
MESA PROCESSING, INC.
By: /s/ Thomas B. Blanton
----------------------------
Thomas B. Blanton, President
T&T GREASE SERVICE, INC.
By: /s/ Thomas B. Blanton
----------------------------
PHOENIX FATS & OILS, INC.
By: /s/ Thomas B. Blanton
----------------------------
SHAREHOLDER:
/s/ Thomas B. Blanton
-------------------------------
Thomas B. Blanton
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION OF
US LIQUIDS INC.
US 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 US Liquids Inc. US Liquids Inc. was
originally incorporated under the same name, 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 Restated Certificate of Incorporation
restates and integrates and further amends the provisions of the Certificate of
Incorporation of the Corporation.
3. This Restated Certificate of Incorporation was duly adopted in
accordance with the provisions of Section 245 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.
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.
<PAGE>
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 50,000,000 $.01
Preferred Stock 10,000,000 $.01
Effective immediately upon the filing of this Certificate of Incorporation,
each outstanding share of previously existing Common Stock shall be and hereby
is converted into and reclassified as one-half (1/2) of a share of Common Stock.
Fractional shares shall not be issued but shall be rounded up or down to the
nearest whole number.
Certificates representing reclassified shares are hereby canceled and, upon
presentation of the canceled certificates to the Corporation, the holders
thereof shall be entitled to receive a certificate or certificates representing
the new shares into which such canceled shares have been converted.
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;
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<PAGE>
(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 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
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<PAGE>
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 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 shares 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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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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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 or officer 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
from time to time; provided,
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<PAGE>
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
or otherwise. No repeal or modification of this Article VIII shall
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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 manner as the said court directs. If a majority in number
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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 US Liquids Inc. has caused this Restated
Certificate of Incorporation to be signed by its President and attested by its
Secretary this _____ day of June, 1997.
US LIQUIDS INC., a Delaware corporation
By: /s/ W. Gregory Orr
-------------------------------
W. Gregory Orr, Chief Executive
Officer
ATTEST:
/s/ Earl J. Blackwell
- ------------------------------
Earl J. Blackwell, Secretary
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<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
U S LIQUIDS INC.
June 16, 1997
ARTICLE I.
OFFICES AND RECORDS
Section 1.1 REGISTERED OFFICE. The registered office of U S Liquids
Inc. (hereinafter referred to as the "Corporation") shall be located at such
place as may be determined from time to time by the Board of Directors of the
Corporation.
Section 1.2 OFFICES. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors deems
proper for the conduct of the Corporation's business.
Section 1.3 BOOKS AND RECORDS. The books and records of the Corporation
may be kept outside the State of Delaware at such place or places as may from
time to time be designated by the Board of Directors.
ARTICLE II.
STOCKHOLDERS
Section 2.1 ANNUAL MEETING. The annual meeting of the stockholders of
the Corporation shall be held within or without the State of Delaware and on
such date and at such time as may be fixed by resolution of the Board of
Directors.
Section 2.2 SPECIAL MEETINGS. Except as otherwise required by law and
subject 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, special
meetings of the stockholders of the Corporation for any purpose or purposes may
be called only by (i) the Board of Directors pursuant to a resolution stating
the purpose or purposes thereof, or (ii) the Chairman of the Board of Directors
of the Corporation.
Section 2.3 PLACE OF MEETING. The Board of Directors or the Chairman of
the Board, as the case may be, may designate the place of meeting for any annual
meeting or for any special meeting of the stockholders. If no designation is so
made, the place of meeting shall be the principal office of the Corporation.
Section 2.4 NOTICE OF MEETINGS. Written or printed notice, stating the
place, date and hour of the meeting and, in the case of
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a special meeting, the purpose or purposes for which the meeting is called,
shall be delivered by the Corporation not less than ten (10) calendar days nor
more than sixty (60) calendar days before the date of the meeting, either
personally or by mail, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail with postage thereon prepaid, addressed to the
stockholder at such person's address as it appears on the stock transfer books
of the Corporation. Such further notice shall be given as required by law.
Only such business shall be conducted at a special meeting of stockholders as
shall have been brought before the meeting pursuant to the Corporation's notice
of meeting. Meetings may be held without notice if all stockholders entitled to
vote are present, or if notice is waived by those not present in accordance with
Section 6.3 of these Bylaws.
Section 2.5 QUORUM AND ADJOURNMENT; VOTING. Except as otherwise
provided by law or by the Certificate of Incorporation, the holders of a
majority of all outstanding shares of the Corporation entitled to vote generally
in the election of directors, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders, except that when specified
business is to be voted on by a class or series of stock voting as a class, the
holders of a majority of the shares of such class or series shall constitute a
quorum of such class or series for the transaction of such business. The
Chairman of the meeting may adjourn the meeting from time to time, whether or
not there is such a quorum. No notice of the time and place of adjourned
meetings need be given except as required by the DGCL. The stockholders present
at a duly called meeting in which a quorum is present may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 2.6 PROXIES. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing (or in such manner prescribed by the General
Corporation Law of the State of Delaware (the "DGCL")) by the stockholder, or by
such person's duly authorized attorney in fact.
Section 2.7 PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE.
Election of directors at all meetings of the stockholders at which directors are
to be elected shall be by ballot and, subject to the rights of the holders of
any class or series of Preferred Stock to elect directors, a plurality of the
votes cast thereat shall elect directors. Except as otherwise provided by law,
the Certificate of Incorporation, any certificate filed pursuant to the DGCL
that provides for the issuance of Preferred Stock (a "Preferred Stock
Designation"), or these Bylaws, in all matters other than the election of
directors, the affirmative vote of a majority of the voting power of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the matters shall be the act of the stockholders.
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Section 2.8 INSPECTORS OF ELECTION; OPENING AND CLOSING THE POLLS. The
Board of Directors by resolution may appoint, or may authorize an officer of the
Corporation to appoint, one or more inspectors, which inspector or inspectors
may include individuals who serve the Corporation in other capacities including,
without limitation, as officers, employees, agents or representatives, to act at
the meetings of stockholders and make a written report thereof. One or more
persons may be designated as alternate inspector(s) to replace any inspector who
fails to act. Each inspector, before discharging such person's duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of such person's ability. The
inspector(s) shall have the duties prescribed by law. The Chairman of the
meeting shall fix and announce at the meeting the date and time of the opening
and closing of the poll for each matter upon which the stockholders will vote at
a meeting.
Section 2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT. Any action required
to be taken at any annual or special meeting of stockholders of the Corporation,
or any action which may be taken at any annual or special meeting of such
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the actions so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes which would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted and shall be delivered to the Corporation by deliver to its registered
office in the State of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to each stockholder who did not consent thereto in writing. Any such
notice shall be deemed to have been given promptly if such notice is delivered
or mailed within ten (10) days of the taking of such action to each such
shareholder in the manner provided in Section 2.4.
ARTICLE III
DIRECTORS
Section 3.1 GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board of Directors may exercise all such powers of the Corporation and
do all such lawful acts and things as are not by statute or by the Certificate
of Incorporation or by these Bylaws required to be exercised or done by the
stockholders.
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Section 3.2 NUMBER AND TENURE. Except as otherwise fixed by or pursuant
to the provisions of Article IV of the Certificate of Incorporation 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, 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 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 3.3 REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such times as may be determined by the Board of
Directors. No notice shall be required for any regular meeting.
Section 3.4 SPECIAL MEETINGS. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board or the
President or a majority of the Board of Directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
the time and place of the meetings. Notice of any special meeting of directors
shall be given to each director at such person's business or residence in
writing by hand delivery, first-class or overnight mail or courier service,
telegram or facsimile transmission, or orally by telephone. If mailed by
first-class mail, such notice shall be deemed adequately delivered when
deposited in the United States mails so addressed, with postage thereon paid, at
least five (5) calendar days before such meeting. If by telegram, overnight
mail or courier service, such notice shall be deemed adequately delivered when
the telegram is delivered to the telegraph company or the notice is delivered to
the overnight mail or courier service company at least forty-eight (48) hours
before such meeting. If by facsimile transmission, such notice shall be deemed
adequately delivered when the notice is transmitted at least twenty-four (24)
hours before such meeting. If by telephone or hand-delivery, the
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notice shall be given at least twenty-four (24) hours prior to the time set for
the meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice of such meeting. A meeting may be held at any time without notice if all
of the directors are present or if those not present waive notice of the meeting
either before or after such meeting.
Section 3.5 ACTION WITHOUT MEETING. Any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board of Directors or of
such committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of the Board of Directors or of such
committee.
Section 3.6 QUORUM. Subject to Section 3.7, a majority of the total
number of directors shall constitute a quorum for the transaction of business,
but if at any meeting of the Board of Directors there shall be less than a
quorum present, a majority of the directors present may adjourn the meeting from
time to time without further notice. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors. The directors present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
directors to leave less than a quorum.
Section 3.7 VACANCIES. Except as otherwise provided for or fixed by or
pursuant to the provisions of Article IV of the Certificate of Incorporation
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. 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 3.8 MEETING BY TELEPHONE. Members of the Board of Directors or
of any committee thereof may participate in a meeting of the Board of Directors
or of such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each
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other. Such participation shall constitute presence in person at such meeting.
Section 3.9 COMPENSATION. Directors shall receive such fees and expense
reimbursements for their services as directors or as members of committees as
set by the Board of Directors. Nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
Section 3.10 REMOVAL. 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.
Section 3.11 EXECUTIVE AND OTHER COMMITTEES.
(a) The Board of Directors may, by resolution adopted by the Board,
designate an Executive Committee to exercise, subject to applicable provisions
of law, all the powers of the Board in the management of the business and
affairs of the Corporation when the Board is not in session including, without
limitation, the power to declare dividends, to authorize the issuance of the
Corporation's capital stock and to adopt a certificate of ownership and merger
pursuant to Section 253 of the DGCL, and may, by resolution similarly adopted,
designate one or more other committees. The Executive Committee and each such
other committee shall consist of two or more directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Any such committee, other than the Executive Committee (the powers
of which are expressly provided for herein), may to the extent permitted by law
exercise such powers and shall have such responsibilities as shall be specified
in the designating resolution. In the absence or disqualification of any member
of such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not constituting a quorum,
may unanimously appoint another member of the Board to act at the meeting in
place of any such absent or disqualified member. Each committee shall keep
written minutes of its proceedings and shall report such proceedings to the
Board when required.
(b) A majority of any committee may determine its action and fix the time
and place of its meetings, unless the Board shall otherwise provide. Notice of
such meetings shall be given to each member of the Committee in the manner
provided for in Section 3.4 of these Bylaws. The Board shall have the power at
any time to fill vacancies in, to change the membership of, or to dissolve any
such committee. Nothing herein shall be deemed to prevent the Board from
appointing one or more committees consisting in whole or
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in part of persons who are not directors of the Corporation; provided, however,
that no such committee shall have or may exercise any authority of the Board.
ARTICLE IV
OFFICERS
Section 4.1 ELECTED OFFICERS. The elected officers of the Corporation
shall be a Chairman of the Board of Directors, a President, a Secretary and such
other officers as the Board of Directors from time to time may deem proper. The
Chairman of the Board shall be chosen from among the directors. All officers
elected by the Board of Directors shall each have such powers and duties as
generally pertain to their respective offices subject to the specific provisions
of this Article IV. Such officers shall also have such powers and duties as
from time to time may be conferred by the Board of Directors or by any committee
thereof. The Board or any committee thereof may from time to time elect such
other officers as may be necessary or desirable for the conduct of the business
of the Corporation. Such other officers and agents shall have such duties and
shall hold their offices for such terms as shall be provided in these Bylaws or
as may be prescribed by the Board or such committee.
Section 4.2 ELECTION AND TERM OF OFFICE. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after the annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Each officer
shall hold office until such person's successor shall have been duly elected and
shall have qualified or until such person's death or until he or she shall
resign or be removed pursuant to Section 4.7.
Section 4.3 CHAIRMAN OF THE BOARD; CHIEF EXECUTIVE OFFICER. The
Chairman of the Board shall preside at all meetings of the stockholders and of
the Board of Directors and shall be the Chief Executive Officer of the
Corporation. The Chairman of the Board shall be responsible for the general
management of the affairs of the Corporation and shall perform all duties
incidental to such person's office which may be required by law and all such
other duties as are properly required of him or her by the Board of Directors.
The Chairman of the Board shall make reports to the Board of Directors and the
stockholders, and shall see that all orders and resolutions of the Board of
Directors and of any committee thereof are carried into effect. The Chairman of
the Board may also serve as President, if so elected by the Board.
Section 4.4 PRESIDENT. The President shall act in a general executive
capacity and shall assist the Chairman of the Board in the administration and
operation of the Corporation's
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business and general supervision of its policies and affairs. The President, if
he or she is also a director, shall, in the absence of or because of the
inability to act of the Chairman of the Board, perform all duties of the
Chairman of the Board and preside at all meetings of the stockholders and of the
Board of Directors.
Section 4.5 VICE PRESIDENTS. Each Vice President shall have such powers
and shall perform such duties as shall be assigned to him or her by the Board of
Directors.
Section 4.6 SECRETARY. The Secretary shall attend meetings of the Board
of Directors and stockholders and record votes and minutes of such proceedings,
subject to the direction of the Chairman of the Board; assist in issuing calls
for meetings of stockholders and directors; keep the seal of the Corporation and
affix it to such instruments as may be required from time to time; attest the
Corporation's execution of instruments when requested and appropriate; make such
reports to the Board of Directors as are properly requested; and perform such
other duties incident to the office of Secretary and those that may be otherwise
assigned to the Secretary from time to time by the President or the Chairman of
the Board of Directors.
Section 4.7 REMOVAL. Except as otherwise provided in an employment
agreement approved by the Board of Directors, any officer or agent of the
Corporation may be removed by the Board of Directors whenever, in their
judgment, the best interests of the Corporation would be served thereby.
Notwithstanding anything to the contrary herein, no elected officer shall have
any contractual rights against the Corporation for compensation by virtue of
such election beyond the date of the election of such person's successor, such
person's death, such person's resignation or such person's removal, whichever
event shall first occur, except as otherwise provided in an employment contract
or under an employee deferred compensation plan.
Section 4.8 VACANCIES. A newly created elected office and a vacancy in
any elected office because of death, resignation or removal may be filled by the
Board of Directors for the unexpired portion of the term at any meeting of the
Board of Directors.
ARTICLE V
CERTIFICATES OF STOCK,
TRANSFERS OF STOCK AND
REGISTERED STOCKHOLDERS
Section 5.1 STOCK CERTIFICATES. The interest of each holder of stock of
the Corporation shall be evidenced by a certificate or certificates signed by or
in the name of the Corporation by the Chairman of the Board of Directors, or the
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President or a Vice President, and by the Treasurer or an Assistant Treasurer,
or the Secretary or an Assistant Secretary of the Corporation certifying the
number of shares owned by the holder thereof in the Corporation. Any of or all
of the signatures on the certificate may be a facsimile. If any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, the certificate may be issued by
the Corporation with the same effect as if he/she were such officer, transfer
agent or registrar at the date of issuance.
Section 5.2 CLASSES/SERIES OF STOCK. The Corporation may issue one or
more classes of stock or one or more series of stock within any class thereof,
as stated and expressed in the Certificate of Incorporation or of any amendment
thereto, any or all of which classes may be stock with par value or stock
without par value. 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 shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock, provided that, in accordance with the DGCL, in lieu of the
foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests 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.
Section 5.3 TRANSFER OF STOCK. Subject to the transfer restrictions
permitted by Section 202 of the DGCL and to stop transfer orders directed in
good faith by the Corporation to any transfer agent to prevent possible
violations of federal or state securities laws, rules or regulations, the shares
of stock of the Corporation shall be transferrable upon its books by the holders
thereof in person or by their duly authorized attorneys or legal
representatives, and upon such transfer the old certificates shall be
surrendered to the Corporation by the delivery thereof to the person in charge
of the stock and transfer books and ledgers, or to such other persons as the
directors may designate, by whom they shall be canceled, and new certificates
shall be issued. A record shall be made of each transfer and, whenever a
transfer shall be made for collateral security, and not absolutely, it shall be
so expressed in the entry of the transfer.
Section 5.4 LOST, STOLEN, DESTROYED, OR MUTILATED CERTIFICATES. No
certificate for shares of stock in the Corporation shall be issued in place of
any certificate alleged to
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have been lost, destroyed or stolen, except on production of such evidence of
such loss, destruction or theft and on delivery to the Corporation of a bond of
indemnity in such amount, upon such terms and secured by such surety, as the
Board of Directors or any financial officer may in its or such person's
discretion require.
ARTICLE VI
MISCELLANEOUS
Section 6.1 FISCAL YEAR. The fiscal year of the Corporation shall be
determined by resolution of the Board of Directors.
Section 6.2 DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and the Certificate of
Incorporation.
Section 6.3 WAIVER OF NOTICE. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the DGCL or these Bylaws, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Neither the
business to be transacted at, nor the purpose of, any annual or special meeting
of the stockholders or the Board of Directors or committee thereof need be
specified in any waiver of notice of such meeting.
Section 6.4 RESIGNATIONS. Any director or any officer may resign at any
time by giving written notice of such resignation to the Chairman of the Board,
the President or the Secretary, and any such resignation shall be deemed to be
effective as of the close of business on the date said notice is received by the
Chairman of the Board, the President or the Secretary, or at such later time as
is specified therein. No formal action shall be required of the Board of
Directors or the stockholders to make any such resignation effective.
Section 6.5 SEVERABILITY. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability of the
remaining provisions hereof.
ARTICLE VII
CONTRACTS, PROXIES, ETC.
Section 7.1 CONTRACTS. Except as otherwise required by law, the
Certificate of Incorporation, a Preferred Stock Designation or these Bylaws, any
contracts or other instruments may be executed and delivered in the name and on
the behalf of the
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Corporation by such officer or officers of the Corporation as the Board of
Directors may from time to time direct. Such authority may be general or
confined to specified instances as the Board may determine. The Chairman of the
Board, the President or any Vice President may execute bonds, contracts, deeds,
leases and other instruments to be made or executed for or on behalf of the
Corporation.
Section 7.2 PROXIES. Unless otherwise provided by resolution adopted by
the Board of Directors, the Chairman of the Board, the President or any Vice
President may from time to time appoint an attorney or attorneys or agent or
agents of the Corporation, in the name and on behalf of the Corporation, to cast
the votes which the Corporation may be entitled to cast as the holder of stock
or other securities in any other corporation, any of whose stock or other
securities may be held by the Corporation, at meetings of the holders of the
stock or other securities of such other corporation, or to consent in writing,
in the name of the Corporation as such holder, to any action by such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause to
be executed in the name and on behalf of the Corporation and under its corporate
seal or otherwise, all such written proxies or other instruments as he or she
may deem necessary or proper in the premises.
ARTICLE VIII
AMENDMENT OF BYLAWS
The Bylaws may be made, altered or repealed or new Bylaws may be adopted by
the stockholders or by the Board of Directors.
APPROVAL OF DIRECTORS
The foregoing Amended and Restated Bylaws were adopted by the directors of
U S Liquids Inc. on the 16th day of June, 1997, and completely amend and
restate all existing bylaws of the Corporation.
/s/ W. Gregory Orr
-------------------------------------
W. Gregory Orr, Chairman of the Board
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PROMISSORY NOTE
$27,800,000.00 December 13, 1996
Houston, Texas
FOR VALUE RECEIVED, US Liquids Inc., a Delaware corporation
(hereinafter called "Maker"), promises and agrees to pay to the order of
Sanifill, Inc., a Delaware corporation, or any assignee thereof (together
with any such assignee, hereinafter called "Payee"), in lawful money of the
United States of America, the principal sum of TWENTY-SEVEN MILLION EIGHT
HUNDRED THOUSAND AND NO/100 DOLLARS ($27,800,000.00), together with interest
on the unpaid principal balance from time to time outstanding from and after
the date hereof until maturity at the rate of 7.5% per annum, compounded
quarterly and computed on the basis of a 360-day year consisting of twelve
30-day months, and in accordance with the terms and conditions of the Note
Purchase Agreement dated of even date herewith.
The principal and accrued interest shall be due and payable in
twenty (20) equal quarterly installments of principal plus accrued interest,
beginning March 31, 1997 and on the last day of each and every third
consecutive calendar month thereafter and at maturity; PROVIDED, HOWEVER,
that Maker shall have the right to make a prepayment (i) on or before
December 31, 1996 in an amount equal to one quarterly installment in
substitution of the first quarterly installment that otherwise would be due
and (ii) on or before January 31, 1997 in an amount equal to up to three
additional quarterly installments in substitution of the next three quarterly
installments that otherwise would be due; PROVIDED, FURTHER, that if the
principal of this Note is prepaid in whole or in part in accordance with the
foregoing, all accrued and unpaid interest with respect to such principal
amount prepaid is due and payable on the date of such prepayment; PROVIDED,
FURTHER, that the Maker shall have no right to make any prepayments other
than in accordance with the foregoing; and PROVIDED, FURTHER, that in the
event that the volume of nonhazardous oilfield waste accepted by Maker for
disposal in any full calendar year hereafter is less than 2,000,000 barrels,
Maker shall have the right to reduce its quarterly payment of principal (but
not interest) for the subsequent calendar year by up to 50% upon written
notice to Payee not more than 30 days after the last day of the calendar year
in which such volume is less than 2,000,000 barrels. In such event, the
final maturity of this Note shall be extended for such number of quarters as
shall be necessary to permit payment of the deferred principal amount in
quarterly payments equal to the amount of the original quarterly principal
installments. If any amount owing under this Note is due and payable on a
day that is not a business day, such payment shall instead be due and payable
on the next succeeding business day. All past due principal and interest on
this Note shall bear interest at a rate equal to the lesser of (i) 9.5% or
(ii) the maximum rate permitted by applicable law (the "Highest Lawful
Rate"). All payments under this Note shall be applied first to accrued
interest and the balance to principal.
For purposes of this Note, an "Event of Default" shall occur
whenever an Event of Default shall occur under the Note Purchase Agreement.
<PAGE>
$27,800,000.00 Houston, Texas December 13, 1996
Maker and any and all endorsers, guarantors and sureties severally
waive grace, demand, presentment for payment, notice of dishonor or default,
notice of intent to accelerate, notice of acceleration, protest and notice of
protest and diligence in collecting and bringing of suit against any party
hereto, and agree to all renewals, extensions or partial payments hereon and
to any release or substitution of security herefor, in whole or in part, with
or without notice, before or after maturity.
Notwithstanding anything in the second paragraph of this Note to the
contrary, if at any time the interest rate provided for herein exceeds the
Highest Lawful Rate, the rate of interest to accrue on this Note shall be
limited to the Highest Lawful Rate. If the holder of this Note shall receive
any unearned interest or discount or shall receive monies that are deemed to
constitute interest in excess of the Highest Lawful Rate, then such unearned
interest paid by Maker in excess of the Highest Lawful Rate shall, at the
option of the holder of the Note, be either refunded to Maker or credited to
the outstanding principal balance of the Note. It is further agreed that,
without limitation of the foregoing and to the extent permitted by applicable
law, all calculations of the rate of interest or discount contracted for,
charged or received by the holder of this Note that are made for the purpose
of determining whether such rate exceeds the Highest Lawful Rate, shall be
made, to the extent permitted by usury laws applicable to such holder (now or
hereafter enacted), by amortizing, prorating and spreading in equal parts
during the full stated term of this Note all interest at any time contracted
for, charged or received by such holder in connection therewith.
THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK AND APPLICABLE FEDERAL LAW.
US LIQUIDS INC.
By: /s/ W. Gregory Orr
--------------------------
W. Gregory Orr
President
-2-
<PAGE>
US LIQUIDS INC.
71 Quiet Oak Circle
The Woodlands, Texas 77381
NOTE AGREEMENT
December 13, 1996
Sanifill, Inc.
(herein called "Sanifill")
Each Sanifill Affiliate (as hereinafter defined)
which becomes bound by certain provisions
of this Agreement as hereinafter provided
(together with Sanifill, the "Holders")
c/o Sanifill, Inc.
2777 Allen Parkway, Suite 700
Riviana Building
Houston, Texas 77019
Ladies and Gentlemen:
1. GENERAL PROVISIONS. Under an Asset Purchase Agreement dated
December 2, 1996 (the "Acquisition Agreement"), among US Liquids Inc., a
Delaware corporation (the "Company"), Sanifill, Campbell Wells, L.P., a
Delaware limited partnership ("CW"), and Campbell Wells NORM, L.P. ("CWN"),
both of which are Affiliates of Sanifill, the Company is this date purchasing
(or designating under Section 11.04 of the Acquisition Agreement that there
be transferred to an Affiliate of the Company) substantially all of the
assets of each of CW and CWN in exchange for (i) a Promissory Note of the
Holder dated the date of this Agreement, payable to the order of Sanifill in
the original principal amount of $27,800,000 (the "Note" or "Notes"), (ii) a
Warrant for the purchase of 2,000,000 shares of Common Stock, $.01 par value
per share, of the Company, and (iii) the assumption by the Company of certain
designated liabilities of each of CW and CWN.
This Note Agreement (this "Agreement") is the "Note Purchase
Agreement" referred to in Section 8.02(c) of the Acquisition Agreement, and
sets forth certain agreements made by the Company to induce Sanifill to
accept the Note as partial consideration for the assets of CW and CWN being
sold to the Company under the Acquisition Agreement.
With respect to the Note, the Company and Sanifill agree as follows:
2. [INTENTIONALLY DELETED]
3. CONDITIONS OF CLOSING. The obligation of Sanifill to accept the Note
is subject to the satisfaction of the following conditions on or before the
Closing Date:
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3A. OPINION OF COMPANY'S COUNSEL. Sanifill shall have received from
counsel for the Company, who shall be acceptable to Sanifill, a favorable
opinion reasonably satisfactory to Sanifill and substantially in the form of
EXHIBIT A attached hereto.
3B. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The representations
and warranties in paragraph 8 shall be true in all material respects on and as
of such Closing Date, except to the extent of changes caused by the transactions
herein contemplated; no Event of Default or Default shall exist on the Closing
Date; and the Company shall have delivered to Sanifill an Officer's Certificate,
dated the Closing Date, to both such effects.
3C. EXECUTION PERMITTED BY APPLICABLE LAWS. The execution and
delivery of the Note to Sanifill on the terms and conditions herein provided
shall not violate any applicable law or governmental regulation (including,
without limitation, Section 5 of the Securities Act or Regulation G, T or X of
the Board of Governors of the Federal Reserve System) and shall not subject any
Holder to any tax (other than any tax on income earned), penalty, liability or
other onerous condition under or pursuant to any applicable law or governmental
regulation.
3D. PROCEEDINGS. All corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby and all related
documents shall be reasonably satisfactory in substance and form to Sanifill,
and Sanifill shall have received such counterpart originals or certified or
other copies of such documents as Sanifill may reasonably request. In this
connection, the Company shall deliver to Sanifill:
(i) copies of its certificate of incorporation (certified as of a
recent date by the Secretary of the State of Delaware) and its by-laws
(certified by its Secretary) as in effect on the date of Closing;
(ii) copies (certified by its Secretary) of all corporate action taken
by the Company to authorize the signing, delivery and performance of this
Agreement, and the Note; and
(iii) certificates of incumbency and specimen signatures of the
Company's officers authorized to sign and deliver this Agreement and the
Note.
3E. CERTIFICATE OF GOOD STANDING. Sanifill shall have received a
certificate of existence and a certificate of good standing for the Company
issued by the Secretary of State of Delaware or other certificates of
qualification to do business as a foreign corporation in each other state in
which the Company is required by law to be qualified to do business, each, dated
as of a date not more than twenty days prior to Closing.
3F. [INTENTIONALLY DELETED]
3G. [INTENTIONALLY DELETED]
3H. [INTENTIONALLY DELETED]
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3I. GUARANTY AGREEMENT. You shall have received a signed counterpart
of the Guaranty Agreement from each Subsidiary (other than a Subsidiary
organized under the law of any jurisdiction other than any of the United States
or any of its territories).
3J. [INTENTIONALLY DELETED]
4. PREPAYMENTS.
Until the Notes have been paid in full, the principal and accrued
interest shall be due and payable in accordance with the terms and conditions
provided for in the Note.
5. AFFIRMATIVE COVENANTS. So long as any Note is outstanding and unpaid,
the Company covenants as follows:
5A. REPORTING REQUIREMENTS.
5A(1) GENERAL INFORMATION. The Company covenants that it will
deliver to each Significant Holder:
(i) as soon as practicable and in any event within 50 days after the
end of each quarterly period (other than the fourth quarterly period) in
each fiscal year,
(1) Consolidated statements of income, stockholders' equity and
cash flows for the period from the beginning of the current fiscal
year to the end of such quarterly period, and
(2) a Consolidated balance sheet as at the end of such quarterly
period,
setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year, all in reasonable detail
and certified by an authorized financial officer of the Company as fairly
presenting, in all material respects, the financial condition of the
Company and its Consolidated Subsidiaries as of the end of such period and
the results of their operations for the period then ended in accordance
with generally accepted accounting principles, subject to changes resulting
from normal year-end adjustments and the exclusion of footnote disclosures
required by generally accepted accounting principles;
(ii) as soon as practicable and in any event within 100 days after the
end of eachfiscal year,
(1) Consolidated statements of income, stockholders' equity and
cash flows for such year, and
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(2) a Consolidated balance sheet as at the end of such year,
setting forth in each case in comparative form corresponding Consolidated
figures from the preceding annual audit, all in reasonable detail and
reported on by independent public accountants of recognized standing
selected by the Company whose report shall be without limitation as to the
scope of the audit;
(iii) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its public stockholders and copies of all registration statements
(without exhibits) and all reports which it files with the Securities and
Exchange Commission (or any governmental body or agency succeeding to the
functions of the Securities and Exchange Commission), other than reports
pursuant to Section 16(a) of the Exchange Act, registration statements on
Form S-8, annual reports on Form 11-K and registration statements on any
equity securities pursuant to any "shelf" registration under the Securities
Act which does not involve an underwritten public offering;
(iv) promptly upon receipt thereof, a copy of each other report
(including, without limitation, management letters) submitted to the
Company or any Subsidiary by independent accountants in connection with any
annual, interim or special audit made by them of the books of the Company
or any Subsidiary;
(v) promptly upon receipt thereof, a copy of each report, survey,
study, evaluation, assessment or other document prepared by any consultant,
engineer, Environmental Authority or other Person relating to compliance by
the Company or any Subsidiary with any Environmental Requirements; and
(vi) with reasonable promptness, such other financial data as a
Significant Holder may reasonably request;
5A(2) QUARTERLY OFFICER'S CERTIFICATES. Together with each
delivery of financial statements required by clauses 5A(i) and (ii) above, the
Company will deliver to each Significant Holder an Officer's Certificate
demonstrating (with computations in reasonable detail) compliance with the
provisions of paragraphs 6A, 6B, 6C(2) and 6D and stating that there exists no
Event of Default or Default, or, if any Event of Default or Default exists,
specifying the nature and period of existence thereof and what action the
Company has taken, is taking or proposes to take with respect thereto;
5A(3) ANNUAL ACCOUNTANT'S LETTER. Together with each delivery
of financial statements required by clause 5A(ii) above, the Company will
deliver to each Significant Holder a certificate of the independent public
accountants giving the report on such financial statements stating that, in
making the audit necessary for their report, they have obtained no knowledge
of any Event of Default or Default, or, if they have obtained knowledge of
any Event of Default or Default, specifying the nature and period of
existence thereof. The accountants, however, shall not be liable to anyone
as a result of this provision by reason of their failure to obtain knowledge
of any Event of Default or
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<PAGE>
Default which would not be disclosed in the course of an audit conducted in
accordance with generally accepted auditing standards;
5A(4) SPECIAL INFORMATION. The Company also covenants that within
10 Business Days after any Responsible Officer obtains knowledge of:
(a) an Event of Default or Default;
(b) a material adverse change in the financial condition, business or
operations of the Company and its Subsidiaries, taken as a whole;
(c) legal proceedings filed against the Company and/or any
Subsidiary, which, if determined adversely, reasonably could be expected to
have a material adverse effect on the financial condition, business or
operations of the Company and its Subsidiaries, taken as a whole;
(d) a default under any agreement or note evidencing Debt for which
the Company or any Subsidiary is liable, which individually or in the
aggregate with all other agreements and notes in default for which the
Company or any Subsidiary is liable, exceed $1,000,000;
(e) any (i) Environmental Liabilities, (ii) pending, threatened or
anticipated Environmental Proceedings, (iii) Environmental Notices, (iv)
Environmental Judgments and Orders, or (v) Environmental Releases at, on,
in, under or in any way affecting the Properties, which, in any such case,
reasonably could be expected to have a material adverse effect on the
business, operations or financial condition of the Company and its
Subsidiaries, taken as a whole; or
(f) with respect to any Plan that is subject to the funding
requirements of Section 302 of ERISA or Section 412 of the Code, the
Company (i) having given or being required to give notice to the Pension
Benefit Guaranty Corporation that a material reportable event has occurred
with respect to such Plan, (ii) having delivered notice to the Pension
Benefit Guaranty Corporation of any intent to withdraw from or terminate
any such Plan, or (iii) having failed to make timely a contribution to any
such Plan;
the Company will deliver to Sanifill an Officer's Certificate specifying the
nature and period of existence thereof and what action the Company or the
Subsidiary has taken, is taking or proposes to take with respect thereto.
5B. INFORMATION REQUIRED BY RULE 144A. The Company covenants that it
will, upon the request of the holder of the Note that certifies to the Company
that such holder intends to transfer the Note, provide such holder, and any
qualified institutional buyer designated by such holder, such financial and
other information as such holder may reasonably determine to be necessary in
order to permit compliance with the information requirements of Rule 144A under
the Securities Act in connection with the resale of any interest in the Note,
except at such times as the Company is subject
5
<PAGE>
to the reporting requirements of section 13 or 15(d) of the Exchange Act.
For the purpose of this paragraph 5B, the term "QUALIFIED INSTITUTIONAL
BUYER" shall have the meaning specified in Rule 144A under the Securities Act.
5C. INSPECTION OF PROPERTY. The Company covenants that, at such
reasonable times and as often as Sanifill may reasonably request, it will permit
any Person designated by Sanifill in writing, at Sanifill's expense upon
reasonable notice and without materially disrupting the operations of the
Company and any Subsidiary, to:
(i) visit and inspect any of the Properties;
(ii) examine the corporate books and financial records of the
Company and its Subsidiaries and make copies thereof or extracts therefrom;
and
(iii) discuss the affairs, finances and accounts of any of such
corporations with the principal officers of the Company or any Subsidiary
and independent public accountants to the Company.
5D. MAINTENANCE OF INSURANCE. The Company covenants that it and each
Subsidiary will maintain, with responsible insurers, insurance with respect to
its properties and business against such casualties and contingencies
(including, but not limited to, public liability, larceny, embezzlement or other
criminal misappropriation) and in such amounts as is customary in the case of
similarly situated corporations engaged in the same or similar businesses.
5E. MAINTENANCE OF CORPORATE EXISTENCE/COMPLIANCE WITH
LAW/PRESERVATION OF PROPERTY. The Company covenants that, except as permitted
under paragraph 6C(3) and 6D, it and each Subsidiary will:
(i) preserve, renew and keep in full force and effect the corporate
existence and qualification to do business of the Company and its
Subsidiaries (other than those Subsidiaries not material to the financial
condition, business or operations of the Company and its Subsidiaries taken
as a whole);
(ii) comply with all laws and regulations (including, without
limitation, laws and regulations relating to equal employment opportunity
and employee safety) applicable to it and any Subsidiary except where the
failure to comply could not reasonably be expected to have a material
adverse effect on the business, operations or financial condition of the
Company and its Subsidiaries, taken as a whole;
(iii) maintain, preserve and protect all material intellectual
property of the Company and its Subsidiaries; and
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<PAGE>
(iv) preserve all the remainder of its property used or useful in
the conduct of its business and keep the same in good repair, working order
and condition excluding normal wear and tear and damage related to force
majeure.
5F. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Company and each
Subsidiary will comply in a timely fashion with, or operate pursuant to valid
waivers of the provisions of, all applicable Environmental Requirements,
including, without limitation, all applicable regulations of the Environmental
Protection Agency or other relevant federal, state or local governmental
authority, where the failure to comply reasonably could be expected to have a
material adverse effect on the business, operations or financial condition of
the Company and its Subsidiaries taken as a whole. THE COMPANY AGREES TO
INDEMNIFY AND HOLD SANIFILL, SANIFILL'S OFFICERS, AGENTS AND EMPLOYEES HARMLESS
FROM ANY LOSS, LIABILITY, CLAIM OR EXPENSE THAT ANY OF THEM MAY INCUR OR SUFFER
AS A RESULT OF A BREACH BY THE COMPANY OR ANY SUBSIDIARY, AS THE CASE MAY BE, OF
THIS COVENANT OTHER THAN AS A RESULT OF THE GROSS NEGLIGENCE OR WILFUL
MISCONDUCT OF SUCH PERSON. The Company shall not be deemed to have breached or
violated this paragraph 5F if the Company or any Subsidiary is challenging in
good faith by appropriate proceedings diligently pursued the application or
enforcement of such Environmental Requirements for which adequate reserves have
been established in accordance with generally accepted accounting principles.
5G. NO INTEGRATION. The Company covenants that it has taken and will
take all necessary action so that the issuance of the Note does not and will not
require registration under the Securities Act. The Company covenants that no
future offer and sale of debt securities of the Company of any class will be
made if there is a reasonable possibility that such offer and sale would, under
the doctrine of "integration", subject the issuance of the Note to you to the
registration requirements of the Securities Act.
5H. FINANCIAL RECORDS. The Company will, and will cause each
Subsidiary to, keep proper books of record and account in which full and correct
entries (subject to normal year end adjustments and, as to interim statements,
the absence of footnotes) will be made of the business and affairs of the
Company or such Subsidiary under generally accepted accounting principles
consistently applied (except for changes disclosed in the financial statements
furnished to you pursuant to paragraph 5A and concurred in by the independent
public accountants referred to in paragraph 5A).
5I. ADDITIONAL GUARANTY AGREEMENTS.
(i) The Company covenants that if any Person (other than a Person
organized under the law of any jurisdiction other than any of the United States
or its territories) becomes a Subsidiary after the date hereof, it will cause
that Person to sign a counterpart original supplement of the Guaranty Agreement
and deliver the original counterpart supplement of such agreement to you within
30 days after it has become a Subsidiary.
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(ii) Sanifill agrees that in the case of:
(A) a sale, transfer or other disposition (whether in a single
transaction or a series of related transactions and whether by merger,
consolidation or otherwise) permitted by this Agreement of all of the
issued and outstanding capital stock of any Subsidiary to any Person that
is not, at the time of such sale, transfer or other disposition, the
Company or a Subsidiary;
(B) the dissolution of any Subsidiary permitted by this Agreement; or
(C) the release of any Subsidiary from all guarantees of Debt of the
Company;
then automatically and without further action upon an event described in
clause (A) or (B) above and at the written request of the Company upon an
event described in clause (C) above:
(1) the Guaranty Agreement of such Subsidiary (each such
Subsidiary a "RELEASED SUBSIDIARY") shall be deemed terminated and of
no further force and effect; and
(2) no holder of any Notes shall have any claim against such
Released Subsidiary under such Guaranty Agreement.
(iii) Sanifill agrees, at the expense of the Company, to execute
and deliver to the Company, for the benefit of any Person, a written
release, disclaimer, termination or quitclaim, and such other release
documents as the Company may reasonably request to evidence such
termination.
6. NEGATIVE COVENANTS. So long as any Note is outstanding and unpaid,
unless the Required Holders otherwise agree in writing, the Company covenants as
follows:
6A. NET WORTH, INTEREST COVERAGE, FIXED CHARGE COVERAGE, SENIOR
OBLIGATIONS AND DEBT LIMITS. The Company covenants that it will not at any time
permit:
(i) Consolidated Net Worth to be less than $100,000, plus 100% of the
value of any consideration received in connection with the issuance of any
capital stock by the Company after execution of the Agreement, plus 100% of
any other capital contributions or paid in equity received after execution
of the Agreement, plus 50% of cumulative Consolidated Net Earnings from
January 1,1997 to the most recently completed fiscal quarter (ignoring each
fiscal quarter in which there was a Consolidated Net Loss during such
period);
(ii) Consolidated Earnings before Interest and Taxes to be less than
200% of Consolidated Interest Charges, net of interest income;
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<PAGE>
(iii) Consolidated EBITDA to be less than (i) 75% of Consolidated
Fixed Charges during the first twelve months following the execution of
this Agreement and (ii) 100% of consolidated Fixed charges thereafter.
(iv) Consolidated Debt less Consolidated cash to exceed 400% of
Consolidated EBITDA; or
(v) Consolidated Priority Debt to exceed 25% of Consolidated
Adjusted Tangible Assets.
6B. DIVIDEND AND RESTRICTED INVESTMENT LIMITATION; INVESTMENT IN
FOREIGN SUBSIDIARIES.
6B(1). DIVIDEND AND RESTRICTED INVESTMENT LIMITATION. The Company
covenants that, except as otherwise permitted by the following sentence, it will
not:
(i) pay or declare any dividend on any class of its stock or make
any other distribution on account of any class of its stock; or
(ii) redeem, purchase or otherwise acquire, directly or
indirectly, any shares of
its stock; or
(iii) make or permit any Subsidiary to make any Investments other
than Permitted Investments (all of the foregoing being herein called
"RESTRICTED PAYMENTS");
except out of Consolidated Net Income Available For Restricted Payments and only
if
(1) at the time of declaration of such Restricted Payment, no Default
or Event of Default exists or would exist; and
(2) the Restricted Payment is made within 60 days after the
declaration thereof.
"CONSOLIDATED NET EARNINGS AVAILABLE FOR RESTRICTED PAYMENTS" shall
mean:
(1) $500,000;
(2) PLUS 50% of Consolidated Net Income or minus 100% of the
Consolidated Net Loss, as the case may be, for the period (taken as one
accounting period) beginning on January 1, 1997, and ending as of the last
day of the most recently completed fiscal quarter before any proposed
Restricted Payment; PLUS
(3) the total net cash proceeds received by the Company from the sale
of its stock after December 31, 1996.
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The calculation of Restricted Payments and Consolidated Net Earnings Available
for Restricted Payments shall exclude: (x) stock splits, dividends paid, or
distributions made, in stock of the Company; or (y) exchanges of stock of one or
more classes of the Company, except to the extent cash or other value is
involved in such exchange. The term "stock" as used in this paragraph 6B shall
include warrants or options to purchase stock.
6B(2). INVESTMENT IN FOREIGN SUBSIDIARIES. The Company covenants
that it will not make any Investment in or acquire the assets of any Person that
makes the major portion of its sales to Persons located outside the United
States; PROVIDED THAT, this restriction shall not prohibit the Company from
acquiring or maintaining its investment in any Person (i) that makes sales to
Persons in Mexico and (ii) has been identified to Sanifill as a potential
acquisition candidate of the Company.
6C. LIENS, DEBT AND OTHER RESTRICTIONS. The Company covenants
that it will not and will not permit any Subsidiary to:
6C(1) LIENS. Create, assume or suffer to exist any Lien upon any
of its property or assets, whether now owned or hereafter acquired, except:
(i) Liens for taxes (including ad valorem and property taxes) and
assessments or governmental charges or levies not yet due or which are
being actively contested in good faith by appropriate proceedings;
(ii) Liens associated with Consolidated Priority Debt existing as
of the date hereof to the extent they do not exceed fifteen percent (15%)
of Consolidated Tangible Assets;
(iii) other Liens incidental to the conduct of its business or the
maintenance, operation, construction or ownership of its property and
assets (including pledges or deposits in connection with workers'
compensation and social security taxes, assessments and charges, and
landlords, mechanics and materialmen Liens and survey exceptions or
encumbrances, easements or reservations, rights-of-way, or zoning
restrictions) PROVIDED THAT (A) such Liens were not incurred in connection
with the borrowing of money, or the obtaining of advances or credit or the
payment of the deferred purchase price of property and (B) the existence of
such Lien does not materially detract from the value of such property or
assets to the Company or any Subsidiary or unreasonably interfere with the
ordinary conduct of business;
(iv) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business to secure (or to obtain
letters of credit that secure) the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, performance bonds,
purchase, construction or sales contracts and other similar obligations, in
each case not incurred or made in connection with Debt;
(v) (A) any right of set off or banker's lien (whether by common
law, statute, contract or otherwise) in favor of any Senior Lender or any
banking institution with whom the
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Company or any Subsidiary maintains any deposit or collection account or
(B) any other set off right in favor of any other Person arising under
common law or statute; and
(vi) Liens created by, resulting from or arising in connection
with any litigation or legal proceeding involving the Company or any
Subsidiary, excluding any judgment Liens in the form of attachments in aid
of execution on a judgment to the extent the aggregate amount of all
judgments does not exceed $1,000,000; or
6C(2) DEBT. Create, incur, assume or suffer to exist any Debt,
except:
(i) Debt of any Subsidiary to the Company or any Wholly-Owned
Subsidiary;
(ii) Debt of any Subsidiary under the Guaranty Agreement; or
(iii) Debt of any Subsidiary to any other Senior Lender solely
under a Guarantee of the Company's Debt provided, that (1) at the later of
the date of incurrence of such Guarantee or the date on which a Guaranty
Agreement and a Contribution Agreement are required to be provided pursuant
to paragraph 5K, such Subsidiary is a party to each of the Guaranty
Agreement and Contribution Agreement and (2) such Subsidiary has not
previously been a Released Subsidiary;
(iv) Consolidated Priority Debt;
(v) other Debt of Subsidiaries permitted under paragraphs 6A and
6C(2);
(vi) other Debt of the Company (other than Debt owed to a
Subsidiary) permitted under paragraphs 6A and 6C(2);
6C(3) MERGER OR CONSOLIDATION. Merge, consolidate or exchange
shares with any other Person, except that:
(i) any Subsidiary may merge or consolidate with the Company or
any Wholly-Owned Subsidiary; provided, in the case of a Wholly-Owned
Subsidiary, it remains a Wholly-Owned Subsidiary immediately after the
merger or consolidation;
(ii) any Subsidiary may merge or consolidate with any other
Person; provided, (a) the surviving corporation or partnership becomes a
Wholly-Owned Subsidiary as a result of, and remains a Wholly-Owned
Subsidiary immediately after, the merger or consolidation; and (b)
immediately after such merger or consolidation, no Default or Event of
Default shall have occurred or exist and the Company could incur at least
$1 of additional Consolidated Priority Debt under this Agreement; or
(iii) the Company may merge or consolidate with any other
corporation (including a Subsidiary) if the continuing or surviving
corporation is the Company or another corporation
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which is organized under the laws of, and has a majority of the Assets
located in, the United States or a State thereof or the District of
Columbia and the continuing or surviving corporation (if not the
Company) shall assume expressly the obligations of the Company hereunder
and under the Notes under an agreement reasonably acceptable to
Sanifill, and immediately after such merger or consolidation, no Default
or Event of Default shall have occurred or exist and the Company or such
continuing or surviving corporation could incur at least $1 of
additional Senior Funded Debt under this Agreement; or
6C(6) CHANGE IN BUSINESS. Enter into any business which is
substantially different from that presently conducted by the Company and its
Subsidiaries; PROVIDED, HOWEVER, that the Company may enter into any other
nonhazardous environmental waste business not prohibited by that certain Buyer
Noncompetition Agreement dated as of December 13, 1996 by and between the
Company and Sanifill.
6D. SALE OF PROPERTY. The Company will not, and will not permit any
Subsidiary to, Dispose of any property or assets, except:
(i) any Subsidiary may Dispose of its assets to the Company or a
Wholly-Owned Subsidiary;
(ii) the Company may Dispose of all or substantially all its
assets to any other corporation (including a Subsidiary) if the continuing
or surviving corporation is organized under the laws of, and has a majority
of its assets located in, the United States or a State thereof or the
District of Columbia and shall assume expressly the obligations of the
Company hereunder and under the Notes under an agreement reasonably
acceptable to Sanifill, and immediately after such transfer, no Default or
Event of Default shall have occurred or exist and the continuing or
surviving corporation could incur at least $1 of additional Senior Funded
Debt under this Agreement;
(iii) the Company or any Subsidiary may Dispose of its assets so
long as, immediately after giving effect to such proposed Disposition:
(A) the consideration for such assets represents the Fair Market
Valueof such assets (as determined in good faith by a Responsible
Officer in the case of assets having a Fair Market Value of less
than $500,000 or otherwise, the Company's Board) at the time of
such Disposition; and
(B) the consideration for such assets is less than $500,000 at
the time of such Disposition; and
(C) the net book value of all assets so Disposed of (whether or
not leased back) by the Company and its Subsidiaries:
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(1) during the prior 12 months, does not exceed 10% of
Consolidated Tangible Assets; and
(2) after the date of this Agreement, does not exceed 20%
of Consolidated Tangible Assets; and
(D) the amount of Consolidated Operating Income produced by all
assets so Disposed of (whether or not leased back) by the Company and
its Subsidiaries:
(1) during the prior 12 months, does not exceed 20% of
Consolidated Operating Income at the end of the most recently
completed 12 months; and
(2) after the date of this Agreement, does not exceed 40%
of Consolidated Operating Income at the end of the most recently
completed 12 months; and
(E) no Default or Event of Default shall exist;
PROVIDED, HOWEVER, if after any Disposition, the net book value of all
assets Disposed of during the prior 12 months exceeds 20% of
Consolidated Tangible Assets or the Consolidated Operating Income
produced by all assets Disposed of during the prior 12 months exceeds
20% of Consolidated Operating Income, the Company shall, within 9
months of the date of such Disposition, apply the proceeds (net of
reasonable expenses) from such Disposition to prepay, on a ratable and
pro rata basis, Consolidated Senior Funded Debt or to acquire
operating assets and equipment to be used in the business of the
Company and its Subsidiaries.
For purposes of this paragraph 6D:
(iv) "DISPOSITION" means the sale, Lease, transfer or other
disposition of property, and "DISPOSED OF" has a corresponding meaning to
Disposition. "LEASE" means the lease of any property for more than 5
years;
(v) CALCULATION OF NET BOOK VALUE/CONSOLIDATED OPERATING INCOME.
The net book value of any assets shall be determined as of the respective
date of Disposition of those assets and the Consolidated Operating Income
produced by any assets shall be determined using Consolidated Operating
Income for the 12 month period before the respective date of Disposition of
those assets; and
(vi) SALES OF LESS THAN ALL THE STOCK OF A SUBSIDIARY. In the case of
the sale or issuance of the stock of a Subsidiary, the amount of
Consolidated Operating Income, or amount of Consolidated Tangible Assets,
as the case may be, contributed by the stock Disposed of shall be assumed
to be the percentage of outstanding stock sold or to be sold.
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6E. SUBSIDIARY STOCK AND DEBT. The Company will not:
(i) directly or indirectly sell, assign, pledge or otherwise
dispose of any Debt of or any shares of stock of (or warrants, rights
or options to acquire stock of) any Subsidiary except to a Wholly-Owned
Subsidiary and except as permitted pursuant to paragraph 6D;
(ii) permit any Subsidiary directly or indirectly to sell, assign,
pledge or otherwise dispose of any Debt of the Company or any other
Subsidiary, or any shares of stock of (or warrants, rights or options to
acquire stock of) any other Subsidiary, except to the Company or a Wholly-
Owned Subsidiary and except pursuant to paragraph 6D;
(iii) permit any Subsidiary to have outstanding any shares of
Preferred Stock other than Preferred Stock (i) existing at the time the
Subsidiary becomes a Subsidiary or (2) owned by the Company or a Wholly-
Owned Subsidiary;
(iv) permit any Subsidiary directly or indirectly to issue or
sell any shares of its stock (or warrants, rights or options to acquire its
stock) except to the Company or a Wholly Owned Subsidiary and except as
permitted pursuant to paragraph 6C(3) and 6D;
(v) permit the ownership of any direct or indirect interest of
the Company in the equity of any Foreign Subsidiary by any Person other (a)
than a Wholly-Owned Subsidiary that (1) has become a party to a Guaranty
Agreement and a Contribution Agreement and (2) has no Debt (other than as
provided in clause (a) above or permitted under paragraph 6C(2)(iii)) or
(b) another Foreign Subsidiary;
(vi) permit any Subsidiary to enter into or otherwise be bound by
or subject to any contract or agreement (including, without limitation, any
provision of its certificate or articles of incorporation or bylaws) that
restricts its ability to pay dividends or other distributions on account of
its stock; or
(vii) permit any Subsidiary to create, incur, assume or maintain
any Debt except as permitted by paragraphs 6A and 6C(2).
6F. ERISA. The Company covenants that it will not nor permit any
Subsidiary to:
(i) terminate or withdraw from any Plan resulting in the incurrence
of any material liability to the Pension Benefit Guaranty Corporation;
(ii) engage in or permit any Person to engage in any prohibited
transaction (as defined in Section 4975 of the Code) involving any Plan
(other than a Multiemployer Plan) which would subject the Company or any
Subsidiary to any material tax, penalty or other liability;
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(iii) incur or suffer to exist any material accumulated funding
deficiency (as defined in section 302 of ERISA and section 412 of the
Code), whether or not waived, involving any Plan (other than a
Multiemployer Plan); or
(iv) allow or suffer to exist any risk or condition which presents a
risk of incurring a material liability to the Pension Benefit Guaranty
Corporation.
6G. ENVIRONMENTAL MATTERS. The Company covenants that it will
not, and will not permit any Third Party to, use, produce, manufacture,
process, generate, store, dispose of, manage at, or ship or transport to or
from the Properties any Hazardous Materials except for Hazardous Materials
used, produced, released or managed in the ordinary course of business in
compliance with all applicable Environmental Requirements where the failure
to do so would not have a reasonable possibility of materially adversely
affecting the business, operations or financial condition of the Company and
its Subsidiaries taken as a whole and except for Hazardous Materials released
in amounts which do not require remediation pursuant to applicable
Environmental Requirements if remediation is required, such remediation would
not have a reasonable possibility of materially adversely affecting the
business, operations or financial condition of the Company and its
Subsidiaries taken as a whole.
7. EVENTS OF DEFAULT.
7A. ACCELERATION. If any of the following events shall occur and
be continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal or interest
on any Note for more than 5 Business Days after the date due; or
(ii) the Company or any Subsidiary defaults (whether as primary
obligor or as guarantor or other surety) in any payment of principal of or
interest on any other obligation for money borrowed (or any Capitalized
Lease Obligation, any obligation under a conditional sale or other title
retention agreement, any obligation (other than a current trade payable
that does not constitute Debt) issued or assumed as full or partial payment
for property whether or not secured by a purchase money mortgage or any
obligation under notes payable or drafts accepted representing extensions
of credit) beyond any period of grace provided with respect thereto; or the
Company or any Subsidiary fails to perform or observe any other agreement,
term or condition contained in any agreement under which any such
obligation is created (or if any other event thereunder or under any such
agreement shall occur and be continuing) and the effect of such failure or
other event is to cause, or to permit the holder or holders of such
obligation (or a trustee on behalf of such holder or holders) to cause,
such obligation to become due (or to be repurchased by the Company or any
Subsidiary) prior to any stated maturity, PROVIDED THAT the aggregate
amount of all obligations as to which such a payment default shall occur
and be continuing or such a failure or other event causing or permitting
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acceleration (or resale to the Company or any Subsidiary) shall occur and
be continuing exceeds $1,000,000; or
(iii) any representation or warranty made by the Company herein or
by the Company or any of its officers in any writing furnished in
connection with or pursuant to this Agreement shall be false in any
material respect on the date as of which made; or
(iv) the Company fails to perform or observe any agreement contained
in paragraph 6; or
(v) the Company fails to perform or observe any other agreement
contained herein and such failure shall not be remedied within 30 days
after any Responsible Officer obtains actual knowledge thereof or after
receipt by the Company of written notice of such failure; or
(vi) the Company or any Subsidiary makes an assignment for the
benefit of creditors or is generally not paying its debts as such debts
become due; or
(vii) any decree or order for relief in respect of the Company or
any Subsidiary is entered under any Bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
or similar law, whether now or hereafter in effect (herein called the
"BANKRUPTCY LAW"), of any jurisdiction; or
(viii) the Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by,
a trustee, receiver, custodian, liquidator or similar official of the
Company or any Subsidiary, or of any substantial part of the assets of the
Company or any Subsidiary, or commences a voluntary case under the
Bankruptcy Law of the United States or any proceedings (other than
proceedings for the voluntary liquidation and dissolution of a Subsidiary)
relating to the Company or any Subsidiary under the Bankruptcy Law of any
other jurisdiction; or
(ix) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Subsidiary and the
Company or such Subsidiary by any act indicates its approval thereof,
consent thereto or acquiescence therein, or an order, judgment or decree is
entered appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings, and
such order, judgment or decree remains unstayed and in effect for more than
60 days; or
(x) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment or decree remains unstayed and in effect for more than 60
days; or
(xi) a final judgment or judgments in an amount in excess of
$1,000,000, individually or in the aggregate, shall be rendered against the
Company or any Subsidiary (for which no insurer has acknowledged, in
writing, responsibility for liability, subject to
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customary deductible) and, within 60 days after entry thereof, such
judgment is not discharged or execution thereof stayed pending appeal, or
within 60 days after the expiration of any such stay, such judgment is not
discharged; or
(xii) any order, judgment or decree is entered in any proceedings
against the Company or any Subsidiary decreeing a split-up of the Company
or such Subsidiary which requires the divestiture of assets representing a
substantial part (being an amount equal to 20% of Consolidated Tangible
Assets), or the divestiture of the stock of a Subsidiary whose assets
represent a substantial part, of the consolidated assets of the Company and
its Subsidiaries (determined in accordance with generally accepted
accounting principles) or which requires the divestiture of assets, or
stock of a Subsidiary, which shall have contributed at least 20% of
Consolidated Operating Income for any of the three fiscal years then most
recently ended, and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xiii) any Subsidiary shall fail to comply with the terms of the
Guaranty Agreement or Contribution Agreement to which it is a party beyond
any applicable grace period.
(xiv) the Company or any ERISA Affiliate, in its capacity as an
employer under a Multiemployer Plan, makes a complete or partial withdrawal
from such Multiemployer Plan resulting in the incurrence by such
withdrawing employer of a withdrawal liability in an amount exceeding
$2,000,000; or
(xv) any Subsidiary or any other Person (which Sanifill reasonably
believes in good faith may have the right to do so) shall disavow or
attempt to terminate the Guaranty Agreement or Contribution Agreement or
the Guaranty Agreement or Contribution Agreement shall cease to be in full
force and effect with respect to any Subsidiary for any reason whatsoever;
then:
(a) if such event is an Event of Default specified in clause (i) or
(ii) of this paragraph 7A, the holder of any Note (other than the Company
or any Subsidiary or Affiliate) may at its option, by written notice to the
Company, declare all of the Notes held by such holder to be, and all of the
Notes held by such holder shall thereupon be and become, immediately due
and payable at par together with interest accrued and unpaid thereon,
without presentment, demand, protest or other notice of any kind
(including, without limitation, notice of intent to accelerate), all of
which are hereby waived by the Company,
(b) if such event is an Event of Default specified in any of clauses
(vii), (viii), (ix) or (x) of this paragraph 7A with respect to the
Company, all of the Notes at the time outstanding shall automatically
become immediately due and payable at par together with interest accrued
and unpaid thereon, without presentment, demand, protest or notice of any
kind (including, without limitation, notice of intent to accelerate and
notice of acceleration of maturity), all of which are hereby waived by the
Company, and
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(c) if such event is any other Event of Default specified in this
paragraph 7A, the Required Holder(s) of the Notes may at its or their
option, by written notice to the Company, declare all of the Notes to be,
and all of the Notes shall thereupon be and become, immediately due and
payable, together with interest accrued and unpaid thereon with respect to
each Note, without presentment, demand, protest or other notice of any kind
(including, without limitation, notice of intent to accelerate), all of
which are hereby waived by the Company.
7B. RESCISSION OF ACCELERATION. At any time after the Note shall
have been declared immediately due and payable pursuant to paragraph 7A, the
Required Holder(s) may, by notice in writing to the Company, rescind and
annul such declaration and its consequences.
7C. NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall
be declared immediately due and payable pursuant to paragraph 7A or any such
declaration shall be rescinded and annulled pursuant to paragraph 7B, the
Company shall forthwith give written notice thereof to the holder of each
Note at the time outstanding.
7D. OTHER REMEDIES. If any Event of Default or Default shall
occur and be continuing, any holder of the Note may proceed to protect and
enforce its rights under this Agreement and the Note by exercising such
remedies as are available to such holder in respect thereof under applicable
law, either by suit in equity or by action at law, or both, whether for
specific performance of any covenant or other agreement contained in this
Agreement or in aid of the exercise of any power granted in this Agreement.
No remedy conferred in this Agreement upon any holder of the Note is intended
to be exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statute or otherwise.
8 . REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents
and warrants as follows:
8A. ORGANIZATION. The Company is a corporation duly organized and
existing in good standing under the laws of the State of Delaware, and each
Subsidiary is duly organized and existing in good standing under the laws of
the jurisdiction in which it is incorporated or formed. SCHEDULE 8A hereto
is an accurate and complete list of all Subsidiaries as of the date hereof
and includes the jurisdiction of incorporation and ownership of all such
Subsidiaries and indicates all Subsidiaries executing the Guaranty Agreement.
The Company and each Subsidiary has the corporate or partnership power to own
its respective properties and to carry on its respective businesses as now
being conducted and is duly qualified and authorized to do business in each
other jurisdiction in which the character of its respective properties or the
nature of its respective businesses require such qualification or
authorization except where the failure to be so qualified or authorized could
not reasonably be expected to have a material adverse effect on the business,
operations or financial condition of the Company and its Subsidiaries, taken
as a whole.
8B. FINANCIAL STATUS. The Company was formed on November ___,
1996, and as a newly formed entity, has no operations, employees, liabilities
(other than for normal organizational
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expenses and expenses incurred in connection with the purchase of the assets
pursuant to the Agreement not to exceed $200,000), obligations, properties or
assets, other than cash, whether tangible or intangible, personal or real,
other than as expressly provided for and described in the Acquisition
Agreement.
8C. DEFAULTS. The Company is not in default under the provisions
of any agreement, document or instrument to which it is a party or which it
or any of its properties is bound, which default or violation would,
individual or in the aggregate, materially and adversely affect the business,
financial condition, properties, prospects or operations of the Company.
8D. ACTIONS PENDING. There is no action, suit, investigation or
proceeding pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary, or any properties or rights of the Company or
any Subsidiary, by or before any court, arbitrator or administrative or
governmental body which could reasonably be expected to result in any
material adverse change in the business, condition (financial or otherwise)
or operations of the Company and its Subsidiaries taken as a whole.
8E. OUTSTANDING DEBT. Neither the Company nor any Subsidiary has
any Debt outstanding except as permitted by paragraphs 6A and 6C(2). There
is no default under the provisions of any instrument evidencing any Debt or
of any agreement relating thereto.
8F. [INTENTIONALLY DELETED]
8G. [INTENTIONALLY DELETED]
8H. CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company
nor any Subsidiary is a party to any contract or agreement or subject to any
charter or other corporate restriction which materially and adversely affects
its business, property or assets, or financial condition of the Company and
its Subsidiaries taken as a whole. Neither the execution nor delivery of
this Agreement or the Note or any Guaranty Agreement, nor the issuance of the
Note, nor fulfillment of nor compliance with the terms and provisions hereof
and of the Note or any Guaranty Agreement will conflict with, or result in a
breach of the terms, conditions or provisions of, or constitute a default
under, or result in any violation of, or result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary
pursuant to, the charter or by-laws of the Company or any Subsidiary, any
award of any arbitrator or any agreement (including any agreement with
stockholders), instrument, order, judgment, decree, statute, law, rule or
regulation to which the Company or any Subsidiary is subject. Neither the
Company nor any Subsidiary is a party to, or otherwise subject to any
provision contained in, any instrument evidencing Debt of the Company or such
Subsidiary, any agreement relating thereto or any other contract or agreement
(including its charter) which limits the amount of, or otherwise imposes
restrictions on the incurring of, Debt of the Company of the type to be
evidenced by the Note.
8I. [INTENTIONALLY DELETED]
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8J. ERISA. The Company currently does not participate in any Plan
or Multiemployer Plan.
8K. GOVERNMENTAL CONSENT. Assuming the representations made by you
in paragraph 8 and Article IV of the Acquisition Agreement are accurate, neither
the nature of the Company or of any Subsidiary, nor any of their respective
businesses or properties, nor any relationship between the Company or any
Subsidiary and any other Person, nor any circumstance in connection with the
offering, issuance, sale or delivery of the Note is such as to require any
authorization, consent, approval, exemption or other action by or notice to or
filing with any court or administrative or governmental body (other than those
which are made or obtained prior to Closing and routine filings after the
Closing Date for the Note with the Securities and Exchange Commission and/or
state Blue Sky authorities) in connection with the execution and delivery of
this Agreement, the issuance or delivery of the Note or fulfillment of or
compliance with the terms and provisions hereof or of the Note.
8L. [INTENTIONALLY DELETED]
8M. PERMITS, LICENSES, ETC. Assuming the representations made by you
in Article IV of the Acquisition Agreement are accurate, the Company possesses
all permits, licenses, patents, patent rights or licenses, trademarks, trademark
rights, trade names, trade name rights and copyrights which are required to
conduct its business, and which failure of the Company to so possess could
reasonably be expected to have a material and adverse effect on the Company.
8N. DISCLOSURE. Neither this Agreement nor any other document,
certificate or statement furnished to any Holder by or on behalf of the Company
in connection herewith contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein and therein not misleading. There is no fact peculiar to the Company or
any Subsidiary which materially adversely affects or in the future may (so far
as the Company can now foresee) materially adversely affect the business,
property or assets, or financial condition of the Company and its Subsidiaries
taken as a whole and which has not been set forth in this Agreement or in the
other documents, certificates and statements furnished to you by or on behalf of
the Company prior to the date hereof in connection with the transactions
contemplated hereby. The financial projections provided to Sanifill by, or on
behalf of, the Company, are reasonable based on the assumptions stated therein
and the best information available to the Responsible Officers of the Company,
it being recognized by Sanifill and any Transferee that such projections as to
future events are not to be viewed as facts and that actual results during the
period or periods covered thereby may differ from the projected results.
9. REPRESENTATIONS AND AGREEMENTS OF SANIFILL.
9A. INVESTMENT INTENT. Sanifill is acquiring the Note for its own
account and not with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act, PROVIDED THAT the disposition
of such Holder's property shall at all times be and remain within its control.
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9B. RIGHT OF SET-OFF. Sanifill agrees, and each subsequent holder of
the Note, by its acceptance thereof will thereby agree, that the Note is subject
to a right of set-off in favor of the Company as provided in the Acquisition
Agreement.
10. DEFINITIONS. For the purpose of this Agreement, the terms defined in
the introductory sentence and paragraphs 1 and 2 shall have the respective
meanings specified therein, and the following terms shall have the meanings
specified with respect thereto below:
10A. TERMS.
"ACQUISITION AGREEMENT" is defined in paragraph 1.
"ADJUSTED CAPITAL EXPENDITURES" means any expenditures by the Company
or any Subsidiary for assets to be used more than one year after the date
acquired and which are properly classified as property, equipment or
improvements, fixed assets, or a similar type of capitalized asset under
generally accepted accounting principles, other than any expenditure to acquire
(i) the stock of a corporation which thereupon becomes a Subsidiary or (ii) all
or substantially all of the assets of any Person.
"AFFILIATE" means any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the Company,
except a Subsidiary. A Person shall be deemed to control a corporation if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether through
the ownership of voting securities, by contract or otherwise.
"ATTRIBUTABLE DEBT" means the present value (discounted according to
generally accepted accounting principles at the debt rate implicit in the lease)
of the obligations of the lessee for Rental payments during the term of any
lease constituting a part of a Capitalized Lease Obligation or a Sale and
Leaseback Transaction.
"AUTHORIZED OFFICER" means (i) in the case of the Company, its chief
executive officer, its chief financial officer, any vice president or other
officer of the Company designated as an "Authorized Officer" of the Company in
the INFORMATION SCHEDULE attached hereto or any vice president of the Company
designated as an "Authorized Officer" of the Company for the purpose of this
Agreement in an Officer's Certificate executed by the Company's chief executive
officer or chief financial officer and delivered to Sanifill, and (ii) in the
case of Sanifill, any officer of Sanifill designated as its "Authorized Officer"
in the INFORMATION SCHEDULE or any officer of Sanifill designated as its
"Authorized Officer" for the purpose of this Agreement in a certificate executed
by one of its Authorized Officers. Any action taken under this Agreement on
behalf of the Company by any individual who on or after the date of this
Agreement shall have been an Authorized Officer of the Company and whom Sanifill
in good faith believes to be an Authorized Officer of the Company at the time of
such action shall be binding on the Company even though such individual shall
have ceased to be an Authorized Officer of the Company, and any action taken
under this Agreement on behalf of Sanifill by any individual who on or after the
date of this Agreement shall have been an Authorized
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Officer of Sanifill and whom the Company in good faith believes to be an
Authorized Officer of Sanifill at the time of such action shall be binding on
Sanifill even though such individual shall have ceased to be an Authorized
Officer of Sanifill.
"BANKRUPTCY LAW" is defined in clause (viii) of paragraph 7A.
"BOARD" means, for any Person, its Board of Directors or equivalent
governing body.
"BUSINESS DAY" means any day other than (i) a Saturday, a Sunday, or
(ii) a day on which commercial banks in New York City or Houston, Texas are
required or authorized to be closed.
"CAPITALIZED LEASE OBLIGATION" means any Rental obligation which,
under generally accepted accounting principles, would be required to be
capitalized on the books of the Company or any Subsidiary, taken at the amount
thereof accounted for as indebtedness (net of interest expense) in accordance
with such principles.
"CERCLA" means the Comprehensive Environmental Response Compensation
and Liability Act.
"CERCLIS" means the Comprehensive Environmental Response Compensation
and Liability Inventory System established pursuant to CERCLA.
"CLOSING DATE" means December 13, 1996.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONSOLIDATED" means the consolidated financial information of the
Company and its Subsidiaries under generally accepted accounting principles.
"CONSOLIDATED ADJUSTED TANGIBLE ASSETS" means the excess of
Consolidated Tangible Assets minus 50% of Foreign Tangible Assets.
"CONSOLIDATED DEBT" means for the Company and its Subsidiaries on a
Consolidated basis at any date of determination the sum (without duplication)
of:
(i) Debt, and
(ii) 50% of the face amount of all letters of credit issued to support
closure and post-closure liabilities of the Company and its Subsidiaries.
"CONSOLIDATED EARNINGS BEFORE INTEREST AND TAXES" means for the
Company and its Subsidiaries on a Consolidated basis for the four fiscal
quarters most recently ended, Consolidated Net Earnings, plus Consolidated
Interest Charges, plus income taxes, in each case for such period.
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"CONSOLIDATED EBITDA" means for the Company and its Subsidiaries on a
Consolidate basis for the four quarters most recently ended, Consolidated
Earnings before Interest and taxes plus depreciation, amortization, in each
case, for such period.
"CONSOLIDATED FIXED CHARGES" means, for the Company and its
Subsidiaries on a Consolidated basis, the sum (without duplication) of:
(i) all scheduled principal payments on Debt (including all
principal components of Rentals under Capitalized Lease Obligations)
made during the most recently completed four fiscal quarters (the
"PRIOR PERIOD");
(ii) all Rentals (other than for Capitalized Lease Obligations) paid
during the Prior Period;
(iii) all Consolidated Interest Charges for the Prior Period on
all Debt (including all imputed interest components of Rentals under
Capitalized Lease Obligations);
(iv) the amount of all dividends or other distributions made on
account of any Preferred Stock during the Prior Period;
(v) the amount of any scheduled or mandatory purchase or redemption
of Preferred Stock paid or made during the Prior Period;
(vi) the amount of actual cash taxes paid by the Company and its
Subsidiaries during the Prior Period; and
(vii) the lesser of $1,000,000 or total amount of Adjusted Capital
Expenditures during the prior 12 months.
"CONSOLIDATED INTEREST CHARGES" means, for the Company and its
Subsidiaries on a Consolidated basis for the four fiscal quarters most recently
ended, all interest expense (including all amortization or debt discount and
expenses and imputed interest) on all Debt (including Capitalized Lease
Obligations) net of interest income.
"CONSOLIDATED NET EARNINGS" means, for any applicable period, for the
Company and its Subsidiaries on a Consolidated basis, the excess of (a) gross
revenues over (b) all expenses and charges of a proper character (including
current and deferred taxes on income, provision for taxes on unremitted foreign
earnings which are included in gross revenues, and current additions to
reserves) each for the applicable period, but not including in gross revenues:
(i) any gains (net of expenses and taxes applicable thereto) in
excess of losses resulting from the sales, conversions or other
dispositions of capital assets,
(ii) any gains resulting from the write-up of assets,
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(iii) any earnings of any Person acquired by the Company or any
Subsidiary through purchase, merger or consolidation or otherwise for any
year prior to the year of acquisition not included in gross revenues under
generally accepted accounting principles, or
(iv) any deferred credit representing the excess of equity in any
Subsidiary of the Company at the date of acquisition over the cost of the
investment in such Subsidiary,
all as determined in accordance with generally accepted accounting principles.
If the above calculation results in an amount less than zero, then for such
period there shall be a "CONSOLIDATED NET LOSS" as determined below.
"CONSOLIDATED NET EARNINGS AVAILABLE FOR RESTRICTED PAYMENTS" is
defined in paragraph 6B of this Agreement.
"CONSOLIDATED NET LOSS" means, for any applicable period, for the
Company and its Subsidiaries on a Consolidated basis, the excess of (a) expenses
and charges of a proper character (including current and deferred taxes on
income, provision for taxes an unremitted foreign earnings which are included in
gross revenues, and current additions to resources) over (b) gross revenues for
the same period, but not including in gross revenues those items listed in
clauses (i) through (iv), inclusive, in the definition Consolidated Net Earnings
above, all as determined in accordance with generally accepted accounting
principles. If the above calculation results in an amount of zero or more, then
for such period there shall be "CONSOLIDATED NET EARNINGS" as determined above.
"CONSOLIDATED NET WORTH" means, at any time, for the Company and its
Subsidiaries on a Consolidated basis, shareholders' equity at such time
determined in accordance with generally accepted accounting principles.
"CONSOLIDATED OPERATING INCOME" means, for the Company and its
Subsidiaries on a Consolidated basis for the four fiscal quarters most recently
ended, the sum of (i) Consolidated Net Earnings, or Consolidated Net Loss, as
the case may be, for such period, plus Interest Charges and provision for taxes
deducted in calculating such Consolidated Net Earnings or Consolidated Net Loss
and (ii) Rentals.
"CONSOLIDATED PRIORITY DEBT" means, on a Consolidated basis at any
date of determination the sum (without duplication) of (i) Consolidated Secured
Debt, (ii) Attributable Debt, and (iii) aggregate amount of Debt of all
Subsidiaries; PROVIDED THAT any Debt of a Subsidiary which is a party to the
Guaranty Agreement (1) that consists solely of a Guarantee of Debt of the
Company or (2) that is Subordinated Debt shall not be included in any
calculation of Consolidated Priority Debt.
"CONSOLIDATED SECURED DEBT" means, on a Consolidated basis at any date
of determination, the sum of Capitalized Lease Obligations and any Debt of any
Person which is secured by, or otherwise benefitting from, a Lien on any
property, tangible or intangible, of the Company or any Subsidiary, whether or
not the Company or such Subsidiary has assumed or become liable for the
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payment of such Debt or obligation, other than permitted under clauses (i),
(ii), (iii), (x) and (xi) of paragraph 6C(l) of this Agreement.
"CONSOLIDATED SENIOR DEBT" means, for the Company and its Subsidiaries
on a Consolidated basis at any time of determination, the excess of (a) the sum
of Debt at such time, over (b) the amount of all Subordinated Debt at such time.
"CONSOLIDATED TANGIBLE ASSETS" means, as at any date of determination,
the excess of (a) the total assets of the Company and its Subsidiaries appearing
on a Consolidated balance sheet prepared under generally accepted accounting
principles as of the date of determination, after deducting any reserves
applicable thereto and after eliminating all intercompany transactions and all
amounts properly attributable to minority interests, if any, in the stock and
surplus of Subsidiaries, over (b) the net book value of all Intangible Assets at
such time.
