U S LIQUIDS INC, S-1/A, 1998-05-12

U S LIQUIDS INC
S-1/A, 1998-05-12
HAZARDOUS WASTE MANAGEMENT

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1998

REGISTRATION NO. 333-52121

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

U S LIQUIDS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

DELAWARE 8980 76-0519797
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION 0F CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
MICHAEL P. LAWLOR
CHIEF EXECUTIVE OFFICER
411 N. SAM HOUSTON PARKWAY EAST,
SUITE 400
HOUSTON, TEXAS 77060-3545
(281) 272-4500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------

COPIES TO:

JOHN D. ROBERTSON, ESQ. THOMAS J. MURPHY, ESQ.
HARTZOG CONGER & CASON MCDERMOTT, WILL & EMERY
201 ROBERT S. KERR, SUITE 1600 227 WEST MONROE STREET
OKLAHOMA CITY, OKLAHOMA 73102 CHICAGO, ILLINOIS 60606-5096
(405) 235-7000 (312) 372-2000

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. H

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. H

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. H

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. H

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. H
------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE A SALE OF ANY OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.

SUBJECT TO COMPLETION, DATED MAY 12, 1998

PROSPECTUS
, 1998

3,750,000 SHARES

[LOGO]

U S LIQUIDS INC.
COMMON STOCK

All of the 3,750,000 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 May 5, 1998, the reported
last sale price of the Common Stock as reported on the American Stock Exchange
was $25 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.

- ---------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS
THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- ---------------------------------------------------------------------------
Per Share..... $ $ $
Total(3)...... $ $ $
- ---------------------------------------------------------------------------

(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
562,500 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
$ , $ AND $ , RESPECTIVELY. SEE
"UNDERWRITING."

The shares of Common Stock are offered by the several Underwriters subject
to prior sale, when, as and if delivered to and accepted by them, 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 , 1998.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
DEUTSCHE MORGAN GRENFELL
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, (II) NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION, AND (III) AN OFFERING PRICE OF $25 PER
SHARE OF COMMON STOCK IN THIS OFFERING (THE "ASSUMED OFFERING PRICE"). 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

3
<PAGE>
limited treatment capabilities and a lack of resources needed to expand or
modernize their POTWs, (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................. 3,750,000 shares
Common Stock to be outstanding after
the Offering....................... 12,266,211 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.

<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)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
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............... 1,734 509 346 605 217 44
Other (income) expense, net......... 41 (28) (5) 154 91 100
------------ --------- --------- ------------ --------- ---------
Income before provision for income
taxes............................. 6,291 1,383 2,537 19,878 4,336 6,523
Provision for income taxes.......... 2,416 504 1,002 8,150 1,778 2,675
------------ --------- --------- ------------ --------- ---------
Net income.......................... $ 3,875 $ 879 $ 1,535 $ 11,728 $ 2,558 $ 3,848
============ ========= ========= ============ ========= =========
Diluted earnings per common and
common equivalent share........... $ 0.55 $ 0.16 $ 0.18 $ 0.88 $ 0.19 $ 0.28
============ ========= ========= ============ ========= =========
Weighted average common and common
equivalent shares
outstanding(2).................... 7,078 5,418 8,737 13,395 13,233 13,560
EBITDA(3)........................... $ 11,056 $ 2,497 $ 3,865 $ 29,929 $ 6,588 $ 9,298
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------------------------
PRO PRO FORMA
HISTORICAL FORMA(4) AS ADJUSTED(5)
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
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 3,457
Stockholders' equity................ 25,424 46,265 133,624
</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 3,750,000 shares of
Common Stock offered by the Company hereby at the Assumed Offering Price 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) 3,750,000
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 3,750,000 shares of Common Stock offered by the Company
hereby at the Assumed Offering Price and the application of the net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."

<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 either 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 it will have no borrowings outstanding under the
Credit Facility. 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 $87.4 million ($100.6 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 May 5, 1998 was $25. 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 May 5)..... 25 1/4 19 5/16

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 at the Assumed Offering Price 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 $ 3,457
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 12,266,211 shares issued
and outstanding, pro forma as
adjusted(1)........................ 75 85 123
Additional paid-in capital............ 20,171 41,002 128,323
Retained earnings..................... 5,178 5,178 5,178
---------- ---------- -----------
Total stockholders' equity.... 25,424 46,265 133,624
---------- ---------- -----------
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 at the Assumed
Offering Price 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................ 605 217 44
Other expense, net................... 154 91 100
------------ --------- ---------
Income before provision for income
taxes.............................. 19,878 4,336 6,523
Provision for income taxes........... 8,150 1,778 2,675
------------ --------- ---------
Net income........................... $ 11,728 $ 2,558 $ 3,848
============ ========= =========
Basic earnings per common share...... $ 0.96 $ 0.21 $ 0.31
============ ========= =========
Diluted earnings per common and
common equivalent share............ $ 0.88 $ 0.19 $ 0.28
============ ========= =========
Weighted average common shares
outstanding(3)..................... 12,203 12,200 12,262
Weighted average common and common
equivalent shares outstanding(4)... 13,395 13,233 13,560
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......................... 3,457
Stockholders' equity................. 133,624

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

(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 3,750,000 shares of Common
Stock offered by the Company hereby at the Assumed Offering Price 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) 3,750,000 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 3,750,000 shares of Common Stock offered by the Company
hereby at the Assumed Offering Price 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 at the Assumed Offering Price 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.

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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

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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 53.2%, from $308,000 for the quarter ended March 31,
1997 to $144,000 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 50.4%, from $1.8 million for the quarter ended March 31, 1997 to
$2.7 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.

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<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 $759,000.

INCOME TAXES. The pro forma provision for income taxes for 1997 was $8.2
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.

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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
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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
it will have no borrowings outstanding under the Credit Facility. 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.

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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
</TABLE>

ACQUISITIONS BY OILFIELD WASTE DIVISION:

<TABLE>
<CAPTION>
PRINCIPAL DATE
SELLER TYPE OF BUSINESS LOCATION ACQUIRED
<S> <C> <C> <C>
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. No trial date has
been set for the plaintiffs' request for permanent injunctive relief; however,
based upon the court's rulings from the preliminary injunction trial and initial
discussions with the Louisiana Department of Conservation, the Company believes
that any permanent injunctive relief that might be entered 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.

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 57% 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
$2,248,917 and $3,598,818, 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.

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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

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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.

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<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.

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<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% 2.0%
W. Gregory Orr(2).................... 623,500 7.3% 5.1%
Earl J. Blackwell(3)................. 355,000 4.2% 2.9%
Thomas B. Blanton.................... 700,780 8.2% 5.7%
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% 7.5%
William M. DeArman(8)................ 445,000 5.2% 3.6%
All executive officers and directors
as a group (7 persons)(9).......... 2,026,880 23.4% 16.3%

- ------------------------------
* 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 200,000 shares held by a trust of which Mr. DeArman is the sole
beneficiary, 12,500 shares held individually by one of Mr. DeArman's
children, and 47,500 shares held by trusts for the benefit of certain of Mr.
DeArman's children. Mr. DeArman disclaims beneficial ownership of all shares
held by or for the benefit of his children. Mr. DeArman's address is 5420
Huckleberry Lane, Houston, Texas 77056.
(9) Excludes 125,000 shares subject to the corporate development option granted
to Mr. Rothrock.

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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

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<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.

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<PAGE>
UNDERWRITING

Subject to the terms and conditions of an Underwriting Agreement, dated
, 1998 (the "Underwriting Agreement"), the Underwriters named below, who
are represented by Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), Deutsche Morgan Grenfell 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...........................
Deutsche Morgan Grenfell Inc............
Van Kasper & Company....................
Sanders Morris Mundy Inc................

---------
Total.............................. 3,750,000
=========

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 $ per share. The Underwriters
may allow, and such dealers may re-allow, to certain other dealers a concession
not in excess of $ 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 562,500 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.

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<PAGE>
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 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 May 5, 1998, the reported last sale price of the Common
stock as reported on the AMEX was $25 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.

50
<PAGE>
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 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, INC.
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
------------ ------------- --------------- --------- ------------ ------------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......... $ 5,733 $ 2,013 $ (270) $ 7,476 $ 87,359(b) $ 7,476
(87,359)(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 (87,359)(c) 3,457
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 (87,359) 47,717
------------ ------------- --------------- --------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock....................... 75 33 (23) 85 38(b) 123
Additional paid-in capital......... 20,171 8,525 12,306 41,002 87,321(b) 128,323
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 87,359 133,624
------------ ------------- --------------- --------- ------------ ------------
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 3,750,000 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 (6,544)(e) 605
OTHER (INCOME) EXPENSE, net.......... 41 113 154 154
------------- ------------- ------------ ---------- ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES....................... 6,291 11,558 (4,515) 13,334 6,544 19,878
PROVISION FOR INCOME TAXES........... 2,416 161 2,890(d) 5,467 2,683(d) 8,150
------------- ------------- ------------ ---------- ------------ ------------
NET INCOME (LOSS).................... $ 3,875 $ 11,397 $ (7,405) $ 7,867 $ 3,861 $ 11,728
============= ============= ============ ========== ============ ============
BASIC EARNINGS PER COMMON SHARE...... $ 0.96
============
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE............ $ 0.88
============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 12,203(f)
============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING...... 13,395(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 (1,636)(e) 217
OTHER (INCOME) EXPENSE, net............. (28) 119 91 91
------------ ------------- ------------ --------- ------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES.......................... 1,383 2,372 (1,055) 2,700 1,636 4,336
PROVISION FOR INCOME TAXES.............. 504 1 602(d) 1,107 671(d) 1,778
------------ ------------- ------------ --------- ------------ ------------
NET INCOME (LOSS)....................... $ 879 $ 2,371 $ (1,657) $ 1,593 $ 965 $ 2,558
============ ============= ============ ========= ============ ============
BASIC EARNINGS PER COMMON SHARE......... $ 0.21
============
DILUTED EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE...................... $ 0.19
============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................... 12,200(f)
============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING......... 13,233(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 (1,636)(e) 44
OTHER (INCOME) EXPENSE, net.......... (5) 105 100 100
------------ ------------- ------------ --------- ----------- ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES....................... 2,537 3,292 (942) 4,887 1,636 6,523
PROVISION FOR INCOME TAXES........... 1,002 771 231(d) 2,004 671(d) 2,675
------------ ------------- ------------ --------- ----------- ------------
NET INCOME (LOSS).................... $ 1,535 $ 2,521 $ (1,173) $ 2,883 $ 965 $ 3,848
============ ============= ============ ========= =========== ============
BASIC EARNINGS PER COMMON SHARE...... $ 0.31
============
DILUTED EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE............ $ 0.28
============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 12,262(f)
============
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING...... 13,560(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) 3,750,000 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 3,750,000 shares 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.

In April 1998, USA Waste Services, Inc., signed a definitive agreement to
sell CEI to U S Liquids Inc. through an asset purchase agreement.

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

On May 7, 1997 U S Liquids Inc. entered into an agreement to acquire
certain assets and assume certain liabilities of CEI for cash and assume debt.
The transaction will be accounted for under the purchase method of accounting.
The acquisition agreement provides for 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)
depreciation are eliminated from the accounts in the year of disposal. Gains and
losses resulting from property disposals are included in other income or
expense. Depreciation is computed using the straight-line method.

CLOSURE AND REMEDIATION RESERVES

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

REVENUE RECOGNITION AND CELL PROCESSING RESERVE

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

INCOME TAXES

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

NEW ACCOUNTING STANDARD

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

3. PREPAID EXPENSES AND OTHER CURRENT ASSETS:

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

1995 1996
--------- ---------
(IN THOUSANDS)
Closure bond......................... $ 211 $ --
Prepaid expenses..................... 33 43
Notes receivable, current portion.... 33 16
Other................................ 47 2
--------- ---------
Total........................... $ 324 $ 61
========= =========

F-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:
<TABLE>
<CAPTION>
DEPRECIABLE LIFE 1995 1996
----------------- ---------- ----------
(YEARS) (IN THOUSANDS)
<S> <C> <C> <C>
Landfarm and treatment facilities.... 25 $ 56,732 $ 56,573
Buildings and improvements........... 10-12 532 659
Machinery and equipment.............. 3-5 7,494 6,445
Vehicles............................. 3-5 826 755
Furniture and fixtures............... 3 355 359
---------- ----------
Total...................... $ 65,939 $ 64,791
Less accumulated depreciation........ (12,644) (15,238)
---------- ----------
Total...................... $ 53,295 $ 49,553
========== ==========
</TABLE>
Included in property, plant and equipment at December 31, 1995, and
December 13, 1996 are approximately $3,133,000 and $3,133,000, respectively, of
assets held under capital leases.

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

3,750,000 SHARES

[LOGO]
COMMON STOCK

_____________________
PROSPECTUS
_____________________

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

, 1998

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses payable by the
Company in connection with the sale of the securities being registered. All
amounts are estimates except for the fees payable to the SEC.

AMOUNT
------------
SEC registration fee................. $ 34,446
AMEX filing fee...................... 17,500
NASD filing fee...................... 10,662
Printing expenses.................... 180,000*
Accounting fees and expenses......... 420,000*
Legal fees and expenses.............. 200,000*
Transfer agent fees.................. 3,000*
Miscellaneous........................ 134,392*
------------
TOTAL........................... $ 1,000,000*
============

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

* Estimated

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Certificate of Incorporation contains a provision which
limits, to the fullest extent permitted by Delaware law, the liability of a
director to the Company or its stockholders from monetary damages for a breach
of such director's fiduciary duty as a director. Delaware law presently permits
such limitation of a director's liability except where a director (i) breaches
his or her duty of loyalty to the Company or its stockholders, (ii) fails to act
in good faith or engages in intentional misconduct or a knowing violation of
law, (iii) authorizes payment of an unlawful dividend or stock repurchase, or
(iv) obtains an improper personal benefit.

The Company's Certificate of Incorporation 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.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In November 1996, the Company issued to members of management and other
founding stockholders a total of 3,338,875 shares of Common Stock at $.02 per
share. The sales were exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved.

On December 13, 1996, in connection with its acquisition of various assets
of affiliates of Sanifill, Inc., the Company issued to Sanifill, Inc. a warrant
to purchase 1,000,000 shares of Common Stock at $2.00 per share. This sale was
exempt from registration under Section 4(2) of the Securities Act, no public
offering being involved.

On December 31, 1996, the Company sold shares of Common Stock to the
following parties in the amounts and for the consideration indicated. These
sales were exempt from registration under Section 4(2) of the Securities Act, no
public offering being involved: Eric Warden -- 87,500 shares for a consideration
of $153,125; William M. DeArman -- 50,000 shares for a consideration of $87,500;
Fred M. Ferreira -- 12,500 shares for a consideration of $21,875; Steven
Harter -- 6,250 shares for a consideration of $10,938; Ronald L. Stanfa -- 6,250
shares for a consideration of $10,938; and Lorne Bain 37,500 shares for a
consideration of $65,625.

II-1
<PAGE>
On May 15, 1997, the Company issued to Sanders Morris Mundy Inc. a warrant
to purchase 37,500 shares of Common Stock at an exercise price of $9.50 per
share in consideration of financial advisory services to be provided to the
Company. This sale was exempt from registration under Section 4(2) of the
Securities Act, no public offering being involved.

On June 17, 1997, the Company issued to Thomas B. Blanton 1,062,500 shares
of Common Stock in connection with the Company's acquisition of three companies
owned by Mr. Blanton. These sales were exempt from registration under Section
4(2) of the Securities Act, no public offering being involved.

On June 17, 1997, the Company issued a total of 637,500 shares of Common
Stock to the former stockholders of American WasteWater Inc. in connection with
the Company's acquisition of American WasteWater Inc. These sales were exempt
from registration under Section 4(2) of the Securities Act, no public offering
being involved.

On June 18, 1997, the Company issued to BellMeade Capital Partners and Mark
Liebovit warrants to purchase a total of 65,000 shares of Common Stock at an
exercise price of $9.50 per share in consideration of consulting services
provided and to be provided to the Company. These sales were exempt from
registration under Section 4(2) of the Securities Act, no public offering being
involved.

On August 25, 1997, the Company issued to each of Van Kasper & Company and
Sanders Morris Mundy Inc. a warrant to purchase 56,250 shares of Common Stock at
an exercise price of $11.40 per share as partial consideration for their
services as managing underwriters of the Company's initial public offering.
These sales were exempt from registration under Section 4(2) of the Securities
Act, no public offering being involved.

On October 1, 1997, the Company acquired Re-Claim Environmental, Inc. in
exchange for 241,410 shares of Common Stock, of which an aggregate of 168,987
shares were issued to John E. Tuma, Duane F. Herbst, A. Travis Campbell, Russell
Reichert, Kenneth B. Holmes, R.L. Smothers and Rainbow Investment Company in an
unregistered transaction. Such sales were exempt from registration under Section
4(2) of the Securities Act, no public offering being involved.

On January 1, 1998, the Company issued to Glenn Pratt and John Bailey
warrants to purchase a total of 20,000 shares of Common Stock in consideration
of consulting services to be provided to the Company. These sales were exempt
from registration under Section 4(2) of the Securities Act, no public offering
being involved.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------------------ ------------------------------------------------------------------------------------------
<C> <S>
*1.1 -- Form of Underwriting Agreement among U S Liquids Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation, Deutsche Morgan Grenfell, Van Kasper & Company and Sanders Morris
Mundy Inc., as representatives of the several underwriters.
3.1 -- Second Amended and Restated Certificate of Incoporation of U S Liquids Inc. (Exhibit 3.1
of the U S Liquids Inc. Registration Statement on Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated by reference).
3.2 -- Amended and Restated Bylaws of U S Liquids Inc. (Exhibit 3.2 of the U S Liquids Inc.
Registration Statement on Form S-1 (File No. 333-30065), effective August 19, 1997, is
hereby incorporated by reference).
4.1 -- Form of Certificate Evidencing Ownership of Common Stock of U S Liquids Inc. (Exhibit 4.1
of the U S Liquids Inc. Registration Statement on Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated by reference).
*4.2 -- Amended and Restated Credit Agreement, dated April 10, 1998, among U S Liquids Inc., Bank
of America National Trust and Savings Association, BankBoston, N.A. and Wells Fargo Bank,
N.A.
*4.3 -- Note, dated April 10, 1998, of U S Liquids Inc. payable to Bank of America National Trust
and Savings Association.

II-2
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<C> <S>
*4.4 -- Note, dated April 10, 1998, of U S Liquids Inc. payable to BankBoston, N.A.
*4.5 -- Note, dated April 10, 1998, of U S Liquids Inc. payable to Wells Fargo Bank, N.A.
4.6 -- Security Agreement, dated December 17, 1997, executed by U S Liquids Inc. and its
subsidiaries in favor of Bank of America National Trust and Savings Association. (Exhibit
4.6 of the Form 10-K for the year ended December 31, 1997 is hereby incorporated by
reference).
4.7 -- Company Pledge Agreement, dated December 17, 1997, executed by U S Liquids Inc. in favor
of Bank of American National Trust and Savings Association. (Exhibit 4.7 of the Form 10-K
for the year ended December 31, 1997 is hereby incorporated by reference.)
+5.1 -- Opinion of Hartzog Conger & Cason.
10.1 -- Asset Purchase Agreement, dated December 2, 1996, among U S Liquids Inc., Sanifill, Inc.
and certain affiliates of Sanifill, Inc. (Exhibit 10.1 of the U S Liquids Inc.
Registration Statement on Form S-1 (File No. 333-30065), effective August 19, 1997, is
hereby incorporated by reference).
10.2 -- Seller Noncompetition Agreement, dated December 13, 1996, between U S Liquids Inc. and
Sanifill, Inc. (Exhibit 10.2 of the U S Liquids Inc. Registration Statement on Form S-1
(File No. 333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.3 -- Buyer Noncompetition Agreement, dated December 13, 1996, between Sanifill, Inc. and U S
Liquids Inc. (Exhibit 10.3 of the U S Liquids Inc. Registration Statement on Form S-1
(File No. 333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.4 -- NOW Disposal Agreement, dated June 4, 1996, among Sanifill, Inc., Oilfield Waste Disposal
Operating Co. and Campbell Wells, Ltd. (Exhibit 10.4 of the U S Liquids Inc. Registration
Statement on Form S-1 (File No. 333-30065), effective August 19, 1997, is hereby
incorporated by reference).
10.5 -- Noncompetition Agreement, dated August 12, 1996, between Sanifill, Inc. and Newpark
Resources, Inc. (Exhibit 10.5 of the U S Liquids Inc. Registration Statement on Form S-1
(File No. 333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.6 -- Assumption and Guarantee Agreement dated August 12, 1996, among Newpark Resources, Inc.,
Sanifill, Inc., and Campbell Wells, Ltd. (Exhibit 10.6 of the U S Liquids Inc.
Registration Statement on Form S-1 (File No. 333-30065), effective August 19, 1997, is
hereby incorporated by reference).
10.7 -- Lease and Access Agreement between Campbell Wells, Ltd and Newpark Resources, Inc.
(Exhibit 10.7 of the U S Liquids Inc. Registration Statement on Form S-1 (File No.
333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.8 -- Sublease and Access Agreement between Campbell Wells, Ltd. and Newpark Resources, Inc. and
underlying lease agreement (Exhibit 10.8 of the U S Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective August 19, 1997, is hereby incorporated by
reference).
10.9 -- Sublease and Access Agreement between Campbell Wells, Ltd. and Newpark Resources, Inc. and
underlying lease agreement (Exhibit 10.9 of the U S Liquids Inc. Registration Statement on
Form S-1 (File No. 333-30065), effective August 19, 1997, is hereby incorporated by
reference).
10.10 -- Consent to Assignment and Assumption of Contracts, dated December 13, 1996, among
Sanifill, Inc., Campbell Wells, L.P. and U S Liquids Inc. (Exhibit 10.10 of the U S
Liquids Inc. Registration Statement on Form S-1 (File No. 333-30065), effective August 19,
1997, is hereby incorporated by reference).
10.11 -- Form of Nonqualified Stock Option Agreement between U S Liquids Inc. and certain
individuals (Exhibit 10.11 of the U S Liquids Inc. Registration Statement on Form S-1
(File No. 333-30065), effective August 19, 1997, is hereby incorporated by reference).

II-3
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<C> <S>
10.12 -- U S Liquids Inc. Amended and Restated Stock Option Plan (Exhibit 10.12 of the U S Liquids
Inc. Registration Statement on Form S-1 (File No. 333-30065), effective August 19, 1997,
is hereby incorporated by reference).

10.13 -- U S Liquids Inc. Directors' Stock Option Plan (Exhibit 10.13 of the U S Liquids Inc.
Registration Statement on Form S-1 (File No. 333-30065), effective August 19, 1997, is
hereby incorporated by reference).

10.14 -- Form of Grant of Incentive Stock Option Agreement (Exhibit 10.14 of the U S Liquids Inc.
Registration Statement on Form S-1 (File No. 333-30065), effective August 19, 1997, is
hereby incorporated by reference).

10.15 -- Employment Agreement, dated February 13, 1998, between U S Liquids Inc. and W. Gregory
Orr. (Exhibit 10.15 of the Form 10-K for the year ended December 31, 1997 is hereby
incorporated by reference).

10.16 -- Employment Agreement, dated February 13, 1998, between U S Liquids Inc. and Earl J.
Blackwell. (Exhibit 10.16 of the Form 10-K for the year ended December 31, 1997 is hereby
incorporated by reference).

10.17 -- Asset Purchase Agreement, dated December 15, 1997, among U S Liquids Inc., Mesa
Processing, Inc., Waste Technologies, Inc., Kirk Johnson, Norman Johnson, John Jetelina
and Ron McMahan (Exhibit 10.17 of the Form 10-K for the year ended December 31, 1997 is
hereby incorporated by reference).

10.18 -- Agreement and Plan of Reorganization, dated September 30, 1997, among U S Liquids Inc., U
S Liquids/Reclaim Acquisition Corporation, Re-Claim Environmental, Inc., John E. Tuma,
Duane F. Herbst, A. Travis Campbell, Russell Reichert, Kenneth B. Holmes, R. L. Smothers
and Rainbow Investment Company (Exhibit 2.1 to the Form 10-Q for the quarter ended
September 30, 1997 is hereby incorporated by reference).

10.19 -- Purchase of Membership Interest Agreement, dated; September 30, 1997, among U S Liquids
Inc. Re-Claim Environmental Louisiana LLC, John E. Tuma and Reyncor Industrial Alcohol,
Inc. (Exhibit 2.2 of the Form 10-Q for the quarter ended September 30, 1997 is hereby
incorporated by reference).

10.20 -- Purchase and Sale of Assets Agreement, dated September 30, 1997, among T&T Grease Service,
Inc., A&B Enterprises, Inc. and Earnest L. McCombs (Exhibit 2.3 to the Form 10-Q for the
quarter ended September 30, 1997 is hereby incorportated by reference).

10.21 -- Stock Distribution Agreement, dated June 16, 1997, between U S Liquids Inc. and Thomas B.
Blanton (Exhibit 10.21 of the U S Liquids Inc. Registration Statement on Form S-1 (File
No. 333-30065), effective August 19, 1997, is hereby incorporated by reference).

10.22 -- Form of Stock Distribution Agreement, dated June 16, 1997, between U S Liquids Inc., and
the former stockholders of Amercian WasteWater Inc. (Exhibit 10.22 of the U S Liquids Inc.
Registration Statement on Form S-1 (File No. 333-30065), effective August 19, 1997, is
hereby incorporated by reference).

10.23 -- Stock Distribution Agreement, dated June 16, 1997, between U S Liquids Inc. and W. Gregory
Orr (Exhibit 10.23 of the U S Liquids Inc. Registration Statement on Form S-1 (File No.
333-30065), effective August 19, 1997, is hereby incorporated by reference).

10.24 -- Noncompetition Agreement, dated June 17, 1997, between U S Liquids Inc. and Thomas B.
Blanton (Exhibit 10.24 of the U S Liquids Inc. Registration Statement on Form S-1 (File
No. 333-30065), effective August 19, 1997, is hereby incorporated by reference).

10.25 -- Noncompetition Agreement, dated June 17, 1997, between U S Liquids Inc. and William H.
Wilson, Jr. (Exhibit 10.25 of the U S Liquids Inc. Registration Statement on Form S-1
(File No. 333-30065), effective August 19, 1997, is hereby incorporated by reference).

II-4
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<C> <S>
10.26 -- Agreement to Vote Stock, dated June 16, 1997, among U S Liquids Inc., Thomas B. Blanton,
W. Gregory Orr, Earl J. Blackwell, William M. DeArman and certain other parties (Exhibit
10.26 of the U S Liquids Inc. Registration Statement on Form S-1 (File No. 333-30065),
effective August 19, 1997, is hereby incorporated by reference).
10.27 -- Estoppel, Waiver and Amendment Agreement, dated June 16, 1997, between sanifill, Inc. and
U S Liquids Inc. (Exhibit 10.27 of the U S Liquids Inc. Registration Statement on Form S-1
(File No. 333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.28 -- Financial Advisory Agreement, dated May 15, 1997, between U S Liquids Inc. and Sanders
Morris Mundy Inc. and supplemental letter dated July 10, 1997 (Exhibit 10.28 of the U S
Liquids Inc. Registration Statement on Form S-1 (File No. 333-30065), effective August 19,
1997, is hereby incorporated by reference).
10.29 -- Service Agreement, dated June 23, 1997, between U S Liquids Inc. and Bellmeade Capital
Partners (Exhibit 10.29 of the U S Liquids Inc. Registration Statement on Form S-1 (File
No. 333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.30 -- Service Agreement, dated June 23, 1997, between U S Liquids Inc. and Mark Liebovit
(Exhibit 10.30 of the U S Liquids Inc. Registration Statement on Form S-1 (File No.
333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.31 -- Warrant, dated December 13, 1996, issued by U S Liquids Inc. to Sanifill, Inc. (Exhibit
10.31 of the U S Liquids Inc. Registration Statement on Form S-1 (File No. 333-30065),
effective August 19, 1997, is hereby incorporated by reference).
10.32 -- Warrant Agreement, dated May 15, 1997, between U S Liquids Inc. and Sanders Morris Mundy
Inc. (Exhibit 10.32 of the U S Liquids Inc. Registration Statement on Form S-1 (File No.
333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.33 -- Warrant Agreement among U S Liquids Inc., Van Kasper & Company and Sanders Morris Mundy
Inc. (Exhibit 10.33 of the U S Liquids Inc. Registration Statement on Form S-1 (File No.
333-30065), effective September 18, 1997, is hereby incorporated by reference).
10.34 -- Warrant, dated June 23, 1997, issued by U S Liquids Inc. to Bellmeade Capital Partners
(Exhibit 10.34 of the U S Liquids Inc. Registration Statement on Form S-1 (File No.
333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.35 -- Warrant, dated June 23, 1997, issued by U S Liquids Inc. to Mark Licbovit (Exhibit 10.35
of the U S Liquids Inc. Registration Statement on Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated by reference).
10.36 -- Stock Purchase Agreement, dated September 10, 1996, among Mesa Processing, Inc., Jack C.
Wolcott and South Texas By-Products Company, Inc. (Exhibit 10.36 of the U S Liquids Inc.
Registration Statement on Form S-1 (File No. 333-30065), effective August 19, 1997, is
hereby incorporated by reference).
10.37 -- Non-Competition Agreement, dated September 10, 1996, between Jack C. Wolcott and Mesa
Processing, Inc. (Exhibit 10.37 of the U S Liquids Inc. Registration Statement on Form S-1
(File No. 333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.38 -- Stock Distribution Agreement, dated June 16, 1997, between U S Liquids Inc. and Earl J.
Blackwell (Exhibit 10.38 of the U S Liquids Inc. Registration Statement on Form S-1 (File
No. 333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.39 -- Stock Distribution Agreement, dated June 16, 1997, between U S Liquids Inc. and William M.
DeArman (Exhibit 10.39 of the U S Liquids Inc. Registration Statement on Form S-1 (File
No. 333-30065), effective August 19, 1997, is hereby incorporated by reference).

II-5
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<C> <S>
10.40 -- Employment Agreement, dated July 2, 1997, between U S Liquids Inc. and Michael P. Lawlor
(Exhibit 10.40 of the U S Liquids Inc. Registration Statement on Form S-1 (File No.
333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.41 -- Warrant, dated January 1, 1998, between U S Liquids Inc. to Glenn A. Pratt (Exhibit 10.41
of the Form 10-K for the year ended December 31, 1997 is hereby incorporated by
reference).
10.42 -- Amendment No. 1 to financial Advisory Agreement, dated August 18, 1997, between U S
Liquids Inc. and Sanders Morris Mundy Inc. (Exhibit 10.42 of the U S Liquids Inc.
Registration Statement on Form S-1 (File No. 333-30065), effective August 19, 1997, is
hereby incorporated by reference).
10.43 -- Agreement and Plan of Merger, dated June 16, 1997, among U S Liquids Inc., AWW Acquisition
Corp., American WasteWater Inc., William H. Wilson, Jr. and Michael W. Minick (Exhibit 2.1
of the U S Liquids Inc. Registration Statement on Form S-1 (File No. 333-30065), effective
August 19, 1997, is hereby incorporated by reference).
10.44 -- Agreement and Plan of Merger, dated June 16, 1997, among U S Liquids Inc., Mesa
Acquisition Corp., T&T GS Acquisition Corp., Phoenix F&O Acquisition Corp., Mesa
Processing, Inc., T&T Grease Service, Inc., Phoenix Fats & Oils, Inc. and Thomas B.
Blanton (Exhibit 2.2 of the U S Liquids Inc. Registration Statement on Form S-1 (File No.
333-30065), effective August 19, 1997, is hereby incorporated by reference).
10.45 -- Warrant, dated August 25, 1997, between U S Liquids Inc. to Van Kasper & Company (Exhibit
10.45 of U S Liquids Inc. Registration Statement on Form S-1 (File No. 333-34875),
effective September 18, 1997, is hereby incorporated by reference).
10.46 -- Warrant, dated August 25, 1997, issued by U S Liquids Inc. to Sanders Morris Mundy Inc.
(Exhibit 10.46 of U S Liquids Inc. Registration Statement on Form S-1 (File No.
333-34875), effective September 18, 1997, is hereby incorporated by reference).
10.47 -- Warrant issued by U S Liquids Inc. to Sanders Morris Mundy Inc. (Exhibit 10.47 of U S
Liquids Inc. Registration Statement on Form S-1 (File No. 333-34875), effective September
18, 1997, is hereby incorporated by reference).
10.48 -- Warrant, dated January 1, 1998, issued by U S Liquids Inc. to John Bailey (Exhibit 10.48
of the Form 10-K for the year ended December 31, 1997 is hereby incorporated by
reference).
*10.49 -- Purchase and Sale of Assets Agreement, dated January 1, 1998, among Environment
Management, Inc., Enviro-Plumbing, Inc., Michael L. Briggle and Mark A. Emmert.
*10.50 -- Agreement and Plan of Reorganization, dated January 1, 1998, among U S Liquids Inc., U S
Liquids/EMI Acquisition Corporation, Environment Management, Inc., Michael L. Briggle and
Mark A. Emmert.
*10.51 -- Stock Purchase Agreement, dated January 1, 1998, among U S Liquids Inc., Environment
Management, Inc., Enviro-Waste Type V of Texas, Inc., Michael L. Briggle and Mark A.
Emmert.
*10.52 -- Purchase and Sale of Assets Agreement, dated January 1, 1998, among U S Liquids Inc., U S
Liquids Northeast, Inc., Suburban Wastewater Services, Inc., Glenn A. Pratt, James D.
Baird, Peter J. Collins and John J. Bailey.
*10.53 -- First Amendment to Purchase and Sale of Assets Agreement, dated as of January 1, 1998,
among U S Liquids Inc., U S Liquids Northeast, Inc., Suburban Wastewater Services, Inc.,
Glenn A. Pratt, James D. Baird, Peter J. Collins and John J. Bailey.
*10.54 -- Purchase and Sale of Assets Agreement, dated March 15, 1998, among Environment Management,
Inc., Trapmaster, Inc., Joel Curtis, Sid Ankrom and Scott Ankrom.
*10.55 -- Purchase and Sale of Assets Agreement, dated March 15, 1998, among Environment Management,
Inc., Bug Master Exterminating Service, Inc. and Ned Ewart.
*10.56 -- Purchase and Sale of Assets Agreement, dated April 1, 1998, among Mesa Processing, Inc.,
Reclamation Technology Management, Inc. and Don E. Henley.

