FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________________ TO
________________________
COMMISSION FILE NUMBER: 001-13259
U S LIQUIDS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0519797
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
411 N. Sam Houston Parkway E., Suite 400 Houston, Texas 77060
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
281-272-4500
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF SECURITIES EXCHANGES ON WHICH REGISTERED
- ---------------------------------- ------------------------------------
Common Stock, par value $.01 per American Stock Exchange
share
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Common Stock, par value $.01 per share Outstanding 7,499,022 as of
March 26, 1998
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
Part III -- Proxy Statement for the Annual Meeting of Stockholders to be
held on May 5, 1998.
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ITEM 1. BUSINESS
U S Liquids Inc. ("the Company") is a leading provider of services for
the collection, processing, recovery and disposal of liquid wastes. The Liquid
Waste Division collects, processes and disposes of liquid waste and recovers
by-products from these waste streams. The Oilfield Waste Division processes and
disposes of oilfield waste generated in oil and gas exploration and production.
Since its formation in November 1996, the Company has grown significantly by
acquiring businesses engaged in various aspects of the liquid waste industry and
by improving the operations and processing capabilities of its newly acquired
facilities. As a result of its acquisition program and internal development, the
Company has broadened its customer base and industry served and has expanded its
geographic presence.
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 LIQUID WASTE INDUSTRY
GENERAL. The Company is engaged in two segments of the liquid waste
industry: the collection, processing, recovery and disposal of liquid waste and
the processing and disposal of liquid waste generated in oil and gas exploration
and production. The Company's Liquid Waste Division processes waste at
facilities located in Louisiana and Texas. Certain of these facilities generate
salable by-products, principally fats, oils and feed proteins, which are derived
from waste streams and collected from generators by the Company and independent
collection companies. The Oilfield Waste Division processes and disposes of
exploration and production waste, 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, at landfarms located in Louisiana
and Texas.
LIQUID WASTE DIVISION. At its 13 permitted liquid waste facilities, the
Liquid Waste Division receives fees to collect, process and dispose of waste
such as industrial and commercial wastewaters, grease trap and grit trap waste,
and oil-contaminated water. The Company operates a fleet of vehicles to collect
waste directly from over 11,000 generators and receives waste from independent
transporters servicing thousands of additional generators. In addition, at
certain of its facilities, the Company processes used cooking oil and other food
processing residuals received from restaurants, meat processors, other food
processors, grocery stores and other generators to recover by-products
consisting of fats, oils and feed proteins which are sold for use as ingredients
in livestock feed and chemicals.
The Liquid Waste Division benefits from federal, state and local
regulations prohibiting the disposal of used cooking oil, grease and grit trap
waste and other waste in municipal collection and treatment systems. Although
restaurants, food manufacturing and preparation facilities, car washes and other
industrial operations have produced waste for years, regulations governing the
management of liquid waste, 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 liquid waste. For example, effective in
March 1997, the Texas Natural Resource Conservation Commission (the "TNRCC")
implemented state-wide "full pump" regulations requiring 100% evacuation of
all grease and grit traps and proper disposal of the full volume of each trap.
The state-wide "full pump" regulations, together with similar "full pump"
ordinances implemented by various municipalities, have increased demand for the
services provided by the Company's processing facilities in Texas. The failure
of governmental authorities to enforce such "full pump" regulations and
ordinances could, however, diminish the demand for the Company's services.
OILFIELD WASTE DIVISION. The Oilfield Waste Division processes and
disposes of exploration and production waste at five landfarming and landfilling
facilities located in Louisiana and Texas. During 1997, these facilities
processed and disposed of approximately 4.5 million barrels of waste through the
processes described in "Operations and Services Provided-Oilfield Waste
Division" below. The Company processes waste to below prescribed regulatory
levels and then transports the resulting material to on-site stockpile areas for
storage.
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The market for oilfield waste processing 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 waste. Under Louisiana and Texas
regulations, if waste cannot be treated for discharge or disposed of at the well
where it is generated, it must be transported to a permitted disposal facility.
There are three primary alternatives for off-site processing and disposal of
waste 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 waste into a reuse product. In addition,
federal regulations restrict, and in some cases prohibit entirely, the discharge
of waste 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 waste on an ongoing
basis.
The Company believes that market conditions in the Gulf Coast oilfield
waste disposal market are positive for the following reasons. First, offshore
drilling, which currently generates a substantial portion of the oil field waste
delivered to the Company, is strong. Second, the number of wells drilled to
depths in excess of 15,000 feet has steadily increased in the Gulf of Mexico and
inland over the past several years. The Company believes that the drilling of
deeper wells benefits the waste 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 waste are further tightened, a greater percentage of waste will
be transported from well sites for treatment and disposal, thereby increasing
the overall market. For example, effective as of January 15, 1997, federal
regulations prohibit the discharge of any waste 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).
While limited temporary exemptions have been granted to some oil companies by
state regulators, these actions have been opposed by leading environmental
groups. In addition, several lawsuits have been filed challenging the validity
of these regulations. Accordingly, the timing of the implementation of these
regulations is uncertain. See "Regulatory Background."
The Company expects its Oilfield Waste Division to expand through growth of
existing operations and, potentially, expansion into new geographic areas.
However, the Company will continue to serve the offshore drilling and production
market through its contract with Newpark Resources ("Newpark"). The Company
believes that other waste treatment and disposal opportunities exist in other
regions of the United States, particularly in those states with significant oil
and gas exploration activity.
BUSINESS STRATEGY
The Company plans to become North America's leading provider of services
for the collection, processing, recovery and disposal of liquid wastes by
expanding through acquisitions and continued internal growth.
COMPLETED ACQUISITIONS (1997 AND 1998)
Between October 1, 1997 and March 26, 1998, the Company completed nine
acquisitions which collectively had $12,849,000 of revenues in 1997. These
acquisitions geographically extended the Liquid Waste Division's processing
operations to Louisiana and Massachusetts and expanded its market penetration in
existing Texas markets. The total cost of the acquisitions was $15,994,000,
including 473,000 shares of the Company's common stock ("Common Stock").
In connection with each acquisition, the Company assumed or succeeded to
certain liabilities of the acquired businesses, which may include environmental
liabilities. The Company has generally obtained representations from the sellers
of the acquired business that no undisclosed liabilities existed, and certain
rights to indemnification from the sellers against any such liabilities. There
can, however, be no assurance
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that undisclosed liabilities do not exist, or that the Company would receive
full or partial compensation pursuant to its rights to indemnification.
OPERATIONS AND SERVICES PROVIDED
The Company provides a broad range of services for the collection,
processing, recovery and disposal of liquid waste. As federal, state and local
regulations governing the disposal of liquid waste are further tightened, the
Company believes that the amount of liquid waste delivered to third parties for
processing and disposal will continue to increase.
LIQUID WASTE DIVISION
The Liquid Waste Division collects, processes and disposes of various types
of waste generated by businesses and individuals. Revenues are earned by tipping
fees paid by customers and from sales of by-products, principally fats, oils and
feed proteins processed from certain waste streams and collected from
generators. Brief descriptions of the types of waste most commonly managed by
the Company are set forth below:
GREASE AND GRIT TRAP WASTE AND OTHER INDUSTRIAL WASTEWATERS. Grease
trap waste from restaurants and other food manufacturing and preparation
facilities, grit trap waste from car washes and other types of industrial
wastewaters are transported to the Company's facilities in vacuum trucks,
trailers and other transportable containers. Using a variety of physical,
chemical, thermal and biological techniques, the waste is broken down into
constituent components. Water extracted from the waste is pretreated and
then discharged into the municipal sanitary sewer system and solid
materials are dried and disposed of in a solid waste landfill.
BY-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 other waste streams, to generate usable
by-products, principally consisting of fats, oils and feed proteins of
various grades. The Company sells these by-products almost exclusively in
Mexico to producers of livestock feed and chemicals.
The Company believes that the primary constraint in its by-product
operations is its ability to procure cooking oils and other food processing
residuals which are used in the production of fats, oils and feed proteins.
These cooking oils and other food processing residuals are collected by Company
drivers on pre-established routes, from third party transporters and in bulk
purchases.
The fats, oils and feed proteins produced by the Liquid Waste Division are
commodities and are generally sold at prices prevailing at the time of sale
which are subject to significant fluctuation. Feed proteins are distributed by
truck from the various processing facilities to Laredo, Texas for mixing and
final preparation. The finished products are then distributed to customers by
truck and/or rail from Laredo.
OILFIELD WASTE DIVISION
At its five facilities located in Louisiana and Texas, the Oilfield Waste
Division treats and disposes of waste that is generated in oil and natural gas
exploration and production. These waste streams consist 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. Oilfield waste is brought to the
Company's facilities in trucks and on barges and the delivered waste materials
are then tested. Waste which is not permitted to be treated at a facility in
accordance with applicable state regulations is rejected. Accepted waste is then
loaded into treatment cells at the rate of approximately 15,000 barrels per
acre. This loading process creates a layer of waste 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
oilfield waste is then processed to remove organic contamination through
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biological degradation. The treatment cells are periodically agitated to ensure
that the microbes receive sufficient oxygen, sunlight and water. Total treatment
of a cell takes approximately nine to twelve months. In the final stage, the
remaining material is tested to ensure compliance with regulatory requirements.
Thereafter, the material is transported to on-site stockpile areas for storage.
The Company purchased the Oilfield Waste Division from Sanifill, Inc.
("Sanifill"). In connection with the acquisition, Sanifill assigned to the
Company its rights and obligations under a Disposal Agreement between Sanifill
and Newpark. Pursuant to the terms of the Disposal Agreement, through June 30,
2021, Newpark is obligated to deliver oilfield waste to the Company on an annual
basis 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
waste 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 waste, in each case excluding saltwater. The number of
barrels of waste that Newpark is required to deliver to the Company in any year
is subject to adjustment 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 waste that
is generated and collected on land and is delivered to the Landfarms from the
generation site by on-land transportation ("inland waste"), (ii) disposal of
waste at the Bustamonte, Texas facility and collection of waste within a
200-mile radius of the Bustamonte facility, and (iii) disposal of waste under
the Disposal Agreement.
The Disposal Agreement also governs the price to be paid by Newpark to the
Company for delivered waste. The contractual price is lower than the price that
the Company could 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 waste 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 waste 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. 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 of the landfarm operation, 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
permitted waste.
As a result of its contractual arrangements with Sanifill and Newpark, the
Company is prohibited from engaging, directly or indirectly, in the collection,
transfer, transportation, treatment or disposal of waste generated in a marine
environment or transported in marine vessels or the site remediation and closure
business in the Territory 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 waste, disposal of waste at the
Bustamonte, Texas facility and collection of waste within a 200-mile radius of
the Bustamonte facility, and treatment and disposal of waste under the Disposal
Agreement.
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In addition to waste received from Newpark (which is primarily generated
offshore), the Company receives waste 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 waste. The Company believes that this strategy will
increase the total amount of waste that is delivered to the Company.
All of the Company's landfarms (except Elm Grove, Louisiana) have water
access, a key factor in enabling barge transport of the waste 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 waste
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 waste is dispersed and dried, rather than flushed with fresh water,
prior to stockpiling in on-site, synthetically-lined landfilled areas.
COMPETITION
LIQUID WASTE DIVISION. The business of processing and disposing of liquid
waste is competitive and fragmented. Competitors compete primarily on the basis
of proximity to collection operations, tipping fees charged and quality of
service. With respect to the grease and grit trap waste markets, the Company
must often compete with area landfills that accept these materials. In addition,
in certain areas served by the Company, other companies (including one public
company) collect and process grease trap waste material.
The Liquid Waste Division must also compete for the procurement of used
cooking oil and other food processing residuals necessary to produce fats, oils
and feed proteins. The limited availability of these 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 fats, oils and feed proteins produced. The Company purchases used
cooking oil and other food processing residuals utilized to produce these
by-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.
OILFIELD WASTE DIVISION. The Company estimates that over 90% of oilfield
waste generated in the Gulf Coast region is processed or disposed of on-site by
the generators of the waste or by independent third parties. The Company does
not provide any waste treatment or disposal services at the well-site. Under
state regulations, if waste cannot be treated for discharge or disposed at the
well where it is generated, it must be transported to a licensed waste disposal
or treatment facility. There are three primary alternatives for off-site
treatment and disposal of waste 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 waste 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 waste.
Since August 1996, Newpark has controlled substantially all of the market
in the Gulf Coast for offshore, off-site waste 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 waste generated in a marine
environment or transported in marine vessels within Louisiana, Texas,
Mississippi, Alabama and the Gulf of Mexico. This prohibition expires on August
12, 2001. See "Operations and Services Provided."
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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 waste for transport to an existing or newly constructed commercial
disposal facility. In 1997, a small private company established three such
transfer stations. Although the Company does not believe that these new transfer
stations have diverted a substantial amount of offshore generated NOW from
Newpark, to the extent these transfer stations or any subsequently established
transfer stations, individually or in the aggregate, diverted substantial
amounts of offshore generated waste from Newpark, the amount of waste ultimately
delivered to the Company could be reduced.
Newpark is also a competitor with respect to oilfield waste produced inland
in the Gulf Coast region. The Company competes for inland generated oilfield
waste with a number of smaller companies which treat and dispose of waste in
landfarm operations, landfills and injection wells, and with one company which
de-waters waste and disposes of the residual sludge in a landfill. Although
complete information regarding market share for inland generated waste is not
available, the Company estimates that it receives a substantial percentage of
all waste 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 waste 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.
REGULATORY BACKGROUND
The Company's business operations are affected both directly and indirectly
by governmental regulations, including various federal, state and local
pollution control and health and safety programs that are administered and
enforced by regulatory agencies. 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 liquid waste
processing 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.
RCRA. RCRA is the principal federal statute governing hazardous and solid
waste generation, treatment, storage and disposal. RCRA and state hazardous
waste management programs govern the handling and disposal of "hazardous
waste." The EPA has issued regulations pursuant to RCRA, and states have
promulgated regulations under comparable state statutes, that govern hazardous
waste generators, transporters and owners and operators of hazardous waste
treatment, storage or disposal facilities. These regulations impose detailed
operating, inspection, training and emergency preparedness and response
standards and requirements for closure, financial responsibility, manifesting of
wastes, record-keeping and reporting, as well as treatment standards for any
hazardous wastes intended for land disposal. The Company does not accept
RCRA-regulated hazardous waste at any of its facilities. Consequently, the vast
majority of the Company's activities are not subject to the requirements adopted
under Subtitle C of RCRA.
The Company's Louisiana and Texas landfarms treat and dispose of oilfield
waste which is exempt from classification as a RCRA-regulated hazardous waste.
At various times in the past, proposals have been made to rescind the exemption
that excludes oilfield waste from regulation under RCRA. The repeal 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.
In addition to its positive impact on the Oilfield Waste Division, RCRA
also indirectly affects the Liquid Waste Division by prohibiting, among other
things, the disposal of certain liquid wastes in landfills. This prohibition
increases demand for the services provided by the Liquid Waste Division.
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
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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 oilfield waste under RCRA, if the
Company's operations resulted in the release of or improper disposal of
hazardous substances, the Company could incur CERCLA liability. Although the
Company is not aware of any such event, the Company or a business acquired by
the Company may have disposed or arranged for disposal of hazardous substances
that could result in the imposition of CERCLA liability on the Company in the
future. In addition, the Company would incur CERCLA liability if any hazardous
substances at the Company's facilities leached down into groundwater.
The Company is not aware of any claims against it or any of its
subsidiaries that are based on CERCLA. 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 treatment and discharge of wastewaters at the
Company's facilities are subject to the requirements of the Clean Water Act and
comparable state statutes and federal and state enforcement of these
regulations. The Clean Water Act regulates the discharge of pollutants into
waters of the United States. 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
Oilfield Waste Division's customers. EPA Region 6, which includes the Oilfield
Waste Division's current market, continues to issue new and amended National
Pollution Discharge Elimination System ("NPDES") general permits further
imiting 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:
o Onshore subcategory permits for Texas, Louisiana, Oklahoma and New
Mexico (56 Fed. Reg. 7698). 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 United States. These permits have the effect of
requiring that most oilfield waste processors follow established state
disposal programs. These general permits expired on February 25, 1996,
but pursuant to EPA policy, they are considered to remain in effect
until reissued by the EPA or superceded by other EPA action.
o Permits for produced water and produced sand discharges into coastal
waters of Louisiana and Texas issued on January 9, 1995 (60 Fed. Reg.
2387). Coastal means "waters of the United States . . . located
landward of the territorial seas". Under these regulations all such
discharges were required to cease by January 1, 1997.
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o The 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. The existing permit was combined with a
new source permit on August 9, 1996 (61 Fed. Reg. 41609). This permit
prohibits certain discharges of drilling fluids and drill cuttings and
includes stricter limits for oil and grease concentrations in produced
waters to be discharged. These limits are based on the Best Available
Treatment requirements contained in the Oil and Gas Offshore
Subcategory national guidelines which were published March 3, 1993.
Additional requirements include toxicity testing and bio-accumulation
monitoring studies of proposed discharges. The combined permit expired
on November 18, 1997; however, the expired permit will continue to be
effective for permittees that applied for a new permit prior to the
expiration date, until the EPA issues a new general permit for this
area or requires permittees to seek individual permits.
o A permit for the territorial seas of Louisiana was issued on November
4, 1997 (62 Fed. Reg. 59687). The permit became effective on December
4, 1997, except for the water quality based limits and certain
monitoring requirements that become effective May 4, 1998. The permit
prohibits the discharge of drilling fluids, drill cuttings and
produced sand. Produced water discharges are limited for oil and
grease, toxic metals, organics, and chronic toxicity. The territorial
seas part of the Offshore Subcategory begins at the line of ordinary
low water along the part of the coast which is in direct contact with
the open sea, and extends out three nautical miles. This permit covers
both existing sources and new sources. All discharges in state waters
must comply with any more stringent requirements contained in the
Louisiana Water Quality Regulations, LAC 33.IX.7.708. A similar permit
will be proposed for the Texas territorial seas in the future.
The combined effect of all of these permits closely approaches a "zero
discharge" standard affecting all waters except those of the OCS. The Company
and many industry participants believe that these permits and the requirements
of the Clean Water Act may ultimately lead to a total prohibition of overboard
discharge in the Gulf of Mexico.
THE CLEAN AIR ACT. The Clean Air Act provides for federal, state and local
regulation of emissions of air pollutants into the atmosphere. Any modification
or construction of a facility with regulated air emissions must be a permitted
or authorized activity. The Clean Air Act provides for administrative and
judicial enforcement against owners and operators of regulated facilities,
including substantial penalties. In 1990, the Clean Air Act was re-authorized
and amended, substantially increasing the scope and stringency of the Clean Air
Act's regulations. The Clean Air Act has very little impact on the Company's
operations.
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 oilfield waste. Under Order 29-B,
on-site disposal of oilfield waste is limited and subject to stringent
guidelines. If these guidelines cannot be met, oilfield waste 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 oilfield waste) 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 oilfield waste. Permits issued by state regulatory agencies are required for
each oilfield waste treatment facility operating within Louisiana and Texas. The
Company must perform tests before acceptance of any oilfield waste, as well as
during and after treatment to ensure compliance with all regulatory
requirements. Short-term emergency rules recently adopted by the Louisiana
Department of Natural Resources have increased the pre-treatment testing to be
conducted on oilfield waste delivered to the Company's Louisiana landfarms.
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
8
<PAGE>
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 Liquid Waste Division's 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 facilities and to comply with applicable
regulations concerning, among other things, the generation and discharge of
odors and wastewater.
States and localities into which the Company may expand, by acquisition or
otherwise, may now or in the future have regulations with positive or negative
effects on the Company. It is possible that state or local regulations could
adversely affect the Company's execution of its acquisition strategy.
RISK MANAGEMENT
The Company has implemented various procedures designed to insure
compliance with applicable regulations and reduce the risk of damage or loss.
These include specified handling procedures and guidelines for regulated wastes,
ongoing training and monitoring of employees and maintenance of insurance
coverage. The Company carries a broad range of insurance coverages that
management considers adequate for the protection of its assets and operations.
This coverage includes general liability, comprehensive property damage,
workers' compensation and other coverage customary in its industries; however,
this insurance is subject to coverage limits and certain policies exclude
coverage from damages resulting from environmental contamination. The Company
could be materially adversely affected by a claim that is not covered or only
partially covered by insurance. There is no assurance that insurance will
continue to be available to the Company, that the possible types of liabilities
that may be incurred by the Company will be covered by its insurance, that the
Company's insurance carriers will meet their obligations or that the dollar
amount of such liabilities will not exceed the Company's policy limits.
ITEM 2. 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 following table sets forth information relating to the processing
facilities owned or leased by the Liquid Waste Division:
APPROXIMATE
LOCATION SQUARE FOOTAGE OWNED/LEASED
- ------------------------------------- ------------------ --------------
Dallas, Texas........................ 6,000 Owned
Fort Worth, Texas.................... 14,000 Owned
Houston, Texas....................... 23,000 Owned
Houston, Texas....................... 5,000 Leased(A)
Houston, Texas....................... 7,000 Owned
Los Fresnos, Texas................... 9,000 Owned
San Antonio, Texas................... 5,700 Owned
San Antonio, Texas................... 1,000 Owned
Shreveport, Louisiana................ 28,000 Leased(B)
Braintree, Massachusetts............. 7,000 Leased(C)
- ------------
(A) Lease expires in October 1998, with option to renew for two years
(B) Lease expires in September 2007, with 3 ten-year renewal options
(C) Lease expires June 2002, with negotiable options
The Company also leases an administrative office in Fort Worth consisting
of approximately 2,000 square feet of office space and a facility located in
Laredo, Texas that is used as a terminal.
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<PAGE>
The following table sets forth information relating to the processing
facilities owned or leased by the Oilfield Waste Division.
<TABLE>
<CAPTION>
AREA PERMITTED APPROXIMATE SQUARE
FOR FOOTAGE OF
LOCATION PROCESSING AND DISPOSAL OFFICE FACILITIES OWNED/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
Lacassine, Louisiana................. 100 acres 8,000 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.
All of the Company's facilities satisfy its present needs; however, as part
of its internal growth strategy, the Liquid Waste Division intends to expand the
size of certain of its 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.
ITEM 3. LEGAL PROCEEDINGS
Prior to the Company's purchase of the Oilfield Waste Division, three
lawsuits were brought against Campbell Wells based upon the operation of its
Bourg, Louisiana landfarm. In one of the lawsuits filed against Campbell Wells,
approximately 300 individuals residing in and around Grand Bois, Louisiana are
seeking unspecified monetary damages allegedly suffered as a result of (i) odors
allegedly emitted by waste received from Exxon Company U.S.A. ("Exxon") at the
landfarm in March 1994, and (ii) alleged air, water and soil contamination in
connection with ongoing operations at the landfarm. The Company was named as a
defendant in this action in January 1998. Trial in this matter on the claims of
ten plaintiffs is set to commence in the 17th Judicial District Court for the
Parish of Lafourche, Louisiana on July 13, 1998. A second lawsuit, brought by
one individual, seeks unspecified monetary damages allegedly suffered as a
result of odors allegedly emitted by waste received from Exxon at the landfarm
in March 1994. This lawsuit is also pending in the 17th Judicial District Court
for the Parish of Lafourche, Louisiana and trial is set to commence on July 13,
1998. The Company has not yet been named as a defendant in this action. In the
third lawsuit, six individuals filed suit on March 7, 1996 against Campbell
Wells in the Civil District Court for the Parish of Orleans, Louisiana, 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 equaled 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 waste
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.
The Company was named as a defendant in this action in January 1998. 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 permanent injunctive relief that might be
10
<PAGE>
entered in the action will not have a material adverse effect upon the Company's
consolidated financial position or results or operations.
Prior to the Company's purchase of the Oilfield Waste Division, a class
action lawsuit was filed in the Civil District court for the Parish of Orleans,
Louisiana against Campbell Wells seeking unspecified monetary damages allegedly
suffered as a result of alleged air, water and soil contamination in connection
with ongoing operations at the Mermentau, Louisiana landfarm. The Company has
not been named as a defendant in this lawsuit; however, there can be no
assurance that the Company will not subsequently be named as a defendant in this
lawsuit.
In connection with the Company's purchase of the Oilfield Waste Division,
Sanifill agreed, with certain enumerated exceptions, to retain responsibility
for all liabilities of Campbell Wells as of the closing date of the Campbell
Wells Acquisition including, without limitation, the contingent liabilities
associated with each of the above-referenced lawsuits. Sanifill also agreed in
the Campbell Wells Acquisition Agreement to indemnify the Company from and
against, among other things, the contingent liabilities associated with such
lawsuits. The obligation of Sanifill to indemnify the Company is limited to $10
million.
The Company believes that the ultimate disposition of the above-referenced
lawsuits will not have a material adverse effect on the Company's business,
results of operations or financial condition. This belief is based upon, among
other things, the following reasons: (i) Sanifill has agreed to retain
responsibility for the contingent liabilities associated with these lawsuits,
(ii) Sanifill has agreed to indemnify the Company against such contingent
liabilities up to a maximum of $10 million, (iii) the Company has been operating
the Bourg and Mermentau landfarms only since December 1996, approximately four
months after the last of the three lawsuits seeking monetary damages was
originally filed, and (iv) the results of air, water and soil testing conducted
in and around the Bourg landfarm by the Louisiana Department of Health and
Hospitals, the Louisiana Department of Natural Resources and the Louisiana
Department of Environmental Quality indicate that the Company's operations at
the landfarms are in compliance with all applicable rules and regulations. There
can be no assurance, however, that a judgment will not ultimately be entered
against the Company in one or more of these lawsuits. In the event a monetary
judgment is entered against the Company and Sanifill is not required or is
unable to completely indemnify the Company against such judgment, the Company's
business, results of operations and financial condition could be materially
adversely affected. In addition, notwithstanding any indemnification to be
provided by Sanifill, an adverse ruling against the Company in the lawsuit
seeking injunctive relief could materially adversely affect the Company's
operations at the Bourg landfarm (which operations contributed 12.2% of the
Company's revenues for the year ended December 31, 1997) and, therefore, the
Company's business, consolidated financial position and results of operations.
In August 1997, the Company was named as a defendant in a lawsuit
originally filed in 1994 against Campbell Wells and others in the District Court
of Jim Wells County, Texas. This dispute arose out of an application filed by
Waste Facilities, Inc. ("WFI"), the operator of a South Texas treatment
facility, to renew its permit. The action was dismissed as to the Company in
March 1998.
In February 1997, an action entitled JUDY GARCIA, ET AL V. RE-CLAIM
ENVIRONMENTAL was filed in the 51st Judicial District Court of Harris County,
Texas. This action was brought by the residents of an apartment complex located
adjacent to one of the Company's processing facilities and alleges that the
defendant is guilty of nuisance, trespass, negligence and gross negligence by
reason of its pollution of the air, soil and ground and surface water and the
release of noxious odors. The plaintiffs have requested unspecified monetary
damages. The Company denies liability and intends to vigorously defend the
action.
The Company believes that the nature of the liquid waste business makes it
susceptible to claims such as those described above. 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.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION. The Common Stock has been listed on the AMEX since
August 20, 1997. The trading symbol for the Common Stock is "USL." The closing
price for the Common Stock on March 18, 1998 was $18.88 per share. The following
table sets forth, for the periods indicated, the high and low closing prices for
the Common Stock as reported by AMEX.
QUARTER ENDED HIGH LOW
- ------------------------------------- --------- ---------
September 30, 1997................... $ 18.19 $ 13.13
December 31, 1997.................... $ 19.38 $ 12.75
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. Furthermore, the
Company is prohibited from declaring or paying cash dividends on its capital
stock under the terms of its revolving credit facility.
RECENT SALES OF UNREGISTERED SECURITIES. On January 2, 1998, the Company
issued to Glenn Pratt and Jack Bailey warrants to purchase a total of 20,000
shares of Common Stock in consideration of acquisition consulting services 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.
USE OF PROCEEDS. On August 19, 1997, registration statement No. 333-30065
was declared effective by the Securities and Exchange Commission. The
registration statement registered 1,725,000 shares of Common Stock (including
225,000 shares to cover over-allotments) for sale by the Company at an initial
offering price of $9.50 per share. Van Kasper & Company and Sanders Morris Mundy
Inc. served as the managing underwriters in the offering. The $5,661,000 of
proceeds from the offering which remained at November 1, 1997 have been used to
reduce the Company's indebtedness to Sanifill.
ITEM 6. SELECTED FINANCIAL DATA
The consolidated income statement and balance sheet data below set forth
the consolidated financial data of the Company as of December 31, 1996 and 1997,
and for the years ended December 31, 1995, 1996 and 1997, derived from the
consolidated financial statements audited by Arthur Andersen LLP, which appear
elsewhere in this report. The consolidated income statement and balance sheet
data as of December 31, 1995 and for the year ended December 31, 1994 have been
derived from the financial statements audited by Arthur Andersen LLP which do
not appear in this report. The consolidated income statement and balance sheet
data below as of December 31, 1993 and for the year ended December 31, 1993 have
been derived from the unaudited consolidated financial statements of the
Company. The unaudited financial statements for 1993 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 (in thousands, except per share data).
12
<PAGE>
INCOME STATEMENT DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ 3,799 $ 8,039 $ 11,127 $ 14,285 $ 38,159
--------- --------- --------- --------- ---------
Gross profit......................... $ 1,873 $ 481 $ 1,192 $ 2,495 $ 13,986
Selling, general and administrative
expenses........................... 1,813 643 863 1,440 5,920
--------- --------- --------- --------- ---------
Income (loss) from operations........ $ 60 $ (162) $ 329 $ 1,055 $ 8,066
Interest and other expense, net...... 125 109 177 309 1,775
--------- --------- --------- --------- ---------
Income (loss) before income taxes.... $ (65) $ (271) $ 152 $ 746 $ 6,291
--------- --------- --------- --------- ---------
Net income (loss).................... $ (65) $ (182) $ 103 $ 491 $ 3,875
========= ========= ========= ========= =========
</TABLE>
EARNINGS PER COMMON SHARE DATA:
1995 1996 1997
--------- --------- ---------
Basic Earnings per Common Share...... $ 0.06 $ 0.23 $ 0.65
========= ========= =========
Diluted Earnings per Common Share.... $ 0.06 $ 0.23 $ 0.55
========= ========= =========
Weighted Average Common Shares
Outstanding........................ 1,700 2,117 5,937
========= ========= =========
Weighted Average Common and Common
Equivalent Shares Outstanding...... 1,700 2,139 7,078
========= ========= =========
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total Assets......................... $ 1,277 $ 1,410 $ 3,007 $ 46,851 $ 55,016
Total Long-Term Debt, including
current maturities $ 1,320 $ 1,447 $ 2,010 $ 29,950 $ 17,436
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO AND THE OTHER
FINANCIAL INFORMATION INCLUDED ELSEWHERE HEREIN.
OVERVIEW
The Company is a leading provider of services for the collection,
processing, recovery and disposal of liquid wastes. The Liquid Waste Division
collects, processes and disposes of liquid waste and recovers by-products from
these waste streams. The Oilfield Waste Division processes and disposes of
oilfield waste generated in oil and gas exploration and production. On December
13, 1996, the Company acquired its Oilfield Waste Division from Campbell Wells,
L.P. and Campbell Wells NORM, L.P. (referred to as the "Predecessor"to the
extent of the operations so acquired) which were wholly-owned subsidiaries of
Sanifill, Inc. In June 1997, the Company formed its Liquid Waste Division by
acquiring Mesa Processing, Inc., T&T Grease Services, Inc. and Phoenix Fats &
Oils, Inc. (the "Mesa Companies") and American Waste Water ("AWW"). Each of
these acquisitions was accounted for under the pooling-of-interests method of
accounting. During the fourth quarter of 1997, the Liquid Waste Division
acquired five companies (the "Acquired Entities"). The following discussion
addresses the results of operations and financial condition of the Company as
shown in the Consolidated Financial Statements which reflect the historical
results of operations of the Company for the period from its inception in
November 1996 through December 31, 1996 and for the year ended December 31,
1997, and of the Mesa Companies and AWW for all periods presented. The results
of operations of the Acquired Entities are included in the Company's results of
operations from their respective dates of acquisition. The following pro forma
discussion also addresses the operating results of the Predecessor for the
period from January 1, 1996 through December 13, 1996 and for the year ended
December 31, 1995, which are included on Page F-23, combined with the operating
results of the Company to the extent necessary to better analyze the Company's
historical
13
<PAGE>
consolidated results of operations. The pro forma financial information assumes
that the Predecessor was acquired on January 1, 1995 and is not necessarily
indicative of the results the Company would have obtained had the Predecessor
been acquired on that date or of the Company's future results.
From January 1 through March 26, 1998, the Liquid Waste Division acquired
four companies which had aggregate revenues of $6.4 million in 1997. The
Company' s total cost for these acquisitions was $9.2 million, including 190,000
shares of Common Stock. The results of operations of companies acquired during
1998 are not included in the historical or pro forma results of operations
presented in this report. The Company has also entered into non-binding letters
of intent to acquire six other companies which had aggregate revenues of $58
million in 1997. The Company expects to complete these acquisitions during the
second quarter, although there can be no assurance that any of these companies
will be acquired.
The Liquid Waste Division derives revenues from two principal sources:
tipping and collection fees received for processing and disposing of waste and
revenue obtained from the sale of by-products (fats, oils and feed proteins
processed and recovered from waste streams). Tipping and collection fees charged
to customers vary per gallon by waste stream according to constituents of the
waste, expenses associated with processing the waste and competitive factors.
By-products are commodities and their prices fluctuate based on market
conditions. By-products are sold primarily to customers in Mexico. Because
substantially all of the Company's operations are conducted in the United States
and foreign sales are denominated and paid in U.S. dollars, the Company is
generally not subject to direct foreign exchange gains and losses. Although such
currency risk is borne by the Company's customers, foreign exchange rate
fluctuations could affect the Company's business by making its products more
expensive. The Company does not believe that fluctuations in the Mexican peso
and other foreign currencies have materially impacted its business in the past.
The Oilfield Waste Division derives revenues from fees charged to customers
for processing and disposing of oil and gas exploration and production waste.
These fees are based on the volume in barrels of waste delivered by a customer
and the composition of the waste. Currently, such fees range from $.40 per
barrel for salt water to $6.75 to $10.25 per barrel for oil-based drilling
fluids, depending upon the makeup of the waste. Accordingly, the Company
believes that total revenues are a better indicator of performance than is the
average fee charged. 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 to process the waste in order to match revenues with
their related costs. As processing occurs, generally over nine to twelve months,
the reserve is released as expenses are incurred.
Under the terms of a Disposal Agreement with Newpark, Newpark is obligated
to deliver to the Company the lesser of (i) one-third of the barrels of waste
that Newpark receives for processing and disposal in a designated territory and
(ii) 1,850,000 barrels of waste, in each case excluding saltwater. Deliveries
under the Disposal Agreement accounted for 37.4% of the Oilfield Waste
Division's revenues during 1997. The contract price is $5.50 per barrel,
adjusted semi-annually beginning June 30, 1998, with a price floor of $5.50 per
barrel. Although the contract price is lower than the price that the Company
could obtain in the open market, Newpark's delivery obligations under the
Disposal Agreement allow the Company to eliminate virtually all marketing and
transfer expenses on waste delivered under the Disposal Agreement. Accordingly,
the Company's gross margin on this waste volume generally is lower than the
gross margin on waste volume from customers other than Newpark, but the Company
believes that operating margins on waste volume from Newpark and other customers
are comparable. The Company expects a disparity between the contract price and
market price to continue for the duration of the Disposal Agreement. There is no
absolute floor on the variable minimum delivery requirements under the Disposal
Agreement and, therefore, a significant reduction in the volume of waste
generated in the territory or in Newpark's market share could materially
adversely affect the Company's results of operations. Due to certain noncompete
restrictions with Newpark related to waste generated offshore, the Company is
focusing its future marketing efforts toward inland waste generators. If its
marketing efforts are successful, the Company believes that both gross and
operating margins will improve.
14
<PAGE>
Depreciation and amortization expenses account for a substantial portion of
the Company's expenses each period. Landfarms, which constitute approximately
37.5% of the Company's net property, plant and equipment, are amortized over 25
years. Other depreciable or amortizable assets are expensed over periods ranging
from three to 40 years. Amortization expenses relating to acquisitions have not
been significant in the past, but are expected to increase as the Company
pursues its acquisition strategy.
The Company anticipates that the Liquid Waste Division will represent a
growing share of the Company's business and that internal growth of the Liquid
Waste Division will continue at a faster rate than internal growth of the
Oilfield Waste Division. Internal growth of the Liquid Waste Division 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
processing facilities. In addition, the Company is focusing its acquisition
activity primarily in the Liquid Waste Division.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES. Revenues in 1997 totaled $38.2 million versus $14.3 million in
1996. Revenues increased by 22.5% to $38.2 million in 1997 from 1996 pro forma
revenues of $31.1 million. The Oilfield Waste Division contributed 52.2% of
consolidated revenues in 1997 and 56.8% of pro forma revenues in 1996. Within
the Liquid Waste Division, by-product sales contributed approximately 68% in
1997 and approximately 85% in 1996.
By-product sales increased by 8.8% from 1996 to 1997 and tipping and
collection fees increased by 180.1%. An 18.1% increase in the volume of
by-products sold was offset by 7.9% decrease in the average price per pound. The
increase in volumes was attributable to expanded output of brown grease as a
result of the expansion of the Dallas processing facility while the decrease in
selling prices was due to market conditions. Processing volumes in 1997
increased by 215.8%, reflecting growth of the Houston market and the effect of
acquisitions completed during the fourth quarter. The average price per gallon
decreased slightly from 1996 to 1997, and the Company expects average prices to
decline modestly during 1998. The Acquired Entities contributed $1.3 million to
the Liquid Waste Division's revenue in 1997. For the full year, the Acquired
Entities had combined revenues of $6.5 million.
Revenues from the Oilfield Waste Division increased by 12.8% over 1996 pro
forma revenues. The number of barrels received for processing increased by 30.0%
to 4,452,000 barrels in 1997 from 3,424,000 barrels in 1996, primarily due to
increased volumes of saltwater and inland generated waste. The Company does not
expect recent declines in oil prices to have a significant effect on volumes
because a substantial part of drilling activity in the Gulf relates to
exploration and production of gas. However, a prolonged downturn in oil and gas
prices could reduce processing volumes.
GROSS MARGINS. The Company's gross margin increased to 36.7% in 1997 from
17.5% in 1996, reflecting improved margins in the Liquid Waste Division, as well
as the contribution of the Oilfield Waste Division for the full year in 1997.
Pro forma gross margin was 33.8% in 1996. During 1997 and 1996, the Oilfield
Waste Division contributed to gross profit approximately 76.9% and 80.8% on a
pro forma basis, respectively.
Gross margin in the Liquid Waste Division increased to 17.8% in 1997 from
15.1% in 1996. This improvement is primarily attributable to the larger
proportion of processing operations in 1997, which provides higher margins than
do by-product sales. Gross margins were positively affected by higher throughput
in processing and by-product operations and lower raw materials costs, the
benefits of which were partially offset by increased personnel expenses. Gross
margin in the Oilfield Waste Division increased to 54.0% in 1997 from 48.1% on a
pro forma basis in 1996. This improvement is primarily the result of increased
volumes of inland waste in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In 1997, selling, general
and administrative expenses increased to $5,920,000 from $1,440,000 in 1996. The
majority of the increase relates to the inclusion of the Oilfield Waste Division
for all of 1997 as compared to less than one month in 1996. Selling, general and
15
<PAGE>
administrative expenses increased by 47.5% from 1996 on a proforma basis to
1997. Selling, general and administrative expenses increased to 15.3% of 1997
revenues from 12.7% of 1996 pro forma revenues, primarily due to higher
personnel costs and professional fees.
INTEREST AND OTHER EXPENSES. Net interest and other expenses increased to
$1,775,000 in 1997 from $309,000 in 1996, primarily as a result of interest
expense related to debt incurred in acquiring the Oilfield Waste Division and
the Acquired Entities.
YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUES. Revenues in 1996 totaled $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, the Oilfield Waste
Division contributed 56.8% in 1996 and 57.6% in 1995. Within the Liquid Waste
Division, by-product sales contributed approximately 85% of revenues in 1996 and
approximately 88% in 1995.
By-product sales increased by 16.1% from 1995 to 1996 and tipping and
collection fees increased by 57.1%. This increase in revenues from the sale of
by-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. Processing volumes in 1996 increased by 33.9% and the
average price per gallon increased by 16.9%. The increase in 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 collection business in March 1996.
Pro forma revenues from the Oilfield Waste Division increased by 16.9%. The
number of barrels received for processing increased by 37.4% to 3,424,000
barrels in 1996 from 2,492,000 barrels in 1995, primarily due to increased
deliveries of pit remediation waste.
GROSS MARGINS. The Company's gross margin increased to 17.5% in 1996 from
10.7% in 1995, reflecting improved margins in the Liquid Waste Division, as well
as the addition of the Oilfield Waste Division 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, the Oilfield Waste Division contributed approximately 80.8% and 85.7%,
respectively, of pro forma gross profit.
Gross margin in the Liquid Waste Division increased to 15.1% in 1996 from
10.7% in 1995. This improvement is attributable to increased sales of
by-products, lower per unit processing costs, lower per unit costs of raw
materials, and increased revenues from processing operations, offset in part by
increased personnel expenses. The Company believes that gross margin on
by-product sales improved because of increased capacity and utilization of the
processing facilities, resulting in more efficient operations. Pro forma gross
margin in the Oilfield Waste Division 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 Oilfield Waste Division
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 acquisition of the Oilfield Waste Division.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net working capital of $2,122,000 at December 31, 1997,
compared to net working capital of $223,000 at December 31, 1996. Improvement in
the working capital position relates primarily to
16
<PAGE>
a $5 million decrease in current maturities of long-term debt because of the
payment of short-term debt from a portion of the proceeds of the Company's
initial public offering of Common Stock and the refinancing of short-term debt
under a $50 million line of credit obtained in December 1997.
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. At the end of
1997, approximately $800,000 of principal payments on debt obligations were
payable during the next twelve months. Capital expenditures for 1998 are
budgeted at approximately $3.8 million. Of this amount, approximately $1.2
million is budgeted to be invested in the Oilfield Waste Division on equipment
replacements and landfarm expansions. The remaining amount is budgeted to be
invested in the Liquid Waste Division for plant expansions, equipment and
vehicle upgrades.
At December 31, 1997, the Company had established a $3.3 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 $4.0 million of
financial assurance in the form of letters of credit and bonds.
In December 1997, the Company entered into a $50 million credit agreement
with a group of banks under which the Company may borrow to fund working capital
requirements and acquisitions. Amounts outstanding under the credit facility are
secured by, among other things, a lien on all or substantially all of the
Company's assets. The Credit Facility prohibits the payment of dividends and
requires the Company to comply with certain financial covenants. The Credit
Facility also places certain restrictions on, among other things, acquisitions
and other business combination transactions which may be consummated by the
Company. The Company does not believe that these restrictions will have a
material adverse effect on the Company's ability to fulfill its current
acquisition strategy. The debt outstanding under the Credit Facility may be
accelerated at the option of the lenders in the event that, among other things,
a change in control of the Company occurs or Michael P. Lawlor, W. Gregory Orr
or Earl J. Blackwell ceases to serve as an executive officer of the Company and
is not replaced within sixty days by an individual reasonably satisfactory to
the lenders. The Company had borrowed approximately $15.3 million under the
credit facility at year-end.
The Company's capital resources consist of cash reserves, cash which is
expected to be generated from operations and funds available under its line of
credit. The Company expects that these resources will be sufficient to provide
for the Company's capital requirements for continuing operations for at least
the next twelve months. In addition to capital required for its ongoing
operations, the Company will require additional capital to pursue its
acquisition strategy. Currently, the Company has identified and is in various
stages of negotiations to acquire six companies which, if completed on the terms
contemplated, would result in the issuance of approximately 786,000 shares of
Common Stock and the payment of cash and assumption of debt of approximately
$24.7 million. The Company anticipates that the cash required for these
acquisitions would be obtained under the line of credit. The Company also is
evaluating other potential acquisitions. The Company anticipates that future
acquisitions would also be made using a combination of Common Stock and cash
payments, some of which may be derived from borrowings under the line of credit.
In addition, the Company may seek to raise additional equity capital for all or
a substantial part of the consideration to be paid for future acquisitions or to
reduce its debt. In the event that the Common Stock does not maintain a
sufficient market value or potential acquisition candidates are unwilling to
accept Common Stock as part of the consideration for the sale of their
businesses, the Company would be required to utilize more of its cash resources
in order to continue its acquisition program. At the same time, the Company may
be unable to raise additional capital due to market conditions. As a result, the
timing of acquisitions over the longer term can be expected to be affected by
prevailing market conditions. In addition, if the Company were unable to secure
the capital necessary to carry out its acquisition program, the implementation
of the Company's growth strategy would be adversely affected.
17
<PAGE>
YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, such
computer applications could fail or create erroneous result by or at the Year
2000. The Company has determined that its computer programs are Year 2000
compliant. In the course of its due diligence review of future acquisitions, the
Company will assess the systems of the respective companies for Year 2000
compliance and make modifications if required.
FORWARD LOOKING STATEMENTS
Statements of the Company's or management's intentions, beliefs,
anticipations, expectations or similar statements concerning future events
contained in this report constitute "forward looking statements"as defined in
the Private Securities Litigation Reform Act of 1995. As with any future event,
there can be no assurance that the events described in forward looking
statements made in this report will occur or that the results of future events
will not vary materially from those described herein. Important factors that
could cause the Company's actual performance and operating results to differ
materially from the forward looking statements include, among other factors,
changes in the regulatory environment in which the Company operates, changes in
the level of economic activity in markets served by the Company, the
availability of capital to support the Company's growth strategy, the ability of
the Company to execute it business plan, changes in the level of exploration and
production of oil and gas, particularly in the Gulf Coast region, changes in the
level of competition faced by the Company in each of its markets, the loss of
business or inability to collect payment from one or more significant customers
and the adverse resolution of pending litigation affecting the Company's
landfarms.
ITEM 7A. MARKET RISK DISCLOSURE
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are
included in this report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the Proxy Statement for the Annual Meeting
of Stockholders to be held on May 5, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the Proxy Statement for the Annual Meeting
of Stockholders to be held on May 5, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the Proxy Statement for the Annual Meeting
of Stockholders to be held on May 5, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the Proxy Statement for the Annual Meeting
of Stockholders to be held on May 5, 1998.
18
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements are filed as part of this report:
See Index to Financial Statements on Page F-1 of this Report.
(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.
(c) Reports on Form 8-K
None
(d) Exhibits:
EXHIBIT
NO. DESCRIPTION
- ----------------------------------------------------------------
3.1 -- Second Amended and Restated Certificate
of Incorporation of U S Liquids Inc.
(Exhibit 3.1 of the U S Liquids Inc.
Registration Statement on Form S-1 (File
No. 333-30065), effective August 19,
1997, is hereby incorporated by
reference).
3.2 -- Amended and Restated Bylaws of U S
Liquids Inc. (Exhibit 3.2 of the U S
Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated
by reference).
4.1 -- Form of Certificate Evidencing Ownership
of Common Stock of U S Liquids Inc.
(Exhibit 4.1 of the U S Liquids Inc.
Registration Statement on Form S-1 (File
No. 333-30065), effective August 19,
1997, is hereby incorporated by
reference).
+4.2 -- Credit Agreement, dated December 17,
1997, among U S Liquids Inc., Bank of
America National Trust and Savings
Association, as agent and issuing bank,
BankBoston, N.A. and Wells Fargo Bank,
N.A.
+4.3 -- Note, dated December 17, 1997, of U S
Liquids Inc. payable to Bank of America
National Trust and Savings Association.
+4.4 -- Note, dated December 17, 1997, of U S
Liquids Inc. payable to BankBoston, N.A.
+4.5 -- Note, dated December 17, 1997, of U S
Liquids Inc. payable to Wells Fargo
Bank, N.A.
+4.6 -- Security Agreement, dated December 17,
1997, executed by U S Liquids Inc. and
its subsidiaries in favor of Bank of
America National Trust and Savings
Association.
+4.7 -- Company Pledge Agreement, dated December
17, 1997, executed by U S Liquids Inc.
in favor of Bank of America National
Trust and Savings Association.
10.1 -- Asset Purchase Agreement, dated December
2, 1996, among U S Liquids Inc.,
Sanifill, Inc. and certain affiliates of
Sanifill, Inc. (Exhibit 10.1 of the U S
Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated
by reference).
10.2 -- Seller Noncompetition Agreement, dated
December 13, 1996, between U S Liquids
Inc. and Sanifill, Inc. (Exhibit 10.2 of
the U S Liquids Inc. Registration
Statement on Form S-1 (File No.
333-30065), effective August 19, 1997,
is hereby incorporated by reference).
10.3 -- Buyer Noncompetition Agreement, dated
December 13, 1996, between Sanifill,
Inc. and U S Liquids Inc. (Exhibit 10.3
of the U S Liquids Inc. Registration
Statement on Form S-1 (File No.
333-30065), effective August 19, 1997,
is hereby incorporated by reference).
10.4 -- NOW Disposal Agreement, dated June 4,
1996, among Sanifill, Inc., Oilfield
Waste Disposal Operating Co., and
Campbell Wells, Ltd. (Exhibit 10.4 of
the U S Liquids Inc. Registration
Statement on Form S-1 (File No.
333-30065), effective August 19, 1997,
is hereby incorporated by reference).
19
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------------------------------------------------------------
10.5 -- Noncompetition Agreement, dated August
12, 1996, between Sanifill, Inc. and
Newpark Resources, Inc. (Exhibit 10.5 of
the U S Liquids Inc. Registration State-
ment on Form S-1 (File No. 333-30065),
effective August 19, 1997, is hereby
incorporated by reference).
10.6 -- Assumption and Guarantee Agreement dated
August 12, 1996, among Newpark
Resources, Inc., Sanifill, Inc., and
Campbell Wells, Ltd. (Exhibit 10.6 of
the U S Liquids Inc. Registration
Statement on Form S-1 (File No.
333-30065), effective August 19, 1997,
is hereby incorporated by reference).
10.7 -- Lease and Access Agreement between
Campbell Wells, Ltd. and Newpark
Resources, Inc. (Exhibit 10.7 of the U S
Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated
by reference).
10.8 -- Sublease and Access Agreement between
Campbell Wells, Ltd. and Newpark
Resources, Inc. and underlying lease
agreement (Exhibit 10.8 of the U S
Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated
by reference).
10.9 -- Sublease and Access Agreement between
Campbell Wells, Ltd. and Newpark
Resources, Inc. and underlying lease
agreement (Exhibit 10.9 of the U S
Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated
by reference).
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. (Exhibit 10.10
of the U S Liquids Inc. Registration
Statement on Form S-1 (File No.
333-30065), effective August 19, 1997,
is hereby incorporated by reference).
10.11 -- Form of Nonqualified Stock Option
Agreement between U S Liquids Inc. and
certain individuals (Exhibit 10.11 of
the U S Liquids Inc. Registration
Statement on Form S-1 (File No.
333-30065), effective August 19, 1997,
is hereby incorporated by reference).
10.12 -- U S Liquids Inc. Amended and Restated
Stock Option Plan (Exhibit 10.12 of the
U S Liquids Inc. Registration Statement
on Form S-1 (File No. 333-30065),
effective August 19, 1997, is hereby
incorporated by reference).
10.13 -- U S Liquids Inc. Directors' Stock Option
Plan (Exhibit 10.13 of the U S Liquids
Inc. Registration Statement on Form S-1
(File No. 333-30065), effective August
19, 1997, is hereby incorporated by
reference).
10.14 -- Form of Grant of Incentive Stock Option
Agreement (Exhibit 10.14 of the U S
Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated
by reference).
*`10.15 -- Employment Agreement, dated February 13,
1998, between U S Liquids Inc. and W.
Gregory Orr.
*`10.16 -- Employment Agreement, dated February 13,
1998, between U S Liquids Inc. and Earl
J. Blackwell.
`10.17 -- Asset Purchase Agreement, dated December
15, 1997, among U S Liquids Inc., Mesa
Processing, Inc., Waste Technologies,
Inc., Kirk Johnson, Norman Johnson, John
Jetelina and Ron McMahan.
10.18 -- Agreement and Plan of Reorganization,
dated September 30, 1997, among U S
Liquids Inc., U S Liquids/Reclaim
Acquisition Corporation, Re-Claim
Environmental, Inc., John E. Tuma, Duane
F. Herbst, A. Travis Campbell, Russell
Reichert, Kenneth B. Holmes, R. L.
Smothers and Rainbow Investment Company
(Exhibit 2.1 to the Form 10-Q for the
quarter ended September 30, 1997 is
hereby incorporated by reference).
20
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------------------------------------------------------------
10.19 -- Purchase of Membership Interest
Agreement, dated September 30, 1997,
among U S Liquids Inc., Re-Claim
Environmental Louisiana LLC, John E.
Tuma and Reyncor Industrial Alcohol,
Inc. (Exhibit 2.2 of the Form 10-Q for
the quarter ended September 30, 1997 is
hereby incorporated by reference).
10.20 -- Purchase and Sale of Assets Agreement,
dated September 30, 1997, among T&T
Grease Service, Inc., A&B Enterprises,
Inc. and Earnest L. McCombs (Exhibit 2.3
to the Form 10-Q for the quarter ended
September 30, 1997 is hereby
incorporated by reference).
10.21 -- Stock Distribution Agreement, dated June
16, 1997, between U S Liquids Inc. and
Thomas B. Blanton (Exhibit 10.21 of the
U S Liquids Inc. Registration Statement
on Form S-1 (File No. 333-30065),
effective August 19, 1997, is hereby
incorporated by reference).
10.22 -- Form of Stock Distribution Agreement,
dated June 16, 1997, between U S Liquids
Inc. and the former stockholders of
American WasteWater Inc. (Exhibit 10.22
of the U S Liquids Inc. Registration
Statement on Form S-1 (File No.
333-30065), effective August 19, 1997,
is hereby incorporated by reference).
10.23 -- Stock Distribution Agreement, dated June
16, 1997, between U S Liquids Inc. and
W. Gregory Orr (Exhibit 10.23 of the U S
Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated
by reference).
10.24 -- Noncompetition Agreement, dated June 17,
1997, between U S Liquids Inc. and
Thomas B. Blanton (Exhibit 10.24 of the
U S Liquids Inc. Registration Statement
on Form A1 (File No. 333-30065),
effective August 19, 1997, is hereby
incorporated by reference).
10.25 -- Noncompetion Agreement, dated June 17,
1997, between U S Liquids Inc. and
William H. Wilson, Jr. (Exhibit 10.25 of
the U S Liquids Inc. Registration on
Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated
by reference).
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 (Exhibit 10.26 of
the U S Liquids Inc. Registration
Statement on Form S-1 (File No.
