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 June 30, 1999
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)
900 Georgia Avenue
Deer Park, Texas 77536
(Address of principal executive offices) (Zip Code)
(713) 393-5600
(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 outstanding on
February 28, 1999 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 wholly-owned subsidiary of HydroChem
Industrial Services, Inc., is a Co-Registrant. It is incorporated under the laws
of the State of Delaware. Its I.R.S. Employer Identification Number is
75-2512100.
<PAGE>
TABLE OF CONTENTS
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and
June 30, 1999 (unaudited)............................ 3
Consolidated Statements of Operations for each of the
three and six month periods ended June 30, 1998
and 1999 (unaudited)................................. 4
Consolidated Statement of Stockholder's Equity for the six
month period ended June 30, 1999 (unaudited)......... 5
Consolidated Statements of Cash Flows for each of the
six month periods ended June 30, 1998 and
1999 (unaudited)..................................... 6
Notes to Consolidated Financial Statements (unaudited).. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................... 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................ 17
Part II.Other Information
Item 1. Legal Proceedings..................................... 18
Item 6. Exhibits and Reports on Form 8-K...................... 18
Signatures............................................................ 22
Exhibit Index......................................................... 23
2
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................... $ 33,775 $ 2,557
Receivables, less allowance of $536 and $731,
respectively.............................. 23,941 37,549
Inventories................................. 3,902 4,823
Prepaid expenses and other current assets... 1,714 2,733
Income taxes receivable..................... 243 243
Deferred income taxes....................... 1,467 1,655
------- --------
Total current assets..................... 65,042 49,560
Property and equipment, at cost................ 81,459 91,634
Accumulated depreciation.................... (33,322) (38,447)
------- -------
48,137 53,187
Intangible assets, net......................... 43,246 68,670
------- --------
Total assets............................. $156,425 $171,417
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable............................ $ 4,973 $ 6,146
Accrued liabilities......................... 13,193 19,901
Current portion of long-term debt (Note 3).. 121 165
------- -------
Total current liabilities................ 18,287 26,212
Long-term debt (Note 3)........................ 115,996 119,297
Deferred income taxes.......................... 8,626 8,814
Commitments and contingencies (Note 6)
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 (deficit)................. (3,043) 535
------- -------
Total stockholder's equity.................. 13,516 17,094
------- -------
Total liabilities and stockholder's equity $156,425 $171,417
======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1999 1998 1999
------- ------- ------ -------
<S> <C> <C> <C> <C>
Revenue.......................... $ 45,067 $ 52,194 $ 85,955 $103,099
Cost of revenue.................. 28,185 30,437 53,070 60,700
------ ------ ------ -------
Gross profit.................. 16,882 21,757 32,885 42,399
Selling, general and administrative
expense 10,961 12,874 21,748 25,374
Depreciation..................... 2,239 2,839 4,432 5,752
------ ------ ------ -------
Operating income.............. 3,682 6,044 6,705 11,273
Other (income) expense:
Interest expense, net......... 2,599 3,228 5,116 6,496
Special charge................ 300 - 300 -
Other (income) expense, net... 13 (26) 16 (68)
Amortization of intangibles... 374 633 750 1,267
------ ------ ------ -------
Income before taxes.............. 396 2,209 523 3,578
Income tax provision (Note 4). 237 - 312 -
------ ------ ------ -------
Net income ...................... $ 159 $ 2,209 $ 211 $ 3,578
======== ======= ======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(in thousands)
<TABLE>
<CAPTION>
Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
----- ------- --------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1998 .... $ 1 $16,558 $(3,043) $13,516
Net income.................... - - 3,578 3,578
------ ------ ------ ------
Balance at June 30, 1999 ........ $ 1 $16,558 $ 535 $17,094
===== ====== ====== ======
</TABLE>
See accompanying notes.
5
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1998 1999
-------- --------
<S> <C> <C>
Operating activities:
Net income................................... $ 211 $ 3,578
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation.............................. 4,432 5,752
Amortization.............................. 750 1,267
Amortization of deferred financing costs.. 183 218
Deferred income tax provision............. (225) -
Gain on sale of property and equipment.... (32) (5)
Changes in operating assets and liabilities,
net of effects of acquisition:
Restricted cash........................... 2,858 -
Receivables, net.......................... (4,380) (8,568)
Inventories............................... (700) (921)
Prepaid expenses and other current assets. (1,274) (378)
Income taxes receivable................... 407 -
Accounts payable.......................... 2,728 424
Income taxes payable...................... (16) -
Accrued liabilities....................... 475 5,015
------- -------
Net cash provided by operating activities 5,417 6,382
------- -------
Investing activities:
Expenditures for property and equipment...... (10,449) (3,423)
Proceeds from sale of property and equipment. 135 111
Purchase of assets, net of cash.............. - (31,971)
------- -------
Net cash used in investing activities.. (10,314) (35,283)
------- -------
Financing activities:
Repayments of long-term debt, net............ (124) (2,317)
------- -------
Net cash used in financing activities.. (124) (2,317)
------- -------
Net decrease in cash............................ (5,021) (31,218)
Cash at beginning of period..................... 33,862 33,775
------- -------
Cash at end of period........................... $ 28,841 $ 2,557
======== =======
</TABLE>
See accompanying notes.
6
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
1. Organization, Formation and Basis of Presentation
The consolidated financial statements include the accounts of HydroChem
Industrial Services, Inc. ("HydroChem") and its wholly-owned subsidiaries,
including HydroChem International, Inc. ("International"). HydroChem
generally conducts business outside the United States through International.
(HydroChem and its subsidiaries are hereinafter sometimes referred to either
separately or collectively 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 and other services. Other services include mechanical,
commissioning, waste minimization and 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 and six month interim periods ended
June 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. These unaudited consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
2. Derivative Financial Instruments
HydroChem entered into an interest rate swap agreement dated July 17, 1998
(the "Interest Rate Swap") with a financial institution to manage the
interest rate exposure of the $7,500,000 Term Loan (as defined in Note 3)
with the same financial institution. Under the Interest Rate Swap,
HydroChem's effective fixed borrowing rate for the Term Loan is 7.82% per
annum. The Company is exposed to credit loss in the event of non-performance
by the financial institution; however, management does not anticipate
non-performance and, in the event of non-performance, no material loss would
be expected. The Company does not hold or issue financial instruments for
trading purposes. See Note 3.
7
<PAGE>
3. Long-term Debt
Long-term debt at December 31, 1998 and June 30, 1999 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Senior subordinated notes.............. $ 110,000 $ 110,000
Construction loan...................... 6,117 -
Term loan.............................. - 7,462
Credit facility........................ - 2,000
-------- --------
Total long-term debt................... 116,117 119,462
Less current portion of long-term debt (121) (165)
-------- --------
$ 115,996 $ 119,297
======= =======
</TABLE>
HydroChem has outstanding $110,000,000 of Senior Subordinated Notes (the
"Notes"). The 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. The 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, until August 4, 2000, up to 35% of the 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. All HydroChem
subsidiaries are guarantors of the Notes.
HydroChem is a party to a credit agreement dated December 31, 1997, as
amended, with a financial institution for a credit facility which provides
for unsecured borrowings of up to $25,000,000, subject to borrowing base
limitations (the "Credit Facility"). The Credit Facility matures on December
31, 2000 and any borrowings thereunder bear interest at rates, which are
adjusted quarterly. At the discretion of HydroChem, interest rates are based
on (i) LIBOR plus an applicable margin of 1.75% to 3.00%, or, (ii) the higher
of (a) the prime rate plus an applicable margin of up to 1.00%, or (b) the
Federal Funds Rate plus an applicable margin of 0.50% to 1.50%. In addition,
a commitment fee of 0.25% to 0.50% per annum is payable quarterly on the
unborrowed portion of the Credit Facility. The specific rate within each
range depends upon the Company's operating performance. The Credit Facility
requires the Company to meet certain customary financial ratios and
covenants, and generally restricts the Company from pledging its assets. At
June 30, 1999, HydroChem's borrowing base under the Credit Facility was
$25,000,000, of which $4,742,000 had been utilized and $20,258,000 was
available. The amounts utilized consisted of advances and standby letters of
credit of $2,000,000 and $2,742,000, respectively. The standby letters of
credit principally were issued in connection with the Company's property and
casualty insurance program.