II-6
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<C> <S>
*10.57 -- Purchase and Sale of Assets Agreement, dated April 1, 1998, among Mesa Processing, Inc.,
Betts Pump Service, Inc. and Keith Betts.
*10.58 -- Agreement for Purchase and Sale of Assets, dated April 2, 1998 among U S Liquids
Northeast, Inc., South Shore Pumping Corp. and Randy F. Bern.
*10.59 -- Estoppel and Waiver Agreement, dated April 10, 1998, between U S Liquids Inc. and
Sanifill, Inc.
10.60 -- Agreement and Plan of Merger, dated April 15, 1998 among The National Solvent Exchange
Corp., U S Liquids Inc., NS Acquisition Corp., Ronald T. Calloway and Maxwell R. Calloway
(Exhibit 2.1 to the Form 8-K filed on April 30, 1998 is hereby incorporated by reference).
*10.61 -- Amendment No. 1 to Warrant Agreement, dated April 20, 1998, among U S Liquids Inc., Van
Kasper & Company and Sanders Morris Mundy Inc.
10.62 -- Agreement for Purchase and Sale of Assets, dated April 21, 1998, among USL Parallel
Products of California, Parallel Products of Kentucky, Inc., Parallel Products of Florida,
Inc., Parallel Products, DWA of Belvedere Company, the Estate of David W. Allen, David W.
Allen Trust No. 1, Peter Allen, Neal Koehler and Richard Eastman (Exhibit 2.1 to the Form
8-K filed on May 6, 1998 is hereby incorporated by reference).
10.63 -- Stock Purchase Agreement, dated April 21, 1998, among U S Liquids Northeast, Inc., U S
Liquids Inc., Waste Stream Environmental, Inc., C. Wesley Gregory, Jr. and Donald E.
Gordon (Exhibit 2.2 to the Form 8-K filed on May 6, 1998 is hereby incorporated by
reference).
10.64 -- Stock Purchase Agreement, dated April 21, 1998, among U S Liquids Northeast, Inc., U S
Liquids Inc., Earth Blends, Inc., C. Wesley Gregory III, C. Wesley Gregory Jr. and Donald
E. Gordon (Exhibit 2.3 to the Form 8-K filed on May 6, 1998 is hereby incorporated by
reference).
10.65 -- Agreement and Plan of Reorganization, dated April 21, 1998, among U S Liquids Inc., Amigo
Acquisition, Inc., Amigo Diversified Services, Inc., Raoul Garza and Alex Salas (Exhibit
2.4 to the Form 8-K filed on May 6, 1998 is hereby incorporated by reference).
+10.66 -- Purchase and Sale of Assets Agreement, dated May 8, 1998, among USL City Environmental,
Inc., City Management Corporation and USA Waste Services, Inc.
+10.67 -- Purchase and Sale of Assets Agreement, dated May 8, 1998, among USL City Environmental
Services of Florida, Inc., City Management Corporation and USA Waste Services, Inc.
+10.68 -- Stock Purchase Agreement, dated May 8, 1998, among U S Liquids Inc., United Waste Systems
Inc. and USA Waste Services, Inc.
+10.69 -- Leachate Treatment Agreeement, dated May 8, 1998, between City Management Corporation and
USL City Environmental, Inc.
+10.70 -- Disposal Agreement, dated May 8, 1998, between City Management Corporation and USL City
Environmental, Inc.
+21.1 -- List of subsidiaries of U S Liquids Inc.
+23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Hartzog Conger & Carson (contained in Exhibit 5.1)
*24.1 -- Power of attorney (included on signature page).
+27.1 -- Financial Data Schedule.
</TABLE>

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

+ Filed herewith.

* Previously filed with the Securities and Exchange Commission as an exhibit to
the Company's Registration Statement on Form S-1 as filed on May 7, 1998 and
incorporated herein by reference.

(b) All schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable, or the information is included in the consolidated financial
statements, and therefore have been omitted.

II-7
<PAGE>
17. UNDERTAKINGS

(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(b) The undersigned registrant hereby undertakes that:

(1) for purposes of determining any liability under the Securities
Act of 1993, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or 497(b) under the
Securities Act shall be deemed to be a part of this registration
statement as of the time it was declared effective.

(2) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.

II-8
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1993, U S Liquids
Inc. has duly caused this Registration Statement or amendment thereto to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on May 12, 1998.

U S LIQUIDS INC.

By: /s/ MICHAEL P. LAWLOR
MICHAEL P. LAWLOR
CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

PURSUANT TO THE REQIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSON IN THE INDICATED CAPACITIES ON MAY 12, 1998.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ----------------------------------- -----------------
<C> <S> <C>
/s/MICHAEL P. LAWLOR Chief Executive Officer and
MICHAEL P. LAWLOR Director
/s/W. GREGORY ORR* Chief Operating Officer,
W. GREGORY ORR President and Director
/s/EARL J. BLACKWELL Chief Financial Officer and
EARL J. BLACKWELL Senior Vice President --
Finance
/s/WILLIAM A. ROTHROCK IV* Director
WILLIAM A. ROTHROCK IV
/s/THOMAS B. BLANTON* Director
THOMAS B. BLANTON
/s/ALFRED TYLER 2ND* Director
ALFRED TYLER 2ND
/s/JAMES F. MCENEANEY, JR.* Director
JAMES F. MCENEANEY, JR.
*BY EARL J. BLACKWELL AS ATTORNEY-IN-FACT
</TABLE>

II-9

EXHIBIT 5.1

May 12, 1998

U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060

Gentlemen:

We have acted as counsel for U S Liquids Inc., a Delaware corporation (the
"Company"), in connection with the registration by the Company under the
Securities Act of 1933, as amended (the "Securities Act"), of the sale of up to
4,312,500 shares of Common Stock, par value $.01 per share (the "Shares"), of
the Company pursuant to a Registration Statement on Form S-1 (as amended or
supplemented, the "Registration Statement") filed with the Securities and
Exchange Commission (the "Commission") on May 7, 1998. All terms used and not
defined herein shall have the meanings set forth in the Registration Statement.

We have examined such documents, records and matters of law as we have
deemed necessary for the purposes of this opinion, and based thereon, we are of
the opinion that the Shares to be issued and sold by the Company have been duly
and validly authorized for issuance and, upon issuance pursuant to the terms of
the Underwriting Agreement, will be validly issued, fully paid and
nonassessable.

The foregoing opinion is based on and is limited to the laws of the
General Corporation Law of the State of Delaware, and we render no opinion with
respect to any other law.

We hereby consent to the filing of the foregoing opinion as an exhibit to
the Registration Statement and the reference to our firm under the caption
"Legal Matters" in the Prospectus constituting a part of the Registration
Statement.

Sincerely,

HARTZOG CONGER & CASON

EXHIBIT 10.66

MICHIGAN

PURCHASE AND SALE OF ASSETS AGREEMENT

AMONG

USL CITY ENVIRONMENTAL, INC.

AND

CITY MANAGEMENT CORPORATION

AND

USA WASTE SERVICES, INC.
<PAGE>
TABLE OF CONTENTS

SECTION PAGE

ARTICLE 1. SALE OF ASSETS........................................... 2
Section 1.1. Description of Assets............................ 2
Section 1.2. Excluded Assets.................................. 4
Section 1.3. Non-Assignment of Certain Customer
Contracts................................................. 4

ARTICLE 2. PURCHASE PRICE........................................... 5
Section 2.1. Purchase Price................................... 5
Section 2.2. Adjustment to Purchase Price..................... 5
Section 2.3. Additional Payments.............................. 6

ARTICLE 3. CLOSING.................................................. 8
Section 3.1. Time and Place of Closing........................ 8
Section 3.2. Deliveries by Seller and Seller's Parent......... 9
Section 3.3. Deliveries by Buyer.............................. 9
Section 3.4. Title Policies................................... 10
Section 3.5. Permitted Encumbrances........................... 10
Section 3.6. Surveys.......................................... 10

ARTICLE 4. POST CLOSING COVENANTS................................... 11
Section 4.1. Change of Name; Removal of
Identification............................... 11
Section 4.2. Further Assurance................................ 11
Section 4.3. Transition....................................... 12
Section 4.4. Post Closing Balance Sheet....................... 12
Section 4.5. Assignment of Rights............................. 13
Section 4.6. Cooperation Regarding Permits.................... 13
Section 4.7. Lease of Certain Property........................ 13
Section 4.8. Survival......................................... 14

ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF SELLER AND
SELLER'S PARENT...................................................... 14

Section 5.1. Organization; Authority.......................... 15
Section 5.2. Stock Ownership; Binding Effect.................. 15
Section 5.3. Accounts Receivable.............................. 15
Section 5.4. Proprietary Rights; Environmental
Documents.................................... 16
Section 5.5. Real Property; Reporting......................... 17
Section 5.6. Personal Property................................ 18
Section 5.7. Contracts........................................ 19
Section 5.8. Insurance Policies............................... 20
Section 5.9. Employees; Compensation.......................... 20
Section 5.10. Employee Relations and Benefit Plans............ 20
Section 5.11. Compliance with ERISA........................... 20
Section 5.12. Compliance with Law; No Conflicts............... 23
Section 5.13. Taxes........................................... 24
Section 5.14. Litigation...................................... 24
Section 5.15. Conduct of Seller's Business.................... 25
Section 5.16. Hazardous Materials; Disposal Sites............. 25
Section 5.17. Underground Storage Tanks....................... 26
Section 5.18. Absence of Certain Business Practices........... 26
<PAGE>
SECTION PAGE

ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER.................. 26
Section 6.1. Corporate Organization........................... 26
Section 6.2. Corporate Authority.............................. 27
Section 6.3. No Conflicts..................................... 27
Section 6.4. Binding Agreement................................ 27
Section 6.5. Condition of Assets.............................. 27

ARTICLE 7. COVENANTS OF SELLER'S PARENT AND SELLER PRIOR TO
CLOSING........................................................ 28

ARTICLE 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER'S
PARENT AND SELLER.............................................. 28

ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER............. 29

ARTICLE 10. NON-ASSUMPTION OF LIABILITIES........................... 29
Section 10.1. Non-Assumption of Liabilities................... 29
Section 10.2. Assumption of Certain Obligations............... 29

ARTICLE 11. INDEMNIFICATION......................................... 30
Section 11.1. Survival of Representations, Warranties
and Covenants................................... 30
Section 11.2. Indemnification by Seller's Parent and
Seller.......................................... 30
Section 11.3. Indemnification by Buyer........................ 31
Section 11.4. Limitation on Liability......................... 32
Section 11.5. Procedure for Indemnification with
Respect to Third Party Claims................... 32
Section 11.6. Additional Procedures........................... 34

ARTICLE 12. EXCLUSIVITY............................................. 36

ARTICLE 13. TERMINATION OF AGREEMENT................................ 36
Section 13.1. Termination by Buyer............................ 36
Section 13.2. Termination by Seller........................... 36
Section 13.3. Remedies In The Event of Breach................. 36

ARTICLE 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION............... 36
Section 14.1. Nondisclosure by Seller and Seller's
Parent....................................... 36
Section 14.2. Nondisclosure by Buyer.......................... 37

ARTICLE 15. GENERAL................................................. 38
Section 15.1. Assignment; Binding Effect; Amendment........... 38
Section 15.2. Entire Agreement................................ 38
Section 15.3. Counterparts.................................... 38
Section 15.4. No Brokers...................................... 38
Section 15.5. Expenses of Transaction......................... 39
Section 15.6. Notices......................................... 39
Section 15.7. Governing Law................................... 40

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<PAGE>
Section 15.8. No Waiver....................................... 40
Section 15.9. Time of the Essence............................. 41
Section 15.10. Captions....................................... 41
Section 15.11. Severability................................... 41
Section 15.12. Construction................................... 41
Section 15.13. Standstill Agreement........................... 42

-iii-
<PAGE>
PURCHASE AND SALE OF ASSETS AGREEMENT

THIS PURCHASE AND SALE OF ASSETS AGREEMENT (the "Agreement") is
executed and delivered as of May 8, 1998, among USL CITY ENVIRONMENTAL, INC., a
Michigan corporation ("Buyer"); CITY MANAGEMENT CORPORATION, a Michigan
corporation ("Seller"); and USA WASTE SERVICES, INC., a Delaware corporation,
the sole stockholder of Seller (the "Seller's Parent").

WHEREAS, Seller operates a hazardous and non-hazardous commercial
liquid waste transportation, storage, treatment, processing and disposal
business in the Detroit, Michigan area (the "Business");

WHEREAS, in connection with operating the Business, Seller owns the
real property upon which a closed processing station (the "Kansas City
Facility") is located (the "Kansas City Land") and is more fully described on
Exhibit A attached hereto and made a part hereof;

WHEREAS, also in connection with operating the Business, Seller owns
the real property upon which a vehicle parking and maintenance facility (the
"Calahan Facility") is located in Calahan, Michigan, on approximately 10 acres
(the "Calahan Land") and is more fully described on Exhibit B attached hereto
and made a part hereof;

WHEREAS, also in connection with operating the Business, Seller owns
the real property upon which a hazardous and nonhazardous liquid waste
processing facility (the "Frederick Facility") is located in Detroit, Michigan,
on approximately 9.2 acres together with land in the area south of the Frederick
Facility bounded by Frederick and Farnsworth and west of St. Aubin (the
"Frederick Land") and is more fully described in Exhibit C attached hereto and
made a part hereof (the Kansas City Land, the Calahan Land, and the Frederick
Land are sometimes collectively referred to as the "Land");

WHEREAS, Seller's Parent holds all of the outstanding capital stock
of Seller and Buyer is unwilling to enter into this Agreement without the
covenants and promises of Seller's Parent herein set forth; and

WHEREAS, as a material inducement to Seller entering into this
agreement, Buyer's parent corporation, U S Liquids Inc., a Delaware corporation
("Buyer's Parent"), has agreed to guarantee the obligations of Buyer hereunder;

WHEREAS, Seller's Parent desires that Seller sell such assets,
properties and contractual rights to Buyer upon the terms and subject to the
conditions set forth in this Agreement and, in order to induce Buyer to enter
into this Agreement, is willing to make the covenants and promises herein set
forth;

NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained and other good and valuable consideration, received
to the full satisfaction of each of them, the parties hereby agree as follows:

ARTICLE 1. SALE OF ASSETS

SECTION 1.1. DESCRIPTION OF ASSETS. Upon the terms and

subject to the conditions set forth in this Agreement, effective upon Closing
(as defined below) Seller hereby grants, conveys, sells, transfers and assigns
to Buyer the following assets, properties and contractual rights (to the extent
assignable) of Seller, wherever located, which are used in the Business subject
to the exclusions hereinafter set forth:

(a) all of Seller's right, title, estate and interest in and to the
Land and all buildings, fixtures and improvements located on the Land;

(b) all permits, licenses, orders, consents and approvals of Seller
used in the Business (the "Permits"), to the extent the same may be
transferred by Seller to Buyer under Applicable Law;

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<PAGE>
(c) the equipment used or for use in the Business listed on Schedule
1.1(c), attached hereto and made a part hereof (the "Equipment");

(d) the motor vehicles used or for use in the Business and owned or
leased by Seller, and all attachments, accessories and materials handling
equipment now located in or on such motor vehicles (the "Rolling Stock"),
as the same are more completely described by manufacturer, model number
and model year on Schedule 1.1(d), attached hereto and made a part hereof;

(e) all non-proprietary manual and automated billing systems,
including, without limitation, programs used or for use in the Business;

(f) all of Seller's inventory of parts, tires and accessories of
every kind, nature, and description used or for use in the Business
located on the Land (the "Inventory");

(g) to the extent assignable under Applicable Law, all contractual
rights of Seller with Seller's customers (whether oral or in writing)
relating to the operation of the Business (the "Customer Contracts"), and
all commitments, lists, leases, permits, licenses, consents, approvals,
franchises and other instruments relating to the Customer Contracts (the
"Related Approvals"). A complete and accurate list of the Customer
Contracts and the Related Approvals is set forth on Schedule 1.1(g),
attached hereto and made a part hereof;

(h) (INTENTIONALLY DELETED);

(i) all right, title, and interest of Seller in and to the telephone
numbers (___) ___-____ and (___) ___-____ used in the operation of the
Business;

(j) all of Seller's shop tools, nuts and bolts relating to the
Business;

(k) all of Seller's existing documents, files and other material
related to all current or past customers of the Business;

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<PAGE>
(l) all trade accounts receivable of Seller related to the Business
("Accounts Receivable") as of the close of business on the date of Closing
(as hereinafter defined); and

(m) all of the goodwill of the Business. All of the foregoing
assets, properties and contractual rights are hereinafter sometimes
collectively called the "Assets."

SECTION 1.2. EXCLUDED ASSETS. The parties agree that there shall be
excluded from the Assets the following which are not being sold to Buyer
pursuant to this Agreement (the "Excluded Assets"): (a) all cash or cash
equivalents on hand and on deposit with Seller, except as set forth in Section
2.2 hereof; (b) all, if any, real property and all buildings on and fixtures to
all real property of Seller other than set forth in Section 1.1(a); (c) all
contracts and contract rights and obligations of Seller (whether oral or in
writing) other than the Customer Contracts and the Permits and all commitments,
lists, leases, permits, licenses, consents, approvals, franchises and other
instruments not relating to the Customer Contracts, the Permits or the Business;
(d) all employment contracts to which Seller is a party or by which Seller is
bound; (e) the corporate and tax records and corporate seal of Seller; and (f)
all motor vehicles of Seller which are not Rolling Stock.

SECTION 1.3. NON-ASSIGNMENT OF CERTAIN CUSTOMER CONTRACTS.
Notwithstanding anything to the contrary in this Agreement, to the extent that
the assignment hereunder of any Customer Contract shall require the consent of
any third party, neither this Agreement nor any action taken pursuant to its
provisions shall constitute an assignment or an agreement to assign if such
assignment or attempted assignment would constitute a breach thereof or result
in the loss or diminution thereof; provided, however, that in each such case,
Seller, without incurring out-of-pocket expenses, shall use reasonable efforts
to assist Buyer to obtain the consent of such other party to such assignment to
Buyer. If such consent is not obtained, however, Seller shall have no liability
or obligation to Buyer related thereto and Seller shall cooperate with Buyer in
any reasonable

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<PAGE>
arrangement designed to provide for Buyer the benefits under any such Customer
Contract and enforcement (without the obligation to actually commence litigation
or other dispute resolution process) for the account and benefit of Buyer, of
any and all rights of Seller against any other person arising out of the breach
or cancellation of any such Customer Contract by such other person or otherwise.
Attached hereto as Schedule 1.3 is a list of all Customer Contracts requiring
consent to their assignment.

ARTICLE 2. PURCHASE PRICE
SECTION 2.1. PURCHASE PRICE. Subject to Section 2.2, at
the Closing, Buyer shall pay to Seller for the Assets $27,900,000.

SECTION 2.2. ADJUSTMENT TO PURCHASE PRICE. The parties
agree that the purchase price was determined as if the net working capital of
Seller related to the Business was going to be $1.00 at the close of business on
the Closing Date. Accordingly, the parties agree that the purchase price set
forth in this Article 2 shall be adjusted (up or down) on the Adjustment Date
(as defined in Section 4.4) to reflect the actual net working capital of Seller
related to the Business on the Closing Date (the "Actual Net Working Capital"),
as shown on the balance sheet to be prepared in accordance with Section 4.4
hereof. If the Actual Net Working Capital of Seller related to the Business on
the Closing Date is greater than $1.00 on the Closing Date, then the purchase
price paid pursuant to Section 2.1 shall be increased dollar for dollar for each
dollar the Actual Net Working Capital exceeds $1.00 on the Closing Date. If the
Actual Net Working Capital of Seller related to the Business is less than $1.00
on the Closing Date, then the purchase price paid pursuant to Section 2.1 shall
be decreased dollar for dollar for each dollar the Actual Net Working Capital
falls below $1.00 on the Closing Date. For purposes of this Agreement, Actual
Net Working Capital shall mean the aggregate current assets of Seller related to
the Business on the Closing Date minus the aggregate of all current liabilities
of Seller related to the Business on the Closing Date, calculated in accordance
with generally accepted accounting principles ("GAAP").

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<PAGE>
In computing the adjustment amounts provided for in this Section, the party
owing payment to the other pursuant to this Section shall make such payment in
cash.

In the event of a dispute between the parties as to the Actual Net
Working Capital, the parties will have 30 days to resolve the dispute among
themselves. If the parties have not resolved such dispute within such 30-day
period, then the parties shall select an arbitrator who shall decide the dispute
within 30 days after being selected. If the parties cannot agree on an
arbitrator, then Buyer and Seller shall each select an arbitrator and the two
arbitrators so selected shall select a third arbitrator. The parties hereto each
agree to be bound by the decision of the arbitrator(s). In the event that three
arbitrators are chosen, a majority decision will be required. Each arbitrator
can be any natural person above the age of 18 and need not have any specific
qualifications. All costs of the arbitration shall be split equally between
Buyer and Seller's Parent.

SECTION 2.3. ADDITIONAL PAYMENTS. (a) In addition to
the foregoing, at the Closing, Seller and Buyer will enter
into separate written agreements as follows:

(i) a written disposal agreement ("Disposal
Agreement") whereby Buyer will agree to deliver all of
its sludge material to specified landfills operated by
Seller or its affiliates for a period of 20 years at the
following rates and upon such other terms and conditions
as are mutually agreeable to Buyer and Seller:
YEARS CUBIC YARDS PER YEAR RATE

1-5 first 120,000 cu/yd. $45.50 per cu/yd.
1-5 120,001 cu/yd. and up $ 8.00 per cu/yd.
6-20 all cubic yards $ 8.00 per cu/yd.

(ii) a written processing agreement (the "Leachate Treatment
Agreement") whereby Seller or its affiliates will agree to deliver
to Buyer all leachate from specified landfills operated by Seller or
its affiliates and Buyer will agree to treat all such leachate (up
to a maximum of 35,000,000 gallons per year) for the price of

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<PAGE>
3/4 of a cent per gallon for a period of 20 years and upon such
other terms and conditions as are mutually acceptable to Buyer and
Seller. Treatment rates for leachate in excess of 35,000,000 gallons
shall be negotiated by the parties in good faith.

(iii) the Base Rate and only that portion of the Premium Rate
equivalent to the Base Rate shall escalate annually by the
application of the CPI Index as described in attached SCHEDULE
2.1(A)(III). (b) (i) In addition to the above, commencing on the
fifth anniversary of the Closing Date and continuing each year
thereafter through the nineteenth anniversary of the Closing Date,
Buyer shall pay to Seller a royalty in the amount equal to six
percent (6%) of the Net Revenues (as hereinafter defined) derived
from the Assets. Such royalty shall be paid monthly within 30 days
of the end of each month.

(ii) For purposes of this Agreement, "Net Revenues" shall mean
the gross revenues of Buyer (computed in accordance with generally
accepted accounting principles) derived from the Business, or any
portion thereof, only actually received by Buyer for waste, less
(without duplication): (i) any amounts collected on behalf of or
otherwise passed through to any federal, state or local governmental
body; (ii) any tax which is imposed for the purpose of (A)
restricting the volume, nature or origin of waste and/or (B)
pollution control, and/or (C) environmental enhancement; and (iii)
any amounts which are in the nature of a "host fee" (defined as a
payment made by requirement of law or contract as a result of
negotiations commenced by a host governmental entity, made to a host
governmental entity whether state, county, city, township, village
or other in connection with the location in that host jurisdiction
of the Assets).

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<PAGE>
(iii) Seller, or its designated agents, shall have the right, at
its sole expense and from time to time (but not more frequently than
quarterly) to inspect those records of Buyer necessary to determine
the Net Revenues of Buyer, during reasonable business hours and upon
reasonable notice to Buyer and U S Liquids Inc. in order to verify
any amounts payable to Seller. Neither Seller nor its designated
agents shall have any right to inspect any of the other books or
records of Buyer or U S Liquids Inc.

(iv) Buyer covenants that its payment obligations under this
Section 2.2(b) shall survive Closing and, notwithstanding anything
to the contrary in this Agreement. Any transfer by Buyer of all or
any part of the Business shall be expressly subject to a condition
requiring the transferee be bound by the requirements of this
Section 2.2(b) and that all subsequent transferees be equally so
bound; and provided further that Buyer shall, and shall require all
subsequent transferees to, notify Seller no less than 30 days prior
to such transfer. This covenant shall bind any and all successors
and assigns of Buyer, and no such transfer shall relieve Buyer of
any obligation hereunder. In addition, Buyer agrees that if during
said 20 year period Buyer voluntarily ceases operation or
voluntarily materially decreases operation of the Business, then
thereafter until the Business is reopened or operation is increased
to normal operation, the Net Revenues shall be deemed to be the net
revenue of all of the operations of Buyer, Buyer's Parent and their
affiliated companies within a 250 mile radius of Detroit, Michigan.

The provisions of this Section 2.2 shall survive the Closing.

ARTICLE 3. CLOSING

SECTION 3.1. TIME AND PLACE OF CLOSING. Unless otherwise agreed to
by the parties hereto, this transaction shall

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be closed upon the date hereof (the "Closing"). The Closing shall take place at
a time and location mutually agreeable to Buyer and Seller. The date on which
the Closing occurs shall be referred to as the "Closing Date."

SECTION 3.2. DELIVERIES BY SELLER AND SELLER'S PARENT. At the
Closing, Seller and Seller's Parent shall deliver to Buyer, all duly executed:

(a) a General Conveyance, Assignment and Bill of Sale in form and
substance satisfactory to Buyer and Seller, conveying, selling,
transferring and assigning to Buyer all of the Assets (the "Bill of
Sale"); and

(b) a noncompetition agreement duly and properly executed by Seller
and Seller's Parent, in form and substance satisfactory to Buyer and
Seller (the "Noncompetition Agreement").

Reasonably promptly after Closing, Seller and Parent shall deliver
to Buyer all duly executed:

(i) covenant deeds (the "Deed") to the Owned Land, subject only to
the Permitted Encumbrances (hereinafter defined) (Buyer and Seller shall
share equally the cost of all state, county and other transfer or
documentary taxes and all recording fees incurred in connection with
recording each deed);

(ii) all motor vehicle Certificates of Title and registrations to the
Rolling Stock;

(iii) evidence of the payment in full of all debts encumbering the
Assets, including, without limitation, all obligations under any leases
for any of the Assets (including any lease-end buy-out provisions);

(iv) such other separate instruments of sale, assignment, or transfer
reasonably required by Buyer; and

(v) all Disclosure Schedules (as hereinafter defined) and exhibits
to this Agreement.

SECTION 3.3. DELIVERIES BY BUYER. At the Closing, Buyer
shall deliver to Seller, all duly and properly executed (where
applicable):

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(a) the purchase price provided in Section 2.1;
(b) the Noncompetition Agreement;
(c) the Disposal Agreement; and
(d) the Leachate Treatment Agreement.

SECTION 3.4. TITLE POLICIES. Buyer shall obtain one or
more extended coverage policies of title insurance from a title company selected
by Buyer and reasonably acceptable to Seller (the "Title Company") in the amount
to be agreed upon between Buyer and Seller with each of the Title Company's
standard printed exceptions deleted and including such endorsements reasonably
requested by Buyer (including, but not limited to, comprehensive, access,
contiguity, non-arbitration, going concern, non-imputation and zoning
endorsements), and that are available in the state where the Land is located,
insuring fee simple title to the Land subject only to the exceptions permitted
by Section 3.5 hereof (the "Title Policies"). Such Title Policies shall be
obtained by Buyer post-Closing. Seller and Buyer shall each pay one-half of the
costs associated with the delivery of the Title Policies to Buyer.

SECTION 3.5. PERMITTED ENCUMBRANCES. The Title Policies shall insure
Buyer's interest in the Land to be free and clear of all encumbrances whatsoever
except the Permitted Encumbrances. For purposes hereof, "Permitted Encumbrances"
shall mean and include: (i) zoning ordinances and regulations and building and
use restrictions; (ii) real estate taxes and assessments, both general and
special, which are a lien but which are not yet due and payable at the Closing
Date; (iii) easements, encumbrances, covenants, conditions, reservations,
restrictions and any other matters of record; and (iv) any matter which would be
disclosed by an accurate survey. Buyer and Seller shall each pay one-half of the
costs associated with the delivery of the Title Policies to Buyer. In addition,
Seller shall pay to remove any mortgages or liens of a monetary nature that are
of record against any portion of the Land.

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<PAGE>
surveyor, showing: (a) the exact boundary lines of the Land; (b) the location
thereon of all, if any, buildings, improvements, roads, and easements now
existing; (c) the number of acres in the Land; (d) the location of any
buildings, fences or other improvements which encroach on the Land; (e) the
location of any improvements on the Land which encroach on any neighboring
property; (f) all building lines established in respect of the Land; and (g) all
public access to the Land, and representing that the boundaries of the Land are
contiguous with the boundaries of all adjoining parcels (the "Surveys"). The
Surveys shall be obtained by Buyer post-Closing, and shall be delivered to Buyer
and the Title Company with certification to each entity by the surveyor and also
together with such additional supporting reports and other certificates as the
Title Company may require to enable the Title Company to delete its standard
survey exceptions from the Title Policies. Buyer and Seller shall each pay
one-half of the costs of the Surveys. In no event shall the failure of the Title
Company to deliver any title work, or the Title Policies or of any surveyor to
deliver any Survey delay Closing.

ARTICLE 4. POST CLOSING COVENANTS

SECTION 4.1. CHANGE OF NAME; REMOVAL OF IDENTIFICATION.

(a) Within 30 days after Closing, Buyer shall take all necessary
action to discontinue use of any business name that includes the name of
the Seller's Parent, Seller, or any of their affiliated companies.

(b) Within six months after the Closing, Buyer shall remove from the
assets all visible names, symbols, trade names, service marks and logos of
Seller, Seller's Parent, or any of their affiliated companies.

SECTION 4.2. FURTHER ASSURANCE. From time to time on and after the
Closing and without further consideration, the parties hereto shall each deliver
or cause to be delivered to any other party at such times and places as shall be
reasonably requested, such additional instruments as any of the others may
reasonably request for the purpose of carrying out this Agreement

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<PAGE>
and the transaction contemplated hereby. Seller, also without further
consideration, agrees to cooperate with Buyer and to use its reasonable efforts
to have the present officers and employees of Seller cooperate on and after the
Closing Date in furnishing to Buyer information, evidence, testimony, and other
assistance in connection with obtaining all necessary permits and approvals and
in connection with any actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Closing
Date. Seller shall not be obligated in any event to incur out-of-pocket expenses
in connection with its performance under this Section 4.2.

SECTION 4.3. TRANSITION. Neither Seller nor Seller's Parent will
take any action that is designed or intended to have the effect of discouraging
any customer or business associate of Seller from maintaining the same business
relationships with Buyer after the Closing that it maintained with Seller before
the Closing. Seller and Seller's Parent will refer all customer inquiries
relating to the Business to Buyer from and after the Closing. Further, Seller
and Seller's Parent agree that for a period of 90 days following the Closing
Date, they will, without additional consideration, assist Buyer with the orderly
transition of the operations of the Business from Seller to Buyer. Seller shall
not be obligated in any event to incur out-of-pocket expenses in connection with
its performance under this Section 4.3.

SECTION 4.4. POST CLOSING BALANCE SHEET. On the date which is 120
days after the Closing Date (the "Adjustment Date") the parties shall adjust the
purchase price in accordance with Section 2.2 based on a balance sheet of Seller
related to the Business for the period ending on the close of business on the
Closing Date, prepared by Buyer in accordance with GAAP and delivered to Seller,
together with the supporting documentation for all current assets and
liabilities used to prepare such balance sheet, at least seven days prior to the
Adjustment Date. Buyer shall use its best efforts to collect accounts receivable
that are due and owing for work performed prior to the Closing Date. On or
before the Adjustment Date, Buyer shall remit to Seller all amounts

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<PAGE>
received with respect to such accounts receivable. Any payments received by
Buyer from account debtor which had accounts receivable outstanding on the
Closing Date shall be first applied to the oldest outstanding accounts
receivable of such account debtor. Any accounts receivable that have not been
collected within 120 days of the Closing Date shall be assigned by Buyer to
Seller. Any dispute between the parties as to this Section 4.4 shall be resolved
in accordance with the procedure set forth in Section 2.2.

SECTION 4.5. ASSIGNMENT OF RIGHTS. From time to time on and after
the Closing and without consideration, Seller's Parent, to the extent it has the
right to assign and excluding any amount or matter with respect to which
Seller's Parent may have an outstanding indemnification obligation or other
liability to Buyer or any other party under this Agreement, shall assign to
Buyer its rights of indemnification that accrue as a result of any breach of a
representation or warranty contained in that certain Stock Purchase Agreement
dated December 9, 1997, between USA Waste Services, Inc., City Management
Holdings Trust, and Trust Under Indenture dated August 26, 1997, between Anthony
L. Soave, as donor, and Anthony L. Soave and Yale Levin as Trustees, Anthony L.
Soave and the Corporations listed on Schedule A thereto (the "Predecessor
Contract"). In the event Seller's Parent is prohibited from assigning its
rights, then Seller's Parent shall use its best efforts to enforce such rights
for, and on behalf of, Buyer.

SECTION 4.6. COOPERATION REGARDING PERMITS. Seller and Seller's
Parent, without incurring out-of-pocket expenses, shall cooperate with Buyer to
accomplish the prompt transfer of the Permits. Buyer agrees that any operation
of the Business without the required Permits shall be at its own risk and that
Seller and Seller's Parent shall have no liability whatsoever if such Permits
are not, or may not be, transferred or obtained by Buyer.