"DEBT" means with respect to any Person, at any date of determination,
(i) all indebtedness for borrowed money which such Person has
directly or. indirectly created, incurred or assumed; and
(ii) all indebtedness, whether or not for borrowed money, secured by
any Lien on any property or asset owned or held by such Person subject
thereto, whether or not the indebtedness secured thereby shall have been
assumed by such Person; and
(iii) any indebtedness, whether or not for borrowed money, with
respect to which such Person has become directly or indirectly liable and
which represents or has been incurred to finance the purchase price (or a
portion thereof) of any property or services or business acquired by such
Person, whether by purchase, consolidation, merger or otherwise other than
any trade payable in the ordinary course of business that is a current
liability under generally accepted accounting principles; and
(iv) any indebtedness of the character referred to in clauses (i),
(ii) or (iii) of this definition deemed to be extinguished under generally
accepted accounting principles but for which such Person remains legally
liable to the extent the market value of any assets such Person has placed
in trust for the benefit of the holders of that indebtedness is less than
the aggregate amount of that indebtedness; and
(v) any indebtedness of any other Person of the character referred
to in subdivision (i), (ii), (iii) or (iv) of this definition with respect
to which the Person whose Debt is being determined has become liable by
way of a Guarantee;
all as determined in accordance with generally accepted accounting principles,
provided, however, Debt shall not include endorsement of negotiable instruments
for collection in the ordinary course of business.
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"DISPOSITION" is defined in paragraph 6D of this Agreement.
"ENVIRONMENTAL AUTHORITY" means any foreign, federal, state, local
or regional government that exercises any form of jurisdiction or authority
under any Environmental Requirement.
"ENVIRONMENTAL JUDGMENTS AND ORDERS" means all judgments, decrees
or orders arising from or in any way associated with any Environmental
Requirements, whether or not entered upon consent or written agreements with
an Environmental Authority or other entity arising from or in any way
associated with any Environmental Requirement, whether or not incorporated in
a judgment, degree or order.
"ENVIRONMENTAL LIABILITIES" means any liabilities, whether accrued
or contingent, arising from or relating in any way to any Environmental
Requirements.
"ENVIRONMENTAL NOTICES" means any written communication from any
Environmental Authority stating possible or alleged noncompliance with or
possible or alleged liability under any Environmental Requirement, including
without limitation any complaints, citations, demands or requests from any
Environmental Authority for correction of any purported violation of any
Environmental Requirements or any investigation concerning any purported
violation of any Environmental Requirements. Environmental Notices also
shall mean (i) any written communication from any other Person threatening
litigation or administrative proceedings against or involving the Company
relating to alleged violation of any Environmental Requirements and (ii) any
complaint, petition or similar documents filed by any other Person commencing
litigation or administrative proceedings against or involving the Company
relating to alleged violation of any Environmental Requirements.
"ENVIRONMENTAL PROCEEDINGS" means any judicial or administrative
proceedings arising from or in any way associated with any Environmental
Requirement, other than (i) applications for landfill operating permits, or
airspace permits, or for amendment of any existing permit, filed by the
Company or any of its Subsidiaries with any Environmental Authority, or any
amendments, clarifications, supplements, correspondence, notices, or
restatements thereto, or (ii) any routine reports or notices by the Company
or any of its Subsidiaries filed with or made to any Environmental Authority
pursuant to any landfill operating permit or airspace permit.
"ENVIRONMENTAL RELEASES" means releases (as defined in CERCLA or
under any applicable state or local environmental law or regulation) of
Hazardous Materials. Environmental Releases does not include releases for
which no remediation or reporting is required by applicable Environmental
Requirements and which do not present a danger to health, safety or the
environment.
"ENVIRONMENTAL REQUIREMENTS" means any applicable local, state or
federal law, rule, regulation, permit, order, decision, determination or
requirement relating in any way to Hazardous Materials or to health, safety
or the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
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"ERISA AFFILIATE" means any corporation which is a member of the
same controlled group of corporations as the Company within the meaning of
section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of section 414(c) of the Code.
"EVENT OF DEFAULT" means any of the events specified in paragraph
7A, PROVIDED THAT there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening
of any further condition, event or act, and "DEFAULT" shall mean any of such
events, whether or not any such requirement has been satisfied.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FAIR MARKET VALUE" means at any time, the sale value of property
that would be realized in an arm's-length sale at such time between an
informed and willing buyer, and an informed and willing seller, under no
compulsion to buy or sell, respectively.
"FOREIGN SUBSIDIARY" means any Subsidiary of the Company (i)
organized under the law of any jurisdiction other than any of the United
States or any of its territories or (ii) that makes the major portion of its
sales to persons outside the United States.
"FOREIGN TANGIBLE ASSETS" means, as at any date of determination,
the excess of (a) the aggregate assets of all of the Foreign Subsidiaries,
after deducting any reserves applicable thereto and eliminating all
intercompany transactions, determined in accordance with generally accepted
accounting principles, over (b) the aggregate net book value of all
Intangible Assets owned by Foreign Subsidiaries at such time.
"FUNDED DEBT" means with respect to any Person, all Debt of such
Person which by its terms or by the terms of any instrument or agreement
relating thereto matures, or which is otherwise payable or unpaid, more than
one year from, or is directly or indirectly renewable or extendible at the
option of the debtor to a date more than one year (including an option of the
debtor under a revolving credit or similar agreement obligating the lender or
lenders to extend credit over a period of more than one year) from the date
of the creation thereof.
"GUARANTEE" means, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to
any Debt, lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business)
or discounted or sold with recourse by such Person, or in respect of which
such Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation in effect guaranteed by such Person through
any agreement (contingent or otherwise) to purchase, repurchase or otherwise
acquire such obligation or any security therefor, or to provide funds for the
payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet or other financial condition of
the obligor of such obligation, or to make payment for any products,
materials or supplies or for any transportation or
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services regardless of the nondelivery or non-furnishing thereof, in any such
case if the purpose or intent of such agreement is to provide assurance that
such obligation will be paid or discharged, or that any agreements relating
thereto will be complied with, or that the holders of such obligation will be
protected against loss in respect thereof. The amount of any Guarantee shall
be equal to the outstanding principal amount of the obligation guaranteed or
such lesser amount to which the maximum exposure of the guarantor shall have
been specifically limited.
"GUARANTY AGREEMENT" means the form of Guaranty Agreement attached
hereto as EXHIBIT B, as it may be supplemented, amended or changed from time to
time in accordance with its terms.
"HAZARDOUS MATERIALS" means (a) hazardous waste as defined in the
Resource Conservation and Recovery Act of 1976, or in any applicable federal,
state or local law or regulation, (b) hazardous substances, as defined in
CERCLA, or in any applicable state or local law or regulation, (c) gasoline,
or any other petroleum product or by-product, (d) toxic substances, as
defined in the Toxic Substances Control Act of 1976, or in any applicable
federal, state or local law or regulation or (e) insecticides, fungicides, or
rodenticides, as deemed in the Federal Insecticide, Fungicide, and
Rodenticide Act of 1975, or in any applicable federal, state or local law or
regulation, as each such Act, statute or regulation may be amended from time
to time.
"HOLDERS" means with respect to the note, the Persons, either
Sanifill or a Sanifill Affiliate, who is purchasing any portion of the Note.
"INTANGIBLE ASSETS" means those assets which would be treated as
intangible under generally accepted accounting principles, including, without
limitation, such items as good will, trademarks, trade names, service marks,
brand names, copyrights, patents, licenses, noncompete agreements and rights
with respect to the foregoing, unamortized debt discount and expense,
organizational expenses, and the excess of cost of purchased Subsidiaries
over equity in the net assets (based on fair market value) thereof at the
date of acquisition and assets located.
"INVESTMENT" means, when used with respect to any Person, any
direct or indirect advance, loan or other extension of credit (other than the
creation of receivables in the ordinary course of business) or capital
contribution by such Person (by means of transfers of property to others or
payments for property or services for the account or use of others, or
otherwise) to any other Person, or any direct or indirect purchase or other
acquisition by such Person of, or of a beneficial interest in, capital stock,
partnership interests, bonds, notes, debentures or other securities issued by
any other Person.
"LIEN" means any mortgage, pledge, security interest, encumbrance,
lien (statutory or otherwise), or charge of any kind (including any agreement
to give any of the foregoing, any conditional sale or other title retention
agreement, any lease in the nature thereof, and the filing of or agreement to
give any financing statement under the Uniform Commercial Code of any
jurisdiction) or any other type of preferential arrangement for the purpose,
or having the effect, of protecting a
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creditor against loss or securing the payment or performance of an obligation
to a creditor, including any rights of setoff (whether by statute, common
law, contract or otherwise).
"MULTIEMPLOYER PLAN" means any Plan which is a "multiemployer plan"
(as such term is defined in section 4001(a)(3) of ERISA).
"NOTE" or "NOTES" is defined in paragraph 1 of this Agreement.
"OFFICER'S CERTIFICATE" means a certificate signed in the name of
the Company by an Authorized Officer of the Company.
"PERSON" means and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"PERMITTED INVESTMENTS" means
(i) any evidence of debt, maturing not more than one year after
the date of issue, issued by the United States of America, or any
instrumentality or agency thereof and guaranteed fully as to principal,
interest and premium, if any, by the United States of America,
(ii) any certificate of deposit, maturing not more than one year
after the date of purchase, issued by a commercial bank which is a member
of the Federal Reserve System, has a Thompson Bank Watch Rating, at the
time of determination, of "B" (or higher), and has a combined capital and
surplus and undivided profits of at least $250,000,000,
(iii) commercial paper, maturing not more than one year after the
date of purchase, issued by a corporation (other than the Company or any
Subsidiary or Affiliate) organized and existing under the laws of any state
within the United States of America with a rating, at the time as of which
any determination thereof is to be made, of "P-1" (or higher) according to
Moody's Investors Service, or "A-1" (or higher) according to Standard &
Poor's Corporation,
(iv) property or assets to be used by the Company or any Subsidiary
in the ordinary course of business,
(v) such other Investments in connection with any Closure Reserves
as may be allowed under applicable state law, and
(vi) loans and advances to officers and employees in the ordinary
course of business.
"PLAN" means any "employee pension benefit plan" (as such term is
defined in section 3 of ERISA) which is or has been established or maintained,
or to which contributions are or have been made, by the Company or any ERISA
Affiliate.
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"PREFERRED STOCK", as applied to any corporation, shall mean shares
of stock of such corporation which are entitled to preference or priority
over any other shares of such corporation in respect of the payment of
dividends or distribution of assets upon liquidation or both.
"PROPERTIES" means all real property owned, leased or otherwise
used or occupied by the Company or any Subsidiary, wherever located.
"RELATED DOCUMENT" means any Guaranty Agreement with a Subsidiary
and any Contribution Agreement among Subsidiaries.
"RELEASED SUBSIDIARY" is defined in paragraph 5I of this Agreement.
"RENTALS" means for any period all fixed rents or charges
(including as such all payments which the lessee is obligated to make on
termination of the lease or surrender of the property) payable by the Company
or a Subsidiary (as lessee, sublessee, license, franchisee or the like) for
such period under a lease, license, or other agreement for the use or
possession of real or personal property, tangible or intangible, as
determined in accordance with generally accepted accounting principles.
"REQUIRED HOLDER(S)" means the holder or holders of at least 51% of
the aggregate principal amount of the Note from time to time outstanding.
"RESPONSIBLE OFFICER" means the chief executive officer, chief
operating officer, principal financial officer, principal accounting officer,
treasurer or assistant treasurer of the Company or any other senior executive
officer of the Company involved principally in its financial administration
or its controllership function.
"RESTRICTED PAYMENTS" is defined in paragraph 6B of this Agreement.
"SALE AND LEASEBACK TRANSACTION" means any arrangement with any
Person or to which such Person is a party providing for the leasing by the
Company or any Subsidiary of real or personal property which has been or is
to be sold or transferred by the Company or any Subsidiary to any Person to
which funds have been or are to be advanced on the security of such property
or rental obligations of the Company or any Subsidiary.
"SANIFILL AFFILIATE" means any corporation or other entity all of
the Voting Stock (or equivalent voting securities or interests) of which is
owned by Sanifill either directly or through Sanifill Affiliates.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SENIOR FUNDED DEBT" means the excess, at any time, of (a) Funded
Debt at such time, over (b) Funded Debt that is Subordinated Debt at such
time.
"SENIOR LENDER" means any Person to whom the Company or any
Subsidiary owes any Debt (other than Subordinated Debt).
"SIGNIFICANT HOLDER" means (i) you, so long as you shall hold the
Note or any interest therein, or (ii) any other Person which holds Notes in
the original aggregate principal amount of at least $8,000,000.
"SUBSIDIARY" means any corporation or partnership organized under
the laws of any state of the United States of America which conducts the
major portion of its business in and makes the major portion of its sales to
Persons located in the United States or Canada, whose accounts are or are
required to be consolidated with the Company's under generally accepted
accounting principles and any other corporation or partnership if Investment
in or acquisition of such corporation or partnership is made in compliance
with paragraph 6B(2) and its accounts are or are required to be consolidated
with the Company's under generally accepted accounting principles.
"SUBORDINATED DEBT" means any other unsecured Debt of the Company
to any Person created and outstanding upon terms and conditions satisfactory
to the Significant Holders.
"THIRD PARTY" means all lessees, sublessees, licensees and other
users of the Properties, excluding those users of the Properties in the
ordinary course of the Company's business (consistent with its practices on
the Date of Closing) and on a temporary basis.
"TRANSFEREE" means any direct or indirect transferee of all or any
part of the Note by you under this Agreement.
"VOTING STOCK" means, with respect to any corporation, any shares
of stock of such corporation whose holders are entitled under ordinary
circumstances to vote for the election of directors of such corporation
(irrespective of whether at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any
contingency).
"WHOLLY-OWNED SUBSIDIARY" means any Subsidiary, all of the Voting
Stock of which shall, at the time of determination, be owned by the Company
or another Wholly Owned Subsidiary.
10B. ACCOUNTING PRINCIPLES, TERMS AND DETERMINATIONS. All
references in this Agreement to "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES"
shall be deemed to refer to generally accepted accounting principles in
effect in the United States at the time of application thereof. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all unaudited financial statements and certificates and
reports as to financial matters required to be furnished hereunder shall be
prepared, in accordance with generally accepted accounting principles,
applied on a basis consistent with the most recent audited consolidated
financial statements of the Company and its Subsidiaries delivered
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pursuant to clause (ii) of paragraph 5A, subject in the case of, interim
statements to normal year end adjustments and to the absence of footnotes.
11. MISCELLANEOUS.
11A. NOTE PAYMENTS. The Company agrees that it will make payments
of principal of, interest on, the Note, which comply with the terms of this
Agreement, by wire transfer of immediately available funds for credit (not
later than 12:00 p.m., New York City local time, on the date due) to the
account or accounts of such Holder, if any, as are specified in the
INFORMATION SCHEDULE, attached hereto, or in the case of any Holder not named
in the INFORMATION SCHEDULE or any Holder wishing to change the account
specified for it in the INFORMATION SCHEDULE, such account or accounts in the
United States as Sanifill may from time to time designate in writing,
notwithstanding any contrary provision herein or in any Note with respect to
the place of payment.
11B. EXPENSES. The Company agrees to pay and cause to be paid on
demand, and save Sanifill, each Holder and any Transferee harmless against
liability for the payment of all reasonable costs and expenses if any
(including reasonable counsel fees and expenses), in connection with the
enforcement (whether through negotiations, legal proceedings or otherwise) of
this Agreement and the Notes.
(b) THE COMPANY AGREES TO INDEMNIFY, DEFEND AND SAVE HARMLESS
SANIFILL AND ANY HOLDER OF ANY INTEREST IN THE NOTE, AND THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND ATTORNEYS, AND EACH OF THEM
("INDEMNIFIED PARTIES"), FROM AND AGAINST ALL CLAIMS, LOSSES AND LIABILITIES
GROWING OUT OF OR RESULTING FROM ANY FAILURE OF THE COMPANY TO PERFORM ITS
OBLIGATIONS UNDER THIS AGREEMENT OR THE NOTES (INCLUDING, WITHOUT LIMITATION,
ENFORCEMENT OF THIS AGREEMENT); PROVIDED THAT NO INDEMNIFIED PARTY SHALL BE
ENTITLED TO THE BENEFITS OF THIS SECTION 11B TO THE EXTENT ITS OWN GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT CONTRIBUTED TO ITS LOSS AND FURTHER
PROVIDED, THAT IT IS THE INTENTION OF THE COMPANY TO INDEMNIFY THE
INDEMNIFIED PARTIES AGAINST THE CONSEQUENCES OF THEIR OWN NEGLIGENCE.
(c) The obligations of the Company under Section 11B shall survive
any termination of this Agreement and the payment of the Notes.
The obligations of the Company under this paragraph 11B shall survive the
transfer of the Note or portion thereof or interest therein by Sanifill and
the payment of any Note.
11C. CONSENT TO AMENDMENTS. This Agreement may be amended, and the
Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, if the Company shall obtain the
written consent to such amendment, action or omission to act, of Sanifill or
any subsequent holder of the Note. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder
or under any Note shall operate as a waiver of any rights of any holder of
such Note. As used herein and in the Notes, the term "THIS AGREEMENT" and
references thereto shall mean this Agreement as it may be amended or
supplemented from time to time.
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11D. FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST
NOTES. The Notes are issuable in registered form without coupons in
denominations of at least $1,000,000, except as may be necessary to reflect
any principal amount not evenly divisible by $1,000,000. The Company shall
keep at its principal office a register in which the Company shall provide
for the registration of Notes and a record of transfers of the Notes. Upon
surrender for registration of transfer of any Note at the principal office of
the Company, the Company shall, at its expense, execute and deliver one or
more new Notes of like tenor and of a like aggregate principal amount,
registered in the name of such transferee or transferees. At the option of
the holder of any Note, such Note may be exchanged for other Notes of like
tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Note to be exchanged at the principal office of
the Company. Whenever any Notes are so surrendered for exchange, the Company
shall, at its expense, execute and deliver the Notes which the holder making
the exchange is entitled to receive. Each installment of principal payable
on each installment date upon each new Note issued upon any such transfer or
exchange shall be in the same proportion to the unpaid principal amount of
such new Note as the installment of principal payable on such date on the
Note surrendered for registration of transfer or exchange bore to the unpaid
principal amount of such Note. No reference need be made in any such new
Note to any installment or installments of principal previously due and paid
upon the Note surrendered for registration of transfer or exchange. Every
Note surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by a written instrument of transfer duly
executed, by the holder of such Note or such holder's attorney duly
authorized in writing. Any Note or Notes issued in exchange for any Note or
upon transfer thereof shall carry the rights to unpaid interest and interest
to accrue which were carried by the Note so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from the holder of any Note of the
loss, theft, destruction or mutilation of such Note and, in the case of any
such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of
like tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
11E. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due
presentment for registration of transfer, the Company shall treat the Person
in whose name any Note is registered as the owner and holder of such Note for
the purpose of receiving payment of principal of and interest on such Note
and for all other purposes whatsoever, whether or not such Note shall be
overdue, and the Company shall not be affected by notice to the contrary.
Subject to the preceding sentence, the holder of any Note may from time to
time grant participations in such Note to any Person (other than any Person
not an institutional investor) on such terms and conditions as may be
determined by such holder in its sole and absolute discretion.
11F. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Note, the transfer by Sanifill of any
interest in the Note or portion thereof or interest therein and the payment of
the Note and may be relied upon by any Transferee, regardless of any
investigation made at any time by or on behalf of Sanifill or any Transferee.
Subject to the preceding sentence, this Agreement, the Acquisition Agreement and
the Note embody the entire agreement and understanding between Sanifill
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and the Company and supersede all prior agreements and understandings
relating to the subject matter hereof.
11G. SUCCESSORS AND ASSIGNS; TRANSFER PROVISIONS. All covenants
and other agreements in this Agreement contained by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto (including, without limitation,
any Transferee) whether so expressed or not.
11H. DISCLOSURE TO OTHER PERSONS; CONFIDENTIALITY. The Company
acknowledges that the holder of any interest in the Note may deliver copies
of any financial statements and other documents or information, and disclose
any other information disclosed to such holder, by or on behalf of the
Company or any Subsidiary in connection with or pursuant to this Agreement
only to:
(i) Such holder's directors, officers, employees, agents and
professional consultants,
(ii) any other holder of any interest in the Note,
(iii) any Person to which such holder offers to sell such Note or
any part thereof, PROVIDED THAT each such Person agrees in writing to
observe the confidentiality standards described in this paragraph 11H,
(iv) any Person to which such holder sells or offers to sell a
participation in all or any part of the Note, PROVIDED THAT each such
Person agrees in writing to observe the confidentiality standards described
in this paragraph 11H,
(v) any Person from which Sanifill offers to purchase any security of
the Company, PROVIDED THAT each such Person agrees in writing to observe
the confidentiality standards described in this paragraph 11H,
(vi) any federal or state regulatory authority having jurisdiction
over such holder,
(vii) the National Association of Insurance Commissioners or any
similar organization, or
(viii) any other Person to which such delivery or disclosure may be
necessary or reasonably appropriate (a) in compliance with any law, rule,
regulation or order applicable to such holder, (b) in response to any
subpoena or other legal process or informal investigative demand or (c) in
connection with any litigation to which such holder is a party.
11I. NOTICES. All written communications provided for hereunder
(other than communications provided for under paragraph 2) shall be sent by
first class mail or nationwide overnight delivery service (with charges
prepaid) and
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(i) if to any Person listed in the INFORMATION SCHEDULE attached
hereto, addressed to it at the address specified for such communications in
such INFORMATION SCHEDULE, or at such other address as it shall have
specified in writing to the Person sending such communication; and
(ii) if to any Holder or holder of any Note which is not a Person
listed in such INFORMATION SCHEDULE, addressed to it at such address as it
shall have specified in writing to the Person sending such communication
or, if any such holder shall not have specified an address, then addressed
to such holder in care of the last holder of such interest in the Note
which shall have so specified an address to the Person sending such
communication; PROVIDED, HOWEVER, that any such communication to the
Company may also, at the option of the sender, be delivered by any other
means either to the Company at its address specified in the INFORMATION
SCHEDULE or to any authorized Officer of the Company.
Any communication pursuant to paragraph 2 shall be made by the method
specified for such communication in paragraph 2, and shall be effective to
create any rights or obligations under this Agreement only if, in the case of
a telephone communication, an Authorized Officer of the party conveying the
information and of the party receiving the information are parties to the
telephone call, and in the case of a telecopier communication, the
communication is signed by an Authorized Officer of the party conveying the
information, addressed to the attention of an Authorized Officer of the party
receiving the information, and in fact received at the telecopier terminal
the number of which is listed for the party receiving the communication in
the INFORMATION SCHEDULE or at such other telecopier terminal as the party
receiving the information shall have specified in writing to the party
sending such information.
11J. PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement
or the Note to the contrary notwithstanding, any payment of principal of or
interest on the Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day. If the date for any payment is
extended to the next succeeding Business Day by reason of the preceding
sentence, the period of such extension shall be included in the computation
of the interest payable on such Business Day.
11K. INDEPENDENCE OF COVENANTS. All covenants of the Company
hereunder shall be of independent effect so that if a particular action or
condition is not permitted by any one of such covenants, the fact that it
would be permitted by an exception to, or otherwise be within the other
limitations of, another covenant, shall not avoid the occurrence of an Event
of Default or Default if such action is taken or condition exists.
11L. GOVERNING LAW. IN ACCORDANCE WITH THE PROVISIONS OF SECTION
5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES
SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK.
35
<PAGE>
11M. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
11N. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
11O. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
11P. MAXIMUM INTEREST PAYABLE. The Company and any holders of an
interest in the Note specifically intend and agree to limit contractually the
amount of interest payable under this Agreement, the Note, any Related
Document and all other instruments and agreement related hereto and thereto
to the maximum amount of interest lawfully permitted to be charged under
applicable law. If applicable law is ever construed so as to tender usurious
any amounts called for under this Agreement, the Note or any Related
Document, or contracted for, charged, taken, reserved or received with
respect to the extension of credit evidenced hereby and thereby, or if
acceleration of maturity of the Note or if any prepayment by the Company
results in the Company having paid, or demand having been made on the Company
to pay, any interest in excess of that permitted by applicable law, then all
excess amounts theretofore received by Sanifill shall be credited on the
principal balance of the Note (or, if the Note have been or would thereby be
repaid in full, refunded to the Company), and the provisions of this
Agreement, the Note and any Related Document or demand on the Company shall
immediately be deemed reformed and the amounts thereafter collectible
hereunder and thereunder shall immediately be reduced, without the necessity
of the execution of any new document, so as to comply with applicable law,
but so as to permit the recovery of the fullest amount otherwise called for
hereunder and thereunder. The right to accelerate maturity of the Note does
not include the right to accelerate any interest which has not otherwise
accrued on the date of such acceleration, and Sanifill does not intend to
collect any unearned interest in the event of acceleration. All sums paid or
agreed to be paid to any other holders of an interest in the Note for the
use, forbearance or detention of the indebtedness evidenced hereby and
thereby shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the rate or amount of interest of account of
such indebtedness does not exceed the applicable usury ceiling. As used
herein, the term "INTEREST" means interest as determined under applicable
law, regardless of whether denominated as interest in this Agreement, the
Note or any Related Document. The provisions of this Paragraph 11P shall
control over all other provisions of this Agreement, any Note and any Related
Document.
11Q. LIMITED RECOURSE. No shareholder, officer, director, officer
or agent of the Company or any Subsidiary shall have any liability on the
Note or under any Related Document except to the extent such Person is a
party thereto or as otherwise pursuant to a written agreement expressly
assumed such liability. To be effective, such agreement must refer to the
Note or such Related
36
<PAGE>
Document and contain an unequivocal undertaking to assume liability
thereunder. Each of you and each Transferee by its acceptance of the Note,
hereby waives and releases such liability.
If you agree to the foregoing, please sign the form of acceptance
on the enclosed counterpart of this letter and return the same to the
Company, whereupon this letter shall become a binding agreement between the
Company and you.
Very truly yours,
US LIQUIDS INC.
By /s/ W. Gregory Orr
-----------------------------------------
Name: W. Gregory Orr
--------------------------------------
Title: President
--------------------------------------
The foregoing Agreement is
hereby accepted as of the
date first above written.
SANIFILL, INC.
By /s/ Bryan J. Blankfield
---------------------------------
Name: Bryan J. Blankfield
------------------------------
Title: Assistant Secretary
------------------------------
37
<PAGE>
INFORMATION
SANIFILL THE COMPANY
SANIFILL, INC. US LIQUIDS INC.
(1) All payments on account of the (1) Address for Notices:
Note shall be made by wire transfer
of immediately available funds for -----------------------------------
credit to:
-----------------------------------
Account No.
-------------- -----------------------------------
- -------------------------- Attention: President
- --------------------------
(2) Receipt of telephonic or facsimile
notices:
- --------------------------
(713)
- -------------------------- ---------------------
- -------------------------- (713)
---------------------
- --------------------------
(3) Authorized Officers:
(2) Address for all notices relating
to payments: ----------------------
Sanifill, Inc.
2777 Allen Parkway
Suite 700, Riviana Bldg.
Houston, Texas 77019
Attention:
(4) Recipient of telephonic or
facsimile prepayment notices:
- --------------------------
(713)
---------------------
(713)
---------------------
(5) Tax Identification No.:
-----------
(6) Authorized Officers: Michael W.
Harlan, H. Steven Walton
38
<PAGE>
- -----------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BY AND AMONG
SANIFILL, INC.,
CAMPBELL WELLS, L.P.
AND
CAMPBELL WELLS NORM, L.P.,
AS THE SELLERS,
AND
US LIQUIDS INC.,
AS THE BUYER
DECEMBER 2, 1996
- -----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.01 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . .3
2.01 The Transaction. . . . . . . . . . . . . . . . . . . . . . . . .3
2.02 Purchase Price. . . .. . . . . . . . . . . . . . . . . . . . . .4
2.03 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.04 Deliveries at Closing. . . . . . . . . . . . . . . . . . . . . .4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS. . . . . . . . . . . . .4
3.01 Organization . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.02 Qualification. . . . . . . . . . . . . . . . . . . . . . . . . .4
3.03 Authorizations; Approvals. . . . . . . . . . . . . . . . . . . .5
3.04 Brokers' Fees. . . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . .5
4.01 Organization . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.02 Qualification. . . . . . . . . . . . . . . . . . . . . . . . . .5
4.03 Authorizations; Approvals. . . . . . . . . . . . . . . . . . . .5
4.04 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . .6
4.05 Organizational Documents of Buyer. . . . . . . . . . . . . . . .6
4.06 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . .6
4.07 Brokers' Fees. . . . . . . . . . . . . . . . . . . . . . . . . .6
4.08 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . .6
4.09 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE V COVENANTS OF SELLERS AND BUYER . . . . . . . . . . . . . . . . . .6
5.01 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5.02 Conduct of Business Pending the Closing. . . . . . . . . . . . .7
5.03 Capitalization Pending the Closing . . . . . . . . . . . . . . .7
5.04 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
5.05 Commercially Reasonable Efforts. . . . . . . . . . . . . . . . .8
5.06 Delivery and Retention of Records. . . . . . . . . . . . . . . .8
5.07 Accounting Treatment . . . . . . . . . . . . . . . . . . . . . .8
5.08 Closure of Lacassine Facility. . . . . . . . . . . . . . . . . .8
5.09 Maintenance of Bonds . . . . . . . . . . . . . . . . . . . . . .9
5.10 Additional Wells . . . . . . . . . . . . . . . . . . . . . . . .9
5.11 Cooperation with Litigation. . . . . . . . . . . . . . . . . . .9
ARTICLE VI INDEPENDENT INVESTIGATION AND DISCLAIMER . . . . . . . . . . . . 10
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6.01 Independent Investigation and Disclaimer . . . . . . . . . . . 10
ARTICLE VII TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.01 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE VIII CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . 10
8.01 Conditions Precedent to Obligation of Each Party . . . . . . . 10
8.02 Additional Conditions Precedent to Obligations of Buyer. . . . 11
8.03 Additional Conditions Precedent to Obligations of Sellers. . . 11
ARTICLE IX INDEMNIFICATION AND ASSUMPTION . . . . . . . . . . . . . . . . . 12
9.01 By Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.02 By Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9.03 Exceptions to Indemnities. . . . . . . . . . . . . . . . . . . 13
9.04 Notice of Claim. . . . . . . . . . . . . . . . . . . . . . . . 13
9.05 Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . 14
9.06 Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.07 Exclusive Remedies; Survival of Representations and Warranties;
Limitation of Certain Liabilities; Insurance. . . . . . . . . 14
9.08 Waiver of Texas DTPA . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE X TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.01 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.02 Effect of Termination. . . . . . . . . . . . . . . . . . . . . 16
ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.01 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
11.02 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . 16
11.03 Public Statements. . . . . . . . . . . . . . . . . . . . . . . 17
11.04 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.05 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.06 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 17
11.07 Further Assurances . . . . . . . . . . . . . . . . . . . . . . 18
11.08 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
11.11 Entire Agreement; No Third Party Beneficiaries . . . . . . . . 18
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Annex I -- Purchased Assets
Annex II -- Assumed Liabilities
Annex III -- Bonds
Exhibit A -- Form of Note
Exhibit B -- Form of Warrant
Exhibit C -- Term Sheet for Note Purchase Agreement
Exhibit D -- Form of Seller Noncompetition Agreement
Exhibit E -- Form of Buyer Noncompetition Agreement
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into as
of this 2nd day of December, 1996 by and among Sanifill, Inc., a Delaware
corporation ("Sanifill"), Campbell Wells, L.P., a Delaware limited
partnership ("Campbell Wells"), and Campbell Wells NORM, L.P., a Delaware
limited partnership ("Campbell Wells NORM" and, together with Sanifill and
Campbell Wells, the "Sellers"), and US Liquids Inc., a Delaware corporation
("Buyer"). Sellers and Buyer are referred to collectively herein as the
"Parties" and individually as a "Party."
RECITALS:
WHEREAS, Buyer desires to purchase from Sellers, and Sellers desire to
sell to Buyer, the Purchased Assets (as hereafter defined) pursuant to the terms
of this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained, the Parties hereto
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 DEFINED TERMS. Capitalized terms not otherwise defined herein or
in the recitals to this Agreement used in this Agreement shall have the meanings
ascribed to them in this Section 1.01.
"AFFILIATE" shall mean with respect to any Person, any Person which,
directly or indirectly, controls, is controlled by, or is under a common control
with, such Person. The term "control" (including the terms "controlled by" and
"under common control with") as used in the preceding sentence means the
possession, directly or indirectly, of the power to direct or cause the
direction of management and policies of a Person, whether through the ownership
of voting securities, by contract, or otherwise.
"ASSUMED LIABILITIES" shall have the meaning given such term in
Section 2.01.
"BUYER INDEMNIFIED LIABILITIES" shall have the meaning given such term
in Section 9.01.
"BUYER MATERIAL ADVERSE EFFECT" shall mean any material and adverse
effect on the assets, liabilities, financial condition, business, operations,
affairs or circumstances of Buyer.
"BUYER NONCOMPETITION AGREEMENT" shall have the meaning given such
term in Section 8.03(b).
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"BUYER PARTIES" shall have the meaning given such term in Section
9.01.
"CLAIM" shall mean all demands, claims, actions, investigations,
causes of action, proceedings and arbitrations, whether or not ultimately
determined to be valid.
"CLAIM NOTICE" shall have the meaning given such term in Section
9.04(b).
"CLOSING" shall have the meaning given such term in Section 2.03.
"CLOSING DATE" shall have the meaning given such term in Section 2.03.
"DEDUCTIBLE AMOUNT" shall mean $200,000.
"DISCLOSURE SCHEDULE" shall have the meaning given such term in the
first sentence of Article III.
"ELECTION PERIOD" shall have the meaning given such term in Section
9.05.
"GOVERNMENTAL AUTHORITY" shall mean the United States and any state,
county, city or other political subdivision, agency, court or instrumentality.
"INDEMNIFIED PARTY" shall have the meaning given such term in Section
9.04(a).
"INDEMNIFYING PARTY" shall have the meaning given such term in Section
9.04(a).
"LACASSINE FACILITY" shall mean that disposal facility located in
Lacassine, Louisiana.
"LAWS" shall mean any constitution, statute, code, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
applicable Governmental Authority.
"LOSS" shall mean all debts, liabilities, obligations, losses,
damages, costs and expenses (including, without limitation, interest including
prejudgment interest in any litigated matter), penalties, fines, court costs and
reasonable attorneys' fees and expenses, judgments and settlements.
"MAN DAY" shall mean that measure of time equal to one employee
working for a full workday of not less than eight hours.
"NOTE" shall have the meaning given such term in Section 2.02.
"NOW" shall mean nonhazardous oil field waste associated with the
exploration and production of oil, gas and geothermal energy, that contains less
than 30 picocurries per gram of Radium 226 or 228.
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<PAGE>
"PARTIES" shall have the meaning given in the introductory paragraph
of this Agreement.
"PERSON" shall mean any natural person, firm, partnership,
association, corporation, limited liability company, trust, entity, public body
or government.
"PURCHASE PRICE" shall have the meaning given such term in Section
2.02.
"PURCHASED ASSETS" shall have the meaning given such term in Section
2.01.
"RECORDS" shall have the meaning given such term in Section 5.06.
"RETAINED LIABILITIES" shall have the meaning given such term in
Section 2.01.
"SELLER MATERIAL ADVERSE EFFECT" shall mean any material and adverse
effect on the ownership or operation of the Purchased Assets, taken as a whole.
"SELLER NONCOMPETITION AGREEMENT" shall have the meaning given such
term in Section 8.02(b).
"SELLER PARTIES" shall have the meaning given such term in Section
9.02.
"TERMINATION DATE" shall mean January 31, 1997.
"THIRD-PARTY CLAIM" shall mean a Claim asserted against an Indemnified
Party by a Person other than a party to this Agreement or any Affiliate thereof
that could give rise to a right of indemnification under this Agreement.
"WARRANTS" shall have the meaning given such term in Section 2.02.
ARTICLE II
PURCHASE AND SALE
2.01 THE TRANSACTION. Subject to and in accordance with the terms and
conditions of this Agreement, at the Closing, Sellers agree to sell, transfer,
convey and assign to Buyer the Purchased Assets and the Assumed Liabilities,
effective as of the Closing Date, for the Purchase Price. Subject to and in
accordance with the terms and conditions of this Agreement, Buyer agrees to
acquire and purchase from Sellers the Purchased Assets owned by Sellers,
effective as of the Closing Date, for the payment to Sellers equal to the
Purchase Price. For purposes of this Agreement, the term "Purchased Assets"
shall mean all of the assets of Campbell Wells and Campbell Wells NORM described
in ANNEX I hereto, and the term "Assumed Liabilities" shall mean all of the
liabilities of Campbell Wells and Campbell Wells NORM described in ANNEX II
hereto. All liabilities other than (i) the Assumed Liabilities and
(ii) liabilities and obligations attributable to the use or operation of the
Purchased Assets for the period of time occurring on and after the Closing Date
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<PAGE>
(collectively, the "Retained Liabilities") shall remain the responsibility of
Sellers (including, without limitation, litigation in existence prior to the
Closing Date).
2.02 PURCHASE PRICE. The Purchase Price shall consist of (i) a note
in the amount of $27,800,000, plus interest at the rate of 7.5% per annum, which
note shall be substantially in the form of EXHIBIT A hereto and shall be issued
pursuant to a Note Purchase Agreement to be entered into by the parties hereto
(the "Note"), and (ii) warrants to purchase 2,000,000 shares of common stock of
Buyer, par value $.01 per share ("Buyer Common Stock"), with an exercise price
of $1.00 per share, which warrants shall be substantially in the form of EXHIBIT
B hereto (the "Warrants").
2.03 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Baker & Botts,
L.L.P., One Shell Plaza, 910 Louisiana, Houston, Texas 77002 at 10:00 a.m.,
local time, on the second business day following satisfaction of the conditions
to closing set forth in Article VIII, or at such other time, date or place as
the Parties shall agree (the "Closing Date").
2.04 DELIVERIES AT CLOSING. At the Closing (a) Sellers will deliver
to Buyer the various certificates, instruments, and documents referred to in
Section 8.02, including the Seller Noncompetition Agreement, (b) Sellers will
deliver to Buyer bills of sale and assignment of the Purchased Assets, (c) Buyer
will deliver to Sellers the various certificates, instruments and documents
referred to in Section 8.03, including the Buyer Noncompetition Agreement and
(d) Buyer will deliver to Sellers the Note and the Warrants.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby represent and warrant to Buyer as follows:
3.01 ORGANIZATION. Sanifill is a corporation duly organized, validly
existing and in good standing under the laws of the State of Louisiana. Each of
Campbell Wells and Campbell Wells NORM is a limited partnership duly formed and
validly existing under the laws of the State of Louisiana..
3.02 QUALIFICATION. Sanifill is duly qualified to transact business
as a foreign corporation and is in good standing in the State of Texas and in
each other jurisdiction in which the nature of the business as now conducted or
the character of the property owned or leased by it makes such qualification
necessary, except where the failure to be so qualified or in good standing would
not have a Seller Material Adverse Effect. Each of Campbell Wells and Campbell
Wells NORM is duly registered to transact business in the State of Louisiana and
in each other jurisdiction in which the nature of its business as now conducted
or the character of the property owned or leased by it makes such qualification
necessary, except where the failure to be so qualified would not have a Seller
Material Adverse Effect.
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<PAGE>
3.03 AUTHORIZATIONS; APPROVALS. The execution and delivery by Sellers
of this Agreement and the performance of their obligations hereunder have been
duly and validly authorized by all requisite corporate and partnership action.
This Agreement has been duly executed and delivered by Sellers, and this
Agreement constitutes the legal, valid and binding obligation of Sellers,
enforceable against them in accordance with its terms, except insofar as the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether such principles are considered in a
proceeding at law or in equity).
3.04 BROKERS' FEES. Sellers do not have any liability or obligation
to pay any fees or commissions to any broker, finder or agent with respect to
the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
4.01 ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation.
4.02 QUALIFICATION. Buyer is duly qualified to transact business as a
foreign corporation and is in good standing in the State of Louisiana and in
each other jurisdiction in which the nature of the business as now conducted or
the character of the property owned or leased by it makes such qualification
necessary, except where the failure to be so qualified or in good standing would
not have a Buyer Material Adverse Effect.
4.03 AUTHORIZATIONS; APPROVALS. The execution and delivery by Buyer
of this Agreement and the performance of its obligations hereunder have been
duly and validly authorized by all requisite corporate action. This Agreement
has been duly executed and delivered by Buyer, and this Agreement constitutes
the legal, valid and binding obligation of Buyer, enforceable against it in
accordance with its terms, except insofar as the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether such principles are considered in a proceeding at law or in equity).
Buyer does not need to give any notice to, make any filing or register with, or
obtain any consent, approval, authorization, waiver, permit, certificate or
order of any Governmental Authority to consummate the transactions contemplated
by this Agreement.
4.04 ABSENCE OF CONFLICTS. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby will, to
the knowledge of Buyer, violate or breach the terms of, cause a default under,
conflict with, result in acceleration of, create in any party the right to
accelerate, terminate, modify or cancel or require any notice under (a) any
-5-
<PAGE>
applicable Law, (b) the charter or bylaws of Buyer, or (c) any material
contract, agreement, lease, license or other arrangement to which Buyer is a
party or by which it or any of its properties are bound.
4.05 ORGANIZATIONAL DOCUMENTS OF BUYER. True and complete copies of
Buyer's charter and bylaws, each as amended through the date hereof, have been
delivered to Sellers prior to the date hereof.
4.06 CAPITALIZATION. The authorized capital stock of Buyer consists
solely of 30,000,000 shares of Buyer Common Stock, of which 6,753,000 shares are
issued and outstanding as of the date hereof.
4.07 BROKERS' FEES. Buyer does not have any liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
4.08 INVESTMENT. Buyer, together with its directors, officers and
advisors, is familiar with investments of the nature of the Purchased Assets,
understands that this investment involves substantial risks, has adequately
investigated the Purchased Assets and the Assumed Liabilities, has substantial
knowledge and experience in financial and business matters such that it is
capable of evaluating, and has evaluated, the merits and risks inherent in
purchasing the Purchased Assets, and is able to bear the economic risks of such
investment.
4.09 LITIGATION. There are no actions, suits, proceedings or
governmental investigations or inquiries pending or, to the knowledge of Buyer,
threatened against Buyer or any of its properties, assets, operations or
businesses that might delay, prevent or hinder the consummation of the
transactions contemplated hereby.
ARTICLE V
COVENANTS OF SELLERS AND BUYER
5.01 ACCESS.
(a) Upon reasonable notice and at Buyer's sole risk, liability and
expense, and during normal business hours, Sellers shall afford Buyer and
its representatives reasonable access, from the date hereof until the
Closing Date, to the Purchased Assets and any contracts, books, records and
data of Sellers specifically relating to the Purchased Assets. Buyer's
investigation shall be conducted in a manner that does not unreasonably
interfere with Sellers' normal operations. Buyer agrees to maintain the
confidentiality of all such information. BUYER HEREBY AGREES TO DEFEND,
INDEMNIFY, RELEASE, PROTECT, SAVE AND HOLD HARMLESS THE SELLERS AND THEIR
AFFILIATES, DIRECTORS, OFFICERS, PARTNERS AND AGENTS FROM AND AGAINST ANY
AND ALL LOSSES ARISING OUT OF OR RELATING TO ANY CLAIMS RELATING
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TO ANY SITE VISIT OR OTHER DUE DILIGENCE ACTIVITY CONDUCTED BY BUYER OR
ANY OF ITS AGENTS, REPRESENTATIVES, AFFILIATES, OFFICERS, REPRESENTATIVES
OR DIRECTORS, INCLUDING ANY LOSSES RESULTING IN WHOLE OR IN PART FROM THE
CONCURRENT OR JOINT NEGLIGENCE OF SELLERS (BUT NOT THE SOLE NEGLIGENCE OR
STRICT LIABILITY OF SELLERS).
(b) For a period of two years following the Closing Date, Sellers
shall afford Buyer and its representatives, for the sole purpose of
preparing financial statements and tax returns of Buyer, reasonable access
to its books, records and data to the extent that such books, records and
data concern the Purchased Assets or the operation of Campbell Wells and
Campbell Wells NORM prior to the Closing Date.
5.02 CONDUCT OF BUSINESS PENDING THE CLOSING. Sellers covenant and
agree that, from the date of this Agreement until the Closing Date, unless Buyer
shall otherwise agree or as otherwise contemplated by this Agreement:
(a) Sellers will operate the Purchased Assets in the ordinary course
of business;
(b) Sellers will refrain from entering into any transaction or
contract relating directly to any of the Purchased Assets, other than in
the ordinary course of business;
(c) Sellers will not sell, assign or dispose of any of the Purchased
Assets, or incur or assume any liabilities with respect to any of the
Purchased Assets, other than any sales, assignments or dispositions made,
or liabilities incurred, in the ordinary course of business;
(d) Sellers will not waive any rights that, singly or in the
aggregate, are material to the Purchased Assets; and
(e) Sellers will maintain in full force and effect all insurance
currently maintained with respect to the Purchased Assets.
5.03 CAPITALIZATION PENDING THE CLOSING. Buyer covenants and agrees
that, from the date of this Agreement until the Closing Date, unless Sellers
shall otherwise agree in writing, Buyer shall not:
(a) make any change to its charter or bylaws as previously delivered
to Sellers;
(b) change in any manner its capitalization as set forth in Section
4.06 hereof; or
(c) commit itself to do either of the foregoing.
5.04 CONSENTS. Each of the Parties agrees to use commercially
reasonable efforts to obtain the authorizations, consents, orders and approvals
of Governmental Authorities and any other third parties that may be or become
necessary or advisable for the performance of its obligations
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pursuant to this Agreement and the consummation of the transactions
contemplated hereby and will cooperate in all reasonable respects with each
other in promptly seeking to obtain such authorizations, consents, orders and
approvals as may be necessary or advisable for the performance of their
respective obligations pursuant to this Agreement. In addition, each of the
parties shall make such filings or notices with any Governmental Authorities
as may be necessary or advisable. None of the Parties will take any action
that is reasonably likely to have the effect of delaying, impairing or
impeding the receipt of any required approvals and will use their
commercially reasonable efforts to secure such approvals as promptly as
possible.
5.05 COMMERCIALLY REASONABLE EFFORTS. Each of the Parties agrees to
use commercially reasonable efforts to obtain the satisfaction of all conditions
to Closing attributable to such Party in an expeditious matter.
5.06 DELIVERY AND RETENTION OF RECORDS. On or before the Closing
Date, Sellers will deliver or cause to be delivered to Buyer all files, records,
information and data specifically relating to the Purchased Assets
(collectively, the "Records"). Buyer agrees (a) to hold the Records and not to
destroy or dispose of any thereof for a period of six years from the Closing
Date or such longer time as may be required by law, and (b) following the
Closing Date, to afford to Sellers and their representatives (including, without
limitation, their accountants and counsel), during normal business hours, upon
reasonable request, full access to the Records and to Buyer's employees to the
extent that such access may be requested for any legitimate purpose; PROVIDED,
HOWEVER, that in the event of any litigation, nothing herein shall limit or
otherwise affect either Party's rights of discovery under applicable law.
5.07 ACCOUNTING TREATMENT. Each of the Parties agrees to treat the
transactions contemplated by this Agreement as a purchase for accounting
purposes.
5.08 CLOSURE OF LACASSINE FACILITY. Buyer hereby agrees to take
full responsibility and assume all liabilities relating to the closure and
any post-closure requirements of the Lacassine Facility; PROVIDED, HOWEVER,
that up to $1,300,000 of the costs incurred by Buyer in connection with such
closure and any post-closure requirements shall be reimbursed by Sellers.
Buyer shall send Sellers invoices on a monthly basis for all of such costs,
and Sellers shall cause such invoices to be paid not later than fifteen days
after receipt of such invoices.
5.09 MAINTENANCE OF BONDS. Sellers hereby agree to leave in place all
bonds maintained as of the date of this Agreement as set forth on ANNEX III
hereto with the Department of Natural Resources of the State of Louisiana until
December 31, 1997. Buyer shall promptly reimburse Sellers for (i) all costs and
expenses incurred in connection with the maintenance of such bonds from and
after the Closing Date and (ii) any amounts drawn on such bonds with respect to
operations or occurrences from and after the Closing Date.
5.10 ADDITIONAL WELLS. In the event that Buyer is required by the
Department of Natural Resources or the Department of Environmental Quality of
the State of Louisiana to construct or install additional water injection wells
with respect to its Mermentau, Bourg or Bateman Island facilities prior to
December 31, 1999, Sellers shall reimburse Buyer for its reasonable and
documented
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expenses incurred in connection with such construction or installation;
including compressors or other related equipment; PROVIDED, HOWEVER, that the
total of all such expenses to be reimbursed by Sellers shall not exceed
$1,600,000.
5.11 COOPERATION WITH LITIGATION.
(a) With respect to litigation existing as of the date hereof
included within the Retained Liabilities and involving any of Campbell
Wells, Campbell Wells NORM or the Purchased Assets, Buyer agrees to
cooperate fully in all aspects of such litigation to the extent requested
by Sellers including, without limitation, making its officers and employees
available to Sellers. Sellers shall reimburse Buyer for all out-of-pocket
costs incurred in connection with such cooperation and assistance. In the
event that the time devoted by Buyer's personnel to such cooperation and
assistance in any calendar month exceeds either (i) forty hours by any
single officer or employee or (ii) twenty Man Days in the aggregate,
Sellers shall pay to Buyer a per diem amount for all time in excess of such
limitation. Such per diem amount shall be equal to the daily base pay plus
30% of such base pay of the most highly compensated employee assisting with
such litigation during such month.
(b) Sellers agree to obtain the written consent of Buyer, which
consent shall not be unreasonably withheld, prior to settling any of the
litigation referred to in paragraph (a) above to the extent that such
settlement restricts or otherwise adversely affects (i) the ongoing
operations of any facility included within the Purchased Assets or (ii) any
permit relating to any of such facilities; PROVIDED, HOWEVER, that such
consent may not be withheld by Buyer unless such operating restrictions or
adverse affects have a material adverse effect on Buyer. For purposes of
this Section 5.11, the term "material adverse effect" shall mean effects
involving (i) capital expenditures or increased operating expenses the net
present value of which (based on a 12% discount rate) is $500,000 or more
or (ii) a decrease in net income the net present value of which (based on a
12% discount rate) is $500,000 or more. Unless otherwise expressly agreed
by the parties, Sellers will not be liable to Buyer for any of such capital
expenditures, increased operating expenses or decreased net income.
ARTICLE VI
INDEPENDENT INVESTIGATION AND DISCLAIMER
6.01 INDEPENDENT INVESTIGATION AND DISCLAIMER. Buyer acknowledges
that its officers have served as officers of Campbell Wells and Campbell Wells
NORM and will continue to serve as such through the Closing Date and, as such,
(i) it is intimately familiar with the Purchased Assets and the Assumed
Liabilities, (ii) it has more information and knowledge with respect to such
Purchased Assets and Liabilities than do the Sellers and (iii) it has had
sufficient access to the Purchased Assets and the Assumed Liabilities to enable
it to thoroughly evaluate the Purchased Assets and the Assumed Liabilities and
the risks associated therewith. Buyer further acknowledges that in making its
decision to enter into this Agreement and consummate the transactions
contemplated hereby, Buyer has relied solely on the basis of its own knowledge
and experience, its own independent investigation and the express
representations, warranties, covenants and agreements
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set forth in this Agreement. Accordingly, Buyer acknowledges that, except as
expressly set forth herein, Sellers have not made, AND SELLERS HEREBY
EXPRESSLY DISCLAIM AND NEGATE, ANY REPRESENTATION OR WARRANTY, EXPRESSED,
IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE RELATING TO (i) THE CONDITION
OF THE PURCHASED ASSETS (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR
EXPRESSED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
OF ENVIRONMENTAL CONDITION), (ii) THE NATURE OR EXTENT OF THE ASSUMED
LIABILITIES, (iii) ANY INFRINGEMENT BY SELLERS OF ANY PATENT OR PROPRIETARY
RIGHT OF ANY THIRD PARTY, AND (iv) ANY INFORMATION, DATA OR OTHER MATERIALS
(WHETHER WRITTEN OR ORAL) FURNISHED TO BUYER OR ITS REPRESENTATIVES BY OR ON
BEHALF OF SELLERS.
ARTICLE VII
TAX MATTERS
7.01 TRANSFER TAXES. Buyer shall be responsible for the payment of
all state and local transfer, sales, use or other similar taxes, if any,
resulting from the transactions contemplated by this Agreement.
ARTICLE VIII
CONDITIONS TO CLOSING
8.01 CONDITIONS PRECEDENT TO OBLIGATION OF EACH PARTY. The respective
obligations of each Party to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment of the following conditions at or
prior to the Closing Date:
(a) No order shall have been entered and remain in effect in any
action or proceeding before any federal, state, foreign or local court or
governmental agency or other federal, state, foreign or local regulatory or
administrative agency or commission that would prevent or make illegal the
consummation of the transactions contemplated by this Agreement and no
action or proceedings that has a reasonable likelihood of preventing or
materially hindering the transactions contemplated hereby shall have been
instituted, which shall not have been subsequently dismissed;
(b) Newpark Resources, Inc. ("Newpark") shall have consented to (i)
the assignment to Buyer of all contracts and agreements with Newpark that
are included within the Purchased Assets and (ii) Buyer's assumption of all
of the Assumed Liabilities evidenced by such contracts and agreements;
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(c) The parties shall have entered into a Note Purchse Agreement
pursuant to which the Note will be issued, the terms and conditions of
which are described in the Term Sheet attached hereto as EXHIBIT C; and
(d) Any and all other consents of third parties, including
Governmental Authorities (other than any consents that would customarily be
obtained after the Closing), necessary in connection with the transactions
contemplated hereby shall have been obtained or arrangements shall have
been made reasonably satisfactory to Buyer to allow Buyer to receive
substantially the same economic benefits as if all such consents had been
obtained.
8.02 ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The
obligation of Buyer to consummate the transactions contemplated by this
Agreement is also subject to the fulfillment of the following conditions at or
prior to the Closing Date:
(a) The representations and warranties of Sellers contained herein
shall be true and correct in all material respects as of the Closing Date
as though such representations and warranties had been made at and as of
that date (except to the extent that such representations and warranties
expressly speak as to some earlier date); all of the terms, covenants and
conditions of this Agreement to be complied with and performed by Sellers
on or prior to the Closing Date shall have been duly complied with and
performed in all material respects; and a certificate to the foregoing
effect, dated as of the Closing Date and signed by an executive officer of
each Seller or its general partner, as applicable, shall have been
delivered to Buyer; and
(b) Sellers shall have executed and delivered to Buyer a
noncompetition agreement substantially in the form of EXHIBIT D hereto (the
"Seller Noncompetition Agreement").
8.03 ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS. The
obligation of Sellers to consummate the transactions contemplated by this
Agreement are also subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) The representations and warranties of Buyer contained herein
shall be true and correct in all material respects as of the Closing Date
as though such representations and warranties had been made at and as of
that date (except to the extent that such representations and warranties
expressly speak as to some earlier date); all of the terms, covenants and
conditions of this Agreement to be complied with and performed by Buyer on
or prior to the Closing Date shall have been duly complied with and
performed in all material respects; and a certificate to the foregoing
effect, dated as of the Closing Date and signed by an executive officer of
Buyer, shall have been delivered to Sellers;
(b) Sellers shall have received the approval of the Board of
Directors of USA Waste, Inc., or any appropriate committee thereof; and
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(c) Buyer shall have executed and delivered to Sellers a
noncompetition agreement substantially in the form of EXHIBIT E hereto (the
"Buyer Noncompetition Agreement").
ARTICLE IX
INDEMNIFICATION AND ASSUMPTION
9.01 BY SELLERS. Subject to terms and conditions of this Article IX,
Sellers hereby agree to indemnify, defend and hold harmless Buyer, its
Affiliates and its and their respective directors, officers, employees and
agents (collectively, the "Buyer Parties"), from and against (i) the Retained
Liabilities and (ii) the following (collectively, the "Buyer Indemnified
Liabilities"): any Claim individually constituting a Loss in excess of $10,000
asserted against, imposed upon, or incurred by any Buyer Party, directly or
indirectly, arising out of or resulting from (a) the inaccuracy or breach of any
representation or warranty made by Sellers (other than with respect to the
Retained Liabilities) contained in or made pursuant to this Agreement, or
(b) the breach of any covenant or agreement of Sellers contained in or made
pursuant to this Agreement; PROVIDED, HOWEVER, that none of the Buyer Parties
shall be entitled to assert rights of indemnification by Sellers under clause
(ii) above of this Section 9.01 for Buyer Indemnified Liabilities unless and
until the aggregate of all such Buyer Indemnified Liabilities exceeds the
Deductible Amount (it being understood that such Buyer Indemnified Liabilities
shall accumulate until such time or times as the aggregate of all such Buyer
Indemnified Liabilities exceeds the Deductible Amount, whereupon the Buyer
Parties shall be entitled to indemnification by Sellers hereunder to the extent
of such excess, including, from such point forward, individual Claims of less
than $10,000. Notwithstanding the foregoing, Seller's maximum indemnification
obligation hereunder at any point in time shall be limited to the principal
amounts repaid under the Note to such point in time; PROVIDED, HOWEVER, that
Buyer may offset additional indemnification amounts, subject to the Deductible
Amount and the limitation on the maximum aggregate indemnification obligation
set forth in the next sentence, against future payments of principal under the
Note. In no event shall Sellers' maximum aggregate indemnification obligation
under this Article IX exceed $10,000,000.
9.02 BY BUYER. As of the Closing and subject to the indemnity
obligations of Sellers under Section 9.01, Buyer shall assume all of the Assumed
Liabilities, in addition to all of the obligations and liabilities that are
attributable generally to the ownership of the Purchased Assets following the
Closing, which assumption by Buyer is specifically made regardless of whether
any such obligations or liabilities are attributable to events or periods of
time prior to or after the Closing Date. Subject to the terms and conditions of
this Article IX, Buyer hereby agrees to indemnify, defend and hold harmless
Sellers, their Affiliates and their respective directors, officers, partners,
employees and agents (collectively, the "Seller Parties"), from and against the
following (collectively, the "Seller Indemnified Liabilities"); any Claim
individually constituting a Loss in excess of $10,000 asserted against, imposed
upon or incurred by any such person, directly or indirectly, arising out of or
resulting from (i) the inaccuracy or breach of any representation or warranty of
Buyer contained in or made pursuant to this Agreement, (ii) the breach of any
covenant or agreement of Buyer contained in or
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made pursuant to this Agreement, (iii) the ownership and operation of the
Purchased Assets from and after the Closing Date and (iv) the Assumed
Liabilities.
9.03 EXCEPTIONS TO INDEMNITIES. Notwithstanding anything to the
contrary set forth in Section 9.01, Buyer Indemnified Liabilities shall not
include any Claims to the extent such Claims are attributable to a breach of any
representation, warranty, covenant or agreement of Buyer under this Agreement.
Notwithstanding anything to the contrary set forth in Section 9.02, Seller
Indemnified Liabilities shall not include any Claims to the extent such Claims
are attributable to a breach of any representation, warranty, covenant or
agreement of Sellers under this Agreement.
9.04 NOTICE OF CLAIM. (a) For purposes of this Article IX, the term
"Indemnifying Party" when used in connection with a particular Claim shall mean
the party having an obligation to indemnify another party with respect to such
Claim pursuant to this Article IX, and the term "Indemnified Party" when used in
connection with a particular Claim shall mean the party having the right to be
indemnified with respect to such Claim by another party pursuant to this
Article IX.
(b) Promptly after any Indemnified Party becomes aware of facts
giving rise to a Claim by it for indemnification pursuant to this Article IX,
such Indemnified Party will provide notice thereof in writing to the
Indemnifying Party (a "Claim Notice") specifying the nature and specific basis
for such Claim and a copy of all papers served with respect to such Claim (if
any). For purposes of this Section 9.04(b), receipt by a Party of written
notice of any demand, assertion, claim, action or proceeding (judicial,
administrative or otherwise) by or from any person or entity other than a Party
that gives rise to a Claim on behalf of such Party shall constitute the
discovery of facts giving rise to a Claim by it and shall require prompt notice
of the receipt of such matter as provided in the first sentence of this Section
9.04(b). Each Claim Notice shall set forth a reasonable description of the
Claim and shall contain a statement to the effect that the Indemnified Party
giving the notice is making a claim pursuant to and formal demand for
indemnification under this Article IX. The Claim Notice shall set forth the
particular provision in this Article IX and any related provision in this
Agreement pursuant to which such indemnification claim is made. For example, if
an Indemnified Party elects to assert an indemnification claim for breach of the
Indemnifying Party's breach of representation, the Indemnified Party's Claim
Notice would provide that the Claim is asserted under Section 9.01(a) or
9.02(a)(i), as applicable, and that the representation allegedly breached is,
for example, the authorizations and approvals representation contained in
Section 3.03 or 4.03, as applicable.
9.05 THIRD-PARTY CLAIMS. (a) If an Indemnified Party shall have any
Third-Party Claim asserted against such Indemnified Party, the Indemnified Party
promptly shall transmit to the Indemnifying Party a Claim Notice relating to
such Third-Party Claim. Prior to the expiration of the 45-day period following
the Indemnifying Party's receipt of such notice (the "Election Period"), the
Indemnifying Party shall notify the Indemnified Party in writing as to
(i) whether the Indemnifying Party disputes its potential liability to the
Indemnified Party under this Article IX with respect to such Third-Party Claim
and (ii) whether the Indemnifying Party elects, at its sole cost and expense, to
defend the Indemnified Party against such Third-Party Claim.
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(b) If an Indemnifying Party notifies an Indemnified Party in writing
within the Election Period that the Indemnifying Party does not dispute its
potential liability to the Indemnified Party under this Article IX and that the
Indemnifying Party elects to assume the defense of the Third-Party Claim, then
the Indemnifying Party shall have the right to defend, at its sole cost and
expense, such Third-Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying Party in accordance
with this Section 9.05(b). The Indemnifying Party shall have full control of
such defense and proceedings, including any compromise or settlement thereof.
If requested by the Indemnifying Party, the Indemnified Party agrees to
cooperate fully with the Indemnifying Party and its counsel in contesting any
Third-Party Claim that the Indemnifying Party elects to contest, including,
without limitation, the making of any related counterclaim against the Person
asserting the Third-Party Claim or any cross-complaint against any Person. The
Indemnified Party shall have the right to participate in, but not control, any
defense or settlement of any Third-Party Claim controlled by the Indemnifying
Party pursuant to this Section 9.05(b) so long as such participation does not
unreasonably interfere with such defense or settlement, and shall bear its own
costs and expenses with respect to any such participation.
9.06 SUBROGATION. In the event that any Indemnified Party has a right
against a third party with respect to any damages, losses, costs or expenses
paid to such Indemnified Party by an Indemnifying Party, then such Indemnifying
Party shall, to the extent of such payment, be subrogated to the right of such
Indemnified Party.
9.07 EXCLUSIVE REMEDIES; SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
LIMITATION OF CERTAIN LIABILITIES; INSURANCE.
(a) Buyer and Sellers (i) agree that only actual damages shall be
recoverable under this Agreement and (ii) hereby waive any right to recover
special, punitive, consequential, incidental or exemplary damages.
Notwithstanding anything to the contrary in this Agreement, the indemnification
provisions of this Agreement shall be the exclusive remedy for any Claim based
upon this Agreement or the transactions described herein following the Closing.
In furtherance of the foregoing, all other remedies available at law or in
equity, in tort, contract or otherwise are hereby waived, released and
discharged by Sellers and Buyer. Indemnity obligations of any Indemnifying
Party shall be reduced by any insurance proceeds realized by any Indemnified
Party.
(b) The representations and warranties of Sellers contained herein
shall survive the Closing until the earlier of (i) thirty days after preparation
of Buyer's first full audited financial statements or (ii) December 31, 1997.
(c) The representations and warranties of Buyer contained herein
shall survive the Closing for a period of two years, except that Sellers' right
to seek indemnification with respect to any Claim arising out of or relating to
(i) Buyer's ownership and operation of the Purchased Assets from and after the
Closing Date and (ii) the Assumed Liabilities shall continue indefinitely
without expiration.
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(d) Neither Buyer Parties nor Seller Parties may assert any claim
under this Article IX based on facts constituting a breach of any of the
representations and warranties hereunder to the extent such person had actual
knowledge of such facts prior to the Closing Date.
9.08 WAIVER OF TEXAS DTPA. IT IS THE INTENT OF THE PARTIES THAT
SELLERS' AND BUYER'S RIGHTS AND REMEDIES WITH RESPECT TO THIS TRANSACTION AND
WITH RESPECT TO ALL ACTS OR PRACTICES OF SELLERS OR BUYER, PAST, PRESENT OR
FUTURE, IN CONNECTION WITH THIS TRANSACTION SHALL BE GOVERNED BY LEGAL
PRINCIPLES OTHER THAN THE TEXAS DECEPTIVE TRADE PRACTICES - CONSUMER
PROTECTION ACT, TEX. BUS. & COM. CODE ANN. Section 17.41 ET SEQ. (VERNON
1987 AND SUPP. 1994) (THE "DTPA"). AS SUCH, BUYER HEREBY WAIVES THE
APPLICABILITY OF THE DTPA TO THIS TRANSACTION AND ANY AND ALL DUTIES, RIGHTS
OR REMEDIES THAT MIGHT BE IMPOSED BY THE DTPA, WHETHER SUCH DUTIES, RIGHTS OR
REMEDIES ARE APPLIED DIRECTLY BY THE DTPA ITSELF OR INDIRECTLY IN CONNECTION
WITH OTHER STATUTES. BUYER ACKNOWLEDGES, REPRESENTS AND WARRANTS THAT IT IS
PURCHASING THE ASSETS COVERED BY THIS AGREEMENT FOR COMMERCIAL OR BUSINESS
USE; THAT BUYER OR ITS PARENT COMPANY HAS ASSETS OF FIVE MILLION DOLLARS
($5,000,000) OR MORE ACCORDING TO ITS MOST RECENT FINANCIAL STATEMENT
PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES; THAT
BUYER HAS KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT
ENABLE IT TO EVALUATE THE MERITS AND RISKS OF A TRANSACTION SUCH AS THIS; AND
THAT IT IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING POSITION WITH SELLERS.
BUYER EXPRESSLY RECOGNIZES THAT THE PRICE FOR WHICH SELLERS HAVE AGREED TO
SELL THE PURCHASED ASSETS AND PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT
HAS BEEN PREDICATED UPON THE INAPPLICABILITY OF THE DTPA AND THIS WAIVER OF
THE DTPA. BUYER FURTHER RECOGNIZES THAT SELLERS, IN DETERMINING TO PROCEED
WITH THE ENTERING INTO OF THIS AGREEMENT, HAVE EXPRESSLY RELIED ON THIS
WAIVER AND THE INAPPLICABILITY OF THE DTPA. BUYER AND SELLERS AGREE THAT THE
ABOVE WAIVER IS CONSPICUOUS AND IN SUBSTANTIALLY THE FORM REQUIRED BY SECTION
17.42(C)(3) OF THE DTPA.
ARTICLE X
TERMINATION
10.01 TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby abandoned as follows:
(a) By the mutual written consent of Buyer and Sellers at any time
prior to the Closing;
(b) By Buyer or Sellers if a final, non-appealable order to
restrain, enjoin or otherwise prevent the consummation of the transactions
contemplated hereby shall have been entered;
(c) By Sellers at any time prior to the Closing if the Closing
shall not have occurred on or before the Termination Date by reason of a
failure of any condition precedent under Section 8.01 or 8.03, unless the
failure results primarily from the breach by Sellers of any representation,
warranty or covenant contained in this Agreement; or
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(d) By Buyer at any time prior to the Closing if the Closing shall
not have occurred on or before the Termination Date by reason of a failure of
any condition precedent under Section 8.01 or 8.02, unless the failure
results primarily from Buyer itself breaching any representation, warranty or
covenant contained in this Agreement.
10.02 EFFECT OF TERMINATION. In the event of any termination of
this Agreement pursuant to Section 10.01, (i) Sellers and Buyer shall have no
obligation or liability to each other except that the provisions of Sections
5.01, 9.07 and 9.08 shall survive any such termination, and (ii) nothing
herein and no termination pursuant hereto will relieve any party from
liability for any breach of this Agreement prior to such termination or, with
respect to those provisions that survive such termination, prior to or
following termination.
ARTICLE XI
MISCELLANEOUS
11.01 EXPENSES. Sellers and Buyer shall each bear and pay all
costs and expenses incurred by it in connection with the transactions
contemplated by this Agreement.
11.02 WAIVER AND AMENDMENT. Any provision of this Agreement may be
waived at any time by the Party that is entitled to the benefits thereof.
This Agreement may not be amended or supplemented at any time, except by an
instrument in writing signed on behalf of each Party hereto. The waiver by
any Party hereto of any condition or of a breach of another provision of this
Agreement shall not operate or be construed as a waiver of any other
condition or subsequent breach. The waiver by any Party hereto of any of the
conditions precedent to its obligations under this Agreement shall not
preclude it from seeking redress for breach of this Agreement other than with
respect to the condition so waived.
11.03 PUBLIC STATEMENTS. Sellers and Buyer agree to consult with,
and obtain the approval of (which approval will not be unreasonably
withheld), each other prior to issuing any press release or otherwise making
any public statement with respect to the transactions contemplated hereby,
and shall not issue any such press release or make any such public statement
prior to such consultation and approval, except as may be required by law.
11.04 ASSIGNMENT. This Agreement shall inure to the benefit of and
will be binding upon the Parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not
be assignable by the Parties hereto without the prior written consent of the
other Parties hereto; PROVIDED, HOWEVER, that Buyer, upon written notice to
Sellers, may designate that the Purchased Assets be transferred and delivered
to a corporation or partnership wholly owned by Buyer (directly or
indirectly).
11.05 NOTICES. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (a)
delivered in person or by courier, (b) sent by telecopy or
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facsimile transmission, answer back requested, or (c) mailed, by registered
or certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
if to Sellers: Sanifill, Inc.
First City Tower, 1001 Fannin
Houston, Texas 77002
Attention: Corporate Secretary
Facsimile: (713) 942-6277
if to Buyer: US Liquids Inc.
71 Quiet Oak Circle
The Woodlands, Texas 77381-3163
Attention: W. Gregory Orr
Facsimile: (713) 298-1883
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 11.05. Such notices shall be
effective, (i) if delivered in person or by courier, upon delivery, (ii) if
sent by overnight delivery service, on the day following the date on which
such notice was sent, (iii) if sent by telecopy or facsimile transmission,
upon completion of transmission, or (iv) if mailed, on the date of delivery
as shown by the return receipt therefor.
11.06 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY
CHOICE OF LAW RULES THAT MAY DIRECT THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION.
11.07 FURTHER ASSURANCES. In case at any time after the Closing
Date any further action is necessary to carry out the purposes of this
Agreement including, without limitation, the transfer of the Purchased Assets
to Buyer and obtaining any post-Closing consents, Sellers and Buyer will take
or cause to be taken such further action (including the execution and
delivery of such further instruments and documents) as the other party
reasonably may request.
11.08 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall continue in full force and
effect and shall in no way be affected, impaired or invalidated unless such
an interpretation would materially alter the rights and privileges of any
party hereto or materially alter the terms of the transactions contemplated
hereby.
11.09 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
11.10 HEADINGS. The section headings herein are for convenience
only and shall not affect the construction hereof.
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<PAGE>
11.11 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement, including the Exhibits hereto and the Disclosure Schedule and any
other documents executed and delivered pursuant to this Agreement and the
Confidentiality Agreement constitute the entire agreements and supersede all
other prior agreements and understandings, both oral and written, among the
Parties or any of them, with respect to the subject matter hereof and neither
this nor any document delivered in connection with this Agreement, confers
upon any person not a party hereto any rights or remedies hereunder.
-18-
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as
of the date first above written.
SELLERS:
SANIFILL, INC.
By: /s/ Bruce E. Snyder
-----------------------------------------------
Name: Bruce E. Snyder
Title: Vice President
CAMPBELL WELLS, L.P.
By: SANIFILL GP HOLDING CO., INC.,
its General Partner
By: /s/ Bruce E. Snyder
------------------------------------------
Name: Bruce S. Snyder
Title: Vice President
CAMPBELL WELLS NORM, L.P.
By: SANIFILL GP HOLDING CO., INC.,
its General Partner
By: /s/ Bruce E. Snyder
------------------------------------------
Name: Bruce S. Snyder
Title: Vice President
BUYER:
US LIQUIDS INC.
By: /s/ W. Gregory Orr
-----------------------------------------------
Name: W. Gregory Orr
Title: President
-19-
<PAGE>
SELLER NONCOMPETITION AGREEMENT
This Noncompetition Agreement (the "Agreement") is made and entered into
this 13th day of December, 1996 (the "Effective Date"), by and between
SANIFILL, INC., a Delaware corporation ("Seller"), and US LIQUIDS INC., a
Delaware corporation ("Buyer");
RECITALS:
WHEREAS, Seller and Buyer have entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement"), dated as of December 2, 1996,
pursuant to which Buyer has agreed to purchase substantially all of the
assets of and to assume certain of the liabilities relating to Campbell
Wells, Ltd. and Campbell Wells Norm, Ltd., each a Delaware limited
partnership and a wholly owned subsidiary of Seller, in accordance with the
terms and subject to the conditions set forth in the Asset Purchase
Agreement; and
WHEREAS, it is a condition precedent to the closing under the Asset
Purchase Agreement that Buyer and Seller enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Seller and Buyer hereby agree as follows:
1. CERTAIN DEFINITIONS. The following terms used herein shall have
the following meanings:
AFFILIATE OR AFFILIATE - a Person that directly or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with the Person specified. For purposes of this definition,
"control" (including the terms "controlling," "controlled by" and "under
common control with") of a Person means the possession, directly or
indirectly, of the power to (a) vote 50% or more of the voting interests
in such Person or (b) direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise.
BUSINESS - Any one or more of the following activities: Collection,
Disposal and marketing, dealing in or soliciting orders for any of the
products, services or support activities included within the Business.
COLLECTION - The collection, transfer or transportation of NOW.
-1-
<PAGE>
COMPETITOR - Any Person that, directly or indirectly, engages in any
aspect of the Business within any portion of the Territory.
DISPOSAL - The treatment or disposal of NOW.
NOW - Nonhazardous oilfield waste associated with the exploration
and production of oil, gas and geothermal energy, that contains less than
30 picocuries per gram of Radium 226 or 228.
PERSON OR PERSON - Any individual, a corporation, a partnership,
an association, a trust or any other entity or organization, including a
government or political subdivision or any agency or instrumentality
thereof.
THE TERRITORY - Any part of the following: the States of Louisiana,
Texas, Mississippi and Alabama and the Gulf of Mexico.
2. NONCOMPETITION. Seller hereby agrees, for itself and on behalf of
its Affiliates, that, during the term of this Agreement, except as otherwise
permitted under this Agreement, neither it nor any of its Affiliates will,
within any part of the Territory, directly or indirectly, do any one or more
of the following: (a) engage in any aspect of the Business; (b) own any
interest in any Competitor; or (c) operate, join, control or otherwise
participate in any Competitor.
3. NO SOLICITATION. Seller hereby further agrees that it will not,
during the term of this Agreement, hire any employee of Buyer, or solicit,
induce or contact with a view toward soliciting or inducing, directly or
indirectly, any such employee to leave his or her employment with Buyer to
accept employment with Seller, except as otherwise agreed to in writing by
Buyer and Seller.
4. TERM. The term of this Agreement commences on the Effective Date
and shall continue until the fifth anniversary of the Effective Date.
5. PERMITTED ACTIVITIES. Notwithstanding the provisions of Section 2
of this Agreement:
(a) Seller and its Affiliates, as passive investors, may own up to
5% of the equity securities of any Person whose equity securities are
publicly traded. In addition, in connection with their business described in
subparagraph (b) below, Seller and its Affiliates shall be permitted from
time to time to acquire interests representing more than 5% of the equity
securities of Persons that derive less than 10% of their revenues from
activities that cause such Persons to be Competitors, PROVIDED that Seller or
its Affiliates or the Persons who engage in such competitive activities
promptly formulate plans to dispose of those aspects of such businesses that
cause such Persons to be Competitors and actually complete such dispositions
within 120 days after such interests are acquired by Seller or one or more of
its Affiliates.
-2-
<PAGE>
(b) Buyer recognizes and acknowledges that Seller and its
Affiliates are in the business of the collection, treatment and disposal of
numerous varieties of wastes, including, without limitation, municipal solid
wastes, construction and demolition debris, industrial nonhazardous wastes
and special wastes such as contaminated soil and sludges. Buyer agrees that
this Agreement relates only to the specific activities included within the
Business and within the Territory. This Agreement is not intended to limit
or otherwise affect the business of Seller or its Affiliates except as
expressly set forth herein, and the parties expressly acknowledge that,
except as set forth herein and in the Buyer Noncompetition Agreement of even
date herewith, the parties may compete in activities outside the scope of the
Business and the Territory.
