U S LIQUIDS INC, 424B1, 1998-06-05

U S LIQUIDS INC
424B1, 1998-06-05
HAZARDOUS WASTE MANAGEMENT

Previous: GE INSTITUTIONAL FUNDS, N-30D, 1998-06-05

Next: OPPENHEIMER MIDCAP FUND, 497, 1998-06-05

FILED PURSUANT TO RULE 424(B)(1)
REGISTRATION NO. 333-52121

PROSPECTUS
JUNE 5, 1998

3,000,000 SHARES

[LOGO]

U S LIQUIDS INC.
COMMON STOCK

All of the 3,000,000 shares of Common Stock offered hereby are being sold
by U S Liquids Inc., a Delaware corporation. The Common Stock is listed on the
American Stock Exchange under the symbol "USL." On June 4, 1998, the reported
last sale price of the Common Stock as reported on the American Stock Exchange
was $19 7/8 per share. See "Price Range of Common Stock and Dividend Policy."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS
THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)

- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $19.00 $1.09 $17.91
Total(3)............................. $57,000,000 $3,270,000 $53,730,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SEE "UNDERWRITING."

(2) BEFORE DEDUCTING EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY ESTIMATED
AT $1,000,000.

(3) THE COMPANY HAS GRANTED THE UNDERWRITERS AN OPTION EXERCISABLE WITHIN 30
DAYS AFTER THE DATE OF THIS PROSPECTUS TO PURCHASE UP TO AN AGGREGATE OF
450,000 ADDITIONAL SHARES OF COMMON STOCK, ON THE SAME TERMS AS SET FORTH
ABOVE, AT THE PRICE TO THE PUBLIC, LESS THE UNDERWRITING DISCOUNTS AND
COMMISSIONS, SOLELY FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF ANY. IF
SUCH OPTION IS EXERCISED IN FULL, THE TOTAL PRICE TO THE PUBLIC,
UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO THE COMPANY WILL BE
$65,550,000, $3,760,500 AND $61,789,500, RESPECTIVELY. SEE "UNDERWRITING."

The shares of Common Stock are offered by the several Underwriters subject
to prior sale, when, as and if delivered to and accepted by them, subject to
certain prior conditions. The Underwriters reserve the right to reject any order
in whole or in part. It is expected that delivery of the shares of Common Stock
will be made in New York, New York on or about June 10, 1998.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE BANK SECURITIES
VAN KASPER & COMPANY
SANDERS MORRIS MUNDY
<PAGE>
[PHOTO]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE
IN THIS PROSPECTUS. SINCE THE COMPANY'S INITIAL PUBLIC OFFERING (THE "IPO") IN
AUGUST 1997, THE COMPANY HAS ACQUIRED OR CONTRACTED TO ACQUIRE 20 BUSINESSES
(THE "ACQUISITIONS"), WHICH COLLECTIVELY HAD 1997 PRO FORMA REVENUES OF
APPROXIMATELY $111.8 MILLION. ALL OF THESE ACQUISITIONS HAVE BEEN CONSUMMATED
EXCEPT THE ACQUISITION FROM USA WASTE SERVICES, INC. ("USA WASTE") OF ONE
BUSINESS IN FLORIDA WITH APPROXIMATELY $6.6 MILLION IN 1997 REVENUES (THE
"UNIVERSAL WASTE ACQUISITION") WHICH IS UNDER DEFINITIVE AGREEMENT. PENDING
THE CONSUMMATION OF THE UNIVERSAL WASTE ACQUISITION, WHICH IS EXPECTED TO OCCUR
UPON ISSUANCE OF CERTAIN REGULATORY PERMITS, USA WASTE WILL OPERATE THE BUSINESS
ON TERMS THAT HAVE THE SAME EFFECT ON THE COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AS IF THE ACQUISITION HAD BEEN CONSUMMATED. EXCEPT AS
OTHERWISE NOTED HEREIN, ALL INFORMATION IN THIS PROSPECTUS ASSUMES (I) THAT THE
UNIVERSAL WASTE ACQUISITION HAS BEEN CONSUMMATED, AND (II) NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. SEE "UNDERWRITING."

THE COMPANY

U S Liquids Inc. (the "Company") is a rapidly growing provider of
integrated liquid waste management services, including collection, processing,
recovery and disposal services. The Company's primary focus of operations is
industrial and commercial wastewater treatment, although the Company also
collects, processes and disposes of oilfield waste. The Company operates 34
processing facilities located in eight states and serves over 20,000 customers.
The services provided by the Company to any particular customer vary depending
on the type of liquid waste generated, local regulations and the treatment
capabilities of local publicly-operated treatment works ("POTWs").

The Company has adopted an acquisition-based growth strategy and intends to
continue its expansion, generally through (i) acquiring liquid waste processing
facilities; (ii) securing captive waste streams for its facilities by acquiring
collection companies and by entering into long-term contracts directly with
customers or collection companies; and (iii) integrating acquired companies into
the Company's operations to achieve operating efficiencies and economies of
scale. The Company believes that the liquid waste industry is highly fragmented
and that substantial acquisition opportunities exist throughout North America.
Since the Company's IPO in August 1997, the Company has acquired 20 businesses,
which collectively had 1997 pro forma revenues of approximately $111.8 million.

The Company provides liquid waste management services through a number of
subsidiaries which are organized into two divisions. The Industrial Wastewater
Division collects, processes and disposes of liquid waste (such as industrial
wastewater, grease and grit trap waste, bulk liquids and unsaleable beverages,
and certain hazardous wastes) and recovers saleable by-products (such as fats,
oils, feed proteins, ethanol and solvents) from certain of the waste streams.
Typically, the Company uses a variety of physical, chemical, thermal and
biological techniques to break down the liquid waste into constituent
components. Water extracted from the liquid waste is pretreated and then
discharged into a POTW and solid materials are dried and disposed of in a solid
waste landfill. The Oilfield Waste Division collects, processes and disposes of
waste generated in oil and gas exploration and production. The Company's
Industrial Wastewater Division generated 82.0% of the Company's 1997 pro forma
revenues of $150.0 million and the Oilfield Waste Division generated the
remaining 18.0% of such pro forma revenues.

The Company believes that as it expands it is likely to gain numerous
competitive advantages relative to smaller operators, including: servicing
multiple customer locations, treating a wide variety of liquid waste streams,
achieving operating efficiencies (including collection route densification and
consolidation, and increased equipment and facility utilization), increased
economies of scale (including access to lower-cost capital, lower insurance
rates and decreased proportional selling, general and administrative expenses),
and adapting to changing regulations.

According to The McIlvaine Company, the industrial and commercial
wastewater treatment market is highly fragmented with thousands of businesses
generating an estimated $25 billion in revenues in 1995. The Company believes
that the growth in demand for wastewater treatment services in the United States
is driven by the following trends: (i) municipalities refusing to accept certain
industrial wastewaters due to limited treatment capabilities and a lack of
resources needed to expand or modernize their POTWs,

3
<PAGE>
(ii) industrial and commercial businesses avoiding POTW surcharges by using
third parties to process and dispose of their wastewater, (iii) industrial and
commercial businesses outsourcing their wastewater treatment needs, (iv)
continued industrial and commercial expansion, and (v) increasingly strict
regulations governing the disposal of industrial wastewater and other liquid
wastes, as well as more stringent enforcement of such regulations.

STRATEGY

The Company's objective is to continue to grow throughout North America by
expanding its services in markets where it can be one of the largest and most
profitable integrated liquid waste management service companies. The Company has
assembled a management team with significant operating and consolidation
experience in the waste management industry. The key elements of the Company's
strategy are:

EXPAND THROUGH ACQUISITIONS. The Company intends to continue to
aggressively pursue acquisitions of liquid waste management companies in
new geographic areas, while increasing its facility and equipment
utilization and expanding its market penetration and range of services
offered in its existing markets through "tuck-in" acquisitions.

INTERNAL GROWTH. The Company intends to expand its customer base by
positioning itself as a multi-city, single source provider of liquid waste
management services for national and regional generators of liquid waste.
The Company also plans to expand the capacity and processing capabilities
of its existing liquid waste facilities, and is seeking to amend its
permits for certain facilities in order to receive additional liquid waste
streams.

OPERATIONAL ENHANCEMENTS. The Company will seek to enhance the
operations of its existing facilities and acquired businesses through
collection route densification and consolidation and increased facility and
equipment utilization. The Company also expects to realize economies of
scale, as well as cost savings by consolidating certain administrative
functions at its corporate offices.

OPERATE ON DECENTRALIZED BASIS. The Company intends to continue to
manage its various businesses on a decentralized basis, with local
management maintaining responsibility for the day-to-day operations,
profitability and growth of the business. The Company believes that such a
decentralized operating structure will allow the Company to capitalize on
the considerable local and regional market knowledge and customer
relationships possessed by local management.

THE OFFERING

Common Stock Offered................. 3,000,000 shares
Common Stock to be outstanding after
the Offering....................... 11,516,211 shares(1)
Use of Proceeds...................... Repayment of outstanding indebtedness
AMEX Symbol.......................... USL

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

(1) Excludes 2,135,375 shares of Common Stock subject to outstanding options and
warrants having a weighted average exercise price of $5.56 per share, which
options and warrants consist of (i) 1,000,000 shares issuable pursuant to a
warrant issued to Sanifill, Inc. ("Sanifill"), a wholly-owned subsidiary
of USA Waste, the resale of which shares is subject to certain contractual
restrictions extending through 2001, (ii) 837,875 shares issuable pursuant
to outstanding director and employee stock options, (iii) 112,500 shares
issuable pursuant to warrants granted to certain underwriters in connection
with the IPO, and (iv) 185,000 shares issuable pursuant to other outstanding
warrants and options. Also excludes 281,250 shares issuable pursuant to
options, the vesting of which are contingent upon the successful completion
of certain corporate development business activities.

4
<PAGE>
SUMMARY FINANCIAL DATA

The historical statement of operations data below sets forth the financial
data of the Company for the year ended December 31, 1997, derived from the
consolidated financial statements audited by Arthur Andersen LLP, which appear
elsewhere in this Prospectus. The historical statement of operations for the
three months ended March 31, 1997 and 1998 and the balance sheet data as of
March 31, 1998 have been derived from the unaudited consolidated financial
statements of the Company. The unaudited consolidated financial statements for
all periods have been prepared on the same basis as the audited consolidated
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. The statement of operations data below present depreciation and
amortization expenses separately from operating expenses and selling, general
and administrative expenses. Depreciation and amortization expenses are included
in the operating and the selling, general and administrative expense captions
set forth in the audited financial statements.

The unaudited pro forma financial data set forth below present certain
financial information for the Company which gives effect to (i) the Acquisitions
and certain pro forma adjustments to the historical financial statements of the
businesses acquired, including adjusting depreciation and amortization expenses
to reflect purchase price allocations, recording interest expense to reflect
debt issued in connection with the Acquisitions, certain reductions in salaries
and benefits payable to the owners of the businesses acquired which were agreed
to in connection with the Acquisitions and the related income tax effects of
these adjustments, and (ii) the consummation of this offering and the
application of the net proceeds therefrom. The pro forma financial information
is not necessarily indicative of results the Company would have obtained had
these events actually then occurred or the Company's future results and should
be read in conjunction with the other financial statements and notes thereto
included elsewhere in this Prospectus. See "Selected Financial Data."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA AS ADJUSTED(1)
----------------------------------- -----------------------------------
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED
ENDED MARCH 31, ENDED MARCH 31,
DECEMBER 31, -------------------- DECEMBER 31, --------------------
1997 1997 1998 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Revenues............................ $ 38,159 $ 7,862 $ 12,343 $149,983 $ 34,499 $ 41,678
Operating expenses.................. 21,353 4,675 7,011 101,868 24,424 27,736
Depreciation and amortization....... 2,990 633 987 9,292 1,944 2,631
Selling, general and administrative
expenses.......................... 5,750 690 1,467 18,186 3,487 4,644
------------ --------- --------- ------------ --------- ---------
Income from operations.............. 8,066 1,864 2,878 20,637 4,644 6,667
Interest expense, net............... 1,734 509 346 3,195 864 691
Other (income) expense, net......... 41 (28) (5) 154 91 100
------------ --------- --------- ------------ --------- ---------
Income before provision for income
taxes............................. 6,291 1,383 2,537 17,288 3,689 5,876
Provision for income taxes.......... 2,416 504 1,002 7,088 1,512 2,409
------------ --------- --------- ------------ --------- ---------
Net income.......................... $ 3,875 $ 879 $ 1,535 $ 10,200 $ 2,177 $ 3,467
============ ========= ========= ============ ========= =========
Diluted earnings per common and
common equivalent share........... $ 0.55 $ 0.16 $ 0.18 $ 0.81 $ 0.17 $ 0.27
============ ========= ========= ============ ========= =========
Weighted average common and common
equivalent shares
outstanding(2).................... 7,078 5,418 8,737 12,645 12,483 12,811
EBITDA(3)........................... $ 11,056 $ 2,497 $ 3,865 $ 29,929 $ 6,588 $ 9,298
<CAPTION>
MARCH 31, 1998
-------------------------------------------
PRO PRO FORMA
HISTORICAL FORMA(4) AS ADJUSTED(5)
(IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C>
Cash and cash equivalents........... $ 5,733 $ 7,476 $ 7,476
Working capital..................... 5,478 7,691 7,691
Property, plant and equipment,
net............................... 40,501 76,736 76,736
Total assets........................ 70,240 181,341 181,341
Long-term obligations, net of
current maturities................ 25,346 90,816 38,086
Stockholders' equity................ 25,424 46,265 98,995
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)

5
<PAGE>
- ------------------------------

(1) Pro forma for the effect of the Acquisitions as if each had occurred on
January 1, 1997 and as adjusted to reflect the sale of 3,000,000 shares of
Common Stock offered by the Company hereby and the application of the net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."

(2) The pro forma as adjusted weighted average common and common equivalent
shares outstanding includes: (i) 5,937,435 shares, 5,238,875 shares and
7,438,910 shares outstanding for the year ended December 31, 1997 and for
the three months ended March 31, 1997 and 1998, respectively, (ii) 3,000,000
shares issued in connection with this offering, (iii) 2,515,124 shares,
3,211,085 shares and 1,073,578 shares for the year ended December 31, 1997
and for the three months ended March 31, 1997 and 1998, respectively, issued
in connection with the Acquisitions and the Company's IPO as if each had
occurred on January 1, 1997, and (iv) 1,192,531 shares, 1,032,585 shares and
1,298,072 shares for the year ended December 31, 1997 and for the three
months ended March 31, 1997 and 1998, respectively, representing the effect
of outstanding warrants and options to purchase Common Stock, using the
treasury stock method. Excludes 281,250 shares issuable pursuant to options,
the vesting of which are contingent upon the successful completion of
certain corporate development activities.

(3) EBITDA represents earnings presented above before interest, other (income)
expense, income taxes, depreciation and amortization expense. EBITDA is not
a measure of cash flow, operating results or liquidity, as determined in
accordance with generally accepted accounting principles, and differs from
net cash provided by operating activities as determined under generally
accepted accounting principles in that EBITDA excludes interest expense and
does not reflect the effects of changes in working capital or deferred
income tax items. EBITDA should not be considered in isolation or as an
alternative to, or more meaningful than, net income or cash flows provided
by operations, as determined in accordance with generally accepted
accounting principles. The EBITDA amounts shown for the Company may not be
comparable to EBITDA as reported by or for other companies because the
Company's EBITDA may not be calculated on the same basis as EBITDA as
reported by or for other companies.

(4) Pro forma for the effect of the Acquisitions consummated subsequent to March
31, 1998 as if each had occurred on March 31, 1998.

(5) Pro forma for the effect of the Acquisitions consummated subsequent to March
31, 1998 as if each had occurred on March 31, 1998 and as adjusted to
reflect the sale of 3,000,000 shares of Common Stock offered by the Company
hereby and the application of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."

6
<PAGE>
RISK FACTORS

THE COMMON STOCK BEING OFFERED HEREBY INVOLVES A SIGNIFICANT DEGREE OF
RISK. IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS,
PROSPECTIVE PURCHASERS OF THE COMMON STOCK SHOULD CONSIDER CAREFULLY THE
FOLLOWING RISK FACTORS IN EVALUATING AN INVESTMENT IN THE COMPANY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"),
THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S
STRATEGIES, PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF ANY NUMBER OF FACTORS, INCLUDING THE RISK FACTORS SET
FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. THE CAUTIONARY STATEMENTS MADE IN
THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED
FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS PROSPECTUS.

LIMITED OPERATING HISTORY; ABSENCE OF COMBINED OPERATING HISTORY

The Company was organized in November 1996 and began active operations in
December 1996. As a result, the Company has very little operating history as an
integrated liquid waste management business to which investors may look to
evaluate the Company's performance. In addition, since its IPO in August 1997,
the Company has completed 20 acquisitions. There can be no assurance that the
Company will be able to successfully integrate the operations of the acquired
businesses or any subsequently acquired business or to institute the necessary
systems and procedures, including accounting and financial reporting systems, to
manage the entire combined enterprise on a profitable basis. In addition, there
can be no assurance that the Company's management group will be able to
effectively manage the combined entity or to effectively implement the Company's
acquisition program and internal growth strategy. The Pro Forma Financial
Statements of the Company cover periods when the businesses acquired in the
Acquisitions were not under common control or management and may not be
indicative of the Company's future financial or operating results. The inability
of the Company to integrate these acquired businesses successfully would have a
material adverse effect on the Company's business, results of operations and
financial condition, as well as its acquisition program. See
"Business -- Acquisition Program" and "Management."

RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY

The Company intends to grow significantly through the acquisition of
additional liquid waste management businesses. The Company expects to face
competition for acquisition candidates, which may limit the number of
acquisition opportunities and may lead to higher acquisition prices. There can
be no assurance that the Company will be able to identify, acquire or manage
additional businesses profitably or to integrate successfully any acquired
businesses into the Company without substantial or material unanticipated costs,
delays or other operational or financial problems. Businesses acquired by the
Company may have liabilities that the Company does not discover or may be unable
to discover during its pre-acquisition investigations, including liabilities
arising from environmental contamination or non-compliance by prior owners with
environmental laws or regulatory requirements, and for which the Company, as a
successor owner or operator, may be responsible. Certain environmental
liabilities, even if not expressly assumed by the Company, may nonetheless be
imposed on the Company under certain legal principles of successor liability,
including those under the Comprehensive Environmental Response Compensation and
Liability Act, as amended ("CERCLA"). Three of the businesses acquired in the
Acquisitions process hazardous substances at their facilities. The Company may
be required under federal, state or local law to investigate and remediate any
contamination that may have resulted from the processing of any hazardous
substances by any of these businesses. Any indemnitees or warranties, due to
their limited scope, amount, duration, the financial limitations of the
indemnitor or warrantor, or other reasons, may not fully cover such liabilities.
Further, acquisitions involve a number of other special risks, including failure
of the acquired business to achieve expected results, diversion of management's
attention, failure to retain key personnel of the acquired business and risks
associated with unanticipated events, all of which could have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, if the

7
<PAGE>
Company is not able to successfully integrate the operations of one or more of
its acquired businesses, the benefits expected to be derived by the Company from
consolidating certain overhead functions such as cash management, human
resources, finance and insurance will not be realized. The Company currently has
no binding agreements to make any acquisitions. See "Business -- Acquisition
Program" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."

MANAGEMENT OF GROWTH

To manage its growth effectively, the Company will be required to continue
to implement and improve its operational, financial and management information
systems and controls, and to train, motivate and manage its employees. The
Company intends to continually review and upgrade its management information
systems, as well as hire additional management and other personnel in order to
maintain the adequacy of its operational, financial and management controls. The
Company's failure to manage its growth effectively could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Management."

RISKS RELATED TO ACQUISITION FINANCING

The timing, size and success of the Company's future acquisition efforts
and the associated capital requirements cannot be readily predicted at this
time. The Company currently intends to finance future acquisitions by using a
combination of Common Stock and cash. In the event shares of Common Stock are
issued in connection with future acquisitions or earn-out provisions of
completed acquisitions, purchasers of Common Stock in this offering may
experience dilution in the net tangible book value of their stock. If the Common
Stock does not maintain a sufficient market value, or potential acquisition
candidates are otherwise unwilling to accept Common Stock as part of the
consideration for the sale of their businesses, the Company may be required to
use more of its cash resources, if available, or incur indebtedness in order to
continue its acquisition program. The Company has a $100.0 million credit
facility (the "Credit Facility") with a group of banks under which the Company
may borrow to fund acquisitions and working capital requirements; however, under
the Credit Facility the banks' consent is required in order for the Company to
consummate certain acquisitions or incur indebtedness (including, without
limitation, debt assumed in connection with acquisitions). After the
consummation of this offering and the application of the net proceeds therefrom,
the Company anticipates that the outstanding principal balance of the Credit
Facility will be approximately $38.0 million. If the Company does not have
sufficient cash resources, its growth could be limited unless it is able to
obtain additional capital through debt or equity financings. There can be no
assurance that the Company will be able to obtain such financing when required
or that such financing will be available on terms and conditions reasonably
acceptable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

RISKS RELATED TO OPERATING AND INTERNAL GROWTH STRATEGY

Key elements of the Company's strategy are to improve the profitability and
increase the revenues of its existing operations and any subsequently acquired
businesses. The Company intends to improve the profitability of its existing
operations and any subsequently acquired businesses by various means, including
achieving operating efficiencies and economies of scale. The Company's ability
to increase the revenues of its existing operations and any subsequently
acquired businesses will be affected by various factors, including the demand
for liquid waste collection, processing and disposal services, as well as the
demand for by-products recovered by the Company from certain liquid waste
streams, and the Company's ability to expand the range of services offered to
customers, develop national and regional accounts for its liquid waste
management services and other marketing programs. Many of these factors are
beyond the Company's control, and there can be no assurance that the Company's
operating and internal growth strategies will be successful or that the Company
will be able to generate cash flow adequate for its operations and to support
internal growth. See "Business -- Strategy."

8
<PAGE>
COMPETITION

The liquid waste industry is highly fragmented and very competitive. The
Company competes with other liquid waste processing facilities and alternative
methods of disposal of certain waste streams provided by area landfills and
injection wells, as well as the alternative of illegal disposal. In addition,
competitive products and services have been and will continue to be successfully
developed and marketed by others. Furthermore, future technological change and
innovation may result in a reduction in the amount of liquid waste being
generated or alternative methods of processing and/or disposal being developed.
The Company's inability to procure sufficient quantities of liquid waste would
have a material adverse effect on the Company's business, results of operations
and financial condition. The market for the various by-products recovered by the
Company for sale to third parties is also very competitive and is served by
several large companies and a number of smaller, owner-operated companies. With
respect to its oilfield waste operations, the Company must compete with
alternative methods of off-site disposal of oilfield waste. The Company also
faces competition from customers who seek to enhance and develop their own
methods of disposal instead of using the services of third parties such as the
Company. Future technological change and innovation may increase the amount of
internal oilfield waste processing and disposal as well as the number of
competitors in this market. Increased use of internal processing and disposal
methods and other competitive factors could have a material adverse effect on
the Company's business, results of operations and financial condition. In
addition, until August 2001, the Company is prohibited from engaging in certain
activities relating to the collection, transportation or disposal of oilfield
waste generated in the Gulf of Mexico and certain surrounding states and other
related businesses. See " -- Dependence on Newpark for Offshore-Generated
Oilfield Waste; Covenant Not to Compete; and Obligation to Treat Oilfield Waste
Received from Newpark at Below-Market Prices," "Business -- Operations and
Services Provided" and "Certain Transactions -- Campbell Wells Acquisition."

Competitors of the Company may be better capitalized, have greater name
recognition or be able to provide services or products at a lower cost. In
addition, as the liquid waste market matures, competition can be expected to
increase. As a result of these competitive factors, there can be no assurance
that the Company's growth strategy will be successful or that the Company will
be able to generate cash flow adequate for its operations and to support future
acquisitions and internal growth. See "Business -- Competition."

FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS

The Company's operations are subject to numerous and continually evolving
federal, state and local laws, regulations and policies that govern
environmental protection, zoning and other matters, including the Clean Water
Act, the Resource Conservation and Recovery Act of 1976, as amended ("RCRA")
and the Clean Air Act. If existing regulatory requirements change, the Company
may, among other things, be required to make significant unanticipated capital
and operating expenditures. Although the Company believes that it is presently
in material compliance with applicable laws and regulations, there can be no
assurance that it will be deemed to be in compliance in the future. Governmental
authorities may seek to impose fines and penalties on the Company or to revoke
or deny the issuance or renewal of operating permits for failure to comply with
applicable laws and regulations. Under such circumstances, the Company might be
required to curtail or cease operations or conduct site remediation until a
particular problem is remedied, which could have a material adverse effect on
the Company's business, results of operations and financial condition. In
addition, if the Company's operations resulted in the release of hazardous
substances, the Company could incur liability under CERCLA. See
"Business -- Regulatory Background."

IMPACT OF FAILURE TO OBTAIN OR MAINTAIN NECESSARY GOVERNMENTAL APPROVALS

The Company operates in a highly regulated environment and the facilities
at which the Company processes liquid waste are required to have permits and
approvals from federal, state and local governments. Any of such permits or
approvals or applications may be subject to denial, revocation or modification
under various circumstances. In addition, in the event new environmental
legislation or regulations are enacted or existing legislation or regulations
are amended or are enforced differently, the Company may be required to

9
<PAGE>
obtain additional operating permits or approvals. The process of obtaining a
required permit or approval may be lengthy and expensive and the issuance of
such permits or the obtaining of such approval may be subject to public
opposition. There can be no assurance that the Company will be successful in
obtaining or maintaining all required permits and approvals. Any such failure
could have a material adverse effect on the Company's business, results of
operations and financial condition.

