<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Quarterly Period ended MARCH 31, 1998
Commission File Number 333-34323
HYDROCHEM INDUSTRIAL SERVICES, INC. (*)
(Exact name of registrant as specified in its charter)
DELAWARE 75-2503906
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6210 ROTHWAY
HOUSTON, TEXAS 77040
(Address of principal executive offices) (Zip Code)
(713) 462-2130
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock of the Registrant, par value of
$.01 per share, outstanding on May 1, 1998 was 100 shares. The Registrant's
Common Stock is not registered under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended
- ------------------------------------------------------------------------------
* HydroChem International, Inc., a direct and wholly owned subsidiary of
HydroChem Industrial Services, Inc., is a Co-Registrant. It is incorporated
under the laws of the State of Delaware and its I.R.S. Employer Identification
Number is 75-2512100.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1997 and
March 31, 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for each of the three
month periods ended March 31, 1997 and 1998 (unaudited) . . . . . . . . . 4
Consolidated Statement of Stockholder's Equity for the three
month period ended March 31, 1998 (unaudited) . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for each of the three
month periods ended March 31, 1997 and 1998 (unaudited) . . . . . . . . . 6
Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
<PAGE> 3
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 33,862 $ 29,339
Restricted cash (Note 2) . . . . . . . . . . . . . . . . . . 2,858 -
Receivables, less allowance of $1,280 and $1,094,
respectively . . . . . . . . . . . . . . . . . . . . . . . 24,341 25,528
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 3,863 4,364
Prepaid expenses and other current assets . . . . . . . . . 1,791 3,109
Income taxes receivable . . . . . . . . . . . . . . . . . . 407 312
Deferred income taxes . . . . . . . . . . . . . . . . . . . 1,835 1,610
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . 68,957 64,262
Property and equipment, at cost . . . . . . . . . . . . . . . . . . . 63,210 68,768
Accumulated depreciation . . . . . . . . . . . . . . . . . . (24,872) (26,912)
--------- ---------
38,338 41,856
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . 44,798 44,464
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . $ 152,093 $ 150,582
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $ 4,823 $ 7,631
Income taxes payable . . . . . . . . . . . . . . . . . . . . 40 6
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 11,770 7,720
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . 16,633 15,357
Long-term debt (Note 3) . . . . . . . . . . . . . . . . . . . . . . . 110,000 110,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . 8,753 8,466
Commitments and contingencies (Note 5)
Stockholder's equity:
Common stock, $.01 par value:
1,000 shares authorized, 100 shares outstanding . . . . 1 1
Additional paid in capital . . . . . . . . . . . . . . . . . 16,558 16,558
Retained earnings . . . . . . . . . . . . . . . . . . . . . 148 200
--------- ---------
Total stockholder's equity . . . . . . . . . . . . . . . 16,707 16,759
--------- ---------
Total liabilities and stockholder's equity . . . . . . . $ 152,093 $ 150,582
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1998
--------- ---------
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . . . $ 38,388 $ 40,888
Cost of revenue . . . . . . . . . . . . . . . . . . . 22,919 24,885
--------- ---------
Gross profit . . . . . . . . . . . . . . . . . . 15,469 16,003
Selling, general and administrative expense . . . . . 10,298 10,787
Depreciation . . . . . . . . . . . . . . . . . . . . 1,911 2,193
--------- ---------
Operating income . . . . . . . . . . . . . . . . 3,260 3,023
Other (income) expense:
Interest expense, net . . . . . . . . . . . . . 1,862 2,517
Other expense, net . . . . . . . . . . . . . . . 4 3
Amortization of intangibles . . . . . . . . . . 388 376
--------- ---------
Income before taxes . . . . . . . . . . . . . . . . . 1,006 127
Income tax provision (Note 4) . . . . . . . . . 447 75
--------- ---------
Net income . . . . . . . . . . . . . . . . . . . . . $ 559 $ 52
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
----------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 . . . . . . . . $ 1 $ 16,558 $ 148 $ 16,707
Net income . . . . . . . . . . . . . . . - - 52 52
----------- --------- --------- ---------
Balance at March 31, 1998 . . . . . . . . . $ 1 $ 16,558 $ 200 $ 16,759
=========== ========= ========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1997 1998
--------- --------
<S> <C> <C>
Operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 559 $ 52
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . 1,911 2,193
Amortization . . . . . . . . . . . . . . . . . . . . . . 388 376
Amortization of deferred financing costs . . . . . . . . 147 85
Deferred income tax expense provision . . . . . . . . . 447 (63)
Loss (gain) on sale of property and equipment . . . . . 2 (26)
Changes in operating assets and liabilities:
Restricted cash . . . . . . . . . . . . . . . . . . . . - 2,858
Receivables, net . . . . . . . . . . . . . . . . . . . . (1,556) (1,187)
Inventories . . . . . . . . . . . . . . . . . . . . . . (84) (501)
Prepaid expenses and other current assets . . . . . . . (481) (1,223)
Accounts payable . . . . . . . . . . . . . . . . . . . . 436 2,808
Income taxes payable . . . . . . . . . . . . . . . . . . 45 (34)
Accrued liabilities . . . . . . . . . . . . . . . . . . (903) (4,052)
-------- --------
Net cash provided by operating activities. . . . . . . 911 1,286
-------- --------
Investing activities:
Expenditures for property and equipment . . . . . . . . . . (1,616) (5,781)
Proceeds from sale of property and equipment . . . . . . . . 139 96
-------- --------
Net cash used in investing activities . .. . . . . . . (1,477) (5,685)
-------- --------
Financing activities
Proceeds from (repayments of) long-term debt, net . . . . . 1,017 (124)
-------- --------
Net cash provided by (used in) financing activities. . 1,017 (124)
-------- --------
Net increase (decrease) in cash . . . . . . . . . . . . . . . . . 451 (4,523)
Cash at beginning of period . . . . . . . . . . . . . . . . . . . 671 33,862
-------- --------
Cash at end of period . . . . . . . . . . . . . . . . . . . . . . $ 1,122 $ 29,339
======== ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
HydroChem Industrial Services, Inc. ("HydroChem") and its wholly-owned
subsidiary, HydroChem International, Inc. ("International"). HydroChem
generally conducts business outside the United States through
International. (HydroChem and International collectively are referred to
as the "Company"). HydroChem is a wholly-owned subsidiary of HydroChem
Holding, Inc. ("Holding").