333-30065), effective August 19, 1997,
is hereby incorporated by reference).
10.27 -- Estoppel, Waiver and Amendment
Agreement, dated June 16, 1997, between
Sanifill, Inc. and U S Liquids Inc.
(Exhibit 10.27 of the U S Liquids Inc.
Registration Statement on Form S-1 (File
No. 333-30065), effective August 19,
1997, is hereby incorporated by
reference).
10.28 -- Financial Advisory Agreement, dated May
15, 1997, between U S Liquids Inc. and
Sanders Morris Mundy Inc. and
supplemental letter dated July 10, 1997
(Exhibit 10.28 of the U S Liquids Inc.
Registration Statement on Form S-1 (File
No. 333-30056), effective August 19,
1997, is hereby incorporated by
reference).
10.29 -- Service Agreement, dated June 23, 1997,
between U S Liquids Inc. and Bellmeade
Capital Partners (Exhibit 10.29 of the U
S Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated
by reference).
10.30 -- Service Agreement, dated June 23, 1997,
between U S Liquids Inc. and Mark
Liebovit (Exhibit 10.30 of the U S
Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated
by reference).
10.31 -- Warrant, dated December 13, 1996, issued
by U S Liquids Inc. to Sanifill, Inc.
(Exhibit 10.31 of the U S Liquids Inc.
Registration Statement on Form S-1 (File
No. 333-30065), effective August 19,
1997, is hereby incorporated by
reference.
21
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------------------------------------------------------------
10.32 -- Warrant Agreement, dated May 15, 1997,
between U S Liquids Inc. and Sanders
Morris Mundy Inc. (Exhibit 10.32 of the
U S Liquids Inc. Registration Statement
on Form S-1 (File No. 333-30065),
effective August 19, 1997, is hereby
incorporated by reference).
10.33 -- Warrant Agreement among U S Liquids
Inc., Van Kasper & Company and Sanders
Morris Mundy Inc. (Exhibit 10.33 of the
U S Liquids Inc. Registration Statement
on Form S-1 (File No. 333-34875),
effective September 18, 1997, is hereby
incorporated by reference).
10.34 -- Warrant, dated June 23, 1997, issued by
U S Liquids Inc. to Bellmeade Capital
Partners (Exhibit 10.34 of the U S
Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated
by reference).
10.35 -- Warrant, dated June 23, 1997, issued by
U S Liquids Inc. to Mark Liebovit
(Exhibit 10.35 of the U S Liquids Inc.
Registration Statement on Form S-1 (File
No. 333-30065), effective August 19,
1997, is hereby incorporated by
reference).
10.36 -- Stock Purchase Agreement, dated
September 10, 1996, among Mesa
Processing, Inc., Jack C. Wolcott and
South Texas By-Products Company, Inc.
(Exhibit 10.36 of the U S Liquids Inc.
Registration Statement on Form S-1 (File
No. 333-30065), effective August 19,
1997, is hereby incorporated by
reference).
10.37 -- Non-Competition Agreement, dated
September 10, 1996, between Jack C.
Wolcott and Mesa Processing, Inc.
(Exhibit 10.37 of the U S Liquids Inc.
Registration Statement on Form S-1 (File
No. 333-30065), effective August 19,
1997, is hereby incorporated by
reference).
10.38 -- Stock Distribution Agreement, dated June
16, 1997, between U S Liquids Inc. and
Earl J. Blackwell (Exhibit 10.38 of the
U S Liquids Inc. Registration Statement
on Form S-1 (File No. 333-30065),
effective August 19, 1997, is hereby
incorporated by reference).
10.39 -- Stock Distribution Agreement, dated June
16, 1997, between U S Liquids Inc. and
William M. DeArman (Exhibit 10.39 of the
U S Liquids Inc. Registration Statement
on Form S-1 (File No. 333-30065),
effective August 19, 1997, is hereby
incorporated by reference).
*10.40 -- Employment Agreement, dated July 2,
1997, between U S Liquids Inc. and
Michael P. Lawlor (Exhibit 10.40 of the
U S Liquids Inc. Registration Statement
on Form S-1 (File No. 333-30065),
effective August 19, 1997, is hereby
incorporated by reference).
10.41 -- Warrant, dated January 1, 1998, issued
by U S Liquids Inc. to Glenn A. Pratt.
10.42 -- Amendment No. 1 to Financial Advisory
Agreement, dated August 18, 1997,
between U S Liquids Inc. and Sanders
Morris Mundy Inc. (Exhibit 10.42 of the
U S Liquids Inc. Registration Statement
on Form S-1 (File No. 333-30065),
effective August 19, 1997, is hereby
incorporated by reference).
10.43 -- 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. (Exhibit 2.1 of the U S
Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated
by reference).
10.44 -- 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. (Exhibit 2.2 of
the U S Liquids Inc. Registration
Statement on Form S-1 (File No.
333-30065), effective August 19, 1997,
is hereby incorporated by reference).
22
<PAGE>
EXHIBIT
NO. DESCRIPTION
- ----------------------------------------------------------------
10.45 -- Warrant, dated August 25, 1997, issued
by U S Liquids Inc. to Van Kasper &
Company. (Exhibit 10.45 of U S Liquids
Inc. Registration Statement on Form S-1
(File No. 333-34875), effective
September 18, 1997, is hereby
incorporated by reference).
10.46 -- Warrant, dated August 25, 1997, issued
by U S Liquids Inc. to Sanders Morris
Mundy Inc. Exhibit 10.46 of U S Liquids
Inc. Registration Statement on Form S-1
(File No. 333-34875), effective
September 18, 1997, is hereby
incorporated by reference).
10.47 -- Warrant issued by U S Liquids Inc. to
Sanders Morris Mundy Inc. (Exhibit 10.47
of U S Liquids Inc. Registration
Statement on Form S-1 (File No.
333-34875), effective September 18,
1997, is hereby incorporated by
reference).
+10.48 -- Warrant, dated January 1, 1998, issued
by U S Liquids Inc. to John Bailey.
+21.1 -- List of subsidiaries of U S Liquids Inc.
+23.1 -- Consent of Arthur Andersen LLP.
+27.1 -- Financial Data Schedule.
- ------------
+ Filed herewith
* Management Contract
23
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
U S LIQUIDS INC.
Date: March 30, 1998 By: /s/Michael P. Lawlor
MICHAEL P. LAWLOR
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Date: March 30, 1998 By: /s/W. Gregory Orr
W. GREGORY ORR
DIRECTOR, PRESIDENT AND
CHIEF OPERATING OFFICER
Date: March 30, 1998 By: /s/Earl J. Blackwell
EARL J. BLACKWELL
CHIEF FINANCIAL OFFICER,
SENIOR VICE PRESIDENT AND
SECRETARY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Date: March 30, 1998 By: /s/Michael P. Lawlor
MICHAEL P. LAWLOR
CHAIRMAN OF THE BOARD OF
DIRECTORS
Date: March 30, 1998 By: /s/W. Gregory Orr
W. GREGORY ORR
DIRECTOR
Date: March 30, 1998 By: /s/William A. Rothrock, IV
WILLIAM A. ROTHROCK, IV
DIRECTOR
Date: March 30, 1998 By: /s/James F. McEneaney
JAMES F. MCENEANEY
DIRECTOR
Date: March 30, 1998 By: /s/Alfred Tyler 2nd
ALFRED TYLER 2ND
DIRECTOR
Date: March 30, 1998 By: /s/Thomas B. Blanton
THOMAS B. BLANTON
24
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
------
U S LIQUIDS INC.
Report of Independent Public
Accountants..................... F-2
Consolidated Balance Sheets..... F-3
Consolidated Statements of
Income.......................... F-4
Consolidated Statements of
Stockholders' Equity............ F-5
Consolidated Statements of Cash
Flows........................... F-6
Notes to Consolidated Financial
Statements...................... F-7
U S LIQUIDS INC. PREDECESSOR
Report of Independent Public
Accountants..................... F-21
Balance Sheets.................. F-22
Statements of Income............ F-23
Notes to Financial Statements... F-24
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To U S Liquids Inc.:
We have audited the accompanying consolidated balance sheets of U S Liquids
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1997,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
U S Liquids Inc. and subsidiaries as of December 31, 1996 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 3, 1998
F-2
<PAGE>
U S LIQUIDS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31,
--------------------
1996 1997
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 5,604 $ 2,203
Accounts receivable, less
allowances of $265 and $342.... 4,843 5,436
Inventories..................... 339 567
Prepaid expenses and other
current assets................. 850 621
--------- ---------
Total current assets....... $ 11,636 $ 8,827
PROPERTY, PLANT AND EQUIPMENT, net... 34,582 39,110
DEFERRED INCOME TAXES................ 100 --
INTANGIBLE ASSETS, net............... 85 6,078
OTHER ASSETS, net.................... 448 1,001
--------- ---------
Total assets............... $ 46,851 $ 55,016
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................... $ 5,817 $ 792
Accounts payable................ 2,984 2,154
Accrued liabilities............. 2,147 3,759
Advances from stockholders and
related-party notes payable.... 465 --
--------- ---------
Total current
liabilities.................. $ 11,413 $ 6,705
LONG-TERM OBLIGATIONS, net of current
maturities......................... 23,668 16,644
CELL PROCESSING RESERVE.............. 7,732 7,330
CLOSURE AND REMEDIATION RESERVES..... 2,500 3,275
DEFERRED INCOME TAXES................ -- 156
--------- ---------
Total liabilities.......... $ 45,313 $ 34,110
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,000,000 shares authorized,
none issued
Series A 72 percent
cumulative preferred stock,
$1.00 par value, 10,000 shares
authorized, issued and
outstanding as of December 31,
1996........................... $ 10 $ --
Common stock, $.01 par value,
30,000,000 shares authorized,
5,238,875 and 7,303,164 shares
issued and outstanding......... 52 73
Additional paid-in capital...... 1,379 17,190
Retained earnings............... 97 3,643
--------- ---------
Total stockholders'
equity....................... $ 1,538 $ 20,906
--------- ---------
Total liabilities and
stockholders' equity.... $ 46,851 $ 55,016
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
U S LIQUIDS INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
REVENUES............................. $ 11,127 $ 14,285 $ 38,159
COST OF OPERATIONS................... 9,935 11,790 24,173
--------- --------- ---------
Gross profit.................... $ 1,192 $ 2,495 $ 13,986
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 863 1,440 5,920
--------- --------- ---------
INCOME FROM OPERATIONS............... $ 329 $ 1,055 $ 8,066
INTEREST EXPENSE, net................ 159 397 1,734
OTHER (INCOME) EXPENSE, net.......... 18 (88) 41
--------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME
TAXES.............................. $ 152 $ 746 $ 6,291
PROVISION FOR INCOME TAXES........... 49 255 2,416
--------- --------- ---------
NET INCOME........................... $ 103 $ 491 $ 3,875
========= ========= =========
Basic Earnings per Common Share...... $ 0.06 $ 0.23 $ 0.65
========= ========= =========
Diluted Earnings per Common Share.... $ 0.06 $ 0.23 $ 0.55
========= ========= =========
Weighted Average Common Shares
Outstanding........................ 1,700 2,117 5,937
========= ========= =========
Weighted Average Common and Common
Equivalent Shares Outstanding...... 1,700 2,139 7,078
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
U S LIQUIDS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED
----------------- ------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT)
------- ------ --------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 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...................... -- -- -- -- -- 3,875
Distributions equal to the
current income taxes of
limited liability
corporation................... -- -- -- -- -- (171)
Preferred stock dividends....... -- -- -- -- -- (16)
Warrants issued in connection
with initial public
offering...................... -- -- -- -- 551 --
Common stock issued in initial
public offering............... -- -- 1,725,000 17 13,497 --
Retirement of preferred stock... (10,000) (10 ) -- -- -- --
Common stock issued in
acquisitions.................. -- -- 283,039 3 1,579 (142)
Warrants issued in connection
with consulting agreement..... -- -- -- -- 184 --
Common stock options
exercised..................... -- -- 56,250 1 -- --
------- ------ --------- ------ ---------- ---------
BALANCE, December 31, 1997........... -- $-- 7,303,164 $ 73 $ 17,190 $ 3,643
======= ====== ========= ====== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
U S LIQUIDS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $ 103 $ 491 $ 3,875
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization... 159 424 2,990
Non-cash compensation recorded
through issuance of warrants.. -- -- 184
Net gain on sale of property,
plant, and equipment.......... -- -- (65)
Deferred income tax provision
(benefit)..................... 31 (121) 64
Changes in operating assets and
liabilities, net of amounts
acquired:
Accounts receivable, net........ (539) (105) 68
Inventories..................... (288) 44 (228)
Prepaid expenses and other
current assets.................. (19) (635) 479
Intangible assets............... -- 96 (31)
Other assets.................... (20) (209) (479)
Accounts payable and accrued
liabilities................... 946 1,567 (784)
Closure, remediation and cell
processing reserves........... -- (13) (503)
--------- --------- ---------
Net cash provided by
operating activities.... $ 373 $ 1,539 $ 5,570
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment.......................... $ (916) $ (1,795) $ (4,829)
Proceeds from sale of property,
plant, and equipment............... -- -- 206
Net cash (paid for) acquired through
acquisitions....................... -- 5,985 (3,234)
--------- --------- ---------
Net cash provided by (used
in) investing
activities.............. $ (916) $ 4,190 $ (7,857)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to stockholders and related
parties............................ $ (6) $ (139) $ (465)
Proceeds from issuance of long-term
obligations........................ 1,084 1,152 15,593
Principal payments on long-term
obligations........................ (564) (1,650) (30,111)
Interest accrued on related-party
notes payable...................... 50 56 --
Preferred stock dividends paid....... (7) -- (16)
Payments to retire preferred stock... -- -- (10)
Issuance of common stock............. -- 417 --
Proceeds from initial public offering
of common stock.................... -- -- 14,065
Proceeds from exercise of stock
options............................ -- -- 1
Distributions equal to the current
income taxes of limited liability
corporation........................ -- -- (171)
--------- --------- ---------
Net cash provided by (used
in) financing
activities.............. $ 557 $ (164) $ (1,114)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... $ 14 $ 5,565 $ (3,401)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 25 39 5,604
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 39 $ 5,604 $ 2,203
========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.......... $ 102 $ 339 $ 2,169
Cash paid for income taxes...... 2 7 2,745
Assets acquired under capital
leases.......................... 88 -- --
Liabilities assumed related to
acquisitions.................... -- 28,725 1,340
Common stock, warrants and
options issued for
acquisitions.................. -- 995 1,440
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
U S Liquids Inc. and subsidiaries (collectively "U S Liquids"or the
"Company") was founded November 18, 1996, and is a leading provider of
services for the collection, processing, disposal and recovery of liquid waste
in North America. On December 13, 1996, the Company acquired its Oilfield Waste
Division from Campbell Wells, L.P. and Campbell Wells NORM, L.P. (referred to as
"Campbell Wells" or "the Predecessor" to the extent of the operations so
acquired) which were wholly owned subsidiaries of Sanifill, Inc. ("Sanifill").
The Oilfield Waste Division treats and disposes of oilfield waste generated in
oil and gas exploration and production. In June 1997, the Company formed the
basis of its Liquid Waste Division by acquiring Mesa Processing, Inc., T&T
Grease Services, Inc. and Phoenix Fats & Oils, Inc. (the "Mesa companies" or
"Mesa") and American WasteWater ("AWW"). Each of these acquisitions was
accounted for under the pooling-of-interests method of accounting. The Liquid
Waste Division collects, processes and disposes of liquid waste and recovers
by-products from these waste streams.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company,
after elimination of all significant intercompany accounts and transactions. The
consolidated financial statements for 1997 represent the operations of the
Company, including combined revenues and net income of Mesa and AWW for the
pre-acquisition period in 1997 of $7,291,000 and $539,000 respectively, as well
as all other acquired companies' operations from their respective dates of
acquisition.
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.
CONCENTRATIONS OF CREDIT RISK
Accounts receivable potentially subject the Company to concentrations of
credit risk. At December 31, 1996, 41 percent and 16 percent, respectively, of
total accounts receivable were associated with two customers. At December 31,
1997, 13 percent of total accounts receivable was associated with one customer.
In addition, sales to one customer represented 62 percent and 43 percent of
total revenues for the years ended December 31, 1995, and 1996, respectively.
Sales to two customers represented 22 percent and 17 percent, respectively, of
total revenues for the year ended December 31, 1997.
The Company's customers are concentrated in the oil and gas industry in
Louisiana and Texas, the collection of liquid waste business in Louisiana and
Texas and the chemical processing and livestock feed industries in Mexico. Total
sales to customers in Mexico represented 82 percent, 70 percent and 31 percent
of total revenues for the years ended December 31, 1995, 1996 and 1997,
respectively. Accounts receivable from customers in Mexico represented
approximately 9 percent and 20 percent of total accounts receivable at December
31, 1996 and 1997, 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.
F-7
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost or market and, at December 31,
1996 and 1997, consisted of finished grease products of $265,000 and $435,000,
respectively, and unprocessed grease of $74,000 and $132,000, respectively. Cost
is determined using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are 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.
LONG-LIVED ASSETS
Long-lived assets consist primarily of the excess of cost over net assets
of acquired businesses (goodwill) and disposal sites. Management continually
evaluates whether events or circumstances have occurred that indicate the
remaining estimated useful life of intangible assets and other long lived assets
may warrant revision or that remaining balances may not be recoverable.
INCOME TAXES
The Company files a consolidated return for federal income tax purposes.
Income taxes for the Company are provided under the liability method considering
the income tax effects of transactions reported in the consolidated financial
statements which are different from the income tax return. The deferred income
tax assets and liabilities represent the future income tax consequences of those
differences, which will either be taxable or deductible when the underlying
assets or liabilities are realized or settled. Prior to May 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 May 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
As of December 31, 1997, the closure and remediation reserves represent
accruals for the total estimated costs associated with the ultimate closure of
the Company's landfarm facilities, including costs of decommissioning, statutory
monitoring costs and incremental direct administrative costs required during the
closure and subsequent postclosure periods. Management periodically reviews the
level of these reserves and will adjust such reserves if estimated costs change
over the remaining estimated life of the landfarm facilities. Landfarm facility
closure bonds and related letters of credit totaling $4 million are posted with
the states of Louisiana and Texas.
REVENUE RECOGNITION AND CELL PROCESSING RESERVE
When waste is unloaded at a given site, the Oilfield Waste Division
recognizes the related revenue and records a reserve for the estimated amount of
expenses to be incurred with the treatment of the oilfield waste in order to
match revenues with their related costs. The related treatment costs are charged
against the reserve as such costs are incurred.
The Liquid Waste Division recognizes revenue from processing services when
material is unloaded at the Company's facilities, if delivered by the customer,
or at the time the service is performed, if the
F-8
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company collects the materials from the customer's location. Sales revenue is
recognized when the by-product is shipped to the customer.
The Company's revenues consist of the following:
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
Processing revenues.................. $ 1,301 $ 2,875 $ 25,558
By-product sales..................... 9,796 11,378 12,383
Other revenues....................... 30 32 218
--------- --------- ---------
Total...................... $ 11,127 $ 14,285 $ 38,159
========= ========= =========
EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share". Under these provisions, earnings per share amounts are based on the
weighted average number of shares of common stock and common stock equivalents
outstanding during the period. The weighted average number of shares used to
compute basic and diluted earnings per share for 1995, 1996, and 1997 is
illustrated below:
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Numerator:
For basic and diluted earnings
per share --
Income available to common
stockholders.................... $ 103 $ 491 $ 3,875
============ ============ ============
Denominator:
For basic earnings per share --
Weighted-average shares......... 1,700,000 2,116,909 5,937,435
Effect of dilutive securities:
Stock options and warrants...... -- 21,657 1,140,670
------------ ------------ ------------
Denominator:
For diluted earnings per
share --
Weighted-average shares and
assumed conversions............. 1,700,000 2,138,566 7,078,105
============ ============ ============
At December 31, 1997, the Company had 10,000 employee stock options which
were not included in the computation of diluted earnings per share because to do
so would have been antidilutive for the period presented.
INSURANCE
The Company maintains various types of insurance coverage for its business,
including, without limitation, commercial general liability and commercial auto
liability, workers' compensation and employer liability, pollution legal
liability and a general umbrella policy. The Company has not incurred
significant claims or losses in excess of its insurance limits during the
periods presented in the accompanying consolidated financial statements.
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,
F-9
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
absence of a combined operating history, reliance on key personnel and risks
related to the Company's acquisition strategy.
OTHER
Certain prior year amounts have been reclassified to conform with the
current year presentation.
3. ACQUISITIONS:
1996 ACQUISITIONS
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") to Sanifill. 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:
Expected stock price volatility...... 35.55%
Risk free interest rate.............. 6.35%
Expected life of warrants............ 10 years
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):
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
=========
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
F-10
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company, plus the acquired operations of Campbell Wells, as if the Campbell
Wells Acquisition was effective on the first day of the year being reported:
YEAR ENDED DECEMBER
31,
--------------------
1995 1996
--------- ---------
(IN THOUSANDS)
(UNAUDITED)
Revenue................................. $ 26,246 $ 31,138
Net income, excluding intercompany
interest expense........................ 1,251 2,370
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. Pro forma balances do not include the effects of
the Company's initial public offering.
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.
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. Both acquisitions were accounted
for under the purchase method of accounting, and the net assets and results of
operations of these acquisitions since their respective dates of acquisition are
included in the consolidated financial statements.
1997 ACQUISITIONS
During the fourth quarter of 1997, the Company completed four acquisitions
that were accounted for under the purchase method of accounting. Results of
operations of companies that were acquired and subject to purchase accounting
are included in the consolidated financial statements from the dates of such
acquisitions. The total costs of acquisitions accounted for under the purchase
method were $6,819,000. The consolidated balance sheet as of December 31, 1997,
includes allocations of the respective purchase prices and is subject to final
adjustment. The excess of the aggregate purchase price over the fair value of
the net assets acquired was approximately $5,726,000.
In addition, the Company has agreed in connection with certain transactions
to pay additional amounts to the sellers upon the achievement by the acquired
businesses of certain negotiated goals, such as targeted earnings levels.
Although the amount and timing of any payments of additional contingent
consideration depend on whether and when these goals are met, the maximum
aggregate amount of contingent consideration potentially payable if all payment
goals are met is $27,880,000 with the achieved goals providing approximately
$31,125,000 of pre-tax income. The contingent consideration is payable in cash
or, in some instances, cash and stock, at the Company's option.
On October 1, 1997, the Company completed a merger accounted for as a
pooling-of-interests, pursuant to which the Company issued 241,410 shares of its
common stock in exchange for all outstanding shares of the acquired company.
Periods prior to consummation of this merger were not restated to include the
accounts and operations of the acquired company as combined results are not
materially different from the results as presented.
F-11
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma information set forth below presents the revenues,
net income and earnings per share of the Company, plus the acquired operations
of Campbell Wells and the 1997 acquisitions as if the acquisitions were
effective on the first day of the year being reported:
YEAR ENDED DECEMBER
31,
--------------------
1996 1997
--------- ---------
(IN THOUSANDS,
EXCEPT FOR PER SHARE
DATA)
(UNAUDITED)
Revenue................................. $ 34,766 $ 43,307
Net income.............................. 2,197 4,334
Basic earnings per common share......... 0.40 0.70
Diluted earnings per common share....... 0.38 0.59
The unaudited pro forma information is presented for informational purposes
only and is not necessarily indicative of the results of operations that
actually would have been achieved had the acquisitions been consummated at the
beginning of the periods presented.
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets at December 31, 1996 and 1997,
consist of the following:
1996 1997
--------- ---------
(IN THOUSANDS)
Prepaid insurance....................... $ 668 $ 152
Prepaid tax deposit..................... -- 51
Current deferred income tax asset....... 86 305
Other................................... 96 113
--------- ---------
Total.............................. $ 850 $ 621
========= =========
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31, 1996 and 1997, consist of the
following:
DEPRECIABLE
LIFE 1996 1997
----------- --------- ---------
(YEARS) (IN THOUSANDS)
Landfarm and processing sites........... 25 $ 14,781 $ 15,289
Land.................................... -- 508 739
Buildings and improvements.............. 5-39 14,496 17,021
Machinery and equipment................. 3-15 4,260 6,972
Vehicles................................ 3-5 1,176 2,602
Furniture and fixtures.................. 3-5 255 658
--------- ---------
Total.............................. $ 35,476 $ 43,281
Less -- Accumulated depreciation........ (894) (4,171)
--------- ---------
Net property, plant and
equipment........................ $ 34,582 $ 39,110
========= =========
F-12
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INTANGIBLE ASSETS:
Intangible assets at December 31, 1996 and 1997, consist of the following:
1996 1997
--------- ---------
(IN THOUSANDS)
Goodwill............................. $ 29 $ 5,755
Noncompete agreements................ 67 327
Permits.............................. -- 81
--------- ---------
Total........................... $ 96 $ 6,163
Less -- Accumulated amortization..... (11) (85)
--------- ---------
Net intangible assets........... $ 85 $ 6,078
========= =========
Intangible assets are recorded at cost and are being amortized on a
straight-line basis over five to forty years.
7. ACCRUED LIABILITIES:
Accrued liabilities at December 31, 1996 and 1997, consist of the
following:
1996 1997
--------- ---------
(IN THOUSANDS)
Insurance premium promissory note,
interest rate at 6.0%, due July
1997................................. $ 589 $ --
Accrued interest on related-party
notes payable...................... 204 --
Accrued salaries..................... 161 873
Income and other taxes payable....... 460 709
Accrued professional fees............ 303 1,490
Other................................ 430 687
--------- ---------
Accrued liabilities............. $ 2,147 $ 3,759
========= =========
8. INCOME TAXES:
The Company has implemented SFAS No. 109, "Accounting for Income Taxes,"
which provides for a liability approach to accounting for income taxes. The
components of the provision (benefit) for income taxes are as follows:
1995 1996 1997
--- --------- ---------
(IN THOUSANDS)
Current --
Federal......................... $ 12 $ 327 $ 2,253
State........................... 6 49 99
--- --------- ---------
Total...................... $ 18 $ 376 $ 2,352
=== ========= =========
Deferred --
Federal......................... $ 30 $ (107) $ 62
State........................... 1 (14) 2
--- --------- ---------
Total...................... $ 31 $ (121) $ 64
--- --------- ---------
Provision for income
taxes................... $ 49 $ 255 $ 2,416
=== ========= =========
F-13
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
Tax at statutory rate................... $ 52 $ 253 $ 2,202
Add --
State taxes, net of federal
benefit.......................... 6 24 66
Nondeductible expenses............. -- -- 157
Other.............................. (9) (22) (9)
--------- --------- ---------
Total......................... $ 49 $ 255 $ 2,416
========= ========= =========
For purposes of the consolidated federal tax return, the Company has net
operating loss carryforwards available to offset taxable income of the Company
in the future. The net operating loss carryforwards will begin to expire in
2011. In connection with certain acquisitions, ownership changes occurred
resulting in various limitations on certain tax attributes. However, the Company
expects full utilization of these tax attributes prior to their expiration.
Deferred income taxes are recognized for the tax consequences of temporary
differences by applying enacted statutory tax rates to differences between the
financial reporting and the tax bases of existing assets and liabilities. The
tax effects of significant temporary differences representing deferred income
tax assets and liabilities are as follows:
1996 1997
--------- ---------
(IN THOUSANDS)
Deferred income tax assets --
Closure and remediation reserves... $ 1,577 $ --
Accrued expenses................... 184 434
Net operating losses............... 135 41
Other.............................. 15 74
--------- ---------
Total......................... $ 1,911 $ 549
--------- ---------
Deferred income tax liabilities
Property, plant and equipment...... $ (1,622) $ (167)
Inventory.......................... (77) --
Investment in foreign
corporation...................... -- (59)
Other.............................. (26) (174)
--------- ---------
Total......................... $ (1,725) $ (400)
--------- ---------
Net deferred income tax
assets..................... $ 186 $ 149
========= =========
F-14
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net deferred income tax assets and liabilities are comprised of the
following:
1996 1997
--------- ---------
(IN THOUSANDS)
Current deferred income tax assets
Gross assets....................... $ 86 $ 521
Gross liabilities.................. -- (216)
Total, net................... $ 86 $ 305
Non-current deferred income tax assets
Gross assets....................... 100 152
Gross liabilities.................. -- (308)
--------- ---------
Total, net.................... $ 100 $ (156)
--------- ---------
Net deferred income tax
assets.................... $ 186 $ 149
========= =========
9. LONG-TERM OBLIGATIONS:
The Company's long-term obligations at December 31, 1996 and 1997, consist
of the following:
1996 1997
--------- ---------
(IN THOUSANDS)
Revolving Credit Facility............ $ -- $ 15,250
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 --
Notes payable to banks and credit
institutions, interest ranging from
5.9% to 13.75%, maturing January
1997 to June 2014, secured by
vehicles and equipment............. 1,295 --
Notes payable to individuals,
interest ranging from
noninterest-bearing to 18.0%,
maturing January 1998 to June 2010,
secured by property, plant and
equipment.......................... 1,707 2,020
Notes payable to a corporation,
interest at prime rate plus 2.0%,
(10.5% at December 31, 1997)
maturing October 2000.............. -- 145
Other................................ 73 21
Less -- Current maturities of
long-term obligations.............. (5,817) (792)
--------- ---------
$ 23,668 $ 16,644
========= =========
On December 19, 1997, the Company entered into a revolving credit facility
with a bank group in the amount of $50,000,000. The initial draw of $15,250,000
was used to pay off the unpaid portion of the note payable to Sanifill, which
was not previously repaid with proceeds from the Company's initial public
offering. This facility is secured by substantially all of the assets of the
Company. Availability under this credit facility is tied to the Company's cash
flows and liquidity. The credit facility is available to fund working capital
requirements and acquisitions. The credit agreement requires the Company to
comply with certain financial covenants and requires the Company to obtain the
lenders' consent before making any acquisitions with a purchase price exceeding
$7 million, and prohibits the payment of cash dividends. The debt may be
accelerated upon a change in control of the Company or the departure of senior
management without a suitable replacement. Interest on the outstanding balance
is due quarterly and the facility matures on December 20, 2000. Advances bear
interest, at the Company's option, at the prime rate or London Interbank Offered
Rate ("LIBOR"), in each case, plus a margin which is calculated quarterly
based upon the Company's ratio of indebtedness to cash flow. The Company has
agreed to pay a commitment fee varying from 1/4 to 1/2 of 1 percent per annum on
the unused portion of the facility. As of December 31, 1997, the Company had
$34,750,000 available under this facility.
F-15
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal payments of long-term debt obligations in excess of one year as
of December 31, 1997, are as follows:
LONG-TERM DEBT
--------------
(IN THOUSANDS)
Year ending December 31 --
1998............................ $ 792
1999............................ 389
2000............................ 15,561
2001............................ 149
2002............................ 146
Thereafter...................... 399
--------------
Total...................... $ 17,436
==============
Management estimates that the fair value of its debt obligations
approximates the historical value at December 31, 1997.
10. STOCK OPTIONS AND WARRANTS:
On November 20, 1996, U S Liquids established a stock option plan which
provides, as amended, for a maximum authorized number of shares equal to 15% of
all outstanding common stock at the end of each year, not to exceed a total of
3,000,000 shares. Options vest equally in three annual installments, commencing
on the first anniversary of the date upon which the options were granted, and
expire after being outstanding for a period of 10 years. During June 1997, U S
Liquids established a directors' stock option plan which provides for granting
10,000 options to each director upon their initial election and 5,000 options
each year thereafter. The directors' stock options vest on the date of grant and
expire after 10 years. At December 31, 1997, there were 281,250 nonqualified
stock options granted for corporate development purposes which are 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. The
Company issued stock warrants in connection with its' Campbell Wells
Acquisition, initial public offering, and as compensation for corporate
consulting. Warrants issued in connection with acquisitions or common stock
offerings are capitalized based on the fair market value on the date of grant.
Stock warrants issued as compensation for consulting activities are expensed as
incurred.
The following table summarizes activity under the Company's stock option
plan and warrants granted:
<TABLE>
<CAPTION>
1996 1997
------------------- -------------------
OPTIONS WARRANTS OPTIONS WARRANTS
------- -------- ------- --------
<S> <C> <C> <C> <C>
Options and warrants outstanding,
beginning of year.................. -- -- 301,875 1,000,000
Granted (per share)
1996 ($.02-$2.00).......... 301,875 1,000,000 -- --
1997 ($.02-$16.00)......... 529,500 215,000
Exercised (per share)
1997 ($.02)................ (56,250) --
------- -------- ------- --------
Options and warrants outstanding, end
of year............................ 301,875 1,000,000 775,125 1,215,000
======= ======== ======= ========
</TABLE>
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
F-16
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and earnings per share would have been reduced to the following amounts (in
thousands, except per share data):
1996 1997
--------- ---------
Net income:
As reported..................... $ 491 $ 3,875
Pro forma....................... 488 1,726
Basic earnings per share:
As reported..................... $ 0.23 $ 0.65
Pro forma....................... 0.23 0.29
Diluted earnings per share:
As reported..................... $ 0.23 $ 0.55
Pro forma....................... 0.23 0.24
The effects of applying SFAS No. 123 in the disclosure may not be
indicative of future amounts.
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:
1996 1997
---------- ---------------
Expected dividend yield.............. 0.00% 0.00%
Expected stock price volatility...... 35.55% 37.06%-38.78%
Risk-free interest rate.............. 6.17% 5.79%-6.47%
Expected life of options............. 10 years 10 years
During 1997, 529,500 options were granted which had a weighted average fair
value of $5.91 per option and a weighted average exercise price of $8.69 per
option.
The following table summarizes information about stock options outstanding
at December 31, 1997:
OPTIONS OUTSTANDING
----------------------------------------------------------------------------
NUMBER WTD. AVG.
RANGE OF OUTSTANDING AT REMAINING WTD. AVG.
EXERCISE PRICES 12/31/97 CONTRACTUAL LIFE EXERCISE PRICE
--------------- --------------- ---------------- ---------------
$ .02 308,125 9.1 $ .02
9.50-13.38 457,000 9.6 9.71
16.00 10,000 9.8 16.00
--------------- --------------- --- ---------------
$ .02-16.00 775,125 9.4 $5.94
=============== =============== === ===============
OPTIONS EXERCISABLE
- -----------------------------------
NUMBER
EXERCISABLE AT WTD. AVG.
12/31/97 EXERCISE PRICE
- --------------- ---------------
44,375 $ .02
-- --
-- --
- --------------- ---------------
44,375 $ .02
=============== ===============
11. COMMITMENTS AND CONTINGENCIES:
NONCOMPETE AND OILFIELD WASTE 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 oilfield waste from offshore sources for a period
of five years.
US 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 oilfield waste each year for 25 years
F-17
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
beginning June 1996, for a specified price, subject to adjustment, and at
specified annual minimum volume levels.
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 $98,000, $171,000 and $736,000 for the years ended
December 31, 1995, 1996 and 1997, respectively. The following table presents
future minimum rental payments under noncancelable operating leases:
OPERATING LEASES
-----------------
(IN THOUSANDS)
Year ending December 31 --
1998....................... $ 1,141
1999....................... 1,144
2000....................... 945
2001....................... 568
2002....................... 462
Thereafter................. 6,959
-----------------
Total............... $11,219
=================
LEGAL PROCEEDINGS
Prior to the closing of the Campbell Wells Acquisition, three lawsuits were
brought against Campbell Wells based upon the operation of its Bourg, Louisiana
landfarm. In one of the lawsuits filed against Campbell Wells, approximately 300
individuals residing in and around Grand Bois, Louisiana are seeking unspecified
monetary damages allegedly suffered as a result of (i) odors allegedly emitted
by waste received from Exxon Company U.S.A. ("Exxon") at the landfarm in March
1994, and (ii) alleged air, water and soil contamination in connection with
ongoing operations at the landfarm. The Company was named as a defendant in this
action in January 1998. Trial in this matter on the claims of ten plaintiffs is
set to commence in the 17th Judicial District Court for the Parrish of
Lafourche, Louisiana on July 13, 1998. A second lawsuit, brought by one
individual, seeks unspecified monetary damages allegedly suffered as a result of
odors allegedly emitted by waste received from Exxon at the landfarm in March
1994. This lawsuit is also pending in the 17th Judicial District Court for the
Parrish of Lafourche, Louisiana and trial is set to commence on July 13, 1998.
The Company has not yet been named as a defendant in this action. In the third
lawsuit, six individuals filed suit on March 7, 1996 against Campbell Wells in
the Civil District Court for the Parrish of Orleans, Louisiana, 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 equaled 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 waste
received from Exxon 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. The Company was
named as a defendant in this action in January 1998. No trial date has been
F-18
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 permanent injunctive relief that might be entered in the action will not
have a material adverse effect upon the Company's consolidated financial
position or results of operations.
Prior to the closing of the Campbell Wells Acquisition, a class action
lawsuit was filed in the Civil District Court for the Parrish of Orleans,
Louisiana against Campbell Wells seeking unspecified monetary damages allegedly
suffered as a result of alleged air, water and soil contamination in connection
with ongoing operations at its Mermentau, Louisiana landfarm. The Company has
not been named as a defendant in this lawsuit; however, there can be no
assurance that the Company will not subsequently be named as a defendant in this
lawsuit.
In connection with the Campbell Wells Acquisition, Sanifill agreed, with
certain enumerated exceptions, to retain responsibility for all liabilities of
Campbell Wells as of the closing date of the Campbell Wells Acquisition
including, without limitation, the contingent liabilities associated with such
lawsuits. The obligation of Sanifill to indemnify the Company is limited to $10
million.
In March 1998, the Company was dismissed as a defendant in a lawsuit
originally filed by Waste Facilities, Inc. in 1994 against Campbell Wells and
others in the District Court of Jim Wells County, Texas.
In February 1997, an action entitled JUDY GARCIA, ET AL V. RE-CLAIM
ENVIRONMENTAL was filed in the 51st Judicial District Court of Harris County,
Texas. This action was brought by the residents of an apartment complex located
adjacent to one of the Company's processing facilities and alleges that the
defendant is guilty of nuisance, trespass, negligence and gross negligence by
reason of its pollution of the air, soil and ground and surface water and the
release of noxious odors. The plaintiffs have requested unspecified monetary
damages. The Company denies liability and intends to vigorously defend the
action.
The Company is involved in various other 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
consolidated financial position or results of operations.
F-19
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SEGMENT INFORMATION:
The Company has two reporting business segments: Oilfield Waste and Liquid
Waste. The following is a summary of key business segment information:
1995 1996 1997
--------- --------- ---------
(IN THOUSANDS)
Revenue --
Oilfield Waste..................... $ -- $ 826 $ 19,948
Liquid Waste....................... 11,127 13,459 18,211
--------- --------- ---------
Total......................... $ 11,127 $ 14,285 $ 38,159
========= ========= =========
Income from operations --
Oilfield Waste..................... $ -- $ 126 $ 9,341
Liquid Waste....................... 329 929 1,929
Corporate.......................... -- -- (3,204)
--------- --------- ---------
Total......................... $ 329 $ 1,055 $ 8,066
========= ========= =========
Identifiable assets --
Oilfield Waste..................... $ -- $ 41,152 $ 34,071
Liquid Waste....................... 3,007 5,699 17,870
Corporate.......................... -- -- 3,075
--------- --------- ---------
Total......................... $ 3,007 $ 46,851 $ 55,016
========= ========= =========
Depreciation and amortization expense --
Oilfield Waste..................... $ -- $ 78 $ 2,266
Liquid Waste....................... 159 346 645
Corporate.......................... -- -- 79
--------- --------- ---------
Total......................... $ 159 $ 424 $ 2,990
========= ========= =========
Capital expenditures --
Oilfield Waste..................... $ -- $ -- $ 2,042
Liquid Waste....................... 916 1,795 2,278
Corporate.......................... -- -- 509
--------- --------- ---------
Total......................... $ 916 $ 1,795 $ 4,829
========= ========= =========
13. SUBSEQUENT EVENTS (UNAUDITED):
Subsequent to December 31, 1997, the Company acquired four businesses
engaged in the collection, treatment and disposal of liquid wastes for
approximately $4,420,000 in cash, $1,781,000 in assumed debt, 20,000 stock
warrants and 189,865 shares of the Company's common stock using the purchase
method of accounting.
F-20
<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 were wholly-owned subsidiaries of
Sanifill, Inc., as of December 31, 1995 and December 13, 1996, and the related
statements of income for the years ended December 31, 1994 and 1995 and for the
period ended December 13, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 2, the accompanying financial statements have been
prepared pursuant to the purchase agreement effective December 14, 1996, between
Sanifill, Inc. and U S Liquids Inc. and were prepared for the purpose of
complying with Rule 3-05 of Regulation S-X of the Securities and Exchange
Commission and are not intended to be a complete presentation of Campbell Wells'
assets, liabilities, operating results or cash flows on a stand-alone basis.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the balance sheet of the U S Liquids Inc. Predecessor
as of December 31, 1995 and December 13, 1996, and the results of its operations
for the years ended December 31, 1994 and 1995 and for the period ended December
13, 1996, pursuant to the purchase agreement referred to in Note 2 and in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
June 26, 1997
(March 3, 1998
with respect to note 8)
F-21
<PAGE>
U S LIQUIDS INC. PREDECESSOR
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, DECEMBER 13,
1995 1996
------------ ------------
ASSETS
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
============ ============
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
U S LIQUIDS INC. PREDECESSOR
STATEMENTS OF INCOME
(IN THOUSANDS)
YEAR ENDED
DECEMBER 31, PERIOD ENDED
-------------------- DECEMBER 13,
1994 1995 1996
--------- --------- -------------
REVENUES............................. $ 14,847 $ 15,119 $16,853
COST OF OPERATIONS................... 7,478 8,635 9,136
--------- --------- -------------
Gross profit.................... $ 7,369 $ 6,484 $ 7,717
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,626 2,989 2,524
--------- --------- -------------
Income from operations.......... $ 4,743 $ 3,495 $ 5,193
INTEREST EXPENSE, excluding
intercompany interest expense...... 105 246 353
OTHER INCOME, net.................... (176) (51) (97)
--------- --------- -------------
INCOME BEFORE PROVISION FOR INCOME
TAXES.............................. $ 4,814 $ 3,300 $ 4,937
PROVISION FOR INCOME TAXES........... 1,945 1,400 2,044
--------- --------- -------------
NET INCOME........................... $ 2,869 $ 1,900 $ 2,893
========= ========= =============
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
U S LIQUIDS INC. PREDECESSOR
NOTES TO FINANCIAL STATEMENTS
1. THE ACQUISITION:
Effective December 13, 1996, U S Liquids Inc. ("U S Liquids") purchased
certain assets and assumed certain liabilities of Campbell Wells, L.P. and
Campbell Wells NORM L.P. ("Campbell Wells" the "U S Liquids Inc.
Predecessor," or the "Company"), which were 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 oilfield waste 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 oilfield 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-24
<PAGE>
U S LIQUIDS INC. PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (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
YEAR ENDED
DECEMBER 31, PERIOD ENDED
-------------------- DECEMBER 13,
1994 1995 1996
--------- --------- ------------
(IN THOUSANDS)
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
========= ========= ============
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets acquired
and liabilities assumed, the disclosure of contingent assets acquired and
liabilities assumed at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or
less are classified as cash equivalents.
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
F-25
<PAGE>
U S LIQUIDS INC. PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
depreciation are eliminated from the accounts in the year of disposal. Gains and
losses resulting from property disposals are included in other income or
expense. Depreciation is computed using the straight-line method.
CLOSURE AND REMEDIATION RESERVES
The closure and remediation reserves represent accruals for the total
estimated future costs associated with the ultimate closure of the Company's
landfarm facilities, including costs of decommissioning and statutory monitoring
costs required during the closure and subsequent postclosure periods. Management
periodically reviews the level of these reserves and adjusts them to reflect its
current estimate of the total costs necessary to complete the closure and
remediation of its landfarm facilities. In conjunction with U S Liquids'
acquisition of certain assets and assumption of certain liabilities of Campbell
Wells, Sanifill has agreed to maintain landfarm facility closure bonds and
related letters of credit totalling $4 million posted with the states of
Louisiana and Texas through December 31, 1997, at which time U S Liquids will
replace these closure bonds and letters of credit with similar instruments.
REVENUE RECOGNITION AND CELL PROCESSING RESERVE
When waste is unloaded at a given site, Campbell Wells recognizes the
related revenue and records a reserve for the estimated amount of expenses to be
incurred with the treatment of the oil field waste in order to match revenues
with their related costs. The related treatment costs are charged against the
reserve as such costs are incurred.
INCOME TAXES
The operations of Campbell Wells were included in the consolidated U.S.
federal income tax return of Sanifill, Inc., and no allocations of income taxes
were reflected in the historical statements of operations. For purposes of these
predecessor financial statements, current and deferred income taxes have been
provided on a separate return basis.
NEW ACCOUNTING STANDARD
Effective January 1, 1996, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
Under these provisions, the Company reviews certain long-lived assets for
impairment whenever events indicate that the carrying amount of an asset may not
be recoverable and recognizes an impairment loss under certain circumstances in
the amount by which the carrying value exceeds the fair value of the asset. In
making this assessment, the Company considered the estimated future undiscounted
cash flows of the Company's long-lived assets on the basis of continuing
operations, versus the current market value of such assets on a held for sale
basis. The adoption of SFAS No. 121 had no impact on the Company's financial
position or results of operations.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:
Prepaid expenses and other current assets at December 31, 1995, and
December 13, 1996, consist of the following:
1995 1996
--------- ---------
(IN THOUSANDS)
Closure bond......................... $ 211 $ --
Prepaid expenses..................... 33 43
Notes receivable, current portion.... 33 16
Other................................ 47 2
--------- ---------
Total........................... $ 324 $ 61
========= =========
F-26
<PAGE>
U S LIQUIDS INC. PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at December 31, 1995, and December 13, 1996,
consist of the following:
DEPRECIABLE LIFE 1995 1996
----------------- ---------- ----------
(YEARS) (IN THOUSANDS)
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
---------- ----------
Total................... $ 65,939 $ 64,791
Less accumulated depreciation..... (12,644) (15,238)
---------- ----------
Total................... $ 53,295 $ 49,553
========== ==========
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.
5. OTHER ASSETS:
Other assets at December 31, 1995, and December 13, 1996, consist of the
following:
1995 1996
--------- ---------
(IN THOUSANDS)
Note receivable...................... $ 196 $ 196
Other................................ 47 36
--------- ---------
Total...................... $ 243 $ 232
========= =========
6. ACCRUED LIABILITIES:
Accrued liabilities at December 31, 1995, and December 13, 1996, consist of
the following:
1995 1996
--------- ---------
(IN THOUSANDS)
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
--------- ---------
Total...................... $ 115 $ 336
========= =========
F-27
<PAGE>
U S LIQUIDS INC. PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES:
The components of the provision (benefit) for income taxes are as follows:
YEAR ENDED
DECEMBER 31, PERIOD ENDED
-------------------- DECEMBER 13,
1994 1995 1996
--------- --------- -------------
(IN THOUSANDS)
Current
Federal......................... $ 2,750 $ 1,622 $ 40
State........................... (2,039) 191 21
--------- --------- -------------
Total...................... $ 711 $ 1,813 $ 61
--------- --------- -------------
Deferred
Federal......................... $ (1,211) $ (511) $ 1,580
State........................... 2,445 98 403
--------- --------- -------------
Total...................... $ 1,234 $ (413) $ 1,983
--------- --------- -------------
$1,945 $1,400 $2,044
========= ========= =============
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:
YEAR ENDED
DECEMBER 31, PERIOD ENDED
-------------------- DECEMBER 13,
1994 1995 1996
--------- --------- -------------
(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
--------- --------- -------------
Total...................... $ 1,945 $ 1,400 $ 2,044
========= ========= =============
The tax effects of significant temporary differences representing deferred
income tax assets and liabilities are as follows:
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(IN THOUSANDS)
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
============ ============
F-28
<PAGE>
U S LIQUIDS INC. PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
oilfield waste from offshore sources for a period of five years. This agreement
was assumed by U S Liquids pursuant to the Campbell Wells Acquisition.
OILFIELD WASTE DISPOSAL AGREEMENT
In connection with the Newpark Transaction, Campbell Wells signed a
disposal agreement dated June 4, 1996, in which Newpark Resources, Inc., agreed
to deliver, and Campbell Wells agreed to accept at its Louisiana landfarms,
certain quantities of oilfield waste each year for 25 years beginning June 1996,
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
Prior to the closing of the Campbell Wells Acquisition, three lawsuits were
brought against Campbell Wells based upon the operation of its Bourg, Louisiana
landfarm. In one of the lawsuits filed against Campbell Wells, approximately 300
individuals residing in and around Grand Bois, Louisiana are seeking unspecified
monetary damages allegedly suffered as a result of (i) odors allegedly emitted
by waste received from Exxon Company U.S.A. ("Exxon") at the landfarm in March
1994, and (ii) alleged air, water and soil contamination in connection with
ongoing operations at the landfarm. The Company was named as a defendant in this
action in January 1998. Trial in this matter on the claims of ten plaintiffs is
set to commence in the 17th Judicial District Court for the Parrish of
Lafourche, Louisiana on July 13, 1998. A second lawsuit, brought by one
individual, seeks unspecified monetary damages allegedly suffered as a result of
odors allegedly emitted by waste received from Exxon at the landfarm in March
1994. This lawsuit is also pending in the 17th Judicial District Court for the
Parrish of Lafourche, Louisiana and trial is set to commence on July 13, 1998.
The Company has not yet been named as a defendant in this action. In the third
lawsuit, six individuals filed suit on March 7, 1996 against Campbell Wells in
the Civil District Court for the Parrish of Orleans, Louisiana, 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 equaled 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 waste
received from Exxon 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. The Company was
named as a defendant in this action in January 1998. 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
F-29
<PAGE>
U S LIQUIDS INC. PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Company believes that permanent injunctive relief that might be entered in the
action will not have a material adverse effect upon the Company's consolidated
financial position or results of operations.
Prior to the closing of the Campbell Wells Acquisition, a class action
lawsuit was filed in the Civil District Court for the Parrish of Orleans,
Louisiana against Campbell Wells seeking unspecified monetary damages allegedly
suffered as a result of alleged air, water and soil contamination in connection
with ongoing operations at the Mermentau, Louisiana landfarm. The Company has
not been named as a defendant in this lawsuit; however, there can be no
assurance that the Company will not subsequently be named as a defendant in this
lawsuit.
In the Campbell Wells Acquisition Agreement, Sanifill agreed, with certain
enumerated exceptions, to retain responsibility for all liabilities of Campbell
Wells as of the closing date of the Campbell Wells Acquisition including,
without limitation, the contingent liabilities associated with such lawsuits.
The obligation of Sanifill to indemnify the Company is limited to $10 million.
In March 1998, the Company was dismissed as a defendant in a lawsuit
originally filed by Waste Facilities, Inc. in 1994 against Campbell Wells and
others in the District Court of Jim Wells County, Texas.
F-30
<PAGE>
US LIQUIDS INC.
FORM 10-K
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<S> <C> <C>
4.2 -- Credit Agreement, dated December 17, 1997, among U S Liquids Inc., Bank of America
National Trust and Savings Association, as agent and issuing bank, BankBoston, N.A. and
Wells Fargo Bank, N.A.
4.3 -- Note, dated December 17, 1997, of U S Liquids Inc. payable to Bank of America National
Trust and Savings Association.
4.4 -- Note, dated December 17, 1997, of U S Liquids Inc. payable to BankBoston, N.A.
4.5 -- Note, dated December 17, 1997, of U S Liquids Inc. payable to Wells Fargo Bank, N.A.
4.6 -- Security Agreement, dated December 17, 1997, executed by U S Liquids Inc. and its
subsidiaries in favor of Bank of America National Trust and Savings Association.
4.7 -- Company Pledge Agreement, dated December 17, 1997, executed by U S Liquids Inc. in favor
of Bank of America National Trust and Savings Association.
10.15 -- Employment Agreement, dated February 13, 1998, between U S Liquids Inc. and W. Gregory
Orr.
10.16 -- Employment Agreement, dated February 13, 1998, between U S Liquids Inc. and Earl J.
Blackwell.
10.17 -- Asset Purchase Agreement, dated December 15, 1997, among U S Liquids Inc., Mesa
Processing, Inc., Waste Technologies, Inc., Kirk Johnson, Norman Johnson, John Jetelina
and Ron McMahan.
10.41 -- Warrant, dated January 1, 1998, issued by U S Liquids Inc. to Glenn A. Pratt.
10.48 -- Warrant, dated January 1, 1998, issued by U S Liquids Inc. to John Bailey.
21.1 -- List of subsidiaries of U S Liquids Inc.
23.1 -- Consent of Arthur Andersen LLP.
27.1 -- Financial Data Schedule.