For the purpose of financing the land purchase and construction costs of
the Company's headquarters and operating facility in the Houston, Texas area,
HydroChem is a party to a loan agreement dated July 17, 1998, as amended,
with a financial institution (the "Construction Loan Agreement"). The
Construction Loan Agreement provided for an interim construction loan (the
"Interim Loan") of up to $7,500,000 which was converted to a term loan as of
March 31, 1999 (the "Term Loan"). The Term Loan is collateralized by first
priority liens on the land and improvements. Interest on the Interim Loan,
which was payable quarterly, was at the lender's commercial loan rate less
0.50%. The Term Loan matures on September 30, 2006. Under the Term Loan,
principal and interest are payable in quarterly installments with a final
payment of $5,977,000 due at maturity. Pursuant to the Interest Rate Swap,
HydroChem's effective fixed borrowing rate for the Term Loan is 7.82% per
annum. The Construction Loan Agreement requires the Company to meet certain
customary financial ratios and covenants and generally restricts the Company
from transferring or pledging the facility's assets. The Company obtained a
waiver with respect to one of the ratios for non-compliance resulting from
special and restructuring charges recorded during the quarter ended December
31, 1998. At June 30, 1999, HydroChem had $7,462,000 outstanding under the
Term Loan and was in compliance with the financial ratios and covenants
contained in the Construction Loan Agreement.
8
<PAGE>
4. Income Taxes
The Company files a consolidated tax return with Holding. The Company's
effective income tax rate for the interim periods presented is based on
management's estimate of the Company's effective tax rate for the applicable
year and differs from the federal statutory income tax rate primarily due to
nondeductible permanent differences, state income taxes and changes in the
valuation allowance of deferred tax assets.
5. 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, June 30,
1998 1999
---- ----
<S> <C> <C>
Current assets................... $ 1,377 $ 2,004
Noncurrent assets................ 103 98
Current liabilities.............. 68 208
Noncurrent liabilities........... - -
</TABLE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue.............. $ 1,051 $ 1,705 $ 1,618 $ 2,815
Gross profit......... 329 685 537 1,107
Net income (loss).... (143) 318 (204) 481
</TABLE>
6. Commitments and Contingencies
The Company is a defendant in various lawsuits arising in the normal
course of business. Substantially all of these suits are being defended by
the Company's insurance carriers. While the results of litigation cannot be
predicted with certainty, management believes that adequate provision has
been made for such claims and that the final outcome of such litigation will
not have a material adverse effect on the Company's consolidated financial
position.
Also, the Company is a defendant in approximately 70 lawsuits originally
filed in the 18th Judicial District Court for the Parish of Iberville,
Louisiana against Georgia Gulf Corporation ("Georgia Gulf"), the Company and
other defendants, which arose from a chemical exposure incident at a Georgia
Gulf facility in Plaquemine, Louisiana in September 1996. The suits cover
claims by approximately 640 non-Company employees present at the facility and
by approximately 1,400 persons who are related to or live with the
non-Company employees. All of the plaintiffs seek damages for alleged toxic
exposure resulting from this incident. All but a few of these suits have been
removed to the United States District Court for the Middle District of
Louisiana.
Pursuant to a Memorandum of Understanding effective April 15, 1999,
virtually all of the plaintiffs and each of the defendants in the actions
pending in federal court have agreed upon a settlement. Under this agreement,
the Company's insurance carriers have deposited the Company's share of the
settlement into escrow, to be released upon receipt of a release from each
participating plaintiff or the dismissal of the claims of any plaintiff who
does not participate. Separately, Georgia Gulf has agreed in principal to
indemnify the Company against the claims of any plaintiff who does not
participate in the settlement, the claims of the approximately twenty
plaintiffs who are not parties to the agreement and against any future claims
which may arise in connection with this incident.
9
<PAGE>
All payments by the Company under these arrangements have been or will be
covered by insurance. Accordingly, subject to the consummation of the
settlement, management believes that the resolution of these matters will not
have a material adverse effect on the Company's consolidated financial
position.
7. Acquisition
On January 5, 1999, the Company acquired substantially all of the assets
and assumed certain liabilities of Valley Systems, Inc. and Valley Systems of
Ohio, Inc. (collectively "Valley"), a regional industrial services provider.
The acquisition, which was effective as of January 1, 1999, was pursuant to
the terms and conditions of a Second Amended and Restated Asset Purchase
Agreement dated as of September 8, 1998. The assets acquired consisted
primarily of (i) accounts receivable, (ii) property, plant and equipment,
(iii) intangibles, and (iv) other operating assets. The adjusted purchase
price for the acquired assets was $30,857,000, of which $4,000,000 was
deposited into escrow. As part of the transaction, the Company also assumed
$2,493,000 in capital lease obligations and $5,594,000 in bank debt. The
Company has converted the capital leases to operating leases and retired the
bank debt. The source of funds for the purchase price and retirement of
Valley's bank debt was a combination of cash on hand and borrowings under the
Credit Facility.
The acquisition has been accounted for using the purchase method of
accounting. The Company's financial statements reflect a preliminary
allocation of the purchase price based upon the Company's initial valuation.
The excess of the purchase price over the fair value of the net assets
acquired is being amortized over periods ranging from 10 to 25 years and is
estimated as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Purchase price (as adjusted)....... $ 30,857
Transaction and acquisition costs.. 2,101
-------
32,958
Fair value of net assets acquired.. 5,995
-------
Excess of purchase price over fair value $ 26,963
======
</TABLE>
The book value of net assets acquired was determined to approximate fair
value at the date of acquisition. Transaction costs consist primarily of fees
to attorneys, accountants and other outside service providers, and costs of
transferring ownership of the acquired assets. Acquisition costs primarily
represent (i) severance and relocation costs for certain Valley employees,
(ii) expenses incurred in connection with the closing or consolidation of
certain facilities, and (iii) certain other costs incurred directly in
connection with the acquisition.
The results of operations derived from assets acquired from Valley are
included in the Company's financial statements from the effective date of
acquisition. Unaudited pro forma consolidated results of operations have been
prepared as if the acquisition of the Valley assets had occurred on January
1, 1998 and include (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1998
------------- ---------------
<S> <C> <C>
Revenue....................... $ 51,719 $ 98,472
Net income.................... 297 411
</TABLE>
The unaudited pro forma consolidated results of operations presented above
do not purport to be indicative of results that would have occurred had the
acquisition been in effect for the period presented, nor do they purport to
be indicative of results that will be obtained in the future.
10
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statement Regarding Forward-Looking Information
Management's Discussion and Analysis and other items in this Quarterly
Report on Form 10-Q contain 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 management
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 sections included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. The Form 10-K also
includes 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 Six months ended
June 30, June 30,
1998 1999 1998 1999
------- ------ ------ -------
<S> <C> <C> <C> <C>
Revenue.................... 100.0% 100.0% 100.0% 100.0%
Cost of revenue............ 62.5 58.3 61.7 58.9
----- ----- ----- -----
Gross profit............ 37.5 41.7 38.3 41.1
SG&A expense............... 24.3 24.7 25.3 24.6
Depreciation............... 5.0 5.4 5.2 5.6
----- ----- ----- -----
Operating income........ 8.2 11.6 7.8 10.9
Other (income) expense:
Interest expense, net... 5.8 6.2 6.0 6.3
Special charge.......... 0.7 - 0.3 -
Other (income) expense, net - - - (0.1)
Amortization of intangibles 0.8 1.2 0.9 1.2
----- ----- ----- -----
Income before taxes........ 0.9 4.2 0.6 3.5
Income tax provision 0.5 - 0.4 -
----- ----- ----- -----
Net income ................ 0.4% 4.2% 0.2% 3.5%
===== ===== ===== =====
EBITDA(1).................. 13.1% 17.0% 13.0% 16.5%
===== ===== ===== =====
</TABLE>
(1) EBITDA for any relevant period presented above represents income before
taxes plus interest expense, depreciation, amortization, and other income and
expense (including a special charge of $300,000 in the three and six months
ended June 30, 1998). 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 it to be a useful tool for analyzing operating performance, leverage,
liquidity and a company's ability to service debt.