POTENTIAL ENVIRONMENTAL LIABILITY; INSUFFICIENCY OF INSURANCE

The Company processes and disposes of various types of hazardous and
nonhazardous wastes at its facilities. There may be various adverse consequences
to the Company in the event that a facility owned or operated by the Company
(including any acquired business) causes environmental damage, in the event that
waste transported by the Company causes environmental damage at another site, in
the event the Company fails to comply with applicable environmental and land use
laws and regulations or the terms of a permit or outstanding consent order or in
the event a facility owned or operated by the Company or the soil or groundwater
thereunder is or becomes contaminated. These adverse consequences may include
the imposition of substantial monetary penalties on the Company, the issuance of
an order requiring the curtailment or termination of the operations involved or
affected, the revocation or denial of permits or other approvals necessary for
continued operation or expansion of a facility, the imposition of liability on
the Company with respect of any environmental damage (including groundwater or
soil contamination) at its facilities or that its facilities caused to adjacent
landowners or others or environmental damage at another site associated with
waste transported by the Company, the imposition of liability on the Company
under CERCLA or under comparable state laws, and criminal liability for the
Company or its officers. In addition, citizens' groups, adjacent landowners or
governmental entities could oppose the issuance of a permit or approval to the
Company or allege violations of the permits pursuant to which the Company
operates or laws or regulations to which the Company is subject. Any of the
foregoing could have a material adverse effect on the Company's business,
results of operations and financial condition. CERCLA and comparable state laws
impose retroactive strict joint and several liability on various parties that
are, or have been, associated with a site at which there has been, or is
threatened, a release of any hazardous substance (as defined by CERCLA) into the
environment. Liability under RCRA, CERCLA and comparable state laws may include
responsibility for costs of site investigations, site clean up, site monitoring,
natural resources damages and property damages. Liabilities under RCRA, CERCLA
and comparable state laws can be very substantial and, if imposed upon the
Company, could have a material adverse effect on the Company's business, results
of operations and financial condition. See "Business -- Regulatory
Background."

The National Emission Standards for Hazardous Air Pollutants ("NESHAPs")
regulate the collection, packaging, transportation and disposal of
asbestos-containing material. NESHAPs regulate visible emissions of asbestos
fibers to outside air and require emissions controls and appropriate work
practices. Asbestos is listed as a hazardous substance under CERCLA. Certain
states have classified asbestos as hazardous waste and require appropriate
handling and disposal practices. One of the businesses recently acquired by the
Company transports and disposes of asbestos-containing materials. There can be
no assurance that the Company will not face claims resulting from environmental
liabilities relating to these and other materials in its waste management
operations.

During the ordinary course of its operations, the Company has from time to
time received, and expects that it may in the future receive, citations or
notices from governmental authorities that its operations are not in compliance
with its permits or certain applicable environmental or land use laws and
regulations. The Company generally seeks to work with the authorities to resolve
the issues raised by such citations or notices. There can be no assurance,
however, that the Company will always be successful in this regard, and the
failure to resolve a significant issue could result in one or more of the
adverse consequences to the Company described above.

While the Company maintains liability insurance, the insurance is subject
to coverage limits and certain policies exclude coverage for damages resulting
from environmental contamination. Although there are currently numerous sources
from which such coverage may be obtained, there can be no assurance that
insurance will continue to be available to the Company on commercially
reasonable terms, that the possible

10
<PAGE>
types of liabilities that may be incurred by the Company will be covered by its
insurance, that the Company's insurance carriers will be able to meet their
obligations under the policies or that the dollar amount of such liabilities
will not exceed the Company's policy limits. Even a partially uninsured claim,
if successful and of significant magnitude, could have a material adverse effect
on the Company's business, results of operations and financial condition.

POTENTIAL IMPACT OF STATE OF LOUISIANA EXAMINATIONS OF THE OILFIELD WASTE
DISPOSAL INDUSTRY

In 1997, after an unsuccessful attempt was made in the Louisiana
legislature to require the Company's Bourg, Louisiana landfarm to relocate or
close, the Governor of Louisiana directed certain state agencies to examine the
operations at the Bourg landfarm and to review generally Louisiana's rules and
regulations regarding the processing and disposal of oilfield waste. As a result
of this mandate, the Louisiana Department of National Resources has adopted
emergency rules that will, among other things, require (i) generators of
oilfield waste to conduct additional tests on oilfield waste to be disposed of
off-site, and (ii) all oilfield waste disposal facilities located in Louisiana
to conduct additional tests on oilfield waste accepted for processing and/or
disposal. These emergency rules went into effect on May 1, 1998 and will
continue for 120 days. Results of the testing conducted by the disposal
facilities and the generators of the oilfield waste will be evaluated by the
Department of Natural Resources to determine if there are any constituents
present in the oilfield waste in high enough concentrations to pose a risk to
human health or the environment and, if so, whether any modifications to the
Department's rules governing the processing and/or disposal of oilfield waste
are warranted. New regulations or changes in applicable regulations resulting
from the implementation of these emergency rules could have a material adverse
effect on the Company's business, results of operations and financial condition.

DEPENDENCE UPON OILFIELD WASTE EXEMPTION UNDER RCRA AND OTHER ENVIRONMENTAL
REGULATIONS

Oilfield waste is currently exempt from the requirements of RCRA, which is
the principal federal statute governing the handling and disposal of waste. In
recent years, proposals have been made to rescind or modify this exemption. The
repeal or modification of the exemption covering oilfield waste or modification
of applicable regulations or interpretations regarding the processing and/or
disposal of oilfield waste would require the Company to alter its method of
processing and disposing of oilfield waste. Such repeal or modification could
have a material adverse effect on the Company's business, results of operations
and financial condition. Each of the Company's operations is also dependent to
varying degrees on the existence and enforcement of local, state and federal
environmental regulations. Any repeal or relaxation of such regulations, or a
failure of governmental authorities to enforce such regulations, could result in
decreased demand for the Company's services and, therefore, could have a
material adverse effect on the Company's business, results of operations and
financial condition. The Company's operations may also be adversely affected by
new regulations or changes in other applicable regulations. See "Business --
Regulatory Background."

DEPENDENCE ON OIL AND GAS INDUSTRY

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

11
<PAGE>
DEPENDENCE ON NEWPARK FOR OFFSHORE-GENERATED OILFIELD WASTE; COVENANT NOT TO
COMPETE; AND OBLIGATION TO TREAT OILFIELD WASTE RECEIVED FROM NEWPARK AT
BELOW-MARKET PRICES

In December 1996, the Company acquired five oilfield waste landfarms and
landfills from Campbell Wells, L.P. and Campbell Wells Norm, L.P. (collectively
"Campbell Wells") and Sanifill, each of which is now a wholly-owned subsidiary
of USA Waste. In connection with this acquisition (the "Campbell Wells
Acquisition"), the Company acquired a disposal agreement (the "Disposal
Agreement") and certain related agreements with Newpark Resources, Inc., a
public company located in New Orleans ("Newpark"), that obligate Newpark to
deliver to the Company, in each of the next 23 years, oilfield waste for
treatment and disposal at certain of the Company's Louisiana landfarms.
Specifically, until June 30, 2021, Newpark is obligated to deliver to the
Company for processing and disposal the lesser of (i) one-third of the barrels
of oilfield 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 oilfield waste, in each case
excluding saltwater. In return, prior to August 2001, the Company is obligated
not to engage, directly or indirectly, in the collection, transfer,
transportation, treatment or disposal of oilfield waste generated in a marine
environment or transported in marine vessels or the site remediation and closure
business in the Territory. As a result of these contractual arrangements with
Newpark, the Company's Oilfield Waste Division is dependent upon Newpark's
ability to maintain its share of the oilfield waste disposal market in the
Territory. There can be no assurance that Newpark will be able to maintain its
share of the oilfield waste disposal market in the Territory, and a significant
decline in Newpark's market share could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
these contractual arrangements limit the ability of the Company to expand its
offshore oilfield waste operations in the Territory through acquisitions or
otherwise.

The Disposal Agreement also governs the price to be paid by Newpark to the
Company for delivered oilfield waste. This 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 the duration of the Disposal Agreement. For
the year ended December 31, 1997, pro forma revenues of approximately $27.0
million, or approximately 18.0% of the Company's total pro forma revenues, were
derived from the processing and disposal of oilfield waste, of which amount
approximately $7.9 million, or approximately 5.3% of the Company's total pro
forma revenues, was derived from the processing and disposal of oilfield waste
received from Newpark. See "Business -- Operations and Services Provided" and
"Certain Transactions -- Campbell Wells Acquisition."

RELIANCE ON KEY PERSONNEL

The Company is highly dependent on its executive officers and senior
management, and the Company likely will depend on the senior management of any
significant business it acquires in the future. The loss of any of its current
executive officers or key employees or any member of senior management of any
subsequently acquired business could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
debt outstanding under the Credit Facility may be accelerated at the option of
the lenders in the event that, among other things, 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 60 days by an individual reasonably satisfactory to
the lenders. The Company does not maintain key man life insurance on any of its
executive officers or key employees.

LACK OF DIVIDENDS

The Company has not paid dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The Company intends to
retain future earnings, if any, to finance the expansion of its operations and
for general corporate purposes, including future acquisitions. In addition, the
Credit Facility prohibits the Company from paying dividends on its capital
stock. See "Dividend Policy."

12
<PAGE>
POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

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

13
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $52.7 million ($60.8 million if the
Underwriters' over-allotment option is exercised in full), after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company intends to apply the net proceeds of the offering against the
outstanding balance of the Credit Facility, the vast majority of which
indebtedness was incurred in connection with acquisitions previously consummated
by the Company. See "Business -- Acquisitions." The Credit Facility expires on
April 10, 2001 and amounts currently outstanding thereunder bear interest at
approximately 7.9%, which rate is anticipated to decrease pursuant to the terms
of the Credit Facility to approximately 6.9% after the consummation of this
offering. Pending application of the net proceeds as described herein, the
Company intends to invest the net proceeds in short-term, interest bearing
investments.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock has been listed on AMEX since August 20, 1997. The trading
symbol for the Common Stock is "USL." The reported last sale price of the
Common Stock as reported on AMEX on June 4, 1998 was $19 7/8. The following
table sets forth, for the periods indicated, the high and low sales prices for
the Common Stock as reported on AMEX.

PRICE RANGE
OF COMMON STOCK
----------------
HIGH LOW
1997
Third Quarter (beginning August
20)............................. $ 18 3/16 $13 1/8
Fourth Quarter..................... 19 3/8 12 5/8
1998
First Quarter...................... $ 20 3/4 $14 1/4
Second Quarter (through June 4).... 25 1/4 19

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 Credit Facility.

14
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
March 31, 1998, (ii) pro forma to reflect the effect of the Acquisitions that
were consummated subsequent to March 31, 1998 as if each had occurred on March
31, 1998, and (iii) pro forma as adjusted to reflect the consummation of this
offering and the application of the net proceeds therefrom as described in "Use
of Proceeds." This table should be read in conjunction with "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------------
PRO PRO FORMA
HISTORICAL FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Current maturities of long-term
obligations............................. $ 1,258 $ 1,258 $ 1,258
========== ========== ===========
Long-term obligations, net of current
maturities............................ $ 25,346 $ 90,816 $ 38,086
Stockholders' equity:
Preferred Stock, $.01 par value,
5,000,000 shares authorized; no
shares issued and outstanding...... -- -- --
Common Stock, $.01 par value,
30,000,000 shares authorized;
7,499,022 shares issued and
outstanding, historical; 8,516,211
shares issued and outstanding, pro
forma; and 11,516,211 shares issued
and outstanding, pro forma as
adjusted(1)........................ 75 85 115
Additional paid-in capital............ 20,171 41,002 93,702
Retained earnings..................... 5,178 5,178 5,178
---------- ---------- -----------
Total stockholders' equity.... 25,424 46,265 98,995
---------- ---------- -----------
Total capitalization..... $ 50,770 $ 137,081 $ 137,081
========== ========== ===========
</TABLE>
- ------------------------------

(1) Excludes 2,110,375 shares issuable upon exercise of options and warrants
outstanding as of March 31, 1998.

15
<PAGE>
SELECTED FINANCIAL DATA

The historical statement of operations for the years ended December 31,
1995, 1996 and 1997 and the balance sheet data as of December 31, 1996 and 1997
have been derived from the consolidated financial statements audited by Arthur
Andersen LLP, which appear elsewhere in this Prospectus. The historical
statement of operations data for the year ended December 31, 1994 have been
derived from the consolidated financial statements audited by Arthur Andersen
LLP, which do not appear elsewhere in this Prospectus. The historical statement
of operations for the year ended December 31, 1993, and for the three month
periods ended March 31, 1997 and 1998 and the balance sheet data as of March 31,
1998 have been derived from the unaudited consolidated financial statements of
the Company. The unaudited consolidated financial statements for all periods
have been prepared on the same basis as the audited consolidated 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.
The statement of operations data below present depreciation and amortization
expenses separately from operating expenses and selling, general and
administrative expenses. Depreciation and amortization expenses are included in
the operating and the selling, general and administrative expense captions set
forth in the audited financial statements.

The unaudited pro forma financial data set forth below present certain
financial information for the Company which gives effect to (i) the Acquisitions
and certain pro forma adjustments to the historical financial statements of the
businesses acquired, including adjusting depreciation and amortization expenses
to reflect purchase price allocations, recording interest expense to reflect
debt issued in connection with the Acquisitions, certain reductions in salaries
and benefits payable to the owners of the businesses acquired which were agreed
to in connection with the Acquisitions and the related income tax effects of
these adjustments, and (ii) the consummation of this offering and the
application of the net proceeds therefrom. The pro forma financial information
is not necessarily indicative of results the Company would have obtained had
these events actually then occurred or the Company's future results and should
be read in conjunction with the other financial statements and notes thereto
included elsewhere in this Prospectus. See the unaudited Pro Forma Financial
Statements and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA -- HISTORICAL:
Revenues............................. $ 3,799 $ 8,039 $ 11,127 $ 14,285 $ 38,159 $ 7,862 $ 12,343
Operating expenses................... 1,822 7,422 9,776 11,369 21,353 4,675 7,011
Depreciation and amortization........ 104 136 159 424 2,990 633 987
Selling, general and administrative
expenses........................... 1,813 643 863 1,437 5,750 690 1,467
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations........ 60 (162) 329 1,055 8,066 1,864 2,878
Interest expense, net................ 112 110 159 397 1,734 509 346
Other (income) expense, net.......... 13 (1) 18 (88) 41 (28) (5)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before provision for
income taxes....................... (65) (271) 152 746 6,291 1,383 2,537
Provision for income taxes........... -- (89) 49 255 2,416 504 1,002
--------- --------- --------- --------- --------- --------- ---------
Net income (loss).................... $ (65) $ (182) $ 103 $ 491 $ 3,875 $ 879 $ 1,535
========= ========= ========= ========= ========= ========= =========
Basic earnings (loss) per common
share.............................. $ (0.04) $ (0.11) $ 0.06 $ 0.23 $ 0.65 $ 0.17 $ 0.21
========= ========= ========= ========= ========= ========= =========
Diluted earnings (loss) per common
and common equivalent share........ $ (0.04) $ (0.11) $ 0.06 $ 0.23 $ 0.55 $ 0.16 $ 0.18
========= ========= ========= ========= ========= ========= =========
Weighted average common shares
outstanding........................ 1,700 1,700 1,700 2,117 5,937 5,239 7,439
Weighted average common and common
equivalent shares outstanding...... 1,700 1,700 1,700 2,139 7,078 5,418 8,737
EBITDA(1)............................ $ 164 $ (26) $ 488 $ 1,479 $ 11,056 $ 2,497 $ 3,865
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)

16
<PAGE>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------------
1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
STATEMENT OF OPERATIONS DATA -- PRO
FORMA AS ADJUSTED(2):
Revenues............................. $149,983 $ 34,499 $ 41,678
Operating expenses................... 101,868 24,424 27,736
Depreciation and amortization........ 9,292 1,944 2,631
Selling, general and administrative
expenses........................... 18,186 3,487 4,644
------------ --------- ---------
Income from operations............... 20,637 4,644 6,667
Interest expense, net................ 3,195 864 691
Other expense, net................... 154 91 100
------------ --------- ---------
Income before provision for income
taxes.............................. 17,288 3,689 5,876
Provision for income taxes........... 7,088 1,512 2,409
------------ --------- ---------
Net income........................... $ 10,200 $ 2,177 $ 3,467
============ ========= =========
Basic earnings per common share...... $ 0.89 $ 0.19 $ 0.30
============ ========= =========
Diluted earnings per common and
common equivalent share............ $ 0.81 $ 0.17 $ 0.27
============ ========= =========
Weighted average common shares
outstanding(3)..................... 11,453 11,450 11,512
Weighted average common and common
equivalent shares outstanding(4)... 12,645 12,483 12,811
EBITDA(1)............................ $ 29,929 $ 6,588 $ 9,298
<TABLE>
<CAPTION>
MARCH 31, 1998,
HISTORICAL DECEMBER 31, ----------------------
----------------------------------------------------- PRO
1993 1994 1995 1996 1997 HISTORICAL FORMA(5)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 51 $ 25 $ 39 $ 5,604 $ 2,203 $ 5,733 $ 7,476
Working capital (deficit)............ (108) (301) (576) 223 2,122 5,478 7,691
Property, plant and equipment, net... 867 911 1,680 34,582 39,110 40,501 76,736
Total assets......................... 1,277 1,410 3,007 46,851 55,016 70,240 181,341
Long-term obligations, net of current
maturities......................... 1,077 1,191 1,596 23,668 16,644 25,346 90,816
Stockholders' equity................. (266) (455) (358) 1,538 20,906 25,424 46,265
</TABLE>
PRO FORMA
AS ADJUSTED(6)

BALANCE SHEET DATA:
Cash and cash equivalents............ $ 7,476
Working capital (deficit)............ 7,691
Property, plant and equipment, net... 76,736
Total assets......................... 181,341
Long-term obligations, net of current
maturities......................... 38,086
Stockholders' equity................. 98,995

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

(1) EBITDA represents earnings presented above before interest, other (income)
expense, income taxes, depreciation and amortization expense. EBITDA is not
a measure of cash flow, operating results or liquidity, as determined in
accordance with generally accepted accounting principles, and differs from
net cash provided by operating activities as determined under generally
accepted accounting principles in that EBITDA excludes interest expense and
does not reflect the effects of changes in working capital or deferred tax
items. EBITDA should not be considered in isolation or as an alternative to,
or more meaningful than, net income or cash flows provided by operations, as
determined in accordance with generally accepted accounting principles. The
EBITDA amounts shown for the Company may not be comparable to EBITDA as
reported by or for other companies because the Company's EBITDA may not be
calculated on the same basis as EBITDA as reported by or for other
companies.

(2) Pro forma for the effect of the Acquisitions as if each had occurred on
January 1, 1997 and as adjusted for the sale of 3,000,000 shares of Common
Stock offered by the Company hereby and the application of the net proceeds
therefrom. See "Use of Proceeds".

(3) The pro forma as adjusted weighted average common shares outstanding
includes: (i) 5,937,435 shares, 5,238,875 shares and 7,438,910 shares
outstanding for the year ended December 31, 1997 and for the three months
ended March 31, 1997 and 1998, respectively, (ii) 3,000,000 shares issued in
connection with this offering, and (iii) 2,515,124 shares, 3,211,085 shares
and 1,073,578 shares for the year ended December 31, 1997 and for the three
months ended March 31, 1997 and 1998, respectively, issued in connection
with the Acquisitions and the Company's IPO as if each had occurred on
January 1, 1997.

(4) The pro forma as adjusted weighted average common and common equivalent
shares outstanding includes the weighted average common shares outstanding
and 1,192,531 shares, 1,032,585 shares and 1,298,072 shares for the year
ended December 31, 1997 and for the three months ended March 31, 1997 and
1998, respectively, representing the effect of outstanding warrants and
options to purchase Common Stock, using the treasury stock method. Excludes
281,250 shares issuable pursuant to options, the vesting of which are
contingent upon the successful completion of certain corporate development
activities.

(5) Pro forma for the effect of the Acquisitions consummated subsequent to March
31, 1998 as if each had occurred on March 31, 1998.

(6) Pro forma for the effect of the Acquisitions consummated subsequent to March
31, 1998 as if each had occurred on March 31, 1998 and as adjusted to
reflect the sale of 3,000,000 shares of Common Stock offered by the Company
hereby and the application of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."

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

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

OVERVIEW

The Company collects, processes, recovers and disposes of liquid waste
through a number of subsidiaries that are organized into two divisions. The
Industrial Wastewater Division collects, processes and disposes of liquid waste
and whenever feasible recovers saleable by-products from these waste streams.
The Company formed its Industrial Wastewater Division when it acquired two
companies in June 1997 in transactions that were accounted for under the
pooling-of-interests method of accounting. The Oilfield Waste Division processes
and disposes of waste generated in oil and gas exploration and production. It
was formed in December 1996 when the Company purchased its Louisiana and Texas
landfarms from Sanifill, a wholly-owned subsidiary of USA Waste. Since the
Company's IPO in August 1997, the Industrial Wastewater Division has acquired 19
businesses and the Oilfield Waste Division has acquired one business.

Due to the number of acquisitions completed by the Company during the
fourth quarter of 1997 and the first five months of 1998, management's
discussion addresses both historical and pro forma results of operations and
financial condition. The pro forma discussion addresses the results of
operations of the Company for the quarters ended March 31, 1997 and 1998 and the
year ended December 31, 1997, with certain pro forma adjustments as described in
the notes to the Pro Forma Financial Statements. The Pro Forma Financial
Statements (i) assume that the Acquisitions were each completed on January 1,
1997, (ii) include certain adjustments to the historical financial statements of
the businesses acquired, including adjusting depreciation and amortization
expenses to reflect purchase price allocations, recording interest expense to
reflect debt issued in connection with the Acquisitions, certain reductions in
salaries and benefits payable to the owners of the businesses acquired which
were agreed to in connection with the Acquisitions and the related income tax
effects of these adjustments, and (iii) are adjusted for the consummation of
this offering and the application of the net proceeds therefrom as if these
events occurred on January 1, 1997. The pro forma results of operations are not
necessarily indicative of the results the Company would have obtained had the
acquired businesses been acquired on that date or of the Company's future
results. The historical discussion addresses the actual results of operations
and financial condition of the Company as shown in its Consolidated Financial
Statements for the quarters ended March 31, 1997 and 1998 and the years ended
December 31, 1995, 1996 and 1997. Such statements reflect, for all periods
presented, the historical results of operations of businesses acquired by the
Company in transactions that were accounted for under the pooling-of-interests
method of accounting and the results of operations of other acquired businesses
from their dates of acquisition.

The Industrial Wastewater Division generated $123.0 million, or 82.0%, of
the Company's 1997 pro forma revenues. This 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, including
fats, oils, feed proteins, industrial and fuel grade ethanol, solvents,
aluminum, glass, plastic and cardboard, recovered from waste streams. Some of
the Company's by-product sales involve the brokering of industrial and fuel
grade ethanol produced by third parties in order to meet its customers' volume
and quality requirements. Tipping and collection fees charged to customers vary
per gallon by waste stream according to the 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. The Company
anticipates that revenues from tipping and collection fees, which have higher
margins than by-product sales, will increase at a faster rate than revenues from
sales of by-products and brokering of ethanol. The Company anticipates that the
Industrial Wastewater Division will represent a growing share of the Company's
business because of its projected internal growth and future acquisitions.

18
<PAGE>
The Oilfield Waste Division generated $27.0 million, or 18.0%, of the
Company's 1997 pro forma revenues. This 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 composition of the waste and
currently range from $0.40 per barrel for saltwater to $6.75 to $10.75 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 depleted as expenses are incurred. The
Company's operating margins in the Oilfield Waste Division are typically higher
than in the Industrial Wastewater Division.

In connection with the Campbell Wells Acquisition, the Company acquired a
long-term disposal agreement (the "Disposal Agreement") with Newpark for the
processing and disposal of oilfield waste generated offshore in the Gulf Coast
region. During the twelve month period ending December 31, 1997, Newpark
delivered approximately 1,430,000 barrels of oilfield waste, excluding
saltwater, to the Company's landfarms. These deliveries accounted for
approximately $7.9 million, or 5.3%, of the Company's 1997 pro forma revenues.
The price paid by Newpark under the Disposal Agreement is currently $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 current market
price for comparable waste, 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 and, consequently, 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.
While there is no absolute floor on the minimum delivery requirements under the
Disposal Agreement, Newpark is contractually obligated to deliver on an annual
basis to the Company one-third of the barrels of oilfield waste (excluding
saltwater) that Newpark receives for processing and disposal in Louisiana,
Texas, Mississippi, Alabama and the Gulf of Mexico; however, in no event is
Newpark obligated to deliver more than 1,850,000 barrels per contract year. See
"Certain Transactions -- Campbell Wells Acquisition."

Operating expenses include compensation and overhead related to operations
workers, supplies and other raw materials, transportation charges, disposal fees
paid to third parties, real estate lease payments and energy and insurance costs
applicable to waste processing and disposal operations.

Selling, general and administrative expenses include management, clerical
and administrative compensation and overhead relating to the Company's corporate
offices and each of its operating sites, as well as professional services and
costs.