</TABLE>
CREDIT AGREEMENT
dated as of December 17, 1997
among
U S LIQUIDS INC.,
VARIOUS FINANCIAL INSTITUTIONS
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
Arranged by BANCAMERICA ROBERTSON STEPHENS
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS 1
1.1 Definitions 1
1.2 Other Interpretive Provisions 11
SECTION 2 COMMITMENTS OF THE BANKS; LETTER OF CREDIT,
BORROWING AND CONVERSION PROCEDURES 12
2.1 Commitments 12
2.1.1 Loan Commitment 12
2.1.2 L/C Commitment 13
2.2 Loan Procedures 13
2.2.1 Various Types of Loans 13
2.2.2 Borrowing Procedures 13
2.2.3 Procedures for Conversion of Type of Loan 14
2.3 Letter of Credit Procedures 14
2.3.1 L/C Applications 14
2.3.2 Participation in Letters of Credit 15
2.3.3 Reimbursement Obligations 15
2.3.4 Limitation on Obligations of Issuing Banks 15
2.3.5 Funding by Banks to Issuing Banks 16
2.4 Commitments Several 17
2.5 Certain Conditions 17
SECTION 3 NOTES EVIDENCING LOANS 17
3.1 Notes 17
3.2 Recordkeeping 17
SECTION 4 INTEREST 17
4.1 Interest Rates 17
4.2 Interest Payment Dates 18
4.3 Interest Periods 18
4.4 Setting and Notice of Eurodollar Rates 19
4.5 Computation of Interest 19
SECTION 5 FEES 19
5.1 Non-Use Fee 19
5.2 Letter of Credit Fees 19
5.3 Arrangement and Agent's Fees 20
5.4 Closing Fees 20
SECTION 6 REDUCTION AND TERMINATION OF THE COMMITMENTS;
PREPAYMENTS. 20
6.1 Reduction or Termination of the Commitments 20
6.2 Voluntary Prepayments 20
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES 21
7.1 Making of Payments 21
7.2 Application of Certain Payments 21
-i-
<PAGE>
7.3 Due Date Extension 21
7.4 Setoff 21
7.5 Proration of Payments 22
7.6 Taxes 22
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR
LOANS 23
8.1 Increased Costs 23
8.2 Basis for Determining Interest Rate Inadequate or
Unfair 25
8.3 Changes in Law Rendering Eurodollar Loans Unlawful 25
8.4 Funding Losses 26
8.5 Right of Banks to Fund through Other Offices 26
8.6 Discretion of Banks as to Manner of Funding 26
8.7 Mitigation of Circumstances; Replacement of
Affected Bank 26
8.8 Conclusiveness of Statements; Survival of
Provisions 27
SECTION 9 WARRANTIES 27
9.1 Organization, etc 27
9.2 Authorization; No Conflict 28
9.3 Validity and Binding Nature 28
9.4 Financial Condition 28
9.5 No Material Adverse Change 29
9.6 Litigation and Contingent Liabilities 29
9.7 Ownership of Properties; Liens 29
9.8 Subsidiaries 29
9.9 Pension and Welfare Plans 29
9.10 Investment Company Act 30
9.11 Public Utility Holding Company Act 30
9.12 Regulation U 30
9.13 Taxes 30
9.14 Solvency, etc 31
9.15 Environmental Matters. 31
9.16 Year 2000 Problem 32
9.17 Information 33
SECTION 10 COVENANTS 33
10.1 Reports, Certificates and Other Information 33
10.1.1 Audit Report 33
10.1.2 Quarterly Reports 34
10.1.3 Compliance Certificates 34
10.1.4 Reports to SEC and to Shareholders 34
10.1.5 Notice of Default, Litigation and ERISA
Matters 34
10.1.6 Subsidiaries 36
10.1.7 Management Reports 36
10.1.8 Projections 36
10.1.9 Other Information 36
10.2 Books, Records and Inspections 36
-ii-
<PAGE>
10.3 Insurance 36
10.4 Compliance with Laws; Payment of Taxes and
Liabilities 37
10.5 Maintenance of Existence, etc. 37
10.6 Financial Covenants 37
10.6.1 Minimum Net Worth 37
10.6.2 Minimum Interest Coverage 37
10.6.3 Funded Debt to EBITDA Ratio 37
10.6.4 Capital Expenditures 38
10.7 Limitations on Debt 38
10.8 Liens 38
10.9 Operating Leases 40
10.10 Restricted Payments 40
10.11 Mergers, Consolidations, Sales 40
10.12 Modification of Organizational Documents 41
10.13 Use of Proceeds 41
10.14 Further Assurances 41
10.15 Transactions with Affiliates 41
10.16 Employee Benefit Plans 42
10.17 Environmental Matters 42
10.18 Unconditional Purchase Obligations 42
10.19 Inconsistent Agreements 42
10.20 Business Activities 43
10.21 Advances and Other Investments 43
10.22 Restriction of Amendments to Asset Purchase
Agreement 44
SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC. 44
11.1 Initial Credit Extensions 44
11.1.1 Notes 44
11.1.2 Resolutions 44
11.1.3 Consents, etc 45
11.1.4 Incumbency and Signature Certificates 45
11.1.5 Guaranty 45
11.1.6 Security Agreement 45
11.1.7 Pledge Agreements 45
11.1.8 Opinions of Counsel for the Company and
the Guarantors 45
11.1.9 Other 45
11.2 Conditions 45
11.2.1 Compliance with Warranties, No Default,
etc 46
11.2.2 Confirmatory Certificate 46
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT 47
12.1 Events of Default 47
12.1.1 Non-Payment of the Loans, etc 47
12.1.2 Non-Payment of Other Debt 47
12.1.3 Other Material Obligations 47
12.1.4 Bankruptcy, Insolvency, etc 47
12.1.5 Non-Compliance with Provisions of This
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<PAGE>
Agreement 48
12.1.6 Warranties 48
12.1.7 Pension Plans 48
12.1.8 Judgments 48
12.1.9 Invalidity of Guaranty, etc 49
12.1.10 Invalidity of Collateral Documents, etc 49
12.1.11 Change in Control 49
12.2 Effect of Event of Default 49
SECTION 13 THE AGENT 50
13.1 Appointment and Authorization 50
13.2 Delegation of Duties 51
13.3 Liability of Agent 51
13.4 Reliance by Agent 51
13.5 Notice of Default 52
13.6 Credit Decision 52
13.7 Indemnification 53
13.8 Agent in Individual Capacity 54
13.9 Successor Agent; Assignment of Agency 54
13.10 Withholding Tax 55
13.11 Collateral Matters 57
SECTION 14 GENERAL 57
14.1 Waiver; Amendments 57
14.2 Confirmations 58
14.3 Notices 58
14.4 Computations 58
14.5 Regulation U 59
14.6 Costs, Expenses and Taxes 59
14.7 Subsidiary References 59
14.8 Captions 59
14.9 Assignments; Participations 60
14.9.1 Assignments 60
14.9.2 Participations 61
14.10 Governing Law 62
14.11 Counterparts 62
14.12 Successors and Assigns 62
14.13 Indemnification by the Company 62
14.14 Forum Selection and Consent to Jurisdiction 63
14.15 Waiver of Jury Trial 64
-iv-
<PAGE>
SCHEDULE 1.1 Pricing Schedule
SCHEDULE 2.1 Banks and Percentages
SCHEDULE 9.6(a) Litigation and Contingent Liabilities
SCHEDULE 9.6(b) Contingent Payments
SCHEDULE 9.8 Subsidiaries
SCHEDULE 9.15 Environmental Matters
SCHEDULE 10.7 Existing Debt
SCHEDULE 10.8 Existing Liens
SCHEDULE 12.1.11 Key Executives
SCHEDULE 14.3 Addresses for Notices
EXHIBIT A Form of Note
(Section 3.1)
EXHIBIT B Form of Compliance Certificate
(Section 10.1.3)
EXHIBIT C Form of Guaranty
(Section(1)
EXHIBIT D Form of Security Agreement
(Section 1)
EXHIBIT E Form of Company Pledge Agreement
(Section 1)
EXHIBIT F Form of Subsidiary Pledge Agreement
(Section 11.1.7)
EXHIBIT G Form of Assignment Agreement
(Section 14.9)
-v-
<PAGE>
CREDIT AGREEMENT
This CREDIT AGREEMENT, dated as of December 17, 1997 (this "AGREEMENT"), is
entered into among U S LIQUIDS INC., a Delaware corporation (the "COMPANY"), the
financial institutions that are or may from time to time become parties hereto
(together with their respective successors and assigns, the "BANKS") and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (in its individual capacity,
"BOFA"), as agent for the Banks.
In consideration of the premises and the mutual agreements herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1 DEFINITIONS.
1.1 DEFINITIONS. When used herein the following terms shall have the
following meanings:
AFFECTED BANK means any Bank that has given notice to the Company (which
has not been rescinded) of (i) any obligation by the Company to pay any amount
pursuant to SECTION 7.6 or 8.1 or (ii) the occurrence of any circumstances of
the nature described in SECTION 8.2 or 8.3.
AFFILIATE of any Person means (i) any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
Person and (ii) any officer or director of such Person.
AGENT means BofA in its capacity as agent for the Banks hereunder and any
successor thereto in such capacity.
AGENT-RELATED PERSONS means BofA and any successor agent arising under
SECTION 13.9, together with their respective Affiliates (including, in the case
of BofA, the Arranger), and the officers, directors, employees, agents and
attorneys-in-fact of such Persons and Affiliates.
AGREEMENT - see the PREAMBLE.
ALTERNATE REFERENCE RATE means at any time the greater of (a) the Federal
Funds Rate plus 0.5% and (b) the Reference Rate.
ARRANGER means BancAmerica Robertson Stephens, a Delaware corporation.
ASSIGNMENT AGREEMENT - see SECTION 14.9.1.
<PAGE>
BANK - see the PREAMBLE.
BOFA - see the PREAMBLE.
BUSINESS DAY means any day on which BofA is open for commercial banking
business in Chicago, New York and San Francisco and, in the case of a Business
Day which relates to a Eurodollar Loan, on which dealings are carried on in the
interbank eurodollar market.
CAPITAL EXPENDITURES means all expenditures which, in accordance with GAAP,
would be required to be capitalized and shown on the consolidated balance sheet
of the Company, but excluding expenditures made in connection with the
replacement, substitution or restoration of assets to the extent financed (i)
from insurance proceeds (or other similar recoveries) paid on account of the
loss of or damage to the assets being replaced or restored or (ii) with awards
of compensation arising from the taking by eminent domain or condemnation of the
assets being replaced.
CAPITAL LEASE means, with respect to any Person, any lease of (or other
agreement conveying the right to use) any real or personal property by such
Person that, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of such Person.
CASH EQUIVALENT INVESTMENT means, at any time, (a) any evidence of Debt,
maturing not more than one year after such time, issued or guaranteed by the
United States Government or any agency thereof, (b) commercial paper, maturing
not more than one year from the date of issue, or corporate demand notes, in
each case (unless issued by a Bank or its holding company) rated at least A-l by
Standard & Poor's Ratings Group or P-l by Moody's Investors Service, Inc., (c)
any certificate of deposit (or time deposits represented by such certificates of
deposit) or bankers acceptance, maturing not more than one year after such time,
or overnight Federal Funds transactions that are issued or sold by a commercial
banking institution that is a member of the Federal Reserve System and has a
combined capital and surplus and undivided profits of not less than
$500,000,000, (d) any repurchase agreement entered into with any Bank (or other
commercial banking institution of the stature referred to in CLAUSE (C)) which
(i) is secured by a fully perfected security interest in any obligation of the
type described in any of CLAUSES (A) through (C) and (ii) has a market value at
the time such repurchase agreement is entered into of not less than 100% of the
repurchase obligation of such Bank (or other commercial banking institution)
thereunder and (e) investments in short-term asset management accounts offered
by any Bank for the purpose of investing in loans to any corporation (other than
the Company or
2
<PAGE>
an Affiliate of the Company), state or municipality, in each case organized
under the laws of any state of the United States or of the District of Columbia.
CERCLA - see SECTION 9.15.
CODE means the Internal Revenue Code of 1986.
COLLATERAL DOCUMENTS means the Company Pledge Agreement, each Subsidiary
Pledge Agreement, the Security Agreement and any other agreement pursuant to
which the Company or any Guarantor grants collateral to the Agent for the
benefit of the Banks.
COMMITMENT AMOUNT - see SECTION 2.1.1.
COMMITMENTS means the Loan Commitment and the L/C Commitment.
COMPANY - see the PREAMBLE.
COMPANY PLEDGE AGREEMENT means a pledge agreement between the Company and
the Agent, substantially in the form of EXHIBIT E.
COMPUTATION PERIOD means each period of four consecutive Fiscal Quarters
ending on the last day of a Fiscal Quarter.
CONSOLIDATED NET INCOME means, with respect to the Company and its
Subsidiaries for any period, the net income (or loss) of the Company and its
Subsidiaries for such period, EXCLUDING any extraordinary gains during such
period.
CONTINGENT PAYMENT means any payment that has been (or is required to be)
made by the Company or any Subsidiary in connection with the achievement of any
particular business goal (excluding (i) employee compensation and bonuses in the
ordinary course of business and (ii) periodic, variable payments based upon
performance-related criteria, such as revenues or earnings).
A Contingent Payment shall be deemed to be "outstanding" from the time that
the Company or any Subsidiary enters into the agreement containing the
obligation to make such Contingent Payment until such time as either such
Contingent Payment has been made in full or it has become certain that such
Contingent Payment will never have to be made. If the amount of any Contingent
Payment is not determinable or is variable based on factors which are not yet
determinable, then the amount of such Contingent Payment shall be deemed to be
the maximum amount which, under any and all reasonably foreseeable
circumstances, the Company or the applicable Subsidiary would reasonably be
expected to be required to pay in respect thereof.
3
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CONTROLLED GROUP means all members of a controlled group of corporations
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Company, are treated
as a single employer under Section 414 of the Code or Section 4001 of ERISA.
DEBT of any Person means, without duplication, (a) all indebtedness of such
Person for borrowed money, whether or not evidenced by bonds, debentures, notes
or similar instruments, (b) all obligations of such Person as lessee under
Capital Leases which have been or should be recorded as liabilities on a balance
sheet of such Person, (c) all obligations of such Person to pay the deferred
purchase price of property or services (including Contingent Payments but
excluding trade accounts payable in the ordinary course of business), (d) all
indebtedness secured by a Lien on the property of such Person, whether or not
such indebtedness shall have been assumed by such Person (it being understood
that if such Person has not assumed or otherwise become personally liable for
any such indebtedness, the amount of the Debt of such Person in connection
therewith shall be limited to the lesser of the face amount of such indebtedness
or the fair market value of all property of such Person securing such
indebtedness), (e) all obligations, contingent or otherwise, with respect to the
face amount of all letters of credit (whether or not drawn) and banker's
acceptances issued for the account of such Person (including the Letters of
Credit), (f) net liabilities of such Person under all Hedging Obligations and
(g) all Suretyship Liabilities of such Person.
DEBT TO BE REPAID means the Promissory Note in the original principal
amount of $27,800,000 dated December 13, 1996 issued by the Company to Sanifill,
Inc.
DISPOSAL - see the definition of "RELEASE".
DOLLAR and the sign "$" mean lawful money of the United States of America.
EBITDA means, for any period, Consolidated Net Income for such period PLUS,
to the extent deducted in determining such Consolidated Net Income, Interest
Expense, income tax expense, depreciation and amortization for such period;
PROVIDED that for purposes of calculating EBITDA for any period, the
consolidated net income of any Person acquired by the Company or any Subsidiary
during such period (plus, to the extent deducted in determining such
consolidated net income, interest expense, income tax expense, depreciation and
amortization of such Person) shall be included on a PRO FORMA basis for such
period (assuming the consummation of each such acquisition and the incurrence or
assumption of any Debt in connection therewith occurred on the first day of such
period) if (i) the audited consolidated balance
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sheet of such acquired Person and its consolidated Subsidiaries as at the end of
the fiscal year of such Person preceding the acquisition of such Person and the
related audited consolidated statements of income, stockholders' equity and cash
flows for the such fiscal year have been provided to the Agent and the Banks and
(ii) any subsequent unaudited financial statements for such Person for the
period prior to the acquisition of such Person were prepared on a basis
consistent with such audited financial statements.
EFFECTIVE DATE - see SECTION 11.1.
ENVIRONMENTAL CLAIMS means all claims, however asserted, by any
governmental, regulatory or judicial authority or other Person alleging
potential liability or responsibility for violation of any Environmental Law, or
for release or injury to the environment.
ENVIRONMENTAL LAWS means all federal, state or local laws, statutes, common
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any governmental authority, in each case
relating to environmental matters.
ERISA means the Employee Retirement Income Security Act of 1974. References
to sections of ERISA also refer to any successor sections.
EUROCURRENCY RESERVE PERCENTAGE means, with respect to any Eurodollar Loan
for any Interest Period, a percentage (expressed as a decimal) equal to the
daily average during such Interest Period of the percentage in effect on each
day of such Interest Period, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor), for determining the aggregate maximum
reserve requirements applicable to "Eurocurrency Liabilities" pursuant to
Regulation D or any other then applicable regulation of such Board of Governors
which prescribes reserve requirements applicable to "Eurocurrency Liabilities"
as presently defined in Regulation D.
EURODOLLAR LOAN means any Loan which bears interest at a rate determined by
reference to the Eurodollar Rate (Reserve Adjusted).
EURODOLLAR MARGIN - see SCHEDULE 1.1.
EURODOLLAR OFFICE means with respect to any Bank the office or offices of
such Bank which shall be making or maintaining the Eurodollar Loans of such Bank
hereunder or such other office or offices through which such Bank determines its
Eurodollar Rate.
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A Eurodollar Office of any Bank may be, at the option of such Bank, either a
domestic or foreign office.
EURODOLLAR RATE means, with respect to any Eurodollar Loan for any Interest
Period, the rate per annum at which Dollar deposits in immediately available
funds are offered to the Eurodollar Office of BofA two Business Days prior to
the beginning of such Interest Period by major banks in the interbank eurodollar
market as at or about 10:00 A.M., Chicago time, for delivery on the first day of
such Interest Period, for the number of days comprised therein and in an amount
equal or comparable to the amount of the Eurodollar Loan of BofA for such
Interest Period.
EURODOLLAR RATE (RESERVE ADJUSTED) means, with respect to any Eurodollar
Loan for any Interest Period, a rate per annum (rounded upwards, if necessary,
to the nearest 1/100 of 1%) determined pursuant to the following formula:
Eurodollar Rate = Eurodollar Rate
(Reserve Adjusted) ------------------
1-Eurocurrency
Reserve Percentage
EVENT OF DEFAULT means any of the events described in SECTION 12.1.
FEDERAL FUNDS RATE means, for any day, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor
publication, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on
that day by each of three leading brokers of Federal funds transactions in New
York City selected by the Agent.
FINANCIAL LETTER OF CREDIT means any Letter of Credit determined by the
applicable Issuing Bank to be a "financial guaranty-type Standby Letter of
Credit" as defined in footnote 13 to Appendix A to the Risk Based Capital
Guidelines issued by the Comptroller of the Currency (or in any successor
regulation, guideline or ruling by any applicable banking regulatory authority).
FISCAL QUARTER means a fiscal quarter of a Fiscal Year.
FISCAL YEAR means the fiscal year of the Company and its Subsidiaries,
which period shall be the 12-month period ending on
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December 31 of each year. References to a Fiscal Year with a number
corresponding to any calendar year (e.g., "Fiscal Year 1997") refer to the
Fiscal Year ending on December 31 of such calendar year.
FLOATING RATE LOAN means any Loan which bears interest at or by reference
to the Alternate Reference Rate.
FLOATING RATE MARGIN - see SCHEDULE 1.1.
FUNDED DEBT means all Debt of the Company and its Subsidiaries, excluding
(i) contingent obligations in respect of undrawn letters of credit and
Suretyship Liabilities (except, in each case, to the extent constituting
Suretyship Liabilities in respect of Debt of a Person other than the Company or
any Subsidiary), (ii) Hedging Obligations and (iii) Debt of the Company to
Subsidiaries and Debt of Subsidiaries to the Company or to other Subsidiaries.
FUNDED DEBT TO EBITDA RATIO means, as of the last day of any Fiscal
Quarter, the ratio of (i) Funded Debt as of the last day of such Fiscal Quarter
to (ii) EBITDA for the Computation Period ending on the last day of such Fiscal
Quarter.
GAAP means generally accepted accounting principles set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
GROUP - see SECTION 2.2.1.
GUARANTOR means, on any day, each Subsidiary that has executed a
counterpart of the Guaranty on or prior to that day (or is required to execute a
counterpart of the Guaranty on that date).
GUARANTY means a guaranty substantially in the form of EXHIBIT C.
HAZARDOUS SUBSTANCES - see SECTION 9.15.
HEDGING OBLIGATIONS means, with respect to any Person, all liabilities of
such Person under interest rate, currency and commodity swap agreements, cap
agreements and collar agreements, and all other agreements or arrangements
designed to protect such Person against fluctuations in interest rates, currency
exchange rates or commodity prices.
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INTEREST COVERAGE RATIO means the ratio of (a) Consolidated Net Income
before deducting Interest Expense and income tax expense for any Computation
Period to (b) Interest Expense for such Computation Period.
INTEREST EXPENSE means for any period the consolidated interest expense of
the Company and its Subsidiaries for such period (including all imputed interest
on Capital Leases and before giving effect to any capitalization of interest but
excluding amortization of deferred financing costs).
INTEREST PERIOD - see SECTION 4.3.
INVESTMENT means, relative to any Person, (a) any loan or advance made by
such Person to any other Person (excluding any commission, travel or similar
advances made to directors, officers and employees of the Company or any of its
Subsidiaries), (b) any Suretyship Liability of such Person, (c) any ownership or
similar interest held by such Person in any other Person and (d) deposits and
the like relating to prospective acquisitions of businesses.
ISSUING BANK means BofA in its capacity as an issuer of Letters of Credit
hereunder and any other Bank which, with the written consent of the Company and
the Agent, is the issuer of one or more Letters of Credit hereunder.
L/C APPLICATION means, with respect to any request for the issuance of a
Letter of Credit, a letter of credit application in the form being used by the
applicable Issuing Bank at the time of such request for the type of letter of
credit requested.
L/C COMMITMENT means the commitment of the Issuing Bank to issue, and of
each Bank to participate in, Letters of Credit pursuant to SECTION 2.1.2.
LETTER OF CREDIT - see SECTION 2.1.2.
LIEN means, with respect to any Person, any interest granted by such Person
in any real or personal property, asset or other right owned or being purchased
or acquired by such Person which secures payment or performance of any
obligation and shall include any mortgage, lien, encumbrance, charge or other
security interest of any kind, whether arising by contract, as a matter of law,
by judicial process or otherwise.
LOAN COMMITMENT means the commitment of the Banks to make Loans pursuant to
SECTION 2.1.1.
LOAN DOCUMENTS means this Agreement, the Notes, the Guaranty, the L/C
Applications and the Collateral Documents.
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LOANS - see SECTION 2.1.1.
MARGIN STOCK means any "margin stock" as defined in Regulation U of the
Board of Governors of the Federal Reserve System.
MATERIAL ADVERSE EFFECT means (a) a material adverse change in, or a
material adverse effect upon, the financial condition, operations, assets,
business, properties or prospects of the Company and its Subsidiaries taken as a
whole, or (b) a material adverse effect upon any substantial portion of the
collateral under the Collateral Documents or upon the legality, validity,
binding effect or enforceability against the Company or any Guarantor of any
Loan Document.
MULTIEMPLOYER PENSION PLAN means a multiemployer plan, as such term is
defined in Section 4001(a)(3) of ERISA, and to which the Company or any member
of the Controlled Group may have any liability.
NET WORTH means the Company's consolidated stockholders' equity (including
preferred stock accounts).
NON-FINANCIAL LETTER OF CREDIT means any Letter of Credit other than a
Financial Letter of Credit.
NOTE - see SECTION 3.1.
OPERATING LEASE means any lease of (or other agreement conveying the right
to use) any real or personal property by the Company or any Subsidiary, as
lessee, other than any Capital Lease.
PBGC means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
PENSION PLAN means a "pension plan", as such term is defined in Section
3(2) of ERISA, which is subject to Title IV of ERISA (other than a Multiemployer
Pension Plan), and to which the Company or any member of the Controlled Group
may have any liability, including any liability by reason of having been a
substantial employer within the meaning of Section 4063 of ERISA at any time
during the preceding five years, or by reason of being deemed to be a
contributing sponsor under Section 4069 of ERISA.
PERCENTAGE means, with respect to any Bank, the percentage specified
opposite such Bank's name on SCHEDULE 2.1 hereto, reduced (or increased) by
subsequent assignments pursuant to SECTION 14.9.1.
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PERSON means any natural person, corporation, partnership, trust, limited
liability company, association, governmental authority or unit, or any other
entity, whether acting in an individual, fiduciary or other capacity.
RARA - see SECTION 9.15.
RELEASE has the meaning specified in CERCLA and the term "DISPOSAL" (or
"DISPOSED") has the meaning specified in RCRA; PROVIDED that in the event either
CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply as of the effective date of such
amendment; and PROVIDED, FURTHER, that to the extent that the laws of a state
wherein any affected property lies establish a meaning for "RELEASE" or
"DISPOSAL" which is broader than is specified in either CERCLA or RCRA, such
broader meaning shall apply.
REFERENCE RATE means, for any day, the rate of interest in effect for such
day as publicly announced from time to time by BofA in San Francisco,
California, as its "reference rate." (The "reference rate" is a rate set by BofA
based upon various factors, including BofA's costs and desired return, general
economic conditions and other factors, and is used as a reference point for
pricing some loans, which may be priced at, above, or below such announced
rate.) Any change in the reference rate announced by BofA shall take effect at
the opening of business on the day specified in the public announcement of such
change.
REQUIRED BANKS means Banks having Percentages aggregating 66- 2/3% or more.
SEC means the Securities and Exchange Commission.
SECURITY AGREEMENT means a Security Agreement substantially in the form of
EXHIBIT D.
SENIOR DEBT means all Debt of the Company and its Subsidiaries other than
Subordinated Debt.
STATED AMOUNT means, with respect to any Letter of Credit at any date of
determination, the maximum aggregate amount available for drawing thereunder at
any time during the then ensuing term of such Letter of Credit under any and all
circumstances, plus the aggregate amount of all unreimbursed payments and
disbursements under such Letter of Credit.
SUBORDINATED DEBT means any unsecured indebtedness of the Company which (x)
is owed to Persons other than officers, employees, directors or Affiliates of
the Company, (y) has no amortization prior to December 31, 2001 and (z) has
subordination terms, covenants, pricing and other terms applicable to such
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indebtedness which have been approved in writing by the Required Banks.
SUBSIDIARY means, with respect to any Person, a corporation of which such
Person and/or its other Subsidiaries own, directly or indirectly, such number of
outstanding shares as have more than 50% of the ordinary voting power for the
election of directors. Unless the context otherwise requires, each reference to
Subsidiaries herein shall be a reference to Subsidiaries of the Company.
SUBSIDIARY PLEDGE AGREEMENT means each pledge agreement substantially in
the form of EXHIBIT F issued by any Subsidiary, whether pursuant to SECTION
11.1.7 or SECTION 10.14.
SURETYSHIP LIABILITY means any agreement, undertaking or arrangement by
which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to or otherwise to invest in a
debtor, or otherwise to assure a creditor against loss) any indebtedness,
obligation or other liability of any other Person (other than by endorsements of
instruments in the course of collection), or guarantees the payment of dividends
or other distributions upon the shares of any other Person. The amount of any
Person's obligation in respect of any Suretyship Liability shall (subject to any
limitation set forth therein) be deemed to be the principal amount of the debt,
obligation or other liability supported thereby.
TERMINATION DATE means the earlier to occur of (a) December 18, 2000, or
such later date to which the Termination Date may be extended at the request of
the Company and with the consent of each Bank or (b) such other date on which
the Commitments shall terminate pursuant to SECTION 6 or 12.
TYPE OF LOAN OR BORROWING - see SECTION 2.2.1. The types of Loans or
borrowings under this Agreement are as follows: Floating Rate Loans or
borrowings and Eurodollar Loans or borrowings.
UNMATURED EVENT OF DEFAULT means any event that, if it continues uncured,
will, with lapse of time or notice or both, constitute an Event of Default.
WELFARE PLAN means a "welfare plan", as such term is defined in Section
3(1) of ERISA.
1.2 OTHER INTERPRETIVE PROVISIONS. (a) The meanings of
defined terms are equally applicable to the singular and plural
forms of the defined terms.
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(b) SECTION, SCHEDULE and EXHIBIT references are to this Agreement
unless otherwise specified.
(c) (i) The term "including" is not limiting and means "including
without limitation."
(ii) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding", and the word "through"
means "to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting such statute
or regulation.
(e) This Agreement and the other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.
(f) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Company,
the Banks and the other parties thereto and are the products of all parties.
Accordingly, they shall not be construed against the Agent or the Banks merely
because of the Agent's or Banks' involvement in their preparation.
SECTION 2 COMMITMENTS OF THE BANKS; LETTER OF CREDIT,
BORROWING AND CONVERSION PROCEDURES.
2.1 COMMITMENTS. On and subject to the terms and conditions of this
Agreement, each of the Banks, severally and for itself alone, agrees to make
loans to, and to issue or participate in the issuance of letters of credit for
the account of, the Company as follows:
2.1.1 LOAN COMMITMENT. Each Bank will make loans on a revolving basis
("LOANS") from time to time before the Termination Date in such Bank's
Percentage of such aggregate amounts as the Company may from time to time
request from all Banks; PROVIDED that the aggregate principal amount of all
Loans which all Banks shall be committed to have outstanding at any one time
shall not exceed the excess, if any, of (a) $50,000,000, as such amount may be
reduced from time to time pursuant to SECTION 6.1 (as so reduced, the
"COMMITMENT AMOUNT"), over (b) the Stated Amount of all outstanding Letters of
Credit.
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2.1.2 L/C COMMITMENT. (a) The Issuing Banks will issue standby letters of
credit, in each case containing such terms and conditions as are permitted by
this Agreement and are reasonably satisfactory to the applicable Issuing Bank
(each, a "LETTER OF CREDIT"), at the request of and for the account of the
Company or any Subsidiary from time to time before the Termination Date and (b)
as more fully set forth in SECTION 2.3.5, each Bank agrees to purchase a
participation in each such Letter of Credit; PROVIDED that the aggregate Stated
Amount of all Letters of Credit shall not at any time exceed the lesser of (i)
$7,500,000 and (ii) the excess, if any, of the Commitment Amount over the
aggregate principal amount of all outstanding Loans.
2.2 LOAN PROCEDURES.
2.2.1 VARIOUS TYPES OF LOANS. Each Loan shall be either a Floating Rate
Loan or a Eurodollar Loan (each a "TYPE" of Loan), as the Company shall specify
in the related notice of borrowing or conversion pursuant to SECTION 2.2.2 or
2.2.3. Eurodollar Loans having the same Interest Period are sometimes called a
"GROUP" or collectively "GROUPS". Floating Rate Loans and Eurodollar Loans may
be outstanding at the same time, PROVIDED that (i) not more than eight different
Groups of Loans shall be outstanding at any one time and (ii) the aggregate
principal amount of each Group of Eurodollar Loans shall at all times be at
least $1,000,000 and an integral multiple of $250,000. All borrowings,
conversions and repayments of Loans shall be effected so that each Bank will
have a pro rata share (according to its Percentage) of all types and Groups of
Loans.
2.2.2 BORROWING PROCEDURES. The Company shall give written notice or
telephonic notice (followed immediately by written confirmation thereof) to the
Agent of each proposed borrowing not later than (a) in the case of a Floating
Rate borrowing, 11:00 A.M., Chicago time, on the proposed date of such
borrowing, and (b) in the case of a Eurodollar borrowing, 9:00 A.M., Chicago
time, at least two Business Days prior to the proposed date of such borrowing.
Each such notice shall be effective upon receipt by the Agent, shall be
irrevocable, and shall specify the date, amount and type of borrowing and, in
the case of a Eurodollar borrowing, the initial Interest Period therefor.
Promptly upon receipt of such notice, the Agent shall advise each Bank thereof.
Not later than 1:00 p.m., Chicago time, on the date of a proposed borrowing,
each Bank shall provide the Agent at the office specified by the Agent with
immediately available funds
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covering such Bank's Percentage of such borrowing and, so long as the Agent has
not received written notice that the conditions precedent set forth in SECTION
11 with respect to such borrowing have not been satisfied (and does not have
knowledge of any default in the payment of any principal, interest or fees to be
paid to the Agent for the account of the Banks), the Agent shall pay over the
requested amount to the Company on the requested borrowing date. Each borrowing
shall be on a Business Day. Each Floating Rate borrowing shall be in an
aggregate amount of at least $1,000,000 and an integral multiple of $250,000.
2.2.3 PROCEDURES FOR CONVERSION OF TYPE OF LOAN. Subject to the provisions
of SECTION 2.2.1, the Company may convert all or any part of any outstanding
Loan into a Loan of a different type by giving written notice or telephonic
notice (followed immediately by written confirmation thereof) to the Agent not
later than (a) in the case of conversion into a Floating Rate Loan, 11:00 A.M.,
Chicago time, on the proposed date of such conversion, and (b) in the case of a
conversion into a Eurodollar Loan, 9:00 A.M., Chicago time, at least two
Business Days prior to the proposed date of such conversion. Each such notice
shall be effective upon receipt by the Agent, shall be irrevocable, and shall
specify the date and amount of such conversion, the Loan to be so converted, the
type of Loan to be converted into and, in the case of a conversion into a
Eurodollar Loan, the initial Interest Period therefor. Promptly upon receipt of
such notice, the Agent shall advise each Bank thereof. Subject to SECTION 2.5,
such Loan shall be so converted on the requested date of conversion. Each
conversion shall be on a Business Day. Each conversion of a Eurodollar Loan on a
day other than the last day of an Interest Period therefor shall be subject to
the provisions of SECTION 8.4.
2.3 LETTER OF CREDIT PROCEDURES.
2.3.1 L/C APPLICATIONS. The Company shall give notice to the Agent and the
applicable Issuing Bank of the proposed issuance of each Letter of Credit on a
Business Day which is at least three Business Days (or such lesser number of
days as the Agent and such Issuing Bank shall agree in any particular instance)
prior to the proposed date of issuance of such Letter of Credit. Each such
notice shall be accompanied by an L/C Application, duly executed by the Company
(together with any Subsidiary for the account of which the related Letter of
Credit is to be issued) and in all respects satisfactory to the Agent and the
applicable Issuing Bank, together with such other documentation as the Agent or
such Issuing Bank may request in support thereof, it being understood that each
L/C Application shall specify, among other things, the date on which the
proposed Letter of Credit is to be issued, the expiration date of such Letter of
Credit (which shall not be later than the Termination
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Date) and whether such Letter of Credit is to be transferable in whole or in
part. So long as the applicable Issuing Bank has not received written notice
that the conditions precedent set forth in SECTION 11 with respect to the
issuance of such Letter of Credit have not been satisfied, such Issuing Bank
shall issue such Letter of Credit on the requested issuance date. Each Issuing
Bank shall promptly advise the Agent of the issuance of each Letter of Credit by
such Issuing Bank and of any amendment thereto, extension thereof or event or
circumstance changing the amount available for drawing thereunder.
2.3.2 PARTICIPATION IN LETTERS OF CREDIT. Concurrently with the issuance of
each Letter of Credit, the applicable Issuing Bank shall be deemed to have sold
and transferred to each other Bank, and each other Bank shall be deemed
irrevocably and unconditionally to have purchased and received from such Issuing
Bank, without recourse or warranty, an undivided interest and participation, to
the extent of such other Bank's Percentage, in such Letter of Credit and the
Company's reimbursement obligations with respect thereto. For the purposes of
this Agreement, the unparticipated portion of each Letter of Credit shall be
deemed to be the applicable Issuing Bank's "participation" therein. Each Issuing
Bank hereby agrees, upon request of the Agent or any Bank, to deliver to such
Bank a list of all outstanding Letters of Credit issued by such Issuing Bank,
together with such information related thereto as such Bank may reasonably
request.
2.3.3 REIMBURSEMENT OBLIGATIONS. The Company hereby unconditionally and
irrevocably agrees to reimburse the applicable Issuing Bank for each payment or
disbursement made by such Issuing Bank under any Letter of Credit honoring any
demand for payment made by the beneficiary thereunder, in each case on the date
that such payment or disbursement is made. Any amount not reimbursed on the date
of such payment or disbursement shall bear interest from the date of such
payment or disbursement to the date that such Issuing Bank is reimbursed by the
Company therefor, payable on demand, at a rate per annum equal to the Alternate
Reference Rate from time to time in effect PLUS the Floating Rate Margin from
time to time in effect PLUS, beginning on the three Business Day after receipt
of notice from the Issuing Bank of such payment or disbursement, 2%. The
applicable Issuing Bank shall notify the Company and the Agent whenever any
demand for payment is made under any Letter of Credit by the beneficiary
thereunder; PROVIDED, HOWEVER, that the failure of such Issuing Bank to so
notify the Company shall not affect the rights of such Issuing Bank or the Banks
in any manner whatsoever.
2.3.4 LIMITATION ON OBLIGATIONS OF ISSUING BANKS. In determining whether to
pay under any Letter of Credit, no Issuing Bank shall have any obligation to the
Company or any Bank other
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than to confirm that any documents required to be delivered under such Letter of
Credit appear to have been delivered and appear to comply on their face with the
requirements of such Letter of Credit. Any action taken or omitted to be taken
by an Issuing Bank under or in connection with any Letter of Credit, if taken or
omitted in the absence of gross negligence and willful misconduct, shall not
impose upon such Issuing Bank any liability to the Company or any Bank and shall
not reduce or impair the Company's reimbursement obligations set forth in
SECTION 2.3.3 or the obligations of the Banks pursuant to SECTION 2.3.5.
2.3.5 FUNDING BY BANKS TO ISSUING BANKS. If an Issuing Bank makes any
payment or disbursement under any Letter of Credit and the Company has not
reimbursed such Issuing Bank in full for such payment or disbursement by 11:00
A.M., Chicago time, on the date of such payment or disbursement, or if any
reimbursement received by such Issuing Bank from the Company is or must be
returned or rescinded upon or during any bankruptcy or reorganization of the
Company or otherwise, each other Bank shall be obligated to pay to the Agent for
the account of such Issuing Bank, in full or partial payment of the purchase
price of its participation in such Letter of Credit, its pro rata share
(according to its Percentage) of such payment or disbursement (but no such
payment shall diminish the obligations of the Company under SECTION 2.3.3), and
upon notice from the applicable Issuing Bank, the Agent shall promptly notify
each other Bank thereof. Each other Bank irrevocably and unconditionally agrees
to so pay to the Agent in immediately available funds for the applicable Issuing
Bank's account the amount of such other Bank's Percentage of such payment or
disbursement. If and to the extent any Bank shall not have made such amount
available to the Agent by 2:00 P.M., Chicago time, on the Business Day on which
such Bank receives notice from the Agent of such payment or disbursement (it
being understood that any such notice received after noon, Chicago time, on any
Business Day shall be deemed to have been received on the next following
Business Day), such Bank agrees to pay interest on such amount to the Agent for
the applicable Issuing Bank's account forthwith on demand for each day from the
date such amount was to have been delivered to the Agent to the date such amount
is paid, at a rate per annum equal to (a) for the first three days after demand,
the Federal Funds Rate from time to time in effect and (b) thereafter, the
Alternate Reference Rate from time to time in effect. Any Bank's failure to make
available to the Agent its Percentage of any such payment or disbursement shall
not relieve any other Bank of its obligation hereunder to make available to the
Agent such other Bank's Percentage of such payment, but no Bank shall be
responsible for the failure of any other Bank to make available to the Agent
such other Bank's Percentage of any such payment or disbursement.
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2.4 COMMITMENTS SEVERAL. The failure of any Bank to make a requested Loan
on any date shall not relieve any other Bank of its obligation to make a Loan on
such date, but no Bank shall be responsible for the failure of any other Bank to
make any Loan to be made by such other Bank.
2.5 CERTAIN CONDITIONS. Notwithstanding any other provision of this
Agreement, no Bank shall have an obligation to make any Loan, or to permit the
continuation of or any conversion into any Eurodollar Loan, and no Issuing Bank
shall have any obligation to issue any Letter of Credit, if an Event of Default
or Unmatured Event of Default exists.
SECTION 3 NOTES EVIDENCING LOANS.
3.1 NOTES. The Loans of each Bank shall be evidenced by a promissory note
(each a "NOTE") substantially in the form set forth in EXHIBIT A, with
appropriate insertions, payable to the order of such Bank in an amount equal to
such Bank's Percentage of the Loan Commitment (or, if less, in the aggregate
unpaid principal amount of such Bank's Loans).
3.2 RECORDKEEPING. Each Bank shall record in its records, or at its option
on the schedule attached to its Note, the date and amount of each Loan made by
such Bank, each repayment or conversion thereof and, in the case of each
Eurodollar Loan, the dates on which each Interest Period for such Loan shall
begin and end. The aggregate unpaid principal amount so recorded shall be
rebuttable presumptive evidence of the principal amount owing and unpaid on such
Note. The failure to so record any such amount or any error in so recording any
such amount shall not, however, limit or otherwise affect the obligations of the
Company hereunder or under any Note to repay the principal amount of the Loans
evidenced by such Note together with all interest accruing thereon.
SECTION 4 INTEREST.
4.1 INTEREST RATES. The Company promises to pay interest on the unpaid
principal amount of each Loan for the period commencing on the date of such Loan
until such Loan is paid in full as follows:
(a) at all times while such Loan is a Floating Rate Loan, at a rate
per annum equal to the sum of the Alternate Reference Rate from time to
time in effect plus the Floating Rate Margin from time to time in effect;
and
(b) at all times while such Loan is a Eurodollar Loan, at a rate per
annum equal to the sum of the Eurodollar Rate (Reserve Adjusted) applicable
to each Interest Period for
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such Loan plus the Eurodollar Margin from time to time in effect;
PROVIDED, HOWEVER, that at any time an Event of Default exists, the interest
rate applicable to each Loan shall be increased by 2%.
4.2 INTEREST PAYMENT DATES. Accrued interest on each Floating Rate Loan
shall be payable in arrears on the last Business Day of each calendar quarter
and at maturity. Accrued interest on each Eurodollar Loan shall be payable on
the last day of each Interest Period relating to such Loan (and, in the case of
a Eurodollar Loan with a six-month Interest Period, on the three-month
anniversary of the first day of such Interest Period) and at maturity. After
maturity, accrued interest on all Loans shall be payable on demand.
4.3 INTEREST PERIODS. Each "Interest Period" for a Eurodollar Loan shall
commence on the date such Eurodollar Loan is made or converted from a Floating
Rate Loan, or on the expiration of the immediately preceding Interest Period for
such Eurodollar Loan, and shall end on the date which is one, two, three or six
months thereafter, as the Company may specify:
(a) in the case of an Interest Period which commences on the date a
Eurodollar Loan is made or converted from a Floating Rate Loan, in the
related notice of borrowing or conversion pursuant to SECTION 2.2.2 or
2.2.3, or
(b) in the case of a succeeding Interest Period with respect to any
Eurodollar Loan, by written notice or telephonic notice (followed
immediately by written confirmation thereof) to the Agent not later than
9:00 A.M., Chicago time, at least two Business Days prior to the first day
of such succeeding Interest Period, it being understood that (i) each such
notice shall be effective upon receipt by the Agent and (ii) if the Company
fails to give such notice, such Loan shall automatically become a Floating
Rate Loan at the end of its then-current Interest Period.
Each Interest Period that begins on the last day of a calendar month (or on a
day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month. Each Interest Period which would otherwise end on a
day which is not a Business Day shall end on the immediately succeeding Business
Day (unless such immediately succeeding Business Day is the first Business Day
of a calendar month, in which case such Interest Period shall end on the
immediately preceding Business Day). The Company may not select any Interest
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Period for a Loan which would end after the scheduled Termination Date.
4.4 SETTING AND NOTICE OF EURODOLLAR RATES. The applicable Eurodollar Rate
for each Interest Period shall be determined by the Agent, and notice thereof
shall be given by the Agent promptly to the Company and each Bank. Each
determination of the applicable Eurodollar Rate by the Agent shall be conclusive
and binding upon the parties hereto, in the absence of demonstrable error. The
Agent shall, upon written request of the Company or any Bank, deliver to the
Company or such Bank a statement showing the computations used by the Agent in
determining any applicable Eurodollar Rate hereunder.
4.5 COMPUTATION OF INTEREST. All determinations of interest for Floating
Rate Loans when the Alternate Reference Rate is determined by the Reference Rate
shall be made on the basis of a year of 365 or 366 days, as the case may be, and
the actual number of days elapsed. All other computations of interest shall be
computed for the actual number of days elapsed on the basis of a year of 360
days. The applicable interest rate for each Floating Rate Loan shall change
simultaneously with each change in the Alternate Reference Rate.
SECTION 5 FEES.
5.1 NON-USE FEE. The Company agrees to pay to the Agent for the account of
each Bank a non-use fee, for the period from the Effective Date to the
Termination Date, at the rate per annum in effect from time to time pursuant to
SCHEDULE 1.1 of the daily average of the unused amount of such Bank's Percentage
of the Commitment Amount. For purposes of calculating usage under this Section,
the Commitment Amount shall be deemed used to the extent of the aggregate
principal amount of all outstanding Loans plus the undrawn amount of all Letters
of Credit. Such non-use fee shall be payable in arrears on the last Business Day
of each calendar quarter and on the Termination Date for any period then ending
for which such non-use fee shall not have theretofore been paid. The non-use fee
shall be computed for the actual number of days elapsed on the basis of a year
of 360 days.
5.2 LETTER OF CREDIT FEES. (a) The Company agrees to pay to the Agent for
the account of the Banks pro rata according to their respective Percentages a
letter of credit fee for each Letter of Credit in an amount equal to the rate
per annum in effect from time to time pursuant to SCHEDULE 1.1 of the undrawn
amount of such Letter of Credit (computed for the actual number of days elapsed
on the basis of a year of 360 days); PROVIDED that the rate applicable to each
Letter of Credit shall be increased by 2% at any time that an Event of Default
exists. Such letter of credit fee shall be payable in arrears on the last
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Business Day of each calendar quarter and on the Termination Date for the period
from the date of the issuance of each Letter of Credit to the date such payment
is due or, if earlier, the date on which such Letter of Credit expired or was
terminated.
(b) In addition, with respect to each Letter of Credit, the Company agrees
to pay to the applicable Issuing Bank, for its own account, (i) such fees and
expenses as such Issuing Bank customarily requires in connection with the
issuance, negotiation, processing and/or administration of letters of credit in
similar situations and (ii) a letter of credit fee in the amount separately
agreed to by the Company and such Issuing Bank.
5.3 ARRANGEMENT AND AGENT'S FEES. The Company agrees to pay to the Arranger
and the Agent such arrangement and agent's fees as are mutually agreed to from
time to time by the Company and the Agent.
5.4 CLOSING FEES. On the Effective Date, the Company shall pay to the Agent
for the account of each Bank a closing fee in an amount equal to 0.20% of such
Bank's Percentage of the Commitment Amount.
SECTION 6 REDUCTION AND TERMINATION OF THE COMMITMENTS;
PREPAYMENTS.
6.1 REDUCTION OR TERMINATION OF THE COMMITMENTS. The Company may from time
to time on at least five Business Days' prior written notice received by the
Agent (which shall promptly advise each Bank thereof) permanently reduce the
Commitment Amount to an amount not less than the sum of the aggregate unpaid
principal amount of the Loans and the aggregate Stated Amount of all Letters of
Credit. Any such reduction shall be in an amount not less than $5,000,000 or a
higher integral multiple of $1,000,000. The Company may at any time on like
notice terminate the Commitments upon payment in full of all Loans and all other
obligations of the Company hereunder and cash collateralization in full,
pursuant to documentation in form and substance reasonably satisfactory to the
Banks, of all obligations arising with respect to the Letters of Credit. All
reductions of the Commitment Amount shall reduce the Commitments pro rata among
the Banks according to their respective Percentages.
6.2 VOLUNTARY PREPAYMENTS. The Company may from time to time prepay the
Loans in whole or in part, PROVIDED that (a) the Company shall give the Agent
(which shall promptly advise each Bank) notice thereof not later than 10:00 A.M.
(Chicago time) on the day of such prepayment (which shall be a Business Day)
specifying the Loans to be prepaid and the date and amount of prepayment,(b)
each partial prepayment shall be in a principal
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amount of at least $100,000 and an integral multiple of $100,000 and (c) any
prepayment of a Eurodollar Loan on a day other than the last day of an Interest
Period therefor shall be subject to SECTION 8.4.
SECTION 7 MAKING AND PRORATION OF PAYMENTS; SETOFF; TAXES.
7.1 MAKING OF PAYMENTS. All payments of principal of or interest on the
Notes, and of all non-use fees and Letter of Credit fees, shall be made by the
Company to the Agent in immediately available funds at the office specified by
the Agent not later than noon, Chicago time, on the date due; and funds received
after that hour shall be deemed to have been received by the Agent on the next
following Business Day. The Agent shall promptly remit to each Bank or other
holder of a Note its share of all such payments received in collected funds by
the Agent for the account of such Bank or holder.
All payments under SECTION 8.1 shall be made by the Company directly to the
Bank entitled thereto.
7.2 APPLICATION OF CERTAIN PAYMENTS. Each payment of principal shall be
applied to such Loans as the Company shall direct by notice to be received by
the Agent on or before the date of such payment or, in the absence of such
notice, as the Agent shall determine in its discretion. Concurrently with each
remittance to any Bank of its share of any such payment, the Agent shall advise
such Bank as to the application of such payment.
7.3 DUE DATE EXTENSION. If any payment of principal or interest with
respect to any of the Notes, or of non-use fees or Letter of Credit fees, falls
due on a day which is not a Business Day, then such due date shall be extended
to the immediately following Business Day (unless, in the case of a Eurodollar
Loan, such immediately following Business Day is the first Business Day of a
calendar month, in which case such date shall be the immediately preceding
Business Day) and, in the case of principal, additional interest shall accrue
and be payable for the period of any such extension.
7.4 SETOFF. The Company agrees that the Agent and each Bank have all rights
of set-off and bankers' lien provided by applicable law, and in addition
thereto, the Company agrees that at any time any Event of Default exists, the
Agent and each Bank may apply to the payment of any obligations of the Company
hereunder, whether or not then due, any and all balances, credits, deposits,
accounts or moneys of the Company then or thereafter with the Agent or such
Bank.
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7.5 PRORATION OF PAYMENTS. If any Bank shall obtain any payment or other
recovery (whether voluntary, involuntary, by application of offset or otherwise)
on account of principal of or interest on any Note (or on account of its
participation in any Letter of Credit) in excess of its pro rata share of
payments and other recoveries obtained by all Banks on account of principal of
and interest on Notes (or such participation) then held by them, such Bank shall
purchase from the other Banks such participation in the Notes (or
sub-participation in Letters of Credit) held by them as shall be necessary to
cause such purchasing Bank to share the excess payment or other recovery ratably
with each of them; PROVIDED, HOWEVER, that if all or any portion of the excess
payment or other recovery is thereafter recovered from such purchasing Bank, the
purchase shall be rescinded and the purchase price restored to the extent of
such recovery.
7.6 TAXES. All payments of principal of, and interest on, the Loans and all
other amounts payable hereunder shall be made free and clear of and without
deduction for any present or future income, excise, stamp or franchise taxes and
other taxes, fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority, but excluding franchise taxes and
taxes imposed on or measured by any Bank's net income or receipts (all
non-excluded items being called "TAXES"). If any withholding or deduction from
any payment to be made by the Company hereunder is required in respect of any
Taxes pursuant to any applicable law, rule or regulation, then the Company will:
(a) pay directly to the relevant authority the full
amount required to be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the Agent for the account of the Banks such additional
amount or amounts as is necessary to ensure that the net amount actually
received by each Bank will equal the full amount such Bank would have
received had no such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the Agent or any Bank with
respect to any payment received by the Agent or such Bank hereunder, the Agent
or such Bank may pay such Taxes and the Company will promptly pay such
additional amounts (including any penalty, interest and expense) as is necessary
in order that the net amount received by such Person after the payment of such
Taxes (including any Taxes on such additional amount) shall equal the amount
such Person would have received had such Taxes not been asserted.
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If the Company fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Agent, for the account of the respective
Banks, the required receipts or other required documentary evidence, the Company
shall indemnify the Banks for any incremental Taxes, interest or penalties that
may become payable by any Bank as a result of any such failure. For purposes of
this SECTION 7.6, a distribution hereunder by the Agent or any Bank to or for
the account of any Bank shall be deemed a payment by the Company.
Upon the request from time to time of the Company or the Agent, each Bank
that is organized under the laws of a jurisdiction other than the United States
of America shall execute and deliver to the Company and the Agent one or more
(as the Company or the Agent may reasonably request) United States Internal
Revenue Service Forms 4224 or Forms 1001 or such other forms or documents,
appropriately completed, as may be applicable to establish the extent, if any,
to which a payment to such Bank is exempt from withholding or deduction of
Taxes.
The obligations of the Company under this SECTION 7.6 are subject to the
limitation set out in SECTION 14.9.1.
SECTION 8 INCREASED COSTS; SPECIAL PROVISIONS FOR EURODOLLAR LOANS.
8.1 INCREASED COSTS. (a) If, after the date hereof, the adoption of any
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or any Eurodollar Office of such Bank) with
any request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency
(A) shall subject any Bank (or any Eurodollar Office of such Bank) to
any tax, duty or other charge with respect to its Eurodollar Loans, its
Note or its obligation to make Eurodollar Loans, or shall change the basis
of taxation of payments to any Bank of the principal of or interest on its
Eurodollar Loans or any other amounts due under this Agreement in respect
of its Eurodollar Loans or its obligation to make Eurodollar Loans (except
for changes in the rate of tax on the overall net income of such Bank or
its Eurodollar Office imposed by the jurisdiction in which such Bank's
principal executive office or Eurodollar Office is located); or
(B) shall impose, modify or deem applicable any reserve (including any
reserve imposed by the Board of Governors of the Federal Reserve System,
but excluding any
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reserve included in the determination of interest rates pursuant to SECTION
4), special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by any Bank (or any Eurodollar
Office of such Bank); or
(C) shall impose on any Bank (or its Eurodollar Office) any other
condition affecting its Eurodollar Loans, its Note or its obligation to
make Eurodollar Loans;
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D of the Board of Governors of the Federal Reserve System, to
impose a cost on) such Bank (or any Eurodollar Office of such Bank) of making or
maintaining any Eurodollar Loan, or to reduce the amount of any sum received or
receivable by such Bank (or its Eurodollar Office) under this Agreement or under
its Note with respect thereto, then within 10 days after demand by such Bank
(which demand shall be accompanied by a statement setting forth the basis for
such demand and a calculation of the amount thereof in reasonable detail, a copy
of which shall be furnished to the Agent), the Company shall pay directly to
such Bank such additional amount as will compensate such Bank for such increased
cost or such reduction.
(b) If any Bank shall reasonably determine that the adoption or phase-in of
any applicable law, rule or regulation regarding capital adequacy, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank or any
Person controlling such Bank with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of reducing the rate of
return on such Bank's or such controlling Person's capital as a consequence of
such Bank's obligations hereunder (including such Bank's obligations under the
Loan Commitment or the L/C Commitment) or under any Letter of Credit to a level
below that which such Bank or such controlling Person could have achieved but
for such adoption, change or compliance (taking into consideration such Bank's
or such controlling Person's policies with respect to capital adequacy) by an
amount deemed by such Bank or such controlling Person to be material, then from
time to time, within 10 days after demand by such Bank (which demand shall be
accompanied by a statement setting forth the basis for such demand and a
calculation of the amount thereof in reasonable detail, a copy of which shall be
furnished to the Agent), the Company shall pay to such Bank such additional
amount or amounts as will compensate such Bank or such controlling Person for
such reduction.
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8.2 BASIS FOR DETERMINING INTEREST RATE INADEQUATE OR UNFAIR. If with
respect to any Interest Period:
(a) deposits in Dollars (in the applicable amounts) are not being
offered to the Agent in the interbank eurodollar market for such Interest
Period, or the Agent otherwise reasonably determines (which determination,
if made in good faith, shall be binding and conclusive on the Company) that
by reason of circumstances affecting the interbank eurodollar market
adequate and reasonable means do not exist for ascertaining the applicable
Eurodollar Rate; or
(b) Banks having an aggregate Percentage of 40% or more advise the
Agent that the Eurodollar Rate (Reserve Adjusted) as determined by the
Agent will not adequately and fairly reflect the cost to such Banks of
maintaining or funding such Loans for such Interest Period (taking into
account any amount to which such Banks may be entitled under SECTION 8.1)
or that the making or funding of Eurodollar Loans has become impracticable
as a result of an event occurring after the date of this Agreement which in
the opinion of such Banks materially affects such Loans;
THEN the Agent shall promptly notify the other parties thereof and, so long as
such circumstances shall continue, (i) no Bank shall be under any obligation to
make or convert into Eurodollar Loans and (ii) on the last day of the current
Interest Period for each Eurodollar Loan, such Loan shall, unless then repaid in
full, automatically convert to a Floating Rate Loan.