11
<PAGE>
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
- -----------------------------------------------------------------------------
Revenue. Revenue increased $7.1 million, or 15.8%, to $52.2 million for the
three months ended June 30, 1999 from $45.1 million in the prior year period.
The increase in revenue, which applied to all service lines, resulted from
increases in industrial vacuuming revenue of $2.8 million, or 54.2%, from $5.2
million to $8.0 million; other services revenue of $2.3 million, or 103.9%, from
$2.1 million to $4.4 million; chemical cleaning revenue of $1.2 million, or
7.1%, from $16.1 million to $17.4 million; and hydroblasting revenue of
$817,000, or 3.8%, from $21.6 million to $22.4 million. The increase in
industrial vacuuming revenue resulted from additional vacuum trucks placed in
service by the Company in 1998 and 1999, and the acquisition of the Valley
assets. The increase in other services revenue resulted from mechanical services
projects, which the Company began performing in 1998, and an increased volume of
commissioning services projects. The increase in chemical cleaning revenue
principally resulted from an increase in the volume of projects. Hydroblasting
revenue increased as a result of the acquisition of the Valley assets, partially
offset by a reduced volume of projects in other locations.
Gross profit. Gross profit increased $4.9 million, or 28.9%, to $21.8 million
in 1999 from $16.9 million in the prior year period. Gross profit margins
increased from 37.5% to 41.7%. Cost of revenue increased $2.3 million, or 8.0%,
to $30.4 million for 1999 from $28.2 million in the prior year period primarily
due to the revenue increases described above. Gross profit margins improved, in
part, as a result of a cost reduction program, which included, among other
things, a reduction in work force that was implemented in late 1998.
SG&A expense. SG&A expense increased $1.9 million, or 17.5%, to $12.9 million
in 1999 from $11.0 million in the prior year period. This increase primarily
resulted from the acquisition of the Valley assets and was partially offset by
the cost reduction program described above. SG&A expense as a percentage of
revenue increased to 24.7% in 1999 from 24.3% in the prior year period.
EBITDA. Increased gross profit, partially offset by increased SG&A expense,
resulted in a $3.0 million, or 50.0%, increase in EBITDA to $8.9 million in 1999
from $5.9 million in the prior year period. As a percentage of revenue, EBITDA
increased to 17.0% in 1999, compared to 13.1% in the prior year period.
Depreciation. Depreciation expense increased $600,000, or 26.8%, to $2.8
million in 1999 from $2.2 million in the prior year period and was 5.4% and 5.0%
of revenue, respectively. The increase in depreciation expense principally
resulted from the acquisition of the Valley assets and from capital expenditures
in 1998 and 1999.
Operating income. Increased gross profit, partially offset by increased SG&A
and depreciation expense, resulted in an increase in operating income of $2.4
million, or 64.1%, to $6.0 million in 1999 from $3.7 million in the prior year
period. As a percentage of revenue, operating income increased to 11.6% in 1999,
compared to 8.2% in the prior year period.
Interest expense, net. Interest expense, net increased $629,000, or 24.2%, to
$3.2 million in 1999 from $2.6 million in the prior year period. Increased
interest expense, net resulted from (i) an increase in debt due to borrowings
under the Construction Loan Agreement beginning in July 1998 and borrowings
under the Credit Facility in January 1999 to finance a portion of the purchase
price of the Valley assets and the retirement of the Valley bank debt, and (ii)
a decrease in interest income due to lower invested cash balances.
Special charge. The Company incurred approximately $300,000 of expense in the
prior year period related to a terminated acquisition.
Amortization. Amortization expense increased $259,000, or 69.3%, to $633,000
in 1999 from $374,000 in the prior year period. Increased amortization expense
resulted from goodwill incurred in connection with the acquisition of the Valley
assets.
12
<PAGE>
Income before taxes. For the reasons described above, income before taxes
increased $1.8 million to $2.2 million in 1999 from $396,000 in the prior year
period. As a percentage of revenue, income before taxes was 4.2% in 1999,
compared to 0.9% in the prior year period.
Income tax provision. The effective tax rate decreased to zero in 1999 from
59.8% of income before taxes in the prior year period. This decrease principally
resulted from changes in the valuation allowance of deferred tax assets.
Net income. For the reasons described above, the Company's net income
increased $2.1 million to $2.2 million in 1999 from $159,000 in the prior year
period. As a percentage of revenue, net income was 4.2% in 1999, compared to
0.4% in the prior year period.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
- -------------------------------------------------------------------------
Revenue. Revenue increased $17.1 million, or 19.9%, to $103.1 million for the
six months ended June 30, 1999 from $86.0 million in the prior year period. The
increase in revenue, which applied to all service lines, resulted from increases
in industrial vacuuming revenue of $6.8 million, or 65.2%, from $10.5 million to
$17.3 million; hydroblasting revenue of $4.4 million, or 10.1%, from $43.6
million to $48.1 million; other services revenue of $3.7 million, or 100.7%,
from $3.7 million to $7.4 million; and chemical cleaning revenue of $2.2
million, or 7.8%, from $28.2 million to $30.4 million. The increase in
industrial vacuuming revenue resulted from additional vacuum trucks placed in
service by the Company in 1998 and 1999, and the acquisition of the Valley
assets. Hydroblasting revenue increased primarily as a result of the acquisition
of the Valley assets, partially offset by a reduced volume of projects in other
locations. The increase in other services revenue principally resulted from
mechanical services projects, which the Company began performing in April 1998,
and an increased volume of commissioning services projects. The increase in
chemical cleaning revenue principally resulted from an increase in the volume of
projects.
Gross profit. Gross profit increased $9.5 million, or 28.9%, to $42.4 million
in 1999 from $32.9 million in the prior year period. Gross profit margins
increased from 38.3% to 41.1%. Cost of revenue increased $7.6 million, or 14.4%,
to $60.7 million for 1999 from $53.1 million in the prior year period primarily
due to the revenue increases described above. Gross profit margins improved, in
part, as a result of a cost reduction program, which included, among other
things, a reduction in work force that was implemented in late 1998.
SG&A expense. SG&A expense increased $3.6 million, or 16.7%, to $25.4 million
in 1999 from $21.7 million in the prior year period. This increase primarily
resulted from the acquisition of the Valley assets and was partially offset by
the cost reduction program described above. SG&A expense as a percentage of
revenue decreased to 24.6% in 1999 from 25.3% in the prior year period.
EBITDA. Increased gross profit, partially offset by increased SG&A expense,
resulted in a $5.9 million, or 52.9%, increase in EBITDA to $17.0 million in
1999 from $11.1 million in the prior year period. As a percentage of revenue,
EBITDA increased to 16.5% in 1999, compared to 13.0% in the prior year period.
Depreciation. Depreciation expense increased $1.3 million, or 29.8%, to $5.8
million in 1999 from $4.4 million in the prior year period and was 5.6% and 5.2%
of revenue, respectively. The increase in depreciation expense principally
resulted from the acquisition of the Valley assets and from capital expenditures
in 1998 and 1999.
Operating income. Increased gross profit, partially offset by increased SG&A
and depreciation expense, resulted in an increase in operating income of $4.6
million, or 68.1%, to $11.3 million in 1999 from $6.7 million in the prior year
period. As a percentage of revenue, operating income increased to 10.9% in 1999,
compared to 7.8% in the prior year period.