The Company is engaged in the business of providing industrial
cleaning services to a wide range of processing industries, including
petrochemical plants, oil refineries, electric utilities, pulp and paper
mills, rubber plants, and aluminum plants. This type of work is typically
recurring maintenance to improve or sustain the operating efficiencies and
extend the useful lives of process equipment and facilities. Services
provided include high-pressure water cleaning (hydroblasting), chemical
cleaning, industrial vacuuming, waste minimization, and commissioning and
other specialized services.
The accompanying unaudited consolidated financial statements presented
herein have been prepared in accordance with generally accepted accounting
principles for interim financial information and the rules and regulations
of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and disclosures required by generally
accepted accounting principles for complete financial statements. Certain
information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted. In the opinion of management, the accompanying
unaudited interim financial statements include all adjustments, consisting
of only normal recurring accruals, necessary for a fair presentation of the
results of the interim periods. Operating results for the three month
interim period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. These
unaudited consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements included in
the Company's Amendment No. 1 to Form S-4 and Form 10-K filed with the
Securities and Exchange Commission on October 3, 1997 and March 30, 1998,
respectively.
2. RESTRICTED CASH
At December 31, 1997, restricted cash represented security for letters
of credit which principally were issued in connection with the Company's
property and casualty insurance program. These letters of credit now are
secured by the Company's New Credit Facility (see Note 3).
3. LONG-TERM DEBT
On August 4, 1997, HydroChem issued $110,000,000 of its 10 3/8% Senior
Subordinated Notes due 2007 (the "Series A Notes") in a private offering
pursuant to Rule 144A under the Securities Act of 1933. HydroChem
registered a substantially identical series of notes (the "Series B Notes")
with the Securities and Exchange Commission and on November 7, 1997
completed an exchange of the Series B Notes for the Series A Notes. The
Series B Notes mature on August 1, 2007 and bear interest at 10 3/8% per
annum which is payable semi-annually
7
<PAGE> 8
in arrears on February 1 and August 1 of each year, commencing on February
1, 1998. The Series B Notes are redeemable at the option of HydroChem, in
whole or in part, on or after August 1, 2002 at specified redemption prices.
In addition, up to 35% of the Series B Notes are redeemable at the option of
HydroChem with the proceeds from one or more equity offerings at a
redemption price of 109.375% of the principal amount thereof. International
is a guarantor of the Series B Notes.
A portion of the net proceeds from the sale of the Series A Notes was
used to repay HydroChem's senior debt and subordinated debt and to fund a
dividend to Holding which Holding used to discharge accrued interest on its
indebtedness and accrued dividends on its preferred stock. As a result of
the early repayment of HydroChem's prior debt, an extraordinary loss was
recognized in the amount of $2,342,000 (net of a related tax benefit of
$1,435,000). The extraordinary loss consisted of the write-off of
associated deferred financing costs in the amount of $3,178,000 before
related tax benefit, as well as a prepayment premium and other related fees
and expenses.
On December 31, 1997, HydroChem entered into a participating credit
agreement with a financial institution for a credit facility (the "New
Credit Facility") which provides for unsecured borrowings of up to
$25,000,000, subject to borrowing base limitations. The term of the New
Credit Facility is three years and any borrowings thereunder bear interest
at rates adjusted quarterly. Interest rates are based on (i) a range from
LIBOR plus 1.25% to LIBOR plus 2.00%, or, at the discretion of HydroChem,
(ii) a range from the prime rate to the prime rate plus 0.25%. The specific
rate within each range depends upon the Company's operating performance. In
addition, a commitment fee of 0.25% per annum is payable quarterly on the
unborrowed portion of the New Credit Facility. The New Credit Facility
requires the Company to meet certain customary financial ratios and
covenants, and generally restricts the Company from pledging its assets. As
of March 31, 1998, the Company's borrowing base under the New Credit
Facility was $20,100,000 of which $2,500,000 had been drawn in the form of
standby letters of credit, principally issued in connection with the
Company's property and casualty insurance program. At March 31, 1998, there
were no other borrowings under the New Credit Facility. Also, at such date,
HydroChem had available unused borrowings of $17,600,000. (See Note 2).
4. INCOME TAXES
The Company files a consolidated tax return with Holding. The
Company's effective income tax rate differs from the federal statutory
income tax rate primarily due to nondeductible permanent differences and
state income taxes.
5. COMMITMENTS AND CONTINGENCIES
HydroChem is a defendant in various lawsuits arising in the normal
course of business. Substantially all of these suits are being defended by
HydroChem's insurance carriers. While the results of litigation cannot be
predicted with certainty, management believes adequate provision has been
made for such claims and the final outcome of such litigation will not have
a material adverse effect on the Company's consolidated financial position.