(c) Buyer further recognizes and acknowledges that Parent and its
Affiliates from time to time enter into joint venture arrangements with
unaffiliated third parties ("Joint Venture Partners") and that some of such
Joint Venture Partners may engage in aspects of the Business in the
Territory. Without limiting the applicability of this Agreement to Seller and
its Affiliates and such joint ventures, Buyer agrees that the terms of this
Agreement shall not apply to Joint Venture Partners solely as a result of
their entering into joint venture arrangements with Seller or its Affiliates.
6. INJUNCTIVE RELIEF. Seller hereby stipulates and agrees that any
breach by it or by any of its Affiliates of this Agreement will cause
irreparable harm to Seller that cannot be reasonably or adequately
compensated by damages in an action at law and that, in the event of such
breach, Buyer shall be entitled to injunctive or other equitable relief.
7. SEVERABILITY. Seller acknowledges that it has carefully read and
considered the provisions of this Agreement and, having done so, agrees that
the restrictions set forth herein (including, but not limited to, the time
period of restriction and the geographical areas of restriction) are fair and
reasonable and are reasonably required to protect the interests of Buyer. In
the event that, notwithstanding the foregoing, any of the provisions of this
Agreement shall be held to be invalid or unenforceable, the remaining
provisions hereof shall nevertheless continue to be valid and enforceable, as
though the invalid or unenforceable parts had not been included herein. In
the event that any provision of this Agreement relating to time periods or
areas of restriction or both shall be declared by a court of competent
jurisdiction to exceed the maximum time periods or areas (or both) that such
court deems reasonable and enforceable, said time periods or areas of
restriction or both shall be deemed to become and thereafter shall be the
maximum time periods and areas which such court deems reasonable and
enforceable.
8. ENTIRE AGREEMENT; WAIVER. This Agreement, together with the Asset
Purchase Agreement and the other agreements specifically referred to therein,
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous oral agreements,
understandings, negotiations and discussions of the parties. No supplement,
modification or waiver of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided. Any failure to insist
on strict
-3-
<PAGE>
compliance with any of the terms and conditions of this Agreement shall not
be deemed a waiver of any such terms or conditions.
9. NATURE OF OBLIGATIONS. All covenants and obligations of Seller
hereunder shall be binding on Seller, its Affiliates and the assigns,
successors and legal representatives of each of them and shall inure to the
benefit of Buyer and any of its Affiliates that engage in any aspect of the
Business in any part of the Territory.
10. NOTICES. Any and all notices, demands, requests or other
communications hereunder shall be in writing and shall be deemed duly given
when personally delivered to or transmitted by overnight express delivery or
by facsimile to and received by the party to whom such notice is intended, or
in lieu of such personal delivery, overnight express delivery or facsimile
transmission, three days after deposit in the United States mail, first
class, certified or registered, postage prepaid, return receipt requested,
addressed to the applicable party at the address provided below. The parties
may change their respective addresses for the purpose of this Paragraph 10 by
giving notice of such change to the other party in the manner which is
provided in this Paragraph 10.
Seller: Sanifill, Inc.
First City Tower
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: Corporate Secretary
Facsimile No.: (713) 942-6277
With a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
Attention: Louise A. Shearer, Esq.
Facsimile No.: (713) 229-1522
Buyer: US Liquids Inc.
71 Quiet Oak Circle
The Woodlands, Texas 77381-3163
Attention: W. Gregory Orr
Facsimile No.: (713) 298-1883
-4-
<PAGE>
With a copy to:
Porter & Hedges
700 Louisiana, 35th Floor
Houston, Texas 77002
Attention: T. William Porter
Facsimile No.: (713) 228-1331
11. LAW GOVERNING. The provisions of this Agreement and all rights and
obligations hereunder shall be governed by and construed in accordance with
the internal laws of the State of Texas applicable to contracts made and to
be wholly performed within the State of Texas.
12. CAPTIONS. The captions in this Agreement are included for
convenience of reference only, do not constitute a part hereof and shall be
disregarded in the interpretation or construction hereof.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
SANIFILL, INC.
By: /s/ BRYAN J. BLANKFIELD
---------------------------
Name: Bryan J. Blankfield
Title: Asst. Sec.
US LIQUIDS INC.
By: /s/ W. GREGORY ORR
---------------------------
Name: W. Gregory Orr
Title: President
-6-
<PAGE>
BUYER NONCOMPETITION AGREEMENT
This Noncompetition Agreement (the "Agreement") is made and entered into
this 13th day of December, 1996 (the "Effective Date"), by and between
SANIFILL, INC., a Delaware corporation ("Seller"), and US LIQUIDS INC., a
Delaware corporation ("Buyer");
RECITALS:
WHEREAS, Seller and Buyer have entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement"), dated as of December 2, 1996,
pursuant to which Buyer has agreed to purchase substantially all of the
assets of and to assume certain of the liabilities relating to Campbell
Wells, Ltd. and Campbell Wells Norm, Ltd., each a Delaware limited
partnership and a wholly owned subsidiary of Seller, in accordance with the
terms and subject to the conditions set forth in the Asset Purchase
Agreement; and
WHEREAS, it is a condition precedent to the closing under the Asset
Purchase Agreement that Buyer and Seller enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Seller and Buyer hereby agree as follows:
1. CERTAIN DEFINITIONS. The following terms used herein shall have
the following meanings:
AFFILIATE OR AFFILIATE - a Person that directly or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with the Person specified. For purposes of this definition,
"control" (including the terms "controlling," "controlled by" and "under
common control with") of a Person means the possession, directly or
indirectly, of the power to (a) vote 50% or more of the voting interests in
such Person or (b) direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise.
BUSINESS - The collection, treatment and disposal of municipal solid
wastes, construction and demolition debris.
COLLECTION - The collection, transfer or transportation of NOW.
COMPETITOR - Any Person that, directly or indirectly, engages in any
aspect of the Business within any portion of the Territory.
-1-
<PAGE>
DISPOSAL - The treatment or disposal of NOW.
NOW - Nonhazardous oilfield waste associated with the exploration and
production of oil, gas and geothermal energy, that contains less than 30
picocuries per gram of Radium 226 or 228.
PERSON OR PERSON - Any individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or any agency or instrumentality
thereof.
THE TERRITORY - The United States of America.
2. NONCOMPETITION. Buyer hereby agrees, for itself and on behalf of
its Affiliates, that, during the term of this Agreement, except as otherwise
permitted under this Agreement, neither it nor any of its Affiliates will,
within any part of the Territory, directly or indirectly, do any one or more
of the following: (a) engage in any aspect of the Business; (b) own any
interest in any Competitor; or (c) operate, join, control or otherwise
participate in any Competitor.
3. NO SOLICITATION. Buyer hereby further agrees that it will not,
during the term of this Agreement, hire any employee of Seller, or solicit,
induce or contact with a view toward soliciting or inducing, directly or
indirectly, any such employee to leave his or her employment with Seller to
accept employment with Buyer, except as otherwise agreed to in writing by
Seller and Buyer.
4. TERM. The term of this Agreement commences on the Effective Date
and shall continue until the fifth anniversary of the Effective Date.
5. PERMITTED ACTIVITIES. Notwithstanding the provisions of Section 2
of this Agreement:
(a) Buyer and its Affiliates, as passive investors, may own up to
5% of the equity securities of any Person (other than Sanifill, Inc. or any
of its Affiliates, including, without limitation, USA Waste, Inc.) whose
equity securities are publicly traded. In addition, in connection with their
business described in subparagraph (b) below, Buyer and its Affiliates shall
be permitted from time to time to acquire interests representing more than 5%
of the equity securities of Persons that derive less than 10% of their
revenues from activities that cause such Persons to be Competitors, PROVIDED
that Buyer or its Affiliates or the Persons who engage in such competitive
activities promptly formulate plans to dispose of those aspects of such
businesses that cause such Persons to be Competitors and actually complete
such dispositions within 120 days after such interests are acquired by Buyer
or one or more of its Affiliates.
(b) Seller recognizes and acknowledges that, following
consummation of the transactions contemplated by the Asset Purchase
Agreement, Buyer will be in the business of Collection and Disposal;
remediation and closure of oilfield waste pits, including related loading and
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<PAGE>
hauling; and marketing, dealing in or soliciting orders for any of the
products, services or support activities related thereto. Seller agrees that
this Agreement relates only to the specific activities included within the
Business and within the Territory. This Agreement is not intended to limit
or otherwise affect the business of Buyer or its Affiliates except as
expressly set forth herein, and the parties expressly acknowledge that,
except as set forth herein and in the Seller Noncompetition Agreement of even
date herewith, the parties may compete in activities outside the scope of the
Business and the Territory.
(c) Seller further recognizes and acknowledges that Buyer from
time to time may enter into joint venture arrangements with unaffiliated
third parties ("Joint Venture Partners") and that some of such Joint Venture
Partners may engage in aspects of the Business in the Territory. Without
limiting the applicability of this Agreement to Buyer and such joint
ventures, Seller agrees that the terms of this Agreement shall not apply to
Joint Venture Partners solely as a result of their entering into joint
venture arrangements with Buyer.
6. REASONABLENESS OF TERRITORY. The parties hereby stipulate and
acknowledge that because (i) Seller and its Affiliates operate in a
significant number of states within the United States and (ii) Buyer expects
that it will expand its operations to additional states within the United
States during the Term, the scope of the Territory is necessary to protect
the legitimate interests of Seller and its Affiliates.
7. INJUNCTIVE RELIEF. Buyer hereby stipulates and agrees that any
breach by it or by any of its Affiliates of this Agreement will cause
irreparable harm to Seller that cannot be reasonably or adequately
compensated by damages in an action at law and that, in the event of such
breach, Seller shall be entitled to injunctive or other equitable relief.
8. SEVERABILITY. Buyer acknowledges that it has carefully read and
considered the provisions of this Agreement and, having done so, agrees that
the restrictions set forth herein (including but not limited to the time
period of restriction and the geographical areas of restriction) are fair and
reasonable and are reasonably required to protect the interests of Seller and
its Affiliates. In the event that, notwithstanding the foregoing, any of the
provisions of this Agreement shall be held to be invalid or unenforceable,
the remaining provisions hereof shall nevertheless continue to be valid and
enforceable, as though the invalid or unenforceable parts had not been
included herein. In the event that any provision of this Agreement relating
to time periods or areas of restriction or both shall be declared by a court
of competent jurisdiction to exceed the maximum time periods or areas (or
both) that such court deems reasonable and enforceable, said time periods or
areas of restriction or both shall be deemed to become and thereafter shall
be the maximum time periods and areas which such court deems reasonable and
enforceable.
9. ENTIRE AGREEMENT; WAIVER. This Agreement, together with the Asset
Purchase Agreement and the other agreements specifically referred to therein,
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous oral agreements,
understandings, negotiations and discussions of the parties. No supplement,
-3-
<PAGE>
modification or waiver of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the provisions
of this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided. Any failure to insist
on strict compliance with any of the terms and conditions of this Agreement
shall not be deemed a waiver of any such terms or conditions.
10. NATURE OF OBLIGATIONS. All covenants and obligations of Buyer
hereunder shall be binding on Buyer, its Affiliates and the assigns,
successors and legal representatives of each of them and shall inure to the
benefit of Seller and any of its Affiliates that engage in any aspect of the
Business in any part of the Territory.
11. NOTICES. Any and all notices, demands, requests or other
communications hereunder shall be in writing and shall be deemed duly given
when personally delivered to or transmitted by overnight express delivery or
by facsimile to and received by the party to whom such notice is intended, or
in lieu of such personal delivery or overnight express delivery or facsimile
transmission, 48 hours after deposit in the United States mail, first class,
certified or registered, postage prepaid, return receipt requested, addressed
to the applicable party at the address provided below. The parties may
change their respective addresses for the purpose of this Paragraph 11 by
giving notice of such change to the other party in the manner which is
provided in this Paragraph 11.
Seller: Sanifill, Inc.
First City Tower
1001 Fannin, Suite 4000
Houston, Texas 77002
Attention: Corporate Secretary
Facsimile No.: (713) 942-6277
With a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
Attention: Louise A. Shearer, Esq.
Facsimile No.: (713) 229-1522
Buyer: US Liquids Inc.
71 Quiet Oak Circle
The Woodlands, Texas 77381-3163
Attention: W. Gregory Orr
Facsimile No.: (713) 298-1883
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<PAGE>
With a copy to:
Porter & Hedges
700 Louisiana, 35th Floor
Houston, Texas 77002
Attention: T. William Porter
Facsimile No.: (713) 228-1331
12. LAW GOVERNING. The provisions of this Agreement and all rights and
obligations hereunder shall be governed by and construed in accordance with
the internal laws of the State of Texas applicable to contracts made and to
be wholly performed within the State of Texas.
13. CAPTIONS. The captions in this Agreement are included for
convenience of reference only, do not constitute a part hereof and shall be
disregarded in the interpretation or construction hereof. IN WITNESS
WHEREOF, the parties have duly executed this Agreement as of the date first
above written.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the date first above written.
SANIFILL, INC.
By: /s/ BRYAN J. BLANKFIELD
--------------------------------
Name: Bryan J. Blankfield
Title: Asst. Sec.
US LIQUIDS INC.
By: /s/ W. GREGORY ORR
--------------------------------
Name: W. Gregory Orr
Title: President
-6-
<PAGE>
[CONFORMED COPY]
NOW DISPOSAL AGREEMENT
This NOW Disposal Agreement (the "Agreement"), dated as of June 4,
1996, but effective as of the Effective Date (as defined below), is entered into
by and among Sanifill, Inc., a Delaware corporation ("Sanifill"), NOW Disposal
Operating Co., a Delaware corporation and an indirect wholly-owned subsidiary of
Sanifill ("Disposeco"), and Campbell Wells, Ltd., a Delaware limited
partnership, the equity interests of which are owned directly or indirectly by
Sanifill ("Campbell Wells").
WHEREAS, Campbell Wells is engaged, and Disposeco proposes to engage,
in the collection and disposal of nonhazardous oilfield waste; and
WHEREAS, the parties desire that Disposeco agree to deliver, and
Campbell Wells agree to accept at its Louisiana landfarms, certain quantities of
nonhazardous oilfield waste each year for the next 25 years; and
WHEREAS, the parties further desire to set forth the basis on which
the quantities of waste to be delivered by Disposeco and accepted by Campbell
Wells shall be calculated, the price to be paid by Disposeco to Campbell Wells
for such disposal and related activities, the procedures to be followed by the
parties in determining the locations to which waste is to be taken and the
procedures to be followed in effecting the transfer and receipt of such waste at
Campbell Wells' facilities;
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
following meanings (unless indicated otherwise, all Article and Section
references are to Articles and Sections in this Agreement):
ACTUAL VOLUME: For any Contract Year, the aggregate amount of NOW
actually delivered by or on behalf of Disposeco and accepted for disposal by
Campbell Wells in accordance with the provisions of this Agreement.
ADJUSTMENT DATES: June 30, 1998 and each subsequent December 31 and
June 30 during the term of this Agreement.
AFFILIATE: A Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with the
Person specified. For purposes of this definition, the term "control"
(including the terms "controlling," "controlled by" and "under common control
with") of a Person means the possession, direct or indirect, of the power to (i)
vote 50% or
<PAGE>
more of the voting interests in such Person or (ii) direct or cause the
direction of the management and policies of such Person, whether by contract
or otherwise.
ANNUAL VOLUME: For each Contract Year, the annual volume of NOW,
before consideration of Prior Years Adjustments, required to be delivered by
Disposeco to Campbell Wells for disposal at the Landfarms, which volume shall be
determined in accordance with Section 2.2.1.
COLLECTION. The collection, transfer or transportation of NOW.
CONTRACT YEAR: Twelve-month period commencing each July 1 during the
term of this Agreement; provided, however, that the first Contract Year shall be
the period commencing on the Effective Date and ending on June 30, 1997.
COVERED REGION: The States of Louisiana, Texas, Mississippi and
Alabama and the Gulf of Mexico.
CURRENT TEST PERIOD: For any Adjustment Date, the six-month period
commencing six months prior to such Adjustment Date and concluding on such
Adjustment Date.
DISPOSAL: The treatment or disposal of NOW.
EFFECTIVE DATE: The date Campbell Wells gives written notice to
Disposeco of the effectiveness of the Agreement.
EXCLUDED NOW: NOW generated and collected on land and delivered to
the Landfarms from the site where it was generated entirely by on-land
transportation.
FORCE MAJEURE: Substantial changes to laws, regulations or taxes
directly and materially affecting the rights, obligations, consideration or
ability to perform of the parties under this Agreement, including without
limitation, regulatory changes, the loss of environmental or other permits
directly and materially affecting the rights, obligations, consideration or the
ability to perform of the parties under this Agreement, acts of God, landslides,
lightning, forest fires, storms, hurricanes, floods, freezing, earthquakes,
civil disturbances, strikes, lockouts, other industrial disturbances, acts of
the public enemy, wars, blockades, public riots, breakage, explosions, accidents
to machinery, pipelines or materials or other cause, whether of the kind
enumerated or otherwise, which is not reasonably within the control of the party
claiming the existence of a Force Majeure.
LANDFARM AVERAGE VOLUME: For any Landfarm during each Contract
Year, the product of (a) the Annual Volume for such Contract Year less the Prior
Years Adjustment, if any, for such Contract Year multiplied by (b) the Median
Range for such Landfarm as set forth in Section 2.4.
LANDFARMS: The NOW disposal facilities owned and operated by Campbell
Wells designated as Elm Grove, LA (DNR Permit #OWD 89-1); Bourg, LA (DNR Permit
#90-10 OWD); Bateman Island, LA (DNR Permit #91-10 OWD); and Mermentau, LA (DNR
Permit #SWD 83-6).
2
<PAGE>
NOW: Nonhazardous oilfield waste associated with the exploration and
production of oil, gas and geothermal energy that contains less than 30
picocuries per gram of Radium 226 or 228. Without limiting the generality of
the foregoing, for waste disposed of in Louisiana, the term NOW shall include
all wastes containing less than 30 picocuries per gram of Radium 226 or 228
classified as NOW under Louisiana Statewide Order 29-B as currently in effect.
PRECEDING TEST PERIOD: For any Adjustment Date, the six month period
commencing 12 months prior to such Adjustment Date and concluding six months
prior to such Adjustment Date.
PREVAILING RATE: At any given time, the price Disposeco shall be
obligated to pay per barrel of NOW delivered to Campbell Wells and disposed at a
Landfarm in accordance with this Agreement as determined in accordance with
Section 3.1.
PERSON: Any individual, corporation, association, partnership, joint
venture, trust, estate or other entity or organization or government or any
agency or political subdivision thereof.
PRIOR YEARS ADJUSTMENT: Optional adjustments to Annual Volume
pursuant to Section 2.1 for any Contract Year as determined in accordance with
Section 2.3. The Prior Years Adjustment may be a negative number.
QUARTER: Calendar quarters commencing each January 1, April 1, July 1
and October 1; provided, however, that the first Quarter shall commence on the
Effective Date and end on September 30, 1996.
ZAPATA FACILITY: A NOW disposal facility owned and operated by
Campbell Wells located near Zapata, Texas.
ARTICLE II
DISPOSAL
2.1 DELIVERY AND ACCEPTANCE. In accordance with the terms and provisions
of this Agreement, during each Contract Year, Disposeco shall deliver to
Campbell Wells for disposal at the Landfarms a minimum amount of NOW equal to
(i) the Annual Volume of NOW for such Contract Year (ii) minus the Prior Years
Adjustment, if any, for such Contract Year as set forth in Section 2.3 (iii)
minus 92,500 barrels of NOW. Subject to the terms and conditions and the
limitations set forth in this Agreement, Campbell Wells shall accept for
disposal at the Landfarms all NOW delivered by or on behalf of Disposeco;
provided that in no event shall Campbell Wells be obligated to accept from or on
behalf of Disposeco for disposal at the Landfarms more than 2.22 million barrels
of NOW in any Contract Year. In the event Campbell Wells elects not to accept
NOW delivered by Disposeco in excess of 2.22 million barrels during any Contract
Year, Campbell Wells shall reject such waste in accordance with Section 5.6 of
this Agreement.
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2.2 ANNUAL VOLUME.
2.2.1 ANNUAL VOLUME. The Annual Volume of NOW during any Contract
Year shall be equal to the Preliminary Annual Volume (as defined in Section
2.2.2 below) (a) minus the Volume Adjustment (as defined in Section 2.2.3
below), if any, exercised by Disposeco in accordance with Section 2.2.4 during
such Contract Year, (b) minus the amount of NOW, if any, rejected by Campbell
Wells pursuant to Section 7.5(ii).
2.2.2 PRELIMINARY ANNUAL VOLUME. For each Contract Year, the
Preliminary Annual Volume of NOW shall be the lesser of (i) 33.33% of the total
barrels of NOW that Newpark Resources, Inc., a Delaware corporation ("Newpark"),
and its Affiliates accept, acquire, take possession of, procure, direct, control
or otherwise receive for processing and disposal during the Contract Year in the
Covered Region (with the exception of any NOW produced by third-party generators
which Newpark or its Affiliates treat and dispose of on the site at which the
NOW was generated) and (ii) 1,850,000 barrels of NOW, in each case excluding
injectable saltwater.
2.2.3 VOLUME ADJUSTMENT. Within 25 days after the end of each
Quarter, Campbell Wells shall determine the aggregate revenues actually received
by Sanifill, Campbell Wells and their Affiliates during such preceding Quarter
from the Collection or Disposal of NOW and other oilfield wastes, the
remediation and closure of oilfield waste pits, including related loading and
hauling, or onshore cleaning operations in the Covered Region, with the
exception of revenues attributable to extraordinary levies as described in
Section 3.5 and revenues from (i) the Disposal of Excluded NOW, (ii) the
Disposal at the Zapata Facility of NOW Collected within a 200-mile radius of the
Zapata Facility, including charges for such Collection or (iii) the Disposal of
NOW pursuant to this Agreement (the "Sanifill NOW Revenues"). The Volume
Adjustment for each Quarter shall be calculated by dividing the aggregate
Sanifill NOW Revenues for such Quarter by the Prevailing Rate for such Quarter.
Campbell Wells shall notify Disposeco (the "Volume Adjustment Notice") of the
Volume Adjustment within 25 days after the end of each Quarter. Notwithstanding
the foregoing, any Person who acquires any of the Landfarms, directly or
indirectly, shall become subject to this Section 2.2.3 as if it were Campbell
Wells; provided, however, that no revenues from operations of such Person or its
Affiliates that existed at the time of such acquisition shall be included in
calculations under this Section 2.2.3.
2.2.4 EXERCISE OF THE VOLUME ADJUSTMENT. Disposeco shall have the
option to decrease the Annual Volume for the current Contract Year (or, if
applicable, the subsequent Contract Year) by all or part of the Volume
Adjustment for any Quarter by notifying Campbell Wells in writing of its
intention to do so before the expiration of the fourth complete Quarter after
the end of the Quarter in which the Volume Adjustment Notice for such Volume
Adjustment is received. Volume Adjustments shall be exercised in the order in
which they are accrued. Any portion of the Volume Adjustment for any Quarter as
to which Disposeco fails to timely exercise such option shall expire.
2.3. CARRYFORWARD ACCOUNT; PRIOR YEARS ADJUSTMENT.
2.3.1 DETERMINATION OF CARRYFORWARD AMOUNT. Within 30 days after
the end of each Contract Year during the term of this Agreement, Disposeco shall
determine and notify Campbell Wells of the amount equal to the difference
between (i) the Actual Volume for such Contract Year and (ii) the Annual Volume
for such Contract Year. For any Contract Year in which the Annual
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Volume is more than the Actual Volume, the difference shall be referred to as
a "Negative Carryforward." For any Contract Year in which the Actual Volume
is more than the Annual Volume, the difference shall be referred to as a
"Positive Carryforward."
2.3.2 CARRYFORWARD ACCOUNT; INITIAL BALANCE. The parties shall
maintain a Carryforward Account. The initial balance of the Carryforward
Account shall be zero. The balance of the Carryforward Account shall be
increased by the amount of any Positive Carryforward; provided that the balance
of the Carryforward Account may not exceed 185,000 barrels. Any portion of a
Positive Carryforward which would cause the current balance of the Carryforward
Account to exceed 185,000 barrels shall be disregarded. The balance of the
Carryforward Amount shall be reduced by the amount of any Negative Carryforward.
The balance of the Carryforward Account may be negative.
2.3.3 REDUCTION IN BALANCE FROM UNUSED POSITIVE CARRYFORWARDS. In
the event that a Positive Carryforward accruing in any Contract Year is not
fully offset against Negative Carryforwards accruing prior to such Positive
Carryforward or within the two Contract Years immediately following the Contract
Year in which such Positive Carryforward accrued, the portion of such Positive
Carryforward not so offset shall be deducted from the positive balance of the
Carryforward Account as of the end of the second Contract Year after the
Contract Year in which such Positive Carryforward accrued. No such reduction
shall cause the balance in the Carryforward Account to be negative.
2.3.4 DELIVERIES FOLLOWING A NEGATIVE CARRYFORWARD ACCOUNT
BALANCE. Following any Contract Year in which a Negative Carryforward (the
"Triggering Carryforward") accrues causing the balance of the Carryforward
Account to become negative in any Contract Year, Disposeco shall be obligated to
deliver to Campbell Wells, over the two Contract Years immediately following the
Contract Year in which such Negative Carryforward accrued, amounts of NOW in
excess of the Annual Volumes for such Contract Years equal to the negative
Carryforward Account balance. In the event Disposeco fails to deliver such
amounts over the next two Contract Years, at the end of the second Contract
Year, Campbell Wells will invoice Disposeco, and Disposeco shall be obligated to
pay, an amount equal to the Prevailing Rate at the time multiplied by the
quantity of the remaining portion of the Triggering Carryforward. Upon receipt
of payment, the Carryforward Account balance shall be adjusted to reflect such
amounts as if they had been actually delivered during the preceding Contract
Year.
2.3.5 PRIOR YEARS ADJUSTMENT. In any Contract Year with a
positive Carryforward Account balance, the amount of the positive Carryforward
Account balance shall be applied as a Prior Years Adjustment pursuant to Section
2.1. Such amount so applied shall be subtracted from the Annual Volume for such
Contract Year in accordance with Section 2.1.
2.4 ALLOCATION OF NOW AMONG LANDFARMS. Unless otherwise provided in this
Agreement or agreed by the parties, on a Quarterly basis, deliveries of NOW by
Disposeco to all Landfarms shall be allocated to the individual Landfarms such
that the amount of NOW delivered to an individual Landfarm as a percentage of
NOW delivered to all Landfarms shall fall within the Permissible Range for such
Landfarm as set forth below. Upon request of any party, the parties agree to
meet at least annually to review the Permissible Ranges and to negotiate in good
faith to modify the Permissible Ranges as the parties deem appropriate. In the
event Disposeco delivers NOW to any Landfarm in
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excess of the Permissible Range for such Landfarm, Campbell Wells shall have
the right, but not the obligation, to reject such NOW in accordance with
Section 5.6. Rejection of NOW by Campbell Wells pursuant to this Section 2.4
shall not reduce the Annual Volume of NOW to be delivered by Disposeco for
such Contract Year or otherwise affect Disposeco's obligation to deliver NOW
in such quantities as are permissible or required under the terms of this
Agreement. Subject to Section 2.8, Disposeco shall use commercially
reasonable efforts to cause substantially all materials delivered by
Disposeco or its Affiliates to the Landfarm near Mermentau to be delivered by
truck.
Landfarm Median Range Permissible Range
-------- ------------ -----------------
Bourg, LA 40% 35% - 45%
Bateman Island, LA 50% 45% - 55%
Mermentau, LA 10% 5% - 15%
Elm Grove, LA N/A N/A
2.5 RADIUM CONCENTRATION. Notwithstanding anything contained in this
Agreement to the contrary, Campbell Wells shall not be obligated to accept NOW
from Disposeco at any Landfarm where such NOW (i) when combined with other NOW
in an individual treatment cell, would cause the weighted average concentration
of Radium 226 or 228 to exceed 5 pCi/gm, excluding background or (ii) would
require the loading of two or more treatment cells simultaneously to prevent the
weighted average concentration of Radium 226 or 228 from exceeding 5 pCi/gm,
excluding background. In the event Disposeco delivers NOW contravening the
foregoing sentence, Campbell Wells shall have the right, but not the obligation,
to reject such NOW in accordance with Section 5.6. Rejection of NOW by Campbell
Wells pursuant to this Section 2.5 shall not reduce the Annual Volume of NOW to
be delivered by Disposeco for such Contract Year or otherwise affect Disposeco's
obligation to deliver NOW in such quantities as are permissible or required
under the terms of this Agreement.
2.6 VARIANCE AS TO ALL LANDFARMS.
2.6.1 CONFLICT OF PROVISIONS. In the event of any irreconcilable
conflict between the provisions of Section 2.6 and the provisions of Sections
2.1 and 2.3, the provisions of Sections 2.1 and 2.3 shall control.
2.6.2 QUARTERLY VARIANCE. Subject to the other terms and
conditions of this Agreement and unless otherwise agreed in advance by the
parties, in every Quarter during the term of this Agreement, (a) Disposeco shall
be obligated to deliver to Campbell Wells for disposal at the Landfarms a
minimum of 20% of the Annual Volume of NOW for such Contract Year and (b)
Campbell Wells shall be obligated to accept from Disposeco for disposal at all
Landfarms a maximum of 555,000 barrels of NOW.
2.6.3 MONTHLY VARIANCE. Subject to the other terms and conditions
of this Agreement and unless otherwise agreed in advance by the parties,
Campbell Wells shall be obligated to accept from Disposeco for disposal at the
Landfarms a maximum of 250,000 barrels of NOW
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during any one month. The parties agree to cooperate to minimize monthly
variances in NOW delivered for disposal at the Landfarms.
2.7 VARIANCE AS TO INDIVIDUAL LANDFARMS. Subject to the other terms and
conditions of this Agreement and unless otherwise agreed in advance by the
parties, in each Quarter, Disposeco shall be obligated to deliver to each
Landfarm a minimum of 20% of the Landfarm Average Volume for such Landfarm for
such Contract Year and (b) Campbell Wells shall be obligated to accept from
Disposeco for disposal at such Landfarm a maximum of 33% of the Landfarm Average
Volume for such Landfarm for such Contract Year.
2.8 LIMITATION ON DELIVERIES TO LANDFARMS BY TRUCK. Notwithstanding
anything contained herein to the contrary, unless otherwise agreed by the
parties, Campbell Wells shall not be obligated to accept from Disposeco or its
Affiliates for disposal in any Contract Year more than 185,000 barrels of NOW
delivered by truck to the Landfarm near Mermentau or more than 75,000 barrels of
NOW delivered by truck to the Landfarm near Bourg.
2.9 ADJUSTMENTS FOR THE FIRST CONTRACT YEAR AND THE FIRST QUARTER. For
the first Contract Year, the fixed numerical volume amounts specified in
Section 2.1, Section 2.2.2(ii), Section 2.3 and Section 2.6.1 shall be
adjusted by multiplying such amounts by a fraction, the numerator of which
shall be the number of days in the first Contact Year and the denominator of
which shall be 365. For the first Quarter, the fixed numerical volume amount
specified in Section 2.6.2 shall be adjusted by multiplying such amount by a
fraction, the numerator of which shall be the number of days in the first
Quarter and the denominator of which shall be 91.
2.10 SCHEDULES ATTACHED. Attached to this Agreement are three Schedules
(Nos. 1, 2 and 3) that illustrate the operation of Sections 2.1 and 2.3. Such
Schedules are hereby incorporated into this Agreement by reference and
constitute an integral and material part of the parties' understanding.
ARTICLE III
PAYMENT
3.1 PREVAILING RATE. The initial Prevailing Rate shall be equal to $5.50
per barrel of NOW delivered to Campbell Wells and disposed of at a Landfarm, net
of all currently applicable taxes. The Prevailing Rate may be adjusted in
accordance with Section 3.2, provided that the Prevailing Rate shall never be
less than $5.50 per barrel.
3.2 ADJUSTMENTS TO THE PREVAILING RATE. On each Adjustment Date, the
Prevailing Rate shall be subject to an adjustment equal to the sum of the
following (the "Rate Adjustment"):
(i) 30% of the difference between the average waste disposal price
received by Disposeco and its Affiliates for NOW Disposal (not
including taxes and exclusive of charges to customers for
services, such as cleaning, off-loading, waste processing and
related operations) during the Current Test Period and such
average price during the Preceding Test Period; and
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(ii) 15% of the difference between the average price per barrel (not
including taxes) charged to customers received by Disposeco and
its Affiliates for NOW services (such as cleaning, off-loading,
waste processing and related operations) during the Current Test
Period and such average price during the Preceding Test Period.
Within 30 days after each Adjustment Date, Disposeco will determine the Rate
Adjustment and the adjusted Prevailing Rate (the "Current Rate") and will apply
the Current Rate retroactively to all invoices received from Campbell Wells for
the previous six-month period to determine the difference between (i) the
amounts which would have been invoiced if the Current Rate had been charged and
(ii) amounts actually invoiced under the previous Prevailing Rate (the "Invoice
Adjustment Amount"). Campbell Wells shall have 15 days to review Disposeco's
determination of the Rate Adjustment, the Current Rate and the calculation of
the Invoice Adjustment Amount. In the event the parties are not able to agree
on the proper calculation of such amounts after 15 days, the parties shall
submit the matter to Fast-Track Arbitration as set forth in Section 10.2. If
the Invoice Adjustment Amount is positive, Disposeco shall pay Campbell Wells
the Invoice Adjustment Amount within 15 days. If the Invoice Adjustment Amount
is negative, Disposeco shall be entitled to a credit for such amount against
future invoices from Campbell Wells. Disposeco hereby covenants and agrees that
it shall not during the term of this Agreement adjust fees for services covered
by clause (ii) of this Section 3.2 or fees for Disposal covered by clause (i) of
this Section 3.2 in a manner which is inconsistent with prevailing market
practice and is intended to deprive or has the effect of depriving Campbell
Wells of the full benefits of the adjustment to the Prevailing Rate provided for
herein.
3.3 ADDITIONAL SERVICES; DISPOSAL OF INJECTABLE SALTWATER. Pursuant to
this Agreement, Campbell Wells will perform standard off-loading and customary
handling services associated with disposal of NOW at no additional charge.
Campbell Wells will perform additional services, including, without limitation,
cleaning, upon request of Disposeco at the posted rates of Campbell Wells for
such services, or at such other rates as the parties may mutually agree upon.
All charges for such additional services shall be in addition to and independent
of the Prevailing Rate. Campbell Wells will accept injectable saltwater at the
Landfarms for disposal upon request of Disposeco at the posted rates of Campbell
Wells for disposal of injectable saltwater, or at such other rates as the
parties may mutually agree upon. All charges for disposal of injectable
saltwater shall be in addition to and independent of the Prevailing Rate.
3.4 BILLING. Campbell Wells shall invoice Disposeco on a monthly basis
for disposal fees, additional service fees and all other sums, including
inspection fees as set forth in Section 5.4 and Section 5.7, incurred pursuant
to this Agreement during the preceding calendar month. Disposeco agrees to pay
such charges due and owing hereunder to Campbell Wells on or before the 30th day
following the date of receipt of the invoice. In the event of a dispute as to
services rendered or payment owed, Disposeco shall pay the undisputed portion of
each invoice, and the parties shall resolve the dispute as provided in Section
10.2. Without limitation, amounts validly due and invoiced in accordance with
this Section 3.4 and all other amounts owed from one party to the other pursuant
to this Agreement, shall be payable within 30 days after invoice or notice and
thereafter shall accrue interest at a rate equal to the lower of 18% per annum
or the highest lawful rate, commencing with the date of receipt of the original
invoice or notice.
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3.5 EXTRAORDINARY LEVIES.
3.5.1 TAXES. Notwithstanding anything to the contrary contained
herein, if during the term of this Agreement there is levied upon Campbell
Wells or any of its Affiliates or upon the operations of Campbell Wells any
tax, assessment or charge (other than income taxes applicable generally) by
any governmental authority which tax, assessment or charge increases Campbell
Wells' costs to operate the Landfarms, Campbell Wells shall notify Disposeco
of the cause and the per barrel amount of the cost increase. Following the
effectiveness of the tax, assessment or charge giving rise to such fee,
Disposeco shall be obligated to pay such additional fee with regard to each
barrel of NOW delivered to a Landfarm by or on behalf of Disposeco or any of
its Affiliates, which fee shall appear on all invoices issued to Disposeco by
Campbell Wells.
3.5.2 LANDFARM ENVIRONMENTAL REGULATIONS. Notwithstanding
anything to the contrary contained herein, if during the term of this
Agreement there is a substantial change in regulatory requirements related to
the waste disposal business having general applicability to the handling,
treatment or disposal of NOW, which change increases in a material manner
Campbell Wells' costs to operate the Landfarms, (i) Campbell Wells shall
notify Disposeco of the cause and the per barrel amount of the cost increase,
(ii) Disposeco shall use commercially reasonable efforts to increase its
waste disposal prices so as to pass as much of such increased cost as is
commercially possible on to its customers and (iii) Disposeco shall pay to
Campbell Wells 100% of all revenues attributable to such increase in waste
disposal prices up to a maximum amount equal to the per barrel cost increase
multiplied by the barrels of NOW delivered to the Landfarms for disposal by
or on behalf of Disposeco or any of its Affiliates after the effectiveness of
such increase. If, after the application of this Section 3.5.2, the
difference between the increased costs of Campbell Wells resulting from such
regulatory change and the amount of the increased revenues received by
Campbell Wells pursuant to clause (iii) above is large enough to have a
material adverse effect on Campbell Wells, such change in regulation shall be
considered a Force Majeure event.
3.5.3 RIGHT OF INSPECTION. In the event Campbell Wells notifies
Disposeco of a cost increase pursuant to this Section 3.5, Disposeco shall
have the right to conduct a reasonable review of the calculations, working
papers and the books and records related to the determination of such fee
increase. All costs of such review shall be borne exclusively by Disposeco.
ARTICLE IV
TERM
The term of this Agreement shall be for a period of approximately
twenty-five years commencing on the Effective Date and ending on June 30,
2021, unless extended by mutual consent of the parties.
ARTICLE V
OPERATING PROCEDURES
5.1. COMPLIANCE WITH OPERATING PROCEDURES. Disposeco and its Affiliates
shall comply in all material respects with and abide by, and shall require their
employees, servants, agents,
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representatives, contractors, subcontractors, haulers and transporters to
comply in all material respects with and abide by, all applicable federal,
state and local laws, ordinances, permits, regulations, directives, codes,
standards and requirements relating to the subject matter of this Agreement
or the performance of services hereunder, as well as all of Campbell Wells'
rules, regulations, procedures and guidelines, written or oral, as the same
may be reasonably adopted and modified from time to time, including, without
limitation, all safety and/or security regulations, practices and procedures
and all procedures reasonably adopted by Campbell Wells in compliance with
its permits or utilized by Campbell Wells in the inspection, sampling and
testing of material delivered to the Landfarms for disposal.
5.2 INSPECTION AND TESTING BY DISPOSECO; NOTIFICATION. Disposeco
agrees that it shall inspect and test all materials accepted, acquired, taken
possession of, procured, directed, controlled or otherwise received by it
from third party generators or other parties for disposal (with the
exception of any NOW produced by third-party generators which Disposeco or
its Affiliates treat and dispose of on the site at which the NOW was
generated) to the extent required by applicable federal, state and local
laws, ordinances, permits, regulations, directives, codes, standards and
requirements. Disposeco shall promptly notify Campbell Wells if it becomes
aware of any unusual or special characteristics of any materials being
delivered to the Landfarms which cause such materials to require special
treatment, handling or care. Upon request by Campbell Wells, Disposeco shall
provide copies of all inspection and test results relating to material to be
disposed of at the Landfarms under the terms of this Agreement to Campbell
Wells upon delivery.
5.3 SHIPMENT AND DELIVERY OF NOW. Disposeco, its Affiliates and/or its
contractors and subcontractors shall be responsible for proper
containerization, preparation and labeling for shipment, shipment,
transportation and delivery to the Landfarms and shall comply fully with all
applicable federal, state and local laws, ordinances, permits, regulations,
directives, codes, standards and requirements in making such delivery to the
Landfarms. Sanifill, Campbell Wells and their Affiliates undertake no
responsibility whatsoever for the preparation, handling or transportation of
any material prior to acceptance of delivery as hereinafter provided.
5.4 INSPECTIONS.
5.4.1 BARGES. Upon arrival of any barge transporting material to
a Landfarm at the direction of Disposeco or any of its Affiliates, Campbell
Wells shall have the right to have an independent third party inspector
selected by Campbell Wells undertake an inspection of the barge transporting
material to the Landfarm for the purpose of determining (a) the volume of
materials delivered and (b) the condition of the barge on arrival at the
Landfarm. The costs of such inspector shall be split evenly between
Disposeco and Campbell Wells, and Disposeco's portion of such expense shall
be included on the monthly invoices prepared by Campbell Wells in accordance
with Section 3.4. Before any materials are off-loaded from the barge or any
inspection or testing is undertaken by Campbell Wells, the independent
inspector will provide the authorized representatives of Disposeco and
Campbell Wells with an inspector's report indicating the time and date, the
barge identification number and volume of waste materials in the barge. The
authorized representatives of the parties will indicate their acceptance of
the inspector's report by signing the report. In the event either authorized
representative disagrees with the volume determination, either authorized
representative may request that an additional independent third party
inspector prepare an inspector's report, the cost of which shall be borne by
the party requesting the same. If the parties are unable to agree on the
actual
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volume of waste after the preparation of the second inspector's report, the
two independent inspectors shall select a third independent inspector to
prepare an inspector's report, the cost of which will be borne half by
Disposeco and half by Campbell Wells. The final volume determination shall
be that volume agreed upon by the majority of the independent inspectors that
have inspected the barge. If the barge appears to be damaged in any
significant respect, the inspector shall summarize the apparent damage and
take photographs as appropriate to evidence the scope of the damage. The
authorized representative of Disposeco shall approve such damage summary by
executing the same prior to the time any material is off-loaded from the
barge. With regard to barges owned and operated by Disposeco, Campbell Wells
agrees that it shall not exercise its right to implement the procedures set
forth in this Section 5.4.1 unless the parties have previously had a dispute
or disagreement relating to the quantity of materials delivered to a Landfarm
by Disposeco or the condition of a barge owned and operated by Disposeco and
such dispute or disagreement was not amicably resolved within 30 days.
5.4.2 TRUCKS. Upon arrival of a truck transporting material to a
Landfarm on behalf of Disposeco or any of its Affiliates, Campbell Wells
personnel shall undertake an inspection to determine the volume of materials
delivered. Before any materials are off-loaded from the truck or any
inspection or testing is undertaken by Campbell Wells, Campbell Wells shall
prepare a receipt indicating the time and date and the volume of materials
in the truck. The driver of the truck shall indicate his or her acceptance of
the receipt by signing the receipt. In the event the driver disagrees with
the volume determination, Campbell Wells shall have the option of (i)
accepting the volume stated by the driver and preparing a receipt evidencing
such volume to be signed by the driver or (ii) rejecting such materials in
accordance with Section 5.6. Rejection of materials by Campbell Wells
pursuant to this Section 5.4.2 shall not reduce the Annual Volume of NOW to
be delivered by Disposeco for such Contract Year or otherwise affect
Disposeco's obligation to deliver NOW in such quantities as are required
under the terms of this Agreement.
5.5 INSPECTION AND TESTING OF MATERIAL. After all inspections, if any,
pursuant to Section 5.4 have been concluded, Campbell Wells shall conduct
inspections, testing and sampling using such equipment and procedures as are
required by or consistent with its permits. Campbell Wells may rely
exclusively on the results of its inspection in determining whether materials
delivered may be disposed at the Landfarm in accordance with its permits and
this Agreement. Disposeco authorizes Campbell Wells to retain samples and all
data relating thereto, including test results, for so long as required by
federal, state or local law, ordinance, permit, regulation, directive, code,
standard or requirement and additionally for so long as Campbell Wells in its
sole discretion shall determine.
5.6 ACCEPTANCE OR REJECTION OF MATERIAL.
5.6.1 ACCEPTANCE. Campbell Wells shall only be obligated to
accept waste materials at any Landfarm which are permissible under the permit
requirements of such Landfarm at the time of delivery. For a period of ten
days after the date of delivery, Campbell Wells shall have the right to
reject (or revoke any prior acceptance) all or any part of a shipment of
material delivered by or on behalf of Disposeco to a Landfarm if (i) such
material is not in accordance with the terms of this Agreement or (ii)
Campbell Wells concludes that such material exceeds the parameters of the
permits applicable to the Landfarm. Campbell Wells shall notify Disposeco of
any rejection in writing and shall state the reason therefor. The expiration
of such ten-day period without a rejection or a revocation of a prior
acceptance of material shall constitute "Final Acceptance" of such material.
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5.6.2 REJECTED MATERIAL. Rejected material shall remain at
Disposeco's risk and expense and shall not be deemed to be incorporated into
the Landfarm or come under the possession, custody, control or ownership of
Campbell Wells. Notwithstanding the foregoing, to the extent required by
federal, state or local law, ordinance, permit, regulation, directive, code,
standard or requirement, or by Campbell Wells' safety and/or security rules,
practices or procedures, Campbell Wells may detain any rejected materials,
including the vehicle and/or containers in which such rejected materials
arrived, and shall notify regulatory or other authorities wherever necessary
or appropriate to do so.
5.6.3 REMOVAL. In the event Campbell Wells rejects all or any
part of a shipment of material from Disposeco, after compliance in all
material respects with all regulatory and any other requirements involving
detention of such shipment, upon written request of Campbell Wells,
Disposeco, unless otherwise directed by a regulatory agency or other lawful
authority, shall promptly remove or cause to be removed from the Landfarm all
of the rejected material at Disposeco's risk and expense in a manner
consistent with all applicable federal, state and local laws, ordinances,
permits, regulations, directives, codes, standards and requirements. In the
event Disposeco fails to complete such removal by the fifth business day
after the date of the request by Campbell Wells, Campbell Wells, unless
otherwise required by law or regulation, may remove or cause to be removed
from the Landfarm any and all of the rejected material, and may containerize
and transport it or cause it to be containerized and transported to an
authorized storage site or returned to Disposeco at its nearest location.
Disposeco hereby authorizes Campbell Wells in such event to contract for such
storage for Disposeco's account. For its services, Campbell Wells shall
charge and Disposeco shall pay Campbell Wells' cost plus 15%. Any and all
material that Campbell Wells rejects shall remain property and the
responsibility of Disposeco at Disposeco's risk and expense.
5.7 THIRD-PARTY DELIVERIES. Campbell Wells may follow the procedures
set forth in this Article V with respect to any third-party generator's
vessels or vehicles containing materials that are delivered to any Landfarm
at the direction of Disposeco or its Affiliates. In addition, Campbell Wells
may establish and enforce other policies and procedures relating to the
independent inspection of any such third-party generator's vessels or
vehicles before the material contained in such vessels or vehicles shall be
accepted for disposal.
ARTICLE VI
COVENANTS, REPRESENTATIONS AND WARRANTIES OF DISPOSECO
Disposeco hereby covenants, represents and warrants to Sanifill and
Campbell Wells as follows:
6.1 ORGANIZATION AND QUALIFICATION. Disposeco (a) is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, (b) has all requisite power and authority to own, lease and
operate its properties and to carry on its business as it is now being conducted
and is proposed to be conducted and (c) is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the properties owned,
leased or operated by it or the nature of the business conducted or proposed to
be conducted by it makes such qualification or license necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed or
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in good standing would not have, either individually or in the aggregate, a
material adverse effect on the transactions contemplated hereby.
6.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Disposeco has all
requisite power and authority to enter into this Agreement and to perform its
obligations hereunder and consummate the transactions contemplated hereby.
The execution, delivery and performance by Disposeco of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of Disposeco. No action or
approval of the equity owners of Disposeco is necessary to authorize
Disposeco's execution or delivery of, or the performance of its obligations
under, this Agreement. This Agreement has been duly executed and delivered
by Disposeco and is a valid and binding obligation of Disposeco, enforceable
in accordance with its terms.
6.3 NO CONFLICT. The execution and delivery by Disposeco of this
Agreement does not, and exercise by Disposeco of its rights hereunder and the
consummation of the transactions contemplated hereby will not (a) require any
consent, approval, order or authorization of or other action by any
governmental entity on the part of or with respect to Disposeco; (b) require
on the part of Disposeco any consent by or approval of or notice to any other
Person; or (c) result in a violation of any law, rule, regulation, order,
judgment or decree applicable to Disposeco, except in any case covered by
(a), (b) or (c) where failure to obtain such consent or such violation would
not, either individually or in the aggregate, have a material adverse effect
on the transactions contemplated hereby.
6.4 LICENSED CARRIERS. Any carrier with which Disposeco contracts to
transport NOW and all of Disposeco's driver personnel shall at all times
relevant to the performance of services under this Agreement remain properly
licensed and otherwise fully qualified to perform the services required
hereunder.
ARTICLE VII
COVENANTS, REPRESENTATIONS AND WARRANTIES OF CAMPBELL WELLS
Campbell Wells hereby covenants, represents and warrants to Disposeco as
follows:
7.1 ORGANIZATION AND QUALIFICATION. Each of Campbell Wells and
Sanifill (a) is duly organized and validly existing under the laws of the
jurisdiction of its organization (and Sanifill is in good standing under such
laws), (b) has all requisite power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted and
(c) is duly qualified or licensed and in good standing to do business in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification or license
necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed or in good standing would not have, either individually
or in the aggregate, a material adverse effect on the transactions
contemplated hereby.
7.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Campbell Wells has all
requisite power and authority to enter into this Agreement and to perform its
obligations hereunder and consummate the transactions contemplated hereby.
The execution, delivery and performance by Campbell Wells of
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this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary action on the part of Campbell
Wells. No action or approval of the equity owners of Campbell Wells is
necessary to authorize Campbell Wells' execution or delivery of, or the
performance of its obligations under, this Agreement. This Agreement has
been duly executed and delivered by Campbell Wells and is a valid and
binding obligation of Campbell Wells, enforceable in accordance with its
terms.
7.3 NO CONFLICT. The execution and delivery by Campbell Wells of this
Agreement does not, and exercise by Campbell Wells of its rights hereunder
and the consummation of the transactions contemplated hereby will not (a)
require any consent, approval, order or authorization of or other action by
any governmental entity on the part of or with respect to Campbell Wells or
any of its Affiliates; (b) require on the part of Campbell Wells or any of
its Affiliates any consent by or approval of or notice to any other Person;
or (c) result in a violation of any law, rule, regulation, order, judgment or
decree applicable to Campbell Wells or any of its Affiliates, except in any
case covered by (a), (b) or (c) where failure to obtain such consent or such
violation would not, either individually or in the aggregate, have a material
adverse effect on the transactions contemplated hereby.
7.4 SERVICES AND EQUIPMENT. Campbell Wells possesses the business,
professional and technical expertise to handle, treat and dispose of NOW and
possesses the equipment, plant and employee resources required to perform
this Agreement. Campbell Wells shall use its commercially reasonable efforts
to turn all barges delivering materials to the Landfarms in a timely manner
consistent with the number of Disposeco and third-party generator barges on
site at such moment and with its general practice of giving priority to
third-party generators' barges. The equipment shall, at all times relevant
to the performance of services hereunder, be maintained in good and safe
condition and fit for use.
7.5 LICENSES AND PERMITS. As of the Effective Date, Campbell Wells
shall be duly licensed, permitted and authorized pursuant to all applicable
federal, state and local laws to handle, treat and dispose of NOW, and the
Landfarms will have been issued all licenses, permits and authorizations
required by all applicable federal, state and local laws. At any time during
the term of this Agreement, upon Disposeco's reasonable request, Campbell
Wells shall provide to Disposeco, at Disposeco's expense, a complete copy of
the current permits applicable to the operation of the Landfarms. During the
term of this Agreement, Campbell Wells shall use its best efforts to keep all
such licenses, permits and authorizations in effect and shall promptly notify
Disposeco if any such license, permit or authorization is to expire and not
be renewed or becomes the subject of any administrative or judicial action
seeking revocation or suspension; provided, however, that in the event any
Landfarm has not been issued all licenses, permits and authorizations
required to dispose of NOW as of the Effective Date of this Agreement or
should lose any such license, permit or authorization or for any other reason
terminate operation during the term of this Agreement, Campbell Wells shall,
subject to Article XI, have the option to (i) subject to Disposeco's
reasonable approval, direct the disposal of NOW delivered by Disposeco to any
of the other Landfarms, provided that Campbell Wells shall bear all actual
additional out-of-pocket costs arising therefrom, (ii) reject NOW delivered
by Disposeco in accordance with Section 5.6 without further obligation
hereunder, provided that the volume of such NOW shall be deducted from the
Annual Volume for the current Contract Year, or (iii) subject to Disposeco's
reasonable approval, transport NOW delivered by Disposeco and dispose of it
at any alternative disposal facility that is approved by Disposeco (which
approval shall not be unreasonably
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withheld) and licensed and permitted to receive NOW, pursuant to all the same
terms and provisions of this Agreement, including the payment of the
Prevailing Rate established under Section 3.1.
7.6 WORKERS' COMPENSATION. Campbell Wells shall comply in all material
respects with all applicable workers' compensation laws during the term of
this Agreement. In the event any work is performed by Campbell Wells' agent
or subcontractor, Campbell Wells shall obtain certification from such agent
or subcontractor that it too is in compliance in all material respects with
such laws or does not fall within the scope of such laws.
ARTICLE VIII
INSURANCE
8.1 INSURANCE COVERAGE. Campbell Wells and Disposeco, at their own
expense, shall procure and maintain in full force and effect during the term of
this Agreement the following kinds of insurance with limits of coverage equal to
or exceeding those limits specified therefor:
8.1.1 WORKERS' COMPENSATION; EMPLOYER'S LIABILITY. Workers'
Compensation Insurance shall be obtained in accordance with the provisions of
the applicable Workers' Compensation Law or similar laws of a state having
jurisdiction over any employee. Employer's Liability Insurance shall be
obtained with a minimum limit of liability of $1,000,000. To the extent
exposures fall, or may fall, within Federal jurisdictions, including the U.S.
Longshore and Harbor Workers' Compensation Act, the Defense Bases Act and the
Federal Employers Liability Act, extensions of coverage shall be obtained in
accordance with the requirements of such laws. Should operations occur where
maritime liability law, the Jones Act, or General Admiralty Law apply,
applicable coverages shall be required at limits of not less than $1,000,000.
8.1.2 GENERAL LIABILITY. Comprehensive or Commercial General
Liability Insurance, including Products/Completed Operations and Contractual
Liability, which shall cover the indemnity provisions contained in this
Agreement, shall be obtained with a combined single limit of not less than
$1,000,000 per occurrence for bodily injury and property damage.
8.1.3 AUTOMOBILE LIABILITY. Business or Commercial Automobile
Liability Insurance covering all owned, non-owned, and hired vehicles, shall
be obtained with a combined single limit of $1,000,000 per occurrence or
accident.
8.1.4 UMBRELLA LIABILITY. Umbrella Liability Insurance over the
foregoing coverages shall be obtained as applicable at limits of $10,000,000
per occurrence.
8.2 TERMS. All coverages shall be written through insurers authorized
to transact business in the states of operation and reasonably satisfactory
and acceptable to both parties. Each party shall be added as an additional
insured, and subrogation as to the policies of the other party shall be
waived as applicable. All policies will be endorsed to provide not less than
30 days written notice of cancellation, termination, non-renewal or material
change in the policy. Each party will furnish the other party certificates
of insurance evidencing compliance with the requires of Section 8.1.
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8.3 SITE FINANCIAL ASSURANCE AND ENVIRONMENTAL IMPAIRMENT LIABILITY.
To the extent available on commercially reasonable terms and subject to the
other terms of this Agreement, Campbell Wells shall (i) maintain policies of
environmental impairment liability insurance covering the ownership and
operation of the Landfarms in substantially such amounts and on such terms as
shall be in place on the Effective Date and (ii) comply with all applicable
federal or state governmental financial assurance requirements imposed in
connection with its operation of the Landfarms.
ARTICLE IX
INDEMNIFICATION
9.1 INDEMNIFICATION BY SANIFILL AND CAMPBELL WELLS. Sanifill and
Campbell Wells shall jointly and severally defend, indemnify and hold
harmless Disposeco and its Affiliates and their employees, officers, owners,
directors and agents, from and against any and all liabilities, penalties,
fines, forfeitures, demands, claims, causes of action, suits, judgments and
costs and expenses incidental thereto, including reasonable attorneys' fees,
which any or all of them may hereafter suffer, incur, be responsible for or
pay out as a result of personal injuries, property damage, or contamination
of or adverse effects on the environment, to the extent directly or
indirectly caused by, or arising from or in connection with (i) the
negligence, gross negligence or willful act or omission or willful misconduct
of Sanifill or Campbell Wells or any of their employees, officers, owners,
directors, agents or subcontractors in the performance of this Agreement;
(ii) the violation of any environmental rule, law or regulation by Sanifill
or Campbell Wells or any of their employees, officers, owners, directors,
agents or subcontractors; (iii) operations of the Landfarms, including,
without limitation, the receipt and disposal of waste delivered to the
Landfarms by Disposeco and others; or (iv) the breach of, misrepresentation
in, untruth in or inaccuracy in any representation, warranty or covenant of
Sanifill or Campbell Wells set forth in this Agreement.
9.2 INDEMNIFICATION BY DISPOSECO. Disposeco shall defend, indemnify
and hold harmless Sanifill and Campbell Wells and their Affiliates and their
employees, officers, owners, directors, agents and subcontractors, from and
against any and all liabilities, penalties, fines, forfeitures, demands,
claims, causes of action, suits, judgments and costs and expenses incidental
thereto, including reasonable attorneys' fees, which any or all of them may
hereafter suffer, incur, be responsible for or pay out with respect to claims
by third parties for personal injuries, property damage or other loss to the
extent directly or indirectly caused by, or arising from or in connection
with (i) the negligence, gross negligence or willful act or omission of
Disposeco, any of its employees, officers, owners, directors, agents or
subcontractors or any third-party generator acting at Disposeco's direction
in the performance of this Agreement, (ii) the violation of any environmental
rule, law or regulation by Disposeco, any of its employees, officers, owners,
directors, agents or subcontractors or any third-party generator acting at
Disposeco's direction; (iii) material delivered to any of the Landfarms by
Disposeco or any third-party generator acting at Disposeco's direction which
is not in accordance with the terms of this Agreement or otherwise not
permitted to be disposed at such Landfarm; or (iv) the breach of,
misrepresentation in, untruth in or inaccuracy in any representation,
warranty or covenant of Disposeco set forth in this Agreement.
9.3 INDEMNIFICATION PROCEDURES.
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9.3.1 Promptly after receipt by an indemnified party under this
Article IX of notice of the commencement of any action or proceeding
evidenced by service of process or other legal pleading, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party hereunder, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party
(i) will not relieve it from any liability that it may have to any
indemnified party under this Article IX unless and to the extent that the
indemnifying party has been prejudiced in any material respect by such
omission and (ii) will not relieve the indemnifying party from any liability
that it may have to any indemnified party other than under this Article IX.
If any such action or proceeding shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party (who shall not, except with
the consent of the indemnified party, be counsel to the indemnifying party),
and, after notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under this Article IX for any legal
or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless the named parties to such action
or proceeding (including any impleaded parties) shall include both an
indemnifying party and an indemnified party and the indemnified party shall
have been advised by counsel that there may be one or more defenses available
to such indemnified party that are different from or additional to those
available to the indemnifying party (in which case, if the indemnified party
notifies the indemnifying party that it wishes to employ separate counsel at
the expense of the indemnifying party (who shall promptly pay all such
expenses as incurred), the indemnifying party shall not have the right to
assume the defense of such action or proceeding on behalf of such indemnified
party).
9.3.2 If an indemnifying party, within a reasonable period of
time after notice by the indemnified party of the commencement of any action
or proceeding with respect to which the indemnified party is to make a claim
hereunder, fails to assume the defense thereof, the indemnified party shall
have the right (upon further notice to the indemnifying party) to undertake
the defense, compromise or settlement of such action or proceeding for the
account of the indemnifying party, subject to the right of the indemnifying
party to assume the defense of such action or proceeding at any time prior to
settlement, compromise or final determination thereof. The cost and expense
of any such defense and any judgment in any such action or proceeding shall
be borne by the indemnifying party, and, if paid by the indemnified party,
shall be reimbursed by the indemnifying party within thirty days after
receipt of invoice therefor.
9.3.3 Except as otherwise provided in Section 9.3.2, an
indemnifying party shall not be liable for any settlement of any litigation
or proceeding effected without its written consent. An indemnifying party
shall not, without the indemnified party's written consent, settle or
compromise any action or proceeding or consent to entry of any judgment that
would impose an injunction or other equitable relief upon the indemnified
party or that does not include as an unconditional term thereof the release
by the claimant or the plaintiff of such indemnified party from all liability
in respect of such action or proceeding.
ARTICLE X
DISPUTE RESOLUTION
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10.1 NEGOTIATION OF DISPUTES. In the event of any dispute or
disagreement arising out of or relating to the implementation and performance
of this Agreement, the parties agree to attempt to resolve such dispute in
good faith. Should a resolution of such dispute not be obtained within 15
days after the origination of the dispute, either party may submit the
dispute to arbitration in accordance with the provisions of this Article X by
written notice to the other party.
10.2 FAST-TRACK ARBITRATION FOR PAYMENT DISPUTES. Within 60 days
after the Effective Date of this Agreement, Campbell Wells and Disposeco
shall select an independent third party mutually acceptable to both parties
(the "Financial Arbitrator") and an alternate third party (the "Alternate")
to decide disputes to be referred to the Financial Arbitrator as provided in
Sections 3.2 and 3.4. The Financial Arbitrator and the Alternate shall have
experience in accounting and finance and the waste disposal business.
Disposeco or Campbell Wells may refer disputes arising under Sections 3.2 or
3.4 after the expiration of the negotiation period set forth in Section 10.1
by providing written notice to the Financial Arbitrator and the other party.
In the event the Financial Arbitrator is unavailable to resolve the dispute
within the time period stated in this Section 10.2, the dispute shall be
referred to the Alternate. The Financial Arbitrator or the Alternate, as
appropriate (the "Arbitrator"), shall be directed to resolve the dispute in
15 days after the referral. The parties shall cooperate in good faith in
providing the Arbitrator any information reasonably needed to resolve the
dispute. If the dispute relates to the accuracy of an invoice or a series of
invoices or to the accuracy of any calculations made by any party, the costs
and expenses of the arbitration shall be borne by the party referring the
dispute to arbitration unless the Arbitrator determines that the invoiced
amounts or calculations were in error by greater than 10% or $50,000, in
which case the costs and expenses shall be borne by the other party. If the
dispute relates to any other type of disagreement arising under Sections 3.2
and 3.4, the costs and expenses of the arbitration shall be borne by the
losing party, unless the Arbitrator finds that it would be manifestly unfair
to honor this provision and determines a different allocation of costs.
10.3 GENERAL ARBITRATION. Any claim, dispute or controversy arising
out of or relating to this Agreement or the breach thereof not settled in
accordance with the provisions of Sections 10.1 or 10.2 shall be submitted to
binding arbitration by the American Arbitration Association (the "AAA") for
arbitration in Houston, Texas, in accordance with the Commercial Arbitration
Rules of the AAA then in effect. There shall be three arbitrators, with each
party selecting one. The third arbitrator shall be selected by the two
party-selected arbitrators and shall be the chairperson of the panel. The
party requesting arbitration shall name its arbitrator in the demand for
arbitration and the other party shall name its arbitrator within 30 days
after receipt of the arbitration demand. The third arbitrator shall be named
within 30 days after the appointment of the second arbitrator. The AAA shall
be empowered to appoint any arbitrator not named in accordance with the
procedure set forth herein. The decision of the arbitrators shall be final
and binding upon the parties without the right to appeal to the courts. The
award rendered in arbitration shall be final and judgment thereon may be
entered by any court having jurisdiction thereof. The costs and expenses of
the arbitrations (including reasonable attorney's fees) will be borne by the
losing party, unless the arbitrators determine that it would be manifestly
unfair to honor this provision and determine a different allocation of costs.
10.4 APPLICABLE LAW AND ARBITRATION ACT. This agreement to arbitrate
shall be enforceable in either federal or state court. The enforcement of
this agreement to arbitrate and all procedural aspects of this agreement to
arbitrate, including, without limitation, the construction and interpretation
of this agreement to arbitrate, the scope of the arbitrable issues,
allegations of waiver,
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delay or defenses as to arbitrability, and the rules governing the conduct of
the arbitrations, shall be governed by and construed pursuant to the United
States Arbitration Act. In deciding the substance of any such claim, dispute
or disagreement, the arbitrators shall apply the substantive laws of the
State of Texas; provided, however, that the arbitrators shall have no
authority to award punitive damages under any circumstances regardless of
whether such damages may be available under Texas law, the parties hereby
waiving their right, if any, to recover punitive or consequential damages in
connection with any such claims, disputes or disagreements.
10.5 CONTINUATION OF PERFORMANCE. In the event of a dispute arising
under this Agreement, the parties shall continue performance of their
respective obligations hereunder.
ARTICLE XI
FORCE MAJEURE
11.1 SUSPENSION OF PERFORMANCE. If, as a result of a Force Majeure
event, either Campbell Wells or Disposeco is wholly or partially unable to
meet its obligations under this Agreement, the affected party shall give the
other party or parties notice of such situation, describing it in reasonable
detail. The obligations under this Agreement of the party giving notice,
other than the payment of monies due, shall be suspended to the extent and
for the duration of the Force Majeure event. The party affected by the Force
Majeure event shall use good faith efforts to attempt to rectify the
conditions brought about by the Force Majeure event in a commercially
reasonable manner. Notwithstanding anything to the contrary expressed
herein, the parties agree that the settlement of strikes, lockouts or other
industrial disturbances, and, subject to Article IX, litigation, including
appeals, shall be entirely within the discretion of the party involved
therein, and such party may make settlement thereof at such time, and on such
terms and conditions as it may deem to be advisable, and no delay in making
such settlement shall deprive such party of the benefit of this provision.
In the event a Force Majeure event is based on a change of law or
regulations, the parties agree to negotiate in good faith to modify or amend
this Agreement, if possible, to continue the intent and purposes of the
Agreement. Following the end of a Force Majeure event giving rise to a
suspension by Campbell Wells pursuant to this Section 11.1, the suspension of
the parties' obligation to perform shall continue for such time as is
commercially reasonable to permit Disposeco to resume deliveries to the
Landfarms, provided that such continuation period shall not exceed 21 days.
In the event of a suspension of performance, the rights and obligations of
the parties for the Contract Year or Contract Years and the Quarter or
Quarters during which such suspension is in effect shall be proportionately
reduced.
11.2 TERMINATION BECAUSE OF FORCE MAJEURE. If performance by one
party under this Agreement is suspended as a result of any event of Force
Majeure and either Disposeco or Campbell Wells determines that such suspension
is likely to continue for a period of at least six consecutive months, such
party may notify the other of its desire to meet to negotiate a modification or
amendment to this Agreement (the "Negotiation Notice"); provided that if neither
Campbell Wells nor Disposeco issues a Negotiation Notice following an event of
Force Majeure, a Negotiation Notice shall be deemed to have been given on the
date that performance by one party has been suspended as a result of such event
of Force Majeure for a period of six consecutive months. For a period of 60
days after the date of the Negotiation Notice or, if longer, until such
suspension has continued for six consecutive months (the "Negotiation Period"),
the parties agree to negotiate in good faith to
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modify or amend this Agreement, if possible, to continue the intent and
purposes of the Agreement. If no agreement is reached during the Negotiation
Period, either party may terminate this Agreement on 30 days' written notice;
provided that such termination shall only become effective if (i) the event
of Force Majeure is continuing at the end of such 30-day period, (ii) the
performance by one party under this Agreement has been suspended as a result
of the event of Force Majeure for at least six consecutive months and (iii)
the party electing to terminate will suffer a continuing material adverse
effect as a result of such event of Force Majeure after giving pro forma
effect to the final offer made by other party during the Negotiation Period
(taking into account all aspects of such offer, including without limitation
the ameliorative effects of such offer on the consequences of such Force
Majeure event and any negative effects of such offer on the party electing to
terminate). Any party with a right to terminate pursuant to this Section
11.2 must give written notice of its election to do so to the other parties
within 60 days after the end of the Negotiation Period. If such a party does
not elect to terminate the Agreement within such 60-day period, such party's
termination right with respect to such event of Force Majeure shall expire;
provided that the expiration of the former right to terminate shall not
preclude or estop such party from issuing a subsequent Negotiation Notice
under this Section 11.2 if the event of Force Majeure is continuing.
ARTICLE XII
MISCELLANEOUS
12.1 STATUS OF THE PARTIES. Each party hereto is and shall perform
this Agreement as an independent contractor, and as such, shall have and
maintain complete control over all of its employees, agents, and operations.
Except as expressly otherwise provided in this Agreement, neither party nor
anyone employed by it shall be, represent, act, purport to act or be deemed
to be the agent, representative, employee or servant of the other party.
12.2 NO SET-OFF RIGHTS. The parties hereby agree that neither party
shall have any right to set-off or apply against any sums due under this
Agreement any sums due or amounts otherwise owing pursuant to any other
provision of this Agreement or any other agreement or arrangement between the
parties.
12.3 SUBROGATION; ASSIGNMENT OF RIGHTS. In the event Disposeco
delivers and Campbell Wells accepts a delivery of materials (the
"Nonconforming Materials") containing hazardous or dangerous substances in
violation of this Agreement and in violation of Disposeco's agreement with
the third party generator producing such materials, Disposeco agrees that,
upon the request of Campbell Wells, Campbell Wells shall become fully
subrogated to the rights of Disposeco against such generator related to the
Nonconforming Materials, and Disposeco shall (i) assign or take such further
action as is necessary or desirable to transfer to Campbell Wells any and all
rights of action of Disposeco against such generator relating to such
Nonconforming Materials arising at law under Disposeco's agreement with such
generator or in equity and (ii) use its good faith best efforts to assist in
the prosecution of any claim brought by Campbell Wells against such third
party generator relating to the Nonconforming Materials.
12.4 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors and assigns. Campbell Wells and Disposeco may assign their
rights, obligations and duties under this Agreement with the written
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consent of the other parties to the Agreement, which consent shall not be
unreasonably withheld; provided that the assigning party shall remain
primarily liable for all obligations and duties arising hereunder.
12.5 NOTICES. Notices and other communications provided for herein
shall be in writing and shall be deemed to have been validly given (a) 3 days
after deposit in the United States mails, registered or certified mail with
proper postage prepaid and return receipt requested, (b) upon transmission
thereof and receipt of the appropriate confirmation if sent via telecopier or
telefax, (c) the business day after the same shall have been deposited with a
reputable overnight courier, shipping prepaid and (d) if delivered in person,
upon delivery, in each case addressed as follows:
If to Disposeco, to: with a copy to:
W. Gregory Orr Louise A. Shearer
President Baker & Botts. L.L.P.
Campbell Wells, Ltd. One Shell Plaza
2014 West Pinhook Road, Ste. 900 910 Louisiana
Lafayette, Louisiana 70508 Houston, Texas 77002-4995
ph: 318-266-7976 ph: 713-229-1286
fax: 318-266-7922 fax: 713-229-1522
If to Campbell Wells, to: with a copy to:
W. Gregory Orr Louise A. Shearer
President Baker & Botts. L.L.P.
Campbell Wells, Ltd. One Shell Plaza
2014 West Pinhook Road, Ste. 900 910 Louisiana
Lafayette, Louisiana 70508 Houston, Texas 77002-4995
ph: 318-266-7976 ph: 713-229-1286
fax: 318-266-7922 fax: 713-229-1522
If to Sanifill, to: with a copy to:
H. Steven Walton Louise A. Shearer
Secretary Baker & Botts. L.L.P.
Sanifill, Inc. One Shell Plaza
2777 Allen Parkway, Ste. 700 910 Louisiana
Houston, Texas 77019-2155 Houston, Texas 77002-4995
ph: 713-942-6200 ph: 713-229-1286
fax: 713-942-6299 fax: 713-229-1522
or such other address as any party shall specify by written notice so given.
12.6 NON-WAIVER. The failure of any party to enforce its rights under
any provision of this Agreement shall not be construed to be a waiver of such
provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other breach.
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12.7 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement between the parties concerning the subject matter hereof and
supersedes any and all other communications, representations, proposals,
understandings or agreements, either written or oral, between the parties
hereto with respect to such subject matter. This Agreement may not be
modified or amended, in whole or in part, except by a writing signed by both
parties hereto.
12.8 SEVERABILITY. If any provision of this Agreement is declared
invalid or unenforceable, then such portion shall be deemed to be severable
from this Agreement and shall not affect the remainder hereof.
12.9 HEADINGS. The Article and Section headings contained herein are
for reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
12.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
shall constitute one instrument.
12.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
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EXECUTED as of the day and year first above written.
NOW DISPOSAL OPERATING CO.
By:
-------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
SANIFILL, INC.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
CAMPBELL WELLS, LTD.
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
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EXECUTED as of the day and year first above written.
NOW DISPOSAL OPERATING CO.
By: /s/ W. Gregory Orr
-----------------------------------
W. Gregory Orr
President
SANIFILL, INC.
By: /s/ H. Steven Walton
-----------------------------------
H. Steven Walton
Secretary
CAMPBELL WELLS, LTD.
By: /s/ W. Gregory Orr
-----------------------------------
W. Gregory Orr
President
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SCHEDULE 1: DECREASING ACTUAL VOLUME OVER 10 YEAR PERIOD.
<TABLE>
- -----------------------------------------------------------------------------------------------------------
Carryforward
Prior Years Amount
Adjustment (=Actual Carryforward
(= to positive Annual Volume Actual Volume - Account -
Contract Carryforward (Assumed to be Volume Annual Year End
Year Acct. Bal.) 1,850/year) Minimum Volume (assumed) Volume) Balance
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 NA 1,850 1,757.5 2,000 150 150
(=1,850-92.5) (=0+150)
- -----------------------------------------------------------------------------------------------------------
2 150 1,850 1,607.5 2,000 150 185
(=1,850-150-92.5) (=150 + 150
subject to
maximum)
- -----------------------------------------------------------------------------------------------------------
3 185 1,850 1,572.5 1,900 50 185
(=1,850-185-92.5) (=185 + 50 -
150* subject
to maximum)
- -----------------------------------------------------------------------------------------------------------
4 185 1,850 1,572.5 1,900 50 85
(=1,850-185-92.5) (=185+50 -
150*)
- -----------------------------------------------------------------------------------------------------------
5 100 1,850 1,657.5 1,850 0 35
(=1,850-100-92.5) (=85+0-50)*
- -----------------------------------------------------------------------------------------------------------
6 50 1,850 1,707.5 1,850 0 0
(=1,850-50-92.5) (=35+0-
35**)
- -----------------------------------------------------------------------------------------------------------
7 NA 1,850 1,757.5 1,800 -50 -50
(=1,850-92.5) (0+-50)
- -----------------------------------------------------------------------------------------------------------
8 NA 1,850 1,757.5 1,800 -50 -100
(=1,850-92.5) (-50+-50)
- -----------------------------------------------------------------------------------------------------------
9 NA 1,850 1,757.5 1,775 -75 -125
(=1,850-92.5) (=50
credit***
-50-75)
- -----------------------------------------------------------------------------------------------------------
10 NA 1,850 1,757.5 1,975 125 0
(=1,850-92.5) (-125+125)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Pursuant to Section 2.3.3, the Positive Carryforward accruing in the
Contract Year two years earlier expires.
** Under the last sentence in Section 2.3.3, the reduction in account balance
resulting from the expiration of an earlier Positive Carryforward shall not
cause the balance of the Carryforward Account to become negative.
*** Pursuant to Section 2.3.4, Disposeco would be obligated in Contract Year 9
to pay an amount equal to 50,000 barrels multiplied by the Prevailing Rate
based on the Triggering Carryforward accruing in Contract Year 7.
25
<PAGE>
SCHEDULE 2: INCREASING ACTUAL VOLUME OVER 10 YEAR PERIOD.