Interest expense, net. Interest expense, net increased $1.4 million, or
27.0%, to $6.5 million in 1999 from $5.1 million in the prior year period.
Increased interest expense, net resulted from (i) an increase in debt due to
borrowings under the Construction Loan Agreement beginning in July 1998 and
borrowings under the Credit Facility in January
13
<PAGE>
1999 to finance a portion of the purchase price of the Valley assets and the
retirement of the Valley bank debt, and (ii) a decrease in interest income due
to lower invested cash balances.
Special charge. The Company incurred approximately $300,000 of expense in the
prior year period related to a terminated acquisition.
Amortization. Amortization expense increased $517,000, or 68.9%, to $1.3
million in 1999 from $750,000 in the prior year period. Increased amortization
expense resulted from goodwill incurred in connection with the acquisition of
the Valley assets.
Income before taxes. For the reasons described above, income before taxes
increased $3.1 million to $3.6 million in 1999 from $523,000 in the prior year
period. As a percentage of revenue, income before taxes was 3.5% in 1999,
compared to 0.6% in the prior year period.
Income tax provision. The effective tax rate decreased to zero in 1999 from
59.7% of income before taxes in the prior year period. This decrease principally
resulted from changes in the valuation allowance of deferred tax assets.
Net income. For the reasons described above, the Company's net income
increased $3.4 million to $3.6 million in 1999 from $211,000 in the prior year
period. As a percentage of revenue, net income was 3.5% in 1999, compared to
0.2% in the prior year period.
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. HydroChem has outstanding $110.0 million
of Senior Subordinated Notes (the "Notes"). The 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. The 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, until August 4, 2000, up to 35% of the 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. All
HydroChem subsidiaries, including International, are guarantors of the Notes.
HydroChem is a party to a credit agreement dated December 31, 1997, as
amended, with a financial institution for a credit facility (the "Credit
Facility") which provides for unsecured borrowings of up to $25.0 million,
subject to borrowing base limitations. The Credit Facility matures on December
31, 2000 and any borrowings thereunder bear interest at rates adjusted
quarterly. At the discretion of HydroChem, interest rates are based on (i) LIBOR
plus an applicable margin of 1.75% to 3.00%, or, (ii) the higher of (a) the
prime rate plus an applicable margin of up to 1.00%, or (b) the Federal Funds
Rate plus an applicable margin of 0.50% to 1.50%. In addition, a commitment fee
of 0.25% to 0.50% per annum is payable quarterly on the unborrowed portion of
the Credit Facility. The specific rate within each range depends upon the
Company's operating performance. The Credit Facility requires the Company to
meet certain customary financial ratios and covenants, and generally restricts
the Company from pledging its assets. At June 30, 1999, HydroChem's borrowing
base under the Credit Facility was $25.0 million, of which $4.7 million had been
utilized and $20.3 million was available. The amounts utilized consisted of
advances and standby letters of credit of $2.0 million and $2.7 million,
respectively. The standby letters of credit principally were issued in
connection with the Company's property and casualty insurance program.
For the purpose of financing the land purchase and construction costs of the
Company's headquarters and operating facility in the Houston, Texas area,
HydroChem is a party to a loan agreement dated July 17, 1998, as amended, with a
financial institution (the "Construction Loan Agreement"). The Construction Loan
Agreement provided for an interim construction loan (the "Interim Loan") of up
to $7.5 million which was converted to a term loan as of March 31, 1999 (the
"Term Loan"). The Term Loan is collateralized by first priority liens on the
land and improvements. Interest on the Interim Loan, which was payable
quarterly, was at the lender's commercial loan rate less 0.50%. The Term Loan
14
<PAGE>
matures on September 30, 2006. Under the Term Loan, principal and interest are
payable in quarterly installments with a final payment of $6.0 million due at
maturity. Pursuant to the Interest Rate Swap, HydroChem's effective fixed
borrowing rate for the Term Loan is 7.82% per annum. The Construction Loan
Agreement requires the Company to meet certain customary financial ratios and
covenants and generally restricts the Company from transferring or pledging the
facility's assets. The Company obtained a waiver with respect to one of the
ratios for non-compliance resulting from special and restructuring charges
recorded during the quarter ended December 31, 1998. At June 30, 1999, HydroChem
had borrowed $7.5 million under the Term Loan and was in compliance with the
financial ratios and covenants contained in the Construction Loan Agreement.
For the six months ended June 30, 1999, the Company used net cash of $28.9
million in operating and investing activities, which consisted of $6.4 million
provided by operating activities and $35.3 million used in investing activities.
For the six months ended June 30, 1998, $4.9 million of net cash was used in
operating and investing activities, which consisted of $5.4 million provided by
operating activities and $10.3 million used in investing activities. Except for
the purchase of the Valley assets in the current period, investing activities
for both periods consisted primarily of expenditures for property and equipment.
Expenditures for property and equipment for the six months ended June 30,
1999 were $3.4 million. Of this amount, $1.9 million was used principally for
purchases of operating equipment, $1.0 million to implement new field and
corporate software and hardware systems, and $501,000 in connection with the
construction of the headquarters and operating facility.
On January 5, 1999, the Company acquired substantially all of the assets and
assumed certain liabilities of Valley. The assets acquired consisted primarily
of (i) accounts receivable, (ii) property, plant and equipment, (iii)
intangibles, and (iv) other operating assets. The adjusted purchase price for
the acquired assets was $30.9 million, of which $4 million was deposited into
escrow. As part of the transaction, the Company also assumed $2.5 million in
capital lease obligations and $5.6 million in bank debt. The Company has
converted the capital leases to operating leases and retired the bank debt. The
source of funds for the purchase price and retirement of Valley's bank debt was
a combination of cash on hand and borrowings under the Credit Facility.
Management believes that cash and cash equivalents at June 30, 1999, net cash
expected to be provided by operating activities and funds available from its
existing credit facilities 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.
Impact of Year 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. This could
result in a system failure or miscalculation if, for example, a computer program
recognizes a date of "00" as the year 1900 instead of 2000. Management has
assessed the Year 2000 issue with regard to the Company's internal financial and
operating systems as well as certain third parties with which the Company has
material relationships.
With regard to the Company's financial and operating systems, HydroChem has
developed, acquired and implemented software and hardware systems which it
believes to be Year 2000 compliant, including new software and hardware systems
for which the Company expended a total of $2.0 million in 1998 and 1999.
Management estimates it will incur an aggregate of approximately $2.6 million in
connection with these systems by the end of 1999. Certain of these systems have
been tested for compliance and testing of the remaining systems is expected to
be completed by September 1999. Although the Company has not yet developed a
comprehensive contingency plan to address situations that may result if the
Company is unable to achieve Year 2000 readiness, the Company's Year 2000
compliance program is ongoing and its ultimate scope, as well as the
consideration of contingency plans, will continue to be evaluated as new
information becomes available.
15
<PAGE>
As part of its Year 2000 compliance program, management has identified
certain third parties with which the Company has material relationships. These
parties are primarily large financial, telecommunication and information
processing entities, and other third party suppliers. Certain of these third
parties have reported to the Company that they are on schedule with their
projects to remediate Year 2000 issues, and that they anticipate being Year 2000
compliant on a timely basis. Management intends to continue to monitor the
progress of these third parties and expects to develop contingency plans during
1999 in the event one or more of these third parties fail to remediate their
Year 2000 issues in such a way as to materially affect the operations of the
Company.