The Company's plans to consolidate certain facilities into one facility
currently under construction in the Houston, Texas area. Estimated land
acquisition and construction costs for this project are approximately $8.9
million. The Company intends to obtain mortgage financing for approximately
$7.5 million of this amount.
8
<PAGE> 9
6. SUMMARY FINANCIAL INFORMATION
Summary financial information for International as consolidated with
HydroChem, is as follows (in thousands):
<TABLE>
<CAPTION>
As of As of
December 31, March 31,
1997 1998
------------ ----------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . $ 1,623 $ 1,545
Noncurrent assets . . . . . . . . . . . . . 127 120
Current liabilities . . . . . . . . . . . . 131 146
Noncurrent liabilities . . . . . . . . . . . - -
</TABLE>
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------
1997 1998
-------- -------
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . $ 470 $ 567
Gross profit . . . . . . . . . . . . . . . . 210 208
Net loss . . . . . . . . . . . . . . . . . . (40) (61)
</TABLE>
7. PENDING ACQUISITION
On March 20, 1998, HydroChem signed a letter of intent to acquire all the
stock of an entity in the industrial cleaning business for a purchase price of
approximately $34.0 million ($30.0 million in cash and $4.0 million in
promissory notes). HydroChem intends to fund the purchase price through a
combination of its available cash, the promissory notes, and additional debt to
be issued in connection with the acquisition. The acquisition is contingent
upon, among other things, satisfactory completion of due diligence, receipt of
board approvals and the execution of a definitive agreement. It is anticipated
that the acquisition, if successful, will be completed in the second calendar
quarter of 1998. If the acquisition ultimately is not consummated, the Company
will not be liable for any acquisition contingencies, except for related direct
costs such as legal and accounting fees.
9
<PAGE> 10
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Form 10-Q contains forward-looking statements and information that are
based on management's beliefs, as well as assumptions made by, and information
currently available to, management. When used in this document, the words
"believe," "anticipate," "estimate," "expect," "intend," and similar expressions
are intended to identify forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
reasonable, it can give no assurance that such expectations will prove to have
been correct. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated. The Company undertakes no obligation to
release publicly the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
For supplemental information, it is suggested that "Management's Discussion
and Analysis of Financial Condition and Results of Operations" be read in
conjunction with the corresponding section included in the Company's Amendment
No. 1 to Form S-4 and Form 10-K filed with the Securities and Exchange
Commission on October 3, 1997 and March 30, 1998, respectively. The Forms S-4
and 10-K also include the Company's Consolidated Financial Statements and the
Notes thereto for certain prior periods, as well as other relevant financial
and operating information.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the Company's consolidated statements of operations, expressed as
a percentage of revenue. There can be no assurance that the trends in operating
results will continue in the future.
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1997 1998
------- -------
<S> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . 100 .0% 100.0%
Cost of revenue . . . . . . . . . . . . . . . . 59 .7 60.9
------- ------
Gross profit . . . . . . . . . . . . . . . . 40.3 39.1
SG&A expense . . . . . . . . . . . . . . . . . . 26.8 26.3
Depreciation . . . . . . . . . . . . . . . . . . 5 .0 5.4
------- ------
Operating income . . . . . . . . . . . . . . 8 .5 7.4
Other (income) expense:
Interest expense, net . . . . . . . . . . . 4 .9 6.2
Other (income) expense, net . . . . . . . . - -
Amortization of intangibles . . . . . . . . 1 .0 0.9
------- ------
Income before taxes . . . . . . . . . . . . . . 2 .6 0.3
Income tax provision . . . . . . . . . . . 1 .1 0.2
------- ------
Net income . . . . . . . . . . . . . . . . . . 1 .5% 0.1%
======= ======
EBITDA (1) . . . . . . . . . . . . . . . . . . 13.5% 12.8%
</TABLE>
- ----------
(1) EBITDA is defined as net income plus income tax provision, interest
expense, depreciation, amortization, and other income and expense reflected in
the determination of net income. EBITDA should not be construed as a
substitute for operating income, as an indicator of liquidity or as a
substitute for net cash provided by operating activities, which are determined
in accordance with generally accepted accounting principles. EBITDA is
included because management believes that certain readers may find it to be a
useful tool for analyzing operating performance, leverage, liquidity, and a
company's ability to service debt.
10
<PAGE> 11
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenue. Revenue increased $2.5 million, or 6.5%, to $40.9 million for the
three months ended March 31, 1998 from $38.4 million in the prior year period.
The increase principally resulted from increased hydroblasting revenue of $2.1
million, or 10.3%, and increased industrial vacuuming revenue of $1.7 million,
or 49.2%, all of which was partially offset by decreased chemical cleaning
revenue of $678,000, or 5.3%, and decreased revenue from all other services of
$618,000, or 29.2%. Hydroblasting revenue increased primarily due to the
implementation of sole source provider arrangements with certain existing
customers and a small number of large projects with other customers. The
increase in industrial vacuuming revenue resulted from additional vacuum trucks
placed in service by the Company in 1997 and 1998. The decrease in chemical
cleaning revenue was primarily caused by a small number of projects in the
prior year period which did not recur, while the decrease in other services
primarily resulted from decreased pipeline cleaning.