8.3 CHANGES IN LAW RENDERING EURODOLLAR LOANS UNLAWFUL. In the event that
any change in (including the adoption of any new) applicable laws or
regulations, or any change in the interpretation of applicable laws or
regulations by any governmental or other regulatory body charged with the
administration thereof, should make it (or in the good faith judgment of any
Bank cause a substantial question as to whether it is) unlawful for any Bank to
make, maintain or fund Eurodollar Loans, then such Bank shall promptly notify
each of the other parties hereto and, so long as such circumstances shall
continue, (a) such Bank shall have no obligation to make or convert into
Eurodollar Loans (but shall make Floating Rate Loans concurrently with the
making of or conversion into Eurodollar Loans by the Banks which are not so
affected, in each case in an amount equal to such Bank's pro rata share of all
Eurodollar Loans which would be made or converted into at such time in the
absence of such circumstances) and (b) on the last day of the current Interest
Period for each Eurodollar Loan of such Bank (or, in any event, on such earlier
date as may be required by the relevant law, regulation or interpretation), such
Eurodollar Loan shall, unless
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then repaid in full, automatically convert to a Floating Rate Loan. Each
Floating Rate Loan made by a Bank which, but for the circumstances described in
the foregoing sentence, would be a Eurodollar Loan (an "Affected Loan") shall
remain outstanding for the same period as the Group of Eurodollar Loans of which
such Affected Loan would be a part absent such circumstances.
8.4 FUNDING LOSSES. The Company hereby agrees that upon demand by any Bank
(which demand shall be accompanied by a statement setting forth the basis for
the amount being claimed, a copy of which shall be furnished to the Agent), the
Company will indemnify such Bank against any net loss or expense which such Bank
may sustain or incur (including any net loss or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such Bank
to fund or maintain any Eurodollar Loan), as reasonably determined by such Bank,
as a result of (a) any payment, prepayment or conversion of any Eurodollar Loan
of such Bank on a date other than the last day of an Interest Period for such
Loan (including any conversion pursuant to SECTION 8.3) or (b) any failure of
the Company to borrow or convert any Loan on a date specified therefor in a
notice of borrowing or conversion pursuant to this Agreement. For this purpose,
all notices to the Agent pursuant to this Agreement shall be deemed to be
irrevocable.
8.5 RIGHT OF BANKS TO FUND THROUGH OTHER OFFICES. Each Bank may, if it so
elects, fulfill its commitment as to any Eurodollar Loan by causing a foreign
branch or affiliate of such Bank to make such Loan, PROVIDED that in such event
for the purposes of this Agreement such Loan shall be deemed to have been made
by such Bank and the obligation of the Company to repay such Loan shall
nevertheless be to such Bank and shall be deemed held by it, to the extent of
such Loan, for the account of such branch or affiliate.
8.6 DISCRETION OF BANKS AS TO MANNER OF FUNDING. Notwithstanding any
provision of this Agreement to the contrary, each Bank shall be entitled to fund
and maintain its funding of all or any part of its Loans in any manner it sees
fit, it being understood, however, that for the purposes of this Agreement all
determinations hereunder shall be made as if such Bank had actually funded and
maintained each Eurodollar Loan during each Interest Period for such Loan
through the purchase of deposits having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the Eurodollar Rate for
such Interest Period.
8.7 MITIGATION OF CIRCUMSTANCES; REPLACEMENT OF AFFECTED BANK. (a) Each
Bank shall promptly notify the Company and the Agent of any event of which it
has knowledge which will result in, and will use reasonable commercial efforts
available to it
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(and not, in such Bank's good faith judgment, otherwise disadvantageous to such
Bank) to mitigate or avoid, (i) any obligation by the Company to pay any amount
pursuant to SECTION 7.6 or 8.1 or (ii) the occurrence of any circumstances of
the nature described in SECTION 8.2 or 8.3 (and, if any Bank has given notice of
any such event described in CLAUSE (I) or (II) above and thereafter such event
ceases to exist, such Bank shall promptly so notify the Company and the Agent).
Without limiting the foregoing, each Bank will designate a different funding
office if such designation will avoid (or reduce the cost to the Company of) any
event described in CLAUSE (I) or (II) of the preceding sentence and such
designation will not, in such Bank's sole judgment, be otherwise disadvantageous
to such Bank.
(b) At any time any Bank is an Affected Bank, the Company may replace such
Affected Bank as a party to this Agreement with one or more other bank(s) or
financial institution(s) reasonably satisfactory to the Agent (and upon notice
from the Company such Affected Bank shall assign pursuant to an Assignment
Agreement, and without recourse or warranty, its Commitment, its Loans, its
Note, its participation in Letters of Credit, and all of its other rights and
obligations hereunder to such replacement bank(s) or other financial
institution(s) for a purchase price equal to the sum of the principal amount of
the Loans so assigned, all accrued and unpaid interest thereon, its ratable
share of all accrued and unpaid non-use fees and Letter of Credit fees, any
amounts payable under SECTION 8.4 as a result of such Bank receiving payment of
any Eurodollar Loan prior to the end of an Interest Period therefor and all
other obligations owed to such Affected Bank hereunder).
8.8 CONCLUSIVENESS OF STATEMENTS; SURVIVAL OF PROVISIONS. Determinations
and statements of any Bank pursuant to SECTION 8.1, 8.2, 8.3 or 8.4 shall be
conclusive absent demonstrable error. Banks may use reasonable averaging and
attribution methods in determining compensation under SECTIONS 8.1 and 8.4, and
the provisions of such Sections shall survive repayment of the Loans,
cancellation of the Notes, cancellation or expiration of the Letters of Credit
and any termination of this Agreement.
SECTION 9 WARRANTIES.
To induce the Agent and the Banks to enter into this Agreement and to
induce the Banks to make Loans and issue or purchase participations in Letters
of Credit hereunder, the Company warrants to the Agent and the Banks that:
9.1 ORGANIZATION, ETC. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware; each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the
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state of its incorporation; and the Company and each Subsidiary is duly
qualified to do business in each jurisdiction where the nature of its business
makes such qualification necessary (except in those instances in which the
failure to be qualified or in good standing does not have a Material Adverse
Effect) and has full power and authority to own its property and conduct its
business as presently conducted by it.
9.2 AUTHORIZATION; NO CONFLICT. The execution and delivery by the Company
of this Agreement and each other Loan Document to which it is a party, the
borrowings hereunder, the execution and delivery by each Guarantor of each Loan
Document to which it is a party and the performance by each of the Company and
each Guarantor of its obligations under each Loan Document to which it is a
party are within the corporate powers of the Company and each Guarantor, have
been duly authorized by all necessary corporate action on the part of the
Company and each Guarantor (including any necessary shareholder action), have
received all necessary governmental approval (if any shall be required), and do
not and will not (a) violate any provision of law or any order, decree or
judgment of any court or other government agency which is binding on the Company
or any Guarantor, (b) contravene or conflict with, or result in a breach of, any
provision of the Certificate of Incorporation, By-Laws or other organizational
documents of the Company or any Guarantor or of any agreement, indenture,
instrument or other document which is binding on the Company, any Guarantor or
any other Subsidiary or (c) result in, or require, the creation or imposition of
any Lien on any property of the Company, any Guarantor or any other Subsidiary
(other than Liens arising under the Loan Documents).
9.3 VALIDITY AND BINDING NATURE. Each of this Agreement and each other Loan
Document to which the Company is a party is the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms; and each Loan Document to which any Guarantor is a party is, or upon
the execution and delivery thereof by such Guarantor will be, the legal, valid
and binding obligation of such Guarantor, enforceable against such Guarantor in
accordance with its terms.
9.4 FINANCIAL CONDITION. The audited consolidated financial statements of
the Company and its Subsidiaries dated December 31, 1996, and the unaudited
consolidated financial statements of the Company and its Subsidiaries dated
September 30, 1997, copies of which have been furnished to each Bank:
(i) were prepared in accordance with GAAP consistently applied
throughout the periods covered thereby, except as otherwise expressly noted
therein (subject, in the case of the unaudited financial statements, to the
absence
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of footnotes and to customary year-end audit adjustments); and
(ii) fairly present in all material respects the financial
condition of the Company and its Subsidiaries as of the dates thereof and
the results of operations for the periods covered thereby.
9.5 NO MATERIAL ADVERSE CHANGE. Since December 31, 1996, there has been no
material adverse change in the financial condition, operations, assets,
business, properties or prospects of the Company and its Subsidiaries taken as a
whole.
9.6 LITIGATION AND CONTINGENT LIABILITIES. (a) No litigation (including
derivative actions), arbitration proceeding, labor controversy or governmental
investigation or proceeding is pending or, to the Company's knowledge,
threatened against the Company or any Subsidiary which might reasonably be
expected to have a Material Adverse Effect, except as set forth in SCHEDULE
9.6(A). Other than any liability incident to such litigation or proceedings,
neither the Company nor any Subsidiary has any material contingent liabilities
not listed in such SCHEDULE 9.6(A) or 9.6(B).
(b) SCHEDULE 9.6(B) sets out descriptions of all arrangements existing on
the Effective Date pursuant to which the Company or any Subsidiary may be
required to pay any Contingent Payment.
9.7 OWNERSHIP OF PROPERTIES; LIENS. Each of the Company and each Subsidiary
owns good and marketable title to all of its properties and assets, real and
personal, tangible and intangible, of any nature whatsoever (including patents,
trademarks, trade names, service marks and copyrights), free and clear of all
Liens, charges and material claims (including material infringement claims with
respect to patents, trademarks, copyrights and the like) except as permitted
pursuant to SECTION 10.8.
9.8 SUBSIDIARIES. The Company has no Subsidiaries except those listed in
SCHEDULE 9.8.
9.9 PENSION AND WELFARE PLANS. (a) During the twelve-consecutive-month
period prior to the date of the execution and delivery of this Agreement or the
making of any Loan hereunder, (i) no steps have been taken to terminate any
Pension Plan and (ii) no contribution failure has occurred with respect to any
Pension Plan sufficient to give rise to a lien under Section 302(f) of ERISA. No
condition exists or event or transaction has occurred with respect to any
Pension Plan which could result in the incurrence by the Company of any material
liability, fine or
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penalty. The Company has no contingent liability with respect to any
post-retirement benefit under a Welfare Plan, other than liability for
continuation coverage described in Part 6 of Subtitle B of Title I of ERISA.
(b) All contributions (if any) have been made to any Multiemployer Pension
Plan that are required to be made by the Company or any other member of the
Controlled Group under the terms of the plan or of any collective bargaining
agreement or by applicable law; neither the Company nor any member of the
Controlled Group has withdrawn or partially withdrawn from any Multiemployer
Pension Plan, incurred any withdrawal liability with respect to any such plan,
received notice of any claim or demand for withdrawal liability or partial
withdrawal liability from any such plan, and no condition has occurred which, if
continued, might result in a withdrawal or partial withdrawal from any such
plan; and neither the Company nor any member of the Controlled Group has
received any notice that any Multiemployer Pension Plan is in reorganization,
that increased contributions may be required to avoid a reduction in plan
benefits or the imposition of any excise tax, that any such plan is or has been
funded at a rate less than that required under Section 412 of the Code, that any
such plan is or may be terminated, or that any such plan is or may become
insolvent.
9.10 INVESTMENT COMPANY ACT. Neither the Company nor any Subsidiary is an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940.
9.11 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any
Subsidiary is a "holding company", or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935.
9.12 REGULATION U. The Company is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
9.13 TAXES. Each of the Company and each Subsidiary has filed all tax
returns and reports required by law to have been filed by it and has paid all
taxes and governmental charges thereby shown to be owing, except any such taxes
or charges which are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall have
been set aside on its books.
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9.14 SOLVENCY, ETC. On the Effective Date (or, in the case of any Person
which becomes a Guarantor after the Effective Date, on the date such Person
becomes a Guarantor), and immediately prior to and after giving effect to the
issuance of each Letter of Credit and each borrowing hereunder and the use of
the proceeds thereof, (a) each of the Company's and each Guarantor's assets will
exceed its liabilities and (b) each of the Company and each Guarantor will be
solvent, will be able to pay its debts as they mature, will own property with
fair saleable value greater than the amount required to pay its debts and will
have capital sufficient to carry on its business as then constituted.
9.15 ENVIRONMENTAL MATTERS.
(a) NO VIOLATIONS. Except as set forth on SCHEDULE 9.15, neither the
Company nor any Subsidiary, nor any operator of the Company's or any
Subsidiary's properties, is in violation, or alleged violation, of any judgment,
decree, order, law, permit, license, rule or regulation pertaining to
environmental matters, including those arising under the Resource Conservation
and Recovery Act ("RARA"), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986 or any other Environmental Law which (i) in any
single case, requires expenditures in any three-year period of $500,000 or more
by the Company and its Subsidiaries in penalties and/or for investigative,
removal or remedial actions or (ii) individually or in the aggregate otherwise
might reasonably be expected to have a Material Adverse Effect.
(b) NOTICES. Except as set forth on SCHEDULE 9.15, neither the Company
nor any Subsidiary has received notice from any third party, including any
Federal, state or local governmental authority: (a) that any one of them has
been identified by the U.S. Environmental Protection Agency as a potentially
responsible party under CERCLA with respect to a site listed on the National
Priorities List, 40 C.F.R. Part 300 Appendix B; (b) that any hazardous waste, as
defined by 42 U.S.C. 6903(5), any hazardous substance as defined by 42 U.S.C.
9601(14), any pollutant or contaminant as defined by 42 U.S.C. 9601(33) or any
toxic substance, oil or hazardous material or other chemical or substance
regulated by any Environmental Law, excluding household hazardous waste (all of
the foregoing, "HAZARDOUS SUBSTANCES"), which any one of them has generated,
transported or disposed of has been found at any site at which a Federal, state
or local agency or other third party has conducted a remedial investigation,
removal or other response action pursuant to any Environmental Law; (c) that the
Company or any Subsidiary must conduct a remedial investigation, removal,
response action or other activity pursuant to any Environmental Law; or (d) of
any Environmental Claim.
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(c) HANDLING OF HAZARDOUS SUBSTANCES. Except as set forth on SCHEDULE
9.15, (i) no portion of the real property or other assets of the Company or any
Subsidiary has been used for the handling, processing, storage or disposal of
Hazardous Substances except in accordance in all material respects with
applicable Environmental Laws; and no underground tank or other underground
storage receptacle for Hazardous Substances is located on such properties; (ii)
in the course of any activities conducted by the Company, any Subsidiary or the
operators of any real property of the Company or any Subsidiary, no Hazardous
Substances have been generated or are being used on such properties except in
accordance in all material respects with applicable Environmental Laws; (iii)
there have been no Releases or threatened Releases of Hazardous Substances on,
upon, into or from any real property or other assets of the Company or any
Subsidiary, which Releases singly or in the aggregate might reasonably be
expected to have a material adverse effect on the value of such real property or
assets; (iv) to the Company's actual knowledge, there have been no Releases on,
upon, from or into any real property in the vicinity of the real property or
other assets of the Company or any Subsidiary which, through soil or groundwater
contamination, may have come to be located on, and which might reasonably be
expected to have a material adverse effect on the value of, the real property or
other assets of the Company or any Subsidiary; and (v) any Hazardous Substances
generated by the Company and its Subsidiaries have been transported offsite only
by properly licensed carriers and delivered only to treatment or disposal
facilities maintaining valid permits as required under applicable Environmental
Laws, which transporters and facilities have been and are, to the best of the
Company's knowledge, operating in compliance with such permits and applicable
Environmental Laws.
(d) INVESTIGATIONS. Except as set forth on SCHEDULE 9.15, the Company
and its Subsidiaries have taken all reasonable steps to investigate the past and
present condition and usage of the real property of the Company and its
Subsidiaries and the operations conducted by the Company and its Subsidiaries
with regard to environmental matters.
9.16 YEAR 2000 PROBLEM. The Company and its Subsidiaries have reviewed the
areas within their business and operations which could be adversely affected by,
and have developed or are developing a program to address on a timely basis, the
"Year 2000 Problem" (that is, the risk that computer applications used by the
Company and its Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999). Based on such review and program, the Company reasonably
believes that the "Year 2000 Problem" will not have a Material Adverse Effect.
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9.17 INFORMATION. All information heretofore or contemporaneously herewith
furnished in writing by the Company or any Subsidiary to any Bank for purposes
of or in connection with this Agreement and the transactions contemplated hereby
is, and all written information hereafter furnished by or on behalf of the
Company or any Subsidiary to any Bank pursuant hereto or in connection herewith
will be, true and accurate in every material respect on the date as of which
such information is dated or certified, and none of such information is or will
be incomplete by omitting to state any material fact necessary to make such
information not misleading in light of the circumstances under which made (it
being recognized by the Agent and the Banks that (a) any projections and
forecasts provided by the Company are based on good faith estimates and
assumptions believed by the Company to be reasonable as of the date of the
applicable projections or assumptions and that actual results during the period
or periods covered by any such projections and forecasts may differ from
projected or forecasted results and (b) any information provided by the Company
or any Subsidiary with respect to any Person or assets acquired or to be
acquired by the Company or any Subsidiary shall, for all periods prior to the
date of such acquisition, be limited to the knowledge of the Company or the
acquiring Subsidiary after reasonable inquiry).
SECTION 10 COVENANTS.
Until the expiration or termination of the Commitments and thereafter until
all obligations of the Company hereunder and under the other Loan Documents are
paid in full and all Letters of Credit have been terminated, the Company agrees
that, unless at any time the Required Banks shall otherwise expressly consent in
writing, it will:
10.1 REPORTS, CERTIFICATES AND OTHER INFORMATION. Furnish to the Agent and
each Bank:
10.1.1 AUDIT REPORT. Promptly when available and in any event within 90
days after the close of each Fiscal Year: (a) a copy of the annual audit report
of the Company and its Subsidiaries for such Fiscal Year, including therein
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such Fiscal Year and consolidated statements of earnings and cash flow of the
Company and its Subsidiaries for such Fiscal Year certified without
qualification by independent auditors of recognized standing selected by the
Company and reasonably acceptable to the Required Banks, together with a written
statement from such accountants to the effect that in making the examination
necessary for the signing of such annual audit report by such accountants,
nothing came to their attention that caused them to believe that the Company was
not in compliance with any provision of Section 10.6, 10.7, 10.9 or 10.10 of
this Agreement
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insofar as such provision relates to accounting matters or, if something has
come to their attention that caused them to believe that the Company was not in
compliance with any such provision, describing such non-compliance in reasonable
detail (it being understood that any such audit is not directed primarily toward
obtaining knowledge of such non-compliance); and (b) consolidating balance
sheets of the Company and its Subsidiaries as of the end of such Fiscal Year and
a consolidating statement of earnings for the Company and its Subsidiaries for
such Fiscal Year, certified by the Chief Financial Officer, the Vice President,
Finance, Controller or Treasurer of the Company.
10.1.2 QUARTERLY REPORTS. Promptly when available and in any event within
45 days after the end of each Fiscal Quarter (except the last Fiscal Quarter) of
each Fiscal Year, consolidated and consolidating balance sheets of the Company
and its Subsidiaries as of the end of such Fiscal Quarter, together with
consolidated and consolidating statements of earnings and a consolidated
statement of cash flows for such Fiscal Quarter and for the period beginning
with the first day of such Fiscal Year and ending on the last day of such Fiscal
Quarter, certified by the Chief Financial Officer, the Vice President, Finance,
Controller or Treasurer of the Company.
10.1.3 COMPLIANCE CERTIFICATES. Contemporaneously with the furnishing of a
copy of each annual audit report pursuant to SECTION 10.1.1 and of each set of
quarterly statements pursuant to SECTION 10.1.2, a duly completed compliance
certificate in the form of EXHIBIT B, with appropriate insertions, dated the
date of such annual report or such quarterly statements and signed by the Chief
Financial Officer, the Vice President, Finance, Controller or Treasurer of the
Company, containing a computation of each of the financial ratios and
restrictions set forth in SECTION 10.6 and to the effect that such officer has
not become aware of any Event of Default or Unmatured Event of Default that has
occurred and is continuing or, if there is any such event, describing it and the
steps, if any, being taken to cure it.
10.1.4 REPORTS TO SEC AND TO SHAREHOLDERS. Promptly upon the filing or
sending thereof, copies of all regular, periodic or special reports of the
Company or any Subsidiary filed with the SEC (excluding exhibits thereto,
provided that the Company shall promptly deliver any such exhibit to the Agent
or any Bank upon request therefor); copies of all registration statements of the
Company or any Subsidiary filed with the SEC (other than on Form S-8); and
copies of all proxy statements or other communications made to security holders
generally concerning material developments in the business of the Company or any
Subsidiary.
10.1.5 NOTICE OF DEFAULT, LITIGATION AND ERISA MATTERS. Promptly upon
becoming aware of any of the following, written
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notice describing the same and the steps being taken by the Company or the
Subsidiary affected thereby with respect thereto:
(a) the occurrence of an Event of Default or an
Unmatured Event of Default;
(b) any litigation, arbitration or governmental investigation or
proceeding not previously disclosed by the Company to the Banks which has
been instituted or, to the knowledge of the Company, is threatened against
the Company or any Subsidiary or to which any of the properties of any
thereof is subject which, if adversely determined, might reasonably be
expected to have a Material Adverse Effect;
(c) the institution of any steps by any member of the Controlled Group
or any other Person to terminate any Pension Plan, or the failure of any
member of the Controlled Group to make a required contribution to any
Pension Plan (if such failure is sufficient to give rise to a lien under
Section 302(f) of ERISA) or to any Multiemployer Pension Plan, or the
taking of any action with respect to a Pension Plan which could result in
the requirement that the Company furnish a bond or other security to the
PBGC or such Pension Plan, or the occurrence of any event with respect to
any Pension Plan or Multiemployer Pension Plan which could result in the
incurrence by any member of the Controlled Group of any material liability,
fine or penalty (including any claim or demand for withdrawal liability or
partial withdrawal from any Multiemployer Pension Plan), or any material
increase in the contingent liability of the Company with respect to any
post-retirement Welfare Plan benefit, or any notice that any Multiemployer
Pension Plan is in reorganization, that increased contributions may be
required to avoid a reduction in plan benefits or the imposition of an
excise tax, that any such plan is or has been funded at a rate less than
that required under Section 412 of the Code, that any such plan is or may
be terminated, or that any such plan is or may become insolvent;
(d) any cancellation or material change in any
insurance maintained by the Company or any Subsidiary;
(e) any event (including (i) any violation of any Environmental Law or
the assertion of any Environmental Claim or (ii) the enactment or
effectiveness of any law, rule or regulation) which might reasonably be
expected to have a Material Adverse Effect; or
(f) any setoff, claims, withholdings or other defenses
to which any of the Collateral, or the Banks' rights with
respect to the Collateral, are subject.
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10.1.6 SUBSIDIARIES. Promptly upon any change in the list
of its Subsidiaries, a written report of such change.
10.1.7 MANAGEMENT REPORTS. Promptly upon the request of the Agent or any
Bank, copies of all detailed financial and management reports submitted to the
Company by independent auditors in connection with each annual or interim audit
made by such auditors of the books of the Company.
10.1.8 PROJECTIONS. As soon as practicable and in any event within 60 days
after the commencement of each Fiscal Year, financial projections for the
Company and its Subsidiaries for such Fiscal Year prepared in a manner
consistent with those projections delivered by the Company to the Banks prior to
the Effective Date or otherwise in a manner reasonably satisfactory to the
Agent.
10.1.9 OTHER INFORMATION. From time to time such other information
concerning the Company and its Subsidiaries as any Bank or the Agent may
reasonably request.
10.2 BOOKS, RECORDS AND INSPECTIONS. Keep, and cause each Subsidiary to
keep, its books and records in accordance with sound business practices
sufficient to allow the preparation of financial statements in accordance with
GAAP; permit, and cause each Subsidiary to permit, any Bank or the Agent or any
representative thereof to inspect the properties and operations of the Company
and of such Subsidiary; and permit, and cause each Subsidiary to permit, at any
reasonable time and with reasonable notice (or at any time without notice if an
Event of Default exists), any Bank or the Agent or any representative thereof to
visit any or all of its offices, to discuss its financial matters with its
officers and its independent auditors (and the Company hereby authorizes such
independent auditors to discuss such financial matters with any Bank or the
Agent or any representative thereof, provided that so long as no Event of
Default exists, a representative of the Company shall be present at any such
discussions), and to examine (and, at the expense of the Company or the
applicable Subsidiary, photocopy extracts from) any of its books or other
corporate records.
10.3 INSURANCE. Maintain, and cause each Subsidiary to maintain, with
responsible insurance companies, such insurance as may be required by any law or
governmental regulation or court decree or order applicable to it and such other
insurance, to such extent and against such hazards and liabilities, as is
customarily maintained by companies similarly situated; and, upon request of the
Agent or any Bank, furnish to the Agent or such Bank a certificate setting forth
in reasonable detail the nature and extent of all insurance maintained by the
Company and its Subsidiaries.
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10.4 COMPLIANCE WITH LAWS; PAYMENT OF TAXES AND LIABILITIES. (a) Comply,
and cause each Subsidiary to comply, in all material respects with all
applicable laws (including Environmental Laws), rules, regulations, decrees,
orders, judgments, licenses and permits; and (b) pay, and cause each Subsidiary
to pay, prior to delinquency, all taxes and other governmental charges against
it or any of its property, as well as claims of any kind which, if unpaid, might
become a Lien on any of its property; PROVIDED, HOWEVER, that the foregoing
shall not require the Company or any Subsidiary to pay any such tax or charge so
long as it shall contest the validity thereof in good faith by appropriate
proceedings and shall set aside on its books adequate reserves with respect
thereto in accordance with GAAP.
10.5 MAINTENANCE OF EXISTENCE, ETC. Maintain and preserve, and (subject to
SECTION 10.11) cause each Subsidiary to maintain and preserve, (a) its existence
and good standing in the jurisdiction of its incorporation and (b) its
qualification and good standing as a foreign corporation in each jurisdiction
where the nature of its business makes such qualification necessary (except in
those instances in which the failure to be qualified or in good standing does
not have a Material Adverse Effect).
10.6 FINANCIAL COVENANTS.
10.6.1 MINIMUM NET WORTH. Not permit its Net Worth at any time to be less
than the sum of (a) $18,000,000 PLUS (b) 75% of the sum of Consolidated Net
Income during the period beginning on the Effective Date and ending on the last
day of the most recently-ended Fiscal Quarter (PROVIDED that, if the sum of
Consolidated Net Income is less than zero for any Fiscal Quarter, for purposes
of this SECTION 10.6.1 such sum will be deemed to have been zero for such
quarter) PLUS (c) 100% of the net proceeds of any equity issued by the Company
or any of its Subsidiaries (on a consolidated basis) after the Effective Date.
10.6.2 MINIMUM INTEREST COVERAGE. Not permit the Interest Coverage Ratio
for any Computation Period to be less than the applicable ratio set forth below:
COMPUTATION INTEREST
PERIOD ENDING: COVERAGE RATIO
12/31/97 through 12/31/98 2.0 to 1.0
3/31/99 through 12/31/99 2.25 to 1.0
3/31/2000 and thereafter 2.5 to 1.0.
10.6.3 FUNDED DEBT TO EBITDA RATIO. Not permit the Funded Debt to EBITDA
Ratio as of the last day of any Fiscal Quarter to exceed the applicable ratio
set forth below:
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FISCAL FUNDED DEBT TO
QUARTER ENDING: EBITDA RATIO
12/31/97 through 12/31/99 3.75 to 1.0
3/31/2000 and thereafter 3.50 to 1.0.
10.6.4 CAPITAL EXPENDITURES. The Company will not permit the aggregate
amount of all Capital Expenditures made by the Company and its Subsidiaries in
any Fiscal Year to exceed $6,000,000.
10.7 LIMITATIONS ON DEBT. Not, and not permit any Subsidiary to, create,
incur, assume or suffer to exist any Debt, except:
(a) obligations in respect of the Loans, the L/C
Applications and the Letters of Credit;
(b) unsecured Debt of the Company which represents all or part of the
purchase price payable in connection with a transaction permitted by
SECTION 10.11(C); PROVIDED that the aggregate principal amount of all such
unsecured Debt shall not at any time exceed $5,000,000;
(c) Debt secured by Liens permitted by SUBSECTION 10.8(C) or (D), and
refinancings of any such Debt so long as the terms applicable to such
refinanced Debt are no less favorable to the Company or the applicable
Subsidiary than the terms in effect immediately prior to such refinancing,
PROVIDED that the aggregate amount of all such Debt at any time outstanding
shall not exceed $2,000,000;
(d) Debt of Subsidiaries owed to the Company;
(e) unsecured Debt of the Company to Subsidiaries;
(f) Subordinated Debt;
(g) other Debt outstanding on the date hereof and listed in SCHEDULE 10.7;
(h) Contingent Payments, PROVIDED that (i) all Contingent Payments arising
in connection with any single event or transaction shall not exceed
$2,000,000 and (II) the aggregate amount of all Contingent Payments shall
not at any time exceed $5,000,000; and
(i) Debt to be Repaid (provided that all such Debt is repaid on or before
the Effective Date).
10.8 LIENS. Not, and not permit any Subsidiary to, create or permit to
exist any Lien on any of its real or personal
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properties, assets or rights of whatsoever nature (whether now owned or
hereafter acquired), except:
(a) Liens for taxes or other governmental charges not at the time
delinquent or thereafter payable without penalty or being contested in good
faith by appropriate proceedings and, in each case, for which it maintains
adequate reserves;
(b) Liens arising in the ordinary course of business (such as (i) Liens of
carriers, warehousemen, mechanics and materialmen and other similar Liens
imposed by law and (ii) Liens incurred in connection with worker's
compensation, unemployment compensation and other types of social security
(excluding Liens arising under ERISA) or in connection with surety bonds,
bids, performance bonds and similar obligations) for sums not overdue or
being contested in good faith by appropriate proceedings and not involving
any deposits or advances or borrowed money or the deferred purchase price
of property or services, and, in each case, for which it maintains adequate
reserves;
(c) Liens identified in SCHEDULE 10.8;
(d) subject to the limitation set forth in SECTION 10.7(C),(i) Liens
arising in connection with Capital Leases (and attaching only to the
property being leased), (ii) Liens existing on property at the time of the
acquisition thereof by the Company or any Subsidiary (and not created in
contemplation of such acquisition) and (iii) Liens that constitute purchase
money security interests on any property securing debt incurred for the
purpose of financing all or any part of the cost of acquiring such
property, PROVIDED that any such Lien attaches to such property within 60
days of the acquisition thereof and such Lien attaches solely to the
property so acquired;
(e) attachments, appeal bonds, judgments and other similar Liens, for sums
not exceeding $250,000 arising in connection with court proceedings,
provided the execution or other enforcement of such Liens is effectively
stayed and the claims secured thereby are being actively contested in good
faith and by appropriate proceedings;
(f) easements, rights of way, restrictions, minor defects or irregularities
in title and other similar Liens not interfering in any material respect
with the ordinary conduct of the business of the Company or any Subsidiary;
(g) Liens securing Debt to be Repaid; and
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(h) Liens in favor of the Agent arising under the Loan Documents.
10.9 OPERATING LEASES. Not, and not permit any Subsidiary to, be party to
Operating Leases requiring rental payments in excess of $1,500,000 in the
aggregate (excluding intercompany leases) in any Fiscal Year for the Company and
its Subsidiaries taken as a whole.
10.10 RESTRICTED PAYMENTS. Not, and not permit any Subsidiary to, (a)
declare or pay any dividends on any of its capital stock (other than stock
dividends), (b) purchase or redeem any such stock or any warrants, units,
options or other rights in respect of such stock, (c) make any other
distribution to shareholders, (d) prepay, purchase, defease or redeem any
Subordinated Debt or (e) set aside funds for any of the foregoing; PROVIDED that
any Subsidiary may declare and pay dividends to the Company or to any other
wholly-owned Subsidiary.
10.11 MERGERS, CONSOLIDATIONS, SALES. Not, and not permit any Subsidiary
to, be a party to any merger or consolidation, or purchase or otherwise acquire
all or substantially all of the assets or any stock of any class of, or any
partnership or joint venture interest in, any other Person, or sell, transfer,
convey or lease all or any substantial part of its assets, or sell or assign
with or without recourse any receivables, except for (a) any such merger or
consolidation, sale, transfer, conveyance, lease or assignment of or by any
wholly-owned Subsidiary into the Company or into, with or to any other
wholly-owned Subsidiary; (b) any such purchase or other acquisition by the
Company or any wholly-owned Subsidiary of the assets or stock of any
wholly-owned Subsidiary; (c) any such purchase or other acquisition by the
Company or any wholly-owned Subsidiary of the assets or stock of any other
Person where (1) such assets (in the case of an asset purchase) are for use, or
such Person (in the case of a stock purchase) is engaged, solely in the
processing and disposal of non-hazardous liquid waste and by-products thereof
and nonhazardous oil field waste and businesses which are reasonably related
thereto (including land farming bio-solids); (2) immediately before or after
giving effect to such purchase or acquisition, no Event of Default or Unmatured
Event of Default shall have occurred and be continuing; (3) either (i) (x) the
aggregate consideration to be paid by the Company and its Subsidiaries
(including any Debt assumed or issued in connection therewith, the amount
thereof to be calculated in accordance with GAAP) in connection with such
purchase or other acquisition (or any series of related acquisitions) is not
greater than $7,000,000 and (y) the aggregate consideration to be paid in cash
by the Company and its Subsidiaries in connection with such purchase or
acquisition (or any series of related acquisitions) is not greater than
$5,000,000 or (ii) the Required Lenders have consented
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to such purchase or acquisition; (4) the Company is in PRO FORMA compliance with
all the financial ratios and restrictions set forth in SECTION 10.6; and (5)
such Person (or its board of directors or similar body) has approved such
acquisition or other purchase; and (d) sales and dispositions of assets
(including the stock of Subsidiaries) so long as the net book value of all
assets sold or otherwise disposed of in any Fiscal Year does not exceed
$500,000.
10.12 MODIFICATION OF ORGANIZATIONAL DOCUMENTS. Not permit the Certificate
of Incorporation, By-Laws or other organizational documents of the Company or
any Subsidiary to be amended or modified in any way which might reasonably be
expected to materially adversely affect the interests of the Banks.
10.13 USE OF PROCEEDS. Use the proceeds of the Loans solely to finance the
Company's working capital, for acquisitions permitted by SECTION 10.11, for
Capital Expenditures and for other general corporate purposes, including the
payment of Debt to be Repaid; and not use or permit any proceeds of any Loan to
be used, either directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of "purchasing or carrying" any Margin Stock.
10.14 FURTHER ASSURANCES. Take, and cause each Subsidiary to take, such
actions as are necessary, or as the Agent or the Required Banks may reasonably
request, from time to time (including the execution and delivery of guaranties,
security agreements, pledge agreements, financing statements and other
documents, the filing or recording of any of the foregoing, and the delivery of
stock certificates and other collateral with respect to which perfection is
obtained by possession) to ensure that (i) the obligations of the Company
hereunder and under the other Loan Documents are secured by substantially all of
the assets (other than real property and, unless the Required Banks otherwise
request in writing, any motor vehicle subject to a statute requiring notation on
a certificate of title to perfect a security interest in such vehicle) of the
Company and guaranteed by all of the Subsidiaries (including, promptly upon the
acquisition or creation thereof, any Subsidiary acquired or created after the
date hereof) by execution of a counterpart of the Guaranty and (ii) the
obligations of each Guarantor under the Guaranty are secured by substantially
all of the assets (other than real property and, unless the Required Banks
otherwise request in writing, any motor vehicle subject to a statute requiring
notation on a certificate of title to perfect a security interest in such
vehicle) of such Guarantor.
10.15 TRANSACTIONS WITH AFFILIATES. Not, and not permit any Subsidiary to,
enter into, or cause, suffer or permit to exist any transaction, arrangement or
contract with any of its
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other Affiliates (other than the Company and its Subsidiaries) which is on terms
which are less favorable than are obtainable from any Person which is not one of
its Affiliates.
10.16 EMPLOYEE BENEFIT PLANS. Maintain, and cause each Subsidiary to
maintain, each Pension Plan in substantial compliance with all applicable
requirements of law and regulations.
10.17 ENVIRONMENTAL MATTERS. (a) If any material Release or Disposal of
Hazardous Substances shall occur or shall have occurred on any real property or
any other assets of the Company or any Subsidiary, the Company shall, or shall
cause the applicable Subsidiary to, cause the prompt containment and removal of
such Hazardous Substances and the remediation of such real property or other
assets as necessary to comply in all material respects with all Environmental
Laws and to preserve the value of such real property or other assets. Without
limiting the generality of the foregoing, the Company shall, and shall cause
each Subsidiary to, comply in a reasonable and cost-effective manner with any
valid Federal or state judicial or administrative order requiring the
performance at any real property of the Company or any Subsidiary of activities
in response to the Release or threatened Release of a Hazardous Substance except
for the period of time that the Company or such Subsidiary is diligently and in
good faith contesting such order.
(b) To the extent that the transportation of "hazardous waste" as
defined by RCRA is permitted by this Agreement, the Company shall, and shall
cause its Subsidiaries to, dispose of such hazardous waste only at licensed
disposal facilities operating, to the best of the Company's or such Subsidiary's
knowledge after reasonable inquiry, in compliance with Environmental Laws.
10.18 UNCONDITIONAL PURCHASE OBLIGATIONS. Not, and not permit any
Subsidiary to, enter into or be a party to any contract for the purchase of
materials, supplies or other property or services, if such contract requires
that payment be made by it regardless of whether or not delivery is ever made of
such materials, supplies or other property or services; provided that the
foregoing shall not prohibit the Company or any Subsidiary from entering into
options for the purchase of particular assets or businesses.
10.19 INCONSISTENT AGREEMENTS. Not, and not permit any Subsidiary to, enter
into any agreement containing any provision which (a) would be violated or
breached by any borrowing by the Company hereunder or by the performance by the
Company or any Subsidiary of any of its obligations hereunder or under any other
Loan Document or (b) would prohibit the Company or any Subsidiary
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from granting to the Agent, for the benefit of the Banks, a Lien on any of its
assets.
10.20 BUSINESS ACTIVITIES. Not, and not permit any Subsidiary to, engage in
any line of business other than the processing and disposal of non-hazardous
liquid waste and by-products thereof and non-hazardous oil field waste and
businesses which are reasonably related thereto (including land farming
bio-solids).
10.21 ADVANCES AND OTHER INVESTMENTS. Not, and not permit any Subsidiary
to, make, incur, assume or suffer to exist any Investment in any other Person,
except (without duplication) the following:
(a) equity Investments existing on the Effective Date in wholly-owned
Subsidiaries identified in SCHEDULE 9.8;
(b) equity Investments in Subsidiaries acquired after the Effective Date in
transactions permitted as acquisitions of stock or assets pursuant to
SECTION 10.11;
(c) in the ordinary course of business, contributions by the Company to the
capital of any of its Subsidiaries, or by any such Subsidiary to the
capital of any of its Subsidiaries;
(d) in the ordinary course of business, Investments by the Company in any
Subsidiary or by any of the Subsidiaries in the Company, by way of
intercompany loans, advances or guaranties, all to the extent permitted by
SECTION 10.7;
(e) Suretyship Liabilities permitted by SECTION 10.7;
(f) good faith deposits made in connection with prospective acquisitions of
stock or assets permitted by SECTION 10.11;
(g) loans to officers and employees not exceeding (i) $100,000 in the
aggregate to any single individual or (ii) $250,000 in the aggregate for
all such individuals;
(h) Cash Equivalent Investments; and
(i) bank deposits in the ordinary course of business; PROVIDED that the
aggregate amount of all such deposits (excluding amounts in payroll
accounts or for accounts payable, in each case to the extent that checks
have been issued to third parties) which are maintained with any bank other
than a Bank shall not at any time exceed (x) in the case of such deposits
with any single bank, $100,000 for three consecutive Business Days and (y)
in the case of all
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such deposits, $2,500,000 for three consecutive Business Days;
PROVIDED, HOWEVER, that no Investment otherwise permitted by CLAUSE (B), (C),
(D), (E), (F) or (G) shall be permitted to be made if, immediately before or
after giving effect thereto, any Event of Default or Unmatured Event of Default
shall have occurred and be continuing.
10.22 RESTRICTION OF AMENDMENTS TO ASSET PURCHASE AGREEMENT. Not amend or
otherwise modify, or waive any rights under, the Asset Purchase Agreement dated
as of December 2, 1996 by and among Sanifill, Inc., Campbell Wells, L.P.,
Campbell Wells NORM, L.P. and the Company, if such amendment, modification or
waiver is adverse to the interests of the Banks.
SECTION 11 EFFECTIVENESS; CONDITIONS OF LENDING, ETC.
The obligation of each Bank to make its Loans and of any Issuing Bank to
issue Letters of Credit is subject to the following conditions precedent:
11.1 INITIAL CREDIT EXTENSIONS. The obligation of each Bank to make its
initial Loan and of any Issuing Bank to issue any Letter of Credit, whichever
first occurs, is, in addition to the conditions precedent specified in SECTION
11.2, subject to the conditions precedent (and the date on which all such
conditions precedent have been satisfied or waived in writing by the Banks is
called the "EFFECTIVE DATE") that the Agent shall have received (a) all amounts
which are then due and payable pursuant to SECTION 5 and (to the extent billed)
SECTION 14.6,(b) evidence, reasonably satisfactory to the Agent, that all Debt
to be Repaid has been (or concurrently with the making of the initial Loans will
be) paid in full and all Liens securing such Debt have been (or concurrently
with the making of the initial Loans will be) terminated, and (c) all of the
following, each duly executed and dated the Effective Date (or such earlier date
as shall be satisfactory to the Agent), in form and substance satisfactory to
the Agent, and each (except for the Notes, of which only the originals shall be
signed) in sufficient number of signed counterparts to provide one for each
Bank:
11.1.1 NOTES. The Notes.
11.1.2 RESOLUTIONS. Certified copies of resolutions of the Board of
Directors of the Company authorizing or ratifying the execution, delivery and
performance by the Company of this Agreement, the Notes and the other Loan
Documents to which the Company is a party; and certified copies of resolutions
of the Board of Directors of each Subsidiary (if any) which is to execute and
deliver any document pursuant to SECTION 11.1.5,
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11.1.6 or 11.1.7 authorizing or ratifying the execution, delivery and
performance by such Subsidiary of each Loan Document to which such Subsidiary is
a party.
11.1.3 CONSENTS, ETC. Certified copies of all documents evidencing any
necessary corporate action, consents and governmental approvals (if any)
required for the execution, delivery and performance by the Company and each
Subsidiary of the documents referred to in this SECTION 11.
11.1.4 INCUMBENCY AND SIGNATURE CERTIFICATES. A certificate of the
Secretary or an Assistant Secretary of the Company and each Subsidiary of the
Company as of the Effective Date certifying the names of the officer or officers
of such entity authorized to sign the Loan Documents to which such entity is a
party, together with a sample of the true signature of each such officer (it
being understood that the Agent and each Bank may conclusively rely on each such
certificate until formally advised by a like certificate of any changes
therein).
11.1.5 GUARANTY. The Guaranty executed by each Subsidiary (if any) as of
the Effective Date.
11.1.6 SECURITY AGREEMENT. The Security Agreement executed by the Company
and each Subsidiary (if any) as of the Effective Date, together with evidence,
satisfactory to the Agent, that all filings necessary to perfect the Agent's
Lien on any collateral granted under the Security Agreement have been duly made
and are in full force and effect.
11.1.7 PLEDGE AGREEMENTS. The Company Pledge Agreement and, with respect to
any Subsidiary that as of the Effective Date has one or more Subsidiaries, a
Subsidiary Pledge Agreement, in each case together with all stock certificates,
stock powers and other items required to be delivered in connection therewith.
11.1.8 OPINIONS OF COUNSEL FOR THE COMPANY AND THE GUARANTORS. The opinions
of (a) Nathan Wood Sommers & Lippmann, a Professional Corporation, counsel to
the Company and the Guarantors, and (b) Perret Doise, a Professional Law
Corporation, Louisiana counsel to the Company and the Guarantors.
11.1.9 OTHER. Such other documents as the Agent or any Bank may reasonably
request.
11.2 CONDITIONS. The obligation (a) of each Bank to make each Loan and (b)
of each Issuing Bank to issue each Letter of Credit is subject to the following
further conditions precedent that:
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11.2.1 COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Both before and after
giving effect to any borrowing and the issuance of any Letter of Credit (but, if
any Event of Default of the nature referred to in SECTION 12.1.2 shall have
occurred with respect to any other Debt, without giving effect to the
application, directly or indirectly, of the proceeds thereof) the following
statements shall be true and correct:
(a) the representations and warranties of the Company and the
Guarantors set forth in this Agreement (excluding SECTIONS 9.6 and 9.8) and
the other Loan Documents shall be true and correct in all material respects
with the same effect as if then made (except to the extent stated to relate
to an earlier date, in which case such representations and warranties shall
be true and correct in all material respects as of such earlier date);
(b) except as disclosed by the Company to the Agent and the Banks
pursuant to SECTION 9.6,
(i) no litigation (including derivative actions), arbitration
proceeding, labor controversy or governmental investigation or
proceeding shall be pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries which might
reasonably be expected to have a Material Adverse Effect or which
purports to affect the legality, validity or enforceability of this
Agreement, the Notes or any other Loan Document; and
(ii) no development shall have occurred in any litigation
(including derivative actions), arbitration proceeding, labor
controversy or governmental investigation or proceeding disclosed
pursuant to SECTION 9.6 which might reasonably be expected to have a
Material Adverse Effect; and
(c) no Event of Default or Unmatured Event of Default shall have then
occurred and be continuing, and neither the Company nor any of its
Subsidiaries shall be in violation of any law or governmental regulation or
court order or decree where such violation or violations singly or in the
aggregate might reasonably be expected to have a Material Adverse Effect.
11.2.2 CONFIRMATORY CERTIFICATE. If requested by the Agent or any Bank, the
Agent shall have received (in sufficient counterparts to provide one to each
Bank) a certificate dated the date of such requested Loan or Letter of Credit
and signed by a duly authorized representative of the Company as to the matters
set out in SECTION 11.2.1 (it being understood that each request
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by the Company for the making of a Loan or the issuance of a Letter of Credit
shall be deemed to constitute a warranty by the Company that the conditions
precedent set forth in SECTION 11.2.1 will be satisfied at the time of the
making of such Loan or the issuance of such Letter of Credit), together with
such other documents as the Agent or any Bank may reasonably request in support
thereof.
SECTION 12 EVENTS OF DEFAULT AND THEIR EFFECT.
12.1 EVENTS OF DEFAULT. Each of the following shall constitute an Event of
Default under this Agreement:
12.1.1 NON-PAYMENT OF THE LOANS, ETC. Default in the payment when due of
the principal of any Loan; or default, and continuance thereof for five days, in
the payment when due of any interest, fee, reimbursement obligation with respect
to any Letter of Credit or other amount payable by the Company hereunder or
under any other Loan Document.
12.1.2 NON-PAYMENT OF OTHER DEBT. Any default shall occur under the terms
applicable to any Debt of the Company or any Subsidiary in an aggregate amount
(for all such Debt so affected) exceeding $250,000 and such default shall (a)
consist of the failure to pay such Debt when due (subject to any applicable
grace period), whether by acceleration or otherwise, or (b) accelerate the
maturity of such Debt or permit the holder or holders thereof, or any trustee or
agent for such holder or holders, to cause such Debt to become due and payable
prior to its expressed maturity.
12.1.3 OTHER MATERIAL OBLIGATIONS. Default in the payment when due, or in
the performance or observance of, any material obligation of, or condition
agreed to by, the Company or any Subsidiary with respect to any material
purchase or lease of goods or services where such default, singly or in the
aggregate with other such defaults might reasonably be expected to have a
Material Adverse Effect (except only to the extent that the existence of any
such default is being contested by the Company or such Subsidiary in good faith
and by appropriate proceedings and appropriate reserves have been made in
respect of such default).
12.1.4 BANKRUPTCY, INSOLVENCY, ETC. The Company or any Subsidiary becomes
insolvent or generally fails to pay, or admits in writing its inability or
refusal to pay, debts as they become due; or the Company or any Subsidiary
applies for, consents to, or acquiesces in the appointment of a trustee,
receiver or other custodian for the Company or such Subsidiary or any property
thereof, or makes a general assignment for the benefit of creditors; or, in the
absence of such application, consent or
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acquiescence, a trustee, receiver or other custodian is appointed for the
Company or any Subsidiary or for a substantial part of the property of any
thereof and is not discharged within 60 days; or any bankruptcy, reorganization,
debt arrangement, or other case or proceeding under any bankruptcy or insolvency
law, or any dissolution or liquidation proceeding (except the voluntary
dissolution, not under any bankruptcy or insolvency law, of a Subsidiary), is
commenced in respect of the Company or any Subsidiary, and if such case or
proceeding is not commenced by the Company or such Subsidiary, it is consented
to or acquiesced in by the Company or such Subsidiary, or remains for 60 days
undismissed; or the Company or any Subsidiary takes any corporate action to
authorize, or in furtherance of, any of the foregoing.
12.1.5 NON-COMPLIANCE WITH PROVISIONS OF THIS AGREEMENT. (a) Failure by the
Company to comply with or to perform any covenant set forth in SECTIONS 10.5
through 10.13, 10.15 or 10.16; or (b) failure by the Company to comply with or
to perform any other provision of this Agreement (and not constituting an Event
of Default under any of the other provisions of this SECTION 12) and continuance
of such failure described in this CLAUSE (B) for 30 days (or, in the case of
SECTION 10.14, five Business Days) after notice thereof to the Company from the
Agent, any Bank or the holder of any Note.
12.1.6 WARRANTIES. Any warranty made by the Company herein is breached or
is false or misleading in any material respect, or any schedule, certificate,
financial statement, report, notice or other writing furnished by the Company to
the Agent or any Bank in connection herewith is false or misleading in any
material respect on the date as of which the facts therein set forth are stated
or certified.
12.1.7 PENSION PLANS. (i) Institution of any steps by the Company or any
other Person to terminate a Pension Plan if as a result of such termination the
Company could be required to make a contribution to such Pension Plan, or could
incur a liability or obligation to such Pension Plan, in excess of $250,000;
(ii) a contribution failure occurs with respect to any Pension Plan sufficient
to give rise to a Lien under section 302(f) of ERISA; or (iii) there shall occur
any withdrawal or partial withdrawal from a Multiemployer Pension Plan and the
withdrawal liability (without unaccrued interest) to Multiemployer Pension Plans
as a result of such withdrawal (including any outstanding withdrawal liability
that the Company and the Controlled Group have incurred on the date of such
withdrawal) exceeds $250,000.
12.1.8 JUDGMENTS. Final judgments which exceed an aggregate of $250,000
shall be rendered against the Company, or any Subsidiary and shall not have been
paid, discharged or
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vacated or had execution thereof stayed pending appeal within 30 days after
entry or filing of such judgments.
12.1.9 INVALIDITY OF GUARANTY, ETC. The Guaranty shall cease to be in full
force and effect with respect to any Guarantor, any Guarantor shall fail
(subject to any applicable grace period) to comply with or to perform any
applicable provision of the Guaranty, or any Guarantor (or any Person by,
through or on behalf of such Guarantor) shall contest in any manner the
validity, binding nature or enforceability of the Guaranty with respect to such
Guarantor.
12.1.10 INVALIDITY OF COLLATERAL DOCUMENTS, ETC. Any Collateral Document
shall cease to be in full force and effect with respect to the Company or any
Guarantor, the Company or any Guarantor shall fail (subject to any applicable
grace period) to comply with or to perform any applicable provision of any
Collateral Document to which such entity is a party, or the Company or any
Guarantor (or any Person by, through or on behalf of the Company or such
Guarantor) shall contest in any manner the validity, binding nature or
enforceability of any Collateral Document.
12.1.11 CHANGE IN CONTROL. (a) Any Person or group of Persons (within the
meaning of Section 13 or 14 of the Securities Exchange Act of 1934, but
excluding the executive managers of the Company as of the Effective Date) shall
acquire beneficial ownership (within the meaning of Rule 13d-3 promulgated under
such Act) of 30% or more of the outstanding shares of common stock of the
Company; (b) during any 24-month period, individuals who at the beginning of
such period constituted the Company's Board of Directors (together with any new
directors whose election by the Company's Board of Directors or whose nomination
for election by the Company's shareholders was approved by a vote of at least
two-thirds of the directors who either were directors at beginning of such
period or whose election or nomination was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company; or (c)
a period of 60 consecutive days shall have elapsed during which any of the
individuals named in SCHEDULE 12.1.11 shall have ceased to hold executive
offices with the Company at least equal in seniority to such individual's
present offices, as set out in such SCHEDULE 12.1.11, EXCLUDING any such
individual who has been replaced by another individual or individuals reasonably
satisfactory to the Required Banks (it being understood that any such
replacement individual shall be deemed added to SCHEDULE 12.1.11 on the date of
approval thereof by the Required Banks).
12.2 EFFECT OF EVENT OF DEFAULT. If any Event of Default described in
SECTION 12.1.4 shall occur, the Commitments (if they have not theretofore
terminated) shall immediately terminate and
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the Notes and all other obligations hereunder shall become immediately due and
payable and the Company shall become immediately obligated to deliver to the
Agent cash collateral in an amount equal to the outstanding face amount of all
Letters of Credit, all without presentment, demand, protest or notice of any
kind; and, if any other Event of Default shall occur and be continuing, the
Agent (upon written request of the Required Banks) shall declare the Commitments
(if they have not theretofore terminated) to be terminated and/or declare all
Notes and all other obligations hereunder to be due and payable and/or demand
that the Company immediately deliver to the Agent cash collateral in amount
equal to the outstanding face amount of all Letters of Credit, whereupon the
Commitments (if they have not theretofore terminated) shall immediately
terminate and/or all Notes and all other obligations hereunder shall become
immediately due and payable and/or the Company shall immediately become
obligated to deliver to the Agent cash collateral in an amount equal to the face
amount of all Letters of Credit, all without presentment, demand, protest or
notice of any kind. The Agent shall promptly advise the Company of any such
declaration, but failure to do so shall not impair the effect of such
declaration. Notwithstanding the foregoing, the effect as an Event of Default of
any event described in SECTION 12.1.1 or SECTION 12.1.4 may be waived by the
written concurrence of all of the Banks, and the effect as an Event of Default
of any other event described in this SECTION 12 may be waived by the written
concurrence of the Required Banks. Any cash collateral delivered hereunder shall
be held by the Agent (without liability for interest thereon) and applied to
obligations arising in connection with any drawing under a Letter of Credit.