<TABLE>
- -----------------------------------------------------------------------------------------------------------
Carryforward
Prior Years Amount
Adjustment (=Actual
(= to positive Annual Volume Actual Volume - Carryforward
Contract Carryforward (Assumed to be Volume Annual Account - Year
Year Acct. Bal.) 1,850/year) Minimum Volume (assumed) Volume) End Balance
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 NA 1,850 1,757.5 1,775 -75 -75
(=1,850-92.5) (=0+-75)
- -----------------------------------------------------------------------------------------------------------
2 NA 1,850 1,757.5 1,775 -75 -150
(=1,850-92.5) (=-75+-75)
- -----------------------------------------------------------------------------------------------------------
3 NA 1,850 1,757.5 1,800 -50 -125
(=1,850-92.5) (=75 credit*+
-75 + -50)
- -----------------------------------------------------------------------------------------------------------
4 NA 1,850 1,757.5 1,800 -50 -50
(=1,850-92.5) (=75 credit*+
-50 + -50)
- -----------------------------------------------------------------------------------------------------------
5 NA 1,850 1,757.5 1,850 0 0
(=1,850-92.5) (=50 credit*+
0)
- -----------------------------------------------------------------------------------------------------------
6 NA 1,850 1,757.5 1,850 0 0
(=1,850-92.5) (=0+0)
- -----------------------------------------------------------------------------------------------------------
7 NA 1,850 1,757.5 1,900 50 50
(=1,850-92.5) (0+50)
- -----------------------------------------------------------------------------------------------------------
8 50 1,850 1,707.5 1,900 50 100
(=1,850-50-92.5) (=50+50)
- -----------------------------------------------------------------------------------------------------------
9 100 1,850 1,657.5 1,950 100 150
(=1,850-100-92.5) (=100+100-
50**)
- -----------------------------------------------------------------------------------------------------------
10 150 1,850 1,607.5 1,700 -150 0
(=1,850-150-92.5)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Pursuant to Section 2.3.2, Disposeco would be obligated in each of the
marked Contract Years to pay an amount equal the then Prevailing Rate
multiplied by the volume of the Triggering Carryforward accruing in two
years earlier.
** Pursuant to Section 2.3.3, the Positive Carryforward accruing in Contract
Year 7 expires.
26
<PAGE>
SCHEDULE 3: VARIABLE ACTUAL VOLUME OVER 10 YEAR PERIOD.
<TABLE>
- -----------------------------------------------------------------------------------------------------------
Carryforward
Prior Years Amount
Adjustment (=Actual
(= to positive Annual Volume Actual Volume - Carryforward
Contract Carryforward (Assumed to be Volume Annual Account - Year
Year Acct. Bal.) 1,850/year) Minimum Volume (assumed) Volume) End Balance
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 NA 1,850 1,757.5 2,000 150 150
(=1,850-92.5) (=0+150)
- -----------------------------------------------------------------------------------------------------------
2 150 1,850 1,607.5 1,750 -100 50
(=1,850-150 - (=150+-100)
92.5)
- -----------------------------------------------------------------------------------------------------------
3 50 1,850 1,707.5 1,850 0 0
(=1,850-50-92.5) (=50-unused
50 from yr 1)
- -----------------------------------------------------------------------------------------------------------
4 NA 1,850 1,757.5 1,800 -50 -50
(=1,850-92.5) (=0-50)
- -----------------------------------------------------------------------------------------------------------
5 NA 1,850 1,757.5 2,000 150* 100
(=1,850-92.5) (=-50+150)
- -----------------------------------------------------------------------------------------------------------
6 100 1,850 1,657.5 1,750 -100 0
(=1,850-100- (=100+-100)
92.5)
- -----------------------------------------------------------------------------------------------------------
7 NA 1,850 1,757.5 1,850 0 0
(=1,850-92.5) (=0+0)
- -----------------------------------------------------------------------------------------------------------
8 NA 1,850 1,757.5 1,900 50 50
(=1,850-92.5) (=0+50)
- -----------------------------------------------------------------------------------------------------------
9 50 1,850 1,757.5 1,775 -75 -25
(=1,850-92.5) (=50+-75)
- -----------------------------------------------------------------------------------------------------------
10 NA 1,850 1,757.5 1,875 25 0
(=1,850-92.5)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Note that Contract Year 5 above is an example of a Positive Carryforward
which is partially offset prior to the Contract year in which it is accrued
with the remainder being offset after the Contract Year in which it is
accrued.
27
<PAGE>
EXHIBIT 10.5
NONCOMPETITION AGREEMENT
This Noncompetition Agreement (the "Agreement"), dated as of August 12,
1996, is made and entered into by and between SANIFILL, INC., a Delaware
corporation ("Parent" or "Covenantor" herein), and NEWPARK RESOURCES, INC., a
Delaware corporation ("Newpark" or "Buyer" herein), with reference to the
following facts:
GG. Ancillary to and concurrently with the execution and delivery of this
Agreement, Covenantor, Campbell Wells, Ltd., a Delaware limited partnership and
an indirect wholly-owned subsidiary of Parent ("Campbell Wells"), NOW Disposal
Holding Co., a Delaware corporation and an indirect wholly-owned subsidiary of
Parent ("Holdco"), and Newpark have closed under an Asset Purchase and Lease
Agreement (the "Purchase Agreement") pursuant to which Newpark has purchased all
of the equity interests in NOW Disposal Operating Co., a Delaware corporation
and an indirect wholly-owned subsidiary of Parent ("Disposeco"), from Holdco and
has purchased or leased from Campbell Wells the "Included Assets" (as defined in
the Purchase Agreement) used in the "Acquired Business" (as defined in the
Purchase Agreement). Newpark may assign its rights and delegate its duties
under the Purchase Agreement and hereunder to a wholly-owned subsidiary
("Subsidiary"), provided that no such assignment of rights or delegation of
duties shall relieve Buyer of its obligations under this Agreement. If such
assignment is made, references to Buyer in this Agreement shall be deemed to
refer to Subsidiary, or to Buyer and Subsidiary, as appropriate.
B. The execution and delivery of this Agreement are required under the
Purchase Agreement.
In consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Covenantor and Buyer hereby agree and covenant as follows.
1. CERTAIN DEFINITIONS. The following terms used herein shall have the
following meanings:
AFFILIATE OR AFFILIATE - a Person that directly or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with the Person specified. For purposes of this definition,
"control" (including the terms "controlling," "controlled by" and "under
common control with") of a Person means the possession, directly or
indirectly, of the power to (a) vote 50% or more of the voting interests in
such Person or (b) direct or cause the direction of the management and
policies of such Person, whether by contract or otherwise. In addition, at
all times during the term of this Agreement, Campbell Wells shall be deemed
to be an Affiliate of Parent, and Persons controlled by Campbell Wells and
its controlled Affiliates, or jointly controlled by Campbell Wells and its
controlled Affiliates and Parent and its Affiliates, shall be deemed to be
Affiliates of Parent. Notwithstanding the foregoing, a Person who controls
Parent or Campbell Wells shall not be deemed to be an Affiliate of Parent
or Campbell Wells solely by reason of such control.
-1-
<PAGE>
BUSINESS - Any one or more of the following activities: the Collection
or Disposal of NOW; the remediation and closure of oilfield waste pits,
including related loading and hauling; and marketing, dealing in or
soliciting orders for any of the products, services or support activities
included within the Business.
COLLECTION - The collection, transfer or transportation of NOW.
COMPETITOR - Any Person that, directly or indirectly, engages in any
aspect of the Business within any portion of the Territory.
DISPOSAL - The treatment or disposal of NOW.
EXCLUDED NOW - NOW that is generated and collected on land and is
delivered to the Landfarms from the site where it was generated entirely by
on-land transportation.
LANDFARMS - The NOW disposal facilities owned and operated by Campbell
Wells designated as Elm Grove, LA (DNR Permit # OWD 89-1), Bourg, LA (DNR
Permit #90-10 OWD), Bateman Island, LA (DNR Permit # 91-10 OWD), and
Mermentau, LA (DNR Permit # SWD 83-6).
NOW - Nonhazardous oilfield waste associated with the exploration and
production of oil, gas and geothermal energy, that contains less than 30
picocuries per gram of Radium 226 or 228.
PERSON OR PERSON - Any individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or any agency or instrumentality
thereof.
THE TERRITORY - All or any part of the following: the States of
Louisiana, Texas, Mississippi and Alabama and the Gulf of Mexico.
2. NONCOMPETITION. Covenantor hereby agrees, for itself and on behalf
of its Affiliates, that, during the term of this Agreement, except as
otherwise permitted under this Agreement, neither it nor any of its
Affiliates will, within any part of the Territory, directly or indirectly, do
any one or more of the following: (a) engage in any aspect of the Business;
(b) own any interest in any Competitor; (c) operate, join, control or
otherwise participate in any Competitor; or (d) lend credit or money for the
purpose of assisting another to establish or operate any Competitor.
3. TERM. The term of this Agreement commences on the date hereof and
shall continue for sixty months thereafter.
4. MAINTENANCE OF CONFIDENTIALITY. For the term of this Agreement,
Covenantor and its Affiliates shall keep secret and retain in strictest
confidence, except for disclosure to any of their Affiliates, and will not
permit any Person other than their Affiliates to use any of the "Intangible
-2-
<PAGE>
Assets" (as defined in the Purchase Agreement) which Buyer has been granted the
right to use, along with Covenantor and its Affiliates, under the Purchase
Agreement.
5. PERMITTED ACTIVITIES. Section 2 of this Agreement notwithstanding:
(a) Covenantor and its Affiliates, as passive investors, may own up
to 5% (including ownership by Covenantor and all of its Affiliates) of the
equity securities of any Person (other than Newpark) whose equity securities are
publicly traded. In addition, in connection with their business described in
subparagraph (b) below, Covenantor and its Affiliates shall be permitted from
time to time to acquire interests representing more than 5% of the equity
securities of Persons that derive less than 10% of their revenues from
activities that cause such Persons to be Competitors, provided that Covenantor
or its Affiliates or the Persons who engage in such competitive activities
immediately formulate plans to dispose of those aspects of such businesses that
cause such Persons to be Competitors and actually complete such dispositions
within 90 days after such interests are acquired by Covenantor or one or more of
its Affiliates.
(b) Buyer recognizes and acknowledges that Parent and its Affiliates
are in the business of the collection, treatment and disposal of numerous
varieties of wastes, including without limitation municipal solid wastes,
construction and demolition debris, industrial nonhazardous wastes and special
wastes, such as contaminated soil and sludges. Buyer agrees that this Agreement
relates only to the Collection and Disposal of NOW and the remediation and
closure of oilfield waste pits, including related loading and hauling, in the
Territory and that this Agreement is not intended to limit or otherwise affect
the business of Parent except as expressly set forth herein.
(c) Buyer further recognizes and acknowledges that Parent and its
Affiliates from time to time enter into joint venture arrangements with
independent (i.e., non-Affiliate) third parties ("Joint Venture Partners") and
that some of such Joint Venture Partners may engage in aspects of the Business
in the Territory. Without limiting the applicability of this Agreement to
Covenantor and its Affiliates and such joint ventures, Buyer agrees that the
terms of this Agreement shall not apply to Joint Venture Partners solely as a
result of their entering into joint venture arrangements with Covenantor and its
Affiliates.
(d) Parent and its Affiliates may continue to market, deal in,
solicit orders for and conduct other activity related to: (i) Disposal and
Collection at any of the Landfarms of Excluded NOW; (ii) Collection of NOW
within a 200-mile radius of Campbell Wells' Zapata, Texas, facility and Disposal
of NOW so Collected at such facility; (iii) Disposal and Collection of NOW
contemplated under the NOW Disposal Agreement dated as of June 4, 1996, by and
among Parent, Campbell Wells and Disposeco; and (iv) Disposal and Collection of
NOW at Campbell Wells' Lacassine, LA, facility.
6. INJUNCTIVE RELIEF. Covenantor hereby stipulates and agrees that any
breach by it or by any of its Affiliates of this Agreement cannot be reasonably
or adequately compensated by damages in an action at law and that, in the event
of such breach, Buyer shall be entitled to injunctive relief, which may include
but shall not be limited to restraining Covenantor and its Affiliates from
engaging in any activity that would constitute a breach of this Agreement.
-3-
<PAGE>
7. SEVERABILITY. Covenantor acknowledges that it has carefully read and
considered the provisions of this Agreement and, having done so, agrees that the
restrictions set forth herein (including but not limited to the time periods of
restriction and the geographical areas of restriction) are fair and reasonable
and are reasonably required to protect the interests of Buyer and its
stockholders. In the event that, notwithstanding the foregoing, any of the
provisions of this Agreement shall be held to be invalid or unenforceable, the
remaining provisions hereof shall nevertheless continue to be valid and
enforceable, as though the invalid or unenforceable parts had not been included
herein. In the event that any provision of this Agreement relating to time
periods or areas of restriction or both shall be declared by a court of
competent jurisdiction to exceed the maximum time periods or areas (or both)
that such court deems reasonable and enforceable, said time periods or areas of
restriction or both shall be deemed to become and thereafter shall be the
maximum time periods and areas which such court deems reasonable and
enforceable.
8. ENTIRE AGREEMENT. This Agreement, together with the Purchase
Agreement and the other agreements specifically mentioned therein, constitutes
the entire agreement of Covenantor and Buyer with respect to the subject matter
hereof and supersedes all prior and contemporaneous oral agreements,
understandings, negotiations and discussions of the parties. No supplement,
modification or waiver of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided. Any failure to insist on
strict compliance with any of the terms and conditions of this Agreement shall
not be deemed a waiver of any such terms or conditions.
9. NATURE OF OBLIGATIONS. All covenants and obligations of Covenantor
hereunder shall be binding on Covenantor, its Affiliates and the assigns,
successors and legal representatives of each of them and shall inure to the
benefit of Buyer and all of its Affiliates that engage in any aspect of the
Business in any part of the Territory.
10. NOTICES. Any and all notices, demands, requests or other
communications hereunder shall be in writing and shall be deemed duly given when
personally delivered to or transmitted by overnight express delivery or by
facsimile to and received by the party to whom such notice is intended, or in
lieu of such personal delivery or overnight express delivery or facsimile
transmission, 48 hours after deposit in the United States mail, first-class,
certified or registered, postage prepaid, return receipt requested, addressed to
the applicable party at the address provided below. The parties may change
their respective addresses for the purpose of this Paragraph 10 by giving notice
of such change to the other party in the manner which is provided in this
Paragraph 10.
Covenantor: Sanifill, Inc.
2777 Allen Parkway, Suite 700
Houston, TX 77019-2155
Attention: H. Steven Walton, Esq., Vice President
Facsimile No.: (713) 942-6299
-4-
<PAGE>
With a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, TX 77002-4995
Attention: Louise Shearer, Esq.
Facsimile No.: (713) 229-1522
Buyer: Newpark Resources, Inc.
3850 North Causeway, Suite 1770
Metairie, LA 70002
Attention: James D. Cole, President
Facsimile No.: (504) 833-9506
With a copy to:
Ervin, Cohen & Jessup
9401 Wilshire Boulevard
Beverly Hills, CA 90212
Attention: Bertram K. Massing, Esq.
Facsimile No.: (310) 859-2325
11. ATTORNEYS' FEES. In any litigation relating to this Agreement,
including litigation with respect to any supplement, modification or waiver of
this Agreement or any of its provisions, the prevailing party shall be entitled
to recover its costs and reasonable attorneys' fees.
12. LAW GOVERNING. The provisions of this Agreement and all rights and
obligations hereunder shall be governed by and construed in accordance with the
internal laws of the State of Texas applicable to contracts made and to be
wholly performed within the State of Texas.
13. CAPTIONS. The captions in this Agreement are included for convenience
of reference only, do not constitute a part hereof and shall be disregarded in
the interpretation or construction hereof.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
SANIFILL, INC.
By:
---------------------------------------
Name: Michael W. Harlan
Title: Treasurer and Assistant Secretary
NEWPARK RESOURCES, INC.
By:
---------------------------------------
Name:
Title:
-6-
<PAGE>
ASSUMPTION AND GUARANTEE AGREEMENT
This Assumption and Guarantee Agreement (the "Agreement"), dated as of
August 12, 1996, is entered into by and among Newpark Resources, Inc., a
Delaware corporation ("Newpark"), Sanifill, Inc., a Delaware corporation
("Sanifill"), and Campbell Wells, Ltd., a Delaware limited partnership, the
equity interests of which are owned directly or indirectly by Sanifill
("Campbell Wells" and, collectively with Sanifill, the "Sellers").
WHEREAS, Newpark and Campbell Wells are each engaged in the collection
and disposal of nonhazardous oilfield waste; and
WHEREAS, the Sellers, NOW Disposal Holding Co. ("Holdco") and Newpark
have entered into that certain Asset Purchase and Lease Agreement (the "Purchase
Agreement") pursuant to which Newpark is, simultaneously with the execution of
this Agreement, (i) purchasing all of the equity interests (the "Equity
Interests") in NOW Disposal Operating Co., a Delaware corporation and a wholly-
owned subsidiary of Holdco ("Disposeco"), and (ii) purchasing or leasing from
Campbell Wells the "Included Assets" (as defined in the Purchase Agreement) used
in the "Acquired Business" (as defined in the Purchase Agreement); and
WHEREAS, simultaneously with the execution of this Agreement, the
Sellers and Newpark are also entering into that certain Noncompetition Agreement
pursuant to which, with exceptions stated therein, the Sellers are agreeing not
to engage in the collection or disposal of nonhazardous oilfield waste generated
in the States of Louisiana, Texas, Mississippi and Alabama and in the Gulf of
Mexico; and
WHEREAS, after giving effect to the transactions described above,
Campbell Wells will continue to operate and own certain landfarms and a landfill
at which nonhazardous oilfield wastes are disposed of; and
WHEREAS, the Sellers and Disposeco have previously entered into that
certain NOW Disposal Agreement (the "Disposal Agreement") pursuant to which
Disposeco has agreed to deliver and Campbell Wells has agreed to accept certain
quantities of nonhazardous oilfield wastes at its landfarms in Louisiana each
year for a period of 25 years; and
WHEREAS, in connection with the transactions referenced above,
including without limitation the transfer of the Equity Interests pursuant to
the Purchase Agreement, Newpark has agreed to guarantee the obligations of
Disposeco under the Disposal Agreement and to take, or refrain from taking,
certain other actions in connection with the Disposal Agreement; and
WHEREAS, the parties desire to enter into this Agreement to more fully
set forth the terms and conditions of their understanding.
NOW, THEREFORE, in consideration of the above premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Unless otherwise specifically defined herein, all capitalized terms
used herein shall have the respective meanings ascribed to such terms in the
Disposal Agreement.
ARTICLE II
PERFORMANCE OF DISPOSAL AGREEMENT
Newpark hereby covenants and agrees that it shall cause Disposeco to
fully perform all of its obligations under the Disposal Agreement in a timely
manner. Newpark further covenants and agrees that it shall take all action,
including without limitation supplying information necessary for the
determination of quantities of NOW to be delivered pursuant to the Disposal
Agreement, or shall refrain from taking any action, as is necessary or
appropriate to permit Disposeco to fully perform all of its obligations under
the Disposal Agreement in a timely manner.
ARTICLE III
GUARANTEE OF DISPOSAL AGREEMENT
3.1 UNCONDITIONAL GUARANTEE. Newpark hereby unconditionally and
irrevocably guarantees the performance in full of all obligations of Disposeco
under the Disposal Agreement (such obligations of Disposeco being collectively
referred to herein as the "Guaranteed Obligation"), with the same force and
effect and to the same extent as if Newpark were a party to the Disposal
Agreement having the same rights and obligations thereunder as Disposeco.
3.2 NO SET-OFF; GUARANTY OF PERFORMANCE OR PAYMENT UPON DEMAND. Newpark
shall perform any obligations or pay any amounts due in respect of the
Guaranteed Obligation promptly upon demand by the Sellers, without any set-off,
defense or deduction for any claims or counterclaims of any kind, except for any
such set-offs, defenses, deductions that Newpark could assert if it were a party
to the Disposal Agreement having the same rights and obligations thereunder as
Disposeco.
3.3 WAIVER OF DILIGENCE, ETC. Newpark hereby waives diligence,
presentment, demand, protest and notice of any kind with respect to this
Agreement, as well as any requirement that Sellers exhaust any rights or take
any action against Disposeco.
3.4 WAIVER OF SURETYSHIP DEFENSES. To the extent permitted by applicable
law, Newpark hereby waives any and all legal and equitable defenses that arise
by reason of Newpark's status as a surety for Disposeco, which defenses would
not be available to Newpark if it were a party to the Disposal Agreement having
the same rights and obligations thereunder as Disposeco.
-2-
<PAGE>
ARTICLE IV
COVENANTS, REPRESENTATIONS AND WARRANTIES OF NEWPARK
Newpark hereby covenants, represents and warrants to Sellers as of the
date of this Agreement that:
4.1 ORGANIZATION AND QUALIFICATION. Newpark (a) is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization, (b) has all requisite power and authority to own, lease and
operate its properties and to carry on its business as it is now being conducted
and is proposed to be conducted and (c) is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the properties owned,
leased or operated by it or the nature of the business conducted or proposed to
be conducted by it makes such qualification or license necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed or in good
standing would not have, either individually or in the aggregate, a material
adverse effect on the transactions contemplated hereby.
4.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. Newpark has all requisite
power and authority to enter into this Agreement and to perform its obligations
hereunder and consummate the transactions contemplated hereby. The execution,
delivery and performance by Newpark of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
action on the part of Newpark. No action or approval of the equity owners of
Newpark is necessary to authorize Newpark's execution or delivery of, or the
performance of its obligations under, this Agreement. This Agreement has been
duly executed and delivered by Newpark and is a valid and binding obligation of
Newpark, enforceable in accordance with its terms.
4.3 NO CONFLICT. The execution and delivery by Newpark of this Agreement
do not, and exercise by Newpark of its rights hereunder and the consummation of
the transactions contemplated hereby will not (a) require any consent, approval,
order or authorization of or other action by any governmental entity on the part
of or with respect to Newpark; (b) require on the part of Newpark any consent by
or approval of or notice to any other Person; or (c) result in a violation of
any law, rule, regulation, order, judgment or decree applicable to Newpark,
except in any case covered by (a), (b) or (c) where failure to obtain such
consent or such violation would not, either individually or in the aggregate,
have a material adverse effect on the transactions contemplated hereby.
4.4 TRANSFER OF AFFILIATES OF NEWPARK. The parties recognize and agree
that due to the method of calculating Annual Volume as set forth in Section
[2.2] of the Disposal Agreement, the purpose and intent of the Disposal
Agreement and of this Agreement would be frustrated in the event Newpark sold or
otherwise transferred (an "Affiliate Transfer") its interest in, or
substantially all of the assets of, any of its Affiliates which are engaged in
processing or disposal of NOW in the Covered Region where such transfer resulted
in such Persons no longer being, or such assets no longer being owned by,
Affiliates of Newpark under the terms of the Disposal Agreement. Newpark agrees
that it shall notify Campbell Wells of any such proposed Affiliate Transfer
prior to the consummation of such transaction and that no such Affiliate
Transfer shall take place unless the transferee agrees (a) to report to Campbell
Wells all quantities of NOW received by such former Affiliate of Newpark in
-3-
<PAGE>
the Covered Region during the remaining term of the Disposal Agreement and (b)
that any subsequent retransfer of such interests or assets by such transferee
shall be subject to this Article IV as if such transferee were Newpark. Newpark
further agrees that it shall not enter into any Affiliate Transfer unless the
agreement with the transferee expressly names Campbell Wells as a third party
beneficiary of the obligation of the transferee to make such reports and to
subject subsequent retransfers to this Article IV.
ARTICLE V
DISPUTE RESOLUTION
All disputes arising under this Agreement shall be resolved in
accordance with the arbitration procedures set forth in Article X of the
Disposal Agreement. In the event a set of facts gives rise to related disputes
under this Agreement and the Disposal Agreement, such disputes shall be
consolidated into a single arbitration proceeding, the result of which shall be
binding on all parties under both Agreements, unless the arbitrator or
arbitrators determine that it would manifestly unfair to honor this provision
and determine that separate arbitration procedures are required.
ARTICLE VI
MISCELLANEOUS
6.1 STATUS OF THE PARTIES. Each party hereto is and shall perform this
Agreement as an independent contractor, and as such, shall have and maintain
complete control over all of its employees, agents, and operations. Except as
expressly otherwise provided in this Agreement, neither party nor anyone
employed by it shall be, represent, act, purport to act or be deemed to be the
agent, representative, employee or servant of the other party.
6.2 NO SET-OFF RIGHTS. The parties hereby agree that neither party shall
have any right to set-off or apply against any sums due under this Agreement any
sums due or amounts otherwise owing pursuant to any other provision of this
Agreement or any other agreement or arrangement between the parties.
6.3 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. Campbell Wells and Newpark may assign their rights, obligations and
duties under this Agreement with the written consent of the other parties to the
Agreement, which consent shall not be unreasonably withheld; provided that the
assigning party shall remain primarily liable for all obligations and duties
arising hereunder.
6.4 NOTICES. Notices and other communications provided for herein shall
be in writing and shall be deemed to have been validly given (a) 3 days after
deposit in the United States mails, registered or certified mail with proper
postage prepaid and return receipt requested, (b) upon transmission thereof and
receipt of the appropriate confirmation if sent via telecopier or telefax, (c)
-4-
<PAGE>
the business day after the same shall have been deposited with a reputable
overnight courier, shipping prepaid and (d) if delivered in person, upon
delivery, in each case addressed as follows:
If to Newpark, to: with a copy to:
James D. Cole Bertram K. Massing
President Ervin, Cohen & Jessup
Newpark Resources, Inc. 9401 Wilshire Boulevard
3850 N. Causeway, Ste. 1770 Ninth Floor
Metairie, Louisiana 70002 Beverly Hills, California 90212-2974
ph: 504-838-8222 ph: 310-273-6333
fax: 504-833-9506 fax: 310-859-2325
If to Campbell Wells, to: with a copy to:
W. Gregory Orr Louise A. Shearer
President Baker & Botts. L.L.P.
Campbell Wells, Ltd. One Shell Plaza
2014 West Pinhook Road, Ste. 900 910 Louisiana
Lafayette, Louisiana 70508 Houston, Texas 77002-4995
ph: 318-266-7976 ph: 713-229-1286
fax: 318-266-7922 fax: 713-229-1522
If to Sanifill, to: with a copy to:
H. Steven Walton Louise A. Shearer
Secretary Baker & Botts. L.L.P.
Sanifill, Inc. One Shell Plaza
2777 Allen Parkway, Ste. 700 910 Louisiana
Houston, Texas 77019-2155 Houston, Texas 77002-4995
ph: 713-942-6200 ph: 713-229-1286
fax: 713-942-6299 fax: 713-229-1522
or such other address as any party shall specify by written notice so given.
6.5 NON-WAIVER. The failure of any party to enforce its rights under any
provision of this Agreement shall not be construed to be a waiver of such
provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other breach.
6.6 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement between the parties concerning the subject matter hereof and
supersedes any and all other communications, representations, proposals,
understandings or agreements, either written or oral, between the parties hereto
with respect to such subject matter. This Agreement may not be modified or
amended, in whole or in part, except by a writing signed by both parties hereto.
-5-
<PAGE>
6.7 SEVERABILITY. If any provision of this Agreement is declared invalid
or unenforceable, then such portion shall be deemed to be severable from this
Agreement and shall not affect the remainder hereof.
6.8 HEADINGS. The Article and Section headings contained herein are for
reference purposes only and shall not in any way affect the meaning and
interpretation of this Agreement.
6.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which shall
constitute one instrument.
6.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
-6-
<PAGE>
EXECUTED as of the day and year first above written.
NEWPARK RESOURCES, INC.
By:_______________________________________
Name:
Title:
SANIFILL, INC.
By:_______________________________________
Name: Michael W. Harlan
Title: Treasurer and Assistant Secretary
CAMPBELL WELLS, LTD.
By: SANIFILL GP HOLDING CO., INC.,
its general partner
By:_______________________________
Name: Michael W. Harlan
Title: Treasurer and Assistant
Secretary
<PAGE>
LEASE AND ACCESS AGREEMENT
This Lease and Access Agreement ("Lease") is made and entered into this
12th day of August, 1996, by and between Campbell Wells, Ltd., a Delaware
limited partnership, Inc. ("Lessor"), and Newpark Resources, Inc. ("Lessee"),
with reference to the following facts:
A. Concurrently with the execution and delivery of this Lease, pursuant
to an Asset Purchase and Lease Agreement (the "Purchase Agreement") dated
June 5, 1996, by and among (i) Sanifill, Inc., a Delaware corporation
("Sanifill") of which Lessor is an indirect wholly owned subsidiary, Lessor,
NOW Disposal Holding Co., a Delaware corporation and an indirect wholly-owned
subsidiary of Sanifill ("Holdco"), and (ii) Lessor, Lessee has purchased from
Holdco all of the equity interests in NOW Disposal Operating Co., a Delaware
corporation ("Disposeco"), and has purchased or is leasing from Lessor the
Included Assets (as that term is defined in the Purchase Agreement) used in
the Acquired Business (as that term is defined in the Purchase Agreement).
Lessee may assign its rights and delegate its duties under this Lease to a
wholly-owned subsidiary ("Subsidiary"), provided that no such assignment of
rights or delegation of duties shall relieve Lessee of its obligations under
this Lease. If such assignment is made, references to Lessee in this Lease
shall be deemed to refer to Subsidiary, or to Lessee and Subsidiary, as
appropriate.
B. Concurrently with the execution and delivery of this Lease, Lessee
has guaranteed the obligations of Disposeco under the NOW Disposal Agreement
(the "Disposal Agreement") dated June 4, 1996, among Disposeco, Sanifill and
Lessor.
C. Lessor is the owner of the real property, including all buildings
thereon and improvements thereto, located in the Parish of Jefferson Davis,
State of Louisiana, described more particularly in Exhibit "A" hereto (the
"Premises").
D. This Lease sets forth the terms and conditions on which Lessee is
subleasing from Lessor the portion (and no other portion) (the "Dock") of the
Premises described in Exhibit "B" attached hereto. The Dock is part of the
Included Assets and constitutes one of the Landfarm Docks referred to in
Paragraph 13.1 of the Purchase Agreement.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by both parties, the parties hereby agree as follows:
1. LEASE OF DOCK.
Lessor hereby leases the Dock to Lessee, and Lessee hereby leases
the Dock from Lessor, on the terms and conditions set forth in this Lease.
Subject to the terms of this Lease, Lessor hereby guarantees to Lessee the
quiet enjoyment and peaceable possession of the Dock for the entire term of
this Lease.
2. WARRANTY BY LESSOR.
<PAGE>
Lessor hereby warrants and represents to Lessee that Lessor is the
lawful owner of the Premises.
3. TERM.
The term of this Lease commences on the date hereof ("Commencement
Date") and shall continue for a period of twenty-five (25) years, i.e., until
August 12, 2021 ("Termination Date"), unless otherwise sooner terminated in
accordance with the provisions of this Lease. The foregoing notwithstanding,
(a) Lessee (but not Lessor) shall have the right to terminate this Lease at
any time upon not less than ten days' written notice to Lessor, and (b) this
Lease shall terminate automatically upon termination of the Disposal
Agreement.
4. RENT.
All rental for the Dock for the entirety of the term of this Lease,
to and including the Termination Date, is included in the Purchase Price, as
that term is defined in the Purchase Agreement, that has been paid by Lessee,
the receipt and sufficiency of which are hereby expressly acknowledged by
Lessor. The Purchase Price paid by Lessee further includes payment in full,
for the entire term of this Lease, of all other amounts payable by Lessor on
account of the Premises, however characterized.
5. ACCESS TO DOCK.
The execution of this Lease notwithstanding, Lessor shall have the
right of access to the Dock and, in cooperation with Lessee, shall have the
right to operate the Dock, in each case solely for the purpose of performing
their obligations under the Disposal Agreement. Subject to the terms of the
Disposal Agreement, Lessor shall pay all costs and expenses of operating the
Dock in connection with the Disposal Agreement. The parties shall indemnify
and hold harmless each other with respect to obligations arising in
connection with the operation of the Dock to the extent and in the manner
provided in Article IX of the Disposal Agreement. If, at any time, Lessor
permanently ceases to use the Premises for disposal of waste in connection
with the Disposal Agreement, this right of access shall terminate.
6. MAINTENANCE AND OPERATING EXPENSES.
Lessor shall pay all of the costs and expenses incurred in the
repair, maintenance or upkeep (including but not limited to taxes, utilities,
and insurance) of the Dock, in further consideration of its receipt of the
Purchase Price. Without limiting the generality of the foregoing, Lessor
shall pay all costs and expenses relating to the repair, maintenance, upkeep
and insuring of any improvements on the Dock, when such improvements are
erected by Lessor. Lessee shall pay all costs and expenses relating to the
repair, maintenance, upkeep and insuring of any improvements on the Dock,
when such
-2-
<PAGE>
improvements are erected by Lessee. Lessee shall obtain the written consent
of Lessor prior to erecting any improvements on the Dock.
7. USE OF DOCK.
Lessee may use the Dock for any lawful purpose.
8. ASSIGNMENT AND SUBLETTING.
Lessee may assign this Lease or further sublet or assign all or any
part of the Dock without Lessor's prior written consent, and Lessor may
assign this Lease without Lessee's prior written consent; provided, however,
that no such subleasing or assignment shall relieve Lessor or Lessee of any
of its obligations hereunder.
9. DISPUTE RESOLUTION.
9.1 NEGOTIATION OF DISPUTES. In the event of any dispute or
disagreement arising out of or relating to the implementation and performance
of this Lease, the parties agree to attempt to resolve such dispute in good
faith. Should a resolution of such dispute not be obtained within 15 days
after the origination of the dispute, either party may submit the dispute to
arbitration in accordance with the provisions of this Paragraph 10 by written
notice to the other party.
9.2 GENERAL ARBITRATION. Any claim, dispute or controversy arising
out of or relating to this Lease or the breach thereof not settled in
accordance with the provisions of Section 9.1 shall be submitted to binding
arbitration by the American Arbitration Association (the "AAA") for
arbitration in Houston, Texas, in accordance with the Commercial Arbitration
Rules of the AAA then in effect. There shall be three arbitrators, with each
party selecting one. The third arbitrator shall be selected by the two
party-selected arbitrators and shall be the chairperson of the panel. The
party requesting arbitration shall name its arbitrator in the demand for
arbitration and the other party shall name its arbitrator within 30 days
after receipt of the arbitration demand. The third arbitrator shall be named
within 30 days after the appointment of the second arbitrator. The AAA shall
be empowered to appoint any arbitrator not named in accordance with the
procedure set forth herein. The decision of the arbitrators shall be final
and binding upon the parties without the right to appeal to the courts. The
award rendered in arbitration shall be final and judgment thereon may be
entered by any court having jurisdiction thereof. The costs and expenses of
the arbitration (including reasonable attorney's fees) will be borne by the
losing party, unless the arbitrators determine that it would be manifestly
unfair to honor this provision and determine a different allocation of costs.
9.3 APPLICABLE LAW AND ARBITRATION ACT. This agreement to
arbitrate shall be enforceable in either federal or state court. The
enforcement of this agreement to arbitrate and all procedural aspects of
this agreement to arbitrate, including, without limitation, the
-3-
<PAGE>
construction and interpretation of this agreement to arbitrate, the scope of
the arbitrable issues, allegations of waiver, delay or defenses as to
arbitrability, and the rules governing the conduct of the arbitrations, shall
be governed by and construed pursuant to the United States Arbitration Act.
In deciding the substance of any such claim, dispute or disagreement, the
arbitrators shall apply the substantive laws of the State of Texas; provided,
however, that the arbitrators shall have no authority to award punitive
damages under any circumstances regardless of whether such damages may be
available under Texas law, the parties hereby waiving their right, if any, to
recover punitive damages in connection with any such claims, disputes or
disagreements.
9.4 CONTINUATION OF PERFORMANCE. In the event of a dispute arising
under this Lease, the parties shall continue performance of their respective
obligations hereunder pending resolution of the dispute.
10. NOTICES.
All notices and demands which may or are to be required or
permitted to be given by either party on the other hereunder shall be in
writing. All notices and demands by the Lessor to Lessee shall be given in
writing and delivered in person or sent by overnight delivery service or
United States Mail, postage prepaid, addressed to the Lessee at the Dock, and
to the address hereinbelow, or to such other place as Lessee may from time to
time designate in a notice to the Lessor. All notices and demands by the
Lessee to Lessor shall be given in writing and delivered in person or sent by
overnight delivery service or United States Mail, postage prepaid, addressed
to the Lessor at the address, set forth herein, and to such other person or
place as the Lessor may from time to time designate in a notice to the Lessee.
To Lessor at: Campbell Wells, Ltd.
2014 West Pinhook Road, Suite 900
Lafayette, LA 70508
Attention: W. Gregory Orr, President
Telephone: (318) 266-7966
Telefax: (318) 266-7922
With a copy to:
Louise A. Shearer
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, TX 77002-4995
-4-
<PAGE>
Telephone: (713) 229-1286
Telefax: (713) 229-1522
To Lessee at: Newpark Resources, Inc.
Lakeway Center
3850 N. Causeway, Suite 1770
Metairie, LA 70002
Attention: James D. Cole, President
Telephone: (504) 838-8222
Telefax: (504) 833-9506
11. MISCELLANEOUS.
11.1 BINDING EFFECT. This Lease shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
11.2 COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.3 HEADINGS. Captions and paragraph headings used herein are
for convenience only and are not a part of this Lease and shall not be used
in construing it.
11.4 AMENDMENTS; WAIVERS. No provision or term of this Lease or
any agreement contemplated herein between the parties hereto may be
supplemented, amended, modified, waived or terminated except in a writing
duly executed by the party to be charged. No waiver of any of the provisions
of this Lease shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute
a continuing waiver unless otherwise expressly provided. Failure of a party
to insist on strict compliance with any of the terms and conditions of this
Lease shall not be deemed a waiver of any such terms and conditions.
11.5 ENTIRE AGREEMENT. This Lease, the Purchase Agreement and the
Disposal Agreement comprise the entire agreement of the parties and supersede
all earlier understandings of the parties with respect to the subject matter
hereof.
-5-
<PAGE>
IN WITNESS WHEREOF the parties have executed and delivered this Lease as
of the date first set forth above.
LESSOR:
CAMPBELL WELLS, LTD.
By SANIFILL GP HOLDING CO., INC., its
General Partner
By: /s/ MICHAEL W. HARLAN
------------------------------------
Michael W. Harlan, Treasurer
LESSEE:
NEWPARK RESOURCES, INC.
By: /s/ JAMES D. COLE
------------------------------------
James D. Cole, President
-6-
<PAGE>
EXHIBIT A
ALL OF THAT CERTAIN PARCEL OF LAND situated in Section Fourteen (14),
Township Ten (10) South, Range Two (2) West, Jefferson Davis Parish,
Louisiana, and more fully described as follows, to-wit:
COMMENCING at the intersection of the West line of Section Fourteen (14) with
the centerline of the Southern Pacific Railroad Company's right-of-way,
thence 918.8 feet Northeasterly along the West line of Section Fourteen (14),
thence East 595 feet to the point of beginning;
THENCE East to the Mermentau River.
<PAGE>
EXHIBIT B
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLAT OF SURVEY
SHOWING DOCK AREA
TO BE LEASED TO
NEWPARK ENVIRONMENTAL SERVICES, INC.
FROM
CAMPBELL WELLS LTD.
OF PROPERTY LOCATED IN SECTION 14,
TOWNSHIP 10 SOUTH, RANGE 2 WEST,
JEFFERSON DAVIS PARISH, LOUISIANA.
[MAP]
I HEREBY CERTIFY THAT THIS
PLAT REPRESENTS AN ACTUAL
GROUND SURVEY AND ENCROACH-
MENTS SHOWN ARE THOSE THAT
APPEAR VISUALLY AND THOSE
THAT HAVE BEEN DETERMINED
FROM INFORMATION PROVIDED
BY OWNER.
/s/ MICHAEL P. GUIDRY
- ---------------------
MICHAEL P. GUIDRY
REG. LAND SURVEYOR
JENNINGS & LAFAYETTE, LA [SEAL]
FLD. BK. N
DATE: JULY 29, 1996
SCALE: 1" -- 80'
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBLEASE AND ACCESS AGREEMENT
This Sublease and Access Agreement ("Sublease") is made and entered into
this 12 day of August, 1996, by and between Campbell Wells, Ltd., a Delaware
limited partnership, Inc. ("Sublessor"), and Newpark Resources, Inc.
("Sublessee"), with reference to the following facts:
A. Concurrently with the execution and delivery of this Sublease,
pursuant to an Asset Purchase and Lease Agreement (the "Purchase Agreement")
dated June 5, 1996, by and among (i) Sanifill, Inc., a Delaware corporation
("Sanifill") of which Sublessor is an indirect wholly owned subsidiary,
Sublessor, NOW Disposal Holding Co., a Delaware corporation and an indirect
wholly-owned subsidiary of Sanifill ("Holdco"), and (ii) Sublessor, Sublessee
has purchased from Holdco all of the equity interests in NOW Disposal
Operating Co., a Delaware corporation ("Disposeco"), and has purchased or is
leasing from Sublessor the Included Assets (as that term is defined in the
Purchase Agreement) used in the Acquired Business (as that term is defined in
the Purchase Agreement). Sublessee may assign its rights and delegate its
duties under this Sublease to a wholly-owned subsidiary ("Subsidiary"),
provided that no such assignment of rights or delegation of duties shall
relieve Sublessee of its obligations under this Sublease. If such assignment
is made, references to Sublessee in this Sublease shall be deemed to refer to
Subsidiary, or to Sublessee and Subsidiary, as appropriate.
B. Concurrently with the execution and delivery of this Sublease,
Sublessee has guaranteed the obligations of Disposeco under the NOW Disposal
Agreement (the "Disposal Agreement") dated June 4, 1996, among Disposeco,
Sanifill and Sublessor.
C. Sublessor is the lessee under a lease agreement dated October 13,
1987 pursuant to which George Williams, Inc. ("Lessor") leased to Sublessor's
subsidiary, assignor, Land Treatment Systems, Inc. ("LTS"), certain immovable
property comprising 400 acres, more or less, including all buildings thereon
and improvements thereto, which property is located in the Parish of St.
Mary, State of Louisiana and is described more particularly in Exhibit "A"
hereto ("Prime Premises"). The lease was amended by an amendment to lease
agreement by and between Lessor and LTS dated March 25, 1991 (hereinafter the
lease agreement, as amended, the "Prime Lease"). A copy of the Prime Lease is
attached as Exhibit "B" hereto.
C. This Sublease sets forth the terms and conditions on which Sublessee
is subleasing from Sublessor the portion (and no other portion) (the "Dock")
of the Prime Premises described in Exhibit "C" attached hereto. The Dock is
part of the Included Assets and constitutes one of the Landfarm Docks
referred to in Paragraph 13.1 of the Purchase Agreement.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by both parties, the parties hereby agree as follows:
<PAGE>
1. SUBLEASE OF DOCK.
Sublessor hereby subleases the Dock to Sublessee, and Sublessee hereby
subleases the Dock from Sublessor, on the terms and conditions set forth in
this Sublease. Subject to the terms of this Sublease and Section 14 of the
Prime Lease, Sublessor hereby guarantees to Sublessee the quiet enjoyment and
peaceable possession of the Dock for the entire term of this Sublease.
Without limiting the generality of the foregoing, Sublessor covenants that,
except for its rights under Section 14 of the Prime Lease, it will not cause,
suffer or permit the Prime Lease to be terminated prior to the Termination
Date, as defined herein. Before exercising the right to terminate the Prime
Lease under Section 14 thereof, Sublessor will consult with Sublessee, and,
if Sublessee reasonably asserts that such termination would have a material
adverse effect on its business, the parties will attempt in good faith to
reach agreement on suitable compensation to Sublessee for its damages,
including any consequential damages, resulting from such termination.
2. WARRANTY BY SUBLESSOR.
Sublessor hereby warrants and represents to Sublessee that Sublessor is
the lawful successor or assignee of LTS, the original Lessee under the Prime
Lease, that the Prime Lease has not been amended or modified except as
expressly set forth herein, that Sublessor is not now, and as of the
commencement of the term hereof will not be, in default or breach of any of
the provisions of the Prime Lease, and that Sublessor has no knowledge of any
claim by Lessor that Sublessor is in default of breach of any of the
provisions of the Prime Lease.
3. TERM.
The term of this Sublease commences on the date hereof ("Commencement
Date") and shall continue for a period of twenty-five (25) years, i.e., until
August 12, 2021 ("Termination Date"), unless otherwise sooner terminated in
accordance with the provisions of this Sublease. Sublessor shall exercise all
options available to extend or renew the Prime Lease to and including the
Termination Date (or, if applicable, shall take no action to prevent the
automatic exercise or extension of any option(s) under the Prime Lease) to
ensure that the Prime Lease shall extend through and including the
Termination Date. The foregoing notwithstanding, (a) Sublessee (but not
Sublessor) shall have the right to terminate this Sublease at any time upon
not less than ten days' written notice to Sublessor, and (b) this Sublease
shall terminate automatically upon termination of the Disposal Agreement.
4. RENT.
All rental for the Dock for the entirety of the term of this Sublease,
to and including the Termination Date, is included in the Purchase Price, as
that term is defined in the Purchase Agreement, that has been paid by
Sublessee, the receipt and sufficiency of which are hereby expressly
acknowledged by Sublessor. The Purchase Price paid by Sublessee further
includes payment in full, for the entire term of this Sublease, of all other
amounts payable by Sublessor under the Prime Lease due on account of the
Prime Premises, whether characterized in the Prime Lease as additional rental
or otherwise.
-2-
<PAGE>
5. ACCESS TO DOCK.
The execution of this Sublease notwithstanding, Sublessor shall
have the right of access to the Dock and, in cooperation with Sublessee,
shall have the right to operate the Dock, in each case solely for the purpose
of performing their obligations under the Disposal Agreement. Subject to the
terms of the Disposal Agreement, Sublessor shall pay all costs and expenses
of operating the Dock in connection with the Disposal Agreement. The parties
shall indemnify and hold harmless each other with respect to obligations
arising in connection with the operation of the Dock to the extent and in the
manner provided in Article IX of the Disposal Agreement. If, at any time,
Sublessor permanently ceases to use the Prime Premises for disposal of waste
in connection with the Disposal Agreement, this right of access shall
terminate.
6. MAINTENANCE AND OPERATING EXPENSES.
To the extent the Prime Lease requires Sublessor to pay or
reimburse Lessor for any of the costs and expenses incurred in the repair,
maintenance or upkeep (including but not limited to taxes, utilities, and
insurance) of the Dock, Sublessor shall pay all such costs and expenses in
further consideration of its receipt of the Purchase Price. Without limiting
and generality of the foregoing, Sublessor shall pay all costs and expenses
relating to the repair, maintenance, upkeep and insuring of any improvements
on the Dock, when such improvements are erected by Sublessor, as required by
Section 8 of the Prime Lease. Sublessee shall pay all costs and expenses
relating to the repair, maintenance, upkeep and insuring of any improvements
on the Dock, when such improvements are erected by Sublessee, as required by
Section 8 of the Prime Lease. Sublessee shall obtain the written consent of
Sublessor prior to erecting any improvements on the Dock.
7. USE OF DOCK.
Sublessee may use the Dock for any lawful purpose permitted under
the Prime lease.
8. ASSIGNMENT AND SUBLETTING.
Sublessee may assign this Sublease or further sublet or assign all
or any part of the Dock without Sublessor's prior written consent, and
Sublessor may assign this Sublease without Sublessee's prior written consent;
provided, however, that no such subleasing or assignment shall relieve
Sublessor or Sublessee of any of its obligations hereunder.
9. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Prime Lease are
incorporated into and made a part of this Sublease as if Sublessor were the
lessor thereunder, Sublessee the lessee thereunder, and the Dock the Prime
Premises, except for Sections 8, 10, 11 and 13 thereof, which shall not be
binding on Sublessee. Upon the reasonable request of Sublessee, Sublessor
shall use commercially reasonable efforts to attempt to cause Lessor to
perform its obligations under the Prime Lease for the benefit of Sublessee.
If the Prime Lease terminates,
-3-
<PAGE>
this Sublease shall terminate and the parties shall be relieved of any
further liability or obligation under this Sublease; provided, however, that
if the Prime Lease terminates as a result of a default or breach by Sublessor
or Sublessee under this Sublease and/or the Prime Lease, then the defaulting
party shall be liable to the non-defaulting party for all damage suffered as
a result of such termination, including consequential damages but
excluding punitive damages.
10. DISPUTE RESOLUTION.
10.1 NEGOTIATION OF DISPUTES. In the event of any dispute or
disagreement arising out of or relating to the implementation and performance
of this Sublease, the parties agree to attempt to resolve such dispute in
good faith. Should a resolution of such dispute not be obtained within 15
days after the origination of the dispute, either party may submit the
dispute to arbitration in accordance with the provisions of this Paragraph 10
by written notice to the other party.
10.2 GENERAL ARBITRATION. Any claim, dispute or controversy
arising out of or relating to this Sublease or the breach thereof not settled
in accordance with the provisions of Section 10.1 shall be submitted to
binding arbitration by the American Arbitration Association (the "AAA") for
arbitration in Houston, Texas, in accordance with the Commercial Arbitration
Rules of the AAA then in effect. There shall be three arbitrators, with each
party selecting one. The third arbitrator shall be selected by the
two party-selected arbitrators and shall be the chairperson of the panel. The
party requesting arbitration shall name its arbitrator in the demand for
arbitration and the other party shall name its arbitrator within 30 days after
receipt of the arbitration demand. The third arbitrator shall be named within
30 days after the appointment of the second arbitrator. The AAA shall be
empowered to appoint any arbitrator not named in accordance with the
procedure set forth herein. The decision of the arbitrators shall be final
and binding upon the parties without the right to appeal to the courts. The
award rendered in arbitration shall be final and judgment thereon may be
entered by any court having jurisdiction thereof. The costs and expenses of
the arbitration (including reasonable attorney's fees) will be borne by the
losing party, unless the arbitrators determine that it would be manifestly
unfair to honor this provision and determine a different allocation of costs.
10.3 APPLICABLE LAW AND ARBITRATION ACT. This agreement to
arbitrate shall be enforceable in either federal or state court. The
enforcement of this agreement to arbitrate and all procedural aspects of this
agreement to arbitrate, including, without limitation, the construction and
interpretation of this agreement to arbitrate, the scope of the arbitrable
issues, allegations of waiver, delay or defenses as to arbitrability, and the
rules governing the conduct of the arbitrations, shall be governed by and
construed pursuant to the United States Arbitration Act. In deciding the
substance of any such claim, dispute or disagreement, the arbitrators shall
apply the substantive laws of the State of Texas; provided, however, that the
arbitrators shall have no authority to award punitive damages under any
circumstances regardless of whether such damages may be available under Texas
law, the parties hereby waiving their right, if any, to recover punitive
damages in connection with any such claims, disputes or disagreements.
-4-
<PAGE>
10.4 CONTINUATION OF PERFORMANCE. In the event of a dispute
arising under this Sublease, the parties shall continue performance of their
respective obligations hereunder pending resolution of the dispute.
11. NOTICES.
All notices and demands which may or are to be required or
permitted to be given by either party on the other hereunder shall be in
writing. All notices and demands by the Sublessor to Sublessee shall be given
in writing and delivered in person or sent by overnight delivery service or
United States Mail, postage prepaid, addressed to the Sublessee at the Dock,
and to the address hereinbelow, or to such other place as Sublessee may from
time to time designate in a notice to the Sublessor. All notices and demands
by the Sublessee to Sublessor shall be given in writing and delivered in
person or sent by overnight delivery service or United States Mail, postage
prepaid, addressed to the Sublessor at the address, set forth herein, and to
such other person or place as the Sublessor may from time to time designate
in a notice to the Sublessee.
To Sublessor at: Campbell Wells, Ltd.
2014 West Pinhook Road, Suite 900
Lafayette, LA 70508
Attention: W. Gregory Orr, President
Telephone: (318) 266-7966
Telefax: (318) 266-7922
with a copy to: Louise A. Shearer
Baker & Botts LLP
One Shell Plaza
910 Louisiana
Houston, TX 77002-4995
To Sublessee at: Newpark Resources, Inc.
Lakeway Center
3850 N. Causeway, Suite 1770
Metairie, LA 70002
Attention: James D. Cole, President
Telephone: (504) 838-8222
Telefax: (504) 833-9506
12. MISCELLANEOUS.
12.1 BINDING EFFECT. This Sublease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and assigns.
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<PAGE>
12.2 COUNTERPARTS. This Sublease may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.3 HEADINGS. Captions and paragraph headings used herein are for
convenience only and are not a part of this Sublease and shall not be used in
construing it.
12.4 AMENDMENTS; WAIVERS. No provision or term of this Sublease or any
agreement contemplated herein between the parties hereto may be supplemented,
amended, modified, waived or terminated except in a writing duly executed by
the party to be charged. No waiver of any of the provisions of this Sublease
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided. Failure of a party to insist on
strict compliance with any of the terms and conditions of this Sublease shall
not be deemed a waiver of any such terms and conditions.
12.5 ENTIRE AGREEMENT. This Sublease, the Purchase Agreement and the
Disposal Agreement comprise the entire agreement of the parties and
supersede all earlier understandings of the parties with respect to the
subject matter hereof.
IN WITNESS WHEREOF the parties have executed and delivered this
Sublease as of the date first set forth above.
SUBLESSOR:
CAMPBELL WELLS, LTD.
By SANIFILL GP HOLDING CO., INC., its
General Partner
By: /s/ MICHAEL W. HARLAN
---------------------------------
SUBLESSEE:
NEWPARK RESOURCES, INC.
By: /s/ JAMES D. COLE
---------------------------------
James D. Cole, President
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<PAGE>
EXHIBIT A
ALL THAT CERTAIN PIECE OR PARCEL OF LAND, together with all the buildings and
improvements thereon, all rights, ways, means, privileges, servitudes,
prescriptions, appurtenances and advantages thereunto belonging or in anywise
appertaining thereto, and being that certain tract of land known as the upper
portion of Bateman Island situated in the junction of Bayou Shaffer, Boeuf
and Berwick Bay or Atchafalaya River; bounded West by Bayou Shaffer and in
the rear by swamp, and being that plantation commonly known as Bateman
Island, and estimated to contain 400 acres, more or less, comprising all of
Section 16, Township 16 South, Range 12 East (SELF). Bounded on the south by
the third pipeline, all as per survey.
The above property is situated in St. Mary Parish, Louisiana.
<PAGE>
EXHIBIT B
<PAGE>
OCTOBER 19, 1987
LEASE AGREEMENT UNITED STATES OF AMERICA
BY: GEORGE WILLIAMS, INC. STATE OF LOUISIANA
TO: LAND TREATMENT SYSTEMS, INC. PARISH OF ST. MARY
THIS CONTRACT OF LEASE, made and entered into by and between:
GEORGE WILLIAMS, INC., a Louisiana corporation, domiciled in St. Mary
Parish, Louisiana, herein represented by and appearing through MILDRED
WILLIAMS SILER, its President and GEORGE A. WILLIAMS, JR., its
Vice-President, pursuant to the resolution attached hereto and made part
hereof, whose mailing address is (for purposes of any payments and notices
required hereunder) P.O. Box 293, Morgan City, St. Mary Parish, Louisiana
76380, hereinafter referred to as "LESSOR", and
LAND TREATMENT SYSTEMS, INC., a Louisiana Corporation, herein represented by
John M. Egle, its President, by virtue of a Resolution of the Board of
Directors attached hereto, which mailing address is Route 8, Box 35,
Covington, Louisiana 76433, hereinafter referred to as "LESSEE";
WITNESSETH:
1.
The LESSOR does by these presents lease unto LESSEE, who does by these
presents lease from the LESSOR, for the terms, considerations and subject to
all the conditions and stipulations hereinafter set forth, the following
described property ("leased premises" or "premises"), to-wit:
ALL THAT CERTAIN PIECE OF PARCEL OF LAND, together with all the
buildings and improvements thereon, all rights, ways, means,
privileges, servitudes, prescriptions, appurtenances and advantages
thereunto belonging or in anywise appertaining thereto, and being that
certain tract of land known as the upper portion of Bateman Island
situated in the junction of Bayou Shaffer, Boeuf and Berwick Bay or
Atchafalaya River; bounded West by Bayou Shaffer and in the rear by
swamp, and being that plantation commonly know as Bateman Island, and
estimated to contain 400 acres, more or less, comprising all of Section
16, Township 16 South, Range 12 East (SELD). Bounded on the south by the
???? pipeline, all as per survey.
The above property is situated in St. Mary Parish, Louisiana.
<PAGE>
LESS AND EXCEPT:
A small tract situated in the Southwest Corner of said Section
owned or claimed by Estate of James Malcolm.
All as per survey by S.E. EVEY & COMPANY, dated April, 1964, the leased
premises shaded in "red" on attached survey attached hereto and made a
part hereof.
2.
LESSOR acknowledges that LESSEE intends to use all or a portion of
the tract herein leased premises as a non-hazardous waste treatment
facility, hereinafter a "Land Farm". Further, as part of its operation,
LESSEE intends to receive for treatment, oilfield wastes that presently
are classified as "non-hazardous" by State and Federal regulatory
agencies. In the event said agencies or any governmental or legislative
body should reclassify said oilfield waste to a "hazardous"
classification, such amendment or reclassification shall not serve as a
basis for cancellation of this lease by LESSOR. LESSEE acknowledges
that it has examined the leased premises, and is satisfied with same and
agrees that the premises are satisfactory for the purposes intended.
Notwithstanding any other provisions of this lease, LESSEE's sole
responsibility to LESSOR at the termination of this lease is to execute
a closure plan in compliance with the rules and regulations now in
effect.
Further, LESSOR acknowledges that because of the nature of the
activities to be conducted by LESSEE on the leased premises as
aforementioned and notwithstanding the fact that LESSEE has executed
the closure plan required by its lease, if all or some portion of the
leased premises may be unsuitable for some purposes, LESSOR agrees that
it will not be entitled to any damages from LESSEE as a result thereof.
3.
This lease is made and entered into a primary term ("primary
term") of three (3) years commencing on the 30th day of September, 1987
and terminating on the 29th day of September 1990.
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<PAGE>
4.
This lease is made for and in consideration of the covenants
herein contained and rental payments as follows:
(A) an annual rental to be paid by LESSEE to LESSOR during the
primary term and any extensions or renewals thereof of TWO THOUSAND FOUR
HUNDRED DOLLARS AND NO/100 ($2,400.00) per annum due on the 30th day of
October of each year;
(B) a monthly rental of FORTY AND NO/100 ($40.00) DOLLARS per
month per acre, due and payable on the 1st day of each month
commencing October 1, 1987 and continuing on the 1st day of each month
thereafter. The rental per acre shall be calculated based on acreage
used in the non-hazardous waste treatment facility located on the
leased premises. The acreage shall be certified correct as per survey
by Paragon Engineers, Inc., Howda, Louisiana, or another surveyor
selected by LESSOR and LESSEE. LESSOR and LESSEE agree that there are
sixty (60) acres used in the non-hazardous waste treatment facility at
the commencement of this lease. Either LESSOR or LESSEE, at any time
during this lease or any extensions or renewals thereof, may obtain a
survey of the amount of acreage actually used in the non-hazardous
waste treatment facility operation in order to show an increase or
decrease of acreage used by the LESSEE, and the rent shall be adjusted
in the next following rental payment due following the date of
certification by the surveyor.
The phrase "used in the non-hazardous waste treatment facility"
described in this subsection shall mean the acreage permitted for
non-hazardous waste disposal by the State of Louisiana and actively
holding or available for receipt of non-hazardous waste product in the
land farm operation.
The rent payable by LESSEE to LESSOR under this subsection during
the primary term and any option periods exercised shall be as follows:
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BEG END YEAR RENTAL DUE
--- --- ---- ----------
10/87 9/88 1st $ 40.00 per acre/per month
2nd 50.00 per acre/per month
9/90 3rd 55.00 per acre/per month
10/90 10/91 4th) 1st option period 60.00 per acre/per month
92 5th) 60.00 per acre/per month
93 6th) 60.00 per acre/per month
10/93 7th) 2nd option period 65.00 per acre/per month
95 8th) 65.00 per acre/per month
96 9th) 65.00 per acre/per month
10/96 10th) 3rd option period 70.00 per acre/per month
98 11th) 70.00 per acre/per month
99 12th) 70.00 per acre/per month
10/99 00 13th) 4th option period 75.00 per acre/per month
01 14th) 75.00 per acre/per month
02 15th) 75.00 per acre/per month
(C) FORTY-FIVE DOLLARS AND NO/100 ($45.00) per month, due and payable on
the 1st day of each month commencing October 1, 1987 and continuing on the
1st day of each month thereafter, which is designated as rental for the
structure located on the leased premises and used as an office for the
non-hazardous waste operation on the leased premises.
All of the rental payments provided in this lease shall be made in the
name of "GEORGE WILLIAMS, INC." and paid in such name at P. O. Box 293,
Morgan City, St. Mary Parish, Louisiana 70380, unless LESSEE is notified in
writing of a change of address.
5.
At the expiration of the primary term of this lease, LESSEE shall have
the prior right and option to extend this lease for four (4) consecutive
three (3) year terms. The options shall be automatically exercised by LESSEE
and it shall be bound by the terms for each of the three (3) year option
periods unless LESSEE notifies LESSOR in writing that it does not intend to
exercise the option as provided below. The rentals due during the option
periods are in accordance with Section 4(a) hereinabove.
LESSEE shall be conclusively presumed to have automatically accepted the
right of option next exercisable unless LESSEE notifies LESSOR of LESSEE'S
rejection to the next option and hence termination of the lease at the
conclusion of the then current term which notice shall be mailed to LESSOR at
its address as provided
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<PAGE>
herein (or at such other place as LESSOR may designate in writing) through
the United States Mail either registered or certified, not later than thirty
(30) days prior to the expiration of the primary term of this lease for
exercising the first option and thirty (30) days prior to the expiration of
the then current term of this lease in the case of all other options, with a
copy of the letter of said rejection of the right of option to be recorded
(if requested by LESSOR) in the Conveyance Records of St. Mary Parish,
Louisiana. The option(s) granted herein shall be void if thirty (30) days
prior to the expiration of the then current lease term, LESSEE (i) is in
default after notice of same from LESSOR as provided in this lease or (ii) in
fact does not properly exercise the previous option(s) granted it herein.
6.
The leased premises may be used for any lawful purposes, but not for any
unlawful purpose(s), or purposes which do not conform with or abide by the
zoning regulations and/or other regulations (including environmental
protection, clean water, Corps of Engineers) or ordinances, statutes and laws
of the Parish, State of other governmental agencies in which the premises are
located or to which it is now or in the future subjected. The premises may be
sublet or assigned in whole or in part by the LESSEE without LESSOR's prior
written consent except that the premises may not be sublet or assigned for
any purposes prohibited by this lease and any such subletting or assignment
shall not release the LESSEE from its obligations hereunder and shall further
be construed as a promise of the part of any such sub-lessee(s) or assignee
to assume to be bound by all of the obligations of LESSEE hereunder. LESSOR
reserves the right to inspect the leased premises at reasonable times.
7.
It is understood and agreed that LESSEE shall have the right to
construct or erect buildings, paving, lay utility lines and
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<PAGE>
other improvements on the leased premises, as it desires provided that same are
so constructed or erected at LESSEE'S sole cost and expense after obtaining the
proper permits and approvals free the necessary governmental agencies. LESSEE
shall not subject the leased premises to any liens for such construction or
erection and if any be filed, whether meritorious or not, LESSEE shall promptly
have same extinguished or bonded out. All buildings, erections and/or
improvements (including any wharves, docks or excavation permitted herein) shall
conform to and have the proper permits for all buildings, zoning and/or other
laws, regulations or ordinance of the parish and state wherein the leased
premises are located, including Corps of Engineers, environmental protection,
clean water, State of Louisiana and other such agencies and/or governmental
entities. It is further agreed and understood that there shall be no diggings
or excavations of the surface of the premises within seventy-five feet (75') of
the water line of Zayou Boeuf, except as required for bulkheading and the laying
of utility-type lines.
LESSEE also has the right to bulkhead that portion of the leased premises
fronting on Bayou Boeuf and to construct levees on the leased premises. Any
dirt removed by excavation must remain on the leased premises but and be used
for the construction of levees thereon or for other purposes having to do with
operations of LESSEE'S business on the leased premises. In the event that any
native dirt obtained by excavation is removed from the leased premises (which
removal requires the affirmative prior written approval of LESSOR) LESSOR shall
be paid by LESSEE one-half (1/2) of the income from the sale of such dirt after
deducting LESSEE'S cost of removing same. Any reusable material generated from
the land treatment system may be sold by the LESSEE without any obligation to
the LESSOR.
LESSEE shall have the right to encumber its right to use and occupy the
leased premises, including any buildings and improvements which may be placed
upon the premises by LESSEE, by a
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<PAGE>
leasehold mortgage as security for any bona fide debt. If required by a lender,
LESSOR shall promptly consent in writing to the LESSEE'S mortgaging its
leasehold interest in the leased premises as created by this lease contract,
and, if further required by the lender, LESSOR shall subordinate its lessor's
lien to the mortgage or security taken by any lender including any movables of
LESSEE or others which may be described in said mortgage; however, the
requirements of this paragraph shall in no manner be construed to be a mortgage
or other lien created against LESSOR'S ownership of the leased premises or
rights thereto (except the notice provisions hereinafter provided and the
subordination of LESSOR'S lien as described herein).
LESSOR will additionally, upon written request, setting forth the name and
address of the person to be so notified, given notice to any mortgagee, sub-
lessee or assignee of this leasehold of any default by LESSEE in the performance
of LESSEE'S obligations under this lease. Any mortgagee, sub-lessee or assignee
shall have the privilege of complying with the terms of this lease in order to
protect itself against such default, and such compliance shall have the same
effect as if performance had been by LESSEE. Any mortgagee, sub-lessee or
assignee shall be entitled to the same grace periods prescribed in this lease,
and LESSOR will take no action prejudicial to the interest of any mortgagee,
sub-lessee or assignee unless each such person shall have been given the notice
hereby required and shall have failed to cure such default within the time limit
set forth in this lease.
6.
Any and all repairs, maintenance and upkeep of and to the leased premises
shall be assumed and undertaken by the LESSEE at its sole cost and expense; this
shall include the LESSEE'S assuming all repairs and maintenance of any and all
improvements placed on the premises by LESSEE, all paving, utilities, grounds,
excavations and surface conditions of the leased premises. LESSEE shall
maintain the leased premises and any improvements constructed
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<PAGE>
thereon in good condition at its own cost and expense and deliver the same to
the LESSOR at the termination of the lease and execution of the closure plan as
provided in Section 2 above. Prior to LESSEE vacating the leased premises, any
excavation for pits or otherwise shall be filled by LESSEE with dirt or reusable
material.
If for any reason any local, state or federal governmental agency or entity
prohibits LESSEE from (1) engaging in its waste treatment operations permitted
by LESSOR under the terms of this lease for a period of over three (3) months
and LESSEE has made a good faith effort to correct the deficiencies which gave
rise to the prohibition of LESSEE'S operation by said governmental agency, or
(ii) revises the rules applicable to operation of such business and thereby make
such operations significantly more expensive, then on giving three (3) months
notice to LESSOR, LESSEE may cancel this lease with no further liability except
that it shall have the obligation to meet all the conditions, including the
payment of rental, to the LESSOR until such cancellation and further LESSEE
shall be required to fill the land as provided in the above paragraph.
9.
LESSEE is hereby granted the privilege of erecting a sign in good taste on
the herein leased premises provided that such sign shall advertise LESSEE'S
business only and no revenue producing advertising shall be erected on the
demised premises.
10.
LESSEE will indemnify, protect and save harmless LESSOR from any loss,
cost, damage or expense, including defense and attorney's fees related
thereto, caused by injuries or death to person(s) or property while in or on
said demised premises or in any way connected with the occupancy or use
thereof; and the LESSOR shall not be liable for any loss or any property of
LESSEE from said premises or for any damage to any property of LESSEE,
LESSEE'S guests, invitees, patrons, customers or employees, however
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<PAGE>
occurring; further, LESSEE shall furnish to LESSOR certificates of general
liability insurance with good and solvent insurance companies in the Owner's,
Landlord's and Tenant's name, including pollution clean up if available,
acceptable to LESSOR protecting LESSOR and LESSEE from such above described
casualty(ies) and liability(ies) in the combined single limit of
$1,000,000.00. LESSEE shall cause LESSOR to be named as an additional insured
in said policy and shall maintain and pay the premium for said insurance
throughout the term of this lease.
The happening of any one or more of the following listed events
(hereinafter referred to singularly as "event of default" and plurally as
"events of default") shall constitute a breach of this lease agreement on the
part of LESSEE, namely:
a. The filing by or on behalf of LESSEE of any petition or pleading to
declare LESSEE a bankrupt or for any arrangement under the bankruptcy
act, or the adjudication in bankruptcy or LESSEE under any bankruptcy
law or act.
b. The failure of LESSEE to pay any rents payable under this lease
agreement on or before the maturity of same and the continued failure
to pay the same for fifteen (15) days or more after notice of such
default is received by the LESSEE.
c. The failure of LESSEE to fully and promptly perform any act required
of it in the performance of this lease or to otherwise comply with any
term or provision hereof and the continuance of such default for a
period of thirty (30) days after receipt of written notice, without
proper steps having been taken to remedy the same.
d. The appointment by any court or under any law of a receiver, trustee
or other custodian of the property, assets or business of LESSEE,
which appointment shall not have been vacated within thirty (30) days
after the appointment.
e. The assignment by the LESSEE of all of its property or leasehold
interest in this lease by process of law in satisfaction of any
judgment.
Upon the happening of any event of default, LESSOR shall have the right,
at its option, to exercise any one of the following remedies in addition to
appropriate remedies which may otherwise be provided by law, as follows:
A. There shall, at the election of LESSOR, become forthwith
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<PAGE>
due, accelerated, payable and eligible so much of the whole rent for the whole
term of this lease as shall have been ascertained to be payable in definite
and fixed amounts but which shall not have matured at the time such election
is exercised, and the LESSOR may proceed by attachment, suit or otherwise, to
collect the rents so becoming due, payable and eligible in the same manner as
though by the terms of this lease such rents were payable in advance, and the
LESSOR may thereafter from time to time proceed, by attachment, suit or
otherwise, to collect any of the rents thereafter from time to time becoming
due and payable under any of the provisions of this lease which LESSEE shall
fail to pay at maturity rates thereafter becoming due and payable as
aforesaid, and the covenant of LESSEE is to pay the same, being severable at
the option of LESSOR from which are accelerated and eligible under the
foregoing terms of this paragraph and from the covenant of LESSEE to pay such
rents.
B. LESSOR shall have the right, at its election, to annul this lease and
immediately to re-enter upon and take possession of said premises; and such
re-entry shall not bar recovery of rent then accrued or damages for breach of
covenant, nor shall the receipt of rent after condition broken be deemed a
waiver or forfeiture.
C. If the demised premises shall be deserted or amended during the term,
or if LESSEE shall be evicted from said premises by summary proceedings, or
otherwise, or upon the happening of any event or default, LESSOR may, at its
election, re-enter the same by force or otherwise, without being liable for
prosecution therefor, and may relet said premises at any time as agent of
LESSEE, applying any monies collected, first, to cost, fees and expenses of
collecting, then, to the expense of obtaining possession and redecorating
and/or altering the premises, then, to the payment of the rent and all other
sums owing and to become owing LESSOR, and paying any surplus thereof to the
LESSEE, and such re-entry and reletting shall not discharge LESSEE from
liability for rent nor
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<PAGE>
free any other covenant of this lease by it to be kept and performed.
In the event of default on the part of LESSEE and the employment of an
attorney for the collection of any amount due hereunder, or for the institution
of any suit for possession of said property, for service incident to the breach
of any other condition of this lease by LESSEE, or on account of bankruptcy
proceedings by or against LESSEE, or legal process being issued against the
furniture or effects of LESSEE, located on the leased premises, or the leasehold
interest of LESSEE, LESSEE agrees to pay and shall be taxed with a reasonable
attorney's fee, for LESSOR'S attorney, which fee shall be a part of the debt
evidenced and secured by this lease.
The failure of LESSOR to insist, in any one or more instances upon a strict
performance of any of the covenants of this lease, or to exercise any option
herein contained, shall not be construed as a waiver or a relinquishment for the
future of such covenant or option, but the same shall continue and remain in
full force and effect. The receipt by LESSOR of rent, with knowledge of the
breach of any covenant hereof, shall not be deemed a waiver of such breach, and
no waiver by LESSOR of any provisions hereof shall be deemed to have been made
unless expressed in writing and signed by LESSOR, or LESSOR'S agent.
12.
Any permanent structures or permanent improvements placed or constructed on
the leased premises by LESSEE shall automatically become LESSOR'S property at
the termination of this lease without any cost or payment by said LESSOR to
LESSEE. At the termination of this lease, LESSEE may however remove, at its
costs, expense and without substantial damage to any permanent improvements on
the leased property, any trade fixtures, machinery, drainage conduit movable
metal buildings (even when fixed to a cement foundation), pumps, equipment,
furniture and merchandise.
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<PAGE>
13.
LESSOR shall pay all city, parish, district, and state ad valorem taxes and
special assessments (all of which are herein referred to as "taxes") on the
herein leased premises and as such taxes exist for the year ending 1987 and
LESSEE shall pay all increases in such taxes or any new taxes over the total
amount of such taxes as the same exist for the year ending 1987. In addition to
increases in taxes, the LESSEE shall pay all taxes on the movable property and
on all buildings, improvements and additions which he (or others) places on the
leased premises. LESSEE shall also pay for all utilities used and consumed on
or from the leased premises and all insurances on any improvements on the leased
premises.
14.
If any part of the leased premises be taken or obtained by any public or
private authority under the power or threat of eminent domain or under the right
of expropriation, excluding pipeline or powerline rights of way or servitudes,
and such taking or obtaining has a substantial adverse effect upon LESSEE'S
business then being conducted on the leased premises, LESSEE at its option
within one hundred twenty (120) days of such expropriation or taking and after
sixty (60) days prior written notice to the LESSOR, may cancel this lease with
no further liability: in the event of any taking or obtaining of any right of
way for pipeline or powerlines, such rights of way or servitudes shall be so
granted, if within the power of LESSOR, to have the least adverse effect upon
LESSEE'S business conducted on the leased premises. In the event of any
expropriation or taking, LESSEE may pursue and seek independently any award for
the taking or damages to improvements to which it may be entitled to claim or
collect any award for any lease advantage which it may enjoy in excess of the
cost of any improvements, erections, construction or excavation it has performed
on or to the leased premises at the time of taking, LESSEE expressly releasing
and relinquishing such other claims as it may have to and in favor of LESSOR.
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<PAGE>
13.
A. LESSEE hereby waives all rights of recovery against LESSOR or its
officers, employees, agents or representatives for loss or damage to LESSEE'S
property or the property of others under LESSEE'S control, arising from any
cause.
B. LESSEE hereby agrees that LESSOR shall not be liable for injury to
LESSEE'S business or any loss or income therefrom or for damage to the goods,
wares, merchandise, equipment or other property of LESSEE or of its employees,
invitees, customers, or any other person, in, or about the leased premises, nor
shall LESSOR be liable for injury to the person of LESSEE'S officers, employees,
agents or contractors, or its invitees, permitees, or any other persons, whether
such damage or injury is caused by or results from fire, flood, wind, steam,
electricity, gas, water, or rain, whether the said damage or injury results from
conditions arising upon the leased premises or from other sources or places.
This lease may not be cancelled as the result of any force majeure except that
if any flood prevents LESSEE for a period in excess of six (6) consecutive
months from substantially using the leased premises for the conducting of its
business established on the leased premises, then this lease may be cancelled
with no further liability to LESSEE upon ninety (90) days prior notice to
LESSOR.
C. A determination by a court of competent jurisdiction that any provision
of this lease is invalid shall in no way affect the validity of any other
provision hereof.
D. Except as expressly herein provided, any amount due from LESSEE not
paid when due shall bear interest at ten percent (10%) per annum from the date
due. Payment of such interest shall not excuse or cure any default by LESSEE
under this lease.
E. Any notice required or permitted to be given hereunder shall be in
writing and may be served personally or by prepaid certified or registered mail
and addressed to LESSOR at:
GEORGE WILLIAMS, INC.
P.O. BOX 293
MORGAN CITY, LOUISIANA 70380
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and to LESSEE at:
LAND TREATMENT SYSTEMS, INC.
ROUTE 8, BOX 35
COVINGTON, LOUISIANA 70433
unless the address above stated for LESSEE or LESSOR is changed and the other
party notified of such change in writing.
F. No waiver of LESSOR of any provision hereof shall be deemed a waiver of
any other provision hereof or of any subsequent breach by LESSEE of the same or
any other provision. LESSOR'S consent or approval of any act shall not be
deemed to render unnecessary the obtaining of LESSOR'S consent to or approval of
any subsequent act of LESSEE.