Gross profit. Gross profit increased $534,000, or 3.5%, to $16.0 million
in 1998 from $15.5 million in the prior year period. Gross profit margins
decreased from 40.3% to 39.1%. Cost of revenue increased $2.0 million, or
8.6%, to $24.9 million for 1998 from $22.9 million in the prior year period due
to the revenue increases described above and increased direct compensation
costs.
SG&A expense. SG&A expense as a percentage of revenue decreased to 26.3%
in 1998 from 26.8% in the prior year period, while SG&A expense increased
$489,000, or 4.7%, to $10.8 million in 1998 from $10.3 million in the prior year
period. This increase primarily resulted from increases in compensation
expense.
EBITDA. Increased gross profit, partially offset by increased SG&A
expense, resulted in EBITDA of $5.2 million in 1998, an increase of $45,000, or
0.9%, from the prior year period. As a percentage of revenue, EBITDA decreased
to 12.8% in 1998, compared to 13.5% in the prior year period.
Depreciation. Depreciation expense increased $282,000, or 14.8%, to $2.2
million in 1998 from $1.9 million in the prior year period and was 5.4% and
5.0% of revenue, respectively. The increase in depreciation expense
principally resulted from increased capital expenditures for vacuum trucks and
other operating equipment.
Operating income. Increased gross profit, offset by increased SG&A expense
and depreciation expense, resulted in a decrease in operating income of
$237,000, or 7.3%, to $3.0 million in 1998 from $3.3 million in the prior year
period. As a percentage of revenue, operating income decreased to 7.4% in
1998, compared to 8.5% in the prior year period.
Interest expense, net. Net interest expense increased $655,000, or 35.2%,
to $2.5 million in 1998 from $1.9 million in the prior year period. Increased
interest expense resulted from an increase in debt due to the issuance in
August 1997 of $110.0 million of HydroChem's 10 3/8% Senior Subordinated Notes
due 2007, partially offset by increased interest income earned on higher
invested cash balances.
Amortization. Amortization expense of $376,000 in 1998 was relatively
unchanged from $388,000 in the prior year period.
Income before taxes. For the reasons described above, income before taxes
decreased $879,000, or 87.4%, to $127,000 in 1998 from $1.0 million in the
prior year period. As a percentage of revenue, income before taxes was 0.3% in
1998, compared to 2.6% in the prior year period.
Income tax provision. The effective tax rate increased to 59.1% of income
before taxes in 1998 from 44.4% in the prior year period. This increase
principally resulted from proportionately higher nondeductible permanent
differences in 1998 than in the prior year period.
Net income. For the reasons described above, net income decreased
$507,000, or 90.7% to $52,000 in 1998 from $559,000 in the
prior year period.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company principally has financed its operations through net cash
provided by operating activities, existing cash balances, available credit
facilities and capital contributions from Holding. In August 1997, HydroChem
issued $110.0 million of its 10 3/8% Senior Subordinated Notes due 2007 (the
"Series A Notes") in a private offering pursuant to Rule 144A under the
Securities Act of 1933. HydroChem registered a substantially identical series of
notes (the "Series B Notes") with the Securities and Exchange Commission and on
November 7, 1997, completed an exchange of the Series B Notes for the Series A
Notes. The Series B Notes mature on August 1, 2007 and bear interest at 10 3/8%
per annum which is payable semi-annually in arrears on February 1 and August 1
of each year, commencing on February 1, 1998. The Series B Notes are redeemable
at the option of HydroChem, in whole or in part, on or after August 1, 2002 at
specified redemption prices. In addition, up to 35% of the Series B Notes are
redeemable at the option of HydroChem with the proceeds from one or more equity
offerings at a redemption price of 109.375% of the principal amount thereof. A
portion of the net proceeds from the sale of the Series A Notes was used to
repay indebtedness, accrued interest and fees under the Company's existing
senior debt ($45.7 million) and subordinated debt ($18.7 million). In addition,
$8.5 million was used to fund a dividend to Holding which Holding used to
discharge accrued interest on its indebtedness and accrued dividends on its
preferred stock. The remaining proceeds have been invested in commercial paper
and other interest bearing deposits with short-term maturities. These funds are
intended to be used for general corporate purposes, including expanding the
Company's industrial vacuuming and other business lines through expenditures for
property and equipment, increasing the Company's marketing and sales efforts,
and funding potential acquisitions.
On December 31, 1997, HydroChem entered into a credit agreement with a
financial institution (the "New Credit Facility") which provides for unsecured
borrowings of up to $25 million, subject to borrowing base limitations. The term
of the New Credit Facility is three years, and any borrowings thereunder bear
interest at rates adjusted quarterly. Interest rates are based on (i) a range
from LIBOR plus 1.25% to LIBOR plus 2.00%, or, at the discretion of HydroChem,
(ii) a range from the prime rate to the prime rate plus 0.25%. The specific rate
within each range depends on the Company's operating performance. In addition, a
commitment fee of 0.25% per annum is payable quarterly on the unborrowed portion
of the New Credit Facility. The New Credit Facility requires the Company to meet
certain customary financial ratios and covenants and generally restricts the
Company from pledging its assets. As of March 31, 1998, the Company's borrowing
base under the New Credit Facility was $20.1 million of which $2.5 million had
been drawn in the form of standby letters of credit principally issued in
connection with the Company's property and casualty insurance program. At March
31, 1998, there were no other borrowings under the New Credit Facility. Also, at
such date, HydroChem had available unused borrowings of $17.6 million. (See
Notes 2 and 3 of Notes to the Consolidated Financial Statements.)