Depreciation and amortization expenses relate to the Company's landfarms
and other depreciable or amortizable assets. Landfarms, which constitute
approximately 38% of the Company's pro forma 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 will
increase as a result of amortization of goodwill recorded in connection with the
Acquisitions and future acquisitions.

RESULTS OF OPERATIONS

PRO FORMA AS ADJUSTED RESULTS FOR THE QUARTERS ENDED MARCH 31, 1998 AND 1997

REVENUES. Pro forma revenues for the quarter ended March 31, 1998
increased $7.2 million, or 20.8%, from $34.5 million for the quarter ended March
31, 1997 to $41.7 million for the quarter ended March 31, 1998. The Industrial
Wastewater Division contributed $28.9 million, or 83.8%, of first quarter 1997
pro forma revenues and $33.8 million, or 81.1%, of first quarter 1998 pro forma
revenues. Tipping and collection fees generated $17.4 million, or 60.3%, and
$24.0 million, or 71.0%, of the Industrial Wastewater Division's pro forma
revenues for the first quarters of 1997 and 1998, respectively. By-product

19
<PAGE>
sales generated the remaining $11.5 million, or 39.7%, and $9.8 million, or
29.0%, of the Industrial Wastewater Division's pro forma revenues for the first
quarters of 1997 and 1998, respectively. Brokered sales of ethanol included in
by-product sales were $6.3 million and $4.3 million for the first quarters of
1997 and 1998, respectively. The Oilfield Waste Division contributed $5.6
million, or 16.2%, of first quarter 1997 pro forma revenues and $7.9 million, or
18.9%, of first quarter 1998 pro forma revenues.

Pro forma revenues of the Industrial Wastewater Division increased $4.9
million, or 17.0%, from $28.9 million for the quarter ended March 31, 1997 to
$33.8 million for the quarter ended March 31, 1998. This increase was
attributable to additional volumes of waste processed and an increase in the
average tipping fee, which was partially offset by a decrease in by-product
sales resulting primarily from lower market prices for ethanol. The Oilfield
Waste Division's pro forma revenues increased $2.3 million, or 41.1%, from $5.6
million for the quarter ended March 31, 1997 to $7.9 million for the quarter
ended March 31, 1998 due to additional revenues resulting from a nonrecurring
remediation project in Michigan, an increase in the volume of waste processed
resulting from increased drilling activity in the Gulf Coast region and an
increase in tipping fee rates which became effective in the third quarter of
1997.

OPERATING EXPENSES. Pro forma operating expenses increased $3.3 million,
or 13.6%, from $24.4 million for the quarter ended March 31, 1997 to $27.7
million for the quarter ended March 31, 1998. As a percentage of pro forma
revenues, pro forma operating expenses decreased from 70.8% for first quarter
1997 to 66.5% for first quarter 1998. This improvement was due primarily to an
increase in tipping and collection revenues, which have higher margins than
by-product sales, in the 1998 period, as well as increased efficiencies
resulting from higher volumes and operational enhancements.

DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization
expenses increased $687,000, or 35.3%, from $1.9 million for the quarter ended
March 31, 1997 to $2.6 million for the quarter ended March 31, 1998, primarily
as a result of an increase in capital expenditures. As a percentage of pro forma
revenues, pro forma depreciation and amortization expenses increased from 5.6%
in first quarter 1997 to 6.3% in first quarter 1998.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Pro forma selling, general
and administrative expenses increased $1.2 million, or 33.2%, from $3.5 million
for the quarter ended March 31, 1997 to $4.6 million for the quarter ended March
31, 1998. As a percentage of pro forma revenues, pro forma selling, general and
administrative expenses increased from 10.1% for the first quarter of 1997 to
11.1% for the first quarter of 1998. The increase in such expenses was primarily
due to higher personnel costs and professional fees associated with being a
public company and the establishment of the Company's corporate offices in
Houston in May of 1997.

INTEREST AND OTHER EXPENSES. Pro forma net interest and other expenses
decreased by $164,000, or 17.2%, from $955,000 for the quarter ended March 31,
1997 to $791,000 for the quarter ended March 31, 1998. This decrease was
attributable to the use of free cash from operations to reduce debt.

INCOME TAXES. The pro forma provision for income taxes increased by
$897,000, or 59.3%, from $1.5 million for the quarter ended March 31, 1997 to
$2.4 million for the quarter ended March 31, 1998 as a result of increased
taxable income. The assumed effective tax rate for both periods was 41.0%.

PRO FORMA AS ADJUSTED RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997

REVENUES. Pro forma revenues for 1997 were $150.0 million. The Industrial
Wastewater Division generated $123.0 million, or 82.0%, of such pro forma
revenues. Tipping and collection fees contributed $81.3 million, or 66.1%, of
the Industrial Wastewater Division's 1997 pro forma revenues and by-product
sales contributed the remaining $41.7 million, or 33.9%, of the Industrial
Wastewater Division's 1997 pro forma revenues. Brokered sales of ethanol
constituted $18.5 million of the by-product sales of the Industrial Wastewater
Division. The Oilfield Waste Division generated $27.0 million, or 18.0%, of 1997
pro forma revenues.

OPERATING EXPENSES. Pro forma operating expenses for 1997 were $101.9
million or 67.9% of pro forma revenues.

20
<PAGE>
DEPRECIATION AND AMORTIZATION. Pro forma depreciation and amortization
expenses for 1997 were $9.3 million, which represented 6.2% of pro forma
revenues.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Pro forma selling, general
and administrative expenses for 1997 were $18.2 million. As a percentage of pro
forma revenues, pro forma selling, general and administrative expenses were
12.1%. Included in the $18.2 million were $462,000 of pooling expenses.
Excluding this one-time charge, pro forma selling, general and administrative
expenses as a percentage of pro forma revenues would have been 11.8%.

INTEREST AND OTHER EXPENSES. Pro forma net interest and other expenses for
1997 were $3.3 million.

INCOME TAXES. The pro forma provision for income taxes for 1997 was $7.1
million. The assumed effective tax rate for the period was 41.0%.

HISTORICAL RESULTS FOR THE QUARTERS ENDED MARCH 31, 1998 AND 1997

REVENUES. Revenues for the quarter ended March 31, 1998 increased $4.5
million, or 57.0%, from $7.9 million for the quarter ended March 31, 1997 to
$12.3 million for the quarter ended March 31, 1998. The Industrial Wastewater
Division contributed $3.6 million, or 45.6%, of first quarter 1997 historical
revenues and $7.3 million, or 59.3%, of first quarter 1998 historical revenues.
Tipping and collection fees generated $824,000, or 22.2%, and $4.3 million, or
58.9%, of the Industrial Wastewater Division's historical revenues for the first
quarters of 1997 and 1998, respectively. By-product sales generated the
remaining $2.8 million, or 77.8%, and $3.0 million, or 41.1%, of the Industrial
Wastewater Division's historical revenues for the first quarters of 1997 and
1998, respectively. The Oilfield Waste Division contributed $4.3 million, or
54.4%, of first quarter 1997 historical revenues and $5.0 million, or 40.7%, of
first quarter 1998 historical revenues. Businesses acquired since the Company's
IPO in August 1997 accounted for $2.9 million, or 23.6%, of historical revenues
for the first quarter of 1998.

The revenues of the Industrial Wastewater Division increased $3.7 million,
or 102.8%, from $3.6 million for the quarter ended March 31, 1997 to $7.3
million for the quarter ended March 31, 1998 due to acquisitions completed
during the fourth quarter of 1997 and the first quarter of 1998 which were
accounted for using the purchase method of accounting and an increase in the
volume of waste processed resulting primarily from the enactment of state-wide
"full-pump" regulations in Texas. The Oilfield Waste Division's revenues
increased $759,000, or 17.7%, from $4.3 million for the quarter ended March 31,
1997 to $5.0 million for the quarter ended March 31, 1998 due to an increase in
the volume of waste processed resulting from increased drilling activity in the
Gulf Coast region and an increase in tipping fees which became effective in the
third quarter of 1997.

OPERATING EXPENSES. Operating expenses increased $2.3 million, or 50.0%,
from $4.7 million for the quarter ended March 31, 1997 to $7.0 million for the
quarter ended March 31, 1998. As a percentage of revenues, operating expenses
decreased from 59.5% in the first quarter of 1997 to 56.8% in the first quarter
of 1998. This improvement was due primarily to an increase in tipping and
collection revenues, which have higher margins than by-product sales, in the
1998 period, as well as increased efficiencies resulting from higher volumes and
operational enhancements.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $354,000, or 55.9%, from $633,000 for the quarter ended March 31, 1997
to $987,000 for the quarter ended March 31, 1998. As a percentage of revenues,
depreciation and amortization expenses remained relatively constant at a rate of
8.1% for the first quarter of 1997 and 8.0% for the first quarter of 1998.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $777,000, or 112.6%, from $690,000 for the
quarter ended March 31, 1997 to $1.5 million for the quarter ended March 31,
1998. As a percentage of revenues, selling, general and administrative expenses
increased from 8.8% for the first quarter of 1997 to 11.9% for the first quarter
of 1998. This increase was primarily due to higher personnel costs and
professional fees associated with being a public company and the establishment
of the Company's corporate offices in Houston in May of 1997.

21
<PAGE>
INTEREST AND OTHER EXPENSES. Net interest and other expenses decreased
$140,000, or 29.1%, from $481,000 for the quarter ended March 31, 1997 to
$341,000 for the quarter ended March 31, 1998. This decrease resulted primarily
from the use of a portion of the proceeds from the Company's IPO in August 1997
to reduce debt.

INCOME TAXES. The provision for income taxes increased $498,000, or 98.8%,
from $504,000 for the quarter ended March 31, 1997 to $1.0 million for the
quarter ended March 31, 1998 as a result of increased taxable income. The
effective tax rate for the period ended March 31, 1997 was 36.4% compared to a
39.5% rate for the period ended March 31, 1998.

HISTORICAL RESULTS FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

REVENUES. Revenues increased $23.9 million, or 167.1%, from $14.3 million
in 1996 to $38.2 million in 1997. The Industrial Wastewater Division contributed
$13.5 million, or 94.4%, of 1996 revenues and $18.2 million, or 47.6%, of 1997
revenues. By-product sales generated $11.4 million, or 84.4%, of the Industrial
Wastewater Division's revenues in 1996 and $12.4 million, or 68.1%, in 1997.
Tipping and collection fees generated $2.1 million, or 15.6%, of the Industrial
Wastewater Division's revenues in 1996 and $5.8 million, or 31.9%, in 1997. The
Oilfield Waste Division contributed $826,000, or 5.6%, of revenues in 1996 and
$20.0 million, or 52.4%, of revenues in 1997. The Company purchased the Oilfield
Waste Division under the purchase method of accounting in December 1996.

Revenues of the Industrial Wastewater Division increased $4.7 million, or
34.8%, from $13.5 million in 1996 to $18.2 million in 1997. This increase was
attributable to an 180.1% increase in volume of waste processed and an 8.8%
increase in by-product sales. The Oilfield Waste Division's revenues increased
$19.2 million from $826,000 in 1996 to $20.0 million in 1997 as a result of the
inclusion of the Oilfield Waste Division for all of 1997 as compared to less
than one month in 1996.

OPERATING EXPENSES. Operating expenses increased $10.0 million, or 87.8%,
from $11.4 million in 1996 to $21.4 million in 1997, primarily due to the
inclusion of the Oilfield Waste Division for all of 1997 as compared to less
than one month in 1996. As a percentage of revenues, operating expenses
decreased from 79.6% for 1996 to 56.0% for 1997. This improvement reflects
higher operating margins derived by the Oilfield Waste Division as opposed to
the Industrial Wastewater Division.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $2.6 million, or 605.2%, from $424,000 in 1996 to $3.0 million in
1997. As a percentage of revenues, depreciation and amortization expenses
increased from 3.0% in 1996 to 7.8% in 1997. The increase in depreciation and
amortization expenses resulted primarily from the acquisition of the Oilfield
Waste Division.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $4.4 million, or 300.1%, from $1.4 million in
1996 to $5.8 million in 1997. The majority of this increase related to the
inclusion of the Oilfield Waste Division for all of 1997 as compared to less
than one month in 1996. Selling, general and administrative expenses increased
from 10.1% of 1996 revenues to 15.1% of 1997 revenues, primarily due to higher
personnel costs and professional fees associated with being a public company and
establishing the Company's corporate offices in Houston in May 1997.

INTEREST AND OTHER EXPENSES. Net interest and other expenses increased
$1.5 million, or 474.4%, from $309,000 in 1996 to $1.8 million in 1997. Net
interest and other expenses increased primarily as a result of interest expense
related to debt incurred in acquiring the Oilfield Waste Division in 1996 and
other businesses in 1997.

INCOME TAXES. The provision for income taxes increased $2.2 million, or
847.5%, from $255,000 in 1996 to $2.4 million in 1997. This increase resulted
primarily from additional taxable income. The effective tax rate for 1996 was
34.2% of income and the effective tax rate for 1997 was 38.4% of income.

HISTORICAL RESULTS FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

REVENUES. All revenues in 1995 and 94.4% of revenues in 1996 were
generated by the Industrial Wastewater Division. Revenues increased $3.2
million, or 28.4%, from $11.1 million in 1995 to $14.3 million in 1996.
By-product sales contributed $9.8 million, or 88.3%, of the Company's revenues
in 1995

22
<PAGE>
and $11.4 million, or 79.7%, of the Company's revenues in 1996. Tipping and
collection fees received by the Industrial Wastewater Division contributed $1.3
million, or 11.7%, of the Company's revenues in 1995 and $2.1 million, or 14.7%,
of the Company's revenues in 1996. The Oilfield Waste Division contributed
$826,000, or 5.6%, of revenues in 1996.

By-product sales increased by $1.6 million, or 16.3%, from $9.8 million in
1995 to $11.4 million in 1996. Tipping and collection fees increased by
$750,000, or 56.3%, from $1.3 million in 1995 to $2.1 million in 1996. The
increase in revenues from the sale of by-products was due to an increase in
volumes and an increase in the average price per pound. The increase in the
volume of tipping and collection fees resulted primarily from growth of the
Houston market. The increase in the average price per pound was primarily
attributable to revenues obtained in the Company's acquisition of a collection
business in March 1996.

OPERATING EXPENSES. Operating expenses increased $1.6 million, or 16.3%,
from $9.8 million in 1995 to $11.4 million in 1996. As a percentage of revenues,
operating expenses decreased from 87.9% in 1995 to 79.6% in 1996. This
improvement was 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.

DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased $265,000, or 166.7%, from $159,000 in 1995 to $424,000 in 1996. As a
percentage of revenues, depreciation and amortization expenses increased from
1.4% in 1995 to 3.0% in 1996. This increase was attributable to acquisitions of
additional depreciable assets during 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $574,000, or 66.5%, from $863,000 in 1995 to
$1.4 million in 1996. As a percentage of revenues, selling, general and
administrative expenses increased from 7.8% in 1995 to 10.1% in 1996. The
majority of the increase relates to the addition of the Oilfield Waste Division
at the end of 1996.

INTEREST AND OTHER EXPENSES. Net interest and other expenses increased
$132,000, or 74.6%, from $177,000 in 1995 to $309,000 in 1996. Net interest and
other expenses increased primarily as a result of interest expense related to
the acquisition of the Oilfield Waste Division.

INCOME TAXES. The provision for income taxes increased by $206,000, or
420.4%, from $49,000 in 1995 to $255,000 in 1996. The effective tax rate for
1995 was 32.2% and the effective tax rate for 1996 was 34.2%.

LIQUIDITY AND CAPITAL RESOURCES

The Company's net working capital increased from $2.1 million at December
31, 1997 to $5.5 million at March 31, 1998. Improvement in the working capital
position was attributable primarily to an increase in current assets resulting
from borrowings at the end of the first quarter under the Company's Credit
Facility to fund acquisitions completed in the second quarter of 1998.

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 March 31,
1998, approximately $1.3 million of principal payments on debt obligations were
payable during the next twelve months. Capital expenditures for the last three
quarters of 1998 are budgeted at approximately $11.0 million. Of this amount,
approximately $1.8 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 Industrial Wastewater Division for plant
expansions, equipment and vehicle upgrades.

At March 31, 1998, the Company had established a $3.2 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

23
<PAGE>
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.

The Company has a $100.0 million Credit Facility 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 requires
the banks' consent for any acquisition by the Company of all or substantially
all of the assets or stock of any business. Upon completion of this offering,
the banks' consent will be required for acquisitions in which either (i) the
aggregate consideration to be paid by the Company (including any debt assumed or
issued) exceeds $15 million, or (ii) the aggregate consideration to be paid in
cash by the Company exceeds $10 million. The Company does not believe that these
restrictions will have a material adverse effect on the Company's ability to
fulfill its current acquisition program. 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. After the consummation of this offering
and the application of the net proceeds therefrom, the Company anticipates that
the outstanding principal balance of the Credit Facility will be approximately
$38.0 million. Amounts currently outstanding under the Credit Facility bear
interest at approximately 7.9%, which rate is anticipated to decrease pursuant
to the terms of the Credit Facility to approximately 6.9% after the consummation
of this offering. See "Use of Proceeds."

The Company's capital resources consist of cash reserves, cash generated
from operations and funds available under the Credit Facility. The Company
expects that these resources will be sufficient to fund 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 program. The Company anticipates that future acquisitions will be
made using a combination of Common Stock and cash, much of which is expected to
be derived from borrowings under the Credit Facility. 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.

SEASONALITY

It is expected that the operations of the Oilfield Waste Division will
experience certain seasonal patterns consistent with the oil and gas exploration
and production activity in the Gulf Coast. Generally, the volume of oilfield
waste delivered to the Oilfield Waste Division has been lowest in the first
quarter of each calendar year. Prices for oil and natural gas are expected to
continue to be volatile and affect demand for the Company's oilfield waste
services. Certain of the Industrial Wastewater Division's processing facilities
in the Northeast and Midwest may be affected by adverse weather conditions.

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 results by or at the Year
2000. The Company has determined that its computer programs are Year 2000
compliant. When the Company completes an acquisition, it replaces the acquired
company's systems with its own management reporting and control systems.
Accordingly, the Company does not believe that its acquisition program will be
adversely affected by Year 2000 compliance issues.

24
<PAGE>
BUSINESS

GENERAL

The Company is a rapidly growing provider of integrated liquid waste
management services, including collection, processing, recovery and disposal
services. The Company's primary focus of operations is industrial and commercial
wastewater treatment, although the Company also collects, processes and disposes
of oilfield waste. The Company operates 34 processing facilities located in
eight states and serves over 20,000 customers. The services provided by the
Company to any particular customer vary depending on the type of liquid waste
generated, local regulations and the treatment capabilities of local POTWs.

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.

INDUSTRY BACKGROUND

The wastewater treatment market is generally divided into two segments:
industrial and commercial wastewater treatment, and municipal wastewater
treatment. Industrial and commercial companies produce various types of
wastewater (including hydrocarbon contaminated water, landfill leachate,
unsaleable beverages and grease and grit trap waste) that must be treated prior
to disposal in POTWs or for which municipalities charge higher rates to treat.
Similarly, oil and gas exploration and production companies produce liquid waste
that must be disposed of in accordance with federal and state regulations.
Municipalities utilize or contract with third parties for the utilization of
water treatment technology to treat municipal wastewater.

According to The McIlvaine Company, the global water and wastewater
treatment market was approximately $335 billion in 1995. The McIlvaine Company
further estimated that, in 1995, the worldwide costs of treating municipal
wastewater were $90 billion and the worldwide costs of treating industrial
wastewater were $25 billion. The Company believes that the liquid waste industry
is comprised of thousands of relatively small owner-operated businesses,
presenting significant opportunities for consolidation.

In the United States, the growth in demand for wastewater treatment
services has been driven by many factors, including (i) municipalities refusing
to accept certain industrial wastewaters due to limited treatment capabilities
and a lack of the resources needed to expand or modernize their POTWs, (ii)
industrial and commercial businesses avoiding POTW surcharges by using third
parties to process and

25
<PAGE>
dispose of their wastewater, (iii) industrial and commercial businesses
outsourcing their wastewater treatment needs, (iv) continued industrial and
commercial expansion, and (v) increasingly strict regulations governing the
disposal of wastewater, as well as more stringent enforcement of such
regulations.

REJECTION OF CERTAIN WASTEWATERS BY POTW. In North America, governmental
regulation and enforcement have established strict standards for potable water
and the discharge of pollutants in wastewater. Municipalities have spent
billions of dollars building water purification and wastewater treatment
facilities. Historically, the municipalities have also managed these facilities.
However, many of these municipalities are facing increasing budgetary
constraints and damage to their wastewater treatment facilities caused by grease
and other liquid wastes and, thus, are seeking alternatives to maintaining and
upgrading their aging facilities. In addition to outsourcing the operation, or
transferring ownership, of their facilities, many municipalities have begun
refusing to accept certain liquid waste streams, thereby increasing the demand
for wastewater treatment services provided by the private sector. For example,
the Dallas, Houston and San Antonio POTWs do not accept grease or grit trap
waste. In addition, in late 1997, the Houston POTWs ceased accepting septage
generated outside the Houston city limits.

ECONOMIC BENEFIT OF PRETREATING CERTAIN WASTEWATERS. For years, generators
of industrial wastewater and other liquid waste have discharged the waste
directly into POTWs. However, the difficulties encountered by POTWs in
collecting and treating certain wastewaters have caused many municipalities to
increase the rates charged for accepting these wastewaters. With respect to
certain wastewaters, it is more economical for the generator to deliver the
waste to liquid waste service providers such as the Company than to discharge
the waste directly into the POTW. For example, it is currently more economical
for many soft drink manufacturers to deliver their unsaleable beverages to the
Company for processing and disposal than to discharge the beverages directly
into the POTW.

OUTSOURCING BY INDUSTRIAL AND COMMERCIAL BUSINESSES. Industrial and
commercial businesses have continued to focus on their primary business
activities and to downsize and outsource secondary business activities in which
they may not have much expertise. By outsourcing their wastewater treatment
needs, industrial and commercial businesses can free-up capital for investment
in their primary products and business activities, eliminate a significant
portion of their overhead and transfer risk to experts in the field.

ECONOMIC EXPANSION. Many industrial companies have significantly expanded
their manufacturing and processing facilities. This industrial expansion has
increased the amount of wastewater generated. In addition, continued commercial
expansion throughout North America has generated additional grease and grit trap
waste and other liquid waste that must be processed by the generators thereof,
POTWs or liquid waste service providers such as the Company.

INCREASINGLY STRICT REGULATIONS. Heightened public concern about water
quality has caused federal, state and local governments to adopt increasingly
strict regulations governing the processing and disposal of industrial
wastewater and other liquid wastes. For example, effective as of October 1993,
Subtitle D of RCRA banned the disposal of untreated bulk liquid waste in
landfills. In addition, 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. Louisiana, Michigan, Texas and certain
other oil and gas producing states have enacted comprehensive laws and
regulations governing the proper management of oilfield waste. Under Louisiana,
Michigan and Texas regulations, if oilfield waste cannot be processed for
discharge or disposed of at the well where it is generated, it must be
transported to a licensed oilfield waste processing or disposal facility. In
addition, federal regulations also restrict, and in some cases prohibit
entirely, the discharge of oilfield waste into U.S. waters.

STRATEGY

The Company's objective is to continue to grow throughout North America by
expanding its services in markets where it can be one of the largest and most
profitable integrated liquid waste management service companies. The Company
believes that as it expands it is likely to gain numerous competitive advantages
relative to smaller operators, including servicing multiple customer locations,
treating a wide

26
<PAGE>
variety of liquid waste streams, achieving operating efficiencies (including
collection route densification and consolidation, and increased equipment and
facility utilization) and increased economies of scale (including access to
lower-cost capital, lower insurance rates, decreased proportional selling,
general and administrative costs and increased purchasing power), and adapting
to changing regulations. The Company's strategy for achieving its objective is
to (i) expand through acquisitions; (ii) generate internal growth; (iii) enhance
existing and acquired operations; and (iv) operate its businesses on a
decentralized basis. The Company intends to implement this strategy as follows:

EXPAND THROUGH ACQUISITIONS. The Company intends to continue to expand by
acquiring liquid waste management businesses in new markets, while increasing
its facility and equipment utilization and expanding its market penetration and
range of services offered in its existing markets through "tuck-in"
acquisitions. In considering new markets, the Company will generally seek to
acquire a liquid waste processing facility that has the customer base, technical
skills and infrastructure necessary to be a core business into which other
liquid waste operations can be consolidated. After the Company has acquired a
processing facility, it will typically seek to increase the utilization of the
facility by securing captive waste streams, which includes acquiring collection
companies and entering into contracts to collect or accept all of the various
types of liquid waste generated by customers. The Company will also seek to
acquire other liquid waste businesses that can be integrated into its existing
operations or utilized to provide additional liquid waste services to the same
customer base.

INTERNAL GROWTH. In order to generate continued internal growth, the
Company has focused on increasing sales penetration in its current and adjacent
markets, soliciting new commercial and industrial customers, expanding its
collection infrastructure, marketing upgraded services to existing customers
and, where appropriate, raising prices. The Company believes that there are a
number of liquid waste generators that would prefer to have a single source
provider for the collection, processing and disposal of all of their liquid
waste streams, but are unable to do so because the liquid waste industry is
highly fragmented. The Company intends to expand its customer base by
positioning itself as a multi-city, single source provider for national and
regional generators of liquid waste. In addition, the Company intends to expand
the capacity and processing capabilities of its existing liquid waste
facilities, and is seeking to amend its permit for certain facilities in order
to receive additional liquid waste streams.