G. Except for the monitoring and other requirements of the State of
Louisiana or other governmental agencies related to the closure plan, LESSEE
agrees that the leased premises shall be vacated by LESSEE promptly upon the
expiration of this lease; restoration of the leased premises, and the repair of
any damage as required of LESSEE herein, shall be completed before the
termination of this lease.
LESSOR reserves all mineral rights; however, LESSOR waives all surface
rights except that LESSOR may conduct exploration and/or drilling operations in
wetland areas on the South half of the property.
Commencing one (1) year from date hereof, and continuing annually
thereafter on the anniversary date of this agreement, the LESSEE shall furnish
to LESSOR successive one (1) year letters of credit equal to the rental
projected to be due and owning for the next years rent in accordance with
Section 4(B) herein.
LESSEE shall furnish to LESSOR a copy of the initial letter(s) of credit
furnished by LESSEE to the State of Louisiana, Department of Conservation.
JOHN EGLE personally guarantees all sums due under the terms of this
lease.
THUS DONE AND SIGNED by the LESSOR at St. Mary Parish, Louisiana, on this
13th day of October, 1987, in the
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<PAGE>
presence of the undersigned competent witnesses.
WITNESSES: GEORGE WILLIAMS, INC.
/s/ Lisa R. Martin BY /s/ George A. Williams, Jr.
- ------------------------------ --------------------------------------
LISA R. MARTIN GEORGE A. WILLIAMS, JR.
Vice-President
/s/ Myrtle Williams Jesclard GEORGE WILLIAMS, INC.
- ------------------------------
MYRTLE WILLIAMS JESCLARD
BY /s/ Mildred Williams Siler
--------------------------------------
MILDRED WILLIAMS SILER
President
THUS DONE AND SIGNED by the LESSEE at St. Mary Parish, Louisiana, on the
15th day of October, 1987 in the presence of the undersigned competent
witnesses.
WITNESSES: LAND TREATMENT SYSTEMS, INC.
/s/ illegible BY /s/ John M. Egle
- ------------------------------ --------------------------------
JOHN M. EGLE PRESIDENT
/s/ illegible BY /s/ John M. Egle
- ------------------------------ --------------------------------
JOHN M. EGLE INDIVIDUALLY
-15-
<PAGE>
Bateman Island
Landform Facility
AMENDMENT TO LEASE AGREEMENT UNITED STATES OF AMERICA
BY: GEORGE WILLIAMS, INC. STATE OF LOUISIANA
TO: LAND TREATMENT SYSTEMS, INC. PARISH OF ST. MARY
THIS CONTRACT OF LEASE, made and entered into by and between:
GEORGE WILLIAMS, INC., a Louisiana corporation, domiciled in St. Mary
Parish, Louisiana, herein represented by and appearing through MILDRED WILLIAMS
SILER, its President, and GEORGE A. WILLIAMS, JR., its Vice-President, pursuant
to the resolution attached hereto and made a part hereof, whose mailing address
is (for purposes of any payments and notices required hereunder) P. O. Box 293,
Morgan City, St. Mary Parish, Louisiana 70380, hereinafter referred to as
"LESSOR", and
LAND TREATMENT SYSTEMS, INC., a Louisiana corporation, herein represented
by John Egle', its President, by virtue of a Resolution of the Board of
Directors attached hereto, which mailing address is P. O. Box 1088, Covington,
Louisiana 70433, hereinafter referred to as "LESSEE",
THIS AMENDMENT TO LEASE AGREEMENT supplements and amends the LEASE
AGREEMENT executed by the parties hereto on October 13, 1987, in the following
particulars, to wit:
1. The parties hereto acknowledge that they previously entered into a
LEASE AGREEMENT on the 13th day of October, 1987, which LEASE AGREEMENT is
recorded in the office of records of St. Mary Parish in Book 30-T of Conveyance,
page 299 as No. 220,730.
2. Upon the execution by LESSOR of this AMENDMENT TO LEASE AGREEMENT,
LESSEE does hereby agree to pay to LESSOR the sum of THIRTY THOUSAND AND 00/100
DOLLARS ($30,000.00) as additional consideration, payable in full at execution.
3. The parties execute this AMENDMENT TO LEASE AGREEMENT for the purpose
of supplementing and amending paragraphs 4 and 5 of the original LEASE AGREEMENT
described in Paragraph 1 hereinabove so that said paragraph 4 and 5 of the
original LEASE AGREEMENT shall read as follows, to wit:
<PAGE>
4.
This lease is made for and in consideration of the covenants herein
contained and rental payments as follows:
(A) an annual rental to be paid by LESSEE to LESSOR during the primary
term and any extensions or renewals thereof of TWO THOUSAND FOUR HUNDRED DOLLARS
AND NO/100 ($2,400.00) per annum due on the 30th day of October of each year,
and
(B) Effective April 1, 1991, LESSEE shall commence monthly rental payments
for the acreage portion of the entire leased property that is to be utilized in
the treatment of non-hazardous oilfield waste in accordance with the schedule
set forth herein below.
LESSOR and LESSEE agree that for purposes of calculating the total monthly
rental due by LESSEE to LESSOR as provided in paragraph 4(B), beginning with the
April 1, 1991 rental payment, and for the remaining life of this lease, one
hundred thirty (130) acres will be used as the acreage factor regardless of
whether such acreage total has been actually placed into usage by LESSEE for
non-hazardous waste treatment.
YEAR ACRES RATE ACRES RATE MONTHLY PAYMENT
---- ----- ---- ----- ---- ---------------
1st Option
- ----------
10/1/90 to
9/30/93 95 @ $60 + 35 @ $100 = $ 9,245.00
2nd Option
- ----------
10/1/93 to
9/30/96 95 @ $65 + 35 @ $105 = $ 9,895.00
3rd Option
- ----------
10/1/96 to
9/30/99 95 @ $70 + 35 @ $110 = $10,545.00
4th Option
- ----------
10/1/99 to
9/30/2002 95 @ $75 + 35 @ $115 = $11,195.00
5th Option
- ----------
10/1/2002 to
9/30/2005 95 @ $100 + 35 @ $120 = $13,745.00
6th Option
- ----------
10/1/2005 to
9/30/2008 95 @ $115 + 35 @ $135 = $15,695.00
<PAGE>
7th Option
- ----------
10/1/2008 to
9/30/2011 95 @ $130 + 35 @ $150 = $17,645.00
8th Option
- ----------
10/1/2011 to
9/30/2014 95 @ $145 + 35 @ $165 = $19,595.00
9th Option
- ----------
10/1/2014 to
9/30/2017 95 @ $160 + 35 @ $180 = $21,545.00
10th Option
- ----------
10/1/2017 to
9/30/2020 95 @ $175 + 35 @ $195 = $23,495.00
LESSOR and LESSEE also acknowledge that through March 31, 1991, the rental
rates and acreage calculations as set forth in paragraph 4 of the October 13,
1987 LEASE AGREEMENT shall remain in effect.
(C) FORTH-FIVE AND NO/100 DOLLARS ($45.00) per month, due and payable on
the 1st day of each month commencing October 1, 1987 and continuing on the 1st
day of each month thereafter, which is designated as rental for the structure
located on the leased premises and used as an office for the non-hazardous waste
operation on the leased premises.
All of the rental payments provided in this lease shall be made in the name
of "GEORGE WILLIAMS, INC." and paid in such name at P. O. Box 293, Morgan City,
St. Mary Parish, Louisiana 70380 unless LESSEE is notified in writing of a
change of address.
5.
At the expiration of the primary term of this lease, LESSEE shall have the
prior right and option to extend this lease for ten (10) consecutive three (3)
year terms. The options shall be automatically exercised by LESSEE and it shall
be bound by the terms for each of the three (3) year option periods unless
LESSEE notifies LESSOR in writing that it does not intend to exercise the option
as provided below. The rentals due during the option periods are in accordance
with Section 4(B) hereinabove.
LESSEE shall be conclusively presumed to have automatically accepted the
right of option next exercisable unless LESSEE notifies LESSOR of LESSEE's
rejection to the next option and
<PAGE>
hence termination of the lease at the conclusion of the then current term which
notice shall be mailed to LESSOR at its address as provided herein (or at such
other place as LESSOR may designate in writing) through the United States Mail
either registered or certified, not later than thirty (30) days prior to the
expiration of the primary term of this lease for exercising the first option and
thirty (30) days prior to the expiration of the then current term of this lease
in the case of all other options, with a copy of the letter of said rejection of
the right of option to be recorded (if requested by LESSOR) in the Conveyance
Records of St. Mary Parish, Louisiana. The option(s) granted herein shall be
void if thirty (30) days prior to the expiration of the then current lease term,
LESSEE (i) is in default after notice of same from LESSOR as provided in this
lease or (ii) in fact does not properly exercise the previous option(s) granted
it herein.
4. The parties further agree that the provisions of paragraph G on page
14 of the October 13, 1987 LEASE AGREEMENT requiring LESSEE to furnish to LESSOR
letters of credit equal to projected rents are hereby waived, rescinded, and any
claims for any past or future failure to so furnish are waived, relinquished,
and released.
5. It is further agreed by LESSOR and LESSEE that in the event LESSEE
merges with, or becomes owned by, Sanifill, Inc. or any of its subsidiaries or
affiliates, and provided that Sanifill, Inc. or any such subsidiary or affiliate
assumes the place and stead of LAND TREATMENT SYSTEMS, INC. as LESSEE, in that
event LESSOR agrees to fully release and discharge JOHN M. EGLE' as a personal
guarantor of LESSEE's lease obligations under the original lease and any
amendments thereto.
<PAGE>
THUS DONE AND SIGNED by the LESSOR at St. Mary Parish, Louisiana, on this
25th day of March, 1991, in the presence of the undersigned competent witnesses.
WITNESSES: GEORGE WILLIAMS, INC.
/s/ Bryan G. Clement By: /s/ George A. Williams, Jr.
- ------------------------------ -----------------------------------
GEORGE A. WILLIAMS, JR.
Vice President
/s/ Rose A. Williams GEORGE WILLIAMS, INC.
- ------------------------------
By: /s/ Mildred Williams Siler
-----------------------------------
MILDRED WILLIAMS SILER
President
THUS DONE AND SIGNED by the LESSEE at St. Mary Parish, Louisiana, on the
25th day of March, 1991, in the presence of the undersigned competent witnesses.
WITNESSES: LAND TREATMENT SYSTEMS, INC.
/s/ Bryan G. Clement By: /s/ John M. Egle'
- ------------------------------ -----------------------------------
JOHN M. EGLE', President
Rose A. Williams
- ------------------------------
/s/ John M. Egle'
-----------------------------------
JOHN M. EGLE', Individually
<PAGE>
EXHIBIT C
<PAGE>
[MAP]
<PAGE>
SUBLEASE AND ACCESS AGREEMENT
This Sublease and Access Agreement ("Sublease") is made and entered
into this 12th day of August, 1996 by and between Campbell Wells, Ltd., a
Delaware limited partnership, Inc. ("Sublessor"), and Newpark Resources, Inc.
("Sublessee"), with reference to the following facts:
A. Concurrently with the execution and delivery of this Sublease,
pursuant to an Asset Purchase and Lease Agreement (the "Purchase Agreement")
dated June 5, 1996, by and among (i) Sanifill, Inc., a Delaware corporation
("Sanifill") of which Sublessor is an indirect wholly owned subsidiary,
Sublessor, NOW Disposal Holding Co., a Delaware corporation and an indirect
wholly-owned subsidiary of Sanifill ("Holdco"), and (ii) Sublessor,
Sublessee has purchased from Holdco all of the equity interests in NOW
Disposal Operating Co., a Delaware corporation ("Disposeco"), and has
purchased or is leasing from Sublessor the Included Assets (as that term is
defined in the Purchase Agreement) used in the Acquired Business (as that
term is defined in the Purchase Agreement). Sublessee may assign its rights
and delegate its duties under this Sublease to a wholly-owned subsidiary
("Subsidiary"), provided that no such assignment of rights or delegation of
duties shall relieve Sublessee of its obligations under this Sublease. If
such assignment is made, references to Sublessee in this Sublease shall be
deemed to refer to Subsidiary, or to Sublessee and Subsidiary, as appropriate.
B. Concurrently with the execution and delivery of this Sublease,
Sublessee has guaranteed the obligations of Disposeco under the NOW Disposal
Agreement (the "Disposal Agreement") dated June 4, 1996, among Disposeco,
Sanifill and Sublessor.
C. Sublessor is the successor lessee under a lease agreement dated
August 29, 1990, effective September 1, 1990 (including all amendments
thereto, the "Prime Lease"), pursuant to which Irvin Templet and Angele
Savoie Templet ("Lessor") leased to Sublessor's predecessor, Intracoastal
Oilfield Fluids, Inc. a Louisiana corporation ("IOF"), certain immovable
property, including all buildings thereon and improvements thereto, which
property is located in the Parish of Lafourche, State of Louisiana and is
described more particularly in Exhibit "A" hereto ("Prime Premises"). A copy
of the Prime Lease is attached as Exhibit "B" hereto.
D. This Sublease sets forth the terms and conditions on which Sublessee
is subleasing from Sublessor the portion (and no other portion) (the "Dock")
of the Prime Premises described in Exhibit "C" attached hereto. The Dock is
part of the Included Assets and constitutes one of the Landfarm Docks
referred to in Paragraph 13.1 of the Purchase Agreement.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by both parties, the parties hereby agree as follows:
<PAGE>
1. SUBLEASE OF DOCK.
Sublessor hereby subleases the Dock to Sublessee, and Sublessee
hereby subleases the Dock from Sublessor, on the terms and conditions set
forth in this Sublease. Subject to the terms of this Sublease and Section 20
of the Prime Lease, Sublessor hereby guarantees to Sublessee the quiet
enjoyment and peaceable possession of the Dock for the entire term of this
Sublease. Without limiting the generality of the foregoing, Sublessor
covenants that, subject to Section 20 of the Prime Lease, it will not cause,
suffer or permit the Prime Lease to be terminated prior to the Termination
Date, as defined herein.
2. WARRANTY BY SUBLESSOR.
Sublessor hereby warrants and represents to Sublessee that Sublessor
is the lawful successor or assignee of IOF, the original Lessee under the
Prime Lease, that the Prime Lease has not been amended or modified except as
expressly set forth herein, that Sublessor is not now, and as of the
commencement of the term hereof will not be, in default or breach of any of
the provisions of the Prime Lease, and that Sublessor has no knowledge of any
claim by Lessor that Sublessor is in default or breach of any of the
provisions of the Prime Lease.
3. TERM.
The term of this Sublease commences on the date hereof ("Commencement
Date") and shall continue for a period of twenty-five (25) years, i.e., until
August 12, 2021 ("Termination Date"), unless otherwise sooner terminated in
accordance with the provisions of this Sublease. Sublessor shall exercise
all options available to extend or renew the Prime Lease to and including the
Termination Date (or, if applicable, shall take no action to prevent the
automatic exercise or extension of any option(s) under the Prime Lease) to
ensure that the Prime Lease shall extend through and including the
Termination Date. The foregoing notwithstanding, (a) Sublessee (but not
Sublessor) shall have the right to terminate this Sublease at any time upon
not less than ten days' written notice to Sublessor, and (b) this Sublease
shall terminate automatically upon termination of the Disposal Agreement.
4. RENT.
All rental for the Dock for the entirety of the term of this Sublease,
to and including the Termination Date, is included in the Purchase Price, as
that term is defined in the Purchase Agreement, that has been paid by
Sublessee, the receipt and sufficiency of which are hereby expressly
acknowledged by Sublessor. The Purchase Price paid by Sublessee further
includes payment in full, for the entire term of this Sublease, of all other
amounts payable by Sublessor under the Prime Lease due on account of the
Prime Premises, whether characterized in the Prime Lease as additional rental
or otherwise.
5. ACCESS TO DOCK.
The execution of this Sublease notwithstanding, Sublessor shall have
the right of access to the Dock and, in cooperation with Sublessee, shall
have the right to operate the Dock, in each case solely for the purpose of
performing their obligations under the Disposal
-2-
<PAGE>
Agreement. Subject to the terms of the Disposal Agreement, Sublessor shall
pay all costs and expenses of operating the Dock in connection with the
Disposal Agreement. The parties shall indemnify and hold harmless each other
with respect to obligations arising in connection with the operation of the
Dock to the extent and in the manner provided in Article IX of the Disposal
Agreement. If, at any time, Sublessor permanently ceases to use the Prime
Premises for disposal of waste in connection with the Disposal Agreement,
this right of access shall terminate.
6. MAINTENANCE AND OPERATING EXPENSES.
To the extent the Prime Lease requires Sublessor to pay or reimburse
Lessor for any of the costs and expenses incurred in the repair, maintenance
or upkeep (including but not limited to taxes, utilities, and insurance) of
the Dock, Sublessor shall pay all such costs and expenses in further
consideration of its receipt of the Purchase Price. Without limiting the
generality of the foregoing, Sublessor shall pay all costs and expenses
relating to the repair, maintenance, upkeep and insuring of any improvements
on the Dock, when such improvements are erected by Sublessor, as required by
Section 8 of the Prime Lease. Sublessee shall pay all costs and expenses
relating to the repair, maintenance, upkeep and insuring of any improvements
on the Dock, when such improvements are erected by Sublessee, as required by
Section 8 of the Prime Lease. Sublessee shall obtain the written consent of
Sublessor prior to erecting any improvements.
7. USE OF DOCK
Sublessee may use the Dock for any lawful purpose permitted under the
Prime Lease.
8. ASSIGNMENT AND SUBLETTING.
Sublessee may assign this Sublease or further sublet or assign all or
any part of the Dock without Sublessor's prior written consent, and Sublessor
may assign this Sublease without Sublessee's prior written consent; provided,
however, that no such subleasing or assignment shall relieve Sublessor or
Sublessee of any of its obligations hereunder.
9. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Prime Lease are
incorporated into and made a part of this Sublease as if Sublessor were the
lessor thereunder, Sublessee the lessee thereunder, and the Dock the Prime
Premises, except for Sections 1, 2, 4, 5, 8, 9, 10, 11, 13, 16, 18 and 19
thereof, which shall not be binding on Sublessee. Upon the reasonable request
of Sublessee, Sublessor shall use commercially reasonable efforts to attempt
to cause Lessor to perform its obligations under the Prime Lease for the
benefit of Sublessee. If the Prime Lease terminates, this Sublease shall
terminate and the parties shall be relieved of any further liability or
obligation under this Sublease; provided, however, that if the Prime Lease
terminates as a result of a default or breach by Sublessor or Sublessee under
this Sublease and/or the Prime Lease, then the defaulting party shall be
liable to the non-defaulting party
-3-
<PAGE>
for all damage suffered as a result of such termination, including
consequential damages but excluding punitive damages.
10. DISPUTE RESOLUTION.
10.1 NEGOTIATION OF DISPUTES. In the event of any dispute or
disagreement arising out of or relating to the implementation and performance
of this Sublease, the parties agree to attempt to resolve such dispute in
good faith. Should a resolution of such dispute not be obtained within 15
days after the origination of the dispute, either party may submit the
dispute to arbitration in accordance with the provisions of this Paragraph 10
by written notice to the other party.
10.2 GENERAL ARBITRATION. Any claim, dispute or controversy arising
out of or relating to this Sublease or the breach thereof not settled in
accordance with the provisions of Section 10.1 shall be submitted to binding
arbitration by the American Arbitration Association (the "AAA") for
arbitration in Houston, Texas, in accordance with the Commercial Arbitration
Rules of the AAA then in effect. There shall be three arbitrators, with each
party selecting one. The third arbitrator shall be selected by the two
party-selected arbitrators and shall be the chairperson of the panel. The
party requesting arbitration shall name its arbitrator in the demand for
arbitration and the other party shall name its arbitrator within 30 days
after receipt of the arbitration demand. The third arbitrator shall be named
within 30 days after the appointment of the second arbitrator. The AAA shall
be empowered to appoint any arbitrator not named in accordance with the
procedure set forth herein. The decision of the arbitrators shall be final and
binding upon the parties without the right to appeal to the courts. The
award rendered in arbitration shall be final and judgment thereon may be
entered by any court having jurisdiction thereof. The costs and expenses of
the arbitration (including reasonable attorney's fees) will be borne by the
losing party, unless the arbitrators determine that it would be manifestly
unfair to honor this provision and determine a different allocation of costs.
10.3 APPLICABLE LAW AND ARBITRATION ACT. This agreement to
arbitrate shall be enforceable in either federal or state court. The
enforcement of this agreement to arbitrate and all procedural aspects of this
agreement to arbitrate, including, without limitation, the construction and
interpretation of this agreement to arbitrate, the scope of the arbitrable
issues, allegations of waiver, delay or defenses as to arbitrability, and
the rules governing the conduct of the arbitrations, shall be governed by and
construed pursuant to the United States Arbitration Act. In deciding the
substance of any such claim, dispute or disagreement, the arbitrators shall
apply the substantive laws of the State of Texas; provided, however, that
the arbitrators shall have no authority to award punitive damages under any
circumstances regardless of whether such damages may be available under
Texas law, the parties hereby waiving their right, if any, to recover
punitive damages in connection with any such claims, disputes or
disagreements.
10.4 CONTINUATION OF PERFORMANCE. In the event of a dispute arising
under this Sublease, the parties shall continue performance of their
respective obligations hereunder pending resolution of the dispute.
-4-
<PAGE>
11. NOTICES.
All notices and demands which may or are to be required or
permitted to be given by either party on the other hereunder shall be in
writing. All notices and demands by the Sublessor to Sublessee shall be
given in writing and delivered in person or sent by overnight delivery
service or United States Mail, postage prepaid, addressed to the Sublessee at
the Dock, and to the address hereinbelow, or to such other place as Sublessee
may from time to time designate in a notice to the Sublessor. All notices
and demands by the Sublessee to Sublessor shall be given in writing and
delivered in person or sent by overnight delivery service or United States
Mail, postage prepaid, addressed to the Sublessor at the address, set forth
herein, and to such other person or place as the Sublessor may from time to
time designate in a notice to the Sublessee.
To Sublessor at: Campbell Wells, Ltd.
2014 West Pinhook Road, Suite 900
Lafayette, LA 70508
Attention: W. Gregory Orr, President
Telephone: (318) 266-7966
Telefax: (318) 266-7922
With a copy to: Louise A. Shearer
Baker & Botts LLP
One Shell Plaza
910 Louisiana
Houston, TX 77002-4995
To Sublessee at: Newpark Resources, Inc.
Lakeway Center
3850 N. Causeway, Suite 1770
Metairie, LA 70002
Attention: James D. Cole, President
Telephone: (504) 838-8222
Telefax: (504) 833-9506
12. MISCELLANEOUS.
12.1 BINDING EFFECT. This Sublease shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
12.2 COUNTERPARTS. This Sublease may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.3 HEADINGS. Captions and paragraph headings used herein are for
convenience only and are not a part of this Sublease and shall not be used in
construing it.
-5-
<PAGE>
12.4 AMENDMENTS; WAIVERS. No provision or term of this Sublease or
any agreement contemplated herein between the parties hereto may be
supplemented, amended, modified waived or terminated except in a writing duly
executed by the party to be charged. No waiver of any of the provisions of
this Sublease shall be deemed or shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver unless otherwise expressly provided. Failure of a party to
insist on strict compliance with any of the terms and conditions of this
Sublease shall not be deemed a waiver of any such terms and conditions.
12.5 ENTIRE AGREEMENT. This Sublease, the Purchase Agreement and
the Disposal Agreement comprise the entire agreement of the parties and
supersede all earlier understandings of the parties with respect to the
subject matter hereof.
IN WITNESS WHEREOF the parties have executed and delivered this Sublease
as of the date first set forth above.
SUBLESSOR:
CAMPBELL WELLS, LTD.
By SANIFILL GP HOLDING CO., INC., its
General Partner
By: /s/ Michael W. Harlen
------------------------------------
SUBLESSEE:
NEWPARK RESOURCES, INC.
By: /s/ James D. Cole
------------------------------------
James D. Cole, President
-6-
<PAGE>
EXHIBIT A
<PAGE>
Tract A
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East, Lafourche Parish, Louisiana. Said tract being bounded
on the South by Louisiana Highway No. 24, on the North by Saint Louis Canal,
and bounded on the East and West by land belonging to Irvin Templet and
Angele Savoie Templet. Beginning at An Son - Dresser et al. No. 1 Dry Well
thence at a true bearing of North 89 DEG. 45' 00" West and a distance of
300.00' to a point. Thence at a true bearing of South 00 DEG. 15' 00" West
and a distance of 750.05' to Louisiana Highway No. 24 Right of Way, thence at
a true bearing of North 75 DEG. 17' 06" West, and a distance of 388.65' to a
point hereafter referred to as the "Point of Beginning;" which is the
Southwest corner of the following tract of land described.
Beginning at the "Point of Beginning," at a true bearing of North 12 DEG. 53'
59" East, and a distance of 1048.40' to a point. Thence at a true bearing of
North 21 DEG. 23' 04" West and a distance of 62.55' to a point, which is the
South bank of Saint Louis Canal. thence at a true bearing of South 88 DEG.
12' 19" East and a distance of 500.26' to a point. Thence at a true bearing
of North 89 DEG. 03' 29" East and a distance of 501.59' to a point, thence at
a true bearing of South 79 DEG. 37' 22" East and a distance of 475.66' to a
point. Thence at a true bearing of North 00 DEG. 15' 00" East and a distance
of 60.00' to a point. Thence at a true bearing of South 73 DEG. 57' 12" East
and a distance of 688.34' to a point, thence at a true bearing of South 56
DEG. 03' 12" East and a distance of 575.119' to a point. Thence at a true
bearing of South 61 DEG. 47' 53" East and a distance of 277.40' to a point.
Thence at a true bearing of South 25 DEG. 37' 38" West and a distance of
1191.10' to a point, which is the North Right of Way of Louisiana Highway No.
24, thence along the Right of Way of Louisiana Highway No. 24 at a true
bearing of North 75 DEG. 17' 06" West and a distance of 2635.33' to the
"Point of Beginning." Describes a tract of land hereafter referred to as
"Tract A" containing 83.749 Acres.
Tract B
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East, Lafourche Parish, Louisiana. Said tract being bounded
on the South by the aforedescribed "Tract A," on the North by the
Intracoastal Canal, on the East and West by land belonging Irvin Templet and
Angele Savoie Templet.
Beginning at An Son - Dresser et al. No. 1 Dry Well thence at a true bearing
of North 89 DEG. 45' 00" West and a distance of 300.00' to a point. Thence
at a true bearing of North 21 DEG. 23' 03" West and a distance of 460.58'
to a point, which is the Northwest corner of aforementioned "Tract A;"
hereinafter referred to as the "Point of Beginning."
Beginning at the "Point of Beginning," at a true bearing of North 21 DEG.
23' 03" West and a distance of 1166.86' to a point, thence at a true bearing
of North 00 DEG. 15' 00" East and a distance of 1100.00' to a point, which
is the South Bank of the Intracoastal Canal, thence at a true bearing of
South 86 DEG. 44' 14" and a distance of 1902.63' to a point, thence at a
true bearing of South 00 DEG. 15' 00" West and a distance of 2171.35' to
<PAGE>
a point. Thence at a true bearing of North 79 DEG. 37' 22" West and a
distance of 475.66' to a point. Thence at a true bearing of South 89 DEG.
03' 29" West and a distance of 501.59' to a point, thence at a true bearing of
North 88 DEG. 12' 19" West and a distance of 500.26' to the "Point of
Beginning." Describes a tract of land hereafter referred to "Tract B"
containing 88.409 Acres.
Tract C
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East and Section 71, Township 18 South, Range 19 East,
Lafourche Parish, Louisiana. Said tract being bounded on the North by
Louisiana Highway No. 24, East, West and South by lands belonging to Irvin
Templet and Angele Savoie Templet.
Beginning at Point "A" which is the "Point of Beginning," thence proceeding
at a bearing of S 75 DEG. 17' 06" E for a distance of 3,450.01 feet, thence
along an arc having a distance of 622.16 feet, thence at a bearing of S 57
DEG. 09' 41" E for a distance of 390.00 feet, to Point "B" all being the
Southern sides of the right of way of Louisiana Highway No. 24, thence
proceeding at a bearing of S 32 DEG 50' 19" West for a distance of 675.00
feet to Point "C," thence at a bearing of N 57 DEG 09' 41" West for a
distance of 390.00 feet, thence along an arc having a distance of 408.65
feet, thence at a bearing of N 75 DEG. 17' 06" N for a distance of 3450.01
feet to Point "C." Thence at a bearing of N 14 DEG. 42' 54" E for a distance
of 675.00 feet to Point "A" which is the "Point of Beginning." All
containing approximately 67.5 acres. Described as Tract C.
Tract D
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East and Sections 70 and 71, Township 18 South, Range 19
East, Lafourche Parish, Louisiana. Said tract being bounded on the West by
the aforedescribed "Tract C," on the North and South by lands belonging to
Irvin Templet and Angele Savoie Templet and on the East by the Tenneco
Company Road.
Beginning at Point "B" which is the "Point of Beginning," thence proceeding at
a bearing of S 32 DEG. 50' 19" E for a distance of 675.00 feet to Point "C,"
thence at a bearing of N 57 DEG. 09' 41" W for a distance of 230.00 feet, to
Point "D." thence proceeding at a bearing of S 32 DEG 50' 19" West for a
distance of 497.00 feet to Point "E," thence S 57 DEG. 09' 41" for a distance
of approximately 2800 feet to Point "F," being on the Western side of the
Tenneco Company Road. Thence meandering northeast along the western side of
the Tenneco Company Road for a distance of approximately 1300 feet to Point
"G" which is the intersection of the Western side of Tenneco Company Road and
the southern right of way of Louisiana Highway No. 24. Thence proceed along
the right of Louisiana Highway No. 24 along an arc having a distance of
362.51 feet, thence at a bearing of N 57 DEG. 09' 41" W for a distance of
2547.20 to Point "B" which is the "Point of Beginning." All containing
approximately 76.2 acres. Described as Tract D.
-2-
<PAGE>
EXHIBIT B
<PAGE>
ASSIGNMENT OF LEASE
STATE OF LOUISIANA )
)
PARISH OF LAFOURCHE )
Reference is made to that certain Lease dated August 29, 1990, by and
between Irvin Templet and wife, Angele Savoie Templet, as Lessors, to
Intracoastal Oilfield Fluids, Inc., as Lessee, covering Tracts A, B, C and D
in Lafourche Parish, Louisiana, as described in such lease, a copy of which
is attached hereto (hereinafter called "Said Lease").
Intracoastal Oilfield Fluids, Inc. desires to assign Said Lease to
Sanifill/IOF Acquisition, Inc., who desires to acquire Said Lease.
NOW, THEREFORE, in consideration of the sum of One Hundred and No/100
Dollars ($100.00) and of other good and valuable considerations, the receipt,
adequacy and sufficiency of which are hereby acknowledged, Intracoastal
Oilfield Fluids, Inc., a Louisiana corporation, whose mailing address is P.O.
Box 898, LaRose, Louisiana 70373, appearing herein by its duly authorized
President, Ted A. Martin (hereinafter called "Assignor") does hereby convey,
assign, transfer and deliver Said Lease unto Sanifill/IOF Acquisition, Inc.,
a Louisiana corporation, whose mailing address is 1225 North Loop West, Suite
550, Houston, Texas 77008, herein represented by Michael D. Adams, its duly
authorized Senior Vice President.
Assignee agrees to indemnify and hold Assignor harmless from and against
any and all claims, demands, assertions, actions or causes of action which
might be asserted against Assignor as a result of or arising out of any
operations conducted or failed to be conducted on or about the lands covered
by Said Lease. Without limiting the foregoing, Assignee covenants and agrees
that it will indemnify and hold harmless Assignor at all times from and after
this Assignment from and against all claims, damages, actions, suits,
proceedings, demands, assessments, adjustments, costs and expenses
(including, but specifically without limitation, reasonable attorneys' fees
and expenses of investigation) which may arise at any time in the future
under or as a result of any and all federal, state, and local laws,
ordinances, regulations, and standards
<PAGE>
relating to the use, analysis, production, storage, sale, disposal, or
transportation of any hazardous materials ("Hazardous Substance Laws"),
including oil or petroleum by-products or their derivatives, (such Hazardous
Substance Laws including but not limited to the Federal Resource Conservation
and Recovery Act, the Clean Water Act, the Clean Air Act, Toxic Substances
Control Act, and the Comprehensive Environmental Response Compensation and
Liability Act, as well as any comparable state laws), but only to the extent
that such claims, damages, actions, suits, etc. are based upon acts which
occurred after this Assignment or omissions to take actions which should be
taken after the Assignment. Any subsequent assignment of Said Lease by
Assignee to any third party shall contain a provision whereby such third
party additionally agrees to indemnify Assignor herein by identical language
stated in this paragraph.
TO HAVE AND TO HOLD Said Lease, with all rights thereunder and incident
thereto unto Assignee, its successors and assigns forever.
Assignor hereby binds itself, its successors and legal representatives,
to warrant all and singular Said Lease unto Assignee, its successors and
assigns, by, through and under Assignor, but not otherwise, but with full
substitution and subrogation in and to any and all rights or actions of
warranty which Assignor may now or hereafter have or hold.
EXECUTED this 31st day of August, 1990, but effective as of the 29th day
of August, 1990.
WITNESSES TO ASSIGNOR:
ALL SIGNATURES: INTRACOASTAL OILFIELD FLUIDS, INC.
ILLEGIBLE By: /s/ Ted A. Martin
- ----------------------------------- ---------------------------------
Ted A. Martin, President
ILLEGIBLE
- -----------------------------------
ASSIGNEE:
SANIFILL/IOF ACQUISITION, INC.
By: /s/ Michael D. Adams
----------------------------------
Name: Michael D. Adams
--------------------------------
Title: Senior Vice President
-------------------------------
-2-
<PAGE>
THE STATE OF LOUISIANA )
)
PARISH OF EAST BATON ROUGE )
On this 31st day of August, 1990, before me appeared Ted A. Martin, to
be personally known, who, being by me duly sworn, did say that he is the
President of Intracoastal Oilfield Fluids, Inc. and that said instrument was
signed on behalf of said corporation by authority of its Board of Directors
and said Ted A. Martin acknowledged said instrument to be the free act and
deed of said corporation.
ILLEGIBLE
-----------------------------------
Notary Public
THE STATE OF LOUISIANA )
)
PARISH OF EAST BATON ROUGE )
On this 31st day of August, 1990, before me appeared Michael D. Adams,
to be personally known, who, being by me duly sworn, did say that he is the
Senior Vice President of Sanifill/IOF Acquisition, Inc. and that said
instrument was signed on behalf of said corporation by authority of its Board
of Directors and said Michael D. Adams acknowledged said instrument to be the
free act and deed of said corporation.
ILLEGIBLE
-----------------------------------
Notary Public
-3-
<PAGE>
LEASE BY: IRVIN TEMPLET, ET UX - STATE OF LOUISIANA
TO: INTRACOASTAL OILFIELD FLUIDS, INC. - PARISH OF LAFOURCHE
EFFECTIVE the 1st day of September, 1990;
IRVIN TEMPLET and ANGELE SAVOIE TEMPLET, both of legal age, and whose
present mailing address is P.O. Box 7, Larose, Lafourche Parish, Louisiana
70373, married to and living with one another, (hereinafter referred to as
"Lessor");
hereby grants, leases and lets to INTRACOASTAL OILFIELD FLUIDS, INC., a
Louisiana corporation whose address is P.O. Box 898, Larose, Louisiana
70373, appearing herein by its duly authorized President, Ted A. Martin
(hereinafter referred to as "Lessee"), the premises located in Lafourche
Parish, Louisiana, described on Exhibit "A" attached hereto and made a part
hereof for all purposes.
1.
The initial term of this lease is three years and four months commencing
on the 1st day of September, 1990 and ending on the 1st day of January, 1994.
The term of this lease may be renewed, at the option of Lessee, for nine
(9) additional consecutive three (3) year periods and one (1) consecutive
additional two (2) year period, the total option terms of the lease thereby
extending, at Lessee's option, to the first day of January, 2023. Such
options to renew shall be automatic for each additional option period unless
Lessee gives Lessor written notice to terminate the lease agreement not less
than sixty (60) days prior to the expiration to the then existing term or
option term.
Each extended term shall be upon the same terms, covenants and
conditions as this lease; however, the monthly rent during any and each
option period so exercised shall be according to the following schedule:
Each month for term ending January 1, 1994 - $ 4,064.11 per month.
Each month for term ending January 1, 1997 - $ 4,470.52 per month.
Each month for term ending January 1, 2000 - $ 4,??7.57 per month.
Each month for term ending January 1, 2003 - $ 5,409.33 per month.
Each month for term ending January 1, 2006 - $ 5,950.26 per month.
Each month for term ending January 1, 2009 - $ 6,545.29 per month.
Each month for term ending January 1, 2012 - $ 7,198.82 per month.
Each month for term ending January 1, 2015 - $ 7,919.80 per month.
Each month for term ending January 1, 2018 - $ 8,711.78 per month.
Each month for term ending January 1, 2021 - $ 9,582.96 per month.
Each month for term ending January 1, 2023 - $10,541.26 per month.
<PAGE>
Further, rent shall continue to be due by Lessee and earned by Lessor
during such times as Lessor's unrestricted use of all or a portion of the
leased premises is denied or restricted due to the need or requirement for
site clean-up under any applicable rule, statute or regulation of any
governmental agency or body, which rent will be computed according to the
above schedule and determined by the time during which Lessee's use of all or
a portion of the leased premises is so denied or restricted.
Any termination of this Lease during the initial term or during any
extended term shall terminate all further rights of the extension of renewal
hereunder.
2.
In addition to the rentals stated in Paragraph 1 hereto, Lessee shall pay
to Lessor, as a royalty, a sum equal to ten percent (10%) of the monies paid
to Lessee by its third party customers for salt water as defined by Louisiana
Statewide Order No. 29-B, Section XV-13.1, under non-hazardous oil field
waste delivered to Lessee for injection into the wells located on the leased
premises. This royalty shall be paid on the monies received by Lessee, net
of all taxes, other governmental fees, transportation and freight charges.
Such royalties shall be due and payable for the term of this lease and
renewal and extension thereof. The royalties shall be paid monthly to Lessor
at the address stated herein on or before the 10th day of the second month
after the month during which such salt water was delivered to Lessee and
injected into the leased premises.
3.
Lessee may utilize the leased premises for a non-hazardous oilfield waste
treatment facility as defined by Louisiana Statewide Order No. 29-B, and
specifically Lessee shall have the right to utilize Union Prod. - Dresser et
al. No. 1 and An Son - Dresser et al. No. 1 as waste disposal sites and well
disposal injection sites, and in association therewith Lessee may construct
or erect any facilities incidental thereto; and Lessee may, at its option,
rework, extend and deepen said wells; or drill replacement and/or additional
injection wells on the premises. However, Lessee shall not use the premises
for any unlawful purpose or in violation of any federal, state or parish law
and further provided that Lessor shall retain all mineral rights to said
<PAGE>
leased premises.
During the term of this lease, Lessee may construct various improvements
on the leased property. If any improvements are erected on the leased
premises, Lessee shall, at its expense, keep said improvements in good state
of repair. All alterations, additions and improvements put in at the expense
of Lessee, shall remain the property of Lessee and at the termination of this
lease, Lessee may remove such alterations, additions and improvements, if such
removal is completed within ninety (90) days after the termination of this
lease. Lessor may require that all alterations, additions and improvements
placed on, in or about the property, be removed by Lessee at its sole cost
and expense within ninety (90) days of the termination of this lease. Any
property left on the leased premises with Lessor's permission, shall become
the property of Lessor, and Lessee shall not be entitled to any compensation
therefor.
The granting of this lease shall in no way be considered as consent to
erect or construct improvements on the premises leased herein in such a
manner as to create any liens, claims or demands against Lessor on the
property herein leased.
4.
It is recognized that Lessee will be operating a non-hazardous oilfield
waste treatment facility on the leased premises. With regard to the implied
obligation of Lessee to restore the surface of the leased premises pursuant
to Louisiana law, it is understood and agreed that this obligation shall be
limited to the Lessee's complying with all of the terms and provisions of
Louisiana Statewide Order No. 29-B Section XV, as amended, and any and all
other rules and regulations of state and federal environmental authorities
having jurisdiction of the leased premises. Lessor specifically grants to
Lessee the right and authority to raise the elevation of the leased premises
by the addition of material treated pursuant to Louisiana regulatory
authority.
5.
Lessee agrees to indemnify, defend and hold harmless, Lessor, its
partners, agents, employees and subcontractors from and against any and all
liens and claims for labor and material, and against any and all claims,
demands, or suits for damages
<PAGE>
to persons and/or property (including but not limited to claims, demands,
or suits for bodily injuries, illness, disease, death, loss of services,
maintenance, cure, property or wages) which may be brought against Lessor
(including but not limited to those brought by Lessee's employees and agents,
and the agents and employees of its subcontractors) incident to, arising out
of, in connection with, or resulting from the activities of Lessee, its
employees and agents, or its subcontractors and the employees and agents, on
Lessor's leased or owned premises, and whether or not caused in whole or in
part by Lessor's negligence, act or omission.
6.
Lessee, upon the payment of the rent herein reserved and upon the
performance of all the terms of this lease, shall at all times during the
lease term and during any renewal term peaceably and quietly enjoy the leased
property without any disturbance from the Lessor or from any other person
claiming through Lessor, save for the enforcement of Lessor's rights under
this lease or law.
7.
For the covenants and considerations heretofore enumerated, Lessor grant
Lessee sufficient servitudes for the right of way of ingress, egress and
regress to the leased premises from and to Louisiana Highway 24 or its
successor.
8.
In the event the Lessor shall receive from a third party at any time
during the terms of this lease, or any renewal thereunder, a bona fide offer
to purchase the leased premises, and shall decide to sell the same for the
amount named in the offer the Lessor shall promptly give to the Lessee written
notice of the terms of such offer and the Lessor's willingness to sell for
the price and on the other terms offered, and the Lessee shall have the
option and privilege of purchasing the premises at this price, and shall
notify the Lessor in writing within fifteen (15) days after the date it
received notice from the Lessor whether it will purchase the premises for the
amount specified in the offer made by the third party. In the event the
Lessee shall not elect within the fifteen (15) day period to purchase for
the amount specified in the offer from the third party, the Lessor may
thereafter sell the premises to the party making the offer, subject, however,
to the leasehold interest herein granted to the Lessee
<PAGE>
If for any reason the premises are not sold to the third party, notice of
any subsequent bona fide offers acceptable to the Lessor shall be given to
the Lessee upon the same terms and conditions for acceptance or refusal as
provided above.
9.
If this option is exercised as herein provided upon receipt of the written
notice that the option has been exercised, then and in that event and without
any further actions of either party, this instrument shall become, ipso
facto, a binding agreement to sell, which agreement shall confer upon Lessee
hereto the right to specific performance.
10.
Upon the payment of the purchase price, the Lessor shall convey to the
Lessee, or its nominee, title in and to the premises and improvements and
appurtenances thereunto belonging, free and clear of all liens, encumbrances
and charges of whatsoever character, except those arising due to Lessee's
action or inaction during the term of this lease, with full substitution and
subrogation to all Lessor's rights and actions of warranty against all
preceding owners and vendors, payment of the purchase price to be made by
Lessee at the time of execution of said deed.
11.
Title to said property shall be subject to the approval of the attorney
selected by Lessee, who shall be the sole judge of the marketability of the
property, and whose opinion shall be conclusive; provided, however, that
Lessee shall have the right, at his option, to waive any objection to the
title raised by said attorney.
12.
It is understood and agreed that Lessor shall have the right to permit
anyone to use Bayou St. Louis for the purpose of barge dockage and said right
extended by Lessor shall include the right of ingress, egress and regress
over and through the access canals associated with Union Prod. - Dresser et
al No. 1 and An Son - Dresser et al No. 1; provided, however, that the said
right shall not extend to the construction or erection of any structure
whatsoever, in, on or near the aforesaid access canals and that the operations
of permittee of Lessor shall not interfere, hamper or otherwise adversely
affect the superior and prevailing right of Lessee to
<PAGE>
the leased premises.
13.
A. INDEMNITY. Leasee shall indemnify, defend, (by counsel reasonably
acceptable to Lessor), protect and hold harmless Lessor and each of Lessor's
shareholders, directors, officers, employees, agents, partners, attorneys,
successors and assigns, from and against any and all claims, liabilities,
penalties, fines, judgements, forfeitures, losses, costs, or expenses
(including without limitation, reasonable attorneys' fees, consultants' fees
and expert fees) for the death of or injury to any person or damage to any
property whatsoever, arising from or cause in whole or in part, directly or
indirectly, by: (i) the presence in, on, under, or about the Lease Premises,
or any discharge or release in or from the Lease Premises, of any Hazardous
Substance but only to the extent that any such presence, discharge or release
is caused, or arises from, Lessee's activities on the Lease Premise, whether
arising under a previous lease or leases between the parties, or after the
inception of this lease, including by way of illustration, Hazardous
Substances deposited on the Lease Premises without Lessee's or Lessor's
permission or knowledge, Lessee being solely responsible for security of the
Lease Premises; (ii) Lessee's failure to comply with any Hazardous Substance
law, to the extent that compliance is required on account of Lessee's
activities on the Lease Premises and not to the extent that compliance is
required solely because Lessee, as the occupant of the Lease Premises, is
held accountable for Hazardous Substances on, in, under or about the Lease
Premises, or released from the Lease Premises which are not caused by or
released by Lessee; (iii) Notwithstanding the foregoing, the presence of
Hazardous Substances on the Lease Premises shall be presumed to have arisen
from or been caused by Lessee's activities on the Lease Premises, including
by way of illustration, Hazardous Substances placed upon the Lease Premises
by third persons during the term of this lease, Lessee being solely
responsible for security on the Lease Premises, unless Lessee affirmatively
proves that the presence of such Hazardous Substances did not arise from
Lessee's activity on the Leased Premises; (iv) The indemnity obligation
created hereunder shall include, without limitation, and whether foreseeable
or unforeseeable, any and all costs incurred in connection with any site
investigation, and any and all costs for repair, clean-up detoxification or
<PAGE>
decontamination, or other remedial action of the Lease Premises. The
obligations of the parties hereunder shall survive the expiration or earlier
termination of this lease, and any extension thereof.
B. HAZARDOUS SUBSTANCES. As used in this leasee, the terms "Hazardous
Substances" means any hazardous or toxic substances, materials, or wastes,
including, but not limited to, those substances, materials, and wastes listed
in the United States Department of Transportation Hazardous Materials Table
(49 C.F.R. 172.101) or by the Environmental Protection Agency as hazardous
substances (40 C.F.R. Part 302) and amendments thereto, or such hazardous or
toxic substances, materials and wastes which are or become regulated under
any applicable local, state or federal law including without limitation, any
material, waste or substance which is: (i) defined as "hazardous waste" under
the Louisiana Hazardous Waste Control Law, La. R.S. 30:311 ET SEQ., (ii)
designated as a "hazardous substance" pursuant to Section 311 of the Clean
Water Act, 33 U.S.C. Section 1251, ET. SEQ. (33 U.S.C. Section 1321) or
listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. Section
3117), (iii) defined as a "hazardous waste" pursuant to Section 1004 of the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, ET SEQ. (42
U.S.C. Section 6903) or (iv) defined as a "hazardous substance" pursuant to
Section 101 of the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Section 9601, ET SEQ. (42 U.S.C. Section 9601).
14.
The invalidity of any portion of this lease shall not affect the
remaining portion hereof. The terms and conditions of this lease shall be
covenants running with the land.
15.
This lease agreement constitutes the entire agreement between the parties
hereto, and any change or modification to this lease must be in writing and
signed by the parties hereto.
16.
Lessee agrees to pay and discharge when due, all increases in the ad
valorem taxes caused by Lessee's improvements to the Lease Premises from
those valuations
<PAGE>
in effect at the inception of this lease, all ad valorem taxes due on
improvements placed on or in the Lease Premises, and all liens or changes on
the property arising from Lessee's activities on the Lease Premises.
17.
Lessee and Lessor agree that this agreement supersedes and replaces
those lease agreement currently in force and effect, as of the inception of
this agreement, provided that obligations of a continuing nature arising
during the term of the previous lease shall continue in force and effect.
18.
Lessee shall assume the risk of loss on all movable property, fixtures,
or buildings located on the property. During the term of this lease, Lessee
agrees to maintain on the property the following minimum insurance with
underwriters and under policies acceptable to Lessor:
1) Fire and extended coverage on the buildings at their full value;
2) Comprehensive General Liability coverage with Combined Single Limits
of not less than $100,000.00 per occurrence with excess coverage of
not less than 5,000,000.00 per occurrence;
3) Worker's Compensation Insurance which meets statutory requirements;
and
4) Pollution coverage as required by the Louisiana Department of Natural
Resources, or other governmental bodies.
Lessee agrees to be liable for and to hold Lessor harmless against the
payment for any deductibles under the above policies. Lessor shall be named
as an additional named insured under the policy, affording Fire and Extended
Coverage, and as an additional insured on the policy affording Comprehensive
General Liability coverage and Pollution Coverage, with a waiver of rights of
subrogation against Lessor under all above described policies. Lessor shall
receive certificates of insurance in form acceptable to Lessor and shall,
upon written request, receive a certified copy of any policy of Insurance
carried hereunder.
19.
Lessee shall pay or cause to be paid all charges for water, heat, gas,
electricity, sewers and all other utilities used on the property throughout
the terms of this lease, including any connection fees.
<PAGE>
20.
If there is any taking by eminent domain that materially affect Lessee's
use of the property, this lease shall terminate when title vests in the
authority exercising the right of eminent domain. The rent shall be
apportioned as of the day of termination, and any rent paid for a period
beyond that date shall be repaid to Lessee. Lessee shall not be entitled to
any part of the reward to Lessor for the taking.
21.
Lessor shall have the right to assign or mortgage any of its interest in
the lease or in the property, subject to Lessee's rights under this lease.
22.
Lessor may enter the property at any reasonable time upon reasonable
notice to Lessee (except that no notice is needed in case of any emergency)
to inspect the property.
23.
If, as a result of a breach of this lease by either party, the other
party employs an attorney or attorneys to enforce its rights under this
lease, then the breaching party agrees to pay the other party the reasonable
attorney's fees and costs incurred to enforce the lease.
24.
If Lessee defaults in the performance of any covenant or condition of
this lease, Lessor may cure the default at Lessee's expense, and the
reasonable amount of all expenses, including attorney's fees incurred by
Lessor, shall be deemed additional rent payable on demand.
25.
Lessee agrees to furnish to Lessor a copy of any written or other report
concerning the condition of the Lease Premises, including by way of
illustration, environmental surveys and reports, upon written request by
Lessor addressed to Lessee.
<PAGE>
26.
That when either party desires to give notice to the other in connection
with and according to the terms of this lease, such notice shall be given by
certified mail and it shall be deemed given when it shall have been deposited
in the U.S. Mail, certified mail, return receipt requested, with sufficient
postage prepared thereon to carry it to its addressed destination and such
notices shall be addressed as follows:
LESSOR: LESSEE:
Irvin Templet and Angele Savoie Templet Intracoastal Oilfield Fluids, Inc.
P.O. Box 7 771 Bourg - Larose Highway
Larose, LA 70373 Bourg, LA 70343
DATED this 29th day of August, 1990.
WITNESSES:
/s/ Patti C. Callais /s/ Irvin Templet
- --------------------------- ---------------------------
Patti C. Callais Irvin Templet
/s/ [illegible] /s/ Angele Savoie Templet
- --------------------------- ---------------------------
[illegible] Angele Savoie Templet
WITNESSES: INTRACOASTAL OILFIELD FLUIDS, INC.
/s/ Patti C. Callais By: /s/ Ted A. Martin
- --------------------------- ---------------------------
Patti C. Callais Ted A. Martin
/s/ [illegible]
- ---------------------------
[illegible]
STATE OF LOUISIANA
PARISH OF LAFOURCHE
On this 29th day of August, 1990, before me, the undersigned Notary
Public, duly commissioned within the State and Parish aforesaid, and in the
presence of the undersigned competent witnesses, personally appeared Irvin
Templet, to me known to be the person described in and who executed the
foregoing instrument, and acknowledged that he executed it as his free act
and deed.
WITNESSES:
/s/ Patti C. Callais /s/ Irvin Templet
- --------------------------- ---------------------------
Patti C. Callais Irvin Templet
/s/ [illegible]
- ---------------------------
[illegible]
/s/ [illegible]
---------------------------
NOTARY PUBLIC
<PAGE>
STATE OF LOUISIANA
PARISH OF LAFOURCHE
On this 29th day of August, 1990, before me, the undersigned Notary
Public, duly commissioned within the State and Parish Aforesaid, and in the
presence of the undersigned competent witnesses, personally appeared Angele
Savoie Templet, to me known to be the person described in and who executed
the foregoing instrument, and acknowledged that she executed it as her free
act and deed.
WITNESSES:
/s/ Patti C. Callais /s/ Angele Savoie Templet
- --------------------------- ---------------------------
Patti C. Callais Angele Savoie Templet
/s/ [illegible]
- ---------------------------
[illegible]
/s/ [illegible]
---------------------------
NOTARY PUBLIC
STATE OF LOUISIANA
PARISH OF LAFOURCHE
BE IT KNOWN, that on this 29th day of August, 1990, before me, the
undersigned Notary Public, duly commissioned and qualified within the State
and Parish aforesaid, and in the presence of the witnesses hereinafter named
and undersigned, personally came and appeared Ted A. Martin, to me well
known, who declared and acknowledged that he has signed and executed the
foregoing instrument as his act and deed, and as the act and deed of said
Intracoastal Oilfield Fluids, Inc.; that he is the President of said
corporation; and that he signed and executed said instrument in his said
capacity, and under authority of the Board of Directors of said corporation.
WITNESSES: INTRACOASTAL OILFIELD FLUIDS, INC.
/s/ Patti C. Callais /s/ Ted A. Martin
- --------------------------- ---------------------------
Patti C. Callais Ted A. Martin
its President
/s/ [illegible]
- ---------------------------
[illegible]
/s/ [illegible]
---------------------------
NOTARY PUBLIC
<PAGE>
EXHIBIT "A"
TRACT A
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East, Lafourche Parish, Louisiana. Said tract being bounded
on the South by Louisiana Highway No. 24, on the North by Saint Louis Canal,
and bounded on the East and West by land belonging to Irvin Templet and
Angele Savoie Templet. Beginning at An Son -- Dresser et al. No. 1 Dry Well
thence at a true bearing of North 89 Deg. 45' 00" West and a distance of
300.00' to a point. Thence at a true bearing of South 00 Deg. 15' 00" West
and distance of 750.05' to Louisiana Highway No. 24 Right of Way, thence at
a true bearing of North 75 Deg. 17' 06" West, and a distance of 388.65'
to a point hereafter referred to as the "Point of Beginning;" which is the
Southwest corner of the following tract of land described.
Beginning at the "Point of Beginning," at a true bearing of North 12 Deg. 53'
59" East, and a distance of 1048.40' to a point. Thence at a true bearing of
North 21 Deg. 23' 04" West and a distance of 62.55' to a point, which is the
South bank of Saint Louis Canal. thence at a true bearing of South 88 Deg.
12' 19" East and a distance of 500.26' to a point. Thence at a true bearing of
North 89 Deg. 03' 12" East and a distance of 501.59' to a point, thence at a
true bearing of South 79 Deg. 37' 22" East and a distance of 475.66' to a
point. Thence at a true bearing of North 00 Deg. 15' 00" East and a distance
of 60.00' to a point. Thence at a true bearing of South 73 deg. 57' 12" East
and a distance of 688.34' to a point, thence at a true bearing of South 56
Deg. 03' 12" East and a distance of 575.119' to a point. Thence at a true
bearing of South 61 Deg. 47' 53" East and a distance of 277.40' to a point.
Thence at a true bearing of South 25 Deg. 37' 38" West and a distance of
1191.10' to a point, which is the North Right of Way of Louisiana Highway No.
24, thence along the Right of Way of Louisiana Highway No. 24 at a true
bearing of North 75 Deg. 17' 06" West and a distance of 2635.33' to the
"Point of Beginning." Describes a tract of land hereafter referred to as
"Tract A" containing 83.749 Acres.
Tract B
A certain portion of a tract of land located in Section 79, Township 17 South,
Range 19 East, Lafourche Parish, Louisiana. Said tract being bounded on the
South by the aforedescribed "Tract A," on the North by the Intracoastal
Canal, on the East and West by land belonging to Irvin Templet and Angele
Savoie Templet.
Beginning at An Son -- Dresser et al. No. 1 Dry Well thence at a true bearing
of North 89 Deg. 45' 00" West and a distance of 300.00' to a point. Thence at
a true bearing of North 21 Deg. 23' 03" West and a distance of 460.58' to a
point, which is the Northwest corner of aforementioned "Tract A;" hereinafter
referred to as the "Point of Beginning."
Beginning at the "Point of Beginning," at a true bearing of North 21 Deg. 23'
03" West and a distance of 1166.86' to a point, thence at a true bearing of
North 00 Deg. 15' 00" East and a distance of 1100.00' to a point, which is
the South Bank of the Intracoastal Canal, thence at a true bearing of South
86 Deg. 44' 14" and a distance of 1902.63' to a point, thence at a true
bearing of South 00 Deg. 15' 00" West and a distance of 2171.35' to
<PAGE>
a point. Thence at a true bearing of North 79 Deg. 37' 22" West and a
distance of 475.66' to a point. Thence at a true bearing of South 89 Deg. 03'
29" West and a distance of 501.59' to a point, thence at a true bearing of
North 88 Deg. 12' 19" West and a distance of 500.26' to the "Point of
Beginning." describes a tract of land hereafter referred to as "Tract B"
containing 88.409 Acres.
Tract C
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East and Section 71, Township 18 South, Range 19 East,
Lafourche Parish, Louisiana. Said tract being bounded on the North by
Louisiana Highway No. 24, East, West and South by lands belonging to Irvin
Templet and Angele Savoie Templet.
Beginning at Point "A" which is the "Point of Beginning," thence proceeding
at a bearing of S 75 Deg. 17' 06" E for a distance of 3,450.01 feet, thence
along an arc having a distance of 622.16 feet, thence at a bearing of S 57
Deg. 09' 41" E for a distance of 390.00 feet, to Point "B" all being the
Southern sides of the right of way of Louisiana Highway No. 24, thence
proceeding at a bearing of S 32 Deg. 50' 19" West for a distance of 675.00
feet to Point "C," thence at a bearing of N 57 Deg. 09' 41" West for a
distance of 390.00 feet, thence along an arc having a distance of 408.65
feet, thence at bearing of N 75 Deg. 17' 06" N for a distance of 3450.01 feet
to Point "C." Thence at a bearing of N 14 Deg. 42' 54" E for a distance of
675.00 feet to Point "A" which is the "Point of Beginning." All containing
approximately 67.5 acres. Described as Tract C.
Tract D
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East and Sections 70 and 71, Township 18 South, Range 19
East, Lafourche Parish, Louisiana. Said tract being bounded on the West by
the aforementioned "Tract C," on the North and South by lands belonging to
Irvin Templet and Angele Savoie Templet and on the East by the Tenneco
Company Road.
Beginning at Point "B" which is the "Point of Beginning," thence proceeding
at a bearing of S 32 Deg. 50' 19" E for a distance of 675.00 feet to Point
"C," thence at a bearing of N 57 Deg. 09' 41" W for a distance of 230.00
feet, to Point "D." thence proceeding at a bearing of S 32 Deg. 50' 19" West
for a distance of 497.00 feet to Point "E," thence S 57 Deg. 09' 41" for a
distance of approximately 2800 feet to Point "F," being on the Western side
of the Tenneco Company Road. Thence meandering northeast along the western
side of the Tenneco Company Road for a distance of approximately 1300 feet to
Point "G" which is the intersection of the Western side of Tenneco Company
Road and the southern right of way of Louisiana Highway No. 24. Thence
proceed along the right of Louisiana Highway No. 24 along the arc having a
distance of 362.51 feet, thence at a bearing of N 57 Deg. 09' 4" W for a
distance of 2547.20 to Point "B" which is the "Point of Beginning." All
containing approximately 76.2 acres. Described as Tract D.
-2-
<PAGE>
CERTIFIED COPY OF A RESOLUTION OF
THE BOARD OF DIRECTORS OF
INTRACOASTAL OILFIELD FLUIDS, INC.
AUGUST 29, 1990
- -------------------------------------------------------------------------------
BE IT RESOLVED, that Intracoastal Oilfield Fluids, Inc. shall enter
into an act of lease whereby this corporation shall lease from
Irvin Templet and Angele Savoie Templet, husband and wife, the
immovable property described in Exhibit "A" attached hereto and
made a part hereof; AND, that Ted A. Martin, the President of
Intracoastal Oilfield Fluids, Inc., is hereby authorized, empowered
and directed to execute on behalf of and in the name of this
company, an act of lease whereby the property described in Exhibit
"A" hereto may be leased by Intracoastal Oilfield Fluids, Inc. from
Irvin Templet and Angele Savoie Templet, which lease shall contain
such terms, provisions and conditions as the said Ted A. Martin
shall in his sole and uncontrolled discretion, deem to be necessary
and advisable as being in the best interests of Intracoastal
Oilfield Fluids, Inc., including by way of illustration, terms,
provisions and conditions pertaining to primary term and renewal
terms, rent and increases of rent in option terms, insurance,
indemnity agreements, default, and matters of business to be
conducted upon the leased premises, and that the said Ted A. Martin
may take any and all other action and sign such other documents
which shall contain such terms and conditions as he shall deem
necessary and advisable, all such actions being adopted and
ratified as being the actions of this corporation.
- -------------------------------------------------------------------------------
CERTIFICATE
I, the undersigned Secretary of Intracoastal Oilfield Fluids, Inc., do
hereby certify that the above and foregoing is a true and correct copy of
that resolution passed at the special meeting of the Board of Directors held
on August 29, 1990 whereat a quorum was present, all directors being present
and waiving written notice of the meeting; that the resolution has not been
rescinded and remains in full force and effect.
Lockport, Louisiana, August 29, 1990
/s/ Alethia Martin
----------------------------------------
Alethia Martin, Secretary
ATTEST:
/s/ Ted A. Martin
- --------------------------------------
Ted A. Martin, President
<PAGE>
EXHIBIT "A"
to an August 29, 1990 Resolution of Intracoastal Oilfield Fluids, Inc.
TRACT A
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East, Lafourche parish, Louisiana. Said tract being bounded
on the South by Louisiana Highway No. 24, on the North by Saint Louis Canal,
and bounded on the East and West by land belonging to Irvin Templet and
Angele Savoie Templet. Beginning at An Son - Dresser et al. No. 1 Dry Well
thence at a true bearing of North 89 DEG. 45' 00" West and a distance of
300.00' to a point. Thence at a true bearing of South 00 DEG. 15' 00" West
and a distance of 750.05' to Louisiana Highway No. 24 Right of Way, thence at
a true bearing of North 75 DEG. 17' 06" West, and a distance of 388.65' to a
point hereafter referred to as the "Point of Beginning;" which is the
Southwest corner of the following tract of land described.
Beginning at the "Point of Beginning," at a true bearing of North 12 DEG. 53'
59" East, and a distance of 1048.40' to a point. Thence at a true bearing of
North 21 DEG. 23' 04" West and a distance of 62.55' to a point, which is the
South bank of Saint Louis Canal, thence at a true bearing of South 88 DEG.
12' 19" East and a distance of 500.26' to a point. Thence at a true bearing
of North 89 DEG. 03' 29" East and a distance of 501.59' to a point, thence at
a true bearing of South 79 DEG. 37' 22" East and a distance of 475.66' to a
point. Thence at a true bearing of North 00 DEG. 15' 00" East and a distance
of 60.00' to a point. Thence at a true bearing of South 73 DEG. 57' 12" East
and a distance of 688.34' to a point, thence at a true bearing of South 56
DEG. 03' 12" East and a distance of 575.119' to a point. Thence at a true
bearing of South 61 DEG. 47' 53" East and a distance of 277.40' to a point.
Thence at a true bearing of South 25 DEG. 37' 38" West and a distance of
1191.10' to a point, which is the North Right of Way of Louisiana Highway No.
24, thence along the Right of Way of Louisiana Highway No. 24 at a true
bearing of North 75 DEG. 17' 06" West and a distance of 2635.33' to the
"Point of Beginning." Describes a tract of land hereafter referred to as
"Tract A" containing 83.749 Acres.
Tract B
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East, Lafourche Parish, Louisiana. Said tract being bounded
on the South by the aforedescribed "Tract A," on the North by the Intracoastal
Canal, on the East and West by land belonging Irvin Templet and Angele
Savoie Templet.
Beginning at An Son - Dresser et al. No. 1 Dry Well thence at a true bearing
of North 89 DEG. 45' 00" West and a distance of 300.00' to a point. Thence at
a true bearing of North 21 DEG. 23' 03" West and a distance of 460.58' to a
point, which is the Northwest corner of aforementioned "Tract A;" hereinafter
referred to as the "Point of Beginning."
Beginning at the "Point of Beginning," at a true bearing of North 21 DEG. 23'
03" West and a distance of 1166.86' to a point, hence at a true bearing of
North 00 DEG. 15' 00" East and a distance of 1100.00' to a point, which is
the South Bank of the Intracoastal Canal, thence at a true bearing of South
86 DEG. 44' 14" and a distance of 1902.63' to a point, thence at a true
bearing of South 00 DEG. 15' 00" West and a distance of 2171.35' to
<PAGE>
a point. Thence at a true bearing of North 79 DEG. 37' 22" West and a
distance of 475.66' to a point. Thence at a true bearing of South 89 DEG. 03'
29" West and a distance of 501.59' to a point, thence at a true bearing of
North 88 DEG. 12' 19" West and a distance of 500.26' to the "Point of
Beginning." Describes a tract of land hereafter referred to as "Tract B"
containing 88.409 Acres.
Tract C
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East and Section 71, Township 18 South, Range 19 East,
Lafourche Parish, Louisiana. Said tract being bounded on the North by
Louisiana Highway No. 24, East, West and South by lands belonging to Irvin
Templet and Angele Savoie Templet.
Beginning at Point "A" which is the "Point of Beginning," thence proceeding
at a bearing of S 75 DEG. 17' 06" E for a distance of 3,450.01 feet, thence
along an arc having a distance of 622.16 feet, thence at a bearing of S 57
DEG. 09' 41" E for a distance of 390.00 feet, to Point "B" all being the
Southern sides of the right of way of Louisiana Highway No. 24, thence
proceeding at a bearing of S 32 DEG. 50' 19" West for a distance of 675.00
feet to Point "C," thence at a bearing of N 57 DEG. 09' 41" West for a
distance of 390.00 feet, thence along an arc having a distance of 408.65
feet, thence at a bearing of N 75 DEG. 17' 06" N for a distance of 3450.01
feet to Point "C." Thence at a bearing of N 14 DEG. 42' 54" E for a distance
of 675.00 feet to Point "A" which is the "Point of Beginning." All containing
approximately 67.5 acres. Described as Tract C.
Tract D
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East and Sections 70 and 71, Township 18 South, Range 19
East, Lafourche Parish, Louisiana. Said tract being bounded on the West by
the aforedescribed "Tract C," on the North and South by lands belonging to
Irvin Templet and Angele Savoie Templet and on the East by the Tenneco
Company Road.
Beginning at Point "B" which is the "Point of Beginning," thence proceeding
at a bearing of S 32 DEG. 50' 19" E for a distance of 675.00 feet to Point
"C," thence at a bearing of N 57 DEG. 09' 41" W for a distance of 230.00
feet, to Point "D." thence proceeding at a bearing of S 32 DEG. 50' 19" West
for a distance of 497.00 feet to Point "E," thence S 57 DEG. 09' 41" for a
distance of approximately 2800 feet to Point "F," being on the Western side of
the Tenneco Company Road. Thence meandering northeast along the western side
of the Tenneco Company Road for a distance of approximately 1300 feet to
Point "G" which is the intersection of the Western side of Tenneco Company
Road and the southern right of way of Louisiana Highway No. 24. Thence
proceed along the right of Louisiana Highway No. 24 along an arc having a
distance of 362.51 feet, thence at a bearing of N 57 DEG. 09' 41" W for a
distance of 2547.20 to Point "B" which is the "Point of Beginning." All
containing approximately 76.2 acres. Described as Tract D.
-2-
<PAGE>
EXHIBIT "A"
TRACT A
A certain portion of tract of land located in Section 79, Township 17 South,
Range 19 East, Lafourche Parish, Louisiana. Said tract being bounded on the
South by Louisiana Highway No. 24, on the North by Saint Louis Canal, and
bounded on the East and West by land belonging to Irving Templet and Angele
Savoie Templet. Beginning at An Son -- Dresser et al. No. 1 Dry Well thence
at a true bearing of North 89 Deg. 45' 00" West and a distance of 300.00' to
a point. Thence at a true bearing of South 00 Deg. 15' 00" West and a
distance of 750.05' to Louisiana Highway No. 24 Right of Way, thence at a
true bearing of North 75 Deg. 17' 06" West, and a distance of 388.65' to a
point hereafter referred to as the "Point of Beginning;" which is the
Southwest corner of the following tract of land described.
Beginning at the "Point of Beginning," at a true bearing of North 12 DEG. 53'
59" East, and a distance of 1048.40' to a point. Thence at a true bearing of
North 21 DEG. 23' 04" West and a distance of 62.55' to a point, which is the
South bank of Saint Louis Canal. thence at a true bearing of South 88 DEG.
12' 19" East and a distance of 500.26' to a point. Thence at a true bearing of
North 89 DEG. 03' 29" East and a distance of 501.59' to a point, thence at
a true bearing of South 79 DEG. 37' 22" East and a distance of 475.66' to
a point. Thence at a true bearing of North 00 DEG. 15' 00" East and a
distance of 60.00' to a point. Thence at a true bearing of South 73 DEG. 57'
12" East and a distance of 688.34' to a point, thence at a true bearing of
South 56 DEG. 03' 12" East and a distance of 575.119' to a point. Thence at a
true bearing of South 61 DEG. 47' 53" East and a distance of 277.40' to a
point. Thence at a true bearing of South 25 DEG. 37' 38" West and a distance
of 1191.10' to a point, which is the North Right of Way of Louisiana Highway
No. 24, thence along the Right of Way of Louisiana Highway No. 24 at a true
bearing of North 75 DEG. 17' 06" West and a distance of 2635.33' to the
"Point of Beginning." Describes a tract of land hereafter referred to as
"Tract A" containing 83.749 Acres.
Tract B
A certain portion of a tract of land located in Section 79, Township 17 South,
Range 19 East, Lafourche Parish, Louisiana. Said tract being bounded on the
South by the aforedescribed "Tract A," on the North by the Intracoastal Canal,
on the East and West by land belonging to Irvin Templet and Angele Savoie
Templet.
Beginning at An Son -- Dresser et al. No. 1 Dry Well thence at a true bearing
of North 89 DEG. 45' 00" West and a distance of 300.00' to a point. Thence at a
true bearing of North 21 DEG. 23' 03" West and a distance of 460.58' to
a point, which is the Northwest corner of the aforementioned "Tract A;"
hereinafter referred to as the "Point of Beginning."
Beginning at the "Point of Beginning," at a true bearing of North 21 DEG. 23'
03" West and a distance of 1166.86' to a point, thence at a true bearing of
North 00 DEG. 15' 00" East and a distance of 1100.00' to a point, which is
the South Bank of the Intracoastal Canal, thence at a true bearing of South
86 DEG. 44' 14" and a distance of 1902.63' to a point, thence at a true
bearing of South 00 DEG. 15' 00" West and a distance of 2171.35' to
<PAGE>
a point. Thence at a true bearing of North 79 DEG. 37' 22" West and a distance
of 475.66' to a point. Thence at a true bearing of South 89 DEG. 03' 29" West
and distance of 501.59' to a point, thence at a true bearing of North 88 DEG.
12' 19" West and a distance of 500.26' to the "Point of Beginning." Describes
a tract of land hereafter referred to as "Tract B" containing 88.409 Acres.
Tract C
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East and Section 71, Township 18 South, Range 19 East,
Lafourche Parish, Louisiana. Said tract being bounded on the North by
Louisiana Highway No. 24, East, West and South by lands belonging to Irving
Templet and Angele Savoie Templet.
Beginning at Point "A" which is the "Point of Beginning," thence proceeding
at a bearing of S 75 DEG. 17' 06" E for a distance of 3,450.01 feet, thence
along an arc having a distance of 622.16 feet, thence at a bearing of S 57
DEG. 09' 41" E for a distance of 390.00 feet, to Point "B" all being the
Southern sides of the right of way of Louisiana Highway No. 24., thence
proceeding at a bearing of S 32 DEG. 50' 19" West for a distance of 675.00
feet to Point "C," thence at a bearing of N 57 DEG. 09' 41" West for a
distance of 390.00 feet, thence along an arc having a distance of 408.65
feet, thence at a bearing of N 75 DEG. 17' 06" N for a distance of 3450.01
feet to Point "C." Thence at a bearing of N 14 DEG. 42' 54" E for a distance
of 675.00 feet to Point "A" which is the "Point of Beginning." All containing
approximately 67.5 acres. Described as Tract C.
Tract D
A certain portion of a tract of land located in Section 79, Township 17
South, Range 19 East and Section 70 and 71, Township 18 South, Range 19 East,
Lafourche Parish, Louisiana. Said tract being bounded on the West by the
aforedescribed "Tract C," on the North and South by lands belonging to Irvin
Templet and Angele Savoie Templet and on the East by the Tenneco Company Road.
Beginning at Point "B" which is the "Point of Beginning," thence proceeding
at a bearing of S 32 DEG. 50' 19" E for a distance of 675.00 feet to Point
"C," thence at a bearing of N 57 DEG. 09' 41" W for a distance of 230.00 feet,
to Point "D." thence proceeding at a bearing of S 32 DEG. 50' 19" West for a
distance of 497.00 feet to Point "E," thence S 57 DEG. 09' 41" for a distance
of approximately 2800 feet to Point "F," being on the Western side of the
Tenneco Company Road. Thence meandering northeast along the Western side of
the Tenneco Company Road for a distance of approximately 1300 feet to Point
"G" which is the intersection of the Western side of Tenneco Company Road and
the southern right of way of Louisiana Highway No. 24. Thence proceed along
the right of Louisiana Highway No. 24 along an arc having a distance of
362.51 feet, thence at a bearing of N. 57 DEG. 09' 41" W for a distance of
2547.20 to Pint "B" which is the "Point of Beginning." All containing
approximately 76.2 acres. Described as Tract D.
<PAGE>
EXHIBIT C
<PAGE>
[MAP]
<PAGE>
CONSENT TO ASSIGNMENT AND ASSUMPTION OF CONTRACTS
This CONSENT TO ASSIGNMENT AND ASSUMPTION OF CONTRACTS (this
"Consent") is made as of this ____ day of December, 1996, by and among Sanifill,
Inc., a Delaware corporation ("Sanifill"), and Campbell Wells, L.P., d/b/a
Campbell Wells Ltd., a Delaware limited partnership ("Campbell" and, together
with Sanifill, the "Assignors"), US Liquids Inc., a Delaware corporation (the
"Assignee"), and Newpark Resources, Inc., a Delaware corporation (the
"Consenting Party");
RECITALS:
WHEREAS, the Consenting Party and the Assignors previously entered
into those certain contracts listed on Schedule I hereto (the "Contracts"); and
WHEREAS, the Assignors and the Assignee are parties to a certain Asset
Purchase Agreement dated as of December 2, 1996 (the "Asset Purchase Agreement")
pursuant to which the Assignors will convey to Assignee substantially all of the
assets of Campbell and Campbell Wells NORM, L.P., a Delaware limited partnership
and wholly owned subsidiary of Sanifill; and
WHEREAS, the Asset Purchase Agreement describes certain terms,
obligations, representations, warranties and rights of the parties with respect
to the Contracts and the other matters described therein; and
WHEREAS, pursuant to the Asset Purchase Agreement and the Assignment,
Bill of Sale and Assumption Agreement to be entered into in connection
therewith, the Assignors have agreed to assign the Contracts to the Assignee and
the Assignee has agreed to accept such assignment and assume all of the
obligations of the Assignors under the Contracts; and
WHEREAS, it is a condition precedent to the consummation of the
transactions contemplated by the Asset Purchase Agreement that the Consenting
Party consent to the assignment of the Contracts to and the assumption of the
Contracts by the Assignee;
NOW, THEREFORE, in consideration of the sum of TEN AND 00/100 DOLLARS
($10.00), the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
1. CONSENTING PARTY'S CONSENT. The Consenting Party hereby consents
to the assignment and the assumption by Assignee of all of the obligations of
the Campbell under the Contracts accruing from and after the date hereof.