For the three months ended March 31, 1998, the Company used net cash of
$4.4 million for operating and investing activities, which consisted of $1.3
million provided by operating activities and $5.7 million used in investing
activities. For the three months ended March 31, 1997, $566,000 of net cash was
used for operating and investing activities, which consisted of $911,000
provided by operating activities and $1.5 million used in investing activities.
Investing activities for both periods consisted primarily of expenditures for
property and equipment.
Expenditures for property and equipment for the three months ended March
31, 1998 were $5.8 million. Of this amount, $2.8 million was used for vacuum
truck purchases, $1.5 million for purchases of other property and equipment, and
$1.5 million for the development of a new facility in the Houston, Texas area.
Funds expended for the new facility consisted of $1.1 million for the purchase
of land and $355,000 for related construction costs. Construction costs for the
new facility are estimated to be approximately $7.8 million. The Company intends
to obtain mortgage financing for approximately $7.5 million of this amount.
Management believes that cash and cash equivalents at March 31, 1998 and
net cash expected to be provided by operating activities and borrowings, if
necessary, under the New Credit Facility will be sufficient to meet its cash
requirements for operations and expenditures for property and equipment for the
next twelve months and the foreseeable future thereafter. (See Notes 3 and 5 of
Notes to the Consolidated Financial Statements.)
12
<PAGE> 13
PENDING ACQUISITION
On March 20, 1998, HydroChem signed a letter of intent to acquire all the
stock of an entity in the industrial cleaning business for a purchase price of
approximately $34.0 million ($30.0 million in cash and $4.0 million in
promissory notes). HydroChem intends to fund the purchase price through a
combination of its available cash, the promissory notes and additional debt to
be issued in connection with the acquisition. The acquisition is contingent
upon, among other things, satisfactory completion of due diligence, receipt of
board approvals and the execution of a definitive agreement. It is anticipated
that the acquisition, if successful, will be completed in the second calendar
quarter of 1998. If the acquisition ultimately is not consummated, the Company
will not be liable for any acquisition contingencies, except for related direct
costs such as legal and accounting fees.
IMPACT OF YEAR 2000
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Certain of the
Company's computer programs and hardware have date-sensitive software which may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
certain day-to-day accounting operations. The Company intends to purchase and
implement upgrades for its current software and hardware to resolve this issue
within the next twelve months. Although there can be no assurance, the Company
does not anticipate the cost of such upgrades will be significant or that any
foreseeable problems would have a material adverse impact on the Company.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
3.1 Certificate of Incorporation of HydroChem Industrial Services, Inc., as amended through
December 15, 1993. (Exhibit 3.1 to the Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
3.2 Certificate of Incorporation of HydroChem International, Inc., as amended through
October 4, 1994. (Exhibit 3.2 to the Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
3.3 By-Laws of HydroChem Industrial Services, Inc. (Exhibit 3.3 to the Company's Registration
Statement on Form S-4, filed August 25, 1997, is hereby incorporated by reference.)
3.4 By-Laws of HydroChem International, Inc. (Exhibit 3.4 to the Company's Registration
Statement on Form S-4, filed August 25, 1997, is hereby incorporated by reference.)
4.1 Purchase Agreement, dated as of July 30, 1997, by and among HydroChem Industrial Services,
Inc., HydroChem International, Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation, as Initial Purchaser, relating to the 10 3/8% Series A Senior Subordinated
Notes due 2007. (Exhibit 4.1 to the Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
4.2 Indenture, dated as of August 1, 1997, among HydroChem Industrial Services, Inc.,
HydroChem International, Inc., as Guarantor, and Norwest Bank, Minnesota, N.A., as
Trustee. (Exhibit 4.2 to the Company's Registration Statement on Form S-4, filed August
25, 1997, is hereby incorporated by reference.)
4.3 Registration Rights Agreement dated August 4, 1997, by and among HydroChem Industrial
Services, Inc., HydroChem International, Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation, as Initial Purchaser. (Exhibit 4.3 to the Company's Registration Statement
on Form S-4, filed August 25, 1997, is hereby incorporated by reference.)
10.1 HydroChem Holding, Inc. 1994 Stock Option Plan. (Exhibit 10.1 to the Company's
Registration Statement on Form S-4, filed August 25, 1997, is hereby incorporated by
reference.)
10.2 Employment Agreement dated November 1, 1992 between HydroChem Industrial Services, Inc.
and J. Pat DeBusk. (Exhibit 10.2 to the Company's Registration Statement on Form S-4,
filed August 25, 1997, is hereby incorporated by reference.)
10.3 Employment Agreement dated November 1, 1992 between HydroChem Industrial Services, Inc.
and Gary Noto. (Exhibit 10.3 to the Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C>
10.4 Employment Agreement dated November 1, 1992 between HydroChem Industrial Services, Inc.
and Craig Kaple. (Exhibit 10.4 to the Company's Registration Statement on Form S-4, filed
August 25, 1997, is hereby incorporated by reference.)
10.5 Employment Offer Letter dated June 3, 1996 from HydroChem Industrial Services, Inc. to
Selby F. Little, III. (Exhibit 10.6 to the Company's Registration Statement on Form S-4,
filed August 25, 1997, is hereby incorporated by reference.)
10.6 Letter Agreement regarding severance compensation dated October 31, 1997 between HydroChem
Industrial Services, Inc. and Pelham H. A. Smith. (Exhibit 10.7 to the Company's
Form 10-Q, filed November 14, 1997, is hereby incorporated by reference.)