OPERATIONAL ENHANCEMENTS. The Company will seek to enhance the operations
of its existing facilities and acquired businesses through collection route
densification and consolidation and increased facility and equipment
utilization. The Company also expects to realize cost savings by consolidating
certain administrative functions at its corporate offices, such as cash
management, human resources, finance and insurance.

OPERATE ON DECENTRALIZED BASIS. The Company intends to continue to manage
its various businesses on a decentralized basis, with local management
maintaining responsibility for the day-to-day operations, profitability and
growth of the business, while the executive officers of the Company exercise
strong strategic and financial oversight. The Company believes that such a
decentralized operating structure will retain the entrepreneurial spirit present
in each of the acquired businesses and allow the Company to capitalize on the
considerable local and regional market knowledge and customer relationships
possessed by each acquired business.

ACQUISITION PROGRAM

Since its IPO in August 1997, the Company has pursued an aggressive
acquisition program, acquiring 20 liquid waste management businesses. The
Company believes that numerous acquisition candidates meeting the Company's
acquisition criteria, including "tuck-in" opportunities, exist within its
existing markets and in new geographic areas.

The Company has assembled an experienced acquisition team comprised of
operations, environmental, engineering, legal, financial and accounting
personnel to identify and evaluate acquisition opportunities. The Company has
established pre-acquisition review procedures for acquisition candidates,
including legal, financial, engineering, operational and environmental reviews.
The environmental reviews include, where

27
<PAGE>
appropriate, investigation of geologic, hydrogeologic and other site conditions,
past and current operations (including types of waste processed and disposed
of), design and construction records, permits, regulatory compliance history,
regulatory agency records and available soil sampling, groundwater and air
monitoring results. Senior management of the Company is actively involved in
identifying and evaluating acquisition candidates.

In considering whether to proceed with an acquisition, the Company
evaluates a number of factors, including (i) the acquisition candidate's
historical and projected financial results; (ii) any expected synergies with one
or more of the Company's existing operations; (iii) the proposed purchase price
and the expected impact on results of operations and on the Company's earnings
per share; (iv) whether the candidate will enhance the Company's ability to
effect other acquisitions in the vicinity; (v) the capabilities and experience
of senior management of the candidate; (vi) the candidate's customer service
reputation and relationships with the local communities; (vii) the composition
and size of the candidate's customer base; (viii) the types of services provided
by the candidate; and (ix) whether the candidate has definable and controllable
liabilities, including potential environmental liabilities.

The Company has also established a detailed process for integrating newly
acquired businesses. This process is designed to achieve operating compatibility
with maximum speed and efficiency, and with minimum disruption of ongoing
business. Once a liquid waste business is acquired, the Company implements
programs and policies for the business designed to reduce costs and improve
operating efficiencies and overall profitability. For example, the Company
replaces the acquired business' computer systems with its own management
reporting and control system. The Company typically seeks to retain the acquired
business' qualified managers and key employees, while consolidating certain
overhead functions such as cash management, human resources, finance and
insurance through the Company's corporate offices.

The Company believes it will be regarded by certain acquisition candidates
as an attractive acquiror because of: (i) the Company's strategy for creating an
integrated and professionally managed national liquid waste company; (ii) the
Company's visibility and access to financial resources as a public company;
(iii) the potential for owners of the businesses being acquired to participate
in the Company's planned internal growth and growth through acquisitions, while
realizing liquidity; (iv) the Company's management team, which includes
individuals with significant experience operating businesses in the waste
management industry and executing consolidation strategies; and (v) the
Company's general philosophy of maintaining an acquired business' culture and
retaining its management through appropriate incentives.

As consideration for future acquisitions, the Company intends to continue
to use various combinations of its Common Stock and cash. The consideration for
each future acquisition will vary on a case-by-case basis depending on the
financial interests of the Company and the owners of the business to be
acquired, and the historic operating results and future prospects of the
business. The Company intends to finance future acquisitions from cash generated
by operations, borrowings under the Credit Facility, and from the 1,682,901
shares of Common Stock remaining available for use under the Company's
acquisition shelf registration statement.

ACQUISITIONS

The Company has acquired 23 businesses since its formation in November
1996. The consideration for these acquisitions consisted of cash, notes and
shares of Common Stock. In addition, in some transactions, the Company has
agreed to issue additional shares of Common Stock if the future pre-tax earnings
of the acquired business exceed certain negotiated levels or other specified
events occur.

28
<PAGE>
The following table provides a summary description of acquisitions
completed by the Company since its formation in November 1996.

ACQUISITIONS BY INDUSTRIAL WASTEWATER DIVISION:
<TABLE>
<CAPTION>
PRINCIPAL DATE
SELLER TYPE OF BUSINESS LOCATION ACQUIRED
<S> <C> <C> <C>
The Mesa Companies................... Collection, Processing, Dallas, Texas 06/97
Recovery and Disposal
American WasteWater Inc.............. Collection, Processing, Houston, Texas 06/97
Recovery and Disposal
A&B Enterprises, Inc................. Collection Dallas, Texas 10/97
Re-Claim Environmental, Inc.......... Collection, Processing, Houston, Texas 10/97
Recovery and Disposal
Re-Claim Environmental Louisiana
LLC................................ Collection, Processing, Shreveport, Louisiana 10/97
Recovery and Disposal
E. Allison Enterprise, Inc........... Processing and Disposal Houston, Texas 10/97
Waste Technologies, Inc.............. Collection, Processing, San Antonio, Texas 12/97
Recovery and Disposal
Environment Management, Inc. (EMI)... Collection, Processing, Austin, Texas 01/98
Recovery and Disposal
Suburban Wastewater Services, Inc.... Collection Braintree, Massachusetts 01/98
Trapmaster, Inc...................... Collection San Antonio, Texas 03/98
Bug Master Exterminating Service,
Inc................................ Collection Austin, Texas 03/98
Betts Pump Service, Inc.............. Collection Kemp, Texas 04/98
Lindenborn Vacuum Services, Inc...... Collection McAllen, Texas 04/98
Parallel Products.................... Collection, Processing, Rancho Cucamonga, 04/98
Recovery and Disposal California
South Shore Pumping Corp............. Collection Plymouth, Massachusetts 04/98
Reclamation Technology Management,
Inc................................ Collection, Processing Haltom City, Texas 04/98
and Disposal
Amigo Diversified Services, Inc...... Collection, Processing, San Antonio, Texas 04/98
Recovery and Disposal
Waste Stream Environmental, Inc...... Collection, Processing, Weedsport, New York 04/98
Recovery and Disposal
The National Solvent Exchange
Corp............................... Processing, Recovery Atlanta, Georgia 04/98
and Disposal
Universal Waste and Transit.......... Collection, Processing Tampa, Florida 05/98
and Disposal
City Environmental, Inc.............. Collection, Processing Detroit, Michigan 05/98
and Disposal

ACQUISITIONS BY OILFIELD WASTE DIVISION:
<CAPTION>
PRINCIPAL DATE
SELLER TYPE OF BUSINESS LOCATION ACQUIRED
Campbell Wells....................... Processing and Disposal Lafayette, Louisiana 12/96
Northern A-1 Sanitation Services,
Inc................................ Collection, Processing Kalkaska, Michigan 05/98
and Disposal
</TABLE>
OPERATIONS AND SERVICES PROVIDED

Industrial and commercial businesses produce various types of wastewater
(including hydrocarbon contaminated water, landfill leachate, unsaleable
beverages, and grease and grit trap wastes) that must be disposed of in
accordance with federal, state and local regulations. Similarly, oil and gas
exploration and production companies produce liquid waste that must be disposed
of in accordance with federal and state regulations. As demonstrated in the
diagram on the inside front cover page, the Company accepts liquid waste from
the generator thereof or an independent collection company, processes the liquid
waste to remove contaminants and then disposes of the liquid waste in accordance
with applicable regulations. In

29
<PAGE>
addition, in certain instances, the Company's processing operations generate
saleable by-products. The Company's services permit generators of liquid waste
to focus on their primary business activities and transfer the risks associated
with the processing and disposal of the waste to experts in the field.

The Company collects, processes, recovers and disposes of liquid waste
through a number of subsidiaries that are organized into two divisions -- the
Industrial Wastewater Division and the Oilfield Waste Division. The operations
of these two divisions are summarized below.

INDUSTRIAL WASTEWATER DIVISION

Through its Industrial Wastewater Division, which contributed approximately
82% of the Company's 1997 pro forma revenues, the Company receives fees to
collect, process and dispose of liquid waste such as industrial wastewater,
grease trap and grit trap waste, bulk liquids and unsaleable beverages,
biosolids and oil-contaminated water. In addition, the Industrial Wastewater
Division generates revenues from the sale of by-products, including fats, oils,
feed proteins, industrial and fuel grade ethanol, solvents, aluminum, glass,
plastic and cardboard, recovered from waste streams. Some of the Company's
by-product sales involve brokering of industrial and fuel grade ethanol produced
by third parties in order to meet its customers' volume and quality
requirements. The Industrial Wastewater Division operates a fleet of
approximately 335 vehicles to collect waste directly from over 20,000 customers,
receives waste from independent transporters servicing thousands of additional
generators and also receives waste shipped directly by the generators thereof
via rail and truck. Brief descriptions of the types of liquid waste most
commonly managed by the Industrial Wastewater Division are set forth below:

INDUSTRIAL WASTEWATERS. Industrial wastewaters such as hydrocarbon
contaminated water, landfill leachate and printing solvents 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 liquid waste is broken down into constituent components. Water
extracted from the liquid waste is pretreated and then discharged into the POTW
and solid materials are dried and disposed of in a solid waste landfill. In some
instances, such as printing solvents, the contaminated materials are processed
and returned to the generator for reuse.

GREASE AND GRIT TRAP WASTE. Grease trap waste from restaurants and other
food manufacturing and preparation facilities and grit trap waste from car
washes is collected by Company vehicles or independent third parties and
transported to the Company's facilities. Grease and grit trap waste is processed
using a variety of physical, chemical, thermal and biological techniques. Water
extracted from the liquid waste is pretreated and then discharged into the POTW
and solid materials are dried and disposed of in a solid waste landfill.
By-products recovered from grease trap waste are processed with used cooking oil
and other food processing residuals purchased by the Company to produce fats,
oils and feed proteins of various grades which are sold to producers of
livestock feed and chemicals.

BULK LIQUIDS AND UNSALEABLE BEVERAGES. The Company accepts both liquid
residuals and unsaleable packaged beverages from breweries, soft drink
manufacturers and food processors. Water extracted from the liquid waste is
pretreated and then discharged into the POTW. The remaining liquid waste is
fermented and distilled into both industrial and fuel grade ethanol, which is
sold primarily to major oil and chemical companies. Packaging of the unsaleable
beverages, whether aluminum, glass, plastic or cardboard, is removed, separated
and sold to recycling firms.

BIOSOLIDS. The Company accepts liquid and dry cake biosolids, or sludge,
from municipal wastewater treatment facilities and private businesses and
processes these biosolids into a product that is sold for use as a fertilizer
and landfill cover.

SEPTAGE. Septage is pumped from septic tanks by Company vehicles or
independent third parties and transported to the Company's facilities. The
septage is then processed using a variety of physical, chemical, thermal and
biological techniques. Water extracted from the liquid waste is pretreated and
then discharged into the POTW and solid materials are dried and disposed of in a
solid waste landfill.

30
<PAGE>
HAZARDOUS WASTES. Hazardous wastes such as household hazardous wastes,
plating solutions, acids, caustic, oxidizers, and flammable and reactive wastes
are transported to certain of the Company's facilities in tankers, trucks and
other transportable containers and by rail. Wastes suitable for treatment under
the Clean Water Act are directed into a suitable process such as neutralization,
chemical precipitation, filtration, biological degradation, carbon adsorption,
alcohol recovery and/or oil recycling. Sludge and solid hazardous wastes are
directed to the Company's chemical fixation facility to be pre-treated using
chemical oxidation or reduction followed by fixation using silicates such as
lime or cement kiln dust. Treated residues are tested in accordance with federal
and state requirements to meet the land disposal restrictions prior to disposal.
Solid and semi-solid residues are shipped to a Subtitle D landfill. Treated
listed waste residues are sent to an audited and approved Subtitle C landfill.

PETROLEUM FUELS. Contaminated and/or off-specification petroleum fuels and
used oil are transported to the Company's facilities in vacuum trucks, trailers
and other transportable oil containers. Using mechanical and gravity separation
techniques, these materials are processed to produce a fuel sold primarily to
operators of industrial furnaces. Resulting wastewater is transported to another
of the Company's facilities for processing and disposal. Solid materials and
sludges are sent to one of the Company's oilfield waste processing facilities.

The Industrial Wastewater Division operates 21 liquid waste processing
facilities. The Company believes that the specialized equipment, licenses and
permits necessary to operate these liquid waste processing facilities create a
significant barrier to entry into this industry. The following table sets forth
certain information relating to each such facility, including the type of liquid
wastes most commonly managed:
<TABLE>
<CAPTION>
FACILITY LOCATION LIQUID WASTES MANAGED OWNED/LEASED
<S> <C> <C> <C>
Parallel CA............................. Rancho Cucamonga, Bulk Liquids and Unsaleable Beverages Owned
California
Universal Waste......................... Tampa, Florida Household Hazardous Wastes Owned
National Solvent........................ Atlanta, Georgia Industrial Wastewaters Leased(1)
Parallel KY............................. Louisville, Kentucky Bulk Liquids and Unsaleable Beverages Owned
Re-Claim LA............................. Shreveport, Industrial Wastewaters Leased(2)
Louisiana
City Environmental...................... Detroit, Michigan Hazardous Wastes; Industrial Owned
Wastewaters
Waste Stream............................ Weedsport, New York Biosolids Leased(3)
Environment Management.................. Austin, Texas Grease and Grit Trap Waste Owned
Mesa.................................... Dallas, Texas Grease and Grit Trap Waste Owned
Amigo North............................. Giddings, Texas Petroleum Fuels Owned
Reclamation Technology.................. Haltom City, Texas Industrial Wastewaters; Grease and Leased(4)
Grit Trap Waste
American WasteWater..................... Houston, Texas Industrial Wastewaters; Grease and Owned
Grit Trap Waste; Septage
E. Allison.............................. Houston, Texas Grease and Grit Trap Waste Leased(5)
Imperial East (Mesa).................... Houston, Texas Grease and Grit Trap Waste Owned
Re-Claim TX............................. Houston, Texas Industrial Wastewaters Owned
Laredo (Mesa)........................... Laredo, Texas Grease and Grit Trap Waste Owned
South Texas (Mesa)...................... Los Fresnos, Texas Grease and Grit Trap Waste Owned
Waste Technologies...................... San Antonio, Texas Grease and Grit Trap Waste Owned
Imperial (Mesa)......................... San Antonio, Texas Grease and Grit Trap Waste Owned
Amigo South............................. San Antonio, Texas Petroleum Fuels Owned
Enviro (EMI)............................ San Antonio, Texas Grease and Grit Trap Waste Owned
</TABLE>
- ------------------------------

(1) Lease expires in June 1999, with option to renew for one year.

(2) Lease expires in September 2007, with three ten-year renewal options.

(3) Lease expires in June 2004, with eight one-year renewal options.

(4) Lease expires in August 1999.

(5) Lease expires in October 1998, with option to renew for two years.

31
<PAGE>
OILFIELD WASTE DIVISION

The Oilfield Waste Division contributed approximately 18.0% of the
Company's 1997 pro forma revenues. At its six oilfield waste facilities located
in Louisiana, Michigan and Texas, the Oilfield Waste Division treats and
disposes of waste that is generated in the exploration for and production of oil
and natural gas. Oilfield waste consists primarily of oil-based and water-based
drilling fluids (which contain oil, grease, chlorides and heavy metals), as well
as cuttings, saltwater, workover and completion fluids, production pit sludges
and soil containing these materials.

Landfarming, the treatment process utilized at four of the Company's
oilfield waste facilities, involves several distinct stages. Oilfield waste is
brought to the Company's facilities in trucks and on barges and the delivered
waste materials are then tested. Materials which do not qualify as permitted
oilfield waste in accordance with applicable state regulations are rejected.
Accepted waste is then loaded into treatment cells, which are 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 remaining waste is then processed to remove organic contamination
through biological degradation. 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.

In connection with the Campbell Wells Acquisition, the Company acquired a
long-term Disposal Agreement with Newpark for the processing and disposal of
oilfield waste generated offshore in the Gulf Coast region. Under the terms of
the Disposal Agreement, until June 30, 2021, Newpark is obligated to deliver to
the Company the lesser of (i) one-third of the barrels of oilfield waste that
Newpark receives for processing and disposal in the Territory and (ii) 1,850,000
barrels of oilfield waste, in each case excluding saltwater. In return, until
August 2001, the Company is prohibited from accepting from any customer other
than Newpark oilfield waste generated in a marine environment or transported in
a marine vessel within the Territory. The price paid by Newpark under the
Disposal Agreement is currently $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 current market price for comparable waste,
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 and, therefore, the Company believes that operating
margins on waste volume from Newpark and other customers are comparable. During
the twelve-month period ending December 31, 1997, Newpark delivered
approximately 1,430,000 barrels of oilfield waste, excluding saltwater, to the
Company's landfarms.

Due to its arrangements with Newpark, the Company is focusing its marketing
efforts toward inland waste generators and, by so doing, the Company believes
that it will be able to increase the total amount of oilfield waste that is
delivered to the Oilfield Waste Division for processing and disposal.

The Oilfield Waste Division operates six oilfield waste processing
facilities and seven commercial saltwater injection wells. The following table
sets forth certain information relating to each processing facility.
<TABLE>
<CAPTION>
AREA PERMITTED APPROXIMATE
FOR OILFIELD SQUARE FOOTAGE
WASTE PROCESSING OF OFFICE
LOCATION AND DISPOSAL 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
Kalkaska, Michigan................... Not Applicable 6,000 Owned
Bustamonte, Texas.................... 120 acres 1,000 Owned
</TABLE>
- ------------------------------

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

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

32
<PAGE>
COMPETITION

The liquid waste industry is highly fragmented and very competitive.
Competitors compete primarily on the basis of proximity to collection
operations, tipping fees charged and quality of service. With respect to certain
waste streams (such as oilfield waste, bulk liquids and unsaleable beverages)
the Company must compete with the generators of such waste streams, who
continually evaluate the decision whether to use internal disposal methods or
utilize a third party disposal company such as the Company. The Company must
also compete with area landfills for certain waste streams. The Company competes
with Newpark and a number of smaller companies for oilfield waste produced on
land in the Gulf Coast region. Pursuant to the Newpark Disposal Agreement, until
August 2001, the Company is contractually prohibited from (i) accepting from any
customer other than Newpark oilfield waste generated in a marine environment or
transported in a marine vessel within the Territory and (ii) engaging in the
site remediation and closure business in the Territory. Pursuant to the terms of
the Campbell Wells Acquisition, until December 2001, the Company is also
prohibited from engaging in the collection, treatment or disposal of municipal
solid wastes, construction debris or demolition debris.

The Company believes that there are certain barriers to entry in the liquid
waste industry. 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. See "Risk Factors -- Dependence Upon Oilfield Waste Exemption
Under RCRA and Other Environmental Regulations" and "-- Failure To Comply with
Governmental Regulations."

THE CLEAN WATER ACT

The Company treats and discharges wastewaters at its liquid waste
facilities and at its oilfield waste landfarms. These activities 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
Company's customers for oilfield waste services. EPA Region 6, which includes
the Company's current market, continues to issue new and amended National
Pollution Discharge Elimination System ("NPDES") general permits further
limiting or restricting substantially all discharges of produced water from the
Oil and Gas Extraction Point Source Category into waters of the United States.
These permits include:

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,

33
<PAGE>
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 wastes 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.

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 bioaccumulation
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 became 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.

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 hazardous waste
at any of its facilities other than the Detroit, Michigan, Tampa, Florida and
Shreveport, Louisiana 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 process and dispose of oilfield
waste, which is exempt from classification as a RCRA-regulated waste. At various
times in the past, proposals have been made to rescind the exemption that
excludes 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 its

34
<PAGE>
method of doing business and could have a material adverse effect on the
Company's business, financial condition and results of operations. There is no
assurance that the Company would have the capital resources available to do so,
or that it would be able to adapt its operations. See "Risk Factors -- Failure
to Comply with Governmental Regulations."

RCRA also indirectly affects the Company's operations at its liquid waste
facilities by prohibiting, among other things, the disposal of certain liquid
wastes in landfills. This prohibition increases demand for the services provided
by the Company's Industrial Wastewater Division.

CERCLA

CERCLA provides for immediate response and removal actions coordinated by
the U.S. Environmental Protection Agency (the "EPA") for releases of hazardous
substances into the environment and authorizes the government, or private
parties, to respond to the release or threatened release of hazardous
substances. The government may also order persons responsible for the release to
perform any necessary cleanup. Liability extends to the present owners and
operators of waste disposal facilities from which a release occurs, persons who
owned or operated such facilities at the time the hazardous substances were
released, persons who arranged for disposal or treatment of hazardous substances
and waste transporters who selected such facilities for treatment or disposal of
hazardous substances. CERCLA has been interpreted to create strict, joint and
several liability for the cost of removal and remediation, other necessary
response costs and damages for injury to natural resources.

Despite the current exemption of 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 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 reauthorized and amended,
substantially increasing the scope and stringency of the Clean Air Act's
regulations. Compliance with the Clean Air Act is not expected to have a
material effect on the Company's business, results of operations or financial
condition.

STATE AND LOCAL REGULATIONS

Order 29-B of the Louisiana Department of Natural Resources contains
extensive rules regarding the generation, processing, 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. The Texas Railroad Commission and the Michigan Department of
Environmental Quality have also promulgated detailed requirements for the
management and disposal of oilfield waste. Permits issued by state regulatory
agencies are required for each oilfield waste processing facility operating
within Louisiana, Michigan and Texas. The Company must perform tests before
acceptance of any oilfield waste, as well as during and after processing to
ensure compliance with all regulatory requirements. Short-term emergency rules
recently adopted by the Louisiana

35
<PAGE>
Department of Natural Resources have increased the pre-treatment testing to be
conducted by the Company 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 groundwater for a period of five
years. If, after five years, the water quality meets the requirements specified
in the state regulations, the site is certified as closed.

The Company's liquid waste processing 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 these 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. See "Risk
Factors -- Dependence Upon Oilfield Waste Exemption Under RCRA and Other
Environmental Regulations" and "Failure to Comply with Governmental
Regulations."

RISK MANAGEMENT

The Company's business exposes it to substantial risks. For example, the
Company's services routinely involve the handling, storage and disposal of
nonhazardous regulated materials and wastes and, in some cases, the handling of
hazardous materials and wastes for its customers which are the generators of
such wastes. The Company could be held liable for improper cleanup and disposal,
which liability could be based upon statute, negligence, strict liability,
contract or otherwise. In addition, the Company often is required to indemnify
its customers or other third parties against certain risks related to the
services performed by the Company, including damages stemming from environmental
contamination.

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. A claim that
is not covered or only partially covered by insurance could have a material
adverse effect on the Company's business, results of operations and financial
condition. 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.

PROPERTIES

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

In addition to the facilities described above in " -- Operations and
Services Provided," the Company also owns an administrative office in Fort
Worth consisting of approximately 2,000 square feet of office space and a
facility in Lacassine, Louisiana consisting of approximately 8,000 square feet
of office and equipment storage space and approximately 130 acres of undeveloped
land that was previously used for landfarming of oilfield waste and naturally
occurring radioactive material ("NORM"). In January 1997, the Company ceased
accepting NORM at the Lacassine facility and began taking the steps necessary to
close this facility in accordance with Louisiana law. The Company also owns a
facility in Kansas City, Missouri that was previously used for storage and
bulking of various hazardous wastes and a facility in Roseville,

36
<PAGE>
Michigan that was previously used for fuel blending and solvent recycling. The
Kansas City and Roseville facilities have not been operational since 1992 and
the Company has no plans to resume operations at either of these facilities. The
Company also operates a transfer station in Portland, Oregon and two collection
and transportation facilities in Massachusetts.

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

LEGAL PROCEEDINGS

Prior to the closing of the Campbell Wells Acquisition, four lawsuits were
brought against Campbell Wells based upon the operations of the Bourg, Louisiana
and Mermentau, Louisiana landfarms purchased by the Company as part of the
Campbell Wells Acquisition. As part of the Campbell Wells Acquisition, Sanifill
(a wholly-owned subsidiary of USA Waste) agreed to retain responsibility for the
contingent liabilities associated with each of these lawsuits. Sanifill also
agreed in the Campbell Wells Acquisition to indemnify the Company from and
against, among other things, the contingent liabilities associated with these
lawsuits. The obligation of Sanifill to indemnify the Company is limited to $10
million.