Nothing herein shall in any way relieve the Assignors, of any of them, of any of
their obligations under the Contracts, which shall survive as provided in such
Contracts.
<PAGE>
2. SUCCESSORS AND ASSIGNS. This Consent shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives.
3. CHOICE OF LAW. This Consent shall be governed by and interpreted
in accordance with the laws of the State of Texas.
4. SEVERABILITY. If any term, provision, covenant or restriction
of this Consent is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Consent shall continue in full force and effect and shall
in no way be affected, impaired or invalidated unless such an interpretation
would materially alter the rights and privileges of any party hereto or
materially alter the terms of the transactions contemplated hereby.
5. NO THIRD PARTY BENEFICIARIES. This Consent shall not confer upon
any person not a party hereto (other than affiliates of the Consenting Party)
any rights or remedies hereunder.
6. HEADINGS. The section headings herein are for convenience only
and shall not affect the construction hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Consent as
of the day and year first above written.
ASSIGNORS:
SANIFILL, INC.
By:
-----------------------------------------
Name:
Title:
CAMPBELL WELLS, L.P.
By: SANIFILL GP HOLDING CO., INC.,
its General Partner
By:
------------------------------------
Name:
Title:
ASSIGNEE:
US LIQUIDS INC.
By:
-----------------------------------------
Name:
Title:
CONSENTING PARTY:
NEWPARK RESOURCES, INC.
By:
-----------------------------------------
Name:
Title:
<PAGE>
Schedule I
List of Contracts
1. NOW Disposal Agreement, by and among Sanifill, Inc., a Delaware
corporation, NOW Disposal Operating Co., a Delaware corporation and an
indirect wholly-owned subsidiary of Sanifill, and Campbell Wells, Ltd., a
Delaware limited partnership, dated as of June 4, 1996, as assumed by
Newpark Resources, Inc. by an Assumption and Guarantee Agreement dated
August 12, 1996.
2. Noncompetition Agreement by and between Sanifill, Inc., a Delaware
corporation, and Newpark Resources, Inc., a Delaware corporation, dated as
of August 12, 1996.
3. Joinder Agreement, dated as of August 12, 1996, by Campbell Wells, Ltd., a
Delaware limited partnership, for the benefit of Newpark Resources, Inc.
and its Affiliates.
4. Assumption and Guarantee Agreement by and among Newpark Resources, Inc., a
Delaware corporation, Sanifill, Inc., a Delaware corporation, and Campbell
Wells, Ltd., a Delaware limited partnership dated as of August 12, 1996.
5. Lease and Access Agreement by and between Campbell Wells, Ltd., a Delaware
limited partnership, and Newpark Resources, Inc. [no date]
6. Sublease and Access Agreement by and between Campbell Wells, Ltd., a
Delaware limited partnership, and Newpark Resources, Inc. [no date]
7. Sublease and Access Agreement by and between Campbell Wells, Ltd., a
Delaware limited partnership, and Newpark Resources, Inc. [no date]
<PAGE>
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is effective as of June 17, 1997
(the "Effective Date"), between U S LIQUIDS INC., a Delaware corporation
("Employer"), and W. GREGORY ORR, a resident of Harris County, Texas
("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 Chief Executive
Officer and President of U S Liquids Inc. in Houston, Harris County, 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 tizme; provided
however, that for a period of two (2) years from the Effective Date, the
Employee shall not be required to perform his services hereunder from a
principal office not located in the county set forth above. Simultaneous with
the effective date of the initial public offering of U S Liquids Inc., Employee
shall be the President and Chief Operating Officer of U S Liquids Inc. Employee
agrees to render such services to Employer as may be required by the referenced
positions and such other duties as Employer may from time to time reasonably
request Employee to assume consistent with such positions 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. Unless the context otherwise
requires, as used in this Agreement, the term "Employer" shall include any
subsidiaries of U S Liquids Inc.
2. TERM OF EMPLOYMENT. Subject to the provisions of Section 6 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.
<PAGE>
3. COMPENSATION. Employer shall pay Employee an annualized salary of One
Hundred Twenty-Five Thousand and No/100 Dollars ($125,000.00) (the "Base
Salary"). The annual salary will be paid by Employer to Employee in equal
installments payable 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.
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 and at least such other employee benefits as are made available to
other executive officers of Employer having a similar rank as the Employee.
Employee shall receive three (3) weeks of paid vacation per calendar year.
5. EXPENSES. Employer shall pay all reasonable 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. 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
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<PAGE>
(iv) commission by Employee of one or more acts of gross negligence as
to any material matter, willful or reckless misconduct, or wilful
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 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 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
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<PAGE>
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 earlier of: (a) the first date Employee is eligible
to sell all of his Restricted Securities (defined below) of Employer in
accordance with Rule 144 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, or all of such restricted
securities are no longer restricted due to registration of such securities with
the Securities and Exchange Commission, or (b) the second anniversary of the
Effective Date. For purposes of this Section 6, the term "Restricted
Securities" shall mean those securities of Employer acquired by Employee prior
to the date hereof.
7. 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.
8. OTHER ACTIVITIES. Employee shall devote all of his working time and
efforts during the Company's normal business hours (reasonable vacations and
sick leave excluded) to the business and affairs of the Company and to the
duties and responsibilities assigned to him pursuant to this Agreement.
9. 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
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<PAGE>
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 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.
10. COVENANT NOT TO COMPETE AND NON-SOLICITATION BY EMPLOYEE. For and in
consideration of Employee's employment and the disclosures that Employer shall
make to Employee under Section 9 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, Employee shall not, directly or
indirectly, as an employee, principal, owner, consultant, officer, director,
agent or otherwise, compete with the Business in the state of Texas or within
75 miles of any home office or business location of Employer. As used in this
Agreement, the "Business" means the collection, transfer, transportation,
treatment, minimization, recycling or disposal of (i) nonhazardous commercial
waste (including without limitation,
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<PAGE>
used cooking oil and other materials from restaurants, grocery stores and
commercial meat processors, grease trap waste from restaurants and other food
manufacturing and preparation facilities, grit trap waste from car washes, and
washdown waters and land fill leachate) and (ii) nonhazardous oil field waste
generated in the exploration for and production of oil and gas. 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. This covenant
not to compete shall apply and be binding upon Employee regardless of the reason
for the termination of employment of the Employee, whether by discharge, with or
without Cause, by voluntary resignation, or by completion of the term of this
Agreement, or by any other manner whatsoever; provided however, that if the
employment of Employee is terminated by Employer without Cause, then this
covenant not to compete shall only apply for that period of time during which
Employer is obligated to pay Employee's salary in accordance with the provisions
of the last paragraph of Section 6, above; provided further, however, that
Employer may extend the period of this covenant not to compete for an additional
period of time for up to two (2) years following the date of termination of
employment of Employee by Employer without Cause, so long as Employer agrees to
pay and does in fact pay to Employee an amount in compensation equal to the
average base salary and bonus compensation of Employee for the two (2) years
immediately preceding the date of Employee's termination. 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.
11. INVENTIONS. Any and all inventions, conceptions, processes,
discoveries, improvements, patent rights, letter patents, programs, copyrights,
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
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<PAGE>
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 11.
12. EMPLOYER PROPERTY. All products, records, designs, patents, plans,
data, manuals, "field guides", catalogs, brochures, memoranda, machinery,
devices, lists and 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.
13. 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.
14. 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
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<PAGE>
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.
15. 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 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.
16. 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 10, 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.
17. 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;
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<PAGE>
(iii) the covenants of Employee contained in Section 9 and Section
10 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
(vi) the enforcement of this Agreement will not work an undue or
unfair hardship on Employee or otherwise be oppressive to him.
18. 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 9 and 10 shall remain in
full force and effect.
19. 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.
20. 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:
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<PAGE>
Employer: U S Liquids Inc.
Attn: Chief Executive Officer
411 N. Sam Houston Parkway E, Suite 400
Houston, Texas 77060-3534
Employee: W. Gregory Orr
100 Saddlebrook Lane
Tomball, Texas 77375
21. 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.
22. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of Texas.
23. 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.
24. 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 20 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.
25. 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
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<PAGE>
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.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
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<PAGE>
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/ Earl J. Blackwell
---------------------------------------------
Name: Earl J. Blackwell
-------------------------------------------
Title: Chief Financial Officer
----------------------------------------
/s/ W. Gregory Orr
--------------------------------------------------
W. Gregory Orr, Employee
<PAGE>
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is effective as of June 17, 1997
(the "Effective Date"), between U S LIQUIDS INC., a Delaware corporation
("Employer"), and EARL J. BLACKWELL, a resident of Montgomery County, Texas
("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 Chief Financial
Officer and Senior Vice-President - Finance of U S Liquids Inc. in Houston,
Harris County, 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; provided however, that for a period of two (2) years from the
Effective Date, the Employee shall not be required to perform his services
hereunder from a principal office not located in the county set forth above.
Employee agrees to render such services to Employer as may be required by the
referenced positions and such other duties as Employer may from time to time
reasonably request Employee to assume consistent with such positions 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. Unless the context
otherwise requires, as used in this Agreement, the term "Employer" shall include
any subsidiaries of U S Liquids Inc.
2. TERM OF EMPLOYMENT. Subject to the provisions of Section 6 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.
<PAGE>
3. COMPENSATION. Employer shall pay Employee an annualized salary of One
Hundred Thousand and No/100 Dollars ($$100,000.00) (the "Base Salary"). The
annual salary will be paid by Employer to Employee in equal installments payable
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.
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 and at least such other employee benefits as are made available to
other executive officers of Employer having a similar rank as the Employee.
Employee shall receive three (3) weeks of paid vacation per calendar year.
5. EXPENSES. Employer shall pay all reasonable 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. 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
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<PAGE>
(iv) commission by Employee of one or more acts of gross negligence as
to any material matter, willful or reckless misconduct, or wilful
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 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 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
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<PAGE>
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 earlier of: (a) the first date Employee is eligible
to sell all of his Restricted Securities (defined below) of Employer in
accordance with Rule 144 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, or all of such restricted
securities are no longer restricted due to registration of such securities with
the Securities and Exchange Commission, or (b) the second anniversary of the
Effective Date. For purposes of this Section 6, the term "Restricted
Securities" shall mean those securities of Employer acquired by Employee prior
to the date hereof.
7. 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.
8. OTHER ACTIVITIES. Employee shall devote all of his working time and
efforts during the Company's normal business hours (reasonable vacations and
sick leave excluded) to the business and affairs of the Company and to the
duties and responsibilities assigned to him pursuant to this Agreement.
9. 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
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<PAGE>
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 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.
10. COVENANT NOT TO COMPETE AND NON-SOLICITATION BY EMPLOYEE. For and in
consideration of Employee's employment and the disclosures that Employer shall
make to Employee under Section 9 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, Employee shall not, directly or
indirectly, as an employee, principal, owner, consultant, officer, director,
agent or otherwise, compete with the Business in the state of Texas or within
75 miles of any home office or business location of Employer. As used in this
Agreement, the "Business" means the collection, transfer, transportation,
treatment, minimization, recycling or disposal of (i) nonhazardous commercial
waste (including without limitation,
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<PAGE>
used cooking oil and other materials from restaurants, grocery stores and
commercial meat processors, grease trap waste from restaurants and other food
manufacturing and preparation facilities, grit trap waste from car washes, and
washdown waters and land fill leachate) and (ii) nonhazardous oil field waste
generated in the exploration for and production of oil and gas. 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. This covenant
not to compete shall apply and be binding upon Employee regardless of the reason
for the termination of employment of the Employee, whether by discharge, with or
without Cause, by voluntary resignation, or by completion of the term of this
Agreement, or by any other manner whatsoever; provided however, that if the
employment of Employee is terminated by Employer without Cause, then this
covenant not to compete shall only apply for that period of time during which
Employer is obligated to pay Employee's salary in accordance with the provisions
of the last paragraph of Section 6, above; provided further, however, that
Employer may extend the period of this covenant not to compete for an additional
period of time for up to two (2) years following the date of termination of
employment of Employee by Employer without Cause, so long as Employer agrees to
pay and does in fact pay to Employee an amount in compensation equal to the
average base salary and bonus compensation of Employee for the two (2) years
immediately preceding the date of Employee's termination. 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.
11. INVENTIONS. Any and all inventions, conceptions, processes,
discoveries, improvements, patent rights, letter patents, programs, copyrights,
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
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<PAGE>
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 11.
12. EMPLOYER PROPERTY. All products, records, designs, patents, plans,
data, manuals, "field guides", catalogs, brochures, memoranda, machinery,
devices, lists and 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.
13. 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.
14. 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
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<PAGE>
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.
15. 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 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.
16. 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 10, 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.
17. 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;
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<PAGE>
(iii) the covenants of Employee contained in Section 9 and Section
10 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
(vi) the enforcement of this Agreement will not work an undue or
unfair hardship on Employee or otherwise be oppressive to him.
18. 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 9 and 10 shall remain in
full force and effect.
19. 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.
20. 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:
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<PAGE>
Employer: U S Liquids Inc.
Attn: Chief Executive Officer
411 N. Sam Houston Parkway E, Suite 400
Houston, Texas 77060-3534
Employee: Earl J. Blackwell
22 Southgate Drive
The Woodlands, Texas 77380
21. 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.
22. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of Texas.
23. 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.
24. 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 20 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.
25. 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
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<PAGE>
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.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
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<PAGE>
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
-----------------------------------------------
Name: W. Gregory Orr
--------------------------------------------
Title: Chief Executive Officer
--------------------------------------------
/s/ Earl J. Blackwell
--------------------------------------------------
Earl J. Blackwell, Employee
Blackwell/Emp-Agmt
LBC\7mlD0095.
<PAGE>
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is effective as of June 17, 1997
(the "Effective Date"), between U S LIQUIDS INC., a Delaware corporation
("Employer"), and THOMAS B. BLANTON, a resident of ______________ County, Texas
("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 -
NCW Division of U S Liquids Inc. in Fort Worth, Tarrant County, 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; provided
however, that for a period of two (2) years from the Effective Date, the
Employee shall not be required to perform his services hereunder from a
principal office not located in the county set forth above. 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 consistent with such position 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. Unless the context otherwise requires, as
used in this Agreement, the term "Employer" shall include any subsidiaries of
U S Liquids Inc.
2. TERM OF EMPLOYMENT. Subject to the provisions of Section 6 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
<PAGE>
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-Five Thousand and No/100 Dollars ($125,000.00) (the "Base
Salary"). The annual salary will be paid by Employer to Employee in equal
installments payable 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.
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 and at least such other employee benefits as are made available to
other executive officers of Employer having a similar rank as the Employee.
Employee shall receive three (3) weeks of paid vacation per calendar year.
5. EXPENSES. Employer shall pay all reasonable 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.
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<PAGE>
6. 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 wilfull
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 Liquids;
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 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
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<PAGE>
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 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 earlier of: (a) the first date Employee is eligible
to sell all of his Restricted Securities (defined below) of Employer in
accordance with Rule 144 promulgated by the Securities and
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<PAGE>
Exchange Commission under the Securities Act of 1933, as amended, or all of such
restricted securities are no longer restricted due to registration of such
securities with the Securities and Exchange Commission, or (b) the second
anniversary of the Effective Date. For purposes of this Section 6, the term
"Restricted Securities" shall mean those securities acquired by the Employee
pursuant to the terms of a certain Agreement and Plan of Merger, dated June 16,
1997, between and among the Employer, the Employee and certain other parties.
7. 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.
8. OTHER ACTIVITIES. Employee shall devote all of his working time and
efforts during the Company's normal business hours (reasonable vacations and
sick leave excluded) to the business and affairs of the Company and to the
duties and responsibilities assigned to him pursuant to this Agreement.
9. 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
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<PAGE>
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 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.
10. COVENANT NOT TO COMPETE AND NON-SOLICITATION BY EMPLOYEE. Employee
acknowledges that Employee is entering into this Agreement in connection with
Employer's acquisition from Employee of all of the outstanding stock of Mesa
Processing, Inc., T&T Grease Service, Inc. and Phoenix Fats & Oils, Inc. (the
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<PAGE>
"Business Acquisition"). For and in consideration of (i) the Business
Acquisition, (ii) Employee's employment, and (ii) the disclosures that Employer
will make to Employee under Section 9 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, Employee shall not, directly or
indirectly, as an employee, principal, owner, consultant, officer, director,
agent or otherwise, compete with the Business in the state of Texas or within
75 miles of any home office or business location of Employer. As used in this
Agreement, the "Business" means the collection, transfer, transportation,
treatment, minimization, recycling or disposal of nonhazardous commercial waste,
including without limitation, used cooking oil and other materials from
restaurants, grocery stores and commercial meat processors, grease trap waste
from restaurants and other food manufacturing and preparation facilities, grit
trap waste from car washes, and washdown waters and land fill leachate. 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.
This covenant not to compete shall apply and be binding upon Employee regardless
of the reason for the termination of employment of the Employee, whether by
discharge, with or without Cause, by voluntary resignation, or by completion of
the term of this Agreement, or by any other manner whatsoever; provided however,
that if the employment of Employee is terminated by Employer without Cause, then
this covenant not to compete shall only apply for that period of time during
which Employer is obligated to pay Employee's salary in accordance with the
provisions of the last paragraph of Section 6, above; provided further, however,
that Employer may extend the period of this covenant not to compete for an
additional period of time for up to two (2) years following the date of
termination of employment of Employee by Employer without Cause, so long as
Employer agrees to pay and does in fact pay to Employee an amount in
compensation equal to the average base salary and bonus compensation of Employee
for the two (2) years immediately preceding the date of Employee's termination.
Employee further agrees that for two (2)
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<PAGE>
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. The covenants and agreements of this Section 6 shall be valid and
enforceable independent from and in addition to any covenants or agreements in
that certain agreement and Plan of Merger to which both Employee and Employer
are parties.
11. INVENTIONS. Any and all inventions, conceptions, processes,
discoveries, improvements, patent rights, letter patents, programs, copyrights,
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 11.
12. EMPLOYER PROPERTY. All products, records, designs, patents, plans,
data, manuals, "field guides", catalogs, brochures, memoranda, machinery,
devices, lists and 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
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<PAGE>
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.
13. 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.
14. 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)
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<PAGE>
if the Employee is no longer employed by the Employer, to compensate the
Employee at a reasonable rate.
15. 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 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.
16. 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 10, 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.
17. 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;
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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 9 and Section 10
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
vi) the enforcement of this Agreement will not work an undue or
unfair hardship on Employee or otherwise be oppressive to him.
18. 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
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<PAGE>
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 9 and 10 shall remain in full force and effect.
19. 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.
20. 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 E, Suite 400
Houston, TX 77060-3534
Employee: Thomas B. Blanton
-------------------------------------
-------------------------------------
21. 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.
22. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of Texas.
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23. 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.
24. 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 20 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.
25. 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.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
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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
--------------------------------
Name: W. Gregory Orr
------------------------------
Title: Chief Executive Officer
-----------------------------
/s/ Thomas B. Blanton
-----------------------------------
Thomas B. Blanton, Employee
<PAGE>
SENIOR EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is effective as of June 17, 1997
(the "Effective Date"), between U S LIQUIDS INC., a Delaware corporation
("Employer"), and WILLIAM H. WILSON, JR., a resident of Harris County, Texas
("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 Chief Executive
Officer of American WasteWater Inc., a subsidiary of Employer, in Houston,
Harris County, 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; provided however, that for a period of two (2) years from the
Effective Date, the Employee shall not be required to perform his services
hereunder from a principal office not located in the county set forth above.
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 consistent with such position 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. Unless the context otherwise
requires, as used in this Agreement, the term "Employer" shall include any
subsidiaries of U S Liquids Inc.
2. TERM OF EMPLOYMENT. Subject to the provisions of Section 6 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
<PAGE>
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-Five Thousand and No/100 Dollars ($95,000.00) (the "Base Salary"). The
annual salary will be paid by Employer to Employee in equal installments payable
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.
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 and at least such other employee benefits as are made available to
other executive officers of Employer having a similar rank as the Employee.
Employee shall receive three (3) weeks of paid vacation per calendar year.
5. EXPENSES. Employer shall pay all reasonable 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.
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<PAGE>
6. 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 Liquids;
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 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
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<PAGE>
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 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 earlier of: (a) the first date Employee is eligible
to sell all of his Restricted Securities (defined below) of Employer in
accordance with Rule 144 promulgated by the Securities and
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<PAGE>
Exchange Commission under the Securities Act of 1933, as amended, or all of such
restricted securities are no longer restricted due to registration of such
securities with the Securities and Exchange Commission, or (b) the second
anniversary of the Effective Date. For purposes of this Section 6, the term
"Restricted Securities" shall mean those securities acquired by the Employee
pursuant to the terms of a certain Agreement and Plan of Merger, dated June 16,
1997, between and among the Employer, the Employee and certain other parties.
7. 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.
8. OTHER ACTIVITIES. Employee shall devote all of his working time and
efforts during the Company's normal business hours (reasonable vacations and
sick leave excluded) to the business and affairs of the Company and to the
duties and responsibilities assigned to him pursuant to this Agreement.
9. 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
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<PAGE>
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 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.
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<PAGE>
10. COVENANT NOT TO COMPETE AND NON-SOLICITATION BY EMPLOYEE. Employee
acknowledges that Employee is entering into this Agreement in connection with
Employer's acquisition of all of the outstanding stock of American WasteWater
Inc. (the "Business Acquisition"). For and in consideration of (i) the Business
Acquisition, (ii) Employee's employment, and (ii) the disclosures that Employer
will make to Employee under Section 9 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, Employee shall not, directly or
indirectly, as an employee, principal, owner, consultant, officer, director,
agent or otherwise, compete with the Business in the state of Texas or within
75 miles of any home office or business location of Employer. As used in this
Agreement, the "Business" means the collection, transfer, transportation,
treatment, minimization, recycling or disposal of nonhazardous commercial waste,
including without limitation, used cooking oil and other materials from
restaurants, grocery stores and commercial meat processors, grease trap waste
from restaurants and other food manufacturing and preparation facilities, grit
trap waste from car washes, and washdown waters and land fill leachate. 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.
This covenant not to compete shall apply and be binding upon Employee regardless
of the reason for the termination of employment of the Employee, whether by
discharge, with or without Cause, by voluntary resignation, or by completion of
the term of this Agreement, or by any other manner whatsoever; provided however,
that if the employment of Employee is terminated by Employer without Cause, then
this covenant not to compete shall only apply for that period of time during
which Employer is obligated to pay Employee's salary in accordance with the
provisions of the last paragraph of Section 6, above; provided further, however,
that Employer may extend the period of this covenant not to compete for an
additional period of time for up to two (2) years following the date of
termination of employment of Employee by Employer without Cause, so long as
Employer agrees to
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<PAGE>
pay and does in fact pay to Employee an amount in compensation equal to the
average base salary and bonus compensation of Employee for the two (2) years
immediately preceding the date of Employee's termination. 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. The covenants and agreements of this
Section 6 shall be valid and enforceable independent from and in addition to any
covenants or agreements in that certain agreement and Plan of Merger to which
both Employee and Employer are parties.
11. INVENTIONS. Any and all inventions, conceptions, processes,
discoveries, improvements, patent rights, letter patents, programs, copyrights
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 11.
12. EMPLOYER PROPERTY. All products, records, designs, patents, plans,
data, manuals, "field guides", catalogs, brochures, memoranda, machinery,
devices, lists and 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
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<PAGE>
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.
13. 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.
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<PAGE>
14. 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.
15. 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 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.
16. 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 10, 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
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<PAGE>
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.
17. 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 9 and Section 10
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
vi) the enforcement of this Agreement will not work an undue or
unfair hardship on Employee or otherwise be oppressive to him.
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<PAGE>
18. 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 9 and 10 shall remain in
full force and effect.
19. 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.
20. 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: American WasteWater Inc.
Attn: William H. Wilson, Jr.
250 Gellhorn
Houston, TX 77013
Employee: William H. Wilson, Jr.
-------------------------------------
-------------------------------------
21. SUCCESSORS TO EMPLOYER. Except as otherwise provided herein, this
Agreement shall inure to the benefit of Employer and
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<PAGE>
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.
22. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of Texas.
23. 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.
24. 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 20 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.
25. 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
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to be effective as of the Effective Date and any written amendments thereof.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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<PAGE>
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
------------------------------------------
Name: W. Gregory Orr
----------------------------------------
Title: Chief Executive Officer
---------------------------------------
/s/ William H. Wilson, Jr.
---------------------------------------------
William H. Wilson, Jr., Employee
<PAGE>
STOCK DISTRIBUTION AGREEMENT
This Stock Distribution Agreement (the "Agreement") is made by and between
THOMAS B. BLANTON (the "Holder") and U S LIQUIDS INC., a Delaware corporation
("Liquids"), effective as of June 16, 1997 (the "Effective Date").
R E C I T A L S:
Liquids and Holder have entered into that certain Agreement and Plan of
Merger (the "Merger Agreement"), dated as of the date hereof, pursuant to which
three separate wholly-owned subsidiaries of Liquids will be merged (the "Mesa
Mergers") into Mesa Processing, Inc. ("Mesa"), T&T Grease Service, Inc. ("T&T")
and Phoenix Fats & Oils, Inc. ("Phoenix"), each a Texas corporation wholly-owned
by Holder (Mesa, T&T and Phoenix are hereinafter collectively referred to as the
"Mesa Companies"). Pursuant to the Merger Agreement, each of the Mesa Companies
will become a wholly-owned subsidiary of Liquids, and the Holder will receive
shares of Liquids common stock, par value $.01 per share (the "Liquids Stock").
The form of this Agreement is an exhibit to the Merger Agreement and is being
entered into as a requirement of the Merger Agreement. For purposes of this
Agreement, the shares of Liquids Stock issued to the Holder in connection with
the Mesa Mergers are referred to as the "Holder's Stock." The portion of the
Holder's Stock with respect to which the Holder has registration rights
hereunder and with respect to which Liquids has a registration obligation
hereunder is referred to as the "Registrable Stock."
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. REGISTRATION OF LIQUIDS STOCK. Within nine (9) months after the
execution of this Agreement, Liquids will file with the SEC a registration
statement (the "Registration Statement") on an appropriate form under the
Securities Act of 1933, as amended (the "Securities Act"), registering for
resale up to thirty percent (30%) of the Holder's Stock (subject to and in
compliance with the applicable securities laws and other laws regarding such
resale), and will use its commercially reasonable efforts to cause the
Registration Statement to become effective as soon as practicable, and
thereafter, until the termination of this Agreement, to keep the Registration
Statement effective and, if necessary, to amend and supplement the same. Any
shares of Registrable Stock not resold by the Holder during the period in which
those shares are registered for resale will continue to be registered for
resale,
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provided however, that Liquids will have no obligation to register or to
continue the registration of any such shares for resale following the expiration
of two (2) years from the effective date of the Registration Statement. The
registration rights granted under this Agreement shall be nontransferable. The
Holder shall cooperate fully with Liquids by furnishing all information
concerning the Holder required or appropriate for preparation and inclusion in
the Registration Statement. If permitted by applicable law (and unless
prohibited by the terms of any agreement entered into by Liquids prior to the
date hereof), Liquids shall include the Registrable Stock in any shelf
registration statement, filed by Liquids registering shares for issuance in
connection with future acquisition by Liquids.
2. REGISTRATION PROCEDURES.
(a) In performing its obligations under Section 1, Liquids will,
subject to the limitations provided herein, use its commercially reasonable
efforts to:
(i) prepare and file with the U.S. Securities and Exchange
Commission (the "SEC") such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith
(the "Prospectus") as may be necessary to keep the Registration
Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Stock covered by the Registration Statement until such time as all
such Registrable Stock have been disposed of in accordance with the
intended method of disposition by the Holder;
(ii) furnish to the Holder one signed and such number of
conformed copies of the Registration Statement and of each such
amendment and supplement thereto (in each case including all
exhibits), such number of copies of the Prospectus (including each
preliminary prospectus and any summary prospectus) and any other
Prospectus filed under Rule 424 under the Securities Act, and such
other documents, as the Holder may reasonably request;
(iii) (a) register or qualify the Registrable Stock under such
other securities or Blue Sky laws of such jurisdictions as the Holder
shall reasonably request, (b) keep such registration or qualification
in effect for so long as the Registration Statement remains in effect,
and (c) take any other action which may be reasonably necessary or
advisable to enable the Holder to consummate the disposition of the
Registrable Stock in such jurisdictions, except that Liquids shall not
for any such purpose be required to qualify generally to do business
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as a foreign corporation in any jurisdiction wherein it would not but
for the requirements of this subdivision (iii) be obligated to be so
qualified, to consent to general service of process in any such
jurisdiction, or to take any such action which would impose
unreasonable expense on Liquids;
(iv) cause the Registrable Stock to be registered with or
approved by such other United States federal or state governmental
agencies or authorities as may be necessary to enable the Holder to
consummate the disposition of the Registrable Stock;
(v) notify the Holder at any time when a Prospectus is required
to be delivered under the Securities Act, upon discovery that or upon
the happening of any event as a result of which, the Prospectus
included in the Registration Statement, as then in effect, 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 in the light of the circumstances under which
they were made, and prepare and furnish to the Holder a reasonable
number of copies of a supplement to or an amendment of such Prospectus
as may be necessary so that, as thereafter delivered to the purchasers
of such securities, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were
made;
(vi) list or qualify the Registrable Stock on any securities
exchange or quotation system of any national securities association on
which any of the Liquids Stock is then listed or qualified;
(vii) if requested by the Holder, promptly incorporate in a
supplement or post-effective amendment such information as the Holder
reasonably requests to be included therein with respect to the number
of shares of the Registrable Stock being sold by the Holder and the
Holder's plan of distribution and promptly make all required filings
of such prospectus supplement or post-effective amendment;
(viii) cooperate with the Holder to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing shares of Registrable Stock to be sold under the
Registration Statement, in such denominations and registered in such
names as the Holder may reasonably request;
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<PAGE>
(ix) if the offering is underwritten, furnish at the request of
the Holder on the date that the Holder's Stock is delivered to any
underwriters for sale pursuant to such registration and after the
Registration Statement has become effective: (A) an opinion dated such
date of counsel representing Liquids, addressed to the underwriters
and to the Holder, stating that such Registration Statement has become
effective under the Securities Act and that (1) to the actual
knowledge of such counsel (as that term is defined in the opinion), no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
have been threatened under the Securities Act, (2) the Registration
Statement, the Prospectus, and each amendment or supplement thereof
comply as to form in all material respects with the requirements of
the Securities Act and the applicable rules and regulations of the SEC
thereunder (except that such counsel need express no opinion as to
financial statements contained therein) and (3) to such other ordinary
and customary matters as may reasonably be requested by counsel for
such underwriters or by the Holder or its counsel, and (B) a letter
dated such date from the independent public accountants retained by
Liquids, addressed to such underwriters and to the Holder, stating
that they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the
financial statements of Liquids included in the Registration Statement
or the Prospectus, or any amendment or supplement thereof, comply as
to form in all material respects with the applicable accounting
requirements of the Securities Act, and such letter shall additionally
cover such other ordinary and customary financial matters (including
information as to the period ending no more than five business days
prior to the date of such letter) with respect to the registration of
which such letter is being given as such underwriters or the Holder
may reasonably request; provided however, the parties hereto
understand and agree that Liquids cannot as a matter of right or law
require its counsel or independent public accountants to render and
deliver any opinion as to any matter which they are unwilling to
render and deliver; and
(x) make available for inspection by the Holder, any
underwriting participating in any distribution pursuant to such
Registration Statement on behalf of the Holder, and by any attorney,
accountant or other professional retained by the Holder or any such
underwriter, all relevant and non-confidential financial and other
pertinent corporate records and information
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<PAGE>
reasonably requested by the Holder, or any such underwriter, attorney,
accountant or professional in connection with such Registration
Statement.
(b) All expenses incident to Liquids' performance of its obligations
under this Agreement, including all registration and filing fees, fees and
expenses of compliance with securities and Blue Sky laws, printing
expenses, fees and disbursements of Liquids' counsel, independent certified
public accountants, and other persons retained by Liquids (all such
expenses being herein called "Registration Expenses") will be borne by
Liquids. The Holder shall be responsible for all selling fees, expenses,
discounts and commissions relating to Holder's Stock (including the
Registrable Stock) and for the fees and expenses of counsel and other
persons engaged by the Holder.
3. OBLIGATIONS OF HOLDER.
(a) The Holder agrees that he will offer and sell the Holder's Stock
in compliance with all applicable state and federal securities laws, except
those laws compliance with which are within the control of Liquids and
which are not within the control of the Holder. Specifically, without
limitation, the Holder agrees as follows:
(i) The Holder agrees not to use any prospectus (as that term is
defined under the Securities Act) for the purpose of offering or
selling the Registrable Stock to the public except for the Prospectus,
as the same may be supplemented and amended from time to time.
(ii) Neither the Holder nor any affiliate of the Holder shall
engage in any practice which would violate Rule 10b-6 promulgated
under the Securities Exchange Act of 1934 ("Exchange Act").
(iii) Neither the Holder nor any affiliate of the Holder shall
solicit purchases of Holder's Stock to facilitate the distribution of
the Registrable Stock in violation of Rule 10b-2 promulgated under the
Exchange Act.
(iv) Neither the Holder nor any affiliate of the Holder shall
effect any stabilizing transactions to facilitate the offer and sale
of the Registrable Stock to the public in violation of Rule 10b-7
promulgated under the Exchange Act.
As used above, the term "affiliate" shall not include Liquids.
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<PAGE>
(b) The Holder agrees to promptly notify Liquids as and when any of
the Registrable Stock is sold and when the Holder elects to terminate all
further offers and sales of Shares pursuant to the Registration Statement.
The Holder acknowledges that any of the Registrable Stock which has not
been sold within two (2) years after the effective date of the Registration
Statement or any earlier termination of the distribution of the Registrable
Stock will be removed from registration by means of a post-effective
amendment to the Registration Statement.
(c) It shall be a condition precedent to the obligations of Liquids
to take any action with respect to registering the Registrable Stock that
the Holder furnish Liquids in writing such information regarding the
Holder, the Holder's Stock and other securities of Liquids held by the
Holder, and the distribution of such Holder's Stock as Liquids may from
time to time reasonably request in writing. If the Holder refuses to
provide Liquids with any of such information on the grounds that it is not
necessary to include such information in the Registration Statement,
Liquids may exclude the Registrable Stock from the Registration Statement.
The Holder agrees that upon receipt of any notice from Liquids of the
happening of any event of the kind described in Section 2(a)(v), the Holder
will forthwith discontinue the Holder's disposition of shares pursuant to
the Registration Statement until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2(a)(vii) and,
if so directed by Liquids, will deliver to Liquids (at Liquids' expense)
all copies, other than permanent file copies then in such Holder's
possession, of the Prospectus current at the time of receipt of such
notice.
(d) In the event the Holder intends to sell any Registrable Stock
under the Registration Statement, the Holder agrees to provide written
notice to Liquids at least two (2) business days prior to making any offers
or sales of the Registrable Stock, which written notice shall specify the
number of Registrable Stock which the Holder proposes to offer and sell and
which shall describe any changes to the information set forth in the
Registration Statement and the prospectus (the "Prospectus") included as a
part thereof, as the same may have been amended and supplemented from time
to time, concerning the Holder or the plan of distribution of the
Registrable Stock. The Holder represents and warrants that such
information as so updated will be true and correct and will not omit
information necessary to make the statements contained therein not
misleading. Within two (2) business days after its receipt of such written
notice, Liquids shall (i)notify the Holder that no supplement or amendment
is then required with respect to the Prospectus, or (ii) notify the
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Holder that such a supplement or amendment is required, in which event
Liquids shall prepare and file with the SEC such supplement or amendment as
soon as reasonably practicable and shall endeavor to cause any such
amendment to become effective. Immediately after filing a supplement with
the SEC or immediately after an amendment is declared effective by the SEC,
whichever is appropriate, Liquids will provide copies thereof to the
Holder, as provided in Section 2, and the Holder may then commence offers
and sales of Registrable Stock under the Registration Statement.
(e) The Holder agrees that for the period ending on the second
anniversary of the issuance of the Holder's Stock he will not sell,
exchange, pledge or otherwise transfer any of the Holder's Stock except in
transactions (i) made pursuant to the Registration Statement, or (ii) which
are exempt from the registration requirements of the Securities Act and all
applicable state securities laws, and Liquids is provided with an opinion
of counsel to the Holder and other evidence as may be reasonably
satisfactory to Liquids to the effect that such transfer will not be in
violation of the Securities Act and all applicable state securities laws.
4. PUBLIC OFFERING BY LIQUIDS. Notwithstanding the registration rights
granted to the Holder under this Agreement, in the event Liquids files a
registration statement for an underwritten public offering of Liquids Stock (a
"Public Offering") within two (2) years of the effective date of the
Registration Statement, then upon the request of Liquids' underwriter in such
Public Offering, the Holder agrees to enter into an agreement pursuant to which
the Holder will be prohibited from transferring the Registrable Stock for such
period of time, not to exceed six (6) months after completion of the Public
Offering, as Liquids' underwriter may request. In the event Liquids makes a
Public Offering and Liquids' underwriter imposes transfer restrictions on the
sale of Registrable Stock, the period during which the Registration Statement
will be kept current shall not be extended beyond the maximum two-year period
from the effective date of the Registration Statement as provided in Section 1.
5. POOLING RESTRICTIONS. It is a material factor to Liquids in entering
into this Agreement that the transactions contemplated by this Agreement be
treated as a "pooling-of-interests" for accounting purposes. Therefore,
notwithstanding any other provision of this Agreement, prior to notice by
Liquids of the publication and dissemination by Liquids of consolidated
financial results which include results of combined operations of each of the
Mesa Companies and AWW (as that term is defined in the Merger Agreement) for at
least a thirty-day period on a consolidated basis following the closing date of
the Merger Agreement, the Holder
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<PAGE>
shall not sell or otherwise transfer or dispose of, or in any other way reduce
his risk relative to, any shares of the Holder's Stock (including, by way of
example and not limitation, engaging in put, call, short-sale, straddle or
similar market transactions). The Holder, therefore, covenants and agrees that
he will fulfill any requests reasonably made of him by Liquids in writing if
made by Liquids for the purpose of satisfying the requirements of the Securities
Release Nos. 130 and 135 relating to "pooling of interests" accounting.
Additionally, the certificates evidencing the Holder's Stock will bear a legend
substantially in the form set forth below and containing such other information
as Liquids may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED, AND U S LIQUIDS INC. SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED SALE, TRANSFER OR ASSIGNMENT PRIOR TO THE
PUBLICATION AND DISSEMINATION OF FINANCIAL STATEMENTS BY U S LIQUIDS
INC. WHICH INCLUDE THE RESULTS OF AT LEAST THIRTY (30) DAYS OF
COMBINED OPERATIONS OF U S LIQUIDS INC. AND THE MESA COMPANIES FOR
WHICH THESE SHARES ARE ISSUED. UPON THE WRITTEN REQUEST OF THE RECORD
HOLDER OF THIS CERTIFICATE DIRECTED TO U S LIQUIDS INC., THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENTS) WHEN THE REQUIREMENTS HAVE BEEN MET.
Liquids agrees to make publication and dissemination of its consolidated
financial results which includes results of combined operations of Liquids, the
Mesa Companies, and AWW for at least a thirty (30) day period on a consolidated
basis following the closing date of the Merger Agreement as soon as practicable
following the end of the first full calendar month ending after such thirty (30)
day period.
6. INDEMNIFICATION.
(a) INDEMNIFICATION BY LIQUIDS. To the extent permitted by law,
Liquids will, and hereby does, indemnify and hold harmless the Holder
against any losses, claims, damages or liabilities to which the Holder may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not
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misleading, and Liquids will reimburse the Holder for any legal or any
other expenses reasonably incurred by him in connection with investigating
or defending any such loss, claim, liability, action or proceeding;
PROVIDED that Liquids shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made
in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information pertaining to the Holder, or, as
to periods prior to the date hereof, to any of the Mesa Companies or their
businesses or activities, or to any other business or activity in which the
Holder has been involved in any way, in each case furnished to Liquids by
or for the Holder, and PROVIDED FURTHER that Liquids shall not be liable to
the Holder or any other person to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon any violation by him of the Securities Act
or the Exchange Act. Nothing contained herein shall limit the rights of
the Holder to receive indemnification from Liquids to which the Holder may
be entitled other than as set forth herein.
(b) INDEMNIFICATION BY THE HOLDER. To the extent permitted by law,
the Holder will, and hereby does, indemnify and hold harmless (in the same
manner and to the same extent as set forth in subdivision (a) of this
Section) each underwriter, each person (including an individual or a legal
entity) who controls such underwriter within the meaning of the Securities
Act, Liquids, each director of Liquids, each officer of Liquids and each
other person, if any, who controls Liquids within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such Registration Statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon
and in strict conformity with written information pertaining to the Holder,
or, as to periods prior to the date hereof, to any of the Mesa Companies or
their businesses or activities, or to any other business or activity in
which the Holder has been involved in any way, furnished to Liquids by the
Holder expressly for use in the preparation of such Registration Statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement, and with respect to any violation by the Holder of the
Securities Act or the Exchange Act; provided however, that the liability of
the Holder hereunder shall be limited to the proportion of any loss, claim,
damage, or liability which is equal to the proportion that the public
offering price of
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shares sold by the Holder under such Registration Statement bears to the
total public offering price of shares sold thereunder, but not to exceed
the proceeds received by the Holder from the sale of the Holder's Stock
covered by such Registration Statement.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations under the preceding subdivisions of this Section,
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties
actually exists in respect of such claim or if the defendants in any such
action include both the indemnified party and the indemnifying party, and
the indemnified party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to the indemnifying party (in either of which cases the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of
such action, with the expenses and fees of such separate counsel and other
expenses relating to such participation to be reimbursed by the
indemnifying party as incurred), the indemnifying party shall be entitled
to participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so as
to assume the defense thereof, the indemnifying party shall not be liable
to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without
the consent of the indemnified party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding subdivisions of this Section (with appropriate
modifications) shall be given by Liquids and
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the Holder with respect to any required registration or other qualification
of securities under any Federal or state law or regulation of any
governmental authority other than the Securities Act.
(e) INDEMNIFICATION PAYMENTS. The indemnification required by this
Section shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) CONTRIBUTION. If the indemnification provided for in this
Section 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 loss, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified
parties in connection with the actions which resulted in such losses,
claims, damage, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue statement of
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such 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 above, any legal or other
fees or expenses reasonably 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 Section were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. If indemnification is available under this Section, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided herein without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable
consideration provided for in this Section.
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7. 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 Holder at the address reflected on Liquids' records, and
to Liquids at the address 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.
HOLDER: Thomas B. Blanton
Mesa Processing, Inc.
P. O. Box 4247
Fort Worth, Texas 76164
WITH A COPY TO:
---------------
Gerald J. Reihsen, III, Esq.
Reihsen & Associates
500 N. Akard, Suite 3850
Dallas, Texas 75201
LIQUIDS: U S Liquids Inc.
411 N. Sam Houston Parkway East, Suite 400
Houston, Texas 77060
ATTN: Chief Executive Officer
WITH A COPY TO:
---------------
Len Cason
Hartzog Conger & Cason
1600 Bank of Oklahoma Plaza
Oklahoma City, Oklahoma 73102
8. INTEGRATED AGREEMENT. This Agreement contains and constitutes the
entire agreement between and among the parties with respect to the matters set
forth herein and supersedes all prior agreements and understandings between the
parties hereto relating to the subject matter hereof. There are no agreements,
understandings, restrictions, warranties or representations among the parties
relating to the subject matter hereof other than those set forth or referred to
herein. This instrument is not intended
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to have any legal effect whatsoever, or to be a legally binding agreement or any
evidence thereof, until it has been signed by all parties hereto.
9. BINDING EFFECT. This Agreement shall be binding on and enforceable by
the Holder and by Liquids and its successors. No transferee of any of the
Holder's Stock shall acquire any rights under this Agreement except with the
written consent of Liquids, which may be withheld for any reason.
10. CONSTRUCTION. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of Texas. All pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine or
neuter gender thereof or to the plurals of each, as the identity of the person
or persons or the context may require. The descriptive headings contained in
this Agreement are for reference purposes only and are not intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provision contained herein.
11. 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 provisions shall be deemed modified so as to constitute a provision
conforming as nearly as possible to such invalid, illegal, void or unenforceable
provisions while still remaining valid and enforceable, and the remaining terms
or provisions contained herein shall not be affected thereby.
12. TERMINATION. If the Merger Agreement is terminated for any reason or
the Mesa Mergers are not consummated in accordance with the terms thereof, this
Agreement shall immediately terminate and be of no further force or effect.
13. RULE 144 REPORTING. For so long as the Holder is otherwise eligible
to sell any of the Holder's Stock in accordance with Rule 144 under the
Securities Act, Liquids agrees with the Holder as follows:
(a) Liquids shall make and keep public information available, as
those terms are understood and defined in Rule 144, at all times from and
after ninety (90) days following the effective date of the first
registration of Liquids under the Securities Act of an offering of its
securities to the general public.
(b) Liquids shall file with the SEC in a timely manner all reports
and other documents as the SEC may prescribe under
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<PAGE>
Section 13(a) or 15(d) of the Exchange Act at any time after Liquids has
become subject to such reporting requirements of the Exchange Act.
(c) Liquids shall furnish to the Holder upon request (i) a written
statement by Liquids as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement of Liquids for an
offering of its securities to the general public), and of the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements),(ii) a copy of the most recent annual or quarterly
report of Liquids, and (iii) such other reports and documents so filed as
the Holder may reasonably request to avail himself of any rule or
regulation of the SEC allowing the Holder to sell any of the Holder's Stock
without registration.
14. MISCELLANEOUS. The parties acknowledge that a form of this Stock
Distribution Agreement is being entered into concurrently by W. Gregory Orr,
Earl J. Blackwell, Thomas B. Blanton, William M. DeArman, and William Wilson,
Jr. It is the intent of the parties to all of these Stock Distribution
Agreements that their registration rights with respect to the Holder's Stock
owned by them as of the date of these Stock Distribution Agreements shall
continue to be the same except as they may otherwise agree. Therefore, it is
agreed that, without the written consent of all of the parties to these Stock
Distribution Agreements, Liquids will not, within two years after the date
hereof, enter into any agreement with any of the parties to these Stock
Distribution Agreements with respect to registration rights pertaining to any of
the Holder's Stock owned by each of them as of the date hereof which has any
material terms more favorable than the terms contained in these Stock
Distribution Agreements unless the same is offered to all of the aforesaid
parties on a reasonably equivalent basis.
[Intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates shown below.
HOLDER:
/s/ Thomas B. Blanton
------------------------------
Thomas B. Blanton
Date:
-------------------------
LIQUIDS: U S LIQUIDS INC.
By: /s/ W. Gregory Orr
---------------------------
Date:
-------------------------
<PAGE>
STOCK DISTRIBUTION AGREEMENT
This Stock Distribution Agreement (the "Agreement") is made between and
among the person whose name is set forth as the "Holder" on the signature page
hereto (the "Holder") and U S LIQUIDS INC., a Delaware corporation ("Liquids"),
effective as of June 16, 1997 (the "Effective Date").
R E C I T A L S:
Liquids, American WasteWater Inc. ("AWW") and certain other persons have
entered into that certain Agreement and Plan of Merger (the "Merger Agreement"),
dated as of the date hereof, pursuant to which a wholly-owned subsidiary of
Liquids will be merged (the "AWW Merger") into AWW. Pursuant to the Merger
Agreement, AWW will become a wholly-owned subsidiary of Liquids, and the Holder,
as a shareholder of AWW, will receive shares of Liquids common stock, par value
$.01 per share (the "Liquids Stock"). The form of this Agreement is an exhibit
to the Merger Agreement and is being entered into as a requirement of the Merger
Agreement. For purposes of this Agreement, the shares of Liquids Stock issued
to the Holder in connection with the AWW Merger is referred to as the "Holder's
Stock." The portion of the Holder's Stock with respect to which the Holder has
registration rights hereunder and with respect to which Liquids has a
registration obligation hereunder is referred to as the "Registrable Stock."
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. REGISTRATION OF LIQUIDS STOCK. Within nine (9) months after the
execution of this Agreement, Liquids will file with the SEC a registration
statement (the "Registration Statement") on an appropriate form under the
Securities Act of 1933, as amended (the "Securities Act"), registering for
resale up to thirty percent (30%) of each Holder's Stock (subject to and in
compliance with the applicable securities laws and other laws regarding such
resale), and will use its commercially reasonable efforts to cause the
Registration Statement to become effective as soon as practicable, and
thereafter, until the termination of this Agreement, to keep the Registration
Statement effective and, if necessary, to amend and supplement the same. Any
shares of Registrable Stock not resold by the Holder during the period in which
those shares are registered for resale will continue to be registered for
resale, provided however, that Liquids will have no obligation to register or to
continue the registration of any such shares for resale following the expiration
of two (2) years from the effective date of the Registration Statement. The
registration rights granted under this Agreement shall be nontransferable. The
Holder shall
<PAGE>
cooperate fully with Liquids by furnishing all information concerning the
Holder required or appropriate for preparation and inclusion in the
Registration Statement. If permitted by applicable law (and unless
prohibited by the terms of any agreement entered into by Liquids prior to the
date hereof), Liquids shall include the Registrable Stock in any shelf
registration statement, filed by Liquids registering shares for issuance in
connection with future acquisition by Liquids.
2. REGISTRATION PROCEDURES.
(a) In performing its obligations under Section 1, Liquids will,
subject to the limitations provided herein, use its commercially reasonable
efforts to:
(i) prepare and file with the U.S. Securities and Exchange
Commission (the "SEC") such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith
(the "Prospectus") as may be necessary to keep the Registration
Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Stock covered by the Registration Statement until such time as all
such Registrable Stock have been disposed of in accordance with the
intended method of disposition by the Holder;
(ii) furnish to the Holder one signed and such number of
conformed copies of the Registration Statement and of each such
amendment and supplement thereto (in each case including all
exhibits), such number of copies of the Prospectus (including each
preliminary prospectus and any summary prospectus) and any other
Prospectus filed under Rule 424 under the Securities Act, and such
other documents, as the Holder may reasonably request;
(iii) (a) register or qualify the Registrable Stock under
such other securities or Blue Sky laws of such jurisdictions as the
Holder shall reasonably request, (b) keep such registration or
qualification in effect for so long as the Registration Statement
remains in effect, and (c) take any other action which may be
reasonably necessary or advisable to enable the Holder to consummate
the disposition of the Registrable Stock in such jurisdictions, except
that Liquids shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this subdivision
(iii) be obligated to be so qualified, to consent to general service
of process in any such jurisdiction, or
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<PAGE>
to take any such action which would impose unreasonable expense on
Liquids;
(iv) cause the Registrable Stock to be registered with or
approved by such other United States federal or state governmental
agencies or authorities as may be necessary to enable the Holder to
consummate the disposition of the Registrable Stock;
(v) notify the Holder at any time when a Prospectus is required
to be delivered under the Securities Act, upon discovery that or upon
the happening of any event as a result of which, the Prospectus
included in the Registration Statement, as then in effect, 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 in the light of the circumstances under which
they were made, and prepare and furnish to the Holder a reasonable
number of copies of a supplement to or an amendment of such Prospectus
as may be necessary so that, as thereafter delivered to the purchasers
of such securities, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were
made;
(vi) list or qualify the Registrable Stock on any securities
exchange or quotation system of any national securities association on
which any of the Liquids Stock is then listed or qualified;
(vii) if requested by the Holder, promptly incorporate in a
supplement or post-effective amendment such information as the Holder
reasonably requests to be included therein with respect to the number
of shares of the Registrable Stock being sold by the Holder and the
Holder's plan of distribution and promptly make all required filings
of such prospectus supplement or post-effective amendment;
(viii) cooperate with the Holder to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing shares of Registrable Stock to be sold under the
Registration Statement, in such denominations and registered in such
names as the Holder may reasonably request;
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<PAGE>
(ix) if the offering is underwritten, furnish at the request of
the Holder on the date that the Holder's Stock is delivered to any
underwriters for sale pursuant to such registration and after the
Registration Statement has become effective: (A) an opinion dated such
date of counsel representing Liquids, addressed to the underwriters
and to the Holder, stating that such Registration Statement has become
effective under the Securities Act and that (1) to the actual
knowledge of such counsel (as that term is defined in the opinion), no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
have been threatened under the Securities Act, (2) the Registration
Statement, the Prospectus, and each amendment or supplement thereof
comply as to form in all material respects with the requirements of
the Securities Act and the applicable rules and regulations of the SEC
thereunder (except that such counsel need express no opinion as to
financial statements contained therein) and (3) to such other ordinary
and customary matters as may reasonably be requested by counsel for
such underwriters or by the Holder or its counsel, and (B) a letter
dated such date from the independent public accountants retained by
Liquids, addressed to such underwriters and to the Holder, stating
that they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the
financial statements of Liquids included in the Registration Statement
or the Prospectus, or any amendment or supplement thereof, comply as
to form in all material respects with the applicable accounting
requirements of the Securities Act, and such letter shall additionally
cover such other ordinary and customary financial matters (including
information as to the period ending no more than five business days
prior to the date of such letter) with respect to the registration of
which such letter is being given as such underwriters or the Holder
may reasonably request; provided however, the parties hereto
understand and agree that Liquids cannot as a matter of right or law
require its counsel or independent public accountants to render and
deliver any opinion as to any matter which they are unwilling to
render and deliver; and
(x) make available for inspection by the Holder, any
underwriting participating in any distribution pursuant to such
Registration Statement on behalf of the Holder, and by any attorney,
accountant or other professional retained by the Holder or any such
underwriter, all relevant and non-confidential financial and other
pertinent corporate records and information
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<PAGE>
reasonably requested by the Holder, or any such underwriter,
attorney, accountant or professional in connection with such
Registration Statement.
(b) All expenses incident to Liquids' performance of its obligations
under this Agreement, including all registration and filing fees, fees and
expenses of compliance with securities and Blue Sky laws, printing
expenses, fees and disbursements of Liquids' counsel, independent certified
public accountants, and other persons retained by Liquids (all such
expenses being herein called "Registration Expenses") will be borne by
Liquids. The Holder shall be responsible for all selling fees, expenses,
discounts and commissions relating to Holder's Stock (including the
Registrable Stock) and for the fees and expenses of counsel and other
persons engaged by the Holder.
3. OBLIGATIONS OF HOLDER.
(a) The Holder agrees that he will offer and sell the Holder's Stock
in compliance with all applicable state and federal securities laws, except
those laws compliance with which are within the control of Liquids and
which are not within the control of the Holder. Specifically, without
limitation, the Holder agrees as follows:
(i) The Holder agrees not to use any prospectus (as that term is
defined under the Securities Act) for the purpose of offering or
selling the Registrable Stock to the public except for the Prospectus,
as the same may be supplemented and amended from time to time.
(ii) Neither the Holder nor any affiliate of the Holder shall
engage in any practice which would violate Rule 10b-6 promulgated
under the Securities Exchange Act of 1934 ("Exchange Act").
(iii) Neither the Holder nor any affiliate of the Holder
shall solicit purchases of Holder's Stock to facilitate the
distribution of the Registrable Stock in violation of Rule 10b-2
promulgated under the Exchange Act.
(iv) Neither the Holder nor any affiliate of the Holder shall
effect any stabilizing transactions to facilitate the offer and sale
of the Registrable Stock to the public in violation of Rule 10b-7
promulgated under the Exchange Act.
As used above, the term "affiliate" shall not include Liquids.
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<PAGE>
(b) The Holder agrees to promptly notify Liquids as and when any of
the Registrable Stock is sold and when the Holder elects to terminate all
further offers and sales of Shares pursuant to the Registration Statement.
The Holder acknowledges that any of the Registrable Stock which has not
been sold within two (2) years after the effective date of the Registration
Statement or any earlier termination of the distribution of the Registrable
Stock will be removed from registration by means of a post-effective
amendment to the Registration Statement.
(c) It shall be a condition precedent to the obligations of Liquids
to take any action with respect to registering the Registrable Stock that
the Holder furnish Liquids in writing such information regarding the
Holder, the Holder's Stock and other securities of Liquids held by the
Holder, and the distribution of such Holder's Stock as Liquids may from
time to time reasonably request in writing. If the Holder refuses to
provide Liquids with any of such information on the grounds that it is not
necessary to include such information in the Registration Statement,
Liquids may exclude the Registrable Stock from the Registration Statement.
The Holder agrees that upon receipt of any notice from Liquids of the
happening of any event of the kind described in Section 2(a)(v), the Holder
will forthwith discontinue the Holder's disposition of shares pursuant to
the Registration Statement until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2(a)(vii) and,
if so directed by Liquids, will deliver to Liquids (at Liquids' expense)
all copies, other than permanent file copies then in such Holder's
possession, of the Prospectus current at the time of receipt of such
notice.
(d) In the event the Holder intends to sell any Registrable Stock
under the Registration Statement, the Holder agrees to provide written
notice to Liquids at least two (2) business days prior to making any offers
or sales of the Registrable Stock, which written notice shall specify the
number of Registrable Stock which the Holder proposes to offer and sell and
which shall describe any changes to the information set forth in the
Registration Statement and the prospectus (the "Prospectus") included as a
part thereof, as the same may have been amended and supplemented from time
to time, concerning the Holder or the plan of distribution of the
Registrable Stock. The Holder represents and warrants that such
information as so updated will be true and correct and will not omit
information necessary to make the statements contained therein not
misleading. Within two (2) business days after its receipt of such written
notice, Liquids shall (i) notify the Holder that no supplement or amendment
is then required with respect to the Prospectus, or (ii) notify the
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<PAGE>
Holder that such a supplement or amendment is required, in which event
Liquids shall prepare and file with the SEC such supplement or amendment
as soon as reasonably practicable and shall endeavor to cause any such
amendment to become effective. Immediately after filing a supplement with
the SEC or immediately after an amendment is declared effective by the SEC,
whichever is appropriate, Liquids will provide copies thereof to the Holder,
as provided in Section 2, and the Holder may then commence offers and sales
of Registrable Stock under the Registration Statement.
(e) The Holder agrees that for the period ending on the second
anniversary of the issuance of the Holder's Stock he will not sell,
exchange, pledge or otherwise transfer any of the Holder's Stock except in
transactions (i) made pursuant to the Registration Statement, or (ii) which
are exempt from the registration requirements of the Securities Act and all
applicable state securities laws, and Liquids is provided with an opinion
of counsel to the Holder and other evidence as may be reasonably
satisfactory to Liquids to the effect that such transfer will not be in
violation of the Securities Act and all applicable state securities laws.
4. PUBLIC OFFERING BY LIQUIDS. Notwithstanding the registration rights
granted to the Holder under this Agreement, in the event Liquids files a
registration statement for an underwritten public offering of Liquids Stock (a
"Public Offering") within two (2) years of the effective date of the
Registration Statement, then upon the request of Liquids' underwriter in such
Public Offering, the Holder agrees to enter into an agreement pursuant to which
the Holder will be prohibited from transferring the Registrable Stock for such
period of time, not to exceed six (6) months after completion of the Public
Offering, as Liquids' underwriter may request. In the event Liquids makes a
Public Offering and Liquids' underwriter imposes transfer restrictions on the
sale of Registrable Stock, the period during which the Registration Statement
will be kept current shall not be extended beyond the maximum two-year period
from the effective date of the Registration Statement as provided in Section 1.
5. POOLING RESTRICTIONS. It is a material factor to Liquids in entering
into this Agreement that the transactions contemplated by this Agreement be
treated as a "pooling-of-interests" for accounting purposes. Therefore,
notwithstanding any other provision of this Agreement, prior to notice by
Liquids of the publication and dissemination by Liquids of consolidated
financial results which include results of combined operations of each of the
Mesa Companies and AWW (as that term is defined in the Merger Agreement) for at
least a thirty-day period on a consolidated basis following the closing date of
the Merger Agreement, the Holder
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<PAGE>
shall not sell or otherwise transfer or dispose of, or in any other way
reduce his risk relative to, any shares of the Holder's Stock (including, by
way of example and not limitation, engaging in put, call, short-sale,
straddle or similar market transactions). The Holder, therefore, covenants
and agrees that he will fulfill any requests reasonably made of him by
Liquids in writing if made by Liquids for the purpose of satisfying the
requirements of the Securities Release Nos. 130 and 135 relating to "pooling
of interests" accounting. Additionally, the certificates evidencing the
Holder's Stock will bear a legend substantially in the form set forth below
and containing such other information as Liquids may deem necessary or
appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED, AND U S LIQUIDS INC. SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED SALE, TRANSFER OR ASSIGNMENT PRIOR TO THE
PUBLICATION AND DISSEMINATION OF FINANCIAL STATEMENTS BY U S LIQUIDS
INC. WHICH INCLUDE THE RESULTS OF AT LEAST THIRTY (30) DAYS OF
COMBINED OPERATIONS OF U S LIQUIDS INC. AND THE MESA COMPANIES FOR
WHICH THESE SHARES ARE ISSUED. UPON THE WRITTEN REQUEST OF THE RECORD
HOLDER OF THIS CERTIFICATE DIRECTED TO U S LIQUIDS INC., THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENTS) WHEN THE REQUIREMENTS HAVE BEEN MET.
Liquids agrees to make publication and dissemination of its consolidated
financial results which includes results of combined operations of Liquids, the
Mesa Companies (as defined in the Merger Agreement), and AWW for at least a
thirty (30) day period on a consolidated basis following the closing date of the
Merger Agreement as soon as practicable following the end of the first full
calendar month ending after such thirty (30) day period.
6. INDEMNIFICATION.
(a) INDEMNIFICATION BY LIQUIDS. To the extent permitted by law,
Liquids will, and hereby does, indemnify and hold harmless the Holder
against any losses, claims, damages or liabilities to which the Holder may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not
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<PAGE>
misleading, and Liquids will reimburse the Holder for any legal or any
other expenses reasonably incurred by him in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; PROVIDED that Liquids shall not be liable in any such case
to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or
supplement in reliance upon and in conformity with written information
pertaining to the Holder, or, as to periods prior to the date hereof, to
AWW or its business or activities, or to any other business or activity
in which the Holder has been involved in any way, in each case furnished
to Liquids by or for the Holder, and PROVIDED FURTHER that Liquids shall
not be liable to the Holder or any other person to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon any violation by him
of the Securities Act or the Exchange Act. Nothing contained herein
shall limit the rights of the Holder to receive indemnification from
Liquids to which the Holder may be entitled other than as set forth
herein.
(b) INDEMNIFICATION BY THE HOLDER. To the extent permitted by law,
the Holder will, and hereby does, indemnify and hold harmless (in the same
manner and to the same extent as set forth in subdivision (a) of this
Section) each underwriter, each person (including an individual or a legal
entity) who controls such underwriter within the meaning of the Securities
Act, Liquids, each director of Liquids, each officer of Liquids and each
other person, if any, who controls Liquids within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such Registration Statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon
and in strict conformity with written information pertaining to the Holder,
or, as to periods prior to the date hereof, to AWW or its business or
activities, or to any other business or activity in which the Holder has
been involved in any way, furnished to Liquids by the Holder expressly for
use in the preparation of such Registration Statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement,
and with respect to any violation by the Holder of the Securities Act or
the Exchange Act; provided however, that the liability of the Holder
hereunder shall be limited to the proportion of any loss, claim, damage, or
liability which is equal to the proportion that the public offering price
of shares sold by
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<PAGE>
the Holder under such Registration Statement bears to the total public
offering price of shares sold thereunder, but not to exceed the
proceeds received by the Holder from the sale of the Holder's Stock
covered by such Registration Statement.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations under the preceding subdivisions of this Section,
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties
actually exists in respect of such claim or if the defendants in any such
action include both the indemnified party and the indemnifying party, and
the indemnified party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to the indemnifying party (in either of which cases the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of
such action, with the expenses and fees of such separate counsel and other
expenses relating to such participation to be reimbursed by the
indemnifying party as incurred), the indemnifying party shall be entitled
to participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so as
to assume the defense thereof, the indemnifying party shall not be liable
to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without
the consent of the indemnified party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding subdivisions of this Section (with appropriate
modifications) shall be given by Liquids and the Holder with respect to any
required registration or other
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qualification of securities under any Federal or state law or regulation
of any governmental authority other than the Securities Act.
(e) INDEMNIFICATION PAYMENTS. The indemnification required by this
Section shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) CONTRIBUTION. If the indemnification provided for in this
Section 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 loss, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified
parties in connection with the actions which resulted in such losses,
claims, damage, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue statement of
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such 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 above, any legal or other
fees or expenses reasonably 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 Section were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. If indemnification is available under this Section, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided herein without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable
consideration provided for in this Section.
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7. 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 Holder at the address reflected on Liquids' records, and
to Liquids at the address 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.
HOLDER:
--------------------------------
--------------------------------
--------------------------------
LIQUIDS: U S Liquids Inc.
411 N. Sam Houston Parkway East, Suite 400
Houston, Texas 77060
ATTN: Chief Executive Officer
WITH A COPY TO:
Len Cason
Hartzog Conger & Cason
1600 Bank of Oklahoma Plaza
Oklahoma City, Oklahoma 73102
8. INTEGRATED AGREEMENT. This Agreement contains and constitutes the
entire agreement between and among the parties with respect to the matters set
forth herein and supersedes all prior agreements and understandings between the
parties hereto relating to the subject matter hereof. There are no agreements,
understandings, restrictions, warranties or representations among the parties
relating to the subject matter hereof other than those set forth or referred to
herein. This instrument is not intended to have any legal effect whatsoever, or
to be a legally binding agreement or any evidence thereof, until it has been
signed by all parties hereto.
9. BINDING EFFECT. This Agreement shall be binding on and enforceable by
the Holder and by Liquids and its successors. No transferee of any of the
Holder's Stock shall acquire any rights under this Agreement except with the
written consent of Liquids, which may be withheld for any reason.
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<PAGE>
10. CONSTRUCTION. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of Texas. All pronouns and
any variations thereof shall be deemed to refer to the masculine, feminine or
neuter gender thereof or to the plurals of each, as the identity of the person
or persons or the context may require. The descriptive headings contained in
this Agreement are for reference purposes only and are not intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or any
provision contained herein.
11. 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 provisions shall be deemed modified so as to constitute a provision
conforming as nearly as possible to such invalid, illegal, void or unenforceable
provisions while still remaining valid and enforceable, and the remaining terms
or provisions contained herein shall not be affected thereby.
12. TERMINATION. If the Merger Agreement is terminated for any reason or
the AWW Merger is not consummated in accordance with the terms thereof, this
Agreement shall immediately terminate and be of no further force or effect.
13. RULE 144 REPORTING. For so long as the Holder is otherwise eligible
to sell any of the Holder's Stock in accordance with Rule 144 under the
Securities Act, Liquids agrees with the Holder as follows:
(a) Liquids shall make and keep public information available, as
those terms are understood and defined in Rule 144, at all times from and
after ninety (90) days following the effective date of the first
registration of Liquids under the Securities Act of an offering of its
securities to the general public.
(b) Liquids shall file with the SEC in a timely manner all reports
and other documents as the SEC may prescribe under Section 13(a) or 15(d)
of the Exchange Act at any time after Liquids has become subject to such
reporting requirements of the Exchange Act.
(c) Liquids shall furnish to the Holder upon request (i) a written
statement by Liquids as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement of Liquids for an
offering of its securities to the general public), and of the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements),(ii) a copy of the most
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recent annual or quarterly report of Liquids, and (iii) such other
reports and documents so filed as the Holder may reasonably request to
avail himself of any rule or regulation of the SEC allowing the Holder
to sell any of the Holder's Stock without registration.
14. MISCELLANEOUS. The parties acknowledge that a form of this Stock
Distribution Agreement is being entered into concurrently by W. Gregory Orr,
Earl J. Blackwell, Thomas B. Blanton, William M. DeArman, and William Wilson,
Jr. It is the intent of the parties to all of these Stock Distribution
Agreements that their registration rights with respect to the Holder's Stock
owned by them as of the date of these Stock Distribution Agreements shall
continue to be the same except as they may otherwise agree. Therefore, it is
agreed that, without the written consent of all of the parties to these Stock
Distribution Agreements, Liquids will not, within two years after the date
hereof, enter into any agreement with any of the parties to these Stock
Distribution Agreements with respect to registration rights pertaining to any of
the Holder's Stock owned by each of them as of the date hereof which has any
material terms more favorable than the terms contained in these Stock
Distribution Agreements unless the same is offered to all of the aforesaid
parties on a reasonably equivalent basis.
[Intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates shown below.
HOLDER:
-------------------------------------------
Date:
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LIQUIDS: U S LIQUIDS INC.
By: /s/ W. Gregory Orr, Chief Executive Officer
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Date: June 16, 1997
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<PAGE>
STOCK DISTRIBUTION AGREEMENT
This Stock Distribution Agreement (the "Agreement") is made between and
among the person whose name is set forth as the "Holder" on the signature
page hereto (the "Holder") and U S LIQUIDS INC., a Delaware corporation
("Liquids"), effective as of June 16, 1997 (the "Effective Date").
R E C I T A L S:
Contemporaneous with the execution of this Agreement, Liquids has
acquired (the "Acquisitions") all of the outstanding capital stock of
American Wastewater Inc. ("AWW"), a Texas corporation, and Mesa Processing,
Inc. ("Mesa"), T&T Grease Service, Inc. ("T&T") and Phoenix Fats & Oils, Inc.
("Phoenix"), each a Texas corporation under common ownership. In connection
with the Acquisitions, Liquids has agreed to register for resale certain of
the shares of Liquids common stock, par value $.01 per share (the "Liquids
Stock"), beneficially owned by the Holder. For purposes of this Agreement,
the shares of Liquids Stock beneficially owned by the Holder as of the date
hereof is referred to as the "Holder's Stock." The portion of the Holder's
Stock with respect to which the Holder has registration rights hereunder and
with respect to which Liquids has a registration obligation hereunder is
referred to as the "Registerable Stock."
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. REGISTRATION OF LIQUIDS STOCK. Within nine (9) months after the
execution of this Agreement, Liquids will file with the SEC a registration
statement (the "Registration Statement") on an appropriate form under the
Securities Act of 1933, as amended (the "Securities Act"), registering for
resale up to thirty percent (30%) of each Holder's Stock (subject to and in
compliance with the applicable securities laws and other laws regarding such
resale), and will use its commercially reasonable efforts to cause the
Registration Statement to become effective as soon as practicable, and
thereafter, until the termination of this Agreement, to keep the Registration
Statement effective and, if necessary, to amend and supplement the same. Any
shares of Registrable Stock not resold by the Holder during the period in
which those shares are registered for resale will continue to be registered
for resale, provided however, that Liquids will have no obligation to
register or to continue the registration of any such shares for resale
following the expiration of two (2) years from the effective date of the
Registration Statement. The registration rights granted under this Agreement
shall be nontransferable. The Holder shall cooperate fully with Liquids by
furnishing all information
<PAGE>
concerning the Holder required or appropriate for preparation and inclusion
in the Registration Statement. If permitted by applicable law (and unless
prohibited by the terms of any agreement entered into by Liquids prior to the
date hereof), Liquids shall include the Registrable Stock in any shelf
registration statement, filed by Liquids registering shares for issuance in
connection with future acquisition by Liquids.
2. REGISTRATION PROCEDURES.
(a) In performing its obligations under Section 1, Liquids will,
subject to the limitations provided herein, use its commercially reasonable
efforts to:
(i) prepare and file with the U.S. Securities and Exchange
Commission (the "SEC") such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith
(the "Prospectus") as may be necessary to keep the Registration
Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Stock covered by the Registration Statement until such time as all
such Registrable Stock have been disposed of in accordance with the
intended method of disposition by the Holder;
(ii) furnish to the Holder one signed and such number of
conformed copies of the Registration Statement and of each such
amendment and supplement thereto (in each case including all
exhibits), such number of copies of the Prospectus (including each
preliminary prospectus and any summary prospectus) and any other
Prospectus filed under Rule 424 under the Securities Act, and such
other documents, as the Holder may reasonably request;
(iii) (a) register or qualify the Registrable Stock under
such other securities or Blue Sky laws of such jurisdictions as the
Holder shall reasonably request, (b) keep such registration or
qualification in effect for so long as the Registration Statement
remains in effect, and (c) take any other action which may be
reasonably necessary or advisable to enable the Holder to consummate
the disposition of the Registrable Stock in such jurisdictions, except
that Liquids shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this subdivision
(iii) be obligated to be so qualified, to consent to general service
of process in any such jurisdiction, or to take any such action which
would impose unreasonable expense on Liquids;
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<PAGE>
(iv) cause the Registrable Stock to be registered with or
approved by such other United States federal or state governmental
agencies or authorities as may be necessary to enable the Holder to
consummate the disposition of the Registrable Stock;
(v) notify the Holder at any time when a Prospectus is required
to be delivered under the Securities Act, upon discovery that or upon
the happening of any event as a result of which, the Prospectus
included in the Registration Statement, as then in effect, 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 in the light of the circumstances under which
they were made, and prepare and furnish to the Holder a reasonable
number of copies of a supplement to or an amendment of such Prospectus
as may be necessary so that, as thereafter delivered to the purchasers
of such securities, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were
made;
(vi) list or qualify the Registrable Stock on any securities
exchange or quotation system of any national securities association on
which any of the Liquids Stock is then listed or qualified;
(vii) if requested by the Holder, promptly incorporate in a
supplement or post-effective amendment such information as the Holder
reasonably requests to be included therein with respect to the number
of shares of the Registrable Stock being sold by the Holder and the
Holder's plan of distribution and promptly make all required filings
of such prospectus supplement or post-effective amendment;
(viii) cooperate with the Holder to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing shares of Registrable Stock to be sold under the
Registration Statement, in such denominations and registered in such
names as the Holder may reasonably request;
(ix) if the offering is underwritten, furnish at the request
of the Holder on the date that the Holder's Stock is delivered to any
underwriters for sale pursuant to such registration and after the
Registration Statement has become effective: (A) an opinion dated such
date of counsel representing Liquids, addressed to the
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<PAGE>
underwriters and to the Holder, stating that such Registration
Statement has become effective under the Securities Act and that (1)
to the actual knowledge of such counsel (as that term is defined in
the opinion), no stop order suspending the effectiveness thereof has
been issued and no proceedings for that purpose have been instituted
or are pending or have been threatened under the Securities Act,
(2) the Registration Statement, the Prospectus, and each amendment
or supplement thereof comply as to form in all material respects with
the requirements of the Securities Act and the applicable rules and
regulations of the SEC thereunder (except that such counsel need
express no opinion as to financial statements contained therein) and
(3) to such other ordinary and customary matters as may reasonably be
requested by counsel for such underwriters or by the Holder or its
counsel, and (B) a letter dated such date from the independent public
accountants retained by Liquids, addressed to such underwriters and
to the Holder, stating that they are independent public accountants
within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of Liquids included in the
Registration Statement or the Prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other ordinary and customary
financial matters (including information as to the period ending no
more than five business days prior to the date of such letter) with
respect to the registration of which such letter is being given as
such underwriters or the Holder may reasonably request; provided
however, the parties hereto understand and agree that Liquids cannot
as a matter of right or law require its counsel or independent public
accountants to render and deliver any opinion as to any matter which
they are unwilling to render and deliver; and
(x) make available for inspection by the Holder, any
underwriting participating in any distribution pursuant to such
Registration Statement on behalf of the Holder, and by any attorney,
accountant or other professional retained by the Holder or any such
underwriter, all relevant and non-confidential financial and other
pertinent corporate records and information reasonably requested by
the Holder, or any such underwriter, attorney, accountant or
professional in connection with such Registration Statement.
(b) All expenses incident to Liquids' performance of its obligations
under this Agreement, including all registration
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<PAGE>
and filing fees, fees and expenses of compliance with securities and Blue
Sky laws, printing expenses, fees and disbursements of Liquids' counsel,
independent certified public accountants, and other persons retained by
Liquids (all such expenses being herein called "Registration Expenses")
will be borne by Liquids. The Holder shall be responsible for all selling
fees, expenses, discounts and commissions relating to Holder's Stock
(including the Registrable Stock) and for the fees and expenses of counsel
and other persons engaged by the Holder.
3. OBLIGATIONS OF HOLDER.
(a) The Holder agrees that he will offer and sell the Holder's Stock
in compliance with all applicable state and federal securities laws, except
those laws compliance with which are within the control of Liquids and
which are not within the control of the Holder. Specifically, without
limitation, the Holder agrees as follows:
(i) The Holder agrees not to use any prospectus (as that term
is defined under the Securities Act) for the purpose of offering or
selling the Registrable Stock to the public except for the Prospectus,
as the same may be supplemented and amended from time to time.
(ii) Neither the Holder nor any affiliate of the Holder shall
engage in any practice which would violate Rule 10b-6 promulgated
under the Securities Exchange Act of 1934 ("Exchange Act").