10.7 Employment Agreement dated December 15, 1993 by and among HydroChem
Holding, Inc., HydroChem Industrial Services, Inc. and B. Tom Carter, Jr., as amended
through December 9, 1996. (Exhibit 10.5 to the Company's Registration Statement on
Form S-4, filed August 25, 1997, is hereby incorporated by reference.)
10.8 Fourth Amendment to Employment Agreement dated April 9, 1998 by and among HydroChem
Holding, Inc., HydroChem Industrial Services, Inc. and B. Tom Carter, Jr. (Filed
herewith.)
10.9 Secured Promissory Note dated April 9, 1998 from B. Tom Carter, Jr. to HydroChem
Industrial Services, Inc. (Filed herewith.)
10.10 Pledge Agreement dated April 9, 1998 between HydroChem Industrial Services, Inc.
and B. Tom Carter, Jr. (Filed herewith.)
10.11 Lease Agreement dated December 4, 1979 between HydroChem Industrial Services, Inc. and
Gracey Corporation, as amended through May 29, 1996. (Exhibit 10.7 to the Company's
Registration Statement on Form S-4, filed August 25, 1997, is hereby incorporated by
reference.)
10.12 Form of Indemnification Agreement entered into with directors and officers. (Exhibit
10.8 to the Company's Amendment No. 1 to the Registration Statement on Form S-4, filed
October 3, 1997, is hereby incorporated by reference.)
10.13 Credit Agreement dated December 31, 1997 among HydroChem Industrial Services, Inc. and
NationsBank of Texas, N. A. and financial institutions named in the Credit Agreement.
(Exhibit 10.10 to the Company's Form 10-K, filed March 30, 1998, is hereby incorporated
by reference.)
10.14 Letter Amendment to Credit Agreement dated March 6, 1998 between HydroChem Industrial
Services, Inc. and NationsBank of Texas, N.A. (Exhibit 10.11 to the Company's Form 10-K,
filed March 30, 1998, is hereby incorporated by reference.)
27.1 Financial Data Schedule (Filed herewith.)
</TABLE>
(b) Reports on Form 8-K
None
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYDROCHEM INDUSTRIAL SERVICES, INC.
Date: May 14, 1998 By: /s/ SELBY F. LITTLE, III
---------------------------------------------
Selby F. Little, III, Executive Vice President
and Chief Financial Officer
HYDROCHEM INTERNATIONAL, INC.
Date: May 14, 1998 By: /s/ SELBY F. LITTLE, III
----------------------------------------------
Selby F. Little, III, Executive Vice President
and Chief Financial Officer
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.8 Fourth Amendment to Employment Agreement dated April 9, 1998 by and among HydroChem Holding, Inc., HydroChem
Industrial Services, Inc. and B. Tom Carter, Jr.
10.9 Secured Promissory Note dated April 9, 1998 from B. Tom Carter, Jr. to HydroChem Industrial Services, Inc.
10.10 Pledge Agreement dated April 9, 1998 between HydroChem Industrial Services, Inc. and B. Tom Carter, Jr.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.8
FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT is entered into as of
the 9th day of April, 1998 by and between HydroChem Holding, Inc., a Delaware
corporation (the "Employer"), and B. Tom Carter, Jr., an individual (the
"Employee").
RECITALS
A. Employer and Employee entered into a certain Employment Agreement as
of December 15, 1995, which as amended by First, Second, and Third
Amendments thereto dated as of January 10, 1995, March 20, 1995, and
December 9, 1996, respectively, provides the terms of employment of
Employee by Employer (the "Employment Agreement").
B. Employer and Employee desire to further amend the Employment Agreement
as hereinafter provided.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is acknowledged,
the parties hereto agree as follows:
1. Section 2 of the Employment Agreement is hereby amended by deleting
the same in its entirety and substituting the following in lieu
thereof:
"Except as otherwise provided herein, the "Period of
Employment" shall be the period of time commencing on the date hereof
and continuing until the date one year after either party gives the
other party notice to terminate the Employment Agreement."
2. Section 6 of the Employment Agreement is hereby amended by adding a
subsection (f) as follows:
"(f) Reimbursement for Tax Assistance.
Effective as of January 1, 1998, Employer shall, upon receipt
of adequate supporting documentation, reimburse Employee up to
a maximum of Seven Thousand Dollars ($7,000) per year for fees
paid by Employee for professional tax services including
preparation of personal tax returns and personal tax advice."
1
<PAGE> 2
EXHIBIT 10.9
IN WITNESS WHEREOF, the parties have duly executed this Fourth
Amendment as of the year and date first above written.
HYDROCHEM HOLDING, INC.
By: /s/ PELHAM H. A. SMITH
--------------------------------------
Pelham H. A. Smith, Vice President
EMPLOYEE
/s/ B. TOM CARTER, JR.
----------------------------------------
B. Tom Carter, Jr. an individual
In consideration of the premises and other good and valuable
consideration, the undersigned hereby unconditionally guarantees the punctual
performance by HydroChem Holding, Inc., of all its duties and obligations under
the terms of this Fourth Amendment to Employment Agreement.
HYDROCHEM INDUSTRIAL SERVICES, INC.