The Year 2000 issue involves significant risks. There can be no assurance
that the Company will succeed in implementing its Year 2000 program, potentially
as a result of factors, which are beyond the Company's control. The following
describes the Company's most reasonably likely worst-case scenario, given
current uncertainties: if the Company's software and hardware systems fail the
testing phase, or any software application or embedded microprocessors central
to the Company's operations are overlooked in the assessment or implementation
phases, significant problems could occur, including delays in accounting and
financial reporting. It is also possible, given the numerous other uncertainties
which could occur, that the Company's business, financial condition and results
of operations could be adversely affected. Management is unable to assess the
likelihood of such events occurring or the extent of their effect. Although
there can be no assurance, management has no reason to believe that any Year
2000 issues that the Company may experience will have a material adverse effect
on its operations.
The foregoing Year 2000 discussion contains forward-looking statements. Such
statements, including without limitation anticipated costs and the dates by
which management expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous assumptions about
future events, including the continued availability of certain resources,
representations received from third parties, and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the ability to
identify and remediate all relevant information technology and non-information
technology systems, results of Year 2000 testing, adequate resolution of Year
2000 issues by businesses and other third parties who are service providers,
suppliers or customers of the Company, unanticipated system costs, the adequacy
of and ability to develop and implement contingency plans, and similar
uncertainties. The forward looking statements made in the foregoing Year 2000
discussion speak only as of the date on which such statements are made, and the
Company undertakes no obligation to update any forward-looking statements to
reflect events or circumstances after the date on which such statements are made
or to reflect the occurrence of unanticipated events.
16
<PAGE>
HYDROCHEM INDUSTRIAL SERVICES, INC.
AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The following discussion regarding the Company's market risk includes
forward-looking statements that involve risk and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements.
The Company is exposed to certain market risks which include financial
instruments such as short-term investments, trade receivables, and long-term
debt. The adverse effects of potential changes in these market risks are
discussed below. The sensitivity analyses discussed below do not reflect: (i)
the effects that such adverse changes may have on overall economic activity; or,
(ii) additional actions management may take to mitigate the Company's exposure
to such changes. The Company does not engage in speculative transactions and
does not use derivative instruments or engage in hedging activities, except for
the Interest Rate Swap which is being utilized in connection with the Term Loan.
The Company provides 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. Management
believes the Company's portfolio of accounts receivable is well diversified and,
as a result, its credit risks are minimal. Management evaluates the
creditworthiness of the Company's customers and monitors accounts on a periodic
basis, but typically does not require collateral. The Company's trade
receivables are primarily denominated in U.S. dollars and are generally due
within 30 days. In general, trade receivables are collected in a timely manner,
and historically bad debts have been immaterial and within management's
expectations. Management believes that diversification and timely collection of
accounts receivable reduces associated credit risk.
The Company's surplus cash is placed in overnight investments with a high
quality financial institution, in accordance with investment guidelines relative
to credit quality, diversification and maturity to reduce risk and provide for
liquidity. As of June 30, 1999, the Company had overnight investment deposits in
a cash reserves money market mutual fund totaling $3.0 million. Due to the
short-term nature of these investments, management believes the carrying value
approximates market value. Management expects to continue to invest surplus cash
amounts in overnight deposits during 1999 and, as a result, a decrease of 1.0%
from current average investment rates would not have a material effect on the
Company's consolidated financial position.
As of June 30, 1999, the Company's outstanding long-term debt consisted of
the Credit Facility, the Term Loan, and the Notes. The Notes totaled $110.0
million, are due August 1, 2007, and bear interest at a fixed rate of 10 3/8%
per annum. As of June 30, 1999, the market value of the Notes was estimated to
be $101.2 million.
At the same date, outstanding borrowings under the Credit Facility and the
Term Loan totaled $9.5 million and approximated their fair values. At the
discretion of HydroChem, interest rates under the Credit Facility are based on
(i) a range from LIBOR plus 1.75% to LIBOR plus 3.00%, or (ii) the higher of (a)
the prime rate or (b) the Federal Funds Rate plus 0.50%, plus an applicable
margin of up to 1.00%. The Term Loan bears interest at LIBOR rates plus 1.75%
adjusted quarterly. To protect the Term Loan against interest rate fluctuations,
the Company entered into the Interest Rate Swap which effectively fixes the
interest rate at 7.82% per annum.
Market risk, estimated as a potential increase in fair value of debt
instruments resulting from a hypothetical 1.0% decrease in interest rates, is
estimated to not be material to the Company during 1999.
17
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The Company is a defendant in approximately 70 lawsuits originally
filed in the 18th Judicial District Court for the Parish of Iberville,
Louisiana against Georgia Gulf Corporation ("Georgia Gulf"), the Company and
other defendants, which arose from a chemical exposure incident at a Georgia
Gulf facility in Plaquemine, Louisiana in September 1996. The suits cover
claims by approximately 640 non-Company employees present at the facility and
by approximately 1,400 persons who are related to or live with the
non-Company employees. All of the plaintiffs seek damages for alleged toxic
exposure resulting from this incident. All but a few of these suits have been
removed to the United States District Court for the Middle District of
Louisiana.
Pursuant to a Memorandum of Understanding effective April 15, 1999,
virtually all of the plaintiffs and each of the defendants in the actions
pending in federal court have agreed upon a settlement. Under this agreement,
the Company's insurance carriers have deposited the Company's share of the
settlement into escrow, to be released upon receipt of a release from each
participating plaintiff or the dismissal of the claims of any plaintiff who
does not participate. Separately, Georgia Gulf has agreed in principal to
indemnify the Company against the claims of any plaintiff who does not
participate in the settlement, the claims of the approximately twenty
plaintiffs who are not parties to the agreement and against any future claims
which may arise in connection with this incident.
All payments by the Company under these arrangements have been or will
be covered by insurance. Accordingly, subject to the consummation of the
settlement, management believes that the resolution of these matters will not
have a material adverse effect on the Company's consolidated financial
position.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.1 Certificate of Incorporation of HydroChem Industrial
Services, Inc. as amended. (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. (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.)
18
<PAGE>
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 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.)
10.3 Fourth Amendment to Employment Agreement dated April 9,
1998 by and among HydroChem Holding, Inc., HydroChem
Industrial Services, Inc. and B. Tom Carter, Jr. (Exhibit
10.8 to the Company's Form 10-Q, filed May 14, 1998, is
hereby incorporated by reference.)
10.4 Secured Promissory Note dated April 30, 1999 from B. Tom
Carter, Jr. to HydroChem Holding, Inc. (Exhibit 10.4 to the
Company's Form 10-Q, filed May 11, 1999, is hereby
incorporated by reference.)
10.5 Pledge Agreement dated April 30, 1999 between HydroChem
Holding, Inc. and B. Tom Carter, Jr. (Exhibit 10.5 to the
Company's Form 10-Q, filed May 11, 1999, is hereby
incorporated by reference.)
10.6 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.)
10.7 Amendment dated January 27, 1999 to Employment Agreement
dated November 1, 1992 between HydroChem Industrial
Services, Inc. and Gary D. Noto. (Exhibit 10.8 to the
Company's Form 10-K, filed March 29, 1999, is hereby
incorporated by reference.)
10.8 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.)
10.9 Employment Agreement dated September 26, 1997 between
HydroChem Industrial Services, Inc. and Donovan W. Boyd.
(Exhibit 10.10 to the Company's Form 10-K, filed March 29,
1999, is hereby incorporated by reference.)
10.10 First Amendment dated June 28, 1999 to Employment Agreement
dated September 26, 1997 between HydroChem Industrial
Services, Inc. and Donovan W. Boyd. (Filed herewith.)
19
<PAGE>
10.11 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.)
10.12 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.)
10.13 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.)
10.14 Deferred Bonus Plan of HydroChem Industrial Services, Inc.
effective May 1, 1999. (Filed herewith.)
10.15 Credit Agreement dated December 31, 1997 among HydroChem
Industrial Services, Inc. and NationsBank, 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.)
10.16 Letter Agreement dated March 6, 1998 regarding Credit
Agreement dated December 31, 1997 between HydroChem
Industrial Services, Inc. and NationsBank, N.A. (Exhibit
10.11 to the Company's Form 10-K, filed March 30, 1998, is
hereby incorporated by reference.)