SECTION 4.7. LEASE OF CERTAIN PROPERTY. Concurrently with the
Closing of the transaction contemplated by this Agreement, Seller and Buyer
shall enter into a long term lease in the form mutually agreed upon by the
parties, whereby Seller shall lease

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<PAGE>
from Buyer the Calahan Land and the Calahan Facility, for a term of not less
than 30 years (subject to Seller's right to terminate at any time upon 90 days
written notice to Buyer) at a rental rate of 10% below the market rental rate
for a similarly situated facility. Buyer agrees that it will undertake and
complete performance of any remediation required by any governmental agency as
of the Closing Date for the Calahan Land and Calahan Facility.

SECTION 4.8. SURVIVAL. The covenants in this Article 4
shall survive the Closing in accordance with Article 11.

ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF SELLER AND SELLER'S
PARENT.

Seller and Seller's Parent, jointly and severally, and only with respect to the
period of time since January 14, 1998, represent and warrant to Buyer, that, to
the best of Seller's and Seller's Parent's knowledge, the statements contained
in this Section 5 except as set forth in the schedules to the subsections of
this Section 5 to be delivered by Seller to Buyer (such schedules hereinafter
collectively referred to as the "Disclosure Schedules" and, individually, as a
"Disclosure Schedule"): (i) are correct and complete, in all material respects,
as of the date of this Agreement; (ii) will be correct and complete in all
material respects as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 5); and (iii) shall survive the Closing in accordance with Article 11
hereof. The representations and warranties in this Article 5 do not apply with
respect to any facts or circumstances first arising before January 14, 1998 or
to any contrary facts or circumstances of which Buyer becomes aware prior to
Closing if Buyer proceeds to Closing.

Wherever a representation or warranty herein is qualified as having
been made "to the best of Seller's or Seller's Parent's knowledge", such phrase
shall mean the actual knowledge of the officers, directors, and senior and
regional management of Seller and Seller's Parent actively responsible for the
operation of the Business.

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<PAGE>
SECTION 5.1. ORGANIZATION; AUTHORITY. (a) Seller is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Michigan and is now and has been at all times since its
incorporation, duly authorized, and qualified and licensed under all laws,
regulations, ordinances and orders of public authorities to carry on its
businesses in the places and in the manner as conducted at the time such
activities were conducted except for where failure to be so authorized,
qualified or licensed would not have a material adverse affect on the
Business.

(b) Seller and Seller's Parent each has full legal right, power and
authority (corporate and otherwise) to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. On or before
the Closing, all corporate action of Seller and Seller's Parent necessary
to approve the sale of the Assets by Seller will have been taken,
including director and shareholder approvals, if necessary.

SECTION 5.2. STOCK OWNERSHIP; BINDING EFFECT. The authorized capital
stock of Seller consists solely of 50,000 shares of voting common stock of which
1,001 shares are issued and outstanding. All of the issued and outstanding
shares of Seller are owned of record and beneficially by Seller's Parent and are
free and clear of all liens, security interests, encumbrances, adverse claims,
pledges, equities and other restrictions whatsoever. This Agreement is the valid
and binding obligation of Seller and Seller's Parent, enforceable against them
in accordance with its terms.

SECTION 5.3. ACCOUNTS RECEIVABLE. Attached as Schedule 5.3 is a
complete and accurate list of all accounts and notes receivable of Seller as of
May 8, 1998, including receivables from and advances to employees and also
including all such accounts and notes receivable which are not reflected in the
financial statements, if any. Also attached as Schedule 5.3 is an aging of all
accounts and notes receivable showing amounts due in 30 day aging categories.

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<PAGE>
SECTION 5.4. PROPRIETARY RIGHTS; ENVIRONMENTAL DOCUMENTS. (i)
Attached as Schedule 5.4(i) is a complete and accurate list and summary
description as of the date hereof of all materials Permits, permit
applications, titles (including motor vehicle titles and current
registrations), fuel permits, licenses, and franchises currently owned or
held by Seller. None of the permits, permit applications, titles
(including motor vehicle titles and current registrations), fuel permits,
licenses, and franchises has been claimed to, or to the best of Seller's
and Seller's Parent's knowledge, infringe on the rights of others and all
of which are now valid, in good standing and in full force and effect.
Except as set forth on Schedule 5.4(i), such Permits, permit applications,
titles (including motor vehicle titles and current registrations), fuel
permits, licenses, and franchises, are adequate for the operation of the
Business as presently constituted; and

(ii) Seller has, as of the date of this Agreement, made available to
Buyer for its inspection all presently held records, correspondence,
reports, notifications, permits, pending permit applications, licenses and
pending license applications, environmental impact studies, assessments
and audits and all notifications from governmental agencies and any other
person or entity and any other documents of Seller in its possession
relating to: (a) each material violation of Applicable Laws (hereinafter
defined) by Seller relating to the Land, Business or the Assets and all,
if any, claims thereof; (b) the present or past environmental compliance
of Seller relating to the Land, Business or the Assets; (c) the present or
past condition of the Land; (d) the discharge, leakage, spillage,
transport, disposal or release of any Hazardous Material (as hereinafter
defined) into the environment by Seller on or at the Land; and (e) land
use and access approvals relative to any portion of the Land
(collectively, the "Environmental Documents").

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<PAGE>
SECTION 5.5. REAL PROPERTY; REPORTING.

(i) Seller has good, fee simple or leasehold title, as
applicable, to the Land except for Permitted Encumbrances.
Except as set forth on Schedule 5.5(i):

(a) At all times since January 14, 1998, the Frederick Land
has been fully licensed, permitted and authorized for the operation
of the Business as currently conducted, in all material respects,
under all applicable zoning restrictions and land use requirements
(the "Zoning Laws").

(b) The Land is usable for its current uses and can be used by
Buyer after the Closing for such uses without materially violating
any Zoning Laws and such uses are legal conforming uses. To the best
of Seller's and Seller's Parent's knowledge, there are no
proceedings or amendments pending and brought by or threatened by,
any third party which would result in a material change in the
allowable uses of the Land or which would modify the right of Seller
to use the Land for its current uses after the Closing Date.

(c) Seller has made available to Buyer all engineering,
geologic and other similar reports, documentation and maps relating
to the Land in the possession or control of Seller or Seller's
Parent.

(d) (INTENTIONALLY DELETED).

(e) No third party has a present or future right to possession
of all or any part of the Land.

(f) There are no pending or, to the best of Seller's and
Seller's Parent's knowledge, threatened condemnation or eminent
domain proceedings affecting all or any part of the Land.

(ii) To the best of Seller's and Seller's Parent's knowledge, Seller
has provided to the government agencies requiring the same, all material
reports, notices, filings and other disclosures required by Applicable
Laws and all such reports, notices, filings and other documents were
complete

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<PAGE>
and accurate in all material respects at the time provided to
said government agencies.

(iii) Seller does not lease any real property necessary for the
operation of the Business as currently operated.

(iv) Seller presently enjoys peaceful and quiet possession of the Land.

SECTION 5.6. PERSONAL PROPERTY. (i) Attached as
Schedule 1.1(c) hereto is a complete and accurate list of all
Equipment. Each piece of Equipment is in good working order
and has been maintained in a good and proper manner, ordinary
wear and tear excepted.

(ii) Listed on Schedule 1.1(d) hereto is a complete and accurate list
of all Rolling Stock. Each motor vehicle, attachment, accessory and piece
of materials handling equipment comprising the Rolling Stock is in good
working order and has been maintained in a good and proper manner,
ordinary wear and tear excepted.

(iii) All of the Assets are either owned by Seller or leased under an
agreement indicated on Schedule 5.6(iii). To the best of Seller's and
Seller's Parent's knowledge, all leases set forth on Schedule 5.6(iii) are
in full force and effect and constitute valid and binding agreements of
the parties thereto (and their successors) in accordance with their
respective terms. No default by Seller, or to the best of Seller's or
Seller's Parent's knowledge, any other party to any of such leases exists,
or would exist, except for the passage of time or delivery of a notice or
both.

(iv) At the Closing, Seller shall have good and merchantable title to
the Assets (except the Land, in which Seller shall have good and
marketable title to the Owned Land), free and clear of all debts, lease
payments (including lease-end buy-out payments), liens, encumbrances,
security interests, equities or restrictions whatsoever and, by virtue of
the grant, conveyance, sale, transfer, and assignment of the Assets
hereunder, Buyer shall receive good and merchantable title to the Assets
(except the Land, in which

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<PAGE>
Buyer shall receive good and marketable title in the Owned Land upon
properly recording the deed, subject to the Permitted Encumbrances), free
and clear of all debts, lease payments (including lease-end buy-out
payments), liens, encumbrances, security interests, equities or
restrictions whatsoever. The Assets constitute all of the assets owned by
Seller used in the Business and include all of the permits, licenses,
franchises, consents and other approvals necessary to operate the Business
immediately before Closing as currently operated.

SECTION 5.7. CONTRACTS. Attached as Schedule 1.1(g) hereto is a
complete and accurate list as of the date hereof of the Customer Contracts and
Related Approvals, true and complete copies of which have been delivered to
Buyer. None of the Customer Contracts or Related Approvals listed on Schedule
1.1(g) have been modified, altered, terminated or otherwise amended and there
have been no waivers, oral agreements, representations or other statements with
relation to any agreements except as described in Schedule 1.1(g). Except as set
forth on Schedule 1.3, all Customer Contracts are (and will be immediately
following the Closing) in full force and effect and are valid, binding and
enforceable against the respective parties thereto in accordance with their
respective provisions and Seller is not in default in, nor to the best knowledge
of Seller and Seller's Parent has there occurred an event or condition
(including Seller's execution and delivery of or performance under this
Agreement) which with the passage of time or the giving of notice (or both)
would constitute a material default to the best knowledge of Seller and Seller's
Parent, with regard to the payment or performance of any obligation under any
Customer Contract; no claim of such a default has been asserted in writing.
Seller has not received any notice that any person intends or desires to modify,
waive, amend, rescind, release, cancel or terminate any Customer Contract. To
the best of Seller's or Seller's Parent's knowledge, there is no material
default by any other party to any contract, commitment or other agreement
attached as Schedule 1.1(g).

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<PAGE>
SECTION 5.8. INSURANCE POLICIES. Attached as Schedule 5.8 are
complete and accurate certificates evidencing insurance policies carried by
Seller on the Business, the Land or the Assets and an accurate list of all
insurance loss runs and workers' compensation claims received for the past three
policy years relating to such policies. All such insurance policies are in full
force and effect and shall remain in full force and effect through the Closing
Date. With respect to the Business, the Land, and the Assets during Seller's
period of ownership Seller's insurance has never been cancelled and Seller has
not been denied coverage.

SECTION 5.9. EMPLOYEES; COMPENSATION. Attached as Schedule 5.9 is a
complete and accurate list of all employees of Seller and the rate of
compensation of each as of the date hereof (including a breakdown of the portion
thereof attributable to salary, bonus and other compensation, respectively).
There is no pending or, to the best of Seller's or Seller's Parent's knowledge,
threatened labor dispute involving Seller and any group of its employees nor has
Seller experienced any labor interruptions since January 14, 1998. Buyer shall
be under no obligation to hire any of Seller's employees.

SECTION 5.10. EMPLOYEE RELATIONS AND BENEFIT PLANS. Attached as
Schedule 5.10 are complete and accurate descriptions of all plans subject to
Sections 3(3), (1), (2), (37) and (40), respectively, of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) which are currently
maintained and/or sponsored by Seller, or to which Seller currently contributes,
or has an obligation to contribute in the future (including, without limitation,
employment agreements and any other agreements containing "golden parachute"
provisions and deferred compensation agreements), together with copies of any
trusts related thereto and a classification of employees covered thereby
(collectively, the "Plans"). Also listed on Schedule 5.10 are all of the Plans
that have been terminated within the past three years.

SECTION 5.11. COMPLIANCE WITH ERISA. None of Seller,
any Controlled Group Member (as defined in Code Section
414(n)(6)(B)), nor any business, subsidiary, division or operation

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acquired by Seller or a Controlled Group Member in the last five years, ever
have maintained or sponsored, or contributed to, an employee pension benefit
plan (as defined in ERISA Section 3(2)) which is subject to the provisions of
Title IV of ERISA. Except for the Plans, Seller does not maintain or sponsor,
nor is a contributing employer to, a pension, profit-sharing, deferred
compensation, stock option, employee stock purchase or other employee benefit
plan, employee welfare benefit plan, or any other arrangement with its
employees. All Plans are in substantial compliance with all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other laws applicable to such Plans, and, in all material respects, have been
administered, operated and managed in substantial accordance with the governing
documents. All Plans that are intended to qualify (the "Qualified Plans") under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code")
have been determined by the Internal Revenue Service to be so qualified, and
copies of the current plan determination letters, most recent Form 5500, or, as
applicable, Form 5500-C/R filed with respect to each such Qualified Plan or
employee welfare benefit plan and most recent trustee or custodian report, are
included as part of Schedule 5.11(iv) hereof. To the extent that any Qualified
Plans have not been amended to comply with the laws and regulations applicable
to such Plan, the remedial amendment period permitting retroactive amendment of
such Qualified Plans has not expired and will not expire within 120 days after
the Closing Date. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, annual reports, summary annual reports,
actuarial reports, PBGC-1 Forms, audits or tax returns) have been timely filed
or distributed. None of: (i) Seller; or (ii) any Plan has engaged in any
transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No Plan has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA. Further:

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<PAGE>
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to
and approval by the Internal Revenue Service;

(ii) with respect to Plans which qualify as "group health plans" under
Section 4980B of the Internal Revenue Code and Section 607(1) of ERISA and
related regulations (relating to the benefit continuation rights imposed
by "COBRA"), Seller has complied (and on the Closing Date will have
complied), in all respects with all reporting, disclosure, notice,
election and other benefit continuation requirements imposed thereunder as
and when applicable to such plans, and Seller has no (and will not incur
any) direct or indirect liability and Seller is not (and will not be)
subject to any loss, assessment, excise tax penalty, loss of federal
income tax deduction or other sanction, arising on account of or in
respect of any direct or indirect failure by Seller, any time prior to the
Closing Date to comply with any such federal or state benefit continuation
requirement, which is capable of being assessed or asserted before or
after the Closing Date directly or indirectly against Seller with respect
to such group health plans;

(iii) the Financial Statements reflect the approximate total pension,
medical and other benefit expense for all Plans for the periods covered by
the applicable Financial Statement, and no material funding changes or
irregularities are reflected thereon which would cause such Financial
Statements to be not representative of most prior periods;

(iv) attached hereto as Schedule 5.11(iv) is a copy of the claims
history under Seller's group health plan for the past three years;

(v) Seller has no (and will not incur any) retiree health care
obligations to its employees;

(vi) (INTENTIONALLY DELETED); and

(vii) with respect to any Plan which qualifies as a group health plan,
such plan is fully insured and all premiums have been paid on a timely
basis and are paid in full as of the

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<PAGE>
Closing Date or, to the extent such plan is not fully insured, all self
insured obligations have been met as of the Closing Date and are fully
reflected in the plan's financial statements. To the extent that any of
Seller's group health plans are retrospectively rated, there are no
liabilities capable of assertion against Seller in respect of claims
already incurred and present.

SECTION 5.12. COMPLIANCE WITH LAW; NO CONFLICTS. Except
as set forth on Schedule 5.12:

(i) To the best of Seller's and Seller's Parent's knowledge as it
relates to the Assets or the Business, Seller has in the past complied in
all material respects with, and is now in material compliance with, all
federal, state and local statutes, laws, rules, regulations, orders,
licenses, permits (including, without limitation, zoning restrictions and
land use requirements) and all administrative and judicial judgments,
rulings, decisions and orders of any body having jurisdiction over Seller,
the Land or the Business (collectively, the "Applicable Laws"). Neither
Seller nor Seller's Parent has received any written notice that Seller is
under investigation or other form of review with respect to any Applicable
Law materially adversely affecting the Assets or the Business; and

(ii) the execution, delivery and performance of this Agreement, the
consummation of any transactions herein referred to or contemplated hereby
and the fulfillment of the terms hereof and thereof will not in any
material respect:

(a) conflict with, or result in a breach or violation of the
Articles of Incorporation or Bylaws of Seller;

(b) conflict with, or result in a breach under any document,
agreement or other instrument to which Seller or Seller's Parent is
a party, or result in the creation or imposition of any lien, charge
or encumbrance on any properties of Seller or Seller's Parent
pursuant to: (A) any law or regulation to which Seller or Seller's
Parent,

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or any of their respective properties are subject, or (B) any
judgment, order or decree to which Seller or Seller's Parent is
bound or any of their respective property is subject;

(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of
Seller; or

(d) except for the filings by Seller and Buyer required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and any consents or filings required under any
permit or Customer Contract, require the consent of, or filing with,
any governmental authority or agency or other third party in order
to remain in full force and effect. SECTION 5.13. TAXES. Seller has
filed, or will file, in

a timely manner all requisite federal, state, local and other tax returns due
for all fiscal periods ended on or before the date hereof and, as of the
Closing, shall have filed or will file in a timely manner all such returns due
for all periods ended on or before the Closing Date. No federal, state, local or
other tax returns or reports filed by Seller (whether filed prior to, on or
after the date hereof) with respect to the Business or the Assets will result in
any taxes, assessments, fees or other governmental charges upon the Assets or
Buyer, whether as a transferee of the Assets or otherwise. All federal, state
and local taxes due and payable with respect to the Business or the Assets have
been paid, including, without limiting the generality of the foregoing, all
federal, state and local income, sales, use, franchise, excise and property
taxes. No notice of any claim for taxes, whether pending or threatened, has been
received.

SECTION 5.14. LITIGATION. Except as set forth on Schedule 5.14,
there is no material claim, litigation, action, suit or proceeding,
investigation, formal arbitration, informal arbitration or mediation,
administrative, judicial or other review, pending or, to the best of Seller's or
Seller's Parent's knowledge, threatened, against Seller or Seller's Parent,
relating to the

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Assets or Business, at law or in equity, before any federal, state or local
court or regulatory agency, or other governmental or private authority; no
written notice of any of the above has been received by Seller or Seller's
Parent. Also listed on Schedule 5.14 are all instances where Seller is the
plaintiff, or complaining or moving party, under any of the above types of
proceedings or otherwise.

SECTION 5.15. CONDUCT OF SELLER'S BUSINESS.
(INTENTIONALLY DELETED).

SECTION 5.16. HAZARDOUS MATERIALS; DISPOSAL SITES.
Except as set forth on Schedule 5.16, to the best of Seller's and
Seller's Parent's knowledge, specifically with respect to the
Business:

(i) Seller has generated, transported, stored, handled, recycled,
reclaimed, disposed of, or contracted for the disposal of, hazardous
materials, hazardous wastes, hazardous substances, toxic wastes or
substances, as those terms are defined by the Resource Conservation and
Recovery Act of 1976; the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"); the Clean Water Act;
the Toxic Substances Control Act; any comparable or similar state statute
applicable to the Business; or the rules and regulations promulgated under
any of the foregoing, as each of the foregoing may have been amended
(collectively, "Hazardous Materials"), in substantial compliance with all
Applicable Laws.

(iii) Set forth on Schedule 5.16 is a complete list of the names and
addresses of all disposal sites utilized by Seller relating to the Assets
or the Business, none of which sites is

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listed on the CERCLIS list or the National Priorities List of hazardous
waste sites or any comparable state list.

(iv) There have been no spills, leaks, deposits or other releases into
the environment or onto or under the Land of any Hazardous Materials.

SECTION 5.17. UNDERGROUND STORAGE TANKS. Except as set forth on
Schedule 5.17, to the best of Seller's or Seller's Parent's knowledge the Land
does not contain any underground or above-ground storage tanks containing
Hazardous Materials. All above and below ground tanks currently in use on the
Land are being used and maintained in accordance with all Applicable Laws.

SECTION 5.18. ABSENCE OF CERTAIN BUSINESS PRACTICES. To the best of
Seller or Seller's Parent's knowledge neither Seller nor Seller's Parent has
ever made, offered or agreed to offer anything of value to any employees of any
customers of Seller for the purpose of attracting business to Seller or any
foreign or domestic governmental official, political party or candidate for
government office or any of their respective employees or representatives, nor
have they otherwise taken any action which would cause it to be in violation of
the Foreign Corrupt Practices Act of 1977, as amended.

ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER.

Buyer represents and warrants that the statements contained in this
Section 6: (i) are correct and complete, in all material respects, as of the
date of this Agreement; (ii) will be correct and complete, in all material
respects, as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Article 6);
and (iii) shall survive the Closing in accordance with Article 11.

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businesses in the places and in the manner as now conducted except for where the
failure to be so authorized, qualified or licensed would not have a material
adverse affect on such businesses.

SECTION 6.2. CORPORATE AUTHORITY. The officers of Buyer executing
this Agreement have the corporate authority to enter into and bind Buyer to the
terms of this Agreement. On or before the Closing, all corporate action by Buyer
necessary to approve the transaction, including both shareholder and director
approvals (if required), shall have been taken.

SECTION 6.3. NO CONFLICTS. The execution, delivery and performance
of this Agreement, the consummation of any transactions herein referred to or
contemplated hereby and the fulfillment of the terms hereof and thereof will
not:

(i) conflict with, or result in a breach or violation of
the Articles of Incorporation or Bylaws of Buyer;

(ii) conflict with, or result in a material breach under any document,
agreement or other instrument to which Buyer is a party, or result in the
creation or imposition of any lien, charge or encumbrance on any
properties of Buyer pursuant to: (A) any law or regulation to which Buyer
or any of its property is subject, or (B) any judgment, order or decree to
which Buyer is bound or any of its property is subject;

(iii) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of Buyer; or

(iv) except for the filings by Seller and Buyer required by the HSR
Act and any consents or filings required under any Permit or Customer
Contract, require the consent of, or the filing with any governmental
authority or agency or any other third party in order to remain in full
force and effect.

SECTION 6.4. BINDING AGREEMENT. This Agreement is the
binding and valid obligation of Buyer, enforceable against it in accordance with
its terms.

SECTION 6.5. CONDITION OF ASSETS. (i) Buyer
acknowledges, warrants and agrees that, prior to the Closing
Date, it has had the opportunity to and has examined and

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investigated the nature, environmental condition and compliance status of
the Assets, including, but not limited to, the Land and the Business.
Except as set forth in Article 5, neither Seller, nor any agent, attorney,
employee, or representative of Seller, has made any representation
whatsoever regarding the nature, environmental condition or compliance
status of the Assets, the Land or the Business by Seller to Buyer or any
part thereof and that Buyer in executing, delivering and/or performing
this Agreement has not relied upon any statement and/or information
(including, but not limited to, any environmental report), to whomsoever
made or given directly, orally or in writing, by any individual, firm or
corporation. Buyer has entered into this Agreement based solely upon its
own inspection, evaluation, review and analysis.

(ii) Buyer acknowledges, warrants and agrees that the materials,
records, reports and documents provided by Seller to Buyer as of the
Closing Date adequately, lawfully and sufficiently disclose to Buyer all
environmental matters relevant to the Business, the Assets and Land, such
as to comply in form and substance with Section 20116 of Part 201 of the
Natural Resources and Environmental Protection Act ("Part 201") (MCLA
324.20116). The parties agree that to the extent any obligation exists to
record any such information or notice thereof under Section 20116 of Part
201, such obligation will be Buyer's, provided, however, that Buyer will
not record any such information or notice without providing Seller with
prior written notice.

ARTICLE 7. COVENANTS OF SELLER'S PARENT AND SELLER PRIOR TO
CLOSING (INTENTIONALLY DELETED).

ARTICLE 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER'S
PARENT AND SELLER (INTENTIONALLY DELETED).

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ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
(INTENTIONALLY DELETED).

ARTICLE 10. NON-ASSUMPTION OF LIABILITIES

SECTION 10.1. NON-ASSUMPTION OF LIABILITIES. Except as otherwise
set forth in Section 10.2 below, Buyer shall not, by the execution and
performance of this Agreement or otherwise, assume, become responsible for or
incur any liability or obligation of any nature of Seller or Seller's Parent
whether legal or equitable, matured or contingent, known or unknown, foreseen or
unforeseen, ordinary or extraordinary, patent or latent, (i) any obligations of
Seller arising prior to the Closing Date under any agreement or arrangement
between Seller and the employees of Seller or any labor or collective bargaining
unit representing any such employees; or (ii) caused solely by occurrences prior
to the Closing Date.

SECTION 10.2. ASSUMPTION OF CERTAIN OBLIGATIONS. Buyer agrees to
perform all of Seller's obligations under the Customer Contracts, Related
Approvals, Permits and other agreements, only to the extent such obligations
first mature and are required to be performed subsequent to the close of
business on the date of Closing. In addition Buyer hereby: (i) assumes all of
the liabilities reflected in Actual Net Working Capital; (ii) assumes, and
agrees to pay, for the cost of the remediation required by any governmental
agency as of the Closing Date with respect to the Calahan Land and Calahan
Facility; (iii) assumes all costs associated with the removal of existing
construction/demolition debris on the Frederick Land; (iv) assumes all costs
associated with the PCB containing materials delivered by Safety Kleen to the
Frederick Facility; (v) assumes all costs related to the environmental condition
of the Kansas City Land; and (vi) assumes all costs related to the environmental
condition of the Land except those incurred as a result of a breach of a
representation by Seller or Seller's Parent set forth in Article 5 hereof.

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ARTICLE 11. INDEMNIFICATION

SECTION 11.2. INDEMNIFICATION BY SELLER'S PARENT AND SELLER. Seller
and Seller's Parent agree that they will each, jointly and severally, indemnify,
defend (as to third party claims only), protect and hold harmless Buyer, its
officers, shareholders, directors, divisions, subdivisions, affiliates,
subsidiaries, parent, agents, employees, successors and assigns at all times
from and after the date of this Agreement from and against all liabilities,
claims, damages, actions, suits, proceedings, demands, assessments, adjustments,
penalties, losses, costs and expenses whatsoever (including specifically, but
without limitation, court costs, reasonable attorneys' fees and expenses and
expenses of investigation) whether equitable or legal, matured or contingent,
known or unknown, foreseen or unforeseen, ordinary or extraordinary, patent or
latent, whether arising out of occurrences prior to, at or after the date of
this Agreement, incurred as a result of or incident to: (a) any material breach
of, misrepresentation in, untruth in or inaccuracy in the representations and
warranties by Seller or Seller's Parent (including, without limitation, those
relating to Seller's environmental compliance), set forth herein or in the
Schedules, Exhibits or certificates attached hereto or delivered pursuant
hereto; (b) nonfulfillment or nonperformance, in any material respect, of any
agreement, covenant or condition on the part of

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Seller's Parent or Seller made in this Agreement; (c) the matters set forth in
Section 10.1; or (d) any claim by a third party that, if true, would mean that a
condition for indemnification set forth in subsections (a) through (c) of this
Section 11.2 had been satisfied.

SECTION 11.3. INDEMNIFICATION BY BUYER. Buyer agrees that it will
indemnify, defend (as to third party claims only), protect and hold harmless
Seller and Seller's Parent at all times from and after the Closing Date from and
against all liabilities, claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, penalties, losses, costs and expenses whatsoever
(including specifically, but without limitation, court costs, reasonable
attorneys' fees and expenses and expenses of investigation) whether equitable or
legal, matured or contingent, known or unknown, foreseen or unforeseen, ordinary
or extra-ordinary, patent or latent, incurred by Seller or Seller's Parent as a
result of or incident to: (i) any material breach of, misrepresentation in,
untruth in or inaccuracy in the representations and warranties set forth herein,
or in the Schedules or certificates attached hereto or delivered pursuant hereto
by Buyer; (ii) nonfulfillment or nonperformance, in any material respect, of any
agreement, covenant or condition on the part of Buyer made in this Agreement
(including, without limitation, the covenant to perform post-Closing obligations
as set forth in Section 10.2); (iii) any liability or obligation relating to the
operation of the Business after the Closing; (iv) any claim by a third party
that, if true, would mean that a condition for indemnification set forth in
subsections (i) or (ii) of this Section 11.3 had been satisfied; (v) any matter
as to which Seller's Parent or Seller does not have an indemnification
obligation to Buyer under Section 11.2 hereof; and (vi) any loss suffered by
Seller or Seller's Parent relating to the fact that the Permits were not
transferred on the Closing Date or any operation of the Assets by Buyer without
appropriate Permits.

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SECTION 11.4. LIMITATION ON LIABILITY. (a) The indemnification
obligations set forth in this Article 11 shall apply only if a Closing
occurs and then only after the aggregate amount of such obligations
exceeds $600,000, at which time the indemnification obligations shall be
effective as to all amounts, including the initial $600,000. Further, the
indemnification obligations set forth in this Article 11 shall be limited
to an aggregate amount of $27,900,000. Notwithstanding the foregoing
Buyer's obligation for indemnity in Sections 11.3(iii) and (vi) apply
without regard to the cap or the basket contained in this Section 11.4.

(b) Notwithstanding anything else to the contrary in this Agreement,
the indemnification obligations set forth in this Article shall be limited
to claims as to which the Indemnified Party has given the Indemnifying
Party written notice thereof, stating in reasonable detail the basis for
indemnification hereunder, on or prior to the expiration of the applicable
survival period set forth in Section 11.1.

(c) Notwithstanding anything else in this Agreement, in no event
shall the indemnification obligations under this Article 11 with respect
to any environmental matter exceed the cost reasonably necessary to comply
with the least stringent remediation standard necessary to satisfy the
governmental agency requiring the remediation consistent with the subject
Land's current use.

(d) Notwithstanding anything to the contrary in this Agreement, no
claim shall give rise to an indemnification obligation of Seller unless it
exceeds $5,000.

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such a claim or wishes to make such a claim (whether or not related to a
Third Party Claim), then the Indemnified Party shall promptly notify each
Indemnifying party thereof in writing; provided, however, that no delay on
the part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any obligation hereunder unless
(and then solely to the extent) the Indemnifying Party is thereby
prejudiced.

(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against a Third Party Claim with counsel of its choice
satisfactory to the Indemnified Party so long as (i) the Indemnifying
Party notifies the Indemnified Party in writing within a reasonable time
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety (except for applicable baskets and deductibles) of
any adverse consequences (which will include, without limitation, all
losses, claims, liens, and attorneys' fees and related expenses) the
Indemnified Party may suffer resulting from, arising out of, relating to,
in the nature of, or caused by the Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with evidence acceptable
to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill
its indemnification obligations hereunder, (iii) the Third Party Claim
involves only monetary damages and does not seek an injunction or
equitable relief or involve the possibility of criminal penalties, and
(iv) the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.

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any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (which will not be unreasonably
withheld) and (iii) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party
(which will not be unreasonably withheld) unless there is a complete
discharge of the claim.

(d) In the event or to the extent that any of the conditions set
forth in Section 11.5(b) above is or becomes unsatisfied, however, (i) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the Third Party
Claim and any matter it may deem appropriate in its sole discretion and
the Indemnified Party need not consult with, or obtain any consent from,
any Indemnifying Party in connection therewith (but will keep the
Indemnifying Party reasonably informed regarding the progress and
anticipated cost thereof), (ii) the Indemnifying Party will reimburse the
Indemnified Party promptly and periodically for the cost of defending
against the Third Party Claim (including attorneys' fees and expenses),
(iii) the Indemnifying Party will remain responsible for any adverse
consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim to
the fullest extent provided in this Section 11, and (iv) the Indemnifying
Party shall be deemed to have waived any claim that its indemnification
obligation should be reduced because of the manner in which the counsel
for the Indemnified Party handled the Third Party Claim.

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assist it in assessing, addressing or otherwise resolving the
matter for which indemnification is sought.

(ii) Buyer agrees to retain all documents with respect to all matters
as to which indemnity may be sought under Section 11.2. Before disposing
of or otherwise destroying any such documents, Buyer will give reasonable
notice to such effect and deliver to Seller, upon its request, a copy of
any such documents. In addition, each party to this Agreement agrees to
use its reasonable efforts to cause its employees to cooperate with and
assist Seller in connection with any matter for which indemnity is sought
by Buyer hereunder.

(iii) (a) Except if and to the extent required by Applicable Laws and
subject to this Section 11.6(iii), Buyer and Seller each acknowledges,
warrants and agrees that it will not initiate any action with any third
party, including any governmental agency, which could reasonably be
expected to lead to a Third Party Claim against the other; and (b) if
either party believes that a disclosure, communication, or report is
required to be made under any Applicable Law relating to any matter for
which indemnification has been or may be sought under Section 11.2, it
will give the other party prior written notice of the basis for that
belief, including a reference to the specific Applicable Law which the
party believes requires such disclosure, communication or report, and the
nature and content of the proposed disclosure, communication or report
which the party believes is required to be made.

(iv) Buyer agrees that it will, as soon as practical, notify Seller of
any contact, whether written, verbal, or in person, by or with any
governmental agency, agency representative, or any other party regarding
Seller's activities at or any other issues related to the environmental
condition or compliance status of the Land, the Assets or the Business.
This provision will be effective through the end of the third year after
the Closing Date.

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ARTICLE 12. EXCLUSIVITY

This Agreement contains the exclusive agreement of Seller and Buyer
with respect to the matters covered under this Agreement and will be in lieu of,
and not in addition to, all other remedies which may exist at law, in equity or
under any other contract or agreement and neither Party may assert any claim
with respect to any matter against the other which is not authorized in this
Agreement as to the subject matter thereof.

ARTICLE 13. TERMINATION OF AGREEMENT

SECTION 13.1. TERMINATION BY BUYER. Buyer, by notice in the manner
hereinafter provided on or before the Closing Date, may terminate this Agreement
in the event of a breach by Seller's Parent or Seller in the observance or in
the due and timely performance of any of the agreements or conditions contained
herein on their part to be performed, and such breach shall not have been cured
on or before the Closing Date.

SECTION 13.2. TERMINATION BY SELLER. Seller may, by notice in the
manner hereinafter provided on or before the Closing Date, terminate this
Agreement in the event of a breach by Buyer in the observance or in the due and
timely performance of any of the covenants, agreements or conditions contained
herein on its part to be performed, and such breach shall not have been cured on
or before the Closing Date.

SECTION 13.3. REMEDIES IN THE EVENT OF BREACH. In addition to the
termination rights provided in this Article 13, if either party breaches this
Agreement prior to Closing, the other party shall have all other remedies
available at law or under this Agreement.