By: /s/ PELHAM H. A. SMITH
------------------------------------
Pelham H. A. Smith, Vice President
2
<PAGE> 1
EXHIBIT 10.9
SECURED PROMISSORY NOTE
$285,601.00 Houston, Texas April 9, 1998
FOR VALUE RECEIVED, B. Tom Carter, Jr. ("Maker") hereby promises to
pay to the order of HydroChem Industrial Services, Inc., a Delaware corporation
("Payee"), the principal amount of Two Hundred Eighty Five Thousand Six Hundred
One and 00/100 Dollars ($285,601.00) plus interest thereon at the rate of Five
and 70/100 percent (5.7%) per annum, payable as provided herein in lawful money
of the United States of America, at Houston, Texas, or at such other place as
Payee of this Note may from time to time designate by written notice to Maker.
The principal amount of this Note shall be due and payable upon the
earlier of April 8, 2004 or any termination of Maker's employment, but not
earlier than two years from the date hereof. Accrued interest payments in the
amount of Sixteen Thousand Two Hundred Seventy Nine and 25/100 Dollars
($16,279.25) each shall be due and payable on April 8, 1999 and each April 8
thereafter through and including April 8, 2004.
Pursuant to a Pledge Agreement of even date herewith between Maker and
Payee, and as more specifically described therein, this Note is secured by the
pledge of certain common stock of HydroChem Holding, Inc. which stock is owned
beneficially and of record by Maker.
This Note may be prepaid in whole or in part without premium or
penalty.
If this Note is placed in the hands of an attorney for collection
after default, or if all or any part of the indebtedness represented hereby is
proved, established or collected in any court or in any bankruptcy,
receivership, debtor relief, probate or other court proceedings, then Maker
agrees to pay reasonable attorneys' fees and collection costs to Payee in
addition to the principal and interest payable hereunder.
If default is made in the payment of the principal or interest under
this Note, or if a default occurs under any other instrument evidencing or
securing payment hereof, then in any one or more such events the entire
principal balance and accrued interest owing hereon shall at once become due
and payable, at the option of Payee. Failure to exercise this option shall not
constitute a waiver of the right to exercise the same in the event of any
subsequent default.
Maker, signers, sureties, and endorsers of this Note severally waive
notice of acceleration of maturity if such shall occur, demand, presentment,
notice of dishonor, diligence in collecting, grace, notice and protest, and
agree to one or more extensions for any period or periods of time and partial
payments, before or after maturity, without prejudice to Payee.
Page 1 of 2
<PAGE> 2
EXHIBIT 10.10
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS.
MAKER:
/s/ B. TOM CARTER, JR.
-------------------------------------
B. Tom Carter, Jr.
Page 2 of 2
<PAGE> 1
EXHIBIT 10.10
PLEDGE AGREEMENT
This Pledge Agreement (the "Agreement") is entered into as of the 9th
day of April, 1998 between HydroChem Industrial Services, Inc. ("Lender") and
B. Tom Carter, Jr. ("Pledgor").
WHEREAS, HydroChem Holding, Inc., the parent corporation of Lender
("Holding"), has granted previously to Pledgor two employee stock options (the
"Stock Options") under which currently an aggregate of 285,601 shares of
Holding's Class A Common Stock (the "Shares") are exercisable at an exercise
price of $1.00 per share; and
WHEREAS, simultaneously herewith, the Pledgor is (i) borrowing the sum
of Two Hundred Eighty Five Thousand Six Hundred One and 00/100 Dollars
($285,601.00) from the Lender in exchange for Pledgor's promissory note, dated
as of even date herewith, payable to Lender in the principal amount of Two
Hundred Eighty Five Thousand Six Hundred One and 00/100 dollars with interest
as therein specified (the "Note"), and (ii) using the proceeds from the Note to
exercise the Stock Options for the Shares which Shares will be represented by
Holding stock certificate number CA-28; and
WHEREAS, Pledgor desires to pledge all of the Stock Collateral (as
such term is hereinafter defined) to Lender as collateral and security for
Pledgor's obligations and duties under the Note and this Agreement.
NOW, THEREFORE, for and in consideration of the premises and the
covenants herein contained, and in consideration of the extension of credit to
Pledgor as evidenced by the Note, the parties hereto agree as follows:
1. Pledge of Stock Collateral. As collateral and security for
the prompt and full performance of all duties and obligations of Pledgor under
the Note and this Agreement, Pledgor hereby pledges, assigns and transfers unto
Lender, and grants a security interest to Lender in and to the following
property of Pledgor (collectively, the "Stock Collateral"):
(a) The Shares;
(b) All stock rights, rights to subscribe, dividends
(including, but not limited to, cash dividends, stock dividends, dividends paid
in stock and liquidating dividends), and any other rights and property
interests (including, but not limited to, accounts, contract rights,
instruments and general intangibles) arising out of or relating to the Shares;
(c) All other or additional (or less) stock or other
securities or property (including cash) paid or distributed in respect of the
Shares by way of stock split, spin off, reclassification, combination of shares
or similar corporate rearrangement;
(d) All other or additional (or less) stock or other
securities or property (including cash) paid or distributed in respect of the
Shares by reason of any consolidation,
<PAGE> 2
merger, exchange of stock, conveyance of assets, liquidation or similar
corporate reorganization; and
(e) All proceeds (both cash and non-cash) of the
foregoing, whether now or hereafter arising under the foregoing.
The above referenced certificate representing the Shares, together with
irrevocable stock powers executed in blank, are herewith delivered to Lender to
hold pursuant to the terms of this Agreement.
2. Dividends. So long as there exists no default by Pledgor
under the Note or this Agreement during the term hereof, all dividends and
other amounts with respect to the Stock Collateral shall be paid to the
Pledgor.