10.17 Letter Agreement dated August 14, 1998 regarding Credit
Agreement dated December 31, 1997 between HydroChem
Industrial Services, Inc. and NationsBank, N.A. (Exhibit
10.15 to the Company's Form 10-Q, filed November 16, 1998,
is hereby incorporated by reference.)
10.18 Amendment No. 1 dated as of September 30, 1998 to Credit
Agreement dated as of December 31, 1997 between HydroChem
Industrial Services, Inc., NationsBank, N.A. and financial
institutions named in the Credit Agreement. (Exhibit 10.16
to the Company's Form 10-Q, filed November 16, 1998, is
hereby incorporated by reference.)
10.19 Amendment No. 2 dated as of December 31, 1998 to Credit
Agreement dated as of December 31, 1997 between HydroChem
Industrial Services, Inc., NationsBank, N.A. and financial
institutions named in the Credit Agreement. (Exhibit 10.19
to the Company's Form 10-K, filed March 29, 1999, is hereby
incorporated by reference.)
10.20 Loan Agreement dated July 17, 1998 between HydroChem
Industrial Services, Inc. and Bank One, Texas, National
Association. (Exhibit 10.15 to the Company's Form 10-Q,
filed August 14, 1998, is hereby incorporated by
reference.)
10.21 Amendment No. 1 dated as of February 2, 1999 to Loan
Agreement dated July 17, 1998 between HydroChem Industrial
Services, Inc. and Bank One, Texas National Association.
(Exhibit 10.21 to the Company's Form 10-K, filed March 29,
1999, is hereby incorporated by reference.)
10.22 Extension Agreement dated as of February 2, 1999 to Loan
Agreement dated July 17, 1998 between HydroChem Industrial
Services, Inc. and Bank One, Texas, National
20
<PAGE>
Association. (Exhibit 10.22 to the Company's Form 10-K,
filed March 29, 1999, is hereby incorporated by reference.)
10.23 International Swap Dealers Association, Inc. Master
Agreement and Schedule dated July 17, 1998 between
HydroChem Industrial Services, Inc. and Bank One, Texas,
National Association. (Exhibit 10.16 to the Company's Form
10-Q, filed August 14, 1998, is hereby incorporated by
reference.)
10.24 Amended and Restated Asset Purchase Agreement by and among
HydroChem Industrial Services, Inc., Valley Systems of
Ohio, Inc. and Valley Systems, Inc. dated as of September
8, 1998. (Exhibit 10.1 to the Company's Form 8-K, filed
January 20, 1999, is hereby incorporated by reference.)
27.1 Financial Data Schedule. (Filed herewith.)
(b) Reports on Form 8-K.
None.
21
<PAGE>
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: August 10, 1999 By: /s/ Selby F. Little, III
---------------------------
Selby F. Little, III, Executive Vice President
and Chief Financial Officer
HYDROCHEM INTERNATIONAL, INC.
Date: August 10, 1999 By: /s/ Selby F. Little, III
---------------------------
Selby F. Little, III, Executive Vice President
and Chief Financial Officer
22
<PAGE>
EXHIBIT INDEX
10.10 First Amendment dated June 28, 1999 to Employment Agreement dated
September 26, 1997 between HydroChem Industrial Services, Inc.
and Donovan W. Boyd.
10.14 Deferred Bonus Plan of HydroChem Industrial Services, Inc.
effective May 1, 1999.
27.1 Financial Data Schedule
23
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
First Amendment to Employment entered into as of the 28th day of June, 1999
between HydroChem Industrial Services, Inc., a Delaware corporation,
("Employer"), and Donovan Boyd, an individual ("Employee").
WHEREAS, Employer and Employee are parties to an Employment Agreement dated as
of September 26, 1997 (the "Employment Agreement"); and
WHEREAS, Employer and Employee desire to amend the Employment Agreement as
hereinafter set forth;
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. The fourth paragraph of section 3 of the Employment Agreement shall be and
hereby is deleted, and the following shall be inserted in lieu thereof:
" Employee shall be a participant in the Employer's Deferred Bonus Plan
(the "Plan"). Subject to all terms and conditions of the Plan, Employee
shall be awarded deferred bonuses thereunder as of May 1, 1999 in the
amount of Eighty Thousand Dollars ($80,000) and as of May 1, 2000 in an
amount equal to his Performance Bonus for 1999. Any further awards of a
deferred bonus under the Plan shall be in the sole discretion of the
Employer's board of directors."
2. Exhibit A to the Employment Agreement shall be and hereby is deleted.
IN WITNESS WHEREOF, Employer and Employees have signed this First Amendment to
Employment Agreement as of the date first hereinabove set forth.
EMPLOYER EMPLOYEE
HydroChem Industrial Services, Inc. /s/ Donovan Boyd
------------------
Donovan Boyd
By: /s/ Gary D. Noto
- --------------------
Gary D. Noto, President and
Chief Operating Officer
DEFERRED BONUS PLAN
OF
HYDROCHEM INDUSTRIAL SERVICES, INC.
PURPOSE AND EFFECTIVE DATE
The purpose of the Plan is to provide specified benefits to a select
group of management and highly compensated employees who contribute materially
to the continued growth, development and future business success of the Company.
It is the intention of the Company that the Plan be administered as an unfunded
plan for such select highly compensated, key management employees who become
Participants. The effective date of this Plan is May 1, 1999.
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 Definitions. For purposes of the Plan, the following phrases or terms
shall have the indicated meanings unless otherwise clearly apparent from
the context:
(a) "Acceleration Event" shall mean either the termination without
Cause of a Participant's employment with the Company at any time
within one year after the effective date of a Change in Control,
the death of a Participant, or the Participant's becoming
Disabled.
(b) "Accumulated Base Interest Rate Balance" shall mean a
Participant's Deferred Bonus plus interest thereon at the Base
Interest Rate compounded annually from the Credit Date. The
Accumulated Base Interest Rate Balance as of each Anniversary
Date from the first Anniversary Date to the fourth Anniversary
Date shall be set forth in each Participation Agreement for
illustrative purposes only.
(c) "Accumulated Bonus Interest Rate Balance" shall mean a
Participant's Deferred Bonus plus interest thereon at the Bonus
Interest Rate compounded annually from the Credit Date. The
Accumulated Bonus Interest Rate Balance as of each Anniversary
Date from the first Anniversary Date to the seventh Anniversary
Date shall be set forth in each Participation Agreement for
illustrative purposes only.
(d) "Anniversary Date" shall mean the same month and day as the
Credit Date in each calendar year following the year of the
Credit Date.
(e) "Base Interest Rate" shall mean for a given Deferred Bonus an
annual interest rate as set solely by the Board of Directors and
as reflected in the Participation Agreement for such Deferred
Bonus.
<PAGE>
(f) "Beneficiary" shall mean the person, persons, or estate of a
Participant entitled to receive any benefits under a
Participation Agreement subsequent to the death of a Participant.
(g) "Beneficiary Designation" shall mean the form of written
agreement attached hereto as Annex II, by which the Participant
names the Beneficiary(ies).
(h) "Board of Directors" shall mean the Board of Directors of the
Company.
(i) "Bonus Interest Rate" shall mean for a given Deferred Bonus an
annual interest rate higher than the Base Interest Rate as set
solely by the Board of Directors and as reflected in the
Participation Agreement for such Deferred Bonus.
(j) "Cause" shall mean (i) failure by a Participant to perform
assigned duties in a manner which is satisfactory to the Company
after appropriate notice by the Company to the Participant of
such unsatisfactory performance, (ii) any fraud, misappropriation
or embezzlement by the Participant which is related to the
business or assets of the Company or any customer or supplier of
the Company, or conviction for any felony, or (iii) any act or
action involving moral turpitude or reflecting negatively on the
Company.