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 oilfield 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. 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 oilfield 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. A third lawsuit, filed as a class action in the Civil
District Court for the Parish of Orleans, Louisiana, seeks unspecified monetary
damages allegedly suffered as a result of alleged air, water and soil
contamination in connection with ongoing operations at the Mermentau, Louisiana
landfarm. No trial date has been set for this matter. In a fourth lawsuit, six
individuals filed suit on March 7, 1996 against Campbell Wells in the 17th
Judicial District Court for the Parish of Lafourche, 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 equalled or exceeded any
relevant safety standard, health standard or occupational standard and,
therefore, denied the plaintiffs' request for a temporary injunction prohibiting
such treatment operations. The court did, however, preliminarily enjoin Campbell
Wells (and, thus, indirectly the Company) from treating oilfield 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. In May 1998, this
lawsuit was transferred to the 19th Judicial District Court for the Parish of
East Baton Rouge, Louisiana. No trial date has been set for the plaintiffs'
request for permanent injunctive relief; however, based upon the 17th Judicial
District Court's rulings from the preliminary injunction trial and initial
discussions with the Louisiana Department of Conservation, the Company believes
that any permanent injunctive relief that might be entered will not have a
material adverse effect upon the Company's operations at the Bourg landfarm.

37
<PAGE>
In January 1998, the Company was named as a defendant in two of the
lawsuits arising out of the operations of the Bourg landfarm (i.e. the lawsuit
seeking injunctive relief and the lawsuit brought by the approximately 300
individuals residing in and around Grand Bois, Louisiana). The Company has not
yet been named as a defendant in the remaining lawsuit arising out of the
operations of the Bourg landfarm or the class action arising out of the
operations of the Mermentau landfarm; however, there can be no assurance that
the Company will not subsequently be named as a defendant in these lawsuits as
well.

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, Sanifill is not required or is unable
to completely indemnify the Company against such judgment and the judgment is
not covered by insurance, such a judgment could have a material adverse effect
on the Company's business, results of operations and financial condition. In
addition, notwithstanding any indemnification to be provided by Sanifill, an
adverse ruling against the Company in the lawsuit seeking injunctive relief
could have a material adverse effect on the Company's operations at the Bourg
landfarm (which operations contributed 3.1% of the Company's pro forma revenues
for the year ended December 31, 1997 and 1.1% of the Company's pro forma
revenues for the first three months of 1998) and, therefore, the Company's
business, results of operations and financial condition.

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
Company 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 this
action.

The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
or property damage incurred in connection with its operations. Except as
described above, the Company is not currently involved in any litigation that it
believes will have a material adverse effect on its business, results of
operations or financial condition.

EMPLOYEES

At May 1, 1998, the Company employed approximately 690 persons full-time.
Neither the Company nor any of its subsidiaries is a party to any collective
bargaining agreement covering its employees. The Company believes that its
relationships with its employees are satisfactory.

<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Michael P. Lawlor(1)................. 58 Chairman of the Board and Chief Executive Officer
W. Gregory Orr(1).................... 42 Director, President and Chief Operating Officer
Earl J. Blackwell.................... 56 Chief Financial Officer, Senior Vice
President -- Finance and Secretary
Thomas B. Blanton(2)................. 51 Director and Divisional Vice President
James F. McEneaney, Jr.(3)(4)(5)..... 59 Director
William A. Rothrock IV(2)(4)(5)...... 45 Director
Alfred Tyler 2nd(3)(4)(5)............ 55 Director
</TABLE>
- ------------------------------
(1) Term on Board expires in 2000.
(2) Term on Board expires in 1999.
(3) Term on Board expires in 2001.
(4) Member of Audit Committee.
(5) Member of Compensation Committee.

MICHAEL P. LAWLOR has served as a director of the Company since June 1997.
On August 25, 1997, Mr. Lawlor assumed the positions of Chairman of the Board
and Chief Executive Officer of the Company. From March 1996 to August 1997, Mr.
Lawlor was a private investor. Mr. Lawlor has over 25 years of experience in the
environmental services industry. From December 1992 to March 1996, Mr. Lawlor
was Chief Executive Officer and a director of ITEQ, Inc. f/k/a Air-Cure
Technologies, Inc., a manufacturer of air treatment and air moving and process
systems, equipment and components. From 1970 to 1992, Mr. Lawlor held various
positions with Browning-Ferris Industries, Inc. ("BFI"), a national waste
services company. Mr. Lawlor started with BFI in 1970, became a corporate
officer in 1978, and from 1970 to 1988 was responsible for all of BFI's landfill
operations, during which time total landfill revenues grew from $1 million to
$500 million annually. Mr. Lawlor was the Chairman of the Wildlife Habitat
Enhancement Council, a nonprofit conservation organization, from 1992 to 1996.

W. GREGORY ORR is a co-founder of the Company and served as Chairman of the
Board, Chief Executive Officer and President of the Company from November 1996
to August 1997. Mr. Orr currently serves as a director and the Chief Operating
Officer and President of the Company. From 1995 until December 1996, Mr. Orr was
the President and Chief Operating Officer of Campbell Wells. From 1990 to 1991,
Mr. Orr was Regional Vice President of Sanifill's Atlantic Region, and from 1991
to 1995, Mr. Orr was a Vice President of Operations of Sanifill. From 1981 to
1989, Mr. Orr served in various capacities with BFI, including Divisional Vice
President.

EARL J. BLACKWELL is a co-founder of the Company and has served as Chief
Financial Officer, Senior Vice President -- Finance and Secretary of the Company
from November 1996 to the present. From 1991 to December 1996, Mr. Blackwell was
a Divisional Chief Financial Officer for Sanifill and controller for Campbell
Wells. During this time, Mr. Blackwell was responsible for organizing and
managing the financial and administrative functions of this division including
the design, installation and management of a financial reporting and management
system interfacing with Sanifill's general accounting system.

THOMAS B. BLANTON has been a director and Divisional Vice President of the
Company since June 1997. From 1991 to June 1997, Mr. Blanton served as the sole
director and President of each of the Mesa Companies. Mr. Blanton has owned and
operated fats and oils businesses for over 30 years.

JAMES F. MCENEANEY, JR. became a director of the Company in October 1997.
He is the retired President and Chief Operating Officer of The Ryland Building
Company, positions he held from 1980 to

39
<PAGE>
1992. Mr. McEneaney also served as Executive Vice President and a director of
The Ryland Group, Inc. from 1981 to 1993. Mr. McEneaney also was a founder of
The Fortress Group, Inc., which was organized to consolidate home builders in
North America. He served as the company's Chief Executive Officer from July 1995
through December 1995, and as a member of its Board of Directors from 1995 until
May 1997. Since August 1993, Mr. McEneaney has served as the President of MacCan
Associates, Inc., a management consulting firm. Currently, Mr. McEneaney serves
as Vice Chairman of the Board of Anne Arundel Health Systems, Inc.

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

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

BOARD OF DIRECTORS

The Company's Certificate of Incorporation provides for the Board of
Directors to be divided into three classes, with staggered three-year terms. As
a result, only one class of directors is elected at each annual meeting of
stockholders of the Company, with the other classes continuing for the remainder
of their respective three-year terms, and directors may be removed from office
only for cause. This classification of the Board of Directors may make it more
difficult for the Company's existing stockholders to replace the Board of
Directors as well as for another party to obtain control of the Company by
replacing the Board of Directors. See "Risk Factors -- Potential Anti-Takeover
Effect of Certain Charter Provisions."

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

Each director who is not an employee of the Company or one of its
subsidiaries receives a fee of $1,000 for each Board and committee meeting
(unless held on the same day as a Board meeting) actually attended. Directors
are also reimbursed for out-of-pocket expenses incurred in attending meetings of
the Board of Directors or committees thereof. During 1997, each of the Company's
directors attended at least 75% of the aggregate of (i) the total number of
meetings of the Board of Directors, and (ii) the total number of meetings held
by all committees of the Board on which he served.

In connection with the acquisition of his three companies in June 1997, the
Company caused Mr. Blanton to be appointed to the Board of Directors of the
Company. In addition, for as long as Mr. Blanton is the beneficial owner of at
least 5% of the outstanding Common Stock, the Company is obligated to nominate
Mr. Blanton for election to the Company's Board of Directors and Messrs. Orr,
Blackwell and William M. DeArman are obligated to vote all of the shares of
Common Stock controlled by them in favor of Mr. Blanton's election to the Board
of Directors.

40
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1997, Messrs. McEneaney, Rothrock and Tyler served on the Company's
Compensation Committee. Since 1990, Mr. Rothrock has served as the Vice
President -- Business Development for Sanifill and, subsequently, USA Waste. In
December 1997, the Company paid the outstanding balance (approximately $22.6
million) of the promissory note issued by the Company to Sanifill in the
Campbell Wells Acquisition. In May 1998, the Company acquired three additional
businesses from USA Waste. See "Certain Transactions -- Other." The Company
does not believe that Mr. Rothrock had a direct or indirect material interest in
any of these acquisitions.

EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to the
compensation of the Company's executive officers during 1996 and 1997. The
Company was incorporated in November 1996. Messrs. Orr and Blackwell were the
only executive officers who received any compensation from the Company in 1996.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION AWARDS
--------------------- ----------------------
NAME AND POSITION YEAR SALARY BONUS STOCK OPTIONS (SHARES)
<S> <C> <C> <C> <C>
Michael P. Lawlor,...................... 1997 $ 59,231 $ 87,500 300,000
Chairman of the Board and
Chief Executive Officer(2)
W. Gregory Orr,......................... 1997 125,000 125,000 --
President and Chief Operating 1996 2,403 -- --
Officer(3)
Earl J. Blackwell,...................... 1997 99,840 100,000 --
Chief Financial Officer, Senior 1996 1,923 -- --
Vice President and Secretary(4)
</TABLE>
- ------------------------------

(1) Excludes perquisites and other benefits, the aggregate amount of which does
not exceed the lesser of $50,000 or 10% of the total of such officer's
annual salary and bonus.

(2) Mr. Lawlor joined the Company in August 1997.

(3) Mr. Orr joined the Company in November 1996. Mr. Orr served as the Chief
Executive Officer of the Company from November 1996 to August 1997.

(4) Mr. Blackwell joined the Company in November 1996.

OPTIONS GRANTED; OPTION EXERCISES AND FISCAL YEAR-END VALUES

During 1997, Mr. Lawlor was granted an option to purchase 300,000 shares of
Common Stock at a price of $9.50 per share. These options, which vest at a rate
of 33 1/3% per year commencing on June 19, 1998 and expire on August 19, 2007,
constituted 67% of the total options granted to employees of the Company in
1997. The potential realized values of Mr. Lawlor's options at assumed annual
rates of stock price appreciation of 5% and 10% over the term of the options are
$1,769,397 and $4,542,166, respectively. The value of Mr. Lawlor's options as of
December 31, 1997 was approximately $1,387,500. Neither Mr. Orr nor Mr.
Blackwell has ever been granted a stock option by the Company.

EMPLOYMENT AGREEMENTS; CHANGES IN CONTROL

Each of Messrs. Lawlor, Orr and Blackwell has entered into an employment
agreement with the Company providing for an annual base salary of $175,000,
$150,000 and $120,000, respectively, with the right to receive incentive
compensation at the discretion of the Board of Directors. Each employment
agreement is for a term of five years with the term to be extended an additional
one year on each anniversary date of the employment agreement, unless either
party gives notice that the term of the employment agreement should not be so
extended. If the employee's employment is terminated by the Company without
cause, then the employee will continue to receive his base salary and employee
benefits for the remainder of the term of his employment agreement. If his
employment is terminated by the Company with cause, then the employee will not
be entitled to earn any further compensation or benefits under his employment
agreement. If the Company undergoes a "change in control", then, under certain

41
<PAGE>
circumstances, the employee will have the right to require the Company to pay to
him a lump sum amount equal to approximately three times his "base amount", as
defined in Section 280G of the Internal Revenue Code. This base amount is
generally equal to the average annual gross income of the employee for the five
taxable years ending before the date on which the change in control occurs. This
payment will be in lieu of any further compensation or benefits payable to the
employee under the employment agreement. The employment agreement also contains
a covenant by the employee not to compete with the Company at any time during
his employment and for a period of two years after the termination of his
employment, except for a termination subsequent to a change in control.

STOCK OPTION PLANS

1996 INCENTIVE STOCK OPTION PLAN
On November 20, 1996, the Board of Directors adopted the U S Liquids Inc.
1996 Incentive Stock Option Plan. Thereafter, in June 1997, the Board of
Directors adopted various amendments to this plan, and the amended plan (the
"Stock Option Plan") was approved by the stockholders of the Company. The
purpose of the Stock Option Plan is to promote the long-term growth and
profitability of the Company and the value of the Common Stock by providing
selected employees and consultants of the Company (including directors who are
also employees) with incentives to contribute to the success of the Company. The
number of shares of Common Stock issuable under the Stock Option Plan is
automatically adjusted on the first day of each fiscal year to an amount equal
to 15% of the total number of shares of Common Stock which are outstanding on
such date, provided that the number of shares issuable under the Stock Option
Plan will not be less than 1,500,000 shares or exceed 3,000,000 shares.
The Stock Option Plan is required to be administered by a committee
designated by the Board of Directors. The committee must consist of at least two
Non-Employee Directors, as that term is defined in Rule 16b-3 under the Exchange
Act, or, at the discretion of the Board of Directors in order to comply with the
requirements of Rule 16b-3, the committee may consist of the entire Board of
Directors. Currently, the committee consists of Messrs. McEneaney, Rothrock and
Tyler. In awarding options under the Stock Option Plan, the committee considers
various factors, such as the past and expected future performance of an employee
and the extent to which an employee has been compensated for his or her
performance. The committee has not established any fixed formula for awarding
options under the Stock Option Plan. The exercise price for options issued under
the Stock Option Plan must, in the case of incentive stock options, be at least
equal to the fair market value of the Common Stock subject to the option at the
time the option is granted, and in the case of nonqualified stock options, be at
least equal to 75% of the fair market value of the shares subject to the option
at the time it is granted. In the case of an incentive stock option granted to
an employee who holds more than 10% of the Common Stock of the Company, the
exercise price must be at least 110% of the fair market value of the shares
subject to the option at the time it is granted. Options for a total of 802,875
shares of Common Stock are outstanding under the Stock Option Plan at exercise
prices ranging from $.02 per share to $20.25 per share.

DIRECTORS' STOCK OPTION PLAN
The Board of Directors adopted the U S Liquids Inc. Directors' Stock Option
Plan (the "Directors' Plan") and the stockholders approved the Directors' Plan
in June 1997. The Directors' Plan is intended to further the interests of the
Company by providing recognition and compensation to its outside directors for
their time, effort and participation in the growth and protection of the
Company's business. The Directors' Plan provides that, at the time of his or her
initial election or appointment to the Board, each director who is not an
employee of the Company and has not been an employee of the Company during the
preceding 12 months will automatically be granted an option to purchase 10,000
shares of Common Stock. In addition, each outside director will automatically be
granted an option to purchase 5,000 shares of Common Stock on January 1 of each
calendar year. The exercise price of all options granted under the Directors'
Plan must be equal to the fair market value of the Common Stock at the time the
option is granted. Options for a total of 35,000 shares of Common Stock at
exercise prices ranging from $9.50 per share to $16.00 per share have been
granted under the Directors' Plan.
The Directors' Plan is administered by the Compensation Committee. The
Compensation Committee is required to administer the Directors' Plan in strict
accordance with its terms and does not have the discretion to vary, add to or
take from the terms of the Directors' Plan.

42
<PAGE>
CERTAIN TRANSACTIONS

CAMPBELL WELLS ACQUISITION

On December 13, 1996, the Campbell Wells Acquisition was consummated. The
assets acquired in the Campbell Wells Acquisition included four oilfield waste
processing facilities in Louisiana, one oilfield waste processing facility in
Texas, all equipment and capital improvements related to the processing
facilities, and approximately $8.1 million of working capital. In consideration
for these assets, the Company issued to Sanifill, a wholly-owned subsidiary of
USA Waste, a $27.8 million promissory note (the "Sanifill Note") and a
transferable 10-year warrant for the purchase of one million shares of Common
Stock at an exercise price of $2.00 per share (the "Sanifill Warrant"). In
December 1997, the Company paid the Sanifill Note in full.

In connection with the Campbell Wells Acquisition, Sanifill assigned to the
Company its rights and obligations under the Disposal Agreement. Pursuant to the
terms of the Disposal Agreement, through June 30, 2021, Newpark is obligated to
deliver to the Company on an annual basis for processing and disposal at certain
of its Louisiana landfarms the lesser of (i) one-third of the barrels of
oilfield waste that Newpark receives for processing and disposal in the
Territory and (ii) 1,850,000 barrels of oilfield waste, in each case excluding
saltwater. During the twelve-month period ending December 31, 1997, Newpark
delivered approximately 1,430,000 barrels of oilfield waste, excluding
saltwater, to the Company's landfarms.

The Disposal Agreement governs the price to be paid by Newpark to the
Company for delivered oilfield waste. Currently, Newpark is paying to the
Company $5.50 for each barrel of oilfield waste delivered to the Company under
the Disposal Agreement. This contractual price is lower than the $6.56 average
per barrel price (excluding saltwater) that the Company received from other
customers during the first quarter of 1998, and the Company expects such price
disparity to persist for the duration of the Disposal Agreement; however,
Newpark's delivery obligations under the Disposal Agreement allow the Company to
eliminate virtually all marketing and transfer expenses on waste delivered by
Newpark. 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
oilfield waste processing 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.

As part of the Campbell Wells Acquisition, Sanifill agreed that if, prior
to December 31, 1999, the Company is required by the Louisiana Department of
Natural Resources or the Louisiana Department of Environmental Quality to
construct or install additional water injection wells with respect to certain of
the Louisiana landfarms purchased by the Company from Sanifill, Sanifill will
reimburse the Company for up to $1.6 million of expenses incurred by the Company
in constructing or installing the additional water injection wells. Excepting
this reimbursement obligation and certain amounts previously paid by Sanifill to
reimburse the Company for closure and post-closure requirements associated with
the Lacassine, Louisiana NORM facility, the Company assumed all liabilities and
obligations of Campbell Wells for closure, post-closure, monitoring,
maintenance, environmental remediation and clean-up of all landfarms and
treatment sites owned, occupied, leased or operated by Campbell Wells as of the
date of the Campbell Wells Acquisition.

In connection with the Campbell Wells Acquisition, Sanifill also agreed to
indemnify the Company against all liabilities of Sanifill and Campbell Wells not
expressly assumed by the Company and, subject to certain limitations, against
any breach of any agreement or covenant made by Sanifill in the definitive
acquisition agreement. To be eligible for indemnification by Sanifill, an
individual claim or loss by the Company based on a Sanifill breach must exceed
$10,000, and all such claims and losses must have exceeded $200,000, in which
case the indemnification obligation of Sanifill is limited to the amount of such

43
<PAGE>
claims and losses in excess of $200,000. Further, the obligation of Sanifill to
indemnify the Company is limited to $10 million.

In connection with the Campbell Wells Acquisition, the Company and Sanifill
executed noncompetition agreements under which each party agreed not to compete
with the other in certain businesses for a period of five years. In its
noncompetition agreement, Sanifill agreed not to engage in the collection,
transfer, transportation, treatment or disposal of oilfield waste during the
restricted period. In return, the Company agreed not to engage in the
collection, treatment or disposal of municipal solid wastes, construction debris
or demolition debris during the restricted period, or own any interest in any
company engaged in any such business. In addition, as a result of the Campbell
Wells Acquisition, the Company is prohibited until August 2001 from (i)
accepting from any customer other than Newpark oilfield waste generated in a
marine environment or transported in a marine vessel within the Territory, and
(ii) engaging in the site remediation and closure business in the Territory.

On September 3, 1997, the Company filed a shelf registration statement
under Rule 415 of the Securities Act registering, among other things, the shares
of Common Stock issuable upon exercise of the Sanifill Warrant. The Company has
agreed to keep this shelf registration statement continuously effective until
the earlier of three years after the date of final exercise of the Sanifill
Warrant and such time as the holder of the Sanifill Warrant has sold all of the
shares issuable upon exercise thereof. However, without the Company's prior
consent, and, under certain circumstances, the prior consent of one of the lead
underwriters of the IPO, the number of shares offered by Sanifill pursuant to
this registration statement in any calendar year cannot exceed the following
limitations:

MAXIMUM NUMBER OF
SHARES TO BE
YEAR OFFERED
1998................................. 200,000
1999................................. 200,000
2000................................. 250,000
2001-2006............................ 300,000

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

OTHER

On June 17, 1997, the Company acquired all of the outstanding stock of
three companies owned by Thomas B. Blanton, a director and employee of the
Company. Mr. Blanton received 1,062,500 shares of Common Stock in exchange for
his capital stock of these companies. Pursuant to the terms of the acquisition
agreements, Mr. Blanton became a director and employee of the Company. In
addition, pursuant to the terms of the acquisition agreements, the Company used
approximately $1.2 million of the net proceeds of the IPO to repay various debts
of Mr. Blanton's former companies, all of which had been personally guaranteed
by Mr. Blanton and of which approximately $200,000 was owed to Tommy Yount, the
brother-in-law of Mr. Blanton.

The Company regularly purchases used cooking oil and other food processing
residuals that Mr. Yount collects from generators of such materials. During
1997, the Company purchased approximately $243,000 of such materials from Mr.
Yount.

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

In May 1998, the Company acquired from USA Waste all of the outstanding
capital stock of Northern A-1 Services, Inc. and substantially all of the assets
of City Environmental, Inc. and Universal Waste and Transit for $13.7 million,
$30.8 million and $2.7 million in cash, respectively. USA Waste is the parent
corporation of Sanifill, a principal stockholder of the Company.

44
<PAGE>
In connection with the acquisition of the assets of City Environmental,
Inc., the Company also agreed, for a period of 20 years, to deliver to certain
landfills operated by USA Waste all of the nonhazardous waste generated from the
operations of the acquired business. During each of the first five years of this
arrangement, the tipping fee to be paid by the Company to USA Waste is $45.50
per cubic yard for the first 120,000 cubic yards of delivered waste and $8.00
per cubic yard thereafter. During each of the remaining 15 years of this
arrangement, the tipping fee is $8.00 per cubic yard. The $45.50 per cubic yard
tipping fee is higher than the $9.38 per cubic yard tipping fee currently
charged by local landfills for comparable waste. The Company also agreed, for a
period of 14 years commencing in May 2003, to pay to USA Waste a monthly royalty
fee equal to 6% of the net revenues derived from the assets of City
Environmental, Inc. In addition, USA Waste agreed, for a period of 20 years, to
deliver to the Company for processing and disposal all leachate (up to a maximum
of 35 million gallons per year) from certain landfills operated by USA Waste in
the Detroit area. The $.0075 per gallon tipping fee to be paid by USA Waste for
delivered leachate is less than the $.02 per gallon tipping fee currently
charged by City Environmental, Inc. for comparable waste. The tipping fee
payable by USA Waste for delivered leachate and $8.00 of the tipping fee payable
by the Company for delivered nonhazardous waste will be adjusted to reflect any
increase in the consumer price index.

45
<PAGE>
PRINCIPAL STOCKHOLDERS

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

PERCENT
--------------------
NUMBER OF BEFORE AFTER
NAME SHARES OFFERING OFFERING
Michael P. Lawlor(1)................. 250,100 2.9% 2.2%
W. Gregory Orr(2).................... 623,500 7.3% 5.4%
Earl J. Blackwell(3)................. 355,000 4.2% 3.1%
Thomas B. Blanton.................... 700,780 8.2% 6.1%
William A. Rothrock IV(4)............ 67,500 * *
Alfred Tyler 2nd(5).................. 15,000 * *
James F. McEneaney, Jr.(6)........... 15,000 * *
Sanifill, Inc.(7).................... 1,000,000 10.5% 8.0%
Franklin Resources, Inc.(8).......... 799,050 9.4% 6.9%
All executive officers and directors
as a group (7 persons)(9).......... 2,026,880 23.4% 17.4%

- ------------------------------
* Less than one percent.
(1) Includes 100,000 shares which may be acquired by Mr. Lawlor upon the
exercise of options which are exercisable within 60 days of the date of this
Prospectus.
(2) Includes 250,000 shares held by The Wiley Gregory & Genene M. Orr Family
LLC, a limited liability company, over which Mr. Orr, as the manager, has
sole voting and investment power, 15,000 shares held by Mr. Orr's wife,
Genene Orr, 15,000 shares held by Mr. Orr's wife as custodian for two of Mr.
Orr's children, and 10,000 shares held individually by one of Mr. Orr's
children. Mr. Orr disclaims beneficial ownership of all shares held
individually by his children.
(3) Includes 180,000 shares held by The Earl J. and Christine J. Blackwell
Family LLC, a limited liability company, over which Mr. Blackwell, as the
manager, has sole voting and investment power and 100,000 shares held in an
individual retirement account for the benefit of Mr. Blackwell.
(4) Includes 5,000 shares which Mr. Rothrock has the right to acquire pursuant
to the terms of a stock option granted by the Company to him. Excludes
125,000 shares issuable pursuant to a stock option granted to Mr. Rothrock,
the vesting of which are contingent upon the successful completion of
certain corporate development business activities.
(5) Includes 15,000 shares which Mr. Tyler has the right to acquire pursuant to
the terms of certain stock options granted by the Company to him.
(6) Includes 15,000 shares which Mr. McEneaney has the right to acquire pursuant
to the terms of certain stock options granted by the Company to him.
(7) Represents shares which Sanifill has the right to acquire pursuant to the
terms of a warrant issued by the Company to Sanifill on December 13, 1996.
Sanifill's address is 1001 Fannin Street, Suite 4000, Houston, Texas 77002.
(8) Includes shares owned by one or more open or closed-end investment companies
or other managed accounts which are advised by direct and indirect
investment advisory subsidiaries of Franklin Resources, Inc. ("FRI"). The
Company has been advised that such adviser subsidiaries of FRI have sole
investment and/or voting power over such shares. The Company has also been
advised that Charles B. Johnson and Rupert H. Johnson, Jr. are the principal
stockholders of FRI and, thus, may each be deemed to be the beneficial owner
of such shares. The address of FRI and Messrs. Johnson and Johnson is 777
Mariners Island Boulevard, 6th Floor, San Mateo, California 94404.
(9) Excludes 125,000 shares subject to the corporate development option granted
to Mr. Rothrock.