ARTICLE 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION

SECTION 14.1. NONDISCLOSURE BY SELLER AND SELLER'S PARENT. Seller
and Seller's Parent recognize and acknowledge that they had in the past,
currently have, and in the future may possibly have, access to certain
confidential information of Buyer, such as lists of customers, operational
policies, and pricing and

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cost policies that are valuable, special and unique assets of Buyer and its
businesses. Seller and Seller's Parent each agree that, except as may be
required by Applicable Laws or other legal process, they will not disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except to authorized
representatives of Buyer, unless such information becomes known to the public
generally through no fault of Seller or Seller's Parent. In the event of a
breach or threatened breach by Seller or Seller's Parent of the provisions of
this Section, Buyer shall be entitled to an injunction restraining such party
from disclosing, in whole or in part, such confidential information. Nothing
herein shall be construed as prohibiting Buyer from pursuing any other available
remedy for such breach or threatened breach, including, without limitation, the
recovery of damages. The provisions of this Section shall apply at all times
prior to the Closing Date and for a period of one year following the termination
of this Agreement without a Closing having occurred.

SECTION 14.2. NONDISCLOSURE BY BUYER. Buyer recognizes and
acknowledges that it has in the past, currently has, and prior to the Closing
Date, will have access to certain confidential information of Seller, such as
lists of customers, operational policies, and pricing and cost policies that are
valuable, special and unique assets of Seller. Buyer agrees that it will not,
except as may be required by Applicable Laws or valid legal process, disclose
such confidential information to any person, firm, corporation, association, or
other entity for any purpose or reason whatsoever, prior to the Closing Date,
except to authorized representatives of Seller, unless such information becomes
known to the public generally through no fault of Buyer. In the event of a
breach or threatened breach by Buyer of the provisions of this Section, Seller
shall be entitled to an injunction restraining such party from disclosing, in
whole or in part, such confidential information. Nothing contained herein shall
be construed as prohibiting Seller from pursuing any other available remedy for
such breach or threatened breach, including, without limitation,

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the recovery of damages. The provisions of this Section shall apply at all times
prior to the Closing Date and for a period of one year following the termination
of this Agreement without a Closing having occurred.

ARTICLE 15. GENERAL

SECTION 15.1. ASSIGNMENT; BINDING EFFECT; AMENDMENT. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding upon and shall inure to the benefit of
the parties hereto, and the successors of Buyer, Seller and Seller's Parent.
This Agreement, upon execution and delivery, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and may
be modified or amended only by a written instrument executed by all parties
hereto.

SECTION 15.2. ENTIRE AGREEMENT. This Agreement is the final,
complete and exclusive statement and expression of the agreement among the
parties hereto with relation to the subject matter of this Agreement, it being
understood that there are no oral representations, understandings or agreements
covering the same subject matter as this Agreement. This Agreement supersedes,
and cannot be varied, contradicted or supplemented by evidence of any prior or
contemporaneous discussions, correspondence, or oral or written agreements of
any kind.

SECTION 15.3. COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original and all of which together shall constitute but one and the same
instrument.

SECTION 15.4. NO BROKERS. Seller and Seller's Parent represent and
warrant to Buyer and Buyer represents to Seller and Seller's Parent that the
warranting party has had no dealings with any broker or agent so as to entitle
such broker or agent to a commission or fee in connection with the within
transaction. If for any reason a commission or fee shall become due, the party
dealing with such agent or broker shall pay such commission or fee and agrees to
indemnify and save harmless each of the other parties

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from all claims for such commission or fee and from all attorneys' fees,
litigation costs and other expenses relating to such claim.

SECTION 15.5. EXPENSES OF TRANSACTION. Whether or not the
transactions herein contemplated shall be consummated: (i) Buyer will pay the
fees, expenses and disbursements of Buyer and its agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments hereto and all other costs and expenses incurred in
the performance and compliance with all conditions to be performed by Buyer
under this Agreement; and (ii) Seller will pay the fees, expenses and
disbursements of Seller and Seller's Parent and their respective agents,
representatives, accountants and counsel incurred in connection with the subject
matter of this Agreement and any amendments hereto and all other costs and
expenses incurred in the performance and compliance with all conditions to be
performed by Seller's Parent and Seller under this Agreement. All such fees,
expenses and disbursements of Seller's Parent and Seller shall be paid by Seller
prior to the Closing so that the Assets will not be charged with or diminished
by any such fee, cost or expense. Seller's Parent and Seller represent and
warrant to Buyer that Seller's Parent and Seller have relied on their own
advisors for all legal, accounting, tax or other advice whatsoever with respect
to this Agreement and the transactions contemplated hereby.

SECTION 15.6. NOTICES. All notices or other communications required
or permitted hereunder shall be in writing and may be given by depositing the
same in United States mail, addressed to the party to be notified, postage
prepaid and registered or certified with return receipt requested, by overnight
courier or by delivering the same in person to such party.

(a) If to Buyer, addressed to it at:

USL City Environmental, Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060
ATTN: David Turkal

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<PAGE>
with a copy to:

U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060
ATTN: W. Gregory Orr

(b) If to Seller, addressed to it at:

USA Waste Services, Inc.
Park West Two
Suite 420
2000 Cliff Mine Rd.
Pittsburgh, PA 15275
ATTN: Regional Vice President

with a copy to:

USA Waste Services, Inc.
1001 Fannin Street
Suite 4000
Houston, TX 77002
Attn: General Counsel

Notice shall be deemed given and effective the day personally delivered, the day
after being sent by overnight courier, subject to signature verification, and
three business days after the deposit in the U.S. mail of a writing addressed as
above and sent first class mail, certified, return receipt requested, or when
actually received, if earlier. Any party may change the address for notice by
notifying the other parties of such change in accordance with this Section.

SECTION 15.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Michigan, without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Michigan or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Michigan.

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or default, or of or in any similar breach or default occurring later; nor shall
any waiver of any single breach or default be deemed a waiver of any other
breach of default occurring before or after that waiver.

SECTION 15.9. TIME OF THE ESSENCE. Time is of the essence of this
Agreement.

SECTION 15.10. CAPTIONS. The headings of this Agreement are inserted
for convenience only, shall not constitute a part of this Agreement or be used
to construe or interpret any provision hereof.

SECTION 15.11. SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as most
nearly to retain the intent of the parties. If such modification is not
possible, such provision shall be severed from this Agreement. In either case
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.

SECTION 15.12. CONSTRUCTION. The parties have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute shall be deemed to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" means including, without limitation. The parties intend that
representations, warranties and covenants contained herein shall have
independent significance. If any party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) that the party

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has not breached shall not detract from or mitigate the fact the party is in
breach of the first representation, warranty or covenant.

SECTION 15.13. STANDSTILL AGREEMENT. Unless and until this Agreement
is terminated pursuant to Article 13 hereof without the Closing having taken
place, Seller will not directly or indirectly solicit offers for the stock or
the assets of Seller or for a merger or consolidation involving Seller, or
respond to inquiries from, share information with, negotiate with or in any way
facilitate inquiries or offers from, third parties who express or who have
heretofore expressed an interest in acquiring Seller by merger, consolidation or
other combination or acquiring any of the Assets of Seller (the "Transaction
Discussions"); nor will Seller's Parent permit Seller to do any of the
foregoing. Buyer shall not engage in any Transaction Discussions with any person
or entity that operates in any aspect of the Business.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.

BUYER:

USL CITY ENVIRONMENTAL, INC.

BY:___________________________
ITS:__________________________

SELLER:

CITY MANAGEMENT CORPORATION

(EIN: ____________)

BY:___________________________
ITS:__________________________

SELLER'S PARENT:

USA WASTE SERVICES, INC.

BY:___________________________
ITS:__________________________

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EXHIBIT 10.67

FLORIDA

PURCHASE AND SALE OF ASSETS AGREEMENT

AMONG

USL CITY ENVIRONMENTAL SERVICES OF FLORIDA, INC.

AND

CITY MANAGEMENT CORPORATION

AND

USA WASTE SERVICES, INC.
<PAGE>
TABLE OF CONTENTS

SECTION PAGE

ARTICLE 1. SALE OF ASSETS.......................................... 2
Section 1.1. Description of Assets.......................... 2
Section 1.2. Excluded Assets................................ 3
Section 1.3. Non-Assignment of Certain Customer
Contracts............................... 4

ARTICLE 2. PURCHASE PRICE.......................................... 5
Section 2.1. Purchase Price................................. 5
Section 2.2. Adjustment to Purchase Price................... 5

ARTICLE 3. CLOSING................................................. 6
Section 3.1. Time and Place of Closing...................... 6
Section 3.2. Deliveries by Seller and Parent................ 6
Section 3.3. Deliveries by Buyer............................ 7
Section 3.4. Title Policies................................. 7
Section 3.5. Permitted Encumbrances......................... 7
Section 3.6. Surveys........................................ 8

ARTICLE 4. POST CLOSING COVENANTS.................................. 8
Section 4.1. Change of Name; Removal of

Identification.......................... 8

Section 4.2. Further Assurance.............................. 9
Section 4.3. Transition..................................... 9
Section 4.4. Post Closing Balance Sheet..................... 10
Section 4.5. Assignment of Rights........................... 10
Section 4.6. Cooperation Regarding Permits.................. 11
Section 4.7. Survival....................................... 11

ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF SELLER AND

PARENT.............................................................. 11
Section 5.1. Organization; Authority........................ 12
Section 5.2. Stock Ownership; Binding Effect................ 12
Section 5.3. Accounts Receivable............................ 12
Section 5.4. Proprietary Rights; Environmental

Documents............................... 13

Section 5.5. Real Property; Reporting....................... 14
Section 5.6. Personal Property.............................. 15
Section 5.7. Contracts...................................... 16
Section 5.8. Insurance Policies............................. 17
Section 5.9. Employees; Compensation........................ 17
Section 5.10. Employee Relations and Benefit Plans.......... 17
Section 5.11. Compliance with ERISA......................... 17
Section 5.12. Compliance with Law; No Conflicts............. 20
Section 5.13. Taxes......................................... 21
Section 5.14. Litigation.................................... 21
Section 5.15. Conduct of Seller's Business.................. 22
Section 5.16. Hazardous Materials; Disposal Sites........... 22
Section 5.17. Underground Storage Tanks..................... 23
Section 5.18. Absence of Certain Business Practices......... 23
<PAGE>
SECTION PAGE

ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER................. 23
Section 6.1. Corporate Organization......................... 23
Section 6.2. Corporate Authority............................ 24
Section 6.3. No Conflicts................................... 24
Section 6.4. Binding Agreement.............................. 24
Section 6.5. Condition of Assets............................ 25

ARTICLES 7. COVENANTS OF PARENT AND SELLER PRIOR TO
CLOSING............................................................. 25

ARTICLE 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND
SELLER.............................................................. 25

ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER............ 26
Section 9.1. Consents....................................... 26

ARTICLE 10. NON-ASSUMPTION OF LIABILITIES.......................... 26
Section 10.1. Non-Assumption of Liabilities................. 26
Section 10.2. Assumption of Certain Obligations............. 26

ARTICLE 11. INDEMNIFICATION........................................ 27

Section 11.1. Survival of Representations, Warranties
and Covenants........................... 27
Section 11.2. Indemnification by Parent and Seller.......... 27
Section 11.3. Indemnification by Buyer...................... 28
Section 11.4. Limitation on Liability....................... 28
Section 11.5. Procedure for Indemnification with
Respect to Third Party Claims........... 29

Section 11.6. Additional Procedures......................... 31

ARTICLE 12. EXCLUSIVITY............................................ 32

ARTICLE 13. TERMINATION OF AGREEMENT............................... 33
Section 13.1. Termination by Buyer.......................... 33
Section 13.2. Termination by Seller......................... 33
Section 13.3. Remedies In The Event of Breach......... 33

ARTICLE 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.............. 33
Section 14.1. Nondisclosure by Seller and Parent............ 33
Section 14.2. Nondisclosure by Buyer........................ 34

ARTICLE 15. GENERAL................................................ 35
Section 15.1. Assignment; Binding Effect; Amendment......... 35
Section 15.2. Entire Agreement.............................. 35
Section 15.3. Counterparts.................................. 35
Section 15.4. No Brokers.................................... 35
Section 15.5. Expenses of Transaction....................... 35
Section 15.6. Notices....................................... 36
Section 15.7. Governing Law................................. 37
Section 15.8. No Waiver..................................... 37

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Section 15.9. Time of the Essence........................... 38
Section 15.10. Captions..................................... 38
Section 15.11. Severability................................. 38
Section 15.12. Construction................................. 38
Section 15.13. Standstill Agreement......................... 39

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<PAGE>
PURCHASE AND SALE OF ASSETS AGREEMENT

THIS PURCHASE AND SALE OF ASSETS AGREEMENT (the "Agreement") is
executed and delivered as of May 8, 1998, among USL CITY ENVIRONMENTAL SERVICES
OF FLORIDA, INC., a Florida corporation ("Buyer"); CITY MANAGEMENT CORPORATION,
a Michigan corporation ("Seller"); UNIVERSAL TRANSIT PROPERTY COMPANY, a Florida
corporation ("Universal"); and USA WASTE SERVICES, INC., a Delaware corporation,
the sole stockholder of Seller (the "Parent").

WHEREAS, Seller operates a hazardous and non-hazardous commercial
liquid waste transportation, storage, treatment, processing and disposal
business in the Tampa, Florida area (the "Business");

WHEREAS, in connection with operating the Business, Universal
owns the real property upon which its hazardous commercial liquid waste
treatment, processing and disposal facility (the "Florida Transfer Facility") is
located in Tampa, Florida (the "Florida Transfer Facility Land") and is more
fully described on Exhibit A attached hereto and made a part hereof;

WHEREAS, also in connection with operating the Business,
Universal owns the real property upon which its office, vehicle parking and
maintenance facility (the "Florida Office Facility") is located in Tampa,
Florida (the "Florida Office Facility Land") and is more fully described on
Exhibit B attached hereto and made a part hereof (the Florida Transfer Facility
Land and the Florida Office Facility Land are sometimes collectively referred to
as the "Land");

WHEREAS, Buyer desires to purchase and acquire certain assets,
properties and contractual rights of Seller used in connection with the Business
and Seller desires to sell such assets, properties and contractual rights to
Buyer, all in accordance with the terms and conditions set forth in this
Agreement;
<PAGE>
WHEREAS, Parent holds all of the outstanding capital stock of
Seller and Buyer is unwilling to enter into this Agreement without the covenants
and promises of Parent herein set forth;

WHEREAS, as a material inducement to Seller entering into this
Agreement, Buyer's parent corporation, U S Liquids Inc., a Delaware corporation
("Buyers Parent") has agreed to guarantee the obligations of Buyer hereunder;
and

WHEREAS, Parent desires that Seller sell such assets, properties
and contractual rights to Buyer upon the terms and subject to the conditions set
forth in this Agreement and, in order to induce Buyer to enter into this
Agreement, is willing to make the covenants and promises herein set forth;

ARTICLE 1. SALE OF ASSETS
SECTION 1.1. DESCRIPTION OF ASSETS. Upon the terms and

subject to the conditions set forth in this Agreement, effective upon Closing
(as defined below) Seller and Universal hereby grant, convey, sell, transfer and
assign to Buyer the following assets, properties and contractual rights (to the
extent assignable) of Seller and Universal, wherever located, which are used in
the Business subject to the exclusions hereinafter set forth:

(a) all of Universal's right, title, estate and interest in and
to the Land and all buildings, fixtures and improvements located on the
Land;

(b) all permits, licenses, orders, consents and approvals of
Seller used in the Business (the "Permits"), to the extent the same may
be transferred by Seller to Buyer under Applicable Law;

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<PAGE>
(c) the equipment used or for use in the Business and listed on
Schedule 1.1(c), attached hereto and made a part hereof (the
"Equipment");

(d) the motor vehicles used or for use in the Business and owned
or leased by Seller, and all attachments, accessories and materials
handling equipment now located in or on such motor vehicles (the
"Rolling Stock"), as the same are more completely described by
manufacturer, model number and model year on Schedule 1.1(d), attached
hereto and made a part hereof;

(e) all non-proprietary manual and automated billing systems,
including, without limitation, programs used or for use in the Business;

(f) all of Seller's inventory of parts, tires and accessories of
every kind, nature, and description used or for use in the Business
located on the Land (the "Inventory");

(g) to the extent assignable under Applicable Law all contractual
rights of Seller with Seller's customers (whether oral or in writing)
relating to the operation of the Business (the "Customer Contracts"),
and all commitments, lists, leases, permits, licenses, consents,
approvals, franchises and other instruments relating to the Customer
Contracts (the "Related Approvals"). A complete and accurate list of the
Customer Contracts and the Related Approvals is set forth on Schedule
1.1(g), attached hereto and made a part hereof;

(h) (INTENTIONALLY DELETED);

(i) all right, title, and interest of Seller in and to the
telephone numbers (___) ___-____ and (___) ___-____ used in the
operation of the Business;

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<PAGE>
(j) all of Seller's shop tools, nuts and bolts relating to the
Business;

(k) all of Seller's existing documents, files and other material
related to all current or past customers of the Business;

(l) all trade accounts receivable of Seller related to the
Business ("Accounts Receivable") as of the close of business on the date
of Closing (as hereinafter defined); and

(m) all of the goodwill of the Business. All of the foregoing
assets, properties and contractual rights are hereinafter sometimes
collectively called the "Assets."

SECTION 1.2. EXCLUDED ASSETS. The parties agree that there shall
be excluded from the Assets the following which are not being sold to Buyer
pursuant to this Agreement (the "Excluded Assets"): (a) all cash or cash
equivalents on hand and on deposit with Seller, except as set forth in Section
2.2 hereof; (b) all, if any, real property and all buildings on and fixtures to
all real property of Seller other than set forth in Section 1.1(a); (c) all
contracts and contract rights and obligations of Seller (whether oral or in
writing) other than the Customer Contracts and the Permits and all commitments,
lists, leases, permits, licenses, consents, approvals, franchises and other
instruments not relating to the Customer Contracts, the Permits or the Business;
(d) all employment contracts to which Seller is a party or by which Seller is
bound; (e) the corporate and tax records and corporate seal of Seller; and (f)
all motor vehicles of Seller which are not Rolling Stock.

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<PAGE>
of-pocket expenses, shall use reasonable efforts to assist Buyer to obtain the
consent of such other party to such assignment to Buyer. If such consent is not
obtained, however, Seller shall have no liability or obligation to Buyer related
thereto and Seller shall cooperate with Buyer in any reasonable arrangement
designed to provide for Buyer the benefits under any such Customer Contract and
enforcement (without the obligation to actually commence litigation or other
dispute resolution process) for the account and benefit of Buyer, of any and all
rights of Seller against any other person arising out of the breach or
cancellation of any such Customer Contract by such other person or otherwise.
Attached hereto as Schedule 1.3 is a list of all Customer Contracts requiring
consent to their assignment.

ARTICLE 2. PURCHASE PRICE

SECTION 2.1. PURCHASE PRICE. Subject to Section 2.2, at the
Closing, Buyer shall pay to Seller for the Assets $1,600,000.

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<PAGE>
paid pursuant to Section 2.1 shall be decreased dollar for dollar for each
dollar the Actual Net Working Capital falls below $1.00 on the Closing Date. For
purposes of this Agreement, Actual Net Working Capital shall mean the aggregate
current assets of Seller related to the Business on the Closing Date minus the
aggregate of all current liabilities of Seller related to the Business on the
Closing Date, calculated in accordance with generally accepted accounting
principles ("GAAP"). In computing the adjustment amounts provided for in this
Section, the party owing payment to the other pursuant to this Section shall
make such payment in cash.

In the event of a dispute between the parties as to the Actual
Net Working Capital, the parties will have 30 days to resolve the dispute among
themselves. If the parties have not resolved such dispute within such 30-day
period, then the parties shall select an arbitrator who shall decide the dispute
within 30 days after being selected. If the parties cannot agree on an
arbitrator, then Buyer and Seller shall each select an arbitrator and the two
arbitrators so selected shall select a third arbitrator. The parties hereto each
agree to be bound by the decision of the arbitrator(s). In the event that three
arbitrators are chosen, a majority decision will be required. Each arbitrator
can be any natural person above the age of 18 and need not have any specific
qualifications. All costs of the arbitration shall be split equally between
Buyer and Parent.

ARTICLE 3. CLOSING

SECTION 3.1. TIME AND PLACE OF CLOSING. Unless otherwise agreed
to by the parties hereto, this transaction shall be closed upon the date hereof
(the "Closing"). The Closing shall take place at a time and location mutually
agreeable to Buyer and Seller. The date on which the Closing occurs shall be
referred to as the "Closing Date."

SECTION 3.2. DELIVERIES BY SELLER AND PARENT. Upon execution of
this Agreement, Seller and Parent shall deliver to

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<PAGE>
Buyer a noncompetition agreement duly and properly executed by Seller and
Parent, in form and substance satisfactory to Buyer and Seller (the
"Noncompetition Agreement"). Reasonably promptly after Closing, Seller,
Universal and Parent shall deliver to Buyer, all duly executed:

(a) covenant deeds (the "Deed") to the Land, subject only to the
Permitted Encumbrances (hereinafter defined) (Seller and Buyer shall
share equally the cost of all state, county, and other transfer or
documentary taxes and all recording fees incurred in connection with
recording each deed);

(b) a General Conveyance, Assignment and Bill of Sale in form and
substance satisfactory to Buyer and Seller, conveying, selling,
transferring and assigning to Buyer all of the Assets (the "Bill of
Sale");

(c) (INTENTIONALLY DELETED);
(d) all motor vehicle Certificates
of Title and registrations to the Rolling Stock;
(e) (INTENTIONALLY DELETED);
(f) (INTENTIONALLY DELETED);

(g) evidence of the payment in full of all debts encumbering the
Assets, including, without limitation, all obligations under any leases
for any of the Assets (including any lease-end buy-out provisions);

(h) such other separate instruments of sale, assignment, or
transfer reasonably required by Buyer; and

(i) all Disclosure Schedules (as hereinafter defined) and
exhibits to this Agreement.

SECTION 3.3. DELIVERIES BY BUYER. Upon execution of
this Agreement, Buyer shall deliver to Seller, all duly and
properly executed (where applicable):

(a) the purchase price provided in Section 2.1; and
(b) the Noncompetition Agreement.

SECTION 3.4. TITLE POLICIES. Buyer shall obtain one or more
extended coverage policies of title insurance from a

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<PAGE>
title company selected by Buyer and reasonably acceptable to Seller (the "Title
Company") in the amount to be agreed upon between Buyer and Seller with each of
the Title Company's standard printed exceptions deleted and including such
endorsements reasonably requested by Buyer (including, but not limited to,
comprehensive, access, contiguity, non-arbitration, going concern,
non-imputation and zoning endorsements), and that are available in the state
where the Land is located, insuring fee simple title, whichever is applicable,
to the Land subject only to the exceptions permitted by Section 3.5 hereof (the
"Title Policies"). Such Title Policies shall be obtained by Buyer post-Closing.
Seller and Buyer shall each pay one-half of the costs associated with the
delivery of the Title Policies to Buyer.

SECTION 3.5. PERMITTED ENCUMBRANCES. The Title Policies shall
insure Buyer's interest in the Land to be free and clear of all encumbrances
whatsoever except the Permitted Encumbrances. For purposes hereof, "Permitted
Encumbrances" shall mean and include: (i) zoning ordinances and regulations and
building and use restrictions; (ii) real estate taxes and assessments, both
general and special, which are a lien but which are not yet due and payable at
the Closing Date; (iii) easements, encumbrances, covenants, conditions,
reservations, restrictions and any other matters of record; and (iv) any matter
which would be disclosed by an accurate survey. Buyer and Seller shall each pay
one-half of the costs associated with the delivery of the Title Policies to
Buyer. In addition, Seller shall pay to remove any mortgages or liens of a
monetary nature that are of record against any portion of the Land.

SECTION 3.6. SURVEYS. Buyer shall obtain for its use and for the
use of the Title Company in connection with the issuance of the Title Policies,
one or more current and complete surveys of the Land, made on the ground by a
competent registered surveyor, showing: (a) the exact boundary lines of the
Land; (b) the location thereon of all, if any, buildings, improvements, roads,
and easements now existing; (c) the number of acres in the

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<PAGE>
Land; (d) the location of any buildings, fences or other improvements which
encroach on the Land; (e) the location of any improvements on the Land which
encroach on any neighboring property; (f) all building lines established in
respect of the Land; and (g) all public access to the Land, and representing
that the boundaries of the Land are contiguous with the boundaries of all
adjoining parcels (the "Surveys"). The Surveys shall be obtained by Buyer
post-Closing and shall be delivered to Buyer and the Title Company with
certification to each entity by the surveyor and also together with such
additional supporting reports and other certificates as the Title Company may
require to enable the Title Company to delete its standard survey exceptions
from the Title Policies. Buyer and Seller shall each pay one-half of the costs
of the Surveys. In no event shall the failure of the Title Company to deliver
any title work, or the Title Policies or of any surveyor to deliver any Survey
delay Closing.

ARTICLE 4. POST CLOSING COVENANTS

SECTION 4.1. CHANGE OF NAME; REMOVAL OF IDENTIFICATION.

(a) Within 30 days after Closing, Buyer shall take all
necessary action to discontinue use of any business name that
includes the name of the Parent or Seller or any of their
affiliated companies.

(b) Within six months after the Closing, Buyer shall remove from
the assets all visible names, symbols, trade names, service marks and
logos of Seller or Parent or any of their affiliated companies.

SECTION 4.2. FURTHER ASSURANCE. From time to time on and after
the Closing and without further consideration, the parties hereto shall each
deliver or cause to be delivered to any other party at such times and places as
shall be reasonably requested, such additional instruments as any of the others
may reasonably request for the purpose of carrying out this Agreement

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<PAGE>
and the transaction contemplated hereby. Seller, also without further
consideration, agrees to cooperate with Buyer and to use its reasonable efforts
to have the present officers and employees of Seller cooperate on and after the
Closing Date in furnishing to Buyer information, evidence, testimony, and other
assistance in connection with obtaining all necessary permits and approvals and
in connection with any actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Closing
Date. Seller shall not be obligated in any event to incur out-of-pocket expenses
in connection with its performance under this Section 4.2.

SECTION 4.3. TRANSITION. Neither Seller nor Parent will take any
action that is designed or intended to have the effect of discouraging any
customer or business associate of Seller from maintaining the same business
relationships with Buyer after the Closing that it maintained with Seller before
the Closing. Seller and Parent will refer all customer inquiries relating to the
Business to Buyer from and after the Closing. Further, Seller and Parent agree
that for a period of 90 days following the Closing Date, they will, without
additional consideration, assist Buyer with the orderly transition of the
operations of the Business from Seller to Buyer. Seller shall not be obligated
in any event to incur out-of-pocket expenses in connection with its performance
under this Section 4.3.

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<PAGE>
Seller all amounts received with respect to such accounts receivable. Any
payments received by Buyer from account debtors which had accounts receivable
outstanding on the Closing Date shall be first applied to the oldest outstanding
accounts receivable of such account debtor. Any accounts receivable that have
not been collected within 120 days of the Closing Date shall be assigned by
Buyer to Seller. Any dispute between the parties as to this Section 4.4 shall be
resolved in accordance with the procedure set forth in Section 2.2.

SECTION 4.5. ASSIGNMENT OF RIGHTS. From time to time on and after
the Closing and without consideration, Parent, to the extent it has the right to
assign and excluding any amount or matter with respect to which Parent may have
an outstanding indemnification obligation or other liability to Buyer or any
other party under this Agreement, shall assign to Buyer its rights of
indemnification that accrue as a result of any breach of a representation or
warranty contained in that certain Stock Purchase Agreement dated December 9,
1997, between USA Waste Services, Inc., City Management Holdings Trust, and
Trust Under Indenture dated August 26, 1997, between Anthony L. Soave, as donor,
and Anthony L. Soave and Yale Levin as Trustees, Anthony L. Soave and the
Corporations listed on Schedule A thereto (the "Predecessor Contract"). In the
event Parent is prohibited from assigning its rights, then Parent shall use its
best efforts to enforce such rights for, and on behalf of, Buyer.

SECTION 4.6. COOPERATION REGARDING PERMITS. Seller and Parent,
without incurring out-of-pocket expenses, shall cooperate with Buyer to
accomplish the prompt transfer of the Permits. Buyer agrees that any operation
of the Business without required Permits shall be at its own risk and that
Seller and Parent shall have no liability whatsoever if such Permits are not, or
may not be, transferred or obtained by Buyer.

SECTION 4.7. SURVIVAL. The covenants in this Article 4
shall survive the Closing in accordance with Article 11.

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<PAGE>
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT.
Seller, Parent and Universal (but only as to Section 5.1, 5.4, 5.5, 5.12, 5.14,
5.16 and 5.17), jointly and severally, and only with respect to the period of
time since January 14, 1998, represent and warrant to Buyer, that, to the best
of Seller's, Universal's and Parent's knowledge, the statements contained in
this Section 5 except as set forth in the schedules to the subsections of this
Section 5 to be delivered by Seller to Buyer (such schedules hereinafter
collectively referred to as the "Disclosure Schedules" and, individually, as a
"Disclosure Schedule"): (i) are correct and complete in all material respects as
of the date of this Agreement; (ii) will be correct and complete in all material
respects as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section 5);
and (iii) shall survive the Closing in accordance with Article 11 hereof. The
representations and warranties in this Article 5 do not apply with respect to
any facts or circumstances first arising before January 14, 1998 or to any
contrary facts or circumstances of which Buyer becomes aware prior to Closing if
Buyer proceeds to Closing.

Wherever a representation or warranty herein is qualified as having been
made "to the best of Seller's or Parent's knowledge", such phrase shall mean the
actual knowledge of the officers, directors, and senior and regional management
of Seller and Parent actively responsible for the operation of the Business.

SECTION 5.1. ORGANIZATION; AUTHORITY. (a) Seller is a corporation
duly organized, validly existing and in good standing under the laws of
the State of Michigan and is now and has been at all times since its
incorporation, duly authorized, and qualified and licensed under all
laws, regulations, ordinances and orders of public authorities to carry
on its businesses in the places and in the manner as conducted at the
time such activities were conducted except

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for where failure to be so authorized, qualified or licensed would not
have a material adverse affect on the Business.

(b) Seller and Parent each has full legal right, power and
authority (corporate and otherwise) to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. On or before
the Closing, all corporate action of Seller and Parent necessary to
approve the sale of the Assets by Seller will have been taken, including
director and shareholder approvals, if necessary.

SECTION 5.2. STOCK OWNERSHIP; BINDING EFFECT. The authorized
capital stock of Seller consists solely of 50,000 shares of voting common stock
of which 1001 shares are issued and outstanding. All of the issued and
outstanding shares of Seller are owned of record and beneficially by Parent and
are free and clear of all liens, security interests, encumbrances, adverse
claims, pledges, equities and other restrictions whatsoever. This Agreement is
the valid and binding obligation of Seller and Parent, enforceable against them
in accordance with its terms.

SECTION 5.4. PROPRIETARY RIGHTS; ENVIRONMENTAL DOCUMENTS. (i)
Attached as Schedule 5.4(i) is a complete and accurate list and summary
description as of the date hereof of all material Permits, permit
applications, titles (including motor vehicle titles and current
registrations), fuel permits, licenses, and franchises, currently owned
or held by Seller. None of which Permits, permit applications, titles
(including motor vehicle titles and current registrations), fuel
permits, licenses, and franchises have been claimed to, or to the best
of Seller's and Parent's

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<PAGE>
knowledge, infringe on the rights of others and all of which are now
valid, in good standing and in full force and effect. Except as set
forth on Schedule 5.4(i), such Permits, permit applications, titles
(including motor vehicle titles and current registrations), fuel
permits, licenses, and franchises, are adequate for the operation of the
Business as presently constituted; and

(ii) Seller has, as of the date of this Agreement, made available to
Buyer for its inspection all presently held records, correspondence,
reports, notifications, permits, pending permit applications, licenses
and pending license applications, environmental impact studies,
assessments and audits and all notifications from governmental agencies
and any other person or entity and any other documents of Seller in its
possession relating to: (a) each material violation of Applicable Laws
(hereinafter defined) by Seller relating to the Land, Business or the
Assets and all, if any, claims thereof; (b) the present or past
environmental compliance of Seller relating to the Land, Business or the
Assets; (c) the present or past condition of the Land; (d) the
discharge, leakage, spillage, transport, disposal or release of any
Hazardous Material (as hereinafter defined) into the environment by
Seller on or at the Land; and (e) land use and access approvals relative
to any portion of the Land (collectively, the "Environmental
Documents").

SECTION 5.5. REAL PROPERTY; REPORTING.

(i) Universal has good, fee simple title to the Land except for
Permitted Encumbrances. Except as set forth on Schedule 5.5(i):

(a) At all times since January 14, 1998, the Florida
Transfer Facility Land has been fully licensed, permitted and
authorized for the operation of the Business as currently
conducted, in all material respects, under all applicable zoning
restrictions and land use requirements (the "Zoning Laws").

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(b) The Land is usable for its current uses and can be
used by Buyer after the Closing for such uses without materially
violating any Zoning Law, and such uses are legal conforming
uses. To the best of Seller's and Parent's knowledge, there are
no proceedings or amendments pending and brought by or threatened
by, any third party which would result in a material change in
the allowable uses of the Land or which would modify the right of
Seller to use the Land for its current uses after the Closing
Date.

(c) Seller has made available to Buyer all engineering,
geologic and other similar reports, documentation and maps
relating to the Land in the possession or control of Seller,
Universal, or Parent.

(d) (INTENTIONALLY DELETED).

(e) No third party has a present or future right to
possession of all or any part of the Land.

(f) There are no pending or, to the best of Seller's,
Universal's, and Parent's knowledge, threatened condemnation or
eminent domain proceedings affecting all or any part of the Land.

(ii) To the best of Seller's and Parent's knowledge, Seller has
provided to the government agencies requiring the same, all material
reports, notices, filings and other disclosures required by Applicable
Laws and all such reports, notices, filings and other documents were
complete and accurate in all material respects at the time provided to
said government agencies.

(iii) Seller does not lease any real property necessary for the
operation of the Business as currently operated.

(iv) Seller presently enjoys peaceful and quiet possession of the
Land.