(k) "Change In Control" shall mean any situation where (i) any person
other than the current stockholders of Holding or the Company
becomes the beneficial owner of securities of Holding or the
Company representing fifty percent or more of the combined voting
power of the then outstanding securities of either Holding or the
Company, (ii) there is a merger or consolidation involving
Holding or the Company in which neither of them is the surviving
entity, or (iii) either Holding or the Company sells
substantially all of its assets to a person other than an
associate or affiliate of either of them. For the purposes
hereof, the term "person" or "persons" shall mean individuals,
groups, corporations, partnerships, or other entities.
(l) "Company" shall mean HydroChem Industrial Services, Inc.
(m) "Credit Date" shall mean the effective date of declaring each
Deferred Bonus.
(n) "Deferred Bonus" shall mean (i) for any awards in calendar year
1999, an amount to be determined by the Board of Directors in its
sole discretion for each Participant, and (ii) in all subsequent
calendar years, an amount equal to at least one half of
Participant's bonus for the previous calendar year under the
Participant's applicable bonus plan. The amount of any Deferred
Bonus awarded to any Participant shall be set forth in such
Participant's Participation Agreement for that Deferred Bonus.
2
<PAGE>
(o) "Disabled" shall mean that a Participant is, on the basis of
medical evidence satisfactory to the Company, totally and
permanently unable, as a result of bodily injury or disease, to
engage in any further employment whatsoever.
(p) "Employee" shall mean any person who is in the regular full time
employment of the Company as determined by the personnel rules
and practices of the Company. The term does not include persons
who are retained by the Company as consultants or through labor
service companies.
(q) "Extended Deferral Election" shall mean, with respect to any
Deferred Bonus, the decision of a Participant, made within
thirty-six (36) months of the Credit Date of such Deferred Bonus,
to defer distribution thereof from the Short Term Distribution
Date to the Long Term Distribution Date.
(r) "Holding" shall mean HydroChem Holding, Inc., the parent
corporation of the Company.
(s) "Long Term Distribution Date" shall mean the seventh Anniversary
Date.
(t) "Participant" shall mean an Employee who is selected and elects
to participate in the Plan through the execution of a
Participation Agreement in accordance with the provisions of
Article II.
(u) "Participation Agreement" shall mean the form of written
agreement, attached hereto as Annex I, which is entered into from
time to time between the Company and an Employee selected to
become a Participant as a condition to participation in the Plan.
There shall be a separate Participation Agreement for each
Deferred Bonus that may be awarded to a given Participant.
(v) "Plan" shall mean the Deferred Bonus Plan of HydroChem Industrial
Service, Inc. as amended from time to time.
(w) "Short Term Distribution Date" shall mean the fourth Anniversary
Date from the Credit Date.
1.2 Construction. The masculine gender when used herein shall be deemed to
include the feminine gender, and the singular may include the plural
unless the context clearly indicates to the contrary.
3
<PAGE>
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 Term. The initial term of this Plan shall be from January 1, 1999 to
December 31, 2000. Thereafter it may be extended in the sole discretion
of the Board of Directors. Notwithstanding anything herein to the
contrary, after the expiration or termination of the Plan, all
obligations with respect to any then existing Participation Agreement
shall continue in full force and effect.
2.2 Eligibility. In order to be a Participant in the Plan, an Employee must
be selected by the Board of Directors. The Board of Directors, in its
sole and absolute discretion, shall determine the Employees who shall be
Participants subject to section 2.4 herein, and the applicable Base
Interest Rate and Bonus Interest Rate for each Deferred Bonus. Only
Employees who are highly compensated, key management employees shall be
eligible for consideration by the Board of Directors to be Participants.
2.3 Participation Agreement. There shall be a separate Participation
Agreement for each Deferred Bonus granted to any Participant in a given
calendar year. Each such Participation Agreement shall set forth the
amount of the Deferred Bonus, the Credit Date, the Base Interest Rate,
the Bonus Interest Rate, and the Short and Long Term Distribution Dates
applicable to such Deferred Bonus. As a condition precedent to becoming
a Participant with respect to each Deferred Bonus that an Employee may
be awarded, he shall sign and return to the Company a Participation
Agreement agreeing to be bound by the terms thereof and of this Plan.
2.4 Initial Participants. Any Employee selected to be a Participant in
calendar year 1999 shall be awarded a Deferred Bonus at that time, and
subject to continuing as an Employee of the Company, shall also be
awarded a Deferred Bonus in calendar year 2000 equal to at least one
half of the Participant's annual performance bonus for 1999. Other than
as set forth in this section 2.4, the awarding of a Deferred Bonus for
any given calendar year of the Plan shall not mean that a given
Participant will be awarded a Deferred Bonus in any subsequent years of
the Plan. If the Plan is continued past December 31, 2000, the awarding
of any further Deferred Bonuses shall be in the sole and absolute
discretion of the Board of Directors.
4
<PAGE>
ARTICLE III
VESTING
3.1 Vesting of the Deferred Bonus. For as long as any Participant remains an
Employee, each Deferred Bonus that may be awarded to him shall vest in
accordance with the following schedule:
Date Percentage Vested
---- -----------------
First Anniversary Date 25%
Second Anniversary Date 50%
Third Anniversary Date 75%
Fourth Anniversary Date 100%
Upon termination of a Participant's employment with the Company for any
reason whatsoever, he shall at such time be vested in each Deferred
Bonus that may be awarded to him based upon the applicable vesting
percentage on the Anniversary Date immediately preceding the date of
such termination of employment. If there is a termination of employment
prior to the first Anniversary Date of any Deferred Bonus that may be
awarded to him, then there shall be no vesting whatsoever in that
Deferred Bonus. If there is a termination of employment after the first
Anniversary Date and before the fourth Anniversary Date, then any
unvested portion of the applicable Deferred Bonus shall be forfeited.
3.2 Accelerated Vesting. Notwithstanding anything herein to the contrary, a
Participant shall become one hundred percent (100%) vested in Each
Deferred Bonus that may be awarded to him upon the occurrence of an
Acceleration Event which occurs while the Participant is an Employee.
5
<PAGE>
ARTICLE IV
EXTENDED DEFERRAL ELECTION
AND PAYMENT OF DEFERRED BONUS
4.1 Extended Deferral Election. Within the first thirty-six (36) months of
the Credit Date, but in no event later than the third Anniversary Date
of the Credit Date, a Participant may make an Extended Deferral Election
with respect to any particular Deferred Bonus. Such election must be
made in writing, addressed to the General Counsel of the Company. If the
Participant does not make such election before the third Anniversary
Date, he will be deemed to have elected to receive his Accumulated Base
Interest Rate Balance on the Short Term Distribution Date. A Participant
who elects to make an Extended Deferred Election shall receive his
Accumulated Bonus Interest RateBalance on the Long Term Distribution
Date, or, in the event an Acceleration Event occurs prior to the Long
Term Distribution Date, upon the occurrence of an Acceleration Event.
The actual payment of any Deferred Bonus on the Short Term Distribution
Date, the Long Term Distribution Date or at any other time shall be
subject to all other terms and conditions of this Plan.
4.2 Payment of Deferred Bonus. The vested portion of each Deferred Bonus
that any Participant may be awarded shall be paid by the Company to the
Participant as follows:
(i) General - No Extended Deferral Election. If a Participant (a) has
not made an Extended Deferral Election and (b) remains employed through
the Short Term Distribution Date, then the Company shall pay the
Participant at such time the Accumulated Base Interest Rate Balance as
of the fourth Anniversary Date, which amount shall represent the
Deferred Bonus plus interest thereon compounded annually at the Base
Interest Rate.
(ii) General - Extended Deferral Election. If a Participant (a) has made
an Extended Deferral Election and (b) remains employed through the Long
Term Distribution Date, then the Company shall pay the Participant at
such time the Accumulated Bonus Interest Rate Balance as of the seventh
Anniversary Date, which amount shall represent the Deferred Bonus plus
interest thereon compounded annually at the Bonus Interest Rate.