(iii) Neither the Holder nor any affiliate of the Holder
shall solicit purchases of Holder's Stock to facilitate the
distribution of the Registrable Stock in violation of Rule 10b-2
promulgated under the Exchange Act.
(iv) Neither the Holder nor any affiliate of the Holder shall
effect any stabilizing transactions to facilitate the offer and sale
of the Registrable Stock to the public in violation of Rule 10b-7
promulgated under the Exchange Act.
As used above, the term "affiliate" shall not include Liquids.
(b) The Holder agrees to promptly notify Liquids as and when any of
the Registrable Stock is sold and when the Holder elects to terminate all
further offers and sales of Shares pursuant to the Registration Statement.
The Holder acknowledges that any of the Registrable Stock which has not
been sold within two (2) years after the effective date of the
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<PAGE>
Registration Statement or any earlier termination of the distribution of
the Registrable Stock will be removed from registration by means of a
post-effective amendment to the Registration Statement.
(c) It shall be a condition precedent to the obligations of Liquids
to take any action with respect to registering the Registrable Stock that
the Holder furnish Liquids in writing such information regarding the
Holder, the Holder's Stock and other securities of Liquids held by the
Holder, and the distribution of such Holder's Stock as Liquids may from
time to time reasonably request in writing. If the Holder refuses to
provide Liquids with any of such information on the grounds that it is not
necessary to include such information in the Registration Statement,
Liquids may exclude the Registrable Stock from the Registration Statement.
The Holder agrees that upon receipt of any notice from Liquids of the
happening of any event of the kind described in Section 2(a)(v), the Holder
will forthwith discontinue the Holder's disposition of shares pursuant to
the Registration Statement until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2(a)(vii) and,
if so directed by Liquids, will deliver to Liquids (at Liquids' expense)
all copies, other than permanent file copies then in such Holder's
possession, of the Prospectus current at the time of receipt of such
notice.
(d) In the event the Holder intends to sell any Registrable Stock
under the Registration Statement, the Holder agrees to provide written
notice to Liquids at least two (2) business days prior to making any offers
or sales of the Registrable Stock, which written notice shall specify the
number of Registrable Stock which the Holder proposes to offer and sell and
which shall describe any changes to the information set forth in the
Registration Statement and the prospectus (the "Prospectus") included as a
part thereof, as the same may have been amended and supplemented from time
to time, concerning the Holder or the plan of distribution of the
Registrable Stock. The Holder represents and warrants that such
information as so updated will be true and correct and will not omit
information necessary to make the statements contained therein not
misleading. Within two (2) business days after its receipt of such written
notice, Liquids shall (i) notify the Holder that no supplement or amendment
is then required with respect to the Prospectus, or (ii) notify the Holder
that such a supplement or amendment is required, in which event Liquids
shall prepare and file with the SEC such supplement or amendment as soon as
reasonably practicable and shall endeavor to cause any such amendment to
become effective. Immediately after filing a supplement with the SEC or
immediately after an amendment is declared effective by the
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<PAGE>
SEC, whichever is appropriate, Liquids will provide copies thereof to the
Holder, as provided in Section 2, and the Holder may then commence offers
and sales of Registrable Stock under the Registration Statement.
(e) The Holder agrees that for the period ending on the second
anniversary of the issuance of the Holder's Stock he will not sell,
exchange, pledge or otherwise transfer any of the Holder's Stock except in
transactions (i) made pursuant to the Registration Statement, or (ii) which
are exempt from the registration requirements of the Securities Act and all
applicable state securities laws, and Liquids is provided with an opinion
of counsel to the Holder and other evidence as may be reasonably
satisfactory to Liquids to the effect that such transfer will not be in
violation of the Securities Act and all applicable state securities laws.
4. PUBLIC OFFERING BY LIQUIDS. Notwithstanding the registration rights
granted to the Holder under this Agreement, in the event Liquids files a
registration statement for an underwritten public offering of Liquids Stock
(a "Public Offering") within two (2) years of the effective date of the
Registration Statement, then upon the request of Liquids' underwriter in such
Public Offering, the Holder agrees to enter into an agreement pursuant to
which the Holder will be prohibited from transferring the Registrable Stock
for such period of time, not to exceed six (6) months after completion of the
Public Offering, as Liquids' underwriter may request. In the event Liquids
makes a Public Offering and Liquids' underwriter imposes transfer
restrictions on the sale of Registrable Stock, the period during which the
Registration Statement will be kept current shall not be extended beyond the
maximum two-year period from the effective date of the Registration Statement
as provided in Section 1.
5. POOLING RESTRICTIONS. It is a material factor to Liquids in
entering into this Agreement that the transactions contemplated by this
Agreement be treated as a "pooling-of-interests" for accounting purposes.
Therefore, notwithstanding any other provision of this Agreement, prior to
notice by Liquids of the publication and dissemination by Liquids of
consolidated financial results which include results of combined operations
of each of the Mesa Companies and AWW (as that term is defined in the Merger
Agreement) for at least a thirty-day period on a consolidated basis following
the closing date of the Merger Agreement, the Holder shall not sell or
otherwise transfer or dispose of, or in any other way reduce his risk
relative to, any shares of the Holder's Stock (including, by way of example
and not limitation, engaging in put, call, short-sale, straddle or similar
market transactions). The Holder, therefore, covenants and agrees that he
will fulfill any requests reasonably made of him by Liquids in writing if
made by
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Liquids for the purpose of satisfying the requirements of the Securities
Release Nos. 130 and 135 relating to "pooling of interests" accounting.
Additionally, the certificates evidencing the Holder's Stock will bear a
legend substantially in the form set forth below and containing such other
information as Liquids may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED, AND U S LIQUIDS INC. SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED SALE, TRANSFER OR ASSIGNMENT PRIOR TO THE
PUBLICATION AND DISSEMINATION OF FINANCIAL STATEMENTS BY U S LIQUIDS
INC. WHICH INCLUDE THE RESULTS OF AT LEAST THIRTY (30) DAYS OF
COMBINED OPERATIONS OF U S LIQUIDS INC. AND THE MESA COMPANIES FOR
WHICH THESE SHARES ARE ISSUED. UPON THE WRITTEN REQUEST OF THE RECORD
HOLDER OF THIS CERTIFICATE DIRECTED TO U S LIQUIDS INC., THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENTS) WHEN THE REQUIREMENTS HAVE BEEN MET.
Liquids agrees to make publication and dissemination of its consolidated
financial results which includes results of combined operations of Liquids,
the Mesa Companies (as defined in the Merger Agreement), and AWW for at least
a thirty (30) day period on a consolidated basis following the closing date
of the Merger Agreement as soon as practicable following the end of the first
full calendar month ending after such thirty (30) day period.
6. INDEMNIFICATION.
(a) INDEMNIFICATION BY LIQUIDS. To the extent permitted by law,
Liquids will, and hereby does, indemnify and hold harmless the Holder
against any losses, claims, damages or liabilities to which the Holder may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and Liquids will reimburse the Holder
for any legal or any other expenses reasonably incurred by him in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; PROVIDED that Liquids shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action
or proceeding
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<PAGE>
in respect thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance
upon and in conformity with written information pertaining to the Holder,
or, as to periods prior to the date hereof, to AWW or its business or
activities, or to any other business or activity in which the Holder has
been involved in any way, in each case furnished to Liquids by or for the
Holder, and PROVIDED FURTHER that Liquids shall not be liable to the
Holder or any other person to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon any violation by him of the Securities Act or the
Exchange Act. Nothing contained herein shall limit the rights of the
Holder to receive indemnification from Liquids to which the Holder may be
entitled other than as set forth herein.
(b) INDEMNIFICATION BY THE HOLDER. To the extent permitted by law,
the Holder will, and hereby does, indemnify and hold harmless (in the same
manner and to the same extent as set forth in subdivision (a) of this
Section) each underwriter, each person (including an individual or a legal
entity) who controls such underwriter within the meaning of the Securities
Act, Liquids, each director of Liquids, each officer of Liquids and each
other person, if any, who controls Liquids within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such Registration Statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon
and in strict conformity with written information pertaining to the Holder,
or, as to periods prior to the date hereof, to AWW or its business or
activities, or to any other business or activity in which the Holder has
been involved in any way, furnished to Liquids by the Holder expressly for
use in the preparation of such Registration Statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement,
and with respect to any violation by the Holder of the Securities Act or
the Exchange Act; provided however, that the liability of the Holder
hereunder shall be limited to the proportion of any loss, claim, damage, or
liability which is equal to the proportion that the public offering price
of shares sold by the Holder under such Registration Statement bears to the
total public offering price of shares sold thereunder, but not to exceed
the proceeds received by the Holder from the sale of the Holder's Stock
covered by such Registration Statement.
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(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations under the preceding subdivisions of this Section,
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties
actually exists in respect of such claim or if the defendants in any such
action include both the indemnified party and the indemnifying party, and
the indemnified party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to the indemnifying party (in either of which cases the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of
such action, with the expenses and fees of such separate counsel and other
expenses relating to such participation to be reimbursed by the
indemnifying party as incurred), the indemnifying party shall be entitled
to participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so as
to assume the defense thereof, the indemnifying party shall not be liable
to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without
the consent of the indemnified party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding subdivisions of this Section (with appropriate
modifications) shall be given by Liquids and the Holder with respect to any
required registration or other qualification of securities under any
Federal or state law or regulation of any governmental authority other than
the Securities Act.
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(e) INDEMNIFICATION PAYMENTS. The indemnification required by this
Section shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) CONTRIBUTION. If the indemnification provided for in this
Section 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 loss, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified
parties in connection with the actions which resulted in such losses,
claims, damage, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue statement of
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such 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 above, any legal or other
fees or expenses reasonably 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 Section were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. If indemnification is available under this Section, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided herein without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable
consideration provided for in this Section.
7. 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
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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 Holder at
the address reflected on Liquids' records, and to Liquids at the address 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.
HOLDER:
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LIQUIDS: U S Liquids Inc.
411 N. Sam Houston Parkway East, Suite 400
Houston, Texas 77060
ATTN: Chief Executive Officer
WITH A COPY TO:
Len Cason
Hartzog Conger & Cason
1600 Bank of Oklahoma Plaza
Oklahoma City, Oklahoma 73102
8. INTEGRATED AGREEMENT. This Agreement contains and constitutes the
entire agreement between and among the parties with respect to the matters
set forth herein and supersedes all prior agreements and understandings
between the parties hereto relating to the subject matter hereof. There are
no agreements, understandings, restrictions, warranties or representations
among the parties relating to the subject matter hereof other than those set
forth or referred to herein. This instrument is not intended to have any
legal effect whatsoever, or to be a legally binding agreement or any evidence
thereof, until it has been signed by all parties hereto.
9. BINDING EFFECT. This Agreement shall be binding on and enforceable
by the Holder and by Liquids and its successors. No transferee of any of the
Holder's Stock shall acquire any rights under this Agreement except with the
written consent of Liquids, which may be withheld for any reason.
10. CONSTRUCTION. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of
-12-
<PAGE>
Texas. All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine or neuter gender thereof or to the plurals of each,
as the identity of the person or persons or the context may require. The
descriptive headings contained in this Agreement are for reference purposes
only and are not intended to describe, interpret, define or limit the scope,
extent or intent of this Agreement or any provision contained herein.
11. 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 provisions shall be deemed modified so as to constitute a
provision conforming as nearly as possible to such invalid, illegal, void or
unenforceable provisions while still remaining valid and enforceable, and the
remaining terms or provisions contained herein shall not be affected thereby.
12. TERMINATION. If the Merger Agreement is terminated for any reason
or the AWW Merger is not consummated in accordance with the terms thereof,
this Agreement shall immediately terminate and be of no further force or
effect.
13. RULE 144 REPORTING. For so long as the Holder is otherwise eligible
to sell any of the Holder's Stock in accordance with Rule 144 under the
Securities Act, Liquids agrees with the Holder as follows:
(a) Liquids shall make and keep public information available, as
those terms are understood and defined in Rule 144, at all times from and
after ninety (90) days following the effective date of the first
registration of Liquids under the Securities Act of an offering of its
securities to the general public.
(b) Liquids shall file with the SEC in a timely manner all reports
and other documents as the SEC may prescribe under Section 13(a) or 15(d)
of the Exchange Act at any time after Liquids has become subject to such
reporting requirements of the Exchange Act.
(c) Liquids shall furnish to the Holder upon request (i) a written
statement by Liquids as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement of Liquids for an
offering of its securities to the general public), and of the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), (ii) a copy of the most recent annual or quarterly
report of Liquids, and (iii) such other reports and documents so filed as
the Holder may
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<PAGE>
reasonably request to avail himself of any rule or regulation of the
SEC allowing the Holder to sell any of the Holder's Stock without
registration.
[Intentionally left blank]
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates shown below.
HOLDER:
/s/ W. GREGORY ORR
------------------------------
Date: June 17, 1997
------------------------
LIQUIDS: U S LIQUIDS INC.
By: /s/ W. GREGORY ORR
--------------------------
Chief Executive Officer
Date: June 17, 1997
------------------------
<PAGE>
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (the "Agreement") is made effective and
entered into as of June ____, 1997 between Thomas B. Blanton, an individual
("Stockholder"), and U S Liquids Inc., a Delaware corporation ("Liquids").
RECITALS
Liquids and Stockholder have entered into an Agreement and Plan of Merger
(the "Merger Agreement"), dated as of the date hereof, pursuant to which three
separate wholly-owned subsidiaries of Liquids will be merged into Mesa
Processing, Inc. ("Mesa"), T&T Grease Service, Inc. ("T&T"), and Phoenix Fats &
Oils, Inc. ("Phoenix"), each a Texas corporation wholly-owned by Stockholder
(Mesa, T&T and Phoenix are hereinafter collectively referred to as the "Mesa
Companies"). Pursuant to the Merger Agreement, each of the Mesa Companies will
become a wholly-owned subsidiary of Liquids, and the Stockholder will receive
shares of common stock of Liquids.
Liquids desires to protect the businesses it is acquiring pursuant to the
Merger Agreement by having Stockholder enter into this Agreement.
Stockholder is required by the Merger Agreement to enter into this
Agreement, and Stockholder is entering into this Agreement in order to satisfy
this requirement.
NOW, THEREFORE in consideration of the matters appearing in the above
recitals and in consideration of the mutual promises and covenants set forth in
this Agreement, Liquids and Stockholder hereby agree as follows:
1. NONCOMPETITION.
(a) During the "Term" (as hereinafter defined), Stockholder shall
not, directly or indirectly, anywhere in the "Protected Area" (as
hereinafter defined), carry on or engage or participate in any activity
substantially similar to or in competition with the "Business" (as
hereinafter defined), so long as such Business is carried on by any of the
Mesa Companies, by Liquids, or by any of Liquids' other subsidiaries, or by
any person acquiring ownership of all or any material portion of the
Business from Liquids (including any subsidiaries of Liquids) or any of the
Mesa Companies, all of whom together with Liquids are sometimes
collectively called the "Protected Entities."
<PAGE>
(b) During the Term, Stockholder will not, either on his own account
or directly or indirectly in conjunction with or on behalf of any person,
firm or company, employ, solicit or attempt to so employ or solicit any
person who is then or has, within six (6) months prior thereto, been an
officer, manager or employee of Liquids, any of the Mesa Companies or any
of Liquids' other subsidiaries, regardless of whether such a person would
commit a breach of his or her contract of employment, if any, by reason of
leaving the service of Liquids, or of any of the Mesa Companies, or of any
of Liquids' other subsidiaries.
(c) It is the desire and intent of the parties that the provisions of
this Section 1 shall be enforced to the fullest extent permissible under
the laws and public policies of the State of Texas. Accordingly, to the
extent that any provision hereunder or any portion thereof shall be
adjudicated to be invalid or unenforceable, this Section 1 shall be
reformed such that the restrictions imposed upon Stockholder are no greater
than would otherwise be permissible under applicable law. Moreover, each
provision of this Section 1 is intended to be severable, and in the event
that any one or more of the provisions contained in this Section 1 shall
for any reason be adjudicated to be invalid or unenforceable, the same
shall not affect the validity or enforceability of any other provision of
this Section 1, but this Section 1 shall be construed as if such invalid or
unenforceable provision had not been contained herein.
(d) Notwithstanding the foregoing, the parties hereto acknowledge
that it shall not constitute a violation of this Section 1 if Stockholder
at any time shall become an officer, director, employee, agent or
consultant of any of the Mesa Companies, of Liquids or of any of Liquids'
other subsidiaries, or shall own no more than five percent (5%) of the
common stock of a publicly traded company or any of its publicly traded
debt or preferred stock.
(e) The term "Business" shall mean (i) the processing and disposal of
nonhazardous liquids wastes including, without limitation, grease trap
wastes from restaurants and other food manufacturing and preparation
facilities, grit trap waste from car washes, Class I and Class II
nonhazardous liquids and other nonhazardous industrial and municipal
wastewater and/or (ii) the sale of fats and oils produced from the
processing of any such nonhazardous liquid wastes. The Protected Area
shall be all of the State of Texas.
(f) The phrase "carry on or engage or participate in any business
substantially similar to or in competition with the Business" shall include
Stockholder doing any of the
2
<PAGE>
following-listed acts, directly or indirectly, by himself or through any
other person or entity:
(i) carrying on, engaging in, or participating in any such
activity as a principal, director, officer, agent, broker, advisor,
employee, independent contractor, manager, consultant, partner
(general or limited), holder of an equity security, or otherwise;
(ii) as agent or principal carrying on or engaging in any
activities or negotiations with respect to the acquisition or the
disposition of any such activity;
(iii) lending credit or money for the purpose of establishing,
operating, or maintaining any such activity;
(iv) rendering material assistance to any other person, firm,
association or corporation engaging in any such activity; or
(v) lending or consenting to the use of his name or reputation
to be used in any such activity.
provided that the foregoing shall not include or prohibit the sale or purchase,
or the brokering for sale or purchase, of fats or oils processed by parties
unrelated to Stockholder. Without limiting the foregoing, it shall not be
relevant whether any of the foregoing actions were taken for profit or other
consideration.
(g) "Term" shall mean that period commencing with the date hereof and
ending five (5) years later; provided, however, that the duration of the
Term shall be extended by and for the duration of any period during which
Stockholder is in violation of this Section 1.
2. CONFIDENTIAL INFORMATION. Stockholder covenants and agrees that he
will not, during the term of this Agreement and thereafter, without the prior
written consent of Liquids, unless in the reasonable exercise of Stockholder's
duties as a director, officer or employee of Liquids or its affiliates or as may
be required by law or court order, divulge to any third party or use for his own
benefit, or for any purpose other than the exclusive benefit of Liquids, any
confidential information concerning the business and affairs of any of the Mesa
Companies, of Liquids or of any of Liquids' other subsidiaries, regardless of
whether such information was obtained by him by virtue of his earlier
association in any capacity with any of the Mesa Companies. As used herein,
"confidential information" shall include but not be limited to the products,
processes, services, marketing and customer information of any of the Mesa
Companies, Liquids and
3
<PAGE>
Liquids' other subsidiaries, it being the intent hereof that Stockholder shall
not divulge or use any information which is unpublished or not readily available
to the general public. In addition, Stockholder shall only be permitted to
divulge or use information that is available to the general public if it became
available to the general public other than as a result of the acts or omissions
of Stockholder. Upon execution and delivery of this Agreement, Stockholder
shall provide Liquids with all information, data, records, advertising and other
materials relating to the Business, and all copies or reproductions thereof, in
his possession or under his control.
3. INJUNCTIVE RELIEF AND DAMAGES.
(a) Stockholder acknowledges and agrees that, in the event of a
prospective or actual breach of the provisions of Sections 1 and/or 2 of
this Agreement by Stockholder, damages may not be an adequate remedy to
compensate the Protected Entities for the loss of goodwill and other harm
to the business of the Protected Entities.
(b) In the event of an actual breach of the provisions of Sections 1
and/or 2 of this Agreement by Stockholder, the parties agree that any
Protected Entity may be entitled, if it so elects, to a temporary
restraining order and to temporary and permanent injunctive relief to
prevent or terminate such anticipated or actual breach. In addition, each
Protected Entity shall be entitled to such damages as it can establish that
it sustained by reason of such actual breach.
(c) A Protected Entity shall have the right to inform any entity
described in Section 1 of this Agreement, and the principals thereof, and
any other third party: (i) that the Protected Entity reasonably believes it
or them to be, or to be contemplating, participating with Stockholder or
receiving from Stockholder assistance in violation of the terms of Section
1 of this Agreement;(ii) of the nature of the rights of the Protected
Entity hereunder; and (iii) that participation by any such entity or
persons with Stockholder in activities in violation of Section 1 of this
Agreement may give rise to claims by the Protected Entity against such
entity or persons.
4. INDEPENDENT COVENANTS. The covenants of Stockholder under this
Agreement shall be construed as and shall be independent of the covenants,
representations, warranties and obligations of Liquids under the Merger
Agreement, and accordingly any default by Liquids with respect to any such
representation, warranty, covenant or obligation shall not constitute an excuse
for Stockholder failing to perform under this Agreement.
4
<PAGE>
5. MISCELLANEOUS.
(a) GOVERNING LAW, CHOICE OF FORUM AND CONSENT TO SERVICE OF PROCESS
AND JURISDICTION. Any suit, action or proceeding against the Stockholder
with respect to this Agreement shall be brought exclusively in courts of
competent subject matter jurisdiction sitting in the State of Texas, County
of Harris. Stockholder hereby irrevocably waives any objections which he
may now or hereafter have to the jurisdiction or venue of any suit, action
or proceeding, arising out of or relating to this Agreement brought in such
courts, and hereby further irrevocably waives any claim that such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
(b) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto in reference to the subject matter hereof
and in reference to any of the matters or things herein provided for or
hereinabove discussed or mentioned in reference to such subject matter; all
prior agreements, promises, representations and understandings relative to
such subject matter are superseded by this Agreement.
(c) ASSIGNABILITY. Neither this Agreement nor any of the rights,
obligations or benefits hereof, shall be assignable by any party hereto.
Except as expressly provided herein, this Agreement shall not be construed
to confer upon or give to any person, other than the parties hereto, any
right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition hereof.
(d) AMENDMENTS; WAIVERS. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants hereof
may be waived only by a written instrument executed by the parties hereto
or, in the case of a waiver, by the party waiving compliance. The failure
of any party at any time or times to require performance of any provision
hereof shall in no manner affect the right at a later time to enforce the
same. No waiver by any party of the breach of any term or provision
contained in this Agreement, whether by conduct or otherwise, in any one or
more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such breach, or a waiver of the breach of any
other term or covenant contained in this Agreement.
(e) HEADINGS AND TERMS. All headings in this Agreement are for
convenience of reference only and shall not affect the
5
<PAGE>
meaning of any provision hereof. The term "person" shall include reference
to an individual or a legal entity.
(f) ATTORNEYS' FEES. Should either party hereto retain counsel for
the purpose of enforcing or preventing the breach of any provision hereof
including, but not limited to, by instituting any action or proceeding to
enforce any provision hereof or to enjoin the breach of any provision of
this Agreement, or for a declaration of such party's rights or obligations
under this Agreement, or for any other judicial remedy, then the successful
or prevailing party shall be entitled, in addition to any other relief as
to which such party may be entitled, to be reimbursed by the other party
for all costs and expenses incurred thereby including, without limitation,
fees and expenses of attorneys and expert witnesses, including costs of
appeal (whether or not taxable as such).
(g) SURVIVAL. All covenants, agreements, representations and
warranties made herein or otherwise made in writing by any party pursuant
hereto shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
(h) REASONABLE RESTRAINTS. Stockholder agrees that the covenants set
forth in Sections 1 and 2 of this Agreement are reasonable in light of the
activities and business of the Mesa Companies, Liquids and Liquids' other
subsidiaries.
[Intentionally left blank]
6
<PAGE>
IN WITNESS WHEREOF, Stockholder has executed this Agreement and Liquids has
caused this Agreement to be duly executed by its authorized officer as of the
day and year first above written.
"LIQUIDS": U S LIQUIDS INC.,
a Delaware corporation
By: /s/ W. Gregory Orr
-------------------------------------
W. Gregory Orr
/s/ Thomas B. Blanton
"STOCKHOLDER": -----------------------------------
Thomas B. Blanton
<PAGE>
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (the "Agreement") is made
effective and entered into as of June 17, 1997 between WILLIAM
H. WILSON, JR., an individual ("Stockholder"), and U S Liquids
Inc., a Delaware corporation ("Liquids").
RECITALS
Liquids and Stockholder have entered into an Agreement and
Plan of Merger (the "Merger Agreement"), dated as of the date
hereof, pursuant to which a subsidiary of Liquids will be merged
into American Wastewater Inc. ("AWW"), a Texas corporation owned
in part by Stockholder. Pursuant to the Merger Agreement, AWW
will become a wholly-owned subsidiary of Liquids, and the
Stockholder will receive shares of common stock of Liquids.
Liquids desires to protect the businesses it is acquiring
pursuant to the Merger Agreement by having Stockholder enter into
this Agreement.
Stockholder is required by the Merger Agreement to enter
into this Agreement, and Stockholder is entering into this
Agreement in order to satisfy this requirement.
NOW, THEREFORE in consideration of the matters appearing in
the above recitals and in consideration of the mutual promises
and covenants set forth in this Agreement, Liquids and
Stockholder hereby agree as follows:
1. NONCOMPETITION.
(a) During the "Term" (as hereinafter defined),
Stockholder shall not, directly or indirectly, anywhere in
the "Protected Area" (as hereinafter defined), carry on or
engage or participate in any activity substantially similar
to or in competition with the "Business" (as hereinafter
defined), so long as such Business is carried on by AWW, by
Liquids, or by any of Liquids' other subsidiaries, or by any
person acquiring ownership of all or any material portion of
the Business from Liquids (including any subsidiaries of
Liquids) or AWW, all of whom together with Liquids are
sometimes collectively called the "Protected Entities."
<PAGE>
(b) During the Term, Stockholder will not, either on
his own account or directly or indirectly in conjunction
with or on behalf of any person, firm or company, employ,
solicit or attempt to so employ or solicit any person who is
then or has, within six (6) months prior thereto, been an
officer, manager or employee of Liquids, AWW, or any of
Liquids' other subsidiaries, regardless of whether such a
person would commit a breach of his or her contract of
employment, if any, by reason of leaving the service of
Liquids, or AWW, or of any of Liquids' other subsidiaries.
(c) It is the desire and intent of the parties that
the provisions of this Section 1 shall be enforced to the
fullest extent permissible under the laws and public
policies of the State of Texas. Accordingly, to the extent
that any provision hereunder or any portion thereof shall be
adjudicated to be invalid or unenforceable, this Section 1
shall be reformed such that the restrictions imposed upon
Stockholder are no greater than would otherwise be
permissible under applicable law. Moreover, each provision
of this Section 1 is intended to be severable, and in the
event that any one or more of the provisions contained in
this Section 1 shall for any reason be adjudicated to be
invalid or unenforceable, the same shall not affect the
validity or enforceability of any other provision of this
Section 1, but this Section 1 shall be construed as if such
invalid or unenforceable provision had not been contained
herein.
(d) Notwithstanding the foregoing, the parties hereto
acknowledge that it shall not constitute a violation of this
Section 1 if Stockholder at any time shall become an
officer, director, employee, agent or consultant of AWW, of
Liquids or of any of Liquids' other subsidiaries, or shall
own no more than five percent (5%) of the common stock of a
publicly traded company or any of its publicly traded debt
or preferred stock.
(e) The term "Business" shall mean (i) the processing
and disposal of nonhazardous liquids wastes including,
without limitation, grease trap wastes from restaurants and
other food manufacturing and preparation facilities, grit
trap waste from car washes, Class I and Class II
nonhazardous liquids and other nonhazardous industrial and
municipal wastewater and/or (ii) the sale of fats and oils
produced from the processing of any such nonhazardous liquid
wastes. The Protected Area shall be all of the State of
Texas.
(f) The phrase "carry on or engage or participate in
any business substantially similar to or in competition with
the Business" shall include Stockholder doing any of the
following-listed acts, directly or indirectly, by himself or
through any other person or entity:
2
<PAGE>
(i) carrying on, engaging in, or participating in
any such activity as a principal, director, officer,
agent, broker, advisor, employee, independent
contractor, manager, consultant, partner (general or
limited), holder of an equity security, or otherwise;
(ii) as agent or principal carrying on or engaging
in any activities or negotiations with respect to the
acquisition or the disposition of any such activity;
(iii) lending credit or money for the purpose of
establishing, operating, or maintaining any such
activity;
(iv) rendering material assistance to any other
person, firm, association or corporation engaging in
any such activity; or
(v) lending or consenting to the use of his name
or reputation to be used in any such activity.
Without limiting the foregoing, it shall not be relevant
whether any of the foregoing actions were taken for profit
or other consideration.
(g) "Term" shall mean that period commencing with the
date hereof and ending five (5) years later; provided,
however, that the duration of the Term shall be extended by
and for the duration of any period during which Stockholder
is in violation of this Section 1.
2. CONFIDENTIAL INFORMATION. Stockholder covenants and
agrees that he will not, during the term of this Agreement and
thereafter, without the prior written consent of Liquids, unless
in the reasonable exercise of Stockholder's duties as a director,
officer or employee of Liquids or its affiliates or as may be
required by law or court order, divulge to any third party or use
for his own benefit, or for any purpose other than the exclusive
benefit of Liquids, any confidential information concerning the
business and affairs of any of AWW, of Liquids or of any of
Liquids' other subsidiaries, regardless of whether such
information was obtained by him by virtue of his earlier
association in any capacity with any of AWW. As used herein,
"confidential information" shall include but not be limited to
the products, processes, services, marketing and customer
information of any of AWW, Liquids and Liquids' other
subsidiaries, it being the intent hereof that Stockholder shall
not divulge or use any information which is unpublished or not
readily available to the general public. In addition,
Stockholder shall only be permitted to divulge or use information
that is available to the general public if it became available to
the general public other than as a result
3
<PAGE>
of the acts or omissions of Stockholder. Upon execution and delivery of
this Agreement, Stockholder shall provide Liquids with all information,
data, records, advertising and other materials relating to the Business,
and all copies or reproductions thereof, in his possession or under his
control.
3. INJUNCTIVE RELIEF AND DAMAGES.
(a) Stockholder acknowledges and agrees that, in the
event of a prospective or actual breach of the provisions of
Sections 1 and/or 2 of this Agreement by Stockholder,
damages may not be an adequate remedy to compensate the
Protected Entities for the loss of goodwill and other harm
to the business of the Protected Entities.
(b) In the event of an actual breach of the provisions
of Sections 1 and/or 2 of this Agreement by Stockholder, the
parties agree that any Protected Entity may be entitled, if
it so elects, to a temporary restraining order and to
temporary and permanent injunctive relief to prevent or
terminate such anticipated or actual breach. In addition,
each Protected Entity shall be entitled to such damages as
it can establish that it sustained by reason of such actual
breach.
(c) A Protected Entity shall have the right to inform
any entity described in Section 1 of this Agreement, and the
principals thereof, and any other third party: (i) that the
Protected Entity reasonably believes it or them to be, or to
be contemplating, participating with Stockholder or
receiving from Stockholder assistance in violation of the
terms of Section 1 of this Agreement; (ii) of the nature of
the rights of the Protected Entity hereunder; and (iii) that
participation by any such entity or persons with Stockholder
in activities in violation of Section 1 of this Agreement
may give rise to claims by the Protected Entity against such
entity or persons.
4. INDEPENDENT COVENANTS. The covenants of Stockholder
under this Agreement shall be construed as and shall be
independent of the covenants, representations, warranties and
obligations of Liquids under the Merger Agreement, and
accordingly any default by Liquids with respect to any such
representation, warranty, covenant or obligation shall not
constitute an excuse for Stockholder failing to perform under
this Agreement.
4
<PAGE>
5. MISCELLANEOUS.
(a) GOVERNING LAW, CHOICE OF FORUM AND CONSENT TO
SERVICE OF PROCESS AND JURISDICTION. Any suit, action or
proceeding against the Stockholder with respect to this
Agreement shall be brought exclusively in courts of
competent subject matter jurisdiction sitting in the State
of Texas, County of Harris. Stockholder hereby irrevocably
waives any objections which he may now or hereafter have to
the jurisdiction or venue of any suit, action or proceeding,
arising out of or relating to this Agreement brought in such
courts, and hereby further irrevocably waives any claim that
such suit, action or proceeding brought in any such court
has been brought in an inconvenient forum. This Agreement
shall be governed by and construed in accordance with the
laws of the State of Texas.
(b) ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement of the parties hereto in reference to the
subject matter hereof and in reference to any of the matters
or things herein provided for or hereinabove discussed or
mentioned in reference to such subject matter; all prior
agreements, promises, representations and understandings
relative to such subject matter are superseded by this
Agreement.
(c) ASSIGNABILITY. Neither this Agreement nor any of
the rights, obligations or benefits hereof, shall be
assignable by any party hereto. Except as expressly
provided herein, this Agreement shall not be construed to
confer upon or give to any person, other than the parties
hereto, any right, remedy or claim under or by reason of
this Agreement or of any term, covenant or condition hereof.
(d) AMENDMENTS; WAIVERS. This Agreement may be
amended, modified, superseded, canceled, renewed or extended
and the terms or covenants hereof may be waived only by a
written instrument executed by the parties hereto or, in the
case of a waiver, by the party waiving compliance. The
failure of any party at any time or times to require
performance of any provision hereof shall in no manner
affect the right at a later time to enforce the same. No
waiver by any party of the breach of any term or provision
contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any
such breach, or a waiver of the breach of any other term or
covenant contained in this Agreement.
(e) HEADINGS AND TERMS. All headings in this
Agreement are for convenience of reference only and shall
not affect the
5
<PAGE>
meaning of any provision hereof. The term "person" shall include
reference to an individual or a legal entity.
(f) ATTORNEYS' FEES. Should either party hereto
retain counsel for the purpose of enforcing or preventing
the breach of any provision hereof including, but not
limited to, by instituting any action or proceeding to
enforce any provision hereof or to enjoin the breach of any
provision of this Agreement, or for a declaration of such
party's rights or obligations under this Agreement, or for
any other judicial remedy, then the successful or prevailing
party shall be entitled, in addition to any other relief as
to which such party may be entitled, to be reimbursed by the
other party for all costs and expenses incurred thereby
including, without limitation, fees and expenses of
attorneys and expert witnesses, including costs of appeal
(whether or not taxable as such).
(g) SURVIVAL. All covenants, agreements,
representations and warranties made herein or otherwise made
in writing by any party pursuant hereto shall survive the
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
(h) REASONABLE RESTRAINTS. Stockholder agrees that
the covenants set forth in Sections 1 and 2 of this
Agreement are reasonable in light of the activities and
business of the Mesa Companies, Liquids and Liquids' other
subsidiaries.
[Intentionally left blank]
6
<PAGE>
IN WITNESS WHEREOF, Stockholder has executed this Agreement
and Liquids has caused this Agreement to be duly executed by its
authorized officer as of the day and year first above written.
"LIQUIDS": U S LIQUIDS INC.,
a Delaware corporation
By: /s/ W. Gregory Orr, Chief Executive Officer
-------------------------------------------
"Stockholder": /s/ William H. Wilson, Jr.
-------------------------------------------
William H. Wilson, Jr.
7
<PAGE>
AGREEMENT TO VOTE STOCK
This Agreement to Vote Stock (the "Agreement") is made and entered into
this 16th day of June, 1997, between and among U S LIQUIDS INC. ("Liquids"),
THOMAS B. BLANTON ("Blanton") and each of the other persons whose names appear
on the signature pages hereto (individually, a "Shareholder" and collectively,
the "Shareholders").
Blanton, Liquids, and certain other parties have entered into an Agreement
and Plan of Merger (the "Merger Agreement") which contemplates, among other
things, the merger of separate subsidiaries of Liquids into Mesa Processing,
Inc., T&T Grease Service, Inc., and Phoenix Fats & Oils, Inc., each a Texas
corporation wholly-owned by Blanton, and the issuance to Blanton by Liquids of
its shares of Liquids' common stock, par value $.01 per share ("Liquids Stock").
The execution and delivery of this Agreement is a condition to Blanton's
obligation to close under the Merger Agreement.
The Shareholders are or will become the legal and beneficial owners of
certain of the issued and outstanding shares of Liquids Stock.
The Shareholders have agreed, in consideration for the willingness of
Blanton to enter into the Merger Agreement, to enter into this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. OBLIGATION TO VOTE LIQUIDS STOCK. During the term of this Agreement
and for so long as the conditions set forth in Section 2 below continue to be
satisfied,(a) Liquids shall use its commercially reasonable best efforts to
cause Blanton to be nominated for election as a member of the Board of Directors
of Liquids, and (b) each Shareholder shall vote all shares of Liquids Stock with
respect to which that Shareholder has the voting power (regardless of when that
Liquids Stock was acquired by the Shareholder) and shall to the extent
reasonably possible cause any entity which that Shareholder controls (as that
term is defined under Section 13 of the Securities Exchange Act of 1934, as
amended) to vote all of their shares of Liquids Stock to nominate, elect, and
maintain Blanton as a member of the Board of Directors of Liquids.
2. TERMINATION. This Agreement shall terminate and the obligations of
the Shareholders to vote their Liquids Stock in the
<PAGE>
manner described in Section 1 shall terminate upon the first to occur of the
following:
(a) The date when Blanton ceases to beneficially own that number of
shares of Liquids Stock equal to five percent (5%) of all shares of issued
and outstanding Liquids Stock. For this purpose, Blanton shall be deemed
to beneficially own all shares of Liquids Stock which he beneficially owns
within the meaning of Rule 13(d)(3) of the Securities Exchange Act of 1934,
as amended, and he shall be deemed to beneficially own all shares of
Liquids Stock actually owned by his spouse or by any lineal descendant of
his or by any trust which has his spouse or any lineal descendant of his as
the sole current income beneficiaries.
(b) The failure of Blanton to satisfy the minimum criteria for
membership on the Board of Directors as set forth in the Certificate of
Incorporation or Bylaws of Liquids.
(c) The date upon which Liquids becomes bankrupt, dissolves,
liquidates, or ceases to engage in any active trade or business.
(d) The execution of a written consent to terminate this Agreement
which has been signed by Blanton.
(e) The date upon which Blanton resigns as a director of Liquids.
3. SPECIFIC PERFORMANCE. The parties agree that this Agreement may be
enforced by any party hereto by bringing suit in any court having jurisdiction
within the State of Texas, County of Harris, for specific performance of the
terms of this Agreement, it being specifically agreed that the Liquids Stock is
unique and that damages at law would be inadequate to compensate for a breach of
this Agreement (provided, however, that the right to any such damages is not
waived by Liquids or any of the parties hereto). In the event Liquids or any of
the individual parties hereto shall commence legal proceedings to enforce the
terms of this Agreement and shall prevail, the party hereto against whom such
proceedings were instituted or party's legal representative shall pay to the
prevailing party any reasonable attorney's fees incurred by such party in
connection therewith.
4. GENERAL. If any term or provision of this Agreement is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms and provisions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
-2-
<PAGE>
The rights or obligations under this Agreement may not be assigned by any
party hereto without the prior written consent of each other party hereto. This
Agreement shall not be binding upon any person other than the parties hereto.
This Agreement may not be amended except by a written instrument executed
by all of the parties hereto.
This Agreement may be executed in separate counterparts, each of which when
executed and delivered shall be an original, but all such counterparts shall
together constitute one and the same instrument.
The section headings contained herein are for convenience only and shall
not affect the construction hereof. The term "person" may include an individual
person or any legal entity.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Texas.
The parties acknowledge that this Agreement is for the benefit of Blanton,
and the parties agree that additional stockholders of Liquids may be added to
this Agreement and become parties hereto by executing an Addendum hereto.
[Intentionally left blank]
-3-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by each of the
parties as of the date first above written.
U S LIQUIDS INC.
By: /s/ W. Gregory Orr
---------------------------
/s/ Thomas B. Blanton
------------------------------
Thomas B. Blanton
/s/ W. Gregory Orr
------------------------------
W. Gregory Orr
THE WILEY GREGORY & GENENE M.
ORR FAMILY LLC
By: /s/ W. Gregory Orr
---------------------------
Name: W. Gregory Orr
----------------------
Title: Manager
---------------------
/s/ Earl J. Blackwell
------------------------------
Earl J. Blackwell
THE EARL J. & CHRISTINE J.
BLACKWELL FAMILY LLC
By: /s/ Earl J. Blackwell
---------------------------
Name: Earl J. Blackwell
----------------------
Title: Manager
---------------------
/s/ William M. DeArman
------------------------------
William M. DeArman
-4-
<PAGE>
ESTOPPEL, WAIVER AND AMENDMENT AGREEMENT
This Estoppel, Waiver and Amendment Agreement (the "Agreement") is entered
into by and between Sanifill, Inc. ("Sanifill") and U S Liquids Inc. ("Liquids")
on the 16th day of June, 1997. In consideration of the mutual covenants and
conditions contained herein, the parties agree as follows:
1. EXPLANATORY PROVISIONS.
1.1 Pursuant to the terms of that certain Asset Purchase Agreement,
dated December 2, 1996, among Liquids, Sanifill, Campbell Wells, L.P. and
Campbell Wells NORM, L.P., Liquids and Sanifill have entered into a Note
Agreement, dated December 13, 1996 (the "Note Agreement"), and a Warrant to
purchase shares of common stock of Liquids in favor of Sanifill, dated December
13, 1996 (the "Warrant"), and Liquids has issued to Sanifill its promissory
note, dated December 13, 1996 (the "Note") in the original principal amount of
$27,800,000.
1.2 Liquids desires to enter into separate merger agreements (the
"Merger Agreements") pursuant to which (i) wholly-owned subsidiaries of Liquids
will merge (the "Merger Transactions") with and into (a) Mesa Processing, Inc.
("Mesa"), T&T Grease Service, Inc. ("T&T"), and Phoenix Fats & Oils, Inc.
("Phoenix"), each a Texas corporation under common ownership (Mesa, T&T and
Phoenix are collectively referred to herein as the "Mesa Companies"), and (b)
American WasteWater Inc., a Texas corporation
<PAGE>
("AWW"), (ii) the Mesa Companies and AWW will become wholly-owned
subsidiaries of Liquids, and (iii) the stockholders of the Mesa Companies and
AWW will become stockholders of Liquids.
1.3 It is contemplated that, following the closing of the Merger
Transactions, Liquids will engage an underwriter to make an initial public
offering (the "IPO") of its common stock.
1.4 Sanifill desires to facilitate and encourage Liquids to enter
into the Merger Transactions and to conduct the IPO.
2. ESTOPPEL AND WAIVER OF DEFAULT. Sanifill hereby agrees that the
execution of the Merger Agreements and the consummation of the Merger
Transactions and the execution of the documents necessary to effect the Merger
Transactions shall not constitute a default under or a violation of either the
Note Agreement or the Warrant. Without limiting the foregoing, Sanifill (i)
acknowledges that, following the closing of the Merger Transactions, certain
Liens will exist upon certain real and personal property of the Mesa Companies,
subsidiaries of the Mesa Companies, and AWW (such Liens are hereinafter referred
to as the "Acquisition Liens"), and (ii) agrees that the continuing existence of
the Acquisition Liens following the consummation of the Merger Transactions
shall not constitute, or be deemed to constitute, a violation or breach of, or a
Default or an Event of Default under, the Note Agreement, or otherwise permit
Sanifill to exercise any of its rights or remedies under Section 7 of the Note
Agreement. Sanifill expressly
2
<PAGE>
acknowledges that it is its intent to waive any violation, breach, Default
and/or Event of Default that would otherwise arise or occur as a result of
the continued existence of the Acquisition Liens following the consummation
of the Merger Transactions; provided, however, that nothing in this Section 2
shall constitute, or be deemed to constitute, a waiver of Liquids' continuing
covenants under Sections 6A and 6C(2) of the Note Agreement.
3. WAIVER OF CERTAIN REGISTRATION RIGHTS. Sanifill hereby waives its
right to have any Warrant Shares (as defined in the Warrant) registered for
resale in connection with the IPO.
4. FUTURE ACQUISITION LIENS. Sanifill hereby acknowledges that it is the
intention of Liquids to expand through acquisitions of the capital stock or
assets of companies involved in the treatment, processing and disposal of
nonhazardous liquid wastes. Any such acquisition of capital stock or assets is
hereinafter referred to as an "Acquisition". Notwithstanding anything to the
contrary in the Note Agreement, Sanifill hereby agrees that the existence (or
continued existence following consummation of an Acquisition) of any Lien upon
any property or assets acquired by Liquids (including property or assets held by
any entity that is acquired by Liquids) in an Acquisition that is consummated
after the date hereof shall not constitute, or be deemed to constitute, a
violation or breach of, or Default or Event of Default under, the Note
Agreement, or otherwise permit Sanifill to exercise any of its rights or
remedies under Section 7 of the Note Agreement. Sanifill
3
<PAGE>
further expressly acknowledges that it is its intent to waive any violation,
breach, Default or Event of Default that would otherwise arise or occur as a
result of the continued existence of any Lien upon any property or assets
acquired by Liquids (including property or assets held by any entity that is
acquired by Liquids) in an Acquisition that is consummated after the date
hereof; provided, however, that nothing in this Section 4 shall constitute,
or be deemed to constitute, a waiver of Liquids' continuing covenants under
Sections 6A and 6C(2) of the Note Agreement; and further provided, however,
that, without the prior written consent of Sanifill, Liquids will not
thereafter allow or cause any entity acquired in any such Acquisition to
incur any additional secured indebtedness.
5. REPRESENTATION OF OWNERSHIP. Sanifill hereby represents that it is
the sole owner of the Warrant and of the single Note issued pursuant to the Note
Agreement, such ownership is free and clear of all liens, encumbrances or other
charges of any kind and no person or entity has any right to acquire either the
Warrant or the Note or any interest therein.
6. REGISTRATION OF WARRANT SHARES. Notwithstanding anything contained
herein or in the Warrant to the contrary, within ninety (90) days after the
effective date of the IPO, Liquids shall file or cause to be filed a shelf
registration statement pursuant to Rule 415 of the Securities Act of 1933, as
amended, and shall use reasonable efforts to cause such shelf registration
statement to be effective within 45 days of the date of such filing, which shelf
registration statement shall include the issuance of the Warrant Shares or the
resale
4
<PAGE>
thereof, as permitted under the applicable rules and regulation of the
Securities Exchange Commission. Liquids shall maintain this shelf
registration statement for the period described in Section 3.3(a) of the
Warrant. The costs and expenses of filing and maintaining the shelf
registration statement shall be paid by Liquids. Sanifill acknowledges and
agrees that the filing and maintenance of this shelf registration statement
in accordance with the terms hereof shall be deemed to satisfy Liquids'
obligations to file a shelf registration statement under Section 3.3 of the
Warrant.
7. ADDITIONAL AMENDMENTS TO WARRANT. Section 3.4 of the Warrant shall be
amended in its entirety to read as follows:
3.4 RESTRICTIONS ON REGISTRATION.
The Warrantholder agrees that, without the prior written
consent of the Company, the number of Warrant Shares to be offered
pursuant to the shelf registration statement in any calendar year
shall not exceed the following limitations:
Maximum Number
Year of Warrant Shares to Be Offered
---- -------------------------------
1997 0
1998 400,000
1999 400,000
2000 500,000
2001 600,000
2002 600,000
2003 600,000
2004 600,000
2005 600,000
2006 600,000
; provided that such maximum number of Warrant Shares shall be subject
to adjustment from time to time in accordance with the provisions of
Section 6
5
<PAGE>
hereof; and further provided, however, that the Warrantholder shall be
entitled to offer Warrant Shares in connection with (i) any firm
commitment underwritten public offering and (ii) any orderly market
transactions (such as cross-trades or arranged block sales) approved in
advance in writing by either of Van Kasper & Company or Sanders Morris
Mundy Inc., which approval under this Section 3.4 shall not be unreasonably
withheld. The parties acknowledge that the share numbers set forth in the
table above are pre-reverse stock split numbers.
8. LOCK-UP LETTER. Contemporaneously with the execution of this
Agreement, Sanifill shall execute and deliver to Liquids a lock-up letter in the
form attached hereto as Exhibit "A".
9. MISCELLANEOUS. For purposes of this Agreement, the terms "Warrant
Shares", "Lien", "Default" and "Event of Default" shall have the respective
meanings assigned to such terms in the Note Agreement. Except as stated herein,
the parties agree that the Warrant and the Note Agreement shall remain in full
force and effect as executed.
IN WITNESS WHEREOF, this Agreement has been duly executed by each of the
parties as of the date first above written.
SANIFILL, INC.
By: s/ G. T. Sangalis
--------------------------------
Name: G. T. Sangalis
-------------------------
Title: Vice President
------------------------
U S LIQUIDS INC.
6
<PAGE>
By: s/ W. Gregory Orr
--------------------------------
W. Gregory Orr, Chief Executive
Officer
For purposes of giving the approval described in Section 7 only, each of the
undersigned hereby agrees to become a party to this Agreement.
VAN KASPER & COMPANY
By: s/ David H. Horwich
-----------------------------------------
David H. Horwich, Senior Vice President
SANDERS MORRIS MUNDY INC.
By: s/ Bruce R. McMaken
-----------------------------------------
Bruce R. McMaken, Vice President
7
<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.
3
<PAGE>
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
4
<PAGE>
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>
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR
ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY BE SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED, ENCUMBERED OR IN ANY OTHER MANNER TRANSFERRED OR
DISPOSED OF EXCEPT AS PROVIDED HEREIN. THE HOLDER OF THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO THE RESTRICTIONS
HEREIN SET FORTH.
-------------------------------
-------------------------------
Warrant No. 1
WARRANT
TO
PURCHASE SHARES OF COMMON STOCK
OF
US LIQUIDS INC.
-------------------------------
-------------------------------
This Warrant, dated as of December 13, 1996 (this "Warrant"), certifies
that, for good and valuable consideration, US Liquids Inc., a Delaware
corporation (the "Company"), hereby grants to Sanifill, Inc., a Delaware
corporation ("Sanifill"), and, together with any transferee of this
Warrant or Warrant Shares (as defined below) (the "Warrantholder" or
"Warrantholders"), subject to the terms and conditions set forth herein, the
right to subscribe for and purchase from the Company 2,000,000 shares (the
"Warrant Shares") of common stock of the Company, par value $.01 per share
("Common Stock"), during the period from and after 10:00 a.m., Houston, Texas
time, on the date hereof (the "Initial Exercise Date") and to and including
5:00 p.m., Houston, Texas time, on the tenth anniversary of the date hereof
(the "Expiration Date") at a purchase price of $1.00 per share (the "Exercise
Price"). The Exercise Price and the number of Warrant Shares are subject to
adjustment from time to time as provided in Section 6 hereof.
1. DURATION AND EXERCISE OF WARRANT; LIMITATION ON EXERCISE; PAYMENT
OF TAXES.
1.1 DURATION AND EXERCISE OF WARRANT. The rights represented by
this Warrant may be exercised by the Warrantholder of record, in whole or
from time to time in part, by
<PAGE>
surrender of this Warrant, accompanied by a completed Exercise Form (the
form of which is annexed hereto) (the "Exercise Form") duly executed by the
Warrantholder of record and specifying the number of Warrant Shares to be
purchased, to the Company at the principal office of the Company located at
in Houston, Texas (or such other office or agency of the Company as it may
designate by written notice to the Warrantholder) during normal business
hours on any business day but not later than 5:00 p.m. on the Expiration
Date (or 5:00 p.m. on the next succeeding business day, if the Expiration
Date falls on a Saturday, Sunday or other day on which the Company is not
open for business), a check to the order of the Company in the amount of
the Exercise Price for the number of Warrant Shares specified in the
Exercise Form and such documentation as to the identity and authority of
the Warrantholder as the Company may reasonably request. Such Warrant
Shares shall be deemed to be issued to the Warrantholder that is the record
holder of this Warrant as of the close of business on the date on which
this Warrant shall have been surrendered and payment made for the Warrant
Shares as aforesaid. Certificates for the Warrant Shares specified in
the Exercise Form shall be delivered to the Warrantholder as promptly as
practicable, and in any event within five business days thereafter. The
certificates so delivered shall be in denominations specified by the
Warrantholder, and shall be issued in the name of the Warrantholder or, if
permitted by Section 1.4 hereof and in accordance with the provisions
thereof, in such other name as shall be designated in the Exercise Form.
If this Warrant shall have been exercised only in part, the Company shall,
at the time of delivery of the certificates representing the Warrant
Shares, deliver to the Warrantholder a new Warrant evidencing the right to
purchase the remaining Warrant Shares, which new Warrant shall in all
other respects be identical to this Warrant. No adjustments or payments
shall be made on or in respect of Warrant Shares issuable on the exercise
of this Warrant for any cash dividends paid or payable to holders of
record of Common Stock as of any date prior to the date as of which
the Warrantholder shall be deemed to be the record holder of such
Warrant Shares.
1.2 LIMITATION ON EXERCISE. If this Warrant is not exercised prior
to 5:00 p.m., Houston, Texas time, on the Expiration Date (or the next
succeeding business day, if the Expiration Date falls on a Saturday, Sunday
or other day on which the Company is not open for business), this Warrant,
or any new Warrant issued pursuant to Section 1.1, shall cease to be
exercisable and shall become void and all rights of the Warrantholder
hereunder shall cease. This Warrant shall not be exercisable and no
Warrant Shares shall be issued hereunder, prior to 10:00 a.m., Houston,
Texas time, on the Initial Exercise Date.
1.3 PAYMENT OF TAXES. The issuance of certificates for Warrant
Shares shall be made without charge to the Warrantholder for any stock
transfer or other issuance tax in respect thereto; PROVIDED, HOWEVER, that
the Warrantholder shall be responsible for payment of any and all taxes
which may be payable in respect of any transfer involved in the issuance
and delivery of any certificates for Warrant Shares in a name other than
that of the then Warrantholder as reflected upon the books of the Company.
1.4 TRANSFER; RESTRICTION ON TRANSFER AND LEGEND.
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<PAGE>
(a) Subject to the provisions of Section 1.4(b) below, this
Warrant shall be transferable, in whole or in part, at any time after
the date hereof, without the consent of the Company, upon notice from
Warrantholder. The Company shall keep at its principal office a
register in which the Company shall provide for the registration,
transfer and exchange of this Warrant. The Company will not at any
time, except upon the dissolution, liquidation or winding up of the
Company, close such register so as to prevent or delay the exercise
or transfer of this Warrant.
(b) Neither this Warrant nor any of the Warrant Shares, nor any
interest or participation in either, may be in any manner transferred
or disposed of, in whole or in part, except in compliance with
applicable United States federal and state securities laws.
Each certificate for Warrant Shares and any Warrant issued at any time
in exchange or substitution for any Warrant bearing such a legend shall
bear a legend similar in effect to the foregoing paragraph unless, in the
opinion of counsel for the Company, the Warrant need no longer be subject
to the restriction contained herein. The provisions of this Section 1.4
shall be binding upon all subsequent holders of this Warrant, if any.
Warrant Shares transferred to the public as expressly permitted by, and
in accordance with, the provisions of this Warrant shall thereafter cease
to be deemed to be "Warrant Shares" for purposes of this Section 1.4.
1.5 DIVISIBILITY OF WARRANT. This Warrant may be divided into
warrants representing one Warrant Share or multiples thereof, upon
surrender at the principal office of the Company on any business day,
without charge to any Warrantholder, except as provided below. Upon any
such division, and if permitted by Section 1.4 and in accordance with the
provisions thereof, the Warrants may be transferred of record to a name
other than that of the Warrantholder of record; PROVIDED, HOWEVER, that
the Warrantholder shall be responsible for payment of any and all transfer
taxes with respect thereto.
1.6 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY. The
Company hereby represents, warrants and covenants as follows:
(a) EXISTENCE. The Company is a corporation duly organized
and validly existing under the laws of the State of Delaware and
is authorized to do business and is in good standing as a foreign
corporation in every jurisdiction in which it owns or leases real
property or in which the nature of its business requires it to be so
qualified, except where the failure to so qualify, individually or in
the aggregate, could not reasonably be expected to have a material
adverse effect on the Company.
-3-
<PAGE>
(b) ORGANIZATIONAL DOCUMENTS. True and complete copies of
the Company's charter and bylaws, each as amended to date, have been
delivered to the Warrantholder prior to the date hereof.
(c) POWER AND AUTHORITY. The Company has all requisite
corporate power and authority, and has taken all corporate action
necessary (i) to execute, deliver and perform this Warrant, (ii) to
grant, issue and deliver this Warrant and (iii) to authorize and
reserve for issuance and, upon payment from time to time of the
Exercise Price, to issue and deliver the shares of Common Stock
initially issuable upon exercise of the Warrant. This Warrant has
been duly executed and delivered by the Company.
(d) RESERVATION, ISSUANCE AND DELIVERY OF COMMON STOCK. There
have been reserved for issuance out of the authorized and unissued
shares of Common Stock a number of shares sufficient to provide for
the exercise of the rights represented by this Warrant as of the
Initial Exercise Date.
(e) NO VIOLATION; CONSENTS AND APPROVALS. Neither the execution
or delivery of this Warrant nor the consummation of the transactions
contemplated herein does or will (i) result in a breach or violation
of any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company is a party or by which
the Company is bound or to which any of the properties or assets of
the Company are subject, (ii) result in any violation of any provision
of the charter or bylaws of the Company or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its properties or (iii)
require any filing with, or any consent or approval of, any
governmental authority.
(f) ENFORCEABILITY. This Warrant, when duly executed and
delivered, will constitute the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with
its terms, subject to any applicable bankruptcy, insolvency or other
laws of general application affecting creditors' rights and judicial
decisions interpreting any of the foregoing.
(g) NO OUTSTANDING RIGHTS. Except as contemplated by this
Warrant, the Company has not issued any warrants, options or other
securities convertible into or exchangeable for shares of Common Stock
and there are no registration rights outstanding with respect to any
securities of the Company.
2. RESERVATION AND LISTING OF SHARES.
All Warrant Shares which are issued upon the exercise of the rights
represented by this Warrant shall, upon issuance and payment of the Exercise
Price, be validly issued, fully paid and
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<PAGE>
nonassessable and free from all taxes, liens, security interests, charges and
other encumbrances with respect to the issue thereof other than taxes in
respect of any transfer occurring contemporaneously with such issuance.
During the period within which this Warrant may be exercised, the Company
shall at all times have authorized and reserved, and keep available free from
preemptive rights, a sufficient number of shares of Common Stock to provide
for the exercise of this Warrant, and shall at its expense procure such
listing thereof (subject to official notice of issuance) as then may be
required on all stock exchanges on which the Common Stock is then listed,
if any. The Company from time to time shall take all such action as may be
required to assure that the par value per share of the Warrant Shares is at
all times equal to or less than the then effective Exercise Price.
3. REGISTRATION RIGHTS.
3.1 INITIAL PUBLIC OFFERING. In the event the Company does not have
Common Stock or other equity securities registered pursuant to Section
12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), on or prior to December 31, 2001, the Warrantholder shall
have the right to require that the Company forthwith prepare and file a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") with respect to an initial public offering by the Company
of its Common Stock for its own account, and shall use its best efforts to
have such registration statement declared effective as soon as practicable,
but not more than 60 days after the filing of such registration statement.
The Warrantholder shall have the right to participate in such offering as
provided in Section 3.2.
3.2 PIGGY-BACK REGISTRATION.
(a) If the Company proposes to file a registration statement
under the Securities Act with respect to an offering by the Company
for its own account or for the account of any other person or entity
of any class of equity security, including any security convertible
into or exchangeable for any equity securities (other than (i) a
registration statement on Form S-4 or S-8 (or any substitute form for
comparable purposes that may be adopted by the Commission) or (ii) in
connection with a registration statement that is on a form pursuant to
which an offering of the Warrant Shares cannot be registered), then
the Company shall in each case give written notice of such proposed
filing to the Warrantholder at least twenty (20) business days before
the anticipated filing date, and such notice shall offer the
Warrantholder the opportunity to register such number of Warrant
Shares as the Warrantholder may request. Upon the written request of
the Warrantholder received by the Company within ten (10) business
days after the date of the Company's delivery of its notice to the
Warrantholder of its intention to file such a registration statement,
subject to the conditions and in accordance with the procedures set
forth herein, the Company shall use its best efforts to cause the
managing underwriter or underwriters of a proposed underwritten
offering to permit the inclusion of the Warrant Shares requested by
the Warrantholder to be registered under the registration statement
for such offering on
-5-
<PAGE>
the same terms and conditions as any similar securities of the
Company included therein. Notwithstanding the foregoing, if the
managing underwriter or underwriters of such offering indicates in
writing to the Warrantholder its reasonable belief that because of
the size of the offering intended to be made, the inclusion of the
Warrant Shares requested to be included might reasonably be expected
to jeopardize the success of the offering of the securities of the
Company to be offered and sold by the Company for its own account,
then the amount of securities to be offered for the account of the
Warrantholder shall be reduced, on a pro rata basis with all sellers
other than the Company, to the extent necessary to reduce the total
amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters. The
Company will bear all Registration Expenses (as hereinafter defined)
in connection with piggy-back registrations.
3.3 DEMAND REGISTRATION RIGHTS.
(a) Upon the written request by the Warrantholder that the
Company effect the registration of the Warrant Shares under the
Securities Act specifying the aggregate number of Warrant Shares
requested to be registered and the intended method or methods of
disposition thereof, including the name of the selected managing
underwriter, if any, the Company will file or cause to be filed a
shelf registration statement (the "Shelf Registration Statement")
pursuant to Rule 415 of the Securities Act within 45 days after
receipt of such request and to have the Shelf Registration Statement
declared effective within 30 days of filing, for disposition in
accordance with the intended method or methods of disposition stated
in such request. The Company shall keep the Shelf Registration
Statement continuously effective, supplemented and amended in order
to permit the prospectus included therein to be usable for sales of
Warrant Shares until the earlier of (i) three years after the date of
final exercise of the Warrant or (ii) such time as the Warrantholder
or any holder of Warrant Shares has sold all of the Warrant Shares
held by it, whether pursuant to such Shelf Registration Statement or
otherwise.
Notwithstanding the foregoing, the Company shall not be required
to take any action pursuant to this Section 3 within a period of 90
days after the effective date of any other registration statement
relating to the Common Stock (other than registration statements on
Form S-4 or S-8 or similar forms).
(b) The Company will not include any securities other than the
Warrant Shares in any registration statement filed pursuant to this
Section 3.3 without the prior written consent of the Warrantholder.
3.4 RESTRICTIONS ON REGISTRATION.
-6-
<PAGE>
The Warrantholder agrees that, without the prior written consent of
the Company, the number of Warrant Shares to be offered pursuant to the Shelf
Registration Statement in any calendar year shall not exceed the following
limitations:
Maximum Number
Year of Warrant Shares to Be Offered
---- -------------------------------
1997 100,000
1998 200,000
1999 300,000
2000 400,000
2001 500,000
2002 600,000
2003 600,000
2004 600,000
2005 600,000
2006 600,000
; PROVIDED that such maximum number of Warrant Shares shall be subject to
adjustment from time to time in accordance with the provisions of Section 6
hereof; and PROVIDED FURTHER that any Warrant Shares registered in piggy-back
registrations pursuant to Section 3.2 hereof shall be exempt from and not
counted toward the foregoing limitations.
3.5 REGISTRATION PROCEDURES.
Whenever the registration of Warrant Shares is to be effected
hereunder, the Company shall (unless such registration statement is not filed
or is withdrawn):
(a) (i) prior to filing a registration statement or prospectus
or any amendments or supplements thereto, furnish to the Warrantholder
and counsel selected by the Warrantholder copies of all such documents
proposed to be filed, which documents will be subject to the review
of such counsel, (ii) furnish to the Warrantholder prior to filing a
registration statement copies of such registration statement as
proposed to be filed, and thereafter furnish to the Warrantholder such
number of copies of such registration statement, each amendment and
supplement thereto (in each case including all exhibits thereto), the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as the Warrantholder
may reasonably request in order to facilitate the disposition of the
Warrant Shares, and (iii) after the filing of the registration
statement, promptly notify the Warrantholder of any stop order issued
or threatened by the Commission and take all reasonable actions
required to prevent the entry of such stop order or to remove it if
entered;
-7-
<PAGE>
(b) use its best efforts to register or qualify such Warrant
Shares under such other securities or blue sky laws of any
jurisdictions as the Warrantholder reasonably requests and do any
and all other acts and things which may be reasonably necessary or
advisable to enable the Warrantholder to consummate the disposition of
the Warrant Shares in such jurisdictions; PROVIDED, HOWEVER, that this
paragraph (b) shall not require the Company to register or qualify the
Warrant Shares in any state where such registration or qualification
would require the Company to qualify to transact business as a foreign
corporation or place an undue burden on the Company;
(c) use its best efforts to cause such Warrant Shares to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the Warrantholder thereof
to consummate the disposition of such Warrant Shares;
(d) notify the Warrantholder, at any time when a prospectus
relating thereto is required to be delivered under the Securities
Act, of the occurrence of an event requiring the preparation of a
supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Warrant Shares, such prospectus
will not contain an 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 promptly prepare,
file and make available to the Warrantholder any such supplement or
amendment;
(e) enter into or arrange for the furnishing of customary
agreements and documents (including an underwriting agreement
in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of
such Warrant Shares;
(f) make available for inspection by the Warrantholder,
any underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other
professional retained by the Warrantholder or underwriter
(collectively, the "Inspectors"), all financial and other pertinent
records, corporate documents and properties of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such
Inspector in connection with such registration statement. The
Warrantholder agrees that information obtained by it as a result of
such inspections which is material and deemed confidential shall not
be used by it as the basis for any market transactions in securities
of the Company unless and until such information is made generally
available to the public; and
-8-
<PAGE>
(g) otherwise comply with all applicable rules and regulations
of the Commission, and make available to its security holders, as soon
as reasonably practicable, an earnings statement covering a period of
twelve months, beginning within three months after the effective date
of the registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act.
In addition:
(a) the Company may require the Warrantholder to furnish to
the Company such information regarding the Warrantholder and the
distribution of the Warrant Shares as the Company may from time to
time reasonably request in writing and such other information as may
be legally required in connection with such registration. In
addition, the Warrantholder agrees to notify the Company of any event
relating to the Warrantholder that occurs that would require the
preparation of a supplement or amendment to the prospectus so that
such prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading;
(b) if any offering (other than an offering of the Company
as to which the Warrantholder has exercised piggy-back registration
rights pursuant to Section 3.2 hereof) in which the Warrantholder
participates is an underwritten offering, the Company will select a
managing underwriter or underwriters to administer the offering, which
managing underwriter or underwriters shall be reasonably satisfactory
to the Warrantholder;
(c) the Company shall be permitted to delay the filing of any
registration statement or delay its effectiveness for a reasonable
period of time (not to exceed 90 days) if, in the good faith judgment
of the Company, such delay is necessary in light of pending financing
transactions, corporate reorganizations or other events involving the
Company. The Company shall not be obligated to prepare and file any
registration statement hereunder at any time when the Company, in its
good faith judgment, reasonably believes that the filing thereof at
the time requested, or the offering of Warrant Shares pursuant
thereto, would materially adversely affect a pending or scheduled
public offering of securities of the Company or an acquisition,
merger, recapitalization, consolidation, reorganization or similar
transaction or negotiations or discussions of pending proposals with
respect thereto or might materially adversely affect the business or
prospects of the Company in view of disclosures that may be required
thereby involving any threatened litigation, claim, assessment or
governmental investigation or any facts or circumstances relating
thereto. Once the cause of such delay is eliminated, the Company
shall promptly notify the Warrantholder, and as soon as the
Warrantholder requests the Company to proceed, the Company shall
cause such offering to be registered under the Securities Act and
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<PAGE>
qualify the offering under the securities laws of any states that
may be required under this Section 3.5; and
(d) in connection with any offering of the Warrant Shares
pursuant to this Agreement, the Warrantholder agrees to execute
all consents, powers of attorney, registration statements and other
documents required in order to cause such registration statement
to become effective. The Warrantholder further agrees that, in
disposing of the Warrant Shares, it will comply with Rules 10b-2,
10b-6 and 10b-7 and any other applicable rules promulgated by the
Commission under the Exchange Act.
3.6 REGISTRATION EXPENSES.
All expenses incident to the Company's performance of or compliance
with this Section 3, including, without limitation, all registration and
filing fees, any fees and expenses of compliance with securities or blue sky
laws (including fees and disbursements of counsel in connection with blue sky
qualifications of the Warrant Shares), rating agency fees, printing expenses,
messenger and delivery expenses, internal expenses (including, without
limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the fees and expenses incurred in
connection with the listing of the securities to be registered and fees and
disbursements of counsel for the Company and its independent certified public
accountants (including the expenses of any special audit or comfort letters
required by or incident to such performance), securities act liability
insurance (if the Company elects to obtain such insurance), the fees and
expenses of any special experts retained by the Company in connection with
such registration, and fees and expenses of other persons retained by the
Company, in connection with each registration hereunder and fees and expenses
of the Warrantholder's counsel (but not including any underwriting discounts
or commissions attributable to the sale of the Warrant Shares) (collectively,
the "Registration Expenses") will be borne by the Company. In addition, if
the Warrantholder participates in any road show at the request of the Company
or any underwriter, all of the expenses of the Warrantholder in connection
with such road show shall be borne by the Company.
3.7 INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. To the extent permitted by
applicable law, the Company agrees to indemnify and hold harmless the
Warrantholder, its officers, directors, partners, attorneys and agents
and each person, if any, who controls the Warrantholder within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages
(whether in contract, tort or otherwise), liabilities and expenses
(including reasonable costs of investigation) whatsoever (as incurred
or suffered) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Warrant Shares
or in any amendment or supplement thereto or in any preliminary
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<PAGE>
prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or
expenses arise out of, or are based upon, any such untrue statement
or omission or allegation thereof based upon information furnished in
writing to the Company by or on behalf of the Warrantholder expressly
for use therein; PROVIDED, that with respect to any untrue statement
or omission or alleged untrue statement or omission made in any
preliminary prospectus, the indemnity agreement contained in this
paragraph shall not apply to the extent that any such loss, claim,
damage, liability or expense results from the fact that a current copy
of the prospectus was not sent or given to the person asserting any
such loss, claim, damage, liability or expense at or prior to the
written confirmation of the sale of the Warrant Shares concerned to
such person if it is determined that the Company had previously
provided the Warrantholder with such current copy of the prospectus,
it was the responsibility of the Warrantholder to provide such person
with such current copy of the prospectus and such current copy of the
prospectus would have cured the defect giving rise to such loss,
claim, damage, liability or expense. The Company also agrees to
indemnify any underwriters of the Warrant Shares, their officers,
partners and directors and each person who controls such underwriters
on substantially the same basis as that of the indemnification of the
Warrantholder provided herein or such other indemnification
customarily obtained by underwriters at the time of offering.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any action
or proceeding (including any governmental investigation) shall be
brought or asserted against the Warrantholder (or its officers,
directors, partners, attorneys or agents) or any person controlling
the Warrantholder in respect of which indemnity may be sought from the
Company, the Company shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Warrantholder and
shall assume the payment of all expenses. The Warrantholder or any
controlling person of the Warrantholder shall have the right to employ
separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of the Warrantholder or such controlling person unless (i) the
Company has agreed to pay such fees and expenses or (ii) the named
parties to any such action or proceeding (including any impleaded
parties) include both the Warrantholder or such controlling person and
the Company, and the Warrantholder or such controlling person shall
have been advised by counsel that there may be one or more legal
defenses available to the Warrantholder or such controlling person
which are different from or additional to those available to the
Company (in which case, if the Warrantholder or such controlling
person notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not
have the right to assume the defense of such action or proceeding on
behalf of the Warrantholder or such controlling person; it being
understood, however, that the Company shall not, in connection with
any one such action or proceeding or separate
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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 fees and expenses of more than one
separate firm of attorneys (together with appropriate local counsel)
at any time for the Warrantholder or such controlling person, which
firm shall be designated in writing by such Warrantholder). The
Company shall not be liable for any settlement of any such action or
proceeding effected without the Company's written consent, but if
settled with its written consent, or if there be a final judgment
for the plaintiff in any such action or proceeding, the Company
agrees to indemnify and hold harmless the Warrantholder and
controlling person from and against any loss or liability (to the
extent stated above) by reason of such settlement or judgment.
(c) INDEMNIFICATION BY THE WARRANTHOLDER. The Warrantholder
agrees to indemnify and hold harmless the Company, its directors and
officers and each person, if any, who controls the Company within the
meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act, to the same extent as the foregoing indemnity from
the Company to the Warrantholder, but only with respect to information
furnished in writing by or on behalf of the Warrantholder expressly
for use in any registration statement or prospectus relating to the
Warrant Shares, or any amendment or supplement thereto, or any
preliminary prospectus. In case any action or proceeding shall be
brought against the Company or its directors or officers, or any such
controlling person, in respect of which indemnity may be sought
against the Warrantholder shall have the rights and duties given to
the Company, and the Company or its directors or officers or such
controlling person shall have the rights and duties given to the
Warrantholder, by the preceding paragraph. The Warrantholder also
agrees that it will enter into an indemnity agreement to indemnify
and hold harmless underwriters of the Warrant Shares, their officers
and directors and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the
Company provided for herein. Notwithstanding the foregoing, the
liability of the Warrantholder for all claims pursuant to this
Section 3 shall not exceed the amount of the net proceeds to the
Warrantholder from such offering.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 3 is unavailable to the Company, the Warrantholder or the
underwriters in respect of any losses, claims, damages, liabilities
or judgments referred to herein, then each such 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 and judgments (i) as between the
Company and the Warrantholder on the one hand and the underwriters on
the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Warrantholder on the
one hand and the underwriters on the other from the offering of the
Warrant Shares, or if such allocation is not permitted by applicable
law, in such
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proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company and the
Warrantholder on the one hand and of the underwriters on the other
in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as
any other relevant equitable considerations and (ii) as between the
Company, on the one hand, and the Warrantholder, on the other, in such
proportion as is appropriate to reflect the relative fault of the
Company and of the Warrantholder in connection with such statements
or omissions, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Warrantholder on
the one hand and the underwriters on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses)
received by the Company and the Warrantholder bear to the total
underwriting discounts and commissions received by the underwriters,
in each case as set forth in the table on the cover page of the
prospectus. The relative fault of the Company and the Warrantholder
on the one hand and of the underwriters on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Company and the Warrantholder or by the underwriters. The
relative fault of the Company on the one hand and of the Warrantholder
on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Warrantholder agree that it would not be just
and equitable if contribution pursuant to this Section were determined
by pro rata allocation (even if the underwriters were treated as one
entity for such purpose) or by any other method of allocation which
does not take account of the equitable considerations referred to in
the immediately preceding paragraph. The amount paid or payable by
an indemnified party as a result of the losses, claims, damages,
liabilities, or judgments referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section,
no underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Warrant Shares
underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such underwriter
has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and the
Warrantholder shall not be required to contribute any amount in excess
of the amount of the total proceeds to the Warrantholder from such
offering. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be
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entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(e) INDEMNIFICATION PAYMENTS. The indemnification and
contribution required hereunder shall be made by periodic payments of
the amount thereof during the course of the investigation or defense,
as and when bills are received or expense, loss, damage or liability
are incurred.
3.8 RULE 144 AND REPORTS.
The Company covenants that, commencing upon the effectiveness of any
registration of equity securities pursuant to Section 12(b) or 12(g) under
the Exchange Act, it will file the reports required to be filed by it under
the Securities Act and the Exchange Act, and the rules and regulations
adopted by the Commission thereunder (or, if the Company is not required
to file such reports, it will, upon the request of the Warrantholder, make
publicly available other information so long as necessary to permit sales
under Rule 144 under the Securities Act), and it will take such other
action as the Warrantholder may reasonably request, all to the extent
required from time to time to enable the Warrantholder to sell Warrant
Shares without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as
such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of the
Warrantholder, the Company will deliver to the Warrantholder a written
statement as to whether it has complied with such requirements.
Additionally, the Company will make generally available to its security
holders an earnings statement satisfying the provisions of Section 11(a)
of the Securities Act no later than 45 days after the end of the 12-month
period beginning with the first day of the Company's first fiscal quarter
commencing after the effective date of any registration statement including
Warrant Shares.
3.9 TRANSFER OF REGISTRATION RIGHTS. In the event this Warrant
is transferred in accordance with Section 1.4, such transferee shall be
entitled to all of the registration rights provided to the Warrantholder
pursuant to this Section 3.