SECTION 5.6. PERSONAL PROPERTY. (i) Attached as
Schedule 1.1(c) hereto is a complete and accurate list of all
Equipment. Each piece of Equipment is in good working

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order and has been maintained in a good and proper manner, ordinary wear
and tear excepted.

(ii) Listed on Schedule 1.1(d) hereto is a complete and accurate
list of all Rolling Stock. Each motor vehicle, attachment, accessory and
piece of materials handling equipment comprising the Rolling Stock is in
good working order and has been maintained in a good and proper manner,
ordinary wear and tear excepted.

(iii) All of the Assets are either owned by Seller, Universal or
leased under an agreement indicated on Schedule 5.6(iii). To the best of
Seller's and Parent's knowledge, all leases set forth on Schedule
5.6(iii) are in full force and effect and constitute valid and binding
agreements of the parties thereto (and their successors) in accordance
with their respective terms. No default by Seller, or to the best of
Seller's or Parent's knowledge, any other party to any of such leases
exists, or would exist, except for the passage of time or delivery of a
notice or both.

(iv) At the Closing, Seller shall have good and merchantable title
to the Assets (except the Land, in which Universal shall have good and
marketable title), free and clear of all debts, lease payments
(including lease-end buy-out payments), liens, encumbrances, security
interests, equities or restrictions whatsoever and, by virtue of the
grant, conveyance, sale, transfer, and assignment of the Assets
hereunder, Buyer shall receive good and merchantable title to the Assets
(except the Land, in which Buyer shall receive good and marketable title
in the Land upon properly recording the deed, subject to the Permitted
Encumbrances), free and clear of all debts, lease payments (including
lease-end buy-out payments), liens, encumbrances, security interests,
equities or restrictions whatsoever. The Assets constitute all of the
assets owned by Seller used in the Business and include all of the
permits, licenses, franchises, consents and other approvals necessary to

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operate the Business immediately before Closing as currently operated.

SECTION 5.7. CONTRACTS. Attached as Schedule 1.1(g) hereto is a
complete and accurate list as of the date hereof of the Customer Contracts and
Related Approvals, true and complete copies of which have been delivered to
Buyer. None of the Customer Contracts or Related Approvals listed on Schedule
1.1(g) have been modified, altered, terminated or otherwise amended and there
have been no waivers, oral agreements, representations or other statements with
relation to any agreements except as described in Schedule 1.1(g). Except as set
forth on Schedule 1.3, all Customer Contracts are (and will be immediately
following the Closing) in full force and effect and are valid, binding and
enforceable against the respective parties thereto in accordance with their
respective provisions and Seller is not in default in, nor to the best knowledge
of Seller and Parent has there occurred an event or condition (including
Seller's execution and delivery of or performance under this Agreement) which
with the passage of time or the giving of notice (or both) would constitute a
material default to be the best knowledge of Seller, with regard to the payment
or performance of any obligation under any Customer Contract; no claim of such a
default has been asserted in writing. Seller has not received any notice that
any person intends or desires to modify, waive, amend, rescind, release, cancel
or terminate any Customer Contract. To the best of Seller's or Parent's
knowledge, there is no material default by any other party to any contract,
commitment or other agreement attached as Schedule 1.1(g).

SECTION 5.8. INSURANCE POLICIES. Attached as Schedule 5.8 are
complete and accurate certificates evidencing insurance policies carried by
Seller on the Business, the Land or the Assets and an accurate list of all
insurance loss runs and workers' compensation claims received for the past three
policy years relating to such policies. All such insurance policies are in full
force and effect and shall remain in full force and effect through the Closing
Date. With respect to the Business,

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the Land, and the Assets during Seller's period of ownership, Seller's insurance
has never been cancelled and Seller has not been denied coverage.

SECTION 5.9. EMPLOYEES; COMPENSATION. Attached as Schedule 5.9 is
a complete and accurate list of all employees of Seller and the rate of
compensation of each as of the date hereof (including a breakdown of the portion
thereof attributable to salary, bonus and other compensation, respectively).
There is no pending or, to the best of Seller's or Parent's knowledge,
threatened labor dispute involving Seller and any group of its employees nor has
Seller experienced any labor interruptions since January 14, 1998. Buyer shall
be under no obligation to hire any of Seller's employees.

SECTION 5.11. COMPLIANCE WITH ERISA. None of Seller, any
Controlled Group Member (as defined in Code Section 414(n)(6)(B)), nor any
business, subsidiary, division or operation acquired by Seller or a Controlled
Group Member in the last five years, ever have maintained or sponsored, or
contributed to, an employee pension benefit plan (as defined in ERISA Section
3(2)) which is subject to the provisions of Title IV of ERISA. Except for the
Plans, Seller does not maintain or sponsor, nor is a contributing employer to, a
pension, profit-

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sharing, deferred compensation, stock option, employee stock purchase or other
employee benefit plan, employee welfare benefit plan, or any other arrangement
with its employees. All Plans are in substantial compliance with all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other laws applicable to such Plans, and, in all material respects, have been
administered, operated and managed in substantial accordance with the governing
documents. All Plans that are intended to qualify (the "Qualified Plans") under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code")
have been determined by the Internal Revenue Service to be so qualified, and
copies of the current plan determination letters, most recent Form 5500, or, as
applicable, Form 5500-C/R filed with respect to each such Qualified Plan or
employee welfare benefit plan and most recent trustee or custodian report, are
included as part of Schedule 5.11 hereof. To the extent that any Qualified Plans
have not been amended to comply with the laws and regulations applicable to such
Plan, the remedial amendment period permitting retroactive amendment of such
Qualified Plans has not expired and will not expire within 120 days after the
Closing Date. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, annual reports, summary annual reports,
actuarial reports, PBGC-1 Forms, audits or tax returns) have been timely filed
or distributed. None of: (i) Seller; or (ii) any Plan has engaged in any
transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA. No Plan has incurred an accumulated funding deficiency, as
defined in Section 412(a) of the Code and Section 302(1) of ERISA. Further:

(i) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to
and approval by the Internal Revenue Service;

(ii) with respect to Plans which qualify as "group health plans"
under Section 4980B of the Internal Revenue

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<PAGE>
Code and Section 607(1) of ERISA and related regulations (relating to
the benefit continuation rights imposed by "COBRA"), Seller has complied
(and on the Closing Date will have complied), in all respects with all
reporting, disclosure, notice, election and other benefit continuation
requirements imposed thereunder as and when applicable to such plans,
and Seller has no (and will not incur any) direct or indirect liability
and Seller is not (and will not be) subject to any loss, assessment,
excise tax penalty, loss of federal income tax deduction or other
sanction, arising on account of or in respect of any direct or indirect
failure by Seller, any time prior to the Closing Date to comply with any
such federal or state benefit continuation requirement, which is capable
of being assessed or asserted before or after the Closing Date directly
or indirectly against Seller with respect to such group health plans;

(iii) the Financial Statements reflect the approximate total pension,
medical and other benefit expense for all Plans for the periods covered
by the applicable Financial Statement, and no material funding changes
or irregularities are reflected thereon which would cause such Financial
Statements to be not representative of most prior periods;

(iv) attached hereto as Schedule 5.11(iv) is a copy of the claims
history under Seller's group health plan for the past three years;

(v) Seller has no (and will not incur any) retiree health care
obligations to its employees;

(vi) (INTENTIONALLY DELETED);

(vii) with respect to any Plan which qualifies as a group health
plan, such plan is fully insured and all premiums have been paid on a
timely basis and are paid in full as of the Closing Date or, to the
extent such plan is not fully insured, all self insured obligations have
been met as of the Closing Date and are fully reflected in the

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<PAGE>
plan's financial statements. To the extent that any of Seller's group
health plans are retrospectively rated, there are no liabilities capable
of assertion against Seller in respect of claims already incurred and
present.

SECTION 5.12. COMPLIANCE WITH LAW; NO CONFLICTS. Except
as set forth on Schedule 5.12:

(i) To the best of Parent's knowledge, as it relates to the
Assets or the Business, Seller has in the past complied in all material
respects with, and is now in material compliance with, all federal,
state and local statutes, laws, rules, regulations, orders, licenses,
permits (including, without limitation, zoning restrictions and land use
requirements) and all administrative and judicial judgments, rulings,
decisions and orders of any body having jurisdiction over Seller, the
Land or the Business (collectively, the "Applicable Laws"). Neither
Seller nor Parent has received any written notice that Seller is under
investigation or other form of review with respect to any Applicable Law
materially adversely affecting the Assets or the Business; and

(ii) the execution, delivery and performance of this Agreement, the
consummation of any transactions herein referred to or contemplated
hereby and the fulfillment of the terms hereof and thereof will not in
any material respect:

(a) conflict with, or result in a breach or violation of
the Articles of Incorporation or Bylaws of Seller;

(b) conflict with, or result in a breach under any
document, agreement or other instrument to which Seller or Parent
is a party, or result in the creation or imposition of any lien,
charge or encumbrance on any properties of Seller or Parent
pursuant to: (A) any law or regulation to which Seller or Parent,
or any of their respective properties are subject, or (B) any

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<PAGE>
judgment, order or decree to which Seller or Parent is bound or
any of their respective property is subject;

(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of
Seller; or

(d) except for the filings by Seller and Buyer required by
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and any consents or filings required
under any permit or Customer Contract, require the consent of, or
filing with, any governmental authority or agency or other third
party in order to remain in full force and effect. SECTION 5.13.
TAXES. Seller has filed, or will file, in

SECTION 5.14. LITIGATION. Except as set forth on Schedule 5.14,
there is no material claim, litigation, action, suit or proceeding,
investigation, formal arbitration, informal arbitration or mediation,
administrative, judicial or other review, pending or, to the best of Seller's or
Parent's knowledge, threatened, against Seller or Parent, relating to the

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<PAGE>
Assets or Business, at law or in equity, before any federal, state or local
court or regulatory agency, or other governmental or private authority; no
written notice of any of the above has been received by Seller or Parent. Also
listed on Schedule 5.14 are all instances where Seller is the plaintiff, or
complaining or moving party, under any of the above types of proceedings or
otherwise.

SECTION 5.15. CONDUCT OF SELLER'S BUSINESS.
(INTENTIONALLY DELETED).

SECTION 5.16. HAZARDOUS MATERIALS; DISPOSAL SITES.
Except as set forth on Schedule 5.16, to the best of Seller's and Parent's
knowledge, specifically with respect to the Business:

(i) Seller has generated, transported, stored, handled, recycled,
reclaimed, disposed of, or contracted for the disposal of, hazardous
materials, hazardous wastes, hazardous substances, toxic wastes or
substances, as those terms are defined by the Resource Conservation and
Recovery Act of 1976; the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"); the Clean Water Act;
the Toxic Substances Control Act; any comparable or similar state
statute applicable the Business; or the rules and regulations
promulgated under any of the foregoing, as each of the foregoing may
have been amended (collectively, "Hazardous Materials"), in substantial
compliance with all Applicable Laws.

(ii) No liens with respect to environmental liability have been
imposed against the Land or against Seller related to the Assets, the
Business or the Land under CERCLA, any comparable state statute
affecting the Business or other Applicable Law, and, to the best of
Parent's and Seller's knowledge, no facts or circumstances exist which
may reasonably be expected to give rise to the same. No portion of the
Land is listed on the CERCLIS list or the National Priorities List of
Hazardous Waste Sites or any similar list maintained by the states where
the Business is located.

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<PAGE>
Seller is not listed as a potentially responsible party under CERCLA in
connection with the Assets or the Business, any comparable state statute
or other Applicable Law, and Seller has not received a notice of such a
listing.

(iii) Set forth on Schedule 5.16 is a complete list of the names and
addresses of all disposal sites utilized by Seller relating to the
Assets or the Business, none of which sites is listed on the CERCLIS
list or the National Priorities List of hazardous waste sites or any
comparable state list.

(iv) There have been no spills, leaks, deposits or other releases
into the environment or onto or under the Land of any Hazardous
Materials.

SECTION 5.17. UNDERGROUND STORAGE TANKS. Except as set forth on
Schedule 5.17, the Land does not contain any underground or above-ground storage
tanks containing Hazardous Materials. All above and below ground tanks currently
in use on the Land are being used and maintained in accordance with all
Applicable Laws.

SECTION 5.18. ABSENCE OF CERTAIN BUSINESS PRACTICES. To the best
of Seller's or Parent's knowledge, neither Seller nor Parent has ever made,
offered or agreed to offer anything of value to any employees of any customers
of Seller for the purpose of attracting business to Seller or any foreign or
domestic governmental official, political party or candidate for government
office or any of their respective employees or representatives, nor have they
otherwise taken any action which would cause it to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended.

ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer
represents and warrants that the statements contained in this Section 6: (i) are
correct and complete, in all material respects, as of the date of this
Agreement; (ii) will be correct and complete, in all material respects, as of
the

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<PAGE>
Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 6); and (iii)
shall survive the Closing in accordance with Article 11.

SECTION 6.1. CORPORATE ORGANIZATION. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Michigan. Buyer is duly authorized, qualified and licensed under all
applicable laws, regulations and ordinances of public authorities to carry on
its businesses in the places and in the manner as now conducted except for where
the failure to be so authorized, qualified or licensed would not have a material
adverse affect on such businesses.

SECTION 6.3. NO CONFLICTS. The execution, delivery and
performance of this Agreement, the consummation of any transactions herein
referred to or contemplated hereby and the fulfillment of the terms hereof and
thereof will not:

(i) conflict with, or result in a breach or violation of
the Articles of Incorporation or Bylaws of Buyer;

(ii) conflict with, or result in a material breach under any
document, agreement or other instrument to which Buyer is a party, or
result in the creation or imposition of any lien, charge or encumbrance
on any properties of Buyer pursuant to: (A) any law or regulation to
which Buyer or any of its property is subject, or (B) any judgment,
order or decree to which Buyer is bound or any of its property is
subject;

(iii) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of Buyer;
or

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<PAGE>
(iv) except for the filings by Seller and Buyer required by the HSR
Act and any consents or filings required under any Permit or Customer
Contract, require the consent of, or the filing with any governmental
authority or agency or any other third party in order to remain in full
force and effect.

SECTION 6.4. BINDING AGREEMENT. This Agreement is the binding and
valid obligation of Buyer, enforceable against it in accordance with its terms.

SECTION 6.5. CONDITION OF ASSETS. (i) Buyer acknowledges,
warrants and agrees that, prior to the Closing Date, it has had the
opportunity to and has examined and investigated the nature,
environmental condition and compliance status of the Assets, including,
but not limited to, the Land and the Business. Except as set forth in
Article 5, neither Seller, nor any agent, attorney, employee, or
representative of Seller, has made any representation whatsoever
regarding the nature, environmental condition or compliance status of
the Assets, the Land or the Business by Seller to Buyer or any part
thereof and that Buyer in executing, delivering and/or performing this
Agreement has not relied upon any statement and/or information
(including, but not limited to, any environmental report), to whomsoever
made or given directly, orally or in writing, by any individual, firm or
corporation. Buyer has entered into this Agreement based solely upon its
own inspection, evaluation, review and analysis.

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<PAGE>
the extent any obligation exists to record any such information or
notice thereof under Section 20116 of Part 201, such obligation will be
Buyer's, provided, however, that Buyer will not record any such
information or notice without providing Seller with prior written
notice.

ARTICLES 7. COVENANTS OF PARENT AND SELLER PRIOR TO CLOSING

(INTENTIONALLY DELETED)

ARTICLE 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND

SELLER (INTENTIONALLY DELETED)

ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

The obligations of Buyer hereunder are subject to the completion,
satisfaction or, at its option, waiver, on or prior to the Closing Date, of the
following condition:
SECTION 9.1. CONSENTS. All necessary notices to, consents of and
filings with any governmental authority or agency or other third party relating
to the consummation of the transactions contemplated herein to be made or
obtained by Seller or Parent shall have been made or obtained by Seller or
Parent, including, without limitation, all consents required under the HSR Act
(or the expiration of the required waiting period); and (b) Buyer shall have
determined, in its sole discretion, that all of the consents necessary under any
Customer Contract or other contract requiring consent to assignment by virtue of
the transaction contemplated hereunder has been obtained.

ARTICLE 10. NON-ASSUMPTION OF LIABILITIES

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<PAGE>
extraordinary, patent or latent, (i) any obligations of Seller arising prior to
the Closing Date under any agreement or arrangement between Seller and the
employees of Seller or any labor or collective bargaining unit representing any
such employees; or (ii) caused solely by occurrences prior to the Closing Date.

ARTICLE 11. INDEMNIFICATION

SECTION 11.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES
AND COVENANTS. All of the representations, warranties and covenants of any party
hereto contained in this Agreement and the liabilities and obligations of the
parties with respect thereto shall survive the Closing hereunder for a period of
two years after the Closing Date; provided, however, that the representations
and warranties in Sections 5.5, 5.16 and 5.17 shall survive for a period of
three years, the representations and warranties in Sections 5.1, 5.2, 5.13, 6.1
and 6.2 shall survive until the expiration of the applicable statute of
limitations period, and the rights set forth in Section 4.5 shall survive in
accordance with the time periods set forth in the Predecessor Contract.
SECTION 11.2. INDEMNIFICATION BY PARENT AND SELLER. Seller and
Parent agree that they will each, jointly and severally, indemnify, defend (as
to third party claims only), protect and hold harmless Buyer, its officers,
shareholders, directors, divisions, subdivisions, affiliates, subsidiaries,
parent, agents, employees, successors and assigns at all times from and after
the date of this Agreement from and against all liabilities, claims, damages,
actions, suits, proceedings, demands, assessments, adjustments, penalties,
losses, costs and expenses whatsoever (including

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<PAGE>
specifically, but without limitation, court costs, reasonable attorneys' fees
and expenses and expenses of investigation) whether equitable or legal, matured
or contingent, known or unknown, foreseen or unforeseen, ordinary or
extraordinary, patent or latent, whether arising out of occurrences prior to, at
or after the date of this Agreement, incurred as a result of or incident to: (a)
any material breach of, misrepresentation in, untruth in or inaccuracy in the
representations and warranties by Seller or Parent (including, without
limitation, those relating to Seller's environmental compliance), set forth
herein or in the Schedules, Exhibits or certificates attached hereto or
delivered pursuant hereto; (b) nonfulfillment or nonperformance, in any material
respect, of any agreement, covenant or condition on the part of Parent or Seller
made in this Agreement; (c) the matters set forth in Section 10.1; or (d) any
claim by a third party that, if true, would mean that a condition for
indemnification set forth in subsections (a) through (d) of this Section 11.2
had been satisfied.

SECTION 11.3. INDEMNIFICATION BY BUYER. Buyer agrees that it will
indemnify, defend (as to third party claims only), protect and hold harmless
Seller and Parent at all times from and after the Closing Date from and against
all liabilities, claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, penalties, losses, costs and expenses whatsoever
(including specifically, but without limitation, court costs, reasonable
attorneys' fees and expenses and expenses of investigation) whether equitable or
legal, matured or contingent, known or unknown, foreseen or unforeseen, ordinary
or extra-ordinary, patent or latent, incurred by Seller or Parent as a result of
or incident to: (i) any material breach of, misrepresentation in, untruth in or
inaccuracy in the representations and warranties set forth herein, or in the
Schedules or certificates attached hereto or delivered pursuant hereto by Buyer;
(ii) nonfulfillment or nonperformance, in any material respect, of any
agreement, covenant or condition on the part of Buyer made in this Agreement
(including, without

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limitation, the covenant to perform post-Closing obligations as set forth in
Section 10.2); (iii) any liability or obligation relating to the operation of
the Business after the Closing; (iv) any claim by a third party that, if true,
would mean that a condition for indemnification set forth in subsections (i) or
(ii) of this Section 11.3 had been satisfied; (v) any matter as to which Parent
or Seller do not have an indemnification obligation to Buyer under Section 11.2
hereof; and (vi) any loss suffered by Seller or Parent relating to the fact that
the Permits were not transferred on the Closing Date or any operation of the
Assets by Buyer without appropriate Permits.

SECTION 11.4. LIMITATION ON LIABILITY. (a) The indemnification
obligations set forth in this Article 11 shall apply only if a Closing
occurs and then only after the aggregate amount of such obligations
exceeds $16,000, at which time the indemnification obligations shall be
effective as to all amounts, including the initial $16,000. Further, the
indemnification obligations set forth in this Article 11 shall be
limited to an aggregate amount of $1,600,000. Notwithstanding the
foregoing Buyer's obligation for indemnity in Sections 11.3(iii) and
(vi) apply without regard to the cap or the basket contained in this
Section 11.4.
(b) Notwithstanding anything else to the contrary in this
Agreement, the indemnification obligations set forth in this Article
shall be limited to claims as to which the Indemnified Party has given
the Indemnifying Party written notice thereof, stating in reasonable
detail the basis for indemnification hereunder, on or prior to the
expiration of the applicable survival period set forth in Section 11.1.
(c) Notwithstanding anything else in this Agreement, in no event
shall the indemnification obligations under this Article 11 with respect
to any environmental matter exceed the cost reasonably necessary to
comply with the least stringent remediation standard necessary to
satisfy the governmental agency requiring the remediation consistent
with the subject Land's current use.

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<PAGE>
(d) Notwithstanding anything to the contrary in this Agreement,
no claim shall give rise to an indemnification obligation of Seller
unless it exceeds $5,000.

SECTION 11.5. PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD
PARTY CLAIMS. (a) If any third party shall notify a party to this
Agreement (the "Indemnified Party") with respect to any matter (a "Third
Party Claim") that may give rise to a claim for indemnification against
any other party to this Agreement (the "Indemnifying Party") or if any
party who may make a claim for indemnification under this Agreement
otherwise becomes aware of any matter that may give rise to such a claim
or wishes to make such a claim (whether or not related to a Third Party
Claim), then the Indemnified Party shall promptly notify each
Indemnifying party thereof in writing; provided, however, that no delay
on the part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any obligation hereunder
unless (and then solely to the extent) the Indemnifying Party is thereby
prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against a Third Party Claim with counsel of its choice
satisfactory to the Indemnified Party so long as (i) the Indemnifying
Party notifies the Indemnified Party in writing within a reasonable time
after the Indemnified Party has given notice of the Third Party Claim
that the Indemnifying Party will indemnify the Indemnified Party from
and against the entirety (except for applicable baskets and deductibles)
of any adverse consequences (which will include, without limitation, all
losses, claims, liens, and attorneys' fees and related expenses) the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim, (ii) the
Indemnifying Party provides the Indemnified Party with evidence
acceptable to the Indemnified Party that the Indemnifying Party will
have the financial resources to defend against the Third Party Claim and
fulfill its indemnification obligations hereunder,

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<PAGE>
(iii) the Third Party Claim involves only monetary damages and does not
seek an injunction or equitable relief or involve the possibility of
criminal penalties, and (iv) the Indemnifying Party conducts the defense
of the Third Party Claim actively and diligently.

(c) So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Section 11.5(b) above, (i)
the Indemnified Party may retain separate co-counsel at its sole cost
and expense and participate in the defense of the Third Party Claim,
(ii) the Indemnified Party will not consent to the entry of any judgment
or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party (which will
not be unreasonably withheld) and (iii) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of
the Indemnified Party (which will not be unreasonably withheld) unless
there is a complete discharge of the claim.

(d) In the event or to the extent that any of the conditions set
forth in Section 11.5(b) above is or becomes unsatisfied, however, (i)
the Indemnified Party may defend against, and consent to the entry of
any judgment or enter into any settlement with respect to, the Third
Party Claim and any matter it may deem appropriate in its sole
discretion and the Indemnified Party need not consult with, or obtain
any consent from, any Indemnifying Party in connection therewith (but
will keep the Indemnifying Party reasonably informed regarding the
progress and anticipated cost thereof), (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the cost
of defending against the Third Party Claim (including attorneys' fees
and expenses), (iii) the Indemnifying Party will remain responsible for
any adverse consequences the Indemnified Party may suffer resulting
from, arising out of, relating to, in the nature of, or caused by the
Third Party Claim to the fullest

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extent provided in this Section 11, and (iv) the Indemnifying Party
shall be deemed to have waived any claim that its indemnification
obligation should be reduced because of the manner in which the counsel
for the Indemnified Party handled the Third Party Claim.

SECTION 11.6. ADDITIONAL PROCEDURES. (i) In the event
indemnification is requested, the Indemnifying Party and its
representatives and agents will have access to the premises, books and
records of the indemnified party or parties seeking such indemnification
to the extent reasonably necessary to assist it in assessing, addressing
or otherwise resolving the matter for which indemnification is sought.
(ii) Buyer agrees to retain all documents with respect to all
matters as to which indemnity may be sought under Section 11.2. Before
disposing of or otherwise destroying any such documents, Buyer will give
reasonable notice to such effect and deliver to Seller, upon its
request, a copy of any such documents. In addition, each party to this
Agreement agrees to use its reasonable efforts to cause its employees to
cooperate with and assist Seller in connection with any matter for which
indemnity is sought by Buyer hereunder.
(iii) (a) Except if and to the extent required by Applicable Laws and
subject to this Section 11.6(iii), Buyer and Seller each acknowledges,
warrants and agrees that it will not initiate any action with any third
party, including any governmental agency, which could reasonably be
expected to lead to a Third Party Claim against the other; and (b) if
either party believes that a disclosure, communication, or report is
required to be made under any Applicable Law relating to any matter for
which indemnification has been or may be sought under Section 11.2, it
will give the other party prior written notice of the basis for that
belief, including a reference to the specific Applicable Law which the
party believes requires such disclosure, communication or report, and
the nature and content of the proposed disclosure,

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<PAGE>
communication or report which the party believes is required to be made.

(iv) Buyer agrees that it will, as soon as practical, notify Seller
of any contact, whether written, verbal, or in person, by or with any
governmental agency, agency representative, or any other party regarding
Seller's activities at or any other issues related to the environmental
condition or compliance status of the Land, the Assets or the Business.
This provision will be effective through the end of the third year after
the Closing Date.

ARTICLE 12. EXCLUSIVITY

This Agreement contains the exclusive agreement of Seller and
Buyer with respect to the matters covered under this Agreement and will be in
lieu of, and not in addition to, all other remedies which may exist at law, in
equity or under any other contract or agreement and neither Party may assert any
claim with respect to any matter against the other which is not authorized in
this Agreement as to the subject matter thereof.

ARTICLE 13. TERMINATION OF AGREEMENT

SECTION 13.1. TERMINATION BY BUYER. Buyer, by notice in the
manner hereinafter provided on or before the Closing Date, may terminate this
Agreement in the event of a breach by Parent or Seller in the observance or in
the due and timely performance of any of the agreements or conditions contained
herein on their part to be performed, and such breach shall not have been cured
on or before the Closing Date.

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<PAGE>
SECTION 13.3. REMEDIES IN THE EVENT OF BREACH. In addition to the
termination rights provided in this Article 13, if either party breaches this
Agreement prior to Closing, the other party shall have all other remedies
available at law or under this Agreement.

ARTICLE 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION

SECTION 14.1. NONDISCLOSURE BY SELLER AND PARENT.
Seller and Parent recognize and acknowledge that they had in the past, currently
have, and in the future may possibly have, access to certain confidential
information of Buyer, such as lists of customers, operational policies, and
pricing and cost policies that are valuable, special and unique assets of Buyer
and its businesses. Seller and Parent each agree that, except as may be required
by Applicable Laws or other legal process, they will not disclose such
confidential information to any person, firm, corporation, association or other
entity for any purpose or reason whatsoever, except to authorized
representatives of Buyer, unless such information becomes known to the public
generally through no fault of Seller or Parent. In the event of a breach or
threatened breach by Seller or Parent of the provisions of this Section, Buyer
shall be entitled to an injunction restraining such party from disclosing, in
whole or in part, such confidential information. Nothing herein shall be
construed as prohibiting Buyer from pursuing any other available remedy for such
breach or threatened breach, including, without limitation, the recovery of
damages. The provisions of this Section shall apply at all times prior to the
Closing Date and for a period of one year following the termination of this
Agreement without a Closing having occurred.
SECTION 14.2. NONDISCLOSURE BY BUYER. Buyer recognizes and
acknowledges that it has in the past, currently has, and prior to the Closing
Date, will have access to certain confidential information of Seller, such as
lists of customers, operational policies, and pricing and cost policies that are
valuable, special and unique assets of Seller. Buyer agrees that it will not,
except

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<PAGE>
as may be required by Applicable Laws or valid legal process, disclose such
confidential information to any person, firm, corporation, association, or other
entity for any purpose or reason whatsoever, prior to the Closing Date, except
to authorized representatives of Seller, unless such information becomes known
to the public generally through no fault of Buyer. In the event of a breach or
threatened breach by Buyer of the provisions of this Section, Seller shall be
entitled to an injunction restraining such party from disclosing, in whole or in
part, such confidential information. Nothing contained herein shall be construed
as prohibiting Seller from pursuing any other available remedy for such breach
or threatened breach, including, without limitation, the recovery of damages.
The provisions of this Section shall apply at all times prior to the Closing
Date and for a period of one year following the termination of this Agreement
without a Closing having occurred.

ARTICLE 15. GENERAL

SECTION 15.1. ASSIGNMENT; BINDING EFFECT; AMENDMENT. This
Agreement and the rights of the parties hereunder may not be assigned (except by
operation of law) and shall be binding upon and shall inure to the benefit of
the parties hereto, and the successors of Buyer, Seller and Parent. This
Agreement, upon execution and delivery, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and may
be modified or amended only by a written instrument executed by all parties
hereto.

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<PAGE>
any prior or contemporaneous discussions, correspondence, or oral or written
agreements of any kind.

SECTION 15.3. COUNTERPARTS. This Agreement may be
executed simultaneously in two or more counterparts, each of which
shall be deemed an original and all of which together shall
constitute but one and the same instrument.

SECTION 15.4. NO BROKERS. Seller and Parent represent and warrant
to Buyer and Buyer represents to Seller and Parent that the warranting party has
had no dealings with any broker or agent so as to entitle such broker or agent
to a commission or fee in connection with the within transaction. If for any
reason a commission or fee shall become due, the party dealing with such agent
or broker shall pay such commission or fee and agrees to indemnify and save
harmless each of the other parties from all claims for such commission or fee
and from all attorneys' fees, litigation costs and other expenses relating to
such claim.

SECTION 15.5. EXPENSES OF TRANSACTION. Whether or not the
transactions herein contemplated shall be consummated: (i) Buyer will pay the
fees, expenses and disbursements of Buyer and its agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments hereto and all other costs and expenses incurred in
the performance and compliance with all conditions to be performed by Buyer
under this Agreement; and (ii) Seller will pay the fees, expenses and
disbursements of Seller and Parent and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments hereto and all other costs and expenses incurred in
the performance and compliance with all conditions to be performed by Parent and
Seller under this Agreement. All such fees, expenses and disbursements of Parent
and Seller shall be paid by Seller prior to the Closing so that the Assets will
not be charged with or diminished by any such fee, cost or expense. Parent and
Seller represent and warrant to Buyer that Parent and Seller have relied on
their own advisors for all legal, accounting,

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<PAGE>
tax or other advice whatsoever with respect to this Agreement and the
transactions contemplated hereby.

SECTION 15.6. NOTICES. All notices or other communications
required or permitted hereunder shall be in writing and may be given by
depositing the same in United States mail, addressed to the party to be
notified, postage prepaid and registered or certified with return receipt
requested, by overnight courier or by delivering the same in person to such
party.

(a) If to Buyer, addressed to it at:
USL City Environmental Services of Florida, Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060
ATTN: David Turkal

with a copy to:

U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060
ATTN: W. Gregory Orr

(b) If to Seller, addressed to it at:

USA Waste Services, Inc.
Park West Two
Suite 420
2000 Cliff Mine Rd.
Pittsburgh, PA 15275
ATTN: Regional Vice President

with a copy to:

USA Waste Services, Inc.
1001 Fannin Street
Suite 4000
Houston, TX 77002
Attn: General Counsel

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<PAGE>
for notice by notifying the other parties of such change in accordance with this
Section.

SECTION 15.7. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of Florida,
without giving effect to any choice or conflict of law provision or rule
(whether of the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Florida.

SECTION 15.8. NO WAIVER. No delay of or omission in the exercise
of any right, power or remedy accruing to any party as a result of any breach or
default by any other party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed as a waiver of or acquiescence in any
such breach or default, or of or in any similar breach or default occurring
later; nor shall any waiver of any single breach or default be deemed a waiver
of any other breach of default occurring before or after that waiver.

SECTION 15.9. TIME OF THE ESSENCE. Time is of the essence of
this Agreement.

SECTION 15.10. CAPTIONS. The headings of this Agreement
are inserted for convenience only, shall not constitute a part of
this Agreement or be used to construe or interpret any provision
hereof.

SECTION 15.11. SEVERABILITY. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall, to the extent
possible, be modified in such manner as to be valid, legal and enforceable but
so as most nearly to retain the intent of the parties. If such modification is
not possible, such provision shall be severed from this Agreement. In either
case the validity, legality and enforceability of the remaining provisions of
this Agreement shall not in any way be affected or impaired thereby.

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<PAGE>
drafted jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local or
foreign statute shall be deemed to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" means including, without limitation. The parties intend that
representations, warranties and covenants contained herein shall have
independent significance. If any party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) that the party has not
breached shall not detract from or mitigate the fact the party is in breach of
the first representation, warranty or covenant.

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<PAGE>
SECTION 15.13. STANDSTILL AGREEMENT. Unless and until this
Agreement is terminated pursuant to Article 12 hereof without the Closing having
taken place, Seller will not directly or indirectly solicit offers for the stock
or the assets of Seller or for a merger or consolidation involving Seller, or
respond to inquiries from, share information with, negotiate with or in any way
facilitate inquiries or offers from, third parties who express or who have
heretofore expressed an interest in acquiring Seller by merger, consolidation or
other combination or acquiring any of the Assets of Seller ("Transaction
Discussions"); nor will Parent permit Seller to do any of the foregoing. Buyer
shall not engage in any Transaction Discussions with any person or entity that
operates in any aspect of the Business.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year first above written.

BUYER:

USL CITY ENVIRONMENTAL SERVICES
OF FLORIDA, INC.