3. Voting Rights. During the term of this Agreement, and so long
as Pledgor is not in default in the performance of any of the terms of the Note
or this Agreement, Pledgor shall have the sole and exclusive right to vote the
Shares on all corporate questions before the stockholders of Holding, and
Lender shall execute and deliver to Pledgor in a due and timely manner proxies
in favor of Pledgor to this end.
4. Representations and Warranties. Pledgor represents and
warrants to Lender (i) that the Shares are validly issued, fully paid and non
assessable; (ii) that the Shares are validly pledged to Lender in accordance
with law; and (iii) that Pledgor has, and will have, good and marketable title
to the Shares, free and clear of all liens and encumbrances (other than the
security interest granted herein).
5. Covenants. Until full performance of Pledgor's duties and
obligations under the Note and this Agreement, Pledgor shall (i) deliver to
Lender (a) immediately upon Pledgor's receipt of any stock or other securities
paid or distributed in respect of the Shares the certificates representing such
stock or securities and (b) irrevocable stock powers executed in blank for all
such stock or securities; (ii) defend, at Pledgor's sole expense, the title to
the Stock Collateral or any part thereof; and (iii) promptly, upon request by
Lender, execute, acknowledge and deliver any financing statement, endorsement,
renewal, affidavit, deed, assignment, continuation statement, security
agreement, certificate or other document as Lender may require in order to
perfect, preserve, maintain, protect, continue and/or extend the lien and
security interest of Lender under this Agreement and the priority thereof.
6. Full Performance. Upon full performance of Pledgor's duties
and obligations under the Note and this Agreement, Lender shall deliver to
Pledgor within three business days all of the Stock Collateral that remains
pledged hereunder and this Agreement shall thereupon terminate.
7. Default. Pledgor shall be in default under this Agreement on
the occurrence of any of the following events or conditions:
(a) Failure to make any payment in accordance with the
terms of the Note; or
-2-
<PAGE> 3
(b) Pledgor's failure to observe, keep or perform any
covenant, agreement or condition required by this Agreement to be observed,
kept or performed; or
(c) Pledgor's insolvency, or the appointment of an
assignee for the benefit of creditors or of a receiver for Pledgor, or in the
event that a petition under any provision of the Federal Bankruptcy Act is
filed either by or against Pledgor.
8. Remedies. Upon the occurrence of any event of default, in
addition to any other right or remedy that Lender may then have under the Texas
Business and Commerce Code or otherwise, Lender may sell, assign and deliver,
in its sole discretion, all or any part of the Stock Collateral in one or more
parcels, and all right, title and interest, claim and demand therein, at public
or private sale, for cash or other property, upon credit or for future
delivery, Pledgor hereby waiving and releasing any and all equity or right of
redemption.
9. No Waiver of Rights or Remedies. No failure or delay by
Lender in exercising any right, power or privilege under the Note or this
Agreement shall operate as a waiver thereof, and no single or partial exercise
thereof shall preclude any other or future exercise of any other right, power
or privilege.
10. Notice. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effective when delivered in person or when
deposited in the U.S. mails, postage prepaid, for delivery as registered or
certified mail, return receipt requested, and addressed as follows:
If to Pledgor:
B. Tom Carter, Jr.
5956 Sherry Lane
Suite 930
Dallas, Texas 75225
If to Lender:
HydroChem Industrial Services, Inc.
6210 Rothway, Suite 150
Houston, Texas 77040
Attention: General Counsel
(or such other address as may be stated in written notices furnished by any
party to the other party).
11. Governing Law. This Agreement shall be governed by and
construed under and in accordance with the Texas Business and Commerce Code and
other applicable laws of the State of Texas.
-3-
<PAGE> 4
12. Parties Bound. This Agreement shall be binding on and inure
to the benefit of the parties hereto and their respective heirs, executors,
administrators, representatives, successors and assigns.
13. Severability. In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, and this
Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
14. Entire Agreement. This Agreement constitutes the entire
understanding between the parties hereto, and there are no agreements,
understandings, restrictions, warranties or representations between the parties
hereto other than those set forth herein.
15. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning of this
Agreement or its interpretation.
16. Stockholders Agreement. Notwithstanding any other provision
of this Agreement, Lender hereby acknowledges that it takes the Stock
Collateral subject to the terms and conditions of that certain Stockholders
Agreement dated as of December 15, 1993 by and among Holding and all holders of
Holding's capital stock.
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on the day and year herein above first set
forth.
PLEDGOR:
/s/ B. Tom Carter, Jr.
----------------------------------
B. Tom Carter, Jr.
LENDER:
HydroChem Industrial Services, Inc.
By: /s/ Pelham H. A. Smith
---------------------------------
Pelham H. A. Smith, Vice President
-4-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001044607
<NAME> HYDROCHEM INDUSTRIAL SERVICES, INC.
[LEGEND]
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 29,339
<SECURITIES> 0
<RECEIVABLES> 25,528
<ALLOWANCES> 0
<INVENTORY> 4,364
<CURRENT-ASSETS> 64,262
<PP&E> 68,768
<DEPRECIATION> 26,912
<TOTAL-ASSETS> 150,582
<CURRENT-LIABILITIES> 15,357
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 16,758
<TOTAL-LIABILITY-AND-EQUITY> 150,582
<SALES> 40,888
<TOTAL-REVENUES> 40,888
<CGS> 24,885
<TOTAL-COSTS> 24,885
<OTHER-EXPENSES> 13,359
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,517
<INCOME-PRETAX> 127
<INCOME-TAX> 75
<INCOME-CONTINUING> 52
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