After the expiration or termination of all Letters of Credit, such cash
collateral shall be applied by the Agent to any remaining obligations hereunder
and any excess shall be delivered to the Company or as a court of competent
jurisdiction may elect.
SECTION 13 THE AGENT.
13.1 APPOINTMENT AND AUTHORIZATION. (a) Each Bank hereby irrevocably
(subject to SECTION 13.9) appoints, designates and authorizes the Agent to take
such action on its behalf under the provisions of this Agreement and each other
Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary contained elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities except those expressly set forth herein, nor shall the Agent
have or be deemed to have any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
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liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agent.
(b) Each Issuing Bank shall act on behalf of the Banks with respect to any
Letters of Credit issued by it and the documents associated therewith. Each
Issuing Bank shall have all of the benefits and immunities (i) provided to the
Agent in this SECTION 13 with respect to any acts taken or omissions suffered by
such Issuing Bank in connection with Letters of Credit issued by it or proposed
to be issued by it and the applications and agreements for letters of credit
pertaining to such Letters of Credit as fully as if the term "Agent", as used in
this SECTION 13, included such Issuing Bank with respect to such acts or
omissions and (ii) as additionally provided in this Agreement with respect to
the Issuing Banks.
13.2 DELEGATION OF DUTIES. The Agent may execute any of its duties under
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
13.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Banks for any recital,
statement, representation or warranty made by the Company or any Subsidiary or
Affiliate of the Company, or any officer thereof, contained in this Agreement or
in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of the Company or any other party to
any Loan Document to perform its obligations hereunder or thereunder. No
Agent-Related Person shall be under any obligation to any Bank to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any other Loan Document, or to
inspect the properties, books or records of the Company or any of the Company's
Subsidiaries or Affiliates.
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13.4 RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the
Company), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Required Banks as it deems appropriate and, if it
so requests, confirmation from the Banks of their obligation to indemnify the
Agent against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent of
the Required Banks and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Banks.
13.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Event of Default or Unmatured Event of Default
except with respect to defaults in the payment of principal, interest and fees
required to be paid to the Agent for the account of the Banks, unless the Agent
shall have received written notice from a Bank or the Company referring to this
Agreement, describing such Event of Default or Unmatured Event of Default and
stating that such notice is a "notice of default". The Agent will notify the
Banks of its receipt of any such notice. The Agent shall take such action with
respect to such Event of Default or Unmatured Event of Default as may be
requested by the Required Banks in accordance with SECTION 12; PROVIDED,
HOWEVER, that unless and until the Agent has received any such request, the
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Event of Default or Unmatured Event of
Default as it shall deem advisable or in the best interest of the Banks.
13.6 CREDIT DECISION. Each Bank acknowledges that none of the Agent-Related
Persons has made any representation or warranty to it, and that no act by the
Agent hereafter taken, including any review of the affairs of the Company and
its Subsidiaries, shall be deemed to constitute any representation or warranty
by any Agent-Related Person to any Bank. Each Bank represents to the Agent that
it has, independently and without reliance upon any Agent-Related Person and
based on such documents and information as it has deemed appropriate, made its
own appraisal
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of and investigation into the business, prospects, operations, property,
financial and other condition and creditworthiness of the Company and its
Subsidiaries, and all applicable bank regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to the Company hereunder. Each Bank also
represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of the Company. Except for notices,
reports and other documents expressly herein required to be furnished to the
Banks by the Agent, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
prospects, operations, property, financial or other condition or
creditworthiness of the Company which may come into the possession of any of the
Agent-Related Persons.
13.7 INDEMNIFICATION. Whether or not the transactions contemplated hereby
are consummated, the Banks shall indemnify upon demand the Agent-Related Persons
(to the extent not reimbursed by or on behalf of the Company and without
limiting the obligation of the Company to do so), pro rata, from and against any
and all Indemnified Liabilities; PROVIDED, HOWEVER, that no Bank shall be liable
for any payment to the Agent-Related Person of any portion of the Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Bank shall reimburse the
Agent upon demand for its ratable share of any costs or out-of-pocket expenses
(including reasonable fees of attorneys for the Agent (including the allocable
costs of internal legal services and all disbursements of internal counsel))
incurred by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that the Agent
is not reimbursed for such expenses by or on behalf of the Company. The
undertaking in this Section shall survive repayment of the Loans, cancellation
of the Notes, any foreclosure under, or any modification, release or discharge
of, any or all of the Collateral Documents, any termination of this Agreement
and the resignation or replacement of the Agent.
For the purposes of this SECTION 13.7, "INDEMNIFIED LIABILITIES" shall
mean: any and all liabilities, obligations,
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losses, damages, penalties, actions, judgments, suits, costs, charges, expenses
and disbursements (including reasonable fees of attorneys for the Agent
(including the allocable costs of internal legal services and all disbursements
of internal counsel)) of any kind or nature whatsoever which may at any time
(including at any time following repayment of the Loan and the termination,
resignation or replacement of the Agent or the replacement of any Bank) be
imposed on, incurred by or asserted against any Agent-Related Person in any way
relating to or arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby, or any action taken
or omitted by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding (including
(a) any case, action or proceeding before any court or other governmental
authority relating to bankruptcy, reorganization, insolvency, liquidation,
receivership, dissolution, winding-up or relief of debtors, or (b) any general
assignment for the benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of its creditors generally
or any substantial portion of its creditors; undertaken under U.S. Federal,
state or foreign law, including the Bankruptcy Code, and including any appellate
proceeding) related to or arising out of this Agreement or the Commitments or
the use of the proceeds thereof, whether or not any Agent-Related Person, any
Bank or any of their respective officers, directors, employees, counsel, agents
or attorneys-in-fact is a party thereto.
13.8 AGENT IN INDIVIDUAL CAPACITY. BofA and its Affiliates may make loans
to, issue letters of credit for the account of, accept deposits from, acquire
equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with the Company and its
Subsidiaries and Affiliates as though BofA were not the Agent hereunder and
without notice to or consent of the Banks. The Banks acknowledge that, pursuant
to such activities, BofA or its Affiliates may receive information regarding the
Company or its Affiliates (including information that may be subject to
confidentiality obligations in favor of the Company or such Subsidiary) and
acknowledge that the Agent shall be under no obligation to provide such
information to them. With respect to their Loans, BofA and its Affiliates shall
have the same rights and powers under this Agreement as any other Bank and may
exercise the same as though BofA were not the Agent, and the terms "Bank" and
"Banks" include BofA and its Affiliates, to the extent applicable, in their
individual capacities.
13.9 SUCCESSOR AGENT; ASSIGNMENT OF AGENCY. The Agent may, and at the
request of the Required Banks shall, resign as Agent upon 30 days' notice to the
Banks. If the Agent resigns under
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this Agreement, the Required Banks shall, with (so long as no Event of Default
exists) the consent of the Company (which shall not be unreasonably withheld or
delayed), appoint from among the Banks a successor agent for the Banks. If no
successor agent is appointed prior to the effective date of the resignation of
the Agent, the Agent may appoint, after consulting with the Banks and the
Company, a successor agent from among the Banks. Upon the acceptance of its
appointment as successor agent hereunder, such successor agent shall succeed to
all the rights, powers and duties of the retiring Agent and the term "Agent"
shall mean such successor agent, and the retiring Agent's appointment, powers
and duties as Agent shall be terminated. After any retiring Agent's resignation
hereunder as Agent, the provisions of this SECTION 13 and SECTIONS 14.6 and
14.13 shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent under this Agreement. If no successor agent has
accepted appointment as Agent by the date which is 30 days following a retiring
Agent's notice of resignation, the retiring Agent's resignation shall
nevertheless thereupon become effective and the Banks shall perform all of the
duties of the Agent hereunder until such time, if any, as the Required Banks
appoint a successor agent as provided for above. Notwithstanding the foregoing,
however, BofA may not be removed as the Agent at the request of the Required
Banks unless BofA shall also simultaneously be replaced as an "Issuing Bank"
hereunder pursuant to documentation in form and substance reasonably
satisfactory to BofA.
13.10 WITHHOLDING TAX.
(a) If any Bank is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code,
such Bank agrees to deliver to the Agent:
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed
Internal Revenue Service ("IRS") Forms 1001 and W-8 before the payment
of any interest in the first calendar year and before the payment of
any interest in each third succeeding calendar year during which
interest may be paid under this Agreement;
(ii) if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two
properly completed and executed copies of IRS Form 4224 before the
payment of any interest is due in the first taxable year of such
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Bank and in each succeeding taxable year of such Bank during which
interest may be paid under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from,
or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in
circumstances which would modify or render invalid any claimed
exemption or reduction.
(b) If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such
Bank sells, assigns, grants a participation in, or otherwise transfers all
or part of the obligations of the Company to such Bank, such Bank agrees to
notify the Agent of the percentage amount in which it is no longer the
beneficial owner of such obligations of the Company hereunder. To the
extent of such percentage amount, the Agent will treat such Bank's IRS Form
1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the obligations of
the Company to such Bank hereunder, such Bank agrees to undertake sole
responsibility for complying with the withholding tax requirements imposed
by Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such
Bank an amount equivalent to the applicable withholding tax after taking
into account such reduction. If the forms or other documentation required
by SUBSECTION (A) of this Section are not delivered to the Agent, then the
Agent may withhold from any interest payment to such Bank not providing
such forms or other documentation an amount equivalent to the applicable
withholding tax.
(e) If the IRS or any other governmental authority of the United
States or any other jurisdiction asserts a claim that the Agent did not
properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered or was not properly
executed, or because such Bank failed to notify the Agent of a change in
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circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason) such Bank shall
indemnify the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to
the Agent under this Section, together with all costs and expenses
(including reasonable fees of attorneys for the Agent (including the
allocable costs of internal legal services and all disbursements of
internal counsel)). The obligation of the Banks under this subsection shall
survive the repayment of the Loans, cancellation of the Notes, any
termination of this Agreement and the resignation or replacement of the
Agent.
13.11 COLLATERAL MATTERS. The Banks irrevocably authorize the Agent, at its
option and in its discretion, to release any Lien granted to or held by the
Agent under any Collateral Document (i) upon termination of the Commitments and
payment in full of all Loans and all other obligations of the Company hereunder
and the expiration or termination of all Letters of Credit; (ii) constituting
property sold or to be sold or disposed of as part of or in connection with any
disposition permitted hereunder; or (iii) subject to SECTION 14.1, if approved,
authorized or ratified in writing by the Required Banks. Upon request by the
Agent at any time, the Banks will confirm in writing the Agent's authority to
release particular types or items of collateral pursuant to this SECTION 13.11.
SECTION 14 GENERAL.
14.1 WAIVER; AMENDMENTS. No delay on the part of the Agent, any Bank or any
other holder of a Note in the exercise of any right, power or remedy shall
operate as a waiver thereof, nor shall any single or partial exercise by any of
them of any right, power or remedy preclude other or further exercise thereof,
or the exercise of any other right, power or remedy. No amendment, modification
or waiver of, or consent with respect to, any provision of this Agreement or the
Notes shall in any event be effective unless the same shall be in writing and
signed and delivered by Banks having an aggregate Percentage of not less than
the aggregate Percentage expressly designated herein with respect thereto or, in
the absence of such designation as to any provision of this Agreement or the
Notes, by the Required Banks, and then any such amendment, modification, waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given. No amendment, modification, waiver or consent shall
change the Percentage of any Bank without the consent of such Bank. No
amendment, modification, waiver or consent shall (i) extend or increase the
amount of the Commitments, (ii) extend the date for payment of any principal of
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or interest on the Loans or any fees payable hereunder, (iii) reduce the
principal amount of any Loan, the rate of interest thereon or any fees payable
hereunder, (iv) release the Guaranty (other than with respect to a Guarantor
which ceases to be a Subsidiary as a result of a transaction permitted
hereunder) or all or substantially all of the collateral granted under the
Collateral Document or (v) reduce the aggregate Percentage required to effect an
amendment, modification, waiver or consent without, in each case, the consent of
all Banks. No provisions of SECTION 13 or other provision of this Agreement
affecting the Agent in its capacity as such shall be amended, modified or waived
without the consent of the Agent. No provision of this Agreement relating to the
rights or duties of an Issuing Bank in its capacity as such shall be amended,
modified or waived without the consent of such Issuing Bank.
14.2 CONFIRMATIONS. The Company and each holder of a Note agree from time
to time, upon written request received by it from the other, to confirm to the
other in writing (with a copy of each such confirmation to the Agent) the
aggregate unpaid principal amount of the Loans then outstanding under such Note.
14.3 NOTICES. Except as otherwise provided in SECTION 2.2, all notices
hereunder shall be in writing (including facsimile transmission) and shall be
sent to the applicable party at its address shown on SCHEDULE 14.3 or at such
other address as such party may, by written notice received by the other
parties, have designated as its address for such purpose. Notices sent by
facsimile transmission shall be deemed to have been given when sent; notices
sent by mail shall be deemed to have been given three Business Days after the
date when sent by registered or certified mail, postage prepaid; and notices
sent by hand delivery or overnight courier service shall be deemed to have been
given when received. For purposes of SECTION 2.2, the Agent shall be entitled to
rely on telephonic instructions from any person that the Agent in good faith
believes is an authorized officer or employee of the Company, and the Company
shall hold the Agent and each Bank harmless from any loss, cost or expense
resulting from any such reliance.
14.4 COMPUTATIONS. Where the character or amount of any asset or liability
or item of income or expense is required to be determined, or any consolidation
or other accounting computation is required to be made, for the purpose of this
Agreement, such determination or calculation shall, to the extent applicable and
except as otherwise specified in this Agreement, be made in accordance with
GAAP, consistently applied; PROVIDED that if the Company notifies the Agent that
the Company wishes to amend any covenant in SECTION 10 to eliminate or to take
into account the effect of any change in GAAP on the operation of such covenant
(or if the Agent notifies the Company that the Required Banks wish to amend
SECTION 10 for such purpose), then the Company's
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compliance with such covenant shall be determined on the basis of GAAP in effect
immediately before the relevant change in GAAP became effective, until either
such notice is withdrawn or such covenant is amended in a manner satisfactory to
the Company and the Required Banks.
14.5 REGULATION U. Each Bank represents that it in good faith is not
relying, either directly or indirectly, upon any Margin Stock as collateral
security for the extension or maintenance by it of any credit provided for in
this Agreement.
14.6 COSTS, EXPENSES AND TAXES. The Company agrees to pay on demand all
reasonable out-of-pocket costs and expenses of the Agent (including the
reasonable fees and charges of counsel for the Agent and of local counsel, if
any, who may be retained by said counsel) in connection with the preparation,
execution, delivery and administration of this Agreement, the other Loan
Documents and all other documents provided for herein or delivered or to be
delivered hereunder or in connection herewith (including any amendments,
supplements or waivers to any Loan Documents), and all reasonable out-of-pocket
costs and expenses (including reasonable attorneys' fees, court costs and other
legal expenses and allocated costs of staff counsel) incurred by the Agent and
each Bank after an Event of Default in connection with the enforcement of this
Agreement, the other Loan Documents or any such other documents. Each Bank
agrees to reimburse the Agent for such Bank's pro rata share (based on its
respective Percentage) of any such costs and expenses of the Agent not paid by
the Company. In addition, the Company agrees to pay, and to save the Agent and
the Banks harmless from all liability for, (a) any stamp or other taxes
(excluding income taxes and franchise taxes based on net income) which may be
payable in connection with the execution and delivery of this Agreement, the
borrowings hereunder, the issuance of the Notes or the execution and delivery of
any other Loan Document or any other document provided for herein or delivered
or to be delivered hereunder or in connection herewith and (b) any fees of the
Company's auditors in connection with any reasonable exercise by the Agent and
the Banks of their rights pursuant to SECTION 10.2. All obligations provided for
in this SECTION 14.6 shall survive repayment of the Loans, cancellation of the
Notes and any termination of this Agreement.
14.7 SUBSIDIARY REFERENCES. The provisions of this Agreement relating to
Subsidiaries shall apply only during such times as the Company has one or more
Subsidiaries.
14.8 CAPTIONS. Section captions used in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
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14.9 ASSIGNMENTS; PARTICIPATIONS.
14.9.1 ASSIGNMENTS. Any Bank may, with the prior written consents of the
Company and the Agent (which consents shall not be unreasonably delayed or
withheld), at any time assign and delegate to one or more commercial banks or
other Persons (any Person to whom such an assignment and delegation is to be
made being herein called an "ASSIGNEE"), all or any fraction of such Bank's
Loans and Commitments (which assignment and delegation shall be of a constant,
and not a varying, percentage of all the assigning Bank's Loans and Commitments)
in a minimum aggregate amount equal to the lesser of (i) the assigning Bank's
remaining aggregate Commitments and (ii) $5,000,000; PROVIDED, HOWEVER, that (a)
no assignment and delegation may be made to any Person if, at the time of such
assignment and delegation, the Company would be obligated to pay any greater
amount under SECTION 7.6 or SECTION 8 to the Assignee than the Company is then
obligated to pay to the assigning Bank under such Sections (and if any
assignment is made in violation of the foregoing, the Company will not be
required to pay the incremental amounts) and (b) the Company and the Agent shall
be entitled to continue to deal solely and directly with such Bank in connection
with the interests so assigned and delegated to an Assignee until the date when
all of the following conditions shall have been met:
(x) five Business Days (or such lesser period of time as the Agent and
the assigning Bank shall agree) shall have passed after written notice of
such assignment and delegation, together with payment instructions,
addresses and related information with respect to such Assignee, shall have
been given to the Company and the Agent by such assigning Bank and the
Assignee,
(y) the assigning Bank and the Assignee shall have executed and
delivered to the Company and the Agent an assignment agreement
substantially in the form of EXHIBIT G (an "ASSIGNMENT AGREEMENT"),
together with any documents required to be delivered thereunder, which
Assignment Agreement shall have been accepted by the Agent, and
(z) the assigning Bank or the Assignee shall have paid the Agent a
processing fee of $3,500.
From and after the date on which the conditions described above have been met,
(x) such Assignee shall be deemed automatically to have become a party hereto
and, to the extent that rights and obligations hereunder have been assigned and
delegated to such Assignee pursuant to such Assignment Agreement, shall have the
rights and obligations of a Bank hereunder, and (y) the assigning Bank, to the
extent that rights and obligations hereunder have been assigned and delegated by
it pursuant to such Assignment Agreement, shall be released from its obligations
hereunder.
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Within five Business Days after effectiveness of any assignment and
delegation, the Company shall execute and deliver to the Agent (for delivery to
the Assignee and the Assignor, as applicable) a new Note in the principal amount
of the Assignee's Loan Commitment and, if the assigning Bank has retained a Loan
Commitment hereunder, a replacement Note in the principal amount of the Loan
Commitment retained by the assigning Bank (such Note to be in exchange for, but
not in payment of, the predecessor Note held by such assigning Bank). Each such
Note shall be dated the effective date of such assignment. The assigning Bank
shall mark the predecessor Note "exchanged" and deliver it to the Company.
Accrued interest on that part of the predecessor Note being assigned shall be
paid as provided in the Assignment Agreement. Accrued interest and fees on that
part of the predecessor Note not being assigned shall be paid to the assigning
Bank. Accrued interest and accrued fees shall be paid at the same time or times
provided in the predecessor Note and in this Agreement. Any attempted assignment
and delegation not made in accordance with this SECTION 14.9.1 shall be null and
void.
Notwithstanding the foregoing provisions of this SECTION 14.9.1 or any
other provision of this Agreement, any Bank may at any time assign all or any
portion of its Loans and its Note to a Federal Reserve Bank (but no such
assignment shall release any Bank from any of its obligations hereunder).
14.9.2 PARTICIPATIONS. Any Bank may at any time sell to one or more
commercial banks or other Persons participating interests in any Loan owing to
such Bank, the Note held by such Bank, the Commitments of such Bank, the direct
or participation interest of such Bank in any Letter of Credit or any other
interest of such Bank hereunder (any Person purchasing any such participating
interest being herein called a "PARTICIPANT"); PROVIDED that any Bank selling
any such participating interest shall give notice thereof to the Company. In the
event of a sale by a Bank of a participating interest to a Participant, (x) such
Bank shall remain the holder of its Note for all purposes of this Agreement, (y)
the Company and the Agent shall continue to deal solely and directly with such
Bank in connection with such Bank's rights and obligations hereunder and (z) all
amounts payable by the Company shall be determined as if such Bank had not sold
such participation and shall be paid directly to such Bank. No Participant shall
have any direct or indirect voting rights hereunder except with respect to any
of the events (excluding the events described in CLAUSE (V) thereof) described
in the penultimate sentence of SECTION 14.1. Each Bank agrees to incorporate the
requirements of the preceding sentence into each participation agreement which
such Bank enters into with any Participant. The Company agrees that if amounts
outstanding under this Agreement and the Notes are due and payable (as a result
of acceleration or otherwise), each Participant shall be deemed to have the
right of setoff in respect of its
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participating interest in amounts owing under this Agreement, any Note and with
respect to any Letter of Credit to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this Agreement
or such Note; PROVIDED that such right of setoff shall be subject to the
obligation of each Participant to share with the Banks, and the Banks agree to
share with each Participant, as provided in SECTION 7.5. The Company also agrees
that each Participant shall be entitled to the benefits of SECTION 7.6 and
SECTION 8 as if it were a Bank (provided that no Participant shall receive any
greater compensation pursuant to SECTION 7.6 or SECTION 8 than would have been
paid to the participating Bank if no participation had been sold).
14.10 GOVERNING LAW. This Agreement and each Note shall be a contract made
under and governed by the internal laws of the State of Illinois. Whenever
possible each provision of this Agreement shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement. All obligations of the Company and rights of the Agent, the Banks and
any other holder of a Note expressed herein or in any other Loan Document shall
be in addition to and not in limitation of those provided by applicable law.
14.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts and
each such counterpart shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Agreement. When
counterparts executed by all of the parties hereto shall have been lodged with
the Agent (or, in the case of any Bank as to which an executed counterpart shall
not have been so lodged, the Agent shall have received confirmation from such
Bank of execution of a counterpart hereof by such Bank), this Agreement shall
become effective as of the date hereof, and at such time the Agent shall notify
the Company and each Bank.
14.12 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company, the Banks and the Agent and their respective successors and assigns,
and shall inure to the benefit of the Company, the Banks and the Agent and the
successors and assigns of the Banks and the Agent.
14.13 INDEMNIFICATION BY THE COMPANY.
(a) In consideration of the execution and delivery of this Agreement by the
Agent and the Banks and the agreement to extend the Commitments provided
hereunder, the Company hereby agrees to
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indemnify, exonerate and hold the Agent, each Bank and each of the officers,
directors, employees, Affiliates and agents of the Agent and each Bank (each a
"BANK PARTY") free and harmless from and against any and all actions, causes of
action, suits, losses, liabilities, damages and expenses, including reasonable
attorneys' fees and charges and allocated costs of staff counsel (collectively,
for purposes of this SECTION 14.13, called the "INDEMNIFIED LIABILITIES"),
incurred by the Bank Parties or any of them as a result of, or arising out of,
or relating to (i) any tender offer, merger, purchase of stock, purchase of
assets or other similar transaction financed or proposed to be financed in whole
or in part, directly or indirectly, with the proceeds of any of the Loans, (ii)
the use, handling, release, emission, discharge, transportation, storage,
treatment or disposal of any hazardous substance at any property owned or leased
by the Company or any Subsidiary, (iii) any violation of any Environmental Laws
with respect to conditions at any property owned or leased by the Company or any
Subsidiary or the operations conducted thereon, (iv) the investigation, cleanup
or remediation of offsite locations at which the Company or any Subsidiary or
their respective predecessors are alleged to have directly or indirectly
disposed of hazardous substances or (v) the execution, delivery, performance or
enforcement of this Agreement or any other Loan Document by any of the Bank
Parties, except for any such Indemnified Liabilities arising on account of any
such Bank Party's gross negligence or willful misconduct. If and to the extent
that the foregoing undertaking may be unenforceable for any reason, the Company
hereby agrees to make the maximum contribution to the payment and satisfaction
of each of the Indemnified Liabilities which is permissible under applicable
law. Nothing set forth above shall be construed to relieve any Bank Party from
any obligation it may have under this Agreement.
(b) All obligations provided for in this SECTION 14.13 shall survive
repayment of the Loans, cancellation of the Notes, any foreclosure under, or any
modification, release or discharge of any or all of the Collateral Documents and
any termination of this Agreement.
14.14 FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS
OF THE STATE OF ILLINOIS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION,
IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE
FOUND. THE COMPANY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO
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THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH
LITIGATION AS SET FORTH ABOVE. THE COMPANY FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE
WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE COMPANY HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE
COMPANY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT
OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR
TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF
OR ITS PROPERTY, THE COMPANY HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT
OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
14.15 WAIVER OF JURY TRIAL. EACH OF THE COMPANY, THE AGENT AND EACH BANK
HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN
DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH
MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING
FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING,
AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
Delivered at Chicago, Illinois, as of the day and year first above written.
U S LIQUIDS INC.
By
Title_________________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By
Title
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BANK OF AMERICA NATIONAL TRUST AND
SAVING ASSOCIATION, as Issuing Bank and
as a Bank
By
Title
BANKBOSTON, N.A.
By
Title
WELLS FARGO BANK, N.A.
By
Title
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SCHEDULE 1.1
PRICING SCHEDULE
The Floating Rate Margin, the Eurodollar Margin, the rate per annum
applicable for non-use fees and the rate per annum applicable for letter of
credit fees for Financial Letters of Credit and Non-Financial Letters of Credit,
respectively, shall be determined in accordance with the table below and the
other provisions of this SCHEDULE 1.1.
Level I Level II Level Level Level V
III IV
Rate for
Non-Use Fee 0.500% 0.375% 0.375% 0.375% 0.250%
Eurodollar Margin 2.000% 1.750% 1.500% 1.250% 1.000%
Floating Rate
Margin 0.250% 0.250% 0 0 0
Rate for
Non-Financial LC 1.000% 0.875% 0.750% 0.625% 0.500%
Fee
Rate for
Financial LC Fee 2.000% 1.750% 1.500% 1.250% 1.000%
LEVEL I applies when the Funded Debt to EBITDA Ratio is equal to or greater
than 3.25 to 1.0.
LEVEL II applies when the Funded Debt to EBITDA Ratio is equal to or
greater than 2.75 to 1.0 but less than 3.25 to 1.0.
LEVEL III applies when the Funded Debt to EBITDA Ratio is equal to or
greater than 2.25 to 1.0 but less than 2.75 to 1.0.
LEVEL IV applies when the Funded Debt to EBITDA Ratio is equal to or
greater than 1.75 to 1.0 but less than 2.25 to 1.0.
LEVEL V applies when the Funded Debt to EBITDA Ratio is less than 1.75 to
1.0.
Initially, the applicable Level shall be Level IV. The applicable Level
shall be adjusted, to the extent applicable, 45 days (or, in the case of the
last Fiscal Quarter of any Fiscal Year, 90 days) after the end of each Fiscal
Quarter based on the Funded Debt to EBITDA Ratio as of the last day of such
Fiscal
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Quarter; PROVIDED that if the Company fails to deliver the financial statements
required by SECTION 10.1.1 or 10.1.2, as applicable, and the related certificate
required by SECTION 10.1.3 by the 45th day (or, if applicable, the 90th day)
after any Fiscal Quarter, Level I shall apply until such financial statements
are delivered.
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SCHEDULE 2.1
BANKS AND PERCENTAGES
PORTION OF
BANK COMMITMENT AMOUNT PERCENTAGE
Bank of America National
Trust and Savings Association $25,000,000 50%
BankBoston, N.A. 12,500,000 25%
Wells Fargo Bank, N.A. 12,500,000 25%
TOTALS $50,000,000 100%
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SCHEDULE 9.6(a)
LITIGATION AND CONTINGENT LIABILITIES
U S LIQUIDS INC.
1) $650,000 environmental contingency for remediation project
at the Mermentau Land Treatment Facility
2) $350,000 environmental contingency for remediation project
at the Bateman Island Land Treatment Facility.
3) U S Liquids Inc. has been added to a lawsuit involving acts that took place
before U S Liquids Inc. came into existence. A Summary Judgment hearing is
scheduled for February, 1997 by U S Liquids and other parties involved.
Arguments at the hearing will be the same as those used for 3rd parties involved
in the lawsuit for which Summary Judgment has already been granted.
4) U S Liquids Inc. is obligated to consent to settlement of certain litigation
existing December 2, 1996 by Sellers under the Asset Purchase Agreement dated
December 2, 1996 by and among Sanifill, Inc., Campbell Wells, L.P. and Campbell
Wells Norm, L.P. and U S Liquids Inc. even if such settlement results in (i)
capital expenditures or increased operating expenses of up to approximately
$500,000 of U S Liquids Inc. or (ii) a decrease in net income of up to
approximately $500,000 of U S Liquids Inc.
MESA PROCESSING, INC.
1) Mesa Processing, Inc. was involved in litigation for which
Summary Judgment was granted in favor of Mesa Processing, Inc. in
1997. Plaintiff Michael Womack has appealed.
2) Earn out for maximum of $1,380,000 payable (if due) on February 15, 1999 to
Waste Technologies, Inc.
RE-CLAIM ENVIRONMENTAL LOUISIANA, L.L.C.
Earn out for the years of 1999 - 2002 in favor of John E. Tuma
and Reyncor Industrial Alcohol, Inc., a Louisiana corporation.
<PAGE>
SCHEDULE 9.6(b)
CONTINGENT PAYMENTS
-NONE-
<PAGE>
SCHEDULE 9.8
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 Company, a Texas corporation
10. National Enviro Waste Company, Inc., a Texas corporation*
11. Imperial Services, Inc., a Texas corporation*
12. Re-Claim Environmental, Inc., a Texas corporation
13. Re-Claim Environmental Louisiana, L.L.C., a Louisiana LLC
* No Outstanding stock
<PAGE>
SCHEDULE 9.15
ENVIRONMENTAL MATTERS
-NONE-
<PAGE>
SCHEDULE 10.7
EXISTING DEBT
TYPE PAYEE BALANCE AS OF 11/30/97
MESA PROCESSING, INC.
Note Payable Tommy Yount $93,167
6048 Walnut
Fort Worth, Texas 76114
Note Payable Jack C. Wolcott $508,333
P.O. Box 335
Port Isabel, Texas 76106
<PAGE>
SCHEDULE 10.8
EXISTING LIENS
MESA PROCESSING INC.
1) Lien on the equipment located at 11115 Goodnight Lane, Dallas TX 75229,
consisting of (a) type 5 permit, (b) 60 x 120 building with 2000 sq. ft. office,
(c) 15000 CFM air blower, (d) 25000 CFM air scrubber, (e) twenty (20) 10,000 gal
storage tanks and (f) four (4) 3" transfer pumps, pursuant to that certain
General Promissory Note dated August 1, 1991, executed by Mesa Processing Inc.
and made payable to Tommy Yount.
2) That certain Paving Assessment dated April 19, 1996 and issued by the City of
Fort Worth against that certain property owned by Mesa Processing Inc. and
located at Block 19, Lot A1, Fostepco Heights Addition, Grove Street.
3) Lien on those certain two tracts of land, consisting of 184 acres in Los
Fresnos, Texas described more specifically in and pursuant to that certain Deed
of Trust dated September 10, 1996, executed by Mesa Processing, Inc. in favor of
Steven S. Brown, Trustee.
<PAGE>
SCHEDULE 12.1.11
KEY EXECUTIVES
NAME CURRENT OFFICE(S)
Michael P. Lawlor Chairman of the Board
W. Gregory Orr President
Earl J. Blackwell Senior Vice President - Finance
<PAGE>
SCHEDULE 14.3
ADDRESSES FOR NOTICES
U S LIQUIDS INC.
411 North Sam Houston Parkway E
Suite 400
Houston, Texas 77060
Attention: Earl J. Blackwell
Telephone: (281) 272-4507
Facsimile: (281) 272-4545
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, AS AGENT
Agency Management Services
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Jay McKeown
Telephone: (312) 828-7299
Facsimile: (312) 974-9102
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, AS A BANK
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Robert Rospierski
Telephone: (312) 828-8363
Facsimile: (312) 828-1974
BANKBOSTON, N.A.
100 Federal Street
Boston, Massachusetts 02110
Attention: Arthur J. Oberheim
Telephone: (617) 434-1956
Facsimile: (617) 434-2160
WELLS FARGO BANK, N.A.
1000 Louisiana
Houston, Texas 77002
Attention: Mitchell S. Schulman
Telephone: (713) 250-1968
Facsimile: (713) 250-7031
EXHIBIT 4.3
NOTE
$25,000,000 December 17, 1997
Chicago, Illinois
On the Termination Date (as defined in the Credit Agreement referred
to below), the undersigned, for value received, promises to pay to the order of
Bank of America National Trust and Savings Association at the principal office
of Bank of America National Trust and Savings Association (the "AGENT"), in
Chicago, Illinois, Twenty Five Million Dollars ($25,000,000) or, if less, the
aggregate unpaid amount of all Loans made by the payee to the undersigned
pursuant to the Credit Agreement (as shown in the records of the payee or, at
the payee's option, on the schedule attached hereto and any continuation
thereof).
The undersigned further promises to pay interest on the unpaid
principal amount of each Loan evidenced hereby from the date of such Loan until
such Loan is paid in full, payable at the rate(s) and at the time(s) set forth
in the Credit Agreement. Payments of both principal and interest are to be made
in lawful money of the United States of America.
This Note evidences indebtedness incurred under, and is subject to
the terms and provisions of, the Credit Agreement dated as of December 17, 1997
(as amended or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among the undersigned, certain financial institutions (including the payee) and
the Agent, to which Credit Agreement reference is hereby made for a statement of
the terms and provisions under which this Note may or must be paid prior to its
due date or may have its due date accelerated.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject only
to any limitation imposed by applicable law, to pay all reasonable expenses,
including reasonable attorneys' fees and legal expenses, incurred by the holder
of this Note in endeavoring to collect any amounts payable hereunder which are
not paid when due, whether by acceleration or otherwise.
<PAGE>
This Note is made under and governed by the laws of the State of
Illinois applicable to contracts made and to be performed entirely within such
State.
U S LIQUIDS INC.
By:____________________________
Name Printed:__________________
Title:_________________________
<PAGE>
Schedule Attached to Note dated December 17, 1997 of U S LIQUIDS INC. payable to
the order of BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION.
<TABLE>
<CAPTION>
Amount of Amount Notation
Date Loan Maturity Date Repaid Made By
- ------------------- ----------------------------- ----------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
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</TABLE>
EXHIBIT 4.4
NOTE
$12,500,000 December 17, 1997
Chicago, Illinois
On the Termination Date (as defined in the Credit Agreement referred
to below), the undersigned, for value received, promises to pay to the order of
BankBoston, N.A. at the principal office of Bank of America National Trust and
Savings Association (the "AGENT"), in Chicago, Illinois, Twelve Million, Five
Hundred Thousand Dollars ($12,500,000) or, if less, the aggregate unpaid amount
of all Loans made by the payee to the undersigned pursuant to the Credit
Agreement (as shown in the records of the payee or, at the payee's option, on
the schedule attached hereto and any continuation thereof).
The undersigned further promises to pay interest on the unpaid
principal amount of each Loan evidenced hereby from the date of such Loan until
such Loan is paid in full, payable at the rate(s) and at the time(s) set forth
in the Credit Agreement. Payments of both principal and interest are to be made
in lawful money of the United States of America.
This Note evidences indebtedness incurred under, and is subject to
the terms and provisions of, the Credit Agreement dated as of December 17, 1997
(as amended or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among the undersigned, certain financial institutions (including the payee) and
the Agent, to which Credit Agreement reference is hereby made for a statement of
the terms and provisions under which this Note may or must be paid prior to its
due date or may have its due date accelerated.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject only
to any limitation imposed by applicable law, to pay all reasonable expenses,
including reasonable attorneys' fees and legal expenses, incurred by the holder
of this Note in endeavoring to collect any amounts payable hereunder which are
not paid when due, whether by acceleration or otherwise.
<PAGE>
This Note is made under and governed by the laws of the State of
Illinois applicable to contracts made and to be performed entirely within such
State.
U S LIQUIDS INC.
By:____________________________
Name Printed:__________________
Title:_________________________
<PAGE>
Schedule Attached to Note dated December 17, 1997 of U S LIQUIDS INC. payable to
the order of BANKBOSTON, N.A.
<TABLE>
<CAPTION>
Amount of Amount Notation
Date Loan Maturity Date Repaid Made By
- ------------------- ----------------------------- ----------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
- ------------------- ----------------------------- ----------------------------- ------------------------ -------------------------
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</TABLE>
EXHIBIT 4.5
NOTE
$12,500,000 December 17, 1997
Chicago, Illinois
On the Termination Date (as defined in the Credit Agreement referred
to below), the undersigned, for value received, promises to pay to the order of
Wells Fargo Bank, N.A. at the principal office of Bank of America National Trust
and Savings Association (the "AGENT"), in Chicago, Illinois, Twelve Million,
Five Hundred Thousand Dollars ($12,500,000) or, if less, the aggregate unpaid
amount of all Loans made by the payee to the undersigned pursuant to the Credit
Agreement (as shown in the records of the payee or, at the payee's option, on
the schedule attached hereto and any continuation thereof).
The undersigned further promises to pay interest on the unpaid
principal amount of each Loan evidenced hereby from the date of such Loan until
such Loan is paid in full, payable at the rate(s) and at the time(s) set forth
in the Credit Agreement. Payments of both principal and interest are to be made
in lawful money of the United States of America.
This Note evidences indebtedness incurred under, and is subject to
the terms and provisions of, the Credit Agreement dated as of December 17, 1997
(as amended or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among the undersigned, certain financial institutions (including the payee) and
the Agent, to which Credit Agreement reference is hereby made for a statement of
the terms and provisions under which this Note may or must be paid prior to its
due date or may have its due date accelerated.
In addition to and not in limitation of the foregoing and the
provisions of the Credit Agreement, the undersigned further agrees, subject only
to any limitation imposed by applicable law, to pay all reasonable expenses,
including reasonable attorneys' fees and legal expenses, incurred by the holder
of this Note in endeavoring to collect any amounts payable hereunder which are
not paid when due, whether by acceleration or otherwise.
<PAGE>
This Note is made under and governed by the laws of the State of
Illinois applicable to contracts made and to be performed entirely within such
State.
U S LIQUIDS INC.
By:____________________________
Name Printed:__________________
Title:_________________________
<PAGE>
Schedule Attached to Note dated December 17, 1997 of U S LIQUIDS INC. payable to
the order of WELLS FARGO BANK, N.A.
<TABLE>
<CAPTION>
Amount of Amount Notation
Date Loan Maturity Date Repaid Made By
- ------------------- ----------------------------- ----------------------------- ------------------------ -------------------------
<S> <C> <C> <C> <C>
- ------------------- ----------------------------- ----------------------------- ------------------------ -------------------------
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</TABLE>
EXHIBIT 4.6
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "AGREEMENT") dated as of December 17, 1997 is
among U S LIQUIDS INC. (the "COMPANY"), each subsidiary of the Company listed on
the signature pages hereof, each other person or entity which from time to time
becomes a party hereto (collectively, including the Company, the "DEBTORS" and
individually each a "DEBTOR") and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION ("BOFA"), in its capacity as Agent (as defined below) for the Banks
(as defined below).
W I T N E S S E T H:
WHEREAS, the Company, various financial institutions (the "BANKS") and
BofA, as agent for the Banks (in such capacity, the "AGENT"), have entered into
a Credit Agreement dated as of December 17, 1997 (as amended, restated or
otherwise modified from time to time, the "CREDIT AGREEMENT");
WHEREAS, each of the Debtors other than the Company has executed and
delivered a guaranty (the "GUARANTY") of the obligations of the Company in
respect of the Loan Documents; and
WHEREAS, the obligations of the Company in respect of the Loan Documents
and the obligations of each other Debtor under the Guaranty are to be secured
pursuant to this Agreement;
NOW, THEREFORE, for and in consideration of the premises, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. When used herein, (a) the terms CERTIFICATED
SECURITY, CHATTEL PAPER, DEPOSIT ACCOUNT, DOCUMENT, EQUIPMENT, FIXTURE, GOODS,
INVENTORY, INSTRUMENT, SECURITY and UNCERTIFICATED SECURITY shall have the
respective meanings assigned to such terms in the Uniform Commercial Code (as
defined below), (b) the terms COMMODITY ACCOUNT, COMMODITY CONTRACT, INVESTMENT
PROPERTY, SECURITY ENTITLEMENT and SECURITIES ACCOUNT shall have the respective
meanings assigned thereto in the 1994 Amendments to Articles 8 and 9 of the
Uniform Commercial Code promulgated by the American Law Institute and the
National Conference of Commissioners for Uniform State Laws, (c) capitalized
terms used but not defined have the meanings assigned to such terms in the
Credit Agreement and (d) the following terms have the following meanings (such
definitions to be applicable to both the singular and plural forms of such
terms):
ACCOUNT DEBTOR means, with respect to any Debtor, any party who is
obligated on or under any Account Receivable, Contract Right or General
Intangible of such Debtor.
ACCOUNT RECEIVABLE means, with respect to any Debtor, any right of such
Debtor to payment for goods sold or leased or for services rendered.
<PAGE>
AGENT - see the recitals.
AGREEMENT - see the introductory paragraph.
ASSIGNEE DEPOSIT ACCOUNT - see SECTION 4.
BOFA - see the introductory paragraph.
BANKS - see the recitals.
BUSINESS DAY means any day on which BofA is open for commercial
banking business in Chicago, New York and San Francisco.
COLLATERAL means, with respect to any Debtor, all property and rights of
such Debtor in which a security interest is granted hereunder.
COMPANY - see the introductory paragraph.
COMPUTER HARDWARE AND SOFTWARE means, with respect to any Debtor, (i) all
computer and other electronic data processing hardware, whether now or hereafter
owned, licensed or leased by such Debtor, including, without limitation, all
integrated computer systems, central processing units, memory units, display
terminals, printers, features, computer elements, card readers, tape drives,
hard and soft disk drives, cables, electrical supply hardware, generators, power
equalizers, accessories and all peripheral devices and other related computer
hardware; (ii) all software programs, whether now or hereafter owned, licensed
or leased by such Debtor, designed for use on the computers and electronic data
processing hardware described in CLAUSE (I) above, including, without
limitation, all operating system software, utilities and application programs in
whatsoever form (source code and object code in magnetic tape, disk or hard copy
format or any other listings whatsoever); (iii) all firmware associated
therewith, whether now or hereafter owned, licensed or leased by such Debtor;
and (iv) all documentation for such hardware, software and firmware described in
the preceding CLAUSES (I), (II) and (III), whether now or hereafter owned,
licensed or leased by such Debtor, including, without limitation, flow charts,
logic diagrams, manuals, specifications, training materials, charts and pseudo
codes.
CONTRACT RIGHT means, with respect to any Debtor, any right of such Debtor
to payment under a contract for the sale or lease of goods or the rendering of
services, which right is at the time not yet earned by performance.
CREDIT AGREEMENT - see the recitals.
DEBTOR - see the introductory paragraph.
3
<PAGE>
DEFAULT means the occurrence of any of the following events: (i) any
Unmatured Event of Default under Section 12.1.4 of the Credit Agreement with
respect to the Company, (ii) any Event of Default or (iii) any warranty of any
Debtor herein is untrue or misleading in any material respect and, as a result
thereof, the Agent's security interest in any material portion of the Collateral
(of all Debtors taken as a whole) is not perfected or the Agent's rights and
remedies with respect to any material portion of the Collateral of all Debtors
(taken as a whole) is materially impaired or otherwise materially adversely
affected.
GENERAL INTANGIBLES means, with respect to any Debtor, all of such Debtor's
"general intangibles" as defined in the Uniform Commercial Code and, in any
event, includes (without limitation) all of such Debtor's trademarks, trade
names, patents, copyrights, trade secrets, customer lists, inventions, designs,
software programs, mask works, goodwill, registrations, licenses, franchises,
tax refundli claims, guarantee claims, security interests, rights to
indemnification and all of such Debtor's interests in any partnership, limited
liability company or similar entity.
GUARANTY - see the recitals.
INTELLECTUAL PROPERTY means all past, present and future: trade
secrets and other proprietary information; trademarks, service marks, business
names, designs, logos, indicia, and/or other source and/or business identifiers
and the goodwill of the business relating thereto and all registrations or
applications for registrations which have heretofore been or may hereafter be
issued thereon throughout the world; copyrights (including, without limitation,
copyrights for computer programs) and copyright registrations or applications
for registrations which have heretofore been or may hereafter be issued
throughout the world and all tangible property embodying the copyrights;
unpatented inventions (whether or not patentable); patent applications and
patents; industrial designs, industrial design applications and registered
industrial designs; license agreements related to any of the foregoing set forth
in this definition and income therefrom; books, records, writings, computer
tapes or disks, flow diagrams, specification sheets, source codes, object codes
and other physical manifestations, embodiments or incorporations of any of the
foregoing set forth in this definition; the right to sue for all past, present
and future infringements of any of the foregoing set forth in this definition;
and all common law and other rights throughout the world in and to all of the
foregoing set forth in this definition.
LIABILITIES means (a) as to the Company, all obligations of the Company to
the Agent or any Banks, howsoever created, arising or evidenced, whether direct
or indirect, absolute or contingent, now or hereafter existing, or due or to
become due, which arise out of or in connection with any of the Loan Documents
(including, without limitation, with respect to Letters of Credit), as the same
may be amended, modified, extended or renewed from time to time, and all Hedging
Obligations of the Company to any Bank, and (b) with respect to each Debtor
other than the Company, all obligations of such Debtor under the Guaranty or any
other Collateral Document.
4
<PAGE>
NON-TANGIBLE COLLATERAL means, with respect to any Debtor, collectively,
such Debtor's Accounts Receivable, Contract Rights and General Intangibles.
PERMITTED LIENS - see SECTION 3.
UNIFORM COMMERCIAL CODE means the Uniform Commercial Code as in effect in
the State of Illinois on the date of this Agreement; PROVIDED, HOWEVER, as used
in SECTION 8 hereof and in the definitions of "Commodity Account", "Commodity
Contract", "Investment Property", "Security Entitlement" and "Securities
Account", "Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect from time to time in the applicable jurisdiction.
2. GRANT OF SECURITY INTEREST. As security for the payment of all
Liabilities, each Debtor hereby assigns to the Agent for the benefit of the
Banks, and grants to the Agent for the benefit of the Banks a continuing
security interest in, the following, whether now or hereafter existing or
acquired:
All of such Debtor's:
(i) Accounts Receivable;
(ii) Certificated Securities;
(iii) Chattel Paper;
(iv) Computer Hardware and Software and all rights
with respect thereto, including, without
limitation, any and all licenses, options,
warranties, service contracts, program services,
test rights, maintenance rights, support rights,
improvement rights, renewal rights and
indemnifications, and any substitutions,
replacements, additions or model conversions of
any of the foregoing;
(v) Contract Rights;
(vi) Deposit Accounts;
(vii) Documents;
(viii) General Intangibles;
(ix) Goods (including, without limitation, all its
Equipment, Fixtures and Inventory), together with
all accessions, additions, attachments,
improvements, substitutions and replacements
thereto and therefor;
(x) Instruments;
(xi) Intellectual Property;
5
<PAGE>
(xii) money (of every jurisdiction whatsoever);
(xiii) Commodity Accounts, Commodity Contracts,
Investment Property, Security Entitlements and
Securities Accounts;
(xiv) Uncertificated Securities;
(xv) to the extent not included in the foregoing,
maps, surveys and similar items used or useful in
such Debtor's business; and
(xvi) to the extent not included in the foregoing,
other personal property of any kind or
description;
together with all books, records, writings, data bases, information
and other property relating to, used or useful in connection with,
evidencing, embodying, incorporating or referring to any of the
foregoing, and all proceeds, products, offspring, rents, issues,
profits and returns of and from any of the foregoing.
3. WARRANTIES. Each Debtor warrants that: (i) no financing statement
(other than any which may have been filed on behalf of the Agent or in
connection with Permitted Liens (as defined below)) covering any of the
Collateral is on file in any public office; (ii) such Debtor is and will be the
lawful owner of all Collateral, free of all liens and claims whatsoever, other
than the security interest hereunder and liens and claims expressly permitted by
the Credit Agreement ("Permitted Liens"), with full power and authority to
execute this Agreement and perform such Debtor's obligations hereunder, and to
subject the Collateral to the security interest hereunder; (iii) all information
with respect to Collateral and Account Debtors set forth in any schedule,
certificate or other writing at any time heretofore or hereafter furnished by
such Debtor to the Agent or any Bank and all other written information
heretofore or hereafter furnished by such Debtor to the Agent or any Bank in
connection with the Credit Agreement will be true and correct in all material
respects as of the date furnished; (iv) such Debtor's chief executive office and
principal place of business are as set forth on SCHEDULE I hereto (and such
Debtor has not maintained its chief executive office and principal place of
business at any other location at any time after July 31, 1997); (v) each other
location where such Debtor maintains a place of business is set forth on
SCHEDULE II hereto; (vi) except as disclosed on SCHEDULE III, such Debtor is not
now known and during the five years preceding the date hereof has not previously
been known by any trade name; (vii) except as disclosed on SCHEDULE III, during
the five years preceding the date hereof such Debtor has not been known by any
legal name different from the one set forth on the signature page of this
Agreement nor has such Debtor been the subject of any merger or other corporate
reorganization; (viii) SCHEDULE IV hereto contains a complete listing of all of
such Debtor's Intellectual Property which has been registered under any
registration statute; (ix) such Debtor is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation;
(x) the execution and delivery of this Agreement and the performance by such
Debtor of its obligations hereunder are within such Debtor's corporate powers,
have been duly authorized by all necessary corporate action, have received all
necessary
6
<PAGE>
governmental approval (if any shall be required), and do not and will not
contravene or conflict with any provision of law or of the charter or by-laws of
such Debtor or of any material agreement, indenture, instrument or other
document, or any material judgment, order or decree, which is binding upon such
Debtor; (xi) this Agreement is a legal, valid and binding obligation of such
Debtor, enforceable in accordance with its terms, except that the enforceability
of this Agreement may be limited by bankruptcy, insolvency, fraudulent
conveyance, fraudulent transfer, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law); and (xii) such Debtor is in compliance with the
requirements of all applicable laws (including, without limitation, the
provisions of the Fair Labor Standards Act), rules, regulations and orders of
every governmental authority, the non-compliance with which would materially
adversely affect the business, properties, assets, operations or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole or
the value of the Collateral or the worth of the Collateral as collateral
security.
4. COLLECTIONS, ETC. Until such time during the existence of a
Default as the Agent shall notify such Debtor of the revocation of such power
and authority, each Debtor (a) may, in the ordinary course of its business, at
its own expense, sell, lease or furnish under contracts of service any of the
Inventory normally held by such Debtor for such purpose, use and consume, in the
ordinary course of its business, any raw materials, work in process or materials
normally held by such Debtor for such purpose, and use, in the ordinary course
of its business (but subject to the terms of the Credit Agreement), the cash
proceeds of Collateral and other money which constitutes Collateral, (b) will,
at its own expense, endeavor to collect, as and when due, all amounts due under
any of the Non-Tangible Collateral, including the taking of such action with
respect to such collection as the Agent may reasonably request or, in the
absence of such request, as such Debtor may deem advisable, and (c) may grant,
in the ordinary course of business, to any party obligated on any of the
Non-Tangible Collateral, any rebate, refund or allowance to which such party may
be lawfully entitled, and may accept, in connection therewith, the return of
Goods, the sale or lease of which shall have given rise to such Non-Tangible
Collateral. The Agent, however, may, at any time that a Default exists, whether
before or after any revocation of such power and authority or the maturity of
any of the Liabilities, notify any parties obligated on any of the Non-Tangible
Collateral to make payment to the Agent of any amounts due or to become due
thereunder and enforce collection of any of the Non-Tangible Collateral by suit
or otherwise and surrender, release or exchange all or any part thereof, or
compromise or extend or renew for any period (whether or not longer than the
original period) any indebtedness thereunder or evidenced thereby. Upon request
of the Agent during the existence of a Default, each Debtor will, at its own
expense, notify any parties obligated on any of the Non-Tangible Collateral to
make payment to the Agent of any amounts due or to become due thereunder.
Upon request by the Agent during the existence of a Default, each Debtor
will forthwith, upon receipt, transmit and deliver to the Agent, in the form
received, all cash, checks, drafts and other instruments or writings for the
payment of money (properly endorsed, where required, so that such items may be
collected by the Agent) which may be received by such Debtor at any time in full
or partial payment or otherwise as proceeds of any of the Collateral. Except as
the Agent
7
<PAGE>
may otherwise consent in writing, any such items which may be so received by any
Debtor during the existence of a Default will not be commingled with any other
of its funds or property, but will be held separate and apart from its own funds
or property and upon express trust for the Agent until delivery is made to the
Agent. Each Debtor will comply with the terms and conditions of any consent
given by the Agent pursuant to the foregoing sentence.
During the existence of a Default, all items or amounts which are delivered
by any Debtor to the Agent on account of partial or full payment or otherwise as
proceeds of any of the Collateral shall be deposited to the credit of a deposit
account (each an "ASSIGNEE DEPOSIT ACCOUNT") of such Debtor with the Agent, as
security for payment of the Liabilities. No Debtor shall have any right to
withdraw any funds deposited in the applicable Assignee Deposit Account. The
Agent may, from time to time, in its discretion, and shall upon request of the
applicable Debtor made not more than once in any week, apply all or any of the
then balance, representing collected funds, in the Assignee Deposit Account,
toward payment of the Liabilities, whether or not then due, in such order of
application as the Agent may determine, and the Agent may, from time to time, in
its discretion, release all or any of such balance to the applicable Debtor.
During the existence of a Default, the Agent is authorized to endorse, in
the name of the applicable Debtor, any item, howsoever received by the Agent,
representing any payment on or other proceeds of any of the Collateral.
5. CERTIFICATES, SCHEDULES AND REPORTS. Each Debtor will from time
to time deliver to the Agent such schedules, certificates and reports respecting
all or any of the Collateral at the time subject to the security interest
hereunder, and the items or amounts received by such Debtor in full or partial
payment of any of the Collateral, as the Agent may reasonably request. Any such
schedule, certificate or report shall be executed by a duly authorized officer
of such Debtor and shall be in such form and detail as the Agent may specify.
Each Debtor shall immediately notify the Agent of the occurrence of any event
causing any loss or depreciation in the value of its Inventory or other Goods
which is material to the Company and its Subsidiaries taken as a whole, and such
notice shall specify the amount of such loss or depreciation.