BY:___________________________
ITS:__________________________

SELLER:

CITY MANAGEMENT CORPORATION
(EIN: ____________)

BY:___________________________
ITS:__________________________

UNIVERSAL:

UNIVERSAL TRANSIT PROPERTY
COMPANY
(EIN: _____________)

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<PAGE>
BY:___________________________
ITS:__________________________

PARENT:

USA WASTE SERVICES, INC.

BY:___________________________
ITS:__________________________

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EXHIBIT 10.68

STOCK PURCHASE AGREEMENT

AMONG

U S LIQUIDS INC.

UNITED WASTE SYSTEMS, INC.

AND

USA WASTE SERVICES, INC.
<PAGE>
TABLE OF CONTENTS

SECTION PAGE
- ------- ----

ARTICLE 1. DELIVERY OF SHARES; ENDORSEMENT OF COMPANY
STOCK.............................................................. 2
1.1. Delivery of Shares.................................... 2
1.2. Endorsement of Company Stock.......................... 3
1.3. Non-Assignment of Certain Contracts................... 3

ARTICLE 2. PURCHASE PRICE......................................... 3
2.1. Purchase Price........................................ 3
2.2. Adjustment to Purchase Price.......................... 3

ARTICLE 3. CLOSING................................................ 4
3.1. Time and Place of Closing............................. 4
3.2. Deliveries by Seller and Parent....................... 5
3.3. Deliveries by Buyer................................... 5
3.4. Title Policies........................................ 5
3.5. Permitted Encumbrances................................ 5
3.6. Surveys............................................... 6

ARTICLE 4. POST CLOSING COVENANTS................................. 6
4.1. Change of Name; Removal of Identification............. 6
4.2. Further Assurance..................................... 7
4.3. Transition............................................ 7
4.4. Taxes................................................. 8
4.5. 338(h)(10) Election................................... 8
4.6. Post Closing Balance Sheet............................ 9
4.7. Closing Date Actions.................................. 10
4.8. Transfer Facility Hauling Agreement................... 10
4.9. Resignations.......................................... 10
4.10. Delivery of Disclosure Schedules..................... 10
4.11. Other Transfer Documents............................. 10
4.12. Survival............................................. 10

ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF SELLER, PARENT
AND COMPANY........................................................ 11
5.1. Organization; Authority............................... 11
5.2. Stock Ownership; Absence of Adverse Claims............ 12
5.3. Capitalization........................................ 12
5.4. Accounts Receivable................................... 13
5.5. Proprietary Rights; Environmental Documents........... 13
5.6. Real Property; Reporting.............................. 14
5.7. Personal Property..................................... 16
5.8. Contracts............................................. 17
5.9. Insurance Policies.................................... 17
5.10. Employees; Compensation.............................. 18
5.11. Employee Plans....................................... 18
5.12. Compliance with ERISA................................ 18
5.13. Compliance with Law; No Conflicts.................... 21
5.14. Taxes................................................ 22
5.15. Litigation........................................... 22
5.16. Conduct of Business.................................. 23
<PAGE>
SECTION PAGE
- ------- ----

5.17. Bank Accounts; Depositories.......................... 23
5.18. Hazardous Materials.................................. 23
5.19. Storage Tanks........................................ 24
5.20. Absence of Certain Business Practices................ 24

ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER................ 24
6.1. Corporate Organization................................ 25
6.2. Authority............................................. 25
6.3. No Conflicts.......................................... 25
6.4. Binding Agreement..................................... 26

ARTICLE 7. COVENANTS OF PARENT AND SELLER PRIOR TO CLOSING........ 27

ARTICLE 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND
SELLER............................................................. 27

ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER........... 27

ARTICLE 10. ASSUMPTION OF LIABILITIES............................. 27
10.1. Non-Assumption of Liabilities........................ 27
10.2. Assumption of Obligations............................ 27

ARTICLE 11. INDEMNIFICATION....................................... 27
11.1. Survival of Representations, Warranties and
Covenants................................................... 27
11.2. Indemnification by Parent and Seller................. 27
11.3. Indemnification by Buyer............................. 28
11.4. Limitation on Liability.............................. 29
11.5. Procedure for Indemnification with Respect to
Third Party Claims.......................................... 30

ARTICLE 12. EXCLUSIVITY........................................... 33

ARTICLE 13. TERMINATION OF AGREEMENT.............................. 33
13.1. Termination by Buyer................................. 33
13.2. Termination by Seller................................ 33

ARTICLE 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION............. 34
14.1. Nondisclosure by Seller and Parent................... 34
14.2. Nondisclosure by Buyer............................... 34

ARTICLE 15. GENERAL............................................... 35
15.1. Assignment; Binding Effect; Amendment................ 35
15.2. Entire Agreement..................................... 35
15.3. Counterparts......................................... 36
15.4. No Brokers........................................... 36
15.5. Expenses of Transaction.............................. 36
15.6. Notices.............................................. 37

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<PAGE>
15.7. Governing Law........................................ 38
15.8. No Waiver............................................ 38
15.9. Time of the Essence.................................. 38
15.10. Captions............................................. 38
15.11. Severability......................................... 38
15.12. Construction......................................... 38
15.13. Standstill Agreement................................. 39

-iii-

<PAGE>
STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (the "Agreement") is executed and
delivered as of May 8, 1998, among U S LIQUIDS INC., a Delaware corporation
("Buyer"); UNITED WASTE SYSTEMS, INC., a Delaware corporation ("Seller"); and
USA WASTE SERVICES, INC., a Delaware corporation ("Parent").

WHEREAS, Seller is the sole shareholder of Northern A-1
Sanitation Services, Inc., a Michigan corporation (the "Company");

WHEREAS, Company operates a non-hazardous commercial liquid waste
transportation, storage, treatment, processing and disposal business in the
Kalkaska, Michigan area (the "Business");

WHEREAS, in connection with operating the Business, Company owns
the real property in Kalkaska, Michigan upon which its liquid waste treatment
plant operation (the "Treatment Facility") is located (the "Treatment Facility
Land"), which land is more fully described on Exhibit A attached hereto and made
a part hereof;

WHEREAS, also in connection with operating the Business Company
owns the real property in Kalkaska, Michigan consisting of approximately 9 acres
upon which its solidification pit (the "Solidification Facility"), a municipal
solid waste transfer station (the "MSW Facility"), and the office, shop and
storage yard ("Shop Facility") are located (collectively, the "Solidification
Land"), which land is more fully described on Exhibit B;

WHEREAS, also in connection with operating the Business Company
leases certain real property in Manistee, Michigan that it uses as an office and
for truck parking (the "Office Land") pursuant to a written lease with Asciome
Development Company (the "Office Lease"), which land is more fully described on
Exhibit C;

WHEREAS, also in connection with operating the Business Company
owns certain real property in Kalkaska, Michigan
<PAGE>
consisting of approximately 10 acres upon which the septage disposal field (the
"Septage Disposal Field") is located (the Septage Disposal Field Land) which
land is more fully described on Exhibit D;

WHEREAS, also in connection with operating the Business Company
owns the real property located in Montague, Michigan consisting of approximately
1 acre (the "Montague Land") that it uses as a dispatch office and for truck
parking (the "Montague Facility"), which land is more fully described on Exhibit
E (the Treatment Facility Land, Solidification Land, Office Land, Septage
Disposal Field Land and Montague Land are sometimes hereinafter collectively
referred to as the "Land");.

WHEREAS, Parent owns (directly or indirectly) all of the
issued and outstanding shares of the capital stock of Seller;

WHEREAS, Buyer desires to acquire all of the issued and
outstanding shares of the capital stock of Company from Seller;

WHEREAS, Buyer is unwilling to enter into this Agreement without
the covenants and promises of Parent herein set forth; and

WHEREAS, Parent desires that Buyer acquire all of the issued and
outstanding shares of the capital stock of Company upon the terms and subject to
the conditions set forth in this Agreement and, in order to induce Buyer to
enter into this Agreement, is willing to make the covenants and promises herein
set forth;

ARTICLE 1. DELIVERY OF SHARES; ENDORSEMENT OF COMPANY STOCK

1.1. DELIVERY OF SHARES. Upon the terms and subject to the
conditions set forth in this Agreement, Seller shall, at the Closing
(hereinafter defined), sell, assign, transfer and

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<PAGE>
deliver to Buyer certificates representing 100 shares of Company (the "Company
Stock"), which certificates represent all of the issued and outstanding capital
stock of Company. Seller shall transfer the Company Stock to Buyer free and
clear of all liens, security interests, encumbrances, adverse claims, pledges,
charges, voting trusts, equities and other restrictions on transfer of any
nature whatsoever (collectively, "Adverse Claims") other than restrictions
imposed by Applicable Law.

1.2. ENDORSEMENT OF COMPANY STOCK. Seller shall deliver at
Closing the certificates representing the Company Stock, duly endorsed in blank
by Seller or accompanied by stock powers duly endorsed in blank and with all
necessary transfer tax and other revenue stamps (if any), acquired at Seller's
expense, affixed and cancelled. Seller, at its sole expense, agrees to cure
(both before and after Closing) any deficiencies with respect to the endorsement
of the certificates or other documents of conveyance with respect to the Company
Stock or with respect to the stock powers accompanying the Company Stock.

1.3. NON-ASSIGNMENT OF CERTAIN CONTRACTS. Notwithstanding
anything to the contrary in this Agreement, to the extent that the sale of the
Company Stock hereunder shall constitute an indirect assignment of a contract,
lease or other agreement of Company, if any, requiring the consent of any third
party to the sale of Company Stock to Buyer, neither this Agreement nor any
action taken pursuant to its provisions shall constitute an indirect assignment
or an agreement to assign if such indirect assignment or attempted assignment
would constitute a breach thereof or result in the loss or diminution thereof;
provided, however, that in each such case, Seller, without incurring
out-of-pocket expenses, shall use reasonable efforts to assist Buyer to obtain
the consent of such other party to such indirect assignment to Buyer. If such
consent is not obtained, however, Seller have no liability or obligation to
Buyer related thereto.

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<PAGE>
ARTICLE 2. PURCHASE PRICE

2.1. PURCHASE PRICE. Subject to Section 2.2, at the Closing,
Buyer shall pay to Seller for the Company Stock the sum of $10,300,000.

2.2. ADJUSTMENT TO PURCHASE PRICE. The parties agree that the
purchase price was determined as if the net working capital of Company was going
to be $1.00 at the close of business on the Closing Date. Accordingly, the
parties agree that the purchase price set forth in this Article 2 shall be
adjusted (up or down) on the Adjustment Date (as defined in Section 4.6) to
reflect the actual net working capital of Company on the Closing Date (the
"Actual Net Working Capital"), as shown on the balance sheet to be prepared in
accordance with Section 4.6 hereof. If the Actual Net Working Capital of Company
so reflected is greater than $1.00 on the Closing Date, then the purchase price
paid pursuant to Section 2.1 shall be increased dollar for dollar for each
dollar the Actual Net Working Capital exceeds $1.00 on the Closing Date. If the
Actual Net Working Capital of Company so reflected is less than $1.00 on the
Closing Date, then the purchase price paid pursuant to Section 2.1 shall be
decreased dollar for dollar for each dollar the Actual Net Working Capital falls
below $1.00 on the Closing Date. For purposes of this Agreement, Actual Net
Working Capital shall mean the aggregate current assets of Company on the
Closing Date minus the aggregate of all current liabilities of Company on the
Closing Date, calculated in accordance with generally accepted accounting
principles ("GAAP"). In computing the adjustment amounts provided for in this
Section, the party owing payment to the other pursuant to this Section shall
make such payment in cash.

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<PAGE>
arbitrator, then Buyer and Seller shall each select an arbitrator and the two
arbitrators so selected shall select a third arbitrator. The parties hereto each
agree to be bound by the decision of the arbitrator(s). In the event that three
arbitrators are chosen, a majority decision will be required. Each arbitrator
can be any natural person above the age of 18 and need not have any specific
qualifications. All costs of the arbitration shall be split equally between
Buyer and Parent.

ARTICLE 3. CLOSING

3.1. TIME AND PLACE OF CLOSING. Unless otherwise agreed to by the
parties hereto, this transaction shall be closed upon the date hereof (the
"Closing"). The Closing shall take place at a time and location mutually
agreeable to Buyer and Seller. The date on which the Closing occurs shall be
referred to as the "Closing Date."

3.2. DELIVERIES BY SELLER AND PARENT. At the Closing, Seller and
Parent shall deliver to Buyer, all duly executed:

(a) the Company Stock as required by Section 1.1 hereof.

3.3. DELIVERIES BY BUYER. At the Closing, Buyer shall deliver to
Seller, all duly and properly executed (where applicable):

(a) the purchase price provided in Section 2.1; and
(b) a certified copy of resolutions of the director(s)

and shareholder(s) (if required) of Buyer authorizing the execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein.

3.4. TITLE POLICIES. Buyer shall obtain one or more extended
coverage policies of title insurance from a title company selected by Buyer and
reasonably acceptable to Seller (the "Title Company") in the amount to be agreed
upon between Buyer and Seller with each of the Title Company's standard printed
exceptions deleted and including such endorsements reasonably requested by Buyer
(including, but not limited to,

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<PAGE>
comprehensive, access, contiguity, non-arbitration, going concern,
non-imputation and zoning endorsements) and that are available in the state
where the Land is located, insuring leasehold or fee simple title, whichever is
applicable, to the Land subject only to the exceptions permitted by Section 3.5
hereof (the "Title Policies"). Such Title Policies shall be obtained by Buyer
post-Closing.

3.5. PERMITTED ENCUMBRANCES. The Title Policies shall insure
Buyer's interest in the Land to be free and clear of all encumbrances whatsoever
except the Permitted Encumbrances. For purposes hereof, "Permitted Encumbrances"
shall mean and include: (i) zoning ordinances and regulations and building and
use restrictions; (ii) real estate taxes and assessments, both general and
special, which are a lien but which are not yet due and payable at the Closing
Date; (iii) easements, encumbrances, covenants, conditions, reservations,
restrictions and any other matters of record; and (iv) any matter which would be
disclosed by an accurate survey. Buyer and Seller shall each pay one-half of the
costs associated with the delivery of the Title Policies to Buyer. In addition,
Seller shall pay to remove any mortgages or liens of a monetary nature that are
of record against any portion of the Land.

3.6. SURVEYS. Buyer shall obtain for its use and for the use of
the Title Company in connection with the issuance of the Title Policies, one or
more current and complete surveys of the Land, made on the ground by a competent
registered surveyor, showing: (a) the exact boundary lines of the Land; (b) the
location thereon of all, if any, buildings, improvements, roads, and easements
now existing; (c) the number of acres in the Land; (d) the location of any
buildings, fences or other improvements which encroach on the Land; (e) the
location of any improvements on the Land which encroach on any neighboring
property; (f) all building lines established in respect of the Land; (g) all
public access to the Land, and representing that the boundaries of the Land are
contiguous with the boundaries of all adjoining parcels (the "Surveys"). The
Surveys shall be obtained by Buyer post-

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<PAGE>
Closing, and shall be delivered to Buyer and the Title Company, together with
certification to each entity by the surveyor, and also together with such
additional supporting reports and other certificates as the Title Company may
require to enable the Title Company to delete its standard survey exceptions
from the Title Policies. Buyer and Seller shall each pay one-half of the costs
of the Surveys. In no event shall the failure of the Title Company to deliver
any title work, or the Title Policies or of any surveyor to deliver any Survey
delay Closing.

ARTICLE 4. POST CLOSING COVENANTS
4.1. CHANGE OF NAME; REMOVAL OF IDENTIFICATION.

(a) Within 30 days after Closing, Buyer shall take all
necessary action to cause Company to discontinue use of any business
name that includes the name of the Parent, Seller or any of their
affiliated companies.

(b) Within six months after the Closing, Buyer shall remove from
the assets all visible names, symbols, trade names, service marks and
logos of Parent.

4.2. FURTHER ASSURANCE. From time to time on and after the
Closing and without further consideration, the parties hereto shall each deliver
or cause to be delivered to any other party at such times and places as shall be
reasonably requested, such additional instruments as any of the others may
reasonably request for the purpose of carrying out this Agreement and the
transaction contemplated hereby. Seller also without further consideration,
agrees to cooperate with Buyer and to use its reasonable efforts to have the
present officers and employees of Company cooperate on and after the Closing
Date in furnishing to Buyer information, evidence, testimony, and other
assistance in connection with obtaining all necessary permits and approvals and
in connection with any actions, proceedings, arrangements or disputes of any
nature with respect to matters pertaining to all periods prior to the Closing
Date. Seller shall not be obligated in any event to incur out-of-pocket expenses
in connection with

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<PAGE>
its performance under this Section 4.2. Seller acknowledges and agrees that,
from and after the Closing, Buyer shall be entitled to possession of all
documents, books, records (including tax records), agreements and financial and
operating data of any sort of Company; provided, however, that per Seller's
written request Buyer shall promptly provide Seller with copies of any of such
documents, books, records (including tax records), agreements and financial and
operating data of the Company that Seller may reasonably require.

4.3. TRANSITION. Neither Seller nor Parent will take any action
that is designed or intended to have the effect of discouraging any customer or
business associate of Company from maintaining the same business relationships
with Buyer after the Closing that it maintained with Company before the Closing.
Seller and Parent will refer all customer inquiries relating to the Business to
Buyer from and after the Closing. Further, Seller and Parent agree that for a
period of 90 days following the Closing Date, they will, without additional
consideration, assist Buyer with the orderly transition of the operations of the
Business from Seller to Buyer. Seller shall not be obligated in any event to
incur out-of-pocket expenses in connection with performance under this Section
4.3.

4.4. TAXES. (i) Seller irrevocably agrees to indemnify
Buyer against, and to hold Buyer harmless from:

(a) any and all federal, state, local, and other taxes of
Company arising from the audit, examination, review or other
adjustment of tax liabilities for periods ending on or prior to
the Closing Date;

(b) any and all taxes, interest, penalties, additions to
tax (or additional amounts imposed with respect to any such
interest, penalties, or additions to tax) imposed with respect to
any federal, state, local, or other taxes of Company for periods
ending on or before the Closing Date; and

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<PAGE>
the Seller to Buyer in fulfillment of its obligation pursuant to
this Section 4.4(i).

(ii) Seller agrees that it shall be responsible, at its sole
expense, for the preparation of Company's federal, state, local and
other income and franchise tax returns for the tax periods beginning
January 1, 1998 and ending on the Closing Date. Buyer agrees to
cooperate with Seller in the preparation of such returns. Seller further
agrees that it shall pay all taxes (including all penalties and
interest, if any) due for such tax period. Prior to filing the returns
provided for in this paragraph, Seller agrees to allow Buyer a
reasonable period of time to review and comment upon such returns and
Seller will make reasonable business efforts to accommodate Buyer's
comments.

4.5. 338(H)(10) ELECTION. (i) Parent, Seller, Buyer and Company
shall treat this transaction in accordance with Section 338(h)(10) of
the Internal Revenue Code of 1986 (the "Code"), as amended (the
"Election").

(ii) In connection with the election, not later than 90 days after
the closing date, Seller and Buyer shall act together in good faith to
(a) determine and agree upon the "Modified Aggregate deemed Sale Price"
of the assets of the company deemed attributable to "Section 751
Property" within the meaning of Section 751 of the code (within that
meaning of, and in accordance with, Treasury Regulation Section
1.338(h)(10)-1(f)), and (b) determine and agree upon the property
allocations (the "Allocations") of the "Modified aggregate Deemed Sale
Price" among such assets (in accordance with section 338(b)(5) of the
code and the Treasury Regulations promulgated thereunder). Seller and
Buyer shall (A) be bound by such determination and such Allocations for
purposes of determining any taxes, (B) prepare and file their tax
returns on a basis consistent with such determination of the "Modified
Aggregate deemed Sale Price" and such Allocations, and (C) take no
position inconsistent with such determination and Allocations on any

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<PAGE>
applicable tax return, in any proceeding before any taxing authority or
otherwise. In the event that any such Allocations are disputed by any
taxing authority, the party receiving notice of the dispute shall
promptly notify the other party hereto concerning resolution of the
dispute.

4.6. POST CLOSING BALANCE SHEET. On the date which is 120 days
after the Closing Date (the "Adjustment Date") the parties shall adjust the
purchase price in accordance with Section 2.2 based on a balance sheet of
Company for the period ending on the close of business on the Closing Date,
prepared by Buyer in accordance with GAAP and delivered to Seller, together with
the supporting documentation for all current assets and liabilities used to
prepare such balance sheet, at least seven days prior to the Adjustment Date.
Buyer shall use its best efforts to collect accounts receivable that are due and
owing for work performed prior to the Closing Date. On or before the Adjustment
Date, Buyer shall remit to Seller all amounts received with respect to such
accounts receivable. Any payments received by Buyer from account debtors
which had accounts receivable outstanding on the Closing Date shall be first
applied to the oldest outstanding accounts receivable of such account debtor.
Any accounts receivable that have not been collected within 120 days of the
Closing Date shall be assigned by Buyer to Seller. Any dispute between the
parties as to this Section 4.6 shall be resolved in accordance with the
procedure set forth in Section 2.2.

4.7. CLOSING DATE ACTIONS. Buyer, Parent and Seller mutually
agree that they shall not, and shall cause Company not to, engage in an
transaction outside the normal course of business on the Closing Date.

4.8. TRANSFER FACILITY HAULING AGREEMENT. The parties will
negotiate and enter into a written agreement whereby Company will provide
specified loading and hauling services to Seller related to the operation by
Company of the MSW Facility. Such agreement shall be on terms mutually agreeable
to the parties.

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<PAGE>
4.9. RESIGNATIONS. Each officer and director of Company
shall deliver to Buyer their written resignation.

4.10. DELIVERY OF DISCLOSURE SCHEDULES. Seller shall deliver to
Buyer complete and final Disclosure Schedules as soon as possible after Closing.

4.11. OTHER TRANSFER DOCUMENTS. Reasonably promptly after the
Closing Date, Seller and Parent shall deliver to Buyer all duly executed:

(a) certified copies of resolutions of the shareholder(s) (if
required) and director(s) of Seller and Parent authorizing the execution
of this Agreement, the sale of the Company Stock to Buyer, and the
consummation of the transactions contemplated herein; and

(b) such other separate instruments of sale, assignment, or
transfer reasonably required by Buyer.

4.12. SURVIVAL. The covenants in this Article 4 shall
survive the Closing in accordance with Article 11 hereof.

ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF SELLER, PARENT AND COMPANY.
Company, as to the time period before Closing only, and Seller and Parent,
jointly and severally, and only with respect to the period of time since August
26, 1997, represent and warrant to Buyer that, to the best of Parent's and
Seller's knowledge, the statements contained in this Section 5 except as set
forth in the schedules to the subsections of this Section 5 to be delivered by
Seller to Buyer on the date hereof (such schedules hereinafter collectively
referred to as the "Disclosure Schedules" and, individually, as a "Disclosure
Schedule"): (i) are correct and complete in all material respects as of the date
of this Agreement; (ii) will be correct and complete in all material respects as
of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 5); and (iii)
shall survive the Closing in accordance with Article 11 hereof. The
representations and warranties in this Article 5 do not apply

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<PAGE>
with respect to facts or circumstances first arising before August 26, 1997, or
to any facts of which Buyer becomes aware prior to Closing if Buyer proceeds to
Closing.

Wherever a representation or warranty herein is qualified as
having been made "to the best of Seller's or Parent's knowledge", such phrase
shall mean the actual knowledge of the officers, directors, and senior and
regional management of Seller and Parent actively responsible for the operation
of the Business.

5.1. ORGANIZATION; AUTHORITY.

(a) Company is a Michigan corporation duly incorporated, validly
existing and in good standing under the laws of the State of Michigan
and is now and has been at all times since its incorporation, duly
authorized, qualified and licensed under all laws, regulations,
ordinances and orders of public authorities to carry on its businesses
in the places and in the manner as conducted at the time such activities
were conducted except for where failure to be so authorized, qualified
or licensed would not have a material adverse affect on the Business.

(b) Seller and Parent each has full legal right, power and
authority (corporate and otherwise) to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. On or before
the Closing, all corporate action of Seller and Parent necessary to
approve the sale of the Company Stock by Seller will have been taken,
including director and shareholder approvals, if necessary.

5.2. STOCK OWNERSHIP; ABSENCE OF ADVERSE CLAIMS. All of the
issued and outstanding shares of Company Stock are owned of record and
beneficially by Seller as set forth below and are free and clear of all Adverse
Claims. This Agreement is the valid and binding obligation of Company, Seller
and Parent, enforceable against each of them in accordance with its terms.

5.3. CAPITALIZATION. The authorized capital stock of Company
consists solely of 60,000 shares of voting common stock, without par value, of
which 100 shares are issued and

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<PAGE>
outstanding. All of the issued and outstanding shares of Company Stock have been
duly authorized and validly issued, are fully paid and nonassessable, were
offered, issued, sold and delivered by Company in compliance with all state and
federal laws concerning the issuance of securities and none of such shares were
issued pursuant to awards, grants or bonuses nor in violation of the preemptive
rights of any past or present stockholder. The stock transfer records provided
by Seller and Parent to Buyer correctly set forth all issuances, acquisitions
and retirements of Company Stock since the inception of Company. Company has
never acquired any treasury stock. No subscriptions, options, warrants, puts,
calls, conversion rights or other commitments of any kind exist which obligate
Company to issue any of its authorized but unissued capital stock or otherwise
relate to the sale or transfer by Company of any securities of Company (whether
debt or equity). In addition, Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity securities
or any interests therein or to pay any dividend or make any distribution in
respect thereof. Company has not agreed to register any securities under the
Securities Act of 1933, as amended (the "Act"), or under any state securities
law.

5.4. ACCOUNTS RECEIVABLE. Attached as Schedule 5.4 is a complete
and accurate list of all accounts and notes receivable of Company as of May 8,
1998, including receivables from and advances to employees and also including
all such accounts and notes receivable which are not reflected in the financial
statements, if any. Also attached as Schedule 5.4 is an aging of all accounts
and notes receivable showing amounts due in 30 day aging categories.

5.5. PROPRIETARY RIGHTS; ENVIRONMENTAL DOCUMENTS. (i) Attached as
Schedule 5.5(i) is a complete and accurate list and summary description
as of the date hereof of all material permits, licenses and franchises,
currently owned or held by Company, none of which permits, licenses, and
franchises, have been claimed to or, to the best of Seller's

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<PAGE>
or Parent's knowledge, infringe on the rights of others and all of which
are now valid, in good standing and in full force and effect. Except as
set forth on Schedule 5.5(i), such permits, licenses, and franchises,
are adequate for the operation of the Business as presently constituted;
and

(ii) Company and Seller have, as of the date of this Agreement, made
available to Buyer for its inspection all presently held records,
correspondence, reports, notifications, permits, pending permit
applications, licenses and pending license applications, environmental
impact studies, assessments and audits and all notifications from
governmental agencies and any other person or entity and any other
documents of Company in its possession relating to: (a) each material
violation of Applicable Laws (hereinafter defined) by Company relating
to the Land and all, if any, claims thereof; (b) the present or past
environmental compliance by Company relating to the Land; (c) the
present or past environmental condition of the Land; (d) the discharge,
leakage, spillage, transport, disposal or release of any Hazardous
Material (as hereinafter defined) into the environment by Company on or
at the Land; and (e) land use and access approvals relative to any
portion of the Land (collectively, the "Environmental Documents").

5.6. REAL PROPERTY; REPORTING.

(i) Company has good, fee simple or leasehold title, as
applicable, to the Land except as permitted under Article 3 hereof.
Except as set forth on Schedule 5.6(i):

(a) At all times since August 26, 1997, the Treatment
Facility Land has been fully licensed,

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<PAGE>
permitted and authorized for the operation of the Treatment
Facility as currently conducted, in all material respects under
all applicable zoning and land use requirements (the "Zoning
Laws").

(b) At all times during operation of the Solidification
Facility and MSW Facility, the Solidification Facility Land has
been, fully licensed, permitted and authorized for the operation
of the Solidification Facility and MSW Facility under all Zoning
Laws.

(c) The Land is usable for its current uses and can be
used by Buyer after the Closing for such uses without materially
violating any Zoning Law, and such uses are legal conforming
uses. To the best of Seller's and Parent's knowledge, there are
no proceedings or amendments pending and brought by or threatened
by, any third party which would result in a material change in
the allowable uses of the Land or which would modify the right of
Company to use the Land for its current uses after the Closing
Date.

(d) The Company has made available to Buyer all
engineering, geologic and other similar reports, documentation
and maps relating to the Land in the possession or control of
Seller, Parent or Company.

(e) Since August 26, 1997, neither Company, Parent nor
Seller has been involved in any litigation or administrative
proceeding relating to Company seeking to impose fines,
penalties or other liabilities or seeking injunctive relief for
violation of any Applicable Laws relating to the environment.

(f) No third party has a present or future right to
possession of all or any material part of the Land, except the
respective lands under the Office Lease.

(g) There are no pending or, to the best of Seller's and
Parent's knowledge, threatened condemnation or eminent domain
proceedings affecting all or any part of the Land.

(ii) To the best of Seller's knowledge, Company has provided to the
government agencies requiring the same, all material reports, notices,
filings and other disclosures required by Applicable Laws and all such
reports, notices, filings and other documents were complete and accurate
in

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<PAGE>
all material respects at the time provided to said government agencies.

(iii) Except for the Office Lease, Company does not lease any real
property necessary for the operation of the Business as currently
operated. Set forth on Schedule 5.6 are correct and complete copies of
the Office Lease. With respect to such lease:

(a) such lease is legal, valid, binding, enforceable and
in full force and effect and represents the entire agreement
between the respective lessor and lessee with respect to such
property;

(b) neither Company, Seller nor Parent has: (A) received
any notice of cancellation or termination under such lease and no
lessor has any right of termination or cancellation under such
lease, or (B) received any notice of a breach or default under
such lease, which breach or default has not been cured; and

(c) neither Company, Seller nor Parent nor (to the best
knowledge of Company, Seller and Parent) any other party to such
lease, is in breach or default in any material respect, and, to
the best knowledge of Company, Seller and Parent, no event has
occurred that, with notice or lapse of time would constitute such
a breach or default or permit termination, modification or
acceleration under the such lease.

(iv) Seller presently enjoys peaceful and quiet possession of the
Office Land.

5.7. PERSONAL PROPERTY. (i) Attached as Schedule 5.7(i) is a
complete and accurate list and a complete description as of the date
hereof of all personal property of Company with a value in excess of
$5,000, including true and correct copies of leases for equipment and
other personal property, if any, used in the operation of the Business.
All of the vehicles, machinery and other equipment of Company are in
good working order and repair;

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<PAGE>
(ii) all leases set forth on Schedule 5.7(i) are in full force and
effect and constitute valid and binding agreements of the parties
thereto (and their successors) in accordance with their respective
terms. No material default by Company, or, to the best of Seller's and
Parent's knowledge, any other party to any of such leases, exists or
would exist except for the passage of time or delivery of a notice or
both;

(iii) all fixed assets used by Company in the operation of the
Business are either owned by Company or leased by Company under an
agreement indicated on Schedule 5.7(i). Company's combined fixed assets
(together with the real property assets) constitute all of the real and
personal property necessary for the operation of the Business by Company
as currently conducted and include all of the permits, licenses,
franchises, consents and other approvals necessary to operate the
Business as currently conducted; and

(iv) at the Closing, Company shall have good and merchantable title
to all personal property, free and clear of all debts and capital lease
payments (including lease end buy-out payments).

5.8. CONTRACTS. Attached as Schedule 5.8 is a complete and
accurate list as of the date hereof of all of the following types of contracts,
commitments and other agreements to which Company is a party or by which Company
or its properties are bound, which list shall include, at a minimum, the full
names of each party to each agreement and the date of execution thereof,
including without limitation, waste transportation, treatment and processing
contracts, joint venture or partnership agreements, contracts or collective
bargaining arrangements with any labor organizations, loan agreements, powers of
attorney (each of which shall be cancelled at the Closing), indemnity or
guaranty agreements, bonds, mortgages, options to purchase land, liens, pledges
or other security agreements, agreements for the employment of any individual,
agreements under which Company has

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<PAGE>
advanced or loaned any amount to any employee, officer or director of Company,
any guaranties by Company, any agreement concerning confidentiality or
noncompetition and any other agreement under which the consequences of a default
or termination could have a material and adverse effect on the business,
financial condition, operations or prospects of Company. To the best of Seller's
and Parent's knowledge none of the agreements listed on Schedule 5.8 have been
modified, altered, terminated or otherwise amended and there have been no
waivers, oral agreements, representations or other statements with relation to
any such agreements except as described in Schedule 5.8. Company has complied
with all obligations pertaining to it contained in such contracts, commitments
and other agreements, is not in default thereunder and no notice of default has
been received nor will the consummation of the transactions contemplated by this
Agreement result in such a default. To the best of Seller's or Parent's
knowledge, there is no default by any other party to any contract, commitment or
other agreement attached as Schedule 5.8.

5.9. INSURANCE POLICIES. Attached as Schedule 5.9 are complete
and accurate certificates evidencing insurance policies carried by Company and
an accurate list of all insurance loss runs and workers' compensation claims
received for the past three policy years relating to such policies. All
insurance policies are in full force and effect and shall remain in full force
and effect through the Closing Date. With respect to the Business and the Land
during Seller's ownership of the Company, Company's insurance has never been
cancelled and Company has never been denied coverage.

5.10. EMPLOYEES; COMPENSATION. Attached as Schedule 5.10 is a
complete and accurate list of all employees of Company and the rate of
compensation of each as of the date hereof (including a breakdown of the portion
thereof attributable to salary, bonus and other compensation, respectively).
There is no pending or, to the best of Seller's or Parent's knowledge,
threatened labor dispute involving Company and any group of its

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<PAGE>
employees nor has Company experienced any labor interruptions during Seller's
ownership of the Company.

5.11. EMPLOYEE PLANS. Attached as Schedule 5.11 are complete and
accurate descriptions of all plans subject to Sections 3(3), (1), (2), (37) and
(40), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) which are currently maintained and/or sponsored by Company,
or to which Company currently contributes, or has an obligation to contribute in
the future (including, without limitation, employment agreements and any other
agreements containing "golden parachute" provisions and deferred compensation
agreements), together with copies of any trusts related thereto and a
classification of employees covered thereby (collectively, the "Plans"). Also
listed on Schedule 5.11 are all of the Plans that have been terminated within
the past three years. Seller shall provide copies of the Plans to Buyer
post-Closing.