46
<PAGE>
DESCRIPTION OF SECURITIES

COMMON STOCK

The Company is authorized to issue 30,000,000 shares of Common Stock, of
which 8,516,211 shares are outstanding. Holders of Common Stock are entitled to
one vote for each share held on all matters submitted to a vote of stockholders.
There is no cumulative voting with respect to the election of directors. See
"Risk Factors -- Concentration of Voting Control." Holders of Common Stock are
entitled to receive ratably any dividends that may be declared by the Board of
Directors of the Company out of legally available funds. Upon the liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to receive ratably the net assets of the Company after payment of all
debts and liabilities and liquidation preferences of any outstanding shares of
Preferred Stock. Holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. As of May 6, 1998, the Company had 293 holders
of record of Common Stock.

PREFERRED STOCK

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

OPTIONS AND WARRANTS

The Company has outstanding options to purchase an aggregate of 1,181,625
shares of Common Stock, of which 281,250 shares are issuable pursuant to options
the vesting of which are contingent upon the successful completion of certain
corporate business development activities. The Company has outstanding warrants
to purchase an additional 1,235,000 shares of Common Stock consisting of (i) the
Sanifill Warrant for 1,000,000 shares at $2.00 per share; (ii) warrants for
112,500 total shares at $11.40 per share issued to Sanders Morris Mundy Inc.
("SMM") and Van Kasper & Company in connection with the IPO (the "IPO
Warrants"); (iii) a warrant for 37,500 shares at $9.50 per share issued to SMM
for certain consulting services (the "SMM Warrant"); and (iv) other warrants
for 85,000 total shares at exercise prices ranging from $9.50 per share to
$14.125 per share.

SHARES ELIGIBLE FOR FUTURE SALE

As of the date of this Prospectus, the Company had issued and outstanding
8,516,211 shares of Common Stock. There are over 5,500,000 shares of Common
Stock which are freely tradeable or which are currently eligible for resale
under Rules 144 and 145 promulgated under the Securities Act. Further, the
Company has issued and outstanding options to purchase up to 1,181,625 shares of
Common Stock and warrants to purchase up to 1,235,000 shares of Common Stock.
Additional shares of Common Stock may become eligible for sale on the public
market from time to time upon exercise of warrants and stock options.

The Company has filed a registration statement on Form S-8 to register all
shares subject to the Stock Option Plan and the Directors' Plan. The Company has
also filed a shelf registration statement on Form S-1 registering for resale
376,447 total shares of Common Stock held by Messrs. Orr, Blackwell, DeArman and
certain owners of a business acquired by the Company in June 1997 and the
1,000,000 shares of Common Stock underlying the Sanifill Warrant, and 1,682,901
shares of Common Stock remaining available for use in acquisitions by the
Company. The Company has also agreed to register for resale all shares of Common
Stock issuable upon the exercise of the IPO Warrants and the SMM Warrant and
168,987 shares issued in connection with a 1997 acquisition.

No prediction can be made as to the effect, if any, the sale of shares or
the availability of shares for sale will have on the market price for the Common
Stock prevailing from time to time. Nevertheless, sales, or the availability for
sale of, substantial amounts of the Common Stock in the public market could
adversely

47
<PAGE>
affect prevailing market prices and the future ability of the Company to raise
equity capital and complete any additional acquisitions for Common Stock.

DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company's Certificate of Incorporation limits, to the fullest extent
permitted by Delaware law, the liability of a director to the Company or its
stockholders for monetary damages for a breach of such director's fiduciary duty
as a director. Delaware law presently permits such limitations of a director's
liability except where a director breaches his or her duty of loyalty to the
Company or its stockholders, fails to act in good faith or engages in
intentional misconduct or a knowing violation of law, authorizes payment of an
unlawful dividend or stock repurchase, or obtains an improper personal benefit.
This provision is intended to afford directors additional protection, and limit
their potential liability, from suits alleging a breach of the duty of care by a
director. The Company believes this provision will assist it in maintaining and
securing the services of directors who are not employees of the Company. As a
result of the inclusion of such a provision, stockholders may be unable to
recover, under Delaware law, monetary damages against directors for actions
taken by them that constitute negligence or gross negligence or that are in
violation of their fiduciary duties, although it may be possible to obtain
injunctive or other equitable relief with respect to such actions. If equitable
remedies are found not to be available to stockholders for any particular case,
stockholders may not have any effective remedy, under Delaware law, against the
challenged conduct.
The Company's Certificate of Incorporation also provides that directors and
officers shall be indemnified against liabilities arising from their service as
directors or officers to the fullest extent permitted by law, which generally
requires that the individual act in good faith and in a manner he or she
reasonably believes to be in or not opposed to the Company's best interests. The
Company has obtained directors and officers liability insurance to limit its
exposure under these provisions.
Under the Company's Certificate of Incorporation, the Board of Directors is
divided into three classes of directors with each class serving a staggered
three-year term. The classification system of electing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of the Company and may maintain the incumbency of the Board of
Directors, as it generally makes it more difficult for stockholders to replace a
majority of the directors. See "Risk Factors -- Potential Anti-Takeover Effect
of Charter Provisions."

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

48
<PAGE>
UNDERWRITING

Subject to the terms and conditions of an Underwriting Agreement, dated
June 5, 1998 (the "Underwriting Agreement"), the Underwriters named below, who
are represented by Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), Deutsche Bank Securities Inc., Van Kasper & Company and Sanders
Morris Mundy Inc. (the "Representatives"), have severally agreed to purchase
from the Company the respective number of shares of Common Stock set forth
opposite their names below.

NUMBER
UNDERWRITERS OF SHARES
Donaldson, Lufkin & Jenrette Securities
Corporation........................... 1,800,000
Deutsche Bank Securities Inc............ 600,000
Van Kasper & Company.................... 300,000
Sanders Morris Mundy Inc................ 300,000
---------
Total.............................. 3,000,000
=========

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.

The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the offering price set forth on the cover page of
this Prospectus and in part to certain dealers (including the Underwriters) at
such price less a concession not in excess of $0.60 per share. The Underwriters
may allow, and such dealers may re-allow, to certain other dealers a concession
not in excess of $0.10 per share. After the offering of the Common Stock, the
offering price and other selling terms may be changed by the Representatives at
any time without notice.

The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of 450,000 additional shares of Common
Stock at the public offering price less underwriting discounts and commissions.
The Underwriters may exercise such option solely to cover overallotments, if
any, made in connection with the offering. To the extent that the Underwriters
exercise such option, each Underwriter will become obligated, subject to certain
conditions, to purchase its pro rata portion of such additional shares based on
such Underwriter's percentage underwriting commitment as indicated in the
preceding table.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.

Each of the Company, its executive officers and directors and certain
stockholders of the Company has agreed, subject to certain exceptions, not to
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 120 days
after the date of this Prospectus without the prior written consent of DLJ. In
addition, during such period, the Company has also agreed not to file any
registration statement with respect to, and each of its executive officers,
directors and certain stockholders of the Company has agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock without DLJ's prior written consent. The
agreements described in the preceding sentence do not apply, however, with
respect to the shelf registration statement filed by the Company in September
1997.

In May 1997, the Company engaged SMM to assist it in, among other things,
developing and implementing its acquisition program. As consideration for its
services, the Company issued the SMM

49
<PAGE>
Warrant to SMM. In connection with the IPO, the Company issued the IPO Warrant
to Van Kasper & Company and SMM.
The Common Stock is listed on the American Stock Exchange ("AMEX") under
the symbol "USL." On June 4, 1998, the reported last sale price of the Common
stock as reported on the AMEX was $19 7/8 per share. See "Price Range of Common
Stock and Dividend Policy."
Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the shares of Common
Stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of Common Stock offered hereby may not be offered or sold,
directly or indirectly, nor may this Prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
Common Stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this Prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the offering of the Common Stock and the distribution of this
Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. These activities may stabilize or
maintain the market price of the Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end any
of these activities at any time.

LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
by the Company will be passed upon for the Company by Hartzog Conger & Cason,
Oklahoma City, Oklahoma. Certain legal matters related to this offering will be
passed on for the Underwriters by McDermott, Will & Emery, Chicago, Illinois.

EXPERTS
The audited financial statements included elsewhere in this Prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (which term shall encompass any and all
amendments thereto) on Form S-1 (the "Registration Statement") under the
Securities Act with respect to the shares of Common Stock offered by this
Prospectus. This Prospectus, which is part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits and schedules thereto, certain items of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is hereby made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference. Any person to whom this Prospectus is delivered may
obtain a copy of the Registration Statement, including the exhibits thereto,
without charge upon written or oral request to the Secretary of the Company at
411 N. Sam Houston Parkway East, Suite 400, Houston, Texas 77060, (281)
272-4500.
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information may be inspected, without charge, at the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the

50
<PAGE>
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials can be obtained
from the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the
prescribed fees. The Commission maintains a web site that contains reports,
proxy and information statements regarding registrants that file electronically
with the Commission. The address of this web site is (http://www.sec.gov).
The Common Stock is listed on AMEX. Reports, proxy statements and other
information concerning the Company can be inspected at the offices of AMEX
located at 86 Trinity Place, New York, New York 10006-1881.

<PAGE>
INDEX TO FINANCIAL STATEMENTS

PAGE
-----
U S LIQUIDS INC. PRO FORMA
Introduction to Unaudited Pro
Forma Financial Statements..... F-2
Pro Forma Balance Sheet
(Unaudited).................... F-3
Notes to Pro Forma Balance Sheet
(Unaudited).................... F-4
Pro Forma Statements of Income
(Unaudited).................... F-5
Notes to Pro Forma Statements of
Income (Unaudited)............. F-8
U S LIQUIDS INC. AND SUBSIDIARIES
Report of Independent Public
Accountants.................... F-9
Consolidated Balance Sheets..... F-10
Consolidated Statements of
Income......................... F-11
Consolidated Statements of
Stockholders' Equity........... F-12
Consolidated Statements of Cash
Flows.......................... F-13
Notes to Consolidated Financial
Statements..................... F-14
CITY ENVIRONMENTAL, INC.
Report of Independent Public
Accountants.................... F-29
Balance Sheets.................. F-30
Statements of Income............ F-31
Notes to Financial Statements... F-32
WASTE STREAM ENVIRONMENTAL INC. AND
AFFILIATE
Report of Independent Public
Accountants.................... F-38
Combined Balance Sheets......... F-39
Combined Statements of Income... F-40
Combined Statements of
Stockholders' Equity........... F-41
Combined Statements of Cash
Flows.......................... F-42
Notes to Combined Financial
Statements..................... F-43
PARALLEL PRODUCTS
Report of Independent Public
Accountants.................... F-48
Balance Sheets.................. F-49
Statements of Income............ F-50
Statements of Partners'
Capital........................ F-51
Statements of Cash Flows........ F-52
Notes to Financial Statements... F-53
U S LIQUIDS INC. PREDECESSOR
Report of Independent Public
Accountants.................... F-58
Balance Sheets.................. F-59
Statements of Income............ F-60
Notes to Financial Statements... F-61

F-1
<PAGE>
U S LIQUIDS INC.
INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The following unaudited pro forma financial statements present the balance
sheet and income statement data from the consolidated financial statements of U
S Liquids Inc. (U S Liquids or the Company) combined with the historical
financial data of acquisitions by the Company since its initial public offering
(the Acquisitions) as follows: (i) the unaudited pro forma balance sheet
includes the historical consolidated balance sheet data of U S Liquids at March
31, 1998 combined with the Acquisitions consummated or to be consummated after
March 31, 1998 as if each had occurred on March 31, 1998 and (ii) the unaudited
pro forma income statements for the year ended December 31, 1997 and for the
three months ended March 31, 1997 and 1998 include the historical consolidated
income statements of U S Liquids for the respective periods combined with all
Acquisitions consummated or to be consummated since the Company's initial public
offering as if each had occurred January 1, 1997. Additionally, the effects of
the Company's initial public offering and the Company's current public equity
offering (the Offering) are included in the unaudited pro forma financial
statements as if they had occurred on January 1, 1997. The income statement data
present depreciation and amortization expenses separately from operating
expenses and selling, general and administrative expenses. Depreciation and
amortization expenses are included in the operating and the selling, general and
administrative expense captions set forth in the audited financial statements.

The Company has preliminarily analyzed the savings that it expects to be
realized by consolidating certain operational and general and administrative
functions. The Company cannot quantify these savings due to the short period of
time since the closing of the majority of the Acquisitions. It is anticipated
that these savings will be partially offset by the incremental increase in costs
related to the Company's corporate management. However, these costs, like the
savings that they offset, cannot be quantified accurately. Neither the
anticipated savings nor the anticipated costs have been included in the pro
forma financial statements.

The pro forma financial statements include certain adjustments to the
historical financial statements of the Acquisitions, including the adjustment of
depreciation and amortization expenses to reflect purchase price allocations,
recording of interest expense to reflect debt issued in connection with the
Acquisitions, and certain reductions of salaries and benefits payable to the
previous owners of the businesses acquired which were agreed to in connection
with the Acquisitions and the related income tax effects of these adjustments.

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

F-2
<PAGE>
U S LIQUIDS INC.
PRO FORMA BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------------------------------------------------------------------------
HISTORICAL ACQUISITION OFFERING PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS(A) PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ ------------- --------------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 5,733 $ 2,013 $ (270) $ 7,476 $ 52,730(b) $ 7,476
(52,730)(c)
Accounts receivable, net of
allowance....................... 7,155 13,872 (5,382) 15,645 15,645
Inventories........................ 447 655 1,102 1,102
Prepaid expenses and other current
assets.......................... 955 2,446 (46) 3,355 3,355
------------ ------------- --------------- --------- ------------ ------------
Total current assets....... 14,290 18,986 (5,698) 27,578 -- 27,578
PROPERTY, PLANT AND EQUIPMENT, net... 40,501 36,089 146 76,736 76,736
INTANGIBLE ASSETS, net............... 14,402 18,208 43,156 75,766 75,766
OTHER ASSETS, net.................... 1,047 249 (35) 1,261 1,261
------------ ------------- --------------- --------- ------------ ------------
Total assets............... $ 70,240 $73,532 $ 37,569 $ 181,341 $ -- $181,341
============ ============= =============== ========= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations..................... $ 1,258 $ 5,671 $ (5,671) $ 1,258 $ $ 1,258
Accounts payable................... 3,081 5,641 (685) 8,037 8,037
Accrued liabilities................ 4,473 2,764 3,355 10,592 10,592
------------ ------------- --------------- --------- ------------ ------------
Total current
liabilities................ 8,812 14,076 (3,001) 19,887 -- 19,887
LONG-TERM OBLIGATIONS, net of current
maturities......................... 25,346 5,838 59,632 90,816 (52,730)(c) 38,086
CELL PROCESSING RESERVE.............. 7,129 -- 7,129 7,129
CLOSURE AND REMEDIATION RESERVES..... 3,221 1,325 250 4,796 4,796
OTHER RESERVES....................... -- -- 11,703 11,703 11,703
DEFERRED INCOME TAXES................ 308 -- 437 745 745
------------ ------------- --------------- --------- ------------ ------------
Total liabilities.......... 44,816 21,239 69,021 135,076 (52,730) 82,346
------------ ------------- --------------- --------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock....................... 75 33 (23) 85 30(b) 115
Additional paid-in capital......... 20,171 8,525 12,306 41,002 52,700(b) 93,702
Retained earnings.................. 5,178 8,259 (8,259) 5,178 5,178
Other owners' equity............... -- 35,476 (35,476) -- --
------------ ------------- --------------- --------- ------------ ------------
Total stockholders'
equity..................... 25,424 52,293 (31,452) 46,265 52,730 98,995
------------ ------------- --------------- --------- ------------ ------------
Total liabilities and
stockholders' equity.... $ 70,240 $73,532 $ 37,569 $ 181,341 $ -- $181,341
============ ============= =============== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.

F-3
<PAGE>
U S LIQUIDS INC.
NOTES TO PRO FORMA BALANCE SHEET (UNAUDITED)

(a) These adjustments reflect the purchase of the Acquisitions that were
consummated or will be consummated subsequent to March 31, 1998, including
approximately $61,363,000 of long-term obligations issued for the cash
portion of the purchase price and for certain debt obligations paid upon
acquisition and approximately 1,017,000 shares issued. These adjustments
also reflect purchase price allocations on the Acquisitions, including
allocating the deferred income tax liability attributable to the temporary
differences between the financial reporting and income tax bases on assets
and liabilities previously held as S Corporations, the repayment of working
capital for certain Acquisitions pursuant to their respective acquisition
agreements through the collection and subsequent repayment of approximately
$6,500,000 in accounts receivable and establishing a $14,629,000 deferred
cost reserve in connection with a landfill disposal agreement entered into
with USA Waste.

(b) Reflects the proceeds from the issuance of 3,000,000 shares of Common
Stock, net of estimated offering costs. Offering costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and
printing expenses.

F-4
<PAGE>
U S LIQUIDS INC.
PRO FORMA STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------------------
HISTORICAL ACQUISITION OFFERING PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------- ------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES............................. $38,159 $ 111,824 $ $149,983 $ $149,983
OPERATING EXPENSES................... 21,353 79,621 894(a) 101,868 101,868
DEPRECIATION AND
AMORTIZATION....................... 2,990 4,611 1,691(b) 9,292 9,292
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 5,750 14,048 (1,612)(a) 18,186 18,186
------------- ------------- ------------ ---------- ------------ ------------
INCOME FROM OPERATIONS............... 8,066 13,544 (973) 20,637 -- 20,637
INTEREST EXPENSE, net................ 1,734 1,873 3,542(c) 7,149 (3,954)(e) 3,195
OTHER (INCOME) EXPENSE, net.......... 41 113 154 154
------------- ------------- ------------ ---------- ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES....................... 6,291 11,558 (4,515) 13,334 3,954 17,288
PROVISION FOR INCOME TAXES........... 2,416 161 2,890(d) 5,467 1,621(d) 7,088
------------- ------------- ------------ ---------- ------------ ------------
NET INCOME (LOSS).................... $ 3,875 $ 11,397 $ (7,405) $ 7,867 $ 2,333 $ 10,200
============= ============= ============ ========== ============ ============
BASIC EARNINGS PER COMMON SHARE...... $ 0.89
============
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE............ $ 0.81
============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 11,453(f)
============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING...... 12,645(g)
============
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.

F-5
<PAGE>
U S LIQUIDS INC.
PRO FORMA STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------------------------------------------------------
HISTORICAL ACQUISITION OFFERING PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ ------------- ------------ --------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES................................ $7,862 $26,637 $ $34,499 $ $ 34,499
OPERATING EXPENSES...................... 4,675 19,611 138(a) 24,424 24,424
DEPRECIATION AND AMORTIZATION........... 633 923 388(b) 1,944 1,944
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 690 3,087 (290)(a) 3,487 3,487
------------ ------------- ------------ --------- ------------ ------------
INCOME FROM OPERATIONS.................. 1,864 3,016 (236) 4,644 -- 4,644
INTEREST EXPENSE, net................... 509 525 819(c) 1,853 (989)(e) 864
OTHER (INCOME) EXPENSE, net............. (28) 119 91 91
------------ ------------- ------------ --------- ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES.......................... 1,383 2,372 (1,055) 2,700 989 3,689
PROVISION FOR INCOME TAXES.............. 504 1 602(d) 1,107 405(d) 1,512
------------ ------------- ------------ --------- ------------ ------------
NET INCOME (LOSS)....................... $ 879 $ 2,371 $ (1,657) $ 1,593 $ 584 $ 2,177
============ ============= ============ ========= ============ ============
BASIC EARNINGS PER COMMON SHARE......... $ 0.19
============
DILUTED EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE...................... $ 0.17
============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................... 11,450(f)
============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING......... 12,483(g)
============
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.

F-6
<PAGE>
U S LIQUIDS INC.
PRO FORMA STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------------------------------------------------
HISTORICAL ACQUISITION OFFERING PRO FORMA
CONSOLIDATED ACQUISITIONS ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
------------ ------------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES............................. $ 12,343 $29,335 $ $ 41,678 $ $ 41,678
OPERATING EXPENSES................... 7,011 20,852 (127)(a) 27,736 27,736
DEPRECIATION AND
AMORTIZATION....................... 987 1,339 305(b) 2,631 2,631
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,467 3,177 4,644 4,644
------------ ------------- ------------ --------- ----------- ------------
INCOME FROM OPERATIONS............... 2,878 3,967 (178) 6,667 -- 6,667
INTEREST EXPENSE, net................ 346 570 764(c) 1,680 (989)(e) 691
OTHER (INCOME) EXPENSE, net.......... (5) 105 100 100
------------ ------------- ------------ --------- ----------- ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES....................... 2,537 3,292 (942) 4,887 989 5,876
PROVISION FOR INCOME TAXES........... 1,002 771 231(d) 2,004 405(d) 2,409
------------ ------------- ------------ --------- ----------- ------------
NET INCOME (LOSS).................... $ 1,535 $ 2,521 $ (1,173) $ 2,883 $ 584 $ 3,467
============ ============= ============ ========= =========== ============
BASIC EARNINGS PER COMMON SHARE...... $ 0.30
============
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE............ $ 0.27
============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 11,512(f)
============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING...... 12,811(g)
============
</TABLE>
The accompanying notes are an integral part of this pro forma financial
statement.

F-7
<PAGE>
U S LIQUIDS INC.
NOTES TO PRO FORMA STATEMENTS OF INCOME (UNAUDITED)

(a) Adjusts compensation expense to the level the previous owners of the
Acquisitions have agreed to receive as employees of the Company subsequent
to their respective acquisitions. In addition, for certain of the
Acquisitions, salaries and related expenses previously recorded as
selling, general and administrative expenses have been reclassified as
operating expenses consistent with the Company's accounting policy.

(b) Adjusts depreciation and amortization expenses to reflect purchase price
allocations on the Acquisitions.

(c) Records interest expense on the debt incurred to effect the purchase of
the Acquisitions, net of a reduction in interest expense on debt repaid in
connection with the Acquisitions.

(d) Reflects the incremental provision for providing federal income taxes on
the Acquisitions previously taxed as S corporations or limited liability
companies as well as federal and state income taxes relating to the pro
forma income statement adjustments.

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

(f) Includes (i) 5,937,435 shares, 5,238,875 shares and 7,438,910 shares
outstanding for the year ended December 31, 1997, and for the three months
ended March 31, 1997 and 1998, respectively, (ii) 3,000,000 shares issued
in connection with the Offering and (iii) 2,515,124 shares, 3,211,085
shares and 1,073,578 shares for the year ended December 31, 1997, and for
the three months ended March 31, 1997 and 1998, respectively, issued in
connection with the Acquisitions and the Company's initial public offering
as if each had occurred on January 1, 1997.

(g) Includes the weighted average common shares outstanding and 1,192,531
shares, 1,032,585 shares and 1,298,072 shares for the year ended December
31, 1997, and for the three months ended March 31, 1997 and 1998,
respectively, representing the effect of outstanding warrants and options
to purchase Common Stock, using the treasury stock method. Excludes
281,250 shares issuable pursuant to options, the vesting of which is
contingent upon the successful completion or certain corporate development
activities.