6. AGREEMENTS OF THE DEBTORS. Each Debtor (a) will, upon request of
the Agent, execute such financing statements and other documents (and pay the
cost of filing or recording the same in all public offices reasonably deemed
appropriate by the Agent) and do such other acts and things (including, without
limitation, delivery to the Agent of any Instruments or Certificated Securities
which constitute Collateral), all as the Agent may from time to time reasonably
request, to establish and maintain a valid security interest in the Collateral
(free of all other liens, claims and rights of third parties whatsoever, other
than Permitted Liens) to secure the payment of the Liabilities; (b) will keep
all its Inventory at, and will not maintain any place of business at any
location other than, its address(es) shown on SCHEDULES I and II hereto or at
such other addresses of which such Debtor shall have given the Agent not less
than 10 days' prior written notice; (c) will keep its records concerning the
Non-Tangible Collateral in such a manner as will enable the Agent or its
designees to determine at any time the status of the Non-Tangible
8
<PAGE>
Collateral; (d) will furnish the Agent such information concerning such Debtor,
the Collateral and the Account Debtors as the Agent may from time to time
reasonably request; (e) will permit the Agent and its designees, from time to
time, on reasonable notice and at reasonable times and intervals during normal
business hours (or at any time without notice during the existence of a Default)
to inspect such Debtor's Inventory and other Goods, and to inspect, audit and
make copies of and extracts from all records and all other papers in the
possession of such Debtor pertaining to the Collateral and the Account Debtors,
and will, upon request of the Agent during the existence of a Default, deliver
to the Agent all of such records and papers; (f) will, upon request of the
Agent, stamp on its records concerning the Collateral and add on all Chattel
Paper constituting a portion of the Collateral, a notation, in form satisfactory
to the Agent, of the security interest of the Agent hereunder; (g) except as
permitted by the Credit Agreement, will not sell, lease, assign or create or
permit to exist any lien on or security interest in any Collateral other than
Permitted Liens and liens and security interests in favor of the Agent; (h) will
at all times keep all its Inventory and other Goods insured under policies
maintained with reputable, financially sound insurance companies against loss,
damage, theft and other risks to such extent as is customarily maintained by
companies similarly situated, and cause all such policies to provide that loss
thereunder shall be payable to the Agent as its interest may appear (it being
understood that (A) so long as no Default shall be existing, the Agent shall
deliver any proceeds of such insurance which may be received by it to such
Debtor and (B) whenever a Default shall be existing, the Agent may apply any
proceeds of such insurance which may be received by it toward payment of the
Liabilities, whether or not due, in such order of application as the Agent may
determine) and such policies or certificates thereof shall, if the Agent so
requests, be deposited with or furnished to the Agent; (i) will take such
actions as are reasonably necessary to keep its Inventory in good repair and
condition, ordinary wear and tear excepted; (j) will take such actions as are
reasonably necessary to keep its Equipment (other than obsolete Equipment) in
good repair and condition and in good working or running order, ordinary wear
and tear excepted; (k) will promptly pay when due all license fees, registration
fees, taxes, assessments and other charges which may be levied upon or assessed
against the ownership, operation, possession, maintenance or use of its
Equipment and other Goods (as applicable); provided, however, that such Debtor
shall not be required to pay any such fee, tax, assessment or other charge if
the validity thereof is being contested by such Debtor in good faith by
appropriate proceedings, so long as forfeiture of any substantial part of its
Equipment or other Goods will not result from the failure of such Debtor to pay
any such fee, tax, assessment or other charge during the period of such contest;
(l) will, upon request of the Agent, (i) cause to be noted on the applicable
certificate, in the event any of its Equipment is covered by a certificate of
title, the security interest of the Agent in the Equipment covered thereby and
(ii) deliver all such certificates to the Agent or its designees; (m) will take
all steps reasonably necessary to protect, preserve and maintain all of its
rights in the Collateral; (n) will keep all of the tangible Collateral in the
continental United States; and (o) will reimburse the Agent for all expenses,
including reasonable attorneys' fees and legal expenses, incurred by the Agent
in seeking to collect or enforce any rights in respect of such Debtor's
Collateral.
Any expenses incurred in protecting, preserving and maintaining any
Collateral shall be borne by the applicable Debtor. Whenever a Default shall be
existing, the Agent shall have the right to
9
<PAGE>
bring suit to enforce any or all of the Intellectual Property or licenses
thereunder, in which event the applicable Debtor shall at the request of the
Agent do any and all lawful acts and execute any and all proper documents
required by the Agent in aid of such enforcement and such Debtor shall promptly,
upon demand, reimburse and indemnify the Agent for all reasonable costs and
expenses incurred by the Agent in the exercise of its rights under this SECTION
6, except to the extent any of the foregoing result from the gross negligence or
willful misconduct of the Agent. Notwithstanding the foregoing, the Agent shall
have no obligations or liabilities regarding the Collateral or any thereof by
reason of, or arising out of, this Agreement.
7. DEFAULT. Whenever a Default shall be existing, the Agent may
exercise from time to time any rights and remedies available to it under
applicable law. Each Debtor agrees, in case of Default, (i) to assemble, at its
expense, all its Inventory and other Goods (other than Fixtures) at a convenient
place or places acceptable to the Agent, and (ii) at the Agent's request, to
execute all such documents and do all such other things which may be necessary
or desirable in order to enable the Agent or its nominee to be registered as
owner of the Intellectual Property with any competent registration authority.
Any notification of intended disposition of any of the Collateral required by
law shall be deemed reasonably and properly given if given at least five days
before such disposition. Any proceeds of any disposition by the Agent of any of
the Collateral may be applied by the Agent to payment of expenses in connection
with the Collateral, including reasonable attorneys' fees and legal expenses,
and any balance of such proceeds may be applied by the Agent toward the payment
of such of the Liabilities, and in such order of application, as the Agent may
from time to time elect.
8. GENERAL. The Agent shall be deemed to have exercised reasonable
care in the custody and preservation of any of the Collateral in its possession
if it takes such action for that purpose as any applicable Debtor requests in
writing, but failure of the Agent to comply with any such request shall not of
itself be deemed a failure to exercise reasonable care, and no failure of the
Agent to preserve or protect any rights with respect to such Collateral against
prior parties, or to do any act with respect to the preservation of such
Collateral not so requested by any Debtor, shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral.
All notices and requests hereunder shall be in writing (including
facsimile transmission) and shall be sent (i) if to the Agent, to its address
shown on Schedule 14.3 to the Credit Agreement or such other address as it may,
by written notice to the Company, have designated as its address for such
purpose, and (ii) if to any Debtor, to its address shown on SCHEDULE I hereto or
to such other address as such Debtor may, by written notice to the Agent, have
designated as its address for such purpose. Notices sent by facsimile
transmission shall be deemed to have been given when sent; notices sent by mail
shall be deemed to have been given five Business Days after the date when sent
by registered or certified mail, postage prepaid; and notices sent by hand
delivery or overnight courier shall be deemed to have been given when received.
Each of the Debtors agrees to pay all expenses (including reasonable
attorney's fees and legal expenses) paid or incurred by the Agent or any Bank in
endeavoring to collect the Liabilities of
10
<PAGE>
such Debtor, or any part thereof, and in enforcing this Agreement against such
Debtor, and such obligations will themselves be Liabilities.
No delay on the part of the Agent in the exercise of any right or remedy
shall operate as a waiver thereof, and no single or partial exercise by the
Agent of any right or remedy shall preclude other or further exercise thereof or
the exercise of any other right or remedy.
This Security Agreement shall remain in full force and effect until all
Liabilities have been paid in full and all Commitments have terminated. If at
any time all or any part of any payment theretofore applied by the Agent or any
Bank to any of the Liabilities is or must be rescinded or returned by the Agent
or such Bank for any reason whatsoever (including, without limitation, the
insolvency, bankruptcy or reorganization of any Debtor), such Liabilities shall,
for the purposes of this Agreement, to the extent that such payment is or must
be rescinded or returned, be deemed to have continued in existence,
notwithstanding such application by the Agent or such Bank, and this Agreement
shall continue to be effective or be reinstated, as the case may be, as to such
Liabilities, all as though such application by the Agent or such Bank had not
been made.
This Agreement has been delivered at Chicago, Illinois, and shall be
construed in accordance with and governed by the internal laws of the State of
Illinois, subject, however, to the applicability of the Uniform Commercial Code
of any jurisdiction in which any Goods of any Debtor may be located at any given
time. Whenever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
The rights and privileges of the Agent hereunder shall inure to the benefit
of its successors and assigns.
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, and each such counterpart
shall be deemed to be an original, but all such counterparts shall together
constitute one and the same Agreement. At any time after the date of this
Agreement, one or more additional persons or entities may become parties hereto
by executing and delivering to the Agent a counterpart of this Agreement
(including supplements to the Schedules hereto). Immediately upon such execution
and delivery (and without any further action), each such additional person or
entity will become a party to, and will be bound by all the terms of, this
Agreement.
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT
ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER
11
<PAGE>
PROPERTY MAY BE BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY
JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH DEBTOR
HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF
THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE.
EACH DEBTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED
MAIL, POSTAGE PREPAID, TO THE ADDRESS SET FORTH ON SCHEDULE I HERETO (OR SUCH
OTHER ADDRESS AS IT SHALL HAVE SPECIFIED IN WRITING TO THE AGENT AS ITS ADDRESS
FOR NOTICES HEREUNDER) OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF
ILLINOIS. EACH DEBTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO
ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
EACH OF EACH DEBTOR, THE AGENT AND (BY ACCEPTING THE BENEFITS HEREOF) EACH
BANK HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND
ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY
FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND
AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
12
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
U S LIQUIDS INC.
By:___________________________
W. Gregory Orr, President
MBO INC.
By:___________________________
W. Gregory Orr, President
U S LIQUIDS LP HOLDING CO.
By:___________________________
W. Gregory Orr, President
U S LIQUIDS OF LA., L.P.
By: U S LIQUIDS LP HOLDING
CO., General Partner
By:___________________________
W. Gregory Orr, President
AMERICAN WASTEWATER INC.
By:___________________________
W. Gregory Orr, Vice
President
MESA PROCESSING, INC.
By:___________________________
W. Gregory Orr, Vice
President
13
<PAGE>
T&T GREASE SERVICE, INC.
By:___________________________
W. Gregory Orr, Vice
President
PHEONIX FATS & OILS, INC.
By:___________________________
W. Gregory Orr, Vice
President
MESA INTERNATIONAL, INC.
By:___________________________
W. Gregory Orr, Vice
President
SOUTH TEXAS BY-PRODUCTS, INC.
By:___________________________
W. Gregory Orr, Vice
President
RE-CLAIM ENVIRONMENTAL, INC.
By:___________________________
W. Gregory Orr, Vice
President
RE-CLAIM ENVIRONMENTAL
LOUISIANA, L.L.C.
BY: U S LIQUIDS INC., Manager
By:___________________________
W. Gregory Orr, President
14
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Agent for the Banks
By:
Name Printed:_________________
Title:________________________
15
<PAGE>
Signature page for the Security Agreement dated as of December 17, 1997 among U
S Liquids Inc. (the "Company"), various subsidiaries of the Company and Bank of
America National Trust and Savings Association, as Agent (as defined in the
Credit Agreement dated as of December 17, 1997 with the Company and various
other parties).
The undersigned is executing a
counterpart hereof for
purposes of becoming a party
hereto:
[U S LIQUIDS INC.]
By:___________________________
Name Printed:_________________
Title:________________________
16
<PAGE>
SCHEDULE I
TO SECURITY AGREEMENT
CHIEF EXECUTIVE OFFICE AND PRINCIPAL PLACE OF BUSINESS
CHIEF EXECUTIVE OFFICE OF ALL DEBTORS
411 N. Sam Houston Pkwy E
Suite 400
Houston, TX 77006
PRINCIPAL PLACE OF BUSINESS
U S Liquids Inc. 411 N. Sam Houston Pkwy E, Suite 400
Houston, TX 77060
MBO Inc. 411 N. Sam Houston Pkwy E, Suite 400
Houston, TX 77060
US Liquids LP Holding Co. 411 N. Sam Houston Pkwy E, Suite 400
Houston, TX 77060
US Liquids of La., L.P. 11079 Triangle Shell Rd.
Jennings, LA 70546
American Wastewater Inc. 250 Gellhorn
Houston, TX 77013
Mesa Processing, Inc. 3820 North Grove
Fort Worth, TX 76106
T & T Grease Service, Inc. 3820 North Grove
Fort Worth, TX 76106
Phoenix Fats & Oils, Inc. 3820 North Grove
Fort Worth, TX 76106
Mesa International, Inc. Price Waterhouse Ctr, Collymor Rock
St. Michael, Barabados
South Texas By-Products Company 6 Miles East - Hwy 100
Los Fresnos, TX 78566
National Enviro Waste 3820 North Grove
Company, Inc. Fort Worth, TX 76106
Imperial Services, Inc. 3820 North Grove
Fort Worth, TX 76106
Re-Claim Environmental, Inc. 7026 Lawndale
Houston, TX 77023
<PAGE>
Re-Claim Environmental 10845 LA Hwy 1
Louisiana, L.L.C. Shreveport, LA 77261
<PAGE>
SCHEDULE II
TO SECURITY AGREEMENT
ADDRESSES OF OTHER LOCATIONS
US LIQUIDS OF LA., L.P.
11031 Campbell Wells Road, Jennings, LA 70546
2714 Atkins Clark Rd., elm Grove, LA 71051
843 Highway 24, Bourg, LA 70343 On Intracoastal Waterway, Morgan City, LA 70381
Off State Hwy 16 Bustamonte, Zapata, TX 78075 701 Robley Dr., Suite 110,
Lafayette, LA 70503 19141 Gro Racca Rd., Lascassine, LA 70650
MESA PROCESSING, INC.
3701 North Grove, Fort Worth, TX 76106 1511 Superior Way, Houston, TX 77035 7633
Navigation Blvd., Houston, TX 77012 12825 Applewhite Rd., San Antonio, TX 78224
419 Logan, Laredo, TX 78049 1115 Goodnight Dr., Dallas, TX 75229
T & T GREASE SERVICES, INC.
3701 North Grove, Fort Worth, TX 76106 1511 Superior Way, Houston, TX 77035
12825 Applewhite Rd., San Antonio, TX 78224 419 Logan, Laredo, TX 78049 8 Miles
East - Hwy 100, Los Fresnos, TX 78566
<PAGE>
SCHEDULE III
TO SECURITY AGREEMENT
TRADE NAMES
T & T Grease Service, Inc. has the d/b/a Imperial Services
T & T Grease Service, Inc. owns the trade name A & B Enterprises, Inc.
Mesa Processing, Inc. owns the trade name Waste Technologies, Inc.
<PAGE>
SCHEDULE IV
TO SECURITY AGREEMENT
LIST OF REGISTERED INTELLECTUAL PROPERTY
EXHIBIT 4.7
COMPANY PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "AGREEMENT") dated as of December 17, 1997, is
between U S LIQUIDS INC., a Delaware corporation (the "COMPANY"), and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA"), as Agent (as defined
below) for the Banks (as defined below).
W I T N E S S E T H:
WHEREAS, the Company, various financial institutions (the "BANKS") and
BofA, as agent for the Banks (in such capacity, the "AGENT"), have entered into
a Credit Agreement dated as of December 17, 1997 (as amended, restated or
otherwise modified from time to time, the "CREDIT AGREEMENT"); and
WHEREAS, the obligations of the Company in respect of the Credit Agreement
and the other Loan Documents (as defined in the Credit Agreement) are to be
secured pursuant to this Agreement;
NOW, THEREFORE, for and in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. When used herein, (a) the capitalized terms used but not
defined have the meanings assigned to such terms in the Credit Agreement and (b)
the following terms have the following meanings (such meanings to be applicable
to both the singular and plural forms of such terms):
AGENT - see the recitals.
AGREEMENT - see the introductory paragraph.
BOFA - see the introductory paragraph.
BANKS - see the recitals.
COLLATERAL - see SECTION 2.
COMPANY - see the introductory paragraph.
CREDIT AGREEMENT - see the recitals.
DEFAULT means the occurrence of any of the following events: (i) any
Unmatured Event of Default with respect to the Company under Section
12.1.4 of the Credit Agreement, (ii) any Event of Default or (iii) any
warranty of the Company herein is untrue or misleading in any material
respect and, as a result thereof, the Agent's security interest in any
material portion of the Collateral is not perfected or the Agent's rights
and remedies with respect to
<PAGE>
any material portion of the Collateral are materially impaired or
otherwise materially adversely affected.
GUARANTOR means, on any day, each Subsidiary that has executed a
counterpart of the Guaranty on or prior to that day (or is required to
execute a counterpart of the Guaranty on that date).
ISSUER means the issuer of any of the shares of stock or other
securities representing all or any of the Collateral.
LIABILITIES means all obligations of the Company howsoever created,
arising or evidenced, whether direct or indirect, absolute or contingent,
now or hereafter existing, or due or to become due, which arise out of or
in connection with any of the Loan Documents (including, without
limitation, with respect to Letters of Credit), as the same may be
amended, modified, extended or renewed from time to time, and all Hedging
Obligations of the Company to any Bank.
2. PLEDGE. As security for the payment of all Liabilities, the Company
hereby pledges to the Agent for the benefit of the Banks, and grants to the
Agent for the benefit of the Banks a continuing security interest in, all of the
following:
A. All of the shares of stock and other securities described in
SCHEDULE I hereto, all of the certificates and/or instruments representing
such shares of stock and other securities, and all cash, securities,
dividends, rights and other property at any time and from time to time
received, receivable or otherwise distributed in respect of or in exchange
for any or all of such shares or other securities;
B. All additional shares of stock of any of the Issuers listed in
SCHEDULE I hereto at any time and from time to time acquired by the
Company in any manner, all of the certificates representing such
additional shares, and all cash, securities, dividends, rights and other
property at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares;
C. All other property hereafter delivered to the Agent in
substitution for or in addition to any of the foregoing, all certificates
and instruments representing or evidencing such property, and all cash,
securities, interest, dividends, rights and other property at any time
3
<PAGE>
and from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all thereof; and
D. All products and proceeds of all of the foregoing.
All of the foregoing are herein collectively called the "Collateral".
4
<PAGE>
The Company agrees to deliver to the Agent, promptly upon receipt and in
due form for transfer (i.e., endorsed in blank or accompanied by stock or bond
powers executed in blank), any Collateral (other than dividends which the
Company is entitled to receive and retain pursuant to SECTION 5 hereof) which
may at any time or from time to time be in or come into the possession or
control of the Company; and prior to the delivery thereof to the Agent, such
Collateral shall be held by the Company separate and apart from its other
property and in express trust for the Agent.
3. WARRANTIES; FURTHER ASSURANCES. The Company warrants to the Agent for
the benefit of each Bank that: (a) the Company is (or at the time of any future
delivery, pledge, assignment or transfer thereof will be) the legal and
equitable owner of the Collateral free and clear of all liens, security
interests and encumbrances of every description whatsoever other than the
security interest created hereunder; (b) the pledge and delivery of the
Collateral pursuant to this Agreement will create a valid perfected security
interest in the Collateral in favor of the Agent; (c) all shares of stock
referred to in SCHEDULE I hereto are duly authorized, validly issued, fully paid
and non-assessable; (d) as to each Issuer whose name appears in SCHEDULE I
hereto, the Collateral represents on the date hereof not less than the
applicable percent (as shown in SCHEDULE I hereto) of the total shares of
capital stock issued and outstanding of such Issuer; and (e) the information
contained in SCHEDULE I hereto is true and accurate in all respects.
So long as any of the Liabilities shall be outstanding or any commitment
shall exist on the part of any Bank with respect to the creation of any
Liabilities, the Company (i) shall not, except as permitted by the Credit
Agreement or with the express prior written consent of the Agent, sell, assign,
exchange, pledge or otherwise transfer, encumber, or grant any option, warrant
or other right to purchase the stock of any Issuer which is pledged hereunder,
or otherwise diminish or impair any of its rights in, to or under any of the
Collateral; (ii) shall execute such Uniform Commercial Code financing statements
and other documents (and pay the costs of filing and recording or re-filing and
re-recording the same in all public offices reasonably deemed necessary or
appropriate by the Agent) and do such other acts and things, all as the Agent
may from time to time reasonably request, to establish and maintain a valid,
perfected security interest in the Collateral (free of all other liens, claims
and rights of third parties whatsoever) to secure the performance and payment of
the Liabilities; (iii) will execute and deliver to the Agent such stock powers
and similar documents relating to the Collateral, satisfactory in form and
substance to the Agent, as the Agent may reasonably request; and (iv) will
furnish the Agent or any Bank such information concerning the Collateral as the
Agent or such Bank may from time to time reasonably request, and will permit the
Agent or any Bank or any designee of the Agent or such Bank, from time to time
at reasonable times and on reasonable notice (or at any time without notice
during the existence of a Default), to inspect, audit and make copies of and
extracts from all records and all other papers in the possession of the Company
which pertain to the Collateral, and will, upon request of the Agent at any time
when a Default has occurred and is continuing, deliver to the Agent all of such
records and papers.
4. HOLDING IN NAME OF AGENT, ETC. The Agent may from time to time after
the occurrence and during the continuance of a Default, without notice to the
Company, take all or any of the following actions: (a) transfer all or any part
of the Collateral into the name of the Agent or any nominee or sub-agent for the
Agent, with or without disclosing that such Collateral is subject to the lien
and security interest hereunder, (b) appoint one or more sub-agents or nominees
for the purpose of retaining physical possession of the Collateral, (c) notify
the parties obligated on any of the Collateral to make payment to the Agent of
any amounts due or to become due thereunder, (d) endorse any checks, drafts or
other writings in the name of the Company to allow collection of the Collateral,
(e) enforce collection of any of the Collateral by suit or otherwise, and
surrender, release or exchange all or any part thereof, or compromise or renew
for any period (whether or not longer than the original period) any obligations
of any nature of any party with respect thereto, and (f) take control of any
proceeds of the Collateral.
5. VOTING RIGHTS, DIVIDENDS, ETC. (a) Notwithstanding certain
provisions of SECTION 4 hereof, so long as the Agent has not given the notice
referred to in PARAGRAPH (B) below:
A. The Company shall be entitled to exercise any and all voting or
consensual rights and powers and stock purchase or subscription rights
(but any such exercise by the Company of stock purchase or subscription
rights may be made only from funds of the Company not comprising part of
the Collateral) relating or pertaining to the Collateral or any part
thereof for any purpose; PROVIDED, HOWEVER, that the Company agrees that
it will not exercise any such right or power in any manner which would
have a material adverse effect on the value of the Collateral or any part
thereof.
5
<PAGE>
B. The Company shall be entitled to receive and retain any and all
lawful dividends payable in respect of the Collateral which are paid in
cash by any Issuer if such dividends are permitted by the Credit
Agreement, but all dividends and distributions in respect of the
Collateral or any part thereof made in shares of stock or securities or
other property or representing any return of capital, whether resulting
from a subdivision, combination or reclassification of Collateral or any
part thereof or received in exchange for Collateral or any part thereof or
as a result of any merger, consolidation, acquisition or other exchange of
assets to which any Issuer may be a party or otherwise or as a result of
any exercise of any stock purchase or subscription right, shall be and
become part of the Collateral hereunder and, if received by the Company,
shall be forthwith delivered to the Agent in due form for transfer (i.e.,
endorsed in blank or accompanied by stock or bond powers executed in
blank) to be held for the purposes of this Agreement.
C. The Agent shall execute and deliver, or cause to be executed and
delivered, to the Company, all such proxies, powers of attorney, dividend
orders and other instruments as the Company may request for the purpose of
enabling the Company to exercise the rights and powers which it is
entitled to exercise pursuant to CLAUSE (A) above and to receive the
dividends which it is authorized to retain pursuant to CLAUSE (B) above.
(b) Upon notice from the Agent during the existence of a Default, and so
long as the same shall be continuing, all rights and powers which the Company is
entitled to exercise pursuant to SECTION 5(A)(A) hereof, and all rights of the
Company to receive and retain dividends pursuant to SECTION 5(A)(B) hereof,
shall forthwith cease, and all such rights and powers shall thereupon become
vested in the Agent which shall have, during the continuance of such Default,
the sole and exclusive authority to exercise such rights and powers and to
receive such dividends. Any and all money and other property paid over to or
received by the Agent pursuant to this PARAGRAPH (B) shall be retained by the
Agent as additional Collateral hereunder and applied in accordance with the
provisions hereof.
6. REMEDIES. Whenever a Default shall exist, the Agent may exercise from
time to time any rights and remedies available to it under the Uniform
Commercial Code as in effect in Illinois or otherwise available to it. Without
limiting the foregoing, whenever a Default shall exist the Agent (a) may, to the
fullest
6
<PAGE>
extent permitted by applicable law, without notice, advertisement, hearing or
process of law of any kind, (i) sell any or all of the Collateral, free of all
rights and claims of the Company therein and thereto, at any public or private
sale or brokers' board and (ii) bid for and purchase any or all of the
Collateral at any such public sale and (b) shall have the right, for and in the
name, place and stead of the Company, to execute endorsements, assignments,
stock powers and other instruments of conveyance or transfer with respect to all
or any of the Collateral. The Company hereby expressly waives, to the fullest
extent permitted by applicable law, any and all notices, advertisements,
hearings or process of law in connection with the exercise by the Agent of any
of its rights and remedies during the continuance of a Default. Any notification
of intended disposition of any of the Collateral shall be deemed reasonably and
properly given if given at least ten (10) days before such disposition. Any
proceeds of any of the Collateral may be applied by the Agent to the payment of
expenses in connection with the Collateral, including, without limitation,
reasonable attorneys' fees and legal expenses, and any balance of such proceeds
may be applied by the Agent toward the payment of such of the Liabilities, and
in such order of application, as the Agent may from time to time elect (and,
after payment in full of all Liabilities, any excess shall be delivered to the
Company or as a court of competent jurisdiction shall direct).
The Agent is hereby authorized to comply with any limitation or
restriction in connection with any sale of Collateral as it may be advised by
counsel is necessary in order to (a) avoid any violation of applicable law
(including, without limitation, compliance with such procedures as may restrict
the number of prospective bidders and purchasers and/or further restrict such
prospective bidders or purchasers to persons or entities who will represent and
agree that they are purchasing for their own account for investment and not with
a view to the distribution or resale of such Collateral) or (b) obtain any
required approval of the sale or of the purchase by any governmental regulatory
authority or official, and the Company agrees that such compliance shall not
result in such sale being considered or deemed not to have been made in a
commercially reasonable manner and that the Agent shall not be liable or
accountable to the Company for any discount allowed by reason of the fact that
such Collateral is sold in compliance with any such limitation or restriction.
7. GENERAL. The Agent shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if it takes such action for that
purpose as the Company shall request in writing, but failure of the Agent to
comply with any such request shall not of itself be deemed a failure to exercise
reasonable care, and no failure of the Agent to preserve or
7
<PAGE>
protect any rights with respect to the Collateral against prior parties, or to
do any act with respect to preservation of the Collateral not so requested by
the Company, shall be deemed a failure to exercise reasonable care in the
custody or preservation of any Collateral.
No delay on the part of the Agent in exercising any right, power or remedy
shall operate as a waiver thereof, and no single or partial exercise of any such
right, power or remedy shall preclude any other or further exercise thereof, or
the exercise of any other right, power or remedy. No amendment, modification or
waiver of, or consent with respect to, any provision of this Agreement shall be
effective unless the same shall be in writing and signed and delivered by the
Agent, and then such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
All obligations of the Company and all rights, powers and remedies of the
Agent and the Banks expressed herein are in addition to all other rights, powers
and remedies possessed by them, including, without limitation, those provided by
applicable law or in any other written instrument or agreement relating to any
of the Liabilities or any security therefor.
This Agreement has been delivered at Chicago, Illinois, and shall be
construed in accordance with and governed by the internal laws of the State of
Illinois. Wherever possible each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
such law, such provision shall be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
All notices hereunder shall be in writing (including facsimile
transmission) and shall be sent to the applicable party at its address shown
opposite its signature hereto or at such other address as such party may, by
written notice to the other party, have designated as its address for such
purpose. Notices sent by facsimile transmission shall be deemed to have been
given when sent with confirmation of receipt; notices sent by mail shall be
deemed to have been given five Business Days after the date when sent by
registered or certified mail, postage prepaid; and notices sent by hand delivery
or overnight courier shall be deemed to have been given when received .
This Agreement shall be binding upon the Company and the Agent and their
respective successors and assigns, and shall inure to the benefit of the Company
and the Agent and the successors and assigns of the Agent.
8
<PAGE>
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, and each such counterpart
shall be deemed an original but all such counterparts shall together constitute
but one and the same Agreement.
ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS OR IN THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS; PROVIDED, HOWEVER, THAT
ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT THE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH
COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE COMPANY HEREBY EXPRESSLY AND
IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF ILLINOIS
AND OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS
FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE COMPANY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE
PREPAID, TO THE ADDRESS OF THE COMPANY SPECIFIED IN, OR PURSUANT TO, THE CREDIT
AGREEMENT, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE
COMPANY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM
THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH OF THE COMPANY, THE AGENT AND (BY ACCEPTING THE BENEFITS HEREOF) EACH
BANK HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND
ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE
FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY
FINANCING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND
AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
9
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered as
of the day and year first written above.
U S LIQUIDS INC.
Address:
By:
411 N. Sam Houston Pkwy E. Name Printed:___________________
Suite 400 Title:
Houston, TX 77060
Attention: Earl J. Blackwell
Facsimile: 281-272-4545
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, as Agent
Address:
231 South LaSalle Street By:
Chicago, IL 60697 Name Printed:________________
Attention: Steve Arentsen Title:
Facsimile: 312-765-2193
10
<PAGE>
SCHEDULE I
TO PLEDGE AGREEMENT
STOCK
<TABLE>
<CAPTION>
PLEDGED SHARES
NO. OF AS % OF TOTAL TOTAL SHARES
CERTIFICATE PLEDGED SHARES ISSUED OF ISSUER
ISSUER NO. SHARES AND OUTSTANDING OUTSTANDING
- ------------------------ ----------- ------- --------------- ------------
<S> <C> <C> <C> <C>
Pheonix Fats & Oils, Inc. 2 1,000 100% 1,000
MBO Inc. 1 1,000 100% 1,000
Mesa Processing, Inc. 2 1,000 100% 1,000
T & T Grease Service, Inc. 3 1,000 100% 1,000
Re-Claim Environmental, Inc. B16 250 100% 250
Re-Claim Environmental, Inc. 15 750 100% 250
American Wastewater Inc. 9 19,648 100% 19,648
U S Liquids LP Holding Co. 4 1,000 100% 1,000
</TABLE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the
13th day of February, 1998 (the "Commencement Date"), by and between U S
LIQUIDS INC., a Delaware corporation (the "Corporation"), and W. GREGORY ORR
(the "Employee").
WITNESSETH:
WHEREAS, the Corporation desires to employ the Employee upon the terms
and conditions herein set forth; and
WHEREAS, the Employee desires to be so employed upon such terms and
conditions;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties agree as follows:
1. EMPLOYMENT. The Corporation shall employ the Employee, and the Employee
shall serve, as President and Chief Operating Officer of the Corporation on the
terms set forth herein.
2. DUTIES AND RESPONSIBILITIES.
2.1 AS PRESIDENT AND CHIEF OPERATING OFFICER. As President and Chief
Operating Officer, the Employee shall act in a general executive capacity and
assist the Chief Executive Officer in the administration and operation of the
Corporation's business and in the general supervision of its policies and
affairs. The Employee shall report directly to the Chief Executive Officer of
the Corporation and shall perform such duties as are commensurate with his
positions as President and Chief Operating Officer. The Employee's place of
employment shall be in the Houston, Texas metropolitan area, subject to travel
necessary for the performance of his duties hereunder. The Corporation shall
provide to the Employee adequate office facilities and staff commensurate with
his positions to enable him to perform his duties hereunder.
2.2 EXTENT OF SERVICES. The Employee shall devote such of his time
as is necessary to fully and properly carry out his duties and responsibilities.
However, this Agreement shall not prohibit the Employee from engaging in other
activities, whether for family, recreation, investment, civic, charity, or other
purposes, so long as those activities do not unduly interfere with the ability
of the Employee to carry out his duties and responsibilities hereunder and so
long as they are not inconsistent or competitive with the interests of the
Corporation.
2.3 DUTY OF LOYALTY. The Employee recognizes that he owes a duty of
loyalty and good faith to the Corporation (including any subsidiary thereof) and
agrees that during the term of this
<PAGE>
Agreement he will not take advantage of any corporate opportunity of the
Corporation, engage in self-dealing with the Corporation, sell or disclose any
confidential or proprietary information of the Corporation, or have or obtain
any material economic interest in any entity or arrangement which is competitive
with the business of the Corporation or engage in any activities which are
competitive with the business of the Corporation, without first disclosing all
facts and details relating thereto to the Board of Directors and obtaining the
approval of the Board of Directors.
3. BASE SALARY AND INCENTIVE COMPENSATION.
3.1 The Corporation shall pay to the Employee for the services to be
rendered by the Employee hereunder a base salary (the "Base Salary") at the rate
of $150,000 per year, payable in equal installments (subject to withholding tax)
in accordance with the Corporation's regular payroll schedule, which as of the
date of this Agreement is on the 15th day and the last day of each calendar
month. Such Base Salary as in effect from time to time may be increased annually
or more often as determined by the Board of Directors in its sole discretion.
However, the Base Salary payable to the Employee from time to time hereunder
shall not be decreased.
3.2 Each calendar year during the term of this Agreement, the
Corporation will adopt an incentive compensation plan for certain of its
executive employees, including the Employee. This incentive compensation plan
will provide for incentive bonus compensation ("Incentive Compensation") to be
paid to the Employee and the other participants in that plan based upon the
performance of the Employee and the other participants in the plan and further
based upon the results of the Corporation's business and operations.
4. BENEFITS.
4.1 EXECUTIVE BENEFITS GENERALLY. The Employee shall be entitled to
participate in and receive benefits from any insurance, medical, dental, health
and accident, hospitalization, disability, stock purchase, defined benefit,
defined contribution, or other employee benefit plan of the Corporation which
may be in effect at any time during the course of his employment with the
Corporation and which is generally available to executives of the Corporation
(these being referred to as the Employee's "Executive Benefits").
4.2 AUTOMOBILE. If and at such time that it becomes the policy of
the Corporation to provide automobiles or an automobile allowance to the
Corporation's senior executives for their use in connection with the
Corporation's business, the Corporation shall provide such an automobile or an
automobile allowance to the Employee in accordance with such policy.
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<PAGE>
4.3 REIMBURSEMENT OF EXPENSES. The Corporation shall reimburse the
Employee for all reasonable and ordinary expenses incurred by him on behalf of
the Corporation in the course of his duties hereunder upon the presentation by
the Employee of appropriate documentation substantiating the amount of and
purpose for which such expenses were incurred.
4.4 VACATIONS. The Employee shall be entitled to four (4) weeks of
paid vacation in each calendar year (to be prorated for any calendar year during
which the Employee is employed by the Corporation for less than the full
calendar year), which vacation shall be taken at times consistent with the
performance by the Employee of his obligations hereunder. Any vacation time not
fully used by the Employee in any one (1) calendar year may be carried over for
one (1) additional calendar year. If any such vacation time is carried over to a
subsequent calendar year, then any vacation time taken in the subsequent
calendar year shall be applied first against the carryover vacation time from
the prior calendar year.
5. DISABILITY OR DEATH. In the event the Employee incurs a disability,
which for purposes of this Agreement shall mean any mental or physical illness,
injury, or condition which results in the Employee being unable to fulfill his
duties under this Agreement on a regular basis, then the Corporation shall
nevertheless continue to provide to the Employee during such period or periods
of disability all compensation and benefits under this Agreement, except that,
during any one (1) calendar year the Corporation shall not be required to pay
the Base Salary or Incentive Compensation of the Employee for periods of
disability in excess of 180 days in total.
6. NONCOMPETITION DURING EMPLOYMENT. During the term of his employment by
the Corporation, the Employee shall not, directly or indirectly, engage in any
business competitive with that of the Corporation; provided, however, that the
foregoing shall not be deemed to prevent the Employee from investing in
securities of any company having a class of securities which is publicly traded,
so long as such investment holdings do not, in the aggregate, constitute more
than 5% of any class of such company's securities.
7. TERM OF EMPLOYMENT AND RIGHTS UPON TERMINATION OF EMPLOYMENT.
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<PAGE>
7.1 TERM AND SCHEDULED TERMINATION DATE. The term of Employee's
employment hereunder shall begin on the Commencement Date and shall continue for
a term of five (5) years from the Commencement Date (this date of termination of
his employment being referred to as the "Scheduled Termination Date"). However,
as of each anniversary date of the Commencement Date, the Scheduled Termination
Date shall automatically be extended for a successive one-year period of time,
unless more than ninety (90) days prior to the occurrence of such anniversary
date, either party gives notice to the other that such Scheduled Termination
Date shall not thereafter be so extended. If any such notice is given, then the
Scheduled Termination Date hereof shall not be automatically extended upon the
future occurrence of any such anniversary date. Following the Scheduled
Termination Date, the Employee shall not be entitled to earn any further
compensation or benefits under this Agreement.
7.2 TERMINATION BY THE CORPORATION WITHOUT CAUSE.
(a) The Corporation may terminate this Agreement at any time,
without cause and for any reason, upon notice to the Employee setting
forth the date of termination (this date of termination and any other date
of termination prior to the Scheduled Termination Date is referred to as
the "Early Termination Date"). In this event, the Employee shall be
entitled to continue to receive, during the period of time between the
Early Termination Date and the Scheduled Termination Date, the same Base
Salary which the Employee was receiving at the time of such Early
Termination Date (in the manner and as described in Section 3.1) and all
Executive Benefits which the Employee was receiving or entitled to receive
as of such Early Termination Date (in the manner and as described in
Section 4.1). Further, all outstanding stock options which shall have been
granted to the Employee shall immediately become exercisable (if not
already exercisable in full) and shall continue in full force and effect.
(b) In the event the Employee suffers from a disability (as defined
in Section 5) for a period of 180 business days out of any 360 consecutive
business day period, then the Corporation may at any time no later than
thirty (30) days following the end of said 360-day period terminate the
employment of the Employee without cause, by notice to the Employee
setting forth the effective Early Termination Date. However, the
Corporation shall not have the right to terminate the employment of the
Employee hereunder if, at the time the Corporation gives notice of
termination to the Employee, the Employee has then again begun to render
services for the Corporation as required hereunder. Following an Early
Termination Date because of disability, the Employee shall be entitled to
receive his Base Salary then in effect for a period of one (1) year
following his Early Termination Date
- 4 -
<PAGE>
and shall be entitled to retain all of his Executive Benefits for a period
of one (1) year following his Early Termination Date. Further, the
Employee's stock options, to the extent not fully vested, would continue
to vest during the one-year period following his Early Termination Date.
(c) This Agreement shall terminate immediately upon the Employee's
death. In addition to any other compensation or benefits payable or
accrued to the benefit of the Employee as of the date of his death, the
Corporation shall pay to the Employee's executor or legal representative
an amount in cash equal to one (1) times the Employee's Base Salary then
in effect at the time of his death.
7.3 BY THE CORPORATION WITH CAUSE. The Corporation may terminate
this Agreement at any time for cause, by notice to the Employee setting forth
the Early Termination Date. The term "cause" shall mean (a) a willful and
recurring refusal of the Employee to perform his duties, responsibilities or
obligations under this Agreement, which refusal continues for at least thirty
(30) days after notice thereof is given to the Employee by the Corporation
setting forth the facts upon which the notice is based, (b) the Employee's
conviction of a felony involving moral turpitude, or (c) the Employee's fraud
regarding any material matter with respect to the business or operations of the
Corporation. Following the occurrence of the Early Termination Date of the
Employee for cause, then the Employee shall not be entitled to earn any further
compensation or benefits under this Agreement.
7.4 BY EMPLOYEE WITHOUT CAUSE. The Employee may terminate this
Agreement at any time, without cause and for any reason, upon notice to the
Corporation setting forth the Employee's Early Termination Date. In such event,
the Employee shall not be entitled to earn any further compensation or benefits
under this Agreement.
7.5 BY EMPLOYEE WITH CAUSE. The Employee may terminate this
Agreement at any time with cause upon notice to the Corporation setting forth
the Early Termination Date. The term "cause" shall mean a breach of this
Agreement in any material way by the Corporation, which breach is not cured
within thirty (30) days after notice of such breach to the Corporation by the
Employee setting forth the facts upon which the notice is based. In the event of
such Early Termination Date, then from the Early Termination Date until the
Scheduled Termination Date, the Employee shall be entitled to continue to
receive, the same Base Salary which the Employee was receiving at the time of
such Early Termination Date (in the manner and as described in Section 3.1) and
all Executive Benefits which the Employee was receiving or entitled to receive
as of such Early Termination Date (in the manner and as described in Section
4.1). Further, all outstanding
- 5 -
<PAGE>
stock options which shall have been granted to the Employee shall become
immediately exercisable (if not already exercisable in full) and shall continue
in full force and effect.
7.6 COMPENSATION, REIMBURSEMENTS, INDEMNIFICATION, AND BENEFITS
PAYABLE OR ACCRUED AS OF TERMINATION DATE. Upon the occurrence of any
Termination Date, whether a Scheduled Termination Date or an Early Termination
Date, and regardless of the reason for termination, the Employee shall be
entitled to receive all compensation, reimbursements, and benefits hereunder
which were either payable to the Employee, or which had accrued to the benefit
of the Employee or which had been earned by the Employee as of such Termination
Date. Any such compensation, reimbursements, or benefits shall be payable or
provided to the Employee no less quickly than they would have been payable or
provided to the Employee had the Termination Date not occurred. For these
purposes, the Employee's compensation shall include a pro rata portion of the
Incentive Compensation payable to the Employee under Section 3.2. Further, the
Employee shall be entitled to receive any indemnification payments that may have
accrued but have not been paid or that may thereafter become payable to the
Employee pursuant to the provisions of the Corporation's Certificate of
Incorporation, Bylaws or similar policy, plan or agreement relating to the
indemnification of directors or officers of the Corporation.
8. CHANGE OF CONTROL.
8.1 This Section 8 shall become effective, but not operative,
immediately upon the Commencement Date and shall remain in effect so long as the
Employee remains employed hereunder by the Corporation, but shall not be
operative unless and until there has been a Change in Control, as defined in
Section 8.4 hereof. Upon such a Change in Control, this Section 8 shall become
operative immediately.
8.2 If a Change in Control occurs (i) while the Employee is employed
by the Corporation hereunder, or (ii) subsequent to the Termination Date of the
Employee's employment hereunder other than by the Corporation for cause, or
death or disability, and prior to the later of the first anniversary of such
Termination Date or the third anniversary of the Commencement Date, or (iii)
within 180 days of the Scheduled Termination Date, the Employee may, in his sole
discretion, within twelve (12) months after the date of the Change in Control,
give notice to the Corporation that he intends to elect to exercise his rights
under this Section 8 (the "Notice of Intention"). Within thirty (30) days after
the Corporation's receipt of the Notice of Intention, the Corporation shall
provide written notice to the Employee setting forth the Corporation's
computation of the amount that would be payable pursuant to Section 8.3,
accompanied by the written opinion of the Corporation's independent certified
public accountants confirming
- 6 -
<PAGE>
the Corporation's computation. If the Employee takes exception to the
Corporation's computation of such amount, the Employee may (but shall not be
prejudiced in this right to later contest the amount actually paid by failure to
do so) give a further written notice to the Corporation setting forth in
reasonable detail the Employee's exceptions to the Corporation's computation,
accompanied by the written opinion of the Employee's tax advisor confirming the
basis for such exceptions. Exercise by the Employee of his rights pursuant to
this Section 8 shall only be made by giving further notice to the Corporation
(the "Notice of Exercise") within six (6) months from the date of the Notice of
Intention.
8.3 If the Employee gives the Notice of Exercise described in
Section 8.2 to the Corporation, the Termination Date of his employment hereunder
shall then occur; all outstanding stock options which are not then exercisable
shall immediately become exercisable in full; and the Corporation shall pay to
the Employee a lump sum amount equal to $1.00 less than three (3) times the
Employee's "base amount" (as defined by Section 280(G), Part IX, Subchapter B,
Chapter 1 of the Internal Revenue Code of 1986, as amended). The Corporation
shall, within ten (10) business days after the date of the Notice of Exercise,
deliver to the Employee its cashier's check in the amount payable pursuant to
this Section 8.3, and payment of such amount shall terminate the Employee's
rights to receive any and all other compensation, reimbursements,
indemnification, or benefits under this Agreement, other than those which are
payable to or have accrued to the Employee as described in Section 7.6.
8.4 For the purposes of this Agreement, a Change in Control shall
mean (i) a reportable change in control under the proxy rules of the Securities
and Exchange Commission, including the acquisition of a 30% beneficial voting
interest in the Corporation (other than such acquisition by Employee or an
affiliate of Employee), or (ii) a change in any calendar year of such number of
directors as constitutes a majority of the board of directors of the
Corporation, unless the election, or the nomination for election by the
Corporation's shareholders, of each new director was approved by a vote of at
least two-thirds (2/3) of the directors then in office who were directors at the
beginning of the calendar year.
- 7 -
<PAGE>
90 POST-EMPLOYMENT ACTIVITIES.
9.1 For a period of two (2) years after the Employee's Termination
Date, except for a termination subsequent to a Change in Control of the
Corporation and further except for a termination by the Employee with cause,
then the Employee shall not, directly or indirectly, engage in any business
competitive with that of the Corporation; provided, however, that the foregoing
shall not be deemed to prevent the Employee from investing in securities which
is publicly traded, so long as such investment holdings do not, in the
aggregate, constitute more than 5% of any class of such company's securities.
9.2 The Employee acknowledges that he has been employed for his
special talents and that his leaving the employ of the Corporation would
seriously and adversely affect the business of the Corporation. In addition to
all remedies permitted by law or in equity and without limiting any injunctive
or other relief to which the Corporation may be entitled in respect of any
obligation of the Employee, the Corporation shall be entitled to injunctive
relief to enforce the provisions of Section 9.1 hereof; provided, that the
Corporation shall not be entitled to injunctive relief or any other relief with
respect to Section 9.1 hereof if at the time such relief is sought the
Corporation has been in default of any of its obligations to the Employee
pursuant to any of the terms of Sections 7.2, 7.5, or 7.6 hereof.
9.3 The Employee will not, during the period of two (2) years after
his Termination Date, except for a termination subsequent to a Change in Control
of the Corporation and further except for a termination by the Employee with
cause, either in the Employee's individual capacity or as agent for another,
hire or offer to hire or entice away any person who has been an officer,
employee, or agent of the Corporation at any time during the immediately
preceding year or in any other manner persuade or attempt to persuade any of
such persons to discontinue their relationship with the Corporation or any of
its subsidiaries nor divert or attempt to divert from the Corporation or any of
its subsidiaries any business whatsoever by influencing or attempting to
influence any customer or supplier of the Corporation or any of its subsidiaries
to diminish or discontinue its business with the Corporation or such subsidiary.
100 CONFIDENTIAL INFORMATION. The Employee shall not at any time during
the term of this Agreement or after the termination hereof directly or
indirectly divulge, furnish, use, publish or make accessible to any person or
entity any Confidential Information (as hereinafter defined). Any records of
Confidential Information prepared by the Employee or which come into Employee's
possession during this Agreement are and remain the property of the Corporation,
and upon termination of Employee's employment all such
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records and copies thereof shall be either left with or returned to the
Corporation. The term "Confidential Information" shall mean information
disclosed to the Employee or known, learned, created or observed by him as a
consequence of or through his employment by the Corporation, not generally known
in the relevant trade or industry, about the Corporation's business activities,
products, customers, suppliers, services and procedures, including, but not
limited to, information concerning costs, product performance, customer
requirements, advertising, sales promotion, publicity, sales data, research,
finances, accounting, methods, procedures, trade secrets, business plans, client
or supplier lists and records, potential client or supplier lists, and client or
supplier billing. Notwithstanding the foregoing, "Confidential Information"
shall not include information publicly disclosed by the Corporation or known by
the Employee other than because of his employment with the Corporation.
110 GENERAL.
11.1 ASSIGNMENT. This Agreement shall not be assignable.
11.2 NOTICES. All notices under this Agreement shall be in writing
and shall be deemed to have been given at the time when mailed by registered or
certified mail, addressed to the address below state of the party to which
notice is given, or to such changed address as such party may have fixed by
notice:
TO THE CORPORATION: U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, Texas 77060-3545
ATTN: Michael P. Lawlor
TO THE EMPLOYEE: W. Gregory Orr
100 Saddlebrook Lane
Houston, Texas 77375
11.3 ENTIRE AGREEMENT. This instrument contains and constitutes the
entire agreement between and among the parties herein and supersedes all prior
agreements and understandings between the parties hereto relating to the subject
matter hereof.
11.4 APPLICABLE LAW. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of Delaware.
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11.5 INVALIDITY. If any provision contained in this Agreement shall
for any reason be held to be invalid, illegal, void or unenforceable in any
respect, such provision shall be deemed modified so as to constitute a provision
conforming as nearly as possible to such invalid, illegal, void or unenforceable
provision while still remaining valid and enforceable, and the remaining terms
or provisions contained herein shall not be affected thereby.
11.6 DISPUTE RESOLUTION. Any dispute arising in any way out of this
Agreement and which cannot be resolved by good faith negotiations between the
parties within thirty (30) days after either party shall have notified the other
party in writing of its desire to arbitrate the dispute shall be submitted to
and settled through binding arbitration in accordance with the rules of the
American Arbitration Association as from time to time in effect. The arbitration
proceedings shall be conducted by a sole arbitrator who shall be an attorney
with not less than ten (10) years experience in commercial law. All disputes or
claims of the parties subject to arbitration shall be consolidated into a single
arbitration proceeding. The arbitration proceedings shall be conducted in
Houston, Texas. The award or determination of the arbitrator shall be final and
binding upon all parties and shall be subject to enforcement in any court of
competent jurisdiction. The arbitrator shall have the authority to award costs
and expenses of arbitration to either party as the arbitrator sees fit.
11.7 BINDING EFFECT. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by the parties hereto and their respective
heirs, executors, personal representatives and successors.
11.8 APPROVALS AND CONSENTS MUST BE IN WRITING. Whenever this
Agreement calls for the consent, vote, or approval of any party, such consent or
approval shall be effective only if it is in writing and signed by or on behalf
of the party who is granting such consent or approval unless the circumstances
clearly indicate that a writing is not required to evidence such consent, vote,
or approval.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
U S LIQUIDS INC.
By: /S/ MICHAEL P. LAWLOR
Michael P. Lawlor, Chief
Executive Officer
By: /S/ W. GREGORY ORR
W. Gregory Orr
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EXHIBIT 10.16
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the 13th
day of February, 1998 (the "Commencement Date"), by and between U S LIQUIDS
INC., a Delaware corporation (the "Corporation"), and EARL J.
BLACKWELL (the "Employee").
WITNESSETH:
WHEREAS, the Corporation desires to employ the Employee upon the terms
and conditions herein set forth; and
WHEREAS, the Employee desires to be so employed upon such terms and
conditions;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties agree as follows:
1. EMPLOYMENT. The Corporation shall employ the Employee, and the Employee
shall serve, as Senior Vice President and Chief Financial Officer of the
Corporation on the terms set forth herein.
2. DUTIES AND RESPONSIBILITIES.
2.1 AS SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER. As Senior
Vice President and Chief Financial Officer, the Employee shall have overall
responsibility for management of the Corporation's financial affairs. The
Employee shall report directly to the Chief Executive Officer of the Corporation
and shall perform such duties as are commensurate with his positions as Senior
Vice President and Chief Financial Officer. The Employee's place of employment
shall be in the Houston, Texas metropolitan area, subject to travel necessary
for the performance of his duties hereunder. The Corporation shall provide to
the Employee adequate office facilities and staff commensurate with his
positions to enable him to perform his duties hereunder.
2.2 EXTENT OF SERVICES. The Employee shall devote such of his time
as is necessary to fully and properly carry out his duties and responsibilities.
However, this Agreement shall not prohibit the Employee from engaging in other
activities, whether for family, recreation, investment, civic, charity, or other
purposes, so long as those activities do not unduly interfere with the ability
of the Employee to carry out his duties and responsibilities hereunder and so
long as they are not inconsistent or competitive with the interests of the
Corporation.
2.3 DUTY OF LOYALTY. The Employee recognizes that he owes a duty of
loyalty and good faith to the Corporation (including any subsidiary thereof) and
agrees that during the term of this Agreement he will not take advantage of any
corporate opportunity
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of the Corporation, engage in self-dealing with the Corporation, sell or
disclose any confidential or proprietary information of the Corporation, or have
or obtain any material economic interest in any entity or arrangement which is
competitive with the business of the Corporation or engage in any activities
which are competitive with the business of the Corporation, without first
disclosing all facts and details relating thereto to the Board of Directors and
obtaining the approval of the Board of Directors.
3. BASE SALARY AND INCENTIVE COMPENSATION.
3.1 The Corporation shall pay to the Employee for the services to be
rendered by the Employee hereunder a base salary (the "Base Salary") at the rate
of $120,000 per year, payable in equal installments (subject to withholding tax)
in accordance with the Corporation's regular payroll schedule, which as of the
date of this Agreement is on the 15th day and the last day of each calendar
month. Such Base Salary as in effect from time to time may be increased annually
or more often as determined by the Board of Directors in its sole discretion.
However, the Base Salary payable to the Employee from time to time hereunder
shall not be decreased.
3.2 Each calendar year during the term of this Agreement, the
Corporation will adopt an incentive compensation plan for certain of its
executive employees, including the Employee. This incentive compensation plan
will provide for incentive bonus compensation ("Incentive Compensation") to be
paid to the Employee and the other participants in that plan based upon the
performance of the Employee and the other participants in the plan and further
based upon the results of the Corporation's business and operations.
4. BENEFITS.
4.1 EXECUTIVE BENEFITS GENERALLY. The Employee shall be entitled to
participate in and receive benefits from any insurance, medical, dental, health
and accident, hospitalization, disability, stock purchase, defined benefit,
defined contribution, or other employee benefit plan of the Corporation which
may be in effect at any time during the course of his employment with the
Corporation and which is generally available to executives of the Corporation
(these being referred to as the Employee's "Executive Benefits").
4.2 AUTOMOBILE. If and at such time that it becomes the policy of
the Corporation to provide automobiles or an automobile allowance to the
Corporation's senior executives for their use in connection with the
Corporation's business, the Corporation shall provide such an automobile or an
automobile allowance to the Employee in accordance with such policy.
4.3 REIMBURSEMENT OF EXPENSES. The Corporation shall reimburse the
Employee for all reasonable and ordinary expenses incurred by him on behalf of
the Corporation in the course of his duties hereunder upon the presentation by
the Employee of appropriate documentation substantiating the amount of and
purpose for which such expenses were incurred.