5.12. COMPLIANCE WITH ERISA. None of the Company, any Controlled
Group Member (as defined in Code Section 414(n)(6)(B)), nor any business,
subsidiary, division or operation acquired by Company or a Controlled Group
Member in the last five years, ever have maintained or sponsored, or contributed
to, an employee pension benefit plan (as defined in ERISA Section 3(2)) which is
subject to the provisions of Title IV of ERISA. Except for the Plans, Company
does not maintain or sponsor, nor is a contributing employer to, a pension,
profit-sharing, deferred compensation, stock option, employee stock purchase or
other employee benefit plan, employee welfare benefit plan, or any other
arrangement with its employees. All Plans are in substantial compliance with all
applicable provisions of ERISA and the regulations issued thereunder, as well as
with all other laws applicable to such Plans, and, in all material respects,
have been administered, operated and managed in substantial accordance with the
governing documents. All Plans that are intended to qualify (the "Qualified
Plans") under Section 401(a) of the Internal Revenue Code of 1986, as amended
(the "Code")

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<PAGE>
have been determined by the Internal Revenue Service to be so qualified, and
copies of the current plan determination letters, most recent Form 5500, or, as
applicable, Form 5500-C/R filed with respect to each such Qualified Plan or
employee welfare benefit plan and most recent trustee or custodian report, are
included as part of Schedule 5.12 hereof. To the extent that any Qualified Plans
have not been amended to comply with the laws and regulations applicable to such
Plan, the remedial amendment period permitting retroactive amendment of such
Qualified Plans has not expired and will not expire within 120 days after the
Closing Date. All reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries
(including, but not limited to, annual reports, summary annual reports,
actuarial reports, PBGC-1 Forms, audits or tax returns) have been timely filed
or distributed. None of: (i) Seller; (ii) any Plan; or (iii) Company, has
engaged in any transaction prohibited under the provisions of Section 4975 of
the Code or Section 406 of ERISA. No Plan has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
ERISA. Further:

(i) there have been no terminations, partial terminations or
discontinuance of contributions to any Qualified Plan without notice to
and approval by the Internal Revenue Service;

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<PAGE>
tax penalty, loss of federal income tax deduction or other sanction,
arising on account of or in respect of any direct or indirect failure by
Company or Seller or any of them, any time prior to the Closing Date to
comply with any such federal or state benefit continuation requirement,
which is capable of being assessed or asserted before or after the
Closing Date directly or indirectly against Company or Seller, or any of
them with respect to such group health plans;

(iii) the Financial Statements reflect the approximate total pension,
medical and other benefit expense for all Plans for the periods covered
by the applicable Financial Statement, and no material funding changes
or irregularities are reflected thereon which would cause such Financial
Statements to be not representative of most prior periods;

(iv) attached hereto as Schedule 5.12(iv) is a copy of the claims
history under Company's group health plan for the past three years;

(v) Company has no (and will not incur any) retiree health care
obligations to its employees; and

(vi) with respect to any Plan which qualifies as a group health
plan, such plan is fully insured and all premiums have been paid on a
timely basis and are paid in full as of the Closing Date or, to the
extent such plan is not fully insured, all self insured obligations have
been met as of the Closing Date and are fully reflected in the plan's
financial statements. To the extent that any of Company's group health
plans are retrospectively rated, there are no liabilities capable of
assertion against Company in respect of claims already incurred and
present.

5.13. COMPLIANCE WITH LAW; NO CONFLICTS.

(i) To the best of Parent's and Seller's knowledge, except as
set forth on Schedule 5.6(i), Company has complied in all material
respects with, and is now in material compliance with, all federal,
state and local statutes, laws, rules, regulations, orders, licenses,
permits

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(including, without limitation, zoning restrictions and land use
requirements) and all administrative and judicial judgments, rulings,
decisions and orders of any body having jurisdiction over Company, the
Business or the Land (the "Applicable Laws"). Neither Company, Seller
nor Parent have received any written notice that Company is under
investigation or other form of review with respect to any Applicable Law
materially adversely affecting the Business; and

(ii) The execution, delivery and performance of this Agreement, the
consummation of any transactions herein referred to or contemplated
hereby and the fulfillment of the terms hereof and thereof will not in
any material respect:

(a) conflict with, or result in a breach or violation of
the Articles of Incorporation or Bylaws of Company;

(b) conflict with, or result in a breach under any
document, agreement or other instrument to which Company, or
Seller is a party, or result in the creation or imposition of any
lien, charge or encumbrance on any properties of Company or
Seller pursuant to: (A) any law or regulation to which Company or
Seller, or any of their respective properties are subject, or (B)
any judgment, order or decree to which Company or Seller is bound
or any of their respective properties are subject;

(c) result in termination or any impairment of any permit,
license, franchise, contractual right or other authorization of
Company; or

(d) except for the filings by Seller and Buyer required by
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and any consents or filings required
under any permit or customer contract, require the consent of, or
the filing with any governmental authority or agency or any

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other third party in order to remain in full force and effect.
5.14. TAXES. Company has filed, or will file, in a

timely manner all requisite federal, state, local and other tax returns due for
all fiscal periods ended on or before the date hereof and, as of the Closing,
shall have filed or will file in a timely manner all such returns due for all
periods ended on or before the Closing Date. No federal, state, local or other
tax returns or reports filed by Seller (whether filed prior to, on or after the
date hereof) with respect to the Company will result in any taxes, assessments,
fees or other governmental charges upon the assets of Buyer, whether as a
transferee of the assets or otherwise. All federal, state and local taxes due
and payable with respect to the Company or the assets have been paid, including,
without limiting the generality of the foregoing, all federal, state and local
income, sales, use, franchise, excise and property taxes. Except as set forth in
Schedule 5.14, no notice of any claim for taxes, whether pending or threatened,
has been received.

5.15. LITIGATION. Except as set forth on Schedule 5.15, there is
no material claim, litigation, action, suit or proceeding, investigation, formal
arbitration, informal arbitration or mediation, administrative, judicial or
other review, pending or, to the best of Seller's or Parent's knowledge,
threatened against Company or Seller, or relating to the business or affairs of
Company, at law or in equity, before any federal, state or local court or
regulatory agency, or other governmental or private authority; no written notice
of any of the above has been received by Parent, Company or Seller. Also listed
on Schedule 5.15 are all instances where Company is the plaintiff, or
complaining or moving party, under any of the above types of proceedings or
otherwise.

5.16. CONDUCT OF BUSINESS. (INTENTIONALLY DELETED)

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5.17. BANK ACCOUNTS; DEPOSITORIES. Attached as Schedule

5.17 is a complete and accurate list as of the date of this Agreement, of:

(i) the name of each financial institution in which Company has
any account or safe deposit box;

(ii) the names in which each account or box is held;

(iii) the type of each account; and

(iv) the name of each person authorized to draw on or have access to
each account or box.

5.18. HAZARDOUS MATERIALS. To the best of Parent's knowledge
specifically with respect to the Business, except as set forth on
Schedule 5.18, (i) Company has generated, transported, stored, handled,
recycled, reclaimed, disposed of, or contracted for the disposal of,
hazardous materials, hazardous wastes, hazardous substances, toxic
wastes or substances as those terms are defined by the Resource
Conservation and Recovery Act of 1976; the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"); the Clean Water
Act; the Toxic Substances Control Act; any comparable or similar state
statute applicable to the Business; or the rules and regulations
promulgated under any of the foregoing, as each of the foregoing may
have been amended (collectively, "Hazardous Materials") in substantial
compliance with all Applicable Laws.

(ii) No liens with respect to environmental liability have been
imposed against Company or the Land under CERCLA, any comparable state
statute affecting the Business or other Applicable Law, and, to the best
of Parent's knowledge, no facts or circumstances exist which may
reasonably be expected to give rise to the same. No portion of the Land
is listed on the CERCLIS list or the National Priorities List of
Hazardous Waste Sites or any similar list maintained by the State of
Michigan. Neither Company nor Seller is listed as a potentially
responsible party under CERCLA in connection with the Company, any
comparable state statute or

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<PAGE>
other Applicable Law, and neither Company nor Seller has received a
notice of such a listing.

(iii) Set forth on Schedule 5.18 is a complete list of the names and
addresses of all disposal sites utilized by Company, none of which sites
is listed on the CERCLIS list or the National Priorities List of
hazardous waste sites or any comparable state list.

(iv) There have been no spills, leaks, deposits or other releases
into the environment or onto the Land by Company of any Hazardous
Materials.

5.19. STORAGE TANKS. Except as set forth on Schedule 5.19, the
Land does not contain any underground or above-ground storage tanks containing
Hazardous Materials. All above and below ground tanks currently in use on the
Land are being used and maintained in accordance with all Applicable Laws.

5.20. ABSENCE OF CERTAIN BUSINESS PRACTICES. To the best of
Seller's or Parent's knowledge neither Company, Seller nor Parent has ever made,
offered or agreed to offer anything of value to any employees of any customers
of Company for the purpose of attracting business to Company or any foreign or
domestic governmental official, political party or candidate for government
office or any of their respective employees or representatives, nor have they
otherwise taken any action which would cause it to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended.

ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer represents and warrants that the statements

contained in this Section 6: (i) are correct and complete in all material
respects as of the date of this Agreement; (ii) will be correct and complete in
all material respects as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Article 6); and (iii) shall survive the Closing in accordance with Article 11.

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6.1. CORPORATE ORGANIZATION. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Michigan. Buyer is duly authorized, qualified and licensed under all
applicable laws, regulations and ordinances of public authorities to carry on
its businesses in the places and in the manner as now conducted except for where
the failure to be so authorized, qualified or licensed would not have a material
adverse affect on such businesses.

6.2. AUTHORITY. The officers of Buyer executing this Agreement
have the corporate authority to enter into and bind Buyer to the terms of this
Agreement. On or before the Closing, all corporate action by Buyer necessary to
approve the transaction, including both shareholder and director approvals (if
required), shall have been taken.

6.3. NO CONFLICTS. The execution, delivery and performance of
this Agreement, the consummation of any transactions herein referred to or
contemplated hereby and the fulfillment of the terms hereof and thereof will
not:

(i) conflict with, or result in a breach or violation of
the Articles of Incorporation or Bylaws of Buyer;

(ii) conflict with, or result in a material breach under any
document, agreement or other instrument to which Buyer is a party, or
result in the creation or imposition of any lien, charge or encumbrance
on any properties of Buyer pursuant to: (A) any law or regulation to
which Buyer or any of its property is subject, or (B) any judgment,
order or decree to which Buyer is bound or any of its property is
subject;

(iii) result in termination or any impairment of any material permit,
license, franchise, contractual right or other authorization of Buyer;
or

(iv) except for the filings by Seller and Buyer required by the HSR
Act and any consents or filings required under any permit or customer
contract, require the consent of, or the filing with any governmental
authority or agency

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<PAGE>
or any other third party in order to remain in full force and effect.

6.4. BINDING AGREEMENT. This Agreement is the binding
and valid obligation of Buyer, enforceable against it in accordance
with its terms.

6.5. CONDITION OF ASSETS. (i) Buyer acknowledges, warrants and
agrees that, prior to the Closing Date, it has had the opportunity to
and has examined and investigated the nature, environmental condition
and compliance status of the Company and its assets, including, but not
limited to, the Land and the Business. Except as set forth in Article 5,
neither Seller, nor any agent, attorney, employee, or representative of
Seller, has made any representation whatsoever regarding the nature,
environmental condition or compliance status of the Assets, the Land or
the Business by Seller to Buyer or any part thereof and that Buyer in
executing, delivering and/or performing this Agreement has not relied
upon any statement and/or information (including, but not limited to,
any environmental report), to whomsoever made or given directly, orally
or in writing, by any individual, firm or corporation. Buyer has entered
into this Agreement based solely upon its own inspection, evaluation,
review and analysis.

(ii) Buyer acknowledges, warrants and agrees that the materials,
records, reports and documents provided by Seller to Buyer as of the
Closing Date of the Closing adequately, lawfully and sufficiently
disclose to Buyer all environmental matters relevant to the Company, its
assets, Business, and Land, such as to comply in form and substance with
Section 20116 of Part 201 of the Natural Resources and Environmental
Protection Act ("Part 201") (MCLA 324.20116). The parties agree that to
the extent any obligation exists to record any such information or
notice thereof under Section 20116 of Part 201, such obligation will be
Buyer's, provided, however, that Buyer will not record any such

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<PAGE>
information or notice without providing Seller with prior written
notice.

ARTICLE 7. COVENANTS OF PARENT AND SELLER PRIOR TO CLOSING

(INTENTIONALLY DELETED)

ARTICLE 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND

SELLER (INTENTIONALLY DELETED)

ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER

(INTENTIONALLY DELETED)

ARTICLE 10. ASSUMPTION OF LIABILITIES

10.1. NON-ASSUMPTION OF LIABILITIES. (INTENTIONALLY

DELETED).

10.2. ASSUMPTION OF OBLIGATIONS. Buyer agrees to
perform all of Company's obligations and pay its liabilities.

ARTICLE 11. INDEMNIFICATION

11.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
of the representations, warranties and covenants of any party hereto contained
in this Agreement and the liabilities and obligations of the parties with
respect thereto shall survive the Closing hereunder for a period of two years
after the Closing Date; provided, however, that the representations and
warranties in Sections 5.6, 5.18 and 5.19 shall survive for a period of three
years, the representations and warranties in Sections 5.1, 5.2, 5.14, 6.1 and
6.2 shall survive until the expiration of the applicable statute of limitations
period, and the rights set forth in Section 4.9 shall survive in accordance with
the time periods set forth in the Predecessor Contract.

11.2. INDEMNIFICATION BY PARENT AND SELLER. Seller and Parent
agree that they will each, jointly and severally, indemnify, defend (as to third
party claims only), protect and hold harmless

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<PAGE>
Buyer, its officers, shareholders, directors, divisions, subdivisions,
affiliates, subsidiaries, parent, agents, members, managers, employees,
successors and assigns at all times from and after the date of this Agreement
from and against all liabilities, claims, damages, actions, suits, proceedings,
demands, assessments, adjustments, penalties, losses, costs and expenses
whatsoever (including specifically, but without limitation, court costs,
reasonable attorneys' fees and expenses and expenses of investigation) whether
equitable or legal, matured or contingent, known or unknown, foreseen or
unforeseen, ordinary or extraordinary, patent or latent, whether arising out of
occurrences prior to, at or after the date of this Agreement, incurred as a
result of or incident to: (a) any material breach of, misrepresentation in,
untruth in or inaccuracy in the representations and warranties by Seller or
Parent (including, without limitation, those relating to Company's environmental
compliance), set forth herein or in the Schedules, Exhibits or certificates
attached hereto or delivered pursuant hereto; (b) nonfulfillment or
nonperformance in any material respect of any agreement, covenant or condition
on the part of Parent or Seller made in this Agreement; or (c) any claim by a
third party that, if true, would mean that a condition for indemnification set
forth in subsections (a) and (b) of this Section 11.2 had been satisfied.

11.3. INDEMNIFICATION BY BUYER. Buyer agrees that it will
indemnify, defend (as to third party claims only), protect and hold harmless
Seller and Parent at all times from and after the Closing Date from and against
all liabilities, claims, damages, actions, suits, proceedings, demands,
assessments, adjustments, penalties, losses, costs and expenses whatsoever
(including specifically, but without limitation, court costs, reasonable
attorneys' fees and expenses and expenses of investigation) whether equitable or
legal, matured or contingent, known or unknown, foreseen or unforeseen, ordinary
or extra-ordinary, patent or latent, incurred by Seller or Parent as a result of
or incident to: (i) any material breach of, misrepresentation in, untruth in or
inaccuracy in the representations and warranties set forth herein,

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<PAGE>
or in the Schedules or certificates attached hereto or delivered pursuant hereto
by Buyer; (ii) nonfulfillment or nonperformance in any material respect of any
agreement, covenant or condition on the part of Buyer made in this Agreement
(including, without limitation, the covenant to perform post-Closing obligations
as set forth in Section 10.2); (iii) any liability or obligation relating to the
operation of the Business after the Closing; (iv) any claim by a third party
that, if true, would mean that a condition for indemnification set forth in
subsections (i) or (ii) of this Section 11.3 had been satisfied; (v) any matter
as to which Parent or Seller does not have an indemnification obligation to
Buyer under Section 11.2 hereof; and (vi) any loss suffered by Seller or Parent
relating to the fact that the Permits were not transferred on or before the
Closing Date.

11.4. LIMITATION ON LIABILITY. (a) The indemnification
obligations set forth in this Article 11 shall apply only if a Closing
occurs and then only after the aggregate amount of such obligations
exceeds $250,000, at which time the indemnification obligations shall be
effective as to all amounts, including the initial $250,000. Further,
the indemnification obligations set forth in this Article 11 shall be
limited to an aggregate amount of $10,300,000. Notwithstanding the
foregoing Buyer's obligation for indemnity in Sections 11.3(iii) and
(vi) apply without regard to the cap or the basket contained in this
Section 11.4.

(b) Notwithstanding anything else to the contrary in this
Agreement, the indemnification obligations set forth in this Article
shall be limited to claims as to which the Indemnified Party has given
the Indemnifying Party written notice thereof, stating in reasonable
detail the basis for indemnification hereunder, on or prior to the
expiration of the applicable survival period set forth in Section 11.1.

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<PAGE>
remediation standard necessary to satisfy the governmental agency
requiring the remediation consistent with the subject Land's current
use.

(d) Notwithstanding anything else to the contrary in this
Agreement, no claim shall give rise to an indemnification obligation of
Seller unless it exceeds $5,000.

11.5. PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD PARTY
CLAIMS. (a) If any third party shall notify a party to this Agreement
(the "Indemnified Party") with respect to any matter (a "Third Party
Claim") that may give rise to a claim for indemnification against any
other party to this Agreement (the "Indemnifying Party") or if any party
who may make a claim for indemnification under this Agreement otherwise
becomes aware of any matter that may give rise to such a claim or wishes
to make such a claim (whether or not related to a Third Party Claim),
then the Indemnified Party shall promptly notify each Indemnifying party
thereof in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely
to the extent) the Indemnifying Party is thereby prejudiced.

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<PAGE>
to the Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and fulfill
its indemnification obligations hereunder,

(iii) the Third Party Claim involves only monetary damages and does not
seek an injunction or equitable relief or involve the possibility of
criminal penalties, and (iv) the Indemnifying Party conducts the defense
of the Third Party Claim actively and diligently.

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<PAGE>
responsible for any adverse consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim to the fullest extent provided in this
Section 11, and (iv) the Indemnifying Party shall be deemed to have
waived any claim that its indemnification obligation should be reduced
because of the manner in which the counsel for the Indemnified Party
handled the Third Party Claim.

11.6. ADDITIONAL PROCEDURES. (i) In the event indemnification is
requested, the Indemnifying Party and its representatives and agents
will have access to the premises, books and records of the indemnified
party or parties seeking such indemnification to the extent reasonably
necessary to assist it in assessing, addressing or otherwise resolving
the matter for which indemnification is sought.

(ii) Buyer agrees to retain all documents with respect to all
matters as to which indemnity may be sought under Section 11.2. Before
disposing of or otherwise destroying any such documents, Buyer will give
reasonable notice to such effect and deliver to Seller, upon its
request, a copy of any such documents. In addition, each party to this
Agreement agrees to use its reasonable efforts to cause its employees to
cooperate with and assist Seller in connection with any matter for which
indemnity is sought by Buyer hereunder.

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<PAGE>
believes requires such disclosure, communication or report, and the
nature and content of the proposed disclosure, communication or report
which the party believes is required to be made.

(iv) Buyer agrees that it will, as soon as practical, notify Seller
of any contact, whether written, verbal, or in person, by or with any
governmental agency, agency representative, or any other party regarding
Seller's activities at or any other issues related to the environmental
condition or compliance status of the Land, the Assets or the Business.
This provision will be effective through the end of the third year after
the Closing Date.

ARTICLE 12. EXCLUSIVITY
This Agreement contains the exclusive agreement of Seller

and Buyer with respect to the matters covered under this Agreement and will be
in lieu of, and not in addition to, all other remedies which may exist at law,
in equity or under any other contract or agreement and neither Party may assert
any claim with respect to any matter against the other which is not authorized
in this Agreement as to the subject matter thereof.

ARTICLE 13. TERMINATION OF AGREEMENT
13.1. TERMINATION BY BUYER. Buyer, by notice in the

manner hereinafter provided on or before the Closing Date, may terminate this
Agreement in the event of a breach by Parent or Seller in the observance or in
the due and timely performance of any of the agreements or conditions contained
herein on their part to be performed, and such breach shall not have been cured
on or before the Closing Date.

13.2. TERMINATION BY SELLER. Seller may, by notice in the manner
hereinafter provided on or before the Closing Date, terminate this Agreement in
the event of a breach by Buyer in the observance or in the due and timely
performance of any of the covenants, agreements or conditions contained herein
on its part to

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<PAGE>
be performed, and such breach shall not have been cured on or before the Closing
Date.

13.3. REMEDIES IN THE EVENT OF BREACH. In addition to the
termination rights provided in this Article 13, if either party breaches this
Agreement prior to Closing, the other party shall have all other remedies
available at law or under this Agreement.

ARTICLE 14. NONDISCLOSURE OF CONFIDENTIAL INFORMATION

14.1. NONDISCLOSURE BY SELLER AND PARENT. Seller and Parent
recognize and acknowledge that they had in the past, currently have, and in the
future may possibly have, access to certain confidential information of Buyer,
such as lists of customers, operational policies, and pricing and cost policies
that are valuable, special and unique assets of Buyer and its businesses. Seller
and Parent each agree that they will not, except as may be required by
Applicable Laws or other legal process, disclose such confidential information
to any person, firm, corporation, association or other entity for any purpose or
reason whatsoever, except to authorized representatives of Buyer, unless such
information becomes known to the public generally through no fault of Seller or
Parent. In the event of a breach or threatened breach by Seller or Parent of the
provisions of this Section, Buyer shall be entitled to an injunction restraining
such party from disclosing, in whole or in part, such confidential information.
Nothing herein shall be construed as prohibiting Buyer from pursuing any other
available remedy for such breach or threatened breach, including, without
limitation, the recovery of damages. The provisions of this Section shall apply
at all times prior to the Closing Date and for a period of one year following
the termination of this Agreement without a Closing having occurred.

14.2. NONDISCLOSURE BY BUYER. Buyer recognizes and acknowledges
that it has in the past, currently has, and prior to the Closing Date, will have
access to certain confidential information of Seller, such as lists of
customers, operational

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<PAGE>
policies, and pricing and cost policies that are valuable, special and unique
assets of Seller. Buyer agrees that it will not, except as may be required by
Applicable Laws or valid legal process, disclose such confidential information
to any person, firm, corporation, association, or other entity for any purpose
or reason whatsoever, prior to the Closing Date, except to authorized
representatives of Seller, unless such information becomes known to the public
generally through no fault of Buyer. In the event of a breach or threatened
breach by Buyer of the provisions of this Section, Seller shall be entitled to
an injunction restraining such party from disclosing, in whole or in part, such
confidential information. Nothing contained herein shall be construed as
prohibiting Seller from pursuing any other available remedy for such breach or
threatened breach, including, without limitation, the recovery of damages. The
provisions of this Section shall apply at all times prior to the Closing Date
and for a period of one year following the termination of this Agreement without
a Closing having occurred.

ARTICLE 15. GENERAL

15.1. ASSIGNMENT; BINDING EFFECT; AMENDMENT. This Agreement and
the rights of the parties hereunder may not be assigned (except by operation of
law) and shall be binding upon and shall inure to the benefit of the parties
hereto, and the successors of Buyer, Seller and Parent. This Agreement, upon
execution and delivery, constitutes a valid and binding agreement of the parties
hereto enforceable in accordance with its terms and may be modified or amended
only by a written instrument executed by all parties hereto.

15.2. ENTIRE AGREEMENT. This Agreement is the final, complete and
exclusive statement and expression of the agreement among the parties hereto
with relation to the subject matter of this Agreement, it being understood that
there are no oral representations, understandings or agreements covering the
same subject matter as this Agreement. This Agreement supersedes, and

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<PAGE>
cannot be varied, contradicted or supplemented by evidence of any prior or
contemporaneous discussions, correspondence, or oral or written agreements of
any kind.

15.3. COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original and all
of which together shall constitute but one and the same instrument.

15.4. NO BROKERS. Seller and Parent represent and warrant to
Buyer and Buyer represents to Seller and Parent that the warranting party has
had no dealings with any broker or agent so as to entitle such broker or agent
to a commission or fee in connection with the within transaction. If for any
reason a commission or fee shall become due, the party dealing with such agent
or broker shall pay such commission or fee and agrees to indemnify and save
harmless each of the other parties from all claims for such commission or fee
and from all attorneys' fees, litigation costs and other expenses relating to
such claim.

15.5. EXPENSES OF TRANSACTION. Whether or not the transactions
herein contemplated shall be consummated: (i) Buyer will pay the fees, expenses
and disbursements of Buyer and its agents, representatives, accountants and
counsel incurred in connection with the subject matter of this Agreement and any
amendments hereto and all other costs and expenses incurred in the performance
and compliance with all conditions to be performed by Buyer under this
Agreement; and (ii) Seller will pay the fees, expenses and disbursements of
Company, Seller and Parent and their respective agents, representatives,
accountants and counsel incurred in connection with the subject matter of this
Agreement and any amendments hereto and all other costs and expenses incurred in
the performance and compliance with all conditions to be performed by Parent and
Seller under this Agreement. All such fees, expenses and disbursements of Parent
and Seller shall be paid by Seller prior to the Closing so that the Assets will
not be charged with or diminished by any such fee, cost or expense. Parent and
Seller represent and warrant to Buyer that Parent and Seller have relied on
their own advisors for all legal, accounting,

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<PAGE>
tax or other advice whatsoever with respect to this Agreement and the
transactions contemplated hereby.

15.6. NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and may be given by depositing the same
in United States mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, by overnight courier
or by delivering the same in person to such party.

(a) If to Buyer, addressed to it at:
U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060
ATTN: David Turkal

with a copy to:

U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060
ATTN: W. Gregory Orr

(b) If to Seller, addressed to it at:

USA Waste Services, Inc.
1001 Fannin Street
Suite 4000
Houston, TX 77002
Attn: General Counsel

with a copy to:

USA Waste Services, Inc.
Park West Two
Suite 420
2000 Cliff Mine Rd.
Pittsburgh, PA 15275
ATTN: Regional Vice President

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<PAGE>
for notice by notifying the other parties of such change in accordance with this
Section.

15.7. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Michigan, without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Michigan or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Michigan.

15.8. NO WAIVER. No delay of or omission in the exercise of any
right, power or remedy accruing to any party as a result of any breach or
default by any other party under this Agreement shall impair any such right,
power or remedy, nor shall it be construed as a waiver of or acquiescence in any
such breach or default, or of or in any similar breach or default occurring
later; nor shall any waiver of any single breach or default be deemed a waiver
of any other breach of default occurring before or after that waiver.

15.9. TIME OF THE ESSENCE. Time is of the essence of this
Agreement.

15.10. CAPTIONS. The headings of this Agreement are inserted for
convenience only, shall not constitute a part of this Agreement or be used to
construe or interpret any provision hereof.

15.11. SEVERABILITY. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent possible, be
modified in such manner as to be valid, legal and enforceable but so as most
nearly to retain the intent of the parties. If such modification is not
possible, such provision shall be severed from this Agreement. In either case
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not in any way be affected or impaired thereby.

15.12. CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the

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provisions of this Agreement. Any reference to any federal, state, local or
foreign statute shall be deemed to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" means including, without limitation. The parties intend that
representations, warranties and covenants contained herein shall have
independent significance. If any party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) that the party has not
breached shall not detract from or mitigate the fact the party is in breach of
the first representation, warranty or covenant.

15.13. STANDSTILL AGREEMENT. Unless and until this Agreement is
terminated pursuant to Article 12 hereof without the Closing having taken place,
Seller will not directly or indirectly solicit offers for the Stock or the
assets of Company or for a merger or consolidation involving Company, or respond
to inquiries from, share information with, negotiate with or in any way
facilitate inquiries or offers from, third parties who express or who have
heretofore expressed an interest in acquiring the Company by merger,
consolidation or other combination or acquiring any of the Assets or stock of
Company ("Transaction Discussions"); nor will Parent permit Seller or Company to
do any of the foregoing. Buyer shall not engage in any Transaction Discussions
with any person or entity that operates in any aspect of the Business.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the day and year first above written.

BUYER:

U S LIQUIDS INC.

BY:___________________________
ITS:__________________________

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<PAGE>

SELLER:

UNITED WASTE SYSTEMS, INC.

BY:___________________________
ITS:__________________________

PARENT:

USA WASTE SERVICES, INC.

BY:___________________________
ITS:__________________________

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EXHIBIT 10.69

LEACHATE TREATMENT AGREEMENT

THIS LEACHATE TREATMENT AGREEMENT ("Agreement") is made as of May
8, 1998, by and between CITY MANAGEMENT CORPORATION, a Michigan corporation
("City"), and USL CITY ENVIRONMENTAL, INC., a Michigan corporation ("Liquids").

W I T N E S S E T H:

WHEREAS, Liquids operates a hazardous and non-hazardous
commercial liquid waste transportation, treatment, processing and disposal
business in the Detroit, Michigan area (the "Business") and, in connection
therewith, treats non-hazardous leachate materials;

WHEREAS, City operates non-hazardous solid waste landfills in the
Detroit, Michigan area and, in connection therewith, generates leachate
material;

WHEREAS, on the date hereof, Liquids has acquired certain assets
of City to be used in connection with the Business (the "Acquisition");

WHEREAS, as part of the Acquisition, Liquids has agreed to treat
Acceptable Material (hereinafter defined) generated by specified Detroit area
landfills operated by City or its affiliates on the terms and conditions set
forth herein;

NOW, THEREFORE, in consideration of the mutual benefits to be
derived from the Agreement and of the representations, warranties, covenants,
conditions and provisions hereinafter set forth, the parties hereto hereby agree
as follows:

1. DISPOSAL. Pursuant to the terms and conditions of this
Agreement, during the Term (hereinafter defined), City shall deliver to Liquids
all of its Acceptable Material generated by one or more Detroit area landfills
and Liquids agrees to accept for treatment all Acceptable Material delivered to
Liquids by City up to a maximum of 35,000,000 gallons per year (subject to
higher volumes if the parties agree on price as set forth in Section 3 below);
provided, however, that Liquids shall have the right to reject any material
which Liquids determines does not constitute Acceptable Material.

2. TERM. The term ("Term") of this Agreement shall commence on
the date hereof and continue for a term of 20 years, unless sooner terminated as
provided herein.

3. PRICE. (a) The price for each gallon of Acceptable Material
delivered by City to Liquids shall be 3/4 of a cent per
<PAGE>
gallon up to a maximum of 35,000,000 gallons per year. Treatment rates for
leachate in excess of 35,000,000 gallons shall be negotiated by the parties in
good faith.

(b) PRICE INCREASE FOR CPI INDEX. The price set forth in clause
(a) above shall escalate annually on each January 1st during the Term by
an amount equal to the increase in the CPI Index which results from
comparing the CPI for All Urban Consumers as of May 1, 1998 with such
CPI for each succeeding May 1st.

(c) ADJUSTMENT TO PRICE. In the event that during the Term of
this Agreement there is levied upon the operations of Liquids any
extraordinary tax, assessment or charge by any governmental authority or
there occurs any substantial change in regulatory requirements related
to the operation of the Business and having general applicability to the
waste disposal business which includes the Business (but not related to
any action, omission or condition of Liquids), which tax assessment or
charge increases in a material manner Liquids' annual cost to operate
the Business over Liquids' cost of operations of the Business for the
immediately preceding calendar year (in each case, an "Extraordinary
Levy"), such amounts shall be added to the price to be paid by City
hereunder on a pro rata basis reflecting the proportion of the volume of
Acceptable Material delivered by City hereunder to the total volume of
Acceptable Material received by Liquids during a like period, subject to
subparagraph (d) below.

(d) NOTICE OF EXTRAORDINARY LEVIES. Liquids shall notify City of
any price increase for Extraordinary Levies at least 30 days in advance
of the effective date thereof (except in the case of Extraordinary
Levies where Liquids has received less than 30 days notice in which case
the necessary advance notice period to City shall be the same length as
that which was received by Liquids).

4. PAYMENT. Liquids shall issue a ticket to each City vehicle
delivering Acceptable Material to Liquids, which ticket shall show the date,
vehicle number and quantity of Acceptable Material to establish charges. On a
monthly basis, Liquids shall send City a statement of charges. City agrees to
pay all charges due and owing hereunder to Liquids on or before the 30th day
following the date of receipt of a statement of charges.

5. TITLE.

(a) TITLE. Title to the Acceptable Material delivered by City
shall pass to Liquids at the time the Acceptable Material is removed
from the transporting vehicles and accepted by Liquids as Acceptable
Material and all risk and responsibility for such Acceptable Material,
including

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liability for any release or threatened release thereof under any
federal, state or local environmental law, shall thereafter rest with
Liquids. Title to and all risks and responsibilities for material which
does not conform to the definition of Acceptable Material hereunder
shall remain with City and shall not be deemed to pass to Liquids.

(b) SURVIVAL. The obligations set forth in this Section 5 shall
survive the performance and termination of this Agreement.

6. UNACCEPTABLE WASTE. City agrees that it will not deliver to
Liquids any Hazardous Waste (hereinafter defined) or any other material which is
not Acceptable Material. If City delivers any material which does not conform to
the definition of Acceptable Material under this Agreement and to the
requirements of any applicable governmental law, regulation, rule or order, then
(in addition to Liquids's other remedies pursuant hereto or available at law or
in equity), if Liquids notifies City of the delivery of such nonconforming
materials, which notice shall be made promptly upon Liquids's determination of
such nonconformity, City shall promptly make available at the Landfill a vehicle
suitable for transporting such nonconforming material, shall promptly load such
nonconforming material onto the vehicle and shall promptly remove such
nonconforming material from the Liquids facility, all at City's expense. City
shall reimburse Liquids for any reasonable and necessary costs incurred by
Liquids in connection with the removal of non-conforming material.