4. EXCHANGE, LOSS OR DESTRUCTION OF WARRANT.
If permitted by Section 1.4 or 1.5 hereof and in accordance with the
provisions thereof, upon surrender of this Warrant to the Company with a duly
executed instrument of assignment and funds sufficient to pay any applicable
transfer taxes, the Company, without charge to the Warrantholder, shall
execute and deliver a new Warrant of like tenor in the name of the assignee
named in such instrument of assignment and this Warrant shall promptly be
canceled. Upon receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant and, in the
case of mutilation, upon surrender and cancellation of this Warrant, the
Company will execute and deliver a new Warrant of like tenor. The term
"Warrant" as used herein includes any Warrants issued in substitution or
exchange of this Warrant.
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<PAGE>
5. OWNERSHIP OF WARRANT.
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof for all purposes (notwithstanding
any notations of ownership or writing hereon made by anyone other than the
Company) and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer as provided in
Sections 1.1, 1.4 and 1.5 or in Section 4.
6. CERTAIN ADJUSTMENTS.
The Exercise Price at which Warrant Shares may be purchased hereunder,
and the number of Warrant Shares to be purchased upon exercise hereof, are
subject to change or adjustment after the Initial Exercise Date as follows:
6.1 GENERAL. The number of Warrant Shares purchasable upon the
exercise of this Warrant and the Exercise Price shall be subject to
adjustment as follows:
(a) In case the Company, after the Initial Exercise Date,
(i) pays a dividend in shares of Common Stock or make a distribution
in shares of Common Stock, (ii) subdivides its outstanding shares
of Common Stock into a greater number of shares of Common Stock,
(iii) combines its outstanding shares of Common Stock into a smaller
number of shares of Common Stock or (iv) issues by reclassification of
its shares of Common Stock other securities of the Company (including
any such reclassification in connection with a consolidation or merger
in which the Company is the surviving corporation), the number of
Warrant Shares purchasable upon exercise of this Warrant shall be
adjusted so that the Warrantholder shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company
that the Warrantholder would have owned or have been entitled to
receive after the happening of any of the events described above, had
this Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made
pursuant to this paragraph (a) shall become effective immediately
after the effective date of such event retroactive to the record date,
if any, for such event.
(b) In case the Company, after the Initial Exercise Date:
(i) issues rights, options or warrants generally to
holders of its outstanding Common Stock, without any charge to
such holders, entitling them at the time of such issuance to
subscribe for or purchase, pursuant to such an issuance, shares
of Common Stock at a price per share that is lower at the record
date for the determination of stockholders entitled to receive
such rights, options or warrants than the then-current Exercise
Price per share
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<PAGE>
of Common Stock (in the event the Company does not have Common
Stock or other equity securities registered pursuant to Section
12(b) or 12(g) of the Exchange Act) or the then-current market
price per share of Common Stock (in the event the Company does
have Common Stock or other equity securities so registered), or
(ii) distributes generally to holders of its shares of
Common Stock evidences of its indebtedness or assets (excluding
cash dividends or distributions and dividends or distributions
referred to in paragraph (a) of this Section 6.1) or rights,
options or warrants, or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of
Common Stock,
appropriate adjustments shall be made to the number of Warrant
Shares purchasable upon the exercise of the Warrant and/or the
Exercise Price in order to preserve the relative rights and interests
of the Warrantholders, such adjustments to be made by the good faith
determination of the Board of Directors of the Company.
6.2 VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may, at its
option, at any time during the term of the Warrant, reduce the then current
Exercise Price to any amount, consistent with applicable law, deemed
appropriate by the Board of Directors of the Company.
6.3 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
the Exercise Price of such Warrant Shares is adjusted, as herein provided,
the Company shall promptly deliver notice of such adjustment to the
Warrantholder of record.
6.4 NO ADJUSTMENT FOR CASH DIVIDENDS. No adjustment in respect of
any cash dividends shall be made during the term of this Warrant or upon
the exercise of this Warrant.
6.5 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION, ETC.
(a) So long as this Warrant remains in effect, the Company will
not merge or consolidate with or into, or sell, transfer or lease all
or substantially all of its property to, any other person unless the
successor or purchaser, as the case may be, shall be the Company or,
if not the Company, shall expressly assume, by supplemental agreement
executed and delivered to the Warrantholders, the performance and
observance of each and every covenant and condition of this Warrant
to be performed and observed by the Company under this Warrant.
(b) In case of any consolidation of the Company with or merger
of the Company into another person or in case of any sale, transfer or
lease to another person of all or substantially all of the assets of
the Company in accordance with
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<PAGE>
paragraph (a) above, the Company or such successor or purchaser, as
the case may be, shall enter into an agreement with the Warrantholders
providing that such Warrantholders 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 that the holder
thereof would have owned or have been entitled to receive after the
happening of such consolidation, merger, sale, transfer or lease
had such Warrant been exercised immediately prior to such action;
PROVIDED, HOWEVER, that no adjustment in respect of cash dividends,
interest or other income on or from such shares or other securities
and property shall be made during the term of this Warrant or upon
the exercise of this Warrant. Such agreement shall provide for
adjustments, which shall be as nearly equivalent as practicable to
the adjustments provided for in this Section 6. The provisions of
this Section 6.5 shall apply similarly to successive consolidations,
mergers, sales, transfers or leases.
7. NO IMPAIRMENT.
The Company shall not take any action (including, without limitation,
amending its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action) to avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at
all times in good faith assist in the carrying out of all such terms and in
the taking of all such actions as may be necessary or appropriate to protect
the rights of the Warrantholders against impairment. Without limiting the
generality of the foregoing, the Company (a) will not change the par value
of any shares of Common Stock receivable upon the exercise of this Warrant to
an amount greater than the amount payable therefor upon such exercise, (b)
will take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares
of Common Stock upon the exercise of this Warrant, (c) will obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under this Warrant and (d) will not undertake any reverse stock
split, combination, reorganization or other reclassification of its capital
stock that would have the effect of making this Warrant exercisable for less
than one share of Common Stock.
Upon the request of a Warrantholder at any time during the period that
this Warrant is outstanding, the Company will acknowledge in writing, in form
reasonably satisfactory to such Warrantholder, the continued validity of this
Warrant and the Company's obligations hereunder.
8. MISCELLANEOUS.
8.1 ENTIRE AGREEMENT. This Warrant constitutes the entire agreement
between the Company and the Warrantholder with respect to this Warrant and
the Warrant Shares.
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8.2 BINDING EFFECTS; BENEFITS. This Warrant shall inure to the
benefit of and shall be binding upon the Company, the Warrantholder
and holders of Warrant Shares and their respective heirs, legal
representatives, successors and assigns. Nothing in this Warrant,
expressed or implied, is intended to or shall confer on any person
other than the Company, the Warrantholder and holders of Warrant Shares,
or their respective heirs, legal representatives, successors or assigns,
any rights, remedies, obligations or liabilities under or by reason of
this Warrant or the Warrant Shares.
8.3 AMENDMENTS AND WAIVERS. This Warrant may not be modified or
amended except by an instrument in writing signed by the Company and the
Warrantholder. The Company, the Warrantholder or holders of Warrant
Shares may, by an instrument in writing, waive compliance by the other
party with any term or provision of this Warrant on the part of such other
party hereto to be performed or complied with. The waiver by any such
party of a breach of any term or provision of this Warrant shall not be
construed as a waiver of any subsequent breach.
8.4 FIDUCIARY DUTIES. The Company and its directors shall owe the
Warrantholder the same fiduciary duties that the Company and its directors
would owe to holders of Warrant Shares and the other stockholders of the
Company.
8.5 SECTION AND OTHER HEADINGS. The section and other headings
contained in this Warrant are for reference purposes only and shall not
be deemed to be a part of this Warrant or to affect the meaning or
interpretation of this Warrant.
8.6 FURTHER ASSURANCES. Each of the Company, the Warrantholder and
holders of Warrant Shares shall do and perform all such further acts and
things and execute and deliver all such other certificates, instruments
and/or powers of attorney as may be necessary or appropriate as any party
hereto may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Warrant.
8.7 NOTICES. All demands, requests, notices and other communications
required or permitted to be given under this Warrant shall be in writing
and shall be deemed to have been duly given if delivered personally or sent
by United States certified or registered first class mail, postage prepaid,
to the parties hereto at the following addresses or at such other address
as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, addressed to:
US Liquids Inc.
71 Quiet Oak Circle
The Woodlands, Texas 77381-3163
Attention: W. Gregory Orr
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<PAGE>
(b) if to the Warrantholder or any holder of Warrant Shares,
addressed to the address of such person appearing on the books of
the Company.
8.8 SEVERABILITY. Any term or provision of this Warrant that
is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable any other
term or provision of this Warrant or affecting the validity or
enforceability of any of the terms or provisions of this Warrant in
any other jurisdiction.
8.9 FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Warrantholder an amount in cash equal to such
fraction multiplied by the then-current market price.
8.10 RIGHTS OF THE HOLDER. No Warrantholder shall, solely by virtue
of this Warrant, be entitled to any rights of a stockholder of the Company,
either at law or in equity.
8.11 GOVERNING LAW. This Warrant shall be deemed to be a contract
made under the laws of the State of Texas and for all purposes shall be
governed by and construed in accordance with the laws of such State
applicable to contracts made and performed in Texas.
8.12 RIGHT TO INFORMATION. The Company will furnish the following
information to the Warrantholder and all holders of Warrant Shares:
(a) as soon as available but in any event within ninety (90)
days after the end of each fiscal year, consolidated balance sheets,
income statements and cash flow statements of the Company, showing
its financial condition as of the close of such fiscal year and the
results of its operations during such year, all of the foregoing
financial statements to be audited by independent accountants of
nationally recognized standing and prepared in accordance with
generally accepted accounting principles ("GAAP");
(b) as soon as available but in any event within thirty (30)
days after the end of each fiscal quarter, the unaudited consolidated
balance sheets, income statements and cash flow statements, showing
the financial condition and results of operations of the Company,
as of the end of each such fiscal quarter and for the then elapsed
portion of the fiscal year, in each case prepared in accordance with
GAAP;
(c) promptly upon their becoming available, copies of any
statements, reports and other communications, if any, which the
Company shall have provided to its stockholders or filed with the
Securities and Exchange Commission or any national securities
exchange; and
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(d) as soon as practicable and in any event not less than
15 days after the end of (i) each fiscal year of the Company and
(ii) the second fiscal quarter of each fiscal year of the Company,
a certificate certifying as to the percentage of Common Stock
(on a fully diluted basis) of the Company that the shares of Common
Stock underlying this Warrant represent.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer as of the date first written above.
US LIQUIDS INC.
By: /s/ W. Gregory Orr
---------------------------
W. Gregory Orr
President
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EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned, the record holder of this Warrant, hereby irrevocably
elects to exercise the right, represented by this Warrant, to purchase
__________ of the Warrant Shares and herewith tenders payment for such
Warrant Shares to the order of __________________________________, in the
amount of $___________ in accordance with the terms of this Warrant. The
undersigned requests that a certificate for such Warrant Shares be registered
in the name of _________________ and that such certificate be delivered to
_______________________________, whose address is
________________________________________.
[NAME OF WARRANTHOLDER]
Date: By:
------------------- --------------------------
Name:
Title:
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WARRANT AGREEMENT
Van Kasper & Company
Sanders Morris Mundy Inc.
c/o Van Kasper & Company
10877 Wilshire Blvd., Ste. 1700
Los Angeles, CA 90024
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 Van Kasper & Company ("VKCO") and Sanders
Morris Mundy Inc. ("SMM"), individually and not as Representatives of the
underwriters referred to in the "Underwriting Agreement" (defined below),
warrants to purchase a number of shares of the "Common Stock" (defined below)
equal to 7% (seven percent) of the aggregate number of shares (including "Option
Shares" (defined in the Underwriting Agreement)) of the Common Stock sold to the
underwriters pursuant to the Underwriting Agreement. VKCO and SMM agree, 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 the day
that begins one year after the Closing Time (defined below) and ending at 5:00
p.m., Los Angeles time, on the day that is five years after the Closing Time.
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 the "Closing Date" (defined in the Underwriting Agreement) or,
to the extent applicable, on the date the Option Shares are purchased pursuant
to the Underwriting Agreement, at the offices of VKCO at 10877 Wilshire
Boulevard, Suite 1700, Los Angeles, California, or such other time and place as
may be agreed upon among the Company, VKCO 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, and capitalized terms used herein without
definition shall have the meanings ascribed to them in the Underwriting
Agreement:
<PAGE>
(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 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 $______ per share (120% of the initial per share price to the
public of the shares of Common Stock sold pursuant to the Underwriting
Agreement), 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 VKCO or 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 "Prospectus" refers to the prospectus which is part of the
Company's Registration Statement on Form S-1 in the form first filed with the
Securities and Exchange Commission (the "Commission") pursuant to Rule 424(b) of
the applicable rules and regulations
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<PAGE>
(the "Rules and Regulations") of the Commission under the Securities Act of
1933, as amended (the "Act").
(h) The term "Registration Statement" refers to the Company's Registration
Statement on Form S-1 (No. 333-______), as amended, when it first became
effective under the Act.
(i) 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 VKCO and 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 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 set forth or incorporated by reference in the Prospectus, 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
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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 VKCO and 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.
(d) UNDERWRITING AGREEMENT. All representations and warranties made by
the Company in Section 1 of the Underwriting Agreement, dated August __, 1997,
by and among the Company and VKCO and SMM, as Representatives of the several
underwriters named therein (the "Underwriting Agreement"), are and will be at
and as of the Closing Time true and correct and are hereby incorporated by
reference into this Agreement as if such representations and warranties were set
forth in full herein.
2.2 REPRESENTATIONS AND WARRANTIES OF VKCO AND SMM. VKCO and SMM
severally 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. Each of VKCO and SMM severally 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 VKCO or SMM, as the case may be; (iv) by
operation of law; or (v) as permitted below in this Section 3. Each of VKCO and
SMM further severally 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.
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(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
August __, 1997, among the Company, Van Kasper & 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 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).
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(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 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
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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.
(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
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<PAGE>
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;
(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
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<PAGE>
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;
(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
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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 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
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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 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
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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 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
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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.
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(f) INDEMNIFICATION.
(i) The Company shall indemnify and hold harmless VKCO, SMM,
the Holders and any underwriter (as defined in the Act) for VKCO, SMM and/or
the Holders, and each person, if any, who respectively controls (within the
meaning of Section 15 of the Act) VKCO, 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 VKCO, 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 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
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consent of VKCO and 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 VKCO
or SMM is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes, without payment by VKCO or 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 VKCO and 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 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
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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 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
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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 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
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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;
A = the Current Market Price per share of the Common Stock,
determined pursuant to Section 6(d) of this Agreement; and
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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;
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<PAGE>
(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 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
(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 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)
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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 VKCO and 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 VKCO and 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 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.
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(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.
(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
-27-
<PAGE>
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 each of Van Kasper
& Company, 10877 Wilshire Boulevard, Suite 1700, Los Angeles, California 90024,
Attn.: President, or to such other address for itself as VKCO 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
-28-
<PAGE>
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 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 CALIFORNIA.
U S LIQUIDS INC.
By:
------------------------------------
Name:
Title:
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written
VAN KASPER & COMPANY
By:
------------------------------
Name:
Title:
SANDERS MORRIS MUNDY INC.
By:
------------------------------
Name:
Title:
-29-
<PAGE>
Exhibit A
FORM OF WARRANT
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE CONDITIONS
SPECIFIED IN A WARRANT AGREEMENT, DATED AUGUST __, 1997, AMONG THE COMPANY, VAN
KASPER & 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
AUGUST __, 1998 AND ENDING 5:00 P.M., LOS ANGELES TIME,
ON AUGUST __, 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 Company, Van Kasper & Company and 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
-30-
<PAGE>
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 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 August __, 1998 until 5:00 p.m., Los Angeles time, on August __, 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 CALIFORNIA.
In witness whereof, the Company has caused this Warrant to be duly
executed.
-31-
<PAGE>
U S LIQUIDS INC.
By:
------------------------------------
Name:
Title:
Attest:
---------------------------------------
Name:
Title:
-32-
<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
-33-
<PAGE>
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)
Address:
- ----------------------------------------
- ----------------------------------------
Signature Dated:
(Signature must conform in all respects to name of holder as specified
on the face of the Warrant)
-34-
<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:
Taxpayer
Number of Shares Identification
Name of Assignee Address of 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).
-35-
<PAGE>
MESA PROCESSING, INC.
3820 N. GROVE
FORT WORTH, TEXAS 76106
September 9, 1996
South Texas By-Products Company, Inc.
C\O Chuck Wolcott
P.O. Box 209
Los Fresnos, Texas
RE: STOCK PURCHASE AGREEMENT
Dear Chuck,
This letter shall represent and contain the major terms and conditions of our
agreement to purchase all of the outstanding stock of South Texas By-Products
Company, Inc. ("STBP"), a Texas corporation and shall be considered as the
contract to purchase the stock. In addition, the parties to this contact will
agree to sign the necessary and customary closing documents in a transaction
of this type.
The basic terms and conditions of the purchase are as follows:
1. Mesa Processing, Inc. ("Purchaser") shall purchase all of the outstanding
stock of STBP on or before September 30, 1996 from Jack C. Wolcott ("Seller")
who owns all the outstanding stock of STBP.
2. The total purchase price for the stock shall be $675,000 payable as
follows:
A. $75,000 cash down payment, $37,500 due at closing (on or before
September 30, 1996) and balance of the down payment of $37,500 due on
January 2, 1997.
B. The balance of the purchase price shall be represented by a promissory
note from the Purchaser to the Seller in the amount of $600,000 payable over
six (6) years in the amount of $100,000 per year. The payments shall be
monthly in the amount of $8,333.33, all principal, beginning January 15,
1997. The note shall be a non-interest bearing note with no penalty for early
payment or full prepayment.
C. Seller shall retain a lien secured by a Deed of Trust for the full amount
of the balance due of $600,000 covering the real property (approximately 184
acres of land) only. The stock will be transferred to the Purchaser by Seller
free and clear of any liens.
D. Seller shall deliver (1) stock certificates representing the shares owned,
properly endorsed, transferring the shares to the Purchaser, (2) resignations
as Director and Officer of STBP.
E. Seller shall deliver (1) the signed Non-Competition Agreement as shown on
Exhibit "A" and (2) the signed Letter of Understanding and Co-Operation
Agreement as shown on Exhibit "B", both attached hereto.
<PAGE>
3. The representations and warranties contained herein will survive the
closing for two years and any losses incurred and not remedied by Seller
within 60 days of presentation of such losses and not excepted to by
Purchaser (i.e., accident claim) shall be deducted from amount owed to
Seller on the promissory note on a pro-rata basis. A separate agreement will
be signed at closing containing the provisions of this paragraph 3.
Seller warrants and represents the following:
A. STBP is a corporation in good standing with State of Texas, which will be
evidenced by a current certificate issues by the State of Texas stating same.
B. Jack C. Walcott is the owner of all the outstanding shares of STBP and all
other shares are owned by STBP and in the treasury as Treasury Stock. There
are no other shareholders or any classes of stock, except Common stock.
C. STBP has no subsidiary companies.
D. STBP has proper title to all assets owned by the Company as shown on the
attached financial statements dated 8-31-96 and all the assets are in a
workable condition for their intended uses.
E. STBP has paid and will continue to pay all taxes (State, Federal, City,
County, etc) due for past operations and through the anticipated closing
date, excluding federal income taxes due for calander year 1996. All
government agency tax returns have been filed that are due and will be filed
that will be due prior to closing.
F. The financial statements of STBP for the years ended December 31, 1994 abd
1995 and the eight months ended August 31, 1996 presented to Purchaser by
Seller present fairly and contain all the assets, liabilities, income and
expenses existing and incurred in prior years and to the date of the last
financial statements to be given to the Purchaser by the Seller. There are no
material omissions or misstatements in these financial statements. The
liabilities as reflected by the above described financial statements are all
of the liabilities that are in existence as of the date of closing and their
are no undisclosed liabilities associated with STBP, except for the possible
liability related to an accident involving an STBP truck in which an
individual has a potential claim of an undetermined amount and which is
covered by a maximum of $20,000 by STBP insurance coverage. The Purchaser
agrees to assume this potential insurance claim for all amounts over $20,000
(or insurance coverage, whichever is greater). Assumption of this claim by
Purchaser is subject to Purchaser reviewing all files and case history with
all appropriate legal counsels and making its own estimate of liability, said
task to be accomplished within two weeks of date hereof.
G. STBP has no commitments or obligations under any employment contracts,
retirement plans, employee benefit plans or any other labor matters.
H. STBP has all necessary permits, licenses and authorizations to conduct
business in the State of Texas as a rendering and grease processing plant
and copies of such documents are available in company records located at the
offices of STBP.
I. STBP is in compliance with all applicable laws governing the grease and
rendering business and is in compliance with any and all agreements which
STBP is a party.
J. STBP is not a Planiff or Defendant in any lawsuit and no other potential
lawsuits are pending, to best of your knowledge, regarding any matter,
except the accident claim mentioned above in paragraph 3F above.
K. STBP shall be operated by present management until the day of closing in
ordinary and customary businesslike manner and no adverse changes will occur
in any asset, contact or positive business arrangements from this date until
closing.
<PAGE>
L. STBP and all owners, officers and directors agree to and will evidence
same in appropriate minutes of meetings of Stockholders and Board of Directors
the sale of the stock of the company to Purchaser. All minutes of
Stockholders and Board of Directors for prior years have been typed and are
signed by the appropriate officers and/or directors and are located in the
corporate records.
M. STBP and all Stockholders of STBP are aware of any environmental matters or
problems from any government agency and consider the company to be in
compliance with all known regulations applicable to STBP.
N. STBP does not expect or anticipate the loss of any raw material suppliers
that affect the amount of raw materials by greater than a two percent (2%)
loss of volume for the immediate thirty (30) days subsequent to closing.
4. Seller shall be allowed to retain the income in the approximate amount of
$11,400 per year which is generated by signage located on property owned by
STBP. This sign income will be collectible by Purchaser when the promissory
note is paid in full.
5. Purchaser shall obtain and pay for a term life insurance policy on
Tom Blanton in the maximum amount of $300,000 and the minimum amount of the
remaining balance of the promissory note and name the Seller as the
beneficiary.
6. Seller agrees to retain as employees for a minimum for one year, if job
performance is satisfactory, the following individuals and to negotiate
employment terms with each prior to closing:
Kenneth B. Wolcott
Dolores Ortega
James Williams
Continued employment shall be contingent on job performance as determined by
Purchaser.
7. Purchaser and/or its representatives shall be requesting copies of and
access to certain company records and documents prior to closing and Seller
agrees to provide these in a timely manner. These documents include but are
not limited to the following items:
Federal Tax Returns and all supporting schedules (1993, 1994, 1995)
Customer List (Vendors and Sales Customers) with any contracts or agreements
All vehicle records (maintenance, mileage, title documents, liens etc.)
Form 940 and 941 returns for last 12 months
Copy of corporate charter, articles, by-laws, minutes of meetings of
stockholders and BOD
Stock records, Treasury Stock certificates
Survey or plot plan of plant site and extra land, plant layout
Detail listing of all assets (Vehicles, Equipment, Accounts Receivable, etc.)
Documentation/copies of all TNRCC permits, city/county permits, etc.
Monthly volume reports 1994, 1995, 1996
List of current employees with annual compensation, tenure, accrued vacation
times
Copies of all insurance policies (Vehicles, Liability, F&EC, Hospitalization,
Work Comp., etc.)
Copies and details on Life Insurance on books
Detailed list of all Accounts Payable as of 8/31/96 and as of closing date.
Copies of all files related to Notes Payable and/or Lease obligations.
8. Seller and Purchaser agree to sign all reasonable and customary documents
associated with the proper and legal closing of a transaction of this nature,
subject to review of documents.
<PAGE>
9. Seller, as defined in the attached Non-Competition Agreement to be signed
at closing, agrees to sign the attached Non-Competition Agreement in which
they agree not to engage or participate in the collection, processing and
sale of restaurant and/or inedible grease and the rendering business
including routes, processing and sales for a period of five (5) years after
closing in the State of Texas.
THE SIGNING OF THIS LETTER CONTRACT SHALL BIND THE PARTIES TO THE PROVISIONS
CONTAINED HEREIN AND PURCHASER AGREES TO ADVANCE $1,000 AS EARNEST MONEY AND
CONSIDERATION TO SELLER AS PART OF THE DOWN PAYMENT TO BE PAID AT CLOSING.
Signed this the 10th day of September, 1996.
Seller: Jack C. Wolcott Purchaser: Mesa Processing, Inc.
/s/ Jack C. Wolcott /s/ Tom Blanton - Pres
- ------------------- -----------------------------
By: Tom Blanton, President
Agreed to Terms and Conditions above.
South Texas By-Products Company, Inc.
/s/ Jack C. Wolcott
- -------------------
By: President
<PAGE>
WARRANTIES AND REPRESENTATIONS
OF
JACK C. WOLCOTT
Reference is made to one certain Stock Purchase Agreement dated September 10,
1996 between Jack C. Wolcott, ("Seller") and holder of 100% of the
outstanding stock of South Texas By-Products Company, Inc. ("STBP") and Mesa
Processing, Inc. ("Purchaser") wherein Seller agreed to sign a separate
document containing all of the warranties and representations contained
therein.
The representations and warranties contained herein will survive the closing
for two years and any losses incurred and not remedied by Seller within 60
days of presentation of such losses and not excepted to by Purchaser (i.e.,
accident claim) shall be deducted from amount owed to Seller on the
promissory note on a pro-rata basis.
Seller warrants and represents the following:
A. STBP is a corporation in good standing with State of Texas, which will be
evidenced by a current certificate issues by the State of Texas stating same.
B. Jack C. Wolcott is the owner of all the outstanding shares of STBP and all
other shares are owned by STBP and in the treasury as Treasury Stock. There
are no other shareholders or any classes of stock, except Common stock.
C. STBP has no subsidiary companies.
D. STBP has proper title to all assets owned by the Company as shown on the
attached financial statements dated 8-31-96 and all the assets are in a
workable condition for their intended uses.
E. STBP has paid and will continue to pay all taxes (State, Federal, City,
County, etc.) due for past operations and through the anticipated closing
date, excluding federal income taxes due for calendar year 1996. All
government agency tax returns have been filed that are due and will be filed
that will be due prior to closing.
F. The financial statements of STBP for years ended December 31, 1994 and
1995 and the eight months ended August 31, 1996 (Attached hereto as Exhibit
"A" and "A-1") presented to Purchaser by Seller present fairly and contain
all the assets, liabilities, income and expenses existing and incurred in
prior years and to the date of the last financial statements to be given to
the Purchaser by the Seller. There are no material omissions or misstatements
in these financial statements. The liabilities as reflected by the above
described financial statements are all of the liabilities that are in
existence as of the date of closing and their are no undisclosed liabilities
associated with STBP, except for the possible liability related to an
accident involving an STBP truck in which an individual has a potential claim
of an undetermined amount and which is covered by a maximum of $20,000 by
STBP insurance coverage. The Purchaser agrees to assume this potential
insurance claim for all amounts over $20,000 (or insurance coverage,
whichever is greater).
G. STBP has no commitments or obligations under any employment contracts,
retirement plans, employee benefit plans or any other labor matters.
H. STBP has all necessary permits, licenses and authorizations to conduct
business in the State of Texas as a rendering and grease processing plant and
copies of such documents are available in company records located at the
offices of STBP.
<PAGE>
I. STBP is in compliance with all applicable laws governing the grease and
rendering business and is in compliance with any and all agreements which
STBP is a party.
J. STBP is not a Planiff or Defendant in any lawsuit and no other potential
lawsuits are pending, to best of your knowledge, regarding any matter, except
the accident claim mentioned above in paragraph 3F above.
K. STBP shall be operated by present management until the day of closing in
ordinary and customary businesslike manner and no adverse changes will occur
in any asset, contact or positive business arrangement from this date until
closing.
L. STBP and all owners, officers and directors agree to and will evidence
same in appropriate minutes of meetings of Stockholders and Board of
Directors the sale of the stock of the company to Purchaser. All minutes of
Stockholders and Board of Directors for prior years have been typed and are
signed by the appropriate officers and/or directors and are located in the
corporate records.
M. STBP and all stockholders of STBP are aware of any environmental matters
or problems from any government agency and consider the company to be in
compliance with all known regulations applicable to STBP.
N. STBP does not expect or anticipate the loss of any raw material suppliers
that affect the amount of raw materials by greater than a two percent (2%)
loss of volume for the immediate thirty (30) days subsequent to closing.
SIGNED THIS THE 10TH DAY OF SEPTEMBER, 1996
JACK C. WOLCOTT
/s/ Jack C. Wolcott
- -------------------
<PAGE>
NON-COMPETITION AGREEMENT
-------------------------
JACK C. WOLCOTT
THIS AGREEMENT is made this 10 day of September, 1996, between Jack C.
Wolcott ("Seller") and Mesa Processing, Inc. ("Buyer"):
Buyer has commenced or intends to commence operation of the restaurant,
inedible grease collection, processing and/or sales business and rendering
business (the "business"), which it has purchased from Seller by purchasing
all the stock of South Texas By-Products Company, Inc. ("STBP"), and which is
located in Los Fresnos, Texas.
Seller, the previous owner of STBP, is well acquainted with the business,
possessing an extensive and intimate knowledge of its customers and business
activities and is well known to its customers and the general public and is
highly regarded within the trade area of the business.
IN CONSIDERATION of the mutual agreements contained herein and other
valuable consideration, IT IS AGREED as follows:
SECTION 1. RESTRICTIONS. For a period of five (5) years after the date of
this agreement, Seller shall not, himself or as a member, employee or agent
of any partnership, joint venture or other firm, or as an officer, agent,
employee, director, or stockholder of any corporation, or as an employee or
agent of any person or firm, directly or indirectly own, manage, operate,
distribute, jointly control or participate in the ownership, management,
operation or control, or be connected in any manner with any restaurant
inedible, grease collection processing and/or sales business and rendering
grease business within the State of Texas. Seller acknowledges that this area
represents the area in which it conducted the business sold to Buyer.
SECTION 2. CONSIDERATION.
In consideration of the covenants, agreements and undertaking of
Seller contained in this agreement, Seller acknowledges it is receiving
benefits pursuant to the terms of that certain Stock Purchase Agreement
between Seller and Buyer dated Sept. 10, 1996.
SECTION 3. VIOLATIONS AND REMEDIES.
(1) It is agreed between Buyer and Seller that a violation of any
provision of this agreement, Seller will constitute irreparable injury to
Buyer, immediately authorizing him to obtain an injunction form a court
of competent jurisdiction, enjoining Seller and any business enterprise with
which Seller may be associated from further violations, in addition to all
other rights and remedies to which Buyer may be entitled.
(2) In the event of violation of this agreement by Seller and in
addition to all other remedies, Buyer will be entitled to refuse to make the
payments called for by that certain Promissory Note executed by Buyer
pursuant to that certain Stock Purchase Agreement dated Sept. 10, 1996, after
Buyer receives a temporary or permanent injunction or judgment in its favor
against Seller or defined above.
<PAGE>
SECTION 4. NOTICE
(1) Any notice required or permitted by any party to this
agreement shall be in writing and may be delivered personally or by certified
mail, return receipt requested, at the party's address indicated below, and
any notice will be effective upon delivery in the case of personal delivery
or upon depositing in the mail, postage paid, in the case of delivery by
mail. The addresses of the parties are as follows:
SELLER:
Jack C. Wolcott
P.O. Box 335
Port Isabel, Tx 78578
BUYER:
Mesa Processing, Inc.
3701 N. Grove
Fort Worth, Texas 76106
(2) The addresses of the parties for the purpose of notice may
be changed by notice given in accordance with this Section 4.
SECTION 5. ATTORNEYS' FEE AND COSTS.
If any action at law or in equity is necessary to enforce this
agreement, the prevailing party shall be entitled to reasonable attorneys'
fees, costs, and other disbursements reasonably incurred in such action in
addition to all other relief to which the party may be entitled.
SECTION 6. GENERAL.
(1) Section headings used in this agreement are intended for
convenience only and not necessarily to describe the content of a particular
section and, therefore, shall not be construed as limiting the effect of any
provision of this agreement.
(2) This agreement is binding upon and inures to the benefit
of the parties, their successors and assigns.
(3) If any restriction contained in this agreement is found by
a court of competent jurisdiction to be invalid or unenforceable, the
restriction shall not be given effect to the extent of the invalidity or
unenforceability found by shall, nevertheless, be given to the fullest extent
permitted by law.
EXECUTED in multiple originals as of the date first above written.
/s/ Jack C. Wolcott
-------------------
JACK C. WOLCOTT
MESA PROCESSING, INC.
By: /s/ Tom Blanton, President
---------------------------
TOM BLANTON, PRESIDENT
<PAGE>
STOCK DISTRIBUTION AGREEMENT
This Stock Distribution Agreement (the "Agreement") is made between and
among the person whose name is set forth as the "Holder" on the signature
page hereto (the "Holder") and U S LIQUIDS INC., a Delaware corporation
("Liquids"), effective as of June 16, 1997 (the "Effective Date").
R E C I T A L S:
Contemporaneous with the execution of this Agreement, Liquids has
acquired (the "Acquisitions") all of the outstanding capital stock of
American Wastewater Inc. ("AWW"), a Texas corporation, and Mesa Processing,
Inc. ("Mesa"), T&T Grease Service, Inc. ("T&T") and Phoenix Fats & Oils, Inc.
("Phoenix"), each a Texas corporation under common ownership. In connection
with the Acquisitions, Liquids has agreed to register for resale certain of
the shares of Liquids common stock, par value $.01 per share (the "Liquids
Stock"), beneficially owned by the Holder. For purposes of this Agreement,
the shares of Liquids Stock beneficially owned by the Holder as of the date
hereof is referred to as the "Holder's Stock." The portion of the Holder's
Stock with respect to which the Holder has registration rights hereunder and
with respect to which Liquids has a registration obligation hereunder is
referred to as the "Registerable Stock."
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. REGISTRATION OF LIQUIDS STOCK. Within nine (9) months after the
execution of this Agreement, Liquids will file with the SEC a registration
statement (the "Registration Statement") on an appropriate form under the
Securities Act of 1933, as amended (the "Securities Act"), registering for
resale up to thirty percent (30%) of each Holder's Stock (subject to and in
compliance with the applicable securities laws and other laws regarding such
resale), and will use its commercially reasonable efforts to cause the
Registration Statement to become effective as soon as practicable, and
thereafter, until the termination of this Agreement, to keep the Registration
Statement effective and, if necessary, to amend and supplement the same. Any
shares of Registrable Stock not resold by the Holder during the period in
which those shares are registered for resale will continue to be registered
for resale, provided however, that Liquids will have no obligation to
register or to continue the registration of any such shares for resale
following the expiration of two (2) years from the effective date of the
Registration Statement. The registration rights granted under this Agreement
shall be nontransferable. The Holder shall cooperate fully with Liquids by
furnishing all information
<PAGE>
concerning the Holder required or appropriate for preparation and inclusion
in the Registration Statement. If permitted by applicable law (and unless
prohibited by the terms of any agreement entered into by Liquids prior to the
date hereof), Liquids shall include the Registrable Stock in any shelf
registration statement, filed by Liquids registering shares for issuance in
connection with future acquisition by Liquids.
2. REGISTRATION PROCEDURES.
(a) In performing its obligations under Section 1, Liquids will,
subject to the limitations provided herein, use its commercially reasonable
efforts to:
(i) prepare and file with the U.S. Securities and Exchange
Commission (the "SEC") such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith
(the "Prospectus") as may be necessary to keep the Registration
Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Stock covered by the Registration Statement until such time as all
such Registrable Stock have been disposed of in accordance with the
intended method of disposition by the Holder;
(ii) furnish to the Holder one signed and such number of
conformed copies of the Registration Statement and of each such
amendment and supplement thereto (in each case including all
exhibits), such number of copies of the Prospectus (including each
preliminary prospectus and any summary prospectus) and any other
Prospectus filed under Rule 424 under the Securities Act, and such
other documents, as the Holder may reasonably request;
(iii) (a) register or qualify the Registrable Stock under
such other securities or Blue Sky laws of such jurisdictions as the
Holder shall reasonably request, (b) keep such registration or
qualification in effect for so long as the Registration Statement
remains in effect, and (c) take any other action which may be
reasonably necessary or advisable to enable the Holder to consummate
the disposition of the Registrable Stock in such jurisdictions, except
that Liquids shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this subdivision
(iii) be obligated to be so qualified, to consent to general service
of process in any such jurisdiction, or to take any such action which
would impose unreasonable expense on Liquids;
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<PAGE>
(iv) cause the Registrable Stock to be registered with or
approved by such other United States federal or state governmental
agencies or authorities as may be necessary to enable the Holder to
consummate the disposition of the Registrable Stock;
(v) notify the Holder at any time when a Prospectus is required
to be delivered under the Securities Act, upon discovery that or upon
the happening of any event as a result of which, the Prospectus
included in the Registration Statement, as then in effect, 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 in the light of the circumstances under which
they were made, and prepare and furnish to the Holder a reasonable
number of copies of a supplement to or an amendment of such Prospectus
as may be necessary so that, as thereafter delivered to the purchasers
of such securities, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were
made;
(vi) list or qualify the Registrable Stock on any securities
exchange or quotation system of any national securities association on
which any of the Liquids Stock is then listed or qualified;
(vii) if requested by the Holder, promptly incorporate in a
supplement or post-effective amendment such information as the Holder
reasonably requests to be included therein with respect to the number
of shares of the Registrable Stock being sold by the Holder and the
Holder's plan of distribution and promptly make all required filings
of such prospectus supplement or post-effective amendment;
(viii) cooperate with the Holder to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing shares of Registrable Stock to be sold under the
Registration Statement, in such denominations and registered in such
names as the Holder may reasonably request;
(ix) if the offering is underwritten, furnish at the request
of the Holder on the date that the Holder's Stock is delivered to any
underwriters for sale pursuant to such registration and after the
Registration Statement has become effective: (A) an opinion dated such
date of counsel representing Liquids, addressed to the
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underwriters and to the Holder, stating that such Registration
Statement has become effective under the Securities Act and that (1)
to the actual knowledge of such counsel (as that term is defined in
the opinion), no stop order suspending the effectiveness thereof has
been issued and no proceedings for that purpose have been instituted
or are pending or have been threatened under the Securities Act,
(2) the Registration Statement, the Prospectus, and each amendment
or supplement thereof comply as to form in all material respects with
the requirements of the Securities Act and the applicable rules and
regulations of the SEC thereunder (except that such counsel need
express no opinion as to financial statements contained therein) and
(3) to such other ordinary and customary matters as may reasonably be
requested by counsel for such underwriters or by the Holder or its
counsel, and (B) a letter dated such date from the independent public
accountants retained by Liquids, addressed to such underwriters and
to the Holder, stating that they are independent public accountants
within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of Liquids included in the
Registration Statement or the Prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other ordinary and customary
financial matters (including information as to the period ending no
more than five business days prior to the date of such letter) with
respect to the registration of which such letter is being given as
such underwriters or the Holder may reasonably request; provided
however, the parties hereto understand and agree that Liquids cannot
as a matter of right or law require its counsel or independent public
accountants to render and deliver any opinion as to any matter which
they are unwilling to render and deliver; and
(x) make available for inspection by the Holder, any
underwriting participating in any distribution pursuant to such
Registration Statement on behalf of the Holder, and by any attorney,
accountant or other professional retained by the Holder or any such
underwriter, all relevant and non-confidential financial and other
pertinent corporate records and information reasonably requested by
the Holder, or any such underwriter, attorney, accountant or
professional in connection with such Registration Statement.
(b) All expenses incident to Liquids' performance of its obligations
under this Agreement, including all registration
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and filing fees, fees and expenses of compliance with securities and Blue
Sky laws, printing expenses, fees and disbursements of Liquids' counsel,
independent certified public accountants, and other persons retained by
Liquids (all such expenses being herein called "Registration Expenses")
will be borne by Liquids. The Holder shall be responsible for all selling
fees, expenses, discounts and commissions relating to Holder's Stock
(including the Registrable Stock) and for the fees and expenses of counsel
and other persons engaged by the Holder.
3. OBLIGATIONS OF HOLDER.
(a) The Holder agrees that he will offer and sell the Holder's Stock
in compliance with all applicable state and federal securities laws, except
those laws compliance with which are within the control of Liquids and
which are not within the control of the Holder. Specifically, without
limitation, the Holder agrees as follows:
(i) The Holder agrees not to use any prospectus (as that term
is defined under the Securities Act) for the purpose of offering or
selling the Registrable Stock to the public except for the Prospectus,
as the same may be supplemented and amended from time to time.
(ii) Neither the Holder nor any affiliate of the Holder shall
engage in any practice which would violate Rule 10b-6 promulgated
under the Securities Exchange Act of 1934 ("Exchange Act").
(iii) Neither the Holder nor any affiliate of the Holder
shall solicit purchases of Holder's Stock to facilitate the
distribution of the Registrable Stock in violation of Rule 10b-2
promulgated under the Exchange Act.
(iv) Neither the Holder nor any affiliate of the Holder shall
effect any stabilizing transactions to facilitate the offer and sale
of the Registrable Stock to the public in violation of Rule 10b-7
promulgated under the Exchange Act.
As used above, the term "affiliate" shall not include Liquids.
(b) The Holder agrees to promptly notify Liquids as and when any of
the Registrable Stock is sold and when the Holder elects to terminate all
further offers and sales of Shares pursuant to the Registration Statement.
The Holder acknowledges that any of the Registrable Stock which has not
been sold within two (2) years after the effective date of the
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<PAGE>
Registration Statement or any earlier termination of the distribution of
the Registrable Stock will be removed from registration by means of a
post-effective amendment to the Registration Statement.
(c) It shall be a condition precedent to the obligations of Liquids
to take any action with respect to registering the Registrable Stock that
the Holder furnish Liquids in writing such information regarding the
Holder, the Holder's Stock and other securities of Liquids held by the
Holder, and the distribution of such Holder's Stock as Liquids may from
time to time reasonably request in writing. If the Holder refuses to
provide Liquids with any of such information on the grounds that it is not
necessary to include such information in the Registration Statement,
Liquids may exclude the Registrable Stock from the Registration Statement.
The Holder agrees that upon receipt of any notice from Liquids of the
happening of any event of the kind described in Section 2(a)(v), the Holder
will forthwith discontinue the Holder's disposition of shares pursuant to
the Registration Statement until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2(a)(vii) and,
if so directed by Liquids, will deliver to Liquids (at Liquids' expense)
all copies, other than permanent file copies then in such Holder's
possession, of the Prospectus current at the time of receipt of such
notice.
(d) In the event the Holder intends to sell any Registrable Stock
under the Registration Statement, the Holder agrees to provide written
notice to Liquids at least two (2) business days prior to making any offers
or sales of the Registrable Stock, which written notice shall specify the
number of Registrable Stock which the Holder proposes to offer and sell and
which shall describe any changes to the information set forth in the
Registration Statement and the prospectus (the "Prospectus") included as a
part thereof, as the same may have been amended and supplemented from time
to time, concerning the Holder or the plan of distribution of the
Registrable Stock. The Holder represents and warrants that such
information as so updated will be true and correct and will not omit
information necessary to make the statements contained therein not
misleading. Within two (2) business days after its receipt of such written
notice, Liquids shall (i) notify the Holder that no supplement or amendment
is then required with respect to the Prospectus, or (ii) notify the Holder
that such a supplement or amendment is required, in which event Liquids
shall prepare and file with the SEC such supplement or amendment as soon as
reasonably practicable and shall endeavor to cause any such amendment to
become effective. Immediately after filing a supplement with the SEC or
immediately after an amendment is declared effective by the
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<PAGE>
SEC, whichever is appropriate, Liquids will provide copies thereof to the
Holder, as provided in Section 2, and the Holder may then commence offers
and sales of Registrable Stock under the Registration Statement.
(e) The Holder agrees that for the period ending on the second
anniversary of the issuance of the Holder's Stock he will not sell,
exchange, pledge or otherwise transfer any of the Holder's Stock except in
transactions (i) made pursuant to the Registration Statement, or (ii) which
are exempt from the registration requirements of the Securities Act and all
applicable state securities laws, and Liquids is provided with an opinion
of counsel to the Holder and other evidence as may be reasonably
satisfactory to Liquids to the effect that such transfer will not be in
violation of the Securities Act and all applicable state securities laws.
4. PUBLIC OFFERING BY LIQUIDS. Notwithstanding the registration rights
granted to the Holder under this Agreement, in the event Liquids files a
registration statement for an underwritten public offering of Liquids Stock
(a "Public Offering") within two (2) years of the effective date of the
Registration Statement, then upon the request of Liquids' underwriter in such
Public Offering, the Holder agrees to enter into an agreement pursuant to
which the Holder will be prohibited from transferring the Registrable Stock
for such period of time, not to exceed six (6) months after completion of the
Public Offering, as Liquids' underwriter may request. In the event Liquids
makes a Public Offering and Liquids' underwriter imposes transfer
restrictions on the sale of Registrable Stock, the period during which the
Registration Statement will be kept current shall not be extended beyond the
maximum two-year period from the effective date of the Registration Statement
as provided in Section 1.
5. POOLING RESTRICTIONS. It is a material factor to Liquids in
entering into this Agreement that the transactions contemplated by this
Agreement be treated as a "pooling-of-interests" for accounting purposes.
Therefore, notwithstanding any other provision of this Agreement, prior to
notice by Liquids of the publication and dissemination by Liquids of
consolidated financial results which include results of combined operations
of each of the Mesa Companies and AWW (as that term is defined in the Merger
Agreement) for at least a thirty-day period on a consolidated basis following
the closing date of the Merger Agreement, the Holder shall not sell or
otherwise transfer or dispose of, or in any other way reduce his risk
relative to, any shares of the Holder's Stock (including, by way of example
and not limitation, engaging in put, call, short-sale, straddle or similar
market transactions). The Holder, therefore, covenants and agrees that he
will fulfill any requests reasonably made of him by Liquids in writing if
made by
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<PAGE>
Liquids for the purpose of satisfying the requirements of the Securities
Release Nos. 130 and 135 relating to "pooling of interests" accounting.
Additionally, the certificates evidencing the Holder's Stock will bear a
legend substantially in the form set forth below and containing such other
information as Liquids may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED, AND U S LIQUIDS INC. SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED SALE, TRANSFER OR ASSIGNMENT PRIOR TO THE
PUBLICATION AND DISSEMINATION OF FINANCIAL STATEMENTS BY U S LIQUIDS
INC. WHICH INCLUDE THE RESULTS OF AT LEAST THIRTY (30) DAYS OF
COMBINED OPERATIONS OF U S LIQUIDS INC. AND THE MESA COMPANIES FOR
WHICH THESE SHARES ARE ISSUED. UPON THE WRITTEN REQUEST OF THE RECORD
HOLDER OF THIS CERTIFICATE DIRECTED TO U S LIQUIDS INC., THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENTS) WHEN THE REQUIREMENTS HAVE BEEN MET.
Liquids agrees to make publication and dissemination of its consolidated
financial results which includes results of combined operations of Liquids,
the Mesa Companies (as defined in the Merger Agreement), and AWW for at least
a thirty (30) day period on a consolidated basis following the closing date
of the Merger Agreement as soon as practicable following the end of the first
full calendar month ending after such thirty (30) day period.
6. INDEMNIFICATION.
(a) INDEMNIFICATION BY LIQUIDS. To the extent permitted by law,
Liquids will, and hereby does, indemnify and hold harmless the Holder
against any losses, claims, damages or liabilities to which the Holder may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and Liquids will reimburse the Holder
for any legal or any other expenses reasonably incurred by him in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; PROVIDED that Liquids shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action
or proceeding
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<PAGE>
in respect thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance
upon and in conformity with written information pertaining to the Holder,
or, as to periods prior to the date hereof, to AWW or its business or
activities, or to any other business or activity in which the Holder has
been involved in any way, in each case furnished to Liquids by or for the
Holder, and PROVIDED FURTHER that Liquids shall not be liable to the
Holder or any other person to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon any violation by him of the Securities Act or the
Exchange Act. Nothing contained herein shall limit the rights of the
Holder to receive indemnification from Liquids to which the Holder may be
entitled other than as set forth herein.
(b) INDEMNIFICATION BY THE HOLDER. To the extent permitted by law,
the Holder will, and hereby does, indemnify and hold harmless (in the same
manner and to the same extent as set forth in subdivision (a) of this
Section) each underwriter, each person (including an individual or a legal
entity) who controls such underwriter within the meaning of the Securities
Act, Liquids, each director of Liquids, each officer of Liquids and each
other person, if any, who controls Liquids within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such Registration Statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon
and in strict conformity with written information pertaining to the Holder,
or, as to periods prior to the date hereof, to AWW or its business or
activities, or to any other business or activity in which the Holder has
been involved in any way, furnished to Liquids by the Holder expressly for
use in the preparation of such Registration Statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement,
and with respect to any violation by the Holder of the Securities Act or
the Exchange Act; provided however, that the liability of the Holder
hereunder shall be limited to the proportion of any loss, claim, damage, or
liability which is equal to the proportion that the public offering price
of shares sold by the Holder under such Registration Statement bears to the
total public offering price of shares sold thereunder, but not to exceed
the proceeds received by the Holder from the sale of the Holder's Stock
covered by such Registration Statement.
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(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations under the preceding subdivisions of this Section,
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties
actually exists in respect of such claim or if the defendants in any such
action include both the indemnified party and the indemnifying party, and
the indemnified party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to the indemnifying party (in either of which cases the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of
such action, with the expenses and fees of such separate counsel and other
expenses relating to such participation to be reimbursed by the
indemnifying party as incurred), the indemnifying party shall be entitled
to participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so as
to assume the defense thereof, the indemnifying party shall not be liable
to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without
the consent of the indemnified party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding subdivisions of this Section (with appropriate
modifications) shall be given by Liquids and the Holder with respect to any
required registration or other qualification of securities under any
Federal or state law or regulation of any governmental authority other than
the Securities Act.
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(e) INDEMNIFICATION PAYMENTS. The indemnification required by this
Section shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) CONTRIBUTION. If the indemnification provided for in this
Section 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 loss, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified
parties in connection with the actions which resulted in such losses,
claims, damage, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue statement of
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such 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 above, any legal or other
fees or expenses reasonably 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 Section were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. If indemnification is available under this Section, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided herein without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable
consideration provided for in this Section.
7. 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
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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 Holder at
the address reflected on Liquids' records, and to Liquids at the address 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.
HOLDER:
-------------------------
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LIQUIDS: U S Liquids Inc.
411 N. Sam Houston Parkway East, Suite 400
Houston, Texas 77060
ATTN: Chief Executive Officer
WITH A COPY TO:
Len Cason
Hartzog Conger & Cason
1600 Bank of Oklahoma Plaza
Oklahoma City, Oklahoma 73102
8. INTEGRATED AGREEMENT. This Agreement contains and constitutes the
entire agreement between and among the parties with respect to the matters
set forth herein and supersedes all prior agreements and understandings
between the parties hereto relating to the subject matter hereof. There are
no agreements, understandings, restrictions, warranties or representations
among the parties relating to the subject matter hereof other than those set
forth or referred to herein. This instrument is not intended to have any
legal effect whatsoever, or to be a legally binding agreement or any evidence
thereof, until it has been signed by all parties hereto.
9. BINDING EFFECT. This Agreement shall be binding on and enforceable
by the Holder and by Liquids and its successors. No transferee of any of the
Holder's Stock shall acquire any rights under this Agreement except with the
written consent of Liquids, which may be withheld for any reason.
10. CONSTRUCTION. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of
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Texas. All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine or neuter gender thereof or to the plurals of each,
as the identity of the person or persons or the context may require. The
descriptive headings contained in this Agreement are for reference purposes
only and are not intended to describe, interpret, define or limit the scope,
extent or intent of this Agreement or any provision contained herein.
11. 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 provisions shall be deemed modified so as to constitute a
provision conforming as nearly as possible to such invalid, illegal, void or
unenforceable provisions while still remaining valid and enforceable, and the
remaining terms or provisions contained herein shall not be affected thereby.
12. TERMINATION. If the Merger Agreement is terminated for any reason
or the AWW Merger is not consummated in accordance with the terms thereof,
this Agreement shall immediately terminate and be of no further force or
effect.
13. RULE 144 REPORTING. For so long as the Holder is otherwise eligible
to sell any of the Holder's Stock in accordance with Rule 144 under the
Securities Act, Liquids agrees with the Holder as follows:
(a) Liquids shall make and keep public information available, as
those terms are understood and defined in Rule 144, at all times from and
after ninety (90) days following the effective date of the first
registration of Liquids under the Securities Act of an offering of its
securities to the general public.
(b) Liquids shall file with the SEC in a timely manner all reports
and other documents as the SEC may prescribe under Section 13(a) or 15(d)
of the Exchange Act at any time after Liquids has become subject to such
reporting requirements of the Exchange Act.
(c) Liquids shall furnish to the Holder upon request (i) a written
statement by Liquids as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement of Liquids for an
offering of its securities to the general public), and of the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), (ii) a copy of the most recent annual or quarterly
report of Liquids, and (iii) such other reports and documents so filed as
the Holder may
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<PAGE>
reasonably request to avail himself of any rule or regulation of the
SEC allowing the Holder to sell any of the Holder's Stock without
registration.
[Intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates shown below.
HOLDER:
/s/ EARL J. BLACKWELL
------------------------------
Date: June 17, 1997
------------------------
LIQUIDS: U S LIQUIDS INC.
By: /s/ W. GREGORY ORR
--------------------------
Chief Executive Officer
Date: June 17, 1997
------------------------
<PAGE>
STOCK DISTRIBUTION AGREEMENT
This Stock Distribution Agreement (the "Agreement") is made between and
among the person whose name is set forth as the "Holder" on the signature
page hereto (the "Holder") and U S LIQUIDS INC., a Delaware corporation
("Liquids"), effective as of June 16, 1997 (the "Effective Date").
R E C I T A L S:
Contemporaneous with the execution of this Agreement, Liquids has
acquired (the "Acquisitions") all of the outstanding capital stock of
American Wastewater Inc. ("AWW"), a Texas corporation, and Mesa Processing,
Inc. ("Mesa"), T&T Grease Service, Inc. ("T&T") and Phoenix Fats & Oils, Inc.
("Phoenix"), each a Texas corporation under common ownership. In connection
with the Acquisitions, Liquids has agreed to register for resale certain of
the shares of Liquids common stock, par value $.01 per share (the "Liquids
Stock"), beneficially owned by the Holder. For purposes of this Agreement,
the shares of Liquids Stock beneficially owned by the Holder as of the date
hereof is referred to as the "Holder's Stock." The portion of the Holder's
Stock with respect to which the Holder has registration rights hereunder and
with respect to which Liquids has a registration obligation hereunder is
referred to as the "Registerable Stock."
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. REGISTRATION OF LIQUIDS STOCK. Within nine (9) months after the
execution of this Agreement, Liquids will file with the SEC a registration
statement (the "Registration Statement") on an appropriate form under the
Securities Act of 1933, as amended (the "Securities Act"), registering for
resale up to thirty percent (30%) of each Holder's Stock (subject to and in
compliance with the applicable securities laws and other laws regarding such
resale), and will use its commercially reasonable efforts to cause the
Registration Statement to become effective as soon as practicable, and
thereafter, until the termination of this Agreement, to keep the Registration
Statement effective and, if necessary, to amend and supplement the same. Any
shares of Registrable Stock not resold by the Holder during the period in
which those shares are registered for resale will continue to be registered
for resale, provided however, that Liquids will have no obligation to
register or to continue the registration of any such shares for resale
following the expiration of two (2) years from the effective date of the
Registration Statement. The registration rights granted under this Agreement
shall be nontransferable. The Holder shall cooperate fully with Liquids by
furnishing all information
<PAGE>
concerning the Holder required or appropriate for preparation and inclusion
in the Registration Statement. If permitted by applicable law (and unless
prohibited by the terms of any agreement entered into by Liquids prior to the
date hereof), Liquids shall include the Registrable Stock in any shelf
registration statement, filed by Liquids registering shares for issuance in
connection with future acquisition by Liquids.
2. REGISTRATION PROCEDURES.
(a) In performing its obligations under Section 1, Liquids will,
subject to the limitations provided herein, use its commercially reasonable
efforts to:
(i) prepare and file with the U.S. Securities and Exchange
Commission (the "SEC") such amendments and supplements to the
Registration Statement and the prospectus used in connection therewith
(the "Prospectus") as may be necessary to keep the Registration
Statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Stock covered by the Registration Statement until such time as all
such Registrable Stock have been disposed of in accordance with the
intended method of disposition by the Holder;
(ii) furnish to the Holder one signed and such number of
conformed copies of the Registration Statement and of each such
amendment and supplement thereto (in each case including all
exhibits), such number of copies of the Prospectus (including each
preliminary prospectus and any summary prospectus) and any other
Prospectus filed under Rule 424 under the Securities Act, and such
other documents, as the Holder may reasonably request;
(iii) (a) register or qualify the Registrable Stock under
such other securities or Blue Sky laws of such jurisdictions as the
Holder shall reasonably request, (b) keep such registration or
qualification in effect for so long as the Registration Statement
remains in effect, and (c) take any other action which may be
reasonably necessary or advisable to enable the Holder to consummate
the disposition of the Registrable Stock in such jurisdictions, except
that Liquids shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this subdivision
(iii) be obligated to be so qualified, to consent to general service
of process in any such jurisdiction, or to take any such action which
would impose unreasonable expense on Liquids;
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<PAGE>
(iv) cause the Registrable Stock to be registered with or
approved by such other United States federal or state governmental
agencies or authorities as may be necessary to enable the Holder to
consummate the disposition of the Registrable Stock;
(v) notify the Holder at any time when a Prospectus is required
to be delivered under the Securities Act, upon discovery that or upon
the happening of any event as a result of which, the Prospectus
included in the Registration Statement, as then in effect, 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 in the light of the circumstances under which
they were made, and prepare and furnish to the Holder a reasonable
number of copies of a supplement to or an amendment of such Prospectus
as may be necessary so that, as thereafter delivered to the purchasers
of such securities, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were
made;
(vi) list or qualify the Registrable Stock on any securities
exchange or quotation system of any national securities association on
which any of the Liquids Stock is then listed or qualified;
(vii) if requested by the Holder, promptly incorporate in a
supplement or post-effective amendment such information as the Holder
reasonably requests to be included therein with respect to the number
of shares of the Registrable Stock being sold by the Holder and the
Holder's plan of distribution and promptly make all required filings
of such prospectus supplement or post-effective amendment;
(viii) cooperate with the Holder to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing shares of Registrable Stock to be sold under the
Registration Statement, in such denominations and registered in such
names as the Holder may reasonably request;
(ix) if the offering is underwritten, furnish at the request
of the Holder on the date that the Holder's Stock is delivered to any
underwriters for sale pursuant to such registration and after the
Registration Statement has become effective: (A) an opinion dated such
date of counsel representing Liquids, addressed to the
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<PAGE>
underwriters and to the Holder, stating that such Registration
Statement has become effective under the Securities Act and that (1)
to the actual knowledge of such counsel (as that term is defined in
the opinion), no stop order suspending the effectiveness thereof has
been issued and no proceedings for that purpose have been instituted
or are pending or have been threatened under the Securities Act,
(2) the Registration Statement, the Prospectus, and each amendment
or supplement thereof comply as to form in all material respects with
the requirements of the Securities Act and the applicable rules and
regulations of the SEC thereunder (except that such counsel need
express no opinion as to financial statements contained therein) and
(3) to such other ordinary and customary matters as may reasonably be
requested by counsel for such underwriters or by the Holder or its
counsel, and (B) a letter dated such date from the independent public
accountants retained by Liquids, addressed to such underwriters and
to the Holder, stating that they are independent public accountants
within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of Liquids included in the
Registration Statement or the Prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and such
letter shall additionally cover such other ordinary and customary
financial matters (including information as to the period ending no
more than five business days prior to the date of such letter) with
respect to the registration of which such letter is being given as
such underwriters or the Holder may reasonably request; provided
however, the parties hereto understand and agree that Liquids cannot
as a matter of right or law require its counsel or independent public
accountants to render and deliver any opinion as to any matter which
they are unwilling to render and deliver; and
(x) make available for inspection by the Holder, any
underwriting participating in any distribution pursuant to such
Registration Statement on behalf of the Holder, and by any attorney,
accountant or other professional retained by the Holder or any such
underwriter, all relevant and non-confidential financial and other
pertinent corporate records and information reasonably requested by
the Holder, or any such underwriter, attorney, accountant or
professional in connection with such Registration Statement.
(b) All expenses incident to Liquids' performance of its obligations
under this Agreement, including all registration
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<PAGE>
and filing fees, fees and expenses of compliance with securities and Blue
Sky laws, printing expenses, fees and disbursements of Liquids' counsel,
independent certified public accountants, and other persons retained by
Liquids (all such expenses being herein called "Registration Expenses")
will be borne by Liquids. The Holder shall be responsible for all selling
fees, expenses, discounts and commissions relating to Holder's Stock
(including the Registrable Stock) and for the fees and expenses of counsel
and other persons engaged by the Holder.
3. OBLIGATIONS OF HOLDER.
(a) The Holder agrees that he will offer and sell the Holder's Stock
in compliance with all applicable state and federal securities laws, except
those laws compliance with which are within the control of Liquids and
which are not within the control of the Holder. Specifically, without
limitation, the Holder agrees as follows:
(i) The Holder agrees not to use any prospectus (as that term
is defined under the Securities Act) for the purpose of offering or
selling the Registrable Stock to the public except for the Prospectus,
as the same may be supplemented and amended from time to time.
(ii) Neither the Holder nor any affiliate of the Holder shall
engage in any practice which would violate Rule 10b-6 promulgated
under the Securities Exchange Act of 1934 ("Exchange Act").
(iii) Neither the Holder nor any affiliate of the Holder
shall solicit purchases of Holder's Stock to facilitate the
distribution of the Registrable Stock in violation of Rule 10b-2
promulgated under the Exchange Act.
(iv) Neither the Holder nor any affiliate of the Holder shall
effect any stabilizing transactions to facilitate the offer and sale
of the Registrable Stock to the public in violation of Rule 10b-7
promulgated under the Exchange Act.
As used above, the term "affiliate" shall not include Liquids.
(b) The Holder agrees to promptly notify Liquids as and when any of
the Registrable Stock is sold and when the Holder elects to terminate all
further offers and sales of Shares pursuant to the Registration Statement.
The Holder acknowledges that any of the Registrable Stock which has not
been sold within two (2) years after the effective date of the
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<PAGE>
Registration Statement or any earlier termination of the distribution of
the Registrable Stock will be removed from registration by means of a
post-effective amendment to the Registration Statement.
(c) It shall be a condition precedent to the obligations of Liquids
to take any action with respect to registering the Registrable Stock that
the Holder furnish Liquids in writing such information regarding the
Holder, the Holder's Stock and other securities of Liquids held by the
Holder, and the distribution of such Holder's Stock as Liquids may from
time to time reasonably request in writing. If the Holder refuses to
provide Liquids with any of such information on the grounds that it is not
necessary to include such information in the Registration Statement,
Liquids may exclude the Registrable Stock from the Registration Statement.
The Holder agrees that upon receipt of any notice from Liquids of the
happening of any event of the kind described in Section 2(a)(v), the Holder
will forthwith discontinue the Holder's disposition of shares pursuant to
the Registration Statement until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2(a)(vii) and,
if so directed by Liquids, will deliver to Liquids (at Liquids' expense)
all copies, other than permanent file copies then in such Holder's
possession, of the Prospectus current at the time of receipt of such
notice.
(d) In the event the Holder intends to sell any Registrable Stock
under the Registration Statement, the Holder agrees to provide written
notice to Liquids at least two (2) business days prior to making any offers
or sales of the Registrable Stock, which written notice shall specify the
number of Registrable Stock which the Holder proposes to offer and sell and
which shall describe any changes to the information set forth in the
Registration Statement and the prospectus (the "Prospectus") included as a
part thereof, as the same may have been amended and supplemented from time
to time, concerning the Holder or the plan of distribution of the
Registrable Stock. The Holder represents and warrants that such
information as so updated will be true and correct and will not omit
information necessary to make the statements contained therein not
misleading. Within two (2) business days after its receipt of such written
notice, Liquids shall (i) notify the Holder that no supplement or amendment
is then required with respect to the Prospectus, or (ii) notify the Holder
that such a supplement or amendment is required, in which event Liquids
shall prepare and file with the SEC such supplement or amendment as soon as
reasonably practicable and shall endeavor to cause any such amendment to
become effective. Immediately after filing a supplement with the SEC or
immediately after an amendment is declared effective by the
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<PAGE>
SEC, whichever is appropriate, Liquids will provide copies thereof to the
Holder, as provided in Section 2, and the Holder may then commence offers
and sales of Registrable Stock under the Registration Statement.
(e) The Holder agrees that for the period ending on the second
anniversary of the issuance of the Holder's Stock he will not sell,
exchange, pledge or otherwise transfer any of the Holder's Stock except in
transactions (i) made pursuant to the Registration Statement, or (ii) which
are exempt from the registration requirements of the Securities Act and all
applicable state securities laws, and Liquids is provided with an opinion
of counsel to the Holder and other evidence as may be reasonably
satisfactory to Liquids to the effect that such transfer will not be in
violation of the Securities Act and all applicable state securities laws.
4. PUBLIC OFFERING BY LIQUIDS. Notwithstanding the registration rights
granted to the Holder under this Agreement, in the event Liquids files a
registration statement for an underwritten public offering of Liquids Stock
(a "Public Offering") within two (2) years of the effective date of the
Registration Statement, then upon the request of Liquids' underwriter in such
Public Offering, the Holder agrees to enter into an agreement pursuant to
which the Holder will be prohibited from transferring the Registrable Stock
for such period of time, not to exceed six (6) months after completion of the
Public Offering, as Liquids' underwriter may request. In the event Liquids
makes a Public Offering and Liquids' underwriter imposes transfer
restrictions on the sale of Registrable Stock, the period during which the
Registration Statement will be kept current shall not be extended beyond the
maximum two-year period from the effective date of the Registration Statement
as provided in Section 1.
5. POOLING RESTRICTIONS. It is a material factor to Liquids in
entering into this Agreement that the transactions contemplated by this
Agreement be treated as a "pooling-of-interests" for accounting purposes.
Therefore, notwithstanding any other provision of this Agreement, prior to
notice by Liquids of the publication and dissemination by Liquids of
consolidated financial results which include results of combined operations
of each of the Mesa Companies and AWW (as that term is defined in the Merger
Agreement) for at least a thirty-day period on a consolidated basis following
the closing date of the Merger Agreement, the Holder shall not sell or
otherwise transfer or dispose of, or in any other way reduce his risk
relative to, any shares of the Holder's Stock (including, by way of example
and not limitation, engaging in put, call, short-sale, straddle or similar
market transactions). The Holder, therefore, covenants and agrees that he
will fulfill any requests reasonably made of him by Liquids in writing if
made by
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<PAGE>
Liquids for the purpose of satisfying the requirements of the Securities
Release Nos. 130 and 135 relating to "pooling of interests" accounting.
Additionally, the certificates evidencing the Holder's Stock will bear a
legend substantially in the form set forth below and containing such other
information as Liquids may deem necessary or appropriate:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED, AND U S LIQUIDS INC. SHALL NOT BE REQUIRED TO
GIVE EFFECT TO ANY ATTEMPTED SALE, TRANSFER OR ASSIGNMENT PRIOR TO THE
PUBLICATION AND DISSEMINATION OF FINANCIAL STATEMENTS BY U S LIQUIDS
INC. WHICH INCLUDE THE RESULTS OF AT LEAST THIRTY (30) DAYS OF
COMBINED OPERATIONS OF U S LIQUIDS INC. AND THE MESA COMPANIES FOR
WHICH THESE SHARES ARE ISSUED. UPON THE WRITTEN REQUEST OF THE RECORD
HOLDER OF THIS CERTIFICATE DIRECTED TO U S LIQUIDS INC., THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENTS) WHEN THE REQUIREMENTS HAVE BEEN MET.
Liquids agrees to make publication and dissemination of its consolidated
financial results which includes results of combined operations of Liquids,
the Mesa Companies (as defined in the Merger Agreement), and AWW for at least
a thirty (30) day period on a consolidated basis following the closing date
of the Merger Agreement as soon as practicable following the end of the first
full calendar month ending after such thirty (30) day period.
6. INDEMNIFICATION.
(a) INDEMNIFICATION BY LIQUIDS. To the extent permitted by law,
Liquids will, and hereby does, indemnify and hold harmless the Holder
against any losses, claims, damages or liabilities to which the Holder may
become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, and Liquids will reimburse the Holder
for any legal or any other expenses reasonably incurred by him in
connection with investigating or defending any such loss, claim, liability,
action or proceeding; PROVIDED that Liquids shall not be liable in any such
case to the extent that any such loss, claim, damage, liability (or action
or proceeding
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<PAGE>
in respect thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance
upon and in conformity with written information pertaining to the Holder,
or, as to periods prior to the date hereof, to AWW or its business or
activities, or to any other business or activity in which the Holder has
been involved in any way, in each case furnished to Liquids by or for the
Holder, and PROVIDED FURTHER that Liquids shall not be liable to the
Holder or any other person to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon any violation by him of the Securities Act or the
Exchange Act. Nothing contained herein shall limit the rights of the
Holder to receive indemnification from Liquids to which the Holder may be
entitled other than as set forth herein.
(b) INDEMNIFICATION BY THE HOLDER. To the extent permitted by law,
the Holder will, and hereby does, indemnify and hold harmless (in the same
manner and to the same extent as set forth in subdivision (a) of this
Section) each underwriter, each person (including an individual or a legal
entity) who controls such underwriter within the meaning of the Securities
Act, Liquids, each director of Liquids, each officer of Liquids and each
other person, if any, who controls Liquids within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such Registration Statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made in reliance upon
and in strict conformity with written information pertaining to the Holder,
or, as to periods prior to the date hereof, to AWW or its business or
activities, or to any other business or activity in which the Holder has
been involved in any way, furnished to Liquids by the Holder expressly for
use in the preparation of such Registration Statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement,
and with respect to any violation by the Holder of the Securities Act or
the Exchange Act; provided however, that the liability of the Holder
hereunder shall be limited to the proportion of any loss, claim, damage, or
liability which is equal to the proportion that the public offering price
of shares sold by the Holder under such Registration Statement bears to the
total public offering price of shares sold thereunder, but not to exceed
the proceeds received by the Holder from the sale of the Holder's Stock
covered by such Registration Statement.
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(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section, such
indemnified party will, if a claim in respect thereof is to be made against
an indemnifying party, give written notice to the latter of the
commencement of such action, provided that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations under the preceding subdivisions of this Section,
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties
actually exists in respect of such claim or if the defendants in any such
action include both the indemnified party and the indemnifying party, and
the indemnified party shall have reasonably concluded that there may be
defenses available to it which are different from or additional to those
available to the indemnifying party (in either of which cases the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of
such action, with the expenses and fees of such separate counsel and other
expenses relating to such participation to be reimbursed by the
indemnifying party as incurred), the indemnifying party shall be entitled
to participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so as
to assume the defense thereof, the indemnifying party shall not be liable
to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without
the consent of the indemnified party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding subdivisions of this Section (with appropriate
modifications) shall be given by Liquids and the Holder with respect to any
required registration or other qualification of securities under any
Federal or state law or regulation of any governmental authority other than
the Securities Act.
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<PAGE>
(e) INDEMNIFICATION PAYMENTS. The indemnification required by this
Section shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) CONTRIBUTION. If the indemnification provided for in this
Section 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 loss, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified
parties in connection with the actions which resulted in such losses,
claims, damage, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by reference to, among other
things, whether any action in question, including any untrue statement of
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such 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 above, any legal or other
fees or expenses reasonably 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 Section were determined by pro rata
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. If indemnification is available under this Section, the
indemnifying parties shall indemnify each indemnified party to the full
extent provided herein without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable
consideration provided for in this Section.
7. 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
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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 Holder at
the address reflected on Liquids' records, and to Liquids at the address 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.
HOLDER:
-------------------------
-------------------------
-------------------------
LIQUIDS: U S Liquids Inc.
411 N. Sam Houston Parkway East, Suite 400
Houston, Texas 77060
ATTN: Chief Executive Officer
WITH A COPY TO:
Len Cason
Hartzog Conger & Cason
1600 Bank of Oklahoma Plaza
Oklahoma City, Oklahoma 73102
8. INTEGRATED AGREEMENT. This Agreement contains and constitutes the
entire agreement between and among the parties with respect to the matters
set forth herein and supersedes all prior agreements and understandings
between the parties hereto relating to the subject matter hereof. There are
no agreements, understandings, restrictions, warranties or representations
among the parties relating to the subject matter hereof other than those set
forth or referred to herein. This instrument is not intended to have any
legal effect whatsoever, or to be a legally binding agreement or any evidence
thereof, until it has been signed by all parties hereto.
9. BINDING EFFECT. This Agreement shall be binding on and enforceable
by the Holder and by Liquids and its successors. No transferee of any of the
Holder's Stock shall acquire any rights under this Agreement except with the
written consent of Liquids, which may be withheld for any reason.
10. CONSTRUCTION. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of
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Texas. All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine or neuter gender thereof or to the plurals of each,
as the identity of the person or persons or the context may require. The
descriptive headings contained in this Agreement are for reference purposes
only and are not intended to describe, interpret, define or limit the scope,
extent or intent of this Agreement or any provision contained herein.
11. 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 provisions shall be deemed modified so as to constitute a
provision conforming as nearly as possible to such invalid, illegal, void or
unenforceable provisions while still remaining valid and enforceable, and the
remaining terms or provisions contained herein shall not be affected thereby.
12. TERMINATION. If the Merger Agreement is terminated for any reason
or the AWW Merger is not consummated in accordance with the terms thereof,
this Agreement shall immediately terminate and be of no further force or
effect.
13. RULE 144 REPORTING. For so long as the Holder is otherwise eligible
to sell any of the Holder's Stock in accordance with Rule 144 under the
Securities Act, Liquids agrees with the Holder as follows:
(a) Liquids shall make and keep public information available, as
those terms are understood and defined in Rule 144, at all times from and
after ninety (90) days following the effective date of the first
registration of Liquids under the Securities Act of an offering of its
securities to the general public.
(b) Liquids shall file with the SEC in a timely manner all reports
and other documents as the SEC may prescribe under Section 13(a) or 15(d)
of the Exchange Act at any time after Liquids has become subject to such
reporting requirements of the Exchange Act.
(c) Liquids shall furnish to the Holder upon request (i) a written
statement by Liquids as to its compliance with the reporting requirements
of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement of Liquids for an
offering of its securities to the general public), and of the Securities
Act and the Exchange Act (at any time after it has become subject to such
reporting requirements), (ii) a copy of the most recent annual or quarterly
report of Liquids, and (iii) such other reports and documents so filed as
the Holder may
-13-
<PAGE>
reasonably request to avail himself of any rule or regulation of the
SEC allowing the Holder to sell any of the Holder's Stock without
registration.
[Intentionally left blank]
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates shown below.
HOLDER:
/s/ WILLIAM M. DeARMAN
------------------------------
Date: June 17, 1997
------------------------
LIQUIDS: U S LIQUIDS INC.
By: /s/ W. GREGORY ORR
--------------------------
Chief Executive Officer
Date: June 17, 1997
------------------------
<PAGE>
EXHIBIT 21.1
List of Subsidiaries
--------------------
1. MBO Inc., a Delaware corporation
2. US Liquids LP Holding Co., a Delaware corporation
3. US Liquids of La., L.P., a Delaware limited partnership
4. American WasteWater Inc., a Texas corporation
5. Mesa Processing, Inc., a Texas corporation
6. T&T Grease Service, Inc., a Texas corporation d/b/a Imperial Services
7. Phoenix Fats & Oils, Inc., a Texas corporation
8. Mesa International, Inc., a Barbados corporation
9. South Texas By-Products, Inc., a Texas corporation
10. National Enviro Waste Company, Inc., a Texas corporation
11. Imperial Services, Inc., a Texas corporation
<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
June 26, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,604
<SECURITIES> 0
<RECEIVABLES> 5,108
<ALLOWANCES> 265
<INVENTORY> 339
<CURRENT-ASSETS> 11,550
<PP&E> 36,370
<DEPRECIATION> 894
<TOTAL-ASSETS> 46,851
<CURRENT-LIABILITIES> 11,413
<BONDS> 23,668
0
10
<COMMON> 52
<OTHER-SE> 1,476
<TOTAL-LIABILITY-AND-EQUITY> 46,851
<SALES> 0
<TOTAL-REVENUES> 14,285
<CGS> 0
<TOTAL-COSTS> 13,230
<OTHER-EXPENSES> (88)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 397
<INCOME-PRETAX> 746
<INCOME-TAX> 255
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 491
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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