(iii) Acceleration Event. Notwithstanding anything herein to the
contrary, if there is an Acceleration Event while the Participant is an
Employee, then, within a reasonable time thereafter, the Company shall
pay to the Participant or his Beneficiary, as the case may be, the full
amount of the Deferred Bonus plus interest thereon through the date of
payment at the Bonus Interest Rate.
(iv) Termination of Employment. Notwithstanding anything herein to the
contrary, if a Participant's employment with the Company terminates for
any reason whatsoever other than for an Acceleration Event, then for a
Participant who has not made an Extended Deferral Election, the Company
shall pay to the Participant on the Short Term Distribution Date without
interest the portion of his Deferred Bonus that was vested as of the
date of such termination of employment. If such Participant has made an
Extended
6
<PAGE>
Deferral Election, then the portion of his Deferred Bonus that was
vested as of the date of such termination of employment shall be
payable on the Long Term Distribution Date without interest, except in
the case where the Company has terminated the Participant's employment
without Cause in which event such vested portion shall be payable on the
Long Term Distribution Date with interest at the Bonus Interest Rate.
4.3 Right of Offset. Notwithstanding anything herein to the contrary,
the Company shall have a right of offset with respect to any payments
due to a Participant under the Plan or any Participation Agreement for
any amounts which may be owed by the Participant to the Company at the
time of such payment.
ARTICLE V
BENEFICIARY
A Participant shall designate his Beneficiary(ies) to receive a
distribution under a Participation Agreement by completing the Beneficiary
Designation. Such designation must be made in writing, addressed to the General
Counsel of the Company, using the Beneficiary Designation form. If more than one
Beneficiary is named, the shares and/or precedence of each Beneficiary shall be
indicated. A Participant shall have the right to change the Beneficiary by
submitting to the Company a new Beneficiary Designation. If a Participant has
failed to name a Beneficiary, or if a Beneficiary to whom all or a share of any
benefit would be payable has died, then all or the applicable portion of any
benefits shall be paid to the Participant's estate. If the Company has any doubt
as to the proper Beneficiary or estate to receive payments hereunder, it shall
have the right to withhold such payments until the matter is finally
adjudicated. Any payment made by the Company in good faith and in accordance
with the provisions of this Plan and a Participant's Participation Agreement and
Beneficiary Designation shall fully discharge the Company from all further
obligations with respect to such payment.
ARTICLE VI
SOURCE OF BENEFITS
6.1 Benefits Payable from General Assets. Amounts payable hereunder shall be
paid exclusively from the general assets of the Company, and no person
entitled to payment hereunder shall have any claim, right, security
interest, or other interest in any fund, trust, account, or other asset
of the Company that may be looked to for such payment. The Company's
liability for the payment of benefits hereunder shall be evidenced only
by the Plan and each Participation Agreement.
6.2 Investments to Facilitate Payment of Benefits. Although the Company is
not obligated to purchase any insurance policy or invest in any specific
asset or fund in order to provide the means for the payment of any
liabilities under this Plan, the Company may elect to do so and, in such
event, no Participant shall have any interest whatever in any such
7
<PAGE>
insurance policy, asset or fund. By executing and delivering a
Participation Agreement, a Participant understands and agrees that (i)
he will cooperate with the Company in any attempts by the Company to
obtain any such insurance policy, and (ii) his participation, in any
way, in the acquisition of any such insurance policy or any other
specific asset or fund by the Company shall not constitute a
representation to the Participant or his Beneficiary, his designated
recipient, or any person claiming through the Employee that any of them
has a special or beneficial interest in such insurance policy or
specific asset or fund.
6.3 Company Obligation. The Company shall have no obligation of any nature
whatsoever to a Participant under this Plan or a Participant's
Participation Agreement, except as otherwise expressly provided herein
and in such Participation Agreement.
ARTICLE VII
NO EMPLOYMENT CONTRACT CREATED
Neither this Plan nor a Participant's Participation Agreement(s), either
singularly or collectively, in any way, shall (i) obligate the Company to
continue the employment of a Participant with the Company, or (ii) limit the
right of the Company at any time and for any reason to terminate the
Participant's employment. In no event shall this Plan or any Participation
Agreement(s), either singularly or collectively, by their terms or implications
constitute an employment contract of any nature whatsoever between the Company
and a Participant.
ARTICLE VIII
OTHER BENEFITS AND AGREEMENTS
The benefits provided for a Participant and his Beneficiary hereunder
and under such Participant's Participation Agreement(s) are in addition to any
other benefits available to such Participant under any other program or plan of
the Company for its employees, and, except as may otherwise be expressly
provided for, this Plan and Participation Agreements entered into hereunder
shall supplement and shall not supersede, modify, or amend any other program or
plan of the Company. Moreover, benefits under this Plan and Participation
Agreements entered into hereunder shall not be considered compensation for the
purpose of computing deferrals or benefits under any plan maintained by the
Company that is qualified under Section 401 (a) of the Internal Revenue Code of
1986, as amended.
ARTICLE IX
RESTRICTIONS ON ALIENATION OF BENEFITS
No right or benefit under this Plan or a Participation Agreement shall
be subject to anticipation, alienation, sale, assignment, pledge, encumbrance,
or charge and any attempt to anticipate, alienate, sell, assign, pledge,
encumber, or charge the same shall be void. No right or benefit hereunder or
under any Participation Agreement shall in any manner be liable for or
8
<PAGE>
subject to the debts, contract, liabilities, or torts of the person entitled to
such benefit. If any Participant or Beneficiary under this Plan or a
Participation Agreement should become bankrupt or attempt to anticipate,
alienate, sell, assign, pledge, encumber, or charge any right to a benefit
hereunder or under any Participant Agreement, then such right or benefit shall,
in the discretion of the Company, terminate, and, in such event, the Company
shall hold or apply the same or any part thereof for the benefit of such
Participant or Beneficiary, his spouse, children, or other dependents or any of
them, in such manner and in such portion as the Company, in its sole and
absolute discretion, may deem proper.
ARTICLE X
MISCELLANEOUS
10.1 Execution of Receipts and Releases. Any payment to any Participant, a
Participant's legal representative or Beneficiary in accordance with the
provisions of this Plan or Participation Agreement executed hereunder
shall, to the extent thereof, be in full satisfaction of all claims
hereunder against the Company. The Company may require such Participant,
legal representative, or Beneficiary, as a condition precedent to such
payment, to execute a receipt and release therefor in such form as it
may determine.
10.2 Notice. Any notice which shall or may be given under this Plan or a
Participation Agreement executed hereunder shall be in writing and shall
be mailed by United States mail, postage prepaid. If notice is to be
given to the Company, such notice shall be addressed to the Company at:
HydroChem Industrial Services, Inc.
900 Georgia Avenue
Deer Park, Texas 77536
Attention: General Counsel
or, if notice to a Participant, addressed to the address shown on such
Participant's Participation Agreement. Either the Company or a
Participant may change its or his address for notice by giving
appropriate notice under this Section 10.2
10.3 Effect of Provisions. The provisions of this Plan and of any
Participation agreement executed hereunder shall be binding upon the
Company and its successors and assigns, and upon a Participant, his
Beneficiary, assigns, heirs, executors and administrators.
10.4 Headings. The titles and headings of Articles and Sections are included
for convenience of reference only and are not to be considered in the
construction of the provisions hereof or any Participant Agreement
executed hereunder.
10.5 Governing Law. The Plan and each Participation Agreement shall be
governed by the laws of the State of Texas, without regard to the
principles of conflicts of law embodied therein that might refer
construction of such provisions to the laws of another jurisdiction.
9
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Deferred Bonus Plan as
of the effective date first herein above set forth.
HydroChem Industrial Services, Inc.
By: /s/ B. Tom Carter, Jr.
--------------------------
B. Tom Carter, Jr.
Chairman and Chief Executive Officer
10
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