F-8
<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-9
<PAGE>
U S LIQUIDS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

DECEMBER 31, MARCH 31,
-------------------- -----------
ASSETS 1996 1997 1998
--------- --------- -----------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents....... $ 5,604 $ 2,203 $ 5,733
Accounts receivable, less
allowances of $265, $342 and
$353 (unaudited).............. 4,843 5,436 7,155
Inventories..................... 339 567 447
Prepaid expenses and other
current assets................ 850 621 955
--------- --------- -----------
Total current assets....... $ 11,636 $ 8,827 $14,290
PROPERTY, PLANT AND EQUIPMENT, net... 34,582 39,110 40,501
DEFERRED INCOME TAXES................ 100 -- --
INTANGIBLE ASSETS, net............... 85 6,078 14,402
OTHER ASSETS, net.................... 448 1,001 1,047
--------- --------- -----------
Total assets............... $ 46,851 $ 55,016 $70,240
========= ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations................... $ 5,817 $ 792 $ 1,258
Accounts payable................ 2,984 2,154 3,081
Accrued liabilities............. 2,147 3,759 4,473
Advances from stockholders and
related-party notes payable... 465 -- --
--------- --------- -----------
Total current
liabilities................ $ 11,413 $ 6,705 $ 8,812
LONG-TERM OBLIGATIONS, net of current
maturities......................... 23,668 16,644 25,346
CELL PROCESSING RESERVE.............. 7,732 7,330 7,129
CLOSURE AND REMEDIATION RESERVES..... 2,500 3,275 3,221
DEFERRED INCOME TAXES................ -- 156 308
--------- --------- -----------
Total liabilities.......... $ 45,313 $ 34,110 $44,816
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, 7,303,164 and
7,499,022 (unaudited) shares
issued and outstanding........ 52 73 75
Additional paid-in capital...... 1,379 17,190 20,171
Retained earnings............... 97 3,643 5,178
--------- --------- -----------
Total stockholders'
equity..................... $ 1,538 $ 20,906 $25,424
--------- --------- -----------
Total liabilities and
stockholders' equity.... $ 46,851 $ 55,016 $70,240
========= ========= ===========

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

F-10
<PAGE>
U S LIQUIDS INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES............................. $ 11,127 $ 14,285 $ 38,159 $ 7,862 $ 12,343
COST OF OPERATIONS................... 9,935 11,790 24,173 5,283 7,935
--------- --------- --------- --------- ---------
Gross profit.................... $ 1,192 $ 2,495 $ 13,986 $ 2,579 $ 4,408
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 863 1,440 5,920 715 1,530
--------- --------- --------- --------- ---------
INCOME FROM OPERATIONS............... $ 329 $ 1,055 $ 8,066 $ 1,864 $ 2,878
INTEREST EXPENSE, net................ 159 397 1,734 509 346
OTHER (INCOME) EXPENSE, net.......... 18 (88) 41 (28) (5)
--------- --------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME
TAXES.............................. $ 152 $ 746 $ 6,291 $ 1,383 $ 2,537
PROVISION FOR INCOME TAXES........... 49 255 2,416 504 1,002
--------- --------- --------- --------- ---------
NET INCOME........................... $ 103 $ 491 $ 3,875 $ 879 $ 1,535
========= ========= ========= ========= =========
Basic Earnings per Common Share...... $ 0.06 $ 0.23 $ 0.65 $ 0.17 $ 0.21
========= ========= ========= ========= =========
Diluted Earnings per Common and
Common Equivalent Share............ $ 0.06 $ 0.23 $ 0.55 $ 0.16 $ 0.18
========= ========= ========= ========= =========
Weighted Average Common Shares
Outstanding........................ 1,700 2,117 5,937 5,239 7,439
========= ========= ========= ========= =========
Weighted Average Common and Common
Equivalent Shares Outstanding...... 1,700 2,139 7,078 5,418 8,737
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-11
<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 company..... -- -- -- -- -- (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
======= ====== ========= ====== ========== =========
Net income (unaudited).......... -- -- -- -- -- 1,535
Common stock and warrants issued
in acquisitions (unaudited)... -- -- 185,858 2 2,981 --
Common stock options exercised
(unaudited)................... -- -- 10,000 -- -- --
------- ------ --------- ------ ---------- ---------
BALANCE, March 31, 1998 (unaudited).. $-- 7,499,022 $ 75 $ 20,171 $ 5,178
======= ====== ========= ====== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-12
<PAGE>
U S LIQUIDS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $ 103 $ 491 $ 3,875 $ 879 $ 1,535
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization.... 159 424 2,990 633 987
Non-cash compensation recorded
through issuance of warrants... -- -- 184 -- --
Net gain on sale of property,
plant, and equipment........... -- -- (65) -- (1)
Deferred income tax provision
(benefit)...................... 31 (121) 64 (226) 152
Changes in operating assets and
liabilities, net of amounts
acquired:
Accounts receivable, net......... (539) (105) 68 1,107 (1,508)
Inventories...................... (288) 44 (228) (83) 120
Prepaid expenses and other
current assets................... (19) (635) 479 18 (326)
Intangible assets................ -- 96 (31) (36)
Other assets..................... (20) (209) (479) (41) (46)
Accounts payable and accrued
liabilities.................... 946 1,567 (784) (178) 1,350
Closure, remediation and cell
processing reserves............ -- (13) (503) (153) (255)
--------- --------- --------- --------- ---------
Net cash provided by
operating activities...... $ 373 $ 1,539 $ 5,570 $ 1,956 $ 1,972
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment.......................... $ (916) $ (1,795) $ (4,829) $ (544) $ (1,485)
Proceeds from sale of property,
plant, and equipment............... -- -- 206 -- 9
Net cash (paid for) acquired through
acquisitions....................... -- 5,985 (3,234) -- (5,101)
--------- --------- --------- --------- ---------
Net cash provided by (used
in) investing
activities................ $ (916) $ 4,190 $ (7,857) $ (544) $ (6,577)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to stockholders and related
parties............................ $ (6) $ (139) $ (465) $ (27) $ --
Proceeds from issuance of long-term
obligations........................ 1,084 1,152 15,593 97 9,500
Principal payments on long-term
obligations........................ (564) (1,650) (30,111) (4,329) (1,365)
Interest accrued on related-party
notes payable...................... 50 56 -- 14 --
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) $ (4,245) $ 8,135
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... $ 14 $ 5,565 $ (3,401) $ (2,833) $ 3,530
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 25 39 5,604 5,604 2,203
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 39 $ 5,604 $ 2,203 $ 2,771 $ 5,733
========= ========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest........... $ 102 $ 339 $ 2,169 $ 599 $ 345
Cash paid for income taxes....... 2 7 2,745 23 670
Assets acquired under capital
leases........................... 88 -- -- -- --
Liabilities assumed related to
acquisitions..................... -- 28,725 1,340 -- 950
Common stock, warrants and
options issued for
acquisitions................... -- 995 1,440 -- 2,983
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

F-13
<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. ("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.

INTERIM FINANCIAL INFORMATION

The interim consolidated financial statements as of March 31, 1998, and for
the three months ended March 31, 1997 and 1998, are unaudited, and certain
information and footnote disclosures, normally included in financial statements
prepared in accordance with generally accepted accounting principles, have been
omitted. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present the financial
position, results of operations and cash flows with respect to the interim
consolidated financial statements, have been included. The results of operations
for the interim periods are not necessarily indicative of the results for the
entire fiscal year.

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

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

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.

F-14
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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.

F-15
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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
========= ========= =========

F-16
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)

(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
For basic and diluted earnings
per share --
Income available to common
stockholders.................... $ 103 $ 491 $ 3,875 $ 879 $ 1,535
============ ============ ============ ============ ============
Denominator:
For basic earnings per share --
Weighted-average shares......... 1,700,000 2,116,909 5,937,435 5,238,875 7,438,910
Effect of dilutive securities:
Stock options and warrants...... -- 21,657 1,140,670 179,055 1,298,028
------------ ------------ ------------ ------------ ------------
Denominator:
For diluted earnings per
share --
Weighted-average shares and
assumed conversions............. 1,700,000 2,138,566 7,078,105 5,417,930 8,736,938
============ ============ ============ ============ ============
</TABLE>
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, absence of a combined
operating history, reliance on key personnel and risks related to the Company's
acquisition strategy.

F-17
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
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:

F-18
<PAGE>
U S LIQUIDS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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-19
<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-20
<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-21
<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 at December 31, 1996 and 1997 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-22
<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. (See Note 14). 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 1/2of 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-23
<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-24
<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-25
<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-26
<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-27
<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:

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.

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

On April 10, 1998 the Company revised its Revolving Credit Facility to
increase the maximum borrowings amount to $100,000,000.

Subsequent to March 31, 1998, the Company acquired 11 businesses engaged in
the processing and disposal of liquid waste for approximately $54,941,000 in
cash, $6,422,000 in assumed debt, the repayment of approximately $6,500,000 of
working capital, $14,629,000 of other obligations and 1,017,188 shares of the
Company's Common Stock using the purchase method of accounting.

On May 7, 1998, U S Liquids filed a registration statement on Form S-1 for
the sale of its Common Stock.

F-28
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To City Environmental, Inc.:

We have audited the accompanying balance sheets of City Environmental, Inc.
(CEI or the Company), which represent certain assets acquired and liabilities
assumed by U S Liquids Inc. from USA Waste Services, Inc., as of June 30, 1996
and 1997, and the related statements of income for each of the three years in
the period ended June 30, 1997. 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 1, the accompanying financial statements have been
prepared pursuant to the purchase agreement between USA Waste Services, 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 City Environmental, Inc.'s 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 financial position of City Environmental, Inc., as
of June 30, 1996 and 1997, and the results of its operations for each of the
three years in the period ended June 30, 1997, pursuant to the purchase
agreement referred to in Note 1 and in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
April 24, 1998

F-29
<PAGE>
CITY ENVIRONMENTAL, INC.
BALANCE SHEETS
(IN THOUSANDS)

JUNE 30,
-------------------- MARCH 31,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash............................ $ 4 $ 4 $ 4
Accounts receivable, less
allowance of $53, $93 and $652
(unaudited)................... 2,803 4,258 3,103
Prepaid expenses and other
current assets................ 123 97 90
--------- --------- -----------
Total current
assets............. 2,930 4,359 3,197
PROPERTY, PLANT AND EQUIPMENT, net... 7,195 13,512 16,346
OTHER ASSETS......................... 249 318 5,971
--------- --------- -----------
Total assets.......... $ 10,374 $ 18,189 $25,514
========= ========= ===========
LIABILITIES AND NET INTERCOMPANY
BALANCE
CURRENT LIABILITIES:
Current maturities of long-term
debt.......................... $ 41 $ 57 $ 68
Accounts payable................ 412 480 791
Accrued liabilities............. 348 509 1,203
--------- --------- -----------
Total current
liabilities........ 801 1,046 2,062
LONG-TERM DEBT, net of current
maturities......................... 778 644 528
CLOSURE AND REMEDIATION RESERVES..... 1,373 1,516 1,289
--------- --------- -----------
Total liabilities..... 2,952 3,206 3,879
NET INTERCOMPANY BALANCE............. 7,422 14,983 21,635
--------- --------- -----------
Total liabilities and
net intercompany
balance............ $ 10,374 $ 18,189 $25,514
========= ========= ===========

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

F-30
<PAGE>
CITY ENVIRONMENTAL, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE SIX THREE
MONTHS MONTHS MONTHS
YEAR ENDED JUNE 30, ENDED ENDED ENDED
------------------------------- MARCH 31, DECEMBER 31, MARCH 31,
1995 1996 1997 1997 1997 1998
--------- --------- --------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES............................. $ 15,284 $ 14,461 $ 20,806 $14,643 $ 12,171 $ 5,211
COST OF OPERATIONS................... 8,854 7,451 9,969 7,290 6,303 2,376
--------- --------- --------- ----------- ------------ -----------
Gross profit.................... 6,430 7,010 10,837 7,353 5,868 2,835
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 2,262 2,662 3,533 2,431 2,685 1,022
--------- --------- --------- ----------- ------------ -----------
Income from operations.......... 4,168 4,348 7,304 4,922 3,183 1,813
INTEREST EXPENSE, net................ 313 201 104 39 102 15
OTHER INCOME, net.................... (804) (1,158) (1,386) (1,065) 123 41
--------- --------- --------- ----------- ------------ -----------
Income before taxes............. 3,051 2,989 5,814 3,818 3,204 1,839
PROVISION FOR INCOME TAXES........... 102 128 90 85 17 754
--------- --------- --------- ----------- ------------ -----------
NET INCOME........................... $ 2,949 $ 2,861 $ 5,724 $ 3,733 $ 3,187 $ 1,085
========= ========= ========= =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-31
<PAGE>
CITY ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

City Environmental, Inc. (CEI or the Company), is a division of City
Management Corporation (CMC), which in turn is a subsidiary of USA Waste
Services, Inc. (USA Waste). For periods up to and including December 31, 1997,
CMC was owned and operated as an independent private company. During January
1998, CMC was acquired by USA Waste. During March 1998, USA Waste entered into
negotiations with U S Liquids Inc. (USL) whereby USL would purchase certain
assets and assume certain liabilities of CEI through a transaction to be
accounted for as an asset purchase.

The Company treats and disposes hazardous and nonhazardous wastes generated
by commercial, industrial, residential and governmental generators. The Company
operates treatment facilities in Detroit, Michigan, which are accessible by
truck and rail. The Company also operates a truck/tanker fleet to transport
waste materials from customers to its treatment facilities and to deliver
treated waste to landfill sites.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

These financial statements have been prepared to present the financial
position and the results of operations of CEI related to the assets acquired and
liabilities assumed by USL in conformity with generally accepted accounting
principles. The unaudited balance sheet as of March 31, 1998, and the related
statement of income for the three months ended March 31, 1998, reflect purchase
price allocations associated with USA Waste's acquisition of CMC, effective as
of January 1, 1998.

CEI is a division of CMC and, as such, 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 CEI been operated as a stand-alone
entity. The statements of income include amounts allocated by CMC to CEI for
corporate management fees, including insurance risk management, legal department
services, cash management, information systems support and executive management
salaries. Management believes the allocation is reasonable.

As a division of CMC, CEI maintains an interest-bearing intercompany
account with CMC for recording intercompany charges for costs and expenses,
intercompany transfers of equipment and intercompany transfers of cash, among
other transactions. CMC charges CEI interest expense at the rate of 9 percent
per annum of the average of the two prior months' intercompany balances when the
average exceeds $6,060,000 and credits interest income to CEI at a rate of 6
percent per annum when the average is less than $6,060,000. (The $6,060,000 was
established in prior years when CEI transferred the value of its common stock
and additional paid-in capital to the intercompany account with CMC as a result
of CMC becoming an S Corporation.) This method is not indicative of, nor is it
feasible to ascertain, the amount of related net interest expense that would
have been recorded in the accompanying statements of income had CEI operated as
a stand-alone entity. CMC does not maintain debt balances specifically related
to the operations of CEI. The net interest expense reflected in the accompanying
statements of income represents intercompany interest charges from CMC and
external interest expenses on long-term notes payable.

Due to the manner in which CMC intercompany transactions were recorded, it
is not feasible to present a detailed analysis of transactions reflected in the
intercompany balance with CMC. The change in the intercompany balance with CMC
was $991,000 and $7,561,000 for the years ended June 30, 1996 and 1997,
respectively. For the six months ended December 31, 1997, and for the three
months ended March 31, 1998, the change in intercompany balance with CMC was
$8,346,000 and $(1,715,000), respectively.

F-32
<PAGE>
CITY ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

It is also not feasible to present complete statements of cash flows 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 CEI:

CASH FLOW INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE SIX THREE
MONTHS MONTHS MONTHS
YEAR ENDED JUNE 30 ENDED ENDED ENDED
------------------------------- MARCH 31, DECEMBER 31, MARCH 31,
1995 1996 1997 1997 1997 1998
--------- --------- --------- ----------- ------------ -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities --
Net income...................... $ 2,949 $ 2,861 $ 5,724 $ 3,733 $3,187 $ 1,085
Adjustments to reconcile net
income to net cash provided by
operating activities --
Depreciation and
amortization............ 1,050 845 849 637 650 242
Loss on disposal of
assets.................. 1,187 243 346 332 117 8
Changes in operating assets and
liabilities --
Accounts receivable........ (148) (305) (1,455) (660) 432 744
Prepaid expenses and other
current assets.......... (67) 27 26 (15) (17) 24
Other assets............... (75) (89) (201) (201) (160) (422)
Accounts payable and
accrued liabilities..... 102 90 229 159 107 898
Closure and remediation.... 280 80 143 22 (290) 63
--------- --------- --------- ----------- ------------ -----------
Net cash provided by
operating activities.... $ 5,278 $ 3,752 $ 5,661 $ 4,007 $4,026 $ 2,642
========= ========= ========= =========== ============ ===========
</TABLE>
INTERIM FINANCIAL INFORMATION

The interim financial statements for the nine months ended March 31, 1997,
the six months ended December 31, 1997, and the three months ended March 31,
1998, are unaudited, and certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the results of operations with respect to the interim financial
statements have been included. The results of operations for the interim period
are not necessarily indicative of the results for the entire fiscal year.

USE OF ESTIMATES

The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets 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 the estimates.

F-33
<PAGE>
CITY ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

CASH

Cash represents an imprest account maintained by CEI. At month-end, all
excess cash balances, other than the balance in the imprest account, are
credited to CMC.

CONCENTRATIONS OF CREDIT RISK

Accounts receivable potentially subject the Company to concentrations of
credit risk. At June 30, 1996 and 1997, one customer accounted for 15 percent
and 12 percent, respectively, of the total accounts receivable balance. For the
year ended June 30, 1995, three customers accounted for 20 percent of total
revenues. For the years ended June 30, 1997 and 1996, four customers accounted
for 22 percent and 21 percent of total revenues, respectively.

PROPERTY, PLANT AND EQUIPMENT

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

LONG-LIVED ASSETS

Long-lived assets consist primarily of disposal sites, equipment and
permits. Management continually evaluates whether events or circumstances have
occurred that indicate the remaining estimated useful lives of intangible assets
and other long-lived assets may warrant revision or that remaining balances may
not be recoverable.

INSURANCE

The Company maintains various types of insurance coverage for its business
through CMC, including, without limitation, commercial general liability and
commercial auto liability, workers' compensation and employer liability,
pollution legal liability and a general umbrella policy. Premiums paid to CMC
may not have been indicative of market rates to obtain such coverage had the
Company operated on a stand-alone basis. The Company has not incurred
significant claims or losses in excess of its insurance limits during the
periods presented in the accompanying financial statements.

CLOSURE AND REMEDIATION RESERVES

The closure and remediation reserves represent accruals for the estimated
future costs associated with the ultimate closure of the Company's treatment and
disposal facilities, including costs of decommissioning, statutory monitoring
costs and incremental direct administrative costs required during the closure
and subsequent postclosure periods. The Company accrues for the estimated future
costs over the estimated useful life of the treatment facilities. Management
periodically reviews the estimated future costs and adjusts reserves over the
remaining useful life of the treatment facilities.

REVENUE RECOGNITION

CEI recognizes treatment and disposal revenue when waste material is
accepted and treated at the treatment and disposal site, and transportation
revenue at the point of collection, if the Company collects waste from the
customer's location.

INCOME TAXES

The operations of CEI are included in the consolidated U.S. federal and
state income tax returns of CMC. The stockholder of CMC elected to be taxed
individually on the Company's taxable income, pursuant

F-34
<PAGE>
CITY ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

to S Corporation rules of the Internal Revenue Code for federal taxes. A
provision for state income taxes is reflected in the historical financial
statements as if CEI were a stand-alone entity.

3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:

Prepaid expenses and other current assets at June 30, 1996 and 1997,
consist of the following:

1996 1997
----- ----
(IN THOUSANDS)
Prepaid expenses..................... $ 80 $59
Prepaid licenses and permits......... 27 22
Inventory............................ 7 7
Other................................ 9 9
----- ----
Total........................... $ 123 $97
===== ====

4. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment at June 30, 1996 and 1997, consist of the
following:

JUNE 30
DEPRECIABLE --------------------
LIFE 1996 1997
----------- --------- ---------
(YEARS) (IN THOUSANDS)
Land............................ -- $ 630 $ 686
Buildings and improvements...... 15-39 4,477 4,686
Machinery and equipment......... 5-7 5,637 11,608
Vehicles........................ 5-7 171 190
Furniture and fixtures.......... 5 550 835
--------- ---------
Total...................... 11,465 18,005
Less -- Accumulated
depreciation.................. (4,270) (4,493)
--------- ---------
Total...................... $ 7,195 $ 13,512
========= =========

5. OTHER ASSETS:

Other assets at June 30, 1996 and 1997, consist of the following:

1996 1997
----- -----
(IN THOUSANDS)
Permits.............................. $ 148 $ 215
Deposits............................. 1 3
Assets held for resale............... 100 100
----- -----
Total........................... $ 249 $ 318
===== =====

F-35
<PAGE>
CITY ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. ACCRUED LIABILITIES:

Accrued liabilities at June 30, 1996 and 1997, consist of the following:

1996 1997
--------- ---------
(IN THOUSANDS)
Accrued salaries and benefits........ $ 118 $ 134
Accrued interest..................... 20 18
Accrued insurance.................... 5 64
Accrued state taxes.................. 141 127
Other................................ 64 166
--------- ---------
Total........................... $ 348 $ 509
========= =========

7. LONG-TERM DEBT:

The Company's long-term debt at June 30, 1996 and 1997, consisted of the
following:

1996 1997
--------- ---------
(IN THOUSANDS)
Note payable to an individual,
imputed interest at 10%, due in
quarterly installments of $18,750,
maturing April 2004, secured by
assets of the Company.............. $ 528 $ 431
Note payable to a government
institution, imputed interest at
10%, due in quarterly installments
of $12,500, maturing July 2005,
secured by assets of the Company... 291 270
--------- ---------
Total................................ 819 701
Less: Current maturities of long term
obligations........................ (41) (57)
--------- ---------
$ 778 $ 644
========= =========

Principal payments of long-term debt as of June 30, 1997, are as follows:

(IN THOUSANDS)
--------------
Year ending June 30 --
1998............................ $ 57
1999............................ 70
2000............................ 77
2001............................ 85
2002............................ 94
Thereafter...................... 318
--------------
Total...................... $ 701
==============

8. COMMITMENTS AND CONTINGENCIES:

LEACHATE AND LANDFILL DISPOSAL AGREEMENT

In July 1995, CEI entered into an agreement with Carleton Farms, Inc., and
City Sand and Landfill (subsidiaries of CMC), whereby CEI agreed to transport
and treat leachate from these landfills and Carleton Farms, Inc., agreed to
accept CEI's treated waste. The pricing arrangements were not necessarily
indicative of market rates had this agreement been entered into between
unrelated parties. Revenues of $686,765 and $919,946 and cost of operations of
$1,324,612 and $1,600,476 are reflected in the accompanying statements of income
related to this agreement for the years ended June 30, 1996 and 1997,
respectively.

F-36
<PAGE>
CITY ENVIRONMENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

LEASES

The Company leases certain sales office facilities and certain equipment
under one-year cancelable operating leases. Rent expense was $7,000, $20,000 and
$23,000 for the years ended June 30, 1995, 1996 and 1997, respectively.

LEGAL

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

9. SUBSEQUENT EVENTS (UNAUDITED):

Effective January 1, 1998, USA Waste Services, Inc., acquired the
outstanding stock of CMC, including the operations of CEI, through a transaction
accounted for as a purchase.

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

On May 11, 1998 U S Liquids Inc. acquired certain assets and assumed
certain liabilities of CEI for cash. The transaction was accounted for under the
purchase method of accounting. The acquisition agreement provides for additional
payments of $14,629,000 and other contingent payments pursuant to a revised
leachate and landfill disposal agreement with USA Waste.

F-37

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of
Waste Stream Environmental Inc.:

We have audited the accompanying combined balance sheet of Waste Stream
Environmental Inc. (a New York corporation) and affiliate as of December 31,
1997, and the related combined statements of income, stockholders' equity and
cash flows for the year then ended. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audit.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Waste
Stream Environmental Inc. and Affiliate as of December 31, 1997, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas,
April 24, 1998

F-38
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 71 $ 619
Accounts receivable, less
allowance of $20 and $20
(unaudited).................... 2,996 2,711
Inventories..................... 92 120
Prepaid expenses and other
current assets................. 383 449
Due from related party.......... -- 222
------------ ------------
Total current assets....... 3,542 4,121
PROPERTY, PLANT AND EQUIPMENT, net... 5,823 5,992
OTHER ASSETS, net.................... 112 99
------------ ------------
Total assets............... $9,477 $ 10,212
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
obligations.................... $3,164 $ 2,301
Accounts payable................ 1,788 1,969
Accrued liabilities............. 250 151
------------ ------------
Total current
liabilities............. 5,202 4,421
LONG-TERM OBLIGATIONS, net of current
maturities......................... 1,251 2,968
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value, 200
shares authorized, 100 shares
issued and outstanding......... 7 7
Additional paid-in capital...... 368 368
Retained earnings............... 2,652 2,451
Less -- 50 shares of common,
held in treasury, at cost...... (3) (3)
------------ ------------
Total stockholders'
equity.................. 3,024 2,823
------------ ------------
Total liabilities and
stockholders' equity.... $9,477 $ 10,212
============ ============

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

F-39
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)

THREE MONTHS
YEAR ENDED ENDED MARCH 31
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
REVENUES............................. $ 18,602 $ 3,899 $ 5,010
COST OF OPERATIONS................... 15,924 3,367 4,307
------------ --------- ---------
Gross profit.................... 2,678 532 703
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,669 331 536
------------ --------- ---------
Income from operations.......... 1,009 201 167
INTEREST EXPENSE, net................ 370 87 123
OTHER INCOME, net.................... (309) (15) (1)
------------ --------- ---------
Income before provision
(benefit) for income taxes.... 948 129 45
PROVISION (BENEFIT) FOR INCOME
TAXES.............................. 21 (2) 6
------------ --------- ---------
NET INCOME........................... $ 927 $ 131 $ 39
============ ========= =========

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

F-40
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
------- ------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996........... 100 $ 7 $ 368 $ 1,969 $ (3) $ 2,341
Net income...................... -- -- -- 927 -- 927
Distributions to stockholders... -- -- -- (244) -- (244)
------- ------- ----------- --------- --- -------------
BALANCE, December 31, 1997........... 100 7 368 2,652 (3) 3,024
Net income (unaudited).......... -- -- -- 39 -- 39
Distributions to stockholders
(unaudited)................... -- -- -- (240) -- (240)
------- ------- ----------- --------- --- -------------
BALANCE, March 31, 1998
(unaudited)........................ 100 $ 7 $ 368 $ 2,451 $ (3) $ 2,823
======= ======= =========== ========= === =============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.