4.4 VACATIONS. The Employee shall be entitled to four (4) weeks of
paid vacation in each calendar year (to be prorated for any calendar year during
which the Employee is employed by the Corporation for less than the full
calendar year), which vacation shall be taken at times consistent with the
performance by the Employee of his obligations hereunder. Any vacation time not
fully used by the Employee in any one (1) calendar year may be carried over for
one (1) additional calendar year. If any such vacation time is carried over to a
subsequent calendar year, then any vacation time taken in the subsequent
calendar year shall be applied first against the carryover vacation time from
the prior calendar year.
5. DISABILITY OR DEATH. In the event the Employee incurs a disability,
which for purposes of this Agreement shall mean any mental or physical illness,
injury, or condition which results in the Employee being unable to fulfill his
duties under this Agreement on a regular basis, then the Corporation shall
nevertheless continue to provide to the Employee during such period or periods
of disability all compensation and benefits under this Agreement, except that,
during any one (1) calendar year the Corporation shall not be required to pay
the Base Salary or Incentive Compensation of the Employee for periods of
disability in excess of 180 days in total.
6. NONCOMPETITION DURING EMPLOYMENT. During the term of his employment by
the Corporation, the Employee shall not, directly or indirectly, engage in any
business competitive with that of the Corporation; provided, however, that the
foregoing shall not be deemed to prevent the Employee from investing in
securities of any company having a class of securities which is publicly traded,
so long as such investment holdings do not, in the aggregate, constitute more
than 5% of any class of such company's securities.
7. TERM OF EMPLOYMENT AND RIGHTS UPON TERMINATION OF EMPLOYMENT.
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<PAGE>
7.1 TERM AND SCHEDULED TERMINATION DATE. The term of Employee's
employment hereunder shall begin on the Commencement Date and shall continue for
a term of five (5) years from the Commencement Date (this date of termination of
his employment being referred to as the "Scheduled Termination Date"). However,
as of each anniversary date of the Commencement Date, the Scheduled Termination
Date shall automatically be extended for a successive one-year period of time,
unless more than ninety (90) days prior to the occurrence of such anniversary
date, either party gives notice to the other that such Scheduled Termination
Date shall not thereafter be so extended. If any such notice is given, then the
Scheduled Termination Date hereof shall not be automatically extended upon the
future occurrence of any such anniversary date. Following the Scheduled
Termination Date, the Employee shall not be entitled to earn any further
compensation or benefits under this Agreement.
7.2 TERMINATION BY THE CORPORATION WITHOUT CAUSE.
(a) The Corporation may terminate this Agreement at any time,
without cause and for any reason, upon notice to the Employee setting
forth the date of termination (this date of termination and any other date
of termination prior to the Scheduled Termination Date is referred to as
the "Early Termination Date"). In this event, the Employee shall be
entitled to continue to receive, during the period of time between the
Early Termination Date and the Scheduled Termination Date, the same Base
Salary which the Employee was receiving at the time of such Early
Termination Date (in the manner and as described in Section 3.1) and all
Executive Benefits which the Employee was receiving or entitled to receive
as of such Early Termination Date (in the manner and as described in
Section 4.1). Further, all outstanding stock options which shall have been
granted to the Employee shall immediately become exercisable (if not
already exercisable in full) and shall continue in full force and effect.
(b) In the event the Employee suffers from a disability (as defined
in Section 5) for a period of 180 business days out of any 360 consecutive
business day period, then the Corporation may at any time no later than
thirty (30) days following the end of said 360-day period terminate the
employment of the Employee without cause, by notice to the Employee
setting forth the effective Early Termination Date. However, the
Corporation shall not have the right to terminate the employment of the
Employee hereunder if, at the time the Corporation gives notice of
termination to the Employee, the Employee has then again begun to render
services for the Corporation as required hereunder. Following an Early
Termination Date because of disability, the Employee shall be entitled to
receive his Base Salary then in effect for a period of one (1) year
following his Early Termination Date
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<PAGE>
and shall be entitled to retain all of his Executive Benefits for a period
of one (1) year following his Early Termination Date. Further, the
Employee's stock options, to the extent not fully vested, would continue
to vest during the one-year period following his Early Termination Date.
(c) This Agreement shall terminate immediately upon the Employee's
death. In addition to any other compensation or benefits payable or
accrued to the benefit of the Employee as of the date of his death, the
Corporation shall pay to the Employee's executor or legal representative
an amount in cash equal to one (1) times the Employee's Base Salary then
in effect at the time of his death.
7.3 BY THE CORPORATION WITH CAUSE. The Corporation may terminate
this Agreement at any time for cause, by notice to the Employee setting forth
the Early Termination Date. The term "cause" shall mean (a) a willful and
recurring refusal of the Employee to perform his duties, responsibilities or
obligations under this Agreement, which refusal continues for at least thirty
(30) days after notice thereof is given to the Employee by the Corporation
setting forth the facts upon which the notice is based, (b) the Employee's
conviction of a felony involving moral turpitude, or (c) the Employee's fraud
regarding any material matter with respect to the business or operations of the
Corporation. Following the occurrence of the Early Termination Date of the
Employee for cause, then the Employee shall not be entitled to earn any further
compensation or benefits under this Agreement.
7.4 BY EMPLOYEE WITHOUT CAUSE. The Employee may terminate this
Agreement at any time, without cause and for any reason, upon notice to the
Corporation setting forth the Employee's Early Termination Date. In such event,
the Employee shall not be entitled to earn any further compensation or benefits
under this Agreement.
7.5 BY EMPLOYEE WITH CAUSE. The Employee may terminate this
Agreement at any time with cause upon notice to the Corporation setting forth
the Early Termination Date. The term "cause" shall mean a breach of this
Agreement in any material way by the Corporation, which breach is not cured
within thirty (30) days after notice of such breach to the Corporation by the
Employee setting forth the facts upon which the notice is based. In the event of
such Early Termination Date, then from the Early Termination Date until the
Scheduled Termination Date, the Employee shall be entitled to continue to
receive, the same Base Salary which the Employee was receiving at the time of
such Early Termination Date (in the manner and as described in Section 3.1) and
all Executive Benefits which the Employee was receiving or entitled to receive
as of such Early Termination Date (in the manner and as described in Section
4.1). Further, all outstanding
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stock options which shall have been granted to the Employee shall become
immediately exercisable (if not already exercisable in full) and shall continue
in full force and effect.
7.6 COMPENSATION, REIMBURSEMENTS, INDEMNIFICATION, AND BENEFITS
PAYABLE OR ACCRUED AS OF TERMINATION DATE. Upon the occurrence of any
Termination Date, whether a Scheduled Termination Date or an Early Termination
Date, and regardless of the reason for termination, the Employee shall be
entitled to receive all compensation, reimbursements, and benefits hereunder
which were either payable to the Employee, or which had accrued to the benefit
of the Employee or which had been earned by the Employee as of such Termination
Date. Any such compensation, reimbursements, or benefits shall be payable or
provided to the Employee no less quickly than they would have been payable or
provided to the Employee had the Termination Date not occurred. For these
purposes, the Employee's compensation shall include a pro rata portion of the
Incentive Compensation payable to the Employee under Section 3.2. Further, the
Employee shall be entitled to receive any indemnification payments that may have
accrued but have not been paid or that may thereafter become payable to the
Employee pursuant to the provisions of the Corporation's Certificate of
Incorporation, Bylaws or similar policy, plan or agreement relating to the
indemnification of directors or officers of the Corporation.
8. CHANGE OF CONTROL.
8.1 This Section 8 shall become effective, but not operative,
immediately upon the Commencement Date and shall remain in effect so long as the
Employee remains employed hereunder by the Corporation, but shall not be
operative unless and until there has been a Change in Control, as defined in
Section 8.4 hereof. Upon such a Change in Control, this Section 8 shall become
operative immediately.
8.2 If a Change in Control occurs (i) while the Employee is employed
by the Corporation hereunder, or (ii) subsequent to the Termination Date of the
Employee's employment hereunder other than by the Corporation for cause, or
death or disability, and prior to the later of the first anniversary of such
Termination Date or the third anniversary of the Commencement Date, or (iii)
within 180 days of the Scheduled Termination Date, the Employee may, in his sole
discretion, within twelve (12) months after the date of the Change in Control,
give notice to the Corporation that he intends to elect to exercise his rights
under this Section 8 (the "Notice of Intention"). Within thirty (30) days after
the Corporation's receipt of the Notice of Intention, the Corporation shall
provide written notice to the Employee setting forth the Corporation's
computation of the amount that would be payable pursuant to Section 8.3,
accompanied by the written opinion of the Corporation's independent certified
public accountants confirming
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<PAGE>
the Corporation's computation. If the Employee takes exception to the
Corporation's computation of such amount, the Employee may (but shall not be
prejudiced in this right to later contest the amount actually paid by failure to
do so) give a further written notice to the Corporation setting forth in
reasonable detail the Employee's exceptions to the Corporation's computation,
accompanied by the written opinion of the Employee's tax advisor confirming the
basis for such exceptions. Exercise by the Employee of his rights pursuant to
this Section 8 shall only be made by giving further notice to the Corporation
(the "Notice of Exercise") within six (6) months from the date of the Notice of
Intention.
8.3 If the Employee gives the Notice of Exercise described in
Section 8.2 to the Corporation, the Termination Date of his employment hereunder
shall then occur; all outstanding stock options which are not then exercisable
shall immediately become exercisable in full; and the Corporation shall pay to
the Employee a lump sum amount equal to $1.00 less than three (3) times the
Employee's "base amount" (as defined by Section 280(G), Part IX, Subchapter B,
Chapter 1 of the Internal Revenue Code of 1986, as amended). The Corporation
shall, within ten (10) business days after the date of the Notice of Exercise,
deliver to the Employee its cashier's check in the amount payable pursuant to
this Section 8.3, and payment of such amount shall terminate the Employee's
rights to receive any and all other compensation, reimbursements,
indemnification, or benefits under this Agreement, other than those which are
payable to or have accrued to the Employee as described in Section 7.6.
8.4 For the purposes of this Agreement, a Change in Control shall
mean (i) a reportable change in control under the proxy rules of the Securities
and Exchange Commission, including the acquisition of a 30% beneficial voting
interest in the Corporation (other than such acquisition by Employee or an
affiliate of Employee), or (ii) a change in any calendar year of such number of
directors as constitutes a majority of the board of directors of the
Corporation, unless the election, or the nomination for election by the
Corporation's shareholders, of each new director was approved by a vote of at
least two-thirds (2/3) of the directors then in office who were directors at the
beginning of the calendar year.
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<PAGE>
90 POST-EMPLOYMENT ACTIVITIES.
9.1 For a period of two (2) years after the Employee's Termination
Date, except for a termination subsequent to a Change in Control of the
Corporation and further except for a termination by the Employee with cause,
then the Employee shall not, directly or indirectly, engage in any business
competitive with that of the Corporation; provided, however, that the foregoing
shall not be deemed to prevent the Employee from investing in securities which
is publicly traded, so long as such investment holdings do not, in the
aggregate, constitute more than 5% of any class of such company's securities.
9.2 The Employee acknowledges that he has been employed for his
special talents and that his leaving the employ of the Corporation would
seriously and adversely affect the business of the Corporation. In addition to
all remedies permitted by law or in equity and without limiting any injunctive
or other relief to which the Corporation may be entitled in respect of any
obligation of the Employee, the Corporation shall be entitled to injunctive
relief to enforce the provisions of Section 9.1 hereof; provided, that the
Corporation shall not be entitled to injunctive relief or any other relief with
respect to Section 9.1 hereof if at the time such relief is sought the
Corporation has been in default of any of its obligations to the Employee
pursuant to any of the terms of Sections 7.2, 7.5, or 7.6 hereof.
9.3 The Employee will not, during the period of two (2) years after
his Termination Date, except for a termination subsequent to a Change in Control
of the Corporation and further except for a termination by the Employee with
cause, either in the Employee's individual capacity or as agent for another,
hire or offer to hire or entice away any person who has been an officer,
employee, or agent of the Corporation at any time during the immediately
preceding year or in any other manner persuade or attempt to persuade any of
such persons to discontinue their relationship with the Corporation or any of
its subsidiaries nor divert or attempt to divert from the Corporation or any of
its subsidiaries any business whatsoever by influencing or attempting to
influence any customer or supplier of the Corporation or any of its subsidiaries
to diminish or discontinue its business with the Corporation or such subsidiary.
100 CONFIDENTIAL INFORMATION. The Employee shall not at any time during
the term of this Agreement or after the termination hereof directly or
indirectly divulge, furnish, use, publish or make accessible to any person or
entity any Confidential Information (as hereinafter defined). Any records of
Confidential Information prepared by the Employee or which come into Employee's
possession during this Agreement are and remain the property of the Corporation,
and upon termination of Employee's employment all such
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records and copies thereof shall be either left with or returned to the
Corporation. The term "Confidential Information" shall mean information
disclosed to the Employee or known, learned, created or observed by him as a
consequence of or through his employment by the Corporation, not generally known
in the relevant trade or industry, about the Corporation's business activities,
products, customers, suppliers, services and procedures, including, but not
limited to, information concerning costs, product performance, customer
requirements, advertising, sales promotion, publicity, sales data, research,
finances, accounting, methods, procedures, trade secrets, business plans, client
or supplier lists and records, potential client or supplier lists, and client or
supplier billing. Notwithstanding the foregoing, "Confidential Information"
shall not include information publicly disclosed by the Corporation or known by
the Employee other than because of his employment with the Corporation.
110 GENERAL.
11.1 ASSIGNMENT. This Agreement shall not be assignable.
11.2 NOTICES. All notices under this Agreement shall be in writing
and shall be deemed to have been given at the time when mailed by registered or
certified mail, addressed to the address below state of the party to which
notice is given, or to such changed address as such party may have fixed by
notice:
TO THE CORPORATION: U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, Texas 77060-3545
ATTN: Michael P. Lawlor
TO THE EMPLOYEE: Earl J. Blackwell
22 Southgate
The Woodlands, Texas 77380
11.3 ENTIRE AGREEMENT. This instrument contains and constitutes the
entire agreement between and among the parties herein and supersedes all prior
agreements and understandings between the parties hereto relating to the subject
matter hereof.
11.4 APPLICABLE LAW. This Agreement shall be construed, enforced and
governed in accordance with the laws of the State of Delaware.
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11.5 INVALIDITY. If any provision contained in this Agreement shall
for any reason be held to be invalid, illegal, void or unenforceable in any
respect, such provision shall be deemed modified so as to constitute a provision
conforming as nearly as possible to such invalid, illegal, void or unenforceable
provision while still remaining valid and enforceable, and the remaining terms
or provisions contained herein shall not be affected thereby.
<PAGE>
11.6 DISPUTE RESOLUTION. Any dispute arising in any way out of this
Agreement and which cannot be resolved by good faith negotiations between the
parties within thirty (30) days after either party shall have notified the other
party in writing of its desire to arbitrate the dispute shall be submitted to
and settled through binding arbitration in accordance with the rules of the
American Arbitration Association as from time to time in effect. The arbitration
proceedings shall be conducted by a sole arbitrator who shall be an attorney
with not less than ten (10) years experience in commercial law. All disputes or
claims of the parties subject to arbitration shall be consolidated into a single
arbitration proceeding. The arbitration proceedings shall be conducted in
Houston, Texas. The award or determination of the arbitrator shall be final and
binding upon all parties and shall be subject to enforcement in any court of
competent jurisdiction. The arbitrator shall have the authority to award costs
and expenses of arbitration to either party as the arbitrator sees fit.
11.7 BINDING EFFECT. This Agreement shall be binding upon, inure to
the benefit of and be enforceable by the parties hereto and their respective
heirs, executors, personal representatives and successors.
11.8 APPROVALS AND CONSENTS MUST BE IN WRITING. Whenever this
Agreement calls for the consent, vote, or approval of any party, such consent or
approval shall be effective only if it is in writing and signed by or on behalf
of the party who is granting such consent or approval unless the circumstances
clearly indicate that a writing is not required to evidence such consent, vote,
or approval.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first above written.
U S LIQUIDS INC.
By: /S/ MICHAEL P. LAWLOR
Michael P. Lawlor, Chief
Executive Officer
By: /S/ EARL J. BLACKWELL
Earl J. Blackwell
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EXHIBIT 10.17
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is executed and delivered
as of December 15, 1997, between U S LIQUIDS, a Delaware corporation ("Parent"),
Mesa Processing, Inc., a Texas corporation ("Buyer") and WASTE TECHNOLOGIES,
INC., a Texas corporation, its successors or assigns ("Seller"), and Kirk
Johnson, Norman Johnson, John Jetelina and Ron McMahan ("Stockholders").
P R E M I S E S:
WHEREAS, Seller owns certain assets used or held for use in connection
with the operation of a non-hazardous commercial waste, storage, treatment,
processing and disposal business operation known as Waste Technologies, Inc., in
the San Antonio, Texas area (the "Business");
WHEREAS, Seller desires to sell to Buyer all of the assets relating to the
Business described in more detail below and Buyer desires to purchase all of the
assets of the Business all on the terms and conditions described herein.
NOW, THEREFORE, in consideration of Ten Dollars ($10), the mutual promises
and covenants herein contained and other good and valuable consideration,
received to the full satisfaction of each of them, the parties hereby agree as
follows:
PURCHASE AND SALE PROVISIONS
ARTICLE 1. PURCHASE AND SALE OF PROPERTIES AND ASSETS
1.1 ASSETS. Subject to and in reliance upon the representations,
warranties and agreements herein set forth, and subject to the terms and
conditions herein contained, Seller agrees to grant, convey, sell, assign,
transfer and deliver to Buyer on the Closing Date (as hereinafter defined), and
Buyer agrees on the Closing Date to purchase, accept and assume, all properties,
assets, privileges, rights, interests and claims, real and personal, tangible
and intangible, of every type and description, wherever located, including its
business and goodwill (except for Excluded Assets, if any, as defined in Section
1.2), that are owned or leased by Seller and used or held for use in connection
with the Business or operations of the Business (collectively, the " Assets").
Without limiting the foregoing, the Assets shall include the following, except
to the extent that any of the following are included within the Excluded Assets:
(1) TANGIBLE PERSONAL PROPERTY. All equipment, inventory, vehicles,
furniture, fixtures, office equipment, materials and supplies, hardware, tools,
spare parts, and other tangible personal property of every kind and description
owned or leased by Seller as of the date of this Agreement and used or held for
use in connection with the business and operations of the Business, including
without limitation those which Buyer may designate and list and describe on
Schedule 1.1(a) attached hereto or which otherwise pertain to the Business
(collectively, the "Tangible Personal Property").
(2) REAL PROPERTY. All land (and appurtenances relating thereto)
described on Schedule 1.1(b) (subject to Seller's obtaining title to the San
Antonio property pursuant to its contract for deed, which shall be a condition
to Buyer's obligation to close), and all of Seller's right, title and interest
in and to the leaseholds (including deposits relating thereto), licenses,
rights-of-way and other interests of every kind and description relating
thereto, fixtures, buildings and improvements situated thereon, and owned or
leased by Seller as of the date hereof and used or held for use in connection
with the Business or operations of the
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Business, including without limitation those Buyer may designate and list and
described on Schedule 1.1(b) attached hereto, or which otherwise pertain to the
Business (collectively, the "Real Property").
(3) AGREEMENTS FOR SALE OF SERVICES. All of Seller's right, title
and interest in and to orders and agreements now existing for the sale of
advertising for cash, merchandise and/or services, except those which on the
Closing Date have already been filled or have expired.
(4) OTHER CONTRACTS. All of Seller's right, title and interest in
and to Contracts in connection with the Business or operations of the Business
which are for the benefit of the Business described on Schedule 1.1(d) attached
hereto ("Contracts"). Buyer acknowledges that some of the Contracts may require
the consent of a third party for assignment. Seller is under no duty to provide
such consents; provided, however, Seller shall use its reasonable efforts to
secure the consents listed on Schedule 1.1(d) hereto ("Consent Contracts"). If
Seller does not supply the required consents relating to the Consent Contracts
to Buyer on or before the Closing, then Buyer shall have the right to terminate
this Agreement and the parties shall have no further obligations hereunder;
provided, however, that Buyer shall remain obligated to comply with its
restoration and indemnification obligations set forth in Article 2, its document
delivery obligation set out in Article 2, and confidentiality obligations set
forth in Article 6, or waive such requirement and continue to Closing.
(5) TRADEMARKS, ETC. All of Seller's right, title and interest in
and to trademarks, trade names, service marks, franchises, patents, jingles,
slogans, logotypes and other intangible rights, owned or licensed and used or
held for use in connection with the business and operations of the Business,
including without limitation all right, title and interest in and to the marks
"Waste Technologies, Inc." ("Business Name"), "and any and all variations
thereof, and all of those Buyer may designate and list and described on Schedule
1.1(e) attached hereto (collectively, the "Intangible Property").
(6) FILES AND RECORDS. All files and other records of Seller
relating to the Business or operations of the Business (other than duplicate
copies of such files, hereinafter "Duplicate Records"), including without
limitation all available schematics, blueprints, engineering data, customer
lists, billing records, reports, specifications, projections, statistics,
promotional graphics, original art work, mats, plates, negatives and other
advertising, marketing or related materials, and all other technical and
financial information concerning the Business or the Assets.
(7) PERMITS. To the extent permitted by law, all of Seller's right,
title and interest in and to all permits, licenses, franchises, consents and
other approvals relating to the Business, including those set forth on Schedule
1.1(g), attached hereto and made a part hereof ("Permits"). Notwithstanding
anything contained herein to the contrary, Buyer shall be solely responsible for
obtaining any and all authorizations relating to the assignment and/or transfer
of the Permits and shall pay all costs relating thereto. Notwithstanding
anything contained in this Agreement to the contrary, Seller and Stockholders
make no representation or warranty relating to the assignability or
transferability of such Permits.
(8) CLAIMS. Any and all claims and rights against third parties if
and to the extent that they relate to the Assets, including, without limitation,
all rights under manufacturers' and vendors' warranties, but excluding rights to
insurance monies payable to Seller pursuant to any claim against existing
insurance filed by Seller before the Closing Date for reimbursement for monies
Seller expended (collectively, the "Claims").
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(9) PREPAID ITEMS. Except for any TNRCC deposits, any TNRCC
security, any security deposits relating to leasing arrangements, workman's
compensations deposits and utility deposits, all deposits, reserves and prepaid
expenses relating to the Business and prepaid AD VALOREM taxes relating to the
Business or the Assets, all of which prepaid items shall be prorated, if
applicable, as provided in Section 1.6.
(10) GOODWILL. All of Seller's goodwill in, and going concern value
of, the Business.
1.2 EXCLUDED ASSETS. There shall be excluded from the Assets and retained
by Seller, to the extent in existence on the Closing Date, the following assets
(collectively, the "Excluded Assets"):
(1) ACCOUNTS RECEIVABLE. All accounts receivable, and any notes or
written obligations reflecting accounts receivable of Seller relating to the
Business as of the Closing Date (collectively, the "Receivables"). Attached
hereto as Schedule 1.2(a) is a complete list of such receivables as of December
12, 1997. Buyer shall have no duty or obligation to pursue collection of the
Receivables; PROVIDED, however, all sums representing Receivables as set forth
on Schedule 1.2(a) which are collected or received by Buyer shall be
conclusively presumed to be receipts from the collection of the oldest
Receivables of such customer unless customer specifically indicated otherwise in
writing without prompting by Buyer . All such sums received by Buyer shall be
received in trust and shall be remitted to Seller promptly, on a regular basis
(but at least monthly), together with an itemized list of the sources thereof.
Seller shall be entitled to take all such action as may be necessary in order to
collect its unpaid Receivables; provided, however, that Seller agrees not to
deliver any such Receivables to a collection agency or institute any litigation
related to any Receivables without two (2) weeks prior written notice to Buyer.
This obligation shall survive Closing.
(2) CASH AND INVESTMENTS. All cash on hand or in bank accounts, and
any other cash equivalents, including without limitation certificates of
deposit, commercial paper, treasury bills, asset or money market accounts and
all such similar accounts or investments as of the time of Closing.
(3) DEPOSITS. Any TNRCC deposits, any TNRCC security, any security
deposits relating to leasing arrangements, workman's compensations deposits and
utility deposits.
(4) SECURITIES. Any publicly traded securities owned or held by
Seller.
(5) INSURANCE. All contracts of insurance.
(6) CERTAIN ASSETS. Pension, profit sharing or savings plans and
trusts and any assets thereof or other employee plans or benefit programs.
(7) DUPLICATE RECORDS. All Duplicate Records.
1.3 CHANGE OF NAME. On the date of Closing, Seller shall take all
necessary action to change Seller's current Business Name, to a name not the
same as or substantially similar to Waste Technologies, Inc. or any other
symbol, trademark, service mark, logo or trade name now used by Seller. Seller
shall, on the date of closing, deliver to Buyer, in form suitable for filing,
such certificates, consents and other documents as are necessary to effect the
transfer of the registration of the Business Name conveyed by Buyer pursuant to
this Agreement in Texas.
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1.4 LIABILITIES. Except as otherwise specifically provided herein, or as
otherwise specifically agreed in writing by Seller and Buyer, Seller shall be
responsible for (i) all claims which accrue on or before the date of Closing
(including but not limited to the Litigation claims set out on Schedule 3.12),
and (ii) all contractual obligations which are due and in existence on or before
the date of Closing, which relate to the Assets, the Business and other items
transferred to Buyer by Seller ("Seller's Liabilities"). Buyer shall assume and
be liable for (i) all claims which accrue after the date of Closing, and (ii)
all contractual obligations which are due and which are in existence after the
date of Closing, which relate to the Assets, the Business and other items
transferred to Buyer by Seller ("Buyer's Liabilities") and shall execute any and
all documentation necessary to evidence said assumption. Subject to the
limitations set out in Section 10.1, Seller and each Stockholder agree to
defend, indemnify and hold harmless Buyer, its officers, shareholders,
directors, employees, successors and assigns from and against all losses,
claims, actions, causes of action, damages, liabilities, expenses and other
costs of any kind or amount whatsoever (including, without limitation,
reasonable attorneys' fees) whether equitable or legal, matured or contingent,
known or unknown, foreseen or unforeseen, ordinary or extraordinary, patent or
latent, which result from the Seller's Liabilities, whether fixed or contingent,
whether known or unknown, including without limitation, the payment of all taxes
relating thereto. Buyer agrees to defend, indemnify and hold harmless Seller,
its officers, shareholders, directors, employees, successors and assigns from
and against all losses, claims, actions, causes of action, damages, liabilities,
expenses and other costs of any kind or amount whatsoever (including, without
limitation, reasonable attorneys' fees) whether equitable or legal, matured or
contingent, known or unknown, foreseen or unforeseen, ordinary or extraordinary,
patent or latent, which result from the Buyer's Liabilities, whether fixed or
contingent, whether known or unknown, including without limitation, the payment
of all taxes relating thereto. This Section 1.4 shall expressly survive Closing
in accordance with Section 10.
1.5 PURCHASE PRICE, METHOD OF PAYMENT, ADDITIONAL PURCHASE PRICE AND
ALLOCATION OF PURCHASE PRICE.
(1) PURCHASE PRICE. The purchase price to be paid for the Assets
will be an amount equal to One Million Eight Hundred Seventy Thousand and No/100
Dollars ($1,870,000.00) (the "Purchase Price").
(2) METHOD OF PAYMENT. The Purchase Price shall be payable by Buyer
and/or Parent as follows:
(1) Buyer and/or Parent shall pay Seller (or Seller's assigns
as set out in Article 12.8) (A) the sum of $400,000.00 in immediately available
funds on January 2, 1998, and (B) the sum of $150,000.00 in immediately
available funds on December 15, 1998, and (C) the sum of $150,000.00 in
immediately available funds on December 15, 1999. These payment obligations are
expressly the obligations of Buyer and Parent. If Parent or Buyer fail to make a
required payment when due (after seven (7) days prior written notice from
Seller), then Parent or Buyer shall pay to Seller interest on the amount due at
the rate of Fifteen Percent (15%) per annum from the date payment was due until
the date paid. Buyer shall pay Seller all costs of collection or enforcement of
this provision, including reasonable attorney's fees and court costs, in
addition to other amounts due.
(2) Parent shall deliver to Seller at Closing that number of
unrestricted shares of the common stock of US Liquids, $.01 par value, which
shall equal an aggregate "Agreed Value" (as defined below) of $600,000.00
("Stock"). For purposes of this Agreement, the "Agreed Value" per share of the
Stock shall be the average of the closing prices of a share of the common stock
of US Liquids, $.01
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par value per share, on the American Stock Exchange as reported in THE WALL
STREET JOURNAL for the five trading days immediately preceding the five trading
days immediately prior to the Closing Date;
(3) Buyer shall pay, Seller, in immediately available funds,
the sum of Five Hundred Seventy Thousand and No/100 Dollars ($570,000.00).
Seller agrees to pay all of the obligations set out on Schedule 1.5(b)(iii) at
Closing ("Debt"). Notwithstanding anything contained herein to the contrary, all
documentation relating to payment and release of the Debt must be acceptable to
Seller, in its sole discretion.
(3) ADDITIONAL PURCHASE PRICE. In addition to the Purchase Price
payable pursuant to Sections 1.5(a) and (b) above, Buyer will pay Seller the
sum(s) set out below ("Additional Purchase Price") if the operation of the
Assets after Closing generates the corresponding Pre-Tax Earnings (as defined
below). All such sums shall be due and payable to Seller, in immediately
available funds, on February 15, 1999. Pre-Tax Earnings will be calculated
within thirty (30) days after the end of the Earn Out Period (as defined below).
For purposes of this Agreement, "Pre-Tax Earnings" shall mean gross revenues
derived from the Business and/or the Assets before federal income taxes and
after principal, interest, depreciation, amortization and ordinary and necessary
operating expenses (but not including any corporate or regional overhead cost
allocation). The above notwithstanding (i) the calculation of the interest cost
shall be equal the sum of $970,000, PLUS the amount of any additional capital
expenditures made on behalf of the Business (if any) multiplied by an annual
interest rate of 7.50%, prorated for the actual number of days during the Earn
Out Period after the expenditure was made, and (ii) the calculation of
depreciation and amortization shall not reflect a depreciation schedule that is
shorter than the depreciation period used by Seller during 1997 and shall have
deducted from it the sum of $10,000.00 per calendar year.
(1) $138,000.00 if the Pre-Tax Earnings accruing, relating to
or arising out of the period beginning January 1, 1998 and ending December 31,
1998 ("Earn Out Period") exceed $325,000.00;
(2) the amount payable in (i) above, plus $276,000.00 if the
Pre-Tax Earnings accruing, relating to or arising out of the Earn Out Period
exceed $425,000.00;
(3) the amount payable in (i) and (ii) above, plus $414,000.00
if the Pre-Tax Earnings accruing, relating to or arising out of the Earn Out
Period exceed $525,000.00; and
(4) the amount payable in (i), (ii) and (iii) above, plus
$552,000.00 if the Pre-Tax Earnings relating to or arising out of the Earn Out
Period exceed $625,000.00.
(4) OPERATING CRITERIA. (i) Buyer acknowledges that Seller's ability
to meet the criteria set out above is dependent upon Buyer operating the
Business in substantially the same manner as Seller has operated the Business
and upon Buyer's making certain capital investments. As such, Buyer hereby
grants Kirk Johnson, Norman Johnson and John Jetelina ("Managers") the authority
to operate the Assets, without the need for any further approval from Buyer, in
accordance with the capital budget and operating budget attached hereto as
Schedule
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1.5(d). To the extent Managers are required to operate otherwise, any costs or
expenses relating thereto shall not be taken into account in calculating Pre-Tax
Earnings or the Additional Purchase Price. This grant of authority to Managers
is a power of attorney, coupled with an interest, such authority shall be
exercised in accordance with the corporate policies and procedures of Buyer.
(ii) Buyer also agrees that it will make the capital contributions set out in
the capital budget on Schedule 1.5(d) on or before February 15, 1998. Managers
agree that they will contact contractors, obtain bids (where applicable) and do
all of the other day to day supervision in connection with the expenditure of
funds committed in the capital budget. Managers will also request from Parent
the distribution of the specific items of capital expenditures at least 5
business days before the funds are required. If Managers so request the capital
funds and if Buyer fails to make such capital contributions on or before
February 15, 1998, then the entire Additional Purchase Price of $1,380,000.00
(set out in 1.5(c)(i)-(iv) above) shall become immediately due and payable to
Seller, as if all of the criteria of Section 1.5(c) above had been met,
regardless of the actual Pre-Tax Earnings relating to or arising out of the Earn
Out Period. (iii) In addition, Buyer agrees that it will not withdraw or
otherwise re-direct from Seller's current facilities and will not allow any
affiliate or subsidiary of Buyer to withdraw or otherwise re-direct from
Seller's current facilities, product which is currently being processed by
Seller. For purposes of this Agreement, Buyer shall maintain separate financial
books and records relating to the operation of the Assets during the Earn Out
Period. This Section 1.5 shall expressly survive the Closing of this transaction
until (i) the end of the Earn Out Period, or (ii) until all sums due hereunder
are paid, whichever is later.
(5) ALLOCATION OF PURCHASE PRICE. Buyer and Seller will allocate the
Purchase Price in accordance with the respective fair market values of the
Assets and the goodwill being purchased and sold in accordance with the
requirements of Section 1060 of the Internal Revenue Code of 1986, as amended
(the "Code"). The allocation shall be determined by mutual agreement of the
parties as preliminarily set forth on Schedule 1.5(e) hereto and attached hereto
and incorporated herein by this reference. Buyer and Seller will finalize the
allocation within 90 days after the Closing. Buyer and Seller each further
agrees to file its federal income tax returns and its other tax returns
reflecting such allocation in accordance with the determination made by them. In
the event Seller and Buyer cannot agree upon allocation within the time period
set out above the allocation shall be made by making an allocation which is
substantially similar to the allocation set out on Schedule 1.5(e).
1.6 ADJUSTMENTS. The operation of the Business and the income and normal
operating expenses attributable thereto through the date preceding the Closing
Date (the "Adjustment Date") shall be for the account of Seller and thereafter
for the account of Buyer. The expenses to be prorated shall include but not be
limited to expenses for goods or services received both before and after the
Adjustment Date, power and utilities charges, frequency discounts, commissions,
ad valorem taxes, wages, payroll taxes, vacation pay and other fringe benefits
of employees of Seller who enter the employment of Buyer, and rents and similar
prepaid and deferred items. To the extent that any of the foregoing prorations
and adjustments cannot be determined as of the Closing Date, Buyer and Seller
shall conduct a final accounting and make any further payments, as required on a
date mutually agreed upon, within ninety (90) days after the Closing. 1.1
1.7 CLOSING. The consummation of the transactions provided for in this
Agreement (the "Closing") shall take place at a date and time mutually
acceptable to Seller and Buyer. The date on which the Closing is to occur is
referred to herein as the "Closing Date."
ARTICLE 2. SUBMISSION DOCUMENTS AND ACCESS.
1.8 TITLE COMMITMENT AND SURVEY. The following documents shall be
delivered to Buyer:
(1) TITLE INSURANCE COMMITMENT AND SURVEY.
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(1) Seller and Buyer shall cause the Title Company to deliver
to Buyer and Seller (i) a commitment(s) for title insurance ("Title Commitment")
relating to the title of the Real Property together with copies of all documents
constituting exceptions under the Title Commitment, which commitment shall be
provided at Seller's expense. Seller shall also cause to be delivered to Buyer a
copy of the most current survey(s) of the Land (the "Survey") in Seller's
possession.
(2) Any matters reflected on the Title Commitment and/or
Survey shall be permitted encumbrances in connection with this sale of the Real
Property; provided, that no Schedule "C" items contained within the title
commitment will be Permitted Encumbrances unless specifically accepted by Buyer
in writing (the "Permitted Encumbrances").
1.9 OTHER SUBMISSION DOCUMENTS. Seller shall furnish to Buyer copies of
the following items which are in Seller's possession (collectively, hereinafter
referred to as the "Seller's Submission Documents"):
(1) STUDIES. Copies of any engineering, soil, environmental,
feasibility or similar studies of the Real Property which Seller may have in its
possession, if any. THIS DOES NOT CREATE AN OBLIGATION ON THE PART OF SELLER TO
CAUSE ANY SUCH TESTS OR STUDIES TO BE UNDERTAKEN, BUT ONLY CREATES AN OBLIGATION
ON THE PART OF THE SELLER TO DELIVER COPIES OF ANY SUCH DOCUMENTS OR MATERIALS
TO BUYER IF SELLER IN FACT HAS SUCH DOCUMENTS OR MATERIALS IN ITS POSSESSION OR
SUCH DOCUMENTS OR MATERIALS ARE AVAILABLE TO SELLER.
(2) PLANS AND SPECIFICATIONS. Originals, or if no originals are
available, copies of all plans, specifications, drawings or other similar
materials (the "Plans and Specifications") which Seller may have in its
possession or which are available to Seller and which relate to the Real
Property and the improvements which are a part of the Real Property. In the
event this transaction should not close, Buyer agrees to return to Seller all
such originals or copies of the Plans and Specifications.
(3) INVENTORY OF PERSONAL PROPERTY. An original, current inventory
of all Personal Property owned or leased by Seller and located on, attached to,
or used or useful in connection with the Business.
(4) OPERATING AGREEMENTS. Copies of all service, maintenance,
management or other contracts relating to the ownership and/or operation of the
Business.
(5) WARRANTIES. Copies of any warranties, if any, relating to the
Business, or any part thereof.
(6) PERMITS. Copies of all building permits and certificates of
occupancy in Seller's possession relating to the Business.
(7) TAX STATEMENTS. Copies of the most recent tax statements and
current evaluation notices with respect to the Real Property in Seller's
possession.
1.10 ACCESS. Seller shall give Buyer and Buyer's agents and
representatives reasonable access to the Real Property during normal business
hours, subject to the rights of tenants of the Real Property, if
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any, for purposes of inspecting the Real Property and conducting such tests as
are reasonable and necessary for Buyer to determine if the Real Property is
satisfactory for Buyer's intended use. Seller shall give Buyer and Buyer's
agents and representatives reasonable access to the Assets and all books and
records relating thereto (acquired or to be acquired by Seller) during normal
business hours for purposes of inspecting the Business and Assets and conducting
such tests as are reasonable and necessary for Buyer to determine if the
Business and/or Assets are satisfactory for Buyer's intended use.
1.11 INDEMNITY AND REPAIRS. All other provisions of this Section 2,
notwithstanding, Buyer shall not permit any liens to attach to the Real Property
by reason of the exercise of its right to access, test or inspect the Real
Property. Buyer hereby indemnifies and holds Seller harmless from and against
any and all liens created by Buyer or contractors, subcontractors, materialmen,
laborers or other persons accessing or performing work, tests, or inspections
for or on behalf of Buyer, as well as any claims asserted by third parties for
injuries or damages to said third parties or their property resulting from their
access to the Real Property or the work or tests by or for Buyer. IT IS THE
EXPRESS INTENTION OF THE SELLER AND THE BUYER THAT THE INDEMNITY PROVIDED FOR IN
THIS PARAGRAPH IS AN INDEMNITY BY BUYER TO INDEMNIFY AND PROTECT THE SELLER FROM
THE CONSEQUENCE OF THE ACTS OF BUYER, OR CONTRACTORS, SUBCONTRACTORS,
MATERIALMEN, LABORERS OR OTHER PERSONS IN CONNECTION WITH BUYER'S (OR PERSONS
ACTING BY OR FOR BUYER), ACCESS OF THE REAL PROPERTY OR PERFORMING WORK, TESTS
OR INSPECTION OF THE REAL PROPERTY ON BEHALF OF BUYER, INCLUDING ACTS OF
NEGLIGENCE OR ALLEGED NEGLIGENCE, AND INCLUDING WHERE SAME IS A CONTRIBUTING
CAUSE OF THE CLAIM. In addition, in the event this transaction should fail to
close for any reason Buyer agrees to (i) repair any damage done to the Property
by or on behalf of Buyer, it agents, employees or invitees, and (ii) in
connection with such repairs, restore the Property to as near its original
condition as reasonably possible.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and Stockholders (it being the intent of the parties that
Stockholders' representations and warranties hereunder are to their knowledge
only) represent and warrant to Buyer that as of the date of this Agreement:
1.12 AFFILIATES. No relative and no corporation, person or entity which is
an Affiliate of Seller has an interest in, or option to acquire, any of the
Assets or any property used in the operation of the Business. For purposes of
this Agreement, an "Affiliate" of an entity means any person or entity that owns
or controls, is owned or controlled by, or under common control with, Seller.
1.13 AUTHORITY. All actions and proceedings necessary to be taken by or on
the part of Seller, in connection with the transactions contemplated by this
Agreement have been or will be prior to the Closing Date duly and validly taken,
and this Agreement has been duly and validly authorized, executed, and delivered
by Seller and constitutes the legal, valid and binding obligation of Seller,
enforceable against Seller in accordance with and subject to its terms.
1.14 NO DEFAULTS. To Seller's knowledge, neither the execution, delivery
and performance by Seller of this Agreement nor the consummation by Seller of
the transactions contemplated hereby is an event that, of itself or with the
giving of notice or the passage of time or both, will: (a) assuming that the
consents contemplated by this Agreement, are obtained, constitute a violation
of, conflict with or result in any breach
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of or any default under, result in any termination or modification of, or cause
any acceleration of any obligation of the Business under, any contract,
mortgage, indenture, agreement, lease or other instrument to which Seller is a
party or by which it is bound, or by which the Business or any of the Assets may
be affected, or result in the creation of any security interest upon any of the
Assets; (b) violate any judgment, decree, order, statute, law, rule or
regulation applicable to Seller, the Business or any of the Assets; or (c)
result in the creation or imposition of any lien, charge or encumbrance against
the Business or any of the Assets. Notwithstanding the above, Buyer acknowledges
that it is solely responsible for obtaining any and all authorizations relating
to the assignment and/or transfer of the Permits and the Contracts and shall pay
all costs relating thereto. As such, Buyer and Parent agree that Seller and
Stockholders make no representation or warranty hereunder relating to the
assignability or transferability of such Permits, Contracts or the effect of
such assignment or transfer.
1.15 COMPLIANCE WITH LAW. To Seller's knowledge, Seller is not in default
under any applicable federal, state, or local laws, statutes, ordinances,
permits, licenses, orders, approvals, variances, rules or regulations or
judicial or administrative decisions ("Applicable Laws") which would have a
material adverse effect upon the Assets or the Business. Notwithstanding the
above, Buyer acknowledges that it is solely responsible for obtaining any and
all authorizations relating to the assignment and/or transfer of the Permits and
shall pay all costs relating thereto. As such, Buyer and Parent agree that
Seller and Stockholders make no representation or warranty hereunder relating to
the assignability or transferability of such Permits or the effect of such
assignment or transfer.
1.16 LIABILITIES. To Seller's knowledge, there are no material liabilities
or obligations of Seller relating to the Assets or Business, except for the
Permitted Encumbrances (as defined below) and except as and to the extent
reflected in the documentation delivered or made available to Buyer or as
otherwise listed and described on Schedule 3.5 hereto. For purposes of this
Section 3.5, "material liability or obligation" shall mean an individual
liability or obligation in excess of $15,000.00 or related, aggregate
liabilities in excess of $50,000.00.
1.17 TAXES. Seller has filed all applicable federal, state, local and
foreign tax returns required to be filed to date and has paid (or will pay
within ten (10) days after Closing) all taxes, interest, penalties and
assessments (including without limitation income, withholding, excise,
unemployment, Social Security, occupation, transfer, franchise, property, sales
and use taxes, import duties or charges, and all penalties and interest in
respect thereof) required to have been paid to date with respect to or involving
the Business or the Assets. 1.1
1.18 LICENSES. As of the date of this Agreement, Seller is the holder of
all licenses, permits and authorizations (the "Authorizations") with respect to
the Business listed and described on Schedule 1.1(g). To Seller's knowledge,
except for items disclosed on Schedule 1.1(g), the Authorizations are in full
force and effect and have not been revoked, suspended, canceled, rescinded or
terminated and have not expired. There is not pending, or to the knowledge of
Seller, threatened, any action to revoke, suspend, cancel, rescind or modify any
of the Authorizations, and there is not now issued or outstanding, or to the
knowledge of Seller, pending or threatened, any order to show cause, notice of
violation, notice of apparent liability, or notice of forfeiture or complaint
against Seller with respect to the Business.
1.19 CONDITION OF ASSETS.
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(1) Except for the Excluded Assets, the Assets constitute all of the
assets currently used by Seller to conduct the present operations of the
Business.
(2) To Seller's knowledge, Schedule 1.1(a) contains descriptions of
all items of material Tangible Personal Property of every kind or description
owned or leased by Seller and used or held for use in connection with the
business or operations of the Business, in each case having an original cost in
excess of $1,000.
(3) To Seller's knowledge, all Tangible Personal Property, including
equipment and electrical devices, currently used in the operation of the
Business are in operating condition and repair (reasonable wear and tear
excepted) and are functioning in the manner and for the purposes for which it
was intended.
1.20 REAL PROPERTY.
(1) Attached hereto as Schedule 1.1(b) are descriptions of all real
property owned or leased or currently occupied by Seller under a Contract for
Deed by Seller and used or held for use in connection with the Business and
operations of the Business and leases or licenses or other rights to possession
of any real property so used or held. Seller hereby discloses and Buyer and
Parent hereby acknowledge that the Bexar County real property is currently
subject to a Contract for Deed which Seller has agreed to pay in full as set out
in Schedule 1.5(b)(iii); provided, however, such agreement is contingent upon
Seller's receipt of the $570,000.00 payment set out in Section 1.5(b)(iii).
(2) To Seller's knowledge, except as listed on Schedule 1.1(b), the
Real Property and all of the buildings, fixtures and improvements owned or
leased by Sellers, and all heating and air conditioning equipment, plumbing,
electrical and other mechanical facilities, and the roof, walls and other
structural components of the Real Property which are part of, or located in,
such buildings, or improvements, are in operating condition and repair
(reasonable wear and tear excepted).
1.21 ENVIRONMENTAL MATTERS.
(1) DEFINITIONS.
(1) DEFINITION OF "ENVIRONMENTAL LAWS." The term
"Environmental Laws" shall mean any and all state, federal, and local statutes,
regulations and ordinances relating to the protection of human health and the
environment.
(2) DEFINITION OF "HAZARDOUS MATERIAL." The term "Hazardous
Material" shall mean any hazardous or toxic substance, material, or waste listed
in the United States Department of Transportation Hazardous Materials Table (49
C.F.R. ss.172.101) or by the United States Environmental Protection Agency as
hazardous substances (40 C.F.R. Part 302 and amendments thereto), petroleum
products (as defined in Title I to the Resource Conservation and Recovery Act,
42 U.S.C. ss.6991-6991i) and their derivatives, and such other substances,
materials, pollutants, contaminants and wastes as become regulated or subject to
cleanup authority under any Environmental Laws.
(2) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as listed and
described on Schedule 3.10 to this Agreement, Seller represents and warrants:
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(1) To Seller's knowledge, all current activities of the
Business or of Seller with respect to the Business and the Real Property have
been and are being conducted in compliance with all Environmental Laws;
(2) Seller has no knowledge of the release or presence of any
Hazardous Material on, in, from or onto the Real Property;
(3) Seller has not generated, manufactured, refined,
transported, stored, handled, disposed of or released any Hazardous Material on
the Real Property, nor has Seller or the Business permitted the foregoing;
(4) To Seller's knowledge, Seller has obtained all approvals
and caused all notifications to be made as required by Environmental Laws.
Schedule 3.10 includes a correct and complete list of all of Seller's and the
Business's registrations with, licenses from, or permits issued by governmental
agencies or authorities pursuant to environmental, health and safety laws. All
such registrations, licenses or permits are in full force and effect; provided,
however that the Type V registration for the Bexar County property is currently
being prepared;
(5) Seller has not received any notice of any violation of any
Environmental Laws which has not been resolved;
(6) To Seller's knowledge, no action has been commenced or
threatened regarding Seller's compliance with any Environmental Laws which has
not been resolved;
(7) To Seller's knowledge, no tanks used for the storage of
any Hazardous Material above or below ground by Seller are present or were at
any time present on or about the Real Property;
(8) To Seller's knowledge, no action has been commenced or
threatened regarding the presence of any Hazardous Material on or about the Real
Property; and
(9) To Seller's knowledge, no Hazardous Materials are present
in any medium in the operations of the Business (or of Seller with respect to
the Business) and/or at the Real Property in such a manner as may require
investigation or remediation under any applicable law.
1.22 DISPOSAL SITES. Attached hereto as Schedule 3.11(b)(x) is a complete
list of the names and addresses of all disposal sites currently utilized by
Seller.
1.23 LITIGATION. Except as set forth on Schedule 3.12 hereto, there are no
suits, arbitrations, administrative charges or other legal proceedings, claims
or governmental investigations pending against the Business or Seller relating
to or affecting the Business nor, to the knowledge of Seller, is there any
threatened suit, arbitration, administrative charge or other legal proceeding,
claim or governmental investigation.
1.24 ABSENCE OF MATERIAL CHANGE. This Agreement and the Schedules hereto
and all other documents and information furnished to Buyer and its
representatives pursuant hereto do not and will not
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include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading when made. If Seller
becomes aware of any fact or circumstance which would change a representation or
warranty of Seller in this Agreement, it shall immediately give notice of such
fact or circumstance to Buyer. Notwithstanding anything contained herein to the
contrary, to the extent that Buyer has actual knowledge of or if information has
been actually disclosed to Buyer which would allow Buyer to know that any
representation or warranty made to Buyer by Seller in this Agreement is
inaccurate, the affected representation or warranty shall be deemed waived by
Buyer as to the portion of the representation or warranty affected by Buyer's
knowledge of such inaccuracy or the disclosed information, only.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF BUYER AND PARENT
Buyer and Parent represent and warrant to Seller as follows:
1.25 Buyer is a corporation which is duly organized, validly existing and
in good standing under the laws of the State of Texas. Parent is a Delaware
corporation which is duly authorized, validly existing and in good standing
under the laws of the State of Delaware. Buyer and Parent each have the
requisite power to enter into and complete the transactions contemplated by this
Agreement, including that certain Guaranty Agreement of Parent to Seller dated
of even date herewith.
1.26 NO DEFAULTS. Neither the execution, delivery and performance by Buyer
or Parent of this Agreement nor the consummation by Buyer or Parent of the
transactions contemplated hereby is an event that, of itself or with the giving
of notice or the passage of time or both, will: (a) conflict with the provisions
of the organizational documents of Buyer or Parent; (b) constitute a violation
of, conflict with or result in any breach of or any default under, result in any
termination or modification of, or cause any acceleration of any obligation
under, any contract, mortgage, indenture, agreement, lease or other instrument
to which Buyer or Parent is a party or by which it is bound, or by which it may
be affected; (c) violate any judgment, decree, order, statute, rule or
regulation applicable to Buyer or Parent; or (d) result in the creation or
imposition of any lien, charge or encumbrance against the Business or the
Assets, except for liens, charges or encumbrances relating to Parent's
financing.
1.27 ENTITY ACTION. All entity actions and proceedings necessary to be
taken by or on the part of Buyer or Parent in connection with the transactions
contemplated by this Agreement have been duly and validly taken, and this
Agreement has been duly and validly authorized, executed and delivered by Buyer
and Parent and constitutes the legal, valid and binding obligation of Buyer,
enforceable against Buyer and Parent in accordance with and subject to its
terms.
1.28 LITIGATION. There are no suits, legal proceedings or investigations
of any nature pending or threatened against or affecting it that would affect
Buyer's or Parent's ability to carry out the transactions contemplated by this
Agreement.
1.29 STOCK. The Stock to be delivered to Seller in connection with this
Agreement, when delivered in accordance with the terms of this Agreement, will
constitute valid and legally issued shares, fully paid and nonassessable and
will be registered and free from any restriction on transfer other than
restrictions imposed by Rules 144 and 145 of the Securities Act of 1933, as
amended (the "Act"), or the regulations promulgated thereunder which require a
broker transaction and which impose volume trading limits and holding periods
for persons owning one percent (1%) of the outstanding stock of an issuer. The
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Stock being given to Seller is less than one percent of the outstanding shares
of Parent. Therefore, the restrictions relating to the transfer and holding
periods do not apply to Seller.
ARTICLE 5. COVENANTS OF SELLER
Seller covenants and agrees that from the date hereof until the completion
of the Closing:
1.30 USE OF BUSINESS NAME. Seller covenants not to use the Business Name
or any substantially similar names from and after the close of business on the
date of Closing.
1.31 TRANSITION. Seller shall not take any action that is intended to
discourage any customer or business associate of Seller from maintaining the
same business relationships with Buyer after the Closing that it maintained with
Seller before the Closing.
1.32 REPRESENTATIONS AND WARRANTIES. Seller shall give detailed written
notice to Buyer promptly upon learning of the occurrence of any event that would
cause or constitute a material breach or would have caused a material breach had
such event occurred or been known to Seller prior to the date hereof, of any of
the representations and warranties of Seller contained in this Agreement.
1.33 CONSUMMATION OF AGREEMENT. Subject to the provisions of Section 10.1
of this Agreement, Seller shall use all reasonable efforts to fulfill and
perform all conditions and obligations on its part to be fulfilled and performed
under this Agreement, and to cause the transactions contemplated by this
Agreement to be fully carried out.
1.34 NOTICE OF PROCEEDINGS. Seller will promptly notify Buyer in writing
upon: (a) becoming aware of any order or decree or any complaint praying for an
order or decree restraining or enjoining the consummation of this Agreement or
the transactions contemplated hereunder; (b) receiving any notice from any
governmental department, court, agency or commission of its intention (i) to
institute an investigation into, or institute a suit or proceeding to restrain
or enjoin, the consummation of this Agreement or such transactions, or (ii) to
nullify or render ineffective this Agreement or such transactions if
consummated; or (c) becoming aware of any default under any loan agreement or of
any event that is likely to cause Seller to enter into any bankruptcy
proceeding. 1.1
ARTICLE 6. COVENANTS OF BUYER AND PARENT
Buyer and Parent covenant and agree that from the date hereof:
1.35 REPRESENTATIONS AND WARRANTIES. Buyer shall give detailed written
notice to Seller promptly upon learning of the occurrence of any event that
would cause or constitute a material breach or would have caused a material
breach had such event occurred or been known to Buyer prior to the date hereof,
of any of the representations and warranties of Buyer contained in this
Agreement.
1.36 CONSUMMATION OF AGREEMENT. Subject to the provisions of Section 10.1
of this Agreement, Buyer shall use all reasonable efforts to fulfill and perform
all conditions and obligations on its part to be fulfilled and performed under
this Agreement, and to cause the transactions contemplated by this Agreement to
be fully carried out.