7. REPRESENTATIONS AND WARRANTIES OF LIQUIDS. Liquids represents
and warrants that at the date hereof:

(a) ORGANIZATION. Liquids is duly organized, validly existing and
in good standing under the laws of the State of Michigan, it has all
right, power and authority to operate the Business and to carry on its
business as contemplated by this Agreement in the State of Michigan, and
it has all requisite power and authority to execute and perform this
Agreement.

(b) OPERATION OF BUSINESS. Liquids or its affiliates are the
lawful owner of the Business, and have obtained or have lawful rights to
use all federal, state and local licenses, permits and approvals, all
agreements relating to such licenses, permits and approvals to operate
the Business as currently operated and as contemplated by this Agreement
and are currently operating in material compliance with all applicable
federal, state and local laws, ordinances, requirements, orders,
directives, rules and regulations applicable to the Business.

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<PAGE>
The parties agree that the foregoing representations and warranties shall
survive the termination of this Agreement for a period of two years.

8. REPRESENTATIONS AND WARRANTIES OF CITY. City represents and
warrants that at the date hereof:

(a) ORGANIZATION. City is duly organized, validly existing and in
good standing under the laws of the State of Michigan, it has all right,
power and authority to carry on its business as now conducted and as
contemplated by this Agreement in the State of Michigan, and it has all
requisite power and authority to execute and perform this Agreement.

(b) OPERATION. City has obtained all required state licenses,
permits and approvals to deliver the Acceptable Material to Liquids as
contemplated hereunder, and it is currently operating in material
compliance with all such licenses, permits and approvals.

The parties agree that the foregoing representations and warranties shall
survive the termination of this Agreement for a period of two years.

9. COVENANTS.

(a) COVENANTS OF LIQUIDS. Liquids covenants that:

(i) At all times during the Term of this Agreement,
Liquids shall cause the Business to be operated in material
compliance with all required federal, state and local licenses,
permits and approvals and all federal, state and local laws,
ordinances, requirements, orders, directives, rules and
regulations.

(ii) The current operating hours are from ____ a.m. to ____
p.m., Mondays through Fridays and from ____ a.m. to ____ p.m. on
Saturdays, excluding holidays. If the foregoing operating hours
shall be expanded or restricted, then Liquids shall be open for
operation and acceptance of Acceptable Material from City during
such expanded or reduced hours.

(b) COVENANTS OF CITY. City covenants that:

(i) City acknowledges the right of Liquids to make, change
and enforce reasonable rules and regulations regarding the
disposal of Acceptable Material. City covenants to abide by such
rules and regulations as established from time to time upon
receipt of notice of such rules and regulations.

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<PAGE>
10. INDEMNIFICATION.

(a) INDEMNIFICATION BY LIQUIDS. Liquids agrees to indemnify and
hold harmless City and its subsidiaries and affiliates, and their
respective directors, officers, agents and employees (the "City
Indemnified Parties") from and against any and all liabilities, losses,
damages, costs, expenses and disbursements, including reasonable legal
fees and expenses, arising out of any claim or loss of or damage to
property and injuries to or death of any persons, including any City
Indemnified Parties, environmental response costs caused (i) by the
breach of any term, covenant, agreement or undertaking herein of
Liquids, (ii) by the negligence or willful misconduct of Liquids; or
(iii) by the release or threatened release of any Acceptable Materials
delivered by City to Liquids.

(b) INDEMNIFICATION BY CITY. City agrees to indemnify and hold
harmless Liquids and its subsidiaries and affiliates, and their
respective directors, officers, agents and employees (the "Liquids
Indemnified Parties") from and against any and all liabilities, losses,
damages, costs, expenses and disbursements, including reasonable legal
fees and expenses, arising out of any claim or loss of or damage to
property and injuries to or death of any persons, including any Liquids
Indemnified Parties, caused (i) by the breach of any term, covenant,
agreement or undertaking herein of City, or (ii) by the negligence or
willful misconduct of City.

11. TERMINATION.

(a) TERMINATION BY CITY. City shall have the right to terminate
this Agreement in the event of the occurrence and continuance of any of
the following:

(i) The material breach by Liquids of any of the terms,
conditions or provisions of this Agreement, which breach is not
cured within 30 days after notice from City of same is given to
Liquids; provided, however, that if the nature of the breach is
such that more than 30 days are required for its cure, then City
shall not be entitled to terminate this Agreement with respect to
such breach if Liquids commences said cure within such 30 day
period and thereafter diligently prosecutes same to completion;

(ii) The commencement of any voluntary or involuntary
bankruptcy or insolvency proceedings against Liquids or if
reorganization proceedings are commenced against Liquids or any
such other party under any state or federal debtor relief
statutes; provided that any such

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proceedings are not dismissed within 90 days after being
instituted;

(iii) The existence and continuation of an event of Force
Majeure (hereinafter defined) for more than 90 days;

(iv) The enactment, adoption, promulgation, amendment or
modification, after the date hereof, of any federal, state or
local law, regulation, ordinance, code, rule or similar
legislation, existing as of the date hereof, which results in the
illegality or impossibility of the performance by City of its
rights or obligations as provided herein; including, without
limitation, the implementation directly, or indirectly through
licensing or similar requirements or otherwise, of flow control
or other restrictions, conditions, charges or assessments on the
movement of Acceptable Material outside the geographical borders
of the governmental entity where generated; or

(v) The order, final action, injunction and/or judgment of
any federal, state or local court, administrative agency or
governmental body with appropriate jurisdiction which results in
the illegality or impossibility of the performance by City of its
rights or obligations as provided herein; provided that such
order,judgment, final action or injunction shall not be the
result of the willful or negligent action or inaction of City.
For purposes of this provision, neither the contesting in good
faith of any such order or judgment, nor the failure to so
contest shall constitute or be construed as a willful or
negligent action or inaction.

(b) TERMINATION BY LIQUIDS. Liquids shall have the right to
terminate this Agreement in the event of the occurrence and continuation
of any of the following:

(i) The failure of City to comply with any payment
obligation under this Agreement within 30 days of the due date
for each such payment;

(ii) The material breach by City of any of the terms,
conditions or provisions of this Agreement, which breach is not
cured within 30 days after notice from Liquids of same is given
to City; provided, however, that if the nature of said breach is
such that more than 30 days are required for its cure, then
Liquids shall not be entitled to terminate this Agreement with
respect to such breach if City commences said cure within such 30
day period and thereafter diligently prosecutes same to
completion within 90 days after such notice;

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<PAGE>
(iii) The existence and continuation of an event of Force
Majeure for more than 90 days;

(iv) The commencement of any voluntary or involuntary
bankruptcy or insolvency proceedings against City, or if
reorganization proceedings against City are commenced against
City under any state or federal debtor relief statute; provided
that any such proceedings are not dismissed within 90 days after
being instituted; or

(v) The enactment, adoption, promulgation, amendment or
modification, after the date hereof, of any federal, state or
local law, regulation, ordinance, code, rule or similar
legislation, existing as of the date hereof, which results in the
illegality or impossibility of the performance by Liquids of its
rights or obligations as provided herein; including, without
limitation, the implementation directly, or indirectly through
licensing or similar requirements or otherwise, or other
restrictions, conditions, changes or assessments on the movement
of Acceptable Material outside the geographical borders of the
governmental entity where generated; or

(vi) The order, final action, injunction and/or judgment
of any federal, state or local court, administrative agency or
governmental body with appropriate jurisdiction which results in
the illegality or impossibility of performance by Liquids of its
rights or obligations as provided herein; provided that such
order, judgment, final action or injunction shall not be the
result of the unlawful or negligent action or inaction of
Liquids. For purposes of this provision, neither the contesting
in good faith of any such order or judgment, nor the failure to
so contest shall constitute or be construed as an unlawful or
negligent action or inaction.

(c) EFFECT OF TERMINATION. Termination of this Agreement shall
not result in the termination of any obligation of any party hereunder
that has accrued at the time of termination, and in no event shall the
termination of this Agreement operate to excuse any obligation of any
party for breach of a representation or warranty under this Agreement or
failure to perform under the indemnity provisions of this Agreement, all
of which provisions shall survive any termination of the Agreement by
any party hereto.

12. CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the meanings set forth below:

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<PAGE>
(a) "Acceptable Material" means any leachate that is of the same
or materially similar nature and parameters as the leachate currently
being generated by City; provided, however, Acceptable Material shall
not include:

(i) Hazardous Waste, as herein defined; or

(ii) any waste material which is required by any governmental
authority or by its general nature to be handled or disposed of
other than in accordance with the normal procedures of the
business as existing on the date hereof or as amended from time
to time; or

(iii) waste material which does not conform to the description
of waste materials which the Business is permitted to dispose of
under its permit, operating license and other applicable
requirements.

(b) "Hazardous Waste" means all waste defined as such in 42 USC
ss.6921, in MCLA 324.11103(3), or in the associated regulations as
amended from time to time.

13. MISCELLANEOUS.

(a) CONFIDENTIALITY. Each party hereto agrees that the terms of
this Agreement are confidential and each party agrees not to disclose
the terms hereof to any other person or entity whatsoever, nor to allow
any of its employees, directors, agents, contractors or other persons
within such party's control to so disclose, except if required to do so
by law. The violation of this provision shall be deemed to be a material
breach of this Agreement entitling the aggrieved party to terminate this
Agreement immediately without any grace period which may otherwise be
set forth herein for a breach of this Agreement.

(b) NOTICES. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given if delivered by hand, by
overnight courier, by facsimile transmission or by certified or
registered United States mail, return receipt requested, with proper
postage prepaid as follows:

(i) To Liquids:

U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060
ATTN: David Turkal

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<PAGE>
with a copy to:

U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060
ATTN: W. Gregory Orr

(ii) If to City:

USA Waste Services, Inc.
1001 Fannin Street,
Suite 4000
Houston, TX 77002
Attn: General Counsel

with a copy to:

USA Waste Services, Inc.
Park West Two
Suite 420
2000 Cliff Mine Rd.
Pittsburgh, PA 15275
ATTN: Regional Vice President

or to such other address as the parties listed immediately above shall have last
designated by notice to the other listed parties. Any notice given by personal
delivery or facsimile transmission shall be deemed to have been delivered on the
date of the receipt of such delivery or transmission at the address set forth
above (or such other address designated pursuant hereto) and any notice given by
United States mail shall be deemed to have been delivered in the United States
postal system. Notice in writing may be given by a method other than as
described above and such notice shall be deemed delivered on the date actually
received.

(c) RELATIONSHIP OF PARTIES. This Agreement shall not in any
manner be construed so as to create the relationship of principal and
agent or of partnership or joint venture or of any associate between
City and Liquids. The parties hereto agree to act as independent
contractors, and, as such, except as otherwise specifically set forth in
this Agreement, each party shall be liable for its own business
operation, insurance, taxes, licenses, permits, expenses, and all other
liabilities.

(d) ASSIGNMENT. This Agreement may not be assigned by either
party without the prior written consent of the other party. This
Agreement shall be binding on and shall inure to the benefit of the
parties hereto and their permitted successors and assigns.

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<PAGE>
(e) SEVERABILITY; REMEDIES CUMULATIVE. If any term, covenant,
condition or provision of this Agreement or the application thereof to
any person or circumstance shall, at any time or to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other
than those to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant, condition and provision of
this Agreement shall be valid and enforceable to the fullest extent
permitted by law. No right, remedy or election give by any term of this
Agreement shall be deemed exclusive but each shall be cumulative with
all rights, remedies and elections available at law or in equity.

(f) FORCE MAJEURE. No party shall be liable, for its failure to
perform any of its obligations hereunder nor shall it be deemed a
default under this Agreement if a party fails to perform any of its
obligations hereunder, in any case in which such failure is caused
directly or indirectly by an event of Force Majeure; except that the
failure to pay money when due shall not be excused as a result of the
effect of this Section. For purposes of this Agreement, "Force Majeure"
shall mean any act of God; flood; fire; explosion; storm; strike;
lockout; war; insurrection; riot; the order or judgment or other act of
any federal or state court, administrative agency or governmental office
or body which adversely affects the obligations of either party
hereunder; the denial, loss, suspension, expiration, termination or
failure of renewal of any permit, license or other governmental approval
required to operate the Business; the adoption or change (including a
change in interpretation) of any law, rule or regulation adversely
affecting the obligations of either party hereunder; breakage or
accidents to machinery or equipment; or delays in obtaining, or
reductions or shortages, of supplies, materials, equipment, or fuel
necessary to Liquids's performance hereunder.

(g) NUMBER, GENDER AND HEADINGS. Wherever herein used, the
singular number shall include the plural and the masculine gender shall
include the feminine and neuter genders, and vice versa, as the context
shall require. The headings used herein are for reference and
convenience only and shall not enter into the interpretation hereof.

(h) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument.

(i) AMENDMENT AND WAIVER. This Agreement shall not be altered,
modified or otherwise amended except by a writing executed by the party
against who the modified or amended term

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<PAGE>
or provision is sought to be enforced. Any failure on the part of any
party to this Agreement at any time to require the performance by any
other party to this Agreement at any time to require the performance by
any other party of any term or provision hereof, even if known, shall in
no way affect the right thereafter to enforce the same (except that no
party may enforce any rights arising from a breach of this Agreement,
which breach has been cured), nor shall it be taken or held to be a
waiver of any succeeding breach.

(j) GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of
Michigan.

(k) TIME OF THE ESSENCE. Time is of the essence of this
Agreement.

(l) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the parties hereto with respect to
the subject matter hereof and supersedes any prior agreement,
representation or understanding with respect thereto.

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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered under seal by the duly authorized
officers of each such party, all as of the day and year first above written.

CITY MANAGEMENT CORPORATION

By:__________________________
Its:_________________________

USL CITY ENVIRONMENTAL, INC.

By:__________________________
Its:_________________________

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EXHIBIT 10.70

DISPOSAL AGREEMENT

THIS DISPOSAL AGREEMENT ("Agreement") is made as of May 8, 1998,
by and between CITY MANAGEMENT CORPORATION, a Michigan corporation ("City"), and
USL CITY ENVIRONMENTAL, INC., a Michigan corporation ("Liquids").

W I T N E S S E T H:

WHEREAS, on the date hereof, Liquids has acquired certain assets
of City to be used in connection with the Business (the "Acquisition");

WHEREAS, as part of the Acquisition, Liquids has agreed to
dispose of Acceptable Material (hereinafter defined) at one or more mutually
agreeable Detroit area landfills operated by City or its affiliates on the terms
and conditions set forth herein;

1. DISPOSAL. Pursuant to the terms and conditions of this
Agreement, during the Term (hereinafter defined), Liquids shall dispose of all
of its Acceptable Material at one or more Detroit area landfills from time to
time designated by City and acceptable to Liquids in its reasonable business
judgment, and City agrees to accept for disposal all Acceptable Material
delivered to such landfill by Liquids; provided, however, that City shall have
the right to reject any material which City determines does not constitute
Acceptable Material. City and Liquids agree that Carleton Farms and Pinetree
Acres (together, the "Landfills") shall be the initial designated landfills and
that such landfills shall continue to be the designated landfill unless and
until another landfill is agreed to in writing by Liquids and City.

2. TERM. The term ("Term") of this Agreement shall commence on
the date hereof and continue for a term of twenty years, unless sooner
terminated as provided herein.

3. DISPOSAL PRICE. (a) The disposal price for each
cubic yard of Acceptable Material delivered by Liquids to the
Landfills shall be as follows:
<PAGE>
YEAR CUBIC YARDS PER YEAR RATE
---- -------------------- ----

1 through 5 first 120,000 cu/yd. $45.50 per cu/yd.
1 through 5 120,001 cu/yd. and up $ 8.00 per cu/yd.
6 through 20 all cubic yards $ 8.00 per cu/yd.

(b) PRICE INCREASE FOR CPI INDEX. For purposes of this Agreement,
(a) $45.50 shall be the "Premium Rate", and (b) $8.00 shall be the "Base
Rate." The Base Rate and only that portion of the Premium Rate
equivalent to the Base Rate shall escalate annually on each January 1st
during the Term by an amount equal to the increase in the CPI Index
which results from comparing the CPI same for All Urban Consumers as of
May 1, 1998 with the same CPI Index for each succeeding May 1st.

(c) ADJUSTMENT TO PRICE. In the event that during the Term of
this Agreement there is levied upon the operations of the Landfills any
extraordinary tax, assessment or charge by any governmental authority or
there occurs any substantial change in regulatory requirements related
to the operation of the Landfills and having general applicability to
the waste disposal business which includes the Landfills (but not
related to any action, omission or condition of City), which tax
assessment or charge increases in a material manner City's annual cost
to operate the Landfills over City's cost of operations of the Landfills
for the immediately preceding calendar year (in each case, an
"Extraordinary Levy"), such amounts shall be added to the disposal price
to be paid by Liquids hereunder on a pro rata basis reflecting the
proportion of the volume of Acceptable Material delivered by Liquids
hereunder to the total volume of Acceptable Material received by the
Landfills during a like period, subject to subparagraph (d) below.

(d) NOTICE OF EXTRAORDINARY LEVIES. City shall notify Liquids of
any price increase for Extraordinary Levies at least 30 days in advance
of the effective date thereof (except in the case of Extraordinary
Levies where City has received less than 30 days notice in which case
the necessary advance notice period to Liquids shall be the same length
as that which was received by City).

4. PAYMENT. City shall issue a ticket to each Liquids vehicle
delivering Acceptable Material to one of the Landfills, which ticket shall show
the date, vehicle number and quantity of Acceptable Material to establish
charges. On a monthly basis, City shall send Liquids a statement of charges.
Liquids agrees to pay all charges due and owing hereunder to City on or before
the 30th day following the date of receipt of a statement of charges.

5. TITLE.

(a) TITLE. Title to the Acceptable Material delivered by Liquids
shall pass to City at the time the Acceptable Material is removed from
the transporting vehicles and

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<PAGE>
accepted by City as Acceptable Material at the designated working face
of one of the Landfills, and all risk and responsibility for such
Acceptable Material, including liability for any release or threatened
release thereof, under any federal, state or local environmental law,
shall thereafter rest with City. Title to and all risks and
responsibilities for material which does not conform to the definition
of Acceptable Material hereunder shall remain with Liquids and shall not
be deemed to pass to City whether or not disposed of at the Landfills.

(b) SURVIVAL. The obligations set forth in this Section 5 shall
survive the performance and termination of this Agreement.

6. UNACCEPTABLE WASTE. Liquids agrees that it will not dispose of
at the Landfills any Hazardous Waste (hereinafter defined) or any other material
which is not Acceptable Material. If Liquids delivers to the Landfills any
material which does not conform to the definition of Acceptable Material under
this Agreement and to the requirements of any applicable governmental law,
regulation, rule or order, then (in addition to City's other remedies pursuant
hereto or available at law or in equity), if City notifies Liquids of the
delivery of such nonconforming materials, which notice shall be made promptly
upon City's determination of such nonconformity, Liquids shall promptly make
available at the Landfills a vehicle suitable for transporting such
nonconforming material, shall promptly load such nonconforming material onto the
vehicle and shall promptly remove such nonconforming material from the
Landfills, all at Liquids's expense. Liquids shall reimburse City for any
reasonable and necessary costs incurred by City in connection with the removal
of non-conforming material.

7. REPRESENTATIONS AND WARRANTIES OF CITY. City represents and
warrants that at the date hereof:

(a) ORGANIZATION. City is duly organized, validly existing and in
good standing under the laws of the State of Michigan, it has all right,
power and authority to operate the Landfills and to carry on its
business as contemplated by this Agreement in the State of Michigan, and
it has all requisite power and authority to execute and perform this
Agreement.

(b) OPERATION OF LANDFILLS. City or its affiliates are the lawful
owner of the Landfills, and have obtained or have lawful rights to use
all federal, state and local licenses, permits and approvals, all
agreements relating to such licenses, permits and approvals to operate
the Landfills as currently operated and as contemplated by this
Agreement and are currently operating in material compliance with all
applicable federal, state and local laws, ordinances, requirements,
orders, directives, rules and regulations applicable to the Landfills.

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<PAGE>
The parties agree that the foregoing representations and warranties shall
survive the termination of this Agreement for a period of two years.

8. REPRESENTATIONS AND WARRANTIES OF LIQUIDS. Liquids represents
and warrants that at the date hereof:

(a) ORGANIZATION. Liquids is duly organized, validly existing and
in good standing under the laws of the State of Michigan, it has all
right, power and authority to carry on its business as now conducted and
as contemplated by this Agreement in the State of Michigan, and it has
all requisite power and authority to execute and perform this Agreement.

(b) OPERATION. Liquids has obtained all required state licenses,
permits and approvals to deliver the Acceptable Material to the
Landfills as contemplated hereunder, and it is currently operating in
material compliance with all such licenses, permits and approvals.

The parties agree that the foregoing representations and warranties shall
survive the termination of this Agreement for a period of two years.

9. COVENANTS.

(a) COVENANTS OF CITY. City covenants that:

(i) At all times during the Term of this Agreement, City
shall cause the Landfills to be operated in material compliance
with all required federal, state and local licenses, permits and
approvals and all federal, state and local laws, ordinances,
requirements, orders, directives, rules and regulations.

(ii) The current operating hours for the Landfills are from
____ a.m. to ____ p.m., Mondays through Fridays and from ____
a.m. to ____ p.m. on Saturdays, excluding holidays. If the
foregoing operating hours at the Landfills shall be expanded or
restricted, then City shall cause the Landfills to be open for
operation and acceptance of Acceptable Material from Liquids
during such expanded or reduced hours.

(b) COVENANTS OF LIQUIDS. Liquids covenants that:

(i) Liquids acknowledges the right of City to make, change
and enforce reasonable rules and regulations regarding the
disposal of Acceptable Material at the Landfills. Liquids
covenants to abide by such rules and regulations as established
from time to time upon receipt of notice of such rules and
regulations.

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<PAGE>
10. INDEMNIFICATION.

(a) INDEMNIFICATION BY CITY. City agrees to indemnify and hold
harmless Liquids and its subsidiaries and affiliates, and their
respective directors, officers, agents and employees (the "Liquids
Indemnified Parties") from and against any and all liabilities, losses,
damages, costs, expenses and disbursements, including reasonable legal
fees and expenses, arising out of any claim or loss of or damage to
property and injuries to or death of any persons, including any Liquids
Indemnified Parties, environmental response costs caused (i) by the
breach of any term, covenant, agreement or undertaking herein of City,
(ii) by the negligence or willful misconduct of City; or (iii) by the
release or threatened release of any Acceptable Materials delivered by
Liquids to City.

(b) INDEMNIFICATION BY LIQUIDS. Liquids agrees to indemnify and
hold harmless City and its subsidiaries and affiliates, and their
respective directors, officers, agents and employees (the "City
Indemnified Parties") from and against any and all liabilities, losses,
damages, costs, expenses and disbursements, including reasonable legal
fees and expenses, arising out of any claim or loss of or damage to
property and injuries to or death of any persons, including any City
Indemnified Parties, caused (i) by the breach of any term, covenant,
agreement or undertaking herein of Liquids, or (ii) by the negligence or
willful misconduct of Liquids.

11. TERMINATION.

(a) TERMINATION BY LIQUIDS. Liquids shall have the right to
terminate this Agreement in the event of the occurrence and continuance
of any of the following:

(i) The material breach by City of any of the terms,
conditions or provisions of this Agreement, which breach is not
cured within 30 days after notice from Liquids of same is given
to City; provided, however, that if the nature of the breach is
such that more than 30 days are required for its cure, then
Liquids shall not be entitled to terminate this Agreement with
respect to such breach if City commences said cure within such 30
day period and thereafter diligently prosecutes same to
completion;

(ii) The commencement of any voluntary or involuntary
bankruptcy or insolvency proceedings against City or if
reorganization proceedings are commenced against City or any such
other party under any state or federal debtor relief statutes;
provided that any such proceedings are not dismissed within 90
days after being instituted;

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<PAGE>
(iii) The existence and continuation of an event of Force
Majeure (hereinafter defined) for more than 90 days;

(iv) The enactment, adoption, promulgation, amendment or
modification, after the date hereof, of any federal, state or
local law, regulation, ordinance, code, rule or similar
legislation, existing as of the date hereof, which results in the
illegality or impossibility of the performance by Liquids of its
rights or obligations as provided herein; including, without
limitation, the implementation directly, or indirectly through
licensing or similar requirements or otherwise, of flow control
or other restrictions, conditions, charges or assessments on the
movement of Acceptable Material outside the geographical borders
of the governmental entity where generated; or

(v) The order, final action, injunction and/or judgment of
any federal, state or local court, administrative agency or
governmental body with appropriate jurisdiction which results in
the illegality or impossibility of the performance by Liquids of
its rights or obligations as provided herein; provided that such
order,judgment, final action or injunction shall not be the
result of the willful or negligent action or inaction of Liquids.
For purposes of this provision, neither the contesting in good
faith of any such order or judgment, nor the failure to so
contest shall constitute or be construed as a willful or
negligent action or inaction.

(b) TERMINATION BY CITY. City shall have the right to terminate
this Agreement in the event of the occurrence and continuation of any of
the following:

(i) The failure of Liquids to comply with any payment
obligation under this Agreement within 30 days of the due date
for each such payment;

(ii) The material breach by Liquids of any of the terms,
conditions or provisions of this Agreement, which breach is not
cured within 30 days after notice from City of same is given to
Liquids; provided, however, that if the nature of said breach is
such that more than 30 days are required for its cure, then City
shall not be entitled to terminate this Agreement with respect to
such breach if Liquids commences said cure within such 30 day
period and thereafter diligently prosecutes same to completion
within 90 days after such notice;

(iii) The existence and continuation of an event of Force
Majeure for more than 90 days;

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<PAGE>
(iv) The commencement of any voluntary or involuntary
bankruptcy or insolvency proceedings against Liquids, or if
reorganization proceedings against Liquids are commenced under
any state or federal debtor relief statute; provided that any
such proceedings are not dismissed within 90 days after being
instituted; or

(v) The enactment, adoption, promulgation, amendment or
modification, after the date hereof, of any federal, state or
local law, regulation, ordinance, code, rule or similar
legislation, existing as of the date hereof, which results in the
illegality or impossibility of the performance by City of its
rights or obligations as provided herein; including, without
limitation, the implementation directly, or indirectly through
licensing or similar requirements or otherwise, or other
restrictions, conditions, changes or assessments on the movement
of Acceptable Material outside the geographical borders of the
governmental entity where generated; or

(vi) The order, final action, injunction and/or judgment
of any federal, state or local court, administrative agency or
governmental body with appropriate jurisdiction which results in
the illegality or impossibility of performance by City of its
rights or obligations as provided herein; provided that such
order, judgment, final action or injunction shall not be the
result of the unlawful or negligent action or inaction of City.
For purposes of this provision, neither the contesting in good
faith of any such order or judgment, nor the failure to so
contest shall constitute or be construed as an unlawful or
negligent action or inaction.

12. CERTAIN DEFINITIONS. For purposes of this
Agreement, the following terms shall have the meanings set forth
below:

(a) "Acceptable Material" means any non-hazardous waste generated
from a wastewater treatment plant or water supply treatment plant which
are parts of the Business; provided, however, Acceptable Material shall
not include:

(i) Hazardous Waste, as herein defined; or

-7-
<PAGE>
(ii) any waste material which is required by any governmental
authority or by its general nature to be handled or disposed of
other than in accordance with the Landfills' normal disposal and
fill operating procedures as existing on the date hereof or as
amended from time to time; or

(iii) waste material which does not conform to the description
of waste materials which the Landfills are permitted to dispose
of under their permits, or operating license, and other
applicable requirements.

(b) "Hazardous Waste" means all waste defined as such in 42 USC
ss.6921, in MCLA 324.11103(3) or in the associated regulations as
amended from time to time.

13. MISCELLANEOUS.

(i) To Liquids:

U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060
ATTN: David Turkal

with a copy to:

U S Liquids Inc.
411 N. Sam Houston Parkway East
Suite 400
Houston, TX 77060
ATTN: W. Gregory Orr

-8-
<PAGE>
(ii) If to City:

USA Waste Services, Inc.
1001 Fannin Street,
Suite 4000
Houston, TX 77002
Attn: General Counsel

with a copy to:

USA Waste Services, Inc.
Park West Two
Suite 420
2000 Cliff Mine Rd.
Pittsburgh, PA 15275
ATTN: Regional Vice President

or to such other address as the parties listed immediately above shall
have last designated by notice to the other listed parties. Any notice
given by personal delivery or facsimile transmission shall be deemed to
have been delivered on the date of the receipt of such delivery or
transmission at the address set forth above (or such other address
designated pursuant hereto) and any notice given by United States mail
shall be deemed to have been delivered in the United States postal
system. Notice in writing may be given by a method other than as
described above and such notice shall be deemed delivered on the date
actually received.

(c) RELATIONSHIP OF PARTIES. This Agreement shall not in any
manner be construed so as to create the relationship of principal and
agent or of partnership or joint venture or of any associate between
Liquids and City. The parties hereto agree to act as independent
contractors, and, as such, except as otherwise specifically set forth in
this Agreement, each party shall be liable for its own business
operation, insurance, taxes, licenses, permits, expenses, and all other
liabilities.

(e) SEVERABILITY; REMEDIES CUMULATIVE. If any term, covenant,
condition or provision of this Agreement or the application thereof to
any person or circumstance shall, at any time or to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other
than those to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant, condition and provision of
this Agreement shall be valid and enforceable to the fullest extent
permitted by law. No right, remedy or

-9-
<PAGE>
election give by any term of this Agreement shall be deemed exclusive
but each shall be cumulative with all rights, remedies and elections
available at law or in equity.

(f) FORCE MAJEURE. No party shall be liable, for its failure to
perform any of its obligations hereunder nor shall it be deemed a
default under this Agreement if a party fails to perform any of its
obligations hereunder, in any case in which such failure is caused
directly or indirectly by an event of Force Majeure; except that the
failure to pay money when due shall not be excused as a result of the
effect of this Section. For purposes of this Agreement, "Force Majeure"
shall mean any act of God; flood; fire; explosion; storm; strike;
lockout; war; insurrection; riot; the order or judgment or other act of
any federal or state court, administrative agency or governmental office
or body which adversely affects the obligations of either party
hereunder; the denial, loss, suspension, expiration, termination or
failure of renewal of any permit, license or other governmental approval
required to operate the Landfills; the adoption or change (including a
change in interpretation) of any law, rule or regulation adversely
affecting the obligations of either party hereunder; breakage or
accidents to machinery or equipment; or delays in obtaining, or
reductions or shortages, of supplies, materials, equipment, fuel, or
soil or other cover material, necessary to City's performance hereunder.

(h) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument.

(i) AMENDMENT AND WAIVER. This Agreement shall not be altered,
modified or otherwise amended except by a writing executed by the party
against who the modified or amended term or provision is sought to be
enforced. Any failure on the part of any party to this Agreement at any
time to require the performance by any other party to this Agreement at
any time to require the performance by any other party of any term or
provision hereof, even if known, shall in no way affect the right
thereafter to enforce the same (except that no party may enforce any
rights arising from a breach of this Agreement, which breach has been
cured), nor shall it be taken or held to be a waiver of any succeeding
breach.

-10-
<PAGE>
(j) GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed by, the laws of the State of
Michigan.

(k) TIME OF THE ESSENCE. Time is of the essence of this
Agreement.

IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered under seal by the duly authorized
officers of each such party, all as of the day and year first above written.

CITY MANAGEMENT CORPORATION

By:__________________________
Its:_________________________

USL CITY ENVIRONMENTAL, INC.

By:__________________________
Its:_________________________

-11-

EXHIBIT 21.1

MBO Inc., a Delaware corporation

US Liquids L.P. Holding Co., a Delaware corporation

US Liquids of La., L.P., a Delaware limited partnership

American WasteWater Inc., a Texas corporation

Mesa Processing, Inc., a Texas corporation

Mesa International, Inc., a Barbados corporation

Re-Claim Environmental, Inc., a Texas corporation

Re-Claim Environmental Louisiana L.L.C., a Louisiana limited liability company

USL Management Limited Partnership, a Texas limited partnership

USL General Management, Inc., a Texas corporation

GEM Management, Inc., a Delaware corporation

U S Liquids Northeast, Inc., a Delaware corporation

Environment Management, Inc., a Texas corporation

Enviro-Waste Type V of Texas, Inc., a Texas corporation

Waste Stream Environmental, Inc., a New York corporation

Earth Blends, Inc., a New York corporation

Amigo Diversified Services, Inc., a Texas corporation

The National Solvent Exchange Corp., a Georgia corporation

USL Parallel Products of California, a California corporation

Parallel Products of Kentucky, Inc., a Kentucky corporation

Parallel Products of Florida, Inc., a Florida corporation

USL City Environmental, Inc., a Michigan corporation

USL City Environmental Services of Florida, Inc., a Florida corporation

Northern A-1 Sanitation Services, Inc., a Michigan corporation

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and all references to our Firm included in this registration statement
on Form S-1 filed by U S Liquids Inc.

ARTHUR ANDERSEN LLP

Houston, Texas
May 12, 1998

<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM US LIQUIDS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,203
<SECURITIES> 0
<RECEIVABLES> 5,778
<ALLOWANCES> 342
<INVENTORY> 567
<CURRENT-ASSETS> 8,827
<PP&E> 43,281
<DEPRECIATION> 4,171
<TOTAL-ASSETS> 55,016
<CURRENT-LIABILITIES> 6,705
<BONDS> 17,436
0
0
<COMMON> 73
<OTHER-SE> 20,833
<TOTAL-LIABILITY-AND-EQUITY> 55,016
<SALES> 12,383
<TOTAL-REVENUES> 38,159
<CGS> 24,173
<TOTAL-COSTS> 30,093
<OTHER-EXPENSES> 41
<LOSS-PROVISION> 77
<INTEREST-EXPENSE> 1,734
<INCOME-PRETAX> 6,291
<INCOME-TAX> 2,416
<INCOME-CONTINUING> 3,875
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,875
<EPS-PRIMARY> .65
<EPS-DILUTED> .55

</TABLE>