F-41
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

THREE MONTHS
YEAR ENDED ENDED MARCH 31
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 927 $ 131 $ 39
Adjustments to reconcile net income
to net cash provided by
operating activities --
Depreciation and
amortization............... 1,104 245 286
(Gain) loss from sale of
assets..................... (14) -- 4
Change in operating assets and
liabilities --
Accounts receivable, net...... (1,275) (162) 285
Inventories................... (8) 7 (28)
Prepaid expenses and other
current assets............. 89 21 (66)
Due from related party........ -- -- (222)
Accounts payable.............. 543 341 181
Accrued liabilities........... 80 (15) (99)
------------ --------- ---------
Net cash provided by operating
activities................. 1,446 568 380
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment....................... (1,060) (240) (461)
Proceeds from sale of property and
equipment....................... 21 9 15
------------ --------- ---------
Net cash used in investing
activities................. (1,039) (231) (446)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term
debt............................ (1,188) (306) (1,815)
Proceeds from borrowings of
long-term debt.................. 819 231 2,402
Proceeds from line of credit,
net............................. 527 77 360
Payments of capital lease
obligations..................... (311) (58) (93)
Distributions to stockholders...... (244) (100) (240)
------------ --------- ---------
Net cash provided by (used in)
financing activities....... (397) (156) 614
------------ --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS........................ 10 181 548
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR.................. 61 61 71
------------ --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
YEAR............................... $ 71 $ 242 $ 619
============ ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest............. $ 408 $ 57 $ 126
Cash paid for income taxes......... $ 5 $ -- $ --
Assets acquired under capital
leases.......................... $ 905 $ 479 $ --

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

F-42
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Waste Stream Environmental Inc. and its affiliate, Earth Blends, Inc.
(collectively, the Company), are primarily engaged in removing, transporting and
disposing of waste sludge and other waste related products. The Company's
customers, principally commercial industries and governmental units, are mainly
located in New York, Connecticut, New Jersey and Massachusetts. The Company
sells waste treatment plant supplies and provides processing services to its
customers.

The Company, through Earth Blends, Inc., also transports, markets and sells
N-VIRO soil.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The individual companies that comprise the Company have been presented on a
combined basis due to their related operations, common ownership by three
individual stockholders and common management control. All significant
intercompany balances and transactions among the aforementioned entities have
been eliminated in combination.

INTERIM FINANCIAL INFORMATION

The interim financial statements for the three months ended March 31, 1997
and 1998, are unaudited, and certain information and footnote disclosures,
normally included in financial statements prepared in accordance with generally
accepted accounting principles, have been omitted. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the results of operations and cash flows with respect to the
combined interim financial statements have been included. The results of
operations for the interim periods ended March 31, 1997 and 1998, are not
necessarily indicative of the results for the entire fiscal year.

USE OF 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, 1997, 11 percent and 10 percent of total accounts
receivable were associated with two customers. In addition, sales to two
customers represented 21 percent and 8 percent, respectively, of total revenues
for the year ended December 31, 1997.

INVENTORIES

Inventories are stated at the lower of cost or market and, at December 31,
1997, consisted of raw materials. Cost is determined using the first-in,
first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT

F-43
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
NOTES TO COMBINED 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.

INCOME TAXES

For income tax purposes, the Company has elected S Corporation status under
the U.S. Internal Revenue Code. In accordance with the provisions of elections
to be treated as an S Corporation, the Company's income and losses are passed
through to its stockholders; accordingly, no provision for federal income taxes
has been recorded in the combined statement of income.

The Company, however, provides for state income taxes payable in accordance
with the tax laws of New York, New Jersey, Connecticut, Massachusetts and Rhode
Island as applicable to S Corporations.

REVENUE RECOGNITION

The Company 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 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 approximately the following (in
thousands):

Processing revenues.................. $ 3,832
Trucking and disposal revenues....... 13,050
Chemical and by-product sales........ 1,162
Other revenues....................... 558
---------
Total...................... $ 18,602
=========

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, and a general umbrella
policy. The Company has not incurred significant claims or losses in excess of
its insurance limits during the period presented in the accompanying combined
financial statements.

3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:

Prepaid expenses and other current assets at December 31, 1997, consist of
the following (in thousands):

Prepaid insurance.................... $ 128
Prepaid performance bonds............ 168
Advances to stockholder.............. 26
Other................................ 61
---------
Total...................... $ 383
=========

F-44
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment at December 31, 1997, consist of the
following (in thousands):

DEPRECIABLE
LIFE
-----------
(YEARS)
Land................................. -- $ 26
Buildings and improvements........... 5-40 2,433
Machinery and equipment.............. 5-10 3,771
Vehicles............................. 5 2,552
Other................................ 5 31
---------
Total........................... 8,813
Less -- Accumulated depreciation..... (2,990)
---------
Net property, plant and
equipment..................... $ 5,823
=========

5. ACCRUED LIABILITIES:

Accrued liabilities at December 31, 1997, consist of the following (in
thousands):

Accrued salaries..................... $ 137
Income and other taxes payable....... 11
Accrued professional fees............ 24
Other................................ 78
---------
Total........................... $ 250
=========

6. LONG-TERM OBLIGATIONS:

The Company's long-term obligations at December 31, 1997, consist of the
following:

(IN THOUSANDS)
--------------
Notes payable to Fleet Bank, monthly
payments ranging from $2,396 to
$23,256, interest ranging from
8.69% to 10.00%, maturing October
1997 to May 2002, secured by
business assets, including
machinery and equipment............ $1,697
Line of credit with Fleet Bank,
interest rate of 9.50%............. 940
Note payable to A.I. Credit Corp.,
monthly payments of $6,628,
interest of 6.81%, maturing
September 1998, unsecured.......... 57
Notes payable to two corporations,
monthly payments ranging from $419
to $719, interest ranging from
9.25% to 11.25%, maturing January
1999 to September 2002, secured by
vehicles........................... 86
Capital lease obligations, monthly
payments ranging from $1,570 to
$1,900, interest ranging from 9.22%
to 10.25%, expiring within the next
five years, secured by equipment... 1,635
Less -- Current maturities of
long-term obligations.............. (3,164)
--------------
$1,251
==============

The line of credit with Fleet Bank provides for a maximum borrowing amount
of $1,500,000 and is personally guaranteed by the Company's officers and
directors. The credit agreements with Fleet Bank require the Company to comply
with certain financial covenants, such as meeting minimum current ratio
requirements. At December 31, 1997, the Company was not in compliance with the
minimum current ratio financial covenant. Accordingly, all amounts due to Fleet
Bank have been included in current maturities of

F-45
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

long-term obligations at December 31, 1997. During January 1998, the Company
retired its debt obligations to Fleet Bank.

Principal payments of long-term debt obligations in excess of one year as
of December 31, 1997, are as follows (in thousands):

CAPITAL
LEASES
--------
Year ending December 31 --
1998............................ $ 534
1999............................ 534
2000............................ 485
2001............................ 332
2002............................ 113
--------
Total...................... 1,998
Less -- Amount representing
executory costs and interest
expense........................ (363)
--------
Present value of minimum lease
payments....................... $ 1,635
========

Management estimates that the fair value of its debt obligations
approximates the historical value at December 31, 1997.

7. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company leases certain equipment under noncancelable operating leases
expiring within the next two years. Rent expense was approximately $367,000 for
the year ended December 31, 1997. Future commitments under noncancelable leases
as of December 31, 1997, are as follows (in thousands):

1998................................. $ 70
1999................................. 46
---------
Total........................... $ 116
=========

LEGAL PROCEEDINGS

The Company is involved in 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 combined financial position
or results of operations.

ROYALTIES

In February 1990, the Company entered into a 15-year patent license
agreement allowing it to utilize a sludge pasteurization process. The Company
makes royalty payments of $8.20 per dry ton of sludge processed. The contract
requires the Company to make minimum annual payments based on the Company's
level of production. Total royalty expense for the year ended December 31, 1997,
was approximately $203,000.

8. RELATED-PARTY TRANSACTIONS:

The Company occupies its primary operational facilities and office space
under a month-to-month lease agreement with its stockholders. Rent expense was
approximately $70,000 for the year ended December 31, 1997.

F-46
<PAGE>
WASTE STREAM ENVIRONMENTAL INC. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The Company purchases supplies from a company owned by a stockholder. Total
purchases for the year ended December 31, 1997, totaled approximately $67,000.

9. EMPLOYEE BENEFIT PLAN:

The Company has a 401(k) plan that covers substantially all of the
Company's full-time employees age 21 and over who elect to participate. The plan
provides for an elective employer's contribution based upon the employee's
contribution. Employer contributions were $13,436 for the year ended December
31, 1997.

10. SUBSEQUENT EVENTS:

INVESTMENT IN JOINT VENTURE

In March 1998, the Company signed a letter of intent to become a 50 percent
equity investor in a corporation. The Company has committed to obtain financing
to provide this corporation with $2.7 million for the construction of a waste
processing facility. As part of this agreement, the Company will operate this
facility.

DEBT REFINANCING

In January 1998, the Company entered into a revolving credit facility, a
project credit facility and two equipment loans with a domestic bank.

The purpose of the revolving credit facility is to provide working capital
to the Company. The borrowings are limited to the lesser of $2 million or 80
percent of eligible receivables, as defined. The facility is subject to
customary loan covenants and drawing conditions. Interest is set at the floating
LIBOR rate plus 2.25 percent.

The project credit facility is for a maximum of $1.25 million for the
development of a waste processing facility. Interest will be set at the
borrower's option.

The equipment loans require monthly payments of $29,664 plus interest at
7.73 percent per annum through January 2002. These obligations are secured by
substantially all of the Company's assets and the personal guarantees of the
Company's officers and stockholders.

DUE FROM RELATED PARTY

During March 1998, the Company repaid certain debt obligations of a related
party and recorded a corresponding receivable. This receivable was repaid by the
related party in April 1998.

U S LIQUIDS ACQUISITION

On April 21, 1998, U S Liquids Inc. acquired the Company for cash, assumed
debt and stock. The transaction was accounted for under the purchase method of
accounting.

The acquisition agreement provides for contingent payments up to $3.25
million, if certain financial and operational goals are met.

F-47
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of Parallel Products:

We have audited the accompanying balance sheet of Parallel Products (a
California limited partnership) as of December 31, 1997, and the related
statements of income, partners' capital and cash flows for the year then ended.
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 audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parallel Products as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
April 24, 1998

F-48
<PAGE>
PARALLEL PRODUCTS
BALANCE SHEETS
(IN THOUSANDS)

DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 220 $ 6
Restricted marketable
securities..................... 691 697
Accounts receivable, less
allowances of $17 and $20
(unaudited).................... 2,247 1,414
Inventories..................... 285 201
Prepaid expenses and other
current assets................. 29 56
------------ ------------
Total current
assets............ 3,472 2,374
PROPERTY, PLANT AND EQUIPMENT, net... 5,981 5,948
RELATED-PARTY NOTES RECEIVABLE....... 37 35
------------ ------------
Total assets.......... $9,490 $8,357
============ ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Lines of credit................. $1,262 $1,403
Current maturities of long-term
obligations.................... 1,236 1,236
Related-party notes payable,
current portion................ 310 310
Accounts payable................ 2,392 876
Accrued liabilities............. 498 460
------------ ------------
Total current
liabilities....... 5,698 4,285
LONG-TERM OBLIGATIONS, net of current
maturities......................... 1,215 1,116
RELATED-PARTY NOTES PAYABLE.......... 100 100
------------ ------------
Total liabilities..... 7,013 5,501
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL.................... 2,477 2,856
------------ ------------
Total liabilities and
partners'
capital........... $9,490 $8,357
============ ============

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

F-49
<PAGE>
PARALLEL PRODUCTS
STATEMENTS OF INCOME
(IN THOUSANDS)

THREE MONTHS
YEAR ENDED ENDED MARCH 31
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
SALES................................ $ 30,761 $ 9,289 $ 7,283
COST OF GOODS SOLD................... 27,556 8,344 6,453
------------ --------- ---------
Gross profit.................... 3,205 945 830
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES........................... 1,495 387 365
------------ --------- ---------
INCOME FROM OPERATIONS............... 1,710 558 465
INTEREST EXPENSE, net................ 531 157 102
OTHER INCOME, net.................... (126) (55) (16)
------------ --------- ---------
NET INCOME........................... $ 1,305 $ 456 $ 379
============ ========= =========

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

F-50
<PAGE>
PARALLEL PRODUCTS
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)

BALANCE, December 31, 1996........... $ 1,175
Net income...................... 1,305
Distributions to partners....... (3)
---------
BALANCE, December 31, 1997........... 2,477
Net income (unaudited).......... 379
---------
BALANCE, March 31, 1998
(unaudited)........................ $ 2,856
=========

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

F-51
<PAGE>
PARALLEL PRODUCTS
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

THREE MONTHS
YEAR ENDED ENDED MARCH 31
DECEMBER 31, --------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................... $1,305 $ 456 $ 379
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities --
Depreciation............... 504 126 148
Noncash interest income
received from marketable
securities.............. (26) (5) (6)
Net gain on sale of
property, plant and
equipment............... (83) (38) --
Changes in operating assets and
liabilities --
Accounts receivable, net... (85) 198 833
Inventories................ 64 25 84
Prepaid expenses and other
current assets.......... (9) (24) (25)
Other assets............... 40 40 --
Accounts payable and
accrued liabilities..... (767) (443) (1,554)
------------ --------- ---------
Net cash provided by
(used in) operating
activities............ 943 335 (141)
------------ --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment..................... (418) (93) (115)
Proceeds from sale of property,
plant and equipment........... 359 40 --
------------ --------- ---------
Net cash used in
investing
activities............ (59) (53) (115)
------------ --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners....... (3) -- --
Principal payments on long-term
obligations................... (947) (322) (99)
Net borrowings on revolving
credit agreements............. 285 52 141
------------ --------- ---------
Net cash provided by
(used in) financing
activities............ (665) (270) 42
------------ --------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 219 12 (214)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................ 1 1 220
------------ --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................. $ 220 $ 13 $ 6
============ ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.......... $ 560 $ 161 $ 138

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

F-52
<PAGE>
PARALLEL PRODUCTS
NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

Parallel Products (the Company) is a California limited partnership
organized in 1991. The Company recovers purified by-products, such as ethanol,
through the processing of its waste streams, acts as a broker and commodity
dealer in various nonpotable liquids and is a provider of services for the
processing, disposal and recovery of liquid waste. The Company's waste
processing operations are located in Rancho Cucamonga, California, and
Louisville, Kentucky. Brokerage operations are not concentrated in one specific
location of the country.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The accounting records of the Company are maintained on the accrual basis
of accounting.

USE OF ESTIMATES

INTERIM FINANCIAL INFORMATION

The interim financial statements as of March 31, 1998, and for the three
months ended March 31, 1997 and 1998, are unaudited, and certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been omitted. In
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to fairly present the financial position, results of
operations and cash flows with respect to the interim financial statements, have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for the entire fiscal year.

CASH AND CASH EQUIVALENTS

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

RESTRICTED MARKETABLE SECURITIES

Restricted marketable securities consist of treasury bills and a treasury
note. The Company's investments are classified as held-to-maturity and are
scheduled to mature within 12 months. Held-to-maturity securities represent
those securities that the Company has both the positive intent and ability to
hold to maturity and are carried at amortized cost. Realized gains and losses
and declines in value of securities judged to be other than temporary are
included in interest income. Cost of held-to-maturity securities is determined
by specific identification in computing realized gains and losses.

At December 31, 1997, certain of the Company's restricted marketable
securities are being held for the benefit of the Company by Wells Fargo Bank
(the Bank), in order to provide additional collateral for the Company's debt
obligations to the Bank. A premature withdrawal of these funds could trigger an
event of default on the outstanding obligations of the Bank. At December 31,
1997, treasury bills in the amount of $492,000 and a treasury note in the amount
of $199,000 are held by the Bank as collateral for the outstanding debt.

CONCENTRATIONS OF CREDIT RISK

Accounts receivable potentially subject the Company to concentrations of
credit risk. At December 31, 1997, 21 percent and 13 percent of total accounts
receivable were associated with two customers. In

F-53
<PAGE>
PARALLEL PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

addition, sales to three customers represented 13 percent, 11 percent and 10
percent of total revenues for the year ended December 31, 1997.

The Company's customers are concentrated in the beverage industry.
Management performs ongoing credit analyses of the accounts of its customers and
provides allowances as deemed necessary.

MAJOR SUPPLIERS

During 1997, two suppliers accounted for 31 percent and 13 percent of total
purchases. Management believes that alternate sources of supply are available on
comparable terms.

INVENTORIES

Inventories are stated at the lower of cost or market and, at December 31,
1997, consisted primarily of finished products such as brokered and manufactured
alcohol. Cost is determined using the first-in, first-out (FIFO) method.

PROPERTY, PLANT AND EQUIPMENT

INCOME TAXES

The accompanying financial statements do not include provisions for income
taxes that may be due on the reported net income of the Company, since any
related income taxes are obligations of the partners of the Company.

REVENUE RECOGNITION

Revenues are recognized when recycled products are shipped. Revenue from
brokered alcohol is recognized when shipped from the Company's locations or when
delivered if product is shipped from a location other than the Company's two
refineries.

The Company's revenues consisted of the following for the year ended
December 31, 1997 (in thousands):

By-product sales..................... $ 27,180
Processing revenues.................. 2,854
Other................................ 727
---------
Total...................... $ 30,761
=========

3. RELATED-PARTY NOTES RECEIVABLE:

At December 31, 1997, there was a note receivable from a limited partner of
the Company in the amount of $46,000. The borrowing bears interest at 8 percent
with scheduled payments of $750 per month to commence in 1998. The current
portion of the note receivable has been included in prepaid expenses and other
current assets at December 31, 1997.

F-54
<PAGE>
PARALLEL PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment at December 31, 1997, consist of the
following (in thousands):

DEPRECIABLE LIFE
(YEARS)
-----------------
Land................................. -- $ 1,122
Machinery and equipment.............. 5-12 6,042
Buildings and leasehold
improvements....................... 5-20 1,443
Furniture and fixtures............... 3-15 144
Vehicles............................. 3-5 39
Construction in progress............. -- 90
---------
8,800
Less -- Accumulated depreciation..... (2,899)
---------
Net property, plant and
equipment............... $ 5,981
=========

5. ACCRUED LIABILITIES:

Accrued liabilities at December 31, 1997, consist of the following (in
thousands):

Accrued salaries..................... $ 187
Accrued insurance premiums........... 98
Accrued interest, including interest
payable to related party of $24.... 73
Other................................ 140
---------
Accrued liabilities........ $ 498
=========

6. LONG-TERM OBLIGATIONS:

The Company's long-term obligations at December 31, 1997, consist of the
following:

1997
--------------
(IN THOUSANDS)
Revolving credit facility............ $ 1,262
Note payable to the Bank, interest at
prime plus 3.0%, payable in monthly
principal installments of $11,675,
maturing June 1, 2000.............. 1,004
Term commitment, payable to the Bank,
interest-only installments at prime
plus 3.0%, through April 30, 1998,
at which time the remaining balance
is due and payable................. 600
Note payable to the Bank, interest at
prime plus 3.0%, payable in monthly
principal installments of $13,332,
maturing May 1, 2000............... 387
Note payable to the Bank,
interest-only installments at prime
plus 3.0%, through April 30, 2002,
at which time the remaining balance
is due and payable................. 239
Note payable to the Bank, interest at
prime plus 3.0%, payable in monthly
principal installments of $5,357,
maturing January 1, 2000........... 155
Note payable to the Bank, payable in
monthly principal installments of
$1,491 plus accrued interest at
prime plus 3.0%, maturing June 1,
2000............................... 45
Other................................ 21
Less -- Current maturities of
long-term obligations.............. (2,498)
--------------
$ 1,215
==============

Unless otherwise stated above, all notes payable are collateralized by
accounts receivable, inventory, equipment, treasury bills, a treasury note and a
first priority lien on real property at the Kentucky facility

F-55
<PAGE>
PARALLEL PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

and the Rancho Cucamonga, California, facility, under the terms of the Company's
credit agreement with the Bank, amended on March 11, 1998.

On October 11, 1996, the Company entered into a revolving credit facility,
extended on March 11, 1998, with the Bank in the amount of $2,000,000 in two
lines of credit and $600,000 in a term commitment note. The Company also has
existing loans with the Bank which were used to purchase equipment and real
estate. The facility is secured by substantially all of the assets of the
Company. The borrowings under the credit facility, which are used to fund
working capital, are limited to a maximum of 90 percent of the market value of
the treasury notes plus 80 percent of eligible accounts receivable. The Company
is required to maintain a noninterest-bearing deposit account (restricted
marketable securities, see Note 2) over which the Company has no control and
from which deposits will be used as a principal reduction on the credit
facility. The credit agreement requires the Company to comply with certain
financial covenants, such as meeting minimum requirements for earnings before
interest, taxes, depreciation and amortization (EBITDA) coverage ratio, and
prohibits the Company from merging into or consolidating with any other entity.
The credit agreement allows distributions to partners to cover its partners'
federal income tax liability, and any other distributions are prohibited.
Interest on the outstanding balance is due monthly, and the facility matures on
April 30, 1998. Advances bear interest at prime plus 3 percent and prime plus 5
percent for each line of credit, respectively, and prime plus 3 percent for the
term note. Subsequent to year-end, interest rates were reduced to prime plus 2
percent for the entire facility. As of December 31, 1997, availability under the
credit facility was $738,000.

All of the indebtedness of the Company to the Bank, pursuant to the
parties' loan agreement as amended, stipulates that all bank debt with the Bank
shall be guaranteed by the general partner and two limited partners up to a
principal amount of $4,400,000 each. The Bank's prime rate of interest at
December 31, 1997, was 8.5 percent. Management estimates that the fair value of
its debt obligations approximates the historical value at December 31, 1997.

Principal payments of long-term debt obligations, including related-party
notes payable, in excess of one year as of December 31, 1997, are as follows (in
thousands):

Year ending December 31 --
1998............................ $ 2,808
1999............................ 394
2000............................ 821
2001............................ 100
2002............................ --
Thereafter...................... --
---------
$ 4,123
=========

7. RELATED-PARTY NOTES PAYABLE:

The Company has notes payable to David W. Allen, president of the Company,
in the amounts of $100,000 and $310,000, bearing interest at 8.0 percent and
5.31 percent, respectively, per annum. Annual installments, related to the
$100,000 note, of interest only are due beginning December 1, 1995, and continue
until January 1, 2000, at which time all remaining unpaid principal and interest
shall be due and payable. These notes are subordinated to the payment of all
obligations of the Company to the Bank, pursuant to the terms of a subordination
agreement amended on March 11, 1998.

8. EMPLOYEE BENEFITS:

The Company has a 401(k) defined contribution plan available to all
employees who have been with the Company for more than one year. Employees may
contribute up to 15 percent of their salary each year, and the Company may elect
to make a discretionary contribution to this plan once a year. All plan

F-56
<PAGE>
PARALLEL PRODUCTS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

participants who are employed at the end of the plan year and have completed
1,000 hours of service in that plan year are eligible to receive a share of the
employer contribution. Participants' rights to the employer contribution vest 20
percent after the second covered year of service and 20 percent for each
additional covered year of service. No contribution was made by the employer to
the defined contribution plan for the year ended December 31, 1997.

9. COMMITMENTS AND CONTINGENCIES:

LEASES

The Company leases office facilities and certain equipment under
noncancelable operating leases for periods ranging from one to eight years. Rent
expense was approximately $236,000 for the year ended December 31, 1997. The
following table presents future minimum rental payments under noncancelable
operating leases (in thousands):

Year ending December 31 --
1998............................ $ 189
1999............................ 138
2000............................ 63
2001............................ 46
2002............................ 36
Thereafter...................... 104
---------
Total...................... $ 576
=========

SALES COMMITMENTS

Periodically, the Company enters into ethanol sales contracts with several
of its customers. These contracts are generally short-term in nature and are
used by the customer to ensure an adequate supply of ethanol for the
state-mandated oxygenated fuels requirements. Additionally, the Company enters
into short-term contracts for the purchase of ethanol to ensure an adequate
supply for the formal sales contracts. These purchase commitments did not result
in losses. The Company did not have any formal purchase or sales commitments
outstanding for the year ended December 31, 1997.

LEGAL PROCEEDINGS

The Company is subject to claims and legal actions that arise in the
ordinary course of business. Management believes that the ultimate liability
with respect to these claims and legal actions, if any, will not have a material
effect on the financial position of the Company.

The Company has been informed of possible violations of federal
environmental criminal laws resulting from possible improper handling of
asbestos-containing materials from a site now owned by the Company. The Company
does not expect that the ultimate disposition of these proceedings will have a
material adverse effect on the Company's financial condition or its results of
operations.

10. SUBSEQUENT EVENTS:

On April 21, 1998, U S Liquids Inc. acquired the Company for cash, assumed
debt and stock. The transaction was accounted for under the purchase method of
accounting. The acquisition agreement provides for contingent payments up to
$4.2 million, if certain financial and operational goals are met.

F-57

<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-58
<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-59
<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-60
<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-61
<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

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

F-62
<PAGE>
U S LIQUIDS INC. PREDECESSOR
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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-63
<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-64
<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-65
<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

F-66
<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.

F-67

<PAGE>
[Inside Back Cover]

[PHOTO]
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

PAGE
Prospectus Summary................... 3
Risk Factors......................... 7
Use of Proceeds...................... 14
Price Range of Common Stock and
Dividend Policy.................... 14
Capitalization....................... 15
Selected Financial Data.............. 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 18
Business............................. 25
Management........................... 39
Certain Transactions................. 43
Principal Stockholders............... 46
Description of Securities............ 47
Underwriting......................... 49
Legal Matters........................ 50
Experts.............................. 50
Additional Information............... 50
Index to Financial Statements........ F-1

3,000,000 SHARES

[LOGO]
COMMON STOCK

_____________________
PROSPECTUS
_____________________

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE BANK SECURITIES
VAN KASPER & COMPANY
SANDERS MORRIS MUNDY

JUNE 5, 1998