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1.37 NOTICE OF PROCEEDINGS. Buyer will promptly notify Seller in writing
upon: (a) becoming aware of any order or decree or any complaint praying for an
order or decree restraining or enjoining the consummation of this Agreement or
the transactions contemplated hereunder; (b) receiving any notice from any
governmental department, court, agency or commission of its intention (i) to
institute an investigation into, or institute a suit or proceeding to restrain
or enjoin, the consummation of this Agreement or such transactions, or (ii) to
nullify or render ineffective this Agreement or such transactions if
consummated; or (c) becoming aware of any default under any loan agreement or of
any event that is likely to cause Buyer to enter into any bankruptcy proceeding.
1.38 CONFIDENTIALITY. Any and all information, disclosures, knowledge or
facts regarding Seller, the Business and their operation and properties derived
from or resulting from Buyer's acts or conduct (including without limitation
acts or conduct of Buyer's officers, employees, accountants, counsel, agents,
consultants or representatives, or any of them) shall be confidential and shall
not be divulged, disclosed or communicated to any other person, firm,
corporation or entity, except for Buyer's attorneys, accountants, investment
bankers, investors and lenders, and their respective attorneys for the purpose
of consummating the transactions contemplated by this Agreement unless required
by law.
ARTICLE 7. CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are, at its option, subject
to the fulfillment of the following conditions prior to or on the Closing Date:
1.39 REPRESENTATIONS, WARRANTIES AND COVENANTS.
(1) Each of the representations and warranties of Buyer and Parent
contained in this Agreement shall have been true and correct in all material
respects as of the date when made and shall be deemed to be made again on and as
of the Closing Date and shall then be true and correct in all material respects,
except to the extent changes are permitted or contemplated pursuant to this
Agreement, such determination shall be made based upon any Schedules delivered
by Buyer prior to or concurrent with the execution of this Agreement;
(2) Buyer shall have performed and complied with each and every
covenant and agreement required by this Agreement to be performed or complied
with by it prior to or on the Closing Date; and
1.40 PROCEEDINGS.
(1) Neither Seller nor Buyer shall be subject to any restraining order or
injunction restraining or prohibiting the consummation of the transactions
contemplated hereby.
(2) In the event such a restraining order or injunction is in effect, this
Agreement may not be abandoned by Seller pursuant to this Section 7.2 prior to
the Closing Date, but the Closing shall be delayed during such period. This
Agreement may be abandoned after the Closing Date if such restraining order or
injunction remains in effect.
(3) DELIVERIES. Buyer shall have complied with each and every one of its
obligations set forth in Section 9.2.
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ARTICLE 8. CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are, at its option, subject
to the fulfillment of the following conditions prior to or on the Closing Date:
1.41 REPRESENTATIONS, WARRANTIES AND COVENANTS.
(1) Each of the representations and warranties of Seller contained in this
Agreement shall have been true and correct as of the date when made and shall be
deemed to be made again on and as of the Closing Date and shall then be true and
correct except to the extent changes are permitted or contemplated pursuant to
this Agreement; and
(2) Seller shall have performed and complied with each and every covenant
and agreement required by this Agreement to be performed or complied with by it
prior to or on the Closing Date;
1.42 PROCEEDINGS.
(1) Neither Seller nor Buyer shall be subject to any restraining
order or injunction restraining or prohibiting the consummation of the
transactions contemplated hereby.
(2) In the event such a restraining order or injunction is in
effect, this Agreement may not be abandoned by Buyer pursuant to this Section
8.2 prior to the Final Closing Date, but the Closing shall be delayed during
such period. This Agreement may be abandoned after such date if such restraining
order or injunction remains in effect.
1.43 DELIVERIES. Seller shall have complied with each and every one of its
obligations set forth in Section 9.1.
1.44 REQUIRED CONSENTS. Seller shall have obtained all of the
Required Consents.
ARTICLE 9. ITEMS TO BE DELIVERED AT THE CLOSING
1.45 DELIVERIES BY SELLER. At the Closing, Seller shall deliver to Buyer
duly executed by Seller or such other signatory as may be required by the nature
of the document:
(1) Bills of Sale, certificates of title, endorsements, assignments,
special warranty deeds and other good and sufficient instruments of sale,
conveyance, transfer and assignment, sufficient to sell, convey, transfer and
assign to Buyer all right, title and interest of Seller in and to the Assets;
DISCLAIMER OF WARRANTIES.
AS MATERIAL PART OF THE CONSIDERATION FOR THIS AGREEMENT BUYER
ACKNOWLEDGES AND AGREES THAT: (I) BUYER WILL CONDUCT ITS OWN INDEPENDENT
INVESTIGATION AND INSPECTION OF ALL ASPECTS OF THE REAL PROPERTY AND THE OTHER
ASSETS, (II) OTHER THAN AS EXPRESSLY SET OUT HEREIN, BUYER IS NOT RELYING
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ON ANY REPRESENTATIONS OF STATEMENTS OF SELLER OR ITS AGENTS, (III)EXCEPT AS SET
FORTH HEREIN, BUYER IS RELYING ON SUCH INDEPENDENT INVESTIGATION AND INSPECTION
AND IS NOT RELYING ON ANY INFORMATION PROVIDED BY SELLER, SELLER'S ENGINEERS OR
THE BROKERS IN DETERMINING WHETHER TO PURCHASE THE REAL PROPERTY AND THE OTHER
ASSETS, (IV) ANY INFORMATION PROVIDED BY SELLER TO BUYER WITH RESPECT TO THE
REAL PROPERTY OR THE OTHER ASSETS HAS BEEN OBTAINED FROM A VARIETY OF SOURCES
AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF
SUCH INFORMATION, (V) AT CLOSING, IT WILL BE FULLY AND COMPLETELY SATISFIED THAT
THE REAL PROPERTY AND THE OTHER ASSETS ARE SATISFACTORY IN ALL RESPECTS FOR ITS
INTENDED USE AND BUYER SHALL HAVE NO RECOURSE WHATSOEVER AGAINST SELLER IN
CONNECTION WITH THE REAL PROPERTY OR THE OTHER ASSETS OTHER THAN FOR ANY
MISREPRESENTATIONS AS TO THE REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
EMBODIED IN THIS AGREEMENT.
AS MATERIAL PART OF THE CONSIDERATION FOR THIS AGREEMENT BUYER
ACKNOWLEDGES AND AGREES THAT: EXCEPT FOR SELLER'S WRITTEN COVENANTS EXPRESSLY
SET OUT IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES NOT MAKE, AND SPECIFICALLY
DISCLAIMS ANY AND ALL REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS,
AGREEMENTS, OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS
OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT, OR FUTURE, OF, AS TO, CONCERNING OR
WITH RESPECT TO THE REAL PROPERTY AND THE OTHER ASSETS (EXCEPT FOR THE SPECIAL
WARRANTY OF TITLE TO BE CONTAINED IN THE DEEDS), INCLUDING, BUT NOT LIMITED TO:
(A) THE NATURE, QUALITY, OR CONDITION OF THE REAL PROPERTY AND THE OTHER ASSETS;
(B) THE INCOME TO BE DERIVED FROM THE REAL PROPERTY AND THE OTHER ASSETS; (C)
THE SUITABILITY OF THE REAL PROPERTY AND THE OTHER ASSETS FOR ANY AND ALL
ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON; (D) THE COMPLIANCE OF OR BY
THE REAL PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR
REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, INCLUDING, BUT NOT
LIMITED TO, ANY STATE OR FEDERAL ENVIRONMENTAL LAW, RULE OR REGULATION; (E) THE
HABITABILITY, MERCHANTABILITY, OR FITNESS OF THE REAL PROPERTY FOR A PARTICULAR
PURPOSE; OR (F) ANY OTHER MATTER WITH RESPECT TO THE REAL PROPERTY AND THE OTHER
ASSETS. BUYER HEREBY WAIVES ANY SUCH REPRESENTATION, WARRANTY, PROMISES,
COVENANTS, AGREEMENTS, OR GUARANTIES, EXCEPT AS SET OUT HEREIN.
AS MATERIAL PART OF THE CONSIDERATION FOR THIS AGREEMENT BUYER
ACKNOWLEDGES AND AGREES THAT NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY,
EXCEPT FOR SELLER'S WRITTEN COVENANTS EXPRESSLY SET OUT IN THIS AGREEMENT,
SELLER IS CONVEYING THE REAL PROPERTY AND THE OTHER ASSETS TO BUYER "AS IS"
"WHERE IS," AND WITH ALL FAULTS AND (EXCEPT FOR THE SPECIAL WARRANTY OF TITLE TO
BE CONTAINED IN THE DEEDS) SPECIFICALLY AND EXPRESSLY WITHOUT ANY WARRANTIES,
REPRESENTATIONS, OR GUARANTEES, EITHER EXPRESS OR IMPLIED, OF ANY KIND, NATURE,
OR TYPE WHATSOEVER FROM OR ON BEHALF OF THE SELLER.
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THE FOREGOING PROVISIONS SHALL BE CONTAINED IN THE SPECIAL WARRANTY
DEEDS FROM SELLER TO BUYER AND SHALL SURVIVE THE CLOSING IN ALL RESPECTS.
(2) The Required Consents;
(3) Certified copies of resolutions with the purchase price deleted,
duly adopted by the Board of Directors of Seller, which shall be in full force
and effect at the time of the Closing, authorizing the Seller to enter and take
any and all actions necessary to sell the Business, and the consummation of the
transactions contemplated hereby;
(4) An affidavit in a form satisfactory to Buyer certifying the fact
that Seller is not a "Foreign Person" as that term is defined in the Internal
Revenue Code of 1986, as amended (the "Code").
(5) Seller shall cause to be furnished to Buyer, at Seller's
expense, Owner's Policies of Title Insurance issued by Title Company in the form
prescribed by the Texas Board of Insurance. The policies shall be in the amount
of (i) $100,000.00 with respect to the Nueces County property, and (ii)
$150,000.00 with respect to the Bexar County property and shall guarantee that
Buyer's title to the Real Property is good and indefeasible subject only to the
following exceptions:
(1) The Permitted Encumbrances.
(2) Taxes not yet due for the year of Closing.
(3) Government rights of police power or eminent domain unless
notice of the exercise of such right appears in the public records as of the
date hereof and the consequences of any law, ordinance or governmental
regulation, including but not limited to building and zoning ordinances.
1.46 DELIVERIES BY BUYER. At the Closing, Buyer shall deliver to Seller:
(1) The releases relating to the Debt in a form which is reasonably
satisfactory to Seller;
(2) The Stock with a waiver of restrictions on transferability after
initial public offering in a form which is acceptable to Seller;
(3) The Consulting Agreements of Managers, in a form which is
acceptable to Managers;
(4) An instrument or instruments of assumption of the Contracts,
liabilities and obligations to be assumed by Buyer pursuant to this Agreement,
in form and substance satisfactory to Seller;
(5) Certified copies of resolutions, duly adopted by the Board of
Directors of Buyer, which shall be in full force and effect at the time of the
Closing, authorizing the execution, delivery and performance by Buyer of this
Agreement and the consummation of the transactions contemplated hereby;
ARTICLE 10. SURVIVAL; LIMITATION ON LIABILITY
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1.47 Except as otherwise expressly set out herein, all representations,
warranties, covenants and agreements contained in this Agreement, or in any
Exhibit, Schedule, certificate, agreement, document or statement delivered
pursuant hereto, shall survive (and not be affected in any respect by) the
Closing, any investigation conducted by any party hereto and any information
which any party may receive, until the second anniversary date of the Closing
(December 15, 1999), whereupon all such representations, warranties, covenants
and agreements shall expire and terminate and shall be of no further force or
effect, except as expressly otherwise set out herein to the contrary; provided,
however, that Seller, Stockholders, Buyer and/or Parent shall have no liability
therefor until the aggregate of all damages relating thereto exceeds $5,000.00,
when Seller, Stockholders, Buyer and/or Parent, as applicable, shall be
responsible for such damages from the first dollar. Notwithstanding anything to
the contrary in this Agreement, Seller's aggregate liability in connection with
the representations, warranties, covenants or agreements contained in this
Agreement, or in any Exhibit, Schedule, certificate, agreement, document or
statement delivered pursuant hereto shall never exceed $1,870,000.00, and
notwithstanding anything contained herein to the contrary, in no event shall any
Stockholder be liable to Buyer or Parent in excess of that sum which is the
Stockholder's percentage ownership interest in Seller MULTIPLIED by
$1,870,000.00. In no event shall Buyer and/or Parent's obligation to pay the
Purchase Price or the Additional Purchase Price be limited by this Section 10.1.
ARTICLE 11. NONCOMPETE
Seller and each of the Stockholders, jointly and severally, agree that for
a period of five years following the date of Closing, none of them shall
directly or indirectly, through a subsidiary or affiliate, without the prior
express written consent of Buyer:
(1) engage, as an officer, director, shareholder, owner, partner, joint
venturer, investor, lender, agent, or in a managerial capacity, whether as an
employee, independent contractor, consultant or advisor, or as a sales
representative, in the Business (as defined below) within a radius of 75 air
miles of the San Antonio, Texas property, and within a radius of 75 air miles of
the Robstown, Texas property (the "Territory");
(2) call upon any person who is, at that time, within the Territory,
an employee of Buyer in a managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the employ of Buyer;
(3) call upon any person or entity which is, at that time, or which
has been, within one year prior to that time, a customer of the Business of the
Buyer within the Territory with intent to entice that customer away from Buyer;
or
(4) disclose the identity of Buyer's customers, whether in existence
or proposed, to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever.
For purposes of this Section, "Business" means the treatment,
minimization, recycling or disposal of restaurant waste grease, animal fats and
vegetable oils and municipal grit trap waste.
It is understood that K. Johnson and N. Johnson are currently and plan to
remain involved in the collection and transportation of restaurant waste grease,
oil water separator hydrocarbon liquids and grit trap
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waste at Lackland Air Force Base in San Antonio, Texas. These services for
Lackland Air Force Base are excluded from this Agreement. It is also understood
that K. Johnson and N. Johnson are currently involved in and plan to expand
involvement in companies which perform liquid/solid separation, treatment,
transport and disposal of municipal and industrial sludges and liquids in all
areas of the United States and these activities are not encompassed by this
Agreement. It is understood that these services (with the exception of Lackland
Air Force Base) will not include the treatment, minimization, recycling or
disposal of restaurant waste grease, animal fats and vegetable oils and
municipal grit trap waste in the Territory.
ARTICLE 12. MISCELLANEOUS
1.48 USE OF PERMITS. In furtherance of the within contemplated
transaction, to the extent allowed by law or other regulating authority
(including but not limited to San Antonio Water Systems), Seller hereby
authorizes Buyer to operate under the Permits until such Permits have been
officially renewed, transferred or reissued (as applicable) to Buyer, but in no
event longer than sixty (60) days. Buyer shall indemnify Seller and Stockholders
for any and all claims, liabilities, fines, losses and costs incurred by Seller
and/or Stockholders as a result of or arising out of Buyer's operation of the
Business under the Permits. In no way is Seller or Stockholders representing,
warranting or guaranteeing that Buyer may operate under the Permits. Buyer must
satisfy itself that it may operate under the Permits as set out above. The
indemnity in this Section 12.1 is not subject to the time limitation set out in
Section 10.1.
1.49 EXPENSES. Each party hereto shall bear all of its expenses incurred
in connection with the transactions contemplated by this Agreement, including
without limitation, accounting and legal fees incurred in connection herewith
Seller shall be exclusively responsible for, and Buyer shall not have any
liability or responsibility for any sales or transfer taxes (including without
limitation any real estate transfer taxes), arising from the transfer of the
Assets to Buyer.
1.50 PRESERVATION OF RECORDS. Buyer covenants that it will preserve and
make available (including the right to inspect and copy) to Seller, its
attorneys and accountants, for a reasonable period of time from and after the
Closing Date and during normal business hours, such of the books, records,
files, correspondence, memoranda and other documents transferred pursuant to
this Agreement as Seller may reasonably require in connection with any
legitimate purpose, including, but not limited to, the preparation of tax
reports, returns and audits and the preparation of financial statements.
1.51 NON-ASSIGNABLE CONTRACTS. Nothing contained in this Agreement shall
be construed as an assignment or an attempted assignment of any contract which
is by law non-assignable without the consent of the other party or parties
thereto, unless such consent shall be given.
1.52 FURTHER ASSURANCES. From time to time prior to, on and after the
Closing Date, each party hereto will execute all such instruments and take all
such actions as any other party, being advised by counsel, shall reasonably
request, without payment of further consideration, in connection with carrying
out and effectuating the intent and purpose hereof and all transactions and
things contemplated by this Agreement, including without limitation the
execution and delivery of any and all confirmatory and other instruments in
addition to those to be delivered on the Closing Date, and any and all actions
which may reasonably be necessary or desirable to complete the transactions
contemplated hereby. The parties shall cooperate fully with each other and with
their respective counsel and accountants in connection with any steps required
to be taken as part of their respective obligations under this Agreement.
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1.53 PUBLIC ANNOUNCEMENTS. Prior to the Closing Date, no party shall,
without the approval of the other party hereto, make any press release or other
public announcement concerning the transactions contemplated by this Agreement,
except a) to announce it has been entered into, and b) as and to the extent that
such party shall be so obligated by law, in which case such party shall give
advance notice to the other party and the parties shall use their best efforts
to cause a mutually agreeable release or announcement to be issued.
1.54 RISK OF LOSS. Seller shall operate the Property in its ordinary
course of business up to and through the date of Closing. If, prior to Closing,
there shall occur damage to the Property caused by fire or other casualty, or
the taking or condemnation of all or any portion of the Real Property, Buyer
may, at its option, terminate its obligations under this Contract by written
notice provided to Seller within ten (10) days after Buyer has received written
notice of the fire, other casualty, actual or threatened condemnation; provided,
however, Buyer shall continue to be obligated to comply with its restoration and
indemnification obligation set forth in Article 2, its document delivery
obligation as set out in Article 2, and confidentiality obligation as set out in
this Article 6. If Buyer does not elect to terminate its obligations under this
Contract according with this Section, Seller shall assign to Buyer, at Closing,
all interest of Seller in and to any condemnation awards or insurance proceeds
which would otherwise be payable to Seller on account of such occurrence.
1.55 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties hereto, and their respective representatives, successors and assigns.
Buyer hereby acknowledges that Seller may merge into a Delaware partnership or
corporation comprised solely of the Stockholders prior to or after Closing.
1.56 AMENDMENTS; WAIVERS. The terms, covenants, representations,
warranties and conditions of this Agreement may be changed, amended, modified,
waived, discharged or terminated only by a written instrument executed by the
party waiving compliance. The failure of any party at any time or times to
require performance of any provision of this Agreement shall in no manner affect
the right of such party at a later date to enforce the same. No waiver by any
party of any condition or the breach of any provision, term, covenant,
representation or warranty 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 condition or of the breach of any other
provision, term, covenant, representation or warranty of this Agreement.
1.57 NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing (which shall
include notice by telex or facsimile transmission) and shall be deemed to have
been duly made and received when personally served, or when delivered by Federal
Express or a similar overnight courier service, expenses prepaid, or, if sent by
telex, graphic scanning or other facsimile communications equipment, delivered
by such equipment, addressed as set forth below:
(a) If to Seller, then to:
Ms. Judy Jetelina
106 S. St. Mary's Street, Suite 800
San Antonio, Texas 78205
With a copy (which shall not constitute notice) to:
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Ms. Elizabeth Chumney Breazeale
106 S. St. Mary's Street, Suite 800
San Antonio, Texas 78205
(b) If to Buyer, then to:
Mr. W. Gregory Orr
411 N. Sam Houston Pkwy E., Suite 400
Houston, Texas 77060
With a copy (which shall not constitute notice) to:
Ms. Elaine Chotlos
Baker & Hostetler
1900 E. 9th Street, Suite 3200
Cleveland, OH 44114-3485
Any party may alter the address to which communications are to be sent by giving
notice of such change of address in conformity with the provisions of this
Section providing for the giving of notice.
1.58 CAPTIONS. The captions of Articles and Sections of this Agreement are
for convenience only and shall not control or affect the meaning or construction
of any of the provisions of this Agreement.
1.59 GOVERNING LAW. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to principles of conflicts of laws.
1.60 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules hereto
and the other documents delivered hereunder constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and supersedes all prior agreements, understandings,
inducements or conditions, express or implied, oral or written, relating to the
subject matter hereof, except as herein contained. The express terms hereof
control and supersede any course of performance and/or usage of trade
inconsistent with any of the terms hereof. This Agreement has been prepared by
all of the parties hereto, and no inference of ambiguity against the drafter of
a document therefore applies against any party hereto..
1.61 EXECUTION; COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their duly authorized signatories, all as of the day and year first
above written.
21
<PAGE>
BUYER:
MESA PROCESSING, INC.
By:
Name:
Its: ___________________________________________
PARENT:
U S LIQUIDS
By:
Name:
Its: ___________________________________________
SELLER:
WASTE TECHNOLOGIES, INC.
By:
Name:
Title:
STOCKHOLDERS:
_________________________________________________
John Jetelina
_________________________________________________
Kirk Johnson
_________________________________________________
Norman Johnson
_________________________________________________
Ron McMahan
22
<PAGE>
Schedule 1.1(a) - Tangible Personal Property
Schedule 1.1(b) - Real Property
Schedule 1.1(d) - Contracts
Schedule 1.1(e) - Tradenames
Schedule 1.1(g) - Permits
Schedule 1.2(a) - Accounts Receivable
Schedule 1.5(b)(iii) - Debt
Schedule 1.5(d) - Capital and Operating Budgets
Schedule 1.5(e) - Allocation of Purchase Price
Schedule 3.5 - Liabilities
Schedule 3.10 - Environmental Matters
Schedule 3.11(b)(x) - Disposal Sites
Schedule 3.12 - Litigation
23
WARRANT CERTIFICATE
NEITHER THE WARRANT REPRESENTED BY THIS CERTIFICATE NOR THE COMMON STOCK
ISSUABLE UPON THE EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND NEITHER MAY BE
TRANSFERRED OR RESOLD WITHOUT REGISTRATION UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW UNLESS AN EXEMPTION FROM REGISTRATION IS THEN AVAILABLE.
WARRANT TO PURCHASE COMMON STOCK
OF
U S LIQUIDS INC.
Date: January 2, 1998
This is to certify that, FOR VALUE RECEIVED, the registered holder hereof,
GLENN A. PRATT (the "Holder"), is entitled to purchase, subject to the
provisions of this Warrant Certificate, from U S LIQUIDS INC., a Delaware
corporation (the "Company"), up to 10,000 shares (as such number may be adjusted
in accordance with Section 6 hereof) of the Company's Common Stock, $0.01 par
value (such class of stock, together with any capital stock of the Company into
which such class of stock shall be converted, being referred to herein as the
"Stock"), at $14.125 per share (the "Exercise Price"). The number of shares of
Stock to be received upon the exercise of this Warrant and the Exercise Price
shall be adjusted from time to time as hereinafter set forth. The shares of
Stock or other securities or property deliverable upon such exercise, as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares." Unless the context otherwise requires, the term "Warrant" or "Warrants"
as used herein includes this Warrant and any other Warrant or Warrants which may
be issued pursuant to the provisions of this Warrant, whether upon transfer,
assignment, partial exercise, divisions, combinations, exchange or otherwise,
and the term "Holder" includes any registered transferee or transferees or
registered assignee or assignees of the Holder, who in each case shall be
subject to the provisions of this Warrant, and when used with reference to
Warrant Shares, means the holder or holders of such Warrant Shares.
SECTION 1. EXERCISE OF WARRANT. Subject to the terms and conditions of
this Warrant Certificate, this Warrant may be exercised in whole or in part at
any time or from time to time during the period commencing on the date hereof
and ending 5:00 P.M., Houston, Texas time, on January 2, 2003 (the "Expiration
Date"), by presentation and surrender to the Company at its principal office of
this Warrant and the Purchase Form annexed hereto duly executed and accompanied
by payment in cash, by wire
<PAGE>
transfer or certified or official bank check payable to the order of the Company
in the amount of the Exercise Price for the number of Warrant Shares specified
in such form. If this Warrant is exercised in part only, the Company shall,
promptly after presentation of this Warrant upon such exercise, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable hereunder upon the same terms and
conditions as herein set forth. This Warrant is exercisable only in increments
of 1,000 Warrant Shares, unless the total number of Warrant Shares then issuable
under this Warrant is less than 1,000, in which event this Warrant must be
exercised in full for all Warrant Shares issuable hereunder. Upon and as of
receipt by the Company at its office, in proper form for exercise and
accompanied by payment as herein provided, the Holder shall be deemed to be the
holder of record of the shares of Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Stock shall not then be
actually delivered to the Holder.
Notwithstanding anything to the contrary contained in this Warrant
Certificate, the Holder may elect to exercise this Warrant in whole or in part
by receiving Warrant Shares equal to the value (determined below) of this
Warrant (or any part thereof), upon surrender of this Warrant (or any part
thereof) at the principal office of the Company, together with notice of such
election, specifying the part of this Warrant so surrendered, in which event the
Company shall issue and deliver to the Holder the number of Warrant Shares
determined using the following formula:
X = (Y) (A-B)
---------
A
where
X = the number of Warrant Shares to be
issued to the Holder;
Y = the number of Warrant Shares
purchasable under the Warrant, or portion of
the Warrant, surrendered;
A = the Current Market Price per share of the Stock,
determined pursuant to Section 3 of this Warrant
Certificate; and
B = the then current Exercise Price per share of
Stock.
SECTION 2. RESERVATION OF SHARES. The Company shall at all times after the
date hereof and until the Expiration Date reserve
-2-
<PAGE>
for issuance and delivery upon exercise of this Warrant the number of Warrant
Shares as shall be required for issuance and delivery upon exercise in full of
this Warrant.
SECTION 3. 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 exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction multiplied by
the Current Market Price of such fractional share. For purposes of this Warrant
Certificate, the "Current Market Price" per share of Stock at any date shall be
the average of the daily closing prices for the five consecutive trading days
commencing ten 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 Stock is listed or admitted to trading, or if the Stock is
not listed or admitted to trading on any national securities exchange, but is
traded in the Nasdaq National Market ("NNM"), or if the Stock is otherwise a
security 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 under the Securities Exchange Act of 1934, as amended, the last
reported sales price or, if the Stock is not listed or admitted to trade, and if
last sale data is not then available from NNM, but the Stock is traded in the
over-the-counter market, the average of the representative closing bid and asked
quotations for the Stock on NNM or any comparable system, or if the 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.
SECTION 4. TRANSFER, EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT.
4.1 This Warrant may not be assigned or transferred except as
provided herein and in accordance with and subject to the provisions of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (said Act and such rules and regulations being hereinafter
collectively referred to as the "Act"). Any purported transfer or assignment
made other than in accordance with this Section 4 shall be null and void and of
no force and effect.
4.2 This Warrant may be transferred or assigned only upon the
opinion of counsel satisfactory to the Company, which may be counsel to the
Company, that (i) the transferee is a person to whom the Warrant may be legally
transferred without registration under the Act, and (ii) such transfer will not
violate any applicable law or governmental rule or regulation including,
-3-
<PAGE>
without limitation, any applicable federal or state securities law. Each
certificate for Warrant Shares or for any other security issued or issuable upon
exercise of this Warrant shall contain a legend, in form and substance
satisfactory to the Company, setting forth the restrictions on transfer thereof.
4.3 Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office with the Assignment Form
annexed hereto duly executed and funds sufficient to pay any transfer tax. In
such event the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in such instrument of assignment and designate
the assignee as the registered holder on the Company's records and this Warrant
shall promptly be cancelled. This Warrant may be divided or combined with other
Warrants which carry the same rights upon presentation thereof at the principal
office of the Company together with a written notice signed by the holder
thereof, specifying the names and denominations in which new Warrants are to be
issued.
4.4 Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification to the
Company or (in the case of mutilation) presentation of this Warrant for
surrender and cancellation, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
SECTION 5. WARRANT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. The Holder
shall not, solely because of holding this Warrant, be entitled to vote, receive
dividends or be deemed the holder of Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Warrant for any
purpose whatsoever, nor shall anything contained herein be construed to confer
upon the Holder, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matters submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance or otherwise), or to receive notice of
meetings or other actions affecting stockholders, or to receive dividend or
subscription rights, or otherwise, until such Warrant Certificate shall have
been exercised in accordance with the provisions hereof and the receipt by the
Company of the Exercise Price and any other amounts payable upon such exercise.
-4-
<PAGE>
SECTION 6. ADJUSTMENT IN THE NUMBER OF WARRANT SHARES PURCHASABLE AND
EXERCISE PRICE.
6.1 The number of shares of Stock for which this Warrant may be
exercised shall be subject to adjustment as follows:
(a) in the event there is a subdivision or combination of the
outstanding shares of Stock into a larger or smaller number of shares, the
number of shares of Stock for which this Warrant may be exercised shall be
increased or reduced in the same proportion as the increase or decrease in the
outstanding shares of Stock.
(b) if the Company declares a dividend on Stock payable in
Stock or securities convertible into Stock, the number of shares of Stock for
which this Warrant may be exercised shall be increased, as of the record date
for determining which holders of Stock shall be entitled to receive such
dividend, in proportion to the increase in the number of outstanding shares of
Stock as a result of such dividend;
(c) if the Company decides to offer rights to all holders of
Stock which entitle them to subscribe to additional Stock or securities
convertible into Stock, the Company shall give written notice of any such
proposed rights offering to the Holder at least fifteen (15) days prior to the
proposed record date in order to permit the Holder to exercise this Warrant on
or before such record date. There shall be no adjustment in the number of shares
of Stock for which this Warrant may be exercised or the Exercise Price by virtue
of such rights offering or by virtue of any sale of any class of securities of
the Company pursuant to such rights offering.
6.2 In the event at any time prior to the expiration of this Warrant
of any reorganization or reclassification of the outstanding shares of Stock
(other than a change in par value, or from no par value to par value, or from
par value to no par value, or as a result of a subdivision or combination) or
any consolidation or merger of the Company with another entity, or the sale,
lease or transfer of all or substantially all of the property or assets of the
Company, the Holder shall have the right, but not the obligation, to exercise
this Warrant. Upon such exercise, the Holder shall have the right to receive the
same kind and number of shares of stock and other securities, cash or other
property as would have been distributed to the Holder upon such reorganization,
reclassification, consolidation or merger had the Holder exercised this Warrant
immediately prior to such reorganization, reclassification, consolidation or
merger. The Holder shall pay upon such exercise the Exercise Price that
otherwise would have been payable pursuant to the terms of this Warrant. If any
such reorganization, reclassification, consolidation or merger results in a cash
distribution in excess of the Exercise Price provided by
-5-
<PAGE>
this Warrant, the Holder may, at the Holder's option, exercise this Warrant
without making payment of the Exercise Price, and in such case the Company
shall, upon distribution to the Holder, consider the Exercise Price to have been
paid in full, and in making settlement to the Holder, shall deduct an amount
equal to the Exercise Price from the amount payable to the Holder.
6.3 If the Company shall, at any time prior to the expiration of
this Warrant, dissolve, liquidate or wind-up its affairs, the Holder shall have
the right, but not the obligation, to exercise this Warrant. Upon such exercise
the Holder shall have the right to receive, in lieu of the shares of Stock that
the Holder otherwise would have been entitled to receive, the same kind and
amount of assets as would have been issued, distributed or paid to the Holder
upon any such dissolution, liquidation or winding-up with respect to such shares
of Stock had the Holder been the holder of record of such shares of Stock
receivable upon exercise of this Warrant on the date for determining those
entitled to receive any such distribution. If any such dissolution, liquidation
or winding-up results in any cash distribution in excess of the Exercise Price
provided for by this Warrant, the Holder may, at the Holder's option, exercise
this Warrant without making payment of the Exercise Price and, in such case, the
Company shall, upon distribution to the Holder, consider the Exercise Price to
have been paid in full and in making settlement to the Holder shall deduct an
amount equal to the Exercise Price from the amount payable to the Holder.
6.4 The Company may retain a firm of independent public accountants
of recognized standing (who may be any such firm regularly employed by the
Company) to make any computation required under this Section 6, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section.
6.5 Whenever the number of shares of Stock purchasable upon the
exercise of this Warrant is adjusted as herein provided, the Exercise Price
shall be adjusted by multiplying the applicable Exercise Price immediately prior
to such adjustment by a fraction, the numerator of which shall be the number of
shares of Stock purchasable upon exercise of this Warrant immediately prior to
such adjustment and the denominator of which shall be the number of shares of
Stock purchasable immediately after such adjustment.
SECTION 7. NOTICE TO HOLDER. So long as this Warrant shall be outstanding,
(i) if the Company shall pay any dividend or make any distribution upon the
Stock otherwise than in cash, or (ii) if the Company shall offer to the holders
of Stock for subscription or purchase by them any shares of any class of stock
of the Company or any other rights, or (iii) if there shall be any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with
-6-
<PAGE>
or into another corporation, sale, lease or transfer of all or substantially all
of the property and assets of the Company, or voluntary or involuntary
dissolution, liquidation or winding up of the Company, then in any such event,
the Company shall cause to be mailed by certified mail to each Holder, at least
30 days prior to the relevant date of the event described above, a notice
containing a brief description of the proposed action and stating the date or
expected date on which a record is to be taken for the purpose of such dividend,
distribution or rights, or the date or expected date such reclassification,
reorganization, consolidation, merger, conveyance, lease or transfer,
dissolution, liquidation or winding up shall take place or be voted upon by
holders of the Stock of record, and the date or expected date as of which the
holders of Stock of record shall be entitled to exchange their shares of Stock
for securities or other property deliverable upon any such event.
SECTION 8. RULE 144. The Company shall take all actions reasonably
necessary to enable the Holder to sell the 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 including, without
limiting the generality of the foregoing, filing on a timely basis all reports
required to be filed by the Securities Exchange Act of 1934, as amended. Upon
the written request of the Holder, the Company will deliver to the Holder a
written statement as to whether it has complied with such requirements.
SECTION 9. DISPOSITION OF WARRANT SHARES. The stock certificates of the
Company that will evidence the Warrant Shares or any other security issued or
issuable upon exercise of this Warrant will be imprinted with a conspicuous
legend in substantially the following form:
The securities represented by this Certificate have not been registered
under either the Securities Act of 1933 (the "Act") or applicable state
securities laws (the "State Acts") and may be sold, pledged, hypothecated,
donated or otherwise transferred (whether or not for consideration) by the
holder only if registered under the Act and any applicable state acts or
in a transaction exempt from such registrations.
SECTION 10. GOVERNING LAW. This Warrant shall be construed in
accordance with the laws of the State of Texas applicable to contracts
executed and to be performed wholly within such state.
SECTION 11. NOTICE. Any notice, demand or document given or delivered
hereunder shall be in writing, and may be personally delivered or given or made
by United States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
-7-
<PAGE>
IF TO COMPANY: U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, Texas 77060
Attn: Chief Financial Officer
IF TO HOLDER: Glenn A. Pratt
______________________________________
______________________________________
The Company and the Holder shall each have the right to designate a different
address for itself by notice similarly given. Any notice, demand or document so
given, delivered or made by United States mail shall be deemed to have been
given or delivered or made on the third day after the same is deposited in the
United States Mail as registered or certified matter, addressed as above
provided, with postage thereon fully prepaid and return-receipt requested.
SECTION 12. WILL BIND SUCCESSORS. This Warrant will be binding upon
any corporation succeeding to the Company by merger, consolidation or other
operation of law.
SECTION 13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors of the
Company and the heirs, personal representatives, successors and permitted
assigns of the Holder.
SECTION 14. AMENDMENT. This Warrant may be modified or amended and
any provision hereof may be waived only by a writing executed by the Company
and the Holder.
SECTION 15. HEADINGS. Section headings in this Warrant are for
reference only and shall not affect the meaning or construction of any of the
provisions hereof.
SECTION 16. EARLY TERMINATION OF WARRANT. Notwithstanding anything to the
contrary in this Warrant Certificate, if that certain Consulting Agreement,
dated as of January 2, 1998, between US Liquids Northeast, Inc. ("Northeast"), a
wholly-owned subsidiary of the Company, and Glenn A. Pratt is terminated by
Northeast for cause pursuant to Section 6 thereof, this Warrant and/or any new
Warrant issued pursuant to Section 1 or Section 4 hereof shall cease to be
exercisable and shall become void and all rights of the Holder hereunder and/or
thereunder shall cease.
[The remainder of this page left blank intentionally]
-8-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first above written.
U S LIQUIDS INC.
By:___________________________
Name:______________________
Title:_____________________
-9-
<PAGE>
PURCHASE FORM
Dated _______________, 19____
The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing ________ shares of Stock and hereby makes payment of
$________ in payment of the actual Exercise Price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name___________________________________________________________________
(Please typewrite or print in block letters)
Address________________________________________________________________
________________________________________________________________
Signature:______________________
Dated: _____________________, 199___
-10-
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, _______________________________________ hereby sells,
assigns and transfers unto Name____________________________________________
(Please typewrite or print in block letters)
Address _____________________________________________________________ the
_________________________________ right to purchase Stock represented by this
Warrant to the extent of shares of Stock and does hereby irrevocably constitute
and appoint _____________________________ , attorney, to transfer the same on
the books of the Company with full power of substitution in the premises.
Signature:______________________________
Dated:____________________________, 199___
EXHIBIT 10.48
WARRANT CERTIFICATE
NEITHER THE WARRANT REPRESENTED BY THIS CERTIFICATE NOR THE COMMON STOCK
ISSUABLE UPON THE EXERCISE HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND NEITHER MAY BE
TRANSFERRED OR RESOLD WITHOUT REGISTRATION UNDER SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW UNLESS AN EXEMPTION FROM REGISTRATION IS THEN AVAILABLE.
WARRANT TO PURCHASE COMMON STOCK
OF
U S LIQUIDS INC.
Date: January 2, 1998
This is to certify that, FOR VALUE RECEIVED, the registered holder hereof,
JOHN J. BAILEY (the "Holder"), is entitled to purchase, subject to the
provisions of this Warrant Certificate, from U S LIQUIDS INC., a Delaware
corporation (the "Company"), up to 10,000 shares (as such number may be adjusted
in accordance with Section 6 hereof) of the Company's Common Stock, $0.01 par
value (such class of stock, together with any capital stock of the Company into
which such class of stock shall be converted, being referred to herein as the
"Stock"), at $14.125 per share (the "Exercise Price"). The number of shares of
Stock to be received upon the exercise of this Warrant and the Exercise Price
shall be adjusted from time to time as hereinafter set forth. The shares of
Stock or other securities or property deliverable upon such exercise, as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares." Unless the context otherwise requires, the term "Warrant" or "Warrants"
as used herein includes this Warrant and any other Warrant or Warrants which may
be issued pursuant to the provisions of this Warrant, whether upon transfer,
assignment, partial exercise, divisions, combinations, exchange or otherwise,
and the term "Holder" includes any registered transferee or transferees or
registered assignee or assignees of the Holder, who in each case shall be
subject to the provisions of this Warrant, and when used with reference to
Warrant Shares, means the holder or holders of such Warrant Shares.
SECTION 1. EXERCISE OF WARRANT. Subject to the terms and conditions of
this Warrant Certificate, this Warrant may be exercised in whole or in part at
any time or from time to time during the period commencing on the date hereof
and ending 5:00 P.M., Houston, Texas time, on January 2, 2003 (the "Expiration
Date"), by presentation and surrender to the Company at its principal office of
this Warrant and the Purchase Form annexed hereto duly executed and accompanied
by payment in cash, by wire
<PAGE>
transfer or certified or official bank check payable to the order of the Company
in the amount of the Exercise Price for the number of Warrant Shares specified
in such form. If this Warrant is exercised in part only, the Company shall,
promptly after presentation of this Warrant upon such exercise, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable hereunder upon the same terms and
conditions as herein set forth. This Warrant is exercisable only in increments
of 1,000 Warrant Shares, unless the total number of Warrant Shares then issuable
under this Warrant is less than 1,000, in which event this Warrant must be
exercised in full for all Warrant Shares issuable hereunder. Upon and as of
receipt by the Company at its office, in proper form for exercise and
accompanied by payment as herein provided, the Holder shall be deemed to be the
holder of record of the shares of Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Stock shall not then be
actually delivered to the Holder.
Notwithstanding anything to the contrary contained in this Warrant
Certificate, the Holder may elect to exercise this Warrant in whole or in part
by receiving Warrant Shares equal to the value (determined below) of this
Warrant (or any part thereof), upon surrender of this Warrant (or any part
thereof) at the principal office of the Company, together with notice of such
election, specifying the part of this Warrant so surrendered, in which event the
Company shall issue and deliver to the Holder the number of Warrant Shares
determined using the following formula:
X = (Y) (A-B)
A
where
X = the number of Warrant Shares to be
issued to the Holder;
Y = the number of Warrant Shares
purchasable under the Warrant, or portion of
the Warrant, surrendered;
A = the Current Market Price per share of the Stock,
determined pursuant to Section 3 of this Warrant
Certificate; and
B = the then current Exercise Price per share of
Stock.
SECTION 2. RESERVATION OF SHARES. The Company shall at all times after the
date hereof and until the Expiration Date reserve
-2-
<PAGE>
for issuance and delivery upon exercise of this Warrant the number of Warrant
Shares as shall be required for issuance and delivery upon exercise in full of
this Warrant.
SECTION 3. 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 exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction multiplied by
the Current Market Price of such fractional share. For purposes of this Warrant
Certificate, the "Current Market Price" per share of Stock at any date shall be
the average of the daily closing prices for the five consecutive trading days
commencing ten 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 Stock is listed or admitted to trading, or if the Stock is
not listed or admitted to trading on any national securities exchange, but is
traded in the Nasdaq National Market ("NNM"), or if the Stock is otherwise a
security 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 under the Securities Exchange Act of 1934, as amended, the last
reported sales price or, if the Stock is not listed or admitted to trade, and if
last sale data is not then available from NNM, but the Stock is traded in the
over-the-counter market, the average of the representative closing bid and asked
quotations for the Stock on NNM or any comparable system, or if the 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.
SECTION 4. TRANSFER, EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT.
4.1 This Warrant may not be assigned or transferred except as
provided herein and in accordance with and subject to the provisions of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (said Act and such rules and regulations being hereinafter
collectively referred to as the "Act"). Any purported transfer or assignment
made other than in accordance with this Section 4 shall be null and void and of
no force and effect.
4.2 This Warrant may be transferred or assigned only upon the
opinion of counsel satisfactory to the Company, which may be counsel to the
Company, that (i) the transferee is a person to whom the Warrant may be legally
transferred without registration under the Act, and (ii) such transfer will not
violate any applicable law or governmental rule or regulation including,
-3-
<PAGE>
without limitation, any applicable federal or state securities law. Each
certificate for Warrant Shares or for any other security issued or issuable upon
exercise of this Warrant shall contain a legend, in form and substance
satisfactory to the Company, setting forth the restrictions on transfer thereof.
4.3 Any assignment permitted hereunder shall be made by surrender of
this Warrant to the Company at its principal office with the Assignment Form
annexed hereto duly executed and funds sufficient to pay any transfer tax. In
such event the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in such instrument of assignment and designate
the assignee as the registered holder on the Company's records and this Warrant
shall promptly be cancelled. This Warrant may be divided or combined with other
Warrants which carry the same rights upon presentation thereof at the principal
office of the Company together with a written notice signed by the holder
thereof, specifying the names and denominations in which new Warrants are to be
issued.
4.4 Upon receipt by the Company of evidence satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory indemnification to the
Company or (in the case of mutilation) presentation of this Warrant for
surrender and cancellation, the Company will execute and deliver a new Warrant
of like tenor and date and any such lost, stolen, destroyed or mutilated Warrant
shall thereupon become void.
SECTION 5. WARRANT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. The Holder
shall not, solely because of holding this Warrant, be entitled to vote, receive
dividends or be deemed the holder of Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Warrant for any
purpose whatsoever, nor shall anything contained herein be construed to confer
upon the Holder, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matters submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance or otherwise), or to receive notice of
meetings or other actions affecting stockholders, or to receive dividend or
subscription rights, or otherwise, until such Warrant Certificate shall have
been exercised in accordance with the provisions hereof and the receipt by the
Company of the Exercise Price and any other amounts payable upon such exercise.
-4-
<PAGE>
SECTION 6. ADJUSTMENT IN THE NUMBER OF WARRANT SHARES PURCHASABLE AND
EXERCISE PRICE.
6.1 The number of shares of Stock for which this Warrant may be
exercised shall be subject to adjustment as follows:
(a) in the event there is a subdivision or combination of the
outstanding shares of Stock into a larger or smaller number of shares, the
number of shares of Stock for which this Warrant may be exercised shall be
increased or reduced in the same proportion as the increase or decrease in the
outstanding shares of Stock.
(b) if the Company declares a dividend on Stock payable in
Stock or securities convertible into Stock, the number of shares of Stock for
which this Warrant may be exercised shall be increased, as of the record date
for determining which holders of Stock shall be entitled to receive such
dividend, in proportion to the increase in the number of outstanding shares of
Stock as a result of such dividend;
(c) if the Company decides to offer rights to all holders of
Stock which entitle them to subscribe to additional Stock or securities
convertible into Stock, the Company shall give written notice of any such
proposed rights offering to the Holder at least fifteen (15) days prior to the
proposed record date in order to permit the Holder to exercise this Warrant on
or before such record date. There shall be no adjustment in the number of shares
of Stock for which this Warrant may be exercised or the Exercise Price by virtue
of such rights offering or by virtue of any sale of any class of securities of
the Company pursuant to such rights offering.
6.2 In the event at any time prior to the expiration of this Warrant
of any reorganization or reclassification of the outstanding shares of Stock
(other than a change in par value, or from no par value to par value, or from
par value to no par value, or as a result of a subdivision or combination) or
any consolidation or merger of the Company with another entity, or the sale,
lease or transfer of all or substantially all of the property or assets of the
Company, the Holder shall have the right, but not the obligation, to exercise
this Warrant. Upon such exercise, the Holder shall have the right to receive the
same kind and number of shares of stock and other securities, cash or other
property as would have been distributed to the Holder upon such reorganization,
reclassification, consolidation or merger had the Holder exercised this Warrant
immediately prior to such reorganization, reclassification, consolidation or
merger. The Holder shall pay upon such exercise the Exercise Price that
otherwise would have been payable pursuant to the terms of this Warrant. If any
such reorganization, reclassification, consolidation or merger results in a cash
distribution in excess of the Exercise Price provided by
-5-
<PAGE>
this Warrant, the Holder may, at the Holder's option, exercise this Warrant
without making payment of the Exercise Price, and in such case the Company
shall, upon distribution to the Holder, consider the Exercise Price to have been
paid in full, and in making settlement to the Holder, shall deduct an amount
equal to the Exercise Price from the amount payable to the Holder.
6.3 If the Company shall, at any time prior to the expiration of
this Warrant, dissolve, liquidate or wind-up its affairs, the Holder shall have
the right, but not the obligation, to exercise this Warrant. Upon such exercise
the Holder shall have the right to receive, in lieu of the shares of Stock that
the Holder otherwise would have been entitled to receive, the same kind and
amount of assets as would have been issued, distributed or paid to the Holder
upon any such dissolution, liquidation or winding-up with respect to such shares
of Stock had the Holder been the holder of record of such shares of Stock
receivable upon exercise of this Warrant on the date for determining those
entitled to receive any such distribution. If any such dissolution, liquidation
or winding-up results in any cash distribution in excess of the Exercise Price
provided for by this Warrant, the Holder may, at the Holder's option, exercise
this Warrant without making payment of the Exercise Price and, in such case, the
Company shall, upon distribution to the Holder, consider the Exercise Price to
have been paid in full and in making settlement to the Holder shall deduct an
amount equal to the Exercise Price from the amount payable to the Holder.
6.4 The Company may retain a firm of independent public accountants
of recognized standing (who may be any such firm regularly employed by the
Company) to make any computation required under this Section 6, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of any computation made under this Section.
6.5 Whenever the number of shares of Stock purchasable upon the
exercise of this Warrant is adjusted as herein provided, the Exercise Price
shall be adjusted by multiplying the applicable Exercise Price immediately prior
to such adjustment by a fraction, the numerator of which shall be the number of
shares of Stock purchasable upon exercise of this Warrant immediately prior to
such adjustment and the denominator of which shall be the number of shares of
Stock purchasable immediately after such adjustment.
SECTION 7. NOTICE TO HOLDER. So long as this Warrant shall be outstanding,
(i) if the Company shall pay any dividend or make any distribution upon the
Stock otherwise than in cash, or (ii) if the Company shall offer to the holders
of Stock for subscription or purchase by them any shares of any class of stock
of the Company or any other rights, or (iii) if there shall be any capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with
-6-
<PAGE>
or into another corporation, sale, lease or transfer of all or substantially all
of the property and assets of the Company, or voluntary or involuntary
dissolution, liquidation or winding up of the Company, then in any such event,
the Company shall cause to be mailed by certified mail to each Holder, at least
30 days prior to the relevant date of the event described above, a notice
containing a brief description of the proposed action and stating the date or
expected date on which a record is to be taken for the purpose of such dividend,
distribution or rights, or the date or expected date such reclassification,
reorganization, consolidation, merger, conveyance, lease or transfer,
dissolution, liquidation or winding up shall take place or be voted upon by
holders of the Stock of record, and the date or expected date as of which the
holders of Stock of record shall be entitled to exchange their shares of Stock
for securities or other property deliverable upon any such event.
SECTION 8. RULE 144. The Company shall take all actions reasonably
necessary to enable the Holder to sell the 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 including, without
limiting the generality of the foregoing, filing on a timely basis all reports
required to be filed by the Securities Exchange Act of 1934, as amended. Upon
the written request of the Holder, the Company will deliver to the Holder a
written statement as to whether it has complied with such requirements.
SECTION 9. DISPOSITION OF WARRANT SHARES. The stock certificates of the
Company that will evidence the Warrant Shares or any other security issued or
issuable upon exercise of this Warrant will be imprinted with a conspicuous
legend in substantially the following form:
The securities represented by this Certificate have not been registered
under either the Securities Act of 1933 (the "Act") or applicable state
securities laws (the "State Acts") and may be sold, pledged, hypothecated,
donated or otherwise transferred (whether or not for consideration) by the
holder only if registered under the Act and any applicable state acts or
in a transaction exempt from such registrations.
SECTION 10. GOVERNING LAW. This Warrant shall be construed in
accordance with the laws of the State of Texas applicable to contracts
executed and to be performed wholly within such state.
SECTION 11. NOTICE. Any notice, demand or document given or delivered
hereunder shall be in writing, and may be personally delivered or given or made
by United States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
-7-
<PAGE>
IF TO COMPANY: U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, Texas 77060
Attn: Chief Financial Officer
IF TO HOLDER: John J. Bailey
___________________________________
___________________________________
The Company and the Holder shall each have the right to designate a different
address for itself by notice similarly given. Any notice, demand or document so
given, delivered or made by United States mail shall be deemed to have been
given or delivered or made on the third day after the same is deposited in the
United States Mail as registered or certified matter, addressed as above
provided, with postage thereon fully prepaid and return-receipt requested.
SECTION 12. WILL BIND SUCCESSORS. This Warrant will be binding upon
any corporation succeeding to the Company by merger, consolidation or other
operation of law.
SECTION 13. SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced
hereby shall inure to the benefit of and be binding upon the successors of the
Company and the heirs, personal representatives, successors and permitted
assigns of the Holder.
SECTION 14. AMENDMENT. This Warrant may be modified or amended and
any provision hereof may be waived only by a writing executed by the Company
and the Holder.
SECTION 15. HEADINGS. Section headings in this Warrant are for
reference only and shall not affect the meaning or construction of any of the
provisions hereof.
SECTION 16. EARLY TERMINATION OF WARRANT. Notwithstanding anything to the
contrary in this Warrant Certificate, if that certain Consulting Agreement,
dated as of January 2, 1998, between US Liquids Northeast, Inc. ("Northeast"), a
wholly-owned subsidiary of the Company, and John J. Bailey is terminated by
Northeast for cause pursuant to Section 6 thereof, this Warrant and/or any new
Warrant issued pursuant to Section 1 or Section 4 hereof shall cease to be
exercisable and shall become void and all rights of the Holder hereunder and/or
thereunder shall cease.
[The remainder of this page left blank intentionally]
-8-
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant as of the date
first above written.
U S LIQUIDS INC.
By:___________________________
Name:______________________
Title:_____________________
-9-
<PAGE>
PURCHASE FORM
Dated _______________, 19____
The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing ________ shares of Stock and hereby makes payment of
$________ in payment of the actual Exercise Price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name___________________________________________________________________
(Please typewrite or print in block letters)
Address________________________________________________________________
________________________________________________________________
Signature:______________________
Dated: _____________________, 199___
-10-
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, _______________________________________ hereby sells,
assigns and transfers unto Name____________________________________________
(Please typewrite or print in block letters)
Address _____________________________________________________________ the
_________________________________ right to purchase Stock represented by this
Warrant to the extent of shares of Stock and does hereby irrevocably constitute
and appoint _____________________________ , attorney, to transfer the same on
the books of the Company with full power of substitution in the premises.
Signature:______________________________
Dated:____________________________, 199___
EXHIBIT 21.1
LIST OF SUBSIDIARIES
OF
U S LIQUIDS INC.
MBO Inc.
U S Liquids L.P. Holding Co.
U S Liquids of La., L.P.
American WasteWater, Inc.
Mesa Processing, Inc.
Mesa International, Inc.
Re-Claim Environmental, Inc.
Re-Claim Environmental Louisiana L.L.C.
USL Management Limited Partnership
USL General Management, Inc.
GEM Management, Inc.
U S Liquids Northeast, Inc.
Environment Management, Inc.
Enviro-Waste Type V of Texas, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated March 3, 1998, included in this Form 10-K for
the year ended December 31, 1997, into the U S Liquids Inc. previously filed
Form S-8 Registration Statement File No. 333-34689.
ARTHUR ANDERSEN LLP
Houston, Texas
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF US LIQUIDS INC. AS OF DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,203
<SECURITIES> 0
<RECEIVABLES> 5,778
<ALLOWANCES> 342
<INVENTORY> 567
<CURRENT-ASSETS> 8,827
<PP&E> 43,281
<DEPRECIATION> 4,171
<TOTAL-ASSETS> 55,016
<CURRENT-LIABILITIES> 6,705
<BONDS> 16,644
0
0
<COMMON> 73
<OTHER-SE> 20,833
<TOTAL-LIABILITY-AND-EQUITY> 55,016
<SALES> 0
<TOTAL-REVENUES> 38,159
<CGS> 0
<TOTAL-COSTS> 24,173
<OTHER-EXPENSES> 5,920
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,734
<INCOME-PRETAX> 6,291
<INCOME-TAX> 2,416
<INCOME-CONTINUING> 3,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,875
<EPS-PRIMARY> .65
<EPS-DILUTED> .55
</TABLE>
